Freddie Mac 2015 Annual Report Download - page 157

Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile
Freddie Mac 2015 Form 10-K 155
MORTGAGE LOANS AND MORTGAGE-RELATED SECURITIES
We invest principally in mortgage loans and mortgage-related securities, certain categories of which are
largely unencumbered and liquid. Our primary source of liquidity among these mortgage assets is our
holdings of single-class and multiclass agency securities, excluding certain structured agency securities
collateralized by non-agency mortgage-related securities.
In addition, we hold unsecuritized single-family loans and multifamily held-for-sale loans that could be
securitized and would then be available for sale or use as collateral for repurchase agreements. Due to
the large size of our portfolio of liquid assets, the amount of mortgage-related assets that we may
successfully sell or borrow against in the event of a liquidity crisis or significant market disruption is
substantially less than the amount of mortgage-related assets we hold. There would likely be insufficient
market demand for large amounts of these assets over a prolonged period of time, which would limit our
ability to sell or borrow against these assets.
We hold other mortgage assets, but given their characteristics, they may not be available for immediate
sale or able to be used as collateral for repurchase agreements. These assets consist of certain
structured agency securities collateralized by non-agency mortgage-related securities, CMBS, non-
agency mortgage-related securities backed by subprime, option ARM, and Alt-A and other loans, and
unsecuritized seriously delinquent and modified single-family loans.
We are subject to limits on the amount of mortgage assets we can sell in any calendar month without
review and approval by FHFA and, if FHFA so determines, Treasury.
CASH FLOWS
Cash and cash equivalents decreased $5.3 billion to $5.6 billion during 2015, as compared to a decrease
of $0.4 billion to $10.9 billion during 2014 and an increase of $2.8 billion to $11.3 billion during 2013.
Cash flows used in operating activities during 2015 were primarily driven by increased net purchases of
held-for-sale mortgage loans. Cash flows used in operating activities during 2015 were $0.9 billion. Cash
flows provided by operating activities during 2014 and 2013 were $8.9 billion and $16.6 billion,
respectively, primarily driven by cash proceeds from net interest income and non-agency mortgage-
related securities settlements. Cash flows provided by investing activities during 2015, 2014, and 2013
were $179.0 billion, $205.3 billion, and $391.3 billion, respectively, primarily resulting from net proceeds
received as a result of repayments of single-family held-for-investment mortgage loans. Cash flows used
for financing activities during 2015, 2014, and 2013 were $183.3 billion, $214.5 billion, and $405.0 billion,
respectively, primarily driven by net funds used to repay or redeem debt securities of consolidated trusts
held by third parties and other debt.
CAPITAL RESOURCES
Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy
and our management of capital. Since our entry into conservatorship, Treasury and FHFA have taken a
number of actions that affect our cash requirements and our ability to fund those requirements. Under the
Purchase Agreement, Treasury made a commitment to provide us with funding, under certain conditions,
to eliminate deficits in our net worth. Obtaining funding from Treasury pursuant to its commitment under
the Purchase Agreement enables us to avoid being placed into receivership by FHFA. The amount of