Freddie Mac 2011 Annual Report Download - page 7

manner that serves our public mission and other non-financial objectives. However, these changes to our business
objectives and strategies may not contribute to our profitability. Some of these changes increase our expenses, while
others require us to forego revenue opportunities in the near-term. In addition, the objectives set forth for us under our
charter and by our Conservator, as well as the restrictions on our business under the Purchase Agreement, have adversely
impacted and may continue to adversely impact our financial results, including our segment results. For example, our
current business objectives reflect, in part, direction given to us by the Conservator. These efforts are expected to help
homeowners and the mortgage market and may help to mitigate future credit losses. However, some of our activities are
expected to have an adverse impact on our near- and long-term financial results. The Conservator and Treasury also did
not authorize 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 transactions may adversely affect our profitability, and thus contribute to our need to draw
additional funds under the Purchase Agreement.
We had a net worth deficit of $146 million as of December 31, 2011, and, as a result, FHFA, as Conservator, will
submit a draw request, on our behalf, to Treasury under the Purchase Agreement in the amount of $146 million. Upon
funding of the draw request: (a) our aggregate liquidation preference on the senior preferred stock owned by Treasury will
increase to $72.3 billion; and (b) the corresponding annual cash dividend owed to Treasury will increase to $7.23 billion.
Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred stock is limited and
we will not be able to do so for the foreseeable future, if at all. The aggregate liquidation preference of the senior
preferred stock and our related dividend obligations will increase further if we receive additional draws under the
Purchase Agreement or if any dividends or quarterly commitment fees payable under the Purchase Agreement are not paid
in cash. The amounts we are obligated to pay in dividends on the senior preferred stock are substantial and will have an
adverse impact on our financial position and net worth. We expect to make additional draws under the Purchase
Agreement in future periods.
Our annual dividend obligation on the senior preferred stock exceeds our annual historical earnings in all but one
period. Although we may experience period-to-period variability in earnings and comprehensive income, it is unlikely that
we will regularly generate net income or comprehensive income in excess of our annual dividends payable to Treasury. As
a result, there is significant uncertainty as to our long-term financial sustainability. Continued cash payment of senior
preferred dividends, combined with potentially substantial quarterly commitment fees payable to Treasury under the
Purchase Agreement, will have an adverse impact on our future financial condition and net worth. The payment of
dividends on our senior preferred stock in cash reduces our net worth. For periods in which our earnings and other
changes in equity do not result in positive net worth, draws under the Purchase Agreement effectively fund the cash
payment of senior preferred dividends to Treasury.
For more information on our current business objectives, see “Executive Summary — Our Primary Business
Objectives.” For more information on the conservatorship and government support for our business, see “Executive
Summary — Government Support for Our Business” and “Conservatorship and Related Matters.”
Executive Summary
You should read this Executive Summary in conjunction with our MD&A and consolidated financial statements and
related notes for the year ended December 31, 2011.
Overview
Freddie Mac is a GSE chartered by Congress in 1970 with a public mission to provide liquidity, stability, and
affordability to the U.S. housing market. We have maintained a consistent market presence since our inception, providing
mortgage liquidity in a wide range of economic environments. During the worst housing and financial crisis since the
Great Depression, we are working to support the recovery of the housing market and the nation’s economy by providing
essential liquidity to the mortgage market and helping to stem the rate of foreclosures. We believe our actions are helping
communities across the country by providing America’s families with access to mortgage funding at low rates while
helping distressed borrowers keep their homes and avoid foreclosure, where feasible.
Summary of Financial Results
Our financial performance in 2011 was impacted by the ongoing weakness in the economy, including in the
mortgage market, and by a significant reduction in long-term interest rates and changes in OAS levels. Our total
comprehensive income (loss) was $(1.2) billion and $282 million for 2011 and 2010, respectively, consisting of:
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