OFHEO Releases Annual Report to Congress

WASHINGTON, DC — James B. Lockhart, Director of the Office of Federal Housing Enterprise 

Oversight (OFHEO) today released OFHEO’s 2007 Report to Congress, detailing the agency’s 

annual examination conclusions and regulatory oversight of government-sponsored enterprises 

(GSEs), Fannie Mae and Freddie Mac for the year 2006. The report concludes that both Enterprises 

“remain a significant supervisory concern.” 

“While both Enterprises made progress in correcting their problems, especially in systems, controls 

and financial reporting, it has taken much more time and money to correct than the GSEs or OFHEO 

expected,” said Lockhart. “A key indicator of a successful remediation will be the timely filing of 

annual and quarterly financial statements by each company with a clean audit opinion based on a 

controls-based audit. I am pleased to report that both companies are working hard to achieve this 

goal, but they still have much to do.” 

In addition to the annual reports of examination for Fannie Mae and Freddie Mac, the report includes 

a review and summary of related topics, including: 

 Financial performance of the GSEs 

 OFHEO supervisory actions 

 Remediation efforts 

 Executive compensation 

 OFHEO legislative recommendations 

 OFHEO research and publications 

 Accounting environment at the GSEs 

 Historical data tables for the Enterprises 

The full report is available at /media/annualreports/OFHEOReporttoCongress07.pdf. To 

request a printed copy, please send an e-mail to ofheoinquiries@ofheo.gov or call 202.414.6922.

### 

OFHEO's mission is to promote housing and a strong national housing finance system 

by ensuring the safety and soundness of Fannie Mae and Freddie Mac.

Office of Federal Housing Enterprise Oversight (OFHEO)

NEWS RELEASE

FOR IMMEDIATE RELEASE CONTACT: Corinne Russell (202) 414-6921 

April 10, 2007 Stefanie Mullin (202) 414-6376 

 www.ofheo.gov
2007

Report to Congress

2007

Report to Congress

March 30, 2007

Honorable Christopher Dodd Honorable Richard Shelby

Chairman Ranking Member

Committee on Banking, Housing, Committee on Banking, Housing,

and Urban Affairs and Urban Affairs

United States Senate United States Senate

Washington, D.C. 20510 Washington, D.C. 20510

Honorable Barney Frank Honorable Spencer Bachus

Chairman Ranking Member

Committee on Financial Services Committee on Financial Services

United States House of Representatives United States House of Representatives

Washington, D.C. 20515 Washington, D.C. 20515

Dear Chairmen and Ranking Members:

I am pleased to transmit the 2007 Report to the Congress from the Office of Federal Housing

Enterprise Oversight (OFHEO), which provides the findings of OFHEO’s 2006 annual examinations.

This report meets the statutory requirements of section 1319B of the Federal Housing Enterprises

Financial Safety and Soundness Act of 1992 (Title XIII of P. L. 102-550). The views in this report are

those of OFHEO and do not necessarily represent those of the President or the Secretary of Housing

and Urban Development.

This report is my second one to the Congress. We accelerated the publication by over two months

from previous years and plan to continue our efforts to provide more transparent and timely

reportings.

Since the last report, OFHEO published a new five-year strategic plan that contains three strategic

goals in support of the agency’s mission, to ensure the safe and sound operation of Fannie Mae and

Freddie Mac. These goals are:

1. Enhance supervision to ensure the Enterprises operate in a safe and sound manner, are

adequately capitalized and comply with legal requirements;

2. Provide support for statutory reforms to strengthen our regulatory powers; and

3. Continue to support the national policy of an efficient secondary mortgage market which

promotes homeownership and affordable housing.

The 2006 annual examinations of both Fannie Mae and Freddie Mac, contained in this report, detail

the current condition of both Enterprises. OFHEO concludes that both companies remain a

significant supervisory concern. OFHEO also concludes that in 2006 both companies made progress

in correcting their problems, especially in systems, controls and financial reporting. Nonetheless, it

has taken much more time and money to correct them than either the Enterprises or OFHEO

OFFICE OF FEDERAL HOUSING

ENTERPRISE OVERSIGHT

1700 G Street, NW • Washington, DC 20552

202.414.3800
expected. Both companies are complying with a 30 percent additional capital requirement due to

operational risk problems, and both are subject to specific limits on the growth of their portfolios.

Despite these constraints necessitated by their operational weaknesses, their support of the mortgage

market grew by 8 percent in 2006 to $4.3 trillion as their guaranteed mortgage-backed securities

(MBS) outstanding grew at double-digit rates.

A key indicator to OFHEO of a successful remediation will be the timely filing of annual and

quarterly financial statements by each company with the Securities and Exchange Commission (SEC)

with a clean audit opinion based upon a controls-based audit. I am pleased to report that both

companies are working hard to achieve this goal, but they still have much to do.

As part of our second strategic goal, OFHEO has been working with the Congress and the

Administration on legislation to reform the regulatory oversight of the housing governmentsponsored enterprises (GSEs). I am pleased that the House Financial Services Committee has drafted,

debated and passed out of committee a strong reform bill that strikes a balanced approach to needed

statutory reforms. H.R. 1427 provides the basic building blocks of a strong, bank-like regulator for

the GSEs. Those building blocks are:

• Strong enforcement powers similar to those of federal banking regulators;

• Strengthened housing GSE oversight as a result of combining OFHEO with the Federal

Housing Finance Board (FHFB);

• Combining safety and soundness authority with mission authority in a single regulator;

• Full regulatory independence by being out of the appropriations process;

• Full authority over capital; and

• Ability to regulate the Enterprises’ portfolios.

Now is the time for action on this important issue. OFHEO looks forward to continuing to assist the

Congress and the Administration as the legislative process moves forward.

One of the ways in which OFHEO expands the national discussion of housing and homeownership

is through its analysis of mortgage market developments and Enterprise activities. OFHEO’s

quarterly House Price Index (HPI) and related products provide important information about the

state of the housing markets. As measured by the HPI, the nation’s housing and mortgage markets

experienced a marked deceleration in home prices in 2006. After two years of double-digit rates of

appreciation nationally, house prices increased at a more moderate pace, 5.9 percent, from the fourth

quarter of 2005 to the fourth quarter of 2006. That was the lowest appreciation rate since 1999. 

This year will be one of challenges for the housing markets. OFHEO is working with the Enterprises

to provide guidance on subprime and non-traditional mortgages. It should also be a year of

significant progress as Fannie Mae and Freddie Mac accelerate their remediation programs. It is my

hope that an enhanced new regulatory regime, as proposed by the Congress and the Administration,

will be enacted to benefit OFHEO and all of the stakeholders in the nation’s housing finance system.

Sincerely,

James B. Lockhart III

Director
Report to Congress • 2007

Table of Contents

Year in Review ........................................................................1

Housing Sector Retreats After Years 

of Solid Performance....................................................1

Financial Performance of the Enterprises in 2006 ........5 

Supervisory Actions in 2006................................................8

Enforcement......................................................................8

Compliance ......................................................................9

Other Supervisory Actions ............................................12

Report of Annual Examination of Federal National

Mortgage Association/Fannie Mae ..................................14

Examination Authority and Scope................................14

Examination Conclusions ............................................14

Matters Requiring Board Attention ..............................15

Board and Management Supervision ..........................16

Operations ....................................................................19

Asset Quality and Credit Risk Management ................23

Liquidity ..........................................................................27

Sensitivity to Market Risk ..............................................27

Earnings ..........................................................................28

Capital ............................................................................29

Report of Annual Examination of Federal Home Loan

Mortgage Corporation/Freddie Mac ................................31

Examination Authority and Scope ................................31

Examination Conclusions..............................................31

Matters Requiring Board Attention ..............................32

Board and Management Supervision ..........................33

Operations ....................................................................35

Asset Quality and Credit Risk Management ................38

Liquidity ..........................................................................41

Sensitivity to Market Risk ..............................................41

Earnings ..........................................................................43

Capital ............................................................................43

Accounting ............................................................................45 

The Changing Accounting Model ................................45

Past Accounting ..............................................................46

Future State......................................................................50

Fair Value Implementation ............................................51

Regulations and Guidances ..............................................53

Regulations......................................................................53

Guidances........................................................................53

OFHEO Research and Publications ................................56

Report of the Special Examination 

of Fannie Mae ............................................................56

Research Products ..........................................................57

Conforming Loan Limit ................................................58

House Price Index ..........................................................58

OFHEO Performance and Program Assessment..........60

OFHEO’s Financial Operations ........................................61

OFHEO’s Budget ............................................................61

Unqualified Audit Opinion in Fiscal Year 2006 ..........61

Charts

Chart 1: Mortgage Interest Rates ..........................1

Chart 2: Home Sales..............................................2

Chart 3: Enterprise Mortgage Asset Portfolios ....6

Chart 4: Enterprise Net MBS Outstanding ..........6

Chart 5: Status of Consent Order

(as of 12/31/06) ...............................................11

Chart 6: Net Income ...........................................49

Chart 7: Net Income Post-Restatement .............49

Chart 8: House Price Appreciation ....................59

Maps 

OFHEO House Price Index Percentage Growth by

Census Division Fourth Quarter 2005 - 

Fourth Quarter 2006 .........................................4

OFHEO House Price Index Percentage 

Growth by State Fourth Quarter 2005 - 

Fourth Quarter 2006.......................................59

Tables

Table 1: Articles of the May 23, 2006 

Consent Order ...................................................8

Table 2: Consent Order Status Terminology .....10

Table 3: Status of Consent Order

(as of 12/31/06) ...............................................11

Table 4: Fannie Mae Minimum Capital 

Requirements, 2006 ........................................30

Table 5: Freddie Mac Minimum Capital 

Requirements, 2006 ........................................44

Historical Data Tables - Table of Contents........62
Office of Federal Housing Enterprise Oversight
Report to Congress • 2007 1

Year in Review

Housing Sector Retreats 

After Years of Solid Performance

The U.S. economy grew 3.1 percent over the course of 2006. It was the fourth

consecutive year with more than 3 percent growth. The major contributors to the increase

in real gross domestic product (GDP) in 2006 were personal consumption expenditures

and nonresidential investments. Housing, which for several years had been a major

contributor to real GDP, was a major drain on real GDP in 2006. Inflation, as measured

by the Consumer Price Index, declined in 2006 to 2.5 percent, compared with 3.4

percent the year before. Labor market conditions continued to improve. The national

unemployment rate declined to 4.6 percent, down from 5.1 percent the year before. That

was the lowest level since 2000.

The Federal Reserve continued its tightening policy during the first half of 2006, but left

rates unchanged in the second half of the year as inflationary pressures waned. The

Federal Funds target rate ended the year at 5.25 percent, 100 basis points higher than at

the start of the year and the highest level since 2001. Short-term yields increased as a

result of the actions of the Federal Reserve. The one-year Constant Maturity Treasury

(CMT) yield rose consistently during the first seven months of the year (more than 70

basis points), and peaked at 5.22 percent in July. Long-term interest rates behaved in a

similar manner, but more moderately as the 10-year CMT yield peaked in May at 5.11

percent, and fell later in the year. Throughout 2006, the yield curve was relatively flat.

Mortgage interest rates followed the trend of long-term Treasury issues. According to DEC-92 JUN-93 DEC-93 JUN-94 DEC-94 JUN-95 DEC-95 JUN-96 DEC-96 JUN-97 DEC-97 JUN-98 DEC-98 JUN-99 DEC-99 JUN-00 DEC-00 JUN-01 DEC-01 JUN-02 DEC-02 JUN-03 DEC-03 JUN-04 DEC-04 JUN-05 DEC-05 JUN-06 DEC-06 Percent

0

1

2

3

4

5

6

7

8

9

10

30-Year FRM Rate 1-Year ARM Rate

Chart 1 -

Mortgage

Interest

Rates

Source: Freddie Mac
2 Office of Federal Housing Enterprise Oversight

Freddie Mac’s Primary Mortgage Market Survey (PMMS), the average 30-year fixed-rate

mortgage (FRM) commitment interest rate rose consistently until reaching a high of 6.76

percent in July. That was the highest level in four years. Rates declined in each successive

month, to a low of 6.14 percent in December compared to 5.17 percent in December of

2005. For the year, the 30-year FRM commitment interest rate averaged 6.41 percent, 54

basis points above the average rate for 2005. The average commitment rate on one-year

Treasury-indexed adjustable-rate mortgages (ARMs), following short-term rates, increased

through July, before easing somewhat. For the year, the one-year ARM averaged 5.54

percent, 105 basis points higher than the year before (Chart 1).

Rising mortgage interest rates helped to cause activity in the housing sector to contract in

2006. Single-family housing starts declined sharply, by about 14 percent to 1.5 billion

units. That was the lowest level since 2002. Housing inventory rose during most of the

year as home sales declined. Sales of new single-family homes were down more than 17

percent, the largest decline since 1990. Sales of existing single-family homes declined 8.5

percent, the largest decline since 1982. Those sales combined totaled 7.5 million units,

9.8 percent below the 2005 level (Chart 2). Thousands of Units, Annual Rate

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Total Home Sales

Existing Home Sales

New Home Sales 

1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 

Chart 2 -

Home Sales

Source: U.S. Census Bureau and National Association of Realtors
Report to Congress • 2007 3

Following the pattern of home sales, according to Inside Mortgage Finance, originations of

single-family mortgages fell about 4.5 percent in 2006, to $2.98 trillion. However, that

was the second highest volume ever. The decline was concentrated in ARM products

which had flooded the market in recent years and which became less attractive as interest

rates rose and the spread between FRMs and ARMs narrowed. The share of refinance

originations was also down 14.4 percent to $1.3 trillion, but remained strong given the rise

in interest rates. Some ARM borrowers, whose mortgage rates reset, refinanced into FRMs. 

A further indication of the cooling housing market was the decline in house price

appreciation. While U.S. home prices rose throughout 2006, the rate of appreciation

slowed as the demand for housing declined. After two successive years of double-digit

rates of appreciation nationally, house prices as measured by OFHEO’s quarterly House

Price Index increased at a more moderate pace, 5.9 percent from the fourth quarter of

2005 to the fourth quarter of 2006. That was the lowest rate of appreciation since 1999

when prices rose 5.1 percent. All but one of the nine Census Divisions (West South

Central) showed a decline in the rate of price appreciation. In absolute terms, the Pacific

Census Division showed the greatest deceleration, with appreciation declining from 19.7

percent from the fourth quarter 2004 to the fourth quarter of 2005, to 7.1 percent from the

fourth quarter of 2005 to the fourth quarter of 2006. However, in relative terms, the New

England Census Division showed the greatest decline in appreciation over the same time

period, falling approximately 77 percent, to 2.3 percent, which was lower than the rate of

inflation (Map on page 4).

The National Association of Realtors’ composite housing affordability index fell 5.1

percent in 2006, to 106.1. The lower affordability index reflects the increase in mortgage

interest rates which caused the average mortgage payment to increase 8.8 percent more

than offsetting the 3.2 percent growth in median family income. Continued high home

prices in 2006 may have contributed to a slight decline in the homeownership rate, from

69.0 percent as of the end of the fourth quarter 2005, to 68.9 percent one year later.

However, that rate was just slightly below the record level set in 2004 (69.2 percent).

After declining slightly in 2005, the rental vacancy rate rose slightly in 2006, from 9.6

percent at the end of the fourth quarter 2005 to 9.8 percent one year later.
4 Office of Federal Housing Enterprise Oversight

FL

 

NM

HI

AK

DE MD

TX

OK

KS

NE

SD

ND

MT

WY

CO UT

ID

AZ

NV

WA

CA

OR

KY

ME

NY

PA

MI

VT

NH

MA

RI

VA

WV

OH

IL IN

NC TN

SC

MS AL

AR

LA

MO

IA

MN

WI

NJ

GA

DC

CT

New 

England: 

2.3%

Middle 

Atlantic: 

6.0%

South 

Atlantic: 

7.3%

East

North

Central: 

2.7%

West

North Central: 

3.5%

East

South

Central:

7.2%

West South

Central:

7.5%

Mountain:

9.0%

Pacific: 

7.1%

U.S. :

5.9%

OFHEO House Price Index Percentage Growth by Census Division 

Fourth Quarter 2005 - Fourth Quarter 2006
Report to Congress • 2007 5

Financial Performance 

of the Enterprises in 2006

Fannie Mae and Freddie Mac both continued to work on issues related to their

accounting, systems and internal control problems in 2006 and some progress was made.

Fannie Mae made progress in its restatement efforts with the December release of its

2004 10-K reflecting restated financials for 2002, 2003 and 2004 financial results. As a

result of the restatement, Fannie Mae recorded a decrease in retained earnings of $6.3

billion. Financial statements for 2005 are planned for release in 2007. Freddie Mac

released 2005 results in May 2006. Although the Enterprise did not issue quarterly

reports in 2006, it released 2006 results in March 2007 and is working toward returning

to quarterly public reporting later in 2007.

In May 2006, Fannie Mae agreed to a Consent Order with OFHEO to, among other

things, limit the growth of its portfolio mortgage assets to the level held as of December

31, 2005 ($727.7 billion), until OFHEO approves an increase. Fannie Mae also paid a

$400 million fine to the government as part of the Consent Order settlement. In August

2006, in response to OFHEO’s recommendation, Freddie Mac announced that it had

volunteered to limit the annual growth of its mortgage portfolio assets to no more than

one-half percent each quarter above the level at June 30, 2006 ($710.3 billion) until

reaching a maximum of 2 percent. Freddie Mac agreed to keep the voluntary growth limit

in place until it returned to producing and publicly releasing quarterly financial

statements prepared in conformity with Generally Accepted Accounting Principles

(GAAP). 

The limits on portfolio growth and continued competition for mortgage assets (which

compressed spreads and limited investment opportunities) resulted in a slight shrinkage

in the mortgage portfolio assets of both Enterprises in 2006 (Chart 3). That was the

second consecutive annual decline in Fannie Mae’s mortgage portfolio, but the first

annual decline experienced at Freddie Mac since 1987.

While the lack of asset growth and continued competitive pressures from other mortgage

investors and securitizers limited the performance of their retained portfolios, both

Fannie Mae and Freddie Mac increased their guarantee business at healthy rates in 2006

and, based on available information, both were profitable and their combined books of

business grew 8 percent.

In 2006, Fannie Mae’s net MBS outstanding increased by 11.4 percent, compared to 13.9

percent the prior year. Although net issuance of MBS declined by 5.6 percent, the decline

was more than offset by a slowing of prepayments and declines of purchases of its own

MBS. The Enterprise’s total book of mortgage business increased 7.7 percent, compared

with less than 1 percent of the year before, to $2.53 trillion.
6 Office of Federal Housing Enterprise Oversight

Although Freddie Mac’s MBS issuance volume declined about 10 percent in 2006, the

decline was more than offset by the decreases in purchases of MBS into their own

portfolio and the decline in liquidations. As a result, the Enterprise’s outstanding MBS

increased 15.2 percent in 2006 compared to 14.3 percent the year before to $1.12

trillion. Freddie Mac’s outstanding MBS represents 63 percent of Fannie Mae’s

outstanding MBS. Freddie Mac’s total book of business also grew 8.4 percent, down

from 11.9 percent the year before.

0

100

200

300

400

500

600

700

800

900

$1000

Fannie Mae Freddie Mac

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 

(Billions)

Chart 3 -

Enterprise

Mortgage

Asset

Portfolios

Source: Fannie Mae and Freddie Mac

0

200

400

600

800

1000

1200

1400

1600

1800

$2000

Fannie Mae Freddie Mac

Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06

(Billions)

Chart 4 -

Enterprise

Net MBS

Outstanding

Source: Fannie Mae and Freddie Mac
Report to Congress • 2007 7

Both Fannie Mae and Freddie Mac reported that they were profitable in 2006. After

declining for three consecutive years, net income at Freddie Mac, measured in accordance

with GAAP, rose about 4 percent in 2006, to $2.2 billion. That increase occurred despite

the sharp decline in net interest income ($1.1 billion) which was driven by a continued

decline in the net interest margin. The net interest margin was 18 basis points lower than

in the previous year. The higher net income booked in 2006 reflects higher guarantee fee

income, increased gains on early debt retirement, lower mark-to-market losses on

derivatives and the guarantee asset, and a decrease in tax expenses. Freddie Mac also

reported higher fair value earnings for 2006, $2.5 billion compared to about $1.0 billion

the year before. Freddie Mac’s GAAP and fair value results support the conclusion that its

business remains economically sound.

Although Fannie Mae is a Securities and Exchange Commission (SEC) registrant, unlike

Freddie Mac, continued remedial accounting work has prevented it from releasing GAAP

earnings for 2006. However, estimated financial information provided by Fannie Mae for

the quarterly capital report, based on the application of accounting policies currently

under review, indicates that the Enterprise achieved a reasonable degree of profitability.

That was achieved despite continued high administrative expenses associated with the

restatement, upgrades to systems, attendant staffing requirements, and restrictions on the

growth of the retained mortgage portfolio.

GAAP earnings as reported by Freddie Mac and as estimated by Fannie Mae continue to

exhibit high levels of volatility from quarter-to-quarter and year-to-year. Both Enterprises

had a loss in the third quarter last year and Freddie Mac did in the fourth quarter as well.

These losses reflect, in part, GAAP’s requirements to mark some balance sheet items to

market, but not others, which creates difficulties in interpretation. In the case of Freddie

Mac, those results also reflect the accounting for the guarantee asset and liability associated

with its guarantee business.

Credit risk at both Fannie Mae and Freddie Mac remained low in 2006, but was increasing

at year-end. At Freddie Mac, the single-family delinquency rate, which rose in the fourth

quarter of 2005 following hurricanes Katrina and Rita, declined during most of 2006 and

ended the year at 0.53 percent, 16 basis points lower than the year-end 2005 level. The

experience at Fannie Mae was similar. The Enterprise’s single-family delinquency rate at

year-end was 0.65 percent, 14 basis points lower than at the end of the previous year.

With low interest rate volatility in 2006, interest rate risk was moderate-to-low at both

Fannie Mae and Freddie Mac during most of the year. The duration gap at both Enterprises

averaged zero months, and the portfolio market value sensitivity (PMVS) at Freddie Mac

averaged one percent. 

Because of the continued high state of operational risk, OFHEO continued to require both

Enterprises to maintain core capital 30 percent higher than their regulatory minimum

capital levels in 2006. At year-end, Freddie Mac’s capital of $36.2 billion exceeded its

requirement by $2.6 billion and amounted to 4.5 percent of its assets.

As a result of the restated financial results for 2002 and 2003, OFHEO reclassified Fannie

Mae as significantly undercapitalized throughout 2002, 2003 and 2004. During 2006,

Fannie Mae raised its core capital to $42.3 billion, $4.2 billion above the OFHEO-directed

requirement.
8 Office of Federal Housing Enterprise Oversight

Supervisory Actions in 2006

Enforcement

Consent Orders

FANNIE MAE

On May 23, 2006, OFHEO and Fannie Mae entered into a Consent Order to settle

matters related to accounting, internal control and other failures at the Enterprise that led

to a restatement of earnings and significant losses to the Enterprise. OFHEO had

previously entered into agreements with the Enterprise, but the Consent Order

superseded these agreements and avoided the need for

enforcement actions against the Enterprise. Fannie Mae paid

$400 million to the government as part of the Order and agreed

to numerous remedial steps. In addition to overseeing

compliance with the Consent Order, OFHEO initiated

administrative actions against certain separated senior officers for

harm caused due to their conduct.

FREDDIE MAC

OFHEO continued its oversight of the remediation efforts at

Freddie Mac, also covered by a Consent Order dated December 9,

2003. 

Litigation

FANNIE MAE

On December 18, 2006, OFHEO initiated an administrative

action against former Fannie Mae executives Franklin Raines, 

J. Timothy Howard and Leanne Spencer, seeking affirmative relief

and civil money penalties for allegedly improper and unlawful

conduct. Hearings are scheduled for early 2008.

OFHEO has been subpoenaed in a shareholder litigation case

before a District of Columbia District Court against Fannie Mae

and its former executives Franklin Raines, J. Timothy Howard and

Leanne Spencer. The various subpoenas require OFHEO to review

upwards of 21 million pages of documents and other materials.

The District Court judge established a schedule and process for

production of these materials.

ARTICLE DESCRIPTION

I. Corporate Governance 

(16 issues) 

II. Board of Directors (7 issues)

III.

Capital Plans and Limitations

on Certain Corporate Actions

(5 issues)

IV. Internal Controls (18 Issues)

V. Accounting (8 issues)

VI. Personnel (9 issues)

VII. Compensation (4 issues)

VIII. Reports, Data and

Disclosures (4 issues)

IX. Cooperation (6 issues)

X. Reports to OFHEO (1 issue)

XI. Penalty (2 issues)

XII. Previous Agreements

(1 issue)

Table 1: Articles of the 

May 23, 2006 Consent Order
Report to Congress • 2007 9

FREDDIE MAC

OFHEO continued its administrative action against former Freddie Mac executives Leland

Brendsel and Vaughn Clarke. OFHEO responded to production motions and requests,

including assembling of and reviewing for responsiveness and privilege, in excess of one

million pages of documents. Hearings are scheduled for the fall of 2007.

Compliance

Consent Orders

FANNIE MAE

OFHEO published its Report of the Special Examination of Fannie Mae on May 23,

2006. At the same time, OFHEO entered into a Consent Order with the Enterprise

requiring extensive remediation by the Enterprise and limitations on corporate activities.

Based upon evidence established during OFHEO’s Special Examination and in the

interests of compliance and cooperation, Fannie Mae signed the Consent Order with

OFHEO. 

The May 23, 2006 Order commits Fannie Mae to a significant number of remedial steps,

including halting growth in its retained mortgage portfolio; reviewing current and former

employees for disciplinary actions and possible restitution; implementing plans to

resolve accounting, internal control, corporate governance and risk management

weaknesses; maintaining the capital surplus requirement; agreeing to oversight by

OFHEO of senior officer appointments; and committing to cooperate with OFHEO on

any enforcement actions. Fannie Mae agreed to pay a $400 million penalty to the

government.1

The Consent Order is organized into 12 Articles, as shown in Table 1, having a total of 81

separate requirements. These requirements were developed by OFHEO to correct or

eliminate specific deficiencies revealed during the Special Examination of Fannie Mae.

A previous agreement, entered into between OFHEO and Fannie Mae dated September

27, 2004 and a “Supplement to the Agreement of September 27, 2004” dated March 7,

2005, were also rolled into the May 23, 2006 Order.

Consent Order Oversight. As required by Section 1 of Article 1 of the May 23, 2006

Order, Fannie Mae had to prepare an annual compliance plan that detailed how the

company would satisfy its obligations under the Order. On September 19, 2006, Fannie

Mae’s Board of Directors reviewed and approved the plan which was subsequently

provided to OFHEO. The plan called for the establishment of a centralized program

management office (PMO), to ensure coordination and consistent execution of

remediation and reporting efforts. The PMO was placed under the leadership of Fannie

Mae’s Chief Compliance Officer who has served as the primary liaison with OFHEO.

Each of the 81 issues contained in the Order was assigned to various OFHEO

1 http://www.ofheo.gov/media/pdf/settlementrelease.pdf
10 Office of Federal Housing Enterprise Oversight

management officials. These individuals, designated Executive Sponsors, are responsible

for ensuring that Fannie Mae is in compliance with each Order requirement. 

The 2006 Compliance Plan submitted to OFHEO was determined to be comprehensive

and to reflect Fannie Mae management’s commitment to fulfill the requirements of the

Consent Order. Since the Order has been in place, Fannie Mae’s Office of Compliance

and Ethics has provided OFHEO management bi-weekly status and tracking reports and

has conducted bi-weekly status meetings with OFHEO’s Office of Compliance. The two

offices have worked cooperatively to ensure that all parties understand the intent of each

Order item and to facilitate timely completion.

Implementation Status of Consent Order. Fannie Mae has dedicated extensive resources

and taken significant actions toward achieving compliance with the Consent Order.

OFHEO finds the Enterprise to be working diligently to improve Fannie Mae’s corporate

culture and business operations.

As of December 31, 2006, Fannie Mae has been fully responsive to all deadlines

established by the Order. For the purpose of characterizing Fannie Mae’s current

implementation status of the Order, OFHEO utilizes the following categories in

describing each of the 81 issues:

CONSENT ORDER STATUS DEFINITION

IN COMPLIANCE

Full 

Compliance

Fannie Mae has fully complied with the intent of the

Order and no further actions are required.

Ongoing 

Compliance

Fannie Mae has complied with the requirements of the

Order, however, one or both of the following actions are

still required:

1) The implementation of planned actions must still be

validated by OFHEO.

2) Periodic reports are still required.

IN PROCESS

Fannie Mae is working toward achieving compliance

with an issue, however, it has not provided an 

official response to OFHEO as the issue is not yet due.

PENDING REVIEW

Fannie Mae has provided an official response to OFHEO,

however, one or more of the following actions has

occurred: 

1) OFHEO officials are currently reviewing materials

submitted by Fannie Mae as its official response.

2) OFHEO has requested additional supporting documentation from Fannie Mae.

3) OFHEO has taken a position that Fannie Mae has not

met the intent of the Order and both parties are

working together to reach an agreement.

NON-COMPLIANCE

OFHEO has taken a position that Fannie Mae has not

met the intent of the Order.

Table 2: Consent

Order Status

Terminology
Report to Congress • 2007 11

As of December 31, 2006, the implementation status of the May 23, 2006 Consent Order

is as follows:

The following chart illustrates the December 31, 2006 implementation status as

distributed by the 12 Articles of the Order.

Next Phase. As of December 31, 2006, OFHEO recognizes that Fannie Mae has complied

with 67 percent of the Order requirements. Approximately 22 percent of the Order

issues submitted to OFHEO by Fannie Mae are pending review. In some cases, OFHEO

has requested Fannie Mae provide additional supporting documentation or provide

alternative solutions. Fannie Mae management has been receptive and cooperative with

OFHEO management in developing solutions to satisfy the intent of the Order. 

Table 3: Status

of Consent

Order 

(as of

12/31/06)

0 2 4 6 8 10 12 14 16 18 20

Number of Requirements

Articles

1

2

3

4

5

6

7

8

9

10

11

12

In Compliance

Pending Review

In Process

Chart 5 - 

Status of

Consent

Order (as of

12/31/06)

54 In Compliance 

(20 in Full Compliance)

(34 in Ongoing Compliance)

9 In Process

18 Pending Review by OFHEO

0 Not in Compliance
12 Office of Federal Housing Enterprise Oversight

Of the issues designated to be in compliance, OFHEO has determined that Fannie Mae is

in full compliance with 25 percent of the Order requirements and in ongoing

compliance with an additional 42 percent of the Order requirements. Those designated

to be in ongoing compliance with the Order generally fall into two categories. Many of

the issues require Fannie Mae to submit quarterly, annual and other periodic statements

or plans for specified or indefinite time periods. These issues will continue to be

monitored and evaluated as necessary. Other issues required the submission of various

action plans for approval by OFHEO. These plans have various implementation dates

that will require an independent evaluation and validation by OFHEO examiners in the

future.

FREDDIE MAC 

Freddie Mac is in satisfactory compliance with the Consent Order dated December 9,

2003, but one provision that remains open is the separation of the CEO and Chairman

of the Board positions. The Board of Directors submitted a two-year transition plan to

OFHEO in late 2006 that addresses this matter. OFHEO continues to monitor

management’s progress against a comprehensive plan to address key issues highlighted

by the Consent Order, including strengthening internal controls, developing a risk

management oversight program, improving the internal accounting function,

augmenting the internal audit program and striving to make positive changes to the

corporate culture.

Other Supervisory Actions

Other Agreements

In September 2005, both Fannie Mae and Freddie Mac entered into an agreement with

OFHEO on matters pertaining to subordinated debt, public disclosure of credit and

interest-rate risks and liquidity management. 

Freddie Mac has implemented actions to meet the requirements in the September 2005

Agreement. During 2007, Freddie Mac will expedite the quarterly credit risk assessment

disclosure. 

Fannie Mae has implemented actions to meet the requirements in the September 2005

Agreement, and continues to improve its compliance by strengthening its liquidity

contingency tests and expediting its interest-rate risk disclosures. The Enterprise expects

to begin making interest-rate risk disclosures for 25 and 50 basis point yield curve moves

with information for the second quarter of 2007. 
Report to Congress • 2007 13

Executive Compensation

OFHEO’s enabling statute and the Enterprise charter acts charge the Director of OFHEO

with oversight responsibility in the area of executive compensation. OFHEO’s statute

requires the Director to prohibit an Enterprise from providing excessive compensation to

any executive officer. Specifically, the statute provides that compensation must be

reasonable and comparable with compensation paid by other similar businesses to

executives having similar duties and responsibilities. “Similar businesses” include

publicly held financial institutions or major financial services companies.

The Enterprise charter acts require the companies to obtain the prior approval of

OFHEO’s Director before entering into or changing termination agreements with their

executive officers. The Director may not approve any such agreement unless the Director

determines that the benefits provided are comparable to benefits provided under such

agreements for officers of other public and private entities involved in financial services

and housing interests who have comparable duties and responsibilities.

In addition to the requirements noted above, the Fannie Mae Capital Restoration Plan

approved by OFHEO on February 17, 2005 requires that the Enterprise obtain OFHEO’s

prior approval for all payment of bonuses or other non-salary cash or stock-based awards

to executive officers.

OFHEO’s corporate governance regulation includes several requirements in the

area of executive compensation. Specifically, the rule:

• Requires reasonable and appropriate compensation for directors, officers and

employees, highlighting the need to avoid compensation incentives that

excessively focus on short-term earnings;

• Requires that compensation programs consider risk management, compliance

with the law and operational stability in addition to earnings; and

• Requires reimbursement by a senior officer if an accounting restatement is

required under certain circumstances.

In 2006, OFHEO reviewed and rendered decisions on 21 requests for approval of

compensation actions from Fannie Mae and Freddie Mac. These actions involved new

hires, promotions, separation agreements, bonuses and other non-salary compensation.

