Federally chartered
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52-0904874
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8200 Jones Branch Drive
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22102-3110
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(703) 903-2000
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corporation
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McLean, Virginia
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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(Registrant’s telephone number,
including area code)
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer (Do not check if a smaller reporting company)
¨
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Smaller reporting company
¨
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Emerging growth company
¨
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Table of Contents
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n
About Freddie Mac
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n
Our Business
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n
Forward-Looking Statements
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SELECTED FINANCIAL DATA
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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n
Key Economic Indicators
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n
Consolidated Results of Operations
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n
Consolidated Balance Sheets Analysis
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n
Our Business Segments
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n
Risk Management
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l
Credit Risk
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l
Operational Risk
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l
Market Risk
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n
Liquidity and Capital Resources
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n
Conservatorship and Related Matters
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n
Regulation and Supervision
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n
Contractual Obligations
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n
Off-Balance Sheet Arrangements
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n
Critical Accounting Policies and Estimates
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RISK FACTORS
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LEGAL PROCEEDINGS
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MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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CONTROLS AND PROCEDURES
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DIRECTORS, CORPORATE GOVERNANCE, AND EXECUTIVE OFFICERS
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n
Directors
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n
Corporate Governance
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n
Executive Officers
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EXECUTIVE COMPENSATION
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n
Compensation Discussion and Analysis
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n
Compensation and Risk
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n
2017 Compensation Information for NEOs
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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GLOSSARY
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EXHIBIT INDEX
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SIGNATURES
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FORM 10-K INDEX
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FREDDIE MAC
| 2017 Form 10-K
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i
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Introduction
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About Freddie Mac
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FREDDIE MAC
| 2017 Form 10-K
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1
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Introduction
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About Freddie Mac
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n
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The senior preferred stock dividend for the dividend period from October 1, 2017 through and including December 31, 2017 was reduced to $2.25 billion.
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n
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The applicable Capital Reserve Amount from January 1, 2018 and thereafter will be $3.0 billion, rather than zero as previously provided. If for any reason we were not to pay our dividend requirement on the senior preferred stock in full in any future period, the applicable Capital Reserve Amount would thereafter be zero.
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n
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The liquidation preference of the senior preferred stock increased by $3.0 billion, to $75.3 billion, on December 31, 2017.
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FREDDIE MAC
| 2017 Form 10-K
|
|
2
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Introduction
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About Freddie Mac
|
FREDDIE MAC
| 2017 Form 10-K
|
|
3
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Introduction
|
About Freddie Mac
|
n
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2017 vs. 2016 and 2016 vs. 2015
- In 2017, the total guarantee portfolio grew $119 billion, or 6%, driven by a 4% increase in our single-family credit guarantee portfolio and a 28% increase in our multifamily guarantee portfolio. The total guarantee portfolio grew $91 billion, or 5%, in 2016, driven by a 3% increase in our single-family credit guarantee portfolio and a 32% increase in our multifamily guarantee portfolio.
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l
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The growth in our single-family credit guarantee portfolio in 2017 and 2016 was driven in part by an increase in U.S. single-family mortgage debt outstanding as a result of continued home price
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FREDDIE MAC
| 2017 Form 10-K
|
|
4
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Introduction
|
About Freddie Mac
|
n
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2017 vs. 2016 and 2016 vs. 2015
- Declined $52 billion, or 13%, and $55 billion, or 12%, in 2017 and 2016, respectively, primarily due to repayments and the active disposition of less liquid assets.
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l
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We continue to reduce the mortgage-related investments portfolio as required by the Purchase Agreement and FHFA.
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FREDDIE MAC
| 2017 Form 10-K
|
|
5
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Introduction
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About Freddie Mac
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n
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2017 vs. 2016
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l
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Continued growth in our single-family credit guarantee portfolio and higher average contractual guarantee fee rates, offset by the continued reduction in the balance of our mortgage-related investments portfolio, resulted in lower net interest income.
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l
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Decline in benefit for credit losses in 2017 primarily driven by estimated losses related to the hurricanes.
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l
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Increased spread-related fair value gains driven by market spread tightening primarily on non-agency mortgage-related securities, partially offset by increased interest rate-related fair value losses driven by lower levels of volatility.
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l
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Gains on sales of reperforming loans in 2017, compared to losses on sales of seriously delinquent loans in 2016.
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l
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Proceeds received in 2017 from the Royal Bank of Scotland plc (or RBS) related to litigation involving certain of our non-agency mortgage-related securities.
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l
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Higher income tax expense due to a reduction in our net deferred tax asset driven by the impact of the Tax Cuts and Jobs Act enacted in December 2017, which reduced the statutory corporate income tax rate from 35% to 21%.
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FREDDIE MAC
| 2017 Form 10-K
|
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6
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Introduction
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About Freddie Mac
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n
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2016 vs. 2015
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l
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Continued growth in our single-family credit guarantee portfolio and higher average contractual guarantee fee rates, as well as higher amortization of upfront fees due to increased loan prepayments, offset by the continued reduction in the balance of our mortgage-related investments portfolio, resulted in lower net interest income.
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l
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Decline in benefit for credit losses in 2016 due to a decrease in the number of seriously delinquent loans reclassified from held-for-investment to held-for-sale.
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l
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Higher fair value gains in 2016 due to an increase in long-term interest rates compared to 2015 when long-term interest rates declined slightly.
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l
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Higher fair value gains in 2016 driven by tightening K Certificate benchmark spreads, coupled with improved pricing on K Certificates and SB Certificates and higher new business volume, compared to losses during 2015 as market spreads widened.
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FREDDIE MAC
| 2017 Form 10-K
|
|
7
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Introduction
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Our Business
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n
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A Better Freddie Mac; and
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n
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A Better Housing Finance System
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n
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Being a very effective operating organization;
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n
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Being a market leader through customer focus and innovation; and
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n
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Managing risk and economic capital for quality risk-adjusted returns.
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n
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Modernizing and improving the functioning of the mortgage markets;
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n
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Developing greater responsible access to affordable housing; and
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n
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Reducing taxpayer exposure to mortgage risks.
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FREDDIE MAC
| 2017 Form 10-K
|
|
8
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Introduction
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Our Business
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n
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Provide stability in the secondary mortgage market for residential loans;
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n
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Respond appropriately to the private capital market;
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n
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Provide ongoing assistance to the secondary mortgage market for residential loans (including activities relating to loans for low- and moderate-income families, involving a reasonable economic return that may be less than the return earned on other activities) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing; and
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n
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Promote access to mortgage loan credit throughout the United States (including central cities, rural areas and other underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing.
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FREDDIE MAC
| 2017 Form 10-K
|
|
9
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Introduction
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Our Business
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FREDDIE MAC
| 2017 Form 10-K
|
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10
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Introduction
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Our Business
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FREDDIE MAC
| 2017 Form 10-K
|
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11
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Introduction
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Forward-Looking Statements
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n
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The actions the U.S. government (including FHFA, Treasury and Congress) may take, or require us to take, including to support the housing markets or to implement FHFA's Conservatorship Scorecards and other objectives for us;
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n
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The effect of the restrictions on our business due to the conservatorship and the Purchase Agreement, including our dividend requirement on the senior preferred stock;
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n
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Changes in our Charter or in applicable legislative or regulatory requirements (including any legislation affecting the future status of our company);
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n
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Changes in the fiscal and monetary policies of the Federal Reserve, including the balance sheet normalization program announced in October 2017 to reduce the Federal Reserve's holdings of mortgage-related securities;
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n
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Changes in tax laws, including those made by the Tax Cuts and Jobs Act enacted in December 2017;
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n
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Changes in accounting policies, practices or guidance (e.g., FASB's accounting standards update related to the measurement of credit losses of financial instruments);
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n
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Changes in economic and market conditions, including changes in employment rates, interest rates, spreads and home prices;
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n
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Changes in the U.S. residential mortgage market, including changes in the supply and type of loan products (e.g., refinance vs. purchase, and fixed-rate vs. ARM);
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n
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The success of our efforts to mitigate our losses on our Legacy and relief refinance single-family loan portfolio;
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n
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The success of our strategy to transfer mortgage credit risk through STACR debt note, ACIS, K Certificate, SB Certificate and other credit risk transfer transactions;
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n
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Our ability to maintain adequate liquidity to fund our operations;
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FREDDIE MAC
| 2017 Form 10-K
|
|
12
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Introduction
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Forward-Looking Statements
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n
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Our ability to maintain the security and resiliency of our operational systems and infrastructure (e.g., against cyberattacks);
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n
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Our ability to effectively execute our business strategies, implement new initiatives and improve efficiency;
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n
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The adequacy of our risk management framework;
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n
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Our ability to manage mortgage credit risk, including the effect of changes in underwriting and servicing practices;
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n
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Our ability to limit or manage our economic exposure and GAAP earnings exposure to interest-rate volatility and spread volatility, including the availability of derivative financial instruments needed for interest-rate risk management purposes;
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n
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Our operational ability to issue new securities, make timely and correct payments on securities and provide initial and ongoing disclosures;
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n
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Changes or errors in the methodologies, models, assumptions and estimates we use to prepare our financial statements, make business decisions and manage risks;
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n
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Changes in investor demand for our debt or mortgage-related securities;
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n
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Changes in the practices of loan originators, servicers, investors and other participants in the secondary mortgage market;
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n
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The occurrence of a major natural or other disaster in areas in which our offices or significant portions of our total mortgage portfolio are located; and
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FREDDIE MAC
| 2017 Form 10-K
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|
13
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Selected Financial Data
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As of or For the Year Ended December 31,
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(Dollars in millions,
except share-related amounts
)
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2017
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2016
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2015
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2014
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2013
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Statements of Comprehensive Income Data
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Net interest income
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$14,164
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$14,379
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$14,946
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$14,263
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$16,468
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Benefit (provision) for credit losses
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84
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803
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2,665
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(58
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)
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2,465
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Non-interest income (loss)
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6,869
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500
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(3,599
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)
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(113
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)
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8,519
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Non-interest expense
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(4,283
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)
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(4,043
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)
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(4,738
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)
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(3,090
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)
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(2,089
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)
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Income tax (expense) benefit
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(11,209
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)
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(3,824
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)
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(2,898
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)
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(3,312
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)
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23,305
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Net income
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5,625
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7,815
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6,376
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7,690
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48,668
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Comprehensive income
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5,558
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7,118
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5,799
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9,426
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51,600
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|||||
Net income (loss) attributable to common stockholders
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(3,244
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)
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97
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(23
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)
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(2,336
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)
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(3,531
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)
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|||||
Net income (loss) per common share - basic and diluted
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(1.00
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)
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0.03
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(0.01
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)
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(0.72
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)
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(1.09
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)
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|||||
Cash dividends per common share
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|
—
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—
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—
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—
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—
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|||||
Weighted average common shares outstanding - basic and diluted (in millions)
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3,234
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3,234
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3,235
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|
3,236
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3,238
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|||||
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||||||||||
Balance Sheets Data
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||||||||||
Loans held-for-investment, at amortized cost by consolidated trusts (net of allowances for loan losses)
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$1,774,286
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$1,690,218
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$1,625,184
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$1,558,094
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$1,529,905
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Real estate owned, net
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|
892
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|
1,198
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|
1,725
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|
2,558
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|
4,551
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|||||
Total assets
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|
2,049,776
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|
2,023,376
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|
1,985,892
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1,945,360
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|
1,965,831
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|
|||||
Debt securities of consolidated trusts held by third parties
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1,720,996
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1,648,683
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1,556,121
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1,479,473
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1,433,984
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|
|||||
Other debt
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313,634
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|
353,321
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|
414,148
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449,890
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|
506,537
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|
|||||
All other liabilities
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15,458
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|
16,297
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12,683
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13,346
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12,475
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|||||
Total stockholders' equity
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(312
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)
|
5,075
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|
2,940
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|
2,651
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|
12,835
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|||||
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||||||||||
Portfolio Balances - UPB
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||||||||||
Mortgage-related investments portfolio
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$253,455
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$298,426
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$346,911
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$408,414
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$461,024
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Total Freddie Mac mortgage-related securities
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1,962,372
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1,832,810
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1,729,493
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1,637,086
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1,592,511
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|||||
Total mortgage portfolio
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2,097,630
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2,011,414
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1,941,587
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1,910,106
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1,914,661
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|||||
TDRs on accrual status
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51,720
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77,399
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|
82,347
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|
82,908
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78,708
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|||||
Non-accrual loans
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17,817
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|
16,272
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22,649
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33,130
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43,457
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|||||
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||||||||||
Ratios
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||||||||||
Return on average assets
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0.3
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%
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0.4
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%
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0.3
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%
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0.4
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%
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2.5
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%
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|||||
Allowance for loan losses as percentage of loans, held-for-investment
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0.5
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|
0.7
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0.9
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1.3
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1.4
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|||||
Equity to assets
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0.1
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0.2
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0.1
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0.4
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0.5
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
14
|
Management's Discussion and Analysis
|
Key Economic Indicators |
Single-Family Home Prices
|
n
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Changes in home prices affect the amount of equity that borrowers have in their homes. Borrowers with less equity typically have higher delinquency rates.
|
n
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As home prices decline, the severity of losses we incur on defaulted loans that we hold or guarantee increases because the amount we can recover from the property securing the loan decreases. Increases in home prices lower the losses we incur on defaulted loans.
|
n
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Home prices continued to appreciate during 2017, increasing
7.1%
, compared to an increase of 6.4% during 2016, based on our own non-seasonally adjusted price index of single-family homes funded by loans owned or guaranteed by us or Fannie Mae.
|
n
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We expect near-term home price growth will moderate driven by a gradual increase in housing supply and modestly higher mortgage interest rates.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
15
|
Management's Discussion and Analysis
|
Key Economic Indicators |
Single-Family Home Prices
|
n
|
We do not expect national home prices to be substantially affected by the Tax Cuts and Jobs Act, but home price growth in housing markets with higher state and local taxes (e.g., New Jersey and New York) could be affected.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
16
|
Management's Discussion and Analysis
|
Key Economic Indicators |
Interest Rates
|
n
|
The 30-year Primary Mortgage Market Survey ("PMMS") interest rate is indicative of what a consumer could expect to be offered on a first-lien, prime, home purchase or refinance mortgage with an LTV of 80%. Increases in the PMMS rate typically result in decreases in refinancing activity and originations. Decreases in the PMMS rate typically result in increases in refinancing activity and originations.
|
n
|
Changes in the 10-year and 2-year LIBOR interest rates affect the fair value of certain of our assets and liabilities, including derivatives, measured at fair value. A smaller interest rate fluctuation from period to period generally results in smaller fair value gains and losses, while a larger fluctuation generally results in larger fair value gains and losses.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
17
|
Management's Discussion and Analysis
|
Key Economic Indicators |
Interest Rates
|
n
|
Changes in the 3-month LIBOR rate affect the interest earned on our short-term investments and interest expense on our short-term funding.
|
n
|
For additional information on the effect of LIBOR rates on our financial results, see
Our Business Segments - Capital Markets -
Market Conditions
.
|
n
|
Mortgage interest rates for 30-year fixed-rate loans are closely related to other long-term interest rates such as the 10-year LIBOR rate. When the 10-year LIBOR rate increases, mortgage interest rates for 30-year fixed-rate loans usually also increase. When the 10-year LIBOR rate declines, mortgage interest rates for 30-year fixed-rate loans usually also decline.
|
n
|
Mortgage interest rates, as indicated by the PMMS rate, were lower at the end of 2017 than the end of 2016, while long-term interest rates, as indicated by the 10-year LIBOR rate, were higher. The PMMS rate and 10-year LIBOR rate were both higher at the end of 2016 than the end of 2015.
|
n
|
The quarterly ending and quarterly average short-term interest rates, as indicated by the 3-month LIBOR rate, were higher at the end of 2017 than the end of 2016 and higher at the end of 2016 than the end of 2015.
|
n
|
The Federal Reserve raised short-term interest rates five times over the last three years, most recently in December 2017.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
18
|
Management's Discussion and Analysis
|
Key Economic Indicators |
Unemployment Rate
|
n
|
Changes in the national unemployment rate can affect several market factors, including the demand for both single-family and multifamily housing and the level of loan delinquencies.
|
n
|
Decreases in the national unemployment rate typically result in lower levels of delinquencies, which often result in a decrease in expected credit losses on our total mortgage portfolio.
|
n
|
Increases in the national unemployment rate typically result in higher levels of delinquencies, which often result in an increase in expected credit losses on our total mortgage portfolio.
|
n
|
During 2017, average monthly net new jobs (non-farm) decreased, while the national unemployment rate declined to the lowest level since December 2000.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
19
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Net interest income
|
|
|
$14,164
|
|
|
$14,379
|
|
|
$14,946
|
|
|
|
($215
|
)
|
(1
|
)%
|
|
|
($567
|
)
|
(4
|
)%
|
Benefit (provision) for credit losses
|
|
84
|
|
803
|
|
2,665
|
|
|
(719
|
)
|
(90
|
)%
|
|
(1,862
|
)
|
(70
|
)%
|
|||||
Net interest income after benefit (provision) for credit losses
|
|
14,248
|
|
15,182
|
|
17,611
|
|
|
(934
|
)
|
(6
|
)%
|
|
(2,429
|
)
|
(14
|
)%
|
|||||
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gains (losses) on extinguishment of debt
|
|
341
|
|
(211
|
)
|
(240
|
)
|
|
552
|
|
262
|
%
|
|
29
|
|
12
|
%
|
|||||
Derivative gains (losses)
|
|
(1,988
|
)
|
(274
|
)
|
(2,696
|
)
|
|
(1,714
|
)
|
(626
|
)%
|
|
2,422
|
|
90
|
%
|
|||||
Net impairment of available-for-sale securities recognized in earnings
|
|
(18
|
)
|
(191
|
)
|
(292
|
)
|
|
173
|
|
91
|
%
|
|
101
|
|
35
|
%
|
|||||
Other gains (losses) on investment securities recognized in earnings
|
|
1,054
|
|
(78
|
)
|
508
|
|
|
1,132
|
|
1,451
|
%
|
|
(586
|
)
|
(115
|
)%
|
|||||
Other income (loss)
|
|
7,480
|
|
1,254
|
|
(879
|
)
|
|
6,226
|
|
496
|
%
|
|
2,133
|
|
243
|
%
|
|||||
Total non-interest income (loss)
|
|
6,869
|
|
500
|
|
(3,599
|
)
|
|
6,369
|
|
1,274
|
%
|
|
4,099
|
|
114
|
%
|
|||||
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Administrative expense
|
|
(2,106
|
)
|
(2,005
|
)
|
(1,927
|
)
|
|
(101
|
)
|
(5
|
)%
|
|
(78
|
)
|
(4
|
)%
|
|||||
REO operations expense
|
|
(189
|
)
|
(287
|
)
|
(338
|
)
|
|
98
|
|
34
|
%
|
|
51
|
|
15
|
%
|
|||||
Temporary Payroll Tax Cut Continuation Act of 2011 expense
|
|
(1,340
|
)
|
(1,152
|
)
|
(967
|
)
|
|
(188
|
)
|
(16
|
)%
|
|
(185
|
)
|
(19
|
)%
|
|||||
Other expense
|
|
(648
|
)
|
(599
|
)
|
(1,506
|
)
|
|
(49
|
)
|
(8
|
)%
|
|
907
|
|
60
|
%
|
|||||
Total non-interest expense
|
|
(4,283
|
)
|
(4,043
|
)
|
(4,738
|
)
|
|
(240
|
)
|
(6
|
)%
|
|
695
|
|
15
|
%
|
|||||
Income before income tax expense
|
|
16,834
|
|
11,639
|
|
9,274
|
|
|
5,195
|
|
45
|
%
|
|
2,365
|
|
26
|
%
|
|||||
Income tax expense
|
|
(11,209
|
)
|
(3,824
|
)
|
(2,898
|
)
|
|
(7,385
|
)
|
(193
|
)%
|
|
(926
|
)
|
(32
|
)%
|
|||||
Net income (loss)
|
|
5,625
|
|
7,815
|
|
6,376
|
|
|
(2,190
|
)
|
(28
|
)%
|
|
1,439
|
|
23
|
%
|
|||||
Total other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
(67
|
)
|
(697
|
)
|
(577
|
)
|
|
630
|
|
90
|
%
|
|
(120
|
)
|
(21
|
)%
|
|||||
Comprehensive income (loss)
|
|
|
$5,558
|
|
|
$7,118
|
|
|
$5,799
|
|
|
|
($1,560
|
)
|
(22
|
)%
|
|
|
$1,319
|
|
23
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
20
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Net Interest Income
|
n
|
Contractual net interest income
- consists of two components:
|
l
|
Guarantee fees on debt securities issued by consolidated trusts. We record interest income on loans held by consolidated trusts and interest expense on the debt securities issued by the trusts. The difference between the interest income on the loans and the interest expense on the debt represents the guarantee fee income we receive as compensation for our guarantee of the principal and interest payments of the issued debt securities. This difference includes the legislated 10 basis point increase in guarantee fees that is remitted to Treasury as part of the Temporary Payroll Tax Cut Continuation Act of 2011; and
|
l
|
The difference between the interest income earned on all other interest-earning assets, excluding loans held by consolidated trusts, and the interest expense incurred on the liabilities used to fund those assets.
|
n
|
Amortization of cost basis adjustments
- consists of cost basis adjustments, such as premiums and discounts on loans, investment securities and debt that are amortized into interest income or interest expense based on the effective yield over the contractual life of the associated financial instrument.
|
n
|
Hedge accounting impact
- consists of deferred gains and losses on closed cash flow hedges related to forecasted debt issuances that are reclassified from AOCI to net interest income when the related forecasted transaction affects net interest income. Upon adoption of amended hedge accounting guidance in 4Q 2017, for qualifying fair value hedges, we began recording both the change in the fair value of the hedging instrument, including the accrual of periodic cash settlements, and the change in the fair value of the hedged item attributable to the risk being hedged, within net interest income. See
Note 9
for additional detail on this change.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
21
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Net Interest Income
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Contractual net interest income:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Guarantee fee income
|
|
|
$3,270
|
|
|
$2,997
|
|
|
$2,722
|
|
|
|
$273
|
|
9
|
%
|
|
|
$275
|
|
10
|
%
|
Guarantee fee income related to the Temporary Payroll Tax Cut Continuation Act of 2011
|
|
1,314
|
|
1,142
|
|
957
|
|
|
172
|
|
15
|
%
|
|
185
|
|
19
|
%
|
|||||
Other contractual net interest income
|
|
6,400
|
|
6,896
|
|
8,106
|
|
|
(496
|
)
|
(7
|
)%
|
|
(1,210
|
)
|
(15
|
)%
|
|||||
Total contractual net interest income
|
|
10,984
|
|
11,035
|
|
11,785
|
|
|
(51
|
)
|
—
|
%
|
|
(750
|
)
|
(6
|
)%
|
|||||
Net amortization - loans and debt securities of consolidated trusts
|
|
3,258
|
|
3,333
|
|
2,883
|
|
|
(75
|
)
|
(2
|
)%
|
|
450
|
|
16
|
%
|
|||||
Net amortization - other assets and debt
|
|
(85
|
)
|
202
|
|
506
|
|
|
(287
|
)
|
(142
|
)%
|
|
(304
|
)
|
(60
|
)%
|
|||||
Hedge accounting impact
|
|
7
|
|
(191
|
)
|
(228
|
)
|
|
198
|
|
104
|
%
|
|
37
|
|
16
|
%
|
|||||
Net interest income
|
|
|
$14,164
|
|
|
$14,379
|
|
|
$14,946
|
|
|
|
($215
|
)
|
(1
|
)%
|
|
|
($567
|
)
|
(4
|
)%
|
n
|
Guarantee fee income
|
l
|
2017 vs. 2016 and 2016 vs. 2015
- increased during both comparative periods as a result of higher average contractual guarantee fee rates, as well as the continued growth in the size of the Core single-family loan portfolio. Average contractual guarantee fees are generally higher on mortgage loans in our Core single-family loan portfolio compared to those in our Legacy and relief refinance single-family loan portfolio.
|
n
|
Other contractual net interest income
|
l
|
2017 vs. 2016 and 2016 vs. 2015
- decreased during both comparative periods primarily due to the continued reduction in the balance of our mortgage-related investments portfolio, pursuant to the portfolio limits established by the Purchase Agreement and FHFA. See
Conservatorship and Related Matters -
Limits on Our Mortgage-Related Investments Portfolio and Indebtedness
for additional discussion of the limits on the mortgage-related investments portfolio.
|
n
|
Net amortization of loans and debt securities of consolidated trusts
|
l
|
2016 vs. 2015
- increased primarily due to higher amortization of mortgage loan upfront fees and basis adjustments on debt securities of consolidated trusts. The increase in amortization was primarily driven by higher prepayment rates on single-family loans during 2016 compared to 2015.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
22
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Net Interest Income
|
n
|
Net amortization of other assets and debt
|
l
|
2017 vs. 2016 and 2016 vs. 2015
- decreased during both comparative periods primarily due to less accretion of previously recognized other-than-temporary impairments on non-agency mortgage-related securities. The decrease in accretion is due to a decline in the population of impaired securities as a result of our active disposition of these securities and a decline in new other-than-temporary impairments recognized.
|
n
|
Hedge accounting impact
|
l
|
2017 vs. 2016
- increased primarily due to the inclusion of fair value hedge accounting results within net interest income beginning in 4Q 2017, due to the adoption of amended hedge accounting guidance. In prior periods, this activity was included in other income and derivative gains (losses).
|
FREDDIE MAC
| 2017 Form 10-K
|
|
23
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Net Interest Income
|
|
|
Year Ended December 31,
|
|||||||||||||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|||||||||||||||||||||
(Dollars in millions)
|
|
Average
Balance
|
Interest
Income
(Expense)
|
Average
Rate
|
|
Average
Balance
|
Interest
Income
(Expense)
|
Average
Rate
|
|
Average
Balance
|
Interest
Income
(Expense)
|
Average
Rate
|
|||||||||||||||
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Cash and cash equivalents
|
|
|
$10,965
|
|
|
$48
|
|
0.44
|
%
|
|
|
$16,932
|
|
|
$42
|
|
0.25
|
%
|
|
|
$12,482
|
|
|
$8
|
|
0.06
|
%
|
Securities purchased under agreements to resell
|
|
57,883
|
|
588
|
|
1.02
|
|
|
59,639
|
|
217
|
|
0.36
|
|
|
51,219
|
|
58
|
|
0.11
|
|
||||||
Advances to lenders and other secured lending
|
|
859
|
|
21
|
|
2.42
|
|
|
484
|
|
11
|
|
2.28
|
|
|
161
|
|
4
|
|
2.48
|
|
||||||
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Mortgage-related securities
|
|
164,663
|
|
6,402
|
|
3.89
|
|
|
189,982
|
|
7,262
|
|
3.82
|
|
|
226,162
|
|
8,706
|
|
3.85
|
|
||||||
Extinguishment of PCs held by Freddie Mac
|
|
(87,665
|
)
|
(3,264
|
)
|
(3.72
|
)
|
|
(94,624
|
)
|
(3,509
|
)
|
(3.71
|
)
|
|
(107,986
|
)
|
(3,929
|
)
|
(3.64
|
)
|
||||||
Total mortgage-related securities, net
|
|
76,998
|
|
3,138
|
|
4.08
|
|
|
95,358
|
|
3,753
|
|
3.94
|
|
|
118,176
|
|
4,777
|
|
4.04
|
|
||||||
Non-mortgage-related securities
|
|
17,558
|
|
277
|
|
1.58
|
|
|
15,734
|
|
102
|
|
0.65
|
|
|
10,699
|
|
17
|
|
0.16
|
|
||||||
Loans held by consolidated trusts
(1)
|
|
1,730,000
|
|
58,746
|
|
3.40
|
|
|
1,649,727
|
|
55,417
|
|
3.36
|
|
|
1,590,768
|
|
55,867
|
|
3.51
|
|
||||||
Loans held by Freddie Mac
(1)
|
|
117,043
|
|
4,989
|
|
4.26
|
|
|
135,882
|
|
5,623
|
|
4.14
|
|
|
157,261
|
|
6,359
|
|
4.04
|
|
||||||
Total interest-earning assets
|
|
|
$2,011,306
|
|
|
$67,807
|
|
3.37
|
%
|
|
|
$1,973,756
|
|
|
$65,165
|
|
3.30
|
%
|
|
|
$1,940,766
|
|
|
$67,090
|
|
3.46
|
%
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Debt securities of consolidated trusts including PCs held by Freddie Mac
|
|
|
$1,753,983
|
|
|
($50,920
|
)
|
(2.90
|
)%
|
|
|
$1,674,474
|
|
|
($48,108
|
)
|
(2.87
|
)%
|
|
|
$1,611,388
|
|
|
($49,465
|
)
|
(3.07
|
)%
|
Extinguishment of PCs held by Freddie Mac
|
|
(87,665
|
)
|
3,264
|
|
3.72
|
|
|
(94,624
|
)
|
3,509
|
|
3.71
|
|
|
(107,986
|
)
|
3,929
|
|
3.64
|
|
||||||
Total debt securities of consolidated trusts held by third parties
|
|
1,666,318
|
|
(47,656
|
)
|
(2.86
|
)
|
|
1,579,850
|
|
(44,599
|
)
|
(2.82
|
)
|
|
1,503,402
|
|
(45,536
|
)
|
(3.03
|
)
|
||||||
Other debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Short-term debt
|
|
72,071
|
|
(615
|
)
|
(0.85
|
)
|
|
86,284
|
|
(350
|
)
|
(0.41
|
)
|
|
108,096
|
|
(173
|
)
|
(0.16
|
)
|
||||||
Long-term debt
|
|
264,354
|
|
(5,372
|
)
|
(2.03
|
)
|
|
298,040
|
|
(5,837
|
)
|
(1.96
|
)
|
|
313,502
|
|
(6,435
|
)
|
(2.05
|
)
|
||||||
Total other debt
|
|
336,425
|
|
(5,987
|
)
|
(1.78
|
)
|
|
384,324
|
|
(6,187
|
)
|
(1.61
|
)
|
|
421,598
|
|
(6,608
|
)
|
(1.57
|
)
|
||||||
Total interest-bearing liabilities
|
|
2,002,743
|
|
(53,643
|
)
|
(2.68
|
)
|
|
1,964,174
|
|
(50,786
|
)
|
(2.58
|
)
|
|
1,925,000
|
|
(52,144
|
)
|
(2.71
|
)
|
||||||
Impact of net non-interest-bearing funding
|
|
8,563
|
|
—
|
|
0.01
|
|
|
9,582
|
|
—
|
|
0.01
|
|
|
15,766
|
|
—
|
|
0.02
|
|
||||||
Total funding of interest-earning assets
|
|
|
$2,011,306
|
|
|
($53,643
|
)
|
(2.67
|
)%
|
|
|
$1,973,756
|
|
|
($50,786
|
)
|
(2.57
|
)%
|
|
|
$1,940,766
|
|
|
($52,144
|
)
|
(2.69
|
)%
|
Net interest income/yield
|
|
|
|
$14,164
|
|
0.70
|
%
|
|
|
|
$14,379
|
|
0.73
|
%
|
|
|
|
$14,946
|
|
0.77
|
%
|
(1)
|
Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $2.4 billion, $2.6 billion and $2.0 billion for loans held by consolidated trusts and $162 million, $215 million and $383 million for loans held by Freddie Mac during 2017, 2016 and 2015, respectively.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
24
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Net Interest Income
|
|
|
Variance Analysis
|
||||||||||||||||||
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
Rate
|
Volume
|
Total Change
|
|
Rate
|
Volume
|
Total Change
|
||||||||||||
Interest-earning assets:
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
|
|
$8
|
|
|
($2
|
)
|
|
$6
|
|
|
|
$34
|
|
|
$—
|
|
|
$34
|
|
Securities purchased under agreements to resell
|
|
380
|
|
(9
|
)
|
371
|
|
|
147
|
|
12
|
|
159
|
|
||||||
Advances to lenders and other secured lending
|
|
1
|
|
9
|
|
10
|
|
|
—
|
|
7
|
|
7
|
|
||||||
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
||||||||||||
Mortgage-related securities
|
|
123
|
|
(983
|
)
|
(860
|
)
|
|
(61
|
)
|
(1,383
|
)
|
(1,444
|
)
|
||||||
Extinguishment of PCs held by Freddie Mac
|
|
(14
|
)
|
259
|
|
245
|
|
|
(74
|
)
|
494
|
|
420
|
|
||||||
Total mortgage-related securities, net
|
|
109
|
|
(724
|
)
|
(615
|
)
|
|
(135
|
)
|
(889
|
)
|
(1,024
|
)
|
||||||
Non-mortgage-related securities
|
|
161
|
|
14
|
|
175
|
|
|
74
|
|
11
|
|
85
|
|
||||||
Loans held by consolidated trusts
|
|
609
|
|
2,720
|
|
3,329
|
|
|
(2,479
|
)
|
2,029
|
|
(450
|
)
|
||||||
Loans held by Freddie Mac
|
|
165
|
|
(799
|
)
|
(634
|
)
|
|
146
|
|
(882
|
)
|
(736
|
)
|
||||||
Total interest-earning assets
|
|
|
$1,433
|
|
|
$1,209
|
|
|
$2,642
|
|
|
|
($2,213
|
)
|
|
$288
|
|
|
($1,925
|
)
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
||||||||||||
Debt securities of consolidated trusts including PCs held by Freddie Mac
|
|
|
($508
|
)
|
|
($2,304
|
)
|
|
($2,812
|
)
|
|
|
$3,246
|
|
|
($1,889
|
)
|
|
$1,357
|
|
Extinguishment of PCs held by Freddie Mac
|
|
14
|
|
(259
|
)
|
(245
|
)
|
|
74
|
|
(494
|
)
|
(420
|
)
|
||||||
Total debt securities of consolidated trusts held by third parties
|
|
(494
|
)
|
(2,563
|
)
|
(3,057
|
)
|
|
3,320
|
|
(2,383
|
)
|
937
|
|
||||||
Other debt:
|
|
|
|
|
|
|
|
|
||||||||||||
Short-term debt
|
|
(331
|
)
|
66
|
|
(265
|
)
|
|
(218
|
)
|
41
|
|
(177
|
)
|
||||||
Long-term debt
|
|
(214
|
)
|
679
|
|
465
|
|
|
299
|
|
299
|
|
598
|
|
||||||
Total other debt
|
|
(545
|
)
|
745
|
|
200
|
|
|
81
|
|
340
|
|
421
|
|
||||||
Total interest-bearing liabilities
|
|
|
($1,039
|
)
|
|
($1,818
|
)
|
|
($2,857
|
)
|
|
|
$3,401
|
|
|
($2,043
|
)
|
|
$1,358
|
|
Net interest income
|
|
|
$394
|
|
|
($609
|
)
|
|
($215
|
)
|
|
|
$1,188
|
|
|
($1,755
|
)
|
|
($567
|
)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
25
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Benefit (Provision) for Credit Losses
|
n
|
Collectively impaired loans
- The provision for collectively impaired loans is primarily driven by the volume of newly impaired loans and changes in estimated probabilities of default and estimated loss severities for these loans. Estimated probabilities of default and estimated loss severities are based on current conditions and historical data and are heavily influenced by changes in home prices. These estimates are also affected by a number of other factors, such as local and regional economic conditions, changes in reperformance and default rates and the success of our borrower assistance programs.
|
n
|
Individually impaired loans
- The provision for individually impaired loans is primarily driven by the volume of our loss mitigation activity (e.g., loan modifications) that results in loans being considered TDRs, the payment performance of our individually impaired mortgage portfolio and changes in estimated probabilities of default and estimated loss severities, which affect the future cash flows we expect to receive from these loans. Estimated probabilities of default and estimated loss severities for individually impaired loans are based on the same current conditions and historical data and are affected by the same factors noted above for collectively impaired loans.
|
n
|
Actual level of loan defaults;
|
n
|
The effect of loss mitigation efforts;
|
n
|
Any government actions or programs that affect the ability of borrowers to refinance loans, such as loans with an LTV ratio greater than 100%, or obtain modifications;
|
n
|
Changes in property values;
|
FREDDIE MAC
| 2017 Form 10-K
|
|
26
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Benefit (Provision) for Credit Losses
|
n
|
Regional economic conditions, including unemployment rates;
|
n
|
Additional delays in the foreclosure process; and
|
n
|
Third-party mortgage insurance coverage and recoveries.
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in billions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Benefit (provision) for newly impaired loans
|
|
|
($0.7
|
)
|
|
($0.8
|
)
|
|
($0.9
|
)
|
|
|
$0.1
|
|
13
|
%
|
|
|
$0.1
|
|
11
|
%
|
Amortization of interest rate concessions
|
|
0.7
|
|
0.9
|
|
1.2
|
|
|
(0.2
|
)
|
(22
|
)%
|
|
(0.3
|
)
|
(25
|
)%
|
|||||
Reclassifications of held-for-investment loans to held-for-sale loans
|
|
0.5
|
|
0.8
|
|
2.3
|
|
|
(0.3
|
)
|
(38
|
)%
|
|
(1.5
|
)
|
(65
|
)%
|
|||||
Other, including changes in estimated default probability and loss severity
|
|
(0.4
|
)
|
(0.1
|
)
|
0.1
|
|
|
(0.3
|
)
|
(300
|
)%
|
|
(0.2
|
)
|
(200
|
)%
|
|||||
Benefit (provision) for credit losses
|
|
|
$0.1
|
|
|
$0.8
|
|
|
$2.7
|
|
|
|
($0.7
|
)
|
(88
|
)%
|
|
|
($1.9
|
)
|
(70
|
)%
|
n
|
2017 vs. 2016
- Benefit for credit losses declined in 2017 compared to 2016 primarily driven by:
|
l
|
Estimated losses related to hurricanes in 2017;
|
l
|
A decrease in the accretion of TDR concessions due to a significant increase in the reclassification of reperforming loans from held-for-investment to held-for-sale; and
|
l
|
A change in accounting policy that was elected on January 1, 2017 for loan reclassification from held-for-investment to held-for-sale. See
Item Affecting Multiple Lines
-
Single-Family Loan Reclassifications
for further information about this change.
|
l
|
Improvement in our estimated loss severity.
|
n
|
2016 vs. 2015
- Benefit for credit losses declined in 2016 compared to 2015 primarily due to a decrease in the number of seasoned single-family loans reclassified from held-for-investment to held-for sale in 2016.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
27
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Derivative Gains (Losses)
|
n
|
Fair value changes
- Represent changes in the fair value of our derivatives based on market conditions at the end of the period or at the time the derivative instrument is terminated. These amounts may or may not be realized over time, depending on future changes in market conditions and the terms of our derivative instruments.
|
n
|
Accrual of periodic cash settlements
- Consists of the net amount we accrue during a period for interest-rate swap payments that we will make or receive. This accrual represents the ongoing cost of our hedging activities, and is economically equivalent to interest expense.
|
n
|
Changes in interest rates
- Our primary derivative instruments are interest-rate swaps, including pay-fixed and receive-fixed interest-rate swaps. With a pay-fixed interest-rate swap, we pay a fixed
|
FREDDIE MAC
| 2017 Form 10-K
|
|
28
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Derivative Gains (Losses)
|
n
|
Implied volatility
- Many of our assets and liabilities have embedded prepayment options. We use option-based derivatives, including swaptions, to economically hedge the prepayment options embedded in our mortgage assets and callable debt. Fair value gains and losses on swaptions are sensitive to changes in both interest rates and implied volatility, which reflects the market’s expectation of future changes in interest rates. Assuming all other factors are unchanged, including interest rates, purchased swaptions generally become more valuable as implied volatility increases and less valuable as implied volatility decreases, with the opposite being true for written swaptions.
|
n
|
Changes in the shape of the yield curve
- We own assets and have outstanding debt with different cash flows along the yield curve. We use derivatives to hedge the yield exposure of assets and debt, resulting in derivatives with different maturities. As a result, changes in the shape of the yield curve will affect our derivative gains (losses).
|
n
|
Changes in the composition of our derivative portfolio
- The mix and balance of our derivative portfolio changes from period to period as we enter into or terminate derivative instruments to respond to changes in interest rates and changes in the balances and modeled characteristics of our assets and liabilities. Changes in the composition of our derivative portfolio will affect the derivative gains and losses we recognize in a given period, thereby affecting the volatility of comprehensive income.
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Fair value change in interest-rate swaps
|
|
|
$626
|
|
|
$178
|
|
|
($778
|
)
|
|
|
$448
|
|
252
|
%
|
|
|
$956
|
|
123
|
%
|
Fair value change in option-based derivatives
|
|
(1,041
|
)
|
421
|
|
258
|
|
|
(1,462
|
)
|
(347
|
)%
|
|
163
|
|
63
|
%
|
|||||
Fair value change in other derivatives
|
|
17
|
|
887
|
|
22
|
|
|
(870
|
)
|
(98
|
)%
|
|
865
|
|
3,932
|
%
|
|||||
Accrual of periodic cash settlements
|
|
(1,590
|
)
|
(1,760
|
)
|
(2,198
|
)
|
|
170
|
|
10
|
%
|
|
438
|
|
20
|
%
|
|||||
Derivative gains (losses)
|
|
|
($1,988
|
)
|
|
($274
|
)
|
|
($2,696
|
)
|
|
|
($1,714
|
)
|
(626
|
)%
|
|
|
$2,422
|
|
90
|
%
|
n
|
2017 vs. 2016
- Losses increased, driven by lower levels of volatility during 2017, resulting in larger losses in our options portfolio, coupled with lower fair value gains in our pay-fixed interest rate swaps as long-term interest rates increased less. This was partially offset by reduced fair value losses in our receive-fixed interest rate swaps.
|
n
|
2016 vs. 2015
- Derivative losses declined during 2016 primarily due to an increase in longer-term interest rates during the fourth quarter of 2016 resulting in an improvement in the fair value of our
|
FREDDIE MAC
| 2017 Form 10-K
|
|
29
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Derivative Gains (Losses)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
30
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
Other Income (Loss)
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Non-agency mortgage-related securities settlements
|
|
|
$4,532
|
|
|
$—
|
|
|
$65
|
|
|
|
$4,532
|
|
N/A
|
|
|
|
($65
|
)
|
N/A
|
|
Gains (losses) on loans
|
|
|
$928
|
|
|
($463
|
)
|
|
($2,094
|
)
|
|
|
$1,391
|
|
300
|
%
|
|
|
$1,631
|
|
78
|
%
|
Gains (losses) on held-for-sale loan purchase commitments
|
|
1,098
|
|
663
|
|
—
|
|
|
435
|
|
66
|
%
|
|
663
|
|
N/A
|
|
|||||
All other
|
|
786
|
|
1,054
|
|
1,150
|
|
|
(268
|
)
|
(25
|
)%
|
|
(96
|
)
|
(8
|
)%
|
|||||
Fair value hedge accounting
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Change in fair value of derivatives in qualifying hedge relationships
|
|
(215
|
)
|
N/A
|
|
N/A
|
|
|
(215
|
)
|
N/A
|
|
|
N/A
|
|
N/A
|
|
|||||
Change in fair value of hedged items in qualifying hedge relationships
|
|
351
|
|
N/A
|
|
N/A
|
|
|
351
|
|
N/A
|
|
|
N/A
|
|
N/A
|
|
|||||
Total other income (loss)
|
|
|
$7,480
|
|
|
$1,254
|
|
|
($879
|
)
|
|
|
$6,226
|
|
496
|
%
|
|
|
$2,133
|
|
243
|
%
|
n
|
2017 vs. 2016
- Other income (loss) increased reflecting:
|
l
|
Increased income from our litigation settlement related to our non-agency mortgage-related securities. While we had one large settlement with RBS during 2017, we did not have any significant settlements during 2016; and
|
l
|
Greater gains recognized on a higher volume of reperforming loans reclassified from held-for-investment to held-for-sale and subsequently sold, coupled with less loss recognized in 2017 on the reclassification of seriously delinquent loans from held-for-investment to held-for-sale as a result of an accounting policy change in 2017. See
Item Affecting Multiple Lines
-
Single-Family Loan Reclassifications
for more information.
|
n
|
2016 vs. 2015
- Other income (loss) increased reflecting:
|
l
|
Decreased lower-of-cost-or-fair-value adjustments as we reclassified fewer seasoned single-family loans from held-for-investment to held-for-sale during 2016; and
|
l
|
Increased gains on multifamily mortgage loans and commitments for which we have elected the fair value option, due to increased market spread-related fair value gains. K Certificate benchmark spreads tightened during 2016 compared to these spreads widening during 2015.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
31
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Other comprehensive income, excluding certain items
|
|
|
$1,084
|
|
|
($29
|
)
|
|
$374
|
|
|
|
$1,113
|
|
3,838
|
%
|
|
|
($403
|
)
|
(108
|
)%
|
Excluded items
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Accretion due to significant increases in expected cash flows on previously impaired available-for-sale securities
|
|
(164
|
)
|
(299
|
)
|
(449
|
)
|
|
135
|
|
45
|
%
|
|
150
|
|
33
|
%
|
|||||
Realized (gains) losses reclassified from AOCI
|
|
(987
|
)
|
(369
|
)
|
(502
|
)
|
|
(618
|
)
|
(167
|
)%
|
|
133
|
|
26
|
%
|
|||||
Total excluded items
|
|
(1,151
|
)
|
(668
|
)
|
(951
|
)
|
|
(483
|
)
|
(72
|
)%
|
|
283
|
|
30
|
%
|
|||||
Total other comprehensive income (loss)
|
|
|
($67
|
)
|
|
($697
|
)
|
|
($577
|
)
|
|
|
$630
|
|
90
|
%
|
|
|
($120
|
)
|
(21
|
)%
|
n
|
Other comprehensive income, excluding certain items
|
l
|
2017 vs. 2016
-
increased primarily due to market spread related gains as market spreads on non-agency and agency mortgage-related securities tightened more during 2017, coupled with smaller interest rate-related losses due to smaller increases in long-term interest rates during 2017.
|
l
|
2016 vs. 2015
- decreased primarily due to unrealized losses resulting from an increase in longer-term interest rates, coupled with a decrease in unrealized gains as our non-agency mortgage-related securities portfolio continued to decline consistent with the reduction of our mortgage-related investments portfolio pursuant to the limits established by the Purchase Agreement and FHFA.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
32
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Other Comprehensive Income (Loss)
|
n
|
Accretion due to significant increases in expected cash flows on previously impaired available-for-sale securities
|
l
|
2017 vs. 2016 and 2016 vs. 2015
- decreased during both comparative periods primarily due to a decline in the population of impaired securities as a result of our active dispositions of these securities, coupled with a decline in new other-than-temporary impairments.
|
n
|
Realized (gains) losses reclassified from AOCI
|
l
|
2017 vs. 2016
- reflected larger amounts of reclassified gains during 2017 due to higher realized gains on our non-agency and agency mortgage-related securities sold, as a result of additional spread tightening and an increase in sales of non-agency mortgage-related securities.
|
l
|
2016 vs. 2015
- reflected smaller amounts of reclassified gains during 2016 primarily due to a decline in sales of non-agency mortgage-related securities in an unrealized gain position.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
33
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Other Key Drivers
|
n
|
Gains (losses) on extinguishment of debt
|
l
|
2017 vs. 2016
- improved primarily due to an increase in the amount of gains recognized from the extinguishment of certain fixed-rate debt securities of consolidated trusts (i.e., PCs), as market interest rates increased between the time of issuance and repurchase. The amount of extinguishment gains or losses may vary, as the type and amount of PCs selected for repurchase are based on our investment and funding strategies, including our efforts to support the liquidity and price performance of our PCs.
|
l
|
2016 vs. 2015
- losses decreased primarily due to an increase in longer-term interest rates during the fourth quarter of 2016, coupled with a decline in our repurchase of single-family PCs. The increase in longer-term interest rates resulted in net extinguishment gains for PCs repurchased during the fourth quarter, which partially offset the net extinguishment losses recognized for PCs repurchased during the nine months ended September 30, 2016.
|
n
|
Other gains (losses) on investment securities recognized in earnings
|
l
|
2017 vs. 2016
- improved primarily due to the recognition of smaller fair value losses on our mortgage and non-mortgage-related securities classified as trading as long-term interest rates increased less during 2017, coupled with larger gains due to additional spread tightening during 2017 on our sales of agency and non-agency mortgage-related securities.
|
l
|
2016 vs. 2015
- worsened as we recognized net losses during 2016 compared to net gains during 2015, primarily due to losses on our mortgage-related and non-mortgage-related securities as a result of increasing longer-term interest rates, coupled with less realized gains from our available-for-sale securities, as we sold fewer non-agency securities in an unrealized gain position.
|
n
|
Net impairment of available-for-sale securities recognized in earnings
|
l
|
2017 vs. 2016 and 2016 vs. 2015
- decreased primarily due to a decline in the population of non-agency mortgage-related securities, including those non-agency mortgage-related securities we intend to sell, as we continue to reduce the less liquid assets in our mortgage-related investments portfolio.
|
n
|
Other expense
|
l
|
2016 vs. 2015
- decreased primarily driven by property taxes and insurance costs associated with seasoned single-family loans reclassified from held-for-investment to held-for-sale as we reclassified fewer loans in 2016 compared to 2015. These costs are considered part of the loan loss reserves while the loans are classified as held-for-investment. See
Item Affecting Multiple Lines
-
Single-Family Loan Reclassifications
for more information.
|
n
|
Income tax expense
|
l
|
2017 vs. 2016
- increased primarily as a result of the impact of the Tax Cuts and Jobs Act enacted in December 2017, which reduced the statutory corporate income tax rate from 35% to 21%. We measured our net deferred tax asset using the reduced rate and recognized a charge to
|
FREDDIE MAC
| 2017 Form 10-K
|
|
34
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Other Key Drivers
|
l
|
2016 vs. 2015
- increased primarily due to an increase in pre-tax income.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
35
|
Management's Discussion and Analysis
|
Consolidated Results of Operations |
Item Affecting Multiple Lines
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Benefit (provision) for credit losses
|
|
|
$546
|
|
|
$812
|
|
|
$2,314
|
|
|
|
($266
|
)
|
(33
|
)%
|
|
|
($1,502
|
)
|
(65
|
)%
|
Other income (loss) - lower-of-cost-or-fair-value adjustment
|
|
—
|
|
(1,005
|
)
|
(2,193
|
)
|
|
1,005
|
|
100
|
%
|
|
1,188
|
|
54
|
%
|
|||||
Other (expense) - property taxes and insurance associated with these loans
|
|
—
|
|
(195
|
)
|
(1,178
|
)
|
|
195
|
|
100
|
%
|
|
983
|
|
83
|
%
|
|||||
Effect on income before income tax expense
|
|
|
$546
|
|
|
($388
|
)
|
|
($1,057
|
)
|
|
|
$934
|
|
241
|
%
|
|
|
$669
|
|
63
|
%
|
n
|
2017 vs. 2016
- Effect on income before income tax expense changed to a gain due to a higher volume primarily of reperforming loans reclassified from held-for-investment to held-for-sale during 2017 compared to a loss recognized primarily on seriously delinquent loans reclassified from held-for-investment to held-for-sale during 2016.
|
n
|
2016 vs. 2015
- Effect on income before income tax expense decreased due to a decline in the number of seasoned single-family loans reclassified from held-for-investment to held-for-sale.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
36
|
Management's Discussion and Analysis
|
Consolidated Balance Sheet Analysis
|
|
|
As of December 31,
|
|
Year Over Year Change
|
|||||||||
(Dollars in millions)
|
|
2017
|
2016
|
|
$
|
%
|
|||||||
Assets:
|
|
|
|
|
|
|
|||||||
Cash and cash equivalents
|
|
|
$6,848
|
|
|
$12,369
|
|
|
|
($5,521
|
)
|
(45
|
)%
|
Restricted cash and cash equivalents
|
|
2,963
|
|
9,851
|
|
|
(6,888
|
)
|
(70
|
)%
|
|||
Securities purchased under agreements to resell
|
|
55,903
|
|
51,548
|
|
|
4,355
|
|
8
|
%
|
|||
Subtotal
|
|
65,714
|
|
73,768
|
|
|
(8,054
|
)
|
(11
|
)%
|
|||
Investments in securities, at fair value
|
|
84,318
|
|
111,547
|
|
|
(27,229
|
)
|
(24
|
)%
|
|||
Mortgage loans, net
|
|
1,871,217
|
|
1,803,003
|
|
|
68,214
|
|
4
|
%
|
|||
Accrued interest receivable
|
|
6,355
|
|
6,135
|
|
|
220
|
|
4
|
%
|
|||
Derivative assets, net
|
|
375
|
|
747
|
|
|
(372
|
)
|
(50
|
)%
|
|||
Deferred tax assets, net
|
|
8,107
|
|
15,818
|
|
|
(7,711
|
)
|
(49
|
)%
|
|||
Other assets
|
|
13,690
|
|
12,358
|
|
|
1,332
|
|
11
|
%
|
|||
Total assets
|
|
|
$2,049,776
|
|
|
$2,023,376
|
|
|
|
$26,400
|
|
1
|
%
|
|
|
|
|
|
|
|
|
||||||
Liabilities and Equity:
|
|
|
|
|
|
|
|
||||||
Liabilities:
|
|
|
|
|
|
|
|
||||||
Accrued interest payable
|
|
|
$6,221
|
|
|
$6,015
|
|
|
|
$206
|
|
3
|
%
|
Debt, net
|
|
2,034,630
|
|
2,002,004
|
|
|
32,626
|
|
2
|
%
|
|||
Derivative liabilities, net
|
|
269
|
|
795
|
|
|
(526
|
)
|
(66
|
)%
|
|||
Other liabilities
|
|
8,968
|
|
9,487
|
|
|
(519
|
)
|
(5
|
)%
|
|||
Total liabilities
|
|
2,050,088
|
|
2,018,301
|
|
|
31,787
|
|
2
|
%
|
|||
Total equity
|
|
(312
|
)
|
5,075
|
|
|
(5,387
|
)
|
(106
|
)%
|
|||
Total liabilities and equity
|
|
|
$2,049,776
|
|
|
$2,023,376
|
|
|
|
$26,400
|
|
1
|
%
|
n
|
Cash and cash equivalents
,
restricted cash and cash equivalents
and
securities purchased under agreements to resell
affect one another and changes in the balances should be viewed together (e.g., cash and cash equivalents can be invested in securities purchased under agreements to resell or other investments). The decrease in the combined balance was primarily due to lower near term cash needs for fewer upcoming maturities and anticipated calls of other debt, and a decrease in prepayment proceeds received by the custodial account driven by increased interest rates, at the end of 2017 compared to the end of 2016.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
37
|
Management's Discussion and Analysis
|
Our Business Segments |
Segment Earnings
|
Segment/Category
|
Description
|
Primary Income Drivers
|
Primary Expense Drivers
|
||
Single-family Guarantee
|
Reflects results from our purchase, securitization and guarantee of single-family loans and the management of single-family mortgage credit risk
|
•
|
Guarantee fee income
|
•
|
Credit-related expenses
|
•
|
Administrative expenses
|
||||
•
|
Credit risk transfer expenses
|
||||
Multifamily
|
Reflects results from our purchase, sale, securitization and guarantee of multifamily loans and securities, our investments in those loans and securities and the management of multifamily mortgage credit risk and market spread risk
|
•
|
Net interest income
|
•
|
Losses on loans
|
•
|
Guarantee fee income
|
•
|
Investment losses
|
||
•
|
Gains on loans
|
•
|
Derivative losses
|
||
•
|
Investment gains
|
•
|
Administrative expenses
|
||
•
|
Derivative gains
|
•
|
Credit-related expenses
|
||
Capital Markets
|
Reflects results from managing our mortgage-related investments portfolio (excluding Multifamily segment investments, single-family seriously delinquent loans and the credit risk of single-family performing and reperforming loans), treasury function, single-family securitization activities and interest-rate risk
|
•
|
Net interest income
|
•
|
Investment losses
|
•
|
Investment gains
|
•
|
Derivative losses
|
||
•
|
Derivative gains
|
•
|
Administrative expenses
|
||
All Other
|
Consists of material corporate-level activities that are infrequent in nature and based on decisions outside the control of the management of our reportable segments
|
|
N/A
|
|
N/A
|
n
|
We make significant reclassifications among certain line items in our GAAP financial statements to reflect measures of guarantee fee income on guarantees, net interest income on investments and benefit (provision) for credit losses on loans that are in line with how we manage our business.
|
n
|
We allocate certain revenues and expenses, including certain returns on assets and funding costs, and all administrative expenses to our three reportable segments.
|
n
|
The sum of Segment Earnings for each segment and the All Other category equals GAAP net income (loss). Likewise, the sum of comprehensive income (loss) for each segment and the All Other category equals GAAP comprehensive income (loss).
|
FREDDIE MAC
| 2017 Form 10-K
|
|
38
|
Management's Discussion and Analysis
|
Our Business Segments |
Segment Earnings
|
FREDDIE MAC
| 2017 Form 10-K
|
|
39
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
Providing market leadership by delivering quality offerings, programs and services to an increasingly diversified customer base and an evolving mortgage market;
|
n
|
Improving the customer experience through continued enhancement of our products, programs, processes and technology;
|
n
|
Establishing effective risk management activities, including credit risk transfer transactions, that are appropriate for the level of risk; and
|
n
|
Developing innovative technology platforms to provide sellers and servicers and Freddie Mac with better methods of assessing and managing single-family mortgage credit risk.
|
n
|
Developing and implementing initiatives to cost-effectively reduce taxpayer exposure and offer third-party investors new and innovative ways to share in the credit risk of the single-family credit guarantee portfolio;
|
n
|
Expanding access to affordable housing in a responsible manner to support our Charter Mission as well as to meet specific mandated goals;
|
n
|
Working with FHFA, Fannie Mae and CSS on the development of a new common securitization platform; and
|
n
|
Implementing the single (common) security initiative for Freddie Mac and Fannie Mae, which is intended to increase the liquidity of the TBA market and to reduce the disparities in trading value between our PCs and Fannie Mae's single-class mortgage-related securities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
40
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
FREDDIE MAC
| 2017 Form 10-K
|
|
41
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
A contractual monthly fee paid as a percentage of the UPB of the underlying loan;
|
n
|
Upfront fees, which primarily include delivery fees that are calculated based on credit risk factors such as the loan product type, loan purpose, LTV ratio and credit score. These delivery fees are charged to compensate us for higher levels of risk in some loan products;
|
n
|
Upfront payments made or received to buy up or buy down, respectively, the monthly contractual guarantee fee ("buy-up fees" or "buy-down fees"). These fees are paid in conjunction with the formation of a PC to provide for a uniform coupon rate for the mortgage pool underlying the PC. The payments made to buy-up the monthly contractual guarantee fee are not considered compensation for the credit risk assumed for purposes of our financial statements. Consequently, these amounts are allocated to the Capital Markets segment; and
|
n
|
Market adjusted pricing costs based on the price performance of our PCs relative to comparable Fannie Mae securities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
42
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
Guarantor Swap PCs
-
We offer transactions in which our customers, primarily large mortgage banking companies and commercial banks, provide us with loans in exchange for PCs, as shown in the diagram below:
|
n
|
Cash PCs
-
We offer cash products to our customers, primarily community and regional banks. In these transactions, we purchase performing loans for cash and securitize them for retention in our mortgage-related investments portfolio or for sale to third parties. For the period of time between loan purchase and securitization, we refer to the loan as being in our securitization pipeline. The purchase of loans and sale of PCs are managed by the Capital Markets segment. The diagram below illustrates a cash PC transaction. We securitize reperforming loans using a similar process.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
43
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
FREDDIE MAC
| 2017 Form 10-K
|
|
44
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
Giant PCs
-
Resecuritizations of previously issued PCs or Giant PCs. Giant PCs are single-class securities that involve the straight pass through of all cash flows of the underlying collateral to holders of the beneficial interests.
|
n
|
Stripped Giant PCs
-
Multiclass securities that are formed by resecuritizing previously issued PCs or Giant PCs and issuing stripped securities, including principal-only and interest-only securities or floating rate and inverse interest-only securities, backed by the cash flows from the underlying collateral.
|
n
|
REMICs
-
Resecuritizations of previously issued PCs, Giant PCs, Stripped Giant PCs or REMICs. REMICs are multiclass securities that divide all cash flows of the underlying collateral into two or more classes with varying maturities, payment priorities and coupons.
|
n
|
Other securitization products
- Guaranteed mortgage-related securities collateralized by non-Freddie Mac mortgage-related securities. However, we have not entered into these types of transactions as part of our Single-family Guarantee business in several years.
|
n
|
Whole loan sales
-
Sales of seriously delinquent or reperforming loans for cash.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
45
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
Senior subordinate securitization structures (non-consolidated)
-
Transactions where we issue guaranteed senior securities and unguaranteed subordinated securities. The collateral for these structures primarily consists of reperforming loans. The unguaranteed subordinated securities absorb first losses on the related loans. In these transactions, the loans are not serviced in accordance with our Guide and we do not control the servicing.
|
The primary impacts of the aforementioned products and transactions to Segment Earnings are:
|
|
|
|
•
|
Guarantee fee income earned on our guarantee of principal and interest payments on these mortgage-related securities;
|
|
|
|
|
•
|
Benefit (provision) for credit losses, which is affected by changes in estimated probabilities of default and estimated loss severities, the actual level of loan defaults, the effect of loss mitigation efforts and payment performance of our individually impaired mortgage portfolio; and
|
|
|
|
|
•
|
Gains and losses recognized on the reclassification of loans held-for-investment to held-for-sale and subsequent sale of these loans.
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
46
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
Minimize changes required of, and effects on, sellers and servicers by having Freddie Mac serve as the credit manager for investors; and
|
n
|
STACR debt notes
- Transactions in which we create a reference pool of loans from our single-family loan portfolio and an associated securitization-like structure with notional credit risk positions (e.g., first loss, mezzanine and senior positions). We issue STACR debt notes related to certain notional credit risk positions to third-party investors and retain the remaining credit risk. In certain of our STACR debt note transactions to date, we transferred risk in both first loss and mezzanine notional credit risk positions, while in other transactions we only transferred risk in the mezzanine notional credit risk position.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
47
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
ACIS insurance policies
- Transactions in which we purchase insurance policies, generally underwritten by a group of insurers and reinsurers, that provide credit protection for certain specified credit events that occur and are typically allocated to the non-issued notional credit risk positions of a STACR debt note transaction (i.e., the risk positions that Freddie Mac retains). Under each of these insurance policies, we pay monthly premiums that are determined based on the outstanding balance of the reference pool. We may also enter into ACIS transactions that provide credit protection for certain specified credit events on loans not included in a reference pool created for a STACR debt note transaction. When specific credit events occur, we receive compensation from the insurance policy up to an aggregate limit based on actual losses. We require our counterparties to partially collateralize their exposure to reduce the risk that we will not be reimbursed for our claims under the policies.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
48
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
The primary impacts of our credit risk transfer transactions to Segment Earnings are:
|
|
|
|
•
|
Interest expense on our STACR debt notes;
|
|
|
|
|
•
|
Fair value gains and losses recognized on certain of our STACR debt notes;
|
|
|
|
|
•
|
Premium expense for insurance coverage under the ACIS contracts; and
|
|
|
|
|
•
|
Benefits recognized from recoveries under the CRT transactions. Benefits from certain of our STACR debt notes are recognized as gains on extinguishment of debt, whereas benefits from other CRT transactions are recognized as other income.
