The Corporation is authorized to purchase, and make commitments to purchase, residential mortgages. The Corporation may hold and deal with, and sell or otherwise dispose of, pursuant to commitments or otherwise, any such mortgage or interest therein. The operations of the Corporation under this section shall be confined so far as practicable to residential mortgages which are deemed by the Corporation to be of such quality, type, and class as to meet generally the purchase standards imposed by private institutional mortgage investors.
One of the means by which we fund purchases of mortgages loans is through the use of securitization-based financing. We issue a mortgage-related security that represents an undivided interest in the mortgage loans we purchase. We then provide a guarantee of the payment of principal and interest on all securities. Our customers may choose to hold these securities in their portfolios or sell them to other investors.Freddie Mac, "Our Busines"
We purchase mortgages from across the country that share similar characteristics – payment terms, interest rate, loan term – and yet may have other characteristics that vary. For example, some mortgages may carry greater credit risk than others, based on the type of property or the credit history of the borrowers.Freddie Mac purchases large numbers of mortgages that we "pool", or bundle together, into large groups. We guarantee timely payment of principal and interest to the investors who invest in these pools.Freddie Mac, "Understanding Securities" (emphasis added)
Q: What happens upon appointment of a Conservator?A: Once an “Order Appointing a Conservator” is signed by the Director of FHFA, the Conservator immediately succeeds to the (1) rights, titles, powers, and privileges of the Company, and any stockholder, officer, or director of the Company with respect to the Company and its assets, and (2) title to all books, records and assets of the Company held by any other custodian or third-party. The Conservator is then charged with the duty to operate the Company.Federal Housing Finance Agency, "Questions and Answers on Conservatorship", p.2
Q: When will the conservatorship period end?A: Upon the Director’s determination that the Conservator’s plan to restore the Company to a safe and solvent condition has been completed successfully, the Director will issue an order terminating the conservatorship. At present, there is no exact time frame that can be given as to when this conservatorship may end.Federal Housong Finance Agency, "Questions and Answers on Conservatorship", p.2
- Shareholder dilution of about 5:1
- Reduction in overall company profits commensurate with decreased retained holdings and increased debt costs in conservatorship
- Control passing from a federal office exercising the powers of the conservator, to a federal office voting a 79.9% control block of the company's common stock
- Immediate need to reduce overhead caused by balooned senior preferred dividends (you can't think more cash won't be necessary as the full extent of loan guarantee obligations materialize, and with a mortgage pool the size of the entire federal debt, it won't take much of a default percentage to run the cash injection to the sky) by buying back the senior preferred, which might be expensive if the deal must be approved by the preferred owner itself (which is also the post-warrant majority common stockholder); note that the value of the preferred will have increased with the solvency of the company by the time the company can afford to buy off the preferred interest