OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT 

1700 G STREET NW WASHINGTON DC 20552 (202) 414-3800

 

 June 15, 2006 

The Honorable Richard Shelby The Honorable Michael G. Oxley 

Chairman Chairman 

Committee on Banking, Housing, & Urban Affairs Committee on Financial Services 

United States Senate United States House of Representatives 

Washington, D.C. 20510 Washington, D.C. 20515 

The Honorable Paul Sarbanes The Honorable Barney Frank 

Ranking Member Ranking Member 

Committee on Banking, Housing, & Urban Affairs Committee on Financial Services 

United States Senate United States House of Representatives 

Washington, D.C. 20150 Washington, D.C. 20515 

Dear Chairmen and Ranking Members: 

I am pleased to transmit the 2006 Report to Congress from the Office of Federal Housing 

Enterprise Oversight (OFHEO). This report has been prepared to meet the statutory requirements 

in 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 the Acting Director and do not 

necessarily represent those of the President or the Secretary of Housing and Urban Development. 

This report primarily covers accomplishments in 2005 during the tenure of former OFHEO Acting 

Director Stephen Blumenthal who reassumed his Deputy Director position on April 28, 2006. As 

Acting Director I thank him for his leadership, contributions to the safety and soundness regulation 

of Fannie Mae and Freddie Mac (the Enterprises) and the completion of the Fannie Mae Special 

Examination Report. 

Although the Special Examination Report was not published until May 23, 2006, much of the work 

was done in 2005. The report concludes that Fannie Mae senior management presented an image of 

the Enterprise as one of the lowest-risk financial institutions in the world and as “best-in-class” in 

terms of risk management, financial reporting internal controls and corporate governance. The 

reality was that the image presented was false. The risks at Fannie Mae were greatly understated and 

senior management manipulated accounting and earnings. Fannie Mae also signed settlement 

agreements on May 23, 2006 with OFHEO and the SEC that include a $400 million fine, growth 

limits and top-to-bottom remedial actions to enhance the safe and sound operation of the 

Enterprise going forward. 
The annual examinations of both Enterprises state that progress was made in 2005, but that further 

work and several years are needed to fully achieve safe and sound practices. Although the 

Enterprises have differences, the key areas that need significant remedial attention are similar: 

accounting systems, internal controls, risk management, human resources, corporate governance and 

growth. 

Due to the findings of operational inadequacies at both Fannie Mae and Freddie Mac, OFHEO 

required each Enterprise to hold 30 percent more capital than its minimum requirement. Capital 

levels are monitored weekly at both Enterprises by OFHEO’s examination teams. During 2005, 

OFHEO continued to build its capabilities by strengthening its supervisory functions, and 

enhancing the agency’s infrastructure to support a stronger oversight program. In FY 2005 

OFHEO increased its staffing by 30 percent over FY 2004. The vast majority of the increase was in 

our examination, capital, and legal offices to enable the agency to proceed expeditiously with the 

special examinations of the Enterprises and associated enforcement actions and related litigation. 

OFHEO entered into agreements with Fannie Mae and Freddie Mac to establish commitments in 

the areas of subordinated debt, liquidity management and public disclosures, replacing voluntary 

commitments made by the Enterprises in 2000. 

Pursuant to the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, the 

Agency once again recommends legislative enhancements to OFHEO’s authority, particularly in 

those areas that would align the safety and soundness authority of the Agency more closely to the 

federal banking agencies. Key safety and soundness provisions include the ability to establish capital 

limits, place an enterprise into receivership, and approve new products. We also believe that 

permanent funding of OFHEO, outside the appropriations process, is critical to ensuring the agency 

can adapt and respond quickly to changing circumstances at either Enterprise. 

Sincerely, 

James B. Lockhart III 

Acting Director 

cc: The Honorable Wayne Allard, Chairman, Subcommittee on Housing and Transportation 

The Honorable Jack Reed, Ranking Member, Subcommittee on Housing and Transportation 

The Honorable Richard H. Baker, Chairman, Subcommittee on Capital Markets, Insurance 

& Government Sponsored Enterprises 

The Honorable Paul E. Kanjorski, Ranking Member, Subcommittee on Capital Markets, 

Insurance & Government Sponsored Enterprises 
TABLE OF CONTENTS 

YEAR IN REVIEW.............................................................................................................................. 1 

FINANCIAL PERFORMANCE OF THE ENTERPRISES IN 2005.................................................... 3 

SUPERVISORY ACTIONS IN 2005.................................................................................................... 6 

 Enforcement........................................................................................................................... 6 

 Supervision............................................................................................................................. 6 

REGULATIONS AND GUIDANCE..................................................................................................... 7

OFHEO ACTIONS ON EXECUTIVE COMPENSATION.................................................................... 9 

OFHEO RESEARCH AND PUBLICATIONS...................................................................................... 10 

 OFHEO HOUSE PRICE INDEX MAP.................................................................................. 12 

FINANCING OFHEO'S OPERATIONS .............................................................................................. 13 

FANNIE MAE ANNUAL EXAMINATION.......................................................................................... 14 

 EXAMINATION AUTHORITY AND SCOPE...................................................................... 14 

 EXAMINATION RESULTS AND CONCLUSIONS.............................................................. 14 

 MATTERS REQUIRING BOARD ATTENTION.................................................................... 16 

 MANAGEMENT SUPERVISION.......................................................................................... 17 

 ASSET QUALITY AND CREDIT RISK MANAGEMENT...................................................... 24 

 LIQUIDITY............................................................................................................................. 28 

 SENSITIVITY TO MARKET RISK......................................................................................... 29 

 EARNINGS............................................................................................................................. 31 

 CAPITAL ADEQUACY............................................................................................................ 32 

FREDDIE MAC ANNUAL EXAMINATION....................................................................................... 33 

 EXAMINATION AUTHORITY AND SCOPE......................................................................... 33 

 EXAMINATION RESULTS AND CONCLUSIONS............................................................... 33 

 MATTERS REQUIRING BOARD ATTENTION.................................................................... 34 

 BOARD AND MANAGEMENT SUPERVISION.................................................................... 35 

 ASSET QUALITY AND CREDIT RISK MANAGEMENT...................................................... 38 

 LIQUIDITY............................................................................................................................. 40 

 SENSITIVITY TO MARKET RISK......................................................................................... 40 

 EARNINGS............................................................................................................................. 41 

 CAPITAL ADEQUACY............................................................................................................ 41 

 CONSENT ORDER................................................................................................................. 42 

CHARTS, MAPS AND TABLES 

Chart 1: Mortgage and Interest Rates................................................................................................. 2 

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

Chart 3: Enterprise Mortgage Asset Portfolios.................................................................................. 4 

OFHEO HOUSE PRICE INDEX U.S. MAP......................................................................................... 12 

HISTORICAL DATA TABLES -- TABLE OF CONTENTS................................................................. i 
YEAR IN REVIEW

HOUSING SECTOR REMAINS STRONG DESPITE RISING INTEREST RATES 

Despite Hurricanes Katrina and Rita and the sharp increase in energy prices, the U.S. economy 

grew a respectable 3.2 percent during 2005 compared to 3.8 percent the year before. That 

growth was supported by strong growth in housing construction and in computer and 

software investments. Labor market conditions continued to improve in 2005. The 

unemployment rate was 4.6 percent at year-end, down from 5.1 percent one year earlier. 

The Federal Reserve continued its tightening policy throughout 2005. The Federal Open 

Market Committee of the Federal Reserve increased the Federal Funds target rate 25 basis 

points at each of its eight sessions in 2005. The Federal Funds target rate ended the year at 

4.25 percent, 200 basis points higher than at the start of the year and the highest level since 

April 2001. Short-term yields increased significantly as a result of the actions of the Federal 

Reserve. The 1-year constant maturity Treasury (CMT) yield raised more than 150 basis points 

during 2005, from 2.8 percent in January to 4.4 percent in December. However, the impact on 

long-term rates was much smaller, as the yield on the 10-year CMT at the end of 2005 was less 

than 10 basis points higher than at the start of the year. As a result, the yield curve continued 

to flatten throughout the year, and ended the year partially inverted. 

Mortgage interest rates followed 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 interest rate rose in the first quarter, fell in the second quarter, trended 

upwards in the third quarter, and surged almost 50 basis points in the final quarter of 2005. 

However, for the year, the 30-year FRM commitment interest rate averaged 5.87 percent, just 

3 basis points above the average rate for 2004. The average commitment rate on one-year 

Treasury-indexed adjustable-rate mortgages (ARMs), following short-term rates, increased 59 

basis points to 4.49 percent in 2005 (Chart 1). 

Despite the increase in mortgage interest rates, those rates remained generally low by historical 

standards and continued to fuel housing demand. Single-family housing starts increased for 

the fifth consecutive year, totaling 1.76 million units in 2005, up 6.7 percent from 2004. Home 

sales also set new records for the fifth consecutive year. Combined sales of new and existing 

homes totaled 8.4 million units in 2005, an increase of 4.7 percent from the record-setting level 

in 2004 of 7.9 million units (Chart 2). 

According to Inside Mortgage Finance, originations of single-family mortgages totaled $3,120 

billion in 2005, the second highest volume ever. Mortgage refinancings declined in 2005 as 

interest rates rose. Despite the narrowing of spreads between FRMs and ARMs, the ARM 

market remained strong in 2005, accounting for 31 percent of originations. That volume was 

supported by the continued strong demand by borrowers for affordable mortgage products 

such as adjustable-rate loans that do not require principal payments or even, in some cases, full 

payment of interest owed in the early years of the loan. 

1
Chart 1

Mortgage Interest Rates

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Jan-92Jul-92Jan-93Jul-93Jan-94Jul-94Jan-95Jul-95Jan-96Jul-96Jan-97Jul-97Jan-98Jul-98Jan-99Jul-99Jan-00Jul-00Jan-01Jul-01Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05

Percent

30-Year FRM Rate 1-Year ARM Rate

 Source: Freddie Mac 

Chart 2

Home Sales

(in thousands of units, annual rates)

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1975197719791981198319851987198919911993199519971999200120032005

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Total New and Existing Home Sales Existing Home Sales New Home Sales

Source: U.S. Census Bureau and National Association of Realtors

House prices, as measured by OFHEO’s House Price Index, increased at a double-digit rate 

for the second consecutive year. It was the biggest jump since 1978. The average U.S. home 

price increased 13.3 percent from the fourth quarter of 2004 to the fourth quarter of 2005, 

2
compared to 12.0 percent the year before. All nine Census Divisions showed strong growth, 

but two (Pacific and New England) showed a deceleration in the rate of appreciation. 

Continued low mortgage interest rates, more affordable and innovative mortgage products, 

and an improved employment picture helped to keep the demand for and prices of U.S. 

homes high in 2005. 

The National Association of Realtors’ composite housing affordability index fell by 8.3 percent 

in 2005, to 114.6. The lower affordability index reflects higher appreciation in the median 

home price and the uptick in mortgage interest rates, which more than offset the increase in 

median family income. Continued higher home prices in 2005 may have contributed to a 

slight decline in the homeownership rate, from 69.2 percent as of the end of the fourth quarter 

2004, to 69.0 percent one year later. The rental vacancy rate fell for the second consecutive 

year, from 10.0 percent at the end of the fourth quarter 2004 to 9.6 percent one year later. 

FINANCIAL PERFORMANCE OF THE ENTERPRISES IN 2005 

Fannie Mae and Freddie Mac both continued to suffer from accounting, systems, and internal 

control problems in 2005. Freddie Mac was unable to provide the public with even unaudited 

financial statements for the year until late May 2006 and does not plan to release any quarterly 

statements this year. Fannie Mae is working on restatements for 2002 and 2003, which it plans 

to release along with 2004 results sometime after mid-2006. Statements for 2005 will be more 

than a year late. 

The need to focus on these problems inhibited the ability of the Enterprises to respond to 

changing markets. The popularity of ARMs and non-traditional loans continued to limit the 

Enterprises’ share of the secondary mortgage market, and strong demand of other investors 

diminished investment opportunities. However, both Enterprises increased their outstanding 

totals of mortgages that they either owned or guaranteed, and based on available information, 

both were profitable in 2005. 

Fannie Mae purchased or guaranteed mortgages and mortgage securities worth $620 billion in 

2005. That was 20 percent lower than in 2004. Most of that difference reflects reduced 

purchases of mortgage-related securities for the retained mortgage portfolio. Fannie Mae’s 

portfolio activities in 2005 were constrained by its need to build capital to meet regulatory 

requirements, which were increased in light of Fannie Mae’s accounting and internal control 

deficiencies. Fannie Mae shrunk its mortgage portfolio by 20 percent during 2005 not only by 

reducing purchases and absorbing prepayments and amortization, but also by $113 billion of 

portfolio sales, which previously were relatively rare. The Enterprise’s mortgage portfolio at 

year-end was $727 billion, the lowest level since 2001 (Chart 3). New securitizations fell by 10 

percent, but because Fannie Mae bought fewer of its guaranteed securities for its portfolio, its 

outstanding MBS increased more rapidly in 2005 (14 percent) than in 2004 (8 percent), and 

finished last year at $1,598 billion. 

3
Chart 3 

Enterprise Mortgage Asset Portfolios

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19921993199419951996199719981999200020012002200320042005

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Fannie Mae Freddie Mac

 Source: Fannie Mae and Freddie Mac 

New purchases and guarantees of mortgages and mortgage securities at Freddie Mac increased 

21 percent in 2005 to $718 billion. Despite having accounting, control, and systems problems 

similar to Fannie Mae, Freddie Mac grew its retained mortgage portfolio in 2005 and at a more 

rapid pace than the previous year. Over the last three years, the total growth was 20 percent. 

Freddie Mac grew its mortgage portfolio slowly in the first half of the year and aggressively in 

the final two months of the year. For the year, Freddie Mac’s retained mortgage portfolio 

grew about 9 percent, to $709 billion, almost level with Fannie Mae’s. Most of that growth 

resulted from investments in AAA-rated private-label mortgage securities. The Enterprise’s 

outstanding MBS increased 14 percent in 2005 compared to 11 percent the year before, to 

$974 billion, which is 61 percent of Fannie Mae’s outstanding MBS. 

Both Fannie Mae and Freddie Mac reported that they were profitable in 2005. Freddie Mac’s 

net income, measured in accordance with generally accepted accounting principles (GAAP), 

declined for the third consecutive year in 2005, about 20 percent, to $2.13 billion. The 

decrease reflected lawsuit settlement, effects of hurricane Katrina, diminished margins, and 

accounting changes. In light of the ongoing restatement of its financials, GAAP earnings in 

2005 for Fannie Mae have not yet been disclosed. However, estimated financial information 

provided by Fannie Mae, based on the application of accounting policies currently under 

review, indicates that combined with dividend payments, profitability was substantial for the 

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

be highly erratic from quarter-to-quarter and year-to-year. That reflects, in part, GAAP’s 

requirements to mark some balance sheet items to market, while other items are not, creating 

difficulties in interpretation. Analyses of fair value balance sheets and causes of changes in 

them from period to period, however, support the conclusion that the business of both 

Enterprises remains economically sound. 

4
Fannie Mae estimated its administrative expenses at $2.18 billion in 2005. That represented an 

increase of 44 percent or $671 million from the previous year. The Enterprise attributes the 

higher amount to costs associated with the restatement process and related regulatory 

examinations. Freddie Mac reported that its administrative expenses at $1.5 billion were 

relatively unchanged from the year before. 

Credit risk at both Fannie Mae and Freddie Mac remained low in 2005, although delinquency 

rates rose following hurricane Katrina at both Enterprises. Freddie Mac’s total single-family 

delinquency rate declined from 73 to 59 basis points in January to September, but rose to 69 

basis points by year’s end. Similarly, the single-family delinquency rate at Fannie Mae fell 

during the first nine months of the year, to a low of 59 basis points in September, but ended 

the year 14 basis points higher than it started, to 77 basis points. 

With relatively stable long-term interest rates during most of 2005 and continued extensive 

hedging activities, interest rate risk was relatively low at both Fannie Mae and Freddie Mac 

during most of the year. The duration gap at Fannie Mae averaged zero months, whereas the 

duration gap and portfolio market value sensitivity (PMVS) at Freddie Mac averaged zero 

months and one percent, respectively. 

Because of a high state of operational risk, OFHEO continued to require Freddie Mac to 

maintain core capital 30 percent higher than its regulatory minimum capital level. At year-end, 

the Enterprise’s capital of $36.0 billion exceeded its requirement by $3.9 billion and amounted 

to 4.5 percent of its assets, up from 4.4 percent. After finding serious problems at Fannie Mae, 

OFHEO also required an additional 30 percent there. Accordingly, Fannie Mae raised its core 

capital to $38.1 billion, $1.1 billion above the adjusted requirement. That was 4.6 percent of 

estimated assets, up sharply from 3.2 percent of estimated assets a year earlier. 

5
SUPERVISORY ACTIONS IN 2005 

Enforcement 

On September 9, 2005, OFHEO and Freddie Mac entered into a Consent Agreement to settle 

an administrative enforcement action against the Enterprise with respect to matters related to 

conduct and violations that contributed to improper management of earnings and a resulting 

restatement of earnings. Freddie Mac previously paid a $125 million civil money penalty and 

agreed to other corrective measures pursuant to a Consent Order with OFHEO dated 

December 9, 2003. OFHEO continues to pursue related administrative charges against 

Vaughn Clarke, Freddie Mac’s former CFO, and Leland Brendsel, Freddie Mac’s former CEO 

and Chairman, seeking civil money penalties and other relief. In 2006, Freddie Mac settled a 

shareholder lawsuit for $400 million. 

Supervision 

Fannie Mae 

OFHEO continues its review of Fannie Mae’s accounting policy, internal controls, and 

financial reporting processes as part of the special examination of Fannie Mae. OFHEO 

released its report of the review on May 23, 2006 and at the same time entered into a new 

agreement with the Enterprise. OFHEO will continue investigating whether enforcement 

actions against any parties are warranted. 

OFHEO continues to monitor compliance of Fannie Mae with its Agreement of September 

27, 2004. That Agreement directs Fannie Mae to maintain a 30 percent capital surplus over its 

minimum capital requirements due to uncertainties in the financial statements and operational 

weaknesses. Subsequent to that Agreement, the Securities and Exchange Commission directed 

Fannie Mae to correct certain accounting deficiencies and restate published financial 

statements. The restatement resulted in a multi-billion dollar estimated cumulative reduction 

in core capital as of September 30, 2004, which led OFHEO to classify Fannie Mae as 

significantly undercapitalized for the last quarter of Fiscal Year 2004 and first quarter of Fiscal 

Year 2005. In response to the determination that it was significantly undercapitalized, Fannie 

Mae filed a capital restoration plan. OFHEO approved the capital restoration plan on 

February 17, 2005. OFHEO classified Fannie Mae as adequately capitalized in March 2005, 

and continues to monitor Fannie Mae’s compliance with the September Agreement and the 

capital restoration plan. 

On March 7, 2005, OFHEO entered into a Supplemental Agreement that requires Fannie to 

correct inadequacies in internal controls, corporate governance and accounting systems. The 

Supplemental Agreement further requires Fannie Mae to conduct a restatement of prior period 

financial statements as necessary. OFHEO continues to monitor Fannie Mae’s compliance 

with the Supplemental Agreement. 

 

The May 23, 2006 agreement with the Enterprise commits Fannie Mae to a significant number 

of remedial steps, including halting growth in its retained mortgage portfolio, reviewing 

current and former employees for disciplinary action and possible restitution; implementing 

plans to resolve accounting, internal control, corporate governance and risk management 

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

6
senior officer appointments; and committing to cooperate with OFHEO on any enforcement 

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

(http://www.ofheo.gov/media/pdf/settlementrelease.pdf) 

Freddie Mac 

OFHEO continues to monitor Freddie Mac’s compliance with the Consent Order of 2003 and 

with the capital directive requiring capital surpluses to be maintained at a target level of 30 

percent over the calculated requirement. 

OFHEO and the Department of Housing and Urban Development (HUD) cooperated in a 

review of Freddie Mac’s commercial mortgage-backed securities. HUD’s Office of 

Government Sponsored Enterprises issued an opinion that certain mixed-pool commercial 

mortgage-backed securities of Freddie Mac are non-compliant with Freddie Mac’s charter. 

OFHEO is monitoring Freddie Mac’s response to this opinion and plan for achieving 

compliance with its charter. 

Other Supervisory Initiatives 

On September 1, 2005, Fannie Mae and Freddie Mac entered into formal agreements with 

OFHEO to establish enforceable commitments in the areas of subordinated debt, liquidity 

management and public disclosures. Issuances of subordinated debt, when made, will be part 

of OFHEO quarterly reports. 

REGULATIONS AND GUIDANCE 

Regulations 

On April 6, 2005, OFHEO published in the Federal Register a final regulation amending its 

corporate governance regulation. The amendment updates corporate governance provisions 

to enhance the oversight responsibilities of the Enterprise Board of Directors, to address audit 

partner rotations, to require the Enterprises to establish audit, compensation and 

nominating/corporate governance committees, to address compliance with the SarbanesOxley Act and the rules of the New York Stock Exchange, to require the Enterprise to 

establish a written code of conduct and ethics, to require the Enterprise chief executive officer 

and chief financial officer to certify quarterly and annual reports, and to enhance generally the 

disclosures required of the Enterprises and reduce the potential for future corporate 

misconduct; 12 C.F.R. Part 1710. 

On July 28, 2005, OFHEO published in the Federal Register a final regulation related to 

mortgage fraud reporting. The mortgage fraud rule requires the Enterprises to report 

mortgage fraud and possible mortgage fraud to OFHEO on a timely basis and to undertake 

training programs for fraud detection; 12 C.F.R. Part 1731. 

On August 30, 2005, OFHEO published in the Federal Register a final rule amending Subpart E 

of OFHEO’s Rules of Practice and Procedure to adjust for inflation the maximum amounts of 

civil money penalties OFHEO may assess; 12 C.F.R. Part 1780. 

7
On October 13, 2005, OFHEO published in the Federal Register a revision to its organization 

regulation to reflect organizational changes and the creation of a new Office of Executive 

Director; 12 C.F.R. Part 1700. 

On December 9, 2005, OMB returned, for further consideration by OFHEO, a draft 

proposed amendment to OFHEO’s corporate governance regulation which would have 

prohibited the Enterprises from indemnifying directors and executive officers for civil money 

penalties and restitution or recoupment orders assessed against them in actions initiated by 

OFHEO. OFHEO continues to review approaches to addressing indemnification issues, 

including examination guidance. 

Guidance 

OFHEO issued an examination guidance dated May 20, 2005 to augment the corporate 

governance regulation. The guidance amplifies the oversight responsibilities of the Enterprise 

Board of Directors, suggests that the Enterprise should separate the functions of the 

chairperson of the board and the chief executive officer, and should separate the risk 

management function and control function (oversight of accounting and financial reporting), 

among other things; (Examination Guidance for Corporate Governance Rule; available at 

www.ofheo.gov). 

OFHEO issued a policy guidance dated July 25, 2005, setting forth procedures for reporting 

by the Enterprises of mortgage fraud and possible mortgage fraud; (Examination for Mortgage 

Fraud Reporting; available at www.ofheo.gov). 

OFHEO issued a policy guidance dated February 22, 2005, setting forth procedures for 

reporting by the Enterprises of the occurrence of certain investigations or legal proceedings to 

OFHEO; (Safety and Soundness: Reportable Legal Proceedings; available at: www.ofheo.gov). 

On September 7, 2005, OFHEO published in the Federal Register a notice of regulatory review 

and requested comments from the public on whether existing regulation have become 

inefficient or burdensome and need to be amended, appealed, or whether less formal guidance 

should be issued; 12 C.F.R. Ch. XVII. 

8
OFHEO ACTIONS ON EXECUTIVE COMPENSATION 

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

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

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

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

comparable with compensation paid by other similar businesses to executives having similar 

duties and responsibilities. “Similar businesses” include publicly held financial institutions or 

major financial services companies. 

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

Director before entering into or changing termination agreements with their executive officers. 

The Director may not approve any such agreement unless the Director determines that the 

benefits provided 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 in February 2005 requires that the Enterprise obtain OFHEO’s prior 

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

executive officers. 

Also in 2005, OFHEO promulgated a final Corporate Governance rule that includes several 

requirements in the area of executive compensation. Specifically, the rule: 

• Requires reasonable and appropriate compensation for directors, officers and 

employees, highlighting the need to avoid compensation incentives that excessively 

focus on short-term earnings; 

• Requires that compensation programs consider risk management, compliance with the 

law and operational stability in addition to earnings; and, 

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

under certain circumstances. 

OFHEO’s investigations of both Freddie Mac and Fannie Mae found incentives focused 

primarily on short-term earnings to be instrumental in leading to improper conduct. Both 

companies have now revised their corporate goals to encompass both achieving their broader 

public mission and presenting the public with accurate and verifiable financial statements. 

Success in achieving the corporate goals has a major role in determining executive 

compensation. 

In addition to approving eight agreements that provided termination benefits to Enterprise 

executive officers, OFHEO reviewed a substantial number of compensation actions for which 

OFHEO’s prior approval is required under the Fannie Mae Capital Restoration Plan. Both 

companies have significantly restructured reporting lines and responsibilities, and OFHEO 

also advised each Enterprise of executive officers who are subject to its oversight based on the 

organizational changes within each company. 

9
OFHEO RESEARCH AND PUBLICATIONS 

During 2005, OFHEO continued to focus its research plans and activities on a variety of 

topics that assist the agency in achieving its three strategic goals: 1) Ensure the Enterprises 

comply with safety and soundness standards, are adequately capitalized, and comply with other 

legal requirements; 2) Enhance public understanding of the nation’s housing finance system; 3) 

Contribute to Federal efforts to promote efficient and effective financial markets and 

homeownership. This year, OFHEO continued to place a priority on research and analysis of 

issues for its internal use, primarily related to analyzing risk and capital adequacy and 

improving the House Price Index. OFHEO also continued its practice of publishing reports 

and papers, and posting information on its web site, to better inform interested parties about 

the issues OFHEO addresses regarding the Enterprises and the secondary mortgage market. 

The papers and reports are the result of research and analysis accomplished throughout the 

year. OFHEO research papers and reports are available at www.ofheo.gov. OFHEO 

researchers also presented papers and led discussions at professional and industry conferences 

on topics related to the regulation of the Enterprises. 

OFHEO released two research papers during 2005. In July, OFHEO published “SingleFamily Mortgages Originated and Outstanding: 1990-2003” which presents statistics for singlefamily mortgages originated and outstanding by loan type for calendar years 1990 through 

2004. Statistics are provided for conventional and government-insured or –guaranteed loans 

and, within each of those sectors, for fixed-rate and adjustable-rate mortgages (FRMs and 

ARMs). Conventional loans are also divided into jumbo and non-jumbo loans. OFHEO 

developed the estimates to give policymakers and the public a statistical baseline for the singlefamily mortgage market since 1990. The paper was prepared to enhance public understanding 

of the United States housing finance system. In February 2006, OFHEO published an update 

to the data tables (through the third quarter of 2005) and to the assumptions used in 

developing the estimates. 