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
49
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
FREDDIE MAC
| 2017 Form 10-K
|
|
50
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
FREDDIE MAC
| 2017 Form 10-K
|
|
51
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
U.S. single-family loan origination volumes decreased in 2017 compared to 2016, driven by lower refinance volume as a result of higher average mortgage interest rates.
|
n
|
U.S. single-family home sales volume increased in 2017 compared to 2016, driven by favorable economic conditions, such as historically low mortgage interest rates, continued home price appreciation and a declining unemployment rate.
|
n
|
In 2018, we expect continued growth in U.S. single-family home purchase volume due to a gradual increase in housing supply, and lower refinance volume driven by a moderate increase in mortgage interest rates. Freddie Mac's single-family loan purchase volumes typically follow similar trends.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
52
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
U.S. single-family mortgage debt outstanding increased in 2017 compared to 2016, primarily driven by house price appreciation. An increase in U.S. single-family mortgage debt outstanding, combined with our sustained market share, typically results in growth of our single-family credit guarantee portfolio.
|
n
|
The U.S. single-family serious delinquency rate decreased slightly in 2017 compared to 2016 due to macroeconomic factors, such as a low unemployment rate and continued home price appreciation, offset by the impacts of the hurricanes in 2017. Our single-family serious delinquency rate typically follows a similar trend. See
Risk Management - Single-Family Mortgage Credit Risk -
Single-Family Credit Guarantee Portfolio
for additional information on our serious delinquency rate.
|
n
|
As reported by the U.S. Census Bureau, the U.S. homeownership rate was 64.2% in the fourth quarter of 2017 compared to a high point of 69.2% in the fourth quarter of 2004, and the average of 66.1% from 1990 to the present.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
53
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
FREDDIE MAC
| 2017 Form 10-K
|
|
54
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
We maintain a consistent market presence by providing lenders with a constant source of liquidity for conforming loan products. We have funded approximately
15.7 million
single-family homes since January 1, 2009 and purchased approximately
1.4 million
HARP loans since the initiative began in 2009, including over 13,000 during 2017.
|
n
|
Our loan purchase and guarantee activity decreased in 2017 compared to 2016 due to lower refinance volume driven by higher average mortgage interest rates, partially offset by an increase in home purchase loan volume due to favorable macroeconomic conditions, such as historically low mortgage interest rates and a declining unemployment rate.
|
n
|
We continued working to improve access to affordable housing, including through our Home Possible
®
loan initiatives. Our Home Possible
®
loan initiatives offer down payment options as low as 3% and are designed to help qualified borrowers with limited savings buy a home. We purchased over 95,000 loans under these initiatives in 2017. We also continue to implement programs that support responsibly broadening access to affordable housing by:
|
l
|
Improving the effectiveness of pre-purchase and early delinquency counseling for borrowers;
|
l
|
Expanding our ability to support borrowers who do not have a credit score;
|
l
|
Implementing the Duty To Serve Underserved Markets plan; and
|
l
|
Increasing support for first-time home buyers.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
55
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
The single-family credit guarantee portfolio increased during 2017 by approximately 4%, driven in part by an increase in U.S. single-family mortgage debt outstanding as a result of continued home price appreciation, combined with our share of U.S. single-family origination volume remaining stable.
|
n
|
The Core single-family loan portfolio grew to
78%
of the single-family credit guarantee portfolio at
December 31, 2017
compared to 73% at December 31, 2016.
|
n
|
The Legacy and relief refinance single-family loan portfolio declined to
22%
of the single-family credit guarantee portfolio at
December 31, 2017
compared to 27% at December 31, 2016, primarily driven by liquidations.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
56
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
Average portfolio Segment Earnings guarantee fees
decreased slightly in 2017 compared to 2016 due to a decline in the recognition of amortized fees driven by lower prepayments as a result of higher average mortgage interest rates. This decrease was partially offset by an increase in contractual guarantee fees as older vintages were replaced by acquisitions of new loans with higher contractual guarantee fees.
|
n
|
Guarantee fees charged on new acquisitions
decreased in 2017 compared to 2016 due to competitive pricing, partially offset by lower market-adjusted pricing costs based on the improved price performance of our PCs relative to Fannie Mae securities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
57
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
(1)
|
The amounts represent the UPB upon issuance of STACR debt notes and execution of ACIS and Deep MI CRT transactions.
|
(2)
|
For the current outstanding coverage provided by our STACR debt note and ACIS transactions, see
Risk Management - Single-Family Mortgage Credit Risk
- Offering Private Investors New and Innovative Ways to Share in the Credit Risk of the Single-Family Loan Portfolio
.
|
n
|
In 2017, we transferred a portion of credit risk associated with
$280.1 billion
in UPB of loans in our single-family credit guarantee portfolio through STACR debt note, ACIS, senior subordinate securitization structure, seller indemnification and Deep MI CRT transactions. Significant recent developments include the following:
|
l
|
We executed a new senior subordinate securitization structure transaction, which allows for issuance of guaranteed PCs and unguaranteed subordinated certificates backed by participation
|
FREDDIE MAC
| 2017 Form 10-K
|
|
58
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
l
|
We developed a new ACIS transaction, which unlike prior ACIS transactions, allows for coverage to begin at the time Freddie Mac purchases the mortgage loans. The reference pool associated with this transaction will aggregate over a period of time and will be based on a pre-negotiated forward contract with one or more reinsurers.
|
l
|
We executed a new STACR debt note transaction backed by HARP fixed-rate mortgages issued after 2008.
|
n
|
Since we began transferring credit risk in 2013, we have completed
84
credit risk transfer transactions that, upon execution, covered
$881.9 billion
in principal of loans in our single-family credit guarantee portfolio.
|
n
|
Our expected guarantee fee income on the loans within the STACR debt note and ACIS reference pools has been effectively reduced by approximately
30%
, on average, for transactions executed as of December 31, 2017.
|
n
|
Due to differences in accounting, there could be a significant time lag between when we recognize a provision for credit losses on the mortgage loans in the reference pools and when we recognize the related recovery for the majority of our STACR debt note transactions. A credit expense on a loan in a reference pool related to these transactions is recorded when it is probable that we have incurred a loss, while a benefit is recorded when an actual loss event occurs.
|
n
|
As of December 31, 2017 there has not been a significant number of loans in our STACR debt note and ACIS reference pools that have experienced a credit event. As a result, we experienced minimal write-downs on our STACR debt notes and filed minimal claims for reimbursement of losses under our ACIS transactions. We expect losses may increase on loans in the reference pools in our existing CRT transactions from Hurricanes Harvey and Irma.
|
n
|
The 2018 Conservatorship Scorecard sets a goal for us to transfer a meaningful portion of credit risk on at least 90% of the UPB of certain categories of newly acquired single-family loans, such as non-HARP fixed-rate loans with terms greater than 20 years and LTV ratios above 60%.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
59
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
n
|
We continue to help struggling families retain their homes or otherwise avoid foreclosure through loan workouts. Our loan workout activity increased slightly in 2017 compared to 2016, consistent with the increase in the number of delinquent loans in the single-family credit guarantee portfolio due to the hurricane events in the third quarter of 2017.
|
n
|
As part of our strategy to mitigate losses and reduce our holdings of less liquid assets, we sold seriously delinquent loans totaling
$0.5 billion
in UPB during 2017. Of the
$17.0 billion
in UPB of single-family loans classified as held-for-sale at December 31, 2017,
$2.1 billion
related to loans that were seriously delinquent. We believe selling these loans provides better economic returns than continuing to hold them.
|
n
|
The relief refinance program is being replaced with the high LTV relief refinance (Enhanced Relief Refinance
SM
) program, which will be available in January 2019 for loans originated on or after October 1, 2017. This program provides liquidity for borrowers who are current on their mortgages but are unable to refinance because their LTV ratios exceed our standard refinance limits. In addition, the HARP program has been extended for applications through December 31, 2018 to ensure that borrowers who have a high LTV ratio and are eligible for HARP will continue to have a refinance option. See
Risk Management
for additional information on our loan workout activities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
60
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Guarantee fee income
|
|
|
$6,094
|
|
|
$6,091
|
|
|
$5,152
|
|
|
|
$3
|
|
—
|
%
|
|
|
$939
|
|
18
|
%
|
Provision for credit losses
|
|
(816
|
)
|
(517
|
)
|
(283
|
)
|
|
(299
|
)
|
(58
|
)%
|
|
(234
|
)
|
(83
|
)%
|
|||||
Other non-interest income
|
|
1,505
|
|
447
|
|
136
|
|
|
1,058
|
|
237
|
%
|
|
311
|
|
229
|
%
|
|||||
Administrative expense
|
|
(1,381
|
)
|
(1,323
|
)
|
(1,285
|
)
|
|
(58
|
)
|
(4
|
)%
|
|
(38
|
)
|
(3
|
)%
|
|||||
REO operations expense
|
|
(203
|
)
|
(298
|
)
|
(341
|
)
|
|
95
|
|
32
|
%
|
|
43
|
|
13
|
%
|
|||||
Other non-interest expense
|
|
(1,382
|
)
|
(1,169
|
)
|
(794
|
)
|
|
(213
|
)
|
(18
|
)%
|
|
(375
|
)
|
(47
|
)%
|
|||||
Segment Earnings before income tax expense
|
|
3,817
|
|
3,231
|
|
2,585
|
|
|
586
|
|
18
|
%
|
|
646
|
|
25
|
%
|
|||||
Income tax expense
|
|
(1,316
|
)
|
(1,061
|
)
|
(807
|
)
|
|
(255
|
)
|
(24
|
)%
|
|
(254
|
)
|
(31
|
)%
|
|||||
Segment Earnings, net of taxes
|
|
2,501
|
|
2,170
|
|
1,778
|
|
|
331
|
|
15
|
%
|
|
392
|
|
22
|
%
|
|||||
Total other comprehensive income (loss), net of tax
|
|
40
|
|
(9
|
)
|
12
|
|
|
49
|
|
544
|
%
|
|
(21
|
)
|
(175
|
)%
|
|||||
Total comprehensive income
|
|
|
$2,541
|
|
|
$2,161
|
|
|
$1,790
|
|
|
|
$380
|
|
18
|
%
|
|
|
$371
|
|
21
|
%
|
n
|
2017 vs. 2016
|
l
|
Continued growth in our single-family credit guarantee portfolio and higher average contractual guarantee fee rates, offset by lower upfront fee amortization due to lower prepayments, resulted in guarantee fee income remaining relatively unchanged.
|
l
|
Increased provision for credit losses due to estimated losses related to the hurricanes in 2017, offset by improvements in loss severity.
|
l
|
Higher volume of reperforming loans reclassified from held-for-investment to held-for-sale and subsequently sold resulted in gains in 2017 compared to losses recognized on seriously delinquent loans in 2016.
|
l
|
Higher outstanding cumulative volumes of credit risk transfer transactions resulted in increased credit risk transfer expense (interest expense on STACR debt notes and premiums paid to ACIS counterparties) in 2017.
|
n
|
2016 vs. 2015
|
l
|
Continued growth in our single-family credit guarantee portfolio and higher average contractual guarantee fee rates, as well as higher amortization of upfront fees due to increased loan prepayments, resulted in increased guarantee fee income.
|
l
|
Increased provision for credit losses primarily due to higher total interest rate concessions resulting from the longer expected life of certain modified loans driven by rising mortgage interest rates in 4Q 2016.
|
l
|
Lower volume of seriously delinquent single-family loans reclassified from held-for-investment to held-for-sale in 2016.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
61
|
Management's Discussion and Analysis
|
Our Business Segments |
Single-Family Guarantee
|
l
|
Increased fair value losses on STACR debt notes, as market spreads between STACR yields and LIBOR tightened more in 2016
.
|
l
|
Higher outstanding cumulative volumes of credit risk transfer transactions resulted in increased credit risk transfer expense (interest expense on STACR debt notes and premiums paid to ACIS counterparties) in 2016.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
62
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
Continuing to provide financing to the multifamily mortgage market and expanding our market presence for workforce housing in line with our mission;
|
n
|
Improving our risk-adjusted returns by leveraging private capital in our credit risk transfer transactions;
|
n
|
Identifying new opportunities beyond our existing K Certificate and SB Certificate transactions to cost-effectively transfer credit risk to third parties and reduce taxpayer exposure; and
|
n
|
Maintaining strong credit and capital management discipline.
|
n
|
Operating in a customer focused manner, in an effort to build value and support the creation of a strong, long-lasting rental housing system; and
|
n
|
Fostering innovation through the development of products that expand the availability of workforce housing in the marketplace.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
63
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
Conventional loans
- Financing that includes fixed-rate and floating-rate loans, loans in lease-up and with moderate property upgrades, manufactured housing community loans, student housing loans, supplemental loans and certain Green Advantage loans.
|
n
|
Senior housing loans
- Financing for independent living properties, assisted living properties and properties with skilled nursing or memory care.
|
n
|
Small balance loans
- Financing provided to small rental property borrowers for the acquisition or refinance of multifamily properties. Financing ranges from $1 million to $7.5 million and is focused on properties from 5 to 50 units.
|
n
|
Targeted affordable housing
- Financing provided to borrowers in underserved areas that have restricted units affordable to households with low income (earning up to 80% of the area median income) and very-low income (earning up to 50% of the area median income) and that typically receive government subsidies.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
64
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
The primary impacts to Segment Earnings are:
|
|
|
|
•
|
For each of our held-for-sale commitments, at commitment date, we recognize the estimated fair value of the commitment into earnings, which represents the gain we expect to realize on the sale of the loan. This unrealized gain, which results from our ability to purchase loans in the whole loan market while exiting through the securitization market effectively represents the incremental benefit that can be realized by accessing the securitization market; and
|
|
|
|
|
•
|
After commitment date, but prior to settlement, we recognize changes in the fair value of the commitment into earnings. These fair value adjustments result from changes in the pricing of our securitizations due to changes in interest rates and securitization market spreads.
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
65
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
The primary impacts to Segment Earnings are:
|
|
|
|
•
|
During the holding period, we recognize changes in the fair value of loans classified as held-for-sale into earnings. These fair value adjustments result from changes in the pricing of our securitizations due to changes in interest rates and securitization market spreads;
|
|
|
|
|
•
|
Fair value gains or losses recognized on interest-rate and spread-related derivatives. These changes generally offset fair value changes on the loans; and
|
|
|
|
|
•
|
Interest income on loans while held in our Mortgage Investments Portfolio.
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
66
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
K Certificates
- Regularly issued structured pass-through securities backed by recently originated multifamily loans. This product provides investors with a wide-range of structural and collateral options that provide for stable cash flows and a structured credit enhancement. While the amount of guarantee fee we receive may vary by collateral type, it is generally fixed for those K Certificate series that we issue with regular frequency (e.g., 5, 7 and 10-year fixed-rate K Certificates and our Floating Rate K Certificates). The guarantee fee received on these standard K Certificates currently ranges between 20 basis points and 50 basis points.
|
n
|
SB Certificates
- Regularly issued securities typically backed by multifamily small balance loans that we underwrite at loan origination and purchase prior to securitization. Similar to our K Certificate transactions, a non-Freddie Mac trust will issue the senior classes of securities, which we guarantee, as well as the unguaranteed subordinated securities. However, unlike our K Certificate transactions, we do not purchase the senior classes of securities, nor do we place those securities into a Freddie Mac Trust. The guarantee fee we receive in these transactions is generally 35 basis points.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
67
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
ML Certificates
- We securitize pools of tax-exempt or taxable loans that we underwrite and own prior to securitization and issue both guaranteed senior ML Certificates and unguaranteed subordinated ML Certificates. The guarantee fee received on our ML Certificates is negotiated.
|
n
|
Multifamily Aggregation Risk Transfer Certificates (KT Certificates)
-
T
hese securities are backed by a revolving pool of multifamily loans that are awaiting sale into a K Certificate transaction. Using this structure, we issue guaranteed senior securities and unguaranteed mezzanine and subordinated securities to third parties. During the revolving period of this product, we will purchase loans from the KT trust for sale into a K Certificate transaction and replace those purchased loans with additional eligible loans. Through this product we are able to transfer a portion of the front-end credit risk associated with our securitization pipeline prior to final securitization. Given our right to purchase loans from the KT trust, we consolidate this structure and the loans in the revolving pool remain in our securitization pipeline until securitization.
|
n
|
PCs
- We securitize multifamily loans into fixed-rate pass-through securities that are similar in structure to our Single-Family Guarantee segment fixed-rate PCs. In these securitizations, we guarantee the full payment of principal and timely payment of interest.
|
n
|
K Certificates without subordination
- We securitize multifamily loans that we own and issue K Certificates without subordination using a transaction structure similar to our K Certificates. However, unlike K Certificates, these transactions are fully guaranteed by Freddie Mac and no mezzanine or subordinated securities are issued.
|
n
|
Q Certificates
- We issue Q Certificates using a securitization structure that is similar to our K Certificates and that provides for structural credit enhancements that may include either subordination or other loss sharing features. However, unlike K Certificates, the loans backing the Q
|
FREDDIE MAC
| 2017 Form 10-K
|
|
68
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
M Certificates
- We securitize pools of tax-exempt or taxable multifamily housing revenue bonds contributed by third parties and issue guaranteed senior M Certificates and unguaranteed subordinated M Certificates.
|
n
|
SCR debt notes
- Unsecured and unguaranteed corporate debt obligations. We began issuing our SCR debt notes in 2016 in order to transfer a portion of the credit risk of the loans underlying certain of our other mortgage-related guarantees to third parties. The interest we pay on our SCR debt notes effectively reduces the guarantee fee income we would otherwise earn on the other mortgage-related guarantees. SCR debt notes are generally similar in structure to our Single-Family Guarantee segment's STACR debt notes.
|
n
|
Loan sales
-
To reduce our credit risk exposure related to certain loans, we engage in non-securitization related transactions, including whole loan sales. These loan sales are to third parties and may include sales to funds that invest in loans where we may also provide secured financing.
|
n
|
Other mortgage-related guarantees
-
We guarantee mortgage-related assets held by third parties in exchange for guarantee fee income, without securitizing those assets. For example, we provide guarantees on certain tax-exempt multifamily housing revenue bonds secured by low- and
|
FREDDIE MAC
| 2017 Form 10-K
|
|
69
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
Mortgage loans
- We hold a portfolio of multifamily mortgage loans as part of a buy-and-hold investment strategy. Although we continue to purchase new multifamily mortgage loans for this portfolio, our new purchase activity has leveled off as this buy-and-hold strategy is not part of our primary business model.
|
n
|
Agency mortgage-related securities
- We may purchase or retain a portion of the K Certificates or SB Certificates and other types of multifamily securitization products we issue, depending on market conditions, and we may also buy or sell these securities in the secondary market.
|
n
|
Non-agency mortgage-related securities
- We may purchase a portion of the unguaranteed mezzanine and subordinated securities related to our securitization transactions, depending on market conditions. However, to date, we have not purchased any of the unguaranteed subordinated securities that are in the first loss position.
|
n
|
CMBS
- We are not currently an active purchaser of CMBS. However, we continue to hold a portfolio of CMBS and other multifamily investment securities that we acquired under a prior buy-and-hold investment strategy. This portfolio is declining primarily due to runoff.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
70
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
FREDDIE MAC
| 2017 Form 10-K
|
|
71
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
FREDDIE MAC
| 2017 Form 10-K
|
|
72
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
Apartment completions are an indication of the supply of rental housing. Net absorption, which is a measurement of the rate at which available apartments are occupied, is an indication of demand for rental housing.
|
n
|
While vacancy rates increased during 2017 as apartment completions outpaced net absorption, these rates remain well below the long-term average. Due to the introduction of a significant amount of new supply in the latter half of the year, net absorptions significantly lagged behind new apartment completions in 2017. Although we expect continued strong demand, it may take longer to absorb these new units compared to prior years.
|
n
|
Effective rent (i.e., the average rent paid by the tenant over the term of the lease, adjusted for concessions by the landlord and costs borne by the tenant) growth for 2017 remained strong relative to the long-term average, primarily due to an increase in potential renters from healthy employment, higher single family home prices and a growing household preference for rental housing due to changes in lifestyle preferences and demographic trends.
|
n
|
Our financial results for 2017 were not significantly affected by these market conditions.
|
n
|
Multifamily property prices continued to grow with
11%
annualized growth in 2017, indicating a healthy multifamily market, though prices were tempered by moderating effective rent growth, higher vacancy rates and rising interest rates.
|
n
|
While the impacts of Hurricanes Irma and Maria on the multifamily markets located in the affected areas are still being evaluated, we have seen effective rents increase and vacancy rates decrease in the areas affected by Hurricane Harvey, as displaced single-family homeowners require temporary housing, resulting in increased demand for rental housing.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
73
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
The valuation of our securitization pipeline and the profitability of our primary credit risk transfer securitization product, the K Certificate,
are affected by changes in K Certificate benchmark spreads as well as deal-specific attributes, such as tranche size, risk distribution and collateral characteristics (loan term, coupon type, prepayment restrictions and underlying property type). These market spread movements and deal-specific attributes contribute to our earnings volatility, which we manage by controlling the size of our securitization pipeline and by entering into certain spread-related derivatives.
|
n
|
K Certificate benchmark spreads are market-quoted spreads over the U.S. swap curve. The 10-year fixed-rate spread represents the spread for the largest guaranteed class of a typical fixed-rate K Certificate, while the 7-year ARM spread represents the spread for the largest guaranteed class of a typical floating-rate K Certificate.
|
n
|
K Certificate benchmark spreads tightened throughout 2017, due to a reduction in macroeconomic market volatility. By comparison, K Certificate benchmark spreads were more volatile during the first half of 2016, prior to tightening sharply in the second half of 2016. Overall, this tightening had a positive effect in 2016 and 2017 on the valuation of our securitization pipeline and K Certificate profitability.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
74
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
During 2017, the multifamily mortgage market grew significantly because of stronger demand for multifamily loan products due to an elevated number of new apartment completions, strong multifamily market fundamentals and low interest rates. Multifamily market fundamentals were primarily driven by a healthy job market, population growth, high propensity to rent among young adults and rising single-family home prices. We expect continued growth in the multifamily mortgage market during 2018 due to these same drivers.
|
n
|
Our share of multifamily mortgage debt outstanding grew slightly during 2017, primarily due to our strategic pricing efforts and the expansion of our new product offerings, which were generally excluded from the Conservatorship Scorecard production cap.
|
n
|
Our multifamily delinquency rates during 2017 remained low compared to other industry participants, ending the year at 2 bps, primarily due to our prior-approval underwriting approach, strong multifamily market fundamentals and low interest rates. See
Risk Management - Multifamily
|
FREDDIE MAC
| 2017 Form 10-K
|
|
75
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
We expect the credit losses and delinquency rates for the multifamily mortgage portfolio to remain low in the near term.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
76
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
The 2017 Conservatorship Scorecard production cap remained at $36.5 billion and will decrease to $35.0 billion in 2018. The production cap is subject to reassessment throughout the year by FHFA to determine whether an increase in the cap is appropriate based on a stronger than expected overall market. We do not expect that the decrease in the cap will have a material impact on our 2018 new business volume.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
77
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
Outstanding loan purchase commitments were
$14.5 billion
and
$12.4 billion
as of December 31, 2017 and December 31, 2016, respectively. Both period-end balances include loan purchase commitments where we have elected the fair value option.
|
n
|
Our new business volume and outstanding loan purchase commitments were higher during 2017 compared to 2016 due to the overall growth of the multifamily mortgage market resulting from stronger demand for multifamily loan products and our strategic pricing efforts. Despite the unchanged production cap, we had a record volume in 2017 primarily due to a focus on purchase activity associated with targeted loan types that were considered uncapped.
|
n
|
Approximately 46% of our new business volume for 2017 counted towards the 2017 Conservatorship Scorecard production cap, while the remaining 54% was considered uncapped. The increase in uncapped new business volume was primarily driven by the growth in purchases of loans originated pursuant to our Green Advantage initiative, which we expanded during 2017, along with our effort to support the growth of the overall multifamily market.
|
n
|
While our share of multifamily mortgage debt outstanding increased slightly during 2017, we expect increased competition from other market participants to continue in the future.
|
n
|
Approximately
88%
of our 2017 new business volume was designated for securitization and included in our securitization pipeline. Combined with market demand for our securities, our new business volumes from the second half of 2017 will be the primary driver of and collateral for our credit risk transfer securitizations, primarily our K Certificate and SB Certificate issuances, for the first half of 2018.
|
n
|
Approximately 83% of the eligible units we financed during 2017 were affordable to households earning at or below the median income in their area (eligible units are multifamily units that qualify towards our affordable housing goal). Furthermore, during 2017, we continued our support of workforce housing through our continued purchases of manufactured housing community loans and small balance loans.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
78
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
(UPB in millions)
|
|
December 31, 2017
|
December 31, 2016
|
||||
Unsecuritized mortgage loans held-for-sale
|
|
|
$20,537
|
|
|
$16,544
|
|
Unsecuritized mortgage loans held-for-investment
|
|
17,702
|
|
25,873
|
|
||
Unsecuritized non-mortgage loans
(1)
|
|
473
|
|
—
|
|
||
Mortgage-related securities
|
|
7,451
|
|
12,517
|
|
||
Guarantee portfolio
|
|
203,074
|
|
157,993
|
|
||
Total multifamily portfolio
|
|
249,237
|
|
212,927
|
|
||
Add: Unguaranteed securities
(2)
|
|
30,772
|
|
24,573
|
|
||
Less: Acquired mortgage-related securities
(3)
|
|
(7,109
|
)
|
(5,793
|
)
|
||
Total multifamily market support
|
|
|
$272,900
|
|
|
$231,707
|
|
(1)
|
Reflects the UPB of loans sold to a whole loan investment fund that was financed by Freddie Mac.
|
(2)
|
Reflects the UPB of unguaranteed securities issued as part of our securitization products.
|
(3)
|
Reflects the UPB of mortgage-related securities that were both issued and acquired by us. This UPB must be removed to avoid a double-count, as it is already reflected within the guarantee portfolio and/or unguaranteed securities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
79
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
Our total multifamily portfolio increased during 2017, primarily due to a 29% growth in new business volume, coupled with an increase in our issuance of certain other securitization products (e.g., Q Certificates and M Certificates). The vast majority of the growth in our guarantee portfolio was associated with ongoing credit risk transfer securitizations, primarily K Certificate and SB Certificate transactions.
|
n
|
At December 31, 2017, the UPB of our unsecuritized held-for-sale loans and mortgage-related securities, which are measured at fair value or lower-of-cost-or-fair-value, declined slightly from December 31, 2016. The overall decline, which was attributable to the runoff of our CMBS portfolio, was largely offset by an increase in the balance of our securitization pipeline due to the growth of our new business volume and the reclassification of certain loans from held-for-investment to held-for-sale during 4Q 2017.
|
n
|
At December 31, 2017, approximately
68%
of our held-for-sale loans and held-for-sale loan commitments were fixed-rate, while the remaining
32%
were floating rate.
|
n
|
We expect our guarantee portfolio to continue to grow as a result of ongoing credit risk transfer securitizations, primarily K Certificate and SB Certificate transactions, which we expect to be driven by continued strong new business volume. We also expect a continued reduction in our CMBS portfolio due to ongoing principal repayments and maturities, which will serve to reduce our less liquid assets.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
80
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
Net interest yield increased significantly during 2017 compared to 2016 primarily due to higher prepayment income received from interest-only securities that we hold in certain of our more seasoned K Certificate transactions and from loans.
|
n
|
The weighted average portfolio balance of interest-earning assets decreased due to the run-off of our held-for investment loans and non-agency CMBS.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
81
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
FREDDIE MAC
| 2017 Form 10-K
|
|
82
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
The UPB of assets subject to credit risk transfer transactions was higher during 2017 compared to 2016, primarily due to a larger average balance in our securitization pipeline, which was driven by our strong 2017 new business volume. Through these transactions, we transferred a large majority of the expected and stress credit losses of these assets to third parties, primarily by issuing
|
FREDDIE MAC
| 2017 Form 10-K
|
|
83
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
In 2017, we have transferred a large majority of the expected and stress credit losses related to a record $65 billion in UPB of loans, and since 2009, $249 billion in UPB of loans through our credit risk transfer products, primarily K Certificates and SB Certificates.
|
n
|
Based on the strength of our new business volume for the second half of 2017, we expect our credit risk transfer activity for 1Q 2018 to exceed our 1Q 2017 activity.
|
n
|
While our K Certificate and SB Certificate issuances continue to be our primary mechanism to transfer multifamily mortgage credit risk, we introduced new initiatives to transfer credit risk during 2017 and expect to continue to develop new credit risk transfer initiatives in 2018.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
84
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
n
|
We generally recognize a guarantee asset on our consolidated balance sheets each time we enter into a financial guarantee contract. This asset represents the present value of guarantee fees we expect to receive in the future from those guarantee transactions. We recognize these fees in segment earnings over the expected remaining guarantee term. While we expect to collect these future fees based on historical performance, the actual amount collected will depend on the performance of the underlying collateral subject to our financial guarantee.
|
n
|
The amount of new guarantee assets recognized in 2017 exceeded the new guarantee assets recognized in 2016, primarily due to an increase in the UPB of our credit risk transfer securitizations, primarily K Certificate and SB Certificate issuances, coupled with longer average guarantee terms. This increase was partially offset by slightly lower average guarantee fee rates on these same securitizations due to underlying loan products that, by their nature and design, have less risk.
|
n
|
The balance of unearned guarantee fees increased during 2017 due to the continued growth of our multifamily guarantee business, as our credit risk transfer securitization volume continued to be strong, significantly outpacing runoff.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
85
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Net interest income
|
|
|
$1,206
|
|
|
$1,022
|
|
|
$1,049
|
|
|
|
$184
|
|
18
|
%
|
|
|
($27
|
)
|
(3
|
)%
|
Guarantee fee income
|
|
676
|
|
511
|
|
339
|
|
|
165
|
|
32
|
%
|
|
172
|
|
51
|
%
|
|||||
Benefit (provision) for credit losses
|
|
(13
|
)
|
22
|
|
26
|
|
|
(35
|
)
|
(159
|
)%
|
|
(4
|
)
|
(15
|
)%
|
|||||
Gains (losses) on loans and other non-interest income
|
|
1,485
|
|
1,166
|
|
(198
|
)
|
|
319
|
|
27
|
%
|
|
1,364
|
|
689
|
%
|
|||||
Derivative gains (losses)
|
|
181
|
|
407
|
|
372
|
|
|
(226
|
)
|
(56
|
)%
|
|
35
|
|
9
|
%
|
|||||
Administrative expense
|
|
(395
|
)
|
(362
|
)
|
(325
|
)
|
|
(33
|
)
|
(9
|
)%
|
|
(37
|
)
|
(11
|
)%
|
|||||
Other non-interest expense
|
|
(66
|
)
|
(58
|
)
|
(60
|
)
|
|
(8
|
)
|
(14
|
)%
|
|
2
|
|
3
|
%
|
|||||
Segment Earnings before income tax expense
|
|
3,074
|
|
2,708
|
|
1,203
|
|
|
366
|
|
14
|
%
|
|
1,505
|
|
125
|
%
|
|||||
Income tax expense
|
|
(1,060
|
)
|
(890
|
)
|
(376
|
)
|
|
(170
|
)
|
(19
|
)%
|
|
(514
|
)
|
(137
|
)%
|
|||||
Segment Earnings, net of taxes
|
|
2,014
|
|
1,818
|
|
827
|
|
|
196
|
|
11
|
%
|
|
991
|
|
120
|
%
|
|||||
Total other comprehensive income (loss), net of tax
|
|
(77
|
)
|
(236
|
)
|
(261
|
)
|
|
159
|
|
67
|
%
|
|
25
|
|
10
|
%
|
|||||
Total comprehensive income (loss)
|
|
|
$1,937
|
|
|
$1,582
|
|
|
$566
|
|
|
|
$355
|
|
22
|
%
|
|
|
$1,016
|
|
180
|
%
|
n
|
2017 vs. 2016
|
l
|
Higher net interest yields, partially offset by a decline in our weighted average portfolio balance of interest-earning assets, resulted in increased net interest income;
|
l
|
Continued growth in our multifamily guarantee portfolio, partially offset by slightly lower average guarantee fee rates on new guarantee business volume, resulted in increased guarantee fee income;
|
l
|
Larger average balances of held-for-sale commitments and securitization pipeline loans due to greater new business volume, partially offset by less tightening of K Certificate benchmark spreads and the effects of strategic pricing, resulted in larger fair value gains; and
|
l
|
Disposition of certain non-agency CMBS, coupled with spread tightening, resulted in larger gains on non-agency CMBS.
|
n
|
2016 vs. 2015
|
l
|
Lower weighted average portfolio balance of interest-earning assets, partially offset by a higher net interest yield, resulted in decreased net interest income;
|
l
|
Continued growth in our multifamily guarantee portfolio and higher average guarantee fee rates on new guarantee business volume resulted in increased guarantee fee income; and
|
l
|
Tightening of K Certificate benchmark spreads, coupled with improved pricing of K Certificates and SB Certificates, as well as greater new business volume, resulted in fair value gains during
|
FREDDIE MAC
| 2017 Form 10-K
|
|
86
|
Management's Discussion and Analysis
|
Our Business Segments |
Multifamily
|
FREDDIE MAC
| 2017 Form 10-K
|
|
87
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
n
|
Engaging in economically sensible transactions to reduce our less liquid assets;
|
n
|
Managing the mortgage-related investments portfolio’s risk-versus-return profile based on our internal economic capital framework, which is aligned with the Conservatorship Capital Framework;
|
n
|
Enhancing the liquidity of our issued securities in the secondary mortgage market to support our business needs;
|
n
|
Responding to market opportunities in funding our business activities;
|
n
|
Managing our economic interest-rate risk through the use of derivatives and various debt instruments; and
|
n
|
Attempting to align prepayment and pooling profiles for Freddie Mac TBA programs to match Fannie Mae's TBA characteristics.
|
n
|
Delivering mortgage capital markets services including our cash loan purchase program, in conjunction with the Single-family Guarantee segment; and
|
n
|
Implementing the single (common) security initiative for Freddie Mac and Fannie Mae, which is intended to increase the liquidity of the TBA market and to reduce the disparities in trading value between our PCs and Fannie Mae's single-class mortgage-related securities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
88
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
n
|
Agency mortgage-related securities
- We primarily invest in Freddie Mac mortgage-related securities, but may also invest in Fannie Mae and Ginnie Mae mortgage-related securities from time to time. Our activities with respect to this product may include purchases and sales, dollar roll transactions and structuring activities (e.g., resecuritizing existing agency securities into REMICs and selling some or all of the resulting REMIC tranches).
|
n
|
Non-agency mortgage-related securities
- We generally no longer purchase non-agency mortgage-related securities that have not been guaranteed by a GSE, but continue to have a portfolio of such securities that we acquired in prior years. Our activities with respect to this product are primarily sales. In recent years, we and FHFA reached settlements with a number of institutions to mitigate or recover losses we recognized in prior years.
|
n
|
Single-family unsecuritized loans
- We acquire single-family unsecuritized loans in two primary ways:
|
l
|
Loans acquired through our cash loan purchase program that are awaiting securitization
-
We securitize a majority of the loans acquired through our cash loan purchase program into Freddie Mac mortgage-related securities, primarily PCs, which may be sold to investors or retained in our mortgage-related investments portfolio; and
|
l
|
Seriously delinquent or modified loans that we have removed from PC pools:
|
FREDDIE MAC
| 2017 Form 10-K
|
|
89
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
–
|
Securitization into Freddie Mac PCs, with all of the resulting mortgage-related securities initially being retained. We may resecuritize a portion of the retained mortgage-related securities, with some of the resulting interests being sold to third parties; and
|
–
|
Sales and securitization using a senior subordinate securitization structure, where we guarantee the resulting senior securities.
|
n
|
Other investments and cash portfolio
- We invest in other investments, including: (i) the Liquidity and Contingency Operating Portfolio, primarily used for short-term liquidity management, (ii) cash and other investments held by consolidated trusts, (iii) collateral pledged by derivative and other counterparties, (iv) investments used to pledge as collateral, (v) advances to lenders and (vi) other secured lending activities. In our advances to lenders program, we provide funds to lenders for mortgage loans that they will subsequently either sell through our cash purchase program or securitize into PCs that they will deliver to us. In our other secured lending activities, we invest in securities purchased under agreements to resell as a mechanism to provide financing to investors in Freddie Mac securities to increase liquidity and expand the investor base for those securities. We may do other types of secured lending transactions in the future.
|
The primary impacts to Segment Earnings are:
|
|
|
|
•
|
Interest income on agency and non-agency mortgage-related securities, unsecuritized loans and our other investments and cash portfolio;
|
|
|
|
|
•
|
Fair value gains and losses due to changes in interest rate and market spreads on our agency and non-agency mortgage-related securities and on certain securities held within our other investments and cash portfolio that are accounted for as investment securities. These amounts are recognized in Segment Earnings or Total other comprehensive income(loss) depending upon their classification (trading or available-for-sale, respectively); and
|
|
|
|
|
•
|
Gains and losses on the sale of unsecuritized loans.
|
|
|
n
|
Liquid
- single-class and multi-class agency securities, excluding certain structured agency securities collateralized by non-agency mortgage-related securities. Also includes certain non-agency mortgage-related securities guaranteed by a GSE;
|
FREDDIE MAC
| 2017 Form 10-K
|
|
90
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
n
|
Securitization Pipeline
- performing single-family loans purchased for cash and primarily held for a short period until securitized, with the resulting Freddie Mac issued securities being sold or retained; and
|
n
|
Less Liquid
- assets that are less liquid than both agency securities and loans in the securitization pipeline (e.g., reperforming loans and non-agency mortgage-related securities not guaranteed by a GSE).
|
n
|
Discount Notes and Reference Bills
- We issue short-term instruments with maturities of one year or less. These products are generally sold on a discounted basis, paying principal only at maturity. Reference Bills are auctioned to dealers on a regular schedule, while discount notes are issued in response to investor demand and our cash needs.
|
n
|
Medium-term Notes
- We issue a variety of fixed-rate and variable-rate medium-term notes, including callable and non-callable securities, and zero-coupon securities, with various maturities.
|
n
|
Reference Notes Securities
- Reference Notes securities are non-callable fixed-rate securities, which we currently issue with original maturities greater than or equal to two years.
|
n
|
Securities sold under agreements to repurchase
- Collateralized short-term borrowings where we sell securities to a counterparty with an agreement to repurchase those securities at a future date.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
91
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
The primary impacts to Segment Earnings are:
|
|
|
|
•
|
Interest expense on our various funding products; and
|
|
|
|
|
•
|
Gains and losses on the early termination (call or repurchase) of our funding products.
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
92
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
The primary impacts to Segment Earnings are:
|
|
|
|
•
|
Fair value gains and losses on derivatives not designated in qualifying hedge relationships;
|
|
|
|
|
•
|
Interest income/expense on derivatives; and
|
|
|
|
|
•
|
Differences between the change in fair value of the hedged item attributable to the risk being hedged and changes in the fair value of the hedging instrument for derivatives designated in qualifying fair value hedge accounting relationships.
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
93
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
FREDDIE MAC
| 2017 Form 10-K
|
|
94
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
n
|
We primarily use LIBOR-based derivatives and fixed-rate debt to hedge our interest rate risk. The mortgage-related investments portfolio's exposure to interest rate risk is calculated by our models that project loan and security cash flows over a variety of scenarios. For additional information on our exposure to interest rate risk, see
Risk Management - Market Risk
.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
95
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
n
|
2017 vs. 2016 and 2016 vs. 2015
|
l
|
The 2-year and 10-year swap rates increased, resulting in gains for our pay-fixed interest rate swaps and losses for our receive-fixed interest rate swaps, certain of our option contracts and the vast majority of our investments in securities.
|
l
|
3-month LIBOR increased during 2017 and during the fourth quarter of 2016, resulting in higher yields for our short-term interest-earning assets, higher costs for our short-term interest-bearing liabilities and interest-rate related losses for certain of our shorter duration trading securities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
96
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
n
|
We continue to reduce the size of our mortgage investments portfolio in order to comply with the mortgage-related investments portfolio's year-end limits. The balance of our mortgage investments portfolio declined 14.9% between December 31, 2016 and December 31, 2017.
|
n
|
The balance of our other investments and cash portfolio decreased 7.2% primarily due to lower near-term cash needs for upcoming maturities and anticipated calls of other debt at the end of 2017 compared to the end of 2016.
|
n
|
The percentage of less liquid assets relative to our total mortgage investments portfolio declined to 28.4% at December 31, 2017 from 34.4% at December 31, 2016, primarily due to repayments, sales and securitizations of our less liquid assets.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
97
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
n
|
The overall liquidity of our mortgage investments portfolio continued to improve as our less liquid assets decreased at a faster pace than the overall decline of our mortgage investments portfolio.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
98
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
n
|
Since 2013, we have focused on reducing, in an economically sensible manner, our holdings of certain less liquid assets, including single-family reperforming loans and non-agency mortgage-related securities. Our disposition strategies for our less liquid assets include securitizations and sales.
|
n
|
During 2017, our sales of less liquid assets included
$9.2 billion
in UPB of non-agency mortgage-related securities and
$8.2 billion
of reperforming loans. Our sales of reperforming loans involved securitization of the loans using senior subordinate securitization structures, in which we guaranteed the resulting senior securities. As part of these transactions, we retained certain of the guaranteed senior securities for our mortgage-related investments portfolio.
|
n
|
One of our principal strategies related to the securitization of reperforming loans is to create Freddie Mac PCs and initially retain all of the resulting mortgage-related securities. This strategy also includes the resecuritization of a portion of the retained mortgage-related securities, with some of the resulting interests being sold to third parties. During 2017, we securitized
$1.2 billion
of single-family reperforming loans through PC securitization.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
99
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
n
|
Net Interest Yield
|
l
|
2017 vs. 2016
- remained relatively flat.
|
l
|
2016 vs. 2015
- decreased 17 basis points, primarily due to the reduction in the balance of our higher yielding mortgage investments portfolio, pursuant to the portfolio limits established by the Purchase Agreement and FHFA.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
100
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Net interest income
|
|
|
$3,381
|
|
|
$3,812
|
|
|
$4,665
|
|
|
|
($431
|
)
|
(11
|
)%
|
|
|
($853
|
)
|
(18
|
)%
|
Net impairment of available-for-sale securities recognized in earnings
|
|
236
|
|
269
|
|
420
|
|
|
(33
|
)
|
(12
|
)%
|
|
(151
|
)
|
(36
|
)%
|
|||||
Derivative gains (losses)
|
|
(587
|
)
|
1,151
|
|
(833
|
)
|
|
(1,738
|
)
|
(151
|
)%
|
|
1,984
|
|
238
|
%
|
|||||
Gains (losses) on trading securities
|
|
(570
|
)
|
(1,077
|
)
|
(737
|
)
|
|
507
|
|
47
|
%
|
|
(340
|
)
|
(46
|
)%
|
|||||
Other non-interest income
|
|
7,813
|
|
1,865
|
|
2,288
|
|
|
5,948
|
|
319
|
%
|
|
(423
|
)
|
(18
|
)%
|
|||||
Administrative expense
|
|
(330
|
)
|
(320
|
)
|
(317
|
)
|
|
(10
|
)
|
(3
|
)%
|
|
(3
|
)
|
(1
|
)%
|
|||||
Segment Earnings before income tax expense
|
|
9,943
|
|
5,700
|
|
5,486
|
|
|
4,243
|
|
74
|
%
|
|
214
|
|
4
|
%
|
|||||
Income tax expense
|
|
(3,428
|
)
|
(1,873
|
)
|
(1,715
|
)
|
|
(1,555
|
)
|
(83
|
)%
|
|
(158
|
)
|
(9
|
)%
|
|||||
Segment Earnings, net of taxes
|
|
6,515
|
|
3,827
|
|
3,771
|
|
|
2,688
|
|
70
|
%
|
|
56
|
|
1
|
%
|
|||||
Total other comprehensive income (loss), net of tax
|
|
(30
|
)
|
(452
|
)
|
(356
|
)
|
|
422
|
|
93
|
%
|
|
(96
|
)
|
(27
|
)%
|
|||||
Total comprehensive income (loss)
|
|
|
$6,485
|
|
|
$3,375
|
|
|
$3,415
|
|
|
|
$3,110
|
|
92
|
%
|
|
|
($40
|
)
|
(1
|
)%
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
||||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Interest rate-related
|
|
|
($0.3
|
)
|
|
$0.2
|
|
|
($0.5
|
)
|
|
|
($0.5
|
)
|
(250
|
)%
|
|
|
$0.7
|
|
140
|
%
|
Market spread-related
|
|
0.8
|
|
0.3
|
|
0.2
|
|
|
0.5
|
|
167
|
%
|
|
0.1
|
|
50
|
%
|
n
|
2017 vs. 2016
|
l
|
The continued reduction in the balance of our mortgage-related investments portfolio resulted in a decrease in net interest income.
|
l
|
Interest rate-related fair value changes during 2017. Losses increased, driven by lower levels of volatility during 2017, resulting in larger losses in our options portfolio, coupled with lower fair value gains in our pay-fixed interest rate swaps as long-term interest rates increased less. This was partially offset by reduced fair value losses in our receive-fixed interest rate swaps and the majority of our investments in securities.
|
l
|
Increased spread-related fair value gains driven by market spread tightening during 2017 on our non-agency mortgage-related securities.
|
l
|
The volume of PCs we repurchased during 2017 increased only slightly, but we recognized increased gains on the extinguishment of debt as long-term interest rates increased between the
|
FREDDIE MAC
| 2017 Form 10-K
|
|
101
|
Management's Discussion and Analysis
|
Our Business Segments |
Capital Markets
|
l
|
Proceeds of $4.5 billion received from the RBS settlement during 2017 related to certain of our non-agency mortgage-related securities. For more information on this settlement, see
Note 14
.
|
n
|
2016 vs. 2015
|
l
|
The continued reduction in the balance of our mortgage-related investments portfolio resulted in a decrease in net interest income.
|
l
|
Interest rate-related fair value changes during 2016. Long-term interest rates increased during the fourth quarter of 2016 but decreased during 2015. This resulted in gains in our pay-fixed interest rate swaps and losses in our receive-fixed interest-rate swaps, certain of our option contracts and the vast majority of our investments in securities.
|
l
|
Increased spread-related fair value gains driven by market spread tightening during 2016 on our agency mortgage-related securities.
|
l
|
Decreased sales of available-for-sale agency and non-agency mortgage-related securities in unrealized gain positions resulted in lower gains.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
102
|
Management's Discussion and Analysis
|
Our Business Segments
|
All Other
|
|
|
|
|
|
|
Year Over Year Change
|
|||||||||||||||
|
|
Year Ended December 31,
|
|
2017 vs. 2016
|
|
2016 vs. 2015
|
|||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
|
$
|
%
|
|
$
|
%
|
|||||||||||
Comprehensive income (loss) - All Other
|
|
|
($5,405
|
)
|
|
$—
|
|
|
$28
|
|
|
|
($5,405
|
)
|
N/A
|
|
|
($28
|
)
|
(100
|
)%
|
n
|
2017 vs. 2016
- Comprehensive loss in 2017 was driven by:
|
l
|
Higher income tax expense due to the revaluation of our net deferred tax asset driven by the Tax Cuts and Jobs Act, which reduced the statutory corporate income tax rate from 35% to 21%. For more information on the statutory tax rate change, see
Note 12
.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
103
|
Management's Discussion and Analysis
|
Risk Management
|
Overview
|
n
|
Revising our integrated enterprise risk framework to enable us to place more focus on high risk business processes and activities;
|
n
|
Utilizing our three-lines-of-defense risk management model both to strengthen risk ownership in our business units and to assign specific responsibilities and accountabilities for risk management;
|
n
|
Implementing variable compensation programs that do not encourage excessive risk taking and balance risk and rewards; and
|
n
|
Continuing to emphasize from the tone at the top the importance of a strong risk culture.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
104
|
Management's Discussion and Analysis
|
Risk Management
|
Overview
|
FREDDIE MAC
| 2017 Form 10-K
|
|
105
|
Management's Discussion and Analysis
|
Risk Management
|
Overview
|
FREDDIE MAC
| 2017 Form 10-K
|
|
106
|
Management's Discussion and Analysis
|
Risk Management
|
Credit Risk
|
n
|
Single-family mortgage credit risk
, through our ownership or guarantee of loans in the single-family credit guarantee portfolio;
|
n
|
Multifamily mortgage credit risk
, through our ownership or guarantee of loans in the multifamily mortgage portfolio; and
|
n
|
Mortgage-related securities credit risk
,
through our ownership of non-Freddie Mac mortgage-related securities in the mortgage-related investments portfolio.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
107
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
n
|
Maintaining policies and procedures for new business activity, including prudent underwriting standards;
|
n
|
Offering private investors new and innovative ways to share in the credit risk of the single-family credit guarantee portfolio;
|
n
|
Monitoring loan performance and characteristics of the single-family credit guarantee portfolio and individual sellers and servicers;
|
n
|
Engaging in loss mitigation activities; and
|
n
|
Managing foreclosure and REO activities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
108
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
n
|
Loans that have established an acceptable payment history for 36 months (12 months for relief refinance loans) of consecutive, on-time payments after purchase, subject to certain exclusions; and
|
n
|
Loans that have satisfactorily completed a quality control review.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
109
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||
(Dollars in millions)
|
|
Amount
|
% of Total
|
|
Amount
|
% of Total
|
|
Amount
|
% of Total
|
|||||||||
30-year or more amortizing fixed-rate
|
|
|
$275,677
|
|
80
|
%
|
|
|
$307,572
|
|
78
|
%
|
|
|
$262,209
|
|
75
|
%
|
20-year amortizing fixed-rate
|
|
12,338
|
|
4
|
|
|
17,011
|
|
4
|
|
|
16,470
|
|
5
|
|
|||
15-year amortizing fixed-rate
|
|
45,597
|
|
13
|
|
|
61,223
|
|
16
|
|
|
58,958
|
|
17
|
|
|||
Adjustable-rate
|
|
9,841
|
|
3
|
|
|
6,555
|
|
2
|
|
|
12,760
|
|
3
|
|
|||
FHA/VA and other governmental
|
|
113
|
|
—
|
|
|
146
|
|
—
|
|
|
163
|
|
—
|
|
|||
Total
|
|
|
$343,566
|
|
100
|
%
|
|
|
$392,507
|
|
100
|
%
|
|
|
$350,560
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Percentage of purchases
|
|
|
|
|
|
|
|
|
|
|||||||||
With credit enhancements
|
|
|
30
|
%
|
|
|
26
|
%
|
|
|
23
|
%
|
||||||
Detached/townhome property type
|
|
|
91
|
%
|
|
|
92
|
%
|
|
|
92
|
%
|
||||||
Primary residence
|
|
|
89
|
%
|
|
|
90
|
%
|
|
|
90
|
%
|
||||||
Loan purpose
|
|
|
|
|
|
|
|
|
|
|||||||||
Purchase
|
|
|
58
|
%
|
|
|
45
|
%
|
|
|
44
|
%
|
||||||
Cash-out refinance
|
|
|
22
|
%
|
|
|
22
|
%
|
|
|
21
|
%
|
||||||
Other refinance
|
|
|
20
|
%
|
|
|
33
|
%
|
|
|
35
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
110
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2017
|
|
2016
|
||||||||||||||
(UPB in millions)
|
|
UPB
|
Loan Count
|
Average
Loan Size
|
|
UPB
|
Loan Count
|
Average
Loan Size
|
||||||||||
Above 125% Original LTV
|
|
|
$141
|
|
936
|
|
|
$151,000
|
|
|
|
$271
|
|
1,799
|
|
|
$151,000
|
|
Above 100% to 125% Original LTV
|
|
589
|
|
3,197
|
|
184,000
|
|
|
1,107
|
|
6,220
|
|
178,000
|
|
||||
Above 80% to 100% Original LTV
|
|
1,760
|
|
9,737
|
|
181,000
|
|
|
3,034
|
|
17,277
|
|
176,000
|
|
||||
80% and below Original LTV
|
|
5,900
|
|
40,941
|
|
144,000
|
|
|
8,562
|
|
60,353
|
|
142,000
|
|
||||
Total
|
|
|
$8,390
|
|
54,811
|
|
|
$153,000
|
|
|
|
$12,974
|
|
85,649
|
|
|
$151,000
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
111
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
Credit Enhancement
|
Description
|
|
When Coverage is Effective
|
|
Primary mortgage insurance
|
•
|
Provides loan-level protection against loss up to a specified amount and the premium is typically paid by the borrower. Generally, an insured loan must be in default and the borrower’s interest in the underlying property must have been extinguished, such as through a short sale or foreclosure sale, before a claim can be filed under a primary mortgage insurance policy. The mortgage insurer has a prescribed period of time within which to process a claim and make a determination as to its validity and amount. Most of our loans with LTV ratios above 80% are protected by primary mortgage insurance.
|
|
At the time we acquire the loan
|
STACR debt notes
|
•
|
Unsecured debt obligations that we issue to third-party investors related to certain notional credit risk positions. We make payments of principal and interest on the issued STACR debt notes. The amount of principal that we are required to pay the STACR debt note investors is linked to the credit performance of certain loans (referred to as a reference pool) that we have previously guaranteed. As a result, we are not required to repay principal to the extent that the notional credit risk position is reduced as a result of a specified credit event.
|
|
Subsequent to our purchase or guarantee of loans
|
ACIS insurance policies
|
•
|
Policies that provide credit protection on a portion of the non-issued notional credit risk positions we retain in a STACR debt note transaction. We also enter into ACIS transactions that provide credit protection for certain specified credit events on loans not included in a reference pool created for a STACR debt note transaction. In exchange for our payment of premiums, we receive compensation for certain losses under the insurance policy up to an aggregate limit when specified credit events occur.
|
|
At both the time we acquire the loan and subsequent to our purchase or guarantee of loans
|
Senior subordinate securitization structures
|
•
|
Structures in which we issue guaranteed senior securities or PCs and unguaranteed subordinated securities backed by certain single-family loans that were previously purchased or participation interests in recently originated single-family loans. The unguaranteed subordinated securities absorb first losses on the related loans. In certain of these transactions, the loans are not serviced in accordance with our Guide and we do not control the servicing.
|
|
Subsequent to our purchase or guarantee of loans
|
Other
|
•
|
Seller indemnification agreement
- Requires the seller to absorb a portion of the losses on the related single-family loans in exchange for Freddie Mac's payment of a fee or a guarantee fee reduction. The indemnification amount may be fully or partially collateralized.
|
|
At the time we acquire the loan
|
•
|
Deep MI CRT
- Provides additional coverage beyond primary mortgage insurance. Deep MI CRT is a credit enhancement we purchase from affiliates of mortgage insurance companies. Deep MI CRT covers a pool of loans and takes effect immediately upon sale of the mortgage loans to us over a pre-defined loan aggregation period. We require our counterparties to partially collateralize their exposure to reduce the risk that we will not be reimbursed for our claims under the policies, and also to adhere to other terms beyond what is contained in primary mortgage insurance.
|
|
At the time we acquire the loan
|
|
•
|
Lender recourse and indemnification agreements
- Require a lender to repurchase a loan upon default or to reimburse us for realized credit losses. Lender recourse and lender indemnification agreements are entered into as an alternative to requiring primary mortgage insurance or in exchange for a lower guarantee fee. We have not used lender recourse or lender indemnification agreements on a broad basis in recent years.
|
|
At the time we acquire the loan
|
|
•
|
Pool insurance
- Provides insurance on a group of loans up to a stated aggregate loss limit. We have not purchased pool insurance policies since 2008, and the majority of our pool insurance policies will expire in the next three years.
|
|
At the time we acquire the loan
|
FREDDIE MAC
| 2017 Form 10-K
|
|
112
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31,
|
||||||||||||
|
|
2017
|
|
2016
|
||||||||||
(In millions)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
||||||||
Primary mortgage insurance
|
|
|
$334,189
|
|
|
$85,429
|
|
|
|
$291,217
|
|
|
$74,345
|
|
STACR debt note
(3)
|
|
604,356
|
|
17,788
|
|
|
427,978
|
|
14,507
|
|
||||
ACIS transactions
(4)
|
|
617,730
|
|
6,736
|
|
|
453,670
|
|
5,355
|
|
||||
Senior subordinate securitization structures
|
|
12,283
|
|
1,913
|
|
|
3,988
|
|
605
|
|
||||
Other
(5)
|
|
15,975
|
|
6,479
|
|
|
12,827
|
|
7,373
|
|
||||
Less: UPB with more than one type of credit enhancement
|
|
(775,751
|
)
|
—
|
|
|
(559,400
|
)
|
—
|
|
||||
Single-family credit guarantee portfolio with credit enhancement
|
|
808,782
|
|
118,345
|
|
|
630,280
|
|
102,185
|
|
||||
Single-family credit guarantee portfolio without credit enhancement
|
|
1,020,098
|
|
—
|
|
|
1,124,446
|
|
—
|
|
||||
Total
|
|
|
$1,828,880
|
|
|
$118,345
|
|
|
|
$1,754,726
|
|
|
$102,185
|
|
(1)
|
Except for the majority of our STACR debt notes and ACIS transactions, our credit enhancements generally provide protection for the first, or initial, credit losses associated with the related loans. For subordination, total current and protected UPB represents the UPB of the guaranteed securities. For STACR debt notes and ACIS transactions, total current and protected UPB represents the UPB of the assets included in the reference pool.
|
(2)
|
Except for subordination, this represents the remaining amount of loss recovery that is available subject to the terms of counterparty agreements. For subordination, this represents the UPB of the securities that are subordinate to our guarantee and held by third parties, which could provide protection by absorbing first losses.
|
(3)
|
Maximum coverage amounts presented represent the outstanding balance of STACR debt notes held by third parties.
|
(4)
|
Maximum coverage amounts presented represent the remaining aggregate limit of insurance purchased from third parties in ACIS transactions.
|
(5)
|
Includes seller indemnification, Deep MI CRT, lender recourse and indemnification, pool insurance, HFA indemnification and other credit enhancements.
|
|
|
As of December 31,
|
|||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|||||||||
(Percentage of portfolio based on UPB)
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
||||||
Non-credit-enhanced
|
|
56
|
%
|
1.16
|
%
|
|
64
|
%
|
1.02
|
%
|
|
70
|
%
|
1.30
|
%
|
Credit-enhanced
|
|
|
|
|
|
|
|
|
|
||||||
Primary mortgage insurance
|
|
18
|
%
|
1.43
|
%
|
|
17
|
%
|
1.46
|
%
|
|
15
|
%
|
2.06
|
%
|
Other
|
|
37
|
%
|
0.53
|
%
|
|
27
|
%
|
0.43
|
%
|
|
20
|
%
|
0.58
|
%
|
Total
|
|
N/A
|
|
1.08
|
%
|
|
N/A
|
|
1.00
|
%
|
|
N/A
|
|
1.32
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
113
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
114
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
n
|
Higher risk loan attributes and attribute combinations;
|
n
|
Higher risk loan product types; and
|
n
|
Geographic concentrations.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
115
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
116
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2017
|
||||||||||||||
(Dollars in billions)
|
|
UPB
|
Average
Credit Score |
Original
LTV Ratio
|
Current
LTV Ratio |
Current
LTV Ratio
>100%
|
Foreclosure Sale
and Short Sale Rate (1) |
Alt-A %
|
||||||||
Core single-family loan portfolio
|
|
|
$1,424
|
|
751
|
|
73
|
%
|
59
|
%
|
—
|
%
|
0.16
|
%
|
—
|
%
|
Legacy and relief refinance single-family loan portfolio
|
|
405
|
|
707
|
|
77
|
%
|
47
|
%
|
3
|
%
|
3.98
|
%
|
7
|
%
|
|
Total
|
|
|
$1,829
|
|
743
|
|
75
|
%
|
59
|
%
|
1
|
%
|
N/A
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2016
|
||||||||||||||
(Dollars in billions)
|
|
UPB
|
Average
Credit Score |
Original
LTV Ratio
|
Current
LTV Ratio |
Current
LTV Ratio
>100%
|
Foreclosure Sale and Short
Sale Rate (1) |
Alt-A %
|
||||||||
Core single-family loan portfolio
|
|
|
$1,275
|
|
752
|
|
72
|
%
|
60
|
%
|
—
|
%
|
0.15
|
%
|
—
|
%
|
Legacy and relief refinance single-family loan portfolio
|
|
480
|
|
708
|
|
77
|
%
|
51
|
%
|
5
|
%
|
3.91
|
%
|
7
|
%
|
|
Total
|
|
|
$1,755
|
|
743
|
|
75
|
%
|
61
|
%
|
2
|
%
|
N/A
|
|
2
|
%
|
(1)
|
The foreclosure sale and short sale rate presented for the Legacy and relief refinance single-family loan portfolio represents the rate associated with loans originated in 2000 through 2008, as well as other relief refinance loans, including HARP loans.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
117
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
Characteristic
|
Description
|
Impact on Credit Quality
|
|
LTV Ratio
|
Ratio of the UPB of the loan to the value of the underlying property collateralizing the loan. Original LTV ratio is measured at loan origination, while current LTV (CLTV) ratio is defined as the ratio of the current loan UPB to the estimated current property value
|
•
|
Measures ability of the underlying property to cover our exposure on the loan
|
•
|
Higher LTV ratios indicate higher risk, as proceeds from sale of the property may not cover our exposure on the loan
|
||
•
|
Lower LTV ratios indicate borrowers are more likely to repay
|
||
Credit Score
|
Statistically-derived number used by lenders to assess a borrower’s likelihood to repay debt. We use FICO scores, which are currently the most commonly used credit scores for mortgages
|
•
|
Borrowers with higher credit scores are generally more likely to repay or have the ability to refinance their loans than those with lower scores
|
•
|
Credit scores presented in this Form 10-K are at the time of origination and may not be indicative of the borrowers’ current creditworthiness
|
||
Loan Purpose
|
Indicates how the borrower intends to use the proceeds from a loan (i.e., purchase, cash-out refinance or other refinance)
|
•
|
Cash-out refinancings, which increase the LTV ratios, generally have had a higher risk of default than loans originated in purchase or other refinance transactions
|
Property Type
|
Indicates whether the property is a detached single-family house, townhouse, condominium or co-op
|
•
|
Detached single-family houses and townhouses are the predominant type of single-family property
|
•
|
Condominiums historically have experienced greater volatility in home prices than detached single-family houses, which may expose us to more risk
|
||
Occupancy Type
|
Indicates whether the borrower intends to use the property as a primary residence, second home or investment property
|
•
|
Loans on primary residence properties tend to have lower credit risk than loans on second homes or investment properties
|
Product Type
|
Indicates the type of loan based on key loan terms, such as the contractual maturity, type of interest rate and payment characteristics of the loan
|
•
|
Loan products that contain terms which result in scheduled changes in monthly payments may result in higher risk
|
•
|
Shorter loan terms result in faster repayment of principal and may indicate lower risk
|
||
Second Liens
|
Indicates whether the underlying property is covered by more than one loan at the time of origination
|
•
|
Second liens can increase the risk of default
|
•
|
Borrowers are free to obtain second-lien financing after origination, and we are not entitled to receive notification when a borrower does so
|
FREDDIE MAC
| 2017 Form 10-K
|
|
118
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31,
|
|||||||
(Percentage of portfolio based on UPB)
|
|
2017
|
|
2016
|
|
2015
|
|||
|
|
|
|
|
|
|
|||
Original LTV Ratio Range
|
|
|
|
|
|
|
|||
60% and below
|
|
20
|
%
|
|
20
|
%
|
|
20
|
%
|
Above 60% to 80%
|
|
52
|
%
|
|
53
|
%
|
|
53
|
%
|
Above 80% to 100%
|
|
24
|
%
|
|
23
|
%
|
|
22
|
%
|
Above 100%
|
|
4
|
%
|
|
4
|
%
|
|
5
|
%
|
Portfolio weighted average original LTV ratio
|
|
75
|
%
|
|
75
|
%
|
|
75
|
%
|
|
|
|
|
|
|
|
|||
Current LTV Ratio Range
|
|
|
|
|
|
|
|||
60% and below
|
|
49
|
%
|
|
45
|
%
|
|
43
|
%
|
Above 60% to 80%
|
|
37
|
%
|
|
38
|
%
|
|
37
|
%
|
Above 80% to 100%
|
|
13
|
%
|
|
15
|
%
|
|
16
|
%
|
Above 100%
|
|
1
|
%
|
|
2
|
%
|
|
4
|
%
|
Portfolio weighted average current LTV ratio
|
|
59
|
%
|
|
61
|
%
|
|
63
|
%
|
|
|
|
|
|
|
|
|||
Credit Score
|
|
|
|
|
|
|
|||
740 and above
|
|
60
|
%
|
|
60
|
%
|
|
59
|
%
|
700 to 739
|
|
21
|
%
|
|
21
|
%
|
|
21
|
%
|
660 to 699
|
|
12
|
%
|
|
12
|
%
|
|
13
|
%
|
620 to 659
|
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
Less than 620
|
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
Portfolio weighted average credit score
|
|
743
|
|
|
743
|
|
|
741
|
|
|
|
|
|
|
|
|
|||
Loan Purpose
|
|
|
|
|
|
|
|||
Purchase
|
|
39
|
%
|
|
35
|
%
|
|
32
|
%
|
Cash-out refinance
|
|
21
|
%
|
|
21
|
%
|
|
21
|
%
|
Other refinance
|
|
40
|
%
|
|
44
|
%
|
|
47
|
%
|
n
|
More than 90% of our loans were secured by detached homes or townhomes;
|
n
|
Approximately 90% of our loans were secured by properties used as the borrower’s primary residence at origination; and
|
n
|
More than 90% of our loans were fixed-rate.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
119
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2017
|
||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|||||
Original LTV ratio greater than 90%, HARP loans
|
|
|
$98.9
|
|
76
|
%
|
2.3
|
%
|
1.37
|
%
|
Original LTV ratio greater than 90%, all other loans
|
|
|
$205.5
|
|
80
|
%
|
5.6
|
%
|
1.88
|
%
|
Loans with credit scores below 620 at origination
|
|
|
$35.2
|
|
65
|
%
|
21.4
|
%
|
6.34
|
%
|
|
|
|
|
|
|
|||||
|
|
As of December 31, 2016
|
||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|||||
Original LTV ratio greater than 90%, HARP loans
|
|
|
$115.1
|
|
83
|
%
|
1.8
|
%
|
1.07
|
%
|
Original LTV ratio greater than 90%, all other loans
|
|
|
$169.4
|
|
82
|
%
|
7.2
|
%
|
1.92
|
%
|
Loans with credit scores below 620 at origination
|
|
|
$37.5
|
|
69
|
%
|
21.7
|
%
|
5.73
|
%
|
|
|
As of December 31, 2017
|
||||||||||||||||||||
|
|
CLTV ≤ 80
|
|
CLTV > 80 to 100
|
|
CLTV > 100
|
|
All Loans
|
||||||||||||||
(Credit score)
|
|
% Portfolio
|
SDQ Rate
(1)
|
|
% Portfolio
|
SDQ Rate
(1)
|
|
% Portfolio
|
SDQ Rate
(1)
|
|
% Portfolio
|
SDQ Rate
(1)
|
% Modified
(1)
|
|||||||||
Core single-family loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
< 620
|
|
0.3
|
%
|
2.89
|
%
|
|
—
|
%
|
NM
|
|
|
—
|
%
|
NM
|
|
|
0.3
|
%
|
3.18
|
%
|
3.3
|
%
|
620 to 659
|
|
1.8
|
|
1.63
|
%
|
|
0.3
|
|
1.92
|
%
|
|
—
|
|
NM
|
|
|
2.1
|
|
1.67
|
%
|
1.4
|
%
|
≥ 660
|
|
65.9
|
|
0.27
|
%
|
|
9.5
|
|
0.46
|
%
|
|
—
|
|
NM
|
|
|
75.4
|
|
0.29
|
%
|
0.2
|
%
|
Not available
|
|
0.1
|
|
2.48
|
%
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
|
0.1
|
|
4.47
|
%
|
3.6
|
%
|
Total
|
|
68.1
|
%
|
0.32
|
%
|
|
9.8
|
%
|
0.55
|
%
|
|
—
|
%
|
NM
|
|
|
77.9
|
%
|
0.35
|
%
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Legacy and relief refinance single-family loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
< 620
|
|
1.2
|
%
|
5.61
|
%
|
|
0.3
|
%
|
10.17
|
%
|
|
0.1
|
%
|
16.24
|
%
|
|
1.6
|
%
|
6.71
|
%
|
23.5
|
%
|
620 to 659
|
|
2.0
|
|
4.17
|
%
|
|
0.4
|
|
8.05
|
%
|
|
0.2
|
|
13.75
|
%
|
|
2.6
|
|
5.04
|
%
|
20.3
|
%
|
≥ 660
|
|
14.9
|
|
1.47
|
%
|
|
2.2
|
|
4.11
|
%
|
|
0.7
|
|
6.67
|
%
|
|
17.8
|
|
1.81
|
%
|
7.3
|
%
|
Not available
|
|
0.1
|
|
5.60
|
%
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
|
0.1
|
|
6.07
|
%
|
17.8
|
%
|
Total
|
|
18.2
|
%
|
2.11
|
%
|
|
2.9
|
%
|
5.39
|
%
|
|
1.0
|
%
|
9.14
|
%
|
|
22.1
|
%
|
2.59
|
%
|
10.1
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
120
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2016
|
||||||||||||||||||||
|
|
CLTV ≤ 80
|
|
CLTV > 80 to 100
|
|
CLTV > 100
|
|
All Loans
|
||||||||||||||
(Credit score)
|
|
% Portfolio
|
SDQ Rate
(1)
|
|
% Portfolio
|
SDQ Rate
(1)
|
|
% Portfolio
|
SDQ Rate
(1)
|
|
% Portfolio
|
SDQ Rate
(1)
|
% Modified
(1)
|
|||||||||
Core single-family loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
< 620
|
|
0.2
|
%
|
2.18
|
%
|
|
—
|
%
|
NM
|
|
|
—
|
%
|
NM
|
|
|
0.2
|
%
|
2.45
|
%
|
3.0
|
%
|
620 to 659
|
|
1.6
|
|
1.02
|
%
|
|
0.3
|
|
1.30
|
%
|
|
—
|
|
NM
|
|
|
1.9
|
|
1.07
|
%
|
1.3
|
%
|
≥ 660
|
|
60.9
|
|
0.15
|
%
|
|
9.7
|
|
0.22
|
%
|
|
0.1
|
|
1.88
|
%
|
|
70.7
|
|
0.16
|
%
|
0.2
|
%
|
Not available
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
NM
|
|
Total
|
|
62.7
|
%
|
0.18
|
%
|
|
10.0
|
%
|
0.27
|
%
|
|
0.1
|
%
|
3.29
|
%
|
|
72.8
|
%
|
0.20
|
%
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Legacy and relief refinance single-family loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
< 620
|
|
1.3
|
%
|
4.76
|
%
|
|
0.4
|
%
|
8.53
|
%
|
|
0.2
|
%
|
13.93
|
%
|
|
1.9
|
%
|
6.03
|
%
|
23.4
|
%
|
620 to 659
|
|
2.1
|
|
3.48
|
%
|
|
0.6
|
|
6.61
|
%
|
|
0.4
|
|
11.41
|
%
|
|
3.1
|
|
4.51
|
%
|
20.0
|
%
|
≥ 660
|
|
17.1
|
|
1.18
|
%
|
|
3.6
|
|
3.24
|
%
|
|
1.4
|
|
5.68
|
%
|
|
22.1
|
|
1.60
|
%
|
7.2
|
%
|
Not available
|
|
0.1
|
|
4.87
|
%
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
|
0.1
|
|
5.54
|
%
|
15.7
|
%
|
Total
|
|
20.6
|
%
|
1.70
|
%
|
|
4.6
|
%
|
4.25
|
%
|
|
2.0
|
%
|
7.57
|
%
|
|
27.2
|
%
|
2.28
|
%
|
9.9
|
%
|
(1)
|
NM - not meaningful due to the percentage of the portfolio rounding to zero.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
121
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2017
|
||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|||||
Amortizing ARM and option ARM
(1)
|
|
|
$56.0
|
|
52
|
%
|
1.7
|
%
|
1.13
|
%
|
Interest-only
|
|
|
$13.0
|
|
68
|
%
|
0.1
|
%
|
4.97
|
%
|
Step-rate modified
|
|
|
$22.2
|
|
70
|
%
|
100
|
%
|
8.03
|
%
|
|
|
|
|
|
|
|||||
|
|
As of December 31, 2016
|
||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|||||
Amortizing ARM and option ARM
(1)
|
|
|
$60.5
|
|
53
|
%
|
1.7
|
%
|
1.20
|
%
|
Interest-only
|
|
|
$16.6
|
|
73
|
%
|
0.1
|
%
|
4.34
|
%
|
Step-rate modified
|
|
|
$32.0
|
|
78
|
%
|
100
|
%
|
6.37
|
%
|
(1)
|
Includes
$3.6 billion
and $4.1 billion in UPB of option ARM loans as of
December 31, 2017
and
2016
, respectively. As of
December 31, 2017
and
2016
, the option ARM loans had: (a) current LTV ratios of
58%
and 64%, (b) loan modification percentages of
15.6%
and 14.6%; and (c) serious delinquency rates of
4.58%
and 5.24%, respectively.
