☒
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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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)
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903-2000
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corporation
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McLean,
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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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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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None
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N/A
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N/A
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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FREDDIE MAC | 2019 Form 10-K
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1
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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 Market Conditions and 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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QUARTERLY SELECTED FINANCIAL DATA
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CONTROLS AND PROCEDURES
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OTHER INFORMATION
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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 CEO Pay Ratio
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n Environmental, Social, and Governance Practices
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n 2019 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 | 2019 Form 10-K
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|
i
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Table of Contents
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MD&A Table Index
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Table
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Description
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Page
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1
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Selected Financial Data
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2
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Summary of Consolidated Statements of Comprehensive Income (Loss)
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3
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Components of Net Interest Income
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4
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Analysis of Net Interest Yield
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5
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Net Interest Income Rate / Volume Analysis
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6
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Components of Guarantee Fee Income
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7
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Components of Investment Gains (Losses), Net
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8
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Components of Mortgage Loans Gains (Losses)
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9
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Components of Debt Gains (Losses)
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10
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Components of Derivative Gains (Losses)
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11
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Summarized Consolidated Balance Sheets
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12
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Single-Family Credit Guarantee Portfolio CRT Issuance
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13
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Single-Family Guarantee Segment Financial Results
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14
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Multifamily Portfolio and Market Support
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15
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Multifamily Segment Financial Results
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16
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Capital Markets Segment Financial Results
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17
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Capital Markets Segment Interest Rate-Related and Market Spread-Related Fair Value Changes, Net of Tax
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18
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All Other Category Comprehensive Income
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19
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Single-Family New Business Activity
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20
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Details of Credit Enhanced Loans in Our Single-Family Credit Guarantee Portfolio
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21
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Credit-Enhanced and Non-Credit-Enhanced Loans in Our Single-Family Credit Guarantee Portfolio
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22
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Details of Single-Family Credit Enhancement Expense
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23
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Reduction in Conservatorship Credit Capital as a Result of Certain CRT Transactions
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24
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Credit Quality Characteristics of Our Single-Family Credit Guarantee Portfolio
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25
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Characteristics of the Loans in Our Single-Family Credit Guarantee Portfolio
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26
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Single-Family Credit Guarantee Portfolio Higher Risk Loan Data
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27
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Single-Family Credit Guarantee Portfolio Attribute Combinations for Higher Risk Loans
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28
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Higher Risk Single-Family Loan Credit Characteristics
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29
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Timing of Scheduled Payment Changes for Certain Single-Family Loan Types
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30
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Alt-A Loans in Our Single-Family Credit Guarantee Portfolio
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31
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Geographic Concentration in Our Single-Family Credit Guarantee Portfolio
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32
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Single-Family Charge-Offs and Recoveries by Region
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33
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Concentration of Single-Family Loans in Each Region by CLTV Ratio
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34
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Single-Family Credit Guarantee Portfolio Credit Performance Metrics
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35
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Credit Characteristics of Certain Single-Family Loan Categories
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36
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Single-Family Allowance for Credit Losses Activity
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37
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Single-Family Individually Impaired Loans with an Allowance Recorded
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38
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Single-Family TDR and Non-Accrual Loans
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39
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Single-Family Relief Refinance Loans
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40
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Credit Characteristics of Single-Family Modified Loans
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41
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Payment Performance of Single-Family Modified Loans
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42
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Seriously Delinquent Single-Family Loans By Jurisdiction
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43
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Average Length of Foreclosure Process for Single-Family Loans
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44
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Single-Family REO Activity
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45
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Single-Family Severity Ratios
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46
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Multifamily Segment New Business Activity Key Risk Characteristics
|
FREDDIE MAC | 2019 Form 10-K
|
|
ii
|
Table of Contents
|
MD&A Table Index
|
47
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Credit-Enhanced and Non-Credit-Enhanced Loans Underlying Our Multifamily Mortgage Portfolio
|
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48
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Level of Subordination on Our Securitizations
|
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49
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Multifamily Mortgage Portfolio Attributes
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50
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Single-Family Credit Guarantee Portfolio Non-Depository Servicers
|
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51
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Single-Family Mortgage Insurers
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52
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Derivative Counterparty Credit Exposure
|
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53
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PVS-YC and PVS-L Results Assuming Shifts of the LIBOR Yield Curve
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54
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Duration Gap and PVS Results
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55
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PVS-L Results Before Derivatives and After Derivatives
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56
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PVS-L Average, Minimum, and Maximum
|
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57
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GAAP Adverse Scenario Before and After Hedge Accounting
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58
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GAAP Adverse Scenario Average, Minimum, and Maximum
|
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59
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Estimated Net Interest Rate Effect on Comprehensive Income (Loss)
|
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60
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Estimated Spread Effect on Comprehensive Income (Loss)
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61
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Sources of Liquidity
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62
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Other Investments Portfolio
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63
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Funding Sources
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64
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Other Debt Activity
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65
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Other Short-Term Debt
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66
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Activity for Debt Securities of Consolidated Trusts Held by Third Parties
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67
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Debt Securities of Consolidated Trusts Held by Third Parties
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68
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Freddie Mac Credit Ratings
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69
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Net Worth Activity
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70
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Returns on Conservatorship Capital
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71
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Mortgage-Related Investments Portfolio Details
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72
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2018 and 2017 Affordable Housing Goal Results
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73
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2019-2020 Affordable Housing Goals
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74
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Contractual Obligations
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75
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Quarterly Selected Financial Data
|
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76
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Board Compensation Levels
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77
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Director Compensation
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78
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2019 Target TDC
|
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79
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2019 Deferred Salary
|
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80
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CEO Pay Ratio
|
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81
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Compensation Summary
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82
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Grants of Plan-Based Awards
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83
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SERP and SERP II Benefits
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84
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Compensation and Benefits if NEO Terminated Employment as of December 31, 2019
|
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85
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Stock Ownership by Directors and Executive Officers
|
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86
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Stock Ownership by Greater Than 5% Holders
|
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87
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Auditor Fees
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FREDDIE MAC | 2019 Form 10-K
|
|
iii
|
Introduction
|
About Freddie Mac
|
FREDDIE MAC | 2019 Form 10-K
|
|
1
|
Introduction
|
About Freddie Mac
|
n
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2019 vs. 2018
|
l
|
Comprehensive income was $7.8 billion for 2019, driven by strong business performance in a declining interest rate environment. The decline of $0.8 billion, or 10%, from 2018, was primarily due to higher costs related to transferring credit risk and investments to improve the efficiency of our business operations.
|
l
|
Net revenues declined $1.5 billion compared to 2018, primarily due to lower investment gains (losses), net, partially offset by higher contractual net interest income on the single-family guarantee portfolio and higher income on the multifamily guarantee portfolio. The decline in net revenues was also partially offset by a $1.2 billion increase in other comprehensive income.
|
l
|
Total equity was $9.1 billion as of December 31, 2019, up from $4.5 billion as of December 31, 2018, as a result of our ability to retain earnings pursuant to the September 2019 Letter Agreement.
|
l
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We expect to recognize a decrease to retained earnings of $0.2 billion upon our adoption of CECL on January 1, 2020. See Note 1 for additional information about our adoption of CECL.
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n
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2018 vs. 2017
|
l
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Comprehensive income was $8.6 billion for 2018, an increase of 55% compared to comprehensive income of $5.6 billion for 2017. The increase in comprehensive income primarily reflects two significant items in 2017: a non-cash charge of $5.4 billion due to the enactment of tax reform legislation and a $4.5 billion, or $2.9 billion after-tax, benefit from a litigation settlement related to non-agency mortgage-related securities in which we no longer invest.
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l
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Total equity was $4.5 billion as of December 31, 2018, compared to ($0.3) billion as of December 31, 2017. The increase primarily reflects our ability to retain earnings pursuant to the December 2017 Letter Agreement.
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FREDDIE MAC | 2019 Form 10-K
|
|
2
|
Introduction
|
About Freddie Mac
|
n
|
The total guarantee portfolio grew $132 billion, or 6%, in 2019, driven by a 5% increase in our single-family credit guarantee portfolio and a 14% increase in our multifamily guarantee portfolio. The total guarantee portfolio grew $101 billion, or 5%, in 2018, driven by a 4% increase in our single-family credit guarantee portfolio and a 17% increase in our multifamily guarantee portfolio.
|
l
|
The growth in our single-family credit guarantee portfolio outpaced increases in U.S. single-family mortgage debt outstanding of 2% in 2019 and 3% in 2018. Continued home price appreciation contributed to new business acquisitions having a higher average loan size compared to older vintages that continued to run off.
|
l
|
The growth in our multifamily guarantee portfolio also outpaced increases in U.S. multifamily mortgage debt outstanding of 6% in 2019 and 9% in 2018, primarily driven by strong loan purchase and securitization activity, attributable to healthy multifamily market fundamentals and strong demand for multifamily loan products.
|
n
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Our total investments portfolio increased $35 billion, or 12%, in 2019 primarily due to an increase in our other investments portfolio driven by higher loan prepayments, higher near-term cash needs for upcoming debt maturities and anticipated calls of other debt, and a higher expected loan purchase forecast. Our total investments portfolio decreased $62 billion, or 18%, in 2018, primarily due to a reduction in the balance of our mortgage-related investments portfolio pursuant to the portfolio limits established by the Purchase Agreement and FHFA. In February 2019, FHFA directed us to maintain the mortgage-related investments portfolio at or below $225 billion at all times.
|
FREDDIE MAC | 2019 Form 10-K
|
|
3
|
Introduction
|
About Freddie Mac
|
FREDDIE MAC | 2019 Form 10-K
|
|
4
|
Introduction
|
About Freddie Mac
|
FREDDIE MAC | 2019 Form 10-K
|
|
5
|
Introduction
|
About Freddie Mac
|
FREDDIE MAC | 2019 Form 10-K
|
|
6
|
Introduction
|
Our Business
|
n
|
Enhancing our capability to effectively manage risk and capital through our underwriting, purchase, servicing, and credit risk distribution activities;
|
n
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Increasing the resiliency of our infrastructure and operations; and
|
n
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Reducing costs for us and our customers in order to pass through savings to borrowers and renters.
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FREDDIE MAC | 2019 Form 10-K
|
|
7
|
Introduction
|
Our Business
|
n
|
Provide stability in the secondary mortgage market for residential loans;
|
n
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Respond appropriately to the private capital market;
|
n
|
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
|
n
|
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 | 2019 Form 10-K
|
|
8
|
Introduction
|
Our Business
|
FREDDIE MAC | 2019 Form 10-K
|
|
9
|
Introduction
|
Forward-Looking Statements
|
n
|
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 the recommendations in the Treasury Housing Reform Plan or FHFA's Conservatorship Scorecards and other objectives for us;
|
n
|
The effect of the restrictions on our business due to the conservatorship and the Purchase Agreement;
|
n
|
Changes in our Charter or in applicable legislative or regulatory requirements (including changes pursuant to the Treasury Housing Reform Plan or pursuant to any legislation affecting the future status of our company);
|
n
|
Changes in the fiscal and monetary policies of the Federal Reserve, including the balance sheet normalization program to reduce the Federal Reserve's holdings of mortgage-related securities;
|
n
|
Changes in tax laws;
|
n
|
Changes in accounting policies, practices, or guidance (e.g., our adoption of CECL);
|
n
|
Changes in economic and market conditions, including changes in employment rates, interest rates, spreads, and home prices;
|
n
|
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);
|
n
|
The success of our efforts to mitigate our losses on our legacy and relief refinance single-family loan portfolio;
|
n
|
The success of our strategy to transfer mortgage credit risk through STACR debt note, STACR Trust note, ACIS ®, K Certificate, SB Certificate, and other CRT transactions;
|
n
|
Our ability to maintain adequate liquidity to fund our operations;
|
n
|
Our ability to maintain the security and resiliency of our operational systems and infrastructure, including against cyberattacks;
|
n
|
Our ability to effectively execute our business strategies, implement new initiatives, and improve efficiency;
|
n
|
The adequacy of our risk management framework, including the adequacy of the CCF for measuring risk;
|
n
|
Our ability to manage mortgage credit risk, including the effect of changes in underwriting and servicing practices;
|
n
|
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;
|
n
|
Our operational ability to issue new securities, make timely and correct payments on securities, and provide initial and ongoing disclosures;
|
n
|
Our reliance on CSS and the CSP for the operation of the majority of our single-family securitization activities, our reduced influence over CSS Board decisions as a result of recent FHFA-required changes to the CSS LLC agreement, and any additional changes FHFA may require in our relationship with, or support of, CSS;
|
n
|
Changes or errors in the methodologies, models, assumptions, and estimates we use to prepare our financial statements, make business decisions, and manage risks;
|
n
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Changes in investor demand for our debt or mortgage-related securities, as well as market acceptance of the UMBS;
|
n
|
Changes in the practices of loan originators, servicers, investors, and other participants in the secondary mortgage market;
|
n
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The discontinuance of or transition from LIBOR and the adverse consequences it could have on our business and operations;
|
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; and
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FREDDIE MAC | 2019 Form 10-K
|
|
10
|
Selected Financial Data
|
|
|
As of or For the Year Ended December 31,
|
||||||||||||||
(Dollars in millions, except share-related amounts)
|
|
2019
|
2018
|
2017
|
2016
|
2015
|
||||||||||
|
|
|
|
|
|
|
||||||||||
Statements of Comprehensive Income Data
|
|
|
|
|
|
|
||||||||||
Net interest income
|
|
|
$11,848
|
|
|
$12,021
|
|
|
$14,164
|
|
|
$14,379
|
|
|
$14,946
|
|
Non-interest income (loss)
|
|
2,230
|
|
3,549
|
|
6,893
|
|
454
|
|
(3,731
|
)
|
|||||
Benefit (provision) for credit losses
|
|
746
|
|
736
|
|
84
|
|
803
|
|
2,665
|
|
|||||
Non-interest expense
|
|
(5,775
|
)
|
(4,832
|
)
|
(4,307
|
)
|
(3,997
|
)
|
(4,606
|
)
|
|||||
Income tax (expense) benefit
|
|
(1,835
|
)
|
(2,239
|
)
|
(11,209
|
)
|
(3,824
|
)
|
(2,898
|
)
|
|||||
Net income
|
|
7,214
|
|
9,235
|
|
5,625
|
|
7,815
|
|
6,376
|
|
|||||
Comprehensive income
|
|
7,787
|
|
8,622
|
|
5,558
|
|
7,118
|
|
5,799
|
|
|||||
Net income (loss) attributable to common stockholders
|
|
(573
|
)
|
3,612
|
|
(3,244
|
)
|
97
|
|
(23
|
)
|
|||||
Net income (loss) per common share - basic and diluted
|
|
(0.18
|
)
|
1.12
|
|
(1.00
|
)
|
0.03
|
|
(0.01
|
)
|
|||||
Cash dividends per common share
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
|
|
|
|
|
|
|
||||||||||
Balance Sheets Data
|
|
|
|
|
|
|
||||||||||
Loans held-for-investment, at amortized cost by consolidated trusts (net of allowances for loan losses)
|
|
|
$1,940,523
|
|
|
$1,842,850
|
|
|
$1,774,286
|
|
|
$1,690,218
|
|
|
$1,625,184
|
|
Total assets
|
|
2,203,623
|
|
2,063,060
|
|
2,049,776
|
|
2,023,376
|
|
1,985,892
|
|
|||||
Debt securities of consolidated trusts held by third parties
|
|
1,898,355
|
|
1,792,677
|
|
1,720,996
|
|
1,648,683
|
|
1,556,121
|
|
|||||
Other debt
|
|
281,173
|
|
252,273
|
|
313,634
|
|
353,321
|
|
414,148
|
|
|||||
All other liabilities
|
|
14,973
|
|
13,633
|
|
15,458
|
|
16,297
|
|
12,683
|
|
|||||
Total stockholders' equity
|
|
9,122
|
|
4,477
|
|
(312
|
)
|
5,075
|
|
2,940
|
|
|||||
|
|
|
|
|
|
|
||||||||||
Portfolio Balances - UPB
|
|
|
|
|
|
|
||||||||||
Total guarantee portfolio
|
|
|
$2,265,301
|
|
|
$2,133,510
|
|
|
$2,031,955
|
|
|
$1,912,717
|
|
|
$1,821,896
|
|
Mortgage-related investments portfolio
|
|
212,673
|
|
218,080
|
|
253,455
|
|
298,426
|
|
346,911
|
|
|||||
Other investments portfolio
|
|
103,421
|
|
62,917
|
|
89,955
|
|
95,041
|
|
100,913
|
|
|||||
TDRs on accrual status
|
|
32,262
|
|
41,914
|
|
51,720
|
|
77,399
|
|
82,347
|
|
|||||
Non-accrual
|
|
11,197
|
|
11,217
|
|
17,817
|
|
16,272
|
|
22,649
|
|
|||||
|
|
|
|
|
|
|
||||||||||
Ratios
|
|
|
|
|
|
|
||||||||||
Return on average assets
|
|
0.3
|
%
|
0.4
|
%
|
0.3
|
%
|
0.4
|
%
|
0.3
|
%
|
|||||
Allowance for loan losses as percentage of loans, held-for-investment
|
|
0.2
|
|
0.3
|
|
0.5
|
|
0.7
|
|
0.9
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
11
|
Management's Discussion and Analysis
|
Market Conditions and Economic Indicators
|
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 conventional conforming home purchase mortgage with an LTV of 80%. Increases (decreases) in the PMMS rate typically result in decreases (increases) in refinancing activity and originations.
|
n
|
Changes in the 10-year and 2-year LIBOR interest rates can significantly affect the fair value of our debt, derivatives, mortgage loans, and mortgage and non-mortgage-related securities. In addition, the GAAP accounting treatment for our financial assets and liabilities, including derivatives, (i.e., some are measured at amortized cost, while others are measured at fair value) creates variability in our GAAP earnings when interest rates change. We have elected hedge accounting for certain assets and liabilities in an effort to reduce GAAP earnings variability.
|
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 and derivatives.
|
n
|
Long-term rates continued to decline throughout most of 2019, resulting in an inverted yield curve, before trending up near year end as a result of the Federal Reserve's decision to cut rates in the second half of the year.
|
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
|
Continued job growth, a declining unemployment rate, and generally favorable economic conditions supported strong credit performance.
|
FREDDIE MAC | 2019 Form 10-K
|
|
12
|
Management's Discussion and Analysis
|
Market Conditions and Economic Indicators
|
n
|
In 2020, we expect modest growth in U.S. single-family home purchase volume, while steady mortgage interest rates are expected to result in a lower refinance volume. Freddie Mac's single-family loan purchase volumes typically follow a similar trend.
|
n
|
Changes in home prices affect the amount of equity that borrowers have in their homes. Borrowers with less equity typically have higher delinquency rates. 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.
|
n
|
Single-family home prices grew 3.8% in 2019 compared to 5.1% during 2018. We expect home price growth will continue in 2020, although at a slower pace than in 2019, due to increased supply.
|
n
|
U.S. single-family loan origination volumes increased in 2019 compared to 2018, driven by higher refinance volume as a result of lower average mortgage interest rates.
|
FREDDIE MAC | 2019 Form 10-K
|
|
13
|
Management's Discussion and Analysis
|
Market Conditions and Economic Indicators
|
n
|
Completions slightly outpaced net absorption in 2019, but vacancy rates remained relatively flat and below the long-term average of 5.4% from 2000 to 2019.
|
n
|
Effective rent growth (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) declined from prior years, but was higher than the long-term average of 3.1% from 2000 to 2019.
|
n
|
Multifamily property prices continued to grow, with 9.6% annualized growth in 2019, indicating a healthy multifamily market.
|
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
|
Demand growth was in line with supply growth, as completions slightly outpaced net absorption.
|
n
|
Although we expect continued strong demand, construction of multifamily units remains elevated and could outpace absorptions in 2020.
|
FREDDIE MAC | 2019 Form 10-K
|
|
14
|
Management's Discussion and Analysis
|
Market Conditions and Economic Indicators
|
n
|
U.S. single-family mortgage debt outstanding increased in 2019 compared to 2018, primarily driven by house price appreciation. An increase in U.S. single-family mortgage debt outstanding typically results in growth of our single-family credit guarantee portfolio.
|
n
|
During 2019, the multifamily mortgage market grew because of continued strong demand for multifamily loan products due to solid multifamily market fundamentals. 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 2020 due to these same drivers.
|
n
|
While the multifamily mortgage market grew, our share of multifamily mortgage debt outstanding remained flat during 2019 due to ongoing competition from other market participants, which we expect to continue. Growth was also limited due to a revised loan purchase cap structure for the multifamily business announced by FHFA in 3Q 2019. The loan purchase cap will be $100.0 billion for the five-quarter period from 4Q 2019 through 4Q 2020 and applies to all multifamily business activity, with no exclusions. At least 37.5% of new multifamily business must be mission-driven, affordable housing over the same five-quarter period.
|
FREDDIE MAC | 2019 Form 10-K
|
|
15
|
Management's Discussion and Analysis
|
Market Conditions and Economic Indicators
|
n
|
The U.S. single-family serious delinquency rate decreased in 2019 compared to 2018 due to macroeconomic factors such as a low unemployment rate and continued home price appreciation. Our single-family serious delinquency rate typically follows a similar trend. See Risk Management - Single-Family Mortgage Credit Risk - Monitoring Loan Performance and Characteristics - Delinquency Rates for additional information on our serious delinquency rate.
|
n
|
Our multifamily delinquency rates during 2019 remained low compared to other industry participants, ending the year at 8 basis points, primarily due to our prior-approval underwriting approach and strong multifamily market fundamentals. See Risk Management - Multifamily Mortgage Credit Risk - Managing Our Portfolio, Including Loss Mitigation Activities for additional information on our delinquency rates.
|
FREDDIE MAC | 2019 Form 10-K
|
|
16
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
n
|
Net interest income - primarily consists of the guarantee fees from our single-family credit guarantee portfolio and the net interest income from our investments portfolio.
|
n
|
Guarantee fee income - primarily consists of the guarantee fees from our multifamily guarantee portfolio.
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Net interest income
|
|
|
$11,848
|
|
|
$12,021
|
|
|
$14,164
|
|
|
|
($173
|
)
|
(1
|
)%
|
|
|
($2,143
|
)
|
(15
|
)%
|
Guarantee fee income
|
|
1,089
|
|
866
|
|
749
|
|
|
223
|
|
26
|
|
|
117
|
|
16
|
|
|||||
Investment gains (losses), net
|
|
818
|
|
1,921
|
|
1,160
|
|
|
(1,103
|
)
|
(57
|
)
|
|
761
|
|
66
|
|
|||||
Other income (loss)
|
|
323
|
|
762
|
|
4,984
|
|
|
(439
|
)
|
(58
|
)
|
|
(4,222
|
)
|
(85
|
)
|
|||||
Net revenues
|
|
14,078
|
|
15,570
|
|
21,057
|
|
|
(1,492
|
)
|
(10
|
)
|
|
(5,487
|
)
|
(26
|
)
|
|||||
Benefit (provision) for credit losses
|
|
746
|
|
736
|
|
84
|
|
|
10
|
|
1
|
|
|
652
|
|
776
|
|
|||||
Credit enhancement expense
|
|
(708
|
)
|
(417
|
)
|
(280
|
)
|
|
(291
|
)
|
(70
|
)
|
|
(137
|
)
|
(49
|
)
|
|||||
REO operations expense
|
|
(229
|
)
|
(169
|
)
|
(189
|
)
|
|
(60
|
)
|
(36
|
)
|
|
20
|
|
11
|
|
|||||
Credit-related expense
|
|
(191
|
)
|
150
|
|
(385
|
)
|
|
(341
|
)
|
(227
|
)
|
|
535
|
|
139
|
|
|||||
Administrative expense
|
|
(2,564
|
)
|
(2,293
|
)
|
(2,106
|
)
|
|
(271
|
)
|
(12
|
)
|
|
(187
|
)
|
(9
|
)
|
|||||
Temporary Payroll Tax Cut
Continuation Act of 2011 expense
|
|
(1,617
|
)
|
(1,484
|
)
|
(1,340
|
)
|
|
(133
|
)
|
(9
|
)
|
|
(144
|
)
|
(11
|
)
|
|||||
Other expense
|
|
(657
|
)
|
(469
|
)
|
(392
|
)
|
|
(188
|
)
|
(40
|
)
|
|
(77
|
)
|
(20
|
)
|
|||||
Operating expense
|
|
(4,838
|
)
|
(4,246
|
)
|
(3,838
|
)
|
|
(592
|
)
|
(14
|
)
|
|
(408
|
)
|
(11
|
)
|
|||||
Income before income tax (expense) benefit
|
|
9,049
|
|
11,474
|
|
16,834
|
|
|
(2,425
|
)
|
(21
|
)
|
|
(5,360
|
)
|
(32
|
)
|
|||||
Income tax (expense) benefit
|
|
(1,835
|
)
|
(2,239
|
)
|
(11,209
|
)
|
|
404
|
|
18
|
|
|
8,970
|
|
80
|
|
|||||
Net income (loss)
|
|
7,214
|
|
9,235
|
|
5,625
|
|
|
(2,021
|
)
|
(22
|
)
|
|
3,610
|
|
64
|
|
|||||
Total other comprehensive income (loss),
net of taxes and reclassification adjustments
|
|
573
|
|
(613
|
)
|
(67
|
)
|
|
1,186
|
|
193
|
|
|
(546
|
)
|
(815
|
)
|
|||||
Comprehensive income (loss)
|
|
|
$7,787
|
|
|
$8,622
|
|
|
$5,558
|
|
|
|
($835
|
)
|
(10
|
)%
|
|
|
$3,064
|
|
55
|
%
|
FREDDIE MAC | 2019 Form 10-K
|
|
17
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
n
|
Guarantee portfolio net interest income - consists of two components:
|
l
|
Guarantee fees we receive for managing the credit risk associated with the mortgage loans held by consolidated trusts, which primarily consist of the loans in our single-family credit guarantee portfolio. We record interest income on loans held by consolidated trusts and interest expense on the debt securities issued by the trusts. The difference between these amounts 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.
|
l
|
Amortization of cost basis adjustments, such as premiums and discounts on securitized mortgage loans, including upfront fees we receive when we acquire a loan, and debt securities of consolidated trusts. These cost basis adjustments are amortized into interest income or interest expense based on the effective yield over the contractual life of the associated financial instrument. The amortization of loans and debt securities of consolidated trusts may vary significantly from period to period and is primarily driven by actual prepayments on the underlying loans. Increases in actual prepayments result in a higher rate of amortization, while decreases in actual prepayments result in a lower rate of amortization. The timing of amortization of loans may differ from the timing of amortization of the securities backed by the loans, as the proceeds from the loans backing these securities are remitted to the security holders at a date subsequent to the date these proceeds are received by us.
|
n
|
Investments portfolio net interest income - consists of two components:
|
l
|
The difference between the interest income earned on the assets in our investments portfolio and the interest expense incurred on the liabilities used to fund those assets, including interest expense related to CRT debt (STACR debt notes and SCR debt notes).
|
l
|
Amortization of cost basis adjustments, such as premiums and discounts on unsecuritized mortgage loans, investments securities, other assets, and other debt, which are amortized into interest income or interest expense based on the effective yield over the contractual life of the associated financial instrument.
|
n
|
Income (expense) from hedge accounting - consists of two components:
|
l
|
Upon adoption of amended hedge accounting guidance in 4Q 2017, fair value changes for the hedging instrument, including the accrual of periodic cash settlements, fair value changes for the hedged item attributable to the risk being hedged for qualifying fair value hedge relationships, and amortization of hedge accounting related basis adjustments. See Note 9 for additional detail on hedge accounting.
|
l
|
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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
18
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Guarantee portfolio net interest income:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Contractual net interest income
|
|
|
$3,767
|
|
|
$3,457
|
|
|
$3,270
|
|
|
|
$310
|
|
9
|
%
|
|
|
$187
|
|
6
|
%
|
Net interest income related to the Temporary Payroll Tax Cut Continuation Act of 2011
|
|
1,590
|
|
1,438
|
|
1,314
|
|
|
152
|
|
11
|
|
|
124
|
|
9
|
|
|||||
Amortization
|
|
2,436
|
|
2,900
|
|
3,258
|
|
|
(464
|
)
|
(16
|
)
|
|
(358
|
)
|
(11
|
)
|
|||||
Total guarantee portfolio net interest income
|
|
7,793
|
|
7,795
|
|
7,842
|
|
|
(2
|
)
|
—
|
|
|
(47
|
)
|
(1
|
)
|
|||||
Investments portfolio net interest income:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Contractual net interest income
|
|
6,004
|
|
6,556
|
|
7,227
|
|
|
(552
|
)
|
(8
|
)
|
|
(671
|
)
|
(9
|
)
|
|||||
Amortization
|
|
(593
|
)
|
(305
|
)
|
(78
|
)
|
|
(288
|
)
|
(94
|
)
|
|
(227
|
)
|
(291
|
)
|
|||||
Interest expense related to CRT debt
|
|
(1,104
|
)
|
(1,094
|
)
|
(834
|
)
|
|
(10
|
)
|
(1
|
)
|
|
(260
|
)
|
(31
|
)
|
|||||
Total investments portfolio net interest income
|
|
4,307
|
|
5,157
|
|
6,315
|
|
|
(850
|
)
|
(16
|
)
|
|
(1,158
|
)
|
(18
|
)
|
|||||
Income (expense) from hedge accounting
|
|
(252
|
)
|
(931
|
)
|
7
|
|
|
679
|
|
73
|
|
|
(938
|
)
|
(13,400
|
)
|
|||||
Net interest income
|
|
|
$11,848
|
|
|
$12,021
|
|
|
$14,164
|
|
|
|
($173
|
)
|
(1
|
%)
|
|
|
($2,143
|
)
|
(15
|
%)
|
n
|
Guarantee portfolio contractual net interest income
|
l
|
2019 vs. 2018 and 2018 vs. 2017 - Increased primarily due to the continued growth of the core single-family loan portfolio.
|
n
|
Guarantee portfolio amortization
|
l
|
2019 vs. 2018 and 2018 vs. 2017 - Decreased primarily due to the timing differences in amortization related to prepayments between debt of consolidated trusts and the underlying mortgage loans, partially offset by increases in amortization of upfront fees.
|
n
|
Investments portfolio contractual net interest income
|
l
|
2019 vs. 2018 - Decreased primarily due to the lower and flatter interest rate environment, coupled with a change in our investment mix as the other investments portfolio represented a larger percentage of our total investments portfolio.
|
l
|
2018 vs. 2017 - Decreased 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
|
Investments portfolio amortization
|
l
|
2019 vs. 2018 and 2018 vs. 2017 - Decreased primarily due to lower amortization related to unsecuritized mortgage loans, as certain of those loans were reclassified from held-for-investment to held-for-sale and ceased amortizing, and lower accretion of previously recognized other-than-temporary impairments, due to a decline in the population of impaired securities.
|
n
|
Interest expense related to CRT debt
|
l
|
2019 vs. 2018 - Remained relatively flat as higher short-term interest rates were offset by a decline in volume as we no longer issue STACR debt notes on a regular basis.
|
l
|
2018 vs. 2017 - Increased primarily due to higher STACR debt yield as short-term interest rates increased combined with a higher average balance.
|
n
|
Income (expense) from hedge accounting
|
l
|
2019 vs. 2018 - Increased primarily due to a positive earnings mismatch and lower expense related to accruals of periodic cash settlements on derivatives in hedging relationships, partially offset by amortization of hedge accounting-related basis adjustments. The earnings mismatch is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the hedged item attributable to the hedged risk.
|
l
|
2018 vs. 2017 - Affected primarily by 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 | 2019 Form 10-K
|
|
19
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
|
|
Year Ended December 31,
|
|||||||||||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
|||||||||||||||||||||
(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
|
|
|
$8,925
|
|
|
$187
|
|
2.10
|
%
|
|
|
$7,189
|
|
|
$67
|
|
0.93
|
%
|
|
|
$10,965
|
|
|
$48
|
|
0.44
|
%
|
Securities purchased under agreements to resell
|
|
56,465
|
|
1,284
|
|
2.27
|
|
|
45,360
|
|
880
|
|
1.94
|
|
|
57,883
|
|
588
|
|
1.02
|
|
||||||
Secured lending
|
|
2,933
|
|
104
|
|
3.55
|
|
|
1,350
|
|
35
|
|
2.58
|
|
|
859
|
|
21
|
|
2.42
|
|
||||||
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Mortgage-related securities
|
|
132,735
|
|
5,761
|
|
4.34
|
|
|
143,424
|
|
6,026
|
|
4.20
|
|
|
164,663
|
|
6,402
|
|
3.89
|
|
||||||
Extinguishment of debt securities of consolidated trusts held by Freddie Mac
|
|
(85,407
|
)
|
(3,524
|
)
|
(4.13
|
)
|
|
(88,757
|
)
|
(3,437
|
)
|
(3.87
|
)
|
|
(87,665
|
)
|
(3,264
|
)
|
(3.72
|
)
|
||||||
Total mortgage-related securities, net
|
|
47,328
|
|
2,237
|
|
4.73
|
|
|
54,667
|
|
2,589
|
|
4.74
|
|
|
76,998
|
|
3,138
|
|
4.08
|
|
||||||
Non-mortgage-related securities
|
|
22,776
|
|
500
|
|
2.19
|
|
|
18,955
|
|
446
|
|
2.35
|
|
|
17,558
|
|
277
|
|
1.58
|
|
||||||
Loans held by consolidated trusts(1)
|
|
1,882,802
|
|
64,927
|
|
3.45
|
|
|
1,799,122
|
|
61,883
|
|
3.44
|
|
|
1,730,000
|
|
58,746
|
|
3.40
|
|
||||||
Loans held by Freddie Mac(1)
|
|
86,973
|
|
3,656
|
|
4.20
|
|
|
98,005
|
|
4,154
|
|
4.24
|
|
|
117,043
|
|
4,989
|
|
4.26
|
|
||||||
Total interest-earning assets
|
|
2,108,202
|
|
72,895
|
|
3.46
|
|
|
2,024,648
|
|
70,054
|
|
3.46
|
|
|
2,011,306
|
|
67,807
|
|
3.37
|
|
||||||
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Debt securities of consolidated trusts including those held by Freddie Mac
|
|
1,907,818
|
|
(57,504
|
)
|
(3.01
|
)
|
|
1,826,429
|
|
(54,966
|
)
|
(3.01
|
)
|
|
1,753,983
|
|
(50,920
|
)
|
(2.90
|
)
|
||||||
Extinguishment of debt securities of consolidated trusts held by Freddie Mac
|
|
(85,407
|
)
|
3,524
|
|
4.13
|
|
|
(88,757
|
)
|
3,437
|
|
3.87
|
|
|
(87,665
|
)
|
3,264
|
|
3.72
|
|
||||||
Total debt securities of consolidated trusts held by third parties
|
|
1,822,411
|
|
(53,980
|
)
|
(2.96
|
)
|
|
1,737,672
|
|
(51,529
|
)
|
(2.97
|
)
|
|
1,666,318
|
|
(47,656
|
)
|
(2.86
|
)
|
||||||
Other debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Short-term debt
|
|
85,492
|
|
(1,910
|
)
|
(2.23
|
)
|
|
62,893
|
|
(1,193
|
)
|
(1.90
|
)
|
|
72,071
|
|
(615
|
)
|
(0.85
|
)
|
||||||
Long-term debt
|
|
192,100
|
|
(5,157
|
)
|
(2.68
|
)
|
|
216,484
|
|
(5,311
|
)
|
(2.45
|
)
|
|
264,354
|
|
(5,372
|
)
|
(2.03
|
)
|
||||||
Total other debt
|
|
277,592
|
|
(7,067
|
)
|
(2.55
|
)
|
|
279,377
|
|
(6,504
|
)
|
(2.33
|
)
|
|
336,425
|
|
(5,987
|
)
|
(1.78
|
)
|
||||||
Total interest-bearing liabilities
|
|
2,100,003
|
|
(61,047
|
)
|
(2.91
|
)
|
|
2,017,049
|
|
(58,033
|
)
|
(2.88
|
)
|
|
2,002,743
|
|
(53,643
|
)
|
(2.68
|
)
|
||||||
Impact of net non-interest-bearing funding
|
|
8,199
|
|
—
|
|
0.01
|
|
|
7,599
|
|
—
|
|
0.01
|
|
|
8,563
|
|
—
|
|
0.01
|
|
||||||
Total funding of interest-earning assets
|
|
|
$2,108,202
|
|
|
($61,047
|
)
|
(2.90
|
)%
|
|
|
$2,024,648
|
|
|
($58,033
|
)
|
(2.87
|
)%
|
|
|
$2,011,306
|
|
|
($53,643
|
)
|
(2.67
|
)%
|
Net interest income/yield
|
|
|
|
$11,848
|
|
0.56
|
%
|
|
|
|
$12,021
|
|
0.59
|
%
|
|
|
|
$14,164
|
|
0.70
|
%
|
(1)
|
Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $3.2 billion, $2.6 billion, and $2.4 billion for loans held by consolidated trusts and $112 million, $104 million, and $162 million for loans held by Freddie Mac during 2019, 2018, and 2017, respectively.
|
FREDDIE MAC | 2019 Form 10-K
|
|
20
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
|
|
Variance Analysis
|
||||||||||||||||||
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
Rate
|
Volume
|
Total Change
|
|
Rate
|
Volume
|
Total Change
|
||||||||||||
Interest-earning assets:
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
|
|
$101
|
|
|
$19
|
|
|
$120
|
|
|
|
$45
|
|
|
($26
|
)
|
|
$19
|
|
Securities purchased under agreements to resell
|
|
170
|
|
234
|
|
404
|
|
|
443
|
|
(151
|
)
|
292
|
|
||||||
Secured lending
|
|
17
|
|
52
|
|
69
|
|
|
1
|
|
13
|
|
14
|
|
||||||
Mortgage-related securities
|
|
194
|
|
(459
|
)
|
(265
|
)
|
|
491
|
|
(867
|
)
|
(376
|
)
|
||||||
Extinguishment of debt securities of consolidated trusts held by Freddie Mac
|
|
(220
|
)
|
133
|
|
(87
|
)
|
|
(132
|
)
|
(41
|
)
|
(173
|
)
|
||||||
Total mortgage-related securities, net
|
|
(26
|
)
|
(326
|
)
|
(352
|
)
|
|
359
|
|
(908
|
)
|
(549
|
)
|
||||||
Non-mortgage-related securities
|
|
(31
|
)
|
85
|
|
54
|
|
|
146
|
|
23
|
|
169
|
|
||||||
Loans held by consolidated trusts
|
|
159
|
|
2,885
|
|
3,044
|
|
|
767
|
|
2,370
|
|
3,137
|
|
||||||
Loans held by Freddie Mac
|
|
(34
|
)
|
(464
|
)
|
(498
|
)
|
|
(28
|
)
|
(807
|
)
|
(835
|
)
|
||||||
Total interest-earning assets
|
|
356
|
|
2,485
|
|
2,841
|
|
|
1,733
|
|
514
|
|
2,247
|
|
||||||
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
||||||||||||
Debt securities of consolidated trusts including those held by Freddie Mac
|
|
(85
|
)
|
(2,453
|
)
|
(2,538
|
)
|
|
(1,902
|
)
|
(2,144
|
)
|
(4,046
|
)
|
||||||
Extinguishment of debt securities of consolidated trusts held by Freddie Mac
|
|
220
|
|
(133
|
)
|
87
|
|
|
132
|
|
41
|
|
173
|
|
||||||
Total debt securities of consolidated trusts held by third parties
|
|
135
|
|
(2,586
|
)
|
(2,451
|
)
|
|
(1,770
|
)
|
(2,103
|
)
|
(3,873
|
)
|
||||||
Other debt:
|
|
|
|
|
|
|
|
|
||||||||||||
Short-term debt
|
|
(237
|
)
|
(480
|
)
|
(717
|
)
|
|
(665
|
)
|
87
|
|
(578
|
)
|
||||||
Long-term debt
|
|
(476
|
)
|
630
|
|
154
|
|
|
(1,005
|
)
|
1,066
|
|
61
|
|
||||||
Total other debt
|
|
(713
|
)
|
150
|
|
(563
|
)
|
|
(1,670
|
)
|
1,153
|
|
(517
|
)
|
||||||
Total interest-bearing liabilities
|
|
(578
|
)
|
(2,436
|
)
|
(3,014
|
)
|
|
(3,440
|
)
|
(950
|
)
|
(4,390
|
)
|
||||||
Net interest income
|
|
|
($222
|
)
|
|
$49
|
|
|
($173
|
)
|
|
|
($1,707
|
)
|
|
($436
|
)
|
|
($2,143
|
)
|
n
|
Contractual guarantee fee - consists of the fees earned from guarantees issued to third parties and securitization trusts that we do not consolidate.
|
n
|
Guarantee obligation amortization - represents the amortization of our obligation to perform over the term of the guarantee.
|
n
|
Guarantee asset fair value changes - represents the change in fair value of our right to receive contractual guarantee fees. Because our multifamily loans contain prepayment protection, decreasing interest rates generally result in a higher guarantee asset fair value, with the opposite effect occurring when interest rates increase.
|
FREDDIE MAC | 2019 Form 10-K
|
|
21
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Contractual guarantee fee
|
|
|
$910
|
|
|
$810
|
|
|
$661
|
|
|
|
$100
|
|
12
|
%
|
|
|
$149
|
|
23
|
%
|
Guarantee obligation amortization
|
|
813
|
|
711
|
|
601
|
|
|
102
|
|
14
|
|
|
110
|
|
18
|
|
|||||
Guarantee asset fair value changes
|
|
(634
|
)
|
(655
|
)
|
(513
|
)
|
|
21
|
|
3
|
|
|
(142
|
)
|
(28
|
)
|
|||||
Guarantee fee income
|
|
|
$1,089
|
|
|
$866
|
|
|
$749
|
|
|
|
$223
|
|
26
|
%
|
|
|
$117
|
|
16
|
%
|
n
|
2019 vs. 2018 - Increased primarily due to the continued growth in our multifamily guarantee portfolio, coupled with lower fair value losses on our guarantee asset due to declining interest rates.
|
n
|
2018 vs. 2017 - Increased primarily due to the continued growth in our multifamily guarantee portfolio, partially offset by increased fair value losses on our guarantee asset due to rising interest rates.
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Mortgage loans gains (losses)
|
|
|
$4,744
|
|
|
$746
|
|
|
$2,062
|
|
|
|
$3,998
|
|
536
|
%
|
|
|
($1,316
|
)
|
(64
|
%)
|
Investment securities gains (losses)
|
|
389
|
|
(815
|
)
|
935
|
|
|
1,204
|
|
148
|
|
|
(1,750
|
)
|
(187
|
)
|
|||||
Debt gains (losses)
|
|
201
|
|
720
|
|
151
|
|
|
(519
|
)
|
(72
|
)
|
|
569
|
|
377
|
|
|||||
Derivative gains (losses)
|
|
(4,516
|
)
|
1,270
|
|
(1,988
|
)
|
|
(5,786
|
)
|
(456
|
)
|
|
3,258
|
|
164
|
|
|||||
Investment gains (losses), net
|
|
|
$818
|
|
|
$1,921
|
|
|
$1,160
|
|
|
|
($1,103
|
)
|
(57
|
%)
|
|
|
$761
|
|
66
|
%
|
n
|
Gains (losses) on certain mortgage loan purchase commitments - represents the change in fair value between the commitment date and settlement date for multifamily loan purchase commitments for which we have elected the fair value option.
|
n
|
Gains (losses) on mortgage loans - includes changes in fair value on held-for-sale loans, including loans for which we have elected the fair value option, as well as any gains and losses on the sales of these loans.
|
n
|
Volume of held-for-sale single-family seasoned mortgage loans;
|
n
|
Volume of multifamily loan purchase commitments and mortgage loans for which we have elected the fair value option; and
|
n
|
Changes in interest rates and market spreads.
|
FREDDIE MAC | 2019 Form 10-K
|
|
22
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Gains (losses) on certain loan purchase commitments
|
|
|
$1,913
|
|
|
$777
|
|
|
$1,098
|
|
|
|
$1,136
|
|
146
|
%
|
|
|
($321
|
)
|
(29
|
)%
|
Gains (losses) on mortgage loans
|
|
2,831
|
|
(31
|
)
|
964
|
|
|
2,862
|
|
9,232
|
|
|
(995
|
)
|
(103
|
)
|
|||||
Mortgage loans gains (losses)
|
|
|
$4,744
|
|
|
$746
|
|
|
$2,062
|
|
|
|
$3,998
|
|
536
|
%
|
|
|
($1,316
|
)
|
(64
|
)%
|
n
|
Fair value changes - includes the gains and losses on debt for which we have elected the fair value option, primarily certain STACR debt notes.
|
n
|
Gains (losses) on extinguishment of debt - represents the difference between the consideration paid and the debt carrying value when we purchase debt securities of consolidated trusts as investments in our mortgage-related investments portfolio and when we repurchase or call other debt.
|
n
|
Changes in the market spreads between debt yields and benchmark interest rates and
|
n
|
Amount and type of debt selected for repurchase based on our investment and funding strategies, including our efforts to support the liquidity and price performance of our mortgage-related securities.
|
FREDDIE MAC | 2019 Form 10-K
|
|
23
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Fair value changes:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
CRT-related debt
|
|
|
$105
|
|
|
$140
|
|
|
($212
|
)
|
|
|
($35
|
)
|
(25
|
)%
|
|
|
$352
|
|
166
|
%
|
Non-CRT-related debt
|
|
27
|
|
2
|
|
22
|
|
|
25
|
|
1,250
|
|
|
(20
|
)
|
(91
|
)
|
|||||
Total fair value changes
|
|
132
|
|
142
|
|
(190
|
)
|
|
(10
|
)
|
(7
|
)
|
|
332
|
|
175
|
|
|||||
Gains (losses) on extinguishment of debt
|
|
69
|
|
578
|
|
341
|
|
|
(509
|
)
|
(88
|
)
|
|
237
|
|
70
|
|
|||||
Debt gains (losses)
|
|
|
$201
|
|
|
$720
|
|
|
$151
|
|
|
|
($519
|
)
|
(72
|
)%
|
|
|
$569
|
|
377
|
%
|
n
|
Fair value changes - represents changes in the fair value of our derivatives while not designated in hedging relationships 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 for derivatives while not designated in hedging relationships. 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 rate of interest and receive a variable rate of interest based on a specified notional balance (the notional balance is for calculation purposes only). As interest rates decline, we recognize derivative losses, as the amount of interest we pay remains fixed, and the amount of interest we
|
FREDDIE MAC | 2019 Form 10-K
|
|
24
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
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,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Fair value changes:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest-rate swaps
|
|
|
($3,085
|
)
|
|
$1,422
|
|
|
$626
|
|
|
|
($4,507
|
)
|
(317
|
)%
|
|
|
$796
|
|
127
|
%
|
Option-based derivatives
|
|
188
|
|
(630
|
)
|
(1,041
|
)
|
|
818
|
|
130
|
|
|
411
|
|
39
|
|
|||||
Futures
|
|
(946
|
)
|
57
|
|
144
|
|
|
(1,003
|
)
|
(1,760
|
)
|
|
(87
|
)
|
(60
|
)
|
|||||
Commitments
|
|
(452
|
)
|
606
|
|
(91
|
)
|
|
(1,058
|
)
|
(175
|
)
|
|
697
|
|
766
|
|
|||||
CRT-related derivatives
|
|
(1
|
)
|
(38
|
)
|
(30
|
)
|
|
37
|
|
97
|
|
|
(8
|
)
|
(27
|
)
|
|||||
Other
|
|
52
|
|
(6
|
)
|
(6
|
)
|
|
58
|
|
967
|
|
|
—
|
|
—
|
|
|||||
Total fair value changes
|
|
(4,244
|
)
|
1,411
|
|
(398
|
)
|
|
(5,655
|
)
|
(401
|
)
|
|
1,809
|
|
455
|
|
|||||
Accrual of periodic cash settlements
|
|
(272
|
)
|
(141
|
)
|
(1,590
|
)
|
|
(131
|
)
|
(93
|
)
|
|
1,449
|
|
91
|
|
|||||
Derivative gains (losses)
|
|
|
($4,516
|
)
|
|
$1,270
|
|
|
($1,988
|
)
|
|
|
($5,786
|
)
|
(456
|
)%
|
|
|
$3,258
|
|
164
|
%
|
n
|
2019 vs. 2018 - Decreases in long-term rates during 2019 resulted in derivative fair value losses compared to derivative fair value gains during 2018. The interest rate decreases during 2019 resulted in fair value losses on our pay-fixed interest rate swaps, forward commitments to issue mortgage-related securities, and futures, partially offset by fair value gains on our receive-fixed swaps and certain of our option-based derivatives.
|
n
|
2018 vs. 2017 - Increases in long-term rates during 2018 resulted in derivative fair value gains compared to derivative fair value losses during 2017. The interest rate increases during 2018 resulted in fair value gains on our pay-fixed interest rate swaps, forward commitments to issue mortgage-related securities, and futures, partially offset by fair value losses on our receive-fixed swaps and certain of our option-based derivatives. As a result of the adoption of amended hedge accounting guidance in 4Q 2017, fair value changes on derivatives in qualifying hedge relationships have been recorded within net interest income.
|
n
|
2019 vs. 2018 and 2018 vs. 2017 - Primarily reflected the recognition of a $0.3 billion gain during 2018 from a judgment in litigation against Nomura Holding America, Inc. (Nomura) and $4.5 billion in proceeds received during 2017 from a litigation settlement with the Royal Bank of Scotland Group plc (RBS) related to certain of our non-agency mortgage related securities. See Note 14 for additional information on the Nomura judgment and RBS settlement.
|
FREDDIE MAC | 2019 Form 10-K
|
|
25
|
Management's Discussion and Analysis
|
Consolidated Results of Operations
|
n
|
2019 vs. 2018 - Remained relatively flat due to the strong credit performance of both our single-family and multifamily portfolios.
|
n
|
2018 vs. 2017 - Increased benefit for credit losses during 2018, primarily driven by estimated hurricane-related losses recognized in 2017.
|
n
|
2019 vs. 2018 and 2018 vs. 2017 - Increased primarily due to higher volumes of CRT transactions.
|
n
|
2019 vs. 2018 - Increased primarily due to higher salaries and employee benefits driven by the VERP and higher technology costs.
|
n
|
2018 vs. 2017 - Increased primarily due to higher administrative expense.
|
n
|
2019 vs. 2018 - Decreased primarily due to lower pre-tax income.
|
n
|
2018 vs. 2017 - Decreased due to the impact of the Tax Cuts and Jobs Act enacted in December 2017, which lowered the statutory corporate income tax rate from 35% in 2017 to 21% in 2018 and required us to measure our net deferred tax asset using the reduced rate and recognize a charge to income tax expense of $5.4 billion in 2017.
|
n
|
2019 vs. 2018 - Increased primarily due to fair value gains as long-term interest rates declined, partially offset by fair value losses due to spread widening on our agency mortgage-related securities.
|
n
|
2018 vs. 2017 - Decreased primarily due to higher fair value losses due to increasing long-term interest rates, coupled with smaller spread-related fair value gains driven by lower balances of non-agency mortgage-related securities.
|
FREDDIE MAC | 2019 Form 10-K
|
|
26
|
Management's Discussion and Analysis
|
Consolidated Balance Sheets Analysis
|
|
|
As of December 31,
|
|
Year Over Year Change
|
|||||||||
(Dollars in millions)
|
|
2019
|
2018
|
|
$
|
%
|
|||||||
Assets:
|
|
|
|
|
|
|
|||||||
Cash and cash equivalents
|
|
|
$5,189
|
|
|
$7,273
|
|
|
|
($2,084
|
)
|
(29
|
)%
|
Securities purchased under agreements to resell
|
|
66,114
|
|
34,771
|
|
|
31,343
|
|
90
|
|
|||
Subtotal
|
|
71,303
|
|
42,044
|
|
|
29,259
|
|
70
|
|
|||
Investments in securities, at fair value
|
|
75,711
|
|
69,111
|
|
|
6,600
|
|
10
|
|
|||
Mortgage loans, net
|
|
2,020,200
|
|
1,926,978
|
|
|
93,222
|
|
5
|
|
|||
Accrued interest receivable
|
|
6,848
|
|
6,728
|
|
|
120
|
|
2
|
|
|||
Derivative assets, net
|
|
844
|
|
335
|
|
|
509
|
|
152
|
|
|||
Deferred tax assets, net
|
|
5,918
|
|
6,888
|
|
|
(970
|
)
|
(14
|
)
|
|||
Other assets
|
|
22,799
|
|
10,976
|
|
|
11,823
|
|
108
|
|
|||
Total assets
|
|
|
$2,203,623
|
|
|
$2,063,060
|
|
|
|
$140,563
|
|
7
|
%
|
|
|
|
|
|
|
|
|
||||||
Liabilities and Equity:
|
|
|
|
|
|
|
|
||||||
Liabilities:
|
|
|
|
|
|
|
|
||||||
Accrued interest payable
|
|
|
$6,559
|
|
|
$6,652
|
|
|
|
($93
|
)
|
(1
|
)%
|
Debt, net
|
|
2,179,528
|
|
2,044,950
|
|
|
134,578
|
|
7
|
|
|||
Derivative liabilities, net
|
|
372
|
|
583
|
|
|
(211
|
)
|
(36
|
)
|
|||
Other liabilities
|
|
8,042
|
|
6,398
|
|
|
1,644
|
|
26
|
|
|||
Total liabilities
|
|
2,194,501
|
|
2,058,583
|
|
|
135,918
|
|
7
|
|
|||
Total equity
|
|
9,122
|
|
4,477
|
|
|
4,645
|
|
104
|
|
|||
Total liabilities and equity
|
|
|
$2,203,623
|
|
|
$2,063,060
|
|
|
|
$140,563
|
|
7
|
%
|
n
|
Cash and cash equivalents and securities purchased under agreements to resell increased on a combined basis primarily due to higher loan prepayments, coupled with higher near-term cash needs for upcoming debt maturities and anticipated calls of other debt and a higher expected loan purchase forecast.
|
n
|
Other assets increased primarily due to higher servicer receivables driven by an increase in mortgage loan payoffs reported but not yet remitted at the end of 4Q 2019 and a change in our servicing cycle in 2Q 2019 related to the implementation of Release 2 of the CSP and the Single Security Initiative.
|
n
|
Total equity increased primarily as a result of our ability to retain earnings as a result of an increase in the applicable Capital Reserve Amount from $3.0 billion to $20.0 billion pursuant to the September 2019 Letter Agreement.
|
FREDDIE MAC | 2019 Form 10-K
|
|
27
|
Management's Discussion and Analysis
|
Our Business Segments | Segment Earnings
|
Segment/Category
|
Description
|
|
Single-family Guarantee
|
Reflects results from our purchase, securitization, and guarantee of single-family loans and the management of single-family mortgage credit risk
|
|
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 risk
|
|
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), single-family securitization activities, and treasury function, which includes interest-rate risk management for the company
|
|
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
|
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, funding and hedging 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 | 2019 Form 10-K
|
|
28
|
Management's Discussion and Analysis
|
Our Business Segments | Segment Earnings
|
FREDDIE MAC | 2019 Form 10-K
|
|
29
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
n
|
Maintaining strong financial and capital management and identifying growth opportunities;
|
n
|
Positioning our business model to produce attractive, sustainable returns while preserving strong risk management discipline;
|
n
|
Utilizing efficient and resilient operations to run our business, serve our clients, and fulfill our mission;
|
n
|
Continuing to create innovative structures to cost-effectively transfer credit risk to third-party investors;
|
n
|
Leveraging technology, processes, policies, and data to ensure we have a stable, flexible ecosystem that can evolve as we evolve;
|
n
|
Identifying and implementing new and creative ways to support fair access to credit in a safe, sound, and responsible manner; and
|
n
|
Maintaining a high performing, inclusive, and diverse workforce striving to achieve our mission and realize our vision of becoming the leader in housing.
|
FREDDIE MAC | 2019 Form 10-K
|
|
30
|
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 security to provide for a uniform coupon rate for the mortgage pool underlying the security. The payments made to buy-up the monthly contractual guarantee fee are allocated to the Capital Markets segment;
|
n
|
Market adjusted pricing costs based on the market pricing of our securities relative to the market pricing of comparable Fannie Mae securities primarily for loans acquired prior to implementation of the Single Security Initiative in June 2019. We have not employed market adjusted pricing for new acquisitions following implementation, as the Single Security Initiative is designed to enhance the overall liquidity of Freddie Mac and Fannie Mae securities in the TBA market by supporting their fungibility without regard to which company is the issuer; and
|
n
|
The legislated 10 basis point increase in guarantee fees under the Temporary Payroll Tax Cut Continuation Act of 2011.
|
FREDDIE MAC | 2019 Form 10-K
|
|
31
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
n
|
UMBS - Single-class pass-through securities with a 55-day payment delay for TBA-eligible fixed-rate mortgage loans. We began issuing UMBS for all TBA-eligible fixed-rate mortgage loans on June 3, 2019.
|
n
|
55-day MBS - Single-class pass-through securities with a 55-day payment delay for non-TBA-eligible fixed-rate mortgage loans. We began issuing 55-day MBS for all non-TBA-eligible fixed-rate mortgage loans on June 3, 2019.
|
n
|
PCs
|
l
|
Gold PCs - Single-class pass-through securities with a 45-day payment delay that we issued for fixed-rate mortgage loans prior to June 3, 2019. With the implementation of Release 2 of the CSP and the Single Security Initiative, we no longer issue Gold PCs. Existing Gold PCs that are not entirely resecuritized are eligible for exchange into UMBS (for TBA-eligible securities) or 55-day MBS (for non-TBA-eligible securities).
|
l
|
ARM PCs - Single-class pass-through securities with a 75-day payment delay for ARM products. Implementation of Release 2 of the CSP and the Single Security Initiative did not affect our ARM PC offerings.
|
FREDDIE MAC | 2019 Form 10-K
|
|
32
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
FREDDIE MAC | 2019 Form 10-K
|
|
33
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
n
|
Single-class resecuritization products - Involve the direct pass-through of all cash flows of the underlying collateral to the beneficial interest holders and include:
|
l
|
Supers - Resecuritizations of UMBS and certain other mortgage securities. This structure allows commingling of Freddie Mac and Fannie Mae collateral, where newly issued or exchanged UMBS and Supers issued by us or Fannie Mae may be commingled to back Supers issued by us or Fannie Mae. Supers can be backed by:
|
–
|
UMBS and/or other Supers issued by us or Fannie Mae;
|
–
|
Existing TBA-eligible Fannie Mae "MBS" and/or "Megas"; and/or
|
–
|
UMBS and Supers that we have issued in exchange for TBA-eligible PCs and Giant PCs that have been delivered to us in response to our exchange offer.
|
FREDDIE MAC | 2019 Form 10-K
|
|
34
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
l
|
Giant MBS - Resecuritizations of:
|
–
|
Newly issued 55-day MBS and/or Giant MBS; and/or
|
–
|
55-day MBS and/or Giant MBS that we have issued in exchange for non-TBA-eligible PCs and non-TBA-eligible Giant PCs that have been delivered to us in response to our exchange offer.
|
l
|
Giant PCs - Resecuritizations of previously issued PCs or Giant PCs. Although we no longer issue Gold PCs, existing Gold PCs may continue to be resecuritized into Giant PCs. In addition, ARM PCs may continue to be resecuritized into ARM Giant PCs. Fixed-rate Giant PCs are eligible for exchange into Supers (for TBA-eligible securities) or Giant MBS (for non-TBA-eligible securities).
|
n
|
Multiclass resecuritization products
|
l
|
REMICs - Resecuritizations of previously issued mortgage securities that divide all cash flows of the underlying collateral into two or more classes of varying maturities, payment priorities, and coupons. This structure allows commingling of TBA-eligible Freddie Mac and Fannie Mae collateral.
|
l
|
Strips - Resecuritizations of previously issued Level 1 Securitization Products or single-class resecuritization products and issuance of stripped securities, including principal-only and interest-only securities or floating rate and inverse floating rate securities, backed by the cash flows from the underlying collateral. This structure allows commingling of TBA-eligible Freddie Mac and Fannie Mae collateral.
|
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 our mortgage-related securities and
|
|
|
|
|
•
|
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.
|
n
|
Minimize changes required of, and effects on, sellers and servicers by having Freddie Mac serve as the credit manager for investors; and
|
FREDDIE MAC | 2019 Form 10-K
|
|
35
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
FREDDIE MAC | 2019 Form 10-K
|
|
36
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
FREDDIE MAC | 2019 Form 10-K
|
|
37
|
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, net of reinvestment income;
|
|
|
|
|
•
|
Fair value gains and losses recognized on certain CRT transactions;
|
|
|
|
|
•
|
Expenses to transfer credit risk for certain CRT transactions; and
|
|
|
|
|
•
|
Benefits recognized from recoveries under certain CRT transactions.
|
|
|
n
|
Senior subordinate securitization structures backed by seasoned loans (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. Unlike senior subordinate securitization transactions backed by recently originated mortgage loans, in these transactions the loans are not serviced in accordance with our Guide and we do not control the servicing.
|
n
|
Level 1 Securitization Products - We securitize reperforming loans using Level 1 Securitization Products through a similar process to that discussed above. We may subsequently resecuritize a portion of the guaranteed securities, with some of the resulting interests being sold to third parties. Our use of this strategy has declined over time, with our primary strategy now utilizing our senior subordinate securitization structures.
|
n
|
Whole loan sales - Sales of seriously delinquent loans for cash.
|
The primary impacts of the aforementioned products and transactions to Segment Earnings are:
|
|
|
|
•
|
Gains and losses recognized on the reclassification of loans held-for-investment to held-for-sale and subsequent sale of these loans.
