Freddie Mac 2011 Annual Report Download - page 53

Our business objectives and strategies have in some cases been significantly altered since we were placed into
conservatorship, and may continue to change, in ways that negatively affect our future financial condition and results
of operations.
FHFA, as Conservator, has directed the company to focus on managing to a positive stockholders’ equity. At the
direction of the Conservator, we have made changes to certain business practices that 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 goal of managing to a positive stockholders’ equity. Some of these changes have increased our expenses or caused
us to forego revenue opportunities. For example, FHFA has directed that we implement various initiatives under the MHA
Program. We expect to incur significant costs associated with the implementation of these initiatives and we cannot
currently estimate whether, or the extent to which, costs incurred in the near term from these initiatives may be offset, if
at all, by the prevention or reduction of potential future costs of serious delinquencies and foreclosures due to these
initiatives. On October 24, 2011, FHFA, Freddie Mac, and Fannie Mae announced a series of FHFA-directed changes to
HARP in an effort to attract more eligible borrowers whose monthly payments are current and who can benefit from
refinancing their home mortgages. There can be no assurance that the revisions to HARP will be successful in achieving
these objectives or that any benefits from the revised program will exceed our costs. The Conservator and Treasury have
also not authorized us to engage in certain 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 initiatives and transactions may adversely affect our profitability. Other agencies of
the U.S. government, as well as Congress, also have an interest in the conduct of our business. We do not know what
actions they may request us to take.
In view of the conservatorship and the reasons stated by FHFA for its establishment, it is likely that our business
model and strategic objectives will continue to change, possibly significantly, including in pursuit of our public mission
and other non-financial objectives. Among other things, we could experience significant changes in the size, growth, and
characteristics of our guarantee activities, and we could further change our operational objectives, including our pricing
strategy in our core mortgage guarantee business. The conservatorship has significantly impacted our investment activity,
and we may face further restrictions on this activity. Accordingly, our strategic and operational focus may not always be
consistent with the generation of net income. It is possible that we will make material changes to our capital strategy and
to our accounting policies, methods, and estimates. In addition, we may be directed to engage in initiatives that are
operationally difficult or costly to implement, or that adversely affect our financial results. For example, FHFA has
directed us to take various actions in support of the objectives of a gradual transition to greater private capital
participation in housing finance and greater distribution of risk to participants other than the government, such as
developing security structures that allow for private sector risk sharing.
On December 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011.
Among its provisions, this new law directs FHFA to require Freddie Mac and Fannie Mae to increase guarantee fees by
no less than 10 basis points above the average guarantee fees charged in 2011 on single-family mortgage-backed
securities. Under the law, the proceeds from this increase will be remitted to Treasury to fund the payroll tax cut, rather
than retained by the companies. It is currently unclear what effect this increase or any further guarantee fee increases or
other fee adjustments associated with this law will have on the future profitability and operations of our single-family
guarantee business, or on our ability to raise guarantee fees that may be retained by us. While we continue to assess the
impact of this law on us, we currently believe that implementation of this law will present operational and accounting
challenges for us.
FHFA has stated that it has focused Freddie Mac and Fannie Mae on their existing core business, including
minimizing credit losses, and taking actions necessary to advance the goals of the conservatorship, and is not permitting
Freddie Mac and Fannie Mae to offer new products or enter into new lines of business. FHFA stated that the focus of the
conservatorship is on conserving assets, minimizing corporate losses, ensuring Freddie Mac and Fannie Mae continue to
serve their mission, overseeing remediation of identified weaknesses in corporate operations and risk management, and
ensuring that sound corporate governance principles are followed. These and other restrictions imposed by FHFA could
adversely affect our financial results in future periods.
As our Conservator, FHFA possesses all of the powers of our stockholders, officers, and directors. During the
conservatorship, the Conservator has delegated certain authority to the Board of Directors to oversee, and to management
to conduct, day-to-day operations so that the company can continue to operate in the ordinary course of business. FHFA
has the ability to withdraw or revise its delegations of authority and override actions of our Board of Directors at any
time. The directors serve on behalf of, and exercise authority as directed by, the Conservator. In addition, FHFA has the
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