Freddie Mac 2012 Annual Report Download - page 84

process. Our business could also be adversely affected by any modification, reduction, or repeal of the federal income tax
deductibility of mortgage interest payments. A number of local governments are considering or may consider using eminent
domain to seize mortgage loans and forgive principal on the loans. Such seizures, if they are successful, could result in
further losses and write-downs relating to our investment securities and could increase our credit losses.
We are subject to a number of lawsuits challenging our statutory exemption from real estate transfer taxes imposed on
the transfer of real property for which we were the grantor or grantee. If we were to become subject to transfer taxes in a
large number of states and localities, and if we were required to pay a number of years of past transfer taxes in these states
and localities, it would increase our costs going forward and could have an adverse effect on our financial results. For more
information, see “NOTE 17: LEGAL CONTINGENCIES — Lawsuits Involving Real Estate Transfer Taxes.”
Pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011, FHFA required Freddie Mac and Fannie Mae to
increase guarantee fees by no less than 10 basis points above the average guarantee fees charged in 2011 on single-family
mortgage-backed securities to fund the payroll tax cut that occurred in 2012. If we are found to be out of compliance with
this requirement of the Act for two consecutive years, we will be precluded from providing any guarantee for a period to be
determined by FHFA, but in no case less than one year.
Legislation or regulatory actions could indirectly adversely affect us to the extent such legislation or actions affect the
activities of banks, savings institutions, insurance companies, securities dealers, and other regulated entities that constitute a
significant part of our customer base or counterparties, or could indirectly affect us to the extent that they modify industry
practices. Legislative or regulatory provisions that remove incentives for these entities to sell mortgage loans to us, purchase
our securities or enter into derivatives, or other transactions with us could have a material adverse effect on our business
results and financial condition.
The Office of the Comptroller of the Currency, the Federal Reserve and the FDIC (collectively, the “Banking
Agencies”) are in the process of substantially revising capital requirements applicable to banking organizations. In June
2012, the Banking Agencies jointly released three notices of proposed rulemaking that would revise and replace the Banking
Agencies’ current capital rules by implementing the Basel III regulatory reforms as well as certain provisions of the Dodd-
Frank Act. In addition, in June 2012, the Banking Agencies jointly announced the finalization of a market risk capital rule
applicable to banking organizations with significant trading assets and liabilities. Phase-in of new bank capital requirements
is expected to take several years and there is significant uncertainty about how the proposed regulations will be finalized and
what effects any new bank capital requirements will have on us. For example, it is possible that any new regulations on the
capital treatment of mortgage servicing rights, risk-based capital requirements for credit risk, and liquidity treatment of our
debt and guarantee obligations could adversely affect our business results and financial condition.
We may make certain changes to our business in an attempt to meet our housing goals and subgoals.
We may make adjustments to our mortgage loan sourcing and purchase strategies in an effort to meet our housing goals
and subgoals, including changes to our underwriting standards and the expanded use of targeted initiatives to reach
underserved populations. For example, we may purchase loans that offer lower expected returns on our investment and
potentially increase our exposure to credit losses. Doing so could cause us to forgo other purchase opportunities that we
would expect to be more profitable. If our current efforts to meet the goals and subgoals prove to be insufficient, we may
need to take additional steps that could potentially adversely affect our profitability. FHFA has not yet published a final rule
with respect to our duty to serve underserved markets. However, it is possible that we could also make changes to our
business in the future in response to this duty. If we do not meet our housing goals or duty to serve requirements, and FHFA
finds that the goals or requirements were feasible, we may become subject to a housing plan that could require us to take
additional steps that could have an adverse effect on our results of operations and financial condition.
We are involved in legal proceedings and governmental investigations that could result in the payment of substantial
damages or otherwise harm our business.
We are a party to various legal actions. In addition, certain of our former directors and officers are involved in legal
proceedings for which they may be entitled to reimbursement by us for costs and expenses of the proceedings. The defense of
these or any future claims or proceedings could divert management’s attention and resources from the needs of the business.
We may be required to establish reserves and to make substantial payments in the event of adverse judgments or settlements
of any such claims, investigations, proceedings, or examinations. Any legal proceeding, governmental investigation, or IRS
examination issue, even if resolved in our favor, could result in negative publicity or cause us to incur significant legal and
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