OFFICE OF OFFICE OF 

FEDERAL HOUSING FEDERAL HOUSING 

ENTERPRISE OVERSI ENTERPRISE OVERSIGHT 

REPORT 

TO 

CONGRESS CONGRESS

June 15, 2004
OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT 

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

 

 

 June 15, 2004 

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 

Dear Chairmen: 

I am pleased to transmit the 2004 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 Director and do not 

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

Pursuant to Section 1319B(a)(3) of the Federal Housing Enterprises Financial Safety and Soundness 

Act of 1992, the Director of the Office of Federal Housing Enterprise Oversight (OFHEO) shall 

include any legislative recommendations to enhance the financial safety and soundness of Fannie 

Mae and Freddie Mac (the Enterprises) in this annual report to Congress. As a general matter, I 

continue to recommend enhancements to OFHEO’s authority, particularly in those areas that would 

align the safety and soundness authority of the agency more closely to our fellow federal banking 

agencies. I also believe that permanent funding of OFHEO, outside of the appropriations process, 

is important to enable the agency to respond quickly should serious problems develop at either of 

the Enterprises. 

I have previously supplied each Committee with specific recommendations in statutory form. 

Sincerely, 

Armando Falcon, Jr. 

Director 

cc: The Honorable Paul S. Sarbanes, Ranking Member, Senate Committee on Banking, Housing, & Urban Affairs 

 The Honorable Barney Frank, Ranking Member, House Committee on Financial Services 
Message From the Director 

I would like to dedicate the 2004 Report to Congress to the employees of OFHEO. Their 

expertise and tireless dedication makes this agency a success. This was especially true in 

2003, which was a very challenging year. The pace and magnitude of the events of 2003 

tested the mettle of each employee, yet they rose to the challenge and got the job done. 

In the past year, OFHEO investigated and addressed accounting and management 

problems at Freddie Mac, initiated an in-depth examination of Fannie Mae’s accounting 

practices, reorganized the examination program, established a new Office of Compliance 

and an Office of Chief Accountant, and participated in Congressional efforts to strengthen 

government sponsored enterprise oversight. OFHEO employees accomplished all of this 

while completing their everyday assignments in an exemplary manner. 

As my five year term comes to an end, I feel most privileged for the opportunity to lead 

such talented public servants. Congress and the nation are indeed fortunate to have such a 

hard working group fulfilling the mission of OFHEO. 

 

Sincerely, 

Armando Falcon, Jr. 
TABLE OF CONTENTS 

CHAPTER ONE: YEAR IN REVIEW 1

HOUSING SECTOR MAIN ENGINE BEHIND ECONOMIC RECOVERY 1

FINANCIAL PERFORMANCE OF THE ENTERPRISES 2

SUPERVISORY ACTIONS 3

ENFORCEMENT ACTIONS 3

SUPERVISORY STEPS 4

RULEMAKING 4

DISCLOSURE 4

OFHEO ACTIONS ON EXECUTIVE COMPENSATION 4

OFHEO RESEARCH AND PUBLICATIONS 5

OFHEO HOUSE PRICE INDEX - U.S. MAP - 4Q 2002 – 4Q 2003 7

CHAPTER TWO: REPORT OF CONDITION 8

INTRODUCTION 8

OFHEO’S SUPERVISORY ACTIVITIES 8

EXAMINATION FRAMEWORK 10

CAPITAL ADEQUACY 10

ASSET QUALITY 11

MANAGEMENT 12

EARNINGS 13

LIQUIDITY 13

SENSITIVITY 14

FANNIE MAE - 2003 SUPERVISORY REPORT OF CONDITION 16

CAPITAL 16

MINIMUM AND RISK-BASED CAPITAL REQUIREMENTS 19

MINIMUM CAPITAL RESULTS 20

RISK-BASED CAPITAL RESULTS 20

ASSET QUALITY 20

SINGLE-FAMILY 23

MULTIFAMILY 23

MANUFACTURED HOUSING ABS INVESTMENT PORTFOLIO 24

MANAGEMENT 24

EARNINGS 25

LIQUIDITY 27

SENSITIVITY 31

FREDDIE MAC 2003 SUPERVISORY REPORT OF CONDITION 35

CAPITAL 35

QUANTITATIVE RESULTS OF CAPITAL ADEQUACY FOR FREDDIE MAC 39

MINIMUM AND RISK-BASED CAPITAL REQUIREMENTS 39

MINIMUM CAPITAL RESULTS 40

RISK-BASED CAPITAL RESULTS 40

ASSET QUALITY 41

SINGLE-FAMILY 42

MULTIFAMILY 43

MANAGEMENT 43
EARNINGS 44

LIQUIDITY 45

SENSITIVITY 49

CHAPTER THREE: FINANCING OFHEO’S OPERATIONS 53

OFHEO’S BUDGET 53

OFHEO CONTINUES TO RECEIVE UNQUALIFIED AUDIT OPINION IN FY 2003 54

AUDIT OF OFHEO 55

APPENDIX: HISTORICAL DATA TABLES 1

Table 1. Fannie Mae Mortgage Purchases 1

Table 1a. Fannie Mae Mortgage Purchases Detail, By Type of Loan, Part 1, Single-Family 2

Table 1a. Fannie Mae Mortgage Purchases Detail, By Type of Loan, Part 2, Multifamily 3

Table 1b. Fannie Mae Purchases of Mortgage-Related Securities 4

Table 2. Fannie Mae MBS Issuances 5

Table 3. Fannie Mae Earnings 6

Table 3a. Fannie Mae Earnings – Reconciliation of Net Income to Core Net Income 7

Table 4. Fannie Mae Balance Sheet 8

Table 4a. Fannie Mae Total MBS Outstanding Detail - Part 1, Single-Family 9

Table 4a. Fannie Mae Total MBS Outstanding Detail - Part 2, Multifamily 10

Table 5. Fannie Mae Retained Mortgage Portfolio Detail 11

Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Part 1a, Whole Loans 12

Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Part 1b, Whole Loans 13

Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Part 2a, Mortgage-Related Securities 14

Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Part 2b, Mortgage-Related Securities 15

Table 6. Fannie Mae Financial Derivatives 16

Table 7. Fannie Mae Non-Mortgage Investments 17

Table 8. Fannie Mae Asset-Liability Mix 18

Table 9. Fannie Mae Mortgage Asset Quality 19

Table 10. Fannie Mae Capital 20

Table 11. Freddie Mac Mortgage Purchases 21

Table 11a. Freddie Mac Mortgage Purchases Detail, By Type of Loan - Part 1, Single-Family 22

Table 11a. Freddie Mac Mortgage Purchases Detail, By Type of Loan - Part 2, Multifamily 23

Table 11b. Freddie Mac Purchases of Mortgage-Related Securities 24

Table 12. Freddie Mac MBS Issuances 25

Table 13. Freddie Mac Earnings 26

Table 14. Freddie Mac Balance Sheet 27

Table 14a. Freddie Mac Total MBS Outstanding Detail 28

Table 15. Freddie Mac Retained Mortgage Portfolio Detail 29

Table 15a. Freddie Mac Retained Mortgage Portfolio Detail - Part 1a, Whole Loans 30

Table 15a. Freddie Mac Retained Mortgage Portfolio Detail - Part 1b, Whole Loans 31

Table 15a. Freddie Mac Retained Mortgage Portfolio Detail - Part 2a, Mortgage-Related Securities 32

Table 15a. Freddie Mac Retained Mortgage Portfolio Detail - Part 2b, Mortgage-Related Securities 33

Table 16. Freddie Mac Financial Derivatives 34

Table 17. Freddie Mac Non-Mortgage Investments 35

Table 18. Freddie Mac Asset Mix 36

Table 19. Freddie Mac Mortgage Asset Quality 37
Table 20. Freddie Mac Capital 38

Table 21. Combined Purchases 39

Table 21a. Combined Mortgage Purchases Detail, by Type of Loan 40

Table 21b. Combined Purchases of Mortgage-Related Securities 41

Table 22. Combined MBS Issuances 42

Table 23. Combined Earnings 43

Table 24. Combined Balance Sheet 44

Table 24a. Combined MBS Outstanding Detail 45

Table 25. Combined Financial Derivatives 46

Table 26. Combined Non-Mortgage Investments 47

Table 27. Combined Capital 48

Table 28. Loan Limits 49

Table 29. Interest Rates on Conventional Single-Family Mortgages 50

Table 30. Housing Market Activity 51

Table 31. Weighted Repeat Sales House Price Index (Annual Data) 52

Cover artwork by Jeannine Schroeder. A staff member in the Office of Strategic Planning 

and Management at OFHEO, Jeannine enjoys painting watercolors in her spare time. Cover 

design by Amy Lakroune from the Office of External Relations at OFHEO. 
1

CHAPTER ONE: YEAR IN REVIEW 

HOUSING SECTOR MAIN ENGINE BEHIND ECONOMIC RECOVERY 

The recovery of the overall U.S. economy remained weak in early 2003. Stimulated by continued 

low interest rates and a strong housing market, economic growth accelerated in the third quarter, 

increasing at an annual rate of 8.2 percent, the largest since the fourth quarter of 1983. During the 

year, the economy grew by 4.3 percent, compared to 2.8 percent in 2002. Faster economic growth 

translated into limited improvement in the nation’s unemployment picture. The unemployment rate 

continued to rise in the first half of the year, peaking in June at 6.3 percent, the highest level in 9 

years. By year-end, the rate receded to 5.7 percent, down from 6.0 percent a year earlier, but well 

above pre-recession levels. 

Concerns over the lack of sustainable economic growth prompted the Federal Reserve to lower the 

Federal Funds target rate in June by 25 basis points to 1.0 percent, the lowest level in 45 years. 

Fears of deflation helped send yields on longer-term Treasury securities downward briefly during the 

spring, before evidence of a strengthening economy pushed yields up during the summer. Despite 

the rise, yields remained low by historical standards. Mortgage commitment interest rates followed 

the trends of long-term Treasury issues. Mortgage interest rates fell in the first half of the year, to a 

historic low of 5.23 percent in the month of June, rose sharply in the third quarter, and eased 

somewhat in the fourth quarter. For the year, mortgage interest rates averaged 5.82 percent, 72 basis 

points below the average rate for 2002. 

Low interest rates continued to have a positive impact on the U.S. housing market. Single-family 

housing starts totaled 1.50 million units in 2003, up from 1.36 million in 2002. Home sales set new 

records for the third consecutive year. Combined sales of new and existing homes totaled 7.2 

million units in 2003, an increase of 10 percent from 2002’s record-setting level of 6.5 million units. 

Similarly, originations of single-family mortgages reached a new high of $3.8 trillion in 2003, 

surpassing the previous record of $2.7 trillion in 2002 by about 40 percent. The heavy wave of 

mortgage refinancings was chiefly responsible for the increase in loan-making activity in 2003. 

Refinancings accounted for more than 60 percent of single-family mortgage originations in the year. 
2

2003 marked the fourth consecutive year in which house prices rose more than 7.5 percent, on 

average, across the nation. As measured by OFHEO’s House Price Index, the average U.S. home 

price increased 8.13 percent from the fourth quarter of 2002 to the fourth quarter of 2003. This 

represented an increase of a full percentage point over the average rate for the previous year. 

Despite rising prices, housing affordability, as measured by the National Association of Realtors, 

increased for the year due to lower financing costs. Likewise, the homeownership rate improved in 

2003, reaching an all-time high of 68.6 percent in the fourth quarter. Conversely, the rental vacancy 

rate rose to 10.2 percent in the fourth quarter, about a percentage point higher than the same time 

one year earlier. 

FINANCIAL PERFORMANCE OF THE ENTERPRISES1

In 2003, the Enterprises experienced a year of solid financial performance, owing to continued low 

interest rates and a strong housing market. Both Enterprises surpassed their level of mortgage 

purchase volumes and securitizations set in 2002. Freddie Mac purchased or guaranteed $826 billion 

of mortgages in 2003 and issued $713 billion of new mortgage-backed securities (MBS). Fannie Mae 

purchased or guaranteed $1.42 trillion of mortgages and issued $1.22 trillion of new MBS. 

Although mortgage purchase volumes were at record levels, each Enterprise grew its mortgage 

portfolio more slowly. Fannie Mae grew its mortgage portfolio by 12.6 percent in 2003 compared to 

13.1 percent in 2002. Freddie Mac grew its mortgage portfolio by a smaller 9.3 percent in 2003, the 

lowest rate since 1990. Competition for mortgages and mortgage securities by other investors 

caused a compression of spreads between yields on new mortgage investments and debt costs, 

which helped to make portfolio purchases less attractive. The Enterprises generally invest in 

mortgages or mortgage securities only when yields are sufficient to provide desired levels of returns, 

after interest and appropriate hedging and rebalancing costs. The combined mortgage portfolios of 

the Enterprises increased by $155.5 billion in 2003, to $1.5 trillion. Their combined total book of 

business—mortgages securitized and held on the balance sheet—increased by $456 billion or 14.4 

percent to $3.6 trillion at the end of 2003. This represented 46.9 percent of the estimated $7.7 

trillion of residential mortgage debt outstanding at the end of 2003, up from 46.3 percent the 

previous year. 

 

1 Freddie Mac has not issued financial statements for the year 2003. Therefore, values discussed here may change. 
3

Fannie Mae improved its reported earnings measured in accordance with generally accepted 

accounting principles (GAAP) in 2003 by 71 percent, to $7.9 billion. The income reflected, in large 

part, better market performance of options used in hedging. Core earnings2 rose 14 percent to $7.3 

billion. Both earnings measures were reduced $1.5 billion by repurchases of debt at premium prices. 

Fannie Mae also showed an improvement in fair value net worth, by $9.5 billion to $31.6 billion. In 

light of the ongoing restatement of its financials, GAAP earnings in 2003 for Freddie Mac have not 

yet been disclosed. However, using data based largely on pre-restatement accounting policies, 

regulatory core capital3 improved by $4.3 billion in the year. Results for both Enterprises partly 

reflect benefits from the continued steep yield curve, along with short prospective mortgage asset 

lives, which made possible increased use of relatively inexpensive short-term debt. 

Credit-related losses for Fannie Mae, including charge-offs and foreclosed property expense, totaled 

$123 million, up from $87 million in 2002. The Fannie Mae credit loss rate (credit losses as a 

percentage of total MBS outstanding plus the retained mortgage portfolio) was 0.6 basis points in 

2003, up slightly from 0.5 basis points in 2002. 

Fannie Mae’s estimated exposure to a 5 percent decline in house prices rose consistently last year, 

from $596 million at the end of 2002 to $1,113 million as of December 31, 2003. This represented 

less than 4 percent of the core capital of the Enterprise. 

SUPERVISORY ACTIONS 

Enforcement Actions. OFHEO entered into two consent orders in 2003, the first with David 

Glenn, former Chief Operating Officer of Freddie Mac. By terms of the order, Mr. Glenn agreed to 

cooperate with OFHEO in its ongoing investigation of Freddie Mac, to forfeit funds that would 

have been his had he not been discharged and to pay a $125,000 civil money penalty. OFHEO also 

entered into a consent order with Freddie Mac for conduct surrounding its restatement and the 

resulting harm to the Enterprise. Under the terms of the agreement, Freddie Mac agreed to 

cooperate with OFHEO in its ongoing investigation and to address changes to its corporate culture, 

 

2 Core earnings, as defined by Fannie Mae, differ from GAAP earnings by accounting for the time value of purchased 

options on an amortized cost basis rather than market value. 

3 The sum of common stock, perpetual non-cumulative preferred stock, paid-in capital, and retained earnings.
4

including enhancement of controls, and to the operation of its board of directors. OFHEO also 

imposed a $125 million civil money penalty on Freddie Mac. 

OFHEO filed Notices of Charges—triggering an administrative process seeking cease and desist 

orders—against Leland Brendsel, former Freddie Mac Chief Executive Officer and Chairman, 

Vaughn Clarke, former Freddie Mac Chief Financial Officer, and the Enterprise. The charges relate 

to conduct surrounding the restatement of earnings by Freddie Mac. The charges call for the 

benefits of the individuals to be reduced to those appropriate in a termination for cause—a 

significant decrease—and for repayment of bonuses. Civil money penalties were also sought against 

the two former executive officers. 

Supervisory Steps. OFHEO, in pursuing its investigation of Freddie Mac, undertook several 

supervisory actions, including a directive providing for a standstill on payment of termination 

benefits to certain individuals. Additionally, OFHEO, in pursuing its review of accounting and 

controls at Fannie Mae, directed that all pertinent documents and materials be held in place pending 

initiation of a formal review process. 

RULEMAKING 

Disclosure. On April 7, 2003, OFHEO published a final rule on financial and other disclosures by 

the Enterprises. The rule reiterated OFHEO's authority to require disclosures and went on to 

address financial disclosures by companies voluntarily registered with the Securities and Exchange 

Commission (SEC) under the Securities Exchange Act of 1934. The rule supported voluntary 

registration by requiring a voluntarily registered Enterprise to conform to rules and regulations of 

the SEC and to proxy and insider transaction requirements of the 1934 Act. 

OFHEO ACTIONS ON EXECUTIVE COMPENSATION 

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 and the Enterprise 

charter acts charge the Director of OFHEO with supervisory responsibilities in the area of executive 

compensation. OFHEO’s statute requires the Director to prohibit an Enterprise from providing 
5

excessive compensation to executive officers. 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. 

Additionally, 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 charter acts also provide that the Director of OFHEO 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. 

During 2003, OFHEO approved eight termination agreements and disapproved one. At year-end 

2003, four termination agreements were under review. On December 19, 2003, OFHEO issued 

Notices of Charges against former Freddie Mac Chairman Leland Brendsel and former CFO 

Vaughn Clarke. The charges seek an enforcement order requiring that they (1) forfeit claims to 

substantial severance benefits, in excess of those that would be paid for a “termination for cause,” 

(2) pay a civil money penalty, and (3) return bonuses they received for 2000 and 2001. 

OFHEO RESEARCH AND PUBLICATIONS 

During 2003, OFHEO continued research and analysis on a range of topics. While some reports are 

for internal use only, where possible, OFHEO continued its practice of publishing reports that serve 

to better inform the public about issues affecting the Enterprises and the secondary mortgage 

market. OFHEO continued to focus research plans and activities on achieving the strategic 

objectives of the agency. In February, 2003, OFHEO published a report, “Systemic Risk: Fannie 

Mae, Freddie Mac and the Role of OFHEO.” OFHEO also released the Report of the Special 

Examination of Freddie Mac in December, 2003. The research paper, “The Single-Family Mortgage 

Industry in the Internet Era: Technology Developments and Market Structure,” was completed and 

published in 2004. 
6

OFHEO published six staff working papers in 2003, continuing the working paper series begun in 

2002. Several of these papers continue research on house prices and subprime mortgages while 

others covered issues related to equity option markets, earnings management, the market discipline 

of Fannie Mae and Freddie Mac, aggregation bias and the repeat sales price index, housing supply 

elasticity, and loss distributions of subprime and prime mortgages. These working papers, as well as 

OFHEO research papers and reports, are available on the OFHEO web site at www.ofheo.gov. 

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

conferences on topics such as house prices, systemic risk, and the performance of prime and nonprime mortgages. 

On March 11, 2003, OFHEO conducted its first symposium, on “House Prices in the U.S. 

Economy.” This symposium was open to the public and discussed the impact of changes in house 

prices on the U.S. economy. OFHEO staff research was presented at the symposium along with 

presentations from industry, government and academic experts on house price sustainability, the 

housing markets in the next decade and implications of house price movements for affordable 

housing and homeownership. 

OFHEO contributed its expertise in working with other Federal agencies during the course of 2003. 

OFHEO worked with the SEC and the U.S. Department of Treasury on the joint staff report, 

“Enhancing Disclosure in the Mortgage-Backed Securities Markets,” issued in February, 2003. In 

addition, OFHEO worked with the World Bank on several projects to assist foreign governments 

with expertise on developing and regulating mortgage markets, including France, South Korea, 

Russia, and Colombia. 

OFHEO 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 331 Metropolitan Statistical Areas. The HPI is based on 

over 26.5 million repeat transactions over 29 years. OFHEO developed the HPI as a key input for 

its risk-based capital stress test. It is now regularly reported by media organizations throughout the 

nation and used by researchers to analyze house price behavior. 
7

OFHEO HOUSE PRICE INDEX 

U.S. MAP 

Fourth Quarter 2002 – Fourth Quarter 2003 
8

CHAPTER TWO: REPORT OF CONDITION

INTRODUCTION 

OFHEO’S SUPERVISORY ACTIVITIES 

The supervisory activities of OFHEO include an annual risk-based examination program, special 

investigative reviews, and assessments of capital adequacy. The examination program is designed to 

ensure the ongoing financial safety and soundness of Fannie Mae and Freddie Mac. The 

examination program assesses the appropriateness and effectiveness of the policies and processes of 

the Enterprises for risk management, and assesses the financial performance of the companies. 

Using a risk-based approach allows OFHEO to recognize the unique operations of each Enterprise 

while applying uniform safety and soundness standards throughout the year. This aspect of the 

examination program’s design ensures that OFHEO is responsive to changes at the Enterprises. 

OFHEO’s risk-based examinations apply methodology similar to that used by the safety and 

soundness regulators for large and complex banks. Historically, examination activities conducted by 

depository regulators rely on transaction-testing procedures to determine an institution’s financial 

condition and to verify adherence to internal policies, procedures, and controls. Depository 

regulators have subsequently determined that transaction testing alone is insufficient for ensuring 

the continued safe and sound operation of the institutions they supervise. Evolving financial 

markets for newly developed instruments enable institutions to restructure the risk exposures of 

their portfolio. In response to this evolution in markets, the depository regulators direct more 

examination resources toward evaluating institutional performance as a function of the effectiveness 

of risk management processes. This risk-based approach has emphasized that institutions must have 

effective processes in place to identify, measure, monitor, and control risk exposures. 

In recent years, OFHEO has been conducting risk-based examinations that parallel those 

examination activities conducted by the depository regulators for large and complex banks with an 

emphasis on evaluating risk management processes. OFHEO’s risk-based examinations have 

included transactional testing to the extent that staffing resources have permitted. OFHEO is 

increasing its capacity to do transactional testing and modifying its supervisory program. 

Accordingly, OFHEO plans to double the size of the examination staff by 2005 in part to increase 
9

its capacity to do on-site examinations. The recent creation of the Office of the Chief Accountant 

and the Office of Compliance at OFHEO will also allow the agency to increase its transactional 

testing and verification. In the future, areas identified during the annual risk-based examinations 

that warrant more in-depth examination will be referred to the Office of Compliance. Assisting 

compliance in its work will be the Office of the Chief Accountant. The Office of the Chief 

Accountant was designed to develop policy on safety and soundness issues related to accounting and 

financial reporting and to monitor accounting issues related to the Enterprises. The Office of 

Compliance was structured to perform exhaustive investigation and verification of anomalies and 

issues that arise, using investigative and forensic techniques in discharging its work. 

At year-end 2003 there were 40 full-time equivalents (FTEs) dedicated to conducting the annual 

risk-based examinations of Fannie Mae and Freddie Mac. By the year 2005, the combined staffing 

of the three offices (the Office of Examinations, the Office of Compliance, and the Office of Chief 

Accountant) is projected to employ 106 FTEs. 

OFHEO took steps during 2003 to strengthen capital oversight by moving beyond standard 

quantitative assessments. Increased sensitivity analysis and enhanced supervision of the capital 

management processes improved Enterprise oversight. OFHEO continued ongoing and regular 

meetings with the Enterprises, increased data validation efforts, and development of greater 

understanding of risk management techniques. OFHEO also published an update to its stress test 

code in April 2003 incorporating enhancements to the regulation. In the fourth quarter of 2003, 

OFHEO reorganized the Office of Capital Supervision, expanding its analysis and research capacity. 

These efforts will focus on exploring and developing alternative measurements of risks at the 

Enterprises, various “what if” analysis, and other tools to expand OFHEO’s assessment of capital 

adequacy. The reorganization also directs more staff resources to supervising and monitoring the 

capital management processes at each GSE, while continuing to enhance and expand the existing 

risk-based capital (RBC) stress test model. 

The annual examination, together with OFHEO’s capital adequacy regulation framework and other 

supervisory program activities, informs the Director’s judgment about the appropriateness of the 

balance of risk and capital at each Enterprise and the financial safety and soundness of each 

Enterprise. 
10

EXAMINATION FRAMEWORK 

In exercising OFHEO’s examination authority, proprietary information is gathered and the financial 

condition of the Enterprises is monitored as is compliance with internal policies and procedures, 

and compliance with the policies, guiding standards and practices of OFHEO. A key product of 

OFHEO examination activities, like the federal banking agencies, is the formation of supervisory 

opinion about the overall financial condition “and safety and soundness” of each Enterprise. The 

federal depository regulators (the Federal Reserve, the FDIC, the OCC, the OTS, and the NCUA) 

use the CAMELS methodology as a convenient summary for an institution’s financial condition and 

risk profile at the time of the examination. OFHEO has chosen to use the CAMELS framework for 

reporting the results and conclusions of the annual examinations and other supervisory activities in 

this report. 

 

CAMELS is an acronym referring to six components of the condition of the Enterprises that have 

been evaluated through OFHEO’s supervisory programs. The six areas evaluated were: Capital 

Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to market and interest 

rate risks. OFHEO applies a similar means of evaluating the six component areas of the CAMELS 

as the depository regulators. Specific narratives for Fannie Mae and Freddie Mac below provide 

more information about the evaluative criteria for each component area. 

