Freddie Mac 2015 Annual Report Download - page 199

Risk Factors Other Risks
Freddie Mac 2015 Form 10-K 197
OTHER RISKS
Our investment activity is significantly limited under the Purchase Agreement and by FHFA, which
will reduce our earnings from investment activities over time and result in greater reliance on our
guarantee activities to generate revenue.
Declines in the size of our mortgage-related investments portfolio, as required by the Purchase
Agreement and FHFA, will reduce our earnings over the long term. We are also subject to other
limitations on our investment activity, including significant constraints on our ability to purchase or sell
mortgage assets. These limitations will reduce the earnings capacity of our mortgage-related investments
portfolio. We can provide no assurance that the cap on our mortgage-related investments portfolio will
not, over time, force us to sell mortgage assets at unattractive prices or that our current strategies will not
have an adverse impact on our business or financial results. For more information, see “MD&A -
Conservatorship and Related Matters - Limits on Our Mortgage-Related Investments Portfolio and
Indebtedness.”
Due to the reduced earnings capacity of our mortgage-related investments portfolio, we will have to place
greater emphasis on our guarantee activities to generate revenue. However, our ability to generate
revenue through guarantee activities may be limited for a number of reasons. We may be required to
adopt business practices that help serve our public mission and other non-financial objectives, but that
may negatively affect our future financial results. We must obtain FHFA’s approval to implement across-
the-board increases in our guarantee fees, and there can be no assurance FHFA will approve any such
increase requests in the future. Congress or FHFA may require us to set aside or otherwise pay monies to
fund third party initiatives, such as the requirement that we allocate amounts for certain housing funds.
The combination of the restrictions on our business activities and our potential inability to generate
sufficient revenue through our guarantee activities to offset the effects of those restrictions may have an
adverse effect on our results of operations and financial condition.
The loss of business from a key customer or a decrease in the availability of mortgage insurance
could result in a decline in our market share and revenues.
Our business depends on our ability to acquire a steady flow of loans. We purchase a significant
percentage of our single-family loans from several large loan originators. Similarly, we acquire a
significant portion of our multifamily loans from several large lenders. For more information, see Note 13.
We enter into loan purchase commitments with many of our single-family customers that are typically less
than one year in duration. Lenders may fail to deliver loans to us in accordance with their commitments.
The loss of business from any of our major lenders could adversely affect our market share and our
revenues.
Our charter requires that single-family loans with LTV ratios above 80% at the time of purchase be
covered by mortgage insurance or other credit enhancements. If the availability of mortgage insurance for
loans with LTV ratios above 80% is reduced, we may be restricted in our ability to purchase or securitize
such loans. This could reduce our overall volume of new business.