UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

Commission File Number: 001-34139

Federal Home Loan Mortgage Corporation

(Exact name of registrant as specified in its charter)

Freddie Mac

Federally chartered 8200 Jones Branch Drive 52-0904874 (703) 903-2000

corporation McLean, Virginia 22102-3110 (I.R.S. Employer (Registrant’s telephone number,

(State or other jurisdiction of

incorporation or organization)

(Address of principal executive offices,

including zip code)

Identification No.) including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Voting Common Stock, no par value per share (OTCQB: FMCC)

Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCI)

5% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCKK)

Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCG)

5.1% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCH)

5.79% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCK)

Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCL)

Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCM)

Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCN)

5.81% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCO)

6% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCP)

Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCJ)

5.7% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCKP)

Variable Rate, Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCCS)

6.42% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCCT)

5.9% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKO)

5.57% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKM)

5.66% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKN)

6.02% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKL)

6.55% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKI)

Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKJ)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing

requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required

to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that

the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best

of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this

Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the

definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [X]

Non-accelerated filer (Do not check if a smaller reporting company) [ ] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The aggregate market value of the common stock held by non-affiliates computed by reference to the price at which the common equity was last sold on

June 29, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was $162.5 million.

As of February 15, 2013, there were 650,038,674 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None
TABLE OF CONTENTS

Page

PART I

Item 1. Business ...................................................................... 1

Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 84

Mortgage Market and Economic Conditions, and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Consolidated Balance Sheets Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

Fair Value Measurements and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

Critical Accounting Policies and Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

Risk Management and Disclosure Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 319

Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322

PART III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . 360

Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . 361

Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367

PART IV

Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1

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MD&A TABLE REFERENCE

Table Description Page

— Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

1 Total Single-Family Loan Workout Volumes ............................................... 4

2 Single-Family Credit Guarantee Portfolio Summary .......................................... 8

3 Credit Statistics, Single-Family Credit Guarantee Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

4 Mortgage-Related Investments Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5 Affordable Housing Goals for 2012 to 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

6 Affordable Housing Goals and Results for 2010 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

7 Quarterly Common Stock Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

8 Mortgage Market Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

9 Summary Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

10 Net Interest Income/Yield, Average Balance, and Rate/Volume Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

11 Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

12 Derivative Gains (Losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

13 Other Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

14 Non-Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

15 REO Operations Expense, REO Inventory, and REO Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

16 Composition of Segment Mortgage Portfolios and Credit Risk Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

17 Segment Earnings and Key Metrics — Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

18 Segment Earnings and Key Metrics — Single-Family Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

19 Segment Earnings Composition — Single-Family Guarantee Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

20 Segment Earnings and Key Metrics — Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

21 Investments in Available-For-Sale Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

22 Investments in Trading Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

23 Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 113

24 Additional Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets . . . . . . . . . . . 114

25 Mortgage-Related Securities Purchase Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

26 Non-Agency Mortgage-Related Securities Backed by Subprime First Lien, Option ARM, and Alt-A Loans and

Certain Related Credit Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

27 Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other Loans . . . . . . 118

28 Net Impairment of Available-For-Sale Mortgage-Related Securities Recognized in Earnings . . . . . . . . . . . . . 119

29 Ratings of Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other

Loans, and CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

30 Mortgage Loan Purchases and Other Guarantee Commitment Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

31 Derivative Fair Values and Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

32 Changes in Derivative Fair Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

33 Reconciliation of the Par Value and UPB to Total Debt, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

34 Other Short-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

35 Freddie Mac Mortgage-Related Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

36 Freddie Mac Mortgage-Related Securities by Class Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

37 Issuances and Extinguishments of Debt Securities of Consolidated Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

38 Changes in Total Equity (Deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

39 Single-Family Credit Guarantee Portfolio Data by Year of Origination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

40 Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 134

41 Characteristics of the Single-Family Credit Guarantee Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

42 Single-Family Loans Scheduled Payment Change to Include Principal by Year at December 31, 2012 . . . . . . 138

43 Serious Delinquency Rates by Year of Payment Change to Include Principal . . . . . . . . . . . . . . . . . . . . . . . . . 138

44 Single-Family Next Scheduled Adjustable-Rate Resets by Year at December 31, 2012 . . . . . . . . . . . . . . . . . . 139

45 Serious Delinquency Rates by Year of First Rate Reset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

46 Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio . . . . . . . . . . . . . . . . . . . . . . 142

47 Single-Family Relief Refinance Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

48 Single-Family Loan Workouts, Serious Delinquency, and Foreclosures Volumes . . . . . . . . . . . . . . . . . . . . . . 147

49 Quarterly Percentages of Modified Single-Family Loans — Current and Performing . . . . . . . . . . . . . . . . . . . 148

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Table Description Page

50 Single-Family Serious Delinquency Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

51 Credit Concentrations in the Single-Family Credit Guarantee Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

52 Single-Family Credit Guarantee Portfolio by Attribute Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

53 Single-Family Credit Guarantee Portfolio Foreclosure and Short Sale Rates . . . . . . . . . . . . . . . . . . . . . . . . . 154

54 Multifamily Mortgage Portfolio — by Attribute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

55 Non-Performing Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

56 REO Activity by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

57 Single-Family REO Property Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

58 Credit Loss Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

59 Single-Family Charge-offs and Recoveries by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

60 Loan Loss Reserves Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

61 Single-Family Impaired Loans with Specific Reserve Recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

62 Single-Family Credit Loss Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

63 Repurchase Request Activity and Counterparty Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

64 Loans Released from Repurchase Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

65 Mortgage Insurance by Counterparty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170

66 Bond Insurance by Counterparty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

67 Derivative Counterparty Credit Exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

68 Other Debt Security Issuances by Product, at Par Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

69 Other Debt Security Repurchases, Calls, and Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

70 Freddie Mac Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

71 Summary of Assets and Liabilities Measured at Fair Value on a Recurring Basis on Our Consolidated Balance

Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

72 Summary of Change in the Fair Value of Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

73 Contractual Obligations by Year at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

74 PMVS and Duration Gap Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200

75 Derivative Impact on PMVS-L (50 bps) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200

76 2013 Target TDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322

77 Board of Directors Committee Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

78 Funding Levels for 2012 Performance-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333

79 2012 Target TDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336

80 Achievement of Corporate Performance Measures for At-Risk Deferred Salary . . . . . . . . . . . . . . . . . . . . . . . 338

81 Named Executive Officer Individual Performance Summaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340

82 2012 Deferred Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342

83 Achievement of Performance Measures for Second Installment of 2011 Target Opportunity . . . . . . . . . . . . . . 342

84 2011 Target Opportunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

85 Summary Compensation Table — 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

86 Grants of Plan-Based Awards — 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350

87 Outstanding Equity Awards at Fiscal Year-End — 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

88 Option Exercises and Stock Vested — 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

89 Pension Benefits — 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

90 Non-Qualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355

91 Potential Payments Upon Termination of Employment or Change-in-Control as of December 31, 2012 . . . . . . 357

92 Board Compensation — 2012 Non-Employee Director Compensation Levels . . . . . . . . . . . . . . . . . . . . . . . . 359

93 2012 Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

94 Stock Ownership by Directors, Executive Officers, and Greater-Than-5% Holders . . . . . . . . . . . . . . . . . . . . . 360

95 Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360

96 Auditor Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367

iii Freddie Mac
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

Consolidated Statements of Equity (Deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Note 1: Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Note 2: Conservatorship and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

Note 3: Variable Interest Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Note 4: Mortgage Loans and Loan Loss Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Note 5: Individually Impaired and Non-Performing Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241

Note 6: Real Estate Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

Note 7: Investments in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248

Note 8: Debt Securities and Subordinated Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

Note 9: Financial Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

Note 10: Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

Note 11: Stockholders’ Equity (Deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

Note 12: Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272

Note 13: Segment Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

Note 14: Regulatory Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282

Note 15: Concentration of Credit and Other Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284

Note 16: Fair Value Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293

Note 17: Legal Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

Note 18: Selected Financial Statement Line Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318

Quarterly Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

iv Freddie Mac
PART I

This Annual Report on Form 10-K includes forward-looking statements that are based on current expectations and are

subject to significant risks and uncertainties. These forward-looking statements are made as of the date of this Form 10-K

and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of

this Form 10-K. Actual results might differ significantly from those described in or implied by such statements due to various

factors and uncertainties, including those described in: the “BUSINESS — Forward-Looking Statements” and “RISK

FACTORS” sections of this Form 10-K.

Throughout this Form 10-K, we use certain acronyms and terms that are defined in the “GLOSSARY.”

ITEM 1. BUSINESS

Conservatorship and Government Support for Our Business

We continue to operate under the direction of FHFA, as our Conservator. We are also subject to certain constraints on

our business activities imposed by Treasury due to the terms of, and Treasury’s rights under, the Purchase Agreement. We

are dependent upon the continued support of Treasury and FHFA in order to continue operating our business. Our ability to

access funds from Treasury under the Purchase Agreement is critical to keeping us solvent and avoiding the appointment of a

receiver by FHFA under statutory mandatory receivership provisions. The conservatorship and related matters have had a

wide-ranging impact on us, including our regulatory supervision, management, business, financial condition, and results of

operations.

There is significant uncertainty as to whether or when we will emerge from conservatorship, as it has no specified

termination date, and as to what changes may occur to our business structure during or following conservatorship, including

whether we will continue to exist. We are not aware of any current plans of our Conservator to significantly change our

business model or capital structure in the near-term. Our future structure and role will be determined by the Administration

and Congress, and there are likely to be significant changes beyond the near-term. We have no ability to predict the outcome

of these deliberations.

As our Conservator, FHFA succeeded to all rights, titles, powers and privileges of Freddie Mac, and of any stockholder,

officer or director thereof, with respect to the company and its assets. FHFA, as Conservator, has directed and will continue

to direct certain of our business activities and strategies. FHFA has delegated certain authority to our Board of Directors to

oversee, and to management to conduct, day-to-day operations. The directors serve on behalf of, and exercise authority as

directed by, the Conservator.

In March 2012, FHFA instituted the 2012 conservatorship scorecard, or the Conservatorship Scorecard, for use by both

us and Fannie Mae that established business objectives and performance targets and measures, and provided the

implementation roadmap for FHFA’s strategic plan for Freddie Mac and Fannie Mae. We continue to align our resources and

internal business plans to meet the goals and objectives in FHFA’s directives. See “Regulation and Supervision —

Legislative and Regulatory Developments — FHFA’s Strategic Plan for Freddie Mac and Fannie Mae Conservatorships”

and “EXECUTIVE COMPENSATION — Compensation Discussion and Analysis” for further information.

Our current business objectives reflect direction we have received from the Conservator (including the Conservatorship

Scorecard), our charter, other legislation, and public statements from FHFA and Treasury officials. Our business objectives

have changed considerably since we entered into conservatorship and may continue to change. Certain changes to our

business objectives and strategies are designed to provide support for the mortgage market in a manner that serves our public

mission and other non-financial objectives. However, these changes to our business objectives and strategies may not

contribute to our profitability. Some of these changes increase our expenses, while others require us to forego revenue

opportunities.

On February 21, 2012, FHFA sent to Congress a strategic plan for the next phase of the conservatorships of Freddie

Mac and Fannie Mae. FHFA stated that the steps envisioned in the plan are consistent with each of the housing finance

reform frameworks set forth in the report delivered by the Administration to Congress in February 2011, which is described

below, as well as with the leading congressional proposals previously introduced. FHFA’s plan provides lawmakers and the

1 Freddie Mac
public with an outline of how FHFA as Conservator intends to guide Freddie Mac and Fannie Mae over the next few years,

and identifies three strategic goals:

• Build. Build a new infrastructure for the secondary mortgage market;

• Contract. Gradually contract Freddie Mac and Fannie Mae’s dominant presence in the marketplace while simplifying

and shrinking their operations; and

• Maintain. Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages.

On February 11, 2011, the Administration delivered a report to Congress that lays out the Administration’s plan to

reform the U.S. housing finance market, including options for structuring the government’s long-term role in a housing

finance system in which the private sector is the dominant provider of mortgage credit. The report recommends winding

down Freddie Mac and Fannie Mae, and states that the Administration will work with FHFA to determine the best way to

responsibly reduce the role of Freddie Mac and Fannie Mae in the market and ultimately wind down both institutions. The

report states that these efforts must be undertaken at a deliberate pace, which takes into account the impact that these changes

will have on borrowers and the housing market.

The report states that the government is committed to ensuring that Freddie Mac and Fannie Mae have sufficient capital

to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations, and further

states that the Administration will not pursue policies or reforms in a way that would impair the ability of Freddie Mac and

Fannie Mae to honor their obligations. The report states the Administration’s belief that under the companies’ senior

preferred stock purchase agreements with Treasury, there is sufficient funding to ensure the orderly and deliberate wind

down of Freddie Mac and Fannie Mae, as described in the Administration’s plan.

Based on our Net Worth Amount at December 31, 2012, our dividend obligation to Treasury in March 2013 will be

$5.8 billion. On August 17, 2012, Freddie Mac, acting through FHFA, as Conservator, and Treasury entered into an

amendment to the Purchase Agreement that, among other items, replaced the fixed 10% dividend rate on the senior preferred

stock with a net worth sweep dividend beginning in the first quarter of 2013. Under the net worth sweep dividend provisions,

we are required to pay dividends to the extent that our Net Worth Amount exceeds a permitted capital reserve amount

(established at $3 billion for 2013 and declining to zero in 2018). This amendment effectively ends the circular practice of

taking draws from Treasury to pay dividends to Treasury, thereby helping to preserve remaining funding available to us

under the Purchase Agreement. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Purchase

Agreement” for more information.

The aggregate liquidation preference of the senior preferred stock was $72.3 billion and $72.2 billion at December 31,

2012, and 2011, respectively. Beginning January 1, 2013, the remaining funding commitment from Treasury under the

Purchase Agreement is $140.5 billion. This amount will be reduced by any future draws. Under the Purchase Agreement, our

ability to repay the liquidation preference of the senior preferred stock is limited and we will not be able to do so for the

foreseeable future, if at all. The aggregate liquidation preference of the senior preferred stock will increase further if we

receive additional draws. For a discussion of factors that could result in additional draws, see “RISK FACTORS —

Conservatorship and Related Matters — We may request additional draws under the Purchase Agreement in future periods.”

For more information on our current business objectives, see “Executive Summary — Our Primary Business

Objectives.” For more information on the conservatorship and government support for our business, including the Purchase

Agreement, see “Conservatorship and Related Matters” and “Treasury Agreements.”

Executive Summary

You should read this Executive Summary in conjunction with our MD&A and consolidated financial statements and

related notes for the year ended December 31, 2012.

Overview

Freddie Mac is a GSE chartered by Congress in 1970 with a public mission to provide liquidity, stability, and

affordability to the U.S. housing market. We have maintained a consistent market presence since our inception, providing

mortgage liquidity in a wide range of economic environments. We are working to support the recovery of the housing market

and the nation’s economy by providing essential liquidity to the mortgage market and helping to stem the rate of

2 Freddie Mac
foreclosures. We believe our actions are helping communities across the country by providing America’s families with

access to mortgage funding at low rates while helping distressed borrowers keep their homes and avoid foreclosure, where

feasible.

Summary of Financial Results

During 2012, we observed certain signs of improvement in the housing market, which contributed positively to our

financial results. Our comprehensive income for the year ended December 31, 2012 was $16.0 billion, consisting of

$11.0 billion of net income and $5.1 billion of total other comprehensive income. By comparison, our comprehensive income

(loss) for the year ended December 31, 2011 was $(1.2) billion, consisting of $(5.3) billion of net income (loss) and

$4.0 billion of total other comprehensive income.

Our total equity was $8.8 billion at December 31, 2012, reflecting our total equity balance of $4.9 billion at

September 30, 2012, comprehensive income of $5.7 billion for the fourth quarter of 2012 and our dividend payment of

$1.8 billion on our senior preferred stock in December 2012. As a result of our positive net worth at December 31, 2012, no

draw is being requested from Treasury under the Purchase Agreement for the fourth quarter of 2012.

Our Primary Business Objectives

We are focused on the following primary business objectives: (a) providing credit availability for mortgages and

maintaining foreclosure prevention activities; (b) minimizing our credit losses; (c) developing mortgage market

enhancements in support of a new infrastructure for the secondary mortgage market; (d) maintaining sound credit quality on

the loans we purchase or guarantee; (e) contracting the dominant presence of the GSEs in the marketplace; and

(f) strengthening our infrastructure and improving overall efficiency while also focusing on retention of key employees. Our

business objectives reflect direction we have received from the Conservator, including the Conservatorship Scorecard. See

“EXECUTIVE COMPENSATION — Compensation Discussion and Analysis” for further information.

Providing Credit Availability for Mortgages and Maintaining Foreclosure Prevention Activities

We provide liquidity and support to the U.S. mortgage market in a number of important ways:

• Our support enables borrowers to have access to a variety of conforming mortgage products, including the prepayable

30-year fixed-rate mortgage, which historically has represented the foundation of the mortgage market.

• Our support provides lenders with a constant source of liquidity for conforming mortgage products. We estimate that

we, Fannie Mae, and Ginnie Mae collectively guaranteed more than 90% of the single-family conforming mortgages

originated during 2012 and 2011.

• Our consistent market presence provides assurance to our customers that there will be a buyer for their conforming

loans that meet our credit standards. We believe this liquidity provides our customers with confidence to continue

lending in difficult environments.

• We are an important counter-cyclical influence as we stay in the market even when other sources of capital have

withdrawn.

During 2012 and 2011, we purchased or issued other guarantee commitments for $426.8 billion and $320.8 billion in

UPB of single-family conforming mortgage loans, representing approximately 2.0 million and 1.5 million homes,

respectively.

Borrowers typically pay a lower interest rate on loans acquired or guaranteed by Freddie Mac, Fannie Mae, or Ginnie

Mae. Mortgage originators are able to offer homebuyers and homeowners lower mortgage rates on conforming loan

products, in part because of the value investors place on GSE-guaranteed mortgage-related securities. In December 2012, we

estimated that borrowers were paying an average of 43 basis points less on these conforming loans than on non-conforming

loans. These estimates were based on data provided by HSH Associates, a third-party provider of mortgage market data.

We are focused on reducing the number of foreclosures and helping to keep families in their homes. In 2012, we

continued to introduce new initiatives designed to help eligible borrowers keep their homes and avoid foreclosure. Since

2009, we have helped more than 785,000 borrowers experiencing hardship complete a loan workout.

3 Freddie Mac
Our relief refinance initiative, including HARP (which is the portion of our relief refinance initiative for loans with LTV

ratios above 80%), is a significant part of our effort to keep families in their homes. We implemented a number of changes to

HARP in late 2011 and 2012. These changes allowed more borrowers to participate in the program and benefit from

refinancing their home mortgages, including borrowers whose mortgages have LTV ratios above 125%. Our purchases of

HARP loans increased to $86.9 billion in 2012, compared to $39.7 billion in 2011. We have purchased HARP loans provided

to nearly 915,000 borrowers since the initiative began in 2009, including more than 434,000 borrowers during 2012.

Under our loan workout programs, our servicers contact borrowers and attempt to help borrowers experiencing hardship

stay in their homes or avoid foreclosure. Our servicers seek and also facilitate the completion of foreclosure alternatives

when a home retention solution is not possible. Under HAMP and the non-HAMP standard modification, borrowers are

required to complete a trial period before the loan modification becomes effective. Based on information provided by the

MHA Program administrator, our servicers had completed approximately 217,209 loan modifications under HAMP from the

introduction of the initiative in 2009 through December 31, 2012. As of December 31, 2012, approximately 24,000

borrowers were in modification trial periods, including approximately 15,000 borrowers in trial periods for our non-HAMP

standard modification. Our new non-HAMP standard loan modification initiative was implemented for all servicers

beginning on January 1, 2012. Our completed modification volume during the first half of 2012 was below what otherwise

would be expected, as servicers completed the transition to the non-HAMP standard modification initiative; however, the

volume of our non-HAMP standard modifications increased in the second half of 2012 compared to the first half of 2012.

