Freddie Mac 2012 Annual Report Download - page 43

Treasury’s rights against impairment or dilution; and (c) we must provide Treasury with prior notice of specified actions
relating to our common stock, such as setting a record date for a dividend payment, granting subscription or purchase rights,
authorizing a recapitalization, reclassification, merger or similar transaction, commencing a liquidation of the company or
any other action that would trigger an adjustment in the exercise price or number or amount of shares subject to the warrant.
As of February 28, 2013, we believe we were in compliance with the covenants under the warrant.
Effect of Conservatorship and Treasury Agreements on Existing Stockholders
The conservatorship, the Purchase Agreement and the senior preferred stock and warrant issued to Treasury have
materially limited the rights of our common and preferred stockholders (other than Treasury as holder of the senior preferred
stock) and had a number of adverse effects on our common and preferred stockholders. See “RISK FACTORS —
Conservatorship and Related Matters — The conservatorship and investment by Treasury has had, and will continue to have,
a material adverse effect on our common and preferred stockholders.”
As described above, the conservatorship and Treasury Agreements also impact our business in ways that indirectly
affect our common and preferred stockholders. By their terms, the Purchase Agreement, senior preferred stock and warrant
will continue to exist even if we are released from the conservatorship. For a description of the risks to our business relating
to the conservatorship and Treasury Agreements, see “RISK FACTORS.”
Regulation and Supervision
In addition to our oversight by FHFA as our Conservator, we are subject to regulation and oversight by FHFA under our
charter and the GSE Act, which was modified substantially by the Reform Act. We are also subject to certain regulation by
other government agencies.
Federal Housing Finance Agency
FHFA is an independent agency of the federal government responsible for oversight of the operations of Freddie Mac,
Fannie Mae and the FHLBs. The Director of FHFA is appointed by the President and confirmed by the Senate for a five-year
term, removable only for cause. In the discussion below, we refer to Freddie Mac and Fannie Mae as the “enterprises.”
The Federal Housing Finance Oversight Board, or the Oversight Board, is responsible for advising the Director of
FHFA with respect to overall strategies and policies. The Oversight Board consists of the Director of FHFA as Chairperson,
the Secretary of the Treasury, the Chair of the SEC and the Secretary of HUD.
Under the GSE Act, FHFA has safety and soundness authority that is comparable to, and in some respects, broader than
that of the federal banking agencies. The GSE Act also provides FHFA with powers that, even if we were not in
conservatorship, include the authority to raise capital levels above statutory minimum levels, regulate the size and content of
our mortgage-related investments portfolio, and approve new mortgage products.
FHFA is responsible for implementing the various provisions of the GSE Act that were added by the Reform Act. In
general, we remain subject to existing regulations, orders and determinations until new ones are issued or made.
Receivership
Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than
our obligations for a period of 60 days. FHFA notified us that the measurement period for any mandatory receivership
determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for
our quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA also advised us
that, if, during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency amount under
the Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination.
In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for other reasons,
including conditions that FHFA has already asserted existed at the time the then Director of FHFA placed us into
conservatorship. These include: (a) a substantial dissipation of assets or earnings due to unsafe or unsound practices; (b) the
existence of an unsafe or unsound condition to transact business; (c) an inability to meet our obligations in the ordinary
course of business; (d) a weakening of our condition due to unsafe or unsound practices or conditions; (e) critical
undercapitalization; (f) the likelihood of losses that will deplete substantially all of our capital; or (g) by consent.
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