Freddie Mac 2008 Annual Report Download - page 24

Our Board of Directors and Management During Conservatorship
We can, and have continued to, enter into and enforce contracts with third parties. The Conservator retains the authority
to withdraw its delegations of authority at any time. The Conservator is working with the Board of Directors and
management to address and determine the strategic direction for the company.
The Conservator has instructed the Board of Directors that it should consult with and obtain the approval of the
Conservator before taking action in the following areas:
• actions involving capital stock, dividends, the Purchase Agreement, increases in risk limits, material changes in
accounting policy, and reasonably foreseeable material increases in operational risk;
• the creation of any subsidiary or affiliate or any substantial transaction between Freddie Mac and any of its
subsidiaries or affiliates, except for transactions undertaken in the ordinary course (e.g., the creation of a REMIC, real
estate investment trust or similar vehicle);
• matters that relate to conservatorship, such as, but not limited to, the initiation and material actions in connection with
significant litigation addressing the actions or authority of the Conservator, repudiation of contracts, qualified financial
contracts in dispute due to our conservatorship, and counterparties attempting to nullify or amend contracts due to our
conservatorship;
• actions involving hiring, compensation and termination benefits of directors and officers at the executive vice
president level and above (including, regardless of title, executive positions with the functions of Chief Operating
Officer, Chief Financial Officer, General Counsel, Chief Business Officer, Chief Investment Officer, Treasurer, Chief
Compliance Officer, Chief Risk Officer and Chief/General/Internal Auditor);
• actions involving the retention and termination of external auditors, and law firms serving as consultants to the Board
of Directors;
• settlements in excess of $50 million of litigation, claims, regulatory proceedings or tax-related matters;
• any merger with or purchase or acquisition of a business involving consideration in excess of $50 million; and
• any action that in the reasonable business judgment of the Board of Directors at the time that the action is taken is
likely to cause significant reputational risk.
Powers of the Conservator
The Reform Act, which was signed into law on July 30, 2008, replaced the conservatorship provisions previously
applicable to Freddie Mac with conservatorship provisions based generally on federal banking law. As discussed below,
FHFA has broad powers when acting as our conservator. For more information on the Reform Act, see “Regulation and
Supervision.”
General Powers of the Conservator
Upon its appointment, the Conservator immediately succeeded to all rights, titles, powers and privileges of Freddie Mac,
and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets. The Conservator also
succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian or third party.
Under the Reform Act, the Conservator may take any actions it determines are necessary and appropriate to carry on
our business, support public policy objectives, and preserve and conserve our assets and property. The Conservator’s powers
include the ability to transfer or sell any of our assets or liabilities (subject to certain limitations and post-transfer notice
provisions for transfers of qualified financial contracts, as defined below under “Special Powers of the Conservator —
Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts”) without any approval, assignment of
rights or consent of any party. The Reform Act, however, provides that mortgage loans and mortgage-related assets that have
been transferred to a Freddie Mac securitization trust must be held for the beneficial owners of the trust and cannot be used
to satisfy our general creditors.
Under the Reform Act, in connection with any sale or disposition of our assets, the Conservator must conduct its
operations to maximize the net present value return from the sale or disposition, to minimize the amount of any loss realized,
and to ensure adequate competition and fair and consistent treatment of offerors. The Conservator is required to maintain a
full accounting of the conservatorship and make its reports available upon request to stockholders and members of the public.
We remain liable for all of our obligations relating to our outstanding debt and mortgage-related securities. In a Fact
Sheet dated September 7, 2008, FHFA indicated that our obligations will be paid in the normal course of business during the
conservatorship.
Special Powers of the Conservator
Disaffirmance and Repudiation of Contracts
Under the Reform Act, the Conservator may disaffirm or repudiate contracts (subject to certain limitations for qualified
financial contracts) that we entered into prior to its appointment as Conservator if it determines, in its sole discretion, that
21 Freddie Mac