Freddie Mac 2008 Annual Report Download - page 25

performance of the contract is burdensome and that disaffirmation or repudiation of the contract promotes the orderly
administration of our affairs. The Reform Act requires FHFA to exercise its right to disaffirm or repudiate most contracts
within a reasonable period of time after its appointment as Conservator. We can, and have continued to, enter into, perform
and enforce contracts with third parties.
The Conservator has advised us that it has no intention of repudiating any guarantee obligation relating to Freddie
Mac’s mortgage-related securities because it views repudiation as incompatible with the goals of the conservatorship.
In general, the liability of the Conservator for the disaffirmance or repudiation of any contract is limited to actual direct
compensatory damages determined as of September 6, 2008, which is the date we were placed into conservatorship. The
liability of the Conservator for the disaffirmance or repudiation of a qualified financial contract is limited to actual direct
compensatory damages (which are deemed to include normal and reasonable costs of cover or other reasonable measure of
damages utilized in the industries for such contract and agreement claims) determined as of the date of the disaffirmance or
repudiation. If the Conservator disaffirms or repudiates any lease to or from us, or any contract for the sale of real property,
the Reform Act specifies the liability of the Conservator.
Limitations on Enforcement of Contractual Rights by Counterparties
The Reform Act provides that the Conservator may enforce most contracts entered into by us, notwithstanding any
provision of the contract that provides for termination, default, acceleration, or exercise of rights upon the appointment of, or
the exercise of rights or powers by, a conservator.
Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts
Notwithstanding the Conservator’s powers under the Reform Act described above, the Conservator must recognize
legally enforceable or perfected security interests, except where such an interest is taken in contemplation of our insolvency
or with the intent to hinder, delay or defraud us or our creditors. In addition, the Reform Act provides that no person will be
stayed or prohibited from exercising specified rights in connection with qualified financial contracts, including termination or
acceleration (other than solely by reason of, or incidental to, the appointment of the Conservator), rights of offset, and rights
under any security agreement or arrangement or other credit enhancement relating to such contract. The term qualified
financial contract means any securities contract, commodity contract, forward contract, repurchase agreement, swap
agreement and any similar agreement, as determined by FHFA by regulation, resolution or order.
Avoidance of Fraudulent Transfers
Under the Reform Act, the Conservator may avoid, or refuse to recognize, a transfer of any property interest of Freddie
Mac or of any of our debtors, and also may avoid any obligation incurred by Freddie Mac or by any debtor of Freddie Mac,
if the transfer or obligation was made: (1) within five years of September 6, 2008; and (2) with the intent to hinder, delay, or
defraud Freddie Mac, FHFA, the Conservator or, in the case of a transfer in connection with a qualified financial contract,
our creditors. To the extent a transfer is avoided, the Conservator may recover, for our benefit, the property or, by court
order, the value of that property from the initial or subsequent transferee, other than certain transfers that were made for
value and in good faith. These rights are superior to any rights of a trustee or any other party, other than a federal agency,
under the U.S. bankruptcy code.
Modification of Statutes of Limitations
Under the Reform Act, notwithstanding any provision of any contract, the statute of limitations with regard to any
action brought by the Conservator is: (1) for claims relating to a contract, the longer of six years or the applicable period
under state law; and (2) for tort claims, the longer of three years or the applicable period under state law, in each case, from
the later of September 6, 2008 or the date on which the cause of action accrues. In addition, notwithstanding the state law
statute of limitation for tort claims, the Conservator may bring an action for any tort claim that arises from fraud, intentional
misconduct resulting in unjust enrichment, or intentional misconduct resulting in substantial loss to us, if the state’s statute of
limitations expired not more than five years before September 6, 2008.
Suspension of Legal Actions
Under the Reform Act, in any judicial action or proceeding to which we are or become a party, the Conservator may
request, and the applicable court must grant, a stay for a period not to exceed 45 days.
Treatment of Breach of Contract Claims
Under the Reform Act, any final and unappealable judgment for monetary damages against the Conservator for breach
of an agreement executed or approved in writing by the Conservator will be paid as an administrative expense of the
Conservator.
Attachment of Assets and Other Injunctive Relief
Under the Reform Act, the Conservator may seek to attach assets or obtain other injunctive relief without being required
to show that any injury, loss or damage is irreparable and immediate.
22 Freddie Mac