Seven of these 21 actions were taken pursuant to the guidelines set forth in Fannie Mae’s

February 2005 Capital Restoration Plan, which require approval of bonuses and longterm incentive awards to executive officers.2

2 Subsequently in early 2007, as part of its review of issues raised by OFHEO’s Report of the Special Examination (May 2006), the

Enterprise acted to eliminate bonus payments to certain executives and to take disciplinary action against a number of individuals.
14 Office of Federal Housing Enterprise Oversight

Report of Annual Examination of 

Federal National Mortgage

Association / Fannie Mae

Examination Authority and Scope

Examination Authority and Reporting Convention

This Report of Examination contains the results and conclusions of OFHEO’s 2006

annual examination of the Federal National Mortgage Association (“Fannie Mae” or the

“Enterprise”) performed under section 1317(a) of the Federal Housing Enterprises

Financial Safety and Soundness Act of 1992 (12 USC § 4517(a)). The OFHEO annual

examination program assesses the Enterprise’s financial safety and soundness and overall

risk management practices. OFHEO utilizes a “CAMELSO” methodology (Capital

Adequacy, Asset Quality, Management, Earnings, Liquidity, Sensitivity to Market Risk,

and Operations), similar to that adopted by the federal depository institution regulators,

to report examination results and conclusions to the Board of Directors and to Congress. 

2006 Examination Scope

OFHEO’s examination activities focused on: supervision provided by senior

management, enterprise risk management and internal audit, corporate governance

functions, internal controls, information technology, credit risk management, accounting

practices and compliance with the requirements of the September 2005 Agreement and

the May 2006 Consent Order. OFHEO supervisory activities also included

reviews of asset quality, counterparty concentration risk management,

market and interest-rate risk management practices, earnings

performance, capital adequacy and liquidity.

Examination Conclusions

The Enterprise remains a significant supervisory concern. Although

progress has been made in correcting deficiencies, significant issues

remain and are centered in data, systems, controls and risk

measurement and management. Data and systems limitations have

generated extensive deficiencies, the inability to measure several risks with

the highest degree of accuracy and the inability to establish controls that meet

industry standards in many areas. These limitations, coupled with incomplete metrics,

adversely impact report accuracy and meaningfulness, impeding communication and the

management of operations, risk and performance. Risk management deficiencies are

most acute in the Housing and Community Development business unit and the

management of counterparty exposure aggregation. Some limits in corporate policies

Fannie Mae 

remains a significant 

supervisory concern.
Report to Congress • 2007 15

need strengthening and the development of many management policies and written

procedures is in the initial stages. Several necessary positions in risk management and in

model development and validation have been difficult to fill due to external factors.

Management has devoted substantial effort to address the Enterprise’s deficiencies, but

corrective programs are in varying stages of completion and many are in their initial

stages. Financial statements for the years 2002 through 2004 were completed, but

substantial work remains to complete years 2005 and 2006 and become a current filer.

Significant progress has been made in initiatives needed to launch corrective programs in

such areas as corporate policies, organizational structure, personnel numbers and

expertise, risk measurement, and controls that correct or partially mitigate many

deficiencies. In addition, the independent oversight functions have appropriate expertise

and authority and have been key drivers in addressing control and risk management issues

in the business units. Management has demonstrated its ability to plan, prioritize, monitor

and control major projects. These efforts have built the foundation for future progress.

The Enterprise has: (1) a qualified and active Board of Directors and senior management

team with a supervisory program that is incomplete but improving; (2) operations with

significant control deficiencies that adversely impact risk management and expansion

into new products; (3) weaknesses in several areas of credit-risk management but strong

asset quality; (4) a minimally satisfactory interest-rate risk management program with

deficiencies in interest-rate risk measurement; (5) satisfactory management of liquidity;

(6) fair earnings; and (7) adequate regulatory capital. Current and future earnings are

adversely impacted by declining net interest margins and competitive pressures.

Structural and economic issues in the mortgage markets and the Enterprise’s desire to

expand activities in higher-risk products heighten the importance of developing

economic capital measures to better quantify risks and performance, as well as stronger

financial performance measurement and attribution analysis.

Matters Requiring Board Attention

Key matters highlighted in this report requiring strong Board oversight are:

• Project Management. Monitor project management for operations, information

technology, internal control and measurement of risk and performance. Evaluate

the enterprise-wide plan for the prioritization and coordination of projects, and

the impact and reason for delays. Ensure interim processes and controls are

completed and regularly audited until long-term, sustainable solutions for data

and systems are finalized. Ensure appropriate project management in all key

areas of change.

• Management Communications. Ensure appropriate management completes its

formal structure for decision protocol and the escalation of issues; business unit

risk management; optimized pricing and measurement of risks and performance;

and the coordination and rationalization of activities among the business units. 
16 Office of Federal Housing Enterprise Oversight

• Interest Rate Risk. Approve strengthened corporate limits for interest rate risk.

Ensure business unit policies and written procedures are completed and that all

policies and limits are periodically updated and incorporated into business

practices.

• Management Reporting. Ensure management improves the reporting of risks,

performance, and operational issues through the use of accurate information and

enterprise-wide and business unit metrics and summary reports for the Board

and senior management that highlight key information and issues. 

• Infrastructure. Ensure management has completed an infrastructure that has

sufficient data, information technology systems, controls, reports and personnel

in place before the Enterprise significantly engages in new products.

• Internal Controls. Monitor management’s progress toward remediating the

significant number of internal control deficiencies to enable the release of

accurate and timely financial statements. This remediation should permit a

return to controls-based auditing and ensure a sustainable control environment

for financial reporting.

Board and Management Supervision

Board of Directors

The Board improved its structure and operations during the year through better policies,

strengthened organizational structure and expertise and better information flow with the

business units and independent oversight functions. Continued oversight by the Board is

needed to ensure the appropriate planning, prioritization, control and completion of the

myriad projects and changes in progress. Risk and performance metrics are incomplete,

preventing or impeding effective and standardized communication.

Corporate policies were approved around year-end 2005 and were largely satisfactory.

The Board’s annual review is expected to result in needed improvements in some limits,

such as strengthened interest-rate risk limits. 

The Board’s structure was strengthened through a revised committee structure and

increased Board independence. The charters were rewritten for all six committees. The

two new committees address risk management, and technology and operations.

Independence was improved with independent directors on the Compliance Committee,

and the separation of the positions for CEO and Chairman of the Board in 2005. Six

new Board members brought needed expertise in accounting, finance and business

operations.

Communication was improved through more accurate and complete management

presentations, candid information from independent oversight functions and improved
Report to Congress • 2007 17

reports in areas such as internal audit and interest rate risk. However, communication

will remain impaired until management, the Housing and Community Finance

Committee and the Risk Policy and Capital Committee complete the development of

corporate metrics for risk, performance and operations.

Management and Human Resources

Management’s supervision program is incomplete, and uncorrected

deficiencies continue to adversely impact or impede effective

supervision and decision making for the Enterprise. Management

made significant progress in building a program that will allow for

improvement in the future, but many programs and corrective

actions are in their initial stages. 

Deficiencies in management are centered in controls,

communication and information used in managing risk,

performance and operations. Corporate policies are largely complete

but some corporate limits need strengthening, and management

policies and written procedures are in varying stages of completion.

Communication has improved, but the inadequate escalation of a few issues

indicated continued weaknesses in the information flow from middle management.

Issues in data and systems coupled with varying quality in report content and format

impact the quality and meaningfulness of many summary and executive management

reports. The issues in reports and metrics impede a comprehensive understanding of all

key issues by all executive management and the optimization of risk and performance

management. 

During the year, some business activities were poorly managed or little progress was

made on projects. The lack of a satisfactory vendor management program coupled with

the large increase in vendors fostered excessive costs. Aggregated counterparty credit risk

was improperly reported, reducing the effectiveness in managing counterparty risk.

Significant efforts failed to generate a complete program to correct deficiencies in the

Acquisitions, Development and Construction (ADC) program during 2006 due to the

magnitude of necessary changes. Although management expended significant efforts to

correct these deficiencies once the issues were discovered or understood, much work

remains to be done.

In several areas, management has made significant progress in addressing deficiencies in

controls and building a structure and programs which will allow for future

improvements. Corrective projects were initiated for major deficiencies in all business

lines. Critical projects were satisfactorily planned and prioritized and addressed both

interim solutions as well as long-term programs to address the Enterprise’s deficiencies.

However, progress varied widely due to the focus and resource demands needed to

address financial reporting and disclosure issues. Efforts appropriately focused on the

restatement project, accounting policies and control issues in the Controller department,

but delayed several critical but lower-priority projects needed for current production. 

Deficiencies in management 

are centered in controls,

communication and information

used in managing risk,

performance and operations.
18 Office of Federal Housing Enterprise Oversight

Major progress was made in several areas, which include:

• Revising and implementing new organizational structures for management

committees, business units and independent oversight, and providing

independent oversight with appropriate authority.

• Significantly improving the coordination and communication among business

units as well as new and long-time personnel. Improving accountability for

management and staff.

• Improving Board-level risk policies and limits.

• Hiring management and staff who bring needed expertise in industry standards.

• Remediating the identified Sarbanes-Oxley control deficiencies.

• Formalizing the delegations of authority for Senior Vice Presidents and higher-level

executives, which was complete at year-end 2006.

• Initiating quality control programs, such as the pilot leading to corporate-wide

use of Lean Six Sigma Concept.

Management has substantially improved the number and expertise of management and

staff. Personnel numbers have increased by about 18 percent over the past two years,

with the increase focused on staff to strengthen controls, governance and risk

management. Over 35 percent of senior management positions and 53 percent of all

officer positions are filled with outside hires. Management continues its efforts to fill

vacancies, which are centered in model development and validation and in risk

management in Housing and Community Development. Delays in hiring have largely

been due to external factors.

Enterprise Risk Management 

The Chief Risk Officer (CRO) division was substantially improved during 2006, and the

function accelerated improvements during the last half of 2005 as the permanent

management team was hired. The CRO is addressing issues associated with the newness

of the function, which include insufficient staffing levels and independent metrics,

reports and risk measurement. Risk officers in the business units monitor risk and

coordinate risk management with the CRO division, Internal Audit and the Compliance

and Ethics division, but improvements are needed in expertise and time devoted to risk

management.

The CRO division has been instrumental in improving business unit controls and

standards, and introducing discipline and formal limits and approval processes for

controlling risks and activities. Management and staff are technically strong and worked

with the business units to incorporate industry standards or best practices into their policies,

operations and risk management. The independence of the CRO division will remain

compromised until its work in building out the business units’ programs is complete and

it has access to reports that are produced independent from the business units.
Report to Congress • 2007 19

Audit 

During 2006, OFHEO did not rely on completed audits to support examination activities

but will evaluate the appropriateness of reliance on Internal Audit work in 2007. The

Audit department exhibited weakness during most of the year due to a program with

deficiencies or inefficiencies in policies, quality and numbers of management and staff

and its programs for managing the audits and the department’s administration.

However, Audit management’s significant efforts and continual improvements

throughout the year addressed the department’s deficiencies, culminating in a satisfactory

program at year-end 2006.

The Audit department exhibited deficiencies throughout its program that stemmed from

former management. The new Chief Audit Executive developed a program that

prioritized and corrected the issues. Major accomplishments include appropriate

independence and authority, satisfactory risk assessment methodology applied to a

sufficiently granular audit universe, meaningful communication and reports for the

Board and business unit management, the build out of the audit management team and

efforts that have significantly contributed to the improvement of business unit controls

and standards.

Operations 

Operational risk is high and controls are weak but improvements were made in 2006.

Poor or manually-intensive controls for many processes continue to represent moderate

to significant deficiencies throughout the Enterprise. Manual controls have reasonably

addressed several significant deficiencies but many cannot be fully corrected for years

until improved and integrated systems fully automate processes. 

Control issues noted during 2006 include:

• Controls in many areas are manually intensive and/or do not meet industry

standards primarily due to systems deficiencies. Many corrective actions provide

the best controls possible in the current systems environment, but cannot fully

mitigate the risks in reconciliations, report accuracy and segregation of duties.

Some mitigating controls have not been proven sustainable. Material weaknesses

exist in systems access controls.

• Management policies and written procedures used to communicate and

standardize controls are incomplete. Metrics for risk, performance and

operations are being developed but additional work is needed to define the

metrics before this project can be completed.

• Many reports are not meaningful due to deficiencies in accuracy, timeliness or

report content. Summary or executive management reports do not provide or

highlight all needed information. In addition, the Chief Risk Officer division

does not have access to reports produced independently of the business units.
20 Office of Federal Housing Enterprise Oversight

Management has devoted substantial effort to improve controls, but corrective programs

are in varying stages of planning and implementation. Management has established the

foundation for programs that have addressed several deficiencies and has plans to

improve operational processes and controls and Information Technology (IT) data and

systems over time. Significant progress has been made in initiatives needed to launch the

corrective programs in such areas as policies, staffing and organizational structure. In

addition, management has demonstrated its ability to plan, prioritize, monitor and

control projects. Deficiencies in vendor management were addressed with actions that

focused on both the specific issue and the root cause to address its impact on other

Enterprise activities. 

Major areas of improvement or accomplishments include:

• The restatement project was satisfactorily planned, implemented and controlled

using end-to-end work streams, which will help in completing the 2005 and

2006 financial statements. Many deficiencies in controls for Sarbanes-Oxley

requirements have been addressed. However, significant work remains to rework

restatement operations into catch-up and get-current operations, incorporate

accounting functions that comply with Generally Accepted Accounting Principles

(GAAP), and then integrate with existing production operations.

• By late 2006, operations were centralized in an independent business unit,

Technology, Data, and Operations (TDO). TDO has been reorganized and new

management is developing plans to address deficiencies in operations IT.

• Corporate policy for operations is complete, but management policies and

written procedures will require substantial effort to complete. 

• The CRO, Internal Audit, Chief Compliance Officer and the Sarbanes-Oxley

review function are building and coordinating independent oversight of

operational activities.

• Many issues in end-user computing were satisfactorily addressed and controlled.

• Controls in Treasury operations were improved to reasonably mitigate

deficiencies identified in wire transfer segregation of duties.

Information Technology

Most of the Enterprise’s back-end and accounting applications are aging platforms and

legacy business applications. That has significantly contributed to an ineffective internal

control environment. The systems are able to provide stable performance for traditional

loan product transactions, but this is due to the significant level of support provided by

experienced teams that can address production challenges. Systems limitations have

contributed to the inability to establish segregation of duties controls that meet industry

standards and to deficiencies in conducting and controlling accounting and transaction

processing and reconciliation. Data repository and platform deficiencies impact the

ability to produce accurate and timely performance and risk information for internal use

and external disclosures. Significant work remains to integrate restatement, catch-up and
Report to Congress • 2007 21

get-current operations and GAAP-compliant accounting functions with current

production operations.

Resources remained strained throughout 2006 due to the cumulative effect of

maintaining normal business operations and improvements while also addressing

inconsistent data repositories, legacy platforms and applications that are unable to meet

changing business, market and regulatory requirements. As work on past financial

statements is completed, employees will devote more time to other critical assignments

and their regular jobs and consultants will be released. However, the plan to transfer

knowledge to employees as consultants leave is not complete. As management properly

continues to reduce administrative expenses, care should be taken to ensure adequate

resources are available to continue the improvements in this area.

Business continuity and crisis management are well controlled with recovery plans and

redundant data, systems and locations.

Management’s efforts have improved but not fully addressed deficiencies, and

programs are in varying stages of improvement:

• By late 2006, the management of the Enterprise’s technology and business

operations was centralized in an independent business unit. TDO, this new

business unit, has been reorganized and has new management. 

• TDO has developed comprehensive plans to address or mitigate control

deficiencies and data quality, but many aspects of these plans have not been

finalized or fully implemented. New TDO management is reviewing plans for

integrating data management requirements with data center architecture plans.

Full implementation of the plans will take years.

• All data used in the restatement were scrubbed for quality, but not all data used

within Fannie Mae have been scrubbed. Unscrubbed data are used internally in

some areas such as interest-rate risk measurement, creating some level of

inaccuracy in model results. Management expects data used for financial

reporting will be made accurate as financial statements are timely filed. Other

data will take more than one year to correct.

• Aggressive but achievable plans for many IT projects were executed primarily by

contractors that doubled the IT staff. Deficiencies in contractor selection and

management led to inefficiencies and adverse events. Management began

improving the process after these events. 

• Projects to develop systems for Servicer and Investor Reporting (SIR), Federal

Reserve Daylight Overdraft requirements and the segregation of funds used to

make payments on debt and MBS were well planned, appropriately integrating IT

and business unit interests. However, the SIR project suffered several delays due

to restatement staffing requirements.
22 Office of Federal Housing Enterprise Oversight

In late 2006, management initiated a stronger program to address its data

issues and revise the plan to evaluate and improve IT throughout the

Enterprise. Management expects major progress in improving both

data and IT during 2007.

Compliance 

The new Compliance and Ethics division made substantial

progress in building its organizational structure and initiating

programs to meet its function. However, significant work remains

in completing its projects and coordinating an efficient program with

the business units. Major accomplishments include: coordinating with

the Board and management compliance committees; completing the

employee code of conduct; coordinating Consent Order compliance; and

making substantial progress in formalizing delegations of authority, standardizing

policies and procedures, establishing a centralized policy repository and improving

regulatory protocol with OFHEO.

Accounting

Management has completed an evaluation of the Enterprise’s accounting policies, and

has provided OFHEO with some of the documents required to comply with OFHEO’s

accounting guidance. However, significant risks remain in that Fannie Mae is currently

not producing timely quarterly and annual financial reports. The current financial

reporting environment has proven stable enough to produce financial statements related

to the restatement, but the Enterprise is not currently under the tight reporting

timeframes that would be required of a timely filer and therefore it remains to be seen if

the processes it is developing are robust enough to handle the task.

Fannie Mae made progress in 2006 toward returning to timely financial reporting by

completing the restatement of 2002, 2003 and select 2004 information. The Deloitte &

Touche report accompanying the restatement disclaimed an opinion on management’s

assessment of the effectiveness of the company’s internal control over financial reporting

as of December 31, 2004, because of a scope limitation. The Enterprise’s external

auditor’s report also expressed an adverse opinion on the effectiveness of the Enterprise’s

internal control over financial reporting as of December 31, 2004, because of material

weaknesses and the effects of a scope limitation. Deloitte & Touche issued an

unqualified opinion on Fannie Mae’s 2004 financial statement.

The Enterprise has begun effecting change in its control environment, which is the

foundation for all other components of internal control. However, a significant number

of control deficiencies still remain. Given the control deficiencies that are applicable to

the financial statements, remediation efforts remain a critical concern. The Enterprise

has made significant progress on the implementation of Section 404 of the SarbanesOxley Act of 2002 (SOX); however, the Enterprise’s SOX remediation is still in progress.

The Enterprise is making significant progress toward closing its pervasive high- and

medium-ranked 2005 deficiencies; nevertheless, remediation of some control deficiencies

remains incomplete. 

...management initiated a

stronger program to address its

data issues and revise the plan to

evaluate and improve IT

throughout the Enterprise. 
Report to Congress • 2007 23

Model Risk 

The significant shift in business unit and Chief Risk Officer (CRO) resources to the

restatement has appropriately focused efforts on developing and validating financial

reporting models, which represent many of the Enterprise’s highest-risk models.

However, this shift caused significant delays in developing, implementing and/or

validating other models that represent high to moderate risk. Validation work has been

expedited with an incomplete CRO staff coupled with the use of consultants.

Management plans to transition model development staff from restatement and catch-up

efforts as their work is completed, which should allow the results of their work on current

production models to be in effect by late 2007. However, the results from several models

cannot achieve the highest degree of accuracy until TDO addresses the Enterprise’s data

quality issues.

Significant progress has been made toward the development of a revised model risk

management program. The program design is satisfactory, but work remains in

implementing a fully functional program. Organizational structure and processes

redesigned include model development, operation, independent validation,

documentation and other controls. Corporate policies are satisfactory and written

procedures are incomplete but in progress. The model inventory is complete, and

progress was made in independently validating key models and some types of

documentation. Program implementation has been slowed by restatement and catch-up

efforts and the need for additional qualified developers in the Business Analytics and

Decisions department.

Asset Quality and Credit Risk Management 

The overall asset quality is strong with all loan and security portfolios exhibiting

favorable quality and performance throughout 2006. Credit risk increased slightly from

growth in sub-prime and other non-traditional products, but currently represents a low

impact to earnings and capital. Credit risk from sub-prime and non-traditional loans,

and securities collateralized by them is maintained at low levels through underwriting

standards, credit enhancements and/or position limits. Counterparty credit risk

represents significant exposure for the Enterprise. 

Credit risk management has improved, but significant deficiencies centered in Housing

and Community Development (HCD) and counterparty credit risk management

continue to impede its effectiveness. The business units expended substantial effort in

correcting deficiencies during 2006, but progress varied significantly among projects and

business units. Many of HCD’s projects are in their initial stages. Data and systems

issues continue to adversely impact report quality in nearly all areas of credit risk. HCD’s

Risk Office, with oversight from the CRO division, was a key driver in correcting many

issues in risk management, with the CRO helping to compensate for insufficient levels of

risk management personnel in the business unit. Anti-fraud detection methodologies

were improved for both single- and multifamily loans.
24 Office of Federal Housing Enterprise Oversight

Single-Family Business

Asset quality is strong due to a book of business that is mostly comprised of traditional

mortgage products. Delinquencies remain low and manageable, with the serious

delinquency rate at about 0.61 percent of the book and losses at about 0.016 percent.

Losses due to Hurricane Katrina were low and less than originally estimated. Higher-risk

products such as interest-only, sub-prime, Alt-A and negative amortization loans are

growing, but are currently about 20 percent of the book of business. New initiatives

target product growth in some higher-risk products. 

Deficiencies remain in policies, staffing and report quality. Many of the policies and

written procedures are outdated or incomplete. Additional staff is needed in risk

management and some business units, with the deficiency most acute in Single-Family

Credit (SFC), which includes the management of counterparties for single-family loans.

Systems permit adequate service to clients for traditional loan products, but their

deficiencies impact the Enterprise’s ability to quickly introduce new products or

enhancements. In addition, data and systems deficiencies continue to impact report

design, accuracy and functionality. Delegations of authority were approved at higher

management levels, but must be completed for management at lower levels. 

SFC made progress in addressing the large number of operational, control and risk

management deficiencies. In addition, progress has been made in codifying and

implementing policies and written procedures. Business processes were significantly

improved in the National Underwriting Center and the National Business Center. Loss

management at the National Servicing Organization is now satisfactory.

Management completed or significantly improved several functions near the end of

2006. It will require time to determine the effectiveness of the changes. Executive

management made progress in addressing issues in accountability and authority. The

credit policy and limits for SFC and counterparty were completed at year-end 2006, and

the business centers are in the process of completing policies to help standardize their

practices. Management is re-engineering the credit-risk management framework to build

out processes and formalize authorities. Issues in report accuracy, content and format are

being evaluated by SFC. Staff numbers and expertise were improved in SFC, but

vacancies remain. The quality assurance function for Product Acquisition Strategy and

Support has nearly completed process flows and document procedures for the lender and

investor channels. The loan loss reserve methodology used for all of Fannie Mae’s

mortgage products is reasonable. 

Housing & Community Development (HCD) – Multifamily Business

The multifamily portfolio’s problem loans had a low impact on earnings during 2006

with serious delinquencies at 0.08 percent of the total portfolio and losses at 0.00006

percent. Losses were unusually low due to higher than expected sale prices of Other Real

Estate Owned (REO) properties, workouts in the Gulf Coast hurricane-affected areas and

low loss severity levels on defaulted loans.
Report to Congress • 2007 25

HCD exhibits numerous deficiencies in controls, reports, policies and written procedures

and staff numbers and expertise. Data and systems issues coupled with a low degree of

automation adversely impact the efficiency of operations and the accuracy, completeness

and timeliness of risk management reports, compromising the ability to manage risks

and make business decisions. These deficiencies were material in the Acquisitions,

Development and Construction (ADC) program, and the program was closed until

program deficiencies are corrected. Staff vacancies remain throughout HCD and are

primarily in risk management.

HCD management has developed a remediation plan and has made progress in

correcting several of the division’s deficiencies, but many projects are in their initial stages

of correction and full implementation of the new program will take two to three years.

The HCD risk management team, with oversight from the CRO division, has been taking

steps that appear likely to ensure HCD’s improvements will meet industry standards.

HCD’s efforts have focused on a complete revision of policies and the organizational

structure, and the build-out of the operations and the credit-risk management functions.

The entire portfolio was risk-rated by year-end 2005. The Loss Mitigation unit provides

improved and expanded coverage for problem assets. The HCD quality-control process

was improved and expanded to provide better coverage of HCD loans. Vacancies are

being filled, but external factors have slowed progress. 

Liquidity and Retained Mortgage Portfolios

The liquidity investment portfolio exhibited high credit quality. In the retained portfolio,

asset quality is strong, with product losses controlled by collateral, insurance and/or first

loss coverage. Private-label securities are restricted to AAA-rated product until program

deficiencies are addressed. Traditional single-family, fixed-rate mortgages and securities

collateralized by those mortgages represent about 48 percent of the portfolio and all

fixed-rate product represents about 70 percent of the retained portfolio. Adjustable-rate

mortgages (ARMs), floaters, hybrids and multifamily product are about 30 percent of the

retained portfolio. Private-label securities make up about 10 percent of the portfolio and

are mostly comprised of floating-rate product. These categories overlap.

Systems deficiencies affect analysis and proactive management of the portfolio by

preventing the generation of reports with sufficient granularity for the product subsectors of the portfolio. In addition, accounting and operational constraints for whole

loans impedes active management planned in the future and may adversely impact

return optimization. Management of private-label securities has improved with revised

policies and timely watchlist reports. However, a stronger program is needed before

private-label securities rated lower than AAA are purchased. The CRO is a key driver in

incorporating industry standards and the use of benchmarks in portfolio management.
26 Office of Federal Housing Enterprise Oversight

Enterprise Counterparties

Risk from counterparties and concentrations in similar types of counterparties represent a

significant risk for the Enterprise. The top nine mortgage servicers process 71 percent of

the servicing book. The Enterprise’s single largest servicing counterparty is Countrywide,

which services 21 percent of the $2.1 trillion servicing book and 20 percent of the

$90 billion private-label securities portfolio. Mortgage insurers also

represent a significant level of counterparty risk for the Enterprise, with

the top seven companies providing insurance for 17 percent of the

$2.5 trillion book of business.

The business units use basic practices in several aspects of risk

management for individual counterparties. Counterparties are

evaluated with credit-risk ratings, financial statement analysis

and/or on-site visits. Risks from servicers are further managed with

on-site reviews of operations and contract compliance as well as

monitoring and coordination to address problem loans. Policies

provide limits for individual counterparties based on a percentage of

capital. 

The program to identify, aggregate and communicate counterparty risk is

ineffective, but deficiencies are being addressed by an effort led by the CRO. 

Program deficiencies include:

• Exposure to individual counterparties is not properly aggregated, creating errors

of varying degrees of magnitude. Limits adequately controlled the risk that was

actually measured for individual counterparties, however, 15 types of

counterparty risk were not captured in the measurement.

• The Risknet system requires manual input, increasing the potential for errors.

This proprietary system should be replaced with a vendor system that can provide

cost-effective functionality.

• Deficient Board reports do not provide complete or accurate information on

aggregated exposure to counterparties.

Poor accountability and communication has contributed to the inconsistent escalation of

problems in counterparty risk and other credit risk issues. Management’s efforts

culminated in formalized delegations of authority and better communication by year-end

2006.

The CRO and business unit risk managers are correcting program deficiencies. The CRO

and the newly created Potential Future Exposure Committee have identified previously

uncaptured sources of counterparty risk. Improved exposure identification and

measurement is underway, and the existing methodology is in use until better methods

are established. The CRO began to improve the reports and aggregate and monitor the

risks in late 2006.

The CRO and business 

unit risk managers 

are correcting 

program deficiencies.
Report to Congress • 2007 27

Liquidity

Liquidity risk is low due to ample asset liquidity relative to net cash needs and

management that is effective but requires improvement in minor to moderate issues with

limits and operations. Portfolio securities provide strong coverage of Fannie Mae’s net

cash needs beyond 90 days, with the calculation using conservative values for the

portfolio securities. Management has consistently maintained the liquidity investment

portfolio in excess of 5 percent of portfolio assets. Asset liquidity places a high reliance

on repurchase agreements (repo).

Board policies provide guidance for responsibilities, short-term funding, liquidity

investment portfolio credit quality and the use of a severe scenario which assumes no

new debt issuance for 90 days. Board and management policies were revised during

2006 to address requirements detailed in examinations and the September 2005

Agreement. The revised policies are expected to be formally approved in 2007. 

Processes and controls for obtaining asset liquidity are satisfactory but inefficient and

increase the potential for errors. Cash management processes are satisfactory due to

recently improved automation of cash forecasting which provides real-time monitoring

of receipts and disbursements. However, the new repo funding process is not fully

automated or intuitive, and the old system is proven but is only useful for moving large

blocks of collateral during stress events. Management implemented processes during the

year which largely mitigated the repo operational impediments. Manual controls for

wire transfer are adequate, but won’t meet industry standards until operations are fully

automated. Liquidity operations reorganization and centralization into the independent

operations business line was completed near year-end 2006. 

Liquidity is satisfactorily managed, with liquidity issues appropriately escalated through

key management, the CRO and committees, based on set triggers. Reports used in the

day-to-day management of liquidity are satisfactory and include cash flow forecasts,

assets available for repo or sale and funding maturity concentrations. Although

compliance with the conservative 90-day net funding coverage is analyzed and reported,

the analysis could be strengthened with additional, more realistic scenarios. 

Sensitivity to Market Risk

Management adequately controls interest rate risk with a minimally satisfactory risk

management program that bases decisions on analytical tools and some assumptions

and data that require improvement. Operations are generally satisfactory but are

inefficient in several areas, and manual controls reduce many key risks until processes are

more fully automated. The Board policy satisfactorily addresses responsibilities and

provides a limit for interest rate risk. Although risk is managed and reported, the limit

structure should be expanded to more formally control and communicate risk tolerance

levels. Limits are expected to be fully addressed during 2007, but several issues remain in

systems and data and will require up to one year for correction.
28 Office of Federal Housing Enterprise Oversight

Risk management practices control interest rate risk with reasonable accuracy. Data

and/or systems deficiencies required manually intensive and inefficient generation of

information that introduced some level of uncertainty in interest-rate risk measurement.

During 2006, the completed first phase of the Portfolio Data System Project improved

risk measurement for debt, automated daily risk reporting and provided an audit trail for

assumptions. The Project’s targeted completion by year-end 2007 is expected to address

many of the data and systems issues and improve risk measurement. However, risk

measurement will not achieve the highest degree of accuracy until data quality issues are

resolved.

Significant deficiencies in several fundamental controls for Capital Markets operations

are being or have recently been corrected or mitigated. However, many deficiencies

stemming from systems limitations will require roughly one year to correct due to their

prioritization with the restatement and other significant projects and integration with

other systems. Operations management has reduced the risk in many critical control

deficiencies with mitigating processes. The revision or creation of management policy

and written procedures and the creation and retention of documentation should be

completed during 2007. 

Management continues a program of effective risk management practices and

communication of interest rate risk within Capital Markets. Risk is controlled and

communicated through daily/weekly meetings of management and risk committees and

Board and management reports that provide sufficient information to understand the

risk profile. Additional interest-rate risk limits are expected to be added to policies in

2007. 

The portfolios and related funding unhedged by derivatives represent a high level of risk.

The quantity of risk for the portfolio hedged with derivatives is moderate due to the level

of exposure from a significant move in longer-term interest rates. Management

appropriately measures the interest rate risk from the retained portfolio and funding, but

does not also measure interest rate risk for the entire Enterprise, which would allow

management and the Board to understand the full impact of interest rate risk on

economic earnings and capital. The current measurement covers the retained portfolio

and related funding, but does not include cash flows from the guarantee fee business.

Earnings

Financial information for 2005 and 2006 is unaudited, preliminary and includes

estimates subject to revision upon completion and audit of the Enterprise’s financial

statements for those years. Fannie Mae’s most recent publicly-disclosed financial

statements are for the year ended December 31, 2004.

Earnings for 2006 were fair. Fannie Mae’s core business continues to provide sources of

significant recurring earnings. Earnings have been volatile, primarily as a result of markto-market changes in the value of the derivatives portfolio. Fannie Mae’s earnings have

been impacted negatively by limitation of the growth of the retained mortgage portfolio;
Report to Congress • 2007 29

a lower net interest margin; and higher administrative expenses as a result of restatement

costs, regulatory compliance efforts and higher staff levels and compensation. Growth in

the guarantee business partially offset these factors, supported by an annual increase in

outstanding MBS of 11.4 percent.

Capital

OFHEO classified Fannie Mae as adequately capitalized for the four quarters of 2006.

OFHEO formally classifies capital adequacy quarterly in accordance with Subtitle B of the

Federal Housing Enterprises Financial Safety and Soundness Act of 1992 and with the

requirements set forth in OFHEO’s minimum and risk-based capital regulations. The

Enterprise is required by federal statute to meet both minimum and risk-based capital

standards to be classified as adequately capitalized. The Enterprise is adequately

capitalized and maintains satisfactory cushions above statutory, regulatory and OFHEOdirected capital levels. OFHEO continues to evaluate and monitor the capital surplus, in

part due to the evidence of significant operational risk and control weaknesses cited

throughout this report. Capital planning processes are satisfactory and assess risks

throughout the company, although methods of measurement and analysis can be

enhanced.

Fannie Mae remains subject to the requirements imposed by the Consent Order dated

May 23, 2006 and the Capital Restoration Plan approved February 17, 2005. The Capital

Restoration Plan required Fannie Mae to achieve a 30 percent capital surplus over the

minimum capital requirement by September 30, 2005 (OFHEO-directed capital

requirement). Fannie Mae is required to maintain a capital surplus above the OFHEOdirected requirement on an ongoing basis. Fannie Mae met the initial September 30,

2005 requirement of 30 percent surplus and it has continued to maintain the surplus

throughout 2006. The Consent Order also directed Fannie Mae to limit growth of its

portfolio mortgage assets. Fannie Mae has complied with the growth restrictions and

appropriately incorporated these restrictions into its capital plan. During 2006, OFHEO

emphasized the importance of maintaining the capital surplus in excess of the OFHEOdirected requirement given the lack of timely financial filing by Fannie Mae and the

continued operational weaknesses. OFHEO also emphasized the importance of tying

future common stock dividend increases with significant achievement of milestones to

correct identified weaknesses, including becoming a timely financial statement filer.

On March 30, 2007, OFHEO announced that it had classified Fannie Mae as adequately

capitalized as of December 31, 2006. As of that date, the core capital of the Enterprise

exceeded its OFHEO-directed capital requirement by $4.163 billion, representing a 10.9

percent surplus over the OFHEO-directed capital requirement. The December 31, 2006

capital results incorporate adjustments for the accounting impacts identified in the

company’s 2004 SEC Form 10-K, which was filed with the Securities and Exchange

Commission on December 6, 2006. OFHEO classified Fannie Mae as adequately

capitalized for the preceding three quarters of 2006. Fannie Mae’s capital plan describes
30 Office of Federal Housing Enterprise Oversight

how the Enterprise expects to maintain a surplus over the OFHEO-directed capital

requirement through a combination of controlled growth and earnings retention. 