See “Our Business Segments — Single-Family Guarantee Segment” for more information about loss mitigation activities and

our efforts to provide credit availability, including through HAMP, and our relief refinance mortgage initiative, which

includes HARP.

Short sale activity increased in 2012 compared to 2011. Short sale activity as a percentage of the combined total of short

sales and foreclosure transfers increased from 27% in 2011 to 33% in 2012, primarily resulting from our increased focus on

this foreclosure alternative. At the direction of FHFA, and as part of the servicing alignment initiative, we announced a new

standard short sale process during the third quarter of 2012 designed to help more struggling borrowers use short sales to

avoid foreclosure. We believe this new process may lead to an increase in short sales in 2013.

The table below presents our single-family loan workout activities for the last five quarters.

Table 1 — Total Single-Family Loan Workout Volumes(1)

For the Three Months Ended

12/31/2012 09/30/2012 06/30/2012 03/31/2012 12/31/2011

(number of loans)

Loan modifications ................................................ 19,898 20,864 15,142 13,677 19,048

Repayment plans .................................................. 6,964 7,099 8,712 10,575 8,008

Forbearance agreements(2) ............................................ 2,442 2,190 4,738 3,656 3,867

Short sales and deed in lieu of foreclosure transactions ...................... 13,849 14,383 12,531 12,245 12,675

Total single-family loan workouts ..................................... 43,153 44,536 41,123 40,153 43,598

(1) Based on actions completed with borrowers for loans within our single-family credit guarantee portfolio. Excludes those modification, repayment, and

forbearance activities for which the borrower has started the required process, but the actions have not been made permanent or effective, such as loans

in modification trial periods. Also excludes certain loan workouts where our single-family seller/servicers have executed agreements in the current or

prior periods, but these have not been incorporated into certain of our operational systems, due to delays in processing. These categories are not mutually

exclusive and a loan in one category may also be included within another category in the same period.

(2) Excludes loans with long-term forbearance under a completed loan modification. Many borrowers enter into a short-term forbearance agreement before

another loan workout is pursued or completed. We only report forbearance activity for a single loan once during each quarterly period; however, a single

loan may be included under separate forbearance agreements in separate periods.

Minimizing Our Credit Losses

To help minimize the credit losses related to our guarantee activities, we are focused on:

• pursuing a variety of loan workouts, including foreclosure alternatives, in an effort to reduce the severity of losses we

experience over time;

• managing foreclosure timelines to the extent possible, given the lengthy foreclosure process in many states;

• managing our inventory of foreclosed properties to reduce costs and maximize proceeds; and

• pursuing contractual remedies against originators, lenders, servicers, and insurers, as appropriate.

4 Freddie Mac
We establish guidelines for our servicers to follow and provide them default management tools to use, in part, in

determining which type of loan workout would be expected to provide the best opportunity for minimizing our credit losses.

We require our single-family seller/servicers to first evaluate problem loans for a repayment or forbearance plan before

considering modification. If a borrower is not eligible for a modification, our seller/servicers pursue foreclosure alternatives

(e.g., short sales) before considering foreclosure.

During 2012, we continued to implement the FHFA-directed servicing alignment initiative, under which we and Fannie

Mae are aligning certain standards for servicing non-performing loans owned or guaranteed by the companies. We have

provided standards to our servicers under this initiative that require them to initiate earlier and more frequent communication

with delinquent borrowers, employ consistent requirements for collecting documents from borrowers, and follow consistent

timelines for responding to borrowers and for processing foreclosures. Under these new servicing standards, we pay

incentives to servicers that exceed certain performance standards with respect to servicing delinquent loans. We also assess

compensatory fees from servicers if they do not achieve minimum performance benchmarks with respect to servicing

delinquent loans, including foreclosure timelines.

Our servicers pursue repayment plans and loan modifications for borrowers facing financial or other hardships since the

level of recovery (if a loan reperforms) may often be much higher than with foreclosure or foreclosure alternatives. In cases

where these alternatives are not possible or successful, a short sale transaction typically provides us with a comparable or

higher level of recovery than what we would receive through property sales from our REO inventory. In large part, the

benefit of short sales arises from the avoidance of costs we would otherwise incur to complete the foreclosure and dispose of

the property, including maintenance and other property expenses associated with holding REO property. The foreclosure

process is a lengthy one in many jurisdictions with significant associated costs to complete, including, in times of declining

home values, foregone recovery we might receive from an earlier sale.

We have contractual arrangements with our seller/servicers under which they agree to sell us mortgage loans, and

represent and warrant that those loans have been originated under specified underwriting standards. In addition, our servicers

represent and warrant to us that those loans will be serviced in accordance with our servicing contract. If we subsequently

discover that the representations and warranties were breached (i.e., contractual standards were not followed), we can

exercise certain contractual remedies to mitigate our actual or potential credit losses. These contractual remedies include the

ability to require the seller/servicer to repurchase the loan at its current UPB and/or to make us whole for losses realized with

respect to the loan, after consideration of other recoveries, if any. The amount we expect to collect on outstanding repurchase

requests is significantly less than the UPB of the loans subject to the repurchase requests primarily because many of these

requests will likely be satisfied by the seller/servicers reimbursing us for realized credit losses. Some of these requests also

may be rescinded in the course of the contractual appeals process. As of December 31, 2012, the UPB of loans subject to

repurchase requests issued to our single-family seller/servicers was approximately $3.0 billion, and approximately 41% of

these requests were outstanding for more than four months since issuance of our initial repurchase request (this figure

includes repurchase requests for which appeals were pending). Of the total amount of repurchase requests outstanding at

December 31, 2012, approximately $1.2 billion were issued due to mortgage insurance rescission or mortgage insurance

claim denial.

Historically, we have used a process of reviewing a sample of the loans we purchase to validate compliance with our

standards. In addition, we review many delinquent loans and loans that have resulted in credit losses, such as through

foreclosure or short sale. Beginning in 2012, we made revisions to our selection approach for these loans that expanded the

coverage of our loan reviews. Certain of these changes are designed to increase our loss recoveries. We expect that the

changes made to our loan review process will increase our repurchase request volumes with our seller/servicers in the future.

We, together with Fannie Mae, also launched a new representation and warranty framework for conventional loans

purchased by the GSEs on or after January 1, 2013. The objective of the new framework is to clarify lenders’ repurchase

exposures and liability on future sales of mortgage loans to Freddie Mac and Fannie Mae and, under the new framework,

lenders will be relieved of certain repurchase obligations in specific cases, such as for loans that perform for 36 consecutive

months (subject to certain exclusions). As a result, if we are unable to identify breaches in representations and warranties

timely, we may face greater exposure to credit and other losses under this new framework, as our ability to seek recovery or

repurchase from the seller is more limited. The new framework does not affect seller/servicers’ obligations under their

contracts with us with respect to loans sold to us prior to January 1, 2013. The new framework also does not affect their

obligation to service these loans in accordance with our servicing standards. For more information, see “Our Business

5 Freddie Mac
Segments — Single-Family Guarantee Segment — New Representation and Warranty Framework” and “MD&A — RISK

MANAGEMENT — Credit Risk — Institutional Credit Risk — Single-Family Mortgage Seller/Servicers.”

Our credit loss exposure is also partially mitigated by mortgage insurance, which is a form of credit enhancement.

Primary mortgage insurance is generally required to be purchased, typically at the borrower’s expense, for certain mortgages

with higher LTV ratios. Although we received payments under primary and other mortgage insurance of $2.0 billion and

$2.5 billion in 2012 and 2011, respectively, which helped to mitigate our credit losses, many of our mortgage insurers remain

financially weak. As a result, we expect to receive substantially less than full payment of our claims from three of our

mortgage insurance counterparties that are currently partially paying claims under orders of their state regulators. We believe

that certain other of our mortgage insurance counterparties lack sufficient ability to meet all their expected lifetime claims

paying obligations to us as those claims emerge. See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES —

Table 4.5 — Recourse and Other Forms of Credit Protection” for information about credit enhancements of our single-family

credit guarantee portfolio.

Developing Mortgage Market Enhancements in Support of a New Infrastructure for the Secondary Mortgage Market

We continue efforts that we believe will create value for the industry by building the infrastructure for a future housing

finance system. These efforts include the implementation of the UMDP, which provides us with the ability to collect

additional data that we believe will improve our risk management practices. In the first quarter of 2012, we completed a key

milestone of the UMDP with the launch of the Uniform Collateral Data Portal for the electronic submission of appraisal

reports for conventional mortgages. The implementation of the portal was effective for mortgages with application dates after

November 30, 2011 that were delivered to us after March 18, 2012. In the second quarter of 2012, we implemented the

ULDD, which provides for the efficient collection and use of consistent information about loan terms, collateral, and

borrowers. The implementation of ULDD was effective for mortgages with application dates after November 30, 2011 that

were delivered to us after July 22, 2012, with a transition period allowing for optional usage of ULDD for mortgages

delivered to us between April 23, 2012 and July 22, 2012.

We are also working with FHFA and others to develop a plan for the design and development of a securitization

platform that can be used in a future secondary mortgage market. In October 2012, FHFA released a white paper for industry

comment that described a proposed framework for a new securitization platform and a model pooling and servicing

agreement. FHFA has stated that it anticipates that Freddie Mac and Fannie Mae will each maintain its own distinct

securitization operations and continue to issue its own securities.

We are continuing to work with FHFA and Fannie Mae to develop recommendations to align certain of the terms of the

contracts we and Fannie Mae use with our respective single-family seller/servicers, as well as certain practices we follow in

managing our remedies and our respective business relationships with these companies. In October 2012, we announced,

pursuant to a directive by FHFA, changes to requirements in certain areas related to loan servicing, including a process and

criteria for evaluating servicer performance. These changes align our and Fannie Mae’s requirements in these areas. See

“MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Single-Family Mortgage Seller/

Servicers” for additional information.

Maintaining Sound Credit Quality on the Loans We Purchase or Guarantee

We continue to focus on maintaining credit policies, including our underwriting standards, that allow us to purchase and

guarantee loans made to qualified borrowers that we believe will provide management and guarantee fee income (excluding

the amounts associated with the Temporary Payroll Tax Cut Continuation Act of 2011), over the long-term, that exceeds our

expected credit-related and administrative expenses on such loans.

The credit quality of the single-family loans we acquired beginning in 2009 (excluding HARP and other relief refinance

mortgages) is significantly better than that of loans we acquired from 2005 to 2008, as measured by original LTV ratios,

FICO scores, and the proportion of loans underwritten with fully documented income. The improvement in credit quality of

loans we have purchased since 2008 (excluding HARP and other relief refinance mortgages) is primarily the result of:

(a) changes in our credit policies, including changes in our underwriting standards; (b) fewer purchases of loans with higher

risk characteristics; and (c) changes in mortgage insurers’ and lenders’ underwriting practices.

Underwriting procedures for relief refinance mortgages are limited in many cases, and such procedures generally do not

include all of the changes in underwriting standards we have implemented since 2008. As a result, relief refinance mortgages

6 Freddie Mac
generally reflect many of the credit risk attributes of the original loans. However, borrower participation in our relief

refinance mortgage initiative may help reduce our exposure to credit risk in cases where the borrowers’ payments under their

mortgages are reduced, thereby strengthening the borrowers’ potential to make their mortgage payments. Relief refinance

mortgages of all LTV ratios comprised approximately 18% and 11% of the UPB in our total single-family credit guarantee

portfolio at December 31, 2012 and 2011, respectively.

HARP loans represented 11% and 6% of the UPB of our single-family credit guarantee portfolio as of December 31,

2012 and 2011, respectively. Mortgages originated after 2008, including HARP loans, represented 63% and 51% of the UPB

of our single-family credit guarantee portfolio as of December 31, 2012 and 2011, respectively, while the single-family loans

originated from 2005 through 2008 represented 24% and 32% of this portfolio at these dates, respectively.

Approximately 96% and 92% of the single-family mortgages we purchased in 2012 and 2011, respectively, were fixedrate, first lien amortizing mortgages, based on UPB. Approximately 82% and 78% of the single-family mortgages we

purchased in 2012 and 2011, respectively, were refinance mortgages, and approximately 24% and 16%, respectively, of these

refinance mortgages were HARP loans, based on UPB. HARP loans comprised approximately 20% and 12% of our singlefamily purchase volume in 2012 and 2011, respectively.

Due to our participation in HARP, we purchase a significant number of loans that have original LTV ratios over 100%.

The proportion of loans we purchased with LTV ratios over 100% increased from approximately 4% of our single-family

mortgage purchases (including HARP loans) in 2011 to 12% of our single-family mortgage purchases in 2012. This increase

was mainly due to the changes in HARP announced in the fourth quarter of 2011, which allow borrowers (whose loans we

already hold in our single-family credit guarantee portfolio) with higher LTV ratios to refinance. Over time, HARP loans

may not perform as well as other refinance mortgages because the continued high LTV ratios and reduced underwriting

standards of these loans increase the probability of default. In addition, HARP loans may not be covered by mortgage

insurance for the full excess of their UPB over 80%. See “Our Business — Relief Refinance Mortgage Initiative and the

Home Affordable Refinance Program” for further information about our relief refinance initiative and HARP.

The table below presents the composition and certain other information about loans in our single-family credit guarantee

portfolio, by year of origination at December 31, 2012 and 2011, and for the years ended December 31, 2012 and 2011.

7 Freddie Mac
Table 2 — Single-Family Credit Guarantee Portfolio Summary(1)

At December 31, 2012

Year Ended

December 31, 2012

Percent of

Portfolio

Average

Credit

Score(2)

Current

LTV Ratio(3)

Current

LTV Ratio

>100%(3)(4)

Serious

Delinquency

Rate(5)

Percent of

Credit Losses(6)

Loans originated — 2009 to 2012:

Relief refinance loans:

HARP loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11% 735 100% 43% 1.06% 2.1%

Other relief refinance loans . . . . . . . . . . . . . . . . . . . . . . . . 7 749 58 — 0.29 0.1

All other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 757 66 1 0.27 1.5

Subtotal — 2009 to 2012 originations . . . . . . . . . . . . . . . . . . 63 753 71 7 0.39 3.7

Loans originated — 2005 to 2008 . . . . . . . . . . . . . . . . . . . . . . . 24 708 98 42 9.56 87.2

Loans originated — 2004 and prior . . . . . . . . . . . . . . . . . . . . . . 13 715 56 6 3.20 9.1

Total ............................................ 100% 737 75 15 3.25 100.0%

At December 31, 2011

Year Ended

December 31, 2011

Percent of

Portfolio

Average

Credit

Score(2)

Current

LTV Ratio(3)

Current

LTV Ratio

>100%(3)(4)

Serious

Delinquency

Rate(5)

Percent of

Credit Losses(6)

Loans originated — 2009 to 2011:

Relief refinance loans:

HARP loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6% 737 97% 35% 1.08% 1.0%

Other relief refinance loans . . . . . . . . . . . . . . . . . . . . . . . . 5 751 61 — 0.17 0.1

All other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 757 69 2 0.21 0.8

Subtotal- 2009 to 2011 originations . . . . . . . . . . . . . . . . . . . . 51 754 71 5 0.30 1.9

Loans originated — 2005 to 2008 . . . . . . . . . . . . . . . . . . . . . . . 32 713 104 48 8.75 89.5

Loans originated — 2004 and prior . . . . . . . . . . . . . . . . . . . . . . 17 719 61 9 2.83 8.6

Total ............................................ 100% 735 80 20 3.58 100.0%

(1) Based on the loans remaining in the portfolio at December 31, 2012 and 2011, which totaled $1.6 trillion and $1.7 trillion, respectively, rather than all

loans originally guaranteed by us and originated in the respective year. Includes loans acquired under our relief refinance initiative, which began in 2009.

For credit scores, LTV ratios, serious delinquency rates, and other information about the loans in our single-family credit guarantee portfolio, see “RISK

MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit Risk.”

(2) Credit score data is based on FICO scores, which are ranked on a scale of approximately 300 to 850 points. Although we obtain updated credit

information on certain borrowers after the origination of a mortgage, such as those borrowers seeking a modification, the scores presented in this table

represent the credit score of the borrower at the time of loan origination and may not be indicative of the borrowers’ creditworthiness at December 31,

2012.

(3) We estimate current market values by adjusting the value of the property at origination based on changes in the market value of homes in the same

geographical area since origination. See endnote (4) to “Table 41 — Characteristics of the Single-Family Credit Guarantee Portfolio” for information on

our calculation of current LTV ratios.

(4) Calculated as a percentage of the aggregate UPB of loans with LTV ratios greater than 100% in relation to the total UPB of loans in the category.

(5) See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-family Mortgage Credit Risk — Delinquencies” for further information

about our reported serious delinquency rates.

(6) Historical credit losses for each origination year may not be representative of future results.

Contracting the Dominant Presence of the GSEs in the Marketplace

We continue to take steps toward the goal of gradually shifting mortgage credit risk from Freddie Mac to private

investors, while simplifying and shrinking certain of our operations. In the case of single-family credit guarantees, we are

exploring several ways to accomplish this goal, including increasing guarantee fees and evaluating new risk-sharing

transactions beyond the traditional charter-required mortgage insurance coverage. Two across-the-board increases in

guarantee fees occurred in 2012, and FHFA has proposed additional fee adjustments, as discussed in “BUSINESS — Our

Business Segments — Single-Family Guarantee Segment — Overview of the Securitization Process.”

In the Investments segment, under the terms of the Purchase Agreement, as amended on August 17, 2012, and FHFA

regulation, the UPB of our mortgage-related investments portfolio: (a) could not exceed $650 billion on December 31, 2012;

and (b) on December 31 of each year thereafter, may not exceed 85% of the aggregate amount of the UPB we were permitted

to own as of December 31 of the immediately preceding calendar year, until the portfolio reaches $250 billion. This strategy

is designed to reduce the portfolio and provide the best return to the taxpayer while minimizing market disruption.

In the Multifamily segment, our primary business model is to purchase held-for-sale multifamily loans for aggregation and

then securitization through multifamily K Certificates, which are considered Other Guarantee Transactions. In substantially all

of these transactions we guarantee only the most senior tranches of the securities. As a result, a significant portion of our

expected credit risk associated with these loans is sold in subordinated tranches to third party investors.

8 Freddie Mac
Strengthening Our Infrastructure and Improving Overall Efficiency While Also Focusing On Retention of Key Employees

We continue to work to both enhance the quality of our infrastructure and to improve our efficiency to preserve the

taxpayers’ investment. We are focusing our resources primarily on key projects, many of which are related to FHFAmandated strategic initiatives that will likely take several years to fully implement. We are also focused on making

significant improvements to our systems infrastructure in order to: (a) replace legacy hardware or software systems at the end

of their useful lives and to strengthen our disaster recovery capabilities; and (b) improve our data collection and

administration capabilities as well as our ability to assist in the servicing of loans.

We continue to actively manage our general and administrative expenses, while also continuing to focus on retaining

key talent. In the first half of 2012, we introduced a new compensation program for employees to help mitigate the

uncertainty surrounding compensation. Under the program, the majority of employees have a more predictable income, as the

program either reduces or eliminates the amount of compensation that is subject to variability. The variable elements of

compensation for our senior executives are subject only to reduction based on the company’s and their individual

performance, with no upside potential. While employee turnover moderated in 2012 compared to 2011, we are continuing to

explore various strategic arrangements with outside firms to provide operational capability and staffing for key functions, as

needed.

Our general and administrative expenses increased in 2012 compared to 2011, largely due to an increase in spending for

FHFA-mandated strategic initiatives. We believe the various FHFA-mandated strategic initiatives will likely continue to

require significant resources and thus continue to affect our level of administrative expenses going forward.

