Freddie Mac 2012 Annual Report Download - page 55

Conservatorship and Related Matters
The future status and role of Freddie Mac is uncertain and could be materially adversely affected by legislative and
regulatory action that alters the ownership, structure, and mission of the company.
The Acting Director of FHFA stated on November 15, 2011 that “the long-term outlook is that neither [Freddie Mac nor
Fannie Mae] will continue to exist, at least in its current form, in the future.” Future legislation will likely materially affect
the role of the company, our business model, our structure, and future results of operations. Some or all of our functions
could be transferred to other institutions, and we could cease to exist as a stockholder-owned company or at all. If any of
these events were to occur, our shares could further diminish in value, or cease to have any value, and there can be no
assurance that our stockholders would receive any compensation for such loss in value.
While there have not been significant legislative developments on the future status of Freddie Mac and Fannie Mae in
recent quarters, it is likely that bills related to GSE reform will be introduced and considered during the 113th Congress that
began in January 2013. There were a number of significant developments in 2011, including the Administration’s February
2011 report to Congress that, among other items, recommends reducing the role of Freddie Mac and Fannie Mae and
ultimately winding down both companies. In addition, a number of bills were introduced in Congress in 2011 concerning the
future status of Freddie Mac and Fannie Mae, including several bills that would have wound down Freddie Mac and Fannie
Mae (or completely restructured the companies).
FHFA is driving significant changes in our business model, primarily in our single-family guarantee business, through
its strategic plan for Freddie Mac and Fannie Mae and the Conservatorship Scorecard. At the time FHFA released its
strategic plan, it stated that the steps envisioned in the plan were consistent with each of the housing finance reform
frameworks set forth in the Administration’s February 2011 report, as well as with the leading congressional proposals
previously introduced. In addition, FHFA has expansive regulatory authority over us, and the manner in which FHFA will
use its authority in the future is unclear. FHFA could take a number of regulatory actions that could materially adversely
affect our company, such as changing or reinstating our current capital requirements, which are not binding during
conservatorship, or imposing additional restrictions on our portfolio activities or new initiatives.
For more information on the Administration’s February 2011 report, proposed GSE reform legislation, and FHFA’s
strategic plan and the Conservatorship Scorecard, see “BUSINESS — Regulation and Supervision — Legislative and
Regulatory Developments.”
The conservatorship is indefinite in duration and the timing, conditions, and likelihood of our emerging from
conservatorship are uncertain. Even if the conservatorship is terminated, we would remain subject to the Purchase
Agreement, senior preferred stock, and warrant.
FHFA has stated that there is no exact time frame as to when the conservatorship may end. Termination of the
conservatorship (other than in connection with receivership) also requires Treasury’s consent under the Purchase Agreement.
There can be no assurance as to when, and under what circumstances, Treasury would give such consent. There is also
significant uncertainty as to what changes may occur to our business structure during or following our conservatorship,
including whether we will continue to exist. It is possible that the conservatorship will end with us being placed into
receivership.
In addition, Treasury has the ability to acquire almost 80% of our common stock for nominal consideration by
exercising the warrant we issued to it pursuant to the Purchase Agreement. Consequently, the company could effectively
remain under the control of the U.S. government even if the conservatorship was ended and the voting rights of common
stockholders restored. The warrant held by Treasury, the restrictions on our business contained in the Purchase Agreement,
and the senior status of the senior preferred stock issued to Treasury under the Purchase Agreement, if the senior preferred
stock has not been redeemed, also could adversely affect our ability to attract new private sector capital in the future should
the company be in a position to seek such capital.
Moreover, we do not have the ability over the long-term to retain any capital generated by our business operations.
Under the Purchase Agreement, as revised on August 17, 2012, we are required to pay dividends to the extent that our Net
Worth Amount exceeds a permitted capital reserve amount. The amount of this reserve decreases over time. Accordingly,
over the long-term, we will not be able to build or retain any net worth surplus or return capital to stockholders other than
Treasury.
50 Freddie Mac