Freddie Mac 2011 Annual Report Download - page 39

New Products
The GSE Act requires the enterprises to obtain the approval of FHFA before initially offering any product, subject to
certain exceptions. The GSE Act provides for a public comment process on requests for approval of new products. FHFA
may temporarily approve a product without soliciting public comment if delay would be contrary to the public interest.
FHFA may condition approval of a product on specific terms, conditions and limitations. The GSE Act also requires the
enterprises to provide FHFA with written notice of any new activity that we or Fannie Mae consider not to be a product.
On July 2, 2009, FHFA published an interim final rule on prior approval of new products, implementing the new
product provisions for us and Fannie Mae in the GSE Act. The rule establishes a process for Freddie Mac and Fannie
Mae to provide prior notice to the Director of FHFA of a new activity and, if applicable, to obtain prior approval from the
Director if the new activity is determined to be a new product. On August 31, 2009, Freddie Mac and Fannie Mae filed
joint public comments on the interim final rule with FHFA. FHFA has stated that permitting us to engage in new products
is inconsistent with the goals of conservatorship and has instructed us not to submit such requests under the interim final
rule. This could have an adverse effect on our business and profitability in future periods. We cannot currently predict
when or if FHFA will permit us to engage in new products under the interim final rule, nor when the rule will be
finalized.
Affordable Housing Goals
We are subject to annual affordable housing goals. In light of these housing goals, we may make adjustments to our
mortgage loan sourcing and purchase strategies, which could further increase our credit losses. These strategies could
include entering into some purchase and securitization transactions with lower expected economic returns than our typical
transactions. We at times relax some of our underwriting criteria to obtain goal-qualifying mortgage loans and make
additional investments in higher risk mortgage loan products that we believe are more likely to serve the borrowers
targeted by the goals, but have not done so to the same extent since 2010.
If the Director of FHFA finds that we failed to meet a housing goal and that achievement of the housing goal was
feasible, the GSE Act states that the Director may require the submission of a housing plan with respect to the housing
goal for approval by the Director. The housing plan must describe the actions we would take to achieve the unmet goal in
the future. FHFA has the authority to take actions against us, including issuing a cease and desist order or assessing civil
money penalties, if we: (a) fail to submit a required housing plan or fail to make a good faith effort to comply with a plan
approved by FHFA; or (b) fail to submit certain data relating to our mortgage purchases, information or reports as
required by law. See “RISK FACTORS — Legal and Regulatory Risks — We may make certain changes to our business
in an attempt to meet the housing goals and subgoals set for us by FHFA that may increase our losses.”
Effective beginning calendar year 2010, the Reform Act requires that FHFA establish, by regulation, four single-
family housing goals, one multifamily special affordable housing goal and requirements relating to multifamily housing
for very low-income families. Our housing goals for 2010 and 2011, as established by FHFA, are described below. FHFA
has not yet established our housing goals for 2012.
Affordable Housing Goals for 2010 and 2011 and Results for 2010
On September 14, 2010, FHFA published in the Federal Register a final rule establishing new affordable housing
goals for Freddie Mac and Fannie Mae for 2010 and 2011. The final rule was effective on October 14, 2010. The rule
establishes four goals and one subgoal for single-family owner-occupied housing, one multifamily special affordable
housing goal, and one multifamily special affordable housing subgoal. Three of the single-family housing goals and the
subgoal target purchase money mortgages for: (a) low-income families; (b) very low-income families; and/or (c) families
that reside in low-income areas. The single-family housing goals also include one that targets refinancing mortgages for
low-income families. The multifamily special affordable housing goal targets multifamily rental housing affordable to
low-income families. The multifamily special affordable housing subgoal targets multifamily rental housing affordable to
very low-income families.
The single-family goals are expressed as a percentage of the total number of eligible mortgages underlying our total
single-family mortgage purchases. The multifamily goals are expressed in terms of minimum numbers of units financed.
With respect to the single-family goals, the rule includes: (a) an assessment of performance as compared to the actual
share of the market that meets the criteria for each goal; and (b) a benchmark level to measure performance. Where our
performance on a single-family goal falls short of the benchmark for a goal, we still could achieve the goal if our
performance meets or exceeds the actual share of the market that meets the criteria for the goal for that year. For
example, if the actual market share of mortgages to low-income families relative to all mortgages originated to finance
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