Single-Family Credit Guarantee Portfolio

The UPB of our single-family credit guarantee portfolio declined approximately 6.2% and 3.5% during 2012 and 2011,

respectively, as the amount of single-family loan liquidations exceeded new loan purchase and guarantee activity. We believe

this is due, in part, to declines in the amount of single-family mortgage debt outstanding in the market and a decline in our

single-family competitive position compared to other market participants (primarily Fannie Mae and Ginnie Mae). See

“RISK FACTORS — Competitive and Market Risks — A significant decline in the price performance of or demand for our

PCs could have an adverse effect on the volume and/or profitability of our new single-family guarantee business” for further

information on our competitive position in the single-family mortgage market.

The table below provides certain credit statistics for our single-family credit guarantee portfolio.

9 Freddie Mac
Table 3 — Credit Statistics, Single-Family Credit Guarantee Portfolio

As of

12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011

Payment status —

One month past due .............................................. 1.85% 2.02% 1.79% 1.63% 2.02%

Two months past due ............................................. 0.66% 0.66% 0.60% 0.57% 0.70%

Seriously delinquent(1) ............................................. 3.25% 3.37% 3.45% 3.51% 3.58%

Non-performing loans (in millions)(2) .................................... $128,599 $131,106 $118,463 $119,599 $120,514

Single-family loan loss reserve (in millions)(3) ............................. $ 30,508 $ 33,298 $ 35,298 $ 37,771 $ 38,916

REO inventory (in properties) ........................................ 49,071 50,913 53,271 59,307 60,535

REO assets, net carrying value (in millions) .............................. $ 4,314 $ 4,459 $ 4,715 $ 5,333 $ 5,548

For the Three Months Ended

12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011

(in units, unless noted)

Seriously delinquent loan additions(1) .................................... 72,626 76,104 75,904 80,815 95,661

Loan modifications(4) ............................................... 19,898 20,864 15,142 13,677 19,048

REO acquisitions .................................................. 18,672 20,302 20,033 23,805 24,758

REO disposition severity ratio:(5)

California ..................................................... 34.4% 37.7% 41.6% 44.2% 44.6%

Arizona ....................................................... 35.9% 36.3% 40.4% 45.0% 46.7%

Florida ....................................................... 42.6% 44.7% 46.2% 48.6% 50.1%

Nevada ....................................................... 45.6% 50.6% 54.3% 56.5% 54.2%

Illinois ....................................................... 46.5% 47.7% 47.8% 49.3% 51.2%

Total U.S ..................................................... 35.2% 36.2% 37.9% 40.3% 41.2%

Single-family provision (benefit) for credit losses (in millions) ................. $ (658) $ 650 $ 177 $ 1,844 $ 2,664

Single-family credit losses (in millions) ................................. $ 2,396 $ 2,936 $ 2,858 $ 3,435 $ 3,209

(1) See “MD&A — RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit Risk — Delinquencies” for further

information about our reported serious delinquency rates.

(2) Consists of the UPB of loans in our single-family credit guarantee portfolio that have undergone a TDR or that are seriously delinquent. During the third

quarter of 2012, we changed the treatment of single-family loans discharged in Chapter 7 bankruptcy to classify these loans as TDRs, regardless of the

borrowers’ payment status. As a result, we newly classified approximately $19.5 billion in UPB of loans discharged in Chapter 7 bankruptcy as TDRs in

the third quarter of 2012. As of December 31, 2012 and 2011, approximately $65.8 billion and $44.4 billion in UPB of TDR loans, respectively, were no

longer seriously delinquent.

(3) Consists of the combination of: (a) our allowance for loan losses on mortgage loans held for investment; and (b) our reserve for guarantee losses

associated with non-consolidated single-family mortgage securitization trusts and other guarantee commitments.

(4) Represents the number of modification agreements with borrowers completed during the quarter. Excludes forbearance agreements, repayment plans,

and loans in modification trial periods.

(5) States presented represent the five states where our credit losses were greatest during 2012. Calculated as the amount of our losses recorded on

disposition of REO properties during the respective quarterly period, excluding those subject to repurchase requests made to our seller/servicers, divided

by the aggregate UPB of the related loans. The amount of losses recognized on disposition of the properties is equal to the amount by which the UPB of

the loans exceeds the amount of sales proceeds from disposition of the properties. Excludes sales commissions and other expenses, such as property

maintenance and costs, as well as applicable recoveries from credit enhancements, such as mortgage insurance.

In discussing our credit performance, we often use the terms “credit losses” and “credit-related expenses.” These terms

are significantly different. Our “credit losses” consist of charge-offs and REO operations expense, while our “credit-related

expenses” consist of our provision for credit losses and REO operations expense.

Since the beginning of 2008, on an aggregate basis, we have recorded provision for credit losses associated with singlefamily loans of approximately $75.2 billion, and have recorded an additional $3.9 billion in losses on loans purchased from

PC trusts, net of recoveries. The majority of these losses are associated with loans originated in 2005 through 2008. While

loans originated in 2005 through 2008 will give rise to additional credit losses that have not yet been incurred and, thus, have

not yet been provisioned for, we believe that, as of December 31, 2012, we have reserved for or charged-off the majority of

the total expected credit losses for these loans. Nevertheless, various factors, such as continued high unemployment rates or

future declines in home prices, could require us to provide for losses on these loans beyond our current expectations.

Our loan loss reserves declined in every quarter of 2012, which reflects improvement in both borrower payment

performance and lower severity ratios for both REO dispositions and short sale transactions due to the improvements in

home prices in most areas during 2012. Our REO inventory also declined in every quarter of 2012, which reflects that our

sales of REO properties exceeded the volume of our REO acquisitions due to lower foreclosure activity as well as an increase

in the volume of short sales prior to foreclosure.

Our average REO disposition severity ratio improved to 35.2% for the fourth quarter of 2012 compared to 41.2% for the

fourth quarter of 2011. Although this ratio improved for each quarter of 2012, it remains high as compared to our experience

in periods before 2007.

10 Freddie Mac
The serious delinquency rate for our single-family credit guarantee portfolio improved at December 31, 2012, compared

to December 31, 2011. Excluding relief refinance loans, the improvement in borrower payment performance during 2012

reflects an improved credit profile of borrowers with loans originated since 2008. However, several factors, including the

lengthening of the foreclosure process, have resulted in loans remaining in serious delinquency for longer periods than

experienced prior to 2008, particularly in states that require a judicial foreclosure process. As of December 31, 2012 and

2011, the percentage of seriously delinquent loans that have been delinquent for more than six months was 72% and 70%,

respectively.

The balance of our non-performing loans increased during the third quarter of 2012, due to a change in the treatment of

single-family loans discharged in Chapter 7 bankruptcy to classify these loans as TDRs (unless they were already classified

as TDRs for other reasons), regardless of the borrowers’ payment status. Except for this change in classification, which

resulted in approximately $19.5 billion in UPB of loans being newly classified as TDRs in the third quarter of 2012, the

balance of our non-performing loans would have declined in every quarter of 2012. Although we experienced improvement

in the amount of our non-performing loans during the year, this balance remained high at the end of 2012, compared to

periods prior to 2009.

The credit losses and loan loss reserves associated with our single-family credit guarantee portfolio remained elevated in

2012, due, in part, to:

• Losses associated with the continued high volume of foreclosures and foreclosure alternatives. These actions relate to

the continued efforts of our servicers to resolve our large inventory of seriously delinquent loans. Due to the length of

time necessary for servicers either to complete the foreclosure process or pursue foreclosure alternatives on seriously

delinquent loans in our portfolio, we expect our credit losses will continue to remain elevated even if the volume of

new serious delinquencies declines.

• Continued negative effect of certain loan groups within the single-family credit guarantee portfolio, such as: (a) loans

originated in 2005 through 2008; and (b) loans with higher-risk characteristics (such as those underwritten with

certain lower documentation standards and interest-only loans), a significant portion of which were originated in 2005

through 2008. These groups continue to be large contributors to our credit losses.

• Cumulative decline in national home prices of 22% since June 2006, based on our own index. As a result of this price

decline, approximately 15% of loans in our single-family credit guarantee portfolio, based on UPB, had estimated

current LTV ratios in excess of 100% (i.e., underwater loans) as of December 31, 2012.

• Weak financial condition of many of our mortgage insurers, which has reduced our actual recoveries from these

counterparties as well as our estimates of expected recoveries.

Some of our loss mitigation activities create fluctuations in our delinquency statistics. See “MD&A — RISK

MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-family Mortgage Credit Risk — Credit Performance —

Delinquencies” for further information about factors affecting our reported delinquency rates.

Consolidated Financial Results — 2012 versus 2011

Net income was $11.0 billion for 2012 compared to net income (loss) of $(5.3) billion for 2011. Key highlights of our

financial results include:

• Net interest income for 2012 decreased to $17.6 billion from $18.4 billion for 2011, mainly due to the impact of a

reduction in the balance of our higher-yielding mortgage-related assets, partially offset by lower funding costs.

• Provision for credit losses for 2012 declined to $1.9 billion, compared to $10.7 billion for 2011. The significant

reduction in provision for credit losses in 2012 primarily reflects declines in the volume of newly delinquent loans

(largely due to a decline in the portion of our single-family credit guarantee portfolio originated in 2005 through

2008), and lower estimates of incurred loss due to the positive impact of an increase in national home prices.

• Non-interest income (loss) was $(4.1) billion for 2012, compared to $(10.9) billion for 2011. The improvement was

largely driven by a decrease in derivative losses during 2012 compared to 2011.

11 Freddie Mac
• Non-interest expense declined to $2.2 billion for 2012, from $2.5 billion for 2011, primarily due to a decrease in REO

operations expense during 2012 compared to 2011 as a result of improving home prices in certain geographical areas

with significant REO activity.

• Comprehensive income was $16.0 billion for 2012 compared to comprehensive income (loss) of $(1.2) billion for

2011. Comprehensive income for 2012 consisted of $11.0 billion of net income and $5.1 billion of other

comprehensive income, primarily due to a reduction in net unrealized losses on our available-for-sale securities.

Our Business

We conduct business in the U.S. residential mortgage market and the global securities market, subject to the direction of

our Conservator, FHFA, and under regulatory supervision of FHFA, the SEC, HUD, and Treasury. The size of the U.S.

residential mortgage market is affected by many factors, including changes in interest rates, home ownership rates, home

prices, the supply of housing and lender preferences regarding credit risk and borrower preferences regarding mortgage debt.

The amount of residential mortgage debt available for us to purchase and the mix of available loan products are also affected

by several factors, including the volume of mortgages meeting the requirements of our charter (which is affected by changes

in the conforming loan limit determined by FHFA), our own preference for credit risk reflected in our purchase standards and

the mortgage purchase and securitization activity of other financial institutions. We conduct our business operations solely in

the U.S. and its territories.

In addition to the directives given us by our Conservator, our charter forms the framework for our business activities,

the initiatives we bring to market and the services we provide to the nation’s residential housing and mortgage industries.

Our charter also determines the types of mortgage loans that we are permitted to purchase. Our statutory mission as defined

in our charter is to:

• provide stability in the secondary market for residential mortgages;

• respond appropriately to the private capital market;

• provide ongoing assistance to the secondary market for residential mortgages (including activities relating to

mortgages for low- and moderate-income families, involving a reasonable economic return that may be less than the

return earned on other activities); and

• promote access to mortgage credit throughout the U.S. (including central cities, rural areas, and other underserved

areas).

Our charter does not permit us to originate mortgage loans or lend money directly to consumers in the primary mortgage

market. We provide liquidity, stability and affordability to the U.S. housing market primarily by providing our credit

guarantee for residential mortgages originated by mortgage lenders and investing in mortgage loans and mortgage-related

securities. We use mortgage securitization as an integral part of our activities. Mortgage securitization is a process by which

we purchase mortgage loans that lenders originate, and pool these loans into guaranteed mortgage securities that are sold in

global capital markets, generating proceeds that support future loan origination activity by lenders. The primary Freddie Mac

guaranteed mortgage-related security is the single-class PC. We also aggregate and resecuritize mortgage-related securities

that are issued by us, other GSEs, HFAs, or private (non-agency) entities, and issue other single-class and multiclass

mortgage-related securities to third-party investors. We also enter into certain other guarantee commitments for mortgage

loans, HFA bonds under the HFA initiative, and multifamily housing revenue bonds held by third parties.

Our charter limits our purchases of single-family loans to the conforming loan market. The conforming loan market is

defined by loans originated with UPBs at or below limits determined annually based on changes in FHFA’s housing price

index, a method established and maintained by FHFA for determining the national average single-family home price. Since

2006, the base conforming loan limit for a one-family residence has been set at $417,000, and higher limits have been

established in certain “high-cost” areas (currently, up to $625,500 for a one-family residence). Higher limits also apply to

two- to four-family residences and for mortgages secured by properties in Alaska, Guam, Hawaii, and the U.S. Virgin

Islands.

12 Freddie Mac
Our charter generally prohibits us from purchasing first-lien single-family mortgages if the outstanding UPB of the

mortgage at the time of our purchase exceeds 80% of the value of the property securing the mortgage unless we have one of

the following credit protections:

• mortgage insurance from a mortgage insurer that we determine is qualified on the portion of the UPB of the mortgage

that exceeds 80%;

• a seller’s agreement to repurchase or replace any mortgage that has defaulted; or

• retention by the seller of at least a 10% participation interest in the mortgage.

Under our charter, our mortgage purchase operations are confined, so far as practicable, to mortgages that we deem to

be of such quality, type and class as to meet generally the purchase standards of other private institutional mortgage

investors. This is a general marketability standard.

Our charter requirement for credit protection on mortgages with LTV ratios greater than 80% does not apply to

multifamily mortgages or to mortgages that have the benefit of any guarantee, insurance or other obligation by the U.S. or

any of its agencies or instrumentalities (e.g., the FHA, the VA or the USDA Rural Development). Additionally, as part of

HARP, we may purchase single-family mortgages that refinance borrowers whose mortgages we currently own or guarantee

without obtaining additional credit enhancement in excess of that already in place for any such loan, even if the LTV ratio of

the new loan is above 80%.

Our Business Segments

Our operations consist of three reportable segments, which are based on the type of business activities each performs —

Single-family Guarantee, Investments, and Multifamily. Certain activities that are not part of a reportable segment are

included in the All Other category.

We evaluate segment performance and allocate resources based on a Segment Earnings approach. For more information

on our segments, including financial information, see “MD&A — CONSOLIDATED RESULTS OF OPERATIONS —

Segment Earnings” and “NOTE 13: SEGMENT REPORTING.”

Single-Family Guarantee Segment

The Single-family Guarantee segment reflects results from our single-family credit guarantee activities. In our Singlefamily Guarantee segment, we purchase single-family mortgage loans originated by our seller/servicers in the primary

mortgage market. In most instances, we use the mortgage securitization process to package the mortgage loans into

guaranteed mortgage-related securities. We guarantee the payment of principal and interest on the mortgage-related security

in exchange for management and guarantee fees.

Our Customers

Our customers are predominantly lenders in the primary mortgage market that originate mortgages for homeowners.

These lenders include mortgage banking companies, commercial banks, savings banks, community banks, credit unions,

HFAs, and savings and loan associations.

We acquire a significant portion of our mortgages from several large lenders. These lenders are among the largest

mortgage loan originators in the U.S. During 2012, three mortgage lenders, Wells Fargo Bank, N.A, U.S. Bank, N.A., and

JPMorgan Chase Bank, N.A., each accounted for 10% or more of our single-family mortgage purchase volume and

collectively accounted for approximately 49% of our single-family mortgage purchase volume. In the last two years, a

number of our largest mortgage seller/servicers have reduced or eliminated their purchases of mortgage loans from mortgage

brokers and correspondent lenders. As a result, we are acquiring an increasing portion of our business volume directly from

smaller lenders. Our top ten lenders accounted for approximately 73% and 82% of our single-family mortgage purchase

volume during 2012 and 2011, respectively.

We are the master servicer for the loans we purchase, and delegate the primary servicing function to our customers. A

significant portion of our single-family mortgage loans are serviced by several of our large customers. If our servicers lack

appropriate process controls, experience a failure in their controls, or experience an operating disruption in their ability to

service mortgage loans, our business and financial results could be adversely affected. For additional information about our

13 Freddie Mac
relationships with our customers, see “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk —

Single-Family Mortgage Seller/Servicers.”

Our Competition

Historically, our principal competitors have been Fannie Mae, Ginnie Mae and FHA/VA, and other financial institutions

that retain or securitize mortgages, such as commercial and investment banks, dealers, and thrift institutions. Since 2008,

most of our competitors, other than Fannie Mae and Ginnie Mae, have ceased their activities in the residential mortgage

securitization business or severely curtailed these activities relative to their previous levels. We compete on the basis of

price, products, the structure of our securities, and service. Competition to acquire single-family mortgages can also be

significantly affected by changes in our credit standards.

Ginnie Mae, which became a more significant competitor beginning in 2009, guarantees the timely payment of principal

and interest on mortgage-related securities backed by federally insured or guaranteed loans, primarily those insured by FHA

or guaranteed by VA. Ginnie Mae maintained a significant market share in 2012 and 2011, in large part due to favorable

pricing of loans insured by FHA, the increase in the FHA loan limit and the availability, through FHA, of a mortgage product

for borrowers seeking greater than 80% financing who could not otherwise qualify for a conventional mortgage.

The conservatorship, including direction provided to us by our Conservator, and the restrictions on our activities under

the Purchase Agreement may affect our ability to compete. FHFA, through its strategic plan activities, has required that we

and Fannie Mae adopt uniform approaches in a number of areas. Through the servicing alignment initiative, we and Fannie

Mae have aligned many of our policies and procedures with respect to the servicing of single-family loans. We are also

aligning certain terms of the contracts we and Fannie Mae use with our respective single-family customers, and are working

with Fannie Mae on a new securitization platform. For more information, see “RISK FACTORS — Conservatorship and

Related Matters — FHFA directives that we and Fannie Mae adopt uniform approaches in some areas could have an

adverse impact on our business or on our competitive position with respect to Fannie Mae.”

14 Freddie Mac
Overview of the Mortgage Securitization Process

Mortgage securitization is a process by which we purchase mortgage loans that lenders originate, and pool these loans

into mortgage securities that are sold in global capital markets. The following diagram illustrates how we support mortgage

market liquidity when we create PCs through mortgage securitizations. These PCs can be sold to investors or held by us or

our customers.

Cash

Mortgage

Homeowners Our Customers:

Originate Loans with 

Homeowners

Sell or Exchange 

Mortgages for PCs or Cash

Invest in PCs or Sell PCs 

to Investors

Investors

Freddie Mac:

Buys Mortgages

Guarantees PCs

Retains Investments 

in PCs and Mortgages

Sells PCs to 

Investors

Cash

PC

PC or Cash

Mortgage

PC

Mortgage

PC Trusts

Mortgage Securitizations

Cash

PC

The U.S. residential mortgage market consists of a primary mortgage market that links homebuyers and lenders and a

secondary mortgage market that links lenders and investors. We participate in the secondary mortgage market by purchasing

mortgage loans and mortgage-related securities for investment and by issuing guaranteed mortgage-related securities. In the

Single-family Guarantee segment, we purchase and securitize “single-family mortgages,” which are mortgages that are

secured by one- to four-family properties.

In general, the securitization and Freddie Mac guarantee process works as follows: (a) a lender originates a mortgage

loan to a borrower purchasing a home or refinancing an existing mortgage loan; (b) we purchase the loan from the lender and

place it with other mortgages into a security that is sold to investors (this process is referred to as “pooling”); (c) the lender

may then use the proceeds from the sale of the loan or security to originate another mortgage loan; (d) we provide a credit

guarantee, for a fee (generally a portion of the interest collected on the mortgage loan), to those who invest in the security;

(e) the borrower’s monthly payment of mortgage principal and interest (net of a servicing fee and our management and

guarantee fee) is passed through to the investors in the security; and (f) if the borrower stops making monthly payments —

because a family member loses a job, for example — we step in and, pursuant to our guarantee, make the applicable

payments to investors in the security. In the event a borrower defaults on the mortgage, our servicer works with the borrower

to find a solution to help them stay in the home, or sell the property and avoid foreclosure, through our many different

workout options. If this is not possible, we ultimately foreclose and sell the home.

