Freddie Mac 2010 Annual Report Download - page 24

requirements for a maximum original LTV ratio of 80% and a DSCR of greater than 1.25. In certain circumstances, our
standards for multifamily loans allow for certain types of loans to have an original LTV ratio over 80% and/or a DSCR of
less than 1.25, typically where this will serve our mission and contribute to achieving our affordable housing goals. In cases
where we commit to purchase or guarantee a permanent loan upon completion of construction or rehabilitation, we generally
require additional credit enhancements, since underwriting for these loans typically requires estimates of future cash flows
for calculating the DSCR that is expected after construction or rehabilitation is completed. We previously allowed delegated
underwriting of multifamily loans in limited circumstances for approved lenders that deliver loans meeting targeted
affordable housing goals criteria. Loans outside of certain criteria were subject to our underwriting review prior to closing
and all loans we acquired with delegated underwriting were reviewed after closing for compliance with our underwriting
guidelines. In addition, we required loss sharing or credit enhancement on loans we acquired with delegated underwriting. In
the fourth quarter of 2009, we announced that we would discontinue such delegated underwriting, except for mortgages
already in approved lenders’ pipelines.
We generally require multifamily seller/servicers to service mortgage loans they have sold to us in order to mitigate
potential losses. We do not oversee servicing with respect to multifamily loans underlying our Other Guarantee Transactions
as that task is performed by subordinated bondholders. For loans over $1 million and where we have servicing oversight,
servicers must generally submit an annual assessment of the mortgaged property to us based on the servicer’s analysis of
financial and other information about the property. Because the activities of multifamily seller/servicers are an important part
of our loss mitigation process, we rate their performance regularly and may conduct on-site reviews of their servicing
operations in an effort to confirm compliance with our standards.
For loans for which we oversee servicing, if a borrower is in distress, we may offer a workout option to the borrower.
For example, we may modify the terms of a multifamily mortgage loan, which gives the borrower an opportunity to bring
the loan current and retain ownership of the property. These arrangements are made with the expectation that we will recover
our initial investment or minimize our losses. We do not enter into these arrangements in situations where we believe we
would experience a loss in the future that is greater than or equal to the loss we would experience if we foreclosed on the
property at the time of the agreement.
Conservatorship and Related Matters
Overview
We have been operating under conservatorship, with FHFA acting as our conservator, since September 6, 2008. The
conservatorship and related matters have had a wide-ranging impact on us, including our regulatory supervision,
management, business, financial condition and results of operations.
On September 7, 2008, the then Secretary of the Treasury and the then Director of FHFA announced several actions
taken by Treasury and FHFA regarding Freddie Mac and Fannie Mae. At that time, FHFA set forth the purpose and goals of
the conservatorship as follows: “The purpose of appointing the Conservator is to preserve and conserve the company’s assets
and property and to put the company in a sound and solvent condition. The goals of the conservatorship are to help restore
confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their mission, and mitigate the systemic risk that
has contributed directly to the instability in the current market.” These actions included the following:
• placing us and Fannie Mae in conservatorship;
• the execution of the Purchase Agreement, pursuant to which we issued to Treasury both senior preferred stock and a
warrant to purchase common stock; and
• the establishment of a temporary secured lending credit facility that was available to us until December 31, 2009,
which was effected through the execution of a lending agreement (this agreement expired on December 31, 2009).
We refer to the Purchase Agreement and the warrant as the “Treasury Agreements.”
Entry Into Conservatorship
Upon its appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and privileges of
Freddie Mac, and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets, and
succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian or third party. During
the conservatorship, the Conservator delegated certain authority to the Board of Directors to oversee, and management to
conduct, day-to-day operations so that the company can continue to operate in the ordinary course of business. The directors
serve on behalf of, and exercise authority as directed by, the Conservator. We describe the terms of the conservatorship and
the powers of our Conservator in detail below under “Supervision of our Business During Conservatorship” and “Powers of
the Conservator.”
There is significant uncertainty as to whether or when we will emerge from conservatorship, as it has no specified
termination date, and as to what changes may occur to our business structure during or following our conservatorship,
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