exv10w67







 




    Exhibit 10.67



 




    [Freddie
    Mac letterhead]



 




    September 1,
    2005
    



 



    The Honorable Stephen A. Blumenthal

    Acting Director

    Office of Federal Housing Enterprise Oversight

    1700 G Street, NW

    Washington DC 20552



 



    Dear Acting Director Blumenthal:



 



    On October 19, 2000, Fannie Mae and Freddie Mac (the
    corporations) announced their voluntary adoption of a series of
    financial risk management and disclosure commitments designed to
    enhance market discipline, liquidity and capital. In
    consultation with OFHEO, Fannie Mae and Freddie Mac have
    reviewed these commitments, are updating them to ensure their
    continuing effectiveness, and are setting forth the process by
    which the commitments are being
    implemented.1



 


		
	
    1.  
    
	
    Issuance
    of Subordinated Debt




 



    Fannie Mae and Freddie Mac will issue subordinated debt for
    public secondary market trading and rated by no less than two
    nationally recognized statistical rating organizations:



 


			
	 	    • 
	
    The purpose of the subordinated debt is to provide market
    information on the perceived risks of each corporation and, in
    addition to capital, to provide protection to senior debt
    holders.

	 
	 	    • 
	
    Subordinated debt will be issued in a quantity such that the sum
    of total capital (core capital plus general allowance for
    losses) plus the outstanding balance of qualifying subordinated
    debt will equal or exceed the sum of outstanding net MBS
    times 0.45 percent and total on-balance sheet assets times
    4 percent.2







 



    1 The
    interim risk-based capital stress test, an initiative undertaken
    by the corporations in 2000, was superseded by the
    implementation by OFHEO of the risk based capital stress test in
    2002.



 



    2 Qualifying
    subordinated debt is defined as subordinated debt that contains
    the interest deferral feature described below.





		
	    • 	
    The interest deferral requires the deferral of interest payments
    for up to 5 years if:






			
	 	    Ø 
	
    The corporation’s core capital falls below 125% of critical
    capital or

	 	    Ø 
	
    The corporation’s core capital falls below minimum capital
    AND, pursuant to the corporation’s request, the Secretary
    of the Treasury exercises discretionary authority to purchase
    the company’s obligations under Section 306(c) of the
    Freddie Mac Charter Act and Section 304(c) of the Fannie
    Mae Charter Act.














 






    Honorable Stephen A. Blumenthal

    September 1, 2005 — Page 2
    



 


			
	 	    • 
	
    The corporations shall take reasonable steps to maintain
    outstanding subordinated debt of sufficient size to promote
    liquidity and reliable market quotes on market values.

	 
	 	    • 
	
    Every 6 months, commencing January 1, 2006, each
    corporation will submit to its OFHEO
    Examiner-in-Charge
    a subordinated debt management plan that includes any issuance
    plans for the upcoming six months. The plan also will include:






			
	 	    Ø 
	
    An assessment of the liquidity of current outstanding issuances
    including, where available, bid-offer spreads and dealer price
    quotes

	 	    Ø 
	
    An assessment of the prevailing market conditions for new
    issuances

	 	    Ø 
	
    The capital needs of the corporation

	 	    Ø 
	
    Where available, information on the investor base of outstanding
    subordinated debt

	 	    Ø 
	
    Other relevant factors, including, but not limited to, excessive
    cost.




 



    The plan may be updated, as appropriate, to reflect changes in
    circumstances and market conditions.



 


			
	 	    • 
	
    OFHEO will evaluate each plan submitted and provide the
    corporation with its
    views.3







    • If OFHEO does not object to a plan submitted to it
    by a corporation, then the corporation may proceed to implement
    the plan.






    • Each quarter the corporation shall submit to OFHEO
    calculations of its quantity of subordinated debt and total
    capital as part of its quarterly capital report. OFHEO will
    disclose each corporation’s calculation as a separate item
    in its quarterly capital classification of each corporation.



 


		
	
    2.  
    
	
    Liquidity
    Management and Contingency Planning




 



    Each corporation will comply with principles of sound liquidity
    management consistent with industry practice. In addition, each
    corporation will:





			
	 	    • 
	
    Maintain a portfolio of highly liquid
    assets.  The size of this liquid asset portfolio
    will be established by each corporation and assessed by the
    OFHEO Examiner in Charge.

	 	    • 
	
    Maintain a functional contingency plan providing for at least
    three months’ liquidity (using internal forecasts) without
    relying upon issuance of unsecured debt.







 



    Calculations of percentages and remaining life will be as of the
    last day of each month and effective until the last day of the
    following month.



 



    Subordinated debt meeting all the conditions specified above
    will be discounted for the purposes of this calculation as it
    approaches maturity in the following manner: one-fifth of the
    outstanding amount is excluded each year during the
    instrument’s last five years before maturity. When
    remaining maturity is less than one year, the instrument is
    entirely excluded. Remaining life to maturity for subordinated
    debt that is callable before maturity will be calculated by the
    final maturity of the subordinated debt.