|
|
|
As of December 31, 2017
|
|||||||||||||||||||||||
(In millions)
|
|
2017 and Prior
|
2018
|
2019
|
2020
|
2021
|
2022
|
Thereafter
|
Total
(1)
|
||||||||||||||||
ARM/amortizing
|
|
|
$12,409
|
|
|
$2,461
|
|
|
$5,027
|
|
|
$6,314
|
|
|
$5,881
|
|
|
$6,744
|
|
|
$13,244
|
|
|
$52,080
|
|
ARM/interest-only
|
|
8,456
|
|
1,185
|
|
70
|
|
149
|
|
—
|
|
—
|
|
—
|
|
9,860
|
|
||||||||
Fixed/interest-only
|
|
813
|
|
184
|
|
3
|
|
2
|
|
12
|
|
45
|
|
2
|
|
1,061
|
|
||||||||
Step-rate modified
|
|
16,657
|
|
10,254
|
|
4,071
|
|
3,171
|
|
2,382
|
|
537
|
|
175
|
|
22,169
|
|
||||||||
Total
|
|
|
$38,335
|
|
|
$14,084
|
|
|
$9,171
|
|
|
$9,636
|
|
|
$8,275
|
|
|
$7,326
|
|
|
$13,421
|
|
|
$85,170
|
|
(1)
|
Excludes loans underlying certain other securitization products since the payment change information is not available to us for these loans.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
122
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
||||||||||
Alt-A
|
|
|
$27.1
|
|
67
|
%
|
24.1
|
%
|
5.62
|
%
|
|
|
$32.6
|
|
72
|
%
|
25.9
|
%
|
5.21
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
123
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2017
|
Full Year 2017 Credit Losses
|
|
As of December 31, 2016
|
Full Year 2016 Credit Losses
|
|
As of December 31, 2015
|
Full Year 2015 Credit Losses
|
|||||||||||||||||||||
(Dollars in millions)
|
|
SDQ
Loan Count
|
% of SDQ
Loans
|
SDQ Rate
|
|
SDQ
Loan Count
|
% of SDQ
Loans
|
SDQ Rate
|
|
SDQ
Loan Count
|
% of SDQ
Loans
|
SDQ Rate
|
||||||||||||||||||
Florida
|
|
22,253
|
|
19
|
%
|
3.33
|
%
|
|
$614
|
|
|
9,355
|
|
9
|
%
|
1.42
|
%
|
|
$157
|
|
|
14,070
|
|
10
|
%
|
2.16
|
%
|
|
$850
|
|
Texas
|
|
8,908
|
|
8
|
|
1.36
|
%
|
44
|
|
|
4,357
|
|
4
|
|
0.70
|
%
|
15
|
|
|
4,888
|
|
3
|
|
0.80
|
%
|
25
|
|
|||
New York
|
|
8,117
|
|
7
|
|
1.74
|
%
|
415
|
|
|
9,574
|
|
9
|
|
2.05
|
%
|
163
|
|
|
13,981
|
|
10
|
|
2.94
|
%
|
557
|
|
|||
Illinois
|
|
6,228
|
|
5
|
|
1.13
|
%
|
445
|
|
|
7,291
|
|
7
|
|
1.34
|
%
|
170
|
|
|
8,841
|
|
6
|
|
1.62
|
%
|
381
|
|
|||
New Jersey
|
|
5,539
|
|
5
|
|
1.78
|
%
|
432
|
|
|
6,913
|
|
7
|
|
2.26
|
%
|
204
|
|
|
11,978
|
|
9
|
|
3.90
|
%
|
689
|
|
|||
All Others
|
|
64,644
|
|
56
|
|
0.79
|
%
|
2,865
|
|
|
68,444
|
|
64
|
|
0.85
|
%
|
1,019
|
|
|
85,963
|
|
62
|
|
1.06
|
%
|
2,186
|
|
|||
Total
|
|
115,689
|
|
100
|
%
|
1.08
|
%
|
|
$4,815
|
|
|
105,934
|
|
100
|
%
|
1.00
|
%
|
|
$1,728
|
|
|
139,721
|
|
100
|
%
|
1.32
|
%
|
|
$4,688
|
|
|
|
Year Ended December 31,
|
||||||||||||||||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||||||||||||||
(In millions)
|
|
Charge-offs,
gross (1) |
Recoveries
|
Charge-offs,
net |
|
Charge-offs,
gross (1) |
Recoveries
|
Charge-offs,
net |
|
Charge-offs,
gross (1) |
Recoveries
|
Charge-offs,
net |
||||||||||||||||||
Northeast
|
|
|
$1,690
|
|
|
($155
|
)
|
|
$1,535
|
|
|
|
$752
|
|
|
($188
|
)
|
|
$564
|
|
|
|
$2,056
|
|
|
($207
|
)
|
|
$1,849
|
|
West
|
|
1,382
|
|
(62
|
)
|
1,320
|
|
|
247
|
|
(58
|
)
|
189
|
|
|
688
|
|
(105
|
)
|
583
|
|
|||||||||
Southeast
|
|
1,001
|
|
(95
|
)
|
906
|
|
|
401
|
|
(121
|
)
|
280
|
|
|
1,270
|
|
(204
|
)
|
1,066
|
|
|||||||||
North Central
|
|
774
|
|
(81
|
)
|
693
|
|
|
425
|
|
(94
|
)
|
331
|
|
|
854
|
|
(149
|
)
|
705
|
|
|||||||||
Southwest
|
|
204
|
|
(32
|
)
|
172
|
|
|
113
|
|
(36
|
)
|
77
|
|
|
203
|
|
(52
|
)
|
151
|
|
|||||||||
Total
|
|
|
$5,051
|
|
|
($425
|
)
|
|
$4,626
|
|
|
|
$1,938
|
|
|
($497
|
)
|
|
$1,441
|
|
|
|
$5,071
|
|
|
($717
|
)
|
|
$4,354
|
|
(1)
|
2016 and 2015 do not include lower-of-cost-or-fair-value adjustments and other expenses related to property taxes and insurance recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion and $3.4 billion, respectively. 2017 includes charge-offs of $3.8 billion related to the transfer of loans from held-for-investment to held-for-sale.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
124
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2017
|
||||||||||||||||||
|
|
CLTV <= 80%
|
|
CLTV > 80% to 100%
|
|
CLTV > 100%
|
|
All Loans
|
||||||||||||
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
||||||||
North Central
|
|
13
|
%
|
0.65
|
%
|
|
3
|
%
|
1.29
|
%
|
|
—
|
%
|
6.77
|
%
|
|
16
|
%
|
0.81
|
%
|
Northeast
|
|
21
|
|
0.96
|
%
|
|
4
|
|
2.13
|
%
|
|
—
|
|
11.17
|
%
|
|
25
|
|
1.24
|
%
|
Southeast
|
|
14
|
|
1.67
|
%
|
|
2
|
|
3.34
|
%
|
|
—
|
|
10.58
|
%
|
|
16
|
|
1.95
|
%
|
Southwest
|
|
11
|
|
0.94
|
%
|
|
2
|
|
1.23
|
%
|
|
—
|
|
6.73
|
%
|
|
13
|
|
0.98
|
%
|
West
|
|
27
|
|
0.40
|
%
|
|
2
|
|
1.14
|
%
|
|
1
|
|
5.36
|
%
|
|
30
|
|
0.47
|
%
|
Total
|
|
86
|
%
|
0.89
|
%
|
|
13
|
%
|
1.87
|
%
|
|
1
|
%
|
8.95
|
%
|
|
100
|
%
|
1.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2016
|
||||||||||||||||||
|
|
CLTV <= 80%
|
|
CLTV > 80% to 100%
|
|
CLTV > 100%
|
|
All Loans
|
||||||||||||
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
||||||||
North Central
|
|
13
|
%
|
0.67
|
%
|
|
3
|
%
|
1.53
|
%
|
|
—
|
%
|
6.36
|
%
|
|
16
|
%
|
0.93
|
%
|
Northeast
|
|
20
|
|
1.04
|
%
|
|
4
|
|
2.35
|
%
|
|
1
|
|
10.92
|
%
|
|
25
|
|
1.45
|
%
|
Southeast
|
|
12
|
|
0.92
|
%
|
|
3
|
|
1.95
|
%
|
|
1
|
|
6.35
|
%
|
|
16
|
|
1.19
|
%
|
Southwest
|
|
11
|
|
0.71
|
%
|
|
2
|
|
1.13
|
%
|
|
—
|
|
6.75
|
%
|
|
13
|
|
0.78
|
%
|
West
|
|
27
|
|
0.43
|
%
|
|
3
|
|
1.38
|
%
|
|
—
|
|
5.00
|
%
|
|
30
|
|
0.57
|
%
|
Total
|
|
83
|
%
|
0.74
|
%
|
|
15
|
%
|
1.75
|
%
|
|
2
|
%
|
7.43
|
%
|
|
100
|
%
|
1.00
|
%
|
|
|
Year Ended December 31,
|
||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
||||||
Charge-offs, gross
(1)(2)
|
|
|
$5,051
|
|
|
$1,938
|
|
|
$5,071
|
|
Recoveries
|
|
(425
|
)
|
(497
|
)
|
(717
|
)
|
|||
Charge-offs, net
|
|
4,626
|
|
1,441
|
|
4,354
|
|
|||
REO operations expense
|
|
189
|
|
287
|
|
334
|
|
|||
Total credit losses
|
|
|
$4,815
|
|
|
$1,728
|
|
|
$4,688
|
|
|
|
|
|
|
||||||
Total credit losses
(1)(2)
(in bps)
|
|
27.0
|
|
9.9
|
|
27.6
|
|
(1)
|
For 2015, includes $1.9 billion due to the adoption of FHFA Advisory Bulletin 2012-02 ("AB 2012-02") Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention. See
Note 1
for additional information.
|
(2)
|
2016 and 2015 do not include lower-of-cost-or-fair value adjustments and other expenses related to property taxes and insurance recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion and $3.4 billion, respectively. 2017 includes charge-offs of
$3.8 billion
related to the transfer of loans from held-for-investment to held-for-sale.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
125
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
2017
|
|
2016
|
||||||||||||
|
|
As of December 31
|
|
Year Ended December 31
|
|
As of December 31
|
|
Year Ended December 31
|
||||||||
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Credit Losses
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Credit Losses
|
||||||
CLTV > 100%
|
|
1
|
%
|
8.95
|
%
|
|
28
|
%
|
|
2
|
%
|
7.43
|
%
|
|
34
|
%
|
Alt-A loans
|
|
1
|
%
|
5.62
|
%
|
|
22
|
%
|
|
2
|
%
|
5.21
|
%
|
|
15
|
%
|
Judicial foreclosure states
|
|
38
|
%
|
1.56
|
%
|
|
53
|
%
|
|
38
|
%
|
1.36
|
%
|
|
62
|
%
|
|
|
Year Ended December 31,
|
||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
||||||||||
Beginning balance
|
|
|
$13,463
|
|
|
$15,348
|
|
|
$21,793
|
|
|
$24,578
|
|
|
$30,508
|
|
Provision (benefit) for credit losses
|
|
(97
|
)
|
(781
|
)
|
(2,639
|
)
|
113
|
|
(2,247
|
)
|
|||||
Charge-offs, gross
(1)
|
|
(5,051
|
)
|
(1,938
|
)
|
(5,071
|
)
|
(4,892
|
)
|
(8,995
|
)
|
|||||
Recoveries
|
|
425
|
|
497
|
|
717
|
|
1,258
|
|
4,313
|
|
|||||
Transfers, net
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
Other
(2)
|
|
239
|
|
337
|
|
548
|
|
736
|
|
999
|
|
|||||
Ending balance
|
|
|
$8,979
|
|
|
$13,463
|
|
|
$15,348
|
|
|
$21,793
|
|
|
$24,578
|
|
|
|
|
|
|
|
|
||||||||||
As a percentage of our single-family credit guarantee portfolio
|
|
0.49
|
%
|
0.77
|
%
|
0.90
|
%
|
1.31
|
%
|
1.49
|
%
|
(1)
|
2016, 2015, 2014 and 2013 do not include lower-of-cost-or-fair value adjustments and other expenses related to property taxes and insurance recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion, $3.4 billion, $0.3 billion and $0.0 billion, respectively. 2017 includes charge-offs of $3.8 billion related to the transfer of loans from held-for-investment to held-for-sale.
|
(2)
|
Primarily includes capitalization of past due interest on modified loans.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
126
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
2017
|
|
2016
|
||||||||
(Dollars in millions)
|
|
Loan Count
|
Amount
|
|
Loan Count
|
Amount
|
||||||
TDRs, at January 1
|
|
485,709
|
|
|
$78,869
|
|
|
512,253
|
|
|
$85,960
|
|
New additions
|
|
41,343
|
|
5,714
|
|
|
43,153
|
|
5,956
|
|
||
Repayments and reclassifications to held-for-sale
|
|
(151,941
|
)
|
(28,737
|
)
|
|
(58,153
|
)
|
(11,405
|
)
|
||
Foreclosure sales and foreclosure alternatives
|
|
(10,407
|
)
|
(1,431
|
)
|
|
(11,544
|
)
|
(1,642
|
)
|
||
TDRs, at December 31,
|
|
364,704
|
|
54,415
|
|
|
485,709
|
|
78,869
|
|
||
Loans impaired upon purchase
|
|
5,040
|
|
340
|
|
|
7,977
|
|
542
|
|
||
Total impaired loans with specific reserve
|
|
369,744
|
|
54,755
|
|
|
493,686
|
|
79,411
|
|
||
Allowance for loan losses
|
|
|
(6,630
|
)
|
|
|
(11,980
|
)
|
||||
Net investment, at December 31,
|
|
|
|
$48,125
|
|
|
|
|
$67,431
|
|
|
|
As of December 31,
|
||||||||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
||||||||||
TDRs on accrual status
|
|
|
$51,644
|
|
|
$77,122
|
|
|
$82,026
|
|
|
$82,373
|
|
|
$78,033
|
|
Non-accrual loans
|
|
17,748
|
|
16,164
|
|
22,460
|
|
32,745
|
|
42,829
|
|
|||||
Total TDRs and non-accrual loans
|
|
|
$69,392
|
|
|
$93,286
|
|
|
$104,486
|
|
|
$115,118
|
|
|
$120,862
|
|
|
|
|
|
|
|
|
||||||||||
Loan loss reserves associated with:
|
|
|
|
|
|
|
||||||||||
TDRs on accrual status
|
|
|
$5,257
|
|
|
$10,295
|
|
|
$12,105
|
|
|
$13,728
|
|
|
$14,239
|
|
Non-accrual loans
|
|
1,883
|
|
2,290
|
|
2,677
|
|
6,935
|
|
8,805
|
|
|||||
Total
|
|
|
$7,140
|
|
|
$12,585
|
|
|
$14,782
|
|
|
$20,663
|
|
|
$23,044
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Year Ended December 31,
|
||||||||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
||||||||||
Foregone interest income on TDRs and non-accrual loans
(1)
|
|
|
$1,604
|
|
|
$2,109
|
|
|
$2,690
|
|
|
$3,235
|
|
|
$3,552
|
|
(1)
|
Represents the amount of interest income that we would have recognized for loans outstanding at the end of each period, had the loans performed according to their original contractual terms.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
127
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31,
|
||||||||||||||
|
|
2017
|
|
2016
|
||||||||||||
(Dollars in millions)
|
|
UPB
|
Loan Count
|
SDQ Rate
|
|
UPB
|
Loan Count
|
SDQ Rate
|
||||||||
Above 125% Original LTV
|
|
|
$21,814
|
|
131,045
|
|
1.76
|
%
|
|
|
$25,027
|
|
144,719
|
|
1.24
|
%
|
Above 100% to 125% Original LTV
|
|
43,177
|
|
256,189
|
|
1.34
|
%
|
|
50,618
|
|
288,697
|
|
1.10
|
%
|
||
Above 80% to 100% Original LTV
|
|
71,559
|
|
455,451
|
|
1.05
|
%
|
|
82,987
|
|
506,932
|
|
0.84
|
%
|
||
80% and below Original LTV
|
|
95,700
|
|
835,381
|
|
0.58
|
%
|
|
106,350
|
|
892,471
|
|
0.38
|
%
|
||
Total
|
|
|
$232,250
|
|
1,678,066
|
|
0.92
|
%
|
|
|
$264,982
|
|
1,832,819
|
|
0.69
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
128
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
n
|
Forbearance agreements
- Arrangements that require reduced or no payments during a defined period, generally less than one year, to allow borrowers to return to compliance with the original mortgage terms or to implement another loan workout. For agreements completed in 2017, the average time period for reduced or suspended payments was between three and four months.
|
n
|
Repayment plans
- Contractual plans designed to repay past due amounts to allow borrowers to return to compliance with the original mortgage terms. For plans completed in 2017, the average time period to repay past due amounts was between three and four months. Servicers are paid incentive fees for repayment plans that are paid in full and loans brought to current status.
|
n
|
Loan modifications
- Contractual plans that may involve changing the terms of the loan, adding outstanding indebtedness, such as delinquent interest, to the UPB of the loan, or a combination of both, including principal forbearance. Our modification programs generally require completion of a trial period of at least three months prior to receiving the modification. If a borrower fails to complete the trial period, the loan is considered for our other workout activities. These modification programs offer eligible borrowers extension of the loan’s term up to 480 months and a fixed interest rate. Servicers are paid incentive fees for each completed modification, and there are limits on the number of times a loan may be modified.
|
n
|
Short sale
- The borrower sells the property for less than the total amount owed under the terms of the loan. A short sale is preferable to a borrower because we provide limited relief to the borrower from repaying the entire amount owed on the loan. A short sale allows Freddie Mac to avoid the costs we would otherwise incur to complete the foreclosure and subsequently sell the property.
|
n
|
Deed in lieu of foreclosure
- The borrower voluntarily agrees to transfer title of the property to us without going through formal foreclosure proceedings.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
129
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2017
|
||||||||
(Dollars in billions)
|
|
UPB
|
% of Portfolio
|
CLTV Ratio
|
SDQ Rate
|
|||||
HAMP
|
|
|
$23.6
|
|
2
|
%
|
70
|
%
|
8.08
|
%
|
Non-HAMP
|
|
41.0
|
|
2
|
|
75
|
%
|
12.99
|
%
|
|
Total
|
|
|
$64.6
|
|
4
|
%
|
73
|
%
|
11.34
|
%
|
|
|
|
|
|
|
|||||
|
|
As of December 31, 2016
|
||||||||
(Dollars in billions)
|
|
UPB
|
% of Portfolio
|
CLTV Ratio
|
SDQ Rate
|
|||||
HAMP
|
|
|
$33.8
|
|
2
|
%
|
78
|
%
|
6.49
|
%
|
Non-HAMP
|
|
43.1
|
|
2
|
|
82
|
%
|
11.76
|
%
|
|
Total
|
|
|
$76.9
|
|
4
|
%
|
80
|
%
|
9.64
|
%
|
|
|
Quarter of Loan Modification Completion
|
|||||||||||||||
|
|
4Q 2016
|
3Q 2016
|
2Q 2016
|
1Q 2016
|
4Q 2015
|
3Q 2015
|
2Q 2015
|
1Q 2015
|
||||||||
Current or paid off
one year after modification: |
|
57
|
%
|
62
|
%
|
63
|
%
|
67
|
%
|
64
|
%
|
66
|
%
|
66
|
%
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current or paid off
two years after modification: |
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
60
|
%
|
63
|
%
|
64
|
%
|
67
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
130
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
131
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
As of December 31,
|
|||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|||||||||
Aging, by locality
|
|
Loan Count
|
Percent
|
|
Loan Count
|
Percent
|
|
Loan Count
|
Percent
|
||||||
|
|
|
|
|
|
|
|
|
|
||||||
Judicial states
|
|
|
|
|
|
|
|
|
|
||||||
<= 1 year
|
|
50,554
|
|
44
|
%
|
|
35,599
|
|
34
|
%
|
|
40,265
|
|
29
|
%
|
> 1 year and <= 2 years
|
|
10,649
|
|
9
|
|
|
12,257
|
|
11
|
|
|
16,199
|
|
12
|
|
> 2 years
|
|
10,863
|
|
9
|
|
|
14,318
|
|
14
|
|
|
28,265
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-judicial states
|
|
|
|
|
|
|
|
|
|
||||||
<= 1 year
|
|
34,850
|
|
30
|
|
|
32,949
|
|
31
|
|
|
38,010
|
|
27
|
|
> 1 year and <= 2 years
|
|
5,406
|
|
5
|
|
|
6,075
|
|
6
|
|
|
8,660
|
|
6
|
|
> 2 years
|
|
3,367
|
|
3
|
|
|
4,736
|
|
4
|
|
|
8,322
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Combined
|
|
|
|
|
|
|
|
|
|
||||||
<= 1 year
|
|
85,404
|
|
74
|
|
|
68,548
|
|
65
|
|
|
78,275
|
|
56
|
|
> 1 year and <= 2 years
|
|
16,055
|
|
14
|
|
|
18,332
|
|
17
|
|
|
24,859
|
|
18
|
|
> 2 years
|
|
14,230
|
|
12
|
|
|
19,054
|
|
18
|
|
|
36,587
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total
|
|
115,689
|
|
100
|
%
|
|
105,934
|
|
100
|
%
|
|
139,721
|
|
100
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
132
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
Year Ended December 31,
|
|||||
(Average days)
|
|
2017
|
2016
|
2015
|
|||
Judicial states
|
|
|
|
|
|||
Florida
|
|
1,069
|
|
1,205
|
|
1,332
|
|
New Jersey
|
|
1,497
|
|
1,767
|
|
1,602
|
|
New York
|
|
1,658
|
|
1,599
|
|
1,553
|
|
All other judicial states
|
|
704
|
|
742
|
|
828
|
|
Judicial states, in aggregate
|
|
907
|
|
1,030
|
|
1,076
|
|
Non-judicial states, in aggregate
|
|
545
|
|
562
|
|
637
|
|
Total
|
|
751
|
|
827
|
|
892
|
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||
(Dollars in millions)
|
|
Number of Properties
|
Amount
|
|
Number of Properties
|
Amount
|
|
Number of Properties
|
Amount
|
|||||||||
Beginning balance - REO
|
|
11,418
|
|
|
$1,215
|
|
|
17,004
|
|
|
$1,774
|
|
|
25,768
|
|
|
$2,684
|
|
Acquisitions
|
|
12,240
|
|
1,191
|
|
|
16,161
|
|
1,562
|
|
|
23,171
|
|
2,235
|
|
|||
Dispositions
|
|
(15,359
|
)
|
(1,506
|
)
|
|
(21,747
|
)
|
(2,121
|
)
|
|
(31,935
|
)
|
(3,145
|
)
|
|||
Ending balance - REO
|
|
8,299
|
|
900
|
|
|
11,418
|
|
1,215
|
|
|
17,004
|
|
1,774
|
|
|||
Beginning balance, valuation allowance
|
|
|
(17
|
)
|
|
|
(52
|
)
|
|
|
(126
|
)
|
||||||
Change in valuation allowance
|
|
|
3
|
|
|
|
35
|
|
|
|
73
|
|
||||||
Ending balance, valuation allowance
|
|
|
(14
|
)
|
|
|
(17
|
)
|
|
|
(53
|
)
|
||||||
Ending balance - REO
|
|
|
|
$886
|
|
|
|
|
$1,198
|
|
|
|
|
$1,721
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
133
|
Management's Discussion and Analysis
|
Risk Management |
Single-Family Mortgage Credit Risk
|
|
|
Year Ended December 31,
|
|||||
|
|
2017
|
2016
|
2015
|
|||
REO dispositions and third-party foreclosure sales
|
|
27.2
|
%
|
32.8
|
%
|
34.3
|
%
|
Short sales
|
|
27.7
|
%
|
29.0
|
%
|
30.1
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
134
|
Management's Discussion and Analysis
|
Risk Management
|
Multifamily Mortgage Credit Risk
|
n
|
Maintaining policies and procedures for new business activity, including prudent underwriting standards;
|
n
|
Transferring a large majority of expected and stress credit losses to third parties through our credit risk transfer products, primarily K Certificates and SB Certificates; and
|
n
|
Managing our portfolio, including loss mitigation activities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
135
|
Management's Discussion and Analysis
|
Risk Management
|
Multifamily Mortgage Credit Risk
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||
(Dollars in millions)
|
|
Amount
|
% of Total
|
|
Amount
|
% of Total
|
|
Amount
|
% of Total
|
|||||||||
10-year loans, fixed or adjustable
|
|
|
$31,338
|
|
43
|
%
|
|
|
$24,378
|
|
43
|
%
|
|
|
$20,603
|
|
43
|
%
|
7-year loans, fixed or adjustable
|
|
23,844
|
|
33
|
|
|
19,367
|
|
34
|
|
|
16,875
|
|
36
|
|
|||
Other
|
|
18,019
|
|
24
|
|
|
13,085
|
|
23
|
|
|
9,786
|
|
21
|
|
|||
Total
|
|
|
$73,201
|
|
100
|
%
|
|
|
$56,830
|
|
100
|
%
|
|
|
$47,264
|
|
100
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
136
|
Management's Discussion and Analysis
|
Risk Management
|
Multifamily Mortgage Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
137
|
Management's Discussion and Analysis
|
Risk Management
|
Multifamily Mortgage Credit Risk
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||
(In millions)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
||||||||
Subordination
|
|
|
$189,099
|
|
|
$30,869
|
|
|
|
$143,802
|
|
|
$24,522
|
|
SCR debt notes
|
|
2,732
|
|
137
|
|
|
1,898
|
|
95
|
|
||||
Other
(3)
|
|
1,833
|
|
726
|
|
|
1,159
|
|
701
|
|
||||
Total credit enhancements
|
|
|
|
$31,732
|
|
|
|
|
|
$25,318
|
|
(1)
|
For subordination and other, total current and protected UPB represents the UPB of the guaranteed securities. For SCR debt notes, total current and protected UPB represents the UPB of the assets included in the reference pool.
|
(2)
|
For subordination, maximum coverage represents the UPB of the securities that are subordinate to our guarantee and held by third parties. For SCR debt notes, maximum coverage represents the outstanding balance of SCR debt notes held by third parties. For other credit enhancements, maximum coverage represents the remaining amount of loss recovery that is available subject to terms of the counterparty agreements.
|
(3)
|
Consists of multifamily HFA indemnification and loss reimbursement agreements with third parties obtained in certain of our Q Certificate transactions.
|
|
|
As of December 31,
|
|||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|||||||||
|
|
% of Portfolio
|
Delinquency Rate
|
|
% of Portfolio
|
Delinquency Rate
|
|
% of Portfolio
|
Delinquency Rate
|
||||||
Non-credit-enhanced
|
|
18
|
%
|
0.06
|
%
|
|
24
|
%
|
0.04
|
%
|
|
32
|
%
|
0.03
|
%
|
Credit-enhanced
|
|
82
|
|
0.01
|
%
|
|
76
|
|
0.02
|
%
|
|
68
|
|
0.02
|
%
|
Total
|
|
100
|
%
|
0.02
|
%
|
|
100
|
%
|
0.03
|
%
|
|
100
|
%
|
0.02
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
138
|
Management's Discussion and Analysis
|
Risk Management
|
Multifamily Mortgage Credit Risk
|
|
|
As of December 31,
|
||||||||||
|
|
2017
|
|
2016
|
||||||||
(Dollars in billions)
|
|
UPB
|
Delinquency Rate
|
|
UPB
|
Delinquency Rate
|
||||||
Unsecuritized loans
|
|
|
$38.2
|
|
0.01
|
%
|
|
|
$42.4
|
|
0.04
|
%
|
Securitization-related products
|
|
192.5
|
|
0.02
|
%
|
|
147.6
|
|
0.03
|
%
|
||
Other mortgage-related guarantees
|
|
10.0
|
|
—
|
%
|
|
9.7
|
|
—
|
%
|
||
Total
|
|
|
$240.7
|
|
0.02
|
%
|
|
|
$199.7
|
|
0.03
|
%
|
|
|
|
|
|
|
|
||||||
Unsecuritized loans, excluding HFS loans
|
|
|
|
|
|
|
||||||
Original LTV ratio
|
|
|
|
|
|
|
||||||
Below 75%
|
|
|
$10.0
|
|
—
|
%
|
|
|
$16.8
|
|
—
|
%
|
75% to 80%
|
|
6.1
|
|
—
|
%
|
|
7.0
|
|
—
|
%
|
||
Above 80%
|
|
1.6
|
|
—
|
%
|
|
2.1
|
|
—
|
%
|
||
Total
|
|
|
$17.7
|
|
—
|
%
|
|
|
$25.9
|
|
—
|
%
|
Weighted average LTV ratio at origination
|
|
69
|
%
|
|
|
68
|
%
|
|
||||
|
|
|
|
|
|
|
||||||
Maturity dates
|
|
|
|
|
|
|
||||||
2017
|
|
N/A
|
|
N/A
|
|
|
|
$1.9
|
|
—
|
%
|
|
2018
|
|
|
$2.4
|
|
—
|
%
|
|
6.7
|
|
—
|
%
|
|
2019
|
|
3.9
|
|
—
|
%
|
|
6.1
|
|
—
|
%
|
||
2020
|
|
2.2
|
|
—
|
%
|
|
2.2
|
|
—
|
%
|
||
2021
|
|
3.0
|
|
—
|
%
|
|
3.3
|
|
—
|
%
|
||
Thereafter
|
|
6.2
|
|
—
|
%
|
|
5.7
|
|
—
|
%
|
||
Total
|
|
|
$17.7
|
|
—
|
%
|
|
|
$25.9
|
|
—
|
%
|
|
|
|
|
|
|
|
||||||
Year of acquisition
|
|
|
|
|
|
|
||||||
2010 and prior
|
|
|
$6.7
|
|
—
|
%
|
|
|
$14.5
|
|
—
|
%
|
2011 and after
|
|
11.0
|
|
—
|
%
|
|
11.4
|
|
—
|
%
|
||
Total
|
|
|
$17.7
|
|
—
|
%
|
|
|
$25.9
|
|
—
|
%
|
|
|
|
|
|
|
|
||||||
K Certificates, SB Certificates and other securitization products:
|
|
|
|
|
|
|
||||||
Year of issuance
|
|
|
|
|
|
|
||||||
2012 and prior
|
|
|
$39.2
|
|
0.09
|
%
|
|
|
$35.5
|
|
0.10
|
%
|
2013
|
|
20.7
|
|
—
|
%
|
|
21.6
|
|
—
|
%
|
||
2014
|
|
13.8
|
|
—
|
%
|
|
15.4
|
|
—
|
%
|
||
2015
|
|
26.7
|
|
0.01
|
%
|
|
30.0
|
|
—
|
%
|
||
2016
|
|
37.7
|
|
—
|
%
|
|
45.1
|
|
0.01
|
%
|
||
2017
|
|
54.4
|
|
—
|
%
|
|
N/A
|
|
N/A
|
|
||
Total
|
|
|
$192.5
|
|
0.02
|
%
|
|
|
$147.6
|
|
0.03
|
%
|
|
|
|
|
|
|
|
||||||
Subordination level at issuance
|
|
|
|
|
|
|
||||||
No subordination
|
|
|
$9.0
|
|
0.22
|
%
|
|
|
$3.3
|
|
—
|
%
|
Less than 10%
|
|
3.9
|
|
—
|
%
|
|
4.5
|
|
0.71
|
%
|
||
10% to 15%
|
|
116.0
|
|
0.01
|
%
|
|
75.6
|
|
0.01
|
%
|
||
Greater than 15%
|
|
63.6
|
|
—
|
%
|
|
64.2
|
|
—
|
%
|
||
Total
|
|
|
$192.5
|
|
0.02
|
%
|
|
|
$147.6
|
|
0.03
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
139
|
Management's Discussion and Analysis
|
Risk Management
|
Multifamily Mortgage Credit Risk
|
|
|
Year Ended December 31,
|
||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
||||||
Charge-offs, gross
(1)
|
|
|
$4
|
|
|
$2
|
|
|
$9
|
|
Recoveries
|
|
—
|
|
—
|
|
—
|
|
|||
Charge-offs, net
|
|
4
|
|
2
|
|
9
|
|
|||
REO operations expense (income)
|
|
—
|
|
—
|
|
4
|
|
|||
Credit losses (gains)
|
|
|
$4
|
|
|
$2
|
|
|
$13
|
|
|
|
|
|
|
||||||
Credit losses (gains) (in bps)
|
|
0.2
|
|
0.1
|
|
0.8
|
|
|||
Number of delinquent loans
|
|
5
|
|
6
|
|
4
|
|
(1)
|
Includes cumulative fair value losses recognized through the date of foreclosure for multifamily loans we elected to carry at fair value at the time of our purchase.
|
|
|
Year Ended December 31,
|
||||||||||||||
(Dollars in millions)
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
||||||||||
Beginning balance
|
|
|
$35
|
|
|
$59
|
|
|
$94
|
|
|
$151
|
|
|
$382
|
|
Provision (benefit) for credit losses
|
|
13
|
|
(22
|
)
|
(26
|
)
|
(55
|
)
|
(218
|
)
|
|||||
Charge-offs, gross
|
|
(4
|
)
|
(2
|
)
|
(9
|
)
|
(3
|
)
|
(7
|
)
|
|||||
Recoveries
|
|
—
|
|
—
|
|
—
|
|
1
|
|
1
|
|
|||||
Transfers, net
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(7
|
)
|
|||||
Ending balance
|
|
|
$44
|
|
|
$35
|
|
|
$59
|
|
|
$94
|
|
|
$151
|
|
|
|
|
|
|
|
|
||||||||||
As a percentage of non-credit-enhanced multifamily mortgage portfolio
|
|
0.10
|
%
|
0.07
|
%
|
0.11
|
%
|
0.16
|
%
|
0.24
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
140
|
Management's Discussion and Analysis
|
Risk Management
|
Multifamily Mortgage Credit Risk
|
|
|
As of December 31,
|
||||||||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
||||||||||
TDRs on accrual status
|
|
|
$76
|
|
|
$277
|
|
|
$321
|
|
|
$535
|
|
|
$675
|
|
Non-accrual loans
|
|
69
|
|
108
|
|
189
|
|
385
|
|
628
|
|
|||||
Total TDRs and non-accrual loans
|
|
|
$145
|
|
|
$385
|
|
|
$510
|
|
|
$920
|
|
|
$1,303
|
|
|
|
|
|
|
|
|
||||||||||
Loan loss reserves associated with:
|
|
|
|
|
|
|
||||||||||
TDRs on accrual status
|
|
|
$—
|
|
|
$3
|
|
|
$9
|
|
|
$21
|
|
|
$15
|
|
Non-accrual loans
|
|
7
|
|
7
|
|
12
|
|
31
|
|
65
|
|
|||||
Total
|
|
|
$7
|
|
|
$10
|
|
|
$21
|
|
|
$52
|
|
|
$80
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Year Ended December 31,
|
||||||||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
||||||||||
Foregone interest income on TDRs and non-accrual loans
(1)
|
|
|
$2
|
|
|
$3
|
|
|
$3
|
|
|
$4
|
|
|
$8
|
|
(1)
|
Represents the amount of interest income that we would have recognized for loans outstanding at the end of each period, had the loans performed according to their original contractual terms.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
141
|
Management's Discussion and Analysis
|
Risk Management |
Mortgage-Related Securities Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
142
|
Management's Discussion and Analysis
|
Risk Management |
Mortgage-Related Securities Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
143
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
n
|
Maintaining eligibility standards;
|
n
|
Evaluating counterparty financial strength and performance and monitoring our exposure; and
|
n
|
Working with underperforming counterparties and limiting our losses from their nonperformance of obligations, when possible.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
144
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
|
|
As of December 31,
|
||||||||
|
|
2017
|
|
2016
|
||||||
|
|
% of Portfolio
(1)
|
% of Serious Delinquent Single-Family Loans
|
|
% of Portfolio
(1)
|
% of Serious Delinquent Single-Family Loans
|
||||
Top five non-depository servicers
|
|
15
|
%
|
23
|
%
|
|
13
|
%
|
24
|
%
|
Other non-depository servicers
|
|
20
|
%
|
30
|
%
|
|
18
|
%
|
27
|
%
|
Total
|
|
35
|
%
|
53
|
%
|
|
31
|
%
|
51
|
%
|
(1)
|
Excludes loans where we do not exercise control over the associated servicing.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
145
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
n
|
Repurchases and other remedies
- For certain violations of our single-family selling or servicing policies, we can require the counterparty to repurchase loans or provide alternative remedies, such as reimbursement of realized losses or indemnification. We typically first issue a notice of defect and allow a period of time to correct the problem prior to issuing a repurchase request.
|
l
|
The UPB of loans subject to repurchase obligations from single-family loan sellers was
$0.2 billion
at both
December 31, 2017
and 2016. See
Note 14
for additional information about loans subject to repurchase obligations.
|
n
|
Incentives and compensatory fees
- We pay various incentives to single-family servicers for completing workouts of problem loans. We also assess compensatory fees if single-family servicers do not achieve certain benchmarks with respect to servicing delinquent loans.
|
n
|
Servicing transfers
- From time to time, we may facilitate the transfer of servicing as a result of poor servicer performance, or for certain groups of single-family loans that are delinquent or are deemed at risk of default, to servicers that we believe have the capabilities and resources necessary to improve the loss mitigation associated with the loans. We may also facilitate the transfer of servicing on loans at the request of the servicer.
|
n
|
In each ACIS transaction, we require the individual ACIS insurers and reinsurers to post collateral to cover portions of their exposure, which helps to promote certainty and timeliness of claim payment; and
|
n
|
While private mortgage insurance companies are required to be monoline (i.e., to participate solely in the mortgage insurance business, although the holding company may be a diversified insurer), our
|
FREDDIE MAC
| 2017 Form 10-K
|
|
146
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
147
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
|
|
|
|
|
As of December 31, 2017
|
||||||||||||
|
|
|
|
|
UPB
|
|
Coverage
|
||||||||||
(In millions)
|
|
Credit
Rating (1) |
Credit
Rating Outlook (1) |
|
Primary
MI |
Pool
Insurance |
|
Primary
MI |
Pool
Insurance |
||||||||
Arch Mortgage Insurance Company
|
|
A-
|
Stable
|
|
|
$78,981
|
|
|
$12
|
|
|
|
$20,370
|
|
|
$7
|
|
Radian Guaranty Inc. (Radian)
|
|
BBB-
|
Positive
|
|
69,436
|
|
15
|
|
|
17,803
|
|
20
|
|
||||
Mortgage Guaranty Insurance Corporation (MGIC)
|
|
BBB
|
Stable
|
|
65,119
|
|
1
|
|
|
16,721
|
|
—
|
|
||||
Genworth Mortgage Insurance Corporation
|
|
BB+
|
Watch Negative
|
|
49,424
|
|
12
|
|
|
12,692
|
|
13
|
|
||||
Essent Guaranty, Inc.
|
|
BBB+
|
Stable
|
|
41,164
|
|
—
|
|
|
10,422
|
|
—
|
|
||||
National Mortgage Insurance (NMI)
|
|
BB+
|
Positive
|
|
18,193
|
|
—
|
|
|
4,447
|
—
|
|
|||||
PMI Mortgage Insurance Co. (PMI)
|
|
Not Rated
|
N/A
|
|
5,440
|
|
49
|
|
|
1,363
|
|
36
|
|
||||
Republic Mortgage Insurance Company (RMIC)
|
|
Not Rated
|
N/A
|
|
4,160
|
|
17
|
|
|
1,041
|
|
11
|
|
||||
Triad Guaranty Insurance Corporation (Triad)
|
|
Not Rated
|
N/A
|
|
2,225
|
|
6
|
|
|
560
|
|
3
|
|
||||
Others
|
|
N/A
|
N/A
|
|
47
|
|
—
|
|
|
10
|
|
—
|
|
||||
Total
|
|
|
|
|
|
$334,189
|
|
|
$112
|
|
|
|
$85,429
|
|
|
$90
|
|
(1)
|
Ratings and outlooks are for the corporate entity to which we have the greatest exposure. Coverage amounts may include coverage provided by consolidated affiliates and subsidiaries of the counterparty. Latest rating available as of December 31, 2017. Represents the lower of S&P and Moody’s credit ratings and outlooks stated in terms of the S&P equivalent.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
148
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
n
|
Cleared derivatives
- Cleared derivatives expose us to counterparty credit risk of central clearing houses and our clearing members. Our exposure to the clearinghouses we use to clear interest-rate derivatives has increased and may become more concentrated over time. The use of cleared derivatives mitigates our counterparty credit risk exposure to individual counterparties because a central counterparty is substituted for individual counterparties, and changes in the value of open contracts are settled daily via payments. We are required to post initial and variation margin to the clearing houses. The amount of initial margin we must post for cleared and exchange-traded derivatives may be based, in part, on S&P or Moody’s credit rating of our long-term senior unsecured debt securities. The lowering or withdrawal of our credit rating by S&P or Moody’s may increase our obligation to post margin, depending on the amount of the counterparty’s exposure to Freddie Mac with respect to the derivative transactions.
|
n
|
Exchange-traded derivatives
- Exchange-traded derivatives expose us to counterparty risk of the central clearing houses and our clearing members. We are required to post initial and variation margin with our clearing members in connection with exchange-traded derivatives. The use of exchange-traded derivatives mitigates our counterparty credit risk exposure to individual counterparties because a central counterparty is substituted for individual counterparties, and changes in the value of open exchange-traded contracts are settled daily via payments made through the financial clearinghouse established by each exchange.
|
n
|
OTC derivatives
- OTC derivatives expose us to counterparty credit risk to individual counterparties, because these transactions are executed and settled directly between us and each counterparty, exposing us to potential losses if a counterparty fails to meet its contractual obligations. When a counterparty in OTC derivatives that is subject to a master netting agreement has a net obligation to us with a market value above an agreed upon threshold, if any, the counterparty is obligated to deliver collateral in the form of cash, securities or a combination of both to satisfy its obligation to us under the master netting agreement. Our OTC derivatives also require us to post collateral to counterparties in accordance with agreed upon thresholds, if any, when we are in a derivative liability position. OTC derivatives transactions executed prior to March 1, 2017 are subject to collateral posting thresholds. The collateral posting thresholds we assign to our OTC counterparties, as well as the ones they assign to us, are generally based on S&P or Moody’s credit rating. The lowering or
|
FREDDIE MAC
| 2017 Form 10-K
|
|
149
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
|
|
As of December 31, 2017
|
|||||||
(Dollars in millions)
|
|
Number of Counterparties
|
Fair Value -
Gain positions
|
Fair Value - Gain positions, net of collateral
|
|||||
OTC interest-rate swap and swaption counterparties (by rating)
|
|
|
|
|
|||||
AA- or above
|
|
4
|
|
|
$115
|
|
|
$29
|
|
A+, A, or A-
|
|
13
|
|
1,827
|
|
12
|
|
||
BBB+, BBB, or BBB-
|
|
3
|
|
207
|
|
—
|
|
||
Total OTC
|
|
20
|
|
2,149
|
|
41
|
|
||
Cleared and exchange-traded derivatives
|
|
2
|
|
279
|
|
17
|
|
||
Total
|
|
22
|
|
|
$2,428
|
|
|
$58
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
150
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
n
|
Mortgage related-security issuers and servicers -
We are exposed to the non-performance of issuers and servicers of our investments in non-Freddie Mac mortgage-related securities, which can result in credit losses, impairments and declines in the fair value of these securities. See
Credit Risk
-
Mortgage-Related Securities Credit Risk
section for more information on how we manage risk associated with non-agency mortgage-related securities. A significant portion of the single-family loans underlying our investments in non-agency mortgage-related securities is serviced by non-depository servicers. These servicers may not have the same financial strength, internal controls or operational capacity as depository servicers.
|
n
|
Document custodians
- We use third-party document custodians to provide loan document certification and custody services for the loans that we purchase and securitize. In many cases, our sellers and servicers or their affiliates also serve as document custodians for us. Our ownership rights to the loans that we own or that back our securitization products could be challenged if a seller or servicer intentionally or negligently pledges, sells or fails to obtain a release of prior liens on the loans that we purchased, which could result in financial losses to us. When a seller or servicer, or one of its affiliates, acts as a document custodian for us, the risk that our ownership interest in the loans may be adversely affected is increased, particularly in the event the seller or servicer were to become insolvent. To manage these risks, we establish qualifying standards for our document custodians and maintain legal and contractual arrangements that identify our ownership interest in the loans. We also monitor the financial strength of our document custodians on an ongoing basis in accordance with our counterparty credit risk management framework, and we require transfer of documents to a different third-party document custodian if we have concerns about the solvency or competency of the document custodian.
|
n
|
The MERS® System
- The MERS System is an electronic registry that is widely used by sellers and servicers, Freddie Mac and other participants in the mortgage industry to maintain records of beneficial ownership of loans. The MERS System is owned and operated by MERSCORP Holdings, Inc. In 2016, Intercontinental Exchange, Inc. acquired a majority equity position in MERSCORP Holdings, Inc. Freddie Mac and Fannie Mae also have equity positions in MERSCORP Holdings, Inc. A significant portion of the loans we own or guarantee are registered in the MERS System. Our business could be adversely affected if we were prevented from using the MERS System, or if our use of the MERS System adversely affects our ability to enforce our rights with respect to our loans registered in the MERS System.
|
n
|
Cash and other investments counterparties -
We are exposed to the non-performance of counterparties relating to cash and other investments (including non-mortgage-related securities and cash equivalents) transactions, including those entered into on behalf of our securitization trusts. Our policies require that the counterparty be evaluated using our internal counterparty rating model prior to our entering into such transactions. We monitor the financial strength of our counterparties to these transactions and may use collateral maintenance requirements to manage our exposure to individual counterparties. The permitted term and dollar limits for each of these transactions are also based on the counterparty's financial strength.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
151
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
n
|
Forward settlement counterparties -
We are exposed to the non-performance (settlement risk) of counterparties relating to the forward settlement of loans and securities (including agency debt, agency RMBS, and cash loan purchase program loans). Our policies require that the counterparty be evaluated using our internal counterparty rating model prior to our entering into such transactions. We monitor the financial strength of these counterparties and may use collateral maintenance requirements to manage our exposure to individual counterparties.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
152
|
Management's Discussion and Analysis
|
Risk Management |
Counterparty Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
153
|
Management's Discussion and Analysis
|
Risk Management
|
Operational Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
154
|
Management's Discussion and Analysis
|
Risk Management
|
Operational Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
155
|
Management's Discussion and Analysis
|
Risk Management
|
Operational Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
156
|
Management's Discussion and Analysis
|
Risk Management |
Market Risk
|
n
|
Asset selection and structuring, such as acquiring or structuring mortgage-related securities with certain expected prepayment and other characteristics;
|
n
|
Issuance of both callable and non-callable unsecured debt; and
|
n
|
Use of interest-rate derivatives, including swaps, swaptions, and futures.
|
n
|
Limiting the size of our assets that are exposed to spread risk; and
|
n
|
Entering into certain spread-related derivatives to offset our spread exposures.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
157
|
Management's Discussion and Analysis
|
Risk Management |
Market Risk
|
Risk
|
Description
|
Risk Exposure
|
|
|
|
|
|
Interest-rate Risk
|
Interest-rate risk is the economic risk related to adverse changes in the level or volatility of interest rates.
|
•
|
A change in the level of interest rates (represented by a parallel shift of the yield curve, all else constant) exposes our assets and liabilities to risk, potentially affecting expected future cash flows and their present values. This is reflected in our PMVS-L and duration gap disclosures.
|
•
|
Similarly, changes in the shape or slope of the yield curve (often reflecting changes in the market’s expectation of future interest rates) expose our assets and liabilities to risk, potentially affecting expected future cash flows and their present values. This is reflected in our PMVS-YC disclosure.
|
||
•
|
Volatility risk is the risk that changes in the market's expectation of the magnitude of future variations in interest rates will adversely affect our economic value. We are exposed to volatility risk in both our mortgage-related assets and liabilities, especially in instruments with embedded options.
|
||
|
|
|
|
|
|
|
|
Spread Risk
|
Spread risk is the risk that yields in different asset classes may not move together and may adversely affect our economic value.
|
•
|
This risk arises principally because interest rates on our mortgage-related investments may not move in tandem with interest rates on our financial liabilities and derivatives, potentially affecting the effectiveness of our hedges.
|
•
|
We are continually exposed to significant market spread risk, also referred to as mortgage-to-debt OAS risk, arising from funding mortgage-related investments with debt securities.
|
||
•
|
We also incur market spread risk when we use LIBOR- or Treasury-based instruments in our risk management activities.
|
||
•
|
We are exposed to market spread risk arising from the difference in time between when we commit to purchase a multifamily mortgage loan and when we securitize the loan. During this time, market spreads can widen, causing losses due to changes in fair value. We also have market spread risk on the K Certificates and SB Certificates we hold in our mortgage-related investments portfolio.
|
||
|
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
158
|
Management's Discussion and Analysis
|
Risk Management |
Market Risk
|
n
|
Effective duration measures the percentage change in the price of financial instruments from a 100 basis point change in interest rates. Financial instruments with positive duration increase in value as interest rates decline. Conversely, financial instruments with negative duration increase in value as interest rates rise.
|
n
|
Effective convexity measures the change in effective duration for a 100 basis point change in interest rates. Effective duration is not constant over the entire yield curve and effective convexity measures how effective duration changes over large changes in interest rates
.
|
n
|
Duration gap
-
The net effective duration of our overall portfolio of interest-rate sensitive assets and liabilities is expressed in months as our duration gap. Duration gap measures the difference in price sensitivity to interest rate changes between our financial assets and liabilities and is expressed in months relative to the market value of assets. For example, assets with a six-month duration and liabilities with a five-month duration would result in a positive duration gap of one month.
|
n
|
PMVS
-
PMVS is our estimate of the change in the market value of our financial assets and liabilities from an instantaneous shock to interest rates, assuming spreads are held constant and no rebalancing actions are undertaken. PMVS is measured in two ways, one measuring the estimated sensitivity of our portfolio’s market value to a 50 basis point parallel movement in interest rates (PMVS-L) and the other to a nonparallel movement (PMVS-YC), resulting from a 25 basis point change in slope of the LIBOR yield curve. The 50 basis point shift and 25 basis point change in slope of the LIBOR yield curve used for our PMVS measures reflect reasonably possible near-term changes that we believe provide a meaningful measure of our interest-rate risk sensitivity.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
159
|
Management's Discussion and Analysis
|
Risk Management |
Market Risk
|
|
|
As of December 31,
|
||||||||||||||||||||
|
|
2017
|
|
2016
|
||||||||||||||||||
|
|
PMVS-YC
|
|
PMVS-L
|
|
PMVS-YC
|
|
PMVS-L
|
||||||||||||||
(In millions)
|
|
25 bps
|
|
50 bps
|
100 bps
|
|
25 bps
|
|
50 bps
|
100 bps
|
||||||||||||
Assuming shifts of the LIBOR yield curve, (gains) losses on:
(1)
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Assets
|
|
|
$463
|
|
|
|
$5,587
|
|
|
$11,446
|
|
|
|
$573
|
|
|
|
$6,397
|
|
|
$12,950
|
|
Liabilities
|
|
185
|
|
|
(2,377
|
)
|
(4,968
|
)
|
|
155
|
|
|
(2,747
|
)
|
(5,715
|
)
|
||||||
Derivatives
|
|
(646
|
)
|
|
(3,200
|
)
|
(6,477
|
)
|
|
(721
|
)
|
|
(3,662
|
)
|
(7,317
|
)
|
||||||
Total
|
|
|
$2
|
|
|
|
$10
|
|
|
$1
|
|
|
|
$7
|
|
|
|
($12
|
)
|
|
($82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
PMVS
|
|
|
$2
|
|
|
|
$10
|
|
|
$1
|
|
|
|
$7
|
|
|
|
$—
|
|
|
$—
|
|
(1)
|
The categorization of the PMVS impact between assets, liabilities, and derivatives on this table is based upon the economic characteristics of those assets and liabilities, not their accounting classification. For example, purchase and sale commitments of mortgage-related securities and debt securities of consolidated trusts held by the mortgage-related investments portfolio are both categorized as assets on this table.
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2017
|
|
2016
|
||||||||||||||
(Duration gap in months,
dollars in millions
)
|
|
Duration
Gap
|
PMVS-YC
25 bps
|
PMVS-L
50 bps
|
|
Duration
Gap
|
PMVS-YC
25 bps
|
PMVS-L
50 bps
|
||||||||||
Average
|
|
0.1
|
|
|
$7
|
|
|
$16
|
|
|
0.1
|
|
|
$6
|
|
|
$20
|
|
Minimum
|
|
(0.4
|
)
|
|
$—
|
|
|
$—
|
|
|
(0.4
|
)
|
|
$—
|
|
|
$—
|
|
Maximum
|
|
0.8
|
|
|
$26
|
|
|
$78
|
|
|
0.7
|
|
|
$31
|
|
|
$92
|
|
Standard deviation
|
|
0.2
|
|
|
$5
|
|
|
$19
|
|
|
0.2
|
|
|
$5
|
|
|
$21
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
160
|
Management's Discussion and Analysis
|
Risk Management |
Market Risk
|
|
|
PMVS-L (50 bps)
|
|
|
|||||||
(In millions)
|
|
Before
Derivatives
|
After
Derivatives
|
|
Effect of
Derivatives
|
||||||
December 31, 2017
|
|
|
$3,210
|
|
|
$10
|
|
|
|
($3,200
|
)
|
December 31, 2016
|
|
|
$3,651
|
|
|
$—
|
|
|
|
($3,651
|
)
|
n
|
Our PMVS and duration gap estimates are determined using models that involve our judgment of interest-rate and prepayment assumptions.
|
n
|
There could be times when we hedge differently than our model estimates during the period, such as when we are making changes or market updates to these models.
|
n
|
PMVS and duration gap do not capture the potential effect of certain other market risks, such as changes in volatility and market spread risk. The effect of these other market risks can be significant.
|
n
|
Our sensitivity analyses for PMVS and duration gap contemplate only certain movements in interest rates and are performed at a particular point in time based on the estimated fair value of our existing portfolio.
|
n
|
In recent years it has been more difficult to measure and manage the interest-rate risk related to mortgage assets as risk for prepayment model error remains high due to the low interest rate environment and uncertainty regarding default rates, unemployment, government policy changes and programs, loan modifications and the volatility and impact of home price movements on mortgage durations.
|
n
|
Although the mortgage-related investments portfolio is the main contributor of interest-rate risk to the company, other core businesses also contribute to our interest-rate risk and may be managed differently. We have certain assets that have a relatively short holding period. As a result, we may manage the risk of these assets based on their disposition, while our risk measures use long-term cash flows. Hedging these businesses at times requires additional assumptions concerning risk metrics to accommodate changes in pricing that may not be related to the future cash flow of the assets. This could create a perceived risk exposure as the hedged risk may differ from the model risk.
|
n
|
The choice of the benchmark rate used to model and hedge our positions is a significant assumption. The effectiveness of our hedges ultimately depends on how closely the different instruments (assets, liabilities and derivatives) react to the underlying chosen benchmark. In the simplest example, all instruments would have interest-rate risk based on the same underlying benchmark, in our case, the swap rate. In practice, however, different instruments react differently versus the benchmark rate, which creates a market spread between the benchmark rate and the instrument. As the market spreads of these instruments move differently, our ability to predict the behavior of each instrument relative to the others is reduced, potentially affecting the effectiveness of our hedges.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
161
|
Management's Discussion and Analysis
|
Risk Management |
Market Risk
|
n
|
Our measurements do not include the sensitivity to interest-rate changes of the following assets and liabilities:
|
l
|
Credit guarantee activities
- We generally do not hedge the interest-rate exposure of our credit guarantees except for the interest-rate exposure related to buy-ups, float and STACR debt notes. Float, which arises from timing differences between the borrower's principal payments on the loan and the reduction of the PC balance, can lead to significant interest expense if the interest rate paid to a PC investor is higher than the reinvestment rate earned by the securitization trusts on payments received from borrowers and paid to us as trust management income.
|
l
|
Other assets with minimal interest-rate sensitivity
- We do not include other assets, primarily non-financial instruments such as fixed assets and REO, because we estimate their impact on PMVS and duration gap to be minimal.
|
|
|
Year Ended December 31,
|
|||||
(In billions)
|
|
2017
|
2016
|
||||
Interest rate effect on derivative fair values
|
|
|
$—
|
|
|
$1.6
|
|
Estimate of offsetting interest rate effect related to financial instruments measured at fair value
(1)
|
|
(0.7
|
)
|
(1.2
|
)
|
||
Gains (losses) on mortgage loans and debt in fair value hedge relationships
|
|
0.3
|
|
—
|
|
||
Income tax (expense) benefit
|
|
0.1
|
|
(0.1
|
)
|
||
Estimated net interest rate effect on comprehensive income (loss)
|
|
|
($0.3
|
)
|
|
$0.3
|
|
(1)
|
Includes the interest-rate effect on our trading securities, available-for-sale securities, mortgage loans held-for-sale and other assets and debt for which we elected the fair value option, which is reflected in other non-interest income (loss) and total other comprehensive income (loss) on our consolidated statements of comprehensive income.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
162
|
Management's Discussion and Analysis
|
Risk Management |
Market Risk
|
|
|
GAAP Adverse Scenario (Before-Tax)
|
|||||||
(Dollars in billions)
|
|
Before Hedge Accounting
|
After Hedge Accounting
|
% Change
|
|||||
December 31, 2017
|
|
|
($3.1
|
)
|
|
($0.5
|
)
|
84
|
%
|
|
|
Year Ended December 31,
|
|||||
(In billions)
|
|
2017
|
2016
|
||||
Capital Markets
|
|
|
$0.8
|
|
|
$0.3
|
|
Multifamily
|
|
0.3
|
|
—
|
|
||
Single-family Guarantee
(1)
|
|
(0.2
|
)
|
(0.2
|
)
|
||
Spread effect on comprehensive income (loss)
|
|
|
$0.9
|
|
|
$0.1
|
|
(1)
|
Represents spread exposure on certain STACR debt securities for which we have elected the fair value option.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
163
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Overview
|
n
|
Principal payments due to the maturity, redemption or repurchase of our other debt;
|
n
|
Interest payments on our other debt;
|
n
|
Dividend requirements on our senior preferred stock;
|
n
|
Cash purchases of single-family and multifamily loans;
|
n
|
Purchases of mortgage-related securities and non-mortgage investments;
|
n
|
Removal of modified or seriously delinquent mortgage loans from PC trusts;
|
n
|
Any shortfall related to the payments of principal and interest on our debt securities issued by consolidated trusts and any other payments related to our guarantees of mortgage assets;
|
n
|
Payments to affordable housing funds under the GSE Act;
|
n
|
Payments to Treasury associated with the legislated 10 basis point increase under the Temporary Payroll Tax Cut Continuation Act;
|
n
|
Any costs related to the disposition of our REO properties;
|
n
|
Payments related to derivative contracts;
|
n
|
Posting or pledging collateral to third parties in connection with secured financing and daily trade activities; and
|
n
|
Administrative expenses.
|
n
|
Interest and principal payments on and sales of securities or loans that we hold in our mortgage-related investments portfolio or our Liquidity and Contingency Operating Portfolio;
|
n
|
Repurchase transactions with counterparties;
|
n
|
Guarantee fees we receive in connection with our guarantee activities, excluding those fees associated with the legislated 10 basis point increase we remit to Treasury; and
|
n
|
Quarterly draws from Treasury under the Purchase Agreement, which are made if we have a quarterly deficit in our net worth.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
164
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Management Framework
|
n
|
Manage intraday cash needs and provide for the contingency of an unexpected cash demand;
|
n
|
Maintain cash and non-mortgage investments to enable us to meet ongoing cash obligations for a limited period of time, assuming no access to unsecured debt markets;
|
n
|
Maintain unencumbered securities with a value greater than or equal to the largest projected daily cash shortfall for an extended period of time, assuming no access to unsecured debt markets; and
|
n
|
Manage the maturity of our unsecured debt based on our asset profile.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
165
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Profile
|
FREDDIE MAC
| 2017 Form 10-K
|
|
166
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Profile
|
FREDDIE MAC
| 2017 Form 10-K
|
|
167
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Profile
|
|
|
Year Ended December 31, 2017
|
|||||||||
(Dollars in millions)
|
|
Short-term
|
Average Rate
(1)
|
Long-term
|
Average Rate
(1)
|
||||||
|
|
|
|
|
|
||||||
Discount notes and Reference Bills
|
|
|
|
|
|
||||||
Beginning balance
|
|
|
$61,042
|
|
0.47
|
%
|
|
$—
|
|
—
|
%
|
Issuances
|
|
376,685
|
|
0.85
|
%
|
—
|
|
—
|
%
|
||
Repurchases
|
|
(57
|
)
|
0.91
|
%
|
—
|
|
—
|
%
|
||
Maturities
|
|
(391,953
|
)
|
0.76
|
%
|
—
|
|
—
|
%
|
||
Ending Balance
|
|
45,717
|
|
1.19
|
%
|
—
|
|
—
|
%
|
||
|
|
|
|
|
|
||||||
Securities sold under agreements to repurchase
|
|
|
|
|
|
||||||
Beginning balance
|
|
3,040
|
|
0.42
|
%
|
—
|
|
—
|
%
|
||
Additions
|
|
133,223
|
|
0.72
|
%
|
—
|
|
—
|
%
|
||
Repayments
|
|
(126,582
|
)
|
0.67
|
%
|
—
|
|
—
|
%
|
||
Ending Balance
|
|
9,681
|
|
1.06
|
%
|
—
|
|
—
|
%
|
||
|
|
|
|
|
|
||||||
Callable debt
|
|
|
|
|
|
||||||
Beginning balance
|
|
—
|
|
—
|
%
|
98,420
|
|
1.44
|
%
|
||
Issuances
|
|
—
|
|
—
|
%
|
56,894
|
|
1.92
|
%
|
||
Repurchases
|
|
—
|
|
—
|
%
|
(335
|
)
|
1.83
|
%
|
||
Calls
|
|
—
|
|
—
|
%
|
(27,414
|
)
|
1.75
|
%
|
||
Maturities
|
|
—
|
|
—
|
%
|
(13,743
|
)
|
0.87
|
%
|
||
Ending Balance
|
|
—
|
|
—
|
%
|
113,822
|
|
1.58
|
%
|
||
|
|
|
|
|
|
||||||
Non-callable debt
(2)
|
|
|
|
|
|
||||||
Beginning balance
|
|
7,435
|
|
0.41
|
%
|
186,806
|
|
2.10
|
%
|
||
Issuances
|
|
21,504
|
|
0.99
|
%
|
25,510
|
|
2.11
|
%
|
||
Repurchases
|
|
(500
|
)
|
0.82
|
%
|
(1,211
|
)
|
1.40
|
%
|
||
Maturities
|
|
(10,647
|
)
|
0.52
|
%
|
(82,011
|
)
|
1.59
|
%
|
||
Ending Balance
|
|
17,792
|
|
1.03
|
%
|
129,094
|
|
2.52
|
%
|
||
|
|
|
|
|
|
||||||
Total other debt
|
|
|
$73,190
|
|
1.14
|
%
|
|
$242,916
|
|
2.08
|
%
|
|
|
Year Ended December 31, 2016
|
|||||||||
(Dollars in millions)
|
|
Short-term
|
Average Rate
(1)
|
Long-term
|
Average Rate
(1)
|
||||||
|
|
|
|
|
|
||||||
Discount notes and Reference Bills
|
|
|
|
|
|
||||||
Beginning balance
|
|
|
$104,088
|
|
0.28
|
%
|
|
$—
|
|
—
|
%
|
Issuances
|
|
424,256
|
|
0.30
|
%
|
—
|
|
—
|
%
|
||
Maturities
|
|
(467,302
|
)
|
0.27
|
%
|
—
|
|
—
|
%
|
||
Ending Balance
|
|
61,042
|
|
0.47
|
%
|
—
|
|
—
|
%
|
||
|
|
|
|
|
|
||||||
Securities sold under agreements to repurchase
|
|
|
|
|
|
||||||
Beginning balance
|
|
—
|
|
—
|
%
|
—
|
|
—
|
%
|
||
Additions
|
|
61,284
|
|
0.07
|
%
|
—
|
|
—
|
%
|
||
Repayments
|
|
(58,244
|
)
|
0.05
|
%
|
—
|
|
—
|
%
|
||
Ending Balance
|
|
3,040
|
|
0.42
|
%
|
—
|
|
—
|
%
|
||
|
|
|
|
|
|
||||||
Callable debt
|
|
|
|
|
|
||||||
Beginning balance
|
|
—
|
|
—
|
%
|
107,675
|
|
1.61
|
%
|
||
Issuances
|
|
—
|
|
—
|
%
|
115,930
|
|
1.47
|
%
|
||
Calls
|
|
—
|
|
—
|
%
|
(123,475
|
)
|
1.46
|
%
|
||
Maturities
|
|
—
|
|
—
|
%
|
(1,710
|
)
|
0.65
|
%
|
||
Ending Balance
|
|
—
|
|
—
|
%
|
98,420
|
|
1.44
|
%
|
||
|
|
|
|
|
|
||||||
Non-callable debt
(2)
|
|
|
|
|
|
||||||
Beginning balance
|
|
9,545
|
|
0.20
|
%
|
196,713
|
|
2.34
|
%
|
||
Issuances
|
|
7,435
|
|
0.41
|
%
|
49,383
|
|
1.17
|
%
|
||
Repurchases
|
|
—
|
|
—
|
%
|
(53
|
)
|
11.78
|
%
|
||
Maturities
|
|
(9,545
|
)
|
0.20
|
%
|
(59,237
|
)
|
2.26
|
%
|
||
Ending Balance
|
|
7,435
|
|
0.41
|
%
|
186,806
|
|
2.10
|
%
|
||
|
|
|
|
|
|
||||||
Total other debt
|
|
|
$71,517
|
|
0.47
|
%
|
|
$285,226
|
|
1.87
|
%
|
(1)
|
Average rate is weighted based on par value.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
168
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Profile
|
(2)
|
Includes STACR and SCR debt notes and certain multifamily other debt. STACR and SCR debt notes are subject to prepayment risk as their payments are based upon the performance of a reference pool of mortgage assets that may be prepaid by the related mortgage borrower at any time without penalty.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
169
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Profile
|
|
|
As of December 31, 2017
|
||||||||||||||
|
|
Ending Balance
|
|
Yearly Average
|
|
|
||||||||||
(Dollars in millions)
|
|
Carrying Value
|
Weighted Average Effective Rate
(1)
|
|
Carrying Value
|
Weighted Average Effective Rate
(1)
|
|
Maximum Carrying Value Outstanding at Any Month End
|
||||||||
Discount notes and Reference Bills
|
|
|
$45,596
|
|
1.19
|
%
|
|
|
$50,867
|
|
0.85
|
%
|
|
|
$60,967
|
|
Medium-term notes
|
|
17,792
|
|
1.03
|
|
|
12,172
|
|
0.78
|
|
|
17,967
|
|
|||
Securities sold under agreements to repurchase
|
|
9,681
|
|
1.06
|
|
|
8,092
|
|
0.65
|
|
|
11,491
|
|
|||
Total
|
|
|
$73,069
|
|
1.14
|
%
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2016
|
||||||||||||||
|
|
Ending Balance
|
|
Yearly Average
|
|
|
||||||||||
(Dollars in millions)
|
|
Carrying Value
|
Weighted Average Effective Rate
(1)
|
|
Carrying Value
|
Weighted Average Effective Rate
(1)
|
|
Maximum Carrying Value Outstanding at Any Month End
|
||||||||
Discount notes and Reference Bills
|
|
|
$60,976
|
|
0.47
|
%
|
|
|
$73,169
|
|
0.41
|
%
|
|
|
$96,767
|
|
Medium-term notes
|
|
7,435
|
|
0.41
|
|
|
7,035
|
|
0.23
|
|
|
9,545
|
|
|||
Securities sold under agreements to repurchase
|
|
3,040
|
|
0.42
|
|
|
3,112
|
|
0.10
|
|
|
8,294
|
|
|||
Total
|
|
|
$71,451
|
|
0.47
|
%
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2015
|
||||||||||||||
|
|
Ending Balance
|
|
Yearly Average
|
|
|
||||||||||
(Dollars in millions)
|
|
Carrying Value
|
Weighted Average Effective Rate
(1)
|
|
Carrying Value
|
Weighted Average Effective Rate
(1)
|
|
Maximum Carrying Value Outstanding at Any Month End
|
||||||||
Discount notes and Reference Bills
|
|
|
$104,027
|
|
0.28
|
%
|
|
|
$102,540
|
|
0.16
|
%
|
|
|
$123,248
|
|
Medium-term notes
|
|
9,545
|
|
0.20
|
|
|
3,173
|
|
0.09
|
|
|
9,454
|
|
|||
Securities sold under agreements to repurchase
|
|
—
|
|
—
|
|
|
15
|
|
0.21
|
|
|
—
|
|
|||
Total
|
|
|
$113,572
|
|
0.27
|
%
|
|
|
|
|
|
(1)
|
Average rate is weighted based on carrying value.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
170
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Profile
|
FREDDIE MAC
| 2017 Form 10-K
|
|
171
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Profile
|
|
|
Year Ended December 31,
|
|||||
(In millions)
|
|
2017
|
2016
|
||||
Beginning balance
|
|
|
$1,602,162
|
|
|
$1,513,089
|
|
Issuances:
|
|
|
|
||||
New issuances to third parties
|
|
256,931
|
|
309,021
|
|
||
Additional issuances of securities
|
|
150,651
|
|
162,386
|
|
||
Total issuances
|
|
407,582
|
|
471,407
|
|
||
Extinguishments:
|
|
|
|
||||
Purchases of debt securities from third parties
|
|
(42,797
|
)
|
(42,716
|
)
|
||
Debt securities received in settlement of advances to lenders
|
|
(34,560
|
)
|
(29,292
|
)
|
||
Repayments of debt securities
|
|
(259,782
|
)
|
(310,326
|
)
|
||
Total extinguishments
|
|
(337,139
|
)
|
(382,334
|
)
|
||
Ending balance
|
|
1,672,605
|
|
1,602,162
|
|
||
Unamortized premiums and discounts
|
|
48,391
|
|
46,521
|
|
||
Debt securities of consolidated trusts held by third parties
|
|
|
$1,720,996
|
|
|
$1,648,683
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
172
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Profile
|
|
|
As of December 31,
|
|||||
(In millions)
|
|
2017
|
2016
|
||||
Single-family
|
|
|
|
||||
PCs:
|
|
|
|
||||
30-year or more amortizing fixed-rate
|
|
|
$1,331,463
|
|
|
$1,235,862
|
|
20-year amortizing fixed-rate
|
|
81,889
|
|
82,118
|
|
||
15-year amortizing fixed-rate
|
|
274,561
|
|
282,520
|
|
||
Adjustable-rate
|
|
52,870
|
|
57,038
|
|
||
Interest-only
|
|
9,867
|
|
15,043
|
|
||
FHA/VA and other governmental
|
|
2,157
|
|
2,421
|
|
||
Total single-family PCs
|
|
1,752,807
|
|
1,675,002
|
|
||
Other single-family
|
|
3,650
|
|
4,531
|
|
||
Total single-family
|
|
1,756,457
|
|
1,679,533
|
|
||
Multifamily
|
|
|
|
||||
Credit risk transfer securitizations
|
|
2,000
|
|
—
|
|
||
Other securitization products
|
|
3,747
|
|
3,048
|
|
||
Total multifamily
|
|
5,747
|
|
3,048
|
|
||
Total Freddie Mac mortgage-related securities
|
|
1,762,204
|
|
1,682,581
|
|
||
Freddie Mac mortgage-related securities repurchased or retained at issuance
|
|
(89,599
|
)
|
(80,419
|
)
|
||
Debt securities of consolidated trusts held by third parties
|
|
|
$1,672,605
|
|
|
$1,602,162
|
|
|
|
Nationally Recognized Statistical Rating
Organization
|
||
|
|
S&P
|
Moody's
|
Fitch
|
Senior long-term debt
|
|
AA+
|
Aaa
|
AAA
|
Short-term debt
|
|
A-1+
|
P-1
|
F1+
|
Subordinated debt
|
|
AA-
|
Aa2
|
AA-
|
Preferred stock
(1)
|
|
D
|
Ca
|
C/RR6
|
Outlook
|
|
Stable
|
Stable
|
Stable
|
(1)
|
Does not include senior preferred stock issued to Treasury.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
173
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources |
Liquidity Profile
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||||||||||
(In billions)
|
|
Liquidity and Contingency Operating Portfolio
|
Custodial Account
|
Other
(1)
|
Total Other Investments and Cash Portfolio
|
|
Liquidity and Contingency Operating Portfolio
|
Custodial Account
|
Other
(1)
|
Total Other Investments and Cash Portfolio
|
||||||||||||||||
Cash and cash equivalents
|
|
|
$6.8
|
|
|
$—
|
|
|
$—
|
|
|
$6.8
|
|
|
|
$12.4
|
|
|
$—
|
|
|
$—
|
|
|
$12.4
|
|
Restricted cash and cash equivalents
|
|
—
|
|
0.5
|
|
2.5
|
|
3.0
|
|
|
—
|
|
9.5
|
|
0.4
|
|
9.9
|
|
||||||||
Securities purchased under agreements to resell
|
|
38.9
|
|
16.8
|
|
0.2
|
|
55.9
|
|
|
37.5
|
|
13.6
|
|
0.4
|
|
51.5
|
|
||||||||
Non-mortgage related securities
|
|
22.2
|
|
—
|
|
0.6
|
|
22.8
|
|
|
19.6
|
|
—
|
|
1.5
|
|
21.1
|
|
||||||||
Advances to lenders
|
|
—
|
|
—
|
|
0.8
|
|
0.8
|
|
|
—
|
|
—
|
|
1.3
|
|
1.3
|
|
||||||||
Total
|
|
|
$67.9
|
|
|
$17.3
|
|
|
$4.1
|
|
|
$89.3
|
|
|
|
$69.5
|
|
|
$23.1
|
|
|
$3.6
|
|
|
$96.2
|
|
(1)
|
Consists of amounts related to collateral held by us from derivative and other counterparties, investments in unsecured agency debt in which we may not otherwise invest, other than to pledge as collateral to our counterparties when our derivatives are in a liability position, advances to lenders and other secured lending transactions.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
174
|
Management's Discussion and Analysis
|
|
Liquidity and Capital Resources I
Cash Flows
|
n
|
Cash provided by operating activities increased $0.6 billion primarily due to the following:
|
l
|
Increase in other income due to settlement proceeds received from RBS related to litigation involving certain of our non-agency mortgage-related securities.