The terms of single-family mortgages that we purchase or guarantee allow borrowers to prepay these loans, thereby

allowing borrowers to refinance their loans when mortgage rates decline. Because of the nature of long-term, fixed-rate

mortgages, borrowers with these mortgages are protected against rising interest rates, but are able to take advantage of

15 Freddie Mac
declining rates through refinancing. When a borrower prepays a mortgage that we have securitized, the outstanding balance

of the security owned by investors is reduced by the amount of the prepayment. Unscheduled reductions in loan principal,

regardless of whether they are voluntary or involuntary, result in prepayments of security balances. Consequently, the owners

of our guaranteed securities are subject to prepayment risk on the related mortgage loans, which is principally that the

investor will receive an unscheduled return of the principal, and therefore may not earn the rate of return originally expected

on the investment.

We guarantee these mortgage-related securities in exchange for compensation, which consists primarily of a

combination of management and guarantee fees paid on a monthly basis as a percentage of the UPB of the underlying loans

(referred to as base fees), and initial upfront payments (referred to as delivery fees). We may also make upfront payments to

buy-up the monthly management and guarantee fee rate, or receive upfront payments to buy-down the monthly management

and guarantee fee rate. These fees are paid in conjunction with the formation of a PC to provide for a uniform coupon rate for

the mortgage pool underlying the issued PC.

We enter into mortgage purchase volume commitments with many of our single-family customers. These commitments

provide for the lenders to deliver to us a certain volume of mortgages during a specified period of time. Some commitments

may also provide for the lender to deliver to us a minimum percentage of their total sales of conforming loans. The purchase

and securitization of mortgage loans from customers under these contracts have pricing schedules for our management and

guarantee fees that are negotiated at the outset of the contract with initial terms that may range from one month to one year.

We call these transactions “flow” activity and they represent the majority of our purchase volumes. The remainder of our

purchases and securitizations of mortgage loans occurs in “bulk” transactions for which purchase prices and management and

guarantee fees are negotiated on an individual transaction basis. Mortgage purchase volumes from individual customers can

fluctuate significantly. If a mortgage lender fails to meet its contractual commitment, we have a variety of contractual

remedies, which may include the right to assess certain fees. Our mortgage purchase contracts contain no penalty or

liquidated damages clauses based on our inability to take delivery of presented mortgage loans. However, if we were to fail

to meet our contractual commitment, we could be deemed to be in breach of our contract and could be liable for damages in a

lawsuit. Given the uncertainty of the housing market in recent years, since 2009 we have entered into arrangements with

certain existing customers at their renewal dates that allow us to change credit and pricing terms more quickly than in the

past, including the ability to change our base management and guarantee fees upon 90 days or less notice to customers, if

directed to do so by FHFA.

We seek to issue guarantees with fee terms that we believe will, over the long-term, provide management and guarantee

fee income that exceeds our anticipated credit-related and administrative expenses on the underlying loans. To compensate us

for higher levels of risk in some mortgage products, we charge upfront delivery fees above the base management and

guarantee fee, which are calculated based on credit risk factors such as the mortgage product type, loan purpose, LTV ratio

and other loan or borrower characteristics. Historically, we have varied our guarantee and delivery fee pricing for different

customers, mortgage products, and mortgage or borrower underwriting characteristics based on our assessment of credit risk

and loss mitigation related to single-family loans.

We implemented several increases in delivery fees in recent years that are applicable to single-family mortgages with

certain higher-risk loan characteristics. Certain of these fee increases do not apply to relief refinance mortgages with LTV

ratios greater than 80% and with settlement dates on or after July 1, 2011. We have established maximum limits on the

amount of delivery fees that are imposed for relief refinance mortgages, regardless of the LTV ratio of the loan.

We also implemented two across-the-board increases in guarantee fees in 2012. Effective April 1, 2012, at the direction

of FHFA, both we and Fannie Mae increased the guarantee fee on single-family residential mortgages sold to us by 10 basis

points. Under the Temporary Payroll Tax Cut Continuation Act of 2011, the proceeds from this increase are being remitted to

Treasury to fund the payroll tax cut. We pay these fees to Treasury on a quarterly basis and refer to this fee increase as the

legislated 10 basis point increase in guarantee fees. In the fourth quarter of 2012, both we and Fannie Mae implemented, at

FHFA’s direction, a further increase in guarantee fees on single-family mortgages of an average of 10 basis points. In

announcing this increase, FHFA stated that the changes to the guarantee fee pricing represent a step toward encouraging

greater participation in the mortgage market by private firms.

In September 2012, FHFA also requested public comment on a proposed approach under which we and Fannie Mae

would adjust our delivery fees charged on single-family mortgages in states where costs related to foreclosures are

statistically higher than the national average. FHFA stated in its September 2012 announcement that it expects to direct us

and Fannie Mae to implement the pricing adjustments in 2013.

16 Freddie Mac
Securitization Activities

The types of mortgage-related securities we issue and guarantee include the following:

• PCs;

• REMICs and Other Structured Securities; and

• Other Guarantee Transactions.

For information about the amount of mortgage-related securities we have issued, see “Table 35 — Freddie Mac

Mortgage-Related Securities.” For information about the relative performance of mortgages underlying these securities, see

“MD&A — RISK MANAGEMENT — Credit Risk.”

PCs

Our PCs are single-class pass-through securities that represent undivided beneficial interests in trusts that hold pools of

mortgages we have purchased. Holding investments in single-family loans in the form of PCs rather than as unsecuritized

loans gives us greater flexibility in managing the composition of our mortgage-related investments portfolio, as it is generally

easier to purchase and sell PCs than unsecuritized mortgage loans, and allows more cost effective interest-rate risk

management. For our fixed-rate PCs, we guarantee the timely payment of principal and interest. For our single-family ARM

PCs, we guarantee the timely payment of the weighted average coupon interest rate for the underlying mortgage loans. We

also guarantee the full and final payment of principal for ARM PCs; however, we do not guarantee the timely payment of

principal on ARM PCs. We issue most of our single-family PCs in transactions in which our customers provide us with

mortgage loans in exchange for PCs. We refer to these transactions as guarantor swaps. The following diagram illustrates a

guarantor swap transaction:

Guarantor Swap

Mortgage Lender

Mortgage loans

PC

Freddie Mac 

(administrator)

TRUST

Mortgage 

loans

PC

Freddie Mac

(guarantor)

Guarantee

Fee

Cash (Buy-ups)

Cash (Buy-downs, delivery fees)

17 Freddie Mac
We also issue PCs in exchange for cash. The following diagram illustrates an exchange for cash in a “cash auction” of

PCs:

Cash Auction of PCs

Mortgage Lender Securities Dealers

and Investors

Mortgage loan PC

Cash Cash

Cash (Delivery fees)

CASH PURCHASE

Freddie Mac

(administrator)

CASH AUCTION OF PC

TRUST

Mortgage

loans

PC

Freddie Mac

(guarantor)

Guarantee

Fee

Institutional and other fixed-income investors, including pension funds, insurance companies, securities dealers, money

managers, REITs, and commercial banks, purchase our PCs. For the past several years, the Federal Reserve has purchased

significant amounts of mortgage-related securities issued by us, Fannie Mae and Ginnie Mae. These purchases, which are

ongoing, have affected mortgage spreads (positively and, in some periods, negatively) and the demand for and values of our

PCs.

PCs differ from most other fixed-income securities in several ways. For example, and most significantly, single-family

PCs can be partially or fully prepaid at any time. Homeowners have the right to prepay their mortgage at any time (known as

the prepayment option), and homeowner mortgage prepayments are passed through to the PC holder. Consequently,

mortgage-related securities implicitly have a call option that significantly reduces the average life of the security from the

contractual loan maturity. As a result, our PCs generally provide a higher nominal yield than certain other fixed-income

products. In addition, in contrast to U.S. Treasury securities, PCs are not backed by the full faith and credit of the United

States and are instead backed by interests in real estate, in addition to our own guarantee.

From time to time we undertake actions in an effort to support the liquidity and the relative price performance of our

PCs to comparable Fannie Mae securities through a variety of activities, including the resecuritization of PCs into REMICs

and Other Structured Securities. Other strategies may include: (a) encouraging sellers to pool mortgages that they deliver to

us into PC pools with a larger and more diverse population of mortgages; (b) influencing the volume and characteristics of

mortgages delivered to us by tailoring our loan eligibility guidelines and other means; and (c) engaging in portfolio purchase

and retention activities. See “Investments Segment — PC Support Activities” and “RISK FACTORS — Competitive and

Market Risks — A significant decline in the price performance of or demand for our PCs could have an adverse effect on the

volume and/or profitability of our new single-family guarantee business” for additional information about our effort to

support the liquidity and relative price performance of our PCs.

REMICs and Other Structured Securities

We issue single-class and multiclass securities. Single-class securities (e.g., PCs) involve the straight pass-through of all

of the cash flows of the underlying collateral to holders of the beneficial interests. Our primary multiclass securities qualify

for tax treatment as REMICs. Multiclass securities divide all of the cash flows of the underlying mortgage-related assets into

two or more classes designed to meet the investment criteria and portfolio needs of different investors by creating classes of

securities with varying maturities, payment priorities and coupons, each of which represents a beneficial ownership interest

in a separate portion of the cash flows of the underlying collateral. Usually, the cash flows are divided to modify the relative

exposure of different classes to interest-rate risk, or to create various coupon structures. The simplest division of cash flows

is into principal-only and interest-only classes. Other securities we issue can involve the creation of sequential payment and

planned or targeted amortization classes. In a sequential payment class structure, one or more classes receive all or a

disproportionate percentage of the principal payments on the underlying mortgage assets for a period of time until that class

or classes are retired, following which the principal payments are directed to other classes. Planned or targeted amortization

18 Freddie Mac
classes involve the creation of classes that have relatively more predictable amortization schedules across different

prepayment scenarios, thus reducing prepayment risk, extension risk, or both.

Our REMICs and Other Structured Securities represent beneficial interests in pools of PCs and/or certain other types of

mortgage-related assets. We create these securities primarily by using PCs or previously issued REMICs and Other

Structured Securities as the underlying collateral. Similar to our PCs, we guarantee the payment of principal and interest to

the holders of tranches of our REMICs and Other Structured Securities. We do not charge a management and guarantee fee

for these securities if the underlying collateral is already guaranteed by us since no additional credit risk is introduced.

Because the collateral underlying nearly all of our single-family REMICs and Other Structured Securities consists of other

mortgage-related securities that we guarantee, there are no economic residual interests in the related securitization trust. We

do not issue tranches of securities in these transactions that have concentrations of credit risk beyond those embedded in the

underlying assets. The following diagram provides a general example of how we create REMICs and Other Structured

Securities.

REMICs and Other Structured Securities

Security Dealer

PCs

Freddie Mac 

(administrator)

TRUST

PCs

Security

Classes

Security

Classes

Transaction Fee

We issue many of our REMICs and Other Structured Securities in transactions in which securities dealers or investors

sell us mortgage-related assets or we use our own mortgage-related assets (e.g., PCs and REMICs and Other Structured

Securities) in exchange for the REMICs and Other Structured Securities. The creation of REMICs and Other Structured

Securities allows for setting differing terms for specific classes of investors, and our issuance of these securities can expand

the range of investors in our mortgage-related securities to include those seeking specific security attributes. For REMICs

and Other Structured Securities that we issue to third parties, we typically receive a transaction, or resecuritization, fee. This

transaction fee is compensation for facilitating the transaction, as well as future administrative responsibilities.

19 Freddie Mac
Other Guarantee Transactions

We also issue mortgage-related securities to third parties in exchange for non-Freddie Mac mortgage-related securities.

We refer to these as Other Guarantee Transactions. The non-Freddie Mac mortgage-related securities are transferred to trusts

that were specifically created for the purpose of issuing securities, or certificates, in the Other Guarantee Transactions. The

following diagram illustrates an example of an Other Guarantee Transaction:

Other Guarantee Transaction

Mortgage Lender

OGTC = Other Guarantee Transaction Certificates

Securities Dealers

and Investors

Mortgage loan Sub. Class

OGTC and Cash Cash

Private Label 

Trust

Freddie Mac 

Trust

Sr. Class

and/or

Pass-through

OGTC

Freddie Mac

(guarantor)

Guarantee

Fee

Investors 

(which may 

include Freddie 

Mac)

OGTC Cash

Other Guarantee Transactions can generally be segregated into two different types. In one type, we purchase only senior

tranches from a non-Freddie Mac senior-subordinated securitization, place the senior tranches into securitization trusts, and

issue Other Guarantee Transaction certificates guaranteeing the principal and interest payments on those certificates. In this

type of transaction, our credit risk is reduced by the structural credit protections from the related subordinated tranches,

which we do not guarantee. In the second type, we purchase single-class pass-through securities, place them in securitization

trusts, and issue Other Guarantee Transaction certificates guaranteeing the principal and interest payments on those

certificates. Our Other Guarantee Transactions backed by single-class pass-through securities do not benefit from structural

or other credit enhancement protections.

Although Other Guarantee Transactions generally have underlying mortgage loans with varying risk characteristics, we

do not issue tranches that have concentrations of credit risk beyond those embedded in the underlying assets, as all cash

flows of the underlying collateral are passed through to the holders of the securities and there are no economic residual

interests in the securitization trusts. Additionally, there may be other credit enhancements and structural features retained by

the seller, such as excess interest or overcollateralization, that provide credit protection to our interests, and reduce the

likelihood that we will have to perform under our guarantee of the senior tranches. In exchange for providing our guarantee,

we may receive a management and guarantee fee or other delivery fees, if the underlying collateral is not already guaranteed

by us.

In 2010 and 2009, we entered into transactions under Treasury’s NIBP with HFAs, for the partial guarantee of certain

single-family and multifamily HFA bonds, which were Other Guarantee Transactions with significant credit enhancement

provided by Treasury. While we have not engaged in any of these transactions since 2010, we continue to participate in and

support this program and these guarantees remain outstanding. The securities issued by us pursuant to the NIBP were

purchased by Treasury. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Housing Finance Agency

Initiative” for further information.

20 Freddie Mac
Single-Family PC Trust Documents

We establish trusts for all of our issued PCs pursuant to our PC master trust agreement. In accordance with the terms of

our PC trust documents, we have the option, and in some instances the requirement, to remove specified mortgage loans from

the applicable trust. To remove these loans, we pay the trust an amount equal to the current UPB of the mortgage, less any

outstanding advances of principal that have been distributed to PC holders. Our payments to the trust are distributed to the

PC holders at the next scheduled payment date.

We have the option to remove a mortgage loan from a PC trust under certain circumstances to resolve an existing or

impending delinquency or default. Since 2010, our practice generally has been to remove substantially all single-family

mortgage loans that are 120 days or more delinquent from our issued PCs. From time to time, we reevaluate our practice of

removing delinquent loans from PCs and alter it if circumstances warrant.

We are required to remove a mortgage loan (or, in some cases, substitute a comparable mortgage loan) from a PC trust

in the following situations:

• if a court of competent jurisdiction or a federal government agency, duly authorized to oversee or regulate our

mortgage purchase business, determines that our purchase of the mortgage was unauthorized and a cure is not

practicable without unreasonable effort or expense, or if such a court or government agency requires us to repurchase

the mortgage;

• if a borrower exercises its option to convert the interest rate from an adjustable-rate to a fixed-rate on a convertible

ARM; and

• in the case of balloon-reset loans, shortly before the mortgage reaches its scheduled balloon-reset date.

The To Be Announced Market

Because our fixed-rate single-family PCs are considered to be homogeneous, and are issued in high volume and are

highly liquid, they generally trade on a “generic” basis by PC coupon rate, also referred to as trading in the TBA market. A

TBA trade in Freddie Mac securities represents a contract for the purchase or sale of PCs to be delivered at a future date;

however, the specific PCs that will be delivered to fulfill the trade obligation, and thus the specific characteristics of the

mortgages underlying those PCs, are not known (i.e., “announced”) at the time of the trade, but only shortly before the trade

is settled. The use of the TBA market increases the liquidity of mortgage investments and improves the distribution of

investment capital available for residential mortgage financing, thereby helping us to accomplish our statutory mission. The

Securities Industry and Financial Markets Association publishes guidelines pertaining to the types of mortgages that are

eligible for TBA trades. Certain of our PC securities are not eligible for TBA trades, such as those backed by relief refinance

mortgages with LTV ratios greater than 105%.

Other Guarantee Commitments

In certain circumstances, we provide our guarantee of mortgage-related assets held by third parties, in exchange for a

management and guarantee fee, without our securitization of the related assets. For example, we provide long-term standby

commitments to certain of our single-family customers, which obligate us to purchase seriously delinquent loans that are

covered by those agreements. In addition, during 2010 and 2009, we issued guarantees under the TCLFP on securities backed

by HFA bonds as part of the HFA Initiative. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS —

Housing Finance Agency Initiative” for further information.

Underwriting Requirements and Quality Control Standards

We use a process of delegated underwriting for the single-family mortgages we purchase or securitize. In this process,

our contracts with seller/servicers describe mortgage underwriting standards and the seller/servicers represent and warrant to

us that the mortgages sold to us meet these standards. In our contracts with individual seller/servicers, we may waive or

modify selected underwriting standards. Through our delegated underwriting process, mortgage loans and the borrowers’

ability to repay the loans are evaluated using a number of critical risk characteristics, including, but not limited to, the

borrower’s credit score and credit history, the borrower’s monthly income relative to debt payments (or DTI), the original

LTV ratio, the type of mortgage product, the property type and market value, and the occupancy type of the loan. Our singlefamily loans are generally underwritten with a requirement for a maximum original LTV ratio of 95% (excluding jumbo

conforming, cash-out refinance, and HARP mortgages). We prescribe maximum LTV ratio limits of 80% for cash-out

refinance loans and 90% for jumbo conforming mortgages.

21 Freddie Mac
Due to adverse market and economic conditions, and based in part on our reviews of the underwriting quality for loans

originated in 2005 through 2007, we implemented several credit limits since 2008. These credit limits are defined by

specified criteria such as the LTV ratio, credit score and DTI ratio. For documentation to substantiate assets and income, we

require the borrower to provide at least one paystub, one IRS Form W-2, and one current bank statement. FICO scores are the

most commonly used credit scores today. FICO scores are ranked on a scale of approximately 300 to 850 points. Statistically,

borrowers with higher credit scores are more likely to repay or have the ability to refinance than those with lower scores. We

obtain credit scores of borrowers at the time of origination and do not typically receive updated data on borrower credit

scores after origination.

The majority of our single-family mortgage purchase volume is evaluated using automated underwriting software, either

our proprietary software (Loan Prospector), the seller/servicers’ own software, or Fannie Mae’s proprietary software. The

percentage of our single-family mortgage purchase flow activity volume evaluated by the loan originator using Loan

Prospector prior to being purchased by us was 45%, 41%, and 39% during 2012, 2011, and 2010, respectively. Beginning in

2009, we added a number of additional credit standards for loans evaluated by other underwriting software to improve the

quality of loans we purchase that are evaluated using such other software. Consequently, we do not currently believe that the

use of an automated underwriting software other than Loan Prospector significantly increases our loan performance risk.