 



    3 The
    plan submitted to OFHEO may include information including, but
    not limited to, the amount, timing and feasibility of issuing
    such debt, particularly in situations where current financial
    statements for a corporation are not available.













 






    Honorable Stephen A. Blumenthal

    September 1, 2005 — Page 3
    



 


			
	 	    • 
	
    Periodically test the contingency plan in consultation with its
    OFHEO
    Examiner-in-Charge.




 




    3.  Public
    Disclosures
    



 



    Each corporation will provide periodic public disclosures on its
    risks and risk management practices and will inform its OFHEO
    Examiner-in-Charge
    of the
    disclosures.4
    These disclosures for each corporation will include:



 



    Subordinated Debt Disclosure



 


			
	 	    • 
	
    Compliance of the corporation with the commitment regarding
    subordinated debt, including a comparison of the quantity of
    subordinated debt and total capital to the levels set forth
    above.




 



    Liquidity Management Disclosure



 


			
	 	    • 
	
    Compliance of the corporation with the plan for maintaining
    three months’ liquidity and meeting the commitment for
    periodic testing.




 



    Interest Rate Risk Disclosures



 


			
	 	    • 
	
    Monthly averages of its duration gap.  Each
    corporation will work with OFHEO to try to align its measures as
    much as practicable.

	 	    • 
	
    Monthly disclosures of the impact on its financial condition of
    both a
    50-basis
    point shift in rates and a
    25-basis
    point change in the slope of the yield curve.




 



    Credit Risk Disclosures



 


			
	 	    • 
	
    Quarterly assessments of the impact on the corporation’s
    expected credit losses from an immediate 5 percent decline
    in single-family home prices for the entire U.S.

	 	    • 
	
    Impact will be reported in present value terms and measure
    losses to the corporation both before and after receipt of
    private mortgage insurance claims and other credit enhancements.




 



    Public Disclosure of Risk Rating



 


			
	 	    • 
	
    Each corporation will seek to obtain a rating that will be
    continuously monitored by at least one nationally recognized
    statistical rating organization.

	 	    • 
	
    The rating will assess, among other things, the independent
    financial strength or “risk to the government” of the
    corporation operating under its authorizing legislation but
    without assuming a cash infusion or extraordinary support of the
    government in the event of a financial crisis.







 



    4 Disclosures
    may be affected by situations where current financial statements
    are not available for a corporation; this should be reported to
    OFHEO.













 






    Honorable Stephen A. Blumenthal

    September 1, 2005 — Page 4
    



 




    4.  Monitoring,
    Review and Amendment
    



 


			
	 	    • 
	
    OFHEO will monitor and report whether each corporation is
    meeting the terms of the above commitments.

	 	    • 
	
    Each corporation will be responsible for reporting to OFHEO
    concerning its implementation of these commitments, changes in
    circumstances and market conditions affecting the
    corporation’s ability to implement the commitments, and
    possible amendments to any of these commitments.

	 	    • 
	
    The OFHEO
    Examiner-in-Charge
    for each corporation, in consultation with the corporation, will
    routinely monitor the effectiveness of these commitments and all
    materials submitted to OFHEO shall be provided to the
    Examiner-in-Charge.
    The OFHEO
    Examiner-in-Charge
    will serve as the primary contact for the corporations.




 



    Fannie Mae and Freddie Mac are pleased to agree with OFHEO
    regarding the process for implementation of the commitments set
    forth above. We believe this step will significantly enhance the
    flexibility and continuing effectiveness of the above
    commitments. We appreciate the opportunity to work with you on
    this subject and we will of course continue to do so as we move
    forward.



 



    Sincerely,



 



    /s/  Richard F.
    Syron




 



    Richard F. Syron













 







    [OFHEO
    LETTERHEAD]



 



    September 1, 2005



 



    Mr. Richard F. Syron

    Chairman and Chief Executive Officer

    Freddie Mac

    8200 Jones Branch Drive

    McLean, VA
    22102-3110



 



    Dear Mr. Syron:
    



 



    I am in receipt of your letter of September 1, 2005
    proposing an agreement under which Freddie Mac would issue
    subordinated debt pursuant to a bi-annual plan reviewed by OFHEO
    and subject to the continuing oversight of the agency. The
    agreement also encompasses Freddie Mac making public disclosures
    related to risk and represents the transformation of the
    “voluntary initiative” announced by your company on
    October 19, 2000, into an enforceable agreement with your
    federal regulator.



 



    OFHEO agrees to your proposal. This exchange of letters
    constitutes a written agreement for the purposes of subtitle C
    of the Federal Housing Enterprises Financial Safety and
    Soundness Act of 1992.



 



    The evolution of the voluntary nature of the initiatives into a
    formal regulatory process enhances the strength of the
    commitments of the enterprise to public disclosure and furthers
    the goal of ensuring the safe and sound operation of the company
    in an environment which includes discipline imposed by the
    financial markets. OFHEO will address any additional
    implementation matters that may be required as they arise.



 



    We look forward to working with you on this matter.



 



    Sincerely,



 



    /s/  Stephen
    A. Blumenthal





    Stephen A. Blumenthal




    Acting Director