During 2006, Fannie Mae continued to enhance and refine its capital planning processes

and produced an acceptable capital plan on a quarterly basis. However, OFHEO

communicated a need for enhancements to the capital plan and management initiated

action to incorporate those enhancements appropriately and in a timely manner.

Inconsistencies in the capital planning process were evident during 2006, highlighting

the need to ensure better coordination and communication of corporate capital actions.

Weekly management reports, which include current and projected capital trends and

actions, provide senior management and the Board with effective tools to manage the

capital position above OFHEO-directed requirements. Fannie Mae has conservatively

managed the capital cushion during the ongoing financial restatement process to better

ensure its ability to respond to unknown risks. 

OFHEO’s capital classification of Fannie Mae is based on Fannie Mae’s best estimate of

its financial condition, as certified and represented as true and correct to the best of

Fannie Mae management’s belief and knowledge. The December 31, 2006 capital

classification, even though it incorporates adjustments for the accounting impacts

identified in the 2004 10-K, remains subject to revision pending Fannie Mae’s

submission of audited 2006 financial statements and corresponding regulatory capital

reports. First, second and third quarter 2006 capital classifications also remain subject to

revision pending the submission of audited 2006 financial statements.

Mar-06 Jun-06 Sep-06 Dec-06

Core Capital 40.333 42.037 42.008 42.295

Statutory Capital Requirement 28.708 29.419 29.010 29.332

OFHEO-directed Capital Requirement 37.320 38.245 37.714 38.131

Surplus (based on OFHEO-directed Requirement) 3.013 3.792 4.294 4.163

Ratio to OFHEO-directed Capital Requirement 8.1% 9.9% 11.4% 10.9%

* Numbers may not add due to rounding

Table 4 - (Dollars in billions)*

Fannie Mae

Minimum Capital

Requirements,

2006
Report to Congress • 2007 31

Report of Annual Examination of 

Federal Home Loan Mortgage

Corporation / Freddie Mac

Examination Authority and Scope

Examination Authority and Reporting Convention

This Report of Examination contains the results and conclusions of OFHEO’s 2006

annual examination of the Federal Home Loan Mortgage Corporation (“Freddie Mac” or

the “Enterprise”) performed under section 1317(a) of the Federal Housing Enterprises

Financial Safety and Soundness Act of 1992 (12 USC § 4517(a)). The OFHEO annual

examination program assesses the Enterprise’s financial safety and soundness and overall

risk management practices. OFHEO currently utilizes a “CAMELSO” methodology

(Capital Adequacy, Asset Quality, Management, Earnings, Liquidity,

Sensitivity to Market Risk, and Operations), similar to that adopted by

the federal depository institution regulators, to report examination

results and conclusions to the Board of Directors and to Congress. 

2006 Examination Scope

OFHEO’s examination activities focused on: oversight provided by

the Board of Directors and senior management, enterprise risk

management activities, corporate governance functions, internal

controls, accounting practices, new product development, internal

audit and compliance with the requirements of the Consent Order the

Enterprise executed on December 9, 2003. OFHEO supervisory activities

also included reviews of asset quality, market and interest-rate risk

management practices, earnings performance, capital adequacy, information

technology and liquidity.

Examination Conclusions

The Enterprise remains a significant supervisory concern. While efforts toward

improvement are underway, senior management continues to revise plans and reengineer processes to strengthen internal controls and remediate six material weaknesses

and a number of significant deficiencies. Leadership from the Board and senior

management is challenged as they strive to reshape the corporate culture, publish

accurate and timely financial statements, implement long-term sustainable processes,

improve overall governance and risk management capabilities, enhance information

technology controls and stabilize the organizational structure. 

Freddie Mac 

remains a significant 

supervisory concern.
32 Office of Federal Housing Enterprise Oversight

Intensive efforts by the Board and management have been made to address internal

control weaknesses; however, several key initiatives to remediate the control environment

have not progressed as planned. Progress throughout 2006 was adversely impacted by

the volume and complexity of issues, less than effective project management capabilities,

and inconsistent execution in key segments of the comprehensive plan. Long-term

resolution of identified issues will continue to require substantial efforts on the part of

Enterprise personnel. The Board and management must continue to focus on needed

cultural and organizational improvements identified in the internally-prepared, rootcause analysis to ensure historically weak operating practices are strengthened.

Improvements to systems capabilities, information processing controls and the successful

implementation of re-engineered business processes will be necessary to restore the

overall control environment to a satisfactory condition. 

The Enterprise has: (1) a qualified and active Board of Directors; (2) a senior

management team committed to resolving internal controls weaknesses and returning to

timely financial reporting; (3) adequate capital; (4) strong asset quality and credit risk

management; (5) effective management of interest rate and liquidity risks; and (6)

adequate earnings. During 2006, efforts to improve the risk management capabilities

across the Enterprise commenced, and the new governance structure should provide the

ability to better manage risk across the organization. Earnings volatility continues and

results primarily from mark-to-market gains/losses on the guarantee asset and the

elimination of hedge accounting for financial derivatives. Longer-term earnings

prospects may be adversely impacted by declining net interest margins and competitive

pressures. Structural and economic issues in the mortgage markets heighten the

importance of continuously refining economic capital measures to better quantify risks

and assess financial performance returns. 

Matters Requiring Board Attention

Key matters highlighted in this report requiring strong Board oversight are:

• Internal Controls. The Board should continue to oversee management’s progress

toward remediating widespread internal control weaknesses to enable the release

of accurate and timely financial statements, permit a return to controls-based

auditing and build sustainable internal control governance processes. 

• Information Technology. The Board should ensure that technology-related issues

identified in this report are addressed. Key challenges include gaining a deeper

understanding of the key application controls, improving general controls,

implementing a systems development process, improving contingency planning

and developing a sustainable data and architecture strategy. 

• Credit Risk Management. Continued close monitoring of credit portfolio trends

is necessary as higher volumes of non-traditional credit products were purchased

during 2006. Although these credit products are within current limits, these

products exhibit higher than historical credit risk. 
Report to Congress • 2007 33

• Corporate-wide Change Management. The Board should continue to monitor

management’s efforts to: improve capabilities to effectively manage enterprisewide change programs, gain a more in-depth understanding of the complexity of

and resolution strategies for control weaknesses and support an environment

that values strong internal controls and risk management functions. 

• Risk Oversight Functions. The Enterprise Risk Management functions and the

Internal Audit department made significant strides to strengthen their respective

units and define appropriate governance structures. Continued Board support

during the ongoing evolution of these functions and the implementation of the

risk control self-assessment process will be necessary. 

Board and Management Supervision

Board of Directors

The Board actively oversees the affairs of the Enterprise. Board and committee materials

are satisfactory. All Board committee charters were reviewed and amended during the

year, primarily to clarify and enhance risk management and technology oversight

responsibilities. Corporate and divisional policies and procedures regarding financial

reporting responsibilities are in place and a quality assurance review for financial

information presented to the Board was implemented in 2006. The Board must

continue to provide the necessary oversight to ensure that the remediation of the internal

control weaknesses and cultural transformation initiatives are effective and that strategic

priorities are clearly defined and articulated.

The number of Board and committee meetings held during 2006 met or exceeded the

New York Stock Exchange (NYSE) listing standards, OFHEO’s corporate governance

regulations and Freddie Mac’s Corporate Governance Guidelines. All but two of Freddie

Mac’s directors are independent, and all members of the Audit, Governance, and

Compensation committees are independent as required for listed companies. Term

limits and age restrictions are in effect. Of the 13 Directors currently serving, one board

member exceeded those limits; however, this member was granted a temporary extension

and will leave the Board during 2007. OFHEO will continue to monitor the Enterprise’s

transition plans to separate the positions of Chairman and Chief Executive Officer.

Management and Human Resources

Over the past three years, virtually the entire executive management team has been

replaced. This level of change was appropriate to improve corporate governance, replace

underperforming employees, strengthen risk oversight functions and foster a culture of

accountability. During 2006, the new executive management team made strides to

improve communication, instill a sense of accountability and focus efforts on critical

issues facing the Enterprise. Despite these efforts, the internally-prepared, root-cause

analysis and the conclusions reached during OFHEO’s supervisory activities indicate

further efforts are required. 
34 Office of Federal Housing Enterprise Oversight

Management will be challenged to address:

• Improving capabilities to effectively manage enterprise-wide change programs;

• Gaining a more in-depth understanding of the complexity of and resolution

strategies for control weaknesses;

• Supporting an environment that values strong internal controls and risk

management functions; and 

• Addressing employee workloads and turnover of critical staff. 

Progress in the human capital field is evidenced by the filling of all executive

management positions, a reduced corporate-wide, voluntary turnover rate and an

improved capability to attract external hires. The Enterprise continues to face shortages

in staff expertise and efforts are underway to further develop leadership competencies at

critical positions. Within certain segments of the Enterprise, limited numbers of subject

matter experts are on hand to effectively cover simultaneous high-priority initiatives and

baseline projects. 

Enterprise Risk Management

The Enterprise Risk Management (ERM) function was substantially enhanced during

2006. The newly implemented governance structure should provide the necessary

foundation to ensure the timely identification and communication of current and

emerging risks across the Enterprise. All employees currently have a risk management

component in their employee performance evaluations and management plans to

provide training to foster the risk management culture across the Enterprise. Efforts to

more clearly define roles and responsibilities, refine policies and establish appropriate

risk limits are also underway. 

During 2007, ERM plans to further strengthen the capability of the group to

independently produce risk metrics, assist in the development and implementation of an

economic capital framework to consistently measure risk and performance and further

aggregate financial and non-financial risks. Concerted efforts are also planned to better

integrate risk management activities with the planning process, implement the

redesigned risk controls, continue a self-assessment process, collect operational loss data,

and build out the root-cause analysis capabilities. 

Audit

During 2006, OFHEO did not rely on the work of internal audit. Significant progress

was made during 2006 to address prior recommendations and conduct preimplementation reviews of new systems initiatives. During 2006, internal audit

management continued progress toward developing a full cycle audit plan, completing

and implementing scheduled enhancements in the audit methodology, augmenting staff

and further developing a quality assurance program.
Report to Congress • 2007 35

The Audit Committee actively oversees the internal audit function. The Audit Committee

met 11 times during 2006. The General Auditor has sufficient interaction with the Audit

Committee on a regular basis including periodic executive sessions during Audit

Committee meetings. The content of reports prepared by the General Auditor for Audit

Committee meetings is sufficient.

The General Auditor is qualified and independent. Since the General Auditor’s arrival in

April 2006, improvement opportunities for internal audit have been identified and

enhancements to the internal audit function have started to materialize. The General

Auditor appears to have the necessary skills and leadership abilities to effect further

needed improvements.

Operations 

Operational risk is high and continues to be a primary supervisory concern. Throughout

2006, Freddie Mac was not able to produce accurate and timely quarterly financial

statements. All internal control-related material weaknesses and significant deficiencies

identified during 2005 or prior years’ annual audits remain outstanding. The internal

control structure remains fragmented, incomplete, and in some cases, undocumented. In

addition, current systems limitations did not permit an effective and reliable quarterly

close process. Remediation of control weaknesses including independent testing is

required (controls must be complete and documented) before management and OFHEO

can opine on the effectiveness of the control structure. 

The Comprehensive Plan (the primary project to return the company to timely financial

reporting, improve the control environment and permit reliance on internal controls over

financial reporting by the external auditor) suffered during 2006 from

ineffective planning and inconsistent execution. The original plan was

submitted in April 2006 and continues to be revised. Aggressive time

schedules, lack of independent quality assurance, inadequate

management reporting, cultural issues of responsibility and

accountability and project management deficiencies contributed to

insufficient progress toward achieving the Plan’s overall objectives.

Although management and staff have worked hard to mitigate and

remediate known control weaknesses, as of December 31, 2006, no

remediation activity has been tested and verified to be effective. 

The Comprehensive Plan includes: remediating known control

weaknesses, the end-to-end business process review, close process

improvements and information technology general control remediation.

Since control weaknesses are widespread and pervasive across the Enterprise,

identifying control gaps and remediating most of the known material weaknesses are

linked to successful completion of the end-to-end business process review. At the same

time, process improvements are needed to achieve a timely, sustainable financial close

process compliant with regulatory requirements. In addition, Information Technology

General Controls (ITGC) must be operating effectively before management can rely on

Operational risk 

is high and continues 

to be a primary 

supervisory concern.
36 Office of Federal Housing Enterprise Oversight

automated information without time-consuming substantive review procedures and

manual processes. The Comprehensive Plan requires continued Board and executive

management involvement to ensure activities are properly sequenced, achieve plan

objectives and resolve competition for resources, especially subject matter experts.

During 2006, management and staff completed formal root-cause analyses over eight

events that contributed to delays producing the 2005 financial statements. They also

began root-cause analyses over project management deficiencies in 2006. These exercises

are important aids to understanding cultural issues, control deficiencies and business

process failures that can help to limit the risk of recurrence. Management approved

permanent staffing for a root-cause/problem analysis function in Operational Risk

Oversight to provide an ongoing analysis capability.

Although considerable efforts are under way to remedy weaknesses in internal controls

related to financial reporting, additional control weaknesses may exist elsewhere in the

Enterprise. Plans to identify, assess and strengthen non-financial controls are

commencing. These controls may include, but are not limited to, business continuity

planning, business and risk performance measures and operating effectiveness metrics. 

Information Technology

Successful resolution of a number of the material weaknesses and significant deficiencies

depend on information technology remediation efforts. Weaknesses continue in

information technology systems development and delivery, information security, enduser computing systems, data quality, and change management. 

The establishment of reliable Information Technology General Controls (ITGC) is

necessary to establish the overall control environment. Limited progress in documenting

and strengthening ITGC occurred during 2006. Late in 2006, management revised the

plan to fully document and commence remediation of these controls. The ITGC project

intends to document ITGC under the Control Objectives for Information and related

Technology (COBIT) framework, verify effectiveness of controls in place and remediate

weaknesses. Under the plan, ITGC control gaps will be identified in 2007 with

remediation extending into 2008.

The lack of an effective systems development lifecycle methodology contributed to delays

with the implementation of strategic technology upgrades and replacements.

Throughout 2006, issues surfaced related to implementation of automation projects

designed to replace legacy technology systems, improve controls and allow for shortened

schedules for the monthly financial close processes. Interim measures to improve systems

implementations include the establishment of the Targeted Quality Control function in

December 2006. Management plans to adopt a systems development life-cycle

methodology during 2007. 

Weaknesses in core systems capabilities and slow replacement of legacy systems have

required a heavy reliance on end-user computing (EUC), spreadsheets and manual

processes in the financial close processes. During 2006, progress was made to inventory

and implement EUC’s controls; however, final completion of an effective EUC control

framework was delayed and is now anticipated to be completed in 2007. 
Report to Congress • 2007 37

Overall data quality remains a concern. Management has begun developing data quality

standards; however, some of the business plans are under development and

more detailed plans suggest that efforts to bring the Enterprise into

compliance with these plans are resource intensive and may not be

scalable for all areas. Also, existing point-to-point systems

architecture (existing systems and data infrastructure) compounds

the problem related to improving data quality. Development of a

long-term plan for systems architecture and improved systems

development methodology controls would strengthen the

remediation of data quality issues. 

The current business continuity planning needs strengthening.

Management has made progress with system recovery capabilities for

higher-risk functions through the outsourcing of the settlement and

custody functions and the establishment of an out-of-region wire transfer

room.

Accounting

Management is nearing completion of its effort to codify and update its significant

accounting policies. However, significant work remains to develop complete accounting

policies and procedures. Completion of this project will be a necessary step to

demonstrate that approved accounting policies are incorporated into automated systems

and operational procedures. OFHEO continues to closely monitor the resolution of a

number of simplifying accounting assumptions that are used as part of the financial

reporting process. Recruiting efforts continue as the Enterprise seeks to attract additional

qualified accounting expertise. 

The Enterprise still faces the challenge of becoming a registrant with the Securities

and Exchange Commission (SEC). Currently, the Enterprise is not subject to

the reporting schedules that would be expected of a timely filer, and

therefore management must ensure that processes being developed are

robust enough to handle this task. 

In June 2006, the Enterprise issued its Information Statement and

Annual Report to Stockholders for the Fiscal Year ended December

31, 2005. Based on the continued existence of material

weaknesses on December 31, 2005, the Enterprise concluded that

its internal controls over financial reporting were not effective on

December 31, 2005. The external auditors, PricewaterhouseCoopers

LLP, did not report on management’s assessment of the effectiveness of

the Enterprise’s internal control over financial reporting as of

December 31, 2005, or the effectiveness of the company’s internal controls

over financial reporting as of December 31, 2005. 

Freddie Mac reported its 2006 financial results on March 23, 2007. On that date it

published its Annual Report with audited financial statements. 

Freddie Mac still 

faces the challenge of 

becoming a registrant with the

Securities and Exchange

Commission.

Freddie Mac reported its 

2006 financial results 

on March 23, 2007.
38 Office of Federal Housing Enterprise Oversight

Model Risk

Model risk governance has improved. Further efforts are necessary to upgrade governance

practices for model development and enhance the quality of independent model risk

oversight.

In 2006, the Enterprise approved new model-related policies that strengthened model

risk oversight. A number of significant models implemented over the past decade were

not developed under a consistent and controlled development process. Management’s

progress in harmonizing and implementing procedures and practices with the new

policies should improve the model development process throughout the Enterprise. 

Independent model risk oversight is provided through the Modeling & Methods (M&M)

group. M&M’s authorities and scope of responsibility are now articulated in a written

charter and policies. M&M is in the process of developing standards to achieve

compliance with the newly adopted charter and policies. Once implemented, this group

should provide meaningful independent evaluations of the quality of the business units’

model development practices, the degree of adherence to corporate policy and

professional standards. Efforts have been strengthened to ensure management resolves

M&M findings in a timely and complete manner. M&M must continue to assess the

sufficiency of staffing and other resources to fulfill its new, more broadly defined

responsibilities. Management has exhibited the willingness and has taken steps to

address the shortcomings identified and to enhance independent model risk oversight. 

Asset Quality and Credit Risk Management

The Enterprise’s overall asset quality is strong. All portfolios currently exhibit favorable

quality and performance metrics. The Enterprise prudently manages exposures to

significant counterparties (e.g., seller/servicers, mortgage insurers and derivatives

counterparties) and monitors top seller/servicer and mortgage insurer concentrations. 

There are no immediate signs of significant deterioration in credit performance trends;

however, expected default costs are increasing. Over the past several years, significant

shifts in the mix of mortgage originations and the composition of the retained portfolio

have occurred as the market continues to produce mortgages with higher-risk profiles. As

the portfolio seasons, adverse changes in house price appreciation, mortgage rates or

unemployment levels could negatively impact future performance. 

During 2006, the governance structure improved significantly with the creation of the

Governance, Nominating and Risk Oversight Committee, the Enterprise Risk

Management Committee and the Credit Risk Subcommittee along with Board-approved

credit policy and limits, and the delineation of roles, responsibilities and authorities for

Credit Risk Oversight and for business line functions. 

Underwriting standards and credit administration practices are prudent, although

opportunities for improvement were identified. Line management and Enterprise Risk

Management are in the process of addressing recommendations related to the
Report to Congress • 2007 39

enhancement of business line credit policy and procedure development and

implementation, data collection and reporting improvements, staffing issues and

segregation of duties. 

The Enterprise made concerted efforts to comply with OFHEO’s 2005 mortgage fraud

reporting regulation and related policy guidance. Recommendations for the Enterprise to

augment several processes contained in the policy guidance include reporting of loanlevel repurchases, prompt submission of the Mortgage Fraud Information Notice

(MFIN), reporting of supplemental or corrected MFINs, and internal controls and

procedures. 

Single-Family Business

Management has expanded the Enterprise’s purchase and guarantee of higher-risk

mortgages. In order to increase market share, meet mission goals, stay competitive and

be responsive to sellers’ needs, the Enterprise has increased the use of credit policy

waivers and exceptions. Untested and alternative market products accounted for

approximately 24 percent of 2006 new purchases and currently comprise 11 percent of

the total single-family mortgage portfolio. Internal measures of credit quality reflect that

the quality of incremental new purchases declined in 2006 as evidenced by a rise in

expected default costs. 

Current portfolio performance metrics reflect a low level of serious delinquencies and

credit losses. Serious delinquencies remain low. The average mark-to-market loan-tovalue ratio is estimated at 57 percent. Net credit losses in 2006 totaled $203 million versus

$141 million in 2005. The largest segment of net credit losses is attributable to economic

conditions in the North Central region. Hurricane Katrina losses continue to be low.

The Enterprise is in the process of updating its single-family credit policy to reflect its

current credit risk appetite and corresponding strategies, and the Credit Risk Oversight

group has increased its attention to credit policy waivers and exceptions. 

Multifamily Business

The multifamily credit portfolio remains sound. With improvements in vacancy levels

and rent growth, the market was strong throughout 2006. The multifamily bondequivalent rating for 2005 and for September 2006 year-to-date purchases was A- versus a

2006 full-year target of BBB+. 

December 2006 delinquencies were up and were reported at 0.05 percent at the end of

2006 versus 0.00 percent at the end of 2005. The average mark-to-market debt-coverage

ratio was 1.62 versus 1.61 for 2005, and only 15.7 percent of the portfolio had a mark-tomarket debt coverage ratio less than 1.15 versus 16.1 percent of the portfolio for 2005.

December 2006 net credit losses totaled $3.7 million—0.67 basis points of the active

multifamily unpaid principal balance.
40 Office of Federal Housing Enterprise Oversight

Liquidity and Contingency Portfolios

At December 31, 2006, the liquidity and contingency portfolio contained assets with

credit-ratings of AAA (50 percent), AA (33 percent), and A (17 percent), exhibiting the

high credit quality necessary in a liquidity portfolio. Credit quality of marketable

securities in the liquidity and contingency portfolio remained consistently strong with

more than 99 percent of the asset-backed securities at AAA and less than 1 percent rated A.

Investment Portfolios

During 2006, the composition of the retained mortgage portfolio (excluding the liquidity

portfolio) was stable, with agency products representing approximately 65 percent total

unpaid principal balance and non-agency products representing 35 percent. Through

June, the unpaid principal balance of the agency securities portfolio grew by

approximately 2 percent and non-agency securities grew by approximately 4 percent.

This contrasts with 2005 when the non-agency securities portfolio grew by 39 percent for

the year. 

As of July 1, 2006 the Enterprise initiated a voluntary commitment to limit the growth of

the retained mortgage portfolio to 2 percent annually on the basis of Generally Accepted

Accounting Principles (GAAP). During the second half of 2006, the market tightened

and the Enterprise managed the retained mortgage portfolio to protect against the

possibility of market value gains that could result in GAAP growth in excess of the 2

percent annual limitation. The agency securities portfolios declined by approximately 6

percent and the non-agency securities portfolios declined by approximately 4.5 percent. 

During 2006, net purchases of non-agency floating-rate securities outweighed net purchases

of non-agency and agency fixed-rate and agency floating-rate securities. Non-agency

floating-rate securities experienced significantly faster prepayment speeds relative to other

securities. The Enterprise purchased higher volumes of non-agency floating-rate securities

because of their positive impact on affordable housing goals and the risk/return profile. 

As of September 30, 2006, roughly 99 percent of the mortgage asset-backed portfolio was

rated AAA, and 98 percent was internally rated as having either excellent or good

coverage for current delinquencies.

Enterprise Counterparties 

Credit Risk Oversight provides oversight of aggregate counterparty risks and exposures at

the Enterprise level for all counterparties and maintains a Counterparty Watch List. All

three business lines—Single-family, Multifamily and Investments and Capital Markets—

manage their counterparties with a particular focus on each business line’s top

counterparties. Single-family’s ten largest counterparties represent 69 percent of the

business’ total exposures. Multifamily’s ten top customers (seller/servicers) represent

approximately 69 percent of the business’ portfolio unpaid principal balance with the

top customer representing 19 percent of portfolio unpaid principal balance. The ten top

borrowers represent 14 percent of portfolio unpaid principal balance with the top

borrower representing 4 percent of portfolio unpaid principal balance. At the business
Report to Congress • 2007 41

level, Investments and Capital Markets represents roughly 81 percent of the Enterprise’s

counterparty exposures while Single-family represents 17 percent and Multifamily

represents 1 percent. For Investments and Capital Markets, fed funds represent the largest

counterparty exposure. 

Liquidity

Management adheres to sound practices for managing liquidity. The

Enterprise is not vulnerable to funding difficulties at this time, and

earnings and capital exposure from the liquidity risk profile is low.

The Enterprise has access to sufficient sources of funds to meet

present and anticipated liquidity needs.

Management is able to effectively forecast liquidity needs and

sources and to identify, measure, monitor and control the

Enterprise’s liquidity position. Management has enhanced liquidity

management practices during 2006 to better forecast short- and longterm liquidity needs. Liquidity management policies and procedures are

being revised to support the enhanced processes. A satisfactory liquidity

contingency plan is in place. Management has consistently maintained its liquidity and

contingency portfolio at a prudent level, consistent with policy and OFHEO regulations.

Risk limits are in place to ensure sufficient liquidity levels, and an independent risk

oversight group evaluates limits, exposures and pertinent metrics on a daily, weekly and

monthly basis. Management conducts liquidity event testing on a periodic basis, and the

results indicate that the Enterprise should be able to withstand severe liquidity events. 

During the second quarter of 2006, the short-term investment portfolios in the liquidity

and contingency, the working capital and the money market portfolios increased

approximately $30 billion, reflecting efforts beginning in May to increase short-term

investments in anticipation of the July 20, 2006, Federal Reserve’s Payment System Risk

Policy change. The second half of 2006 saw the reduction of the $30 billion in shortterm investments as the Enterprise gained greater efficiency in managing its daily cash

position. The temporary growth of the low-risk, short-term investments was a prudent

step in ensuring Freddie Mac’s ability to comply with the July Federal Reserve overdraft

policy change. 

Sensitivity to Market Risk

Overall interest-rate risk exposures are acceptable and management is effective. During

2006, Enterprise management was able to identify, measure, monitor and control the

sensitivity to market risk in a manner commensurate with the nature and complexity of

the Enterprise’s activities. Measures of rate sensitivity gauge the degree to which changes

in interest rates can adversely affect the Enterprise’s earnings and fair value. 

Management 

adheres to sound 

practices for 

managing liquidity.
42 Office of Federal Housing Enterprise Oversight

Given the nature of the Enterprise’s business, fair value and earnings are highly sensitive

to changes in rates and spreads. The Enterprise relies primarily on financial derivatives

(in conjunction with callable debt) to maintain interest-rate risk exposures within desired

ranges. Financial derivatives instruments are highly sensitive to changes in rates and that

volatility is reflected in the Enterprise’s financial statements because hedges are markedto-market through income and most assets and liabilities are not. Sensitivity analyses and

stress testing indicate that the Enterprise’s market value of equity is adequately protected

against sudden significant changes in rates and in spreads between certain rates. 

Board-approved asset/liability management (ALM) policies and limits are designed to

ensure that management maintains interest-rate risk exposures within prudent

boundaries and avoids the need to engage in large rebalancing activity. The Board revisits

these policies and limits at least annually, and several senior management committees

and subcommittees, as well as an independent market risk oversight group, exercise

ongoing oversight and monitoring of Enterprise exposures relative to established limits

and thresholds. In addition, two Board committees monitor the Enterprise’s results

against approved limits and performance objectives. Decision-making authority is

formally delegated and effectively communicated within the organization at least

annually. Risk measurement is performed both in-house and through an outside service

provider. Management reports provide the information necessary to inform and support

decision-making at appropriate levels of the organization. 

Publicly-reported measures of interest rate risk—Portfolio Market Value Sensitivity

(PMVS-Level and PMVS-Yield Curve) and duration gap—reflect that management kept

exposures stable and within applicable limits and operating thresholds throughout 2006.

PMVS expresses the degree to which the market value of equity is impacted by adverse

parallel (50 basis point) and non-parallel shifts (12.5 basis point shifts at the two-year

and 10-year points) in the London Interbank Offered Rate (LIBOR) curve. Additional,

nonpublic, quantitative measures of interest rate risk, including convexity, vega, key rate

duration and basis risk exposure, reflect that management maintained exposures within

applicable internal limits/thresholds as well. 

In January 2006, OFHEO issued a letter requiring a divestiture plan for certain

commercial mortgage-backed securities structures that were not allowed under the

Enterprise’s charter; management has completed the sale of those securities.

Management also remediated several matters pertaining to investments in non-agency

home equity asset-backed securities floaters. In addition, the Board and management

have augmented oversight of a variety of issues pertaining to the Asset/Liability

Management group’s position taking on levels of rates, spreads and volatility reported

internally under asset liability management returns. The significant and volatile impact

these activities have on fair value continue to warrant appropriate scrutiny to ensure that

they are properly authorized, measured, monitored/reported and subject to appropriate

limits. The Enterprise has committed to reviewing and enhancing its public disclosures

to adequately describe the risk-taking activities which are currently grouped and reported

within its ALM and hedging functions. 
Report to Congress • 2007 43

Earnings 

Earnings performance for 2006 was fair. GAAP net income during the period 2002 to

2005 ranged from a high of $10.1 billion to a low of $2.1 billion reflecting a steady

downward trend since 2002. A similar negative trend is exhibited in the change in fair

value of common equity before capital transactions, which declined from $5.6 billion in

2002 to $1.0 billion in 2005. In 2006, net income increased to $2.2 billion from $2.1

billion in 2005. 

Earnings have been volatile as a result of mark-to-market gains/losses on the guarantee

asset and the derivatives portfolio. Declining interest rates caused mark-to-market losses

on both the guarantee asset and the derivatives portfolio during the second half of 2006. 

Long-term declines in earnings are due to a number of factors, some of which are

recurring and are likely to have a dampening effect on future earnings. Competitive

pressures along with a declining net interest margin will likely impact future earnings. A

flattening yield curve, increased competition for mortgages and the re-funding of lowercoupon fixed-rate debt that either matured, was called or was repurchased, contributed to

the downward pressure on the net interest margin in 2006. Since 2004, the net interest

margin has declined by about 60 basis points, to 0.57 percent in the fourth quarter of

2006. If current market conditions continue, Freddie Mac expects the net interest margin

to decline in 2007 as lower coupon debt matures. Administrative expenses of

approximately $1.6 billion were slightly higher than in 2005. 

The core guarantee business continues to provide significant recurring earnings; however,

significant sources of revenue are concentrated in several mortgage lenders. Guarantee

fee income increased by $0.2 billion in 2006. Guarantee fee growth was supported by an

average annual increase in outstanding participation certificates of 15.2 percent. The

loan loss reserve increased during 2006 from $414 million to $420 million. 

Capital

OFHEO classified Freddie Mac as adequately capitalized for the four quarters of 2006.

OFHEO formally classifies capital adequacy quarterly in accordance with Subtitle B of the

Federal Housing Enterprises Financial Safety and Soundness Act of 1992 and with the

requirements set forth in OFHEO’s minimum and risk-based capital regulations. The

Enterprise is required by federal statute to meet both minimum and risk-based capital

standards to be classified as adequately capitalized. The Enterprise is adequately

capitalized and maintains satisfactory cushions above statutory, regulatory and OFHEOdirected capital levels. OFHEO continues to evaluate and monitor the capital surplus, in

part due to the evidence of significant operational risk and control weaknesses cited

throughout this report. Capital planning processes are satisfactory and assess risks

throughout the company, although methods of measurement and analysis can be

enhanced.
44 Office of Federal Housing Enterprise Oversight

OFHEO imposed a capital surcharge of 30 percent of the minimum capital requirement

in January 2004 due to increased operational risk. OFHEO also concurred with the

Enterprise’s decision to limit retained mortgage portfolio growth as recommended by

OFHEO, further enhancing the capital adequacy of Freddie Mac. During 2006, OFHEO

emphasized the importance of maintaining a capital surplus in excess of the OFHEOdirected requirement given the lack of timely financial filing and the continued

operational weaknesses. The Enterprise has maintained the surplus above the OFHEOdirected requirement since inception of the agreement. The Enterprise has also remained

in compliance with the mortgage portfolio limits and appropriately incorporates these

restrictions into its capital plan.

On March 30, 2007, OFHEO announced that it had classified Freddie Mac as adequately

capitalized as of December 31, 2006. As of that date, the core capital of the Enterprise

exceeded its OFHEO-directed capital requirement by $2.573 billion, representing a 7.7

percent surplus over the OFHEO-directed capital requirement. OFHEO classified Freddie

Mac as adequately capitalized for the preceding three quarters of 2006. Freddie Mac's

capital plan describes how the Enterprise expects to maintain a surplus over the OFHEOdirected capital requirement through a combination of controlled growth and earnings

retention.

During 2006, the Enterprise continued to enhance and refine its capital planning

processes and produced an acceptable capital plan on a quarterly basis.

OFHEO communicated a need for enhancements to the capital plan and

management incorporated these enhancements appropriately and in a

timely manner. Weekly management reports, which include current

and projected capital trends and actions, provide senior

management with effective tools to manage the capital position

above OFHEO-directed requirements. 

Freddie Mac reported 2006 financial results on March 23, 2007.

OFHEO reaffirmed the capital classifications for the first three

quarters of 2006 based upon the final accounting and capital data

for those respective periods.

During 2006, the Enterprise

continued to enhance and refine

its capital planning processes and

produced an acceptable capital

plan on a quarterly basis.

Mar-06 Jun-06 Sep-06 Dec-06

Core Capital 37.591 38.123 37.035 36.170

Statutory Capital Requirement 25.488 26.484 25.979 25.844

OFHEO-directed Capital Requirement 33.134 34.430 33.773 33.597

Surplus (based on OFHEO-directed Requirement) 4.457 3.693 3.262 2.573

Ratio to OFHEO-directed Capital Requirement 13.5% 10.7% 9.7% 7.7%

* Numbers may not add due to rounding

Table 5 - (Dollars in billions)*

Freddie Mac Minimum

Capital Requirements,

2006
Report to Congress • 2007 45

Accounting

During 2006, neither Enterprise was able to provide the public with timely financial

information. Freddie Mac has been unable to produce timely financials since 2002 and

Fannie Mae since 2004. Both Enterprises continued to suffer from problems with

accounting systems and internal controls. Fannie Mae is currently working to produce

2005 and 2006 financial information by the second half of this year, while Freddie Mac is

working to produce quarterly statements in 2007. 