“Mortgage Markets and the Enterprises in 2004,” released in August, is another OFHEO 

annual publication which reviewed developments in the housing sector and the primary 

mortgage market, the secondary market activity of Fannie Mae and Freddie Mac, and the 

financial performance of the Enterprises in 2004. 

In May and in October, OFHEO also released updates to the public version of the software to 

run the risk-based capital stress test, along with a stylized data set to use in the model. By 

running the data for this hypothetical firm through the stress test model, a member of the 

public can better understand the sensitivities and implications of the stress test. 

Each year OFHEO publishes the maximum conforming loan limit for single-family mortgages 

purchased by Fannie Mae and Freddie Mac. In November 2005, OFHEO announced that the 

2006 limit could be no higher than $417,000 for one-unit properties. Effective January 1, 

2006, the Enterprises’ conforming loan limit for larger properties applies as follows: Two-unit 

mortgages were limited to $533,850; three-unit mortgages: $645,300; and four-unit mortgages: 

$801,950. The limit in statutorily designated high-cost areas (Alaska, Guam, Hawaii, and U.S. 

Virgin Islands) is 50 percent higher, for example, $625,500 for a one-unit single family 

mortgage. For second mortgages, the 2006 limit is $208,500. In the designated high-cost areas 

this is $312,750. OFHEO began calculating and publishing these maximum conforming loan 

limits in FY 2004. 

10
OFHEO also continued quarterly publication of its House Price Index (HPI), which uses 

Enterprise data to calculate changes in house prices for the nation as a whole, the nine Census 

Divisions, the 50 states and the District of Columbia, and 379 Metropolitan Statistical Areas or 

Metropolitan Divisions. The HPI is based on an analysis of data from over 30.7 million repeat 

transactions over the past 30 years. OFHEO developed the HPI as a key input for its riskbased capital stress test. It is now regularly reported by media organizations throughout the 

nation and used by researchers to analyze house price behavior (map on following page). 

Since 2004, OFHEO compares the HPI, an index that includes mortgages used for both 

purchases and refinancings, with an index based solely on purchase price data to isolate the 

effect of refinancing on the overall HPI. OFHEO periodically features reports on timely 

issues in the quarterly HPI report. In the September report, recognizing that homebuyers are 

increasingly financing relatively expensive homes with a combination of conforming 

mortgages and second liens, OFHEO reported on the inclusion of expensive homes in the 

HPI. 

In response to the recent hurricanes in the Gulf States, the HPI report issued in December 

2005 included an analysis of the effects of Hurricane Andrew in 1992. Although Hurricane 

Katrina’s destruction to several Gulf States is unique in many ways, the effects of Hurricane 

Andrew—America’s second most destructive hurricane—on real estate prices in Florida 

provide some insight into price effects that may result. Because the HPI data used in the 

December 2005 release contained limited information on Katrina’s immediate impact, a direct 

assessment of the overall housing market impact of Katrina was not yet possible. OFHEO 

began reporting on initial indications of Hurricane Katrina’s effects on housing markets in 

Louisiana and Mississippi in March 2006. 

In November 2005, OFHEO published its first Performance and Accountability Report 

(PAR) which describes OFHEO’s accomplishments and how OFHEO met its performance 

goals during the fiscal year. The PAR also contains the audited financial statements for Fiscal 

Year 2005. In prior years, OFHEO issued separate annual performance reports and audited 

financial statements. OFHEO elected to issue a PAR to improve transparency and the 

public’s understanding of how OFHEO operates. 

11
OFHEO HOUSE PRICE INDEX 

U.S. MAP 

Fourth Quarter 2004 – Fourth Quarter 2005

12
FINANCING OFHEO’S OPERATIONS 

OFHEO’S BUDGET 

The business operations of OFHEO are not financed by taxpayer funds. The annual operating 

budget, however, undergoes the Federal budgeting 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 by semi-annual assessments 

from Fannie Mae and Freddie Mac. 

After 60 days of operating under continuing resolutions, OFHEO received its full Fiscal Year 

2006 budget request of $60 million on November 30, 2005. This will fund proactive oversight 

activities of the Enterprises through examination, compliance, accounting oversight and capital 

review and adequacy programs. 

Congress is considering legislation that would transfer all resources available to OFHEO to a 

new, strengthened housing government sponsored enterprise regulator, outside of the 

appropriations process. Absent legislative change, however, OFHEO will continue to be 

subject to the appropriations process. 

The Administration proposed a Fiscal Year 2007 budget of $62 million to fund OFHEO’s 

operations. This request may need to be supplemented to support requirements for legal 

services identified as a result of the Report of the Special Examination of Fannie Mae. 

OFHEO CONTINUES TO RECEIVE UNQUALIFIED AUDIT OPINION IN 

FISCAL YEAR 2005 

In conjunction with the goal of the government to improve accountability, OFHEO prepared 

financial statements for Fiscal Year 2005 and subjected these statements and underlying 

processes to an independent audit. The certified public accounting firm of Dembo, Jones, 

Healy, Pennington and Marshall audited the statements. The firm issued an unqualified audit 

opinion on OFHEO Fiscal Year 2005 financial statements, found no material weaknesses in 

internal controls, or instances of non-compliance with laws and regulations. While not 

required by law, OFHEO voluntarily began obtaining outside audit reviews of its financial 

statements in Fiscal Year 1998. Fiscal Year 2005 represents the eighth straight year OFHEO 

has received a clean, unqualified audit opinion and also the first year OFHEO has operated its 

own accounting system. Fiscal Year 2005 is also the first time OFHEO has issued a 

Performance and Accountability Report (PAR) which can be viewed at 

www.ofheo.gov/media/pdf/OFHEOPARNovember2005.pdf. 

13
ANNUAL REPORT TO CONGRESS 

Examination Year: 2005 

Federal National Mortgage Association/Fannie Mae 

3900 Wisconsin Avenue 

Washington, D.C. 20016 

EXAMINATION AUTHORITY AND SCOPE

Examination Authority and Reporting Convention 

The Report of Examination contains the results and conclusions of OFHEO’s 2005 annual 

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

performed under section 1317(a) of the Federal Housing Enterprises Financial Safety and 

Soundness Act of 1992 (12 USC 4517(a)). The OFHEO annual examination program assesses 

the Enterprise’s financial safety and soundness and overall risk management practices. 

OFHEO utilizes a “CAMELS” methodology (Capital Adequacy, Asset Quality, Management, 

Earnings, Liquidity, and Sensitivity to Market Risk) similar to those adopted by the federal 

depository institution regulators to report examination results and conclusions to the 

Enterprise’s Board of Directors and to Congress. 

Examination Scope 

Examination activities conducted during 2005 were primarily devoted to the progress in 

remediation to meet OFHEO’s Agreement requirements, and a broad-based review of several 

activities in each business unit to obtain an overview of the Enterprise’s strengths and 

weaknesses. Target examinations included reviews of business centers involved in several 

aspects of credit risk management, processes used to develop and validate models, front and 

back office activities for liquidity and interest rate risk management, information technology 

controls over end-user computing applications and database modification, and several systems 

supporting finance and the retained portfolio. The examination of many key areas in 

counterparty risk will be completed in 2006. 

The scope was limited in several areas due to the broad-based examination approach used this 

year, and the extensive use of resources to complete the Special Examination. Board 

supervision and specifics concerning accounting issues are covered in the Special Examination, 

which was released May 23, 2006. 

This report is structured so that the first few paragraphs in each section provide an overview 

of the conclusions and scope, and the following paragraphs provide the detail and support for 

the overview. 

EXAMINATION RESULTS AND CONCLUSIONS 

The Enterprise is a supervisory concern due to the enormity of issues that management must 

prioritize and address to improve data, systems, controls, communication, risk measurement 

and management as well as process efficiency and systems flexibility to remain competitive in 

the future business environment. The pervasive deficiencies stem from past management 

actions that deemphasized internal controls and risk management, focused on expense control, 

14
established an organizational structure that impeded internal controls, and employed too few 

personnel who emphasized or understood industry standards for internal controls and risk 

management. Issues noted during 2005 include: 

• Non-existent, poor, or manually intensive controls for business processes constituted 

deficiencies or inefficiencies in most business activities. The focus on front office 

activities and emphasis on expense control adversely impacted the development and 

review of controls. The information technology (IT) function’s lack of authority to 

control the business units’ IT decisions allowed the business units to develop a poorly 

integrated mesh of databases and systems without common rules or practices. 

• Deficiencies in data, systems, controls, practices, risk metrics, and reports prevented or 

impeded many aspects of performance and risk management. Current systems do not 

fully support new products. Despite these deficiencies, the major risks in interest rate, 

liquidity, and credit were controlled at reasonable levels. 

• Restatement work strained resources and significantly delayed important model and 

systems projects until the restatement work can be completed. The implementation of 

several important models and the independent validation of several models of 

moderate to higher significance have been delayed. 

• Staff levels for future ongoing operations are deficient, and will require a significant 

increase in personnel to properly conduct controls and risk management in many 

business lines. Critical staff shortfalls existed in the Treasurer, Controller and Chief 

Risk Officer divisions at year end 2005. Consultants addressing restatement and 

organizational structure issues represent more than 40 percent of the Enterprise’s 

workforce, and are approaching the maximum level that can be effectively managed. 

• Management’s and staff’s knowledge and practice of financial industry standards for 

controls, risk management, and operational discipline vary widely throughout the 

Enterprise, and contributed to deficiencies in operational, performance, and risk 

management. Cultural change throughout the Enterprise will require continuing effort.

• Business unit policies and written procedures are deficient. The Board approved 

several risk policies around year end 2005, but the policy for operational risk is still in 

its initial stages. The lack of clear, concise, or documented policies and procedures 

contributed to risk management deficiencies. 

• Several Board and management reports lacked meaningful, accurate, or complete 

information. Performance and risk metrics are deficient or incomplete for many areas, 

impeding the analysis and communication of risk.

• Significant deficiencies in credit risk management in the Single-Family and Housing 

and Community Development (HCD) business functions impact management’s ability 

to optimize their control over expenses. Data and systems deficiencies produce some 

incomplete or inaccurate reports, impeding effective performance and risk 

management, and limit the ability to respond competitively. 

15
• Critical components of the methodology used to estimate loan loss reserves were not 

complete at year end 2005. 

• Processes and controls for obtaining asset liquidity in a stress environment are 

satisfactory but inefficient. 

• There was a lack of independence in wire transfer cash disbursements, Capital Markets 

back office access to and confirmation of subsequent event transactions, and the 

pricing of financial instruments in the process from the Capital Markets business unit 

through the Controller department. 

• Capital Markets data and/or systems deficiencies required manually intensive and 

inefficient generation of information that introduced some level of uncertainty in 

interest rate risk measurement, impacted access controls to some systems, and 

contributed to two missed debt call dates. 

• The internal audit program was weak but improving at year end 2005. The Chief Risk 

Officer and Compliance functions were in their initial stages, and require additional 

staffing, and significant time and effort to become fully operational. 

Management has begun implementation of their program to address the Enterprise’s 

deficiencies. However, project management and coordination is complex, and will require 

significant time, effort, and resources to complete. Restatement delays and new projects with 

hard deadlines impact and delay important but necessarily lower priority projects such as the 

implementation and validation of several models, and the replacement of legacy systems used 

for ongoing operations. Resources will remain strained until restatement efforts are completed. 

Many milestones should be achieved in short and mid-term timeframes in such areas as 

management policies, written procedures, risk metrics, interim controls, staffing levels, and 

deficiencies and inefficiencies in reports, processes and controls associated with stand alone 

information technology systems. However, full correction of issues impacted by the main 

database, platform, and systems integration are expected to require three to five years. 

MATTERS REQUIRING BOARD ATTENTION

The year 2005 focused on meeting the restatement and other requirements in OFHEO’s 

agreements, discovery of issues within the Enterprise, and developing a plan to address them. 

Management’s efforts during 2006 will be centered on the prioritization and implementation of 

that plan, and ensuring that industry standards; a formal structure for risk communication, 

decision making, and strategic planning; and accountability in clearly defined responsibilities 

are firmly embedded in the Enterprise. When monitoring management’s programs to address 

these issues, the Board should provide strong oversight for the following key activities: 

• Project Management. Monitor project management for operations, information 

technology, and internal control issues. Evaluate the Enterprise-wide plan for the 

prioritization and coordination of projects, and the impact and reasons for delays. 

Ensure interim processes and controls are implemented and regularly audited until 

long term, sustainable solutions for data and systems are complete. 

16
• Corporate Governance. Ensure management addresses cultural issues in committee 

and business units impacting accountability, responsibilities, controls, coordination, 

and risk management. Ensure management completes a formal structure for decision 

making, business unit risk management, optimized pricing and expenses, and 

coordinated and rationalized strategic planning. Ensure business unit policies and 

written procedures are completed, and that all policies and limits are periodically 

updated, and incorporated into business practices. 

• Enterprise-wide Risk and Performance Management. Ensure management 

improves the measurement and communication of risks, performance, and operational 

errors through corporate-wide and business unit metrics, and reports for the Board 

and management that meaningfully display key metrics and issues. 

• Industry Standards. Ensure management expeditiously incorporates financial 

industry standards throughout the Enterprise through new hires and a comprehensive 

training program. 

• Human Resources. Ensure management fills the remaining vacancies in critical 

management and staff positions, and contractors have sufficient time to pass on 

needed information to the permanent staff before they leave. 

• New Product Management. Ensure management has completed an infrastructure 

that has sufficient data, systems, controls, reports, and personnel in place before the 

Enterprise significantly engages in new products. 

MANAGEMENT SUPERVISION

 

Past executive management established an organization that provided insufficient monitoring, 

control, and coordination of business units. These deficiencies led to significant issues in 

operations controls, information technology (IT) effectiveness and flexibility, and risk 

measurement, management, and communication throughout the Enterprise. The quality of 

management and controls varied widely due to the lack of corporate standards and the relative 

autonomy of the business units. The ability to communicate within the Enterprise was 

impeded by an insufficient committee structure, poorly defined authority and responsibilities, 

deficient risk metrics, and a lack of a common language or universal understanding of terms 

used to communicate risk and performance. Issues noted in 2005 include: 

• Corporate risk policies did not exist until late 2005, and business policies and written 

procedures were deficient throughout the Enterprise. 

• Rigid and uncoordinated databases, systems, and applications in business units because 

the IT business unit did not have sufficient authority to standardize other business 

units’ IT projects. 

• Business units focused on front office activities and corporate pressure for expense 

control led to deficient operational controls and staff levels needed to implement 

controls. 

17
• Poor coordination of products, services, and projects that crossed business lines. 

• Committee structures that varied in sufficiently vetting the risks and performance of 

products, models, and projects. 

• Performance and risk metrics were deficient or incomplete for many areas, impeding 

the analysis and communication of risk. 

• Insufficient analysis of some credit risks due to poor data and systems coupled with 

insufficient rigor by the analysts. 

• Expertise in controls, risk management, and operational discipline varied widely among 

management and staff. Cultural change throughout the Enterprise will require 

continuing effort. 

Executive management has prioritized the Enterprise’s issues and devoted significant 

resources to develop a roadmap and initiate a program that addresses the requirements in 

OFHEO’s Agreements and other deficiencies within the corporation. Organization structural 

changes mandated in the Agreements are nearly complete. A substantial number of personnel 

in key positions have been replaced with technically competent management and staff who 

bring needed industry standards, and the knowledge and drive to develop programs that 

correct the Enterprise’s significant deficiencies. 

Management has begun implementation of their longer term program to address the 

Enterprise’s deficiencies. Project management and coordination is complex, and will require 

significant effort, resources, and several years to fully complete. Multiple, concurrent projects 

strain resources, and increasingly delay projects that are critical but lower priority than the 

restatement and related controls. However, several aspects of the restatement can be 

leveraged into completing the financial transformation project for systems that will produce 

financial statements in the future. New corporate priorities and objectives appropriately focus 

on stabilizing the Enterprise, instilling operational discipline and changing the corporate 

culture. 

Organizational changes that have revised or created new management committees have 

improved the structure, and begun to improve the communication and coordination in 

business practices and risk management. Revised or new committees have been established 

for all business units, and several executive and senior management level committees 

coordinate products, practices, and responsibilities across business lines. In addition, executive 

management has begun to change the corporate culture, in part, through knowledgeable new 

hires who have injected industry standards and practices into the areas in which they work. 

Management is working to meet the Agreements’ requirements regarding organizational 

structure, corporate risk policies, hiring key management to fill new or vacant positions, and 

interim controls on end-user computing applications and database modifications. 

Implementation and full compliance will take time and major effort for other Agreement 

provisions concerning restatement, data, systems, controls, and accounting methods and 

policies. 

18
Independent Oversight: Audit, Compliance, and Chief Risk Officer 

The audit department was weak through most of 2005, the Compliance program was deficient 

and lacked independence, and the Chief Risk Officer department was insufficiently staffed and 

not fully developed. Management made progress during the second half of the year in 

correcting deficiencies in the audit and compliance programs, and building the Chief Risk 

Officer function. These programs and functions are in their initial stages, and require 

additional staffing, and significant time and effort to become fully operational. 

The Office of Audit (OA) through most of 2005 was weak due to insufficient levels and 

expertise in staff, and an audit program that did not adequately identify or communicate the 

risks in the Enterprise. In addition, deficiencies that were identified by audit were sometimes 

not corrected because auditors would sign off before the business units finished corrections 

and/or the business units failed to maintain corrections after audit’s sign off. In July 2005, a 

new Chief Audit Executive (CAE) was given appropriate independence and authority, and 

began implementing a satisfactory program which management expects will address all 

significant audit program deficiencies by year end 2006. 

The audit program exhibited deficiencies in nearly every process, and several of the auditors 

did not have the appropriate skills to satisfactorily evaluate many of the deficiencies in the 

Enterprise. These program and skill deficiencies led to the incomplete identification or 

reporting of deficiencies, and audit ratings that did not accurately reflect many significant 

issues in the Enterprise’s processes and controls. Program deficiencies included: 

• Inadequate methodologies for risk allocation and sample sizes. 

• Oversized auditable entities or audit scopes that led to less accurate and less severe 

audit ratings. 

• Audit procedures that often focused on transactions rather than testing controls. 

• No maximum time periods between audits, allowing several areas to remain unaudited 

for extended periods. 

• Some deficiencies were recorded as fully corrected if the business unit was near 

completion or had a plan to correct the deficiency. 

• Improper classification of severe deficiencies in workpapers, which led to less severe 

ratings for the overall audit. 

• Inefficient tracking and controls for the audit program. 

Reports for specific audits and management summaries adversely impacted the 

communication of audit results. Audit reports provided a list of deficiencies, but often did not 

explain the root causes of the issue, or group the issues by root cause. Audit reports provided 

overall ratings, but did not rate the individual deficiencies noted in the audits. Summary 

reports listed deficiencies, but did not group, weight, or otherwise summarize the Enterprise’s 

deficiencies in a meaningful way. 

The original Compliance function was deficient, failed to provide sufficient oversight, and 

lacked independence. The function had insufficient staff levels to properly complete its 

mission, and was run by the lawyer also responsible for defending the Enterprise in litigation 

brought by employees. In the second half of 2005, a new Compliance department was 

initiated with functions and an organizational structure that meets the requirements of 

19
OFHEO’s supplemental agreement. The Chief Compliance Officer plans to train and advise 

the business units on ethical issues, oversee the compliance function throughout the 

Enterprise, conduct internal investigations, and oversee reporting to regulatory agencies. 

However, the program is in its initial stages, and many positions are still vacant. The 

Compliance department is expected to be fully staffed and functional during 2006. 

An independent Chief Risk Officer (CRO) function did not exist prior to 2005. Progress has 

been made in establishing this function, but significant work and time, and additional staff will 

be required before the CRO department is fully functional. Progress was made in 2005 but 

the results of most of these efforts were achieved late in the year. The CRO department’s 

organizational structure meets the requirements in OFHEO’s Agreements. 

In 2006, the deputy CRO refined the department’s organizational structure and functions, 

began hiring the managers for each function, and made significant progress in developing 

many of the Board’s risk policies, a risk report package for the Board, and the CRO’s model 

validation processes. Many policies still need to be implemented, and the model validation 

program is only in its initial stages. A new CRO was hired in June 2006 and most function 

managers have been hired, but a significant number of staff positions remain vacant. 

Additional work is required before risk information can be aggregated. 

Operations, Information Technology, and Internal Controls 

Operations controls are weak. Nonexistent, poor or manually intensive controls for many 

processes constituted moderate to significant deficiencies throughout the Enterprise. The 

pervasiveness of operational deficiencies stems from a culture that deemphasized internal 

controls, focused on expense control, established an organizational structure that impeded 

internal controls, and employed too few personnel who emphasized or understood industry 

standards for internal controls. The recent Sarbanes Oxley (SOX) review identified pervasive 

control deficiencies, which must be addressed before the external auditor can provide an 

unqualified opinion on the Enterprise’s internal control structure. 

Most of the Enterprise’s information technology (IT) back-end and accounting applications 

are legacy systems. The legacy systems were deficient for accounting and several types of 

transactions, but provided stable performance for traditional loan product transactions due to 

support by experienced teams with the knowledge and skills to meet production challenges. In 

addition, the Enterprise has invested heavily in running a reliable foundation technology 

environment and implemented their second production data center in 2005. However, their 

legacy business systems are proprietary or heavily modified vendor systems built to rigidly 

meet business unit specifications from years past. This approach adversely impacted internal 

controls and the quality of some information used to manage the Enterprise, and resulted in 

the use of systems that were difficult and expensive to modify and control. In addition, these 

systems have made the Enterprise increasingly uncompetitive due to their limitations in 

accommodating new products and higher volumes of transactions. 

The Enterprise Systems and Operations’ (ESO) lack of authority to control business units’ IT 

decisions allowed the business units (BU) to develop a poorly integrated mesh of databases 

and systems without common rules or practices. While Enterprise Systems and Operations 

has technology standards, the business units’ focus on expense control resulted in BUs 

defining narrow, single purpose applications that were poorly integrated. In the second half of 

20
2005, Enterprise Systems and Operations began implementing several control efforts to 

improve standardization over time. 

Executive management employed massive resources during 2005 to discover or address the 

plethora of internal control and IT deficiencies. Actions and resources have been 

appropriately focused on controls related to SOX compliance. Efforts to address internal 

controls in 2005 were centered in identifying and cataloging the issues, defining and initiating 

an organizational structure for better control and risk management, and allocating a dedicated 

staff to address the most significant of the known deficiencies. The strain on resources has 

delayed needed changes to ongoing operations, but has been partially mitigated through the 

hiring of additional qualified staff and extensive use of consultants. Consultants provide 

sufficient IT support, but they are approaching maximum levels that can be effectively 

managed. 

Nonexistent, poor or manually-intensive controls for business processes constituted 

significant weaknesses throughout the Enterprise. 

The organization structure was largely decentralized, with operations managed within 

uncoordinated silo business lines. Business unit (BU) management invested in single purpose 

applications developed using non-standard rules and practices. The rigid systems impeded 

coordination of shared information, functionality, or product lines among business units, and 

led to the extensive use of inadequately controlled adaptations such as end user applications, 

database modifications, and on top adjustments in accounting and risk management to meet 

changing business needs. In addition, BU management’s focus on front office activities and 

emphasis on expense control prevented the development of sufficient controls or the 

allocation of sufficient resources to review controls. 

Systems deficiencies led to inefficient manual work arounds for processes in many areas. 

These manual processes were subject to error, prevented or impeded necessary controls, and 

generated key person dependencies. In addition, systems changes were sometimes not 

documented, creating unanticipated errors when the systems were later modified. These errors 

occurred because the system modifiers had limited documentation to help them understand 

the impact of code changes. Errors noted in 2005 include: 

• Single-family securities at $7 billion were misclassified as multi-family securities in the 

interim financial information report released to the public monthly. 

• Mortgage revenue bond commitments at $1.7 billion were not recorded in trading 

room systems. 

• Errors in adjustable rate mortgage (ARM) features were released to the investor public 

that impacted investors’ ability to re-securitize some ARM MBS into larger securities. 

• Personnel were paid three times in one pay period. 

Business unit policies and written procedures were incomplete, poorly written, or nonexistent. 

The lack of and the varying quality in policies and procedures were due to the business unit’s 

control of this function and the lack of requirements and standardization by executive 

management. Reviews being conducted by the Chief Risk Officer, internal audit, and the SOX 

compliance function in 2006 are expected to ensure management develops and employs the 

necessary policies and procedures. 

21
In 2005, the Chief Risk Officer’s SOX review revealed pervasive deficiencies in controls that 

fall within and beyond the scope of SOX. Deficiencies in IT controls were high: in 64 

financial reporting applications, over 90 percent had deficiencies in access control, logging and 

monitoring, and change management. In addition, 96 percent of the 110 financial reporting 

end-user computing applications failed SOX control tests. 

An operations risk framework was developed in late 2005 that is expected to establish 

appropriate business unit and Chief Risk Officer oversight, and centralized major operations. 

A dedicated team in Enterprise Systems and Operations is in the process of cataloging the 

known SOX deficiencies, and is grouping them by root cause to ensure consistent remediation 

throughout the Enterprise. In early 2006, management developed and began implementing a 

rationalized and prioritized program to provide permanent solutions for known deficiencies. 

Enterprise Systems and Operations and business unit management have implemented effective 

interim controls in areas such as database modifications and end user computer applications. 

Rigid legacy systems have adversely impacted controls, the quality of information and 

systems functionality, and have made the Enterprise increasingly uncompetitive over 

time. Executive management employed massive resources during 2005 to address IT 

deficiencies and issues, and implement base capabilities for servicer and investor 

reporting. 

The legacy systems’ deficiencies prevent or impede accuracy or completeness in reports, risk 

management, performance measurement, and transactions. A lack of integrated, end to end 

processes generates limited transparency in information and transaction flow. Data is 

processed through multiple transfers among systems with manually intensive procedures, and 

several files hold disparate data. Several reports cannot be produced with sufficient 

information or formatting to view detail or grouped information to analyze components 

within activities or positions. Some risk and performance information is less than optimum 

because books and financial instrument valuations cannot be done daily. Some systems cannot 

produce GAAP compliant accounting for several types of transactions. 

Records management was significantly deficient, with no formal, Enterprise-wide systems or 

program in place. The project had originally been assigned to the Legal Department, but did 

not receive proper funding, scope, and planning until after OFHEO evaluated their program. 

This project was transferred to Enterprise Systems and Operations and now has proper 

funding, scope, and management. 

The project conducted between 2001 and 2005 to design a new IT application for 

Single Family (SF) acquisitions, securitizations, and servicer and investor reporting 

failed due to unrealistic objectives, budget, and time frame set by the former CEO and 

Chairman Franklin Raines, as well as poor project and vendor management. Mr. 

Raines initiation and sponsorship of the project made it difficult to terminate despite 

its poor results, protracted timelines and increasing costs. 

