Freddie Mac 2010 Annual Report Download - page 286

Lehman Bankruptcy
On September 15, 2008, Lehman filed a chapter 11 bankruptcy petition in the Bankruptcy Court for the Southern
District of New York. Thereafter, many of Lehman’s U.S. subsidiaries and affiliates also filed bankruptcy petitions
(collectively, the “Lehman Entities”). Freddie Mac had numerous relationships with the Lehman Entities which give rise to
several claims. On September 22, 2009, Freddie Mac filed proofs of claim in the Lehman bankruptcies aggregating
approximately $2.1 billion. On April 14, 2010, Lehman filed its chapter 11 plan and disclosure statement, providing for the
liquidation of the bankruptcy estate’s assets over the next three years. On January 25, 2011, Lehman filed its first amended
plan and disclosure statement. The plan and disclosure statement are subject to court approval.
Taylor, Bean & Whitaker Bankruptcy
On August 24, 2009, TBW filed for bankruptcy in the Bankruptcy Court for the Middle District of Florida. Prior to that
date, Freddie Mac had terminated TBW’s status as a seller/servicer of loans. On or about June 14, 2010, Freddie Mac filed a
proof of claim in the TBW bankruptcy aggregating $1.78 billion. Of this amount, about $1.15 billion relates to current and
projected repurchase obligations and about $440 million relates to funds deposited with Colonial Bank, or with the FDIC as
its receiver, which are attributable to mortgage loans owned or guaranteed by us and previously serviced by TBW. The
remaining $190 million represents miscellaneous costs and expenses incurred in connection with the dissolution of TBW. On
July 1, 2010, TBW filed a comprehensive final reconciliation report in the bankruptcy court indicating, among other things,
that approximately $203 million in funds held in bank accounts maintained by TBW related to its servicing of Freddie Mac’s
loans and was potentially available to pay Freddie Mac’s claims. We have analyzed the report and, as necessary and
appropriate, may revise the amount of our claim.
Both TBW and Bank of America, N.A., which is also a claimant in the TBW bankruptcy, have sought discovery against
Freddie Mac. While no actions against Freddie Mac related to TBW have been initiated in bankruptcy court or elsewhere to
recover assets, TBW and Bank of America, N.A. have indicated that they wish to determine whether the bankruptcy estate of
TBW has any potential rights to seek to recover assets transferred by TBW to Freddie Mac prior to bankruptcy. TBW has
also indicated to us that it may file an action to recover certain monies paid to us prior to the bankruptcy. At this time, we
are unable to estimate our potential exposure, if any, to such claims.
On or about May 14, 2010, certain underwriters of Lloyds of London brought an adversary proceeding in bankruptcy
court against TBW, Freddie Mac and other parties seeking a declaration rescinding mortgage bankers bonds insuring against
loss resulting from dishonest acts by TBW’s officers and directors. Several excess insurers on the bonds thereafter filed
similar claims in that action. Freddie Mac has filed a proof of loss under the bonds, but we are unable to estimate our
potential recovery, if any, thereunder. Discovery in the proceeding has been stayed at the request of the U.S. Department of
Justice, pending completion of a criminal trial involving the former chief executive officer of TBW.
For more information, see “NOTE 19: CONCENTRATION OF CREDIT AND OTHER RISKS — Seller/Servicers.”
IRS Litigation
We received Statutory Notices from the IRS assessing $3.0 billion of additional income taxes and penalties for the 1998
to 2005 tax years. We filed a petition with the U.S. Tax Court in October 2010 in response to the Statutory Notices. The IRS
responded to our petition with the U.S. Tax Court in December 2010. We continue to seek resolution of the controversy by
settlement. For information on this matter, see “NOTE 14: INCOME TAXES.”
NOTE 22: EARNINGS (LOSS) PER SHARE
We have participating securities related to options and restricted stock units with dividend equivalent rights that receive
dividends as declared on an equal basis with common shares but are not obligated to participate in undistributed net losses.
Consequently, in accordance with accounting standards for earnings per share, we use the “two-class” method of computing
earnings per share. Basic earnings per common share are computed by dividing net loss attributable to common stockholders
by weighted average common shares outstanding — basic for the period. The weighted average common shares
outstanding — basic during the years ended December 31, 2010 and 2009 include the weighted average number of shares
during the periods that are associated with the warrant for our common stock issued to Treasury as part of the Purchase
Agreement since the warrant is unconditionally exercisable by the holder at a minimal cost. See “NOTE 3:
CONSERVATORSHIP AND RELATED MATTERS” for further information.
Diluted loss per common share is computed as net loss attributable to common stockholders divided by weighted
average common shares outstanding — diluted for the period, which considers the effect of dilutive common equivalent
shares outstanding. For periods with net income, the effect of dilutive common equivalent shares outstanding includes: (a) the
weighted average shares related to stock options; and (b) the weighted average of restricted shares and restricted stock units.
Such items are included in the calculation of weighted average common shares outstanding — diluted during periods of net
income, when the assumed conversion of the share equivalents has a dilutive effect. Such items are excluded from the
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