OFFICE OF FEDERAL HOUSING

ENTERPRISE OVERSIGHT

1700 G Street, NW

Washington, DC 20552

202.414.3800

www.ofheo.gov
INSIDE — 
OFFICE OF FEDERAL HOUSING 

ENTERPRISE OVERSIGHT 

1700 G Street, NW • Washington, DC 20552 

202.414.3801 

Office of the Director 

April 15, 2008 

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 2008 Report to Congress from the Office of Federal Housing Enterprise 

Oversight (OFHEO), which provides the findings of OFHEO’s 2007 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 third to Congress. Last year was a very eventful and challenging year for Fannie Mae and 

Freddie Mac and the housing markets that they serve. To a large extent, the Enterprises rose to those 

challenges. 

For the first time in four years, the Enterprises filed their annual financial statements on a timely basis. 

Significant progress was made in the remediation process, but OFHEO concludes that both companies 

remain classified as significant supervisory concerns. The primary reason for this classification has 

changed from previous years. The extraordinary declines in the housing and mortgage markets have 

greatly increased their credit and interest rate risks, which have put additional pressure on their credit 

management, interest-rate risk management and financial modeling processes. As you will read in this 

report, they have made reasonable progress in these areas as well as in governance, internal controls, 

systems, and operational risk management; still, they both, to a varying extent, have significant further 

work to finalize their remediation efforts and test those improvements. 

Despite large losses in the second half of the year, the Enterprises were able to fulfill their key mission of 

providing stability and liquidity to the conventional conforming loan market. Their support of the 

mortgage market grew by 15 percent in 2007 versus 8 percent growth in 2006, to a total of $5.0 trillion in 

guaranteed mortgage-backed securities outstanding and mortgage investments. Their market share of 

Report to Congress • 2008 i
total mortgage originations grew from 37.4 percent in 2006 to 75.6 percent by the fourth quarter of 2007. 

There is increasing pressure for Fannie Mae and Freddie Mac to do even more to support the mortgage 

market, which is problematic in absence of GSE reform legislation to strengthen the regulatory process. 

In 2007, as measured by OFHEO’s monthly purchase-only House Price Index (HPI), house prices fell 1.6 

percent. Other indexes had much larger price drops and all the major indexes show the decline in house 

prices is continuing. Unsold house inventories have reached a very high 10 months while single-family 

housing starts and permits have fallen 57 percent and 61 percent from their peaks. Defaults and serious 

delinquencies have risen rapidly with subprime serious delinquencies in the fourth quarter of 2007 

reaching 14.4 percent. 

In last year’s report, I wrote that a key indicator of remediation progress at the two Enterprises would be 

the timely filing of their annual reports with the Securities and Exchange Commission (SEC), with a clean 

audit opinion based upon a controls-based audit. In February 2008, Fannie Mae achieved that goal and 

Freddie Mac produced timely financial statements with a clean audit opinion. Freddie Mac expects to 

register with the SEC this summer. Per OFHEO’s agreement with the companies, the caps on their 

portfolios were removed at the time of the annual report filing. Prior to that, in September 2007, OFHEO 

had loosened those caps in order to enable the Enterprises to fulfill their commitments to refinance 

borrowers out of subprime mortgages. 

The Enterprises’ 2007 financial statements reported combined fourth quarter losses of $6.0 billion 

resulting in annual losses of $5.1 billion. In order to ensure adequate capital, they raised over $15 billion 

of preferred stock in the last four months of the year and cut their dividends. 

OFHEO believes that to better fulfill their mission of providing stability, liquidity and affordability to the 

housing market the Enterprises need to raise additional capital. Therefore, in mid-March, we reached an 

agreement with Fannie Mae and Freddie Mac to lower the “OFHEO-directed” 30 percent additional 

capital requirement to 20 percent and, in return, both companies agreed to raise significant capital. 

OFHEO still believes that a stronger GSE regulator is needed to ensure their ability to fulfill their mission 

and help restore confidence to the mortgage market. In the March agreement both Fannie Mae and 

Freddie Mac agreed that a “world-class regulatory structure” is needed and “renewed a shared commitment 

to work for comprehensive GSE reform legislation.” The time to act on the legislation is now. 

The challenges of 2007 are still present this year. The problems in the housing markets are continuing. 

OFHEO expects that Fannie Mae’s and Freddie Mac’s Consent Agreements will be lifted in the near-term 

and all major internal control issues should be remediated this year. It is my hope with the completion 

of their remediation efforts, significant additional capital and an enhanced regulatory regime we will end 

2008 with the stakeholders in the nation’s housing finance system much stronger than today. 

Sincerely, 

James B. Lockhart III 

Director 

ii Office of Federal Housing Enterprise Oversight 
of the Annual Examinations of the Enterprises ......1
 

Year In Review ................................................................3
 

Acceleration of Housing Market Deterioration ......3
 

Sharp Slowdown in House Price Appreciation ......5
 

Illiquidity in the Secondary Markets for Subprime 


and Nontraditional Mortgages ................................6
 

Reduction in Single-Family Mortgage 


Originations ..............................................................9
 

Financial Performance of the Enterprises ..............10
 

Overview ..................................................................10
 

Business Volumes ....................................................10
 

Earnings ....................................................................11
 

Fair Value Financial Performance ..........................12
 

Credit Risk................................................................13
 

Interest Rate Risk ....................................................13
 

Capital......................................................................13
 

Report of Annual Examination of Fannie Mae 

(Federal National Mortgage Association) ..............14
 

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

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

Matters Requiring Attention ..................................16
 

Management and Board Supervision ...................17
 

Accounting ..............................................................19
 

Asset Quality and Credit Risk Management ........20
 

Operations and Operational Risk Management ..23
 

Sensitivity to Interest Rate Risk ..............................26
 

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

Earnings....................................................................29
 

Capital ......................................................................30
 

Report of Annual Examination of Freddie Mac 

(Federal Home Loan Mortgage Corporation) ......33
 

Examination Authority and Scope ........................33
 

Examination Conclusions ......................................33
 

Matters Requiring Attention ..................................35
 

Management and Board Supervision ....................35
 

OFHEO Report to Congress TABLE OF CONTENTS
 

Executive Summary 

Accounting ..............................................................38
 

Asset Quality and Credit Risk Management ........40
 

Operations and Operational Risk Management ..44
 

Sensitivity to Interest Rate Risk ..............................46
 

Liquidity...................................................................47
 

Earnings....................................................................49
 

Capital ......................................................................51
 

Capital Classification and Measurement ................53
 

History of Enterprise Capital 


Classification/Reclassification................................53
 

Core Capital and Shareholders’ Equity ................54
 

Accounting ....................................................................58
 

Fair Value Accounting ............................................58
 

Guarantee Obligation Accounting ........................59
 

Other Valuation Issues............................................60
 

Credit Loss Reserves ................................................62
 

Conclusion ..............................................................62
 

Supervisory Actions ....................................................63
 

Consent Order and Other Supervisory
 

Agreements ..............................................................63
 

Other Supervisory Actions......................................65
 

Regulatory Guidance ..................................................67
 

Regulations ..............................................................68
 

Guidances ................................................................68
 

OFHEO Research and Publications..........................69
 

Research Products....................................................69
 

House Price Index....................................................70
 

OFHEO Performance and 


Program Assessment................................................71
 

OFHEO's Financial Operations ................................73
 

OFHEO’s Budget ....................................................73
 

Unqualified Audit Opinion in Fiscal Year 2007 ....73
 

Historical Data Tables ................................................75
 

Report to Congress • 2008 iii
Charts

Chart 1
 

Mortgage Interest Rates ..................................................4
 

Chart 2
 

Home Sales......................................................................4
 

Chart 3
 

OFHEO House Price Index History for USA ................5
 

Chart 4
 

Share of Subprime Mortgages Seriously Delinquent or
 

in Foreclosure, Origination Years 2001–2007 ..............6
 

Chart 5
 

Single-Family Mortgage Originations ..........................8
 

Chart 6
 

Single-Family Mortgage Originations by Market
 

Segment, 2001–2007 ......................................................9
 

Chart 7
 

Enterprise Growth in Business Volumes ....................10
 

Chart 8
 

Enterprise Net Income ..................................................11
 

Chart 9
 

Fannie Mae Liquid Assets as a Percentage of Total
 

Assets..............................................................................28
 

Chart 10
 

Fannie Mae Funding Composition ............................28
 

Chart 11
 

Fannie Mae Credit-Related Expenses and Valuation
 

Losses ............................................................................29
 

Chart 12
 

Fannie Mae’s Core Capital Surplus..............................31
 

Chart 13
 

Freddie Mac Liquidity Portfolios as a Percentage of
 

Total Assets ....................................................................48
 

Chart 14
 

Freddie Mac Funding Composition............................49
 

Chart 15
 

Freddie Mac Credit-Related Expenses and Valuation
 

Losses ............................................................................50
 

Chart 16
 

Freddie Mac’s Core Capital Surplus ............................52
 

Chart 17
 

AOCI Levels for Both Enterprises ................................55
 

Chart 18
 

Fannie Mae Equity and Core Capital..........................56
 

Chart 19
 

Freddie Mac Equity and Core Capital ........................57
 

Tables

Table 1
 

Fannie Mae RBC Requirements in 2007 ....................32
 

Table 2
 

Subprime Asset-Backed Securities Portfolio ..............43
 

Table 3
 

Freddie Mac RBC Requirements in 2007....................52
 

Maps

Map 1
 

Four-Quarter Appreciation by Census Division
 

(Purchase-Only Index) 2006Q4–2007Q4....................7
 

iv Office of Federal Housing Enterprise Oversight 
Executive Summary 

of the Annual Examinations 

of the Enterprises 

OFHEO’s supervisory activities over the 

past year focused on corporate 

governance, credit risk, market risk, operational 

risk, earnings, capital and the Enterprises’ 

business infrastructures. The following paragraphs 

summarize the Reports of Examination which are 

included in full later in this report. 

Fannie Mae and Freddie Mac made progress in 

remediating many of their operational issues 

including timely filing of their financial 

statements. However, they remain significant 

supervisory concerns. They both experienced 

poor financial performance in 2007 largely due to 

the rapid deterioration in credit performance 

associated with house price declines and 

disruption of the mortgage markets. Market value 

declines in derivatives caused by falling long-term 

interest rates also generated substantial losses. 

While the Enterprises have made progress in 

improving internal controls, both companies— 

and especially Freddie Mac—still have weaknesses 

to address. 

Risk and Risk Management 

The weakening of Enterprise underwriting 

standards and the contractual impediments to 

guarantee fee increases as market conditions 

worsened contributed to poor financial 

performance. The Enterprises also experienced 

substantial deterioration in the market values of 

their subprime- and Alternative A (Alt-A)-backed 

private-label securities portfolios, although the 

portfolios remained overwhelmingly AAA-rated 

and have not recorded substantial impairment 

losses. The credit quality of the Enterprises’ 

principal counterparties—seller-servicers, 

derivative issuers and mortgage insurance 

companies—also deteriorated, increasing 

counterparty risk. Both Enterprises have taken 

steps to better manage credit risk, modifying risk 

management and business practices, but 

continuing house price declines and market 

turmoil will impact 2008 results. 

OFHEO found interest-rate risk management at 

both Enterprises generally to be satisfactory, 

although Fannie Mae’s risk management strategy 

is somewhat aggressive in light of higher and 

increasing credit-related losses. OFHEO identified 

shortcomings with certain risk measurement 

systems at both Enterprises. Liquidity risk 

management was satisfactory at both Enterprises. 

Both Enterprises significantly improved their 

model risk management in 2007, but rapidly 

changing market conditions significantly 

increased model risk, particularly for credit and 

prepayment models. Given the lack of historical 

precedent for current conditions and the fact that 

models are estimated based on historical 

experience, Enterprise models have become less 

reliable and require greater management 

judgment, increasing the potential for error in 

pricing and other metrics. 

Accounting and 

Internal Controls 

Key among the accounting tasks facing the 

Enterprises in 2007 were 1) returning to timely 

financial reporting, 2) addressing material 

weaknesses in disclosure and financial reporting 

controls and 3) responding to new standards 

from the Financial Accounting Standards Board. 

Report to Congress • 2008 1
These tasks were made particularly challenging by 

the Enterprises’ deteriorating financial 

performance. Despite that, they generally 

accomplished their objectives, notably by the 

timely February 2008 publication of their 2007 

financial statements. Fannie Mae is now current 

with its Securities and Exchange Commission 

(SEC) filings. Freddie Mac returned to quarterly 

financial reporting in 2007 and is commencing 

the registration process with the SEC. 

Internal control issues remain at both Enterprises. 

In 2007 Fannie Mae’s management attained 

several milestones fundamental to achieving 

satisfactory controls in nearly all areas of the 

Enterprise. Still, several projects are not yet 

complete, many improvements are recent, and 

time is required to determine whether they will 

be sustained. Internal controls are still not fully 

effective at Freddie Mac. While progress was made 

in 2007 to remediate weaknesses related to 

financial reporting, continued efforts are 

necessary, and control improvements require 

testing/validation to evidence full effectiveness 

and sustainability. 

Capital 

Consistent with requirements of the Federal 

Housing Enterprises Financial Safety and 

Soundness Act of 1992, OFHEO classified both 

Enterprises as adequately capitalized for year-end 

2006 and all four quarters of 2007. Given the 

losses the Enterprises sustained in 2007, the 

regulatory core capital of each declined at an 

accelerating pace through the year, with Freddie 

Mac failing to meet the OFHEO-directed capital 

requirement at the end of November (without 

year-end accounting adjustments). To ensure 

ongoing capital adequacy, both took aggressive 

action in the latter part of the year, including 

reducing dividends and issuing preferred stock, as 

well as controlling growth and actively managing 

balance sheet composition. Improved capital 

planning and income forecasting are necessary to 

ensure that the Enterprises’ capital needs are 

comprehensively assessed and capital maintained 

at an adequate level. 

2 Office of Federal Housing Enterprise Oversight 
YEAR IN REVIEW 

Year in Review 

Acceleration of Housing Market Deterioration 

The weakness in the housing sector that began in 2006 got much worse in 2007. While 

housing markets had been a source of strength for the economy during the economic 

expansion that began in 2001, by year-end 2007 housing threatened to lead the economy 

into recession. After dropping 13 percent during 2006, residential fixed investment (spending 

on purchases of new homes and renovations) plummeted 19 percent in 2007. The economy 

as a whole continued to grow, however, expanding 2.5 percent, little changed from growth of 

2.6 percent in 2006. However, the effects of the housing contraction spread through the 

economy more broadly by last year’s fourth quarter, when growth slowed sharply. Inflation, 

as measured by the Consumer Price Index (CPI), increased markedly in 2007 to 4.1 percent, 

the highest rate since 1990, from 2.6 percent the year before. Rising energy and food prices 

were key contributors. Core inflation, which excludes energy and food prices, edged down in 

2007, to 2.4 percent compared with 2.6 percent the year before. Partly in response to 

conditions in the housing sector, labor market conditions deteriorated somewhat. The 

national unemployment rate increased gradually in 2007, rising to 5.0 percent in December, 

up from 4.4 percent one year earlier. 

The Federal Reserve left the Federal Funds target rate unchanged during the first half of 2007. 

However, in the second half unstable credit market conditions associated with deteriorating 

housing markets, as well as weakening economic conditions, caused the Federal Reserve to 

lower the Federal Funds rate in steps by 100 basis points. At the end of the year, that rate was 

4.25 percent, the lowest level since January 2006. Short-term interest rates responded to the 

Federal Reserve’s actions and anticipated further rate cuts. The one-year Constant Maturity 

Treasury (CMT) yield fell from a high of 5.12 percent in January to 3.34 percent at the end of 

the year. Long-term interest rates rose modestly in the first half of 2007, with the yield on the 

10-year CMT peaking in June at 5.26 percent, and declined thereafter, with the 10-year CMT 

ending the year at 4.04 percent or 67 basis points lower than at the end of 2006. Because 

short-term interest rates fell more than long-term rates, the Treasury yield curve, which started 

the year inverted, steepened. The yield spread between the 2- and 10-year CMT increased 

from a negative 15 basis points in January to a positive 99 basis points at the end of the year. 

Mortgage interest rates typically follow the trend of long-term Treasury issues. According to 

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

mortgage (FRM) commitment rate rose by about 50 basis points in the first half of 2007, 

reaching a high of 6.74 percent in June. Rates declined gradually thereafter, to a low of 5.96 

percent on December 7, and ended the year at 6.17 percent. That was just one basis point 

lower than at year-end 2006. For the year, the 30-year FRM commitment rate averaged 6.34 

percent, just 7 basis points below the average rate for 2006. The average commitment rate on 

one-year Treasury-indexed adjustable-rate mortgages (ARMs) increased through July before 

easing somewhat. For the year, the one-year ARM commitment rate averaged 5.56 percent, 

just 2 basis points higher than the year before (Chart 1). 

Report to Congress • 2008 3
 

Chart 1 10% 

Mortgage 9% 

Interest Rates 

8% 

7% 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

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
Jun-07
Dec-07


Chart 2
 

Home Sales 

30-Year FRM Rate 1-Year ARM Rate 

Source: Freddie Mac 

Single-family housing starts declined for the second consecutive year, falling 29 percent to 

1.078 million units. That was the biggest percentage decline on record and the lowest level
 

since 1992. Similarly, home sales dropped sharply in 2007. Sales of new homes fell 26
 

percent to 776,000 units, the lowest volume since 1996. Sales of existing homes slid 13
 

percent to 5.7 million units, the lowest level since 2002 (Chart 2). The declines in housing
 

starts and home sales reflected the credit tightening resulting from the collapse of the
 

subprime segment of the mortgage market in the second half of the year.
 Thousands of Units 

9000
 

8000
 

7000
 

6000
 

5000
 

4000
 

3000
 

2000
 

1000
 

0
 

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 


Total Home Sales Existing Home Sales New Home Sales 

Source: National Association of Realtors and Bureau of the Census

4 Office of Federal Housing Enterprise Oversight 
YEAR IN REVIEW 

One of the few bright spots in the struggling U.S. housing sector in 2007 was an increase in 

housing affordability, as measured by the National Association of Realtors’ composite 

housing affordability index. That index rose 5.4 percent in 2007 to 111.8. The higher index 

mainly reflects a decline in the median price of existing single-family homes in 2007. 

The national homeownership rate declined from 68.9 percent at the end of the fourth quarter 

of 2006 to 67.8 percent one year later—the lowest level since the second quarter of 2002. A 

high volume of home foreclosures in 2007 likely contributed to that decline. With the rise in 

home foreclosures and tighter mortgage credit came a slight improvement in the rental 

vacancy rate, which fell from 9.8 percent at the end of the fourth quarter of 2006 to 9.6 

percent one year later. 

Sharp Slowdown in House Price Appreciation 

A sharp deceleration of house price appreciation in 2007 provided further evidence of 

weakness in the housing sector. A large inventory of unsold homes put downward pressure 

on property values. Nationwide, house prices, as measured by OFHEO’s quarterly seasonallyadjusted purchase-only House Price Index (HPI), rose 0.8 percent and 0.5 percent, 

respectively, in the first two quarters and then declined 0.3 percent in the third—the first drop 

in that index since the first quarter of 1993. That trend accelerated in the fourth quarter, when 

the purchase-only index fell 1.3 percent. Over the year ending with the fourth quarter, home 

values, as measured by the purchase-only index, declined 0.3 percent on average, after the 4.1 

percent growth over the same period a year earlier (Chart 3). 

10% 

8% 

6% 

4% 

2% 

0% 

-2% 

Quarterly Price Change 

Four-Quarter Price Change 

Chart 3 

OFHEO House 

Price Index 

History for USA 

(SeasonallyAdjusted Price 

Change Measured 

in Purchase-Only 

Index) 

A large 

inventory of 

unsold homes 

put downward 

pressure on 

property 

values. 

1992Q1 1992Q31993Q11993Q31994Q11994Q31995Q11995Q31996Q11996Q31997Q11997Q31998Q11998Q31999Q11999Q32000Q12000Q32001Q12001Q32002Q12002Q32003Q12003Q32004Q12004Q32005Q12005Q32006Q12006Q32007Q12007Q3

Year-Quarter 

Source: OFHEO 

Report to Congress • 2008 5
Chart 4 

Share of 

Subprime 

Mortgages 

Seriously 

Delinquent or in 

Foreclosure, 

Origination Years 

2001–2007 

OFHEO’s seasonally-adjusted purchase-only HPI showed considerable variation in regional 

house price trends in 2007. House prices declined on average in four of the nine Census 

Divisions. The Pacific and East North Central Census Divisions showed the largest drops, 

with prices falling 3.3 percent and 2.3 percent, respectively, from the fourth quarter of 2006 

to the fourth quarter of 2007. The West South Central and East South Central Divisions 

experienced the largest increases, with appreciation rates of 3.3 percent and 2.4 percent, 

respectively, over the same period. The trends in those two divisions reflected the recovery of 

house values from the aftermath of Hurricane Katrina (map on page 7). 

Illiquidity in the Secondary Markets 

for Subprime and Nontraditional Mortgages 

The rapid growth in subprime and nontraditional mortgage lending from 2001 through 2006 

was accompanied by a steady deterioration of underwriting standards, as typically occurs in a 

credit boom. In late 2006 and 2007, rising delinquency and default rates on recentlyoriginated subprime mortgages (Chart 4) spurred growing investor awareness of the extent of 

poor underwriting in subprime lending. In the second half of 2007, that awareness led to a 

virtual collapse of the primary and secondary markets for subprime and nontraditional 

mortgages and contributed to disruptions in broader financial markets. 

25% 

20% 

15% 

10% 

5% 

0% 

2007 

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 

Months from Origination 

2006 

2005 

2001 

2002 

2004 

2003 

Note: Reflects 30-year fixed-rate and 2/28 hybrid adjustable-rate mortgages with borrower credit scores 

at origination of less than 660. 

Source: OFHEO, based on data from First American LoanPerformance.com 

6 Office of Federal Housing Enterprise Oversight 
 

YEAR IN REVIEW 

Mountain: West New 

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 

England: 

-1.1% 

Middle 

Atlantic: 

1.4% 

South 

Atlantic: 

-0.9% 

East 

North 

Central: 

-2.3% 

North Central: 

0.6% 

East 

South 

Central: 

2.4% 

West South 

Central: 

3.3% 

0.2% 

Pacific: 

-3.3% 

U.S. : 

-0.3% 

Map 1 

Four-Quarter 

Appreciation by 

Census Division 

(Purchase-Only 

Index), 

2006Q4–2007Q4 

Source: OFHEO 

In March 2007 the Mortgage Bankers Association reported that delinquencies of subprime 

mortgages had risen sharply in the fourth quarter of 2006. That report led a broad spectrum 

of investors to become aware of serious performance problems in the subprime and Alt-A 

segments of the market. The resulting sell-off in mid-March of financial stocks exposed to 

subprime and nontraditional mortgages signaled to the public and policy makers that the 

problems in those segments might impose sufficient losses on financial institutions to affect 

the supply of credit and real economic activity. 

In June, credit rating agencies began to reconsider their ratings on private-label securities 

(PLS) backed by subprime mortgages and collateralized debt obligations (CDOs)1 exposed to 

such securities. In response, financial markets began to reassess the market value of mortgagerelated securities. Falling prices for subprime PLS and CDOs collateralized by them quickly 

began to impose large market-value losses on investors. 

At the end of July growing fears about exposures to U.S. subprime mortgages began to spread 

beyond U.S. banks and specialized mortgage lenders. Debt markets began to reprice the 

credit risk of all types of instruments backed by subprime loans. In late July, losses incurred 

by an asset-backed commercial paper (ABCP) conduit that held subprime mortgages led 

A CDO is a corporate entity constructed to hold a portfolio of fixed-income assets, often PLS mortgage-backed securities, and sell rights to 

the cash flows from those assets, and the associated risks, to investors. The credit risk of the collateral is allocated among different 

tranches; senior tranches (rated AAA), subordinated tranches (AA to B) and equity tranches (unrated). Losses are applied in reverse order of 

seniority, so that junior tranches offer higher coupon rates to compensate for higher risk. 

Report to Congress • 2008 7

1
Chart 5 

Single-Family 

Mortgage 

Originations 

Trillions 

investors globally to spurn the ABCP market, forcing financial institutions to scramble to tap 

bank credit lines and seek alternative sources of funding. In mid-August there was a broad, 

global reduction in the supply of credit for securities backed by subprime mortgages. 

Uncertainty about the decline in value of subprime collateral backing specific PLS and CDOs 

led liquidity in the markets for those securities to become extremely scarce overnight. 

With investors refusing to purchase PLS backed by subprime mortgages as of mid-August, 

only $29.7 billion of subprime PLS were issued in the third quarter of 2007, down 64.1 

percent from already deflated levels for the second quarter. The fourth quarter was worse, 

with only $11.9 billion of subprime PLS issued. Many major issuers failed to securitize any 

subprime loans during the third and fourth quarters. 

The fear of exposure to residential mortgage credit risk spilled over into the markets for PLS 

backed by Alt-A and jumbo mortgages. Investors became less willing to invest in any 

mortgage-related securities not guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. Only 

$38.2 billion of Alt-A and $40.3 billion of jumbo PLS were issued in the third quarter of 

2007, down 62.2 and 33.5 percent, respectively, from the second quarter of 2007. The fourth 

quarter 2007 issuance volume of Alt-A and jumbo PLS was worse than the third quarter, with 

only $13.6 billion of Alt-A and $19.3 billion of jumbo PLS issued. The Enterprises’ combined 

share of all mortgage-backed securities (MBS) issuances rose from less than 50 percent in the 

second quarter of 2007 to more than 75 percent in the fourth quarter. 

$4.0 

$3.5 

Conventional FHA/VA
 

$3.0
 

$2.5 

$2.0 

$1.5 

$1.0 

$0.5 

$0.0 

Source: National Association of Realtors and Bureau of the Census

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 

8 Office of Federal Housing Enterprise Oversight 
YEAR IN REVIEW 

Reduction in Single-Family Mortgage Originations 

Flat or declining house prices and illiquidity in the secondary markets for subprime and 

nontraditional mortgages contributed to a reduction in single-family mortgage lending in 

2007. According to Inside B&C Lending, originations of single-family mortgages fell for the 

second consecutive year, by 18.5 percent to $2.4 trillion, the lowest volume since 2001 (Chart 5). 

A sharply lower volume of subprime originations accounted for much of that decline. In 

response to the lack of secondary market liquidity after mid-August 2007, lenders virtually 

stopped making subprime mortgages. In the third quarter of the year, subprime lending 

totaled $28 billion, down 50 percent from the previous quarter. Most of that production 

occurred in July. In the fourth quarter, subprime lending totaled $13.5 billion and 

represented only 3 percent of total single-family originations. For the year, the subprime 

segment of the market accounted for 7.8 percent of total originations, down from 20.6 

percent during 2006 (Chart 6). 

40% 

50% 

60% 

70% Chart 6 

Single-Family 

Mortgage 

Originations by 

Market Segment, 

2001–2007 

30% 

20% 

10% 

0% 

2001 2002 2003 2004 2005 2006 2007 

Subprime 

Alt-A 

Home Equity 

Prime Conventional 

FHA/VA 

Jumbo 

Source: Inside Mortgage Finance Publications

The declines in Alt-A and jumbo originations in 2007 were less pronounced. Alt-A lending 

comprised 6 percent of single-family originations in the fourth quarter of 2007, down from 

14 percent in the first quarter. For the year, Alt-A lending comprised 11 percent of singlefamily originations, down from 13 percent in 2006. Jumbo originations accounted for 10 

percent of total single-family lending in the fourth quarter, down from 16 percent in the 

second quarter and in 2006. 

Report to Congress • 2008 9
Financial Performance 

of the Enterprises in 2007 

Overview 

In 2007, a confluence of factors—turmoil in the housing and mortgage markets, loss of 

liquidity in the credit markets, and volatility in the capital markets adversely impacted the 

financial performance of financial institutions in general, and in particular, the financial 

performance of institutions with significant exposure to mortgage markets. The Enterprises’ 

financial results suffered along with the results of other financial institutions. Both 

Enterprises were unprofitable in 2007—Freddie Mac’s first annual net loss ever, and Fannie 

Mae’s first since 1985. 

Business Volumes 

During 2007, both Enterprises were operating under agreements with OFHEO to limit 

growth of mortgage assets. Internal capital constraints emerged during the year that limited 

expansion of each Enterprise’s mortgage assets despite additional flexibility granted by 

OFHEO in September. In the second half of the year the Enterprises increased sales of assets 

and limited purchases in order to conserve capital. Annual growth of the mortgage asset 

portfolios in 2007 was negative 0.1 percent for Fannie Mae and 2.4 percent for Freddie Mac, 

compared to 2006 growth of negative 0.4 percent and negative 0.9 percent, respectively 

(Chart 7). 

Chart 7 25% 

Enterprise 

Growth in 20% 

Business 

Volumes 

15% 

10% 

5% 

0% 

-5% 2006 2007 2006 2007

Fannie Mae Freddie Mac 

Retained Portfolio Net MBS Outstanding 

Growth Growth 

Sources: Fannie Mae and Freddie Mac 

10 Office of Federal Housing Enterprise Oversight 
FINANCIAL PERFORMANCE OF THE ENTERPRISES 

Both Enterprises increased their guarantee businesses significantly as the market turmoil 

reduced the presence of other industry participants and resulted in higher market share for 

the Enterprises in the second half of the year. In 2007, Fannie Mae’s MBS issuance increased 

by 30.7 percent and liquidations and the Enterprise’s purchases of its own MBS slowed. As a 

result, Fannie Mae’s net MBS outstanding increased by 20.1 percent, compared to 11.4 

percent the prior year (Chart 7). Freddie Mac’s MBS issuance increased by 30.8 percent, 

liquidations slowed, and the Enterprise’s purchases of its own MBS increased. As a result, 

Freddie Mac’s net MBS outstanding increased by 23.1 percent, compared to 15.2 percent the 

prior year. 

Buoyed by growth of the guarantee business, the overall book of mortgage business for both 

Enterprises grew at a healthy pace. Fannie Mae’s total book of mortgage business increased 

14.3 percent, compared with 7.7 percent the year before, to $2.9 trillion. Freddie Mac’s total 

book of mortgage business increased 15.1 percent, compared with 8.4 percent the year 

before, to $2.1 trillion. Total mortgage debt outstanding increased by 7.0 percent in 2007. As 

a result, the Enterprises’ market share of total single-family mortgage originations grew from 

37.4 percent in 2006 to 54.5 percent in 2007, reaching 75.6 percent in the fourth quarter. 

Earnings 

Both Enterprises reported net losses in 2007. Fannie Mae reported a net loss of $2.1 billion, 

whereas Freddie Mac reported a net loss of $3.1 billion. The Enterprises’ profitability was 

adversely affected by: substantially higher credit-related expenses and market valuation losses 

on some assets (stemming from expectations of higher future default costs), higher 

allowances for loan losses, and declines in the market prices of mortgage assets. In 2007, 

credit-related expenses, market valuation losses on delinquent loans purchased out of trusts 

and losses on certain guarantee contracts, increased by $5.2 billion at Fannie Mae and $6.0 

billion at Freddie Mac, compared to 2006. 

$12 

$10 

$8 

$6 

$4 

$2 

$0 

-$2 

-$4 

2002 2003 2004 2005 2006 2007 

Fannie Mae Freddie Mac 

Sources: Fannie Mae and Freddie Mac 

Billions 

Chart 8 

Enterprise Net 

Income 

Report to Congress • 2008 11
Profitability was also adversely affected by significantly higher market valuation losses on 

derivatives stemming from substantial declines in swap interest rates. In 2007, market 

valuation losses on derivatives increased by $2.6 billion at Fannie Mae and $3.2 billion at 

Freddie Mac, compared to 2006. 

Lower net interest income from continued declines in net interest margins driven by a higher 

cost of debt, also contributed to the decline in earnings. In 2007, net interest income 

decreased by $2.2 billion at Fannie Mae and $0.3 billion at Freddie Mac, compared to 2006. 