The need to focus on internal control and systems problems continues to inhibit the

Enterprises’ ability to respond to changes in the market, the economy and accounting

standards. To help understand the new challenges facing the Enterprises, it is helpful to

review the accounting environment that existed pre-restatement and the difficult lessons

learned from the past.

The Changing Accounting Model 

Historical cost has long been the predominant valuation model, and accounting

standard-setters have used this model as a foundation for standard-setting. However,

there has been an ongoing debate within the accounting profession and among financial

statement users over the usefulness of financial statements prepared using the historical

cost/accrual accounting model versus using a fair value model. Proponents of the

historical cost/accrual accounting model argue that historical cost numbers are more

reliable and are objectively verifiable and that the proper matching of revenue and

expense leads to a more realistic picture of income in the short run. They also argue that

fair value injects volatility into earnings that represents liquidation values that are not

likely to be realized by a going concern. On the other hand, proponents of fair value

argue that fair value—defined as the price that would be received to sell an asset or paid

to transfer a liability in an orderly transaction between market participants at the

measurement date—better reflects the economic reality of a firm by showing the

volatility that actually exists rather than showing artificially smooth numbers. In the

1980s, a push toward a fair value model emerged from these discussions.

As a result of this debate, in 1986 the Financial Accounting Standards Board (FASB)

initiated a project related to Financial Instruments and Off-Balance-Sheet Financing, the

purpose of which was to improve the disclosure of the value of financial instruments. In

1987, FASB issued an Exposure Draft on Disclosures about Financial Instruments. After

receiving numerous comment letters, FASB concluded that the disclosure issues should

be considered in separate phases. The first phase of that project addressed financial

instruments with off-balance-sheet credit risk or market risk and all financial instruments

with concentration of credit risk. The second phase addressed disclosure of other

information about financial instruments. 

In 1990, FASB issued Statement of Financial Accounting Standards (SFAS) No. 105,

Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and
46 Office of Federal Housing Enterprise Oversight

Financial Instruments with Concentrations of Credit Risk. SFAS 105 established requirements

for all entities to disclose information principally about financial instruments with offbalance-sheet risk of accounting loss. In 1991, FASB issued SFAS 107, Disclosures about

Fair Value of Financial Instruments, the second phase of its 1986 project. SFAS 107 requires

disclosures of the fair value of all financial instruments, both assets and liabilities

recognized and not recognized in the statement of financial position. Following the

release of SFAS 107 both the debate surrounding fair value and the inclusion of fair value

concepts within FASB statements heightened. 

Since 1991 the accounting profession has witnessed a shift away from the

historical cost model toward the fair value model. Over this 15-year period,

the accounting profession has seen a progressive increase in the

inclusion of fair value concepts in the accounting literature. At present

68 FASB or Accounting Principles Board pronouncements require or

allow fair value measures. It is interesting to note that three of four

SFAS issued in 2006 (SFAS 155, Accounting for Certain Hybrid

Financial Instruments, SFAS 156, Accounting for Servicing of Financial

Assets and SFAS 157, Fair Value Measurement) dealt primarily with

fair value. The trend continues in 2007 with the recently issued

SFAS 159, The Fair Value Option for Financial Assets and Financial

Liabilities.

The challenge that all companies faced over the past 15 years and will

continue to face in the future is producing meaningful financial statements

that use a mix of historical cost and fair value. This is often referred to as a mixedattribute accounting model. While FASB has required greater use of fair value

measurements in financial statements because it perceives that information to be more

relevant to investors and creditors than historical cost information, FASB’s gradual

approach to adopting a fair value model has resulted in the current mixed-attribute

model. Under the current model, some financial instruments are measured based on

historical cost, some at amortized cost, some at lower of cost or market and some at fair

value. For those instruments measured at fair value, the change in fair value is sometimes

recognized in earnings and sometimes in accumulated other comprehensive income

(AOCI), which is a component of stockholders equity. This changing accounting

landscape has been particularly challenging to the Enterprises.

Past Accounting

The extraordinary financial success and rapid growth of both Enterprises in the 1990s

contributed to a belief among management and employees that they were “best in class”

and that their heavy emphasis on steady, strong growth in earnings per share could be

maintained indefinitely. During this period of rapid growth, the Enterprises tended to

focus more on business innovations than back-end accounting systems and the people

necessary to implement and maintain them. 

Since 1991 the accounting

profession has witnessed a shift

away from the historical cost

model toward the fair 

value model.
Report to Congress • 2007 47

When faced with a changing accounting model that might challenge this steady record of

earnings growth and the existing accounting systems, both Enterprises chose a path of

“creative accounting” rather than adhering to then-issued (fair value) accounting

standards that, by their very nature, would reveal the volatility of the Enterprises’

business.

The use of inappropriate accounting strategies to achieve steady earnings growth began in

the mid-1990s. Both Fannie Mae and Freddie Mac inappropriately applied SFAS 91,

Accounting for Nonrefundable Fees and Cost Associated with Originating or Acquiring Loans

and Initial Direct Costs of Leases, establishing amortization policies that allowed them to

avoid current-period volatility. Also during this period, both Enterprises maintained loan

loss reserves that were unjustifiably high relative to actual and projected credit losses.

The preoccupation of Fannie Mae and Freddie Mac with steady earnings growth and

achieving earnings targets was well established by 1998, when FASB issued SFAS 133

Accounting for Derivative Instruments and Hedging Activities, an accounting standard that

was certain to inject volatility into the timing of earnings recognition. SFAS 133 requires

that derivatives be carried on the balance sheet at fair value. Changes in a derivative’s fair

value are included in earnings, unless the derivative is designated and qualifies for hedge

accounting. Hedge accounting provides a means for a matching of the earnings effect of

a derivative and the related designated hedged transaction, thereby mitigating the impact

of marking-to-market the derivative. 

The accounting framework in SFAS 133 (fair value accounting) brought significant

changes to prior accounting practices, which were historical cost/accrual-based. SFAS 133

eliminated the concept of synthetic accounting, a concept that essentially allowed

derivatives to be accounted for on an accrual basis together with the related hedge item,

in order to “synthetically” replicate a fixed or floating-rate instrument, as applicable.

Synthetic accounting was an accounting treatment followed by many entities, including

the Enterprises, prior to SFAS 133. Some entities, such as broker-dealers and investment

companies, account for most or all of their assets and liabilities at fair value, with changes

therein flowing through earnings. When such entities use derivatives to manage risk,

they often achieve a natural offset in earnings due to the mark-to-market of both the

derivatives and the assets/liabilities that give rise to the risk. The Enterprises, as well as

most banks and finance companies, apply a mixed attribute model to accounting for

most financial assets and liabilities. Thus the introduction of fair value accounting for

derivatives under SFAS 133 had the potential to create significant earnings volatility

unless hedge accounting was used. 

Both Enterprises faced significant challenges in qualifying for hedge accounting. Due to

the extensive documentation and effectiveness calculation requirements, hedge

accounting under SFAS 133 was most easily adopted by entities with simple, passive

hedging approaches in which hedges are established and allowed to run their course.

However, Fannie Mae’s and Freddie Mac’s hedging approaches were neither simple nor

passive. The complexities of funding a large mortgage portfolio and managing the

associated interest rate risk necessitated an active, dynamic hedging approach to respond

to changing market conditions and portfolio rebalancing requirements. Such an

environment adds significant complexity to the administrative and systems requirement
48 Office of Federal Housing Enterprise Oversight

to support hedge accounting. Despite the challenges noted above, the Enterprises had a

strong desire to retain the smooth earnings results that had been possible under accrualbased accounting, and neither wanted to invest money in new accounting systems that

would be necessary to meet the requirements for hedge accounting under SFAS 133.

During the late 1990s and early 2000s, both Fannie Mae and Freddie Mac spent

significant time and resources to develop strategies that would mitigate the earnings

volatility created by the changing accounting landscape. While SFAS 133 presented the

largest potential for overall earnings volatility, many other accounting changes that were

taking place put pressure on the Enterprises’ ability to produce steadily increasing

earnings. These other changes included revising accounting standards for asset transfers

and securitizations (SFAS 140, Accounting for Transfers and Servicing of Financial Assets and

Extinguishment of Liabilities) and impairments (SFAS 115, Accounting for Certain Investment

in Debt and Equity Securities and EITF 99-20, Recognition of Interest Income and Impairment

on Purchased and Retained Beneficial Interest in Securitized Financial Assets). An area of

particular concern at both Enterprises was that of “other than temporary impairments.”

Generally Accepted Accounting Principles (GAAP) require that Interest-Only (IO)

securities, financial assets that are particularly sensitive to changes in interest rates, and

Buy-Ups (BUs), which are price adjustments the Enterprises pay to increase the guarantee

fee rate lenders pay for the Enterprise’s guarantee of MBS backed by the lender’s

mortgages, be recorded at fair value with changes in fair value recorded in earnings if the

items are carried as trading securities or in AOCI if they are carried as available-for-sale

(AFS) securities. If unrealized losses on the AFS securities were judged to be other than

temporary, then an impairment must be recognized through earnings. The Enterprises

both incorrectly accounted for IO securities and BUs, masking the earnings volatility that

proper accounting would have reflected. 

The tone set by then-senior management to produce smooth, steady earnings growth at a

time when the changing accounting standards, if applied properly, would have revealed

the true volatility of earnings set the stage for financial restatements at both Enterprises.

In January 2003 Freddie Mac announced it would restate financial results for the years

ended 2000, 2001 and 2002. It did so in November 2003 and has since produced 2003-

2005 financial results and just recently produced 2006 results. In December 2004 the

SEC concurred with OFHEO examination findings and required Fannie Mae to restate

financial results for the years ended 2002, 2003 and 2004. Fannie Mae produced restated

results in December 2006 and is currently working to produce 2005 financials. Chart 6

presents the steady earnings growth portrayed by the pre-restatement numbers for both

Fannie Mae and Freddie Mac.
Report to Congress • 2007 49

In contrast to the steady growth shown in Chart 6, Chart 7 presents the volatile earnings

reflected in the GAAP-compliant restated numbers. As Fannie Mae has not, and does not

plan to, restate earnings for 2000 and 2001, those columns are excluded from Chart 7. 

0

1000

2000

3000

4000

5000

6000

$7000

Fannie Mae Freddie Mac

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 

(Millions)

Chart 6 - 

Net Income

0

2000

4000

6000

8000

10000

$12000

Fannie Mae Freddie Mac

 2000 2001 2002 2003 2004 

(Millions)

Chart 7 - 

Net Income

PostRestatement

*there are no post-restatement numbers for Fannie Mae in 2000 and 2001.

Source: Fannie Mae and Freddie Mac

Source: Fannie Mae and Freddie Mac
50 Office of Federal Housing Enterprise Oversight

Future State

Current management at both Enterprises has made progress toward timely filings,

establishing GAAP-compliant accounting policies and remediating many control

deficiencies. However, both management teams face significant challenges as they move

toward timely filing, remediate the remaining control deficiencies and build robust

accounting systems while continuing to deal with a changing accounting environment. 

Recent Fair Value Standards

As mentioned previously, four recent SFAS issued by FASB dealt primarily with fair value.

Three of the four standards (SFAS 155 (2006), SFAS 157 (2006) and SFAS 159 (2007))

have the potential to have significant impact on both Enterprises. SFAS 155, Accounting

for Certain Hybrid Financial Instruments, requires that certain MBS and other interests in

securitized financial assets be analyzed for embedded derivatives. It also provides an

election to record financial assets and liabilities at fair value with changes reflected in

earnings if they would otherwise be subject to derivatives accounting. The application of

this standard provides the potential for additional financial instruments to be carried on

the Enterprises’ balance sheets at fair value with the change in fair value flowing through

earnings. Adoption of this standard will require systems modifications and development

at both Enterprises.

SFAS 157, Fair Value Measurements, provides guidance for using fair value to measure

assets and liabilities by defining fair value. It also establishes a framework for measuring

fair value and expands disclosures related to fair value measurements. While SFAS 157

does not require any new fair value measurements, it does require the use of market

participant information when it is reasonably available without undue cost and effort.

Therefore, the Enterprises will need to determine the availability of market-based

information, the cost and effort involved in obtaining this information and the cost of

the additional disclosure requirements. Adoption of this standard will also require

systems modifications and development at a time when personnel and systems resources

are at a premium as the Enterprises work toward becoming timely filers.

SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, provides

entities with an irrevocable election to record financial instruments at fair value on a

contract-by-contract basis with changes in fair value recognized in earnings. One goal of

this standard is to reduce complexity in accounting and volatility in earnings caused by

the mixed-attribute accounting model. This standard has the potential to significantly

change the financial statements of both Enterprises by measuring and recording most

financial assets and liabilities at fair value. The standard also has the potential to create

inconsistency in accounting between the Enterprises should they choose different

options in the adoption process. Adoption of this standard could also require systems

modifications and development during 2007.
Report to Congress • 2007 51

Proposed Standards

Further, while not yet final, other proposed accounting changes have the potential to

affect the Enterprises. These include changes regarding derivatives disclosures and a

proposed amendment to SFAS 140, Accounting for Transfers and Servicing of Financial Assets

and Extinguishment of Liabilities. 

The proposed derivatives disclosures statement provides guidance on enhanced

disclosure requirements related to derivatives. The proposed statement’s overall

goal is more transparency such that financial statement users could better

assess the overall risk of derivatives from both a quantitative and

qualitative perspective. Adoption of this standard could also require

significant systems modifications and development in 2007.

Lastly, a proposed amendment to SFAS 140, while still in the

deliberative stage, has the potential to prompt significant

accounting changes at one or both Enterprises. Depending on its

final form, the amendment could dramatically change the way

Freddie Mac issues its Participation Certificates and/or it could

restrict the use of Qualified Special Purpose Entities, which would

have a larger impact on Fannie Mae. A new Exposure Draft of the

proposed amendment is scheduled for release in the second quarter of

2007. This Exposure Draft has the potential to have a significant effect on

both the measurement and recording of assets and liabilities on the Enterprises’ financial

statements and to create a need for systems modification and development, all at a time

when personnel and systems resources are at a premium. 

Fair Value Implementation

In summary, while all entities today still face a mixed-attribute accounting model, at least

in the area of financial instruments, FASB has made substantial progress in the move

toward fair value. In the 1980s and 1990s when Fannie Mae and Freddie Mac faced the

beginning of this changing accounting landscape, they chose to minimize the changes

and maintain the status quo through creative accounting that did not adhere to GAAP.

This created an environment that led to restatements at both Enterprises. 

The current management at Fannie Mae and Freddie Mac face equally challenging

changes in the market, the economy and the accounting environment. Both Enterprises

provide a year-end fair value balance sheet as a supplemental non-GAAP measure, stating

that when used in conjunction with their GAAP financial statements this fair value

measurement could serve as a valuable tool for investors. Both Enterprises also identified

fair value measurement as a critical accounting policy in their most recently released

financial statements, emphasizing the fact that fair value measurement has become a

critical component of the current mixed-attribute model. With the newly released SFAS

...other proposed 

accounting changes 

have the potential to affect 

the Enterprises.
52 Office of Federal Housing Enterprise Oversight

159, The Fair Value Option for Financial Assets and Financial Liabilities, these measurements

have the potential to become even more important to the Enterprises. 

OFHEO believes fair value is an important measure of available capital because it reflects

changes in the fair value of the assets as well as the derivatives and debt used to manage

the risk inherent in those assets. By way of contrast, OFHEO’s current core capital

measure is a mixed-attribute measure. Therefore, OFHEO will be closely monitoring the

process used by the Enterprises in adopting SFAS 159 as well as monitoring the

measurement process used to produce the supplemental non-GAAP fair value balance

sheet. 
Report to Congress • 2007 53

Regulations and Guidances

Regulations

On October 27, 2006, OFHEO published in the Federal Register a final regulation

requiring the Enterprises to establish and maintain record retention programs to ensure

that complete and accurate records are readily accessible by OFHEO for examination and

other supervisory purposes. The regulation also requires the Enterprises to establish

internal controls, procedures for holding documents and controlling their production

and training programs to ensure the adequacy and effectiveness of the record retention

program. In addition, the regulation directs Enterprise management to evaluate the

program for its adequacy and effectiveness at least every three years and to report findings

to the Boards of Directors and OFHEO.

On December 14, 2006, OFHEO published in the Federal Register a final regulation

making technical amendments to Appendix A to Subpart B of the OFHEO risk-based

capital (RBC) regulation at C.F.R. 1750. The amendments enhance the accuracy and

transparency of the calculation of the RBC requirement for the Enterprises and update

the RBC regulation to incorporate previously-approved new activities treatments. 

Guidances

OFHEO issued examination guidance PG-06-001, dated November 8, 2006, setting forth

guidance and standards relating to the corporate governance of the Enterprises

consistent with the oversight responsibilities of OFHEO under the Federal Housing

Enterprises Financial Safety and Soundness Act of 1992 and the OFHEO corporate

governance regulation at 12 C.F.R. 1710. The guidance replaces OFHEO examination

guidance PG-05-002, issued on May 20, 2005. Except for certain accounting standards,

the guidance retains all provisions of the earlier guidance. Among other things, the

guidance includes provisions that provide definitions, broadens relevant experience for

Board members, and expands the responsibilities of the corporate heads of compliance

and internal investigation and the Board of Directors. The guidance also addresses the

need to separate the risk management function from the control function of an

Enterprise and the establishment of an Enterprise management compliance control

coordination committee. Additionally, the guidance indicates that the Enterprises should

establish policies and procedures relating to delegations of authority.

OFHEO issued examination guidance PG-06-002, dated November 8, 2006, setting forth

OFHEO expectations regarding actions covered by the OFHEO executive compensation

regulation at 12 C.F.R. 1770 and the OFHEO corporate governance regulation at 12 C.F.R.

1710. The guidance provides standards for Enterprise compensation programs and

employment agreements with executive officers and addresses the responsibilities of the
54 Office of Federal Housing Enterprise Oversight

Board of Directors regarding the Compensation Committee. The guidance also provides

for certified submission of executive compensation comparability information and the

submission of a comparability study every five years. 

OFHEO issued examination guidance PG-06-003, dated November 8, 2006, setting forth

examination guidance and standards relating to the accounting practices of the

Enterprises consistent with the oversight responsibilities of OFHEO under the Federal

Housing Enterprises Financial Safety and Soundness Act of 1992 and the OFHEO

corporate governance regulation at 12 C.F.R. 1710. The guidance addresses elements

drawn from earlier corporate governance guidance and provides a stand-alone set of

standards for use by the Office of the Chief Accountant of OFHEO. The guidance

indicates that the Enterprises should establish and maintain accounting policies and

procedures that properly reflect Generally Accepted Accounting Principles (GAAP), and

provides for the periodic review of the policies and procedures. The guidance includes a

description of the responsibilities of the Board Audit Committee and provides for a

change for the lead and concurring/coordinating audit partner and rotation of the

external audit firm on a prescribed schedule. Additionally, the guidance provides for an

Enterprise to create a system whereby accounting policies are subject to continuous

review and are fully disclosed to the Board Audit Committee. 

Notices

On February 6, 2006, OFHEO published in the Federal Register its notice of intent to

establish three new Privacy Act systems of records: the Emergency Contingency Plan and

Personnel Locator system, the Mortgage Fraud system and the Computer Systems Activity

and Access Records system. The Emergency Contingency Plan and Personnel Locator

system will maintain emergency contact information for use in developing and

implementing an emergency plan, including a continuity of operations plan. The

Mortgage Fraud system will maintain information on mortgage fraud or possible

mortgage fraud involving the Enterprises. The Computer Systems Activity and Access

Records system will maintain, plan and manage computer system services and will ensure

security and proper use of OFHEO electronic information and computer systems and

services.

On April 19, 2006, OFHEO published in the Federal Register a Notice of Regulatory

Review that responded to comments received from the public as to whether existing

regulations had become inefficient or burdensome (12 C.F.R. Ch. XVII).

On July 11, 2006, OFHEO published in the Federal Register a Notice of Intent to establish

a new system of Privacy Act records titled “Telecommunications System.” The system will

be used to verify telecommunications usage, official and unofficial, of OFHEO, resolve

billing discrepancies and prevent and discipline any detected misuse. 
Report to Congress • 2007 55

On December 5, 2006, OFHEO published in the Federal Register a No FEAR Act Notice

that provides notice to its employees, former employees and applicants for employment

about the rights and remedies available to them under the Federal anti-discrimination

and whistleblower protection laws. The notice complies with the requirements of the

Notification and Federal Employees Antidiscrimination Retaliation Act, as implemented

by the regulations of the Office of Personnel Management. 

Memoranda of Understanding

On May 12, 2006, OFHEO and the U.S. Treasury Department’s Financial Crimes

Enforcement Network (FinCEN) entered into an agreement to facilitate the sharing of

information by OFHEO of its examination findings regarding actual or suspected

mortgage fraud with FinCEN. FinCEN will include this information in its database of Bank

Secrecy Act information which may then be queried by law enforcement officials.

On November 6, 2006, OFHEO and the Office of Thrift Supervision (OTS) entered into

an agreement that provides for the sharing of information between the agencies. The

Memorandum of Understanding (MOU) is based on statutory authorities of OTS and

OFHEO that provide for interagency cooperation and interaction, such as the sharing of

proprietary data, in furtherance of their statutory purposes. The uses of data are governed

by statutes addressing trade secrets and confidentiality, and each party agreed to maintain

the confidentiality of data and information provided by the other party.

On December 11, 2006, OFHEO and the Federal Housing Finance Board (FHFB) entered

into an agreement that provides for the sharing of information, practices and resources

between the agencies relevant to each agency’s supervisory responsibilies. The MOU is

based on statutory authorities of FHFB and OFHEO that provide for interagency

cooperation and interaction, such as the sharing of proprietary data, in furtherance of

their statutory purposes. The MOU also provides for collaboration, cooperation and

participation in examinations under certain conditions and sets forth the establishment

of working groups to initiate the process of addressing subjects of mutual interest. Each

party agreed to maintain the confidentiality of data and information provided by the

other party.
56 Office of Federal Housing Enterprise Oversight

OFHEO Research and Publications

During 2006, OFHEO continued to focus its research plans and activities on topics that

assist the agency in achieving its three strategic goals, which the agency revised and

published in September in its Strategic Plan for Fiscal Years (FY) 2006-2011: 1) enhance

supervision to ensure the Enterprises operate in a safe and sound manner, are adequately

capitalized and comply with legal requirements; 2) provide support for statutory reforms

to strengthen our regulatory powers; and 3) continue to support the national policy of an

efficient secondary mortgage market which promotes homeownership and affordable

housing.

OFHEO continued to place a priority on research and analysis of issues for its internal

use, primarily related to analyzing risk and capital adequacy and improving the House

Price Index. OFHEO also continued its practice of publishing reports and papers, and

posting information on its web site to better inform interested parties about the issues

OFHEO addresses regarding the Enterprises and the secondary mortgage market. The

papers and reports are the result of research and analysis accomplished throughout the

year. OFHEO research papers and reports are available at www.ofheo.gov. OFHEO

researchers also presented papers and led discussions at professional and industry

conferences on topics related to housing finance and regulation of the Enterprises.

Report of the Special Examination of Fannie Mae

In May 2006, OFHEO issued its Report of the Special Examination of Fannie Mae. The

report was the product of more than two years of in-depth review involving nearly eight

million pages of documents. 

The report found the following:

• Fannie Mae senior management promoted an image of the Enterprise as one of

the lowest-risk financial institutions in the world and as “best in class” in terms

of risk management, financial reporting, internal control and corporate

governance.

• Fannie Mae reported extremely smooth profit growth and hit announced targets

for earnings-per-share precisely each quarter between 1998 and 2004. Those

achievements were illusions deliberately and systematically created by the

Enterprise’s senior management with the aid of inappropriate accounting and

improper earnings management.

• During that period, a large number of Fannie Mae’s accounting policies and

practices did not comply with Generally Accepted Accounting Principles (GAAP).

The Enterprise also had serious problems of internal control, financial reporting

and corporate governance.
Report to Congress • 2007 57

• By deliberately and intentionally manipulating accounting to hit earnings targets,

senior management maximized the bonuses and other executive compensation

they received, at the expense of shareholders.

• Fannie Mae’s Board of Directors contributed to those problems by failing to be

sufficiently informed and failing to act independently of its chairman and other

senior executives; by failing to exercise the requisite oversight over the

Enterprise’s operations; and by failing to discover or ensure the correction of a

wide variety of unsafe and unsound practices.

• The Board’s failures continued in the wake of revelations of accounting problems

and improper earnings management at Freddie Mac and other high-profile firms,

the initiation of OFHEO’s special examination and credible allegations of

improper earnings management made by an employee of the Enterprise’s Office

of the Controller.

• Senior management did not make investments in accounting systems, computer

systems, other infrastructure and staffing needed to support a sound internal

control system, proper accounting and GAAP-consistent financial reporting.

Those failures came at a time when Fannie Mae faced many operational

challenges related to its rapid growth and changing accounting and legal

requirements.

The report also prescribed corrective actions to ensure the safety and soundness of the

Enterprise. Many of these actions were included in a Consent Order of May 23, 2006,

which is detailed elsewhere in this report.

Research Products

OFHEO released several research products during 2006. In February, OFHEO issued a

staff working paper, “Removing Appraisal Bias from a Repeat-Transactions House Price

Index: A Basic Approach.” The paper presents a “bias-neutral” approach to house price

indices and demonstrates the different results. “Mortgage Markets and the Enterprises in

2005,” a research paper released in September 2006, reviewed developments in the

housing sector, activity in the primary and secondary mortgage markets and the financial

performance of Fannie Mae and Freddie Mac in 2005. The paper is the most recent in an

annual series. OFHEO also published an update to the data tables (through the third

quarter of 2006), and to the assumptions used in developing the data estimates, in an

OFHEO research paper, “Single-Family Mortgages Originated and Outstanding, 1990 -

2004.” OFHEO research papers and staff working papers are authored by OFHEO

economists and analysts. 

In April 2006, OFHEO released an update to the public version of the software used to

run the risk-based capital stress test, along with a stylized data set to use in the model. By

running the data for this hypothetical firm through the stress test model, the public can

better understand the sensitivities and implications of the stress test. 
58 Office of Federal Housing Enterprise Oversight

Conforming Loan Limit

Since 2005 OFHEO has calculated and published the maximum conforming loan limit

for single-family mortgages purchased by Fannie Mae and Freddie Mac. On November

15, 2006, OFHEO announced procedures to be followed in determining the conforming

loan limits for 2007 in the event the Federal Housing Finance Board (FHFB) reported a

decrease in house prices from October 2005 to October 2006.

Later in November, OFHEO announced that, effective January 1, 2007, the maximum

conforming loan limit for single-family mortgages would remain at the 2006 level of

$417,000 for one-unit properties for most of the U.S. In 2007, the conforming loan

limits for larger properties are as follows: two-unit mortgages are limited to $533,850;

three-unit mortgages: $645,300; and four-unit mortgages: $801,950. The limit in

statutorily designated high-cost areas (Alaska, Guam, Hawaii and the U.S. Virgin Islands)

is 50 percent higher, for example, $625,500 for a one-unit, single-family mortgage. For

second mortgages, the 2007 limit is $208,500 ($312,750 in the designated high-cost

areas). 

House Price Index

OFHEO also continued quarterly publication of its House Price Index (HPI), which uses

Enterprise data to calculate changes in house prices for the nation as a whole, nine

Census Divisions, the 50 states and the District of Columbia and 381 Metropolitan

Statistical Areas or Metropolitan Divisions. The HPI is based on an analysis of data from

over 32 million repeat transactions over the past 32 years. OFHEO developed the index

as a key input for its risk-based capital stress test. The HPI is now regularly reported by

media organizations throughout the nation and used by researchers to analyze house

price behavior (Map on page 59). 

Since 2004, OFHEO has compared the HPI, an index that includes mortgages used for

both purchases and refinancings, with an index based solely on purchase price data to

isolate the effect of refinancing on the overall HPI (see Chart 8). OFHEO also

periodically features reports on timely issues in the quarterly HPI report. For example,

responding to frequent public requests for rural price indicators, the report covering data

through the third quarter of 2006 published a state-by-state review of price trends in rural

markets. The analysis compared urban and rural trends and measured the correlation in

urban-rural price movements within states. 

The report covering data through the second quarter closely analyzed the ongoing

deceleration in housing markets. The report found that the deceleration was most

extreme in areas of the country that had experienced the greatest home price appreciation

during the early part of this decade. Recent price trends were studied in detail for the two

states with the greatest appreciation since mid-2004. Monthly house price indexes were

calculated for those states and month-to-month appreciation figures were estimated. The
Report to Congress • 2007 59

HI

7.3

AK

7.6

FL

 9.4

NM

13.1

DE

7.3

MD

9.0

TX

6.9

OK

4.6

KS

4.5

NE

2.6

SD

5.9

ND

5.4

MT

10.7

WY

14.3

CO

3.3

UT

17.6

ID

14.0

AZ

9.6

NV

4.0

WA

13.7

CA

4.6

OR

13.5

KY

4.1

ME

4.8

NY

4.9

PA

7.0

MI

-0.4

VT

 6.4

NH

2.7

MA

0.5

RI

3.4

WV

5.2

OH

1.0 IN

2.3

IL

5.7

NC

TN 8.2

7.9

SC

8.1

AL

8.1

MS

9.6

AR

6.6

LA

10.9

MO

4.7

IA

3.1

MN

2.5

WI

4.1

NJ

5.8

GA

5.6

DC

7.5

CT

 3.9

U.S. :

5.9%

VA

7.5

OFHEO House Price Index Percentage Growth by State 

Fourth Quarter 2005 - Fourth Quarter 2006

0%

2%

4%

6%

8%

10%

12%

14%

HPI Purchase-Only Index

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Appreciation between Fourth Quarter 

and Fourth Quarter of Prior Year

4.6

3.4

5.0

5.7 5.1

6.2

7.5 7.2 7.5 7.3 7.4

8.3 7.8

8.5

11.8

10.3

13.2

10.8

5.9

4.1

Chart 8 - 

House Price

Appreciation

Source: Fannie Mae and Freddie Mac
60 Office of Federal Housing Enterprise Oversight

results revealed that monthly appreciation rates in those states had been in steady decline

since early 2005. Earlier reports in 2006 examined the impact of cash-out refinancings

on the HPI and the effects of Hurricane Katrina on house prices in areas surrounding

those that were hardest hit.

OFHEO Performance and Program Assessment

In November, OFHEO published its annual Performance and Accountability Report

(PAR), which describes OFHEO’s accomplishments and how OFHEO met its

performance goals during Fiscal Year 2006. The PAR also contains OFHEO’s audited

financial statements for the fiscal year.

Working jointly with the Office of Management and Budget, OFHEO also completed its

first Program Assessment Rating Tool (PART) assessment. The PART measures the

effectiveness of government programs and develops improvement plans. OFHEO scored

as a performing program with a rating of “adequate,” the middle of five possible rating

categories. 

Significant findings included the following:

• In recent years, OFHEO’s program has improved its effectiveness in identifying

and addressing significant and systemic issues at the Enterprises that need

attention.

• The program’s effectiveness is restricted by limited statutory authority. OFHEO

lacks express powers similar to those of other safety and soundness regulators.

• One of the factors affecting OFHEO’s PART rating is that, as of Fiscal Year 2006,

OFHEO had not yet implemented certain bank regulator-like risk measures.

OFHEO is now using such measures and will report at the end of Fiscal Year

2007 on how the Enterprises performed. 

• OFHEO is the only safety and soundness regulator whose funding is subject to

the timing and amount approved in an annual appropriations bill. Budget

flexibility is critical to ensuring the agency can adapt and respond quickly to

changing circumstances at either Enterprise. 
Report to Congress • 2007 61

OFHEO’s Financial Operations

OFHEO’s Budget

The business operations of OFHEO are not financed by taxpayer funds. The annual

operating budget, however, undergoes the federal budgetary and appropriations process

and is constrained by the amount appropriated by Congress and signed into law by the

President. The amount provided for by the appropriations process is offset in the federal

budget by semi-annual assessments from Fannie Mae and Freddie Mac.

Congress is considering legislation that would transfer all resources available to OFHEO

to a new, strengthened housing government-sponsored enterprise regulator, which would

operate outside of the appropriations process. Absent legislative change, however,

OFHEO will continue to be subject to the appropriations process.

The Administration proposed an FY 2007 budget of $67.6 million, but Congress passed a

year-long Continuing Resolution (CR) in mid-February funding OFHEO at its FY 2006

level of $60 million. OFHEO is continuing its efforts to seek $7.6 million in

supplemental funding in FY 2007 to cover unbudgeted litigation costs, but is being

forced to curb its planned hiring of supervision personnel.

The Administration proposed an FY 2008 budget of $66 million to fund OFHEO’s

operations. Depending on the final outcome for FY 2007 funding and developments in

ongoing administrative and federal court cases, OFHEO may seek to amend upward the

FY 2008 request to support unbudgeted requirements for legal services associated with

litigation in these cases.

