Freddie Mac 2010 Annual Report Download - page 5

believe may have had a beneficial impact on our results of operations or financial condition, if executed. Our inability to
execute such transactions may adversely affect our profitability, and thus contribute to our need to draw additional funds
under the Purchase Agreement.
In a letter to the Chairmen and Ranking Members of the Congressional Banking and Financial Services Committees
dated February 2, 2010, the Acting Director of FHFA stated that the focus of the conservatorship is on conserving assets,
minimizing corporate losses, ensuring Freddie Mac and Fannie Mae continue to serve their mission, overseeing remediation
of identified weaknesses in corporate operations and risk management, and ensuring that sound corporate governance
principles are followed. Specifically, the Acting Director of FHFA stated that minimizing our credit losses is our central goal
and that we will be limited to continuing our existing core business activities and taking actions necessary to advance the
goals of the conservatorship. The Acting Director stated that permitting us to engage in the development of new products is
inconsistent with the goals of the conservatorship. This directive could have an adverse effect on our business and
profitability in future periods.
We had a net worth deficit of $401 million as of December 31, 2010, and, as a result, FHFA, as Conservator, will
submit a draw request, on our behalf, to Treasury under the Purchase Agreement in the amount of $500 million. As a result
of draws under the Purchase Agreement, the aggregate liquidation preference of the senior preferred stock increased from
$1.0 billion as of September 8, 2008 to $64.2 billion as of December 31, 2010. Under the Purchase Agreement, our ability to
repay the liquidation preference of the senior preferred stock is limited and we may not be able to do so for the foreseeable
future, if at all. The aggregate liquidation preference of the senior preferred stock and our related dividend obligations will
increase further if we receive additional draws under the Purchase Agreement or if any dividends or quarterly commitment
fees payable under the Purchase Agreement are not paid in cash. The amounts we are obligated to pay in dividends on the
senior preferred stock are substantial and will have an adverse impact on our financial position and net worth. We expect to
make additional draws under the Purchase Agreement in future periods.
Our annual dividend obligation on the senior preferred stock, based on the current liquidation preference, is $6.4 billion,
which is in excess of our annual historical earnings in all but one period. Continued cash payment of senior preferred
dividends, combined with potentially substantial quarterly commitment fees payable to Treasury under the Purchase
Agreement, will have an adverse impact on our future financial condition and net worth. The payment of dividends on our
senior preferred stock in cash reduces our net worth. For periods in which our earnings and other changes in equity do not
result in positive net worth, draws under the Purchase Agreement effectively fund the cash payment of senior preferred
dividends to Treasury.
For more information on our current business objectives, see “Executive Summary — Our Primary Business
Objectives.” For more information on the conservatorship and government support for our business see “Executive
Summary — Government Support for Our Business” and “Conservatorship and Related Matters.”
Executive Summary
You should read this Executive Summary in conjunction with our MD&A and consolidated financial statements and
related notes for the year ended December 31, 2010.
Overview
Freddie Mac is a GSE chartered by Congress in 1970 with a public mission to provide liquidity, stability, and
affordability to the U.S. housing market. We have maintained a consistent market presence since our inception, providing
mortgage liquidity in a wide range of economic environments. During the worst housing and financial crisis since the Great
Depression, we are working to support the recovery of the housing market and the nation’s economy by providing essential
liquidity to the mortgage market and helping to stem the rate of foreclosures. Taken together, we believe our actions are
helping communities across the country by providing America’s families with access to mortgage funding at low rates while
helping distressed borrowers keep their homes and avoid foreclosure.
Summary of Financial Results
Our financial performance in 2010, including our net loss, continued to be impacted by the ongoing weakness in the
economy, including the mortgage market. Our total comprehensive income (loss) was $1.2 billion and $282 million for the
fourth quarter and full year of 2010, respectively, consisting of: (a) a net loss of $113 million and $14.0 billion, respectively,
reflecting significant provisions for credit losses; and (b) $1.3 billion and $14.3 billion of changes in other comprehensive
income (loss), respectively, primarily resulting from improved fair values on available-for-sale securities recorded in AOCI.
Our total equity (deficit) was $(401) million at December 31, 2010 due to several contributing factors, including our
dividend payments on our senior preferred stock, which exceeded total comprehensive income (loss) for the fourth quarter of
2010. To address our deficit in net worth, FHFA, as Conservator, will submit a draw request on our behalf to Treasury under
the Purchase Agreement for $500 million.
2Freddie Mac