Given the differences in specific supervisory findings for each Enterprise, the following conclusions 

for the CAMELS components highlight different aspects of Enterprise risk management practices. 

The narrative commentaries for Fannie Mae and Freddie Mac are a report to Congress on 

OFHEO’s supervisory program activities. The commentaries reflect the types of information 

gathered and the judgments rendered through the supervisory activities that are used by the Director 

for his determination about the financial condition and safety and soundness of the Enterprises. 

Capital Adequacy – The Enterprises are expected to maintain capital commensurate with their risks 

and the ability of management to identify, measure, monitor, and control those risks. The effect of 

credit, market, and other risks on the company’s financial condition is considered when evaluating 

the adequacy of capital. A determination of the capital adequacy of an Enterprise is based on, but 

not limited to, an assessment of the following evaluation factors: 
11

• the Enterprises performance under regulatory capital requirements5

• the level and quality of capital and the overall financial condition of the institution 

• the ability of management to address emerging needs for additional capital 

• the nature, trend, and volume of problem assets, and the adequacy of allowances for loan 

losses and other valuation reserves 

• balance-sheet composition, including the nature and amount of intangible assets, market risk, 

concentration risk, and risks associated with nontraditional activities 

• risk exposure represented by off balance sheet activities 

• the quality and strength of earnings, and the reasonableness of dividends 

• prospects and plans for growth, as well as past experience in managing growth 

• access to capital markets and other sources of capital 

Asset Quality – The determination about asset quality reflects the quantity of existing and potential 

credit risk associated with the loan and investment portfolios, other real estate owned, other assets, 

and off balance sheet transactions. Management’s demonstrated performance in identifying, 

measuring, monitoring, and controlling risk is also reflected in this determination. Included in the 

evaluation of asset quality is a consideration of the adequacy of the allowance for loan losses and a 

consideration of the exposure of the Enterprise to counterparty, issuer, or borrower default under 

contractual agreements. Also considered are factors that may affect the value or marketability of the 

assets of the Enterprise. A determination of the asset quality of an Enterprise is based on, but not 

limited to, an assessment of the following evaluation factors: 

• the adequacy of underwriting standards, soundness of credit-administration practices, and 

appropriateness of risk-identification practices 

• the level, distribution, severity, and trend of problem, classified, nonaccrual, restructured, 

delinquent, and nonperforming assets for both on and off balance sheet transactions 

• the adequacy of the allowance for loan losses and other asset valuation reserves 

• the credit risk arising from or reduced by off balance sheet transactions, such as unfunded 

commitments, credit derivatives, and other possible credit facilities 

• the diversification and quality of the loan and investment portfolios 

• the presence of undue asset concentrations 

• the adequacy of investment policies, procedures, and practices 

• the ability of management to properly administer its assets, including the timely identification 

and collection of problem assets 

• the adequacy of internal controls and management information systems 

• the volume and nature of credit-documentation exceptions 

 

5 For a description of the regulatory capital requirements, refer to the 2003 Supervisory Report of Condition for each 

Enterprise. 
12

Management – The capacity of the board of directors and management, in their respective roles, to 

identify, measure, monitor, and control the risks of the activities of the Enterprises, and to ensure 

the safe, sound, and efficient operation of the company in compliance with applicable laws and 

regulations is considered in this component. Generally, directors need not be actively involved in 

day-to-day operations; however, they must provide clear guidance regarding acceptable riskexposure levels and ensure that appropriate policies, procedures, and practices have been 

established. Senior management is responsible for developing and implementing policies, 

procedures, and practices that translate the board’s goals, objectives, and risk limits into prudent 

operating standards. 

Given the nature and scope of Enterprise activities, their management practices need to be 

comprehensive for the array of risks present in their business. Sound management practices include: 

active oversight by the board of directors and management; competent personnel; adequate policies, 

processes, and controls; maintenance of an appropriate audit program and internal control 

environment; and effective risk-monitoring and management information systems. 

The capacity and performance of management and the board of directors is evaluated based on, but 

not limited to, an assessment of the following factors: 

• the level and quality of oversight and support of the activities of an Enterprise by the board 

of directors and management 

• the ability of the board of directors and management, in their respective roles, to plan for 

and respond to risks that may arise from changing business conditions or the initiation of 

new activities or products 

• the adequacy of and conformance with appropriate internal policies and controls addressing 

the operations and risks of significant activities 

• the accuracy, timeliness, and effectiveness of management information and risk-monitoring 

systems appropriate for the size, complexity, and risk profile of the Enterprise 

• the adequacy of audits and internal controls to promote effective operations and reliable 

financial and regulatory reporting; safeguard assets; and ensure compliance with laws, 

regulations, and internal policies 

• compliance with laws and regulations 

• responsiveness to recommendations from auditors and supervisory authorities 

• management depth and succession 

• the extent that the board of directors and management are affected by or susceptible to 

dominant influence or concentration of authority 

• reasonableness of compensation policies and avoidance of self-dealing 

• demonstrated willingness to serve the legitimate needs of its mission 
13

• the overall performance of the Enterprise and its risk profile 

Earnings – The earnings evaluation reflects not only the quantity and trend of earnings but also 

factors that may affect the sustainability or quality of earnings. The quantity as well as the quality of 

earnings can be affected by excessive or inadequately managed credit risk that may result in losses 

and require additions to the allowance for loan losses. High levels of market risk may unduly expose 

the earnings of the Enterprise to volatility in interest rates. The quality of earnings may also be 

diminished by undue reliance on extraordinary gains, nonrecurring events or favorable tax effects. 

Future earnings may be adversely affected by an inability to forecast or control funding and 

operating expenses, improperly executed or ill-advised business strategies, or poorly managed or 

uncontrolled exposure to other risks. 

An evaluation of the earnings of an Enterprise is based on, but not limited to, an assessment of the 

following factors: 

• the level of earnings, including trends and stability 

• the ability to provide for adequate capital through retained earnings 

• the quality and sources of earnings 

• the level of expenses in relation to operations 

• the adequacy of the budgeting systems, forecasting processes, and management information 

systems in general 

• the adequacy of provisions to maintain the allowance for loan losses and other valuation 

allowances 

• the exposure of earnings to market risk such as interest-rate and price risks 

Liquidity – The liquidity evaluation reflects not only the current level and prospective sources of 

liquidity when compared to the funding needs of the Enterprises but also the funds-management 

practices related to the size, complexity, and risk profile of these institutions. In general, the fundsmanagement practices are evaluated to ensure that an Enterprise is able to meet its financial 

obligations in a timely manner and accomplish its mission. The practices should reflect the ability of 

the Enterprise to manage unplanned changes in funding sources, as well as react to changes in 

market conditions that affect the ability to quickly liquidate assets with minimal loss. In addition, 

the funds-management practices should ensure that liquidity is aligned with business and portfolio 

management strategies to maintain profitability. 
14

An evaluation of the liquidity of an Enterprise is based on, but not limited to, an assessment of the 

following factors: 

• the adequacy of liquidity sources compared with present and future needs and the ability of 

the Enterprise to meet liquidity needs without adversely affecting its operations or financial 

condition 

• the availability of assets readily convertible to cash without undue loss 

• access to debt and other capital markets, including an understanding of rating agency 

evaluations of creditworthiness for the Enterprise 

• the level of diversification of funding sources 

• the balance between portfolio assets, funding instruments, and hedging actions that mitigates 

the exposure to the unmatched volatility of cash flows for sources and uses 

• the trends and stability of funding sources 

• the ability to perform and accomplish bulk asset dispositions 

• the quality and volume of available collateral 

• the capability of management to properly identify, measure, monitor, and control the 

liquidity position of the Enterprise, including the effectiveness of funds-management 

strategies, liquidity policies, management information systems, and contingency funding 

plans 

Sensitivity – The sensitivity to market risk evaluates the degree to which changes in interest rates, 

foreign-exchange rates, and other market prices can adversely affect the earnings or economic capital 

of the Enterprise. When evaluating this component, consideration is given to management’s ability 

to identify, measure, monitor, and control market risk; the scope and complexity of its business 

activities; and the adequacy of its capital and earnings in relation to the level of market-risk exposure. 

An evaluation of the sensitivity of the Enterprise to market risk is based on, but not limited to, an 

assessment of the following factors: 

• the sensitivity of the earnings of the Enterprise or the economic value of its capital to 

adverse changes in interest rates, foreign-exchange rates, or other market prices 

• the ability of management to identify, measure, monitor, and control exposure to market risk 

given the size, complexity, and risk profile of the Enterprise 

• the nature and complexity of interest-rate risk exposure arising from its portfolio 

management activities 

During 2003, both Enterprises were determined to be financially sound through the various 

supervisory activities conducted by OFHEO; including the ongoing examination program, special 

examination and investigative activities, executive compensation reviews, and the activities involved 
15

with capital supervision. The following results and conclusions of OFHEO’s supervision of Fannie 

Mae and Freddie Mac are presented using the CAMELS outline described above. 
16

 

FANNIE MAE 

2003 SUPERVISORY REPORT OF CONDITION

CAPITAL

Capital provides the means by which the Enterprises withstand adverse economic conditions or 

situations. OFHEO through its Office of Capital Supervision (OCS) monitors and assesses the 

capital position of Fannie Mae on an ongoing basis. OFHEO’s capital authority is promulgated in 

the 1992 Act through the establishment of two quantitative assessments of capital – minimum and 

risk-based. During 2003, these quantitative capital measurement tools, along with results of 

examinations and OFHEO special examinations, provided the basis for OFHEO’s capital 

supervision of Fannie Mae. 

As defined by statute, OFHEO has several measurement tools it uses as a basis for capital 

classification. 

• The minimum capital level represents the essential amount of capital needed to protect an 

Enterprise against broad categories of business risk. The minimum capital level represents 

an absolute floor, related to the level of Enterprise assets and obligations, below which 

capital should not dip. The minimum capital level is a ratio-based quantitative measure 

defined as 2.5 percent of assets plus 0.45 percent of adjusted off balance sheet obligations. 

An Enterprise meets its minimum capital level requirement if its core capital — common 

stock; perpetual non-cumulative preferred stock; paid in capital; and retained earnings — 

equals or exceeds minimum capital. 

• The critical capital level is the amount of core capital below which an Enterprise must be 

classified as critically undercapitalized and generally must be placed in conservatorship. 

Critical capital levels are computed as one-half of the portion of the minimum capital level 

requirement associated with on-balance-sheet assets plus five-ninths of the portion of the 

minimum capital level requirement associated with off balance sheet obligations. 

• OFHEO’s risk-based capital regulation meets the specific requirements of the 1992 Act. 

OFHEO’s stress test simulates a financial performance of an Enterprise over a 10-year 

period under severe economic conditions. Key aspects of the severe economic conditions 

used in the stress test are defined specifically in the 1992 Act. These conditions include high 

levels of mortgage defaults, with associated losses and large, sustained movements in interest 

rates, both increasing (up-rate scenario) and decreasing (down-rate scenario). 

The 10-year stress test is used to measure the risk of the overall portfolio of each Enterprise. The 

stress test determines the amount of total capital — core capital plus a general allowance for loan 
17

losses less specific reserves — that an Enterprise must hold to absorb projected losses flowing from 

future adverse interest-rate and credit-risk conditions. The risk-based capital standard is based on 

stress test results calculated for the two statutorily prescribed interest rate scenarios, one in which 

10-year Treasury yields rise 75 percent (up-rate scenario) and another in which they fall 50 percent 

(down-rate scenario). Changes in both scenarios are generally capped at 600 basis points. The riskbased capital level for an Enterprise is the amount of total capital that would enable it to survive the 

stress test in whichever scenario (up-rate or down-rate) is more adverse for that Enterprise, plus 30 

percent of that amount to cover unspecified management and operations risk. 

OFHEO uses a detailed computer model to simulate the cash flows of Enterprise associated with 

mortgages and other financial assets and obligations under the severe economic conditions. The 

modeling of incoming and outgoing cash flows captures the risks embedded in those financial assets 

and obligations and the benefits of the hedges each Enterprise has set in place. 

Risk-based capital ensures a healthy relationship between the level of risk undertaken at a particular 

time by an Enterprise, and the level of capital it must hold. As a far more risk-sensitive measure, the 

risk-based requirement is designed to expose hidden weaknesses in an Enterprise that seems 

financially sound under normal conditions using more traditional capital measures. 

In addition to the consideration of the performance of the Enterprise relative to the regulatory 

capital requirements, OFHEO also makes qualitative judgments about capital in determining overall 

capital adequacy. These other factors include the overall financial condition of the Enterprise in 

relation to the capital level and the ability of the Enterprise to access other sources of capital and 

address emerging needs, the composition of balance sheet and off balance sheet activities, growth, 

the quality of earnings, and asset quality.

Each quarter, OFHEO calculates a minimum capital level requirement, which includes both a 

“minimum” and a lower “critical” level, and a risk-based capital requirement for each Enterprise. 

Since September 30, 2002 the Enterprises are required to meet or exceed both the minimum and 

risk-based capital requirements to be classified as “adequately capitalized.” 
18

An Enterprise that met the minimum capital level requirements, but did not achieve the risk-based 

capital requirements would be classified as “undercapitalized.” An Enterprise that did not meet the 

minimum capital level requirements would be classified as “significantly undercapitalized.” An 

Enterprise holding less than the critical capital requirement would be classified as “critically 

undercapitalized.” Failure to achieve the requirements would trigger a range of regulatory responses, 

depending upon the capital classification. 

The quantitative analysis generated through the minimum and risk-based capital calculations is 

supplemented by sensitivity analysis of the risk-based capital requirement, conclusions reached from 

examinations and other special investigations, discussions and assessments of capital management 

practices, and research and analysis of risks and exposures at the Enterprise. 

The risk-based capital stress test assesses the ability of an Enterprise to withstand the two 

statutorily-defined scenarios involving interest rate and credit stress. The relative magnitude of the 

risk-based capital requirement in the two stress test scenarios provides an indication of the relative 

ability of an Enterprise to withstand severe rate increases and severe rate decreases, however the 

results of the two scenarios are not sufficient to fully determine whether an Enterprise is adequately 

protected for changes in interest rates. OFHEO analyzes the sensitivity of the risk-based capital 

requirement to a wider range of interest rate scenarios to further assess the ability of an Enterprise 

to withstand prolonged interest rate stress. Furthermore, OFHEO analyzes the sensitivity of the 

risk-based capital requirement to other variables to further assess the ability of an Enterprise to 

withstand other types of stress. 

After taking into account all relevant conclusions, OFHEO proposes a capital classification in 

writing to each Enterprise each quarter. Each Enterprise has the opportunity to review and 

comment on its proposed classification. After reviewing comments from the Enterprise, OFHEO 

determines the final capital classification and releases the classification to the public. 

For all four quarters in 2003, Fannie Mae exceeded its minimum and risk-based capital requirements. 

Based upon these quantitative results, OFHEO’s ongoing analysis of financial and stress-test results, 

the conclusions of examination and other investigative activities, and discussions with management, 

OFHEO concludes that Fannie Mae was adequately capitalized. OFHEO also concludes that 
19

Fannie Mae’s ability to address emerging capital needs and appropriately manage the capital position 

was sound. OFHEO, however, reserves the right to require prior period restatements when results 

of supervisory activities warrant. 

Fannie Mae exceeded its capital requirements in each of the four quarters in 2003 by adapting its 

portfolios to a changing economic environment. In 2003, interest rates fell during the first two 

quarters, rose sharply in the third quarter, and remained relatively flat in the fourth quarter. Fannie 

Mae modified its portfolio to accommodate fluctuating interest rates during the year consistent with 

its risk management policies and procedures. 

Minimum and Risk-Based Capital Requirements 

Fannie Mae

28.23 29.15 31.44 31.52

27.85 27.22

18.11 16.56

0

5

10

15

20

25

30

35

40

1Q03 2Q03 3Q03 4Q03

$ in billions

Minimum Requirement RBC Requirement

The minimum capital level requirement increased each quarter for Fannie Mae, a function of growth 

in balance sheet assets and off balance sheet obligations. The minimum capital level requirement 

exceeded the risk-based capital requirement in all four quarters, and therefore represents the binding 

capital requirement. 
20

Minimum Capital Results 

Fannie Mae

31.44 31.52

29.15 28.23

34.41 32.75 29.52 30.67

0

5

10

15

20

25

30

35

40

1Q03 2Q03 3Q03 4Q03

$ in billions

Minimum Requirement Core Capital

Fannie Mae held core capital in excess of its minimum capital level requirements during 2003. For 

Fannie Mae, core capital increased steadily throughout the year. The increase in core capital at 

Fannie Mae resulted primarily from an increase in retained earnings. 

Risk-Based Capital Results 

Fannie Mae

16.56 18.11

27.85 27.22

30.31 31.47 33.54 35.18

0

5

10

15

20

25

30

35

40

1Q03 2Q03 3Q03 4Q03

$ in billions

RBC Requirement RBC Total Capital

In 2003, total capital exceeded the risk-based capital requirement by $5.0 billion or more for Fannie 

Mae. The growth in total capital closely tracked the growth in core capital as loss reserves were 

essentially unchanged. 

ASSET QUALITY 

During the course of each annual examination cycle, examiners from OFHEO’s Office of 

Examination evaluate the mortgage credit risk management practices of the Enterprise for the 
21

single-family and multifamily lines of business. OFHEO evaluates a variety of factors that 

determine the quality of credit risk management, including the management reporting framework; 

the development and implementation of credit policy, underwriting and servicing standards; and 

strategies and practices for managing exposures to seller/servicer and mortgage insurer 

counterparties. In addition, OFHEO regularly reviews mortgage acquisitions, mortgage portfolio 

risk profiles and performance measures, seller/servicer performance, and default management and 

loss mitigation activities. In sum, OFHEO reviews the structure of the Enterprise for managing 

mortgage credit risk, and, through selected sampling and targeted reviews as staffing permits, 

evaluates whether the practices of the Enterprise meet safety and soundness standards and 

adequately protect the Enterprise from the risk of loss resulting from borrower or counterparty 

default. Based on OFHEO’s examination activities to date, it is the overall conclusion of OFHEO 

that Fannie Mae has strong asset quality and prudent credit risk management practices. Although 

OFHEO considers Enterprise asset quality and credit risk management practices to be sound, these 

and other subjects are the focus of an ongoing and more intensive examination. OFHEO’s overall 

conclusion notwithstanding, OFHEO has directed operating management’s attention to specific 

aspects of credit risk management and identified opportunities to improve existing practice. 

Management of credit risk comports with applicable safety and soundness standards; however, the 

credit risk examiners suggested certain enhancements to Enterprise practices. The enhancements 

pertained to internal reporting practices for certain nontraditional products and other portfolio-level 

metrics. In the area of counterparty risk management, OFHEO suggested that counterparty risk 

management practices be enhanced to allow for an evaluation by Enterprise personnel of consumer 

complaints filed against approved seller/servicers doing business with the Enterprise. OFHEO also 

made recommendations regarding certain enhancements to the systems and data collection practices 

of the Enterprise used to monitor and track exposures to counterparties. Finally, OFHEO 

encouraged management’s continued involvement in the ongoing industry efforts to reduce 

mortgage fraud by adopting a means for identifying troublesome third party originators. 

In the area of new products, new programs, or initiatives, OFHEO suggested modest enhancements 

to the internal information reporting practices. Those enhancements pertain to the financial 

strength, performance, strengths, weaknesses, needs, and business opportunities of approved 

seller/servicer counterparties; and to credit enhancement and risk transfer techniques. 
22

The determination about asset quality reflects the quantity of existing and potential credit risk 

associated with the loan and investment portfolios, other real estate owned, other assets, and off 

balance sheet transactions. The demonstrated performance of management in identifying, 

measuring, monitoring, and controlling risk is also reflected in this determination. Included in the 

evaluation of asset quality is a consideration of the adequacy of the allowance for loan losses and a 

consideration of the exposure of the Enterprise to counterparty, issuer, or borrower default under 

contractual agreements. Also considered are factors that may affect the value or marketability of the 

assets of the Enterprise. A determination of the asset quality of an Enterprise is based on, but not 

limited to, an assessment of the following evaluation factors: 

• the adequacy of underwriting standards, soundness of credit-administration practices, and 

appropriateness of risk-identification practices 

• the level, distribution, severity, and trend of problem, classified, nonaccrual, restructured, 

delinquent, and nonperforming assets for both on and off balance sheet transactions 

• the adequacy of the allowance for loan losses and other asset valuation reserves 

• the credit risk arising from or reduced by off balance sheet transactions, such as unfunded 

commitments, credit derivatives, and other possible credit facilities 

• the diversification and quality of the loan and investment portfolios 

• the presence of undue asset concentrations 

• the adequacy of investment policies, procedures, and practices 

• the ability of management to properly administer its assets, including the timely identification 

and collection of problem assets 

• the adequacy of internal controls and management information systems 

• the volume and nature of credit-documentation exceptions 

 

Asset quality is reflected in asset performance, and both the single-family mortgage and multifamily 

mortgage portfolios exhibited reasonable performance during the examination period, which took 

place during a period of economic recovery. The examiners monitor and analyze a variety of 

quantitative and qualitative features affecting credit risk management and credit performance. 

Through its analyses, OFHEO identifies sectors of the credit process for further examination. 

There are a variety of public and non-public indicators that are tracked and evaluated in the 

OFHEO’s analysis. Among the key publicly-reported measures of performance for the single-family 

portfolio OFHEO evaluates are: serious delinquency, credit loss ratio, credit-related losses, trends 

in real estate owned (REO), and geographic concentrations. OFHEO further evaluates a collection 

of proprietary performance measures, analyses and internal strategic assessments. In considering 

these public and non-public materials, examiners consider those factors in tandem with their own 
23

independent analyses and the results of their focused testing. From this collective work and using a 

variety of sources, OFHEO renders its conclusion on asset quality and credit risk management. 

Single-family. Although OFHEO considers the single-family underwriting and servicing standards 

of Fannie Mae to be sound, OFHEO is closely monitoring the increased inventory of REO 

observed in the single family book of business (up 38 percent from 2002 levels), and the 

corresponding increase in credit-related losses (up 61 percent from 2002 levels) observed in 2003. 

In contrast, serious delinquency has increased moderately (from 0.57 percent in 2002 to 0.60 percent 

in 2003), and the credit loss ratio (credit losses relative to the average single-family mortgage credit 

book of business) has remained relatively stable over the past 12 quarters. As a consequence, 

OFHEO found that the increase in REO and credit-related losses is explained by a combination of 

factors that includes portfolio growth and the portfolio of higher risk loans of the Enterprise, and is 

not attributable to deteriorating underwriting standards or the fundamental credit quality. With 

regard to higher risk loans, the Enterprise purchases loans to borrowers with credit scores below 

660,6

 but limits this segment of the book of business. As of year-end 2003, 16 percent of the book 

of business of the Enterprise was comprised of loans to borrowers with credit scores below 660, 

compared with 17 percent and 16 percent for the years 2002 and 2001, respectively. 

Multifamily. The multifamily portfolio has been adversely impacted by economic conditions that 

have contributed to increased vacancy rates, reduced net operating income, and increased 

delinquencies. Serious delinquency at year-end 2003 was 0.27 percent, up from 0.05 percent in 2002; 

but at the same level as year-end 2001. The increase in serious delinquency in 2003 was the result of 

two additional loans becoming delinquent. Credit-related losses actually decreased $7 million from 

2002 to 2003, but are up $7 million over 2001 levels; and the credit loss ratio has fluctuated between 

0.012 percent at year-end 2003, 0.022 percent at year-end 2002, and 0.007 percent at year-end 2001. 

The multifamily market may continue to experience economic disturbance in 2004, and credit losses 

in the multifamily book of business may increase as well. 

 

6 For reference, OFHEO uses the 660 credit score as the separation point between the traditional book of business and 

the “subprime” book of business of the Enterprise. This threshold is consistent with the FFIEC joint statement on 

subprime lending, and Standard & Poor’s published criteria for subprime securitizations. OFHEO recognizes that 

Fannie Mae does not rely on a specific credit score threshold for purposes of managing mortgage credit risk. 
24

Manufactured housing ABS investment portfolio. During 2003, OFHEO continued to monitor the 

manufactured housing asset-backed securities portfolio of the Enterprise and the impact of rating 

agency downgrades on many of the securities in the portfolio. The primary focus of examiners 

during the annual examination has been on the efforts of the Enterprise to assess: (1) the servicing 

practices applied to the loans in this portfolio; (2) the nature and condition of the collateral securing 

the loans in the securities; and (3) the internal cash-flow, valuations, and related analyses used to 

manage this portfolio. OFHEO’s special examination of Fannie Mae, currently in progress, is 

examining accounting and internal controls for financial reporting, as well as valuation practices in 

connection with manufactured housing. OFHEO’s objectives are to ensure that: (1) Fannie Mae is 

appropriately evaluating and managing its risk exposures with respect to this portfolio; (2) processes 

for determining market values and estimating fair values are sound; and (3) other-than-temporary 

impairments are appropriately assessed, recorded, and disclosed on a timely basis. 

 

MANAGEMENT 

During the course of each annual examination cycle, OFHEO evaluates management of the 

Enterprises in accordance with OFHEO’s regulations, guidance policies, and standards of prudence 

and safe and sound practices. While there were some significant management changes, these 

changes took place in an orderly manner and the management structure of Fannie Mae remains 

stable. 

