Freddie Mac 2010 Annual Report Download - page 203

Waivers and Amendments
The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written
agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s
aggregate funding commitment or add conditions to Treasury’s funding commitment if the waiver or amendment would
adversely affect in any material respect the holders of our debt securities or Freddie Mac mortgage guarantee obligations.
Third-party Enforcement Rights
In the event of our default on payments with respect to our debt securities or Freddie Mac mortgage guarantee
obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the Conservator are
not diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage
guarantee obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to
us the lesser of: (a) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee
obligations; and (b) the lesser of: (i) the deficiency amount; and (ii) the maximum amount of the commitment less the
aggregate amount of funding previously provided under the commitment. Any payment that Treasury makes under those
circumstances will be treated for all purposes as a draw under the Purchase Agreement that will increase the liquidation
preference of the senior preferred stock.
Impact of the Purchase Agreement and FHFA Regulation on the Mortgage-Related Investments Portfolio
Under the terms of the Purchase Agreement and FHFA regulation, our mortgage-related investments portfolio is subject
to a cap that decreases by 10% each year until the portfolio reaches $250 billion. As a result, the UPB of our mortgage-
related investments portfolio could not exceed $810 billion as of December 31, 2010 and may not exceed $729 billion as of
December 31, 2011. The UPB of our mortgage-related investments portfolio, for purposes of the limit imposed by the
Purchase Agreement and FHFA regulation, was $697 billion at December 31, 2010. The annual 10% reduction in the size of
our mortgage-related investments portfolio is calculated based on the maximum allowable size of the mortgage-related
investments portfolio, rather than the actual UPB of the mortgage-related investments portfolio, as of December 31 of the
preceding year. The limitation will be determined without giving effect to any change in the accounting standards related to
transfers of financial assets and consolidation of VIEs or any similar accounting standard.
Government Support for our Business
We are dependent upon the continued support of Treasury and FHFA in order to continue operating our business. Our
ability to access funds from Treasury under the Purchase Agreement is critical to keeping us solvent and avoiding the
appointment of a receiver by FHFA under statutory mandatory receivership provisions.
Significant developments during 2010 with respect to the support we receive from the government include the
following:
• we received $12.5 billion in funding from Treasury under the Purchase Agreement relating to our quarterly net worth
deficits in 2010, which increased the aggregate liquidation preference of the senior preferred stock to $64.2 billion as
of December 31, 2010.
• we paid dividends of $5.7 billion in cash on the senior preferred stock to Treasury at the direction of the Conservator.
To address our $401 million deficit in net worth as of December 31, 2010, FHFA, as Conservator, will submit a draw
request, on our behalf, to Treasury under the Purchase Agreement in the amount of $500 million. We expect to receive these
funds by March 31, 2011. Upon funding of this draw request:
• the aggregate liquidation preference on the senior preferred stock owned by Treasury will increase from $64.2 billion
as of December 31, 2010 to $64.7 billion; and
• the corresponding annual cash dividends payable to Treasury will increase to $6.47 billion, which exceeds our annual
historical earnings in all but one period.
To date, we have paid $10.0 billion in cash dividends on the senior preferred stock. Continued cash payment of senior
preferred dividends will have an adverse impact on our future financial condition and net worth. In addition, cash payment of
quarterly commitment fees payable to Treasury will negatively impact our future net worth over the long-term. Treasury
waived the fee for the first quarter of 2011. The amount of the fee has not yet been established and could be substantial. As
a result of additional draws and other factors: (a) the liquidation preference of, and the dividends we owe on, the senior
preferred stock would increase and, therefore, we may need additional draws from Treasury in order to pay our dividend
obligations; and (b) there is significant uncertainty as to our long-term financial sustainability.
See “NOTE 9: DEBT SECURITIES AND SUBORDINATED BORROWINGS” and “NOTE 13: FREDDIE MAC
STOCKHOLDERS’ EQUITY (DEFICIT)” for more information on the terms of the conservatorship and the agreements
described above.
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