As part of our quality control process, we review the underwriting documentation for certain loans we have purchased

for compliance with our standards. In recent years, we have worked actively with our seller/servicers to improve loan

underwriting quality. As a result, we observed improved quality control results for loans funded during 2011 as compared to

2010. As of December 31, 2012, the average aggregate underwriting deficiency rate across all seller/servicers for loans

funded during 2011 and 2010 was approximately 5% and 13%, respectively. These rates may change in the future as our

seller/servicers may appeal our findings. We have not yet sufficiently compiled our 2012 results for loan reviews due to the

normal processing time to complete such reviews. The most common underwriting deficiencies found in the review of loans

purchased during 2011 related to insufficient income and inadequate or missing documentation to support borrower

qualification. The next most common deficiency was inaccurate data entered into Loan Prospector. We give our seller/

servicers an opportunity to appeal ineligible loan determinations in response to our request for the repurchase of the loan.

Beginning in the latter half of 2011, we required certain of our larger seller/servicers to maintain ineligible loan rates below a

stated threshold (generally 5%), with financial consequences for non-compliance, as part of the renewals of our contracts

with them. We expect these changes in seller/servicer contracts to positively impact ineligible loan rates. In addition, for all

of our largest seller/servicers, we actively manage the current quality of loan originations by providing monthly written and

oral communications regarding loan defect rates and the drivers of those defects as identified in our performing loan quality

control sampling reviews. If necessary, we work with seller/servicers to develop an appropriate plan of corrective action.

Through 2012, for loans with identified underwriting deficiencies, we required either immediate repurchase or allowed

performing loans to remain in our portfolio subject to our continued right to issue a repurchase request to the seller/servicers

at a later date. Beginning January 1, 2013, our practice for lender repurchases is based upon the new framework discussed

below. Our right to request repurchase by seller/servicers is intended to protect us against deficiencies in underwriting by our

seller/servicers. For more information on our seller/servicers’ repurchase obligations, including recent performance under

those obligations, see “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Single-family

Mortgage Seller/Servicers.”

New Representation and Warranty Framework

At the direction of FHFA, we and Fannie Mae launched a new representation and warranty framework for conventional

loans purchased by the GSEs on or after January 1, 2013. The objective of the new framework is to clarify lenders’

repurchase exposures and liability on future sales of mortgage loans to Freddie Mac and Fannie Mae and, under this new

framework, lenders will be relieved of certain repurchase obligations for loans that meet specific payment requirements.

Examples, subject to certain exclusions, include:

• loans with 36 months of consecutive, on-time payments after we purchase them; and

• relief refinance mortgages with 12 months of consecutive, on-time payments after we purchase them.

22 Freddie Mac
Under the new framework, Freddie Mac and Fannie Mae, under the supervision of FHFA, have established consistent

standards for:

• conducting quality control reviews earlier in the loan process, generally between 30 to 120 days after loan purchase;

• requiring lenders to submit requested loan files for review within specified timelines;

• evaluating loan files on a more comprehensive basis to ensure a focus on identifying significant deficiencies; and

• making available more transparent appeals processes for lenders to appeal repurchase requests.

Additionally, we will use our tools and available data to enable earlier identification of potentially defective loans prior

to their purchase and delivery. The changes to the representation and warranty process are key elements of the seller/servicer

contract harmonization project that supports FHFA’s strategic plan for the Freddie Mac and Fannie Mae conservatorships

announced in 2012.

The new framework does not affect seller/servicers’ obligations under their contracts with us with respect to loans sold

to us prior to January 1, 2013. The new framework also does not affect their obligation to service these loans in accordance

with our servicing standards. Freddie Mac will continue to work with lenders to resolve contractual claims on loans delivered

prior to January 1, 2013.

Credit Enhancements

Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by

specified credit enhancements or participation interests. However, we may purchase single-family mortgages under HARP

that refinance mortgages we currently own or guarantee without obtaining additional credit enhancement in excess of that

already in place, even if the LTV ratio of the new loan is above 80%. Primary mortgage insurance is the most prevalent type

of credit enhancement protecting our single-family credit guarantee portfolio, and is typically provided on a loan-level basis.

Generally, in order to file a claim under a primary mortgage insurance policy, the insured loan must be in default and the

borrower’s interest in the underlying property must have been extinguished, such as through a short sale or foreclosure

action. The mortgage insurer has a prescribed period of time within which to process a claim and make a determination as to

its validity and amount.

For some mortgage loans, we elect to share the default risk by transferring a portion of that risk to various third parties

through a variety of other credit enhancements. Other types of credit enhancements that we use are lender recourse (under

which we may require a lender to repurchase a loan upon default), indemnification agreements (under which we may require

a lender to reimburse us for credit losses realized on mortgages), collateral pledged by lenders, and subordinated security

structures. Lender recourse and indemnification agreements are typically entered into contemporaneously with the purchase

of a mortgage loan as an alternative to requiring primary mortgage insurance on the loan or in exchange for a lower

guarantee fee on the loan.

We also use pool insurance, although we have not purchased pool insurance on single-family loans since March 2008.

Pool insurance provides insurance on a pool of loans up to a stated aggregate loss limit. In addition to a pool-level loss

coverage limit, some pool insurance contracts may have limits on coverage at the loan level. During 2012, we reached the

maximum limit of loss on certain pool insurance contracts before their maturity dates. In order to file a claim under a pool

insurance policy, we generally must have finalized the primary mortgage claim, disposed of the foreclosed property, and

quantified our net loss with respect to the insured loan to determine the amount due under the pool insurance policy. Certain

pool insurance policies have specified loss deductibles that must be met before we are entitled to recover under the policy.

Our use of credit enhancements to reduce our exposure to mortgage credit risk increases our exposure to institutional

credit risk. See “MD&A — RISK MANAGEMENT— Credit Risk — Institutional Credit Risk” for information about our

counterparties that provide credit enhancement on loans in our single-family credit guarantee portfolio, including information

about pool insurance coverage and our mortgage loan insurers.

Loss Mitigation and Loan Workout Activities

Loan workout activities are a key component of our loss mitigation strategy for managing and resolving troubled assets

and lowering credit losses. Our single-family loss mitigation strategy emphasizes early intervention by servicers in

delinquent mortgages and provides alternatives to foreclosure. Our single-family loss mitigation activities include providing

our single-family servicers with default management tools designed to help them manage non-performing loans more

23 Freddie Mac
effectively and to assist borrowers in maintaining home ownership where possible, or facilitate foreclosure alternatives when

continued homeownership is not an option. We require our single-family seller/servicers to first evaluate problem loans for a

repayment or forbearance plan before considering modification. If a borrower is not eligible for a modification, our seller/

servicers pursue other workout options before considering foreclosure.

Our loan workouts include:

• Forbearance agreements, where reduced payments or no payments are required during a defined period, generally less

than one year. They provide additional time for the borrower to return to compliance with the original terms of the

mortgage or to implement another loan workout. During 2012, the average time period granted for completed shortterm forbearance agreements was between two and three months.

• Repayment plans, which are contractual plans to make up past due amounts. These plans assist borrowers in returning

to compliance with the original terms of their mortgages. During 2012, the average time period granted for completed

repayment plans was between two and six months.

• Loan modifications, which may involve changing the terms of the loan, or adding outstanding indebtedness, such as

delinquent interest, to the UPB of the loan, or a combination of both. We require our servicers to examine the

borrower’s capacity to make payments under the new terms by reviewing the borrower’s qualifications, including

income. During 2012, we granted principal forbearance but did not utilize principal forgiveness for our loan

modifications. Principal forbearance is a change to a loan’s terms to designate a portion of the principal as noninterest-bearing and non-amortizing. A borrower may only receive one HAMP modification; however, a loan may be

modified twice under our standard loan modification program. Generally, a borrower may only receive one standard

modification during a 12 month period. However, we reserve the right to approve additional non-HAMP loan

modifications to the same borrower, based on the borrower’s individual facts and circumstances.

• Short sale and deed in lieu of foreclosure transactions.

We also participate in the MHA Program, which is designed to help in the housing recovery, promote liquidity and

housing affordability, expand foreclosure prevention efforts, and set market standards. Participation in the MHA Program is

an integral part of our mission of providing stability to the housing market. Through our participation in this program, we

help borrowers maintain home ownership. Some of the key initiatives of this program include HAMP and HARP, which are

discussed below.

Home Affordable Modification Program

HAMP commits U.S. government, Freddie Mac, and Fannie Mae funds to help eligible homeowners avoid foreclosures

and keep their homes through mortgage modifications, where possible. HAMP applies to loans originated on or before

January 1, 2009. The program is scheduled to end on December 31, 2013.

Under this program, we offer loan modifications to financially struggling homeowners with mortgages on their primary

residences that reduce the monthly principal and interest payments on their mortgages. HAMP requires that each borrower

complete a trial period during which the borrower will make monthly payments based on the estimated amount of the

modification payments. Trial periods are required to be at least three months. After the final trial-period payment is received

by our servicer the borrower and servicer will enter into the modification.

To address documentation issues experienced when the program began, guidelines for HAMP provide that, for trial

periods that became effective on or after June 1, 2010, borrowers must provide income documentation before entering into

the trial period. Prior to the June 1, 2010 changes to HAMP, we experienced approximately a 38% modification completion

rate under the program. Subsequent to the June 1, 2010 changes, we have experienced a modification completion rate in

excess of 75%. When a borrower’s trial period is cancelled, the loan is considered for our other workout activities.

HAMP includes the following features:

• Under HAMP, the goal is to reduce the borrower’s monthly mortgage payments to 31% of gross monthly income,

which may be achieved through a combination of methods, including interest rate reductions, term extensions, and

principal forbearance. Although HAMP contemplates that some servicers will also make use of principal reduction to

achieve reduced payments for borrowers, we have only used forbearance and have not used principal reduction in

modifying our loans. Borrowers whose loans are modified through HAMP accrue monthly incentive payments (in the

24 Freddie Mac
form of credits) that are applied annually to reduce up to $1,000 of their principal per year, for five years, as long as

they are making timely payments under the modified loan terms.

• Servicers are paid incentive fees for each completed HAMP modification. Servicers receive additional incentive fees

for any modification that reduces a borrower’s monthly payment by 6% or more, in each of the first three years after

the modification, as long as the modified loan remains current.

Except in limited instances, each borrower’s reduced payment will remain in effect for a minimum of five years, and

borrowers whose interest rates were adjusted below market levels will have their interest rate and payment gradually

increased after the fifth year to a rate consistent with the market rate at the time of modification. Although mortgage

investors under the MHA Program are entitled to certain subsidies from Treasury for reducing the borrowers’ monthly

payments from 38% to 31% of the borrower’s income, we do not receive such subsidies on modified mortgages owned or

guaranteed by us. We also bear the costs of borrower incentive payments and servicer incentive fees for our HAMP loans,

without reimbursement of such costs from Treasury.

Trial periods are required to be at least three months in duration. Our servicers are permitted to add an interim month,

which will be reported as a fourth trial period month. In addition, our servicers are authorized to extend a trial period for up

to an additional two months when the borrower is in bankruptcy in order to provide additional time to have the mortgage

removed from the bankruptcy plan, which is a prerequisite to a modification under HAMP.

We are the compliance agent for Treasury for certain foreclosure avoidance activities under HAMP by mortgage holders

other than Freddie Mac and Fannie Mae. Among other duties, as the program compliance agent, we conduct examinations

and review servicer compliance with the published requirements for the program. Some of these examinations are on-site,

and others involve off-site documentation reviews. We report the results of our examination findings to Treasury. Based on

the examinations, we may also provide Treasury with advice, guidance and lessons learned to improve operation of the

program.

Relief Refinance Mortgage Initiative and the Home Affordable Refinance Program

Our relief refinance opportunities, including HARP (which is the portion of our relief refinance initiative for loans with

LTV ratios above 80%), are a significant part of our effort to keep families in their homes. Only borrowers with Freddie

Mac-owned or guaranteed mortgages are eligible for our relief refinance mortgage initiative. Our relief refinance initiative

began in 2009 and is designed to provide eligible homeowners with existing loans owned or guaranteed by us an opportunity

to refinance their mortgage without obtaining new mortgage insurance in excess of what was already in place. Our relief

refinance initiative enables us to assist homeowners by making their mortgage payments more affordable through one or

more of the following ways: (a) a reduction in payment; (b) a reduction in interest rate; (c) movement to a more stable

mortgage product type (i.e., from an adjustable-rate mortgage to a fixed-rate mortgage); or (d) a reduction in amortization

term.

HARP and the relief refinance mortgage initiative originally permitted eligible borrowers with Freddie Mac mortgages

(that were sold to us on or before May 31, 2009) and LTVs up to 125% to refinance their mortgages. In October 2011,

FHFA, Freddie Mac, and Fannie Mae announced a series of FHFA-directed changes to HARP, in an effort to attract more

eligible borrowers who can benefit from refinancing their home mortgages. We subsequently made similar changes to the

relief refinance mortgage initiative for loans with LTV ratios of 80% and less. The enhancements to HARP and the relief

refinance mortgage initiative included:

• removing the 125% LTV ratio ceiling for fixed-rate mortgages;

• relieving the lenders of certain underwriting and borrower eligibility representations and warranties on the original

mortgage being refinanced;

• eliminating the need for a new property appraisal where there is a reliable automated valuation model estimate

provided by the purchasing GSE; and

• extending the last application date for HARP loans to December 31, 2013.

We began purchasing HARP loans under the revised program in January 2012. In September 2012, we announced

additional changes to our relief refinance process that are intended to reduce the seller/servicers’ operational complexities

associated with originating these loans.

25 Freddie Mac
Underwriting procedures for relief refinance mortgages are limited in many cases, and such procedures generally do not

include all of the changes in underwriting standards we have implemented since 2008. As a result, relief refinance mortgages

generally reflect many of the credit risk attributes of the original loans. However, borrower participation in our relief

refinance mortgage initiative may help reduce our exposure to credit risk in cases where the borrowers’ payments under their

mortgages are reduced, thereby strengthening the borrowers’ potential to make their mortgage payments. See “MD&A —

RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-family Mortgage Credit Risk — Single-Family

Loan Workouts and the MHA Program” for additional information about HARP and our relief refinance mortgage initiative.

Non-HAMP Standard Modifications

In late 2011, as part of the servicing alignment initiative (described below), we implemented a new non-HAMP standard

loan modification initiative, replacing our previous non-HAMP modification initiative. The standard modification requires a

three-month trial period (our previous non-HAMP modification program did not require a trial period). The standard

modification provides an extension of the loan’s term to 480 months. In addition, the standard modification initiative

currently provides for a standard modified interest rate of 4% (though the rate could change in the future). This initiative also

provides for a servicer incentive fee schedule for non-HAMP modifications, comparable to the current HAMP servicer

incentive fee structure. The incentive fees are intended to provide greater incentives to our servicers to modify loans earlier

in the delinquency. Unlike with HAMP modifications, our non-HAMP standard modification does not provide for borrower

incentive payments or recurring servicer incentive fees after the initial servicer incentive payment.

Servicing Alignment Initiative

During 2012, we continued to implement the FHFA-directed servicing alignment initiative, under which we and Fannie

Mae are aligning certain standards for servicing non-performing loans owned or guaranteed by the companies. We believe

that the servicing alignment initiative will continue to: (a) change, among other things, the way servicers communicate and

work with troubled borrowers; (b) bring greater consistency and accountability to the servicing industry; and (c) help more

distressed homeowners avoid foreclosure. We have provided standards to our servicers under this initiative that require them

to initiate earlier and more frequent communication with delinquent borrowers, employ consistent requirements for

collecting documents from borrowers, and follow consistent timelines for responding to borrowers and for processing

foreclosures. These standards have resulted in greater alignment of servicer processes for both HAMP and most non-HAMP

workouts.

Under these new servicing standards, we pay incentives to servicers that exceed certain performance standards with

respect to servicing delinquent loans. We also assess compensatory fees if servicers do not achieve a minimum performance

benchmark with respect to servicing delinquent loans. Incentive fees paid to servicers and compensatory fees received from

servicers are recorded in other expenses and other income, respectively, within our consolidated statements of comprehensive

income. These incentives may result in our payment of increased fees to our seller/servicers, the cost of which may be

partially mitigated by the compensatory fees paid to us by our servicers that do not perform as required.

In August 2012, as part of the servicing alignment initiative we announced a new standard short sale process, aligned

with Fannie Mae, which is designed to help more struggling borrowers use short sales to avoid foreclosure. This new process

became effective November 1, 2012, and changes many of the operational procedures required to complete a transaction,

including: (a) expanding the eligibility for borrowers to qualify for these transactions; (b) delegating the authority to

complete these transactions to our seller/servicers in most cases; and (c) providing for a standardized and simplified method

for seller/servicers to value the property and evaluate the transaction on a more timely basis.

In addition, in November 2012 we announced a new process, aligned with Fannie Mae, for deed in lieu of foreclosure

transactions. This new process will become effective on March 1, 2013.

For more information regarding credit risk, see “MD&A — RISK MANAGEMENT — Credit Risk,” “NOTE 4:

MORTGAGE LOANS AND LOAN LOSS RESERVES,” and “NOTE 5: INDIVIDUALLY IMPAIRED AND NONPERFORMING LOANS.”

Investments Segment

The Investments segment reflects results from our investment, funding and hedging activities. In our Investments

segment, we invest principally in mortgage-related securities and single-family performing mortgage loans, which are funded

by other debt issuances and hedged using derivatives. In our Investments segment, we also provide funding and hedging

26 Freddie Mac
management services to the Single-family Guarantee and Multifamily segments. In the Investments segment, we are not

currently a substantial buyer or seller of mortgage assets.

Our Customers

Our customers for our debt securities predominantly include insurance companies, money managers, central banks,

depository institutions, and pension funds. Within the Investments segment, we buy securities and single-family mortgage

loans through various market sources. We purchase a significant portion of these loans from a variety of lenders, as discussed

in “Single-Family Guarantee Segment — Our Customers.”

Our Competition

Historically, our principal competitors have been Fannie Mae and other financial institutions that invest in mortgagerelated securities and mortgage loans, such as commercial and investment banks, dealers, thrift institutions, REITs, and

insurance companies. The conservatorship, including direction provided to us by our Conservator and the restrictions on our

activities under the Purchase Agreement, has affected and will continue to affect our ability to compete in the business of

investing in mortgage-related securities and mortgage loans.

We compete for debt funding with Fannie Mae, the FHLBs and other institutions. Competition for debt funding from

these entities can vary with changes in economic, financial market and regulatory environments.

Assets

Historically, we have primarily been a buy-and-hold investor in mortgage-related securities and single-family

performing mortgage loans. We purchase these assets to improve profitability, support our customers, and support the

liquidity and price performance of our PCs. We may sell assets to reduce risk, provide liquidity, and improve our returns.

However, due to limitations under the Purchase Agreement and those imposed by FHFA, our ability to acquire and sell

mortgage assets is significantly constrained. For more information, see “Conservatorship and Related Matters — Limits on

Investment Activity and Our Mortgage-Related Investments Portfolio” and “MD&A — CONSOLIDATED RESULTS OF

OPERATIONS — Segment Earnings — Segment Earnings-Results — Investments.”

We may enter into a variety of transactions to improve investment returns, including: (a) dollar roll transactions;

(b) purchases of agency securities (including agency REMICs); and (c) purchases of performing single-family mortgage

loans. In addition, we may create REMICs from existing agency securities and sell tranches that are in demand by investors

to reduce our asset balance, while conserving value for the taxpayer. We estimate our expected investment returns using an

OAS approach, which is an estimate of the yield spread between a given financial instrument and a benchmark (LIBOR,

agency or Treasury) yield curve. In this approach, we consider potential variability in the instrument’s cash flows resulting

from any options embedded in the instrument, such as the prepayment option. Additionally, in this segment we hold

reperforming and modified single-family mortgage loans related to our single-family business. For our liquidity needs, we

maintain a portfolio comprised primarily of cash and cash equivalents, non-mortgage-related securities (primarily Treasury

securities), and securities purchased under agreements to resell.

