Freddie Mac 2011 Annual Report Download - page 45

detail concerning approaches to reform the U.S. housing finance market in the spring, and that it plans to begin exploring
options for legislation more intensively with Congress.
Several bills were introduced in Congress in 2011 that would comprehensively reform the secondary mortgage
market and address the future state of Freddie Mac and Fannie Mae. None of the bills have been scheduled for further
consideration in the Senate. In the House, several of these bills were approved by the House Financial Services
Subcommittee on Capital Markets and Government-Sponsored Enterprises. Most recently, this subcommittee approved a
bill in December 2011 that would reform the secondary mortgage market by facilitating continued standardization and
uniformity in mortgage securitization. Under several of the bills, our charter would be revoked and we would be wound
down or placed into receivership. Such legislation could impair our ability to issue securities in the capital markets and
therefore our ability to conduct our business, absent an explicit guarantee of our existing and ongoing liabilities by the
U.S. government.
The House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises approved a
number of other bills in 2011 that would limit the companies’ operations or alter FHFA or Treasury’s authority over the
companies, including bills that would require advance approval by the Secretary of the Treasury and notice to Congress
for all debt issuances by the companies; require FHFA to direct the companies to increase guarantee fees; repeal our
affordable housing goals; prohibit the companies from initially offering new products during conservatorship or
receivership; accelerate reductions in our mortgage-related investments portfolio; require that Freddie Mac and Fannie
Mae mortgages be treated the same as other mortgages for purposes of risk retention requirements in the Dodd-Frank Act;
grant the FHFA Inspector General direct access to our records and employees; authorize FHFA, as receiver, to revoke the
charters of Freddie Mac and Fannie Mae; prevent Treasury from lowering the dividend payment under the Purchase
Agreement; abolish the Affordable Housing Trust Fund, the Capital Magnet Fund, and the HOPE Reserve Fund; require
disposition of non-mission critical assets; apply the Freedom of Information Act to Freddie Mac and Fannie Mae; and set
a cap on the funds received under the Purchase Agreement.
In 2011, the Financial Services Committee of the House of Representatives approved a bill that would generally put
our employees on the federal government pay scale, and in 2012 both the House and the Senate approved legislation that
would prohibit senior executives from receiving bonuses during conservatorship. In February 2012, legislative proposals
were introduced in the Senate that would, among other items, cap the compensation and benefits of executive officers and
employees of Freddie Mac and Fannie Mae so they cannot exceed the amounts paid to the highest compensated executive
or employee at the federal financial institution regulatory agencies; and require executive officers, under certain
circumstances, to return to Treasury any compensation earned that exceeds the regulatory agencies’ rate of compensation.
If this or similar legislation were to become law, many of our employees would experience a sudden and sharp decrease
in compensation. The Acting Director of FHFA stated on November 15, 2011 that this “would certainly risk a substantial
exodus of talent, the best leaving first in many instances. [Freddie Mac and Fannie Mae] likely would suffer a rapidly
growing vacancy list and replacements with lesser skills and no experience in their specific jobs. A significant increase in
safety and soundness risks and in costly operational failures would, in my opinion, be highly likely.” The Acting Director
noted that “[s]hould the risks I fear materialize, FHFA might well be forced to limit [Freddie Mac and Fannie Mae’s]
business activities. Some of the business [Freddie Mac and Fannie Mae] would be unable to undertake might simply not
occur, with potential disruption in housing markets and the economy.”
Some of the bills discussed above, if enacted, would materially affect the role of the company, our business model
and our structure, and could have an adverse effect on our financial results and operations as well as our ability to retain
and recruit management and other valuable employees. A number of the bills would adversely affect our ability to
conduct business under our current business model, including by subjecting us to new requirements that could increase
costs, reduce revenues and limit or prohibit current business activities.
We cannot predict whether or when any of the bills discussed above might be enacted. We also expect additional
bills relating to Freddie Mac and Fannie Mae to be introduced and considered by Congress in 2012.
For more information on the potential impacts of legislative developments on compensation and employee retention,
see “RISK FACTORS — Conservatorship and Related Matters — The conservatorship and uncertainty concerning our
future has had, and will likely continue to have, an adverse effect on the retention, recruitment and engagement of
management and other employees, which could have a material adverse effect on our ability to operate our business” and
“MD&A — RISK MANAGEMENT — Operational Risks.”
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