Freddie Mac 2010 Annual Report Download - page 54

collateral in secured lending transactions. In addition, adverse market conditions have negatively impacted our ability to enter
into secured lending transactions using agency securities as collateral. These trends are likely to continue in the future.
Government Support
Changes or perceived changes in the government’s support of us could have a severe negative effect on our access to the
debt markets and our debt funding costs. Under the Purchase Agreement, the $200 billion cap on Treasury’s funding
commitment will increase as necessary to accommodate any cumulative reduction in our net worth during 2010, 2011 and
2012. While we believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to
maintain our access to the debt markets and to have adequate liquidity to conduct our normal business activities, the costs of
our debt funding could vary due to the uncertainty about the future of the GSEs and potential investor concerns about the
adequacy of funding available to us under the Purchase Agreement after 2012. The cost of our debt funding could increase if
debt investors believe that the risk that we could be placed into receivership is increasing. In addition, under the Purchase
Agreement, without the prior consent of Treasury, we may not increase our total indebtedness above a specified limit or
become liable for any subordinated indebtedness.
We do not currently have a liquidity backstop available to us (other than draws from Treasury under the Purchase
Agreement and Treasury’s ability to purchase up to $2.25 billion of our obligations under its permanent statutory authority)
if we are unable to obtain funding from issuances of debt or other conventional sources. At present, we are not able to
predict the likelihood that a liquidity backstop will be needed, or to identify the alternative sources of liquidity that might be
available to us if needed, other than from Treasury as referenced above.
Demand for Debt Funding
The willingness of domestic and foreign investors to purchase and hold our debt securities can be influenced by many
factors, including changes in the world economy, changes in foreign-currency exchange rates, regulatory and political factors,
as well as the availability of and preferences for other investments. If investors were to divest their holdings or reduce their
purchases of our debt securities, our funding costs could increase. The willingness of investors to purchase or hold our debt
securities, and any changes to such willingness, may materially affect our liquidity, our business and results of operations.
Competition for Debt Funding
We compete for low-cost debt funding with Fannie Mae, the FHLBs and other institutions. Competition for debt funding
from these entities can vary with changes in economic, financial market and regulatory environments. Increased competition
for low-cost debt funding may result in a higher cost to finance our business, which could negatively affect our financial
results. An inability to issue debt securities at attractive rates in amounts sufficient to fund our business activities and meet
our obligations could have an adverse effect on our liquidity, financial condition and results of operations. See “MD&A —
LIQUIDITY AND CAPITAL RESOURCES — Liquidity — Other Debt Securities” for a description of our debt issuance
programs.
Our funding costs may also be affected by changes in the amount of, and demand for, debt issued by Treasury.
Line of Credit
We maintain a secured intraday line of credit to provide additional intraday liquidity to fund our activities through the
Fedwire system. This line of credit requires us to post collateral to a third party. In certain circumstances, this secured
counterparty may be able to repledge the collateral underlying our financing without our consent. In addition, because the
secured intraday line of credit is uncommitted, we may not be able to continue to draw on it if and when needed.
Any decline in the price performance of or demand for our PCs could have an adverse effect on the volume and
profitability of our new single-family guarantee business.
Our PCs are an integral part of our mortgage purchase program. We purchase many mortgages by issuing PCs in
exchange for them in guarantor swap transactions. We also issue PCs backed by mortgage loans that we purchased for cash.
Our competitiveness in purchasing single-family mortgages from our seller/servicers, and thus the volume and profitability of
new single-family business, can be directly affected by the relative price performance of our PCs and comparable Fannie
Mae securities. Increasing demand for our PCs helps support the price performance of our PCs, which in turn helps us
compete with Fannie Mae and others in purchasing mortgages.
Our PCs typically trade at a discount to comparable Fannie Mae securities, which creates an incentive for customers to
conduct a disproportionate share of their guarantor business with Fannie Mae. Various factors, including market conditions
and the relative rates at which the underlying mortgages prepay, affect the price performance of our PCs. While we employ a
variety of strategies to support the price performance of our PCs, any such strategies may fail or adversely affect our
business. For example, we may attempt to compensate customers for the difference in price between our PCs and comparable
51 Freddie Mac