Freddie Mac 2014 Annual Report Download - page 164

159 Freddie Mac
NOTE 2: CONSERVATORSHIP AND RELATED MATTERS
Business Objectives
We operate under the conservatorship that commenced on September 6, 2008, conducting our business under the
direction of FHFA, as our Conservator. The conservatorship and related matters continue to have wide-ranging effects on us,
including on our management, business activities, financial condition and results of operations. Upon its appointment, FHFA,
as Conservator, immediately succeeded to all rights, titles, powers and privileges of Freddie Mac, and of any stockholder,
officer or director thereof, with respect to the company and its assets. The Conservator also succeeded to the title to all books,
records, and assets of Freddie Mac held by any other legal custodian or third party. The Conservator has delegated certain
authority to the Board of Directors to oversee, and management to conduct, business operations so that the company can
continue to operate in the ordinary course. The directors serve on behalf of, and exercise authority as directed by, the
Conservator.
We are also subject to certain constraints on our business activities under the Purchase Agreement. However, 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, although the costs of our debt funding
could vary. Our ability to access funds from Treasury under the Purchase Agreement is critical to keeping us solvent.
Our current business objectives reflect direction we have received from the Conservator (including the Conservatorship
Scorecards). At the direction of the Conservator, we have made changes to certain business practices that are designed to
provide support for the mortgage market in a manner that serves our public mission and other non-financial objectives but may
not contribute to our profitability. Certain of these objectives are intended to help homeowners and the mortgage market and
may help to mitigate future credit losses. Some of these initiatives impact our near- and long-term financial results. Given our
public mission and the important role the Administration and our Conservator have placed on Freddie Mac in addressing
housing and mortgage market conditions, we may be required to take actions that could have a negative impact on our business,
operating results or financial condition, and thus contribute to a need for additional draws under the Purchase Agreement.
In May 2014, FHFA issued its 2014 Strategic Plan, which updated FHFA's vision for implementing its obligations as
Conservator of Freddie Mac and Fannie Mae and established three reformulated strategic goals. FHFA has also issued its
Conservatorship Scorecards for 2014 and 2015. The Conservatorship Scorecards establish objectives and performance targets
and measures for Freddie Mac and Fannie Mae (the “Enterprises”) related to the strategic goals set forth in the Strategic Plan.
The 2014 Strategic Plan established three reformulated strategic goals for the conservatorships of Freddie Mac and Fannie
Mae:
• Maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced
mortgages to foster liquid, efficient, competitive and resilient national housing finance markets.
• Reduce taxpayer risk through increasing the role of private capital in the mortgage market.
• Build a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other
participants in the secondary market in the future.
As part of the first goal, the 2014 Strategic Plan describes various steps related to increasing access to mortgage credit for
credit-worthy borrowers. The 2014 Strategic Plan provides for the Enterprises to continue to play an ongoing role in supporting
multifamily housing needs, particularly for low-income households. The plan states that FHFA will continue to impose a
production cap on Freddie Mac’s and Fannie Mae’s multifamily businesses.
The second goal focuses on ways to transfer risk to private market participants and away from the Enterprises in a
responsible way that does not reduce liquidity or adversely impact the availability of mortgage credit. The second goal provides
for us to increase the use of single-family credit risk transfer transactions, continue using credit risk transfer transactions in the
multifamily business and continue shrinking our mortgage-related investments portfolio consistent with the requirements in the
Purchase Agreement, with a focus on selling less liquid assets.
The third goal includes the continued development of the Common Securitization Platform. FHFA refined the scope of
this project to focus on making the new shared system operational for Freddie Mac’s and Fannie Mae’s existing single-family
securitization activities. The third goal also provides for the Enterprises to work towards the development of a single (common)
security.
We continue to align our resources and internal business plans to meet the goals and objectives provided to us by FHFA.
As a result of the net worth sweep dividend provisions of the senior preferred stock, we cannot retain capital from the
earnings generated by our business operations or return capital to stockholders other than Treasury, the holder of our senior
preferred stock. Our future is uncertain, and the conservatorship has no specified termination date. We do not know what
changes may occur to our business model during or following conservatorship, including whether we will continue to exist. We
are not aware of any current plans of our Conservator to significantly change our business model or capital structure in the near
term. Our future structure and role will be determined by the Administration and Congress, and there are likely to be significant
changes beyond the near term. We have no ability to predict the outcome of these deliberations.
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