Freddie Mac 2014 Annual Report Download - page 167

162 Freddie Mac
Termination Provisions
The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of the following
circumstances: (a) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding commitment at
that time; (b) the payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including
mortgage guarantee obligations); and (c) the funding by Treasury of the maximum amount of the commitment under the
Purchase Agreement. In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null
and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the Conservator
or otherwise curtails the Conservator’s powers. Treasury may not terminate its funding commitment under the Purchase
Agreement solely by reason of our being in conservatorship, receivership or other insolvency proceeding, or due to our
financial condition or any adverse change in our financial condition.
Waivers and Amendments
The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written
agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s
aggregate funding commitment or add conditions to Treasury’s funding commitment if the waiver or amendment would
adversely affect in any material respect the holders of our debt securities or Freddie Mac mortgage guarantee obligations.
Third-party Enforcement Rights
In the event of our default on payments with respect to our debt securities or Freddie Mac mortgage guarantee
obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the Conservator are not
diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage guarantee
obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to us the lesser
of: (a) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee obligations; and
(b) the lesser of: (i) the deficiency amount; and (ii) the maximum amount of the commitment less the aggregate amount of
funding previously provided under the commitment. Any payment that Treasury makes under those circumstances will be
treated for all purposes as a draw under the Purchase Agreement that will increase the liquidation preference of the senior
preferred stock.
Impact of Conservatorship and Related Developments on the Mortgage-Related Investments Portfolio
For purposes of the limit imposed by the Purchase Agreement and FHFA regulation, the UPB of our mortgage-related
investments portfolio could not exceed $470 billion at December 31, 2014 and was $408 billion at that date. Our 2014 Retained
Portfolio Plan provides for us to manage the UPB of the mortgage-related investments portfolio so that it does not exceed 90%
of the annual cap established by the Purchase Agreement (subject to certain exceptions). The annual 15% reduction in our
mortgage-related investments portfolio cap until it reaches $250 billion is calculated based on the maximum allowable size of
the mortgage-related investments portfolio, rather than the actual UPB of the mortgage-related investments portfolio, as of
December 31 of the preceding year. Our ability to acquire and sell mortgage assets is significantly constrained by limitations of
the Purchase Agreement and those imposed by FHFA.
Government Support for our Business
We receive substantial support from Treasury and FHFA, as our Conservator and regulator, and are dependent upon their
continued support in order to continue operating our business. This support includes our ability to access funds from Treasury
under the Purchase Agreement, which is critical to: (a) keeping us solvent; (b) allowing us to focus on our primary business
objectives under conservatorship; and (c) avoiding the appointment of a receiver by FHFA under statutory mandatory
receivership provisions. At September 30, 2014, our assets exceeded our liabilities under GAAP; therefore FHFA did not
request a draw on our behalf and, as a result, we did not receive any funding from Treasury under the Purchase Agreement
during the three months ended December 31, 2014. Since conservatorship began through December 31, 2014, we have paid
cash dividends of $91.0 billion to Treasury at the direction of the Conservator.
See “NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS” and “NOTE 11: STOCKHOLDERS’
EQUITY” for more information on the conservatorship and the Purchase Agreement.
Housing Finance Agency Initiative
In 2009, we entered into a Memorandum of Understanding with Treasury, FHFA, and Fannie Mae, which sets forth the
terms under which Treasury and, as directed by FHFA, we and Fannie Mae, would provide assistance to state and local HFAs
so that the HFAs can continue to meet their mission of providing affordable financing for both single-family and multifamily
housing. FHFA directed us and Fannie Mae to participate in the HFA initiative on a basis that is consistent with the goals of
being commercially reasonable and safe and sound. Treasury’s participation in these assistance initiatives does not affect the
amount of funding that Treasury can provide to Freddie Mac under the Purchase Agreement.
The primary initiatives are as follows:
• TCLFP — In December 2009, on a 50-50 pro rata basis, Freddie Mac and Fannie Mae agreed to provide $8.2 billion
of credit and liquidity support, including outstanding interest at the date of the guarantee, for variable rate demand
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