Freddie Mac 2010 Annual Report Download - page 58

Our relationships with our customers could be harmed by our actions as the compliance agent under HAMP, which could
negatively affect our ability to purchase loans from them in the future.
We are the compliance agent for certain foreclosure avoidance activities under HAMP by mortgage holders other than
Freddie Mac or Fannie Mae. In this role, we conduct examinations and review servicer compliance with the published
requirements for the program. It is unclear how servicers will perceive our actions as compliance agent. It is possible that
this could impair our relationships with our seller/servicers, which could negatively affect our ability to purchase loans from
them in the future.
We may experience further write-downs and losses relating to our assets, including our investment securities, net deferred
tax assets, REO properties or mortgage loans, that could materially adversely affect our business, results of operations,
financial condition, liquidity and net worth.
We experienced significant losses and write-downs relating to certain of our assets during 2008, 2009, and 2010,
including significant declines in market value, impairments of our investment securities, market-based write-downs of REO
properties, losses on non-performing loans purchased out of PC pools, and impairments on other assets. The fair value of our
assets may be further adversely affected by continued weakness in the economy, further deterioration in the housing and
financial markets, additional ratings downgrades or other events.
We increased our valuation allowance for our net deferred tax assets by $8.3 billion during 2010. The future status and
role of Freddie Mac could be affected by actions of the Conservator, and legislative and regulatory action that alters the
ownership, structure and mission of the company. The uncertainty of these developments could materially affect our
operations, which could in turn affect our ability or intent to hold investments until the recovery of any temporary unrealized
losses. If future events significantly alter our current outlook, a valuation allowance may need to be established for the
remaining deferred tax asset.
Due to the ongoing weaknesses in the economy and in the housing and financial markets, we may experience additional
write-downs and losses relating to our assets, including those that are currently AAA-rated, and the fair values of our assets
may continue to decline. This could adversely affect our results of operations, financial condition, liquidity and net worth.
We could also incur losses related to our REO properties due to the occurrence of a major natural or other disaster, such
as hurricanes in Florida or earthquakes in California.
There may not be an active, liquid trading market for our equity securities.
Our common stock and classes of preferred stock that previously were listed and traded on the NYSE were delisted
from the NYSE effective July 8, 2010, and now trade on the OTC market. The market price of our common stock declined
significantly between June 16, 2010, the date we announced our intention to delist these securities, and July 8, 2010, the first
day the common stock traded exclusively on the OTC market, and may decline further. Trading volumes on the OTC market
have been, and will likely continue to be, less than those on the NYSE, which would make it more difficult for investors to
execute transactions in our securities and could make the prices of our securities decline or be more volatile.
Operational Risks
We have incurred and will continue to incur expenses and we may otherwise be adversely affected by deficiencies in
foreclosure practices, as well as related delays in the foreclosure process.
In the fall of 2010, several large seller/servicers announced issues relating to the improper preparation and execution of
certain documents used in foreclosure proceedings, including affidavits. These announcements have raised various concerns
relating to foreclosure practices. The integrity of the foreclosure process is critical to our business, and our financial results
could be adversely affected by deficiencies in the conduct of that process.
A number of our seller/servicers, including several of our largest ones, temporarily suspended foreclosure proceedings in
certain states in which they do business while they evaluated and addressed these issues. A number of these companies
continue to address these issues, and certain of these suspensions remain in effect. In addition, a group consisting of state
attorneys general and state bank and mortgage regulators in all 50 states and the District of Columbia is reviewing
foreclosure practices. Some seller/servicers have announced issues relating to the improper execution of the documents used
in foreclosure proceedings. In November 2010, we terminated the eligibility of one law firm to serve as counsel in
foreclosures of Freddie Mac mortgages, due to issues with respect to the firm’s foreclosure practices. That firm had been
responsible for handling a significant number of foreclosures for our servicers in Florida. It is possible that additional
deficiencies in foreclosure practices will be identified, including relating to the foregoing.
These issues and the related foreclosure suspensions could prolong the foreclosure process regionally or nationwide and
could delay sales of our REO properties. The deficiencies in the conduct of the foreclosure process potentially affect the
validity of a number of actions that have already been taken, including foreclosure transfers through which we acquired some
of our REO properties and sales of some of our REO properties. It will take time for seller/servicers to complete their
55 Freddie Mac