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
38
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
FREDDIE MAC | 2019 Form 10-K
|
|
39
|
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 18.8 million single-family homes since January 1, 2009 and purchased approximately 1.4 million HARP loans since the initiative began in 2009. HARP was replaced by the Enhanced Relief Refinance program in 2019. Our loan purchase and guarantee activity increased in 2019 compared to 2018 primarily due to an increase in refinance activity as a result of lower average mortgage interest rates.
|
n
|
The average guarantee fee rate charged on new acquisitions recognizes upfront fee income, including the expected gains (losses) from buy-up fees, over the estimated life of the related loans using our expectations of prepayments and other liquidations. See Single-Family Guarantee - Business Overview - Guarantee Fees for more information on our guarantee fees. The average guarantee fee rate charged on new acquisitions increased in 2019 compared to 2018 primarily due to an enhancement in our estimation methodology related to recognition of buy-up fees in 2Q 2019.
|
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 157,000 loans under these initiatives in 2019. 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 and mortgage industry professionals.
|
FREDDIE MAC | 2019 Form 10-K
|
|
40
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
n
|
The single-family credit guarantee portfolio increased during 2019 by approximately 5%, driven by an increase in U.S. single-family mortgage debt outstanding as a result of continued home price appreciation. New business acquisitions had a higher average loan size compared to older vintages that continued to run off.
|
n
|
The core single-family loan portfolio grew to 85% of the single-family credit guarantee portfolio at December 31, 2019 compared to 82% at December 31, 2018.
|
n
|
The legacy and relief refinance single-family loan portfolio declined to 15% of the single-family credit guarantee portfolio at December 31, 2019 compared to 18% at December 31, 2018.
|
n
|
The average portfolio Segment Earnings guarantee fee rate recognizes upfront fee income over the contractual life of the related loans (usually 30 years). If the related loans prepay, the remaining upfront fee is recognized immediately. The effect of prepayments may be offset by our upfront fee hedging activities. See Single-Family Guarantee - Business Overview - Guarantee Fees for more information on our guarantee fees and Note 13 for more information on the effect of our upfront fee hedging activities on Segment Earnings.
|
n
|
The average portfolio Segment Earnings guarantee fee rate was 40 bps, 35 bps, and 36 bps at December 31, 2019, December 31, 2018, and December 31, 2017, respectively, excluding the legislated 10 basis point increase in guarantee fees. The rate increased in 2019 compared to 2018 due to an increase in the recognition of upfront fees, net of hedging, driven by a higher prepayment rate and an increase in contractual guarantee fees as older vintages were replaced by acquisitions of new loans with higher contractual guarantee fees.
|
FREDDIE MAC | 2019 Form 10-K
|
|
41
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
|
|
Issuance for the Year Ended
December 31, 2019
|
|
Issuance for the Year Ended
December 31, 2018
|
||||||||||||||||||||||
|
|
Protected UPB(1)
|
Maximum Coverage(2)
|
|
Protected UPB(1)
|
Maximum Coverage(2)
|
||||||||||||||||||||
(In millions)
|
|
Total
|
First Loss(3)
|
Mezzanine
|
Total
|
|
Total
|
First Loss(3)
|
Mezzanine
|
Total
|
||||||||||||||||
STACR
|
|
|
$203,239
|
|
|
$2,106
|
|
|
$4,565
|
|
|
$6,671
|
|
|
|
$243,007
|
|
|
$1,893
|
|
|
$5,042
|
|
|
$6,935
|
|
Insurance/reinsurance
|
|
210,650
|
|
864
|
|
1,823
|
|
2,687
|
|
|
270,084
|
|
834
|
|
2,306
|
|
3,140
|
|
||||||||
Subordination
|
|
11,197
|
|
719
|
|
947
|
|
1,666
|
|
|
30,911
|
|
746
|
|
1,238
|
|
1,984
|
|
||||||||
Lender risk-sharing
|
|
19,328
|
|
911
|
|
580
|
|
1,491
|
|
|
10,940
|
|
—
|
|
345
|
|
345
|
|
||||||||
Less: UPB with more than one type of CRT activity
|
|
(181,738
|
)
|
—
|
|
—
|
|
—
|
|
|
(219,072
|
)
|
—
|
|
—
|
|
—
|
|
||||||||
Total CRT Activities
|
|
|
$262,676
|
|
|
$4,600
|
|
|
$7,915
|
|
|
$12,515
|
|
|
|
$335,870
|
|
|
$3,473
|
|
|
$8,931
|
|
|
$12,404
|
|
(1)
|
For STACR and certain insurance/reinsurance transactions (e.g., ACIS), represents the UPB of the assets included in the reference pool. For other insurance/reinsurance transactions, represents the UPB of the assets covered by the insurance policy. For subordination, represents the UPB of the guaranteed securities, which represents the UPB of the assets included in the trust net of the protection provided by the subordinated securities.
|
(2)
|
For STACR transactions, represents the balance held by third parties at issuance. For insurance/reinsurance transactions, represents the aggregate limit of insurance purchased from third parties at issuance. For subordination, represents the UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.
|
(3)
|
First loss includes the most subordinate securities (i.e., B tranches) in our STACR Trust notes and their equivalent in ACIS and other CRT transactions.
|
n
|
We continue to help struggling families retain their homes or otherwise avoid foreclosure through loan workouts. The reduced level of loan workout activity in 2019 compared to 2018 was primarily driven by elevated loan workout activity in 2018 as a result of the hurricanes that occurred in late 2017.
|
FREDDIE MAC | 2019 Form 10-K
|
|
42
|
Management's Discussion and Analysis
|
Our Business Segments | Single-Family Guarantee
|
n
|
As part of our strategy to mitigate losses and reduce our holdings of less liquid assets, we pursue sales of seriously delinquent and reperforming loans when we believe the sale of these loans provides better economic returns than continuing to hold them. See Risk Management - Single-Family Mortgage Credit Risk - Engaging in Loss Mitigation Activities for more information on our loss mitigation activities.
|
n
|
The relief refinance program has been replaced with the Enhanced Relief Refinance program, which became 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. While the HARP program ended in December 2018, we continued to purchase HARP loans with application received dates on or prior to December 31, 2018 through September 30, 2019.
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Guarantee fee income
|
|
|
$7,773
|
|
|
$6,581
|
|
|
$6,363
|
|
|
|
$1,192
|
|
18
|
%
|
|
|
$218
|
|
3
|
%
|
Investment gains (losses), net
|
|
964
|
|
307
|
|
116
|
|
|
657
|
|
214
|
|
|
191
|
|
165
|
|
|||||
Other income (loss)
|
|
391
|
|
841
|
|
896
|
|
|
(450
|
)
|
(54
|
)
|
|
(55
|
)
|
(6
|
)
|
|||||
Net revenues
|
|
9,128
|
|
7,729
|
|
7,375
|
|
|
1,399
|
|
18
|
|
|
354
|
|
5
|
|
|||||
Benefit (provision) for credit losses
|
|
418
|
|
448
|
|
(177
|
)
|
|
(30
|
)
|
(7
|
)
|
|
625
|
|
353
|
|
|||||
Credit enhancement expense
|
|
(1,393
|
)
|
(1,077
|
)
|
(891
|
)
|
|
(316
|
)
|
(29
|
)
|
|
(186
|
)
|
(21
|
)
|
|||||
REO operations expense
|
|
(245
|
)
|
(189
|
)
|
(203
|
)
|
|
(56
|
)
|
(30
|
)
|
|
14
|
|
7
|
|
|||||
Credit-related expense
|
|
(1,220
|
)
|
(818
|
)
|
(1,271
|
)
|
|
(402
|
)
|
(49
|
)
|
|
453
|
|
36
|
|
|||||
Administrative expense
|
|
(1,647
|
)
|
(1,491
|
)
|
(1,381
|
)
|
|
(156
|
)
|
(10
|
)
|
|
(110
|
)
|
(8
|
)
|
|||||
Other expense
|
|
(786
|
)
|
(568
|
)
|
(516
|
)
|
|
(218
|
)
|
(38
|
)
|
|
(52
|
)
|
(10
|
)
|
|||||
Operating expense
|
|
(2,433
|
)
|
(2,059
|
)
|
(1,897
|
)
|
|
(374
|
)
|
(18
|
)
|
|
(162
|
)
|
(9
|
)
|
|||||
Segment Earnings before income tax expense
|
|
5,475
|
|
4,852
|
|
4,207
|
|
|
623
|
|
13
|
|
|
645
|
|
15
|
|
|||||
Income tax expense
|
|
(1,110
|
)
|
(944
|
)
|
(1,448
|
)
|
|
(166
|
)
|
(18
|
)
|
|
504
|
|
35
|
|
|||||
Segment Earnings, net of taxes
|
|
4,365
|
|
3,908
|
|
2,759
|
|
|
457
|
|
12
|
|
|
1,149
|
|
42
|
|
|||||
Total other comprehensive income (loss), net of tax
|
|
(22
|
)
|
(3
|
)
|
40
|
|
|
(19
|
)
|
(633
|
)
|
|
(43
|
)
|
(108
|
)
|
|||||
Total comprehensive income (loss)
|
|
|
$4,343
|
|
|
$3,905
|
|
|
$2,799
|
|
|
|
$438
|
|
11
|
%
|
|
|
$1,106
|
|
40
|
%
|
n
|
2019 vs. 2018
|
l
|
Higher guarantee fee income primarily due to increased upfront fee amortization income driven by higher prepayments and continued growth in our single-family credit guarantee portfolio.
|
l
|
Higher investment gains primarily due to higher realized gains on a higher volume of sales of, and lower unrealized lower-of-cost-or-fair-value losses related to, single-family held-for-sale loans.
|
l
|
Lower other income primarily due to higher non-cash premium/discount amortization expense driven by timing differences between liquidations of the loans and liquidations of the securities backed by these loans.
|
l
|
Higher credit enhancement expense primarily due to higher outstanding cumulative volumes of CRT transactions.
|
n
|
2018 vs. 2017
|
l
|
Higher guarantee fee income due to continued growth in our single-family credit guarantee portfolio and increased credit fee/buy-down short-term returns.
|
l
|
Higher investment gains primarily driven by fair value gains on STACR debt notes as a result of spread widening.
|
l
|
Increased benefit for credit losses primarily driven by estimated losses from the hurricanes in 2017.
|
l
|
Higher credit enhancement expense primarily due to higher outstanding cumulative volumes of CRT transactions.
|
FREDDIE MAC | 2019 Form 10-K
|
|
43
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
n
|
Improving our risk-adjusted returns by leveraging private capital in our risk transfer transactions;
|
n
|
Identifying new opportunities beyond our existing K Certificate and SB Certificate transactions to cost-effectively transfer risk to third parties and reduce taxpayer exposure;
|
n
|
Maintaining strong credit and capital management discipline;
|
n
|
Operating in a customer focused manner to build business value and support the creation of a strong, long-lasting rental housing system;
|
n
|
Leveraging technology to make the multifamily loan process more efficient industry-wide;
|
n
|
Fostering innovation through the development of products that expand the availability of workforce housing in the marketplace; and
|
n
|
Continuing to provide financing to the multifamily mortgage market and expanding our market presence for workforce housing in line with our mission.
|
FREDDIE MAC | 2019 Form 10-K
|
|
44
|
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, senior housing loans, student housing loans, supplemental loans, and certain Green Advantage loans.
|
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 affordable or workforce housing 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 AMI) and very-low income (earning up to 50% of AMI) and that typically receive government subsidies.
|
The primary impact to Segment Earnings is:
|
|
|
|
•
|
Fair value gains or losses recognized on interest-rate derivatives. These gains or losses are generally offset once an index lock commitment becomes a loan purchase commitment and is accounted for at fair value.
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
45
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
The primary impacts to Segment Earnings are:
|
|
|
|
•
|
At the commitment date, we recognize the estimated fair value of the held-for-sale commitments where we elected the fair value option;
|
|
|
|
|
•
|
After the commitment date, but prior to purchase, we recognize changes in the fair value of commitments where we elected the fair value option. These fair value adjustments result from changes in the expected pricing of our securitizations due to changes in interest rates and securitization market spreads;
|
|
|
|
|
•
|
Fair value gains or losses recognized on interest-rate derivatives. These changes generally offset interest-rate related fair value changes on the loan purchase commitments; and
|
|
|
•
|
Fair value gains or losses recognized on spread-related derivatives. These changes may offset spread-related fair value changes on the loan purchase commitments.
|
|
|
The primary impacts to Segment Earnings are:
|
|
|
|
•
|
During the holding period, we generally recognize changes in the fair value of loans classified as held-for-sale. These fair value adjustments result from changes in the expected pricing of our securitizations due to changes in interest rates and securitization market spreads;
|
|
|
|
|
•
|
Fair value gains or losses recognized on interest-rate derivatives. These changes generally offset interest-rate related fair value changes on the loans;
|
|
|
|
|
•
|
Fair value gains or losses recognized on spread-related derivatives. These changes may offset spread-related fair value changes on the loans; and
|
|
|
|
|
•
|
Interest income on loans while held in our mortgage-related investments portfolio.
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
46
|
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 offers investors 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 45 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, while we may purchase a portion of the senior securities, we generally do not place those securities into a Freddie Mac trust. The guarantee fee we receive in these transactions is generally 35 basis points.
|
FREDDIE MAC | 2019 Form 10-K
|
|
47
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
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 moderate-income multifamily loans.
|
n
|
MCIP - We purchase insurance coverage underwritten by a group of insurers and/or reinsurers that generally provide first loss and/or mezzanine loss credit protection. These transactions are similar in structure to the ACIS contracts purchased by the Single-family Guarantee segment, except the reference pool, in addition to loans, may include bonds underlying our other mortgage-related guarantees. 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.
|
n
|
SCR notes - Through the issuance of our SCR notes, which are unsecured and unguaranteed corporate debt obligations, we transfer to third parties a portion of the credit risk of the loans underlying certain of our consolidated other securitizations and certain of our other mortgage-related guarantees. The interest we pay on our SCR notes effectively reduces the guarantee fee income we would otherwise earn on the other mortgage-related guarantees. SCR notes are generally similar in structure to our Single-family Guarantee segment's STACR debt notes.
|
n
|
Mortgage loans - We hold a portfolio of multifamily loans as part of a buy-and-hold investment strategy. However, this strategy is not part of our primary business model.
|
n
|
Mortgage-related securities - Depending on market conditions and our business strategy, we may purchase or sell guaranteed K Certificates or SB Certificates at issuance or in the secondary market.
|
n
|
Other investments - We invest in certain non-mortgage investments, including LIHTC partnerships and other secured lending activities. 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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
48
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
FREDDIE MAC | 2019 Form 10-K
|
|
49
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
n
|
In 3Q 2019, FHFA announced a revised loan purchase cap structure for the multifamily business. The loan purchase cap will be $100.0 billion for the five-quarter period from 4Q 2019 through 4Q 2020 and applies to all multifamily business activity, with no exclusions. To ensure a strong focus on affordable housing and traditionally underserved markets, at least 37.5% of the new multifamily business must be mission-driven, affordable housing over the same five-quarter period.
|
n
|
During 4Q 2019, our total new business activity subject to the new cap was $17.5 billion. Approximately 36% of this activity was mission-driven, affordable housing. Furthermore, during 2019, we continued our support of workforce housing through our continued purchases of manufactured housing community loans and small balance loans.
|
n
|
Outstanding commitments, including index lock commitments and commitments to purchase or guarantee multifamily assets, were $14.6 billion and $18.7 billion as of December 31, 2019 and December 31, 2018, respectively.
|
n
|
Our new business activity was slightly higher for 2019 than 2018 due to continued strong demand for multifamily financing and healthy multifamily market fundamentals driving continued growth in overall multifamily mortgage debt outstanding.
|
n
|
The portion of our new mortgage loan purchase activity that was classified as held-for-sale and intended for our securitization pipeline decreased to 87% in 2019 from 93% in 2018 due to an increase in the issuance of fully guaranteed and consolidated other securitizations as we continued to refine the disposition path for certain loan products. The purchase activity that remained in our securitization pipeline as of December 31, 2019, combined with market demand for our securities, will be a driver for our primary securitizations in the first two quarters of 2020.
|
FREDDIE MAC | 2019 Form 10-K
|
|
50
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
n
|
Total securitization UPB increased during 2019 compared to 2018, primarily due to a higher volume of fully guaranteed other securitizations.
|
n
|
Approximately 90% and 91% of total securitization UPB related to our primary securitizations during 2019 and 2018, respectively.
|
n
|
The average guarantee fee rate on new guarantee contracts increased slightly during 2019 compared to 2018, primarily driven by a higher volume of fully guaranteed other securitizations that have higher negotiated guarantee fee rates due to the lack of structural subordination.
|
n
|
In addition to the credit risk we transferred to third parties through our securitizations, we obtained credit protection up to $0.2 billion and $0.1 billion on $3.0 billion and $1.8 billion of UPB through our other CRT products and loss sharing arrangements during 2019 and 2018, respectively.
|
n
|
We further reduced our risk exposure through loan sales to whole loan funds of $2.6 billion and $1.3 billion in UPB during 2019 and 2018, respectively.
|
FREDDIE MAC | 2019 Form 10-K
|
|
51
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
(In millions)
|
|
December 31, 2019
|
December 31, 2018
|
||||
Guarantee portfolio:
|
|
|
|
||||
Primary securitizations
|
|
|
$240,134
|
|
|
$210,419
|
|
Other securitizations
|
|
20,205
|
|
16,499
|
|
||
Other mortgage-related guarantees
|
|
10,514
|
|
10,405
|
|
||
Total guarantee portfolio
|
|
270,853
|
|
237,323
|
|
||
Mortgage-related investments portfolio:
|
|
|
|
||||
Unsecuritized mortgage loans held-for-sale
|
|
18,954
|
|
23,959
|
|
||
Unsecuritized mortgage loans held-for-investment
|
|
10,831
|
|
10,828
|
|
||
Mortgage-related securities(1)
|
|
5,889
|
|
7,385
|
|
||
Total mortgage-related investments portfolio
|
|
35,674
|
|
42,172
|
|
||
Other investments(2)
|
|
2,945
|
|
708
|
|
||
Total multifamily portfolio
|
|
309,472
|
|
280,203
|
|
||
Add: Unguaranteed securities(3)
|
|
40,666
|
|
35,835
|
|
||
Less: Acquired mortgage-related securities(4)
|
|
(5,709
|
)
|
(7,160
|
)
|
||
Total multifamily market support
|
|
|
$344,429
|
|
|
$308,878
|
|
(1)
|
Includes mortgage-related securities acquired by us from our securitizations.
|
(2)
|
Includes the carrying value of LIHTC investments and the UPB of non-mortgage loans, including financing provided to whole loan funds.
|
(3)
|
Reflects the UPB of unguaranteed securities issued as part of our securitizations and amounts related to loans sold to whole loan funds that were not financed by Freddie Mac.
|
(4)
|
Reflects the UPB of mortgage-related securities that were both issued as part of our securitizations and acquired by us. This UPB must be removed from the mortgage-related securities balance to avoid double-counting the exposure, as it is already reflected within the guarantee portfolio or unguaranteed securities.
|
n
|
Our total multifamily portfolio increased during 2019, primarily due to our strong loan purchase and securitization activity. We expect continued growth in our total portfolio in 2020 as purchase and securitization activities should outpace run off.
|
n
|
At December 31, 2019, approximately 75% of our held-for-sale loans were fixed-rate, while the remaining 25% were floating-rate.
|
n
|
As of December 31, 2019, we had cumulatively transferred the large majority of expected and stress credit risk on the multifamily guarantee portfolio primarily through subordination in our securitizations. In addition, nearly all of our securitization activities shifted substantially all of the interest-rate and liquidity risk associated with the underlying collateral away from Freddie Mac to third-party investors.
|
n
|
We earn guarantee fees in exchange for providing our guarantee of some or all of the securities we issue as part of our securitizations. The average guarantee fee rate that we earn on our guarantee portfolio was 37 bps, and the average remaining guarantee term was eight years, as of both December 31, 2019 and December 31, 2018. While we expect to earn future guarantee fees at the average guarantee fee rate over the average remaining guarantee term, the actual amount earned will depend on the performance of the underlying collateral subject to our financial guarantee.
|
FREDDIE MAC | 2019 Form 10-K
|
|
52
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
n
|
2019 vs. 2018
|
l
|
Net interest yield increased primarily due to a higher yield and higher prepayment income received from mortgage-related securities, coupled with lower funding costs on our held-for-sale mortgage loans driven by lower interest rates.
|
l
|
The weighted average investment portfolio balance of interest-earning assets decreased due to a reduction of our unsecuritized held-for-investment loans as we securitized more of these loans into fully guaranteed and consolidated other securitizations.
|
n
|
2018 vs. 2017
|
l
|
Net interest yield increased primarily due to higher prepayment income received from mortgage-related securities, coupled with an increase in our interest-only security holdings which generally have higher yields relative to our non-interest-only securities and loans, partially offset by higher average funding costs on our held-for-sale mortgage loans driven by higher interest rates.
|
FREDDIE MAC | 2019 Form 10-K
|
|
53
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
n
|
The valuation of our securitization pipeline and held-for-sale commitments for which we have elected the fair value option, along with the profitability of our primary securitization product, the K Certificate, are affected by both changes in K Certificate benchmark spreads and 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. Spread tightening generally results in fair value gains, while spread widening generally results in fair value losses.
|
n
|
K Certificate benchmark spreads generally tightened during 2019, primarily resulting in spread-related fair value gains on our held-for-sale mortgage loans and commitments.
|
FREDDIE MAC | 2019 Form 10-K
|
|
54
|
Management's Discussion and Analysis
|
Our Business Segments | Multifamily
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Net interest income
|
|
|
$1,069
|
|
|
$1,096
|
|
|
$1,206
|
|
|
|
($27
|
)
|
(2
|
)%
|
|
|
($110
|
)
|
(9
|
)%
|
Guarantee fee income
|
|
1,101
|
|
861
|
|
750
|
|
|
240
|
|
28
|
|
|
111
|
|
15
|
|
|||||
Investment gains (losses), net
|
|
576
|
|
16
|
|
1,516
|
|
|
560
|
|
3,500
|
|
|
(1,500
|
)
|
(99
|
)
|
|||||
Other income (loss)
|
|
108
|
|
129
|
|
75
|
|
|
(21
|
)
|
(16
|
)
|
|
54
|
|
72
|
|
|||||
Net revenues
|
|
2,854
|
|
2,102
|
|
3,547
|
|
|
752
|
|
36
|
|
|
(1,445
|
)
|
(41
|
)
|
|||||
Credit-related expense
|
|
(18
|
)
|
9
|
|
(30
|
)
|
|
(27
|
)
|
(300
|
)
|
|
39
|
|
130
|
|
|||||
Administrative expense
|
|
(503
|
)
|
(437
|
)
|
(395
|
)
|
|
(66
|
)
|
(15
|
)
|
|
(42
|
)
|
(11
|
)
|
|||||
Other expense
|
|
(41
|
)
|
(36
|
)
|
(48
|
)
|
|
(5
|
)
|
(14
|
)
|
|
12
|
|
25
|
|
|||||
Operating expense
|
|
(544
|
)
|
(473
|
)
|
(443
|
)
|
|
(71
|
)
|
(15
|
)
|
|
(30
|
)
|
(7
|
)
|
|||||
Segment Earnings before income tax expense
|
|
2,292
|
|
1,638
|
|
3,074
|
|
|
654
|
|
40
|
|
|
(1,436
|
)
|
(47
|
)
|
|||||
Income tax expense
|
|
(465
|
)
|
(319
|
)
|
(1,060
|
)
|
|
(146
|
)
|
(46
|
)
|
|
741
|
|
70
|
|
|||||
Segment Earnings, net of taxes
|
|
1,827
|
|
1,319
|
|
2,014
|
|
|
508
|
|
39
|
|
|
(695
|
)
|
(35
|
)
|
|||||
Total other comprehensive income (loss), net of tax
|
|
101
|
|
(83
|
)
|
(77
|
)
|
|
184
|
|
222
|
|
|
(6
|
)
|
(8
|
)
|
|||||
Total comprehensive income (loss)
|
|
|
$1,928
|
|
|
$1,236
|
|
|
$1,937
|
|
|
|
$692
|
|
56
|
%
|
|
|
($701
|
)
|
(36
|
)%
|
n
|
2019 vs. 2018
|
l
|
Net interest income remained relatively flat.
|
l
|
Increase in guarantee fee income primarily driven by continued growth in our multifamily guarantee portfolio, coupled with lower fair value losses on our guarantee asset due to declining interest rates.
|
l
|
Higher investment gains (net of other comprehensive income) primarily driven by higher fair value gains on held-for-sale commitments due to targeted price increases related to changing market conditions and spread tightening.
|
n
|
2018 vs. 2017
|
l
|
Lower net interest income due to a decline in our weighted average portfolio balance of interest-earning assets, partially offset by higher net interest yields on an increased balance of interest-only securities.
|
l
|
Higher guarantee fee income due to continued growth in our multifamily guarantee portfolio, partially offset by lower average guarantee fee rates on new guarantee business volume and increased fair value losses on our guarantee asset due to rising interest rates.
|
l
|
Shift to investment losses (net of other comprehensive income) due to spread widening on mortgage loans and commitments and mortgage-related securities, coupled with lower fair value gains on held-for-sale commitments due to targeted price decreases related to our business strategy.
|
FREDDIE MAC | 2019 Form 10-K
|
|
55
|
Management's Discussion and Analysis
|
Our Business Segments | Capital Markets
|
n
|
Managing the mortgage-related investments portfolio's risk-versus-return profile using our internal economic framework;
|
n
|
Distributing a portion of securitized loans from our cash purchase program through the investment portfolio;
|
n
|
Engaging in economically sensible transactions to reduce our less liquid assets;
|
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;
|
n
|
Attempting to align prepayment profiles for Freddie Mac TBA programs with Fannie Mae's TBA characteristics; and
|
n
|
Delivering mortgage capital markets services, including our cash loan purchase program, in conjunction with the Single-family Guarantee segment.
|
n
|
Agency mortgage-related securities - We primarily invest in Freddie Mac mortgage-related securities and may also invest in Fannie Mae and Ginnie Mae mortgage-related securities from time to time. Our activities with respect to these products 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
|
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 most of the loans acquired through our cash loan purchase program into Freddie Mac mortgage-related securities, 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 our consolidated trusts - Certain of these loans may reperform, either on their own or through modification. Reperforming loans are managed by both the Capital Markets and Single-family Guarantee segments, but are included in the Capital Markets segment's financial
|
FREDDIE MAC | 2019 Form 10-K
|
|
56
|
Management's Discussion and Analysis
|
Our Business Segments | Capital Markets
|
n
|
Other investments 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) investments used to pledge as collateral, and (iv) secured lending activities.
|
n
|
Non-agency mortgage-related securities - We generally no longer purchase non-agency mortgage-related securities, and have minimal investments in such securities from our acquisitions in prior years. Our activities with respect to this product are primarily sales. However, we may acquire such securities in connection with our senior subordinate securitization structures backed by seasoned loans. In recent years, we and FHFA reached settlements with a number of institutions to mitigate or recover losses we recognized in prior years.
|
The primary impacts to Segment Earnings are:
|
|
|
|
•
|
Interest income on agency and non-agency mortgage-related securities, unsecuritized loans, and our other investments 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 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);
|
|
|
|
|
•
|
Amortization of cost basis adjustments, such as net amortization of loans from our cash purchase program and related debt securities in consolidated trusts and hedge accounting related basis adjustments; 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;
|
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).
|
FREDDIE MAC | 2019 Form 10-K
|
|
57
|
Management's Discussion and Analysis
|
Our Business Segments | Capital Markets
|
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 generally 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.
|
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 | 2019 Form 10-K
|
|
58
|
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 changes in the 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 | 2019 Form 10-K
|
|
59
|
Management's Discussion and Analysis
|
Our Business Segments | Capital Markets
|
n
|
The balance of our mortgage investments portfolio remained relatively flat from December 31, 2018 to December 31, 2019. See Conservatorship and Related Matters - Managing Our Mortgage-Related Investments Portfolio Over Time for additional details.
|
n
|
The balance of our other investments portfolio increased 61.5% primarily due to a higher consolidated trusts account balance driven by higher loan prepayments, coupled with higher near-term cash needs for upcoming maturities and anticipated calls of other debt, and a higher expected loan purchase forecast.
|
n
|
The overall liquidity of our mortgage investments portfolio continued to improve as our less liquid assets decreased during 2019. The percentage of less liquid assets relative to our total mortgage investments portfolio declined from 26.6% at December 31, 2018 to 17.9% at December 31, 2019, primarily due to repayments, securitizations, and sales.
|
n
|
We continue to participate in transactions that support the development of SOFR as an alternate rate to LIBOR. These transactions include investment in and issuance of SOFR indexed floating-rate debt securities and execution of SOFR indexed derivatives.
|
FREDDIE MAC | 2019 Form 10-K
|
|
60
|
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 2019, our sales of less liquid assets included $12.9 billion in UPB of reperforming loans using our senior subordinate securitization structures. As part of these transactions, we retained certain of the guaranteed senior securities for our mortgage-related investments portfolio. We also sold $0.5 billion of non-agency mortgage-related securities.
|
n
|
In 2018 and 2017, we securitized $1.6 billion and $1.2 billion, respectively, of reperforming loans into Level 1 Securitization Products. We did not execute any such transactions in 2019, as our use of this strategy has declined over time with our primary strategy now utilizing senior subordinate securitization structures.
|
FREDDIE MAC | 2019 Form 10-K
|
|
61
|
Management's Discussion and Analysis
|
Our Business Segments | Capital Markets
|
n
|
2019 vs. 2018 - Net interest yield decreased by 28 basis points primarily due to the lower and flatter interest rate environment, coupled with a change in our investment mix, as the other investments portfolio represented a larger percentage of our total investments portfolio, and an increase in amortization expense resulting from higher loan liquidation rates.
|
n
|
2018 vs. 2017 - Net interest yield increased by 15 basis points primarily due to higher yields on our newly acquired mortgage-related assets and other investments as a result of increases in interest rates, coupled with a change in our investment mix due to reductions in both our less liquid assets and the percentage of our other investments portfolio relative to our total investments portfolio and larger benefit provided by non-interest bearing funding due to increases in both short-term interest rates and the percentage of non-interest bearing funding relative to our total liabilities.
|
n
|
Net interest yield for the Capital Markets segment is not affected by our hedge accounting programs due to reclassifications made for Segment Earnings. See Note 13 for more information.
|
FREDDIE MAC | 2019 Form 10-K
|
|
62
|
Management's Discussion and Analysis
|
Our Business Segments | Capital Markets
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Net interest income
|
|
|
$2,486
|
|
|
$3,217
|
|
|
$3,279
|
|
|
|
($731
|
)
|
(23
|
)%
|
|
|
($62
|
)
|
(2
|
)%
|
Investment gains (losses), net
|
|
(36
|
)
|
1,803
|
|
1,772
|
|
|
(1,839
|
)
|
(102
|
)
|
|
31
|
|
2
|
|
|||||
Other income (loss)
|
|
(700
|
)
|
340
|
|
4,913
|
|
|
(1,040
|
)
|
(306
|
)
|
|
(4,573
|
)
|
(93
|
)
|
|||||
Net revenues
|
|
1,750
|
|
5,360
|
|
9,964
|
|
|
(3,610
|
)
|
(67
|
)
|
|
(4,604
|
)
|
(46
|
)
|
|||||
Administrative expense
|
|
(414
|
)
|
(365
|
)
|
(330
|
)
|
|
(49
|
)
|
(13
|
)
|
|
(35
|
)
|
(11
|
)
|
|||||
Other expense
|
|
(54
|
)
|
(11
|
)
|
(81
|
)
|
|
(43
|
)
|
(391
|
)
|
|
70
|
|
86
|
|
|||||
Operating expense
|
|
(468
|
)
|
(376
|
)
|
(411
|
)
|
|
(92
|
)
|
(24
|
)
|
|
35
|
|
9
|
|
|||||
Segment Earnings before income tax expense
|
|
1,282
|
|
4,984
|
|
9,553
|
|
|
(3,702
|
)
|
(74
|
)
|
|
(4,569
|
)
|
(48
|
)
|
|||||
Income tax expense
|
|
(260
|
)
|
(976
|
)
|
(3,296
|
)
|
|
716
|
|
73
|
|
|
2,320
|
|
70
|
|
|||||
Segment Earnings, net of taxes
|
|
1,022
|
|
4,008
|
|
6,257
|
|
|
(2,986
|
)
|
(75
|
)
|
|
(2,249
|
)
|
(36
|
)
|
|||||
Total other comprehensive income (loss), net of tax
|
|
494
|
|
(527
|
)
|
(30
|
)
|
|
1,021
|
|
194
|
|
|
(497
|
)
|
(1,657
|
)
|
|||||
Total comprehensive income (loss)
|
|
|
$1,516
|
|
|
$3,481
|
|
|
$6,227
|
|
|
|
($1,965
|
)
|
(56
|
)%
|
|
|
($2,746
|
)
|
(44
|
)%
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||||
Interest rate-related
|
|
|
($0.4
|
)
|
|
($0.3
|
)
|
|
($0.3
|
)
|
|
|
($0.1
|
)
|
(33
|
)%
|
|
|
$—
|
|
—
|
%
|
Market spread-related
|
|
0.2
|
|
0.4
|
|
0.8
|
|
|
(0.2
|
)
|
(50
|
)
|
|
(0.4
|
)
|
(50
|
)
|
n
|
2019 vs. 2018
|
l
|
Net interest income decreased primarily due to the lower and flatter interest rate environment, which also resulted in an increase in amortization expense due to higher loan liquidation rates and a change in our investment mix, as the other investments portfolio represented a larger percentage of our total investments portfolio.
|
l
|
Decrease in investment gains (losses), net of $1.8 billion, partially offset by an increase of $1.0 billion in other comprehensive income. The remaining decline in investment gains (losses) was primarily due to a decline of approximately $0.5 billion in gains from debt repurchase activity and the $0.3 billion increase in interest rate-related and market spread-related fair value losses shown in the table above. Both of these declines were primarily attributable to the decrease in long-term interest rates. Our derivative volume increased beginning in 2Q 2019 as we updated our interest-rate risk measures to include upfront fees (including buy-downs) related to single-family credit guarantee activity recorded in the single-family segment. This increase in derivative volume introduced additional volatility in our financial results that primarily drove our interest rate-related fair value losses. See Risk Management - Market Risk for additional information on the effect of market-related items on our comprehensive income.
|
l
|
Decrease in other income primarily due to lower net amortization income driven by the timing differences in amortization related to prepayment between debt of consolidated trusts and the underlying loans from our cash purchase program. For further discussion on timing differences in amortization, see MD&A - Consolidated Results of Operations.
|
n
|
2018 vs. 2017
|
l
|
Net interest income decreased primarily due to the continued reduction in the balance of our mortgage-related investments portfolio. This decrease was partially offset by higher yields on our newly acquired mortgage-related assets and other investments as interest rates increased, coupled with changes in our investment mix due to
|
FREDDIE MAC | 2019 Form 10-K
|
|
63
|
Management's Discussion and Analysis
|
Our Business Segments | Capital Markets
|
l
|
Decrease in investment gains (losses), net (net of other comprehensive income (loss)) primarily due to lower spread-related gains driven by lower non-agency mortgage-related securities balances and relatively flat interest rate-related fair value losses. These interest rate-related fair value losses were mostly offset by the change in fair value of the hedged items attributable to interest-rate risk in our hedge accounting programs. See Risk Management - Market Risk for additional information on the effect of market-related items on our comprehensive income.
|
l
|
Decrease in other income primarily due to recognition of $4.5 billion in proceeds received during 2017 from the RBS settlement compared to a $0.3 billion gain recognized from the Nomura judgment during 2018 related to certain of our non-agency mortgage related securities, coupled with lower amortization of debt securities of consolidated trusts during 2018 driven by a decrease in prepayments as a result of higher interest rates. For more information on these settlements, see Note 14.
|
FREDDIE MAC | 2019 Form 10-K
|
|
64
|
Management's Discussion and Analysis
|
Our Business Segments | All Other
|
|
|
|
|
|
|
Year Over Year Change
|
||||||||||||||
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2018 vs. 2017
|
||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
|
$
|
%
|
|
$
|
%
|
||||||||||
Comprehensive income (loss) - All Other
|
|
|
$—
|
|
|
$—
|
|
|
($5,405
|
)
|
|
|
$—
|
|
—%
|
|
|
$5,405
|
|
100%
|
n
|
2018 vs. 2017 - Changes in comprehensive income (loss) driven by:
|
l
|
Higher income tax expense in 2017 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 tax years after 2017. For more information on the statutory tax rate change, see Note 12.
|
FREDDIE MAC | 2019 Form 10-K
|
|
65
|
Management's Discussion and Analysis
|
Risk Management | Overview
|
n
|
Credit Risk;
|
n
|
Operational Risk;
|
n
|
Market Risk;
|
n
|
Liquidity Risk;
|
n
|
Strategic Risk; and
|
n
|
Reputation Risk.
|
n
|
Serves as the basis for managing risk in a consistent manner and across a range of stressful conditions;
|
n
|
Defines risk roles and responsibilities across the three lines of defense;
|
n
|
Provides for independent risk assessment and oversight; and
|
n
|
Promotes accountability and transparency in risk management decisions and execution.
|
n
|
Three Lines of Defense - The business lines, with support from the enterprise divisions, ERM, and internal audit, make up the three lines of defense.
|
n
|
Risk Culture - The Board and all levels of management support an effective risk culture by establishing and exercising accountability, promoting risk awareness, and by encouraging proactive risk discussions. A strong risk culture reinforces the importance of our risk management strategy, and promotes collaboration and transparency among the three lines of defense.
|
n
|
Risk Governance - Risk governance comprises the risk responsibilities of the three lines of defense, the risk committee structure at the division, enterprise, and Board levels, and reporting and escalation requirements.
|
n
|
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. The risk appetite is integrated and aligned with the strategic plans for the company and each business segment.
|
n
|
Risk Authority - The Board delegates authority to the CEO. The CEO delegates authority to members of executive management. Authority delegated from the CEO is subject to limitations set forth in corporate risk policies or standards approved by the CRO or his/her delegate.
|
n
|
Corporate Risk Policies and Standards - Corporate risk policies provide clarity on roles and responsibilities, establish approval requirements for risk decisions, and define escalation and reporting requirements. Corporate risk standards provide the minimum requirements to implement corporate risk policies and may also establish approval requirements for risk decisions.
|
n
|
Capital Framework - We use both FHFA's CCF and internal capital methodologies to measure risk for making economically effective decisions. See Liquidity and Capital Resources - Capital Resources - Conservatorship Capital Framework.
|
FREDDIE MAC | 2019 Form 10-K
|
|
66
|
Management's Discussion and Analysis
|
Risk Management | Overview
|
n
|
Risk-Adjusted Return - We use risk-adjusted return, based on the CCF, to measure ROCC of business lines, transactions, and initiatives. We seek to achieve acceptable risk-adjusted returns consistent with pre-set targets.
|
n
|
Risk Profile - The risk profile is a point-in-time assessment and measurement of inherent and/or residual risk for a specific risk type, measured at a divisional or enterprise level for the relevant risk types. The risk profile considers risk trends, the impact of emerging, escalated, and top risks, control performance, and risk indicators. The risk profile also incorporates results from stress testing or scenario analysis, judgmental evaluation of external and internal factors, or any development that may affect performance relative to the strategy and business objectives.
|
FREDDIE MAC | 2019 Form 10-K
|
|
67
|
Management's Discussion and Analysis
|
Risk Management | Overview
|
FREDDIE MAC | 2019 Form 10-K
|
|
68
|
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 and
|
n
|
Multifamily mortgage credit risk, through our ownership or guarantee of loans in the multifamily mortgage portfolio.
|
n
|
Maintaining prudent underwriting standards and quality control practices and managing seller/servicer performance;
|
n
|
Transferring credit risk to third-party investors;
|
n
|
Monitoring loan performance and characteristics;
|
n
|
Engaging in loss mitigation activities; and
|
n
|
Managing foreclosure and REO activities.
|
n
|
Underwriting standards, as published in our Guide and incorporated in Freddie Mac Loan AdvisorSM, establish the requirements for eligibility, documentation, and representations and warranties;
|
n
|
Loan quality control practices, including post-close credit review and the underwriting defects repurchase process, help to ensure that the loan origination process is in compliance with our Guide and that loans perform at or above expected levels; and
|
n
|
Robust seller/servicer management, including in-house quality control and performance monitoring, provides that quality control is maintained for loans sold and/or serviced by third-parties.
|
FREDDIE MAC | 2019 Form 10-K
|
|
69
|
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 | 2019 Form 10-K
|
|
70
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions)
|
|
Amount
|
% of Total
|
|
Amount
|
% of Total
|
|
Amount
|
% of Total
|
|||||||||
30-year or more amortizing fixed-rate
|
|
|
$389,515
|
|
86
|
%
|
|
|
$266,995
|
|
87
|
%
|
|
|
$275,677
|
|
80
|
%
|
20-year amortizing fixed-rate
|
|
15,381
|
|
3
|
|
|
8,373
|
|
3
|
|
|
12,338
|
|
4
|
|
|||
15-year amortizing fixed-rate
|
|
43,164
|
|
10
|
|
|
28,878
|
|
9
|
|
|
45,597
|
|
13
|
|
|||
Adjustable-rate
|
|
5,257
|
|
1
|
|
|
3,848
|
|
1
|
|
|
9,841
|
|
3
|
|
|||
FHA/VA and other governmental
|
|
164
|
|
—
|
|
|
103
|
|
—
|
|
|
113
|
|
—
|
|
|||
Total
|
|
|
$453,481
|
|
100
|
%
|
|
|
$308,197
|
|
100
|
%
|
|
|
$343,566
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Percentage of purchases
|
|
|
|
|
|
|
|
|
|
|||||||||
DTI ratio > 45%
|
|
|
14
|
%
|
|
|
18
|
%
|
|
|
13
|
%
|
||||||
Detached/townhome property type
|
|
|
92
|
|
|
|
92
|
|
|
|
91
|
|
||||||
Primary residence
|
|
|
90
|
|
|
|
90
|
|
|
|
89
|
|
||||||
Loan purpose
|
|
|
|
|
|
|
|
|
|
|||||||||
Purchase
|
|
|
55
|
|
|
|
69
|
|
|
|
58
|
|
||||||
Cash-out refinance
|
|
|
18
|
|
|
|
19
|
|
|
|
22
|
|
||||||
Other refinance
|
|
|
27
|
|
|
|
12
|
|
|
|
20
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
71
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
Category
|
Products
|
CRT
|
Coverage type
|
Accounting treatment
|
Primary mortgage insurance
|
Primary mortgage insurance
|
No
|
Front-end
|
Attached
|
STACR
|
STACR Trust notes
|
Yes
|
Back-end
|
Freestanding
|
STACR debt notes
|
Yes
|
Back-end
|
Debt
|
|
Insurance/reinsurance
|
ACIS
|
Yes
|
Back-end
|
Freestanding
|
AFRM
|
Yes
|
Front-end
|
Freestanding
|
|
IMAGIN
|
Yes
|
Front-End
|
Freestanding
|
|
Subordination
|
Senior subordinate securitization structures backed by seasoned loans (non-consolidated)
|
Yes
|
Back-end
|
Attached
|
Senior subordinate securitization structures backed by recently originated loans (consolidated)
|
Yes
|
Back-end
|
Debt
|
|
Lender risk-sharing
|
Lender risk sharing
|
Yes
|
Front-end
|
Freestanding
|
|
|
Outstanding as of December 31, 2019
|
|||||||||||||
|
|
Protected UPB(1)
|
Percentage of Single-Family Credit Guarantee Portfolio
|
Maximum Coverage(2)
|
|||||||||||
(Dollars in millions)
|
|
Total
|
Total
|
First Loss(3)
|
Mezzanine
|
Total
|
|||||||||
Primary mortgage insurance
|
|
|
$421,870
|
|
21
|
%
|
|
$107,690
|
|
|
$—
|
|
|
$107,690
|
|
STACR
|
|
824,359
|
|
41
|
|
5,874
|
|
19,238
|
|
25,112
|
|
||||
Insurance/reinsurance
|
|
863,149
|
|
43
|
|
2,483
|
|
7,674
|
|
10,157
|
|
||||
Subordination
|
|
44,941
|
|
2
|
|
2,608
|
|
2,791
|
|
5,399
|
|
||||
Lender risk-sharing
|
|
24,078
|
|
1
|
|
5,077
|
|
580
|
|
5,657
|
|
||||
Other
|
|
1,056
|
|
—
|
|
1,051
|
|
—
|
|
1,051
|
|
||||
Less: UPB with multiple CRT and/or other credit enhancements
|
|
(1,058,402
|
)
|
(52
|
)
|
—
|
|
—
|
|
—
|
|
||||
Single-family credit guarantee portfolio with credit enhancement
|
|
1,121,051
|
|
56
|
|
124,783
|
|
30,283
|
|
155,066
|
|
||||
Single-family credit guarantee portfolio without credit enhancement
|
|
873,398
|
|
44
|
|
—
|
|
—
|
|
—
|
|
||||
Total
|
|
|
$1,994,449
|
|
100
|
%
|
|
$124,783
|
|
|
$30,283
|
|
|
$155,066
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
72
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
Outstanding as of December 31, 2018
|
|||||||||||||
|
|
Protected UPB(1)
|
Percentage of Single-Family Credit Guarantee Portfolio
|
Maximum Coverage(2)
|
|||||||||||
(Dollars in millions)
|
|
Total
|
Total
|
First Loss(3)
|
Mezzanine
|
Total
|
|||||||||
Primary mortgage insurance
|
|
|
$378,594
|
|
20
|
%
|
|
$96,996
|
|
|
$—
|
|
|
$96,996
|
|
STACR
|
|
766,415
|
|
40
|
|
3,777
|
|
18,845
|
|
22,622
|
|
||||
Insurance/reinsurance
|
|
808,484
|
|
43
|
|
1,706
|
|
7,572
|
|
9,278
|
|
||||
Subordination
|
|
41,277
|
|
2
|
|
1,923
|
|
2,046
|
|
3,969
|
|
||||
Lender risk-sharing
|
|
17,458
|
|
1
|
|
4,830
|
|
340
|
|
5,170
|
|
||||
Other
|
|
1,305
|
|
—
|
|
1,290
|
|
—
|
|
1,290
|
|
||||
Less: UPB with multiple CRT and/or other credit enhancements
|
|
(991,109
|
)
|
(52
|
)
|
—
|
|
—
|
|
—
|
|
||||
Single-family credit guarantee portfolio with credit enhancement
|
|
1,022,424
|
|
54
|
|
110,522
|
|
28,803
|
|
139,325
|
|
||||
Single-family credit guarantee portfolio without credit enhancement
|
|
873,762
|
|
46
|
|
—
|
|
—
|
|
—
|
|
||||
Total
|
|
|
$1,896,186
|
|
100
|
%
|
|
$110,522
|
|
|
$28,803
|
|
|
$139,325
|
|
(1)
|
For STACR and certain insurance/reinsurance transactions (e.g., ACIS), represents the UPB of the assets included in the reference pool. For other insurance/reinsurance transactions, represents the UPB of the assets covered by the insurance policy. For subordination, represents the UPB of the guaranteed securities, which represents the UPB of the assets included in the trust net of the protection provided by the subordinated securities.
|
(2)
|
For STACR transactions, represents the outstanding balance held by third parties. For insurance/reinsurance transactions, represents the remaining aggregate limit of insurance purchased from third parties. For subordination, represents the outstanding UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.
|
(3)
|
First loss includes the most subordinate securities (i.e., B tranches) in our STACR transactions and their equivalent in ACIS and other CRT transactions.
|
|
|
As of December 31,
|
|||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
|||||||||
(Percentage of portfolio based on UPB)
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
||||||
Credit-enhanced
|
|
|
|
|
|
|
|
|
|
||||||
Primary mortgage insurance
|
|
21
|
%
|
0.79
|
%
|
|
20
|
%
|
0.86
|
%
|
|
18
|
%
|
1.43
|
%
|
Other
|
|
55
|
|
0.40
|
|
|
48
|
|
0.31
|
|
|
37
|
|
0.53
|
|
Non-credit-enhanced
|
|
45
|
|
0.70
|
|
|
47
|
|
0.83
|
|
|
56
|
|
1.16
|
|
Total
|
|
N/A
|
|
0.63
|
%
|
|
N/A
|
|
0.69
|
%
|
|
N/A
|
|
1.08
|
%
|
n
|
Attached credit enhancements - Attached credit enhancements are obtained contemporaneously with, and in contemplation of, the origination of a financial instrument, and effectively travel with the financial instrument upon sale. Attached credit enhancements are accounted for on a net basis with the associated financial instrument. As a result, we do not explicitly recognize a separate expense in our consolidated statements of comprehensive income for attached credit enhancements. Rather, the cost of attached credit enhancements is reflected as lower revenue. For example, we charge a lower guarantee fee for a loan with primary mortgage insurance than we otherwise would for the same loan without primary mortgage insurance. Similarly, credit losses on loans with attached credit enhancements are accounted for on a net basis. We do not recognize a provision for credit losses on loans with attached credit enhancements unless the estimated incurred loss exceeds the amount of credit protection provided by the attached credit enhancement and do not separately recognize a recovery asset. For additional information on the effect of attached credit enhancements on our credit losses, see the Monitoring Loan Performance and Characteristics - Credit Losses and Recoveries section below.
|
FREDDIE MAC | 2019 Form 10-K
|
|
73
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
n
|
Freestanding credit enhancements - Freestanding credit enhancements are contracts that are entered into separately and apart from any other financial instruments or entered into in conjunction with some other transaction and are legally detachable and separately exercisable. Freestanding credit enhancements are accounted for on a gross basis separately from the associated financial instrument. We recognize the payments we make to transfer credit risk under freestanding credit enhancements as credit enhancement expense. We recognize expected recoveries from freestanding credit enhancements as separate assets when the claim for recovery is deemed probable, which typically occurs at the same time we recognize a provision for credit losses on the associated loan.
|
n
|
Debt with embedded credit enhancements - Credit enhancements that are structured as debt issuances are accounted for on a gross basis separately from the associated mortgage loan. We primarily recognize expenses associated with debt with embedded credit enhancements as interest expense. We recognize recoveries from debt with embedded credit enhancements as debt extinguishment gains within investment gains (losses) when the loss confirming event occurs and we are legally released from our debt obligation, which typically occurs after we recognize a provision for credit losses on the associated loan. Such recoveries have not been significant. We no longer issue debt with embedded credit enhancements as part of our primary CRT strategy and therefore expect the effect of these transactions on our financial results to become less significant over time.
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
Credit enhancement costs: (1)
|
|
|
|
|
||||||
Credit enhancement expense
|
|
|
($693
|
)
|
|
($402
|
)
|
|
($263
|
)
|
Interest expense related to CRT debt
|
|
(1,060
|
)
|
(1,047
|
)
|
(808
|
)
|
|||
Total costs
|
|
(1,753
|
)
|
(1,449
|
)
|
(1,071
|
)
|
|||
|
|
|
|
|
||||||
Estimated reinvestment income from proceeds of CRT debt issuance
|
|
360
|
|
372
|
|
180
|
|
|||
Single-family credit enhancement expense
|
|
|
($1,393
|
)
|
|
($1,077
|
)
|
|
($891
|
)
|
(1)
|
Excludes fair value gains and losses on CRT derivatives and CRT debt recorded at fair value. See MD&A - Consolidated Results of Operations for additional information on these items.