|
l
|
Increase in net purchases of mortgage loans acquired as held-for-sale due to the overall growth of the multifamily mortgage market.
|
n
|
Cash provided by investing activities decreased $17.8 billion primarily due to the following:
|
l
|
Increase in securities purchased under agreements to resell, as excess cash was invested in securities to earn a yield; and
|
l
|
Decrease in net repayments of mortgage loans acquired as held-for-investment primarily due to lower prepayments as a result of higher average mortgage interest rates.
|
l
|
Increase in net proceeds received from sales of investment securities driven by the continued reduction in the balance of our mortgage investment portfolio as required by the Purchase Agreement and FHFA.
|
n
|
Cash used in financing activities decreased $4.9 billion primarily due to the following:
|
l
|
Increase in net repayments and redemptions of debt securities of consolidated trusts held by third parties due to a decline in the volume of single-family PC issuance for cash; and
|
l
|
Decrease in net repayments of other debt, as we reduced our indebtedness along with the decline in our mortgage-related investments portfolio.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
175
|
Management's Discussion and Analysis
|
|
Liquidity and Capital Resources I
Cash Flows
|
n
|
Cash used by operating activities increased $5.8 billion primarily due to the following:
|
l
|
Increase in net sales of mortgage loans acquired as held-for-sale, primarily due to an increase in the volume of our multifamily securitizations.
|
l
|
Decrease in our net interest income.
|
n
|
Cash provided by investing activities decreased $9.7 billion primarily due to the following:
|
l
|
Increase in advances to lenders;
|
l
|
Increase in net purchases of investment securities, primarily due to more investment securities being retained from our agency resecuritizations.
|
l
|
Decrease in securities purchased under agreements to resell due to lower near-term cash needs for upcoming maturities and anticipated calls of other debt at the end of 2016 compared to the end of 2015; and
|
l
|
Decrease in restricted cash due to the withdrawal of company funds from the custodial account.
|
n
|
Cash used in financing activities decreased $16.0 billion primarily due to the following:
|
l
|
Decrease in net repayments and redemptions of debt securities of consolidated trusts held by third parties due to an increase in the volume of our single-family PC issuances for cash.
|
l
|
Increase in net repayments of other debt, as we reduced our indebtedness along with the decline in our mortgage-related investments portfolio.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
176
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
I
Capital Resources
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
||||||
Beginning balance
|
|
|
$5,075
|
|
|
$2,940
|
|
|
$2,651
|
|
Comprehensive income
|
|
5,558
|
|
7,118
|
|
5,799
|
|
|||
Capital draws received from Treasury
|
|
—
|
|
—
|
|
—
|
|
|||
Senior preferred stock dividends declared
|
|
(10,945
|
)
|
(4,983
|
)
|
(5,510
|
)
|
|||
Total equity / net worth
|
|
|
($312
|
)
|
|
$5,075
|
|
|
$2,940
|
|
Aggregate draws requested under Purchase Agreement
|
|
|
$71,336
|
|
|
$71,336
|
|
|
$71,336
|
|
Aggregate cash dividends paid to Treasury
|
|
|
$112,393
|
|
|
$101,448
|
|
|
$96,465
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
177
|
Management's Discussion and Analysis
|
Conservatorship and Related Matters
|
FREDDIE MAC
| 2017 Form 10-K
|
|
178
|
Management's Discussion and Analysis
|
Conservatorship and Related Matters
|
FREDDIE MAC
| 2017 Form 10-K
|
|
179
|
Management's Discussion and Analysis
|
Conservatorship and Related Matters
|
n
|
Pay dividends on our equity securities, other than the senior preferred stock or warrant, or repurchase our equity securities;
|
n
|
Issue any additional equity securities, except in limited instances;
|
n
|
Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value in the ordinary course of business, consistent with past practices, and in other limited circumstances; and
|
n
|
Issue any subordinated debt.
|
n
|
Under the Purchase Agreement and FHFA regulation, the UPB of our mortgage-related investments portfolio is subject to a cap that decreases by 15% each year until the cap reaches $250 billion.
|
n
|
Under the Purchase Agreement, we may not incur indebtedness that would result in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are permitted to own on December 31 of the immediately preceding calendar year.
|
n
|
Our Retained Portfolio Plan, which we adopted in 2014, provides for us to manage the mortgage-related investments portfolio so that it does not exceed 90% of the cap established by the Purchase Agreement, subject to certain exceptions. Under the plan, we may seek permission from FHFA to increase the plan's limit on the mortgage-related investments portfolio to 95% of the Purchase Agreement cap.
|
n
|
FHFA indicated that any portfolio sales should be commercially reasonable transactions that consider impacts to the market, borrowers and neighborhood stability.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
180
|
Management's Discussion and Analysis
|
Conservatorship and Related Matters
|
n
|
Agency securities, which include both single-family and multifamily Freddie Mac mortgage-related securities and non-Freddie Mac agency mortgage-related securities;
|
n
|
Non-agency mortgage-related securities, which include single-family non-agency mortgage-related securities, CMBS, housing revenue bonds and other multifamily securities; and
|
n
|
Single-family and multifamily unsecuritized loans.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
181
|
Management's Discussion and Analysis
|
Conservatorship and Related Matters
|
n
|
Liquid
-
single-class and multi-class agency securities, excluding certain structured agency securities collateralized by non-agency mortgage-related securities. Also includes certain non-agency mortgage-related securities guaranteed by a GSE;
|
n
|
Securitization Pipeline
-
primarily includes performing multifamily and single-family loans purchased for cash and primarily held for a short period until securitized, with the resulting Freddie Mac issued securities being sold or retained; and
|
n
|
Less Liquid
-
assets that are less liquid than both agency securities and loans in the securitization pipeline (e.g., reperforming loans, single-family seriously delinquent loans and non-agency mortgage-related securities not guaranteed by a GSE).
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||||||||||
(Dollars in millions)
|
|
Liquid
|
Securitiz-ation Pipeline
|
Less Liquid
|
Total
|
|
Liquid
|
Securitiz-ation Pipeline
|
Less Liquid
|
Total
|
||||||||||||||||
Capital Markets segment - Mortgage investments portfolio
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Single-family unsecuritized loans
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Performing loans
|
|
|
$—
|
|
|
$9,999
|
|
|
$—
|
|
|
$9,999
|
|
|
|
$—
|
|
|
$13,113
|
|
|
$—
|
|
|
$13,113
|
|
Reperforming loans
|
|
—
|
|
—
|
|
46,666
|
|
46,666
|
|
|
—
|
|
—
|
|
58,326
|
|
58,326
|
|
||||||||
Total single-family unsecuritized loans
|
|
—
|
|
9,999
|
|
46,666
|
|
56,665
|
|
|
—
|
|
13,113
|
|
58,326
|
|
71,439
|
|
||||||||
Freddie Mac mortgage-related securities
|
|
123,905
|
|
—
|
|
3,817
|
|
127,722
|
|
|
125,652
|
|
—
|
|
4,776
|
|
130,428
|
|
||||||||
Non-agency mortgage-related securities
|
|
749
|
|
—
|
|
5,152
|
|
5,901
|
|
|
113
|
|
—
|
|
16,059
|
|
16,172
|
|
||||||||
Other Non-Freddie Mac agency mortgage-related securities
|
|
5,211
|
|
—
|
|
—
|
|
5,211
|
|
|
11,759
|
|
—
|
|
—
|
|
11,759
|
|
||||||||
Total Capital Markets segment - Mortgage investments portfolio
|
|
129,865
|
|
9,999
|
|
55,635
|
|
195,499
|
|
|
137,524
|
|
13,113
|
|
79,161
|
|
229,798
|
|
||||||||
Single-family Guarantee segment - Single-family unsecuritized seriously delinquent loans
|
|
—
|
|
—
|
|
12,267
|
|
12,267
|
|
|
—
|
|
—
|
|
13,692
|
|
13,692
|
|
||||||||
Multifamily segment
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Unsecuritized mortgage loans
|
|
—
|
|
19,653
|
|
18,585
|
|
38,238
|
|
|
—
|
|
16,372
|
|
26,047
|
|
42,419
|
|
||||||||
Mortgage-related securities
|
|
6,181
|
|
—
|
|
1,270
|
|
7,451
|
|
|
7,447
|
|
—
|
|
5,070
|
|
12,517
|
|
||||||||
Total Multifamily segment
|
|
6,181
|
|
19,653
|
|
19,855
|
|
45,689
|
|
|
7,447
|
|
16,372
|
|
31,117
|
|
54,936
|
|
||||||||
Total mortgage-related investments portfolio
|
|
|
$136,046
|
|
|
$29,652
|
|
|
$87,757
|
|
|
$253,455
|
|
|
|
$144,971
|
|
|
$29,485
|
|
|
$123,970
|
|
|
$298,426
|
|
Percentage of total mortgage-related investments portfolio
|
|
54
|
%
|
12
|
%
|
34
|
%
|
100
|
%
|
|
49
|
%
|
10
|
%
|
41
|
%
|
100
|
%
|
||||||||
Mortgage-related investments portfolio cap at December 31, 2017 and 2016
|
|
|
|
|
|
$288,408
|
|
|
|
|
|
|
$339,304
|
|
||||||||||||
90% of mortgage-related investments portfolio cap at December 31, 2017 and 2016
(1)
|
|
|
|
|
|
$259,567
|
|
|
|
|
|
|
$305,374
|
|
(1)
|
Represents the amount to which we manage under our Retained Portfolio Plan, subject to certain exceptions.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
182
|
Management's Discussion and Analysis
|
Conservatorship and Related Matters
|
n
|
Sales of
$18.4 billion
of less liquid assets, including
$9.2 billion
in UPB of single-family non-agency mortgage-related securities,
$0.5 billion
in UPB of seriously delinquent unsecuritized single-family loans,
$8.2 billion
in UPB of single-family reperforming loans and
$0.5 billion
in UPB of multifamily non-agency CMBS;
|
n
|
Securitizations of
$1.8 billion
in UPB of less liquid multifamily loans;
|
n
|
Transfers of
$1.6 billion
in UPB of less liquid multifamily loans to the securitization pipeline; and
|
n
|
Securitization of
$1.2 billion
in UPB of single-family reperforming loans into Freddie Mac PCs, thereby enhancing their liquidity.
|
n
|
Maintain
, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced loans to foster liquid, efficient, competitive and resilient national housing finance markets.
|
n
|
Reduce
taxpayer risk through increasing the role of private capital in the mortgage market.
|
n
|
Build
a new single-family securitization infrastructure for use by Freddie Mac and Fannie Mae and adaptable for use by other participants in the secondary market in the future.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
183
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
FREDDIE MAC
| 2017 Form 10-K
|
|
184
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
FREDDIE MAC
| 2017 Form 10-K
|
|
185
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
|
|
2017
|
2018
|
||
Single-family purchase money goals (Benchmark levels):
|
|
|
|
||
Low-income
|
|
24
|
%
|
24
|
%
|
Very low-income
|
|
6
|
%
|
6
|
%
|
Low-income areas
|
|
18
|
%
|
TBD
|
|
Low-income areas subgoal
|
|
14
|
%
|
14
|
%
|
Single-family refinance low-income goal (Benchmark level)
|
|
21
|
%
|
21
|
%
|
Multifamily low-income goal (In units)
|
|
300,000
|
|
315,000
|
|
Multifamily very low-income subgoal (In units)
|
|
60,000
|
|
60,000
|
|
Multifamily small property low-income subgoal (In units)
|
|
10,000
|
|
10,000
|
|
n
|
The amount we set aside each fiscal year based on our total new business purchases during such fiscal year; and
|
n
|
Within 60 days after the end of each fiscal year, we transfer the amount set aside. However, if we have made a draw under the Purchase Agreement during that fiscal year or if such transfer will cause us to have to make a draw, then we will not make a transfer and the amount set aside for that fiscal year will be reversed.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
186
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
FREDDIE MAC
| 2017 Form 10-K
|
|
187
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
n
|
Securities we issue or guarantee are "exempted securities" and may be sold without registration under the Securities Act of 1933;
|
n
|
We are excluded from the definitions of "government securities broker" and "government securities dealer" under the Exchange Act;
|
n
|
The Trust Indenture Act of 1939 does not apply to securities issued by us; and
|
n
|
We are exempt from the Investment Company Act of 1940 and the Investment Advisers Act of 1940, as we are an "agency, authority or instrumentality" of the U.S. for purposes of such Acts.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
188
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
n
|
the FHFA benchmark for the goal (Goals); or
|
n
|
the actual share of the market that meets the criteria for that goal (Market Level).
|
|
|
2016
|
|
2015
|
||||||||||
Affordable Housing Goals
|
|
Goals
|
Market Level
|
Results
|
|
Goals
|
Market Level
|
Results
|
||||||
Single-family purchase money goals (benchmark levels):
|
|
|
|
|
|
|
|
|
||||||
Low-income
|
|
24
|
%
|
22.9
|
%
|
23.8
|
%
|
|
24
|
%
|
23.6
|
%
|
22.3
|
%
|
Very low-income
|
|
6
|
%
|
5.4
|
%
|
5.7
|
%
|
|
6
|
%
|
5.8
|
%
|
5.4
|
%
|
Low-income areas
|
|
17
|
%
|
19.7
|
%
|
19.9
|
%
|
|
19
|
%
|
19.8
|
%
|
19.0
|
%
|
Low-income areas subgoal
|
|
14
|
%
|
15.9
|
%
|
15.6
|
%
|
|
14
|
%
|
15.2
|
%
|
14.5
|
%
|
Single-family refinance low-income goal (benchmark level)
|
|
21
|
%
|
19.8
|
%
|
21.0
|
%
|
|
21
|
%
|
22.5
|
%
|
22.8
|
%
|
Multifamily low-income goal (In units)
|
|
300,000
|
|
N/A
|
|
406,958
|
|
|
300,000
|
|
N/A
|
|
379,042
|
|
Multifamily very low-income subgoal (In units)
|
|
60,000
|
|
N/A
|
|
73,030
|
|
|
60,000
|
|
N/A
|
|
76,935
|
|
Multifamily small property low-income subgoal (In units)
|
|
8,000
|
|
N/A
|
|
22,101
|
|
|
6,000
|
|
N/A
|
|
12,801
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
189
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
FREDDIE MAC
| 2017 Form 10-K
|
|
190
|
Management's Discussion and Analysis
|
Contractual Obligations
|
n
|
Future payments of principal and interest related to debt securities of consolidated trusts held by third parties because the amount and timing of such payments are generally contingent upon the occurrence of future events and are therefore uncertain. These payments generally include payments of principal and interest we make to the holders of our guaranteed mortgage-related securities in the event a loan underlying a security becomes delinquent. We remove loans from pools underlying our PCs in certain circumstances, including when loans are 120 days or more delinquent, and retire the associated debt securities of consolidated trusts;
|
n
|
Future payments of principal and interest related to STACR and SCR debt notes because the amount and timing of such payments are contingent upon the occurrence of future events on the reference pool of mortgage loans and are therefore uncertain;
|
n
|
Future cash payments associated with the liquidation preference of the senior preferred stock, the quarterly commitment fee (which has been suspended) and dividends on the senior preferred stock;
|
n
|
Future cash settlements on derivative agreements not yet accrued, because the amount and timing of such payments are dependent upon items such as changes in interest rates;
|
n
|
Future dividends on outstanding preferred stock (other than the senior preferred stock), because dividends on these securities are non-cumulative and because we are currently prohibited from paying dividends on these securities; and
|
n
|
The guarantee payments and commitments to advance funds pertaining to off-balance sheet arrangements.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
191
|
Management's Discussion and Analysis
|
Contractual Obligations
|
(In millions)
|
|
Total
|
2018
|
2019
|
2020
|
2021
|
2022
|
Thereafter
|
||||||||||||||
Other long-term debt
(1)
|
|
|
$224,991
|
|
|
$70,557
|
|
|
$57,689
|
|
|
$38,117
|
|
|
$22,809
|
|
|
$18,538
|
|
|
$17,281
|
|
Other short-term debt
(1)
|
|
73,190
|
|
73,190
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
Interest payable
(2)
|
|
22,863
|
|
10,150
|
|
2,706
|
|
2,013
|
|
1,541
|
|
960
|
|
5,493
|
|
|||||||
Other contractual liabilities reflected on our consolidated balance sheets
(3)
|
|
4,689
|
|
4,463
|
|
5
|
|
6
|
|
5
|
|
5
|
|
205
|
|
|||||||
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Purchase commitments
(4)
|
|
29,780
|
|
29,780
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
Other purchase obligations
(5)
|
|
2,487
|
|
361
|
|
258
|
|
248
|
|
243
|
|
238
|
|
1,139
|
|
|||||||
Lease obligations
|
|
36
|
|
13
|
|
11
|
|
7
|
|
4
|
|
1
|
|
—
|
|
|||||||
Total specified contractual obligations
|
|
|
$358,036
|
|
|
$188,514
|
|
|
$60,669
|
|
|
$40,391
|
|
|
$24,602
|
|
|
$19,742
|
|
|
$24,118
|
|
(1)
|
Represents par value. Callable debt is included in this table at its contractual maturity. For additional information about our debt, see
Note 8
.
|
(2)
|
Includes estimated future interest payments on our short-term and long-term debt securities as well as the accrual of periodic cash settlements of derivatives, netted by counterparty. Also includes accrued interest payable recorded on our consolidated balance sheet.
|
(3)
|
Includes (i) obligations related to our qualified and non-qualified defined contribution plans, retiree medical plan and other benefit plans; (ii) future cash payments due under our contractual obligations to make delayed equity contributions to LIHTC partnerships; and (iii) payables to the consolidated trusts established for the administration of cash remittances received related to the underlying assets of Freddie Mac mortgage-related securities.
|
(4)
|
Purchase commitments represent our obligations to purchase loans and mortgage-related securities from third parties, most of which are accounted for as derivatives in accordance with the accounting guidance for derivatives and hedging.
|
(5)
|
Primarily includes unconditional purchase obligations that are legally binding and that are subject to a cancellation penalty.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
192
|
Management's Discussion and Analysis
|
Off-Balance Sheet Arrangements
|
FREDDIE MAC
| 2017 Form 10-K
|
|
193
|
Management's Discussion and Analysis
|
Off-Balance Sheet Arrangements
|
FREDDIE MAC
| 2017 Form 10-K
|
|
194
|
Management's Discussion and Analysis
|
Critical Accounting Policies and Estimates
|
FREDDIE MAC
| 2017 Form 10-K
|
|
195
|
Management's Discussion and Analysis
|
Critical Accounting Policies and Estimates
|
n
|
Regional housing trends;
|
n
|
Applicable home price indices;
|
n
|
Unemployment and employment dislocation trends;
|
n
|
The effects of changes in government policies and programs;
|
n
|
Industry trends;
|
n
|
Consumer credit statistics; and
|
n
|
Third-party credit enhancements.
|
n
|
Mortgage-related and non-mortgage related securities;
|
n
|
Certain loans held-for-sale;
|
n
|
Derivative instruments; and
|
n
|
Certain debt securities of consolidated trusts held by third parties and certain other debt.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
196
|
Management's Discussion and Analysis
|
Critical Accounting Policies and Estimates
|
FREDDIE MAC
| 2017 Form 10-K
|
|
197
|
Risk Factors
|
Conservatorship and Related Matters
|
FREDDIE MAC
| 2017 Form 10-K
|
|
198
|
Risk Factors
|
Conservatorship and Related Matters
|
n
|
Deterioration of economic conditions, including increased levels of unemployment and declines in home prices or family incomes;
|
n
|
Adverse changes in interest rates, yield curves, implied volatility or market spreads, which could affect our financial assets and liabilities, including derivatives, and increase realized and unrealized losses recorded in earnings or AOCI;
|
n
|
The success of any transactions or other steps we may take intended to help reduce earnings variability and address some of the measurement differences between our GAAP financial results and the underlying economics of our business, including the adoption of hedge accounting;
|
n
|
Required reductions in the size of our mortgage-related investments portfolio, reductions of higher yielding assets, or other limitations on our investment activities that reduce our earnings capacity;
|
n
|
Restrictions on our single-family guarantee activities that could reduce our income from these activities;
|
n
|
Restrictions on the volume of multifamily business we may conduct or other limits on multifamily business activities that could reduce our income from these activities;
|
n
|
Adverse changes in our liquidity or funding costs or limitations on our access to public debt markets;
|
n
|
A failure of one or more of our major counterparties to meet their obligations to us;
|
n
|
The effects of our foreclosure prevention and loss mitigation efforts;
|
n
|
Changes in accounting policies, practices, or guidance (for example, FASB’s new accounting standards update related to the measurement of credit losses on financial instruments will increase (perhaps substantially) our provision for credit losses in the period of adoption);
|
n
|
The occurrence of a major natural or other disaster in areas in which our offices or significant portions of our total mortgage portfolio are located; or
|
n
|
Changes in business practices resulting from legislative and regulatory developments or direction from our Conservator.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
199
|
Risk Factors
|
Conservatorship and Related Matters
|
n
|
Reduce our profitability;
|
n
|
Expose us to additional credit, market, funding, operational and other risks; or
|
n
|
Provide additional support for the mortgage market that serves our public mission, but adversely affects our financial results.
|
n
|
The amount of indebtedness we may incur;
|
n
|
The size of our mortgage-related investments portfolio; and
|
n
|
Our ability to pay dividends, transfer certain assets, raise capital and pay down the liquidation preference of the senior preferred stock.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
200
|
Risk Factors
|
Conservatorship and Related Matters
|
FREDDIE MAC
| 2017 Form 10-K
|
|
201
|
Risk Factors
|
Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
202
|
Risk Factors
|
Credit Risk
|
n
|
Reduce our actual return or result in losses on new single-family guarantee business, as actual default rates could be higher than we expected when we issued the guarantee;
|
n
|
Cause us to hedge prepayment risk incorrectly;
|
n
|
Negatively affect loan pricing, which could cause us to change our disposition strategies for our single-family unsecuritized loans; or
|
n
|
Increase our losses on foreclosure alternatives, third-party sales and dispositions of REO properties.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
203
|
Risk Factors
|
Credit Risk
|
n
|
A decline in servicing performance
-
A decline in a servicer’s performance, such as delayed foreclosures or missed opportunities for loan modifications, could significantly affect our ability to mitigate credit losses and could affect the overall credit performance of our single-family credit guarantee portfolio. A large volume of seriously delinquent loans and the complexity of the servicing
|
FREDDIE MAC
| 2017 Form 10-K
|
|
204
|
Risk Factors
|
Credit Risk
|
n
|
A failure by seller/servicers to fulfill their obligations to repurchase loans or indemnify us as a result of breaches of representations and warranties
-
While we may have the contractual right to require a seller or servicer to repurchase loans from us, it may be difficult, expensive and time-consuming to enforce such repurchase obligations. We could enter into settlements to resolve repurchase obligations; however, the amounts we receive under any such settlements may be less than the losses we ultimately incur on the underlying loans.
|
n
|
Increased exposure to non-depository and smaller financial institutions
-
Over the last several years, we have acquired a greater portion of our single-family business volume from non-depository and smaller financial institutions. In addition, a large and increasing volume of our single-family loans are serviced by non-depository financial institutions. These non-depository and smaller financial institutions may not have the same financial strength or operational capacity, or be subject to the same level of regulatory oversight, as large depository institutions. As a result, we face increased risk that these counterparties could fail to perform their obligations to us. In particular, non-depository servicers rapidly grew their servicing portfolios in the last several years. This appears to have resulted in operational strains that have subjected some of these servicers to regulatory scrutiny. This rapid growth could expose us to increased risks if any operational strain adversely affects these servicers’ servicing performance or their financial strength. In addition, if these servicers reduce their servicing portfolios, there may be a constraint in overall servicing capacity.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
205
|
Risk Factors
|
Credit Risk
|
n
|
Manage interest rate risk and other risks related to our investments in mortgage-related assets;
|
n
|
Fund our business operations; and
|
n
|
Service our customers.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
206
|
Risk Factors
|
Credit Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
207
|
Risk Factors
|
Credit Risk
|
n
|
Cause our expenses to increase. For example, properties awaiting foreclosure could deteriorate until we acquire them, resulting in increased expenses to repair and maintain the properties; and
|
n
|
Adversely affect trends in home prices regionally or nationally, which could adversely affect our financial results.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
208
|
Risk Factors
|
Market Risk
|
n
|
When interest rates decrease, borrowers are more likely to prepay their loans by refinancing them at a lower rate. An increased likelihood of prepayment on the loans underlying our mortgage-related securities may adversely affect the value of these securities.
|
n
|
When interest rates increase:
|
l
|
Borrowers with higher risk adjustable-rate loans may have fewer opportunities to refinance into fixed-rate loans;
|
l
|
A borrower's payment on additional debt obligations (such as home equity lines of credit and second liens) that have adjustable payment terms may increase, which in turn increases the risk that the borrower may default on a loan we own or guarantee; and
|
l
|
Our credit losses from loans with adjustable payment terms may increase as borrower payments increase at their reset dates, which increases the borrower’s risk of default.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
209
|
Risk Factors
|
Market Risk
|
FREDDIE MAC
| 2017 Form 10-K
|
|
210
|
Risk Factors
|
Operational Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
211
|
Risk Factors
|
Operational Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
212
|
Risk Factors
|
Operational Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
213
|
Risk Factors
|
Operational Risks
|
n
|
We could fail to implement, operate, adjust, or use our models as intended. We may fail to code a model correctly, we could use incorrect or insufficient data inputs or fail to fully understand the data inputs, or model implementation software could malfunction. The complexity and interconnectivity of our models create additional risk regarding the accuracy of model output. We may not be able to deploy or update models in a timely manner.
|
n
|
The data we use as inputs into our models, much of which we receive from third-party data providers, may be insufficient, inaccurate or incorrectly formatted.
|
n
|
When market conditions change in unforeseen ways, our model projections may not accurately reflect these conditions or we may not fully understand the model outputs. For example, models may not fully reflect the effect of certain government policy changes or new industry trends. In such cases, it is often necessary to make assumptions and judgments to accommodate the effect of scenarios that are not sufficiently well represented in the historical data. While we may adjust our models in response to new events, considerable residual uncertainty remains.
|
n
|
We also use select third-party vendor models. While the use of such models may reduce our risk where no internal model is available, it exposes us to additional risk, as third parties typically do not provide us with proprietary information regarding their models. We have little control over the
|
FREDDIE MAC
| 2017 Form 10-K
|
|
214
|
Risk Factors
|
Operational Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
215
|
Risk Factors
|
Liquidity Risks
|
n
|
Market and other factors;
|
n
|
Changes in U.S. government support for us;
|
n
|
Reduced demand for our debt securities; and
|
n
|
Competition for debt funding from other debt issuers.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
216
|
Risk Factors
|
Liquidity Risks
|
n
|
Uncertainty about the future of the GSEs;
|
n
|
Any concerns by debt investors that the risk of us being placed in receivership is increasing; and
|
n
|
Future draws that significantly reduce the amount of available funding remaining under the Purchase Agreement.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
217
|
Risk Factors
|
Liquidity Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
218
|
Risk Factors
|
Legal and Regulatory Risks
|
n
|
Changes the foreclosure process of any individual state;
|
n
|
Limits or otherwise adversely affects the rights of a holder of a first lien on a mortgage (such as through granting priority rights in foreclosure proceedings for homeowner associations or through initiatives that provide a lien priority in connection with loans to finance energy efficiency or similar improvements);
|
n
|
Expands the responsibilities of (and costs to) servicers for maintaining vacant properties prior to foreclosure; or
|
n
|
Prevents us from using the MERS System or disrupts foreclosures of loans registered in the MERS System.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
219
|
Risk Factors
|
Legal and Regulatory Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
220
|
Risk Factors
|
Legal and Regulatory Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
221
|
Risk Factors
|
Other Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
222
|
Risk Factors
|
Other Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
223
|
Risk Factors
|
Other Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
224
|
Risk Factors
|
Other Risks
|
FREDDIE MAC
| 2017 Form 10-K
|
|
225
|
Legal Proceedings
|
FREDDIE MAC
| 2017 Form 10-K
|
|
226
|
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
2017 Quarter Ended
|
|
High
|
Low
|
||||
December 31
|
|
|
$3.24
|
|
|
$2.50
|
|
September 30
|
|
2.98
|
|
2.13
|
|
||
June 30
|
|
2.94
|
|
2.10
|
|
||
March 31
|
|
4.27
|
|
2.30
|
|
||
2016 Quarter Ended
|
|
High
|
Low
|
||||
December 31
|
|
|
$4.84
|
|
|
$1.52
|
|
September 30
|
|
1.90
|
|
1.46
|
|
||
June 30
|
|
2.20
|
|
1.21
|
|
||
March 31
|
|
1.75
|
|
0.97
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
227
|
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
FREDDIE MAC
| 2017 Form 10-K
|
|
228
|
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
FREDDIE MAC
| 2017 Form 10-K
|
|
229
|
Financial Statements
|
|
Financial Statements and Supplementary Data
|
FREDDIE MAC
| 2017 Form 10-K
|
|
230
|
Financial Statements
|
Report of Independent Registered Public Accounting Firm
|
FREDDIE MAC
| 2017 Form 10-K
|
|
231
|
Financial Statements
|
Report of Independent Registered Public Accounting Firm
|
FREDDIE MAC
| 2017 Form 10-K
|
|
232
|
Financial Statements
|
Consolidated Statements of Comprehensive Income
|
|
|
Year Ended December 31,
|
||||||||
(
In millions
, except share-related amounts)
|
|
2017
|
2016
|
2015
|
||||||
Interest income
|
|
|
|
|
||||||
Mortgage loans
|
|
|
$63,735
|
|
|
$61,040
|
|
|
$62,226
|
|
Investments in securities
|
|
3,415
|
|
3,855
|
|
4,794
|
|
|||
Other
|
|
657
|
|
270
|
|
70
|
|
|||
Total interest income
|
|
67,807
|
|
65,165
|
|
67,090
|
|
|||
Interest expense
|
|
(53,643
|
)
|
(50,786
|
)
|
(52,144
|
)
|
|||
Net interest income
|
|
14,164
|
|
14,379
|
|
14,946
|
|
|||
Benefit (provision) for credit losses
|
|
84
|
|
803
|
|
2,665
|
|
|||
Net interest income after benefit (provision) for credit losses
|
|
14,248
|
|
15,182
|
|
17,611
|
|
|||
Non-interest income (loss)
|
|
|
|
|
||||||
Gains (losses) on extinguishment of debt
|
|
341
|
|
(211
|
)
|
(240
|
)
|
|||
Derivative gains (losses)
|
|
(1,988
|
)
|
(274
|
)
|
(2,696
|
)
|
|||
Net impairment of available-for-sale securities recognized in earnings
|
|
(18
|
)
|
(191
|
)
|
(292
|
)
|
|||
Other gains (losses) on investment securities recognized in earnings
|
|
1,054
|
|
(78
|
)
|
508
|
|
|||
Other income (loss)
|
|
7,480
|
|
1,254
|
|
(879
|
)
|
|||
Non-interest income (loss)
|
|
6,869
|
|
500
|
|
(3,599
|
)
|
|||
Non-interest expense
|
|
|
|
|
||||||
Salaries and employee benefits
|
|
(1,098
|
)
|
(989
|
)
|
(975
|
)
|
|||
Professional services
|
|
(452
|
)
|
(489
|
)
|
(497
|
)
|
|||
Other administrative expense
|
|
(556
|
)
|
(527
|
)
|
(455
|
)
|
|||
Total administrative expense
|
|
(2,106
|
)
|
(2,005
|
)
|
(1,927
|
)
|
|||
Real estate owned operations expense
|
|
(189
|
)
|
(287
|
)
|
(338
|
)
|
|||
Temporary Payroll Tax Cut Continuation Act of 2011 expense
|
|
(1,340
|
)
|
(1,152
|
)
|
(967
|
)
|
|||
Other expense
|
|
(648
|
)
|
(599
|
)
|
(1,506
|
)
|
|||
Non-interest expense
|
|
(4,283
|
)
|
(4,043
|
)
|
(4,738
|
)
|
|||
Income before income tax expense
|
|
16,834
|
|
11,639
|
|
9,274
|
|
|||
Income tax expense
|
|
(11,209
|
)
|
(3,824
|
)
|
(2,898
|
)
|
|||
Net income
|
|
5,625
|
|
7,815
|
|
6,376
|
|
|||
Other comprehensive income (loss), net of taxes and reclassification adjustments:
|
|
|
|
|
||||||
Changes in unrealized gains (losses) related to available-for-sale securities
|
|
(253
|
)
|
(825
|
)
|
(806
|
)
|
|||
Changes in unrealized gains (losses) related to cash flow hedge relationships
|
|
124
|
|
141
|
|
182
|
|
|||
Changes in defined benefit plans
|
|
62
|
|
(13
|
)
|
47
|
|
|||
Total other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
(67
|
)
|
(697
|
)
|
(577
|
)
|
|||
Comprehensive income
|
|
|
$5,558
|
|
|
$7,118
|
|
|
$5,799
|
|
Net income
|
|
|
$5,625
|
|
|
$7,815
|
|
|
$6,376
|
|
Undistributed net worth sweep and senior preferred stock dividends
|
|
(8,869
|
)
|
(7,718
|
)
|
(6,399
|
)
|
|||
Net income (loss) attributable to common stockholders
|
|
|
($3,244
|
)
|
|
$97
|
|
|
($23
|
)
|
Net income (loss) per common share — basic and diluted
|
|
|
($1.00
|
)
|
|
$0.03
|
|
|
($0.01
|
)
|
Weighted average common shares outstanding (in millions) — basic and diluted
|
|
3,234
|
|
3,234
|
|
3,235
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
233
|
Financial Statements
|
Consolidated Balance Sheets
|
|
|
As of December 31,
|
|||||
(
In millions
, except share-related amounts)
|
|
2017
|
2016
|
||||
Assets
|
|
|
|
||||
Cash and cash equivalents (Notes 3, 14)
|
|
|
$6,848
|
|
|
$12,369
|
|
Restricted cash and cash equivalents (Notes 3, 14)
|
|
2,963
|
|
9,851
|
|
||
Securities purchased under agreements to resell (Notes 3, 10)
|
|
55,903
|
|
51,548
|
|
||
Investments in securities, at fair value (Note 7)
|
|
84,318
|
|
111,547
|
|
||
Mortgage loans held-for-sale (Notes 3, 4) (includes $20,054 and $16,255 at fair value)
|
|
34,763
|
|
18,088
|
|
||
Mortgage loans held-for-investment (Notes 3, 4) (net of allowance for loan losses of $8,966 and $13,431)
|
|
1,836,454
|
|
1,784,915
|
|
||
Accrued interest receivable (Note 3)
|
|
6,355
|
|
6,135
|
|
||
Derivative assets, net (Notes 9, 10)
|
|
375
|
|
747
|
|
||
Deferred tax assets, net (Note 12)
|
|
8,107
|
|
15,818
|
|
||
Other assets (Notes 3, 18) (includes $3,353 and $2,408 at fair value)
|
|
13,690
|
|
12,358
|
|
||
Total assets
|
|
|
$2,049,776
|
|
|
$2,023,376
|
|
Liabilities and equity
|
|
|
|
||||
Liabilities
|
|
|
|
||||
Accrued interest payable (Note 3)
|
|
|
$6,221
|
|
|
$6,015
|
|
Debt, net (Notes 3, 8) (includes $5,799 and $6,010 at fair value)
|
|
2,034,630
|
|
2,002,004
|
|
||
Derivative liabilities, net (Notes 9, 10)
|
|
269
|
|
795
|
|
||
Other liabilities (Notes 3, 18)
|
|
8,968
|
|
9,487
|
|
||
Total liabilities
|
|
2,050,088
|
|
2,018,301
|
|
||
Commitments and contingencies (Notes 5, 9 and 16)
|
|
|
|
||||
Equity (Note 11)
|
|
|
|
||||
Senior preferred stock (redemption value of $75,336 and $72,336)
|
|
72,336
|
|
72,336
|
|
||
Preferred stock, at redemption value
|
|
14,109
|
|
14,109
|
|
||
Common stock, $0.00 par value, 4,000,000,000 shares authorized, 725,863,886 shares issued and 650,054,731 shares and 650,046,828 shares outstanding
|
|
—
|
|
—
|
|
||
Additional paid-in capital
|
|
—
|
|
—
|
|
||
Retained earnings (accumulated deficit)
|
|
(83,261
|
)
|
(77,941
|
)
|
||
AOCI, net of taxes, related to:
|
|
|
|
||||
Available-for-sale securities (includes $593 and $782, related to net unrealized gains on securities for which other-than-temporary impairment has been recognized in earnings)
|
|
662
|
|
915
|
|
||
Cash flow hedge relationships
|
|
(356
|
)
|
(480
|
)
|
||
Defined benefit plans
|
|
83
|
|
21
|
|
||
Total AOCI, net of taxes
|
|
389
|
|
456
|
|
||
Treasury stock, at cost, 75,809,155 shares and 75,817,058 shares
|
|
(3,885
|
)
|
(3,885
|
)
|
||
Total equity
(See Note 11 for information on our dividend obligation to Treasury)
|
|
(312
|
)
|
5,075
|
|
||
Total liabilities and equity
|
|
|
$2,049,776
|
|
|
$2,023,376
|
|
|
|
As of December 31,
|
|||||
(
In millions
)
|
|
2017
|
2016
|
||||
Consolidated Balance Sheet Line Item
|
|
|
|
||||
Assets: (Note 3)
|
|
|
|
||||
Mortgage loans held-for-sale
|
|
|
$—
|
|
|
$—
|
|
Mortgage loans held-for-investment
|
|
1,774,286
|
|
1,690,218
|
|
||
All other assets
|
|
25,753
|
|
32,262
|
|
||
Total assets of consolidated VIEs
|
|
|
$1,800,039
|
|
|
$1,722,480
|
|
Liabilities: (Note 3)
|
|
|
|
||||
Debt, net
|
|
|
$1,720,996
|
|
|
$1,648,683
|
|
All other liabilities
|
|
5,030
|
|
4,846
|
|
||
Total liabilities of consolidated VIEs
|
|
|
$1,726,026
|
|
|
$1,653,529
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
234
|
Financial Statements
|
Consolidated Statements of Equity
|
|
|
Shares Outstanding
|
Senior
Preferred
Stock
|
Preferred
Stock, at
Redemption
Value
|
Common
Stock, at
Par Value
|
Additional
Paid-In
Capital
|
Retained
Earnings
(Accumulated
Deficit)
|
AOCI,
Net of
Tax
|
Treasury
Stock, at
Cost
|
Total
Equity
|
|||||||||||||||||||||
(In millions)
|
|
Senior
Preferred
Stock
|
Preferred
Stock
|
Common
Stock
|
|||||||||||||||||||||||||||
Balance at December 31, 2014
|
|
1
|
|
464
|
|
650
|
|
|
$72,336
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($81,639
|
)
|
|
$1,730
|
|
|
($3,885
|
)
|
|
$2,651
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,376
|
|
—
|
|
—
|
|
6,376
|
|
||||||||
Other comprehensive income, net of taxes
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(577
|
)
|
—
|
|
(577
|
)
|
||||||||
Comprehensive income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,376
|
|
(577
|
)
|
—
|
|
5,799
|
|
||||||||
Senior preferred stock dividends declared
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(5,510
|
)
|
—
|
|
—
|
|
(5,510
|
)
|
||||||||
Ending balance at December 31, 2015
|
|
1
|
|
464
|
|
650
|
|
|
$72,336
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($80,773
|
)
|
|
$1,153
|
|
|
($3,885
|
)
|
|
$2,940
|
|
Balance at December 31, 2015
|
|
1
|
|
464
|
|
650
|
|
|
$72,336
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($80,773
|
)
|
|
$1,153
|
|
|
($3,885
|
)
|
|
$2,940
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7,815
|
|
—
|
|
—
|
|
7,815
|
|
||||||||
Other comprehensive income, net of taxes
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(697
|
)
|
—
|
|
(697
|
)
|
||||||||
Comprehensive income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7,815
|
|
(697
|
)
|
—
|
|
7,118
|
|
||||||||
Senior preferred stock dividends declared
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,983
|
)
|
—
|
|
—
|
|
(4,983
|
)
|
||||||||
Ending balance at December 31, 2016
|
|
1
|
|
464
|
|
650
|
|
|
$72,336
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($77,941
|
)
|
|
$456
|
|
|
($3,885
|
)
|
|
$5,075
|
|
Balance at December 31, 2016
|
|
1
|
|
464
|
|
650
|
|
|
$72,336
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($77,941
|
)
|
|
$456
|
|
|
($3,885
|
)
|
|
$5,075
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,625
|
|
—
|
|
—
|
|
5,625
|
|
||||||||
Other comprehensive income, net of taxes
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(67
|
)
|
—
|
|
(67
|
)
|
||||||||
Comprehensive income
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,625
|
|
(67
|
)
|
—
|
|
5,558
|
|
||||||||
Senior preferred stock dividends declared
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(10,945
|
)
|
—
|
|
—
|
|
(10,945
|
)
|
||||||||
Ending balance at December 31, 2017
|
|
1
|
|
464
|
|
650
|
|
|
$72,336
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($83,261
|
)
|
|
$389
|
|
|
($3,885
|
)
|
|
($312
|
)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
235
|
Financial Statements
|
Consolidated Statements of Cash Flows
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
||||||
Cash flows from operating activities
|
|
|
|
|
||||||
Net income
|
|
|
$5,625
|
|
|
$7,815
|
|
|
$6,376
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
||||||
Derivative (gains) losses
|
|
370
|
|
(1,516
|
)
|
456
|
|
|||
Asset related amortization — premiums, discounts, and basis adjustments
|
|
6,038
|
|
7,089
|
|
5,321
|
|
|||
Debt related amortization — premiums and discounts on certain debt securities and basis adjustments
|
|
(8,653
|
)
|
(10,151
|
)
|
(8,295
|
)
|
|||
Losses (gains) on extinguishment of debt
|
|
(341
|
)
|
211
|
|
240
|
|
|||
(Benefit) provision for credit losses
|
|
(84
|
)
|
(803
|
)
|
(2,665
|
)
|
|||
Losses (gains) on investment activity
|
|
(3,403
|
)
|
69
|
|
1,878
|
|
|||
Deferred income tax expense (benefit)
|
|
7,773
|
|
2,787
|
|
1,655
|
|
|||
Purchases of mortgage loans acquired as held-for-sale
|
|
(64,827
|
)
|
(48,379
|
)
|
(41,728
|
)
|
|||
Sales of mortgage loans acquired as held-for-sale
|
|
61,744
|
|
49,350
|
|
36,034
|
|
|||
Repayments of mortgage loans acquired as held-for-sale
|
|
306
|
|
1,259
|
|
150
|
|
|||
Payments to servicers for pre-foreclosure expense and servicer incentive fees
|
|
(377
|
)
|
(585
|
)
|
(867
|
)
|
|||
Change in:
|
|
|
|
|
||||||
Accrued interest receivable
|
|
(220
|
)
|
(61
|
)
|
(40
|
)
|
|||
Accrued interest payable
|
|
273
|
|
(52
|
)
|
(43
|
)
|
|||
Income taxes receivable
|
|
1,912
|
|
(1,230
|
)
|
1,022
|
|
|||
Other, net
|
|
(674
|
)
|
(944
|
)
|
(428
|
)
|
|||
Net cash provided by (used in) operating activities
|
|
5,462
|
|
4,859
|
|
(934
|
)
|
|||
Cash flows from investing activities
|
|
|
|
|
||||||
Purchases of trading securities
|
|
(160,333
|
)
|
(104,045
|
)
|
(40,614
|
)
|
|||
Proceeds from sales of trading securities
|
|
150,448
|
|
79,095
|
|
14,847
|
|
|||
Proceeds from maturities and repayments of trading securities
|
|
8,570
|
|
22,244
|
|
16,377
|
|
|||
Purchases of available-for-sale securities
|
|
(10,549
|
)
|
(28,306
|
)
|
(6,818
|
)
|
|||
Proceeds from sales of available-for-sale securities
|
|
23,034
|
|
20,699
|
|
18,900
|
|
|||
Proceeds from maturities and repayments of available-for-sale securities
|
|
11,758
|
|
15,869
|
|
20,807
|
|
|||
Purchases of held-for-investment mortgage loans
|
|
(126,162
|
)
|
(169,948
|
)
|
(122,082
|
)
|
|||
Proceeds from sales of mortgage loans held-for-investment
|
|
8,883
|
|
4,507
|
|
2,727
|
|
|||
Repayments of mortgage loans held-for-investment
|
|
277,819
|
|
340,348
|
|
302,364
|
|
|||
(Increase) decrease in restricted cash
|
|
6,888
|
|
4,682
|
|
(5,998
|
)
|
|||
Advances to lenders
|
|
(35,452
|
)
|
(30,730
|
)
|
(12,527
|
)
|
|||
Net proceeds from dispositions of real estate owned and other recoveries
|
|
1,861
|
|
2,519
|
|
3,650
|
|
|||
Net (increase) decrease in securities purchased under agreements to resell
|
|
(4,355
|
)
|
12,096
|
|
(11,741
|
)
|
|||
Derivative premiums and terminations, swap collateral, and exchange settlement payments, net
|
|
(538
|
)
|
555
|
|
(749
|
)
|
|||
Changes in other assets
|
|
(428
|
)
|
(357
|
)
|
(197
|
)
|
|||
Net cash provided by investing activities
|
|
151,444
|
|
169,228
|
|
178,946
|
|
|||
Cash flows from financing activities
|
|
|
|
|
||||||
Proceeds from issuance of debt securities of consolidated trusts held by third parties
|
|
191,638
|
|
254,236
|
|
174,561
|
|
|||
Repayments and redemptions of debt securities of consolidated trusts held by third parties
|
|
(303,142
|
)
|
(355,020
|
)
|
(316,306
|
)
|
|||
Proceeds from issuance of other debt
|
|
613,280
|
|
659,108
|
|
610,091
|
|
|||
Repayments of other debt
|
|
(653,255
|
)
|
(720,648
|
)
|
(646,176
|
)
|
|||
Payment of cash dividends on senior preferred stock
|
|
(10,945
|
)
|
(4,983
|
)
|
(5,510
|
)
|
|||
Changes in other liabilities
|
|
(3
|
)
|
(6
|
)
|
(5
|
)
|
|||
Net cash used in financing activities
|
|
(162,427
|
)
|
(167,313
|
)
|
(183,345
|
)
|
|||
Net increase (decrease) in cash and cash equivalents
|
|
(5,521
|
)
|
6,774
|
|
(5,333
|
)
|
|||
Cash and cash equivalents at beginning of year
|
|
12,369
|
|
5,595
|
|
10,928
|
|
|||
Cash and cash equivalents at end of year
|
|
|
$6,848
|
|
|
$12,369
|
|
|
$5,595
|
|
|
|
|
|
|
||||||
Supplemental cash flow information
|
|
|
|
|
||||||
Cash paid for:
|
|
|
|
|
||||||
Debt interest
|
|
|
$63,574
|
|
|
$60,862
|
|
|
$61,120
|
|
Income taxes
|
|
1,872
|
|
2,324
|
|
1,095
|
|
|||
Non-cash investing and financing activities (Notes 4 and 7)
|
|
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
236
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 1
|
FREDDIE MAC
| 2017 Form 10-K
|
|
237
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 1
|
FREDDIE MAC
| 2017 Form 10-K
|
|
238
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 1
|
Note
|
Accounting Policy
|
Variable Interest Entities
|
|
Note 4
|
Mortgage Loans and Allowance for Loan Losses
|
Note 5
|
Financial Guarantees
|
Note 6
|
Credit Enhancements
|
Note 7
|
Investments in Securities
|
Note 8
|
Debt
|
Note 9
|
Derivatives
|
Note 10
|
Collateralized Agreements and Offsetting Arrangements
|
Note 10
|
Repurchase and Resale Agreements and Dollar Roll Transactions
|
Note 11
|
Earnings Per Share
|
Note 11
|
Stockholders’ Equity
|
Note 12
|
Income Taxes
|
Note 13
|
Segment Reporting
|
Note 15
|
Fair Value Measurements
|
FREDDIE MAC
| 2017 Form 10-K
|
|
239
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 1
|
Recently Adopted Accounting Guidance
|
|||
Standard
|
Description
|
Date of Adoption
|
Effect on Consolidated Financial Statements
|
ASU 2016-06
, Derivatives and Hedging (Topic 815)
|
The amendment clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendment is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence.
|
January 1, 2017
|
The adoption of this amendment did not have a material effect on our consolidated financial statements.
|
ASU 2016-17
, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control
|
The Board issued this Update to amend the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE.
|
January 1, 2017
|
The adoption of this amendment did not have a material effect on our consolidated financial statements.
|
ASU 2017-12
, Derivatives and Hedging (Topic 815)
|
The amendments in this Update made targeted improvements to accounting for hedging activities. The Update changes the recognition and presentation requirements of hedge accounting and provides new alternatives on how to measure and account for certain aspects of hedging activities.
|
October 1, 2017
|
The adoption of the amendments did not affect the application of hedge accounting for our existing hedge strategies; however, we modified the presentation of hedge results on our consolidated statements of comprehensive income and in the financial statement notes upon adoption.
|
Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements
|
|||
Standard
|
Description
|
Date of Planned Adoption
|
Effect on Consolidated Financial Statements
|
ASU 2014-09
, Revenue from Contracts with Customers (Topic 606) and
ASU 2015-14
|
The amendment requires entities to recognize revenue to depict the transfer of promised goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14 defers the effective date of ASU 2014-09 for all entities by one year.
|
January 1, 2018
|
The adoption of the guidance in Topic 606 will be applied retrospectively. The adoption of the amendments will not have a material effect on our consolidated financial statements or on our disclosures.
|
ASU 2016-01
, Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)
|
The amendment addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments.
|
January 1, 2018
|
The adoption of the amendments will not have a material effect on our consolidated financial statements.
|
ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
|
The amendments in this Update do not change the core principle of the guidance in Topic 606. The amendments clarify the implementation guidance on principal versus agent considerations.
|
January 1, 2018
|
The adoption of the guidance in Topic 606 will be applied retrospectively. The adoption of the amendments will not have a material effect on our consolidated financial statements or on our disclosures.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
240
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 1
|
Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements
|
|||
Standard
|
Description
|
Date of Planned Adoption
|
Effect on Consolidated Financial Statements
|
ASU 2016-10
, Revenue from Contracts with Customers (Topic 606)
|
The amendments in this Update do not change the core principle of the guidance in Topic 606, but clarify two issues: i) identifying performance obligations; and ii) licensing. These clarifications are intended to reduce diversity in practice and to reduce the cost and complexity of Topic 606 at transition and on an ongoing basis.
|
January 1, 2018
|
The adoption of the guidance in Topic 606 will be applied retrospectively. The adoption of the amendments will not have a material effect on our consolidated financial statements or on our disclosures.
|
ASU 2016-12
, Revenue from Contracts with Customers (Topic 606)
|
The amendments in this Update do not change the core principle of the guidance in Topic 606, but affect aspects of the guidance and technical corrections.
|
January 1, 2018
|
The adoption of the guidance in Topic 606 will be applied retrospectively. The adoption of the amendments will not have a material effect on our consolidated financial statements or on our disclosures.
|
ASU 2016-15
, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
|
The main objective of this Update is to address the diversity in practice that currently exists in regards to how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.
|
January 1, 2018
|
Upon adoption, the portion of the cash payment attributable to the accreted interest related to zero-coupon debt will be presented in the operating activities section, a classification change from the financing activities section where this item is currently presented. As a result, we estimate that we will reclassify approximately $1.2 billion and $0.5 billion of cash payments from financing activities to operating activities on our consolidated statements of cash flows for the years ended December 31, 2017 and 2016, respectively, upon adoption.
|
ASU 2016-18
, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)
|
The amendments in this Update address the diversity in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic 230, Statement of Cash Flows. Specifically, this amendment dictates that the statement of cash flows should explain the change in the period of the total of cash, cash equivalents and restricted cash balances.
|
January 1, 2018
|
The adoption of the amendments will not have a material effect on our consolidated financial statements.
|
ASU 2016-20
, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
|
The amendments in this Update are of a similar nature to the items typically addressed in the Technical Corrections and Improvements project. However, the Board decided to issue a separate Update for technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to Update 2014-09.
|
January 1, 2018
|
The adoption of the guidance in Topic 606 will be applied retrospectively. The adoption of the amendments will not have a material effect on our consolidated financial statements or on our disclosures.
|
ASU 2018-02
, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
|
The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.
|
1Q 2018
|
The adoption of the amendments will not have a material effect on our consolidated financial statements.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
241
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 1
|
Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements
|
|||
Standard
|
Description
|
Date of Planned Adoption
|
Effect on Consolidated Financial Statements
|
ASU 2016-02
, Leases (Topic 842)
|
The amendment addresses the accounting for lease arrangements.
|
January 1, 2019
|
We do not expect that the adoption of this amendment will have a material effect on our consolidated financial statements.
|
ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
|
The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
|
January 1, 2020
|
While we are evaluating the effect that the adoption of this amendment will have on our consolidated financial statements, it will increase (perhaps substantially) our provision for credit losses in the period of adoption.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
242
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 2
|
n
|
Maintain
, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced loans to foster liquid, efficient, competitive and resilient national housing finance markets;
|
FREDDIE MAC
| 2017 Form 10-K
|
|
243
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 2
|
n
|
Reduce
taxpayer risk through increasing the role of private capital in the mortgage market; and
|
n
|
Build
a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other participants in the secondary market in the future.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
244
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 2
|
FREDDIE MAC
| 2017 Form 10-K
|
|
245
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 2
|
n
|
Declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac equity securities (other than with respect to the senior preferred stock or warrant);
|
n
|
Redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock or warrant);
|
n
|
Sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect on the date of the Purchase Agreement);
|
n
|
Terminate the conservatorship (other than in connection with a receivership);
|
n
|
Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value:
|
l
|
To a limited life regulated entity (in the context of a receivership);
|
l
|
Of assets and properties in the ordinary course of business, consistent with past practice;
|
l
|
Of assets and properties having fair market value individually or in aggregate less than
$250 million
in one transaction or a series of related transactions;
|
l
|
In connection with our liquidation by a receiver;
|
l
|
Of cash or cash equivalents for cash or cash equivalents; or
|
l
|
To the extent necessary to comply with the covenant described below relating to the reduction of our mortgage-related investments portfolio;
|
n
|
Issue any subordinated debt;
|
n
|
Enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or
|
n
|
Engage in transactions with affiliates unless the transaction is:
|
l
|
Pursuant to the Purchase Agreement, the senior preferred stock or the warrant;
|
FREDDIE MAC
| 2017 Form 10-K
|
|
246
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 2
|
l
|
Upon arm's length terms; or
|
l
|
A transaction undertaken in the ordinary course or pursuant to a contractual obligation or customary employment arrangement in existence on the date of the Purchase Agreement.
|
n
|
Our SEC filings under the Exchange Act will comply in all material respects as to form with the Exchange Act and the rules and regulations thereunder;
|
n
|
Without the prior written consent of Treasury, we may not permit any of our significant subsidiaries to issue capital stock or equity securities, or securities convertible into or exchangeable for such securities, or any stock appreciation rights or other profit participation rights to any person other than Freddie Mac or its wholly-owned subsidiaries;
|
n
|
We may not take any action that will result in an increase in the par value of our common stock;
|
n
|
Unless waived or consented to in writing by Treasury, we may not take any action to avoid the observance or performance of the terms of the warrant and we must take all actions necessary or appropriate to protect Treasury’s rights against impairment or dilution; and
|
n
|
We must provide Treasury with prior notice of specified actions relating to our common stock, such as setting a record date for a dividend payment, granting subscription or purchase rights, authorizing a recapitalization, reclassification, merger or similar transaction, commencing a liquidation of the company or any other action that would trigger an adjustment in the exercise price or number or amount of shares subject to the warrant.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
247
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 2
|
n
|
The completion of our liquidation and fulfillment of Treasury’s obligations under its funding commitment at that time;
|
n
|
The payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including mortgage guarantee obligations); and
|
n
|
The funding by Treasury of the maximum amount of the commitment under the Purchase Agreement.
|
n
|
The amount necessary to cure the payment defaults on our debt and mortgage guarantee obligations; and
|
n
|
The lesser of:
|
l
|
The deficiency amount; and
|
l
|
The maximum amount of the commitment less the aggregate amount of funding previously provided under the commitment.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
248
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 2
|
n
|
Keeping us solvent;
|
n
|
Allowing us to focus on our primary business objectives under conservatorship; and
|
n
|
Avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
249
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 2
|
n
|
The transactions with Treasury discussed above in
Purchase Agreement and Warrant
and
Government Support for our Business
;
|
n
|
The transactions entered into whereby we and Fannie Mae, in conjunction with Treasury, provided assistance to state and local HFAs. Treasury will reimburse Freddie Mac for initial guarantee losses on these transactions;
|
n
|
The transactions discussed in
Note 4
,
Note 8
and
Note 11
; and
|
n
|
The allocation or transfer of 4.2 basis points of each dollar of new business purchases to certain housing funds as required under the GSE Act.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
250
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 3
|
FREDDIE MAC
| 2017 Form 10-K
|
|
251
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 3
|
n
|
Giant PCs -
Giant PCs are direct pass-throughs of the cash flows of the underlying collateral, which may be previously issued PCs or Giant PCs. We do not consolidate Giant PCs as their resecuritization does not result in any new or incremental risk to the holders of the securities issued by the resecuritization trust and because we are not exposed to any incremental rights to receive benefits or obligations to absorb losses that could be significant to the resecuritization trust.
|
n
|
REMICs and Stripped Giant PCs
-
REMICs and Stripped Giant PCs are multiclass resecuritizations of the cash flows of the underlying collateral, which may be previously issued PCs, Giant PCs, or other REMICs and Stripped Giant PCs. The activity that most significantly impacts the economic performance of our multiclass resecuritization trusts is typically the initial design and structuring of the trust. Substantially all multiclass resecuritization trusts are created as part of customer-driven transactions in which an investor or dealer participates in the decisions made during the design and establishment of the trust. As a result, we do not have the unilateral ability to direct the activities of our multiclass resecuritization trusts that most significantly impact the economic performance of those trusts. In addition, we do not have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the trusts because we have already provided a guarantee on the underlying assets. As a result, we have concluded that we are not the primary beneficiary of our multiclass resecuritization trusts and, therefore, do not consolidate those trusts.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
252
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 3
|
FREDDIE MAC
| 2017 Form 10-K
|
|
253
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 3
|
FREDDIE MAC
| 2017 Form 10-K
|
|
254
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 3
|
n
|
The sum of the fair value of the consideration paid, the fair value of any noncontrolling interests and the reported amount of any previously held interests; and
|
n
|
The net fair value of the assets and liabilities recognized. Guarantees to consolidated VIEs are eliminated in consolidation and are therefore not separately recognized on our consolidated balance sheets.
|
(In millions)
|
|
As of December 31, 2017
|
As of December 31, 2016
|
||||
Consolidated Balance Sheet Line Item
|
|
|
|
||||
Assets:
|
|
|
|
||||
Cash and cash equivalents
|
|
|
$—
|
|
|
$—
|
|
Restricted cash and cash equivalents
|
|
518
|
|
9,431
|
|
||
Securities purchased under agreements to resell
|
|
16,750
|
|
13,550
|
|
||
Mortgage loans held-for-investment
|
|
1,774,286
|
|
1,690,218
|
|
||
Accrued interest receivable
|
|
5,747
|
|
5,454
|
|
||
Other assets
|
|
2,738
|
|
3,827
|
|
||
Total assets of consolidated VIEs
|
|
|
$1,800,039
|
|
|
$1,722,480
|
|
Liabilities:
|
|
|
|
||||
Accrued interest payable
|
|
|
$5,028
|
|
|
$4,846
|
|
Debt, net
|
|
1,720,996
|
|
1,648,683
|
|
||
Other liabilities
|
|
2
|
|
—
|
|
||
Total liabilities of consolidated VIEs
|
|
|
$1,726,026
|
|
|
$1,653,529
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
255
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 3
|
(In millions)
|
|
As of December 31, 2017
|
As of December 31, 2016
|
||||
Assets and Liabilities Recorded on our Consolidated Balance Sheets
(1)
|
|
|
|
||||
Assets:
|
|
|
|
||||
Investments in securities
|
|
|
$51,494
|
|
|
$58,995
|
|
Accrued interest receivable
|
|
233
|
|
254
|
|
||
Derivative assets, net
|
|
7
|
|
—
|
|
||
Other assets
|
|
2,591
|
|
1,708
|
|
||
Liabilities:
|
|
|
|
||||
Other liabilities
|
|
2,489
|
|
1,604
|
|
||
Maximum Exposure to Loss
(2)(3)
|
|
|
$200,196
|
|
|
$150,227
|
|
Total Assets of Non-Consolidated VIEs
(3)
|
|
|
$232,762
|
|
|
$175,713
|
|
(1)
|
Includes our variable interests in REMICs and Stripped Giant PCs, K Certificates, SB Certificates, certain senior subordinate securitization structures and certain other securitization products.
|
(2)
|
Our maximum exposure to loss includes the guaranteed UPB of assets held by the non-consolidated VIEs as well as the UPB of unguaranteed securities that we acquired from these securitization transactions.
|
(3)
|
Our maximum exposure to loss and total assets of non-consolidated VIEs exclude our investments in and obligations to REMICs and Stripped Giant PCs, because we already consolidate the underlying collateral of these trusts on our consolidated balance sheets.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
256
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||||||
(In millions)
|
|
Held by Freddie Mac
|
Held by
consolidated trusts |
Total
|
|
Held by Freddie Mac
|
Held by
consolidated trusts |
Total
|
||||||||||||
Held-for sale:
|
|
|
|
|
|
|
|
|
||||||||||||
Single-family
|
|
|
$17,039
|
|
|
$—
|
|
|
$17,039
|
|
|
|
$2,092
|
|
|
$—
|
|
|
$2,092
|
|
Multifamily
|
|
20,537
|
|
—
|
|
20,537
|
|
|
16,544
|
|
—
|
|
16,544
|
|
||||||
Total UPB
|
|
37,576
|
|
—
|
|
37,576
|
|
|
18,636
|
|
—
|
|
18,636
|
|
||||||
Cost basis and fair value adjustments, net
|
|
(2,813
|
)
|
—
|
|
(2,813
|
)
|
|
(548
|
)
|
—
|
|
(548
|
)
|
||||||
Total held-for-sale loans, net
|
|
34,763
|
|
—
|
|
34,763
|
|
|
18,088
|
|
—
|
|
18,088
|
|
||||||
Held-for-investment:
|
|
|
|
|
|
|
|
|
||||||||||||
Single-family
|
|
51,893
|
|
1,742,736
|
|
1,794,629
|
|
|
83,040
|
|
1,659,591
|
|
1,742,631
|
|
||||||
Multifamily
|
|
17,702
|
|
3,747
|
|
21,449
|
|
|
25,873
|
|
3,048
|
|
28,921
|
|
||||||
Total UPB
|
|
69,595
|
|
1,746,483
|
|
1,816,078
|
|
|
108,913
|
|
1,662,639
|
|
1,771,552
|
|
||||||
Cost basis adjustments
|
|
(2,148
|
)
|
31,490
|
|
29,342
|
|
|
(3,755
|
)
|
30,549
|
|
26,794
|
|
||||||
Allowance for loan losses
|
|
(5,279
|
)
|
(3,687
|
)
|
(8,966
|
)
|
|
(10,461
|
)
|
(2,970
|
)
|
(13,431
|
)
|
||||||
Total held-for-investment loans, net
|
|
62,168
|
|
1,774,286
|
|
1,836,454
|
|
|
94,697
|
|
1,690,218
|
|
1,784,915
|
|
||||||
Total loans, net
|
|
|
$96,931
|
|
|
$1,774,286
|
|
|
$1,871,217
|
|
|
|
$112,785
|
|
|
$1,690,218
|
|
|
$1,803,003
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
257
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
FREDDIE MAC
| 2017 Form 10-K
|
|
258
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
n
|
Loans within the Alt-A category continue to be presented in that category following modification, even though the borrower may have provided full documentation of assets and income to complete the modification; and
|
n
|
Loans within the option ARM category continue to be presented in that category following modification, even though the modified loan no longer provides for optional payment provisions.
