Freddie Mac 2004 Annual Report Download - page 25

In addition, OFHEO has issued a supplemental disclosure regulation that will obligate us to submit proxy
statements and insider transaction reports to the SEC in accordance with rules promulgated under the
Exchange Act. Our securities continue to be exempt from the securities oÅering registration requirements of
the Securities Act and certain other provisions of the federal securities laws.
GSE Regulatory Oversight Legislation
We face an uncertain regulatory environment in light of legislative reforms currently being discussed. We
strongly support enactment of regulatory oversight legislation that ensures our regulator has authority to
conduct eÅective oversight. We believe appropriate regulatory oversight legislation would strengthen market
conÑdence and promote our mission. In our view, a strong regulator that values housing, capital requirements
tied to risk, and legislative provisions that maintain our GSE status are among the key elements of appropriate
GSE regulatory oversight legislation. We will continue to work with the Congress, the Administration and
other interested parties toward enacting such legislation.
Both the Senate and the House of Representatives have indicated that they will consider GSE regulatory
oversight legislation during the current session of Congress. Separate bills concerning regulatory oversight are
under consideration in the Senate and the House of Representatives, and others are likely to be introduced,
that address key elements of the GSE's business and regulation including regulatory structure, capital
standards, receivership, scope of GSE activities, aÅordable housing goals, portfolio growth and expanded
regulatory oversight over GSE oÇcers and directors.
We currently generate a signiÑcant portion of our net income through our portfolio investment activities.
Legislative provisions now under consideration would give our regulator substantial authority to regulate the
amount and composition of our portfolio investments and would enable the regulator to require substantial
reductions in those investments. Additional provisions under consideration would increase the regulator's
authority to require us to maintain higher capital levels and to approve new programs and business activities,
and would modify our aÅordable housing goals and require that a speciÑed percentage of our proÑts be placed
in a fund to support aÅordable housing.
It is also possible that the enactment of legislative provisions that go beyond the key elements identiÑed
above could further erode or eliminate the special abilities and responsibilities set forth in our charter that
make it possible for us to pursue our mission eÅectively. The enactment into law of the various legislative
provisions under consideration, depending on their Ñnal terms and on how they were applied by our regulator
within the scope of its authority, could have a material adverse eÅect on Freddie Mac's future earnings, stock
price and shareholder returns, ability to fulÑll its mission, and ability to recruit and retain qualiÑed oÇcers and
directors.
While we continue to work toward enactment of appropriate GSE regulatory oversight legislation, we
cannot predict the prospects for the enactment, timing or content of any legislation or its impact on our
Ñnancial prospects.
Other Regulatory Matters
Our business activities may be aÅected by a variety of legislative and regulatory actions related to the
activities of banks, savings institutions, insurance companies, securities dealers and other regulated entities
that comprise a signiÑcant part of our customer base. Among the legislative and regulatory provisions
applicable to these entities are capital requirements for federally insured depository institutions and regulated
bank holding companies. For example, the Basel Committee on Banking Supervision, composed of representa-
tives of certain central banks and bank supervisors, has developed a new set of risk-based capital standards for
banking organizations. The U.S. banking regulators have stated their intent to propose new capital standards
for certain banking organizations that would incorporate the new risk-based capital standards into existing
requirements. If Ñnal rules adopted by the U.S. banking regulators revise the capital treatment of mortgage
assets, decisions by U.S. banking organizations about whether to hold or sell such assets could be aÅected.
However, the contents and timing of any Ñnal rules remain uncertain, as does the manner in which U.S.
banking organizations may respond to them.
Legislative or regulatory provisions that create or remove incentives for these entities either to sell
mortgage loans to us or to purchase our securities, could have a material eÅect on our business results.
Freddie Mac
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