The former Chairman and CEO Franklin Raines directed Enterprise Systems and Operations 

to replace 35 twenty-year-old loan processing legacy systems in 18 months. He set the 18 

month deadline before sufficient cost or project analysis was completed. The project was 

planned with a single implementation in part to meet this tight timeframe. The project ran 

overtime due to the unrealistic timeframe, and poor project and vendor management. The 

22
completion deadline was delayed and formally extended twice to address project deficiencies. 

The approach was abandoned in June 2005, 45 months after the project was initiated and cost 

overruns at 80 percent increased the project’s total cost to $373 million. However, $100 

million in software and database code were reusable in other areas. 

Personnel began writing code before business specifications were completed. The poorly 

planned launch coupled with the protracted completion time increased the number of times 

business units were allowed to change their specifications. The high number of subsequent 

code changes slowed the project even further. In addition, the single implementation 

generated no interim milestones for testing, masking significant problems until most of the 

project was done. 

Poor vendor management contributed to the project’s problems. Unlike other Enterprise 

projects, an unusually high percentage of vendors were used to provide the unique skills 

needed for this large project. The use of multiple vendors made it difficult to coordinate and 

manage these resources. In addition, many of the vendors were contracted for their time 

rather than project results and/or a fixed cost. These vendor issues coupled with inadequate 

acceptance criteria led to a poor quality product. Vendor costs accounted for 90 percent of 

the total overrun. 

Corporate culture constrained communication of the project’s failures to management and the 

Board. The 18 month, single implementation approach and project delays created 

extraordinary pressure to meet deadlines, which led to compromised project management 

controls. Also, staff did not raise issues or voice dissenting views because of their view that 

management discouraged this type of information in the project’s early stages. Project 

management made presentations to the Board that did not fully communicate the seriousness 

of the project’s deficiencies. Although the delays and issues were mentioned, the presentations 

focused on the corrective actions that would address the problems. 

In 2005, Enterprise Systems and Operations initiated an effective program to replace the 35 

back-end SF legacy systems applications. The first project was the cash release of servicer and 

investor reporting. The project was well planned with manageable sections that are conducted 

by teams with both Enterprise Systems and Operations and business unit personnel to ensure 

Enterprise needs are met. Testing was completed at regular milestones before the project 

progressed. 

Model Risk 

The massive shift of business unit and Chief Risk Officer model personnel to restatementrelated model development and validation has significantly delayed the business unit’s model 

implementation and the Chief Risk Officer’s independent model validation program. The 

program’s delay has prevented the production implementation of several developed models, 

and postpones critical components of Chief Risk Officer division’s program into the future. 

Issues noted in 2005 included: 

• Strong corporate model policies, but incomplete or nonexistent policies in several 

business units. Business units are in the process of developing the new policies in 

compliance with corporate policy deadlines. 

23
• No formal, unified oversight to coordinate the development of separate models that 

are interfaced for use in one model system. 

• No control documentation to indicate end user communication and vetting of model 

design and development goals. 

• Model documentation that was satisfactory for use by technical experts, but 

unsatisfactory for use by end users and internal audit. 

The business unit model development processes meet or exceed industry standards, and 

produced models that were generally effective in meeting the developers’ goals for estimating 

risks, prices, and performance. In addition, the program structure established for ongoing 

validation within the business units is satisfactory. The business unit model departments and 

the Chief Risk Officer division have made substantial progress in initiating a program to 

address deficiencies in policies, communication, controls, validation, and project management 

for the development, implementation, and ongoing validation of models throughout their life 

cycle. However, many aspects of the program are in their initial stages, and will require 

considerable, time, effort, and resources to fully implement. Management corrected or is in 

the process of correcting issues listed above. 

ASSET QUALITY AND CREDIT RISK MANAGEMENT

Significant deficiencies in risk management in the Single-Family, and Housing and Community 

Development (HCD) business units’ functions impact management’s ability to control 

expenses. Risk management deficiencies left uncorrected may result in higher expenses, 

unplanned losses, and opportunity costs. Data and systems deficiencies produce some 

incomplete or inaccurate reports, impeding effective risk management. 

Management practices and standards and the current business/credit cycle contributed to 

strong asset quality evidenced by low delinquency rates and loss levels. Single-family business 

has benefited from well established credit acquisition standards, credit enhancements, and 

significant home price increases which have minimized losses. Similarly, Housing and 

Community Development has benefited from the present demand for distressed properties 

despite low capitalization rates. Current practices and systems provided adequate service to 

the Enterprise’s clients for traditional loan products. 

Key deficiencies in risk management noted in 2005 include: 

• Policies do not adequately define risk tolerances or position responsibilities. 

• Poor data and systems generated reports that impeded satisfactory management of 

many aspects of production and risks. 

• Poor accountability contributed to the lack of review of critical business center risk 

reports by the centralized Single-Family Risk Management team. 

• Information is typically reported on an aggregate basis that sometimes lacks granularity. 

Historical risk metrics are not always available, preventing the monitoring of some 

trends. 

• Deficient records; and varying quality of internal management over information, loans, 

lenders, and servicers and vendor management have increased expenses. 

24
• The lack of granularity in risk ratings for Housing and Community Development loans 

rated pass or “green” has impeded risk management. 

• A robust, risk-based pricing methodology has not been developed for Housing and 

Community Development. 

• The loss reserve methodology is inappropriate and is still in transition towards a fully 

GAAP compliant approach. The methodology did not have sufficient independent 

controls for systems to ensure compliance with GAAP, and the integrity of model 

results. 

• The failure to upgrade systems has hindered the Enterprise from introducing new 

products. Data, systems, and risk management practices do not fully accommodate the 

small but growing levels of newer, complex and higher-risk products. 

• Substantial use of end-user computing applications (EUCs) created key person 

dependencies and obsolescence issues. Management implemented effective interim 

controls for end-user computing applications in late 2005. 

• Significant levels of staff for risk management and business operations are needed 

before the credit business unit can become fully operational. 

Management recognizes these problems, and has begun to devote significant resources to 

correct the deficiencies. Progress has been made in revising the organizational structures, and 

some aspects of risk management in both the Single-Family and Housing and Community 

Development business units. In addition, new business unit resources are now devoted to 

coordinating products and services within and among business lines, and standardizing pricing 

and risk management practices. However, the corrective actions to both internal and external 

findings are in their initial stages, and will require significant time, resources, and effort to fully 

implement. Many issues can be corrected in the short term through permanent corrections or 

interim work-arounds, but many of the issues related to data and systems will require several 

more years to address. 

Single-Family Mortgage Portfolio 

The Single Family business unit’s underwriting standards ensure that loan losses are 

not excessive. Deficiencies in staff levels, accountability, data, systems, reports, and in 

establishing risk tolerances have impacted risk management, and resulted in 

increasing expenses. Current systems provide adequate service to clients for 

traditional loan products, but their deficiencies adversely impact the Enterprise’s 

ability to adequately offer new products. Management has begun to address many of 

these issues. 

Single-Family management has made significant progress in addressing the large number of 

operations, control, and risk management deficiencies, but will require significant resources, 

time, and effort to fully address them. Single-Family has restructured its organization, 

strengthened its structure for risk management, and has begun coordinating related functions. 

However, job responsibilities needed clarification and staffing was incomplete. Outside hires 

injected knowledge of industry standards and best practices into the business unit, but overleveraging of new personnel risks burnout. 

25
The Single-Family business unit appropriately centralized many of the operations managing 

risks in loans and counterparties to better control functions that had been scattered in many 

offices across the country. The business centers conduct many aspects of their work 

satisfactorily. However, appropriate controls, data, systems, and risk management practices 

were not properly implemented in many areas, generating deficiencies in the processes. 

The business centers exhibited a number of deficiencies in policies, procedures, data integrity, 

risk reporting and monitoring, and vendor hiring practices as a result of inadequate oversight 

by management. Management began to address the deficiencies noted below during 2005: 

• Unable to Market (UTM) properties were not actively managed and processes needed 

improvement: controls were not in place to ensure revaluations were performed, 

vendors did not consistently forward critical information to asset recovery specialists, 

or repurchases were not always timely. Further, there was no overall policy guiding the 

management of UTM properties. 

• Contract appraisers were hired without robust due diligence and their work was not 

adequately monitored and documented. 

• Procedures for adding new vendors were weak and inconsistently applied. 

• The Real Estate Owned (REO) portfolio was not periodically revalued after the initial 

appraisal; a practice inconsistent with industry standards. 

• Management reports did not meaningfully summarize information, and are primarily 

used to assign workload instead of identifying and managing issues. 

Many business center reports provided substantially all information needed by the business 

center and headquarters management to monitor credit risks. Ongoing monitoring of 

approved lenders was satisfactory, but proactive analysis to approve lenders was weak, and the 

team structure used to interact with customers created potential conflicts of interest. 

Headquarters management provided insufficient oversight to business center management of 

lender risks, but recognized and corrected the deficiency in 2005. Management began to 

address other deficiencies in 2005 listed below: 

• The operational control functions lacked authority and sufficient independence. 

• Headquarters management of many business center risks was insufficient, and 

personnel did not regularly review key reports. This was corrected during first quarter 

2006. 

• Staff levels were insufficient to complete the initial analysis used to approve lenders. 

• Individual offices did not share information necessary for others to complete their 

duties. 

• Credit file information was fragmented because each office maintained its own credit 

file. 

• Lender approval analysis was weak due to the lack of financial statement analysis and 

on-site due diligence for each counterparty. 

26
• Watchlist reports were not an indicator of potential problems, but instead listed 

lenders that had become problems. 

Multifamily Loan Portfolio 

Housing and Community Development’s risk management practices ensure that loan 

losses are not excessive, but deficiencies exist in data, systems, reports, risk ratings, 

risk metrics, and quality control. Management has begun to address many of these 

issues. 

Housing and Community Development has a low degree of automation, which adversely 

impacts the efficiency of operations, the accuracy of risk management reports, and the ability 

to manage risks. The lack of pre-planned and integrated systems has required the use of over 

130 end-user computing applications for business critical operations. The deficiencies have 

adversely impacted the quality of reports. During 2005, end-user computing application 

controls were implemented that provide good controls over security and changes until 

comprehensive and integrated systems can be installed, but the risk rating and management 

deficiencies created by the current systems remain. 

Housing and Community Development’s underwriting policy and standards need updating 

based on the volume of waivers granted to the Delegated Underwriting and Servicing (DUS) 

lenders. The waiver rate is indicative of a policy that is too restrictive, lending practices that 

are too liberal, and/or a policy that is not current relative to market conditions. Moreover, this 

high waiver rate has an adverse impact on earnings given the increase in staff involvement to 

review and approve these loans and nonstandard pricing decisions. Recent decisions have 

given the authority to the Delegated Underwriting and Servicing lenders to review and approve 

waivers; however, Housing and Community Development has not yet established a strong and 

comprehensive quality control process. 

The quality control function focused on documentation review, however, new management is 

desirous of changing the focus to include a credit analysis and assessment. Nevertheless, credit 

information was incomplete or not readily available. For example, management incurred 

difficulties in assessing insurance coverage after the Gulf Coast Hurricanes because records 

were incomplete. 

Key information was missing from many Housing and Community Development reports. 

The omissions were not so severe that management could not reasonably monitor and control 

most activities and risks. However, the omissions increased expenses and losses and adversely 

impacted their ability to proactively manage the loans. Most reports are produced on end-user 

spread sheets and are inadequately controlled for accuracy, increasing the risk of error and key 

person dependency. Data integrity issues adversely impacted the quality and timeliness of 

reports. Key performance indicators did not provide all necessary information for effective 

risk management. Risk management reports provide appropriate information on aggregate 

performance and the spread, but loan-level analysis is limited and little information is provided 

for proactive management. The quality of many reports improved during 2005 due to 

technology investment. 

Housing and Community Development management has made significant progress in 

restructuring this business unit. Nearly all key management positions are staffed with qualified 

27
people who have begun to address the numerous deficiencies in data integrity, origination risk 

analysis and rating, and back end risk management. However, it will require substantial effort 

and several years to address all deficiencies. 

LIQUIDITY

Liquidity management is satisfactory but processes are inefficient due to lack of detail in some 

collateral reports, and manually intensive procedures to transfer securities for repurchase 

agreements (repo). The wire transfer process exhibited deficiencies in some fundamental 

controls, but an interim correction was implemented in late 2005. 

Liquidity is strong based on the ample level of liquid assets in the mortgage-backed securities 

and liquidity investment portfolios available for sale or repo to cover a stress event to cash 

flows as well as the stability in funding costs and availability due to the company’s status as a 

government sponsored entity. Asset liquidity, the strongest source of liquidity, amply covered 

short term liabilities. Treasury management consistently met the non-mortgage asset liquidity 

guidelines, and Liquidity Investment Portfolio (LIP) assets exceeded 5 percent or more of total 

assets throughout 2005. 

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

the potential for errors. Deficient wire transfer controls were addressed with an interim 

correction in late 2005. Treasury management automated the process that produces short 

term cash flow forecasts in second quarter 2005, which improved data integration, allowed for 

the use of more accurate cash flow forecast assumptions, consolidated multiple reports, and 

reduced the potential for report errors. 

The system used to transfer securities for use in repos is cumbersome, and the steps to 

complete a transfer are not intuitive. The systems’ difficulties coupled with infrequent use 

increase the risk of transaction error during stress events. The risk is reduced by the 

availability of the manually intensive legacy system, and increased staff training for the new 

system at headquarters and remote locations. The legacy system has been proven during past 

stress events, but is limited in its ability to efficiently move large volumes of smaller securities 

on short notice. 

The wire transfer process did not provide appropriate segregation of duties due to systems 

limitations a lack of segregation of duties, and insufficient controls around wire instructions set 

up and changes; which exposed the company to unauthorized disbursements of funds. The 

deficiency occurred due to inadequate systems that do not facilitate this control. Treasury 

management provided short-term resolution in 2005 through manual procedures, and will 

permanently address the issue in the future by replacing the system. 

Most liquidity reports are satisfactory but some do not provide securities detail needed for 

efficient asset transfers, and a full understanding of the Enterprise’s compliance with the 

liquidity coverage ratio. Reports are satisfactory for monitoring cash forecasts, the weekly 

Dutch auctions, Liquidity Investment Portfolio credit quality and liquidity, limit compliance, 

funding maturities, costs, and elasticity. However, missing collateral detail in some reports 

impeded liquidity management’s ability to understand the adequacy of the coverage ratio, and 

the availability of securities for repos. 

28
Board liquidity policies were improved in late 2005, and are satisfactory. Management policies 

for the Liquidity Investment Portfolio are in the process of completion. 

The Board formally approved a new liquidity policy in January 2006. Management policies for 

the Liquidity Investment Portfolio are in the process of completion, and address the purpose 

and management of the portfolio, and provide limits on credit and interest rate risks. Policies 

did not provide limits for the distribution of liability maturities, although informal guidelines 

exist. 

In the past, systemic market events have not significantly impacted Fannie Mae’s liquidity 

because of the market’s perception of Fannie Mae’s debt as a “flight to quality” product. In 

addition, recent and past company-specific events have generated only a small impact to the 

cost of and market access to funding. 

SENSITIVITY TO MARKET RISK

Interest rate risk management is satisfactory due to appropriate risk management for nearly all 

financial products, and good communication among risk managers, senior management, and 

the Board. The Board approved satisfactory risk policies and limits, and management is 

drafting policies for Capital Markets operations and management. Operations processes are 

generally satisfactory but are inefficient in several areas. 

Significant deficiencies exist in controls, systems, and data. However, these deficiencies were 

recently corrected or in the process of correction in the areas of operations, middle office, and 

risk measurement functions. Issues noted in 2005 include: 

• Lack of independence in wire transfer cash disbursements, back office access to and 

confirmation of subsequent event transactions, and the pricing of financial instruments 

in the process from the Capital Markets business unit through the Controller 

department. 

• Data and/or systems deficiencies required manually intensive and inefficient 

generation of information that introduced some level of uncertainty in interest rate risk 

measurement, impacted access controls to some systems, and contributed to two 

missed debt call dates. 

• Data and systems deficiencies impact some performance information in senior 

management reports, management of the mortgage revenue bond portfolio, and 

traders’ monitoring of security delivery against negotiated stipulations for private label 

securities (PLS). 

• Wraps on AAA PLS mitigated risk from credit losses, but policies, staff levels, reports, 

and communication between traders and risk management need strengthening before 

lower-rated PLS are purchased. 

The level of interest rate risk after hedging is moderate based on the types of and trigger 

points on risk limits, some uncertainty in the data and systems used in measuring interest rate 

risk, the level of delta hedging used in the portfolio management strategy, and anticipated risk 

levels created by securities purchases during opportunistic market events. 

29
The Board approved policies in late 2005 that provide satisfactory limits, guidelines, and 

accountability for interest rate risk management. Management is developing other market risk 

policies and procedures. Policy limits control exposure for duration and convexity through 

market value of equity (MVE) sensitivity, with triggers that notify the Chief Risk Officer 

department, management, and the Board at increasing thresholds. Management is developing 

business unit policies and written procedures for portfolio management, the middle office, and 

operations that detail limits, guidelines, and procedures that are consistent with the Board 

approved policies. 

Interest rate risk management processes and controls are generally satisfactory. 

Interest rate risk operations and risk measurement processes are generally satisfactory, 

but are often manually intensive and inefficient. Systems and data deficiencies 

introduce some level of uncertainty into interest rate risk measurement. 

Management has established an effective program to evaluate and communicate risks and risk 

levels have been consistently maintained within limits formally set by the Board, and informal 

sub-limits used by management. Board oversight significantly improved over the year with 

meaningful reports and additional expertise. The Board report package shows compliance 

with limits and contains several different measurements of interest rate risk that combined, 

provide the Board’s Risk Policy and Capital Committee (RPCC) a fair representation of the 

Enterprise’s interest rate risk profile. 

Data and systems deficiencies introduce a low and acceptable level of inaccuracy in the 

numbers used to manage the company’s interest rate risk due to multiple on top adjustments 

made in a manually intensive process to a months-old settled book. Cross trained personnel 

support the accuracy of manually generated risk numbers, but a large portion of their time is 

spent generating numbers rather than conducting risk analysis. Regular backtesting and 

attribution analysis provide ex-post confirmation that the resulting numbers are reasonably 

accurate. A taskforce expects to correct these deficiencies during 2006. 

Operations processes were generally satisfactory but inefficient due to manual work arounds 

for systems and data deficiencies, and an organization structure that was divided by front 

office activities rather than operations functions. New management began reorganizing the 

structure and addressing deficiencies during 4Q05. 

Significant deficiencies exist in several fundamental controls for operations, but are 

being or have been recently corrected. 

Inadequate controls were noted throughout the processes and systems for trade execution, 

operations, and accounting. The deficiencies stem from rigid proprietary systems that were 

not revised or maintained over time, and policies, controls, and documentation that were 

nonexistent or did not meet industry standards. Many systems deficiencies will require one or 

more years to correct due to their prioritization with the restatement and other significant 

projects, and integration with other systems that will be bought or developed in the future. 

Interim, manual controls will be used until the long term solutions are implemented. Key 

deficiencies included: 

30
• The lack of independence in pricing financial instruments for month end pricing was 

addressed during the second half of 2005. 

• The lack of segregation of duties required for the wire transfer function exposed the 

Enterprise to unauthorized cash disbursements. An interim control is in use until a 

new system is installed. 

• The lack of segregation of duties for the entry and confirmation of subsequent trade 

events such as terminations, assignments. 

• Policies and documentation for some financial reporting controls require updating to 

meet standards for Sarbanes-Oxley. 

• Missed debt call dates due to a system deficiency created about $5 million in lost 

opportunity cost during 2004 and 2005. 

• Information technology deficiencies in access control, change management, and life 

cycle methodologies allow unauthorized changes in application data. 

Exposure to interest rate risk was maintained well within the Board limit for market value of 

equity sensitivity. Convexity exposure is controlled with a management limit for delta hedging 

based on the amount of swaps needed to bring the portfolio back to a delta neutral position. 

In addition, business unit limits control duration gap, the portfolio convexity gap; and delta 

hedging exposure. Exposure levels decreased by roughly half during 2005 due to a more 

conservative hedging strategy used while restating financial statements and significant sales of 

negatively convex assets to meet the increased regulatory capital requirements. The strategy 

and lower risk in the market produced less volatile changes in the market value of equity. 

EARNINGS

The analysis below is based on financial information that could be revised significantly in the 

future. The Enterprise’s restatement of its financial information may change some of 

OFHEO’s conclusions. 

Earnings for 2005 are satisfactory, but decreased due to a decline in the mortgage asset 

portfolio and higher administrative expenses. Earnings remained at a satisfactory level of the 

Enterprise’s regulatory capital requirements. Earnings declined in 2005 due to a smaller 

retained portfolio caused by the need to build capital ratios, limited purchase opportunities for 

the retained portfolio due to asset spread compression, higher expenses from the restatement 

effort, upgrades to systems, and attendant staffing requirements associated with the risk and 

control remediation areas within the Enterprise. 

Net interest income (NII) declined sharply due to margin compression and a smaller retained 

portfolio. Tight spreads allowed the Enterprise to meet the higher regulatory capital ratio by 

reducing the retained portfolio at favorable prices. However, tighter spreads and a flattened 

yield curve resulted in marginal returns for traditional products, reducing the volume of 

purchases in these products. 

31
Guarantee fee income was in line with plan, and slightly above performance in 2004. The 

Gulf Coast Hurricanes slightly reduced guaranty fees, interest income in the retained portfolio, 

and increased credit losses from properties that were under-insured or had no flood insurance. 

 

Higher expenses for restatement effort and upgrades to data, systems, and controls reduced 

2005 earnings. Baseline administrative expenses will increase permanently to cover, in part, a 

significant increase in employees for risk management, and current and planned business 

activities. 

CAPITAL ADEQUACY 

Regulatory capital is classified as adequate. OFHEO’s Office of Capital Supervision 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. Fannie Mae remains subject to a 

September 30, 2004 Agreement with OFHEO that requires the Enterprise to maintain a 

capital surplus of 30 percent over its minimum capital requirement. 

On March 31, 2006, OFHEO announced that it had classified Fannie Mae as 

adequately capitalized as of December 31, 2005. As of that date, the core capital of the 

Enterprise exceeded its directed minimum capital requirement by approximately 3.1 

percent, or $1.134 billion. OFHEO classified Fannie Mae as adequately capitalized for 

the three preceding quarters of 2005. 

 

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

financial condition, as certified and represented as true and correct to the best of Fannie Mae 

management’s belief and knowledge. The capital classification remains subject to revision 

during Fannie Mae’s re-audit and accounting restatement process, as well as the conclusions 

about accounting policies and practices in OFHEO’s special examination. OFHEO supports 

its capital classifications through a combination of compulsory capital reporting, weekly 

monitoring, analysis of changes in the Enterprises’ capital requirements and analysis of trends 

in risk factors that could impact the adequacy of capital. 

32
ANNUAL REPORT TO CONGRESS 

Examination Year: 2005 

Federal Home Loan Mortgage Corporation/Freddie Mac 

8200 Jones Branch Road 

McLean, VA 22102 

EXAMINATION AUTHORITY AND SCOPE 

Examination Authority and Reporting Convention 

This Report of Examination contains the results and conclusions of OFHEO’s 2005 annual 

examination of the Federal Home Loan Mortgage Corporation (“Freddie Mac” or the 

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

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

program assesses the Enterprise’s financial safety and soundness and overall risk management 

practices. OFHEO utilizes a “CAMELS” methodology (Capital Adequacy, Asset Quality, 

Management, Earnings, Liquidity, and Sensitivity to Market Risk) similar to those adopted by 

the federal depository institution regulators to report examination results and conclusions to 

the Board of Directors and to Congress. 

2005 Examination Scope 

Our examination activities focused on supervision provided by Board of Directors and senior 

management, risk management activities, corporate governance functions, internal controls, 

accounting practices, new product development, internal audit, and compliance with the 

requirements of the Consent Order the Enterprise executed on December 9, 2003 (the 

“Consent Order”). Our supervisory activities also included reviews of asset quality, market 

and interest rate risk management practices, earnings performance, capital adequacy, 

information technology, and liquidity. 

EXAMINATION RESULTS AND CONCLUSIONS 

The Enterprise remains a supervisory concern, although efforts toward improvement are 

underway. The Board and management are continuing to revise and implement 

comprehensive plans to strengthen senior management, improve controls, and balance 

priorities, initiatives, and risks. Leadership from the Board and senior management will be 

challenged during 2006 to reshape the corporate culture, build long term sustainable processes, 

further improve overall governance, enhance risk management capabilities, stabilize the 

organizational structure, reduce turnover, and clarify responsibilities. 

While concerted efforts by the Board and management have been made to address the myriad 

of concerns, progress during the second half of 2005 was slowed as the volume and 

complexity of issues became more apparent. The Enterprise continues to experience a 

number of significant operational issues, high turnover, and weaknesses in entity and process 

level internal controls. During 2005, efforts to implement sustainable processes to permit the 

issuance of timely and accurate financial statements were less than fully effective. Although 

necessary, the high level of business and process change throughout the organization has 

stressed the existing infrastructure, risk management systems, and operating practices. Long 

term resolution of identified issues will require substantial efforts on the part of Enterprise 

33
personnel. Improvements to systems capabilities, information processing controls, and the 

successful implementation of re-engineered business processes will be necessary to restore the 

overall control environment to a satisfactory condition. 

While the resolution of internal controls remains an on-going concern, the Enterprise has: (1) 

a qualified and active Board of Directors, (2) a senior management team committed to 

resolving weaknesses, (3) a significant capital surplus; (4) strong asset quality, (5) and effective 

management of interest rate and liquidity risks. During 2005, the Enterprise has developed an 

integrated multi-year business plan that recognizes the need to improve accounting and 

financial management capabilities, enhance operating controls, and enhance risk management 

activities. 

MATTERS REQUIRING BOARD ATTENTION 

Key matters highlighted in this report requiring strong Board oversight: 

• Human Resources. The Board should closely monitor key human resource 

metrics such as staffing levels, turnover statistics and open requisitions to ensure 

day-to-day activities are appropriately staffed and effectively managed. The Chief 

Financial Officer position remains open. The Board should also continue to 

monitor key cultural initiatives related to building a strong executive team, 

strengthening management depth and expertise, and ensuring staffing levels are 

consistent with Enterprise priorities. 

• Internal Controls. The Board should continue to oversee management’s progress 

toward remediating widespread internal control weaknesses to enable the release of 

accurate and timely financial statements, permit a return to controls based auditing, 

and build sustainable internal control governance processes. Strengthening and 

improving internal controls for financial, managerial and regulatory reporting 

processes along with the planned changes in Enterprise risk management, data 

processing, and operational practices are necessary. Effectively managing the pace 

of introducing new products and services deserves continued attention to balance 

resource requirements with other important control initiatives. 

• Enterprise Risk Management. The Board should track management’s progress 

in establishing an effective Enterprise risk management program to ensure 

authorities, roles, and responsibilities are clearly defined and Enterprise level risks 

are promptly identified, aggregated, and reported. Improvements in business line 

risk management practices, the risk control self assessment process, achieving 

compliance with corporate policy, and consistent establishment and monitoring of 

risk limits are also necessary. 

