Freddie Mac 2014 Annual Report Download - page 37

32 Freddie Mac
control of FHFA, as our Conservator, and are not managed to maximize stockholder returns. FHFA determines our strategic
direction. FHFA has required us to make changes to our business that have adversely affected our financial results, and could
require us to make additional changes at any time. Other agencies of the U.S. government and Congress also could require us to
take actions that adversely affect our business and financial results.
FHFA may require us to provide additional support for the mortgage market in a manner that serves our public mission,
but that adversely affects our financial results, such as investing in the common securitization platform or engaging in more
expensive foreclosure prevention efforts. From time to time, FHFA and Treasury have prevented us from engaging in business
activities or transactions that we believe would benefit our business and financial results, and may do so in the future. FHFA
may require us to engage in activities that are operationally difficult to implement, such as building the common securitization
platform, implementing the single (common) security, and other initiatives under the Conservatorship Scorecards. FHFA could
also take a number of actions that could materially adversely affect us, such as limiting the amount of securities we could sell
or further limiting the size of our mortgage-related investments portfolio.
We currently face a variety of different, and potentially competing, business objectives and FHFA-mandated activities
(e.g., the initiatives we are pursuing under the Conservatorship Scorecards). It may be difficult for us to devote sufficient
resources and management attention to these multiple priorities, some of which present significant operational challenges to us.
See “BUSINESS — Executive Summary — Our Primary Business Objectives” for more information.
The Purchase Agreement and terms of the senior preferred stock include significant restrictions on our ability to manage
our business, including limitations on the amount of indebtedness we may incur, the size of our mortgage-related investments
portfolio, and the circumstances in which we may pay dividends, transfer certain assets, raise capital, and pay down the
liquidation preference of the senior preferred stock. These limitations could have a material adverse effect on our future results
of operations and financial condition. 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 Purchase Agreement prohibits us from taking a variety of actions without Treasury's consent. Treasury has the
right to withhold its consent for any reason and is not required to consider any particular factors, including whether or not
management believes that the transaction would benefit the company. The warrant held by Treasury, the restrictions on our
business under the Purchase Agreement, and the senior status and net worth dividend provisions of the senior preferred stock
also could adversely affect our ability to attract new private sector capital in the future should the company be in a position to
do so.
Our regulator may, and in some cases must, place us into receivership, which would result in the liquidation of our assets; if
this occurs, there may not be sufficient funds to pay the claims of the company, repay the liquidation preference of our
preferred stock, or make any distribution to the holders of our common stock.
We could be put into receivership at the discretion of the Director of FHFA at any time for a number of reasons set forth
in the GSE Act. In addition, FHFA could be required to place us in receivership if Treasury is unable to provide us with funding
requested under the Purchase Agreement to address a deficit in our net worth. Treasury might not be able to provide the
requested funding if, for example, the U.S. government were shut down or reached its borrowing limit. For more information,
see "BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — Receivership."
A receivership would terminate the conservatorship. The appointment of FHFA as our receiver would terminate all rights
and claims that our stockholders and creditors may have against our assets or under our charter arising as a result of their status
as stockholders or creditors, other than the potential ability to be paid upon our liquidation. Unlike conservatorship, the purpose
of which is to conserve our assets and return us to a sound and solvent condition, the purpose of receivership is to liquidate our
assets and resolve claims against us. Bills considered by Congress in 2013 and 2014 provided for Freddie Mac to eventually be
placed into receivership.
If our assets were liquidated, there is no assurance that there would be sufficient proceeds to pay the secured and
unsecured claims of the company, repay the liquidation preference of any series of our preferred stock or make any distribution
to the holders of our common stock. If we are placed into receivership and do not or cannot fulfill our guarantee to the holders
of our mortgage-related securities, such holders could become unsecured creditors of ours with respect to claims made under
our guarantee. Only after paying the secured and unsecured claims of the company, the administrative expenses of the receiver
and the liquidation preference of the senior preferred stock would any liquidation proceeds be available to repay the liquidation
preference of any other series of preferred stock. Finally, only after the liquidation preference of all series of preferred stock is
repaid would any liquidation proceeds be available for distribution to the holders of our common stock.
If we are placed into receivership or no longer operate as a going concern, our basis of accounting would change to
liquidation-based accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable value
and liabilities are stated at their estimated settlement amounts, which could adversely affect our financial results. In addition,
the amounts in AOCI would be reclassified to earnings.
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