Freddie Mac 2010 Annual Report Download - page 28

We remain liable for all of our obligations relating to our outstanding debt and mortgage-related securities. FHFA has
stated that our obligations will be paid in the normal course of business during the conservatorship.
Special Powers of the Conservator
Disaffirmance and Repudiation of Contracts
Under the GSE Act, the Conservator may disaffirm or repudiate contracts (subject to certain limitations for qualified
financial contracts) that we entered into prior to its appointment as Conservator if it determines, in its sole discretion, that
performance of the contract is burdensome and that disaffirmance or repudiation of the contract promotes the orderly
administration of our affairs. The GSE Act requires FHFA to exercise its right to disaffirm or repudiate most contracts within
a reasonable period of time after its appointment as Conservator. The Conservator has advised us that it has no intention of
repudiating any guarantee obligation relating to Freddie Mac’s mortgage-related securities because it views repudiation as
incompatible with the goals of the conservatorship. We can, and have continued to, enter into, perform and enforce contracts
with third parties.
Limitations on Enforcement of Contractual Rights by Counterparties
The GSE Act provides that the Conservator may enforce most contracts entered into by us, notwithstanding any
provision of the contract that provides for termination, default, acceleration, or exercise of rights upon the appointment of, or
the exercise of rights or powers by, a conservator.
Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts
Notwithstanding the Conservator’s powers under the GSE Act described above, the Conservator must recognize legally
enforceable or perfected security interests, except where such an interest is taken in contemplation of our insolvency or with
the intent to hinder, delay or defraud us or our creditors. In addition, the GSE Act provides that no person will be stayed or
prohibited from exercising specified rights in connection with qualified financial contracts, including termination or
acceleration (other than solely by reason of, or incidental to, the appointment of the Conservator), rights of offset, and rights
under any security agreement or arrangement or other credit enhancement relating to such contract. The term qualified
financial contract means any securities contract, commodity contract, forward contract, repurchase agreement, swap
agreement, and any similar agreement as determined by FHFA by regulation, resolution or order.
Avoidance of Fraudulent Transfers
Under the GSE Act, the Conservator may avoid, or refuse to recognize, a transfer of any property interest of Freddie
Mac or of any of our debtors, and also may avoid any obligation incurred by Freddie Mac or by any debtor of Freddie Mac,
if the transfer or obligation was made: (a) within five years of September 6, 2008; and (b) with the intent to hinder, delay, or
defraud Freddie Mac, FHFA, the Conservator or, in the case of a transfer in connection with a qualified financial contract,
our creditors. To the extent a transfer is avoided, the Conservator may recover, for our benefit, the property or, by court
order, the value of that property from the initial or subsequent transferee, other than certain transfers that were made for
value, including satisfaction or security of a present or antecedent debt, and in good faith. These rights are superior to any
rights of a trustee or any other party, other than a federal agency, under the U.S. bankruptcy code.
Modification of Statutes of Limitations
Under the GSE Act, notwithstanding any provision of any contract, the statute of limitations with regard to any action
brought by the Conservator is: (a) for claims relating to a contract, the longer of six years or the applicable period under
state law; and (b) for tort claims, the longer of three years or the applicable period under state law, in each case, from the
later of September 6, 2008 or the date on which the cause of action accrues. In addition, notwithstanding the state law statute
of limitation for tort claims, the Conservator may bring an action for any tort claim that arises from fraud, intentional
misconduct resulting in unjust enrichment, or intentional misconduct resulting in substantial loss to us, if the state’s statute of
limitations expired not more than five years before September 6, 2008.
Suspension of Legal Actions
Under the GSE Act, in any judicial action or proceeding to which we are or become a party, the Conservator may
request, and the applicable court must grant, a stay for a period not to exceed 45 days.
Treatment of Breach of Contract Claims
Under the GSE Act, any final and unappealable judgment for monetary damages against the Conservator for breach of
an agreement executed or approved in writing by the Conservator will be paid as an administrative expense of the
Conservator.
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