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||
(Dollars in billions)
|
|
Single-Family Credit Guarantee Portfolio
|
Single-Family Credit Guarantee Portfolio - covered by certain CRT transactions
|
Single-Family Credit Guarantee Portfolio - Other
|
|
Single-Family Credit Guarantee Portfolio
|
Single-Family Credit Guarantee Portfolio - covered by certain CRT transactions
|
Single-Family Credit Guarantee Portfolio - Other
|
||||||||||||
Conservatorship credit capital prior to CRT (2)
|
|
|
$31.9
|
|
|
$16.1
|
|
|
$15.8
|
|
|
|
$29.8
|
|
|
$14.6
|
|
|
$15.2
|
|
Conservatorship credit capital reduced by CRT (3)
|
|
(11.8
|
)
|
(11.8
|
)
|
—
|
|
|
(9.3
|
)
|
(9.3
|
)
|
—
|
|
||||||
Conservatorship credit capital needed after CRT
|
|
|
$20.1
|
|
|
$4.3
|
|
|
$15.8
|
|
|
|
$20.5
|
|
|
$5.3
|
|
|
$15.2
|
|
Reduction in conservatorship credit capital (%) (4)
|
|
37.0
|
%
|
73.3
|
%
|
—
|
%
|
|
31.2
|
%
|
63.7
|
%
|
—
|
%
|
||||||
UPB
|
|
|
$1,994
|
|
|
$945
|
|
|
$1,049
|
|
|
|
$1,896
|
|
|
$875
|
|
|
$1,021
|
|
% of portfolio
|
|
100
|
%
|
47
|
%
|
53
|
%
|
|
100
|
%
|
46
|
%
|
54
|
%
|
(1)
|
Conservatorship credit capital figures for each period are based on the CCF in effect during the period. The CCF in effect as of December 31, 2019 was largely unchanged from the CCF as of December 31, 2018. The conservatorship credit capital figures for 2019 are preliminary and subject to change until official submission to FHFA.
|
FREDDIE MAC | 2019 Form 10-K
|
|
74
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
(2)
|
Represents the total conservatorship credit capital prior to CRT on the outstanding balance of our single-family credit guarantee portfolio as of December 31, 2019 and December 31, 2018 based on prescribed CCF guidelines.
|
(3)
|
Represents the amount of conservatorship credit capital released from certain CRT transactions, including STACR, ACIS/AFRM, certain senior subordination securitization structures, and certain lender risk-sharing transactions, based on prescribed CCF guidelines.
|
(4)
|
Calculated as conservatorship credit capital reduced by CRT divided by conservatorship credit capital prior to CRT.
|
n
|
Higher risk loan attributes and attribute combinations;
|
n
|
Higher risk loan product types; and
|
n
|
Geographic concentrations.
|
FREDDIE MAC | 2019 Form 10-K
|
|
75
|
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. Original credit score represents each borrower's FICO score at the time of origination or our purchase, while current credit score represents each borrower's most recent FICO score, which is obtained by Freddie Mac as of the first month of the most recent quarter
|
•
|
Borrowers with higher credit scores are generally more likely to repay or have the ability to refinance their loans than those with lower scores
|
|
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 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
|
|||
DTI ratio
|
Ratio of the borrower's total monthly debt payments to gross monthly income. One indicator of the creditworthiness of borrowers, as it measures borrowers' ability to manage monthly payments and repay debts
|
•
|
Borrowers with lower DTI ratios are generally more likely to repay their loans than those with higher DTI ratios, holding all other factors equal
|
|
•
|
DTI ratios are at the time of origination and may not be indicative of the borrowers' current credit worthiness
|
FREDDIE MAC | 2019 Form 10-K
|
|
76
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2019
|
||||||||||||||
(Dollars in billions)
|
|
UPB
|
Original Credit
Score (1) |
Current Credit
Score (1) |
Original
LTV Ratio
|
Current
LTV Ratio |
Current
LTV Ratio
>100%
|
Alt-A %
|
||||||||
Core single-family loan portfolio
|
|
|
$1,701
|
|
750
|
|
752
|
|
75
|
%
|
60
|
%
|
—
|
%
|
—
|
%
|
Legacy and relief refinance single-family loan portfolio
|
|
293
|
|
712
|
|
692
|
|
83
|
|
52
|
|
2
|
|
7
|
|
|
Total
|
|
|
$1,994
|
|
745
|
|
749
|
|
76
|
%
|
59
|
%
|
—
|
%
|
1
|
%
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2018
|
||||||||||||||
(Dollars in billions)
|
|
UPB
|
Original Credit
Score (1) |
Current Credit
Score (1) |
Original
LTV Ratio
|
Current
LTV Ratio |
Current
LTV Ratio
>100%
|
Alt-A %
|
||||||||
Core single-family loan portfolio
|
|
|
$1,550
|
|
750
|
|
753
|
|
74
|
%
|
59
|
%
|
—
|
%
|
—
|
%
|
Legacy and relief refinance single-family loan portfolio
|
|
346
|
|
705
|
|
690
|
|
78
|
|
45
|
|
2
|
|
7
|
|
|
Total
|
|
|
$1,896
|
|
743
|
|
748
|
|
76
|
%
|
58
|
%
|
1
|
%
|
1
|
%
|
(1)
|
Original credit score is based on three credit bureaus (Equifax, Experian, and TransUnion). Current credit score is based on Experian only.
|
FREDDIE MAC | 2019 Form 10-K
|
|
77
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31,
|
|||||
(Percentage of portfolio based on UPB)
|
|
2019
|
2018
|
2017
|
|||
|
|
|
|
|
|||
Original LTV ratio range
|
|
|
|
|
|||
60% and below
|
|
18
|
%
|
19
|
%
|
20
|
%
|
Above 60% to 80%
|
|
52
|
%
|
52
|
%
|
52
|
%
|
Above 80% to 100%
|
|
28
|
%
|
26
|
%
|
24
|
%
|
Above 100%
|
|
2
|
%
|
3
|
%
|
4
|
%
|
Portfolio weighted average original LTV ratio
|
|
76
|
%
|
76
|
%
|
75
|
%
|
|
|
|
|
|
|||
Current LTV ratio range
|
|
|
|
|
|||
60% and below
|
|
51
|
%
|
51
|
%
|
49
|
%
|
Above 60% to 80%
|
|
35
|
%
|
36
|
%
|
37
|
%
|
Above 80% to 100%
|
|
14
|
%
|
12
|
%
|
13
|
%
|
Above 100%
|
|
—
|
%
|
1
|
%
|
1
|
%
|
Portfolio weighted average current LTV ratio
|
|
59
|
%
|
58
|
%
|
59
|
%
|
|
|
|
|
|
|||
Original credit score (1)
|
|
|
|
|
|||
740 and above
|
|
61
|
%
|
60
|
%
|
60
|
%
|
700 to 739
|
|
21
|
%
|
22
|
%
|
21
|
%
|
660 to 699
|
|
12
|
%
|
12
|
%
|
12
|
%
|
620 to 659
|
|
4
|
%
|
4
|
%
|
5
|
%
|
Less than 620
|
|
2
|
%
|
2
|
%
|
2
|
%
|
Portfolio weighted average original credit score
|
|
745
|
|
743
|
|
743
|
|
|
|
|
|
|
|||
Current credit score (1)
|
|
|
|
|
|||
740 and above
|
|
66
|
%
|
66
|
%
|
65
|
%
|
700 to 739
|
|
16
|
%
|
16
|
%
|
16
|
%
|
660 to 699
|
|
9
|
%
|
9
|
%
|
10
|
%
|
620 to 659
|
|
4
|
%
|
4
|
%
|
4
|
%
|
Less than 620
|
|
5
|
%
|
5
|
%
|
5
|
%
|
Portfolio weighted average current credit score
|
|
749
|
|
748
|
|
747
|
|
|
|
|
|
|
|||
Loan purpose
|
|
|
|
|
|||
Purchase
|
|
46
|
%
|
45
|
%
|
39
|
%
|
Cash-out refinance
|
|
20
|
%
|
20
|
%
|
21
|
%
|
Other refinance
|
|
34
|
%
|
35
|
%
|
40
|
%
|
(1)
|
Original credit score is based on three credit bureaus (Equifax, Experian, and TransUnion). Current credit score is based on Experian only.
|
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 | 2019 Form 10-K
|
|
78
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2019
|
||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|||||
Original LTV ratio greater than 90%, HARP loans
|
|
|
$71.5
|
|
65
|
%
|
2.7
|
%
|
0.89
|
%
|
Original LTV ratio greater than 90%, all other loans
|
|
286.0
|
|
79
|
|
3.2
|
|
0.98
|
|
|
Loans with credit scores below 620 at origination
|
|
33.1
|
|
60
|
|
15.4
|
|
4.52
|
|
|
|
|
|
|
|
|
|||||
|
|
As of December 31, 2018
|
||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|||||
Original LTV ratio greater than 90%, HARP loans
|
|
|
$85.1
|
|
70
|
%
|
2.9
|
%
|
0.90
|
%
|
Original LTV ratio greater than 90%, all other loans
|
|
248.3
|
|
79
|
|
4.4
|
|
1.10
|
|
|
Loans with credit scores below 620 at origination
|
|
33.6
|
|
62
|
|
20.0
|
|
4.59
|
|
|
|
As of December 31, 2019
|
||||||||||||||||||||
|
|
CLTV ≤ 80
|
|
CLTV > 80 to 100
|
|
CLTV > 100
|
|
All Loans
|
||||||||||||||
(Original Credit score)
|
|
% Portfolio
|
SDQ Rate
|
|
% Portfolio
|
SDQ Rate(1)
|
|
% Portfolio
|
SDQ Rate(1)
|
|
% Portfolio
|
SDQ Rate
|
% Modified
|
|||||||||
Core single-family loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
< 620
|
|
0.3
|
%
|
2.68
|
%
|
|
—
|
%
|
NM
|
|
|
—
|
%
|
NM
|
|
|
0.3
|
%
|
2.87
|
%
|
3.5
|
%
|
620 to 659
|
|
2.1
|
|
1.26
|
|
|
0.4
|
|
1.59
|
%
|
|
—
|
|
NM
|
|
|
2.5
|
|
1.30
|
|
1.9
|
|
≥ 660
|
|
69.8
|
|
0.20
|
|
|
12.6
|
|
0.26
|
|
|
—
|
|
NM
|
|
|
82.4
|
|
0.20
|
|
0.3
|
|
Not available
|
|
0.1
|
|
1.23
|
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
|
0.1
|
|
1.96
|
|
3.6
|
|
Total
|
|
72.3
|
%
|
0.24
|
%
|
|
13.0
|
%
|
0.33
|
%
|
|
—
|
%
|
NM
|
|
|
85.3
|
%
|
0.26
|
%
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Legacy and relief refinance single-family loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
< 620
|
|
1.1
|
%
|
4.16
|
%
|
|
0.2
|
%
|
9.33
|
%
|
|
0.1
|
%
|
15.03
|
%
|
|
1.4
|
%
|
4.83
|
%
|
17.7
|
%
|
620 to 659
|
|
1.5
|
|
3.01
|
|
|
0.2
|
|
7.91
|
|
|
0.1
|
|
12.84
|
|
|
1.8
|
|
3.52
|
|
16.3
|
|
≥ 660
|
|
10.5
|
|
1.06
|
|
|
0.7
|
|
3.91
|
|
|
0.2
|
|
6.32
|
|
|
11.4
|
|
1.23
|
|
5.9
|
|
Not available
|
|
0.1
|
|
4.39
|
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
|
0.1
|
|
4.68
|
|
19.6
|
|
Total
|
|
13.2
|
%
|
1.58
|
%
|
|
1.1
|
%
|
5.39
|
%
|
|
0.4
|
%
|
8.96
|
%
|
|
14.7
|
%
|
1.84
|
%
|
8.3
|
%
|
FREDDIE MAC | 2019 Form 10-K
|
|
79
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2018
|
||||||||||||||||||||
|
|
CLTV ≤ 80
|
|
CLTV > 80 to 100
|
|
CLTV > 100
|
|
All Loans
|
||||||||||||||
(Original Credit score)
|
|
% Portfolio
|
SDQ Rate
|
|
% Portfolio
|
SDQ Rate(1)
|
|
% Portfolio
|
SDQ Rate(1)
|
|
% Portfolio
|
SDQ Rate
|
% Modified
|
|||||||||
Core single-family loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
< 620
|
|
0.3
|
%
|
2.18
|
%
|
|
—
|
%
|
NM
|
|
|
—
|
%
|
NM
|
|
|
0.3
|
%
|
2.34
|
%
|
3.7
|
%
|
620 to 659
|
|
2.0
|
|
1.13
|
|
|
0.3
|
|
1.27
|
|
|
—
|
|
NM
|
|
|
2.3
|
|
1.15
|
|
1.9
|
|
≥ 660
|
|
69.0
|
|
0.17
|
|
|
10.0
|
|
0.25
|
|
|
—
|
|
NM
|
|
|
79.0
|
|
0.18
|
|
0.3
|
|
Not available
|
|
0.1
|
|
1.52
|
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
|
0.1
|
|
2.60
|
|
3.6
|
|
Total
|
|
71.4
|
%
|
0.21
|
%
|
|
10.3
|
%
|
0.30
|
%
|
|
—
|
%
|
NM
|
|
|
81.7
|
%
|
0.22
|
%
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Legacy and relief refinance single-family loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
< 620
|
|
1.2
|
%
|
4.16
|
%
|
|
0.2
|
%
|
8.76
|
%
|
|
0.1
|
%
|
14.34
|
%
|
|
1.5
|
%
|
4.94
|
%
|
22.6
|
%
|
620 to 659
|
|
1.7
|
|
3.13
|
|
|
0.3
|
|
6.78
|
|
|
0.1
|
|
11.69
|
|
|
2.1
|
|
3.68
|
|
19.8
|
|
≥ 660
|
|
13.0
|
|
1.12
|
|
|
1.2
|
|
3.60
|
|
|
0.4
|
|
5.81
|
|
|
14.6
|
|
1.33
|
|
7.1
|
|
Not available
|
|
0.1
|
|
4.62
|
|
|
—
|
|
NM
|
|
|
—
|
|
NM
|
|
|
0.1
|
|
4.98
|
|
19.5
|
|
Total
|
|
16.0
|
%
|
1.62
|
%
|
|
1.7
|
%
|
4.78
|
%
|
|
0.6
|
%
|
8.18
|
%
|
|
18.3
|
%
|
1.93
|
%
|
10.0
|
%
|
(1)
|
NM - not meaningful due to the percentage of the portfolio rounding to zero.
|
|
|
As of December 31, 2019
|
||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|||||
Amortizing ARM and option ARM (1)
|
|
|
$40.1
|
|
49
|
%
|
2.2
|
%
|
0.84
|
%
|
Interest-only
|
|
10.9
|
|
64
|
|
—
|
|
2.72
|
|
|
Step-rate modified
|
|
8.7
|
|
59
|
|
100
|
|
6.27
|
|
|
|
|
|
|
|
|
|||||
|
|
As of December 31, 2018
|
||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|||||
Amortizing ARM and option ARM (1)
|
|
|
$47.7
|
|
50
|
%
|
1.9
|
%
|
0.88
|
%
|
Interest-only
|
|
11.0
|
|
64
|
|
0.1
|
|
3.43
|
|
|
Step-rate modified
|
|
14.5
|
|
64
|
|
100
|
|
6.12
|
|
(1)
|
Includes $2.5 billion and $3.0 billion in UPB of option ARM loans as of December 31, 2019 and December 31, 2018, respectively. As of December 31, 2019 and December 31, 2018, the option ARM loans had: (a) current LTV ratios of 51% and 54%, (b) loan modification percentages of 20.4% and 17.9%, and (c) serious delinquency rates of 2.94% and 3.40%, respectively.
|
FREDDIE MAC | 2019 Form 10-K
|
|
80
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2019
|
|||||||||||||||||||||||
(In millions)
|
|
2019 and Prior
|
2020
|
2021
|
2022
|
2023
|
2024
|
Thereafter
|
Total(1)
|
||||||||||||||||
ARM/amortizing
|
|
|
$9,097
|
|
|
$3,860
|
|
|
$3,647
|
|
|
$4,967
|
|
|
$3,930
|
|
|
$4,552
|
|
|
$7,281
|
|
|
$37,334
|
|
ARM/interest-only
|
|
4,692
|
|
80
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,772
|
|
||||||||
Fixed/interest-only
|
|
513
|
|
1
|
|
10
|
|
28
|
|
2
|
|
—
|
|
—
|
|
554
|
|
||||||||
Step-rate modified
|
|
8,179
|
|
1,225
|
|
900
|
|
201
|
|
52
|
|
26
|
|
—
|
|
8,657
|
|
||||||||
Total
|
|
|
$22,481
|
|
|
$5,166
|
|
|
$4,557
|
|
|
$5,196
|
|
|
$3,984
|
|
|
$4,578
|
|
|
$7,281
|
|
|
$51,317
|
|
(1)
|
Excludes loans underlying certain other securitization products since the payment change information is not available to us for these loans.
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||
(Dollars in billions)
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
|
UPB
|
CLTV
|
% Modified
|
SDQ Rate
|
||||||||||
Alt-A
|
|
|
$21.1
|
|
61
|
%
|
18.4
|
%
|
3.75
|
%
|
|
|
$23.9
|
|
63
|
%
|
23.2
|
%
|
4.13
|
%
|
FREDDIE MAC | 2019 Form 10-K
|
|
81
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2019
|
Full Year 2019 Credit Losses
|
|
As of December 31, 2018
|
Full Year 2018 Credit Losses
|
|
As of December 31, 2017
|
Full Year 2017 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
|
||||||||||||||||||
New York
|
|
5,741
|
|
8
|
%
|
1.21
|
%
|
|
$109
|
|
|
6,312
|
|
8
|
%
|
1.37
|
%
|
|
$289
|
|
|
8,117
|
|
7
|
%
|
1.74
|
%
|
|
$415
|
|
Florida
|
|
5,430
|
|
8
|
|
0.77
|
|
208
|
|
|
6,888
|
|
9
|
|
1.01
|
|
263
|
|
|
22,253
|
|
19
|
|
3.33
|
|
614
|
|
|||
Illinois
|
|
4,747
|
|
7
|
|
0.85
|
|
151
|
|
|
4,750
|
|
6
|
|
0.86
|
|
244
|
|
|
6,228
|
|
5
|
|
1.13
|
|
445
|
|
|||
California
|
|
4,584
|
|
7
|
|
0.34
|
|
116
|
|
|
4,610
|
|
6
|
|
0.35
|
|
275
|
|
|
5,514
|
|
5
|
|
0.41
|
|
884
|
|
|||
Texas
|
|
3,950
|
|
6
|
|
0.54
|
|
49
|
|
|
4,081
|
|
5
|
|
0.59
|
|
55
|
|
|
8,908
|
|
8
|
|
1.36
|
|
44
|
|
|||
All Others
|
|
45,269
|
|
64
|
|
0.61
|
|
881
|
|
|
48,499
|
|
66
|
|
0.67
|
|
1,454
|
|
|
64,669
|
|
56
|
|
0.90
|
|
2,413
|
|
|||
Total
|
|
69,721
|
|
100
|
%
|
0.63
|
%
|
|
$1,514
|
|
|
75,140
|
|
100
|
%
|
0.69
|
%
|
|
$2,580
|
|
|
115,689
|
|
100
|
%
|
1.08
|
%
|
|
$4,815
|
|
|
|
Year Ended December 31,
|
||||||||||||||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||||||||||||||||||||
(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
|
|
|
$619
|
|
|
($157
|
)
|
|
$462
|
|
|
|
$1,105
|
|
|
($175
|
)
|
|
$930
|
|
|
|
$1,690
|
|
|
($155
|
)
|
|
$1,535
|
|
Southeast
|
|
414
|
|
(105
|
)
|
309
|
|
|
515
|
|
(98
|
)
|
417
|
|
|
1,001
|
|
(95
|
)
|
906
|
|
|||||||||
North Central
|
|
307
|
|
(76
|
)
|
231
|
|
|
544
|
|
(88
|
)
|
456
|
|
|
774
|
|
(81
|
)
|
693
|
|
|||||||||
West
|
|
252
|
|
(73
|
)
|
179
|
|
|
522
|
|
(72
|
)
|
450
|
|
|
1,382
|
|
(62
|
)
|
1,320
|
|
|||||||||
Southwest
|
|
145
|
|
(41
|
)
|
104
|
|
|
199
|
|
(42
|
)
|
157
|
|
|
204
|
|
(32
|
)
|
172
|
|
|||||||||
Total
|
|
|
$1,737
|
|
|
($452
|
)
|
|
$1,285
|
|
|
|
$2,885
|
|
|
($475
|
)
|
|
$2,410
|
|
|
|
$5,051
|
|
|
($425
|
)
|
|
$4,626
|
|
(1)
|
2019, 2018, and 2017 include charge-offs of $1.3 billion, $2.1 billion and $3.8 billion, respectively, related to the transfer of loans from held-for-investment to held-for-sale.
|
FREDDIE MAC | 2019 Form 10-K
|
|
82
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2019
|
||||||||||||||||||
|
|
CLTV <= 80%
|
|
CLTV > 80% to 100%
|
|
CLTV > 100%
|
|
All Loans
|
||||||||||||
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate(1)
|
|
% of Portfolio
|
SDQ Rate
|
||||||||
North Central
|
|
13
|
%
|
0.55
|
%
|
|
3
|
%
|
0.80
|
%
|
|
—
|
%
|
NM
|
|
|
16
|
%
|
0.61
|
%
|
Northeast
|
|
20
|
|
0.75
|
|
|
4
|
|
1.28
|
|
|
—
|
|
NM
|
|
|
24
|
|
0.87
|
|
Southeast
|
|
14
|
|
0.68
|
|
|
2
|
|
0.91
|
|
|
—
|
|
NM
|
|
|
16
|
|
0.73
|
|
Southwest
|
|
12
|
|
0.54
|
|
|
2
|
|
0.46
|
|
|
—
|
|
NM
|
|
|
14
|
|
0.54
|
|
West
|
|
27
|
|
0.34
|
|
|
3
|
|
0.54
|
|
|
—
|
|
NM
|
|
|
30
|
|
0.36
|
|
Total
|
|
86
|
%
|
0.57
|
%
|
|
14
|
%
|
0.83
|
%
|
|
—
|
%
|
NM
|
|
|
100
|
%
|
0.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2018
|
||||||||||||||||||
|
|
CLTV <= 80%
|
|
CLTV > 80% to 100%
|
|
CLTV > 100%
|
|
All Loans
|
||||||||||||
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate
|
|
% of Portfolio
|
SDQ Rate(1)
|
|
% of Portfolio
|
SDQ Rate
|
||||||||
North Central
|
|
14
|
%
|
0.55
|
%
|
|
2
|
%
|
0.93
|
%
|
|
—
|
%
|
NM
|
|
|
16
|
%
|
0.63
|
%
|
Northeast
|
|
21
|
|
0.79
|
|
|
3
|
|
1.62
|
|
|
—
|
|
NM
|
|
|
24
|
|
0.96
|
|
Southeast
|
|
14
|
|
0.79
|
|
|
2
|
|
1.37
|
|
|
—
|
|
NM
|
|
|
16
|
|
0.90
|
|
Southwest
|
|
12
|
|
0.56
|
|
|
2
|
|
0.58
|
|
|
—
|
|
NM
|
|
|
14
|
|
0.57
|
|
West
|
|
27
|
|
0.35
|
|
|
2
|
|
0.76
|
|
|
1
|
|
3.81
|
|
|
30
|
|
0.38
|
|
Total
|
|
88
|
%
|
0.60
|
%
|
|
11
|
%
|
1.09
|
%
|
|
1
|
%
|
7.98
|
%
|
|
100
|
%
|
0.69
|
%
|
(1)
|
NM - not meaningful due to the percentage of the portfolio rounding to zero.
|
|
|
Year Ended December 31,
|
||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
||||||
Charge-offs, gross(1)
|
|
|
$1,737
|
|
|
$2,885
|
|
|
$5,051
|
|
Recoveries
|
|
(452
|
)
|
(475
|
)
|
(425
|
)
|
|||
Charge-offs, net
|
|
1,285
|
|
2,410
|
|
4,626
|
|
|||
REO operations expense
|
|
229
|
|
170
|
|
189
|
|
|||
Total credit losses
|
|
|
$1,514
|
|
|
$2,580
|
|
|
$4,815
|
|
|
|
|
|
|
||||||
Total credit losses(1) (in bps)
|
|
7.7
|
|
13.7
|
|
27.0
|
|
(1)
|
2019, 2018, and 2017 include charge-offs of $1.3 billion, $2.1 billion, and $3.8 billion, respectively, related to the transfer of loans from held-for-investment to held-for-sale.
|
FREDDIE MAC | 2019 Form 10-K
|
|
83
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
2019
|
|
2018
|
||||||||||||
|
|
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%
|
|
0.4
|
%
|
8.22
|
%
|
|
16
|
%
|
|
1
|
%
|
7.98
|
%
|
|
16
|
%
|
Alt-A loans
|
|
1
|
|
3.75
|
|
|
12
|
|
|
1
|
|
4.13
|
|
|
16
|
|
Judicial foreclosure states
|
|
38
|
|
0.81
|
|
|
61
|
|
|
38
|
|
0.92
|
|
|
59
|
|
|
|
Year Ended December 31,
|
||||||||||||||
(Dollars in millions)
|
|
2019
|
2018
|
2017
|
2016
|
2015
|
||||||||||
Beginning balance
|
|
|
$6,176
|
|
|
$8,979
|
|
|
$13,463
|
|
|
$15,348
|
|
|
$21,793
|
|
Provision (benefit) for credit losses
|
|
(749
|
)
|
(712
|
)
|
(97
|
)
|
(781
|
)
|
(2,639
|
)
|
|||||
Charge-offs, gross(1)
|
|
(1,737
|
)
|
(2,885
|
)
|
(5,051
|
)
|
(1,938
|
)
|
(5,071
|
)
|
|||||
Recoveries
|
|
452
|
|
475
|
|
425
|
|
497
|
|
717
|
|
|||||
Other(2)
|
|
126
|
|
319
|
|
239
|
|
337
|
|
548
|
|
|||||
Ending balance
|
|
|
$4,268
|
|
|
$6,176
|
|
|
$8,979
|
|
|
$13,463
|
|
|
$15,348
|
|
|
|
|
|
|
|
|
||||||||||
As a percentage of our single-family credit guarantee portfolio
|
|
0.21
|
%
|
0.33
|
%
|
0.49
|
%
|
0.77
|
%
|
0.90
|
%
|
(1)
|
2016 and 2015 do not include lower-of-cost-or-fair-value adjustments recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion and $3.4 billion, respectively. 2019, 2018, and 2017 include charge-offs of $1.3 billion, $2.1 billion, and $3.8 billion, respectively, 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 | 2019 Form 10-K
|
|
84
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
2019
|
|
2018
|
||||||||
(Dollars in millions)
|
|
Loan Count
|
Amount
|
|
Loan Count
|
Amount
|
||||||
TDRs, at January 1
|
|
290,255
|
|
|
$42,254
|
|
|
364,704
|
|
|
$54,415
|
|
New additions
|
|
30,568
|
|
4,871
|
|
|
52,300
|
|
8,115
|
|
||
Repayments and reclassifications to held-for-sale
|
|
(85,181
|
)
|
(14,016
|
)
|
|
(119,366
|
)
|
(19,285
|
)
|
||
Foreclosure sales and foreclosure alternatives
|
|
(4,502
|
)
|
(605
|
)
|
|
(7,383
|
)
|
(991
|
)
|
||
TDRs, at December 31
|
|
231,140
|
|
32,504
|
|
|
290,255
|
|
42,254
|
|
||
Loans impaired upon purchase
|
|
1,600
|
|
102
|
|
|
2,555
|
|
170
|
|
||
Total impaired loans with an allowance recorded
|
|
232,740
|
|
32,606
|
|
|
292,810
|
|
42,424
|
|
||
Allowance for loan losses
|
|
|
(2,872
|
)
|
|
|
(4,369
|
)
|
||||
Net investment, at December 31
|
|
|
|
$29,734
|
|
|
|
|
$38,055
|
|
|
|
As of December 31,
|
||||||||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
2016
|
2015
|
||||||||||
TDRs on accrual status
|
|
|
$32,188
|
|
|
$41,839
|
|
|
$51,644
|
|
|
$77,122
|
|
|
$82,026
|
|
Non-accrual loans
|
|
11,183
|
|
11,197
|
|
17,748
|
|
16,164
|
|
22,460
|
|
|||||
Total TDRs and non-accrual loans
|
|
|
$43,371
|
|
|
$53,036
|
|
|
$69,392
|
|
|
$93,286
|
|
|
$104,486
|
|
|
|
|
|
|
|
|
||||||||||
Allowance for loan losses associated with:
|
|
|
|
|
|
|
||||||||||
TDRs on accrual status
|
|
|
$2,452
|
|
|
$3,612
|
|
|
$5,257
|
|
|
$10,295
|
|
|
$12,105
|
|
Non-accrual loans
|
|
597
|
|
1,003
|
|
1,883
|
|
2,290
|
|
2,677
|
|
|||||
Total
|
|
|
$3,049
|
|
|
$4,615
|
|
|
$7,140
|
|
|
$12,585
|
|
|
$14,782
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Year Ended December 31,
|
||||||||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
2016
|
2015
|
||||||||||
Foregone interest income on TDRs and non-accrual loans(1)
|
|
|
$790
|
|
|
$1,122
|
|
|
$1,604
|
|
|
$2,109
|
|
|
$2,690
|
|
(1)
|
Represents the amount of interest income that we did not recognize but would have recognized during the period for loans outstanding at the end of each period, had the loans performed according to their original contractual terms.
|
FREDDIE MAC | 2019 Form 10-K
|
|
85
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31,
|
||||||||||||||
|
|
2019
|
|
2018
|
||||||||||||
(Dollars in millions)
|
|
UPB
|
Loan Count
|
SDQ Rate
|
|
UPB
|
Loan Count
|
SDQ Rate
|
||||||||
Above 125% Original LTV
|
|
|
$15,906
|
|
103,401
|
|
0.93
|
%
|
|
|
$18,847
|
|
117,410
|
|
0.97
|
%
|
Above 100% to 125% Original LTV
|
|
31,072
|
|
200,227
|
|
0.96
|
|
|
37,084
|
|
228,419
|
|
0.93
|
|
||
Above 80% to 100% Original LTV
|
|
52,020
|
|
362,647
|
|
0.76
|
|
|
61,843
|
|
410,027
|
|
0.77
|
|
||
80% and below Original LTV
|
|
70,752
|
|
681,232
|
|
0.43
|
|
|
83,647
|
|
762,477
|
|
0.42
|
|
||
Total
|
|
|
$169,750
|
|
1,347,507
|
|
0.64
|
%
|
|
|
$201,421
|
|
1,518,333
|
|
0.64
|
%
|
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 2019, the average time period for reduced or suspended payments was between four and five 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 2019, the average time period to repay past due amounts was approximately 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 | 2019 Form 10-K
|
|
86
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31, 2019
|
||||||||
(Dollars in billions)
|
|
UPB
|
% of Portfolio
|
CLTV Ratio
|
SDQ Rate
|
|||||
Loan Modifications
|
|
|
$40.8
|
|
2
|
%
|
64
|
%
|
10.59
|
%
|
|
|
|
|
|
|
|||||
|
|
As of December 31, 2018
|
||||||||
(Dollars in billions)
|
|
UPB
|
% of Portfolio
|
CLTV Ratio
|
SDQ Rate
|
|||||
Loan Modifications
|
|
|
$55.4
|
|
3
|
%
|
68
|
%
|
9.16
|
%
|
|
|
Quarter of Loan Modification Completion
|
|||||||||||||||
|
|
4Q 2018
|
3Q 2018
|
2Q 2018
|
1Q 2018
|
4Q 2017
|
3Q 2017
|
2Q 2017
|
1Q 2017
|
||||||||
Current or paid off
one year after modification: |
|
68
|
%
|
76
|
%
|
75
|
%
|
66
|
%
|
63
|
%
|
60
|
%
|
62
|
%
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current or paid off
two years after modification: |
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
68
|
|
67
|
|
64
|
|
64
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
87
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
As of December 31,
|
|||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
|||||||||
Aging, by locality
|
|
Loan Count
|
Percent
|
|
Loan Count
|
Percent
|
|
Loan Count
|
Percent
|
||||||
|
|
|
|
|
|
|
|
|
|
||||||
Judicial states
|
|
|
|
|
|
|
|
|
|
||||||
<= 1 year
|
|
26,063
|
|
37
|
%
|
|
27,811
|
|
37
|
%
|
|
50,554
|
|
44
|
%
|
> 1 year and <= 2 years
|
|
7,416
|
|
11
|
|
|
8,268
|
|
11
|
|
|
10,649
|
|
9
|
|
> 2 years
|
|
5,336
|
|
8
|
|
|
6,871
|
|
9
|
|
|
10,863
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-judicial states
|
|
|
|
|
|
|
|
|
|
||||||
<= 1 year
|
|
24,997
|
|
36
|
|
|
25,675
|
|
34
|
|
|
34,850
|
|
30
|
|
> 1 year and <= 2 years
|
|
3,928
|
|
5
|
|
|
4,133
|
|
6
|
|
|
5,406
|
|
5
|
|
> 2 years
|
|
1,981
|
|
3
|
|
|
2,382
|
|
3
|
|
|
3,367
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Combined
|
|
|
|
|
|
|
|
|
|
||||||
<= 1 year
|
|
51,060
|
|
73
|
|
|
53,486
|
|
71
|
|
|
85,404
|
|
74
|
|
> 1 year and <= 2 years
|
|
11,344
|
|
16
|
|
|
12,401
|
|
17
|
|
|
16,055
|
|
14
|
|
> 2 years
|
|
7,317
|
|
11
|
|
|
9,253
|
|
12
|
|
|
14,230
|
|
12
|
|
Total
|
|
69,721
|
|
100
|
%
|
|
75,140
|
|
100
|
%
|
|
115,689
|
|
100
|
%
|
FREDDIE MAC | 2019 Form 10-K
|
|
88
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
Year Ended December 31,
|
|||||
(Average days)
|
|
2019
|
2018
|
2017
|
|||
Judicial states
|
|
|
|
|
|||
Florida
|
|
1,143
|
|
1,173
|
|
1,069
|
|
New Jersey
|
|
1,089
|
|
1,343
|
|
1,497
|
|
New York
|
|
1,765
|
|
1,790
|
|
1,658
|
|
All other judicial states
|
|
692
|
|
710
|
|
704
|
|
Judicial states, in aggregate
|
|
872
|
|
926
|
|
907
|
|
Non-judicial states, in aggregate
|
|
520
|
|
530
|
|
545
|
|
Total
|
|
730
|
|
766
|
|
751
|
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions)
|
|
Number of Properties
|
Amount
|
|
Number of Properties
|
Amount
|
|
Number of Properties
|
Amount
|
|||||||||
Beginning balance - REO
|
|
7,100
|
|
|
$780
|
|
|
8,299
|
|
|
$900
|
|
|
11,418
|
|
|
$1,215
|
|
Additions
|
|
7,910
|
|
786
|
|
|
10,442
|
|
1,012
|
|
|
12,240
|
|
1,191
|
|
|||
Dispositions
|
|
(10,021
|
)
|
(1,001
|
)
|
|
(11,641
|
)
|
(1,132
|
)
|
|
(15,359
|
)
|
(1,506
|
)
|
|||
Ending balance - REO
|
|
4,989
|
|
565
|
|
|
7,100
|
|
780
|
|
|
8,299
|
|
900
|
|
|||
Beginning balance, valuation allowance
|
|
|
(11
|
)
|
|
|
(14
|
)
|
|
|
(17
|
)
|
||||||
Change in valuation allowance
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
||||||
Ending balance, valuation allowance
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
(14
|
)
|
||||||
Ending balance - REO, net
|
|
|
|
$555
|
|
|
|
|
$769
|
|
|
|
|
$886
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
89
|
Management's Discussion and Analysis
|
Risk Management | Single-Family Mortgage Credit Risk
|
|
|
Year Ended December 31,
|
|||||
|
|
2019
|
2018
|
2017
|
|||
REO dispositions and third-party foreclosure sales
|
|
21.7
|
%
|
24.2
|
%
|
27.2
|
%
|
Short sales
|
|
24.5
|
|
26.6
|
|
27.7
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
90
|
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 credit risk to third-party investors; and
|
n
|
Managing our portfolio, including loss mitigation activities.
|
|
|
Year Ended December 31,
|
|||||
|
|
2019
|
2018
|
2017
|
|||
Weighted average original LTV ratio
|
|
68
|
%
|
67
|
%
|
68
|
%
|
Original LTV ratio greater than 80%(1)
|
|
2
|
|
1
|
|
2
|
|
Original DSCR less than or equal to 1.10(1)
|
|
1
|
|
1
|
|
1
|
|
(1)
|
Shown as a percentage of multifamily new business activity.
|
FREDDIE MAC | 2019 Form 10-K
|
|
91
|
Management's Discussion and Analysis
|
Risk Management | Multifamily Mortgage Credit Risk
|
|
|
|
As of December 31,
|
|||||||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||||||||||||||
(Dollars in billions)
|
|
UPB
|
% of Portfolio
|
Delinquency Rate
|
|
UPB
|
% of Portfolio
|
Delinquency Rate
|
|
UPB
|
% of Portfolio
|
Delinquency Rate
|
||||||||||||
Credit-enhanced
|
|
|
$267.0
|
|
89
|
%
|
0.09
|
%
|
|
|
$234.9
|
|
87
|
%
|
0.01
|
%
|
|
|
$198.1
|
|
82
|
%
|
0.01
|
%
|
Non-credit-enhanced
|
|
33.1
|
|
11
|
|
—
|
|
|
36.6
|
|
13
|
|
—
|
|
|
42.6
|
|
18
|
|
0.06
|
|
|||
Total
|
|
|
$300.1
|
|
100
|
%
|
0.08
|
%
|
|
|
$271.5
|
|
100
|
%
|
0.01
|
%
|
|
|
$240.7
|
|
100
|
%
|
0.02
|
%
|
|
|
As of December 31,
|
||||||||||
|
|
2019
|
|
2018
|
||||||||
(Dollars in billions)
|
|
UPB
|
Delinquency Rate
|
|
UPB
|
Delinquency Rate
|
||||||
Subordination level at issuance
|
|
|
|
|
|
|
||||||
No subordination
|
|
|
$9.3
|
|
—
|
%
|
|
|
$7.7
|
|
—
|
%
|
Less than 10%
|
|
1.2
|
|
—
|
|
|
3.1
|
|
—
|
|
||
Greater than 10%
|
|
249.8
|
|
0.09
|
|
|
216.1
|
|
0.01
|
|
||
Total
|
|
|
$260.3
|
|
0.09
|
%
|
|
|
$226.9
|
|
0.01
|
%
|
FREDDIE MAC | 2019 Form 10-K
|
|
92
|
Management's Discussion and Analysis
|
Risk Management | Multifamily Mortgage Credit Risk
|
FREDDIE MAC | 2019 Form 10-K
|
|
93
|
Management's Discussion and Analysis
|
Risk Management | Multifamily Mortgage Credit Risk
|
|
|
As of December 31,
|
||||||||||
|
|
2019
|
|
2018
|
||||||||
(Dollars in billions)
|
|
UPB
|
Delinquency Rate
|
|
UPB
|
Delinquency Rate
|
||||||
Unsecuritized loans
|
|
|
$29.8
|
|
0.01
|
%
|
|
|
$34.8
|
|
0.01
|
%
|
Securitization-related products
|
|
260.3
|
|
0.09
|
|
|
226.9
|
|
0.01
|
|
||
Other mortgage-related guarantees
|
|
10.0
|
|
0.09
|
|
|
9.8
|
|
—
|
|
||
Total
|
|
|
$300.1
|
|
0.08
|
%
|
|
|
$271.5
|
|
0.01
|
%
|
|
|
|
|
|
|
|
||||||
Unsecuritized HFI loans
|
|
|
|
|
|
|
||||||
Original LTV ratio
|
|
|
|
|
|
|
||||||
Below 75%
|
|
|
$7.7
|
|
—
|
%
|
|
|
$7.1
|
|
—
|
%
|
75% to 80%
|
|
2.5
|
|
—
|
|
|
3.0
|
|
—
|
|
||
Above 80%
|
|
0.6
|
|
—
|
|
|
0.7
|
|
—
|
|
||
Total
|
|
|
$10.8
|
|
—
|
%
|
|
|
$10.8
|
|
—
|
%
|
Weighted average LTV ratio at origination
|
|
68
|
%
|
|
|
69
|
%
|
|
||||
Maturity dates
|
|
|
|
|
|
|
||||||
2019
|
|
N/A
|
|
N/A
|
|
|
|
$1.7
|
|
—
|
%
|
|
2020
|
|
|
$1.2
|
|
—
|
%
|
|
1.5
|
|
—
|
|
|
2021
|
|
1.1
|
|
—
|
|
|
1.8
|
|
—
|
|
||
2022
|
|
1.0
|
|
—
|
|
|
1.4
|
|
—
|
|
||
2023
|
|
0.8
|
|
—
|
|
|
1.1
|
|
—
|
|
||
Thereafter
|
|
6.7
|
|
—
|
|
|
3.3
|
|
—
|
|
||
Total
|
|
|
$10.8
|
|
—
|
%
|
|
|
$10.8
|
|
—
|
%
|
FREDDIE MAC | 2019 Form 10-K
|
|
94
|
Management's Discussion and Analysis
|
Risk Management | Counterparty Credit Risk
|
n
|
Maintaining eligibility standards;
|
n
|
Evaluating creditworthiness and monitoring performance; and
|
n
|
Working with underperforming counterparties and limiting our losses from their nonperformance of obligations, when possible.
|
FREDDIE MAC | 2019 Form 10-K
|
|
95
|
Management's Discussion and Analysis
|
Risk Management | Counterparty Credit Risk
|
|
|
As of December 31,
|
||||||||
|
|
2019
|
|
2018
|
||||||
|
|
% of Portfolio(1)
|
% of Serious Delinquent Single-Family Loans
|
|
% of Portfolio(1)
|
% of Serious Delinquent Single-Family Loans
|
||||
Top five non-depository servicers
|
|
18
|
%
|
13
|
%
|
|
16
|
%
|
17
|
%
|
Other non-depository servicers
|
|
20
|
|
55
|
|
|
20
|
|
40
|
|
Total
|
|
38
|
%
|
68
|
%
|
|
36
|
%
|
57
|
%
|
(1)
|
Excludes loans where we do not exercise control over the associated servicing.
|
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, and/or suspend or terminate the selling and servicing relationship. We typically first issue a notice of defect and allow a period of time to correct the problem prior to issuing a repurchase request. The UPB of loans subject to repurchase requests issued to our single-family sellers and servicers was $0.3 billion and $0.4 billion at December 31, 2019 and December 31, 2018, respectively. See Note 14 for additional information about loans subject to repurchase requests.
|
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 transaction, we require the individual insurers and reinsurers to post collateral to cover portions of their exposure, which helps to promote certainty and timeliness of claim payment and
|
FREDDIE MAC | 2019 Form 10-K
|
|
96
|
Management's Discussion and Analysis
|
Risk Management | Counterparty Credit Risk
|
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 insurers and reinsurers generally participate in multiple types of insurance businesses, which helps to diversify their risk exposure.
|
|
|
|
|
|
As of December 31, 2019
|
|||||
(In millions)
|
|
Credit Rating(1)
|
Credit Rating
Outlook(1) |
|
UPB
|
Coverage
|
||||
Arch Mortgage Insurance Company
|
|
A-
|
Stable
|
|
|
$93,440
|
|
|
$23,956
|
|
Radian Guaranty Inc. (Radian)
|
|
BBB+
|
Stable
|
|
84,434
|
|
21,397
|
|
||
Mortgage Guaranty Insurance Corporation (MGIC)
|
|
BBB+
|
Stable
|
|
73,371
|
|
18,845
|
|
||
Genworth Mortgage Insurance Corporation
|
|
BB+
|
Watch Dev
|
|
63,071
|
|
16,139
|
|
||
Essent Guaranty, Inc.
|
|
BBB+
|
Stable
|
|
63,865
|
|
16,260
|
|
||
National Mortgage Insurance (NMI)
|
|
BBB
|
Stable
|
|
37,147
|
|
9,476
|
|
||
PMI Mortgage Insurance Co. (PMI)
|
|
Not Rated
|
N/A
|
|
2,889
|
|
723
|
|
||
Republic Mortgage Insurance Company (RMIC)
|
|
Not Rated
|
N/A
|
|
2,156
|
|
536
|
|
||
Triad Guaranty Insurance Corporation (Triad)
|
|
Not Rated
|
N/A
|
|
1,241
|
|
312
|
|
||
Others
|
|
N/A
|
N/A
|
|
256
|
|
46
|
|
||
Total
|
|
|
|
|
|
$421,870
|
|
|
$107,690
|
|
(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, 2019. Represents the lower of S&P and Moody's credit ratings and outlooks stated in terms of the S&P equivalent.
|
FREDDIE MAC | 2019 Form 10-K
|
|
97
|
Management's Discussion and Analysis
|
Risk Management | Counterparty Credit Risk
|
n
|
Cleared derivatives - Cleared derivatives expose us to counterparty credit risk of central clearinghouses 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 made through the clearinghouse. We are required to post initial and variation margin to the clearinghouses. 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. Our obligation to post margin may increase as a result of the lowering or withdrawal of our credit rating by S&P or Moody's or by changes in the potential future exposure generated by the derivative transactions.
|
n
|
Exchange-traded derivatives - Exchange-traded derivatives expose us to counterparty credit risk of the central clearinghouses 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 derivatives are settled daily via payments made through the financial clearinghouse.
|
n
|
OTC derivatives - OTC derivatives expose us to counterparty credit risk of 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. 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 withdrawal of our or our counterparty's credit rating by S&P or Moody's may increase our or our counterparty's obligation to post collateral, depending on the amount of the counterparty's exposure to Freddie Mac with respect to the derivative transactions. Only OTC derivatives transactions executed prior to March 1, 2017 are subject to collateral posting thresholds. Based upon regulations that took effect March 1, 2017, OTC derivative transactions executed or materially amended after that date require posting of variation margin without the application of any thresholds. Our OTC derivative transactions will become subject to new initial margin requirements on September 1, 2020.
|
FREDDIE MAC | 2019 Form 10-K
|
|
98
|
Management's Discussion and Analysis
|
Risk Management | Counterparty Credit Risk
|
|
|
As of December 31, 2019
|
|||||||
(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
|
|
2
|
|
|
$17
|
|
|
$9
|
|
A+, A, or A-
|
|
12
|
|
2,563
|
|
11
|
|
||
BBB+, BBB, or BBB-
|
|
—
|
|
—
|
|
—
|
|
||
Total OTC
|
|
14
|
|
2,580
|
|
20
|
|
||
Cleared and exchange-traded derivatives
|
|
2
|
|
139
|
|
262
|
|
||
Total
|
|
16
|
|
|
$2,719
|
|
|
$282
|
|
n
|
Other investments - We are exposed to the non-performance of institutions relating to other investments (including non-mortgage-related securities and cash and cash equivalents) transactions, including those entered into on behalf of our securitization trusts. Our policies require that the institution be evaluated using our internal rating model prior to our entering into such transactions. We monitor the financial strength of these institutions and may use collateral maintenance requirements to manage our exposure to individual counterparties.
|
FREDDIE MAC | 2019 Form 10-K
|
|
99
|
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.
|
n
|
Secured lending activities - As part of our other investments portfolio, we enter into secured lending arrangements to provide financing for certain Freddie Mac securities and other assets related to our guarantee businesses in an attempt to improve the market for these assets. These transactions differ from those we use for liquidity purposes, as the borrowers may not be major financial institutions, potentially exposing us to the institutional credit risk of these institutions. We also provide advances to lenders for mortgage loans that they will subsequently either sell through our cash purchase program or securitize into securities that they will deliver to us. In addition, we may invest in other secured lending activities. For additional information, see Note 14.
|
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 mortgage loans. 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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
100
|
Management's Discussion and Analysis
|
Risk Management | Operational Risk
|
FREDDIE MAC | 2019 Form 10-K
|
|
101
|
Management's Discussion and Analysis
|
Risk Management | Operational Risk
|
FREDDIE MAC | 2019 Form 10-K
|
|
102
|
Management's Discussion and Analysis
|
Risk Management | Operational Risk
|
n
|
New Model Risk Standard with enhanced governance protocols;
|
n
|
Formalized model key risk indicators with an associated model risk appetite; and
|
n
|
Design completion of a peer review process serving as a secondary control within the model risk function.
|
FREDDIE MAC | 2019 Form 10-K
|
|
103
|
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;
|
n
|
Using short-TBA positions to hedge certain assets, primarily loans acquired through our cash loan purchase program that are awaiting securitization and portions of our agency mortgage-related securities portfolio; and
|
n
|
Entering into certain spread-related derivatives to offset our spread exposures.
|
FREDDIE MAC | 2019 Form 10-K
|
|
104
|
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 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
|
PVS - PVS is our estimate of the change in the 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. PVS is measured in two ways, one measuring the estimated sensitivity of our portfolio's value to a 50 basis point parallel movement in interest rates (PVS-L) and the other to a nonparallel movement (PVS-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 PVS measures reflect reasonably possible near-term changes that we believe provide a meaningful measure of our interest-rate risk sensitivity.
|
FREDDIE MAC | 2019 Form 10-K
|
|
105
|
Management's Discussion and Analysis
|
Risk Management | Market Risk
|
|
|
December 31, 2019
|
|
December 31, 2018
|
||||||||||||||||||
|
|
PVS-YC
|
|
PVS-L
|
|
PVS-YC
|
|
PVS-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:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Investments
|
|
|
($307
|
)
|
|
|
$4,840
|
|
|
$10,011
|
|
|
|
($536
|
)
|
|
|
$5,792
|
|
|
$11,761
|
|
Guarantees(2)
|
|
(224
|
)
|
|
351
|
|
706
|
|
|
89
|
|
|
(425
|
)
|
(773
|
)
|
||||||
Total Assets
|
|
(531
|
)
|
|
5,191
|
|
10,717
|
|
|
(447
|
)
|
|
5,367
|
|
10,988
|
|
||||||
Liabilities
|
|
20
|
|
|
(1,563
|
)
|
(3,413
|
)
|
|
(109
|
)
|
|
(1,889
|
)
|
(3,948
|
)
|
||||||
Derivatives
|
|
513
|
|
|
(3,646
|
)
|
(7,409
|
)
|
|
560
|
|
|
(3,446
|
)
|
(6,917
|
)
|
||||||
Total
|
|
|
$2
|
|
|
|
($18
|
)
|
|
($105
|
)
|
|
|
$4
|
|
|
|
$32
|
|
|
$123
|
|
PVS
|
|
|
$2
|
|
|
|
$—
|
|
|
$—
|
|
|
|
$4
|
|
|
|
$32
|
|
|
$123
|
|
(1)
|
The categorization of the PVS 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.
|
(2)
|
Represents the interest-rate risk from our single-family guarantee portfolio, which includes buy-ups, float, and, beginning in 2Q 2019, upfront fees (including buy-downs).
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2019
|
|
2018
|
||||||||||||||
(Duration gap in months, dollars in millions)
|
|
Duration
Gap
|
PVS-YC
25 bps
|
PVS-L
50 bps
|
|
Duration
Gap
|
PVS-YC
25 bps
|
PVS-L
50 bps
|
||||||||||
Average
|
|
0.8
|
|
|
$34
|
|
|
$96
|
|
|
—
|
|
|
$11
|
|
|
$15
|
|
Minimum
|
|
(0.8
|
)
|
—
|
|
—
|
|
|
(0.4
|
)
|
—
|
|
—
|
|
||||
Maximum
|
|
8.6
|
|
345
|
|
950
|
|
|
0.3
|
|
31
|
|
77
|
|
||||
Standard deviation
|
|
1.6
|
|
72
|
|
189
|
|
|
0.1
|
|
6
|
|
16
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
106
|
Management's Discussion and Analysis
|
Risk Management | Market Risk
|
|
|
PVS-L (50 bps)
|
|
|
|||||||
(In millions)
|
|
Before
Derivatives
|
After
Derivatives
|
|
Effect of
Derivatives
|
||||||
December 31, 2019
|
|
|
$3,628
|
|
|
$—
|
|
|
|
($3,628
|
)
|
December 31, 2018
|
|
3,478
|
|
32
|
|
|
(3,446
|
)
|
n
|
Our PVS 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
|
PVS 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 PVS 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
|
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 modeled 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.
|
n
|
Our reported measurements do not include the sensitivity to interest-rate changes of net worth and the following assets and liabilities:
|
l
|
Credit guarantee activities - We currently do not hedge the interest-rate exposure of our credit guarantees except for the interest-rate exposure related to upfront fees (including buy-downs), 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
|
FREDDIE MAC | 2019 Form 10-K
|
|
107
|
Management's Discussion and Analysis
|
Risk Management | Market Risk
|
l
|
Other assets and other liabilities - We do not include other miscellaneous assets and liabilities, primarily deferred tax assets, accounts payable and receivable, and non-cash basis adjustments.
|
n
|
Market spread risk arising from mortgage-related investments, including loans and securities, and certain non-mortgage investments;
|
n
|
Market spread risk arising from our use of SOFR- or Treasury-based instruments in our risk management activities;
|
n
|
Market spread risk arising from the difference in time between when we commit to purchase a mortgage loan through our pipeline path and when we either securitize the loan or hedge it by using forward TBA securities or derivatives. During this time, market spreads can widen, causing losses due to changes in fair value.
|
|
|
GAAP Adverse Scenario (Before-Tax)
|
|||||||
(Dollars in billions)
|
|
Before Hedge Accounting
|
After Hedge Accounting
|
% Change
|
|||||
December 31, 2019
|
|
|
($4.3
|
)
|
|
($0.1
|
)
|
98
|
%
|
December 31, 2018
|
|
(2.7
|
)
|
(0.2
|
)
|
93
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
108
|
Management's Discussion and Analysis
|
Risk Management | Market Risk
|
|
|
Year Ended December 31, 2019
|
|||||
|
|
GAAP Adverse Scenario (Before-Tax)
|
|||||
(In billions)
|
|
Before Hedge Accounting
|
After Hedge Accounting
|
||||
Average
|
|
|
($3.6
|
)
|
|
($0.4
|
)
|
Minimum
|
|
(2.1
|
)
|
—
|
|
||
Maximum
|
|
(5.2
|
)
|
(1.8
|
)
|
|
|
Year Ended December 31,
|
|||||
(In billions)
|
|
2019
|
2018
|
||||
Interest rate effect on derivative fair values
|
|
|
($7.3
|
)
|
|
$2.5
|
|
Estimate of offsetting interest rate effect related to financial instruments measured at fair value(1)
|
|
3.6
|
|
(1.9
|
)
|
||
Gains (losses) on mortgage loans and debt in fair value hedge relationships
|
|
3.6
|
|
(1.6
|
)
|
||
Amortization of deferred hedge accounting gains and losses
|
|
(0.3
|
)
|
0.3
|
|
||
Income tax (expense) benefit
|
|
0.1
|
|
0.1
|
|
||
Estimated net interest rate effect on comprehensive income (loss)
|
|
|
($0.3
|
)
|
|
($0.6
|
)
|
(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 | 2019 Form 10-K
|
|
109
|
Management's Discussion and Analysis
|
Risk Management | Market Risk
|
|
|
Year Ended December 31,
|
|||||
(In billions)
|
|
2019
|
2018
|
||||
Capital Markets
|
|
|
$0.2
|
|
|
$0.4
|
|
Multifamily(1)
|
|
(0.3
|
)
|
(0.4
|
)
|
||
Single-family Guarantee
|
|
—
|
|
0.1
|
|
||
Spread effect on comprehensive income (loss)
|
|
|
($0.1
|
)
|
|
$0.1
|
|
(1)
|
Represents the net spread-related fair value impacts due to changes in spreads on loans and commitments where we have elected the fair value option, mortgage-related securities, and spread-related derivatives.
|
FREDDIE MAC | 2019 Form 10-K
|
|
110
|
Management's Discussion and Analysis
|
Risk Management | Market Risk
|
FREDDIE MAC | 2019 Form 10-K
|
|
111
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
n
|
Principal payments on and sales of securities and loans that we own;
|
n
|
Repurchase transactions;
|
n
|
Interest income on securities and loans that we own;
|
n
|
Guarantee fees (inclusive of initial upfront fees);
|
n
|
Net worth, which represents funding available to us prior to our dividend requirement on our senior preferred stock; and
|
n
|
Draws from Treasury under the Purchase Agreement, which are only made if we have a quarterly deficit in our net worth.
|
n
|
Principal payments upon the maturity, redemption, or repurchase of our other debt;
|
n
|
Payments of interest on our other debt and other expenses;
|
n
|
Purchases of mortgage loans, including purchases of seriously delinquent or modified loans underlying our securities, mortgage-related securities, and other investments;
|
n
|
Payments related to derivative contracts and posting or pledging of collateral to third parties in connection with secured financing and daily trade activities; and
|
n
|
Dividend requirements on our senior preferred stock.
|
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
|
FREDDIE MAC | 2019 Form 10-K
|
|
112
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
n
|
Manage the maturity of our unsecured debt based on our asset profile.
|
Source
|
Balance(1)
(In billions)
|
|
Description
|
|||
Liquidity
|
|
|
|
|||
•
|
Other Investments Portfolio - Liquidity and Contingency Operating Portfolio
|
|
$68.0
|
|
•
|
The Liquidity and Contingency Operating Portfolio, included within our other investments portfolio, is primarily used for short-term liquidity management.
|
•
|
Liquid Portion of the Mortgage-Related Investments Portfolio
|
|
$124.4
|
|
•
|
The liquid portion of our mortgage-related investments portfolio can be pledged or sold for liquidity purposes. The amount of cash we may be able to successfully raise may be substantially less than the balance.
|
(1)
|
Represents carrying value for the Liquidity and Contingency Operating Portfolio, included within our other investments portfolio, and UPB for the liquid portion of the mortgage-related investments portfolio.