34
BOARD AND MANAGEMENT SUPERVISION 

Board of Directors 

The Board actively oversees the affairs of the Enterprise. The quality of Board reporting has 

improved since 2004. Board and related committees are provided sufficient and timely 

information to make informed decisions. Continued leadership from the Board will be 

necessary to ensure ongoing unity among the new senior management group, clarity of 

priorities, and strategic direction. 

The number of Board and Committee meetings held during the year 2005 met or exceeded the 

NYSE listing standards, OFHEO’s Corporate Governance Regulations, and Freddie Mac’s 

own Corporate Governance Guidelines. The majority of Freddie Mac’s Directors are 

independent and all members of the Audit, Governance and Compensation committees are 

independent as required for listed companies. Term limits and age restrictions are in effect. 

Of the thirteen Directors currently serving, two of the Board members exceed those limits, but 

have been granted a temporary extension. OFHEO will continue to monitor the Enterprise’s 

previous commitment to separate the positions of Chairman and Chief Executive Office. 

Human Resources 

High levels of organizational change, adverse press, legislative uncertainty, a redefining of the 

corporate culture, changing priorities, and tight job market in the financial services sector 

continue to affect the Enterprise’s ability to attract and retain qualified staff. Record levels of 

employee turnover in 2005 were a key factor influencing operational risks and the ability to 

fully achieve corporate goals and objectives. Turnover in 2005 more than doubled from 2004 

and occurred at all levels within the Enterprise. Since 2004, the Enterprise has replaced 

virtually all members of senior management – over two dozen positions. Changes in senior 

management along with a number of initiatives are designed to improve leadership capabilities, 

increase management depth, and address short and long-term cultural issues. 

Enterprise Risk Management 

The Enterprise Risk Oversight (ERO) function is not fully effective. The current ERO model 

focuses on credit, market, model, and operational risk. The existing framework lacks sufficient 

clarity with respect to authorities, roles, and responsibilities. Resource limitations and the 

current governance structure limited ERO’s ability to identify, aggregate, and report current 

and emerging risks across the Enterprise. Instances have been noted in which ERO 

recommendations are not promptly addressed by management. The implementation of an 

effective risk management program will also require improvements in line-of-business risk 

management capabilities through the risk control self assessment process, ongoing compliance 

with corporate policy, and the adoption of enhanced processes to establish, change, and 

monitor various limits/exposures. 

The Enterprise Risk Management governance structure is being re-assessed under a new 

leadership team to address the examples noted above and improve the effectiveness of the 

function. The enhanced risk management framework will integrate corporate-wide financial 

and non-financial related risks; clarify roles, responsibilities, and authorities; and integrate 

reporting of risks across the Enterprise. The evolving risk management framework should 

improve coordination and integrated reporting among Enterprise risk management, audit, legal, 

and compliance. 

35
Audit 

The Audit Committee of the Board met sixteen times during 2005 and actively oversees the 

internal and external audit programs. The General Auditor and external auditors have 

sufficient interaction with the Audit Committee including periodic executive sessions. 

During 2005, OFHEO did not rely on the work of Internal Audit to support examination 

activities since a substantial portion of the traditional audit program was accomplished during 

the latter part of 2005 and early 2006. Traditional audit activities were delayed until late 2005 

as Internal Audit was involved in testing key controls. Internal Audit has now returned to a 

regular audit schedule. 

Internal Audit’s planning methodology currently requires improvement to reach the standard 

expected of a large, complex financial institution. Areas to improve include: developing a 

more formal systematic evaluation to identify the audit universe, updating policies, and 

improving the rationale for the audit plan. Staffing vacancies and turnover continue to be 

challenges for the division. 

Compliance 

The corporate compliance management function was established in late 2003 and is 

responsible, in part, for maintaining acceptable programs to ensure ongoing compliance with 

applicable laws, rules, and regulations. In addition, the division also maintains and provides 

employee training on ethics and the corporate code of conduct. As noted above, efforts are 

underway to ensure that compliance risks are more fully integrated into the evolving 

Enterprise risk management function. The Chief Compliance Officer has sufficient 

interaction with the Audit Committee including periodic executive sessions. 

Internal Controls 

Internal controls surrounding financial, managerial, and regulatory reporting processes are 

weak. Fundamental changes in Enterprise risk management, data processing, and operational 

controls are necessary before the Enterprise can easily self-identify and remediate widespread 

control weaknesses. While the Finance division has been responsible for overseeing internal 

control remediation efforts, responsibility for full resolution rests with management of the 

business units. Freddie Mac staff continues to aggressively address and remediate or mitigate 

all known material and significant control deficiencies, but the number of known material 

weaknesses and significant deficiencies remains high. Progress developing sustainable 

processes to mitigate and remediate entity and process level control weaknesses has been slow 

and not completely effective. Considerable work remains before the Enterprise can achieve a 

timely and consistent financial close process, return to controls based auditing, and release 

audited financial statements on a regular schedule that is compliant with regulatory 

requirements. 

Internal control testing continues to show high error rates. The high error rates reflect a need 

to properly define and design effective end-to-end key control processes. During 2005, 

management discovered errors that internal controls did not prevent or detect in a timely 

manner. Additional errors are likely to surface as keys controls are validated and tested, 

application systems are upgraded or replaced, and standardized account reconciliation 

processes are implemented. Weaknesses in change control, testing and analytics increase risk 

that errors in financial reporting will not be detected in a timely fashion. For example, the 

effectiveness of detective monitoring and analytic controls, including account reconciliations, 

36
are hampered by a cumbersome General Ledger and lack of detailed subsidiary accounting 

records. Full control remediation may not be possible until Freddie Mac implements 

improved automated systems and operating controls around the Enterprise – in front office 

locations, operations units, and in financial accounting. 

Accounting policy codification and development requires improvement. While progress has 

been achieved, additional efforts are underway to communicate and finalize the codification of 

all existing accounting policies, incorporate new accounting literature, and assure that 

accounting policies align with internal control documentation and new product introduction. 

To help achieve internal control effectiveness and increased reliance on controls, management 

is now preparing a plan to complete a comprehensive end-to-end analysis of the company’s 

design of financial controls. Throughout 2006, management intends for this analysis to 

identify control gaps and ensure the effectiveness of key financial controls. 

A number of risks to successfully remediating internal control weaknesses remain and include: 

 

• Lack of a comprehensive plan and end-to-end analysis of financial controls. 

• Weakness in the risk control self-assessment process. 

• Complexity associated with the interdependent nature of the remediation activities. 

• Uncertainty regarding the quality and sustainability of newly established controls 

and interim controls. 

• Layers of additional manual and/or defective controls that may not effectively 

compensate for inadequate controls over automated processes. 

• High turnover levels and depth of subject matter experts. 

• The continued discovery of control testing failures including previous identified 

weaknesses. 

• Existing control deficiencies, that if not addressed, may develop into material 

weaknesses. 

• The number of existing simplifying assumptions. 

• Controls remediation work is focused on controls related to financial reporting and 

not on other non-financial statement related controls. 

• A need to provide ongoing employee training programs related to internal controls 

and responsibilities. 

 

Model Risk 

Model risk governance requires improvement. Improvements are necessary to upgrade 

governance practices for model development and to control and enhance the quality of 

independent model risk oversight. 

In 2005, the Enterprise reorganized and unified model development activity within the Risk 

Measurement and Capital Strategy group of the Investment and Capital Markets (I&CM) 

division. I&CM management is in process of working through the challenges inherent in a 

substantial corporate reorganization. Management is harmonizing model-related policies, 

procedures, and practices to improve the repeatability and auditability of the model 

development process. Model risk governance is an evolving discipline, and professional and 

regulatory standards are becoming more demanding. 

37
The practices of the independent model risk oversight function housed within the Enterprise 

Risk Oversight division—the Modeling & Methods group (M&M)—require improvement if 

the group is to provide meaningful, independent evaluations of the quality of the business 

units model development practices and degree of adherence to corporate policy and 

professional standards. M&M’s authorities and scope of responsibility should be clearly 

articulated in the form of a written charter; policies, procedures, and practices should be 

enhanced to ensure management resolves findings in a timely and complete manner; and 

M&M should be allocated sufficient staffing and other resources to fulfill its defined 

responsibilities. Management has exhibited a willingness and has taken steps to address the 

shortcomings we have identified and to enhance independent model risk oversight. 

ASSET QUALITY AND CREDIT RISK MANAGEMENT 

The Enterprise’s overall asset quality is strong. The single-family, multifamily, investment 

securities and liquidity and contingency portfolios currently exhibit favorable quality and 

performance metrics. There are no immediate signs of significant deterioration in credit 

performance trends. Over the past several years, significant shifts in the nature of mortgage 

originations and the composition of the retained portfolio have occurred. As the portfolio 

seasons, adverse changes in house price appreciation, mortgage rates, or unemployment levels 

could negatively impact future performance. In general, underwriting standards and credit 

administration practices are prudent, although we have identified several opportunities for 

improvement given the Enterprise’s expansion of investment and guarantee activities in the 

subprime and nontraditional mortgage sectors. The Enterprise prudently manages exposures 

to significant counterparties (e.g., seller/servicers, mortgage insurers, and derivatives 

counterparties). 

At times, credit policy development and implementation lag behind related business activities. 

Credit policies do not consistently define risk tolerances, responsibilities and accountabilities. 

In some instances credit-related processes are not consistent with the Enterprise’s 

corresponding policies and procedures. The internal control framework requires continued 

review and re-assessment as the Enterprise pursues new business activities and market share 

objectives. 

Single-Family Mortgage Portfolio 

Current portfolio performance metrics for the single-family mortgage portfolio reflect a low 

level of serious delinquencies and credit losses. Credit losses in 2005 (charge offs and REO 

expense) were $141 million, unchanged from 2004. Management projects credit losses will 

increase modestly during 2006 due to Hurricanes Katrina and Rita, seasoning of the existing 

book, and softening house prices. As noted above, shifts in the nature of mortgage 

originations (e.g., the dramatic increase in hybrid Option ARMs and affordability products 

with no historical performance data), have changed the composition of the mortgage portfolio 

over the past few years. Unfavorable housing price trends, increasing unemployment levels, 

and/or increasing mortgage rates could alter future portfolio performance. 

Management has expanded the Enterprise’s purchase and guarantee of higher-risk mortgages. 

Internal measures of credit quality reflect the quality of the Enterprise’s incremental purchases 

declined in 2005. For example, expected default costs (a measure of inherent risk exposures in 

the portfolio) on new purchases increased sharply during the 4Q05. Similarly, internal 

38
measures of credit risk reflect that the percent of single-family flow purchases in the A/A+ 

risk class declined moderately in 2005, from 89-92 percent in 2004 to 85-88 percent in 2005. 

The Enterprise has not yet developed the requisite credit quality assessment tools and 

operational capabilities to support a significant expansion into the subprime and nontraditional 

sectors. Consequently, the Enterprise is in the process of strengthening the credit risk 

management framework necessary to enable the Enterprise to properly identify, measure, 

monitor, and control the credit and operational risks inherent in subprime and non-traditional 

mortgage portfolios and related activities. 

The volume of new product introduction has outpaced the supporting infrastructure and has 

required management to approve new product offerings with high exception levels. Clearly, 

management faces a difficult and complex challenge to support new mortgage products at the 

same time they are in the process of remediating a considerable array of significant deficiencies 

and material weaknesses in internal controls. The Enterprise is in the process of enhancing its 

practices for developing and introducing new single-family mortgage products. As part of this 

effort, senior management has begun to prioritize and rationalize new product introduction to 

ensure satisfactory infrastructure and governance practices are in place. 

Multifamily Loan Portfolio 

The multi-family credit portfolio remains sound. Multifamily mortgage portfolio growth was 

modest during 2005. The strong credit performance can be partially attributed to rising 

interest rates which have resulted in declining vacancy rates and increasing rentals. In addition, 

relatively soft multifamily rental markets in the Southeast have benefited from the effects of 

Hurricanes Katrina and Rita. 

As of December 31, 2005 portfolio credit losses continue to be close to zero with no 

delinquencies sixty days or greater. Losses due to the effects of Katrina and Rita are minimal, 

with loss projections at, or less than $18 million. REO asset management remains strong with 

inventories continuing to decline. During 2006, management is developing a fully integrated 

costing and risk rating system for the multi-family portfolio. 

Investment Securities 

The non-agency mortgage asset-backed securities portfolio remains the most rapidlyexpanding segment of the Enterprise’s retained portfolio. The unpaid principal balance of this 

portfolio grew 38 percent in 2005 (from $175 billion to $243 billion), and at year-end 

comprised over 30 percent of the retained portfolio and 6 times core capital. This portfolio 

grew significantly—53 percent—in 2004 as well. Although a vast majority all of the securities 

in the portfolio are AAA-rated, the Enterprise’s credit risk management practices governing 

this portfolio segment require improvement. The most notable improvements are required in 

credit administration and operations, including clarifying investment strategies and portfolio 

limit-setting, improving credit policy development, credit assessment tools, risk reporting, and 

operational capabilities. 

During our examination of risk management practices governing the Enterprise’s commercial 

mortgage-backed securities (CMBS) portfolio, OFHEO in consultation with the Department 

of Housing and Urban Development determined that certain security structures involving cash 

flows from mixed pools (i.e., pools containing both multifamily properties and non-residential 

commercial properties) were not authorized under the Federal Home Loan Mortgage 

39
Corporation Act. As a consequence, OFHEO directed the Enterprise to submit a written plan 

that provided for the timely and orderly divestiture of the unauthorized securities. 

Management submitted an acceptable plan that will result in the liquidation of the 

unauthorized securities by year-end 2006. 

LIQUIDITY 

Liquidity is strong. The Enterprise has access to sufficient sources of funds on acceptable 

terms to meet present and anticipated liquidity needs. Management is able to effectively 

forecast liquidity needs and sources; and to identify, measure, monitor, and control the 

Enterprise’s liquidity position. Liquidity management policies, procedures, and a liquidity 

contingency plan are in place and identify authorized investments, exposure limit rules, and 

independent review requirements. Management has consistently maintained its liquidity and 

contingency threshold of five percent of on-balance sheet assets. Management has appropriate 

policies and procedures for forecasting short- and long-term liquidity needs. Risk limits are in 

place to ensure sufficient liquidity levels, and management evaluates limits and pertinent 

metrics on a daily, weekly, and monthly basis. The Market Risk Oversight (MRO) group 

monitors exposures relative to risk limits on a regular basis; however, MRO lacks the ability to 

independently validate the reported metrics or establish policy/risk limits. 

SENSITIVITY TO MARKET RISK

Interest rate risk management is satisfactory. Sensitivity to market risk reflects the degree to 

which changes in interest rates can adversely affect the Enterprise’s earnings and capital. 

During 2005, Enterprise management demonstrated an appropriate ability to identify, measure, 

monitor, and manage market risk in a manner commensurate with the nature and complexity 

of the Enterprise’s activities. Quantitative measures of the Enterprise’s sensitivity to market 

risk exposures—such as, Portfolio Market Value Sensitivity (PMVS) and duration gap—reflect 

that earnings and capital are appropriately protected against significant movements in market 

rates. 

As of December 31, 2005, PMVS, duration gap, and convexity were within the Board’s 

approved measures of interest rate risk. PMVS measures the estimated loss in pre-tax 

portfolio market value as a result of instantaneous rate and yield curve shocks. PMVS is 

measured in two ways: PMVS-L estimates the loss in pre-tax portfolio market value from an 

immediate adverse 50 basis-point parallel shift in the level of LIBOR rates. PMVS-YC 

estimates the loss in pre-tax portfolio market value from an immediate adverse 25 basis point 

change in the slope of the LIBOR yield curve. PMVS is a measure that encompasses both the 

duration and convexity components of interest rate risk; however, in December 2005, the 

Board amended its Asset Liability Management policy and adopted separate limits for duration 

gap and convexity. In addition, the Board lowered the limits set for duration gap and PMVS, 

and it introduced a new convexity limit. In 2005, management maintained PMVS and duration 

gap at monthly averages of 1 percent and 0 months, respectively. Management has adopted a 

variety of additional risk metrics and attendant limits and maintained exposures within those 

limits throughout the year. The PMVS levels and other metrics observed in 2005 indicate that 

market risk sensitivity is well-controlled. There is limited potential that the Enterprise’s 

earnings performance or capital position will be adversely affected. 

40
Notwithstanding the favorable risk measures described above, the overall interest rate risk 

governance framework lacks the formality (in terms of documented strategies, policies, and 

procedures) appropriate for a large, regulated financial institution. For example, we found that 

management had rapidly expanded both the non-agency asset-backed security (ABS) portfolio 

and the CMBS portfolio in the absence of specific, written investment strategies, policies, and 

portfolio limits. In each case, management experienced unforeseen financial and operational 

problems related to these portfolios that required a revision of reported earnings (in the case 

of the non-agency ABS portfolio) and significant errors in internal risk measures (in the case of 

the CMBS portfolio). 

The Board and management are addressing the shortcomings we have identified in the 

framework during the normal course of business. Given the Enterprise’s limited exposures to 

interest rate risk and substantial capital position, the shortcomings in the governance 

framework do not give rise to immediate safety and soundness concerns. 

EARNINGS 

Earnings are satisfactory. GAAP reported earnings declined 28 percent to $2.1 billion from 

$2.9 billion in 2004. The decline was primarily due to lower net interest income, settlement of 

shareholder litigation, higher credit-related expenses, and unexpected accounting adjustments. 

The net interest income was down sharply due to lower spreads on new business, the impact 

of rate increases on funding sources, and accounting classification changes on income from 

derivatives. Credit-related expenses (loan loss provision plus real estate owned operations 

expense) rose as the Enterprise increased its loan loss provision due to expected losses 

associated with the Gulf Coast Hurricanes. Real estate owned operations expenses rose due 

partly to longer holding periods as the housing market slowed during the latter half of 2005. 

 

CAPITAL ADEQUACY 

Regulatory capital is classified as adequate. OFHEO’s Office of Capital Supervision formally 

classifies capital adequacy on a quarterly basis 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. OFHEO imposed a 

capital surcharge of 30 percent of the minimum capital surplus for Freddie Mac in January 

2004 due to increased operational risk. 

On March 31, 2006, OFHEO announced that it had classified Freddie Mac as adequately 

capitalized as of December 31, 2005. As of that date, the core capital of the Enterprise 

exceeded its directed minimum capital requirement by approximately 11 percent or $3.8 billion. 

OFHEO classified Freddie Mac as adequately capitalized for the three preceding quarters of 

2005. OFHEO supports its capital classifications through a combination of compulsory 

capital reporting, weekly monitoring, analysis of changes in the Enterprises capital 

requirements and analysis of trends in risk factors that could impact the adequacy of capital. 

OFHEO’s capital classification for 2005 of Freddie Mac is based on Freddie Mac’s best 

estimate of its financial condition, as certified and represented as true and correct by Freddie 

Mac’s management. The capital classification is subject to revision based on results from 

Freddie Mac’s ongoing audit, management reviews, and control assessments. 

41
CONSENT ORDER 

Freddie Mac has achieved technical compliance with the Consent Order. Management is 

committed to addressing all issues related to this Order as evidenced by the implementation of 

multi-year project plans. OFHEO will continue to monitor management’s progress with these 

plans. The internal control framework - particularly in the areas of financial management and 

reporting, internal audit and accounting, and cultural change requires ongoing work by the 

Enterprise. 

 

42
HISTORICAL DATA TABLES 

TABLE 1. FANNIE MAE MORTGAGE PURCHASES................................................................................................ 1

TABLE 1A. FANNIE MAE MORTGAGE PURCHASES DETAIL, BY TYPE OF LOAN ........................................................ 2

TABLE 1B. FANNIE MAE PURCHASES OF MORTGAGE-RELATED SECURITIES - PART 1............................................... 3

TABLE 1B. FANNIE MAE PURCHASES OF MORTGAGE-RELATED SECURITIES - PART 2, PRIVATE-LABEL DETAIL........... 4

TABLE 2. FANNIE MAE MBS ISSUANCES............................................................................................................ 5

TABLE 3. FANNIE MAE EARNINGS................................................................................................................... 6

TABLE 4. FANNIE MAE BALANCE SHEET.......................................................................................................... 7

TABLE 4A. FANNIE MAE TOTAL MBS OUTSTANDING DETAIL .............................................................................. 8

TABLE 5. FANNIE MAE RETAINED MORTGAGE PORTFOLIO DETAIL.................................................................... 9

TABLE 5A. FANNIE MAE RETAINED MORTGAGE PORTFOLIO DETAIL - WHOLE LOANS............................................ 10

TABLE 5B. FANNIE MAE RETAINED MORTGAGE PORTFOLIO DETAIL - PART 1, 

MORTGAGE-RELATED SECURITIES..................................................................................................... 11

TABLE 5B. FANNIE MAE RETAINED MORTGAGE PORTFOLIO DETAIL - PART 2, 

MORTGAGE-RELATED SECURITIES PRIVATE-LABEL DETAIL................................................................. 12

TABLE 5B. FANNIE MAE RETAINED MORTGAGE PORTFOLIO DETAIL - PART 3, 

MORTGAGE-RELATED SECURITIES.................................................................................................... 13

TABLE 6. FANNIE MAE FINANCIAL DERIVATIVES............................................................................................. 14

TABLE 7. FANNIE MAE NON-MORTGAGE INVESTMENTS.................................................................................... 15

TABLE 8. FANNIE MAE ASSET MIX................................................................................................................... 16

TABLE 9. FANNIE MAE MORTGAGE ASSET QUALITY.......................................................................................... 17

TABLE 10. FANNIE MAE CAPITAL....................................................................................................................... 18

TABLE 11. FREDDIE MAC MORTGAGE PURCHASES............................................................................................. 19

TABLE 11A. FREDDIE MAC MORTGAGE PURCHASES DETAIL, BY TYPE OF LOAN....................................................... 20

TABLE 11B. FREDDIE MAC PURCHASES OF MORTGAGE-RELATED SECURITIES - PART 1............................................. 21

TABLE 11B. FREDDIE MAC PURCHASES OF MORTGAGE-RELATED SECURITIES - PART 2, PRIVATE-LABEL DETAIL......... 22

TABLE 12. FREDDIE MAC MBS ISSUANCES.......................................................................................................... 23

TABLE 13. FREDDIE MAC EARNINGS................................................................................................................. 24

TABLE 14. FREDDIE MAC BALANCE SHEET......................................................................................................... 25

TABLE 14A. FREDDIE MAC TOTAL MBS OUTSTANDING DETAIL.............................................................................. 26

TABLE 15. FREDDIE MAC RETAINED MORTGAGE PORTFOLIO DETAIL.................................................................. 27

TABLE 15A. FREDDIE MAC RETAINED MORTGAGE PORTFOLIO DETAIL - WHOLE LOANS.......................................... 28

TABLE 15B. FREDDIE MAC RETAINED MORTGAGE PORTFOLIO DETAIL - PART 1, MORTGAGE-RELATED SECURITIES... 29

TABLE 15B. FREDDIE MAC RETAINED MORTGAGE PORTFOLIO DETAIL - PART 2, 

MORTGAGE-RELATED SECURITIES PRIVATE-LABEL DETAIL................................................................. 30

TABLE 15B. FREDDIE MAC RETAINED MORTGAGE PORTFOLIO DETAIL - PART 3, 

MORTGAGE-RELATED SECURITIES.................................................................................................... 31

TABLE 16. FREDDIE MAC FINANCIAL DERIVATIVES............................................................................................ 32

TABLE 17. FREDDIE MAC NON-MORTGAGE INVESTMENTS.................................................................................. 33

TABLE 18. FREDDIE MAC ASSET MIX.................................................................................................................. 34

TABLE 19. FREDDIE MAC MORTGAGE ASSET QUALITY........................................................................................ 35

TABLE 20. FREDDIE MAC CAPITAL..................................................................................................................... 36

TABLE 21. COMBINED PURCHASES.................................................................................................................... 37

TABLE 21A. COMBINED MORTGAGE PURCHASES DETAIL, BY TYPE OF LOAN.......................................................... 38

TABLE 21B. COMBINED PURCHASES OF MORTGAGE-RELATED SECURITIES ............................................................ 39

TABLE 22. COMBINED MBS ISSUANCES............................................................................................................... 40

TABLE 23. COMBINED EARNINGS..................................................................................................................... 41

TABLE 24. COMBINED BALANCE SHEET............................................................................................................ 42

TABLE 24A. COMBINED MBS OUTSTANDING DETAIL............................................................................................. 43

TABLE 25. COMBINED FINANCIAL DERIVATIVES................................................................................................. 44

TABLE 26. COMBINED NON-MORTGAGE INVESTMENTS...................................................................................... 45

TABLE 27. COMBINED CAPITAL........................................................................................................................ 46

TABLE 28. LOAN LIMITS................................................................................................................................... 47

TABLE 29. MORTGAGE INTEREST RATES .......................................................................................................... 48

TABLE 30. HOUSING MARKET ACTIVITY............................................................................................................ 49

TABLE 31. WEIGHTED REPEAT SALES HOUSE PRICE INDEX................................................................................. 50

i
Table 1. Fannie Mae Mortgage Purchases1

($) ($) ($) ($)

 4Q05 133,821 6,216 140,037 32,224

 3Q05 169,318 4,866 174,184 5,907

 2Q05 124,990 4,104 129,095 9,627

 1Q05 108,783 6,299 115,083 14,474

2005 536,913 21,485 558,398 62,232

2004 587,926 16,394 604,320 176,385

2003 1,322,024 30,878 1,352,902 408,606

2002 800,316 16,611 816,927 268,574 

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 Information included in the table and footnotes for periods beginning 2002 is subject to change as a result of the ongoing re-audit 

 and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae's 2005 

 financial statements and required audits.

2

 Lender-originated MBS issuances and cash purchases.

3

 Not included in total mortgage purchases. Includes purchases of Fannie Mae MBS for the retained mortgage portfolio.

