Freddie Mac 2008 Annual Report Download - page 32

is working internally and with regulatory agencies to consider potential changes to our modification practices or current
accounting policy to maintain the SFAS 133 exemption. If our efforts to maintain our exemption from derivative accounting
for our guarantee are unsuccessful, our entire guarantee may be accounted for as a derivative instrument as early as the
second quarter of 2009; however, the precise timing remains uncertain.
New York Stock Exchange Matters
On November 17, 2008, we received a notice from the New York Stock Exchange, or NYSE, that we had failed to
satisfy one of the NYSE’s standards for continued listing of our common stock. Specifically, the NYSE advised us that we
were “below criteria” for the NYSE’s price criteria for common stock because the average closing price of our common
stock over a consecutive 30 trading-day period was less than $1.00 per share. As a result, the NYSE informed us that we
were not in compliance with the NYSE’s continued listing criteria under Section 802.01C of the NYSE Listed Company
Manual.
On December 2, 2008, we advised the NYSE of our intent to cure this deficiency by May 18, 2009, and that we may
undertake a reverse stock split in order to do so. On February 26, 2009, the NYSE submitted a rule change to the SEC
(which the SEC has designated as effective as of that date) suspending the application of its minimum price listing standard
until June 30, 2009. Under this rule change, we can return to compliance with the minimum price standard during the
suspension period if at the end of any calendar month during the suspension our common stock has a closing price of at least
$1.00 on the last trading day of such month and a $1.00 average share price based on the 30 trading days preceding the end
of such month. If we do not regain compliance during the suspension period, the six-month compliance period that began on
November 17, 2008 will recommence and we will have the remaining balance of that period to meet the standard.
If we fail to cure this deficiency when the minimum price standard recommences, the NYSE rules provide that the
NYSE will initiate suspension and delisting procedures. The delisting of our common stock would likely also result in the
delisting of our NYSE-listed preferred stock. The delisting of our common stock or NYSE-listed preferred stock would
require any trading in these securities to occur in the over-the-counter market and could adversely affect the market prices
and liquidity of the markets for these securities. If necessary, we will work with our Conservator to determine the specific
action or actions that we may take to cure the deficiency, but there is no assurance any actions we may take will be
successful. Our average share price for the 30 consecutive trading days ended as of the filing of this annual report on
Form 10-K was less than $1 per share.
Regulation and Supervision
We experienced a number of significant changes in our regulatory and supervisory environment in 2008 as a result of
the enactment of the Reform Act, which was signed into law on July 30, 2008 as part of The Housing and Economic
Recovery Act of 2008, as well as our entry into conservatorship. The Reform Act consolidated regulation of Freddie Mac,
Fannie Mae and the FHLBs into a single regulator, FHFA. Under the Reform Act, regulation of our mission was
substantially transferred from the Department of Housing and Urban Development, or HUD, to FHFA. Our former safety and
soundness regulator, the Office of Federal Housing Enterprise Oversight, or OFHEO, will remain in existence for a transition
period of up to one year from the enactment of the Reform Act.
Federal Housing Finance Agency
FHFA is an independent agency of the federal government responsible for oversight of the operations of Freddie Mac,
Fannie Mae and the FHLBs. FHFA has a Director appointed by the President and confirmed by the Senate for a five-year
term, removable only for cause. In the discussion below, we refer to Freddie Mac and Fannie Mae as the “enterprises.”
The Reform Act established the Federal Housing Finance Oversight Board, or the Oversight Board, which is responsible
for advising the Director of FHFA with respect to overall strategies and policies. The Oversight Board consists of the
Director of FHFA as Chairperson, the Secretary of the Treasury, the Chair of the SEC and the Secretary of HUD.
The Reform Act provided FHFA with new safety and soundness authority that is comparable to, and in some respects,
broader than that of the federal banking agencies. The Reform Act also gave FHFA enhanced powers that, even if we were
not placed into conservatorship, include the authority to raise capital levels above statutory minimum levels, regulate the size
and content of our mortgage-related investments portfolio, and approve new mortgage products.
FHFA is responsible for implementing the various provisions of the Reform Act. In a statement published on
September 7, 2008, the Director of FHFA indicated that FHFA will continue to work expeditiously on the many regulations
needed to implement the new legislation, and that some of the key regulations will address minimum capital standards,
prudential safety and soundness standards and portfolio limits. In general, we remain subject to existing regulations, orders
and determinations until new ones are issued or made.
Receivership
Under the Reform Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than
our obligations for a period of 60 days. FHFA has notified us that the measurement period for any mandatory receivership
29 Freddie Mac