Higher guarantee fee income partially offset these items. In 2007, guarantee fee income 

increased by $0.8 billion at Fannie Mae and $0.2 billion at Freddie Mac, compared to 2006. 

Generally accepted accounting principles (GAAP) earnings continue to exhibit high levels of 

volatility from quarter-to-quarter and year-to-year. Both Enterprises reported net losses in the 

second half of the year. Freddie Mac also reported a net loss in the first quarter. These losses 

reflect, in part, GAAP requirements to report changes in the market values of certain assets 

and liabilities, but not others, in earnings. 

The net losses through the third quarter and further declines in long-term interest rates in 

October and November depleted capital sufficiently for management at both Enterprises to 

take action to conserve capital by selling assets, issuing substantial amounts of preferred stock 

and reducing the common stock dividend. In 2007, Fannie Mae and Freddie Mac issued $8.9 

billion and $8.6 billion, respectively, of preferred stock. In Fannie Mae’s case, $1.1 billion of 

preferred stock was also redeemed during the year. In Freddie Mac’s case, $6.5 billion of 

preferred stock was issued specifically to bolster capital. The remaining portion replaced 

higher-cost preferred stock or was issued as part of a $1 billion common stock buyback 

program. In November 2007, Freddie Mac announced its intent to reduce its common stock 

dividend by 50 percent effective in the fourth quarter of 2007. In December 2007, Fannie Mae 

announced its intent to reduce its common stock dividend by 30 percent beginning with the 

first quarter of 2008. 

Fair Value Financial Performance 

Financial performance measured from a fair value perspective suffered far more than under 

GAAP. Sharp increases in mortgage defaults and foreclosures elevated investors’ fears about 

the future performance of mortgages and private-label securities backed by mortgages. The 

fair value of the Enterprises’ assets and obligations was significantly affected. Particularly 

affected were the value of securities backed by subprime and Alt-A loans, the value of 

seriously delinquent loans repurchased from Enterprise security pools and the value of the 

Enterprises’ “guarantee obligations,” the present value of costs of fulfilling their obligations 

on their MBS guarantees. The fair value of net assets (equity) declined by $7.9 billion at 

Fannie Mae and by $19.2 billion at Freddie Mac. The fair value of net assets (equity) 

attributable to common stockholders at Fannie Mae and Freddie Mac declined by $14.2 

billion and $25.7 billion, respectively, excluding the preferred issuance mentioned earlier. 

12 Office of Federal Housing Enterprise Oversight 
FINANCIAL PERFORMANCE OF THE ENTERPRISES 

Credit Risk 

The credit quality of the Enterprises’ assets deteriorated during the year, particularly assets 

purchased in 2006 and 2007, which generally had higher-risk characteristics than assets 

acquired in prior years, reflecting weaker underwriting standards prevalent in the market. 

Indicators of credit performance increased significantly during the year at both Enterprises, 

driven by the deterioration in the housing market, declines in home prices and overall 

weakness in the economy, particularly in the Midwest. The single-family serious delinquency 

rate rose 33 basis points at Fannie Mae to 0.98 percent and 23 basis points at Freddie Mac to 

0.65 percent. The credit loss ratio at Fannie Mae (excluding losses related to changes in the 

fair value of delinquent loans purchased out of trusts) increased from 2.2 basis points the 

prior year to 5.3 basis points. Freddie Mac’s credit loss ratio measured on a similar basis 

likewise increased from 1.4 basis points in 2006 to 3.0 basis points in 2007. 

Interest Rate Risk 

Interest rate volatility was high during the year relative to 2006, and some indicators of 

interest rate risk increased at both Enterprises. Both Enterprises historically disclosed the 

maximum percentage change in pretax net portfolio market value caused by a 50 basis point 

change in rates. Significant widening in option-adjusted spreads during the year reduced 

pretax net portfolio market value significantly at both Enterprises. Starting in December 2007, 

both Enterprises disclosed the maximum dollar change in pretax portfolio market value 

caused by a 50 basis point change in rates. For December 2007, Fannie Mae and Freddie Mac 

estimated decreases in pretax portfolio market value caused by a 50 basis point change in 

rates of $900 million and $385 million, respectively. The sensitivity of portfolio market value 

to changes in the level and slope of interest rates increased in the latter part of the year at 

both Enterprises. Freddie Mac’s duration gap stayed at zero months during the year; Fannie 

Mae’s increased to two months in the latter part of the year. 

Capital 

Each Enterprise’s continued high operational risk in 2007 caused OFHEO to continue to 

require both Enterprises to maintain 30 percent higher core capital than their regulatory 

minimum capital levels. At year-end, Fannie Mae’s core capital of $45.4 billion exceeded its 

OFHEO-directed capital requirement by $3.9 billion and amounted to a 9.3 percent surplus, 

whereas Freddie Mac’s capital of $37.9 billion exceeded its OFHEO-directed requirement by 

$3.5 billion and amounted to a 10.0 percent surplus above the OFHEO-directed minimum 

capital requirements. OFHEO classified both Enterprises as adequately capitalized for all 

quarters in 2007. 

Report to Congress • 2008 13
The Enterprise 

remains a 

significant 

supervisory 

concern. 

Report of Annual Examination 

of Fannie Mae 

(Federal National Mortgage Association) 

Examination Authority and Scope 

The OFHEO annual examination program assesses Fannie Mae’s financial safety and 

soundness and overall risk management practices. OFHEO uses 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. 

OFHEO assesses both institutions using standards that are absolute in nature and are not 

dependent on the relative performance of other financial institutions. 

OFHEO’s examination activities are risk based, focusing on credit, market and operational 

risks including those highlighted in the 2006 Consent Order. Consistent with the CAMELSO 

rating approach, this report covers management including the Board of Directors, Enterprise 

risk management, internal audit compliance and accounting. It then covers Asset quality and 

credit risk, Operational risk, Sensitivity to interest rate risk, Liquidity, Earnings and Capital 

adequacy. 

Examination Conclusions 

The Enterprise remains a significant supervisory concern, primarily due to poor financial 

performance and the quantity of credit risk resulting from the continued market deterioration 

and its dominant, adverse impact on current and future earnings. During 2007, management 

achieved several milestones and implemented fundamental satisfactory controls in nearly all 

areas of the Enterprise. However, several projects are in progress but not yet complete, and 

many of the improvements are relatively new and require time to ensure sustainability. A 

critical goal of issuing timely financial statements was achieved with Fannie Mae’s issuance of 

its 2007 financial statement in February 2008. 

Financial Performance 

Financial results in 2007 were poor. Significant GAAP and fair value losses are linked to the 

rapid deterioration in credit performance, declines in long-term interest rates and derivative 

losses. The purchase of loans with weak underwriting, guarantee-fee pricing constraints, 

house price declines and dislocation in the mortgage markets have adversely affected 

financial results, flexibility and the overall strength of the Enterprise. Losses reduced capital 

levels, requiring the Enterprise to issue additional preferred stock, modify risk management 

and business practices, reduce dividends, control growth and actively manage balance sheet 

composition. Improved capital planning and income forecasting are necessary to ensure that 

capital needs are fully assessed and capital levels are maintained at an adequate level. 

14 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FANNIE MAE 

Asset Quality 

The quantity of credit risk was high and increasing. The deterioration of asset quality that 

began in the second half of 2006 generated significant adverse trends for the Enterprise in 

2007. To address deteriorating market conditions, management has made significant changes 

to better manage credit risk, including tightened underwriting standards, increased pricing, 

improved practices to control loan losses and decreased servicer exposure. Despite improved 

practices, losses may significantly increase because of market conditions. Counterparties, 

which represent a significant exposure to Fannie Mae, may be unable or unwilling to honor 

obligations should their financial strength continue to decline. 

Internal Controls 

Management’s efforts during 2007 established fundamental controls for nearly all functions 

and substantially improved the management of performance, risks and operations. Fannie 

Mae achieved milestones in financial reporting, controls over data, systems and processes, 

and other major projects demonstrating a proven record of success in planning, prioritizing, 

monitoring and controlling projects. However, significant time and effort are still needed to 

complete the numerous remaining projects to improve efficiency and the quality of controls. 

Controls are often manually intensive, and full correction in some controls cannot be 

achieved until further progress is made in systems upgrades. 

Areas requiring significant effort to complete credit model development, economic capital 

development, data standardization and architecture, Housing and Community Development 

(HCD) operations and risk measurement, and strengthened forecasting or scenarios for 

earnings and strategic planning. Systems issues impact the timeliness and accuracy of some 

activities and some performance and risk metrics used in reports. Model quality impacts the 

underwriting and pricing of mortgage loans. Many of these limitations impede the 

optimization of performance and risk management and generate an expensive control 

structure. The completion of the process to issue timely financial statements and progress 

throughout the Enterprise in controls, communication, reporting, staffing, infrastructure, 

organizational structure, and risk measurement and management has built the foundation 

for accelerated progress in the future. 

Fannie Mae has (1) a qualified and active Board of Directors and a management program 

that is largely completed; (2) operations with fundamental controls in most areas, but with 

deficiencies that continue to impact the speed of expansion into new products and some 

areas of risk and performance management; (3) improved credit risk pricing, underwriting 

and management but a significant deterioration in asset quality; (4) an interest-rate risk 

program in the lower range of satisfactory due to systems capacity limitations that impede the 

daily production of some reports, and an aggressive level of interest rate risk in light of high 

credit-related losses; (5) satisfactory liquidity management, but the need to set a position 

floor for high-quality nonmortgage assets; and (6) adequate regulatory capital levels. 

Future earnings could be materially impacted by significant credit losses and continued 

deterioration in credit quality, as well as the volatility and levels of interest rates. Structural 

and economic issues in the mortgage markets and the Enterprise’s goal to expand activities in 

Report to Congress • 2008 15
higher-risk products heighten the importance of developing or completing several systems 

and credit models, interest-rate risk measurement systems and economic capital models to 

better quantify risks and performance and strengthen financial performance measurement 

and attribution analysis. 

Matters Requiring Attention 

The following key matters highlighted in this report require strong management 

and Board oversight: 

•	 Credit Risk Management. All aspects of credit risk should be proactively and 

aggressively managed, including: Changes to credit limits, underwriting standards 

and pricing to control the quality of products and the appropriate compensation 

for risk; completion of revised front- and back-end analytics, infrastructure and 

staffing; progress in credit model development, and hiring sufficient staff for model 

development; effectiveness and operational capacity for controlling loan losses; 

level of counterparty risk and effectiveness of counterparty risk measurement and 

exposure mitigation strategies; and adequacy of capital levels and actions in light of 

high and increasing credit exposure and losses. 

•	 Financial Performance and Capital Planning. Strategic plans and actions 

should be aligned to create a coherent risk profile for the Enterprise in terms of 

credit, operational, pricing, models, interest rate and capital level risks. Forecasting 

and scenario analyses must be strengthened for earnings, capital and other areas, 

and should incorporate a broader range of market events. 

•	 Risk Oversight Functions. The significant number of projects to improve or 

optimize risk and performance measurement, controls, data, reports, efficiency and 

competitiveness should be completed. The project to measure economic capital, 

including market (interest rate), credit and operational risks, should be completed 

in a timely manner. 

•	 Infrastructure and Internal Controls. The infrastructure project focusing on 

internal controls should be completed with sufficient data, information technology 

policies, controls, models, reports and personnel in place. 

•	 Public Disclosures. Public disclosures should clearly communicate significant 

financial and accounting issues, trends and changes. 

16 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FANNIE MAE 

Management and Board Supervision 

Board of Directors and Management 

The Board structure and independence are satisfactory, and members bring the expertise 

necessary for evaluation and oversight of Fannie Mae’s activities. Communication remains 

satisfactory, with regular and ad hoc management presentations. 

The Board continued improvements in its operations during the year through revised 

policies, strengthened expertise and better reports from and communication with the 

business units and independent oversight functions. Board activity included an engaged 

oversight of financial statements published this year, review and approval of policies and 

strategic plans, monitoring of internal and external audit activities, and policing itself in 

terms of independence and expertise. 

Corporate policies were reviewed and revised on schedule and were largely satisfactory. Many 

policy components were significantly strengthened, such as the new interest-rate risk limit 

structure that controls Fannie Mae’s specific risk profile. The corporate credit risk and 

liquidity policies are satisfactory, but are expected to be strengthened in 2008. 

Management’s supervision program has progressed significantly. Many areas have been 

satisfactorily or adequately addressed and include implementing controls that are compliant 

with Sarbanes-Oxley requirements; conducting risk control self assessments in high-risk areas 

beyond financial statements to assess the risk profiles and identify deficiencies; establishing 

controls for information technology (IT) processes; and re-engineering or replacing 

antiquated systems. However, several projects and corrective actions are in varying stages of 

progress. The correction of data standardization is in an early stage, and the development of 

some credit models to address recent loan products and market events is lagging. The 

completion in late 2007 of a process to produce timely financial statements allowed 

management to shift its emphasis and resources to other critical projects. Remaining issues or 

deficiencies in the areas of operations, controls, communication and information used in 

managing risk and performance are in varying stages of completion. 

The expertise of management and staff has been significantly improved. Management and 

many key staff positions have been filled by external hires with strong skills or by moving 

personnel to positions that better fit their skill sets. However, several staff positions in control 

and risk management functions are unfilled. Control and risk management deficiencies were 

often mitigated by efforts from the Chief Risk Officer (CRO) division during early 2007, but 

were appropriately moved to the strengthened business unit functions by midyear 2007. The 

number of contractors and personnel was reduced by 28 percent during 2007. 

Enterprise Risk Management 

The CRO division infrastructure was largely completed during 2007, and remaining issues are 

in the process of correction. Four separate teams covering credit, market, operational and 

model validation are staffed with qualified personnel, but two key management vacancies in 

market risk have remained open for an extended period. Model validation is amply staffed. 

Report to Congress • 2008 17
The business unit risk officer function was strengthened. Independence in metrics and report 

was improved, but information and risk measurement independence will not be fully resolved 

until the CRO division has the ability to run systems and models independently. 

The CRO division developed a strong risk oversight function during 2007 and remained a key 

driver in the improvement of business unit risk controls and management. The CRO 

demonstrated appropriate authority through active influence over business unit risk levels and 

practices, policy and limit development, exception reviews, and transaction review and 

prevention where appropriate. The CRO division appropriately continued its training and 

assistance for business units to strengthen their controls, reports and risk management. CRO 

independence significantly improved during 2007. In addition, the development of models and 

risk measurement methodology for economic capital, including operational risk, has 

progressed, but is incomplete. 

Counterparty risk and oversight of that risk increased significantly during 2007, but the 

oversight requires further strengthening. The CRO division developed a Comprehensive Plan to 

measure, monitor and control counterparty risks, and accelerated corrective actions due to 

deterioration in the credit environment. Limits and reports are in place, and counterparty stress 

tests and other analysis were strengthened and made consistent with industry standards in the 

fourth quarter of 2007. Accuracy in the aggregation of risks by counterparty is maintained with 

a manual process that addresses limitations in the RiskNet application. 

Internal Audit 

The Internal Audit program continued to improve during 2007. Internal Audit met program 

goals and deadlines during the year and successfully integrated audit activities with the external 

auditor. An independent review determined Internal Audit’s compliance with industry 

standards for quality assurance and automated data analysis. 

The use of automation in individual audits was increased by 70 percent, which has allowed for 

larger sample sizes and strengthened independence from business unit analysis and reports. 

Summary reports for the Board and management satisfactorily highlight issues and root causes. 

Audits in 2007 appropriately focused on controls in business processes. The external auditor 

relied on several internal audits in 2007 and has identified many audits for potential reliance in 

2008. 

Compliance 

The Compliance and Ethics division (C&E) made substantial progress in building its 

organizational structure and initiating programs to meet its function. C&E includes the following 

groups: Enterprise Compliance, Ethics, Investigations, Anti-fraud and Privacy, and Regulatory 

Affairs. Compliance with the May 23, 2006, Consent Order remained one of Fannie Mae’s 

highest priorities. The established Program Management Office within the C&E continued to 

ensure coordination and consistent execution of remediation and reporting efforts. 

Major accomplishments within C&E included the redesign of the Enterprise Compliance 

18 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FANNIE MAE 

Program to apply a risk-based approach. Compliance Risk Assessments were completed for 

the Capital Markets, Housing and Community Development and Single-Family businesses. 

A Chief Privacy Officer was appointed and a privacy strategic program plan was established. 

An Enterprise anti-fraud framework was established to assist the businesses in assessing and 

addressing fraud risk. Investigations implemented a new case management system, which 

eliminated the case backlogs. As mandated in the Consent Order, the Corporate Policies and 

Procedures Repository was established to provide employees, contractors and regulators with 

access to all Fannie Mae-approved policies, standards, procedures, guidelines and supporting 

documentation. 

Accounting 

During 2007, the Enterprise responded to accounting challenges, including material 

weaknesses in disclosure and financial reporting controls, timely filing of financial reports 

with the SEC, the issuance of new accounting standards by the Financial Accounting 

Standards Board and deteriorating credit markets. Fannie Mae management generally met 

these challenges well during the year. 

OFHEO's assessment of Fannie Mae’s work in the accounting area is ongoing. OFHEO is 

developing accounting guidance, especially for the new standards including fair value, which 

are designed to encourage consistent, transparent and economically faithful reporting. 

Significant issues which OFHEO has been reviewing are: 

Reported Material Weaknesses. In its 2006 annual report filed on Form 10K, 

management reported that the Enterprise did not maintain effective internal control over 

financial reporting as of December 31, 2006. Fannie Mae reported in its 2007 annual 

report that its material weaknesses had been remediated. During 2008, OFHEO will 

evaluate the Enterprise’s remediation efforts. Also during 2008, OFHEO will review the 

significant progress made by the Enterprise in implementing Section 404 of the 

Sarbanes-Oxley Act. 

SEC Registration and Reporting. Fannie Mae, a SEC registrant, is now current on the 

filing of its financial statements with the filing in November of third quarter reports on 

Form 10Q and its 2007 annual report on Form 10K with the SEC in February 2008. 

Going forward, OFHEO will continue to monitor improvement of Fannie Mae’s 

accounting and disclosure infrastructure, which supports the timely filing of the 

Enterprise’s financial statements. 

Accounting Policies. Fannie Mae’s management has completed an evaluation of the 

Enterprise’s accounting policies and has provided OFHEO with most of the supporting 

documents responsive to the requirements of OFHEO’s Accounting Guidance. To assess 

Fannie Mae’s design and implementation of its accounting policies, OFHEO performed 

several targeted reviews during the year, including securities, which have become 

impaired in value (FAS 115); the fair value option (FAS 159); and credit loss reserves 

(FAS 5). 

Report to Congress • 2008 19
Impaired Securities Accounting. In OFHEO’s review of the Enterprise’s accounting
 

policy on impairments, OFHEO concluded that the policy was in accord with the
 

applicable GAAP requirements. Also, OFHEO reviewed the implementation of the
 

Enterprise’s impairment accounting policy and concluded that the Enterprise had
 

properly and faithfully implemented it. In light of the current conditions in the credit
 

markets, OFHEO will continue to monitor the Enterprise’s implementation of its
 

impairment accounting policies in the coming year.
 

Fair Value Option Implementation. OFHEO reviewed the Enterprise’s 

implementation of FAS 159, The Fair Value Option for Financial Assets and Financial 

Liabilities. Preliminary conclusions are that the Enterprise has documented its election 

appropriately, although the accounting policy to implement the new standard needs to 

be fleshed out with more guidance for the line accounting staff. During 2008 OFHEO 

will review the policies developed for the ongoing application of the standard. Fannie 

Mae elected fair value accounting for only approximately 6.4 percent of its assets, in 

addition to the 7.2 percent in its trading portfolio. A broader election may be possible 

and beneficial. 

Reserves for Credit Losses. OFHEO began a review of the Enterprise’s approach to the 

calculation of its reserves for credit losses. OFHEO has been generally satisfied that 

Fannie Mae’s application of the standard is providing adequate reserves and related loss 

recognition. OFHEO will continue to study the reserve computations of the Enterprises 

as the credit situation continues to evolve during 2008. 

Asset Quality and Credit Risk Management 

The quantity of credit risk is high and increasing. The deterioration of asset credit quality 

generated significant adverse trends for the Enterprise in 2007, which may continue in 2008. 

During the past several years, Fannie Mae relaxed its underwriting standards, but not as much 

as many other market players. Many of the recent credit losses resulted from these relaxed 

underwriting standards. To address deteriorating market conditions, management has made 

significant changes to better manage credit risk, including tightened underwriting standards, 

increased pricing, improved loss control practices and decreased exposure to distressed 

servicers. Key challenges to address in 2008 are helping to reduce foreclosures, disposing of 

Real Estate Owned (REO) and managing exposures to services and mortgage insurers. 

Single-Family Business 

Loans booked in the last few years have shown relatively unchanged profile characteristics in 

terms of FICO®, loan-to-value, and level of credit enhancement. However, Fannie Mae 

increased its exposure to nontraditional mortgages and risk layering. Asset credit quality 

deterioration in the Single-Family (SF) business accelerated during the second half of 2007, 

with losses exacerbated by both higher volume and loss severity in defaulted loans. In 

response, management increased the combined allowance for single-family loan losses and 

20 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FANNIE MAE 

reserves for guarantee losses to $3.3 billion at year-end 2007, with a $2.8 billion provision in 

the fourth quarter of 2007. The serious delinquency rate was 0.98 percent at year-end 2007 

versus 0.65 percent at year-end 2006, an increase of 51 percent. REO increased 34 percent 

during 2007. Realized losses in 2007 were $644 million or 1.4 percent of core capital, a 63 

percent increase over 2006 at $394 million or 0.9 percent. 

In 2007, changes to existing underwriting standards for nontraditional mortgage and 

subprime products were made to address OFHEO’s directive. Single-Family also developed 

HomeStay, which helped distressed borrowers through initiatives such as loan modifications 

and credit counseling. Underwriting standards were tightened and guarantee and other fees 

were increased for specific higher-risk loans as well as all loans guaranteed by SF, but several 

of these increases did not become effective until March 2008. 

SF made significant progress during 2007, with improvements noted in many risk 

management functions. SF’s build-out out of the risk management structure is nearly 

complete but needs additional time to fully implement. Deficiencies continue in such areas 

as model development, reports and staffing in some areas of credit loss management. 

However, most projects are largely complete, with nearly all scheduled for completion before 

year-end 2008. Management implemented a comprehensive business transformation strategy 

in the first quarter of 2007, which focused on strengthening the risk management framework 

in such areas as reports, risk measurement, policy and limits, delegations of authority, and 

operational efficiency and controls. 

Housing and Community Development—Multifamily Business 

The multifamily portfolio continued to be strong in 2007 with a low and stable delinquency 

rate at 0.08 percent of the total portfolio. Credit-related expenses were $9 million or 0.02 

percent of capital, compared to $5 million or 0.012 percent during 2006. 

Deficiencies or inefficiencies in HCD stem from fragmented systems and manual processes, 

as well as issues in risk identification, measurement, management and controls, which are 

being satisfactorily addressed in pending projects. Data accuracy relies on a manually 

intensive process that reconciles data among numerous single-purpose systems. This process 

is repeatable, and meets the fundamental requirements necessary to conduct business. Issues 

outstanding at year-end 2007: 

•	 Fundamental controls are in place for systems and data quality which meet SarbanesOxley requirements and reports now provide information needed to adequately 

manage performance and activities, but require strengthening in other areas. 

•	 Systems and tools used to link risk and pricing are deficient, requiring a higher level of 

judgment in pricing. 

•	 The Credit Review function was significantly improved but remains incomplete and 

understaffed. The revised Delegated Underwriting and Services Guide was introduced 

before Credit Review was fully implemented. 

Report to Congress • 2008 21
•	 HCD made significant progress in addressing deficiencies in technology, controls, 

reports, credit review, asset management and risk rating of loans, with several 

milestones achieved by year-end 2007. However, significant efforts will be needed to 

fully address all issues and inefficiencies. The CRO division, HCD management, and a 

dedicated information technology (IT) project manager coordinated to establish 

controls and implement a program to address deficiencies in risk ratings, and quality 

control over both underwriting and credit loss management. 

Retained Mortgage Portfolios 

In the retained portfolio, asset quality is satisfactory and improving. Product default losses are 

controlled by collateral, insurance and/or first loss coverage. Losses from impaired value 

totaled about $890 million and were predominantly from manufactured housing securities. 

All private-label-securities (PLS) were rated AAA at origination except for a small (0.5 

percent) pilot program that started and ended in 2007. Traditional single-family fixed-rate 

mortgages and securities collateralized by them represent about 44 percent of the portfolio. 

Fixed-rate product represents about 70 percent, with the remainder composed of ARMs, 

floaters, hybrids, and multifamily product subprime and Atl-A. PLS and CMBS are about 13 

percent of the portfolio and are mostly comprised of floating-rate product. About 40 percent 

of the Enterprise’s portfolio is its own or Freddie Mac MBS. 

Systems enhancements during 2007 improved management’s ability to analyze and 

proactively manage the portfolio. Weekly and daily reports now contain significantly more 

granularity and provide data on product subsectors of the portfolio. However, accounting and 

operational constraints impede active management of whole loans, potentially impacting 

return optimization. Although some improvements were made to the Portfolio Pooling 

System (PPS), there are still portions of the whole loan portfolio that cannot be readily 

securitized due to remaining system constraints. Changes to PPS are in progress to improve 

its securitization capabilities during 2008. 

PLS management has improved significantly with revised policies, pre- and post-purchase 

analytics and timely management reports. However, 20 percent of the PLS purchased from 

the beginning of 2006 through midyear 2007 did not comply with policy concerning 

unapproved or terminated counterparties, indicating a control deficiency. 

Enterprise Counterparties 

Risk from counterparties and counterparty concentration represent a significant exposure to 

the Enterprise. Risks from servicers and mortgage and bond insurers increased because of 

recent market events that have contributed to bankruptcies for some industry players and an 

overall deterioration of counterparty financial strength. The top 10 servicers processed 74 

percent of the single-family mortgage credit book of business at year-end 2007. Mortgage 

insurers also represent a significant level of counterparty risk to the Enterprise and are facing 

financial difficulties. 

Counterparty risk management significantly improved during 2007, with many projects 

accelerated in late 2007 to help address increased exposure from recent market events. Best 

22 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FANNIE MAE 

practices were implemented for several troubled counterparties in response to the mortgage 

crisis. The Chief Risk Officer (CRO) division expects to implement many of these same risk 

mitigant controls and techniques for all counterparties over time. The counterparty risk 

management function was centralized in the CRO division, consolidating the review and 

approval process and eliminating the previous fragmentation of separate approvals within 

each business unit. 

Counterparty management deficiencies are centered in risk measurement and aggregation, 

deficient staff levels and risk management controls that will take time to fully develop and 

implement. The CRO division developed but has not yet fully implemented its plan to 

measure, monitor and control counterparty risks. 

The new counterparty risk management program includes regular financial statement 

analysis, on-site visits and stress tests with scenarios more conservative than those used by 

rating companies. In addition, new controls reduce exposure to distressed servicers through 

collateral and/or frequent collection of mortgage payments, servicer commitments to accept 

loan processing transferred from distressed servicers and the reduction of as-soon-as-pooled 

funding in the latter part of 2007. Although collection of losses on loans covered by “reps and 

warrants” contracts has improved, this area represents a potentially increasing servicer 

exposure should the financial strength of some servicers deteriorate further. 

Operations and Operational Risk Management 

During 2007, management built an effective infrastructure approach to implement or 

strengthen controls. Controls were significantly improved, achieving by year-end 2007 

adequate controls over operations processes, IT and data used in financial statements and 

many areas in capital markets. Data assessments completed by the Enterprise and a 

consultant indicate that overall data quality and controls are adequate. These efforts were 

completed in late 2007, but OFHEO could not verify this before year-end 2007. Many 

controls remain manually intensive and generate a higher potential for error, but prevented 

excessive problems or losses during 2007. New controls implemented during 2007 for such 

areas as financial statements and improved automation for some systems have been shown to 

be reliable for up to two quarters, but need additional time before sustainability is proven. 

The strength of internal controls ranges from satisfactory to adequate. During 2007, 

management made substantial progress in addressing internal controls and other operational 

weaknesses. Some controls are manual but achieved management’s objectives, as validated by 

testing for Sarbanes-Oxley requirements and other monitoring programs. Controls are 

generally satisfactory for processes with little dependence on systems. However, controls that 

rely on systems or automation are sometimes less than optimal. Many of the work-around 

solutions are successful but are redundant and/or require many people to complete 

processes. Operational controls and efficiencies should improve over the next two years as 

systems are revised or replaced. 

[M]anagement 

made 

substantial 

progress in 

addressing 

internal 

controls and 

other 

operational 

weaknesses. 

Report to Congress • 2008 23
Major areas of improvement or accomplishments include: 

•	 Management demonstrated its ability to successfully plan, monitor, control, and 

complete a high volume of large and complex projects or initiatives. 

•	 The Restatement, Catch Up and Get Current projects were satisfactorily controlled 

and completed, using end-to-end work streams and strong project management. 

Completion of financial records met the monthly 11-day close deadline without 

significant difficulties during the fourth quarter of 2007. The integration of Get 

Current and production operations and databases was successfully completed. 

•	 The Sarbanes-Oxley review is not complete, but areas reviewed indicate that controls for 

the financial statements are satisfactory but inefficient. The failure rate in such testing is 

less than five percent, which is consistent with Sarbanes-Oxley compliant companies. 

Information Technology 

Technology established an effective organizational structure and governance program that 

implemented Information Technology (IT) controls and provided a foundation for further 

improvements in controls, efficiency and value. Plans were prioritized and standardized and 

addressed necessary application and systems changes through 2010. These changes will 

correct recognized deficiencies in an inflexible and expensive architecture, which includes silo 

applications, poor system integration, obsolete technology and an overreliance on end user 

computing applications. Dedicated project managers coordinated with business units to 

ensure that projects remained on track and met business requirements. The IT Executive 

Board, comprised of executive management from the business units, provides centralized 

prioritization and approval of all major expenditures in IT and other projects Enterprise-wide. 

Resources remained strained throughout 2007 due to the cumulative effect of maintaining 

normal business operations while completing financial statement remediation and 

addressing operational deficiencies. 

Technology successfully remediated internal control weaknesses, reduced the cost and 

complexity of the technology environment, and improved financial and operational 

discipline. Major multi-year initiatives are underway to re-engineer or replace several legacy 

applications, and streamline the technology infrastructure. Eight of the top 10 remediation 

initiatives are on track, with delays in two caused by additional work needed to complete 

projects for the timely filing of financial statements by year-end 2007. 

Legacy applications provide stable performance for traditional loan products and portfolio 

transactions, but adversely affect the content and timeliness of performance and risk 

management information in nontraditional areas. The IT infrastructure remains complex but 

now provides satisfactory reliability, as no major operational incidents or IT outages occurred 

during 2007. Pervasive access control issues were remediated by third quarter 2007. Adequate 

controls over IT are in place, and will improve over the next few years as systems are revised or 

replaced. Operational effectiveness is monitored through monthly metrics reports. 

24 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FANNIE MAE 

Business continuity and crisis management are well-controlled. Recovery plans satisfactorily 

address redundant data, systems and locations. A tertiary site is out of region and meets the 

more stringent industry standards established after September 11, 2001. 

Data 

Enterprise Data established a comprehensive data governance and management framework 

and addressed data issues for financial statements with the implementation of the 

Accounting Data Warehouse. In addition, data quality improvements were made to support 

Capital Markets risk management with the build-out of the Financial Data Warehouse and 

the Portfolio Data Service, which supports the Total Return Infrastructure. Efforts 

appropriately focused on ensuring that data used in financial statements and interest-rate risk 

management were accurate, complete and timely. Projects supporting remediation of data 

issues in other areas of the company are in the early stages. 

