Freddie Mac 2009 Annual Report Download - page 36

• our assumptions and estimates regarding the foregoing and our ability to anticipate the foregoing factors and their
impacts; and
• market reactions to the foregoing.
We undertake no obligation to update forward-looking statements we make to reflect events or circumstances after the
date of this Form 10-K or to reflect the occurrence of unanticipated events.
ITEM 1A. RISK FACTORS
Before you invest in our securities, you should know that making such an investment involves risks, including the risks
described below and in “BUSINESS,” “MD&A,” and elsewhere in this Form 10-K. These risks and uncertainties could,
directly or indirectly, adversely affect our business, financial condition, results of operations, cash flows, strategies and/or
prospects.
Conservatorship and Related Developments
We expect to make additional draws under the Purchase Agreement in future periods, which will adversely affect our
future results of operations and financial condition.
It is likely that we will continue to record significant losses in future periods, which will lead us to require additional
draws under the Purchase Agreement. Due to the implementation of changes to the accounting standards for transfers of
financial assets and consolidation of VIEs, we recorded a significant decrease in our total equity (deficit) on January 1, 2010,
which increases the likelihood that we will require a draw from Treasury under the Purchase Agreement for the first quarter
of 2010. The cumulative effect of these changes in accounting principles as of January 1, 2010 is a net decrease of
approximately $11.7 billion to total equity (deficit), which includes the changes to the opening balances of AOCI and
retained earnings (accumulated deficit). In addition, a variety of other factors could lead us to make additional draws under
the Purchase Agreement in the future, including:
• future losses, driven by ongoing weak economic conditions, which could cause, among other things, increased
provision for credit losses and REO operations expense and additional unrealized losses on our non-agency mortgage-
related securities;
• dividend obligations on the senior preferred stock, which are cumulative and accrue at an annual rate of 10% or 12%
in any quarter in which dividends are not paid in cash until all accrued dividends are paid in cash;
• pursuit of public mission-oriented objectives that could produce suboptimal financial returns, such as our efforts under
the MHA Program, the continued use or expansion of foreclosure suspensions, loan modifications and other
foreclosure prevention efforts;
• adverse changes in interest rates, the yield curve, implied volatility or mortgage-to-debt OAS, which could increase
realized and unrealized mark-to-fair value losses recorded in earnings or AOCI;
• limitations in our access to the public debt markets, or increases in our debt funding costs;
• establishment of a valuation allowance for our remaining deferred tax asset;
• limitations on our ability to develop new products;
• changes in business practices and requirements resulting from legislative and regulatory developments; and
• the quarterly commitment fee we must pay to Treasury beginning in 2011 under the Purchase Agreement, which has
not yet been established and could be substantial.
Under the amendment to the Purchase Agreement adopted on December 24, 2009, the $200 billion cap on Treasury’s
funding commitment will increase as necessary to accommodate any cumulative reduction in our net worth during 2010,
2011 and 2012. Although additional draws under the Purchase Agreement will allow us to remain solvent and avoid
mandatory receivership, they will also increase the liquidation preference of, and the dividends we owe on, the senior
preferred stock. Based on the aggregate liquidation preference of the senior preferred stock of $51.7 billion as of
December 31, 2009, Treasury is entitled to annual cash dividends of $5.2 billion, which exceeds our annual historical
earnings in most periods. Increases in the already substantial liquidation preference and senior preferred dividend obligation,
along with limited flexibility to redeem the senior preferred stock, will adversely affect our results of operations and
financial condition and add to the significant uncertainty regarding our long-term financial sustainability.
Our business objectives and strategies have in some cases been significantly altered since we were placed into
conservatorship, and may continue to change, in ways that negatively affect our future financial condition and results of
operations.
FHFA, as Conservator, has directed the company to focus on managing to a positive stockholders’ equity. At the
direction of the Conservator, we have made changes to certain business practices that are designed to provide support for the
mortgage market in a manner that serves our public mission and other non-financial objectives but may not contribute to our
33 Freddie Mac