4

 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

 

 

 Business Activity ($ in Millions) 

 Purchases 

Annual Data4

 Single-Family Multi-Family 

Mortgage-Related 

Securities3 Total Mortgages2 

 Period 

1
Table 1a. Fannie Mae Mortgage Purchases Detail, By Type of Loan1

Fixed-Rate3 Adjustable-Rate Seconds Total Fixed-Rate4 Adjustable-Rate Total 

 Conventional FHA/RHS 

 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)

 4Q05 110,247 21,541 32 131,820 155 1,847 2,001 133,821 6,140 76 6,216 140,037

 3Q05 129,607 38,020 34 167,661 82 1,576 1,658 169,318 4,866 0 4,866 174,184 2Q05 94,576 28,840 30 123,446 172 1,372 1,544 124,990 4,045 59 4,104 129,095 1Q05 83,940 23,534 20 107,495 136 1,153 1,289 108,783 3,821 2,478 6,299 115,083

2005 418,369 111,935 116 530,421 545 5,948 6,492 536,913 18,872 2,614 21,485 558,3982004 461,757 121,171 51 582,979 1,074 3,873 4,947 587,926 15,643 751 16,394 604,3201971 0 0 0 0 2,742 0 2,742 2,742 0 1,298 1,298 4,040 1972 55 0 0 55 2,541 0 2,541 2,596 0 1,268 1,268 3,864 1973 939 0 0 939 3,231 0 3,231 4,170 0 2,082 2,082 6,252 1974 1,128 0 0 1,128 3,618 0 3,618 4,746 0 2,273 2,273 7,019 1975 547 0 0 547 3,099 0 3,099 3,646 0 674 674 4,320 1976 2,513 0 0 2,513 824 0 824 3,337 0 295 295 3,632 1977 2,366 0 0 2,366 2,284 0 2,284 4,650 0 134 134 4,784 1978 5,682 0 0 5,682 6,620 0 6,620 12,302 0 3 3 12,305 1979 5,410 0 0 5,410 5,388 0 5,388 10,798 0 9 9 10,807 1980 2,802 0 0 2,802 5,272 0 5,272 8,074 0 27 27 8,101 1981 4,260 107 176 4,543 2,284 0 2,284 6,827 0 2 2 6,829 1982 19,311 3,210 1,552 24,073 1,856 0 1,856 25,929 0 10 10 25,939 1983 18,136 4,853 1,408 24,397 1,942 0 1,942 26,339 128 12 140 26,479 1984 17,998 8,049 937 26,984 729 0 729 27,713 1,106 0 1,106 28,819 1985 29,993 10,736 871 41,600 927 16 943 42,543 1,200 0 1,200 43,743 1986 58,251 7,305 498 66,054 11,155 14 11,169 77,223 1,877 0 1,877 79,100 1987 60,434 10,675 139 71,248 2,649 45 2,694 73,942 1,463 270 1,733 75,675 1988 35,767 27,492 433 63,692 823 98 921 64,613 4,149 21 4,170 68,783 1989 60,794 17,692 521 79,007 1,489 14 1,503 80,510 4,309 16 4,325 84,835 1990 95,011 14,528 654 110,193 799 15 814 111,007 3,165 15 3,180 114,187 1991 114,321 17,187 705 132,213 1,300 38 1,338 133,551 3,183 21 3,204 136,755 1992 226,332 21,001 136 247,469 1,055 79 1,134 248,603 2,845 111 2,956 251,559 1993 274,402 14,420 29 288,851 855 120 975 289,826 3,919 216 4,135 293,961 1994 139,815 16,340 8 156,163 1,953 113 2,066 158,229 3,620 219 3,839 162,068 1995 104,901 17,978 9 122,888 3,009 106 3,115 126,003 4,677 289 4,966 130,969 1996 146,154 15,550 3 161,707 2,415 334 2,749 164,456 6,199 252 6,451 170,907 1997 136,329 21,095 3 157,427 2,062 432 2,494 159,921 5,936 598 6,534 166,455 1998 334,367 14,273 1 348,641 5,768 511 6,279 354,920 10,844 584 11,428 366,348 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 2000 187,236 33,809 726 221,771 4,378 920 5,298 227,069 9,127 1,250 10,377 237,446 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 2002 730,659 66,772 41 797,472 1,296 1,548 2,844 800,316 13,950 2,661 16,611 816,927 2003 1,190,829 126,760 93 1,317,682 1,298 3,044 4,342 1,322,024 18,648 12,230 30,878 1,352,902

1

Source: Fannie Mae

Information included in the table and footnotes for periods beginning 2002 is subject to change as a result of the ongoing re-audit 

 and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae's 2005 

2

 financial statements and required audits.

 Lender-originated MBS issuances and cash purchases.

3 Includes balloons/resets. 4 Includes loans guaranteed by the Rural Housing Service. 5 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

Annual Data5

 Conventional FHA/VA 

Total Single-Family 

Mortgages 

 Total MultiFamily Mortgages 

 Period 

 Single-Family Mortgages Multi-Family Mortgages 

Purchases ($ in Millions)2

Total Mortgage 

Purchases 

2
Table 1b. Fannie Mae Purchases of Mortgage-Related Securities - Part 1 1

Fixed-Rate

AdjustableRate Total Fannie Mae Fixed-Rate Adjustable- Rate

Total 

Freddie 

Mac Fixed-Rate

AdjustableRate

Total 

PrivateLabel 

Mortgage 

Revenue 

Bonds 

Total MortgageRelated 

Securities

 Period ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)

 4Q05 7,508 4,435 663 12,606 121 3,162 0 3,283 0 0 0 0 16,187 148 32,224  3Q05 262 489 90 841 0 25 0 25 0 0 0 0 4,543 498 5,907  2Q05 142 676 41 859 0 42 0 42 0 0 0 0 8,197 529 9,627  1Q05 361 744 94 1,199 0 220 0 220 0 0 0 0 12,442 613 14,474 

2005 8,273 6,344 888 15,505 121 3,449 0 3,570 0 0 0 0 41,369 1,788 62,232 2004 42,300 21,281 1,159 64,740 6,546 8,228 0 14,774 0 0 0 0 90,747 6,124 176,385 2003 341,461 5,842 1,225 348,528 19,340 502 0 19,842 36 0 0 36 34,032 6,168 408,606 

2002 238,711 4,219 1,572 244,502 7,856 101 0 7,957 4,425 0 0 4425 7,416 4,273 268,574 

2001 Not Available Not Available Not Available 180,582 Not Available Not Available Not Available 20,072 Not Available Not Available Not Available 333 3,513 4,624 209,124 

2000 Before 2002 Before 2002 Before 2002 104,904 Before 2002 Before 2002 Before 2002 10,171 Before 2002 Before 2002 Before 2002 2,493 8,466 3,682 129,716 1990 977 0 0 0 474 1,451 1991 2,384 0 0 0 696 3,080 1992 4,930 0 0 0 498 5,428 1993 6,275 0 0 0 331 6,606 1994 21,660 571 2,321 0 1,353 25,905 1995 30,432 2,832 20 752 2,222 36,258 1996 41,263 779 2,197 777 1,727 46,743 1997 39,033 2,119 3,508 4,188 1,469 50,317 1998 104,728 21,274 2,738 15,721 2,799 147,260 1999 125,498 6,861 17,561 16,511 3,474 169,905 

1

Source: Fannie Mae

Information included in the table and footnotes for periods beginning 2002 is subject to change as a result of the ongoing re-audit 

 and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae's  2005 financial statements and required audits.

2 Not included in total mortgage purchases. Includes purchases of Fannie Mae MBS for the retained mortgage portfolio.3 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

Annual Data3

 Single-Family 

Multi-Family

Purchases($ in millions)2

 Single-Family 

MultiFamily

 Ginnie Mae 

 Single-Family 

Multi-Family

Total 

Ginnie Mae 

 Fannie Mae Securities 

 Freddie Mac 

 Others' Securities 

3
Table 1b. Fannie Mae Purchases of Mortgage-Related Securities - Part 2, Private-Label Detail1

Fixed-Rate

AdjustableRate Total Other

 Period ($) ($) ($) ($) ($) ($)

 4Q05 0 2,850 13,328 16,178 9 16,187 

 3Q05 0 0 4,543 4,543 0 4,543 

 2Q05 0 346 7,774 8,120 77 8,197 

 1Q05 0 446 11,980 12,426 16 12,442 

2005 0 3,642 37,625 41,267 102 41,369 

2004 0 7,154 83,492 90,646 101 90,747 

2003 0 7,832 26,139 33,971 61 34,032 

2002 56 1,980 5,344 7,324 36 7,416 

2001 Not Available Not Available Not Available 3,513 Not Available 3,513 

2000 Before 2002 Before 2002 Before 2002 8,466 Before 2002 8,466 

1999 16,511 16,511 

1998 15,721 15,721 

1997 4,188 4,188 

1996 777 777 

1995 752 752 

1994 0 0 

1993 0 0 

1992 0 0 

1991 0 0 

1990 0 0 

Source: Fannie Mae

1 Information included in the table and footnotes for periods beginning 2002 is subject to change as a result of the ongoing re-audit 

 and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae's

 2005 financial statements and required audits.

2 Not included in total mortgage purchases. 

3 Includes mortgage-related securities collateralized by first lien loans to credit-impaired borrowers and may include some underlying loans

 which are home equity or second lien.

4

 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

Annual Data4

 Private-Label 

Purchases ($ in millions)2

 Single-Family 

 Manufactured 

Housing 

Other3

Multi-Family Total Private-Label 

4
Table 2. Fannie Mae MBS Issuances1

 Single-Family MBS Multi-Family MBS Total MBS Multi-class MBS3

 Period ($) ($) ($) ($) 

 4Q05 122,584 2,854 125,438 29,195

 3Q05 157,609 967 158,576 38,928

 2Q05 119,738 1,701 121,439 28,274

 1Q05 100,737 3,856 104,594 27,416

2005 500,668 9,379 510,047 123,813

2004 545,443 6,854 552,297 94,686

2003 1,196,561 23,018 1,219,579 260,919

2002 727,257 12,338 739,595 170,795

2001 514,621 13,801 528,422 139,403

2000 204,066 7,596 211,662 39,544

1999 292,192 8,497 300,689 55,160

1998 315,120 11,028 326,148 84,147

1997 143,615 5,814 149,429 85,415

1996 144,201 5,668 149,869 30,780

1995 106,269 4,187 110,456 9,681

1994 128,385 2,237 130,622 73,365

1993 220,485 959 221,444 210,630

1992 193,187 850 194,037 170,205

1991 111,488 1,415 112,903 112,808

1990 96,006 689 96,695 68,291

1989 66,489 3,275 69,764 41,715

1988 51,120 3,758 54,878 17,005

1987 62,067 1,162 63,229 9,917

1986 60,017 549 60,566 2,400

1985 23,142 507 23,649 Not Issued

1984 13,087 459 13,546 Before 1986

1983 13,214 126 13,340

1982 13,970 Not Issued 13,970

1981 717 Before 1983 717

Source: Fannie Mae

1 Information included in the table and footnotes for periods beginning 2002 is subject to change 

 as a result of the ongoing re-audit and restatement of Fannie Mae's financial statements for 

 2002, 2003 and 2004 and the preparation and completion of Fannie Mae’s 2005 financial statements 

 and required audits.

2

 Lender-originated MBS plus issuances from Fannie Mae's portfolio. 

3

 Includes Real Estate Mortgage Investment Conduits (REMICs) and stripped MBS.

Annual Data

 Business Activity ($ in Millions) 

MBS Issuances2

5
Table 3. Fannie Mae Earnings1

Net 

Interest 

Income2

Guarantee Fee 

Income

Average 

Guarantee Fee

Administrative 

Expenses 

CreditRelated 

Expenses3

Net Income Return on Equity4

Period ($) ($) (basis points) ($) ($) ($) ($) 

 4Q05 N/A N/A N/A N/A N/A N/A N/A

 3Q05 N/A N/A N/A N/A N/A N/A N/A

 2Q05 N/A N/A N/A N/A N/A N/A N/A

 1Q05 N/A N/A N/A N/A N/A N/A N/A

2005 N/A N/A N/A N/A N/A N/A N/A

2004 N/A N/A N/A N/A N/A N/A N/A

2003 13,569 2,411 20.2 1,463 112 7,905 49.9

2002 10,566 1,816 19.1 1,219 92 4,619 30.1

2001 8,090 1,482 19.0 1,017 78 5,894 39.8

2000 5,674 1,351 19.5 905 94 4,448 25.6

1999 4,894 1,282 19.3 800 127 3,912 25.2

1998 4,110 1,229 20.2 708 261 3,418 25.2

1997 3,949 1,274 22.7 636 375 3,056 24.6

1996 3,592 1,196 22.4 560 409 2,725 24.1

1995 3,047 1,086 22.0 546 335 2,144 20.9

1994 2,823 1,083 22.5 525 378 2,132 24.3

1993 2,533 961 21.3 443 305 1,873 25.3

1992 2,058 834 21.2 381 320 1,623 26.5

1991 1,778 675 21.0 319 370 1,363 27.7

1990 1,593 536 21.1 286 310 1,173 33.7

1989 1,191 408 21.3 254 310 807 31.1

1988 837 328 21.6 218 365 507 25.2

1987 890 263 22.1 197 360 376 24

1986 384 175 23.8 175 306 105 10

1985 139 112 25.6 142 206 (7) (1)

1984 (90) 78 26.2 112 86 (71) (7)

1983 (9) 54 26.3 81 48 49 5

1982 (464) 16 27.2 60 36 (192) (19)

1981 (429) 0 25.0 49 (28) (206) (17)

1980 21 Not Available Not Available 44 19 14 0.9

1979 322 Before 1981 Before 1981 46 35 162 11.3

1978 294 39 36 209 16.5

1977 251 32 28 165 15.3

1976 203 30 25 127 13.8

1975 174 27 16 115 14.1

1974 142 23 17 107 14.7

1973 180 18 12 126 20.3

1972 138 13 5 96 18.8

1971 49 15 4 61 14.4

Source: Fannie Mae

N/A = not available

1 Information included in the table and footnotes for periods beginning 2002 is subject to change as a 

 result of the ongoing re-audit and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 

 and the preparation and completion of Fannie Mae’s 2005 financial statements and required audits.

2

 Interest income net of interest expense.

3

 Credit-related expenses include the provision for loan losses and foreclosed property expenses.

4

 Calculated as annualized net income available to common stockholders divided by average common stockholders' equity. 

 Earnings ($ in Millions) 

Annual Data

6
Table 4. Fannie Mae Balance Sheet1

Total Assets2 Total Retained Mortgage Portfolio3 Non-Mortgage Investments4 Debt Outstanding Shareholders' Equity Core Capital5 Fair Value of Net Assets Total MBS Outstanding6 Multi-class MBS Outstanding7

 ($) ($) ($) ($) ($) ($) ($) ($) ($) 

 4Q05 N/A N/A N/A N/A N/A 38,135 N/A 1,598,079 388,905 3Q05 N/A N/A N/A N/A N/A 36,993 N/A 1,573,843 386,794 2Q05 N/A N/A N/A N/A N/A 35,641 N/A 1,485,213 376,486 1Q05 N/A N/A N/A N/A N/A 34,998 N/A 1,441,077 373,407

1971 18,591 17,886 349 17,672 4601972 20,346 19,652 268 19,239 5591973 24,318 23,589 227 23,003 6801974 29,671 28,666 466 28,168 7721975 31,596 30,820 239 29,963 8611976 32,393 31,775 245 30,565 9831977 33,980 33,252 318 31,890 1,1731978 43,506 42,103 834 40,985 1,3621979 51,300 49,777 843 48,424 1,501 Before 19811980 57,879 55,589 1,556 54,880 1,457 Not Issued1981 61,578 59,629 1,047 58,551 1,080 7171982 72,981 69,356 2,430 69,614 953 14,4501983 78,383 75,247 1,689 74,594 1,000 25,1211984 87,798 84,135 1,840 83,719 918 35,7381985 99,076 94,609 1,466 93,985 1,009 54,552 Before 19871986 99,621 94,123 1,775 93,563 1,182 95,568 Not Issued1987 103,459 93,665 3,468 97,057 1,811 135,734 11,3591988 112,258 100,099 5,289 105,459 2,260 170,097 26,6601989 124,315 107,981 8,338 116,064 2,991 216,512 64,8261990 133,113 114,066 9,868 123,403 3,941 Before 1992 288,075 127,2781991 147,072 126,679 9,836 133,937 5,547 Before 1993 Not Available 355,284 224,8061992 180,978 156,260 19,574 166,300 6,774 Not Applicable 9,096 424,444 312,3691993 216,979 190,169 21,396 201,112 8,052 8,052 9,126 471,306 381,8651994 272,508 220,815 46,335 257,230 9,541 9,541 10,924 486,345 378,7331995 316,550 252,868 57,273 299,174 10,959 10,959 11,037 513,230 353,5281996 351,041 286,528 56,606 331,270 12,773 12,773 14,556 548,173 339,7981997 391,673 316,592 64,596 369,774 13,793 13,793 15,982 579,138 388,3601998 485,146 415,434 58,515 460,291 15,453 15,465 14,885 637,143 361,6131999 575,308 523,103 37,299 547,619 17,629 17,876 20,525 679,145 335,5142000 675,224 607,731 52,347 642,682 20,838 20,827 20,677 706,722 334,5082001 799,948 706,347 65,982 763,467 18,118 25,182 22,675 863,445 392,4572002 887,515 801,140 39,293 850,982 16,288 28,079 22,130 1,029,571 401,4862003 1,009,569 901,985 59,493 961,732 22,373 34,405 31,582 1,300,341 398,5162004 N/A N/A N/A N/A N/A 32,641 N/A 1,402,775 368,5672005 N/A N/A N/A N/A N/A 38,135 N/A 1,598,079 388,905

1 

N/A = not availableSource: Fannie Mae and OFHEO

Information included in the table and footnotes for periods beginning 2001 is subject to change as a result of the ongoing re-audit and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and

2 

 completion of Fannie Mae's 2005 financial statements and required audits.

Beginning in 1998, the guaranty liability for Fannie Mae MBS held in the portfolio is classified as a liability. 

3 Gross retained portfolio net of unamortized purchase premium, discounts and deferred price adjustments, and, beginning in 2002, unrealized gains/losses on available-for-sale securities. The amounts for 1999 through 2002 include certain loans held4 

 for investment that were previously classified as non-mortgage investments. 

Values for years 1999 through 2003 exclude securities included in the line item, "Loans held for securitization and sale" included in the 2003 balance sheet, and in the retained mortgage portfolio. Data reflect unpaid principal balance adjusted to 

 include mark-to-market gains and losses on available-for-sale securities, as well as unamortized premiums, discounts, and other deferred price adjustments. Prior to 1982, the majority of non-mortgage investments consisted of U.S. government 

5 

 securities and agency securities.

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 Total Fannie Mae MBS net of Fannie Mae MBS in the retained mortgage portfolio. 7 Includes REMICs as well as stripped MBS backed by Fannie Mae certificates.8 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

Annual Data8

Mortgage-Backed Securities Outstanding Balance Sheet 

Period

End of 

($ in Millions) ($ in Millions)

7
Table 4a. Fannie Mae Total MBS Outstanding Detail 1

 Fixed-Rate 

 AdjustableRate Seconds Total Fixed-Rate Adjustable-Rate Total Conventional FHA/RHS Total Multi-Family 

 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) 

 4Q05 1,314,853 222,928 34 1,537,816 1,262 645 1,907 58,077 279 58,356 1,598,079 3Q05 1,288,033 223,231 39 1,511,303 1,447 721 2,168 60,078 294 60,372 1,573,843 2Q05 1,214,384 205,197 45 1,419,626 1,656 807 2,463 62,821 304 63,124 1,485,213 1Q05 1,179,197 194,381 51 1,373,629 1,766 874 2,640 64,494 315 64,808 1,441,077

2005 1,314,853 222,928 34 1,537,816 1,262 645 1,907 58,077 279 58,356 1,598,0792004 1,152,941 183,580 58 1,336,579 1,982 949 2,931 62,942 323 63,265 1,402,7751989 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Av1990 225,981 42,443 121 268,545 11,380 0 11,380 7,807 343 8,150 288,0751991 290,038 45,110 89 335,237 11,112 0 11,112 8,599 336 8,935 355,2841992 360,619 45,718 43 406,380 9,438 0 9,438 8,295 331 8,626 424,4441993 405,383 49,987 28 455,398 7,549 0 7,549 8,034 325 8,359 471,3061994 415,692 55,780 18 471,490 5,628 0 5,628 8,908 319 9,227 486,3451995 431,755 63,436 13 495,204 5,043 91 5,134 12,579 313 12,892 513,2301996 460,866 65,682 9 526,557 4,402 191 4,593 16,912 111 17,023 548,1731997 483,982 70,106 7 554,095 3,872 213 4,085 20,824 134 20,958 579,1381998 545,680 56,903 98 602,681 5,340 587 5,927 28,378 157 28,535 637,1431999 586,069 51,474 1,212 638,755 7,159 1,010 8,169 31,518 703 32,221 679,1452000 599,999 61,495 1,165 662,659 6,778 1,298 8,076 35,207 780 35,987 706,7222001 752,211 60,842 772 813,825 4,519 1,207 5,726 42,713 1,181 43,894 863,4452002 881,618 92,287 338 974,243 3,868 1,247 5,115 49,227 986 50,213 1,029,5712003 1,076,193 153,785 109 1,230,087 2,695 1,268 3,963 65,917 374 66,291 1,300,341

ailable 216,512

19871988 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 170,097

135,734

1986 95,5681985 54,5521984 35,7381983 25,1211982 14,4501981 7171980 Not Issued

Before 1981

1

Source: Fannie Mae

 Information included in the table and footnotes for periods beginning 2001 is subject to change as a result of the ongoing re-audit and restatement of Fannie Mae's financial statements 

2

 for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae’s 2005 financial statements and required audits.

 Unpaid principal balance.

3 Total Fannie Mae MBS net of Fannie Mae MBS in the retained mortgage portfolio. Includes guaranteed whole loan REMIC's and Private-label wraps that are not included in Grantor Trusts.4 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

Annual Data4

Single-Family Mortgages2 

($ in Millions)

 Conventional 

Total MBS 

Outstanding3

Period 

 End of 

Multi-Family Mortgages2 

($ in Millions)

 FHA/VA 

8
Table 5. Fannie Mae Retained Mortgage Portfolio Detail 1

Whole Loans2,3 Fannie Mae Securities2

Other Mortgage-Related 

Securities2

Unamortized Premiums, 

Discounts, Deferred 

Adjustments, and 

Unrealized Gains/Losses 

on Available-for-Sale 

Securities4 

Total Retained Mortgage 

Portfolio

 ($) ($) ($) ($) ($) 

 4Q05 252,853 341,712 132,980 N/A N/A

 3Q05 249,471 351,334 127,382 N/A N/A

 2Q05 247,292 414,901 146,386 N/A N/A

 1Q05 246,915 454,710 163,299 N/A N/A

2005 252,853 341,712 132,980 N/A N/A

2004 246,872 493,025 164,908 N/A N/A

2003 234,726 556,930 106,887 3,442 901,985

2002 189,174 509,217 95,773 6,972 801,136

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

N/A = not available

1

Information included in the table and footnotes for periods beginning 2001 is subject to change as a result of the ongoing re-audit and restatement of

 Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae’s 2005 financial statements and required audits.

2 Unpaid principal balance.

3 The unpaid principal balance of whole loans at December 31, 1999 through December 31, 2002 includes certain loans held for investment that were classified 

 as nonmortgage investments and excludes loans held for securitization or sale.

4

 For 2002 and 2003, amounts include unrealized gains/losses on securities classified as available-for-sale securities.

5

 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

End of 

Period

Annual Data5

($ in Millions) 

9
Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Whole Loans 1

Fixed-Rate3,4 AdjustableRate Seconds Total Total 

FHA/VA5 Conventional FHA/RHS Total 

 ($) ($) ($) ($) ($) ($) ($) ($) ($)

 4Q05 185,086 16,892 218 202,196 14,930 34,991 736 35,727 252,853

 3Q05 185,858 16,833 203 202,894 13,297 32,508 772 33,280 249,471

 2Q05 187,361 17,382 189 204,932 12,014 29,536 810 30,346 247,292

 1Q05 189,514 17,650 177 207,341 10,920 27,803 851 28,654 246,915

2005 185,086 16,892 218 202,196 14,930 34,991 736 35,727 252,853

2004 192,418 17,335 175 209,928 9,964 26,083 897 26,980 246,872

2003 194,653 13,213 231 208,097 7,063 18,475 1,091 19,566 234,726

2002 160,553 9,068 524 170,145 5,458 12,217 1,354 13,571 189,174

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 in the table and footnotes for periods beginning 2002 is subject to change as a result of the ongoing re-audit and restatement

 of Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae’s 2005 financial statements and

 required audits.

2

 Unpaid principal balance.

4

 Includes balloon/reset loans.

5

 Includes loans guaranteed by the Rural Housing Service. 6

 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

Whole Loans ($ in Millions)2,3

 Single-Family 

Total Whole 

Loans End of 

Period 

 Multi-Family 

3

 The unpaid principal balance of whole loans at December 31, 1999 through December 31, 2002 includes certain loans held for investment that were classified 

 as nonmortgage investments and excludes loans held for securitization or sale.

Annual Data6

 Conventional 

10
Table 5b. Fannie Mae Retained Mortgage Portfolio Detail - Part 1, Mortgage-Related Securities1

 Fixed-Rate Adjustable-Rate 

 Total Fannie 

Mae Fixed-Rate Adjustable-Rate 

Total Freddie 

Mac Fixed-Rate Adjustable-Rate Total Ginnie Mae Total Private Label

Total Others' 

Securities

 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) 

 4Q05 303,025 29,571 9,116 341,712 18,850 9,861 0 28,711 2,272 0 57 2,329 83,137 114,177

 3Q05 314,303 28,036 8,995 351,334 19,630 7,149 0 26,779 2,715 0 67 2,782 78,199 107,761

 2Q05 374,529 30,963 9,409 414,901 26,183 7,736 0 33,920 3,237 0 67 3,305 88,590 125,814

 1Q05 413,494 31,505 9,711 454,710 27,523 8,138 0 35,661 3,580 0 67 3,648 102,072 141,381

2005 303,025 29,571 9,116 341,712 18,850 9,861 0 28,711 2,272 0 57 2,329 83,137 114,1772004 449,517 33,675 9,833 493,025 29,566 8,234 0 37,800 3,953 0 68 4,021 100,831 142,652

2003 538,187 8,873 9,870 556,930 30,586 558 9 31,153 6,858 0 68 6,926 48,298 86,377

2002 492,783 6,970 9,464 509,217 32,595 216 20 32,831 15,433 1 85 15,519 27,785 76,135

2001 417,796 5,648 8,332 431,776 42,516 287 26 42,829 18,779 1 109 18,889 29,175 90,8932000 351,066 33,290 Not Available 23,768 34,266 91,3241999 281,714 25,577 Before 2001 23,701 31,673 80,9511998 197,375 23,453 8,638 19,585 51,676

1997 130,444 5,262 7,696 5,554 18,5121996 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 24,219 972 2 974

1992 20,535 168 3 1711991 16,700 180 93 2731990 11,758 191 352 5431989 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 1,5911985 435 Not Available Not Available1984 477 Before 1986 Before 19861983

1 

Source: Fannie Mae

Information included in the table and footnotes for periods beginning 2001 is subject to change as a result of the ongoing re-audit and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of

2

 Fannie Mae's 2005 financial statements and required audits.

 Unpaid principal balance.