Enterprise Data completed the first phase of an Enterprise-wide critical data inventory and 

quality assessment. Work to date indicates that the majority of the data meets the needs of 

the business and trusted sources contain sufficient critical data needed for the operation of 

the business. However, numerous unintegrated databases are in use throughout the 

Enterprise. In many cases, significant resources are needed to manually reconcile related data 

in multiple databases to ensure consistency and reasonable accuracy in the numbers used to 

manage risk, performance and operations. Enterprise Data has launched a multiyear project 

to set data standards and consolidate data in fewer databases. 

Internal Controls 

Operations has established an effective infrastructure and completed much of the program to 

identify, control, monitor and report operations risks. Adequate controls have been 

implemented over most processes. These controls are the best possible in the current systems 

environment, but cannot fully mitigate risks until key systems and applications reengineering or replacement is complete. Controls are better in Capital Markets Operations, 

but of lower quality in operations overseeing Housing and Community Development and 

Single-Family operations. Management recognizes deficiencies in mortgage-backed security 

trust compliance and expects to begin corrective actions during 2008. Pricing methodology 

improvements for use in financial statements met 2007 goals, with efforts to provide realtime pricing continuing into 2008. Final prices for financial reporting are verified by 

Independent Price Verification, with disputes resolved by the Chief Financial Officer. There 

were no disputes in 2007. 

Model Risk 

Model risk increased significantly during 2007 as a result of deterioration in the credit and 

housing markets, which rapidly changed conditions and increased uncertainty in projections 

made by credit and prepayment models. The changes in conditions have increased the 

potential for error in key model results for credit risk and pricing as well as other metrics. 

These potential errors could impact decisions in managing credit and interest rate risk, which 

could further decrease earnings. 

Inherent model 

risk increased 

significantly 

during 2007 as 

a result of 

deterioration 

in the credit 

and housing 

markets. 

Report to Congress • 2008 25
Fannie Mae’s model development group, Business Analytics and Decisions, appropriately 

focused resources on developing financial reporting models for the Get Current project. 

However, the resource focus on financial reporting models coupled with continued vacancies 

of critical staff caused delays in the development and implementation of production models 

that represent high to moderate risk. 

The model risk management program significantly improved during 2007. The control 

structure is well designed, and full implementation of the program is nearly complete, with 

only minor program deficiencies remaining. However, revisions of some models used for 

credit risk pricing guarantee fees and performance were delayed. Model revisions are expected 

to accelerate in 2008 once staffing is increased and developers released from the Get Current 

project return to work on production models. 

Sensitivity to Interest Rate Risk 

The overall program for interest rate risk (IR Risk) is in the low range of satisfactory. Risk 

management activities, reports and communication are satisfactory. However, the risk 

management strategy, exposure levels and some limits are aggressive in light of higher and 

increasing credit-related losses. Interim milestones in systems and data upgrades achieved 

during 2007 significantly improved the accuracy of IR Risk measurement, increasing the 

accuracy of management decisions in controlling IR Risk. However, Capital Markets uses a risk 

measurement system with capacity issues that impede the consistent daily production of the 

significantly increased number of scenarios that management and the CRO division desire. 

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

Hedged interest rate risk is moderate in terms of capital exposure but represents a potentially 

significant impact to already depressed earnings. In addition, the widened spread between 

the fair value of assets and liabilities had relatively little impact on actual cash flows during 

2007 but significantly reduced the net fair value of the Enterprise. 

The reliance on delta hedging and the level of the convexity limit can contribute to a 

potentially higher level of volatility in both economic and GAAP earnings. Delta hedging is 

used to hedge the portfolio’s duration and convexity through the active purchase and sale of 

swaps in an attempt to replicate the performance of swaptions. This reliance could require 

access to significant amounts of swaps during a period of major market stress that could 

impede rebalancing efforts. 

Management appropriately measures the IR Risk from the retained portfolios and funding, 

but does not include IR Risk for the entire Enterprise within its regular, internal IR Risk 

management reporting process. The current measurement covers the retained portfolios and 

related funding but does not include the cash flows from the guarantee fee business or 

expenses. The integration of all accounts would allow management and the Board to 

understand the full impact of IR Risk to economic earnings and capital. Improvements to 

models, data and assumptions implemented near the end of 2007 significantly improved the 

accuracy of IR Risk measurement, increasing the effectiveness of management decisions in 

controlling IR Risk. 

26 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FANNIE MAE 

The Board and management policy limits provide a comprehensive risk control structure. In 

2007, the Board approved the Market Risk Limit policy that defines responsibilities and 

provides a set of limit types that satisfactorily control and communicate Fannie Mae’s IR Risk 

profile. The Board limit structure provides limits for Value-at-Risk convexity, spread sensitivity 

and market value of equity sensitivity to larger rate shocks. The management policy has 

sublimits for each of the Board limits. In addition, management policy has five additional 

limits to formally control the components of IR Risk. The Chief Risk Officer division revised 

management’s market risk policy in late 2007 to better address roles and responsibilities, and 

escalation practices when limits are exceeded. 

Management continues a program of satisfactory risk management practices, and 

communication of IR Risk. Risk is controlled and communicated through daily or weekly 

meetings with management and risk committees. Board and management reports provide an 

effective portrayal of the risk profile for major sources of IR Risk by showing limit 

compliance, scenario analysis, and other risk information. Management’s analysis, awareness 

and communication of risks were strengthened in late 2007 when risk measurement accuracy 

improved and variances between daily risk measurements became more traceable. 

Liquidity 

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

management. Fannie Mae is further enhancing policy, reports and operations to strengthen 

controls and communication. Liquidity is satisfactorily managed, with liquidity issues 

appropriately escalated through key management, the Chief Risk Officer and committees on 

the basis of set triggers. Revised corporate policies and corporate-level liquidity risk limits 

were approved in early 2007. The policies and limits provide guidance for responsibilities, 

short-term funding, credit quality standards for Liquid Investment Portfolio (LIP) securities 

and the use of a severe scenario, which assumes no new debt issuance for 90 days. 

The LIP and the more liquid securities in the retained mortgage portfolio provide sufficient 

coverage of the Enterprise’s net cash needs within 90 days at about 1.3 times at year-end 2007 

using conservative values for the securities. However, coverage from assets that quickly 

generate funds during stress events declined for the year ending December 31, 2007. Agency 

mortgage-backed securities readily accepted by the market for sale or repo during stress events 

declined during 2007, while less liquid securities and whole loans increased. 

Size 

The LIP was primarily comprised of bank deposits, with longer-term securities comprised of 

corporate and asset-backed securities in late 2007. At year-end 2007, 62 percent, or $57.8 

billion, of the LIP consisted of high-quality, short-term securities with a rating of P-1. The 

remaining $35.6 billion represent 21 percent AAA, 7 percent AA and 10 percent A-rated 

securities in the total portfolio. 

Report to Congress • 2008 27
Chart 9 

Fannie Mae 

Liquid Assets as 

a Percentage of 

Total Assets 

Chart 10 

Fannie Mae 

Funding 

Composition 

14% 

13% 

12% 

11% 

10% 

9% 

8% 

7% 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

2007 Q1 2007 Q2 2007 Q3 2007 Q4 

Source: Fannie Mae 

Credit Quality 

The LIP provided at least two weeks’ coverage of 90-day net cash flows throughout 2007, and 

remained above five percent of portfolio assets except for a few weeks near year-end. 

However, the outstanding balances in the LIP varied significantly. Assets in the LIP declined 

57 percent from August 2007 to slightly below the five percent at $35 billion ($5 billion in 

short-term securities, $30 billion in long-term) in November 2007, but increased to $93 

billion by year-end (Chart 9). 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10%
 

0%
 

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 

26% 

53% 

21% 

26% 

53% 

21% 

28% 

52% 

21% 

29% 

51% 

20% 

29% 

50% 

21% 

29% 

50% 

21% 

29% 

49% 

21% 

30% 

47% 

23% 

31% 

49% 

20% 

31% 

48% 

21% 

31% 

48% 

20% 

27% 

44% 

29% 

Callable Debt Non-Callable Debt Short-Term Debt 

Source: Fannie Mae 

28 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FANNIE MAE 

Debt composition was stable through the year until the fourth quarter of 2007, when rates 

decreased significantly and Fannie Mae exercised its calls on callable debt. This long-term debt 

was replaced by short-term discount notes. Discount notes outstanding that mature in less than 

12 months also increased as excess capital was deployed in the LIP in December (Chart 10). 

Earnings 

Financial performance was poor in 2007. A confluence of market and Enterprise-specific 

factors—deterioration in the housing and credit markets, substantial declines in interest rates 

in the second half of the year and replacement of lower-cost maturing debt—resulted in 

Fannie Mae reporting a GAAP net loss of $2.1 billion. Fannie Mae had not reported an 

annual net loss since 1985. 

Pretax income declined by $9.3 billion from 2006 as a result of substantially higher creditrelated expenses, higher losses on derivatives and lower net interest income, partially offset by 

higher guarantee fees and lower administrative expenses. 

•	 Credit-related expenses and valuation losses increased by $5.2 billion as follows 

(Chart 11): Provisions for credit losses increased $2.8 billion (excluding fair value 

losses on delinquent loans purchased out of trusts), driven by higher reserves for loan 

losses and higher net charge-offs from overall weakness in the housing markets; 

unprecedented mark-to-market losses on delinquent loans purchased out of trusts 

were $1.4 billion (Statement of Position [SOP] 03-3 fair value losses), driven by 

substantial declines in market prices for such loans; losses on credit guarantee 

contracts increased $1.0 billion, driven by higher expectations of future default costs; 

and Real Estate Owned (REO) foreclosure expenses increased $0.3 billion, driven by 

higher REO volumes and declining sales prices on foreclosed properties. 

$3.5 

$3.0 

$2.5 

$2.0 

$1.5 

$1.0 

$0.5 

$0.0 

2006 2007 

Provision for 

Credit Losses 

SOP 03-3 

Losses 

Losses on 

Certain Credit 

REO 

Expenses 

Billions 

Excl. SOP 03-3 Guarantees 

Fair Value Losses 

Source: Fannie Mae 

Chart 11 

Fannie Mae 

Credit-Related 

Expenses and 

Valuation Losses 

Report to Congress • 2008 29
Fannie Mae 

hit a milestone 

by returning 

to current 

quarterly 

financial 

reporting for 

the first time 

since the 

second quarter 

of 2004. 

•	 Losses on derivatives increased by $2.6 billion as the impact of declines in interest 

rates was reflected in lower market values for the derivatives portfolio. Potentially 

offsetting changes in the value of assets and debt are generally not recognized under 

GAAP unless fair valued under FAS 159 or hedge accounting is applied. 

•	 Net interest income decreased by $2.2 billion, reflecting the impact of short-term 

liability rollover and maturing long-term debt being replaced by higher-cost debt. 

•	 Guarantee fee income increased by $0.8 billion, driven by strong growth in the 

volume of MBS and guarantees of 15.2 percent, and an increase in the average effective 

guarantee fee rate. 

•	 Administrative expenses decreased by $0.4 billion, driven by reductions in staffing and 

consulting expenses. 

The net loss in the third quarter and further declines in October and November depleted 

capital sufficiently for management to take action by selling assets, issuing preferred stock, 

reducing the common stock dividend and implementing other changes to business practices 

to reduce losses and expenses. 

Fair Value Financial Performance 

Financial performance measured from a fair value perspective also suffered considerably. 

Despite raising a net $7.8 billion in preferred stock, the fair value of net assets declined by 

$7.9 billion to $35.8 billion in 2007, as substantial increases in option-adjusted spreads 

reduced the value of mortgage assets, and weakening in the housing and credit markets 

increased expectations of future default costs. The fair value of net assets attributable to 

common stockholders declined by $14.3 billion to $20.4 billion. 

Capital 

OFHEO 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. In 2007, Fannie Mae remained subject to an OFHEO-directed capital 

requirement imposed by the formal Agreement of September 2004, of a 30 percent surplus 

over the statutory minimum requirement. That requirement was met throughout 2007. 

OFHEO classified Fannie Mae as adequately capitalized for year-end 2006 and for all four 

quarters in 2007. Fannie Mae’s capital classifications are consistent with publicly disclosed 

financial data through the fourth quarter of 2007. As of the third quarter of 2007, Fannie Mae 

hit a milestone by returning to current quarterly financial reporting for the first time since the 

second quarter of 2004. The capital classifications, unlike those cited in the 2006 Report of 

Examination, are no longer based upon estimates provided by management but on publicly 

certified financial statements. While OFHEO classified Fannie Mae as adequately capitalized 

30 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FANNIE MAE 

during these periods, and risk to capital increased dramatically during 2007, primarily 

because of market and credit risks, which directly impacted capital through reduced current 

and future earnings. 

Fannie Mae’s core capital surplus as a percentage of the OFHEO-directed requirement 

declined through 2007, with the most significant declines occurring during the latter half of 

the year. This decline, a result of market and credit-related losses, led the Enterprise to take 

aggressive steps during the third and fourth quarters to issue $1 billion and $7.9 billion, 

respectively, in preferred stock to ensure ongoing capital adequacy. Growth in MBS during the 

year also impacted the capital requirement. Additional capital actions included a 30 percent 

reduction of the common stock dividends. The OFHEO-directed capital surplus over the 

OFHEO-directed capital requirement at year-end 2007 equaled 9.3 percent, versus 9.9 percent 

at year-end 2006. 

Chart 12 shows Fannie Mae’s core capital surplus over the OFHEO-directed requirement 

during the last five quarters. Prior to the issuance of the preferred stock in December 2007, 

the surplus fell from its $3.8 billion peak (9.9 percent) in the fourth quarter of 2006 to $2.3 

billion (5.9 percent) as of September 30, 2007. Prudently, Fannie Mae took action to 

significantly increase its capital base in the fourth quarter of 2007. As a result, in December 

2007, capital exceeded the statutory minimum requirement by $13.5 billion. 

$4.0 Chart 12 

Fannie Mae’s 

Core Capital 

$3.5 

$3.0 Surplus 

$2.5 

$2.0 

$1.5 

$1.0 

$0.5 

$0.0 

Billions 

Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 

Source: OFHEO 

During 2007, Fannie Mae’s risk-based capital (RBC) requirement was not the binding factor 

used by OFHEO for the quarterly capital classifications (Table 1). The RBC requirement 

fluctuated during the year but ended higher in the third and fourth quarters, primarily 

because of rising credit losses projected by the RBC model. Fannie Mae needs to develop a 

more effective approach for measuring economic capital. 

Report to Congress • 2008 31
Table 1 

Fannie Mae RBC 

Requirements in 

2007 (Billions) 

1Q 2Q 3Q 4Q 

Total Capital 

Requirement 

Surplus 

$42.6

$20.5 

$22.1 

$43.6

$10.2 

$33.3 

$43.1 

$24.7 

$18.4 

$48.7 

$24.7 

$24.0 

Improvements occurred during 2007 in the quarterly Capital Plan. Management increased 

the detail within the plan regarding stock issuance and dividend payout strategies, more 

thoroughly incorporating additional capital metrics, which include excess capital based upon 

the regulatory requirements, GAAP capital, and capital management and corporate 

governance processes. Continued attention to income projections, realistic stress scenarios 

and the accuracy and reliability of the projections is necessary in order to ensure timely and 

prudent capital actions. 

32 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

Report of Annual Examination 

of Freddie Mac 

(Federal Home Loan Mortgage Corporation) 

Examination Authority and Scope 

This Report of Examination contains the results and conclusions of OFHEO’s 2007 

annual examination of the Federal Home Loan Mortgage Corporation (Freddie Mac) 

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 uses a CAMELSO methodology similar to that adopted by the federal 

depository institution regulators to report examination results and conclusions to the Board 

of Directors and to Congress. 

OFHEO’s examination activities are risk based, focusing on credit, market and operational 

risks, including those highlighted in the 2003 Consent Order. Consistent with the CAMELSO 

rating approach, this report covers management including the Board of Directors, Enterprise 

risk management, internal audit and accounting. It then covers Asset quality and credit risk, 

Operational risk, Sensitivity to interest rate risk, Liquidity, Earnings and Capital adequacy. 

Examination Conclusions 

The Enterprise remains a significant supervisory concern due to poor financial performance, 

deteriorating credit quality and internal control weaknesses. Concerted efforts by the Board 

and management will be necessary to improve financial performance, mitigate credit 

weaknesses and complete the internal controls remediation effort. Capital planning, 

enhancing credit governance and strengthening systems capabilities deserve continued Board 

and management attention. A critical goal of issuing timely financial statements was achieved 

with Freddie Mac’s issuance of 2007 financial statement in February 2008. 

Financial Performance 

Financial results in 2007 were poor. Significant GAAP and fair value losses are linked to the 

rapid deterioration in credit performance, declines in long-term interest rates and derivative 

losses. The purchase of loans with weak underwriting, guarantee-fee pricing constraints, 

house price declines and dislocation in the mortgage markets have impacted financial results, 

flexibility and the overall strength of the Enterprise. Losses reduced capital levels, requiring 

the Enterprise to issue additional preferred stock, modify risk management and business 

practices, reduce dividends, control growth and actively manage balance sheet composition. 

Improved capital planning and income forecasting are necessary to ensure that capital needs 

are fully assessed and capital levels are maintained at an adequate level. 

The Enterprise 

remains a 

significant 

supervisory 

concern. 

Report of Annual Examination of Freddie Mac • Report to Congress • 2008 33
Asset Quality 

Asset quality has deteriorated and overall credit risk has increased. Deterioration in credit 

quality reflects both market developments and management’s strategic decision to purchase 

and guarantee certain single-family mortgages originated in 2006 and 2007 with higher-risk 

characteristics. In addition, mortgage credit declines resulted in substantial deterioration in 

the fair value of the subprime and Alt-A and AAA securities portfolios. Counterparty credit 

risk has increased. Management information systems have not kept pace with the 

deterioration in credit quality. Credit management responsibilities and accountabilities can 

be defined more clearly within the Enterprise risk management function and the business 

area governance structure. Designation of an Enterprise-wide Chief Credit Officer is 

recommended to ensure that an executive has direct authority and responsibility for the 

credit strategy and credit results of the Enterprise. Improved credit pricing and underwriting 

practices are being implemented. 

Internal Controls 

Internal controls are not fully effective. While tangible progress has been made during 2007 

to remediate internal control weaknesses related to financial reporting, continued efforts are 

necessary. Control improvements require testing and validation to evidence full effectiveness 

and sustainability. The Enterprise returned to quarterly financial reporting and is 

commencing the registration process with the Securities and Exchange Commission (SEC). 

Freddie Mac has (1) a qualified and active Board of Directors (the Board); (2) a senior 

management team that needs to be expanded as it resolves internal controls weaknesses, 

returns to timely financial reporting and must now address deteriorating credit quality, and 

(3) effective management of interest rate and liquidity risks. It has met mandatory target 

capital surplus in all but one month of 2007. During 2007, efforts to improve the risk 

management capabilities across the Enterprise continued. Near-term earnings prospects 

remain under significant pressure due to the deterioration in credit markets. Structural and 

economic issues in the mortgage markets continue to heighten the importance of further 

developing economic capital measures to better quantify risks and assess financial 

performance returns. Recognizing the importance of preserving capital in such an 

environment, management decisions over stock repurchases, dividends, investment, 

financing and accounting policies still should be focused on business fundamentals and 

economic risk-adjusted returns. 

34 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

Matters Requiring Attention 

The following key matters highlighted in this report require strong management 

and Board oversight: 

•	 Financial performance, analytics and metrics. Enterprise priorities, business 

practices and risk management functions should be properly aligned. Enterprise 

plans and strategies supported by realistic earnings projections, capital projections 

and effective risk management practices require continued attention. 

•	 Credit risk management. Oversight of credit quality and portfolio trends should 

be strengthened, including monitoring underwriting and pricing changes and 

enhancing portfolio management practices. Forming an Enterprise credit 

committee and appointing a Chief Credit Officer would enhance the credit 

governance structure. 

•	 Internal controls. Management should continue its progress toward remediating 

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. 

•	 Risk oversight functions. The Board must continue to support risk and control 

oversight functions and the implementation of the risk control self-assessment 

process. Enterprise Risk Management should complete the project to measure 

economic capital. 

•	 Governance. The Board must fill open Board vacancies, ensure that proper 

succession plans are in place, fill the roles of chief executive officer (CEO) and chief 

operating officer, and separate the chairman and CEO positions. It must also 

ensure that SEC registration takes place as planned and that public disclosures are 

comprehensive and clear. 

Management and Board Supervision 

Board of Directors and Management 

The Board is aware of its oversight responsibilities and has appropriate access to management 

and independent advisors. The Board meets regularly in accordance with the New York Stock 

Exchange listing standards and OFHEO’s corporate governance regulations. OFHEO met with 

the Freddie Mac Board twice during the year and several times with Board Committees. The 

Board’s committee structure is aligned with key business and risk areas. With the exception of 

the chairman and CEO, all current directors are independent. Term limits and age restrictions 

are in effect. The Board currently operates with 11 directors, 2 fewer than its Charter mandate 

of 13. During 2008 and 2009 there will be additional planned turnover on the Board, 

including the lead director and a committee chair. 

Report to Congress • 2008 35
The Board has been slow to fill the vacancy created by the departure of the former president 

and chief operating officer (announced May 1, 2007) and to separate the chairman and CEO 

positions as required in the Consent agreement of December 9, 2003. In addition, there is a 

lack of sufficient executive management depth in certain areas of the organization. A 

succession plan, developed by management and presented to the Board during the second 

half of 2007, has appropriately identified the need to focus continued attention on 

developing leadership skills and increasing executive management depth. Management 

should implement the plan. 

The deterioration in overall credit has stressed the existing credit governance structure. The 

implementation of an Enterprise credit committee and designation of a Chief Credit Officer 

responsible for the Enterprise’s credit strategy and credit results would augment and 

strengthen the credit governance structure. 

The Enterprise has made considerable progress over the past two years in reducing voluntary 

attrition. Voluntary staff turnover has declined year over year. Turnover in the one- to threeyear levels has improved, although it remains higher than desired in areas such as Finance, 

Internal Audit and parts of Operations and Technology. Reliance on consultants and 

contingent workers has been reduced, enhanced controls around the job posting process have 

been instituted and an employee headcount cap was put in place in mid-August 2007. These 

measures should help control overall staff-related costs that began in 2004. The Employee 

Performance Management process has been revamped with an emphasis on pay-forperformance and risk management accountability objectives. 

Enterprise Risk Management 

The Enterprise risk framework includes the Board’s Governance, Nominating and Risk 

Oversight Committee (GNROC) and other relevant committees, the Enterprise Risk 

Management Committee (ERMC) and the Enterprise Risk Oversight (ERO) group. The 

GNROC provides risk oversight. GNROC members are made aware of Enterprise risks and 

risk management practices both through briefings to GNROC by ERO and through 

participation on other Board committees. The ERMC is composed of representatives from all 

business lines and key support areas and provides reports to the GNROC. In 2007, specific 

topics and issues reviewed by the ERMC included untested mortgage products, interagency 

guidance, the liquidity assessment methodology, the new products process, model 

governance, multifamily loan review, the Comprehensive Plan, counterparty risk watch list 

and surveillance, SF corporate credit policy, Guarantee Asset/Guarantee Obligation valuations 

and house price forecasts. 

ERO implemented a risk dashboard to monitor and report on the quantity and direction of 

top Enterprise risks and enhanced its standard monthly reporting package. ERO provides 

satisfactory reports to the Board’s GNROC, Finance and Capital Deployment Committee and 

Audit Committee. In addition, ERO assisted in the ongoing development of a revised 

economic capital framework, which OFHEO will monitor and review as it is implemented. 

Concerted efforts were made to improve counterparty surveillance and reporting, better 

integrate risk management activities with the planning process, implement the redesigned 

36 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

risk controls self-assessment process, collect operational loss data and build out root-cause 

analysis capabilities. ERO plans to further strengthen the capability of the group to 

independently produce risk metrics. 

Internal Audit 

Although OFHEO is unable to rely fully on internal audit, during 2007 the internal audit 

function continued to develop and improve. Of particular importance, progress during the 

year was noted in the following areas: 

•	 Development of a comprehensive financial audit universe and associated risk
 

assessment
 

•	 Expansion of the audit finance team including a Vice President 

•	 Improved audit report quality with findings clearly communicated and specific
 

actions agreed upon
 

•	 Reliance by OFHEO on internal audit’s evaluation of new systems initiatives 

•	 Increased coordination between internal and external audit 

The Audit Committee actively oversees the internal audit function. The Audit Committee met 

13 times during 2007. 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. 

While the 2007 audit plan appropriately devoted significant resources to supporting the 

Comprehensive Plan, internal audit did not adhere to a normal rotation cycle. As work on the 

Comprehensive Plan continues, internal audit is not expected to return to a normal rotation 

cycle in 2008. The inability to complete a full rotation cycle for several years and the fact that 

management’s internal control self-identification process remains in the implementation 

phase increase the risk that control weaknesses may not be identified in a timely manner. 

The General Auditor is well-qualified, and OFHEO will continue to monitor internal audit’s 

overall effectiveness. This is especially important in light of the significant amount of work 

internal audit has yet to complete on the Comprehensive Plan as well as several other 

significant corporate initiatives in a deteriorating credit environment and a period of poor 

earnings performance. 

Compliance 

The Corporate Compliance Division continued to improve its effectiveness in supporting 

management’s continuous commitment to instill a culture of compliance with statutory, 

regulatory and management requirements that govern business activities. The Corporate 

Compliance Division includes the following line of business compliance oversight functions: 

Investment and Capital Markets and the Sourcing and Mission Compliance teams. The 

Compliance Division also has responsibility for ethics, regulatory examinations, antifraud 

and privacy. 

Report to Congress • 2008 37
Freddie Mac 

is not yet 

registered 

with the SEC. 

The Corporate Compliance Division has completed key compliance risk assessments and has 

been diligent in remediating the identified weaknesses through various means, such as 

developing written supervisory procedures and a robust compliance training program. As this 

risk assessment framework evolves, management is developing common definitions and 

implementing a standard risk-rating system for compliance risk assessments. The division has 

made significant progress in improving the Enterprise’s overall communications with OFHEO. 

Accounting 

During 2007, the Enterprise responded to various accounting challenges: Material weaknesses 

in disclosure and financial reporting controls; achieving timely publication of financial 

reports (i.e., within SEC-required time frames, although Freddie Mac is not yet registered with 

the SEC); the issuance of new accounting standards by the Financial Accounting Standards 

Board; and later in the year, deteriorating credit markets. OFHEO found certain issues in the 

Enterprise’s selection and implementation of accounting standards, which raise concerns 

regarding the quality of capital and will need further review. To systematically address the 

recent new fair value accounting standards, OFHEO is developing accounting guidance. The 

guidance is being designed to foster a consistent, transparent and economically faithful 

implementation of the standards for both Enterprises. 

Following are some of the more significant issues OFHEO is reviewing at the
 

Enterprise:
 

Reported Material Weaknesses. On March 23, 2007, Freddie Mac published its annual 

report with audited financial statements for the fiscal year ended December 31, 2006. 

Management reported that it had not completed its evaluation of internal controls over 

financial reporting. Based on the persistence of some material weaknesses on December 

31, 2006, management of the Enterprise concluded that its internal controls over 

financial reporting were not effective as of that date. Progress was made during 2007. The 

2007 annual report indicates either that all material weaknesses have been remediated or 

that remediation activities have been implemented which, if successfully tested for 

sustainability, would lead to full remediation of all material weaknesses. Therefore, 

during 2008, the Enterprise will have to test the sustainability of the new controls and 

address various significant deficiencies through continued improvement in the 

accounting and financial reporting infrastructure. 

SEC Registration. Freddie Mac has announced its intention to register as a public 

company with the SEC. It made progress toward that goal with policy and operational 

changes during 2007 that increase the likelihood of application for registration by mid2008. The Enterprise has significantly reduced the time it takes to produce financial 

statements. With the issuance of its 2007 Annual Information Statement, Freddie Mac has 

demonstrated that it can meet the annual financial reporting time frames required to be a 

public company registered with the SEC. 

38 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

Accounting Policies. Management continues to develop and update its accounting 

policies. However, OFHEO’s reviews concluded that further work will be required to 

develop complete accounting policies and procedures for Freddie Mac to meet the 

standards articulated in OFHEO’s Accounting Guidance. During the past year, to assess 

Freddie Mac’s design and implementation of its accounting policies, OFHEO performed 

several targeted reviews: securities that have become impaired in value (FAS 115); the fair 

value option (FAS 159); and credit loss reserves (FAS 5), as discussed below. 

Impaired Securities Accounting. During 2006 and the beginning of 2007, OFHEO 

reviewed Freddie Mac’s accounting policies and procedures for impairments in the values 

of its investment securities. OFHEO’s findings, issued in mid-2007, were that we believed 

Freddie Mac’s policies were appropriate as written. However, OFHEO identified that 

Freddie Mac’s actual evaluation of securities for impairment did not appear to be 

consistent with its written policy, though consistent with GAAP. OFHEO will continue to 

monitor the Enterprise’s implementation of its impairment accounting policies in the 

coming year to ensure safe and sound operations. 

Fair Value Option Implementation. Pursuant to FAS 159, The Fair Value Option for 

Financial Assets and Financial Liabilities, as of January 1, 2008, Freddie Mac reported a 

transition gain, under the fair value option election, of approximately $1 billion, which 

OFHEO notes provided an immediate boost to Freddie Mac’s regulatory capital. Most of 

the transition gain is due to the election of securities for the change to fair value 

accounting, which carried an unrealized gain rather than losses in accumulated other 

comprehensive income. Going forward, subsequent to December 31, 2007, Freddie Mac 

will continue to have the option of selecting fair value accounting (FAS 159) as it 

purchases securities and issues debt. During the coming year, OFHEO plans to further 

study Freddie Mac’s application of the fair value option. 

Reserves for Credit Losses. OFHEO began a limited review of the Enterprise’s approach 

to the calculation of its reserves for credit losses. Freddie Mac’s applications for providing 

adequate reserves and related loss recognition in the income statement are generally 

satisfactory, but issues were identified related to how the Enterprise has adapted its 

reserve calculation methodologies to the unique credit environment that came about in 

the latter part of 2007. OFHEO will continue to study the reserve computations of the 

Enterprise as the credit situation continues to evolve during 2008. 

Report to Congress • 2008 39
Asset Quality and Credit Risk Management 

Credit risk is a supervisory concern. Asset quality has deteriorated and overall credit risk has 

increased. Increased credit risk is noted in the single-family guarantee portfolio, 

counterparties, nonagency asset-backed securities portfolio and the multifamily business. The 

credit governance structure and some management information systems have not kept pace 

with the deterioration in credit quality. Key issues are as follows: 

•	 Deterioration in credit quality reflects market developments, pursuit of housing 

mission goals and management’s strategic decision to purchase and guarantee certain 

single-family mortgages originated in 2006 and 2007 with higher-risk characteristics, 

including interest-only products, loans with secondary financing, mortgages with 

FICO scores less than 660 and loans with higher loan-to-value ratios. Evidence of 

increased risk layering has also appeared. Contract provisions precluded 

simultaneously increasing pricing commensurate with the increased risk. 

•	 Substantial fair value declines in the value of the nonagency private-label securities 

(PLS) portfolio occurred during 2007. While the Enterprise believes present 

subordination levels protect it from immediate loss of principal and interest, the 

subprime mortgages underlying these securities are experiencing high delinquency, 

foreclosures and severity rates. Weakness in the financial strength of bond insurers 

providing additional loss protection is also evident. 

•	 The rapid dislocation in the credit markets has also impacted the financial strength 

of a number of major counterparties, including seller/servicers, mortgage and bond 

insurers, and other financial counterparties. 

•	 The increased credit risk has caused operational risk to increase with the volume of 

current and forecasted loan workouts, foreclosures and Real Estate Owned (REO) 

properties. 

•	 Multifamily credit quality remains satisfactory. However, a relaxation and then
 

tightening of underwriting standards occurred in 2007.
 

Single-Family 

Throughout 2007 and at a level much higher than management’s plan, the Enterprise 

continued to purchase and guarantee higher-risk mortgages. These purchases have performed 

more poorly than expected. The performance can be attributed to mortgages with high loanto-value ratios, nonowner-occupied properties, low FICO® scores, high debt-to-income ratios, 

limited or no documentation and underwriting through non-Freddie Mac lending systems. 