Based on annual examination work conducted in 2003, OFHEO concludes that the overall 

management of operational risk by the Enterprise comports with applicable safety and soundness 

standards; however, OFHEO suggested certain enhancements to Enterprise practice. In the area of 

the effectiveness of policies, procedures and processes to ensure that data, information, and 

computing resources are secure and accessed only by authorized users, OFHEO concluded that the 

Enterprise had identified, and corrected, a weakness in its security review process. In the area of the 

effectiveness of processes for communicating data and information, examiners identified two 

opportunities for improvement regarding the intranet of the Enterprise in communicating 

information internally. The Enterprise has implemented both of the recommendations. 

In 2004, OFHEO initiated a special examination of accounting policies and practices at Fannie Mae. 

The scope of this review includes accounting policies and internal controls at the Enterprise, with an 
25

emphasis on identification of any control weaknesses or unusual transactions. When completed this 

review may well illuminate the adequacy of Fannie Mae’s internal controls, including the role of 

management and the board of directors in fashioning and overseeing implementation of relevant 

policies and practices. Pending completion of that examination an assessment of management must 

be deferred. 

OFHEO has proposed new standards for corporate governance. This proposal to amend the 

existing regulation would separate the CEO and Chairman of the Board positions at the Enterprises, 

establish term and age limits for the Board of Directors, and set other standards and requirements 

for the conduct and operations of the management and Boards of the Enterprises. 

The proposed changes stem, in part, from the findings and recommendations of OFHEO’s special 

examination of accounting and management problems at Freddie Mac. If adopted, some of the 

changes would, however, affect the management and Board of Directors of Fannie Mae. 

The major requirements proposed in this rule include: 

• Separating CEO and Chairman functions 

• Limiting Directors to ten years of service or an age limit of 72 

• Enhancing information flows to the Boards of Directors 

• Requiring audit partner rotation every five years and auditor rotation every ten years 

• Requiring the Board and its Committees to meet more frequently 

• Additional rules for the independence of Board members 

• Requiring “appropriate and reasonable” compensation that looks to legal compliance and 

organizational stability and not just to earnings 

• Requiring, at a minimum of every three years, a review of codes of conduct 

• Requiring the Boards of Directors to remain informed of the companies’ growth plans and 

resources to manage risks. 

EARNINGS 

OFHEO assesses Fannie Mae earnings by analyzing the magnitude, trends, sources, and quality of 

earnings with particular attention to factors that may cause earnings to change in the future. 

Potentially important factors include such considerations as the risk characteristics of existing 

positions, market trends, the effects of accounting choices, the effects of unusual economic 

conditions, and changes in fair value net worth. OFHEO also reviews management systems, 

practices, and strategies for controlling costs, projecting earnings, and anticipating and responding to 
26

market developments. From these perspectives, Fannie Mae’s reported earnings were strong in 

2003. 

 

The reported earnings of the Enterprise, certified by their outside auditors as being prepared in 

accordance with generally accepted accounting principles (GAAP), rose 71 percent, to a record high 

$7.9 billion in 2003. GAAP earnings have been more volatile since the adoption of FAS 133, 

however, a clear upward trend persists. Fannie Mae’s core earnings7 rose 14 percent in 2003 to $7.3 

billion. Core return on equity (ROE) was 26 percent in 2003, similar to results for the last five years. 

Fannie Mae’s fair value balance sheet provides similar information on its performance. In 2003, the 

fair value balance sheet of the Enterprise showed a $9.5 billion increase in the net fair value of assets 

(or fair value of shareholders’ equity), to $31.6 billion. Coupled with capital payouts (dividends plus 

net share repurchases), fair value gains exceeded $11 billion in 2003. 

A thirty percent increase in total revenues was the impetus behind Fannie Mae’s improved GAAP 

earnings in 2003. Higher net interest income provided the bulk of the revenue gain of the Enterprise 

in the year. Net interest income under GAAP grew by 28 percent in 2003, driven by 14 percent 

growth in the average interest-earning assets of the Enterprise. Guarantee fee income also 

contributed to Fannie Mae’s improved profits. This income increased by one-third to a record $2.4 

billion driven by a higher average guarantee fee rate and higher MBS outstanding. The average 

guarantee fee rate increased more than a basis point to 20.2 basis points in 2003. 

Administrative expenses increased 20 percent for the second consecutive year, to $1.5 billion. The 

ratio of administrative expenses (administrative expenses divided by average net mortgage portfolio 

and average outstanding MBS) was 0.072 percent in 2003, unchanged from 2002, and only slightly 

higher than the ratio for 2001. 

Credit losses and credit risk indicators remained low for Fannie Mae in the year. Credit-related 

losses, including charge-offs and foreclosed property expenses, totaled $123 million, up from $57 

million in 2002. The Enterprise credit loss rate (credit losses as a percentage of total mortgage-

 

7 Core earnings, as defined by Fannie Mae, differ from GAAP earnings by accounting for the time value of purchased 

options on an amortized cost basis rather than market value. 
27

backed securities outstanding plus the retained mortgage portfolio) was 0.6 basis points in 2003, up 

slightly from 2002. 

A number of perhaps non-recurring factors had unusual effects on Fannie Mae’s 2003 performance. 

Several were tied to the behavior of market interest rates, which declined in 2002, and continued to 

decline in early 2003. Short-term rates remained low while long-term rates fell sharply in the spring, 

then rebounded to levels above those at the beginning of the year. These changes increased the 

aggregate time value of purchased options, which are reflected in GAAP earnings. The lower core 

earnings figure deletes those interest rate effects. The interest rate declines, especially in the spring, 

set off a major refinancing boom. Fannie Mae was able to exercise its options to call debt and enter 

into receive-fixed swaps faster than homeowners exercised their options to prepay loans. As a 

result, Fannie Mae’s funding costs fell more rapidly than its asset earning yields. Its funding also 

shifted toward shorter-term debt as the likelihood of prepayments rose, allowing it to benefit 

significantly from the particularly low short-term interest rates. These benefits were offset, in large 

part, by Fannie Mae’s decision during the year to repurchase portions of its previously issued longterm debt at premium prices, creating after-tax losses of $1.5 billion. Refinancings also generated 

exceptional volumes of securitization and technology fees, which rose by $271 million, after tax, 

from the previous year. The rise in guarantee fees also reflected faster amortization of pre-paid fees. 

Fannie Mae’s fair value balance sheet benefited from interest rate changes. Spreads narrowed, on 

balance, over the course of the year between current market yields on Fannie Mae assets and yields 

on Fannie Mae debt. That caused asset values to rise relative to debt values. To the extent it is a 

buy-and-hold investor, Fannie Mae’s future profitability does not benefit from such a change. 

Indeed, narrow spreads later in the year reduced profitable opportunities to expand its asset 

portfolio. Most of the increase in fair value net assets, however, reflected retained economic 

earnings. 

LIQUIDITY

During the course of each annual examination cycle, OFHEO evaluates liquidity management at the 

Enterprises in accordance with OFHEO’s regulations and guidance policies, and standards of 

prudence and safe and sound practices. Foremost in OFHEO’s assessment was a determination as 
28

to the level of risk to the earnings of the Enterprise and capital that arose from its ongoing ability to 

meet obligations (contractual, market or business) without incurring unacceptable losses. Although 

subject to the findings and conclusions of the special examination currently underway, OFHEO’s 

overall assessment included three primary conclusions: (1) Fannie Mae has policies and procedures 

governing its management of liquidity risk, (2) Fannie Mae demonstrated reliable access to sufficient 

sources of funds on cost-effective terms to remain liquid and meet its obligations throughout 2003, 

and (3) Fannie Mae continues to evolve and refine its liquidity contingency plan with strategies and 

implementation procedures for event management that includes procedures under adverse market 

scenarios. 

Fannie Mae has policies and procedures that detail the nature of its liquidity risk and how that risk is 

managed. Investment guidelines are regularly reviewed by the Enterprise and updated as part of its 

management of liquidity. OFHEO concluded that the risk management process for liquidity 

possessed the management information systems, the necessary risk limits, the internal business 

controls and the management reports that were appropriate to the task. Management was assessed 

by OFHEO as effective in identifying and quantifying access to asset and liability liquidity, 

recognizing vulnerabilities and forming strategies to address those key vulnerabilities. The 

examination concluded that the mix and volume of business flows, along with the introduction of 

new initiatives, were evaluated by management within a context that considered liquidity and 

sensitivity factors. 

Effective liquidity management requires active consideration of the various sources for liquidity in 

planning and the strategic deployment of the tactical plans. Asset liquidity is equally important to 

effective liquidity management as managing the funding activities of the firm. Fannie Mae’s 

management of asset liquidity (from its retained portfolio cash flows) is enhanced by the holdings in 

an asset liquidity portfolio. Enhancing asset liquidity, Fannie Mae manages a Liquidity Investment 

Portfolio (LIP). 

The LIP policy and procedures were updated in 2003 and provide a detailed description of portfolio 

objectives and guidelines. The internal reporting requirements from the LIP policy provide a picture 

of the risk attributes for this portfolio. Examiners concluded the investment criteria, the investment 
29

practices and the management practices for the LIP reflected prudence in governing liquidity risk 

and adhere with operating policies and procedures. 

The LIP is limited to 15 percent of total assets. Within the LIP, there are subsidiary guidelines with 

respect to credit, maturity, and issuer diversification. Additionally, there are security-specific 

guidelines relating to various types of bank debt, corporate debt, repurchase agreements, money 

market funds, and asset-backed securities, among other investment instruments. Maximum limits 

are also in place to prevent the purchase of more than 10 to 20 percent of a particular issue, and 

these limits are dependent upon the type of security, maturity, and credit rating. Under its liquidity 

management policy, the Enterprise maintains sufficient levels of liquid assets to cover three months 

of obligations assuming no access to public debt markets for that period of time. Fannie Mae also 

maintains at least five percent of on-balance sheet assets in liquid non-mortgage investments. 

OFHEO reviewed LIP activity during 2003 for the purpose of assessing portfolio composition and 

trading activity; duration gap management; credit profile/credit watch securities; and system and 

operational changes in the liquidity management process. The investments in the LIP are consistent 

with the approved strategies, goals and policies of the Enterprise and with applicable OFHEO 

policy guidance on non-mortgage liquidity investments. During 2003, management of the LIP was 

successful in maintaining strong credit quality and limiting the amount of losses in a volatile market 

environment. 

Fannie Mae has made a number of changes to the systems used to manage the LIP and has updated 

operating procedures for the portfolio. The final approved operating procedures for the LIP were 

completed in January 2003 and reviewed by OFHEO. In addressing their mark-to-market process, 

Fannie Mae utilized an independent third party to provide marks. The ongoing special examination 

of Fannie Mae will examine this subject in greater depth, supplement the annual examination work, 

and deepen OFHEO’s understanding of the portfolio pricing practices of the Enterprise and 

internal controls for the LIP. 

Liability liquidity is an important component of Fannie Mae’s management of liquidity risk. 

Financing obtained in the international debt market enables Fannie Mae to operate its business 

model. Debt issuance activities conducted in 2003 were sizeable and subject to active scrutiny and 
30

continuing market pressure. Fannie Mae was successful in obtaining cost-effective funding across 

the yield curve and from a diverse base of investor demographics. Concentration management for 

its financing activities was successful in 2003 and the Enterprise continued to make active use of 

derivatives. Within the derivatives market, Fannie Mae actively uses swaptions to execute its 

funding strategies. Continuing access to the swaptions market and the liquidity of this market are 

important considerations in evaluating the liquidity of the Enterprise. The combination of tactics 

employed in the financing strategies enabled Fannie Mae to meet its liquidity obligations and 

maintain its desired balance sheet symmetry. 

The year 2003 was not without challenges. There was substantial volatility in interest rates and 

markets throughout the year, and there was a challenging business environment, particularly in the 

second-half of 2003. The convergence of a series of factors resulted in an increase to the cost of 

Fannie Mae’s financing activities and risk management activities. However, these increased costs did 

not adversely impact earnings and capitalization of Fannie Mae from a safety and soundness 

perspective. 

Also critical to liability liquidity for Fannie Mae, is the rating of their debt instruments by recognized 

rating agencies. The rating agencies did not take, or indicate that they were intending to take, actions 

to downgrade or otherwise alter existing ratings of the debt instruments of the Enterprise. 

Effective liquidity management requires the maintenance of a comprehensive contingency funding 

plan (CFP). The CFP of Fannie Mae incorporates the components outlined by authoritative sources 

for an effective plan. The plan includes the use of timely data (actual and projected), management’s 

estimates and projections, and strategic and tactical plans under various scenarios and stress 

environments. 

Critical to the effective management of liquidity by Fannie Mae is obtaining quality information in a 

timely manner. The data and information component is an area requiring continuous evolution and 

enhancements. There were a variety of changes and enhancements noted by OFHEO during the 

last examination cycle. 
31

In 2003, the database used by Fannie Mae for short-term forecasting, float income projections, and 

portfolio inventory analysis was enhanced. The enhanced database allows for a more robust set of 

analytical tools, and OFHEO believes this has improved the effectiveness of liquidity management 

of the Enterprise. Short-term portfolio forecasting has been operational since the first quarter of 

2003, and this feature provides the ability to project for the current month and the following three 

months portfolio ending balances, average balances, and net interest income. It also allows for 

scenario analysis to be incorporated in the projections. The functionality for float interest income 

projection has been available since mid-2003. This feature allows management to analyze returns 

the Enterprise receives on the MBS principal and interest float. Portfolio inventory analysis was 

added to the database during the third quarter of 2003, and gives the Enterprise the ability to sort 

the portfolio in multiple ways to review asset types and returns. Duration gap calculation 

enhancements for LIP were also added in 2003, and allow for credit spread duration analysis using 

various credit spread scenarios. For 2004, management expects to further enhance the database by 

adding trade entry and additional automated compliance features. 

Senior management at the Treasurer’s office of the Enterprise has primary responsibility for liquidity 

management and is responsible for ensuring compliance with procedures and controls for all related 

processes and tasks. The internal and external auditors review the process employed by 

management annually. Internal audit has specialists who focus on control issues for debt issuance 

processes and the LIP. Examiners evaluated and tested, to the extent resources permitted, certain 

work performed by internal and external auditors. The special examination of Fannie Mae now 

being conducted will examine this area in greater depth. 

SENSITIVITY

Inherent in Fannie Mae’s business model as a financial intermediary is the role of accepting and 

managing financial risks. One such risk is the exposure of its earnings and capital to movements in 

interest rates. OFHEO evaluates interest rate risk arising from differences between the timing of 

rate changes and the timing of cash flows (repricing risk); from changing rate relationships among 

yield curves that affect the activities (basis risk) of the Enterprise; from changing rate relationships 

across the spectrum of maturities (yield curve risk); and from interest rate related options embedded 

in the products (option risk) of the Enterprise. Furthermore, in conjunction with evaluating the 
32

effects of movements in interest rates, OFHEO evaluated the impact of hedging strategies and 

products employed by the Enterprise that altered one or more features of the interest rate risk 

portfolio. It is the movements in interest rates in combination with the hedging strategies employed 

by the Enterprise that affect the reported financial performance and the underlying economic value 

of its portfolio. 

In 2003, volatility in the debt market affected the interest rate risk position of Fannie Mae. 

Management was required to respond by rebalancing its exposure to that volatility. During the 2003 

examination, OFHEO focused on the risk management policies and practices (the process) of 

Fannie Mae and the effects this had on its risk profile and whether the quantity of interest rate risk 

being assumed by management posed a supervisory concern. Routine examination activities were 

augmented by testing, to the extent resources permitted, in specific areas affecting interest rate risk 

management. 

The examination methodologies employed by OFHEO are consistent with the principles outlined in 

the joint policy statement on interest rate risk of the federal banking agencies. OFHEO evaluates 

rate sensitivity by considering the ability of management to identify, measure, monitor, and control 

sensitivity exposure; the size of the Enterprise; the nature and complexity of its activities; and the 

overall financial performance in relation to the level of sensitivity exposure. Specific work was 

conducted in five key areas to evaluate Fannie Mae’s risk management for interest rate sensitivity, 

and to ascertain whether (1) There are clear lines of responsibility and authority for: identifying the 

potential interest rate risk that arose from the existing activities and products along with a process to 

incorporate new initiatives; establishing and maintaining an interest rate risk measurement system; 

formulating and executing strategies; and authorizing exceptions; (2) There is an effective 

measurement system for interest rate risk that identifies and quantifies the major sources of interest 

rate risk in a timely manner; (3) There is an effective monitoring and reporting system with 

reporting formats and flows that are consistent in form and content with the level of oversight being 

exercised and for the nature of the risk profile; and the monitoring and reporting system includes an 

appropriate flow of information to executive management and the Board of Directors on the levels 

of interest rate risk being assumed and compliance with policies, procedures and internal controls; 

(4) There are meaningful risk limits and controls that present clearly: the amount and type of risk 

that can be taken; the thresholds for rebalancing; and the appropriate symmetry between risk 
33

parameters and risk capacity; (5) There are effective business controls in place that complement an 

effective risk management framework. In addition to the controls, there must be adequate resources 

to support risk monitoring, audit and any other control functions that provide the appropriate 

separation of duties and responsibilities and the timely and accurate reporting of relevant 

information. 

In 2002, OFHEO took prompt supervisory action in response to duration gap problems that were 

developing at Fannie Mae. In 2003, OFHEO concluded that action. In the remainder of the year, 

the sensitivity exposure of Fannie Mae was adequately managed and the effects of interest rate 

movements on financial performance and underlying economic value were within safety and 

soundness tolerances. 

In forming conclusions about the quality of risk management activities, OFHEO evaluated, among 

other things, use of a wide variety of measures by management to gauge the sensitivity of the 

Enterprise to interest rate exposure, and whether management’s rebalancing actions were consistent 

with the measures and the defined tactical strategies. Examples of the routine metrics evaluated and 

tested by examiners and that are employed by management for rebalancing decisions were measures 

for duration gap, duration gap sensitivity, as well the sensitivity of the market value of the Enterprise 

to parallel shifts in the yield curve, and in the shape of the yield curve and prepayment speeds. 

OFHEO evaluated other measures employed by management in managing the sensitivity position 

such as: net interest income at risk, market value at risk, economic value of equity, and enhanced 

economic value at risk. Fannie Mae’s management also assesses the sensitivity of its earnings to 

defined movements in interest rates. The sensitivity impacts on specific cash flows are measured 

using stochastic tools that generate multiple interest rate paths, and provide management 

probabilistic estimates of sensitivity. Management routinely evaluates the impact of events or 

alternative environments on the market risk sensitivity of the Enterprise, and runs various scenarios 

to evaluate the sensitivity of the Enterprise to prepayments, changes in yield curves and interest rate 

environments. These scenario analyses include deterministic rate risk shocks to the level of interest 

rate risk and to the shape of the yield curve. OFHEO evaluates the above mentioned tools, the 

information produced by them and the impact of the analysis and strategic decisions reached. In 

addition, OFHEO considered how management monitors, and tracks its assessments of the 

sensitivity of credit and market losses to economic changes. 
34

Near the end of the 2003 examination, OFHEO commenced a special examination of Fannie Mae. 

The scope of the special examination includes an in-depth review of several aspects of interest rate 

risk management. Included in the scope are derivative valuations/model validation practices; assetliability management and risk measurement; hedging decision review; credit reserve estimations; and 

an assessment of the internal controls of the Enterprise covering valuation and risk measurement 

practices. The results and conclusions of the special examination will supplement the agency’s 

annual examination work, deepen OFHEO’s understanding of the risk management practices of the 

Enterprise, and enhance OFHEO’s ability to reach accurate assessments of the adequacy of the 

internal controls and practices of the Enterprise. 

As indicated above, a financial risk for Fannie Mae is the exposure of its earnings and capital to 

movements in interest rates. Accordingly, OFHEO analyzes the sensitivity of the risk-based capital 

requirement to a wider range of interest rate scenarios and other variables to further assess the 

ability of an Enterprise to withstand the stresses they impose. 
35

FREDDIE MAC 

2003 SUPERVISORY REPORT OF CONDITION 

During 2003, in addition to OFHEO’s ongoing examination and capital supervision efforts, 

OFHEO initiated a special examination of Freddie Mac. This special examination is referenced 

throughout this Report of Condition, and the report of the special examination is available on 

OFHEO’s web site8

. 

CAPITAL 

Capital provides the means by which the Enterprise withstands adverse economic conditions or 

situations. OFHEO through its Office of Capital Supervision (OCS) monitors and assesses the 

capital position of Freddie Mac on an ongoing basis. OFHEO’s capital authority is promulgated in 

the 1992 Act through the establishment of two quantitative assessments of capital – minimum and 

risk-based. During 2003, these quantitative capital measurement tools, along with results of 

examinations and OFHEO special examinations, provided the basis for OFHEO’s capital 

supervision of Freddie Mac. 

As defined by statute, OFHEO has several measurement tools it uses as a basis for capital 

classification. 

• The minimum capital level represents the essential amount of capital needed to protect an 

Enterprise against broad categories of business risk. The minimum capital level represents 

an absolute floor, related to the level of Enterprise assets and obligations, below which 

capital should not dip. The minimum capital level is a ratio-based quantitative measure 

defined as 2.5 percent of assets plus 0.45 percent of adjusted off balance sheet obligations. 

An Enterprise meets its minimum capital level requirement if its core capital — common 

stock; perpetual non-cumulative preferred stock; paid in capital; and retained earnings — 

equals or exceeds minimum capital. 

• The critical capital level is the amount of core capital below which an Enterprise must be 

classified as critically undercapitalized and generally must be placed in conservatorship. 

Critical capital levels are computed as one-half of the portion of the minimum capital level 

requirement associated with on-balance-sheet assets plus five-ninths of the portion of the 

minimum capital level requirement associated with off balance sheet obligations. 

 

8 See http://www.ofheo.gov/media/pdf/specialreport122003.pdf. 
36

• OFHEO’s risk-based capital regulation meets the specific requirements of the 1992 Act. 

OFHEO’s stress test simulates the financial performance of an Enterprise over a 10-year 

period under severe economic conditions. Key aspects of the severe economic conditions 

used in the stress test are defined specifically in the 1992 Act. These conditions include high 

levels of mortgage defaults, with associated losses and large, sustained movements in interest 

rates, both increasing (up-rate scenario) and decreasing (down-rate scenario). 

The 10-year stress test is used to measure the risk of the overall portfolio of each Enterprise. The 

stress test determines the amount of total capital — core capital plus a general allowance for loan 

losses less specific reserves — that an Enterprise must hold to absorb projected losses flowing from 

future adverse interest-rate and credit-risk conditions. The risk-based capital standard is based on 

stress test results calculated for the two statutorily prescribed interest rate scenarios, one in which 

10-year Treasury yields rise 75 percent (up-rate scenario) and another in which they fall 50 percent 

(down-rate scenario). Changes in both scenarios are generally capped at 600 basis points. The riskbased capital level for an Enterprise is the amount of total capital that would enable it to survive the 

stress test in whichever scenario (up-rate or down-rate) is more adverse for that Enterprise, plus 30 

percent of that amount to cover unspecified management and operations risk. 

OFHEO uses a detailed computer model to simulate cash flows for each Enterprise associated with 

mortgages and other financial assets and obligations under the severe economic conditions. The 

modeling of incoming and outgoing cash flows captures the risks embedded in those financial assets 

and obligations and the benefits of the hedges each Enterprise has set in place. 

Risk-based capital ensures a healthy relationship between the level of risk undertaken at a particular 

time by an Enterprise, and the level of capital it must hold. As a far more risk-sensitive measure, the 

risk-based requirement is designed to expose hidden weaknesses in an Enterprise that seems 

financially sound under normal conditions using more traditional capital measures. 

In addition to the consideration of the performance of the Enterprise relative to the regulatory 

capital requirements, OFHEO also makes qualitative judgments about capital in determining overall 

capital adequacy. These other factors include the overall financial condition of the Enterprise in 

relation to the capital level and the ability of the Enterprise to access other sources of capital and 

address emerging needs, the composition of balance sheet and off balance sheet activities, growth, 

the quality of earnings, and asset quality.
37

Each quarter, OFHEO calculates a minimum capital level requirement, which includes both a 

“minimum” and a lower “critical” level, and a risk-based capital requirement for each Enterprise. 

Since September 30, 2002 the Enterprises are required to meet or exceed both the minimum and 

risk-based capital requirements to be classified as “adequately capitalized.” 

An Enterprise that met the minimum capital level requirements, but did not achieve the risk-based 

capital level requirements would be classified as “undercapitalized.” An Enterprise that did not meet 

the minimum capital level requirements would be classified as “significantly undercapitalized.” An 

Enterprise holding less than the critical capital level requirement would be classified as “critically 

undercapitalized.” Failure to achieve the requirements would trigger a range of regulatory responses, 

depending upon the capital classification. 

The quantitative analysis generated through the minimum and risk-based capital calculations is 

supplemented by sensitivity analysis of the risk-based capital requirement, conclusions reached from 

examinations and other special investigations, discussions and assessments of capital management 

practices, and research and analysis of risks and exposures at the Enterprise. 

The risk-based capital stress test assesses the ability of an Enterprise to withstand the two 

statutorily-defined scenarios involving interest rate and credit stress. The relative magnitude of the 

risk-based capital requirement in the two stress test scenarios provides an indication of the relative 

ability of an Enterprise to withstand severe rate increases and severe rate decreases, however the 

results of the two scenarios are not sufficient to fully determine whether an Enterprise is adequately 

protected for changes in interest rates. OFHEO analyzes the sensitivity of the risk-based capital 

requirement to a wider range of interest rate scenarios to further assess the ability of an Enterprise 

to withstand prolonged interest rate stress. Furthermore, OFHEO analyzes the sensitivity of the 

risk-based capital requirement to other variables to further assess the ability of an Enterprise to 

withstand other types of stress. 

