Freddie Mac 2012 Annual Report Download - page 44

On June 20, 2011, FHFA published a final rule that addresses conservatorship and receivership operations of Freddie
Mac, Fannie Mae and the FHLBs. The final rule establishes a framework to be used by FHFA when acting as conservator or
receiver, supplementing and clarifying statutory authorities. Among other provisions, the final rule indicates that FHFA will
not permit payment of securities litigation claims during conservatorship and that claims by current or former shareholders
arising as a result of their status as shareholders would receive the lowest priority of claim in receivership. In addition, the
final rule indicates that administrative expenses of the conservatorship will also be deemed to be administrative expenses of a
subsequent receivership and that capital distributions may not be made during conservatorship, except as specified in the
final rule.
Capital Standards
FHFA suspended capital classification of us during conservatorship in light of the Purchase Agreement. The existing
statutory and FHFA-directed regulatory capital requirements are not binding during the conservatorship. We continue to
provide our submission to FHFA on minimum capital. FHFA continues to publish relevant capital figures (minimum capital
requirement, core capital, and GAAP net worth) but does not publish our critical capital, risk-based capital or subordinated
debt levels during conservatorship.
On October 9, 2008, FHFA also announced that it will engage in rulemaking to revise our minimum capital and risk-
based capital requirements. The GSE Act provides that FHFA may increase minimum capital levels from the existing
statutory percentages either by regulation or on a temporary basis by order. On March 3, 2011, FHFA issued a final rule
setting forth procedures and standards for such a temporary increase in minimum capital levels. FHFA may also, by
regulation or order, establish capital or reserve requirements with respect to any product or activity of an enterprise, as FHFA
considers appropriate. In addition, under the GSE Act, FHFA must, by regulation, establish risk-based capital requirements
to ensure the enterprises operate in a safe and sound manner, maintaining sufficient capital and reserves to support the risks
that arise in their operations and management. In developing the new risk-based capital requirements, FHFA is not bound by
the risk-based capital standards in effect prior to the amendment of the GSE Act by the Reform Act.
Our regulatory minimum capital is a leverage-based measure that is generally calculated based on GAAP and reflects a
2.50% capital requirement for on-balance sheet assets and 0.45% capital requirement for off-balance sheet obligations.
Pursuant to regulatory guidance from FHFA, our minimum capital requirement was not automatically affected by our
January 1, 2010 adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of
VIEs. Specifically, upon adoption of this accounting guidance, FHFA directed us, for purposes of minimum capital, to
continue reporting our PCs held by third parties and other aggregate off-balance sheet obligations using a 0.45% capital
requirement. Notwithstanding this guidance, FHFA reserves the authority under the GSE Act to raise the minimum capital
requirement for any of our assets or activities.
For additional information, see “MD&A — LIQUIDITY AND CAPITAL RESOURCES — Capital Resources” and
“NOTE 14: REGULATORY CAPITAL.” Also, see “RISK FACTORS — Legal and Regulatory Risks” for more
information.
New Products
The GSE Act requires the enterprises to obtain the approval of FHFA before initially offering any product, subject to
certain exceptions. The GSE Act provides for a public comment process on requests for approval of new products. FHFA
may temporarily approve a product without soliciting public comment if delay would be contrary to the public interest.
FHFA may condition approval of a product on specific terms, conditions and limitations. The GSE Act also requires the
enterprises to provide FHFA with written notice of any new activity that we or Fannie Mae consider not to be a product.
On July 2, 2009, FHFA published an interim final rule on prior approval of new products, implementing the new
product provisions for us and Fannie Mae in the GSE Act. The rule establishes a process for Freddie Mac and Fannie Mae to
provide prior notice to the Director of FHFA of a new activity and, if applicable, to obtain prior approval from the Director if
the new activity is determined to be a new product. On August 31, 2009, Freddie Mac and Fannie Mae filed joint public
comments on the interim final rule with FHFA. FHFA stated that permitting us to engage in new products is inconsistent
with the goals of conservatorship and instructed us not to submit such requests under the interim final rule. This could have
an adverse effect on our business and profitability in future periods. We cannot currently predict when or if FHFA will
permit us to engage in new products under the interim final rule, nor when the rule will be finalized.
39 Freddie Mac