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||||||||||
|
|
Current LTV Ratio
|
Total
|
|
Current LTV Ratio
|
Total
|
||||||||||||||||||||
(In millions)
|
|
≤ 80
|
> 80 to 100
|
> 100
(1)
|
|
≤ 80
|
> 80 to 100
|
> 100
(1)
|
||||||||||||||||||
20 and 30-year or more, amortizing fixed-rate
(2)
|
|
|
$1,240,224
|
|
|
$214,177
|
|
|
$13,303
|
|
|
$1,467,704
|
|
|
|
$1,120,722
|
|
|
$236,111
|
|
|
$30,063
|
|
|
$1,386,896
|
|
15-year amortizing fixed-rate
(2)
|
|
270,266
|
|
7,351
|
|
381
|
|
277,998
|
|
|
274,967
|
|
11,016
|
|
887
|
|
286,870
|
|
||||||||
Adjustable-rate
|
|
48,596
|
|
2,963
|
|
28
|
|
51,587
|
|
|
52,319
|
|
2,955
|
|
85
|
|
55,359
|
|
||||||||
Alt-A, interest-only and option ARM
|
|
21,013
|
|
4,256
|
|
1,429
|
|
26,698
|
|
|
26,293
|
|
9,392
|
|
4,634
|
|
40,319
|
|
||||||||
Total single-family loans
|
|
|
$1,580,099
|
|
|
$228,747
|
|
|
$15,141
|
|
|
$1,823,987
|
|
|
|
$1,474,301
|
|
|
$259,474
|
|
|
$35,669
|
|
|
$1,769,444
|
|
(1)
|
The serious delinquency rate for the total of single-family held-for-investment mortgage loans with current LTV ratios in excess of 100% was
8.43%
and
6.80%
as of
December 31, 2017
and
2016
, respectively.
|
(2)
|
The majority of our loan modifications result in new terms that include fixed interest rates after modification. As of
December 31, 2017
and
2016
, we have categorized UPB of approximately
$22.2 billion
and
$32.0 billion
, respectively, of modified loans as fixed-rate loans (instead of as adjustable rate loans), even though the modified loans have rate adjustment provisions. In these cases, while the terms of the modified loans provide for the interest rate to adjust in the future, such future rates are determined at the time of modification rather than at a subsequent date.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
259
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
(In millions)
|
|
As of December 31, 2017
|
As of December 31, 2016
|
||||
Credit risk profile by internally assigned grade:
(1)
|
|
|
|
||||
Pass
|
|
|
$20,963
|
|
|
$27,830
|
|
Special mention
|
|
301
|
|
502
|
|
||
Substandard
|
|
169
|
|
570
|
|
||
Doubtful
|
|
—
|
|
—
|
|
||
Total
|
|
|
$21,433
|
|
|
$28,902
|
|
(1)
|
A loan categorized as: "Pass" is current and adequately protected by the current financial strength and debt service capacity of the borrower; In 2017, "Special mention" has administrative issues that may affect future repayment prospects but do not have current credit weaknesses, while in 2016, "Special mention" has signs of potential financial weakness; "Substandard" has a well-defined weakness that jeopardizes the timely full repayment; and "Doubtful" has a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
260
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
|
|
As of December 31, 2017
|
|||||||||||||||||
(In millions)
|
|
Current
|
One
Month
Past Due
|
Two
Months
Past Due
|
Three Months or
More Past Due,
or in Foreclosure
(1)
|
Total
|
Non-accrual
|
||||||||||||
Single-family:
|
|
|
|
|
|
|
|
||||||||||||
20 and 30-year or more, amortizing fixed-rate
|
|
|
$1,431,342
|
|
|
$18,297
|
|
|
$5,660
|
|
|
$12,405
|
|
|
$1,467,704
|
|
|
$12,401
|
|
15-year amortizing fixed-rate
|
|
275,864
|
|
1,288
|
|
290
|
|
556
|
|
277,998
|
|
556
|
|
||||||
Adjustable-rate
|
|
50,915
|
|
383
|
|
84
|
|
205
|
|
51,587
|
|
205
|
|
||||||
Alt-A, interest-only and option ARM
|
|
23,235
|
|
1,297
|
|
509
|
|
1,657
|
|
26,698
|
|
1,656
|
|
||||||
Total single-family
|
|
1,781,356
|
|
21,265
|
|
6,543
|
|
14,823
|
|
1,823,987
|
|
14,818
|
|
||||||
Total multifamily
|
|
21,414
|
|
—
|
|
—
|
|
19
|
|
21,433
|
|
64
|
|
||||||
Total single-family and multifamily
|
|
|
$1,802,770
|
|
|
$21,265
|
|
|
$6,543
|
|
|
$14,842
|
|
|
$1,845,420
|
|
|
$14,882
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
As of December 31, 2016
|
|||||||||||||||||
(In millions)
|
|
Current
|
One
Month Past Due |
Two
Months Past Due |
Three Months or
More Past Due, or in Foreclosure (1) |
Total
|
Non-accrual
|
||||||||||||
Single-family:
|
|
|
|
|
|
|
|
||||||||||||
20 and 30-year or more, amortizing fixed-rate
|
|
|
$1,354,511
|
|
|
$16,645
|
|
|
$4,865
|
|
|
$10,875
|
|
|
$1,386,896
|
|
|
$10,868
|
|
15-year amortizing fixed-rate
|
|
285,373
|
|
1,010
|
|
178
|
|
309
|
|
286,870
|
|
309
|
|
||||||
Adjustable-rate
|
|
54,738
|
|
354
|
|
77
|
|
190
|
|
55,359
|
|
190
|
|
||||||
Alt-A, interest-only and option ARM
|
|
35,994
|
|
1,748
|
|
650
|
|
1,927
|
|
40,319
|
|
1,927
|
|
||||||
Total single-family
|
|
1,730,616
|
|
19,757
|
|
5,770
|
|
13,301
|
|
1,769,444
|
|
13,294
|
|
||||||
Total multifamily
|
|
28,902
|
|
—
|
|
—
|
|
—
|
|
28,902
|
|
89
|
|
||||||
Total single-family and multifamily
|
|
|
$1,759,518
|
|
|
$19,757
|
|
|
$5,770
|
|
|
$13,301
|
|
|
$1,798,346
|
|
|
$13,383
|
|
(1)
|
Includes
$4.1 billion
and
$5.3 billion
of loans that were in the process of foreclosure as of
December 31, 2017
and
2016
, respectively.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
261
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
(Dollars in millions)
|
|
December 31, 2017
|
December 31, 2016
|
||||
Single-family
(1)
|
|
|
|
||||
Non-credit-enhanced portfolio:
|
|
|
|
||||
Serious delinquency rate
|
|
1.16
|
%
|
1.02
|
%
|
||
Total number of seriously delinquent loans
|
|
81,668
|
|
77,662
|
|
||
Credit-enhanced portfolio:
(2)
|
|
|
|
||||
Primary mortgage insurance:
|
|
|
|
||||
Serious delinquency rate
|
|
1.43
|
%
|
1.46
|
%
|
||
Total number of seriously delinquent loans
|
|
23,275
|
|
21,460
|
|
||
Other credit protection:
(3)
|
|
|
|
||||
Serious delinquency rate
|
|
0.53
|
%
|
0.43
|
%
|
||
Total number of seriously delinquent loans
|
|
16,259
|
|
9,455
|
|
||
Total Single-family
|
|
|
|
||||
Serious delinquency rate
|
|
1.08
|
%
|
1.00
|
%
|
||
Total number of seriously delinquent loans
|
|
116,662
|
|
107,170
|
|
||
|
|
|
|
||||
Multifamily
(4)
|
|
|
|
||||
Non-credit-enhanced portfolio:
|
|
|
|
||||
Delinquency rate
|
|
0.06
|
%
|
0.04
|
%
|
||
UPB of delinquent loans
|
|
|
$24
|
|
|
$19
|
|
Credit-enhanced portfolio:
|
|
|
|
||||
Delinquency rate
|
|
0.01
|
%
|
0.02
|
%
|
||
UPB of delinquent loans
|
|
|
$16
|
|
|
$37
|
|
Total Multifamily
|
|
|
|
||||
Delinquency rate
|
|
0.02
|
%
|
0.03
|
%
|
||
UPB of delinquent loans
|
|
|
$40
|
|
|
$56
|
|
(1)
|
Serious delinquencies on single-family loans underlying certain REMICs, other securitization products and other mortgage-related guarantees may be reported on a different schedule due to variances in industry practice.
|
(2)
|
The credit enhanced categories are not mutually exclusive as a single loan may be covered by both primary mortgage insurance and other credit protection.
|
(3)
|
Consists of single-family loans covered by financial arrangements (other than primary mortgage insurance) that are designed to reduce our credit risk exposure. See
Note 6
for additional information on our credit enhancements.
|
(4)
|
Multifamily delinquency performance is based on the UPB of loans that are two monthly payments or more past due or those in the process of foreclosure.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
262
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
n
|
Our allowance for loan losses, which pertains to all single-family and multifamily loans classified as held-for-investment on our consolidated balance sheets; and
|
n
|
Our reserve for guarantee losses, which pertains to single-family and multifamily loans underlying our K Certificates and SB Certificates, senior subordinate securitization structures, other securitization products and other mortgage-related guarantees.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
263
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
|
|
Year Ended December 31,
|
||||||||||||||||||||||||
|
|
2017
|
|
2016
|
||||||||||||||||||||||
|
|
Allowance for Loan Losses
|
Reserve for
Guarantee Losses |
Total
|
|
Allowance for Loan Losses
|
Reserve for
Guarantee Losses |
Total
|
||||||||||||||||||
(In millions)
|
|
Held by Freddie Mac
|
Held By
Consolidated Trusts |
|
Held by Freddie Mac
|
Held By
Consolidated Trusts |
||||||||||||||||||||
Single-family:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Beginning balance
|
|
|
$10,443
|
|
|
$2,968
|
|
|
$52
|
|
|
$13,463
|
|
|
|
$12,517
|
|
|
$2,775
|
|
|
$56
|
|
|
$15,348
|
|
Provision (benefit) for credit losses
|
|
(1,447
|
)
|
1,350
|
|
—
|
|
(97
|
)
|
|
(1,384
|
)
|
599
|
|
4
|
|
(781
|
)
|
||||||||
Charge-offs
(1)
|
|
(4,939
|
)
|
(108
|
)
|
(4
|
)
|
(5,051
|
)
|
|
(1,757
|
)
|
(173
|
)
|
(8
|
)
|
(1,938
|
)
|
||||||||
Recoveries
|
|
419
|
|
6
|
|
—
|
|
425
|
|
|
487
|
|
10
|
|
—
|
|
497
|
|
||||||||
Transfers, net
(2)
|
|
540
|
|
(540
|
)
|
—
|
|
—
|
|
|
248
|
|
(248
|
)
|
—
|
|
—
|
|
||||||||
Other
(3)
|
|
235
|
|
4
|
|
—
|
|
239
|
|
|
332
|
|
5
|
|
—
|
|
337
|
|
||||||||
Ending balance
|
|
|
$5,251
|
|
|
$3,680
|
|
|
$48
|
|
|
$8,979
|
|
|
|
$10,443
|
|
|
$2,968
|
|
|
$52
|
|
|
$13,463
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Beginning balance
|
|
|
$18
|
|
|
$2
|
|
|
$15
|
|
|
$35
|
|
|
|
$38
|
|
|
$1
|
|
|
$20
|
|
|
$59
|
|
Provision (benefit) for credit losses
|
|
15
|
|
4
|
|
(6
|
)
|
13
|
|
|
(17
|
)
|
—
|
|
(5
|
)
|
(22
|
)
|
||||||||
Charge-offs
(1)
|
|
(4
|
)
|
—
|
|
—
|
|
(4
|
)
|
|
(2
|
)
|
—
|
|
—
|
|
(2
|
)
|
||||||||
Recoveries
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||
Transfers, net
(2)
|
|
(1
|
)
|
1
|
|
—
|
|
—
|
|
|
(1
|
)
|
1
|
|
—
|
|
—
|
|
||||||||
Other
(3)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||
Ending balance
|
|
|
$28
|
|
|
$7
|
|
|
$9
|
|
|
$44
|
|
|
|
$18
|
|
|
$2
|
|
|
$15
|
|
|
$35
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Beginning balance
|
|
|
$10,461
|
|
|
$2,970
|
|
|
$67
|
|
|
$13,498
|
|
|
|
$12,555
|
|
|
$2,776
|
|
|
$76
|
|
|
$15,407
|
|
Provision (benefit) for credit losses
|
|
(1,432
|
)
|
1,354
|
|
(6
|
)
|
(84
|
)
|
|
(1,401
|
)
|
599
|
|
(1
|
)
|
(803
|
)
|
||||||||
Charge-offs
(1)
|
|
(4,943
|
)
|
(108
|
)
|
(4
|
)
|
(5,055
|
)
|
|
(1,759
|
)
|
(173
|
)
|
(8
|
)
|
(1,940
|
)
|
||||||||
Recoveries
|
|
419
|
|
6
|
|
—
|
|
425
|
|
|
487
|
|
10
|
|
—
|
|
497
|
|
||||||||
Transfers, net
(2)
|
|
539
|
|
(539
|
)
|
—
|
|
—
|
|
|
247
|
|
(247
|
)
|
—
|
|
—
|
|
||||||||
Other
(3)
|
|
235
|
|
4
|
|
—
|
|
239
|
|
|
332
|
|
5
|
|
—
|
|
337
|
|
||||||||
Ending balance
|
|
|
$5,279
|
|
|
$3,687
|
|
|
$57
|
|
|
$9,023
|
|
|
|
$10,461
|
|
|
$2,970
|
|
|
$67
|
|
|
$13,498
|
|
(1)
|
The year ended December 31, 2016 does not include lower-of-cost-or-fair-value adjustments and other expenses related to property taxes and insurance recognized when we transfer loans from held-for-investment to held-for-sale, which totaled
$1.2 billion
. The year ended December 31, 2017 includes charge-offs of
$3.8 billion
related to the transfer of loans from held-for-investment to held-for-sale.
|
(2)
|
Relates to removal of delinquent single-family loans from consolidated trusts and resecuritization after such removal
.
|
(3)
|
Primarily includes capitalization of past due interest on modified loans.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
264
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
n
|
Loss mitigation activities, including loan modifications for troubled borrowers and the incidence of redefault we have experienced on similar loans that have completed a loan modification; and
|
n
|
Defaults we believe are likely to occur as a result of loss events that have occurred through the respective balance sheet date.
|
n
|
Twelve months of sales experience realized on our distressed property dispositions; and
|
n
|
Twelve months of pre-foreclosure expenses on our distressed properties, including REO, short sales and third-party sales.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
265
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
FREDDIE MAC
| 2017 Form 10-K
|
|
266
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
n
|
A trial period where the expected permanent modification will change our expectation of collecting all amounts due at the original contract rate;
|
n
|
A delay in payment that is more than insignificant;
|
n
|
A reduction in the contractual interest rate;
|
n
|
Interest forbearance for a period of time that is more than insignificant or forgiveness of accrued but uncollected interest amounts;
|
n
|
Principal forbearance that is more than insignificant; and
|
n
|
Discharge of the borrower’s obligation in Chapter 7 bankruptcy.
|
|
|
Year Ended December 31,
|
||||||||||
|
|
2017
|
|
2016
|
||||||||
(Dollars in millions)
|
|
Number of
Loans
|
Post-TDR
Recorded
Investment
|
|
Number of
Loans
|
Post-TDR
Recorded
Investment
|
||||||
Single-family:
(1)
|
|
|
|
|
|
|
||||||
20 and 30-year or more, amortizing fixed-rate
|
|
33,745
|
|
|
$4,818
|
|
|
35,503
|
|
|
$5,092
|
|
15-year amortizing fixed-rate
|
|
4,569
|
|
356
|
|
|
4,623
|
|
338
|
|
||
Adjustable-rate
|
|
892
|
|
128
|
|
|
969
|
|
140
|
|
||
Alt-A, interest-only and option ARM
|
|
2,784
|
|
495
|
|
|
3,115
|
|
548
|
|
||
Total single-family
|
|
41,990
|
|
5,797
|
|
|
44,210
|
|
6,118
|
|
||
Multifamily
|
|
1
|
|
—
|
|
|
2
|
|
8
|
|
||
Total
|
|
41,991
|
|
|
$5,797
|
|
|
44,212
|
|
|
$6,126
|
|
(1)
|
The pre-TDR recorded investment for single-family loans initially classified as TDR during the years ended
December 31, 2017
and
2016
was
$5.8 billion
and
$6.2 billion
, respectively.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
267
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
|
|
Year Ended December 31,
|
||||||||||
|
|
2017
|
|
2016
|
||||||||
(Dollars in millions)
|
|
Number of Loans
|
Post-TDR
Recorded
Investment
(1)
|
|
Number of Loans
|
Post-TDR
Recorded
Investment
(1)
|
||||||
Single-family
|
|
|
|
|
|
|
||||||
20 and 30-year or more, amortizing fixed-rate
|
|
13,973
|
|
|
$2,231
|
|
|
16,139
|
|
|
$2,520
|
|
15-year amortizing fixed-rate
|
|
720
|
|
57
|
|
|
813
|
|
66
|
|
||
Adjustable-rate
|
|
225
|
|
33
|
|
|
277
|
|
41
|
|
||
Alt-A, interest-only and option ARM
|
|
1,254
|
|
253
|
|
|
1,535
|
|
305
|
|
||
Total single-family
|
|
16,172
|
|
|
$2,574
|
|
|
18,764
|
|
|
$2,932
|
|
Multifamily
(2)
|
|
—
|
|
|
$—
|
|
|
—
|
|
|
$—
|
|
(1)
|
Represents the recorded investment at the end of the period in which the loan was modified and does not represent the recorded investment as of December 31.
|
(2)
|
The post-TDR recorded investment is not meaningful.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
268
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
FREDDIE MAC
| 2017 Form 10-K
|
|
269
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
|
|
Balance at December 31, 2017
|
|
Balance at December 31, 2016
|
||||||||||||||||
(In millions)
|
|
UPB
|
Recorded
Investment
|
Associated
Allowance
|
|
UPB
|
Recorded
Investment
|
Associated
Allowance
|
||||||||||||
Single-family —
|
|
|
|
|
|
|
|
|
||||||||||||
With no specific allowance recorded:
(1)
|
|
|
|
|
|
|
|
|
||||||||||||
20 and 30-year or more, amortizing fixed-rate
|
|
|
$3,768
|
|
|
$2,908
|
|
N/A
|
|
|
|
$4,963
|
|
|
$3,746
|
|
N/A
|
|
||
15-year amortizing fixed-rate
|
|
24
|
|
21
|
|
N/A
|
|
|
31
|
|
26
|
|
N/A
|
|
||||||
Adjustable-rate
|
|
259
|
|
256
|
|
N/A
|
|
|
292
|
|
289
|
|
N/A
|
|
||||||
Alt-A, interest-only and option ARM
|
|
1,558
|
|
1,297
|
|
N/A
|
|
|
1,935
|
|
1,561
|
|
N/A
|
|
||||||
Total with no specific allowance recorded
|
|
5,609
|
|
4,482
|
|
N/A
|
|
|
7,221
|
|
5,622
|
|
N/A
|
|
||||||
With specific allowance recorded:
(2)
|
|
|
|
|
|
|
|
|
||||||||||||
20 and 30-year or more, amortizing fixed-rate
|
|
47,897
|
|
46,783
|
|
|
($5,505
|
)
|
|
67,853
|
|
66,143
|
|
|
($9,678
|
)
|
||||
15-year amortizing fixed-rate
|
|
752
|
|
757
|
|
(24
|
)
|
|
847
|
|
851
|
|
(25
|
)
|
||||||
Adjustable-rate
|
|
232
|
|
228
|
|
(14
|
)
|
|
319
|
|
312
|
|
(19
|
)
|
||||||
Alt-A, interest-only and option ARM
|
|
7,407
|
|
6,987
|
|
(1,087
|
)
|
|
12,699
|
|
12,105
|
|
(2,258
|
)
|
||||||
Total with specific allowance recorded
|
|
56,288
|
|
54,755
|
|
(6,630
|
)
|
|
81,718
|
|
79,411
|
|
(11,980
|
)
|
||||||
Combined single-family:
|
|
|
|
|
|
|
|
|
||||||||||||
20 and 30-year or more, amortizing fixed-rate
|
|
51,665
|
|
49,691
|
|
(5,505
|
)
|
|
72,816
|
|
69,889
|
|
(9,678
|
)
|
||||||
15-year amortizing fixed-rate
|
|
776
|
|
778
|
|
(24
|
)
|
|
878
|
|
877
|
|
(25
|
)
|
||||||
Adjustable-rate
|
|
491
|
|
484
|
|
(14
|
)
|
|
611
|
|
601
|
|
(19
|
)
|
||||||
Alt-A, interest-only and option ARM
|
|
8,965
|
|
8,284
|
|
(1,087
|
)
|
|
14,634
|
|
13,666
|
|
(2,258
|
)
|
||||||
Total single-family
|
|
61,897
|
|
59,237
|
|
(6,630
|
)
|
|
88,939
|
|
85,033
|
|
(11,980
|
)
|
||||||
Multifamily —
|
|
|
|
|
|
|
|
|
||||||||||||
With no specific allowance recorded
|
|
106
|
|
97
|
|
N/A
|
|
|
321
|
|
308
|
|
N/A
|
|
||||||
With specific allowance recorded
|
|
35
|
|
35
|
|
(7
|
)
|
|
44
|
|
42
|
|
(9
|
)
|
||||||
Total multifamily
|
|
141
|
|
132
|
|
(7
|
)
|
|
365
|
|
350
|
|
(9
|
)
|
||||||
Total single-family and multifamily
|
|
|
$62,038
|
|
|
$59,369
|
|
|
($6,637
|
)
|
|
|
$89,304
|
|
|
$85,383
|
|
|
($11,989
|
)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
270
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
|
|
Year Ended December 31,
|
||||||||||||||||||
|
|
2017
|
|
2016
|
||||||||||||||||
(In millions)
|
|
Average Recorded Investment
|
Interest Income Recognized
|
Interest Income Recognized On Cash Basis
(3)
|
|
Average
Recorded
Investment
|
Interest
Income
Recognized
|
Interest Income Recognized On Cash Basis
(3)
|
||||||||||||
Single-family —
|
|
|
|
|
|
|
|
|
||||||||||||
With no specific allowance recorded:
(1)
|
|
|
|
|
|
|
|
|
||||||||||||
20 and 30-year or more, amortizing fixed-rate
|
|
|
$3,556
|
|
|
$399
|
|
|
$16
|
|
|
|
$4,033
|
|
|
$447
|
|
|
$14
|
|
15-year amortizing fixed-rate
|
|
25
|
|
1
|
|
—
|
|
|
33
|
|
5
|
|
—
|
|
||||||
Adjustable rate
|
|
292
|
|
11
|
|
—
|
|
|
259
|
|
9
|
|
—
|
|
||||||
Alt-A, interest-only and option ARM
|
|
1,471
|
|
110
|
|
5
|
|
|
1,417
|
|
117
|
|
3
|
|
||||||
Total with no specific allowance recorded
|
|
5,344
|
|
521
|
|
21
|
|
|
5,742
|
|
578
|
|
17
|
|
||||||
With specific allowance recorded:
(2)
|
|
|
|
|
|
|
|
|
||||||||||||
20 and 30-year or more, amortizing fixed-rate
|
|
44,057
|
|
2,513
|
|
248
|
|
|
68,402
|
|
2,668
|
|
251
|
|
||||||
15-year amortizing fixed-rate
|
|
599
|
|
32
|
|
6
|
|
|
884
|
|
39
|
|
7
|
|
||||||
Adjustable rate
|
|
261
|
|
9
|
|
3
|
|
|
384
|
|
14
|
|
3
|
|
||||||
Alt-A, interest-only and option ARM
|
|
7,366
|
|
378
|
|
33
|
|
|
12,916
|
|
437
|
|
34
|
|
||||||
Total with specific allowance recorded
|
|
52,283
|
|
2,932
|
|
290
|
|
|
82,586
|
|
3,158
|
|
295
|
|
||||||
Combined single-family:
|
|
|
|
|
|
|
|
|
||||||||||||
20 and 30-year or more, amortizing fixed-rate
|
|
47,613
|
|
2,912
|
|
264
|
|
|
72,435
|
|
3,115
|
|
265
|
|
||||||
15-year amortizing fixed-rate
|
|
624
|
|
33
|
|
6
|
|
|
917
|
|
44
|
|
7
|
|
||||||
Adjustable rate
|
|
553
|
|
20
|
|
3
|
|
|
643
|
|
23
|
|
3
|
|
||||||
Alt-A, interest-only and option ARM
|
|
8,837
|
|
488
|
|
38
|
|
|
14,333
|
|
554
|
|
37
|
|
||||||
Total single-family
|
|
57,627
|
|
3,453
|
|
311
|
|
|
88,328
|
|
3,736
|
|
312
|
|
||||||
Multifamily —
|
|
|
|
|
|
|
|
|
||||||||||||
With no specific allowance recorded
|
|
286
|
|
9
|
|
3
|
|
|
356
|
|
15
|
|
4
|
|
||||||
With specific allowance recorded
|
|
45
|
|
1
|
|
1
|
|
|
63
|
|
3
|
|
2
|
|
||||||
Total multifamily
|
|
331
|
|
10
|
|
4
|
|
|
419
|
|
18
|
|
6
|
|
||||||
Total single-family and multifamily
|
|
|
$57,958
|
|
|
$3,463
|
|
|
$315
|
|
|
|
$88,747
|
|
|
$3,754
|
|
|
$318
|
|
(1)
|
Individually impaired loans with no specific related valuation allowance primarily represent those loans for which the collateral value is sufficiently in excess of the loan balance to result in recovery of the entire recorded investment if the property were foreclosed upon or otherwise subject to disposition.
|
(2)
|
Consists primarily of loans classified as TDRs.
|
(3)
|
Consists of income recognized during the period related to loans on non-accrual status.
|
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||||||
(In millions)
|
|
Single-family
|
Multifamily
|
Total
|
|
Single-family
|
Multifamily
|
Total
|
||||||||||||
Recorded investment:
|
|
|
|
|
|
|
|
|
||||||||||||
Collectively evaluated
|
|
|
$1,764,750
|
|
|
$21,301
|
|
|
$1,786,051
|
|
|
|
$1,684,411
|
|
|
$28,552
|
|
|
$1,712,963
|
|
Individually evaluated
|
|
59,237
|
|
132
|
|
59,369
|
|
|
85,033
|
|
350
|
|
85,383
|
|
||||||
Total recorded investment
|
|
1,823,987
|
|
21,433
|
|
1,845,420
|
|
|
1,769,444
|
|
28,902
|
|
1,798,346
|
|
||||||
Ending balance of the allowance for loan losses:
|
|
|
|
|
|
|
|
|
||||||||||||
Collectively evaluated
|
|
(2,301
|
)
|
(28
|
)
|
(2,329
|
)
|
|
(1,431
|
)
|
(11
|
)
|
(1,442
|
)
|
||||||
Individually evaluated
|
|
(6,630
|
)
|
(7
|
)
|
(6,637
|
)
|
|
(11,980
|
)
|
(9
|
)
|
(11,989
|
)
|
||||||
Total ending balance of the allowance
|
|
(8,931
|
)
|
(35
|
)
|
(8,966
|
)
|
|
(13,411
|
)
|
(20
|
)
|
(13,431
|
)
|
||||||
Net investment in loans
|
|
|
$1,815,056
|
|
|
$21,398
|
|
|
$1,836,454
|
|
|
|
$1,756,033
|
|
|
$28,882
|
|
|
$1,784,915
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
271
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 4
|
FREDDIE MAC
| 2017 Form 10-K
|
|
272
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 5
|
FREDDIE MAC
| 2017 Form 10-K
|
|
273
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 5
|
n
|
Long-term standby commitments of single-family loans which obligate us to purchase the covered loans when they become seriously delinquent. Periodically, certain of our customers seek to terminate long-term standby commitments and simultaneously enter into guarantor swap transactions to obtain our PCs backed by many of the same loans. During
2017
and
2016
, we guaranteed
$0.5 billion
and
$3.6 billion
, respectively, of loans under new long-term standby commitments; and
|
n
|
Guarantees of multifamily bonds, including guarantees that require us to advance funds to enable others to repurchase any tendered tax-exempt and related taxable bonds that are unable to be sold. The vast majority of these guarantees were guarantees of multifamily housing revenue bonds that were issued by HFAs.
No
advances under these guarantees were outstanding at both
December 31, 2017
and
2016
. During 2017 and 2016, we guaranteed
$1.1 billion
and
$1.7 billion
, respectively, of multifamily bonds.
|
n
|
Certain guarantees related to our securitization activities and other mortgage-related guarantees.
|
n
|
Certain market value guarantees, including written options and written swaptions.
|
n
|
Guarantees of third party derivative instruments.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
274
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 5
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||||
(
Dollars in millions
, terms in years)
|
|
Maximum
Exposure (1) |
Recognized
Liability (2) |
Maximum
Remaining Term |
|
Maximum
Exposure (1) |
Recognized
Liability (2) |
Maximum
Remaining Term |
||||||||
Single-Family:
|
|
|
|
|
|
|
|
|
||||||||
Securitization activity guarantees
|
|
|
$10,817
|
|
|
$120
|
|
40
|
|
|
$5,016
|
|
|
$22
|
|
40
|
Other mortgage-related guarantees
|
|
6,264
|
|
190
|
|
31
|
|
6,713
|
|
206
|
|
32
|
||||
Total single-family
|
|
|
$17,081
|
|
|
$310
|
|
|
|
|
$11,729
|
|
|
$228
|
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
||||||||
Securitization activity guarantees
|
|
|
$188,768
|
|
|
$2,305
|
|
40
|
|
|
$145,211
|
|
|
$1,510
|
|
39
|
Other mortgage-related guarantees
|
|
9,888
|
|
466
|
|
36
|
|
9,732
|
|
473
|
|
34
|
||||
Total multifamily
|
|
|
$198,656
|
|
|
$2,771
|
|
|
|
|
$154,943
|
|
|
$1,983
|
|
|
Other guarantees measured at fair value
|
|
|
$9,661
|
|
|
$141
|
|
28
|
|
|
$6,396
|
|
|
$127
|
|
29
|
(1)
|
The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of possible recoveries under credit enhancement arrangements, such as recourse provisions, third-party insurance contracts or from collateral held or pledged. For other guarantees measured at fair value, this amount represents the notional value if it relates to our market value guarantees or guarantees of third party derivative instruments; or the UPB if it relates to a guarantee of a mortgage-related asset. For certain of our other guarantees measured at fair value, our exposure may be unlimited. We generally reduce our exposure to these guarantees with unlimited exposure through separate contracts with third parties.
|
(2)
|
For securitization activity guarantees and other mortgage-related guarantees, this amount represents the guarantee obligation on our consolidated balance sheets. This amount excludes our reserve for guarantee losses, which totaled
$57 million
and
$67 million
as of
December 31, 2017
and
2016
, respectively, and is included within other liabilities on our consolidated balance sheets. For other guarantees measured at fair value, this amount represents the fair value of the contract.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
275
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 6
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||
(In millions)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
||||||||
Single-family:
|
|
|
|
|
|
|
||||||||
Primary mortgage insurance
|
|
|
$334,189
|
|
|
$85,429
|
|
|
|
$291,217
|
|
|
$74,345
|
|
(1)
|
Underlying loans may be covered by more than one form of credit enhancement, including freestanding credit enhancements and debt with embedded credit enhancements.
|
(2)
|
Represents the remaining amount of loss recovery that is available subject to the terms of counterparty agreements.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
276
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 6
|
FREDDIE MAC
| 2017 Form 10-K
|
|
277
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 6
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||
(In millions)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
||||||||
Single-family:
|
|
|
|
|
|
|
||||||||
Subordination (non-consolidated VIEs)
|
|
|
$8,953
|
|
|
$1,734
|
|
|
|
$2,701
|
|
|
$522
|
|
ACIS
|
|
617,730
|
|
6,736
|
|
|
453,670
|
|
5,355
|
|
||||
Other
(3)
|
|
15,975
|
|
6,479
|
|
|
12,827
|
|
7,373
|
|
||||
Total Single-family
|
|
|
|
14,949
|
|
|
|
|
13,250
|
|
||||
Multifamily:
|
|
|
|
|
|
|
||||||||
Subordination (non-consolidated VIEs)
|
|
187,299
|
|
30,689
|
|
|
143,802
|
|
24,522
|
|
||||
Other
(4)
|
|
1,833
|
|
726
|
|
|
1,159
|
|
701
|
|
||||
Total Multifamily
|
|
|
31,415
|
|
|
|
25,223
|
|
||||||
Total Single-family and Multifamily freestanding credit enhancements
|
|
|
|
$46,364
|
|
|
|
|
$38,473
|
|
(1)
|
Underlying loans may be covered by more than one form of credit enhancement, including attached credit enhancements and debt with embedded credit enhancements. For subordination, total current and protected UPB represents the UPB of the guaranteed securities.
|
(2)
|
For subordination, maximum coverage represents the UPB of the securities that are subordinate to our guarantee and held by third parties. For all other freestanding credit enhancements, maximum coverage represents the remaining amount of loss recovery that is available subject to the terms of counterparty agreements.
|
(3)
|
Includes seller indemnification, Deep MI CRT, lender recourse and indemnification agreements, pool insurance, HFA indemnification, and other credit enhancements.
|
(4)
|
Consists of multifamily HFA indemnification and loss reimbursement agreements with third parties obtained in certain of our Q Certificate transactions.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
278
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 6
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||
(In millions)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
|
Total Current and Protected UPB
(1)
|
Maximum Coverage
(2)
|
||||||||
Single-family:
|
|
|
|
|
|
|
||||||||
STACR debt notes
|
|
|
$604,356
|
|
|
$17,788
|
|
|
|
$427,978
|
|
|
$14,507
|
|
Subordination (consolidated VIEs)
|
|
3,330
|
|
179
|
|
|
1,287
|
|
83
|
|
||||
Total Single-family
|
|
|
|
17,967
|
|
|
|
|
14,590
|
|
||||
Multifamily:
|
|
|
|
|
|
|
||||||||
SCR debt notes
|
|
2,732
|
|
137
|
|
|
1,898
|
|
95
|
|
||||
Subordination (consolidated VIEs)
|
|
1,800
|
|
180
|
|
|
—
|
|
—
|
|
||||
Total Multifamily
|
|
|
|
317
|
|
|
|
|
95
|
|
||||
Total Single-family and Multifamily debt with embedded credit enhancements
|
|
|
|
|
$18,284
|
|
|
|
|
$14,685
|
|
(1)
|
Underlying loans may be covered by more than one form of credit enhancement, including attached credit enhancements and freestanding credit enhancements. For STACR debt notes and SCR debt notes, total current and protected UPB represents the UPB of the assets included in the reference pool. For subordination, total current and protected UPB represents the UPB of the guaranteed securities.
|
(2)
|
For STACR debt notes and SCR debt notes, maximum coverage amount represents the outstanding balance of the STACR debt notes and SCR debt notes held by third parties. For subordination, maximum coverage amount represents the UPB of the securities that are subordinate to our guarantee and held by third parties.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
279
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 7
|
(In millions)
|
|
As of December 31, 2017
|
As of December 31, 2016
|
||||
Trading securities
|
|
|
$40,721
|
|
|
$44,790
|
|
Available-for-sale securities
|
|
43,597
|
|
66,757
|
|
||
Total
|
|
|
$84,318
|
|
|
$111,547
|
|
n
|
Can contractually be prepaid or otherwise settled in such a way that we may not recover substantially all of our recorded investment;
|
n
|
Are not of high credit quality at acquisition; or
|
n
|
Have been determined to be other-than-temporarily impaired.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
280
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 7
|
(In millions)
|
|
As of December 31, 2017
|
As of December 31, 2016
|
||||
Mortgage-related securities:
|
|
|
|
||||
Freddie Mac
|
|
|
$12,235
|
|
|
$15,343
|
|
Other agency
|
|
3,574
|
|
8,161
|
|
||
Non-agency RMBS
|
|
750
|
|
113
|
|
||
Non-agency CMBS
|
|
1,343
|
|
36
|
|
||
Total mortgage-related securities
|
|
17,902
|
|
23,653
|
|
||
Non-mortgage-related securities
|
|
22,819
|
|
21,137
|
|
||
Total fair value of trading securities
|
|
|
$40,721
|
|
|
$44,790
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
281
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 7
|
|
|
As of December 31, 2017
|
||||||||||||||||
|
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
|
Gross Unrealized Losses
|
|
Fair
Value
|
|||||||||||
(In millions)
|
|
|
Other-Than-Temporary Impairment
(1)
|
Temporary Impairment
(2)
|
|
|||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||||
Freddie Mac
|
|
|
$35,433
|
|
|
$499
|
|
|
|
$—
|
|
|
($462
|
)
|
|
|
$35,470
|
|
Other agency
|
|
2,008
|
|
56
|
|
|
—
|
|
(11
|
)
|
|
2,053
|
|
|||||
Non-agency RMBS
|
|
3,012
|
|
927
|
|
|
(5
|
)
|
(1
|
)
|
|
3,933
|
|
|||||
Non-agency CMBS
|
|
1,773
|
|
22
|
|
|
(9
|
)
|
(2
|
)
|
|
1,784
|
|
|||||
Obligations of states and political subdivisions
|
|
352
|
|
5
|
|
|
—
|
|
—
|
|
|
357
|
|
|||||
Total available-for-sale securities
|
|
|
$42,578
|
|
|
$1,509
|
|
|
|
($14
|
)
|
|
($476
|
)
|
|
|
$43,597
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
As of December 31, 2016
|
||||||||||||||||
|
|
Amortized
Cost
|
Gross
Unrealized Gains |
|
Gross Unrealized Losses
|
|
Fair
Value
|
|||||||||||
(In millions)
|
|
|
Other-Than-Temporary Impairment
(1)
|
Temporary Impairment
(2)
|
|
|||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||||
Freddie Mac
|
|
|
$43,671
|
|
|
$563
|
|
|
|
$—
|
|
|
($582
|
)
|
|
|
$43,652
|
|
Other agency
|
|
4,127
|
|
119
|
|
|
—
|
|
(25
|
)
|
|
4,221
|
|
|||||
Non-agency RMBS
|
|
10,606
|
|
1,271
|
|
|
(62
|
)
|
(18
|
)
|
|
11,797
|
|
|||||
Non-agency CMBS
|
|
6,288
|
|
160
|
|
|
(3
|
)
|
(23
|
)
|
|
6,422
|
|
|||||
Obligations of states and political subdivisions
|
|
657
|
|
8
|
|
|
—
|
|
—
|
|
|
665
|
|
|||||
Total available-for-sale securities
|
|
|
$65,349
|
|
|
$2,121
|
|
|
|
($65
|
)
|
|
($648
|
)
|
|
|
$66,757
|
|
(1)
|
Represents the gross unrealized losses for securities for which we have previously recognized other-than-temporary impairment in earnings.
|
(2)
|
Represents the gross unrealized losses for securities for which we have not previously recognized other-than-temporary impairment in earnings.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
282
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 7
|
|
|
As of December 31, 2017
|
||||||||||||
|
|
Less than 12 Months
|
|
12 Months or Greater
|
||||||||||
(In millions)
|
|
Fair
Value
|
Gross Unrealized Losses
|
|
Fair
Value
|
Gross Unrealized Losses
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
||||||||
Freddie Mac
|
|
|
$10,337
|
|
|
($107
|
)
|
|
|
$9,251
|
|
|
($355
|
)
|
Other agency
|
|
40
|
|
—
|
|
|
1,079
|
|
(11
|
)
|
||||
Non-agency RMBS
|
|
5
|
|
—
|
|
|
105
|
|
(6
|
)
|
||||
Non-agency CMBS
|
|
1,026
|
|
(2
|
)
|
|
52
|
|
(9
|
)
|
||||
Obligations of states and political subdivisions
|
|
12
|
|
—
|
|
|
21
|
|
—
|
|
||||
Total available-for-sale securities in a gross unrealized loss position
|
|
|
$11,420
|
|
|
($109
|
)
|
|
|
$10,508
|
|
|
($381
|
)
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2016
|
||||||||||||
|
|
Less than 12 Months
|
|
12 Months or Greater
|
||||||||||
(In millions)
|
|
Fair
Value |
Gross Unrealized Losses
|
|
Fair
Value |
Gross Unrealized Losses
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
||||||||
Freddie Mac
|
|
|
$19,786
|
|
|
($559
|
)
|
|
|
$1,732
|
|
|
($23
|
)
|
Other agency
|
|
542
|
|
(6
|
)
|
|
2,040
|
|
(19
|
)
|
||||
Non-agency RMBS
|
|
309
|
|
(1
|
)
|
|
2,188
|
|
(79
|
)
|
||||
Non-agency CMBS
|
|
383
|
|
(2
|
)
|
|
204
|
|
(24
|
)
|
||||
Obligations of states and political subdivisions
|
|
83
|
|
—
|
|
|
—
|
|
—
|
|
||||
Total available-for-sale securities in a gross unrealized loss position
|
|
|
$21,103
|
|
|
($568
|
)
|
|
|
$6,164
|
|
|
($145
|
)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
283
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 7
|
FREDDIE MAC
| 2017 Form 10-K
|
|
284
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 7
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
||||||
Gross realized gains
|
|
|
$1,792
|
|
|
$1,062
|
|
|
$1,371
|
|
Gross realized losses
|
|
(66
|
)
|
(91
|
)
|
(33
|
)
|
|||
Net realized gains
|
|
|
$1,726
|
|
|
$971
|
|
|
$1,338
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
285
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 7
|
n
|
We purchased
$2.8 billion
and sold
$2.9 billion
of non-mortgage-related securities that were traded, but not settled. We settled our purchase obligation during the first quarter of 2018.
|
n
|
We transferred unguaranteed multifamily CMBS securities to a non-consolidated resecuritization trust in exchange for guaranteed multifamily CMBS securities in the amount of
$2.9 billion
, of which
$1.3 billion
was reclassified from available-for-sale to trading.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
286
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 8
|
|
|
Balance, Net
|
|
Interest Expense
|
|||||||||||||
|
|
As of December 31,
|
|
For The Year Ended December 31,
|
|||||||||||||
(In millions)
|
|
2017
|
2016
|
|
2017
|
2016
|
2015
|
||||||||||
Debt securities of consolidated trusts held by third parties
|
|
|
$1,720,996
|
|
|
$1,648,683
|
|
|
|
$47,656
|
|
|
$44,599
|
|
|
$45,536
|
|
Other debt:
|
|
|
|
|
|
|
|
||||||||||
Short-term debt
|
|
73,069
|
|
71,451
|
|
|
615
|
|
350
|
|
173
|
|
|||||
Long-term debt
|
|
240,565
|
|
281,870
|
|
|
5,372
|
|
5,837
|
|
6,435
|
|
|||||
Total other debt
|
|
313,634
|
|
353,321
|
|
|
5,987
|
|
6,187
|
|
6,608
|
|
|||||
Total debt, net
|
|
|
$2,034,630
|
|
|
$2,002,004
|
|
|
|
$53,643
|
|
|
$50,786
|
|
|
$52,144
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
287
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 8
|
FREDDIE MAC
| 2017 Form 10-K
|
|
288
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 8
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||||
(Dollars in millions)
|
|
Contractual
Maturity
|
UPB
|
Carrying Amount
(1)
|
Weighted
Average
Coupon
(2)
|
|
Contractual
Maturity
|
UPB
|
Carrying Amount
(1)
|
Weighted
Average
Coupon
(2)
|
||||||||||
Single-family:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
30-year or more, fixed-rate
|
|
2018 - 2055
|
|
$1,278,911
|
|
|
$1,318,350
|
|
3.68
|
%
|
|
2017 - 2055
|
|
$1,193,329
|
|
|
$1,229,849
|
|
3.71
|
%
|
20-year fixed-rate
|
|
2018 - 2038
|
73,866
|
|
76,022
|
|
3.43
|
%
|
|
2017 - 2037
|
74,033
|
|
76,331
|
|
3.49
|
%
|
||||
15-year fixed-rate
|
|
2018 - 2033
|
260,633
|
|
266,241
|
|
2.86
|
%
|
|
2017 - 2032
|
267,739
|
|
273,978
|
|
2.90
|
%
|
||||
Adjustable-rate
|
|
2018 - 2048
|
47,169
|
|
48,220
|
|
2.85
|
%
|
|
2017 - 2047
|
52,991
|
|
54,205
|
|
2.69
|
%
|
||||
Interest-only
|
|
2026 - 2041
|
7,303
|
|
7,379
|
|
3.74
|
%
|
|
2026 - 2041
|
10,007
|
|
10,057
|
|
3.47
|
%
|
||||
FHA/VA
|
|
2018 - 2046
|
847
|
|
866
|
|
4.85
|
%
|
|
2017 - 2046
|
1,015
|
|
1,038
|
|
4.92
|
%
|
||||
Total Single-family
|
|
|
1,668,729
|
|
1,717,078
|
|
|
|
|
1,599,114
|
|
1,645,458
|
|
|
||||||
Multifamily
|
|
2019-2047
|
3,876
|
|
3,918
|
|
3.99
|
%
|
|
2019 - 2033
|
3,048
|
|
3,225
|
|
4.63
|
%
|
||||
Total debt securities of consolidated trusts held by third parties
|
|
|
|
$1,672,605
|
|
|
$1,720,996
|
|
|
|
|
|
$1,602,162
|
|
|
$1,648,683
|
|
|
(1)
|
Includes
$639 million
and
$144 million
at
December 31, 2017
and 2016, respectively, of debt of consolidated trusts that represents the fair value of debt securities with the fair value option elected.
|
(2)
|
The effective rate for debt securities of consolidated trusts held by third parties was
2.84%
and
2.63%
as of
December 31, 2017
and 2016, respectively.
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||
(Dollars in millions)
|
|
Par Value
|
Carrying Amount
|
Weighted
Average
Effective Rate
|
|
Par Value
|
Carrying Amount
|
Weighted
Average
Effective Rate
|
||||||||||
Other short-term debt:
|
|
|
|
|
|
|
|
|
||||||||||
Discount notes and Reference Bills
®
|
|
|
$45,717
|
|
|
$45,596
|
|
1.19
|
%
|
|
|
$61,042
|
|
|
$60,976
|
|
0.47
|
%
|
Medium-term notes
|
|
17,792
|
|
17,792
|
|
1.03
|
%
|
|
7,435
|
|
7,435
|
|
0.41
|
%
|
||||
Securities sold under agreements to repurchase
|
|
9,681
|
|
9,681
|
|
1.06
|
%
|
|
3,040
|
|
3,040
|
|
0.42
|
%
|
||||
Total other short-term debt
|
|
|
$73,190
|
|
|
$73,069
|
|
1.14
|
%
|
|
|
$71,517
|
|
|
$71,451
|
|
0.47
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
289
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 8
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
|||||||||||||||
(Dollars in millions)
|
|
Contractual Maturity
|
Par Value
|
Carrying Amount
(1)
|
Weighted
Average
Effective Rate
(2)
|
|
Par Value
|
Carrying Amount
|
Weighted
Average
Effective Rate
(2)
|
||||||||||
Other long-term debt:
|
|
|
|
|
|
|
|
|
|
||||||||||
Other senior debt:
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed-rate:
|
|
|
|
|
|
|
|
|
|
||||||||||
Medium-term notes — callable
|
|
2018 - 2037
|
|
$86,311
|
|
|
$86,284
|
|
1.47
|
%
|
|
|
$76,412
|
|
|
$76,383
|
|
1.24
|
%
|
Medium-term notes — non-callable
|
|
2018 - 2028
|
10,839
|
|
10,973
|
|
1.40
|
%
|
|
13,742
|
|
13,987
|
|
1.08
|
%
|
||||
Reference Notes securities — non-callable
|
|
2018 - 2032
|
79,991
|
|
80,019
|
|
2.17
|
%
|
|
118,702
|
|
118,727
|
|
2.17
|
%
|
||||
STACR and SCR
|
|
2031 - 2042
|
137
|
|
140
|
|
12.77
|
%
|
|
95
|
|
95
|
|
13.00
|
%
|
||||
Variable-rate:
|
|
|
|
|
|
|
|
|
|
||||||||||
Medium-term notes — callable
|
|
2018 - 2032
|
27,510
|
|
27,475
|
|
1.95
|
%
|
|
21,008
|
|
20,972
|
|
1.94
|
%
|
||||
Medium-term notes — non-callable
|
|
2018 - 2026
|
14,746
|
|
14,746
|
|
0.68
|
%
|
|
33,077
|
|
33,076
|
|
0.48
|
%
|
||||
STACR
|
|
2023 - 2042
|
17,788
|
|
18,198
|
|
5.00
|
%
|
|
14,507
|
|
14,745
|
|
4.34
|
%
|
||||
Zero-coupon:
|
|
|
|
|
|
|
|
|
|
||||||||||
Medium-term notes — callable
|
|
|
—
|
|
—
|
|
—
|
%
|
|
1,000
|
|
296
|
|
6.17
|
%
|
||||
Medium-term notes — non-callable
|
|
2018 - 2039
|
5,141
|
|
2,415
|
|
5.94
|
%
|
|
5,792
|
|
2,925
|
|
5.01
|
%
|
||||
Other
|
|
—
|
—
|
|
—
|
|
—
|
%
|
|
438
|
|
281
|
|
5.93
|
%
|
||||
Hedging-related basis adjustments
|
|
|
N/A
|
|
(79
|
)
|
|
|
N/A
|
|
15
|
|
|
||||||
Total other senior debt
|
|
|
242,463
|
|
240,171
|
|
|
|
284,773
|
|
281,502
|
|
|
||||||
Other subordinated debt:
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed-rate
|
|
2018
|
121
|
|
121
|
|
7.83
|
%
|
|
121
|
|
120
|
|
7.84
|
%
|
||||
Zero-coupon
|
|
2019
|
332
|
|
273
|
|
10.51
|
%
|
|
332
|
|
248
|
|
10.51
|
%
|
||||
Total other subordinated debt
|
|
|
453
|
|
394
|
|
|
|
453
|
|
368
|
|
|
||||||
Total other long-term debt
|
|
|
|
$242,916
|
|
|
$240,565
|
|
2.04
|
%
|
|
|
$285,226
|
|
|
$281,870
|
|
1.81
|
%
|
(1)
|
Represents par value, net of associated discounts or premiums and issuance costs. Includes
$5.2 billion
and
$5.9 billion
at December 31, 2017 and 2016, respectively, of other long term-debt that represents the fair value of debt securities with the fair value option elected.
|
(2)
|
Based on carrying amount.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
290
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 8
|
(In millions)
|
|
Par Value
|
||
Annual Maturities
|
|
|
||
Other long-term debt (excluding STACR and SCR):
|
|
|
||
2018
|
|
|
$70,557
|
|
2019
|
|
57,689
|
|
|
2020
|
|
38,117
|
|
|
2021
|
|
22,809
|
|
|
2022
|
|
18,538
|
|
|
Thereafter
|
|
17,281
|
|
|
Debt securities of consolidated trusts held by third parties, STACR and SCR
(1)
|
|
1,690,530
|
|
|
Total
|
|
1,915,521
|
|
|
Net discounts, premiums, debt issuance costs, hedge-related and other basis adjustments
(2)
|
|
46,040
|
|
|
Total debt securities of consolidated trusts held by third parties, STACR, SCR and other long-term debt
|
|
|
$1,961,561
|
|
(1)
|
Contractual maturities of these debt securities are not presented because they are subject to prepayment risk, as their payments are based upon the performance of a pool of mortgage assets that may be prepaid by the related mortgage borrower at any time without penalty.
|
(2)
|
Other basis adjustments primarily represent changes in fair value attributable to instrument-specific credit risk.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
291
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 9
|
n
|
Exchange-traded derivatives;
|
n
|
Cleared derivatives; and
|
FREDDIE MAC
| 2017 Form 10-K
|
|
292
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 9
|
n
|
OTC derivatives.
|
n
|
LIBOR-based interest-rate swaps;
|
n
|
LIBOR- and Treasury-based purchased options (including swaptions); and
|
n
|
LIBOR- and Treasury-based exchange-traded futures.
|
n
|
Purchase and sell investments in securities;
|
n
|
Purchase and sell loans; and
|
n
|
Purchase and extinguish or issue debt securities of our consolidated trusts.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
293
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 9
|
FREDDIE MAC
| 2017 Form 10-K
|
|
294
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 9
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||||
|
|
Notional or
Contractual
Amount
|
Derivatives at Fair Value
|
|
Notional or
Contractual
Amount
|
Derivatives at Fair Value
|
||||||||||||||
(In millions)
|
|
Assets
|
Liabilities
|
|
Assets
|
Liabilities
|
||||||||||||||
Not designated as hedges
|
|
|
|
|
|
|
|
|
||||||||||||
Interest-rate swaps:
|
|
|
|
|
|
|
|
|
||||||||||||
Receive-fixed
|
|
|
$213,717
|
|
|
$2,121
|
|
|
($1,224
|
)
|
|
|
$313,106
|
|
|
$4,337
|
|
|
($2,703
|
)
|
Pay-fixed
|
|
185,400
|
|
751
|
|
(5,008
|
)
|
|
271,477
|
|
2,586
|
|
(9,684
|
)
|
||||||
Basis (floating to floating)
|
|
5,244
|
|
—
|
|
(2
|
)
|
|
1,450
|
|
1
|
|
—
|
|
||||||
Total interest-rate swaps
|
|
404,361
|
|
2,872
|
|
(6,234
|
)
|
|
586,033
|
|
6,924
|
|
(12,387
|
)
|
||||||
Option-based:
|
|
|
|
|
|
|
|
|
||||||||||||
Call swaptions
|
|
|
|
|
|
|
|
|
||||||||||||
Purchased
|
|
58,975
|
|
2,709
|
|
—
|
|
|
60,730
|
|
2,817
|
|
—
|
|
||||||
Written
|
|
4,650
|
|
—
|
|
(101
|
)
|
|
1,350
|
|
—
|
|
(78
|
)
|
||||||
Put swaptions
|
|
|
|
|
|
|
|
|
||||||||||||
Purchased
(1)
|
|
47,810
|
|
1,058
|
|
—
|
|
|
48,080
|
|
1,442
|
|
—
|
|
||||||
Written
|
|
3,000
|
|
—
|
|
(20
|
)
|
|
3,200
|
|
—
|
|
(28
|
)
|
||||||
Other option-based derivatives
(2)
|
|
10,683
|
|
757
|
|
—
|
|
|
11,032
|
|
795
|
|
—
|
|
||||||
Total option-based
|
|
125,118
|
|
4,524
|
|
(121
|
)
|
|
124,392
|
|
5,054
|
|
(106
|
)
|
||||||
Futures
|
|
267,385
|
|
—
|
|
—
|
|
|
138,294
|
|
—
|
|
—
|
|
||||||
Commitments
|
|
54,207
|
|
44
|
|
(64
|
)
|
|
45,353
|
|
289
|
|
(151
|
)
|
||||||
Credit derivatives
|
|
3,569
|
|
7
|
|
(46
|
)
|
|
2,951
|
|
1
|
|
(27
|
)
|
||||||
Other
|
|
2,906
|
|
1
|
|
(19
|
)
|
|
2,879
|
|
—
|
|
(21
|
)
|
||||||
Total derivatives not designated as hedging instruments
|
|
857,546
|
|
7,448
|
|
(6,484
|
)
|
|
899,902
|
|
12,268
|
|
(12,692
|
)
|
||||||
Designated as fair value hedges
|
|
|
|
|
|
|
|
|
||||||||||||
Interest-rate swaps:
|
|
|
|
|
|
|
|
|
||||||||||||
Receive-fixed
|
|
83,352
|
|
2
|
|
(714
|
)
|
|
—
|
|
—
|
|
—
|
|
||||||
Pay-fixed
|
|
69,402
|
|
1,388
|
|
(291
|
)
|
|
—
|
|
—
|
|
—
|
|
||||||
Total derivatives designated as fair value hedges
|
|
152,754
|
|
1,390
|
|
(1,005
|
)
|
|
—
|
|
—
|
|
—
|
|
||||||
Derivative interest receivable (payable)
|
|
|
1,407
|
|
(1,596
|
)
|
|
|
1,442
|
|
(1,770
|
)
|
||||||||
Netting adjustments
(3)
|
|
|
(9,870
|
)
|
8,816
|
|
|
|
(12,963
|
)
|
13,667
|
|
||||||||
Total derivative portfolio, net
|
|
|
$1,010,300
|
|
|
$375
|
|
|
($269
|
)
|
|
|
$899,902
|
|
|
$747
|
|
|
($795
|
)
|
(1)
|
Includes swaptions on credit indices with a notional or contractual amount of
$13.4 billion
and
$10.9 billion
at December 31, 2017 and December 31, 2016, respectively, and a fair value of
$5 million
at both
December 31, 2017
and December 31, 2016.
|
(2)
|
Primarily consists of purchased interest-rate caps and floors and options on Treasury futures.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
295
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 9
|
(3)
|
Represents counterparty netting and cash collateral netting.