After taking into account all relevant conclusions, OFHEO proposes a capital classification in 

writing to each Enterprise each quarter. Each Enterprise has the opportunity to review and 
38

comment on its proposed classification. After reviewing comments from the Enterprise, OFHEO 

determines the final capital classification and releases the classification to the public. 

While Freddie Mac has submitted minimum and risk-based capital results to OFHEO, they have not 

as yet published 2003 financials, therefore, the capital results are subject to restatement. The 

cumulative effect of the 2002 and prior year adjustments are reflected in the fourth quarter, 2003 

results, but are not included in the earlier quarter results. Based on disclosures and discussions with 

Freddie Mac management, OFHEO is not aware of changes that will impact the capital classification 

conclusions issued in 2003 for Freddie Mac. 

During 2003 and into early 2004, OFHEO took unprecedented steps in the supervision of Freddie 

Mac. Specifically, with respect to capital supervision, when OFHEO’s special examination revealed 

significant operational weaknesses and risks at Freddie Mac, the agency took immediate action to 

direct Freddie Mac to increase its capital surplus over historic quantitative ratios. OFHEO directed 

Freddie Mac to maintain capital surpluses approximating 30% over the required minimum capital 

surplus beginning January 30, 2004 and until such time as timely financial statements are issued and 

operational risks decrease. OFHEO’s directive further requires that Freddie Mac seek OFHEO preapproval for capital deployment initiatives to ensure the mandated surplus is maintained until the 

risks are minimized. OFHEO monitors Freddie Mac’s core capital on a weekly basis. As of May 

31, 2004, Freddie Mac has remained in compliance with this capital directive. 

For all four quarters in 2003, Freddie Mac exceeded its minimum and risk-based capital 

requirements. Based upon these quantitative results, OFHEO’s ongoing analysis of financial and 

stress-test results, weekly monitoring of capital positions and Freddie Mac’s methodology for 

maintaining appropriate capital surpluses, the conclusions of examination and other investigative 

activities, and discussions with management, OFHEO concludes that Freddie Mac was adequately 

capitalized. OFHEO also concludes that Freddie Mac’s ability to address emerging capital needs 

and appropriately manage the capital position was sound. 

Freddie Mac exceeded its capital requirements in each of the four quarters in 2003 by adapting its 

portfolios to a changing economic environment. In 2003, interest rates fell during the first two 

quarters, rose sharply in the third quarter, and remained relatively flat in the fourth quarter. Freddie 
39

Mac modified its portfolios to accommodate fluctuating interest rates during the year consistent with 

its risk management policies and procedures. 

Quantitative Results of Capital Adequacy for Freddie Mac9

Minimum and Risk-Based Capital Requirements 

Freddie Mac

22.69 24.05 24.24

5.20 4.72

1.32

5.43

21.77

0

5

10

15

20

25

30

35

40

1Q03 2Q03 3Q03 4Q03

$ in billions

Minimum Requirement RBC Requirement

The minimum capital level requirement increased each quarter for Freddie Mac, a function of 

growth in balance sheet assets and off balance sheet obligations. The minimum capital level 

requirement exceeded the risk-based capital requirement in all four quarters, and therefore 

represents the binding capital requirement. 

 

9 Freddie Mac’s fourth quarter results capture the cumulative adjustments of Freddie Mac’s financial restatement. The 

first, second, and third quarters of 2003 do not reflect restated results. Freddie Mac has not yet published financials for 

2003; thus these numbers for all quarters are subject to restatement. 
40

Minimum Capital Results 

Freddie Mac

26.11

28.96 28.13

33.29

21.77 22.69 24.05 24.24

0

5

10

15

20

25

30

35

40

1Q03 2Q03 3Q03 4Q03

$ in billions

Minimum Requirement Core Capital

Freddie Mac held core capital in excess of its minimum capital level requirements during 2003. For 

Freddie Mac, core capital increased every quarter except the third quarter. The increase in core 

capital resulted primarily from an increase in retained earnings. 

Risk-Based Capital Results 

Freddie Mac

5.20 4.72

1.32

5.43

26.51

29.34 28.49

33.44

0

5

10

15

20

25

30

35

40

1Q03 2Q03 3Q03 4Q03

$ in billions

RBC Requirement RBC Total Capital

In 2003, total capital exceeded the risk-based capital requirement by $21.3 billion or more. The 

growth in total capital closely tracked growth in core capital as loss reserves were essentially 

unchanged. Similar to core capital, total capital increased each quarter relative to the previous 

quarter with the exception of Freddie Mac’s third quarter 2003 results where total capital decreased 

slightly, but was well above the risk-based capital requirement. 
41

ASSET QUALITY 

During the course of each annual examination cycle, OFHEO evaluates mortgage credit risk 

management practices of the Enterprise for the single-family and multifamily lines of business. 

OFHEO evaluates a variety of factors that determine the quality of credit risk management, 

including the management reporting framework; the development and implementation of credit 

policy, underwriting and servicing standards; and strategies and practices for managing exposures to 

seller/servicer and mortgage insurer counterparties. In addition, OFHEO regularly reviews 

mortgage acquisitions, mortgage portfolio risk profiles and performance measures, seller/servicer 

performance, and default management and loss mitigation activities. In sum, OFHEO reviews the 

structure of the Enterprise for managing mortgage credit risk, and, through selected sampling and 

targeted reviews as staffing permits, evaluates whether the practices of the Enterprise meet safety 

and soundness standards and adequately protect the Enterprise from the risk of loss resulting from 

borrower or counterparty default. Based on OFHEO’s examination activities to date, it is the 

overall conclusion of OFHEO that Freddie Mac has strong asset quality and prudent credit risk 

management practices. OFHEO has directed the attention of management to specific aspects of 

credit risk management and identified opportunities to improve existing practices. Those 

enhancements relate to: quality control reporting statistics for post-purchase loan review activities 

and performance; enhancements to certain counterparty risk management and risk oversight 

practices for seller/servicers; and continued participation in the industry efforts to reduce mortgage 

fraud through the adoption of a means for identifying troublesome third party originators. 

The determination about asset quality reflects the quantity of existing and potential credit risk 

associated with the loan and investment portfolios, other real estate owned, other assets, and off 

balance sheet transactions. The demonstrated performance of management in identifying, 

measuring, monitoring, and controlling risk is also reflected in this determination. Included in the 

evaluation of asset quality is a consideration of the adequacy of the allowance for loan losses and a 

consideration of the exposure of the Enterprise to counterparty, issuer, or borrower default under 

contractual agreements. Also considered are factors that may affect the value or marketability of the 

assets of the Enterprise. A determination of the asset quality of an Enterprise is based on, but not 

limited to, an assessment of the following evaluation factors: 

• the adequacy of underwriting standards, soundness of credit-administration practices, and 

appropriateness of risk-identification practices 
42

• the level, distribution, severity, and trend of problem, classified, nonaccrual, restructured, 

delinquent, and nonperforming assets for both on and off balance sheet transactions 

• the adequacy of the allowance for loan losses and other asset valuation reserves 

• the credit risk arising from or reduced by off balance sheet transactions, such as unfunded 

commitments, credit derivatives, and other possible credit facilities 

• the diversification and quality of the loan and investment portfolios 

• the presence of undue asset concentrations 

• the adequacy of investment policies, procedures, and practices 

• the ability of management to properly administer its assets, including the timely identification 

and collection of problem assets 

• the adequacy of internal controls and management information systems 

• the volume and nature of credit-documentation exceptions 

Asset quality is reflected in asset performance, and both the single-family mortgage and multifamily 

mortgage portfolios exhibited reasonable performance during the examination period, which took 

place during a period of economic recovery. OFHEO monitors and analyzes a variety of 

quantitative and qualitative features affecting credit risk management and credit performance. 

Through its analyses, OFHEO identifies sectors of the credit process for further examination. 

There are a variety of public and non-public indicators that are tracked and evaluated in the 

OFHEO’s analysis. Among the key publicly-reported measures of performance for the single-family 

portfolio OFHEO evaluates are: serious delinquency, credit loss ratio, credit-related losses, trends 

in real estate owned, and geographic concentrations. OFHEO further evaluates a collection of 

proprietary performance measures, analyses and internal strategic assessments. In considering these 

public and non-public materials, OFHEO considers those factors in tandem with their own 

independent analyses and the results of their focused testing. From this collective work and using a 

variety of sources, OFHEO renders its conclusion on asset quality and credit risk management. 

Single-family. Although OFHEO considers the single-family underwriting and servicing standards 

of the Enterprise to be sound, OFHEO personnel are closely monitoring the increased inventory of 

real estate owned (REO) observed in the single-family book of business. REO inventories have 

grown from 7,222 properties at the year-end of 2002, to approximately 9,500 at year-end 2003. 

Serious delinquency has also increased, from 0.77 percent in 2002 to 0.86 percent in 2003. 

Moreover, single-family credit losses increased from $75 million at year-end 2002 to approximately 
43

$119 million 200310. The increase in REO and credit losses may be explained by a combination of 

factors, such as portfolio growth and the portfolio of higher risk loans of the Enterprise. 

Multifamily. The multifamily portfolio has been adversely impacted by economic conditions that 

have contributed to increased vacancy rates and reduced net operating income, however, 

management estimates that serious delinquency was 0.05 at year-end 2003, down from 0.13 percent 

in 2002 and 0.15 in 2001. Management estimates that credit-related losses for 2003 were $10.3 

million, most of which were attributable to one multifamily property. Expectations are for the 

multifamily market to continue to experience economic disturbance and for serious delinquency and 

credit losses in the multifamily book of business to increase. 

MANAGEMENT 

OFHEO conducted a special examination of the events leading to the public announcement on 

June 9, 2003, of the termination, resignation, and retirement of the three principal executive officers 

of Freddie Mac. The special examination was ordered to supplement an ongoing OFHEO 

examination of the financial condition of the Enterprise and the decision of Freddie Mac to restate 

its financial reports for 2000, 2001, and 2002. OFHEO released a report on the special examination 

detailing a pattern of inappropriate conduct and improper management of earnings that led to the 

restatement and management restructuring by the company. 

Freddie Mac agreed to implement corrective measures and pay a civil money penalty of $125 million 

as part of a consent order with OFHEO. The order sets forth specific actions for the Enterprise to 

implement that relate to: 

• The Board of Directors and Senior Management 

• Internal Controls 

• Internal Audit 

• Internal Accounting 

• Risk Management Transactions 

• Oversight and Reporting 

 

10 The credit loss figure for 2003 presented here is based on management’s internal estimates, and may differ from the 

credit loss figure the Enterprise reports publicly when it issues audited financial statements for 2003. Likewise, the REO 

inventory figure is based on management’s internal estimates. 
44

The Board of Directors of Freddie Mac has elected a new chairman and hired a number of senior 

executives as its new management team. As this new management of Freddie Mac has been in place 

only a short time, OFHEO will defer assessment of their performance. 

As the result of its ongoing examination of Freddie Mac, OFHEO made recommendations for 

certain enhancements to Enterprise policies and practices. In the area of data center operations, 

OFHEO concluded that management has appropriate operating policies and procedures to protect 

data processing assets from intentional or inadvertent mishaps; however, OFHEO also concluded 

that it would be prudent for management to revise and update certain policies. OFHEO highlighted 

the importance of maintaining sufficient information technology capacity to meet increasing systems 

and business demands in evaluating operational risk. For example, management has identified a 

variety of systems enhancements that are necessary to resolve the internal control problems over 

financial reporting that have impaired the ability to produce timely financial statements. In the area 

of information security, OFHEO observed the continuing improvement to the information security 

policy and the enhancement of controls and internal communications among business areas. 

In the area of business continuity planning (BCP), the Enterprise conducted extensive testing during 

2003; however, OFHEO concluded it should perform additional examination work to evaluate the 

ability of the Enterprise to conduct an all-inclusive business process recovery exercise. OFHEO 

also concluded that, although the Enterprise has a comprehensive, corporate-wide business 

continuity plan, it would be prudent for management to develop additional supporting guidelines. 

Finally, OFHEO observed that the business impact analysis (BIA) of the Enterprise, which assesses 

potential customer and financial losses that could arise from a BCP event, was not completed in 

2003 as planned. Management has represented that the BIA will be completed during 2004. 

EARNINGS 

OFHEO assesses Freddie Mac earnings by analyzing the magnitude, trends, sources, and quality of 

earnings with particular attention to factors that may cause earnings to change in the future. 

Potentially important factors include such considerations as the risk characteristics of existing 

positions, market trends, the effects of accounting choices, the effects of unusual economic 

conditions, and changes in fair value net worth. OFHEO also reviews management systems, 
45

practices, and strategies for controlling costs, projecting earnings, and anticipating and responding to 

market developments. 

Freddie Mac has been unable to produce financial statements consistent with GAAP for 2003 and 

does not expect to do so until June 30, 2004. Based primarily on accounting policies it used prior to 

its restatements of income for 2002 and prior years, many of which were not consistent with GAAP, 

Freddie Mac has reported to OFHEO that retained earnings rose $4.3 billion in 2003. Combined 

with dividends paid, that implies earnings of $5.2 billion for the year. Due to the breadth and nature 

of accounting changes adopted last year, this earnings estimate is subject to significant change. 

However, based on analysis of internal reports of business activities and results, as well as risk 

positions taken during the year and their relationships with actual interest rate movements, OFHEO 

concludes that the underlying economics of the firm are sound and were substantially profitable in 

2003. Freddie Mac’s investment business benefited from opportunities to fund portions of its asset 

portfolio with short-term debt at very low interest rates. Its guarantee business suffered from poor 

market performance of its guaranteed mortgage securities during much of the year, owing to 

evidence of relatively high prepayment risks. 

LIQUIDITY

During the course of each annual examination cycle, OFHEO evaluates liquidity management at the 

Enterprises in accordance with OFHEO’s regulations and guidance, and standards of prudence and 

safe and sound practices. Foremost in OFHEO’s assessment was a determination of the level of 

risk to the earnings of the Enterprise and capital that arose from its ongoing ability to meet 

obligations (contractual, market or business) without incurring unacceptable levels of losses. 

OFHEO’s overall assessment included three primary conclusions: (1) Freddie Mac has formal 

policies and procedures governing its management of liquidity risk, (2) Freddie Mac demonstrated 

consistent access to funding sources and maintained positive spreads throughout 2003 (this access 

was demonstrated during a challenging and highly unusual operating environment for Freddie Mac), 

and (3) aspects of Freddie Mac’s contingency funding plans for event management were tested in 

2003 with successful results – and this contingency plan and its strategies are continuing to be 

revised and strengthened. 
46

Freddie Mac has policies and procedures that adequately detail the nature of liquidity risk and how 

that risk is managed. The Liquidity and Contingency Investment Policy of the Enterprise clearly 

defines the portfolio objectives and the investment requirements and restrictions. The Liquidity and 

Contingency Desk procedures were updated in 2003, and include trade execution, cash forecasting, 

liquidity reporting and repurchase agreement monitoring. Risk limits for managing liquidity are 

clearly defined in the policies and procedures of the Enterprise, as are lines of authority. There is a 

limit of 10 percent of total on and off balance sheet assets for the Liquidity and Contingency 

Portfolio. Within the Liquidity and Contingency Portfolio, there are appropriate guidelines with 

respect to credit, maturity, and issuer diversification. Authorities for initiating transactions relating 

to non-mortgage investments, derivatives, and debt issues are clearly specified and delineated. 

The types of investments in the Liquidity and Contingency Portfolio appear consistent with the 

documented goals and strategies of the Enterprise. The stated objectives of the portfolio include: a 

source of asset liquidity, an asset liquidity portfolio with favorable credit quality, investments that are 

profitable, an additional means of managing interest rate sensitivity, and added flexibility in 

managing capital reserves. The written policy identifies authorized investments and minimum credit 

ratings; and Freddie Mac has an appropriate internal control structure for liquidity management.11 

Transactions are monitored for compliance with established authorizations and limits. 

The corporate plans and strategic initiatives of the Enterprise require the maintenance of adequate 

liquidity to achieve those plans and fulfill the initiatives. Management forecasts are regularly 

prepared addressing the necessary levels for the Liquidity and Contingency Portfolio. Incorporated 

in these management forecasts are alternative scenarios to address the potential for changes to the 

supply of mortgage purchase opportunities. The Enterprise maintains sufficient levels of liquid 

assets to cover three months of obligations assuming no access to public debt markets for that 

period of time. Another metric employed by Freddie Mac is the maintenance of at least five percent 

of on-balance sheet assets being comprised of liquid non-mortgage investments. The 90-day 

liquidity position is evaluated daily and reported on the Daily Liquidity Commitment Report and 

reported to the Chief Financial Officer at the Capital Management Meeting. Management regularly 

 

11 Note: OFHEO’s special examination of Freddie Mac identified material weaknesses in internal controls in other areas 

of Enterprise operations, including accounting and financial reporting; however, OFHEO did not identify similar 

internal control weaknesses in the area of liquidity management. 
47

evaluates its ability to liquidate a position quickly and cost-effectively when considering derivatives 

transactions. Derivative transactions are not initiated with counterparties rated below “A,” and 

management actively uses collateral to manage the risk in derivatives and with derivative 

counterparties. 

Liability liquidity is an important component of Freddie Mac’s management of liquidity risk. 

Financing obtained in the international debt market enables Freddie Mac to operate its business 

model. Debt issuance activities conducted in 2003 were sizeable and they were subjected to scrutiny 

from numerous market participants. There was a challenging operating environment for the 

Enterprises in 2003, including a series of events that were specific to Freddie Mac. Throughout the 

examination cycle, Freddie Mac was successful in obtaining reasonable funding across the yield 

curve and from a diverse base of debt investors. Concentration management for financing activities 

of Freddie Mac was successful and the company was able to access the derivatives market to execute 

its funding plans without adversely affecting the management of the portfolio’s sensitivity positions. 

Freddie Mac actively uses swaptions to execute its funding strategies; continuing access to the 

swaptions market and the liquidity of this market are important considerations in evaluating the 

ability of the Enterprise to meet its liquidity needs. The combination of tactics employed in the 

financing strategies enabled Freddie Mac to meet its liquidity obligations and maintain its desired 

balance sheet symmetry. 

There was substantial volatility in interest rates and markets throughout the examination period. 

The convergence of a series of factors resulted in an increase to the cost of Freddie Mac’s financing 

activities and risk management activities. These increased costs did not adversely impact Freddie 

Mac’s business model, earnings, or capitalization from a safety and soundness perspective. 

Also critical to liability liquidity for Freddie Mac is the rating of its debt instruments by recognized 

rating agencies. The rating agencies did not take, or indicate that they were intending to take, actions 

to downgrade or otherwise alter existing ratings of the debt instruments of the Enterprise. 

Effective liquidity management requires the maintenance of a comprehensive contingency funding 

plan (CFP). The CFP of Freddie Mac incorporates the components outlined by authoritative 

sources for an effective plan. The plan includes the use of timely data (actual and projected), 
48

management’s estimates and projections, and strategic and tactical plans under various scenarios and 

stress environments. Events occurring at Freddie Mac in 2003 activated elements of the CFP, and 

the results were favorable. The CFP continues to be enhanced and updated. 

Critical to the effective management of liquidity is obtaining quality management information in a 

timely manner. The data and information component is an area requiring continuous evolution and 

enhancements. OFHEO found management information and reports for liquidity management and 

debt issuance activities to be timely and accurate. 

The internal and external auditors review the process employed by management to ensure 

compliance with procedures and controls for all the related processes and tasks. Within the internal 

audit group there are individuals assigned to focus on control issues for debt issuance processes and 

the Liquidity and Contingency Portfolio. OFHEO evaluated and tested, to the extent resources 

permitted, certain work performed by internal and external auditors. 

In the review of management reporting for liquidity management, OFHEO concluded that daily, 

weekly, and monthly reports for debt issuance and non-mortgage investments are timely and 

accurate. However during sampling activities, OFHEO identified inaccuracies in the monthly 

liquidity reporting of the Enterprise, and concluded that the errors had occurred over the span of 

several months. The cause of the inaccuracies was an error in the computation of the liquidity and 

contingency balance; and the result of the computational error was an understatement of the level of 

the liquidity of the Enterprise as a percentage of total assets. The error was attributable to a 

reallocation of the accounting personnel to assist in the reaudit process of the Enterprise, and to 

shortcomings in certain internal controls over the information that appears in the reports. 

Management has responded by implementing new controls adopted to avoid recurrence of the 

reporting errors and anomalies identified through OFHEO’s sampling activities. Although certain 

internal monthly reports contained errors (and were subsequently corrected), OFHEO concluded 

that those errors did not impact the daily and weekly reports on which Enterprise personnel rely to 

conduct liquidity management activities. 

 

OFHEO evaluated the overall effectiveness of the methodology of the Enterprise for quantifying 

and monitoring liquidity and how management routinely evaluates the impact of events or 
49

alternative environments and develops appropriate contingency plans. OFHEO concluded that 

management needs to update its contingency plan. The Enterprise was planning to update the 

contingency plan in 2003 to assess its underlying assumptions and to provide for additional stress 

testing and sensitivity analysis; however, those plans were postponed and have been rescheduled for 

2004. 

 

SENSITIVITY

Inherent in Freddie Mac’s business model as a financial intermediary is the role of accepting and 

managing financial risks. One such financial risk is the exposure of its earnings and capital to 

movements in interest rates. OFHEO examines interest rate risk arising from differences between 

the timing of rate changes and the timing of cash flows (repricing risk); from changing rate 

relationships among yield curves that affect the activities (basis risk) of the Enterprise; from 

changing rate relationships across the spectrum of maturities (yield curve risk); and from interest rate 

related options embedded in the products (option risk) of the Enterprise. In tandem with evaluating 

the effects of movements in interest rates, OFHEO evaluated the impact of hedging strategies and 

products employed by the Enterprise that altered one or more features of the interest rate risk 

position. It is the movements in interest rates in combination with the hedging activities employed 

by the Enterprise that regularly affect the reported financial performance of the firm and these same 

factors affect the underlying economic value. 

In 2003, frequent volatility in the debt market affected Freddie Mac’s interest rate risk position. 

Management was required to respond by rebalancing its exposure to that volatility. During the 2003 

examination, OFHEO focused on the risk management policies and practices (i.e., the process) of 

Freddie Mac and the effects it had on its risk profile and whether the quantity of interest rate risk 

being assumed by management posed a supervisory concern. The annual examination activities 

were augmented by testing, to the extent resources permitted, in specific areas affecting interest rate 

risk management. 

The annual examination methodologies employed by OFHEO are consistent with the principles 

that are outlined in the joint policy statement on interest rate risk of the federal banking agencies. 

OFHEO evaluates rate sensitivity by considering the ability of management to identify, measure, 

monitor, and control sensitivity exposure; the size of the Enterprise; the nature and complexity of its 
50

activities; and the overall financial performance in relation to the level of sensitivity exposure. 

Specific work was conducted in five key areas to evaluate Freddie Mac’s risk management for rate 

sensitivity: (1) There are clear lines of responsibility and authority for: identifying the potential 

interest rate risk that arose from the existing activities and products along with a process to 

incorporate new initiatives; establishing and maintaining an interest rate risk measurement system; 

formulating and executing strategies; and authorizing exceptions; (2) There is an effective 

measurement system for interest rate risk that identifies and quantifies the major source of interest 

rate risk in a timely manner; (3) There is an effective monitoring and reporting system with 

reporting formats and flows that are consistent in form and content with the level of oversight being 

exercised and for the nature of the risk profile. The monitoring and reporting system includes an 

appropriate flow of information to executive management and the Board of Directors on the levels 

of interest rate risk being assumed and compliance with policies, procedures and internal controls; 

(4) There are meaningful risk limits and controls that present clearly: the amount and type of risk 

that can be taken; the thresholds for rebalancing; and the appropriate symmetry between risk 

parameters and risk capacity; (5) There are effective business controls in place that complement an 

effective risk management framework. In addition to the controls, there must be adequate resources 

to support risk monitoring, audit and any other control functions that provide the appropriate 

separation of duties and responsibilities and the timely and accurate reporting of relevant 

information. 

Based on OFHEO’s review during the annual examination of the risk management activities and 

positions in 2003, OFHEO concluded that Freddie Mac’s sensitivity exposure was adequately 

controlled and the attendant financial performance and the underlying economic value were not 

adversely affected from a safety and soundness perspective. Risk management activities were 

considered effective in managing the sensitivity position during a volatile operating environment. 

Freddie Mac’s management relies on a wide variety of measures to gauge and measure the firm’s 

sensitivity to interest rates. For example, management measures duration gap and portfolio market 

value sensitivity, as well the sensitivity of the market value of the Enterprise to parallel shifts in the 

yield curve, and in the shape of the yield curve and prepayment speeds. Management evaluates 

other measures and also assesses the sensitivity of earnings to defined movements in interest rates. 
51

Freddie Mac also assesses the sensitivity of its earnings using stochastic tools that generate multiple 

interest rate paths and provide management probabilistic estimates of sensitivity. 

