Freddie Mac 2009 Annual Report Download - page 47

Demand for Debt Funding
The willingness of domestic and foreign investors to purchase and hold our debt securities can be influenced by many
factors, including changes in the world economy, changes in foreign-currency exchange rates, regulatory and political factors,
as well as the availability of and preferences for other investments. If investors were to divest their holdings or reduce their
purchases of our debt securities, our funding costs could increase. The willingness of investors to purchase or hold our debt
securities, and any changes to such willingness, may materially affect our liquidity, our business and results of operations.
Competition for Debt Funding
We compete for low-cost debt funding with Fannie Mae, the FHLBs and other institutions. Competition for debt funding
from these entities can vary with changes in economic, financial market and regulatory environments. Increased competition
for low-cost debt funding may result in a higher cost to finance our business, which could negatively affect our financial
results. An inability to issue debt securities at attractive rates in amounts sufficient to fund our business activities and meet
our obligations could have an adverse effect on our liquidity, financial condition and results of operations. See “MD&A —
LIQUIDITY AND CAPITAL RESOURCES — Liquidity — Debt Securities” for a more detailed description of our debt
issuance programs.
Our funding costs may also be affected by changes in the amount of, and demand for, debt issued by Treasury.
Line of Credit
We maintain a secured intraday line of credit to provide additional intraday liquidity to fund our activities through the
Fedwire system. This line of credit requires us to post collateral to a third party. In certain circumstances, this secured
counterparty may be able to repledge the collateral underlying our financing without our consent. In addition, because the
secured intraday line of credit is uncommitted, we may not be able to continue to draw on it if and when needed.
PCs and Structured Securities
Our PCs and Structured Securities are an integral part of our mortgage purchase program. Any decline in the price
performance of or demand for our PCs could have an adverse effect on our securitization activities, because we purchase
many mortgages by swapping PCs for them. There is a risk that our PC and Structured Securities support activities may not
be sufficient to support the liquidity and depth of the market for PCs.
Our business may be adversely affected by the completion of the Federal Reserve program to purchase GSE mortgage-
related securities.
In November 2008, the Federal Reserve implemented a program to purchase GSE mortgage-related securities. The
Federal Reserve has announced that it would gradually slow the pace of purchases under the program in order to promote a
smooth transition in markets and anticipates that purchases under such program will be completed by the end of the first
quarter of 2010. It is difficult at this time to predict the impact that the completion of the Federal Reserve’s mortgage-related
securities purchase program will have on our business and the U.S. mortgage market. It is possible that interest-rate spreads
on mortgage-related securities could widen, which could result in additional unrealized losses on our available-for-sale
securities. This, in turn, could negatively affect our net worth, and thus contribute to the need to make additional draws
under the Purchase Agreement. The completion of this program could also result in less demand for our PCs in the market,
and negatively affect the relative price performance of our PCs versus comparable Fannie Mae securities. We purchase many
of our new single-family mortgages by swapping PCs for the mortgages. Therefore, a decline in our relative price
performance could adversely affect our competitiveness in purchasing new single-family mortgages from our lender
customers, and thus negatively impact the relative profitability of new single-family business.
A reduction in the credit ratings for our debt could adversely affect our liquidity.
Nationally recognized statistical rating organizations play an important role in determining, by means of the ratings they
assign to issuers and their debt, the availability and cost of debt funding. We currently receive ratings from three nationally
recognized statistical rating organizations for our unsecured borrowings. Our credit ratings are important to our liquidity.
Actions by governmental entities or others, additional GAAP losses, additional draws under the Purchase Agreement and
other factors could adversely affect the credit ratings on our debt. A reduction in our credit ratings could adversely affect our
liquidity, competitive position, or the supply or cost of debt financing available to us. A significant increase in our borrowing
costs could cause us to sustain additional GAAP losses or impair our liquidity by requiring us to seek other sources of
financing, which may be difficult to obtain.
Mortgage fraud could result in significant financial losses and harm to our reputation.
We rely on representations and warranties by seller/servicers about the characteristics of the single-family mortgage
loans we purchase and securitize, and we do not independently verify most of the information that is provided to us. This
exposes us to the risk that one or more of the parties involved in a transaction (such as the borrower, seller, broker, appraiser,
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