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
||||||
Not designated as hedges
|
|
|
|
|
||||||
Interest-rate swaps:
|
|
|
|
|
||||||
Receive-fixed
|
|
|
($1,343
|
)
|
|
($3,539
|
)
|
|
$35
|
|
Pay-fixed
|
|
1,972
|
|
3,717
|
|
(811
|
)
|
|||
Basis (floating to floating)
|
|
(3
|
)
|
—
|
|
(2
|
)
|
|||
Total interest-rate swaps
|
|
626
|
|
178
|
|
(778
|
)
|
|||
Option based:
|
|
|
|
|
||||||
Call swaptions
|
|
|
|
|
||||||
Purchased
|
|
(404
|
)
|
234
|
|
371
|
|
|||
Written
|
|
24
|
|
(45
|
)
|
(9
|
)
|
|||
Put swaptions
|
|
|
|
|
||||||
Purchased
|
|
(673
|
)
|
210
|
|
(249
|
)
|
|||
Written
|
|
50
|
|
35
|
|
77
|
|
|||
Other option-based derivatives
(1)
|
|
(38
|
)
|
(13
|
)
|
68
|
|
|||
Total option-based
|
|
(1,041
|
)
|
421
|
|
258
|
|
|||
Other:
|
|
|
|
|
||||||
Futures
|
|
144
|
|
334
|
|
(5
|
)
|
|||
Commitments
|
|
(91
|
)
|
631
|
|
63
|
|
|||
Credit derivatives
|
|
(29
|
)
|
(75
|
)
|
(37
|
)
|
|||
Other
|
|
(7
|
)
|
(3
|
)
|
1
|
|
|||
Total other
|
|
17
|
|
887
|
|
22
|
|
|||
Accrual of periodic cash settlements:
|
|
|
|
|
||||||
Receive-fixed interest-rate swaps
|
|
1,511
|
|
2,316
|
|
2,568
|
|
|||
Pay-fixed interest-rate swaps
|
|
(3,101
|
)
|
(4,077
|
)
|
(4,768
|
)
|
|||
Other
|
|
—
|
|
1
|
|
2
|
|
|||
Total accrual of periodic cash settlements
|
|
(1,590
|
)
|
(1,760
|
)
|
(2,198
|
)
|
|||
Total
|
|
|
($1,988
|
)
|
|
($274
|
)
|
|
($2,696
|
)
|
(1)
|
Primarily consists of purchased interest-rate caps and floors and options on Treasury futures.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
296
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 9
|
|
|
Year Ended December 31, 2017
|
||||||||
(In millions)
|
|
Interest Income - Mortgage Loans
|
Interest Expense
|
Other Income (Loss)
|
||||||
Total amounts of income and expense line items presented in our consolidated statements of comprehensive income in which the effects of fair value hedges are recorded:
|
|
|
$63,735
|
|
|
($53,643
|
)
|
|
$7,480
|
|
|
|
|
|
|
||||||
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
||||||
Interest contracts on mortgage loans held-for-investment:
(1)
|
|
|
|
|
||||||
Hedged items
|
|
|
($107
|
)
|
|
$—
|
|
|
$351
|
|
Derivatives designated as hedging instruments
(2)
|
|
|
$313
|
|
|
$—
|
|
|
($215
|
)
|
Interest contracts on debt:
|
|
|
|
|
||||||
Hedged items
|
|
|
$—
|
|
|
$93
|
|
|
$—
|
|
Derivatives designated as hedging instruments
(3)
|
|
|
$—
|
|
|
($53
|
)
|
|
$—
|
|
(1)
|
For the first three quarters of 2017, the gains or losses on derivatives and hedged items were recorded in other income (loss). Beginning in 4Q 2017, gains or losses are recorded in interest income - mortgage loans in our consolidated statements of comprehensive income due to adoption of amended hedge accounting guidance.
|
(2)
|
The gain or (loss) on fair value hedging relationships excludes
$(83) million
of interest accruals which were recorded in interest income - mortgage loans in our consolidated statements of comprehensive income.
|
(3)
|
The gain or (loss) on fair value hedging relationships excludes
$8 million
of interest accruals which were recorded in interest expense in our consolidated statements of comprehensive income.
|
|
|
As of December 31, 2017
|
|||||||||
|
|
Carrying Amount Assets / (Liabilities)
|
|
Cumulative Amount of Fair Value Hedging Basis Adjustment Included in the Carrying Amount
|
|||||||
(In millions)
|
|
|
Total
|
Discontinued - Hedge Related
|
|||||||
Mortgage loans held-for-investment
|
|
|
$128,140
|
|
|
|
$198
|
|
|
$198
|
|
Debt
|
|
|
($92,277
|
)
|
|
|
$79
|
|
|
($14
|
)
|
|
|
|
|
|
|
||||||
|
|
As of December 31, 2016
|
|||||||||
|
|
Carrying Amount Assets / (Liabilities)
|
|
Cumulative Amount of Fair Value Hedging Basis Adjustment Included in the Carrying Amount
|
|||||||
(In millions)
|
|
|
Total
|
Discontinued - Hedge Related
|
|||||||
Mortgage loans held-for-investment
|
|
|
$—
|
|
|
|
$—
|
|
|
$—
|
|
Debt
|
|
|
($8,546
|
)
|
|
|
($15
|
)
|
|
($15
|
)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
297
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 10
|
FREDDIE MAC
| 2017 Form 10-K
|
|
298
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 10
|
FREDDIE MAC
| 2017 Form 10-K
|
|
299
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 10
|
FREDDIE MAC
| 2017 Form 10-K
|
|
300
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 10
|
FREDDIE MAC
| 2017 Form 10-K
|
|
301
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 10
|
|
|
As of December 31, 2017
|
|||||||||||||||||||
|
|
Gross
Amount
Recognized
|
|
Amount Offset in the
Consolidated
Balance Sheets
|
|
Net Amount
Presented in
the Consolidated
Balance Sheets
|
Gross Amount
Not Offset in
the Consolidated
Balance Sheets
(2)
|
Net
Amount
|
|||||||||||||
(In millions)
|
|
|
Counterparty Netting
|
Cash Collateral Netting
(1)
|
|
||||||||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||||
OTC derivatives
|
|
|
$7,648
|
|
|
|
($5,499
|
)
|
|
($1,903
|
)
|
|
|
$246
|
|
|
($205
|
)
|
|
$41
|
|
Cleared and exchange-traded derivatives
|
|
2,545
|
|
|
(2,266
|
)
|
(202
|
)
|
|
77
|
|
—
|
|
77
|
|
||||||
Other
|
|
52
|
|
|
—
|
|
—
|
|
|
52
|
|
—
|
|
52
|
|
||||||
Total derivatives
|
|
10,245
|
|
|
(7,765
|
)
|
(2,105
|
)
|
|
375
|
|
(205
|
)
|
170
|
|
||||||
Securities purchased under agreements to resell
(3)
|
|
55,903
|
|
|
—
|
|
—
|
|
|
55,903
|
|
(55,903
|
)
|
—
|
|
||||||
Total
|
|
|
$66,148
|
|
|
|
($7,765
|
)
|
|
($2,105
|
)
|
|
|
$56,278
|
|
|
($56,108
|
)
|
|
$170
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||||
OTC interest-rate swaps and option-based derivatives
|
|
|
($6,285
|
)
|
|
|
$5,499
|
|
|
$688
|
|
|
|
($98
|
)
|
|
$—
|
|
|
($98
|
)
|
Cleared and exchange-traded derivatives
|
|
(2,671
|
)
|
|
2,266
|
|
363
|
|
|
(42
|
)
|
—
|
|
(42
|
)
|
||||||
Other
|
|
(129
|
)
|
|
—
|
|
—
|
|
|
(129
|
)
|
—
|
|
(129
|
)
|
||||||
Total derivatives
|
|
(9,085
|
)
|
|
7,765
|
|
1,051
|
|
|
(269
|
)
|
—
|
|
(269
|
)
|
||||||
Securities sold under agreements to repurchase
|
|
(9,681
|
)
|
|
—
|
|
—
|
|
|
(9,681
|
)
|
9,681
|
|
—
|
|
||||||
Total
|
|
|
($18,766
|
)
|
|
|
$7,765
|
|
|
$1,051
|
|
|
|
($9,950
|
)
|
|
$9,681
|
|
|
($269
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
As of December 31, 2016
|
|||||||||||||||||||
|
|
Gross
Amount
Recognized
|
|
Amount Offset in the
Consolidated
Balance Sheets
|
|
Net Amount
Presented in
the Consolidated
Balance Sheets
|
Gross Amount
Not Offset in
the Consolidated
Balance Sheets
(2)
|
Net
Amount
|
|||||||||||||
(In millions)
|
|
|
Counterparty Netting
|
Cash Collateral Netting
(1)
|
|
||||||||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||||
OTC derivatives
|
|
|
$8,531
|
|
|
|
($6,367
|
)
|
|
($1,760
|
)
|
|
|
$404
|
|
|
($353
|
)
|
|
$51
|
|
Cleared and exchange-traded derivatives
|
|
4,889
|
|
|
(4,674
|
)
|
(162
|
)
|
|
53
|
|
—
|
|
53
|
|
||||||
Other
|
|
290
|
|
|
—
|
|
—
|
|
|
290
|
|
—
|
|
290
|
|
||||||
Total derivatives
|
|
13,710
|
|
|
(11,041
|
)
|
(1,922
|
)
|
|
747
|
|
(353
|
)
|
394
|
|
||||||
Securities purchased under agreements to resell
(3)
|
|
51,548
|
|
|
—
|
|
—
|
|
|
51,548
|
|
(51,548
|
)
|
—
|
|
||||||
Total
|
|
|
$65,258
|
|
|
|
($11,041
|
)
|
|
($1,922
|
)
|
|
|
$52,295
|
|
|
($51,901
|
)
|
|
$394
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||||
OTC interest-rate swaps and option-based derivatives
|
|
|
($7,298
|
)
|
|
|
$6,367
|
|
|
$469
|
|
|
|
($462
|
)
|
|
$274
|
|
|
($188
|
)
|
Cleared and exchange-traded derivatives
|
|
(6,965
|
)
|
|
4,705
|
|
2,126
|
|
|
(134
|
)
|
—
|
|
(134
|
)
|
||||||
Other
|
|
(199
|
)
|
|
—
|
|
—
|
|
|
(199
|
)
|
—
|
|
(199
|
)
|
||||||
Total derivatives
|
|
(14,462
|
)
|
|
11,072
|
|
2,595
|
|
|
(795
|
)
|
274
|
|
(521
|
)
|
||||||
Securities sold under agreements to repurchase
|
|
(3,040
|
)
|
|
—
|
|
—
|
|
|
(3,040
|
)
|
3,040
|
|
—
|
|
||||||
Total
|
|
|
($17,502
|
)
|
|
|
$11,072
|
|
|
$2,595
|
|
|
|
($3,835
|
)
|
|
$3,314
|
|
|
($521
|
)
|
(1)
|
Excess cash collateral held is presented as a derivative liability, while excess cash collateral posted is presented as a derivative asset.
|
(2)
|
Does not include the fair value amount of non-cash collateral posted or held that exceeds the associated net asset or liability, netted by counterparty, presented on the consolidated balance sheets. For cleared and exchange-traded derivatives, does not include non-cash collateral posted by us as initial margin with an aggregate fair value of
$3.1 billion
and
$3.4 billion
as of
December 31, 2017
and
2016
, respectively.
|
(3)
|
At
December 31, 2017
and
2016
, we had
$3.4 billion
and
$4.0 billion
, respectively, of securities pledged to us for transactions involving securities purchased under agreements to resell that we had the right to repledge.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
302
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 10
|
|
|
As of December 31, 2017
|
|||||||||||
(In millions)
|
|
Derivatives
|
Securities sold under agreements to repurchase
|
Other
(2)
|
Total
|
||||||||
Debt securities of consolidated trusts
(1)
|
|
|
$375
|
|
|
$—
|
|
|
$111
|
|
|
$486
|
|
Trading securities
|
|
2,766
|
|
9,705
|
|
362
|
|
12,833
|
|
||||
Total securities pledged
|
|
|
$3,141
|
|
|
$9,705
|
|
|
$473
|
|
|
$13,319
|
|
(1)
|
Represents PCs held by us in our Capital Markets segment mortgage investments portfolio which are recorded as a reduction to debt securities of consolidated trusts held by third parties on our consolidated balance sheets.
|
(2)
|
Includes other collateralized borrowings and collateral related to transactions with certain clearinghouses.
|
|
|
As of December 31, 2017
|
||||||||||||||
(In millions)
|
|
Overnight and continuous
|
30 days or less
|
After 30 days through 90 days
|
Greater than
90 days
|
Total
|
||||||||||
U.S. Treasury securities
|
|
|
$—
|
|
|
$9,705
|
|
|
$—
|
|
|
$—
|
|
|
$9,705
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
303
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 11
|
|
|
Year Ended December 31, 2017
|
|||||||||||
(In millions)
|
|
AOCI Related
to Available-
For-Sale
Securities
|
AOCI Related
to Cash Flow
Hedge
Relationships
|
AOCI Related
to Defined
Benefit Plans
|
Total
|
||||||||
Beginning balance
|
|
|
$915
|
|
|
($480
|
)
|
|
$21
|
|
|
$456
|
|
Other comprehensive income before reclassifications
(1)
|
|
857
|
|
—
|
|
63
|
|
920
|
|
||||
Amounts reclassified from accumulated other comprehensive income
|
|
(1,110
|
)
|
124
|
|
(1
|
)
|
(987
|
)
|
||||
Changes in AOCI by component
|
|
(253
|
)
|
124
|
|
62
|
|
(67
|
)
|
||||
Ending balance
|
|
|
$662
|
|
|
($356
|
)
|
|
$83
|
|
|
$389
|
|
|
|
|
|
|
|
||||||||
|
|
Year Ended December 31, 2016
|
|||||||||||
(In millions)
|
|
AOCI Related
to Available-
For-Sale
Securities
|
AOCI Related
to Cash Flow
Hedge
Relationships
|
AOCI Related
to Defined
Benefit Plans
|
Total
|
||||||||
Beginning balance
|
|
|
$1,740
|
|
|
($621
|
)
|
|
$34
|
|
|
$1,153
|
|
Other comprehensive income before reclassifications
(1)
|
|
(318
|
)
|
—
|
|
(10
|
)
|
(328
|
)
|
||||
Amounts reclassified from accumulated other comprehensive income
|
|
(507
|
)
|
141
|
|
(3
|
)
|
(369
|
)
|
||||
Changes in AOCI by component
|
|
(825
|
)
|
141
|
|
(13
|
)
|
(697
|
)
|
||||
Ending balance
|
|
|
$915
|
|
|
($480
|
)
|
|
$21
|
|
|
$456
|
|
|
|
|
|
|
|
||||||||
|
|
Year Ended December 31, 2015
|
|||||||||||
(In millions)
|
|
AOCI Related
to Available-
For-Sale
Securities
|
AOCI Related
to Cash Flow
Hedge
Relationships
|
AOCI Related
to Defined
Benefit Plans
|
Total
|
||||||||
Beginning balance
|
|
|
$2,546
|
|
|
($803
|
)
|
|
($13
|
)
|
|
$1,730
|
|
Other comprehensive income before reclassifications
(1)
|
|
(123
|
)
|
—
|
|
48
|
|
(75
|
)
|
||||
Amounts reclassified from accumulated other comprehensive income
|
|
(683
|
)
|
182
|
|
(1
|
)
|
(502
|
)
|
||||
Changes in AOCI by component
|
|
(806
|
)
|
182
|
|
47
|
|
(577
|
)
|
||||
Ending balance
|
|
|
$1,740
|
|
|
($621
|
)
|
|
$34
|
|
|
$1,153
|
|
(1)
|
For the years ended
December 31, 2017
, 2016 and 2015, net of tax expense of
$0.5 billion
,
($0.2) billion
and
$0.1 billion
, respectively, for AOCI related to available-for-sale securities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
304
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 11
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
||||||
AOCI related to available-for-sale securities
|
|
|
|
|
||||||
Affected line items in the consolidated statements of comprehensive income:
|
|
|
|
|
||||||
Other gains (losses) on investment securities recognized in earnings
|
|
|
$1,726
|
|
|
$971
|
|
|
$1,343
|
|
Net impairment of available-for-sale securities recognized in earnings
|
|
(18
|
)
|
(191
|
)
|
(292
|
)
|
|||
Total before tax
|
|
1,708
|
|
780
|
|
1,051
|
|
|||
Income tax (expense) or benefit
|
|
(598
|
)
|
(273
|
)
|
(368
|
)
|
|||
Net of tax
|
|
1,110
|
|
507
|
|
683
|
|
|||
|
|
|
|
|
||||||
AOCI related to cash flow hedge relationships
|
|
|
|
|
||||||
Affected line items in the consolidated statements of comprehensive income:
|
|
|
|
|
||||||
Interest expense
|
|
(164
|
)
|
(192
|
)
|
(230
|
)
|
|||
Income tax (expense) or benefit
|
|
40
|
|
51
|
|
48
|
|
|||
Net of tax
|
|
(124
|
)
|
(141
|
)
|
(182
|
)
|
|||
|
|
|
|
|
||||||
AOCI related to defined benefit plans
|
|
|
|
|
||||||
Affected line items in the consolidated statements of comprehensive income:
|
|
|
|
|
||||||
Salaries and employee benefits
|
|
2
|
|
4
|
|
1
|
|
|||
Income tax (expense) or benefit
|
|
(1
|
)
|
(1
|
)
|
—
|
|
|||
Net of tax
|
|
1
|
|
3
|
|
1
|
|
|||
Total reclassifications in the period net of tax
|
|
|
$987
|
|
|
$369
|
|
|
$502
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
305
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 11
|
FREDDIE MAC
| 2017 Form 10-K
|
|
306
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 11
|
(
In millions
, except initial liquidation preference price per share)
|
|
Shares
Authorized
|
Shares
Outstanding
|
Total
Par Value
|
Initial
Liquidation
Preference
Price per Share
|
Total
Liquidation
Preference
|
||||||||
Non-draw Adjustment Dates:
|
|
|
||||||||||||
September 8, 2008
|
|
1.00
|
|
1.00
|
|
|
$1.00
|
|
|
$1,000
|
|
|
$1,000
|
|
December 31, 2017
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
3,000
|
|
|||
Draw Dates:
|
|
|
|
|
|
|
||||||||
November 24, 2008
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
13,800
|
|
|||
March 31, 2009
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
30,800
|
|
|||
June 30, 2009
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
6,100
|
|
|||
June 30, 2010
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
10,600
|
|
|||
September 30, 2010
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
1,800
|
|
|||
December 30, 2010
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
100
|
|
|||
March 31, 2011
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
500
|
|
|||
September 30, 2011
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
1,479
|
|
|||
December 30, 2011
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
5,992
|
|
|||
March 30, 2012
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
146
|
|
|||
June 29, 2012
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
19
|
|
|||
Total, senior preferred stock
|
|
1.00
|
|
1.00
|
|
|
$1.00
|
|
|
|
$75,336
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
307
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 11
|
FREDDIE MAC
| 2017 Form 10-K
|
|
308
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 11
|
(
In millions
, except redemption price per share)
|
Issue Date
|
Shares
Authorized
|
Shares
Outstanding
|
Total
Par Value
|
Redemption
Price per
Share
|
Total
Outstanding
Balance
|
Redeemable
On or After
|
OTCQB
Symbol
|
||||||||
Preferred stock:
|
|
|
|
|
|
|
|
|
||||||||
1996 Variable-rate
(1)
|
April 26, 1996
|
5.00
|
|
5.00
|
|
|
$5.00
|
|
|
$50.00
|
|
|
$250
|
|
June 30, 2001
|
FMCCI
|
5.81%
|
October 27, 1997
|
3.00
|
|
3.00
|
|
3.00
|
|
50.00
|
|
150
|
|
October 27, 1998
|
(2)
|
|||
5%
|
March 23, 1998
|
8.00
|
|
8.00
|
|
8.00
|
|
50.00
|
|
400
|
|
March 31, 2003
|
FMCKK
|
|||
1998 Variable-rate
(3)
|
September 23 and 29, 1998
|
4.40
|
|
4.40
|
|
4.40
|
|
50.00
|
|
220
|
|
September 30, 2003
|
FMCCG
|
|||
5.10%
|
September 23, 1998
|
8.00
|
|
8.00
|
|
8.00
|
|
50.00
|
|
400
|
|
September 30, 2003
|
FMCCH
|
|||
5.30%
|
October 28, 1998
|
4.00
|
|
4.00
|
|
4.00
|
|
50.00
|
|
200
|
|
October 30, 2000
|
(2)
|
|||
5.10%
|
March 19, 1999
|
3.00
|
|
3.00
|
|
3.00
|
|
50.00
|
|
150
|
|
March 31, 2004
|
(2)
|
|||
5.79%
|
July 21, 1999
|
5.00
|
|
5.00
|
|
5.00
|
|
50.00
|
|
250
|
|
June 30, 2009
|
FMCCK
|
|||
1999 Variable-rate
(4)
|
November 5, 1999
|
5.75
|
|
5.75
|
|
5.75
|
|
50.00
|
|
287
|
|
December 31, 2004
|
FMCCL
|
|||
2001 Variable-rate
(5)
|
January 26, 2001
|
6.50
|
|
6.50
|
|
6.50
|
|
50.00
|
|
325
|
|
March 31, 2003
|
FMCCM
|
|||
2001 Variable-rate
(6)
|
March 23, 2001
|
4.60
|
|
4.60
|
|
4.60
|
|
50.00
|
|
230
|
|
March 31, 2003
|
FMCCN
|
|||
5.81%
|
March 23, 2001
|
3.45
|
|
3.45
|
|
3.45
|
|
50.00
|
|
173
|
|
March 31, 2011
|
FMCCO
|
|||
6%
|
May 30, 2001
|
3.45
|
|
3.45
|
|
3.45
|
|
50.00
|
|
173
|
|
June 30, 2006
|
FMCCP
|
|||
2001 Variable-rate
(7)
|
May 30, 2001
|
4.02
|
|
4.02
|
|
4.02
|
|
50.00
|
|
201
|
|
June 30, 2003
|
FMCCJ
|
|||
5.70%
|
October 30, 2001
|
6.00
|
|
6.00
|
|
6.00
|
|
50.00
|
|
300
|
|
December 31, 2006
|
FMCKP
|
|||
5.81%
|
January 29, 2002
|
6.00
|
|
6.00
|
|
6.00
|
|
50.00
|
|
300
|
|
March 31, 2007
|
(2)
|
|||
2006 Variable-rate
(8)
|
July 17, 2006
|
15.00
|
|
15.00
|
|
15.00
|
|
50.00
|
|
750
|
|
June 30, 2011
|
FMCCS
|
|||
6.42%
|
July 17, 2006
|
5.00
|
|
5.00
|
|
5.00
|
|
50.00
|
|
250
|
|
June 30, 2011
|
FMCCT
|
|||
5.90%
|
October 16, 2006
|
20.00
|
|
20.00
|
|
20.00
|
|
25.00
|
|
500
|
|
September 30, 2011
|
FMCKO
|
|||
5.57%
|
January 16, 2007
|
44.00
|
|
44.00
|
|
44.00
|
|
25.00
|
|
1,100
|
|
December 31, 2011
|
FMCKM
|
|||
5.66%
|
April 16, 2007
|
20.00
|
|
20.00
|
|
20.00
|
|
25.00
|
|
500
|
|
March 31, 2012
|
FMCKN
|
|||
6.02%
|
July 24, 2007
|
20.00
|
|
20.00
|
|
20.00
|
|
25.00
|
|
500
|
|
June 30, 2012
|
FMCKL
|
|||
6.55%
|
September 28, 2007
|
20.00
|
|
20.00
|
|
20.00
|
|
25.00
|
|
500
|
|
September 30, 2017
|
FMCKI
|
|||
2007 Fixed-to-floating rate
(9)
|
December 4, 2007
|
240.00
|
|
240.00
|
|
240.00
|
|
25.00
|
|
6,000
|
|
December 31, 2012
|
FMCKJ
|
|||
Total, preferred stock
|
|
464.17
|
|
464.17
|
|
|
$464.17
|
|
|
|
$14,109
|
|
|
|
(1)
|
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 9.00%.
|
(2)
|
Issued through private placement.
|
(3)
|
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 7.50%.
|
(4)
|
Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury rate, and is capped at 11.00%.
Optional redemption on December 31, 2004 and on December 31 every five years thereafter.
|
(5)
|
Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.10%, and is capped at 11.00%.
Optional redemption on March 31, 2003 and on March 31 every two years thereafter.
|
(6)
|
Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%, and is capped at 11.00%.
Optional redemption on March 31, 2003 and on March 31 every year thereafter.
|
(7)
|
Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.20%, and is capped at 11.00%.
Optional redemption on June 30, 2003 and on June 30 every two years thereafter.
|
(8)
|
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%.
|
(9)
|
Dividend rate is set at an annual fixed rate of 8.375% from December 4, 2007 through December 31, 2012. For the period beginning on or after January 1, 2013, dividend rate resets quarterly and is equal to the higher of: (a) the sum of three-month LIBOR plus 4.16% per annum; or (b) 7.875% per annum. Optional redemption on December 31, 2012, and on December 31 every five years thereafter.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
309
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 11
|
FREDDIE MAC
| 2017 Form 10-K
|
|
310
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 11
|
FREDDIE MAC
| 2017 Form 10-K
|
|
311
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 12
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
||||||
Current income tax expense
|
|
|
($3,436
|
)
|
|
($1,037
|
)
|
|
($1,243
|
)
|
Deferred income tax expense
|
|
(7,773
|
)
|
(2,787
|
)
|
(1,655
|
)
|
|||
Total income tax expense
|
|
|
($11,209
|
)
|
|
($3,824
|
)
|
|
($2,898
|
)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
312
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 12
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||
(Dollars in millions)
|
|
Amount
|
Percent
|
|
Amount
|
Percent
|
|
Amount
|
Percent
|
|||||||||
Statutory corporate tax rate
|
|
|
($5,892
|
)
|
35.0
|
%
|
|
|
($4,074
|
)
|
35.0
|
%
|
|
|
($3,246
|
)
|
35.0
|
%
|
Tax-exempt interest
|
|
39
|
|
(0.2
|
)%
|
|
36
|
|
(0.3
|
)%
|
|
52
|
|
(0.6
|
)%
|
|||
Tax credits
|
|
135
|
|
(0.8
|
)%
|
|
243
|
|
(2.1
|
)%
|
|
346
|
|
(3.7
|
)%
|
|||
Valuation allowance
|
|
(54
|
)
|
0.3
|
%
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|||
Revaluation of deferred tax asset to enacted rate
|
|
(5,405
|
)
|
32.1
|
%
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|||
Other
|
|
(32
|
)
|
0.2
|
%
|
|
(29
|
)
|
0.3
|
%
|
|
(50
|
)
|
0.5
|
%
|
|||
Effective tax rate
|
|
|
($11,209
|
)
|
66.6
|
%
|
|
|
($3,824
|
)
|
32.9
|
%
|
|
|
($2,898
|
)
|
31.2
|
%
|
|
|
Year Ended December 31,
|
|||||
(In millions)
|
|
2017
|
2016
|
||||
Deferred tax assets:
|
|
|
|
||||
Deferred fees
|
|
|
$4,679
|
|
|
$6,662
|
|
Basis differences related to derivative instruments
|
|
2,041
|
|
4,006
|
|
||
Credit related items and allowance for loan losses
|
|
291
|
|
1,045
|
|
||
Basis differences related to assets held for investment
|
|
1,288
|
|
2,310
|
|
||
LIHTC partnerships and AMT credit carryforward
|
|
—
|
|
2,156
|
|
||
Other items, net
|
|
55
|
|
131
|
|
||
Total deferred tax assets
|
|
8,354
|
|
16,310
|
|
||
Deferred tax liabilities:
|
|
|
|
||||
Unrealized gains related to available-for-sale securities
|
|
(214
|
)
|
(492
|
)
|
||
Total deferred tax liabilities
|
|
(214
|
)
|
(492
|
)
|
||
Valuation Allowance
|
|
(33
|
)
|
—
|
|
||
Deferred tax assets, net
|
|
|
$8,107
|
|
|
$15,818
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
313
|
Financial Statements
|
Notes to the Consolidated Financial Statements
|
Note 12
|
FREDDIE MAC
| 2017 Form 10-K
|
|
314
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 13
|
Segment/Category
|
Description
|
|
Activities/Items
|
|
Financial Performance Measurement Basis
|
|
|
|
|
|
|
Single-family Guarantee
|
The Single-family Guarantee segment reflects results from our purchase, securitization and guarantee of single-family loans and the management of single-family mortgage credit risk. In most instances, we securitize the loans and guarantee the payment of principal and interest on the mortgage-related securities in exchange for guarantee fees.
Segment Earnings for this segment consist primarily of guarantee fee income, less credit-related expenses, credit risk transfer expenses, administrative expenses, allocated funding costs and amounts related to net float income or expenses.
|
•
|
Purchase and guarantee of single-family mortgage loans
|
•
|
Contribution to GAAP net income (loss)
|
•
|
Credit risk transfer transactions
|
|
|||
•
|
Loss mitigation activities
|
|
|||
•
|
Managing foreclosure and REO activities
|
|
|||
•
|
Tax expense/benefit
|
|
|||
•
|
Allocated debt costs and administrative expenses
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
315
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 13
|
FREDDIE MAC
| 2017 Form 10-K
|
|
316
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 13
|
n
|
No longer reclassifying the amortization of upfront cash associated with the acquisition or issuance of swaptions and options from derivative gains (losses) to net interest income. This change resulted in an increase to net interest income and a corresponding decrease to derivative gains (losses) for the Capital Markets segment of
$1.3 billion
and
$763 million
for 2016 and 2015, respectively.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
317
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 13
|
n
|
Net guarantee fees are reclassified in Segment Earnings from net interest income to guarantee fee income.
|
n
|
Implied guarantee fee income related to unsecuritized loans held in the mortgage investments portfolio is reclassified in Segment Earnings from net interest income to guarantee fee income.
|
n
|
A portion of the amount reversed for accrued but uncollected interest upon placing loans on non-accrual status is reclassified in Segment Earnings from net interest income to provision for credit losses.
|
n
|
The revenue and expense related to the 10 basis point increase which was legislated in the Temporary Payroll Tax Cut Continuation Act of 2011 are netted within guarantee fee income.
|
n
|
The accrual of periodic cash settlements of derivatives recorded within derivative gains (losses) is reclassified in Segment Earnings from derivatives gains (losses) into net interest income to fully reflect the periodic cost associated with the protection provided by these contracts. Beginning in 4Q 2017, the accrual of periodic cash settlements of derivatives in qualifying hedge relationships is recorded directly to net interest income due to the adoption of amended hedge accounting guidance. As a result, only the accrual of periodic cash settlements of derivatives while not in qualifying hedge relationships is reclassified for Segment Earnings.
|
n
|
For Segment Earnings, changes in the fair value of the hedging instrument and changes in the fair value of the hedged item attributable to the risk being hedged are recorded in other income. Beginning in 4Q 2017, for qualifying hedge relationships, changes in the fair value of the derivative hedging instrument and changes in fair value of the hedged item attributable to the risk being hedged are reclassified in Segment Earnings from net interest income to other income. For periods prior to the adoption of amended hedge accounting guidance in 4Q 2017, these amounts were recorded directly to other income. As a result, no reclassification for Segment Earnings was necessary.
|
n
|
Amortization related to derivative commitment basis adjustments associated with mortgage-related
|
FREDDIE MAC
| 2017 Form 10-K
|
|
318
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 13
|
n
|
Amortization related to accretion of other-than-temporary impairments on available-for-sale securities.
|
n
|
Amortization related to premiums and discounts, including non-cash premiums and discounts, on single-family loans in trusts and on the associated consolidated PCs.
|
n
|
Amortization of discounts on loans purchased with deteriorated credit quality that are on accrual status.
|
n
|
Amortization related to premiums and discounts associated with PCs issued by our consolidated trusts that we previously held and subsequently transferred to third parties.
|
n
|
Costs associated with STACR debt note expenses are reclassified from net interest income to other non-interest expense.
|
n
|
Internally allocated costs associated with the refinancing of debt related to Multifamily segment held-for-investment loans which we securitized are reclassified from net interest income to other non-interest income.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
319
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 13
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
||||||
Segment Earnings (loss), net of taxes:
|
|
|
|
|
||||||
Single-family Guarantee
|
|
|
$2,501
|
|
|
$2,170
|
|
|
$1,778
|
|
Multifamily
|
|
2,014
|
|
1,818
|
|
827
|
|
|||
Capital Markets
|
|
6,515
|
|
3,827
|
|
3,771
|
|
|||
All Other
|
|
(5,405
|
)
|
—
|
|
—
|
|
|||
Total Segment Earnings, net of taxes
|
|
5,625
|
|
7,815
|
|
6,376
|
|
|||
Net income
|
|
|
$5,625
|
|
|
$7,815
|
|
|
$6,376
|
|
Comprehensive income (loss) of segments:
|
|
|
|
|
||||||
Single-family Guarantee
|
|
|
$2,541
|
|
|
$2,161
|
|
|
$1,790
|
|
Multifamily
|
|
1,937
|
|
1,582
|
|
566
|
|
|||
Capital Markets
|
|
6,485
|
|
3,375
|
|
3,415
|
|
|||
All Other
|
|
(5,405
|
)
|
—
|
|
28
|
|
|||
Comprehensive income of segments
|
|
5,558
|
|
7,118
|
|
5,799
|
|
|||
Comprehensive income
|
|
|
$5,558
|
|
|
$7,118
|
|
|
$5,799
|
|
|
|
Year Ended December 31, 2017
|
||||||||||||||||||||
|
|
Single-family
Guarantee
|
Multifamily
|
Capital Markets
|
All
Other
|
Total Segment
Earnings (Loss)
|
Reclassifications
|
Total per
Consolidated
Statements of
Comprehensive
Income
|
||||||||||||||
(In millions)
|
|
|||||||||||||||||||||
Net interest income
|
|
|
$—
|
|
|
$1,206
|
|
|
$3,381
|
|
|
$—
|
|
|
$4,587
|
|
|
$9,577
|
|
|
$14,164
|
|
Guarantee fee income
(1)
|
|
6,094
|
|
676
|
|
—
|
|
—
|
|
6,770
|
|
(6,108
|
)
|
662
|
|
|||||||
Benefit (Provision) for credit losses
|
|
(816
|
)
|
(13
|
)
|
—
|
|
—
|
|
(829
|
)
|
913
|
|
84
|
|
|||||||
Net impairment of available-for-sale securities recognized in earnings
|
|
—
|
|
(5
|
)
|
236
|
|
—
|
|
231
|
|
(249
|
)
|
(18
|
)
|
|||||||
Derivative gains (losses)
|
|
(37
|
)
|
181
|
|
(587
|
)
|
—
|
|
(443
|
)
|
(1,545
|
)
|
(1,988
|
)
|
|||||||
Gains (losses) on trading securities
|
|
—
|
|
(102
|
)
|
(570
|
)
|
—
|
|
(672
|
)
|
—
|
|
(672
|
)
|
|||||||
Gains (losses) on loans
|
|
—
|
|
(2
|
)
|
—
|
|
—
|
|
(2
|
)
|
930
|
|
928
|
|
|||||||
Other non-interest income
|
|
1,542
|
|
1,594
|
|
7,895
|
|
—
|
|
11,031
|
|
(3,074
|
)
|
7,957
|
|
|||||||
Administrative expense
|
|
(1,381
|
)
|
(395
|
)
|
(330
|
)
|
—
|
|
(2,106
|
)
|
—
|
|
(2,106
|
)
|
|||||||
REO operations (expense) income
|
|
(203
|
)
|
—
|
|
—
|
|
—
|
|
(203
|
)
|
14
|
|
(189
|
)
|
|||||||
Other non-interest (expense) income
|
|
(1,382
|
)
|
(66
|
)
|
(82
|
)
|
—
|
|
(1,530
|
)
|
(458
|
)
|
(1,988
|
)
|
|||||||
Income tax expense
|
|
(1,316
|
)
|
(1,060
|
)
|
(3,428
|
)
|
(5,405
|
)
|
(11,209
|
)
|
—
|
|
(11,209
|
)
|
|||||||
Net income (loss)
|
|
2,501
|
|
2,014
|
|
6,515
|
|
(5,405
|
)
|
5,625
|
|
—
|
|
5,625
|
|
|||||||
Changes in unrealized gains (losses) related to available-for-sale securities
|
|
—
|
|
(86
|
)
|
(167
|
)
|
—
|
|
(253
|
)
|
—
|
|
(253
|
)
|
|||||||
Changes in unrealized gains (losses) related to cash flow hedge relationships
|
|
—
|
|
—
|
|
124
|
|
—
|
|
124
|
|
—
|
|
124
|
|
|||||||
Changes in defined benefit plans
|
|
40
|
|
9
|
|
13
|
|
—
|
|
62
|
|
—
|
|
62
|
|
|||||||
Total other comprehensive income (loss), net of taxes
|
|
40
|
|
(77
|
)
|
(30
|
)
|
—
|
|
(67
|
)
|
—
|
|
(67
|
)
|
|||||||
Comprehensive income (loss)
|
|
|
$2,541
|
|
|
$1,937
|
|
|
$6,485
|
|
|
($5,405
|
)
|
|
$5,558
|
|
|
$—
|
|
|
$5,558
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
320
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 13
|
|
|
Year Ended December 31, 2016
|
||||||||||||||||||||
|
|
Single-family
Guarantee
|
Multifamily
|
Capital Markets
|
All
Other
|
Total Segment
Earnings (Loss)
|
Reclassifications
|
Total per
Consolidated
Statements of
Comprehensive
Income
|
||||||||||||||
(In millions)
|
|
|||||||||||||||||||||
Net interest income
|
|
|
$—
|
|
|
$1,022
|
|
|
$3,812
|
|
|
$—
|
|
|
$4,834
|
|
|
$9,545
|
|
|
$14,379
|
|
Guarantee fee income
(1)
|
|
6,091
|
|
511
|
|
—
|
|
—
|
|
6,602
|
|
(6,089
|
)
|
513
|
|
|||||||
Benefit (Provision) for credit losses
|
|
(517
|
)
|
22
|
|
—
|
|
—
|
|
(495
|
)
|
1,298
|
|
803
|
|
|||||||
Net impairment of available-for-sale securities recognized in earnings
|
|
—
|
|
—
|
|
269
|
|
—
|
|
269
|
|
(460
|
)
|
(191
|
)
|
|||||||
Derivative gains (losses)
|
|
(69
|
)
|
407
|
|
1,151
|
|
—
|
|
1,489
|
|
(1,763
|
)
|
(274
|
)
|
|||||||
Gains (losses) on trading securities
|
|
—
|
|
28
|
|
(1,077
|
)
|
—
|
|
(1,049
|
)
|
—
|
|
(1,049
|
)
|
|||||||
Gains (losses) on loans
|
|
—
|
|
309
|
|
—
|
|
—
|
|
309
|
|
(772
|
)
|
(463
|
)
|
|||||||
Other non-interest income
|
|
516
|
|
829
|
|
1,846
|
|
—
|
|
3,191
|
|
(1,227
|
)
|
1,964
|
|
|||||||
Administrative expense
|
|
(1,323
|
)
|
(362
|
)
|
(320
|
)
|
—
|
|
(2,005
|
)
|
—
|
|
(2,005
|
)
|
|||||||
REO operations (expense) income
|
|
(298
|
)
|
—
|
|
—
|
|
—
|
|
(298
|
)
|
11
|
|
(287
|
)
|
|||||||
Other non-interest (expense) income
|
|
(1,169
|
)
|
(58
|
)
|
19
|
|
—
|
|
(1,208
|
)
|
(543
|
)
|
(1,751
|
)
|
|||||||
Income tax expense
|
|
(1,061
|
)
|
(890
|
)
|
(1,873
|
)
|
—
|
|
(3,824
|
)
|
—
|
|
(3,824
|
)
|
|||||||
Net income (loss)
|
|
2,170
|
|
1,818
|
|
3,827
|
|
—
|
|
7,815
|
|
—
|
|
7,815
|
|
|||||||
Changes in unrealized gains (losses) related to available-for-sale securities
|
|
—
|
|
(234
|
)
|
(591
|
)
|
—
|
|
(825
|
)
|
—
|
|
(825
|
)
|
|||||||
Changes in unrealized gains (losses) related to cash flow hedge relationships
|
|
—
|
|
—
|
|
141
|
|
—
|
|
141
|
|
—
|
|
141
|
|
|||||||
Changes in defined benefit plans
|
|
(9
|
)
|
(2
|
)
|
(2
|
)
|
—
|
|
(13
|
)
|
—
|
|
(13
|
)
|
|||||||
Total other comprehensive income (loss), net of taxes
|
|
(9
|
)
|
(236
|
)
|
(452
|
)
|
—
|
|
(697
|
)
|
—
|
|
(697
|
)
|
|||||||
Comprehensive income (loss)
|
|
|
$2,161
|
|
|
$1,582
|
|
|
$3,375
|
|
|
$—
|
|
|
$7,118
|
|
|
$—
|
|
|
$7,118
|
|
Referenced footnote is included after the next table.
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Year Ended December 31, 2015
|
||||||||||||||||||||
|
|
Single-family
Guarantee
|
Multifamily
|
Capital Markets
|
All
Other
|
Total Segment
Earnings (Loss)
|
Reclassifications
|
Total per
Consolidated
Statements of
Comprehensive
Income
|
||||||||||||||
(In millions)
|
|
|||||||||||||||||||||
Net interest income
|
|
|
$—
|
|
|
$1,049
|
|
|
$4,665
|
|
|
$—
|
|
|
$5,714
|
|
|
$9,232
|
|
|
$14,946
|
|
Guarantee fee income
(1)
|
|
5,152
|
|
339
|
|
—
|
|
—
|
|
5,491
|
|
(5,122
|
)
|
369
|
|
|||||||
Benefit (Provision) for credit losses
|
|
(283
|
)
|
26
|
|
—
|
|
—
|
|
(257
|
)
|
2,922
|
|
2,665
|
|
|||||||
Net impairment of available-for-sale securities recognized in earnings
|
|
—
|
|
(22
|
)
|
420
|
|
—
|
|
398
|
|
(690
|
)
|
(292
|
)
|
|||||||
Derivative gains (losses)
|
|
(37
|
)
|
372
|
|
(833
|
)
|
—
|
|
(498
|
)
|
(2,198
|
)
|
(2,696
|
)
|
|||||||
Gains (losses) on trading securities
|
|
—
|
|
(98
|
)
|
(737
|
)
|
—
|
|
(835
|
)
|
—
|
|
(835
|
)
|
|||||||
Gains (losses) on loans
|
|
—
|
|
(93
|
)
|
—
|
|
—
|
|
(93
|
)
|
(2,001
|
)
|
(2,094
|
)
|
|||||||
Other non-interest income
|
|
173
|
|
15
|
|
2,292
|
|
—
|
|
2,480
|
|
(531
|
)
|
1,949
|
|
|||||||
Administrative expense
|
|
(1,285
|
)
|
(325
|
)
|
(317
|
)
|
—
|
|
(1,927
|
)
|
—
|
|
(1,927
|
)
|
|||||||
REO operations (expense) income
|
|
(341
|
)
|
(4
|
)
|
—
|
|
—
|
|
(345
|
)
|
7
|
|
(338
|
)
|
|||||||
Other non-interest (expense) income
|
|
(794
|
)
|
(56
|
)
|
(4
|
)
|
—
|
|
(854
|
)
|
(1,619
|
)
|
(2,473
|
)
|
|||||||
Income tax expense
|
|
(807
|
)
|
(376
|
)
|
(1,715
|
)
|
—
|
|
(2,898
|
)
|
—
|
|
(2,898
|
)
|
|||||||
Net income (loss)
|
|
1,778
|
|
827
|
|
3,771
|
|
—
|
|
6,376
|
|
—
|
|
6,376
|
|
|||||||
Changes in unrealized gains (losses) related to available-for-sale securities
|
|
—
|
|
(264
|
)
|
(542
|
)
|
—
|
|
(806
|
)
|
—
|
|
(806
|
)
|
|||||||
Changes in unrealized gains (losses) related to cash flow hedge relationships
|
|
—
|
|
—
|
|
182
|
|
—
|
|
182
|
|
—
|
|
182
|
|
|||||||
Changes in defined benefit plans
|
|
12
|
|
3
|
|
4
|
|
28
|
|
47
|
|
—
|
|
47
|
|
|||||||
Total other comprehensive income (loss), net of taxes
|
|
12
|
|
(261
|
)
|
(356
|
)
|
28
|
|
(577
|
)
|
—
|
|
(577
|
)
|
|||||||
Comprehensive income (loss)
|
|
|
$1,790
|
|
|
$566
|
|
|
$3,415
|
|
|
$28
|
|
|
$5,799
|
|
|
$—
|
|
|
$5,799
|
|
(1)
|
Guarantee fee income is included in other income (loss) on our GAAP consolidated statements of comprehensive income.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
321
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
FREDDIE MAC
| 2017 Form 10-K
|
|
322
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Percent of Credit Losses
|
|||||||||
|
|
Percentage of
Portfolio
|
Serious
Delinquency
Rate
|
|
Percentage of
Portfolio
|
Serious
Delinquency
Rate
|
|
2017
|
2016
|
||||||
Core single-family loan portfolio
|
|
78
|
%
|
0.35
|
%
|
|
73
|
%
|
0.20
|
%
|
|
3
|
%
|
6
|
%
|
Legacy and relief refinance single-family loan portfolio
|
|
22
|
|
2.59
|
%
|
|
27
|
|
2.28
|
%
|
|
97
|
|
94
|
|
Total
|
|
100
|
%
|
1.08
|
%
|
|
100
|
%
|
1.00
|
%
|
|
100
|
%
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||
Region
(1)
|
|
|
|
|
|
|
|
|
|
||||||
West
|
|
30
|
%
|
0.47
|
%
|
|
30
|
%
|
0.57
|
%
|
|
27
|
%
|
11
|
%
|
Northeast
|
|
25
|
|
1.24
|
%
|
|
25
|
|
1.45
|
%
|
|
34
|
|
41
|
|
North Central
|
|
16
|
|
0.81
|
%
|
|
16
|
|
0.93
|
%
|
|
15
|
|
24
|
|
Southeast
|
|
16
|
|
1.95
|
%
|
|
16
|
|
1.19
|
%
|
|
20
|
|
19
|
|
Southwest
|
|
13
|
|
0.98
|
%
|
|
13
|
|
0.78
|
%
|
|
4
|
|
5
|
|
Total
|
|
100
|
%
|
1.08
|
%
|
|
100
|
%
|
1.00
|
%
|
|
100
|
%
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||
State
(2)(3)
|
|
|
|
|
|
|
|
|
|
||||||
California
|
|
18
|
%
|
0.41
|
%
|
|
18
|
%
|
0.46
|
%
|
|
18
|
%
|
5
|
%
|
Florida
|
|
6
|
|
3.33
|
%
|
|
6
|
|
1.42
|
%
|
|
13
|
|
9
|
|
Illinois
|
|
5
|
|
1.13
|
%
|
|
5
|
|
1.34
|
%
|
|
9
|
|
10
|
|
New Jersey
|
|
3
|
|
1.78
|
%
|
|
3
|
|
2.26
|
%
|
|
9
|
|
12
|
|
New York
|
|
5
|
|
1.74
|
%
|
|
5
|
|
2.05
|
%
|
|
9
|
|
9
|
|
All other
|
|
63
|
|
0.91
|
%
|
|
63
|
|
0.90
|
%
|
|
42
|
|
55
|
|
Total
|
|
100
|
%
|
1.08
|
%
|
|
100
|
%
|
1.00
|
%
|
|
100
|
%
|
100
|
%
|
(1)
|
Region designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI, VT, VA, WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); Southwest (AR, CO, KS, LA, MO, NE, NM, OK, TX, WY).
|
(2)
|
States presented based on those with the highest percentage of credit losses during the year ended
December 31, 2017
.
|
(3)
|
On January 1, 2017, we elected a new accounting policy for reclassifications of loans from held-for-investment to held-for-sale. The charge-offs taken under the new policy affected some states more than others. See Note 4 for further information about this change.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
323
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
n
|
Purchased pursuant to a previously issued other mortgage-related guarantee;
|
n
|
Part of our relief refinance initiative; or
|
n
|
In another refinance loan initiative and the pre-existing loan (including Alt-A loans) was originated under less than full documentation standards.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
324
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
|
|
Percentage of Portfolio
(1)
|
|
Serious Delinquency Rate
(1)
|
||||||
|
|
As of December 31,
|
|
As of December 31,
|
||||||
|
|
December 31, 2017
|
December 31, 2016
|
|
December 31, 2017
|
December 31, 2016
|
||||
Interest-only
|
|
1
|
%
|
1
|
%
|
|
4.97
|
%
|
4.34
|
%
|
Alt-A
|
|
1
|
%
|
2
|
%
|
|
5.62
|
%
|
5.21
|
%
|
Original LTV ratio greater than 90%
(2)
|
|
17
|
%
|
16
|
%
|
|
1.70
|
%
|
1.58
|
%
|
Lower credit scores at origination (less than 620)
|
|
2
|
%
|
2
|
%
|
|
6.34
|
%
|
5.73
|
%
|
(1)
|
Excludes loans underlying certain other securitization products for which data was not available.
|
(2)
|
Includes HARP loans, which we purchase as part of our participation in the MHA Program.
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||
(Dollars in billions)
|
|
UPB
|
Delinquency
Rate
(1)
|
|
UPB
|
Delinquency
Rate
(1)
|
||||||
Unsecuritized loans
|
|
|
$38.2
|
|
0.01
|
%
|
|
|
$42.4
|
|
0.04
|
%
|
Securitization-related products
|
|
192.5
|
|
0.02
|
%
|
|
147.6
|
|
0.03
|
%
|
||
Other mortgage-related guarantees
|
|
10.0
|
|
—
|
%
|
|
9.7
|
|
—
|
%
|
||
Total
|
|
|
$240.7
|
|
0.02
|
%
|
|
|
$199.7
|
|
0.03
|
%
|
(1)
|
Based on loans two monthly payments or more delinquent or in foreclosure.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
325
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
Single-family Sellers
|
|
2017
|
2016
|
||
Wells Fargo Bank, N.A.
|
|
15
|
%
|
15
|
%
|
Other top 10 sellers
|
|
38
|
|
34
|
|
Top 10 single-family sellers
|
|
53
|
%
|
49
|
%
|
|
|
|
|
||
Multifamily Sellers
|
|
2017
|
2016
|
||
CBRE Capital Markets, Inc.
|
|
18
|
%
|
19
|
%
|
Berkadia Commercial Mortgage LLC
|
|
11
|
|
17
|
|
Walker & Dunlop, LLC
|
|
10
|
|
10
|
|
Other top 10 sellers
|
|
39
|
|
33
|
|
Top 10 multifamily sellers
|
|
78
|
%
|
79
|
%
|
FREDDIE MAC
| 2017 Form 10-K
|
|
326
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
Single-family Servicers
|
|
December 31, 2017
(1)
|
December 31, 2016
(1)
|
||
Wells Fargo Bank, N.A.
|
|
18
|
%
|
19
|
%
|
Other top 10 servicers
|
|
40
|
|
41
|
|
Top 10 single-family servicers
|
|
58
|
%
|
60
|
%
|
|
|
|
|
||
Multifamily Servicers
|
|
December 31, 2017
|
December 31, 2016
|
||
Wells Fargo Bank, N.A.
|
|
16
|
%
|
15
|
%
|
CBRE Capital Markets, Inc.
|
|
12
|
|
14
|
|
Berkadia Commercial Mortgage LLC
|
|
11
|
|
11
|
|
Other top 10 servicers
|
|
36
|
|
39
|
|
Top 10 multifamily servicers
|
|
75
|
%
|
79
|
%
|
(1)
|
Percentage of servicing volume is based on the total single-family credit guarantee portfolio, excluding loans where we do not exercise control over the associated servicing.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
327
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
|
|
|
|
Mortgage Insurance Coverage
|
|||
Mortgage Insurer
|
|
Credit Rating
(1)
|
|
December 31, 2017
|
December 31, 2016
|
||
Arch Mortgage Insurance Company
|
|
A-
|
|
24
|
%
|
25
|
%
|
Radian Guaranty Inc.
|
|
BBB-
|
|
21
|
|
21
|
|
Mortgage Guaranty Insurance Corporation
|
|
BBB
|
|
19
|
|
20
|
|
Genworth Mortgage Insurance Corporation
|
|
BB+
|
|
15
|
|
15
|
|
Essent Guaranty, Inc.
|
|
BBB+
|
|
12
|
|
10
|
|
Total
|
|
|
|
91
|
%
|
91
|
%
|
(1)
|
Ratings are for the corporate entity to which we have the greatest exposure. Coverage amounts may include coverage provided by affiliates and subsidiaries of the counterparty. Latest rating available as of December 31, 2017. Represents the lower of S&P and Moody’s credit ratings stated in terms of the S&P equivalent.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
328
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
FREDDIE MAC
| 2017 Form 10-K
|
|
329
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
FREDDIE MAC
| 2017 Form 10-K
|
|
330
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 14
|
FREDDIE MAC
| 2017 Form 10-K
|
|
331
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
n
|
Level 1 - inputs to the valuation techniques are based on quoted prices in active markets for identical assets or liabilities.
|
n
|
Level 3 - one or more inputs to the valuation techniques are unobservable and significant to the fair value measurement.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
332
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
n
|
A comparison to transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on specific characteristics of the asset or liability being valued; or
|
FREDDIE MAC
| 2017 Form 10-K
|
|
333
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
FREDDIE MAC
| 2017 Form 10-K
|
|
334
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
FREDDIE MAC
| 2017 Form 10-K
|
|
335
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
Instrument
|
Valuation Technique
|
Classification in the Fair Value Hierarchy
|
|
Mortgage Loans
|
|||
Single-family loans
|
GSE securitization market
|
Benchmark security pricing for actively traded mortgage-related securities with similar characteristics, adjusting for the value of our guarantee fee and our credit obligation related to performing our guarantee (see Guarantee obligation). The credit obligation is based on: delivery and guarantee fees we charge under current market pricing for loans that qualify under our current underwriting standards (Level 2) and internal credit models for loans that do not qualify under our current underwriting standards (Level 3).
|
Level 2 or 3
|
Whole loan market
|
Median of external sources, referencing market activity for deeply delinquent and modified loans, where available
|
Level 3
|
|
Impaired held-for-investment
|
Internal models that estimate the fair value of the underlying collateral for impaired loans. Significant inputs used by our internal models include REO disposition, short sale and third-party sale values, combined with mortgage loan level characteristics using the repeat housing sales index to estimate the current fair value of the mortgage loan. Significant increases (decreases) in the historical average sales proceeds per mortgage loan in isolation would result in significantly higher (lower) fair value measurements.
|
Level 3
|
|
Multifamily loans
|
Held-for-sale
|
Market prices from a third-party pricing service, using discounted cash flows based on K Certificate and SB Certificate market spreads
|
Level 2
|
|
Held-for-investment
|
Market prices from a third-party pricing service using discounted cash flows incorporating credit spreads for similar loans based on the loan's LTV and DSCR
|
Level 3
|
|
|
|
|
Other Assets
|
|||
Guarantee asset
|
Single-family
|
Median of external sources with adjustments for specific loan characteristics
|
Level 3
|
Multifamily
|
Discounted cash flows. Significant inputs include current OAS-to-benchmark interest rates for new guarantees. Significant increases (decreases) in the OAS in isolation would result in a significantly lower (higher) fair value measurement.
|
Level 3
|
|
Mortgage servicing rights
|
Market prices from a third party or internally developed prices using discounted cash flows. Significant inputs include:
|
Level 3
|
|
|
|
Estimated prepayment rates,
|
|
|
|
Estimated costs to service both performing and non-accrual loans, and
|
|
|
|
Estimated servicing income per loan (including ancillary income).
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
336
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
Instrument
|
Valuation Technique
|
Classification in the Fair Value Hierarchy
|
|
|
|
Significant increases (decreases) in cost to service per loan and prepayment rate in isolation would result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in servicing income per loan in isolation would result in a significantly higher (lower) fair value measurement.
|
|
|
|
|
|
Other Liabilities
|
|||
Guarantee obligation
|
Single-family
|
Delivery and guarantee fees that we charge under our current market pricing
|
Level 2
|
|
Internal credit models. Significant inputs include loan characteristics, loan performance and status information.
|
Level 3
|
|
Multifamily
|
Discounted cash flows. Significant inputs are similar to those used in the valuation technique for the Multifamily guarantee asset.
|
Level 3
|
FREDDIE MAC
| 2017 Form 10-K
|
|
337
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
December 31, 2017
|
||||||||||||||
(In millions)
|
|
Level 1
|
Level 2
|
Level 3
|
Netting Adjustment
(1)
|
Total
|
||||||||||
Assets:
|
|
|
|
|
|
|
||||||||||
Investments in securities:
|
|
|
|
|
|
|
||||||||||
Available-for-sale, at fair value:
|
|
|
|
|
|
|
||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
||||||||||
Freddie Mac
|
|
|
$—
|
|
|
$30,415
|
|
|
$5,055
|
|
|
$—
|
|
|
$35,470
|
|
Other agency
|
|
—
|
|
2,007
|
|
46
|
|
—
|
|
2,053
|
|
|||||
Non-agency RMBS
|
|
—
|
|
—
|
|
3,933
|
|
—
|
|
3,933
|
|
|||||
Non-agency CMBS
|
|
—
|
|
87
|
|
1,697
|
|
—
|
|
1,784
|
|
|||||
Obligations of states and political subdivisions
|
|
—
|
|
—
|
|
357
|
|
—
|
|
357
|
|
|||||
Total available-for-sale securities, at fair value
|
|
—
|
|
32,509
|
|
11,088
|
|
—
|
|
43,597
|
|
|||||
Trading, at fair value:
|
|
|
|
|
|
|
||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
||||||||||
Freddie Mac
|
|
—
|
|
11,393
|
|
842
|
|
—
|
|
12,235
|
|
|||||
Other agency
|
|
—
|
|
3,565
|
|
9
|
|
—
|
|
3,574
|
|
|||||
All other
|
|
—
|
|
27
|
|
2,066
|
|
—
|
|
2,093
|
|
|||||
Total mortgage-related securities
|
|
—
|
|
14,985
|
|
2,917
|
|
—
|
|
17,902
|
|
|||||
Non-mortgage-related securities
|
|
20,159
|
|
2,660
|
|
—
|
|
—
|
|
22,819
|
|
|||||
Total trading securities, at fair value
|
|
20,159
|
|
17,645
|
|
2,917
|
|
—
|
|
40,721
|
|
|||||
Total investments in securities
|
|
20,159
|
|
50,154
|
|
14,005
|
|
—
|
|
84,318
|
|
|||||
Mortgage loans:
|
|
|
|
|
|
|
||||||||||
Held-for-sale, at fair value
|
|
—
|
|
20,054
|
|
—
|
|
—
|
|
20,054
|
|
|||||
Derivative assets, net:
|
|
|
|
|
|
|
||||||||||
Interest-rate swaps
|
|
—
|
|
4,262
|
|
—
|
|
—
|
|
4,262
|
|
|||||
Option-based derivatives
|
|
—
|
|
4,524
|
|
—
|
|
—
|
|
4,524
|
|
|||||
Other
|
|
—
|
|
44
|
|
8
|
|
—
|
|
52
|
|
|||||
Subtotal, before netting adjustments
|
|
—
|
|
8,830
|
|
8
|
|
—
|
|
8,838
|
|
|||||
Netting adjustments
(1)
|
|
—
|
|
—
|
|
—
|
|
(8,463
|
)
|
(8,463
|
)
|
|||||
Total derivative assets, net
|
|
—
|
|
8,830
|
|
8
|
|
(8,463
|
)
|
375
|
|
|||||
Other assets:
|
|
|
|
|
|
|
|
|||||||||
Guarantee asset, at fair value
|
|
—
|
|
—
|
|
3,171
|
|
—
|
|
3,171
|
|
|||||
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
137
|
|
—
|
|
—
|
|
137
|
|
|||||
All other, at fair value
|
|
—
|
|
—
|
|
45
|
|
—
|
|
45
|
|
|||||
Total other assets
|
|
—
|
|
137
|
|
3,216
|
|
—
|
|
3,353
|
|
|||||
Total assets carried at fair value on a recurring basis
|
|
|
$20,159
|
|
|
$79,175
|
|
|
$17,229
|
|
|
($8,463
|
)
|
|
$108,100
|
|
Liabilities:
|
|
|
|
|
|
|
||||||||||
Debt securities of consolidated trusts held by third parties, at fair value
|
|
|
$—
|
|
|
$9
|
|
|
$630
|
|
|
$—
|
|
|
$639
|
|
Other debt, at fair value
|
|
—
|
|
5,023
|
|
137
|
|
—
|
|
5,160
|
|
|||||
Derivative liabilities, net:
|
|
|
|
|
|
|
||||||||||
Interest-rate swaps
|
|
—
|
|
7,239
|
|
—
|
|
—
|
|
7,239
|
|
|||||
Option-based derivatives
|
|
—
|
|
121
|
|
—
|
|
—
|
|
121
|
|
|||||
Other
|
|
—
|
|
64
|
|
65
|
|
—
|
|
129
|
|
|||||
Subtotal, before netting adjustments
|
|
—
|
|
7,424
|
|
65
|
|
—
|
|
7,489
|
|
|||||
Netting adjustments
(1)
|
|
—
|
|
—
|
|
—
|
|
(7,220
|
)
|
(7,220
|
)
|
|||||
Total derivative liabilities, net
|
|
—
|
|
7,424
|
|
65
|
|
(7,220
|
)
|
269
|
|
|||||
Other liabilities:
|
|
|
|
|
|
|
||||||||||
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
4
|
|
—
|
|
—
|
|
4
|
|
|||||
Total liabilities carried at fair value on a recurring basis
|
|
|
$—
|
|
|
$12,460
|
|
|
$832
|
|
|
($7,220
|
)
|
|
$6,072
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
338
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
December 31, 2016
|
||||||||||||||
(In millions)
|
|
Level 1
|
Level 2
|
Level 3
|
Netting Adjustment
(1)
|
Total
|
||||||||||
Assets:
|
|
|
|
|
|
|
||||||||||
Investments in securities:
|
|
|
|
|
|
|
||||||||||
Available-for-sale, at fair value:
|
|
|
|
|
|
|
||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
||||||||||
Freddie Mac
|
|
|
$—
|
|
|
$33,805
|
|
|
$9,847
|
|
|
$—
|
|
|
$43,652
|
|
Other agency
|
|
—
|
|
4,155
|
|
66
|
|
—
|
|
4,221
|
|
|||||
Non-agency RMBS
|
|
—
|
|
—
|
|
11,797
|
|
—
|
|
11,797
|
|
|||||
Non-agency CMBS
|
|
—
|
|
3,056
|
|
3,366
|
|
—
|
|
6,422
|
|
|||||
Obligations of states and political subdivisions
|
|
—
|
|
—
|
|
665
|
|
—
|
|
665
|
|
|||||
Total available-for-sale securities, at fair value
|
|
—
|
|
41,016
|
|
25,741
|
|
—
|
|
66,757
|
|
|||||
Trading, at fair value:
|
|
|
|
|
|
|
||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
||||||||||
Freddie Mac
|
|
—
|
|
14,248
|
|
1,095
|
|
—
|
|
15,343
|
|
|||||
Other agency
|
|
—
|
|
8,149
|
|
12
|
|
—
|
|
8,161
|
|
|||||
All other
|
|
—
|
|
36
|
|
113
|
|
—
|
|
149
|
|
|||||
Total mortgage-related securities
|
|
—
|
|
22,433
|
|
1,220
|
|
—
|
|
23,653
|
|
|||||
Non-mortgage-related securities
|
|
19,402
|
|
1,735
|
|
—
|
|
—
|
|
21,137
|
|
|||||
Total trading securities, at fair value
|
|
19,402
|
|
24,168
|
|
1,220
|
|
—
|
|
44,790
|
|
|||||
Total investments in securities
|
|
19,402
|
|
65,184
|
|
26,961
|
|
—
|
|
111,547
|
|
|||||
Mortgage loans:
|
|
|
|
|
|
|
||||||||||
Held-for-sale, at fair value
|
|
—
|
|
16,255
|
|
—
|
|
—
|
|
16,255
|
|
|||||
Derivative assets, net:
|
|
|
|
|
|
|
||||||||||
Interest-rate swaps
|
|
—
|
|
6,924
|
|
—
|
|
—
|
|
6,924
|
|
|||||
Option-based derivatives
|
|
—
|
|
5,054
|
|
—
|
|
—
|
|
5,054
|
|
|||||
Other
|
|
—
|
|
287
|
|
3
|
|
—
|
|
290
|
|
|||||
Subtotal, before netting adjustments
|
|
—
|
|
12,265
|
|
3
|
|
—
|
|
12,268
|
|
|||||
Netting adjustments
(1)
|
|
—
|
|
—
|
|
—
|
|
(11,521
|
)
|
(11,521
|
)
|
|||||
Total derivative assets, net
|
|
—
|
|
12,265
|
|
3
|
|
(11,521
|
)
|
747
|
|
|||||
Other assets:
|
|
|
|
|
|
|
||||||||||
Guarantee asset, at fair value
|
|
—
|
|
—
|
|
2,298
|
|
—
|
|
2,298
|
|
|||||
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
108
|
|
—
|
|
—
|
|
108
|
|
|||||
All other, at fair value
|
|
—
|
|
—
|
|
2
|
|
—
|
|
2
|
|
|||||
Total other assets
|
|
—
|
|
108
|
|
2,300
|
|
—
|
|
2,408
|
|
|||||
Total assets carried at fair value on a recurring basis
|
|
|
$19,402
|
|
|
$93,812
|
|
|
$29,264
|
|
|
($11,521
|
)
|
|
$130,957
|
|
Liabilities:
|
|
|
|
|
|
|
||||||||||
Debt securities of consolidated trusts held by third parties, at fair value
|
|
|
$—
|
|
|
$144
|
|
|
$—
|
|
|
$—
|
|
|
$144
|
|
Other debt, at fair value
|
|
—
|
|
5,771
|
|
95
|
|
—
|
|
5,866
|
|
|||||
Derivative liabilities, net:
|
|
|
|
|
|
|
||||||||||
Interest-rate swaps
|
|
—
|
|
12,387
|
|
—
|
|
—
|
|
12,387
|
|
|||||
Option-based derivatives
|
|
—
|
|
106
|
|
—
|
|
—
|
|
106
|
|
|||||
Other
|
|
—
|
|
147
|
|
52
|
|
—
|
|
199
|
|
|||||
Subtotal, before netting adjustments
|
|
—
|
|
12,640
|
|
52
|
|
—
|
|
12,692
|
|
|||||
Netting adjustments(1)
|
|
—
|
|
—
|
|
—
|
|
(11,897
|
)
|
(11,897
|
)
|
|||||
Total derivative liabilities, net
|
|
—
|
|
12,640
|
|
52
|
|
(11,897
|
)
|
795
|
|
|||||
Other liabilities:
|
|
|
|
|
|
|
||||||||||
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
37
|
|
—
|
|
—
|
|
37
|
|
|||||
Total liabilities carried at fair value on a recurring basis
|
|
|
$—
|
|
|
$18,592
|
|
|
$147
|
|
|
($11,897
|
)
|
|
$6,842
|
|
(1)
|
Represents counterparty netting, cash collateral netting and net derivative interest receivable or payable.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
339
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
December 31,
|
||||||||||||||||||||||||
|
|
2017
|
|
2016
|
||||||||||||||||||||||
(In millions)
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
Assets measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Mortgage loans
(1)
|
|
|
$—
|
|
|
$494
|
|
|
$6,199
|
|
|
$6,693
|
|
|
|
$—
|
|
|
$199
|
|
|
$2,483
|
|
|
$2,682
|
|
(1)
|
Includes loans that are classified as held-for-investment and have been measured for impairment based on the fair value of the underlying collateral and held-for-sale loans where the fair value is below cost.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
340
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
Year Ended December 31, 2017
|
||||||||||||||||||||||||||||||||||||||||||||||
|
|
Balance,
January 1, 2017 |
|
Realized and unrealized gains (losses)
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
net |
|
Transfers
into Level 3 (1) |
|
Transfers
out of Level 3 (1) |
|
Balance,
December 31, 2017 |
|
Unrealized
gains (losses) still held (3) |
||||||||||||||||||||||||||||
(In millions)
|
|
|
Included in
earnings |
|
Included in other
comprehensive income |
|
Total
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Freddie Mac
|
|
|
$9,847
|
|
|
|
($8
|
)
|
|
|
$81
|
|
|
|
$73
|
|
|
|
$494
|
|
|
|
$—
|
|
|
|
($932
|
)
|
|
|
($1,349
|
)
|
|
|
$17
|
|
|
|
($3,095
|
)
|
|
|
$5,055
|
|
|
|
($18
|
)
|
Other agency
|
|
66
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(8
|
)
|
|
46
|
|
|
—
|
|
||||||||||||
Non-agency RMBS
|
|
11,797
|
|
|
1,564
|
|
|
(270
|
)
|
|
1,294
|
|
|
—
|
|
|
—
|
|
|
(7,688
|
)
|
|
(1,470
|
)
|
|
—
|
|
|
—
|
|
|
3,933
|
|
|
124
|
|
||||||||||||
Non-agency CMBS
|
|
3,366
|
|
|
343
|
|
|
(98
|
)
|
|
245
|
|
|
1,681
|
|
|
—
|
|
|
(3,556
|
)
|
|
(39
|
)
|
|
—
|
|
|
—
|
|
|
1,697
|
|
|
(2
|
)
|
||||||||||||
Obligations of states and political subdivisions
|
|
665
|
|
|
1
|
|
|
(3
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(306
|
)
|
|
—
|
|
|
—
|
|
|
357
|
|
|
—
|
|
||||||||||||
Total available-for-sale mortgage-related securities
|
|
25,741
|
|
|
1,900
|
|
|
(291
|
)
|
|
1,609
|
|
|
2,175
|
|
|
—
|
|
|
(12,176
|
)
|
|
(3,175
|
)
|
|
17
|
|
|
(3,103
|
)
|
|
11,088
|
|
|
104
|
|
||||||||||||
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Freddie Mac
|
|
1,095
|
|
|
(171
|
)
|
|
—
|
|
|
(171
|
)
|
|
709
|
|
|
—
|
|
|
(592
|
)
|
|
(8
|
)
|
|
14
|
|
|
(205
|
)
|
|
842
|
|
|
(155
|
)
|
||||||||||||
Other agency
|
|
12
|
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
(3
|
)
|
||||||||||||
All other
|
|
113
|
|
|
35
|
|
|
—
|
|
|
35
|
|
|
1,946
|
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
—
|
|
|
2,066
|
|
|
30
|
|
||||||||||||
Total trading mortgage-related securities
|
|
1,220
|
|
|
(139
|
)
|
|
—
|
|
|
(139
|
)
|
|
2,655
|
|
|
—
|
|
|
(592
|
)
|
|
(36
|
)
|
|
14
|
|
|
(205
|
)
|
|
2,917
|
|
|
(128
|
)
|
||||||||||||
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Guarantee asset
|
|
2,298
|
|
|
(27
|
)
|
|
—
|
|
|
(27
|
)
|
|
—
|
|
|
1,387
|
|
|
—
|
|
|
(487
|
)
|
|
—
|
|
|
—
|
|
|
3,171
|
|
|
(26
|
)
|
||||||||||||
All other, at fair value
|
|
2
|
|
|
(10
|
)
|
|
—
|
|
|
(10
|
)
|
|
33
|
|
|
31
|
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
(10
|
)
|
||||||||||||
Total other assets
|
|
|
$2,300
|
|
|
|
($37
|
)
|
|
|
$—
|
|
|
|
($37
|
)
|
|
|
$33
|
|
|
|
$1,418
|
|
|
|
($11
|
)
|
|
|
($487
|
)
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$3,216
|
|
|
|
($36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
|
Balance,
January 1, 2017 |
|
Realized and unrealized (gains) losses
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
net |
|
Transfers
into Level 3 (1) |
|
Transfers
out of Level 3 (1) |
|
Balance,
December 31, 2017 |
|
Unrealized
(gains) losses still held (3) |
||||||||||||||||||||||||||||
|
|
|
Included in
earnings |
|
Included in
other comprehensive income |
|
Total
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Debt securities of consolidated trusts held by third parties, at fair value
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$630
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$630
|
|
|
|
$—
|
|
Other debt, at fair value
|
|
95
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
137
|
|
|
—
|
|
||||||||||||
Net derivatives
(2)
|
|
|
$52
|
|
|
|
$40
|
|
|
|
$—
|
|
|
|
$40
|
|
|
|
$—
|
|
|
|
($10
|
)
|
|
|
$—
|
|
|
|
($25
|
)
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$57
|
|
|
|
$20
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
341
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
Year Ended December 31, 2016
|
||||||||||||||||||||||||||||||||||||||||||||||
|
|
Balance,
January 1,
2016
|
|
Realized and unrealized gains (losses)
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
net
|
|
Transfers
into
Level 3
(1)
|
|
Transfers
out of
Level 3
(1)
|
|
Balance,
December 31,
2016
|
|
Unrealized
gains (losses)
still held
(3)
|
||||||||||||||||||||||||||||
(In millions)
|
|
|
Included in
earnings
|
|
Included in
other
comprehensive
income
|
|
Total
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Freddie Mac
|
|
|
$2,608
|
|
|
|
$10
|
|
|
|
($71
|
)
|
|
|
($61
|
)
|
|
|
$8,894
|
|
|
|
$—
|
|
|
|
($605
|
)
|
|
|
($703
|
)
|
|
|
$29
|
|
|
|
($315
|
)
|
|
|
$9,847
|
|
|
|
($9
|
)
|
Other agency
|
|
91
|
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(6
|
)
|
|
66
|
|
|
—
|
|
||||||||||||
Non-agency RMBS
|
|
20,333
|
|
|
877
|
|
|
55
|
|
|
932
|
|
|
—
|
|
|
—
|
|
|
(6,286
|
)
|
|
(3,182
|
)
|
|
—
|
|
|
—
|
|
|
11,797
|
|
|
236
|
|
||||||||||||
Non-agency CMBS
|
|
3,530
|
|
|
2
|
|
|
(132
|
)
|
|
(130
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34
|
)
|
|
—
|
|
|
—
|
|
|
3,366
|
|
|
2
|
|
||||||||||||
Obligations of states and political subdivisions
|
|
1,205
|
|
|
1
|
|
|
(10
|
)
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(531
|
)
|
|
—
|
|
|
—
|
|
|
665
|
|
|
—
|
|
||||||||||||
Total available-for-sale mortgage-related securities
|
|
27,767
|
|
|
890
|
|
|
(160
|
)
|
|
730
|
|
|
8,894
|
|
|
—
|
|
|
(6,891
|
)
|
|
(4,467
|
)
|
|
29
|
|
|
(321
|
)
|
|
25,741
|
|
|
229
|
|
||||||||||||
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Freddie Mac
|
|
331
|
|
|
(21
|
)
|
|
—
|
|
|
(21
|
)
|
|
869
|
|
|
—
|
|
|
(142
|
)
|
|
(3
|
)
|
|
190
|
|
|
(129
|
)
|
|
1,095
|
|
|
(20
|
)
|
||||||||||||
Other agency
|
|
41
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
12
|
|
|
(1
|
)
|
||||||||||||
All other
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
113
|
|
|
—
|
|
||||||||||||
Total trading mortgage-related securities
|
|
374
|
|
|
(21
|
)
|
|
—
|
|
|
(21
|
)
|
|
983
|
|
|
—
|
|
|
(164
|
)
|
|
(13
|
)
|
|
190
|
|
|
(129
|
)
|
|
1,220
|
|
|
(21
|
)
|
||||||||||||
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Guarantee asset
|
|
1,753
|
|
|
53
|
|
|
—
|
|
|
53
|
|
|
—
|
|
|
850
|
|
|
—
|
|
|
(358
|
)
|
|
—
|
|
|
—
|
|
|
2,298
|
|
|
54
|
|
||||||||||||
All other, at fair value
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
2
|
|
|
(2
|
)
|
||||||||||||
Total other assets
|
|
|
$1,753
|
|
|
|
$51
|
|
|
|
$—
|
|
|
|
$51
|
|
|
|
$14
|
|
|
|
$850
|
|
|
|
$—
|
|
|
|
($358
|
)
|
|
|
($10
|
)
|
|
|
$—
|
|
|
|
$2,300
|
|
|
|
$52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
|
Balance,
January 1, 2016 |
|
Realized and unrealized (gains) losses
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
net
|
|
Transfers
into
Level 3
(1)
|
|
Transfers
out of
Level 3
(1)
|
|
Balance,
December 31, 2016 |
|
Unrealized
(gains)
losses
still held
(3)
|
||||||||||||||||||||||||||||
|
|
|
Included in
earnings
|
|
Included in
other
comprehensive
income
|
|
Total
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Other debt, at fair value
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$95
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$95
|
|
|
|
$—
|
|
Net derivatives
(2)
|
|
8
|
|
|
68
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
|
52
|
|
|
40
|
|
||||||||||||
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
All other, at fair value
|
|
|
$10
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
($10
|
)
|
|
|
$—
|
|
|
|
$—
|
|
(1)
|
Transfers out of Level 3 during 2017 and 2016 consisted primarily of certain mortgage-related securities due to an increased volume and level of activity in the market and availability of price quotes from dealers and third-party pricing services. Certain Freddie Mac securities are classified as Level 3 at issuance and generally are classified as Level 2 when they begin trading. Transfers into Level 3 during 2017 and 2016 consisted primarily of certain mortgage-related securities due to a lack of market activity and relevant price quotes from dealers and third-party pricing services.
