Freddie Mac 2010 Annual Report Download - page 45

stockholders or creditors, other than the potential ability to be paid upon our liquidation. Unlike a conservatorship, the
purpose of which is to conserve our assets and return us to a sound and solvent condition, the purpose of a receivership is to
liquidate our assets and resolve claims against us.
In the event of a liquidation of our assets, there can be no assurance that there would be sufficient proceeds 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. To the extent that we are placed in receivership and do not or cannot
fulfill our guarantee to the holders of our mortgage-related securities, such holders could become unsecured creditors of ours
with respect to claims made under our guarantee. Only after paying the secured and unsecured claims of the company, the
administrative expenses of the receiver and the liquidation preference of the senior preferred stock, which ranks senior to our
common stock and all other series of preferred stock upon liquidation, would any liquidation proceeds be available to repay
the liquidation preference on any other series of preferred stock. Finally, only after the liquidation preference on all series of
preferred stock is repaid would any liquidation proceeds be available for distribution to the holders of our common stock.
The aggregate liquidation preference on the senior preferred stock owned by Treasury was $64.2 billion as of December 31,
2010. The liquidation preference will increase further if we make additional draws under the Purchase Agreement, if we do
not pay dividends owed on the senior preferred stock in cash or if we do not pay the quarterly commitment fee to Treasury
under the Purchase Agreement.
We have a variety of different, and potentially competing, objectives that may adversely affect our financial results and
our ability to maintain positive net worth.
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. These objectives include providing liquidity, stability and
affordability in the mortgage market; continuing to provide additional assistance to the struggling housing and mortgage
markets; reducing the need to draw funds from Treasury pursuant to the Purchase Agreement; returning to long-term
profitability; and protecting the interests of the taxpayers. These objectives create conflicts in strategic and day-to-day
decision making that will likely lead to suboptimal outcomes for one or more, or possibly all, of these objectives. Current
portfolio investment and mortgage guarantee activities, liquidity support, and loan modification and foreclosure forbearance
initiatives, including our efforts under the MHA Program, are intended to provide support for the mortgage market in a
manner that serves our public mission and other non-financial objectives under conservatorship, but may negatively impact
our financial results and net worth.
We have experienced significant management changes and internal reorganizations which could increase our control risks
and have a material adverse effect on our ability to do business and our results of operations.
Since September 2008, we have had numerous changes in our senior management and governance structure, including
FHFA becoming our Conservator, a reconstituted Board of Directors, three changes in our Chief Executive Officer, three
changes in our Chief Financial Officer and a new Chief Operating Officer (who resigned in February 2011). We have
recently experienced several significant internal reorganizations. The magnitude of these changes and the short time interval
in which they have occurred, particularly during the ongoing housing and economic crisis, add to the risks of control failures,
including a failure in the effective operation of our internal control over financial reporting or our disclosure controls and
procedures. Control failures could result in material adverse effects on our financial condition and results of operations.
This turnover of key management positions could further harm our financial performance and results of operations.
Management attention may be diverted from regular business concerns by these and future reorganizations and the need to
operate under the framework of conservatorship.
The conservatorship and uncertainty concerning our future may have an adverse effect on the retention and recruitment
of management and other valuable employees.
Our ability to recruit, retain, and engage management and other valuable employees with the necessary skills to conduct
our business may be adversely affected by the conservatorship, the uncertainty regarding its duration, the potential for future
legislative or regulatory actions that could significantly affect our existence and our role in the secondary mortgage market,
and the negative publicity concerning the GSEs. The actions taken by Treasury and the Conservator to date, or that may be
taken by them or other government agencies in the future, may have an adverse effect on the retention and recruitment of
senior executives, management, and other valuable employees. For example, we are subject to restrictions on the amount and
type of compensation we may pay our executives under conservatorship. The Conservator has also directed us to maintain
individual salaries and wage rates for all employees at 2010 levels for 2011 (except in the case of promotions or significant
changes in responsibilities). In addition, statutory and regulatory requirements restricting executive compensation at
institutions that have received federal financial assistance, even if not expressly applicable to us, may be interpreted by
FHFA or Treasury as limiting the compensation that we are able to provide to our executive officers and other employees.
Although we have established compensation programs designed to help retain key employees, we are not currently in a
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