Freddie Mac 2009 Annual Report Download - page 39

preferred stock is repaid would any liquidation proceeds be available for distribution to the holders of our common stock.
The aggregate liquidation preference on the senior preferred stock owned by Treasury was $51.7 billion as of December 31,
2009. The liquidation preference will increase further if we make additional draws under the Purchase Agreement, if we do
not pay dividends owed on the senior preferred stock in cash or if we do not pay the quarterly commitment fee to Treasury
under the Purchase Agreement.
We have a variety of different, and potentially competing, objectives that may adversely affect our financial results and
our ability to maintain positive net worth.
Based on our charter, public statements from Treasury and FHFA officials and guidance from our Conservator, we have
a variety of different, and potentially competing, objectives. These objectives include providing liquidity, stability and
affordability in the mortgage market; continuing to provide additional assistance to the struggling housing and mortgage
markets; reducing the need to draw funds from Treasury pursuant to the Purchase Agreement; returning to long-term
profitability; and protecting the interests of the taxpayers. These objectives create conflicts in strategic and day-to-day
decision making that will likely lead to suboptimal outcomes for one or more, or possibly all, of these objectives. Current
portfolio investment and mortgage guarantee activities, liquidity support, and loan modification and foreclosure forbearance
initiatives, including our efforts under the MHA Program and the Housing Finance Agency Initiative, are intended to provide
support for the mortgage market in a manner that serves our public mission and other non-financial objectives under
conservatorship, but may negatively impact our financial results and net worth.
We have experienced significant management changes which could increase our control risks and have a material adverse
effect on our ability to do business and our results of operations.
Since September 2008, we have had numerous changes in our senior management and governance structure, including
FHFA becoming our Conservator, a reconstituted Board of Directors, three changes in our Chief Executive Officer, three
changes in our Chief Financial Officer and a new Chief Operating Officer. The magnitude of these changes and the short
time interval in which they have occurred, particularly during the ongoing housing and economic crisis, add to the risks of
control failures, including a failure in the effective operation of our internal control over financial reporting or our disclosure
controls and procedures. Control failures could result in material adverse effects on our financial condition and results of
operations.
A new senior management team was installed between August and October 2009. It may take time for this new team to
become sufficiently familiar with our business and each other to effectively develop and implement our business strategies.
This turnover of key management positions could further harm our financial performance and results of operations.
Management attention may be diverted from regular business concerns by reorganizations and the need to operate under the
framework of conservatorship.
The conservatorship and uncertainty concerning our future may have an adverse effect on the retention and recruitment
of management and other valuable employees.
Our ability to recruit, retain and engage management and other valuable employees with the necessary skills to conduct
our business may be adversely affected by the conservatorship, the uncertainty regarding its duration and the potential for
future legislative or regulatory actions that could significantly affect our status as a GSE and our role in the secondary
mortgage market. The actions taken by Treasury and the Conservator to date, or that may be taken by them or other
government agencies in the future, may have an adverse effect on the retention and recruitment of senior executives and
others in management. For example, we are subject to restrictions on the amount of compensation we may pay our
executives under conservatorship. In addition, new statutory and regulatory requirements restricting executive compensation
at institutions that have received federal financial assistance, even if not expressly applicable to us, may be interpreted by
FHFA or Treasury as limiting the compensation that we are able to provide to our executive officers and other employees.
Although we have established compensation programs designed to help retain key employees, we are not currently in a
position to offer employees financial incentives that are equity-based and, as a result of this and other factors relating to the
conservatorship that may affect our attractiveness as an employer, we may be at a competitive disadvantage compared to
other potential employers. Uncertainty about the future of the GSEs affects all of our operations and heightens the risks
related to retention of management and other valuable employees. A recovering economy is likely to put additional pressures
on turnover in 2010, as other attractive opportunities may become available to people we want to retain. Accordingly, we
may not be able to retain or replace executives or other employees with key skills and our ability to conduct our business
effectively could be adversely affected.
36 Freddie Mac