Company: FMCCN
Filing Date: 2025-02-13
Form Type: 10-K
Source: 0001026214-25-000040
Chunk: 93

Company: FEDERAL HOME LOAN MORTGAGE CORP
Filing Date: 2025-02-13
Form: 10-K
Item: Item 15
Chunk 93
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 different third-party document custodian if we have concerns about the solvency or competency of the document custodian.

Custodial Depository Institutions

We require our mortgage servicers to open and use custodial accounts at an FDIC- or NCUSIF-insured depository institution to hold, on our behalf, custodial funds, including principal and interest payments, received for Freddie Mac-owned and Freddie Mac guaranteed mortgages. As a result, the failure of a custodial depository institution holding such funds may expose Freddie Mac to financial losses if the account balances are in excess of applicable deposit insurance protection and impacted servicers are unable or unwilling to cover the shortfall. To manage this risk, the Guide requires Freddie Mac servicers to utilize depository institutions that are rated as "well capitalized" by their regulator and in compliance with minimum financial ratings criteria. We also monitor the financial strength of the depository institutions on an ongoing basis in accordance with our counterparty credit risk management framework and may require the replacement of a depository institution if we have concerns about its solvency or competency.

Market Risk

Overview

Our business segments have embedded exposure to market risk, which is the economic risk associated with adverse changes in interest rates, volatility, and spreads. Market risk can adversely affect future cash flows, or economic value, as well as earnings and net worth. The primary sources of interest-rate risk are from our investments in mortgage-related assets, the debt we issue to fund these assets, and our Single-Family guarantees. 

Our mortgage-related assets are held in both business segments and consist of unsecuritized mortgage loans and mortgage-related securities. Typically, an existing loan or bond investment in our investments portfolio is worth less to an investor when interest rates (yields) rise and worth more when they decline. For a majority of our single-family mortgage-related assets, the borrower has the option to make unscheduled principal payments at any time before maturity without incurring a prepayment penalty. Thus, our mortgage-related asset portfolio is also exposed to uncertainty as to when borrowers will exercise their option and pay the outstanding principal balance of their loans. We face similar (and in most cases directionally opposite) exposure related to unsecured debt. Unsecured debt is typically worth less to an investor when interest rates (yields) rise and worth more when they decline. In addition, we issue debt with embedded options, such as an option to call, which provides us flexibility concerning the timing of our debt maturities. 

Our Single-Family guarantee market risk exposure results from