Evidence of risk layering is apparent, as a large number of loans share multiple risk attributes. 

A small number of large sellers have delivered a disproportionate amount of the poorperforming loans. Reduced returns are driven primarily by an inability to adjust pricing, the 

decline in house prices and increases in expected default costs. Delinquencies continue to rise 

and loss severities are increasing. 

40 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

The credit guarantee business grew faster than planned—18 percent versus 11 percent—and 

exceeded overall mortgage debt originations as Freddie Mac was providing liquidity to the 

market. New higher-risk business coupled with declining house prices are reflected in 

deteriorating performance metrics—increasing serious delinquency rates, transition rates and 

loss severity rates—triggering increases to credit loss forecasts, provisions and reserves. Total 

credit-related costs increased sharply during 2007. The allowance/reserve for losses rose from 

4.0 basis points of the total credit Book of Business at the end of 2006 to 15.5 basis points at 

the end of 2007. 

The other major credit costs are losses on seriously delinquent loans purchased from security 

pools under AICPA Statement of Position (SOP) 03-3 and losses on pools priced so that the 

initial guarantee obligation exceeded the guarantee asset (“certain credit guarantees” or Day 1 

losses). Both SOP 03-3 and Day 1 losses increased substantially during 2007 due to an 

increased volume of serious delinquencies (120 days) coupled with a steep decline in the 

market prices for delinquent loans during the second half of 2007. Increased Day 1 losses 

were driven by sharp increases in the guarantee obligation. 

Loans with FICO® scores less than 620 have increased from 3.7 percent at December 31, 

2006, to 4.2 percent at year-end 2007. The serious delinquency rate for December 2007 was 

65 basis points (bps) versus 42 bps at year-end 2006. The overall level of 90-day 

delinquencies and the transition rates from 90 days delinquent to foreclosure are also 

increasing. December 2007 REO inventory was at 14,394 versus 8,785 at December 31, 

2006—a 64 percent increase year-over-year, primarily caused by weak economic conditions in 

the North Central region and house price declines in Western (California and Arizona) and 

Southeast (Florida) regions. 

Management took positive actions to address increasing credit risk and external market 

events. During 2007, the Enterprise issued a statement on its efforts to comply with the 

subprime and nontraditional mortgage guidances, bulletins and industry letters to tighten 

underwriting guidelines specific to initial interest mortgages, declining markets and 

condominium units. From August through December, four bulletins and industry letters were 

issued announcing pricing changes to postsettlement delivery fees. They are expected to 

provide positive return on equity impact; however, changes will not be fully implemented 

and begin to be reflected in the financials until after the second quarter of 2008. Changes are 

being made to the loss mitigation business model to delegate more activities to servicers with 

validation by Enterprise personnel, along with the steps to expand outsourcing capabilities 

for nonperforming loan areas. 

As a result of a higher credit risk profile, operational risks related to personnel, technology 

and reporting are emerging. The Quality Control (QC) department is under increasing 

pressure. The inventory of nonperforming loans and early payment defaults is increasing 

substantially. System deficiencies have been outstanding per a 2005 audit report. Improved 

functionality is necessary for QC process improvement efficiencies and for meaningful risk 

management reporting. The Servicing and Asset Management unit will also be stressed by 

increased inflows to foreclosure, the volume of loans being considered for a workout and the 

increased inflows to and longer marketing times for REO properties. To handle this workload, 

management plans to outsource nonperforming loan functions. 

Report to Congress • 2008 41
Multifamily 

Credit quality of the multifamily mortgage and Commercial Mortgage-Backed Securities 

(CMBS) portfolios remains satisfactory, however, risk is increasing. The portfolios are 

reasonably diversified by geography and borrower. Delinquencies and historical losses are 

well controlled. Consistent with management’s plan, the Enterprise purchased and 

guaranteed higher-risk multifamily mortgages. Current purchases have a large interest-only 

component. There was expansion of the delegated underwriting program into product areas 

with higher operational risk and higher credit risk attributes (nonstabilized and construction 

properties). CMBS are also performing reasonably well, with low delinquencies and adequate 

levels of credit subordination. 

Although absorption rates are positive and vacancy rates remained low, management took 

positive actions to address increasing credit risk and changing external markets. The 

Enterprise set operating limits for geographic concentration. In addition, Multifamily 

developed and implemented a risk rating system and risk-based transaction approval process. 

Finally, Multifamily developed and deployed an underwriting refinance test that takes into 

account forward-looking capitalization rates. During 2007, internal loan review results of the 

Multifamily business indicate improvements. Underwriting quality is acceptable and 

consistent with the policies. 

Retained Mortgage Portfolios/Asset-Backed Mortgage Securities 

During 2007, asset-backed mortgage securities (ABS), especially those backed by subprime 

mortgages, experienced a significant decline in fair market values caused by spread widening. 

As a result of the same widening in credit spreads, the commercial mortgage-backed securities 

(CMBS) portfolio also experienced sharp price declines during the year. At year-end, the assetbacked securities market continued to experience limited market liquidity with wider than 

historical bid-ask spreads. Management continues to closely monitor delinquencies, 

prepayment speeds and loss severities to stress-test cash flow models. 

Despite the worsening performance of the underlying mortgage pools, a majority of the 

subprime ABS book continues to accrue additional subordination levels. As of year-end, the 

estimated subordination is 33 percent (including monoline bond insurer wraps). However, 

some bonds have performed worse than the aggregate portfolio. Some of these bonds within 

the portfolio have been downgraded and are on the internal watch list. Table 2 summarizes 

current delinquencies and subordination levels for the subprime ABS portfolio as of year-end. 

While present subordination levels protect the Enterprise from immediate losses, worsening 

performance of the underlying mortgages and weakness in the U.S. housing markets remain a 

significant concern. Most of the bond insurers have been recently downgraded or put on 

negative watch. Their ability to honor their financial guarantees is uncertain. This uncertainty 

increases the credit concern associated with this portfolio. 

42 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

Table 2 

PORTFOLIO UPB 

($bn) 

SUBORDINATION 

(with MONOLINE 

INSURANCE) 

60+ 

DELINQUENCIES 

AS % OF UPB 

Subprime 1st Lien $100.3 35.8% 21.0% 

Closed-End 2nd Lien $1.0 77.4% 7.1% 

Alt-A $25.1 16.2% 7.5% 

MTA- ARMs $21.1 23.2% 7.2% 

HELOC $4.5 100.0% 8.2% 

TOTAL $152.0 33.0% 16.4% 

Subprime AssetBacked Securities 

Portfolio 

(As of 12/31/2007) 

MTA – Moving Treasury Average UPB – Unpaid Principal balance 

ARMs – Adjustable Rate Mortgage HELOC – Home Equity Line of Credit 

Source: Freddie Mac 

Enterprise Counterparties 

Counterparty credit risk continues to increase. Counterparty exposures are material. A 

significant deterioration in the financial condition of a top counterparty could adversely 

impact the Enterprise. 

Within the Credit Risk Oversight group, Counterparty Credit Risk Management (CCRM) 

provides satisfactory oversight of aggregate counterparty risks and exposures at the Enterprise 

level for all counterparties. During 2007, counterparties were particularly stressed as a result 

of higher than anticipated write-downs and increased provisions caused by subprime 

mortgage exposures, weaker revenues, reduced margins and unprofitable secondary market 

executions. The top 10 servicers process approximately 80 percent of the servicing book. 

Mortgage insurance companies also represent a very large level of counterparty risk for the 

Enterprise and are facing financial difficulties. 

CCRM continued intense monitoring through the watch list and surveillance framework. 

CCRM improved management reporting with inclusion of several reports in the ERMC’s 

standard report set. Specific plans and/or actions to mitigate counterparty losses were 

developed or updated, which included expanding the ability to retrieve loan files and 

servicing tapes from seller/servicers during periods of financial stress, limiting exposures, 

restricting business activities, seizing the counterparty’s portfolio, stress-testing counterparties’ 

balance sheets and exposures, monitoring internal ratings, requiring collateral requirements, 

terminating riskier contract terms and negotiating buyout protection from credit 

enhancement providers. 

Report to Congress • 2008 43
Operations and Operational Risk Management 

Operational risk management requires improvement. Internal controls related to financial 

reporting, while substantially improved, are not considered fully effective. During 2007, 

measurable progress to improve internal controls related to financial reporting and the 

technology environment has been achieved. During the year, management documented the 

majority of key financial controls and procedures related to financial disclosures, designed 

new controls and simplified several accounting processes. At year-end, management had not 

completed operational effectiveness testing of internal controls, provided sufficient evidence 

of sustainability or fully implemented the management self-assessment process. 

The Enterprise must build on the progress achieved in 2007 with continued focus on the 

completion of the interrelated components of the Comprehensive Plan. The level of 

anticipated change and manual processes associated with efforts and activities to improve 

controls, improve reporting timeliness and implement a number of accounting policy 

changes will continue to stress the internal control environment. 

The Comprehensive Plan, developed to address the controls weaknesses, is a multifaceted 

plan intended to accomplish the following: 

•	 Remediate known control weaknesses 

•	 Document the business control designs through the end-to-end (E2E) process design 

review 

•	 Remediate and document information technology general controls (ITGC) 

•	 Implement automation improvements to enable a return to timely financial
 

reporting 


Operating management changes associated with ITGC documentation and remediation, E2E 

business design review and the Finance Internal Control Organization contributed 

significantly to the progress achieved in 2007. Senior management established the Finance 

Internal Control Organization in late 2006 to manage the Comprehensive Plan and to ensure 

that the Enterprise establishes a sustainable internal control environment to meet the 

requirements of Sarbanes-Oxley. 

The status of individual components of the Comprehensive Plan activities at 

year-end 2007 is as follows: 

•	 Material Weaknesses and Significant Deficiencies. Progress toward the 

remediation of material weaknesses and significant deficiencies has been made. 

Management plans independent testing of these controls and the issuance of an 

opinion on their effectiveness at year-end 2008. 

•	 E2E Business Process Design Review. Documenting controls over financial 

reporting is nearing completion. Management’s full assessment of the control design 

44 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

has not been completed. Controls have not been tested for effectiveness. Control 

documentation, remediation and validation activities will continue through 2008. 

•	 ITGC. Controls are implemented and effectiveness testing by management has been 

completed. Independent reviews of the control design are in process. Both 

independent and management testing of internal control effectiveness are planned 

through 2008. A new systems development life cycle framework has been developed 

and is being implemented. Compensating controls are being relied upon until the 

life cycle methodology is fully deployed. 

•	 Timely Financial Reporting. Continued improvements in reporting process 

timelines have been made during 2007. Additional efforts are necessary to achieve 

SEC timelines and evidence sustainability. 

Information Technology 

Risk in the corporate computing environment remains elevated. During 2007, management 

showed measurable progress in delivering and implementing several financial systems 

upgrades. The investment accounting systems (Eagle and the enhanced portfolio subledger) 

were deployed. Eagle became the system of record on January 1, 2008. Although delayed, the 

deployment of Summit (debt and derivatives accounting) is planned during the first quarter 

of 2008. Phoenix (loan and amortization accounting) is planned for deployment in the 

second quarter of 2008. These delays are not the first for these systems, and their recurrence 

continues to impede the establishment of fully effective operational controls in these areas. 

Management is actively managing the development of each of these systems and continues to 

rely on compensating controls. 

In addition to hiring a new executive vice president, a number of other changes and 

reorganizations occurred in Freddie Mac Operations and Technology in 2007. Improvements 

related to these changes are evidenced in several major projects and remediation efforts, such 

as End-User Computer (EUC) applications, Information Security, Business Continuity 

Planning and system implementation. 

Management continues to work on strengthening its systems development life cycle 

methodology in order to implement major automation projects in a timely and wellcontrolled manner. This process cannot be fully validated until a sufficient number of systems 

implementations have complied with the revised process. A large number of EUC 

applications exist. The full implementation of three major systems should substantially 

reduce the number of EUCs during 2008. While progress to improve data quality has 

commenced with the identification of critical financial data elements, considerable work 

remains to complete the architecture and supporting infrastructure. 

Management has made progress with the development and implementation of a 

comprehensive, Enterprise-wide business continuity planning (BCP) governance process. A 

vice president was hired to head the BCP effort. Progress to establish an out-of-region data 

center continues. 

Report to Congress • 2008 45
Model Risk 

Model risk remains high due to the wide application of models used in business decisions 

and financial reporting and the rapid deterioration in the mortgage markets. The rapid 

change in the credit conditions in the mortgage markets has increased model risk, as models 

have become less reliable and require adjustment when the internal and economic 

conditions are outside of historical experience. Models are estimated using selected historical 

experience as a guide. When no historical experience exists to provide insight for model 

builders, models may fail to produce accurate projections or may require greater 

management judgment. Such circumstances test management’s ability to adapt models and 

revise associated assumptions about the future rapidly and accurately. 

Model risk management requires improvement, although considerable progress was made 

during 2007. Corporate policies and oversight procedures were strengthened and control 

processes have been enhanced. Management reports provide timely warning of model 

performance outside of normal ranges. The results from the improved process highlight the 

need for consistent, effective model oversight and change controls. 

Sensitivity to Interest Rate Risk 

Interest rate risk management is satisfactory, although certain metrics traditionally relied 

upon by the Enterprise to measure and report exposures were not mathematically robust or 

informative in light of the dramatic decline in the Enterprise’s fair value of equity. The year 

presented significant Enterprise-wide challenges, with unprecedented widening of spreads 

and extreme volatilities. The year’s events highlight the need to reassess the continued 

robustness of certain qualitative and quantitative aspects of the Enterprise’s risk management 

framework. Management successfully monitored, controlled and reported on the Enterprise’s 

sensitivity to interest rate risk in a manner commensurate with the nature and complexity of 

the Enterprise’s activities and under very challenging market and business conditions. 

During 2007, the fair market value of portfolio assets, liabilities and capital came under 

significant pressure resulting from extraordinary changes in market rates, spreads and 

volatility. Management maintained interest-rate risk exposures at low levels throughout most 

of 2007, although exposures increased in the fourth quarter, ending the year at a moderate 

level. Management used financial derivatives, including swaps, options and futures, as well as 

derivatives embedded in debt instruments (e.g., callable debt) to maintain interest-rate risk 

exposures within desired risk ranges and keep exposures generally stable. The notional value 

of derivative counterparty party exposure grew from $758 billion at December 31, 2006, to 

$1.3 trillion at year-end 2007 as a result of increased hedging activities associated with high 

interest rate volatility. 

Mortgage-debt option-adjusted spread (OAS) widening, caused by credit and liquidity 

concerns, resulted in a more than $23 billion decline in fair value of net assets attributable to 

common stockholders, before capital allocation. Management does not hedge this risk as 

there are limited actions an Enterprise can take to hedge this risk given its business model 

and size. Management plans to hold these assets to maturity, and absent permanent 

impairment, expects not to be exposed to this risk. 

46 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

The Board-approved 2007 asset/liability management policy and plan were formally 

documented and were designed to guide management in maintaining interest-rate risk 

exposures within prudent and reasonable ranges and limits to minimize the need to engage 

in dramatic and expensive rebalancing activities. The Board revisits policies and limits 

annually. Several senior management committees and subcommittees, as well as the 

independent Market Risk Oversight group, within the Enterprise Risk Management group 

perform ongoing daily oversight and monitoring of Enterprise exposures relative to 

established expected positions, management limits and Board limits. Established escalation 

and communication plans are in place in the event expected positions or limits are breached. 

Management reports provide the information necessary to inform and support decisionmaking at appropriate levels of the organization. Risk measurement is performed both inhouse and through an outside service provider (BlackRock Solutions) and is reported daily. 

Management conducts daily sensitivity analyses and stress tests. The Enterprise’s market value 

of portfolio equity (excluding the guarantee fee business) has become significantly more 

sensitive to rate changes compared to 2006. The market value of equity is relatively protected 

against small changes in rates but vulnerable to sudden, significant changes in rates. The 

Enterprise also conducts a variety of stress tests to estimate maximum expected market value 

loss with 99 percent confidence. While exposure to interest rate risk was satisfactorily 

controlled through the year, the usefulness of the principal measure, Portfolio Market Value 

Sensitivity, diminished as the market value of common shareholder equity plummeted. 

Management revised the measure to focus on the absolute dollar amount of exposure. 

It is of concern that revisions to key metrics used for internal management and external 

disclosure purposes were not foreseen in a timely fashion. While best practices support 

metrics being regularly re-evaluated for their robustness and continued suitability during 

highly volatile periods, interest-rate risk measurement is not an exact science, and 

implementing revisions during fast-moving events may address current issues but may not 

result in well-tested or sustainable enhancements to measurement metrics. 

Escalation procedures operated as designed. On occasion, management as well as the 

oversight function sought to remedy breaches of limits by readily proposing revisions to risk 

limit, metrics and reporting. 

Liquidity 

Liquidity management is satisfactory. Adequate guidance exists for the types and credit 

quality of investments suitable for inclusion in the Liquidity and Contingency portfolio. 

Management is able to effectively forecast liquidity needs and has adequate policies and 

procedures in place for forecasting short- and long-term liquidity needs. The Enterprise has 

access to sufficiently diversified funding sources to meet present and anticipated liquidity 

needs. Management has an adequate framework to effectively identify, measure, monitor, and 

control the Enterprise’s liquidity position. 

Report to Congress • 2008 47
Chart 13 10% 

Freddie Mac 9% 

Liquidity 

Portfolios as a 8% 

Percentage of 7% Total Assets 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 

Source: Freddie Mac 

Size 

During 2007, the Liquidity and Contingency (L&C) portfolio balance declined from a high 

of $71.3 billion in June to a low of $40.0 billion in November. As a percentage of on-balancesheet assets this brought the November L&C balance to just over the Board’s five percent 

minimum limit, from a high of about nine percent in June. The reduction was a result of 

management’s deliberate decision to buttress available capital depleted by rising credit losses. 

Credit Quality 

During the year, roughly 80 percent of average daily balances of the L&C portfolio 

represented assets rated AA or better. However, the proportion of AA to single-A rated 

securities has fluctuated significantly in recent months, with double-A rated assets 

experiencing a decrease accompanied by an increase in the percentage of single-A rates 

securities. AA-rated assets declined from a high of about 34 percent in August 2007 to a low 

of 18 percent in November. During the same period, single-A rated assets increased from 20 

percent to over 30 percent of total average L&C balances. Daily marks indicate that the 

aggregate liquidity portfolio maintained a tight par price range throughout the year. At yearend, management selected several balance sheet categories for inclusion under “fair value 

option,” which did not include the liquidity portfolio. OFHEO is encouraging management 

to adopt fair value accounting for its liquidity portfolio so that it can be tapped without 

affecting equity. 

Funding Liquidity 

The Enterprise maintains sufficiently diversified sources of funds to meet present and 

anticipated liquidity needs. Management maintained a stable proportion of short- to long48 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

term funding throughout the first three quarters of the year. As volatility increased 

significantly during the fourth quarter and optionality became increasingly expensive, there 

was a noticeable planned shift in the composition of short-term funding, with an increased 

reliance on discount notes and corresponding decreased reliance on callable debt (Chart 14). 

100% 

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 

41% 41% 40% 40% 40% 40% 40% 41% 41% 42% 42% 41% 

38% 38% 38% 38% 38% 38% 38% 38% 38% 36% 34% 32% 

21% 21% 21% 21% 22% 22% 22% 22% 21% 22% 24% 27% 

Chart 14 

Freddie Mac 

Funding 

90% 

80% Composition 

70% 

60% 

50% 

40% 

30% 

20% 

10%
 

0%
 

Callable Debt Non-Callable Debt Short-Term Debt 

Source: Freddie Mac 

Policies and Procedures 

The liquidity management policies, procedures and a contingency plan identify authorized 

investments, exposure limit rules and independent review requirements. Procedures define 

what constitutes a liquidity event and the escalation steps to be followed during such an 

event. Risk limits are in place to ensure sufficient liquidity levels. Management evaluates 

limits and pertinent metrics daily, weekly and monthly and conducts regular stress tests of the 

liquidity and contingency portfolio. Overall reporting is satisfactory. OFHEO is reviewing 

proposed changes to the liquidity portfolio policy. The Market Risk Oversight (MRO) group 

regularly monitors exposures relative to risk limits. 

Earnings 

Financial performance in 2007 was poor. A confluence of market and Enterprise-specific 

factors—deterioration in the housing and credit markets, substantial declines in interest rates 

in the second half of the year and replacement of lower-cost maturing debt—resulted in the 

Enterprise reporting a GAAP net loss of $3.1 billion. Freddie Mac has never before reported 

an annual net loss. 

Report to Congress • 2008 49
Chart 15 

Freddie Mac 

Credit-Related 

Expenses and 

Valuation Losses 

Pretax income declined by $8.3 billion from year-end 2006 as a result of substantially higher 

credit-related expenses and valuation losses, higher losses on derivatives and lower net 

interest income, partially offset by higher guarantee fees and higher amortization income 

from the guarantee obligation. 

•	 Credit-related expenses and valuation losses increased by $6.0 billion from 2006 as 

follows (Chart 15): Provisions for credit losses increased $2.6 billion, driven by 

higher reserves for loan losses; unprecedented mark-to-market losses on delinquent 

loans purchased out of trusts were $1.9 billion, driven by substantial declines in 

market prices for such loans; losses on certain credit guarantees increased $1.6 

billion, driven by higher expectations of future default costs; and REO/foreclosure 

expenses increased $0.1 billion, driven by higher REO volumes. 

$3.5 

$3.0 

$2.5 

$2.0 

$1.5 

$1.0 

$0.5 

$0.0 

2006 2007 

Provision for 

Credit Losses 

SOP 03-3 

Losses 

Losses on 

Certain Credit 

REO 

Expenses 

Billions 

Excl. SOP 03-3 Guarantees 

Fair Value Losses 

Source: Freddie Mac 

•	 Losses on derivatives increased by $3.4 billion as the impact of declines in interest 

rates was reflected in lower market values for the derivatives portfolio. Potentially 

offsetting changes in the value of assets and debt are generally not recognized under 

GAAP. 

•	 Net interest income decreased by $0.3 billion, reflecting the impact of maturing 

short-term and long-term debt being replaced by higher-cost debt. 

•	 Guarantee fee income increased by $0.2 billion, driven by strong growth in the 

volume of Participation Certificates (PCs) and structured securities of 13 percent. 

•	 Income from amortization of the Guarantee Obligation increased by $0.4 billion 

because of higher expected default costs as well as higher average balance of PCs and 

structured securities. 

50 Office of Federal Housing Enterprise Oversight 
REPORT OF ANNUAL EXAMINATION OF FREDDIE MAC 

• Losses on the guarantee asset increased by $0.5 billion, mainly due to higher return 

on investment caused by an increase in gross cash flow driven by higher volume. 

The net loss in the third quarter and further declines in October and November depleted 

capital sufficiently for management to take action by selling assets, issuing preferred stock 

and reducing the common stock dividend. 

Fair Value Financial Performance 

Financial performance measured from a fair value perspective also suffered considerably. The 

fair value of net assets declined by $19.2 billion to $12.6 billion in 2007, despite $6.5 billion 

of new preferred stock issuances, as substantial increases in option-adjusted spreads reduced 

the value of mortgage assets and weakening in the housing and credit markets increased 

expectations of future default costs. The fair value of net assets attributable to common 

stockholders declined by $25.7 billion to $0.3 billion. 

Capital 

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. Freddie Mac remains subject to an 

OFHEO-directed capital requirement imposed by a letter dated January 28, 2004, which 

required a 30 percent surplus over the statutory minimum requirement. 

OFHEO classified Freddie Mac as adequately capitalized for year-end 2006 and all four 

quarters of 2007. Since the year-end 2006 classification, Freddie Mac’s capital classification 

was consistent with publicly released financial statements by the Enterprise, representing 

continued progress in becoming timely and accurate in their financial reporting. The capital 

classifications, unlike those cited in the 2006 Report of Examination, are no longer based on 

estimates provided by management but on publicly certified financial statements. While 

OFHEO classified Freddie Mac as adequately capitalized during these periods and recognizes 

the financial reporting progress made, the Enterprise has not yet achieved registration status 

with the SEC. Further, risk to capital has increased dramatically, primarily because of market 

and credit risks, which directly impacted capital through reduced current and future earnings. 

On the basis of restated results in early 2008, Freddie Mac’s surplus as a percentage of the 

OFHEO-directed requirement significantly declined from $2.1 billion, or 6.2 percent, for the 

fourth of quarter 2006 to $0.9 billion, or 2.6 percent, for the third quarter of 2007. The 

surplus continued to decline through October and November, with Freddie Mac failing to 

meet the OFHEO-directed requirement on November 30, 2007, prior to year-end 2007 

accounting adjustments. Freddie Mac took action to return to capital compliance by issuing 

$6 billion in preferred stock in early December 2007. Further erosion of capital in December 

resulted in a year-end 2007 surplus of $3.5 billion, or 10.0 percent. At year-end 2007 the 

excess over the statutory minimum requirement was $11.4 billion. 

Report to Congress • 2008 51
$4.0 

Chart 16 

$3.5 Freddie Mac’s 

Core Capital $3.0 

Surplus 

$2.5 

$2.0 

$1.5 

$1.0 

$0.5 

$0.0 

Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 

Billions 

Source: OFHEO 

While the decline in capital surplus was primarily the result of dramatically higher credit loss 

provisioning and continued market volatility, especially in the latter part of the year, during 

the first part of the year negative earnings, continued dividend payments and growth in MBS 

contributed to declines in the surplus. Freddie Mac’s expensive emergency corrective action in 

the fourth quarter emphasizes the need for more permanently heightened attention to 

income forecasting, and more prudent capital management generally. In retrospect, Freddie 

Mac’s common stock buyback in the first half of 2007 and dividend increase were mistimed. 

Chart 16 shows Freddie Mac’s surplus over the OFHEO-directed requirement over the last five 

quarters. Fair value measures of equity also have shown marked deterioration over this 

period. OFHEO does, however, expect that actions taken in late 2007, including efforts to 

improve capital forecasting and management, confirm Freddie Mac’s commitment to 

maintaining capital surpluses above all capital requirements. Recent changes in accounting 

methods and policy will also provide some short-term capital relief, but with uncertain 

longer-term earnings and capital consequences. 

During 2007, Freddie Mac’s RBC requirement was not the binding factor used by OFHEO for 

the quarterly classifications. The RBC requirement fluctuated throughout the year with no 

clear trend (Table 3). The RBC model projected increased credit losses, but these losses were 

largely offset by interest rate risk management actions and higher guarantee fees. Freddie Mac 

and OFHEO need to develop a more effective approach to economic risk capital. 

Table 3 

Freddie Mac RBC 

Requirements in 

2007 (Billions) 

1Q 2Q 3Q 4Q 

Total Capital 

Requirement 

Surplus

$36.8 

$13.8 

$23.0 

$37.1 

$18.9

$18.2 

$36.4 

$11.3 

$25.1 

$40.9

$14.1 

$26.9

52 Office of Federal Housing Enterprise Oversight 
CAPITAL CLASSIFICATION AND MEASUREMENT 

Capital Classification and Measurement 

The 1992 Act that created OFHEO requires that OFHEO classify the adequacy of the 

Enterprises’ capital not less than quarterly, using two quantitative assessments of 

capital—minimum and risk-based. From 1993 through 2002, OFHEO classified the 

Enterprises using the statutorily defined minimum capital requirement. Beginning in 2002, 

when its risk-based capital regulation became enforceable, OFHEO began classifying the 

Enterprises on the basis of both the minimum capital and the risk-based capital stress test 

requirements. 

In 2004,2 both Enterprises became subject to agreements with OFHEO requiring that they 

meet an OFHEO-directed requirement—a capital surplus of 30 percent over their minimum 

capital requirement. These agreements followed OFHEO findings of operational, control and 

financial reporting deficiencies and the restatement of several years of financial results by both 

Enterprises. The OFHEO-directed requirement has been the binding requirement since 2004. 

The capital classification requirements are prescribed in the 1992 Act. An Enterprise is 

classified as “adequately capitalized” if it complies with the minimum statutory requirement 

and the risk-based capital requirement. An Enterprise that complies with the minimum 

capital requirement but not with the risk-based capital requirement would be classified as 

“undercapitalized.” An Enterprise that does not comply with the minimum capital 

requirement would be classified as “significantly undercapitalized.” An Enterprise that holds 

less than the critical capital requirement which is about 50 percent of the minimum capital 

requirement would be classified as “critically undercapitalized.” Failure to comply with the 

requirements triggers a range of regulatory responses, depending upon the capital 

classification of the Enterprise. 

History of Enterprise Capital Classification/Reclassification 

Because of significant accounting and other deficiencies just noted, the Enterprises had to 

restate several years of accounting results. In connection with the restatements, the Enterprises 

were required to resubmit corrected capital positions to OFHEO within three business days of 

their financial restatement. As of December 31, 2007, both Enterprises were current with their 

quarterly financial results and had refiled regulatory capital reports, as required by OFHEO, 

for all past periods. OFHEO’s analysis of the effect of specific accounting changes on the 

Enterprises’ risk-based capital requirements confirmed that the minimum capital requirement, 

or the OFHEO-directed capital requirement, would have remained the higher or binding 

capital requirement for each restated period. OFHEO determined that more precise risk-based 

capital results would not have altered its capital classification conclusion, so the Enterprises 

were not required to resubmit data to determine their exact risk-based capital levels. 

Freddie Mac entered into a Supervisory Agreement with OFHEO in January 2004 requiring that it meet a mandatory targeted capital surplus

of 30 percent over the statutory minimum capital requirement. Fannie Mae became subject of a formal Agreement in September 2004 

requiring that it meet a mandatory targeted capital surplus of 30 percent over the statutory minimum capital requirement. The mandatory 

targeted capital surplus is referred to as the OFHEO-directed requirement. 

Report to Congress • 2008 53

2
Fannie Mae Restatement History 

Fannie Mae’s restatement resulted in an approximate $4 billion capital shortfall over the 

regulatory minimum requirement for September 30, 2004. Fannie Mae increased its core 

capital to restore a capital surplus above the minimum capital requirement through the 

issuance of $5 billion in preferred stock in late December 2004. Subsequently, Fannie Mae 

restated capital positions for March 31, 2002, through June 30, 2007, and became a current 

quarterly financial filer with the SEC for September 30, 2007. Fannie Mae’s restatements 

resulted in a capital classification of “significantly undercapitalized” for all four quarters in 

2002, 2003, and 2004. OFHEO has reaffirmed quarterly classifications of “adequately 

classified” for all quarters from first quarter 2005 through the fourth quarter of 2007. 

Although Fannie Mae was reclassified as “significantly undercapitalized” for all quarters in 

2002, 2003, and 2004, OFHEO did not require additional regulatory action from Fannie 

Mae, as per the formal Agreement. Fannie Mae had previously developed an approved 

Capital Restoration Plan and since September 30, 2005, has maintained core capital above 

the OFHEO-directed requirement. 

Freddie Mac Restatement History 

The need for Freddie Mac’s restatement emerged after its hiring of a new external auditor in 

2002 and the identification of significant errors in accounting policies and practices. This 

resulted in restatement of capital reports for year-end 1999 and 2000, and for each quarter 

from the first quarter of 2001 through year-end 2007. Beginning in the fourth quarter of 2006 

through 2007, Freddie Mac’s capital submissions have been consistent with its publiclyreleased financial results, although the public releases were not timely prior to year-end 2007. 

Accounting policy changes in 2006 resulted in Freddie Mac again restating financial and 

capital positions from 2003 forward. For all periods of the restatement, OFHEO reaffirmed 

Freddie Mac’s capital classification as “adequately capitalized.” As of year-end 2007, Freddie 

Mac had not yet registered with the SEC. 

During 2007 Freddie Mac failed to maintain core capital above the OFHEO-directed 

requirement for the month ending November 30, 2007, due to significant market and creditrelated losses impacting capital prior to corrective management actions. Freddie Mac issued 

$6 billion in preferred stock in early December 2007 to restore core capital above the 30 

percent threshold, thus re-establishing compliance and capital adequacy in the fourth quarter 

of 2007. 

