Freddie Mac 2012 Annual Report Download - page 36

Supervision of Our Company During Conservatorship
Upon its appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and privileges of
Freddie Mac, and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets, and
succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian or third party. Under
conservatorship, we have additional heightened supervision and direction from our regulator, FHFA, which is also acting as
our Conservator.
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. The directors serve on behalf of, and exercise authority as directed by, the Conservator. The Conservator retains the
authority to withdraw or revise its delegations of authority at any time. The Conservator also retained certain significant
authorities for itself, and did not delegate them to the Board. For more information on limitations on the Board’s authority
during conservatorship, see “DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE — Authority
of the Board and Board Committees.”
Because the Conservator succeeded to the powers, including voting rights, of our stockholders, who therefore do not
currently have voting rights of their own, we do not expect to hold stockholders’ meetings during the conservatorship, nor
will we prepare or provide proxy statements for the solicitation of proxies.
We describe the powers of our Conservator in detail below under “Powers of the Conservator.”
Impact of Conservatorship and Related Actions on Our Business
We conduct our business subject to the direction of FHFA as our Conservator. While the conservatorship has benefited
us through, for example, improved access to the debt markets because of the support we receive from Treasury, we are also
subject to certain constraints on our business activities by Treasury due to the terms of, and Treasury’s rights under, the
Purchase Agreement.
The Conservator continues to determine, and direct the efforts of the Board of Directors and management to address, the
strategic direction for the company. While the Conservator has delegated certain authority to management to conduct day-to-
day operations, many management decisions are subject to review and approval by FHFA and Treasury. In addition,
management frequently receives directions from FHFA on various matters involving day-to-day operations.
Our current business objectives reflect direction we received from the Conservator (including the Conservatorship
Scorecard). Our business objectives changed considerably since we entered into conservatorship. See “Executive
Summary — Our Primary Business Objectives” for more information. At the direction of the Conservator, we 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 profitability. Certain of these objectives are intended
to help homeowners and the mortgage market and may help to mitigate future credit losses. However, some of our initiatives
are expected to have an adverse impact on our near- and long-term financial results. The Conservator stated that it is taking
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. The Conservator also stated that it is focusing on
retaining value in the business operations of Freddie Mac and Fannie Mae, overseeing remediation of identified weaknesses
in corporate operations and risk management, and ensuring that sound corporate governance principles are followed. Given
the important role the Administration and our Conservator have placed on Freddie Mac in addressing housing and mortgage
market conditions and our public mission, we may be required to take additional actions that could have a negative impact on
our business, operating results or financial condition, and thus could contribute to a need for additional draws under the
Purchase Agreement.
These actions and objectives create risks and uncertainties that we discuss in “RISK FACTORS — Conservatorship and
Related Matters.” For more information on the impact of conservatorship and our current business objectives, see “NOTE 2:
CONSERVATORSHIP AND RELATED MATTERS.”
Limits on Investment Activity and Our Mortgage-Related Investments Portfolio
The conservatorship has significantly affected our investment activity. FHFA has stated that we will not be a substantial
buyer or seller of mortgages for our mortgage-related investments portfolio. Under the terms of the Purchase Agreement, as
amended on August 17, 2012, and FHFA regulation, the UPB of our mortgage-related investments portfolio: (a) could not
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