Freddie Mac 2008 Annual Report Download - page 54

Such consolidation could also significantly increase our required level of capital under existing capital rules (which have
been suspended by the Conservator). Implementation of these proposed changes would require significant operational and
systems changes. Depending on the implementation date ultimately required by FASB, it may be difficult or impossible for
us to make all such changes in a controlled manner by the effective date.
In addition, our implementation of HASP may require us to incur substantial costs and recognize potentially substantial
accounting impacts.
See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” to our consolidated financial statements for
more information.
A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our
business, damage our reputation and cause losses.
Shortcomings or failures in our internal processes, people or systems could lead to impairment of our liquidity, financial
loss, disruption of our business, liability to customers, legislative or regulatory intervention or reputational damage. For
example, our business is highly dependent on our ability to process a large number of transactions on a daily basis. The
transactions we process have become increasingly complex and are subject to various legal, accounting and regulatory
standards. Our financial, accounting, data processing or other operating systems and facilities may fail to operate properly or
become disabled, adversely affecting our ability to process these transactions. The inability of our systems to accommodate
an increasing volume of transactions or new types of transactions or products could constrain our ability to pursue new
business initiatives.
We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or
other financial intermediaries we use to facilitate our securities and derivatives transactions. Any such failure or termination
could adversely affect our ability to effect transactions, service our customers and manage our exposure to risk.
Most of our key business activities are conducted in our principal offices located in McLean, Virginia. Despite the
contingency plans and facilities we have in place, our ability to conduct business may be adversely impacted by a disruption
in the infrastructure that supports our business and the communities in which we are located. Potential disruptions may
include those involving electrical, communications, transportation or other services we use or that are provided to us. If a
disruption occurs and our employees are unable to occupy our offices or communicate with or travel to other locations, our
ability to service and interact with our customers or counterparties may suffer and we may not be able to successfully
implement contingency plans that depend on communication or travel.
We are exposed to the risk that a catastrophic event, such as a terrorist event or natural disaster, could result in a
significant business disruption and an inability to process transactions through normal business processes. To mitigate this
risk, we maintain and test business continuity plans and have established backup facilities for critical business processes and
systems away from, although in the same metropolitan area as, our main offices. However, these measures may not be
sufficient to respond to the full range of catastrophic events that may occur.
Our operations rely on the secure processing, storage and transmission of confidential and other information in our
computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances
warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other
malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could
jeopardize confidential and other information, including nonpublic personal information and sensitive business data,
processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or
malfunctions in our operations or the operations of our customers or counterparties, which could result in significant losses
or reputational damage. We may be required to expend significant additional resources to modify our protective measures or
to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that
are not fully insured.
We rely on third parties for certain functions that are critical to financial reporting, our mortgage-related investments
portfolio activity and mortgage loan underwriting. Any failures by those vendors could disrupt our business operations.
We outsource certain key functions to external parties, including but not limited to: (a) processing functions for trade
capture, market risk management analytics, and asset valuation; (b) custody and recordkeeping for our investment portfolios;
and (c) processing functions for mortgage loan underwriting. We may enter into other key outsourcing relationships in the
future. If one or more of these key external parties were not able to perform their functions for a period of time, at an
acceptable service level, or for increased volumes, our business operations could be constrained, disrupted or otherwise
negatively impacted. Our use of vendors also exposes us to the risk of a loss of intellectual property or of confidential
information or other harm. Financial or operational difficulties of an outside vendor could also hurt our operations if those
difficulties interfere with the vendor’s ability to provide services to us.
51 Freddie Mac