Freddie Mac 2008 Annual Report Download - page 48

dealers. As of February 25, 2009, according to information provided by the Federal Reserve, it held $38.3 billion under this
program, including $17.3 billion of our direct obligations. Our access to funding and funding costs would be significantly
adversely affected after the program has been completed.
We will not be able to obtain funds under the Lending Agreement after December 31, 2009. Therefore, after such date,
we will not have a substantial liquidity backstop available to us (other than Treasury’s ability to purchase up to $2.25 billion
of our obligations under its permanent authority) if we are unable to obtain funding from issuances of debt or other
conventional sources. Our long-term liquidity contingency strategy involves maintaining alternative sources of liquidity to
allow normal operations without relying upon the issuance of debt. However, under current conditions, it is unlikely that we
will be able to satisfy these liquidity needs through conventional sources. Consequently, our long-term liquidity contingency
strategy is currently dependent on the extension of the Lending Agreement beyond December 31, 2009. In addition, our
funding costs may increase if we borrow under the Lending Agreement. Based on a Fact Sheet published by Treasury on
September 7, 2008, the interest rate we are likely to be charged for loans under the Lending Agreement may be significantly
higher than the rates we have historically achieved through the sale of unsecured debt. Therefore, use of this facility in
significant amounts could have a material adverse impact on our financial results. Treasury is not obligated under the
Lending Agreement to make any loans to us, and thus we may not be able to rely on this facility in the event of a liquidity
crisis. Further, the terms of any borrowings will be determined by Treasury, and may be more restrictive than loans we could
obtain from other sources.
Current Liquidity Crisis
Our ability to obtain funding in the public debt markets or by pledging mortgage-related securities as collateral to other
financial institutions has been adversely affected by the current liquidity crisis and could cease or change rapidly and the cost
of the available funding could increase significantly due to changes in market confidence. Since July 2008, we have
experienced significant deterioration in our access to the unsecured medium- and long-term debt markets, and have relied
increasingly on short-term debt to fund our purchases of mortgage assets and to refinance maturing debt. As a result, we
have been required to refinance our debt on a more frequent basis, exposing us to an increased risk of insufficient demand
and adverse credit market conditions. This has also caused us to increase our use of pay-fixed swaps to synthetically create
the substantive economic equivalent of various debt funding structures. Thus, if our access to the derivative markets were
disrupted, our business results would be adversely affected. It is unclear if or when these market conditions will improve,
allowing us increased access to the longer-term debt markets that is not based on support from Treasury and the Federal
Reserve. During 2008, the ratings on our non-agency mortgage-related securities backed by Alt-A, subprime and MTA loans
decreased, limiting their availability as a significant source of liquidity for us through sales or use as collateral in secured
lending transactions. In addition, adverse market conditions have negatively impacted our ability to enter into secured
lending transactions using agency mortgage-related securities as collateral. These trends are likely to continue in the future.
Demand for Debt Funding
The willingness of domestic and foreign investors to purchase and hold our debt securities can be influenced by many
factors, including perceptions of the extent of U.S. government support for our business, changes in the world economy,
changes in foreign-currency exchange rates, regulatory and political factors, as well as the availability of and preferences for
other investments. If investors were to divest their holdings or reduce their purchases of our debt securities, our funding costs
could increase. We have experienced decreased demand for our long-term debt, and have relied more on the Federal Reserve
as an active purchaser of such debt in the secondary market. The willingness of investors to purchase or hold our debt
securities, and any changes to such willingness, may materially affect our liquidity, our business and results of operations.
Competition for Debt Funding
We compete for low-cost debt funding with Fannie Mae, the FHLBs and other institutions that are able to issue debt
that is guaranteed by the U.S. government. Competition for debt funding from these entities can vary with changes in
economic, financial market and regulatory environments. Increased competition for low-cost debt funding may result in a
higher cost to finance our business, which could negatively affect our financial results. An inability to issue debt securities at
attractive rates in amounts sufficient to fund our business activities and meet our obligations could have an adverse effect on
our liquidity, financial condition and results of operations. See “MD&A — LIQUIDITY AND CAPITAL RESOURCES —
Liquidity — Debt Securities” for a more detailed description of our debt issuance programs.
Lines of Credit
We maintain secured intraday lines of credit to provide additional intraday liquidity to fund our activities through the
Fedwire system. These lines of credit may require us to post collateral to third parties. In certain limited circumstances, these
secured counterparties may be able to repledge the collateral underlying our financing without our consent. In addition,
because these secured intraday lines of credit are uncommitted, we may not be able to continue to draw on them if and when
needed.
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