Unqualified Audit Opinion in Fiscal Year 2006

The certified public accounting firm of Dembo, Jones, Healy, Pennington, and Marshall

audited OFHEO’s FY 2006 financial statements. The firm issued an unqualified audit

opinion on those financial statements, issued 45 days after fiscal year-end, and found no

material weaknesses in internal controls or instances of non-compliance with applicable

laws and regulations. While not required by law, OFHEO voluntarily began obtaining

outside audit reviews of its financial statements in FY 1998. 2006 represents the ninth

straight year OFHEO has received a clean, unqualified audit opinion.
62 Office of Federal Housing Enterprise Oversight

Table 1. Fannie Mae Mortgage Purchases ......................63

Table 1a. Fannie Mae Mortgage Purchases Detail, By

Type of Loan...............................................................64

Table 1b. Fannie Mae Mortgage-Related Securities - 

Part 1...........................................................................65

Table 1b. Fannie Mae Purchases of Mortgage-Related

Securities - Part 2, Private-Label Detail ....................66

Table 2. Fannie Mae MBS Issuances ..............................67

Table 3. Fannie Mae Earnings ........................................68

Table 4. Fannie Mae Balance Sheet................................69

Table 4a. Fannie Mae Total MBS Outstanding Detail ..70

Table 5. Fannie Mae Retained Mortgage Portfolio 

Detail...........................................................................71

Table 5a. Fannie Mae Retained Mortgage Portfolio

Detail - Whole Loans.................................................72

Table 5b. Fannie Mae Retained Mortgage Portfolio

Detail - Part 1, Mortgage-Related Securities.............73

Table 5b. Fannie Mae Retained Mortgage Portfolio

Detail - Part 2, Mortgage-Related Securities, 

Private-Label Detail....................................................74

Table 5b. Fannie Mae Retained Mortgage Portfolio

Detail - Part 3, Mortgage-Related Securities.............75

Table 6. Fannie Mae Financial Derivatives....................76

Table 7. Fannie Mae Non-Mortgage Investments.........77

Table 8. Fannie Mae Mortgage Asset Quality................78

Table 9. Fannie Mae Capital...........................................79

Table 10. Freddie Mac Mortgage Purchases ..................80

Table 10a. Freddie Mac Mortgage Purchases Detail, 

By Type of Loan..........................................................81

Table 10b. Freddie Mac Purchases of Mortgage-Related 

Securities - Part 1........................................................82

Table 10b. Freddie Mac Purchases of Mortgage-Related

Securities - Part 2, Private-Label Detail ....................83

Table 11. Freddie Mac MBS Issuances............................84

Table 12. Freddie Mac Earnings.....................................85

Table 13. Freddie Mac Balance Sheet ............................86

Table 13a. Freddie Mac Total MBS Outstanding 

Detail...........................................................................87

Table 14. Freddie Mac Retained Mortgage Portfolio

Detail...........................................................................88

Table 14a. Freddie Mac Retained Mortgage Portfolio

Detail - Whole Loans.................................................89

Table 14b. Freddie Mac Retained Mortgage Portfolio

Detail - Part 1, Mortgage-Related Securities.............90

Table 14b. Freddie Mac Retained Mortgage Portfolio

Detail - Part 2, Mortgage-Related Securities, 

Private-Label Detail....................................................91

Table 14b. Freddie Mac Retained Mortgage Portfolio

Detail - Part 3, Mortgage-Related Securities.............92

Table 15. Freddie Mac Financial Derivatives ................93

Table 16. Freddie Mac Non-Mortgage Investments .....94

Table 17. Freddie Mac Mortgage Asset Quality ............95

Table 18. Freddie Mac Capital .......................................96

Table 19. Combined Purchases .....................................97

Table 19a. Combined Mortgage Purchases Detail, 

By Type of Loan..........................................................98

Table 19b. Combined Purchases of Mortgage-Related

Securities.....................................................................99

Table 20. Combined MBS Issuances............................100

Table 21. Combined Earnings ......................................101

Table 22. Combined Balance Sheet.............................102

Table 22a. Combined MBS Outstanding Detail.........103

Table 23. Combined Financial Derivatives.................104

Table 24. Combined Non-Mortgage Investments......105

Table 25. Combined Capital........................................106

Table 26. Loan Limits....................................................107

Table 27. Mortgage Interest Rates ................................108

Table 28. Housing Market Activity...............................109

Table 29. Weighted Repeat Sales House Price Index

(Annual Data)...........................................................110

Historical Data Tables

TABLE OF CONTENTS
Report to Congress • 2007 63

Period

Business Activity ($ in millions)2

Purchases

Single-Family ($) Multifamily ($) Total Mortgages2 ($) Mortgage-Related

Securities3 ($) 

4Q06 133,335 5,852 139,187 21,039

3Q06 139,918 4,868 144,786 24,594

2Q06 128,690 4,592 133,282 39,357

1Q06 122,391 5,362 127,753 17,673

Annual Data

2006 524,334 20,674 545,008 102,663

2005 536,913 21,485 558,398 62,232

2004 588,119 16,386 604,505 176,385

2003 1,322,193 31,196 1,353,389 408,606

2002 804,192 16,772 820,964 268,574

2001 567,673 19,131 586,804 209,124

2000 227,069 10,377 237,446 129,716

1999 316,136 10,012 326,148 169,905

1998 354,920 11,428 366,348 147,260

1997 159,921 6,534 166,455 50,317

1996 164,456 6,451 170,907 46,743

1995 126,003 4,966 130,969 36,258

1994 158,229 3,839 162,068 25,905

1993 289,826 4,135 293,961 6,606

1992 248,603 2,956 251,559 5,428

1991 133,551 3,204 136,755 3,080

1990 111,007 3,180 114,187 1,451

1989 80,510 4,325 84,835 Not Applicable

1988 64,613 4,170 68,783 Before 1990

1987 73,942 1,733 75,675

1986 77,223 1,877 79,100

1985 42,543 1,200 43,743

1984 27,713 1,106 28,819

1983 26,339 140 26,479

1982 25,929 10 25,939

1981 6,827 2 6,829

1980 8,074 27 8,101

1979 10,798 9 10,807

1978 12,302 3 12,305

1977 4,650 134 4,784

1976 3,337 295 3,632

1975 3,646 674 4,320

1974 4,746 2,273 7,019

1973 4,170 2,082 6,252

1972 2,596 1,268 3,864

1971 2,742 1,298 4,040

Table 1. Fannie Mae Mortgage Purchases1

Source: Fannie Mae

1 Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required

audits.

2 Lender-originated MBS issuances and cash purchases.

3 Not included in total mortgage purchases. Includes purchases of Fannie Mae MBS for the retained mortgage portfolio.
64 Office of Federal Housing Enterprise Oversight

Period

Purchases ($ in millions)2

Single Family Mortgages Multifamily Mortgages

Total

Mortgage

Purchases

($)

Conventional FHA/VA Total

SingleFamily

Mortgages 

($)

Conventional

($) 

FHA/RHS

($) 

Total Multifamily

Mortgages

($) 

FixedRate3

($) 

AdjustableRate ($)Seconds

($) 

Total

($) 

FixedRate4

($) 

AdjustableRate ($)Total

($) 

4Q06 115,922 15,469 68 131,459 482 1,394 1,876 133,335 5,579 274 5,852 139,187 

3Q06 111,448 27,098 8 138,554 64 1,300 1,364 139,918 4,659 209 4,868 144,786 

2Q06 107,255 18,717 25 125,997 371 2,322 2,693 128,690 4,343 249 4,592 133,282 

1Q06 95,306 23,983 29 119,318 659 2,414 3,073 122,391 5,028 334 5,362 127,753 

Annual Data

2006 429,931 85,267 130 515,328 1,576 7,430 9,006 524,334 19,609 1,065 20,674 545,008 

2005 416,720 111,935 116 528,771 2,194 5,948 8,142 536,913 19,439 2,046 21,485 558,398 

2004 527,456 46,772 51 574,279 9,967 3,873 13,840 588,119 13,684 2,702 16,386 604,505 

2003 1,236,045 64,980 93 1,301,118 18,032 3,043 21,075 1,322,193 28,071 3,125 31,196 1,353,389 

2002 738,177 48,617 40 786,834 15,810 1,548 17,358 804,192 15,089 1,683 16,772 820,964 

2001 534,115 25,648 1,137 560,900 5,671 1,102 6,773 567,673 17,849 1,282 19,131 586,804 

2000 187,236 33,809 726 221,771 4,378 920 5,298 227,069 9,127 1,250 10,377 237,446 

1999 293,188 12,138 1,198 306,524 8,529 1,084 9,613 316,137 8,858 1,153 10,011 326,148 

1998 334,367 14,273 1 348,641 5,768 511 6,279 354,920 10,844 584 11,428 366,348 

1997 136,329 21,095 3 157,427 2,062 432 2,494 159,921 5,936 598 6,534 166,455 

1996 146,154 15,550 3 161,707 2,415 334 2,749 164,456 6,199 252 6,451 170,907 

1995 104,901 17,978 9 122,888 3,009 106 3,115 126,003 4,677 289 4,966 130,969 

1994 139,815 16,340 8 156,163 1,953 113 2,066 158,229 3,620 219 3,839 162,068 

1993 274,402 14,420 29 288,851 855 120 975 289,826 3,919 216 4,135 293,961 

1992 226,332 21,001 136 247,469 1,055 79 1,134 248,603 2,845 111 2,956 251,559 

1991 114,321 17,187 705 132,213 1,300 38 1,338 133,551 3,183 21 3,204 136,755 

1990 95,011 14,528 654 110,193 799 15 814 111,007 3,165 15 3,180 114,187 

1989 60,794 17,692 521 79,007 1,489 14 1,503 80,510 4,309 16 4,325 84,835 

1988 35,767 27,492 433 63,692 823 98 921 64,613 4,149 21 4,170 68,783 

1987 60,434 10,675 139 71,248 2,649 45 2,694 73,942 1,463 270 1,733 75,675 

1986 58,251 7,305 498 66,054 11,155 14 11,169 77,223 1,877 0 1,877 79,100 

1985 29,993 10,736 871 41,600 927 16 943 42,543 1,200 0 1,200 43,743 

1984 17,998 8,049 937 26,984 729 0 729 27,713 1,106 0 1,106 28,819 

1983 18,136 4,853 1,408 24,397 1,942 0 1,942 26,339 128 12 140 26,479 

1982 19,311 3,210 1,552 24,073 1,856 0 1,856 25,929 0 10 10 25,939 

1981 4,260 107 176 4,543 2,284 0 2,284 6,827 0 2 2 6,829 

1980 2,802 0 0 2,802 5,272 0 5,272 8,074 0 27 27 8,101 

1979 5,410 0 0 5,410 5,388 0 5,388 10,798 0 9 9 10,807 

1978 5,682 0 0 5,682 6,620 0 6,620 12,302 0 3 3 12,305 

1977 2,366 0 0 2,366 2,284 0 2,284 4,650 0 134 134 4,784 

1976 2,513 0 0 2,513 824 0 824 3,337 0 295 295 3,632 

1975 547 0 0 547 3,099 0 3,099 3,646 0 674 674 4,320 

1974 1,128 0 0 1,128 3,618 0 3,618 4,746 0 2,273 2,273 7,019 

1973 939 0 0 939 3,231 0 3,231 4,170 0 2,082 2,082 6,252 

1972 55 0 0 55 2,541 0 2,541 2,596 0 1,268 1,268 3,864 

1971 0 0 0 0 2,742 0 2,742 2,742 0 1,298 1,298 4,040 

Table 1a. Fannie Mae Mortgage Purchases Detail, By Type of Loan1

Source: Fannie Mae

1 Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required audits.

2 Lender-originated MBS issuances and cash purchases.

3 Includes balloons/resets. 

4 Includes loans guaranteed by the Rural Housing Service. 
Report to Congress • 2007 65

Table 1b. Fannie Mae Mortgage-Related Securities - Part 11

Period

Purchases ($ in millions)2

Fannie Mae Securities Other Securities

Mortgage

Revenue

Bonds

($)

Total

MortgageRelated

Securities

($)

Single-Family

Multifamily 

($)

Total

Fannie

Mae 

($)

Freddie Mac Ginnie Mae

Total

PrivateLabel 

($)

Single-Family

Multifamily

($)

Total

Freddie

Mac ($)

Single-Family

Multifamily 

($)

Total

Ginnie

Mae 

($)

FixedRate ($)AdjustableRate ($)FixedRate ($)AdjustableRate ($)FixedRate ($)AdjustableRate ($)

4Q06 4,132 915 81 5,128 217 107 0 324 0 0 0 0 15,573 14 21,039

3Q06 8,775 2,451 226 11,452 518 536 0 1,054 0 0 0 0 12,005 83 24,594

2Q06 9,534 7,806 0 17,340 92 2,736 0 2,828 0 0 0 0 19,147 42 39,357

1Q06 736 3,654 122 4,512 217 1,729 0 1,946 77 0 0 77 11,062 76 17,673

Annual Data

2006 23,177 14,826 429 38,432 1,044 5,108 0 6,152 77 0 0 77 57,787 215 102,663 

2005 8,273 6,344 888 15,505 121 3,449 0 3,570 0 0 0 0 41,369 1,788 62,232 

2004 42,300 21,281 1,159 64,740 6,546 8,228 0 14,774 0 0 0 0 90,747 6,124 176,385 

2003 341,461 5,842 1,225 348,528 19,340 502 0 19,842 36 0 0 36 34,032 6,168 408,606 

2002 238,711 4,219 1,572 244,502 7,856 101 0 7,957 4,425 0 0 4425 7,416 4,273 268,574 

2001 Not 

Available

Not 

Available

Not 

Available 180,582 Not Available

Not 

Available

Not

Available 20,072 Not Available

Not 

Available

Not

Available 333 3,513 4,624 209,124 

2000 Before 

2002

Before 

2002

Before 

2002 104,904 Before 2002

Before 

2002

Before

2002 10,171 Before 2002

Before 

2002

Before

2002 2,493 8,466 3,682 129,716 

1999 125,498 6,861 17,561 16,511 3,474 169,905 

1998 104,728 21,274 2,738 15,721 2,799 147,260 

1997 39,033 2,119 3,508 4,188 1,469 50,317 

1996 41,263 779 2,197 777 1,727 46,743 

1995 30,432 2,832 20 752 2,222 36,258 

1994 21,660 571 2,321 0 1,353 25,905 

1993 6,275 0 0 0 331 6,606 

1992 4,930 0 0 0 498 5,428 

1991 2,384 0 0 0 696 3,080 

1990 977 0 0 0 474 1,451 

Source: Fannie Mae

1 Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required audits.

2 Not included in total mortgage purchases. Includes purchases of Fannie Mae MBS for the retained mortgage portfolio.
66 Office of Federal Housing Enterprise Oversight

Period

Purchases ($ in millions) 2

Private-Label

Single-Family

Multifamily

($)

Total PrivateLabel 

($)

Manufactured

Housing 

($)

Other 3

Fixed-Rate

($) 

AdjustableRate ($) Total 

Other ($) 

4Q06 0 0 11,369 11,369 4,204 15,573 

3Q06 0 0 10,382 10,382 1,623 12,005 

2Q06 0 485 16,520 17,005 2,142 19,147 

1Q06 0 1,688 7,653 9,341 1,721 11,062 

Annual Data

2006 0 2,173 45,924 48,097 9,690 57,787 

2005 0 3,642 37,625 41,267 102 41,369 

2004 0 7,154 83,492 90,646 101 90,747 

2003 0 7,832 26,139 33,971 61 34,032 

2002 56 1,980 5,344 7,324 36 7,416 

2001 Not Available Not Available Not Available 3,513 Not Available 3,513 

2000 Before 2002 Before 2002 Before 2002 8,466 Before 2002 8,466 

1999 16,511 16,511 

1998 15,721 15,721 

1997 4,188 4,188 

1996 777 777 

1995 752 752 

1994 0 0 

1993 0 0 

1992 0 0 

1991 0 0 

1990 0 0 

Table 1b. Fannie Mae Purchases of Mortgage-Related Securities -

Part 2, Private-Label Detail1

Source: Fannie Mae

1 Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required

audits.

2 Not included in total mortgage purchases. 

3 Includes mortgage-related securities collateralized by first lien loans to credit-impaired borrowers and may include some underlying loans which are home equity or second lien.
Report to Congress • 2007 67

Period

Business Activity ($ in millions)

MBS Issuances2

Single-Family MBS

($)

Multifamily MBS

($) 

Total MBS

($) 

Multiclass MBS3

($) 

4Q06 123,303 921 124,224 18,119

3Q06 122,924 1,095 124,019 17,883

2Q06 117,739 1,163 118,902 45,247

1Q06 112,149 2,392 114,541 29,422

Annual Data

2006 476,115 5,571 481,686 110,671

2005 500,668 9,379 510,047 123,813

2004 545,443 6,854 552,297 94,686

2003 1,196,561 23,018 1,219,579 260,919

2002 727,257 12,338 739,595 170,795

2001 514,621 13,801 528,422 139,403

2000 204,066 7,596 211,662 39,544

1999 292,192 8,497 300,689 55,160

1998 315,120 11,028 326,148 84,147

1997 143,615 5,814 149,429 85,415

1996 144,201 5,668 149,869 30,780

1995 106,269 4,187 110,456 9,681

1994 128,385 2,237 130,622 73,365

1993 220,485 959 221,444 210,630

1992 193,187 850 194,037 170,205

1991 111,488 1,415 112,903 112,808

1990 96,006 689 96,695 68,291

1989 66,489 3,275 69,764 41,715

1988 51,120 3,758 54,878 17,005

1987 62,067 1,162 63,229 9,917

1986 60,017 549 60,566 2,400

1985 23,142 507 23,649 Not Issued

1984 13,087 459 13,546 Before 1986

1983 13,214 126 13,340

1982 13,970 Not Issued 13,970

1981 717 Before 1983 717

Table 2. Fannie Mae MBS Issuances1

Source: Fannie Mae

1 Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae’s 2005 and 2006 financial statements and required

audits.

2 Lender-originated MBS plus issuances from Fannie Mae's portfolio. 

3 Beginning in 2006, includes Grantor Trusts and REMICs as well as stripped MBS backed by Fannie Mae certificates.
68 Office of Federal Housing Enterprise Oversight

Period

Earnings ($ in Millions)

Net Interest

Income2

($) 

Guarantee Fee

Income

($) 

Average

Guarantee Fee

(basis points) 

Administrative

Expenses

($) 

Credit-Related

Expenses3

($) 

Net Income

($) 

Return on 

Equity4

($) 

4Q06 N/A N/A N/A N/A N/A N/A N/A

3Q06 N/A N/A N/A N/A N/A N/A N/A

2Q06 N/A N/A N/A N/A N/A N/A N/A

1Q06 N/A N/A N/A N/A N/A N/A N/A

Annual Data

2006 N/A N/A N/A N/A N/A N/A N/A

2005 N/A N/A N/A N/A N/A N/A N/A

2004 18,081 3,604 20.8 1,656 363 4,967 16.6

2003 19,477 3,281 21.0 1,454 353 8,081 27.6

2002 18,426 2,516 19.3 1,156 273 3,914 15.2

2001 8,090 1,482 19.0 1,017 78 5,894 39.8

2000 5,674 1,351 19.5 905 94 4,448 25.6

1999 4,894 1,282 19.3 800 127 3,912 25.2

1998 4,110 1,229 20.2 708 261 3,418 25.2

1997 3,949 1,274 22.7 636 375 3,056 24.6

1996 3,592 1,196 22.4 560 409 2,725 24.1

1995 3,047 1,086 22.0 546 335 2,144 20.9

1994 2,823 1,083 22.5 525 378 2,132 24.3

1993 2,533 961 21.3 443 305 1,873 25.3

1992 2,058 834 21.2 381 320 1,623 26.5

1991 1,778 675 21.0 319 370 1,363 27.7

1990 1,593 536 21.1 286 310 1,173 33.7

1989 1,191 408 21.3 254 310 807 31.1

1988 837 328 21.6 218 365 507 25.2

1987 890 263 22.1 197 360 376 24

1986 384 175 23.8 175 306 105 10

1985 139 112 25.6 142 206 (7) (1)

1984 (90) 78 26.2 112 86 (71) (7)

1983 (9) 54 26.3 81 48 49 5

1982 (464) 16 27.2 60 36 (192) (19)

1981 (429) 0 25.0 49 (28) (206) (17)

1980 21 Not Available Not Available 44 19 14 0.9

1979 322 Before 1981 Before 1981 46 35 162 11.3

1978 294 39 36 209 16.5

1977 251 32 28 165 15.3

1976 203 30 25 127 13.8

1975 174 27 16 115 14.1

1974 142 23 17 107 14.7

1973 180 18 12 126 20.3

1972 138 13 5 96 18.8

1971 49 15 4 61 14.4

Table 3. Fannie Mae Earnings1

Source: Fannie Mae

N/A = not available

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004. 

2 Interest income net of interest expense.

3 Credit-related expenses include the provision for credit losses and foreclosed property expenses (income).

4 Calculated as net income available to common stockholders divided by average outstanding common equity. 
Report to Congress • 2007 69

End of

Period

Balance Sheet ($ in Millions) Mortgage-Backed Securities

Outstanding ($ in Millions)

Total Assets2

($) 

Total Retained

Mortgage

Portfolio3 ($) 

Non-Mortgage

Investments4

($) 

Debt

Outstanding

($) 

Shareholders’

Equity ($) 

Core Capital5

($) 

Fair Value Net

Assets ($) 

Total MBS

Outstanding6

($) 

Multiclass

MBS

Outstanding7

($) 

4Q06 N/A N/A N/A N/A N/A 42,295 N/A 1,783,928 453,022

3Q06 N/A N/A N/A N/A N/A 42,008 N/A 1,736,912 449,854

2Q06 N/A N/A N/A N/A N/A 42,037 N/A 1,683,335 436,983

1Q06 N/A N/A N/A N/A N/A 40,333 N/A 1,649,384 424,325

Annual Data

2006 N/A N/A N/A N/A N/A 42,295 N/A 1,783,928 453,022

2005 N/A N/A N/A N/A N/A 38,135 N/A 1,598,079 388,905

2004 1,020,934 925,194 47,839 953,111 38,902 34,514 40,094 1,408,047 368,567

2003 1,022,275 919,589 59,518 961,280 32,268 26,953 28,393 1,300,520 398,516

2002 904,739 820,627 39,376 841,293 31,899 20,431 22,130 1,040,439 401,406

2001 799,948 706,347 65,982 763,467 18,118 25,182 22,675 863,445 392,457

2000 675,224 607,731 52,347 642,682 20,838 20,827 20,677 706,722 334,508

1999 575,308 523,103 37,299 547,619 17,629 17,876 20,525 679,145 335,514

1998 485,146 415,434 58,515 460,291 15,453 15,465 14,885 637,143 361,613

1997 391,673 316,592 64,596 369,774 13,793 13,793 15,982 579,138 388,360

1996 351,041 286,528 56,606 331,270 12,773 12,773 14,556 548,173 339,798

1995 316,550 252,868 57,273 299,174 10,959 10,959 11,037 513,230 353,528

1994 272,508 220,815 46,335 257,230 9,541 9,541 10,924 486,345 378,733

1993 216,979 190,169 21,396 201,112 8,052 8,052 9,126 471,306 381,865

1992 180,978 156,260 19,574 166,300 6,774 Not Applicable 9,096 424,444 312,369

1991 147,072 126,679 9,836 133,937 5,547 Before 1993 Not Available 355,284 224,806

1990 133,113 114,066 9,868 123,403 3,941 Before 1992 288,075 127,278

1989 124,315 107,981 8,338 116,064 2,991 216,512 64,826

1988 112,258 100,099 5,289 105,459 2,260 170,097 26,660

1987 103,459 93,665 3,468 97,057 1,811 135,734 11,359

1986 99,621 94,123 1,775 93,563 1,182 95,568 Not Issued

1985 99,076 94,609 1,466 93,985 1,009 54,552 Before 1987

1984 87,798 84,135 1,840 83,719 918 35,738

1983 78,383 75,247 1,689 74,594 1,000 25,121

1982 72,981 69,356 2,430 69,614 953 14,450

1981 61,578 59,629 1,047 58,551 1,080 717

1980 57,879 55,589 1,556 54,880 1,457 Not Issued

1979 51,300 49,777 843 48,424 1,501 Before 1981

1978 43,506 42,103 834 40,985 1,362

1977 33,980 33,252 318 31,890 1,173

1976 32,393 31,775 245 30,565 983

1975 31,596 30,820 239 29,963 861

1974 29,671 28,666 466 28,168 772

1973 24,318 23,589 227 23,003 680

1972 20,346 19,652 268 19,239 559

1971 18,591 17,886 349 17,672 460

Table 4. Fannie Mae Balance Sheet1

Source: Fannie Mae and OFHEO

N/A = not available

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004. Information included

in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required audits.

2 Beginning in 1998, the guaranty liability for Fannie Mae MBS held in the portfolio is classified as a liability. 

3 Gross retained portfolio net of unamortized purchase premium, discounts and cost basis adjustments, and, beginning in 2002, fair value adjustments on available-for-sale and trading securities. The amounts for 1999 through 2001

include certain loans held for investment that were previously classified as non-mortgage investments. 

4 Data reflects unpaid principal balance net of unamortized purchase premium, discounts and cost basis adjustments and fair value adjustment on available-for-sale securities. Values for years 1999 through 2001 excludes investments designated for securitization and resale. Prior to 1982, the majority of non-mortgage investments consisted of U.S. government securities and agency securities.

5 The sum of (a) the stated value of outstanding common stock (common stock less treasury stock); (b) the stated value of outstanding noncumulative perpetual preferred stock; (c) Fannie Mae’s paid-in capital; and (d) retained earnings, less treasury stock. Core capital excludes AOCI.

6 Total Fannie Mae MBS held by third parties. Excludes Fannie Mae MBS in the retained mortgage portfolio. Beginning in 2006, includes securities guaranteed by Fannie Mae that are backed by Ginne Mae collateral. 

7 Beginning in 2006, includes Grantor Trusts and REMICs as well as stripped MBS backed by Fannie Mae certificates.
70 Office of Federal Housing Enterprise Oversight

End of

Period

Single-Family Mortgages2 ($ in Millions) Multifamily Mortgages2 ($) Total 

MBS

Outstanding3

($)

Conventional FHA/VA

Conventional

($) 

FHA/RHS

($) 

Total 

MultiFamily

($) 

Fixed-Rate

($) 

AdjustableRate ($)Seconds

($) 

Total

($)

Fixed-Rate

($) 

AdjustableRate ($)Total

($)

4Q06 1,487,172 230,333 0 1,717,505 17,428 453 17,881 41,897 6,645 48,542 1,783,928

3Q06 1,430,836 231,374 0 1,662,210 18,160 491 18,651 49,308 6,743 56,051 1,736,912

2Q06 1,381,087 224,219 0 1,605,306 19,487 543 20,030 50,882 7,117 57,999 1,683,335

1Q06 1,338,908 229,698 0 1,568,606 20,636 596 21,232 52,211 7,335 59,546 1,649,384

Annual Data

2006 1,487,172 230,333 0 1,717,505 17,428 453 17,881 41,897 6,645 48,542 1,783,928

2005 1,297,623 222,928 0 1,520,551 18,528 644 19,172 52,576 5,780 58,356 1,598,079

2004 1,243,343 75,722 0 1,319,065 31,387 949 32,336 47,386 9,260 56,646 1,408,047

2003 1,112,849 87,373 0 1,200,222 36,139 1,268 37,407 53,720 9,171 62,891 1,300,520

2002 875,260 75,430 0 950,690 36,057 1,247 37,304 47,025 5,420 52,445 1,040,439

2001 752,211 60,842 772 813,825 4,519 1,207 5,726 42,713 1,181 43,894 863,445

2000 599,999 61,495 1,165 662,659 6,778 1,298 8,076 35,207 780 35,987 706,722

1999 586,069 51,474 1,212 638,755 7,159 1,010 8,169 31,518 703 32,221 679,145

1998 545,680 56,903 98 602,681 5,340 587 5,927 28,378 157 28,535 637,143

1997 483,982 70,106 7 554,095 3,872 213 4,085 20,824 134 20,958 579,138

1996 460,866 65,682 9 526,557 4,402 191 4,593 16,912 111 17,023 548,173

1995 431,755 63,436 13 495,204 5,043 91 5,134 12,579 313 12,892 513,230

1994 415,692 55,780 18 471,490 5,628 0 5,628 8,908 319 9,227 486,345

1993 405,383 49,987 28 455,398 7,549 0 7,549 8,034 325 8,359 471,306

1992 360,619 45,718 43 406,380 9,438 0 9,438 8,295 331 8,626 424,444

1991 290,038 45,110 89 335,237 11,112 0 11,112 8,599 336 8,935 355,284

1990 225,981 42,443 121 268,545 11,380 0 11,380 7,807 343 8,150 288,075

1989 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 216,512

1988 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 170,097

1987 135,734

1986 95,568

1985 54,552

1984 35,738

1983 25,121

1982 14,450

1981 717

1980 Not Issued

Before 1981

Table 4a. Fannie Mae Total MBS Outstanding Detail1

Source: Fannie Mae

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004. Information included in

the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required audits.

2 Unpaid principal balance.

3 Total Fannie Mae MBS held by third parties. Excludes Fannie Mae MBS in the retained mortgage portfolio. Includes guaranteed whole loan REMIC's and Private-label wraps that are not included in Grantor Trusts.
Report to Congress • 2007 71

($ in millions)

End of Period Whole Loans2,3 ($) 

Fannie Mae

Securities2, 4

($)

Other MortgageRelated Securities2, 4

($) 

Unamortized Premiums,

Discounts, Deferred

Adjustments, and Unrealized

Gains/Losses on Availablefor-Sale Securities5 ($) 

Total Retained

Mortgage Portfolio

($) 

4Q06 279,146 298,756 146,498 N/A N/A

3Q06 273,732 310,219 141,582 N/A N/A

2Q06 262,625 325,436 142,849 N/A N/A

1Q06 258,104 328,206 135,253 N/A N/A

Annual Data

2006 279,146 298,756 146,498 N/A N/A

2005 252,853 341,559 132,980 N/A N/A

2004 400,157 344,404 172,648 7,985 925,194

2003 397,633 405,922 105,313 10,721 919,589

2002 323,244 380,383 96,152 20,848 820,627

2001 167,405 431,776 109,270 (2,104) 706,347

2000 152,634 351,066 106,551 (2,520) 607,731

1999 149,231 281,714 93,122 (964) 523,103

1998 155,779 197,375 61,361 919 415,434

1997 160,102 130,444 26,132 (86) 316,592

1996 167,891 102,607 16,554 (525) 286,528

1995 171,481 69,729 12,301 (643) 252,868

1994 170,909 43,998 7,150 (1,242) 220,815

1993 163,149 24,219 3,493 (692) 190,169

1992 134,597 20,535 2,987 (1,859) 156,260

1991 109,251 16,700 3,032 (2,304) 126,679

1990 101,797 11,758 3,073 (2,562) 114,066

1989 95,729 11,720 3,272 (2,740) 107,981

1988 92,220 8,153 2,640 (2,914) 100,099

1987 89,618 4,226 2,902 (3,081) 93,665

1986 94,167 1,606 2,060 (3,710) 94,123

1985 97,421 435 793 (4,040) 94,609

1984 87,205 477 427 (3,974) 84,135

1983 77,983 Not Available 273 (3,009) 75,247

1982 71,777 Before 1984 37 (2,458) 69,356

1981 61,411 1 (1,783) 59,629

1980 57,326 1 (1,738) 55,589

1979 51,096 1 (1,320) 49,777

1978 43,315 Not Available (1,212) 42,103

1977 34,377 Before 1979 (1,125) 33,252

1976 32,937 (1,162) 31,775

1975 31,916 (1,096) 30,820

1974 29,708 (1,042) 28,666

1973 24,459 (870) 23,589

1972 20,326 (674) 19,652

1971 18,515 (629) 17,886

Table 5. Fannie Mae Retained Mortgage Portfolio Detail1

Source: Fannie Mae

N/A = not available

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004.

Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required

audits.

2 Unpaid principal balance.

3 Includes mortgage-related securities that were consolidated as loans as of December 31, 2004, 2003, and 2002. For 1999, 2000, and 2001 includes certain loans held for investment that were classified as

nonmortgage investments. 

4 Excludes mortgage-related securities that were consolidated as loans as of December 31, 2004, 2003, and 2002.

5 Beginning in 2002, amounts include fair value adjustments on mortgage-related securities and securities commitments classified as trading and available-for-sale.
72 Office of Federal Housing Enterprise Oversight

End of 

Period

Whole Loans ($ in millions)2

Single-Family Multifamily

Total Whole

Loans

($)

Conventional

Conventional

($) 

FHA/RHS

($)

Total

($) Fixed-Rate3

($) 

AdjustableRate ($)Seconds

($) 

Total

($) 

Total

FHA/VHA4

($) 

4Q06 191,907 18,991 288 211,186 20,023 47,348 589 47,937 279,146

3Q06 192,429 18,144 235 210,808 19,221 43,077 626 43,703 273,732

2Q06 186,183 17,079 242 203,504 18,460 40,000 661 40,661 262,625

1Q06 186,265 16,958 234 203,457 16,807 37,142 697 37,839 258,103

Annual Data

2006 191,907 18,991 288 211,186 20,023 47,348 589 47,937 279,146

2005 185,086 16,892 218 202,196 14,930 34,991 736 35,727 252,853

2004 307,048 38,350 177 345,575 10,112 43,396 1,074 44,470 400,157

2003 335,812 19,155 233 355,200 7,284 33,945 1,204 35,149 397,633

2002 282,899 12,142 416 295,457 6,404 19,485 1,898 21,383 323,244

2001 140,454 10,427 917 151,798 5,069 8,987 1,551 10,538 167,405

2000 125,786 13,244 480 139,510 4,763 6,547 1,814 8,361 152,634

1999 130,614 6,058 176 136,848 4,472 5,564 2,347 7,911 149,231

1998 135,351 7,633 206 143,190 4,404 5,590 2,595 8,185 155,779

1997 134,543 10,389 268 145,200 4,631 7,388 2,883 10,271 160,102

1996 137,507 12,415 323 150,245 4,739 9,756 3,151 12,907 167,891

1995 137,032 14,756 423 152,211 4,780 11,175 3,315 14,490 171,481

1994 133,882 16,475 537 150,894 4,965 11,681 3,369 15,050 170,909

1993 123,308 19,175 772 143,255 5,305 11,143 3,446 14,589 163,149

1992 91,500 22,637 1,355 115,492 6,097 9,407 3,601 13,008 134,597

1991 69,130 19,763 2,046 90,939 6,962 7,641 3,709 11,350 109,251

1990 61,873 19,558 1,851 83,282 8,524 6,142 3,849 9,991 101,797

1989 55,638 20,751 1,614 78,003 9,450 3,926 4,350 8,276 95,729

1988 53,090 20,004 1,561 74,655 10,480 2,699 4,386 7,085 92,220

1987 55,913 13,702 1,421 71,036 11,652 2,448 4,482 6,930 89,618

1986 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 94,167

1985 Before 1987 Before 1987 Before 1987 Before 1987 Before 1987 Before 1987 Before 1987 Before 1987 97,421

1984 87,205

1983 77,983

1982 71,777

1981 61,411

1980 57,326

1979 51,096

1978 43,315

1977 34,377

1976 32,937

1975 31,916

1974 29,708

1973 24,459

1972 20,326

1971 18,515

Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Whole Loans1

Source: Fannie Mae

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004.

Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required

audits.

2 Unpaid principal balance. Includes mortgage-related securities that were consolidated as loans as of December 31, 2004, 2003, and 2002. For 1999, 2000, and 2001 includes certain loans held for investment

that were classified as nonmortgage investments.

