Freddie Mac 2012 Annual Report Download - page 38

rights or consent of any party. The GSE Act, however, provides that mortgage loans and mortgage-related assets that have
been transferred to a Freddie Mac securitization trust must be held for the beneficial owners of the trust and cannot be used to
satisfy our general creditors.
Under the GSE Act, in connection with any sale or disposition of our assets, the Conservator must conduct its operations
to maximize the NPV return from the sale or disposition of such assets, to minimize the amount of any loss realized in the
resolution of cases, and to ensure adequate competition and fair and consistent treatment of offerors. The Conservator is
required to maintain a full accounting of the conservatorship and make its reports available upon request to stockholders and
members of the public.
We remain liable for all of our obligations relating to our outstanding debt and mortgage-related securities. FHFA has
stated that our obligations will be paid in the normal course of business during the conservatorship.
Special Powers of the Conservator
Disaffirmance and Repudiation of Contracts
Under the GSE Act, the Conservator may disaffirm or repudiate contracts (subject to certain limitations for qualified
financial contracts) that we entered into prior to its appointment as Conservator if it determines, in its sole discretion, that
performance of the contract is burdensome and that disaffirmance or repudiation of the contract promotes the orderly
administration of our affairs. The GSE Act requires FHFA to exercise its right to disaffirm or repudiate most contracts within
a reasonable period of time after its appointment as Conservator. In a final rule published in June 2011, FHFA defines a
reasonable period of time following appointment of a conservator or receiver to be 18 months. The Conservator has advised
us that it has no intention of repudiating any guarantee obligation relating to Freddie Mac’s mortgage-related securities
because it views repudiation as incompatible with the goals of the conservatorship. We can, and have continued to, enter into,
perform and enforce contracts with third parties.
Limitations on Enforcement of Contractual Rights by Counterparties
The GSE Act provides that the Conservator may enforce most contracts entered into by us, notwithstanding any
provision of the contract that provides for termination, default, acceleration, or exercise of rights upon the appointment of, or
the exercise of rights or powers by, a conservator.
Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts
Notwithstanding the Conservator’s powers under the GSE Act described above, the Conservator must recognize legally
enforceable or perfected security interests, except where such an interest is taken in contemplation of our insolvency or with
the intent to hinder, delay or defraud us or our creditors. In addition, the GSE Act provides that no person will be stayed or
prohibited from exercising specified rights in connection with qualified financial contracts, including termination or
acceleration (other than solely by reason of, or incidental to, the appointment of the Conservator), rights of offset, and rights
under any security agreement or arrangement or other credit enhancement relating to such contract. Such rights in connection
with qualified financial contracts that arise solely by reason of, or incidental to, the appointment of a receiver may be
exercised only after: (a) 5:00 p.m. on the business day following the receiver’s appointment; or (b) notice to such person that
such contract has been transferred by the receiver to another person. The term qualified financial contract means any
securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, and any similar agreement
as determined by FHFA by regulation, resolution or order.
Avoidance of Fraudulent Transfers
Under the GSE Act, the Conservator may avoid, or refuse to recognize, a transfer of any property interest of Freddie
Mac or of any of our debtors, and also may avoid any obligation incurred by Freddie Mac or by any debtor of Freddie Mac, if
the transfer or obligation was made: (a) within five years of September 6, 2008; and (b) with the intent to hinder, delay, or
defraud Freddie Mac, FHFA, the Conservator or, in the case of a transfer in connection with a qualified financial contract,
our creditors. To the extent a transfer is avoided, the Conservator may recover, for our benefit, the property or, by court
order, the value of that property from the initial or subsequent transferee, other than certain transfers that were made for
value, including satisfaction or security of a present or antecedent debt, and in good faith. These rights are superior to any
rights of a trustee or any other party, other than a federal agency, under the U.S. bankruptcy code.
33 Freddie Mac