3 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

Not Available 

Before 2001 

Not Available 

Before 2001 

Not Available 

Before 2001 

Not Available 

Before 2001 

Not Available 

Before 2001 

 Not Available 

Before 1984 

Annual Data3

Fannie Mae Securities

 Single-Family 

 Multi-Family 

Period 

 End of 

Not Available 

Before 1994 

 Not Available 

Before 2001 

 Not Available 

Before 2001 

 Not Available 

Before 2001 

Mortgage-Related Securities ($ in Millions)2

 Single-Family 

 Freddie Mac 

Multi-Family 

Others' Securities 

 Single-Family 

Multi-Family 

 Ginnie Mae 

11
Table 5b. Fannie Mae Retained Mortgage Portfolio Detail - Part 2, Mortgage-Related Securities, Private-Label Detail 1

Manufactured 

Housing Fixed-Rate Adjustable-Rate Total Other

Total Private 

Label

 ($) ($) ($) ($) ($) ($) 

 4Q05 5,407 13,602 63,713 77,315 415 83,137

 3Q05 5,637 11,656 60,499 72,155 407 78,199

 2Q05 5,894 12,706 69,576 82,282 414 88,590

 1Q05 6,146 13,500 82,084 95,584 342 102,072

2005 5,407 13,602 63,713 77,315 415 83,137

2004 6,382 14,166 79,951 94,117 332 100,831

2003 7,604 11,844 28,577 40,421 273 48,298

2002 9,582 10,062 7,879 17,941 261 27,785

2001 10,708 13,432 4,736 18,168 299 29,175

2000 24,794 34,266

1999 31,673 31,673

1998 19,585 19,585

1997 5,554 5,554

1996 1,486 1,486

1995 747 747

1994 1 1

1993 2 2

1992 3 3

1991 93 93

1990 352 352

1989 831 831

1988 810 810

1987 1,036 1,036

1986 1,591 1,591

1985

1984

1983

Source: Fannie Mae

1

 Information included in the table and footnotes for periods beginning 2001 is subject to change as a result 

 of the ongoing re-audit and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and

 the preparation and completion of Fannie Mae’s 2005 financial statements and required audits.

2

 Unpaid principal balance.

3 Include mortgage-related securities collateralized by first lien loans to credit-impaired borrowers and may include some underlying loans 

 which are home equity or second lien.

4

 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

Not Available 

Before 1996 

Not Available 

Before 1986

Not Available 

Before 2001

Not Available 

Before 2001

Not Available 

Before 2001

Annual Data4 

Private-Label

 End of 

Period 

Not Available 

Before 2001

Mortgage-Related Securities ($ in Millions)2

 Single-Family 

Multi-Family 

Other3

12
Table 5b. Fannie Mae Retained Mortgage Portfolio Detail - Part 3, Mortgage-Related Securities 1

 ($) ($) ($) ($) 

4Q05 18,803 474,692 N/A N/A

3Q05 19,621 478,716 N/A N/A

2Q05 20,572 561,287 N/A N/A

1Q05 21,918 618,009 N/A N/A

2005 18,803 474,692 N/A N/A

2004 22,256 657,933 N/A N/A

2003 20,510 663,817 3,442 901,985

2002 19,638 604,990 6,972 801,136

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 (3,710) 94,123

1985 (4,040) 95,250

1984 (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

N/A = not available 

1

Information included in the table and footnotes for periods beginning 2001 is subject to change as a result of the ongoing re-audit and restatement of 

 Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae’s 2005 financial statements and required audits.

2

 Unpaid principal balance.

3

 For 2002 and 2003, amount includes unrealized gains/losses on available-for-sale securities.

4

 Shaded data have been revised to reflect data reclassifications and/or other adjustments.

Not Available Before 1985

Not Available Before 1986

Total Mortgage-Related 

Securities2

Unamortized Premiums, 

Discounts, Deferred Adjustments, 

and Unrealized Gains/Losses on 

Available-for-Sale Securities3 

Mortgage-Related Securities ($ in Millions)

Annual Data4 

Mortgage Revenue Bonds2

Total Retained Mortgage 

Portfolio End of 

Period

($ in Millions)

13
Table 6. Fannie Mae Financial Derivatives1

 Interest 

Rate 

Swaps 

 Interest 

Rate Caps, 

Floors, and 

Corridors 

 Foreign 

Currency 

Contracts 

OTC Futures, 

Options, and 

Forward Rate 

Agreements 

Mandatory 

Mortgage 

Purchase & Sell 

Commitments Other Total

 ($) ($) ($) ($) ($) ($) ($) 

 4Q05 306,984 33,000 5,485 298,685 N/A 0 N/A

 3Q05 267,840 46,700 5,310 308,085 N/A 0 N/A

 2Q05 256,724 56,550 8,784 333,685 N/A 0 N/A

 1Q05 244,902 87,500 10,706 355,935 N/A 0 N/A

2005 306,984 33,000 5,485 298,685 N/A 0 N/A

2004 242,459 104,150 10,743 331,400 34,131 0 722,883

2003 569,884 130,350 4,712 335,650 38,492 0 1,079,088

2002 246,508 122,393 4,019 283,675 0 656,595

2001 299,953 75,893 8,493 148,800 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 50 1,050 10,200

1990 4,800 0 25 1,700 6,525

Source: Fannie Mae

N/A = not available 

1 Information included in the table and footnotes for periods beginning 2001 is subject to change as a result 

 of the ongoing re-audit and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and 

 the preparation and completion of Fannie Mae’s 2005 financial statements and required audits.

Financial Derivatives - Notional Amount Outstanding ($ in Millions)

Not Available 

Before 1992

Not Available 

Before 2003

Annual Data 

End of 

Period 

14
Table 7. Fannie Mae Non-Mortgage Investments1

 Federal Funds 

and Eurodollars 

 Asset-Backed 

Securities 

Repurchase 

Agreements3 

Commercial 

Paper and 

Corporate Debt Other Total 

 ($) ($) ($) ($) 

 4Q05 N/A N/A N/A N/A N/A N/A

 3Q05 N/A N/A N/A N/A N/A N/A

 2Q05 N/A N/A N/A N/A N/A N/A

 1Q05 N/A N/A N/A N/A N/A N/A

2005 N/A N/A N/A N/A N/A N/A

2004 N/A N/A N/A N/A N/A N/A

2003 12,575 26,900 111 16,743 3,164 59,493

2002 1,548 22,311 181 14,075 1,178 39,293

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 1,462 0 0 0 227 1,689

1982 1,799 0 0 0 631 2,430

1981 1,047

1980 1,556

1979 843

1978 834

1977 318

1976 245

1975 239

1974 466

1973 227

1972 268

1971 349

Source: Fannie Mae

N/A = not available 

1

 Information included in the table and footnotes for periods beginning 2001 is subject to change as a result of the ongoing

 re-audit and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion

 of Fannie Mae’s 2005 financial statements and required audits.

2

 Unpaid principal balance adjusted to include mark-to-market gains and losses on available-for-sale securities and unamortized

 premiums, discounts, and other deferred price adjustments. Prior to 1982, the majority of non-mortgage investments were comprised

 of U.S. government securities and agency securities.

 exclude securities included in "Loans held for securitization and sale" and the retained mortgage portfolio.

Annual Data 

End of 

Period

Non-Mortgage Investments ($ in Millions)2

3

 As of 1999, Repurchase Agreements consist primarily of overnight investments that mature daily. Values for 1999 through 2003 

Not Available 

Before 1982

Not Available 

Before 1982

Not Available 

Before 1982

Not Available 

Before 1982 

Not Available 

Before 1982

15
Table 8. Fannie Mae Asset Mix1

 Total Retained Mortgage Portfolio / Total Assets Non-Mortgage Investments/ Total Assets 

 (%) (%) 

 4Q05 N/A N/A

 3Q05 N/A N/A

 2Q05 N/A N/A

 1Q05 N/A N/A

2005 N/A N/A

2004 N/A N/A

2003 89.3 5.9

2002 90.3 4.4

2001 88.4 8.2

2000 90.0 7.8

1999 90.9 6.5

1998 85.6 12.1

1997 80.8 16.5

1996 81.6 16.1

1995 79.9 18.1

1994 81.0 17.0

1993 87.6 9.9

1992 86.3 10.8

1991 86.1 6.7

1990 85.7 7.4

1989 86.9 6.7

1988 89.2 4.7

1987 90.5 3.4

1986 94.5 1.8

1985 95.5 1.5

1984 95.8 2.1

1983 96.0 2.2

1982 95.0 3.3

1981 96.8 1.7

1980 96.0 2.7

1979 97.0 1.6

1978 96.8 1.9

1977 97.9 0.9

1976 98.1 0.8

1975 97.5 0.8

1974 96.6 1.6

1973 97.0 1.0

1972 96.6 1.3

1971 96.2 1.8

Source: Fannie Mae

 N/A = not available 

1

 Information included in the table and footnotes for periods beginning 2001 is subject to change as a result of the ongoing re-audit and 

 restatement of Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae’s 2005

 financial statements and required audits.

Annual Data 

End of 

Period 

 Asset Ratios 

16
Table 9. Fannie Mae Mortgage Asset Quality1

Single-Family 

Delinquency Rate2

Multi-Family Delinquency 

Rate3

Credit Losses / Total MBS 

Outstanding plus Retained 

Mortgage Portfolio4 

REO / Total MBS 

Outstanding plus 

Retained Mortgage 

Portfolio5 

Credit-Enhanced 

Outstanding / Total MBS 

Outstanding plus Retained 

Mortgage Portfolio6 

(%) (%) (%) (%) (%)

 4Q05 0.79 0.27 N/A N/A N/A

 3Q05 0.61 0.09 N/A N/A N/A

 2Q05 0.57 0.10 N/A N/A N/A

 1Q05 0.59 0.09 N/A N/A N/A

2005 0.79 0.27 N/A N/A N/A

2004 0.63 0.10 N/A N/A N/A

2003 0.60 0.27 0.01 0.07 24.3

2002 0.57 0.05 0.01 0.06 29.6

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

1988 0.88 6.60 0.11 0.15

1987 1.12 0.11 0.18

1986 1.38 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 0.00 0.61

1972 0.02 0.98

1971 0.01 0.59

Source: Fannie Mae

N/A = not available

1 Information included in the table and footnotes for periods beginning 2001 is subject to change as a result of the ongoing re-audit and restatement of 

 Fannie Mae's financial statements for 2002, 2003 and 2004 and the preparation and completion of Fannie Mae’s 2005 financial statements and required audits. 2

 Beginning with 1998, data include all seriously delinquent conventional loans with and without primary mortgage insurance and/or credit enhancement. 

 Prior to 1988, data include all seriously delinquent loans for which Fannie Mae has primary risk of loss. Data prior to 1992 include loans in relief or bankruptcy, 

 even if the loans are less than 90 days delinquent.

3

 Beginning in 1998, data include all loans and securities 60 days or more past due and is calculated based on mortgage credit book of business.

 Data prior to 1998 include loans for which Fannie Mae has primary risk of loss.

4

 Credit losses are charge-offs plus foreclosed property expense; average balances used to calculate ratios subsequent to 1994; quarterly data are annualized.

5

 Real estate owned balances reflect end-of-period amounts. Beginning with 1995, data reflect adoption of SFAS 114.

6

 Beginning in 2000, "credit-enhanced" is expanded to include primary mortgage insurance. Prior to 2000, reflect proportion of the retained mortgage portfolio with 

 additional recourse from a third party to accept some or all of the expected losses on defaulted mortgages.

Annual Data 

End of Period 

Mortgage Asset Quality

Not Available Before 1974

Not Available Before 1988

Not Available Before 1990

17
Table 10. Fannie Mae Capital1

Core Capital

 Minimum Capital 

Requirement Surplus (Deficit

Minimum Capital 

)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

 ($) ($) ($) ($) ($) ($) ($) (%) (%) (%)

 4Q05 38,135 28,463 9,673 39,204 12,636 26,568 47,373 N/A N/A N/A

 3Q05 36,993 27,878 9,115 37,860 15,699 22,161 43,473 N/A N/A N/A

2005 38,135 28,463 9,673 

 1Q05 34,998 30,959 4,039 35,495 6,355 29,140 52,799 N/A N/A N/A 2Q05 35,641 29,727 5,914 36,144 23,061 13,083 56,637 N/A N/A N/A

 39,204 12,636 26,568 47,373 N/A N/A N/A

2001 25,182 24,182 1,000 25,9762002 28,079 27,203 877 28,871 17,434 11,437 63,612 3.16 1.46 20.92003 34,405 31,520 2,885 35,182 27,221 7,960 72,838 3.41 1.49 23.02004 32,641 32,166 475 35,878 10,039 25,839 69,010 N/A N/A N/A

79,281 3.15 1.52 23.0

2000 20,827 20,294 533 21,634 86,643 3.08 1.51 26.01999 17,876 17,770 106 18,677 63,651 3.11 1.42 28.81998 15,465 15,334 131 16,257 75,881 3.19 1.38 29.51997 13,793 12,703 1,090 14,575 59,167 3.52 1.42 29.41996 12,773 11,466 1,307 13,520 39,932 3.64 1.42 30.41995 10,959 10,451 508 11,703 33,812 3.46 1.32 34.61994 9,541 9,416 126 10,368 19,882 3.50 1.26 30.81993 8,052 7,876 176 8,893 21,387 3.71 1.17 26.81992 20,874 23.21991 18,836 21.31990 8,490 14.7

1989 8,092 12.81988 3,992 11.21987 2,401 11.71986 3,006 8.0

1985 1,904 30.1

1984 1,012 Not Applicable1983 1,514 13.91982 1,603 Not Applicable1981 502 Not Applicable1980 702 464.2

1979 45.71978 30.31977 31.81976 33.61975 31.81974 29.61973 18.11972 15.21971 18.7

1 

N/A = not availableSource: Fannie Mae and OFHEO

Information included in the table and footnotes for periods beginning 2001 is subject to change as a result of the ongoing re-audit and restatement of Fannie Mae's financial statements for 2002, 2003 and 2004

2 

 and the preparation and completion of Fannie Mae’s 2005 financial statements and required audits.

The difference between Core Capital and Minimum Capital Requirement. 

3 Total Capital is Core Capital plus the total allowance for loan losses and guaranty liability for MBS, less any specific loss allowances.4 The Risk-Based Capital Requirement is the amount of Total Capital that an Enterprise must hold to absorb projected losses flowing from future adverse interest rate and credit risk conditions and is specified by the Federal Housing 5 

 Enterprise Financial Safety and Soundness Act of 1992.

The difference between Total Capital and the Risk-Based Capital Requirement.

6 Stock price at the end of the period multiplied by the number of outstanding common shares.7 Common dividends paid as a percentage of net income available to common stockholders. 

Not Applicable Before 

1993

Not Applicable Before 

2002

Not Applicable Before 

2002

Not Available Before 

1980

Not Applicable Before 

1993

Not Applicable Before 

1993

Not Applicable Before 

1993

Not Applicable Before 

1993

Not Applicable Before 

1993

Annual Data

Period

End of 

 Capital ($ in Millions) 

Minimum Capital Requirement Risk-Based Capital Requirement

18
Table 11. Freddie Mac Mortgage Purchases1 

 Single-Family Multi-Family Total Mortgages3 Mortgage-Related 

Securities4

 Period ($) ($) ($) ($)

 4Q05 106,408 3,701 110,109 91,561

 3Q05 111,896 3,460 115,356 95,141

 2Q05 91,560 1,580 93,140 78,302

 1Q05 71,809 2,431 74,240 60,571

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 and revised financial results.

2

 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

3

 Loans purchased from lenders. Excludes repurchased Freddie Mac MBS and structured securities. 

4

 Not included in total mortgages. For the period 2002 through 2005, amounts include non-Freddie Mac mortgage-related securities purchased for

 structured securities (e.g. alternative collateral deals and structured securities backed by Ginnie Mae MBS). For 2001, amounts include

 alternative collateral deals and excludes structured securities backed by Ginnie Mae MBS. 

Business Activity ($ in Millions)

Purchases2 

Annual Data

19
Table 11a. Freddie Mac Mortgage Purchases Detail, By Type of Loan1 

Fixed-Rate4

AdjustableRate5 Seconds Total Fixed-Rate 

 AdjustableRate Total Conventional FHA/ RHS 

($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)

88,346 18,062 0 106,408 0 0 0 106,408 3,701 0 3,701 110,109

91,164 20,732 0 111,896 0 0 0 111,896 3,460 0 3,460 115,356

76,112 15,448 0 91,560 0 0 0 91,560 1,580 0 1,580 93,140

58,220 13,589 0 71,809 0 0 0 71,809 2,431 0 2,431 74,240

313,842 67,831 0 381,673 0 0 0 381,673 11,172 0 11,172 392,845

293,830 60,663 0 354,493 319 0 319 354,812 12,712 0 12,712 367,524

617,796 82,270 0 700,066 1,417 0 1,417 701,483 15,292 0 15,292 716,775

468,901 63,448 0 532,349 845 0 845 533,194 10,654 0 10,654 543,848

353,056 30,780 0 383,836 288 0 288 384,124 9,507 3 9,510 393,634

145,744 21,201 0 166,945 1,068 0 1,068 168,013 6,030 0 6,030 174,043

224,040 7,443 0 231,483 1,129 0 1,129 232,612 7,181 0 7,181 239,793

256,008 7,384 0 263,392 98 0 98 263,490 3,910 0 3,910 267,400

106,174 8,950 0 115,124 36 0 36 115,160 2,241 0 2,241 117,401

116,316 6,475 0 122,791 59 0 59 122,850 2,229 0 2,229 125,079

75,867 14,099 0 89,966 5 0 5 89,971 1,565 0 1,565 91,536

105,902 16,646 0 122,548 15 0 15 122,563 847 0 847 123,410

208,322 20,708 1 229,031 20 0 20 229,051 191 0 191 229,242

175,515 15,512 7 191,034 65 0 65 191,099 27 0 27 191,126

91,586 7,793 206 99,585 144 0 144 99,729 236 0 236 99,965

56,806 16,286 686 73,778 402 0 402 74,180 1,338 0 1,338 75,518

57,100 17,835 1,206 76,141 624 0 624 76,765 1,824 0 1,824 78,589

34,737 7,253 59 42,049 835 0 835 42,884 1,191 0 1,191 44,075

69,148 4,779 69 73,996 828 0 828 74,824 2,016 0 2,016 76,840

96,105 2,262 90 98,457 1,479 0 1,479 99,936 3,538 0 3,538 103,474

40,226 605 34 40,865 1,245 0 1,245 42,110 1,902 0 1,902 44,012

Source: Freddie Mac

1

 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

3 Loans purchased from lenders. Excludes repurchased Freddie Mac MBS and structured securities.

4

 For the period 2002 through 2005, includes loans guaranteed by the Rural Housing Service.

5

 For the period 2001 through 2005, includes balloons/resets. 

6 Shaded amounts have been revised.

1973

1972

1971

1977

1976

1975

1974

1979

1978

1981

1980

1989

1988

1987

1986

1985

1984

1983

1982

1993

1992

1991

1990

1997

1996

1995

1994

2001

2000

1999

1998

2003

Annual Data6

2004

2002

2005

 Total MultiFamily 

Mortgages 

Total 

Mortgage 

Purchases 

 Period 

 Conventional FHA/VA 

 Total SingleFamily 

Mortgages 

Purchases ($ in millions)2,3

Single-Family Mortgages Multi-Family Mortgages 

 1Q05 

 2Q05 

 3Q05 

 4Q05 

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

Not Available 

Before 1985

20
Table 11b. Freddie Mac Purchases of Mortgage-Related Securities - Part 1 1 

 Fixed-Rate 

 AdjustableRate Fixed-Rate Adjustable- Rate Fixed-Rate Adjustable- Rate

($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)

 72,147 24,088 0 96,235 756 3,282 0 4,038 0 0 0 0 121,082 1,944 223,299 106,682 29,805 0 136,487 2,854 3,368 0 6,222 64 0 0 64 179,962 2,840 325,575 16,101 7,145 0 23,246 36 600 0 636 0 0 0 0 36,361 328 60,571 19,723 5,199 0 24,922 1,770 227 0 1,997 64 0 0 64 50,126 1,193 78,302 34,518 9,267 0 43,785 257 1,304 0 1,561 0 0 0 0 48,997 798 95,141 36,340 8,194 0 44,534 791 1,237 0 2,028 0 0 0 0 44,478 521 91,561

157,339 64,508 1,444 24,468 707 248,466192,817 45,798 820 59,376 863 299,674266,989 47,806 166 69,154 963 385,078

69,219 12,392 3,422 15,263 1,602 101,89858,516 18,249 3,339 10,304 1,488 91,896

107,508 3,126 319 15,711 1,782 128,446

33,33831,296 897 326 1,494 1,372 35,385

36,824

32,534 39,29219,817 19,817

1

Source: Freddie Mac

For the period 2001 through 2003, data are based on restated and revised financial results.

32

For 2001, amounts include alternative collateral deals and excludes structured securities backed by Ginnie Mae MBS.

Not Available 

Before 1997

Not Available 

Before 1994

Not Available 

Before 2004

Not Available 

Before 1997

Not Available 

Before 1997

Not Available 

Before 1997

Not Available 

Before 2004

Not Available 

Before 2004

Not Available 

Before 2004

Not Available 

Before 2004 

Not Available 

Before 2004

Not Available 

Before 2004

Not Available 

Before 1994

Not Available 

Before 2004

Mortgage 

Revenue 

Bonds 

Total 

MortgageRelated 

Securities3

Single-Family

 Total PrivateLabel 

Others' Securities

Ginnie Mae 

Single-Family

Multi-Family

Total Ginnie 

Mae

 Freddie Mac Securities 

Family 

 Multi- Total 

Freddie Mac

Single-Family

Fannie Mae

Total Fannie 

Mae Multi-Family

19931994199519961997199819992000

 1Q05  2Q05 

Annual Data

2005

Purchases ($ in Millions) 2 

Not included in total mortgages. For years 2002 through 2005, amounts include non-Freddie Mac mortgage-related securities purchased for structured securities (e.g. alternative collateral deals and structured securities backed by Ginnie Mae MBS). Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

 Period 

2001

200220032004

 3Q05  4Q05 

21
Table 11b. Freddie Mac Purchases of Mortgage-Related Securities - Part 2, Private-Label Detail1

Fixed-Rate Adjustable-Rate Total Other

($) ($) ($) ($) ($) ($)

0 3,105 41,373 44,478 0 44,478

0 4,452 44,545 48,997 0 48,997

0 3,675 46,451 50,126 0 50,126

0 2,574 33,787 36,361 0 36,361

0 13,806 166,156 179,962 0 179,962

0 11,682 109,400 121,082 0 121,082

0 69,154

318 59,376

0 24,468

15 10,304

3,293 15,263

1,630 15,711

36 1,494

Source: Freddie Mac

1

2

3

Not Available Before 

1997

Private-Label 

Not Available 

Before 1997 

Not Available 

Before 2004 

Not Available 

Before 2004 

(e.g. alternative collateral deals and structured securities backed by Ginnie Mae MBS).

Multi-Family

 Total PrivateLabel 

Other3

 Manufactured 

Housing 

Single-Family

 4Q05 

 Period 

Not Available 

Before 2004

Purchases ($ in Millions)2 

Not Available 

Before 2004

2004

 3Q05 

 2Q05 

 1Q05 

Annual Data

2005

1996

1995

1997

2002

Includes home equity securities and non-Freddie Mac mortgage-related securities purchased for structured securities 

2001

2003

Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

For the period 2001 through 2003, data are based on restated and revised financial results.

1993

1994

2000

1999

1998

22
Table 12. Freddie Mac MBS Issuances1 

Single Family MBS3 Multi-Family MBS Total MBS3 Multi-class MBS4

 ($) ($) ($) ($) 

112,021 586 112,607 49,549

111,869 649 112,518 59,383

95,321 293 95,614 43,528

77,002 126 77,128 55,980

396,213 1,654 397,867 208,440

360,933 4,175 365,108 215,367

705,450 8,337 713,787 298,118

543,716 3,596 547,312 331,672

387,234 2,357 389,591 192,437

165,115 1,786 166,901 48,202

230,986 2,045 233,031 119,565

249,627 937 250,564 135,162

113,758 500 114,258 84,366

118,932 770 119,702 34,145

85,522 355 85,877 15,372

116,901 209 117,110 73,131

208,724 0 208,724 143,336

179,202 5 179,207 131,284

92,479 0 92,479 72,032

71,998 1,817 73,815 40,479

72,931 587 73,518 39,754

39,490 287 39,777 12,985

72,866 2,152 75,018 0

96,798 3,400 100,198 2,233

37,583 1,245 38,828 2,625

Not Available Not Available 18,684 1,805

Before 1985 Before 1985 19,691 1,685

24,169 Not Issued

3,526 Before 1983

2,526

4,546

6,412

4,657

1,360

950

46

323

494

65

Source: Freddie Mac

1

 For the period 2001 through 2003, data are based on restated and revised financial results.

2

 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

3

 Includes MBS and structured securities backed by non-Freddie Mac mortgage-related securities. For the period 2002 through 2004, 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 multi-class structured securities, primarily Real Estate Mortgage Investment Conduits (REMICs) 

 as well as principal-only strips and other structured securities. These amounts exclude resecuritizations of MBS into 

 single-class securities, but include resecuritization of MBS, into multi-class securities.

5

 Shaded amounts have been revised.

2005

1991

1995

1994

1993

1992

1999

1998

1997

1996

2003

2002

2000

2001

Business Activity ($ in Millions)

MBS Issuances2

Period

1990

 1Q05 

Annual Data5

2004

 4Q05 

 3Q05 

 2Q05 

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

1973

1972

1971

1977

1976

1975

1974

23
Table 13. Freddie Mac Earnings1

Net Interest 

Income

Guarantee Fee 

Income

Average 

Guarantee Fee

Administrative 

Expenses2

Credit-Related 

Expenses3 Net Income Return on 

Equity4

 ($) ($) (basis points) ($) ($) ($) (%)

1,237 367 15.3 586 72 684 11.0 

1,363 373 16.2 472 153 880 13.3 

1,269 389 17.5 455 21 340 4.6 

1,501 321 14.9 793 45 226 2.8 

5,370 1,450 15.9 2,306 291 2,130 7.7 

9,137 1,382 17.5 1,821 140 2,937 10.2 

9,498 1,653 23.3 1,877 2 4,816 17.2 

9,525 1,527 22.2 1,406 126 10,090 47.2 

7,448 1,381 23.8 1,024 39 3,158 20.2 

3,758 1,243 23.7 825 75 3,666 39.0 

2,926 1,019 19.8 655 159 2,223 25.5 

2,215 1,019 21.4 578 342 1,700 22.6 

1,847 1,082 22.9 495 529 1,395 23.1 

1,705 1,086 23.4 440 608 1,243 22.6 

1,396 1,087 23.8 395 541 1,091 22.1 

1,112 1,108 24.4 379 425 983 23.3 

772 1,009 23.8 361 524 786 22.3 

695 936 24.7 329 457 622 21.2 

683 792 23.7 287 419 555 23.6 

619 654 22.4 243 474 414 20.4 

517 572 23.4 217 278 437 25.0 

492 465 21.5 194 219 381 27.5 

319 472 24.2 150 175 301 28.2 

299 301 22.4 110 120 247 28.5 

312 188 22.1 81 79 208 30.0 

213 158 24.7 71 54 144 52.0 

125 132 26.2 53 46 86 44.5 

30 77 24.5 37 26 60 21.9 

34 36 19.5 30 16 31 13.1 

54 23 14.3 26 23 34 14.7 

55 18 13.2 19 20 36 16.2 

37 14 14.9 14 13 25 13.4 

31 9 18.9 12 8 21 12.4 

18 3 13.6 10 (1) 14 9.5 

31 3 24.8 10 11 16 11.6 

42 2 25.5 8 33 5 4.0 

31 2 32.4 7 15 12 9.9 

10 1 39.4 5 4 4 3.5 

10 1 Not Available Not Available Not Available 6 5.5 

Before 1972 Before 1972 Before 1972

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 For years 2002 through 2005, include total administrative expenses and other expenses. For years 2001 and 2000, includes salaries

and employee benefits, occupancy expenses and other expenses.