3 Includes balloon/reset loans.

4 Includes loans guaranteed by the Rural Housing Service.
Report to Congress • 2007 73

End of

Period

Mortgage-Related Securities ($ in Millions)2

Fannie Mae Securities ($) Others’ Securities

Single-Family

Multifamily

($)

Total

Fannie

Mae ($) 

Freddie Mac Ginnie Mae

Total

PrivateLabel

($) 

Total

Others’

Securities

($)

FixedRate

($)

AdjustableRate ($)

Single-Family Multifamily

($)

Total

Freddie

Mac ($)

Single-Family Multifamily

($)

Total

Ginnie

Mae ($)

FixedRate

($) 

AdjustableRate ($)

FixedRate

($) 

AdjustableRate ($)

4Q06 256,745 33,976 8,035 298,756 17,304 12,773 0 30,077 1,837 0 56 1,893 97,530 129,500

3Q06 265,822 36,052 8,345 310,219 17,716 13,226 0 30,942 1,935 0 56 1,991 91,245 124,178

2Q06 280,678 36,356 8,402 325,436 17,891 13,362 0 31,253 2,052 0 57 2,109 91,747 125,109

1Q06 288,463 31,022 8,721 328,206 18,448 11,184 0 29,632 2,193 0 57 2,250 85,009 116,891

Annual Data

2006 256,745 33,976 8,035 298,756 17,304 12,773 0 30,077 1,837 0 56 1,893 97,530 129,500

2005 303,025 29,571 8,963 341,559 18,850 9,861 0 28,711 2,272 0 57 2,329 83,137 114,177

2004 339,138 3,869 1,397 344,404 29,328 8,235 0 37,563 4,131 1 68 4,200 108,809 150,572

2003 400,863 3,149 1,910 405,922 30,356 558 0 30,914 6,993 0 68 7,061 46,979 84,954

2002 373,958 3,827 2,598 380,383 32,617 207 0 32,824 15,436 0 85 15,521 28,157 76,502

2001 417,796 5,648 8,332 431,776 42,516 287 26 42,829 18,779 1 109 18,889 29,175 90,893

2000 Not Available Not Available Not Available 351,066 Not Available Not Available Not Available 33,290 Not Available Not Available Not Available 23,768 34,266 91,324

1999 Before 2001 Before 2001 Before 2001 281,714 Before 2001 Before 2001 Before 2001 25,577 Before 2001 Before 2001 Before 2001 23,701 31,673 80,951

1998 197,375 23,453 8,638 19,585 51,676

1997 130,444 5,262 7,696 5,554 18,512

1996 102,607 3,623 4,780 1,486 9,889

1995 69,729 3,233 2,978 747 6,958

1994 43,998 564 3,182 1 3,747

1993 24,219 Not Available 972 2 974

1992 20,535 Before 1994 168 3 171

1991 16,700 180 93 273

1990 11,758 191 352 543

1989 11,720 202 831 1,033

1988 8,153 26 810 836

1987 4,226 Not Available 1,036 1,036

1986 1,606 Before 1988 1,591 1,591

1985 435 Not Available Not Available

1984 477 Before 1986 Before 1986

1983 Not available 

Before 1984

Table 5b. Fannie Mae Retained Mortgage Portfolio Detail - Part 1, Mortgage-Related Securities1

Source: Fannie Mae

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004. Information included in

the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required audits.

2 Unpaid principal balance. Excludes mortgage related securities consolidated to loan at December 31, 2002, 2003 and 2004. 
74 Office of Federal Housing Enterprise Oversight

End of Period

Mortgage-Related Securities ($ in Millions)2

Private-Label

Single-Family

Multifamily

($)

Total PrivateLabel

($) 

Manufactured

Housing

($)

Other3

Fixed-Rate

($) 

AdjustableRate ($)Total 

Other ($) 

4Q06 4,589 12,111 70,738 82,849 10,092 97,530

3Q06 4,778 13,212 67,365 80,577 5,890 91,245

2Q06 4,981 14,373 68,121 82,494 4,272 91,747

1Q06 5,200 14,591 63,085 77,676 2,133 85,009

Annual Data

2006 4,589 12,111 70,738 82,849 10,092 97,530

2005 5,407 13,602 63,713 77,315 415 83,137

2004 5,461 14,811 88,478 103,289 59 108,809

2003 6,522 11,812 28,549 40,361 96 46,979

2002 9,583 10,551 7,879 18,430 144 28,157

2001 10,708 13,432 4,736 18,168 299 29,175

2000 Not Available Not Available Not Available 24,794 Not Available 34,266

1999 Before 2001 Before 2001 Before 2001 31,673 Before 2001 31,673

1998 19,585 19,585

1997 5,554 5,554

1996 1,486 1,486

1995 747 747

1994 1 1

1993 2 2

1992 3 3

1991 93 93

1990 352 352

1989 831 831

1988 810 810

1987 1,036 1,036

1986 1,591 1,591

1985 Not Available Not Available

1984 Before 1986 Before 1986

1983

Table 5b. Fannie Mae Retained Mortgage Portfolio Detail - 

Part 2, Mortgage-Related Securities, Private-Label Detail1

Source: Fannie Mae

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004.

Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required

audits.

2 Unpaid principal balance. Excludes mortgage related securities consolidated to loan at December 31, 2002, 2003 and 2004. 

3 Include mortgage-related securities collateralized by first lien loans to credit-impaired borrowers and may include some underlying loans which are home equity or second lien.
Report to Congress • 2007 75

End of Period

Mortgage-Related Securities ($ in Millions) ($ in Millions)

Mortgage 

Revenue 

Bonds2

($)

Total 

Mortgage-Related

Securities2 ($)

Unamortized Premiums,

Discounts, Deferred

Adjustments, and

Unrealized Gains/Losses

on Available-for-Sale

Securities3 ($) 

Total Retained 

Mortgage 

Portfolio

($) 

4Q06 16,999 445,254 N/A N/A

3Q06 17,404 451,801 N/A N/A

2Q06 17,739 468,285 N/A N/A

1Q06 18,362 463,459 N/A N/A

Annual Data

2006 16,999 445,254 N/A N/A

2005 18,803 474,540 N/A N/A

2004 22,076 517,052 7,985 925,194

2003 20,359 511,235 10,721 919,589

2002 19,650 476,535 20,848 820,627

2001 18,377 541,046 (2,104) 706,347

2000 15,227 457,617 (2,520) 607,731

1999 12,171 374,836 (964) 523,103

1998 9,685 258,736 919 415,434

1997 7,620 156,576 (86) 316,592

1996 6,665 119,161 (525) 286,527

1995 5,343 82,030 (643) 252,868

1994 3,403 51,148 (1,242) 220,815

1993 2,519 27,712 (692) 190,169

1992 2,816 23,522 (1,859) 156,260

1991 2,759 19,732 (2,304) 126,679

1990 2,530 14,831 (2,562) 114,066

1989 2,239 14,992 (2,740) 107,981

1988 1,804 10,793 (2,914) 100,099

1987 1,866 7,128 (3,081) 93,665

1986 469 Not Available (3,710) 94,123

1985 Not Available Before 1987 (4,040) 95,250

1984 Before 1986 (3,974) 84,695

1983 (3,009) 75,782

1982 (2,458) 69,842

1981 (1,783) 59,949

1980 (1,738) 55,878

1979 (1,320) 49,777

1978 (1,212) 42,103

1977 (1,125) 33,252

1976 (1,162) 31,775

1975 (1,096) 30,821

1974 (1,042) 28,665

1973 (870) 23,579

1972 (674) 19,650

1971 (629) 17,886

Table 5b. Fannie Mae Retained Mortgage Portfolio Detail - 

Part 3, Mortgage-Related Securities1

Source: Fannie Mae

N/A = not available 

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004.

Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required

audits.

2 Unpaid principal balance.

3 Beginning in 2002, amounts include fair value adjustments on mortgage-related securities and securities commitments classified as trading and available-for-sale.
76 Office of Federal Housing Enterprise Oversight

End of Period

Financial Derivatives - Notional Amount Outstanding ($ in Millions)

Interest Rate

Swaps3

($)

Interest Rate

Caps, Floors, and

Corridors

($)

Foreign

Currency

Contracts

($)

OTC Futures,

Options, and

Forward Rate

Agreements

($) 

Mandatory

Mortgage

Purchase & Sell

Commitments

($)

Other

($) 

Total

($) 

4Q06 513,952 14,000 4,190 210,271 N/A 0 N/A

3Q06 462,344 18,200 5,932 214,520 N/A 0 N/A

2Q06 432,128 23,400 5,981 241,040 N/A 0 N/A

1Q06 347,649 26,600 4,905 269,780 N/A 0 N/A

Annual Data

2006 513,952 14,000 4,190 210,271 N/A 0 N/A

2005 306,984 33,000 5,485 298,685 N/A 0 N/A

2004 256,216 104,150 11,453 318,275 40,600 0 730,694

2003 598,288 130,350 5,195 305,175 43,560 0 1,082,568

2002 253,211 122,419 3,932 275,625 Not Available 0 655,187

2001 299,953 75,893 8,493 148,800 Before 2003 0 533,139

2000 227,651 33,663 9,511 53,915 0 324,740

1999 192,032 28,950 11,507 41,081 1,400 274,970

1998 142,846 14,500 12,995 13,481 3,735 187,557

1997 149,673 100 9,968 0 1,660 161,401

1996 158,140 300 2,429 0 350 161,219

1995 125,679 300 1,224 29 975 128,207

1994 87,470 360 1,023 0 1,465 90,317

1993 49,458 360 1,023 0 1,425 52,265

1992 24,130 0 1,177 0 1,350 26,658

1991 9,100 0 Not Available 50 1,050 10,200

1990 4,800 0 Before 1992 25 1,700 6,525

Table 6. Fannie Mae Financial Derivatives1, 2

Source: Fannie Mae

N/A = not available 

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004.

Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required

audits.

2 Beginning in 2002, derivatives are accounted for on a settlement-date basis. For the periods prior to 2002, derivatives are accounted for on a trade-date basis.

3 Beginning in 2002, includes MBS options, swap credit enhancements and the fair value of mortgage insurance contracts that are accounted for as derivatives.
Report to Congress • 2007 77

End of Period

Non-Mortgage Investments ($ in Millions)2

Federal Funds 

and 

Eurodollars ($) 

Asset-Backed

Securities

Repurchase

Agreements3

Commercial Paper

and Corporate Debt

($) 

Other ($) Total ($) 

4Q06 N/A N/A N/A N/A N/A N/A

3Q06 N/A N/A N/A N/A N/A N/A

2Q06 N/A N/A N/A N/A N/A N/A

1Q06 N/A N/A N/A N/A N/A N/A

Annual Data

2006 N/A N/A N/A N/A N/A N/A

2005 N/A N/A N/A N/A N/A N/A

2004 3,860 25,644 70 16,435 1,829 47,839

2003 12,575 26,862 111 17,700 2,270 59,518

2002 150 22,312 181 14,659 2,074 39,376

2001 16,089 20,937 808 23,805 4,343 65,982

2000 7,539 17,512 87 8,893 18,316 52,347

1999 4,837 19,207 122 1,723 11,410 37,299

1998 7,926 20,993 7,556 5,155 16,885 58,515

1997 19,212 16,639 6,715 11,745 10,285 64,596

1996 21,734 14,635 4,667 6,191 9,379 56,606

1995 19,775 9,905 10,175 8,629 8,789 57,273

1994 17,593 3,796 9,006 7,719 8,221 46,335

1993 4,496 3,557 4,684 0 8,659 21,396

1992 6,587 4,124 3,189 0 5,674 19,574

1991 2,954 2,416 2,195 0 2,271 9,836

1990 5,329 1,780 951 0 1,808 9,868

1989 5,158 1,107 0 0 2,073 8,338

1988 4,125 481 0 0 683 5,289

1987 2,559 25 0 0 884 3,468

1986 1,530 0 0 0 245 1,775

1985 1,391 0 0 0 75 1,466

1984 1,575 0 0 0 265 1,840

1983 9 0 0 0 227 236

1982 1,799 0 0 0 631 2,430

1981 Not Available Not Available Not Available Not Available Not Available 1,047

1980 Before 1982 Before 1982 Before 1982 Before 1982 Before 1982 1,556

1979 843

1978 834

1977 318

1976 245

1975 239

1974 466

1973 227

1972 268

1971 349

Table 7. Fannie Mae Non-Mortgage Investments1

Source: Fannie Mae

N/A = not available 

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004. 

2 Data reflects unpaid principal balance net of unamortized purchase premium, discounts and cost basis adjustments and fair value adjustment on available-for-sale securities. Values for years 1999 through

2001 excludes investments designated for securitization and resale. Prior to 1982, the majority of non-mortgage investments consisted of U.S. government securities and agency securities.

3 As of 1999, Repurchase Agreements consist primarily of overnight investments that mature daily.
78 Office of Federal Housing Enterprise Oversight

End of Period

Mortgage Asset Quality

Single-Family

Delinquency Rate2

(%)

Multifamily

Delinquency Rate3

(%)

Credit Losses/Total

MBS Outstanding plus

Retained Mortgage

Portfolio4 (%)

REO/Total MBS

Outstanding plus

Retained Mortgage

Portfolio5 (%)

Credit-Enhanced

Outstanding/Total

MBS Outstanding plus

Retained Mortgage

Portfolio6 (%)

4Q06 0.65 0.08 N/A N/A N/A

3Q06 0.61 0.11 N/A N/A N/A

2Q06 0.60 0.19 N/A N/A N/A

1Q06 0.67 0.26 N/A N/A N/A

Annual Data

2006 0.65 0.08 N/A N/A N/A

2005 0.79 0.27 N/A N/A N/A

2004 0.63 0.11 0.01 0.07 20.5

2003 0.60 0.29 0.01 0.06 22.6

2002 0.57 0.08 0.01 0.05 26.8

2001 0.55 0.27 0.01 0.04 34.2

2000 0.45 0.07 0.01 0.05 40.4

1999 0.47 0.11 0.01 0.06 20.9

1998 0.56 0.23 0.03 0.08 17.5

1997 0.62 0.37 0.04 0.10 12.8

1996 0.58 0.68 0.05 0.11 10.5

1995 0.56 0.81 0.05 0.08 10.6

1994 0.47 1.21 0.06 0.10 10.2

1993 0.48 2.34 0.04 0.10 10.6

1992 0.53 2.65 0.04 0.09 15.6

1991 0.64 3.62 0.04 0.07 22.0

1990 0.58 1.70 0.06 0.09 25.9

1989 0.69 3.20 0.07 0.14 Not Available 

1988 0.88 6.60 0.11 0.15 Before 1990

1987 1.12 Not Available 0.11 0.18

1986 1.38 Before 1988 0.12 0.22

1985 1.48 0.13 0.32

1984 1.65 0.09 0.33

1983 1.49 0.05 0.35

1982 1.41 0.01 0.20

1981 0.96 0.01 0.13

1980 0.90 0.01 0.09

1979 0.56 0.02 0.11

1978 0.55 0.02 0.18

1977 0.46 0.02 0.26

1976 1.58 0.03 0.27

1975 0.56 0.03 0.51

1974 0.51 0.02 0.52

1973 Not Available 0.00 0.61

1972 Before 1974 0.02 0.98

1971 0.01 0.59

Table 8. Fannie Mae Mortgage Asset Quality1

Source: Fannie Mae

N/A = not available

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004.

Information included in the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required audits.

2 Beginning with 1998, data include all seriously delinquent conventional loans with and without primary mortgage insurance and/or credit enhancement. Prior to 1988, data include all seriously delinquent loans

for which Fannie Mae has primary risk of loss. Data prior to 1992 include loans in relief or bankruptcy, even if the loans are less than 90 days delinquent.

3 Beginning in 1998, data include all loans and securities 60 days or more past due and is calculated based on mortgage credit book of business. Data prior to 1998 include loans for which Fannie Mae has primary

risk of loss.

4 Credit losses are charge-offs, net of recoveries and foreclosed property expense (income); average balances used to calculate ratios subsequent to 1994; quarterly data are annualized.

5 Real estate owned balances reflect end-of-period amounts. Beginning with 1995, data reflect adoption of SFAS 114.

6 Beginning in 2000, "credit-enhanced" is expanded to include primary mortgage insurance. Prior to 2000, reflect proportion of the retained mortgage portfolio with additional recourse from a third party to accept

some or all of the expected losses on defaulted mortgages. 
Report to Congress • 2007 79

End of 

Period

Capital ($ in Millions)

Minimum Capital Requirement Risk-Based Capital Requirement

Market

Capitalization6

($)

Core

Capital/Total

Assets

(%)

Core

Capital/Total

MBS

Outstanding

plus Total

Assets

(%)

Common

Share

Dividend

Payout Rate7

(%)

Core Capital

($) 

Minimum

Capital

Requirement2

($) 

Minimum

Capital

Surplus

(Deficit)2 ($) 

Total Capital3

($) 

Risk-Based

Capital

Requirement4

($) 

Risk-Based

Capital

Surplus

(Deficit)5 ($) 

4Q06 42,295 29,332 12,963 43,046 26,870 16,176 57,735 N/A N/A N/A

3Q06 42,008 29,010 12,998 41,820 22,524 19,296 54,325 N/A N/A N/A

2Q06 42,037 29,419 12,618 42,888 26,330 16,558 46,730 N/A N/A N/A

1Q06 40,333 28,708 11,625 41,174 17,533 23,641 49,932 N/A N/A N/A

Annual Data

2006 42,295 29,332 12,963 43,046 26,870 16,176 57,735 N/A N/A N/A

2005 38,135 28,463 9,673 39,204 12,636 26,568 47,373 N/A N/A N/A

2004 34,514 32,121 2,393 35,196 10,039 25,157 69,010 3.38 1.42 42.1

2003 26,953 31,816 (4,863) 27,487 27,221 266 72,838 2.64 1.16 20.8

2002 20,431 27,688 (7,257) 20,831 17,434 3,397 63,612 2.26 1.05 34.5

2001 25,182 24,182 1,000 25,976 Not Applicable Not Applicable 79,281 3.09 1.50 23.0

2000 20,827 20,294 533 21,634 Before 2002 Before 2002 86,643 3.08 1.51 26.0

1999 17,876 17,770 106 18,677 63,651 3.11 1.42 28.8

1998 15,465 15,334 131 16,257 75,881 3.19 1.38 29.5

1997 13,793 12,703 1,090 14,575 59,167 3.52 1.42 29.4

1996 12,773 11,466 1,307 13,520 39,932 3.64 1.42 30.4

1995 10,959 10,451 508 11,703 33,812 3.46 1.32 34.6

1994 9,541 9,416 126 10,368 19,882 3.50 1.26 30.8

1993 8,052 7,876 176 8,893 21,387 3.71 1.17 26.8

1992 Not Applicable Not Applicable Not Applicable Not Applicable 20,874 Not Applicable Not Applicable 23.2

1991 Before 1993 Before 1993 Before 1993 Before 1993 18,836 Before 1993 Before 1993 21.3

1990 8,490 14.7

1989 8,092 12.8

1988 3,992 11.2

1987 2,401 11.7

1986 3,006 8.0

1985 1,904 30.1

1984 1,012 Not Applicable

1983 1,514 13.9

1982 1,603 Not Applicable

1981 502 Not Applicable

1980 702 464.2

1979 Not Available 45.7

1978 Before 1980 30.3

1977 31.8

1976 33.6

1975 31.8

1974 29.6

1973 18.1

1972 15.2

1971 18.7

Table 9. Fannie Mae Capital1

Source: Fannie Mae and OFHEO

N/A = not available

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in Fannie Mae’s accounting policies as described in its Annual Report on Form 10-K for the year ended December 31, 2004. Information included in

the table and footnotes for periods 2005 and 2006 are subject to change pending the preparation and completion of Fannie Mae's 2005 and 2006 financial statements and required audits.

2 Since 3Q 2005, OFHEO has directed Fannie Mae to maintain an additional 30% capital in excess of the statutory Minimum Capital Requirement. The Minimum Capital Requirement and Minimum Capital Surplus numbers stated in

this chart do not reflect the inclusion of the additional 30% capital requirement. Minimum Capital Surplus is the difference between Core Capital and Minimum Capital Requirement.

3 Total Capital is Core Capital plus the total allowance for loan losses and guaranty liability for MBS, less any specific loss allowances.

4 The Risk-Based Capital Requirement is the amount of Total Capital that an Enterprise must hold to absorb projected losses flowing from future adverse interest rate and credit risk conditions and is specified by the Federal Housing

Enterprise Financial Safety and Soundness Act of 1992.

5 The difference between Total Capital and the Risk-Based Capital Requirement.

6 Stock price at the end of the period multiplied by the number of outstanding common shares.

7 Common dividends paid as a percentage of net income available to common stockholders. 
80 Office of Federal Housing Enterprise Oversight

Business Activity ($ in Millions)

Purchases2

Period Single-Family

($) Multifamily ($) Total Mortgages3 ($) Mortgage-Related

Securities4 ($)

4Q06 91,296 3,757 95,053 51,285

3Q06 91,899 2,687 94,586 44,927

2Q06 79,568 3,079 82,647 77,907

1Q06 88,507 3,508 92,015 67,086

Annual Data

2006 351,270 13,031 364,301 241,205

2005 381,673 11,172 392,845 325,575

2004 354,812 12,712 367,524 223,299

2003 701,483 15,292 716,775 385,078

2002 533,194 10,654 543,848 299,674

2001 384,124 9,510 393,634 248,466

2000 168,013 6,030 174,043 91,896

1999 232,612 7,181 239,793 101,898

1998 263,490 3,910 267,400 128,446

1997 115,160 2,241 117,401 35,385

1996 122,850 2,229 125,079 36,824

1995 89,971 1,565 91,536 39,292

1994 122,563 847 123,410 19,817

1993 229,051 191 229,242 Not Available

1992 191,099 27 191,126 Before 1994

1991 99,729 236 99,965

1990 74,180 1,338 75,518

1989 76,765 1,824 78,589

1988 42,884 1,191 44,075

1987 74,824 2,016 76,840

1986 99,936 3,538 103,474

1985 42,110 1,902 44,012

1984 Not Available Not Available 21,885

1983 Before 1985 Before 1985 22,952

1982 23,671

1981 3,744

1980 3,690

1979 5,716

1978 6,524

1977 4,124

1976 1,129

1975 1,716

1974 2,185

1973 1,334

1972 1,265

1971 778

Table 10. Freddie Mac Mortgage Purchases1

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

3 Loans purchased from lenders. Excludes purchased non-Freddie Mac MBS and repurchased Freddie Mac MBS and structured securities.

4 Not included in total mortgages. For the period 2002 through the current period, amounts include non-Freddie Mac mortgage-related securities purchased for structured securities (e.g. alternative structured

securities and structured securities backed by Ginnie Mae MBS). For 2001, amounts include alternative structured securities and exclude structured securities backed by Ginnie Mae MBS. 
Report to Congress • 2007 81

Purchases ($ in Millions)2, 3

Single-Family Mortgages Multifamily Mortgages

Total

Mortgage

Purchases

($)

Conventional FHA/VA Total

SingleFamily

Mortgages

($)

Conventional

($)

FHA/RHS

($) 

Total Multifamily

Mortgages Period ($) Fixed-Rate4

($) 

AdjustableRate5 ($)

Seconds

($) 

Total

($) 

Fixed-Rate

($) 

AdjustableRate ($)Total

($) 

4Q06 67,855 23,311 0 91,166 130 0 130 91,296 3,757 0 3,757 95,053

3Q06 71,153 19,930 0 91,083 816 0 816 91,899 2,687 0 2,687 94,586

2Q06 64,880 14,688 0 79,568 0 0 0 79,568 3,079 0 3,079 82,647

1Q06 68,987 19,520 0 88,507 0 0 0 88,507 3,508 0 3,508 92,015

Annual Data

2006 272,875 77,449 0 350,324 946 0 946 351,270 13,031 0 13,031 364,301

2005 313,842 67,831 0 381,673 0 0 0 381,673 11,172 0 11,172 392,845

2004 293,830 60,663 0 354,493 319 0 319 354,812 12,712 0 12,712 367,524

2003 617,796 82,270 0 700,066 1,417 0 1,417 701,483 15,292 0 15,292 716,775

2002 468,901 63,448 0 532,349 845 0 845 533,194 10,654 0 10,654 543,848

2001 353,056 30,780 0 383,836 288 0 288 384,124 9,507 3 9,510 393,634

2000 145,744 21,201 0 166,945 1,068 0 1,068 168,013 6,030 0 6,030 174,043

1999 224,040 7,443 0 231,483 1,129 0 1,129 232,612 7,181 0 7,181 239,793

1998 256,008 7,384 0 263,392 98 0 98 263,490 3,910 0 3,910 267,400

1997 106,174 8,950 0 115,124 36 0 36 115,160 2,241 0 2,241 117,401

1996 116,316 6,475 0 122,791 59 0 59 122,850 2,229 0 2,229 125,079

1995 75,867 14,099 0 89,966 5 0 5 89,971 1,565 0 1,565 91,536

1994 105,902 16,646 0 122,548 15 0 15 122,563 847 0 847 123,410

1993 208,322 20,708 1 229,031 20 0 20 229,051 191 0 191 229,242

1992 175,515 15,512 7 191,034 65 0 65 191,099 27 0 27 191,126

1991 91,586 7,793 206 99,585 144 0 144 99,729 236 0 236 99,965

1990 56,806 16,286 686 73,778 402 0 402 74,180 1,338 0 1,338 75,518

1989 57,100 17,835 1,206 76,141 624 0 624 76,765 1,824 0 1,824 78,589

1988 34,737 7,253 59 42,049 835 0 835 42,884 1,191 0 1,191 44,075

1987 69,148 4,779 69 73,996 828 0 828 74,824 2,016 0 2,016 76,840

1986 96,105 2,262 90 98,457 1,479 0 1,479 99,936 3,538 0 3,538 103,474

1985 40,226 605 34 40,865 1,245 0 1,245 42,110 1,902 0 1,902 44,012

1984 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 

1983 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985

1982

1981

1980

1979

1978

1977

1976

1975

1974

1973

1972

1971

Table 10a. Freddie Mac Mortgage Purchases Detail, By Type of Loan1

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled.

3 Loans purchased from lenders. Excludes purchased non-Freddie Mac MBS and repurchased Freddie Mac MBS and structured securities.

4 For the period 2002 through the current period, includes loans guaranteed by the Rural Housing Service.

5 For the period 2001 through the current period, includes balloons/resets. 
82 Office of Federal Housing Enterprise Oversight

Table 10b. Freddie Mac Purchases of Mortgage-Related Securities - Part 11

Period

Purchases ($ in millions)2

Freddie Mac Securities Other Securities

Mortgage

Revenue

Bonds

($)

Total

MortgageRelated

Securities3

($)

Single-Family

Multifamily ($)

Total

Freddie

Mac ($)

Fannie Mae Ginnie Mae

Total

PrivateLabel 

($)

Single-Family

Multifamily ($)

Total

Fannie

Mae ($)

Single-Family Multifamily 

($)

Total

Ginnie

Fixed- Mae ($) Rate ($)AdjustableRate ($)FixedRate ($)AdjustableRate ($)FixedRate ($)AdjustableRate ($)

4Q06 16,035 4,402 0 20,437 213 1,526 0 1,739 0 0 0 0 28,714 395 51,285

3Q06 11,603 5,434 0 17,037 250 1,940 0 2,190 0 0 0 0 24,660 1,040 44,927

2Q06 31,023 7,800 0 38,823 1,837 3,482 0 5,319 0 0 0 0 32,498 1,267 77,907

1Q06 17,717 9,510 0 27,227 1,959 1,066 0 3,025 0 0 0 0 36,358 476 67,086

Annual Data

2006 76,378 27,146 0 103,524 4,259 8,014 0 12,273 0 0 0 0 122,230 3,178 241,205

2005 106,682 29,805 0 136,487 2,854 3,368 0 6,222 64 0 0 64 179,962 2,840 325,575

2004 72,147 23,942 146 96,235 756 3,282 0 4,038 0 0 0 0 121,082 1,944 223,299

2003 Not Available

Before 2004

Not Available

Before 2004

Not Available

Before 2004 266,989 Not AvailableBefore 2004

Not Available

Before 2004

Not Available

Before 2004 47,806 Not AvailableBefore 2004

Not Available

Before 2004 

Not Available

Before 2004 166 69,154 963 385,078

2002 192,817 45,798 820 59,376 863 299,674

2001 157,339 64,508 1,444 24,468 707 248,466

2000 58,516 18,249 3,339 10,304 1,488 91,896

1999 69,219 12,392 3,422 15,263 1,602 101,898

1998 107,508 3,126 319 15,711 1,782 128,446

1997 31,296 897 326 1,494 1,372 35,385

1996 33,338 Not Available

Before 1997

Not Available

Before 1997

Not Available

Before 1997

Not Available

Before 1997 36,824

1995 32,534 39,292

1994 19,817 19,817

1993 Not Available

Before 1994

Not Available

Before 1994

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

3 Not included in total mortgages. For years 2002 through the current period, amounts include non-Freddie Mac mortgage-related securities purchased for structured securities (e.g. alternative structured securities and structured

securities backed by Ginnie Mae MBS). For 2001, amount includes alternative structured securities and excludes structured securities backed by Ginnie Mae MBS.
Report to Congress • 2007 83

Period

Purchases ($ in millions)2

Private-Label

Single-Family

Multifamily

($)

Total Private-Label 

($) Manufactured

Housing 

($)

Other3

Fixed-Rate

($) Adjustable-Rate ($) Total Other ($) 

4Q06 0 8 23,168 23,176 5,538 28,714

3Q06 0 6 21,696 21,702 2,958 24,660

2Q06 0 734 28,371 29,105 3,393 32,498

1Q06 0 18 32,263 32,281 4,077 36,358

Annual Data

2006 0 766 105,498 106,264 15,966 122,230

2005 0 2,191 162,931 165,122 14,840 179,962

2004 0 1,379 108,825 110,204 10,878 121,082

2003 0 Not Available Not Available Not Available Not Available 69,154

2002 318 Before 2004 Before 2004 Before 2004 Before 2004 59,376

2001 0 24,468

2000 15 10,304

1999 3,293 15,263

1998 1,630 15,711

1997 36 1,494

1996 Not Available Not Available

1995 Before 1997 Before 1997

1994

1993

Table 10b. Freddie Mac Purchases of Mortgage-Related Securities - 

Part 2, Private-Label Detail1

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

3 Includes home equity securities and non-Freddie Mac mortgage-related securities purchased for structured securities (e.g. alternative structured securities and structured securities backed by Ginnie Mae

MBS).
84 Office of Federal Housing Enterprise Oversight

Period

Business Activity ($ in millions)

MBS Issuances2

Single-Family MBS3

($)

Multifamily MBS

($) 

Total MBS3

($) 

Multiclass MBS4

($) 

4Q06 91,540 507 92,047 30,956

3Q06 93,266 68 93,334 45,831

2Q06 80,930 43 80,973 47,200

1Q06 93,357 312 93,669 45,409

Annual Data

2006 359,093 930 360,023 169,396

2005 396,213 1,654 397,867 208,450

2004 360,933 4,175 365,108 215,506

2003 705,450 8,337 713,787 298,118

2002 543,716 3,596 547,312 331,672

2001 387,234 2,357 389,591 192,437

2000 165,115 1,786 166,901 48,202

1999 230,986 2,045 233,031 119,565

1998 249,627 937 250,564 135,162

1997 113,758 500 114,258 84,366

1996 118,932 770 119,702 34,145

1995 85,522 355 85,877 15,372

1994 116,901 209 117,110 73,131

1993 208,724 0 208,724 143,336

1992 179,202 5 179,207 131,284

1991 92,479 0 92,479 72,032

1990 71,998 1,817 73,815 40,479

1989 72,931 587 73,518 39,754

1988 39,490 287 39,777 12,985

1987 72,866 2,152 75,018 0

1986 96,798 3,400 100,198 2,233

1985 37,583 1,245 38,828 2,625

1984 Not Available Not Available 18,684 1,805

1983 Before 1985 Before 1985 19,691 1,685

1982 24,169 Not Issued

1981 3,526 Before 1983

1980 2,526

1979 4,546

1978 6,412

1977 4,657

1976 1,360

1975 950

1974 46

1973 323

1972 494

1971 65

Table 11. Freddie Mac MBS Issuances1

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

3 Includes MBS and structured securities backed by non-Freddie Mac mortgage-related securities. For the period 2002 through the current period, includes structured securities backed by Ginnie Mae MBS.

For years prior to 2002, excludes structured securities backed by Ginnie Mae MBS.

4 Includes activity related to multiclass structured securities, primarily Real Estate Mortgage Investment Conduits (REMICs) as well as principal-only strips and other structured securities. These amounts

exclude resecuritizations of MBS into single-class securities, but include resecuritization of MBS into multiclass securities.
Report to Congress • 2007 85

Period

Earnings ($ in Millions)

Net Interest

Income2

($) 

Guarantee Fee

Income

($) 

Average

Guarantee Fee

(basis points) 

Administrative

Expenses2

($) 

Credit-Related

Expenses3

($) 

Net Income

($) 

Return on

Equity4

($) 

4Q06 973 443 16.1 697 124 (480) (9.8)

3Q06 959 427 16.1 604 112 (715) (14.8)

2Q06 1,172 389 15.3 531 63 1,397 26.8 

1Q06 1,131 413 16.5 475 (24) 2,009 36.0 

Annual Data

2006 4,235 1,672 16.0 2,307 275 2,211 8.7 

2005 5,370 1,450 15.9 2,306 291 2,130 7.7 

2004 9,137 1,382 17.5 1,821 140 2,937 10.2 

2003 9,498 1,653 23.3 1,877 2 4,816 17.2 

2002 9,525 1,527 22.2 1,406 126 10,090 47.2 

2001 7,448 1,381 23.8 1,024 39 3,158 20.2 

2000 3,758 1,243 23.7 825 75 3,666 39.0 

1999 2,926 1,019 19.8 655 159 2,223 25.5 

1998 2,215 1,019 21.4 578 342 1,700 22.6 

1997 1,847 1,082 22.9 495 529 1,395 23.1 

1996 1,705 1,086 23.4 440 608 1,243 22.6 

1995 1,396 1,087 23.8 395 541 1,091 22.1 

1994 1,112 1,108 24.4 379 425 983 23.3 

1993 772 1,009 23.8 361 524 786 22.3 

1992 695 936 24.7 329 457 622 21.2 

1991 683 792 23.7 287 419 555 23.6 

1990 619 654 22.4 243 474 414 20.4 

1989 517 572 23.4 217 278 437 25.0 

1988 492 465 21.5 194 219 381 27.5 

1987 319 472 24.2 150 175 301 28.2 

1986 299 301 22.4 110 120 247 28.5 

1985 312 188 22.1 81 79 208 30.0 

1984 213 158 24.7 71 54 144 52.0 

1983 125 132 26.2 53 46 86 44.5 

1982 30 77 24.5 37 26 60 21.9 

1981 34 36 19.5 30 16 31 13.1 

1980 54 23 14.3 26 23 34 14.7 

1979 55 18 13.2 19 20 36 16.2 

1978 37 14 14.9 14 13 25 13.4 

1977 31 9 18.9 12 8 21 12.4 

1976 18 3 13.6 10 (1) 14 9.5 

1975 31 3 24.8 10 11 16 11.6 

1974 42 2 25.5 8 33 5 4.0 

1973 31 2 32.4 7 15 12 9.9 

1972 10 1 39.4 5 4 4 3.5 

1971 10 1 Not Available Not Available Not Available 6 5.5 

Before 1972 Before 1972 Before 1972

Table 12. Freddie Mac Earnings1

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 For years 2002 through the current period, includes total administrative expenses, realized losses on certain guarantees and other expenses. For years 2001 and 2000, includes salaries and employee benefits, occupancy expenses and other expenses.

