Company: FMCCN
Filing Date: 2025-05-01
Form Type: 10-Q
Source: 0001026214-25-000060
Chunk: 25

Company: FEDERAL HOME LOAN MORTGAGE CORP
Filing Date: 2025-05-01
Form: 10-Q
Item: Item 15
Chunk 25
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 Recoveries 

Our expected recovery receivable from freestanding credit enhancements was $0.1 billion as of both March 31, 2025 and December 31, 2024.

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, non-mortgage assets (including Treasuries), the debt we issue to fund these assets, and our Single-Family guarantees. 

Interest-Rate Risk

Our primary interest-rate risk measures are duration gap and Portfolio Value Sensitivity (PVS). 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. PVS is an estimate of the change in the present value of the cash flows 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 bps parallel movement in interest rates (PVS-L) and the other to a nonparallel movement (PVS-YC), resulting from a 25 bps change in slope of the yield curve. While we believe that duration gap and PVS are useful risk management tools, they should be understood as estimates rather than as precise measurements.

Prior to 1Q 2025, our interest-rate risk limits required asset duration to match liability duration, net of derivatives. When capital increased, excess net assets were invested in investments with little to no duration, such as overnight reverse repurchase agreements, increasing our earnings sensitivity to short-term interest rates. Beginning in 1Q 2025, we updated our interest-rate risk limits to allow for longer-term investments, reducing our earnings sensitivity to changes in short-term interest rates. We continue to manage interest-rate risk related to financial instruments primarily funded by debt as before, targeting a low level of interest rate exposure as measured by our models. For all other financial instruments, we manage interest-rate risk to a target duration, which reduces our long-term earnings volatility related to changes in overnight rates. Such financial instruments may include treasuries, mortgage related securities, repurchase agreements, and derivatives.

The tables below provide our duration