Freddie Mac 2011 Annual Report Download - page 227

business activities and transactions, including the purchase or sale of certain assets, which we believe might have had a
beneficial impact on our results of operations or financial condition, if executed. Our inability to execute such transactions
may adversely affect our profitability, and thus contribute to our need to draw additional funds from Treasury. However,
we believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to maintain our
access to the debt markets and to have adequate liquidity to conduct our normal business activities, although the costs of
our debt funding could vary.
The Acting Director of FHFA stated that FHFA does not expect we will be a substantial buyer or seller of mortgages
for our mortgage-related investments portfolio. We are also subject to limits on the amount of assets we can sell from our
mortgage-related investments portfolio in any calendar month without review and approval by FHFA and, if FHFA
determines, Treasury.
Given the important role the Administration and our Conservator have placed on Freddie Mac in addressing housing
and mortgage market conditions and our public mission, we may be required to take additional actions that could have a
negative impact on our business, operating results, or financial condition. Certain changes to our business objectives and
strategies are designed to provide support for the mortgage market in a manner that serves our public mission and other
non-financial objectives, but may not contribute to our profitability. Some of these changes increase our expenses, while
others require us to forego revenue opportunities in the near term. In addition, the objectives set forth for us under our
charter and by our Conservator, as well as the restrictions on our business under the Purchase Agreement, have adversely
impacted and may continue to adversely impact our financial results, including our segment results. For example, our
efforts to help struggling homeowners and the mortgage market, in line with our public mission, may help to mitigate our
credit losses, but in some cases may increase our expenses or require us to forgo revenue opportunities in the near term.
There is significant uncertainty as to the ultimate impact that our efforts to aid the housing and mortgage markets,
including our efforts in connection with the MHA Program, will have on our future capital or liquidity needs. We are
allocating significant internal resources to the implementation of the various initiatives under the MHA Program and to
the servicing alignment initiative as directed by FHFA on April 28, 2011, which has increased, and will continue to
increase, our expenses. We cannot currently estimate whether, or the extent to which, costs incurred in the near term from
HAMP or other MHA Program efforts may be offset, if at all, by the prevention or reduction of potential future costs of
serious delinquencies and foreclosures due to these initiatives.
There is significant uncertainty as to whether or when we will emerge from conservatorship, as it has no specified
termination date, and as to what changes may occur to our business structure during or following conservatorship,
including whether we will continue to exist. The Acting Director of FHFA stated on September 19, 2011 that “it ought to
be clear to everyone at this point, given [Freddie Mac and Fannie Mae’s] losses since being placed into conservatorship
and the terms of the Treasury’s financial support agreements, that [Freddie Mac and Fannie Mae] will not be able to earn
their way back to a condition that allows them to emerge from conservatorship.” The Acting Director of FHFA stated on
November 15, 2011 that “the long-term outlook is that neither [Freddie Mac nor Fannie Mae] will continue to exist, at
least in its current form, in the future.” We are not aware of any current plans of our Conservator to significantly change
our business model or capital structure in the near-term. Our future structure and role will be determined by the
Administration and Congress, and there are likely to be significant changes beyond the near-term. We have no ability to
predict the outcome of these deliberations.
On February 11, 2011, the Administration delivered a report to Congress that lays out the Administration’s plan to
reform the U.S. housing finance market, including options for structuring the government’s long-term role in a housing
finance system in which the private sector is the dominant provider of mortgage credit. The report recommends winding
down Freddie Mac and Fannie Mae, and states that the Administration will work with FHFA to determine the best way to
responsibly reduce the role of Freddie Mac and Fannie Mae in the market and ultimately wind down both institutions. The
report states that these efforts must be undertaken at a deliberate pace, which takes into account the impact that these
changes will have on borrowers and the housing market.
The report states that the government is committed to ensuring that Freddie Mac and Fannie Mae have sufficient
capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations,
and further states that the Administration will not pursue policies or reforms in a way that would impair the ability of
Freddie Mac and Fannie Mae to honor their obligations. The report states the Administration’s belief that under the
companies’ senior preferred stock purchase agreements with Treasury, there is sufficient funding to ensure the orderly and
deliberate wind down of Freddie Mac and Fannie Mae, as described in the Administration’s plan.
The report identifies a number of policy levers that could be used to wind down Freddie Mac and Fannie Mae, shrink
the government’s footprint in housing finance, and help bring private capital back to the mortgage market, including
222 Freddie Mac