Freddie Mac 2011 Annual Report Download - page 79

operations or the operations of our customers or counterparties. This could result in significant losses or reputational
damage, adversely affect our relationships with our customers and counterparties, and adversely affect our ability to
purchase loans, issue securities or enter into and execute other business transactions. We could also face regulatory action.
Internal or external attackers may seek to steal, corrupt or disclose confidential financial assets, intellectual property, and
other sensitive information. We may be required to expend significant additional resources to modify our protective
measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and
financial losses that are not fully insured.
We rely on third parties for certain important functions, including some that are critical to financial reporting, our
mortgage-related investment activity, and mortgage loan underwriting. Any failures by those vendors could disrupt our
business operations.
We outsource certain key functions to external parties, including: (a) processing functions for trade capture, market
risk management analytics, and financial instrument valuation; (b) custody and recordkeeping for our mortgage-related
investments; (c) processing functions for mortgage loan underwriting and servicing; (d) certain services we provide to
Treasury in our role as program compliance agent under HAMP; and (e) certain technology infrastructure and operations.
We may enter into other key outsourcing relationships in the future. If one or more of these key external parties were not
able to perform their functions for a period of time, at an acceptable service level, or for increased volumes, our business
operations could be constrained, disrupted, or otherwise negatively impacted. Our use of vendors also exposes us to the
risk of a loss of intellectual property or of confidential information or other harm. We may also be exposed to reputational
harm, to the extent vendors do not conduct their activities under appropriate ethical standards. Financial or operational
difficulties of an outside vendor could also hurt our operations if those difficulties interfere with the vendor’s ability to
provide services to us.
Our risk management efforts may not effectively mitigate the risks we seek to manage.
We could incur substantial losses and our business operations could be disrupted if we are unable to effectively
identify, manage, monitor and mitigate operational risks, interest rate and other market risks and credit risks related to our
business. Our risk management policies, procedures and techniques may not be sufficient to mitigate the risks we have
identified or to appropriately identify additional risks to which we are subject. See “QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK” and “MD&A — RISK MANAGEMENT” for a discussion of
our approach to managing certain of the risks we face.
Legal and Regulatory Risks
The Dodd-Frank Act and related regulation may adversely affect our business activities and financial results.
The Dodd-Frank Act, which was signed into law on July 21, 2010, significantly changed the regulation of the
financial services industry and could affect us in substantial and unforeseeable ways and have an adverse effect on our
business, results of operations, financial condition, liquidity, and net worth. For example, the Dodd-Frank Act and related
future regulatory changes could impact the value of assets that we hold, require us to change certain of our business
practices, impose significant additional costs on us, limit the products we offer, require us to increase our regulatory
capital, or make it more difficult for us to retain and recruit management and other employees. We will also face a more
complicated regulatory environment due to the Dodd-Frank Act and related future regulatory changes, which will increase
compliance costs and could divert management attention or other resources. The Dodd-Frank Act and related future
regulatory changes will also significantly affect many aspects of the financial services industry and potentially change the
business practices of our customers and counterparties; it is possible that any such changes could adversely affect our
business and financial results.
Implementation of the Dodd-Frank Act is being accomplished through numerous rulemakings, many of which are
still in process. 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 of a wide range of issues, which could lead to additional
legislative or regulatory changes. It could be difficult for us to comply with any future regulatory changes in a timely
manner, due to the potential scope and number of such changes, which could limit our operations and expose us to
liability.
The long-term impact of the Dodd-Frank Act and related future regulatory changes on our business and the financial
services industry will depend on a number of factors that are difficult to predict, including our ability to successfully
implement any changes to our business, changes in consumer behavior, and our competitors’ and customers’ responses to
the Dodd-Frank Act and related future regulatory changes.
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