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||||||||
(In billions)
|
|
Liquidity and Contingency Operating Portfolio
|
Custodial Account
|
Other
|
Total Other Investments Portfolio(1)
|
|
Liquidity and Contingency Operating Portfolio
|
Custodial Account
|
Other
|
Total Other Investments Portfolio(1)
|
||||||||||||||||
Cash and cash equivalents
|
|
|
$4.2
|
|
|
$0.9
|
|
|
$0.1
|
|
|
$5.2
|
|
|
|
$6.7
|
|
|
$0.6
|
|
|
$—
|
|
|
$7.3
|
|
Securities purchased under agreements to resell
|
|
40.6
|
|
23.1
|
|
2.4
|
|
66.1
|
|
|
20.2
|
|
12.1
|
|
2.5
|
|
34.8
|
|
||||||||
Non-mortgage related securities
|
|
23.2
|
|
—
|
|
3.9
|
|
27.1
|
|
|
16.8
|
|
—
|
|
2.4
|
|
19.2
|
|
||||||||
Secured lending and other
|
|
—
|
|
—
|
|
5.2
|
|
5.2
|
|
|
—
|
|
—
|
|
1.8
|
|
1.8
|
|
||||||||
Total
|
|
|
$68.0
|
|
|
$24.0
|
|
|
$11.6
|
|
|
$103.6
|
|
|
|
$43.7
|
|
|
$12.7
|
|
|
$6.7
|
|
|
$63.1
|
|
(1)
|
Represents carrying value.
|
FREDDIE MAC | 2019 Form 10-K
|
|
113
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
Source
|
Balance(1)
(In billions)
|
|
Description
|
|||
Funding
|
|
|
|
|||
•
|
Other Debt
|
|
$281.2
|
|
•
|
Other debt is used to fund our business activities, including single-family guarantee activities not funded by debt securities of consolidated trusts.
|
•
|
Debt Securities of Consolidated Trusts
|
|
$1,898.4
|
|
•
|
Debt securities of consolidated trusts are used primarily to fund our single-family guarantee activities. This type of debt is principally repaid by the cash flows of the associated mortgage loans. As a result, our repayment obligation is limited to amounts paid pursuant to our guarantee of principal and interest and to purchase modified or seriously delinquent loans from the trusts.
|
(1)
|
Represents carrying value of debt balances.
|
FREDDIE MAC | 2019 Form 10-K
|
|
114
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
|
|
Year Ended December 31, 2019
|
|||||||||
(Dollars in millions)
|
|
Short-term
|
Average Rate(1)
|
Long-term
|
Average Rate(1)
|
||||||
|
|
|
|
|
|
||||||
Discount notes and Reference Bills
|
|
|
|
|
|
||||||
Beginning balance
|
|
|
$28,787
|
|
2.36
|
%
|
|
$—
|
|
—
|
%
|
Issuances
|
|
369,992
|
|
2.05
|
|
—
|
|
—
|
|
||
Repurchases
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||
Maturities
|
|
(337,949
|
)
|
2.20
|
|
—
|
|
—
|
|
||
Ending Balance
|
|
60,830
|
|
1.67
|
|
—
|
|
—
|
|
||
|
|
|
|
|
|
||||||
Securities sold under agreements to repurchase
|
|
|
|
|
|
||||||
Beginning balance
|
|
6,019
|
|
2.40
|
|
—
|
|
—
|
|
||
Additions
|
|
325,512
|
|
2.04
|
|
—
|
|
—
|
|
||
Repayments
|
|
(321,689
|
)
|
2.07
|
|
—
|
|
—
|
|
||
Ending Balance
|
|
9,842
|
|
1.46
|
|
—
|
|
—
|
|
||
|
|
|
|
|
|
||||||
Callable debt
|
|
|
|
|
|
||||||
Beginning balance
|
|
2,000
|
|
2.53
|
|
105,206
|
|
2.09
|
|
||
Issuances
|
|
13,590
|
|
2.48
|
|
107,544
|
|
2.38
|
|
||
Repurchases
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||
Calls
|
|
(14,590
|
)
|
2.52
|
|
(95,172
|
)
|
2.65
|
|
||
Maturities
|
|
—
|
|
—
|
|
(23,426
|
)
|
1.35
|
|
||
Ending Balance
|
|
1,000
|
|
2.36
|
|
94,152
|
|
2.03
|
|
||
|
|
|
|
|
|
||||||
Non-callable debt
|
|
|
|
|
|
||||||
Beginning balance
|
|
14,440
|
|
2.04
|
|
80,789
|
|
2.56
|
|
||
Issuances
|
|
48,984
|
|
2.34
|
|
15,774
|
|
2.43
|
|
||
Repurchases
|
|
(345
|
)
|
1.87
|
|
(869
|
)
|
1.87
|
|
||
Maturities
|
|
(23,671
|
)
|
2.19
|
|
(33,465
|
)
|
1.68
|
|
||
Ending Balance
|
|
39,408
|
|
2.31
|
|
62,229
|
|
2.86
|
|
||
|
|
|
|
|
|
||||||
STACR Debt and SCR Debt Notes(2)
|
|
|
|
|
|
||||||
Beginning balance
|
|
—
|
|
—
|
|
17,729
|
|
6.02
|
|
||
Issuances
|
|
—
|
|
—
|
|
723
|
|
2.09
|
|
||
Repurchases
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||
Maturities
|
|
—
|
|
—
|
|
(2,956
|
)
|
4.49
|
|
||
Ending Balance
|
|
—
|
|
—
|
|
15,496
|
|
5.55
|
|
||
|
|
|
|
|
|
||||||
Total other debt
|
|
|
$111,080
|
|
1.89
|
%
|
|
$171,877
|
|
2.65
|
%
|
FREDDIE MAC | 2019 Form 10-K
|
|
115
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
|
|
Year Ended December 31, 2018
|
|||||||||
(Dollars in millions)
|
|
Short-term
|
Average Rate(1)
|
Long-term
|
Average Rate(1)
|
||||||
|
|
|
|
|
|
||||||
Discount notes and Reference Bills
|
|
|
|
|
|
||||||
Beginning balance
|
|
|
$45,717
|
|
1.19
|
%
|
|
$—
|
|
—
|
%
|
Issuances
|
|
356,129
|
|
1.40
|
|
—
|
|
—
|
|
||
Repurchases
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||
Maturities
|
|
(373,059
|
)
|
1.29
|
|
—
|
|
—
|
|
||
Ending Balance
|
|
28,787
|
|
2.36
|
|
—
|
|
—
|
|
||
|
|
|
|
|
|
||||||
Securities sold under agreements to repurchase
|
|
|
|
|
|
||||||
Beginning balance
|
|
9,681
|
|
1.06
|
|
—
|
|
—
|
|
||
Additions
|
|
162,524
|
|
1.82
|
|
—
|
|
—
|
|
||
Repayments
|
|
(166,186
|
)
|
1.75
|
|
—
|
|
—
|
|
||
Ending Balance
|
|
6,019
|
|
2.40
|
|
—
|
|
—
|
|
||
|
|
|
|
|
|
||||||
Callable debt
|
|
|
|
|
|
||||||
Beginning balance
|
|
—
|
|
—
|
|
113,822
|
|
1.58
|
|
||
Issuances
|
|
2,000
|
|
2.28
|
|
26,191
|
|
3.13
|
|
||
Repurchases
|
|
—
|
|
—
|
|
(1,396
|
)
|
2.64
|
|
||
Calls
|
|
—
|
|
—
|
|
(3,580
|
)
|
2.23
|
|
||
Maturities
|
|
—
|
|
—
|
|
(29,831
|
)
|
1.06
|
|
||
Ending Balance
|
|
2,000
|
|
2.53
|
|
105,206
|
|
2.09
|
|
||
|
|
|
|
|
|
||||||
Non-callable debt
|
|
|
|
|
|
||||||
Beginning balance
|
|
17,792
|
|
1.03
|
|
111,169
|
|
2.11
|
|
||
Issuances
|
|
14,965
|
|
2.02
|
|
11,514
|
|
2.21
|
|
||
Repurchases
|
|
—
|
|
—
|
|
(1,340
|
)
|
2.11
|
|
||
Maturities
|
|
(18,317
|
)
|
1.06
|
|
(40,554
|
)
|
1.35
|
|
||
Ending Balance
|
|
14,440
|
|
2.04
|
|
80,789
|
|
2.56
|
|
||
|
|
|
|
|
|
||||||
STACR Debt and SCR Debt(2)
|
|
|
|
|
|
||||||
Beginning balance
|
|
—
|
|
—
|
|
17,925
|
|
5.04
|
|
||
Issuances
|
|
—
|
|
—
|
|
1,885
|
|
3.67
|
|
||
Repurchases
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||
Maturities
|
|
—
|
|
—
|
|
(2,081
|
)
|
4.14
|
|
||
Ending Balance
|
|
—
|
|
—
|
|
17,729
|
|
6.02
|
|
||
|
|
|
|
|
|
||||||
Total other debt
|
|
|
$51,246
|
|
2.28
|
%
|
|
$203,724
|
|
2.62
|
%
|
(1)
|
Average rate is weighted based on par value.
|
(2)
|
STACR debt notes 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 generally without penalty and are therefore included as a separate category in the table.
|
FREDDIE MAC | 2019 Form 10-K
|
|
116
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
|
|
As of December 31, 2019
|
||||||||||||||
|
|
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
|
|
|
$60,629
|
|
1.67
|
%
|
|
|
$44,675
|
|
2.16
|
%
|
|
|
$60,629
|
|
Medium-term notes
|
|
40,405
|
|
2.31
|
|
|
29,781
|
|
2.36
|
|
|
43,096
|
|
|||
Securities sold under agreements to repurchase
|
|
9,843
|
|
1.46
|
|
|
9,928
|
|
2.16
|
|
|
14,114
|
|
|||
Total
|
|
|
$110,877
|
|
1.89
|
%
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2018
|
||||||||||||||
|
|
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
|
|
|
$28,621
|
|
2.36
|
%
|
|
|
$35,126
|
|
1.79
|
%
|
|
|
$46,892
|
|
Medium-term notes
|
|
16,440
|
|
2.10
|
|
|
15,403
|
|
1.37
|
|
|
18,200
|
|
|||
Securities sold under agreements to repurchase
|
|
6,019
|
|
2.40
|
|
|
9,411
|
|
1.79
|
|
|
11,719
|
|
|||
Total
|
|
|
$51,080
|
|
2.28
|
%
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
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
|
%
|
|
|
|
|
|
(1)
|
Average rate is weighted based on carrying value.
|
FREDDIE MAC | 2019 Form 10-K
|
|
117
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
(1)
|
STACR Debt Notes 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 generally without penalty and are therefore included as a separate category in the graphs.
|
n
|
The assets held by the securitization trusts, the majority of which are mortgage loans. We recognized $1,940.5 billion and $1,842.9 billion of mortgage loans, which represented 88.1% and 89.3% of our total assets, as of December 31, 2019 and December 31, 2018, respectively.
|
n
|
The debt securities issued by the securitization trusts, the majority of which are pass-through securities, where the cash flows of the mortgage loans held by the securitization trust are passed through to the holders of the securities. We recognized $1,898.4 billion and $1,792.7 billion of debt securities of consolidated trusts, which represented 87.1% and 87.7% of our total debt, as of December 31, 2019 and December 31, 2018, respectively.
|
FREDDIE MAC | 2019 Form 10-K
|
|
118
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
|
|
Year Ended December 31,
|
|||||
(In millions)
|
|
2019
|
2018
|
||||
Beginning balance
|
|
|
$1,748,738
|
|
|
$1,672,605
|
|
Issuances:
|
|
|
|
||||
New issuances to third parties
|
|
323,860
|
|
185,877
|
|
||
Additional issuances of securities
|
|
178,971
|
|
190,207
|
|
||
Total issuances
|
|
502,831
|
|
376,084
|
|
||
Extinguishments:
|
|
|
|
||||
Purchases of debt securities from third parties
|
|
(30,306
|
)
|
(41,453
|
)
|
||
Debt securities received in settlement of secured lending
|
|
(46,670
|
)
|
(25,220
|
)
|
||
Repayments of debt securities
|
|
(319,791
|
)
|
(233,278
|
)
|
||
Total extinguishments
|
|
(396,767
|
)
|
(299,951
|
)
|
||
Ending balance
|
|
1,854,802
|
|
1,748,738
|
|
||
Unamortized premiums and discounts
|
|
43,553
|
|
43,939
|
|
||
Debt securities of consolidated trusts held by third parties
|
|
|
$1,898,355
|
|
|
$1,792,677
|
|
|
|
As of December 31,
|
|||||
(In millions)
|
|
2019
|
2018
|
||||
Single-family
|
|
|
|
||||
Level 1 Securitization Products:
|
|
|
|
||||
30-year or more amortizing fixed-rate
|
|
|
$1,563,211
|
|
|
$1,434,879
|
|
20-year amortizing fixed-rate
|
|
80,340
|
|
79,079
|
|
||
15-year amortizing fixed-rate
|
|
241,835
|
|
253,245
|
|
||
Adjustable-rate
|
|
38,271
|
|
45,051
|
|
||
Interest-only
|
|
4,828
|
|
6,697
|
|
||
FHA/VA and other governmental
|
|
1,718
|
|
1,939
|
|
||
Total single-family Level 1 Securitization Products
|
|
1,930,203
|
|
1,820,890
|
|
||
Other single-family
|
|
2,397
|
|
2,961
|
|
||
Total single-family
|
|
1,932,600
|
|
1,823,851
|
|
||
Total multifamily
|
|
8,642
|
|
7,220
|
|
||
Total Freddie Mac mortgage-related securities
|
|
1,941,242
|
|
1,831,071
|
|
||
Freddie Mac mortgage-related securities repurchased or retained at issuance
|
|
(86,440
|
)
|
(82,333
|
)
|
||
Debt securities of consolidated trusts held by third parties
|
|
|
$1,854,802
|
|
|
$1,748,738
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
119
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
|
|
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
|
Outlook
|
|
Stable
|
Stable
|
Stable
|
(1)
|
Does not include senior preferred stock issued to Treasury.
|
FREDDIE MAC | 2019 Form 10-K
|
|
120
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
Beginning balance
|
|
|
$4,477
|
|
|
($312
|
)
|
|
$5,075
|
|
Comprehensive income (loss)
|
|
7,787
|
|
8,622
|
|
5,558
|
|
|||
Capital draws from Treasury
|
|
—
|
|
312
|
|
—
|
|
|||
Senior preferred stock dividends declared
|
|
(3,142
|
)
|
(4,145
|
)
|
(10,945
|
)
|
|||
Total equity / net worth
|
|
|
$9,122
|
|
|
$4,477
|
|
|
($312
|
)
|
Aggregate draws under Purchase Agreement
|
|
|
$71,648
|
|
|
$71,648
|
|
|
$71,336
|
|
Aggregate cash dividends paid to Treasury
|
|
119,680
|
|
116,538
|
|
112,393
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
121
|
Management's Discussion and Analysis
|
Liquidity and Capital Resources
|
|
|
Year Ended December 31,
|
|||||
(Dollars in billions)
|
|
2019
|
2018
|
||||
GAAP comprehensive income
|
|
|
$7.8
|
|
|
$8.6
|
|
Significant items:
|
|
|
|
||||
Non-agency mortgage-related securities judgment(2)
|
|
—
|
|
(0.3
|
)
|
||
Tax effect related to judgment(2)
|
|
—
|
|
0.1
|
|
||
Total significant items(3)
|
|
—
|
|
(0.2
|
)
|
||
Comprehensive income, excluding significant items(3)
|
|
|
$7.8
|
|
|
$8.4
|
|
Conservatorship capital (average during the period)(4)
|
|
|
$51.8
|
|
|
$56.6
|
|
ROCC, based on GAAP comprehensive income(4)
|
|
15.0
|
%
|
15.2
|
%
|
||
Adjusted ROCC, based on comprehensive income excluding significant items(3)(4)
|
|
15.0
|
%
|
14.8
|
%
|
(1)
|
Average conservatorship capital and ROCC for 2019 are preliminary and subject to change until official submission to FHFA.
|
(2)
|
2018 GAAP comprehensive income included a benefit of $334 million (pre-tax) from a final judgment against Nomura Holding America, Inc. in litigation involving certain of our non-agency mortgage-related securities. The tax effect related to this judgment was ($70) million.
|
(3)
|
No significant items were identified for 2019. Numbers for 2019 are included for comparison purposes only.
|
(4)
|
Average conservatorship capital for each period is based on the CCF in effect during the period. The CCF in effect as of December 31, 2019, was largely unchanged from the CCF as of December 31, 2018.
|
FREDDIE MAC | 2019 Form 10-K
|
|
122
|
Management's Discussion and Analysis
|
Conservatorship and Related Matters
|
FREDDIE MAC | 2019 Form 10-K
|
|
123
|
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
|
Since 2014, we have been managing the mortgage-related investments portfolio so that it does not exceed 90% of the cap, which reached $250 billion as of December 31, 2018. In February 2019, FHFA directed us to maintain the mortgage-related investments portfolio at or below $225 billion at all times.
|
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. Our debt cap under the Purchase Agreement was $346.1 billion in 2018 and declined to $300.0 billion on January 1, 2019. As of December 31, 2019, our aggregate indebtedness for purposes of the debt cap was $283.2 billion.
|
n
|
FHFA has indicated that any portfolio sales should be commercially reasonable transactions that consider impacts to the market, borrowers, and neighborhood stability.
|
FREDDIE MAC | 2019 Form 10-K
|
|
124
|
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.
|
n
|
Liquid - single-class and multi-class agency securities, excluding certain structured agency securities collateralized by non-agency mortgage-related securities;
|
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).
|
FREDDIE MAC | 2019 Form 10-K
|
|
125
|
Management's Discussion and Analysis
|
Conservatorship and Related Matters
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||||||||
(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
|
|
|
$—
|
|
|
$19,144
|
|
|
$—
|
|
|
$19,144
|
|
|
|
$—
|
|
|
$8,955
|
|
|
$—
|
|
|
$8,955
|
|
Reperforming loans
|
|
—
|
|
—
|
|
26,134
|
|
26,134
|
|
|
—
|
|
—
|
|
39,402
|
|
39,402
|
|
||||||||
Total single-family unsecuritized loans
|
|
—
|
|
19,144
|
|
26,134
|
|
45,278
|
|
|
—
|
|
8,955
|
|
39,402
|
|
48,357
|
|
||||||||
Agency securities
|
|
119,156
|
|
—
|
|
2,518
|
|
121,674
|
|
|
113,848
|
|
—
|
|
3,108
|
|
116,956
|
|
||||||||
Non-agency mortgage-related securities
|
|
—
|
|
—
|
|
1,458
|
|
1,458
|
|
|
—
|
|
—
|
|
2,122
|
|
2,122
|
|
||||||||
Total Capital Markets segment - Mortgage investments portfolio
|
|
119,156
|
|
19,144
|
|
30,110
|
|
168,410
|
|
|
113,848
|
|
8,955
|
|
44,632
|
|
167,435
|
|
||||||||
Single-family Guarantee segment - Single-family unsecuritized seriously delinquent loans
|
|
—
|
|
—
|
|
8,589
|
|
8,589
|
|
|
—
|
|
—
|
|
8,473
|
|
8,473
|
|
||||||||
Multifamily segment
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Unsecuritized mortgage loans
|
|
—
|
|
18,531
|
|
11,254
|
|
29,785
|
|
|
—
|
|
23,203
|
|
11,584
|
|
34,787
|
|
||||||||
Mortgage-related securities
|
|
5,209
|
|
—
|
|
680
|
|
5,889
|
|
|
6,570
|
|
—
|
|
815
|
|
7,385
|
|
||||||||
Total Multifamily segment
|
|
5,209
|
|
18,531
|
|
11,934
|
|
35,674
|
|
|
6,570
|
|
23,203
|
|
12,399
|
|
42,172
|
|
||||||||
Total mortgage-related investments portfolio
|
|
|
$124,365
|
|
|
$37,675
|
|
|
$50,633
|
|
|
$212,673
|
|
|
|
$120,418
|
|
|
$32,158
|
|
|
$65,504
|
|
|
$218,080
|
|
Percentage of total mortgage-related investments portfolio
|
|
58
|
%
|
18
|
%
|
24
|
%
|
100
|
%
|
|
55
|
%
|
15
|
%
|
30
|
%
|
100
|
%
|
n
|
Sales of $13.6 billion of less liquid assets, including $0.5 billion in UPB of single-family non-agency mortgage-related securities, $0.2 billion in UPB of seriously delinquent unsecuritized single-family loans, and $12.9 billion in UPB of single-family reperforming loans, which use our senior subordinate securitization structures;
|
n
|
Securitizations of $3.9 billion in UPB of less liquid multifamily loans; and
|
n
|
Transfers of $1.9 billion in UPB of less liquid multifamily loans to the securitization pipeline.
|
n
|
Focus on their core mission responsibilities to foster competitive liquid, efficient, and resilient (CLEAR) national housing finance markets that support sustainable homeownership and affordable rental housing;
|
FREDDIE MAC | 2019 Form 10-K
|
|
126
|
Management's Discussion and Analysis
|
Conservatorship and Related Matters
|
n
|
Operate in a safe and sound manner appropriate for entities in conservatorship; and
|
n
|
Prepare for their eventual exits from the conservatorship.
|
FREDDIE MAC | 2019 Form 10-K
|
|
127
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
FREDDIE MAC | 2019 Form 10-K
|
|
128
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
|
|
2018
|
|
2017
|
||||||||||
Affordable Housing Goals
|
|
Goals
|
Market Level
|
Results
|
|
Goals
|
Market Level
|
Results
|
||||||
Single-family purchase money goals
|
|
|
|
|
|
|
|
|
||||||
Low-income
|
|
24
|
%
|
25.5
|
%
|
25.8
|
%
|
|
24
|
%
|
24.3
|
%
|
23.2
|
%
|
Very low-income
|
|
6
|
%
|
6.5
|
%
|
6.3
|
%
|
|
6
|
%
|
5.9
|
%
|
5.7
|
%
|
Low-income areas
|
|
18
|
%
|
22.6
|
%
|
22.6
|
%
|
|
18
|
%
|
21.5
|
%
|
20.9
|
%
|
Low-income areas subgoal
|
|
14
|
%
|
18.0
|
%
|
17.3
|
%
|
|
14
|
%
|
17.1
|
%
|
16.4
|
%
|
Single-family refinance low-income goal
|
|
21
|
%
|
30.7
|
%
|
27.3
|
%
|
|
21
|
%
|
25.4
|
%
|
24.8
|
%
|
Multifamily low-income goal (In units)
|
|
315,000
|
|
N/A
|
|
474,062
|
|
|
300,000
|
|
N/A
|
|
408,096
|
|
Multifamily very low-income subgoal (In units)
|
|
60,000
|
|
N/A
|
|
105,612
|
|
|
60,000
|
|
N/A
|
|
92,274
|
|
Multifamily small property low-income subgoal (In units)
|
|
10,000
|
|
N/A
|
|
39,353
|
|
|
10,000
|
|
N/A
|
|
39,473
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
129
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
|
|
2019
|
2020
|
||
Single-family purchase money goals (Benchmark levels):
|
|
|
|
||
Low-income
|
|
24
|
%
|
24
|
%
|
Very low-income
|
|
6
|
%
|
6
|
%
|
Low-income areas
|
|
19
|
%
|
TBD
|
|
Low-income areas subgoal
|
|
14
|
%
|
14
|
%
|
Single-family refinance low-income goal (Benchmark level)
|
|
21
|
%
|
21
|
%
|
Multifamily low-income goal (In units)
|
|
315,000
|
|
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
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
130
|
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 | 2019 Form 10-K
|
|
131
|
Management's Discussion and Analysis
|
Regulation and Supervision
|
FREDDIE MAC | 2019 Form 10-K
|
|
132
|
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 securities 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 transactions and SCR notes, as well as payment of premiums related to ACIS transactions and payments to support the interest due on STACR Trust 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.
|
(In millions)
|
|
Total
|
2020
|
2021
|
2022
|
2023
|
2024
|
Thereafter
|
||||||||||||||
Other long-term debt(1)
|
|
|
$156,381
|
|
|
$45,133
|
|
|
$30,069
|
|
|
$23,185
|
|
|
$13,413
|
|
|
$26,966
|
|
|
$17,615
|
|
Other short-term debt(1)
|
|
111,080
|
|
111,080
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
Interest payable(2)
|
|
20,933
|
|
10,066
|
|
2,345
|
|
1,828
|
|
1,461
|
|
1,159
|
|
4,074
|
|
|||||||
Other contractual liabilities reflected on our consolidated balance sheets(3)
|
|
3,243
|
|
2,550
|
|
386
|
|
94
|
|
8
|
|
9
|
|
196
|
|
|||||||
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Purchase commitments(4)
|
|
47,381
|
|
44,559
|
|
1,128
|
|
1,315
|
|
379
|
|
—
|
|
—
|
|
|||||||
Other purchase obligations(5)
|
|
380
|
|
170
|
|
96
|
|
56
|
|
29
|
|
20
|
|
9
|
|
|||||||
Lease obligations
|
|
93
|
|
17
|
|
13
|
|
10
|
|
8
|
|
8
|
|
37
|
|
|||||||
Total specified contractual obligations
|
|
|
$339,491
|
|
|
$213,575
|
|
|
$34,037
|
|
|
$26,488
|
|
|
$15,298
|
|
|
$28,162
|
|
|
$21,931
|
|
(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. Future cash payments for certain purchase commitments are based on the contractual maturity date.
|
(5)
|
Primarily includes unconditional purchase obligations that are legally binding and that are subject to a cancellation penalty.
|
FREDDIE MAC | 2019 Form 10-K
|
|
133
|
Management's Discussion and Analysis
|
Off-Balance Sheet Arrangements
|
FREDDIE MAC | 2019 Form 10-K
|
|
134
|
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;
|
n
|
Third-party credit enhancements; and
|
n
|
Natural disasters (such as hurricanes and wildfires).
|
FREDDIE MAC | 2019 Form 10-K
|
|
135
|
Management's Discussion and Analysis
|
Critical Accounting Policies and Estimates
|
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 | 2019 Form 10-K
|
|
136
|
Risk Factors
|
Conservatorship and Related Matters
|
FREDDIE MAC | 2019 Form 10-K
|
|
137
|
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
|
Limitations on 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, funding, or hedging 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 loss mitigation efforts and foreclosure and REO activities;
|
n
|
Changes in accounting policies, practices, or guidance (e.g., our adoption of CECL);
|
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.
|
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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
138
|
Risk Factors
|
Conservatorship and Related Matters
|
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 | 2019 Form 10-K
|
|
139
|
Risk Factors
|
Conservatorship and Related Matters
|
FREDDIE MAC | 2019 Form 10-K
|
|
140
|
Risk Factors
|
Credit Risk
|
n
|
Reduce our return or result in losses on our single-family guarantee business, as default rates could be higher than we expected when we issued the guarantees;
|
n
|
Negatively affect loan pricing, which could cause us to change our disposition strategies for our single-family seasoned loans; or
|
n
|
Increase our losses on foreclosure alternatives, third-party sales, and dispositions of REO properties.
|
FREDDIE MAC | 2019 Form 10-K
|
|
141
|
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, the complexity of the servicing function, and heightened liquidity requirements are significant factors contributing to the risk of a decline in performance by servicers. We could be adversely affected if our servicers lack appropriate controls, experience a failure in their controls, or experience a disruption in their ability to service loans, including as a result of legal or regulatory actions or ratings downgrades. We also are exposed to fraud by third parties in the loan servicing function, particularly with respect to short sales and other dispositions of non-performing assets.
|
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 - A large and increasing volume of our single-family loans is acquired from and serviced by non-depository and smaller financial institutions. Some of these 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. These institutions also service portfolios for other investors and guarantors and operational issues related to those portfolios could affect the performance of our portfolio. In addition, these servicers may not always have ready access to appropriate sources of liquidity to finance their operations, particularly during periods when the mortgage market is experiencing a downturn. If these servicers reduce their servicing portfolios, overall servicing capacity may be constrained.
|
FREDDIE MAC | 2019 Form 10-K
|
|
142
|
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 | 2019 Form 10-K
|
|
143
|
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 | 2019 Form 10-K
|
|
144
|
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 and
|
l
|
A borrower's payments on loans with adjustable payment terms, including any additional debt obligations (such as home equity lines of credit and second liens) with such terms, may increase, which in turn increases the risk that the borrower may default on a loan we own or guarantee.
|
FREDDIE MAC | 2019 Form 10-K
|
|
145
|
Risk Factors
|
Market Risk
|
FREDDIE MAC | 2019 Form 10-K
|
|
146
|
Risk Factors
|
Operational Risks
|
FREDDIE MAC | 2019 Form 10-K
|
|
147
|
Risk Factors
|
Operational Risks
|
FREDDIE MAC | 2019 Form 10-K
|
|
148
|
Risk Factors
|
Operational Risks
|
n
|
We could fail to design, 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
|
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 selected third-party 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 processes by which these models are adjusted or changed. As a result, we may be unable to fully evaluate the risks associated with the use of such models.
|
FREDDIE MAC | 2019 Form 10-K
|
|
149
|
Risk Factors
|
Liquidity Risks
|
n
|
Market and other factors;
|
n
|
Changes in U.S. government support for us; and
|
n
|
Reduced demand for our debt securities.
|
n
|
Uncertainty about the future of the GSEs;
|
n
|
Any concerns by debt investors that we face increasing risk of being placed in receivership; and
|
n
|
Future draws that significantly reduce the amount of available funding remaining under the Purchase Agreement.
|
FREDDIE MAC | 2019 Form 10-K
|
|
150
|
Risk Factors
|
Liquidity Risks
|
FREDDIE MAC | 2019 Form 10-K
|
|
151
|
Risk Factors
|
Legal and Regulatory Risks
|
n
|
Changes the foreclosure process;
|
n
|
Limits or otherwise adversely affects the rights of a holder of a first lien on a mortgage (such as by granting priority rights in foreclosure proceedings for homeowner associations or providing 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 | 2019 Form 10-K
|
|
152
|
Risk Factors
|
Legal and Regulatory Risks
|
FREDDIE MAC | 2019 Form 10-K
|
|
153
|
Risk Factors
|
Other Risks
|
FREDDIE MAC | 2019 Form 10-K
|
|
154
|
Risk Factors
|
Other Risks
|
FREDDIE MAC | 2019 Form 10-K
|
|
155
|
Risk Factors
|
Other Risks
|
FREDDIE MAC | 2019 Form 10-K
|
|
156
|
Legal Proceedings
|
FREDDIE MAC | 2019 Form 10-K
|
|
157
|
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
FREDDIE MAC | 2019 Form 10-K
|
|
158
|
Financial Statements
|
|
Financial Statements and Supplementary Data
|
FREDDIE MAC | 2019 Form 10-K
|
|
159
|
Financial Statements
|
Report of Independent Registered Public Accounting Firm
|
FREDDIE MAC | 2019 Form 10-K
|
|
160
|
Financial Statements
|
Report of Independent Registered Public Accounting Firm
|
FREDDIE MAC | 2019 Form 10-K
|
|
161
|
Financial Statements
|
Consolidated Statements of Comprehensive Income
|
|
|
Year Ended December 31,
|
||||||||
(In millions, except share-related amounts)
|
|
2019
|
2018
|
2017
|
||||||
Interest income
|
|
|
|
|
||||||
Mortgage loans
|
|
|
$68,583
|
|
|
$66,037
|
|
|
$63,735
|
|
Investments in securities
|
|
2,737
|
|
3,035
|
|
3,415
|
|
|||
Other
|
|
1,575
|
|
982
|
|
657
|
|
|||
Total interest income
|
|
72,895
|
|
70,054
|
|
67,807
|
|
|||
Interest expense
|
|
(61,047
|
)
|
(58,033
|
)
|
(53,643
|
)
|
|||
Net interest income
|
|
11,848
|
|
12,021
|
|
14,164
|
|
|||
|
|
|
|
|
||||||
Non-interest income (loss)
|
|
|
|
|
||||||
Guarantee fee income
|
|
1,089
|
|
866
|
|
749
|
|
|||
Investment gains (losses), net
|
|
818
|
|
1,921
|
|
1,160
|
|
|||
Other income (loss)
|
|
323
|
|
762
|
|
4,984
|
|
|||
Non-interest income (loss)
|
|
2,230
|
|
3,549
|
|
6,893
|
|
|||
Net revenues
|
|
14,078
|
|
15,570
|
|
21,057
|
|
|||
|
|
|
|
|
||||||
Benefit (provision) for credit losses
|
|
746
|
|
736
|
|
84
|
|
|||
|
|
|
|
|
||||||
Non-interest expense
|
|
|
|
|
||||||
Salaries and employee benefits
|
|
(1,434
|
)
|
(1,227
|
)
|
(1,098
|
)
|
|||
Professional services
|
|
(445
|
)
|
(486
|
)
|
(452
|
)
|
|||
Other administrative expense
|
|
(685
|
)
|
(580
|
)
|
(556
|
)
|
|||
Total administrative expense
|
|
(2,564
|
)
|
(2,293
|
)
|
(2,106
|
)
|
|||
Credit enhancement expense
|
|
(708
|
)
|
(417
|
)
|
(280
|
)
|
|||
REO operations expense
|
|
(229
|
)
|
(169
|
)
|
(189
|
)
|
|||
Temporary Payroll Tax Cut Continuation Act of 2011 expense
|
|
(1,617
|
)
|
(1,484
|
)
|
(1,340
|
)
|
|||
Other expense
|
|
(657
|
)
|
(469
|
)
|
(392
|
)
|
|||
Non-interest expense
|
|
(5,775
|
)
|
(4,832
|
)
|
(4,307
|
)
|
|||
|
|
|
|
|
||||||
Income (loss) before income tax (expense) benefit
|
|
9,049
|
|
11,474
|
|
16,834
|
|
|||
Income tax (expense) benefit
|
|
(1,835
|
)
|
(2,239
|
)
|
(11,209
|
)
|
|||
Net income (loss)
|
|
7,214
|
|
9,235
|
|
5,625
|
|
|||
|
|
|
|
|
||||||
Other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
|
|
|
||||||
Changes in unrealized gains (losses) related to available-for-sale securities
|
|
535
|
|
(722
|
)
|
(253
|
)
|
|||
Changes in unrealized gains (losses) related to cash flow hedge relationships
|
|
71
|
|
114
|
|
124
|
|
|||
Changes in defined benefit plans
|
|
(33
|
)
|
(5
|
)
|
62
|
|
|||
Total other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
573
|
|
(613
|
)
|
(67
|
)
|
|||
Comprehensive income (loss)
|
|
|
$7,787
|
|
|
$8,622
|
|
|
$5,558
|
|
|
|
|
|
|
||||||
Net income (loss)
|
|
|
$7,214
|
|
|
$9,235
|
|
|
$5,625
|
|
Undistributed net worth sweep, senior preferred stock dividends, or future increase in senior preferred stock liquidation preference
|
|
(7,787
|
)
|
(5,623
|
)
|
(8,869
|
)
|
|||
Net income (loss) attributable to common stockholders
|
|
|
($573
|
)
|
|
$3,612
|
|
|
($3,244
|
)
|
Net income (loss) per common share — basic and diluted
|
|
|
($0.18
|
)
|
|
$1.12
|
|
|
($1.00
|
)
|
Weighted average common shares outstanding (in millions) — basic and diluted
|
|
3,234
|
|
3,234
|
|
3,234
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
162
|
Financial Statements
|
Consolidated Balance Sheets
|
|
|
As of December 31,
|
|||||
(In millions, except share-related amounts)
|
|
2019
|
2018
|
||||
Assets
|
|
|
|
||||
Cash and cash equivalents (Notes 1, 3, 14) (includes $991 and $596 of restricted cash and cash equivalents)
|
|
|
$5,189
|
|
|
$7,273
|
|
Securities purchased under agreements to resell (Notes 3, 10)
|
|
66,114
|
|
34,771
|
|
||
Investments in securities, at fair value (Note 7)
|
|
75,711
|
|
69,111
|
|
||
Mortgage loans held-for-sale (Notes 3, 4) (includes $15,035 and $23,106 at fair value)
|
|
35,288
|
|
41,622
|
|
||
Mortgage loans held-for-investment (Notes 3, 4) (net of allowance for loan losses of $4,234 and $6,139)
|
|
1,984,912
|
|
1,885,356
|
|
||
Accrued interest receivable (Note 3)
|
|
6,848
|
|
6,728
|
|
||
Derivative assets, net (Notes 9, 10)
|
|
844
|
|
335
|
|
||
Deferred tax assets, net (Note 12)
|
|
5,918
|
|
6,888
|
|
||
Other assets (Notes 3, 18) (includes $4,627 and $3,929 at fair value)
|
|
22,799
|
|
10,976
|
|
||
Total assets
|
|
|
$2,203,623
|
|
|
$2,063,060
|
|
Liabilities and equity
|
|
|
|
||||
Liabilities
|
|
|
|
||||
Accrued interest payable (Note 3)
|
|
|
$6,559
|
|
|
$6,652
|
|
Debt, net (Notes 3, 8) (includes $3,938 and $5,112 at fair value)
|
|
2,179,528
|
|
2,044,950
|
|
||
Derivative liabilities, net (Notes 9, 10)
|
|
372
|
|
583
|
|
||
Other liabilities (Notes 3, 18)
|
|
8,042
|
|
6,398
|
|
||
Total liabilities
|
|
2,194,501
|
|
2,058,583
|
|
||
Commitments and contingencies (Notes 5, 9, 16)
|
|
|
|
||||
Equity (Note 11)
|
|
|
|
||||
Senior preferred stock (redemption value of $79,322 and $75,648)
|
|
72,648
|
|
72,648
|
|
||
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 650,059,033 shares and 650,058,775 shares outstanding
|
|
—
|
|
—
|
|
||
Additional paid-in capital
|
|
—
|
|
—
|
|
||
Retained earnings (accumulated deficit)
|
|
(74,188
|
)
|
(78,260
|
)
|
||
AOCI, net of taxes, related to:
|
|
|
|
||||
Available-for-sale securities (includes $222 and $221, related to net unrealized gains on securities for which other-than-temporary impairment has been recognized in earnings)
|
|
618
|
|
83
|
|
||
Cash flow hedge relationships
|
|
(244
|
)
|
(315
|
)
|
||
Defined benefit plans
|
|
64
|
|
97
|
|
||
Total AOCI, net of taxes
|
|
438
|
|
(135
|
)
|
||
Treasury stock, at cost, 75,804,853 shares and 75,805,111 shares
|
|
(3,885
|
)
|
(3,885
|
)
|
||
Total equity (See Note 11 for information on our dividend requirement to Treasury)
|
|
9,122
|
|
4,477
|
|
||
Total liabilities and equity
|
|
|
$2,203,623
|
|
|
$2,063,060
|
|
|
|
As of December 31,
|
|||||
(In millions)
|
|
2019
|
2018
|
||||
Consolidated Balance Sheet Line Item
|
|
|
|
||||
Assets: (Note 3)
|
|
|
|
||||
Mortgage loans held-for-investment
|
|
|
$1,940,523
|
|
|
$1,842,850
|
|
All other assets
|
|
40,598
|
|
20,237
|
|
||
Total assets of consolidated VIEs
|
|
|
$1,981,121
|
|
|
$1,863,087
|
|
Liabilities: (Note 3)
|
|
|
|
||||
Debt, net
|
|
|
$1,898,355
|
|
|
$1,792,677
|
|
All other liabilities
|
|
5,537
|
|
5,335
|
|
||
Total liabilities of consolidated VIEs
|
|
|
$1,903,892
|
|
|
$1,798,012
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
163
|
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, 2016
|
|
1
|
|
464
|
|
650
|
|
|
$72,336
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($77,941
|
)
|
|
$456
|
|
|
($3,885
|
)
|
|
$5,075
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income (loss)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,625
|
|
—
|
|
—
|
|
5,625
|
|
||||||||
Other comprehensive income (loss), net of taxes
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(67
|
)
|
—
|
|
(67
|
)
|
||||||||
Comprehensive income (loss)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,625
|
|
(67
|
)
|
—
|
|
5,558
|
|
||||||||
Senior preferred stock dividends paid
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(10,945
|
)
|
—
|
|
—
|
|
(10,945
|
)
|
||||||||
Ending balance at December 31, 2017
|
|
1
|
|
464
|
|
650
|
|
|
$72,336
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($83,261
|
)
|
|
$389
|
|
|
($3,885
|
)
|
|
($312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2017
|
|
1
|
|
464
|
|
650
|
|
|
$72,336
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($83,261
|
)
|
|
$389
|
|
|
($3,885
|
)
|
|
($312
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income (loss)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
9,235
|
|
—
|
|
—
|
|
9,235
|
|
||||||||
Other comprehensive income (loss), net of taxes
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(613
|
)
|
—
|
|
(613
|
)
|
||||||||
Comprehensive income (loss)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
9,235
|
|
(613
|
)
|
—
|
|
8,622
|
|
||||||||
Cumulative effect of change in accounting principle(1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(89
|
)
|
89
|
|
—
|
|
—
|
|
||||||||
Increase in liquidation preference
|
|
—
|
|
—
|
|
—
|
|
312
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
312
|
|
||||||||
Senior preferred stock dividends paid
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(4,145
|
)
|
—
|
|
—
|
|
(4,145
|
)
|
||||||||
Ending balance at December 31, 2018
|
|
1
|
|
464
|
|
650
|
|
|
$72,648
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($78,260
|
)
|
|
($135
|
)
|
|
($3,885
|
)
|
|
$4,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2018
|
|
1
|
|
464
|
|
650
|
|
|
$72,648
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($78,260
|
)
|
|
($135
|
)
|
|
($3,885
|
)
|
|
$4,477
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income (loss)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7,214
|
|
—
|
|
—
|
|
7,214
|
|
||||||||
Other comprehensive income (loss), net of taxes
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
573
|
|
—
|
|
573
|
|
||||||||
Comprehensive income (loss)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7,214
|
|
573
|
|
—
|
|
7,787
|
|
||||||||
Senior preferred stock dividends paid
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,142
|
)
|
—
|
|
—
|
|
(3,142
|
)
|
||||||||
Ending balance at December 31, 2019
|
|
1
|
|
464
|
|
650
|
|
|
$72,648
|
|
|
$14,109
|
|
|
$—
|
|
|
$—
|
|
|
($74,188
|
)
|
|
$438
|
|
|
($3,885
|
)
|
|
$9,122
|
|
(1)
|
Includes the effect of adopting the accounting guidance on reclassification of stranded tax effects of the Tax Cuts and Jobs Act. See Note 11 for additional information.
|
FREDDIE MAC | 2019 Form 10-K
|
|
164
|
Financial Statements
|
Consolidated Statements of Cash Flows
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
Cash flows from operating activities
|
|
|
|
|
||||||
Net income (loss)
|
|
|
$7,214
|
|
|
$9,235
|
|
|
$5,625
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
||||||
Amortization of cost basis adjustments
|
|
(466
|
)
|
(2,117
|
)
|
(2,615
|
)
|
|||
(Benefit) provision for credit losses
|
|
(746
|
)
|
(736
|
)
|
(84
|
)
|
|||
Investment (gains) losses, net
|
|
(1,100
|
)
|
(2,084
|
)
|
(2,764
|
)
|
|||
Hedge accounting earnings mismatch
|
|
(288
|
)
|
658
|
|
(357
|
)
|
|||
Deferred income tax expense (benefit)
|
|
817
|
|
1,391
|
|
7,773
|
|
|||
Purchases of mortgage loans acquired as held-for-sale
|
|
(65,516
|
)
|
(70,482
|
)
|
(64,827
|
)
|
|||
Proceeds from sales of mortgage loans acquired as held-for-sale
|
|
71,557
|
|
66,889
|
|
61,744
|
|
|||
Repayments of mortgage loans acquired as held-for-sale
|
|
517
|
|
494
|
|
306
|
|
|||
Payments to servicers for pre-foreclosure expense and servicer incentive fees
|
|
(282
|
)
|
(282
|
)
|
(377
|
)
|
|||
Change in accrued interest receivable
|
|
(120
|
)
|
(373
|
)
|
(220
|
)
|
|||
Change in Interest payable
|
|
177
|
|
440
|
|
273
|
|
|||
Change in income taxes receivable
|
|
712
|
|
(1,269
|
)
|
1,912
|
|
|||
Other, net
|
|
(279
|
)
|
(1,090
|
)
|
(2,165
|
)
|
|||
Net cash provided by (used in) operating activities
|
|
12,197
|
|
674
|
|
4,224
|
|
|||
Cash flows from investing activities
|
|
|
|
|
||||||
Purchases of trading securities
|
|
(102,169
|
)
|
(131,977
|
)
|
(160,333
|
)
|
|||
Proceeds from sales of trading securities
|
|
84,296
|
|
126,012
|
|
150,448
|
|
|||
Proceeds from maturities and repayments of trading securities
|
|
14,528
|
|
11,375
|
|
8,570
|
|
|||
Purchases of available-for-sale securities
|
|
(8,967
|
)
|
(19,701
|
)
|
(10,549
|
)
|
|||
Proceeds from sales of available-for-sale securities
|
|
12,978
|
|
21,952
|
|
23,034
|
|
|||
Proceeds from maturities and repayments of available-for-sale securities
|
|
4,258
|
|
6,002
|
|
11,758
|
|
|||
Purchases of held-for-investment mortgage loans
|
|
(228,628
|
)
|
(151,836
|
)
|
(126,162
|
)
|
|||
Proceeds from sales of mortgage loans held-for-investment
|
|
15,218
|
|
10,661
|
|
8,883
|
|
|||
Repayments of mortgage loans held-for-investment
|
|
348,387
|
|
248,115
|
|
277,819
|
|
|||
Advances under secured lending arrangements
|
|
(54,176
|
)
|
(27,463
|
)
|
(35,452
|
)
|
|||
Repayments of secured lending arrangements
|
|
1,275
|
|
1,592
|
|
—
|
|
|||
Net proceeds from dispositions of real estate owned and other recoveries
|
|
1,150
|
|
1,336
|
|
1,861
|
|
|||
Net (increase) decrease in securities purchased under agreements to resell
|
|
(31,343
|
)
|
21,132
|
|
(4,355
|
)
|
|||
Derivative premiums and terminations, swap collateral, and exchange settlement payments, net
|
|
(8,163
|
)
|
3,020
|
|
(538
|
)
|
|||
Other, net
|
|
(492
|
)
|
(572
|
)
|
(428
|
)
|
|||
Net cash provided by (used in) investing activities
|
|
48,152
|
|
119,648
|
|
144,556
|
|
|||
Cash flows from financing activities
|
|
|
|
|
||||||
Proceeds from issuance of debt securities of consolidated trusts held by third parties
|
|
264,373
|
|
217,574
|
|
191,638
|
|
|||
Repayments and redemptions of debt securities of consolidated trusts held by third parties
|
|
(351,099
|
)
|
(275,402
|
)
|
(303,142
|
)
|
|||
Proceeds from issuance of other debt
|
|
880,249
|
|
574,472
|
|
613,280
|
|
|||
Repayments of other debt
|
|
(852,684
|
)
|
(635,669
|
)
|
(652,017
|
)
|
|||
Increase in liquidation preference of senior preferred stock
|
|
—
|
|
312
|
|
—
|
|
|||
Payment of cash dividends on senior preferred stock
|
|
(3,142
|
)
|
(4,145
|
)
|
(10,945
|
)
|
|||
Other, net
|
|
(130
|
)
|
(2
|
)
|
(3
|
)
|
|||
Net cash provided by (used in) financing activities
|
|
(62,433
|
)
|
(122,860
|
)
|
(161,189
|
)
|
|||
Net (decrease) increase in cash and cash equivalents (includes restricted cash and cash equivalents)
|
|
(2,084
|
)
|
(2,538
|
)
|
(12,409
|
)
|
|||
Cash and cash equivalents (includes restricted cash and cash equivalents) at the beginning of year
|
|
7,273
|
|
9,811
|
|
22,220
|
|
|||
Cash and cash equivalents (includes restricted cash and cash equivalents) at end of period
|
|
|
$5,189
|
|
|
$7,273
|
|
|
$9,811
|
|
|
|
|
|
|
||||||
Supplemental cash flow information
|
|
|
|
|
||||||
Cash paid for:
|
|
|
|
|
||||||
Debt interest
|
|
|
$70,918
|
|
|
$65,721
|
|
|
$63,574
|
|
Income taxes
|
|
306
|
|
2,125
|
|
1,872
|
|
|||
Non-cash investing and financing activities (Notes 4, 7, and 8)
|
|
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
165
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 1
|
n
|
Credit enhancement expense, which represents expenses incurred from freestanding credit enhancements, has been presented as a separate line item within non-interest expense, as the volume of freestanding credit enhancements has increased and become a more significant driver of our results of operations. In prior periods, freestanding credit enhancement expenses were recorded in other expenses;
|
n
|
Mortgage loans gains (losses), investment securities gains (losses), debt gains (losses), and derivative gains (losses) have been aggregated and presented as a single amount, investment gains (losses), net, to more clearly show the net effect of these activities on our results of operations, as certain gains and losses on our assets and debt are generally offset by certain gains and losses on the derivatives we use to hedge them. In prior periods, these amounts were shown separately as individual line items, and we continue to present the detail of each individual line item in Note 18; and
|
n
|
Certain other immaterial amounts have been reclassified between other income and guarantee fee income and other income and investment gains (losses), net to better align these amounts with the business drivers of the activity.
|
FREDDIE MAC | 2019 Form 10-K
|
|
166
|
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
|
Note 11
|
Stockholders' Equity
|
Note 11
|
Earnings Per Share
|
Note 12
|
Income Taxes
|
Note 13
|
Segment Reporting
|
Note 15
|
Fair Value Measurements
|
FREDDIE MAC | 2019 Form 10-K
|
|
167
|
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 2016-02, Leases (Topic 842)
|
The amendment in this Update addresses the accounting for lease arrangements.
|
January 1, 2019
|
The adoption of the amendment did not have a material effect on our consolidated financial statements or on our disclosures.
|
ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purpose
|
The amendments in this Update permit the OIS rate based on SOFR, as an eligible U.S. benchmark interest rate for purposes of applying hedge accounting under Topic 815.
|
January 1, 2019
|
The adoption of the amendments did not have a material effect on our consolidated financial statements or on our disclosures.
|
ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors
|
The amendments in this Update address certain ASU 2016-02 implementation issues including the recognition of taxes collected from lessees, lessor costs paid directly by a lessee, and recognition of variable payments for contracts with lease and non-lease components.
|
January 1, 2019
|
The adoption of the amendments did not have a material effect on our consolidated financial statements or on our disclosures.
|
Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements
|
|||
Standard
|
Description
|
Date of Planned Adoption
|
Effect on Consolidated Financial Statements
|
ASU 2016-13, 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
|
We have developed our models to estimate lifetime expected credit losses on our financial instruments measured at amortized cost primarily using a discounted cash flow methodology. We used these models to execute our process for estimating the allowance for credit losses under the new standard in parallel with our existing process for estimating the allowance for credit losses based on incurred losses and have developed an appropriate governance process for our estimate of expected credit losses under the new standard. The amendments will be applied through a cumulative effect adjustment to retained earnings as of January 1, 2020.
Based on the composition of our portfolio as of January 1, 2020 and the economic conditions and forecasts at that time, we expect the transition impact to result in a decrease in retained earnings of $0.2 billion. The increase in the allowance for credit losses from incorporating lifetime losses is generally offset by recoveries and a positive impact from including forecasts of economic conditions.
|
FREDDIE MAC | 2019 Form 10-K
|
|
168
|
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 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
|
The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. Certain disclosure requirements were either removed, modified, or added.
|
January 1, 2020
|
On October 1, 2018, we early adopted the amendments to remove or modify certain disclosures, which did not have a material effect on our consolidated financial statements. We are delaying adoption of the amendments to add certain disclosures until their effective date. We do not expect that the adoption of the additional disclosures will have a material effect on our consolidated financial statements.
|
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
|
The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
|
January 1, 2020
|
We do not expect that the adoption of these amendments will have a material effect on our consolidated financial statements.
|
ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities
|
The amendments in this Update require that indirect interests held through related parties under common control be considered on a proportional basis when determining whether fees paid to decision makers or service providers are variable interests. These amendments align with the determination of whether a reporting entity within a related party group is the primary beneficiary of a VIE.
|
January 1, 2020
|
We do not expect that the adoption of these amendments will have a material effect on our consolidated financial statements.
|
ASU 2019-01, Leases (Topic 842): Narrow-Scope Improvements for Lessors
|
The amendments in this Update provide guidance for the: (1) lessor's fair value determination of the lease's underlying asset; (2) lessor's statement of cash flows presentation of cash received from sales-type and direct financing leases; and (3) removal of interim transition disclosure requirements related to changes in accounting principles.
|
January 1, 2020
|
We do not expect that the adoption of these amendments will have a material effect on our consolidated financial statements.
|
ASU 2019-04, Codification Improvements to Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825
|
The amendments in this Update clarify certain aspects of Topic 326 guidance issued in ASU 2016-13 including the scope of the credit losses standard and issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments. The other amendments in this update clarify certain aspects of Topic 815 and Topic 825.
|
January 1, 2020
|
The impact of adopting the Topic 326 amendments is included with the impact of adoption of ASU 2016-13. We do not expect that the adoption of these amendments will have a material effect on our consolidated financial statements.
|
ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument
|
The amendments in this Update provide entities with transition relief upon the adoption of ASU 2016-13 by providing an option to elect the fair value option on certain financial instruments measured at amortized cost.
|
January 1, 2020
|
We do not expect to elect the fair value option for any financial instruments upon adoption of ASU 2016-13.
|
ASU 2019-11, Codification Improvements to Financial Instruments - Credit Losses (Topic 326)
|
The amendments in this Update clarify certain aspects of Topic 326 guidance issued in ASU 2016-13 including guidance providing transition relief for TDRs.
|
January 1, 2020
|
The impact of adopting these amendments is included with the impact of adoption of ASU 2016-13.
|
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
|
The amendments in this Update simplify the accounting for income taxes by removing certain exceptions for investments, intraperiod allocations, and interim calculations, and add guidance to reduce the complexity of applying Topic 740.
|
January 1, 2021
|
We do not expect that the adoption of these amendments will have a material effect on our consolidated financial statements.
|
FREDDIE MAC | 2019 Form 10-K
|
|
169
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 2
|
n
|
Focus on their core mission responsibilities to foster competitive liquid, efficient, and resilient (CLEAR) national housing finance markets that support sustainable homeownership and affordable rental housing;
|
n
|
Operate in a safe and sound manner appropriate for entities in conservatorship; and
|
n
|
Prepare for their eventual exits from the conservatorships.
|
FREDDIE MAC | 2019 Form 10-K
|
|
170
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 2
|
FREDDIE MAC | 2019 Form 10-K
|
|
171
|
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;
|
l
|
Upon arm's length terms; or
|
FREDDIE MAC | 2019 Form 10-K
|
|
172
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 2
|
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.
|
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 securities and mortgage guarantee obligations and
|
n
|
The lesser of:
|
FREDDIE MAC | 2019 Form 10-K
|
|
173
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 2
|
l
|
The deficiency amount and
|
l
|
The maximum amount of the commitment less the aggregate amount of funding previously provided under the commitment.
|
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.
|
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 | 2019 Form 10-K
|
|
174
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 2
|
FREDDIE MAC | 2019 Form 10-K
|
|
175
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 3
|
FREDDIE MAC | 2019 Form 10-K
|
|
176
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 3
|
n
|
Single-class resecuritization products - These securities are direct pass-throughs of the cash flows of the underlying collateral, which may be previously issued Level 1 Securitization Products or single-class resecuritization products (or similar TBA-eligible products issued and guaranteed by Fannie Mae). We do not consolidate these securities 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
|
Multiclass resecuritization products - These securities are multiclass resecuritizations of the cash flows of the underlying collateral, which may be previously issued Level 1 Securitization Products, single-class resecuritization products, or multiclass resecuritization products (or similar TBA-eligible products issued and guaranteed by Fannie Mae). 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, unless we retain a portion of the issued multiclass resecuritization products, 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 | 2019 Form 10-K
|
|
177
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 3
|
FREDDIE MAC | 2019 Form 10-K
|
|
178
|
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, 2019
|
As of December 31, 2018
|
||||
Consolidated Balance Sheet Line Item
|
|
|
|
||||
Assets:
|
|
|
|
||||
Cash and cash equivalents (includes $869 and $566 of restricted cash and cash equivalent)
|
|
|
$870
|
|
|
$567
|
|
Securities purchased under agreements to resell
|
|
23,137
|
|
12,125
|
|
||
Investments in securities, at fair value
|
|
597
|
|
—
|
|
||
Mortgage loans held-for-investment
|
|
1,940,523
|
|
1,842,850
|
|
||
Accrued interest receivable
|
|
6,170
|
|
5,914
|
|
||
Other assets
|
|
9,824
|
|
1,631
|
|
||
Total assets of consolidated VIEs
|
|
|
$1,981,121
|
|
|
$1,863,087
|
|
Liabilities:
|
|
|
|
||||
Accrued interest payable
|
|
|
$5,536
|
|
|
$5,335
|
|
Debt, net
|
|
1,898,355
|
|
1,792,677
|
|
||
Other liabilities
|
|
1
|
|
—
|
|
||
Total liabilities of consolidated VIEs
|
|
|
$1,903,892
|
|
|
$1,798,012
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
179
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 3
|
(In millions)
|
|
As of December 31, 2019
|
As of December 31, 2018
|
||||
Assets and Liabilities Recorded on our Consolidated Balance Sheets(1)
|
|
|
|
||||
Assets:
|
|
|
|
||||
Investments in securities, at fair value
|
|
|
$37,918
|
|
|
$44,020
|
|
Accrued interest receivable
|
|
212
|
|
235
|
|
||
Derivative assets, net
|
|
14
|
|
1
|
|
||
Other assets
|
|
3,951
|
|
3,119
|
|
||
Liabilities:
|
|
|
|
||||
Derivative liabilities, net
|
|
108
|
|
88
|
|
||
Other liabilities
|
|
3,761
|
|
3,049
|
|
||
Maximum Exposure to Loss
|
|
281,007
|
|
241,055
|
|
||
Total Assets of Non-Consolidated VIEs
|
|
335,562
|
|
284,724
|
|
(1)
|
Includes our variable interests in REMICs and Strips, K Certificates, SB Certificates, certain senior subordinate securitization structures, and other securitization products that we do not consolidate.
|
FREDDIE MAC | 2019 Form 10-K
|
|
180
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
|
|
December 31, 2019
|
|
December 31, 2018
|
||||||||||||||||
(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
|
|
|
$18,543
|
|
|
$—
|
|
|
$18,543
|
|
|
|
$20,946
|
|
|
$—
|
|
|
$20,946
|
|
Multifamily
|
|
18,954
|
|
—
|
|
18,954
|
|
|
23,959
|
|
—
|
|
23,959
|
|
||||||
Total UPB
|
|
37,497
|
|
—
|
|
37,497
|
|
|
44,905
|
|
—
|
|
44,905
|
|
||||||
Cost basis and fair value adjustments, net
|
|
(2,209
|
)
|
—
|
|
(2,209
|
)
|
|
(3,283
|
)
|
—
|
|
(3,283
|
)
|
||||||
Total held-for-sale loans, net
|
|
35,288
|
|
—
|
|
35,288
|
|
|
41,622
|
|
—
|
|
41,622
|
|
||||||
Held-for-investment:
|
|
|
|
|
|
|
|
|
||||||||||||
Single-family
|
|
35,324
|
|
1,902,958
|
|
1,938,282
|
|
|
35,885
|
|
1,814,008
|
|
1,849,893
|
|
||||||
Multifamily
|
|
10,831
|
|
6,642
|
|
17,473
|
|
|
10,828
|
|
4,220
|
|
15,048
|
|
||||||
Total UPB
|
|
46,155
|
|
1,909,600
|
|
1,955,755
|
|
|
46,713
|
|
1,818,228
|
|
1,864,941
|
|
||||||
Cost basis adjustments
|
|
(183
|
)
|
33,574
|
|
33,391
|
|
|
(1,198
|
)
|
27,752
|
|
26,554
|
|
||||||
Allowance for loan losses
|
|
(1,583
|
)
|
(2,651
|
)
|
(4,234
|
)
|
|
(3,009
|
)
|
(3,130
|
)
|
(6,139
|
)
|
||||||
Total held-for-investment loans, net
|
|
44,389
|
|
1,940,523
|
|
1,984,912
|
|
|
42,506
|
|
1,842,850
|
|
1,885,356
|
|
||||||
Total loans, net
|
|
|
$79,677
|
|
|
$1,940,523
|
|
|
$2,020,200
|
|
|
|
$84,128
|
|
|
$1,842,850
|
|
|
$1,926,978
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
181
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
(In billions)
|
|
2019
|
2018
|
2017
|
||||||
Single-family:
|
|
|
|
|
||||||
Purchases
|
|
|
|
|
||||||
Held-for-investment loans
|
|
|
$451.2
|
|
|
$307.7
|
|
|
$343.0
|
|
Reclassified from held-for-investment to held-for-sale (1)
|
|
13.6
|
|
21.7
|
|
26.2
|
|
|||
Sale of held-for-sale loans(2)
|
|
13.1
|
|
10.2
|
|
8.7
|
|
|||
Multifamily:
|
|
|
|
|
||||||
Purchases
|
|
|
|
|
||||||
Held-for-investment loans
|
|
9.5
|
|
5.0
|
|
5.3
|
|
|||
Held-for-sale loans
|
|
65.3
|
|
70.3
|
|
64.6
|
|
|||
Reclassified from held-for-investment to held-for-sale (1)
|
|
1.9
|
|
1.8
|
|
1.6
|
|
|||
Sale of held-for-sale loans(3)
|
|
71.3
|
|
68.1
|
|
61.9
|
|
(1)
|
We reclassify loans from held-for-investment to held-for-sale when we no longer have the intent or ability to hold for the foreseeable future. For additional information regarding the fair value of our loans classified as held-for-sale, see Note 15.
|
(2)
|
Our sales of single-family loans reflect the sale of seasoned single-family loans. The sale of seasoned single-family mortgage loans is part of our strategy to mitigate and reduce our holdings of less liquid assets.
|
(3)
|
Our sales of multifamily loans occur primarily through the issuance of multifamily K Certificates and SB Certificates. See Note 3 for more information on our K Certificates and SB Certificates.
|
FREDDIE MAC | 2019 Form 10-K
|
|
182
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||||||||
|
|
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
|
|
|
$1,405,562
|
|
|
$267,752
|
|
|
$3,954
|
|
|
$1,677,268
|
|
|
|
$1,336,310
|
|
|
$214,703
|
|
|
$6,654
|
|
|
$1,557,667
|
|
15-year amortizing fixed-rate
|
|
236,837
|
|
6,797
|
|
89
|
|
243,723
|
|
|
251,152
|
|
4,522
|
|
157
|
|
255,831
|
|
||||||||
Adjustable-rate
|
|
35,478
|
|
1,425
|
|
6
|
|
36,909
|
|
|
42,117
|
|
1,883
|
|
7
|
|
44,007
|
|
||||||||
Alt-A, interest-only, and option ARM
|
|
12,668
|
|
901
|
|
188
|
|
13,757
|
|
|
16,498
|
|
1,903
|
|
559
|
|
18,960
|
|
||||||||
Total single-family loans
|
|
|
$1,690,545
|
|
|
$276,875
|
|
|
$4,237
|
|
|
$1,971,657
|
|
|
|
$1,646,077
|
|
|
$223,011
|
|
|
$7,377
|
|
|
$1,876,465
|
|
(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 4.51% and 7.24% as of December 31, 2019 and December 31, 2018, respectively.
|
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.
|
(In millions)
|
|
As of December 31, 2019
|
As of December 31, 2018
|
||||
Credit risk profile by internally assigned grade:(1)
|
|
|
|
||||
Pass
|
|
|
$17,227
|
|
|
$14,648
|
|
Special mention
|
|
141
|
|
201
|
|
||
Substandard
|
|
121
|
|
181
|
|
||
Doubtful
|
|
—
|
|
—
|
|
||
Total
|
|
|
$17,489
|
|
|
$15,030
|
|
(1)
|
A loan categorized as: "Pass" is current and adequately protected by the current financial strength and debt service capacity of the borrower; "Special mention" has administrative issues that may affect future repayment prospects but does not have current credit weaknesses; "Substandard" has a 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 | 2019 Form 10-K
|
|
183
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
|
|
As of December 31, 2019
|
|||||||||||||||||
(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
|
|
|
$1,653,113
|
|
|
$15,481
|
|
|
$3,326
|
|
|
$5,348
|
|
|
$1,677,268
|
|
|
$5,822
|
|
15-year amortizing fixed-rate
|
|
242,177
|
|
1,131
|
|
175
|
|
240
|
|
243,723
|
|
252
|
|
||||||
Adjustable-rate
|
|
36,537
|
|
238
|
|
45
|
|
89
|
|
36,909
|
|
104
|
|
||||||
Alt-A, interest-only, and option ARM
|
|
12,690
|
|
489
|
|
161
|
|
417
|
|
13,757
|
|
205
|
|
||||||
Total single-family
|
|
1,944,517
|
|
17,339
|
|
3,707
|
|
6,094
|
|
1,971,657
|
|
6,383
|
|
||||||
Total multifamily
|
|
17,489
|
|
—
|
|
—
|
|
—
|
|
17,489
|
|
13
|
|
||||||
Total single-family and multifamily
|
|
|
$1,962,006
|
|
|
$17,339
|
|
|
$3,707
|
|
|
$6,094
|
|
|
$1,989,146
|
|
|
$6,396
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
As of December 31, 2018
|
|||||||||||||||||
(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
|
|
|
$1,532,499
|
|
|
$14,683
|
|
|
$3,602
|
|
|
$6,883
|
|
|
$1,557,667
|
|
|
$6,881
|
|
15-year amortizing fixed-rate
|
|
254,376
|
|
1,021
|
|
171
|
|
263
|
|
255,831
|
|
263
|
|
||||||
Adjustable-rate
|
|
43,549
|
|
287
|
|
58
|
|
113
|
|
44,007
|
|
113
|
|
||||||
Alt-A, interest-only, and option ARM
|
|
16,975
|
|
793
|
|
327
|
|
865
|
|
18,960
|
|
864
|
|
||||||
Total single-family
|
|
1,847,399
|
|
16,784
|
|
4,158
|
|
8,124
|
|
1,876,465
|
|
8,121
|
|
||||||
Total multifamily
|
|
15,030
|
|
—
|
|
—
|
|
—
|
|
15,030
|
|
17
|
|
||||||
Total single-family and multifamily
|
|
|
$1,862,429
|
|
|
$16,784
|
|
|
$4,158
|
|
|
$8,124
|
|
|
$1,891,495
|
|
|
$8,138
|
|
(1)
|
Includes $1.8 billion and $2.9 billion of loans that were in the process of foreclosure as of December 31, 2019 and December 31, 2018, respectively.