Core Capital and Shareholders’ Equity 

OFHEO’s 1992 statute defines core capital as the measure of Enterprise capital available to 

meet the statutory minimum capital requirement. Core capital is also the measure applied 

against the OFHEO-directed requirement. Core capital is defined as the sum of par or stated 

value of outstanding common stock, par or stated value of preferred stock, paid-in capital 

and retained earnings. In 1992, when the OFHEO statute was enacted, GAAP were still 

largely using a historical cost model and core capital was virtually the same as total 

shareholders’ equity. However, accounting standards introduced since that time have resulted 

in a combination of historic cost and market values on the balance sheets of the Enterprises. 

54 Office of Federal Housing Enterprise Oversight 
CAPITAL CLASSIFICATION AND MEASUREMENT 

This “mixed attribute” accounting has, in turn, resulted in shareholders’ equity and core capital 

diverging. 

Specifically, shareholders’ equity now includes a component commonly called accumulated 

other comprehensive income (AOCI) that accounts for as yet unrealized gains and losses on 

certain balance sheet items. Thus, AOCI can either reduce or increase shareholders’ equity 

relative to regulatory core capital. 

The two Financial Accounting Standards Board (FASB) statements that have the greatest 

impact on AOCI for the Enterprises are Statement of Financial Standards No. 115, Accounting 

for Certain Investments in Debt and Equity Securities (FAS 115) and Statement of Financial 

Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). 

FAS 115 requires a company to carry held-to-maturity (HTM) investments at amortized cost; 

to mark its available-for-sale (AFS) securities to fair value with associated unrealized gains or 

losses reported in AOCI; and to mark its trading securities to fair value with associated 

unrealized gains or losses reported in earnings. In order to discourage income manipulation, 

FAS 115 imposes several restrictions in determining the designation, sale or transfer of 

securities among categories. 

At present, both Enterprises carry the majority of securities as AFS, and therefore their AOCI 

accounts are large and quite volatile. During 2007, the Enterprises did not opt to account for 

gains and losses on cash flow hedges under FAS 133, which would tend to offset the volatility 

arising from changes in the market values of their derivatives. The amount of the differences 

between shareholders’ equity, which includes AOCI, and statutory core capital has changed 

dramatically over time, and the balances in AOCI vary significantly from period to period as 

explained below for each company. 

Chart 17 shows each Enterprise’s AOCI at the end of each year from 2001 through 2007. 

Chart 17 $15 

AOCI Levels for 

Both Enterprises 

$10 

$5 

$0 

-$5 

-$10 

-$15 

Billions 

2001 2002 2003 2004 2005 2006 2007 

Fannie Mae Freddie Mac

Sources: Fannie Mae and Freddie Mac 

Report to Congress • 2008 55
Chart 18 

Fannie Mae 

Equity and Core 

Capital 

A history of Fannie Mae’s capital position, capital requirements, and surpluses is presented in 

Table 9 of the Historical Data Tables. A history of Freddie Mac’s capital position, capital 

requirements and surpluses is presented in Table 18 Historical Data Tables. On a quarterly 

basis, OFHEO updates the historical charts on its Web site: 

http://www.ofheo.gov/CapitalRequirements.aspx?Nav=273. 

Fannie Mae 

From 1994 to 2000, Fannie Mae reported nominal amounts of AOCI. Beginning with the 

restatement of 2002 financial results, Fannie Mae has reported balances in AOCI ranging 

from negative $1.4 billion to $11.5 billion, and the AOCI account has changed as much as 

$6.4 billion in one year. Most of this volatility relates to FAS 115 accounting. 

Chart 18 displays the difference in Fannie Mae’s core capital and shareholders’ equity from 

2001 through 2007. Changes reflect the volatility of AOCI. Billions 

$50 

$45 

$40 

$35 

$30 

$25 

$20 

$15 

$10 

$5 

$0 

2001 2002 2003 2004 2005 2006 2007 

Shareholders’ Equity Core Capital

Sources: OFHEO and Fannie Mae 

56 Office of Federal Housing Enterprise Oversight 
CAPITAL CLASSIFICATION AND MEASUREMENT 

$40 Chart 19 

Freddie Mac $35 

Equity and Core 

Capital $30 

$25 

$20 

$15 

$10 

$5 

$0 

1999 2000 2001 2002 2003 2004 2005 2006 2007 

Shareholders’ Equity Core Capital 

Billions 

Sources: OFHEO and Freddie Mac 

Freddie Mac 

Similarly, from 1994 to 1998, Freddie Mac reported nominal balances of AOCI. Since 1999, 

after restating its financial reports, Freddie Mac has reported balances in AOCI ranging from 

negative $11.1 billion to $2.3 billion, and the AOCI account has changed as much as $7.6 

billion in one year. 

Freddie Mac’s 2005 annual report marked the closing of most of its hedge accounting 

strategies. For Freddie Mac’s closed cash flow hedges, there is a large remaining negative 

balance in AOCI. Pursuant to GAAP, Freddie Mac is amortizing this balance through 

earnings. This and the fact that Freddie Mac has a larger available-for-sale portfolio accounts 

for the differences between the AOCI balances of the two Enterprises. 

The volatility and impact of AOCI on core capital versus shareholders’ equity for Freddie Mac 

is seen in Chart 19. Freddie Mac’s AOCI balance for FAS 133 will be quite large until the 

Enterprise has amortized its closed cash flow hedge losses into earnings. 

Report to Congress • 2008 57
Accounting
 

OFHEO’s 2007 Report to Congress addressed the accounting landscape after a period 

in which both Enterprises had been found to have lacked adequate controls over 

financial reporting and misapplied accounting rules to present the image of steady earnings 

growth. As a result, neither Enterprise was able to produce quarterly financial reports for 2006. 

The accounting chapter in last year’s report described continuing steps by the FASB to move 

away from the historical cost model and toward the fair value accounting model through the 

promulgation of new standards, in particular the adoption of FAS 159, Fair Value Option. It 

described the continuing challenge for the Enterprises of producing meaningful financial 

statements under current GAAP, which use a mix of historical cost and fair value approaches 

(so-called “mixed-attribute” accounting). 

In 2007 both Enterprises made significant progress toward a return to timely financial 

reporting. In early 2008, they were able to issue their 2007 annual financial statements within 

SEC reporting time frames. With the year’s upheaval in the financial markets, 2007 also 

illuminated issues fair value accounting poses to the Enterprises under highly adverse credit 

conditions and highlighted the effects of some significant accounting differences between the 

Enterprises. In response, the Enterprises made several accounting and business policy changes 

to relieve pressure on their earnings and regulatory capital. 

Fair Value Accounting 

The economic effects of the emerging credit and accompanying liquidity crisis, which resulted 

in large losses and depleted regulatory capital, led both Enterprises to raise billions of dollars 

in capital in 2007 by issuing preferred stock. This led the Enterprises to take steps to reduce, 

within the constraints of GAAP, the recognition of the kinds of fair value changes that had 

caused such severe problems. Given their common objective of reducing sensitivity of 

earnings and regulatory capital to fair value changes, the steps they took tended to increase 

the comparability of their financial information. These changes are discussed below. 

Adoption of Fair Value Accounting under FAS 159 

Both Enterprises issue GAAP-based financial statements and “fair value-” based supplemental 

disclosures, which include fair value-based balance sheets. The GAAP-based statements apply 

a mixed-attribute accounting model. The mixed-attribute model involves limited use of 

current fair values, while the fair value financial statements are based entirely upon the 

current fair values of all assets and liabilities. For 2007 the supplemental fair value financial 

statements of both Enterprises reflected far greater losses than did their respective GAAPbased financial statements. In adopting the fair value option for their GAAP-based financial 

statements in 2008, neither Enterprise has embraced the opportunity to broadly apply fair 

value accounting for most assets and liabilities. 

58 Office of Federal Housing Enterprise Oversight 
ACCOUNTING 

Guarantee Obligation Accounting 

The impact of credit market conditions on the Enterprises’ financial statements also 

highlighted the effects of some significant differences between their methods for valuing and 

accounting for the Guarantee Obligation (GO). When they guarantee a mortgage, each 

Enterprise books a Guarantee Asset (GA)—the fair value of expected guarantee fees—and a 

GO—the fair value of the obligation they undertake. Under adverse credit conditions the 

current fair value of the GO rises relative to that of the GA, and to the extent GAAP 

accounting recognizes those changes, generates immediate losses and erodes capital. 

Ultimately, recognition of true economic losses cannot be eliminated—only deferred—under 

GAAP. As discussed below, each Enterprise took steps to avoid current recognition of losses it 

thought were not truly economic losses in the current period. 

Accounting for Participation Certificate Residuals at Freddie Mac 

During the first three quarters of 2007, Freddie Mac reported substantial losses relating to the 

mortgage-backed securities it had issued Participation Certificates (PCs) held on its own 

balance sheet. Unlike Fannie Mae, when Freddie Mac purchased its own PCs as investments, 

it considered the guarantee associated with the PCs “extinguished,” leaving itself owning the 

underlying unguaranteed mortgage securities. This “extinguishment” of the guarantee also 

resulted in an asset on its balance sheet called PC Residuals, equal to the difference between 

the current fair value of the GA and the GO for those PCs. 

During 2007, a dramatic rise in the fair value of Freddie Mac’s GO resulted in large mark-tofair value losses on PC Residuals. In time for issuance of its financial statements for the year 

ended December 31, 2007, Freddie Mac obtained SEC approval to eliminate this 

“extinguishment” accounting, putting it on essentially the same footing as Fannie Mae. The 

financial statements for the year ended December 31, 2007, and prior years presented in the 

same report have been restated applying the new method, which will also be used in 2008 

and future years. 

Day 1 Losses 

Losses are recognized on guarantee contracts when at the time of issuance the fair value of the 

GO exceeds the GA. This is referred to as a Day 1 loss. In addition, all else being equal, a 

valuation methodology that generates a higher GO will be more likely to result in a Day 1 

loss. During 2007, before the Enterprises were able to raise their guarantee fees, large Day 1 

losses were recognized in their respective income statements. Freddie Mac’s Day 1 losses 

greatly exceeded Fannie Mae’s in 2007, because Freddie Mac’s GO valuation methodology is 

more sensitive to pricing in the private-label mortgage-backed securities market. 

Report to Congress • 2008 59
Other Valuation Issues
 

SOP 03-3 Losses 

When an Enterprise purchases a seriously delinquent (over 120 days) loan (SDQ) out of its 

guaranteed security pool, AICPA Statement of Position 03-3 (SOP 03-3), effectively requires 

the Enterprise to recognize a loss to the extent the then-fair value (i.e., market value) of the 

loan is less than its par value. In other words, loans purchased out of pools at their par values 

are immediately marked down to their fair values through a charge against income. Under 

current market conditions, the fair value of an SDQ loan may be significantly below its par 

value. Prior to 2007 the financial statement impact of these markdowns was not great, but it 

grew very large during the last half of 2007. 

The recognition of any ultimate economic loss on a guaranteed loan purchased out of a pool 

cannot be avoided. However, the Enterprises have taken steps to reduce the recognition of fair 

value declines in advance of ultimate economic losses actually realized or in amounts that 

might exceed that economic loss. The Enterprises may purchase a delinquent loan from a 

pool when it becomes 120 days delinquent, but they must purchase it when it has been 

delinquent for two years. Accordingly, both Enterprises have begun to delay the purchase of 

SDQ loans out of pools until purchase is required to effect their intended resolution of the 

SDQ loan normally through loan modification or foreclosure. The Enterprises have assured 

OFHEO that this will not result in the delay of any actions they would otherwise take to help 

a homeowner to avoid foreclosure. The reduction or elimination of fair value repurchase 

losses changes only the timing of the recognition of any ultimate economic losses. 

Anticipated losses on SDQ loans provided for under the mixed-attribute GAAP accounting 

model, while not as high as fair value losses in present market conditions, are still recognized 

through the normal process of reserving for losses on all loans backing guaranteed securities. 

Impairments of Investments in Securities 

In 2007 the fair values of the Enterprises’ holdings of PLS, which are primarily held as 

Available-for-Sale investments, fell substantially. Under the current mixed-attribute 

accounting model, both Enterprises generally defer these losses in accumulated other 

comprehensive income (AOCI). As of December 31, 2007, on a pretax basis Fannie Mae and 

Freddie Mac had about $4.8 and $15 billion, respectively, of deferred losses pertaining to 

available-for-sale investment securities. Under current GAAP, a company does not have to 

recognize these fair value losses through earnings unless it determines the losses are “other 

than temporary.” If the declines in value are considered temporary, the losses are recorded in 

the equity through AOCI. The deferred losses are not counted against capital in OFHEO’s 

statutory capital calculation. 

60 Office of Federal Housing Enterprise Oversight 
ACCOUNTING 

Under GAAP, determining whether the decline in the value of a security is other than 

temporary, and should therefore be recognized in earnings, is a process that requires the 

exercise of significant management judgment based on all available facts and circumstances 

at a particular point in time. However, GAAP does require a systematic and documented 

approach to applying this judgment. 

In 2007, Fannie Mae and Freddie Mac recognized only $814 and $399 million, respectively, 

of other-than-temporary impairments. However, if the conditions in the credit markets 

worsen, the Enterprises may have to recognize losses on some securities which, as of 

December 31, 2007, were deferred in AOCI. The Enterprises’ net income, retained earnings 

and regulatory capital for OFHEO purposes would be reduced by the amounts of the otherthan-temporary declines in values recognized. 

FAS 133 Hedge Accounting 

Although the Enterprises use derivatives, primarily interest rate swaps, extensively for hedging 

purposes, their accounting methods in 2007 generally did not recognize the effects of hedge 

relationships. Gains and losses on the hedging instruments (the derivatives) are recognized 

currently in income. The hedged items, if classified as available for sale or held to maturity, 

are recorded at historical values (fair value changes of available-for-sale assets only are 

deferred in AOCI), which remain little changed from accounting period to accounting 

period. This results in volatility in earnings and regulatory capital that does not reflect the 

economics of hedging. FAS 159 provides another approach to match hedging instruments 

with hedged items, beginning in 2008. This standard allows a company to elect fair value 

accounting for almost any asset or liability, and thus match the recognition of offsetting gains 

and losses between instruments in hedge relationships. 

Both Enterprises have indicated that they will not broadly apply FAS 159. Instead, Freddie 

Mac has announced plans to reintroduce hedge accounting under FAS 133. Under FAS 133 a 

company can identify the risk factor it intends to hedge, which when properly applied can 

reduce earnings volatility. The use of FAS 133 hedge accounting not only allows companies to 

offset the gains and losses to the extent of effective hedges of particular risks, but also enables 

them to avoid or delay reflecting fair value changes related to unhedged risks. This contrasts 

with the election of FAS 159, which requires the recognition of all fair value changes, 

regardless of their source, for assets and liabilities for which fair value accounting has been 

elected. The elections under FAS 159 are irrevocable, while hedge accounting relationships 

under FAS 133 can be changed. 

Under present market conditions, a substantial portion of fair value changes relate to credit 

spreads. In the past, changes of this nature have generated substantial gains or losses, which 

will not be recognized as they occur under the mixed-attribute accounting model. 

Report to Congress • 2008 61
Credit Loss Reserves 

Rising mortgage delinquencies and falling house values in 2007 led the Enterprises to 

dramatically increase their reserves for credit losses. Both Enterprises are subject to the same 

GAAP standards for determining appropriate loss reserves, which require significant 

management judgment. The extent of and uncertainty about future credit market 

deterioration highlighted what appear to have been differences in the policies and judgments 

applied by each Enterprise. The Enterprises use proprietary loss projection models based on 

recent experience to establish appropriate credit loss reserve amounts, but recognized that 

due to changing market conditions and the speed of credit deterioration, the models were 

not generating sufficiently high reserve amounts. In response, each Enterprise made its own 

judgmental adjustments, with somewhat different outcomes. 

OFHEO will continue to review the different methodologies and management judgments 

employed in setting loss reserves. 

Conclusion 

OFHEO continues to believe that fair value is an important measure of Enterprise 

performance and capital strength, because it reflects market developments in a timely 

fashion. Fair value accounting is not without its issues, since in periods of extreme market 

turmoil fair value measurement and the interpretation of fair value results become difficult. 

On the other hand, the presently-used mixed-attribute accounting model has known 

drawbacks. Fair value losses on instruments that are not classified as “trading” are not 

recognized through earnings. Changes in the fair value of liabilities are not recognized at all. 

Unless FAS 133 hedge accounting is used, changes in the value of derivatives may flow 

through earnings while changes in the fair value of assets or liabilities that those derivatives 

hedge may not, causing financial reports not to reflect actual economic results. 

At the heart of the process of choosing accounting principles is the question of which mix of 

choices will provide the most meaningful financial information for the users of the financial 

statements, as articulated in the Statements of Financial Accounting Concepts issued by the 

FASB. In this light OFHEO will continue to closely monitor the Enterprises’ accounting 

choices. 

62 Office of Federal Housing Enterprise Oversight 
SUPERVISORY ACTIONS 

Supervisory Actions 

Consent Order and Other Supervisory Agreements 

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

related to accounting, internal control and other failures that led to a restatement of financial 

results and the reporting of significant losses by the Enterprise. The agreement between 

OFHEO and Fannie Mae dated September 27, 2004, and a Supplement to that dated March 

7, 2005 were incorporated into the May 23, 2006 Order. The Consent Order committed 

Fannie Mae to a significant number of remedial steps and Fannie Mae agreed to pay a $400 

million penalty to the government. Fannie Mae made major progress in meeting the 81 

requirements in the Consent Order. 

Freddie Mac entered into a Consent Order dated December 9, 2003, to settle matters related 

to accounting and management problems identified in a special examination report. Freddie 

Mac paid a fine of $125 million. One provision remains open from the Consent Order, 

requiring separation of the positions of CEO and Chairman of the Board. Senior 

management submitted a transition plan to OFHEO in June 2007 that addressed this matter. 

A search committee has been established and efforts are under way to seek a qualified CEO. 

OFHEO continues to monitor management’s progress in key areas highlighted by the 

Consent Order, including strengthening internal controls, developing a risk management 

oversight program, building a compliance oversight program, improving the internal 

accounting function, augmenting the internal audit program and striving to make positive 

changes to the corporate culture. 

In the May 2006 Fannie Mae Consent Order, and in a voluntary agreement with Freddie Mac 

of June 2007, the government-sponsored enterprises (GSEs) agreed to restrict the growth of 

their retained mortgage portfolios. In September 2007, OFHEO agreed to give the Enterprises 

more flexibility to increase their portfolios, in line with the agreements, when they produced 

timely financial reports. OFHEO lifted the constraints on the retained mortgage portfolios in 

February 2008. 

In January and September 2004, Freddie Mac and Fannie Mae, respectively, entered capital 

agreements with OFHEO. A key element was that they had to retain capital 30 percent above 

the minimum capital requirements. 

Subsequent Events 

On March 19, 2008, OFHEO reached an agreement with the Enterprises to reduce the 

OFHEO-directed capital requirement from 30 percent to 20 percent. The agreement also 

included the Enterprises’ commitments to raise significant additional capital and to support 

GSE regulatory reform. At that time, OFHEO announced that Fannie Mae was in full 

compliance with its Consent Order and Freddie Mac had one open item. As a result, OFHEO 

expects to lift the Consent Order in the near-term. 

Report to Congress • 2008 63
Freddie Mac 

On November 6, 2007, OFHEO entered into a Consent Order with former Freddie Mac 

Board Chairman and CEO Leland C. Brendsel that settled OFHEO’s administrative 

enforcement action against him. The Notice of Charges against Mr. Brendsel filed on 

December 17, 2003, alleged misconduct and unsafe and unsound practices that led to the 

losses suffered by Freddie Mac. The Notice sought an order to cease and desist, civil money 

penalties, disgorgement, reimbursement and other relief. 

Among other things, the Consent Order required Mr. Brendsel to pay $2.5 million to the U.S. 

government; disgorge previously paid salary and bonuses of $10.5 million to Freddie Mac; 

and waive claims against Freddie Mac for additional compensation, valued at more than $3.4 

million. 

The Consent Order provided that funds disgorged to Freddie Mac will be used to support 

initiatives and programs that seek to keep distressed homeowners in their homes. 

On September 27, 2007, OFHEO entered into a Consent Order with former Freddie Mac 

Executive Vice President and CFO Vaughn A. Clarke in settlement of charges against Mr. 

Clarke. The charges against Mr. Clarke included allegations of misconduct and unsafe and 

unsound practices. 

Among other things, the Order imposed a $125,000 civil penalty on Mr. Clarke, and required 

him to cooperate with OFHEO in any administrative proceedings against other Freddie Macrelated individuals and to forego any bonus not yet paid to him by Freddie Mac. Additionally, 

Mr. Clarke may not accept employment with Freddie Mac or Fannie Mae without the 

Director’s written permission or accept employment with any federally-regulated financial 

institution without providing notice of this Order to the institution and its regulators. 

OFHEO previously entered into a Consent Order with Freddie Mac and with former 

President and Chief Operating Officer David Glenn. The Consent Orders with Mr. Brendsel 

and Mr. Clarke resolve all outstanding enforcement proceedings and related litigation against 

Freddie Mac and its former officers. 

Fannie Mae 

On December 18, 2006, OFHEO initiated an administrative action against former Fannie 

Mae executives Franklin Raines, Timothy Howard and Leanne Spencer, seeking affirmative 

relief and civil money penalties for allegedly improper and unlawful conduct arising out of 

matters detailed in part in two special examination reports issued by OFHEO in September 

2004 and May 2006. An evidentiary hearing in this action was scheduled on February 7, 2008 

to commence in September 2008, before U. S. Administrative Law Judge William B. Moran. 

Litigation has also continued in U. S. District Court for the District of Columbia regarding 

document and deposition subpoenas that have been served upon OFHEO by the executives 

against whom OFHEO has initiated a separate administrative enforcement action. The 

64 Office of Federal Housing Enterprise Oversight 
SUPERVISORY ACTIONS 

subpoenas arise out of consolidated shareholder litigation cases in which these same 

individuals are among the defendants. OFHEO has argued that the documents sought are not 

relevant and that the more than $6 million it has been required to spend to produce and 

prepare privilege logs for the documents was overly burdensome. The District Court rejected 

these arguments and ordered OFHEO to restore its disaster recovery tapes and search for 

internal agency emails going back to the mid-1990s. However, a January 22, 2008, order by 

the District Court holding OFHEO in contempt for not producing privilege logs quickly 

enough and requiring as a sanction that OFHEO produce privileged documents to 

defendants’ counsel has been stayed by the D.C. Circuit Court of Appeals pending 

consideration of OFHEO’s appeal of the matter. Subsequently, the privilege logs were 

delivered. 

Mr. Howard filed a motion in the U. S. District Court for the District of Columbia and Mr. 

Raines and Ms. Spencer filed petitions for mandamus in the D.C. Circuit Court of Appeals, all 

seeking an order moving the administrative action from the administrative forum before 

Judge Moran into District Court, where it would be tried as part of the multidistrict securities 

litigation pending in District Court. The Court of Appeals denied the mandamus petitions on 

April 27, 2007, and the District Court denied the motion on June 13, 2007. The District 

Court’s order has been appealed by Mr. Howard to the D.C. Circuit Court of Appeals. 

Other Supervisory Actions 

Prompt Supervisory Response 

OFHEO’s Prompt Supervisory Response and Corrective Action (PSRCA) rule requires the 

agency to respond to an Enterprise in the event of certain specific developments identified in 

the rule. One of the developments specified in the PSRCA rule is the event of quarterly GAAP 

earnings falling below a specified threshold or “trigger”—net income falling below half the 

average quarterly net income for a four-quarter period during the prior eight quarters. 

In the first, third and fourth quarters of 2007, Freddie Mac reported net losses—its net 

income fell below this trigger under the PSRCA rule. Fannie Mae also reported net losses in 

the third and fourth quarters of 2007, which triggered the same provision of the PSRCA rule. 

As a result, OFHEO sent supervisory letters raising and asking the Enterprises to address 

concerns about the impact of declining net income on capital and related issues. The 

Enterprises responded to OFHEO as requested. 

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. 

Report to Congress • 2008 65
The Enterprise charter acts require the Enterprises to obtain the prior approval of OFHEO’s 

director before entering into or changing termination agreements with their executive officers. 

No agreement of this kind may be approved unless the director determines that the benefits 

provided thereunder 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 Enterprises obtain OFHEO’s 

prior approval for all payment of bonuses or other nonsalary cash or stock-based awards to 

executive officers. 

OFHEO’s corporate governance rule includes several requirements as follows: 

•	 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 

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

under certain circumstances 

In 2007, OFHEO issued a revised list of covered officers who are deemed to be “executive 

officers” for purposes of executive compensation oversight. The agency reviewed and 

rendered decisions on 28 requests for approval of compensation actions from Fannie Mae 

and Freddie Mac. These actions involved new hires, promotions, separation agreements, 

severance benefits, bonuses and other nonsalary compensation. 

To assist the agency in meeting its statutory obligations, OFHEO procured the services of a 

management consulting firm. This firm is charged with conducting an independent study of 

the compensation and termination benefits programs of the Enterprises. This research will 

assist OFHEO in considering whether the compensation provided by the Enterprises to their 

executive officers is reasonable and comparable to that of officers engaged in similar 

businesses, including other publicly held financial institutions or major financial service 

companies. The study is scheduled for completion this month. 

66 Office of Federal Housing Enterprise Oversight 
REGULATORY GUIDANCE 

Regulatory Guidance 

On October 4, 2006, the Office of the Comptroller of the Currency, the Board of 

Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, 

the Office of Thrift Supervision and the National Credit Union Administration issued the 

Interagency Guidance on Nontraditional Mortgage Product Risks, and on July 10, 2007, 

published complementary guidance, the final Statement on Subprime Mortgage Lending. These 

issuances, which focused on certain mortgages with distinct and problematic underwriting 

criteria, including inadequate borrower income documentation and terms that resulted in 

payment shock to the borrower, provided guidance intended to protect consumers from 

unfair, deceptive and other predatory practices and to promote prudent risk management. 

At the direction of OFHEO, on July 13, 2007, the Enterprises announced that they would 

conform their practices to comply with the Interagency Guidance on Nontraditional Mortgage 

Product Risks. These directives were effective for all mortgages sold to the Enterprises with an 

application date on or after September 13, 2007. In late July 2007, OFHEO cosponsored a 

“subprime summit” with the other federal financial regulators and helped lead the discussion 

on applying the regulatory guidances to loans purchased as part of private-label securities 

transactions. On August 10, 2007, OFHEO directed Fannie Mae and Freddie Mac to apply the 

principles and practices of the Statement on Subprime Mortgage Lending to purchases of 

subprime loans in the regular flow of business, including bulk purchases. OFHEO also 

directed that, not later than September 13, 2007, nontraditional and subprime loans 

purchased as part of private-label securities transactions comply with the Interagency Guidance 

on Nontraditional Mortgage Product Risks and the Statement on Subprime Mortgage Lending. 

Notably, the application of the guidances to private-label securities investments ensures that 

mortgages financed by the Enterprises in this manner conform to the underwriting provisions 

of the guidances. 

Fannie Mae announced compliance with the Statement on Subprime Mortgage Lending on 

August 15, 2007, and Freddie Mac announced compliance in communications to its sellerservicers and dealers on September 7, 2007. As directed by OFHEO, the Enterprises are taking 

the necessary quality control steps to ensure the orderly and effective implementation of the 

guidances. Such actions include changes in their respective automated underwriting systems 

and are intended to preclude the purchase of noncompliant loans by Fannie Mae and Freddie 

Mac from regulated as well as unregulated entities. OFHEO examiners will closely monitor 

nontraditional and subprime guidance implementation in the ongoing examination process. 

Requiring conformance with the nontraditional and subprime guidances reinforces the 

historic and statutory role of Fannie Mae and Freddie Mac in promoting market liquidity 

through the standardization of mortgage underwriting. Likewise, Enterprise actions bring 

discipline to otherwise unregulated entities that undertake to make residential mortgages. 

OFHEO will continue to work with federal and state regulators, and with Fannie Mae and 

Freddie Mac, to ensure that the essential mortgage credit needs of borrowers are addressed in a 

consistent manner in conformance with the guidances. Such safe and sound underwriting 

practices serve the interests of borrowers and lenders in promoting sustained homeownership. 

Report to Congress • 2008 67
Regulations 

On December 5, 2007, OFHEO published in the Federal Register for public notice and 

comment a proposed regulation amending the OFHEO Risk-Based Capital (RBC) regulation. 

The amendments are intended to enhance the accuracy and transparency of the calculation of 

the RBC requirement for the Enterprises. The proposed rulemaking also would amend the RBC 

regulation to change the loss severity equations that understate losses on defaulted singlefamily conventional and government guaranteed loans. Additionally, the proposal would 

amend the treatment of Federal Housing Administration insurance in the RBC regulation in 

order to conform the treatment to current law. The comment period regarding the proposed 

rulemaking closed on March 4, 2008. 

Guidances 

OFHEO issued examination guidance PG-08-001, dated January 10, 2008, setting standards for 

overseeing and evaluating mortgage fraud policies and programs of the Enterprises under 12 

C.F.R. 1731 consistent with the safety and soundness responsibilities of OFHEO. The guidance 

replaced OFHEO examination guidance PG-05-003, issued on July 25, 2005. The new guidance 

clarifies the definition of mortgage fraud; permits the Enterprises to designate scenarios that 

rise to a “pattern” of reportable cases of mortgage fraud or possible mortgage fraud, further 

enhancing their reporting to OFHEO; and revises the time frame and format of reporting to 

follow the Department of the Treasury’s Financial Crimes Enforcement Network requirements. 

Notices 

On March 23, 2007, OFHEO published in the Federal Register a 60-day notice of intent to 

request approval of information collection from the Office of Management and Budget and 

request for comment. On September 14, 2007, OFHEO published in the Federal Register a 30­

day notice of submission of information collection for approval from the Office of 

Management and Budget and to allow an additional 30 days of public comment from the 

March 23, 2007, notice. The collection of information is the OFHEO Application for 

Employment, an online job application form that is also available in paper copy. The collection 

of information is used to gather data concerning potential new hires for OFHEO, and the 

information is used to evaluate the qualifications of applicants for a variety of positions. 

On October 22, 2007, OFHEO published in the Federal Register its notice of availability of 

statement and request for comments on revised draft examination guidance titled 

“Conforming Loan Limit Calculations.” The published statement provided the conforming 

loan limit for 2008. The request for additional public comments was a follow-up to OFHEO’s 

June 20, 2007, release on its Web site of a revised examination guidance for holding the 

conforming loan limit constant, rather than having it decline, should the relevant house price 

index decline by a de minimis amount and affirming that the current $417,000 conforming 

loan limit will not be reduced in 2008. On March 25, 2008, OFHEO published a Final 

Guidance on the conforming loan limit. The guidance provides that the limit will not decline 

below $417,000, but decreases in the limit will accumulate and offset future increases until the 

accumulated declines are offset. This will provide simplicity and avoid operational issues from 

market participants. 

68 Office of Federal Housing Enterprise Oversight 
OFHEO RESEARCH AND PUBLICATIONS 

OFHEO Research And Publications 

During 2007, OFHEO continued to focus its research plans and activities on topics 

that assist the agency in achieving its three strategic goals: (1) enhance supervision 

to ensure that 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 

OFHEO’s regulatory powers; and (3) continue to support the national policy of an efficient 

secondary mortgage market that 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 

(HPI). 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, reports and related information are available at www.ofheo.gov. OFHEO 

employees also presented papers and led discussions at professional and industry conferences 

on topics related to housing finance and regulation of the Enterprises. 

