Freddie Mac 2011 Annual Report Download - page 32

General Powers of the Conservator
Upon its appointment, the Conservator immediately succeeded to all rights, titles, powers and privileges of Freddie
Mac, and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets. The
Conservator also succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian
or third party.
Under the GSE Act, the Conservator may take any actions it determines are necessary and appropriate to carry on
our business, support public mission objectives, and preserve and conserve our assets and property. The Conservator’s
powers include the ability to transfer or sell any of our assets or liabilities (subject to certain limitations and post-transfer
notice provisions for transfers of qualified financial contracts, as defined below under “Special Powers of the
Conservator — Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts”) without any
approval, assignment of rights or consent of any party. The GSE Act, however, provides that mortgage loans and
mortgage-related assets that have been transferred to a Freddie Mac securitization trust must be held for the beneficial
owners of the trust and cannot be used to satisfy our general creditors.
Under the GSE Act, in connection with any sale or disposition of our assets, the Conservator must conduct its
operations to maximize the NPV return from the sale or disposition of such assets, to minimize the amount of any loss
realized in the resolution of cases, and to ensure adequate competition and fair and consistent treatment of offerors. The
Conservator is required to maintain a full accounting of the conservatorship and make its reports available upon request to
stockholders and members of the public.
We remain liable for all of our obligations relating to our outstanding debt and mortgage-related securities. FHFA has
stated that our obligations will be paid in the normal course of business during the conservatorship.
Special Powers of the Conservator
Disaffirmance and Repudiation of Contracts
Under the GSE Act, the Conservator may disaffirm or repudiate contracts (subject to certain limitations for qualified
financial contracts) that we entered into prior to its appointment as Conservator if it determines, in its sole discretion, that
performance of the contract is burdensome and that disaffirmance or repudiation of the contract promotes the orderly
administration of our affairs. The GSE Act requires FHFA to exercise its right to disaffirm or repudiate most contracts
within a reasonable period of time after its appointment as Conservator. In a final rule published in June 2011, FHFA
defines a reasonable period of time following appointment of a conservator or receiver to be 18 months. The Conservator
has advised us that it has no intention of repudiating any guarantee obligation relating to Freddie Mac’s mortgage-related
securities because it views repudiation as incompatible with the goals of the conservatorship. We can, and have continued
to, enter into, perform and enforce contracts with third parties.
Limitations on Enforcement of Contractual Rights by Counterparties
The GSE Act provides that the Conservator may enforce most contracts entered into by us, notwithstanding any
provision of the contract that provides for termination, default, acceleration, or exercise of rights upon the appointment of,
or the exercise of rights or powers by, a conservator.
Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts
Notwithstanding the Conservator’s powers under the GSE Act described above, the Conservator must recognize
legally enforceable or perfected security interests, except where such an interest is taken in contemplation of our
insolvency or with the intent to hinder, delay or defraud us or our creditors. In addition, the GSE Act provides that no
person will be stayed or prohibited from exercising specified rights in connection with qualified financial contracts,
including termination or acceleration (other than solely by reason of, or incidental to, the appointment of the Conservator),
rights of offset, and rights under any security agreement or arrangement or other credit enhancement relating to such
contract. The term qualified financial contract means any securities contract, commodity contract, forward contract,
repurchase agreement, swap agreement, and any similar agreement as determined by FHFA by regulation, resolution or
order.
Avoidance of Fraudulent Transfers
Under the GSE Act, the Conservator may avoid, or refuse to recognize, a transfer of any property interest of Freddie
Mac or of any of our debtors, and also may avoid any obligation incurred by Freddie Mac or by any debtor of Freddie
Mac, if the transfer or obligation was made: (a) within five years of September 6, 2008; and (b) with the intent to hinder,
delay, or defraud Freddie Mac, FHFA, the Conservator or, in the case of a transfer in connection with a qualified financial
27 Freddie Mac