Management also routinely evaluates the impact of events or alternative environments on the 

market risk sensitivity of the Enterprise and runs various scenarios to evaluate the sensitivity of the 

Enterprise to prepayments, changes in yield curves and interest rate environments. These scenario 

analyses include deterministic rate risk shocks to the level of interest rate risk and to the shape of the 

yield curve. Moreover, management monitors and reports its assessments of the sensitivity of credit 

and market losses to economic changes. 

The Enterprise is in the process of implementing changes to its overall governance and reporting, 

and it is revising policies and procedures to address control-related issues. Management is 

addressing staffing inadequacies in the mortgage portfolio management group. These staffing issues 

became more pronounced during the second-half of 2003 in line with a number of events that 

transpired. Management is also addressing the prior communications failures between Funding & 

Investment and the New Products Group and the development of comprehensive procedures, 

monitoring infrastructure, and automated reporting processes to account for REMIC sales in the 

available-for-sale activities. The OFHEO examination plans for 2004 will review controls in place 

to address these issues. 

As indicated above, a financial risk for Freddie Mac is the exposure of its earnings and capital to 

movements in interest rates. Accordingly, OFHEO analyzes the sensitivity of the risk-based capital 

requirement to a wider range of interest rate scenarios and other variables to further assess the 

ability of an Enterprise to withstand the stresses. 

The overall management of interest risk and liquidity risk comports with applicable safety and 

soundness standards; however, OFHEO suggested certain enhancements to Enterprise practices. In 

the area of internal controls, OFHEO noted that management had identified several major control 

issues relating to the mortgage portfolio management unit. OFHEO concluded that mitigating 

controls are in place to address these issues and that management has identified strategies to address 

them. In the area of the overall effectiveness of technology and controls supporting the interest rate 

risk management function, OFHEO noted that key management vacancies resulting from, or related 
52

to, the events that led to the need of the Enterprise to restate its financial statements, are being filled 

by personnel with the appropriate expertise. OFHEO concluded that enhancements are underway 

to ensure the continued integrity of data used in interest rate risk and portfolio management models. 

In the area of separation of responsibilities between the strategy, analytics, and execution functions, 

OFHEO concluded that certain activities of senior management personnel previously overseeing the 

activities of the Market Risk Oversight (MRO) unit had compromised the role of the MRO given 

that they engaged in activities that were incompatible with the MRO’s oversight and independent 

control function. OFHEO concluded that management must institute a structure that does not blur 

the role of risk advisor and risk manager. Enterprise management is addressing this finding and 

related matters in conjunction with its remediation plan and its efforts to achieve and maintain 

compliance with the consent order entered into with OFHEO during 2003. 
53

CHAPTER THREE: FINANCING OFHEO’S OPERATIONS 

OFHEO’S BUDGET 

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

budget is subject to the Federal appropriations process and is constrained by the amount appropriated 

by Congress and signed into law by the President. The amounts provided for by the appropriations 

process are collected from Fannie Mae and Freddie Mac in the form of an annual assessment. 

OFHEO Director Armando Falcon has repeatedly stated that the lengthy appropriations process does 

not allow OFHEO the flexibility necessary to address evolving or dynamic issues at the Enterprises 

before those issues raise safety and soundness concerns or impact the funding of the housing market. 

Legislation proposed by the Administration seeks authority for OFHEO to be funded in the same 

manner as all other financial safety and soundness regulators. OFHEO’s operations would remain 

subject to the oversight of Congress but its budget would be free from the unpredictability of the annual 

appropriations process. 

The lack of flexibility provided OFHEO in the appropriations process was demonstrated last year when 

additional funds were required to respond quickly to the events unfolding at Freddie Mac. It took seven 

months for OFHEO to receive additional funds needed to pursue a special examination of Freddie Mac. 

The Director was forced to shift resources away from annual examination and oversight activities in 

order to quickly respond to the crisis. 

Four months into Fiscal Year 2004, OFHEO received its full budget request of $39,915,000. This will 

fund existing activities and provide resources to strengthen examination, compliance, accounting 

oversight and capital review and adequacy programs. It may not be sufficient to fund necessary special 

examination activities identified after the budget was formulated and enacted by Congress. The Director 

is monitoring the financial position of OFHEO closely and will re-direct funds if necessary. 

On May 6, 2004, President Bush submitted to the Congress a legislative proposal that continued to 

support the transfer of all resources available to OFHEO to a new, strengthened housing governmentsponsored enterprise regulator in the Department of the Treasury, outside of the appropriations process. 

Absent legislative change, however, OFHEO will continue to be subject to the appropriations process 
54

and will need additional funds for Fiscal Year 2005. The Administration supports OFHEO’s anticipated 

expenses for regulating Fannie Mae and Freddie Mac in FY 2005, estimated at $59,208,753, per the 

submission of May 6, 2004. 

 

OFHEO CONTINUES TO RECEIVE UNQUALIFIED AUDIT OPINION IN 

FY 2003 

In conjunction with the government’s goal of improved accountability, OFHEO prepared financial 

statements for fiscal year 2003 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 

2003 financial statements, found no material weaknesses in internal controls, or instances of noncompliance with laws and regulations. The complete audit report follows. 
55




4

Freddie Mac that led to its financial restatement process. Freddie Mac was able to quickly augment its existing 

staff with 500 contractors to work on the restatement process. In stark contrast, it took nearly seven months to 

appropriate OFHEO additional money to cover the cost of the special Freddie Mac examination. 

Because OFHEO is required by law to seek its budgetary resources through the appropriations process, it first 

has to request and justify resources from the Office of Management and Budget (OMB), the President’s 

financial management body. Once OMB completes its review and approves the request, OFHEO then must seek 

the resources from the Congress. It took nearly seven months to complete the appropriations process to get 

additional funds for the Freddie Mac investigation. The seven months required for executive and congressional 

budget deliberation was a critical time in the life of the Freddie Mac investigation. Consequently, the OFHEO 

Director was forced to divert existing staff from other work and reallocate financial resources in order to 

continue the investigative work at Freddie Mac, draft the investigative report and pursue the appropriate action 

against the corporation and responsible officers. 

Director Falcon has repeatedly voiced concern about the potential impacts of the current funding strategy and 

has asked both OMB and Congress to remove OFHEO from the appropriations process. He is concerned that 

the appropriations process constrains OFHEO’s ability to respond appropriately to new unanticipated 

developments that could impair the financial safety and soundness of the Enterprises and prohibit the 

Enterprises from performing their important public missions. 

Since Director Falcon’s tenure began, he has strengthened the oversight capability of the office by adding staff 

and has refocused its examinations to target key risk areas at the Enterprises. At the beginning of FY 2003, 

OFHEO began enforcement of the Risk-Based Capital Rule and continued examination and oversight of the 

Enterprises. OFHEO utilized 126 full time equivalent (FTE) work years during FY 2003, up from 112 FTE in 

FY 2002. OFHEO had planned to more aggressively add staff in FY 2003, but had to delay hiring in the early 

part of the year due to budget uncertainty for FY 2003 and 2004. 

In June 2003, the office initiated the investigation at Freddie Mac requiring staff and resources devoted 

specifically to that investigation. The Director immediately shifted resources within the Office, potentially 

creating areas of vulnerability in other programs. Depending on the outcome of legislation that would remove 

OFHEO from the appropriations process and budget availability, the Director plans to continue to add staff 

throughout FY 2004 and FY 2005.

0

50

100

150

200

250

OFHEO Strenghtening Oversight Capacity

Through Added Human Capital

Actual FTE 105 112 126

Planned FTE 161 224

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005

6

obligated for the year ended September 30, 2003. As required by law, the $1,815 has been credited against the 

FY 2004 assessment payments paid by the Enterprises. 

Of the $30 million obligated during FY 2003, 88% or $26.4 million was obligated for supervision programs 

including administrative, management and legal support. Supervision includes examination, compliance, 

accounting policy oversight and capital review and adequacy. The balance of funds was obligated for activities 

supporting economic research related to housing finance activities and for information disseminated to the 

public such as the quarterly House Price Index.

The net cost of operations of OFHEO rose during FY 2003 by 54% or $12.1 million. Net cost includes 

payments made during FY 2003 regardless of obligating fiscal year. The increase represents an increase in 

human capital (compensation, benefits and expenses to support higher staffing levels), depreciation expense 

(Risk-Based Capital Software) and contract services for the Freddie Mac investigation. 

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

Net Cost Increased 54% During FY 2003

Net Cost $22,286,028 $34,388,188

FY 2002 FY 2003

Distribution of FY 2003 Resources

 Across Programs

Supervision

 $26,366,654

88%

Capital

 $5,881,817

 20%

Examinations

$20,484,836

Research 68%

$3,730,583

12%
























Table 1. Fannie Mae Mortgage Purchases

($) ($) ($) ($)

 4Q03 214,878 13,236 228,114 31,571

 3Q03 392,351 8,800 401,151 200,266

 2Q03 391,910 4,662 396,572 82,013

 1Q03 322,887 4,180 327,067 94,775

2003 1,322,026 30,878 1,352,904 408,625

2002 800,316 16,611 816,927 268,934 

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

 Cash purchases plus securitizations; excludes non-Fannie Mae mortgage-related securities and repurchased 

 Fannie Mae MBS.

2

 Not included in total mortgage purchases. Includes purchases of Fannie Mae MBS for the retained mortgage

 portfolio.

APPENDIX: HISTORICAL DATA TABLES

 Business Activity ($ in Millions) 

 Purchases 

 Annual Data 

 Single-Family Multifamily Mortgage-Related Securities2 Total Mortgages1 

 Period 

1
Table 1a. Fannie Mae Mortgage Purchases Detail, By Type of Loan - Part 1 Single-Family

 Fixed-Rate Adjustable-Rate Seconds Total Fixed-Rate Adjustable-Rate Total 

 Period ($) ($) ($) ($) ($) ($) ($) ($)

 4Q03 185,583 28,091 9 213,683 365 830 1,195 214,878 

 3Q03 356,493 34,707 18 391,218 385 748 1,133 392,351 

 2Q03 353,623 36,977 50 390,650 329 931 1,260 391,910 

 1Q03 295,132 26,985 16 322,133 219 535 754 322,887 

2003 1,190,831 126,760 93 1,317,684 1,298 3,044 4,342 1,322,026

2002 730,659 66,772 41 797,472 1,296 1,548 2,844 800,316 

2001 534,115 25,648 1,137 560,900 5,671 1,102 6,773 567,673 

2000 187,236 33,809 726 221,771 4,378 920 5,298 227,069 

1999 293,188 12,138 1,198 306,524 8,529 1,084 9,613 316,137 

1998 334,367 14,273 1 348,641 5,768 511 6,279 354,920 

1997 136,329 21,095 3 157,427 2,062 432 2,494 159,921 

1996 146,154 15,550 3 161,707 2,415 334 2,749 164,456 

1995 104,901 17,978 9 122,888 3,009 106 3,115 126,003 

1994 139,815 16,340 8 156,163 1,953 113 2,066 158,229 

1993 274,402 14,420 29 288,851 855 120 975 289,826 

1992 226,332 21,001 136 247,469 1,055 79 1,134 248,603 

1991 114,321 17,187 705 132,213 1,300 38 1,338 133,551 

1990 95,011 14,528 654 110,193 799 15 814 111,007 

1989 60,794 17,692 521 79,007 1,489 14 1,503 80,510 

1988 35,767 27,492 433 63,692 823 98 921 64,613 

1987 60,434 10,675 139 71,248 2,649 45 2,694 73,942 

1986 58,251 7,305 498 66,054 11,155 14 11,169 77,223 

1985 29,993 10,736 871 41,600 927 16 943 42,543 

1984 17,998 8,049 937 26,984 729 0 729 27,713 

1983 18,136 4,853 1,408 24,397 1,942 0 1,942 26,339 

1982 19,311 3,210 1,552 24,073 1,856 0 1,856 25,929 

1981 4,260 107 176 4,543 2,284 0 2,284 6,827 

1980 2,802 0 0 2,802 5,272 0 5,272 8,074 

1979 5,410 0 0 5,410 5,388 0 5,388 10,798 

1978 5,682 0 0 5,682 6,620 0 6,620 12,302 

1977 2,366 0 0 2,366 2,284 0 2,284 4,650 

1976 2,513 0 0 2,513 824 0 824 3,337 

1975 547 0 0 547 3,099 0 3,099 3,646 

1974 1,128 0 0 1,128 3,618 0 3,618 4,746 

1973 939 0 0 939 3,231 0 3,231 4,170 

1972 55 0 0 55 2,541 0 2,541 2,596 

1971 0 0 0 0 2,742 0 2,742 2,742 

Source: Fannie Mae

1

 Cash purchases plus securitizations; excludes non-Fannie Mae mortgage-related securities and repurchased Fannie Mae MBS.

 Single-Family Mortgages 

Purchases ($ in Millions)1

 Annual Data 

 Conventional FHA/VA Total SingleFamily 

Mortgages 

2
Table 1a. Fannie Mae Mortgage Purchases Detail, By Type of Loan - Part 2 Multifamily

 Conventional FHA/RHS 

 Period ($) ($) ($) ($)

 4Q03 5,664 7,572 13,236 228,114 

 3Q03 5,031 3,769 8,800 401,151 

 2Q03 3,822 840 4,662 396,572 

 1Q03 4,131 49 4,180 327,067 

2003 18,648 12,230 30,878 1,352,904

2002 13,950 2,661 16,611 816,927 

2001 17,849 1,282 19,131 586,804 

2000 9,127 1,250 10,377 237,446 

1999 8,858 1,153 10,011 326,148 

1998 10,844 584 11,428 366,348 

1997 5,936 598 6,534 166,455 

1996 6,199 252 6,451 170,907 

1995 4,677 289 4,966 130,969 

1994 3,620 219 3,839 162,068 

1993 3,919 216 4,135 293,961 

1992 2,845 111 2,956 251,559 

1991 3,183 21 3,204 136,755 

1990 3,165 15 3,180 114,187 

1989 4,309 16 4,325 84,835 

1988 4,149 21 4,170 68,783 

1987 1,463 270 1,733 75,675 

1986 1,877 0 1,877 79,100 

1985 1,200 0 1,200 43,743 

1984 1,106 0 1,106 28,819 

1983 128 12 140 26,479 

1982 0 10 10 25,939 

1981 0 2 2 6,829 

1980 0 27 27 8,101 

1979 0 9 9 10,807 

1978 0 3 3 12,305 

1977 0 134 134 4,784 

1976 0 295 295 3,632 

1975 0 674 674 4,320 

1974 0 2,273 2,273 7,019 

1973 0 2,082 2,082 6,252 

1972 0 1,268 1,268 3,864 

1971 0 1,298 1,298 4,040 

Source: Fannie Mae

1

 Cash purchases plus securitizations; excludes non-Fannie Mae mortgage-related securities and repurchased Fannie Mae MBS.

 Annual Data 

Total Multifamily Mortgages 

 Multifamily Mortgages 

Purchases ($ in Millions)1

 Total Mortgage Purchases 

3
Table 1b. Fannie Mae Purchases of Mortgage-Related Securities

Home Equity2 

Manufactured 

Housing Other 

 Total PrivateLabel 

($) ($) ($) ($) ($) ($) ($) ($) ($)

 4Q03 13,224 3,306 0 10,458 0 2,149 12,607 2,434 31,571 

 3Q03 176,066 11,836 0 8,162 0 2,331 10,493 1,871 200,266 

 2Q03 70,483 4,132 0 3,882 0 2,243 6,125 1,273 82,013 

 1Q03 88,640 681 36 3,267 0 1,484 4,751 667 94,775 

2003 348,413 19,955 36 25,769 0 8,207 33,976 6,245 408,625

2002 245,039 7,957 4,425 5,543 56 1,617 7,216 4,297 268,934

2001 180,582 20,072 333 1,466 Not Available 2,047 3,513 4,624 209,124 

2000 104,904 10,171 2,493 Not Available Before 2002 8,466 8,466 3,682 129,716 

1999 125,498 6,861 17,561 Before 2001 16,511 16,511 3,474 169,905 

1998 104,728 21,274 2,738 15,721 15,721 2,799 147,260 

1997 39,033 2,119 3,508 4,188 4,188 1,469 50,317 

1996 41,263 779 2,197 777 777 1,727 46,743 

1995 30,432 2,832 20 752 752 2,222 36,258 

1994 21,660 571 2,321 0 0 1,353 25,905 

1993 6,275 0 0 0 0 331 6,606 

1992 4,930 0 0 0 0 498 5,428 

1991 2,384 0 0 0 0 696 3,080 

1990 977 0 0 0 0 474 1,451 

Source: Fannie Mae

1 Not included in total mortgage purchases. Includes purchases of Fannie Mae MBS for the retained mortgage portfolio.

2

 Purchases incorporate securities specifically identified as home equity or seconds. Other security purchases may include some underlying 

 loans which are home equity or seconds.

Purchases ($ in millions)1

 Annual Data 

 Others' Securities 

Total 

MortgageRelated 

Securities 

 Enterprise 

Securities 

 Freddie 

Mac 

 Ginnie 

Mae 

 Private-Label 

 Mortgage 

Revenue 

Bonds 

4
Table 2. Fannie Mae MBS Issuances

 Single-Family MBS Multifamily MBS Total MBS Multiclass MBS1

Period ($) ($) ($) ($) 

 4Q03 197,527 10,932 208,459 80,340

 3Q03 350,326 6,408 356,734 80,001

 2Q03 352,683 3,104 355,787 66,412

 1Q03 296,025 2,574 298,599 34,166

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

Not Available Not Available

Before 1981 Before 1981

Source: Fannie Mae

1

 The majority qualify as Real Estate Mortgage Investment Conduits (REMICs) and are also known as structured securitizations.

 

Annual Data

 Business Activity ($ in Millions) 

 MBS Issuances 

5
Table 3. Fannie Mae Earnings

Net Interest 

Income1

Guarantee 

Fee Income

Average 

Guarantee Fee

Administrative 

Expenses 

Credit-Related 

Expenses2 Net Income Core Net 

Income3

Return on 

Equity4

Period ($) ($) (basis points) ($) ($) ($) ($) ($) 

 4Q03 3,211 619 19.5 418 40 2,196 1,770 51.9

 3Q03 3,489 613 20.0 347 29 2,666 1,826 63.8

 2Q03 3,501 632 21.2 354 23 1,102 1,860 31.3

 1Q03 3,368 547 20.3 344 20 1,941 1,850 53.6

2003 13,569 2,411 20.2 1,463 112 7,905 7,306 49.9

2002 10,566 1,816 19.1 1,219 92 4,619 6,394 30.1

2001 8,090 1,482 19.0 1,017 78 5,894 5,367 39.8

2000 5,674 1,351 19.5 905 94 4,448 4,448 25.6

1999 4,894 1,282 19.3 800 127 3,912 3,912 25.2

1998 4,110 1,229 20.2 708 261 3,418 3,418 25.2

1997 3,949 1,274 22.7 636 375 3,056 3,056 24.6

1996 3,592 1,196 22.4 560 409 2,725 2,725 24.1

1995 3,047 1,086 22.0 546 335 2,144 2,144 20.9

1994 2,823 1,083 22.5 525 378 2,132 2,132 24.3

1993 2,533 961 21.3 443 305 1,873 1,873 25.3

1992 2,058 834 21.2 381 320 1,623 1,623 26.5

1991 1,778 675 21.0 319 370 1,363 1,363 27.7

1990 1,593 536 21.1 286 310 1,173 1,173 33.7

1989 1,191 408 21.3 254 310 807 807 31.1

1988 837 328 21.6 218 365 507 507 25.2

1987 890 263 22.1 197 360 376 376 24

1986 384 175 23.8 175 306 105 105 10

1985 139 112 25.6 142 206 (7) (7) (1)

1984 (90) 78 26.2 112 86 (71) (71) (7)

1983 (9) 54 26.3 81 48 49 49 5

1982 (464) 16 27.2 60 36 (192) (192) (19)

1981 (429) 0 25.0 49 (28) (206) (206) (17)

1980 21 Not Available Not Available 44 19 14 14 0.9

1979 322 Before 1981 Before 1981 46 35 162 162 11.3

1978 294 39 36 209 209 16.5

1977 251 32 28 165 165 15.3

1976 203 30 25 127 127 13.8

1975 174 27 16 115 115 14.1

1974 142 23 17 107 107 14.7

1973 180 18 12 126 126 20.3

1972 138 13 5 96 96 18.8

1971 49 15 4 61 61 14.4

Source: Fannie Mae

1 Interest income net of interest expense.

2

 Credit-related expenses include foreclosed property expenses (income) and the provision for losses.

3 Core net income (referred to as "core business earnings" in the Form 10-K) is presented on a net of tax basis and excludes changes in the time value

 of purchased options recorded under Statement of Financial Accounting Standards (SFAS) 133 and includes purchased option premiums amortized 

 over the original estimated life of the option and any acceleration of expense related to options extinguished prior to exercise. 4

 Calculated as annualized net income available to common stockholders divided by average common stockholders' equity. 

 Earnings ($ in Millions) 

Annual Data

6
Table 3a. Fannie Mae Earnings - Reconciliation of Net Income to Core Net Income

 Net Income

Remove Purchased 

Option 

Income/Expense

Purchased Option 

Amortization 

Expense

Cumulative 

Gain on 

Adoption of 

FAS 133

Tax Effects of 

Preceding 

Adjustments

Core Net 

Income

Return on Adjusted 

Common Equity

1

Period ($) ($) ($) ($) ($) ($) (%)

4Q03 2,196 133 (789) 0 230 1,770 23.4

3Q03 2,666 (473) (820) 0 453 1,826 25.4

2Q03 1,102 1,883 (716) 0 (409) 1,860 27.7

1Q03 1,941 625 (764) 0 49 1,850 28.0

2003 7,905 2,168 (3,090) 0 323 7,306 26.0

2002 4,619 4,545 (1,814) 0 (956) 6,394 26.0

2001 5,894 37 (590) (258) 284 5,367 25.4

2000 4,448 Not Applicable Not Applicable Not Applicable Not Applicable 4,448 25.2

1999 3,912 Before 2001 Before 2001 Before 2001 Before 2001 3,912 25.0

1998 3,418 3,418 25.2

1997 3,056 3,056 24.6

1996 2,725 2,725 24.1

1995 2,144 2,144 20.9

1994 2,132 2,132 24.3

1993 1,873 1,873 25.3

1992 1,623 1,623 26.5

1991 1,363 1,363 27.7

1990 1,173 1,173 33.7

1989 807 807 31.1

1988 507 507 25.2

1987 376 376 23.5

1986 105 105 9.5

1985 (7) (7) (0.7)

1984 (71) (71) (7.4)

1983 49 49 5.1

1982 (192) (192) (18.9)

1981 (206) (206) (17.2)

1980 14 14 0.9

1979 162 162 11.3

1978 209 209 16.5

1977 165 165 15.3

1976 127 127 13.8

1975 115 115 14.1

1974 107 107 14.7

1973 126 126 20.3

1972 96 96 18.8

1971 61 61 14.4

Source: Fannie Mae 

1

 Calculated as annualized core net income available to common stockholders divided by average realized common stockholders' equity

 (common stockholders' equity excluding accumulated other comprehensive income). Beginning in 1999, annualized core net income

 available to common stockholders has been reduced by issuance costs on preferred stock redemptions in accordance with EITF Topic D42.

Annual Data

Earnings ($ in Millions)

7
Table 4. Fannie Mae Balance Sheet

Total 

Assets1

Total 

Retained 

Mortgage 

Portfolio2

Non-Mortgage 

Investments3

 Debt 

Outstanding 

Shareholders' 

Equity4 Core Capital5

Fair Value of 

Net Assets6

Total MBS 

Outstanding7

Multiclass MBS 

Outstanding8

 ($) ($) ($) ($) ($) ($) ($) ($) ($)

 4Q03 1,009,569 901,880 59,493 961,732 22,373 34,405 31,582 1,300,166 405,772

 3Q03 1,019,171 921,258 51,319 975,734 17,524 32,752 N/A 1,211,079 426,128

 2Q03 923,795 822,806 53,908 884,081 17,364 30,675 N/A 1,237,461 428,286

 1Q03 913,264 825,114 46,195 873,920 17,904 29,517 N/A 1,107,520 418,194

2003 1,009,569 901,880 59,493 961,732 22,373 34,405 31,582 1,300,166 405,772

2002 887,515 801,122 39,293 850,982 16,288 28,079 22,130 1,029,456 401,486

2001 799,948 706,803 65,982 763,467 18,118 25,182 22,675 858,965 392,457

2000 675,224 607,731 52,347 642,682 20,838 20,827 20,677 706,722 334,508

1999 575,308 523,103 37,299 547,619 17,629 17,876 20,525 679,145 335,514

1998 485,146 415,434 58,515 460,291 15,453 15,465 14,885 637,143 361,613

1997 391,673 316,592 64,596 369,774 13,793 13,793 15,982 579,138 388,360

1996 351,041 286,528 56,606 331,270 12,773 12,773 14,556 548,173 339,798

1995 316,550 252,868 57,273 299,174 10,959 10,959 11,037 513,230 353,528

1994 272,508 220,815 46,335 257,230 9,541 9,541 10,924 486,345 378,733

1993 216,979 190,169 21,396 201,112 8,052 8,052 9,126 471,306 381,865

1992 180,978 156,260 19,574 166,300 6,774 Not Applicable 9,096 424,444 312,369

1991 147,072 126,679 9,836 133,937 5,547 Before 1993 Not Available 355,284 224,806

1990 133,113 114,066 9,868 123,403 3,941 Before 1992 288,075 127,278

1989 124,315 107,981 8,338 116,064 2,991 216,512 64,826

1988 112,258 100,099 5,289 105,459 2,260 170,097 26,660

1987 103,459 93,665 3,468 97,057 1,811 135,734 11,359

1986 99,621 94,123 1,775 93,563 1,182 95,568 Not Issued

1985 99,076 94,609 1,466 93,985 1,009 54,552 Before 1987

1984 87,798 84,135 1,840 83,719 918 35,738

1983 78,383 75,247 1,689 74,594 1,000 25,121

1982 72,981 69,356 2,430 69,614 953 14,450

1981 61,578 59,629 1,047 58,551 1,080 717

1980 57,879 55,589 1,556 54,880 1,457 Not Issued

1979 51,300 49,777 843 48,424 1,501 Before 1981

1978 43,506 42,103 834 40,985 1,362

1977 33,980 33,252 318 31,890 1,173

1976 32,393 31,775 245 30,565 983

1975 31,596 30,820 239 29,963 861

1974 29,671 28,666 466 28,168 772

1973 24,318 23,589 227 23,003 680

1972 20,346 19,652 268 19,239 559

1971 18,591 17,886 349 17,672 460

Source: Fannie Mae

N/A = not available

1

 Beginning in 1998, the guaranty liability for MBS held in the portfolio is classified as a liability. 

