Freddie Mac 2010 Annual Report Download - page 260

advised us that, if, during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency
amount under the Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination.
At December 31, 2010, our liabilities exceeded our assets under GAAP by $401 million. As such, we must obtain
funding from Treasury pursuant to its commitment under the Purchase Agreement in order to avoid being placed into
receivership by FHFA. FHFA, as Conservator, will submit a draw request to Treasury under the Purchase Agreement in the
amount of $500 million, which we expect to receive by March 31, 2011. Upon funding of the draw request that FHFA will
submit to eliminate our net worth deficit at December 31, 2010, our aggregate funding received from Treasury under the
Purchase Agreement will increase to $63.7 billion. This aggregate funding amount does not include the initial $1.0 billion
liquidation preference of senior preferred stock that we issued to Treasury in September 2008 as an initial commitment fee
and for which no cash was received. As a result of the additional $500 million draw request, the aggregate liquidation
preference of the senior preferred stock will increase from $64.2 billion as of December 31, 2010 to $64.7 billion. We paid a
quarterly dividend of $1.3 billion, $1.3 billion, $1.6 billion, and $1.6 billion on the senior preferred stock in cash on
March 31, 2010, June 30, 2010, September 30, 2010, and December 31, 2010, respectively, at the direction of the
Conservator.
Subordinated Debt Commitment
In October 2000, we announced our adoption of a series of commitments designed to enhance market discipline,
liquidity and capital. In September 2005, we entered into a written agreement with FHFA that updated those commitments
and set forth a process for implementing them. Under the terms of this agreement, we committed to issue qualifying
subordinated debt for public secondary market trading and rated by no fewer than two nationally recognized statistical rating
organizations in a quantity such that the sum of total capital plus the outstanding balance of qualifying subordinated debt
will equal or exceed the sum of 0.45% of our PCs, Other Structured Securities, and Other Guarantee Transactions
outstanding and 4% of our on-balance sheet assets at the end of each quarter. Qualifying subordinated debt is defined as
subordinated debt that contains a deferral of interest payments for up to five years if: (a) our core capital falls below 125%
of our critical capital requirement; or (b) our core capital falls below our minimum capital requirement and pursuant to our
request, the Secretary of the Treasury exercises discretionary authority to purchase our obligations under Section 306(c) of
our charter. Qualifying subordinated debt will be discounted for the purposes of this commitment as it approaches maturity
with one-fifth of the outstanding amount excluded each year during the instrument’s last five years before maturity. When the
remaining maturity is less than one year, the instrument is entirely excluded. FHFA, as Conservator of Freddie Mac, has
suspended the requirements in the September 2005 agreement with respect to issuance, maintenance and reporting and
disclosure of Freddie Mac subordinated debt during the term of conservatorship and thereafter until directed otherwise.
Regulatory Capital Monitoring Framework
In a letter dated January 28, 2004, FHFA created a framework for monitoring our capital. The letter directed that we
maintain a 30% mandatory target capital surplus over our minimum capital requirement, subject to certain conditions and
variations; that we submit weekly reports concerning our capital levels; and that we obtain prior approval of certain capital
transactions. The mandatory target capital surplus was subsequently reduced to 20%.
FHFA, as Conservator of Freddie Mac, has announced that the mandatory target capital surplus will not be binding
during the term of conservatorship.
NOTE 19: CONCENTRATION OF CREDIT AND OTHER RISKS
Mortgages and Mortgage-Related Securities
Our business activity is to participate in and support the residential mortgage market in the United States, which we
pursue by both issuing guaranteed mortgage securities and investing in mortgage loans and mortgage-related securities.
Table 19.1 summarizes the concentration by year of origination and geographical area of the approximately $1.8 trillion
and $1.9 trillion UPB of our single-family credit guarantee portfolio as of December 31, 2010 and 2009, respectively. See
“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” “NOTE 5: MORTGAGE LOANS AND LOAN
LOSS RESERVES,” and “NOTE 8: INVESTMENTS IN SECURITIES” for more information about credit risk associated
with loans and mortgage-related securities that we hold.
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