Freddie Mac 2008 Annual Report Download - page 20

supporting the mortgage markets in ways that make it more difficult for us to implement any such actions. These actions and
objectives also create risks and uncertainties that we discuss in “RISK FACTORS.”
Managing Our Business During Conservatorship
Since September 6, 2008, we have made a number of changes in the strategies we use to manage our business in
support of our objectives outlined above. These include the changes we describe below.
Eliminating Planned Increase in Adverse Market Delivery Charge
As part of our efforts to increase liquidity in the mortgage market and make mortgage loans more affordable, we
announced on October 3, 2008 that we were eliminating our previously announced 25 basis point increase in our adverse
market delivery charge that was scheduled to take effect on November 7, 2008. The charge was intended to address
potentially higher credit costs for certain products, and its elimination will reduce our future net income. In January 2009, we
announced certain delivery fee increases that are more specifically targeted to mortgage products that present greater credit
risk.
Temporarily Increasing the Size of Our Mortgage-Related Investments Portfolio
Consistent with our ability under the Purchase Agreement to increase the size of our on-balance sheet mortgage
portfolio through the end of 2009, FHFA has directed us to acquire and hold increased amounts of mortgage loans and
mortgage-related securities in our mortgage-related investments portfolio to provide additional liquidity to the mortgage
market.
Increasing Our Loan Modification and Foreclosure Prevention Efforts
Working with our Conservator, we have significantly increased our loan modification and foreclosure prevention efforts
since we entered into conservatorship. For example:
• on November 11, 2008, our Conservator announced a broad-based “Streamlined Modification Program,” involving
Freddie Mac, Fannie Mae, the FHA, FHFA and 27 seller/servicers, which is intended to offer fast-track loan
modifications to certain troubled borrowers. Effective December 15, 2008, we directed our servicers to begin offering
loan modifications to troubled borrowers under this program; and
• we suspended foreclosure sales of occupied homes from November 26, 2008 through January 31, 2009 and from
February 14, 2009 through March 6, 2009. We suspended evictions on real estate owned, or REO, properties from
November 26, 2008 through April 1, 2009. Beginning March 7, 2009, we will suspend foreclosure sales for those
loans that are eligible for modification under the HASP until our servicers determine that the borrower of such a loan
is not responsive or that the loan does not qualify for a modification under HASP or any of our other alternatives to
foreclosure.
For a discussion of the impact of these programs on our business, see “MD&A — CREDIT RISKS — Mortgage Credit
Risk — Loss Mitigation Activities.” See also “Homeowner Affordability and Stability Plan” for information on our role in
the Obama Administration’s plan to help homeowners.
Overview of Treasury Agreements
Senior Preferred Stock Purchase Agreement
The Conservator, acting on our behalf, entered into the Purchase Agreement on September 7, 2008. The Purchase
Agreement was subsequently amended and restated on September 26, 2008, and Treasury Secretary Geithner announced
additional changes to the Purchase Agreement on February 18, 2009. Under the Purchase Agreement, Treasury initially
provided us with its commitment to provide up to $100 billion in funding under specified conditions, which it has
subsequently committed to increase to $200 billion. The Purchase Agreement requires Treasury, upon the request of the
Conservator, to provide funds to us after any quarter in which we have a negative net worth (that is, our total liabilities
exceed our total assets, as reflected on our GAAP balance sheet). In addition, the Purchase Agreement requires Treasury,
upon the request of the Conservator, to provide funds to us if the Conservator determines, at any time, that it will be
mandated by law to appoint a receiver for us unless we receive these funds from Treasury. In exchange for Treasury’s
funding commitment, we issued to Treasury, as an initial commitment fee: (1) one million shares of Variable Liquidation
Preference Senior Preferred Stock (with an initial liquidation preference of $1 billion), which we refer to as the senior
preferred stock; and (2) a warrant to purchase, for a nominal price, shares of our common stock equal to 79.9% of the total
number of shares of our common stock outstanding on a fully diluted basis at the time the warrant is exercised, which we
refer to as the warrant. We received no other consideration from Treasury for issuing the senior preferred stock or the
warrant.
Under the terms of the Purchase Agreement, Treasury is entitled to a dividend of 10% per year, paid on a quarterly
basis (which increases to 12% per year if not paid timely and in cash) on the aggregate liquidation preference of the senior
preferred stock, consisting of the initial liquidation preference of $1 billion plus funds we receive from Treasury and any
17 Freddie Mac