|
FREDDIE MAC | 2019 Form 10-K
|
|
184
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
(Dollars in millions)
|
|
December 31, 2019
|
December 31, 2018
|
||||
Single-family:
|
|
|
|
||||
Non-credit-enhanced portfolio:
|
|
|
|
||||
Serious delinquency rate
|
|
0.70
|
%
|
0.83
|
%
|
||
Total number of seriously delinquent loans
|
|
42,485
|
|
51,197
|
|
||
Credit-enhanced portfolio:(1)
|
|
|
|
||||
Primary mortgage insurance:
|
|
|
|
||||
Serious delinquency rate
|
|
0.79
|
%
|
0.86
|
%
|
||
Total number of seriously delinquent loans
|
|
15,261
|
|
15,287
|
|
||
Other credit protection:(2)
|
|
|
|
||||
Serious delinquency rate
|
|
0.40
|
%
|
0.31
|
%
|
||
Total number of seriously delinquent loans
|
|
18,143
|
|
12,920
|
|
||
Total single-family
|
|
|
|
||||
Serious delinquency rate
|
|
0.63
|
%
|
0.69
|
%
|
||
Total number of seriously delinquent loans
|
|
70,162
|
|
75,649
|
|
||
Multifamily (3)
|
|
|
|
||||
Non-credit-enhanced portfolio:
|
|
|
|
||||
Delinquency rate
|
|
—
|
%
|
—
|
%
|
||
UPB of delinquent loans
|
|
|
$2
|
|
|
$2
|
|
Credit-enhanced portfolio:
|
|
|
|
||||
Delinquency rate
|
|
0.09
|
%
|
0.01
|
%
|
||
UPB of delinquent loans
|
|
|
$244
|
|
|
$28
|
|
Total multifamily
|
|
|
|
||||
Delinquency rate
|
|
0.08
|
%
|
0.01
|
%
|
||
UPB of delinquent loans
|
|
|
$246
|
|
|
$30
|
|
(1)
|
The credit-enhanced categories are not mutually exclusive, as a single loan may be covered by both primary mortgage insurance and other credit protection.
|
(2)
|
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.
|
(3)
|
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.
|
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 our guarantees to unconsolidated securitization trusts and other mortgage-related guarantees.
|
FREDDIE MAC | 2019 Form 10-K
|
|
185
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
|
|
Year Ended December 31,
|
|||||||||||||||||||||||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
|||||||||||||||||||||||||||||||||
|
|
Allowance for Loan Losses
|
Reserve for
Guarantee Losses |
Total
|
|
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 |
|
Held by Freddie Mac
|
Held By
Consolidated
Trusts
|
||||||||||||||||||||||||||||||
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Beginning
balance |
|
|
$3,003
|
|
|
$3,127
|
|
|
$46
|
|
|
$6,176
|
|
|
|
$5,251
|
|
|
$3,680
|
|
|
$48
|
|
|
$8,979
|
|
|
|
$10,443
|
|
|
$2,968
|
|
|
$52
|
|
|
$13,463
|
|
Provision (benefit) for credit losses
|
|
(684
|
)
|
(70
|
)
|
5
|
|
(749
|
)
|
|
(861
|
)
|
145
|
|
4
|
|
(712
|
)
|
|
(1,447
|
)
|
1,350
|
|
—
|
|
(97
|
)
|
||||||||||||
Charge-offs
|
|
(1,676
|
)
|
(56
|
)
|
(5
|
)
|
(1,737
|
)
|
|
(2,823
|
)
|
(56
|
)
|
(6
|
)
|
(2,885
|
)
|
|
(4,939
|
)
|
(108
|
)
|
(4
|
)
|
(5,051
|
)
|
||||||||||||
Recoveries
|
|
439
|
|
13
|
|
—
|
|
452
|
|
|
467
|
|
8
|
|
—
|
|
475
|
|
|
419
|
|
6
|
|
—
|
|
425
|
|
||||||||||||
Transfers,
net (1) |
|
372
|
|
(372
|
)
|
—
|
|
—
|
|
|
676
|
|
(676
|
)
|
—
|
|
—
|
|
|
540
|
|
(540
|
)
|
—
|
|
—
|
|
||||||||||||
Other (2)
|
|
122
|
|
4
|
|
—
|
|
126
|
|
|
293
|
|
26
|
|
—
|
|
319
|
|
|
235
|
|
4
|
|
—
|
|
239
|
|
||||||||||||
Ending
balance |
|
|
$1,576
|
|
|
$2,646
|
|
|
$46
|
|
|
$4,268
|
|
|
|
$3,003
|
|
|
$3,127
|
|
|
$46
|
|
|
$6,176
|
|
|
|
$5,251
|
|
|
$3,680
|
|
|
$48
|
|
|
$8,979
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Beginning
balance |
|
|
$6
|
|
|
$3
|
|
|
$6
|
|
|
$15
|
|
|
|
$28
|
|
|
$7
|
|
|
$9
|
|
|
$44
|
|
|
|
$18
|
|
|
$2
|
|
|
$15
|
|
|
$35
|
|
Provision (benefit) for credit losses
|
|
2
|
|
1
|
|
—
|
|
3
|
|
|
(23
|
)
|
—
|
|
(1
|
)
|
(24
|
)
|
|
15
|
|
4
|
|
(6
|
)
|
13
|
|
||||||||||||
Charge-offs
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(6
|
)
|
—
|
|
(2
|
)
|
(8
|
)
|
|
(4
|
)
|
—
|
|
—
|
|
(4
|
)
|
||||||||||||
Recoveries
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
3
|
|
—
|
|
—
|
|
3
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
Transfers,
net (1) |
|
(1
|
)
|
1
|
|
—
|
|
—
|
|
|
4
|
|
(4
|
)
|
—
|
|
—
|
|
|
(1
|
)
|
1
|
|
—
|
|
—
|
|
||||||||||||
Other (2)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||
Ending
balance |
|
|
$7
|
|
|
$5
|
|
|
$6
|
|
|
$18
|
|
|
|
$6
|
|
|
$3
|
|
|
$6
|
|
|
$15
|
|
|
|
$28
|
|
|
$7
|
|
|
$9
|
|
|
$44
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Beginning
balance |
|
|
$3,009
|
|
|
$3,130
|
|
|
$52
|
|
|
$6,191
|
|
|
|
$5,279
|
|
|
$3,687
|
|
|
$57
|
|
|
$9,023
|
|
|
|
$10,461
|
|
|
$2,970
|
|
|
$67
|
|
|
$13,498
|
|
Provision (benefit) for credit losses
|
|
(682
|
)
|
(69
|
)
|
5
|
|
(746
|
)
|
|
(884
|
)
|
145
|
|
3
|
|
(736
|
)
|
|
(1,432
|
)
|
1,354
|
|
(6
|
)
|
(84
|
)
|
||||||||||||
Charge-offs
|
|
(1,676
|
)
|
(56
|
)
|
(5
|
)
|
(1,737
|
)
|
|
(2,829
|
)
|
(56
|
)
|
(8
|
)
|
(2,893
|
)
|
|
(4,943
|
)
|
(108
|
)
|
(4
|
)
|
(5,055
|
)
|
||||||||||||
Recoveries
|
|
439
|
|
13
|
|
—
|
|
452
|
|
|
470
|
|
8
|
|
—
|
|
478
|
|
|
419
|
|
6
|
|
—
|
|
425
|
|
||||||||||||
Transfers,
net (1) |
|
371
|
|
(371
|
)
|
—
|
|
—
|
|
|
680
|
|
(680
|
)
|
—
|
|
—
|
|
|
539
|
|
(539
|
)
|
—
|
|
—
|
|
||||||||||||
Other (2)
|
|
122
|
|
4
|
|
—
|
|
126
|
|
|
293
|
|
26
|
|
—
|
|
319
|
|
|
235
|
|
4
|
|
—
|
|
239
|
|
||||||||||||
Ending
balance |
|
|
$1,583
|
|
|
$2,651
|
|
|
$52
|
|
|
$4,286
|
|
|
|
$3,009
|
|
|
$3,130
|
|
|
$52
|
|
|
$6,191
|
|
|
|
$5,279
|
|
|
$3,687
|
|
|
$57
|
|
|
$9,023
|
|
(1)
|
Relates to removal of delinquent loans from consolidated trusts and resecuritization after such removal.
|
(2)
|
Primarily includes capitalization of past due interest on modified loans.
|
FREDDIE MAC | 2019 Form 10-K
|
|
186
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
|
|
December 31, 2019
|
|
December 31, 2018
|
||||||||||||||||
(In millions)
|
|
Single-family
|
Multifamily
|
Total
|
|
Single-family
|
Multifamily
|
Total
|
||||||||||||
Recorded investment:
|
|
|
|
|
|
|
|
|
||||||||||||
Collectively evaluated
|
|
|
$1,936,208
|
|
|
$17,408
|
|
|
$1,953,616
|
|
|
|
$1,830,044
|
|
|
$14,945
|
|
|
$1,844,989
|
|
Individually evaluated
|
|
35,449
|
|
81
|
|
35,530
|
|
|
46,421
|
|
85
|
|
46,506
|
|
||||||
Total recorded investment
|
|
1,971,657
|
|
17,489
|
|
1,989,146
|
|
|
1,876,465
|
|
15,030
|
|
1,891,495
|
|
||||||
Ending balance of the allowance for loan losses:
|
|
|
|
|
|
|
|
|
||||||||||||
Collectively evaluated
|
|
(1,350
|
)
|
(12
|
)
|
(1,362
|
)
|
|
(1,761
|
)
|
(9
|
)
|
(1,770
|
)
|
||||||
Individually evaluated
|
|
(2,872
|
)
|
—
|
|
(2,872
|
)
|
|
(4,369
|
)
|
—
|
|
(4,369
|
)
|
||||||
Total ending balance of the allowance
|
|
(4,222
|
)
|
(12
|
)
|
(4,234
|
)
|
|
(6,130
|
)
|
(9
|
)
|
(6,139
|
)
|
||||||
Net investment in loans
|
|
|
$1,967,435
|
|
|
$17,477
|
|
|
$1,984,912
|
|
|
|
$1,870,335
|
|
|
$15,021
|
|
|
$1,885,356
|
|
n
|
Loss mitigation activities when a loss is incurred, 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 | 2019 Form 10-K
|
|
187
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
|
|
Balance at December 31, 2019
|
|
Balance at December 31, 2018
|
||||||||||||||||
(In millions)
|
|
UPB
|
Recorded
Investment
|
Associated
Allowance
|
|
UPB
|
Recorded
Investment
|
Associated
Allowance
|
||||||||||||
Single-family:
|
|
|
|
|
|
|
|
|
||||||||||||
With no allowance recorded: (1)
|
|
|
|
|
|
|
|
|
||||||||||||
20- and 30-year or more, amortizing fixed-rate
|
|
|
$2,431
|
|
|
$1,927
|
|
N/A
|
|
|
|
$3,335
|
|
|
$2,666
|
|
N/A
|
|
||
15-year amortizing fixed-rate
|
|
21
|
|
20
|
|
N/A
|
|
|
23
|
|
22
|
|
N/A
|
|
||||||
Adjustable-rate
|
|
169
|
|
169
|
|
N/A
|
|
|
227
|
|
226
|
|
N/A
|
|
||||||
Alt-A, interest-only, and option ARM
|
|
847
|
|
727
|
|
N/A
|
|
|
1,286
|
|
1,083
|
|
N/A
|
|
||||||
Total with no allowance recorded
|
|
3,468
|
|
2,843
|
|
N/A
|
|
|
4,871
|
|
3,997
|
|
N/A
|
|
||||||
With an allowance recorded: (2)
|
|
|
|
|
|
|
|
|
||||||||||||
20- and 30-year or more, amortizing fixed-rate
|
|
28,824
|
|
28,667
|
|
(2,416
|
)
|
|
37,579
|
|
36,959
|
|
(3,660
|
)
|
||||||
15-year amortizing fixed-rate
|
|
616
|
|
625
|
|
(13
|
)
|
|
703
|
|
713
|
|
(19
|
)
|
||||||
Adjustable-rate
|
|
131
|
|
130
|
|
(7
|
)
|
|
164
|
|
162
|
|
(8
|
)
|
||||||
Alt-A, interest-only, and option ARM
|
|
3,315
|
|
3,184
|
|
(436
|
)
|
|
4,867
|
|
4,590
|
|
(682
|
)
|
||||||
Total with an allowance recorded
|
|
32,886
|
|
32,606
|
|
(2,872
|
)
|
|
43,313
|
|
42,424
|
|
(4,369
|
)
|
||||||
Combined single-family:
|
|
|
|
|
|
|
|
|
||||||||||||
20- and 30-year or more, amortizing fixed-rate
|
|
31,255
|
|
30,594
|
|
(2,416
|
)
|
|
40,914
|
|
39,625
|
|
(3,660
|
)
|
||||||
15-year amortizing fixed-rate
|
|
637
|
|
645
|
|
(13
|
)
|
|
726
|
|
735
|
|
(19
|
)
|
||||||
Adjustable-rate
|
|
300
|
|
299
|
|
(7
|
)
|
|
391
|
|
388
|
|
(8
|
)
|
||||||
Alt-A, interest-only, and option ARM
|
|
4,162
|
|
3,911
|
|
(436
|
)
|
|
6,153
|
|
5,673
|
|
(682
|
)
|
||||||
Total single-family
|
|
36,354
|
|
35,449
|
|
(2,872
|
)
|
|
48,184
|
|
46,421
|
|
(4,369
|
)
|
||||||
Multifamily :
|
|
|
|
|
|
|
|
|
||||||||||||
With no allowance recorded (1)
|
|
86
|
|
81
|
|
N/A
|
|
|
89
|
|
82
|
|
N/A
|
|
||||||
With an allowance recorded
|
|
—
|
|
—
|
|
—
|
|
|
3
|
|
3
|
|
—
|
|
||||||
Total multifamily
|
|
86
|
|
81
|
|
—
|
|
|
92
|
|
85
|
|
—
|
|
||||||
Total single-family and multifamily
|
|
|
$36,440
|
|
|
$35,530
|
|
|
($2,872
|
)
|
|
|
$48,276
|
|
|
$46,506
|
|
|
($4,369
|
)
|
FREDDIE MAC | 2019 Form 10-K
|
|
188
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
|
|
Year Ended December 31,
|
||||||||||||||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||||||||||||||||||||
(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)
|
|
Average
Recorded
Investment
|
Interest
Income
Recognized
|
Interest Income Recognized on Cash Basis(3)
|
||||||||||||||||||
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
With no allowance
recorded: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
20- and 30-year or more, amortizing
fixed-rate
|
|
|
$2,450
|
|
|
$262
|
|
|
$7
|
|
|
|
$3,236
|
|
|
$346
|
|
|
$16
|
|
|
|
$3,556
|
|
|
$399
|
|
|
$16
|
|
15-year amortizing
fixed-rate
|
|
20
|
|
1
|
|
—
|
|
|
21
|
|
3
|
|
—
|
|
|
25
|
|
1
|
|
—
|
|
|||||||||
Adjustable rate
|
|
200
|
|
11
|
|
—
|
|
|
248
|
|
12
|
|
1
|
|
|
292
|
|
11
|
|
—
|
|
|||||||||
Alt-A, interest-only, and option ARM
|
|
891
|
|
66
|
|
1
|
|
|
1,264
|
|
88
|
|
4
|
|
|
1,471
|
|
110
|
|
5
|
|
|||||||||
Total with no allowance
recorded
|
|
3,561
|
|
340
|
|
8
|
|
|
4,769
|
|
449
|
|
21
|
|
|
5,344
|
|
521
|
|
21
|
|
|||||||||
With an allowance
recorded: (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
20- and 30-year or more, amortizing
fixed-rate
|
|
32,960
|
|
1,805
|
|
156
|
|
|
44,055
|
|
2,156
|
|
274
|
|
|
44,057
|
|
2,513
|
|
248
|
|
|||||||||
15-year amortizing
fixed-rate
|
|
653
|
|
22
|
|
4
|
|
|
798
|
|
28
|
|
9
|
|
|
599
|
|
32
|
|
6
|
|
|||||||||
Adjustable rate
|
|
135
|
|
6
|
|
2
|
|
|
197
|
|
6
|
|
3
|
|
|
261
|
|
9
|
|
3
|
|
|||||||||
Alt-A, interest-only, and option ARM
|
|
3,917
|
|
226
|
|
20
|
|
|
5,953
|
|
273
|
|
30
|
|
|
7,366
|
|
378
|
|
33
|
|
|||||||||
Total with an allowance
recorded
|
|
37,665
|
|
2,059
|
|
182
|
|
|
51,003
|
|
2,463
|
|
316
|
|
|
52,283
|
|
2,932
|
|
290
|
|
|||||||||
Combined single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
20- and 30-year or more, amortizing
fixed-rate
|
|
35,410
|
|
2,067
|
|
163
|
|
|
47,291
|
|
2,502
|
|
290
|
|
|
47,613
|
|
2,912
|
|
264
|
|
|||||||||
15-year amortizing fixed-rate
|
|
673
|
|
23
|
|
4
|
|
|
819
|
|
31
|
|
9
|
|
|
624
|
|
33
|
|
6
|
|
|||||||||
Adjustable rate
|
|
335
|
|
17
|
|
2
|
|
|
445
|
|
18
|
|
4
|
|
|
553
|
|
20
|
|
3
|
|
|||||||||
Alt-A, interest-only, and option ARM
|
|
4,808
|
|
292
|
|
21
|
|
|
7,217
|
|
361
|
|
34
|
|
|
8,837
|
|
488
|
|
38
|
|
|||||||||
Total single-family
|
|
41,226
|
|
2,399
|
|
190
|
|
|
55,772
|
|
2,912
|
|
337
|
|
|
57,627
|
|
3,453
|
|
311
|
|
|||||||||
Multifamily:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
With no allowance
recorded (1)
|
|
83
|
|
5
|
|
1
|
|
|
131
|
|
6
|
|
2
|
|
|
286
|
|
9
|
|
3
|
|
|||||||||
With an allowance
recorded
|
|
—
|
|
—
|
|
—
|
|
|
3
|
|
—
|
|
—
|
|
|
45
|
|
1
|
|
1
|
|
|||||||||
Total multifamily
|
|
83
|
|
5
|
|
1
|
|
|
134
|
|
6
|
|
2
|
|
|
331
|
|
10
|
|
4
|
|
|||||||||
Total single-family and multifamily
|
|
|
$41,309
|
|
|
$2,404
|
|
|
$191
|
|
|
|
$55,906
|
|
|
$2,918
|
|
|
$339
|
|
|
|
$57,958
|
|
|
$3,463
|
|
|
$315
|
|
(1)
|
Individually impaired loans with no 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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
189
|
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,
|
||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions)
|
|
Number of
Loans
|
Post-TDR
Recorded
Investment
|
|
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
|
|
25,924
|
|
|
$4,331
|
|
|
43,742
|
|
|
$7,084
|
|
|
33,745
|
|
|
$4,818
|
|
15-year amortizing fixed-rate
|
|
3,018
|
|
296
|
|
|
5,944
|
|
584
|
|
|
4,569
|
|
356
|
|
|||
Adjustable-rate
|
|
529
|
|
86
|
|
|
902
|
|
140
|
|
|
892
|
|
128
|
|
|||
Alt-A, interest-only, and option ARM
|
|
1,523
|
|
219
|
|
|
2,602
|
|
432
|
|
|
2,784
|
|
495
|
|
|||
Total single-family
|
|
30,994
|
|
4,932
|
|
|
53,190
|
|
8,240
|
|
|
41,990
|
|
5,797
|
|
|||
Multifamily
|
|
—
|
|
|
$—
|
|
|
1
|
|
|
$15
|
|
|
1
|
|
|
$—
|
|
(1)
|
The pre-TDR recorded investment for single-family loans initially classified as TDR during the years ended December 31, 2019, December 31, 2018, and December 31, 2017 was $4.9 billion, $8.3 billion, and $5.8 billion, respectively.
|
|
|
Year Ended December 31,
|
|
|
||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions)
|
|
Number of Loans
|
Post-TDR
Recorded
Investment
|
|
Number of Loans
|
Post-TDR
Recorded
Investment
|
|
Number of Loans
|
Post-TDR
Recorded
Investment
|
|||||||||
Single-family:
|
|
|
|
|
|
|
|
|
|
|||||||||
20- and 30-year or more, amortizing fixed-rate
|
|
13,428
|
|
|
$1,702
|
|
|
13,548
|
|
|
$1,847
|
|
|
13,973
|
|
|
$2,231
|
|
15-year amortizing fixed-rate
|
|
451
|
|
36
|
|
|
565
|
|
44
|
|
|
720
|
|
57
|
|
|||
Adjustable-rate
|
|
132
|
|
15
|
|
|
176
|
|
25
|
|
|
225
|
|
33
|
|
|||
Alt-A, interest-only, and option ARM
|
|
871
|
|
129
|
|
|
1,178
|
|
199
|
|
|
1,254
|
|
253
|
|
|||
Total single-family
|
|
14,882
|
|
1,882
|
|
|
15,467
|
|
2,115
|
|
|
16,172
|
|
2,574
|
|
|||
Multifamily
|
|
—
|
|
|
$—
|
|
|
—
|
|
|
$—
|
|
|
—
|
|
|
$—
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
190
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
n
|
9%, 12%, and 37% involved interest rate reductions and, in certain cases, term extensions;
|
n
|
23%, 24%, and 14% involved principal forbearance in addition to interest rate reductions and, in certain cases, term extensions;
|
n
|
The average term extension was 180, 132, and 176 months; and
|
n
|
The average interest rate reduction was 0.1%, 0.2%, and 0.6%.
|
FREDDIE MAC | 2019 Form 10-K
|
|
191
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 4
|
FREDDIE MAC | 2019 Form 10-K
|
|
192
|
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 securities backed by many of the same loans. During 2019 and 2018, we guaranteed $2.3 billion and $0.5 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, 2019 and December 31, 2018. During 2019 and 2018, we guaranteed $0.9 billion and $0.6 billion, respectively, of multifamily bonds.
|
FREDDIE MAC | 2019 Form 10-K
|
|
193
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 5
|
n
|
Certain guarantees related to our securitization and guarantee activities that do not qualify as financial guarantees;
|
n
|
Certain market value guarantees, including written options and written swaptions; and
|
n
|
Guarantees of third-party derivative instruments.
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||
(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
|
|
|
$26,818
|
|
|
$361
|
|
40
|
|
|
$17,783
|
|
|
$220
|
|
40
|
Other mortgage-related guarantees
|
|
7,492
|
|
182
|
|
30
|
|
6,139
|
|
167
|
|
30
|
||||
Total single-family
|
|
|
$34,310
|
|
|
$543
|
|
|
|
|
$23,922
|
|
|
$387
|
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
||||||||
Securitization activity guarantees
|
|
|
$252,167
|
|
|
$3,333
|
|
39
|
|
|
$221,245
|
|
|
$2,746
|
|
40
|
Other mortgage-related guarantees
|
|
9,989
|
|
416
|
|
34
|
|
9,779
|
|
428
|
|
35
|
||||
Total multifamily
|
|
|
$262,156
|
|
|
$3,749
|
|
|
|
|
$231,024
|
|
|
$3,174
|
|
|
Other guarantees measured at fair value
|
|
|
$24,965
|
|
|
$253
|
|
30
|
|
|
$16,251
|
|
|
$242
|
|
30
|
(1)
|
The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of possible recoveries under credit enhancements, such as recourse provisions, third-party insurance contracts or from collateral held or pledged. For other guarantees measured at fair value, this amount primarily 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 and, as a result, the notional value is included. 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 $52 million as of both December 31, 2019 and December 31, 2018, 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 | 2019 Form 10-K
|
|
194
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 6
|
FREDDIE MAC | 2019 Form 10-K
|
|
195
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 6
|
FREDDIE MAC | 2019 Form 10-K
|
|
196
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 6
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
||||||||||
(In millions)
|
|
Credit Enhancement Accounting Treatment
|
Total Current and Protected UPB(1)
|
Maximum Coverage
|
|
Total Current and Protected UPB(1)
|
Maximum Coverage
|
||||||||
Primary mortgage insurance
|
|
Attached
|
|
$421,870
|
|
|
$107,690
|
|
|
|
$378,594
|
|
|
$96,996
|
|
STACR: (2)
|
|
|
|
|
|
|
|
||||||||
Trust notes
|
|
Freestanding
|
288,323
|
|
9,739
|
|
|
161,152
|
|
5,026
|
|
||||
Debt notes
|
|
Debt
|
536,036
|
|
15,373
|
|
|
605,263
|
|
17,596
|
|
||||
Insurance/reinsurance (3)
|
|
Freestanding
|
863,149
|
|
10,157
|
|
|
808,484
|
|
9,278
|
|
||||
Subordination:
|
|
|
|
|
|
|
|
||||||||
Non-consolidated VIEs (4)
|
|
Attached
|
25,443
|
|
4,545
|
|
|
16,271
|
|
2,933
|
|
||||
Consolidated VIEs (5)
|
|
Debt
|
19,498
|
|
854
|
|
|
25,006
|
|
1,036
|
|
||||
Lender risk-sharing
|
|
Freestanding
|
24,078
|
|
5,657
|
|
|
17,458
|
|
5,170
|
|
||||
Other
|
|
Primarily attached
|
1,056
|
|
1,051
|
|
|
1,305
|
|
1,290
|
|
||||
Total single-family credit enhancements
|
|
|
|
|
$155,066
|
|
|
|
|
$139,325
|
|
(1)
|
Underlying loans may be covered by more than one form of credit enhancement.
|
(2)
|
Total current and protected UPB represents the UPB of the assets included in the reference pool. Maximum coverage amount represents the outstanding balance held by third parties.
|
(3)
|
As of December 31, 2019 and December 31, 2018, our counterparties posted sufficient collateral on our ACIS transactions to meet the minimum collateral requirements of the ACIS program. Minimum collateral requirements are assessed on each deal based on a combination of factors, including counterparty credit risk of the reinsurer, as well as the structure and risk profile of the transaction. Other insurance/reinsurance transactions have similar collateral requirements.
|
(4)
|
Total current and protected UPB includes the UPB of the guaranteed securities, which represents the UPB of the assets included in the trust net of the protection provided by the subordinated securities, and the UPB of guarantor advances made to the holders of the guaranteed securities. Maximum coverage represents the outstanding UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.
|
(5)
|
Total current and protected UPB represents the UPB of the guaranteed securities, which represents the UPB of the assets included in the trust net of the protection provided by the subordinated securities. Maximum coverage amount represents the outstanding UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.
|
FREDDIE MAC | 2019 Form 10-K
|
|
197
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 6
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
||||||||||
(In millions)
|
|
Credit Enhancement Accounting Treatment
|
Total Current and Protected UPB(1)
|
Maximum Coverage
|
|
Total Current and Protected UPB(1)
|
Maximum Coverage
|
||||||||
Subordination:
|
|
|
|
|
|
|
|
||||||||
Non-consolidated VIEs (2)
|
|
Attached
|
|
$251,008
|
|
|
$40,262
|
|
|
|
$220,733
|
|
|
$35,661
|
|
Consolidated VIEs (3)
|
|
Debt
|
1,800
|
|
200
|
|
|
2,700
|
|
280
|
|
||||
Insurance/reinsurance(4)
|
|
Freestanding
|
2,769
|
|
127
|
|
|
915
|
|
43
|
|
||||
SCR debt notes (5)
|
|
Debt
|
2,470
|
|
123
|
|
|
2,667
|
|
133
|
|
||||
Other (6)
|
|
Primarily freestanding
|
2,996
|
|
848
|
|
|
2,349
|
|
815
|
|
||||
Total multifamily credit enhancements
|
|
|
|
|
$41,560
|
|
|
|
|
$36,932
|
|
(1)
|
Underlying loans may be covered by more than one form of credit enhancement.
|
(2)
|
Total current and protected UPB includes the UPB of the guaranteed securities, which represents the UPB of the assets included in the trust net of the protection provided by the subordinated securities, and the UPB of guarantor advances made to the holders of the guaranteed securities. Maximum coverage represents the outstanding UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.
|
(3)
|
Total current and protected UPB represents the UPB of the guaranteed securities, which represents the UPB of the assets included in the trust net of the protection provided by the subordinated securities. Maximum coverage amount represents the outstanding UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.
|
(4)
|
As of December 31, 2019 and December 31, 2018, the counterparties to our insurance/reinsurance transactions have complied with the minimum collateral requirements. Minimum collateral requirements are assessed on each deal based on a combination of factors, including counterparty credit risk of the reinsurer, as well as the structure and risk profile of the transaction.
|
(5)
|
Total current and protected UPB represents the UPB of the assets included in the reference pool. Maximum coverage amount represents the outstanding balance of the SCR notes held by third parties.
|
(6)
|
Maximum coverage represents the remaining amount of loss recovery that is available subject to the terms of counterparty agreements.
|
FREDDIE MAC | 2019 Form 10-K
|
|
198
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 7
|
(In millions)
|
|
As of December 31, 2019
|
As of December 31, 2018
|
||||
Trading securities
|
|
|
$49,537
|
|
|
$35,548
|
|
Available-for-sale securities
|
|
26,174
|
|
33,563
|
|
||
Total
|
|
|
$75,711
|
|
|
$69,111
|
|
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 | 2019 Form 10-K
|
|
199
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 7
|
(In millions)
|
|
As of December 31, 2019
|
As of December 31, 2018
|
||||
Mortgage-related securities:
|
|
|
|
||||
Agency
|
|
|
$22,481
|
|
|
$16,372
|
|
Non-agency
|
|
1
|
|
1
|
|
||
Total mortgage-related securities
|
|
22,482
|
|
16,373
|
|
||
Non-mortgage-related securities
|
|
27,055
|
|
19,175
|
|
||
Total fair value of trading securities
|
|
|
$49,537
|
|
|
$35,548
|
|
|
|
As of December 31, 2019
|
||||||||||||||||
|
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
|
Gross Unrealized Losses
|
|
Fair
Value
|
|||||||||||
(In millions)
|
|
|
Other-Than-Temporary Impairment(1)
|
Temporary Impairment(2)
|
|
|||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||||
Agency
|
|
|
$24,390
|
|
|
$571
|
|
|
|
$—
|
|
|
($74
|
)
|
|
|
$24,887
|
|
Non-agency and other
|
|
1,004
|
|
283
|
|
|
—
|
|
—
|
|
|
1,287
|
|
|||||
Total available-for-sale securities
|
|
|
$25,394
|
|
|
$854
|
|
|
|
$—
|
|
|
($74
|
)
|
|
|
$26,174
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
As of December 31, 2018
|
||||||||||||||||
|
|
Amortized
Cost
|
Gross
Unrealized Gains |
|
Gross Unrealized Losses
|
|
Fair
Value
|
|||||||||||
(In millions)
|
|
|
Other-Than-Temporary Impairment(1)
|
Temporary Impairment(2)
|
|
|||||||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
||||||||||
Agency
|
|
|
$32,082
|
|
|
$358
|
|
|
|
$—
|
|
|
($535
|
)
|
|
|
$31,905
|
|
Non-agency and other
|
|
1,378
|
|
282
|
|
|
—
|
|
(2
|
)
|
|
1,658
|
|
|||||
Total available-for-sale securities
|
|
|
$33,460
|
|
|
$640
|
|
|
|
$—
|
|
|
($537
|
)
|
|
|
$33,563
|
|
(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 | 2019 Form 10-K
|
|
200
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 7
|
|
|
As of December 31, 2019
|
||||||||||||
|
|
Less than 12 Months
|
|
12 Months or Greater
|
||||||||||
(In millions)
|
|
Fair
Value
|
Gross Unrealized Losses
|
|
Fair
Value
|
Gross Unrealized Losses
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
||||||||
Agency
|
|
|
$5,778
|
|
|
($27
|
)
|
|
|
$2,934
|
|
|
($47
|
)
|
Non-agency and other
|
|
1
|
|
—
|
|
|
—
|
|
—
|
|
||||
Total available-for-sale securities in a gross unrealized loss position
|
|
|
$5,779
|
|
|
($27
|
)
|
|
|
$2,934
|
|
|
($47
|
)
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2018
|
||||||||||||
|
|
Less than 12 Months
|
|
12 Months or Greater
|
||||||||||
(In millions)
|
|
Fair
Value |
Gross Unrealized Losses
|
|
Fair
Value |
Gross Unrealized Losses
|
||||||||
Available-for-sale securities:
|
|
|
|
|
|
|
||||||||
Agency
|
|
|
$4,610
|
|
|
($39
|
)
|
|
|
$15,389
|
|
|
($496
|
)
|
Non-agency and other
|
|
43
|
|
(1
|
)
|
|
6
|
|
(1
|
)
|
||||
Total available-for-sale securities in a gross unrealized loss position
|
|
|
$4,653
|
|
|
($40
|
)
|
|
|
$15,395
|
|
|
($497
|
)
|
FREDDIE MAC | 2019 Form 10-K
|
|
201
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 7
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
Gross realized gains
|
|
|
$219
|
|
|
$627
|
|
|
$1,792
|
|
Gross realized losses
|
|
(49
|
)
|
(303
|
)
|
(66
|
)
|
|||
Net realized gains
|
|
|
$170
|
|
|
$324
|
|
|
$1,726
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
202
|
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)
|
|
2019
|
2018
|
|
2019
|
2018
|
2017
|
||||||||||
Debt securities of consolidated trusts held by third parties
|
|
|
$1,898,355
|
|
|
$1,792,677
|
|
|
|
$53,980
|
|
|
$51,529
|
|
|
$47,656
|
|
Other debt:
|
|
|
|
|
|
|
|
||||||||||
Short-term debt
|
|
110,877
|
|
51,080
|
|
|
1,910
|
|
1,193
|
|
615
|
|
|||||
Long-term debt
|
|
170,296
|
|
201,193
|
|
|
5,157
|
|
5,311
|
|
5,372
|
|
|||||
Total other debt
|
|
281,173
|
|
252,273
|
|
|
7,067
|
|
6,504
|
|
5,987
|
|
|||||
Total debt, net
|
|
|
$2,179,528
|
|
|
$2,044,950
|
|
|
|
$61,047
|
|
|
$58,033
|
|
|
$53,643
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
203
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 8
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||
(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
|
|
2020 - 2057
|
|
$1,516,550
|
|
|
$1,554,095
|
|
3.63
|
%
|
|
2019 - 2057
|
|
$1,389,113
|
|
|
$1,426,060
|
|
3.72
|
%
|
20-year fixed-rate
|
|
2020 - 2040
|
70,901
|
|
72,558
|
|
3.37
|
%
|
|
2019 - 2039
|
70,547
|
|
72,354
|
|
3.43
|
%
|
||||
15-year fixed-rate
|
|
2020 - 2035
|
225,501
|
|
229,133
|
|
2.87
|
%
|
|
2019 - 2034
|
240,310
|
|
244,587
|
|
2.89
|
%
|
||||
Adjustable-rate
|
|
2020 - 2050
|
30,183
|
|
30,756
|
|
3.25
|
%
|
|
2019 - 2049
|
38,361
|
|
39,153
|
|
3.12
|
%
|
||||
Interest-only
|
|
2026 - 2041
|
4,244
|
|
4,307
|
|
4.55
|
%
|
|
2026 - 2048
|
5,322
|
|
5,386
|
|
4.41
|
%
|
||||
FHA/VA
|
|
2020 - 2049
|
633
|
|
647
|
|
4.68
|
%
|
|
2019 - 2046
|
720
|
|
736
|
|
4.78
|
%
|
||||
Total Single-family
|
|
|
1,848,012
|
|
1,891,496
|
|
|
|
|
1,744,373
|
|
1,788,276
|
|
|
||||||
Multifamily
|
|
2021 - 2049
|
6,790
|
|
6,859
|
|
3.29
|
%
|
|
2019 - 2047
|
4,365
|
|
4,401
|
|
4.02
|
%
|
||||
Total debt securities of consolidated trusts held by third parties
|
|
|
|
$1,854,802
|
|
|
$1,898,355
|
|
|
|
|
|
$1,748,738
|
|
|
$1,792,677
|
|
|
(1)
|
Includes $209 million and $755 million at December 31, 2019 and December 31, 2018, 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 2.79% and 3.07% as of December 31, 2019 and December 31, 2018, respectively.
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||
(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
|
|
|
$60,830
|
|
|
$60,629
|
|
1.67
|
%
|
|
|
$28,787
|
|
|
$28,621
|
|
2.36
|
%
|
Medium-term notes
|
|
40,407
|
|
40,405
|
|
2.31
|
|
|
16,440
|
|
16,440
|
|
2.10
|
|
||||
Securities sold under agreements to repurchase
|
|
9,843
|
|
9,843
|
|
1.46
|
|
|
6,019
|
|
6,019
|
|
2.40
|
|
||||
Total other short-term debt
|
|
|
$111,080
|
|
|
$110,877
|
|
1.89
|
%
|
|
|
$51,246
|
|
|
$51,080
|
|
2.28
|
%
|
FREDDIE MAC | 2019 Form 10-K
|
|
204
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 8
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
|||||||||||||||
(Dollars in millions)
|
|
Contractual Maturity
|
Par Value
|
Carrying Amount(1)
|
Weighted
Average
Effective Rate(2)
|
|
Par Value
|
Carrying Amount(1)
|
Weighted
Average
Effective Rate(2)
|
||||||||||
Other long-term debt:
|
|
|
|
|
|
|
|
|
|
||||||||||
Other senior debt:
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed-rate:
|
|
|
|
|
|
|
|
|
|
||||||||||
Medium-term notes — callable
|
|
2020 - 2037
|
|
$83,470
|
|
|
$83,433
|
|
2.01
|
%
|
|
|
$78,810
|
|
|
$78,786
|
|
2.01
|
%
|
Medium-term notes — non-callable
|
|
2020 - 2028
|
2,498
|
|
2,519
|
|
2.14
|
%
|
|
4,761
|
|
4,811
|
|
1.83
|
%
|
||||
Reference Notes securities — non-callable
|
|
2020 - 2032
|
39,124
|
|
39,176
|
|
2.71
|
%
|
|
65,362
|
|
65,385
|
|
2.39
|
%
|
||||
STACR and SCR
|
|
2031 - 2042
|
123
|
|
126
|
|
12.74
|
%
|
|
133
|
|
136
|
|
12.76
|
%
|
||||
Variable-rate:
|
|
|
|
|
|
|
|
|
|
||||||||||
Medium-term notes — callable
|
|
2020 - 2034
|
10,682
|
|
10,668
|
|
2.18
|
%
|
|
26,396
|
|
26,364
|
|
2.33
|
%
|
||||
Medium-term notes — non-callable
|
|
2020 - 2026
|
15,727
|
|
15,724
|
|
2.45
|
%
|
|
5,325
|
|
5,325
|
|
1.47
|
%
|
||||
STACR
|
|
2023 - 2042
|
15,373
|
|
15,526
|
|
5.58
|
%
|
|
17,596
|
|
17,868
|
|
5.99
|
%
|
||||
Zero-coupon:
|
|
|
|
|
|
|
|
|
|
||||||||||
Medium-term notes — non-callable
|
|
2020 - 2039
|
4,880
|
|
2,450
|
|
5.94
|
%
|
|
5,009
|
|
2,428
|
|
6.29
|
%
|
||||
Other
|
|
2047 - 2049
|
—
|
|
6
|
|
0.63
|
%
|
|
—
|
|
2
|
|
0.63
|
%
|
||||
Hedging-related basis adjustments
|
|
|
N/A
|
|
668
|
|
|
|
N/A
|
|
(215
|
)
|
|
||||||
Total other senior debt
|
|
|
171,877
|
|
170,296
|
|
|
|
203,392
|
|
200,890
|
|
|
||||||
Other subordinated debt:
|
|
|
|
|
|
|
|
|
|
||||||||||
Zero-coupon
|
|
|
—
|
|
—
|
|
—
|
%
|
|
332
|
|
303
|
|
10.51
|
%
|
||||
Total other subordinated debt
|
|
|
—
|
|
—
|
|
|
|
332
|
|
303
|
|
|
||||||
Total other long-term debt
|
|
|
|
$171,877
|
|
|
$170,296
|
|
2.61
|
%
|
|
|
$203,724
|
|
|
$201,193
|
|
2.58
|
%
|
(1)
|
Represents par value, net of associated discounts or premiums and issuance costs. Includes $3.7 billion and $4.4 billion at December 31, 2019 and December 31, 2018, 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, excluding hedge-related basis adjustments.
|
(In millions)
|
|
Par Value
|
||
Annual Maturities
|
|
|
||
Other long-term debt (excluding STACR and SCR):
|
|
|
||
2020
|
|
|
$45,133
|
|
2021
|
|
30,069
|
|
|
2022
|
|
23,185
|
|
|
2023
|
|
13,413
|
|
|
2024
|
|
26,966
|
|
|
Thereafter
|
|
17,615
|
|
|
Debt securities of consolidated trusts held by third parties, STACR, and SCR(1)
|
|
1,870,298
|
|
|
Total
|
|
2,026,679
|
|
|
Net discounts, premiums, debt issuance costs, hedge-related, and other basis adjustments(2)
|
|
41,972
|
|
|
Total debt securities of consolidated trusts held by third parties, STACR, SCR and other long-term debt
|
|
|
$2,068,651
|
|
(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 on debt where we have elected the fair value option.
|
FREDDIE MAC | 2019 Form 10-K
|
|
205
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 8
|
FREDDIE MAC | 2019 Form 10-K
|
|
206
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 9
|
n
|
Exchange-traded derivatives;
|
n
|
Cleared derivatives; and
|
n
|
OTC derivatives.
|
n
|
LIBOR- and SOFR-based interest-rate swaps;
|
n
|
LIBOR- and Treasury-based purchased options (including swaptions); and
|
n
|
LIBOR-, Treasury-, and SOFR-based exchange-traded futures.
|
FREDDIE MAC | 2019 Form 10-K
|
|
207
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 9
|
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 | 2019 Form 10-K
|
|
208
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 9
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||||||||||
|
|
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
|
|
|
$230,926
|
|
|
$1,990
|
|
|
($6
|
)
|
|
|
$145,386
|
|
|
$1,380
|
|
|
($181
|
)
|
Pay-fixed
|
|
251,392
|
|
10
|
|
(4,162
|
)
|
|
170,899
|
|
476
|
|
(2,287
|
)
|
||||||
Basis (floating to floating)
|
|
5,924
|
|
—
|
|
—
|
|
|
5,404
|
|
1
|
|
—
|
|
||||||
Total interest-rate swaps
|
|
488,242
|
|
2,000
|
|
(4,168
|
)
|
|
321,689
|
|
1,857
|
|
(2,468
|
)
|
||||||
Option-based:
|
|
|
|
|
|
|
|
|
||||||||||||
Call swaptions
|
|
|
|
|
|
|
|
|
||||||||||||
Purchased
|
|
75,325
|
|
2,717
|
|
—
|
|
|
43,625
|
|
2,007
|
|
—
|
|
||||||
Written
|
|
3,375
|
|
—
|
|
(42
|
)
|
|
4,400
|
|
—
|
|
(133
|
)
|
||||||
Put swaptions
|
|
|
|
|
|
|
|
|
||||||||||||
Purchased(1)
|
|
67,155
|
|
835
|
|
—
|
|
|
88,075
|
|
1,565
|
|
—
|
|
||||||
Written
|
|
7,275
|
|
—
|
|
(88
|
)
|
|
1,750
|
|
—
|
|
(4
|
)
|
||||||
Other option-based derivatives(2)
|
|
10,334
|
|
646
|
|
—
|
|
|
10,481
|
|
628
|
|
—
|
|
||||||
Total option-based
|
|
163,464
|
|
4,198
|
|
(130
|
)
|
|
148,331
|
|
4,200
|
|
(137
|
)
|
||||||
Futures
|
|
210,305
|
|
—
|
|
—
|
|
|
161,185
|
|
—
|
|
—
|
|
||||||
Commitments
|
|
93,960
|
|
61
|
|
(126
|
)
|
|
36,044
|
|
90
|
|
(179
|
)
|
||||||
CRT-related derivatives
|
|
12,362
|
|
15
|
|
(116
|
)
|
|
7,514
|
|
—
|
|
(74
|
)
|
||||||
Other
|
|
5,984
|
|
1
|
|
(28
|
)
|
|
6,728
|
|
1
|
|
(64
|
)
|
||||||
Total derivatives not designated as hedges
|
|
974,317
|
|
6,275
|
|
(4,568
|
)
|
|
681,491
|
|
6,148
|
|
(2,922
|
)
|
||||||
Designated as fair value hedges
|
|
|
|
|
|
|
|
|
||||||||||||
Interest-rate swaps:
|
|
|
|
|
|
|
|
|
||||||||||||
Receive-fixed
|
|
104,459
|
|
104
|
|
(75
|
)
|
|
117,038
|
|
23
|
|
(935
|
)
|
||||||
Pay-fixed
|
|
87,907
|
|
—
|
|
(639
|
)
|
|
77,513
|
|
247
|
|
(571
|
)
|
||||||
Total derivatives designated as fair value hedges
|
|
192,366
|
|
104
|
|
(714
|
)
|
|
194,551
|
|
270
|
|
(1,506
|
)
|
||||||
Derivative interest receivable (payable)(3)
|
|
|
887
|
|
(724
|
)
|
|
|
889
|
|
(1,096
|
)
|
||||||||
Netting adjustments(4)
|
|
|
(6,422
|
)
|
5,634
|
|
|
|
(6,972
|
)
|
4,941
|
|
||||||||
Total derivative portfolio, net
|
|
|
$1,166,683
|
|
|
$844
|
|
|
($372
|
)
|
|
|
$876,042
|
|
|
$335
|
|
|
($583
|
)
|
(1)
|
Includes swaptions on credit indices with a notional or contractual amount of $11.4 billion and $45.9 billion at December 31, 2019 and December 31, 2018, respectively, and a fair value of $3.0 million and $113.0 million at December 31, 2019 and December 31, 2018, respectively.
|
(2)
|
Primarily consists of purchased interest-rate caps and floors.
|
(3)
|
Includes other derivative receivables and payables.
|
(4)
|
Represents counterparty netting and cash collateral netting.
|
FREDDIE MAC | 2019 Form 10-K
|
|
209
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 9
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
Not designated as hedges
|
|
|
|
|
||||||
Interest-rate swaps:
|
|
|
|
|
||||||
Receive-fixed
|
|
|
$4,444
|
|
|
($2,457
|
)
|
|
($1,343
|
)
|
Pay-fixed
|
|
(7,543
|
)
|
3,880
|
|
1,972
|
|
|||
Basis (floating to floating)
|
|
14
|
|
(1
|
)
|
(3
|
)
|
|||
Total interest-rate swaps
|
|
(3,085
|
)
|
1,422
|
|
626
|
|
|||
Option based:
|
|
|
|
|
||||||
Call swaptions
|
|
|
|
|
||||||
Purchased
|
|
1,663
|
|
(791
|
)
|
(404
|
)
|
|||
Written
|
|
(296
|
)
|
20
|
|
24
|
|
|||
Put swaptions
|
|
|
|
|
||||||
Purchased
|
|
(1,258
|
)
|
272
|
|
(673
|
)
|
|||
Written
|
|
61
|
|
(2
|
)
|
50
|
|
|||
Other option-based derivatives(1)
|
|
18
|
|
(129
|
)
|
(38
|
)
|
|||
Total option-based
|
|
188
|
|
(630
|
)
|
(1,041
|
)
|
|||
Other:
|
|
|
|
|
||||||
Futures
|
|
(946
|
)
|
57
|
|
144
|
|
|||
Commitments
|
|
(452
|
)
|
606
|
|
(91
|
)
|
|||
CRT-related derivatives
|
|
(1
|
)
|
(38
|
)
|
(30
|
)
|
|||
Other
|
|
52
|
|
(6
|
)
|
(6
|
)
|
|||
Total other
|
|
(1,347
|
)
|
619
|
|
17
|
|
|||
Accrual of periodic cash settlements:
|
|
|
|
|
||||||
Receive-fixed interest-rate swaps
|
|
90
|
|
364
|
|
1,511
|
|
|||
Pay-fixed interest-rate swaps
|
|
(525
|
)
|
(584
|
)
|
(3,101
|
)
|
|||
Other(2)
|
|
163
|
|
79
|
|
—
|
|
|||
Total accrual of periodic cash settlements
|
|
(272
|
)
|
(141
|
)
|
(1,590
|
)
|
|||
Total
|
|
|
($4,516
|
)
|
|
$1,270
|
|
|
($1,988
|
)
|
(1)
|
Primarily consists of purchased interest-rate caps and floors.
|
(2)
|
Includes interest on variation margin on cleared interest-rate swaps.
|
FREDDIE MAC | 2019 Form 10-K
|
|
210
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 9
|
|
|
Year Ended December 31, 2019
|
||||||||
(In millions)
|
|
Interest Income - Mortgage Loans
|
Interest Expense
|
Other Income (Loss)
|
||||||
Total amounts of income and expense line items presented on our consolidated statements of comprehensive income in which the effects of fair value hedges are recorded:
|
|
|
$68,583
|
|
|
($61,047
|
)
|
|
$323
|
|
|
|
|
|
|
||||||
Interest contracts on mortgage loans held-for-investment:
|
|
|
|
|
||||||
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
||||||
Hedged items
|
|
4,569
|
|
—
|
|
—
|
|
|||
Derivatives designated as hedging instruments
|
|
(4,309
|
)
|
—
|
|
—
|
|
|||
Interest accruals on hedging instruments
|
|
(48
|
)
|
—
|
|
—
|
|
|||
Discontinued hedge related basis adjustment amortization
|
|
(446
|
)
|
—
|
|
—
|
|
|||
Interest contracts on debt:
|
|
|
|
|
||||||
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
||||||
Hedged Items
|
|
—
|
|
(1,038
|
)
|
—
|
|
|||
Derivatives designated as hedging instruments
|
|
—
|
|
1,231
|
|
—
|
|
|||
Interest accruals on hedging instruments
|
|
—
|
|
(184
|
)
|
—
|
|
|||
Discontinued hedge related basis adjustment amortization
|
|
—
|
|
63
|
|
—
|
|
|
|
Year Ended December 31, 2018
|
||||||||
(In millions)
|
|
Interest Income - Mortgage Loans
|
Interest Expense
|
Other Income (Loss)
|
||||||
Total amounts of income and expense line items presented on our consolidated statements of comprehensive income in which the effects of fair value hedges are recorded:
|
|
|
$66,037
|
|
|
($58,033
|
)
|
|
$762
|
|
|
|
|
|
|
||||||
Interest contracts on mortgage loans held-for-investment:
|
|
|
|
|
||||||
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
||||||
Hedged items
|
|
(1,776
|
)
|
—
|
|
—
|
|
|||
Derivatives designated as hedging instruments
|
|
1,091
|
|
—
|
|
—
|
|
|||
Interest accruals on hedging instruments
|
|
(439
|
)
|
—
|
|
—
|
|
|||
Discontinued hedge related basis adjustment amortization
|
|
133
|
|
—
|
|
—
|
|
|||
Interest contracts on debt:
|
|
|
|
|
||||||
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
||||||
Hedged Items
|
|
—
|
|
145
|
|
—
|
|
|||
Derivatives designated as hedging instruments
|
|
—
|
|
155
|
|
—
|
|
|||
Interest accruals on hedging instruments
|
|
—
|
|
(313
|
)
|
—
|
|
|||
Discontinued hedge related basis adjustment amortization
|
|
—
|
|
(3
|
)
|
—
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
211
|
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 on our consolidated statements of comprehensive income in which the effects of fair value hedges are recorded:
|
|
|
$63,735
|
|
|
($53,643
|
)
|
|
$4,984
|
|
|
|
|
|
|
||||||
Interest contracts on mortgage loans held-for-investment:
|
|
|
|
|
||||||
Gain or (loss) on fair value hedging relationships: (1)
|
|
|
|
|
||||||
Hedged items
|
|
(107
|
)
|
—
|
|
351
|
|
|||
Derivatives designated as hedging instruments(2)
|
|
313
|
|
—
|
|
(215
|
)
|
|||
Interest accruals on hedging instruments
|
|
(83
|
)
|
—
|
|
—
|
|
|||
Discontinued hedge related basis adjustment amortization
|
|
(16
|
)
|
—
|
|
—
|
|
|||
Interest contracts on debt:
|
|
|
|
|
||||||
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
||||||
Hedged Items
|
|
—
|
|
93
|
|
—
|
|
|||
Derivatives designated as hedging instruments
|
|
—
|
|
(53
|
)
|
—
|
|
|||
Interest accruals on hedging instruments
|
|
—
|
|
8
|
|
—
|
|
|||
Discontinued hedge related basis adjustment amortization
|
|
—
|
|
—
|
|
—
|
|
(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 on our consolidated statements of comprehensive income due to adoption of amended hedge accounting guidance.
|
(2)
|
The gain or (loss) on fair value hedging relationships in 2017 excludes ($277) million of interest accruals which were recorded in derivatives gains (losses) on our consolidated statements of comprehensive income.
|
|
|
December 31, 2019
|
|||||||||||||||||||
|
|
Carrying Amount Assets / (Liabilities)
|
|
Cumulative Amount of Fair Value Hedging Basis Adjustment Included in the Carrying Amount
|
|
Closed Portfolio Under the Last-of-Layer Method
|
|||||||||||||||
(In millions)
|
|
|
Total
|
Under the Last-of-Layer Method
|
Discontinued - Hedge Related
|
|
Total Amount by Amortized Cost Basis
|
Designated Amount by UPB
|
|||||||||||||
Mortgage loans held-for-investment
|
|
|
$470,889
|
|
|
|
$2,886
|
|
|
($943
|
)
|
|
$3,829
|
|
|
|
$273,346
|
|
|
$22,747
|
|
Debt
|
|
(122,746
|
)
|
|
(668
|
)
|
—
|
|
(93
|
)
|
|
—
|
|
—
|
|
||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
December 31, 2018
|
|||||||||||||||||||
|
|
Carrying Amount Assets / (Liabilities)
|
|
Cumulative Amount of Fair Value Hedging Basis Adjustment Included in the Carrying Amount
|
|
Closed Portfolio Under the Last-of-Layer Method
|
|||||||||||||||
(In millions)
|
|
|
Total
|
Under the Last-of-Layer Method
|
Discontinued - Hedge Related
|
|
Total Amount by Amortized Cost Basis
|
Designated Amount by UPB
|
|||||||||||||
Mortgage loans held-for-investment
|
|
|
$193,547
|
|
|
|
($1,237
|
)
|
|
$—
|
|
|
($1,237
|
)
|
|
|
$—
|
|
|
$—
|
|
Debt
|
|
(127,215
|
)
|
|
216
|
|
—
|
|
(8
|
)
|
|
—
|
|
—
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
212
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 10
|
FREDDIE MAC | 2019 Form 10-K
|
|
213
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 10
|
FREDDIE MAC | 2019 Form 10-K
|
|
214
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 10
|
|
|
As of December 31, 2019
|
|||||||||||||||||||
|
|
Gross
Amount
Recognized
|
|
Amount Offset in the
Consolidated
Balance Sheets
|
|
Net Amount
Presented on
the Consolidated
Balance Sheets
|
Gross Amount
Not Offset on
the Consolidated
Balance Sheets(2)
|
Net
Amount
|
|||||||||||||
(In millions)
|
|
|
Counterparty Netting
|
Cash Collateral Netting(1)
|
|
||||||||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||||
OTC derivatives
|
|
|
$7,045
|
|
|
|
($4,465
|
)
|
|
($2,075
|
)
|
|
|
$505
|
|
|
($485
|
)
|
|
$20
|
|
Cleared and exchange-traded derivatives
|
|
144
|
|
|
(5
|
)
|
123
|
|
|
262
|
|
—
|
|
262
|
|
||||||
Other
|
|
77
|
|
|
—
|
|
—
|
|
|
77
|
|
—
|
|
77
|
|
||||||
Total derivatives
|
|
7,266
|
|
|
(4,470
|
)
|
(1,952
|
)
|
|
844
|
|
(485
|
)
|
359
|
|
||||||
Securities purchased under agreements to resell(3)
|
|
66,114
|
|
|
—
|
|
—
|
|
|
66,114
|
|
(66,114
|
)
|
—
|
|
||||||
Total
|
|
|
$73,380
|
|
|
|
($4,470
|
)
|
|
($1,952
|
)
|
|
|
$66,958
|
|
|
($66,599
|
)
|
|
$359
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||||
OTC derivatives
|
|
|
($5,731
|
)
|
|
|
$4,465
|
|
|
$1,164
|
|
|
|
($102
|
)
|
|
$—
|
|
|
($102
|
)
|
Cleared and exchange-traded derivatives
|
|
(5
|
)
|
|
5
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
||||||
Other
|
|
(270
|
)
|
|
—
|
|
—
|
|
|
(270
|
)
|
—
|
|
(270
|
)
|
||||||
Total derivatives
|
|
(6,006
|
)
|
|
4,470
|
|
1,164
|
|
|
(372
|
)
|
—
|
|
(372
|
)
|
||||||
Securities sold under agreements to repurchase(3)
|
|
(9,843
|
)
|
|
—
|
|
—
|
|
|
(9,843
|
)
|
9,843
|
|
—
|
|
||||||
Total
|
|
|
($15,849
|
)
|
|
|
$4,470
|
|
|
$1,164
|
|
|
|
($10,215
|
)
|
|
$9,843
|
|
|
($372
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
As of December 31, 2018
|
|||||||||||||||||||
|
|
Gross
Amount
Recognized
|
|
Amount Offset in the
Consolidated
Balance Sheets
|
|
Net Amount
Presented on
the Consolidated
Balance Sheets
|
Gross Amount
Not Offset on
the Consolidated
Balance Sheets(2)
|
Net
Amount
|
|||||||||||||
(In millions)
|
|
|
Counterparty Netting
|
Cash Collateral Netting(1)
|
|
||||||||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||||
OTC derivatives
|
|
|
$7,213
|
|
|
|
($4,544
|
)
|
|
($2,448
|
)
|
|
|
$221
|
|
|
($173
|
)
|
|
$48
|
|
Cleared and exchange-traded derivatives
|
|
3
|
|
|
—
|
|
20
|
|
|
23
|
|
—
|
|
23
|
|
||||||
Other
|
|
91
|
|
|
—
|
|
—
|
|
|
91
|
|
—
|
|
91
|
|
||||||
Total derivatives
|
|
7,307
|
|
|
(4,544
|
)
|
(2,428
|
)
|
|
335
|
|
(173
|
)
|
162
|
|
||||||
Securities purchased under agreements to resell(3)
|
|
34,771
|
|
|
—
|
|
—
|
|
|
34,771
|
|
(34,771
|
)
|
—
|
|
||||||
Total
|
|
|
$42,078
|
|
|
|
($4,544
|
)
|
|
($2,428
|
)
|
|
|
$35,106
|
|
|
($34,944
|
)
|
|
$162
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||||
Derivatives:
|
|
|
|
|
|
|
|
|
|
||||||||||||
OTC derivatives
|
|
|
($4,963
|
)
|
|
|
$4,544
|
|
|
$296
|
|
|
|
($123
|
)
|
|
$—
|
|
|
($123
|
)
|
Cleared and exchange-traded derivatives
|
|
(244
|
)
|
|
—
|
|
101
|
|
|
(143
|
)
|
—
|
|
(143
|
)
|
||||||
Other
|
|
(317
|
)
|
|
—
|
|
—
|
|
|
(317
|
)
|
—
|
|
(317
|
)
|
||||||
Total derivatives
|
|
(5,524
|
)
|
|
4,544
|
|
397
|
|
|
(583
|
)
|
—
|
|
(583
|
)
|
||||||
Securities sold under agreements to repurchase(3)
|
|
(6,019
|
)
|
|
—
|
|
—
|
|
|
(6,019
|
)
|
6,019
|
|
—
|
|
||||||
Total
|
|
|
($11,543
|
)
|
|
|
$4,544
|
|
|
$397
|
|
|
|
($6,602
|
)
|
|
$6,019
|
|
|
($583
|
)
|
(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 $3.5 billion and $2.5 billion as of December 31, 2019 and December 31, 2018, respectively.
|
(3)
|
Does not include the impacts of netting by central clearing organizations.
|
FREDDIE MAC | 2019 Form 10-K
|
|
215
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 10
|
|
|
As of December 31, 2019
|
|||||||||||
(In millions)
|
|
Derivatives
|
Securities sold under agreements to repurchase
|
Other(3)
|
Total
|
||||||||
Debt securities of consolidated trusts(2)
|
|
|
$562
|
|
|
$—
|
|
|
$280
|
|
|
$842
|
|
Trading securities
|
|
2,894
|
|
9,346
|
|
49
|
|
12,289
|
|
||||
Total securities pledged
|
|
|
$3,456
|
|
|
$9,346
|
|
|
$329
|
|
|
$13,131
|
|
|
|
As of December 31, 2018
|
|||||||||||
(In millions)
|
|
Derivatives
|
Securities sold under agreements to repurchase
|
Other(3)
|
Total
|
||||||||
Cash equivalents(1)
|
|
|
$—
|
|
|
$2,595
|
|
|
$—
|
|
|
$2,595
|
|
Debt securities of consolidated trusts(2)
|
|
362
|
|
—
|
|
179
|
|
541
|
|
||||
Available-for-sale securities
|
|
—
|
|
—
|
|
1
|
|
1
|
|
||||
Trading securities
|
|
2,160
|
|
3,432
|
|
73
|
|
5,665
|
|
||||
Total securities pledged
|
|
|
$2,522
|
|
|
$6,027
|
|
|
$253
|
|
|
$8,802
|
|
(1)
|
Represents U.S. Treasury securities accounted for as cash equivalents.
|
(2)
|
Represents Freddie Mac mortgage-related securities 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.
|
(3)
|
Includes other collateralized borrowings and collateral related to transactions with certain clearinghouses.
|
|
|
As of December 31, 2019
|
||||||||||||||
(In millions)
|
|
Overnight and continuous
|
30 days or less
|
After 30 days through 90 days
|
Greater than
90 days
|
Total
|
||||||||||
U.S. Treasury securities
|
|
|
$—
|
|
|
$9,081
|
|
|
$265
|
|
|
$—
|
|
|
$9,346
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
216
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 11
|
|
|
Year Ended December 31, 2019
|
|||||||||||
(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
|
|
|
$83
|
|
|
($315
|
)
|
|
$97
|
|
|
($135
|
)
|
Other comprehensive income before reclassifications
|
|
668
|
|
—
|
|
(17
|
)
|
651
|
|
||||
Amounts reclassified from accumulated other comprehensive income
|
|
(133
|
)
|
71
|
|
(16
|
)
|
(78
|
)
|
||||
Changes in AOCI by component
|
|
535
|
|
71
|
|
(33
|
)
|
573
|
|
||||
Ending balance
|
|
|
$618
|
|
|
($244
|
)
|
|
$64
|
|
|
$438
|
|
|
|
|
|
|
|
||||||||
|
|
Year Ended December 31, 2018
|
|||||||||||
(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
|
|
|
$662
|
|
|
($356
|
)
|
|
$83
|
|
|
$389
|
|
Other comprehensive income before reclassifications
|
|
(476
|
)
|
—
|
|
11
|
|
(465
|
)
|
||||
Amounts reclassified from accumulated other comprehensive income
|
|
(246
|
)
|
114
|
|
(16
|
)
|
(148
|
)
|
||||
Changes in AOCI by component
|
|
(722
|
)
|
114
|
|
(5
|
)
|
(613
|
)
|
||||
Cumulative effect of change in accounting principle (1)
|
|
143
|
|
(73
|
)
|
19
|
|
89
|
|
||||
Ending balance
|
|
|
$83
|
|
|
($315
|
)
|
|
$97
|
|
|
($135
|
)
|
|
|
|
|
|
|
||||||||
|
|
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
|
|
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
|
|
(1)
|
Includes the effect of adopting the accounting guidance on reclassification of stranded tax effects of the Tax Cuts and Jobs Act in 1Q 2018.
|
FREDDIE MAC | 2019 Form 10-K
|
|
217
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 11
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
AOCI related to available-for-sale securities
|
|
|
|
|
||||||
Affected line items on the consolidated statements of comprehensive income:
|
|
|
|
|
||||||
Investment securities gains (losses)
|
|
|
$168
|
|
|
$312
|
|
|
$1,708
|
|
Income tax (expense) or benefit
|
|
(35
|
)
|
(66
|
)
|
(598
|
)
|
|||
Net of tax
|
|
133
|
|
246
|
|
1,110
|
|
|||
AOCI related to cash flow hedge relationships
|
|
|
|
|
||||||
Affected line items on the consolidated statements of comprehensive income:
|
|
|
|
|
||||||
Interest expense
|
|
(90
|
)
|
(133
|
)
|
(164
|
)
|
|||
Income tax (expense) or benefit
|
|
19
|
|
19
|
|
40
|
|
|||
Net of tax
|
|
(71
|
)
|
(114
|
)
|
(124
|
)
|
|||
AOCI related to defined benefit plans
|
|
|
|
|
||||||
Affected line items on the consolidated statements of comprehensive income:
|
|
|
|
|
||||||
Salaries and employee benefits
|
|
20
|
|
20
|
|
2
|
|
|||
Income tax (expense) or benefit
|
|
(4
|
)
|
(4
|
)
|
(1
|
)
|
|||
Net of tax
|
|
16
|
|
16
|
|
1
|
|
|||
Total reclassifications in the period net of tax
|
|
|
$78
|
|
|
$148
|
|
|
$987
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
218
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 11
|
FREDDIE MAC | 2019 Form 10-K
|
|
219
|
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
|
|
|||
September 30, 2019
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
1,826
|
|
|||
December 31, 2019
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
1,848
|
|
|||
Total non-draw adjustments
|
|
1.00
|
|
1.00
|
|
1.00
|
|
|
7,674
|
|
||||
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
|
|
|||
March 30, 2018
|
|
—
|
|
—
|
|
—
|
|
N/A
|
|
312
|
|
|||
Total draw adjustments
|
|
—
|
|
—
|
|
—
|
|
|
|
71,648
|
|
|||
Total senior preferred stock
|
|
1.00
|
|
1.00
|
|
|
$1.00
|
|
|
|
$79,322
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
220
|
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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
221
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 11
|
(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 | 2019 Form 10-K
|
|
222
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 11
|
FREDDIE MAC | 2019 Form 10-K
|
|
223
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 12
|
n
|
Current income tax expense, which represents the amount of federal tax currently payable to or receivable from the Internal Revenue Service, including interest and penalties and amounts accrued for unrecognized tax benefits, if any, and
|
n
|
Deferred income tax expense, which represents the net change in the deferred tax asset or liability balance during the year, including any change in the valuation allowance.
