Freddie Mac 2015 Annual Report Download - page 197

Risk Factors Legal and Regulatory Risks
Freddie Mac 2015 Form 10-K 195
loans available for us to purchase or guarantee.
The Basel III standards could affect demand for our debt and mortgage-related securities.
U.S. banking regulators have substantially revised the capital and liquidity requirements applicable to
banking organizations, based on the Basel III standards developed by the Basel Committee on Banking
Supervision. Phase-in of the new bank capital and liquidity requirements will take several years. The new
requirements do not directly apply to us and there is significant uncertainty about the extent to which
implementation of the new requirements by banking organizations may affect us. For example, the
emerging regulatory framework could decrease demand for our debt and mortgage-related securities and/
or affect competition in the market for loan originations and servicing, with possible adverse
consequences for our business and financial results. In addition, the phase-in of enhanced capital and
liquidity requirements for banking organizations may reduce the level of participation of such
organizations in (and thus the liquidity of) trading markets for various types of financial instruments,
including asset-backed securities. In turn, this could decrease the liquidity of the markets for our debt and
mortgage-related securities, which could increase our funding and other costs and adversely affect our
business.
In January 2016, the Basel Committee on Banking Supervision issued revised standards for minimum
capital requirements for market risk. These standards are also applicable to banking organizations. There
is significant uncertainty as to when, and the extent to which, U.S. banking regulators will adopt the new
market risk standards, and the effect any such standards may have on us.
We may make certain changes to our business in an attempt to meet our housing goals and
subgoals, which may cause us to forgo other more profitable opportunities.
We may make adjustments to our loan sourcing and purchase strategies in an effort to meet our housing
goals and subgoals, including relaxing some of our underwriting standards and the expanded use of
targeted initiatives to reach underserved populations. For example, we may purchase loans that offer
lower expected returns on our investment and potentially increase our exposure to credit losses. Doing so
could cause us to forgo other purchase opportunities that we would expect to be more profitable.
FHFA has not yet published a final rule with respect to our duty to serve underserved markets. However, it
is possible that we could also make changes to our business in the future in response to this duty that
could adversely affect our profitability. If we do not meet our housing goals or duty to serve requirements,
and FHFA finds that we could have met the goals or satisfied the requirements, we may become subject
to a housing plan that could require us to take additional steps that could potentially adversely affect our
profitability. Due to our failure to meet two single-family housing goals for 2014, FHFA required us to
submit a housing plan addressing how we intend to achieve the missed goals in 2016 and 2017. We
submitted a housing plan for FHFA approval on February 1, 2016. If we fail to comply with the plan, FHFA
could take additional action against us.
We are involved in legal proceedings that could result in the payment of substantial damages or
otherwise harm our business.
We are a party to various claims and other legal proceedings. We also have been, and in the future may
be, involved in governmental investigations and regulatory proceedings and IRS examinations. In
addition, certain of our former officers are involved in legal proceedings for which they may be entitled to
reimbursement by us for costs and expenses of the proceedings. We may be required to establish