Freddie Mac 2014 Annual Report Download - page 31

26 Freddie Mac
FHFA has established prudential standards relating to the management and operations of Freddie Mac, Fannie Mae, and
the FHLBs. The standards address a number of business, controls, and risk management areas. The standards specify the
possible consequences for any entity that fails to meet any of the standards or otherwise fails to comply (including submission
of a corrective plan, limits on asset growth, increases in capital, limits on dividends and stock redemptions or repurchases, a
minimum level of retained earnings or any other action that the FHFA Director determines will contribute to bringing the entity
into compliance with the standards). A failure to meet any standard also may constitute an unsafe or unsound practice, which
may form the basis for FHFA to initiate an administrative enforcement action. On a periodic basis, we conduct self-assessments
of our compliance with these standards. Issues identified in previous self-assessments have either been remediated or are in
process of remediation.
Portfolio Activities
The GSE Act provides FHFA with power to regulate the size and content of our mortgage-related investments portfolio.
The GSE Act requires FHFA to establish, by regulation, criteria governing portfolio holdings to ensure the holdings are backed
by sufficient capital and consistent with the enterprises’ mission and safe and sound operations. FHFA has adopted the portfolio
holdings criteria established in the Purchase Agreement, as it may be amended from time to time, for so long as we remain
subject to the Purchase Agreement.
See “Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related Investments
Portfolio” for additional information on restrictions on our portfolio activities.
Anti-Predatory Lending
Predatory lending practices are in direct opposition to our mission, goals, and practices. We instituted anti-predatory
lending policies intended to prevent the purchase or assignment of mortgage loans with unacceptable terms or conditions or
resulting from unacceptable practices. These policies include processes related to the origination, delivery and quality control
sampling of loans sold to us. In addition to the purchase policies we instituted, we promote consumer education and financial
literacy efforts to help borrowers avoid abusive lending practices and we provide competitive mortgage products to reputable
mortgage originators so that borrowers have a greater choice of financing options.
Subordinated Debt
FHFA directed us to continue to make interest and principal payments on our subordinated debt, even if we fail to
maintain required capital levels. As a result, the terms of any of our subordinated debt that provide for us to defer payments of
interest under certain circumstances, including our failure to maintain specified capital levels, are no longer applicable. See
“NOTE 18: REGULATORY CAPITAL — Subordinated Debt Commitment” for more information regarding subordinated
debt.
Risk Retention
In October 2014, six agencies, including FHFA, issued a rule that generally requires a securitizer of asset-backed
securities to retain no less than five percent of the credit risk of the assets underlying such securities. A provision in the rule
indicates that our fully guaranteed securitizations generally will satisfy the risk retention requirements for so long as we are in
conservatorship or receivership and receiving federal financial support. However, this provision will not apply to our
securitization structures that are not fully guaranteed, and we will have to meet the rule’s requirements with respect to such
structures using other compliance options. The requirements of the final risk retention rule will apply to: (a) new residential
mortgage securitizations issued beginning in December 2015; and (b) new multifamily securitizations issued beginning in
December 2016.
Proposed Financial Eligibility Requirements for Seller/Servicers
In January 2015, FHFA proposed new minimum financial eligibility requirements for seller/servicers of Freddie Mac and
Fannie Mae. FHFA stated that the proposed minimum financial requirements will ensure the safe and sound operation of us and
Fannie Mae and further FHFA’s goal of fostering liquid, efficient, competitive and resilient national housing finance markets.
FHFA will engage with servicing industry participants, regulators and other stakeholders to obtain their feedback on, and
improve their understanding of, the proposed requirements. FHFA stated that it anticipates finalizing the requirements in the
second quarter of 2015, and anticipates that the requirements will be effective six months after they are finalized.
Department of Housing and Urban Development
HUD has regulatory authority over Freddie Mac with respect to fair lending. Our mortgage purchase activities are subject
to federal anti-discrimination laws. In addition, the GSE Act prohibits discriminatory practices in our mortgage purchase
activities, requires us to submit data to HUD to assist in its fair lending investigations of primary market lenders with which we
do business, and requires us to undertake remedial actions against such lenders found to have engaged in discriminatory
lending practices. In addition, HUD periodically reviews and comments on our underwriting and appraisal guidelines for
consistency with the Fair Housing Act and the anti-discrimination provisions of the GSE Act.
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