Debt Financing

We fund our investment activities by issuing short-term and long-term debt. The conservatorship, and the resulting

support we receive from Treasury, has enabled us to access debt funding on terms sufficient for our needs. While we believe

that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to maintain our access to the

debt markets and to have adequate liquidity to conduct our normal business activities, the costs of our debt funding could

vary for a number of reasons, including the uncertainty about the future of the GSEs. Additionally, the Purchase Agreement

limits the amount of indebtedness we can incur.

For more information, see “Conservatorship and Related Matters” and “MD&A — LIQUIDITY AND CAPITAL

RESOURCES — Liquidity.”

Risk Management

Our Investments segment has responsibility for managing our interest rate risk and certain liquidity risks. Derivatives

are an important part of our risk management strategy. We use derivatives primarily to: (a) hedge forecasted issuances of

debt; (b) synthetically create callable and non-callable funding; (c) adjust or rebalance our funding mix in response to

27 Freddie Mac
changes in the interest-rate characteristics of our mortgage-related assets; and (d) hedge foreign-currency exposure. For more

information regarding our use of derivatives, see “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK” and “NOTE 10: DERIVATIVES.” For information regarding our liquidity management, see “MD&A —

LIQUIDITY AND CAPITAL RESOURCES.”

PC Support Activities

Our PCs are an integral part of our mortgage purchase program. Our Single-family Guarantee segment purchases many

of our mortgages by issuing PCs in exchange for those mortgage loans in guarantor swap transactions. We also issue PCs

backed by mortgage loans that we purchased for cash. The relative price performance of our PCs and comparable Fannie

Mae securities can directly affect the volume and/or profitability of our new single-family guarantee business.

From time to time, we undertake actions in an effort to support the liquidity and the relative price performance of our

PCs to comparable Fannie Mae securities through a variety of activities. These activities can include the purchase and sale of

Freddie Mac mortgage-related securities, purchases of loans, and dollar roll transactions, as well as the issuance of REMICs

and Other Structured Securities. Our purchases and sales of mortgage-related securities and our issuances of REMICs and

Other Structured Securities influence the relative supply and demand (i.e., liquidity) for these securities, helping to support

the price performance of our PCs. Depending upon market conditions, including the relative prices, supply and demand for

our PCs and comparable Fannie Mae securities, as well as other factors, there may be substantial variability in any period in

the total amount of securities we purchase or sell, and in the success of our efforts to support the liquidity and price

performance of our PCs. In the first half of 2012, we curtailed mortgage-related investments portfolio purchase and retention

activities that were undertaken primarily in an effort to support the liquidity and price performance of our PCs. However, due

to a decline in our single-family competitive position compared to other market participants (primarily Fannie Mae and

Ginnie Mae) in the first half of 2012, we resumed certain of the activities noted above during the second half of 2012 in an

effort to support the price performance of our PCs while minimizing market disruption. For more information about our

efforts to support the liquidity and relative price performance for PCs, see “Single-Family Credit Guarantee Segment —

Securitization Activities.”

We incur costs in connection with our efforts to support the liquidity and price performance of our PCs, including

engaging in transactions that yield less than our target rate of return. We may increase, reduce or discontinue these or other

related activities at any time, which could affect the liquidity and price performance of our PCs. For more information, see

“RISK FACTORS — Competitive and Market Risks — A significant decline in the price performance of or demand for our

PCs could have an adverse effect on the volume and/or profitability of our new single-family guarantee business.”

Multifamily Segment

The Multifamily segment reflects results from our investment (both purchases and sales), securitization, and guarantee

activities in multifamily mortgage loans and securities. Although historically we were primarily a buy and hold investor in

multifamily mortgage assets (both loans held for investment and investment securities, primarily CMBS), since 2009 our

primary business model is to purchase held-for-sale multifamily loans for aggregation and then securitization through

multifamily K Certificates, which are considered Other Guarantee Transactions. In substantially all of these transactions we

guarantee only the most senior tranches of the securities. As a result, a significant portion of our expected credit risk

associated with these loans is sold in subordinated tranches to third party investors. With this model, we utilize securitization

to substantially reduce our credit risk while providing liquidity to the multifamily market. See “Single-Family Guarantee

Segment — Securitization Activities — Other Guarantee Transactions” for a diagram that illustrates these transactions.

To a lesser extent, we provide guarantees of the payment of principal and interest on tax-exempt multifamily passthrough certificates backed by multifamily housing revenue bonds. These housing revenue bonds are collateralized by

mortgage loans on low- and moderate-income multifamily housing developments. In addition, we guarantee the payment of

principal and interest on tax-exempt multifamily housing revenue bonds secured by low- and moderate-income multifamily

mortgage loans.

The multifamily property market is affected by local and regional economic factors, such as employment rates,

construction cycles, and relative affordability of single-family home prices, all of which influence the supply and demand for

multifamily properties and pricing for apartment rentals. Our multifamily loan volume is largely sourced through established

institutional channels where we are generally providing post-construction financing to larger apartment project operators

with established performance records.

28 Freddie Mac
Our lending decisions are largely based on the assessment of the property’s ability to provide rents that will generate

sufficient operating cash flows to support payment of debt service obligations (both principal and interest) as measured by

the expected DSCR and the loan amount relative to the value of the property as measured by the LTV ratio. Multifamily

mortgages generally are without recourse to the borrower (i.e., the borrower is not personally liable for any deficiency

remaining after foreclosure and sale of the property), except in the event of fraud or certain other specified types of default.

Therefore, repayment of the mortgage depends on the ability of the underlying property to generate cash flows sufficient to

cover the related debt obligations. That, in turn, depends on conditions in the local rental market, local and regional economic

conditions, the physical condition of the property, the quality of property management, and the level of operating expenses.

Our Customers

We acquire a significant portion of our multifamily mortgage loans from several large seller/servicers. For 2012, our top

two multifamily sellers, CBRE Capital Markets, Inc. and Berkadia Commercial Mortgage, LLC, each accounted for more

than 10% of our multifamily purchase volume, and together accounted for approximately 34% of our multifamily purchase

volume. Our top 10 multifamily lenders represented an aggregate of approximately 80% of our multifamily purchase volume

for 2012.

A significant portion of our multifamily mortgage loans are serviced by several of our large customers. See “MD&A —

RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Seller/Servicers” for additional information.

Our Competition

We compete on the basis of: (a) price; (b) products, including our use of certain securitization structuring; and

(c) service. Historically, our principal competitors have been Fannie Mae, FHA, and other financial institutions that retain or

securitize multifamily mortgages, such as commercial and investment banks, dealers, thrift institutions, and insurance

companies. During the period of significant market volatility (primarily during 2008 and 2009), many of our competitors,

other than Fannie Mae and FHA, significantly curtailed their activities in the multifamily mortgage business relative to their

previous levels. Beginning in 2010, as multifamily fundamentals were improving, more market participants began to reemerge in the multifamily market, and we have faced increased competition.

Underwriting Requirements and Quality Control Standards

Our process and standards for underwriting multifamily mortgages differ from those used for single-family mortgages.

Unlike single-family mortgages, we currently do not use a delegated underwriting process for the newly-originated

multifamily mortgages we purchase or securitize. Instead, we typically underwrite and evaluate each mortgage prior to

purchase or providing our guarantee. This process includes review of third-party appraisals and cash flow analysis. Our

underwriting standards focus on loan quality measurement based, in part, on the LTV ratio and DSCR. The DSCR estimates

a multifamily borrower’s ability to service its mortgage obligation using the secured property’s cash flow, after deducting

non-mortgage expenses from income. The higher the DSCR, the more likely a multifamily borrower will be able to continue

servicing its mortgage obligation. Our standards for multifamily loans specify maximum original LTV ratio and minimum

DSCR that vary based on the loan characteristics, such as loan type (new acquisition or supplemental financing), loan term

(intermediate or longer-term), and loan features (interest-only or amortizing, fixed- or variable-rate). Our multifamily loans

are generally underwritten with requirements for a maximum original LTV ratio of 80% and a DSCR of greater than 1.25

(which for interest-only and partial interest-only loans is based on an assumed monthly payment that reflects amortization of

principal). In certain circumstances, our standards for multifamily loans allow for certain types of loans to have an original

LTV ratio over 80% and/or a DSCR of less than 1.25, typically where this will serve our mission and contribute to achieving

our affordable housing goals. In cases where we commit to purchase or guarantee a permanent loan upon completion of

construction or rehabilitation, we generally require additional credit enhancements, because underwriting for these loans

typically requires estimates of future cash flows for calculating the DSCR that is expected after construction or rehabilitation

is completed.

Multifamily seller/servicers make representations and warranties to us about the mortgage and about certain information

submitted to us in the underwriting process. We have the right to require that a seller/servicer repurchase a multifamily

mortgage for which there has been a breach of representation or warranty. However, because of our evaluation of

underwriting information for most multifamily properties prior to purchase, repurchases have been rare.

We generally require multifamily seller/servicers to service mortgage loans they have sold to us in order to mitigate

potential losses. This includes property monitoring tasks beyond those typically performed by single-family servicers. We

29 Freddie Mac
are not the master servicer for multifamily loans we have securitized (i.e., K Certificates) since we transfer the master

servicing responsibilities to the trustees on behalf of the bondholders in accordance with the securitization and trust

documents. For loans over $1 million where we own the servicing rights, servicers must generally submit an annual

assessment of the mortgaged property to us based on the servicer’s analysis of the property as well as the borrower’s

quarterly financial statements. In situations where a borrower or property is in distress, the frequency of communications

with the borrower may be increased. Because the activities of multifamily seller/servicers are an important part of our loss

mitigation process, we rate their performance regularly and may conduct on-site reviews of their servicing operations in an

effort to confirm compliance with our standards.

For loans for which we are the master servicer, if a borrower is in distress, we may offer a workout option to the

borrower. For example, we may modify the terms of a multifamily mortgage loan, which gives the borrower an opportunity

to bring the loan current and retain ownership of the property. These arrangements are made with the expectation that we will

recover our initial investment or minimize our losses. We do not enter into these arrangements in situations where we believe

we would experience a loss in the future that is greater than or equal to the loss we would experience if we foreclosed on the

property at the time of the agreement.

Conservatorship and Related Matters

Overview and Entry into Conservatorship

We have been operating under conservatorship, with FHFA acting as our conservator, since September 6, 2008. The

conservatorship and related matters have had a wide-ranging impact on us, including our regulatory supervision,

management, business, financial condition and results of operations.

On September 7, 2008, the then Secretary of the Treasury and the then Director of FHFA announced several actions

taken by Treasury and FHFA regarding Freddie Mac and Fannie Mae. These actions included the execution of the Purchase

Agreement, pursuant to which we issued to Treasury both senior preferred stock and a warrant to purchase common stock. At

that time, FHFA set forth the purpose and goals of the conservatorship as follows: “The purpose of appointing the

Conservator is to preserve and conserve the company’s assets and property and to put the company in a sound and solvent

condition. The goals of the conservatorship are to help restore confidence in Fannie Mae and Freddie Mac, enhance their

capacity to fulfill their mission, and mitigate the systemic risk that has contributed directly to the instability in the current

market.” We refer to the Purchase Agreement and the warrant as the “Treasury Agreements.”

There is significant uncertainty as to whether or when we will emerge from conservatorship, as it has no specified

termination date, and as to what changes may occur to our business structure during or following conservatorship, including

whether we will continue to exist. We are not aware of any current plans of our Conservator to significantly change our

business model or capital structure in the near-term. Our future structure and role will be determined by the Administration

and Congress, and there are likely to be significant changes beyond the near-term. We have no ability to predict the outcome

of these deliberations.

On February 21, 2012, FHFA sent to Congress a strategic plan for the next phase of the conservatorships of Freddie

Mac and Fannie Mae. The plan outlines how FHFA, as Conservator, intends to guide us and Fannie Mae over the next few

years, and identifies the strategic goals of (a) building a new infrastructure for the secondary mortgage market; (b) gradually

contracting Freddie Mac and Fannie Mae’s dominant presence in the marketplace while simplifying and shrinking their

operations; and (c) maintaining foreclosure prevention activities and credit availability for new and refinanced mortgages. In

March 2012, FHFA instituted the Conservatorship Scorecard that established objectives, performance targets and measures,

and provided the implementation roadmap for FHFA’s strategic plan.

We receive substantial support from Treasury and FHFA, as our Conservator and regulator, and are dependent upon

their continued support in order to continue operating our business. This support includes our ability to access funds from

Treasury under the Purchase Agreement, which is critical to: (a) keeping us solvent; (b) allowing us to focus on our primary

business objectives under conservatorship; and (c) avoiding the appointment of a receiver by FHFA under statutory

mandatory receivership provisions. For the past several years, the Federal Reserve has purchased significant amounts of

mortgage-related securities issued by us, Fannie Mae, and Ginnie Mae. These purchases, which are ongoing, have affected

mortgage spreads (positively and, in some periods, negatively) and the demand for and value of our PCs.

For a description of certain risks to our business relating to the conservatorship and Treasury Agreements, see “RISK

FACTORS.”

30 Freddie Mac
Supervision of Our Company During Conservatorship

Upon its appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and privileges of

Freddie Mac, and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets, and

succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian or third party. Under

conservatorship, we have additional heightened supervision and direction from our regulator, FHFA, which is also acting as

our Conservator.

During the conservatorship, the Conservator has delegated certain authority to the Board of Directors to oversee, and to

management to conduct, day-to-day operations so that the company can continue to operate in the ordinary course of

business. The directors serve on behalf of, and exercise authority as directed by, the Conservator. The Conservator retains the

authority to withdraw or revise its delegations of authority at any time. The Conservator also retained certain significant

authorities for itself, and did not delegate them to the Board. For more information on limitations on the Board’s authority

during conservatorship, see “DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE — Authority

of the Board and Board Committees.”

Because the Conservator succeeded to the powers, including voting rights, of our stockholders, who therefore do not

currently have voting rights of their own, we do not expect to hold stockholders’ meetings during the conservatorship, nor

will we prepare or provide proxy statements for the solicitation of proxies.

We describe the powers of our Conservator in detail below under “Powers of the Conservator.”

Impact of Conservatorship and Related Actions on Our Business

We conduct our business subject to the direction of FHFA as our Conservator. While the conservatorship has benefited

us through, for example, improved access to the debt markets because of the support we receive from Treasury, we are also

subject to certain constraints on our business activities by Treasury due to the terms of, and Treasury’s rights under, the

Purchase Agreement.

The Conservator continues to determine, and direct the efforts of the Board of Directors and management to address, the

strategic direction for the company. While the Conservator has delegated certain authority to management to conduct day-today operations, many management decisions are subject to review and approval by FHFA and Treasury. In addition,

management frequently receives directions from FHFA on various matters involving day-to-day operations.

Our current business objectives reflect direction we received from the Conservator (including the Conservatorship

Scorecard). Our business objectives changed considerably since we entered into conservatorship. See “Executive

Summary — Our Primary Business Objectives” for more information. At the direction of the Conservator, we made changes

to certain business practices that are designed to provide support for the mortgage market in a manner that serves our public

mission and other non-financial objectives but may not contribute to our profitability. Certain of these objectives are intended

to help homeowners and the mortgage market and may help to mitigate future credit losses. However, some of our initiatives

are expected to have an adverse impact on our near- and long-term financial results. The Conservator stated that it is taking

actions in support of the objectives of a gradual transition to greater private capital participation in housing finance and

greater distribution of risk to participants other than the government. The Conservator also stated that it is focusing on

retaining value in the business operations of Freddie Mac and Fannie Mae, overseeing remediation of identified weaknesses

in corporate operations and risk management, and ensuring that sound corporate governance principles are followed. Given

the important role the Administration and our Conservator have placed on Freddie Mac in addressing housing and mortgage

market conditions and our public mission, we may be required to take additional actions that could have a negative impact on

our business, operating results or financial condition, and thus could contribute to a need for additional draws under the

Purchase Agreement.

These actions and objectives create risks and uncertainties that we discuss in “RISK FACTORS — Conservatorship and

Related Matters.” For more information on the impact of conservatorship and our current business objectives, see “NOTE 2:

CONSERVATORSHIP AND RELATED MATTERS.”

Limits on Investment Activity and Our Mortgage-Related Investments Portfolio

The conservatorship has significantly affected our investment activity. FHFA has stated that we will not be a substantial

buyer or seller of mortgages for our mortgage-related investments portfolio. Under the terms of the Purchase Agreement, as

amended on August 17, 2012, and FHFA regulation, the UPB of our mortgage-related investments portfolio: (a) could not

31 Freddie Mac
exceed $650 billion on December 31, 2012; and (b) on December 31 of each year thereafter, may not exceed 85% of the

aggregate amount of the UPB we were permitted to own as of December 31 of the immediately preceding calendar year, until

the portfolio reaches $250 billion. As a result, the UPB of our mortgage-related investments portfolio may not exceed

$553 billion as of December 31, 2013. FHFA has indicated that such portfolio reduction targets should be viewed as

minimum reductions and has encouraged us to reduce the mortgage-related investments portfolio at a faster rate than

required, while indicating that the pace of reducing the portfolio may be moderated by conditions in the housing and

financial markets. This strategy is designed to reduce the portfolio and provide the best return to the taxpayer while

minimizing market disruption.

The table below presents the UPB of our mortgage-related investments portfolio, for purposes of the limit imposed by

the Purchase Agreement and FHFA regulation.

Table 4 — Mortgage-Related Investments Portfolio(1)

December 31, 2012 December 31, 2011

(in millions)

Investments segment — Mortgage investments portfolio ...................................... $375,924 $449,273

Single-family Guarantee segment — Single-family unsecuritized mortgage loans(2) ................... 53,333 62,469

Multifamily segment — Mortgage investments portfolio ...................................... 128,287 141,571

Total mortgage-related investments portfolio .............................................. $557,544 $653,313

(1) Based on UPB and excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(2) Represents unsecuritized seriously delinquent single-family loans managed by the Single-family Guarantee segment.

The UPB of our mortgage-related investments portfolio at December 31, 2012 was $557.5 billion, a decline of $95.8

billion compared to $653.3 billion at December 31, 2011. The reduction in UPB resulted primarily from liquidations and is

consistent with our efforts to reduce the size of our mortgage-related investments portfolio as described above. The

mortgage-related investments portfolio is comprised of agency securities, single-family non-agency mortgage-related

securities, CMBS, housing revenue bonds, and single-family and multifamily unsecuritized mortgage loans.

We consider the liquidity of the assets in our mortgage-related investments portfolio based on three categories:

(a) agency securities; (b) assets that are less liquid than agency securities; and (c) illiquid assets. Assets that are less liquid

than agency securities include unsecuritized performing single-family mortgage loans, multifamily mortgage loans, CMBS,

and housing revenue bonds. Our less liquid assets collectively represented approximately 28% of the UPB of the portfolio at

December 31, 2012, compared to 32% as of December 31, 2011. Illiquid assets include unsecuritized seriously delinquent

and modified single-family mortgage loans which we removed from PC trusts, and our investments in non-agency mortgagerelated securities backed by subprime, option ARM, and Alt-A and other loans. Our illiquid assets collectively represented

approximately 35% of the UPB of the portfolio at December 31, 2012, as compared to 29% as of December 31, 2011. The

increase in the percentage of illiquid assets at December 31, 2012 compared to December 31, 2011 is primarily due to our

agency securities’ balance decreasing at a faster rate than our assets that are less liquid than agency securities and illiquid

assets.

Powers of the Conservator

Under the GSE Act, the conservatorship provisions applicable to Freddie Mac are based generally on federal banking

law. As discussed below, FHFA has broad powers when acting as our conservator. For more information on the GSE Act, see

“Regulation and Supervision.”

General Powers of the Conservator

Upon its appointment, the Conservator immediately succeeded to all rights, titles, powers and privileges of Freddie

Mac, and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets. The Conservator

also succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian or third party.