Research Products 

OFHEO released several research products during 2007. In June, OFHEO issued four staff 

working papers. The first, “Securitized Jumbo Mortgages: 1986–2005,” uses loan-level data to 

analyze the characteristics of jumbo mortgages financed through securitization. The second, 

“Home Improvements and Appreciation Rates Reflected in the OFHEO House Price Index,” 

employs three different techniques to measure the effect of changes in the quality of the 

housing stock on observed house price appreciation rates. The third and fourth are titled 

“Subordinated Debt Issuance by Fannie Mae and Freddie Mac” and “Signals from the Markets 

for Fannie Mae and Freddie Mac Subordinated Debt.” The first of those papers examines the 

usefulness of Enterprise subordinated debt as a source of market discipline, whereas the 

second investigates whether movements in subordinated debt yields accurately demonstrate 

market perception of Enterprise risk. In August, OFHEO staff issued a working paper titled 

“Zero Down Payment Mortgage Default,” which uses Federal Housing Administration data to 

analyze the default rates on loans without a down payment by the borrower. 

OFHEO published four other research products during 2007. The first, a research paper 

published in June and revised in July and titled “A Note on the Differences between the 

OFHEO and S&P/Case-Shiller House Price Indexes,” explores the differences in methodology 

and underlying data that result in a divergence between the house price appreciation rates 

reported in the referenced indexes. “Mortgage Markets and the Enterprises in 2006,” released 

in June, reviews developments in the housing sector, activity in the primary and secondary 

mortgage markets and the financial performance of Fannie Mae and Freddie Mac in 2006. 

The paper is the most recent in an annual series. 

Report to Congress • 2008 69
Two other research products were the first in a new series of mortgage market notes aimed at 

providing background information on select topics related to the mortgage market and the 

role of the Enterprises and of OFHEO. “Portfolio Caps and Conforming Loan Limits,” 

published in September, is a primer on the retained portfolio caps and the conforming loan 

limit. “Historical Trends in the Conforming Loan Limit,” published in October, examines the 

historical evolution of the conforming loan limit relative to household income, consumer 

prices and house prices in different regions, states and Metropolitan Statistical Areas (MSAs). 

In addition to those research products, OFHEO made public updated estimates of singlefamily mortgages originated and outstanding and the Enterprises’ combined share of 

residential mortgage debt outstanding. 

House Price Index 

OFHEO also continued quarterly publication of its 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 MSAs or Metropolitan Divisions. The HPI is 

based on an analysis of data from more than 33 million repeat transactions over the past 32 

years. OFHEO developed the index as an input for its risk-based capital stress test. The HPI is 

now regularly reported by media organizations throughout the nation and is used by 

researchers to analyze house price behavior. 

OFHEO’s standard house price indexes are estimated using purchase price data and appraisal 

valuations from refinance mortgages. Between 2004 and early 2007, however, OFHEO also 

published a national “purchase-only” index, an index estimated using only sales price data. 

That index became widely used by the public, and users expressed interest in “purchase-only” 

indexes for smaller geographic areas (e.g., Census Divisions). To satisfy such demand, in 

2007, OFHEO began releasing purchase-only indexes for Census Divisions and states. Data 

for those indexes were made available for download on OFHEO’s Web site and were 

periodically cited in HPI analyses. Seasonally adjusted and unadjusted purchase-only indexes 

were released for each Census Division. 

To provide users with information about types of loans used in the calibration of OFHEO’s 

standard all-transactions indexes, OFHEO also began releasing statistics showing trends in 

the share of different types of mortgages in the estimation sample. Beginning with the HPI 

release for the first quarter of 2007, a data table was made available for download that 

showed the fraction of loans that were for home purchases and refinances. For quarters 

extending back to 1991, the file reports the share of loans that were for home purchases, rateterm refinances and cash-out refinances. Rate-term refinances are mortgages aimed at 

changing the mortgage interest rate or the term of the mortgage. Cash-out refinances are 

those in which the borrower extracts equity from the home and increases the loan balance. 

70 Office of Federal Housing Enterprise Oversight 
OFHEO RESEARCH AND PUBLICATIONS 

Besides discussing the new purchase-only indexes and those new data on loan purpose, the 

Highlights articles that accompanied the 2007 HPI releases studied other subjects. The 

Highlights article provided with the second quarter 2007 HPI release, for example, analyzed 

monthly house price measures. The article assessed the availability and reliability of existing 

monthly price metrics and presented a monthly index constructed using data from Fannie 

Mae and Freddie Mac. The magnitude of index revisions for such measures was analyzed 

using historical data from the Enterprises. The data results suggested that revisions would not 

be particularly dramatic for U.S. or Census Division monthly indexes. 

The Highlights article associated with the third quarter HPI release studied the correlation 

between mortgage foreclosures and house price appreciation. The article discussed the bidirectional association between the two, noting that relatively intense foreclosure activity 

causes and is caused by home price declines. The close association between home value 

changes and foreclosures was illustrated for states and the 100 largest MSAs. A brief empirical 

study was then undertaken to determine whether, within select cities, high-foreclosure ZIP 

Codes had experienced greater price declines than other areas. 

OFHEO Performance and Program Assessment 

In November, OFHEO published timely its annual Performance and Accountability Report 

(PAR), which describes OFHEO’s accomplishments and how it met its performance goals 

during fiscal year 2007. The PAR reported that of OFHEO’s 34 performance measures, the 

agency fully achieved 28 and substantially achieved seven, leaving only one not achieved. The 

PAR also contains OFHEO’s audited financial statements for the fiscal year. 

Working jointly with the Office of Management and Budget, OFHEO published an update of 

its progress in accomplishing improvements identified last year through the governmentwide Program Assessment Rating Tool (PART). 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. 

OFHEO made great strides this past year in making improvements called for in the PART 

review, completing two of three improvement plan action items. The third action item, 

enactment of GSE reform legislation, depends on congressional action. The House of 

Representatives did pass a balanced GSE Reform bill in May 2007. OFHEO continues to be 

proactive in assisting the Administration and Congress in support of making these changes. 

Report to Congress • 2008 71
In the last year, OFHEO’s accomplishments included the following: 

•	 OFHEO completed the first two action items by developing and rating the 

Enterprises through bank regulator–like risk measures. OFHEO reported the results 

in the FY 2007 PAR issued November 15, 2007. 

•	 OFHEO made even further improvements by developing an improved risk rating 

structure—GSE Enterprise Risk (GSE ER)—and began to apply it to the Enterprises 

for the third quarter of the calendar year (CY) 2007 assessment. GSE ER stands for 

Governance, Solvency, Earnings, and the term Enterprise Risk encompasses credit, 

market and operational risks. 

•	 The revised structure combines the two sets of ratings structures that OFHEO used in 

2006 and 2007. OFHEO will use the revised structure in tandem with the prior sets 

for the CY 2007 examination conclusions as a transition for this year. 

The 2006 PART assessment and the current update can be found at the following links: 

OFHEO PART assessment released 2006: 

http://www.whitehouse.gov/omb/expectmore/summary/10006241.2006.html 

PART Assessment detail with new improvement plans and completed actions as of Feb. 2008: 

http://www.whitehouse.gov/omb/expectmore/detail/10006241.2006.html 

72 Office of Federal Housing Enterprise Oversight 
OFHEO’S FINANCIAL OPERATIONS 

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 

semiannual assessments from Fannie Mae and Freddie Mac. 

Congress is considering legislation that would transfer all resources available to OFHEO to a 

new, strengthened GSE regulator, which would operate outside of the appropriations process. 

Absent legislative change, however, OFHEO will continue to be subject to the appropriations 

process. 

OFHEO’s FY 2008 budget of $66 million was passed by Congress and signed into law by the 

President on December 26, 2007. For nearly all of the first quarter of FY 2008, however, 

OFHEO operated under a Continuing Resolution (CR) at its base FY 2007 level of $60 

million. The CR restricted OFHEO’s financial flexibility at the same time the agency was 

engaged in litigation and trial preparation related to an enforcement action against one of the 

Enterprises as well as trying to fill significant personnel vacancies. 

Unqualified Audit Opinion in Fiscal Year 2007 

OFHEO received an unqualified audit opinion on its FY 2007 financial statements. This 

marks the tenth straight year OFHEO has received a clean audit opinion, dating back to 1998, 

when OFHEO first chose to have its financial statements audited by external auditors. 

OFHEO’s auditor (Dembo, Jones, Healy, Pennington & Marshall, P.C.) identified no material 

weaknesses in internal controls or instances of noncompliance with laws and regulations. 

Report to Congress • 2008 73
74 Office of Federal Housing Enterprise Oversight 
Historical Data Tables 


Report to Congress • 2008 
 75
Historical Data Tables • Table of Contents 

Table 1. Fannie Mae Mortgage Purchases ....................77
 

Table 1a. Fannie Mae Mortgage Purchases Detail, 


By Type of Loan ......................................................78
 

Table 1b. Fannie Mae Purchases of Mortgage-Related
 

Securities – Part 1 ....................................................79
 

Table 1b. Fannie Mae Purchases of Mortgage-Related
 

Securities - Part 2, Private-Label Detail..................80
 

Table 2. Fannie Mae MBS Issuances ............................81
 

Table 3. Fannie Mae Earnings ......................................82
 

Table 4. Fannie Mae Balance Sheet ..............................83
 

Table 4a. Fannie Mae Total MBS Outstanding 


Detail........................................................................84
 

Table 5. Fannie Mae Retained Mortgage Portfolio 


Detail........................................................................85
 

Table 5a. Fannie Mae Retained Mortgage Portfolio 


Detail – Whole Loans ............................................86
 

Table 5b. Fannie Mae Retained Mortgage Portfolio 


Detail – Part 1, Mortgage-Related Securities ........87
 

Table 5b. Fannie Mae Retained Mortgage Portfolio 


Detail – Part 2, Mortgage-Related Securities, 


Private-Label Detail ................................................88
 

Table 5b. Fannie Mae Retained Mortgage Portfolio
 

Detail – Part 3, Mortgage-Related Securities ........89
 

Table 6. Fannie Mae Financial Derivatives ..................90
 

Table 7. Fannie Mae Non-Mortgage Investments........91
 

Table 8. Fannie Mae Mortgage Asset Quality ..............92
 

Table 9. Fannie Mae Capital ........................................93
 

Table 10. Freddie Mac Mortgage Purchases ................94
 

Table 10a. Freddie Mac Mortgage Purchases Detail, 


By Type of Loan ......................................................95
 

Table 10b. Freddie Mac Purchases of Mortgage-Related
 

Securities – Part 1 ....................................................96
 

Table 10b. Freddie Mac Purchases of Mortgage-Related
 

Securities – Part 2, Private-Label Detail ................97
 

Table 11. Freddie Mac MBS Issuances ..........................98
 

Table 12. Freddie Mac Earnings....................................99
 

Table 13. Freddie Mac Balance Sheet ........................100
 

Table 13a. Freddie Mac Total MBS Outstanding 


Detail ......................................................................101
 

Table 14. Freddie Mac Retained Mortgage Portfolio 


Detail ......................................................................102
 

Table 14a. Freddie Mac Retained Mortgage Portfolio
 

Detail - Whole Loans ............................................103
 

Table 14b. Freddie Mac Retained Mortgage Portfolio
 

Detail – Part 1, Mortgage-Related Securities ......104
 

Table 14b. Freddie Mac Retained Mortgage Portfolio
 

Detail – Part 2, Mortgage-Related Securities, 

Private-Label Detail ..............................................105
 

Table 14b. Freddie Mac Retained Mortgage Portfolio
 

Detail – Part 3, Mortgage-Related Securities ......106
 

Table 15. Freddie Mac Financial Derivatives ............107
 

Table 16. Freddie Mac Non-Mortgage Investments ..108
 

Table 17. Freddie Mac Mortgage Asset Quality ........109
 

Table 18. Freddie Mac Capital ....................................110
 

Table 19. Combined Purchases ..................................111
 

Table 19a. Combined Mortgage Purchases Detail, 


By Type of Loan ....................................................112
 

Table 19b. Combined Purchases of 


Mortgage-Related Securities ..................................113
 

Table 20. Combined MBS Issuances ..........................114
 

Table 21. Combined Earnings ....................................115
 

Table 22. Combined Balance Sheet............................116
 

Table 22a. Combined MBS Outstanding Detail........117
 

Table 23. Combined Financial Derivatives................118
 

Table 24. Combined Non-Mortgage Investments ....119
 

Table 25. Combined Capital ......................................120
 

Table 26. Loan Limits ..................................................121
 

Table 27. Mortgage Interest Rates ..............................122
 

Table 28. Housing Market Activity ............................123
 

Table 29. Weighted Repeat Sales House Price Index
 

(Annual Data) ......................................................124
 

76 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 1. Fannie Mae Mortgage Purchases 

Business Activity ($ in Millions) 

Period Purchases1 

Single-Family 2 ($) Multifamily 2 ($) Total Mortgages 2 ($) Mortgage-Related 

Securities 3 ($) 

4Q07 185,676 20,356 206,032 8,985

3Q07 175,811 7,455 183,266 22,939

2Q07 157,342 10,487 167,829 21,775

1Q07 140,537 7,004 147,541 15,537

Annual Data 

2007 659,366 45,302 704,668 69,236

2006 524,379 20,646 545,025 102,666

2005 537,004 21,485 558,489 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 

Source: Fannie Mae 

1
 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

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. 

Report to Congress • 2008
 77
Table 1a. Fannie Mae Mortgage Purchases Detail, By Type of Loan 

Purchases ($ in Millions)1 

Single Family Mortgages Multifamily Mortgages 

Conventional FHA/VA Total 

FixedPeriod Rate2 

($) 

AdjustableRate ($) Seconds 

($) 

Total 

($) 

FixedRate3 

($) 

AdjustableRate ($) Total 

($) 

SingleFamily 

Mortgages 

($) 

Conventional 

($) 

FHA/RHS 

($) 

Total Multifamily 

Mortgages 

($) 

Total 

Mortgage 

Purchases 

($) 

4Q07 166,602 13,073 9 179,684 303 5,689 5,992 185,676 20,356 0 20,356 206,032

3Q07 152,701 20,974 10 173,685 375 1,751 2,126 175,811 7,455 0 7,455 183,266 

2Q07 143,258 12,261 9 155,528 64 1,750 1,814 157,342 10,487 0 10,487 167,829

1Q07 120,692 17,825 6 138,523 495 1,519 2,014 140,537 7,004 0 7,004 147,541 

Annual Data 

2007 583,253 64,133 34 647,420 1,237 10,709 11,946 659,366 45,302 0 45,302 704,668 

2006 429,930 85,313 130 515,373 1,576 7,430 9,006 524,379 20,644 2 20,646 545,025

2005 416,720 111,935 116 528,771 2,285 5,948 8,233 537,004 21,343 142 21,485 558,489 

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 

Source: Fannie Mae 

1
 Includes Lender-originated MBS issuances and cash purchases. Based on unpaid principal balances and excludes mortgage loans traded, but not yet settled. 

2
 Includes balloon/reset and energy loans. 

3
 Includes loans guaranteed by the Rural Housing Service. 

78 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 1b. Fannie Mae Purchases of Mortgage-Related Securities - Part 11 

Purchases ($ in Millions)1 

Fannie Mae Securities Others’ Securities 

Single-Family 

Fixed- Adjustable- Period Rate ($) Rate ($) 

Multifamily 

($) 

Total 

Fannie 

Mae 

($) 

Freddie Mac Ginnie Mae 

Total 

PrivateLabel 

($) 

Mortgage 

Revenue 

Bonds 

($) 

Total 

MortgageRelated 

Securities 

($) 

Single-Family 

Multifamily 

($) 

Total 

Freddie 

Mac ($) 

Single-Family 

Multifamily 

($) 

Total 

Ginnie 

Mae 

($) 

FixedRate ($) AdjustableRate ($) FixedRate ($) AdjustableRate ($) 

4Q07 2,888 1,045 12 3,945 794 715 0 1,509 0 27 0 27 3,097 407 8,985 

3Q07 8,212 2,292 299 10,803 737 1,109 0 1,846 0 0 0 0 10,049 241 22,939 

2Q07 4,544 2,761 65 7,370 390 1,915 0 2,305 0 8 0 8 11,965 127 21,775 

1Q07 482 2,179 130 2,791 96 316 0 412 0 0 0 0 12,324 10 15,537 

Annual Data 

2007 16,126 8,277 506 24,909 2,017 4,055 0 6,072 0 35 0 35 37,435 785 69,236 

2006 23,177 14,826 429 38,432 1,044 5,108 0 6,152 77 0 0 77 57,787 218 102,666 

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 

2001 

2000 

1999 

238,711 

Not 

Available 

Before 

2002 

4,219 

Not 

Available 

Before 

2002 

1,572 

Not 

Available 

Before 

2002 

244,502 

180,582 

104,904 

125,498 

7,856 

Not 

Available 

Before 

2002 

101 

Not 

Available 

Before 

2002 

0 

Not 

Available 

Before 

2002 

7,957 

20,072 

10,171 

6,861 

4,425 

Not 

Available 

Before 

2002 

0 

Not 

Available 

Before 

2002 

0 

Not 

Available 

Before 

2002 

4,425 

333 

2,493 

17,561 

7,416 

3,513 

8,466 

16,511 

4,273 

4,624 

3,682 

3,474 

268,574 

209,124 

129,716 

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 

Includes purchases of Fannie Mae MBS for the retained mortgage portfolio. Beginning in October 2007, activity does not include transactions recorded as dollar rolls. Based on unpaid principal balances and excludes mortgagerelated securities traded, but not yet settled. 

Report to Congress • 2008 79

1
Table 1b. Fannie Mae Purchases of Mortgage-Related Securities - Part 2, 

Private-Label Detail 

Purchases ($ in Millions)1 

Private-Label 

Single-Family 

Subprime Alt -A Other Total 

Period 

Manufactured 

Housing 

($) 

Fixed-Rate 

($) 

AdjustableRate ($) Fixed-Rate 

($) 

AdjustableRate ($) Fixed-Rate 

($) 

AdjustableRate ($) Multifamily 

($) 

PrivateLabel 

($) 

4Q07 0 0 972 0 0 0 0 2,125 3,097

3Q07 0 0 2,992 38 1,839 0 178 5,002 10,049 

2Q07 0 0 5,854 0 1,690 0 0 4,421 11,965

1Q07 0 343 5,810 0 1,721 0 0 4,450 12,324 

Annual Data 

2007 0 343 15,628 38 5,250 0 178 15,998 37,435 

2006 0 0 34,876 1,504 10,443 0 1,274 9,690 57,787

2005 0 0 16,344 3,091 12,535 483 8,814 102 41,369 

2004 0 176 34,321 6,978 14,826 221 34,124 101 90,747

2003 0 0 15,881 7,734 370 98 9,888 61 34,032 

2002 56 0 2,680 1,165 0 815 2,664 36 7,416

2001 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 3,513 

2000 Before 2002 Before 2002 Before 2002 Before 2002 Before 2002 Before 2002 Before 2002 Before 2002 8,466 

1999 16,511 

1998 15,721 

1997 4,188 

1996 777 

1995 752 

1994 0 

1993 0 

1992 0 

1991 0 

1990
 0 

Source: Fannie Mae 

1
 Based on unpaid principal balances and excludes mortgage-related securities traded, but not yet settled. 

80 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 2. Fannie Mae MBS Issuances1 

Business Activity ($ in Millions) 

Period MBS Issuances 2 

Single-Family MBS 

($) 

Multifamily MBS 

($) 

Total MBS 

($) 

Multiclass MBS3 

($) 

4Q07 172,013 4,088 176,101 19,623 

3Q07 170,257 947 171,204 26,831 

2Q07 148,453 1,426 149,879 36,525 

1Q07 131,735 688 132,423 29,584 

Annual Data 

2007 622,458 7,149 629,607 112,563 

2006 476,161 5,543 481,704 124,856 

2005 500,759 9,379 510,138 123,813 

2004 545,635 6,847 552,482 94,686 

2003 1,196,730 23,336 1,220,066 260,919 

2002 731,133 12,497 743,630 170,795 

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 

Source: Fannie Mae 

1
 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004.
 

2
 Lender-originated MBS plus issuances from Fannie Mae's portfolio. Based on unpaid principal balances and excludes mortgage-related securities traded, but not yet settled. 

3
 Beginning in 2006, includes Grantor Trusts and REMICs as well as stripped MBS backed by Fannie Mae certificates. 

Report to Congress • 2008
 81
Table 3. Fannie Mae Earnings 

Earnings ($ in Millions) 

Period Net Interest 

Income1 

Guarantee Fee 

Income2 

Average 

Guarantee Fee 

Administrative 

Expenses 

Credit-Related 

Expenses 3 

Net Income 

(Loss) 

Return on 

Equity 4 

($) ($) (basis points) ($) ($) ($) (%) 

4Q07 1,136 1,621 28.5 651 2,973 (3,559) (51.0) 

3Q07 1,058 1,232 22.8 660 1,200 (1,399) (19.4) 

2Q07 1,193 1,120 21.5 660 518 1,947 22.6 

1Q07 1,194 1,098 21.8 698 321 961 10.1 

Annual Data 

2007 4,581 5,071 23.7 2,669 5,012 (2,050) (8.3) 

2006 6,752 4,250 22.2 3,076 783 4,059 11.3 

2005 11,505 4,006 22.3 2,115 428 6,347 19.5 

2004 18,081 3,784 21.8 1,656 363 4,967 16.6 

2003 19,477 3,432 21.9 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 23.5 

1986 384 175 23.8 175 306 105 9.5 

1985 139 112 25.6 142 206 (7) (0.7) 

1984 (90) 78 26.2 112 86 (71) (7.4) 

1983 (9) 54 26.3 81 48 49 5.1 

1982 (464) 16 27.2 60 36 (192) (18.9) 

1981 (429) 0 25.0 49 (28) (206) (17.2) 

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 

Source: Fannie Mae 

1 Interest income net of interest expense. Beginning November 2006, fees received from the interest earned on cash flows between the date of remittance of mortgage and other payments to Fannie Mae by 

servicers and the date of distribution of these payments to MBS investors are excluded from "Net Interest Income." 

2 2003, 2004, and 2005 amounts previously recorded as a component of “Fee and Other Income” in Fannie Mae's consolidated statements of operations have been reclassified as and are reported above as 

“Guarantee Fee Income” to conform to the current year presentation in Fannie Mae's 2007 10-K. 

3 Credit-related expenses include the provision for credit losses and foreclosed property expense (income). 

4 Net income (loss) available to common stockholders divided by average outstanding common equity. 

82 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 4. Fannie Mae Balance Sheet1 

Balance Sheet ($ in Millions) Mortgage-Backed Securities 

Outstanding ($ in Millions)2 

End of 

Period Total Assets3 

($) 

Total Retained 

Mortgage 

Portfolio4 ($) 

Non-Mortgage 

Investments5 

($) 

Debt 

Outstanding 

($) 

Shareholders’ 

Equity 

($) 

Core Capital6 

($) 

Fair Value of 

Net Assets 

($) 

Total MBS 

Outstanding7 

($) 

Multiclass 

MBS 

Outstanding8 

($) 

4Q07 882,547 723,620 86,875 796,299 44,011 45,373 35,799 2,118,909 490,692 

3Q07 839,783 724,162 47,331 761,765 39,922 41,713 34,177 2,003,382 489,037 

2Q07 857,802 720,011 68,716 780,679 39,670 42,690 N/A 1,907,658 485,430 

1Q07 839,464 716,536 65,793 764,944 41,431 41,710 N/A 1,845,531 468,358 

Annual Data 

2007 882,547 723,620 86,875 796,299 44,011 45,373 35,799 2,118,909 490,692 

2006 843,936 726,434 56,983 767,046 41,506 41,950 43,699 1,777,550 456,970 

2005 834,168 736,803 46,016 764,010 39,302 39,433 42,199 1,598,918 412,060 

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 

Source: Fannie Mae 

N/A = not available 

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004. 

2 Based on unpaid principal balances and excludes mortgage-related securities traded, but not yet settled. 

3 Beginning in 1998, the guaranty liability for Fannie Mae MBS held in the portfolio is classified as a liability. 

4 Gross retained portfolio net of unamortized purchase premiums, discounts and cost basis adjustments and, beginning in 2002, fair value adjustments on available-for-sale and trading securities as well as impairments on availablefor-sale securities. Excludes the allowance for loan losses on loans held for investment. The amounts for 1999 through 2001 include certain loans held for investment that were previously classified as non-mortgage investments. 

5 Data reflect unpaid principal balance net of unamortized purchase premiums, discounts and cost basis adjustments, as well as fair value adjustments and impairments on available for sale securities. Since 2005, advances to 

lenders are not included. Amounts for periods prior to 2005 may include or consist of advances to lenders. Prior to 1982, the majority of non-mortgage investments consisted of U.S. government securities and agency securities. 

6 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) paid-in capital; and (d) retained earnings, less 

treasury stock. Core capital excludes accumulated other comprehensive income. 

7 Unpaid principal balance of Fannie Mae MBS held by third-party investors. The principal balance of resecuritized Fannie Mae MBS is included only once. 

8 Beginning in 2006, includes securities guaranteed by Fannie Mae that are backed by Ginnie Mae collateral and Grantor Trusts and REMICs as well as stripped MBS backed by Fannie Mae certificates. 

Report to Congress • 2008 83
Table 4a. Fannie Mae Total MBS Outstanding Detail1 

Single-Family Mortgages Multifamily Mortgages 

($ in Millions)2 ($ in Millions)2 

End of 

Period Fixed-Rate 

($) 

Conven

AdjustableRate ($) 

tional 

Seconds 

($) 

Total 

($) 

Fixed-Rate 

($) 

FHA/VA 

AdjustableRate ($) Total Conventional 

($) ($) 

FHA/RHS 

($) 

Total Total 

Multi­ MBS 

family Outstanding3 

($) ($) 

4Q07 1,850,150 214,245 0 2,064,395 14,982 275 15,257 38,218 1,039 39,257 2,118,909 

3Q07 1,725,967 222,766 0 1,948,733 15,418 302 15,720 37,780 1,149 38,929 2,003,382 

2Q07 1,628,478 223,100 0 1,851,578 15,845 349 16,194 38,648 1,238 39,886 1,907,658 

1Q07 1,555,019 231,790 0 1,786,809 16,778 393 17,171 40,255 1,296 41,551 1,845,531 

Annual Data 

2007 1,850,150 214,245 0 2,064,395 14,982 275 15,257 38,218 1,039 39,257 2,118,909 

2006 1,484,147 230,667 0 1,714,814 18,615 454 19,069 42,184 1,483 43,667 1,777,550 

2005 1,290,354 232,689 0 1,523,043 23,065 668 23,733 50,346 1,796 52,142 1,598,918 

2004 1,243,343 75,722 0 1,319,065 31,389 949 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 

Source: Fannie Mae 

1
 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004.
 

2
 Unpaid principal balance of Fannie Mae MBS held by third party investors. The principal balance of resecuritized Fannie Mae MBS is included only once. 

3
 Based on unpaid principal balances and excludes mortgage-related securities traded, but not yet settled. 

84 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 5. Fannie Mae Retained Mortgage Portfolio Detail1 

($ in Millions) 

Unamortized Premiums, 

Discounts, Deferred 

End of Period Whole Loans 2, 3 

($) 

Fannie Mae 

Securities 2, 4 

($) 

Others’ MortgageRelated Securities2, 4 

($) 

Adjustments, and 

Fair Value Adjustments 

on Securities 5 ($) 

Total Retained 

Mortgage Portfolio 

($) 

4Q07 403,577 180,163 144,163 (4,283) 723,620 

3Q07 399,420 175,290 153,868 (4,416) 724,162 

2Q07 392,690 179,860 154,099 (6,638) 720,011 

1Q07 386,372 183,157 148,593 (1,586) 716,536 

Annual Data 

2007 403,577 180,163 144,163 (4,283) 723,620 

2006 383,045 199,644 146,243 (2,498) 726,434 

2005 366,680 234,451 136,758 (1,086) 736,803 

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 

Source: Fannie Mae 

1
 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004.
 

2
 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled.
 

3
 Beginning with 2002, includes mortgage-related securities that were consolidated as loans as of period end. For 1999, 2000, and 2001, includes certain loans held for investment that were classified as non-


mortgage investments. 


4
 Beginning with 2002, excludes mortgage-related securities that were consolidated as loans as of period end.
 

5
 Beginning in 2002, amounts include fair value adjustments and impairments on mortgage-related securities and securities commitments classified as trading and available-for-sale. Excludes the allowance 

for loan losses on loans held for investment. 

Report to Congress • 2008
 85
Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Whole Loans1 

Whole Loans ($ in Millions)2 

Single-Family Multifamily 

Total Whole 

Loans 

($) 

Conventional 

Conventional 

($) 

FHA/RHS 

($) 

Total 

($) 

End of 

Period Fixed-Rate3 

($) 

AdjustableRate ($) Seconds 

($) 

Total 

($) 

Total 

FHA/VHA4 

($) 

4Q07 240,090 43,278 261 283,629 28,202 90,931 815 91,746 403,577 

3Q07 247,293 51,296 265 298,854 23,101 76,606 859 77,465 399,420 

2Q07 249,321 48,903 269 298,493 21,970 71,332 895 72,227 392,690 

1Q07 252,806 47,364 276 300,446 21,018 63,980 928 64,908 386,372 

Annual Data 

2007 240,090 43,278 261 283,629 28,202 90,931 815 91,746 403,577 

2006 255,490 46,820 287 302,597 20,106 59,374 968 60,342 383,045 

2005 261,214 38,331 220 299,765 15,036 50,731 1,148 51,879 366,680 

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 

Source: Fannie Mae 

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended 


December 31, 2004.
 

2 Based on unpaid principal balances and excludes mortgage loans traded, but not yet settled. Beginning with 2002, includes mortgage-related securities that were consolidated as loans as of period end. For 

1999, 2000, and 2001 includes certain loans held for investment that were classified as non-mortgage investments. 

3 Includes balloon/reset loans. 

4 Includes loans guaranteed by the Rural Housing Service. 

86 Office of Federal Housing Enterprise Oversight 
Fannie Mae Securities ($) 

Single-Family 

Mortgage-Related Securities ($ in Millions)2 

Others’ Securities 

Freddie Mac Ginnie Mae 

End 

of 

Period Fixed- AdjustableMultifamily 

Total 

Fannie 

Single-Family 

Multifamily Total 

Freddie 

Single-Family 

Multifamily Total 

Ginnie 

Total 

PrivateLabel 

Total 

Others’ 

Fixed- Adjustable- Fixed- Adjustable- Securities 

4Q07 

Rate ($) 

158,863 

Rate ($) 

20,741 

($) 

559 

Mae ($) 

180,163 

Rate ($) 

16,954 

Rate ($) 

14,425 

($) 

0 

Mac ($) 

31,379 

Rate ($) 

1,575 

Rate ($) 

34 

($) 

50 

Mae ($) 

1,659 

($) 

94,810 

($) 

127,848 

3Q07 168,987 5,777 526 175,290 16,748 14,227 0 30,975 1,637 9 50 1,696 105,041 137,712 

2Q07 175,368 3,926 566 179,860 16,988 13,876 0 30,864 1,721 9 56 1,786 105,090 137,740 

1Q07 

2007 

178,373 4,224 560 183,157 16,720 12,592 0 29,312 1,814 0 56 

Annual Data 

158,863 20,741 559 180,163 16,954 14,425 0 31,379 1,575 34 50 

1,870 

1,659 

100,786 131,968 

94,810 127,848 

2006 194,702 4,342 600 199,644 17,304 12,773 0 30,077 1,905 0 56 1,961 97,281 129,319 

2005 230,546 3,030 875 234,451 18,850 9,861 0 28,711 2,273 0 57 2,330 86,915 117,956 

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 

HISTORICAL DATA TABLES 

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 accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004.
 

2
 Unpaid principal balance. Beginning with 2002, excludes mortgage-related securities that were consolidated as loans as of period end. 

