Freddie Mac 2010 Annual Report Download - page 44

Director also stated that permitting us to engage in new products is inconsistent with the goals of the conservatorship. These
restrictions could also adversely affect our financial results in future periods.
As our Conservator, FHFA possesses all of the powers of our stockholders, officers and directors. During the
conservatorship, the Conservator has delegated certain authority to the Board of Directors to oversee, and management to
conduct, day-to-day operations so that the company can continue to operate in the ordinary course of business. FHFA has the
ability to withdraw or revise its delegations of authority and override actions of our Board of Directors at any time. The
directors serve on behalf of, and exercise authority as directed by, the Conservator. In addition, FHFA has the power to take
actions without our knowledge that could be material to investors and could significantly affect our financial performance.
FHFA is also Conservator of Fannie Mae, our primary competitor, and FHFA’s actions as Conservator of both
companies could affect competition between us and Fannie Mae. On a number of occasions, FHFA has directed us and
Fannie Mae to confer and consider uniform approaches to particular issues and problems, and FHFA has in a few cases
directed the two GSEs to adopt common approaches. For example, in January 2011, FHFA announced that it has directed
Freddie Mac and Fannie Mae to work on a joint initiative, in coordination with HUD, to consider alternatives for future
mortgage servicing structures and servicing compensation, including the possibility of reducing or eliminating the minimum
servicing fee for performing loans, or other structures. FHFA has also directed Freddie Mac and Fannie Mae to discuss with
FHFA and with each other, and wherever feasible to develop consistent requirements, policies and processes for, the
servicing of non-performing mortgages, and to discuss joint standards for the evaluation of the servicing performance of
servicers. We cannot predict the impact on our business of these actions or any similar actions FHFA may require us and
Fannie Mae to take in the future. It is possible that FHFA could require us and Fannie Mae to take a common approach that,
because of differences in our respective businesses, could place Freddie Mac at a competitive disadvantage to Fannie Mae.
These changes and other factors could have material adverse effects on, among other things, our portfolio growth, net
worth, credit losses, net interest income, guarantee fee income, net deferred tax assets, and loan loss reserves, and could have
a material adverse effect on our future results of operations and financial condition. In light of the significant uncertainty
surrounding these changes, there can be no assurances regarding when, or if, we will return to profitability.
We are subject to significant limitations on our business under the Purchase Agreement that could have a material
adverse effect on our results of operations and financial condition.
The Purchase Agreement includes significant restrictions on our ability to manage our business, including limitations on
the amount of indebtedness we may incur, the size of our mortgage-related investments portfolio and the circumstances in
which we may pay dividends, raise capital and pay down the liquidation preference on the senior preferred stock. In addition,
the Purchase Agreement provides that we may not enter into any new compensation arrangements or increase amounts or
benefits payable under existing compensation arrangements of any executive officers without the consent of the Director of
FHFA, in consultation with the Secretary of the Treasury. In deciding whether or not to consent to any request for approval it
receives from us under the Purchase Agreement, Treasury has the right to withhold its consent for any reason and is not
required by the agreement to consider any particular factors, including whether or not management believes that the
transaction would benefit the company. The limitations under the Purchase Agreement could have a material adverse effect
on our future results of operations and financial condition.
Our regulator may, and in some cases must, place us into receivership, which would result in the liquidation of our assets
and terminate all rights and claims that our stockholders and creditors may have against our assets or under our charter;
if we are liquidated, there may not be sufficient funds to pay the secured and unsecured claims of the company, repay the
liquidation preference of any series of our preferred stock or make any distribution to the holders of our common stock.
Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than
our obligations for a period of 60 days. FHFA has notified us that the measurement period for any mandatory receivership
determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for
our quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA has also advised
us that, if, during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency amount
under the Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination.
In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for other reasons,
including conditions that FHFA has already asserted existed at the time the then Director of FHFA placed us into
conservatorship. These include: a substantial dissipation of assets or earnings due to unsafe or unsound practices; the
existence of an unsafe or unsound condition to transact business; an inability to meet our obligations in the ordinary course
of business; a weakening of our condition due to unsafe or unsound practices or conditions; critical undercapitalization; the
likelihood of losses that will deplete substantially all of our capital; or by consent. A receivership would terminate the
conservatorship. The appointment of FHFA (or any other entity) as our receiver would terminate all rights and claims that
our stockholders and creditors may have against our assets or under our charter arising as a result of their status as
41 Freddie Mac