Under the GSE Act, the Conservator may take any actions it determines are necessary and appropriate to carry on our

business, support public mission objectives, and preserve and conserve our assets and property. The Conservator’s powers

include the ability to transfer or sell any of our assets or liabilities (subject to certain limitations and post-transfer notice

provisions for transfers of qualified financial contracts, as defined below under “Special Powers of the Conservator —

Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts”) without any approval, assignment of

32 Freddie Mac
rights or consent of any party. The GSE Act, however, provides that mortgage loans and mortgage-related assets that have

been transferred to a Freddie Mac securitization trust must be held for the beneficial owners of the trust and cannot be used to

satisfy our general creditors.

Under the GSE Act, in connection with any sale or disposition of our assets, the Conservator must conduct its operations

to maximize the NPV return from the sale or disposition of such assets, to minimize the amount of any loss realized in the

resolution of cases, and to ensure adequate competition and fair and consistent treatment of offerors. The Conservator is

required to maintain a full accounting of the conservatorship and make its reports available upon request to stockholders and

members of the public.

We remain liable for all of our obligations relating to our outstanding debt and mortgage-related securities. FHFA has

stated that our obligations will be paid in the normal course of business during the conservatorship.

Special Powers of the Conservator

Disaffirmance and Repudiation of Contracts

Under the GSE Act, the Conservator may disaffirm or repudiate contracts (subject to certain limitations for qualified

financial contracts) that we entered into prior to its appointment as Conservator if it determines, in its sole discretion, that

performance of the contract is burdensome and that disaffirmance or repudiation of the contract promotes the orderly

administration of our affairs. The GSE Act requires FHFA to exercise its right to disaffirm or repudiate most contracts within

a reasonable period of time after its appointment as Conservator. In a final rule published in June 2011, FHFA defines a

reasonable period of time following appointment of a conservator or receiver to be 18 months. The Conservator has advised

us that it has no intention of repudiating any guarantee obligation relating to Freddie Mac’s mortgage-related securities

because it views repudiation as incompatible with the goals of the conservatorship. We can, and have continued to, enter into,

perform and enforce contracts with third parties.

Limitations on Enforcement of Contractual Rights by Counterparties

The GSE Act provides that the Conservator may enforce most contracts entered into by us, notwithstanding any

provision of the contract that provides for termination, default, acceleration, or exercise of rights upon the appointment of, or

the exercise of rights or powers by, a conservator.

Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts

Notwithstanding the Conservator’s powers under the GSE Act described above, the Conservator must recognize legally

enforceable or perfected security interests, except where such an interest is taken in contemplation of our insolvency or with

the intent to hinder, delay or defraud us or our creditors. In addition, the GSE Act provides that no person will be stayed or

prohibited from exercising specified rights in connection with qualified financial contracts, including termination or

acceleration (other than solely by reason of, or incidental to, the appointment of the Conservator), rights of offset, and rights

under any security agreement or arrangement or other credit enhancement relating to such contract. Such rights in connection

with qualified financial contracts that arise solely by reason of, or incidental to, the appointment of a receiver may be

exercised only after: (a) 5:00 p.m. on the business day following the receiver’s appointment; or (b) notice to such person that

such contract has been transferred by the receiver to another person. The term qualified financial contract means any

securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, and any similar agreement

as determined by FHFA by regulation, resolution or order.

Avoidance of Fraudulent Transfers

Under the GSE Act, the Conservator may avoid, or refuse to recognize, a transfer of any property interest of Freddie

Mac or of any of our debtors, and also may avoid any obligation incurred by Freddie Mac or by any debtor of Freddie Mac, if

the transfer or obligation was made: (a) within five years of September 6, 2008; and (b) with the intent to hinder, delay, or

defraud Freddie Mac, FHFA, the Conservator or, in the case of a transfer in connection with a qualified financial contract,

our creditors. To the extent a transfer is avoided, the Conservator may recover, for our benefit, the property or, by court

order, the value of that property from the initial or subsequent transferee, other than certain transfers that were made for

value, including satisfaction or security of a present or antecedent debt, and in good faith. These rights are superior to any

rights of a trustee or any other party, other than a federal agency, under the U.S. bankruptcy code.

33 Freddie Mac
Modification of Statutes of Limitations

Under the GSE Act, notwithstanding any provision of any contract, the statute of limitations with regard to any action

brought by the Conservator is: (a) for claims relating to a contract, the longer of six years or the applicable period under state

law; and (b) for tort claims, the longer of three years or the applicable period under state law, in each case, from the later of

September 6, 2008 or the date on which the cause of action accrues. In addition, notwithstanding the state law statute of

limitation for tort claims, the Conservator may bring an action for any tort claim that arises from fraud, intentional

misconduct resulting in unjust enrichment, or intentional misconduct resulting in substantial loss to us, if the state’s statute of

limitations expired not more than five years before September 6, 2008.

Suspension of Legal Actions

Under the GSE Act, in any judicial action or proceeding to which we are or become a party, the Conservator may

request, and the applicable court must grant, a stay for a period not to exceed 45 days.

Treatment of Breach of Contract Claims

Under the GSE Act, any final and unappealable judgment for monetary damages against the Conservator for breach of

an agreement executed or approved in writing by the Conservator will be paid as an administrative expense of the

Conservator.

Attachment of Assets and Other Injunctive Relief

Under the GSE Act, the Conservator may seek to attach assets or obtain other injunctive relief without being required to

show that any injury, loss or damage is irreparable and immediate.

Subpoena Power

The GSE Act provides the Conservator, with the approval of the Director of FHFA, with subpoena power for purposes

of carrying out any power, authority or duty with respect to Freddie Mac.

Treasury Agreements

Treasury entered into several agreements with us in connection with our entry into conservatorship, as described below.

Purchase Agreement, Senior Preferred Stock, and Common Stock Warrant

Purchase Agreement

On September 7, 2008, we, through FHFA, in its capacity as Conservator, and Treasury entered into the Purchase

Agreement. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended

on May 6, 2009, December 24, 2009, and August 17, 2012. Pursuant to the Purchase Agreement, on September 8, 2008 we

issued to Treasury: (a) one million shares of Variable Liquidation Preference Senior Preferred Stock (with an initial

liquidation preference of $1 billion), which we refer to as the senior preferred stock; and (b) a warrant to purchase, for a

nominal price, shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on

a fully diluted basis at the time the warrant is exercised, which we refer to as the warrant. The terms of the senior preferred

stock and warrant are summarized in separate sections below. We did not receive any cash proceeds from Treasury as a result

of issuing the senior preferred stock or the warrant. However, deficits in our net worth have made it necessary for us to make

substantial draws on Treasury’s funding commitment under the Purchase Agreement. As a result, the aggregate liquidation

preference of the senior preferred stock has increased from $1.0 billion as of September 8, 2008 to $72.3 billion at

December 31, 2012. Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred

stock is limited and we will not be able to do so for the foreseeable future, if at all.

The senior preferred stock and warrant were issued to Treasury as an initial commitment fee in consideration of the

initial commitment from Treasury to provide up to $100 billion (subsequently increased to $200 billion and further increased

as necessary to accommodate any cumulative reduction in our net worth during 2010, 2011, and 2012) in funds to us under

the terms and conditions set forth in the Purchase Agreement. Beginning January 1, 2013, the amount of available funding

remaining under the Purchase Agreement is $140.5 billion. This amount will be reduced by any future draws. The provisions

of the Purchase Agreement whereby Treasury’s funding commitment would increase as necessary to accommodate any

cumulative reduction in our net worth during 2010, 2011, and 2012 no longer apply.

34 Freddie Mac
In addition to the issuance of the senior preferred stock and warrant, we are required under the Purchase Agreement to

pay a quarterly commitment fee to Treasury. Under the Purchase Agreement, the fee is to be determined in an amount

mutually agreed to by us and Treasury with reference to the market value of Treasury’s funding commitment as then in

effect. However, pursuant to the August 2012 amendment to the Purchase Agreement, for each quarter commencing

January 1, 2013, and for as long as the net worth sweep dividend provisions remain in form and content substantially the

same, no periodic commitment fee under the Purchase Agreement will be set, accrue or be payable. Treasury had waived the

fee for all applicable quarters prior to that date.

The Purchase Agreement provides that, on a quarterly basis, we generally may draw funds up to the amount, if any, by

which our total liabilities exceed our total assets, as reflected on our GAAP balance sheet for the applicable fiscal quarter

(referred to as the deficiency amount), provided that the aggregate amount funded under the Purchase Agreement may not

exceed Treasury’s commitment. The Purchase Agreement provides that the deficiency amount will be calculated differently

if we become subject to receivership or other liquidation process. The deficiency amount may be increased above the

otherwise applicable amount upon our mutual written agreement with Treasury. In addition, if the Director of FHFA

determines that the Director will be mandated by law to appoint a receiver for us unless our capital is increased by receiving

funds under the commitment in an amount up to the deficiency amount (subject to the maximum amount that may be funded

under the agreement), then FHFA, in its capacity as our Conservator, may request that Treasury provide funds to us in such

amount. The Purchase Agreement also provides that, if we have a deficiency amount as of the date of completion of the

liquidation of our assets, we may request funds from Treasury in an amount up to the deficiency amount (subject to the

maximum amount that may be funded under the agreement). Any amounts that we draw under the Purchase Agreement will

be added to the liquidation preference of the senior preferred stock. No additional shares of senior preferred stock are

required to be issued under the Purchase Agreement.

The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of the following

circumstances: (a) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding commitment

at that time; (b) the payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including

mortgage guarantee obligations); and (c) the funding by Treasury of the maximum amount of the commitment under the

Purchase Agreement. In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null

and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the

Conservator or otherwise curtails the Conservator’s powers. Treasury may not terminate its funding commitment under the

Purchase Agreement solely by reason of our being in conservatorship, receivership or other insolvency proceeding, or due to

our financial condition or any adverse change in our financial condition.

The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written

agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s

aggregate funding commitment or add conditions to Treasury’s funding commitment if the waiver or amendment would

adversely affect in any material respect the holders of our debt securities or Freddie Mac mortgage guarantee obligations.

In the event of our default on payments with respect to our debt securities or Freddie Mac mortgage guarantee

obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the Conservator are

not diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage

guarantee obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to us

the lesser of: (a) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee

obligations; and (b) the lesser of: (i) the deficiency amount; and (ii) the maximum amount of the commitment less the

aggregate amount of funding previously provided under the commitment. Any payment that Treasury makes under those

circumstances will be treated for all purposes as a draw under the Purchase Agreement that will increase the liquidation

preference of the senior preferred stock.

The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include

the end of the conservatorship. The Purchase Agreement therefore could continue after the conservatorship ends.

Senior Preferred Stock

Shares of the senior preferred stock have a par value of $1, and have a stated value and initial liquidation preference

equal to $1,000 per share. The liquidation preference of the senior preferred stock is subject to adjustment. Dividends that are

not paid in cash for any dividend period will accrue and be added to the liquidation preference of the senior preferred stock.

In addition, any amounts Treasury pays to us pursuant to its funding commitment under the Purchase Agreement and any

35 Freddie Mac
quarterly commitment fees that are not paid in cash to Treasury nor waived by Treasury will be added to the liquidation

preference of the senior preferred stock. As described below, we may make payments to reduce the liquidation preference of

the senior preferred stock in limited circumstances.

Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as and if

declared by our Board of Directors. Through December 31, 2012, the senior preferred stock accrued quarterly cumulative

dividends at a rate of 10% per year. However, under the August 2012 amendment to the Purchase Agreement, the fixed

dividend rate was replaced with a net worth sweep dividend beginning in the first quarter of 2013. For more information

regarding our net worth sweep dividend, see “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS.”

The senior preferred stock is senior to our common stock and all other outstanding series of our preferred stock, as well

as any capital stock we issue in the future, as to both dividends and rights upon liquidation. The senior preferred stock

provides that we may not, at any time, declare or pay dividends on, make distributions with respect to, or redeem, purchase

or acquire, or make a liquidation payment with respect to, any common stock or other securities ranking junior to the senior

preferred stock unless: (a) full cumulative dividends on the outstanding senior preferred stock (including any unpaid

dividends added to the liquidation preference) have been declared and paid in cash; and (b) all amounts required to be paid

with the net proceeds of any issuance of capital stock for cash (as described in the following paragraph) have been paid in

cash. Shares of the senior preferred stock are not convertible. Shares of the senior preferred stock have no general or special

voting rights, other than those set forth in the certificate of designation for the senior preferred stock or otherwise required by

law. The consent of holders of at least two-thirds of all outstanding shares of senior preferred stock is generally required to

amend the terms of the senior preferred stock or to create any class or series of stock that ranks prior to or on parity with the

senior preferred stock.

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment

set forth in the Purchase Agreement; however, we are permitted to pay down the liquidation preference of the outstanding

shares of senior preferred stock to the extent of: (a) accrued and unpaid dividends previously added to the liquidation

preference and not previously paid down; and (b) quarterly commitment fees previously added to the liquidation preference

and not previously paid down. In addition, if we issue any shares of capital stock for cash while the senior preferred stock is

outstanding, the net proceeds of the issuance must be used to pay down the liquidation preference of the senior preferred

stock; however, the liquidation preference of each share of senior preferred stock may not be paid down below $1,000 per

share prior to the termination of Treasury’s funding commitment. Following the termination of Treasury’s funding

commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock at any time, in

whole or in part. If, after termination of Treasury’s funding commitment, we pay down the liquidation preference of each

outstanding share of senior preferred stock in full, the shares will be deemed to have been redeemed as of the payment date.

Common Stock Warrant

The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total number of

shares of our common stock outstanding on a fully diluted basis on the date of exercise. The warrant may be exercised in

whole or in part at any time on or before September 7, 2028, by delivery to us of: (a) a notice of exercise; (b) payment of the

exercise price of $0.00001 per share; and (c) the warrant. If the market price of one share of our common stock is greater

than the exercise price, then, instead of paying the exercise price, Treasury may elect to receive shares equal to the value of

the warrant (or portion thereof being canceled) pursuant to the formula specified in the warrant. Upon exercise of the

warrant, Treasury may assign the right to receive the shares of common stock issuable upon exercise to any other person.

As of February 28, 2013, Treasury has not exercised the warrant.

Covenants Under Treasury Agreements

The Purchase Agreement and warrant contain covenants that significantly restrict our business activities. For example,

as a result of these covenants, we can no longer obtain additional equity financing (other than pursuant to the Purchase

Agreement) and we are limited in the amount and type of debt financing we may obtain.

36 Freddie Mac
Purchase Agreement Covenants

The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not,

without the prior written consent of Treasury:

• declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac

equity securities (other than with respect to the senior preferred stock or warrant);

• redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock

or warrant);

• sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common

stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect

on the date of the Purchase Agreement);

• terminate the conservatorship (other than in connection with a receivership);

• sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited

life regulated entity (in the context of a receivership); (b) of assets and properties in the ordinary course of business,

consistent with past practice; (c) of assets and properties having fair market value individually or in aggregate less

than $250 million in one transaction or a series of related transactions; (d) in connection with our liquidation by a

receiver; (e) of cash or cash equivalents for cash or cash equivalents; or (f) to the extent necessary to comply with the

covenant described below relating to the reduction of our mortgage-related investments portfolio;

• issue any subordinated debt;

• enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or

• engage in transactions with affiliates unless the transaction is: (a) pursuant to the Purchase Agreement, the senior

preferred stock or the warrant; (b) upon arm’s length terms; or (c) a transaction undertaken in the ordinary course or

pursuant to a contractual obligation or customary employment arrangement in existence on the date of the Purchase

Agreement.

These covenants also apply to our subsidiaries.

The Purchase Agreement also requires us to reduce the amount of mortgage assets we own. The Purchase Agreement, as

revised in the August 2012 amendment, provides that we could not own mortgage assets with UPB in excess of $650 billion

on December 31, 2012 and on December 31 of each year thereafter, may not own mortgage assets with UPB in excess of

85% of the aggregate amount of mortgage assets we are permitted to own as of December 31 of the immediately preceding

calendar year, provided that we are not required to own less than $250 billion in mortgage assets. Under the Purchase

Agreement, we also may not incur indebtedness that would result in the par value of our aggregate indebtedness exceeding

120% of the amount of mortgage assets we are permitted to own on December 31 of the immediately preceding calendar

year. The mortgage asset and indebtedness limitations are determined without giving effect to the changes to the accounting

guidance for transfers of financial assets and consolidation of VIEs, under which we consolidated our single-family PC trusts

and certain of our Other Guarantee Transactions in our financial statements as of January 1, 2010.

In addition, the Purchase Agreement provides that we may not enter into any new compensation arrangements or

increase amounts or benefits payable under existing compensation arrangements of any named executive officer or other

executive officer (as such terms are defined by SEC rules) without the consent of the Director of FHFA, in consultation with

the Secretary of the Treasury.

The Purchase Agreement also provides that, on an annual basis, we are required to deliver a risk management plan to

Treasury setting out our strategy for reducing our enterprise-wide risk profile and the actions we will take to reduce the

financial and operational risk associated with each of our reportable business segments.

As of February 28, 2013, we believe we were in compliance with the covenants under the Purchase Agreement.

Warrant Covenants

The warrant we issued to Treasury includes, among others, the following covenants: (a) we may not permit any of our

significant subsidiaries to issue capital stock or equity securities, or securities convertible into or exchangeable for such

securities, or any stock appreciation rights or other profit participation rights; (b) we may not take any action to avoid the

observance or performance of the terms of the warrant and we must take all actions necessary or appropriate to protect

37 Freddie Mac
Treasury’s rights against impairment or dilution; and (c) we must provide Treasury with prior notice of specified actions

relating to our common stock, such as setting a record date for a dividend payment, granting subscription or purchase rights,

authorizing a recapitalization, reclassification, merger or similar transaction, commencing a liquidation of the company or

any other action that would trigger an adjustment in the exercise price or number or amount of shares subject to the warrant.

As of February 28, 2013, we believe we were in compliance with the covenants under the warrant.

Effect of Conservatorship and Treasury Agreements on Existing Stockholders

The conservatorship, the Purchase Agreement and the senior preferred stock and warrant issued to Treasury have

materially limited the rights of our common and preferred stockholders (other than Treasury as holder of the senior preferred

stock) and had a number of adverse effects on our common and preferred stockholders. See “RISK FACTORS —

Conservatorship and Related Matters — The conservatorship and investment by Treasury has had, and will continue to have,

a material adverse effect on our common and preferred stockholders.”

As described above, the conservatorship and Treasury Agreements also impact our business in ways that indirectly

affect our common and preferred stockholders. By their terms, the Purchase Agreement, senior preferred stock and warrant

will continue to exist even if we are released from the conservatorship. For a description of the risks to our business relating

to the conservatorship and Treasury Agreements, see “RISK FACTORS.”

Regulation and Supervision

In addition to our oversight by FHFA as our Conservator, we are subject to regulation and oversight by FHFA under our

charter and the GSE Act, which was modified substantially by the Reform Act. We are also subject to certain regulation by

other government agencies.

Federal Housing Finance Agency

FHFA is an independent agency of the federal government responsible for oversight of the operations of Freddie Mac,

Fannie Mae and the FHLBs. The Director of FHFA is appointed by the President and confirmed by the Senate for a five-year

term, removable only for cause. In the discussion below, we refer to Freddie Mac and Fannie Mae as the “enterprises.”

The Federal Housing Finance Oversight Board, or the Oversight Board, is responsible for advising the Director of

FHFA with respect to overall strategies and policies. The Oversight Board consists of the Director of FHFA as Chairperson,

the Secretary of the Treasury, the Chair of the SEC and the Secretary of HUD.

Under the GSE Act, FHFA has safety and soundness authority that is comparable to, and in some respects, broader than

that of the federal banking agencies. The GSE Act also provides FHFA with powers that, even if we were not in

conservatorship, include the authority to raise capital levels above statutory minimum levels, regulate the size and content of

our mortgage-related investments portfolio, and approve new mortgage products.