3 For years 2002 through the current period, defined as provision for credit losses and real estate-owned operations income/expense. For years 2000 and 2001, include only the provision for credit losses.

4 Ratio computed as annualized net income available to common stockholders divided by the simple average of beginning and ending stockholders' equity, net of preferred stock (at redemption value).
86 Office of Federal Housing Enterprise Oversight

End of 

Period

Balance Sheet ($ in Millions) Mortgage-Backed Securities

Outstanding ($ in Millions)2

Total Assets

($) 

Total Retained

Mortgage

Portfolio3 ($) 

Non-Mortgage

Investments4

($) 

Debt

Outstanding

($) 

Shareholders’

Equity ($) 

Core Capital5

($) 

Fair Value Net

Assets ($) 

Total MBS

Outstanding

($) 

Multiclass

MBS

Outstanding

($) 

4Q06 813,081 700,613 68,614 753,938 28,301 36,170 31,800 1,122,761 491,696

3Q06 827,197 699,789 82,998 769,907 29,031 37,035 32,200 1,083,976 489,004

2Q06 855,654 710,662 95,308 801,434 23,735 38,123 32,100 1,037,229 466,289

1Q06 819,067 708,464 70,428 765,326 25,386 37,591 31,600 1,015,268 452,367

Annual Data

2006 813,081 700,613 68,614 753,938 28,301 36,170 31,800 1,122,761 491,696

2005 806,222 709,503 57,324 748,792 27,191 35,964 30,900 974,200 437,668

2004 795,284 664,582 62,027 731,697 31,416 35,009 30,900 852,270 390,516

2003 803,449 660,531 53,124 739,613 31,487 32,985 27,300 752,164 347,833

2002 752,249 589,899 91,871 665,696 31,330 28,990 22,900 729,809 392,545

2001 641,100 503,769 89,849 578,368 19,624 20,181 18,300 653,084 299,652

2000 459,297 385,451 43,521 426,899 14,837 14,380 Not Available 576,101 309,185

1999 386,684 322,914 34,152 360,711 11,525 12,692 Before 2001 537,883 316,168

1998 321,421 255,670 42,160 287,396 10,835 10,715 478,351 260,504

1997 194,597 164,543 16,430 172,842 7,521 7,376 475,985 233,829

1996 173,866 137,826 22,248 156,981 6,731 6,743 473,065 237,939

1995 137,181 107,706 12,711 119,961 5,863 5,829 459,045 246,366

1994 106,199 73,171 17,808 93,279 5,162 5,169 460,656 264,152

1993 83,880 55,938 18,225 49,993 4,437 4,437 439,029 265,178

1992 59,502 33,629 12,542 29,631 3,570 Not Applicable 407,514 218,747

1991 46,860 26,667 9,956 30,262 2,566 Before 1993 359,163 146,978

1990 40,579 21,520 12,124 30,941 2,136 316,359 88,124

1989 35,462 21,448 11,050 26,147 1,916 272,870 52,865

1988 34,352 16,918 14,607 26,882 1,584 226,406 15,621

1987 25,674 12,354 10,467 19,547 1,182 212,635 3,652

1986 23,229 13,093 Not Available 15,375 953 169,186 5,333

1985 16,587 13,547 Before 1987 12,747 779 99,909 5,047

1984 13,778 10,018 10,999 606 70,026 3,214

1983 8,995 7,485 7,273 421 57,720 1,669

1982 5,999 4,679 4,991 296 42,952 Not Issued 

1981 6,326 5,178 5,680 250 19,897 Before 1983

1980 5,478 5,006 4,886 221 16,962

1979 4,648 4,003 4,131 238 15,316

1978 3,697 3,038 3,216 202 12,017

1977 3,501 3,204 3,110 177 6,765

1976 4,832 4,175 4,523 156 2,765

1975 5,899 4,878 5,609 142 1,643

1974 4,901 4,469 4,684 126 780

1973 2,873 2,521 2,696 121 791

1972 1,772 1,726 1,639 110 444

1971 1,038 935 915 107 64

Table 13. Freddie Mac Balance Sheet1

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. Represents MBS and structured securities that are held by third parties. For years prior to 2002,

includes MBS and structured securities in Freddie Mac's cash and investments portfolio.

3 Excludes "Reserve for losses on mortgage loans held-for-investment."

4 Based on fair value. Consists of Freddie Mac's cash and investments portfolio, excluding cash and cash equivalents and mortgage-related securities within that portfolio.

5 The sum of (a) the stated value of outstanding common stock, (b) the stated value of outstanding noncumulative perpetual preferred stock, (c) paid-in capital, and (d) retained earnings, less Treasury stock.
Report to Congress • 2007 87

Table 13a. Freddie Mac Total MBS Outstanding Detail1

End of 

Period

Single-Family Mortgages ($ in Millions)2 Multifamily Mortgages

($ in Millions)2

Total MBS

Outstanding7

($)

Conventional

Total 

FHA/VA6

Conventional

($) 

FHA/RHS

($) 

Multifamily

Mortgages

($) Fixed-Rate3

($) 

AdjustableRate4 ($)

Seconds5

($) 

Total

($)

4Q06 967,580 141,740 12 1,109,332 5,396 8,033 0 8,033 1,122,761 

3Q06 939,456 130,847 10 1,070,313 5,668 7,995 0 7,995 1,083,976 

2Q06 894,204 124,275 12 1,018,491 5,291 13,447 0 13,447 1,037,229 

1Q06 870,355 125,282 14 995,651 5,720 13,897 0 13,897 1,015,268 

Annual Data

2006 967,580 141,740 12 1,109,332 5,396 8,033 0 8,033 1,122,761 

2005 836,023 117,757 19 953,799 6,289 14,112 0 14,112 974,200 

2004 736,332 91,474 70 827,876 9,254 15,140 0 15,140 852,270 

2003 649,699 74,409 140 724,248 12,157 15,759 0 15,759 752,164 

2002 647,603 61,110 5 708,718 12,361 8,730 0 8,730 729,809 

2001 609,290 22,525 10 631,825 14,127 7,132 0 7,132 653,084 

2000 533,331 36,266 18 569,615 778 5,708 0 5,708 576,101 

1999 499,671 33,094 29 532,794 627 4,462 0 4,462 537,883 

1998 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 478,351 

1997 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 475,985 

1996 473,065 

1995 459,045 

1994 460,656 

1993 439,029 

1992 407,514 

1991 359,163 

1990 316,359 

1989 272,870 

1988 226,406 

1987 212,635 

1986 169,186 

1985 99,909 

1984 70,026 

1983 57,720 

1982 42,952 

1981 19,897 

1980 16,962 

1979 15,316 

1978 12,017 

1977 6,765 

1976 2,765 

1975 1,643 

1974 780 

1973 791 

1972 444 

1971 64 

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances. 

3 Includes Rural Housing Service and other federally guaranteed loans, and certain alternative structured securities for the period 2002 through the current period.

4 For the period 2002 through the current period, includes balloons/resets and certain alternative structured securities.

5 For the period 2002 through the current period, includes certain alternative structured securities.

6 For the period 2002 through the current period, includes structured securities backed by Ginnie Mae MBS and certain alternative structured securities.

7 Represents MBS and structured securities that are held by third parties. For the period 2002 through the current period, amounts include structured securities backed by all non-Freddie Mac securities

(including Ginnie Mae MBS). For years prior to 2002, also includes MBS and structured securities in Freddie Mac's cash and investments portfolio.
88 Office of Federal Housing Enterprise Oversight

($ in millions)

End of Period Whole Loans2

($) 

Fannie Mae Securities2

($)

Other MortgageRelated Securities2

($) 

Unamortized

Premiums, Discounts,

Deferred Adjustments,

and Unrealized

Gains/Losses on

Available-for-Sale

Securities3 ($) 

Total Retained

Mortgage Portfolio4

($) 

4Q06 65,847 354,262 283,850 (3,346) 700,613

3Q06 64,077 357,278 281,423 (2,989) 699,789

2Q06 63,704 368,455 290,379 (11,876) 710,662

1Q06 62,935 364,609 288,192 (7,272) 708,464

Annual Data

2006 65,847 354,262 283,850 (3,346) 700,613 

2005 61,481 361,324 287,541 (843) 709,503 

2004 61,360 356,698 235,203 11,321 664,582 

2003 60,270 393,135 192,362 14,764 660,531 

2002 63,886 341,287 162,099 22,627 589,899 

2001 62,792 308,427 126,420 6,130 503,769 

2000 59,240 246,209 80,244 (242) 385,451 

1999 56,676 211,198 56,569 (1,529) 322,914 

1998 57,084 168,108 29,817 661 255,670 

1997 48,454 103,400 Not Available 122 164,543 

1996 46,504 81,195 Before 1998 71 137,826 

1995 43,753 56,006 282 107,706 

1994 Not Available 30,670 Not Available 73,171 

1993 Before 1995 15,877 Before 1995 55,938 

1992 6,394 33,629 

1991 Not Available 26,667 

1990 Before 1992 21,520 

1989 21,448 

1988 16,918 

1987 12,354 

1986 13,093 

1985 13,547 

1984 10,018 

1983 7,485 

1982 4,679 

1981 5,178 

1980 5,006 

1979 4,003 

1978 3,038 

1977 3,204 

1976 4,175 

1975 4,878 

1974 4,469 

1973 2,521 

1972 1,726 

1971 935 

Table 14. Freddie Mac Retained Mortgage Portfolio Detail1

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

3 Includes premiums, discounts, deferred fees and other basis adjustments on mortgage loans and mortgage-related securities plus unrealized gains or losses on mortgage-related securities and MBS residuals, at fair value. 

4 Excludes "Reserve for losses on mortgage loans held-for-investment."
Report to Congress • 2007 89

End of Period

Whole Loans ($ in millions)2

Single-Family Multifamily

Total Whole

Loans

($)

Conventional

Conventional

($) 

FHA/RHS

($)

Total

Fixed-Rate ($) 3

($) 

AdjustableRate ($) Seconds

($) 

Total

($) 

Total

FHA/VHA

($) 

4Q06 19,211 1,233 0 20,444 196 45,204 3 45,207 65,847 

3Q06 18,715 1,030 0 19,745 209 44,120 3 44,123 64,077 

2Q06 18,644 973 0 19,617 223 43,861 3 43,864 63,704 

1Q06 19,243 939 0 20,182 237 42,513 3 42,516 62,935 

Annual Data

2006 19,211 1,233 0 20,444 196 45,204 3 45,207 65,847 

2005 19,238 903 0 20,141 255 41,082 3 41,085 61,481 

2004 22,055 990 0 23,045 344 37,968 3 37,971 61,360 

2003 25,889 871 1 26,761 513 32,993 3 32,996 60,270 

2002 33,821 1,321 3 35,145 705 28,033 3 28,036 63,886 

2001 38,267 1,073 5 39,345 964 22,480 3 22,483 62,792 

2000 39,537 2,125 9 41,671 1,200 16,369 Not Available 16,369 59,240 

1999 43,210 1,020 14 44,244 77 12,355 Before 2001 12,355 56,676 

1998 47,754 1,220 23 48,997 109 7,978 7,978 57,084 

1997 40,967 1,478 36 42,481 148 5,825 5,825 48,454 

1996 Not Available Not Available Not Available Not Available Not Available 4,746 4,746 46,504 

1995 Before 1997 Before 1997 Before 1997 Before 1997 Before 1997 3,852 3,852 43,753 

1994 Not Available Not Available Not Available 

Table 14a. Freddie Mac Retained Mortgage Portfolio Detail - Whole Loans1

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances. 

3 For the period 2001 through the current period, includes loans guaranteed by the Rural Housing Service.
90 Office of Federal Housing Enterprise Oversight

End of

Period

Mortgage-Related Securities ($ in Millions)2

Freddie Mac Securities3 ($) Others’ Securities

Single-Family

Multifamily

($)

Total

Freddie

Mac ($) 

Fannie Mae Ginnie Mae

Total

PrivateLabel

($) 

Total

Others’

Securities

($)

FixedRate

($)

AdjustableRate ($)

Single-Family Multifamily

($)

Total

Fannie

Mae ($)

Single-Family Multifamily

($)

Total

Ginnie

Mae ($)

FixedRate

($) 

AdjustableRate ($)

FixedRate

($) 

AdjustableRate ($)

4Q06 282,052 71,828 382 354,262 25,805 17,640 989 44,434 707 231 13 951 224,631 270,016 

3Q06 284,623 72,272 383 357,278 26,797 17,008 1,076 44,881 799 246 13 1,058 221,867 267,806 

2Q06 296,312 71,759 384 368,455 28,345 16,047 1,132 45,524 862 262 13 1,137 230,992 277,653 

1Q06 296,109 68,115 385 364,609 28,705 13,547 1,245 43,497 937 227 13 1,177 231,841 276,515 

Annual Data

2006 282,052 71,828 382 354,262 25,805 17,640 989 44,434 707 231 13 951 224,631 270,016 

2005 299,188 61,745 391 361,324 28,818 13,180 1,335 43,333 1,045 218 30 1,293 231,594 276,220 

2004 304,555 51,737 406 356,698 41,828 14,504 1,672 58,004 1,599 81 31 1,711 166,411 226,126 

2003 Not Available Not Available Not Available 393,135 Not Available Not Available Not Available 74,529 Not Available Not Available Not Available 2,760 107,301 184,590 

2002 Before 2004 Before 2004 Before 2004 341,287 Before 2004 Before 2004 Before 2004 78,829 Before 2004 Before 2004 Before 2004 4,878 70,752 154,459 

2001 308,427 71,128 5,699 42,336 119,163 

2000 246,209 28,303 8,991 35,997 73,291 

1999 211,198 13,245 6,615 31,019 50,879 

1998 168,108 3,749 4,458 16,970 25,177 

1997 103,400 Not Available 6,393 Not Available Not Available

1996 81,195 Before 1998 7,434 Before 1998 Before 1998

1995 56,006 Not Available 

1994 30,670 Before 1996

1993 15,877 

1992 6,394 

1991 Not Available 

Before 1992

Table 14b. Freddie Mac Retained Mortgage Portfolio Detail - Part 1, Mortgage-Related Securities1

Source: Freddie Mac 

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances. 

3 For the period 2001 through the current period, includes structured securities backed by Ginnie Mae MBS which were previously classified as non-Freddie Mac mortgage-related securities.
Report to Congress • 2007 91

End of Period

Mortgage-Related Securities ($ in Millions)2

Private-Label

Single-Family

Multifamily

($)

Total Private-Label

($) Manufactured

Housing

($)

Other3

Fixed-Rate

($) 

AdjustableRate ($) Total Other ($) 

4Q06 1,510 4,280 174,081 178,361 44,760 224,631 

3Q06 1,550 4,530 176,377 180,907 39,410 221,867 

2Q06 1,593 4,835 185,689 190,524 38,875 230,992 

1Q06 1,636 4,450 185,595 190,045 40,160 231,841 

Annual Data

2006 1,510 4,280 174,081 178,361 44,760 224,631 

2005 1,680 4,749 181,678 186,427 43,487 231,594 

2004 1,816 8,243 115,168 123,411 41,184 166,411 

2003 2,085 Not Available Not Available Not Available Not Available 107,301 

2002 2,394 Before 2004 Before 2004 Before 2004 Before 2004 70,752 

2001 2,462 42,336 

2000 2,896 35,997 

1999 4,693 31,019 

1998 1,711 16,970 

1997 Not Available Not Available

1996 Before 1998 Before 1998

1995

1994

1993

1992

1991

Table 14b. Freddie Mac Retained Mortgage Portfolio Detail - 

Part 2, Mortgage-Related Securities, Private-Label Detail1

Source: Freddie Mac 

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances.

3 Includes home equity securities.
92 Office of Federal Housing Enterprise Oversight

End of Period

Mortgage-Related Securities ($ in Millions) ($ in Millions)

Mortgage Revenue Bonds2

($)

Total Mortgage-Related

Securities2 ($)

Unamortized Premiums,

Discounts, Deferred

Adjustments, and

Unrealized Gains/Losses

on Available-for-Sale

Securities3 ($) 

Total Retained Mortgage

Portfolio4

($) 

4Q06 13,834 638,112 (3,346) 700,613

3Q06 13,617 638,701 (2,989) 699,789

2Q06 12,726 658,834 (11,876) 710,662

1Q06 11,677 652,801 (7,272) 708,464

Annual Data

2006 13,834 638,112 (3,346) 700,613 

2005 11,321 648,865 (843) 709,503

2004 9,077 591,901 11,321 664,582 

2003 7,772 585,497 14,764 660,531 

2002 7,640 503,386 22,627 589,899 

2001 7,257 434,847 6,130 503,769 

2000 6,953 326,453 (242) 385,451 

1999 5,690 267,767 (1,529) 322,914 

1998 4,640 197,925 661 255,670 

1997 3,031 Not Available 122 164,543 

1996 1,787 Before 1998 71 137,826 

1995 Not Available 282 107,706 

1994 Before 1996 Not Available 73,171 

1993 Before 1995 55,938 

1992 33,629 

1991 26,667 

1990 21,520 

1989 21,448 

1988 16,918 

1987 12,354 

1986 13,093 

1985 13,547 

1984 10,018 

1983 7,485 

1982 4,679 

1981 5,178 

1980 5,006 

1979 4,003 

1978 3,038 

1977 3,204 

1976 4,175 

1975 4,878 

1974 4,469 

1973 2,521 

1972 1,726 

1971 935 

Table 14b. Freddie Mac Retained Mortgage Portfolio Detail -

Part 3, Mortgage-Related Securities1

Source: Freddie Mac 

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances. 

3 Includes premiums, discounts, deferred fees and other basis adjustments on mortgage loans and mortgage-related securities plus unrealized gains or losses on mortgage-related securities and MBS residuals.

4 Excludes "Reserve for losses on mortgage loans held-for-investment."
Report to Congress • 2007 93

Table 15. Freddie Mac Financial Derivatives1

End of

Period

Financial Derivatives - Notional Amount Outstanding ($ in Millions)

Interest

Rate 

Swaps

($)

Interest

Rate Caps,

Floors, and

Corridors

($)

Foreign

Currency

Contracts

($)

OTC

Futures,

Options,

and

Forward

Rate

Agreements

($) 

TreasuryBased

Contracts2

($) 

ExchangeTraded

Futures,

Options and

Other

Derivatives

($) 

Credit

Derivatives3

($) 

Commitments4

($) Other5 ($) Total ($) 

4Q06 440,879 0 29,234 251,110 2,000 20,400 2,605 10,012 957 757,197 

3Q06 412,565 0 35,033 237,734 0 90,000 2,655 13,432 798 792,217 

2Q06 418,144 0 35,363 240,276 8,194 95,740 2,701 24,623 771 825,812 

1Q06 340,658 7 33,477 199,056 9,194 94,586 2,842 22,545 754 703,119 

Annual Data

2006 440,879 0 29,234 251,110 2,000 20,400 2,605 10,012 957 757,197 

2005 341,008 45 37,850 193,104 0 86,252 2,414 21,961 738 683,372 

2004 178,739 9,897 56,850 224,204 2,001 127,109 10,926 32,952 114,100 756,778 

2003 287,592 11,308 46,512 349,650 8,549 122,619 15,542 89,520 152,579 1,083,871 

2002 290,096 11,663 43,687 277,869 17,900 210,646 17,301 191,563 117,219 1,177,944 

2001 442,771 12,178 23,995 187,486 13,276 358,500 10,984 121,588 0 1,170,778 

2000 277,888 12,819 10,208 113,064 2,200 22,517 N/A N/A 35,839 474,535 

1999 126,580 19,936 1,097 172,750 8,894 94,987 Not Applicable Not Applicable 0 424,244 

1998 57,555 21,845 1,464 63,000 11,542 157,832 Before 2000 Before 2000 0 313,238 

1997 54,172 21,995 1,152 6,000 12,228 0 0 95,547 

1996 46,646 14,095 544 0 651 0 0 61,936 

1995 45,384 13,055 0 0 24 0 0 58,463 

1994 21,834 9,003 0 0 0 0 0 30,837 

1993 17,888 1,500 0 0 0 0 0 19,388 

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Amounts for years 2002 through the current period are exchange-traded.

3 Amounts included in "Other" in 2000, not applicable in prior periods.

4 Commitments to purchase and sell mortgage loans and mortgage-related securities. Periods prior to 2004 include commitments to purchase and sell various debt securities. 

5 Includes prepayment management agreement and swap guarantee derivatives.
94 Office of Federal Housing Enterprise Oversight

End of 

Period

Non-Mortgage Investments ($ in Millions)

Federal Funds and

Eurodollars 

($) 

Asset-Backed

Securities

($)

Repurchase

Agreements

($)

Commercial Paper

and Corporate Debt

($) 

Other2 ($) Total ($) 

4Q06 19,778 32,122 3,250 11,191 2,273 68,614 

3Q06 14,858 31,939 20,600 11,892 3,709 82,998 

2Q06 36,452 30,318 9,367 14,430 4,741 95,308 

1Q06 18,195 30,043 5,200 13,435 3,555 70,428 

Annual Data

2006 19,778 32,122 3,250 11,191 2,273 68,614 

2005 9,909 30,578 5,250 5,764 5,823 57,324 

2004 18,647 21,733 13,550 0 8,097 62,027 

2003 7,567 16,648 13,015 5,852 10,042 53,124 

2002 6,129 34,790 16,914 13,050 20,988 91,871 

2001 15,868 26,297 17,632 21,712 8,340 89,849 

2000 2,267 19,063 7,488 7,302 7,401 43,521 

1999 10,545 10,305 4,961 3,916 4,425 34,152 

1998 20,524 7,124 1,756 7,795 4,961 42,160 

1997 2,750 2,200 6,982 3,203 1,295 16,430 

1996 9,968 2,086 6,440 1,058 2,696 22,248 

1995 110 499 9,217 1,201 1,684 12,711 

1994 7,260 0 5,913 1,234 3,401 17,808 

1993 9,267 0 4,198 1,438 3,322 18,225 

1992 5,632 0 4,060 53 2,797 12,542 

1991 2,949 0 4,437 0 2,570 9,956 

1990 1,112 0 9,063 0 1,949 12,124 

1989 3,527 0 5,765 0 1,758 11,050 

1988 4,469 0 9,107 0 1,031 14,607 

1987 3,177 0 5,859 0 1,431 10,467 

Table 16. Freddie Mac Non-Mortgage Investments1

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 For 2004 through the current period, amounts include obligations of states and municipalities classified as available-for-sale securities within the cash and investments portfolio. For 2003 and prior periods,

includes non-mortgage related securities classified as trading, debt securities issued by the U.S. Treasury and other U.S. government agencies, obligations of states and municipalities and preferred stock.
Report to Congress • 2007 95

End of 

Period

Mortgage Asset Quality

Single-Family

Delinquency Rate2

(%)

Multifamily

Delinquency Rate3

(%)

Credit Losses/Average

Total Mortgage

Portfolio4

(%)

REO/Total Mortgage

Portfolio5

(%)

CreditEnhanced6

/Total

Mortgage Portfolio6 

(%)

4Q06 0.53 0.05 0.02 0.04 16.0 

3Q06 0.51 0.00 0.02 0.04 16.0 

2Q06 0.52 0.01 0.01 0.04 17.0 

1Q06 0.59 0.00 0.01 0.04 17.0 

Annual Data

2006 0.53 0.05 0.01 0.04 17.0 

2005 0.69 0.00 0.01 0.04 17.0 

2004 0.73 0.06 0.01 0.05 19.0 

2003 0.86 0.05 0.01 0.06 21.0 

2002 0.77 0.13 0.01 0.05 27.4 

2001 0.62 0.15 0.01 0.04 34.7 

2000 0.49 0.04 0.01 0.04 31.8 

1999 0.39 0.14 0.02 0.05 29.9 

1998 0.50 0.37 0.04 0.08 27.3 

1997 0.55 0.96 0.08 0.11 15.9 

1996 0.58 1.96 0.10 0.13 10.0 

1995 0.60 2.88 0.11 0.14 9.7 

1994 0.55 3.79 0.08 0.18 7.2 

1993 0.61 5.92 0.11 0.16 5.3 

1992 0.64 6.81 0.09 0.12 Not Available 

1991 0.61 5.42 0.08 0.14 Before 1993

1990 0.45 2.63 0.08 0.12 

1989 0.38 2.53 0.08 0.09 

1988 0.36 2.24 0.07 0.09 

1987 0.36 1.49 0.07 0.08 

1986 0.42 1.07 Not Available 0.07 

1985 0.42 0.63 Before 1987 0.10 

1984 0.46 0.42 0.15 

1983 0.47 0.58 0.15 

1982 0.54 1.04 0.12 

1981 0.61 Not Available 0.07 

1980 0.44 Before 1982 0.04 

1979 0.31 0.02 

1978 0.21 0.02 

1977 Not Available 0.03 

1976 Before 1978 0.04 

1975 0.03 

1974 0.02 

1973 Not Available

Before 1974

Table 17. Freddie Mac Mortgage Asset Quality1

Source: Freddie Mac

1 For the period 2000 through 2003, data are based on restated and revised financial results, except for the credit-enhanced share of the total mortgage portfolio in 2000.

2 Based on the number of mortgages 90 days or more delinquent or in foreclosure. Rates for years 2000 through the current period are based on the total single-family loans in the Retained portfolio and Total

Guaranteed PCs and Structured Securities issued, excluding that portion of Structured Securities that is backed by Ginnie Mae MBS. Includes delinquencies on mortgage loans where Freddie Mac has transferred primary or full default risk to various third parties as well as structured securities backed by alternative structured securities.

3 Based on net carrying value of mortgages 60 days or more delinquent or in foreclosure.

4 Credit losses equal to REO operations expense (income) plus Charge-offs, net. Calculated as credit losses (gains) divided by the average total mortgage portfolio, excluding non-Freddie Mac mortgage-related securities and that portion of structured securities that is backed by Ginnie Mae MBS.

5 Based on the total mortgage portfolio excluding non-Freddie Mac mortgage-related securities and that portion of issued structured securities that is backed by Ginnie Mae MBS.

6 Includes loans for which the lender or a third party has retained primary default risk by pledging collateral or agreeing to accept losses on loans that default. In many cases, the lender's or third party's risk

is limited to a specific level of losses at the time the credit enhancement becomes effective.
96 Office of Federal Housing Enterprise Oversight

Table 18. Freddie Mac Capital1

End of

Period

Capital ($ in Millions)

Minimum Capital Requirement Risk-Based Capital Requirement8

Market

Capitalization6

($)

Core

Capital/

Total 

Assets

(%)

Core

Capital/

Total MBS

Outstanding

plus Total

Assets

(%)

Common

Share

Dividend

Payout

Rate7

(%)

Core 

Capital ($) 

Minimum

Capital

Requirement

($) 

Regulatory

Capital

Surplus

(Deficit)2 ($)

Total

Capital3 ($) 

Risk-Based

Capital

Requirement4

($) 

Risk-Based

Capital

Surplus

(Deficit)5 ($) 

4Q06 36,170 25,844 10,326 36,742 15,320 21,422 44,896 4.45 1.87 N/A

3Q06 37,035 25,979 11,056 37,202 14,878 22,234 44,316 4.48 1.94 N/A

2Q06 38,123 26,485 11,638 37,504 17,204 20,480 39,035 4.46 2.01 24.7 

1Q06 37,591 25,488 12,103 37,624 11,933 25,691 42,266 4.59 2.05 16.8 

Annual Data

2006 36,170 25,844 10,326 36,742 15,320 21,422 44,896 4.45 1.87 67.7 

2005 35,964 25,010 10,954 36,781 11,282 25,499 45,269 4.46 2.02 56.4 

2004 35,009 24,131 10,878 34,691 11,108 23,583 50,898 4.40 2.12 30.7 

2003 32,985 23,774 9,211 33,436 5,426 28,010 40,158 4.11 2.12 15.6 

2002 28,990 22,339 6,651 24,222 4,743 19,479 40,590 3.85 1.96 6.2 

2001 20,181 19,014 1,167 Not Available Not Applicable Not Applicable 45,473 3.15 1.56 18.9 

2000 14,380 14,178 202 Before 2002 Before 2002 Before 2002 47,702 3.13 1.39 20.0 

1999 12,692 12,287 405 32,713 3.28 1.37 20.1 

1998 10,715 10,333 382 44,797 3.33 1.34 20.7 

1997 7,376 7,082 294 28,461 3.79 1.10 21.1 

1996 6,743 6,517 226 19,161 3.88 1.04 21.3 

1995 5,829 5,584 245 14,932 4.25 0.98 21.1 

1994 5,169 4,884 285 9,132 4.87 0.91 20.5 

1993 4,437 3,782 655 9,005 5.29 0.85 21.6 

1992 Not Applicable Not Applicable Not Applicable 8,721 Not Applicable Not Applicable 23.1 

1991 Before 1993 Before 1993 Before 1993 8,247 Before 1993 Before 1993 21.6 

1990 2,925 23.2 

1989 4,024 24.3 

1988 Not Applicable Not Available

Before 1989 Before 1989

Source: Freddie Mac and OFHEO

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Since 4Q 2003, OFHEO has directed Freddie Mac to maintain an additional 30% capital in excess of the statutory Minimum Capital Requirement. The Minimum Capital Requirement and Minimum Capital

Surplus numbers stated in this chart do not reflect the inclusion of the additional 30% capital requirement. Minimum Capital Surplus is the difference between Core Capital and Minimum Capital Requirement.

3 Total capital includes Core Capital and general reserves for mortgage and foreclosure losses.

4 The Risk-Based Capital Requirement is the amount of Total Capital that an Enterprise must hold to absorb projected losses flowing from future adverse interest rate and credit risk conditions and is specified 

by the Federal Housing Enterprise Financial Safety and Soundness Act of 1992.

5 The difference between Total Capital and Risk-Based Capital Requirement. 

6 Stock price at the end of the period multiplied by the number of outstanding common shares.

7 Common dividends paid as a percentage of net income available to common stockholders. For 3Q06 and 4Q06 net income available to common stockholders was a loss thus this calculation is not applicable.

