Freddie Mac 2012 Annual Report Download - page 50

Dodd-Frank Act
The Dodd-Frank Act, which was signed into law on July 21, 2010, significantly changed the regulation of the financial
services industry, including by creating new standards related to regulatory oversight of systemically important financial
companies, derivatives, capital requirements, asset-backed securitization, mortgage underwriting, and consumer financial
protection. The Dodd-Frank Act has directly affected and will continue to directly affect the business and operations of
Freddie Mac by subjecting us to new and additional regulatory oversight and standards, including with respect to our
activities and products. We may also be affected by provisions of the Dodd-Frank Act and implementing regulations that
affect the activities of other financial services entities that are our customers and counterparties.
Implementation of the Dodd-Frank Act is being accomplished through numerous rulemakings, many of which are still
in process. Accordingly, it is difficult to assess fully the impact of the Dodd-Frank Act on Freddie Mac and the financial
services industry at this time. The final effects of the legislation will not be known with certainty until these rulemakings are
complete. The Dodd-Frank Act also mandates the preparation of studies on a wide range of issues, which could lead to
additional legislation or regulatory changes.
Recent developments with respect to Dodd-Frank rulemakings that may have a significant impact on Freddie Mac
include the following:
• CFPB final rules: The Consumer Financial Protection Bureau, or CFPB, adopted a number of final rules in early 2013
relating to mortgage finance and servicing practices. The rules generally will become effective by January 2014,
although some provisions have earlier effective dates. The ability-to-repay rule requires mortgage originators to make
a reasonable and good faith determination that a borrower has a reasonable ability to repay the loan according to its
terms. This rule provides certain protection from liability for originators making loans that satisfy the definition of a
qualified mortgage. The rule includes several alternative definitions of a qualified mortgage, one of which is a loan
that, in addition to meeting certain other requirements, is eligible to be purchased or guaranteed by Freddie Mac or
Fannie Mae. This provision expires on January 10, 2021 (or earlier if Freddie Mac and Fannie Mae cease operating
under FHFA conservatorship or receivership). The CFPB concurrently proposed an amendment to the rule to add an
exemption for the GSEs’ refinancing programs, subject to certain conditions.
Other CFPB rules include: (a) the high-cost mortgage and homeownership counseling rule, which extends consumer
protections related to high-cost mortgages; (b) the mortgage servicing rule, which substantially reforms servicers’
procedural obligations to borrowers when servicing mortgage loans; (c) the escrow accounts rule, which requires that
escrow accounts be established for a minimum of five years for higher-cost mortgages; (d) the loan originator
compensation rule, which expands and strengthens loan originator qualification requirements and regulates loan
originator compensation practices; and (e) the appraisals rule, which sets disclosure and delivery requirements for
appraisals and other written valuations. In addition, the CFPB, FHFA, and four other agencies jointly adopted a rule
on appraisals for higher priced mortgage loans, which requires creditors for certain mortgages to obtain an appraisal
or appraisals meeting specified standards, among other requirements.
These rules will, individually and in combination, significantly change many aspects of the mortgage industry and
may affect us both directly and indirectly. Certain of these rules establish requirements that apply directly to us, and
may cause operational and compliance challenges. These rules also may lead to significant changes in the structure of
the mortgage industry or the business practices of our customers and counterparties, which may affect us indirectly.
For example, customers and counterparties could change their pricing practices, which could cause the volume of
mortgage originations to decline, which would in turn adversely affect our business and financial results. Some of
these changes could slow the rate of foreclosures generally and result in significant changes to mortgage servicing
and foreclosure practices that could adversely affect our business. Mortgage originators and assignees, including
Freddie Mac, may be subject to increased legal risk for loans that do not meet the requirements of the new rules.
• Derivatives: Pursuant to rules adopted by the U.S. Commodity Futures Trading Commission, or CFTC, many of the
types of interest rate swaps that we use will become subject to central clearing requirements in 2013. For more
information, see “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Derivative
Counterparties.”
• Annual stress tests: On October 5, 2012, FHFA proposed a rule that would require Freddie Mac, Fannie Mae and the
FHLBs to conduct annual stress tests. If adopted as proposed, the rule would require Freddie Mac to conduct annual
stress tests using scenarios specified by FHFA.
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