Report to Congress • 2008
 87
Table 5b. Fannie Mae Retained Mortgage Portfolio Detail - 


Part 2, Mortgage-Related Securities, Private-Label Detail1
 

Mortgage-Related Securities ($ in Millions)2 

Private-Label 

Single-Family 

End of 

Period Manufactured 

Housing 

($) 

Subprime Alt-A Other 

Multifamily 

($) 

Total 

PrivateLabel 

($) 

Fixed-Rate 

($) 

AdjustableRate ($) Fixed-Rate 

($) 

AdjustableRate ($) Fixed-Rate 

($) 

AdjustableRate ($) 

4Q07 3,316 503 31,537 9,221 23,254 319 1,187 25,473 94,810 

3Q07 3,449 523 42,307 9,477 24,343 329 1,232 23,381 105,041 

2Q07 3,599 598 47,021 17,684 16,068 368 1,228 18,524 105,090 

1Q07 3,752 229 46,026 18,648 15,889 385 1,587 14,270 100,786 

Annual Data 

2007 3,316 503 31,537 9,221 23,254 319 1,187 25,473 94,810 

2006 3,902 242 44,940 19,601 15,522 1,134 2,083 9,857 97,281 

2005 4,622 311 27,597 11,403 21,135 1,029 20,775 43 86,915 

2004 5,461 1,666 39,897 11,609 14,164 1,536 34,417 59 108,809 

2003 6,522 409 16,440 7,579 383 3,824 11,726 96 46,979 

2002 9,583 635 3,017 1,574 20 8,342 4,842 144 28,157 

2001 10,708 Not Available Not Available Not Available Not Available Not Available Not Available 299 29,175 

2000 Not Available Before 2002 Before 2002 Before 2002 Before 2002 Before 2002 Before 2002 Not Available 34,266 

1999 Before 2001 Before 2001 31,673 

1998 19,585 

1997 5,554 

1996 1,486 

1995 747 

1994 1 

1993 2 

1992 3 

1991 93 

1990 352 

1989 831 

1988 810 

1987 1,036 

1986 1,591 

1985 Not Available 

1984 Before 1986 

1983 

Source: Fannie Mae 

1
 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004.
 

2
 Unpaid principal balance. Beginning with 2002, excludes mortgage-related securities that were consolidated as loans as of period end. 

88 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 5b. Fannie Mae Retained Mortgage Portfolio Detail - 

Part 3, Mortgage-Related Securities1 

Mortgage-Related Securities ($ in Millions) ($ in Millions) 

Unamortized Premiums, 

Mortgage Total Discounts, Deferred Total Retained 

End of Period Revenue Mortgage-Related Adjustments, and Fair Mortgage 

Bonds2 Securities2 Value Adjustments on Portfolio 

($) ($) Securities3 ($) ($) 

4Q07 16,315 324,326 (4,283) 723,620 

3Q07 16,156 329,158 (4,416) 724,162 

2Q07 16,359 333,959 (6,638) 720,011 

1Q07 16,625 331,750 (1,586) 716,536 

Annual Data 

2007 16,315 324,326 (4,283) 723,620 

2006 16,924 345,887 (2,498) 726,434 

2005 18,802 371,209 (1,086) 736,803 

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 

Source: Fannie Mae 

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004. 

2 Unpaid principal balance. 

3 Beginning in 2002, amounts include fair value adjustments and impairments on mortgage-related securities and securities commitments classified as trading and available-for-sale. Excludes the allowance 

for loan losses on loans held for investment. 

Report to Congress • 2008 89
Table 6. Fannie Mae Financial Derivatives1 

Financial Derivatives - Notional Amount Outstanding ($ in Millions) 

End of Period Interest Rate 

Swaps 2 

($) 

Interest Rate 

Caps, Floors, 

and Corridors 

($) 

Foreign 

Currency 

Contracts 

($) 

OTC Futures, 

Options, and 

Forward Rate 

Agreements 

($) 

Mandatory 

Mortgage 

Purchase & Sell 

Commitments 

($) 

Other 

($) 

Total 

($) 

4Q07 671,274 2,250 2,559 210,381 55,366 0 941,830 

3Q07 595,464 2,750 3,642 212,509 84,632 0 898,997 

2Q07 560,234 6,250 4,469 215,075 58,956 0 844,984 

1Q07 486,470 9,500 4,959 204,075 41,588 0 746,592 

Annual Data 

2007 671,274 2,250 2,559 210,381 55,366 0 941,830 

2006 516,571 14,000 4,551 210,271 39,928 0 785,321 

2005 317,470 33,000 5,645 288,000 39,194 0 683,309 

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 

Source: Fannie Mae 

1
 Beginning in 2002, derivatives are accounted for on a trade-date basis. For periods prior to 2002, derivatives are accounted for on a settlement-date basis. 

2
 Beginning in 2002, includes MBS options, swap credit enhancements, and forward-starting debt. 

90 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 7. Fannie Mae Non-Mortgage Investments1 

Non-Mortgage Investments ($ in Millions)2 

Federal Funds 

End of Period and 

Eurodollars ($) 

Asset Backed 

Securities 

($) 

Repurchase 

Agreements3 

($) 

Commercial Paper 

and Corporate 

Debt 4 ($) 

Other 5 

($) 

Total 

($) 

4Q07 43,510 15,511 5,250 13,515 9,089 86,875 

3Q07 7,800 20,367 0 18,926 238 47,331 

2Q07 16,195 22,239 0 25,594 4,688 68,716 

1Q07 13,938 21,218 0 25,778 4,859 65,793 

Annual Data 

2007 43,510 15,511 5,250 13,515 9,089 86,875 

2006 9,410 18,914 0 27,604 1,055 56,983 

2005 8,900 19,190 0 16,979 947 46,016 

2004 3,860 25,644 0 16,435 1,829 47,839 

2003 12,575 26,862 0 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 

Source: Fannie Mae 

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004. 

2 Data reflect unpaid principal balance net of unamortized purchase premium, discounts and cost basis adjustments and fair value adjustments and impairments on available-for-sale securities. Prior to 1982, 

the majority of non-mortgage investments consisted of U.S. government and agency securities. 

3 Since 2005, advances to lenders are not included in the data. Amounts for periods prior to 2005 may include or consist of advances to lenders. Includes tri-party repo. 

4 Includes commercial paper, floating-rate notes, taxable auction notes, corporate bonds and auction-rate preferred stock. Starting with 2006, medium-term notes previously reported in Other are included in 

Commercial Paper. 

5 Includes Yankee and domestic CDs. 

Report to Congress • 2008 91
Table 8. Fannie Mae Mortgage Asset Quality1 

Mortgage Asset Quality 

End of Period Single-Family 

Delinquency Rate2 

(%) 

Multifamily 

Delinquency Rate3 

(%) 

Credit Losses as a 

Proportion of the 

Guarantee Book of 

Business4, 5 (%) 

REO as a Proportion 

of the Guarantee 

Book of Business5, 6 

(%) 

Credit-Enhanced 

Outstanding as a 

Proportion of the 

Guarantee Book of 

Business6, 7 (%) 

4Q07 0.98 0.08 0.08 0.13 22.1 

3Q07 0.78 0.08 0.05 0.12 21.5 

2Q07 0.64 0.09 0.04 0.11 22.7 

1Q07 0.62 0.09 0.03 0.10 22.2 

Annual Data 

2007 0.98 0.08 0.05 0.13 22.1 

2006 0.65 0.08 0.02 0.09 22.3 

2005 0.79 0.32 0.01 0.08 21.8 

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 

Source: Fannie Mae 

1 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004. 

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 had 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 2002, data includes all loans and securities 60 days or more past due and is calculated based on unpaid principal balance of delinquent multifamily loans owned by Fannie Mae or underlying Fannie 

Mae guaranteed securities. 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 had primary risk of loss. 2006 data have been updated to reflect new methodology. 

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. Beginning in 2005, credit 

losses exclude the impact of SOP 03-3. 

5 Prior to 2005, ratio was based on the mortgage credit book of business, which includes non-Fannie Mae mortgage-related securities held in the retained mortgage portfolio that are not guaranteed. “Guarantee 

Book of Business” refers to the sum of the unpaid principal balance of (1) mortgage loans held in the retained portfolio; (2) Fannie Mae MBS held in the retained portfolio; (3) Fannie Mae MBS held by third parties; 

and (4) credit enhancements that Fannie Mae provides on mortgage assets. It excludes non-Fannie Mae mortgage-related securities held in the retained portfolio for which no guarantee is provided. 

6 Real estate owned balances reflect end-of-period amounts. Beginning with 1995, data reflect adoption of SFAS 114. 

7 Beginning in 2000, "credit-enhanced" is expanded to include primary mortgage insurance. Amounts for periods 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. 

92 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 9. Fannie Mae Capital1 

Capital ($ in Millions) 

Minimum Capital Requirement Risk-Based Capital Requirement Core 

Capital/Total 

MBS Common 

End of 

Period Core 

Capital 

($) 

Minimum 

Capital 

Requirement2 

($) 

Minimum 

Capital 

Surplus 

(Deficit)2 ($) 

Total 

Capital3 

($) 

Risk-Based 

Capital 

Requirement4 

($) 

Risk-Based 

Capital 

Surplus 

(Deficit)5 ($) 

Market 

Capitalization6 

($) 

Core 

Capital/Total 

Assets 

(%) 

Outstanding 

Plus Total 

Assets 

(%) 

Share 

Dividend 

Payout Rate7 

(%) 

4Q07 45,373 31,927 13,446 48,658 24,700 23,958 38,946 5.14 1.51 N/A 

3Q07 41,713 30,303 11,410 43,053 24,676 18,377 59,215 4.97 1.47 N/A 

2Q07 42,690 30,328 12,362 43,798 10,225 33,573 63,598 4.98 1.54 26.8 

1Q07 41,710 29,528 12,182 42,575 20,536 22,039 53,117 4.97 1.55 47.2 

Annual Data 

2007 45,373 31,927 13,446 48,658 24,700 23,958 38,946 5.14 1.51 N/A 

2006
 41,950 29,359 12,591 42,703 26,870 15,833 57,735 4.97 1.60 32.4 

2005 39,433 28,233 11,200 40,091 12,636 27,455 47,373 4.73 1.62 17.2 

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 3.15 1.51 23.0 

2000
 20,827 20,293 533
 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 1.43 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 9,415 126
 10,368 19,882 3.50 1.26 30.8 

1993 8,052 7,064 988 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 

Sources: Fannie Mae and OFHEO 

N/A = not available 

1
 Information included for 2002, 2003 and 2004 has been restated to reflect changes in accounting policies as described in Fannie Mae's Annual Report on Form 10-K for the year ended December 31, 2004.
 

2
 Since the third quarter of 2005, OFHEO has directed Fannie Mae to maintain an additional 30 percent 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 additional 30 percent 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. Information after 2001 reflects restated or most recently reported amounts, rather than amounts 

originally reported and used by OFHEO to make capital classifications. 

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 and Soundness Act of 1992. For 2004 through the second quarter of 2007, the requirements were calculated based on originally reported, not restated or revised, financial results. 

5
 The difference between Total Capital and the Risk-Based Capital Requirement. For 2004 through the second quarter of 2007, the difference reflects restated and revised Total Capital, rather than Total Capital originally reported by 

Fannie Mae and used by OFHEO to make capital classifications. 

6
 Stock price at the end of the period multiplied by the number of outstanding common shares.
 

7
 Common dividends declared during the period divided by net income available to common stockholders for the period. 

Report to Congress • 2008
 93
Table 10. Freddie Mac Mortgage Purchases1 

Business Activity ($ in Millions) 

Purchases2 

Period Single-Family ($) Multifamily ($) Total Mortgages3 ($) Mortgage-Related 

Securities4 ($) 

4Q07 110,407 12,487 122,894 51,384 

3Q07 123,074 3,504 126,578 65,717 

2Q07 118,308 2,515 120,823 57,816 

1Q07 114,277 3,139 117,416 56,122 

Annual Data 

2007 466,066 21,645 487,711 231,039 

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 

Source: Freddie Mac 

1 For the period 2001 through 2003, data are based on restated 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 purchases of non-Freddie Mac MBS as well as Freddie Mac MBS repurchased into the retained mortgage portfolio. 

Not included in total mortgages. For the period 2002 through the current period, amounts include non-Freddie Mac mortgage-related securities as well as Freddie Mac MBS repurchased into the retained 

mortgage portfolio. For years prior to 2002, amounts exclude structured securities backed by Ginnie Mae MBS. 

94 Office of Federal Housing Enterprise Oversight 

4
HISTORICAL DATA TABLES 

Table 10a. Freddie Mac Mortgage Purchases Detail, By Type of Loan1 

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 

($) 

4Q07 100,410 9,986 0 110,396 11 0 11 110,407 12,487 0 12,487 122,894 

3Q07 108,695 14,377 0 123,072 2 0 2 123,074 3,504 0 3,504 126,578 

2Q07 93,167 25,123 0 118,290 18 0 18 118,308 2,515 0 2,515 120,823 

1Q07 85,488 28,663 0 114,151 126 0 126 114,277 3,139 0 3,139 117,416 

Annual Data 

2007 387,760 78,149 0 465,909 157 0 157 466,066 21,645 0 21,645 487,711 

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 

Source: Freddie Mac 

1 For the period 2001 through 2003, data are based on restated financial results. 

2 Based on unpaid principal balances and excludes mortgage loans traded, but not yet settled. 

3 Loans purchased from lenders. Excludes purchases of non-Freddie Mac MBS as well as Freddie Mac MBS repurchased into the retained mortgage portfolio. 

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 balloon/reset mortgages. 

Report to Congress • 2008 95
Table 10b. Freddie Mac Purchases of Mortgage-Related Securities - Part 11 

Purchases ($ in Millions)2 

Freddie Mac Securities Others’ Securities 

Single-Family 

Period Fixed- AdjustableRate ($) Rate ($) 

Multifamily 

($) 

Total 

Freddie 

Mac ($) 

Fannie Mae Ginnie Mae 

Total 

PrivateLabel 

($) 

Mortgage 

Revenue 

Bonds 

($) 

Total 

MortgageRelated 

Securities3 

($) 

Single-Family 

Multifamily 

($) 

Total 

Fannie 

Mae ($) 

Single-Family 

Multifamily 

($) 

Total 

Ginnie 

Mae ($) 

FixedRate ($) AdjustableRate ($) FixedRate ($) AdjustableRate ($) 

4Q07 33,285 2,068 2,283 37,636 91 1,511 0 1,602 0 0 0 0 11,740 406 51,384 

3Q07 40,708 6,402 0 47,110 976 4,623 0 5,599 0 0 0 0 12,404 604 65,717 

2Q07 21,439 7,799 0 29,238 782 2,738 0 3,520 0 0 0 0 24,500 558 57,816 

1Q07 16,544 10,531 0 27,075 321 991 0 1,312 0 0 0 0 27,490 245 56,122 

Annual Data 

2007 111,976 26,800 2,283 141,059 2,170 9,863 0 12,033 0 0 0 0 76,134 1,813 231,039 

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 Available Before 2004 

Not Available 

Before 2004 

Not Available 

Before 2004 47,806 Not Available Before 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 financial results. 

2 Based on unpaid principal balances and excludes mortgage-related securities traded, but not yet settled. 

3 For years prior to 2002, amounts exclude structured securities backed by Ginnie Mae MBS. 

96 Office of Federal Housing Enterprise Oversight 
Purchases ($ in Millions)2 

Private-Label 

Single-Family 

Subprime Alt-A Other 3 

Manufactured Total PrivatePeriod Housing Fixed-Rate Adjustable- Fixed-Rate Adjustable- Fixed-Rate Adjustable- Multifamily Label 

($) ($) Rate ($) ($) Rate ($) ($) Rate ($) ($) ($) 

4Q07 127 224 6,988 173 1,030 4 0 3,194 11,740 

3Q07 0 619 5,173 260 355 4 0 5,993 12,404 

2Q07 0 0 14,025 269 3,259 33 0 6,914 24,500 

1Q07 0 0 16,638 0 4,662 7 0 6,183 27,490 

Annual Data 

2007 127 843 42,824 702 9,306 48 0 22,284 76,134 

2006 0 116 74,645 718 29,828 48 0 16,875 122,230 

2005 0 Not Available Not Available Not Available Not Available 2,191 162,931 14,840 179,962 

2004 0 Before 2006 Before 2006 Before 2006 Before 2006 1,379 108,825 10,878 121,082 

2003 0 Not Available Not Available Not Available 69,154 

2002 318 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 

HISTORICAL DATA TABLES 

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 financial results. 

2 Based on unpaid principal balances and excludes mortgage-related securities traded, but not yet settled. 

3 Prior to 2006, includes non-Freddie Mac mortgage-related securities purchased for structured securities as well as non-agency securities purchased into the retained mortgage portfolio (principally backed by 

subprime or Alt-A loans). 

Report to Congress • 2008 97
Table 11. Freddie Mac MBS Issuances1 

Period 

Business Activity ($ in Millions) 

MBS Issuances2 

Single-Family MBS3 

($) 

Multifamily MBS 

($) 

Total MBS3 

($) 

Multiclass MBS4 

($) 

4Q07 110,395 3,115 113,510 19,323 

3Q07 124,901 192 125,093 28,019 

2Q07 117,701 307 118,008 60,290 

1Q07 114,345 20 114,365 25,689 

Annual Data 

2007 467,342 3,634 470,976 133,321 

2006 358,184 1,839 360,023 169,396 

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 

Source: Freddie Mac 

1 For the period 2001 through 2003, data are based on restated financial results. 

2 Based on unpaid principal balances and excludes mortgage-related securities traded, but not yet settled. 

3 Includes PCs 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, but excludes 

resecuritizations of MBS into single-class securities. Amounts are not included in Total MBS Issuances. 

98 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 12. Freddie Mac Earnings1 

Earnings ($ in Millions) 

Period 

Net Interest 

Income 

Guarantee Fee 

Income 

Average 

Guarantee Fee 

Administrative 

Expenses 

Credit-Related 

Expenses2 

Net Income 

(Loss) 

Return on 

Equity3 

($) ($) (basis points) ($) ($) ($) (%) 

4Q07 774 698 16.6 401 912 (2,452) (17.1) 

3Q07 761 718 17.7 428 1,423 (1,238) (7.7) 

2Q07 793 591 15.1 442 463 729 3.2 

1Q07 771 628 16.7 403 262 (133) (1.1) 

Annual Data 

2007 3,099 2,635 16.6 1,674 3,060 (3,094) (21.0) 

2006 3,412 2,393 17.1 1,641 356 2,327 9.8 

2005 4,627 2,076 16.6 1,535 347 2,113 8.1 

2004 9,137 1,382 17.5 1,550 140 2,937 9.4 

2003 9,498 1,653 23.3 1,181 2 4,816 17.7 

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 

Source: Freddie Mac 

1
 Due to changes in accounting principles adopted in 2007, certain amounts related to 2005, 2006 and 2007 have been adjusted. For the period 2001 through 2003, data are based on restated financial results.
 

2
 For years 2002 through 2005, 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. 

3
 Ratio computed as annualized net income (loss) available to common stockholders divided by the simple average of beginning and ending stockholders' equity, net of preferred stock (at redemption value). 

Report to Congress • 2008
 99
Table 13. Freddie Mac Balance Sheet1 

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 

of Net Assets 

($) 

Total MBS 

Outstanding 

($) 

Multiclass 

MBS 

Outstanding6 

($) 

4Q07 794,368 710,042 41,663 738,557 26,724 37,867 12,600 1,381,863 526,604 

3Q07 786,871 706,080 38,531 726,911 25,483 34,672 23,800 1,308,771 524,347 

2Q07 814,118 702,838 69,248 751,441 24,528 35,572 31,900 1,240,813 521,535 

1Q07 813,421 711,772 66,099 750,157 28,539 35,503 31,900 1,177,678 495,567 

Annual Data 

2007 794,368 710,042 41,663 738,557 26,724 37,867 12,600 1,381,863 526,604 

2006 804,910 700,002 68,614 744,341 26,914 35,366 31,800 1,122,761 491,696 

2005 806,222 709,503 57,324 748,792 25,691 35,043 30,900 974,200 437,668 

2004 795,284 664,582 62,027 731,697 31,416 34,106 30,900 852,270 390,516 

2003 803,449 660,531 53,124 739,613 31,487 32,417 27,300 752,164 347,833 

2002 752,249 589,899 91,871 665,696 31,330 28,991 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 16,273 Not Available 576,101 309,185 

1999 386,684 322,914 34,152 360,711 11,525 13,417 Before 2001 537,883 316,168 

1998 321,421 255,670 42,160 287,396 10,835 11,266 478,351 260,504 

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 5,829 459,045 246,336 

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 Available 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 

Source: Freddie Mac 

1
 Due to changes in accounting principles adopted in 2007, certain amounts related to 2005, 2006 and 2007 have been adjusted. For the period 2001 through 2003, data are based on restated financial results.
 

2
 Based on unpaid principal balances and excludes mortgage-related securities traded, but not yet settled. 

3
 Excludes "Allowance for loan losses." 

4
 Based on fair value. 

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. 

6
 Amounts are included in Total MBS Outstanding column. 

100 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 13a. Freddie Mac Total MBS Outstanding Detail1 

Multifamily Mortgages Single-Family Mortgages ($ in Millions)2 

($ in Millions)2 

Conventional 

End of 

Period Fixed-Rate3 

($) 

AdjustableRate4 ($) 

Seconds5 

($) 

Total 

($) 

Total Conventional 

FHA/VA5 ($) 

FHA/RHS 

($) 

Multifamily Total MBS 

Mortgages Outstanding6 

($) ($) 

4Q07 1,206,495 161,963 7 1,368,465 4,499 8,899 0 8,899 1,381,863 

3Q07 1,136,407 159,459 8 1,295,874 4,553 8,344 0 8,344 1,308,771 

2Q07 1,069,429 158,146 8 1,227,583 4,861 8,369 0 8,369 1,240,813 

1Q07 1,013,035 151,197 11 1,164,243 5,148 8,287 0 8,287 1,177,678 

Annual Data 

2007 1,206,495 161,963 7 1,368,465 4,499 8,899 0 8,899 1,381,863 

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
 Due to changes in accounting principles adopted in 2007, certain amounts related to 2005, 2006 and 2007 have been adjusted. For the period 2001 through 2003, data are based on restated financial results.
 

2
 Based on unpaid principal balances. 


3
 Includes Rural Housing Service and other federally guaranteed loans.
 

4
 For the period 2001 through the current period, includes MBS with underlying mortgages classified as balloon/reset loans.
 

5
 For the period 2002 through the current period, includes resecuritizations of non-Freddie Mac securities.
 

6
 Represents MBS and structured securities that are held by third parties. Based on unpaid principal balances and excludes mortgage-related securities traded, but not yet settled. For the period 2002 through 

the current period, amounts include structured securities backed by non-Freddie Mac securities (including Ginnie Mae MBS). 

Report to Congress • 2008 101
 
Table 14. Freddie Mac Retained Mortgage Portfolio Detail1 

($ in Millions) 

Unamortized 

Premiums, Discounts, 

End of Period Others’ 

Deferred Fees, Plus 

Unrealized Total Retained 

Whole Loans2 

Freddie Mac 

Securities2 

Mortgage-Related 

Securities2 

Gains/Losses on 

Available-for-Sale 

Mortgage 

Portfolio4 

($) ($) ($) Securities3 ($) ($) 

4Q07 82,158 356,970 281,685 (10,771) 710,042 

3Q07 73,027 356,005 284,132 (7,084) 706,080 

2Q07 69,043 351,711 291,382 (9,298) 702,838 

1Q07 67,136 358,847 288,471 (2,682) 711,772 

Annual Data 

2007 82,158 356,970 281,685 (10,771) 710,042 

2006 65,847 354,262 283,850 (3,957) 700,002 

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 

Source: Freddie Mac 

1 Due to changes in accounting principles adopted in 2007, certain amounts related to 2006 and 2007 have been adjusted. For the period 2001 through 2003, data are based on restated 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 AFS mortgage-related securities. Amounts 

prior to 2006 include MBS residuals, at fair value. 

4 Excludes "Allowance for loan losses." 

102 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 14a. Freddie Mac Retained Mortgage Portfolio Detail - Whole Loans1 

Whole Loans ($ in Millions)2 

Single-Family Multifamily 

Conventional 

Conventional 

($) 

FHA/RHS 

($) 

Total 

($) 

Total Whole 

Loans 

($) 

End of 

Period Fixed-Rate3 

($) 

AdjustableRate ($) Seconds 

($) 

Total 

($) 

Total 

FHA/VHA ($) 

4Q07 21,578 2,700 0 24,278 311 57,566 3 57,569 82,158 

3Q07 20,995 2,215 0 23,210 167 49,647 3 49,650 73,027 

2Q07 19,584 1,674 0 21,258 176 47,606 3 47,609 69,043 

1Q07 18,980 1,330 0 20,310 186 46,637 3 46,640 67,136 

Annual Data 

2007 21,578 2,700 0 24,278 311 57,566 3 57,569 82,158 

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

Before 1995
 Before 1995
 Before 1995
 

Source: Freddie Mac 

1
 For the period 2001 through 2003, data are based on restated financial results. 

2
 Based on unpaid principal balances and excludes mortgage loans traded, but not yet settled. 

3
 For the period 2001 through the current period, includes loans guaranteed by the Rural Housing Service. 

Report to Congress • 2008 103
 
Table 14b. Freddie Mac Retained Mortgage Portfolio Detail - Part 1, Mortgage-Related Securities1 

Mortgage-Related Securities ($ in Millions)2 

Freddie Mac Securities3 ($) Others’ Securities 

Single-Family Fannie Mae Ginnie Mae 

End of Fixed- Period Rate 

($) 

AdjustableRate ($) 

Multifamily 

($) 

Total 

Freddie 

Mac ($) 

Single-Family 

Multifamily 

($) 

Total 

Fannie 

Mae ($) 

Single-Family 

Multifamily 

($) 

Total 

Ginnie 

Mae ($) 

Total 

PrivateLabel 

($) 

Total 

Others’ 

Securities 

($) 

FixedRate ($) AdjustableRate ($) FixedRate ($) AdjustableRate ($) 

4Q07 269,896 84,415 2,659 356,970 23,140 23,043 922 47,105 537 181 13 731 218,914 266,750 

3Q07 270,629 84,999 377 356,005 23,873 22,658 974 47,505 572 191 13 776 221,143 269,424 

2Q07 269,378 81,954 379 351,711 23,859 19,175 1,004 44,038 606 204 13 823 232,271 277,132 

1Q07 280,357 78,110 380 358,847 25,065 17,586 1,112 43,763 653 218 13 884 229,840 274,487 

Annual Data 

2007 269,896 84,415 2,659 356,970 23,140 23,043 922 47,105 537 181 13 731 218,914 266,750 

2006 282,052 71,828 382 354,262 25,779 17,441 1,214 44,434 707 231 13 951 224,631 270,016 

2005 299,167 61,766 391 361,324 28,818 13,180 1,335 43,333 1,045 218 30 1,293 231,594 276,220 

2004 

2003 

2002 

304,555 

Not 

Available 

Before 

2004 

51,737 

Not 

Available 

Before 

2004 

406 

Not 

Available 

Before 

2004 

356,698 

393,135 

341,287 

41,828 

Not 

Available 

Before 

2004 

14,504 

Not 

Available 

Before 

2004 

1,672 

Not 

Available 

Before 

2004 

58,004 

74,529 

78,829 

1,599 

Not 

Available 

Before 

2004 

81 

Not 

Available 

Before 

2004 

31 

Not 

Available 

Before 

2004 

1,711 

2,760 

4,878 

166,411 

107,301 

70,752 

226,126

184,590 

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 

1997 

1996 

1995 

1994 

168,108 

103,400 

81,195 

56,006 

30,670 

3,749 

Not 

Available 

Before 

1998 

4,458 

6,393 

7,434 

Not 

Available 

Before 

1996 

16,970 

Not 

Available 

Before 

1998 

25,177 

Not 

Available 

Before 

1998 

1993 15,877 

1992 

1991 

6,394 

Not 

Available 

Before 

1992 

Source: Freddie Mac 

1 For the period 2001 through 2003, data are based on restated 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. 

104 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 14b. Freddie Mac Retained Mortgage Portfolio Detail - 

Part 2, Mortgage-Related Securities, Private-Label Detail1 

Mortgage-Related Securities ($ in Millions)2 

Private-Label 

Single-Family 

End of 

Period Manufactured 

Housing 

($) 

Subprime Alt-A Other 3 

Multifamily 

($) 

Total PrivateLabel 

($) 

Fixed-Rate 

($) 

AdjustableRate ($) Fixed-Rate 

($) 

AdjustableRate ($) Fixed-Rate 

($) 

AdjustableRate ($) 

4Q07 1,472 498 100,827 3,762 47,551 N/A N/A 64,804 218,914 

3Q07 1,383 334 104,600 3,720 49,051 N/A N/A 62,055 221,143 

2Q07 1,435 353 118,320 3,597 52,060 N/A N/A 56,506 232,271 

1Q07 1,474 379 120,607 3,507 53,099 N/A N/A 50,774 229,840 

Annual Data 

2007 1,472 498 100,827 3,762 47,551 N/A N/A 64,804 218,914 

2006 1,510 408 121,691 3,683 52,579 N/A N/A 44,760 224,631 

2005 1,680 Not Available Not Available Not Available Not Available 4,749 181,678 43,487 231,594 

2004 1,816 Before 2006 Before 2006 Before 2006 Before 2006 8,243 115,168 41,184 166,411 

2003 2,085 Not Available Not Available Not Available 107,301 

2002 2,394 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 

Source: Freddie Mac 

N/A = not available 

1 For the period 2001 through 2003, data are based on restated financial results. 

2 Based on unpaid principal balances. 

3 Prior to 2006, includes securities principally backed by subprime and Alt-A mortgage loans. 

Report to Congress • 2008 105
Table 14b. Freddie Mac Retained Mortgage Portfolio Detail - Part 3, 

Mortgage-Related Securities1 

End of Period 

Mortgage-Related Securities ($ in Millions) ($ in Millions) 

Mortgage Revenue Bonds2 

($) 

Total 

Mortgage-Related 

Securities2 

($) 

Unamortized Premiums, 

Discounts, Deferred Fees, 

Plus Unrealized 

Gains/Losses on Availablefor-Sale Securities3 ($) 

Total Retained Mortgage 

Portfolio4 

($) 

4Q07 14,935 638,655 (10,771) 710,042 

3Q07 14,708 640,137 (7,084) 706,080 

2Q07 14,250 643,093 (9,298) 702,838 

1Q07 13,984 647,318 (2,682) 711,772 

Annual Data 

2007 14,935 638,655 (10,771) 710,042 

2006 13,834 638,112 (3,957) 700,002 

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 

Source: Freddie Mac 

1
 Due to changes in accounting principles adopted in 2007, certain amounts related to 2006 and 2007 have been adjusted. For the period 2001 through 2003, data are based on restated 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. Amounts prior to 2006
 

include MBS residuals.
 

4
 Excludes "Allowance for loan losses." 

106 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 15. Freddie Mac Financial Derivatives1 

Financial Derivatives - Notional Amount Outstanding ($ in Millions) 

End of 

Period 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 

($) 

4Q07 711,829 0 20,118 313,033 0 196,270 7,667 72,662 1,302 1,322,881 

3Q07 663,533 0 23,842 337,595 0 109,848 5,445 62,938 1,153 1,204,354 

2Q07 500,057 0 22,709 293,215 1,100 112,000 2,936 59,281 1,072 992,370 

1Q07 521,992 0 23,854 252,646 0 95,140 2,568 10,322 984 907,506 

Annual Data 

2007 711,829 0 20,118 313,033 0 196,270 7,667 72,662 1,302 1,322,881 

2006 440,879 0 29,234 252,022 2,000 20,400 2,605 10,012 957 758,109 

2005 341,008 45 37,850 193,502 0 86,252 2,414 21,961 738 683,770 

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 

N/A = not available
 

1
 Due to changes in accounting principles adopted in 2007, certain amounts related to 2005, 2006 and 2007 have been adjusted. For the period 2001 through 2003, data are based on restated 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. 