2 Gross retained portfolio net of unamortized purchase premium, discounts and deferred price adjustments, and, beginning in 2002, unrealized gain/loss on available-for-sale

 securities. The amounts for 1999 through 2002 include certain loans held for investment that were previously classified as non-mortgage investments. 3 Values for years 1999 through 2003 exclude securities included in new balance sheet line item, "Loans held for securitization and sale", and in the retained mortgage portfolio. 4

 GAAP basis.

5

 The sum of (a) the stated value of common stock, (b) the stated value of outstanding noncumulative perpetual preferred stock, (c) paid-in capital, and (d) retained earnings, 

 less treasury stock.

6

 The valuation of financial instruments is in accordance with GAAP fair value guidelines prescribed by SFAS 107.

7 Total Fannie Mae MBS outstanding net of Fannie Mae MBS in the retained mortgage portfolio.

8

 The majority qualify as REMICs and are also known as structured securitizations.

Annual Data 

 Mortgage-Backed Securities 

Outstanding ($ in Millions) Balance Sheet ($ in Millions) 

End of 

Period

8
Table 4a. Fannie Mae Total MBS Outstanding Detail - Part 1, Single-Family

 Fixed-Rate 

 AdjustableRate Seconds Total Fixed-Rate  AdjustableRate Total 

 ($) ($) ($) ($) ($) ($) ($) 

 4Q03 1,074,917 154,019 109 1,229,045 3,499 1,319 4,818

 3Q03 1,006,492 141,244 197 1,147,933 3,811 1,383 5,194

 2Q03 1,049,017 128,730 246 1,177,993 4,333 1,462 5,795

 1Q03 941,100 107,888 270 1,049,258 4,692 1,296 5,988

2003 1,074,917 154,019 109 1,229,045 3,499 1,319 4,818

2002 879,113 92,485 338 971,936 5,147 1,262 6,409

2001 737,121 62,617 772 800,510 12,246 1,300 13,546

2000 599,999 61,495 1,165 662,659 6,778 1,298 8,076

1999 586,069 51,474 1,212 638,755 7,159 1,010 8,169

1998 545,680 56,903 98 602,681 5,340 587 5,927

1997 483,982 70,106 7 554,095 3,872 213 4,085

1996 460,866 65,682 9 526,557 4,402 191 4,593

1995 431,755 63,436 13 495,204 5,043 91 5,134

1994 415,692 55,780 18 471,490 5,628 0 5,628

1993 405,383 49,987 28 455,398 7,549 0 7,549

1992 360,619 45,718 43 406,380 9,438 0 9,438

1991 290,038 45,110 89 335,237 11,112 0 11,112

1990 225,981 42,443 121 268,545 11,380 0 11,380

1989 Not Available Not Available Not Available Not Available Not Available Not Available Not Available

1988 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990 Before 1990

1987

1986

1985

1984

1983

1982

1981

1980

Source: Fannie Mae

 Annual Data 

 Single-Family Mortgages ($ in Millions) 

 Conventional 

 End of 

Period 

 FHA/VA 

9
Table 4a. Fannie Mae Total MBS Outstanding Detail - Part 2, Multifamily

 Conventional FHA/RHS Total Multifamily 

Total MBS 

Outstanding1

 ($) ($) ($) ($) 

 4Q03 65,938 365 66,303 1,300,166 

 3Q03 57,565 386 57,951 1,211,078 

 2Q03 53,255 418 53,673 1,237,461 

 1Q03 51,850 425 52,275 1,107,521 

2003 65,938 365 66,303 1,300,166 

2002 50,127 984 51,111 1,029,456

2001 43,728 1,181 44,909 858,965

2000 35,207 780 35,987 706,722

1999 31,518 703 32,221 679,145

1998 28,378 157 28,535 637,143

1997 20,824 134 20,958 579,138

1996 16,912 111 17,023 548,173

1995 12,579 313 12,892 513,230

1994 8,908 319 9,227 486,345

1993 8,034 325 8,359 471,306

1992 8,295 331 8,626 424,444

1991 8,599 336 8,935 355,284

1990 7,807 343 8,150 288,075

1989 Not Available Not Available Not Available 216,512

1988 Before 1990 Before 1990 Before 1990 170,097

1987 135,734

1986 95,568

1985 54,552

1984 35,738

1983 25,121

1982 14,450

1981 717

1980 Not Issued

Before 1981

Source: Fannie Mae

1 Total Fannie Mae MBS outstanding net of Fannie Mae MBS in the retained mortgage portfolio.

Annual Data

 End 

of 

Period 

 Multifamily Mortgages ($ in Millions) 

10
Table 5. Fannie Mae Retained Mortgage Portfolio Detail

Whole Loans1,2

Fannie Mae 

Securities1 

Other MortgageRelated Securities1

Unamortized Premiums, 

Discounts, Deferred 

Adjustments, and Unrealized 

Gains/Losses on Available-forSale Securities3 Total Retained Mortgage Portfolio

 ($) ($) ($) ($) ($) 

 4Q03 234,699 556,880 106,859 3,442 901,880

 3Q03 227,658 590,450 99,015 4,135 921,258

 2Q03 213,593 512,435 88,886 7,892 822,806

 1Q03 197,339 529,954 90,378 7,443 825,114

2003 234,699 556,880 106,859 3,442 901,880

2002 189,151 508,831 96,168 6,972 801,122

2001 167,388 431,484 110,035 (2,104) 706,803

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) 286,527

1995 171,481 69,729 12,301 (643) 252,868

1994 170,909 43,998 7,150 (1,242) 220,815

1993 163,149 24,219 3,493 (692) 190,169

1992 134,597 20,535 2,987 (1,859) 156,260

1991 109,251 16,700 3,032 (2,304) 126,679

1990 101,797 11,758 3,073 (2,562) 114,066

1989 95,729 11,720 3,272 (2,740) 107,981

1988 92,220 8,153 2,640 (2,914) 100,099

1987 89,618 4,226 2,902 (3,081) 93,665

1986 94,167 1,606 2,060 (3,710) 94,123

1985 97,421 435 793 (4,040) 94,609

1984 87,205 477 427 (3,974) 84,135

1983 77,983 Not Available 273 (3,009) 75,247

1982 71,777 Before 1984 37 (2,458) 69,356

1981 61,411 1 (1,783) 59,629

1980 57,326 1 (1,738) 55,589

1979 51,096 1 (1,320) 49,777

1978 43,315 Not Available (1,212) 42,103

1977 34,377 Before 1979 (1,125) 33,252

1976 32,937 (1,162) 31,775

1975 31,916 (1,096) 30,820

1974 29,708 (1,042) 28,666

1973 24,459 (870) 23,589

1972 20,326 (674) 19,652

1971 18,515 (629) 17,886

Source: Fannie Mae

1

 Unpaid principal balance.

2

 The balance of whole loans at December 31, 1999 through December 31, 2002 includes certain loans held for investment 

 that were previously classified as nonmortgage investments and excludes loans held for securitization or sale.

3

 Beginning in 2002, include unrealized gains/losses on available-for-sale securities.

Annual Data 

End of 

Period

($ in Millions) 

11
Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Part 1a, Whole Loans

Fixed-Rate2 Adjustable-Rate Seconds Total Total FHA/VA 

 ($) ($) ($) ($) ($) 

 4Q03 194,654 13,185 231 208,070 7,063

 3Q03 190,790 12,415 268 203,473 6,504

 2Q03 180,581 10,600 300 191,481 6,045

 1Q03 167,034 9,395 453 176,882 5,653

2003 194,654 13,185 231 208,070 7,063

2002 160,553 9,045 524 170,122 5,458

2001 140,454 10,410 917 151,781 5,069

2000 125,786 13,244 480 139,510 4,763

1999 130,614 6,058 176 136,848 4,472

1998 135,351 7,633 206 143,190 4,404

1997 134,543 10,389 268 145,200 4,631

1996 137,507 12,415 323 150,245 4,739

1995 137,032 14,756 423 152,211 4,780

1994 133,882 16,475 537 150,894 4,965

1993 123,308 19,175 772 143,255 5,305

1992 91,500 22,637 1,355 115,492 6,097

1991 69,130 19,763 2,046 90,939 6,962

1990 61,873 19,558 1,851 83,282 8,524

1989 55,638 20,751 1,614 78,003 9,450

1988 53,090 20,004 1,561 74,655 10,480

1987 55,913 13,702 1,421 71,036 11,652

1986 Not Available Not Available Not Available Not Available Not Available 

1985 Before 1987 Before 1987 Before 1987 Before 1987 Before 1987

Source: Fannie Mae

1

 Unpaid principal balance. 

2

 The balance of whole loans at December 31, 1999 through December 31, 2002 includes certain loans held for investment

 that were previously classified as nonmortgage investments and excludes loans held for securitization or sale.

Annual Data 

 Conventional 

Whole Loans ($ in Millions)1,2

 Single-Family 

 End of 

Period 

12
Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Part 1b, Whole Loans

 Conventional FHA/RHS Total Total Whole Loans 

 ($) ($) ($) ($) 

 4Q03 18,475 1,091 19,566 234,699

 3Q03 16,537 1,144 17,681 227,658

 2Q03 14,855 1,212 16,067 213,593

 1Q03 13,531 1,273 14,804 197,339

2003 18,475 1,091 19,566 234,699

2002 12,217 1,354 13,571 189,151

2001 8,987 1,551 10,538 167,388

2000 6,547 1,814 8,361 152,634

1999 5,564 2,347 7,911 149,231

1998 5,590 2,595 8,185 155,779

1997 7,388 2,883 10,271 160,102

1996 9,756 3,151 12,907 167,891

1995 11,175 3,315 14,490 171,481

1994 11,681 3,369 15,050 170,909

1993 11,143 3,446 14,589 163,149

1992 9,407 3,601 13,008 134,597

1991 7,641 3,709 11,350 109,251

1990 6,142 3,849 9,991 101,797

1989 3,926 4,350 8,276 95,729

1988 2,699 4,386 7,085 92,220

1987 2,448 4,482 6,930 89,618

1986 Not Available Not Available Not Available 94,167

1985 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

 were previously classified as nonmortgage investments and excludes loans held for securitization or sale.

2

 The balance of whole loans at December 31, 1999 through December 31, 2002 includes certain loans held for investment that 

1

 Unpaid principal balance.

Annual Data 

Whole Loans ($ in Millions)1,2

 End of 

Period 

 Multifamily 

1313
Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Part 2a, Mortgage-Related Securities

 Freddie Mac Ginnie Mae Home Equity2 

Manufactured 

Housing Other 

 Total Private 

Label 

Total Others' 

Securities 

 ($) ($) ($) ($) ($) ($) ($) ($) 

 4Q03 556,880 31,152 6,974 29,640 7,604 10,978 48,222 86,348

 3Q03 590,450 30,979 8,434 21,448 8,497 9,965 39,910 79,323

 2Q03 512,435 25,683 10,746 15,032 8,872 9,368 33,272 69,701

 1Q03 529,954 27,683 13,164 12,445 9,225 8,686 30,356 71,203

2003 556,880 31,152 6,974 29,640 7,604 10,978 48,222 86,348

2002 508,831 32,826 15,587 9,992 9,525 8,600 28,117 76,530

2001 431,484 42,921 19,138 7,571 Not Available 22,008 29,579 91,638

2000 351,066 33,290 23,768 9,472 Before 2002 24,794 34,266 91,324

1999 281,714 25,577 23,701 Not Available 31,673 31,673 80,951

1998 197,375 23,453 8,638 Before 2000 19,585 19,585 51,676

1997 130,444 5,262 7,696 5,554 5,554 18,512

1996 102,607 3,623 4,780 1,486 1,486 9,889

1995 69,729 3,233 2,978 747 747 6,958

1994 43,998 564 3,182 1 1 3,747

1993 24,219 Not Available 972 2 2 974

1992 20,535 Before 1994 168 3 3 171

1991 16,700 180 93 93 273

1990 11,758 191 352 352 543

1989 11,720 202 831 831 1,033

1988 8,153 26 810 810 836

1987 4,226 Not Available 1,036 1,036 1,036

1986 1,606 Before 1988 1,591 1,591 1,591

1985 435 Not Available Not Available Not Available

1984 477 Before 1986 Before 1986 Before 1986

1983 Not Available 

1982 Before 1984

Source: Fannie Mae

1

 Unpaid principal balance.

2

 Balances incorporate securities identified as home equity or seconds. Other securities may include some underlying loans which are home equity or seconds.

Mortgage-Related Securities ($ in Millions)1

Others' Securities 

Annual Data 

Total 

Enterprise 

Securities

 Private-Label 

 End of 

Period 

14
Table 5a. Fannie Mae Retained Mortgage Portfolio Detail - Part 2b, Mortgage-Related Securities

 ($) ($) ($) ($) 

4Q03 20,510 663,739 3,442 901,880

3Q03 19,692 689,465 4,135 921,258

2Q03 19,185 601,321 7,892 822,806

1Q03 19,171 620,332 7,443 825,114

2003 20,510 663,738 3,442 901,880

2002 19,638 604,999 6,972 801,122

2001 18,397 541,519 (2,104) 706,803

2000 15,227 457,617 (2,520) 607,731

1999 12,171 374,836 (964) 523,103

1998 9,685 258,736 919 415,434

1997 7,620 156,576 (86) 316,592

1996 6,665 119,161 (525) 286,527

1995 5,343 82,030 (643) 252,868

1994 3,403 51,148 (1,242) 220,815

1993 2,519 27,712 (692) 190,169

1992 2,816 23,522 (1,859) 156,260

1991 2,759 19,732 (2,304) 126,679

1990 2,530 14,831 (2,562) 114,066

1989 2,239 14,992 (2,740) 107,981

1988 1,804 10,793 (2,914) 100,099

1987 1,866 7,128 (3,081) 93,665

1986 469 Not Available (3,710) 94,123

1985 Not Available Before 1987 (4,040) 95,250

1984 Before 1986 (3,974) 84,695

1983 (3,009) 75,782

1982 (2,458) 69,842

1981 (1,783) 59,949

1980 (1,738) 55,878

1979 (1,320) 49,777

1978 (1,212) 42,103

1977 (1,125) 33,252

1976 (1,162) 31,775

1975 (1,096) 30,821

1974 (1,042) 28,665

1973 (870) 23,579

1972 (674) 19,650

1971 (629) 17,886

Source: Fannie Mae

1 Unpaid principal balance.

2

 Beginning in 2002, include unrealized gains/losses on available-for-sale securities.

 Total Mortgage-Related 

Securities 

Unamortized Premiums, 

Discounts, Deferred 

Adjustments, and Unrealized 

Gains/Losses on Available-forSale Securities2 

Mortgage-Related Securities ($ in Millions)

Annual Data 

Mortgage Revenue 

Bonds1

 Total Retained 

End of Mortgage Portfolio 

Period

15
Table 6. Fannie Mae Financial Derivatives

 Interest Rate 

Swaps 

 Interest Rate 

Caps, Floors, and 

Corridors 

 Foreign Currency 

Contracts 

OTC Futures, 

Options, and 

Forward Rate 

Agreements 

Mandatory 

Mortgage 

Purchase & Sell 

Commitments1 Other Total

 ($) ($) ($) ($) ($) ($) ($) 

 4Q03 569,884 130,350 4,712 335,650 38,492 0 1,079,088

 3Q03 555,132 138,100 5,968 372,850 81,118 0 1,153,168

 2Q03 386,573 138,228 7,226 279,366 0 0 811,393

 1Q03 288,472 106,393 3,984 278,509 0 0 677,358

2003 569,884 130,350 4,712 335,650 38,492 0 1,079,088

2002 246,508 122,393 4,019 283,675 Not Applicable 0 656,595

2001 299,953 75,893 8,493 148,800 Before 2003 0 533,139

2000 227,651 33,663 9,511 53,915 0 324,740

1999 192,032 28,950 11,507 41,081 1,400 274,970

1998 142,846 14,500 12,995 13,481 3,735 187,557

1997 149,673 100 9,968 0 1,660 161,401

1996 158,140 300 2,429 0 350 161,219

1995 125,679 300 1,224 29 975 128,207

1994 87,470 360 1,023 0 1,465 90,317

1993 49,458 360 1,023 0 1,425 52,265

1992 24,130 0 1,177 0 1,350 26,658

1991 9,100 0 Not Available 50 1,050 10,200

1990 4,800 0 Before 1992 25 1,700 6,525

1

 Effective with the adoption of SFAS 149, mandatory mortgage purchase and sell commitments entered into subsequent to June 30, 2003 are accounted for as derivatives. 

Source: Fannie Mae

Annual Data 

End of 

Period 

Financial Derivatives - Notional Amount Outstanding ($ in Millions)

16
 Federal Funds and 

Eurodollars 

 Asset Backed 

Securities 

Repurchase 

Agreements2

Commercial Paper 

and Corporate Debt Other Total 

 ($) ($) ($) ($) ($) ($) 

 4Q03 12,575 26,900 111 16,743 3,164 59,493

 3Q03 3,286 26,948 4,189 14,971 1,925 51,319

 2Q03 5,100 27,576 5,278 14,624 1,330 53,908

 1Q03 1,150 24,939 168 18,407 1,531 46,195

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 Not Available Not Available Not Available Not Available Not Available 1,047

1980 Before 1982 Before 1982 Before 1982 Before 1982 Before 1982 1,556

1979 843

1978 834

1977 318

1976 245

1975 239

1974 466

1973 227

1972 268

1971 349

Source: Fannie Mae

1

 Prior to 1982, the majority of non-mortgage investments were comprised of U.S. government securities and agency securities.

2

 As of 1999, Repurchase Agreements consist primarily of overnight investments that mature daily. Values for 1999 through 2003 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)1 

Table 7. Fannie Mae Non-Mortgage Investments

17
 Total Retained 

Mortgage Portfolio / 

Total Assets 

 Non-Mortgage 

Investments / Total 

Assets 

Callable Debt / Total 

Effective Long-Term Debt1

Total Effective Long-Term 

Debt / Total Debt2

 (%) (%) (%) (%)

 4Q03 89.3 5.9 73.9 72.6

 3Q03 90.4 5.0 74.7 71.1

 2Q03 89.1 5.8 82.8 65.6

 1Q03 90.3 5.1 50.8 79.4

2003 89.3 5.9 73.9 72.6

2002 90.3 4.4 73.5 76.6

2001 88.4 8.2 48.2 82.2

2000 90.0 7.8 45.4 84.6

1999 90.9 6.5 45.0 87.1

1998 85.6 12.1 42.9 76.4

1997 80.8 16.5 46.4 79.4

1996 81.6 16.1 47.5 80.5

1995 79.9 18.1 48.0 73.9

1994 81.0 17.0 54.6 72.6

1993 87.6 9.9 58.1 80.0

1992 86.3 10.8 48.8 77.9

1991 86.1 6.7 36.0 85.5

1990 85.7 7.4 21.9 82.6

1989 86.9 6.7 10.1 80.1

1988 89.2 4.7 3.6 78.7

1987 90.5 3.4 Not Available Not Available

1986 94.5 1.8 Before 1988 Before 1988

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

2 Total effective long-term debt represents debt with an effective repricing date greater than one year.

1

 In 1999 through 2003, pay-fixed swaptions are included in callable debt. Previous periods have not been restated. 

 Asset Mix Liability Mix 

Table 8. Fannie Mae Asset - Liability Mix

Annual Data 

End of 

Period 

 Asset - Liability Ratios 

18
Table 9. Fannie Mae Mortgage Asset Quality

Single-Family 

Delinquency Rate1

Multifamily Delinquency 

Rate2

Credit Losses / Total MBS 

Outstanding Plus Retained 

Mortgage Portfolio3 

REO /Total MBS Outstanding Plus 

Retained Mortgage Portfolio4 

Credit-Enhanced Outstanding / Total 

MBS Outstanding Plus Retained 

Mortgage Portfolio5 

(%) (%) (%) (%) (%)

 4Q03 0.60 0.27 0.01 0.07 24.3

 3Q03 0.58 0.12 0.01 0.06 24.5

 2Q03 0.56 0.13 0.00 0.06 25.7

 1Q03 0.57 0.09 0.00 0.06 27.7

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 Not Available

1988 0.88 6.60 0.11 0.15 Before 1990

1987 1.12 Not Available 0.11 0.18

1986 1.38 Before 1988 0.12 0.22

1985 1.48 0.13 0.32

1984 1.65 0.09 0.33

1983 1.49 0.05 0.35

1982 1.41 0.01 0.20

1981 0.96 0.01 0.13

1980 0.90 0.01 0.09

1979 0.56 0.02 0.11

1978 0.55 0.02 0.18

1977 0.46 0.02 0.26

1976 1.58 0.03 0.27

1975 0.56 0.03 0.51

1974 0.51 0.02 0.52

1973 Not Available 0.00 0.61

1972 Before 1974 0.02 0.98

1971 0.01 0.59

Source: Fannie Mae

1

 Beginning with 1998, data include all seriously delinquent conventional loans with and without third-party credit enhancement. Prior to 1998, data include loans for which Fannie Mae has primary risk of loss. 

 Data prior to 1992 include loans in relief or bankruptcy, even if they are less than 90 days delinquent. 

3

 Credit losses are charge-offs plus real estate owned expense; average balances used to calculate ratios subsequent to 1994; quarterly data are annualized. 4

 Real Estate Owned balances reflect end-of-period amounts. Beginning with 1995, data reflect adoption of SFAS 114. 5

 Beginning in 2000, "credit-enhanced" includes primary mortgage insurance. Prior to 2000, "credit-enhanced" reflects the 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

2

 Beginning in 1998, data include all loans that are two or more months delinquent. Data prior to 1998 include loans for which Fannie Mae has primary risk of loss.

19
Table 10. Fannie Mae Capital

Core Capital

 Minimum 

Capital 

Requirement1

Minimum 

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

 ($) ($) ($) ($) ($) ($) ($) (%) (%) (%)

 4Q03 34,405 31,520 2,885 35,182 27,221 7,960 72,838 3.41 1.49 25.3 

 3Q03 32,752 31,435 1,316 33,542 27,853 5,689 68,173 3.21 1.47 24.6 

 2Q03 30,675 29,147 1,527 31,469 18,114 13,355 65,845 3.32 1.42 20.9 

 1Q03 29,517 28,226 1,291 30,309 16,555 13,753 64,106 3.23 1.46 21.2 

2003 34,405 31,520 2,885 35,182 27,221 7,960 72,838 3.41 1.49 23.0

2002 28,079 27,203 877 28,871 17,434 11,437 63,612 3.16 1.46 20.9

2001 25,182 24,182 1,000 25,976 Not Applicable Not Applicable 79,281 3.15 1.52 23.0

2000 20,827 20,294 533 21,634 Before 2002 Before 2002 86,643 3.08 1.51 26.0

1999 17,876 17,770 106 18,677 63,651 3.11 1.42 28.8

1998 15,465 15,334 131 16,257 75,881 3.19 1.38 29.5

1997 13,793 12,703 1,090 14,575 59,167 3.52 1.42 29.4

1996 12,773 11,466 1,307 13,520 39,932 3.64 1.42 30.4

1995 10,959 10,451 508 11,703 33,812 3.46 1.32 34.6

1994 9,541 9,416 126 10,368 19,882 3.50 1.26 30.8

1993 8,052 7,876 176 8,893 21,387 3.71 1.17 26.8

1992 Not Applicable Not Applicable Not Applicable 20,874 Not Applicable Not Applicable 23.2

1991 Before 1993 Before 1993 Before 1993 18,836 Before 1993 Before 1993 21.3

1990 8,490 14.7

1989 8,092 12.8

1988 3,992 11.2

1987 2,401 11.7

1986 3,006 8.0

1985 1,904 30.1

1984 1,012 Not Applicable

1983 1,514 13.9

1982 1,603 Not Applicable

1981 502 Not Applicable

1980 702 464.2

1979 Not Available 45.7

1978 Before 1980 30.3

1977 31.8

1976 33.6

1975 31.8

1974 29.6

1973 18.1

1972 15.2

1971 18.7

Source: Fannie Mae and OFHEO

2 The difference between Core Capital and Minimum Capital Requirement. 

 risk conditions and is specified by the Federal Housing Enterprise Financial Safety and Soundness Act of 1992.

