Freddie Mac 2009 Annual Report Download - page 49

may adversely affect our future financial results and stockholders’ equity (deficit). See “MD&A — CONSOLIDATED FAIR
VALUE BALANCE SHEETS ANALYSIS — Discussion of Fair Value Results” for a more detailed description of the
impacts of changes in mortgage-to-debt OAS.
The Federal Reserve’s program to purchase GSE mortgage-related securities is expected to be completed by the end of
the first quarter of 2010. This could reduce demand for mortgage assets, and could cause mortgage-to-debt OAS to widen. If
this occurs, we could experience additional unrealized losses on our available-for-sale securities. While wider spreads might
create favorable investment opportunities, we may be limited in our ability to take advantage of any such opportunities in
future periods because, under the Purchase Agreement and FHFA regulation, the unpaid principal balance of our mortgage-
related investments portfolio must decline by 10% per year beginning in 2010 until it reaches $250 billion. FHFA has stated
its expectation in the Acting Director’s February 2, 2010 letter that any net additions to our mortgage-related investments
portfolio would be related to purchasing delinquent mortgages out of PC pools.
We could experience significant reputational harm, which could affect the future of our company, if our efforts under the
MHA Program, the Housing Finance Agency Initiative and other initiatives to support the U.S. residential mortgage
market do not succeed.
We are focused on the MHA Program, the Housing Finance Agency Initiative and other initiatives to support the
U.S. residential mortgage market. If these initiatives do not achieve their desired results, or are otherwise perceived to have
failed to achieve their objectives, we may experience damage to our reputation, which may impact the extent of future
government support for our business and government decisions with respect to the future status and role of Freddie Mac.
Negative publicity causing damage to our reputation could adversely affect our business prospects, financial results or net
worth.
Reputation risk, or the risk to our financial results and net worth from negative public opinion, is inherent in our
business. Negative public opinion could adversely affect our ability to keep and attract customers or otherwise impair our
customer relationships, adversely affect our ability to obtain financing, impede our ability to hire and retain qualified
personnel, hinder our business prospects or adversely impact the trading price of our securities. Perceptions regarding the
practices of our competitors or the financial services and mortgage industries as a whole, particularly as they relate to the
current economic downturn, may also adversely impact our reputation. Adverse reputation impacts on third parties with
whom we have important relationships may impair market confidence or investor confidence in our business operations as
well. In addition, negative publicity could expose us to adverse legal and regulatory consequences, including greater
regulatory scrutiny or adverse regulatory or legislative changes, and could affect what changes may occur to our business
structure during or following conservatorship, including whether we will continue to exist. These adverse consequences could
result from perceptions concerning our activities and role in addressing the mortgage market crisis or our actual or alleged
action or failure to act in any number of activities, including corporate governance, regulatory compliance, financial reporting
and disclosure, purchases of products perceived to be predatory, safeguarding or using nonpublic personal information, or
from actions taken by government regulators and community organizations in response to our actual or alleged conduct.
Business and Operational Risks
The MHA Program and other efforts to reduce foreclosures, modify loan terms and refinance mortgages may fail to
mitigate our credit losses and may adversely affect our results of operations or financial condition.
The MHA Program and other loss mitigation activities are a key component of our strategy for managing and resolving
troubled assets and lowering credit losses. However, there can be no assurance that any of our loss mitigation strategies will
be successful and that credit losses will not escalate. To the extent that borrowers participate in this program in large
numbers, it is likely that the costs we incur related to loan modifications and other activities under HAMP may be
substantial because we will bear the full cost of the monthly payment reductions related to modifications of loans we own or
guarantee, and all servicer and borrower incentive fees. We will not receive a reimbursement of these costs from Treasury.
It is possible that Treasury could make changes to HAMP that could make the program more costly to us, both in terms
of credit expenses and the cost of implementing and operating the program. For example, we could be required to use
principal reduction to achieve reduced payments for borrowers. This would further increase our losses, as we would bear the
full costs of such reductions.
A significant number of loans are in the trial period of HAMP. Although the ultimate completion rate remains uncertain,
it is possible that a large number of loans will fail to complete the trial period or qualify for any of our other loan
modification and loss mitigation programs. For these loans, HAMP will have effectively delayed the foreclosure process and
could increase our losses, to the extent the prices we ultimately receive for the foreclosed properties are less than the prices
we could have received had we foreclosed upon the properties earlier, due to continued home price declines. These delays in
foreclosure could also cause our REO operations expense to increase, perhaps substantially.
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