3 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. 

4 Ratio computed as annualized net income available to common stockholders divided by the simple average of beginning and ending 

stockholders' equity, net of preferred stock (at redemption value).

 3Q05 

 2Q05 

 1Q05 

Period

 4Q05 

2003

Annual Data

2004

2000

2002

2001

2005

1994

1993

1999

1992

1995

1996

1998

1997

1991

1984

1983

1990

1989

1988

1987

1971

1975

1974

1973

1972

Earnings ($ in Millions)

1978

1977

1976

1982

1981

1980

1979

1986

1985

24
Table 14. Freddie Mac Balance Sheet

1

 Total Assets 

Total 

Retained 

Mortgage 

Portfolio3

Non-Mortgage 

Investments4

Debt 

Outstanding 

Stockholders' 

Equity Core Capital5

Fair Value 

of Net 

Assets

Total MBS 

Outstanding6

Multi-class 

MBS 

Issued7

 ($) ($) ($) ($) ($) ($) ($) ($) ($) 

806,222 709,503 57,324 748,792 27,191 35,964 30,800 974,200 596,022

782,229 686,644 56,889 723,032 27,722 35,665 30,000 942,888 578,938

779,234 673,861 69,988 715,845 30,868 35,062 30,200 914,426 559,636

775,178 661,364 63,283 717,595 27,381 34,965 30,100 873,317 551,598

806,222 709,503 57,324 748,792 27,191 35,964 30,800 974,200 596,022

795,284 664,582 62,027 731,697 31,416 35,009 30,900 852,270 528,060

803,449 660,531 53,124 739,613 31,487 32,985 27,300 752,164 472,325

752,249 589,899 91,871 665,696 31,330 28,990 22,900 729,809 531,929

641,100 503,769 89,849 578,368 19,624 20,181 18,300 653,084 433,775

459,297 385,451 43,521 426,899 14,837 14,380 576,101 290,211

386,684 322,914 34,152 360,711 11,525 12,692 537,883 288,396

321,421 255,670 42,160 287,396 10,835 10,715 478,351 256,399

194,597 164,543 16,430 172,842 7,521 7,376 475,985 239,894

173,866 137,826 22,248 156,981 6,731 6,743 473,065 230,720

137,181 107,706 12,711 119,961 5,863 5,829 459,045 243,600

106,199 73,171 17,808 93,279 5,162 5,169 460,656 264,815

83,880 55,938 18,225 49,993 4,437 4,437 439,029 249,086

59,502 33,629 12,542 29,631 3,570 407,514 218,747

46,860 26,667 9,956 30,262 2,566 359,163 146,978

40,579 21,520 12,124 30,941 2,136 316,359 88,124

35,462 21,448 11,050 26,147 1,916 272,870 52,865

34,352 16,918 14,607 26,882 1,584 226,406 15,621

25,674 12,354 10,467 19,547 1,182 212,635 3,652

23,229 13,093 15,375 953 169,186 5,333

16,587 13,547 12,747 779 99,909 5,047

13,778 10,018 10,999 606 70,026 3,214

8,995 7,485 7,273 421 57,720 1,669

5,999 4,679 4,991 296 42,952

6,326 5,178 5,680 250 19,897

5,478 5,006 4,886 221 16,962

4,648 4,003 4,131 238 15,316

3,697 3,038 3,216 202 12,017

3,501 3,204 3,110 177 6,765

4,832 4,175 4,523 156 2,765

5,899 4,878 5,609 142 1,643

4,901 4,469 4,684 126 780

2,873 2,521 2,696 121 791

1,772 1,726 1,639 110 444

1,038 935 915 107 64

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 3 Excludes "Reserve for losses on mortgage loans held for investment." 4 Based on fair value. Consists of Freddie Mac's cash and investments portfolio, excluding cash and cash equivalents and mortgage-related securities within that portfolio. 5 The sum of (a) the stated value of outstanding common stock, (b) the stated value of outstanding noncumulative perpetual preferred stock, (c) paid-in capital, and 

(d) retained earnings, less Treasury stock.

6 Represents MBS and structured securities that are held by third parties. For years prior to 2002, includes MBS and structured securities in Freddie Mac's 

cash and investments portfolio.

7 Represents total multiclass MBS held by third parties. 8 Shaded amounts have been revised.

Not Applicable 

Before 1993

Not Available 

Before 2001

Not Issued 

Before 1983

1983

1982

1985

1984

1993

1992

1991

1977

1976

1975

1981

1980

1979

1978

1974

1973

1972

1971

1986

1997

1996

1995

1994

1990

1989

1988

1987

 1Q05 

2000

1999

1998

2002

2001

2005

 Not Available 

Before 1987

Balance Sheet ($ in Millions)

Mortgage-Backed 

Securities Outstanding 

($ in Millions)2

End of 

Period 

2003

Annual Data8

2004

 4Q05 

 3Q05 

 2Q05 

25
Table 14a. Freddie Mac Total MBS Outstanding Detail

1 

Fixed-Rate3 AdjustableRate4 Seconds5 Total Total FHA/VA6 Conventional FHA/RHS Multi-Family 

Mortgages 

Total MBS 

Outstanding7

 ($) ($) ($) ($) ($) ($) ($) ($) ($) 

836,023 117,613 19 953,655 6,289 14,256 0 14,256 974,200 

811,378 110,599 17 921,994 6,724 14,170 0 14,170 942,888 

787,511 104,698 39 892,248 7,773 14,405 0 14,405 914,426 

752,160 97,976 44 850,180 8,472 14,665 0 14,665 873,317 

836,023 117,613 19 953,655 6,289 14,256 0 14,256 974,200 

736,332 91,329 70 827,731 9,254 15,285 0 15,285 852,270 

649,699 74,409 140 724,248 12,157 15,759 0 15,759 752,164 

647,603 61,110 5 708,718 12,361 8,730 0 8,730 729,809 

609,290 22,525 10 631,825 14,127 7,132 0 7,132 653,084 

533,331 36,266 18 569,615 778 5,708 0 5,708 576,101 

499,671 33,094 29 532,794 627 4,462 0 4,462 537,883 

Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 478,351 

Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 475,985 

473,065 

459,045 

460,656 

439,029 

407,514 

359,163 

316,359 

272,870 

226,406 

212,635 

169,186 

99,909 

70,026 

57,720 

42,952 

19,897 

16,962 

15,316 

12,017 

6,765 

2,765 

1,643 

780 

791 

444 

64 

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances. 3 Includes Rural Housing Service and other federally guaranteed loans, and certain alternative collateral deals for the period 2002 through 2005.

4 For the period 2002 through 2005, includes balloons/resets and certain alternative collateral deals.

5 For the period 2002 through 2005, includes certain alternative collateral deals.

6 For the period 2002 through 2005, includes structured securities backed by Ginnie Mae MBS and certain alternative collateral deals.

7 Represents MBS and structured securities that are held by third parties. For the period 2002 through 2005, amounts include structured securities backed by all nonFreddie Mac securities (including Ginnie Mae MBS). For years prior to 2002, also includes MBS and structured securities in Freddie Mac's cash and investments portfolio.

1971

1976

1975

1974

1973

1979

1978

1977

1972

1983

1982

1981

1980

1987

1986

1985

1984

1991

1990

1989

1988

1995

1994

1993

1992

1999

1998

1997

1996

2002

2001

2000

 2Q05 

 1Q05 

2003

Annual Data

2004

2005

 4Q05 

 3Q05 

 End of 

Period 

Single-Family Mortgages ($ in Millions)2 Multi-Family Mortgages 

($ in Millions)2

 Conventional 

26
Table 15. Freddie Mac Retained Mortgage Portfolio Detail 1

Whole Loans2

Freddie Mac 

Securities2

Other MortgageRelated Securities2

Unamortized Premiums, 

Discounts, Deferred 

Fees, Plus Unrealized 

Gains/Losses on 

Available-for-Sale 

Securities3

Total Retained 

Mortgage Portfolio4

 End of 

Period ($) ($) ($) ($) ($) 

61,481 361,324 287,212 (514) 709,503

61,207 341,505 281,818 2,114 686,644

60,986 336,233 267,784 8,858 673,861

61,736 350,390 244,594 4,644 661,364

61,481 361,324 287,212 (514) 709,503 

61,360 356,698 234,878 11,646 664,582 

60,270 393,135 192,061 15,065 660,531 

63,886 341,287 162,099 22,627 589,899 

62,792 308,427 126,420 6,130 503,769 

59,240 246,209 80,244 (242) 385,451 

56,676 211,198 56,569 (1,529) 322,914 

57,084 168,108 29,817 661 255,670 

48,454 103,400 Not Available 122 164,543 

46,504 81,195 Before 1998 71 137,826 

43,753 56,006 282 107,706 

Not Available 30,670 Not Available 73,171 

Before 1995 15,877 Before 1995 55,938 

6,394 33,629 

Not Available 26,667 

Before 1992 21,520 

21,448 

16,918 

12,354 

13,093 

13,547 

10,018 

7,485 

4,679 

5,178 

5,006 

4,003 

3,038 

3,204 

4,175 

4,878 

4,469 

2,521 

1,726 

935 

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

2 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

3 Includes premiums, discounts, deferred fees and other basis adjustments on mortgage loans and mortgage-related securities 

plus unrealized gains or losses on mortgage-related securities and MBS residuals, at fair value. 

4 Excludes "Reserve for losses on mortgage loans held for investment."

1972

1971

1977

1976

1975

1974

1980

1979

1978

1973

1984

1983

1982

1981

1988

1987

1986

1985

1992

1991

1990

1989

1996

1995

1994

1993

2000

1999

1998

1997

2003

2002

2001

Annual Data

2004

2005

 2Q05 

 1Q05 

($ in Millions)

 4Q05 

 3Q05 

27
Table 15a. Freddie Mac Retained Mortgage Portfolio Detail - Whole Loans1

Multi-Family

Fixed-Rate3 AdjustableRate Seconds Total Total 

FHA/VA Conventional FHA/RHS Total Total Whole Loans

 ($) ($) ($) ($) ($) ($) ($) ($) ($)

19,385 756 0 20,141 255 41,082 3 41,085 61,481 

19,917 713 0 20,630 273 40,301 3 40,304 61,207 

20,734 707 0 21,441 295 39,247 3 39,250 60,986 

21,544 740 0 22,284 321 39,128 3 39,131 61,736 

19,385 756 0 20,141 255 41,082 3 41,085 61,481 

22,055 990 0 23,045 344 37,968 3 37,971 61,360 

25,889 871 1 26,761 513 32,993 3 32,996 60,270 

33,821 1,321 3 35,145 705 28,033 3 28,036 63,886 

38,267 1,073 5 39,345 964 22,480 3 22,483 62,792 

39,537 2,125 9 41,671 1,200 16,369 Not Available 16,369 59,240 

43,210 1,020 14 44,244 77 12,355 Before 2001 12,355 56,676 

47,754 1,220 23 48,997 109 7,978 7,978 57,084 

40,967 1,478 36 42,481 148 5,825 5,825 48,454 

Not Available Not Available Not Available Not Available Not Available 4,746 4,746 46,504 

Before 1997 Before 1997 Before 1997 Before 1997 Before 1997 3,852 3,852 43,753 

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 and revised financial results.

2 Based on unpaid principal balances. 

3 For the period 2001 through 2005, includes loans guaranteed by the Rural Housing Service.

Whole Loans ($ in Millions)2

Annual Data 

 Single-Family 

 Conventional 

 End of 

Period 

 4Q05 

 3Q05 

2002

2001

2000

 2Q05 

 1Q05 

2003

2004

2005

1995

1994

1999

1998

1997

1996

28
Table 15b. Freddie Mac Retained Mortgage Portfolio Detail - Part 1, Mortgage-Related Securities1

 Fixed-Rate 

 AdjustableRate Multi-Family Total Freddie Mac Fixed-Rate Adjustable- Rate Multi-Family Total Fannie Mae Fixed-Rate Adjustable- Rate Multi-Family Total Ginnie Mae Total Others' Securities 

 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) 

 4Q05 299,188 61,889 247 361,324 28,818 13,180 1,335 43,333 1,045 218 30 1,293 231,265 275,891  3Q05 284,167 57,080 258 341,505 30,215 12,896 1,460 44,571 1,234 188 30 1,452 224,851 270,874  2Q05 279,904 56,071 258 336,233 38,519 12,826 1,573 52,918 1,376 139 31 1,546 203,029 257,493  1Q05 295,113 55,018 259 350,390 39,349 13,831 1,628 54,808 1,443 99 31 1,573 178,987 235,368 

2004 304,555 51,882 261 356,698 41,828 14,504 1,672 58,004 1,599 81 31 1,711 166,086 225,802005 299,188 61,889 247 361,324 28,818 13,180 1,335 43,333 1,045 218 30 1,293 231,265 275,891 

1 

2003 Not Available Not Available Not Available 393,135 Not Available Not Available Not Available 74,529 Not Available Not Available Not Available 2,760 107,000 184,289 2002 Before 2004 Before 2004 Before 2004 341,287 Before 2004 Before 2004 Before 2004 78,829 Before 2004 Before 2004 Before 2004 4,878 70,752 154,459 1995 56,006 1996 81,195 Before 1998 7,434 Before 1998 Before 19981997 103,400 Not Available 6,393 Not Available Not Available1998 168,108 3,749 4,458 16,970 25,177 1999 211,198 13,245 6,615 31,019 50,879 2000 246,209 28,303 8,991 35,997 73,291 2001 308,427 71,128 5,699 42,336 119,163 

Not Available 

1994 30,670 Before 19961991 Not Available 1992 6,394 1993 15,877 

Before 1992

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.2 Based on unpaid principal balances. 3 For the period 2001 through 2005, includes structured securities backed by Ginnie Mae MBS which were previously classified as non-Freddie Mac mortgage-related securities.

Annual Data

Freddie Mac Securities2, 3

Fannie Mae

Single-Family Single-Family

Total 

PrivateLabel 

Others' Securities2

Period 

 End of 

Mortgage-Related Securities ($ in Millions)

Ginnie Mae

Single-Family

29
Table 15b. Freddie Mac Retained Mortgage Portfolio Detail - Part 2, Mortgage-Related Securities, Private-Label Detail 1

Fixed-Rate Adjustable-Rate Total Other

 ($) ($) ($) ($) ($) ($) 

 4Q05 1,351 5,795 180,632 186,427 43,487 231,265 

 3Q05 1,392 5,723 172,491 178,214 45,245 224,851 

 2Q05 1,431 5,954 151,470 157,424 44,174 203,029 

 1Q05 1,468 7,149 128,483 135,632 41,887 178,987 

2005 1,351 5,795 180,632 186,427 43,487 231,265 

2004 1,491 8,243 115,168 123,411 41,184 166,086 

2003 1,784 Not Available Not Available Not Available Not Available 107,000 

2002 2,394 Before 2004 Before 2004 Before 2004 Before 2004 70,752 

2001 2,462 42,336 

2000 2,896 35,997 

1999 4,693 31,019 

1998 1,711 16,970 

1997 Not Available Not Available

1996 Before 1998 Before 1998

1995

1994

1993

1992

1991

Source: Freddie Mac

1

 For the period 2001 through 2003, data are based on restated and revised financial results.

2

 Includes home equity securities.

Annual Data

Mortgage-Related Securities ($ in Millions)

 Private-Label 

 Single-Family 

Multi-Family Total Private-Label 

Other2

 Manufactured 

Housing End of 

Period 

30
Table 15b. Freddie Mac Retained Mortgage Portfolio Detail - Part 3, Mortgage-Related Securities 1

Mortgage Revenue 

Bonds2 

Total Mortgage-Related 

Securities2

 ($) ($) ($) ($) 

 4Q05 11,321 648,536 (514) 709,503

 3Q05 10,944 623,323 2,114 686,644

 2Q05 10,291 604,017 8,858 673,861

 1Q05 9,226 594,984 4,644 661,364

2005 11,321 648,536 (514) 709,503

2004 9,077 591,576 11,646 664,582 

2003 7,772 585,196 15,065 660,531 

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

 For the period 2001 through 2003, data are based on restated and revised financial results.

2

 Based on unpaid principal balances. 

3

 Includes premiums, discounts, deferred fees and other basis adjustments on mortgage loans and mortgage-related securities 

 plus unrealized gains or losses on mortgage-related securities and MBS residuals.

4

 Excludes "Reserve for losses on mortgage loans held for investment."

5

 Shaded amounts have been revised.

Mortgage-Related Securities ($ in Millions)

Total Retained 

Mortgage Portfolio4

Annual Data5

Unamortized 

Premiums, 

Discounts, Deferred 

Fees, Plus Unrealized 

Gains/Losses on 

Available-for-Sale 

Securities3

 End of 

Period 

($ in Millions)

31
Table 16. Freddie Mac Financial Derivatives1

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 

Derivatives

3 Commitments4 Other5 Total

End of 

Period ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) 

341,008 45 37,850 193,104 0 86,252 2,414 21,961 738 683,372 

290,787 337 42,347 191,033 3,211 65,906 2,580 45,593 85,659 727,453 

245,386 9,739 43,743 192,616 12,446 46,766 2,784 56,586 94,464 704,530 

226,033 9,836 52,942 192,624 17,293 61,178 10,104 52,060 99,800 721,870 

341,008 45 37,850 193,104 0 86,252 2,414 21,961 738 683,372 

178,739 9,897 56,850 224,204 2,001 127,109 10,926 32,952 114,100 756,778 

287,592 11,308 46,512 349,650 8,549 122,619 15,542 89,520 152,579 1,083,871 

290,096 11,663 43,687 277,869 17,900 210,646 17,301 191,563 117,219 1,177,944 

442,771 12,178 23,995 187,486 13,276 358,500 10,984 121,588 0 1,170,778 

277,888 12,819 10,208 113,064 2,200 22,517 N/A N/A 35,839 474,535 

126,580 19,936 1,097 172,750 8,894 94,987 Not Applicable Not Applicable 0 424,244 

57,555 21,845 1,464 63,000 11,542 157,832 Before 2000 Before 2000 0 313,238 

54,172 21,995 1,152 6,000 12,228 0 0 95,547 

46,646 14,095 544 0 651 0 0 61,936 

45,384 13,055 0 0 24 0 0 58,463 

21,834 9,003 0 0 0 0 0 30,837 

17,888 1,500 0 0 0 0 0 19,388 

Source: Freddie Mac

1

2

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

6 Shaded amounts have been revised.

2000

1999

 4Q05 

 3Q05 

2004

2001

2005

Financial Derivatives - Notional Amount Outstanding ($ in millions) 

Annual Data6

2003

2002

 2Q05 

 1Q05 

1998

1997

1996

1995

1994

For the period 2001 through 2003, data are based on restated and revised financial results.

1993

Includes prepayment management agreement and swap guarantee derivatives.

Amounts for years 2002 through 2005 are exchange-traded.

32
Federal Funds 

and Eurodollars

Asset-Backed 

Securities

Repurchase 

Agreements

Commercial Paper 

and Corporate 

Debt Other2 Total 

 ($) ($) ($) ($) ($) ($) 

9,909 30,578 5,250 5,764 5,823 57,324 

15,980 29,382 2,950 3,087 5,490 56,889 

22,345 28,444 6,750 7,565 4,884 69,988 

22,013 26,156 3,400 5,234 6,480 63,283 

9,909 30,578 5,250 5,764 5,823 57,324 

18,647 21,733 13,550 0 8,097 62,027 

7,567 16,648 13,015 5,852 10,042 53,124 

6,129 34,790 16,914 13,050 20,988 91,871 

15,868 26,297 17,632 21,712 8,340 89,849 

2,267 19,063 7,488 7,302 7,401 43,521 

10,545 10,305 4,961 3,916 4,425 34,152 

20,524 7,124 1,756 7,795 4,961 42,160 

2,750 2,200 6,982 3,203 1,295 16,430 

9,968 2,086 6,440 1,058 2,696 22,248 

110 499 9,217 1,201 1,684 12,711 

7,260 0 5,913 1,234 3,401 17,808 

9,267 0 4,198 1,438 3,322 18,225 

5,632 0 4,060 53 2,797 12,542 

2,949 0 4,437 0 2,570 9,956 

1,112 0 9,063 0 1,949 12,124 

3,527 0 5,765 0 1,758 11,050 

4,469 0 9,107 0 1,031 14,607 

3,177 0 5,859 0 1,431 10,467 

Source: Freddie Mac

1

2 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.

Table 17. Freddie Mac Non-Mortgage Investments1

1996

1995

1994

2003

1998

1997

2002

2001

2000

2005

1993

1987

1992

1991

1990

1989

1988

For the period 2001 through 2003, data are based on restated and revised financial results.

1999

Non-Mortgage Investments ($ in Millions)

End of 

Period

 4Q05 

 3Q05 

2004

 2Q05 

 1Q05 

Annual Data 

33
Total Retained Mortgage Portfolio/

Total Assets 

Non-Mortgage Investments/

Total Assets 

 (%) (%) 

88.0 7.1 

87.8 7.3 

86.5 9.0 

85.3 8.2 

88.0 7.1 

83.6 7.8 

82.2 6.6 

78.4 12.2 

78.6 14.0 

83.9 9.5 

83.5 8.8 

79.5 13.1 

84.6 8.4 

79.3 12.8 

78.5 9.3 

68.9 16.8 

66.7 21.7 

56.5 21.1 

56.9 21.2 

53.0 29.9 

60.5 31.2 

49.2 42.5 

48.1 40.8 

56.4 Not Available

81.7 Before 1987

72.7 

83.2 

78.0 

81.9 

91.4 

86.1 

82.2 

91.4 

86.1 

82.2 

91.5 

87.7 

97.4 

90.1 

Source: Freddie Mac

1 For the period 2001 through 2003, data are based on restated and revised financial results.

Table 18. Freddie Mac Asset Mix1

Asset Ratios

End of Period 

 4Q05 

 3Q05 

 2Q05 

 1Q05 

2000

2005

1999

Annual Data

2003

2002

2001

2004

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1978

1977

1972

1971

1976

1975

1974

1973

34
Table 19. Freddie Mac Mortgage Asset Quality1

(%) (%) (%) (%) (%)

0.69 0.00 0.01 0.04 17.0 

0.59 0.00 0.01 0.04 18.0 

0.61 0.01 0.01 0.04 18.0 

0.67 0.05 0.01 0..04 18.0 

0.69 0.00 0.01 0.04 17.0 

0.73 0.06 0.01 0.05 19.0 

0.86 0.05 0.01 0.06 21.0 

0.77 0.13 0.01 0.05 27.4 

0.62 0.15 0.01 0.04 34.7 

0.49 0.04 0.01 0.04 31.8 

0.39 0.14 0.02 0.05 29.9 

0.50 0.37 0.04 0.08 27.3 

0.55 0.96 0.08 0.11 15.9 

0.58 1.96 0.10 0.13 10.0 

0.60 2.88 0.11 0.14 9.7 

0.55 3.79 0.08 0.18 7.2 

0.61 5.92 0.11 0.16 5.3 

0.64 6.81 0.09 0.12 Not Available 

0.61 5.42 0.08 0.14 Before 1993

0.45 2.63 0.08 0.12 

0.38 2.53 0.08 0.09 

0.36 2.24 0.07 0.09 

0.36 1.49 0.07 0.08 

0.42 1.07 Not Available 0.07 

0.42 0.63 Before 1987 0.10 

0.46 0.42 0.15 

0.47 0.58 0.15 

0.54 1.04 0.12 

0.61 Not Available 0.07 

0.44 Before 1982 0.04 

0.31 0.02 

0.21 0.02 

Not Available 0.03 

Before 1978 0.04 

0.03 

0.02 

Not Available

Before 1974

Source: Freddie Mac

1 For the period 2000 through 2003, data are based on restated and revised financial results, except for the credit-enhanced share of the total 

mortgage portfolio in 2000. 2 Based on the number of mortgages 90 days or more delinquent or in foreclosure. Rates for years 2000 through 2005 are bases on the total single-family

portfolio. Includes delinquencies on mortgage loans where Freddie Mac has transferred primary or full default risk to various third parties as 

well as structured securities backed by alternative collateral deals. 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.

 4Q05 

 3Q05 

Mortgage Asset Quality

Credit Losses / Average 

Total Mortgage Portfolio4 

REO / Total Mortgage 

Portfolio5

Credit-Enhanced6/ Total 

Mortgage Portfolio5

End of Period

Single-Family 

Delinquency Rate2

Multi-Family 

Delinquency Rate3

 2Q05 

 1Q05 

2003

2004

Annual Data

2005

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1982

1981

1988

1987

1986

1985

1984

1983

1974

1973

1976

1975

1980

1979

1978

1977

35
Table 20. Freddie Mac Capital1

Core Capital

Minimum Capital 

Requirement

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

 ($) ($) ($) ($) ($) ($) ($) (%) (%) (%)

12,692 12,287 405 14,380 14,178 202 Before 2002 Before 2002 Before 2002 47,702 3.13 1.39 20.0 20,181 19,014 1,167 Not Available Not Applicable Not Applicable 45,473 3.15 1.56 18.9 28,990 22,339 6,651 24,222 4,743 19,479 40,590 3.85 1.96 6.2 32,985 23,774 9,211 33,436 5,426 28,010 40,158 4.11 2.12 15.6 35,009 24,131 10,878 34,691 11,108 23,583 50,898 4.40 2.12 30.7 35,964 25,010 10,954 36,781 11,282 25,499 45,269 4.46 2.02 56.4 34,965 23,740 11,225 35,885 7,678 28,207 43,665 4.51 2.12 142.0 35,062 24,065 10,997 36,099 11,144 24,955 45,138 4.50 2.07 86.6 35,665 24,284 11,381 36,721 10,081 26,640 39,084 4.56 2.07 29.8 35,964 25,010 10,954 36,781 11,282 25,499 45,269 4.46 2.02 54.2 

32,713 3.28 1.37 20.1 

10,715 10,333 382 44,797 3.33 1.34 20.7 

7,376 7,082 294 28,461 3.79 1.10 21.1 6,743 6,517 226 19,161 3.88 1.04 21.3 5,829 5,584 245 14,932 4.25 0.98 21.1 5,169 4,884 285 9,132 4.87 0.91 20.5 4,437 3,782 655 9,005 5.29 0.85 21.6 

Not Applicable Not Applicable Not Applicable 8,721 Not Applicable Not Applicable 23.1 

Before 1993 Before 1993 Before 1993

4,024 24.3 2,925 23.2 8,247 Before 1993 Before 1993 21.6 

Not Applicable Not Available

Before 1989 Before 1989

1

Source: Freddie Mac and OFHEO

For the period 2001 through 2003, data are based on restated and revised financial results. 

