Freddie Mac 2010 Annual Report Download - page 25

including whether we will continue to exist. While we are not aware of any current plans of our Conservator to significantly
change our business model or capital structure in the near-term, there are likely to be significant changes beyond the near-
term that we expect to be decided by the Obama Administration and Congress. Our future structure and role will be
determined by the Obama Administration and Congress. We have no ability to predict the outcome of these deliberations. On
February 11, 2011, the Obama Administration delivered a report to Congress that lays out the Administration’s plan to
reform the U.S. housing finance market. The report recommends winding down Freddie Mac and Fannie Mae. For more
information, see “Executive Summary — Long-Term Financial Sustainability and Future Status.”
We receive substantial support from Treasury and FHFA, as our Conservator and regulator, and are dependent upon their
continued support in order to continue operating our business. Our ability to access funds from Treasury under the Purchase
Agreement is critical to: (a) keeping us solvent; (b) allowing us to focus on our primary business objectives under
conservatorship; and (c) avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions.
For a description of certain risks to our business relating to the conservatorship and Treasury Agreements, see “RISK
FACTORS.”
Impact of Conservatorship and Related Actions on Our Business
We conduct our business under the direction of FHFA as our Conservator. While the conservatorship has benefited us
through, for example, improved access to the debt markets because of the support we receive from Treasury, we are also
subject to certain constraints on our business activities by Treasury due to the terms of, and Treasury’s rights under, the
Purchase Agreement.
Our business objectives and strategies have in some cases been altered since we were placed into conservatorship, and
may continue to change. Based on our charter, public statements from Treasury and FHFA officials and guidance from our
Conservator, we have a variety of different, and potentially competing, objectives, including:
• providing liquidity, stability and affordability in the mortgage market;
• continuing to provide additional assistance to the struggling housing and mortgage markets;
• reducing the need to draw funds from Treasury pursuant to the Purchase Agreement;
• returning to long-term profitability; and
• protecting the interests of taxpayers.
These objectives create conflicts in strategic and day-to-day decision making that will likely lead to suboptimal
outcomes for one or more, or possibly all, of these objectives. We regularly receive direction from our Conservator on how
to pursue these objectives, including direction to focus our efforts on assisting homeowners in the housing and mortgage
markets. Given the important role the Obama Administration and our Conservator have placed on Freddie Mac in addressing
housing and mortgage market conditions and our public mission, we may be required to take additional actions that could
have a negative impact on our business, operating results or financial condition. Because we expect many of these objectives
and related initiatives to result in significant costs, there is significant uncertainty as to the ultimate impact these initiatives
will have on our future capital or liquidity needs. Certain of these objectives are expected to help homeowners and the
mortgage market and may help to mitigate future credit losses. However, some of our initiatives are expected to have an
adverse impact on our near- and long-term financial results.
Certain changes to our business objectives and strategies 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 profitability. Our efforts
to help struggling homeowners and the mortgage market, in line with our mission, may help to mitigate credit losses, but in
some cases may increase our expenses or require us to forego revenue opportunities in the near term. As a result, in some
cases the objectives of reducing the need to draw funds from Treasury and returning to long-term profitability will be
subordinated as we provide this assistance. There is significant uncertainty as to the ultimate impact that our efforts to aid
the housing and mortgage markets will have on our future capital or liquidity needs and we cannot estimate whether, and the
extent to which, costs we incur in the near term as a result of these efforts, which for the most part we are not reimbursed
for, will be offset by the prevention or reduction of potential future costs.
In a letter to the Chairmen and Ranking Members of the Congressional Banking and Financial Services Committees
dated February 2, 2010, the Acting Director of FHFA stated that the focus of the conservatorship is on conserving assets,
minimizing corporate losses, ensuring Freddie Mac and Fannie Mae continue to serve their mission, overseeing remediation
of identified weaknesses in corporate operations and risk management, and ensuring that sound corporate governance
principles are followed. Specifically, the Acting Director of FHFA stated that minimizing our credit losses is our central goal
and that we will be limited to continuing our existing core business activities and taking actions necessary to advance the
goals of the conservatorship. The Acting Director stated that permitting us to engage in new products is inconsistent with the
goals of the conservatorship. This could limit our ability to return to profitability in future periods.
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