Freddie Mac 2008 Annual Report Download - page 4

PART I
ITEM 1. BUSINESS
Our Business and Statutory Mission
Freddie Mac was chartered by Congress in 1970 to stabilize the nation’s residential mortgage markets and expand
opportunities for homeownership and affordable rental housing. Our statutory mission is to provide liquidity, stability and
affordability to the U.S. housing market. We fulfill our mission by purchasing residential mortgages and mortgage-related
securities in the secondary mortgage market and securitizing them into mortgage-related securities that can be sold to
investors. We purchase single-family and multifamily mortgage-related securities for our mortgage-related investments
portfolio, which we previously referred to as our retained portfolio. We also purchase multifamily residential mortgages in
the secondary mortgage market and hold those loans either for investment or sale. We finance purchases of our mortgage-
related securities and mortgage loans, and manage our interest-rate and other market risks, primarily by issuing a variety of
debt instruments and entering into derivative contracts in the capital markets.
Conservatorship
On September 6, 2008, the Director of the Federal Housing Finance Agency, or FHFA, appointed FHFA as our
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. The conservatorship has no specified termination date. There can be no assurance of whether or how the
conservatorship will be terminated or what changes may occur to our business structure during or following conservatorship,
including whether we will continue to exist. For more information, see “Conservatorship and Related Developments.”
Operating our business under the conservatorship involves balancing competing objectives. Upon our entry into
conservatorship, the Conservator directed us to conduct our business with a focus on maintaining positive stockholders’
equity in order to reduce the need to draw funds under the Purchase Agreement (described below) and to return to long-term
profitability. In addition, the U.S. Department of the Treasury, or Treasury, and the Board of Governors of the Federal
Reserve System, or the Federal Reserve, have taken a number of actions to support us in conservatorship, including the
following:
• Treasury initially committed to provide us with up to $100 billion in funding under the senior preferred stock
purchase agreement, or Purchase Agreement (subsequently, Treasury has announced its commitment to increase the
funding available under the Purchase Agreement to $200 billion);
• Treasury established a secured lending facility that is available to us until December 31, 2009 under a Lending
Agreement;
• Treasury implemented a program to purchase mortgage-related securities issued by us and the Federal National
Mortgage Association, or Fannie Mae, until December 31, 2009; and
• the Federal Reserve implemented a program to purchase up to $100 billion in direct obligations of us, Fannie Mae
and the Federal Home Loan Banks, or FHLBs, and up to $500 billion of mortgage-related securities issued by us,
Fannie Mae and the Government National Mortgage Association, or Ginnie Mae. The Federal Reserve will purchase
these direct obligations and mortgage-related securities from primary dealers.
On September 18, 2008, we entered into a lending agreement with Treasury, or Lending Agreement, pursuant to which
Treasury established a new secured lending credit facility that is available to us until December 31, 2009 as a liquidity
backstop. In order to borrow pursuant to the Lending Agreement, we are required to post collateral in the form of Freddie
Mac or Fannie Mae mortgage-related securities to secure all borrowings under the facility. The terms of any borrowings
under the Lending Agreement, including the interest rate payable on the loan and the amount of collateral we will need to
provide as security for the loan, will be determined by Treasury. Treasury is not obligated under the Lending Agreement to
make any loan to us. Treasury does not have authority to extend the term of this credit facility beyond December 31, 2009,
which is when Treasury’s temporary authority to purchase our obligations and other securities, granted by the Federal
Housing Finance Regulatory Reform Act of 2008, or Reform Act, expires. After December 31, 2009, Treasury still may
purchase up to $2.25 billion of our obligations under its permanent authority, as set forth in our charter.
In the second half of 2008, we experienced less consistent demand for our debt securities as reflected in wider spreads
on our term and callable debt. This reflected overall deterioration in our access to unsecured medium and long-term debt
markets. There were many factors contributing to the reduced demand for our debt securities in the capital markets,
including continued severe market disruptions, market concerns about our capital position and the future of our business
(including its future profitability, future structure, regulatory actions and agency status) and the extent of U.S. government
support for our debt securities. In addition, various U.S. government programs were still being absorbed by market
participants creating uncertainty as to whether competing obligations of other companies were more attractive investments
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