Freddie Mac 2010 Annual Report Download - page 4

PART I
This Form 10-K includes forward-looking statements that are based on current expectations and are subject to
significant risks and uncertainties. These forward-looking statements are made as of the date of this Form 10-K and we
undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date
of this Form 10-K. Actual results might differ significantly from those described in or implied by such statements due to
various factors and uncertainties, including those described in “BUSINESS — Forward-Looking Statements,” and “RISK
FACTORS” in this Form 10-K. Throughout this Form 10-K, we use certain acronyms and terms which are defined in the
Glossary.
ITEM 1. BUSINESS
Conservatorship
We continue to operate under the direction of FHFA as our Conservator. 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 ability to
access funds from Treasury under the Purchase Agreement is critical to keeping us solvent. 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.
As our Conservator, FHFA succeeded to all rights, titles, powers and privileges of Freddie Mac, and of any stockholder,
officer or director thereof, with respect to the company and its assets. FHFA, as Conservator, has directed and will continue
to direct certain of our business activities and strategies. FHFA has delegated certain authority to our Board of Directors to
oversee, and management to conduct, day-to-day operations. The directors serve on behalf of, and exercise authority as
directed by, 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,
including whether we will continue to exist. Our future structure and role are currently being considered by the Obama
Administration and Congress. We have no ability to predict the outcome of these deliberations. 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.
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, including options for structuring the government’s long-term role in a housing
finance system in which the private sector is the dominant provider of mortgage credit. The report recommends winding
down Freddie Mac and Fannie Mae, stating that the Obama Administration will work with FHFA to determine the best way
to responsibly reduce the role of Freddie Mac and Fannie Mae in the market and ultimately wind down both institutions. The
report states that these efforts must be undertaken at a deliberate pace, which takes into account the impact that these
changes will have on borrowers and the housing market.
The report states that the government is committed to ensuring that Freddie Mac and Fannie Mae have sufficient capital
to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations, and further
states that the Obama Administration will not pursue policies or reforms in a way that would impair the ability of Freddie
Mac and Fannie Mae to honor their obligations. The report states the Obama Administration’s belief that under the
companies’ senior preferred stock purchase agreements with Treasury, there is sufficient funding to ensure the orderly and
deliberate wind down of Freddie Mac and Fannie Mae, as described in the Administration’s plan.
For more information, see “Executive Summary — Long-Term Financial Sustainability and Future Status.”
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. 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. However, these changes to our business objectives and strategies may not contribute to our
profitability. Some of these changes increase our expenses, while others require us to forego revenue opportunities in the
near-term. In addition, the objectives set forth for us under our charter and by our Conservator, as well as the restrictions on
our business under the Purchase Agreement, may adversely impact our financial results, including our segment results. For
example, our current business objectives reflect, in part, direction given to us by the Conservator. These efforts are expected
to help homeowners and the mortgage market and may help to mitigate future credit losses. However, some of our activities
are expected to have an adverse impact on our near- and long-term financial results. The Conservator and Treasury also did
not authorize us to engage in certain business activities and transactions, including the sale of certain assets, which we
1Freddie Mac