8 Based on unrevised data. OFHEO determined risk-based capital resubmissions are not required.
Report to Congress • 2007 97

Business Activity ($ in Millions)

Purchases

Period Single-Family

($) Multifamily ($) Total Mortgages ($) Mortgage-RelatedSecurities ($)

4Q06 7,508 4,435 663 12,606

3Q06 262 489 90 841

2Q06 142 676 41 859

1Q06 361 744 94 1,199

Annual Data

2006 875,604 33,705 909,309 343,868

2005 918,586 32,657 951,243 387,807

2004 942,931 29,098 972,029 399,684

2003 2,023,676 46,488 2,070,164 793,684

2002 1,337,386 27,426 1,364,812 568,248

2001 951,797 28,641 980,438 457,590

2000 395,082 16,407 411,489 221,612

1999 548,748 17,193 565,941 271,803

1998 618,410 15,338 633,748 275,706

1997 275,081 8,775 283,856 85,702

1996 287,306 8,680 295,986 83,567

1995 215,974 6,531 222,505 75,550

1994 280,792 4,686 285,478 45,722

1993 518,877 4,326 523,203 Not Available 

1992 439,702 2,983 442,685 Before 1994 

1991 233,280 3,440 236,720

1990 185,187 4,518 189,705

1989 157,275 6,149 163,424

1988 107,497 5,361 112,858

1987 148,766 3,749 152,515

1986 177,159 5,415 182,574

1985 84,653 3,102 87,755

1984 Not Available Not Available 50,704

1983 Before 1985 Before 1985 49,431

1982 49,610

1981 10,573

1980 11,791

1979 16,523

1978 18,829

1977 8,908

1976 4,761

1975 6,036

1974 9,204

1973 7,586

1972 5,129

1971 4,818

Table 19. Combined Purchases1

Sources: Fannie Mae and Freddie Mac

1 See notes to Tables 1 and 10.
98 Office of Federal Housing Enterprise Oversight

Purchases ($ in Millions)

Single-Family Mortgages Multifamily Mortgages

Total

Mortgage

Purchases

($)

Conventional FHA/VA Total

SingleFamily

Mortgages

($)

Conventional

($)

FHA/RHS

($) 

Total Multifamily

Mortgages

($) Period Fixed-Rate

($) 

AdjustableRate ($)Seconds

($) 

Total

($) 

Fixed-Rate

($) 

AdjustableRate ($)Total

($) 

4Q06 183,777 38,780 68 222,625 612 1,394 2,006 224,631 9,336 274 9,609 234,240 

3Q06 182,601 47,028 8 229,637 880 1,300 2,180 231,817 7,346 209 7,555 239,372 

2Q06 172,135 33,405 25 205,565 371 2,322 2,693 208,258 7,422 249 7,671 215,929 

1Q06 164,293 43,503 29 207,825 659 2,414 3,073 210,898 8,536 334 8,870 219,768 

Annual Data

2006 702,806 162,716 130 865,652 2,522 7,430 9,952 875,604 32,640 1,065 33,705 909,309 

2005 730,562 179,766 116 910,444 2,194 5,948 8,142 918,586 30,611 2,046 32,657 951,243 

2004 821,286 107,435 51 928,772 10,286 3,873 14,159 942,931 26,396 2,702 29,098 972,029 

2003 1,853,841 147,250 93 2,001,184 19,449 3,043 22,492 2,023,676 43,363 3,125 46,488 2,070,164 

2002 1,207,078 112,065 40 1,319,183 16,655 1,548 18,203 1,337,386 25,743 1,683 27,426 1,364,812 

2001 887,171 56,428 1,137 944,736 5,959 1,102 7,061 951,797 27,356 1,285 28,641 980,438 

2000 332,980 55,010 726 388,716 5,446 920 6,366 395,082 15,157 1,250 16,407 411,489 

1999 517,228 19,581 1,198 538,007 9,658 1,084 10,742 548,749 16,039 1,153 17,192 565,941 

1998 590,375 21,657 1 612,033 5,866 511 6,377 618,410 14,754 584 15,338 633,748 

1997 242,503 30,045 3 272,551 2,098 432 2,530 275,081 8,177 598 8,775 283,856 

1996 262,470 22,025 3 284,498 2,474 334 2,808 287,306 8,428 252 8,680 295,986 

1995 180,768 32,077 9 212,854 3,014 106 3,120 215,974 6,242 289 6,531 222,505 

1994 245,717 32,986 8 278,711 1,968 113 2,081 280,792 4,467 219 4,686 285,478 

1993 482,724 35,128 30 517,882 875 120 995 518,877 4,110 216 4,326 523,203 

1992 401,847 36,513 143 438,503 1,120 79 1,199 439,702 2,872 111 2,983 442,685 

1991 205,907 24,980 911 231,798 1,444 38 1,482 233,280 3,419 21 3,440 236,720 

1990 151,817 30,814 1,340 183,971 1,201 15 1,216 185,187 4,503 15 4,518 189,705 

1989 117,894 35,527 1,727 155,148 2,113 14 2,127 157,275 6,133 16 6,149 163,424 

1988 70,504 34,745 492 105,741 1,658 98 1,756 107,497 5,340 21 5,361 112,858 

1987 129,582 15,454 208 145,244 3,477 45 3,522 148,766 3,479 270 3,749 152,515 

1986 154,356 9,567 588 164,511 12,634 14 12,648 177,159 5,415 0 5,415 182,574 

1985 70,219 11,341 905 82,465 2,172 16 2,188 84,653 3,102 0 3,102 87,755 

1984 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 

Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985

Table 19a. Combined Mortgage Purchases Detail, By Type of Loan1

Sources: Fannie Mae and Freddie Mac

1 See notes to Tables 1a and 10a. 
Report to Congress • 2007 99

Table 19b. Combined Purchases of Mortgage-Related Securities1

Period

Purchases ($ in millions)

Enterprise

Securities

($)

Other Securities

Mortgage

Revenue Bonds

($)

Total MortgageRelated

Securities 

($) Ginnie Mae 

($)

Private-Label 

Manufactured

Housing 

($) 

Other 

($) 

Total PrivateLabel 

($)

4Q06 27,628 0 0 44,287 44,287 409 72,324 

3Q06 31,733 0 0 36,665 36,665 1,123 69,521 

2Q06 64,310 0 0 51,645 51,645 1,309 117,264 

1Q06 36,710 77 0 47,420 47,420 552 84,759 

Annual Data

2006 160,381 77 0 180,017 180,017 3,393 343,868 

2005 161,784 64 0 221,331 221,331 4,628 387,807 

2004 179,787 0 0 211,829 211,829 8,068 399,684 

2003 683,165 202 0 Not Available 103,186 7,131 793,684 

2002 491,074 5,245 374 Before 2004 66,792 5,136 568,248 

2001 422,501 1,777 Not Available 27,981 5,331 457,590 

2000 191,840 5,832 Before 2002 18,770 5,170 221,612 

1999 213,970 20,983 31,774 5,076 271,803 

1998 236,636 3,057 31,432 4,581 275,706 

1997 73,345 3,834 5,682 2,841 85,702 

1996 Not Available Not Available Not Available Not Available 83,567 

1995 Before 1997 Before 1997 Before 1997 Before 1997 75,550 

1994 45,722 

1993 Not Available 

Before 1994

Sources: Fannie Mae and Freddie Mac

1 See notes to Tables 1b and 10b, Parts 1 and 2.
100 Office of Federal Housing Enterprise Oversight

Period

Business Activity ($ in millions)

MBS Issuances

Single-Family MBS

($)

Multifamily MBS

($) 

Total MBS

($) 

Multiclass MBS

($) 

4Q06 214,843 1,428 216,271 49,075

3Q06 216,190 1,163 217,353 63,714

2Q06 198,669 1,206 199,875 92,447

1Q06 205,506 2,704 208,210 74,831

Annual Data

2006 835,208 6,501 841,709 280,067

2005 896,881 11,033 907,914 332,263

2004 906,376 11,029 917,405 310,192

2003 1,902,011 31,355 1,933,366 559,037

2002 1,270,973 15,934 1,286,907 502,467

2001 901,855 16,158 918,013 331,840

2000 369,181 9,382 378,563 87,746

1999 523,178 10,542 533,720 174,725

1998 564,747 11,965 576,712 219,309

1997 257,373 6,314 263,687 169,781

1996 263,133 6,438 269,571 64,925

1995 191,791 4,542 196,333 25,053

1994 245,286 2,446 247,732 146,496

1993 429,209 959 430,168 353,966

1992 372,389 855 373,244 301,489

1991 203,967 1,415 205,382 184,840

1990 168,004 2,506 170,510 108,770

1989 139,420 3,862 143,282 81,469

1988 90,610 4,045 94,655 29,990

1987 134,933 3,314 138,247 9,917

1986 156,815 3,949 160,764 4,633

1985 60,725 1,752 62,477 2,625

1984 Not Available Not Available 32,230 1,805

1983 Before 1985 Before 1985 33,031 1,685

1982 38,139 Not Issued

1981 4,243 Before 1983

Table 20. Combined MBS Issuances1

Sources: Fannie Mae and Freddie Mac

1 See notes to Tables 2 and 11.
Report to Congress • 2007 101

Period

Earnings ($ in Millions)

Net Interest Income

($) 

Guarantee Fee

Income

($) 

Administrative

Expenses

($) 

Credit-Related

Expenses

($) 

Net Income

($) 

4Q06 N/A N/A N/A N/A N/A

3Q06 N/A N/A N/A N/A N/A

2Q06 N/A N/A N/A N/A N/A

1Q06 N/A N/A N/A N/A N/A

Annual Data

2006 N/A N/A N/A N/A N/A

2005 N/A N/A N/A N/A N/A

2004 23,451 5,054 3,962 654 7,097 

2003 28,614 4,663 3,275 493 11,018 

2002 27,924 4,169 3,033 275 8,730 

2001 17,615 3,009 2,423 204 15,984 

2000 13,122 2,732 1,929 133 7,606 

1999 8,652 2,525 1,625 202 7,578 

1998 7,036 2,248 1,363 420 5,641 

1997 6,164 2,293 1,214 717 4,756 

1996 5,439 2,278 1,055 938 4,120 

1995 4,752 2,172 986 943 3,387 

1994 4,219 2,170 920 919 3,223 

1993 3,645 2,069 822 730 2,856 

1992 2,830 1,843 742 844 2,409 

1991 2,473 1,611 648 827 1,985 

1990 2,276 1,328 573 729 1,728 

1989 1,810 1,062 497 784 1,221 

1988 1,354 900 435 643 944 

1987 1,382 728 391 579 757 

1986 703 647 325 481 406 

1985 438 413 252 326 240 

1984 222 266 193 165 137 

1983 204 212 152 102 193 

1982 (339) 148 113 82 (106)

1981 (399) 77 86 (2) (146)

1980 55 36 74 35 45 

1979 376 23 72 58 196 

1978 349 18 58 56 245 

1977 288 14 46 41 190 

1976 234 9 42 33 148 

1975 192 3 37 15 129 

1974 173 3 33 28 123 

1973 222 2 26 45 131 

1972 169 2 20 20 108 

1971 59 1 Not Available Not Available 65 

Before 1972 Before 1972

Table 21. Combined Earnings1

Sources: Fannie Mae and Freddie Mac

N/A = not available

1 See notes to Tables 3 and 12.
102 Office of Federal Housing Enterprise Oversight

End of

Period

Balance Sheet ($ in Millions) 

Total Mortgage-Backed

Securities Outstanding ($ in

Millions)

Total Assets

($) 

Total Retained

Mortgage

Portfolio 

($) 

Non-Mortgage

Investments 

($) 

Debt

Outstanding

($) 

Shareholders’

Equity 

($) 

Core Capital 

($) 

Fair Value Net

Assets 

($) 

Total MBS

Outstanding

($) 

Multiclass

MBS

Outstanding

($) 

4Q06 N/A N/A N/A N/A N/A 78,465 N/A 2,906,689 944,718

3Q06 N/A N/A N/A N/A N/A 79,043 N/A 2,820,888 938,858

2Q06 N/A N/A N/A N/A N/A 80,160 N/A 2,720,564 903,272

1Q06 N/A N/A N/A N/A N/A 77,924 N/A 2,664,652 876,692

Annual Data

2006 N/A N/A N/A N/A N/A 78,465 N/A 2,906,689 944,718

2005 N/A N/A N/A N/A N/A 74,099 N/A 2,572,279 826,573

2004 1,816,218 1,589,776 109,866 1,684,808 70,318 69,523 70,994 2,260,317 759,083

2003 1,825,724 1,580,120 112,642 1,700,893 63,755 59,938 55,693 2,052,684 746,349

2002 1,656,988 1,410,526 131,247 1,506,989 63,229 49,421 45,030 1,770,248 793,951

2001 1,441,048 1,210,116 155,831 1,341,835 37,742 45,363 40,975 1,516,529 692,109

2000 1,134,521 993,182 95,868 1,069,581 35,675 35,207 Not Available 1,282,823 643,693

1999 961,992 846,017 71,451 908,330 29,154 30,568 Before 2001 1,217,028 651,682

1998 806,567 671,104 100,675 747,687 26,288 26,180 1,115,494 622,117

1997 586,270 481,135 81,026 542,616 21,314 21,169 1,055,123 622,189

1996 524,907 424,354 78,854 488,251 19,504 19,516 1,021,238 577,737

1995 453,731 360,574 69,984 419,135 16,822 16,788 972,275 599,894

1994 378,707 293,986 64,143 350,509 14,703 14,710 947,001 642,885

1993 300,859 246,107 39,621 251,105 12,489 12,489 910,335 647,043

1992 240,480 189,889 32,116 195,931 10,344 Not Applicable 831,958 531,116

1991 193,932 153,346 19,792 164,199 8,113 Before 1993 714,447 371,784

1990 173,692 135,586 21,992 154,344 6,077 604,434 215,402

1989 159,777 129,429 19,388 142,211 4,907 489,382 117,691

1988 146,610 117,017 19,896 132,341 3,844 396,503 42,281

1987 129,133 106,019 13,935 116,604 2,993 348,369 15,011

1986 122,850 107,216 Not Available 108,938 2,135 264,754 5,333

1985 115,663 108,156 Before 1987 106,732 1,788 154,461 5,047

1984 101,576 94,153 94,718 1,524 105,764 3,214

1983 87,378 82,732 81,867 1,421 82,841 1,669

1982 78,980 74,035 74,605 1,249 57,402 Not Issued

1981 67,904 64,807 64,231 1,330 20,614 Before 1983

1980 63,357 60,595 59,766 1,678 16,962

1979 55,948 53,780 52,555 1,739 15,316

1978 47,203 45,141 44,201 1,564 12,017

1977 37,481 36,456 35,000 1,350 6,765

1976 37,225 35,950 35,088 1,139 2,765

1975 37,495 35,698 35,572 1,003 1,643

1974 34,572 33,135 32,852 898 780

1973 27,191 26,110 25,699 801 791

1972 22,118 21,378 20,878 669 444

1971 19,629 18,821 18,587 567 64

Table 22. Combined Balance Sheet1

Sources: Fannie Mae and Freddie Mac

N/A = not available

1 See notes to Tables 4 and 13.
Report to Congress • 2007 103

Table 22a. Combined MBS Outstanding Detail1

End of Period

Single-Family Mortgages ($ in Millions) Multifamily Mortgages

($ in Millions)

Total MBS

Outstanding

($)

Conventional

Total 

FHA/VA

Conventional

($) 

FHA/RHS

($) 

Multifamily

Mortgages

($) Fixed-Rate

($) 

AdjustableRate ($)Seconds

($) 

Total

($)

4Q06 2,454,752 372,073 12 2,826,837 23,277 49,930 6,645 56,575 2,906,689

3Q06 2,370,292 362,221 10 2,732,523 24,319 57,303 6,743 64,046 2,820,888

2Q06 2,275,291 348,494 12 2,623,797 25,321 64,329 7,117 71,446 2,720,564

1Q06 2,209,263 354,980 14 2,564,257 26,952 66,108 7,335 73,443 2,664,652

Annual Data

2006 2,454,752 372,073 12 2,826,837 23,277 49,930 6,645 56,575 2,906,689

2005 2,133,646 340,685 19 2,474,350 25,461 66,688 5,780 72,468 2,572,279

2004 1,979,675 167,196 70 2,146,941 41,590 62,526 9,260 71,786 2,260,317

2003 1,762,548 161,782 140 1,924,470 49,564 69,479 9,171 78,650 2,052,684

2002 1,522,863 136,540 5 1,659,408 49,665 55,755 5,420 61,175 1,770,248

2001 1,361,501 83,367 782 1,445,650 19,853 49,845 1,181 51,026 1,516,529

2000 1,133,330 97,761 1,183 1,232,274 8,854 40,915 780 41,695 1,282,823

1999 1,085,740 84,568 1,241 1,171,549 8,796 35,980 703 36,683 1,217,028

1998 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 1,115,494

1997 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 1,055,123

1996 1,021,238

1995 972,275

1994 947,001

1993 910,335

1992 831,958

1991 714,447

1990 604,434

1989 489,382

1988 396,503

1987 348,369

1986 264,754

1985 154,461

1984 105,764

1983 82,841

1982 57,402

1981 20,614

1980 16,962

1979 15,316

1978 12,017

1977 6,765

1976 2,765

1975 1,643

1974 780

1973 791

1972 444

1971 64

Sources: Fannie Mae and Freddie Mac

1 See notes to Tables 4a and 13a.
104 Office of Federal Housing Enterprise Oversight

Table 23. Combined Financial Derivatives1

End of

Period

Financial Derivatives - Notional Amount Outstanding ($ in Millions)

Interest

Rate 

Swaps

($)

Interest

Rate Caps,

Floors, and

Corridors

($)

Foreign

Currency

Contracts

($)

OTC

Futures,

Options,

and

Forward

Rate

Agreements

($) 

TreasuryBased

Contracts

($) 

ExchangeTraded

Futures,

Options and

Other

Derivatives

($) 

Credit

Derivatives

($) 

Commitments

($) Other ($) Total ($) 

4Q06 954,831 14,000 33,424 461,381 N/A N/A N/A N/A 957 N/A 

3Q06 874,909 18,200 40,965 452,254 N/A N/A N/A N/A 798 N/A 

2Q06 850,272 23,400 41,344 481,316 N/A N/A N/A N/A 771 N/A 

1Q06 688,307 26,607 38,382 468,836 N/A N/A N/A N/A 754 N/A 

Annual Data

2006 954,831 14,000 33,424 461,381 N/A N/A N/A N/A 957 N/A 

2005 647,992 33,045 43,335 491,789 N/A N/A N/A N/A 738 N/A 

2004 434,955 114,047 68,303 542,479 N/A N/A N/A 73,552 114,100 1,487,472 

2003 885,880 141,658 51,707 654,825 N/A N/A N/A 133,080 152,579 2,166,439 

2002 543,307 134,082 47,619 553,494 N/A N/A N/A Not Available 117,219 1,833,131 

2001 742,724 88,071 32,488 336,286 N/A N/A N/A Before 2003 0 1,703,917 

2000 505,539 46,482 19,719 166,979 N/A N/A N/A 35,839 799,275 

1999 318,612 48,886 12,604 213,831 N/A N/A N/A 1,400 699,214 

1998 200,401 36,345 14,459 76,481 N/A N/A N/A 3,735 500,795 

1997 203,845 22,095 11,120 6,000 N/A N/A N/A 1,660 256,948 

1996 204,786 14,395 2,973 0 N/A N/A N/A 350 223,155 

1995 171,063 13,355 1,224 29 N/A N/A N/A 975 186,670 

1994 109,304 9,363 1,023 0 N/A N/A N/A 1,465 121,154 

1993 67,346 1,860 1,023 0 N/A N/A N/A 1,425 71,653 

Sources: Fannie Mae and Freddie Mac

N/A = not available

See notes to tables 6 and 15.
Report to Congress • 2007 105

End of

Period

Non-Mortgage Investments ($ in Millions)

Federal Funds and

Eurodollars 

($) 

Asset-Backed

Securities

($)

Repurchase

Agreements

($)

Commercial Paper

and Corporate Debt

($) 

Other ($) Total ($) 

4Q06 N/A N/A N/A N/A N/A N/A 

3Q06 N/A N/A N/A N/A N/A N/A 

2Q06 N/A N/A N/A N/A N/A N/A 

1Q06 N/A N/A N/A N/A N/A N/A 

Annual Data

2006 N/A N/A N/A N/A N/A N/A 

2005 N/A N/A N/A N/A N/A N/A 

2004 22,507 47,377 13,620 16,435 9,926 109,866 

2003 20,142 43,510 13,126 23,552 12,312 112,642 

2002 6,279 57,102 17,095 27,709 23,062 131,247 

2001 31,957 47,234 18,440 45,517 12,683 155,831 

2000 9,806 36,575 7,575 16,195 25,717 95,868 

1999 15,382 29,512 5,083 5,639 15,835 71,451 

1998 28,450 28,117 9,312 12,950 21,846 100,675 

1997 21,962 18,839 13,697 14,948 11,580 81,026 

1996 31,702 16,721 11,107 7,249 12,075 78,854 

1995 19,885 10,404 19,392 9,830 10,473 69,984 

1994 24,853 3,796 14,919 8,953 11,622 64,143 

1993 13,763 3,557 8,882 1,438 11,981 39,621 

1992 12,219 4,124 7,249 53 8,471 32,116 

1991 5,903 2,416 6,632 0 4,841 19,792 

1990 6,441 1,780 10,014 0 3,757 21,992 

1989 8,685 1,107 5,765 0 3,831 19,388 

1988 8,594 481 9,107 0 1,714 19,896 

1987 5,736 25 5,859 0 2,315 13,935 

Table 24. Combined Non-Mortgage Investments1

Sources: Fannie Mae and Freddie Mac

N/A = not available

1 See notes to Tables 7 and 16.
106 Office of Federal Housing Enterprise Oversight

Table 25. Combined Capital1

End of Period

Capital ($ in Millions)

Minimum Capital Requirement Risk-Based Capital Requirement

Market

Capitalization

($) Core Capital 

($) 

Minimum Capital

Requirement 

($) 

Regulatory 

Capital Surplus

(Deficit) 

($)

Total Capital 

($) 

Risk-Based 

Capital

Requirement 

($) 

Risk-Based 

Capital Surplus 

(Deficit) 

($) 

4Q06 78,465 55,176 23,289 79,788 42,190 37,588 102,631 

3Q06 79,043 54,989 24,054 79,022 37,402 41,620 98,641 

2Q06 80,160 55,904 24,256 80,392 43,534 37,038 85,765 

1Q06 77,924 54,196 23,728 78,798 29,466 49,332 92,198 

Annual Data

2006 78,465 55,176 23,289 79,788 42,190 37,588 102,631 

2005 74,099 53,473 20,627 75,985 23,918 52,067 92,642 

2004 69,523 56,252 13,271 69,887 21,147 48,740 119,908 

2003 59,938 55,590 4,348 60,923 32,647 28,276 112,996 

2002 49,421 50,027 (606) 45,053 22,177 22,876 104,202 

2001 45,363 43,196 2,167 Not Available Not Applicable Not Applicable 124,754 

2000 35,207 34,472 735 Before 2002 Before 2002 Before 2002 134,345 

1999 30,568 30,057 511 96,364 

1998 26,180 25,667 513 120,678 

1997 21,169 19,785 1,384 87,628 

1996 19,516 17,983 1,533 59,093 

1995 16,788 16,035 753 48,744 

1994 14,710 14,300 411 29,014 

1993 12,489 11,658 831 30,392 

1992 Not Applicable Not Applicable Not Applicable 29,595 

1991 Before 1993 Before 1993 Before 1993 27,083 

1990 11,415 

1989 12,116 

Not Applicable 

Before 1989

Sources: Fannie Mae, Freddie Mac, and OFHEO

1 See notes to Tables 9 and 18.
Report to Congress • 2007 107

Year Single-Family Conforming Loan Limits1

1-unit 2-units 3-units 4-units

2007 417,000 533,850 645,300 801,950 

2006 417,000 533,850 645,300 801,950 

2005 359,650 460,400 556,500 691,600 

2004 333,700 427,150 516,300 641,650 

2003 322,700 413,100 499,300 620,500 

2002 300,700 384,900 465,200 578,150 

2001 275,000 351,950 425,400 528,700 

2000 252,700 323,400 390,900 485,800 

1999 240,000 307,100 371,200 461,350 

1998 227,150 290,650 351,300 436,000 

1997 214,600 274,550 331,850 412,450 

1996 207,000 264,750 320,050 397,800 

1995 203,150 259,850 314,100 390,400 

1994 203,150 259,850 314,100 390,400 

1993 203,150 259,850 314,100 390,400 

1992 202,300 258,800 312,800 388,800 

1991 191,250 244,650 295,650 367,500 

1990 187,450 239,750 289,750 360,150 

1989 187,600 239,950 290,000 360,450 

1988 168,700 215,800 260,800 324,150 

1987 153,100 195,850 236,650 294,150 

1986 133,250 170,450 205,950 256,000 

1985 115,300 147,500 178,200 221,500 

1984 114,000 145,800 176,100 218,900 

1983 108,300 138,500 167,200 207,900 

1982 107,000 136,800 165,100 205,300 

1981 98,500 126,000 152,000 189,000 

1980 93,750 120,000 145,000 180,000 

1979 67,500 Not Applicable Not Applicable Not Applicable

1977 - 1986 60,000 Not Applicable Not Applicable Not Applicable

1970 - 1976 33,000 Not Applicable Not Applicable Not Applicable

Year

FHA Single-Family Insurable Limits

1-unit 2-units 3-units 4-units

Low Cost

Area Max

High Cost

Area Max

Low Cost

Area Max

High Cost

Area Max

Low Cost

Area Max

High Cost

Area Max

Low Cost

Area Max

High Cost

Area Max

2007 200,160 362,790 256,248 464,449 309,744 561,411 384,936 697,696

2006 200,160 362,790 256,248 464,449 309,744 561,411 384,936 697,696

2005 172,632 312,895 220,992 400,548 267,120 484,155 331,968 601,692

2004 160,176 290,319 205,032 371,621 247,824 449,181 307,992 558,236

2003 154,896 280,749 198,288 359,397 239,664 434,391 297,840 539,835

2002 144,336 261,609 184,752 334,863 223,296 404,724 277,512 502,990

2001 132,000 239,250 168,936 306,196 204,192 370,098 253,776 459,969

2000 121,296 219,849 155,232 281,358 187,632 340,083 233,184 422,646

1999 115,200 208,800 147,408 267,177 178,176 322,944 221,448 401,375

1998 109,032 197,621 139,512 252,866 168,624 305,631 209,568 379,842

1997 81,546 170,362 104,310 205,875 126,103 248,888 156,731 309,338

Table 26. Loan Limits

Sources: Department of Housing and Urban Development (HUD), Federal Housing Finance Board, Freddie Mac

1 Conforming Loan Limits are 50 percent higher in Alaska, Hawaii, Guam and the U.S. Virgin Islands.

Sources: Federal Housing Administration
108 Office of Federal Housing Enterprise Oversight

Period

Average Commitment Rates on Loans Effective Rates on Closed Loans

Conventional Conventional

30-Year Fixed Rate

($) 

One-Year ARMs

($) 

Fixed Rate

($) 

Adjustable Rate

($) 

4Q06 6.2 5.5 6.6 6.4 

3Q06 6.6 5.7 6.8 6.6 

2Q06 6.6 5.7 6.7 6.5 

1Q06 6.2 5.3 6.5 6.1 

Annual Data

2006 6.4 5.5 6.6 6.4 

2005 5.9 4.5 6.1 5.5 

2004 5.8 3.9 6.0 5.2 

2003 5.8 3.8 5.9 5.0 

2002 6.5 4.6 6.7 5.7 

2001 7.0 5.8 7.1 6.4 

2000 8.1 7.0 8.3 7.1 

1999 7.4 6.0 7.4 6.5 

1998 6.9 5.6 7.2 6.5 

1997 7.6 5.6 7.9 6.9 

1996 7.8 5.7 8.0 7.1 

1995 7.9 6.1 8.2 7.1 

1994 8.4 5.4 8.2 6.4 

1993 7.3 4.6 7.5 5.7 

1992 8.4 5.6 8.5 6.6 

1991 9.3 7.1 9.7 8.3 

1990 10.1 8.4 10.4 9.2 

1989 10.3 8.8 10.5 9.4 

1988 10.3 7.9 10.4 8.5 

1987 10.2 7.8 9.9 8.5 

1986 10.2 8.4 10.5 9.4 

1985 12.4 10.1 12.4 10.9 

1984 13.9 11.5 13.2 12.1 

1983 13.2 Not Available 13.0 12.3 

1982 16.0 Before 1984 15.2 15.4 

1981 16.6 Not Available Not Available 

1980 13.8 Before 1982 Before 1982 

1979 11.2 

1978 9.6 

1977 8.9 

1976 8.9 

1975 9.1 

1974 9.2 

1973 8.0 

1972 7.4 

1971 Not Available Before 1972

Table 27. Mortgage Interest Rates

Average Commitment Rate Source: Freddie Mac

Effective Rates Source: Federal Housing Finance Board
Report to Congress • 2007 109

Period

Housing Starts

(units in thousands)

Home Sales

(units in thousands)

Single-Family 

Housing Starts

Multifamily Housing

Starts Total Housing Starts New Single-Family Housing Starts

Existing Single-Family 

Home Sales

4Q062 1,235 291 1,562 1,040 6,263 

3Q062 1,401 262 1,714 1,007 6,287 

2Q062 1,530 293 1,873 1,100 6,627 

1Q062 1,747 343 2,123 1,111 6,863 

Annual Data

2006 1,508 293 1,802 1,060 6,478 

2005 1,757 311 2,068 1,283 7,076 

2004 1,653 304 1,957 1,203 6,778 

2003 1,532 315 1,847 1,086 6,183 

2002 1,397 308 1,705 973 5,631 

2001 1,310 293 1,603 908 5,296 

2000 1,270 299 1,569 877 5,152 

1999 1,334 307 1,641 880 5,205 

1998 1,314 303 1,617 886 4,970 

1997 1,178 296 1,474 804 4,382 

1996 1,206 271 1,477 757 4,196 

1995 1,110 244 1,354 667 3,812 

1994 1,233 224 1,457 670 3,946 

1993 1,155 133 1,288 666 3,802 

1992 1,061 139 1,200 610 3,520 

1991 876 138 1,014 509 3,220 

1990 932 260 1,193 534 3,211 

1989 1,059 318 1,376 650 3,346 

1988 1,140 348 1,488 676 3,594 

1987 1,212 409 1,621 671 3,526 

1986 1,263 542 1,805 750 3,565 

1985 1,166 576 1,742 688 3,214 

1984 1,206 544 1,750 639 2,868 

1983 1,181 522 1,703 623 2,719 

1982 743 320 1,062 412 1,990 

1981 797 288 1,084 436 2,419 

1980 962 331 1,292 545 2,973 

1979 1,316 429 1,745 709 3,827 

1978 1,558 462 2,020 817 3,986 

1977 1,573 414 1,987 819 3,650 

1976 1,248 289 1,538 646 3,064 

1975 956 204 1,160 549 2,476 

1974 956 382 1,338 519 2,272 

1973 1,250 795 2,045 634 2,334 

1972 1,451 906 2,357 718 2,252 

1971 1,271 781 2,052 656 2,018 

Table 28. Housing Market Activity1

Housing Starts Source and New Single-Family Sales Source: Bureau of the Census.

Existing Single-Family Sales Source: National Association of Realtors.

1 Components may not add to totals due to rounding.

2 Seasonally adjusted annual rates.
110 Office of Federal Housing Enterprise Oversight

Period USA New

England

MidAtlanticSouth

Atlantic

East North

Central

West North

Central

East South

Central

South

Central Mountain Pacific

4Q06 5.87 2.26 5.99 7.35 2.68 3.49 7.16 7.47 8.98 7.06

3Q06 7.88 3.49 8.27 9.60 2.99 3.92 7.63 8.01 11.45 11.51

2Q06 10.31 5.49 11.14 13.83 4.13 4.78 8.03 8.02 14.58 14.87

1Q06 12.78 8.46 13.72 17.41 5.40 6.25 8.07 7.94 18.09 18.75

Annual Data

2006 5.87 2.26 5.99 7.35 2.68 3.49 7.16 7.47 8.98 7.06

2005 13.25 9.79 13.92 18.27 5.99 6.82 7.49 6.78 18.57 19.68

2004 11.81 12.11 12.99 13.85 5.91 6.84 5.21 4.77 11.73 20.95

2003 7.79 10.16 10.62 8.09 4.78 6.12 3.44 3.08 4.96 12.20

2002 7.41 11.78 10.46 7.26 4.34 6.20 3.29 4.03 4.32 10.95

2001 7.53 10.90 8.92 7.91 5.17 7.23 5.04 5.81 6.43 9.26

2000 7.53 12.39 7.84 6.51 5.99 7.22 3.80 5.09 6.91 11.18

1999 5.11 9.66 5.16 4.27 4.90 6.11 2.51 4.31 4.13 5.76

1998 4.98 6.48 4.03 4.58 4.15 4.84 4.89 4.94 4.00 7.18

1997 4.58 4.57 3.25 4.49 5.16 4.90 4.65 3.89 4.86 5.29

1996 2.60 1.63 0.38 2.27 4.98 4.08 4.00 2.33 4.22 1.00

1995 4.53 4.12 3.20 4.29 6.01 5.26 5.57 4.21 7.49 2.85

1994 0.82 -3.19 -3.36 0.10 4.96 5.24 4.70 1.52 8.96 -3.35

1993 2.06 0.26 1.32 1.88 3.65 3.88 4.09 4.01 7.84 -1.96

1992 1.87 -1.12 1.68 2.13 3.89 2.99 3.27 3.39 5.30 -1.38

1991 2.60 -2.26 1.56 3.18 4.57 3.75 4.12 3.69 4.67 1.32

1990 0.25 -7.72 -2.89 0.34 3.78 0.54 0.68 0.40 1.90 3.04

1989 6.04 0.65 2.33 5.09 6.18 3.24 2.92 2.78 2.79 19.36

1988 6.22 3.71 6.08 7.02 6.71 2.37 2.60 -2.14 0.24 17.50

1987 6.78 13.36 16.15 7.18 7.89 2.50 4.25 -8.58 -2.65 9.54

1986 8.15 21.08 18.10 6.25 7.15 4.10 5.63 -0.42 3.12 7.19

1985 6.50 24.98 14.28 5.36 4.78 4.29 4.99 -1.41 2.12 4.90

1984 5.40 17.79 13.42 4.58 2.74 4.60 3.21 -0.01 2.44 5.28

1983 3.96 16.04 9.98 3.34 4.25 4.44 4.06 0.96 -2.66 1.01

1982 2.20 4.30 4.04 3.36 -4.41 -0.41 5.14 5.62 7.11 0.93

1981 4.80 4.88 0.52 7.24 2.28 0.48 0.45 11.92 6.70 5.78

1980 6.83 5.64 10.08 7.89 1.44 4.32 6.79 7.83 6.33 11.22

1979 11.89 10.85 17.40 10.80 9.07 9.04 5.03 13.12 15.54 16.00

1978 13.41 16.96 6.74 11.49 14.24 13.11 11.92 16.99 17.02 15.69

1977 13.40 8.99 10.72 8.15 13.45 15.19 11.50 12.02 18.11 25.65

1976 7.53 2.65 0.85 6.38 8.00 5.25 5.93 8.55 10.08 19.86

Table 29. Weighted Repeat Sales House Price Index (Annual Data)1

1 Data for 1976-2006 are measured based on fourth-quarter-to-fourth-quarter percentage change.

Quarterly data for 2006 reflect changes over the previous four quarters.

Regional Divisions: 

New England: Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont

Mid-Atlantic: New Jersey, New York, Pennsylvania

South Atlantic: Washington, D.C., Delaware, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia

East North Central: Illinois, Indiana, Michigan, Ohio, Wisconsin

West North Central: Iowa, Kansas, Minnesota, Missouri, North Dakota, South Dakota, Nebraska

East South Central: Alabama, Kentucky, Mississippi, Tennessee

West South Central: Arkansas, Louisiana, Oklahoma, Texas

Mountain: Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Utah, Wyoming

Pacific: Alaska, California, Hawaii, Oregon, Washington
Report to Congress • 2007 111

Notes
112 Office of Federal Housing Enterprise Oversight

Notes
James B. Lockhart III, Director

Office of Federal Housing 

Enterprise Oversight

KEY MANAGEMENT OFFICIALS

Edward DeMarco, Deputy Director

Leonard F. Reid, Director of Supervision

Alfred M. Pollard, General Counsel

Mark Laponsky, Executive Director and Chief of Staff

Peter Brereton, Associate Director for External Relations 

Wanda DeLeo, Chief Accountant

Christopher H. Dickerson, Chief Compliance Officer

David Felt, Deputy General Counsel

Joanne Hanley, Associate Director for Congressional Affairs

Susan S. Jacobs, Chief Strategic Planning Officer

John Kerr, Examiner-in-Charge, Fannie Mae

Mark Kinsey, Chief Financial Officer

Patrick J. Lawler, Chief Economist

Thomas A. Loeffler, Acting Associate Director, Office of

Supervison Policy, Systems, and Quality Assurance

Janet Murphy, Chief Human Capital Officer

David Roderer, Deputy General Counsel

Isabella Sammons, Deputy General Counsel

Scott Smith, Associate Director for Capital Supervision

Jeff Spohn, Examiner-in-Charge, Freddie Mac 

Naa Awaa Tagoe, Acting Associate Director, Office of Risk

Analysis and Financial Performance

Kevin Winkler, Chief Information Officer
OFFICE OF FEDERAL HOUSING

ENTERPRISE OVERSIGHT

1700 G Street, NW

Washington, DC 20552

202.414.3800

www.ofheo.gov