Freddie Mac 2008 Annual Report Download - page 55

Our risk management and loss mitigation efforts may not effectively mitigate the risks we seek to manage.
We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify,
manage, monitor and mitigate operational risks, interest-rate and other market risks and credit risks related to our business.
Our risk management policies, procedures and techniques may not be sufficient to mitigate the risks we have identified or to
appropriately identify additional risks to which we are subject. See “QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK,” “MD&A — CREDIT RISKS” and “MD&A — OPERATIONAL RISKS” for a
discussion of our approach to managing the risks we face.
Legal and Regulatory Risks
The future status and role of Freddie Mac could be materially affected by legislative and regulatory action that alters the
ownership, structure and mission of the company.
We believe that it is highly likely that the role of the company and our business model will be substantially affected by
future legislation, which could substantially affect our structure and future results of operations. Some or all of our functions
could be transferred to other institutions, and we could cease to exist as a stockholder-owned company or at all. If any of
these events were to occur, our shares could substantially diminish in value, or cease to have any value, and there can be no
assurance that our stockholders would receive any compensation for such loss in value. In addition, the Reform Act provides
FHFA with more expansive regulatory authority over us than was held by OFHEO and the manner in which this authority
will be implemented currently is unclear.
Legislation or regulation affecting the financial services, mortgage and investment banking industries may adversely
affect our business activities and financial results.
We expect that the financial services, mortgage and investment banking industries will face increased regulation,
whether by legislation or regulatory actions at the federal or state level. Our business activities may be directly affected by
any such legislative and regulatory actions. For example, we could be negatively affected by legislation at the state level that
changes the foreclosure process of any individual state. We may also be indirectly affected to the extent any such actions
affect the activities of banks, savings institutions, insurance companies, securities dealers and other regulated entities that
constitute a significant part of our customer base or counterparties. Congress may introduce legislation that could result in a
broad overhaul of the financial services industry’s regulatory system. Legislative or regulatory provisions that create or
remove incentives for these entities either to sell mortgage loans to us or to purchase our securities could have a material
adverse effect on our business results. Among the legislative and regulatory provisions applicable to these entities are capital
requirements for federally insured depository institutions and regulated bank holding companies.
Congress is currently considering legislation that would allow bankruptcy judges to unilaterally change the terms of
many mortgage loans, including by reducing the loan balance. If enacted, this legislation could cause us to suffer substantial
GAAP losses, including increased losses on our credit guarantee portfolio and additional other-than-temporary impairments
on our non-agency mortgage-related securities, and may require us to request additional draws under the Purchase
Agreement.
Our financial condition and results of operations and our ability to return to long-term profitability may be affected by
the nature, extent and success of the actions taken by the U.S. government to stabilize the economy and financial markets.
Conditions in the overall economy and the mortgage markets in particular may be affected in both the short and long-
term by the implementation of the EESA, the Recovery Act, the Financial Stability Plan announced by Treasury Secretary
Geithner on February 10, 2009 and HASP. The effect that the implementation of these laws and programs may have on our
business is uncertain. In addition, there can be no assurance as to the actual impact that these laws and programs will have
on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced.
The failure of these laws and programs to help stabilize the financial markets and a continuation or worsening of current
financial market conditions could materially and adversely affect our business, financial condition, results of operations, or
access to the debt markets.
We may make certain changes to our business in an attempt to meet the housing goals and subgoals that may increase
our losses.
We may make adjustments to our mortgage sourcing and purchase strategies in an effort to meet our housing goals and
subgoals, including changes to our underwriting guidelines and the expanded use of targeted initiatives to reach underserved
populations. For example, we may purchase loans and mortgage-related securities that offer lower expected returns on our
investment and increase our exposure to credit losses. Doing so could cause us to forgo other purchase opportunities that we
would expect to be more profitable. If our current efforts to meet the goals and subgoals prove to be insufficient, we may
need to take additional steps that could further increase our losses.
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