3

 Total Capital is Core Capital plus the total allowance for loan losses and guaranty liability for MBS, less any specific loss allowances.

7 Common dividends paid as a percentage of core net income available to common stockholders. 

Annual Data

End of 

Period

 Capital ($ in Millions) 

 Minimum Capital Requirement Risk-Based Capital Requirement 

1

 Minimum Capital Requirement in accordance with the Federal Housing Enterprise Financial Safety and Soundness Act of 1992.

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

5 The difference between Total Capital and the Risk-Based Capital Requirement. 6 Stock price at the end of the period multiplied by number of outstanding common shares.

20
Table 11. Freddie Mac Mortgage Purchases 1, 2 

 Single-Family Multifamily Total Mortgages4 Mortgage-Related Securities5

($) ($) ($) ($)

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

547,701 10,654 558,355 284,902

393,155 9,510 402,665 239,435

168,013 6,030 174,043 91,896

232,612 7,181 239,793 101,898

263,490 3,910 267,400 128,446

115,160 2,241 117,401 35,385

122,850 2,229 125,079 36,824

89,971 1,565 91,536 39,292

122,563 847 123,410 19,817

229,051 191 229,242 Not Available

191,099 27 191,126 Before 1994

99,729 236 99,965

74,180 1,338 75,518

76,765 1,824 78,589

42,884 1,191 44,075

74,824 2,016 76,840

99,936 3,538 103,474

42,110 1,902 44,012

Not Available Not Available 21,885

Before 1985 Before 1985 22,952

23,671

3,744

3,690

5,716

6,524

4,124

1,129

1,716

2,185

1,334

1,265

778

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available. 2 For the periods 2001 and 2002, data are based on restated and revised financial results. 3 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 4 Cash purchases plus securitizations; excludes non-Freddie Mac mortgage-related securities and repurchased Freddie Mac MBS. 5 Not included in total mortgages. Includes purchases of Freddie Mac MBS for the retained mortgage portfolio.

1972

1971

1976

1975

1974

1973

1980

1979

1978

1977

1984

1983

1982

1981

1988

1987

1986

1985

1992

1991

1990

1989

1996

1995

1994

1993

2000

1999

1998

1997

2001

Annual Data

2003

2002

Business Activity ($ in Millions)

 1Q03 

 Period 

 4Q03 

Purchases3 

 3Q03 

 2Q03 

21
Table 11a. Freddie Mac Mortgage Purchases Detail, By Type of Loan - Part 1, Single-Family 1, 2 

 Fixed-Rate 

 AdjustableRate Seconds Totals Fixed-Rate  AdjustableRate 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

N/A N/A N/A N/A N/A N/A N/A N/A N/A

501,938 44,918 0 546,856 845 0 845 547,701 558,355

370,661 22,206 0 392,867 288 0 288 393,155 402,665

145,744 21,201 0 166,945 1,068 0 1,068 168,013 174,043

224,040 7,443 0 231,483 1,129 0 1,129 232,612 239,793

256,008 7,384 0 263,392 98 0 98 263,490 267,400

106,174 8,950 0 115,124 36 0 36 115,160 117,401

116,316 6,475 0 122,791 59 0 59 122,850 125,079

75,867 14,099 0 89,966 5 0 5 89,971 91,536

105,902 16,646 0 122,548 15 0 15 122,563 123,410

208,322 20,708 1 229,031 20 0 20 229,051 229,242

175,515 15,512 7 191,034 65 0 65 191,099 191,126

91,586 7,793 206 99,585 144 0 144 99,729 99,965

56,806 16,286 686 73,778 402 0 402 74,180 75,518

57,100 17,835 1,206 76,141 624 0 624 76,765 78,589

34,737 7,253 59 42,049 835 0 835 42,884 44,075

69,148 4,779 69 73,996 828 0 828 74,824 76,840

96,105 2,262 90 98,457 1,479 0 1,479 99,936 103,474

40,226 605 34 40,865 1,245 0 1,245 42,110 44,012

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

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available.

2 For the periods 2001 and 2002, data are based on restated and revised financial results.

3 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

4 Cash purchases plus securitizations; excludes non-Freddie Mac mortgage-related securities and repurchased Freddie Mac MBS. 

1986

1985

1984

1990

1989

1988

1987

1994

1993

1992

1991

1998

1997

1996

1995

2000

1999

2002

2001

 1Q03 

2003

Annual Data 

 4Q03 

 3Q03 

 2Q03 

Total 

Mortgage 

Purchases 

 Period 

 Conventional FHA/VA Total SingleFamily 

Mortgages 

Single-Family Mortgages 

Purchases ($ in millions)3,4

22
Table 11a. Freddie Mac Mortgage Purchases Detail, By Type of Loan - Part 2, Multifamily 1, 2

Conventional FHA/ RHS 

 ($) ($) ($) ($)

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

10,654 0 10,654 558,355

9,507 3 9,510 402,665

6,030 0 6,030 174,043

7,181 0 7,181 239,793

3,910 0 3,910 267,400

2,241 0 2,241 117,401

2,229 0 2,229 125,079

1,565 0 1,565 91,536

847 0 847 123,410

191 0 191 229,242

27 0 27 191,126

236 0 236 99,965

1,338 0 1,338 75,518

1,824 0 1,824 78,589

1,191 0 1,191 44,075

2,016 0 2,016 76,840

3,538 0 3,538 103,474

1,902 0 1,902 44,012

Not Available Not Available Not Available Not Available

Before 1985 Before 1985 Before 1985 Before 1985

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available.

2 For the periods 2001 and 2002, data are based on restated and revised financial results.

3 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

4 Cash purchases plus securitizations; excludes non-Freddie Mac mortgage-related securities and repurchased Freddie Mac MBS. 

 Multifamily Mortgages 

Purchases ($ in millions)3,4

Total Multifamily 

Mortgages 

Total Mortgage 

Purchases 

 Period 

 1Q03 

2003

Annual Data 

 4Q03 

 3Q03 

 2Q03 

2000

1999

2002

2001

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

23
Table 11b. Freddie Mac Purchases of Mortgage-Related Securities1, 2

Manufactured 

Housing Other4

Total 

PrivateLabel 

($) ($) ($) ($) ($) ($) ($) ($)

36,051 N/A N/A N/A N/A N/A N/A N/A

120,669 N/A N/A N/A N/A N/A N/A N/A

53,294 N/A N/A N/A N/A N/A N/A N/A

48,786 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 258,800

 45,798 192,817 820 969 43,635 44,604 863 284,902

 64,508 157,339 1,444 0 15,437 15,437 707 239,435

 18,249 58,516 3,339 15 10,289 10,304 1,488 91,896

 12,392 69,219 3,422 3,293 11,970 15,263 1,602 101,898

 3,126 107,508 319 1,630 14,081 15,711 1,782 128,446

 897 31,296 326 36 1,458 1,494 1,372 35,385

 33,338 Not Available Not Available Not Available Not Available Not Available Not Available 36,824

 32,534 Before 1997 Before 1997 Before 1997 Before 1997 Before 1997 Before 1997 39,292

 19,817 19,817

Not Available Not Available

Before 1994 Before 1994

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change.

2 For the periods 2001 and 2002, data are based on restated and revised financial results. 

3 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

4 Includes Home Equity securities.

1995

1994

1993

Others' Securities

1999

1998

1996

2002

 1Q03 

1997

2000

2001

Mortgage 

Revenue 

Bonds 

Period 

Fannie 

Mae Ginnie Mae 

2003

 3Q03 

 2Q03 

Annual Data 

 4Q03 

Private-Label

Purchases ($ in Millions)3

Enterprise 

Securities

Total 

MortgageRelated 

Securities

24
Table 12. Freddie Mac MBS Issuances 1, 2

 Single Family MBS Multifamily MBS Total MBS4 Multiclass MBS5

 ($) ($) ($) ($) 

N/A N/A 142,767 53,218

N/A N/A 245,394 63,291

N/A N/A 176,036 74,471

N/A N/A 149,063 107,138

N/A N/A 713,260 298,118

543,451 3,596 547,047 331,672

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

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change. 2 For the periods 2001 and 2002, data are based on restated and revised financial results. 3 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 4 Amounts include single-class MBS and multiclass MBS backed by private-label mortgage-related securities, but exclude securities

issued by Freddie Mac that are backed by Ginnie Mae MBS. 5 The majority qualify as Real Estate Mortgage Investment Conduits (REMICs) and are also known as structured securitizations.

1999

1998

1997

1996

1995

1994

1993

1992

1991

2002

2000

2001

 1Q03 

Annual Data

2003

 4Q03 

 3Q03 

 2Q03 

MBS Issuances3

Period

Business Activity ($ in Millions)

1990

1989

1988

1987

1977

1980

1986

1985

1984

1982

1983

1981

1979

1978

1976

1971

1975

1974

1973

1972

25
Table 13. Freddie Mac Earnings 1, 2

Net Interest 

Income 

Guarantee Fee 

Income

Average 

Guarantee Fee

Administrative 

Expenses

Credit-Related 

Expenses Net Income Return on Equity3

 ($) ($) (basis points) ($) ($) ($) (%) 

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

 1,516 8,886 22 1,406 115 10,090 47

 1,392 6,992 24 1,024 39 3,158 20

 1,252 3,758 24 825 75 3,666 39

 1,019 2,926 20 655 159 2,223 26

 1,019 2,215 21 578 342 1,700 23

 1,082 1,847 23 495 529 1,395 23

 1,086 1,705 23 440 608 1,243 23

 1,087 1,396 24 395 541 1,091 22

 1,108 1,112 24 379 425 983 23

 1,009 772 24 361 524 786 22

 936 695 25 329 457 622 21

 792 683 24 287 419 555 24

 654 619 22 243 474 414 20

 572 517 23 217 278 437 25

 465 492 22 194 219 381 28

 472 319 24 150 175 301 28

 301 299 22 110 120 247 29

 188 312 22 81 79 208 30

 158 213 25 71 54 144 52

 132 125 26 53 46 86 45

 77 30 25 37 26 60 22

 36 34 20 30 16 31 13

 23 54 14 26 23 34 15

 18 55 13 19 20 36 16

 14 37 15 14 13 25 13

 9 31 19 12 8 21 12

 3 18 14 10 -1 14 10

 3 31 25 10 11 16 12

 2 42 26 8 33 5 4

 2 31 32 7 15 12 10

 1 10 39 5 4 4 4

 1 10 Not Available Not Available Not Available 6 6

Before 1972 Before 1972 Before 1972

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available. 2 For periods 2000 to 2002, data are based on restated and revised financial results. 3 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).

 4Q03 

 3Q03 

 2Q03 

 1Q03 

1996

2001

2003

Annual Data

2000

2002

1999

1998

1997

1992

1991

1995

1994

1993

1990

1989

1988

1987

1986

1985

1978

1977

1984

1983

1982

1981

Earnings ($ in Millions)

Period

1976

1971

1975

1974

1973

1972

1980

1979

26
Table 14. Freddie Mac Balance Sheet 1, 2

 Total 

Assets 

Retained 

Mortgage 

Portfolio4

NonMortgage 

Investments 

Debt 

Outstanding 

Stockholders' 

Equity Core Capital5

Fair Value of Net 

Assets6

Total MBS 

Outstanding7

Multiclass 

MBS 

Outstanding8

 ($) ($) ($) ($) ($) ($) ($) ($) ($) 

N/A N/A N/A N/A N/A N/A N/A 772,816 N/A

N/A N/A N/A N/A N/A N/A N/A 715,406 N/A

N/A N/A N/A N/A N/A N/A N/A 726,636 N/A

N/A N/A N/A N/A N/A N/A N/A 744,134 N/A

N/A N/A N/A N/A N/A N/A N/A 772,816 N/A

752,249 589,899 91,871 665,696 31,330 28,990 22,900 749,337 333,285

641,100 503,769 89,849 578,368 19,624 20,181 18,300 653,084 299,652

459,297 385,451 43,521 426,899 14,837 14,380 Not Available 576,101 309,185

386,684 322,914 34,152 360,711 11,525 12,692 Before 2001 537,883 316,168

321,421 255,670 42,160 287,396 10,835 10,715 478,351 260,504

194,597 164,543 16,430 172,842 7,521 7,376 475,985 233,829

173,866 137,826 22,248 156,981 6,731 6,743 473,065 237,939

137,181 107,706 12,711 119,961 5,863 5,829 459,045 246,366

106,199 73,171 17,808 93,279 5,162 5,169 460,656 264,152

83,880 55,938 18,225 49,993 4,437 4,437 439,029 265,178

59,502 33,629 12,542 29,631 3,570 Not Applicable 407,514 218,747

46,860 26,667 9,956 30,262 2,566 Before 1993 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 Not Available 15,375 953 169,186 5,333

16,587 13,547 Before 1987 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 Not Issued

6,326 5,178 5,680 250 19,897 Before 1983

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

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change.

2 For the periods 2001 and 2002, data are based on restated and revised financial results.

3 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 

4 Excludes "Reserve for losses on mortgage loans held for investment."

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 The valuation of financial instruments is in accordance with GAAP fair value guidelines prescribed by SFAS 107. 

7 Total Freddie Mac MBS outstanding net of Freddie Mac MBS held in the retained mortgage portfolio.

8 Total multiclass MBS outstanding net of repurchased multiclass MBS in the retained mortgage portfolio. 

1974

1973

1972

1971

1978

1977

1976

1975

1982

1981

1980

1979

1986

1985

1984

1983

1990

1989

1988

1987

1994

1993

1992

1991

1998

1997

1996

1995

2000

1999

2002

2001

2003

Annual Data 

 4Q03 

 3Q03 

 2Q03 

Mortgage-Backed Securities 

Outstanding ($ in Millions) 3

 1Q03 

End of 

Period 

Balance Sheet ($ in Millions)

27
Table 14a. Freddie Mac Total MBS Outstanding Detail 1, 2

 Fixed-Rate 

 AdjustableRate Seconds Total 

Total 

FHA/VA4 Conventional FHA/RHS 

 Multifamily 

Mortgages 

Total MBS 

Outstanding5

 ($) ($) ($) ($) ($) ($) ($) ($) ($) 

N/A N/A N/A N/A N/A N/A N/A N/A 772,816

N/A N/A N/A N/A N/A N/A N/A N/A 715,406

N/A N/A N/A N/A N/A N/A N/A N/A 726,636

N/A N/A N/A N/A N/A N/A N/A N/A 744,134

N/A N/A N/A N/A N/A N/A N/A N/A 772,816

690,206 36,889 5 727,100 13,507 8,730 0 8,730 749,337

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

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change. 2 For the periods 2001 and 2002, data are based on restated and revised financial results.

3 Based on unpaid principal balances. 

4 All fixed-rate.

5 Total Freddie Mac MBS outstanding net of Freddie Mac MBS held in the retained mortgage portfolio. 

1972

1971

1976

1975

1974

1973

1980

1979

1978

1977

1984

1983

1982

1981

1988

1987

1986

1985

1992

1991

1990

1989

1996

1995

1994

1993

2000

1999

1998

1997

Annual Data 

2002

2001

2003

 3Q03 

 2Q03 

 1Q03 

 Period 

 4Q03 

Single-Family Mortgages ($ in Millions)3 Multifamily Mortgages ($ in Millions)3

 Conventional 

28
Table 15. Freddie Mac Retained Mortgage Portfolio Detail 1, 2

Whole Loans3 

Freddie Mac 

Securities3,4

Other MortgageRelated Securities3

Unamortized 

Premiums, Discounts, 

Deferred Fees, Plus 

Unrealized 

Gains/Losses on 

Available-for-Sale 

Securities4

Total Retained 

Mortgage Portfolio5

 ($) ($) ($) ($) ($) 

59,776 392,931 191,729 N/A N/A

61,080 389,028 190,932 N/A N/A

65,249 333,066 187,145 N/A N/A

63,858 337,443 167,320 N/A N/A

59,776 392,931 191,729 N/A N/A

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

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change. 2 For the periods 2001 and 2002, data are based on restated and revised financial results. 3 Based on unpaid principal balances and excludes mortgage loans and mortgage-related securities traded, but not yet settled. 4 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. 5 Excludes "Reserve for losses on mortgage loans held for investment."

1971

1970

1976

1975

1974

1973

1979

1978

1977

1972

1983

1982

1981

1980

1987

1986

1985

1984

1992

1991

1990

1988

1989

1997

1996

1995

1994

1998

Annual Data

2002

2001

2003

End of 

Period 

($ in Millions)

1993

 4Q03 

 3Q03 

 2Q03 

 1Q03 

2000

1999

29
Table 15a. Freddie Mac Retained Mortgage Portfolio Detail - Part 1a, Whole Loans 1, 2 

 Fixed-Rate Adjustable-Rate Seconds 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

33,816 1,321 3 35,140 710

38,267 1,073 5 39,345 964

39,537 2,125 9 41,671 1,200

43,210 1,020 14 44,244 77

47,754 1,220 23 48,997 109

40,967 1,478 36 42,481 148

Not Available Not Available Not Available Not Available Not Available

Before 1997 Before 1997 Before 1997 Before 1997 Before 1997

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change.

2 For the periods 2001 and 2002, data are based on restated and revised financial results.

3 Based on unpaid principal balances. 

Whole Loans ($ in Millions)3

1996

1995

2000

1999

1998

1997

2001

 3Q03 

 Conventional 

2002

Total FHA/VA 

 2Q03 

 1Q03 

2003

Annual Data

 End of 

Period 

 4Q03 

 Single-Family 

30
Table 15a. Freddie Mac Retained Mortgage Portfolio Detail - Part 1b, Whole Loans 1, 2 

Multifamily

 Conventional FHA/RHS Total Total Whole Loans

 ($) ($) ($) ($)

N/A N/A N/A 59,776

N/A N/A N/A 61,080

N/A N/A N/A 65,249

N/A N/A N/A 63,858

N/A N/A N/A 59,776

28,033 3 28,036 63,886

22,480 3 22,483 62,792

16,369 Not Available 16,369 59,240

12,355 Before 2001 12,355 56,676

7,978 7,978 57,084

5,825 5,825 48,454

4,746 4,746 46,504

3,852 3,852 43,753

Not Available Not Available Not Available

Before 1995 Before 1995 Before 1995

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change. 2 For the periods 2001 and 2002, data are based on restated and revised financial results.

3 Based on unpaid principal balances. 

 End of 

Period 

 4Q03 

Whole Loans ($ in Millions) 3

2002

2001

 3Q03 

 2Q03 

 1Q03 

2003

Annual Data

2000

1999

1998

1997

1996

1995

1994

1993

31
Table 15a. Freddie Mac Retained Mortgage Portfolio Detail - Part 2a, Mortgage-Related Securities1, 2 

Total Enterprise 

Securities3 Fannie Mae Ginnie Mae 

Manufactured 

Housing Other4

 Total 

Private-Label Total Others' Securities 

 ($) ($) ($) ($) ($) ($) ($) 

392,931 N/A N/A N/A N/A N/A N/A

389,028 N/A N/A N/A N/A N/A N/A

333,066 N/A N/A N/A N/A N/A N/A

337,443 N/A N/A N/A N/A N/A N/A

392,931 N/A N/A N/A N/A N/A N/A

341,287 78,829 4,878 2,394 68,358 70,752 154,459

308,427 71,128 5,699 2,462 39,874 42,336 119,163

246,209 28,303 8,991 2,896 33,101 35,997 73,291

211,198 13,245 6,615 4,693 26,326 31,019 50,879

168,108 3,749 4,458 1,711 15,259 16,970 25,177

103,400 Not Available 6,393 Not Available Not Available Not Available Not Available

81,195 Before 1998 7,434 Before 1998 Before 1998 Before 1998 Before 1998

56,006 Not Available 

30,670 Before 1996

15,877

6,394

Not Available

Before 1992

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change. 2 For the periods 2001 and 2002, data are based on restated and revised financial results. 3 Based on unpaid principal balances. 

4 Includes Home Equity securities.

1992

1991

1990

1996

1995

1994

1993

2000

1999

1998

1997

2001

 3Q03 

 2Q03 

 1Q03 

2003

Annual Data

 Private-Label 

2002

 End of 

Period 

 4Q03 

Mortgage-Related Securities ($ in Millions)

Others' Securities3

32
Table 15a. Freddie Mac Retained Mortgage Portfolio Detail - Part 2b, Mortgage-Related Securities 1, 2 

Mortgage Revenue 

Bonds3

Unamortized Premiums, 

Discounts, Deferred Fees, Plus 

Unrealized Gains/Losses on 

Available-for-Sale Securities4

Total Mortgage-Related 

Securities4

 ($) ($) ($) ($) 

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

7,640 22,627 526,013 589,899

7,257 6,130 440,977 503,769

6,953 (242) 326,211 385,451

5,690 (1,529) 266,238 322,914

4,640 661 198,586 255,670

3,031 122 Not Available 164,543

1,787 71 Before 1998 137,826

Not Available 282 107,706

Before 1996 Not Available 73,171

Before 1995 55,938

33,629

26,667

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

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change. 2 For the periods 2001 and 2002, data are based on restated and revised financial results. 3 Based on unpaid principal balances. 4 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. 5 Excludes "Reserve for losses on mortgage loans held for investment."

Total Retained Mortgage 

Portfolio5

 End of 

Period 

 4Q03 

Mortgage-Related Securities ($ in Millions)

2002

2001

 3Q03 

 2Q03 

 1Q03 

2003

Annual Data

2000

1999

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

33
Table 16. Freddie Mac Financial Derivatives1,2

Interest 

Rate 

Swaps 

Interest 

Rate 

Caps, 

Floors, 

and 

Corridors

Foreign 

Currency 

Contracts 

OTC Futures, 

Options, and 

Forward Rate 

Agreements

TreasuryBased 

Contracts3

ExchangeTraded 

Futures, 

Options, and 

Other 

Derivatives 

Credit 

Derivatives4 Commitments5 Other6 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 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

 11,663 290,096 43,687 277,869 17,900 210,646 17,301 191,563 117,219 1,177,944 

 12,178 442,771 23,995 187,486 13,276 358,500 10,984 121,588 0 1,170,778 

 12,819 277,888 10,208 113,064 2,200 22,517 0 Not Available 35,839 474,535 

 19,936 126,580 1,097 172,750 8,894 94,987 0 Before 2001 0 424,244 

 21,845 57,555 1,464 63,000 11,542 157,832 0 0 313,238 

 21,995 54,172 1,152 6,000 12,228 0 0 0 95,547 

 14,095 46,646 544 0 651 0 0 0 61,936 

 13,055 45,384 0 0 24 0 0 0 58,463 

 9,003 21,834 0 0 0 0 0 0 30,837 

 1,500 17,888 0 0 0 0 0 0 19,388 

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available. 2 For the periods 2001 and 2002, data are based on restated and revised financial results. 3 2001 and 2002 amounts are exchange-traded. 4 Amounts for years prior to 2001 included in "Other." 5 Commitments to purchase and sell mortgage loans, mortgage-related securities and various debt securities. Amounts for years prior to 2001 included in "Other." 6 For 2002, consists of a prepayment management agreement.

End of 

Period

Financial Derivatives - Notional Amount Outstanding ($ in millions) 

2000

1999

 4Q03 

 3Q03 

2001

Annual Data 

2003

2002

 2Q03 

 1Q03 

1993

1998

1997

1996

1995

1994

34
Table 17. Freddie Mac Non-Mortgage Investments1, 2

Non-Mortgage Investments ($ in Millions)

Federal Funds 

and 

Eurodollars

Asset Backed 

Securities

Repurchase 

Agreements

Commercial 

Paper and 

Corporate Debt Other3 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

 34,790 6,129 16,914 13,050 20,988 91,871 

 26,297 15,868 17,632 21,712 8,340 89,849 

 19,063 2,267 7,488 7,302 7,401 43,521 

 10,305 10,545 4,961 3,916 4,425 34,152 

 7,124 20,524 1,756 7,795 4,961 42,160 

 2,200 2,750 6,982 3,203 1,295 16,430 

 2,086 9,968 6,440 1,058 2,696 22,248 

 499 110 9,217 1,201 1,684 12,711 

 0 5,913 7,260 1,234 3,401 17,808 

 0 4,198 9,267 1,438 3,322 18,225 

 0 4,060 5,632 53 2,797 12,542 

 0 4,437 2,949 0 2,570 9,956 

 0 9,063 1,112 0 1,949 12,124 

 0 5,765 3,527 0 1,758 11,050 

 0 9,107 4,469 0 1,031 14,607 

 0 5,859 3,177 0 1,431 10,467 

Source: Freddie Mac

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available.

2 For the periods 2001 and 2002, data are based on restated and revised financial results.

3 Includes non-mortgage related securities classified as trading, debt securities issued by the U.S. Treasury and other U.S. 

government corporations and agencies, obligations of states and municipalities and preferred stock.

1996

1995

1994

1993

1987

1992

1991

1990

1989

1988

1997

2002

2001

2000

1999

 4Q03 

 3Q03 

End of 

Period

1998

 2003 

 2Q03 

 1Q03 

Annual Data

35
Total Retained Mortgage Portfolio / Total Assets Non-Mortgage Investments / Total Assets 

 (%) (%) 

N/A N/A

N/A N/A

N/A N/A

N/A N/A

N/A N/A

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

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available.

