Freddie Mac 2015 Annual Report Download - page 178

Risk Factors Conservatorship and Related Matters
Freddie Mac 2015 Form 10-K 176
RISK FACTORS
The following section discusses material risks and uncertainties that could adversely affect our business,
financial condition, results of operations, cash flows, strategies and/or prospects.
CONSERVATORSHIP AND RELATED MATTERS
Freddie Mac’s future is uncertain.
It is possible and perhaps likely that future legislative or regulatory action will materially affect our role,
business model, structure, and 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 occur, our shares could further diminish in value, or cease to have any value. Our stockholders
may not receive any compensation for such loss in value.
Several bills were introduced in Congress in 2014 and 2015 concerning the future status of Freddie Mac,
Fannie Mae, and the mortgage finance system, including bills which provided for the wind down of
Freddie Mac and Fannie Mae or modification of the terms of the Purchase Agreement. The Administration
has recommended reducing the role of Freddie Mac and Fannie Mae and ultimately winding down both
companies.
The conservatorship is indefinite in duration. The timing, likelihood, and circumstances under which we
might emerge from conservatorship are uncertain. Treasury would be required to consent to the
termination of the conservatorship, other than in connection with receivership, and there can be no
assurance it would do so. Even if the conservatorship is terminated, we would remain subject to the
Purchase Agreement and the terms of the senior preferred stock. It is possible that the conservatorship
could end with our being placed into receivership.
Because Treasury holds a warrant to acquire almost 80% of our common stock for nominal consideration,
we could effectively remain under the control of the U.S. government even if the conservatorship is ended
and the voting rights of common stockholders are restored. If Treasury exercises the warrant, the
ownership interest in the company of our existing common stockholders will be substantially diluted.
In the past several years, a number of lawsuits were filed against the U.S. government, Freddie Mac and
Fannie Mae challenging certain government actions related to the conservatorship and the Purchase
Agreement. This may add to the uncertainty surrounding our future.
For more information, see “MD&A - Regulation and Supervision - Legislative and Regulatory
Developments,” “Legal Proceedings,” and Note 15.
We cannot retain capital from the earnings generated by our business operations (other than a
limited amount that will decrease to zero in 2018), which increases the likelihood that we may
request additional draws under the Purchase Agreement in future periods.
We cannot retain capital from the earnings generated by our business operations, as a result of the net
worth sweep dividend. This increases the likelihood that we will require draws in future periods,
particularly as the required Capital Reserve Amount (which is $1.2 billion for 2016) declines over time. A
variety of factors could influence whether we could require a draw, including the following: