Freddie Mac 2012 Annual Report Download - page 232

Fannie Mae was increased by 10 basis points. Under the law, the proceeds we receive from this increase are being remitted to
Treasury to fund the payroll tax cut, rather than retained by us.
On August 31, 2012, FHFA announced that it had directed Freddie Mac and Fannie Mae to further increase guarantee
fees on single-family mortgages by an average of 10 basis points, which was implemented in 2012. The announcement stated
that the changes to the guarantee fee pricing represent a step toward encouraging greater participation in the mortgage market
by private firms. The announcement stated that the increase in guarantee fees will:
• Make more uniform the guarantee fees that Freddie Mac and Fannie Mae charge lenders who deliver large volumes
of loans as compared to those who deliver smaller volumes; and
• Reduce cross-subsidies between higher-risk and lower-risk mortgages by increasing guarantee fees on loans with
maturities longer than fifteen years more than on shorter-maturity loans.
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 who can benefit from refinancing their home mortgages. The revisions to HARP
are available to borrowers with loans that were sold to Freddie Mac and Fannie Mae on or before May 31, 2009 and who
meet program criteria.
Purchase Agreement
Overview
On September 7, 2008, we, through FHFA, in its capacity as Conservator, and Treasury entered into the Purchase
Agreement. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended
on May 6, 2009, December 24, 2009, and August 17, 2012. Under the Purchase Agreement, the $200 billion maximum
amount of the commitment from Treasury was increased to accommodate the cumulative reduction in our net worth during
2010, 2011 and 2012. Beginning January 1, 2013, the amount of available funding remaining under the Purchase Agreement
is $140.5 billion. This amount will be reduced by any future draws. The provisions of the Purchase Agreement whereby
Treasury’s funding commitment would increase as necessary to accommodate any cumulative reduction in our net worth
during 2010, 2011, and 2012 no longer apply.
The Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to us after any quarter
in which we have a negative net worth (that is, our total liabilities exceed our total assets, as reflected on our GAAP balance
sheet). In addition, the Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to us if
the Conservator determines, at any time, that it will be mandated by law to appoint a receiver for us unless we receive these
funds from Treasury. In exchange for Treasury’s funding commitment, we issued to Treasury, as an aggregate initial
commitment fee: (a) one million shares of Variable Liquidation Preference Senior Preferred Stock (with an initial liquidation
preference of $1 billion), which we refer to as the senior preferred stock; and (b) a warrant to purchase, for a nominal price,
shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted
basis at the time the warrant is exercised, which we refer to as the warrant. We received no other consideration from Treasury
for issuing the senior preferred stock or the warrant.
Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as and if
declared by our Board of Directors. Through December 31, 2012, the senior preferred stock accrued quarterly cumulative
dividends at a rate of 10% per year. However, under the August 2012 amendment to the Purchase Agreement, the fixed
dividend rate was replaced with a net worth sweep dividend beginning in the first quarter of 2013. This amendment
effectively ends the circular practice of taking draws from Treasury to pay dividends to Treasury, thereby helping to preserve
remaining funding available to us under the Purchase Agreement.
For each quarter from January 1, 2013 through and including December 31, 2017, the dividend payment will be the
amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less the applicable
capital reserve amount, exceeds zero. The term Net Worth Amount is defined as: (a) the total assets of Freddie Mac
(excluding Treasury’s commitment and any unfunded amounts thereof), less; (b) our total liabilities (excluding any
obligation in respect of capital stock), in each case as reflected on our consolidated balance sheets prepared in accordance
with GAAP. If the calculation of the dividend payment for a quarter does not exceed zero, then no dividend will accrue or be
payable for that quarter. The applicable capital reserve amount will be $3 billion for 2013 and will be reduced by $600
million each year thereafter until it reaches zero on January 1, 2018. For each quarter beginning January 1, 2018, the
dividend payment will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal
227 Freddie Mac