Freddie Mac 2010 Annual Report Download - page 27

Our Board of Directors and Management During Conservatorship
While in conservatorship, we can, and have continued to, enter into and enforce contracts with third parties. The
Conservator continues to work with the Board of Directors and management to address and determine the strategic direction
for the company.
The Conservator instructed the Board of Directors that it should consult with and obtain the approval of the Conservator
before taking action in the following areas:
• actions involving capital stock, dividends, the Purchase Agreement, increases in risk limits, material changes in
accounting policy, and reasonably foreseeable material increases in operational risk;
• the creation of any subsidiary or affiliate or any substantial transaction between Freddie Mac and any of its
subsidiaries or affiliates, except for transactions undertaken in the ordinary course (e.g., the creation of a REMIC,
REIT, or similar vehicle);
• matters that relate to conservatorship, such as, but not limited to, the initiation and material actions in connection with
significant litigation addressing the actions or authority of the Conservator, repudiation of contracts, qualified financial
contracts in dispute due to our conservatorship, and counterparties attempting to nullify or amend contracts due to our
conservatorship;
• actions involving hiring, compensation and termination benefits of directors and officers at the executive vice
president level and above (including, regardless of title, executive positions with the functions of Chief Operating
Officer, Chief Financial Officer, General Counsel, Chief Business Officer, Chief Investment Officer, Treasurer, Chief
Compliance Officer, Chief Risk Officer and Chief/General/Internal Auditor);
• actions involving the retention and termination of external auditors and law firms serving as consultants to the Board
of Directors;
• settlements in excess of $50 million of litigation, claims, regulatory proceedings or tax-related matters;
• any merger with or purchase or acquisition of a business involving consideration in excess of $50 million; and
• any action that in the reasonable business judgment of the Board of Directors at the time that the action is taken is
likely to cause significant reputational risk.
Government Support for Our Business During Conservatorship
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. This support includes our ability to access funds from
Treasury under the Purchase Agreement. Since being placed into conservatorship, we also received support from Treasury
and the Federal Reserve under their programs to purchase mortgage-related securities and, in the case of the Federal Reserve,
debt securities. Treasury’s program ended in December 2009 and the Federal Reserve’s program ended in March 2010.
Powers of the Conservator
Under the GSE Act, the conservatorship provisions applicable to Freddie Mac are based generally on federal banking
law. As discussed below, FHFA has broad powers when acting as our conservator. For more information on the GSE Act, see
“Regulation and Supervision.”
General Powers of the Conservator
Upon its appointment, the 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. The Conservator also
succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian or third party.
Under the GSE Act, the Conservator may take any actions it determines are necessary and appropriate to carry on our
business, support public mission objectives, and preserve and conserve our assets and property. The Conservator’s powers
include the ability to transfer or sell any of our assets or liabilities (subject to certain limitations and post-transfer notice
provisions for transfers of qualified financial contracts, as defined below under “Special Powers of the Conservator —
Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts”) without any approval, assignment of
rights or consent of any party. The GSE Act, however, provides that mortgage loans and mortgage-related assets that have
been transferred to a Freddie Mac securitization trust must be held for the beneficial owners of the trust and cannot be used
to satisfy our general creditors.
Under the GSE Act, in connection with any sale or disposition of our assets, the Conservator must conduct its
operations to maximize the NPV return from the sale or disposition of such assets, to minimize the amount of any loss
realized, and to ensure adequate competition and fair and consistent treatment of offerors. The Conservator is required to
maintain a full accounting of the conservatorship and make its reports available upon request to stockholders and members of
the public.
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