|
(2)
|
Amounts are the net of derivative assets and liabilities prior to counterparty netting, cash collateral netting, net trade/settle receivable or payable and net derivative interest receivable or payable.
|
(3)
|
Represents the amount of total gains or losses for the period, included in earnings, attributable to the change in unrealized gains and losses related to assets and liabilities classified as Level 3 that were still held at December 31, 2017 and December 31, 2016, respectively. Included in these amounts are other-than temporary impairments recorded on available-for-sale securities.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
342
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
December 31, 2017
|
||||||||||||
|
|
Level 3
Fair Value |
|
Predominant
Valuation Technique(s) |
|
Unobservable Inputs
|
||||||||
(
Dollars in millions
, except for certain unobservable inputs as shown)
|
|
Type
|
|
Range
|
|
Weighted
Average |
||||||||
Recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
||||
Assets
|
|
|
|
|
|
|
|
|
|
|
||||
Investments in securities
|
|
|
|
|
|
|
|
|
|
|
||||
Available-for-sale, at fair value
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
||||
Freddie Mac
|
|
|
$4,873
|
|
|
Discounted cash flows
|
|
OAS
|
|
27 - 501 bps
|
|
68 bps
|
|
|
|
|
182
|
|
|
Other
|
|
|
|
|
|
|
|
||
Total Freddie Mac
|
|
5,055
|
|
|
|
|
|
|
|
|
|
|
||
Other agency
|
|
46
|
|
|
Other
|
|
|
|
|
|
|
|
||
Non-agency RMBS
|
|
3,665
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$75.6 - $80.8
|
|
|
$77.7
|
|
|
|
|
268
|
|
|
Other
|
|
|
|
|
|
|
|
||
Total non-agency RMBS
|
|
3,933
|
|
|
|
|
|
|
|
|
|
|
||
Non-agency CMBS
|
|
1,696
|
|
|
Single external source
|
|
External pricing sources
|
|
$108.4 - $108.9
|
|
|
$108.7
|
|
|
|
|
1
|
|
|
Other
|
|
|
|
|
|
|
|||
Total non-agency CMBS
|
|
1,697
|
|
|
|
|
|
|
|
|
|
|
||
Obligations of states and political subdivisions
|
|
334
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$101.2 - $101.6
|
|
|
$101.4
|
|
|
|
|
23
|
|
|
Other
|
|
|
|
|
|
|
|
||
Total obligations of states and political subdivisions
|
|
357
|
|
|
|
|
|
|
|
|
|
|
||
Total available-for-sale mortgage-related securities
|
|
11,088
|
|
|
|
|
|
|
|
|
|
|
||
Trading, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|||
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Freddie Mac
|
|
582
|
|
|
Discounted cash flows
|
|
OAS
|
|
(8,905) - 27,202 bps
|
|
(88) bps
|
|
||
|
|
243
|
|
|
Risk metrics
|
|
Effective duration
|
|
0.00 - 55.93 years
|
|
11.76 years
|
|
||
|
|
17
|
|
|
Other
|
|
|
|
|
|
|
|
||
Total Freddie Mac
|
|
842
|
|
|
|
|
|
|
|
|
|
|
||
Other agency
|
|
9
|
|
|
Other
|
|
|
|
|
|
|
|
||
All other
|
|
2,065
|
|
|
Single external source
|
|
External pricing sources
|
|
$6.4 - $113.2
|
|
|
$98.0
|
|
|
|
|
1
|
|
|
Other
|
|
|
|
|
|
|
|||
Total all other
|
|
2,066
|
|
|
|
|
|
|
|
|
|
|||
Total trading mortgage-related securities
|
|
2,917
|
|
|
|
|
|
|
|
|
|
|
||
Total investments in securities
|
|
|
$14,005
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Guarantee asset, at fair value
|
|
|
$3,171
|
|
|
Discounted cash flows
|
|
OAS
|
|
17 - 198 bps
|
|
45 bps
|
|
|
All other at fair value
|
|
45
|
|
|
Other
|
|
|
|
|
|
|
|||
Total other assets
|
|
3,216
|
|
|
|
|
|
|
|
|
|
|||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|||
Debt securities of consolidated trusts held by third parties, at fair value
|
|
630
|
|
|
Single External Source
|
|
External Pricing Sources
|
|
$99.2 - $100.2
|
|
|
$100.1
|
|
|
Other debt, at fair value
|
|
137
|
|
|
Other
|
|
|
|
|
|
|
|||
Net derivatives
|
|
57
|
|
|
Other
|
|
|
|
|
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
343
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
December 31, 2016
|
||||||||||||
|
|
Level 3
Fair
Value
|
|
Predominant
Valuation
Technique(s)
|
|
Unobservable Inputs
|
||||||||
(
Dollars in millions
, except for certain unobservable inputs as shown)
|
|
Type
|
|
Range
|
|
Weighted
Average
|
||||||||
Recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
||||
Assets
|
|
|
|
|
|
|
|
|
|
|
||||
Investments in securities
|
|
|
|
|
|
|
|
|
|
|
||||
Available-for-sale, at fair value
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
||||
Freddie Mac
|
|
|
$7,619
|
|
|
Discounted cash flows
|
|
OAS
|
|
(146) - 500 bps
|
|
91 bps
|
|
|
|
|
129
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$100.8 - $103.3
|
|
|
$101.8
|
|
|
|
|
2,099
|
|
|
Other
|
|
|
|
|
|
|
|||
Total Freddie Mac
|
|
9,847
|
|
|
|
|
|
|
|
|
|
|||
Other agency
|
|
66
|
|
|
Other
|
|
|
|
|
|
|
|||
Non-agency RMBS
|
|
9,974
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$74.0 - $78.8
|
|
|
$76.0
|
|
|
|
|
1,823
|
|
|
Other
|
|
|
|
|
|
|
|
||
Total non-agency RMBS
|
|
11,797
|
|
|
|
|
|
|
|
|
|
|||
Non-agency CMBS
|
|
3,365
|
|
|
Risk metrics
|
|
Effective duration
|
|
2.15 - 10.02 years
|
|
8.57 years
|
|
||
|
|
1
|
|
|
Other
|
|
|
|
|
|
|
|||
Total non-agency CMBS
|
|
3,366
|
|
|
|
|
|
|
|
|
|
|||
Obligations of states and political subdivisions
|
|
619
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$100.9 - $101.5
|
|
|
$101.2
|
|
|
|
|
46
|
|
|
Other
|
|
|
|
|
|
|
|||
Total obligations of states and political subdivisions
|
|
665
|
|
|
|
|
|
|
|
|
|
|
||
Total available-for-sale mortgage-related securities
|
|
25,741
|
|
|
|
|
|
|
|
|
|
|||
Trading, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|||
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
|
|||
Freddie Mac
|
|
452
|
|
|
Risk metrics
|
|
Effective duration
|
|
(5.07) - 46.37 years
|
|
6.94 years
|
|
||
|
|
311
|
|
|
Discounted cash flows
|
|
OAS
|
|
(3,346) - 2,460 bps
|
|
(224) bps
|
|
||
|
|
332
|
|
|
Other
|
|
|
|
|
|
|
|||
Total Freddie Mac
|
|
1,095
|
|
|
|
|
|
|
|
|
|
|||
Other agency
|
|
12
|
|
|
Other
|
|
|
|
|
|
|
|||
All other
|
|
113
|
|
|
Risk metrics
|
|
Effective duration
|
|
0.14 - 4.08 years
|
|
2.52 years
|
|
||
Total trading mortgage-related securities
|
|
1,220
|
|
|
|
|
|
|
|
|
|
|||
Total investments in securities
|
|
|
$26,961
|
|
|
|
|
|
|
|
|
|
||
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|||
Guarantee asset, at fair value
|
|
|
$2,091
|
|
|
Discounted cash flows
|
|
OAS
|
|
17 - 198 bps
|
|
50 bps
|
|
|
|
|
207
|
|
|
Other
|
|
|
|
|
|
|
|||
Total guarantee asset, at fair value
|
|
2,298
|
|
|
|
|
|
|
|
|
|
|||
All other at fair value
|
|
2
|
|
|
Other
|
|
|
|
|
|
|
|||
Total other assets
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
||||
Other debt, at fair value
|
|
95
|
|
|
Other
|
|
|
|
|
|
|
|||
Net derivatives
|
|
49
|
|
|
Other
|
|
|
|
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
344
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
December 31, 2017
|
||||||||||
|
|
Level 3
Fair
Value
|
|
Predominant
Valuation
Technique(s)
|
|
Unobservable Inputs
|
||||||
(
Dollars in millions
, except for certain unobservable inputs as shown)
|
|
Type
|
|
Range
|
|
Weighted
Average
|
||||||
Non-recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
||
Mortgage loans
|
|
|
$6,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal model
|
|
Historical sales proceeds
|
|
$3,000 - $899,000
|
|
$176,558
|
||
|
|
|
|
Internal model
|
|
Housing sales index
|
|
43 - 394 bps
|
|
102 bps
|
||
|
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$36.5 - $94.9
|
|
$80.9
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
|
December 31, 2016
|
||||||||||
|
|
Level 3
Fair
Value
|
|
Predominant
Valuation
Technique(s)
|
|
Unobservable Inputs
|
||||||
(
Dollars in millions
, except for certain unobservable inputs as shown)
|
|
Type
|
|
Range
|
|
Weighted
Average
|
||||||
Non-recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
||
Mortgage loans
|
|
|
$2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal model
|
|
Historical sales proceeds
|
|
$3,000 - $770,000
|
|
$167,137
|
||
|
|
|
|
Internal model
|
|
Housing sales index
|
|
42 - 374 bps
|
|
96 bps
|
||
|
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$37.0 - $94.3
|
|
$75.0
|
FREDDIE MAC
| 2017 Form 10-K
|
|
345
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
December 31, 2017
|
||||||||||||||||||||||
|
|
GAAP Carrying Amount
|
|
Fair Value
|
||||||||||||||||||||
(In millions)
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting
Adjustments
(1)
|
|
Total
|
|||||||||||||
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash
equivalents
|
|
|
$6,848
|
|
|
|
$6,848
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$6,848
|
|
Restricted cash and cash equivalents
|
|
2,963
|
|
|
2,963
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,963
|
|
||||||
Securities purchased under agreements to resell
|
|
55,903
|
|
|
—
|
|
|
55,903
|
|
|
—
|
|
|
—
|
|
|
55,903
|
|
||||||
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Available-for-sale, at fair value
|
|
43,597
|
|
|
—
|
|
|
32,509
|
|
|
11,088
|
|
|
—
|
|
|
43,597
|
|
||||||
Trading, at fair value
|
|
40,721
|
|
|
20,159
|
|
|
17,645
|
|
|
2,917
|
|
|
—
|
|
|
40,721
|
|
||||||
Total investments in securities
|
|
84,318
|
|
|
20,159
|
|
|
50,154
|
|
|
14,005
|
|
|
—
|
|
|
84,318
|
|
||||||
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loans held by consolidated trusts
|
|
1,774,286
|
|
|
—
|
|
|
1,635,137
|
|
|
145,911
|
|
|
—
|
|
|
1,781,048
|
|
||||||
Loans held by Freddie Mac
|
|
96,931
|
|
|
—
|
|
|
32,169
|
|
|
67,932
|
|
|
—
|
|
|
100,101
|
|
||||||
Total mortgage loans
|
|
1,871,217
|
|
|
—
|
|
|
1,667,306
|
|
|
213,843
|
|
|
—
|
|
|
1,881,149
|
|
||||||
Derivative assets, net
|
|
375
|
|
|
—
|
|
|
8,830
|
|
|
8
|
|
|
(8,463
|
)
|
|
375
|
|
||||||
Guarantee asset
|
|
3,171
|
|
|
—
|
|
|
—
|
|
|
3,359
|
|
|
—
|
|
|
3,359
|
|
||||||
Non-derivative purchase commitments
|
|
137
|
|
|
—
|
|
|
137
|
|
|
55
|
|
|
—
|
|
|
192
|
|
||||||
Advances to lenders and other secured lending
|
|
1,269
|
|
|
—
|
|
|
473
|
|
|
796
|
|
|
—
|
|
|
1,269
|
|
||||||
Total financial assets
|
|
|
$2,026,201
|
|
|
|
$29,970
|
|
|
|
$1,782,803
|
|
|
|
$232,066
|
|
|
|
($8,463
|
)
|
|
|
$2,036,376
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Debt, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Debt securities of consolidated trusts
held by third parties
|
|
|
$1,720,996
|
|
|
|
$—
|
|
|
|
$1,721,091
|
|
|
|
$2,679
|
|
|
|
$—
|
|
|
|
$1,723,770
|
|
Other debt
|
|
313,634
|
|
|
—
|
|
|
313,688
|
|
|
3,892
|
|
|
—
|
|
|
317,580
|
|
||||||
Total debt, net
|
|
2,034,630
|
|
|
—
|
|
|
2,034,779
|
|
|
6,571
|
|
|
—
|
|
|
2,041,350
|
|
||||||
Derivative liabilities, net
|
|
269
|
|
|
—
|
|
|
7,424
|
|
|
65
|
|
|
(7,220
|
)
|
|
269
|
|
||||||
Guarantee obligation
|
|
3,081
|
|
|
—
|
|
|
—
|
|
|
3,742
|
|
|
—
|
|
|
3,742
|
|
||||||
Non-derivative purchase commitments
|
|
4
|
|
|
—
|
|
|
4
|
|
|
15
|
|
|
—
|
|
|
19
|
|
||||||
Total financial liabilities
|
|
|
$2,037,984
|
|
|
|
$—
|
|
|
|
$2,042,207
|
|
|
|
$10,393
|
|
|
|
($7,220
|
)
|
|
|
$2,045,380
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
346
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
December 31, 2016
|
||||||||||||||||||||||
|
|
GAAP Carrying Amount
|
|
Fair Value
|
||||||||||||||||||||
(In millions)
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting Adjustments
(1)
|
|
Total
|
|||||||||||||
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
|
|
$12,369
|
|
|
|
$12,369
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$12,369
|
|
Restricted cash and cash equivalents
|
|
9,851
|
|
|
9,851
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,851
|
|
||||||
Securities purchased under agreements to resell
|
|
51,548
|
|
|
—
|
|
|
51,548
|
|
|
—
|
|
|
—
|
|
|
51,548
|
|
||||||
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Available-for-sale, at fair value
|
|
66,757
|
|
|
—
|
|
|
41,016
|
|
|
25,741
|
|
|
—
|
|
|
66,757
|
|
||||||
Trading, at fair value
|
|
44,790
|
|
|
19,402
|
|
|
24,168
|
|
|
1,220
|
|
|
—
|
|
|
44,790
|
|
||||||
Total investments in securities
|
|
111,547
|
|
|
19,402
|
|
|
65,184
|
|
|
26,961
|
|
|
—
|
|
|
111,547
|
|
||||||
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans held by consolidated trusts
|
|
1,690,218
|
|
|
—
|
|
|
1,554,143
|
|
|
142,121
|
|
|
—
|
|
|
1,696,264
|
|
||||||
Loans held by Freddie Mac
|
|
112,785
|
|
|
—
|
|
|
31,004
|
|
|
84,227
|
|
|
—
|
|
|
115,231
|
|
||||||
Total mortgage loans
|
|
1,803,003
|
|
|
—
|
|
|
1,585,147
|
|
|
226,348
|
|
|
—
|
|
|
1,811,495
|
|
||||||
Derivative assets, net
|
|
747
|
|
|
—
|
|
|
12,265
|
|
|
3
|
|
|
(11,521
|
)
|
|
747
|
|
||||||
Guarantee asset
|
|
2,298
|
|
|
—
|
|
|
—
|
|
|
2,490
|
|
|
—
|
|
|
2,490
|
|
||||||
Non-derivative purchase commitments
|
|
108
|
|
|
|
|
|
108
|
|
|
18
|
|
|
—
|
|
|
126
|
|
||||||
Advances to lenders and other secured lending
|
|
1,278
|
|
|
—
|
|
|
—
|
|
|
1,278
|
|
|
—
|
|
|
1,278
|
|
||||||
Total financial assets
|
|
|
$1,992,749
|
|
|
|
$41,622
|
|
|
|
$1,714,252
|
|
|
|
$257,098
|
|
|
|
($11,521
|
)
|
|
|
$2,001,451
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Debt, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Debt securities of consolidated trusts
held by third parties
|
|
|
$1,648,683
|
|
|
|
$—
|
|
|
|
$1,651,313
|
|
|
|
$605
|
|
|
|
$—
|
|
|
|
$1,651,918
|
|
Other debt
|
|
353,321
|
|
|
—
|
|
|
352,837
|
|
|
4,809
|
|
|
—
|
|
|
357,646
|
|
||||||
Total debt, net
|
|
2,002,004
|
|
|
—
|
|
|
2,004,150
|
|
|
5,414
|
|
|
—
|
|
|
2,009,564
|
|
||||||
Derivative liabilities, net
|
|
795
|
|
|
—
|
|
|
12,640
|
|
|
52
|
|
|
(11,897
|
)
|
|
795
|
|
||||||
Guarantee obligation
|
|
2,208
|
|
|
—
|
|
|
—
|
|
|
3,399
|
|
|
—
|
|
|
3,399
|
|
||||||
Non-derivative purchase commitments
|
|
37
|
|
|
—
|
|
|
37
|
|
|
45
|
|
|
—
|
|
|
82
|
|
||||||
Total financial liabilities
|
|
|
$2,005,044
|
|
|
|
$—
|
|
|
|
$2,016,827
|
|
|
|
$8,910
|
|
|
|
($11,897
|
)
|
|
|
$2,013,840
|
|
(1)
|
Represents counterparty netting, cash collateral netting and net derivative interest receivable or payable.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
347
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
|
|
December 31,
|
||||||||||||||||||||||
|
|
2017
|
|
2016
|
||||||||||||||||||||
(In millions)
|
|
Multifamily
Held-For-Sale
Loans
|
|
Other Debt -
Long Term
|
|
Debt securities of consolidated trusts held by third parties
(1)
|
|
Multifamily
Held-For-Sale
Loans
|
|
Other Debt -
Long Term
|
|
Debt securities of consolidated trusts held by third parties
(1)
|
||||||||||||
Fair value
|
|
|
$20,054
|
|
|
|
$5,160
|
|
|
|
$630
|
|
|
|
$16,255
|
|
|
|
$5,866
|
|
|
|
$—
|
|
Unpaid principal balance
|
|
19,762
|
|
|
4,666
|
|
|
630
|
|
|
16,231
|
|
|
5,584
|
|
|
—
|
|
||||||
Difference
|
|
|
$292
|
|
|
|
$494
|
|
|
|
$—
|
|
|
|
$24
|
|
|
|
$282
|
|
|
|
$—
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
348
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 15
|
FREDDIE MAC
| 2017 Form 10-K
|
|
349
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 16
|
FREDDIE MAC
| 2017 Form 10-K
|
|
350
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 16
|
FREDDIE MAC
| 2017 Form 10-K
|
|
351
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 16
|
FREDDIE MAC
| 2017 Form 10-K
|
|
352
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 16
|
FREDDIE MAC
| 2017 Form 10-K
|
|
353
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 16
|
FREDDIE MAC
| 2017 Form 10-K
|
|
354
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 17
|
FREDDIE MAC
| 2017 Form 10-K
|
|
355
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 17
|
(In millions)
|
|
December 31, 2017
|
|
December 31, 2016
|
||||
GAAP net worth (deficit)
|
|
|
($312
|
)
|
|
|
$5,075
|
|
Core capital (deficit)
(1)(2)
|
|
(73,037
|
)
|
|
(67,717
|
)
|
||
Less: Minimum capital requirement
(1)
|
|
18,431
|
|
|
18,933
|
|
||
Minimum capital surplus (deficit)
(1)
|
|
|
($91,468
|
)
|
|
|
($86,650
|
)
|
(1)
|
Core capital and minimum capital figures are estimates and represent amounts submitted to FHFA. FHFA is the authoritative source for our regulatory capital.
|
(2)
|
Core capital excludes certain components of GAAP total equity (i.e., AOCI and the liquidation preference of the senior preferred stock) as these items do not meet the statutory definition of core capital.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
356
|
Financial Statements
|
Notes to the Consolidated Financial Statements |
Note 18
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2017
|
2016
|
2015
|
||||||
Other income (loss)
|
|
|
|
|
||||||
Non-agency mortgage-related securities settlements
|
|
|
$4,532
|
|
|
$—
|
|
|
$65
|
|
Gains (losses) on held-for-sale loan purchase commitments
|
|
1,098
|
|
663
|
|
—
|
|
|||
Gains (losses) on loans
|
|
928
|
|
(463
|
)
|
(2,094
|
)
|
|||
All other
|
|
922
|
|
1,054
|
|
1,150
|
|
|||
Total other income (loss)
|
|
|
$7,480
|
|
|
$1,254
|
|
|
($879
|
)
|
|
|
|
|
|
||||||
Other expense
|
|
|
|
|
||||||
Property tax and insurance expense on held-for-sale loans
|
|
|
$45
|
|
|
($90
|
)
|
|
($1,094
|
)
|
All other
|
|
(693
|
)
|
(509
|
)
|
(412
|
)
|
|||
Total other expense
|
|
|
($648
|
)
|
|
($599
|
)
|
|
($1,506
|
)
|
|
|
As of December 31,
|
|||||
(In millions)
|
|
2017
|
2016
|
||||
Other assets
|
|
|
|
||||
Real estate owned, net
|
|
|
$892
|
|
|
$1,198
|
|
Accounts and other receivables
(1)
|
|
7,397
|
|
5,083
|
|
||
Guarantee asset
|
|
3,171
|
|
2,298
|
|
||
Fixed assets
|
|
798
|
|
630
|
|
||
Advances to lenders
|
|
796
|
|
1,278
|
|
||
All other
|
|
636
|
|
1,871
|
|
||
Total other assets
|
|
|
$13,690
|
|
|
$12,358
|
|
|
|
|
|
||||
Other liabilities
|
|
|
|
||||
Servicer liabilities
|
|
|
$628
|
|
|
$730
|
|
Guarantee obligation
|
|
3,081
|
|
2,208
|
|
||
Accounts payable and accrued expenses
|
|
754
|
|
957
|
|
||
Payables related to securities
|
|
2,813
|
|
4,510
|
|
||
Income taxes payable
|
|
656
|
|
—
|
|
||
All other
|
|
1,036
|
|
1,082
|
|
||
Total other liabilities
|
|
|
$8,968
|
|
|
$9,487
|
|
(1)
|
Primarily consists of servicer receivables and other non-interest receivables.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
357
|
Financial Statements
|
Quarterly Selected Financial Data
|
|
|
2017
|
||||||||||||||
(
In millions
, except share-related amounts)
|
|
1Q
|
2Q
|
3Q
|
4Q
|
Full-Year
|
||||||||||
Net interest income
|
|
|
$3,795
|
|
|
$3,379
|
|
|
$3,489
|
|
|
$3,501
|
|
|
$14,164
|
|
Benefit (provision) for credit losses
|
|
116
|
|
422
|
|
(716
|
)
|
262
|
|
84
|
|
|||||
Non-interest income (loss):
|
|
|
|
|
|
|
||||||||||
Derivative gains (losses)
|
|
(302
|
)
|
(1,096
|
)
|
(678
|
)
|
88
|
|
(1,988
|
)
|
|||||
Net impairments of available-for-sale securities recognized in earnings
|
|
(13
|
)
|
(3
|
)
|
(1
|
)
|
(1
|
)
|
(18
|
)
|
|||||
Other non-interest income (loss)
|
|
689
|
|
805
|
|
6,153
|
|
1,228
|
|
8,875
|
|
|||||
Non-interest income (loss)
|
|
374
|
|
(294
|
)
|
5,474
|
|
1,315
|
|
6,869
|
|
|||||
Non-interest expense:
|
|
|
|
|
|
|
||||||||||
Administrative expense
|
|
(511
|
)
|
(513
|
)
|
(524
|
)
|
(558
|
)
|
(2,106
|
)
|
|||||
REO operations income (expense)
|
|
(56
|
)
|
(37
|
)
|
(35
|
)
|
(61
|
)
|
(189
|
)
|
|||||
Temporary Payroll Tax Cut Continuation Act of 2011 expense
|
|
(321
|
)
|
(330
|
)
|
(339
|
)
|
(350
|
)
|
(1,340
|
)
|
|||||
Other non-interest expense
|
|
(76
|
)
|
(126
|
)
|
(159
|
)
|
(287
|
)
|
(648
|
)
|
|||||
Non-interest expense
|
|
(964
|
)
|
(1,006
|
)
|
(1,057
|
)
|
(1,256
|
)
|
(4,283
|
)
|
|||||
Income tax (expense) benefit
|
|
(1,110
|
)
|
(837
|
)
|
(2,519
|
)
|
(6,743
|
)
|
(11,209
|
)
|
|||||
Net income (loss)
|
|
2,211
|
|
1,664
|
|
4,671
|
|
(2,921
|
)
|
5,625
|
|
|||||
Total other comprehensive income (loss), net of taxes
|
|
23
|
|
322
|
|
(21
|
)
|
(391
|
)
|
(67
|
)
|
|||||
Comprehensive income (loss)
|
|
|
$2,234
|
|
|
$1,986
|
|
|
$4,650
|
|
|
($3,312
|
)
|
|
$5,558
|
|
Income (loss) attributable to common stockholders
|
|
|
($23
|
)
|
|
($322
|
)
|
|
$21
|
|
|
($2,920
|
)
|
|
($3,244
|
)
|
Income (loss) per common share – basic and diluted
(1)
|
|
|
($0.01
|
)
|
|
($0.10
|
)
|
|
$0.01
|
|
|
($0.90
|
)
|
|
($1.00
|
)
|
|
|
2016
|
||||||||||||||
(
In millions
, except share-related amounts)
|
|
1Q
|
2Q
|
3Q
|
4Q
|
Full-Year
|
||||||||||
Net interest income
|
|
|
$3,405
|
|
|
$3,443
|
|
|
$3,646
|
|
|
$3,885
|
|
|
$14,379
|
|
Benefit (provision) for credit losses
|
|
467
|
|
775
|
|
(113
|
)
|
(326
|
)
|
803
|
|
|||||
Non-interest income (loss):
|
|
|
|
|
|
|
|
|||||||||
Derivative gains (losses)
|
|
(4,561
|
)
|
(2,058
|
)
|
(36
|
)
|
6,381
|
|
(274
|
)
|
|||||
Net impairments of available-for-sale securities recognized in earnings
|
|
(57
|
)
|
(72
|
)
|
(9
|
)
|
(53
|
)
|
(191
|
)
|
|||||
Other non-interest income (loss)
|
|
1,195
|
|
306
|
|
822
|
|
(1,358
|
)
|
965
|
|
|||||
Non-interest income (loss)
|
|
(3,423
|
)
|
(1,824
|
)
|
777
|
|
4,970
|
|
500
|
|
|||||
Non-interest expense:
|
|
|
|
|
|
|
||||||||||
Administrative expenses
|
|
(448
|
)
|
(475
|
)
|
(498
|
)
|
(584
|
)
|
(2,005
|
)
|
|||||
REO operations income (expense)
|
|
(84
|
)
|
(29
|
)
|
(56
|
)
|
(118
|
)
|
(287
|
)
|
|||||
Temporary Payroll Tax Cut Continuation Act of 2011 expense
|
|
(272
|
)
|
(280
|
)
|
(293
|
)
|
(307
|
)
|
(1,152
|
)
|
|||||
Other non-interest expense
|
|
(153
|
)
|
(151
|
)
|
(138
|
)
|
(157
|
)
|
(599
|
)
|
|||||
Non-interest expense
|
|
(957
|
)
|
(935
|
)
|
(985
|
)
|
(1,166
|
)
|
(4,043
|
)
|
|||||
Income tax (expense) benefit
|
|
154
|
|
(466
|
)
|
(996
|
)
|
(2,516
|
)
|
(3,824
|
)
|
|||||
Net income (loss)
|
|
(354
|
)
|
993
|
|
2,329
|
|
4,847
|
|
7,815
|
|
|||||
Total other comprehensive income (loss), net of taxes
|
|
154
|
|
140
|
|
(19
|
)
|
(972
|
)
|
(697
|
)
|
|||||
Comprehensive income (loss)
|
|
|
($200
|
)
|
|
$1,133
|
|
|
$2,310
|
|
|
$3,875
|
|
|
$7,118
|
|
Income (loss) attributable to common stockholders
|
|
|
($354
|
)
|
|
$60
|
|
|
$19
|
|
|
$372
|
|
|
$97
|
|
Income (loss) per common share – basic and diluted
(1)
|
|
|
($0.11
|
)
|
|
$0.02
|
|
|
$0.01
|
|
|
$0.11
|
|
|
$0.03
|
|
(1)
|
Earnings (loss) per common share is computed independently for each of the quarters presented. Due to the use of weighted average common shares outstanding when calculating earnings (loss) per share, the sum of the four quarters may not equal the full-year amount. Earnings (loss) per common share amounts may not recalculate using the amounts shown in this table due to rounding.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
358
|
Controls and Procedures
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
359
|
Controls and Procedures
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
360
|
Controls and Procedures
|
|
n
|
FHFA has established the Division of Conservatorship, which is intended to facilitate operation of the company with the oversight of the Conservator.
|
n
|
We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also provide drafts of external press releases, statements and certain speeches to FHFA personnel for their review and comment prior to release.
|
n
|
FHFA personnel, including senior officials, review our SEC filings prior to filing, including this Form 10-K, and engage in discussions with us regarding issues associated with the information contained in those filings. Prior to filing this Form 10-K, FHFA provided us with a written acknowledgment that it had reviewed the Form 10-K, was not aware of any material misstatements or omissions in the Form 10-K, and had no objection to our filing the Form 10-K.
|
n
|
The Director of FHFA is in frequent communication with our Chief Executive Officer, typically meeting (in person or by phone) on at least a bi-weekly basis.
|
n
|
FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of information and to provide oversight on a variety of matters, including accounting, credit and capital markets management, external communications and legal matters.
|
n
|
Senior officials within FHFA’s accounting group meet frequently with our senior financial executives regarding our accounting policies, practices and procedures.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
361
|
Controls and Procedures
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
362
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
n
|
Carolyn H. Byrd
|
n
|
Steven W. Kohlhagen
|
n
|
Saiyid T. Naqvi
|
n
|
Lance F. Drummond
|
n
|
Donald H. Layton
|
n
|
Eugene B. Shanks, Jr.
|
n
|
Thomas M. Goldstein
|
n
|
Christopher S. Lynch
|
n
|
Anthony A. Williams
|
n
|
Grace A. Huebscher
|
n
|
Sara Mathew
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
363
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
FREDDIE MAC
| 2017 Form 10-K
|
|
364
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
69
|
December 2008
|
•
|
Compensation
|
•
|
Regions Financial Corporation
|
•
|
Risk
|
|
|
n
|
Founder, Chairman, and Chief Executive Officer of GlobalTech Financial, LLC (2000-present)
|
n
|
President of Coca-Cola Financial Corporation (1997-2000)
|
n
|
Various domestic and international positions with The Coca-Cola Company, including Chief of Internal Audits and Director of the Corporate Auditing Department (1977-1997)
|
n
|
Member of the Board and Chair of the Audit Committee and former member of the Risk Committee of Regions Financial Corporation (2010-present)
|
n
|
Member of the Board, Audit Committee and Executive Committee and Chair of the Corporate Governance and Nominating Committee of Popeyes Louisiana Kitchen, Inc. (2001-2017)
|
n
|
Member of the Board and Audit Committee of Circuit City Stores, Inc. (2000-2009)
|
n
|
Member of the Board and Audit Committee of RARE Hospitality International, Inc. (2000-2007)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
63
|
July 2015
|
•
|
Audit
|
|
None
|
•
|
Nominating & Governance
|
|
n
|
Executive Vice President of Operations and Technology of TD Canada Trust (2011-2014)
|
n
|
Executive Vice President of Human Resources and Shared Services of Fiserv Inc. (2009-2011)
|
n
|
Senior Vice President and Supply Chain Executive, Service and Fulfillment Executive for Global Technology and Operations, and eCommerce and ATM Executive of Bank of America (2002-2008)
|
n
|
Various positions with Eastman Kodak Company, including Chief Operating Officer and Corporate Vice President of Kodak Professional Division (1976-2002)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
365
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
58
|
October 2014
|
•
|
Audit
|
•
|
Kemper Corporation
|
•
|
Executive
|
||||
•
|
Nominating & Governance, Chair
|
n
|
Founder of Jamlerpartners LLC (2014-present)
|
n
|
Senior Vice President and Chief Financial Officer of the Protection Division of Allstate Insurance Company (2011-2014)
|
n
|
Consultant to the financial services industry, pursuing community bank acquisitions with The GRG Group LLC (2009-2011)
|
n
|
Managing Director and Chief Financial Officer of Madison Dearborn Partners (2007-2009)
|
n
|
Various executive and finance positions for LaSalle Bank Corporation, including Chairman, Chief Executive Officer, and President of ABN AMRO Mortgage Group and Chief Financial Officer of LaSalle Bank Corporation (1998-2007)
|
n
|
Various positions with Morgan Stanley Dean Witter, including Senior Vice President and Head of Risk Management and Financial Planning and Analysis of Novus Financial as well as Vice President and Head of Finance, Risk Management, Model Development, and Investor Relations of SPS Transaction Services (1988-1998)
|
n
|
Member of the Board, Audit, Compensation and Investment Committees of Kemper Corporation (2016-present)
|
n
|
Member of the Board of Trustees, Chair of the Audit Committee, and member of the Performance and Compliance Committees of Columbia Acorn Trust and Wanger Advisors Trust (2014-present)
|
n
|
Member of the Board of the FHLB of Chicago (2009-2014)
|
n
|
Member of the Board of various Allstate subsidiaries (2011-2014)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
58
|
December 2017
|
•
|
Nominating & Governance
|
|
None
|
•
|
Risk
|
|
|
n
|
Advisor to Capital One Commercial Bank (2017)
|
n
|
President of Capital One Multifamily Finance, LLC (2013-2017)
|
n
|
Co-Founder and Chief Executive Officer of Beech Street Capital, LLC (2009-2013)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
366
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
n
|
Various positions with Fannie Mae, including Vice President, Capital Markets (1997-2009)
|
n
|
Member of the Board of The Kenyon Review (1998-present)
|
n
|
Member of the Commercial Board of Governors of the Mortgage Bankers Association (2014-2017)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
70
|
February 2013
|
•
|
Compensation, Chair
|
•
|
AMETEK, Inc.
|
•
|
Executive
|
|
|
||
•
|
Risk
|
|
|
n
|
Various positions with First Union National Bank (predecessor to Wachovia National Bank and Wells Fargo), last serving as Managing Director of the Fixed Income Division (1992-2003)
|
n
|
Various positions with AIG Financial Products (1990-1992); Stamford Capital Group (1987-1990); Bankers Trust Corporation (1985-1987); and Lehman Brothers, Inc. (1983-1985)
|
n
|
Consulting work for the Organization for Economic Cooperation and Development (1980-1981), Treasury (1976-1977), and the Federal Reserve Board (1976)
|
n
|
Senior Staff Economist for the Council of Economic Advisors, White House Staff (1978-1979)
|
n
|
Professor of International Economics and Finance at the University of California, Berkeley (1973-1983)
|
n
|
Member of the Board and Audit Committee of AMETEK, Inc. (2006-present)
|
n
|
Member of the Board, Audit Committee, and Compensation Committee of GulfMark Offshore, Inc. (2013-2017)
|
n
|
Member of the Board and Compensation Committee and Chair of the Governance and Nominating Committee of Reval, Inc. (2007-2016)
|
n
|
Member of the Board and Audit Committee of Abtech Holdings, Inc. (2013-2014)
|
n
|
Advisory Board member of the Stanford Institute for Economic Policy Research (2001-present)
|
n
|
Advisory Board member of the Roper St. Francis Cancer Center (2011-present)
|
n
|
Member of the Board of IQ Mutual Funds, a family of Merrill Lynch registered, closed-end investment companies (2005-2010)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
367
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
67
|
May 2012
|
•
|
Executive
|
|
None
|
n
|
Chief Executive Officer of Freddie Mac (2012-present)
|
n
|
Chairman of E*TRADE Financial (2007-2009); Chief Executive Officer (2008-2009)
|
n
|
Senior Advisor to the Securities Industry and Financial Markets Association (2006-2008)
|
n
|
Various positions with JPMorgan Chase and its predecessors, beginning as a trainee and rising to Vice Chairman and a member of the company’s three-person Office of the Chairman (1975-2004); positions included Head of Chase Financial Services (2002-2004); Co-Chief Executive Officer of J.P. Morgan, the investment bank of the company (2000-2002); Head of Treasury and Securities Services (1999-2004); and Head of Chase Manhattan’s worldwide capital markets and trading activities, including foreign exchange, risk management products, emerging markets, fixed income, and the bank’s investment portfolio and funding department (1996 to 2000; prior to Chase’s merger with J.P. Morgan)
|
n
|
Chairman Emeritus of the Partnership for the Homeless (2015-present); Chairman of the Board (2005-2015)
|
n
|
Member of the Board of Assured Guaranty Ltd. (2006-2012)
|
n
|
Member of the Board of American International Group (2010-2012)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
60
|
December 2008
|
•
|
Executive, Chair
|
•
|
American International Group Inc.
|
n
|
Independent consultant providing a variety of services to financial intermediaries, including corporate restructuring, risk management, strategy, governance, financial and regulatory reporting, and troubled-asset management (2007-present)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
368
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
n
|
Various positions with KPMG LLP, including National Partner in Charge - Financial Services; Chairman of KPMG’s Americas Financial Services; Member of the Global Financial Services and U.S. Industries Leadership teams; and Department of Professional Practice partner (1979-2007)
|
n
|
Practice Fellow at the FASB (1987-1989)
|
n
|
Non-Executive Chairman of the Board of Freddie Mac (2011-present)
|
n
|
Member of the Board, Chair of the Nominating and Corporate Governance Committee, member of the Risk and Capital, and Technology Committees and former Chair of the Audit Committee of American International Group (2009-present)
|
n
|
Advisory Board member of the Stanford Institute for Economic Policy Research (2014-present)
|
n
|
Member of the National Audit Committee Chair Advisory Council of the National Association of Corporate Directors (2014-present)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
62
|
December 2013
|
•
|
Audit, Chair
|
•
|
Campbell Soup Company
|
•
|
Executive
|
•
|
Shire plc
|
||
•
|
Nominating & Governance
|
|
|
n
|
Various positions with Dun & Bradstreet Corporation (2001-2013), including Chairman and Chief Executive Officer (2010-2013); President and Chief Operating Officer (2007-2010); and Senior Vice President and CFO (2002-2006)
|
n
|
Various finance and management positions with The Procter & Gamble Company, including Vice President of Finance for Australia, Asia, and India (1983-2001)
|
n
|
Member of the Board and Finance and Corporate Development Committee and Chair of the Audit Committee of Campbell Soup Company (2005-present)
|
n
|
Member of the Board, Chair of the Audit, Compliance and Risk Committee, member of the Nomination and Governance Committee, and former member of the Remuneration Committee of Shire plc (2015-present)
|
n
|
Member of the Board and Finance and Nominating and Corporate Governance Committees of Avon Products, Inc. (2014-2016)
|
n
|
Member of the Board of Dun & Bradstreet Corporation (2008-2013)
|
n
|
Member of the International Advisory Council of Zurich Financial Services Group (2012-2017)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
369
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
68
|
August 2013
|
•
|
Compensation
|
|
None
|
•
|
Executive
|
|
|
||
•
|
Risk, Chair
|
|
|
n
|
President and Chief Executive Officer of PNC Mortgage, a division of PNC Bank, National Association, which is a subsidiary of PNC Financial Services Group (2009-2013)
|
n
|
President of Harley-Davidson Financial Services, Inc. (2007-2009)
|
n
|
Chief Executive Officer of DeepGreen Financial, Inc. (2005-2006)
|
n
|
President and Chief Financial Officer of Setara Corporation (2002-2005)
|
n
|
President and Chief Executive Officer of PNC Mortgage Corporation of America (1995-2001)
|
n
|
Member of the Board of Genworth Financial (2005-2009)
|
n
|
Member of the Board of Hanover Mortgage Capital Holdings, Inc. (1998-2006)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
70
|
December 2008
|
•
|
Audit
|
•
|
Chubb (formerly ACE Limited)
|
•
|
Compensation
|
|
|
n
|
Founder, President, and Chief Executive Officer of NetRisk, Inc. (1997-2002)
|
n
|
Various positions with Bankers Trust New York Corporation, including Head of Global Markets and President and Director (1973-1978 and 1980-1995)
|
n
|
Treasurer of Commerce Union Bank in Nashville, Tennessee (1978-1980)
|
n
|
Member of the Board and Risk and Finance Committee of Chubb (2011-present)
|
n
|
Advisory Board member of the Stanford Institute for Economic Policy Research (2010-present)
|
n
|
Senior Advisor of Bain and Company (2008-2011)
|
n
|
Founding Director of The Posse Foundation (1992-present)
|
n
|
Trustee Emeritus of Vanderbilt University (2015-present), Trustee (1992-2015)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
370
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
66
|
December 2008
|
•
|
Nominating & Governance
|
|
None
|
•
|
Risk
|
|
|
n
|
Chief Executive Officer and Executive Director of Federal City Council (2012-present)
|
n
|
Senior Advisor at King & Spalding (2016-present)
|
n
|
Senior Advisor at Dentons (2015-2016)
|
n
|
Senior Advisor at McKenna, Long & Aldridge, LLP (2013-2015)
|
n
|
Senior Fellow (2012) and Executive Director of Global Government Practice (2010-2012) of the Corporate Executive Board Company
|
n
|
Bloomberg Lecturer in Public Management at Harvard’s Kennedy School of Government (2009-2012)
|
n
|
Senior Advisor, Intergovernmental Practice at Arent Fox LLP (2009-2010)
|
n
|
CEO of Primum Public Realty Trust (2007-2008)
|
n
|
Mayor of Washington, DC (1999-2007)
|
n
|
Chief Financial Officer of Washington, DC (1995-1998)
|
n
|
President of the National League of Cities (2005)
|
n
|
Vice-Chair of the Metropolitan Washington Council of Governments (2005-2006)
|
n
|
Chief Financial Officer for the U.S. Department of Agriculture (1993-1995)
|
n
|
Deputy State Comptroller of Connecticut (1991-1993)
|
n
|
Executive Director of the Community Development Agency of St. Louis, Missouri (1989-1991)
|
n
|
Assistant Director of the Boston Redevelopment Agency and Head of the Department of Neighborhood Housing and Development (1988-1989)
|
n
|
Member of the Board of the Bank of Georgetown (2012-2016)
|
n
|
Member of the Board and Audit Committee of Calvert Funds (2010-present)
|
n
|
Member of the Board and Audit Committee of Weston Solutions (2008-2015)
|
n
|
Member of the Board and Audit Committee of Meruelo Maddox Properties, Inc. (2007-2009)
|
FREDDIE MAC
| 2017 Form 10-K
|
|
371
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
n
|
Our Board has an independent Non-Executive Chairman, whose responsibilities include presiding over meetings of the Board and executive sessions of the non-employee or independent directors. Mr. Lynch has served as Non-Executive Chairman since December 2011.
|
n
|
Of the Board’s 11 directors, 10 are independent, including the Non-Executive Chairman.
|
n
|
Our directors are elected annually.
|
n
|
Each of the Audit, Compensation, Nominating and Governance, and Risk Committees consists entirely of independent directors.
|
n
|
Each committee operates pursuant to a written charter that has been approved by the Board (these charters are available at
http://www.freddiemac.com/governance/board-committees.html
).
|
n
|
Independent directors meet regularly without management.
|
n
|
The Board and each of the Audit, Compensation, Nominating and Governance, and Risk Committees conduct an annual self-evaluation.
|
n
|
New directors receive a full orientation regarding the company and issues specific to the committees to which they have been appointed.
|
n
|
All directors are provided with access to, and are encouraged to utilize, third party continuing education.
|
n
|
Management provides the Board and committees with in-depth technical briefings on substantive issues affecting the company.
|
n
|
The Board reviews management talent and succession planning at least annually.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
372
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
n
|
Employment Affiliations with Business Partners
- During 2017 and currently, Mr. Williams has served as an employee of a firm that engages or has engaged in business with us resulting in payments between us and the firm. Under the Guidelines, no specific independence determination is required with respect to these payments because they do not exceed the greater of $1 million or 2% of the firm’s consolidated gross revenues for each of the last three fiscal years. After considering the nature and extent of the specific relationship between the firm and us, our non-employee Board members concluded that the business relationship does not constitute a material relationship between Mr. Williams and us that would impair his independence as our director.
|
n
|
Employment Affiliations with Competitors
- During 2017, an immediate family member of Ms. Huebscher served as an employee of a company that is a competitor of Freddie Mac. After considering the nature and extent of the specific relationship between the company and the immediate family member and between the company and Freddie Mac, our non-employee Board members concluded that those business relationships do not constitute material relationships that would impair Ms. Huebscher’s independence as our director.
|
n
|
Board Memberships with Charitable Organizations to Which We Have Made Payments
- During 2017, Mr. Bostic, who served as a director until May 31, 2017, served as a board member of a charitable organization that received payments from us. Under the Guidelines, no specific independence determination is required with respect to these payments because they did not exceed the greater of $1 million or 2% of the organization’s consolidated gross revenues for each of the last three fiscal years. During 2017, Mr. Retsinas, who served as a director until February 13, 2018, served as Director Emeritus of a charitable organization that received payments from us. Because the total annual amount paid to the charitable organization did not exceed the greater of $1 million or 2% of the organization’s consolidated gross revenues for each of the last three fiscal years, no specific independence determination with respect to these payments was required under the Guidelines; moreover, since Mr. Retsinas was neither a board member nor a trustee of the charitable organization, the payments would not have required an independence determination in any event. The non-employee members of the Board considered the payments and the nature of the organizations and concluded that the relationships with the charitable organizations did not
|
FREDDIE MAC
| 2017 Form 10-K
|
|
373
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
n
|
Board Memberships with Business Partners
- During 2017, Ms. Byrd and Messrs. Bostic, Lynch, Retsinas, Shanks, and Williams, and currently, Ms. Byrd and Messrs. Lynch, Shanks and Williams, have served as directors of other companies that engage or have engaged in business with us resulting in payments between us and such companies during the past three fiscal years. After considering the nature and extent of the specific relationship between each of those companies and us, and the fact that these Board members are directors of these other companies rather than employees, our non-employee Board members concluded that those business relationships do not constitute material relationships between any of the directors and us that would impair their independence as our directors.
|
n
|
Financial Relationships with Business Partners
- Mr. Hartnack, who served as a director until February 13, 2018, owns stock of US Bancorp. In the aggregate, this stock represented a material portion of his net worth. US Bancorp conducts significant business with us, including as a single-family seller/servicer and as trustee of some of our securitization transactions. In order to eliminate any potential conflict of interest that might have arisen as a result of this stock ownership, Mr. Hartnack recused himself from discussing and acting upon any matters considered by the full Board or any of the committees of which he was a member, and that related directly to US Bancorp. The Audit Committee Chair, in consultation with the Non-Executive Chairman, addressed any questions regarding whether recusal from a particular discussion or action was appropriate.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
374
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
FREDDIE MAC
| 2017 Form 10-K
|
|
375
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
FREDDIE MAC
| 2017 Form 10-K
|
|
376
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
Committee
|
Meetings in 2017
|
Chair
|
Members
|
||
|
|
|
|
|
|
Audit Committee
|
9 Committee meetings;
3 joint meetings with the Risk Committee
|
|
Sara Mathew
|
•
|
Lance F. Drummond
|
•
|
Thomas M. Goldstein
|
||||
•
|
Nicolas P. Retsinas
|
||||
•
|
Eugene B. Shanks. Jr.
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Executive Committee
|
None
|
|
Christopher S. Lynch
|
•
|
Thomas M. Goldstein
|
•
|
Donald H. Layton
|
||||
•
|
Steven W. Kohlhagen
|
||||
•
|
Sara Mathew
|
||||
•
|
Saiyid T. Naqvi
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Committee
|
8 Committee meetings
|
|
Steven W. Kohlhagen
|
•
|
Carolyn H. Byrd
|
•
|
Saiyid T. Naqvi
|
||||
•
|
Eugene B. Shanks, Jr.
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Nominating and Governance Committee
|
5 Committee meetings
|
|
Thomas M. Goldstein
|
•
|
Lance F. Drummond
|
•
|
Grace A. Huebscher
|
||||
•
|
Sara Mathew
|
||||
•
|
Anthony A. Williams
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Risk Committee
|
5 Committee meetings;
3 joint meetings with the Audit Committee
|
|
Saiyid T. Naqvi
|
•
|
Carolyn H. Byrd
|
•
|
Grace A. Huebscher
|
||||
•
|
Steven W. Kohlhagen
|
||||
•
|
Anthony A. Williams
|
||||
|
|
|
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
377
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
FREDDIE MAC
| 2017 Form 10-K
|
|
378
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
FREDDIE MAC
| 2017 Form 10-K
|
|
379
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
Board Service
|
|
Cash Compensation
|
||
Annual Retainer for Non-Executive Chairman
|
|
|
$290,000
|
|
Annual Retainer for Directors (other than the Non-Executive Chairman)
|
|
160,000
|
|
|
Committee Service
|
|
Cash Compensation
|
||
Annual Retainer for Audit Committee Chair
|
|
|
$25,000
|
|
Annual Retainer for Risk Committee Chair
|
|
15,000
|
|
|
Annual Retainer for Committee Chairs (other than Audit or Risk)
|
|
10,000
|
|
|
Annual Retainer for Audit Committee Members
|
|
10,000
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
380
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
Non-Employee Director
|
|
Fees Earned or
Paid in Cash
(1)
|
|
All Other Compensation
|
|
Total
|
|||||
Christopher S. Lynch
|
|
|
$290,000
|
|
|
—
|
|
|
|
$290,000
|
|
Raphael W. Bostic
(2)
|
|
66,374
|
|
|
—
|
|
|
66,374
|
|
||
Carolyn H. Byrd
(3)
|
|
164,097
|
|
|
—
|
|
|
164,097
|
|
||
Lance F. Drummond
|
|
170,000
|
|
|
—
|
|
|
170,000
|
|
||
Thomas M. Goldstein
|
|
170,000
|
|
|
—
|
|
|
170,000
|
|
||
Richard C. Hartnack
|
|
170,000
|
|
|
—
|
|
|
170,000
|
|
||
Grace A. Huebscher
(4)
|
|
13,478
|
|
|
—
|
|
|
13,478
|
|
||
Steven W. Kohlhagen
|
|
160,000
|
|
|
—
|
|
|
160,000
|
|
||
Sara Mathew
(3)
|
|
182,542
|
|
|
—
|
|
|
182,542
|
|
||
Saiyid T. Naqvi
|
|
175,000
|
|
|
—
|
|
|
175,000
|
|
||
Nicolas P. Retsinas
|
|
180,000
|
|
|
654
(5)
|
|
|
180,654
|
|
||
Eugene B. Shanks, Jr.
|
|
170,000
|
|
|
—
|
|
|
170,000
|
|
||
Anthony A. Williams
|
|
160,000
|
|
|
—
|
|
|
160,000
|
|
(1)
|
Because we do not have pension or retirement plans for our non-employee directors and all compensation is paid in cash, “Change in Pension Value and Non-qualified Deferred Compensation Earnings” and “All Other Compensation” columns have been omitted.
|
(2)
|
Mr. Bostic resigned from the Board in May 2017.
|
(3)
|
In addition to the annual Board service and appropriate Committee Chair retainers, the amount reflects partial annual compensation for service as a member of the Audit Committee or as a Committee Chair during 2017. In March 2017, the Chair of the Audit Committee transitioned from Ms. Byrd to Ms. Mathew.
|
(4)
|
Ms. Huebscher joined the Board in December 2017.
|
(5)
|
Represents the fair market value of accrued dividend equivalents of vested restricted stock units granted to Mr. Retsinas on June 8, 2007 and June 5, 2008 which were released on January 2, 2017, the date the restrictions on the units lapsed.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
381
|
Directors, Corporate Governance, and Executive Officers
|
|
Executive Officers
|
Age
|
Year of Affiliation
|
Position
|
67
|
2012
|
Chief Executive Officer
|
Age
|
Year of Affiliation
|
Position
|
50
|
2013
|
Executive Vice President - Chief Financial Officer
|
Age
|
Year of Affiliation
|
Position
|
52
|
1999
|
Executive Vice President - Multifamily
|
FREDDIE MAC
| 2017 Form 10-K
|
|
382
|
Directors, Corporate Governance, and Executive Officers
|
|
Executive Officers
|
Age
|
Year of Affiliation
|
Position
|
55
|
2017
|
Executive Vice President - Chief Information Officer
|
Age
|
Year of Affiliation
|
Position
|
54
|
2015
|
Executive Vice President - Chief Enterprise Risk Officer
|
Age
|
Year of Affiliation
|
Position
|
62
|
2013
|
Executive Vice President - Investments and Capital Markets
|
FREDDIE MAC
| 2017 Form 10-K
|
|
383
|
Directors, Corporate Governance, and Executive Officers
|
|
Executive Officers
|
Age
|
Year of Affiliation
|
Position
|
60
|
2013
|
Executive Vice President - Single-Family Business
|
Age
|
Year of Affiliation
|
Position
|
71
|
2012
|
Executive Vice President - General Counsel & Corporate Secretary
|
Age
|
Year of Affiliation
|
Position
|
59
|
2003
|
Executive Vice President - Chief Administrative Officer
|
FREDDIE MAC
| 2017 Form 10-K
|
|
384
|
Executive Compensation
|
Compensation Discussion and Analysis
|
Named Executive Officers
|
|
Donald H. Layton
|
Chief Executive Officer
|
James G. Mackey
|
Executive Vice President - Chief Financial Officer
|
Michael T. Hutchins
|
Executive Vice President - Investments and Capital Markets
|
David B. Lowman
|
Executive Vice President - Single-Family Business
|
William H. McDavid
|
Executive Vice President - General Counsel & Corporate Secretary
|
FREDDIE MAC
| 2017 Form 10-K
|
|
385
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
Base Salary
|
|
Deferred Salary
|
||||||||
|
n
|
The amount earned in each quarter, including interest, is paid on the last pay date of the corresponding quarter in the following year.
|
||||||||
|
Fixed Deferred Salary
|
|
At-Risk Deferred Salary
|
|||||||
|
n
|
To encourage achievement of conservatorship, corporate, and individual performance goals
|
||||||||
|
Conservatorship Scorecard
|
|
Corporate Scorecard/ Individual
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
n
|
$500,000 or less with limited exceptions and requires FHFA approval
|
|
n
|
To encourage executive retention
|
|
n
|
Subject to reduction based on Conservatorship Scorecard performance
|
|
n
|
Subject to reduction based on performance against both the Corporate Scorecard and individual objectives
|
|
|
n
|
Equal to total Deferred Salary less the At-Risk portion
|
|
|
|
|
|||
n
|
Earned and paid bi-weekly
|
|
|
|
|
|
|
|
What We Do
|
|
What We Don't Do
|
||
n
|
Clawback provisions with a significant portion of compensation subject to recapture and/or forfeiture
|
|
n
|
No agreements that guarantee a specific amount of compensation for a specified term of employment
|
n
|
Use of an independent compensation consultant by the Board’s Compensation Committee
|
|
n
|
No golden parachute payments or other similar change in control provisions
|
n
|
Annual compensation risk review
|
|
n
|
No tax “gross-ups”
|
n
|
Single executive perquisite, reimbursement of tax, estate, and/or personal financial planning expenses (up to $4,500 annually, with an additional $2,500 in the first year of eligibility)
|
|
n
|
No hedging or pledging of company securities permitted
|
n
|
Evaluation of company performance against multiple measures, including non-financial measures
|
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
386
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
FREDDIE MAC
| 2017 Form 10-K
|
|
387
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
Allstate
|
|
Citigroup*
|
|
PNC
|
|
Ally Financial
|
|
Fannie Mae
|
|
Prudential
|
|
AIG
|
|
Fifth Third Bancorp
|
|
Regions Financial
|
|
Bank of America*
|
|
The Hartford
|
|
State Street
|
|
Bank of New York Mellon
|
|
JPMorgan Chase*
|
|
SunTrust
|
|
BB&T
|
|
MetLife
|
|
U.S. Bancorp
|
|
Capital One
|
|
Northern Trust
|
|
Wells Fargo*
|
|
*
|
Only mortgage or real estate division-level compensation data from these diversified banking firms may be utilized where available and appropriate for the position being benchmarked.
|
American Express
|
|
KeyCorp
|
|
Visa
|
|
Citizens Financial Group
|
|
Mastercard
|
|
Voya Financial
|
|
Discover Financial Services
|
|
Synchrony Financial
|
|
|
|
|
2017 Target TDC
|
||||||||||
Named Executive Officer
(1)
|
|
Base
Salary
|
|
Fixed
Deferred Salary
|
|
At-Risk
Deferred Salary
|
|
Target TDC
|
||||
James G. Mackey
|
|
500,000
|
|
|
1,775,000
|
|
|
975,000
|
|
|
3,250,000
|
|
Michael T. Hutchins
|
|
500,000
|
|
|
1,425,000
|
|
|
825,000
|
|
|
2,750,000
|
|
David B. Lowman
|
|
500,000
|
|
|
1,775,000
|
|
|
975,000
|
|
|
3,250,000
|
|
William H. McDavid
|
|
500,000
|
|
|
1,460,000
|
|
|
840,000
|
|
|
2,800,000
|
|
(1)
|
Mr. Layton did not participate in the EMCP in 2017 and therefore is not included in this table. For a discussion of Mr. Layton’s compensation, see
CEO Compensation
.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
388
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
FREDDIE MAC
| 2017 Form 10-K
|
|
389
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
n
|
Our contribution to maintaining the national housing finance markets through our efforts to simplify and standardize forms and approaches and refine aspects of loss mitigation, as well as continuing to advance the Neighborhood Stabilization Initiative;
|
n
|
Our continuing efforts to reduce taxpayer risk by pursuing new and innovative approaches to single-family and multifamily credit risk transfer transactions;
|
n
|
Our effective collaboration with CSS and Fannie Mae in moving the single security initiative and the common securitization platform forward, and our contribution to the successful implementation of the Uniform Closing Disclosure Dataset;
|
n
|
Our creativity, collaboration, and speed in evaluating and delivering solutions for those affected by Hurricanes Irma, Harvey, and Maria, which allowed homeowners to stay in their homes and move forward to focus on recovery; and
|
n
|
The important steps we took in the diversity and inclusion (“D&I”) area, including transactions with minority- and women-owned businesses. FHFA noted, however, that although we failed to establish certain quantifiable goals for D&I, substantial efforts made in 2017 position us to achieve this goal in early 2018.
|
n
|
The extent to which the company conducts initiatives in a safe and sound manner consistent with FHFA’s expectations for all activities;
|
n
|
The extent to which the outcomes of the company’s activities support a competitive and resilient secondary mortgage market to support homeowners and renters;
|
n
|
The extent to which the company conducts initiatives with consideration for D&I consistent with FHFA’s expectations for all activities;
|
n
|
Cooperation and collaboration with FHFA, Fannie Mae, CSS, the industry, and other stakeholders; and
|
n
|
The quality, thoroughness, creativity, effectiveness, and timeliness of the company’s work products.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
390
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
FREDDIE MAC
| 2017 Form 10-K
|
|
391
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
FREDDIE MAC
| 2017 Form 10-K
|
|
392
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
FREDDIE MAC
| 2017 Form 10-K
|
|
393
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
James G. Mackey,
Executive Vice President - Chief Financial Officer
|
|
Performance Highlights
|
|
n
|
Implemented hedge accounting successfully to better align economic and GAAP earnings.
|
n
|
Continued operational efficiency improvements, which included enhanced financial planning and analysis capabilities, increased use of reporting tools to simplify operations, and either streamlined or automated redundant manual processes.
|
n
|
Implemented a new framework to manage G&A costs, which included identification of operational efficiencies, developing new approaches to reinvest in the business and generally better discipline, along with effective intra-year resource redeployment.
|
n
|
Strong leadership in the ongoing development of management in the Finance Division, including the continued build-out of the leadership team and ongoing job rotation programs for key personnel.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The Compensation Committee determined that Mr. Mackey should receive 100% of his At-Risk Deferred Salary that was subject to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.
|
Michael T. Hutchins,
Executive Vice President - Investments and Capital Markets
|
|
Performance Highlights
|
|
n
|
Strong leadership of the company’s market activities, with continuing innovation of new ways to support the guarantee businesses and reduce legacy and on-going risk exposures.
|
n
|
Continued to execute multi-year Retained Portfolio Plan, which included reduction in the overall size of the retained portfolio.
|
n
|
Partnered with other divisions, especially the Single-Family Business, to expand the suite of mortgage capital market services offered to Freddie Mac customers.
|
n
|
Continued to enhance the liquidity and efficiency of the company’s mortgage-related securities.
|
n
|
Managed successful execution of risk management objectives, including credit risk transfer of legacy mortgage credit risk, maintaining economic interest-rate risk at modeled low levels and efficiently meeting the company’s liquidity and funding needs.
|
n
|
Demonstrated strong expense discipline while supporting investments to strengthen operational, technology and model risk management.
|
n
|
Partnered with the Finance Division to successfully implement hedge accounting to better align economic and GAAP earnings.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The Compensation Committee determined that Mr. Hutchins should receive 100% of his At-Risk Deferred Salary that was subject to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
394
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
David B. Lowman,
Executive Vice President - Single-Family Business
|
|
Performance Highlights
|
|
n
|
Strong leadership of the Single-Family Business, with continued focus on increasing competitiveness, managing risks, improving operations, and enhancing technology.
|
n
|
Achieved higher Single-Family earnings in 2017 versus 2016.
|
n
|
Expanded the utilization and capabilities of the Loan Advisor Suite.
|
n
|
Continued to innovate and execute credit risk transfer transactions. Further expanded offerings to include HARP collateral and enhanced loss layer structuring to optimize coverage and deepen investor market.
|
n
|
FHFA declared that all Single-Family affordable housing goals were achieved.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The Compensation Committee determined that Mr. Lowman should receive 100% of his At-Risk Deferred Salary that was subject to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.
|
William H. McDavid,
Executive Vice President - General Counsel & Corporate Secretary
|
|
Performance Highlights
|
|
n
|
Supervised the successful resolution of a variety of lawsuits resulting in favorable terms; helped effectively navigate a variety of regulatory initiatives.
|
n
|
Advised the Board and senior management on a wide variety of significant legal and governance issues.
|
n
|
Effectively supported the increased volumes and complexity of mortgage purchases and securitizations, the increased volume and new designs for credit risk transfer transactions, and the new types of loan sales and securitizations in the retained portfolio.
|
n
|
Provided effective legal support for the evolving needs of the company, and continued to maintain a high level of internal client satisfaction.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The Compensation Committee determined that Mr. McDavid should receive 95% of his At-Risk Deferred Salary that was subject to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.
|
|
2017 Actual Deferred Salary
(2)
|
||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||
|
Fixed
|
|
At-Risk
|
|
Total Actual Deferred
Salary
|
|
% of Target
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
Named Executive Officer
(1)
|
|
Conservatorship Scorecard
|
|
% of Target
|
|
Corporate Scorecard/ Individual
|
|
% of Target
|
|
||||||||
Mr. Mackey
|
1,763,818
|
|
|
475,402
|
|
|
98%
|
|
485,104
|
|
|
100%
|
|
2,724,324
|
|
|
99.6%
|
Mr. Hutchins
|
1,394,575
|
|
|
396,432
|
|
|
98%
|
|
404,522
|
|
|
100%
|
|
2,195,529
|
|
|
99.6%
|
Mr. Lowman
|
1,763,818
|
|
|
475,402
|
|
|
98%
|
|
485,104
|
|
|
100%
|
|
2,724,324
|
|
|
99.6%
|
Mr. McDavid
|
1,451,054
|
|
|
409,721
|
|
|
98%
|
|
397,179
|
|
|
95%
|
|
2,257,954
|
|
|
98.7%
|
(1)
|
Mr. Layton was not eligible for deferred salary in 2017 and therefore is not included in this table.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
395
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
(2)
|
The amounts of actual deferred salary differ from the amounts presented in the
2017 Target TDC
table because the slight increase to NEO target TDC amounts only became effective in late January 2017.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
396
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
FREDDIE MAC
| 2017 Form 10-K
|
|
397
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
n
|
Forfeiture Event:
The NEO has earned or obtained the legally binding right to a payment of Deferred Salary based on materially inaccurate financial statements or any other materially inaccurate performance measure.
|
n
|
Compensation Subject to Recapture and/or Forfeiture:
Any Deferred Salary in excess of the amount that the Board determines would likely have been otherwise earned using accurate measures during the two years prior to the Forfeiture Event.
