Freddie Mac 2011 Annual Report Download - page 46

Dodd-Frank Act
The Dodd-Frank Act, which was signed into law on July 21, 2010, significantly changed the regulation of the
financial services industry, including by creating new standards related to regulatory oversight of systemically important
financial companies, derivatives, capital requirements, asset-backed securitization, mortgage underwriting, and consumer
financial protection. The Dodd-Frank Act has directly affected and will continue to directly affect the business and
operations of Freddie Mac by subjecting us to new and additional regulatory oversight and standards, including with
respect to our activities and products. We may also be affected by provisions of the Dodd-Frank Act and implementing
regulations that affect the activities of banks, savings institutions, insurance companies, securities dealers, and other
regulated entities that are our customers and counterparties.
Implementation of the Dodd-Frank Act is being accomplished through numerous rulemakings, many of which are
still in process. Accordingly, it is difficult to assess fully the impact of the Dodd-Frank Act on Freddie Mac and the
financial services industry at this time. The final effects of the legislation will not be known with certainty until these
rulemakings are complete. The Dodd-Frank Act also mandates the preparation of studies on a wide range of issues, which
could lead to additional legislation or regulatory changes.
Recent developments with respect to Dodd-Frank rulemakings that may have a significant impact on Freddie Mac
include the following:
• Designation as a systemically important nonbank financial company — The Financial Stability Oversight Council,
or FSOC, is expected to announce during 2012 which nonbank financial companies are systemically important. The
Federal Reserve has recently proposed rules to implement the enhanced supervisory and prudential requirements
that would apply to designated nonbank financial companies. The proposal includes rules to implement Dodd-
Frank requirements related to risk-based capital and leverage, liquidity, single-counterparty credit limits, overall
risk management and risk committees, stress tests, and debt-to-equity limits for certain covered companies. The
proposed rules also would implement Dodd-Frank requirements related to early remediation of financial distress of
a designated nonbank financial company. In addition, a recently adopted final rule requires designated nonbank
financial companies to submit annual resolution plans that describe the company’s strategy for rapid and orderly
resolution in bankruptcy during times of financial distress. If Freddie Mac is designated as a systemically important
nonbank financial company, we could be subject to these and other additional oversight and prudential standards.
• Derivatives Rulemakings — The U.S. Commodity Futures Trading Commission, or CFTC, has promulgated a
number of final rules implementing the Dodd-Frank Act’s provisions relating to derivatives. However, the CFTC
has yet to finalize many of the more significant derivative-related rules, including rules addressing the definition of
“major swap participant” and margin requirements for uncleared swaps. The Dodd-Frank Act imposes certain new
requirements on all swaps counterparties, including requirements addressing recordkeeping and reporting. If
Freddie Mac qualifies as a major swap participant, it will be subject to increased and additional requirements, such
as those relating to registration and business conduct. The eventual final rules on margin might increase the costs
of our swaps transactions. According to the CFTC’s tentative schedule, the CFTC expects to finalize the major
swap participant definition rule in the first quarter of 2012, but it does not expect to consider final rules on margin
(and numerous other topics) until later in 2012.
We continue to review and assess the impact of rulemakings and other activities under the Dodd-Frank Act. For more
information, see “RISK FACTORS — Legal and Regulatory Risks — The Dodd-Frank Act and related regulation may
adversely affect our business activities and financial results.”
Conforming Loan Limits
Beginning in 2008, pursuant to a series of laws, our loan limits in certain high-cost areas were increased temporarily
above the limits that otherwise would be applicable (up to $729,750 for a one-family residence). On September 30, 2011,
the latest of these increases was permitted to expire. Accordingly, our permanent high-cost area loan limits apply with
respect to loans originated on or after October 1, 2011 in high-cost areas (currently, up to $625,500 for a one-family
residence). A new law reinstated higher conforming loan limits for FHA-insured mortgages through 2013. However, these
reinstated higher limits do not apply to Freddie Mac and Fannie Mae.
Developments Concerning Single-Family Servicing Practices
There have been a number of regulatory developments in recent periods impacting single-family mortgage servicing
and foreclosure practices, including those discussed below. It is possible that these developments will result in significant
changes to mortgage servicing and foreclosure practices that could adversely affect our business. New compliance
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