Freddie Mac 2008 Annual Report Download - page 122

has continued to be negatively impacted, and, when coupled with our increased cash purchase activity, resulted in us
retaining higher balances of single-family mortgage loans at December 31, 2008 than at December 31, 2007. See “OFF-
BALANCE SHEET ARRANGEMENTS — Other” for additional information regarding our purchase commitments at
December 31, 2008.
For use of the Fedwire system, the Federal Reserve requires that we fully fund our account in the system to the extent
necessary to cover payments on our debt and mortgage-related securities each day, before the Federal Reserve Bank of New
York, acting as our fiscal agent, will initiate such payments. We have open lines of credit with third parties, certain of which
require that we post collateral that, in certain limited circumstances, the secured party has the right to repledge to other third
parties, including the Federal Reserve Bank. As of December 31, 2008, we pledged approximately $20.7 billion of securities
to these secured parties. These lines of credit, which provide intraday liquidity to fund our activities through the Fedwire
system, are uncommitted intraday loan facilities. As a result, while we expect to continue to use these facilities, we may not
be able to draw on them if and when needed. See “NOTE 5: INVESTMENTS IN SECURITIES — Collateral Pledged” to
our consolidated financial statements for further information.
Depending on market conditions and the mix of derivatives we employ in connection with our ongoing risk
management activities, our derivative portfolio can be either a net source or a net use of cash. For example, depending on the
prevailing interest-rate environment, interest-rate swap agreements could cause us either to make interest payments to
counterparties or to receive interest payments from counterparties. Purchased options require us to pay a premium while
written options allow us to receive a premium.
We are required to pledge collateral to third parties in connection with secured financing and daily trade activities. In
accordance with contracts with certain derivative counterparties, we post collateral to those counterparties for derivatives in a
net loss position, after netting by counterparty, above agreed-upon posting thresholds. See “NOTE 5: INVESTMENTS IN
SECURITIES — Collateral Pledged” to our consolidated financial statements for information about assets we pledge as
collateral.
We are involved in various legal proceedings, including those discussed in “LEGAL PROCEEDINGS,” which may
result in a use of cash.
Actions of Treasury, the Federal Reserve and FHFA
Treasury, the Federal Reserve and FHFA have taken a number of actions that affect our cash requirements and ability to
fund those requirements, including the following:
• we have entered into the Purchase Agreement with Treasury, in connection with which Treasury has provided us with
its announced commitment to provide up to $200 billion in funding under specified conditions;
• we may request funds from Treasury until December 31, 2009 under our Lending Agreement with Treasury;
• Treasury has implemented a program to purchase mortgage-related securities issued by Freddie Mac and Fannie Mae,
under which Treasury held $94.2 billion of GSE mortgage-related securities as of January 31, 2009;
• the Federal Reserve has implemented a program to purchase up to $100 billion in direct obligations of Freddie Mac,
Fannie Mae and the FHLBs and up to $500 billion of mortgage-related securities issued by Freddie Mac, Fannie Mae
and Ginnie Mae. The Federal Reserve will purchase these direct obligations and mortgage-related securities from
primary dealers. Under this program, the Federal Reserve held $17.3 billion of our direct obligations and purchased
$74.2 billion of our mortgage-related securities as of February 25, 2009;
• FHFA, as Conservator, has eliminated the dividends on our common stock and preferred stock (other than the senior
preferred stock); and
• FHFA has suspended our capital requirements and the requirement to provide funds to the HUD and Treasury housing
funds established by the Reform Act.
The Purchase Agreement provides that, if FHFA determines that our liabilities exceed our assets under GAAP, Treasury
will contribute funds in an amount equal to the difference between such liabilities and assets; a higher amount may be drawn
if Treasury and Freddie Mac mutually agree that the draw should be increased beyond the level by which liabilities exceed
assets under GAAP. On November 24, 2008, we received $13.8 billion from Treasury under the Purchase Agreement, and we
expect to receive an additional $30.8 billion in March 2009. As a result of our draws under the Purchase Agreement, the
aggregate liquidation preference of the senior preferred stock will increase from $1.0 billion as of September 8, 2008 to
$45.6 billion. Our annual dividend obligation, based on that liquidation preference, will be $4.6 billion, which is in excess of
our annual net income in eight of the ten prior fiscal years. These dividend obligations make it more likely that we will face
increasingly negative cash flows from operations.
To date, our need for funding under the Purchase Agreement has not been caused by cash flow shortfalls but rather
primarily reflects large credit-related expenses and non-cash fair value adjustments as well as a partial valuation allowance
119 Freddie Mac