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
Current income tax expense
|
|
|
($1,018
|
)
|
|
($848
|
)
|
|
($3,436
|
)
|
Deferred income tax expense
|
|
(817
|
)
|
(1,391
|
)
|
(7,773
|
)
|
|||
Total income tax expense
|
|
|
($1,835
|
)
|
|
($2,239
|
)
|
|
($11,209
|
)
|
|
|
Year Ended December 31,
|
||||||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
||||||||||||
(Dollars in millions)
|
|
Amount
|
Percent
|
|
Amount
|
Percent
|
|
Amount
|
Percent
|
|||||||||
Statutory corporate tax rate
|
|
|
($1,900
|
)
|
21.0
|
%
|
|
|
($2,410
|
)
|
21.0
|
%
|
|
|
($5,892
|
)
|
35.0
|
%
|
Tax-exempt interest
|
|
18
|
|
(0.2
|
)
|
|
19
|
|
(0.2
|
)
|
|
39
|
|
(0.2
|
)
|
|||
Tax credits
|
|
48
|
|
(0.5
|
)
|
|
56
|
|
(0.5
|
)
|
|
135
|
|
(0.8
|
)
|
|||
Valuation allowance
|
|
9
|
|
(0.1
|
)
|
|
(13
|
)
|
0.1
|
|
|
(54
|
)
|
0.3
|
|
|||
Revaluation of deferred tax asset to enacted rate
|
|
—
|
|
—
|
|
|
184
|
|
(1.6
|
)
|
|
(5,405
|
)
|
32.1
|
|
|||
Other
|
|
(10
|
)
|
0.1
|
|
|
(75
|
)
|
0.7
|
|
|
(32
|
)
|
0.2
|
|
|||
Effective tax rate
|
|
|
($1,835
|
)
|
20.3
|
%
|
|
|
($2,239
|
)
|
19.5
|
%
|
|
|
($11,209
|
)
|
66.6
|
%
|
FREDDIE MAC | 2019 Form 10-K
|
|
224
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 12
|
|
|
Year Ended December 31,
|
|||||
(In millions)
|
|
2019
|
2018
|
||||
Deferred tax assets:
|
|
|
|
||||
Deferred fees
|
|
|
$3,529
|
|
|
$4,424
|
|
Basis differences related to derivative instruments
|
|
1,398
|
|
1,767
|
|
||
Credit related items and allowance for loan losses
|
|
79
|
|
177
|
|
||
Basis differences related to assets held for investment
|
|
921
|
|
569
|
|
||
Other items, net
|
|
56
|
|
20
|
|
||
Total deferred tax assets
|
|
5,983
|
|
6,957
|
|
||
Deferred tax liabilities:
|
|
|
|
||||
Unrealized gains related to available-for-sale securities
|
|
(28
|
)
|
(23
|
)
|
||
Total deferred tax liabilities
|
|
(28
|
)
|
(23
|
)
|
||
Valuation allowance
|
|
(37
|
)
|
(46
|
)
|
||
Deferred tax assets, net
|
|
|
$5,918
|
|
|
$6,888
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
225
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 13
|
Segment/Category
|
Description
|
|
Financial Performance Measurement Basis
|
Single-family Guarantee
|
The Single-family Guarantee segment reflects results from our purchase of single-family loans, our guarantee of principal and interest payments on securitized mortgage loans in exchange for guarantee fees, and the management of single-family mortgage credit risk. The Single-family Guarantee segment manages single-family mortgage credit risk through risk transfer transactions, performing loss mitigation activities, and managing foreclosure and REO activities.
|
•
|
Contribution to GAAP net income (loss)
|
|
|||
|
|||
|
|||
|
|||
Multifamily
|
The Multifamily segment 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 risk. Our primary business model is to purchase multifamily loans for aggregation and then securitization through issuance of multifamily K Certificates and SB Certificates. We also issue and guarantee other securitization products, issue other credit risk transfer products, and provide other guarantee activities.
|
•
|
Contribution to GAAP comprehensive income (loss)
|
|
|||
|
|||
|
|||
|
|||
Capital Markets
|
The Capital Markets segment reflects results from managing the company's mortgage-related investments portfolio (excluding Multifamily segment investments, single-family seriously delinquent loans, and the credit risk of single-family performing and reperforming loans), single-family securitization activities, and treasury function, which includes interest-rate risk management for the company.
|
•
|
Contribution to GAAP comprehensive income (loss)
|
|
|||
|
|||
|
|||
All Other
|
The All Other category 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
|
No longer reclassify the impacts related to single-family mortgage loans held-for-sale in Segment Earnings. This change resulted in reclassifications between line items for our Single-family Guarantee and Capital Markets segments but did not result in a change between the segments.
|
n
|
Reclassify the earnings mismatch related to fair value hedge accounting to investment gains (losses), net for our Capital Markets segment. This change resulted in a reclassification between line items for the Capital Markets segment but did not result in a change between segments.
|
FREDDIE MAC | 2019 Form 10-K
|
|
226
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 13
|
n
|
Net guarantee fees, including upfront fee amortization and implied guarantee fee income related to single-family unsecuritized loans held in the mortgage-related investments portfolio, are reclassified in Segment Earnings from net interest income to guarantee fee income.
|
n
|
Short-term returns on cash received related to certain upfront fees on single-family loans are reclassified in Segment Earnings from net interest income to guarantee fee income.
|
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
|
A portion of the amount reversed for accrued but uncollected interest upon placing loans on non-accrual status and related recoveries (if any) is reclassified in Segment Earnings from net interest income to benefit (provision) for credit losses.
|
n
|
We began hedging cash flows related to upfront fees (including buy-downs) in 2019. Amortization of the hedge gains (losses) is reclassified in Segment Earnings from net interest income to guarantee fee income.
|
n
|
Property tax and insurance expenses associated with held-for-sale loans accrued after the reclassification of loans from held-for-investment to held-for-sale is reclassified in Segment Earnings from other expense to benefit (provision) for credit losses.
|
n
|
The accrual of periodic cash settlements of derivatives recorded within investment gains (losses) is reclassified in Segment Earnings from investment 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 reclassified to investment gains (losses), net from net interest income beginning in 4Q 2017 and from other income for periods prior to 4Q 2017.
|
n
|
Amortization related to derivative commitment basis adjustments associated with mortgage-related and non-mortgage-related securities.
|
n
|
Amortization related to accretion of other-than-temporary impairments on available-for-sale securities.
|
n
|
Amortization of discounts on loans purchased with deteriorated credit quality that are on accrual status.
|
n
|
Amortization related to premiums and discounts, including non-cash premiums and discounts, on single-family loans in trusts and on the associated consolidated securities.
|
n
|
Amortization related to premiums and discounts associated with securities 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 credit enhancement expense.
|
FREDDIE MAC | 2019 Form 10-K
|
|
227
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 13
|
n
|
Internally allocated costs associated with the securitization of multifamily held-for-investment loans into a consolidated securitization structure are reclassified from net interest income to other income.
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
Segment Earnings (loss), net of taxes:
|
|
|
|
|
||||||
Single-family Guarantee
|
|
|
$4,365
|
|
|
$3,908
|
|
|
$2,759
|
|
Multifamily
|
|
1,827
|
|
1,319
|
|
2,014
|
|
|||
Capital Markets
|
|
1,022
|
|
4,008
|
|
6,257
|
|
|||
All Other
|
|
—
|
|
—
|
|
(5,405
|
)
|
|||
Total Segment Earnings, net of taxes
|
|
7,214
|
|
9,235
|
|
5,625
|
|
|||
Net income (loss)
|
|
|
$7,214
|
|
|
$9,235
|
|
|
$5,625
|
|
Comprehensive income (loss) of segments:
|
|
|
|
|
||||||
Single-family Guarantee
|
|
|
$4,343
|
|
|
$3,905
|
|
|
$2,799
|
|
Multifamily
|
|
1,928
|
|
1,236
|
|
1,937
|
|
|||
Capital Markets
|
|
1,516
|
|
3,481
|
|
6,227
|
|
|||
All Other
|
|
—
|
|
—
|
|
(5,405
|
)
|
|||
Comprehensive income (loss) of segments
|
|
7,787
|
|
8,622
|
|
5,558
|
|
|||
Comprehensive income (loss)
|
|
|
$7,787
|
|
|
$8,622
|
|
|
$5,558
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
228
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 13
|
|
|
Year Ended December 31, 2019
|
||||||||||||||||||||
|
|
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
|
|
|
$—
|
|
|
$1,069
|
|
|
$2,486
|
|
|
$—
|
|
|
$3,555
|
|
|
$8,293
|
|
|
$11,848
|
|
Guarantee fee income
|
|
7,773
|
|
1,101
|
|
—
|
|
—
|
|
8,874
|
|
(7,785
|
)
|
1,089
|
|
|||||||
Investment gains (losses), net
|
|
964
|
|
576
|
|
(36
|
)
|
—
|
|
1,504
|
|
(686
|
)
|
818
|
|
|||||||
Other income (loss)
|
|
391
|
|
108
|
|
(700
|
)
|
—
|
|
(201
|
)
|
524
|
|
323
|
|
|||||||
Benefit (provision) for credit losses
|
|
418
|
|
(3
|
)
|
—
|
|
—
|
|
415
|
|
331
|
|
746
|
|
|||||||
Administrative expense
|
|
(1,647
|
)
|
(503
|
)
|
(414
|
)
|
—
|
|
(2,564
|
)
|
—
|
|
(2,564
|
)
|
|||||||
Credit enhancement expense
|
|
(1,393
|
)
|
(15
|
)
|
—
|
|
—
|
|
(1,408
|
)
|
700
|
|
(708
|
)
|
|||||||
REO operations expense
|
|
(245
|
)
|
—
|
|
—
|
|
—
|
|
(245
|
)
|
16
|
|
(229
|
)
|
|||||||
Other expense
|
|
(786
|
)
|
(41
|
)
|
(54
|
)
|
—
|
|
(881
|
)
|
(1,393
|
)
|
(2,274
|
)
|
|||||||
Income tax (expense) benefit
|
|
(1,110
|
)
|
(465
|
)
|
(260
|
)
|
—
|
|
(1,835
|
)
|
—
|
|
(1,835
|
)
|
|||||||
Net income (loss)
|
|
4,365
|
|
1,827
|
|
1,022
|
|
—
|
|
7,214
|
|
—
|
|
7,214
|
|
|||||||
Changes in unrealized gains (losses) related to available-for-sale securities
|
|
—
|
|
105
|
|
430
|
|
—
|
|
535
|
|
—
|
|
535
|
|
|||||||
Changes in unrealized gains (losses) related to cash flow hedge relationships
|
|
—
|
|
—
|
|
71
|
|
—
|
|
71
|
|
—
|
|
71
|
|
|||||||
Changes in defined benefit plans
|
|
(22
|
)
|
(4
|
)
|
(7
|
)
|
—
|
|
(33
|
)
|
—
|
|
(33
|
)
|
|||||||
Total other comprehensive income (loss), net of taxes
|
|
(22
|
)
|
101
|
|
494
|
|
—
|
|
573
|
|
—
|
|
573
|
|
|||||||
Comprehensive income (loss)
|
|
|
$4,343
|
|
|
$1,928
|
|
|
$1,516
|
|
|
$—
|
|
|
$7,787
|
|
|
$—
|
|
|
$7,787
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
229
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 13
|
|
|
Year Ended December 31, 2018
|
||||||||||||||||||||
|
|
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
|
|
|
$—
|
|
|
$1,096
|
|
|
$3,217
|
|
|
$—
|
|
|
$4,313
|
|
|
$7,708
|
|
|
$12,021
|
|
Guarantee fee income
|
|
6,581
|
|
861
|
|
—
|
|
—
|
|
7,442
|
|
(6,576
|
)
|
866
|
|
|||||||
Investment gains (losses), net
|
|
307
|
|
16
|
|
1,803
|
|
—
|
|
2,126
|
|
(205
|
)
|
1,921
|
|
|||||||
Other income (loss)
|
|
841
|
|
129
|
|
340
|
|
—
|
|
1,310
|
|
(548
|
)
|
762
|
|
|||||||
Benefit (provision) for credit losses
|
|
448
|
|
24
|
|
—
|
|
—
|
|
472
|
|
264
|
|
736
|
|
|||||||
Administrative expense
|
|
(1,491
|
)
|
(437
|
)
|
(365
|
)
|
—
|
|
(2,293
|
)
|
—
|
|
(2,293
|
)
|
|||||||
Credit enhancement expense
|
|
(1,077
|
)
|
(16
|
)
|
—
|
|
—
|
|
(1,093
|
)
|
676
|
|
(417
|
)
|
|||||||
REO operations expense
|
|
(189
|
)
|
1
|
|
—
|
|
—
|
|
(188
|
)
|
19
|
|
(169
|
)
|
|||||||
Other expense
|
|
(568
|
)
|
(36
|
)
|
(11
|
)
|
—
|
|
(615
|
)
|
(1,338
|
)
|
(1,953
|
)
|
|||||||
Income tax (expense) benefit
|
|
(944
|
)
|
(319
|
)
|
(976
|
)
|
—
|
|
(2,239
|
)
|
—
|
|
(2,239
|
)
|
|||||||
Net income (loss)
|
|
3,908
|
|
1,319
|
|
4,008
|
|
—
|
|
9,235
|
|
—
|
|
9,235
|
|
|||||||
Changes in unrealized gains (losses)
related to available-for-sale securities
|
|
—
|
|
(82
|
)
|
(640
|
)
|
—
|
|
(722
|
)
|
—
|
|
(722
|
)
|
|||||||
Changes in unrealized gains (losses)
related to cash flow hedge relationships
|
|
—
|
|
—
|
|
114
|
|
—
|
|
114
|
|
—
|
|
114
|
|
|||||||
Changes in defined benefit plans
|
|
(3
|
)
|
(1
|
)
|
(1
|
)
|
—
|
|
(5
|
)
|
—
|
|
(5
|
)
|
|||||||
Total other comprehensive income
(loss), net of taxes
|
|
(3
|
)
|
(83
|
)
|
(527
|
)
|
—
|
|
(613
|
)
|
—
|
|
(613
|
)
|
|||||||
Comprehensive income (loss)
|
|
|
$3,905
|
|
|
$1,236
|
|
|
$3,481
|
|
|
$—
|
|
|
$8,622
|
|
|
$—
|
|
|
$8,622
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
||||||||||||||||||||||
|
|
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
|
|
|
$3,279
|
|
|
$—
|
|
|
$4,485
|
|
|
$9,679
|
|
|
$14,164
|
|
Guarantee fee income
|
|
6,363
|
|
750
|
|
—
|
|
—
|
|
7,113
|
|
(6,364
|
)
|
749
|
|
|||||||
Investment gains (losses), net
|
|
116
|
|
1,516
|
|
1,772
|
|
—
|
|
3,404
|
|
(2,244
|
)
|
1,160
|
|
|||||||
Other income (loss)
|
|
896
|
|
75
|
|
4,913
|
|
—
|
|
5,884
|
|
(900
|
)
|
4,984
|
|
|||||||
Benefit (provision) for credit losses
|
|
(177
|
)
|
(13
|
)
|
—
|
|
—
|
|
(190
|
)
|
274
|
|
84
|
|
|||||||
Administrative expense
|
|
(1,381
|
)
|
(395
|
)
|
(330
|
)
|
—
|
|
(2,106
|
)
|
—
|
|
(2,106
|
)
|
|||||||
Credit enhancement expense
|
|
(891
|
)
|
(17
|
)
|
—
|
|
—
|
|
(908
|
)
|
628
|
|
(280
|
)
|
|||||||
REO operations expense
|
|
(203
|
)
|
—
|
|
—
|
|
—
|
|
(203
|
)
|
14
|
|
(189
|
)
|
|||||||
Other expense
|
|
(516
|
)
|
(48
|
)
|
(81
|
)
|
—
|
|
(645
|
)
|
(1,087
|
)
|
(1,732
|
)
|
|||||||
Income tax (expense) benefit
|
|
(1,448
|
)
|
(1,060
|
)
|
(3,296
|
)
|
(5,405
|
)
|
(11,209
|
)
|
—
|
|
(11,209
|
)
|
|||||||
Net income (loss)
|
|
2,759
|
|
2,014
|
|
6,257
|
|
(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)
|
|
|
$2,799
|
|
|
$1,937
|
|
|
$6,227
|
|
|
($5,405
|
)
|
|
$5,558
|
|
|
$—
|
|
|
$5,558
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
230
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 14
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Percent of Credit Losses
|
|||||||||
|
|
Percentage of
Portfolio
|
Serious
Delinquency
Rate
|
|
Percentage of
Portfolio
|
Serious
Delinquency
Rate
|
|
2019
|
2018
|
||||||
Core single-family loan portfolio
|
|
85
|
%
|
0.26
|
%
|
|
82
|
%
|
0.22
|
%
|
|
18
|
%
|
10
|
%
|
Legacy and relief refinance single-family loan portfolio
|
|
15
|
|
1.84
|
|
|
18
|
|
1.93
|
|
|
82
|
|
90
|
|
Total
|
|
100
|
%
|
0.63
|
|
|
100
|
%
|
0.69
|
|
|
100
|
%
|
100
|
%
|
Region(1)
|
|
|
|
|
|
|
|
|
|
||||||
West
|
|
30
|
%
|
0.36
|
|
|
30
|
%
|
0.38
|
|
|
12
|
%
|
17
|
%
|
Northeast
|
|
24
|
|
0.87
|
|
|
24
|
|
0.96
|
|
|
36
|
|
39
|
|
North Central
|
|
16
|
|
0.61
|
|
|
16
|
|
0.63
|
|
|
20
|
|
19
|
|
Southeast
|
|
16
|
|
0.73
|
|
|
16
|
|
0.90
|
|
|
24
|
|
18
|
|
Southwest
|
|
14
|
|
0.54
|
|
|
14
|
|
0.57
|
|
|
8
|
|
7
|
|
Total
|
|
100
|
%
|
0.63
|
|
|
100
|
%
|
0.69
|
|
|
100
|
%
|
100
|
%
|
State(2)
|
|
|
|
|
|
|
|
|
|
||||||
Florida
|
|
6
|
%
|
0.77
|
|
|
6
|
%
|
1.01
|
|
|
14
|
%
|
10
|
%
|
Illinois
|
|
4
|
|
0.85
|
|
|
5
|
|
0.86
|
|
|
10
|
|
9
|
|
New Jersey
|
|
3
|
|
1.08
|
|
|
3
|
|
1.24
|
|
|
9
|
|
9
|
|
California
|
|
17
|
|
0.34
|
|
|
18
|
|
0.35
|
|
|
8
|
|
11
|
|
New York
|
|
5
|
|
1.21
|
|
|
5
|
|
1.37
|
|
|
7
|
|
11
|
|
All other
|
|
65
|
|
0.59
|
|
|
63
|
|
0.64
|
|
|
52
|
|
50
|
|
Total
|
|
100
|
%
|
0.63
|
%
|
|
100
|
%
|
0.69
|
%
|
|
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, 2019.
|
FREDDIE MAC | 2019 Form 10-K
|
|
231
|
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.
|
|
|
Percentage of Portfolio(1)
|
|
Serious Delinquency Rate(1)
|
||||||
(Percentage of portfolio based on UPB)
|
|
December 31, 2019
|
December 31, 2018
|
|
December 31, 2019
|
December 31, 2018
|
||||
Interest-only
|
|
1
|
%
|
1
|
%
|
|
2.72
|
%
|
3.43
|
%
|
Alt-A
|
|
1
|
|
1
|
|
|
3.75
|
|
4.13
|
|
Original LTV ratio greater than 90%(2)
|
|
18
|
|
18
|
|
|
0.96
|
|
1.04
|
|
Lower credit scores at origination (less than 620)
|
|
2
|
|
2
|
|
|
4.52
|
|
4.59
|
|
(1)
|
Excludes loans underlying certain other securitization products for which data was not available.
|
(2)
|
Includes HARP loans, which we purchased as part of our participation in the MHA Program.
|
FREDDIE MAC | 2019 Form 10-K
|
|
232
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 14
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
||||||||
(Dollars in billions)
|
|
UPB
|
Delinquency
Rate(1)
|
|
UPB
|
Delinquency
Rate(1)
|
||||||
Unsecuritized loans
|
|
|
$29.8
|
|
0.01
|
%
|
|
|
$34.8
|
|
0.01
|
%
|
Securitization-related products
|
|
260.3
|
|
0.09
|
|
|
226.9
|
|
0.01
|
|
||
Other mortgage-related guarantees
|
|
10.0
|
|
0.09
|
|
|
9.8
|
|
—
|
|
||
Total
|
|
|
$300.1
|
|
0.08
|
%
|
|
|
$271.5
|
|
0.01
|
%
|
(1)
|
Based on loans two monthly payments or more delinquent or in foreclosure.
|
Single-family Sellers(1)
|
|
2019
|
2018
|
||
JPMorgan Chase Bank, N.A.
|
|
14
|
%
|
7
|
%
|
Wells Fargo Bank, N.A.
|
|
8
|
|
12
|
|
Other top 10 sellers
|
|
34
|
|
31
|
|
Top 10 single-family sellers
|
|
56
|
%
|
50
|
%
|
|
|
|
|
||
Multifamily Sellers(1)
|
|
2019
|
2018
|
||
CBRE Capital Markets, Inc.
|
|
15
|
%
|
18
|
%
|
Berkadia Commercial Mortgage LLC
|
|
15
|
|
13
|
|
Other top 10 sellers
|
|
47
|
|
48
|
|
Top 10 multifamily sellers
|
|
77
|
%
|
79
|
%
|
(1)
|
Sellers presented based on those with the highest percentage of purchase volume during 2019.
|
FREDDIE MAC | 2019 Form 10-K
|
|
233
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 14
|
Single-family Servicers(1)
|
|
December 31, 2019(2)
|
December 31, 2018(2)
|
||
Wells Fargo Bank, N.A.
|
|
15
|
%
|
17
|
%
|
JPMorgan Chase Bank, N.A.
|
|
10
|
|
8
|
|
Other top 10 servicers
|
|
32
|
|
31
|
|
Top 10 single-family servicers
|
|
57
|
%
|
56
|
%
|
|
|
|
|
||
Multifamily Servicers(1)
|
|
December 31, 2019
|
December 31, 2018
|
||
CBRE Capital Markets, Inc.
|
|
17
|
%
|
17
|
%
|
Berkadia Commercial Mortgage LLC
|
|
13
|
|
13
|
|
Walker & Dunlop, LLC
|
|
9
|
|
10
|
|
Other top 10 servicers
|
|
37
|
|
37
|
|
Top 10 multifamily servicers
|
|
76
|
%
|
77
|
%
|
(1)
|
Servicers presented based on those with the highest percentage of servicing volume as of December 31, 2019.
|
(2)
|
Percentage of servicing volume is based on the total single-family credit guarantee portfolio, which includes loans where we do not exercise servicing control. However, loans where we do not exercise servicing control are not included for purposes of determining the concentration of servicers who serviced more than 10% of our single-family credit guarantee portfolio because we do not know which entity serves as the primary servicer for such loans.
|
FREDDIE MAC | 2019 Form 10-K
|
|
234
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 14
|
|
|
|
|
Mortgage Insurance Coverage(2)
|
|||
Mortgage Insurer
|
|
Credit Rating(1)
|
|
December 31, 2019
|
December 31, 2018
|
||
Arch Mortgage Insurance Company
|
|
A-
|
|
22
|
%
|
24
|
%
|
Radian Guaranty Inc.
|
|
BBB+
|
|
20
|
|
20
|
|
Mortgage Guaranty Insurance Corporation
|
|
BBB+
|
|
17
|
|
19
|
|
Genworth Mortgage Insurance Corporation
|
|
BB+
|
|
15
|
|
14
|
|
Essent Guaranty, Inc.
|
|
BBB+
|
|
15
|
|
14
|
|
Total
|
|
|
|
89
|
%
|
91
|
%
|
(1)
|
Ratings are for the corporate entity to which we have the greatest exposure. Latest rating available as of December 31, 2019. Represents the lower of S&P and Moody's credit ratings stated in terms of the S&P equivalent.
|
(2)
|
Coverage amounts may include coverage provided by affiliates and subsidiaries of the counterparty.
|
n
|
In each transaction, we require the individual insurers and reinsurers to post collateral to cover portions of their exposure, which helps to promote certainty and timeliness of claim payment and
|
FREDDIE MAC | 2019 Form 10-K
|
|
235
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 14
|
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 insurers and reinsurers generally participate in multiple types of insurance businesses, which helps diversify their risk exposure.
|
FREDDIE MAC | 2019 Form 10-K
|
|
236
|
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 2 - inputs to the valuation techniques are based on observable inputs other than quoted prices in active markets for identical assets or liabilities.
|
n
|
Level 3 - one or more inputs to the valuation technique are unobservable and significant to the fair value measurement.
|
FREDDIE MAC | 2019 Form 10-K
|
|
237
|
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
|
n
|
Industry-standard modeling, such as a discounted cash flow model.
|
FREDDIE MAC | 2019 Form 10-K
|
|
238
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
FREDDIE MAC | 2019 Form 10-K
|
|
239
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
FREDDIE MAC | 2019 Form 10-K
|
|
240
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
|
|
December 31, 2019
|
||||||||||||||
(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:
|
|
|
|
|
|
|
||||||||||
Agency
|
|
|
$—
|
|
|
$22,927
|
|
|
$1,960
|
|
|
$—
|
|
|
$24,887
|
|
Non-agency and other
|
|
—
|
|
20
|
|
1,267
|
|
—
|
|
1,287
|
|
|||||
Total available-for-sale securities, at fair value
|
|
—
|
|
22,947
|
|
3,227
|
|
—
|
|
26,174
|
|
|||||
Trading, at fair value:
|
|
|
|
|
|
|
||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
||||||||||
Agency
|
|
—
|
|
19,772
|
|
2,709
|
|
—
|
|
22,481
|
|
|||||
Non-agency
|
|
—
|
|
—
|
|
1
|
|
—
|
|
1
|
|
|||||
Total mortgage-related securities
|
|
—
|
|
19,772
|
|
2,710
|
|
—
|
|
22,482
|
|
|||||
Non-mortgage-related securities
|
|
25,108
|
|
1,947
|
|
—
|
|
—
|
|
27,055
|
|
|||||
Total trading securities, at fair value
|
|
25,108
|
|
21,719
|
|
2,710
|
|
—
|
|
49,537
|
|
|||||
Total investments in securities
|
|
25,108
|
|
44,666
|
|
5,937
|
|
—
|
|
75,711
|
|
|||||
Mortgage loans:
|
|
|
|
|
|
|
||||||||||
Held-for-sale, at fair value
|
|
—
|
|
15,035
|
|
—
|
|
—
|
|
15,035
|
|
|||||
Derivative assets, net:
|
|
|
|
|
|
|
||||||||||
Interest-rate swaps
|
|
—
|
|
2,104
|
|
—
|
|
—
|
|
2,104
|
|
|||||
Option-based derivatives
|
|
—
|
|
4,198
|
|
—
|
|
—
|
|
4,198
|
|
|||||
Other
|
|
—
|
|
61
|
|
16
|
|
—
|
|
77
|
|
|||||
Subtotal, before netting adjustments
|
|
—
|
|
6,363
|
|
16
|
|
—
|
|
6,379
|
|
|||||
Netting adjustments(1)
|
|
—
|
|
—
|
|
—
|
|
(5,535
|
)
|
(5,535
|
)
|
|||||
Total derivative assets, net
|
|
—
|
|
6,363
|
|
16
|
|
(5,535
|
)
|
844
|
|
|||||
Other assets:
|
|
|
|
|
|
|
|
|||||||||
Guarantee asset, at fair value
|
|
—
|
|
—
|
|
4,426
|
|
—
|
|
4,426
|
|
|||||
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
81
|
|
—
|
|
—
|
|
81
|
|
|||||
All other, at fair value
|
|
—
|
|
—
|
|
120
|
|
—
|
|
120
|
|
|||||
Total other assets
|
|
—
|
|
81
|
|
4,546
|
|
—
|
|
4,627
|
|
|||||
Total assets carried at fair value on a recurring basis
|
|
|
$25,108
|
|
|
$66,145
|
|
|
$10,499
|
|
|
($5,535
|
)
|
|
$96,217
|
|
Liabilities:
|
|
|
|
|
|
|
||||||||||
Debt securities of consolidated trusts held by third parties, at fair value
|
|
|
$—
|
|
|
$6
|
|
|
$203
|
|
|
$—
|
|
|
$209
|
|
Other debt, at fair value
|
|
—
|
|
3,600
|
|
129
|
|
—
|
|
3,729
|
|
|||||
Derivative liabilities, net:
|
|
|
|
|
|
|
||||||||||
Interest-rate swaps
|
|
—
|
|
4,882
|
|
—
|
|
—
|
|
4,882
|
|
|||||
Option-based derivatives
|
|
—
|
|
130
|
|
—
|
|
—
|
|
130
|
|
|||||
Other
|
|
—
|
|
233
|
|
37
|
|
—
|
|
270
|
|
|||||
Subtotal, before netting adjustments
|
|
—
|
|
5,245
|
|
37
|
|
—
|
|
5,282
|
|
|||||
Netting adjustments(1)
|
|
—
|
|
—
|
|
—
|
|
(4,910
|
)
|
(4,910
|
)
|
|||||
Total derivative liabilities, net
|
|
—
|
|
5,245
|
|
37
|
|
(4,910
|
)
|
372
|
|
|||||
Other liabilities:
|
|
|
|
|
|
|
||||||||||
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
7
|
|
—
|
|
—
|
|
7
|
|
|||||
All other, at fair value
|
|
—
|
|
—
|
|
1
|
|
—
|
|
1
|
|
|||||
Total other liabilities
|
|
—
|
|
7
|
|
1
|
|
—
|
|
8
|
|
|||||
Total liabilities carried at fair value on a recurring basis
|
|
|
$—
|
|
|
$8,858
|
|
|
$370
|
|
|
($4,910
|
)
|
|
$4,318
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
241
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
|
|
December 31, 2018
|
||||||||||||||
(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:
|
|
|
|
|
|
|
||||||||||
Agency
|
|
|
$—
|
|
|
$27,770
|
|
|
$4,135
|
|
|
$—
|
|
|
$31,905
|
|
Non-agency and other
|
|
—
|
|
18
|
|
1,640
|
|
—
|
|
1,658
|
|
|||||
Total available-for-sale securities, at fair value
|
|
—
|
|
27,788
|
|
5,775
|
|
—
|
|
33,563
|
|
|||||
Trading, at fair value:
|
|
|
|
|
|
|
||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
||||||||||
Agency
|
|
—
|
|
13,079
|
|
3,293
|
|
—
|
|
16,372
|
|
|||||
Non-agency
|
|
—
|
|
—
|
|
1
|
|
—
|
|
1
|
|
|||||
Total mortgage-related securities
|
|
—
|
|
13,079
|
|
3,294
|
|
—
|
|
16,373
|
|
|||||
Non-mortgage-related securities
|
|
15,885
|
|
3,290
|
|
—
|
|
—
|
|
19,175
|
|
|||||
Total trading securities, at fair value
|
|
15,885
|
|
16,369
|
|
3,294
|
|
—
|
|
35,548
|
|
|||||
Total investments in securities
|
|
15,885
|
|
44,157
|
|
9,069
|
|
—
|
|
69,111
|
|
|||||
Mortgage loans:
|
|
|
|
|
|
|
||||||||||
Held-for-sale, at fair value
|
|
—
|
|
23,106
|
|
—
|
|
—
|
|
23,106
|
|
|||||
Derivative assets, net:
|
|
|
|
|
|
|
||||||||||
Interest-rate swaps
|
|
—
|
|
2,127
|
|
—
|
|
—
|
|
2,127
|
|
|||||
Option-based derivatives
|
|
—
|
|
4,200
|
|
—
|
|
—
|
|
4,200
|
|
|||||
Other
|
|
—
|
|
90
|
|
1
|
|
—
|
|
91
|
|
|||||
Subtotal, before netting adjustments
|
|
—
|
|
6,417
|
|
1
|
|
—
|
|
6,418
|
|
|||||
Netting adjustments(1)
|
|
—
|
|
—
|
|
—
|
|
(6,083
|
)
|
(6,083
|
)
|
|||||
Total derivative assets, net
|
|
—
|
|
6,417
|
|
1
|
|
(6,083
|
)
|
335
|
|
|||||
Other assets:
|
|
|
|
|
|
|
||||||||||
Guarantee asset, at fair value
|
|
—
|
|
—
|
|
3,633
|
|
—
|
|
3,633
|
|
|||||
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
159
|
|
—
|
|
—
|
|
159
|
|
|||||
All other, at fair value
|
|
—
|
|
—
|
|
137
|
|
—
|
|
137
|
|
|||||
Total other assets
|
|
—
|
|
159
|
|
3,770
|
|
—
|
|
3,929
|
|
|||||
Total assets carried at fair value on a recurring basis
|
|
|
$15,885
|
|
|
$73,839
|
|
|
$12,840
|
|
|
($6,083
|
)
|
|
$96,481
|
|
Liabilities:
|
|
|
|
|
|
|
||||||||||
Debt securities of consolidated trusts held by third parties, at fair value
|
|
|
$—
|
|
|
$27
|
|
|
$728
|
|
|
$—
|
|
|
$755
|
|
Other debt, at fair value
|
|
—
|
|
4,223
|
|
134
|
|
—
|
|
4,357
|
|
|||||
Derivative liabilities, net:
|
|
|
|
|
|
|
||||||||||
Interest-rate swaps
|
|
—
|
|
3,974
|
|
—
|
|
—
|
|
3,974
|
|
|||||
Option-based derivatives
|
|
—
|
|
137
|
|
—
|
|
—
|
|
137
|
|
|||||
Other
|
|
—
|
|
225
|
|
92
|
|
—
|
|
317
|
|
|||||
Subtotal, before netting adjustments
|
|
—
|
|
4,336
|
|
92
|
|
—
|
|
4,428
|
|
|||||
Netting adjustments(1)
|
|
—
|
|
—
|
|
—
|
|
(3,845
|
)
|
(3,845
|
)
|
|||||
Total derivative liabilities, net
|
|
—
|
|
4,336
|
|
92
|
|
(3,845
|
)
|
583
|
|
|||||
Other liabilities:
|
|
|
|
|
|
|
||||||||||
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
17
|
|
—
|
|
—
|
|
17
|
|
|||||
Total liabilities carried at fair value on a recurring basis
|
|
|
$—
|
|
|
$8,603
|
|
|
$954
|
|
|
($3,845
|
)
|
|
$5,712
|
|
(1)
|
Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
|
FREDDIE MAC | 2019 Form 10-K
|
|
242
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
FREDDIE MAC | 2019 Form 10-K
|
|
243
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
|
|
Year Ended December 31, 2018
|
||||||||||||||||||||||||||||||||||||||||||||||
|
|
Balance,
January 1,
2018
|
|
Realized and unrealized gains (losses)
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
net
|
|
Transfers
into
Level 3(1)
|
|
Transfers
out of
Level 3(1)
|
|
Balance,
December 31,
2018
|
|
Change in Unrealized Gains(Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2018 (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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Agency
|
|
|
$6,797
|
|
|
|
($31
|
)
|
|
|
($214
|
)
|
|
|
($245
|
)
|
|
|
$56
|
|
|
|
$—
|
|
|
|
($1,546
|
)
|
|
|
($926
|
)
|
|
|
$—
|
|
|
|
($1
|
)
|
|
|
$4,135
|
|
|
|
($7
|
)
|
Non-agency and other
|
|
4,291
|
|
|
948
|
|
|
(644
|
)
|
|
304
|
|
|
—
|
|
|
—
|
|
|
(2,481
|
)
|
|
(474
|
)
|
|
—
|
|
|
—
|
|
|
1,640
|
|
|
23
|
|
||||||||||||
Total available-for-sale mortgage-related securities
|
|
11,088
|
|
|
917
|
|
|
(858
|
)
|
|
59
|
|
|
56
|
|
|
—
|
|
|
(4,027
|
)
|
|
(1,400
|
)
|
|
—
|
|
|
(1
|
)
|
|
5,775
|
|
|
16
|
|
||||||||||||
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Agency
|
|
2,916
|
|
|
(517
|
)
|
|
—
|
|
|
(517
|
)
|
|
1,484
|
|
|
—
|
|
|
(1,058
|
)
|
|
(79
|
)
|
|
579
|
|
|
(32
|
)
|
|
3,293
|
|
|
(449
|
)
|
||||||||||||
Non-agency
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
||||||||||||
Total trading mortgage-related securities
|
|
2,917
|
|
|
(517
|
)
|
|
—
|
|
|
(517
|
)
|
|
1,484
|
|
|
—
|
|
|
(1,058
|
)
|
|
(79
|
)
|
|
579
|
|
|
(32
|
)
|
|
3,294
|
|
|
(449
|
)
|
||||||||||||
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Guarantee asset
|
|
3,171
|
|
|
(80
|
)
|
|
—
|
|
|
(80
|
)
|
|
—
|
|
|
1,118
|
|
|
—
|
|
|
(576
|
)
|
|
—
|
|
|
—
|
|
|
3,633
|
|
|
(80
|
)
|
||||||||||||
All other, at fair value
|
|
45
|
|
|
28
|
|
|
—
|
|
|
28
|
|
|
102
|
|
|
31
|
|
|
(57
|
)
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
137
|
|
|
25
|
|
||||||||||||
Total other assets
|
|
|
$3,216
|
|
|
|
($52
|
)
|
|
|
$—
|
|
|
|
($52
|
)
|
|
|
$102
|
|
|
|
$1,149
|
|
|
|
($57
|
)
|
|
|
($588
|
)
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$3,770
|
|
|
|
($55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
|
Balance,
January 1, 2018 |
|
Realized and unrealized (gains) losses
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
net
|
|
Transfers
into
Level 3(1)
|
|
Transfers
out of
Level 3(1)
|
|
Balance,
December 31, 2018 |
|
Change in Unrealized Gains(Losses) Included in Net Income Related to Assets and Liabilities Still Held as of December 31, 2018 (3)
|
||||||||||||||||||||||||||||
|
|
|
Included in
earnings
|
|
Included in
other
comprehensive
income
|
|
Total
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Debt securities of consolidated trusts held by third parties, at fair value
|
|
|
$630
|
|
|
|
($2
|
)
|
|
|
$—
|
|
|
|
($2
|
)
|
|
|
$—
|
|
|
|
$100
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$728
|
|
|
|
($2
|
)
|
Other debt, at fair value
|
|
137
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
134
|
|
|
—
|
|
||||||||||||
Net derivatives(2)
|
|
57
|
|
|
37
|
|
|
—
|
|
|
37
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
91
|
|
|
20
|
|
(1)
|
Transfers out of Level 3 during 2019 and 2018 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 Agency securities are classified as Level 3 at issuance and generally are classified as Level 2 when they begin trading. Transfers into Level 3 during 2019 and 2018 consisted primarily of certain mortgage-related securities due to a decrease in market activity and the availability of 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, 2019 and December 31, 2018, respectively. This amount includes other-than temporary impairments recorded on available-for-sale securities and amortization of basis adjustment.
|
FREDDIE MAC | 2019 Form 10-K
|
|
244
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
|
|
December 31, 2019
|
||||||||||||
|
|
Level 3
Fair Value |
|
Predominant
Valuation Technique(s) |
|
Unobservable Inputs
|
||||||||
(Dollars in millions, except for certain unobservable inputs as shown)
|
|
Type
|
|
Range
|
|
Weighted
Average |
||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
||||
Available-for-sale, at fair value
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
||||
Agency
|
|
|
$1,960
|
|
|
Discounted cash flows
|
|
OAS
|
|
30 - 261 bps
|
|
80 bps
|
|
|
Non-agency and other
|
|
886
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$71.9 - $78.2
|
|
|
$75.0
|
|
|
|
|
381
|
|
|
Other
|
|
|
|
|
|
|
|
||
Trading, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|||
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Agency
|
|
1,948
|
|
|
Single external source
|
|
External pricing sources
|
|
$0.0 - $100.7
|
|
|
$36.6
|
|
|
|
|
761
|
|
|
Discounted cash flows
|
|
OAS
|
|
(1,201) - 8,095 bps
|
|
611 bps
|
|
||
Guarantee asset, at fair value
|
|
4,141
|
|
|
Discounted cash flows
|
|
OAS
|
|
17 - 186 bps
|
|
40 bps
|
|
||
|
|
285
|
|
|
Other
|
|
|
|
|
|
|
|||
Insignificant Level 3 assets(1)
|
|
137
|
|
|
|
|
|
|
|
|
|
|||
Total level 3 assets
|
|
|
$10,499
|
|
|
|
|
|
|
|
|
|
||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|||
Debt securities of consolidated trusts held by third parties, at fair value
|
|
|
$203
|
|
|
Single External Source
|
|
External Pricing Sources
|
|
$99.4 - $103.6
|
|
|
$101.4
|
|
Insignificant Level 3 liabilities(1)
|
|
167
|
|
|
|
|
|
|
|
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
245
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
|
|
December 31, 2018
|
||||||||||||
|
|
Level 3
Fair
Value
|
|
Predominant
Valuation
Technique(s)
|
|
Unobservable Inputs
|
||||||||
(Dollars in millions, except for certain unobservable inputs as shown)
|
|
Type
|
|
Range
|
|
Weighted
Average
|
||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
||||
Available-for-sale, at fair value
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
||||
Agency
|
|
|
$2,876
|
|
|
Discounted cash flows
|
|
OAS
|
|
30 - 325 bps
|
|
81 bps
|
|
|
|
|
1,259
|
|
|
Single external source
|
|
External pricing sources
|
|
$96.1 - $104.1
|
|
|
$102.3
|
|
|
Non-agency and other
|
|
1,403
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$64.3 - $71.1
|
|
|
$67.3
|
|
|
|
|
237
|
|
|
Single external source
|
|
External pricing sources
|
|
$93.1 - $110.7
|
|
|
$100.7
|
|
|
Trading, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|||
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
|
|||
Agency
|
|
1,594
|
|
|
Single external source
|
|
External pricing sources
|
|
$0.0 - $99.2
|
|
|
$56.6
|
|
|
|
|
1,178
|
|
|
Discounted cash flows
|
|
OAS
|
|
(21,945) - 6,639 bps
|
|
90 bps
|
|
||
|
|
521
|
|
|
Other
|
|
|
|
|
|
|
|||
Guarantee asset, at fair value
|
|
3,391
|
|
|
Discounted cash flows
|
|
OAS
|
|
17 - 198 bps
|
|
49 bps
|
|
||
|
|
242
|
|
|
Other
|
|
|
|
|
|
|
|||
Insignificant Level 3 assets(1)
|
|
139
|
|
|
|
|
|
|
|
|
|
|||
Total level 3 assets
|
|
|
$12,840
|
|
|
|
|
|
|
|
|
|
||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
||||
Debt securities of consolidated trusts held by third parties, at fair value
|
|
|
$728
|
|
|
Single External Source
|
|
External Pricing Sources
|
|
$97.4 - $101.1
|
|
|
$99.6
|
|
Insignificant Level 3 liabilities(1)
|
|
226
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the aggregate amount of Level 3 assets or liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant.
|
FREDDIE MAC | 2019 Form 10-K
|
|
246
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
|
|
December 31, 2019
|
|
December 31, 2018
|
||||||||||||||||||||||
(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)
|
|
|
$—
|
|
|
$22
|
|
|
$4,059
|
|
|
$4,081
|
|
|
|
$—
|
|
|
$24
|
|
|
$7,519
|
|
|
$7,543
|
|
(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.
|
|
|
December 31, 2019
|
||||||||
|
|
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
|
|
|
$4,059
|
|
|
|
|
|
|
|
|
|
|
|
Internal model
|
|
Historical sales proceeds
|
$3,000 - $765,000
|
$186,234
|
||
|
|
|
|
Internal model
|
|
Housing sales index
|
46 - 420 bps
|
112 bps
|
||
|
|
|
|
Median of external sources
|
|
External pricing sources
|
$66.5 - $105.4
|
$95.0
|
||
|
|
|
|
|
|
|
|
|
||
|
|
December 31, 2018
|
||||||||
|
|
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
|
|
|
$7,519
|
|
|
|
|
|
|
|
|
|
|
|
Internal model
|
|
Historical sales proceeds
|
$3,000 - $750,500
|
$177,725
|
||
|
|
|
|
Internal model
|
|
Housing sales index
|
44 - 480 bps
|
108 bps
|
||
|
|
|
|
Median of external sources
|
|
External pricing sources
|
$36.2 - $94.6
|
$82.5
|
FREDDIE MAC | 2019 Form 10-K
|
|
247
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
|
|
|
December 31, 2019
|
||||||||||||||||||||||
|
|
GAAP Measurement Category(1)
|
GAAP Carrying Amount
|
|
Fair Value
|
||||||||||||||||||||
(In millions)
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting
Adjustments(2)
|
|
Total
|
||||||||||||||
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
|
Amortized cost
|
|
$5,189
|
|
|
|
$5,189
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$5,189
|
|
Securities purchased under agreements to resell
|
|
Amortized cost
|
66,114
|
|
|
—
|
|
|
66,114
|
|
|
—
|
|
|
—
|
|
|
66,114
|
|
||||||
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Available-for-sale, at fair value
|
|
FV - OCI
|
26,174
|
|
|
—
|
|
|
22,947
|
|
|
3,227
|
|
|
—
|
|
|
26,174
|
|
||||||
Trading, at fair value
|
|
FV - NI
|
49,537
|
|
|
25,108
|
|
|
21,719
|
|
|
2,710
|
|
|
—
|
|
|
49,537
|
|
||||||
Total investments in securities
|
|
|
75,711
|
|
|
25,108
|
|
|
44,666
|
|
|
5,937
|
|
|
—
|
|
|
75,711
|
|
||||||
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loans held by consolidated trusts
|
|
|
1,940,523
|
|
|
—
|
|
|
1,732,434
|
|
|
244,500
|
|
|
—
|
|
|
1,976,934
|
|
||||||
Loans held by Freddie Mac
|
|
|
79,677
|
|
|
—
|
|
|
38,100
|
|
|
45,588
|
|
|
—
|
|
|
83,688
|
|
||||||
Total mortgage loans
|
|
Various(3)
|
2,020,200
|
|
|
—
|
|
|
1,770,534
|
|
|
290,088
|
|
|
—
|
|
|
2,060,622
|
|
||||||
Derivative assets, net
|
|
FV - NI
|
844
|
|
|
—
|
|
|
6,363
|
|
|
16
|
|
|
(5,535
|
)
|
|
844
|
|
||||||
Guarantee asset
|
|
FV - NI
|
4,426
|
|
|
—
|
|
|
—
|
|
|
4,433
|
|
|
—
|
|
|
4,433
|
|
||||||
Non-derivative purchase commitments, at fair value
|
|
FV - NI
|
81
|
|
|
—
|
|
|
90
|
|
|
72
|
|
|
—
|
|
|
162
|
|
||||||
Secured lending and other
|
|
Amortized cost
|
4,186
|
|
|
—
|
|
|
1,874
|
|
|
2,131
|
|
|
—
|
|
|
4,005
|
|
||||||
Total financial assets
|
|
|
|
$2,176,751
|
|
|
|
$30,297
|
|
|
|
$1,889,641
|
|
|
|
$302,677
|
|
|
|
($5,535
|
)
|
|
|
$2,217,080
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Debt, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Debt securities of consolidated trusts
held by third parties
|
|
|
|
$1,898,355
|
|
|
|
$—
|
|
|
|
$1,931,473
|
|
|
|
$1,277
|
|
|
|
$—
|
|
|
|
$1,932,750
|
|
Other debt
|
|
|
281,173
|
|
|
—
|
|
|
282,431
|
|
|
3,619
|
|
|
—
|
|
|
286,050
|
|
||||||
Total debt, net
|
|
Various(4)
|
2,179,528
|
|
|
—
|
|
|
2,213,904
|
|
|
4,896
|
|
|
—
|
|
|
2,218,800
|
|
||||||
Derivative liabilities, net
|
|
FV - NI
|
372
|
|
|
—
|
|
|
5,245
|
|
|
37
|
|
|
(4,910
|
)
|
|
372
|
|
||||||
Guarantee obligation
|
|
Amortized cost
|
4,292
|
|
|
—
|
|
|
—
|
|
|
4,527
|
|
|
—
|
|
|
4,527
|
|
||||||
Non-derivative purchase commitments, at fair value
|
|
FV - NI
|
7
|
|
|
—
|
|
|
7
|
|
|
67
|
|
|
—
|
|
|
74
|
|
||||||
Total financial liabilities
|
|
|
|
$2,184,199
|
|
|
|
$—
|
|
|
|
$2,219,156
|
|
|
|
$9,527
|
|
|
|
($4,910
|
)
|
|
|
$2,223,773
|
|
(1)
|
FV - NI denotes fair value through net income. FV - OCI denotes fair value through other comprehensive income.
|
(2)
|
Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
|
(3)
|
As of December 31, 2019, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value and FV - NI were $2.0 trillion, $20.3 billion and $15.0 billion, respectively.
|
(4)
|
As of December 31, 2019, the GAAP carrying amounts measured at amortized cost and FV - NI were $2.2 trillion and $3.9 billion, respectively.
|
FREDDIE MAC | 2019 Form 10-K
|
|
248
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
|
|
|
December 31, 2018
|
||||||||||||||||||||||
|
|
GAAP Measurement Category(1)
|
GAAP Carrying Amount
|
|
Fair Value
|
||||||||||||||||||||
(In millions)
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting Adjustments(2)
|
|
Total
|
||||||||||||||
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
|
Amortized cost
|
|
$7,273
|
|
|
|
$7,273
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$7,273
|
|
Securities purchased under agreements to resell
|
|
Amortized cost
|
34,771
|
|
|
—
|
|
|
34,771
|
|
|
—
|
|
|
—
|
|
|
34,771
|
|
||||||
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Available-for-sale, at fair value
|
|
FV - OCI
|
33,563
|
|
|
—
|
|
|
27,788
|
|
|
5,775
|
|
|
—
|
|
|
33,563
|
|
||||||
Trading, at fair value
|
|
FV - NI
|
35,548
|
|
|
15,885
|
|
|
16,369
|
|
|
3,294
|
|
|
—
|
|
|
35,548
|
|
||||||
Total investments in securities
|
|
|
69,111
|
|
|
15,885
|
|
|
44,157
|
|
|
9,069
|
|
|
—
|
|
|
69,111
|
|
||||||
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans held by consolidated trusts
|
|
|
1,842,850
|
|
|
—
|
|
|
1,605,874
|
|
|
209,542
|
|
|
—
|
|
|
1,815,416
|
|
||||||
Loans held by Freddie Mac
|
|
|
84,128
|
|
|
—
|
|
|
33,946
|
|
|
52,212
|
|
|
—
|
|
|
86,158
|
|
||||||
Total mortgage loans
|
|
Various(3)
|
1,926,978
|
|
|
—
|
|
|
1,639,820
|
|
|
261,754
|
|
|
—
|
|
|
1,901,574
|
|
||||||
Derivative assets, net
|
|
FV - NI
|
335
|
|
|
—
|
|
|
6,417
|
|
|
1
|
|
|
(6,083
|
)
|
|
335
|
|
||||||
Guarantee asset
|
|
FV - NI
|
3,633
|
|
|
—
|
|
|
—
|
|
|
3,642
|
|
|
—
|
|
|
3,642
|
|
||||||
Non-derivative purchase commitments, at fair value
|
|
FV - NI
|
159
|
|
|
—
|
|
|
159
|
|
|
2
|
|
|
—
|
|
|
161
|
|
||||||
Secured lending and other
|
|
Amortized cost
|
1,805
|
|
|
—
|
|
|
195
|
|
|
873
|
|
|
—
|
|
|
1,068
|
|
||||||
Total financial assets
|
|
|
|
$2,044,065
|
|
|
|
$23,158
|
|
|
|
$1,725,519
|
|
|
|
$275,341
|
|
|
|
($6,083
|
)
|
|
|
$2,017,935
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Debt, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Debt securities of consolidated trusts
held by third parties
|
|
|
|
$1,792,677
|
|
|
|
$—
|
|
|
|
$1,759,911
|
|
|
|
$2,698
|
|
|
|
$—
|
|
|
|
$1,762,609
|
|
Other debt
|
|
|
252,273
|
|
|
—
|
|
|
251,543
|
|
|
3,629
|
|
|
—
|
|
|
255,172
|
|
||||||
Total debt, net
|
|
Various(4)
|
2,044,950
|
|
|
—
|
|
|
2,011,454
|
|
|
6,327
|
|
|
—
|
|
|
2,017,781
|
|
||||||
Derivative liabilities, net
|
|
FV - NI
|
583
|
|
|
—
|
|
|
4,336
|
|
|
92
|
|
|
(3,845
|
)
|
|
583
|
|
||||||
Guarantee obligation
|
|
Amortized cost
|
3,561
|
|
|
—
|
|
|
—
|
|
|
4,146
|
|
|
—
|
|
|
4,146
|
|
||||||
Non-derivative purchase commitments, at fair value
|
|
FV - NI
|
17
|
|
|
—
|
|
|
17
|
|
|
11
|
|
|
—
|
|
|
28
|
|
||||||
Total financial liabilities
|
|
|
|
$2,049,111
|
|
|
|
$—
|
|
|
|
$2,015,807
|
|
|
|
$10,576
|
|
|
|
($3,845
|
)
|
|
|
$2,022,538
|
|
(1)
|
FV - NI denotes fair value through net income. FV - OCI denotes fair value through other comprehensive income.
