The directors serve on behalf of, and exercise authority as directed by, the Conservator. The Conservator has delegated to the Board and its committees authority to function in accordance with the duties and authorities set forth in applicable statutes, regulations, guidance, orders and directives and our Bylaws and Board committee charters, but reserved certain items that would require Conservator approval. On November 15, 2012, the Conservator revised and expanded the categories of items requiring Conservator approval, instructing the Board that it should oversee that management consults with and obtains approval of the Conservator before taking action in the following areas:

  • Matters requiring the approval of or consultation with the U.S. Department of the Treasury (Treasury) under the covenants of the Senior Preferred Stock Purchase Agreement (Purchase Agreement) between the company and Treasury;
  • Redemptions or repurchases of subordinated debt, except as necessary to comply with the limit in the Purchase Agreement;
  • Increases in Board risk limits, material changes in accounting policy, and reasonably foreseeable material increases in operational risk;
  • Matters that relate to the Conservator’s powers, the status of Freddie Mac in conservatorship, or the legal effect of the conservatorship on contracts, such as, but not limited to, the initiation of material actions in connection with litigation addressing the actions or authority of the Conservator, repudiation of contracts, qualified financial contracts in dispute due to conservatorship status, and counterparties attempting to nullify or amend contracts due to conservatorship status;
  • Retention and termination of external auditors and law firms serving as consultants to the Board;
  • Agreements relating to litigation, claims, regulatory proceedings, or tax-related matters where the value of the claim is in excess of $50 million, including related matters that aggregate to more than $50 million (but excluding loan workouts);
  • Alterations or changes to the terms of the master agreement between us and one of our top five single-family sellers or servicers that are not otherwise mandated by FHFA and that will alter, in a material way, the business relationship between the parties;
  • Termination of a contract (other than by expiration pursuant to its terms) between us and one of our top five single-family sellers or servicers;
  • Actions that, in the reasonable business judgment of management at the time that the action is to be taken, are likely to cause significant reputational risk to us or result in substantial negative publicity;
  • Creation of any subsidiary or affiliate, or entering into a substantial transaction with a subsidiary or affiliate, except for the creation of, or a transaction with, a subsidiary or affiliate undertaken in the ordinary course of business (e.g., creation of a securitization trust or real estate mortgage investment conduit (REMIC));
  • Setting or increasing the compensation or benefits payable to directors;
  • Entering into new compensation arrangements or increasing amounts or benefits payable under existing compensation arrangements for senior vice presidents and above and other officers as FHFA may deem necessary to successfully execute its role as Conservator;
  • Any establishment or modification by us of performance management processes for such officers, including the establishment or modification of a Conservator scorecard;
  • Any assessment by us of our performance against a Conservator scorecard; and
  • Establishing the annual operating budget.

FHFA has indicated that it expects the Board to review and approve all matters that will require Conservator approval before such matters are submitted to FHFA. In addition, FHFA is requiring timely notice of any planned changes in business processes or operations, including changes to single-family or multifamily credit policies and loss mitigation strategies that management has determined in its reasonable business judgment to be significant, other than changes made at the direction or request of FHFA. FHFA will then determine whether any such actions or plans require Conservator and/or Board review or approval.