2 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. 

Capital ($ in Millions) 

Minimum Capital Requirement

2004

 2Q05  3Q05  4Q05 

Period

End of 

2005

Risk-Based Capital Requirement

2003

Annual Data

198819891990199119921993199419951996199719981999200020012002

 1Q05 

36
Table 21. Combined Purchases1

($) ($) ($) ($)

 4Q05 240,229 9,917 250,146 123,785

 3Q05 281,214 8,326 289,540 101,048

 2Q05 216,550 5,684 222,235 87,929

 1Q05 180,592 8,730 189,323 75,045

2005 918,586 32,657 951,243 387,807

2004 942,738 29,106 971,844 399,684

2003 2,023,507 46,170 2,069,677 793,684

2002 1,333,510 27,265 1,360,775 568,248

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

1

 See notes to Tables 1 and 11.

 Business Activity ($ in Millions) 

 Purchases 

 Annual Data 

 Single-Family Multi-Family 

Mortgage-Related 

Total Mortgages Securities

 Period 

37
Table 21a. Combined Mortgage Purchases Detail, By Type of Loan1

 Fixed-Rate 

 AdjustableRate Seconds Total Fixed-Rate Adjustable- Rate Total Conventional FHA/RHS 

 ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)

 4Q05 198,593 39,603 32 238,228 155 1,847 2,001 240,229 9,841 76 9,917 250,146  3Q05 220,771 58,752 34 279,557 82 1,576 1,658 281,214 8,326 0 8,326 289,540

 2Q05 170,688 44,288 30 215,006 172 1,372 1,544 216,550 5,625 59 5,684 222,235  1Q05 142,160 37,123 20 179,304 136 1,153 1,289 180,592 6,252 2,478 8,730 189,323 

2005 732,211 179,766 116 912,094 545 5,948 6,492 918,586 30,044 2,614 32,657 951,243 2004 755,587 181,834 51 937,472 1,393 3,873 5,266 942,738 28,355 751 29,106 971,844 2003 1,808,625 209,030 93 2,017,748 2,715 3,044 5,759 2,023,507 33,940 12,230 46,170 2,069,677 2002 1,199,560 130,220 41 1,329,821 2,141 1,548 3,689 1,333,510 24,604 2,661 27,265 1,360,775 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 

1

Sources: Fannie Mae and Freddie Mac

 See notes to Tables 1a and 11a. 

 Annual Data 

 Conventional FHA/VA 

Total SingleFamily 

Mortgages 

 Total MultiFamily 

Mortgages Period 

 Single-Family Mortgages Multi-Family Mortgages 

Purchases ($ in Millions)

Total 

Mortgage 

Purchases 

38
Table 21b. Combined Purchases of Mortgage-Related Securities1

 Manufactured 

Housing Other2

 Total PrivateLabel 

 Period ($) ($) ($) ($) ($) ($) ($)

 4Q05 62,451 0 0 60,665 60,665 669 123,785 

 3Q05 46,212 0 0 53,540 53,540 1,296 101,048 

 2Q05 27,820 64 0 58,323 58,323 1,722 87,929 

 1Q05 25,301 0 0 48,803 48,803 941 75,045 

2005 161,784 64 0 221,331 221,331 4,628 387,807 

2004 179,787 0 0 211,829 211,829 8,068 399,684 

2003 683,165 202 0 103,186 103,186 7,131 793,684 

2002 491,074 5,245 374 66,418 66,792 5,136 568,248 

2001 422,501 1,777 Not Available Not Available 27,981 5,331 457,590 

2000 191,840 5,832 Before 2002 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 

 

1

 See notes to Tables 1b and 11b, Parts 1 and 2.

2

 The category 'Other' includes home equity and multi-family private label purchases by both Enterprises.

 Sources: Fannie Mae and Freddie Mac

 Purchases ($ in millions) 

 Annual Data 

 Others' Securities 

Total 

MortgageRelated 

Securities 

 Enterprise 

Securities Ginnie Mae 

 Private Label 

 Mortgage 

Revenue 

Bonds 

39
Table 22. Combined MBS Issuances1

 Single-Family 

MBS Multi-Family MBS Total MBS Multi-class MBS

Period ($) ($) ($) ($) 

 4Q05 234,605 3,440 238,045 78,744

 3Q05 269,478 1,616 271,094 98,311

 2Q05 215,059 1,994 217,053 71,802

 1Q05 177,739 3,982 181,722 83,396

2005 896,881 11,033 907,914 332,253

2004 906,376 11,029 917,405 310,053

2003 1,902,011 31,355 1,933,366 559,037

2002 1,270,973 15,934 1,286,907 502,467

2001 901,855 16,158 918,013 331,840

2000 369,181 9,382 378,563 87,746

1999 523,178 10,542 533,720 174,725

1998 564,747 11,965 576,712 219,309

1997 257,373 6,314 263,687 169,781

1996 263,133 6,438 269,571 64,925

1995 191,791 4,542 196,333 25,053

1994 245,286 2,446 247,732 146,496

1993 429,209 959 430,168 353,966

1992 372,389 855 373,244 301,489

1991 203,967 1,415 205,382 184,840

1990 168,004 2,506 170,510 108,770

1989 139,420 3,862 143,282 81,469

1988 90,610 4,045 94,655 29,990

1987 134,933 3,314 138,247 9,917

1986 156,815 3,949 160,764 4,633

1985 60,725 1,752 62,477 2,625

1984 Not Available Not Available 32,230 1,805

1983 Before 1985 Before 1985 33,031 1,685

1982 38,139 Not Issued 

1981 4,243 Before 1983

Sources: Fannie Mae and Freddie Mac

1

 See notes to Tables 2 and 12.

Annual Data

 Business Activity ($ in Millions) 

 MBS Issuances 

40
Table 23. Combined Earnings1 

Net Interest Income Guarantee Fee 

Income

Administrative 

Expenses 

Credit-Related 

Expenses Net Income 

Period ($) ($) ($) ($) ($) 

 4Q05 N/A N/A N/A N/A N/A

 3Q05 N/A N/A N/A N/A N/A

 2Q05 N/A N/A N/A N/A N/A

 1Q05 N/A N/A N/A N/A N/A

2005 N/A N/A N/A N/A N/A

2004 N/A N/A N/A N/A N/A

2003 23,067 4,064 3,340 114 12,721 

2002 20,091 3,343 2,625 218 14,709 

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

1 See notes to Tables 3 and 13.

 Earnings ($ in Millions) 

Annual Data

41
Table 24. Combined Balance Sheet1

Total Assets

Total 

Retained 

Mortgage 

Portfolio

Non-Mortgage 

Investments Debt Outstanding 

Shareholders' 

Equity Core Capital

Fair Value of 

Net Assets

 ($) ($) ($) ($) ($) ($) ($) ($ in Millions) 

 4Q05 N/A N/A N/A N/A N/A 74,099 N/A 2,572,279

 3Q05 N/A N/A N/A N/A N/A 72,658 N/A 2,516,731

 2Q05 N/A N/A N/A N/A N/A 70,703 N/A 2,399,639

 1Q05 N/A N/A N/A N/A N/A 69,963 N/A 2,314,394

2005 N/A N/A N/A N/A N/A 74,099 N/A 2,572,279

2004 N/A N/A N/A N/A N/A 67,650 N/A 2,255,045

2003 1,813,018 1,562,516 112,617 1,701,345 53,860 67,390 58,882 2,052,505

2002 1,639,764 1,391,039 131,164 1,516,678 47,618 57,069 45,030 1,759,380

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 35,207 Not Available 1,282,823

1999 961,992 846,017 71,451 908,330 29,154 30,568 Before 2001 1,217,028

1998 806,567 671,104 100,675 747,687 26,288 26,180 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 16,962

1979 55,948 53,780 52,555 1,739 15,316

1978 47,203 45,141 44,201 1,564 12,017

1977 37,481 36,456 35,000 1,350 6,765

1976 37,225 35,950 35,088 1,139 2,765

1975 37,495 35,698 35,572 1,003 1,643

1974 34,572 33,135 32,852 898 780

1973 27,191 26,110 25,699 801 791

1972 22,118 21,378 20,878 669 444

1971 19,629 18,821 18,587 567 64

Sources: Fannie Mae and Freddie Mac

N/A = not available

1 See notes to Tables 4 and 14.

Annual Data 

 Balance Sheet ($ in Millions) 

End of 

Period

Total MortgageBacked Securities 

Outstanding

42
Table 24a. Combined MBS Outstanding Detail 1

 Fixed-Rate 

 AdjustableRate Seconds Total Conventional FHA/RHS

 Total MultiFamily 

 ($) ($) ($) ($) ($) ($) ($) ($) ($) 

 4Q05 2,150,876 340,541 53 2,491,471 8,196 72,333 279 72,612 2,572,279

 3Q05 2,099,411 333,830 56 2,433,297 8,892 74,248 294 74,542 2,516,731

 2Q05 2,001,895 309,895 84 2,311,874 10,236 77,226 304 77,529 2,399,639

 1Q05 1,931,357 292,357 95 2,223,809 11,112 79,159 315 79,473 2,314,394

2005 2,150,876 340,541 53 2,491,471 8,196 72,333 279 72,612 2,572,279

2004 1,889,273 274,909 128 2,164,310 12,185 78,227 323 78,550 2,255,045

2003 1,725,892 228,194 249 1,954,335 16,120 81,676 374 82,050 2,052,505

2002 1,529,221 153,397 343 1,682,961 17,476 57,957 986 58,943 1,759,380

2001 1,361,501 83,367 782 1,445,650 19,853 49,845 1,181 51,026 1,516,529

2000 1,133,330 97,761 1,183 1,232,274 8,854 40,915 780 41,695 1,282,823

1999 1,085,740 84,568 1,241 1,171,549 8,796 35,980 703 36,683 1,217,028

1998 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 1,115,494

1997 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 Before 1999 1,055,123

1996 1,021,238

1995 972,275

1994 947,001

1993 910,335

1992 831,958

1991 714,447

1990 604,434

1989 489,382

1988 396,503

1987 348,369

1986 264,754

1985 154,461

1984 105,764

1983 82,841

1982 57,402

1981 20,614

1980 16,962

1979 15,316

1978 12,017

1977 6,765

1976 2,765

1975 1,643

1974 780

1973 791

1972 444

1971 64

Sources: Fannie Mae and Freddie Mac

1

 See notes to Tables 4a and 14a.

Annual Data

 Single-Family Mortgages ($ in Millions) 

 Conventional 

Total MBS 

Outstanding End of 

Period 

Multi-Family Mortgages 

($ in Millions) 

Total 

FHA/VA 

43
Table 25. Combined Financial Derivatives1

End of

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 

Period ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) 

 4Q05 647,992 33,045 43,335 491,789 N/A N/A N/A N/A 738 N/A

 3Q05 558,627 47,037 47,657 499,118 N/A N/A N/A N/A 85,659 N/A

 2Q05 502,110 66,289 52,527 526,301 N/A N/A N/A N/A 94,464 N/A

 1Q05 470,935 97,336 63,648 548,559 N/A N/A N/A N/A 99,800 N/A

2005 647,992 33,045 43,335 491,789 N/A N/A N/A N/A 738 N/A

2004 421,198 114,047 67,593 555,604 N/A N/A N/A 67,083 114,100 1,479,661 

2003 857,476 141,658 51,224 685,300 N/A N/A N/A 128,012 152,579 2,162,959 

2002 536,604 134,056 47,706 561,544 N/A N/A N/A Not Available 117,219 1,834,539 

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 16.

Financial Derivatives - Notional Amount Outstanding ($ in millions) 

Annual Data

44
Table 26. Combined Non-Mortgage Investments1

Federal Funds 

and 

Eurodollars

Asset 

Backed 

Securities

Repurchase 

Agreements

Commercial 

Paper and 

Corporate 

Debt Other Total 

 ($) ($) ($) ($) ($) ($) 

N/A N/A N/A N/A N/A N/A

N/A N/A N/A N/A N/A N/A

N/A N/A N/A N/A N/A N/A

N/A N/A N/A N/A N/A N/A

N/A N/A N/A N/A N/A N/A

N/A N/A N/A N/A N/A N/A

 43,548 20,142 13,126 22,595 13,206 112,617 

 57,101 7,677 17,095 27,125 22,166 131,164 

 47,234 31,957 18,440 45,517 12,683 155,831 

 36,575 9,806 7,575 16,195 25,717 95,868 

 29,512 15,382 5,083 5,639 15,835 71,451 

 28,117 28,450 9,312 12,950 21,846 100,675 

 18,839 21,962 13,697 14,948 11,580 81,026 

 16,721 31,702 11,107 7,249 12,075 78,854 

 10,404 19,885 19,392 9,830 10,473 69,984 

 3,796 24,853 14,919 8,953 11,622 64,143 

 3,557 13,763 8,882 1,438 11,981 39,621 

 4,124 12,219 7,249 53 8,471 32,116 

 2,416 5,903 6,632 0 4,841 19,792 

 1,780 6,441 10,014 0 3,757 21,992 

 1,107 8,685 5,765 0 3,831 19,388 

 481 8,594 9,107 0 1,714 19,896 

 25 5,736 5,859 0 2,315 13,935 

Sources: Fannie Mae and Freddie Mac

N/A = not available

1 See notes to Tables 7 and 17.

2003

 2Q05 

 1Q05 

Annual Data

2004

2005

Non-Mortgage Investments ($ in Millions)

 4Q05 

 3Q05 

End of 

Period

1998

1997

2002

2001

2000

1999

1987

1992

1991

1990

1989

1988

1996

1995

1994

1993

45
Table 27. Combined Capital1

Core Capital

Minimum 

Capital 

Requirement

Regulatory 

Capital 

Surplus 

(Deficit) Total Capital

Risk-Based 

Capital 

Requirement

Risk-Based 

Capital 

Surplus 

(Deficit)

Market 

Capitalization

 ($) ($) ($) ($) ($) ($) ($) 

 53,473 74,099 20,627 75,985 23,918 52,067 92,642 

 52,162 72,658 20,496 74,581 25,780 48,801 82,557 

 53,792 70,703 16,911 72,243 34,205 38,038 101,775 

 54,699 69,963 15,264 71,380 14,033 57,347 96,464 

 53,473 74,099 20,627 75,985 23,918 52,067 92,642 

 56,297 67,650 11,353 70,569 21,147 49,422 119,908 

 55,294 67,390 12,096 68,618 32,647 35,970 112,996 

 49,542 57,069 7,528 53,093 22,177 30,916 104,202 

 43,196 45,363 2,167 Not Applicable Not Applicable Not Applicable 124,754 

 34,472 35,207 735 Before 2002 Before 2002 Before 2002 134,345 

 30,057 30,568 511 96,364 

 25,667 26,180 513 120,678 

 19,785 21,169 1,384 87,628 

 17,983 19,516 1,533 59,093 

 16,035 16,788 753 48,744 

 14,300 14,710 411 29,014 

 11,658 12,489 831 30,392 

Not Applicable Not Applicable Not Applicable 29,595 

Before 1993 Before 1993 Before 1993 27,083 

 11,415

 12,116

 Not Applicable 

 Before 1989 

Sources: Fannie Mae, Freddie Mac, and OFHEO

1

 See notes to Tables 10 and 20.

1991

1989

1990

1995

1994

1993

1992

1999

1998

1997

1996

2001

2000

Annual Data

2002

2004

 3Q05 

 2Q05 

 1Q05 

2003

2005

Period

 4Q05 

End of

Capital ($ in Millions) 

Minimum Capital Requirement Risk-Based Capital Requirement

46
Table 28. Loan Limits

Year

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

1979

1977 - 1978

1970 - 1976

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.

Year

2006 200,160 362,790 256,248 464,449 309,744 561,411 384,936 697,696

2005 172,632 312,895 220,992 400,548 267,120 484,155 331,968 601,692

2004 160,176 290,319 205,032 371,621 247,824 449,181 307,992 558,236

2003 154,896 280,749 198,288 359,397 239,664 434,391 297,840 539,835

2002 144,336 261,609 184,752 334,863 223,296 404,724 277,512 502,990

2001 132,000 239,250 168,936 306,196 204,192 370,098 253,776 459,969

2000 121,296 219,849 155,232 281,358 187,632 340,083 233,184 422,646

1999 115,200 208,800 147,408 267,177 178,176 322,944 221,448 401,375

1998 109,032 197,621 139,512 252,866 168,624 305,631 209,568 379,842

1997 81,546 170,362 104,310 205,875 126,103 248,888 156,731 309,338

Sources: Federal Housing Administration

240,000

322,700

300,700

275,000

252,700

2-units 3-units 4-units 

333,700

556,500

516,300

417,000 533,850 645,300 801,950

Low Cost 

Area Max

Low Cost 

Area Max

Low Cost 

Area Max

Low Cost 

Area Max

High Cost 

Area Max

High Cost 

Area Max

High Cost 

Area Max

2-units 3-units 4-units

FHA Single-Family Insurable Limits 

High Cost 

Area Max

Single-Family Conforming Loan Limits1

1-unit 

359,650

1-unit

227,150

214,600

207,000

203,150

203,150

203,150

202,300

191,250

187,450

187,600

168,700

153,100

133,250

115,300

114,000

108,300

107,000

98,500

93,750

67,500

60,000

33,000

460,400

427,150

413,100

384,900

351,950

323,400

307,100

290,650

274,550

264,750

259,850

259,850

259,850

258,800

244,650

239,750

239,950

215,800

195,850

170,450

147,500

145,800

138,500

136,800

126,000

120,000

Not Applicable

Not Applicable

Not Applicable

499,300

465,200

425,400

390,900

371,200

351,300

331,850

320,050

314,100

314,100

314,100

312,800

295,650

289,750

290,000

260,800

236,650

205,950

178,200

176,100

167,200

165,100

152,000

145,000

Not Applicable

Not Applicable

Not Applicable

691,600

641,650

620,500

578,150

528,700

485,800

461,350

436,000

412,450

397,800

390,400

390,400

390,400

388,800

367,500

360,150

360,450

324,150

294,150

256,000

221,500

218,900

207,900

Not Applicable

Not Applicable

205,300

189,000

180,000

Not Applicable

47
Table 29. Mortgage Interest Rates

30-Year Fixed Rate One-Year ARMs Fixed-Rate Adjustable Rate

Period (%) (%) (%) (%)

4Q05 6.2 5.1 6.4 5.8 

3Q05 5.8 4.5 6.0 5.5 

2Q05 5.7 4.3 6.0 5.4 

1Q05 5.8 4.2 6.0 5.4 

2005 5.9 4.5 6.1 5.5 

2004 5.8 3.9 6.0 5.2 

2003 5.8 3.8 5.9 5.0 

2002 6.5 4.6 6.7 5.7 

2001 7.0 5.8 7.1 6.4 

2000 8.1 7.0 8.3 7.1 

1999 7.4 6.0 7.4 6.5 

1998 6.9 5.6 7.2 6.5 

1997 7.6 5.6 7.9 6.9 

1996 7.8 5.7 8.0 7.1 

1995 7.9 6.1 8.2 7.1 

1994 8.4 5.4 8.2 6.4 

1993 7.3 4.6 7.5 5.7 

1992 8.4 5.6 8.5 6.6 

1991 9.3 7.1 9.7 8.3 

1990 10.1 8.4 10.4 9.2 

1989 10.3 8.8 10.5 9.4 

1988 10.3 7.9 10.4 8.5 

1987 10.2 7.8 9.9 8.5 

1986 10.2 8.4 10.5 9.4 

1985 12.4 10.1 12.4 10.9 

1984 13.9 11.5 13.2 12.1 

1983 13.2 Not Available 13.0 12.3 

1982 16.0 Before 1984 15.2 15.4 

1981 16.6 Not Available Not Available

1980 13.8 Before 1982 Before 1982

1979 11.2 

1978 9.6 

1977 8.9

1976 8.9

1975 9.1

1974 9.2

1973 8.0

1972 7.4

1971 Not Available

Before 1972

Effective Rates Source: Federal Housing Finance Board

Average Commitment Rate Source: Freddie Mac

Annual Data

Conventional

Average Commitment Rates on Loans Effective Rates on Closed Loans

Conventional 

48
Table 30. Housing Market Activity1

Period

Single-Family 

Housing Starts

Multi-Family 

Housing Starts Total Housing Starts

New Single-Family 

Home Sales

Existing SingleFamily Home Sales

4Q052 308 1,750 2,058 1,283 6,943 

3Q052 308 1,793 2,101 1,298 7,180 

2Q052 311 1,733 2,044 1,287 7,193 

1Q052 329 1,754 2,083 1,249 6,940 

2005 1,757 311 2,068 1,283 7,075 

2004 1,653 304 1,957 1,203 6,784 

2003 1,532 315 1,847 1,086 6,183 

2002 1,397 308 1,705 973 5,631 

2001 1,310 293 1,603 908 5,296 

2000 1,270 299 1,569 877 5,152 

1999 1,334 307 1,641 880 5,205 

1998 1,314 303 1,617 886 4,970 

1997 1,178 296 1,474 804 4,382 

1996 1,206 271 1,477 757 4,196 

1995 1,110 244 1,354 667 3,812 

1994 1,233 224 1,457 670 3,946 

1993 1,155 133 1,288 666 3,802 

1992 1,061 139 1,200 610 3,520 

1991 876 138 1,014 509 3,220 

1990 932 260 1,193 534 3,211 

1989 1,059 318 1,376 650 3,346 

1988 1,140 348 1,488 676 3,594 

1987 1,212 409 1,621 671 3,526 

1986 1,263 542 1,805 750 3,565 

1985 1,166 576 1,742 688 3,214 

1984 1,206 544 1,750 639 2,868 

1983 1,181 522 1,703 623 2,719 

1982 743 320 1,062 412 1,990 

1981 797 288 1,084 436 2,419 

1980 962 331 1,292 545 2,973 

1979 1,316 429 1,745 709 3,827 

1978 1,558 462 2,020 817 3,986 

1977 1,573 414 1,987 819 3,650 

1976 1,248 289 1,538 646 3,064 

1975 956 204 1,160 549 2,476 

1974 956 382 1,338 519 2,272 

1973 1,250 795 2,045 634 2,334 

1972 1,451 906 2,357 718 2,252 

1971 1,271 781 2,052 656 2,018 

Housing Starts Source and New Single-Family Sales Source: Bureau of the Census.

Existing Single-Family Sales Source: National Association of Realtors.

1

 Components may not add to totals due to rounding.

2

 Seasonally adjusted annual rates.

Annual Data

(units in thousands)

Housing Starts Home Sales

(units in thousands)

49
Table 31. Weighted Repeat Sales House Price Index (Annual Data) 1

Period USA

New 

England

MidAtlanticSouth 

Atlantic

East North 

Central

West North 

Central

East South 

Central

South 

Central Mountain Pacific

1Q06 12.53 8.67 13.33 17.23 5.56 6.21 7.74 7.69 17.80 18.02

4Q05 13.33 10.08 14.00 18.38 6.29 7.03 7.66 6.85 18.92 19.36

3Q05 12.71 9.92 13.19 17.82 6.33 6.95 7.39 6.35 16.80 18.45

2Q05 14.14 13.31 15.48 17.77 7.06 7.87 6.94 5.95 16.70 22.78

1Q05 13.15 12.92 14.50 15.93 6.72 7.49 5.64 5.11 14.07 22.51

2005 13.33 10.08 14.00 18.38 6.29 7.03 7.66 6.85 18.92 19.36

2004 11.99 12.17 13.16 14.16 6.08 6.95 5.36 4.95 12.02 21.07

2003 7.85 10.21 10.71 8.16 4.82 6.18 3.53 3.15 5.00 12.24

2002 7.43 11.78 10.48 7.31 4.36 6.21 3.31 4.04 4.34 10.95

2001 7.53 10.90 8.91 7.92 5.18 7.24 5.03 5.83 6.45 9.26

2000 7.55 12.39 7.90 6.51 6.01 7.24 3.85 5.10 6.91 11.21

1999 5.13 9.72 5.19 4.29 4.88 6.13 2.51 4.29 4.17 5.79

1998 4.97 6.48 4.05 4.55 4.16 4.83 4.88 4.94 4.00 7.17

1997 4.59 4.58 3.27 4.52 5.17 4.93 4.65 3.90 4.86 5.30

1996 2.58 1.65 0.35 2.23 4.97 4.08 4.03 2.31 4.21 0.98

1995 4.52 4.11 3.16 4.31 6.02 5.26 5.56 4.21 7.49 2.84

1994 0.83 -3.14 -3.29 0.09 4.95 5.26 4.69 1.54 8.97 -3.36

1993 2.07 0.26 1.31 1.91 3.65 3.89 4.10 4.01 7.85 -1.96

1992 1.88 -1.10 1.71 2.16 3.90 2.98 3.25 3.38 5.30 -1.38

1991 2.59 -2.26 1.49 3.15 4.56 3.76 4.10 3.72 4.69 1.32

1990 0.26 -7.73 -2.91 0.37 3.81 0.54 0.70 0.40 1.88 3.04

1989 6.04 0.69 2.32 5.03 6.12 3.26 3.01 2.79 2.79 19.36

1988 6.19 3.70 6.00 6.99 6.76 2.33 2.59 -2.14 0.26 17.50

1987 6.77 13.33 16.28 7.12 7.79 2.54 4.16 -8.58 -2.65 9.56

1986 8.14 21.06 18.08 6.23 7.09 4.13 5.65 -0.43 3.13 7.19

1985 6.52 25.01 14.37 5.36 4.78 4.35 4.96 -1.39 2.11 4.90

1984 5.34 17.75 13.34 4.39 2.77 4.52 3.00 0.00 2.46 5.27

1983 4.04 16.17 10.08 3.53 4.21 4.46 4.60 0.92 -2.67 1.00

1982 2.20 4.19 4.01 3.42 -4.39 -0.32 5.04 5.67 7.06 0.92

1981 4.75 4.82 0.56 6.97 2.33 0.46 0.29 11.94 6.70 5.81

1980 6.87 5.90 10.32 7.89 1.43 4.19 6.88 7.76 6.48 11.22

1979 11.85 10.71 16.89 11.07 8.94 9.14 4.87 13.02 15.46 16.05

1978 13.39 16.90 7.24 11.34 13.87 13.02 12.23 17.14 16.96 15.71

1977 13.31 9.15 10.43 7.88 13.49 15.15 11.27 12.00 18.20 25.69

1976 7.66 2.83 1.60 6.40 8.07 5.43 5.49 8.54 10.55 19.91

1

 Data for 1977-2005 are measured based on fourth quarter to fourth quarter percentage change

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

Annual Data

50