|
(2)
|
Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
|
(3)
|
As of December 31, 2018, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value and FV - NI were $1.9 trillion, $18.5 billion and $23.1 billion, respectively.
|
(4)
|
As of December 31, 2018, the GAAP carrying amounts measured at amortized cost and FV - NI were $2.0 trillion and $5.1 billion, respectively.
|
FREDDIE MAC | 2019 Form 10-K
|
|
249
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 15
|
|
|
December 31, 2019
|
|
December 31, 2018
|
||||||||||||||||
(In millions)
|
|
Multifamily
Held-For-Sale
Loans
|
Other Debt -
Long Term
|
Debt Securities of Consolidated Trusts Held by Third Parties
|
|
Multifamily
Held-For-Sale
Loans
|
Other Debt -
Long Term
|
Debt Securities of Consolidated Trusts Held by Third Parties
|
||||||||||||
Fair value
|
|
|
$15,035
|
|
|
$3,589
|
|
|
$203
|
|
|
|
$23,106
|
|
|
$4,357
|
|
|
$728
|
|
Unpaid principal balance
|
|
14,444
|
|
3,329
|
|
200
|
|
|
22,693
|
|
3,998
|
|
730
|
|
||||||
Difference
|
|
|
$591
|
|
|
$260
|
|
|
$3
|
|
|
|
$413
|
|
|
$359
|
|
|
($2
|
)
|
|
|
December 31, 2019
|
December 31, 2018
|
December 31, 2017
|
||||||
(In millions)
|
|
Gains (Losses)
|
||||||||
Multifamily held-for-sale loans
|
|
|
$853
|
|
|
($745
|
)
|
|
$2
|
|
Multifamily held-for-sale loan purchase commitments
|
|
1,913
|
|
777
|
|
1,098
|
|
|||
Other debt - long term
|
|
136
|
|
138
|
|
(212
|
)
|
|||
Debt securities of consolidated trusts held by third parties
|
|
(4
|
)
|
5
|
|
22
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
250
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 16
|
FREDDIE MAC | 2019 Form 10-K
|
|
251
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 16
|
FREDDIE MAC | 2019 Form 10-K
|
|
252
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 16
|
FREDDIE MAC | 2019 Form 10-K
|
|
253
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 16
|
FREDDIE MAC | 2019 Form 10-K
|
|
254
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 17
|
(In millions)
|
|
December 31, 2019
|
December 31, 2018
|
||||
GAAP net worth (deficit)
|
|
|
$9,122
|
|
|
$4,477
|
|
Core capital (deficit)(1)(2)
|
|
(63,964
|
)
|
(68,036
|
)
|
||
Less: Minimum capital requirement(1)
|
|
19,123
|
|
17,553
|
|
||
Minimum capital surplus (deficit)(1)
|
|
|
($83,087
|
)
|
|
($85,589
|
)
|
(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 | 2019 Form 10-K
|
|
255
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 17
|
FREDDIE MAC | 2019 Form 10-K
|
|
256
|
Financial Statements
|
Notes to the Consolidated Financial Statements | Note 18
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
Other income (loss):
|
|
|
|
|
||||||
Non-agency mortgage-related securities settlement and judgment
|
|
|
$26
|
|
|
$338
|
|
|
$4,532
|
|
All other
|
|
297
|
|
424
|
|
452
|
|
|||
Total other income (loss)
|
|
|
$323
|
|
|
$762
|
|
|
$4,984
|
|
|
|
Year Ended December 31,
|
||||||||
(In millions)
|
|
2019
|
2018
|
2017
|
||||||
Investment gains (losses), net:
|
|
|
|
|
||||||
Mortgage loans gains (losses)
|
|
|
$4,744
|
|
|
$746
|
|
|
$2,062
|
|
Investment securities gains (losses)
|
|
389
|
|
(815
|
)
|
935
|
|
|||
Debt gains (losses)
|
|
201
|
|
720
|
|
151
|
|
|||
Derivative gains (losses)
|
|
(4,516
|
)
|
1,270
|
|
(1,988
|
)
|
|||
Investment gains (losses), net
|
|
|
$818
|
|
|
$1,921
|
|
|
$1,160
|
|
|
|
As of December 31,
|
|||||
(In millions)
|
|
2019
|
2018
|
||||
Other assets:
|
|
|
|
||||
Real estate owned, net
|
|
|
$555
|
|
|
$769
|
|
Accounts and other receivables(1)
|
|
10,780
|
|
2,447
|
|
||
Guarantee asset
|
|
4,426
|
|
3,633
|
|
||
Secured lending and other
|
|
5,158
|
|
1,805
|
|
||
All other
|
|
1,880
|
|
2,322
|
|
||
Total other assets
|
|
|
$22,799
|
|
|
$10,976
|
|
Other liabilities:
|
|
|
|
||||
Guarantee obligation
|
|
|
$4,292
|
|
|
$3,561
|
|
All other
|
|
3,750
|
|
2,837
|
|
||
Total other liabilities
|
|
|
$8,042
|
|
|
$6,398
|
|
(1)
|
Primarily consists of servicer receivables and other non-interest receivables.
|
FREDDIE MAC | 2019 Form 10-K
|
|
257
|
Quarterly Selected Financial Data
|
|
|
|
2019
|
||||||||||||||
(In millions, except share-related amounts)
|
|
1Q
|
2Q
|
3Q
|
4Q
|
Full-Year
|
||||||||||
Net interest income
|
|
|
$3,153
|
|
|
$2,927
|
|
|
$2,410
|
|
|
$3,358
|
|
|
$11,848
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|||||||||
Guarantee fee income
|
|
290
|
|
280
|
|
280
|
|
239
|
|
1,089
|
|
|||||
Investment gains (losses), net
|
|
(513
|
)
|
(138
|
)
|
568
|
|
901
|
|
818
|
|
|||||
Other income (loss)
|
|
(17
|
)
|
143
|
|
122
|
|
75
|
|
323
|
|
|||||
Non-interest income (loss)
|
|
(240
|
)
|
285
|
|
970
|
|
1,215
|
|
2,230
|
|
|||||
Net revenues
|
|
2,913
|
|
3,212
|
|
3,380
|
|
4,573
|
|
14,078
|
|
|||||
Benefit (provision) for credit losses
|
|
135
|
|
160
|
|
179
|
|
272
|
|
746
|
|
|||||
Non-interest expense:
|
|
|
|
|
|
|
||||||||||
Administrative expense
|
|
(578
|
)
|
(619
|
)
|
(620
|
)
|
(747
|
)
|
(2,564
|
)
|
|||||
Credit enhancement expense
|
|
(158
|
)
|
(139
|
)
|
(197
|
)
|
(214
|
)
|
(708
|
)
|
|||||
REO operations expense
|
|
(33
|
)
|
(81
|
)
|
(58
|
)
|
(57
|
)
|
(229
|
)
|
|||||
Temporary Payroll Tax Cut Continuation Act of 2011 expense
|
|
(390
|
)
|
(399
|
)
|
(408
|
)
|
(420
|
)
|
(1,617
|
)
|
|||||
Other expense
|
|
(124
|
)
|
(236
|
)
|
(140
|
)
|
(157
|
)
|
(657
|
)
|
|||||
Non-interest expense
|
|
(1,283
|
)
|
(1,474
|
)
|
(1,423
|
)
|
(1,595
|
)
|
(5,775
|
)
|
|||||
Income tax (expense) benefit
|
|
(358
|
)
|
(392
|
)
|
(427
|
)
|
(658
|
)
|
(1,835
|
)
|
|||||
Net income (loss)
|
|
1,407
|
|
1,506
|
|
1,709
|
|
2,592
|
|
7,214
|
|
|||||
Total other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
258
|
|
320
|
|
139
|
|
(144
|
)
|
573
|
|
|||||
Comprehensive income (loss)
|
|
|
$1,665
|
|
|
$1,826
|
|
|
$1,848
|
|
|
$2,448
|
|
|
$7,787
|
|
Net income (loss) attributable to common stockholders
|
|
|
($258
|
)
|
|
($320
|
)
|
|
($139
|
)
|
|
$144
|
|
|
($573
|
)
|
Net income (loss) per common share – basic and diluted(1)
|
|
|
($0.08
|
)
|
|
($0.10
|
)
|
|
($0.04
|
)
|
|
$0.04
|
|
|
($0.18
|
)
|
|
|
2018
|
||||||||||||||
(In millions, except share-related amounts)
|
|
1Q
|
2Q
|
3Q
|
4Q
|
Full-Year
|
||||||||||
Net interest income
|
|
|
$3,018
|
|
|
$3,003
|
|
|
$3,257
|
|
|
$2,743
|
|
|
$12,021
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|||||||||
Guarantee fee income
|
|
244
|
|
199
|
|
210
|
|
213
|
|
866
|
|
|||||
Investment gains (losses), net
|
|
1,476
|
|
562
|
|
510
|
|
(627
|
)
|
1,921
|
|
|||||
Other income (loss)
|
|
99
|
|
460
|
|
84
|
|
119
|
|
762
|
|
|||||
Non-interest income (loss)
|
|
1,819
|
|
1,221
|
|
804
|
|
(295
|
)
|
3,549
|
|
|||||
Net revenues
|
|
4,837
|
|
4,224
|
|
4,061
|
|
2,448
|
|
15,570
|
|
|||||
Benefit (provision) for credit losses
|
|
(63
|
)
|
60
|
|
380
|
|
359
|
|
736
|
|
|||||
Non-interest expense:
|
|
|
|
|
|
|
|
|||||||||
Administrative expense
|
|
(520
|
)
|
(558
|
)
|
(569
|
)
|
(646
|
)
|
(2,293
|
)
|
|||||
Credit enhancement expense
|
|
(60
|
)
|
(86
|
)
|
(89
|
)
|
(182
|
)
|
(417
|
)
|
|||||
REO operations expense
|
|
(34
|
)
|
(15
|
)
|
(38
|
)
|
(82
|
)
|
(169
|
)
|
|||||
Temporary Payroll Tax Cut Continuation Act of 2011 expense
|
|
(359
|
)
|
(366
|
)
|
(375
|
)
|
(384
|
)
|
(1,484
|
)
|
|||||
Other expense
|
|
(127
|
)
|
(114
|
)
|
(108
|
)
|
(120
|
)
|
(469
|
)
|
|||||
Non-interest expense
|
|
(1,100
|
)
|
(1,139
|
)
|
(1,179
|
)
|
(1,414
|
)
|
(4,832
|
)
|
|||||
Income tax (expense) benefit
|
|
(748
|
)
|
(642
|
)
|
(556
|
)
|
(293
|
)
|
(2,239
|
)
|
|||||
Net income (loss)
|
|
2,926
|
|
2,503
|
|
2,706
|
|
1,100
|
|
9,235
|
|
|||||
Total other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
(776
|
)
|
(68
|
)
|
(147
|
)
|
378
|
|
(613
|
)
|
|||||
Comprehensive income (loss)
|
|
|
$2,150
|
|
|
$2,435
|
|
|
$2,559
|
|
|
$1,478
|
|
|
$8,622
|
|
Net income (loss) attributable to common stockholders
|
|
|
$2,926
|
|
|
$918
|
|
|
$147
|
|
|
($379
|
)
|
|
$3,612
|
|
Net income (loss) per common share – basic and diluted(1)
|
|
|
$0.90
|
|
|
$0.28
|
|
|
$0.05
|
|
|
($0.12
|
)
|
|
$1.12
|
|
(1)
|
Net income (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. Net income (loss) per common share amounts may not recalculate using the amounts shown in this table due to rounding.
|
FREDDIE MAC | 2019 Form 10-K
|
|
258
|
Controls and Procedures
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
259
|
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 certain external press releases and statements 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 | 2019 Form 10-K
|
|
260
|
Other Information
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
261
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
n
|
Mark H. Bloom
|
n
|
Lance F. Drummond
|
n
|
Grace A. Huebscher
|
n
|
David M. Brickman
|
n
|
Aleem Gillani
|
n
|
Sara Mathew
|
n
|
Kathleen L. Casey
|
n
|
Christopher E. Herbert
|
n
|
Saiyid T. Naqvi
|
FREDDIE MAC | 2019 Form 10-K
|
|
262
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
55
|
November 2019
|
•
|
Compensation and Human Capital
|
|
None
|
•
|
Risk
|
|
|
n
|
Global Chief Technology Officer and a member of the Management Board of Aegon N.V. (2016-present)
|
n
|
Various positions at Citigroup, Inc., including Managing Director, Head of Global Consumer Technology Delivery Services (2007-2016)
|
n
|
Various positions at JPMorgan Chase & Company, including Senior Vice President, Chase Home Financial Technology (2001-2007)
|
n
|
Senior Vice President, eBusiness Solutions at CACI International, Inc. (1999-2001)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
54
|
July 2019
|
•
|
Executive
|
|
None
|
n
|
Various positions at Freddie Mac, including Chief Executive Officer (2019-present), President (2018-2019), Head of Multifamily (2011-2018), Vice President - Multifamily Capital Markets (2004-2011), and other positions during which he led the multifamily securitization, pricing, costing, portfolio management, and research teams; was responsible for the development and implementation of our multifamily securitization program, new quantitative pricing models, and financial risk analysis frameworks for all multifamily programs; and designed and led the development of several of our multifamily loan and securitization offerings, including the Capital Markets Execution and the K-Deal Securitization Program (1999-2004)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
53
|
October 2019
|
•
|
Nominating and Governance
|
•
|
HSBC Holdings plc
|
n
|
Senior Advisor with Patomak Global Partners, a financial services consulting firm (2012-present)
|
n
|
Member of the Board and Group Audit, Nomination & Corporate Governance, and Group Risk Committees of HSBC Holdings plc (2014-present)
|
n
|
Commissioner of the SEC (2006-2011)
|
FREDDIE MAC | 2019 Form 10-K
|
|
263
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
n
|
Various roles with the U.S. Senate, including Staff Director and Counsel of the Senate Banking, Housing, and Urban Affairs Committee and Staff Director of the Senate Banking Committee's Subcommittee on Financial Institutions and Regulatory Relief (1993-2006)
|
n
|
Member of the Financial Accounting Foundation Board of Trustees (2018-present); Chair (2020-present)
|
n
|
Member of the International Valuation Standards Council Board of Trustees (2016-present)
|
n
|
Member of the Library of Congress Trust Fund Board (2011-present)
|
n
|
Member of the Alternative Investment Management Association Council (2012-2016)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
65
|
July 2015
|
•
|
Audit
|
•
|
CurAegis Technologies, Inc.
|
•
|
Compensation and Human Capital, Chair
|
•
|
United Community Banks, Inc.
|
||
•
|
Executive
|
|
|
n
|
Executive in Residence, Christopher Newport University (2015-2017)
|
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)
|
n
|
Member of the Board and Executive, Nominating and Governance, Risk, and Talent & Compensation Committees of United Community Banks, Inc. (2018-present)
|
n
|
Member of the Board of the Financial Industry Regulatory Authority (2018-present)
|
n
|
Member of the Board and Audit Committee of CurAegis Technologies, Inc. (2018-present)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
57
|
January 2019
|
•
|
Audit, Chair
|
|
None
|
•
|
Compensation and Human Capital
|
|
|
||
•
|
Executive
|
|
|
n
|
Chief Financial Officer and Corporate Executive Vice President of SunTrust Banks, Inc. (2011-2018)
|
n
|
Executive Vice President and Corporate Treasurer of SunTrust Banks, Inc. (2010-2011)
|
n
|
Senior Vice President and Chief Market Risk Officer of SunTrust Banks, Inc. (2007-2010)
|
n
|
Senior Vice President and Chief Market Risk Officer of PNC Financial Services Group, Inc. (2004-2007)
|
n
|
Chief Market Risk Officer of BankBoston and FleetBoston Corp. (1996-2004)
|
n
|
Member of the Board of SunTrust Robinson Humphrey (2011-2018)
|
n
|
Founding Chair of the Market Risk Council for the Risk Management Association (1998)
|
FREDDIE MAC | 2019 Form 10-K
|
|
264
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
59
|
March 2018
|
•
|
Compensation and Human Capital
|
|
None
|
•
|
Risk
|
|
|
n
|
Managing Director for Harvard University's Joint Center for Housing Studies and Lecturer in Urban Planning and Design at the Harvard Graduate School of Design (2015-present)
|
n
|
Research Director for Harvard University's Joint Center for Housing Studies (2010-2014)
|
n
|
Senior Associate at Abt Associates, Inc. (1997-2010)
|
n
|
Member of the Board of the Homeownership Preservation Foundation (2011-2019)
|
n
|
Member of the Research Advisory Council for the Center for Responsible Lending (2006-2019)
|
n
|
Member of the Board of GreenPath Financial Wellness (2017-2019)
|
n
|
Member of the Federal Reserve Bank of Boston's Community Development Research Advisory Council (2014-2016)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
60
|
December 2017
|
•
|
Audit
|
|
None
|
•
|
Executive
|
|
|
||
•
|
Nominating and Governance, Chair
|
|
|
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)
|
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
|
||
64
|
December 2013
|
•
|
Executive, Chair
|
•
|
Reckitt Benckiser Group plc
|
|
|
•
|
State Street Corporation
|
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 (2001-2006)
|
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 Audit Committee of Reckitt Benckiser Group plc (2019-present)
|
FREDDIE MAC | 2019 Form 10-K
|
|
265
|
Directors, Corporate Governance, and Executive Officers
|
Directors
|
n
|
Member of the Board and Nominating and Corporate Governance and Risk Committees of State Street Corporation (2018-present)
|
n
|
Member of the Board and Audit and Finance and Corporate Development Committees of Campbell Soup Company (2005-2019)
|
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 (2015-2019)
|
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)
|
Age
|
Director Since
|
Freddie Mac Committees
|
Public Company Directorships
|
||
70
|
August 2013
|
•
|
Executive
|
|
None
|
•
|
Nominating and Governance
|
|
|
||
•
|
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)
|
n
|
Member of the Housing Council of the Financial Services Roundtable (2009-2013)
|
FREDDIE MAC | 2019 Form 10-K
|
|
266
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
n
|
Our Board has an independent Non-Executive Chair, whose responsibilities include presiding over meetings of the Board and executive sessions of the non-employee or independent directors.
|
n
|
Of the Board's nine directors, eight are independent, including the Non-Executive Chair.
|
n
|
Our directors are elected annually.
|
n
|
Each of the Audit, CHC, 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, CHC, 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.
|
n
|
Employment Affiliations with Business Partners - Messrs. Bloom and Herbert and former director Mr. Williams are employed by organizations that engage or have engaged in business with us resulting in payments between us and such organizations. 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 relationships between these organizations and us, our non-employee Board members concluded that the business relationships do not constitute material relationships
|
FREDDIE MAC | 2019 Form 10-K
|
|
267
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
n
|
Employment Affiliations with Competitors - During 2019, an immediate family member of Ms. Huebscher was employed by a company that is a competitor of Freddie Mac. After considering the nature and extent of the specific relationship between the competitor and the immediate family member and between the competitor and Freddie Mac, our non-employee Board members concluded that the business relationship does not constitute a material relationship that would impair Ms. Huebscher's independence as our director.
|
n
|
Board Memberships with Business Partners - Ms. Casey and Messrs. Drummond and Herbert and former directors Ms. Byrd and Messrs. Lynch and Williams serve or have served as directors of other organizations that engage or have engaged in business with us resulting in payments between us and such organizations during the past three fiscal years. After considering the nature and extent of the specific relationship between each of those organizations and us, and the fact that these current or past Board members are or were directors of these other organizations rather than employees, our non-employee Board members concluded that those business relationships do not, and with respect to former directors did not, constitute material relationships that would, or did, impair their independence as our directors.
|
n
|
Financial Relationships with Business Partners - Messrs. Bloom and Gillani, and former director Mr. Kohlhagen each own stock in companies with which we conduct significant business, and such ownership represents a material portion of their respective net worth. To eliminate any potential conflict of interest that might arise as a result of their respective stock ownership, we have established mechanisms pursuant to which they will be recused from discussing and acting upon any matters considered by the Board or any of the committees of which they are or were a member and that directly relate to the company in which they have such stock ownership. In situations where matters are frequently presented to the Board regarding these companies, we have established formal recusal arrangements. The Audit Committee Chair, in consultation with the Non-Executive Chair, addresses any questions regarding whether recusal from a particular discussion or action is appropriate.
|
FREDDIE MAC | 2019 Form 10-K
|
|
268
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
FREDDIE MAC | 2019 Form 10-K
|
|
269
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
Committee
|
Meetings in 2019
|
Chair
|
Members
|
||
|
|
|
|
|
|
Audit Committee
|
9 Committee meetings
|
|
Aleem Gillani
|
•
|
Lance F. Drummond
|
•
|
Grace A. Huebscher
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and Human Capital Committee
|
8 Committee meetings
|
|
Lance F. Drummond
|
•
|
Mark H. Bloom
|
•
|
Aleem Gillani
|
||||
•
|
Christopher E. Herbert
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
Executive Committee
|
None
|
|
Sara Mathew
|
•
|
David M. Brickman
|
•
|
Lance F. Drummond
|
||||
•
|
Aleem Gillani
|
||||
•
|
Grace A. Huebscher
|
||||
•
|
Saiyid T. Naqvi
|
||||
|
|
|
|
|
|
Nominating and Governance Committee
|
5 Committee meetings
|
|
Grace A. Huebscher
|
•
|
Kathleen L. Casey
|
•
|
Saiyid T. Naqvi
|
||||
|
|
|
|
|
|
Risk Committee
|
7 Committee meetings
|
|
Saiyid T. Naqvi
|
•
|
Mark H. Bloom
|
•
|
Christopher E. Herbert
|
||||
|
|
|
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
270
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
FREDDIE MAC | 2019 Form 10-K
|
|
271
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
Board Service
|
|
Cash Compensation
|
||
Annual Retainer for Non-Executive Chair
|
|
|
$290,000
|
|
Annual Retainer for Non-Employee Directors (other than the Non-Executive Chair)
|
|
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 | 2019 Form 10-K
|
|
272
|
Directors, Corporate Governance, and Executive Officers
|
|
Corporate Governance
|
Non-Employee Director
|
|
Fees Earned or
Paid in Cash(1)
|
|
Total
|
||
Sara Mathew(2)
|
|
$277,292
|
|
$277,292
|
||
Mark H. Bloom(3)
|
|
16,087
|
|
|
16,087
|
|
Carolyn H. Byrd(4)
|
|
20,000
|
|
|
20,000
|
|
Kathleen L. Casey(3)
|
|
40,000
|
|
|
40,000
|
|
Lance F. Drummond
|
|
170,000
|
|
|
170,000
|
|
Aleem Gillani(2)(3)
|
|
181,458
|
|
|
181,458
|
|
Thomas M. Goldstein(4)
|
|
45,000
|
|
|
45,000
|
|
Christopher E. Herbert
|
|
160,000
|
|
|
160,000
|
|
Grace A. Huebscher(2)
|
|
173,583
|
|
|
173,583
|
|
Steven W. Kohlhagen
|
|
170,000
|
|
|
170,000
|
|
Christopher S. Lynch(4)
|
|
36,250
|
|
|
36,250
|
|
Saiyid T. Naqvi
|
|
175,000
|
|
|
175,000
|
|
Eugene B. Shanks, Jr.(4)
|
|
174,538
|
|
|
174,538
|
|
Anthony A. Williams(4)
|
|
20,000
|
|
|
20,000
|
|
(1)
|
We do not have pension or retirement plans for our non-employee directors, and all compensation is paid in cash with no additional compensation paid. Therefore, the "Change in Pension Value and Non-qualified Deferred Compensation Earnings" and "All Other Compensation" columns have been omitted.
|
(2)
|
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 2019. In February 2019, Ms. Mathew became the Non-Executive Chair, Mr. Gillani became the Chair of the Audit Committee, and Ms. Huebscher became a member of the Audit Committee. In July 2019, Ms. Huebscher became the Chair of the Nominating and Governance Committee.
|
(3)
|
Mr. Gillani joined the Board in January 2019; Ms. Casey joined the Board in October 2019; and Mr. Bloom joined the Board in November 2019.
|
(4)
|
Mr. Goldstein left the Board in January 2019; Messrs. Lynch and Williams and Ms. Byrd left the Board in February 2019; and Mr. Shanks left the Board in December 2019.
|
FREDDIE MAC | 2019 Form 10-K
|
|
273
|
Directors, Corporate Governance, and Executive Officers
|
|
Executive Officers
|
Age
|
Year of Affiliation
|
Position
|
54
|
1999
|
Chief Executive Officer
|
Age
|
Year of Affiliation
|
Position
|
66
|
2018
|
Executive Vice President - General Counsel & Corporate Secretary
|
Age
|
Year of Affiliation
|
Position
|
46
|
1995
|
Senior Vice President & Interim Head of Single-Family Business
|
Age
|
Year of Affiliation
|
Position
|
56
|
2015
|
Executive Vice President - Chief Risk Officer
|
Age
|
Year of Affiliation
|
Position
|
64
|
2013
|
Executive Vice President - Investments and Capital Markets
|
FREDDIE MAC | 2019 Form 10-K
|
|
274
|
Directors, Corporate Governance, and Executive Officers
|
|
Executive Officers
|
Age
|
Year of Affiliation
|
Position
|
52
|
2008
|
Executive Vice President - Multifamily
|
Age
|
Year of Affiliation
|
Position
|
51
|
2002
|
Senior Vice President - Corporate Controller, Principal Accounting Officer & Interim Chief Financial Officer
|
Age
|
Year of Affiliation
|
Position
|
58
|
2018
|
Executive Vice President - Chief Information Officer
|
Age
|
Year of Affiliation
|
Position
|
61
|
2003
|
Executive Vice President - Chief Administrative Officer
|
FREDDIE MAC | 2019 Form 10-K
|
|
275
|
Executive Compensation
|
Compensation Discussion and Analysis
|
Named Executive Officers
|
|
David M. Brickman
|
Chief Executive Officer
|
Ricardo A. Anzaldua
|
Executive Vice President - General Counsel & Corporate Secretary
|
Anil D. Hinduja
|
Executive Vice President - Chief Risk Officer
|
Michael T. Hutchins
|
Executive Vice President - Investments and Capital Markets
|
Donald F. Kish
|
Senior Vice President - Corporate Controller, Principal Accounting Officer & Interim Chief Financial Officer
|
Donald H. Layton
|
Former Chief Executive Officer
|
David B. Lowman
|
Former Executive Vice President - Single-Family Business
|
James G. Mackey
|
Executive Vice President - Senior Advisor; former Chief Financial Officer
|
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 and Assessment Criteria
|
|
Corporate Scorecard / Individual
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
n
|
Cannot exceed $600,000
|
|
n
|
To encourage executive retention
|
|
n
|
Subject to reduction based on Conservatorship Scorecard performance and the Assessment Criteria
|
|
n
|
Subject to reduction based on performance against both the Corporate Scorecard and individual objectives
|
n
|
Earned and paid bi-weekly
|
|
n
|
Equal to total Deferred Salary less the At-Risk portion
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
276
|
Executive Compensation
|
Compensation Discussion and Analysis
|
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 Compensation and Human Capital 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 | 2019 Form 10-K
|
|
277
|
Executive Compensation
|
Compensation Discussion and Analysis
|
Allstate
|
|
Discover Financial Services
|
|
Prudential
|
|
Ally Financial
|
|
Fannie Mae
|
|
Regions Financial
|
|
AIG
|
|
Fifth Third Bancorp
|
|
State Street
|
|
American Express
|
|
The Hartford
|
|
SunTrust**
|
|
Bank of America*
|
|
JPMorgan Chase*
|
|
Synchrony Financial
|
|
Bank of New York Mellon
|
|
KeyCorp
|
|
U.S. Bancorp
|
|
BB&T**
|
|
Mastercard
|
|
Visa
|
|
Capital One
|
|
MetLife
|
|
Voya Financial
|
|
Citigroup*
|
|
Northern Trust
|
|
Wells Fargo*
|
|
Citizens Financial Group
|
|
PNC
|
|
|
|
*
|
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.
|
||||
**
|
Effective December 6, 2019, BB&T and SunTrust merged to form Truist Financial Corporation.
|
|
|
|
2019 Target TDC
|
||||||||||||||
Named Executive Officer(1)
|
|
Base
Salary
|
|
Fixed
Deferred Salary
|
|
At-Risk
Deferred Salary
|
|
Target TDC
|
|||||||||
David M. Brickman(2)
|
as CEO Jul - Dec
|
|
|
$300,000
|
|
|
|
$—
|
|
|
|
$—
|
|
|
|
$300,000
|
|
as President Jan - Jun
|
|
300,000
|
|
|
837,500
|
|
|
487,500
|
|
|
1,625,000
|
|
|||||
Total
|
|
600,000
|
|
|
837,500
|
|
|
487,500
|
|
|
1,925,000
|
|
|||||
Ricardo A. Anzaldua
|
|
500,000
|
|
|
1,250,000
|
|
|
750,000
|
|
|
2,500,000
|
|
|||||
Anil D. Hinduja
|
|
600,000
|
|
|
1,220,000
|
|
|
780,000
|
|
|
2,600,000
|
|
|||||
Michael T. Hutchins
|
|
600,000
|
|
|
1,675,000
|
|
|
975,000
|
|
|
3,250,000
|
|
|||||
Donald F. Kish(3)
|
|
414,712
|
|
|
235,865
|
|
|
278,076
|
|
|
928,653
|
|
|||||
David B. Lowman
|
|
505,385
|
|
|
1,401,902
|
|
|
816,032
|
|
|
2,723,319
|
|
|||||
James G. Mackey
|
|
600,000
|
|
|
1,675,000
|
|
|
975,000
|
|
|
3,250,000
|
|
(1)
|
Mr. Layton did not participate in the EMCP in 2019 and therefore is not included in this table. For a discussion of Mr. Layton's compensation, see CEO Compensation.
|
(2)
|
Prior to being appointed as CEO in July 2019, Mr. Brickman served as President and participated in the EMCP. Amounts in this table reflect his prorated Target TDC for the period during which he served as President. For a discussion of Mr. Brickman's compensation earned during his service as CEO, see CEO Compensation.
|
(3)
|
Amounts in the table reflect the prorated impact of Mr. Kish's increase in 2019 Target TDC from $875,000 to $975,000 effective June 24, 2019, consisting of a base salary increase from $400,000 to $425,000 and a Deferred Salary increase from $475,000 to $550,000.
|
FREDDIE MAC | 2019 Form 10-K
|
|
278
|
Executive Compensation
|
Compensation Discussion and Analysis
|
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 meets FHFA’s expectations under the CCF, including FHFA’s expectations on meeting appropriate ROCC targets;
|
n
|
The extent to which the company conducts initiatives with consideration for diversity and inclusion 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 | 2019 Form 10-K
|
|
279
|
Executive Compensation
|
Compensation Discussion and Analysis
|
Performance Goals
|
FHFA's Summary of Performance
|
||||||
|
Prepare for transition from LIBOR. Assess impact and perform industry outreach to inform policy and implementation plans.
|
Goal was achieved through our efforts to prepare the marketplace to transition from LIBOR to a new index based on SOFR by remaining engaged in the SOFR derivatives market by taking on SOFR-based futures and swaps when appropriate; with our K Certificates, which include a class of floating rate bonds indexed to SOFR; and our active participation in the ARCC, which is a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure a successful transition from LIBOR to its recommended alternative, SOFR.
|
|||||
|
|
|
|||||
|
Explore opportunities to further affordability through multifamily energy and water efficiency programs:
|
Goal was achieved.
|
|||||
|
•
|
Conduct research and outreach on loans that finance energy and water efficiency improvements.
|
|||||
|
Manage the dollar volume of new multifamily business to remain at or below $35 billion:
|
Goal was achieved.
|
|||||
|
•
|
Loans in affordable and underserved market segments, as defined by FHFA, are to be excluded from the $35 billion cap.
|
|||||
|
|||||||
Reduce taxpayer risk through increasing the role of private capital in the mortgage market. (30%)
|
|||||||
|
Single-Family Credit Risk Transfers:
|
All goals were achieved through the company's thoughtful approaches to transferring credit risk on single-family mortgages.
|
|||||
|
•
|
Transfer a meaningful portion of credit risk on at least 90 percent of the UPB of newly acquired single-family mortgages in loan categories targeted for credit risk transfer, subject to FHFA target adjustments as may be necessary to reflect market conditions and economic considerations.
|
|||||
|
•
|
For 2019, targeted single-family loan categories include: non-HARP, fixed-rate mortgages with terms greater than 20 years and LTV ratios above 60 percent.
|
|||||
|
•
|
Report to FHFA the actual amount of underlying mortgage credit risk transferred.
|
|||||
|
Multifamily Credit Risk Transfers:
|
All goals were achieved through the company's thoughtful approaches to transferring credit risk on multifamily mortgages.
|
|||||
|
•
|
Transfer a meaningful portion of the credit risk on newly acquired mortgages, subject to FHFA target adjustments as may be necessary to reflect market conditions and economic considerations.
|
|||||
|
•
|
Report to FHFA the actual amount of underlying mortgage credit risk transferred.
|
|||||
|
Retained Portfolio:
|
Goal was achieved.
|
|||||
|
•
|
Execute FHFA-approved retained portfolio plans that maintain, even under adverse conditions, the annual Purchase Agreement requirements and the $250 billion Purchase Agreement cap. Any sales should be commercially reasonable transactions that consider impacts to the market, borrowers, and neighborhood stability.
|
|||||
|
Servicer Eligibility Requirements 2.0:
|
Goal was achieved.
|
|||||
|
•
|
Evaluate the current liquidity requirements for non-depository Seller/Servicer company counterparties to determine whether changes are appropriate.
|
|||||
|
|
|
|
|
|
|
|
Build a new single-family infrastructure for use by the Enterprises and adaptable for use by other participants in the secondary market in the future (30%)
|
FREDDIE MAC | 2019 Form 10-K
|
|
280
|
Executive Compensation
|
Compensation Discussion and Analysis
|
Performance Goals
|
FHFA's Summary of Performance
|
||||||
|
Common Securitization Platform and Single Security Initiative:
|
All goals were achieved with the successful launch of UMBS.
|
|||||
|
•
|
Continue working with FHFA, Fannie Mae, and CSS to implement the Single Security Initiative on the CSP for both Enterprises.
|
|||||
|
•
|
Incorporate the following design principles in developing the CSP:
|
|||||
|
|
○
|
Focus on the functions necessary for current Enterprise single-family securitization activities.
|
||||
|
|
○
|
Include the development of operational and system capabilities necessary for CSP to facilitate the issuance and administration of a common, single security for the Enterprises.
|
||||
|
|
○
|
Allow for the integration of additional market participants in the future.
|
||||
|
•
|
Continue to work with Fannie Mae and CSS to obtain and use input from industry stakeholders.
|
|||||
|
•
|
Work proactively with the industry to help market participants prepare for the implementation of the Single Security Initiative.
|
|||||
|
Continue to Provide Active Support for Mortgage Data Standardization Initiatives:
|
All goals were achieved with the publication of the mock-ups of URLA forms, updated AUS specifications, and revised URLA-ULAD implementation timeline.
|
|||||
|
•
|
Continue implementation of the redesigned Uniform Residential Loan Application (URLA), the Uniform Loan Application Dataset (ULAD), and the company's Automated Underwriting System (AUS) specifications.
|
|||||
|
•
|
Assess and, as appropriate, continue implementation of strategies to redesign the Uniform Appraisal Dataset and forms.
|
FREDDIE MAC | 2019 Form 10-K
|
|
281
|
Executive Compensation
|
Compensation Discussion and Analysis
|
Corporate Scorecard Goal
|
Assessment of Performance
|
Customer
|
The company achieved all elements of this goal. Both the Single-Family and Multifamily businesses continued to make significant progress in customer satisfaction.
|
Compete for business by being a customer-centric organization
|
|
People and Culture
|
The company achieved or exceeded all but one element of this goal. The company received solid scores on the employee engagement survey indicating the ongoing commitment to drive a culture of engagement. The company also continues to focus on diversity and inclusion efforts related to hiring practices and usage and engagement of minority-, women- and disabled-owned businesses in our transactions and met or exceeded these elements. The company narrowly missed achieving the element related to corporate payments to diverse suppliers.
|
Hire and retain talented people in a winning culture
|
|
Operating Performance
|
The company achieved or exceeded all but one element of this goal. We exceeded this goal in both Multifamily volume and Single-Family portfolio growth. Financial results continued to be strong, and we met or exceeded comprehensive income goals at the corporate, Single-Family business, and Multifamily business levels. The company failed to achieve the element related to Investments and Capital Markets comprehensive income. We exceeded plan in the execution of our major programs and infrastructure transformation, highlighting our continued efforts to become more efficient. We also exceeded our plan related to the adoption and conversion to Single Security.
|
Operate as well as the best-run financial institutions
|
|
Risk and Capital Management
|
The company achieved or exceeded all elements of this goal. The company’s efforts to mitigate its risk through the transfer of credit risk on Single-Family and Multifamily new business were above plan. Efforts to achieve major remediation program milestones were achieved or exceeded and the timely remediation of issues target was met indicating our continued focus on risk reduction efforts.
|
Manage risk and capital as well as the largest financial institutions
|
|
Community Mission
|
Based on preliminary information, the company believes it met all five of its single-family affordable housing goals and all three of its multifamily affordable housing goals for 2019. We also exceeded or expect to exceed our goals for other single-family and multifamily mission-related offerings.
|
Responsibly increase access to housing finance
|
FREDDIE MAC | 2019 Form 10-K
|
|
282
|
Executive Compensation
|
Compensation Discussion and Analysis
|
David M. Brickman, Chief Executive Officer & Former President
|
|
Performance Highlights(1)
|
|
n
|
Effectively assumed leadership of all three of the business lines in February 2019 — Single-Family, Multifamily, Investments & Capital Markets — and the Information Technology division. This was in addition to his existing oversight of the Enterprise Operations and Internal Audit divisions.
|
n
|
Demonstrated exceptional leadership, including gaining a deeper understanding of all aspects of the company, driving progress, and advancing the company’s leadership role in the housing industry.
|
n
|
Made significant contributions to many strategic priorities, including the implementation of UMBS, Reimagine Servicing, infrastructure transformation, and company-wide Modern Delivery implementation.
|
n
|
Achieved strong business results across all categories - from operating performance to customer relationship indices, to credit risk capital reduction and remediation efforts.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The CHC Committee determined that Mr. Brickman 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.
|
(1)
|
Performance highlights reflect the CHC Committee's evaluation of Mr. Brickman's service as President, prior to being appointed CEO in July 2019.
|
Anil D. Hinduja, Executive Vice President - Chief Risk Officer
|
|
Performance Highlights
|
|
n
|
Advanced the company’s risk framework through corporate policies and standards and commenced development of the compliance obligation library to set the foundation for an integrated risk and control approach.
|
n
|
Enhanced risk appetite methodology for both Financial and Operational Risks and worked actively with the Conservator on the Enterprise Capital Rule.
|
n
|
Provided leadership to address remediation of supervisory issues and developed a program for third-party risk management.
|
n
|
Strengthened capabilities within the independent risk function through learning initiatives, ongoing job rotation and recruitment of seasoned executives.
|
n
|
Continued focus on firm-wide risk management.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The CHC Committee determined that Mr. Hinduja 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 | 2019 Form 10-K
|
|
283
|
Executive Compensation
|
Compensation Discussion and Analysis
|
Michael T. Hutchins, Executive Vice President - Investments and Capital Markets
|
|
Performance Highlights
|
|
n
|
Provided strong leadership of the company’s market activities, including successfully decreasing less liquid assets in an economically efficient manner.
|
n
|
Led efforts to successfully transition to the UMBS, including market readiness and exchange of legacy Freddie Mac mortgage securities for UMBS.
|
n
|
Partnered with the Single-Family business to expand cash window activities, and continued to enhance the liquidity of Freddie Mac’s traded Single-Family bonds in the secondary mortgage market.
|
n
|
Continued to meet risk management objectives, including conducting market responsive transactions in debt funding and interest-rate hedging, and efficiently meeting the company’s liquidity and funding needs.
|
n
|
Continued to improve operational capabilities, including reducing reliance on third-party vendors, strengthening resiliency and data infrastructure, and enhancing model risk management.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The CHC 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.
|
Donald F. Kish, Senior Vice President, Corporate Controller, Principal Accounting Officer & Interim Chief Financial Officer
|
|
Performance Highlights
|
|
n
|
Provided strong leadership to accounting department, including implementing several opportunities for efficiency in structure and process.
|
n
|
Supported the implementation of UMBS and CECL from a tax, accounting, and reporting perspective.
|
n
|
Continued focus on enhancing overall control framework, including successful resolution of several key outstanding identified issues.
|
n
|
Provided renewed direction for the Finance division’s data and reporting strategy initiative.
|
n
|
Provided guidance and structure to the company on the control framework to be used in its Modern Delivery development methodology.
|
n
|
Partnered with other leaders to ensure operational readiness for new initiatives, including the first STACR REMIC issuance.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The CHC Committee determined that Mr. Kish 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.
|
David B. Lowman, Former Executive Vice President - Single-Family Business
|
|
Performance Highlights
|
|
n
|
Continued strong performance of the Single-Family business, with focus on increasing competitiveness, driving innovation, and managing risks.
|
n
|
Achieved higher Single-Family earnings in 2019 versus 2018.
|
n
|
Developed and implemented initiatives that create operational efficiencies and enhance the customer experience, including increasing the capabilities of the Loan Advisor Suite.
|
n
|
Successfully supported the launch of the UMBS on the CSP in collaboration with Fannie Mae and CSS.
|
n
|
Continued to innovate and execute CRT transactions, including issuing the first STACR REMIC transaction that is expected to deepen and broaden participation in the STACR program.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The CHC 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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
284
|
Executive Compensation
|
Compensation Discussion and Analysis
|
James G. Mackey, Executive Vice President - Senior Advisor; former Chief Financial Officer
|
|
Performance Highlights
|
|
n
|
Led the completion of several large financial transformation projects including a new capital markets accounting system, additional hedge accounting capabilities, and preparation for the implementation of the new CECL accounting standard.
|
n
|
Continued focus on enhanced analytical and reporting capabilities for both internal management reporting and external disclosures.
|
n
|
Led the transformation of the enterprise supply chain organization and processes to achieve substantial cost savings and improved efficiencies.
|
n
|
Led efforts to implement several operational improvements, which included processes to support the UMBS and CCF, and the simplification of G&A and project reporting to reduce costs and increase efficiencies.
|
n
|
Continued the successful development of management and staff in the Finance division to expand skill sets needed for future organizational success.
|
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
|
|
The CHC 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.
|
|
2019 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. Brickman(2)
|
$837,500
|
|
$207,188
|
|
85%
|
|
$243,750
|
|
100%
|
|
$1,288,438
|
|
97%
|
||||
Mr. Anzaldua
|
1,250,000
|
|
|
318,750
|
|
|
85%
|
|
375,000
|
|
|
100%
|
|
1,943,750
|
|
|
97%
|
Mr. Hinduja
|
1,220,000
|
|
|
331,500
|
|
|
85%
|
|
390,000
|
|
|
100%
|
|
1,941,500
|
|
|
97%
|
Mr. Hutchins
|
1,675,000
|
|
|
414,375
|
|
|
85%
|
|
487,500
|
|
|
100%
|
|
2,576,875
|
|
|
97%
|
Mr. Kish
|
235,865
|
|
|
118,183
|
|
|
85%
|
|
139,038
|
|
|
100%
|
|
493,086
|
|
|
96%
|
Mr. Lowman
|
1,401,902
|
|
|
346,814
|
|
|
85%
|
|
408,016
|
|
|
100%
|
|
2,156,732
|
|
|
97%
|
Mr. Mackey
|
1,675,000
|
|
|
414,375
|
|
|
85%
|
|
487,500
|
|
|
100%
|
|
2,576,875
|
|
|
97%
|
(1)
|
Mr. Layton was not eligible for deferred salary in 2019 and therefore is not included in this table.
|
(2)
|
Amounts represent actual deferred salary earned by Mr. Brickman during his service as President prior to his appointment as CEO in July 2019.
|
FREDDIE MAC | 2019 Form 10-K
|
|
285
|
Executive Compensation
|
Compensation Discussion and Analysis
|
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; or
|
FREDDIE MAC | 2019 Form 10-K
|
|
286
|
Executive Compensation
|
Compensation Discussion and Analysis
|
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.
|
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 | 2019 Form 10-K
|
|
287
|
Executive Compensation
|
Compensation Discussion and Analysis
|
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.
|
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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
288
|
Executive Compensation
|
Compensation Discussion and Analysis
|
n
|
Our directors serve on behalf of the Conservator and exercise their authority as provided 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 executive 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.
|
Lance F. Drummond, Chair
|
Mark H. Bloom
|
Aleem Gillani
|
Christopher E. Herbert
|
FREDDIE MAC | 2019 Form 10-K
|
|
289
|
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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
290
|
Executive Compensation
|
|
CEO Pay Ratio
|
|
|
CEO Pay Ratio
|
|
Employee
|
|
Total Compensation
|
Ratio
|
David M. Brickman (CEO)
|
|
$651,000(1)
|
4.34 to 1
|
Median Employee
|
|
150,065
|
(1)
|
Represents the annualized compensation for Mr. Brickman because he was serving as CEO on the date we determined our median employee for 2019.
|
FREDDIE MAC | 2019 Form 10-K
|
|
291
|
Executive Compensation
|
|
Environmental, Social, and Governance Practices
|
FREDDIE MAC | 2019 Form 10-K
|
|
292
|
Executive Compensation
|
|
Environmental, Social, and Governance Practices
|
FREDDIE MAC | 2019 Form 10-K
|
|
293
|
Executive Compensation
|
|
Environmental, Social, and Governance Practices
|
FREDDIE MAC | 2019 Form 10-K
|
|
294
|
Executive Compensation
|
|
2019 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)
|
|
|
|
|||||||||||||||||
David M. Brickman(5)
|
2019
|
|
$600,000
|
|
|
|
$837,500
|
|
|
|
$—
|
|
|
|
$456,867
|
|
|
|
$112,621
|
|
|
|
$2,006,988
|
|
Chief Executive Officer
|
2018
|
500,000
|
|
|
1,507,478
|
|
|
—
|
|
|
867,919
|
|
|
163,266
|
|
|
3,038,663
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Ricardo A. Anzaldua(5)
|
2019
|
500,000
|
|
|
1,250,000
|
|
|
—
|
|
|
702,873
|
|
|
68,745
|
|
|
2,521,618
|
|
||||||
EVP - General Counsel & Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Anil D. Hinduja(5)
|
2019
|
600,000
|
|
|
1,220,000
|
|
|
—
|
|
|
730,988
|
|
|
117,651
|
|
|
2,668,639
|
|
||||||
EVP - Chief Risk Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Michael T. Hutchins(6)
|
2019
|
600,000
|
|
|
1,675,000
|
|
|
—
|
|
|
913,735
|
|
|
123,634
|
|
|
3,312,369
|
|
||||||
EVP - Investments & Capital Markets
|
2018
|
500,000
|
|
|
1,575,208
|
|
|
—
|
|
|
897,202
|
|
|
98,862
|
|
|
3,071,272
|
|
||||||
2017
|
490,447
|
|
|
1,394,575
|
|
|
—
|
|
|
804,358
|
|
|
89,305
|
|
|
2,778,685
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Donald F. Kish(5)
|
2019
|
414,712
|
|
|
235,865
|
|
|
—
|
|
|
260,603
|
|
|
73,227
|
|
|
984,407
|
|
||||||
SVP - Corporate Controller, Principal Accounting Officer & Interim Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Donald H. Layton
|
2019
|
297,692
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,142
|
|
|
323,834
|
|
||||||
Former Chief Executive Officer
|
2018
|
600,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,000
|
|
|
651,000
|
|
||||||
2017
|
600,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,000
|
|
|
651,000
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
David B. Lowman
|
2019
|
505,385
|
|
|
1,401,902
|
|
|
—
|
|
|
764,756
|
|
|
106,312
|
|
|
2,778,355
|
|
||||||
Former EVP - Single-family Business
|
2018
|
500,000
|
|
|
1,775,000
|
|
|
—
|
|
|
983,580
|
|
|
100,620
|
|
|
3,359,200
|
|
||||||
2017
|
500,000
|
|
|
1,763,818
|
|
|
—
|
|
|
964,588
|
|
|
92,496
|
|
|
3,320,902
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
James G. Mackey
|
2019
|
600,000
|
|
|
1,675,000
|
|
|
—
|
|
|
913,735
|
|
|
123,634
|
|
|
3,312,369
|
|
||||||
EVP - Senior Advisor, former Chief Financial Officer
|
2018
|
500,000
|
|
|
1,775,000
|
|
|
—
|
|
|
983,580
|
|
|
100,620
|
|
|
3,359,200
|
|
||||||
2017
|
500,000
|
|
|
1,763,818
|
|
|
—
|
|
|
964,588
|
|
|
92,496
|
|
|
3,320,902
|
|
(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 2019, 2018, and 2017 was 1.315%, 0.880%, and 0.425%, 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 2019, 2018, and 2017 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 2019, 2018, and 2017 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 2019 At-Risk Deferred Salary.
|
FREDDIE MAC | 2019 Form 10-K
|
|
295
|
Executive Compensation
|
|
2019 Compensation Information for NEOs
|
(4)
|
Amounts for 2019 reflect: (i) contributions made under our tax-qualified Thrift/401(k) Plan for plan year 2019; (ii) accruals earned pursuant to the SERP Benefit for plan year 2019; and (iii) interest on Fixed Deferred Salary earned during 2019. The amounts for 2019 are as follows:
|
Named Executive Officer
|
|
Thrift/401(k) Plan
Contributions
|
|
SERP Benefit
Accruals
|
|
Interest on Fixed Deferred Salary
|
|||
Mr. Brickman
|
|
$23,800
|
|
$77,808
|
|
$11,013
|
|||
Mr. Anzaldua
|
|
12,262
|
|
|
40,046
|
|
|
16,437
|
|
Mr. Hinduja
|
|
23,800
|
|
|
77,808
|
|
|
16,043
|
|
Mr. Hutchins
|
|
23,800
|
|
|
77,808
|
|
|
22,026
|
|
Mr. Kish
|
|
23,800
|
|
|
46,325
|
|
|
3,102
|
|
Mr. Layton
|
|
23,461
|
|
|
2,681
|
|
|
—
|
|
Mr. Lowman
|
|
22,108
|
|
|
65,769
|
|
|
18,435
|
|
Mr. Mackey
|
|
23,800
|
|
|
77,808
|
|
|
22,026
|
|
(5)
|
Pursuant to SEC reporting requirements, because Messrs. Anzaldua, Hinduja, and Kish were not NEOs in 2017 or 2018, and Mr. Brickman was not an NEO in 2017, prior year information is not required to be disclosed.
|
(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 for 2017 because he took additional vacation as leave without pay during that year.
|
FREDDIE MAC | 2019 Form 10-K
|
|
296
|
Executive Compensation
|
|
2019 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. Brickman(3)
|
|
Conservatorship Scorecard
|
|
|
$—
|
|
|
|
$243,750
|
|
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
243,750
|
|
||
|
|
Total
|
|
—
|
|
|
487,500
|
|
||
|
|
|
|
|
|
|
||||
Mr. Anzaldua
|
|
Conservatorship Scorecard
|
|
—
|
|
|
375,000
|
|
||
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
375,000
|
|
||
|
|
Total
|
|
—
|
|
|
750,000
|
|
||
|
|
|
|
|
|
|
||||
Mr. Hinduja
|
|
Conservatorship Scorecard
|
|
—
|
|
|
390,000
|
|
||
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
390,000
|
|
||
|
|
Total
|
|
—
|
|
|
780,000
|
|
||
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
||||
Mr. Hutchins
|
|
Conservatorship Scorecard
|
|
—
|
|
|
487,500
|
|
||
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
487,500
|
|
||
|
|
Total
|
|
—
|
|
|
975,000
|
|
||
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
||||
Mr. Kish
|
|
Conservatorship Scorecard
|
|
—
|
|
|
139,038
|
|
||
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
139,038
|
|
||
|
|
Total
|
|
—
|
|
|
278,076
|
|
||
|
|
|
|
|
|
|
||||
Mr. Lowman
|
|
Conservatorship Scorecard
|
|
—
|
|
|
408,016
|
|
||
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
408,016
|
|
||
|
|
Total
|
|
—
|
|
|
816,032
|
|
||
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
||||
Mr. Mackey
|
|
Conservatorship Scorecard
|
|
—
|
|
|
487,500
|
|
||
|
|
Corporate Scorecard/Individual
|
|
—
|
|
|
487,500
|
|
||
|
|
Total
|
|
—
|
|
|
975,000
|
|
||
|
|
|
|
|
|
|
(1)
|
Mr. Layton was not eligible to receive Deferred Salary in 2019 and therefore is not included in this table.
|
(2)
|
The amounts reported reflect At-Risk Deferred Salary granted in 2019 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 2019 are reported in the Non-Equity Incentive Plan Compensation column of Table 81 - Summary Compensation Table.
|
(3)
|
Represents amounts Mr. Brickman was eligible to earn in 2019 while serving as President prior to being appointed CEO.
|
FREDDIE MAC | 2019 Form 10-K
|
|
297
|
Executive Compensation
|
|
2019 Compensation Information for NEOs
|
FREDDIE MAC | 2019 Form 10-K
|
|
298
|
Executive Compensation
|
|
2019 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. Brickman
|
|
|
|
|
|
|
|
|
|
|
|||||
SERP Benefit
|
|
$—
|
|
|
$77,808
|
|
$160,852
|
|
$—
|
|
|
$895,708
|
|||
SERP II Benefit
|
|
—
|
|
|
—
|
|
|
66,630
|
|
|
—
|
|
|
369,019
|
|
Mr. Anzaldua
|
|
|
|
|
|
|
|
|
|
|
|||||
SERP Benefit
|
|
—
|
|
|
40,046
|
|
|
203
|
|
|
—
|
|
|
40,250
|
|
Mr. Hinduja
|
|
|
|
|
|
|
|
|
|
|
|||||
SERP Benefit
|
|
—
|
|
|
77,808
|
|
|
45,994
|
|
|
—
|
|
|
281,224
|
|
Mr. Hutchins
|
|
|
|
|
|
|
|
|
|
|
|||||
SERP Benefit
|
|
—
|
|
|
77,808
|
|
|
20,472
|
|
|
—
|
|
|
388,300
|
|
Mr. Kish
|
|
|
|
|
|
|
|
|
|
|
|||||
SERP Benefit
|
|
—
|
|
|
46,325
|
|
|
53,848
|
|
|
—
|
|
|
328,719
|
|
SERP II Benefit
|
|
—
|
|
|
—
|
|
|
18,799
|
|
|
—
|
|
|
119,412
|
|
Mr. Layton
|
|
|
|
|
|
|
|
|
|
|
|||||
SERP Benefit
|
|
—
|
|
|
2,681
|
|
|
56,674
|
|
|
—
|
|
|
325,175
|
|
Mr. Lowman
|
|
|
|
|
|
|
|
|
|
|
|||||
SERP Benefit
|
|
—
|
|
|
65,769
|
|
|
55,600
|
|
|
—
|
|
|
432,538
|
|
Mr. Mackey
|
|
|
|
|
|
|
|
|
|
|
|||||
SERP Benefit
|
|
—
|
|
|
77,808
|
|
|
32,494
|
|
|
—
|
|
|
376,834
|
|
(1)
|
The SERP and SERP II do not allow for employee contributions.
|
(2)
|
Amounts reported reflect accruals under the SERP during 2019, including the 2.5% contribution accruals which will be allocated to NEO accounts in 2020. These amounts are also reported in the "All Other Compensation" column in Table 81 - Summary Compensation Table.
|
(3)
|
Amounts reported represent the total interest and other earnings credited to each NEO under the SERP and SERP II Benefits.
|
(4)
|
Amounts reported reflect the accumulated balances under the SERP and SERP II Benefits for each NEO and include the plan year 2019 accruals noted in footnote 2 above. All NEOs are fully vested in their SERP and, for Messrs. Brickman and Kish, their SERP II, Benefit account balances.
|
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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
299
|
Executive Compensation
|
|
2019 Compensation Information for NEOs
|
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.