|
n
|
Forfeiture Event:
The NEO’s employment is terminated in any of the following circumstances:
|
l
|
Termination of employment because the NEO is convicted of, or pleads guilty or nolo contendere to, a felony;
|
l
|
Subsequent to termination of employment, the NEO is convicted of, or pleads guilty or nolo contendere to, a felony, based on conduct occurring prior to termination, and within one year of such conviction or plea, the Board determines that such conduct is materially harmful to Freddie Mac.
|
l
|
Termination of employment because, or within two years of termination, the Board determines that, the NEO engaged in willful misconduct in the performance of his or her duties that was materially harmful to Freddie Mac.
|
n
|
Compensation Subject to Recapture and/or Forfeiture:
Any Deferred Salary earned during the two years prior to the date that the NEO is terminated, any Deferred Salary scheduled to be paid within two years after termination, and any cash payment made or to be made as consideration for any release of claims agreement.
|
n
|
Forfeiture Event:
The NEO’s employment is terminated because, in carrying out his or her duties, the NEO engages in conduct that constitutes gross neglect or gross misconduct that is materially harmful to Freddie Mac, or within two years after the NEO’s termination of employment, the Board determines that the NEO, prior to his or her termination, engaged in such conduct.
|
n
|
Compensation Subject to Recapture and/or Forfeiture:
Any Deferred Salary paid at the time of termination or subsequent to the date of termination, including any cash payment made as consideration for any release of claims agreement.
|
n
|
Forfeiture Event:
The NEO violates a post-termination non-competition covenant set forth in the restrictive covenant and confidentiality agreement in effect when a payment of Deferred Salary is scheduled to be made.
|
n
|
Compensation Subject to Recapture and/or Forfeiture:
50% of the Deferred Salary paid during the twelve months immediately preceding the violation and 100% of any unpaid Deferred Salary.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
398
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
n
|
Accounting Restatement Resulting from Misconduct —
If, as a result of misconduct, we are required to prepare an accounting restatement due to material non-compliance with financial reporting requirements, the CEO and CFO are required to reimburse us for amounts determined in accordance with Section 304.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
399
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
n
|
Engaging in all transactions (including purchasing and selling equity and non-equity securities) involving our securities (except selling company securities owned prior to the implementation of the policy and then only with pre-clearance);
|
n
|
Purchasing or selling derivative securities related to our equity securities or dealing in any derivative securities related to our equity securities;
|
n
|
Transacting in options (other than options granted by us, and then only with pre-clearance) or other hedging instruments related to our securities; and
|
n
|
Holding our securities in a margin account or pledging our securities as collateral for a loan.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
400
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
n
|
The powers of FHFA as our Conservator include the authority to set executive compensation. Under the terms of the Purchase Agreement, FHFA is required to consult with Treasury on any increases in compensation or new compensation arrangements for our executive officers.
|
n
|
Our directors serve on behalf of the Conservator and exercise their authority as directed by the Conservator. More information about the role of our directors is provided above in
Directors, Corporate Governance, and Executive Officers — Board and Committee Information — Authority of the Board and Board Committees
.
|
n
|
FHFA requires us to submit to it proposed new compensation arrangements or increased amounts or benefits payable under existing compensation arrangements for certain senior officers.
|
n
|
FHFA retains the authority not only to approve both the terms and amount of any compensation prior to payment to any of our executive officers, but also to modify any existing compensation arrangements.
|
Steven W. Kohlhagen, Chair
|
Carolyn H. Byrd
|
Saiyid T. Naqvi
|
Eugene B. Shanks, Jr.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
401
|
Executive Compensation
|
|
Compensation and Risk
|
n
|
The types of compensation offered (including fixed, variable, and deferred);
|
n
|
Eligibility for participation in compensation programs;
|
n
|
Compensation program design and governance;
|
n
|
The process for establishing performance objectives; and
|
n
|
Processes and program approvals for our compensation programs.
|
|
|
CEO Pay Ratio
|
|
Employee
|
|
Total Compensation
|
Ratio
|
Donald H. Layton (CEO)
|
|
$651,000
|
5.29 to 1
|
Median Employee
|
|
$123,027
|
FREDDIE MAC
| 2017 Form 10-K
|
|
402
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
|
|
Salary
|
|
Bonus
|
|
Non-Equity Incentive Plan Compensation
(3)
|
|
All Other Compensation
(4)
|
|
Total
|
||||||||||||||
Named Executive Officer
|
Year
|
Earned During Year
(1)
|
|
Deferred
(2)
|
|
|
|
|||||||||||||||||
Donald H. Layton
|
2017
|
|
$600,000
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$51,000
|
|
|
|
$651,000
|
|
Chief Executive Officer
|
2016
|
600,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
101,609
|
|
|
701,609
|
|
||||||
|
2015
(5)
|
660,345
|
|
|
818,886
|
|
|
—
|
|
|
472,748
|
|
|
56,958
|
|
|
2,008,937
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
James G. Mackey
|
2017
|
500,000
|
|
|
1,763,818
|
|
|
—
|
|
|
964,588
|
|
|
92,496
|
|
|
3,320,902
|
|
||||||
EVP — Chief Financial Officer
|
2016
|
500,000
|
|
|
1,600,000
|
|
|
—
|
|
|
893,896
|
|
|
89,874
|
|
|
3,083,770
|
|
||||||
2015
|
500,000
|
|
|
1,600,000
|
|
|
—
|
|
|
887,608
|
|
|
86,674
|
|
|
3,074,282
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Michael T. Hutchins
(6)
|
2017
|
490,447
|
|
|
1,394,575
|
|
|
—
|
|
|
804,358
|
|
|
89,305
|
|
|
2,778,685
|
|
||||||
EVP — Investments and Capital Markets
|
2016
(7)
|
482,759
|
|
|
1,219,178
|
|
|
—
|
|
|
726,545
|
|
|
85,897
|
|
|
2,514,379
|
|
||||||
2015
|
461,810
|
|
|
1,181,728
|
|
|
—
|
|
|
699,274
|
|
|
79,659
|
|
|
2,422,471
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
David B. Lowman
|
2017
|
500,000
|
|
|
1,763,818
|
|
|
—
|
|
|
964,588
|
|
|
92,496
|
|
|
3,320,902
|
|
||||||
EVP — Single-Family Business
|
2016
|
500,000
|
|
|
1,600,000
|
|
|
—
|
|
|
893,896
|
|
|
89,874
|
|
|
3,083,770
|
|
||||||
2015
|
500,000
|
|
|
1,600,000
|
|
|
—
|
|
|
887,608
|
|
|
86,674
|
|
|
3,074,282
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
William H. McDavid
|
2017
|
500,000
|
|
|
1,451,054
|
|
|
—
|
|
|
810,330
|
|
|
91,167
|
|
|
2,852,551
|
|
||||||
EVP — General Counsel & Corporate Secretary
|
2016
|
500,000
|
|
|
1,320,000
|
|
|
—
|
|
|
755,146
|
|
|
88,964
|
|
|
2,664,110
|
|
||||||
2015
|
500,000
|
|
|
1,320,000
|
|
|
—
|
|
|
769,260
|
|
|
86,324
|
|
|
2,675,584
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts shown reflect Base Salary earned during the year.
|
(2)
|
Amounts shown reflect Fixed Deferred Salary earned during the year. The interest rate for Fixed Deferred Salary earned during 2017, 2016, and 2015 was 0.425%, 0.325%, and 0.125%, respectively, which is equal to 50% of the one-year Treasury Bill rate as of December 31 of the applicable prior year. Fixed Deferred Salary earned during each quarter is paid in cash on the last pay date of the corresponding quarter in the following year, along with accrued interest. The remaining portion of Deferred Salary is reported in “Non-Equity Incentive Plan Compensation” and is referred to as “At-Risk” because it is subject to reduction based on corporate and individual performance. Interest on Fixed Deferred Salary earned during 2017, 2016, and 2015 is included in All Other Compensation.
|
(3)
|
Amounts shown reflect At-Risk Deferred Salary earned during each year as well as interest on that At-Risk Deferred Salary. The interest rate for At-Risk Deferred Salary earned during 2017, 2016, and 2015 was the same as noted for the interest rate for the Fixed Deferred Salary. At-Risk Deferred Salary earned during each quarter is paid in cash on the last pay date of the corresponding quarter in the following year. See
Determination of 2017 At-Risk Deferred Salary
.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
403
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
(4)
|
Amounts for 2017 reflect (i) employer contributions earned under our tax-qualified Thrift/401(k) Plan for the year; (ii) accruals earned pursuant to the SERP Benefit for the year; (iii) interest (as described in footnote 2) on Fixed Deferred Salary earned during the year; and (vi) perquisites. These amounts for 2017 are as follows:
|
Named Executive Officer
|
|
Thrift/401(k) Plan
Contributions
|
|
SERP Benefit
Accruals
|
|
Interest on Fixed Deferred Salary
|
|
Perquisites
|
||||||||
Mr. Layton
|
|
|
$22,950
|
|
|
|
$28,050
|
|
|
|
$—
|
|
|
|
$—
|
|
Mr. Mackey
|
|
22,950
|
|
|
62,050
|
|
|
7,496
|
|
|
—
|
|
||||
Mr. Hutchins
|
|
22,950
|
|
|
60,428
|
|
|
5,927
|
|
|
—
|
|
||||
Mr. Lowman
|
|
22,950
|
|
|
62,050
|
|
|
7,496
|
|
|
—
|
|
||||
Mr. McDavid
|
|
22,950
|
|
|
62,050
|
|
|
6,167
|
|
|
—
|
|
(5)
|
On June 29, 2015, FHFA approved Mr. Layton’s participation in the EMCP, effective July 1, 2015. On December 1, 2015, FHFA subsequently directed Freddie Mac to suspend, pursuant to the Equity in Government Compensation Act of 2015, his participation as of November 24, 2015. The components of Mr. Layton’s Target TDC under the EMCP are described in the company’s Annual Report on Form 10-K filed on February 18, 2016 in
Executive Compensation — Compensation Discussion and Analysis — Determination of 2015 Target TDC for NEOs — 2015 Target TDC
.
|
(6)
|
Amounts reported for Mr. Hutchins in the Salary-Earned During Year, Salary-Deferred and Non-Equity Incentive Plan Compensation columns are less than the corresponding annual target amounts because he took additional vacation as leave without pay during 2015, 2016 and 2017.
|
(7)
|
Pursuant to SEC reporting requirements, we are reporting amounts earned by Mr. Hutchins in 2016 even though he was not an NEO for that fiscal year.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
404
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
|
|
|
|
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
(2)
|
||||
Named Executive Officer
(1)
|
|
At-Risk Deferred Salary Award
|
|
Threshold
|
|
Target/Maximum
|
||
Mr. Mackey
|
|
Conservatorship Scorecard
|
|
—
|
|
|
485,104
|
|
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
485,104
|
|
|
|
Total
|
|
—
|
|
|
970,208
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Mr. Hutchins
|
|
Conservatorship Scorecard
|
|
—
|
|
|
404,522
|
|
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
404,522
|
|
|
|
Total
|
|
—
|
|
|
809,044
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Mr. Lowman
|
|
Conservatorship Scorecard
|
|
—
|
|
|
485,104
|
|
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
485,104
|
|
|
|
Total
|
|
—
|
|
|
970,208
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Mr. McDavid
|
|
Conservatorship Scorecard
|
|
—
|
|
|
418,083
|
|
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
418,083
|
|
|
|
Total
|
|
—
|
|
|
836,166
|
|
|
|
|
|
|
|
|
(1)
|
Mr. Layton was not eligible to receive Deferred Salary in 2017 and therefore is not included in this table.
|
(2)
|
The amounts reported reflect At-Risk Deferred Salary granted in 2017 which is subject to reduction based on: (i) corporate performance against the Conservatorship Scorecard; and (ii) the company’s performance against the Corporate Scorecard goals and an officer’s individual performance. The amount of At-Risk Deferred Salary actually earned can range from 0% of target (reported in the Threshold column) to a maximum of 100% of target (reported in the Target/Maximum column). Actual At-Risk Deferred Salary amounts earned during 2017 are reported in the
Non-Equity Incentive Plan Compensation
column of the
Summary Compensation Table
.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
405
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
Named Executive Officer
|
|
Executive
Contribution in
Last FY ($)
(1)
|
|
Freddie Mac
Accruals in
Last FY ($)
(2)
|
|
Aggregate
Earnings in
Last FY ($)
(3)
|
|
Aggregate
Withdrawals/
Distributions ($)
|
|
Balance at
Last FYE ($)
(4)
|
||||||||||
Mr. Layton
|
|
|
$—
|
|
|
|
$28,050
|
|
|
|
$39,810
|
|
|
|
$—
|
|
|
|
$250,723
|
|
Mr. Mackey
|
|
—
|
|
|
62,050
|
|
|
1,837
|
|
|
—
|
|
|
202,376
|
|
|||||
Mr. Hutchins
|
|
—
|
|
|
60,428
|
|
|
2,045
|
|
|
—
|
|
|
223,280
|
|
|||||
Mr. Lowman
|
|
—
|
|
|
62,050
|
|
|
26,944
|
|
|
—
|
|
|
262,260
|
|
|||||
Mr. McDavid
|
|
—
|
|
|
62,050
|
|
|
2,869
|
|
|
—
|
|
|
300,765
|
|
(1)
|
The SERP does not allow for employee contributions.
|
(2)
|
Amounts reported reflect accruals under the SERP Benefit during 2017, including the 2.5% contribution accruals which will be allocated to NEO accounts in 2018. These amounts are also reported in the “All Other Compensation” column in the
Summary Compensation Table
.
|
(3)
|
Amounts reported represent the total interest and other earnings credited to each NEO under the SERP Benefit.
|
(4)
|
Amounts reported reflect the accumulated balances under the SERP Benefit for each NEO and include the plan year 2017 2.5% contribution which will be allocated to NEO accounts in 2018. All NEOs are fully vested in their SERP Benefit account balances.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
406
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
n
|
Forfeiture Event —
All earned but unpaid Fixed and At-Risk Deferred Salary (including related interest) is subject to forfeiture upon the occurrence of a Forfeiture Event, as described above under
Written Agreements Relating to NEO Employment — Recapture and Forfeiture Agreement
.
|
n
|
Death —
All earned but unpaid Fixed and At-Risk Deferred Salary (including related interest) is paid in full as soon as administratively possible, but not later than 90 calendar days after the date of death. Any earned but unpaid At-Risk Deferred Salary is not subject to reduction based on corporate and individual performance if the reduction has not been determined as of the date of death.
|
n
|
Long-Term Disability —
All earned but unpaid Fixed and At-Risk Deferred Salary (including related interest) is paid in full in accordance with the Approved Payment Schedule. Any earned but unpaid At-Risk Deferred Salary is not subject to reduction based on corporate and individual performance if the reduction has not been determined as of the termination date.
|
n
|
Any Other Reason (including, but not limited to, voluntary termination, retirement, and involuntary termination for any reason other than a Forfeiture Event) —
All earned but unpaid Deferred Salary (including related interest) is paid in accordance with the Approved Payment Schedule, and earned but unpaid At-Risk Deferred Salary remains subject to the performance assessment and reduction process. Except in the case of retirement, the amount of earned but unpaid Fixed Deferred Salary will be reduced by 2% for each full or partial month by which the NEO’s termination precedes January 31 of the second calendar year following the calendar year in which the Fixed Deferred Salary is earned. No such reduction is applicable if an NEO retires, which is deemed to have occurred upon a voluntary termination of employment after attaining or exceeding 62 years of age, without regard to length of service, or attaining or exceeding 55 years of age with 10 or more years of service.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
407
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
FREDDIE MAC
| 2017 Form 10-K
|
|
408
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
Named Executive Officer
(1)
|
|
Death
|
|
Disability
|
|
Retirement
(2)
|
|
All Other Not
For Cause
Terminations
(3)
|
||||||||
James G. Mackey
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$1,763,818
|
|
|
|
$1,763,818
|
|
|
|
$—
|
|
|
|
$1,305,225
|
|
At Risk-Conservatorship Scorecard
(4)
|
|
485,104
|
|
|
485,104
|
|
|
—
|
|
|
475,402
|
|
||||
At Risk-Corporate Scorecard/Individual
(5)
|
|
485,104
|
|
|
485,104
|
|
|
—
|
|
|
485,104
|
|
||||
Interest on Deferred Salary
(6)
|
|
7,225
|
|
|
11,620
|
|
|
—
|
|
|
9,629
|
|
||||
Total
|
|
|
$2,741,251
|
|
|
|
$2,745,646
|
|
|
|
$—
|
|
|
|
$2,275,360
|
|
|
|
|
|
|
|
|
|
|
||||||||
Michael T. Hutchins
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$1,394,575
|
|
|
|
$1,394,575
|
|
|
|
$1,394,575
|
|
|
|
$—
|
|
At Risk-Conservatorship Scorecard
(4)
|
|
404,522
|
|
|
404,522
|
|
|
396,432
|
|
|
—
|
|
||||
At Risk-Corporate Scorecard/Individual
(5)
|
|
404,522
|
|
|
404,522
|
|
|
404,522
|
|
|
—
|
|
||||
Interest on Deferred Salary
(6)
|
|
5,844
|
|
|
9,365
|
|
|
9,331
|
|
|
—
|
|
||||
Total
|
|
|
$2,209,463
|
|
|
|
$2,212,984
|
|
|
|
$2,204,860
|
|
|
|
$—
|
|
|
|
|
|
|
|
|
|
|
||||||||
David B. Lowman
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$1,763,818
|
|
|
|
$1,763,818
|
|
|
|
$—
|
|
|
|
$1,305,225
|
|
At Risk-Conservatorship Scorecard
(4)
|
|
485,104
|
|
|
485,104
|
|
|
—
|
|
|
475,402
|
|
||||
At Risk-Corporate Scorecard/Individual
(5)
|
|
485,104
|
|
|
485,104
|
|
|
—
|
|
|
485,104
|
|
||||
Interest on Deferred Salary
(6)
|
|
7,225
|
|
|
11,620
|
|
|
—
|
|
|
9,629
|
|
||||
Total
|
|
|
$2,741,251
|
|
|
|
$2,745,646
|
|
|
|
$—
|
|
|
|
$2,275,360
|
|
|
|
|
|
|
|
|
|
|
||||||||
William H. McDavid
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$1,451,054
|
|
|
|
$1,451,054
|
|
|
|
$1,451,054
|
|
|
|
$—
|
|
At Risk-Conservatorship Scorecard
(4)
|
|
418,083
|
|
|
418,083
|
|
|
409,721
|
|
|
—
|
|
||||
At Risk-Corporate Scorecard/Individual
(5)
|
|
418,083
|
|
|
418,083
|
|
|
397,179
|
|
|
—
|
|
||||
Interest on Deferred Salary
(6)
|
|
6,045
|
|
|
9,721
|
|
|
9,596
|
|
|
—
|
|
||||
Total
|
|
|
$2,293,265
|
|
|
|
$2,296,941
|
|
|
|
$2,267,550
|
|
|
|
$—
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr. Layton is excluded from this table because he is not entitled to receive any payments in connection with a termination of employment.
|
(2)
|
Messrs. Hutchins and McDavid are the only retirement-eligible NEOs under the EMCP.
|
(3)
|
All Other Not For Cause Terminations refer to voluntary terminations other than for retirement and involuntary terminations other than for cause. No amounts are shown for Messrs. Hutchins and McDavid because each is retirement eligible. In accordance with early termination provisions in the EMCP, the amounts disclosed for Deferred Salary: Fixed for all other NEOs have been reduced by 26% to reflect a December 31, 2017 termination event.
|
(4)
|
The amounts reported for Deferred Salary: At Risk-Conservatorship Scorecard in the Retirement and All Other Not For Cause Terminations columns reflect the funding level determined by FHFA with respect to performance against the 2017 Conservatorship Scorecard. In cases of death or disability, the process for determining the funding level is waived if the funding level has not been determined at the date of termination. The funding level had not been determined as of December 31, 2017 and, as a result, no reduction has been applied to these amounts.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
409
|
Executive Compensation
|
|
2017 Compensation Information for NEOs
|
(5)
|
The amounts reported for Deferred Salary: At Risk-Corporate Scorecard/Individual in the Retirement and All Other Not For Cause Terminations columns reflect the assessment of 2017 performance approved by the Compensation Committee and FHFA. For death or disability, the provisions are the same as for the amounts reported for Deferred Salary: At Risk-Conservatorship Scorecard.
|
(6)
|
Interest on Deferred Salary is accrued and paid in accordance with the terms of the EMCP. The amount of interest in the Death column assumes that payment occurs on the 90th day following the date of death, which is assumed to be December 31, 2017.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
410
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
411
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
(1)
|
Includes shares of stock beneficially owned as of February 13, 2018.
|
5% Holder
(1)
|
Common Stock Beneficially Owned
|
Percent of Class
|
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
|
Variable
(2)
|
79.9%
|
(1)
|
Pershing Square Capital Management, L.P., PS Management GP, LLC, and William A. Ackerman (“Pershing”) have filed certain reports on Schedule 13D, the latest of which was filed on March 31, 2014. In that report, Pershing reported a beneficial ownership percentage calculation of 9.78%, based solely on the 650,039,533 shares of our common stock outstanding as reported in our Annual Report on Form 10-K filed on February 27, 2014, and excluding the shares issuable to Treasury pursuant to the warrant. The Schedule 13D indicated that Pershing also had additional economic exposure to approximately 8,434,958 notional shares of common stock, bringing the total aggregate economic exposure on the date of that filing to 72,010,523 shares of common stock (approximately 11.08% of the outstanding common stock). In that filing, Pershing indicated that because it believes our common stock is not a voting security, it had determined not to file future reports on Schedule 13D. We do not know Pershing’s current beneficial ownership of our common stock.
|
(2)
|
In September 2008, we issued to Treasury a warrant to purchase, for one one-thousandth of a cent ($0.00001) per share, shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the time the warrant is exercised. The warrant may be exercised in whole or in part at any time until September 7, 2028. As of the date of this filing, Treasury has not exercised the warrant. The information above assumes Treasury beneficially owns no other shares of our common stock.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
412
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
Plan Category
|
Number of securities to be issued upon exercise of outstanding options,
warrants and rights
|
|
Weighted average exercise price of outstanding options,
warrants and rights
|
|
Number of securities remaining available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
|
Equity compensation plans approved by stockholders
|
42,563
|
|
N/A
|
|
35,871,377
(1)
|
Equity compensation plans not approved by stockholders
|
None
|
|
N/A
|
|
None
|
(1)
|
Includes 28,352,481 shares, 5,845,739 shares, and 1,673,157 shares available for issuance under the 2004 Stock Compensation Plan, the Employee Stock Purchase Plan, and the Directors’ Plan, respectively. No shares are available for issuance under the 1995 Stock Compensation Plan.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
413
|
Certain Relationships and Related Transactions
|
|
n
|
The aggregate amount involved exceeded or is expected to exceed $120,000;
|
n
|
We were or are expected to be a participant; and
|
n
|
Any related person had or will have a direct or indirect material interest.
|
n
|
The nature of the related person’s interest in the transaction;
|
FREDDIE MAC
| 2017 Form 10-K
|
|
414
|
Certain Relationships and Related Transactions
|
|
n
|
The approximate total dollar value of, and extent of the related person’s interest in, the transaction;
|
n
|
Whether the transaction was or would be undertaken in the ordinary course of our business;
|
n
|
Whether the transaction is proposed to be, or was, entered into on terms no less favorable to us than terms that could have been reached with an unrelated third party; and
|
n
|
The purpose, and potential benefits to us, of the transaction.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
415
|
Certain Relationships and Related Transactions
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
416
|
Principal Accounting Fees and Services
|
|
(In thousands)
|
|
2017
|
2016
|
||||
Audit Fees
(2)
|
|
|
$22,582
|
|
|
$23,175
|
|
Audit-Related Fees
(3)
|
|
5,580
|
|
5,122
|
|
||
Tax Fees
(4)
|
|
23
|
|
55
|
|
||
All Other Fees
(5)
|
|
243
|
|
218
|
|
||
Total
|
|
|
$28,428
|
|
|
$28,570
|
|
(1)
|
These fees represent amounts billed (including reimbursable expenses within the designated year).
|
(2)
|
Audit fees include fees in connection with quarterly reviews of our interim financial information and the audit of our annual consolidated financial statements.
|
(3)
|
Audit-related fees include: (i) fees for the performance of certain agreed-upon procedures regarding aspects of compliance with the Purchase Agreement covenants; (ii) compliance evaluation of the minimum servicing standards as set forth in the Uniform Single Attestation Program for Mortgage Bankers; (iii) transaction validation and attestation related to certain of Freddie Mac’s risk transfer and structured transactions; (iv) fees for pre-implementation assistance for hedge accounting; and (v) fees related to accounting policy consultations.
|
(4)
|
The tax fees billed relate to non-audit tax consulting services to provide advice and recommendations related to tax planning or reporting matters.
|
(5)
|
All other fees include: (i) our subscription to a web-based suite of human resources benchmark data; (ii) advice and recommendations related to retention strategies; (iii) our subscription to accounting research software; and (iv) non-audit advice and recommendations related to technology implementation in the governance process.
|
n
|
Appointing our independent public accounting firm (subject to FHFA approval as required);
|
n
|
Approving all audit and non-audit services permitted under applicable law to be performed by the independent public accounting firm (subject to FHFA approval as required); and
|
n
|
Approving the scope of the annual audit.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
417
|
Principal Accounting Fees and Services
|
|
n
|
The firm’s status as a registered public accounting firm with the Public Company Accounting Oversight Board (United States) (“PCAOB”) as required by the Sarbanes-Oxley Act of 2002 and the Rules of the PCAOB;
|
n
|
Its independence and processes for maintaining its independence;
|
n
|
Its approach to resolving significant accounting and auditing matters;
|
n
|
Its capability and expertise in handling the complexity of the company’s business, including the capability and expertise of the lead audit partner and of the key members of the engagement team;
|
n
|
Historical and recent performance, including the extent and quality of the independent public accounting firm’s communications with the Audit Committee, and the results of a management survey of the independent public accounting firm’s overall performance;
|
n
|
Data related to audit quality and performance, including recent PCAOB inspection reports on the firm; and
|
n
|
The appropriateness of its fees, both on an absolute basis and as compared with peers.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
418
|
Exhibits and Financial Statement Schedules
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
419
|
Glossary
|
|
n
|
ACIS
- Agency Credit Insurance Structure - In a typical ACIS credit risk transfer transaction, we purchase insurance policies (typically underwritten by a group of insurers and reinsurers) that obligate the counterparties to reimburse us for specified credit events (based on either actual losses or losses calculated using a predefined formula) up to an aggregate limit that occur on our first loss and/or mezzanine loss positions associated with STACR debt note transactions in exchange for our payment of periodic premiums. We also enter into ACIS transactions that provide credit protection for certain specified credit events on loans not included in a reference pool created for a STACR debt note transaction.
|
n
|
Administration
- Executive branch of the U.S. government.
|
n
|
Agency securities
- Generally refers to mortgage-related securities issued by the GSEs or government agencies.
|
n
|
Alt-A loan
- Although there is no universally accepted definition of Alt-A, many mortgage market participants have classified single-family loans as Alt-A if these loans have credit characteristics that range between their prime and subprime categories, if these loans are underwritten with lower or alternative income or asset documentation requirements compared to a full documentation loan, or both. We categorize loans in our single-family credit guarantee portfolio as Alt-A if the lender that delivers them to us classified the loans as Alt-A, or if the loans had reduced documentation requirements as well as a combination of certain credit characteristics and expected performance characteristics at acquisition which, when compared to full documentation loans in our portfolio, indicate that the loan should be classified as Alt-A. In the event we purchase a refinance loan and the original loan had been previously identified as Alt-A, such refinance loan may no longer be categorized as an Alt-A loan because the refinance loan is not identified by the servicer as an Alt-A loan. We categorize our investments in non-agency mortgage-related securities as Alt-A if the securities were identified as such based on information provided to us when we entered into these transactions.
|
n
|
ARM
- Adjustable-rate mortgage - A mortgage loan with an interest rate that adjusts periodically over the life of the loan based on changes in a benchmark index.
|
n
|
Board
- Board of Directors
|
n
|
Bps
- Basis points - One one-hundredth of 1%. This term is commonly used to quote the yields of debt instruments or movements in interest rates.
|
n
|
CCO
- Chief Compliance Officer
|
n
|
CD&A
- Compensation Discussion and Analysis
|
n
|
CEO
- Chief Executive Officer
|
n
|
CERO
- Chief Enterprise Risk Officer
|
n
|
CFO
- Chief Financial Officer
|
n
|
CFPB
- Consumer Financial Protection Bureau
|
FREDDIE MAC
| 2017 Form 10-K
|
|
420
|
Glossary
|
|
n
|
Charge-offs, gross
- Represent the amount of a loan that has been discharged in order to remove the loan from our consolidated balance sheets when the loan is deemed uncollectible, regardless of when the impact of the credit loss was recorded on our consolidated statements of comprehensive income. Generally the amount of a charge-off is the recorded investment in excess of the fair value of the loan's collateral.
|
n
|
Charter
- The Federal Home Loan Mortgage Corporation Act, as amended, 12 U.S.C. § 1451 et seq.
|
n
|
CMBS
- Commercial mortgage-backed security - A security backed by loans on commercial property (often including multifamily rental properties) as opposed to one-to-four family residential real estate. Although the loan pools underlying CMBS can include loans financing multifamily properties and commercial properties, such as office buildings and hotels, the classes of CMBS that we hold receive distributions of scheduled cash flows only from multifamily properties.
|
n
|
Comprehensive income (loss)
- Consists of net income (loss) plus other comprehensive income (loss).
|
n
|
Conforming loan/Super conforming loan/Conforming loan limit
- A conventional single-family loan with an original principal balance that is equal to or less than the applicable statutory conforming loan limit, which is a dollar amount cap on the original principal balance of single-family loans we are permitted by law to purchase or securitize. The conforming loan limit is determined annually based on changes in FHFA’s housing price index. The base conforming loan limit for a one-family residence has been set at $453,100 for 2018, and was set at $424,100 for 2017 and $417,000 from 2006 to 2016. Higher limits have been established in certain "high-cost" areas (for 2018, up to $679,650 for a one-family residence). Higher limits also apply to two- to four-family residences and to one- to four-family residences in Alaska, Guam, Hawaii and the U.S. Virgin Islands. Actual high-cost area loan limits are set by FHFA for each county (or equivalent), and the loan limit for specific high-cost areas may be lower than the maximum amounts. We refer to loans that we have purchased with a UPB exceeding the base conforming loan limit (i.e., $453,100 for 2018) as super conforming loans.
|
n
|
Conservator
- The Federal Housing Finance Agency, acting in its capacity as Conservator of Freddie Mac.
|
n
|
Convexity
- A measure of how much a financial instrument’s duration changes as interest rates change.
|
n
|
Core single-family loan portfolio
- Consists of loans in our single-family credit guarantee portfolio that were originated after 2008. We do not include relief refinance loans, including HARP loans, in this loan portfolio as underwriting procedures for relief refinance loans are limited, and, in many cases, do not include all of the changes in underwriting standards we have implemented since 2008.
|
n
|
Credit enhancement
- A financial arrangement that is designed to reduce credit risk by partially or fully compensating an investor in a mortgage or security (e.g., Freddie Mac) in the event of specified losses. Examples of credit enhancements include insurance, credit risk transfer transactions, overcollateralization, indemnification agreements and government guarantees.
|
n
|
Credit losses
- Consists of charge-offs and REO operations (income) expense, which are both net of recoveries.
|
n
|
Credit-related (benefit) expenses
(or credit-related expenses) - Consists of our provision (benefit) for credit losses and REO operations (income) expense.
|
n
|
Credit score
- Credit score data is based on FICO scores, a credit scoring system developed by
|
FREDDIE MAC
| 2017 Form 10-K
|
|
421
|
Glossary
|
|
n
|
CSS
- Common Securitization Solutions, LLC
SM
|
n
|
CSP
- Common Securitization Platform
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n
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Current LTV Ratio or CLTV
- The current LTV ratios are management estimates, which are updated on a monthly basis. Current market values are estimated by adjusting the value of the property at origination based on changes in the market value of homes in the same geographic area since that time. Changes in market value are derived from our internal index, which measures price changes for repeat sales and refinancing activity on the same properties using Freddie Mac and Fannie Mae single-family loan acquisitions. Estimates of the current LTV ratio exclude any secondary financing by third parties.
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n
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Deed in lieu of foreclosure
- An alternative to foreclosure in which the borrower voluntarily conveys title to the property to the lender and the lender accepts such title (sometimes together with an additional payment by the borrower) in full satisfaction of the mortgage indebtedness.
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n
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Delinquency
- A failure to make timely payments of principal and/or interest on a loan. For single-family loans, we generally report delinquency rate information based on the number of loans that are seriously delinquent. For multifamily loans, we report delinquency rate information based on the UPB of loans that are two monthly payments or more past due or in the process of foreclosure. Loans that have been modified are not counted as delinquent as long as the borrower is not delinquent under the modified terms.
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n
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Delivery fee
- An upfront fee charged to sellers above base contractual guarantee fees to compensate us for higher levels of risk in some loan products.
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n
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Derivative
- A financial instrument whose value depends upon the characteristics and value of an underlying such as a financial asset or index. Examples of an underlying include a security or commodity price, interest or currency rates, and other financial indices.
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n
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Dodd-Frank Act
- Dodd-Frank Wall Street Reform and Consumer Protection Act
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n
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Dollar roll transactions
- Transactions whereby we enter into an agreement to sell and subsequently repurchase (or purchase and subsequently resell) agency securities.
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n
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DSCR
- Debt Service Coverage Ratio - An indicator of future credit performance for multifamily loans. The DSCR estimates a multifamily borrower’s ability to service its mortgage obligation using the secured property’s cash flow, after deducting non-mortgage expenses from income. The higher the DSCR, the more likely a multifamily borrower will be able to continue servicing its loan obligation.
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n
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Duration
- Duration is a measure of a financial instrument’s price sensitivity to changes in interest rates.
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n
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Duration gap
- One of our primary interest rate risk measures. Duration gap is a measure of the difference between the estimated durations of our interest rate sensitive assets and liabilities. We present the duration gap of our financial instruments in units expressed as months. A duration gap of zero implies that the change in value of our interest rate sensitive assets from an instantaneous change in interest rates would be expected to be accompanied by an equal and offsetting change in
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FREDDIE MAC
| 2017 Form 10-K
|
|
422
|
Glossary
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n
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EMCP -
Executive Management Compensation Program
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n
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ER Policy
- Enterprise Risk Policy - The ER Policy sets forth the core components of the enterprise risk framework that defines how we identify, access, manage, control and report on risks.
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n
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ERC -
Enterprise Risk Committee
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n
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ERM
- Enterprise Risk Management
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n
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EVP
- Executive Vice President
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n
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Exchange Act
- Securities Exchange Act of 1934, as amended
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n
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Fannie Mae
- Federal National Mortgage Association
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n
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FASB
- Financial Accounting Standards Board
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n
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Federal Reserve
- Board of Governors of the Federal Reserve System
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n
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FHA
- Federal Housing Administration
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n
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FHFA
- Federal Housing Finance Agency - An independent agency of the U.S. government with responsibility for regulating Freddie Mac, Fannie Mae and the FHLBs.
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n
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FHLB
- Federal Home Loan Bank
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n
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Fixed-rate loan
- Refers to a loan originated at a specific rate of interest that remains constant over the life of the loan. For purposes of presentation in this report, we have categorized a number of modified loans as fixed-rate loans, even though the modified loans have rate adjustment provisions. In these cases, while the terms of the modified loans provide for the interest rate to adjust in the future, such future rates are determined at the time of the modification rather than at a subsequent date.
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n
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Foreclosure alternative
- A workout option pursued when a home retention action is not successful or not possible. A foreclosure alternative is either a short sale or deed in lieu of foreclosure.
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n
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Foreclosure or foreclosure sale
- Refers to our completion of a transaction provided for by the foreclosure laws of the applicable state, in which a delinquent borrower’s ownership interest in a mortgaged property is terminated and title to the property is transferred to us or to a third party. When we, as loan holder, acquire a property in this manner, we pay for it by extinguishing some or all of the mortgage debt.
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n
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Freddie Mac mortgage-related securities
- Securities we issue and guarantee that are backed by mortgages.
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n
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GAAP
- Generally accepted accounting principles in the United States of America.
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n
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Giant PCs
- Resecuritizations of previously issued PCs or Giant PCs. Giant PCs are single-class securities that involve the straight pass through of all of the cash flows of the underlying collateral to holders of the beneficial interests.
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n
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Ginnie Mae
- Government National Mortgage Association, which guarantees the timely payment of principal and interest on mortgage-related securities backed by federally insured or guaranteed loans, primarily those insured by FHA or guaranteed by the VA.
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n
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Green Advantage loan
- A multifamily loan that we offer under our Green Advantage initiative, whereby borrowers finance the installation of green technologies that reduce energy and water consumption.
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n
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GSE Act
- The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Reform Act.
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FREDDIE MAC
| 2017 Form 10-K
|
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423
|
Glossary
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n
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GSEs
- Government sponsored enterprises - Refers to certain legal entities created by the U.S. government, including Freddie Mac, Fannie Mae and the FHLBs.
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n
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Guarantee fee
- The fee that we receive for guaranteeing the payment of principal and interest to mortgage security investors, which consists primarily of a combination of base contractual guarantee fees paid on a monthly basis, as a percentage of the UPB of the underlying loans, and initial upfront payments, such as delivery fees.
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n
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Guidelines
- Corporate Governance Guidelines, as revised
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n
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HAMP
- Home Affordable Modification Program - Refers to the effort under the MHA Program whereby the U.S. government, Freddie Mac and Fannie Mae committed funds to help eligible homeowners avoid foreclosure and keep their homes through loan modifications. HAMP ended in December 2016.
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n
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HARP
- Home Affordable Refinance Program - Refers to the effort under the MHA Program that seeks to help eligible borrowers with existing loans that are guaranteed by us or Fannie Mae to refinance into loans with more affordable monthly payments and/or fixed-rate terms without obtaining new mortgage insurance in excess of the insurance coverage, if any, that was already in place. HARP is targeted at borrowers with current LTV ratios above 80%. The HARP program has been extended for applications through December 31, 2018 to ensure that borrowers who have a high LTV ratio and are eligible for HARP will continue to have a refinance option.
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n
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HFA
- State or local Housing Finance Agency
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n
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HUD
- U.S. Department of Housing and Urban Development - HUD has authority over Freddie Mac with respect to fair lending.
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n
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Implied volatility
- A measurement of how the value of a financial instrument changes due to changes in the market’s expectation of potential changes in future interest rates. A decrease in implied volatility generally increases the estimated fair value of our mortgage-related assets and decreases the estimated fair value of our callable debt and option-based derivatives, while an increase in implied volatility generally has the opposite effect.
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n
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Initial margin
- The collateral that we post with a derivatives clearinghouse in order to do business with such clearinghouse. The amount of initial margin varies over time.
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n
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Interest-only loan
- A loan that allows the borrower to pay only interest (either fixed-rate or adjustable-rate) for a fixed period of time before payments of principal begin. After the interest-only period, the borrower may choose to refinance the loan, pay off the principal balance in total, or pay the scheduled principal and interest payment due on the loan.
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n
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IRS
- Internal Revenue Service
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n
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K Certificates
- Structured pass-through certificates backed primarily by recently originated multifamily loans purchased by Freddie Mac.
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n
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Legacy and relief refinance single-family loan portfolio
- Consists of loans in our single-family credit guarantee portfolio that were originated in 2008 and prior, as well as relief refinance loans, including HARP loans.
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n
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Letter Agreement
- An agreement the Conservator, acting on our behalf, entered into with Treasury on December 21, 2017 to amend the Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (Par Value $1.00 Per Share) dated September 27, 2012.
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FREDDIE MAC
| 2017 Form 10-K
|
|
424
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Glossary
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n
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LIBOR
- London Interbank Offered Rate
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n
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LIHTC partnerships
- Low-income housing tax credit partnerships - These LIHTC partnerships invest directly in limited partnerships that own and operate affordable multifamily rental properties that generate federal income tax credits and deductible operating losses.
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n
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Liquidation preference
- Generally refers to an amount that holders of preferred securities are entitled to receive out of available assets upon liquidation of a company. The initial liquidation preference of our senior preferred stock was $1.0 billion. The aggregate liquidation preference of our senior preferred stock includes the initial liquidation preference plus amounts funded by Treasury under the Purchase Agreement, as well as $3.0 billion added pursuant to the Letter Agreement. In addition, dividends not paid in cash are added to the liquidation preference of the senior preferred stock. We may make payments to reduce the liquidation preference of the senior preferred stock only in limited circumstances.
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n
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Liquidity and Contingency Operating Portfolio
- Subset of our other investments and cash portfolio. Consists of cash and cash equivalents, certain securities purchased under agreements to resell, and certain non-mortgage-related securities.
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n
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Loan liquidations -
Loans removed from the pools underlying Freddie Mac mortgage-related securities and other mortgage-related guarantees due to prepayment, maturity, repurchase or charge-off, foreclosure alternatives, third-party sales and loans going into REO. Loans are also terminated through reperforming and seriously delinquent loan sales. In addition, periodic paydown of loan principal is also included in loan liquidations.
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n
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Long-term debt -
Other debt due after one year based on the original contractual maturity of the debt instrument. Our long-term debt issuances include medium-term notes, Reference Notes
®
securities, STACR debt notes and SCR debt notes.
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n
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LTV ratio
- Loan-to-value ratio - The ratio of the unpaid principal amount of a loan to the value of the property that serves as collateral for the loan, expressed as a percentage. We report LTV ratios based solely on the amount of the loan purchased or guaranteed by us, generally excluding any second-lien loans (unless we own or guarantee the second lien).
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n
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Market spread
- The difference between the yields of two debt securities, or the difference between the yield of a debt security and a benchmark yield, such as LIBOR. We measure market spreads primarily using our models.
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n
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MD&A
- Management’s Discussion and Analysis of Financial Condition and Results of Operations
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n
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MHA Program
- Making Home Affordable Program - The MHA Program is designed to help in the housing recovery, promote liquidity and housing affordability, expand foreclosure prevention efforts and set market standards. The MHA Program includes HARP and HAMP.
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n
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Mortgage assets
- Refers to both loans and the mortgage-related securities we hold in our mortgage-related investments portfolio.
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n
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Mortgage-related investments portfolio
- Our mortgage investment portfolio, which consists of mortgage-related securities and unsecuritized single-family and multifamily loans. The size of our mortgage-related investments portfolio under the Purchase Agreement is determined without giving effect to the January 1, 2010 change in accounting guidance related to transfers of financial assets and consolidation of VIEs.
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n
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Mortgage-to-debt OAS
- The net OAS between the mortgage asset and agency debt sectors. This is an important factor in determining the expected level of net interest yield on a new mortgage
|
FREDDIE MAC
| 2017 Form 10-K
|
|
425
|
Glossary
|
|
n
|
Multifamily loan
- A loan secured by a property with five or more residential rental units or by a manufactured housing community.
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n
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Multifamily mortgage portfolio
- Consists of multifamily mortgage loans held by us on our consolidated balance sheets as well as our guarantee of securitization products, primarily K Certificates, SB Certificates, and other mortgage-related guarantees that are held by third parties. It excludes loans underlying our guarantees of HFA bonds.
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n
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Multifamily new business activity
- Represents loan purchases, issuances of other mortgage-related guarantees and issuances of other securitization products for which we have not previously purchased the underlying loans.
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n
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Net worth (deficit)
- The amount by which our total assets exceed (or are less than) our total liabilities as reflected on our consolidated balance sheets prepared in conformity with GAAP.
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n
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Net worth sweep dividend
,
Net Worth Amount and Capital Reserve Amount
- For each quarter from January 1, 2013 and thereafter, the dividend payment on the senior preferred stock will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less the applicable Capital Reserve Amount, exceeds zero. The term Net Worth Amount is defined as the total assets of Freddie Mac (excluding Treasury's commitment and any unfunded amounts thereof), less our total liabilities (excluding any obligation in respect of capital stock), in each case as reflected on our consolidated balance sheets prepared in conformity with GAAP. If the calculation of the dividend payment for a quarter does not exceed zero, then no dividend shall accrue or be payable for that quarter. The applicable Capital Reserve Amount was $1.2 billion for 2016 and $600 million for 2017, and will be $3.0 billion in 2018 and thereafter (unless we were not to pay our full dividend requirement in a future period, which would cause the applicable Capital Reserve Amount to thereafter be zero).
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n
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Non-accrual loan
- A loan for which we are not accruing interest income. We place loans on non-accrual status when we believe collectability of principal and interest in full is not reasonably assured, which generally occurs when a loan is three monthly payments past due, unless the loan is well secured and in the process of collection based upon an individual loan assessment.
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n
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Non-performing loan
-
a loan where the borrower is three months or more past due or is in the process of foreclosure.
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n
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NYSE
- New York Stock Exchange
|
n
|
OAS
- Option-adjusted spread - An estimate of the incremental yield spread between a particular financial instrument (e.g., a security, loan or derivative contract) and a benchmark yield curve (e.g., LIBOR or agency or U.S. Treasury securities). This includes consideration of potential variability in the instrument’s cash flows resulting from any options embedded in the instrument, such as prepayment options. When the OAS on a given asset widens, the fair value of that asset will typically decline, all other market factors being equal. The opposite is true when the OAS on a given asset tightens.
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n
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Option ARM loan
- Loans that permit a variety of repayment options, including minimum, interest-only, fully amortizing 30-year and fully amortizing 15-year payments. The minimum payment alternative for option ARM loans allows the borrower to make monthly payments that may be less
|
FREDDIE MAC
| 2017 Form 10-K
|
|
426
|
Glossary
|
|
n
|
Original LTV ratio
- A credit measure for loans, calculated as the UPB of the loan divided by the lesser of the appraised value of the property at the time of loan origination or the borrower’s purchase price. Second liens not owned or guaranteed by us are excluded from the LTV ratio calculation. The existence of a second-lien loan reduces the borrower’s equity in the home and, therefore, can increase the risk of default and the amount of the gross loss if a default occurs.
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n
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OTC
- Over-the-counter
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n
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OTCQB
- A marketplace, operated by the OTC Markets Group Inc., for OTC-traded U.S. companies that are registered and current in their reporting with the SEC or a U.S. banking or insurance regulator.
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n
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PCs
- Participation Certificates - Single-class pass-through securities that we issue and guarantee as part of a securitization transaction. Typically we purchase loans from sellers, place a pool of loans into a PC trust and issue PCs from that trust. The PCs are generally transferred to the seller of the loans as consideration for the loans or are sold to third-party investors or retained by us if we purchased the loans for cash.
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n
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Pension Plan
- The Federal Home Loan Mortgage Corporation Employees’ Pension Plan
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n
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Performing loan
- A loan where the borrower is less than three months past due and is not in the process of foreclosure.
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n
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PMVS
- Portfolio Market Value Sensitivity - One of our primary interest-rate risk measures. PMVS measures are estimates of the amount of average potential pre-tax loss in the market value of our net assets due to parallel (PMVS-L) and non-parallel (PMVS-YC) changes in LIBOR.
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n
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Primary mortgage market
- The market where lenders originate loans by lending funds to borrowers. We do not lend money directly to homeowners and do not participate in this market.
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n
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Purchase Agreement / Senior Preferred Stock Purchase Agreement
- An agreement the Conservator, acting on our behalf, entered into with Treasury on September 7, 2008, relating to Treasury's purchase of senior preferred stock, which was subsequently amended and restated on September 26, 2008 and further amended on May 6, 2009, December 24, 2009, August 17, 2012, and December 21, 2017.
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n
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Recorded investment
- The dollar amount of a loan recorded on our consolidated balance sheets, excluding any allowance, such as the allowance for loan losses, but including direct write-downs of the investment. Recorded investment excludes accrued interest income.
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n
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Recoveries of charge-offs
- Recoveries of charge-offs generally occur after loans go into foreclosure alternatives or foreclosure sales and where a share of default risk is assumed by mortgage insurers or a reimbursement of our losses from a seller or servicer associated with a repurchase request is received by us on such loans.
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n
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Reform Act
- The Federal Housing Finance Regulatory Reform Act of 2008, which, among other things, amended the GSE Act by establishing a single regulator, FHFA, for Freddie Mac, Fannie Mae and the FHLBs.
|
n
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REIT
- Real estate investment trust
|
FREDDIE MAC
| 2017 Form 10-K
|
|
427
|
Glossary
|
|
n
|
Relief refinance loan
- A single-family loan delivered to us for purchase or guarantee that meets the criteria of the Freddie Mac Relief Refinance Mortgage
SM
initiative. Part of this initiative is our implementation of HARP for our loans, and relief refinance options are also available for certain non-HARP loans. Although HARP is targeted at borrowers with current LTV ratios above 80%, our initiative also allows borrowers with LTV ratios of 80% and below to participate.
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n
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REMIC
- Real Estate Mortgage Investment Conduit - A type of multiclass mortgage-related security that divides the cash flows (principal and interest) of the underlying mortgage-related assets into two or more classes that meet the investment criteria and portfolio needs of different investors.
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n
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REO
- Real estate owned - Real estate which we have acquired through a foreclosure sale or through a deed in lieu of foreclosure.
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n
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Reperforming loan -
A loan that was previously three months or more past due or in the process of foreclosure, but the borrower subsequently made payments such that the loan returns to less than three months past due, or a performing modified loan, which is a loan that was modified and is less than three months past due and is not in the process of foreclosure.
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n
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Risk appetite
- The risk appetite is the aggregate level and types of risk that the Board and management are willing to assume to achieve the company's strategic objectives.
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n
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RMBS
- Residential mortgage-backed security - A security backed by loans on one-to-four family residential real estate.
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n
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RSU
- Restricted stock unit
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n
|
2014 Strategic Plan
- The 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, published by FHFA on May 13, 2014.
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n
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S&P
- Standard & Poor’s
|
n
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SB Certificates
- Structured pass-through certificates backed primarily by recently originated small balance multifamily loans purchased by Freddie Mac.
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n
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SCR
debt note
- Structured Credit Risk debt notes - A debt security where the principal balance is subject to the performance of a reference pool of multifamily loans guaranteed by Freddie Mac.
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n
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SEC
- U.S. Securities and Exchange Commission
|
n
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Seasoned single-family mortgage loans
- Includes seriously delinquent and reperforming loans.
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n
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Secondary mortgage market
- A market consisting of institutions engaged in buying and selling loans in the form of whole loans (i.e., loans that have not been securitized) and mortgage-related securities. We participate in the secondary mortgage market by issuing guaranteed mortgage-related securities, principally PCs, and by purchasing loans and mortgage-related securities for investment.
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n
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Segment Earnings
- Segment Earnings are presented for each segment by reclassifying certain credit guarantee-related activities and investment-related activities between various line items on our GAAP consolidated statements of comprehensive income and allocating certain revenues and expenses, including funding costs and administrative expenses, to our three reportable segments - Single-family Guarantee, Multifamily and Capital Markets. Certain activities that are not part of a reportable segment are included in the All Other category.
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n
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Senior preferred stock
- The shares of Variable Liquidation Preference Senior Preferred Stock issued to Treasury under the Purchase Agreement.
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n
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Seriously delinquent or SDQ
- Single-family loans that are three monthly payments or more past due or in the process of foreclosure as reported to us by our servicers.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
428
|
Glossary
|
|
n
|
SERP
- The Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan
|
n
|
Short sale
- An alternative to foreclosure consisting of a sale of a mortgaged property in which the homeowner sells the home at market value and the lender accepts proceeds (sometimes together with an additional payment or promissory note from the borrower) that are less than the outstanding loan indebtedness in full satisfaction of the loan.
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n
|
Short-term debt -
Other debt due within one year based on the original contractual maturity of the debt instrument. Our short-term debt issuances include discount notes and Reference Bills
®
securities.
|
n
|
Single-family credit guarantee portfolio
- Consists of unsecuritized single-family loans, single-family loans held by consolidated trusts, single-family loans underlying non-consolidated resecuritization products, single-family loans covered by long-term standby commitments and certain mortgage-related securities not issued by us that we guarantee that are collateralized by single-family loans. Excludes our resecuritizations of Ginnie Mae Certificates because these guarantees do not expose us to meaningful amounts of credit risk due to the credit enhancement provided on them by the U.S. government.
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n
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Single-family loan
- A loan secured by a property containing four or fewer residential dwelling units.
|
n
|
STACR
debt note
- Structured Agency Credit Risk debt note - A debt security where the principal balance is subject to the performance of a reference pool of single-family loans owned or guaranteed by Freddie Mac.
|
n
|
Step-rate modified loan
- A term that we generally use to refer to our HAMP loans that have provisions for reduced interest rates that remain fixed for the first five years and then increase over a period of time to a market rate.
|
n
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Stripped Giant PCs
- Multiclass securities that are formed by resecuritizing previously issued PCs or Giant PCs and issuing principal-only and interest-only securities backed by the cash flows from the underlying collateral.
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n
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Subprime
- Participants in the mortgage market may characterize single-family loans, based upon their overall credit quality at the time of origination, generally considering them to be prime or subprime. Subprime generally refers to the credit risk classification of a loan. There is no universally accepted definition of subprime. The subprime segment of the mortgage market primarily serves borrowers with poorer credit payment histories and such loans typically have a mix of credit characteristics that indicate a higher likelihood of default and higher loss severities than prime loans. Such characteristics might include, among other factors, a combination of high LTV ratios, low credit scores or originations using lower underwriting standards, such as limited or no documentation of a borrower’s income. While we have not historically characterized the loans in our single-family credit guarantee portfolio as either prime or subprime, we monitor the amount of loans we have guaranteed with characteristics that indicate a higher degree of credit risk. Certain security collateral underlying our other securitization products has been identified as subprime based on information provided to Freddie Mac when the transactions were entered into. We also categorize our investments in non-agency mortgage-related securities as subprime if they were identified as such based on information provided to us when we entered into these transactions.
|
n
|
SVP
- Senior Vice President
|
n
|
Swaption
- An option contract to enter into an interest-rate swap. In exchange for an option premium, a buyer obtains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
429
|
Glossary
|
|
n
|
Target TDC -
Target total direct compensation
|
n
|
TBA
- To be announced
|
n
|
The Tax Cuts and Jobs Act
- The tax reform bill ("An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, Pub. Law No. 115-97") enacted on December 22, 2017, which included a reduction of the statutory corporate income tax rate from 35% to 21%.
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n
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TDR
- Troubled debt restructuring - A restructuring of a debt constitutes a TDR if the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider.
|
n
|
Thrift/401(k) Plan
- The Federal Home Loan Mortgage Corporation Thrift/401(k) Savings Plan
|
n
|
Total mortgage portfolio
- Includes loans and mortgage-related securities held on our consolidated balance sheets as well as our non-consolidated issued and guaranteed single-class and multiclass securities, and other mortgage-related guarantees issued to third parties.
|
n
|
Total other comprehensive income (loss) (or other comprehensive income (loss))
- Consists of the after-tax changes in the unrealized gains and losses on available-for-sale securities, the effective portion of derivatives accounted for as cash flow hedge relationships, and defined benefit plans.
|
n
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Treasury
- U.S. Department of the Treasury
|
n
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UPB
- Unpaid principal balance - Loan UPB amounts in this report have not been reduced by charge-offs recognized prior to the loan being subject to a foreclosure sale, deed in lieu of foreclosure, or short sale transaction.
|
n
|
Upfront fee
- A fee charged to sellers that primarily includes delivery fees that are calculated based on credit risk factors such as the loan product type, loan purpose, LTV ratio and credit score. These delivery fees are charged to compensate us for higher levels of risk in some loan products.
|
n
|
USDA
- U.S. Department of Agriculture
|
n
|
VA
- U.S. Department of Veterans Affairs
|
n
|
Variation margin
- Payments we make to or receive from a derivatives clearinghouse or counterparty based on the change in fair value of a derivative instrument. Variation margin is typically transferred within one business day.
|
n
|
VIE
- Variable Interest Entity - A VIE is an entity that has a total equity investment at risk that is not sufficient to finance its activities without additional subordinated financial support provided by another party, or where the group of equity holders does not have: (i) the ability to make significant decisions about the entity’s activities; (ii) the obligation to absorb the entity’s expected losses; or (iii) the right to receive the entity’s expected residual returns.
|
n
|
Warrant
- Refers to the warrant we issued to Treasury on September 7, 2008 pursuant to the Purchase Agreement. The warrant provides Treasury the ability to purchase, for a nominal price, shares of our common stock equal to 79.9% of the total number of shares of Freddie Mac common stock outstanding on a fully diluted basis on the date of exercise.
|
n
|
Workforce housing
-
Multifamily housing that is affordable to the majority of low to middle income households.
|
n
|
Workout, or loan workout
- A workout is either a home retention action, which is either a loan modification, repayment plan, or forbearance agreement, or a foreclosure alternative, which is either a short sale or a deed in lieu of foreclosure.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
430
|
Glossary
|
|
n
|
XBRL
- eXtensible Business Reporting Language
|
n
|
Yield curve
- A graphical display of the relationship between yields and maturity dates for bonds of the same credit quality. The slope of the yield curve is an important factor in determining the level of net interest yield on a new mortgage asset, both initially and over time. For example, if a mortgage asset is purchased when the yield curve is inverted (i.e., short-term interest rates higher than long-term interest rates), our net interest yield on the asset will tend to be lower initially and then increase over time. Likewise, if a mortgage asset is purchased when the yield curve is steep (i.e., short-term interest rates lower than long-term interest rates), our net interest yield on the asset will tend to be higher initially and then decrease over time.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
431
|
Exhibit Index
|
|
Exhibit
|
Description*
|
|
|
3.1
|
|
|
|
|
|
3.2
|
|
|
|
|
|
4.1
|
|
|
|
|
|
4.2
|
|
|
|
|
|
4.3
|
|
|
|
|
|
4.4
|
|
|
|
|
|
4.5
|
|
|
|
|
|
4.6
|
|
|
|
|
|
4.7
|
|
|
|
|
|
4.8
|
|
|
|
|
|
4.9
|
|
|
|
|
|
4.10
|
|
|
|
* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K are 000-53330 and 001-34139.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
432
|
Exhibit Index
|
|
Exhibit
|
Description*
|
|
|
4.11
|
|
|
|
|
|
4.12
|
|
|
|
|
|
4.13
|
|
|
|
|
|
4.14
|
|
|
|
|
|
4.15
|
|
|
|
|
|
4.16
|
|
|
|
|
|
4.17
|
|
|
|
|
|
4.18
|
|
|
|
|
|
4.19
|
|
|
|
|
|
4.20
|
|
|
|
|
|
4.21
|
|
|
|
|
|
4.22
|
|
|
|
|
|
4.23
|
|
|
|
* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K are 000-53330 and 001-34139.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
433
|
Exhibit Index
|
|
Exhibit
|
Description*
|
|
|
4.24
|
|
|
|
|
|
4.25
|
|
|
|
|
|
4.26
|
|
|
|
|
|
4.27
|
|
|
|
|
|
4.28
|
|
|
|
|
|
10.1
|
|
|
|
|
|
10.2
|
|
|
|
|
|
10.3
|
|
|
|
|
|
10.4
|
|
|
|
|
|
10.5
|
|
|
|
|
|
10.6
|
|
|
|
|
|
10.7
|
|
|
|
|
|
10.8
|
|
|
|
* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K are 000-53330 and 001-34139.
† This exhibit is a management contract or compensatory plan or arrangement.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
434
|
Exhibit Index
|
|
Exhibit
|
Description*
|
10.9
|
|
|
|
|
|
10.10
|
|
|
|
|
|
10.11
|
|
|
|
|
|
10.12
|
|
|
|
|
|
10.13
|
|
|
|
|
|
10.14
|
|
|
|
|
|
10.15
|
|
|
|
|
|
10.16
|
|
|
|
|
|
10.17
|
|
|
|
|
|
10.18
|
|
|
|
|
|
10.19
|
|
|
|
|
|
10.20
|
|
|
|
|
|
10.21
|
|
|
|
|
|
10.22
|
|
|
|
|
|
10.23
|
|
|
|
|
|
10.24
|
|
|
|
* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K are 000-53330 and 001-34139.
† This exhibit is a management contract or compensatory plan or arrangement.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
435
|
Exhibit Index
|
|
Exhibit
|
Description*
|
10.25
|
|
|
|
|
|
10.26
|
|
|
|
|
|
10.27
|
|
|
|
|
|
10.28
|
|
|
|
|
|
10.29
|
|
|
|
|
|
10.30
|
|
|
|
|
|
10.31
|
|
|
|
|
|
10.32
|
|
|
|
|
|
10.33
|
|
|
|
10.34
|
|
|
|
|
|
10.35
|
|
|
|
|
|
10.36
|
|
|
|
|
|
10.37
|
|
|
|
|
|
10.38
|
|
|
|
* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K are 000-53330 and 001-34139.
† This exhibit is a management contract or compensatory plan or arrangement.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
436
|
Exhibit Index
|
|
Exhibit
|
Description*
|
|
|
10.39
|
|
|
|
|
|
10.40
|
|
|
|
|
|
12.10
|
|
|
|
|
|
24.1
|
|
|
|
|
|
31.1
|
|
|
|
|
|
31.2
|
|
|
|
|
|
32.1
|
|
|
|
|
|
32.2
|
|
|
|
|
|
101.INS
|
XBRL Instance Document
|
|
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation
|
|
|
|
|
101.LAB
|
XBRL Taxonomy Extension Labels
|
|
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation
|
|
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition
|
|
|
* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K are 000-53330 and 001-34139.
|
FREDDIE MAC
| 2017 Form 10-K
|
|
437
|
Signatures
|
|
Federal Home Loan Mortgage Corporation
|
|
|
|
By:
|
/s/ Donald H. Layton
|
|
Donald H. Layton
|
|
Chief Executive Officer
|
Date: February 15, 2018
|
FREDDIE MAC
| 2017 Form 10-K
|
|
438
|
Signatures
|
|
Signature
|
|
Capacity
|
|
Date
|
||
|
|
|
|
|
|
|
/s/ Christopher S. Lynch*
|
|
Non-Executive Chairman of the Board
|
|
February 15, 2018
|
||
Christopher S. Lynch
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Donald H. Layton
|
|
Chief Executive Officer and Director
|
|
February 15, 2018
|
||
Donald H. Layton
|
|
(Principal Executive Officer)
|
|
|
||
|
|
|
|
|
|
|
/s/ James G. Mackey
|
|
Executive Vice President — Chief Financial Officer
|
|
February 15, 2018
|
||
James G. Mackey
|
|
(Principal Financial Officer)
|
|
|
||
|
|
|
|
|
|
|
/s/ Robert D. Mailloux
|
|
Senior Vice President — Corporate Controller and
|
|
February 15, 2018
|
||
Robert D. Mailloux
|
|
Principal Accounting Officer (Principal Accounting Officer)
|
|
|
||
|
|
|
|
|
|
|
/s/ Carolyn H. Byrd*
|
|
Director
|
|
February 15, 2018
|
||
Carolyn H. Byrd
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Lance F. Drummond*
|
|
Director
|
|
February 15, 2018
|
||
Lance F. Drummond
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Thomas M. Goldstein*
|
|
Director
|
|
February 15, 2018
|
||
Thomas M. Goldstein
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Grace A. Huebscher*
|
|
Director
|
|
February 15, 2018
|
||
Grace A. Huebscher
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Steven W. Kohlhagen*
|
|
Director
|
|
February 15, 2018
|
||
Steven W. Kohlhagen
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Sara Mathew*
|
|
Director
|
|
February 15, 2018
|
||
Sara Mathew
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Saiyid T. Naqvi*
|
|
Director
|
|
February 15, 2018
|
||
Saiyid T. Naqvi
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Eugene B. Shanks, Jr.*
|
|
Director
|
|
February 15, 2018
|
||
Eugene B. Shanks, Jr.
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Anthony A. Williams*
|
|
Director
|
|
February 15, 2018
|
||
Anthony A. Williams
|
|
|
|
|
||
|
|
|
|
|
|
|
*By:
|
|
/s/ Alicia S. Myara
|
|
|
||
|
|
Alicia S. Myara
|
|
|
|
|
|
|
Attorney-in-Fact
|
|
|
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
439
|
Index
|
|
FREDDIE MAC
| 2017 Form 10-K
|
|
440
|
FEDERAL HOME LOAN MORTGAGE CORPORATION,
|
||
by
|
||
The Federal Housing Finance Agency, its Conservator
|
||
|
|
|
By:
|
/s/ Melvin L. Watt
|
|
|
Melvin L. Watt
|
|
|
Director
|
|
|
Year Ended December 31,
|
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
|
(Dollars in millions)
|
||||||||||||||||||
Net income before income tax expense and cumulative effect of changes in accounting principles
|
$
|
16,834
|
|
|
$
|
11,639
|
|
|
$
|
9,274
|
|
|
$
|
11,002
|
|
|
$
|
25,363
|
|
Add:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total interest expense
(1)
|
53,643
|
|
|
50,786
|
|
|
52,144
|
|
|
55,217
|
|
|
56,234
|
|
|||||
Interest factor in rental expenses
|
3
|
|
|
3
|
|
|
2
|
|
|
5
|
|
|
4
|
|
|||||
Earnings, as adjusted
|
$
|
70,480
|
|
|
$
|
62,428
|
|
|
$
|
61,420
|
|
|
$
|
66,224
|
|
|
$
|
81,601
|
|
Fixed charges:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total interest expense
|
$
|
53,643
|
|
|
50,786
|
|
|
52,144
|
|
|
55,217
|
|
|
56,234
|
|
||||
Interest factor in rental expenses
|
3
|
|
|
3
|
|
|
2
|
|
|
5
|
|
|
4
|
|
|||||
Total fixed charges
|
$
|
53,646
|
|
|
$
|
50,789
|
|
|
$
|
52,146
|
|
|
$
|
55,222
|
|
|
$
|
56,238
|
|
Senior preferred stock and preferred stock dividends
(2)
|
33,167
|
|
|
7,437
|
|
|
5,510
|
|
|
19,610
|
|
|
47,591
|
|
|||||
Total fixed charges including preferred stock dividends
|
$
|
86,813
|
|
|
$
|
58,226
|
|
|
$
|
57,656
|
|
|
$
|
74,832
|
|
|
$
|
103,829
|
|
Ratio of earnings to fixed charges
(3)
|
1.31
|
|
|
1.23
|
|
|
1.18
|
|
|
1.20
|
|
|
1.45
|
|
|||||
Ratio of earnings to combined fixed charges and preferred stock dividends
(4)
|
—
|
|
|
1.07
|
|
|
1.07
|
|
|
—
|
|
|
—
|
|
(1)
|
Prior periods data have been revised to conform to the current presentation
|
(2)
|
Senior preferred stock and preferred stock dividends represent pre-tax earnings required to cover any senior preferred stock and preferred stock dividend requirements computed using our effective tax rate.
|
(3)
|
Ratio of earnings to fixed charges is computed by dividing earnings, as adjusted by total fixed charges.
|
(4)
|
Ratio of earnings to combined fixed charges and preferred stock dividends is computed by dividing earnings, as adjusted by total fixed charges including preferred stock dividends. For the ratio to equal 1.00, earnings, as adjusted must increase by $16.3 billion, $8.6 billion and $22.2 billion for the years ended December 31, 2017, 2014, and 2013, respectively.
|
1.
|
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2017 of the Federal Home Loan Mortgage Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
/s/ Donald H. Layton
|
|
|
Donald H. Layton
|
|
|
Chief Executive Officer
|
1.
|
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2017 of the Federal Home Loan Mortgage Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
/s/ James G. Mackey
|
|
|
James G. Mackey
|
|
|
Executive Vice President — Chief Financial Officer
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
/s/ Donald H. Layton
|
|
|
Donald H. Layton
|
|
|
Chief Executive Officer
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
/s/ James G. Mackey
|
|
|
James G. Mackey
|
|
|
Executive Vice President — Chief Financial Officer
|