2 For the periods 2001 and 2002, data are based on restated and revised financial results.

Table 18. Freddie Mac Asset Mix1, 2

 4Q03 

Asset Ratios

End of Period

 3Q03 

 2Q03 

 1Q03 

2000

1999

Annual Data 

 2003 

2002

2001

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

36
Table 19. Freddie Mac Mortgage Asset Quality1, 2

Mortgage Asset Quality

Single-Family Delinquency 

Rate3

Multifamily Delinquency 

Rate4

Credit Losses / Total MBS 

Outstanding Plus Retained 

Mortgage Portfolio3 

REO / Total MBS 

Outstanding plus Retained 

Mortgage Portfolio4 

Credit-Enhanced Outstanding / Total 

MBS Outstanding plus Retained 

Mortgage Portfolio5 

(%) (%) (%) (%) (%)

0.86 0.05 N/A N/A N/A

0.83 0.01 N/A N/A N/A

0.81 0.01 N/A N/A N/A

0.81 0.01 N/A N/A N/A

0.86 0.05 N/A N/A N/A

0.77 0.13 0.01 0.05 27.42

0.62 0.15 0.00 0.04 34.70

0.49 0.04 0.01 0.04 31.80

0.39 0.14 0.02 0.05 29.90

0.50 0.37 0.04 0.08 27.30

0.55 0.96 0.08 0.11 15.94

0.58 1.96 0.10 0.13 9.96

0.60 2.88 0.11 0.14 9.65

0.55 3.79 0.08 0.18 7.17

0.61 5.92 0.11 0.16 5.26

0.64 6.81 0.09 0.12 Not Available

0.61 5.42 0.08 0.14 Before 1983

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

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change. 2 For periods 2000 to 2002 (except for Credit Enhanced Outstanding/Total MBS Outstanding Plus Retained Mortgage Portfolio), data are based on restated and revised financial results. 3 Based on the number of mortgages 90 days or more delinquent or in foreclosure. 1994-1999 data include only loans for which Freddie Mac has assumed primary default risk.

Pre-1994 calculations included all loans. Rates for 2000 through 2003 are based on the total Single-family mortgage portfolio. Includes delinquencies on mortgage loans where Freddie Mac

has transferred primary or full default risk to various third parties as well as multiclass MBS backed by alternative collateral deals. 4 Based on net carrying value of mortgages 60 days or more delinquent or in foreclosure. 5 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 multiclass MBS that is backed by Ginnie Mae MBS. 6 Based on the total mortgage portfolio excluding non-Freddie Mac mortgage-related securities and that portion of issued multiclass MBS that is backed by Ginnie Mae MBS. 7 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.

 4Q03 

 3Q03 

2001

 2Q03 

 1Q03 

2000

1999

Annual Data

2002

2003

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1980

1979

1986

1985

1984

1983

End of Period

1974

1973

1978

1977

1976

1975

1982

1981

37
Table 20. Freddie Mac Capital1, 2

Core Capital

Minimum 

Capital 

Requirement4

Regulatory 

Capital 

Surplus 

(Deficit)5

Total 

Capital6

Risk-Based Capital 

Requirement7

Risk-Based Capital 

Surplus (Deficit)8

Market 

Capitalization9

Core Capital / 

Total Assets

Core Capital / 

Total MBS 

Outstanding Plus 

Total Assets

Common Share 

Dividend Payout 

Rate10

 ($) ($) ($) ($) ($) ($) ($) (%) (%) (%)

33,285 24,237 9,048 33,436 5,426 28,010 40,158 N/A N/A N/A

28,129 24,052 4,077 28,486 1,319 27,168 36,026 N/A N/A N/A

28,958 22,688 6,270 29,340 4,720 24,620 34,921 N/A N/A N/A

26,107 21,773 4,344 26,512 5,198 21,314 36,518 N/A N/A N/A

33,285 24,237 9,048 33,436 5,426 28,010 40,158 N/A N/A N/A

28,990 22,339 6,651 24,222 4,743 19,479 40,590 4 2 6

20,181 19,014 1,167 Not Applicable Not Applicable Not Applicable 45,473 3 2 19

14,380 14,178 202 Before 2002 Before 2002 Before 2002 47,702 3 1 20

12,692 12,287 405 32,713 3 1 20

10,715 10,333 382 44,797 3 1 21

7,376 7,082 294 28,461 4 1 21

6,743 6,517 226 19,161 4 1 21

5,829 5,584 245 14,932 4 1 21

5,169 4,884 285 9,132 5 1 20

4,437 3,782 655 9,005 5 1 22

Not Applicable Not Applicable Not Applicable 8,721 Not Applicable Not Applicable 23

Before 1993 Before 1993 Before 1993 8,247 Before 1993 Before 1993 22

2,925 23

4,024 24

Not Applicable Not Available

Before 1989 Before 1989

Source: Freddie Mac and OFHEO

N/A = not available

1 Freddie Mac has not yet released its financial results for 2003. Amounts for that year are not available or are subject to change. 2 For the periods 2001 and 2002, data are based on restated and revised financial results. 3 Calculations reflect existing general ledger and do not reflect pending 2003 financial statement adjustments. The numbers and calculations for the fourth quarter of 2003 and full year 2003 reflect 

the increase in capital of approximately $5 billion from the 2002 restatement process whereas the first three quarters of 2003 do not. To the extent that OFHEO determines necessary, 

Freddie Mac will resubmit amended reports following release of its 2003 financial statements. 4 Minimum Capital Requirement in accordance with the Federal Housing Enterprise Financial Safety and Soundness Act of 1992. 5 The difference between Core Capital and Minimum Capital Requirement. 6 Total Capital is Core Capital plus the total allowance for loan losses and guaranty liability for MBS, less any specific loss allowances. For 2002 and the first three quarters of 2003, amounts were 

calculated by OFHEO prior to the restatement of Freddie Mac's 2002 financial results. The fourth quarter of 2003 and full year 2003 total capital calculation includes the increase in capital of 

approximately $5 billion from the 2002 restatement process. 7 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. 8 The difference between Total Capital and Risk-Based Capital Requirement. 9 Stock price at the end of the period multiplied by number of outstanding common shares. 10 Common dividends paid as a percentage of net income available to common stockholders. 

 Period

 4Q03 

End of

Capital ($ in Millions) 

Minimum Capital Requirement3 Risk-Based Capital Requirement

 3Q03 

 2Q03 

 1Q03 

2003

2001

2000

Annual Data

2002

1999

1998

1997

1996

1995

1994

1993

1992

1991

1989

1990

38
Table 21. Combined Purchases1

($) ($) ($) ($)

 4Q03 N/A N/A N/A N/A

 3Q03 N/A N/A N/A N/A

 2Q03 N/A N/A N/A N/A

 1Q03 N/A N/A N/A N/A

2003 N/A N/A N/A N/A

2002 1,348,017 27,265 1,375,282 553,836

2001 960,828 28,641 989,469 448,559

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

N/A = not available

1

 See notes to Tables 1 and 11.

 Business Activity ($ in Millions) 

 Purchases 

 Annual Data 

 Single-Family Multifamily Mortgage-Related Securities Total Mortgages

 Period 

39
Table 21a. Combined Mortgage Purchases Detail, By Type of Loan 1

 Fixed-Rate 

 AdjustableRate Seconds Total Fixed-Rate  AdjustableRate Total Conventional FHA/RHS 

 Period ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($)

 4Q03 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

 3Q03 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

 2Q03 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

 1Q03 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

2003 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 

2002 1,232,597 111,690 41 1,344,328 2,141 1,548 3,689 1,348,017 24,604 2,661 27,265 1,375,282 

2001 904,776 47,854 1,137 953,767 5,959 1,102 7,061 960,828 27,356 1,285 28,641 989,469 

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 - 5,415 182,574 

1985 70,219 11,341 905 82,465 2,172 16 2,188 84,653 3,102 - 3,102 87,755 

 Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available Not Available 

 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 Before 1985 

Sources: Fannie Mae and Freddie Mac

N/A = not available

1

 See notes to Tables 1a and 11a. 

 Annual Data 

 Conventional FHA/VA 

 Total SingleFamily 

Mortgages 

Total 

Multifamily 

Mortgages 

 Single-Family Mortgages Multifamily Mortgages 

Purchases ($ in Millions)

Total Mortgage 

Purchases 

40
Table 21b. Combined Purchases of Mortgage-Related Securities1

 Manufactured 

Housing 

Other2 Total 

PrivateLabel 

 Period ($) ($) ($) ($) ($) ($) ($)

 4Q03 49,275 N/A N/A N/A N/A N/A N/A 

 3Q03 296,735 N/A N/A N/A N/A N/A N/A 

 2Q03 123,777 N/A N/A N/A N/A N/A N/A 

 1Q03 137,426 N/A N/A N/A N/A N/A N/A 

2003 607,213 N/A N/A N/A N/A N/A N/A 

2002 437,856 5,245 1,025 50,795 51,820 5,160 553,836

2001 337,921 1,777 Not Available 18,950 18,950 5,331 448,559

2000 163,420 5,832 Before 2002 Not Available 18,770 5,170 221,612

1999 194,717 20,983 Before 2001 31,774 5,076 271,803

1998 212,236 3,057 31,432 4,581 275,706 

1997 70,329 3,834 5,682 2,841 85,702 

1996 74,601 Not Available Not Available Not Available 83,567 

1995 62,966 Before 1997 Before 1997 Before 1997 75,550 

1994 41,477 45,722 

1993 Not Available Not Available 

1992 Before 1994 Before 1994 

1991

1990

Sources: Fannie Mae and Freddie Mac

N/A = not available

1 See notes to Tables 1b and 11b.

2 The category 'Other' includes home equity purchases by both Enterprises.

 Purchases ($ in millions) 

 Annual Data 

 Others' Securities 

 Total MortgageRelated Securities 

 Enterprise 

Securities Ginnie Mae 

 Private Label 

Mortgage 

Revenue 

Bonds 

41
Table 22. Combined MBS Issuances1

 Single-Family 

MBS Multifamily MBS Total MBS Multiclass MBS

Period ($) ($) ($) ($) 

 4Q03 N/A N/A 351,226 133,558

 3Q03 N/A N/A 602,128 143,292

 2Q03 N/A N/A 531,823 140,883

 1Q03 N/A N/A 447,662 141,304

2003 N/A N/A 1,932,839 559,037

2002 1,270,708 15,934 1,286,642 502,467

2001 901,855 16,158 918,013 331,840

2000 369,181 9,382 378,563 87,746

1999 523,178 10,542 533,720 174,725

1998 564,747 11,965 576,712 219,309

1997 257,373 6,314 263,687 169,781

1996 263,133 6,438 269,571 64,925

1995 191,791 4,542 196,333 25,053

1994 245,286 2,446 247,732 146,496

1993 429,209 959 430,168 353,966

1992 372,389 855 373,244 301,489

1991 203,967 1,415 205,382 184,840

1990 168,004 2,506 170,510 108,770

1989 139,420 3,862 143,282 81,469

1988 90,610 4,045 94,655 29,990

1987 134,933 3,314 138,247 9,917

1986 156,815 3,949 160,764 4,633

1985 60,725 1,752 62,477 Not Available

1984 Not Available Not Available 32,230 Before 1986

1983 Before 1985 Before 1985 33,031

1982 38,139

1981 4,243

Sources: Fannie Mae and Freddie Mac

N/A = not available

1

 See notes to Tables 2 and 12.

Annual Data

 Business Activity ($ in Millions) 

 MBS Issuances 

42
Table 23. Combined Earnings1 

Net Interest Income Guarantee Fee Income Administrative Expenses Credit-Related Expenses Net Income 

Period ($) ($) ($) ($) ($) 

 4Q03 N/A N/A N/A N/A N/A

 3Q03 N/A N/A N/A N/A N/A

 2Q03 N/A N/A N/A N/A N/A

 1Q03 N/A N/A N/A N/A N/A

2003 N/A N/A N/A N/A N/A

2002 19,452 3,332 2,625 207 14,709

2001 15,082 2,874 2,041 117 9,052

2000 9,432 2,603 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

43
Table 24. Combined Balance Sheet

1

 Mortgage-Backed 

Securities 

Outstanding 

($ in Millions) 

Total Assets

Total 

Retained 

Mortgage 

Portfolio

Non-Mortgage 

Investments Debt Outstanding

Shareholders' 

Equity Core Capital

Fair Value of 

Net Assets

Total MBS 

Outstanding

 ($) ($) ($) ($) ($) ($) ($) ($) 

4Q03 N/A N/A N/A N/A N/A N/A N/A 2,072,982

3Q03 N/A N/A N/A N/A N/A N/A N/A 1,926,485

2Q03 N/A N/A N/A N/A N/A N/A N/A 1,964,097

1Q03 N/A N/A N/A N/A N/A N/A N/A 1,851,654

2003 N/A N/A N/A N/A N/A N/A N/A 2,072,982

2002 1,639,764 1,391,021 131,164 1,516,678 47,618 57,069 45,030 1,778,793

2001 1,441,048 1,210,572 155,831 1,341,835 37,742 45,363 40,975 1,512,049

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 Not Available

1979 55,948 53,780 52,555 1,739 Before 1981

1978 47,203 45,141 44,201 1,564

1977 37,481 36,456 35,000 1,350

1976 37,225 35,950 35,088 1,139

1975 37,495 35,698 35,572 1,003

1974 34,572 33,135 32,852 898

1973 27,191 26,110 25,699 801

1972 22,118 21,378 20,878 669

1971 19,629 18,821 18,587 567

Sources: Fannie Mae and Freddie Mac

N/A = not available

1 See notes to Tables 4 and 14.

Annual Data 

 Balance Sheet ($ in Millions) 

End of 

Period

44
Table 24a. Combined MBS Outstanding Detail 1

 Fixed-Rate 

 AdjustableRate Seconds Total Conventional FHA/RHS Total 

Multifamily 

 ($) ($) ($) ($) ($) ($) ($) ($) ($) 

 4Q03 N/A N/A N/A N/A N/A N/A N/A N/A 2,072,982 

 3Q03 N/A N/A N/A N/A N/A N/A N/A N/A 1,926,484 

 2Q03 N/A N/A N/A N/A N/A N/A N/A N/A 1,964,097 

 1Q03 N/A N/A N/A N/A N/A N/A N/A N/A 1,851,655 

2003 N/A N/A N/A N/A N/A N/A N/A N/A 2,072,982 

2002 1,569,319 129,374 343 1,699,036 19,916 58,857 984 59,841 1,778,793 

2001 1,346,411 85,142 782 1,432,335 27,673 50,860 1,181 52,041 1,512,049 

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 Not Issued

Sources: Fannie Mae and Freddie Mac

N/A = not available

1

 See notes to Tables 4a and 14a.

Annual Data

 Single-Family Mortgages ($ in Millions) 

 Conventional 

Total MBS 

 End of Outstanding 

Period 

 Multifamily Mortgages ($ in Millions) 

Total FHA/VA 

45
Table 25. Combined Financial Derivatives1

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 

($) ($) ($) ($) ($) ($) ($) ($) ($) ($) 

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 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

536,604 134,056 47,706 561,544 17,900 210,646 17,301 Not Applicable 117,219 1,834,539

742,724 88,071 32,488 336,286 13,276 358,500 10,984 Before 2003 0 1,703,917

505,539 46,482 19,719 166,979 2,200 22,517 0 35,839 799,275

318,612 48,886 12,604 213,831 8,894 94,987 0 1,400 699,214

200,401 36,345 14,459 76,481 11,542 157,832 0 3,735 500,795

203,845 22,095 11,120 6,000 12,228 0 0 1,660 256,948

204,786 14,395 2,973 0 651 0 0 350 223,155

171,063 13,355 1,224 29 24 0 0 975 186,670

109,304 9,363 1,023 0 0 0 0 1,465 121,154

67,346 1,860 1,023 0 0 0 0 1,425 71,653

Sources: Fannie Mae and Freddie Mac

N/A = not available

1 See notes to Tables 6 and 16.

1993

1998

1997

1996

1995

1994

Financial Derivatives - Notional Amount Outstanding ($ in millions) 

Annual Data 

2003

2002

 2Q03 

 1Q03 

Period

2000

1999

End of

 4Q03 

 3Q03 

2001

46
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

7,677 57,101 17,095 27,125 22,166 131,164

31,957 47,234 18,440 45,517 12,683 155,831

9,806 36,575 7,575 16,195 25,717 95,868

15,382 29,512 5,083 5,639 15,835 71,451

28,450 28,117 9,312 12,950 21,846 100,675

21,962 18,839 13,697 14,948 11,580 81,026

31,702 16,721 11,107 7,249 12,075 78,854

19,885 10,404 19,392 9,830 10,473 69,984

24,853 3,796 14,919 8,953 11,622 64,143

13,763 3,557 8,882 1,438 11,981 39,621

12,219 4,124 7,249 53 8,471 32,116

5,903 2,416 6,632 0 4,841 19,792

6,441 1,780 10,014 0 3,757 21,992

8,685 1,107 5,765 0 3,831 19,388

8,594 481 9,107 0 1,714 19,896

5,736 25 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 

 2Q03 

 1Q03 

Annual Data

 4Q03 

 3Q03 

Non-Mortgage Investments ($ in Millions)

End of 

Period

1998

1997

2002

2001

2000

1999

1987

1992

1991

1990

1989

1988

1996

1995

1994

1993

47
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

 ($) ($) ($) ($) ($) ($) ($) 

67,690 55,757 11,933 68,618 32,647 35,970 112,996 

60,881 55,487 5,393 62,028 29,172 32,857 104,199 

59,633 51,835 7,797 60,809 22,834 37,975 100,766 

55,624 49,999 5,635 56,821 21,753 35,067 100,624 

67,690 55,757 11,933 68,618 32,647 35,970 112,996 

57,069 49,542 7,528 53,093 22,177 30,916 104,202 

45,363 43,196 2,167 Not Applicable Not Applicable Not Applicable 124,754 

35,207 34,472 735 Before 2002 Before 2002 Before 2002 134,345 

30,568 30,057 511 96,364 

26,180 25,667 513 120,678 

21,169 19,785 1,384 87,628 

19,516 17,983 1,533 59,093 

16,788 16,035 753 48,744 

14,710 14,300 411 29,014 

12,489 11,658 831 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

N/A = not available

1 See notes to Tables 10 and 20.

1991

1989

1990

1995

1994

1993

1992

1999

1998

1997

1996

2001

2000

Annual Data

2002

 3Q03 

 2Q03 

 1Q03 

2003

Period

 4Q03 

End of 

Capital ($ in Millions) 

Minimum Capital Requirement Risk-Based Capital Requirement

48
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, and Freddie Mac

1

 Conforming Loan Limits are 50 percent higher in Alaska, Hawaii, Guam and the U.S. Virgin Islands.

1-Unit 2-Units 3-Units 4-Units

Low Cost Low Cost High Cost Low Cost High Cost Low Cost High Cost

Area Max Area Max Area Max Area Max Area Max Area Max Area Max

2004 160,176 205,032 371,621 247,824 449,181 307,992 558,236

2003 154,896 198,288 359,397 239,664 434,391 297,840 539,835

2002 144,336 184,752 334,863 223,296 404,724 277,512 502,990

2001 132,000 168,936 306,196 204,192 370,098 253,776 459,969

2000 121,296 155,232 281,358 187,632 340,083 233,184 422,646

1999 115,200 147,408 267,177 178,176 322,944 221,448 401,375

1998 109,032 139,512 252,866 168,624 305,631 209,568 379,842

1997 81,546 104,310 205,875 126,103 248,888 156,731 309,338

Source: Federal Housing Administration

Year

Single-Family Conforming Loan Limits1

 Year 

FHA Single-Family Insurable Limits

180,000

Not Applicable

Not Applicable

Not Applicable Not Applicable

Not Applicable Not Applicable

Not Applicable

67,500

218,900

207,900

205,300

189,000

136,800

126,000

120,000

324,150

294,150

256,000

221,500

388,800

367,500

360,150

360,450

397,800

390,400

390,400

390,400

4-units

641,650

620,500

578,150

528,700

485,800

461,350

436,000

412,450

152,000

145,000

Not Applicable

178,200

176,100

167,200

165,100

290,000

260,800

236,650

205,950

314,100

312,800

295,650

289,750

331,850

320,050

314,100

314,100

3-units

516,300

499,300

465,200

425,400

390,900

371,200

351,300

Not Applicable

170,450

147,500

145,800

138,500

239,750

239,950

215,800

195,850

259,850

259,850

258,800

244,650

290,650

274,550

264,750

259,850

60,000

33,000

2-units

427,150

413,100

384,900

351,950

323,400

307,100

108,300

98,500

93,750

153,100

133,250

115,300

114,000

187,450

187,600

168,700

107,000

203,150

203,150

202,300

191,250

227,150

214,600

207,000

203,150

Table 28. Loan Limits

1-unit

333,700

322,700

300,700

275,000

252,700

240,000

49
30-Year Fixed Rate One-Year ARMs Fixed-Rate Adjustable Rate

Period (%) (%) (%) (%)

4Q03 5.9 3.7 6.1 5.1 

3Q03 6.0 3.7 5.9 4.9 

2Q03 5.5 3.7 5.7 4.9 

1Q03 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

Average Commitment Rate Source: Freddie Mac

Effective Rates Source: Federal Housing Finance Board

Annual Data

Average Loan Commitment Rates Effective Rates on Closed Loans

Table 29. Interest Rates on Conventional Single-Family Mortgages

50
Table 30. Housing Market Activity

1

Period Single-Family 

Housing Starts

Multifamily Housing 

Starts Total Housing Starts New Single-Family 

Home Sales

Existing Single-Family 

Home Sales

4Q032 1,688 343 2,031 1,109 6,290

3Q032 1,561 323 1,884 1,155 6,423

2Q032 1,444 295 1,739 1,095 5,827

1Q032 1,441 296 1,737 984 5,867

2003 1,533 315 1,848 1,085 6,100

2002 1,397 308 1,705 973 5,566

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)

51
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

West 

South 

Central

Mountain Pacific

1q04 7.71 9.53 9.36 8.78 4.65 5.87 3.62 3.22 5.46 12.21

4q03 8.13 10.31 11.06 8.49 5.06 6.57 3.90 3.55 5.18 12.29

3q03 5.98 7.79 7.94 6.35 3.57 4.80 3.45 3.36 3.65 8.75

2q03 6.54 8.69 8.61 7.01 3.64 4.85 4.30 4.35 4.24 9.47

1q03 7.29 10.69 9.96 7.52 3.97 5.58 3.85 4.48 4.35 10.82

2003 8.13 10.31 11.06 8.49 5.06 6.57 3.90 3.55 5.18 12.29

2002 7.65 11.75 10.74 7.64 4.47 6.37 3.51 4.21 4.46 11.12

2001 7.54 10.87 8.86 7.95 5.22 7.28 5.12 5.89 6.45 9.17

2000 7.63 12.45 7.93 6.53 6.09 7.25 3.95 5.11 6.93 11.31

1999 5.29 9.85 5.40 4.41 4.90 6.28 2.53 4.42 4.39 6.04

1998 4.97 6.49 4.02 4.50 4.17 4.80 4.82 4.96 3.96 7.18

1997 4.60 4.60 3.27 4.52 5.20 4.93 4.74 3.88 4.92 5.27

1996 2.58 1.67 0.39 2.22 5.01 4.07 4.03 2.31 4.20 0.93

1995 4.50 4.12 3.15 4.31 6.06 5.25 5.56 4.22 7.50 2.80

1994 0.77 -3.06 -3.25 0.05 4.94 5.32 4.74 1.56 8.98 -3.43

1993 2.02 0.28 1.29 1.89 3.65 3.89 4.06 3.99 7.87 -1.98

1992 1.86 -1.11 1.74 2.10 3.88 2.99 3.30 3.43 5.32 -1.38

1991 2.53 -2.27 1.46 3.03 4.58 3.80 4.12 3.68 4.66 1.30

1990 0.21 -7.70 -2.85 0.20 3.76 0.54 0.73 0.48 1.90 3.04

1989 6.01 0.71 2.25 5.02 6.10 3.18 2.96 2.80 2.80 19.36

1988 6.21 3.61 6.11 6.88 6.67 2.45 2.54 -2.17 0.29 17.47

1987 6.86 13.37 16.16 6.82 8.04 2.45 4.14 -8.64 -2.76 9.60

1986 8.26 21.01 17.95 6.06 7.33 4.19 5.73 -0.47 3.02 7.23

1985 6.67 24.93 14.29 5.45 4.89 4.35 4.77 -1.25 2.42 4.88

1984 5.37 17.60 13.50 4.03 2.75 4.71 3.78 -0.21 2.15 5.16

1983 4.25 16.25 9.97 3.67 4.60 4.46 4.47 0.87 -2.67 1.20

1982 2.22 4.20 4.72 4.37 -4.91 -0.09 3.97 5.93 6.70 0.80

1981 4.38 5.00 0.27 5.71 2.11 -0.04 0.54 11.88 7.19 5.88

1980 6.89 5.97 9.20 8.52 1.64 4.32 7.45 7.53 6.48 11.22

1979 11.98 10.63 16.38 11.56 9.29 8.88 4.82 13.43 15.64 16.30

1978 13.28 17.18 7.30 10.89 13.75 13.09 11.98 17.05 17.24 15.75

1977 13.30 8.07 11.49 8.19 13.12 15.44 10.31 11.63 18.59 25.63

1976 7.51 4.11 1.59 5.03 8.51 5.68 5.34 8.81 9.61 19.95

1

 Data from 1976 - 2003 are measured based on fourth quarter to fourth quarter percentage change. 

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

Regional Divisions: 

52