Freddie Mac 2006 Annual Report Download - page 27

Competition from banking and non-banking companies may harm our business.
We operate in a highly competitive environment and we expect competition to increase as Ñnancial services companies
continue to consolidate to produce larger companies that are able to oÅer similar mortgage-related products at competitive
prices. Increased competition in the secondary mortgage market and a decreased rate of growth in residential mortgage
debt outstanding may make it more diÇcult for us to purchase mortgages to meet our mission objectives while providing
favorable returns for our business. Furthermore, competitive pricing pressures may make our products less attractive in the
market and negatively impact our proÑtability.
We also compete for low-cost debt funding with Fannie Mae, the Federal Home Loan Banks and other institutions that
hold mortgage portfolios. Competition for debt funding from these entities can vary with changes in economic, Ñnancial
market and regulatory environments. Increased competition for low-cost debt funding may result in a higher cost to Ñnance
our business, which could decrease our net income.
We may face limited availability of Ñnancing, variation in our funding costs and uncertainty in our securitization
Ñnancing.
The amount, type and cost of our funding, including Ñnancing from other Ñnancial institutions and the capital markets,
directly impacts our interest expense and results of operations and can therefore aÅect our ability to grow our assets. A
number of factors could make such Ñnancing more diÇcult to obtain, more expensive or unavailable on any terms, both
domestically and internationally (where funding transactions may be on terms more or less favorable than in the U.S.),
including:
‚ adverse business or Ñnancial results or other adverse changes to our Ñnancial condition;
‚ speciÑc events that adversely impact our reputation;
‚ changes in the activities of our business partners;
‚ disruptions in the capital markets;
‚ speciÑc events that adversely impact the Ñnancial services industry;
‚ counterparty availability;
‚ changes in the preferences of the holders of our securities;
‚ changes in the breadth of our investor base;
‚ changes aÅecting the fair value of our assets;
‚ interest-rate Öuctuations, or rating agency actions;
‚ changes in our charter or regulatory oversight;
‚ changes to or developments in the legal, regulatory, accounting and tax environments governing our funding
transactions, including the outcome of the Treasury Department's review of its process for approving our debt
oÅerings;
‚ the general state of the U.S., Asian and other world economies, and factors aÅecting those economies; and
‚ public perception of any of the foregoing.
Foreign investors, particularly in Asia, hold a signiÑcant portion of our debt securities and are an important source of
funding for our business. Foreign investors' willingness to purchase and hold our debt securities can be inÖuenced by many
factors, including changes in the world economies, changes in foreign currency exchange rates, regulatory and political
factors, as well as the availability of and preferences for other investments. If foreign investors were to divest their holdings or
reduce their purchases of our debt securities, our funding costs may increase. The willingness of foreign investors to
purchase or hold our debt securities, and any changes to such willingness, may materially aÅect our liquidity, our business
and results of operations. Foreign investors are also signiÑcant purchasers of mortgage-related securities and changes in the
strength and stability of foreign demand for mortgage-related securities could aÅect the overall market for those securities
and the returns available to us on our portfolio investments.
Other GSEs also issue signiÑcant amounts of agency debt, which may negatively impact the prices we are able to obtain
for our debt securities. An inability to issue debt securities at attractive rates in amounts suÇcient to fund our business
activities and meet our obligations could have an adverse eÅect on our liquidity, Ñnancial condition and results of operations.
See ""MD&A Ì LIQUIDITY AND CAPITAL RESOURCES Ì Liquidity Ì Debt Securities'' for a more detailed
description of our debt issuance programs.
We maintain secured intraday lines of credit to provide additional intraday liquidity to fund our activities through the
Fedwire system. These lines of credit may require us to post collateral to third parties. In certain limited circumstances,
these secured counterparties may be able to repledge the collateral underlying our Ñnancing without our consent. In
addition, because these secured intraday lines of credit are uncommitted, we may not be able to continue to draw on them if
and when needed.
15 Freddie Mac