Freddie Mac 2010 Annual Report Download - page 53

loss of business from any one of our major lenders could adversely affect our market share and our revenues. Many of our
seller/servicers also have tightened their lending criteria in recent years, which has reduced their loan volume, thus reducing
the volume of loans available for us to purchase.
Ongoing weak business and economic conditions in the U.S. and abroad may adversely affect our business and results of
operations.
Our business and results of operations are significantly affected by general business and economic conditions, including
conditions in the international markets for our investments or our mortgage-related and debt securities. These conditions
include employment rates, fluctuations in both debt and equity capital markets, the value of the U.S. dollar as compared to
foreign currencies, the strength of the U.S. financial markets and national economy and the local economies in which we
conduct business, and the economies of other countries that purchase our mortgage-related and debt securities. There is
significant uncertainty regarding the strength of the U.S. economic recovery. While the financial markets appear to have
stabilized, there can be no assurance that this will continue. If the U.S. economy remains weak, we could experience
continued high serious delinquencies and credit losses, which will adversely affect our results of operations and financial
condition.
The mortgage credit markets have experienced very difficult conditions and volatility since 2007. This has resulted in a
decrease in availability of corporate credit and liquidity within the mortgage industry, causing disruptions to normal
operations of major mortgage originators, including some of our largest customers, and contributed to the insolvency, closure
or acquisition of a number of major financial institutions. These conditions also resulted in significant volatility, wide credit
spreads and a lack of price transparency and could contribute to further consolidation within the financial services industry.
We continue to be subject to adverse effects on our financial condition and results of operations due to our activities
involving securities, mortgages, derivatives and other mortgage commitments with our customers.
Competition from banking and non-banking companies may harm our business.
Competition in the secondary mortgage market combined with a decline in the amount of residential mortgage debt
outstanding may make it more difficult for us to purchase mortgages. Furthermore, competitive pricing pressures may make
our products less attractive in the market and negatively impact our financial results. Increased competition from Fannie Mae
and Ginnie Mae may alter our product mix, lower volumes and reduce revenues on new business. FHFA is also Conservator
of Fannie Mae, our primary competitor, and FHFA’s actions as Conservator of both companies could affect competition
between us and Fannie Mae. Efforts we may make to increase the profitability of new single-family guarantee business, such
as by tightening credit standards or raising guarantee fees, could cause our market share to decrease and the volume of our
single-family guarantee business to decline. Historically, we also competed with other financial institutions that retain or
securitize mortgages, such as commercial and investment banks, dealers, thrift institutions, and insurance companies. While
many of these institutions have ceased or substantially reduced their activities in the secondary market since 2008, it is
possible that these institutions will reenter the secondary market.
Our business may be adversely affected by limited availability of financing and increased funding costs.
The amount, type and cost of our funding, including financing from other financial institutions and the capital markets,
directly impacts our interest expense and results of operations. A number of factors could make such financing more difficult
to obtain, more expensive or unavailable on any terms, both domestically and internationally, including:
• termination of, or future restrictions or other adverse changes with respect to, government support programs that may
benefit us;
• reduced demand for our debt securities; and
• competition for debt funding from other debt issuers.
Our ability to obtain funding in the public debt markets or by pledging mortgage-related securities as collateral to other
financial institutions could cease or change rapidly, and the cost of available funding could increase significantly due to
changes in market confidence and other factors. For example, in the fall of 2008, we experienced significant deterioration in
our access to the unsecured medium- and long-term debt markets, and were forced to rely on short-term debt to fund our
purchases of mortgage assets and refinance maturing debt and to rely on derivatives to synthetically create the substantive
economic equivalent of various debt funding structures.
We follow certain liquidity management practices and procedures. However, in the event we were unable to obtain
funding from the public debt markets, there can be no assurance that such practices and procedures would provide us with
sufficient liquidity to meet ongoing cash obligations for an extended period.
Since 2008, the ratings on the non-agency mortgage-related securities we hold backed by Alt-A, subprime and option
ARM loans have decreased, limiting their availability as a significant source of liquidity for us through sales or use as
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