|
Named Executive Officer
|
|
Death
|
|
Disability
|
|
Retirement(1)
|
|
All Other Not
For Cause
Terminations(2)
|
||||||||
David M. Brickman(3)
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$837,500
|
|
|
|
$837,500
|
|
|
|
|
|
$619,750
|
|
||
At Risk-Conservatorship Scorecard(4)
|
|
243,750
|
|
|
243,750
|
|
|
|
|
207,188
|
|
|||||
At Risk-Corporate Scorecard/Individual(5)
|
|
243,750
|
|
|
243,750
|
|
|
|
|
243,750
|
|
|||||
Interest on Deferred Salary(6)
|
|
15,252
|
|
|
17,424
|
|
|
|
|
14,080
|
|
|||||
Total
|
|
|
$1,340,252
|
|
|
|
$1,342,424
|
|
|
|
|
|
$1,084,768
|
|
||
|
|
|
|
|
|
|
|
|
||||||||
Ricardo A. Anzaldua
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$1,250,000
|
|
|
|
$1,250,000
|
|
|
|
$1,250,000
|
|
|
|
||
At Risk-Conservatorship Scorecard(4)
|
|
375,000
|
|
|
375,000
|
|
|
318,750
|
|
|
|
|||||
At Risk-Corporate Scorecard/Individual(5)
|
|
375,000
|
|
|
375,000
|
|
|
375,000
|
|
|
|
|||||
Interest on Deferred Salary(6)
|
|
16,410
|
|
|
26,300
|
|
|
25,560
|
|
|
|
|||||
Total
|
|
|
$2,016,410
|
|
|
|
$2,026,300
|
|
|
|
$1,969,310
|
|
|
|
||
|
|
|
|
|
|
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
300
|
Executive Compensation
|
|
2019 Compensation Information for NEOs
|
Anil D. Hinduja
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$1,220,000
|
|
|
|
$1,220,000
|
|
|
|
|
|
$902,800
|
|
||
At Risk-Conservatorship Scorecard(4)
|
|
390,000
|
|
|
390,000
|
|
|
|
|
331,500
|
|
|||||
At Risk-Corporate Scorecard/Individual(5)
|
|
390,000
|
|
|
390,000
|
|
|
|
|
390,000
|
|
|||||
Interest on Deferred Salary(6)
|
|
16,410
|
|
|
26,300
|
|
|
|
|
21,360
|
|
|||||
Total
|
|
|
$2,016,410
|
|
|
|
$2,026,300
|
|
|
|
|
|
$1,645,660
|
|
||
|
|
|
|
|
|
|
|
|
||||||||
Michael T. Hutchins
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$1,675,000
|
|
|
|
$1,675,000
|
|
|
|
$1,675,000
|
|
|
|
||
At Risk-Conservatorship Scorecard(4)
|
|
487,500
|
|
|
487,500
|
|
|
414,375
|
|
|
|
|||||
At Risk-Corporate Scorecard/Individual(5)
|
|
487,500
|
|
|
487,500
|
|
|
487,500
|
|
|
|
|||||
Interest on Deferred Salary(6)
|
|
21,744
|
|
|
34,848
|
|
|
33,886
|
|
|
|
|||||
Total
|
|
|
$2,671,744
|
|
|
|
$2,684,848
|
|
|
|
$2,610,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Donald F. Kish
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$235,865
|
|
|
|
$235,865
|
|
|
|
|
|
$174,540
|
|
||
At Risk-Conservatorship Scorecard(4)
|
|
139,038
|
|
|
139,038
|
|
|
|
|
118,183
|
|
|||||
At Risk-Corporate Scorecard/Individual(5)
|
|
139,038
|
|
|
139,038
|
|
|
|
|
139,038
|
|
|||||
Interest on Deferred Salary(6)
|
|
4,095
|
|
|
6,758
|
|
|
|
|
5,678
|
|
|||||
Total
|
|
|
$518,036
|
|
|
|
$520,699
|
|
|
|
|
|
|
$437,439
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
James G. Mackey
|
|
|
|
|
|
|
|
|
||||||||
Deferred Salary:
|
|
|
|
|
|
|
|
|
||||||||
Fixed
|
|
|
$1,675,000
|
|
|
|
$1,675,000
|
|
|
|
|
|
$1,239,500
|
|
||
At Risk-Conservatorship Scorecard(4)
|
|
487,500
|
|
|
487,500
|
|
|
|
|
414,375
|
|
|||||
At Risk-Corporate Scorecard/Individual(5)
|
|
487,500
|
|
|
487,500
|
|
|
|
|
487,500
|
|
|||||
Interest on Deferred Salary(6)
|
|
21,744
|
|
|
34,848
|
|
|
|
|
28,159
|
|
|||||
Total
|
|
|
$2,671,744
|
|
|
|
$2,684,848
|
|
|
|
|
|
$2,169,534
|
|
||
|
|
|
|
|
|
|
|
|
(1)
|
Messrs. Anzaldua and Hutchins are the only retirement-eligible NEOs under the EMCP.
|
(2)
|
All Other Not For Cause Terminations refer to voluntary terminations other than for retirement and involuntary terminations other than for cause. No amount is shown for Messrs. Anzaldua and Hutchins because they are 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, 2019 termination event.
|
(3)
|
Amounts reported for Mr. Brickman include deferred compensation payable to him earned while he served as President prior to becoming CEO. As CEO, he is not eligible for any additional compensation in connection with a termination of employment.
|
(4)
|
The amounts reported for Deferred Salary: At Risk-Conservatorship Scorecard reflect the funding level determined by FHFA with respect to performance against the 2019 Conservatorship Scorecard. In cases of death or disability, the process for determining funding level is waived if the funding level has not been determined at the date of termination.
|
(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 2019 performance approved by the CHC 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, 2019.
|
FREDDIE MAC | 2019 Form 10-K
|
|
301
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
302
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
(1)
|
Includes shares of stock beneficially owned as of February 11, 2020.
|
(2)
|
Represents shares of stock beneficially owned prior to the company's entry into conservatorship.
|
5% Holders(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. Ackman ("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 | 2019 Form 10-K
|
|
303
|
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;
|
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 | 2019 Form 10-K
|
|
304
|
Certain Relationships and Related Transactions
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
305
|
Principal Accounting Fees and Services
|
|
(In thousands)
|
|
2019
|
|
2018
|
||||
Audit Fees(2)
|
|
|
$19,861
|
|
|
|
$21,420
|
|
Audit-Related Fees(3)
|
|
7,220
|
|
|
8,325
|
|
||
Tax Fees(4)
|
|
128
|
|
|
105
|
|
||
All Other Fees(5)
|
|
49
|
|
|
278
|
|
||
Total
|
|
|
$27,258
|
|
|
|
$30,128
|
|
(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) fees for pre-implementation assistance for lease accounting and current expected credit losses accounting; (iv) fees related to accounting policy consultations; and (v) fees for the performance of certain agreed-upon procedures related to our risk transfer and structured transactions, pursuant to engagement letters with the company, including where the fees are billed to and paid by unconsolidated trusts created in connection with such transactions.
|
(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) our subscription to accounting research and disclosure software; and (iii) non-audit advice and recommendations related to the procurement process and 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 | 2019 Form 10-K
|
|
306
|
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), or 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 | 2019 Form 10-K
|
|
307
|
Exhibits and Financial Statement Schedules
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
308
|
Glossary
|
|
n
|
ACIS - Agency Credit Insurance Structure - Transactions in which we purchase insurance policies 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 transaction. We also enter into other ACIS transactions that provide credit protection for certain specified credit events on loans not included in a reference pool created for a STACR transaction, or provide front-end credit risk transfer as loans come into the portfolio. Under each of these insurance policies, we pay monthly premiums that are determined based on the outstanding balance of the reference pool. When specific credit events occur, we generally receive compensation from the insurance policy up to an aggregate limit based on actual losses.
|
n
|
Administration - Executive branch of the U.S. government.
|
n
|
Agency securities - Generally refers to mortgage-related securities issued or guaranteed 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
|
AMI - Area Median Income.
|
n
|
AOCI - Accumulated other comprehensive income (loss), net of taxes.
|
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
|
ASC - Accounting Standards Codification.
|
n
|
ASU - Accounting Standards Update.
|
n
|
Back-end coverage type - Applies to transactions in which the credit risk transfer occurs after our purchase of the loan.
|
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
|
B tranches - The most junior tranches in a typical STACR debt note, STACR Trust note structure, or ACIS transaction. B tranches provide credit support to the tranches that have higher seniority. Any losses on mortgage loans in the reference pool due to certain credit events are allocated in reverse sequential order, beginning with the most subordinate B tranche outstanding, until the balances of all of the B tranches reach zero. Freddie Mac may retain all or a portion of the B tranches.
|
n
|
CCF - Conservatorship Capital Framework - An economic capital system with detailed formulae provided by FHFA that is used to evaluate and manage our financial risk and to make economic business decisions while in conservatorship.
|
n
|
CCO - Chief Compliance Officer.
|
n
|
CD&A - Compensation Discussion and Analysis.
|
n
|
CECL - The Current Expected Credit Losses impairment model as defined by FASB ASC Topic 326, Financial Instruments - Credit Losses, pursuant to ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; ASU 2019-04, Codification Improvements to Financial Instruments - Credit Losses (Topic 326); ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument; and ASU 2019-11, Codification Improvements to Financial Instruments - Credit Losses (Topic 326).
|
n
|
CEO - Chief Executive Officer.
|
n
|
CFO - Chief Financial Officer.
|
n
|
CFPB - Consumer Financial Protection Bureau.
|
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.
|
FREDDIE MAC | 2019 Form 10-K
|
|
309
|
Glossary
|
|
n
|
CHC Committee - The Compensation and Human Capital Committee of the Board.
|
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/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 house price index.
|
n
|
Conservator - The FHFA, acting in its capacity as Conservator of Freddie Mac.
|
n
|
Conservatorship Capital - The capital needed under the CCF for analysis of transactions and business.
|
n
|
Conservatorship Scorecard - FHFA's mechanism for outlining specific conservatorship priorities for Freddie Mac, Fannie Mae (the Enterprises), and their joint venture, Common Securitization Solutions, LLCSM.
|
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, CRT 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 expense - Consists of our benefit (provision) for credit losses, credit enhancement expense, and REO operations expense.
|
n
|
Credit risk transfer (CRT) transactions - Arrangements where we actively transfer the credit risk exposure on mortgages that we own or guarantee.
|
n
|
Credit score - Credit score data is based on FICO scores, a credit scoring system developed by Fair, Isaac and Co. FICO scores are currently the most commonly used credit scores. FICO scores are ranked on a scale of approximately 300 to 850 points with a higher value indicating a lower likelihood of credit default.
|
n
|
CRO - Chief Risk Officer.
|
n
|
CSS - Common Securitization Solutions, LLC.
|
n
|
CSP - Common Securitization Platform.
|
n
|
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.
|
n
|
DTI - Debt-to-income.
|
n
|
December 2017 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.
|
n
|
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.
|
n
|
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. Unless stated otherwise, multifamily delinquency rates presented in this Form 10-K refer to gross delinquency rates before consideration of risk transfers.
|
n
|
Delivery fee - An upfront fee charged to sellers above base contractual guarantee fees to compensate us for higher levels
|
FREDDIE MAC | 2019 Form 10-K
|
|
310
|
Glossary
|
|
n
|
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.
|
n
|
Dodd-Frank Act - Dodd-Frank Wall Street Reform and Consumer Protection Act.
|
n
|
Dollar roll transactions - Transactions whereby we enter into an agreement to sell and subsequently repurchase (or purchase and subsequently resell) agency securities.
|
n
|
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.
|
n
|
Duration - Duration is a measure of a financial instrument's price sensitivity to changes in interest rates.
|
n
|
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 the value of our interest rate sensitive liabilities, thus leaving economic value unchanged.
|
n
|
EMCP - Executive Management Compensation Program.
|
n
|
Enhanced Relief Refinance - Provides liquidity for borrowers who are current on their mortgages but unable to refinance because their LTV ratios exceed standard refinance limits. This program became available in January 2019 for loans originated on or after October 1, 2017.
|
n
|
ERC - Enterprise Risk Committee.
|
n
|
ERM - Enterprise Risk Management.
|
n
|
ERP - Enterprise Risk Policy - The ERP sets forth the core components of the enterprise risk framework that defines how we identify, assess, manage, control, and report on risks.
|
n
|
EVP - Executive Vice President.
|
n
|
Exchange Act - Securities Exchange Act of 1934, as amended.
|
n
|
Fannie Mae - Federal National Mortgage Association.
|
n
|
FASB - Financial Accounting Standards Board.
|
n
|
Federal Reserve - Board of Governors of the Federal Reserve System.
|
n
|
FHA - Federal Housing Administration.
|
n
|
FHFA - Federal Housing Finance Agency - An independent agency of the U.S. government with responsibility for regulating Freddie Mac, Fannie Mae, and the FHLBs.
|
n
|
FHLB - Federal Home Loan Bank.
|
n
|
55-day MBS - A single-class pass-through security with a 55-day payment delay for non-TBA-eligible fixed-rate mortgage loans. Freddie Mac began issuing 55-day MBS on and after June 3, 2019.
|
n
|
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.
|
n
|
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.
|
n
|
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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Front-end coverage type - Applies to transactions in which the credit risk transfer occurs prior to, or simultaneously with, our purchase of the loan.
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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 cash flows of the underlying collateral to holders of the beneficial interests.
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n
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Giant MBS - Resecuritizations of newly issued 55-day MBS (and/or Giant MBS), and/or 55-day MBS (and/or Giant MBS) that Freddie Mac has issued in exchange for non-TBA-eligible PCs and non-TBA-eligible Giant PCs that have been
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FREDDIE MAC | 2019 Form 10-K
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311
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Glossary
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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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GSD/FICC - Government Securities Division of Fixed Income Clearing Corporation.
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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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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 a monthly guarantee fee paid 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 sought 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 was targeted at borrowers with current LTV ratios above 80%. The HARP program ended in December 2018 and has been replaced by Freddie Mac's Enhanced Relief Refinance program.
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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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Integrated Mortgage Insurance (IMAGIN) - An insurance-based offering that provides loan-level protection for loans with 80% and higher LTV ratios. IMAGIN is designed to expand and diversify sources of private capital supporting low down payment lending, while enabling better management of taxpayer exposure to our mortgage and counterparty risks. Mortgage insurance provided for each loan is generally underwritten by a group of insurers and reinsurers. IMAGIN is offered to a broad range of Freddie Mac sellers, who can choose IMAGIN or traditional primary mortgage insurance at their discretion.
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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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Investment gains (losses), net - Consists of gains and losses from mortgage loans, investment securities, debt, and derivatives.
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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 that were originated after 2008.
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n
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Level 1 Securitization Products - Single-class pass-through securities that represent undivided beneficial interests in trusts that hold pools of loans. These products include UMBS, 55-day MBS, and PCs.
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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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LLC - Limited liability company.
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FREDDIE MAC | 2019 Form 10-K
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312
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Glossary
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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 December 2017 Letter Agreement. Pursuant to the September 2019 Letter Agreement, the liquidation preference will be increased, at the end of each fiscal quarter, beginning on September 30, 2019, by an amount equal to the increase in the Net Worth Amount, if any, during the immediately prior fiscal quarter, until the liquidation preference has increased by $17.0 billion. 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 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 sales of seriously delinquent loans and non-consolidated senior subordinate securitization structure transactions collateralized by reperforming loans. 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 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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MBS - Mortgage-backed security.
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n
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MBSD/FICC - Mortgage Backed Securities Division of the Fixed Income Clearing Corporation.
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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 was designed to help in the housing recovery, promote liquidity and housing affordability, expand foreclosure prevention efforts, and set market standards. The MHA Program included 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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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 $600 million for 2017, $3.0 billion for 2018, and increased to $20.0 billion pursuant to the September 2019 Letter Agreement (if 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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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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FREDDIE MAC | 2019 Form 10-K
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313
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Glossary
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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.
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n
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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, 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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Optigo® - Freddie Mac's Multifamily lender network and loan offerings.
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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 than the interest accrued for the period. The unpaid interest is added to the principal balance of the loan, known as negative amortization. For our non-agency mortgage-related securities that are backed by option ARM loans, we categorize securities as option ARM if the securities were identified as such based on information provided to us when we entered into these transactions. We have not identified option ARM securities as either subprime or Alt-A securities.
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n
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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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l
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Gold PCs - Single-class pass-through securities with a 45-day payment delay that Freddie Mac issued for fixed-rate mortgage loans prior to June 3, 2019. Freddie Mac no longer issues Gold PCs with the implementation of Release 2 of the CSP and the Single Security Initiative. Existing Gold PCs are eligible for exchange into UMBS (for TBA-eligible securities) or 55-day MBS (for non-TBA-eligible securities).
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l
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ARM PCs - Single-class pass-through securities with a 75-day payment delay for ARM products. The implementation of Release 2 of the CSP and the Single Security Initiative did not affect Freddie Mac’s ARM PC offerings.
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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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PVS - Portfolio Value Sensitivity - One of our primary interest-rate risk measures. PVS measures are estimates of the amount of average potential pre-tax loss in the value of our financial assets and liabilities due to parallel (PVS-L) and non-parallel (PVS-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, December 21, 2017, and September 27, 2019.
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n
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RCSA - Risk and Control Self-Assessment.
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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.
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n
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REIT - Real estate investment trust.
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n
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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 was our implementation of HARP for our loans, and relief refinance options are also available for certain non-HARP loans. Although HARP was 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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FREDDIE MAC | 2019 Form 10-K
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314
|
Glossary
|
|
n
|
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. This structure allows commingling of TBA-eligible Freddie Mac and Fannie Mae collateral.
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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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Reputation risk - The risk of damage to the Freddie Mac brand and reputation from any action, inaction, or association that is perceived to be inappropriate, unethical, or inconsistent with our mission.
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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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ROCC - Return on conservatorship capital.
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n
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RSU - Restricted stock unit.
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n
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2019 Strategic Plan - The 2019 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, published by FHFA on October 28, 2019.
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n
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S&P - Standard & Poor's.
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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 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.
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n
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SIFMA - Securities Industry and Financial Markets Association.
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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 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 certain returns on assets, funding and hedging 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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Seller/Servicer Guide (Guide) - The Guide consists of Freddie Mac's requirements relating to the purchase, sale, and servicing of single-family mortgages. The Guide reflects how and when sellers and servicers interact with Freddie Mac.
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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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Senior subordinate securitization structures - Structures in which we issue guaranteed senior securities and unguaranteed subordinated securities backed by reperforming single-family loans or recently originated single-family loans.
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n
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September 2019 Letter Agreement - An agreement the Conservator, acting on our behalf, entered into with Treasury on September 27, 2019 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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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. Unless stated otherwise, SDQ rates presented in this Form 10-K refer to gross SDQ rates before consideration of credit enhancements.
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n
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SERP - The Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan.
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n
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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
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Short-term debt - Other debt due within one year based on the original contractual maturity of the debt instrument. Our short-term debt issuances primarily include discount notes and Reference Bills securities.
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n
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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
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FREDDIE MAC | 2019 Form 10-K
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315
|
Glossary
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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.
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n
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Single-family new business activity - Single-family loans we purchased or guaranteed.
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n
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Single Security Initiative - An initiative implemented in 2019 that provided for Freddie Mac and Fannie Mae to issue a single (common) mortgage-related security, the UMBS.
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n
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SOFR - Secured Overnight Financing Rate.
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n
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STACR debt note - Structured Agency Credit Risk debt note - A Freddie Mac issued debt security where the principal balance is linked to the credit performance of a reference pool of single-family loans owned or guaranteed by Freddie Mac.
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n
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STACR Trust note - Structured Agency Credit Risk Trust note - A debt security issued by an unconsolidated trust where the principal balance is linked to the credit performance of a reference pool of single-family loans owned or guaranteed by Freddie Mac. We make payments to the trust to support payment of the interest due on the notes, and we receive payments from the trust as a result of defined credit events on the reference pool.
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n
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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.
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n
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Strategic risk - The risk to earnings, capital, profitability, mission, or reputation arising from adverse business decisions, or the improper implementation of those decisions, that may negatively affect the company's strategy.
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n
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Strips - Multiclass securities that are formed by resecuritizing previously issued Level 1 Securitization Products or single-class resecuritization products and issuing principal-only and interest-only securities backed by the cash flows from the underlying collateral. This structure allows commingling of TBA-eligible Freddie Mac and Fannie Mae 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.
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n
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Supers - Resecuritizations of UMBS and certain other mortgage securities. Supers are single-class securities that involve the direct pass-through of all cash flows of the underlying collateral to holders of the beneficial interests. This structure allows commingling of TBA-eligible Freddie Mac and Fannie Mae collateral.
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n
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SVP - Senior Vice President.
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n
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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.
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n
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Target TDC - Target total direct compensation.
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n
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TBA - To be announced.
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n
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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.
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n
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Thrift/401(k) Plan - The Federal Home Loan Mortgage Corporation Thrift/401(k) Savings Plan.
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n
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Top risk - Enterprise-wide elevated risk or emerging risk that could significantly affect the organization's ability to achieve its strategic objectives, has the potential to create significant financial, operational, or reputational risk, and requires an appropriate risk response by senior management and reporting to the Risk Committee of the Board.
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n
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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.
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n
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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.
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FREDDIE MAC | 2019 Form 10-K
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316
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Glossary
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n
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Treasury - U.S. Department of the Treasury.
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n
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UMBS - Uniform mortgage-backed security - A single (common) mortgage-related security with a 55-day payment delay for TBA-eligible fixed-rate mortgage loans. Freddie Mac and Fannie Mae began issuing UMBS on and after June 3, 2019. The UMBS represents undivided beneficial ownership interest in, and the right to receive payments from, pools of one- to four- family residential mortgages that are held in trust for investors.
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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.
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n
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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.
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n
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USDA - U.S. Department of Agriculture.
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n
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VA - U.S. Department of Veterans Affairs.
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n
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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.
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n
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VERP - Voluntary Early Retirement Program.
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n
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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.
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n
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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.
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n
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Workforce housing - Multifamily housing that is affordable to the majority of low to middle income households.
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n
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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.
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n
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XBRL - eXtensible Business Reporting Language.
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n
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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.
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FREDDIE MAC | 2019 Form 10-K
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317
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Exhibit Index
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Exhibit
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Description*
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3.1
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3.2
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4.1
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4.2
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|
|
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 | 2019 Form 10-K
|
|
318
|
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 | 2019 Form 10-K
|
|
319
|
Exhibit Index
|
|
Exhibit
|
Description*
|
|
|
4.24
|
|
|
|
|
|
4.25
|
|
|
|
|
|
4.26
|
|
|
|
|
|
4.27
|
|
|
|
|
|
4.28
|
|
|
|
|
|
4.29
|
|
|
|
|
|
4.30
|
|
|
|
|
|
10.1
|
|
|
|
|
|
10.2
|
|
|
|
|
|
10.3
|
|
|
|
|
|
10.4
|
|
|
|
|
|
10.5
|
|
|
|
|
|
10.6
|
|
|
|
|
|
10.7
|
|
|
|
* 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, contract, or arrangement.
|
FREDDIE MAC | 2019 Form 10-K
|
|
320
|
Exhibit Index
|
|
Exhibit
|
Description*
|
10.8
|
|
|
|
|
|
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, contract, or arrangement.
|
FREDDIE MAC | 2019 Form 10-K
|
|
321
|
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
|
|
|
|
|
|
10.39
|
|
|
|
|
|
* 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, contract, or arrangement.
|
FREDDIE MAC | 2019 Form 10-K
|
|
322
|
Exhibit Index
|
|
Exhibit
|
Description*
|
10.40
|
|
|
|
|
|
10.41
|
|
|
|
|
|
10.42
|
|
|
|
|
|
10.43
|
|
|
|
|
|
10.44
|
|
|
|
|
|
10.45
|
|
|
|
|
|
10.46
|
|
|
|
|
|
24.1
|
|
|
|
|
|
31.1
|
|
|
|
|
|
31.2
|
|
|
|
|
|
32.1
|
|
|
|
|
|
32.2
|
|
|
|
|
|
99.1
|
|
|
|
|
|
101.INS
|
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
|
|
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation
|
|
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition
|
|
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label
|
|
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation
|
|
|
|
|
104
|
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
|
|
|
* 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 | 2019 Form 10-K
|
|
323
|
Signatures
|
|
Federal Home Loan Mortgage Corporation
|
|
|
|
By:
|
/s/ David M. Brickman
|
|
David M. Brickman
|
|
Chief Executive Officer
|
Date: February 13, 2020
|
FREDDIE MAC | 2019 Form 10-K
|
|
324
|
Signatures
|
|
Signature
|
|
Capacity
|
|
Date
|
||
|
|
|
|
|
|
|
/s/ Sara Mathew*
|
|
Non-Executive Chairman of the Board
|
|
February 13, 2020
|
||
Sara Mathew
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ David M. Brickman
|
|
Chief Executive Officer and Director
|
|
February 13, 2020
|
||
David M. Brickman
|
|
(Principal Executive Officer)
|
|
|
||
|
|
|
|
|
|
|
/s/ Donald F. Kish
|
|
Senior Vice President — Corporate Controller, Principal
|
|
February 13, 2020
|
||
Donald F. Kish
|
|
Accounting Officer, & Interim Chief Financial Officer
|
|
|
||
|
|
|
|
(Principal Financial Officer and Principal Accounting
|
|
|
|
|
|
|
Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Mark H. Bloom*
|
|
Director
|
|
February 13, 2020
|
||
Mark H. Bloom
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Kathleen L. Casey*
|
|
Director
|
|
February 13, 2020
|
||
Kathleen L. Casey
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Lance F. Drummond*
|
|
Director
|
|
February 13, 2020
|
||
Lance F. Drummond
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Aleem Gillani*
|
|
Director
|
|
February 13, 2020
|
||
Aleem Gillani
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Christopher E. Herbert*
|
|
Director
|
|
February 13, 2020
|
||
Christopher E. Herbert
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Grace A. Huebscher*
|
|
Director
|
|
February 13, 2020
|
||
Grace A. Huebscher
|
|
|
|
|
||
|
|
|
|
|
|
|
/s/ Saiyid T. Naqvi*
|
|
Director
|
|
February 13, 2020
|
||
Saiyid T. Naqvi
|
|
|
|
|
||
|
|
|
|
|
|
|
*By:
|
|
/s/ Alicia S. Myara
|
|
|
||
|
|
Alicia S. Myara
|
|
|
|
|
|
|
Attorney-in-Fact
|
|
|
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
325
|
Index
|
|
FREDDIE MAC | 2019 Form 10-K
|
|
326
|
I.
|
Description of Common Stock
|
•
|
Restrictions Relating to the Conservatorship - During conservatorship, any dividends will be declared by, and paid at the direction of, the Conservator, acting as successor to the rights, titles, powers, and privileges of the Board of Directors. The Conservator has prohibited us from paying any dividends on our Common Stock. FHFA has instructed our Board of Directors that it should consult with and obtain the approval of FHFA before taking actions involving dividends. In addition, FHFA has adopted a regulation prohibiting us from making capital distributions during conservatorship, except as authorized by the Director of FHFA.
|
•
|
Restrictions Under the Purchase Agreement - The Purchase Agreement prohibits us and any of our subsidiaries from declaring or paying any dividends on the Common Stock without the prior written consent of the Treasury.
|
•
|
Restrictions Under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (GSE Act) - Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends, if we fail to meet applicable capital requirements. However, our capital requirements have been suspended during conservatorship.
|
•
|
Restrictions Under our Charter - Without regard to our capital classification, we must obtain prior written approval of FHFA to make any capital distribution that would decrease total capital to an amount less than the risk-based capital level or that would decrease core capital to an amount less than the minimum capital level. As noted above, our capital requirements have been suspended during conservatorship.
|
•
|
Restrictions Relating to Preferred Stock - Payment of dividends on our Common Stock is also subject to the prior payment of dividends on our 24 series of preferred stock and one series of Senior Preferred Stock outstanding, representing an aggregate of 464,170,000 shares and 1,000,000 shares, respectively, as of December 31, 2019. Payment of dividends on all outstanding preferred stock, other than the Senior Preferred Stock, is subject to the prior payment of dividends on the Senior Preferred Stock.
|
•
|
For the election of members of our Board of Directors, to the extent prescribed by applicable federal law;
|
•
|
With respect to amendment, alteration, supplementation, or repeal of the provisions of the Certificate of Designation (described below);
|
•
|
With respect to such other matters, if any, as may be prescribed by our Board of Directors, in its sole discretion, or by applicable federal law.
|
II.
|
Description of Preferred Stock
|
(In millions, except redemption price per share)
|
Issue Date
|
Shares
Authorized
|
Shares
Outstanding
|
Redemption
Price per
Share
|
Total
Outstanding
Balance
|
Redeemable
On or After
|
OTCQB
Symbol
|
||||||
1996 Variable-rate(1)
|
Apr 26, 1996
|
5.00
|
|
5.00
|
|
|
$50.00
|
|
|
$250
|
|
Jun 30, 2001
|
FMCCI
|
5%
|
Mar 23, 1998
|
8.00
|
|
8.00
|
|
50.00
|
|
400
|
|
Mar 31, 2003
|
FMCKK
|
||
1998 Variable-rate(2)
|
Sept 23/29, 1998
|
4.40
|
|
4.40
|
|
50.00
|
|
220
|
|
Sept 30, 2003
|
FMCCG
|
||
5.10%
|
Sept 23, 1998
|
8.00
|
|
8.00
|
|
50.00
|
|
400
|
|
Sept 30, 2003
|
FMCCH
|
||
5.79%
|
July 21, 1999
|
5.00
|
|
5.00
|
|
50.00
|
|
250
|
|
Jun 30, 2009
|
FMCCK
|
||
1999 Variable-rate(3)
|
Nov 5, 1999
|
5.75
|
|
5.75
|
|
50.00
|
|
287
|
|
Dec 31, 2004
|
FMCCL
|
||
2001 Variable-rate(4)
|
Jan 26, 2001
|
6.50
|
|
6.50
|
|
50.00
|
|
325
|
|
Mar 31, 2003
|
FMCCM
|
||
2001 Variable-rate(5)
|
Mar 23, 2001
|
4.60
|
|
4.60
|
|
50.00
|
|
230
|
|
Mar 31, 2003
|
FMCCN
|
||
5.81%
|
Mar 23, 2001
|
3.45
|
|
3.45
|
|
50.00
|
|
173
|
|
Mar 31, 2011
|
FMCCO
|
||
6%
|
May 30, 2001
|
3.45
|
|
3.45
|
|
50.00
|
|
173
|
|
Jun 30, 2006
|
FMCCP
|
||
2001 Variable-rate(6)
|
May 30, 2001
|
4.02
|
|
4.02
|
|
50.00
|
|
201
|
|
Jun 30, 2003
|
FMCCJ
|
||
5.70%
|
Oct 30, 2001
|
6.00
|
|
6.00
|
|
50.00
|
|
300
|
|
Dec 31, 2006
|
FMCKP
|
||
2006 Variable-rate(7)
|
July 17, 2006
|
15.00
|
|
15.00
|
|
50.00
|
|
750
|
|
Jun 30, 2011
|
FMCCS
|
||
6.42%
|
July 17, 2006
|
5.00
|
|
5.00
|
|
50.00
|
|
250
|
|
Jun 30, 2011
|
FMCCT
|
||
5.90%
|
Oct 16, 2006
|
20.00
|
|
20.00
|
|
25.00
|
|
500
|
|
Sept 30, 2011
|
FMCKO
|
||
5.57%
|
Jan 16, 2007
|
44.00
|
|
44.00
|
|
25.00
|
|
1,100
|
|
Dec 31, 2011
|
FMCKM
|
||
5.66%
|
Apr 16, 2007
|
20.00
|
|
20.00
|
|
25.00
|
|
500
|
|
Mar 31, 2012
|
FMCKN
|
||
6.02%
|
July 24, 2007
|
20.00
|
|
20.00
|
|
25.00
|
|
500
|
|
Jun 30, 2012
|
FMCKL
|
||
6.55%
|
Sept 28, 2007
|
20.00
|
|
20.00
|
|
25.00
|
|
500
|
|
Sept 30, 2017
|
FMCKI
|
||
2007 Fixed-to-floating rate(8)
|
Dec 4, 2007
|
240.00
|
|
240.00
|
|
25.00
|
|
6,000
|
|
Dec 31, 2012
|
FMCKJ
|
(1)
|
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377. The dividend rate is capped at 9.00%.
|
(2)
|
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377. The dividend rate is capped at 7.50%.
|
(3)
|
Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury (CMT) rate. The dividend rate is capped at 11.00%. Optional redemption on December 31, 2004 and on December 31 every five years thereafter.
|
(4)
|
Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year CMT rate plus 0.10%. The dividend rate is capped at 11.00%. Optional redemption on March 31, 2003 and on March 31 every two years thereafter.
|
(5)
|
Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%. The dividend rate is capped at 11.00%. Optional redemption on March 31, 2003 and on March 31 every year thereafter.
|
(6)
|
Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year CMT rate plus 0.20%. The dividend rate is capped at 11.00%. Optional redemption on June 30, 2003 and on June 30 every two years thereafter.
|
(7)
|
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%.
|
(8)
|
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.
|
•
|
Restrictions Relating to the Conservatorship - During conservatorship, any dividends will be declared by, and paid at the direction of, the Conservator, acting as successor to the rights, titles, powers, and privileges of the Board of Directors. The Conservator has prohibited us from paying any dividends on our Preferred Stock. FHFA has instructed our Board of Directors that it should consult with and obtain the approval of FHFA before taking actions involving dividends. In addition, FHFA has adopted a regulation prohibiting us from making capital distributions during conservatorship, except as authorized by the Director of FHFA.
|
•
|
Restrictions Under the Purchase Agreement - The Purchase Agreement prohibits us and any of our subsidiaries from declaring or paying any dividends on our Preferred Stock without the prior written consent of Treasury.
|
•
|
Restrictions Under the GSE Act - Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends, if we fail to meet applicable capital requirements. However, our capital requirements have been suspended during conservatorship.
|
•
|
Restrictions Under our Charter - Without regard to our capital classification, we must obtain prior written approval of FHFA to make any capital distribution that would decrease total capital to an amount less than the risk-based capital level or that would decrease core capital to an amount less than the minimum capital level. As noted above, our capital requirements have been suspended during conservatorship.
|
•
|
Restrictions Relating to Senior Preferred Stock - Payment of dividends on our Preferred Stock is subject to the prior payment of dividends on our Senior Preferred Stock.
|
•
|
At-Risk Deferred Salary - This portion of your Deferred Salary is equal to thirty percent (30%) of your Target TDC, or $750,000, up to half of which may be reduced based on the company’s performance against objectives established by FHFA and up to half of which may be reduced based on both the company’s performance against corporate objectives and your performance against individual objectives.
|
•
|
Fixed Deferred Salary - This portion of your Deferred Salary is equal to your Target TDC less your Base Salary and At-Risk Deferred Salary, and is equal to $1,250,000.
|
•
|
You voluntarily resign employment; or
|
•
|
We terminate your employment due to the occurrence of any of the Forfeiture Events described in the Recapture and Forfeiture Agreement.
|
By: _/s/ Ricardo Anzaldua_________
|
Date: 23 April 2018
|
A.
|
Announcement, Transition and Resignation
|
1.
|
Parties. This is an Agreement between the Federal Home Loan Mortgage Corporation (“Freddie Mac” or the “Company”) and James Mackey, currently Executive Vice President (“EVP”) and Chief Financial Officer, hereinafter referred to as “you”.
|
2.
|
Successors.
|
(a)
|
You will continue to be employed in your position as EVP and CFO through December 18, 2019. During this time, you agree to provide your full cooperation in support of the transition of your duties as described below.
|
(b)
|
Freddie Mac will appoint one or more other Freddie Mac employees (the "Interim Successor"), effective December 19, 2019, as your interim successor or successors as EVP and CFO. In the event that Freddie Mac appoints any person to be your definitive successor as EVP and CFO with an effective date prior to June 30, 2020, then from such effective date through June 30, 2020 all references in this Agreement to the Interim Successor shall apply to that definitive successor.
|
3.
|
Transition Period. The period from December 19, 2019 through the earlier of (i) June 30, 2020 or (ii) the date of your resignation from the Company is herein referred to as the “Transition Period”. During this period:
|
(a)
|
You will continue to be employed by Freddie Mac with the title of Executive Vice President-Senior Advisor at your current compensation including deferred salary and employee benefits (subject to the terms of the applicable plans and agreements), reporting to the Chief Executive Officer (the “CEO”), but you will no longer be EVP/ CFO or have the authority or responsibilities of the same.
|
(b)
|
Your responsibilities will be to assist in any way reasonably requested by the CEO or the Interim Successor with the Interim Successor’s assumption of the EVP/CFO role and to be available for consultation with the Interim Successor (or anyone designated by the Interim Successor) in order to assure a smooth transition to the Interim Successor.
|
(c)
|
You will generally be available by telephone to perform the above responsibilities, and will come to the McLean campus as requested. Your McLean office will be changed to a location designated by Freddie Mac, and you will be provided the support of an Administrative Assistant.
|
(d)
|
You will provide your full cooperation and support in the transition of your duties to the Interim Successor, and will transition to the Interim Successor or the Interim Successor’s designee(s) i) communications to the employees of the Finance Division, ii) regulatory and other financial matters, and iv) day-to-day management of the Finance Division.
|
(e)
|
If you fail to meet the expectations set forth in this Section, or otherwise breach this Agreement, your June 30, 2020 separation date will be accelerated to an earlier date.
|
(f)
|
You may resign before June 30, 2020. If you resign on or before June 30, 2020, then on your resignation date you will execute and deliver to the Company the Confidential Second Separation Agreement and General Release (the “Second Release”) in the form attached hereto as Exhibit A. You understand and agree that the Second Release will provide for no additional payments or consideration beyond any payments or consideration you are to receive pursuant to the terms of this Agreement and that such payments or consideration constitute adequate consideration for your execution of and adherence to the terms of the Second Release.
|
B.
|
Obligations and Restrictions Imposed Upon You By This Agreement
|
1.
|
Full Release. You, for yourself, your heirs, executors, administrators and assigns, hereby release and forever discharge Freddie Mac and its successors, assigns, divisions, affiliates, parents, subsidiaries, directors, officers, shareholders, partners, heirs, and executors (collectively, the “Released Parties”) from any and all actions, causes of action, claims, demands, damages, costs, loss of service, expenses, compensation and any damages of any kind whatsoever (including claims for attorneys’ fees and costs) which you have or may have arising up to and including the date of
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2.
|
Non-Participation. You acknowledge that in the absence of this Agreement, you have the right voluntarily to assist others in bringing claims against the Released Parties. By signing below, you agree to waive this right. Therefore, except as otherwise provided in this Agreement, you agree that you will not encourage, counsel or assist any attorneys, their clients, or any other persons (including current or former Freddie Mac employees) in bringing or prosecuting any claims, charges, or complaints against any of the Released Parties, unless pursuant to a valid subpoena or court order to produce documents or testify, or unless you have been requested by an agency of the United States government or state or local government (collectively, “government agency”) to assist in a government agency investigation or proceeding.
|
3.
|
Compliance with Subpoenas or Other Requests. If you receive a court subpoena, deposition notice, request by a government agency, or similar request to disclose information concerning your employment or termination of employment with Freddie Mac, or concerning the terms of this Agreement, you agree that you will provide Freddie Mac with notice of such subpoena, notice, or request not later than forty-eight (48) hours following your receipt by telephone call and email to Freddie Mac’s General Counsel. In the event that Freddie Mac determines to provide you with legal representation at Company expense in connection with a subpoena, notice, request or other matter arising out of your employment with Freddie Mac, and you accept Freddie Mac’s offer to pay for such representation, you agree that such representation will be provided by counsel chosen by Freddie Mac.
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4.
|
Confidential Information. During your employment with Freddie Mac, you may have worked with or otherwise gained knowledge about information that Freddie Mac deems trade secrets or otherwise confidential and proprietary information belonging to Freddie Mac or otherwise used in connection with Freddie Mac’s business. This information may include, but not be limited to: (a) the components, capabilities or attributes of Freddie Mac's business methods or systems; (b) tax and financial matters, including capital structure and tax and financial planning strategies; (c) shareholder and investor strategies, tactics or plans; (d) pricing or investment strategies; (e) past, current, and/or future business strategies, tactics or plans; (f) marketing or sales strategies, tactics or plans; (g) compensation and employee benefits strategies and practices, and other confidential personnel matters; (h) trading strategies, tactics and plans; (i) Freddie Mac’s development of and applications for patents, trademarks, and copyrights, to the extent such information is non-public; and (j) any other information of a proprietary nature. By signing below, you agree that to the extent you have knowledge about such information, and you gained your knowledge through your employment with Freddie Mac, you agree to treat the information as strictly confidential. You agree that you will not use any such information directly or indirectly for any purpose, nor disclose it to anyone outside Freddie Mac.
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5.
|
Confidentiality of Agreement. Subject to the terms of Section F1. below, you and Freddie Mac agree to keep the fact of this Agreement and the Second Release and all their terms completely confidential except as otherwise permitted by the terms of this Agreement or applicable law. You may disclose the terms of this Agreement only to your attorney, accountant, tax advisor, outplacement counselor hired by Freddie Mac, or members of your immediate family, provided that they agree to keep the terms confidential. Freddie Mac may disclose the terms of this Agreement internally only on a need-to-know basis and externally to its conservator, and other third parties where required by law, such as the IRS.
|
6.
|
Return of Freddie Mac Property. You affirm that you will return all property and documents belonging to Freddie Mac that are in your possession or within your control by June 30, 2020 unless an authorized representative of Freddie Mac’s Human Resources Division informs you of an earlier date.
|
7.
|
Non-Competition. You agree that:
|
(a)
|
You will not commence other employment while you are still an employee of Freddie Mac; and
|
(b)
|
for the twelve (12) months following the earlier of i) your resignation date or ii) June 30, 2020, you will not seek or accept employment with, or otherwise directly or indirectly provide professional services to, Fannie Mae or any Federal Home Loan Bank.
|
8.
|
Non-Solicitation. You agree that, during the Transition Period defined in Section A of this Agreement, and the twelve (12) months following the end of the Transition Period, you will not (a) provide any job-related assistance to any Freddie Mac employee who seeks to leave his or her employment with Freddie Mac, or (b) directly or indirectly recruit any Freddie Mac employee or solicit or assist another in recruiting or soliciting any Freddie Mac employee for employment purposes or for the provision of professional services. This prohibition against assisting or soliciting Freddie Mac employees does not apply if Freddie Mac has provided written notice to the employee that it has decided to terminate his or her employment or if Freddie Mac has consented in writing to such solicitation.
|
9.
|
Notice of Future Employment. In order to allow Freddie Mac to monitor your compliance with the post-employment restrictions imposed by this Agreement, you agree to provide written notice to Freddie Mac's General Counsel of the identity of each new employer with whom you accept employment together with your job title and brief description of job duties during the twelve (12) months following the end of the Transition Period.
|
10.
|
Assistance to Freddie Mac. Freddie Mac agrees that it will indemnify you in accordance with the terms of Article 8 of the By-Laws of Freddie Mac. You agree, in response to reasonable requests, to cooperate fully and assist Freddie Mac in any matter in which you have been involved during the course of your employment or in which Freddie Mac needs your cooperation. Such assistance shall include providing information, preparing documents, preparing for and submitting to interviews and depositions, providing testimony and general cooperation to assist the Company. Freddie Mac agrees that such assistance shall be provided at times and in a manner so as not to interfere unreasonably with or jeopardize your subsequent employment. In the event you incur reasonable expenses associated with providing such assistance, Freddie Mac shall reimburse such reasonable expenses in accordance with Company policy generally applicable to employees of the Company. In the event that Freddie Mac determines to provide you with legal representation at Company expense in connection with such assistance, you agree that such representation will be provided by counsel chosen by Freddie Mac.
|
11.
|
Non-Disparagement. You agree not to make or publish any disparaging comment about Freddie Mac or any Released Party.
|
12.
|
Offset for Employee Debts. You agree that Freddie Mac may deduct any debts you owe to the Company from the amounts set forth in Section C, such as non-reimbursable expenses.
|
C.
|
Benefits to be Provided to You in Exchange for Signing this Agreement
|
1.
|
Continued Employment. Freddie Mac will continue to employ you through June 30, 2020, unless you resign at an earlier date.
|
2.
|
Compensation and Benefits. Freddie Mac will comply with all its obligations with respect to your compensation and benefits in accordance with the relevant plans and agreements, including payment on a timely basis of all deferred salary that will be owing to you in accordance with such plans and agreements after your resignation.
|
3.
|
Outplacement and Coaching Services. Freddie Mac will provide you with outplacement and executive coaching services at no expense to you. These services will be available to you beginning January 1, 2020 through December 31, 2020.
|
D.
|
Interpretation and Enforcement of Agreement
|
1.
|
Virginia Law Applies. This Agreement will be construed, and the rights and obligations of the parties determined, exclusively in accordance with the substantive law of the Commonwealth of Virginia, excluding provisions of Virginia law concerning choice-of-law that would result in the law of any state other than Virginia being applied.
|
2.
|
Venue. Any claims, actions or proceedings arising out of or related to this Agreement will be brought in the United States District Court for the Eastern District of Virginia, Alexandria Division. You and Freddie Mac hereby submit to the personal jurisdiction of said Court and consent to the dismissal of any action related to this Agreement that is brought in any other forum.
|
3.
|
Severability. You agree that if a court of competent jurisdiction declares that Section B.1 of this Agreement is invalid, then Freddie Mac shall be relieved of its obligations under this Agreement, including without limitation its obligation to make any payments thereunder. All other provisions of this Agreement are separate and independent. Therefore, in the event a court of competent jurisdiction declares any other provision of this Agreement to be illegal or invalid, such
|
4.
|
No Admission of Liability. You and Freddie Mac agree that this Agreement does not constitute, nor should it be construed to constitute, an admission by you, Freddie Mac, or any Released Party of any violation of federal, state, or local law, regulation, or ordinance, nor as an admission of liability under the common law or for any breach of duty any Released Party owed or owes to you.
|
5.
|
Return of Consideration in the Event of Breach. To the extent permitted by law, you agree that if you commit a material violation of any provision of this Agreement, then you will promptly return to Freddie Mac all of the consideration that you have received under this Agreement, including all cash payments and monetary equivalents of all benefits you received, and that you will not be eligible to receive any further consideration under such Section C.
|
6.
|
Additional Damages Available for Breach. You agree that Freddie Mac will maintain all rights and remedies available to it at law and in equity in the event you breach any provision of this Agreement. These rights and remedies may include, but not be limited to, the right to bring a court action to recover all consideration paid to you pursuant to this Agreement and any additional damages Freddie Mac may suffer as a result of such a breach. You also specifically recognize and agree that Freddie Mac will suffer irreparable injury in the event you breach or threaten to breach Sections B.4, B.7. or B.8. of this Agreement. Therefore, you agree that in addition to any other remedies Freddie Mac may be entitled to receive for such breach, Freddie Mac also will be entitled to temporary, preliminary and/or permanent injunctive relief to restrain any such breach or threat of breach by you, and by any persons acting for and/or in concert with you. If Freddie Mac seeks injunctive relief pursuant to this paragraph, then you expressly waive any requirement that Freddie Mac post bond.
|
7.
|
Attorneys’ Fees. You agree that if Freddie Mac prevails in any action arising out of this Agreement, other than any action that you may bring under the federal Age Discrimination in Employment Act, you will pay Freddie Mac the reasonable attorneys’ fees and court costs Freddie Mac incurs in connection with such action.
|
8.
|
Construction. You have the right and have had the opportunity to seek the independent legal advice of an attorney of your choosing regarding the meaning and advisability of signing this Agreement. Therefore, the common-law principles of construing ambiguities against the drafter that otherwise may apply have no application to this Agreement.
|
9.
|
Older Worker Benefits Protection Act (“OWBPA”) - Material Changes. If you are age 40 or older at the time this Agreement is provided to you, you acknowledge that pursuant to the OWBPA, a material change made to this Agreement restarts the period for you to consider whether to agree to the terms of the Agreement. Nevertheless, you and Freddie Mac agree that any modification made to this Agreement, regardless of whether such modification is material, shall not restart the running of that period.
|
E.
|
Re-Employment by Freddie Mac
|
F.
|
Employee Rights
|
1.
|
Ability to Enforce Agreement and Assist Government Investigations. Nothing in this Agreement (including Sections B.2, B.4, B.5 or B.11 above) prohibits or otherwise restricts you from: (a) instituting any legal action for the sole purpose of enforcing this Agreement; (b) making any disclosure of information required by law; (c) assisting any federal regulatory or law enforcement agency or legislative body to the extent you maintain a legal right to do so notwithstanding this Agreement; (d) filing or testifying in a proceeding relating to the alleged violation of any federal, state, or local law, regulation, or rule, to the extent you maintain a legal right to do so notwithstanding this Agreement; or (e) filing, testifying, participating in or otherwise assisting the Securities and Exchange Commission or any other proper authority in a proceeding relating to allegations of fraud.
|
2.
|
Retention of Vested Benefits. Nothing in this Agreement affects your right to receive any vested employee benefits, including retirement benefits or 401(k) employer contributions, pursuant to the terms and provisions of the benefit plans and programs governing such employee benefits.
|
G.
|
No Knowledge of Fraudulent or Unlawful Conduct
|
1.
|
You have not filed or caused to be filed on your behalf any claim for relief against Freddie Mac or any of the other Released Parties, and, to the best of your knowledge and belief, no outstanding claim has been filed or asserted on your behalf against Freddie Mac or any of the other Released Parties;
|
2.
|
You have no knowledge of and have not reported any alleged fraudulent or unlawful conduct or activities to any supervisor, manager, officer, department head, Human Resources representative, or any other agent of Freddie Mac; and
|
3.
|
You have no knowledge of and have not reported any fact or circumstance or actual or alleged error, misstatement, misleading statement, act, omission, neglect or breach of duty that you have reason to believe might result in a current or future claim under Freddie Mac’s Directors & Officers Liability Insurance policy, except to the extent that you have followed Freddie Mac’s process and procedure for filing complaints anonymously.
|
H.
|
Decision & Revocation Periods
|
1.
|
Consideration Period. As provided by Older Workers Benefit Protection Act of 1990, you must sign this Agreement by January 9, 2020.
|
2.
|
Revocation Period. You agree that pursuant to the Older Workers Benefit Protection Act of 1990, this Agreement will not become effective until seven (7) calendar days after you execute it and deliver it to Freddie Mac. Therefore, you have seven (7) calendar days after you execute and deliver this Agreement to revoke your acceptance of its terms. You may revoke your acceptance by providing written notification of your intention to revoke to Freddie Mac's Senior Vice President - Human Resources Division. To be effective, Freddie Mac's Senior Vice President - Human Resources must actually receive the written notification by no later than the close of business on the seventh calendar day after you have executed and delivered the Agreement to Freddie Mac.
|
1.
|
You have been advised to discuss all aspects of this Agreement with your private attorney and/or other individuals of your choice who are not associated with Freddie Mac to the extent that you desire (but subject to the confidentiality obligations set forth in this Agreement);
|
2.
|
You have read this Agreement carefully and fully understand the significance of all of its provisions;
|
3.
|
You sign this Agreement voluntarily and accept all obligations contained in it in exchange for the consideration you will receive pursuant to this Agreement, which you acknowledge is adequate and satisfactory, and which you further acknowledge Freddie Mac is not otherwise obligated to provide to you;
|
4.
|
Neither Freddie Mac, nor its agents, representatives, directors, officers or employees have made any representations to you concerning the terms or effects of this Agreement, other than those explicitly contained in this Agreement; and
|
5.
|
This Agreement shall not become effective until after the seven (7) day revocation period referred to in Paragraph H.2. above has elapsed.
|
2.
|
Revocation Period. You agree that pursuant to the Older Workers Benefit Protection Act of 1990, this Second Agreement will not become effective until seven (7) calendar days after you sign it. Therefore, you have seven (7) calendar days after you sign this Second Agreement to revoke your acceptance of its terms. You may revoke your acceptance by providing written notification of your intention to revoke to Freddie Mac's Senior Vice President - Human Resources. To be effective, Freddie Mac's Senior Vice President - Human Resources must actually receive the written notification by no later than the close of business on the seventh calendar day after you have signed the Second Agreement.
|
1.
|
You have been advised to discuss all aspects of this Second Release with your private attorney and/or other individuals of your choice who are not associated with Freddie Mac to the extent that you desire (but subject to the confidentiality obligations set forth in the First Agreement);
|
2.
|
You have read this Second Release carefully and fully understand the significance of all of its provisions;
|
3.
|
You sign this Second Release voluntarily and accept all obligations contained in it in exchange for the consideration you will receive pursuant to the First Agreement, which you acknowledge is adequate and satisfactory, and which you further acknowledge Freddie Mac is not otherwise obligated to provide to you;
|
4.
|
Neither Freddie Mac, nor its agents, representatives, directors, officers or employees have made any representations to you concerning the terms or effects of this Second Release, other than those explicitly contained in this Agreement; and
|
5.
|
This Second Release shall not become effective until after the seven (7) day revocation period referenced in Paragraph D.2 above has elapsed.
|
1.
|
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2019 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/ David M. Brickman
|
|
|
David M. Brickman
|
|
|
Chief Executive Officer
|
1.
|
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2019 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 F. Kish
|
|
|
Donald F. Kish
|
|
|
Senior Vice President — Corporate Controller, Principal
|
|
|
Accounting Officer, & Interim 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/ David M. Brickman
|
|
|
David M. Brickman
|
|
|
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/ Donald F. Kish
|
|
|
Donald F. Kish
|
|
|
Senior Vice President — Corporate Controller, Principal
|
|
|
Accounting Officer, & Interim Chief Financial Officer
|
Schedule 3.2
|
Enterprise LLC Units and Percentage Interests
|
Exhibit A
|
Company Charter
|
Exhibit B
|
Bylaws of Corporate Functions and Administrative Services Oversight Committee
|
Exhibit C
|
Charter of the Platform Steering Committee
|
Exhibit D
|
Assigned Employee Terms and Conditions
|
(a)
|
A material change in the functionality of the Company, such as the addition of a new business line, including multifamily securities or private label securities, or a reduction in the Company’s support of the uniform mortgage-backed security;
|
(b)
|
Capital Contributions beyond those necessary to support the ordinary business operations of the Company;
|
(c)
|
Appointment or removal of the CEO;
|
(d)
|
Admission of Additional Members;
|
(e)
|
Sale or dissolution of the Company or its business.
|
Member
|
LLC Units
|
Percentage Interest
|
Federal National Mortgage Association
|
1000 Units
|
50%
|
Federal Home Loan Mortgage Corporation
|
1000 Units
|
50%
|
1.
|
Purpose
|
2.
|
Composition.
|
3.
|
Meetings of the Committee.
|
4.
|
Committee Role.
|
5.
|
FHFA.
|
•
|
The PSC holds primary ownership of CSS and Tri-Party Readiness, reporting a unified view across the topic areas highlighted in ‘Key Activities’ to the Board and CSS CEO and providing advisory support.
|
•
|
These areas span the Common Securitization Platform functions, including Technology, Operations, overall CSS/GSE-adoption production readiness, and the CSP service catalog and interface specifications.
|
•
|
The PSC meeting schedule will be set up so that PSC meetings are held two weeks prior to each Board meeting or monthly. At least five (5) days advance notice shall be given of any regularly scheduled meeting of the Committee. The agenda will be created by the Chair and the appointed Enterprise lead and will include items requested by either Enterprise. The agenda and associated meeting materials will be provided to PSC members at least three (3) business days in advance of the meeting. Meeting materials shall be well organized and provide reasonably detailed (but concise) information concerning items on the agenda for the meeting. The Committee Chair or his/her delegate will circulate a summary of each meeting within ten (10) business days after the meeting.
|
•
|
If/as needed, the CSS CEO, PSC Chair, leads for each Enterprise, and FHFA will meet in smaller sessions as a sub-committee of the PSC to resolve matters.
|
•
|
This sub-committee may fulfill the responsibilities and functions of the larger PSC, to the extent desired.
|
•
|
Additional sub-committees may be formed as needed to address major topics.
|
•
|
Primary forum for resolution of platform production readiness activities (i.e. technology decisions, operations needs, scheduling compliance), including but not limited to those affecting the Enterprises
|
•
|
Prioritize and drive open CSP scope, process and technology questions through joint analysis
|
•
|
Escalation point to resolve CSS/GSE decisions, decision and other delays, performance and other issues, and risks
|
•
|
Forum for multi-party alignment of divergent approaches or requests made to CSS
|
•
|
Review and plan for joint production readiness activities and assessments
|
•
|
Review and approval of significant proposed changes related to Operations or Technology, including those that impact budget, scope and/or timeline or would have an impact on Enterprise operations
|
•
|
Review and approve requests to modify interim integrated project milestones, deliverables, or budgets, within delegated authority
|
•
|
Primary change management forum for items impacting two or more of CSS, Fannie Mae and/or Freddie Mac
|
•
|
Monitoring of status of joint CSS/GSE activities (e.g. integration testing, conversion, parallel processing)
|
•
|
Detailed, quarterly review of CSS activities and the progress of various Enterprise projects that link to CSP implementation
|
•
|
Forum for CSS/ Freddie Mac, CSS/Fannie Mae adoption governance, including Scope, Operational Readiness, Testing and Conversion activities
|
•
|
Monitoring the achievement of the Service Levels contained in the Customer Services Agreement between the Enterprises and CSS
|
1.
|
Assignment of Assigned Employees. Individuals shall be assigned to work on behalf of the Company as Assigned Employees either by: (i) application by an individual through an Enterprise’s posting process, which may be open to both internal (for both Enterprises) and external candidates; or (ii) an Enterprise identifying and assigning qualified persons to work on the Platform. The Enterprises will jointly determine the process for candidate selection; however, the Enterprise which employs (or will employ) the individual will determine, in its sole discretion, (A) the conditions for employment and (B) whether the individual has the skills needed for the assignment and is available to be assigned to work on behalf of the Company.
|
2.
|
Applicable Policies. Assigned Employees will be subject to the personnel policies and practices of the Enterprise which employs them, including but not limited to the compensation and benefits policies and practices of the employing Enterprise. Assigned Employees shall not be subject to any personnel policies or practices of any other entity, with the exception of Company policies and practices that are specifically related to: (i) the operation of the facility in which they will perform their duties, including security procedures, hours in which the facility is open, and badge systems; (ii) performance management; (iii) training; (iv) on-the-job conduct and behavior; and (v) compliance with respect to safety, legal requirements and codes of conduct. In the event of any conflict or inconsistency between the policies and practices of the Company specifically related to the matters described in the preceding sentence and the policies and practices of an Enterprise specifically related to such matters, the policies and practices of the Company specifically related to such matters will be controlling.
|
3.
|
Restricted Period. All Assigned Employees shall remain at-will employees of their respective Enterprise during the course of the assignment. However, subject to the Enterprises’ rights to terminate the employment relationship with or without cause or notice, the Enterprises agree that each Assigned Employee will not be transferred from working on behalf of the Company as an Assigned Employee to another Enterprise position or assignment for a period of one year following the start of the individual’s assignment as an Assigned Employee (“Restricted Period”).
|
i.
|
During the Restricted Period, an Assigned Employee may be transferred from the assignment with the Company to another Enterprise position or assignment only by agreement of both the Company and the Enterprise employing the Assigned Employee.
|
ii.
|
If an Assigned Employee becomes employed by the Company during the Restricted Period, the Enterprises agree that they will not solicit the Company employee during the Restricted Period, except by agreement of both the Company and the Enterprise seeking to employ the Company employee.
|
iii.
|
Following the Restricted Period, there shall be no restriction on the Assigned Employee moving to another position or assignment within his or her employing Enterprise.
|
4.
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Indemnification - Assigned Employees. The Company shall defend, indemnify, and hold harmless each of the Fannie Mae Indemnified Parties and Freddie Mac Indemnified Parties from and against any Damages suffered or incurred by any Fannie Mae Indemnified Party or Freddie Mac Indemnified Party, as the case may be, to the extent such Damages result or arise from any employment-related Claim (whether such Claim is based on contract, statute or common law) asserted by any Assigned Employee related to the Assigned Employee’s work or assignment to work on the Platform or any other work on behalf of the Company, including but not limited to any claim of discrimination and harassment, failure to comply with laws pertaining to wages and hours (including the payment of overtime wages), alleged violations of right to privacy, alleged violation of health or safety laws, the failure to provide legally required leaves of absence or other alleged violations of law. The indemnification procedures set forth in Section 14.4 of the LLC Agreement shall apply to any indemnification under this Section 4.
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5.
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Indemnification - Company Employees. The Company shall defend, indemnify, and hold harmless each of the Fannie Mae Indemnified Parties and Freddie Mac Indemnified Parties from and against any Damages suffered or incurred by any Fannie Mae Indemnified Party or Freddie Mac Indemnified Party, as the case may be, to the extent such Damages result or arise from any employment-related Claim (whether such Claim is based on contract, statute, or common law) asserted by any Company employee or as a result of any acts or omissions by a Company employee which gives rise to an employment-related Claim, including but not limited to any claim of discrimination and harassment, failure to comply with laws pertaining to wages and hours (including the payment of overtime wages), alleged violations of right to privacy, alleged violation of health or safety laws, the failure to provide legally required leaves of absence or other alleged violations of law. The indemnification procedures set forth in Section 14.4 of the LLC Agreement shall apply to any indemnification under this Section 5.
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