Freddie Mac 2014 Annual Report Download - page 25

20 Freddie Mac
the Purchase Agreement and the warrant as the “Treasury Agreements.” The Treasury Agreements and the senior preferred
stock will continue to exist even if the conservatorship ends. The conservatorship, the Treasury Agreements and the senior
preferred stock materially limit the rights of our common and preferred stockholders (other than Treasury as holder of the
senior preferred stock) and have otherwise materially and adversely affected our common and preferred stockholders. For more
information, see “RISK FACTORS — Conservatorship and Related Matters.”
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 related to the strategic goals set forth in the Strategic Plan. For more
information, see “Regulation and Supervision — Legislative and Regulatory Developments — FHFA's Strategic Plan for
Freddie Mac and Fannie Mae Conservatorships.”
We receive substantial support from Treasury and FHFA, 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. In recent years, the
Federal Reserve has purchased significant amounts of mortgage-related securities issued by us, Fannie Mae, and Ginnie Mae.
Supervision of Our Company During Conservatorship
FHFA has broad powers when acting as our Conservator, as discussed below under “Powers of the Conservator.” In
addition, under conservatorship, we are subject to heightened supervision and direction from FHFA, in its capacity as our
regulator.
The Conservator has delegated certain authority to the Board of Directors to oversee, and to 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. The Conservator retains the authority to withdraw or revise its delegations of
authority at any time. The Conservator also retains certain significant authorities for itself, and has not delegated them to the
Board. For more information on limitations on the Board’s authority during conservatorship, see “DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE — Authority of the Board and Board Committees.”
Impact of Conservatorship and Related Actions on Our Business
We conduct our business subject to the direction of FHFA as our Conservator. The conservatorship has benefited us
through, for example, enabling us to maintain access to the debt markets because of the support we receive from Treasury.
However, the Purchase Agreement and the terms of the senior preferred stock we issued to Treasury constrain our business
activities.
The Conservator continues to determine, and direct the efforts of the Board of Directors and management to address, the
strategic direction for the company. While the Conservator has delegated certain authority to management to conduct business
operations, many management decisions are subject to review and approval by FHFA and Treasury. In addition, management
frequently receives directions from FHFA on various matters involving day-to-day operations.
Our current business objectives reflect direction we 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.
For more information on the impact of conservatorship and our current business objectives, see "Executive Summary —
Our Primary Business Objectives," "RISK FACTORS — Conservatorship and Related Matters — We are under the control of
FHFA, and our business activities are subject to significant restrictions. We may be required to take actions that materially
adversely affect our business and financial results," and "NOTE 2: CONSERVATORSHIP AND RELATED MATTERS."
Limits on Investment Activity and Our Mortgage-Related Investments Portfolio
Our mortgage-related investments portfolio consists of agency securities, single-family non-agency mortgage-related
securities, CMBS, housing revenue bonds, other multifamily securities, and single-family and multifamily unsecuritized
mortgage loans. Our ability to acquire and sell mortgage assets is significantly constrained by limitations under the Purchase
Agreement and those imposed by FHFA.
Under the Purchase Agreement and FHFA regulation, the UPB of our mortgage-related investments portfolio is subject to
a cap that decreases by 15% each year until the cap reaches $250 billion. As a result, the UPB of our mortgage-related
investments portfolio could not exceed $470 billion as of December 31, 2014 and may not exceed $399 billion as of December
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