Report to Congress • 2008 107
 
Table 16. Freddie Mac Non-Mortgage Investments1

Non-Mortgage Investments ($ in Millions) 

End of 

Period 

Federal Funds and 

Eurodollars 

($) 

Asset Backed 

Securities 

($) 

Repurchase 

Agreements 

($) 

Commercial Paper 

and Corporate 

Debt ($) 

Other2 

($) 

Total 

($) 

4Q07 162 16,588 6,400 18,513 0 41,663 

3Q07 14,467 18,060 2,800 3,033 171 38,531 

2Q07 25,002 32,390 2,500 8,245 1,111 69,248 

1Q07 27,503 31,699 6,700 0 197 66,099 

Annual Data 

2007 162 16,588 6,400 18,513 0 41,663 

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 

Source: Freddie Mac 

1 For the period 2001 through 2003, data are based on restated 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. 

108 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 17. Freddie Mac Mortgage Asset Quality1 

Mortgage Asset Quality 

End of Single-Family 

Period Delinquency Rate2 

(%) 

Multifamily 

Delinquency Rate3 

(%) 

Credit Losses/Average 

Total Mortgage 

Portfolio4 

(%) 

REO/Total Mortgage 

Portfolio5 

(%) 

CreditEnhanced6

/Total 

Mortgage Portfolio6 

(%) 

4Q07 0.65 0.02 0.05 0.08 17.0 

3Q07 0.51 0.06 0.03 0.07 16.0 

2Q07 0.42 0.05 0.02 0.05 16.0 

1Q07 0.40 0.06 0.02 0.05 16.0 

Annual Data 

2007 0.65 0.02 0.03 0.08 17.0 

2006 0.42 0.06 0.01 0.04 16.0 

2005 0.53 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 

Source: Freddie Mac 

1 Due to changes in accounting principles adopted in 2007, certain amounts related to 2005, 2006 and 2007 have been adjusted. For the period 2000 through 2003, data are based on restated 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 2004 are based on the total single-family loans in the retained mortgage portfolio and total MBS 

outstanding and Structured Securities issued, excluding that portion of Structured Securities that is backed by Ginnie Mae MBS. Rates for years 2005 through the current period are based on the total singlefamily loans in the retained mortgage portfolio and total MBS outstanding and Structured Securities issued, excluding Structured Transactions and that portion of issued Structured Securities that is backed by 

Ginnie Mae MBS. 

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. 

Report to Congress • 2008 109
Table 18. Freddie Mac Capital1

Capital ($ in Millions) 

Minimum Capital Requirement Risk-Based Capital Requirement 8 

End 

of 

Period Core 

Capital 

($) 

Minimum 

Capital 

Requirement 2 

($) 

Regulatory 

Capital 

Surplus 

(Deficit)2 

($) 

Total 

Capital3 

($) 

Risk-Based 

Capital 

Requirement4 

($) 

Risk-Based 

Capital 

Surplus 

(Deficit)5 

($) 

Market 

Capitalization6 

($) 

Core 

Capital/ 

Total 

Assets 

(%) 

Core 

Capital/ 

Total MBS 

Outstanding 

plus Total 

Assets 

(%) 

Common 

Share 

Dividend 

Payout 

Rate7 

(%) 

4Q07 37,867 26,473 11,394 40,929 14,102 26,827 22,018 4.77 1.74 N/A 

3Q07 34,672 26,001 8,671 36,394 11,316 25,078 38,124 4.41 1.65 N/A 

2Q07 35,572 26,355 9,217 37,141 18,944 18,197 39,463 4.37 1.73 51.9 

1Q07 35,503 26,112 9,391 36,765 13,784 22,981 39,356 4.36 1.78 N/A 

Annual Data 

2007 37,867 26,473 11,394 40,929 14,102 26,829 22,018 4.77 1.74 N/A 

2006 35,366 25,607 9,758 36,742 15,320 21,422 44,896 4.39 1.83 63.9 

2005 35,043 24,791 10,252 36,781 11,282 25,499 45,269 4.35 1.97 56.4 

2004 34,106 23,714 10,391 34,691 11,108 23,582 50,898 4.29 2.07 30.7 

2003 32,417 23,362 9,054 33,436 5,426 28,010 40,158 4.03 2.08 15.6 

2002 28,991 22,340 6,651 24,222 4,743 19,479 40,590 3.85 1.96 6.2 

2001 20,181 19,014 1,167 Not Applicable Not Applicable Not Applicable 45,473 3.15 1.56 18.9 

2000 16,273 14,396 1,876 Before 2002 Before 2002 Before 2002 47,702 3.54 1.57 20.0 

1999 13,417 12,352 1,065 32,713 3.47 1.45 20.1 

1998 11,266 10,502 764 44,797 3.51 1.41 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 

Sources: Freddie Mac and OFHEO 

N/A = not available 

1 Due to changes in accounting principles adopted in 2007, certain amounts related to 2003 through 2007 have been adjusted. For the period 2001 through 2003, data are based on restated financial results. 

2 Since 4Q 2003, OFHEO has directed Freddie Mac to maintain an additional 30 percent 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 percent 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. 

110 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 19. Combined Purchases1

Business Activity ($ in Millions) 

Purchases 

Period Single-Family ($) Multifamily ($) Total Mortgages ($) Mortgage-Related 

Securities ($) 

4Q07 296,083 32,843 328,926 60,369 

3Q07 298,885 10,959 309,844 88,656 

2Q07 275,650 13,002 288,652 79,591 

1Q07 254,814 10,143 264,957 71,659 

Annual Data 

2007 1,125,432 66,947 1,192,379 300,275 

2006 875,649 33,677 909,326 343,871 

2005 918,677 32,657 951,334 387,807 

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 

Sources: Fannie Mae and Freddie Mac 

See notes to Tables 1 and 10. 

Report to Congress • 2008 111
 

1
Table 19a. Combined Mortgage Purchases Detail, By Type of Loan1 

Purchases ($ in Millions) 

Single-Family Mortgages Multifamily Mortgages 

Conventional FHA/VA Total 

Single- Total Multi­ Total 

Family family Mortgage 

Period Fixed-Rate Adjustable- Seconds Total Fixed-Rate Adjustable- Total Mortgages Conventional FHA/RHS Mortgages Purchases 

($) Rate ($) ($) ($) ($) Rate ($) ($) ($) ($) ($) ($) ($) 

4Q07 267,012 23,059 9 290,080 314 5,689 6,003 296,083 32,843 0 32,843 328,926 

3Q07 261,396 35,351 10 296,757 377 1,751 2,128 298,885 10,959 0 10,959 309,844 

2Q07 236,425 37,384 9 273,818 82 1,750 1,832 275,650 13,002 0 13,002 288,652 

1Q07 206,180 46,488 6 252,674 621 1,519 2,140 254,814 10,143 0 10,143 264,957 

Annual Data 

2007 971,013 142,282 34 1,113,329 1,394 10,709 12,103 1,125,432 66,947 0 66,947 1,192,379 

2006 702,805 162,762 130 865,697 2,522 7,430 9,952 875,649 33,675 2 33,677 909,326 

2005 730,562 179,766 116 910,444 2,285 5,948 8,233 918,677 32,515 142 32,657 951,334 

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 

Sources: Fannie Mae and Freddie Mac 

See notes to Tables 1a and 10a. 

112 Office of Federal Housing Enterprise Oversight 

1
HISTORICAL DATA TABLES 

Table 19b. Combined Purchases of Mortgage-Related Securities1 

Purchases ($ in Millions) 

Others’ Securities 

Period Enterprise 

Securities 

($) 

Ginnie 

Mae 

($) 

Private-Label 

Mortgage 

Revenue 

Bonds 

($) 

Total 

MortgageRelated 

Securities 

($) 

Manufactured 

Housing 

($) 

Subprime 

($) 

Alt-A 

($) 

Other 

($) 

Multifamily 

($) 

Total 

PrivateLabel 

($) 

4Q07 44,692 27 127 8,184 1,203 4 5,319 14,837 813 60,369 

3Q07 65,358 0 0 8,784 2,492 182 10,995 22,453 845 88,656 

2Q07 42,433 8 0 19,879 5,218 33 11,335 36,465 685 79,591 

1Q07 31,590 0 0 22,791 6,383 7 10,633 39,814 255 71,659 

Annual Data 

2007 184,073 35 127 59,638 15,296 226 38,282 113,569 2,598 300,275 

2006 160,381 77 0 109,637 42,493 1,322 26,565 180,017 3,396 343,871 

2005 161,784 64 0 Not Available Not Available Not Available 14,942 221,331 4,628 387,807 

2004 179,787 0 0 Before 2006 Before 2006 Before 2006 10,979 211,829 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 

See notes to Tables 1b and 10b, Parts 1 and 2. 

Report to Congress • 2008 113
 

1
Table 20. Combined MBS Issuances1

Business Activity ($ in Millions) 

Period 

Single-Family MBS 

($) 

MBS Issuances 

Multifamily MBS 

($) 

Total MBS 

($) 

Multiclass MBS 

($) 

4Q07 282,408 7,203 289,611 38,946 

3Q07 295,158 1,139 296,297 54,850 

2Q07 266,154 1,733 267,887 96,815 

1Q07 246,080 708 246,788 55,273 

Annual Data 

2007 1,089,800 10,783 1,100,583 245,884 

2006 834,345 7,382 841,727 294,252 

2005 896,972 11,033 908,005 332,263 

2004 906,568 11,022 917,590 310,192 

2003 1,902,180 31,673 1,933,853 559,037 

2002 1,274,849 16,093 1,290,942 502,467 

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 Not Issued 

1984 Not Available Not Available 32,230 Before 1986 

1983 Before 1985 Before 1985 33,031 

1982 38,139 

1981 4,243 

Sources: Fannie Mae and Freddie Mac 

See notes to Tables 2 and 11. 

114 Office of Federal Housing Enterprise Oversight 

1
HISTORICAL DATA TABLES 

Table 21. Combined Earnings1 

Earnings ($ in Millions) 

Period Guarantee Fee Administrative Credit-Related 

Net Interest Income Income Expenses Expenses Net Income 

($) ($) ($) ($) ($) 

4Q07 1,910 2,319 1,052 3,885 (6,011) 

3Q07 1,819 1,950 1,088 2,623 (2,637) 

2Q07 1,986 1,711 1,102 981 2,676 

1Q07 1,965 1,726 1,101 583 828 

Annual Data 

2007 7,680 7,706 4,343 8,072 (5,144) 

2006 10,164 6,643 4,717 1,139 6,386 

2005 16,132 6,082 3,650 775 8,460 

2004 27,218 5,166 3,206 503 7,904 

2003 28,975 5,085 2,635 355 12,897 

2002 27,951 4,043 2,562 399 14,004 

2001 15,538 2,863 2,041 117 9,052 

2000 9,432 2,594 1,730 169 8,114 

1999 7,820 2,301 1,455 286 6,135 

1998 6,325 2,248 1,286 603 5,118 

1997 5,796 2,356 1,131 904 4,451 

1996 5,297 2,282 1,000 1,017 3,968 

1995 4,443 2,173 941 876 3,235 

1994 3,935 2,191 904 803 3,115 

1993 3,305 1,970 804 829 2,659 

1992 2,753 1,770 710 777 2,245 

1991 2,461 1,467 606 789 1,918 

1990 2,212 1,190 529 784 1,587 

1989 1,708 980 471 588 1,244 

1988 1,329 793 412 584 888 

1987 1,209 735 347 535 677 

1986 683 476 285 426 352 

1985 451 300 223 285 201 

1984 123 236 183 140 73 

1983 116 186 134 94 135 

1982 (434) 93 97 62 (132) 

1981 (395) 36 79 (12) (175) 

1980 75 Not Available 70 42 48 

1979 377 Before 1981 65 55 198 

1978 331 53 49 234 

1977 282 44 36 186 

1976 221 40 24 141 

1975 205 37 27 131 

1974 184 31 50 112 

1973 211 25 27 138 

1972 148 18 9 100 

1971 59 Not Available Not Available 67 

Before 1972 Before 1972 

Sources: Fannie Mae and Freddie Mac 

N/A = not available 

See notes to Tables 3 and 12. 

Report to Congress • 2008 115
 

1
Table 22. Combined Balance Sheet1

End of 

Period 

Balance Sheet ($ in Millions) 

Total 

MortgageBacked 

Securities 

Outstanding 

($ in Millions) 

Total 

Assets 

($) 

Total Retained 

Mortgage 

Portfolio 

($) 

Non-Mortgage 

Investments 

($) 

Debt 

Outstanding 

($) 

Shareholders’ 

Equity 

($) 

Core Capital 

($) 

Fair Value 

of Net Assets 

($) 

4Q07 1,676,915 1,433,662 128,538 1,534,856 70,735 83,240 48,399 3,500,772 

3Q07 1,626,654 1,430,242 85,862 1,488,676 65,405 76,385 57,977 3,312,153 

2Q07 1,671,920 1,422,849 137,964 1,532,120 64,198 78,262 N/A 3,148,471 

1Q07 1,652,885 1,428,308 131,892 1,515,101 69,970 77,213 N/A 3,023,209 

Annual Data 

2007 1,676,915 1,433,662 128,538 1,534,856 70,735 83,240 48,399 3,500,772 

2006 1,648,846 1,426,436 125,597 1,511,387 68,420 77,316 75,499 2,900,311 

2005 1,640,390 1,446,306 103,340 1,512,802 64,993 74,476 73,099 2,573,118 

2004 1,816,218 1,589,776 109,866 1,684,808 70,318 68,620 70,994 2,260,317 

2003 1,825,724 1,580,120 112,642 1,700,893 63,755 59,370 55,693 2,052,684 

2002 1,656,988 1,410,526 131,247 1,506,989 63,229 49,422 45,030 1,770,248 

2001 1,441,048 1,210,116 155,831 1,341,835 37,742 45,363 40,975 1,516,529 

2000 1,134,521 993,182 95,868 1,069,581 35,675 37,100 Not Available 1,282,823 

1999 961,992 846,017 71,451 908,330 29,154 31,293 Before 2001 1,217,028 

1998 806,567 671,104 100,675 747,687 26,288 26,731 1,115,494 

1997 586,270 481,135 81,026 542,616 21,314 21,169 1,055,123 

1996 524,907 424,354 78,854 488,251 19,504 19,516 1,021,238 

1995 453,731 360,574 69,984 419,135 16,822 16,788 972,275 

1994 378,707 293,986 64,143 350,509 14,703 14,710 947,001 

1993 300,859 246,107 39,621 251,105 12,489 12,489 910,335 

1992 240,480 189,889 32,116 195,931 10,344 Not Applicable 831,958 

1991 193,932 153,346 19,792 164,199 8,113 Before 1993 714,447 

1990 173,692 135,586 21,992 154,344 6,077 604,434 

1989 159,777 129,429 19,388 142,211 4,907 489,382 

1988 146,610 117,017 19,896 132,341 3,844 396,503 

1987 129,133 106,019 13,935 116,604 2,993 348,369 

1986 122,850 107,216 Not Available 108,938 2,135 264,754 

1985 115,663 108,156 Before 1987 106,732 1,788 154,461 

1984 101,576 94,153 94,718 1,524 105,764 

1983 87,378 82,732 81,867 1,421 82,841 

1982 78,980 74,035 74,605 1,249 57,402 

1981 67,904 64,807 64,231 1,330 20,614 

1980 63,357 60,595 59,766 1,678 Not Issued 

1979 55,948 53,780 52,555 1,739 Before 1981 

1978 47,203 45,141 44,201 1,564 

1977 37,481 36,456 35,000 1,350 

1976 37,225 35,950 35,088 1,139 

1975 37,495 35,698 35,572 1,003 

1974 34,572 33,135 32,852 898 

1973 27,191 26,110 25,699 801 

1972 22,118 21,378 20,878 669 

1971 19,629 18,821 18,587 567 

Sources: Fannie Mae and Freddie Mac 

N/A = not available 

See notes to Tables 4 and 13. 

116 Office of Federal Housing Enterprise Oversight 

1
HISTORICAL DATA TABLES 

Table 22a. Combined MBS Outstanding Detail1 

Single-Family Mortgages ($ in Millions) Multifamily Mortgages 

($ in Millions) 

Conventional 

End of Total Total MBS 

Period Fixed-Rate Adjustable- Seconds Total Total Conventional FHA/RHS Multifamily Outstanding 

($) Rate ($) ($) ($) FHA/VA ($) ($) ($) ($) 

4Q07 3,056,645 376,208 7 3,432,860 19,756 47,117 1,039 48,156 3,500,772 

3Q07 2,862,374 382,225 8 3,244,607 20,273 46,124 1,149 47,273 3,312,153 

2Q07 2,697,907 381,246 8 3,079,161 21,055 47,017 1,238 48,255 3,148,471 

1Q07 2,568,054 382,987 11 2,951,052 22,319 48,542 1,296 49,838 3,023,209 

Annual Data 

2007 3,056,645 376,208 7 3,432,860 19,756 47,117 1,039 48,156 3,500,772 

2006 2,451,727 372,407 12 2,824,146 24,465 50,217 1,483 51,700 2,900,311 

2005 2,126,377 350,446 19 2,476,842 30,022 64,458 1,796 66,254 2,573,118 

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 Not Issued 

1988 Before 1981 

1987 

1986 

1985 

1984 

1983 

1982 

1981 

1980 

1979 

1978 

1977 

1976 

1975 

1974 

1973 

1972 

1971 

Sources: Fannie Mae and Freddie Mac 

See notes to Tables 4a and 13a. 

Report to Congress • 2008 117

1
Table 23. Combined Financial Derivatives1

Financial Derivatives - Notional Amount Outstanding ($ in Millions) 

End of 

Period 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 

($) 

4Q07 1,383,103 2,250 22,677 523,414 N/A N/A N/A 128,028 1,302 2,264,711 

3Q07 1,258,997 2,750 27,484 550,104 N/A N/A N/A 147,570 1,153 2,103,351 

2Q07 1,060,291 6,250 27,178 508,290 N/A N/A N/A 118,237 1,072 1,837,354 

1Q07 1,008,462 9,500 28,813 456,721 N/A N/A N/A 51,910 984 1,654,098 

Annual Data 

2007 1,383,103 2,250 22,677 523,414 N/A N/A N/A 128,028 1,302 2,264,711 

2006 957,450 14,000 33,785 462,293 N/A N/A N/A 49,940 957 1,543,430 

2005 658,478 33,045 43,495 481,502 N/A N/A N/A 61,155 738 1,367,079 

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 

1 See notes to tables 6 and 15. 

118 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 24. Combined Non-Mortgage Investments1

Non-Mortgage Investments ($ in Millions) 

End of 

Period 

Federal Funds and 

Eurodollars 

($) 

Asset-Backed 

Securities 

($) 

Repurchase 

Agreements 

($) 

Commercial Paper 

and Corporate 

Debt ($) 

Other 

($) 

Total 

($) 

4Q07 43,672 32,099 11,650 32,028 9,089 128,538 

3Q07 22,267 38,427 2,800 21,959 409 85,862 

2Q07 41,197 54,629 2,500 33,839 5,799 137,964 

1Q07 41,441 52,917 6,700 25,778 5,056 131,892 

Annual Data 

2007 43,672 32,099 11,650 32,028 9,089 128,538 

2006 29,188 51,036 3,250 38,795 3,328 125,597 

2005 18,809 49,768 5,250 22,743 6,770 103,340 

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 

Sources: Fannie Mae and Freddie Mac 

See notes to Tables 7 and 16. 

Report to Congress • 2008 119
 

1
Table 25. Combined Capital1

Capital ($ in Millions) 

Minimum Capital Requirement Risk-Based Capital Requirement 

End of 

Period Core 

Capital 

($) 

Minimum 

Capital 

Requirement 

($) 

Regulatory 

Capital Surplus 

(Deficit) 

($) 

Total 

Capital 

($) 

Risk-Based 

Capital 

Requirement 

($) 

Risk-Based 

Capital Surplus 

(Deficit) 

($) 

Market 

Capitalization 

($) 

4Q07 83,240 58,400 24,840 89,587 38,802 50,785 60,964 

3Q07 76,385 56,304 20,081 79,447 35,992 43,455 97,339 

2Q07 78,262 56,683 21,579 80,939 29,169 51,770 103,061 

1Q07 77,213 55,640 21,573 79,340 34,320 45,020 92,473 

Annual Data 

2007 83,240 58,400 24,840 89,587 38,802 50,787 60,964 

2006 77,316 54,966 22,349 79,445 42,190 37,255 102,631 

2005 74,476 53,024 21,452 76,872 23,918 52,954 92,642 

2004 68,620 55,835 12,784 69,887 21,147 48,739 119,908 

2003 59,370 55,178 4,191 60,923 32,647 28,276 112,996 

2002 49,422 50,028 (606) 45,053 22,177 22,876 104,202 

2001 45,363 43,196 2,167 Not Applicable Not Applicable Not Applicable 124,754 

2000 37,100 34,688 2,409 Before 2002 Before 2002 Before 2002 134,345 

1999 31,293 30,122 1,171 96,364 

1998 26,731 25,836 895 120,678 

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 14,299 411 29,014 

1993 12,489 10,846 1,643 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 

See notes to Tables 9 and 18. 

120 Office of Federal Housing Enterprise Oversight 

1
 

HISTORICAL DATA TABLES 

Table 26. Loan Limits 

Year Single-Family Conforming Loan Limits1 

1-unit 2-units 3-units 4-units 

20082 417,000–729,750 533,850–934,200 645,300–1,129,250 801,950–1,403,400 

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 - 1978 60,000 Not Applicable Not Applicable Not Applicable 

1970 - 1976 33,000 Not Applicable Not Applicable Not Applicable 

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. 

2 The Economic Stimulus Act of 2008 allows Fannie Mae and Freddie Mac to raise the conforming loan limits in certain high-cost areas to a maximum of $729,750 for one-unit homes in the continental United States. 

Higher limits apply to two, three and four-unit homes. Alaska, Hawaii, Guam and the Virgin Islands have higher maximum limits. The limits apply to loans originated between July 1, 2007 and December 31, 2008. 

Year 

2008 1 

2007 

2006 

2005 

2004 

2003 

2002 

2001 

2000 

1999 

1998 

1997 

FHA Single-Family Insurable Limits 

1-unit 2-units 3-units 4-units 

Low Cost 

Area Max 

271,050 

200,160 

200,160 

172,632 

160,176 

154,896 

144,336 

132,000 

121,296 

115,200 

109,032 

81,546 

High Cost 

Area Max 

729,750 

362,790 

362,790 

312,895 

290,319 

280,749 

261,609 

239,250 

219,849 

208,800 

197,621 

170,362 

Low Cost 

Area Max 

347,000 

256,248 

256,248 

220,992 

205,032 

198,288 

184,752 

168,936 

155,232 

147,408 

139,512 

104,310 

High Cost 

Area Max 

934,200 

464,449 

464,449 

400,548 

371,621 

359,397 

334,863 

306,196 

281,358 

267,177 

252,866 

205,875 

Low Cost 

Area Max 

419,400 

309,744 

309,744 

267,120 

247,824 

239,664 

223,296 

204,192 

187,632 

178,176 

168,624 

126,103 

High Cost 

Area Max 

1,129,250 

561,411 

561,411 

484,155 

449,181 

434,391 

404,724 

370,098 

340,083 

322,944 

305,631 

248,888 

Low Cost 

Area Max 

521,250 

384,936 

384,936 

331,968 

307,992 

297,840 

277,512 

253,776 

233,184 

221,448 

209,568 

156,731 

High Cost 

Area Max 

1,403,400 

697,696 

697,696 

601,692 

558,236 

539,835 

502,990 

459,969 

422,646 

401,375 

379,842 

309,338 

Sources: Federal Housing Administration 

The Economic Stimulus Act of 2008 allowed the Federal Housing Administration (FHA) to increase the single-family insurable limits to a maximum of $729,750 for one-unit homes in the continental United States. Higher 

limits apply to two, three and four-unit homes. 

Report to Congress • 2008 121

1
Table 27. Mortgage Interest Rates 

Average Commitment Rates on Loans Effective Rates on Closed Loans 

Period Conventional Conventional 

30-Year Fixed Rate 

($) 

One-Year ARMs 

($) 

Fixed Rate 

($) 

Adjustable Rate 

($) 

4Q07 6.2 5.6 6.4 6.2 

3Q07 6.5 5.7 6.8 6.5 

2Q07 6.3 5.5 6.5 6.3 

1Q07 6.2 5.5 6.4 6.3 

Annual Data 

2007 6.3 5.6 6.5 6.3 

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 7.0 

1999 7.4 6.0 7.4 6.5 

1998 6.9 5.6 7.2 6.4 

1997 7.6 5.6 7.9 6.9 

1996 7.8 5.7 8.0 7.0 

1995 8.0 6.1 8.3 7.1 

1994 8.4 5.3 8.3 6.3 

1993 7.3 4.6 7.5 5.8 

1992 8.4 5.6 8.5 6.6 

1991 9.2 7.1 9.6 8.3 

1990 10.1 8.4 10.4 9.2 

1989 10.3 8.8 10.6 9.5 

1988 10.3 7.9 10.4 8.5 

1987 10.2 7.8 10.0 8.5 

1986 10.2 8.4 10.6 9.5 

1985 12.4 10.0 12.5 11.0 

1984 13.9 11.5 13.2 12.0 

1983 13.2 Not Available 13.0 12.5 

1982 16.1 Before 1984 Not Available Not Available 

1981 16.6 Before 1983 Before 1983 

1980 13.8 

1979 11.2 

1978 9.6 

1977 8.8 

1976 8.9 

1975 9.0 

1974 9.2 

1973 8.0 

1972 7.4 

1971 Not Available Before 1972 

Average Commitment Rate Source: Freddie Mac 

Effective Rates Source: Federal Housing Finance Board 

122 Office of Federal Housing Enterprise Oversight 
HISTORICAL DATA TABLES 

Table 28. Housing Market Activity1 

Housing Starts 

(units in thousands) 

Home Sales 

(units in thousands) 

Period 

One-to-Four-Unit 

Housing Starts 

Multifamily Housing 

Starts 

Total Housing 

Starts 

Sales of New One-toFour-Unit Homes Sales of Existing Oneto-Four-Unit Homes 

4Q072 N/A 302 1,128 656 4,997 

3Q072 N/A 275 1,265 730 5,457 

2Q072 N/A 263 1,429 855 5,870 

1Q072 N/A 259 1,431 853 6,363 

Annual Data 

2007 1,078 277 1,355 775 5,652 

2006 1,508 293 1,801 1,051 6,478 

2005 1,757 311 2,068 1,283 7,076 

2004 1,653 303 1,956 1,203 6,778 

2003 1,533 315 1,848 1,086 6,175 

2002 1,397 308 1,705 973 5,632 

2001 1,310 293 1,603 908 5,335 

2000 1,270 299 1,569 877 5,174 

1999 1,334 307 1,641 880 5,183 

1998 1,314 303 1,617 886 4,966 

1997 1,178 296 1,474 804 4,371 

1996 1,206 271 1,477 757 4,167 

1995 1,110 244 1,354 667 3,852 

1994 1,234 224 1,457 670 3,886 

1993 1,155 133 1,288 666 3,739 

1992 1,061 139 1,200 610 3,432 

1991 876 138 1,014 509 3,145 

1990 932 260 1,193 534 3,186 

1989 1,059 318 1,376 650 3,290 

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 1,450 906 2,357 718 2,252 

1971 1,272 781 2,052 656 2,018 

Housing Starts Source and New One-to-Four-Unit Sales Source: Bureau of the Census. 

Existing One-to-Four-Unit Sales Source: National Association of Realtors. 

N/A = not available
 

1
 Components may not add to totals due to rounding.
 

2
 Seasonally adjusted annual rates. 

Report to Congress • 2008 123
 
 

 

 

 

 

Table 29. Weighted Repeat Sales House Price Index (Annual Data)1 

Period New USA England 

MidAtlantic South East North West North East South West South Mountain Atlantic Central Central Central Central Pacific 

4Q07 -0.32 -1.10 1.42 -0.90 -2.33 0.62 2.42 3.35 0.15 -3.34 

3Q07 1.94 -0.71 2.19 2.40 -1.22 1.42 3.93 5.30 5.14 1.08 

2Q07 2.90 -0.94 2.84 3.19 -0.24 2.11 5.00 5.62 6.73 3.27 

1Q07 3.33 -1.21 3.32 3.44 0.08 2.36 5.13 5.81 7.20 4.72 

Annual Data 

2007 -0.32 -1.10 1.42 -0.90 -2.33 0.62 2.42 3.35 0.15 -3.34 

2006 4.05 -0.93 3.50 4.32 0.27 2.29 6.30 6.61 8.72 6.35 

2005 9.55 6.80 10.48 13.31 3.92 4.42 7.33 7.11 15.10 15.93 

2004 9.34 10.27 12.37 12.59 4.66 5.96 4.94 4.48 11.61 15.86 

2003 7.62 10.43 11.40 8.58 4.64 5.59 4.36 3.24 7.10 13.11 

2002 7.62 13.65 12.07 8.08 4.71 6.47 3.33 3.60 5.13 12.66 

2001 6.79 12.38 9.95 7.48 4.79 6.92 3.41 3.78 4.95 9.10 

2000 6.90 13.05 8.46 6.32 5.20 7.15 2.85 5.76 5.94 9.82 

1999 6.05 10.63 7.11 5.49 5.19 5.96 4.10 5.60 5.70 7.00 

1998 5.59 8.34 4.56 4.81 5.00 6.58 4.68 5.55 4.72 7.57 

1997 3.44 4.87 2.11 3.70 3.59 3.64 2.72 3.03 2.94 4.30 

1996 3.08 2.66 1.12 2.96 4.71 4.10 3.83 2.42 3.98 2.14 

1995 2.71 0.04 0.03 2.61 5.23 4.45 4.71 2.97 4.62 -0.25 

1994 2.90 1.07 -0.56 2.92 4.54 4.18 5.06 2.82 8.76 0.13 

1993 2.83 -1.59 0.28 1.92 4.41 6.24 4.92 4.48 9.87 -1.58 

1992 2.65 -0.75 1.53 2.14 4.87 3.84 3.80 3.76 6.52 -1.13 

1991 2.93 -2.25 1.45 3.15 4.56 3.75 4.03 3.69 4.66 1.33 

1990 0.68 -7.75 -2.92 0.36 3.81 0.52 0.80 0.43 1.90 3.03 

1989 5.88 0.64 2.31 5.03 6.14 3.26 2.92 2.61 2.77 19.37 

1988 5.90 3.72 5.98 7.02 6.74 2.34 2.97 -2.02 0.23 17.51 

1987 5.85 13.34 16.27 7.31 7.89 2.51 4.23 -8.57 -2.63 9.52 

1986 7.39 21.06 18.23 6.10 7.17 4.10 5.59 -0.45 3.13 7.19 

1985 5.99 25.04 14.33 5.45 4.74 4.30 4.59 -1.38 2.06 4.88

1984 5.18 17.85 13.54 4.25 2.70 4.48 3.43 0.02 2.42 5.32 

1983 4.11 15.97 9.99 3.23 4.36 4.51 4.16 0.88 -2.79 1.03 

1982 1.87 4.24 3.80 3.18 -4.48 -0.41 5.35 5.67 7.49 0.93 

1981 4.67 4.90 0.80 7.76 2.20 0.60 0.22 12.00 6.39 5.76 

1980 6.82 5.49 10.00 8.16 1.59 4.02 6.96 7.83 6.42 11.19 

1979 12.17 11.39 18.35 11.53 9.00 9.17 5.37 13.13 15.27 15.92 

1978 13.71 16.37 7.71 12.37 14.46 13.13 12.22 16.87 17.40 15.71 

1977 13.57 9.24 9.66 8.33 13.21 15.21 11.27 12.08 18.19 25.62 

1976 7.96 2.61 1.70 5.88 8.19 5.01 5.38 8.48 10.41 19.81 

1 Percentage changes based on OFHEO's purchase-only index for 1992 through 2007 and all-transactions index for prior years. Annual data are measured based on fourth-quarter-to-fourth-quarter percentage 

change. Quarterly data for 2007 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 

124 Office of Federal Housing Enterprise Oversight 
INSIDE — 
OFFICE OF FEDERAL HOUSING
 

ENTERPRISE OVERSIGHT
 

1700 G Street, NW 

Washington, DC 20552 

202.414.3800 

www.ofheo.gov