FHFA is responsible for implementing the various provisions of the GSE Act that were added by the Reform Act. In

general, we remain subject to existing regulations, orders and determinations until new ones are issued or made.

Receivership

Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than

our obligations for a period of 60 days. FHFA notified us that the measurement period for any mandatory receivership

determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for

our quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA also advised us

that, if, during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency amount under

the Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination.

In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for other reasons,

including conditions that FHFA has already asserted existed at the time the then Director of FHFA placed us into

conservatorship. These include: (a) a substantial dissipation of assets or earnings due to unsafe or unsound practices; (b) the

existence of an unsafe or unsound condition to transact business; (c) an inability to meet our obligations in the ordinary

course of business; (d) a weakening of our condition due to unsafe or unsound practices or conditions; (e) critical

undercapitalization; (f) the likelihood of losses that will deplete substantially all of our capital; or (g) by consent.

38 Freddie Mac
On June 20, 2011, FHFA published a final rule that addresses conservatorship and receivership operations of Freddie

Mac, Fannie Mae and the FHLBs. The final rule establishes a framework to be used by FHFA when acting as conservator or

receiver, supplementing and clarifying statutory authorities. Among other provisions, the final rule indicates that FHFA will

not permit payment of securities litigation claims during conservatorship and that claims by current or former shareholders

arising as a result of their status as shareholders would receive the lowest priority of claim in receivership. In addition, the

final rule indicates that administrative expenses of the conservatorship will also be deemed to be administrative expenses of a

subsequent receivership and that capital distributions may not be made during conservatorship, except as specified in the

final rule.

Capital Standards

FHFA suspended capital classification of us during conservatorship in light of the Purchase Agreement. The existing

statutory and FHFA-directed regulatory capital requirements are not binding during the conservatorship. We continue to

provide our submission to FHFA on minimum capital. FHFA continues to publish relevant capital figures (minimum capital

requirement, core capital, and GAAP net worth) but does not publish our critical capital, risk-based capital or subordinated

debt levels during conservatorship.

On October 9, 2008, FHFA also announced that it will engage in rulemaking to revise our minimum capital and riskbased capital requirements. The GSE Act provides that FHFA may increase minimum capital levels from the existing

statutory percentages either by regulation or on a temporary basis by order. On March 3, 2011, FHFA issued a final rule

setting forth procedures and standards for such a temporary increase in minimum capital levels. FHFA may also, by

regulation or order, establish capital or reserve requirements with respect to any product or activity of an enterprise, as FHFA

considers appropriate. In addition, under the GSE Act, FHFA must, by regulation, establish risk-based capital requirements

to ensure the enterprises operate in a safe and sound manner, maintaining sufficient capital and reserves to support the risks

that arise in their operations and management. In developing the new risk-based capital requirements, FHFA is not bound by

the risk-based capital standards in effect prior to the amendment of the GSE Act by the Reform Act.

Our regulatory minimum capital is a leverage-based measure that is generally calculated based on GAAP and reflects a

2.50% capital requirement for on-balance sheet assets and 0.45% capital requirement for off-balance sheet obligations.

Pursuant to regulatory guidance from FHFA, our minimum capital requirement was not automatically affected by our

January 1, 2010 adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of

VIEs. Specifically, upon adoption of this accounting guidance, FHFA directed us, for purposes of minimum capital, to

continue reporting our PCs held by third parties and other aggregate off-balance sheet obligations using a 0.45% capital

requirement. Notwithstanding this guidance, FHFA reserves the authority under the GSE Act to raise the minimum capital

requirement for any of our assets or activities.

For additional information, see “MD&A — LIQUIDITY AND CAPITAL RESOURCES — Capital Resources” and

“NOTE 14: REGULATORY CAPITAL.” Also, see “RISK FACTORS — Legal and Regulatory Risks” for more

information.

New Products

The GSE Act requires the enterprises to obtain the approval of FHFA before initially offering any product, subject to

certain exceptions. The GSE Act provides for a public comment process on requests for approval of new products. FHFA

may temporarily approve a product without soliciting public comment if delay would be contrary to the public interest.

FHFA may condition approval of a product on specific terms, conditions and limitations. The GSE Act also requires the

enterprises to provide FHFA with written notice of any new activity that we or Fannie Mae consider not to be a product.

On July 2, 2009, FHFA published an interim final rule on prior approval of new products, implementing the new

product provisions for us and Fannie Mae in the GSE Act. The rule establishes a process for Freddie Mac and Fannie Mae to

provide prior notice to the Director of FHFA of a new activity and, if applicable, to obtain prior approval from the Director if

the new activity is determined to be a new product. On August 31, 2009, Freddie Mac and Fannie Mae filed joint public

comments on the interim final rule with FHFA. FHFA stated that permitting us to engage in new products is inconsistent

with the goals of conservatorship and instructed us not to submit such requests under the interim final rule. This could have

an adverse effect on our business and profitability in future periods. We cannot currently predict when or if FHFA will

permit us to engage in new products under the interim final rule, nor when the rule will be finalized.

39 Freddie Mac
Affordable Housing Goals

We are subject to annual affordable housing goals. In light of these housing goals, we may make adjustments to our

mortgage loan sourcing and purchase strategies, which could potentially increase our credit losses. These strategies could

include entering into some purchase and securitization transactions with lower expected economic returns than our typical

transactions. We have at times relaxed some of our underwriting criteria to obtain goal-qualifying mortgage loans and made

additional investments in higher risk mortgage loan products that we believe are more likely to serve the borrowers targeted

by the goals, but have not done so to a significant extent since we entered into conservatorship. The Acting Director of FHFA

stated that FHFA does not intend for us to undertake uneconomic or high risk activities in support of the housing goals nor

does it intend for the state of conservatorship to be a justification for withdrawing our support from these market segments.

If the Director of FHFA finds that we failed to meet a housing goal and that achievement of the housing goal was

feasible, the GSE Act states that the Director may require the submission of a housing plan with respect to the housing goal

for approval by the Director. The housing plan must describe the actions we would take to achieve the unmet goal in the

future. FHFA has the authority to take actions against us, including issuing a cease and desist order or assessing civil money

penalties, if we: (a) fail to submit a required housing plan or fail to make a good faith effort to comply with a plan approved

by FHFA; or (b) fail to submit certain data relating to our mortgage purchases, information or reports as required by law. See

“RISK FACTORS — Legal and Regulatory Risks — We may make certain changes to our business in an attempt to meet

our housing goals and subgoals.”

FHFA has established four goals and one subgoal for single-family owner-occupied housing, one multifamily special

affordable housing goal, and one multifamily special affordable housing subgoal. Three of the single-family housing goals

and the subgoal target purchase money mortgages for: (a) low-income families; (b) very low-income families; and/or

(c) families that reside in low-income areas. The single-family housing goals also include one that targets refinancing

mortgages for low-income families. The multifamily special affordable housing goal targets multifamily rental housing

affordable to low-income families. The multifamily special affordable housing subgoal targets multifamily rental housing

affordable to very low-income families.

The single-family goals are expressed as a percentage of the total number of eligible mortgages underlying our total

single-family mortgage purchases. The multifamily goals are expressed in terms of minimum numbers of units financed.

The single-family goals include: (a) an assessment of performance as compared to the actual share of the market that

meets the criteria for each goal; and (b) a benchmark level to measure performance. Where our performance on a singlefamily goal falls short of the benchmark for a goal, we still could achieve the goal if our performance meets or exceeds the

actual share of the market that meets the criteria for the goal for that year. For example, if the actual market share of

mortgages to low-income families relative to all mortgages originated to finance owner-occupied single-family properties is

lower than the 23% benchmark rate, we would still satisfy this goal if we achieve that actual market percentage.

Affordable Housing Goals for 2012 to 2014

FHFA’s affordable housing goals for Freddie Mac for 2012 to 2014 are set forth below.

Table 5 — Affordable Housing Goals for 2012 to 2014

Goals for 2012 Goals for 2013 Goals for 2014

Single-family purchase money goals (benchmark levels):

Low-income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23% 23% 23%

Very low-income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7% 7% 7%

Low-income areas(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20% TBD TBD

Low-income areas subgoal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11% 11% 11%

Single-family refinance low-income goal (benchmark level) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20% 20% 20%

Multifamily low-income goal (in units) ............................................ 225,000 215,000 200,000

Multifamily low-income subgoal (in units) .......................................... 59,000 50,000 40,000

(1) FHFA will annually set the benchmark level for the low-income areas goal based on the benchmark level for the low-income areas subgoal, plus an

adjustment factor reflecting the additional incremental share of mortgages for low- and moderate-income families in designated disaster areas in the

three most recent years for which such data are available. For 2012, FHFA set the benchmark level at 20%.

We expect to report our performance with respect to the 2012 affordable housing goals in March 2013. We anticipate

that the difficult market conditions and our financial condition will affect our affordable housing activities in 2013. However,

we view the purchase of mortgage loans that are eligible to count toward our affordable housing goals to be a principal part

40 Freddie Mac
of our mission and business and we are committed to facilitating the financing of affordable housing for low- and moderateincome families.

Duty to Serve Underserved Markets

The GSE Act establishes a duty for Freddie Mac and Fannie Mae to serve three underserved markets (manufactured

housing, affordable housing preservation and rural areas) by developing loan products and flexible underwriting guidelines to

facilitate a secondary market for mortgages for very low-, low- and moderate-income families in those markets. Effective for

2010 and subsequent years, FHFA is required to establish a manner for annually: (a) evaluating whether and to what extent

Freddie Mac and Fannie Mae have complied with the duty to serve underserved markets; and (b) rating the extent of

compliance.

In June 2010, FHFA published in the Federal Register a proposed rule regarding the duty of Freddie Mac and Fannie

Mae to serve the underserved markets. FHFA has not yet issued a final rule. We cannot predict the content of any such final

rule, or the impact that the final rule will have on our business or operations.

Affordable Housing Goals and Results for 2010 and 2011

In October 2012, FHFA informed us that it had reviewed our performance with respect to the affordable housing goals

for 2011, and determined that we achieved the single-family refinance low-income goal and both multifamily goals.

Our housing goals and results for 2010 and 2011 are set forth in the table below.

Table 6 — Affordable Housing Goals and Results for 2010 and 2011

Goals for 2010

and 2011

Market Level for

2010(1) Results for 2010

Market Level for

2011(1) Results for 2011

Single -family purchase money goals (benchmark levels):

Low-income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27% 27.2% 27.8% 26.5% 23.3%

Very low-income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8% 8.1% 8.4% 8.0% 6.6%

Low-income areas(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24% 24.0% 23.8% 22.0% 19.2%

Low-income areas subgoal . . . . . . . . . . . . . . . . . . . . . . . 13% 12.1% 10.8% 11.4% 9.2%

Single -family refinance low-income goal (benchmark

level) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21% 20.2% 22.0% 21.5% 23.4%

Multifamily low-income goal (in units) ................ 161,250 N/A 161,500 N/A 229,001

Multifamily low-income subgoal (in units) ............. 21,000 N/A 29,656 N/A 35,471

(1) Determined by FHFA based on its analysis of market data.

(2) FHFA annually sets the benchmark level for the low-income areas goal based on the benchmark level for the low-income areas subgoal, plus an

adjustment factor reflecting the additional incremental share of mortgages for low- and moderate-income families in designated disaster areas in the

three most recent years for which such data are available. For both 2010 and 2011, FHFA set the benchmark level for the low-income areas goal at 24%.

We failed to achieve two of the single-family purchase money goals in 2010, and failed to achieve all four of the singlefamily purchase money goals for 2011. FHFA has not required us to submit housing plans for goals that we did not achieve

in 2010 or 2011.

Affordable Housing Allocations

The GSE Act requires us to set aside in each fiscal year an amount equal to 4.2 basis points for each dollar of the UPB

of total new business purchases, and allocate or transfer such amount to: (a) HUD to fund a Housing Trust Fund established

and managed by HUD; and (b) a Capital Magnet Fund established and managed by Treasury. FHFA has the authority to

suspend our allocation upon finding that the payment would contribute to our financial instability, cause us to be classified as

undercapitalized or prevent us from successfully completing a capital restoration plan. In November 2008, FHFA advised us

that it has suspended the requirement to set aside or allocate funds for the Housing Trust Fund and the Capital Magnet Fund

until further notice.

Prudential Management and Operations Standards

FHFA has established prudential standards relating to the management and operations of Freddie Mac, Fannie Mae, and

the FHLBs. The standards address a number of business, controls, and risk management areas. The standards specify the

possible consequences for any entity that fails to meet any of the standards or otherwise fails to comply (including

submission of a corrective plan, limits on asset growth, increases in capital, limits on dividends and stock redemptions or

repurchases, a minimum level of retained earnings or any other action that the FHFA Director determines will contribute to

41 Freddie Mac
bringing the entity into compliance with the standards). In addition, a failure to meet any standard also may constitute an

unsafe or unsound practice, which may form the basis for FHFA initiating an administrative enforcement action.

Portfolio Activities

The GSE Act requires FHFA to establish, by regulation, criteria governing portfolio holdings to ensure the holdings are

backed by sufficient capital and consistent with the enterprises’ mission and safe and sound operations. In establishing these

criteria, FHFA must consider the ability of the enterprises to provide a liquid secondary market through securitization

activities, the portfolio holdings in relation to the mortgage market and the enterprises’ compliance with the prudential

management and operations standards prescribed by FHFA.

On December 28, 2010, FHFA issued a final rule adopting the portfolio holdings criteria established in the Purchase

Agreement, as it may be amended from time to time, for so long as we remain subject to the Purchase Agreement.

See “Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related Investments

Portfolio” for additional information on restrictions on our portfolio activities.

Anti-Predatory Lending

Predatory lending practices are in direct opposition to our mission, our goals and our practices. We instituted antipredatory lending policies intended to prevent the purchase or assignment of mortgage loans with unacceptable terms or

conditions or resulting from unacceptable practices. These policies include processes related to the origination, delivery and

validation of loans sold to us. In addition to the purchase policies we instituted, we promote consumer education and

financial literacy efforts to help borrowers avoid abusive lending practices and we provide competitive mortgage products to

reputable mortgage originators so that borrowers have a greater choice of financing options.

Subordinated Debt

FHFA directed us to continue to make interest and principal payments on our subordinated debt, even if we fail to

maintain required capital levels. As a result, the terms of any of our subordinated debt that provide for us to defer payments

of interest under certain circumstances, including our failure to maintain specified capital levels, are no longer applicable. In

addition, the requirements in the agreement we entered into with FHFA in September 2005 with respect to issuance,

maintenance, and reporting and disclosure of Freddie Mac subordinated debt have been suspended during the term of

conservatorship and thereafter until directed otherwise. See “NOTE 14: REGULATORY CAPITAL — Subordinated Debt

Commitment” for more information regarding subordinated debt.

Department of Housing and Urban Development

HUD has regulatory authority over Freddie Mac with respect to fair lending. Our mortgage purchase activities are

subject to federal anti-discrimination laws. In addition, the GSE Act prohibits discriminatory practices in our mortgage

purchase activities, requires us to submit data to HUD to assist in its fair lending investigations of primary market lenders

with which we do business and requires us to undertake remedial actions against such lenders found to have engaged in

discriminatory lending practices. In addition, HUD periodically reviews and comments on our underwriting and appraisal

guidelines for consistency with the Fair Housing Act and the anti-discrimination provisions of the GSE Act.

Department of the Treasury

Treasury has significant rights and powers with respect to our company as a result of the Purchase Agreement. In

addition, under our charter, the Secretary of the Treasury has approval authority over our issuances of notes, debentures and

substantially identical types of unsecured debt obligations (including the interest rates and maturities of these securities), as

well as new types of mortgage-related securities issued subsequent to the enactment of the Financial Institutions Reform,

Recovery and Enforcement Act of 1989. The Secretary of the Treasury has performed this debt securities approval function

by coordinating GSE debt offerings with Treasury funding activities. In addition, our charter authorizes Treasury to purchase

Freddie Mac debt obligations not exceeding $2.25 billion in aggregate principal amount at any time.

Securities and Exchange Commission

We are subject to the reporting requirements applicable to registrants under the Exchange Act, including the

requirement to file with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on

42 Freddie Mac
Form 8-K. Although our common stock is required to be registered under the Exchange Act, we continue to be exempt from

certain federal securities law requirements, including the following:

• Securities we issue or guarantee are “exempted securities” under the Securities Act and may be sold without

registration under the Securities Act;

• We are excluded from the definitions of “government securities broker” and “government securities dealer” under the

Exchange Act;

• The Trust Indenture Act of 1939 does not apply to securities issued by us; and

• We are exempt from the Investment Company Act of 1940 and the Investment Advisers Act of 1940, as we are an

“agency, authority or instrumentality” of the U.S. for purposes of such Acts.

Legislative and Regulatory Developments

We discuss certain significant legislative and regulatory developments below. For more information regarding these and

other legislative and regulatory developments that could impact our business, see “RISK FACTORS — Conservatorship and

Related Matters” and “— Legal and Regulatory Risks.”

Administration Report on Reforming the U.S. Housing Finance Market

On February 11, 2011, the Administration delivered a report to Congress that lays out the Administration’s plan to

reform the U.S. housing finance market, including options for structuring the government’s long-term role in a housing

finance system in which the private sector is the dominant provider of mortgage credit. The report recommends winding

down Freddie Mac and Fannie Mae, stating that the Administration will work with FHFA to determine the best way to

responsibly reduce the role of Freddie Mac and Fannie Mae in the market and ultimately wind down both institutions. The

report states that these efforts must be undertaken at a deliberate pace, which takes into account the impact that these changes

will have on borrowers and the housing market.

The report states that the government is committed to ensuring that Freddie Mac and Fannie Mae have sufficient capital

to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations, and further

states that the Administration will not pursue policies or reforms in a way that would impair the ability of Freddie Mac and

Fannie Mae to honor their obligations. The report states the Administration’s belief that under the companies’ senior

preferred stock purchase agreements with Treasury, there is sufficient funding to ensure the orderly and deliberate wind

down of Freddie Mac and Fannie Mae, as described in the Administration’s plan.

The report identifies a number of policy levers that could be used to wind down Freddie Mac and Fannie Mae, shrink

the government’s footprint in housing finance, and help bring private capital back to the mortgage market, including

increasing guarantee fees, phasing in a 10% down payment requirement, reducing conforming loan limits, and winding down

Freddie Mac and Fannie Mae’s investment portfolios, consistent with the senior preferred stock purchase agreements. These

recommendations, if implemented, would have a material impact on our business volumes, market share, results of

operations and financial condition.

As discussed in “Our Business Segments — Single-Family Guarantee Segment,” we were directed by FHFA to

implement two across-the-board increases in guarantee fees in 2012. Temporary high-cost area loan limits that had been in

place since 2008 expired on September 30, 2011 (effectively reducing the conforming loan limits in certain high-cost areas).

In addition, the annual rate at which the mortgage-related investments portfolio limit declines increased from 10% to 15%, as

a result of the August 2012 amendment to the Purchase Agreement.

We cannot predict the extent to which the other recommendations in the report will be implemented or when any actions

to implement them may be taken. However, we are not aware of any current plans of our Conservator to significantly change

our business model or capital structure in the near-term.

FHFA’s Strategic Plan for Freddie Mac and Fannie Mae Conservatorships

On February 21, 2012, FHFA sent to Congress a strategic plan for the next phase of the conservatorships of Freddie

Mac and Fannie Mae. The plan sets forth objectives and steps FHFA is taking or will take to meet FHFA’s obligations as

Conservator. FHFA stated that the steps envisioned in the plan are consistent with each of the housing finance reform

frameworks set forth in the report delivered by the Administration to Congress in February 2011, as well as with the leading

43 Freddie Mac
congressional proposals previously introduced. FHFA indicated that the plan leaves open all options for Congress and the

Administration regarding the resolution of the conservatorships and the degree of government involvement in supporting the

secondary mortgage market in the future.

FHFA’s plan provides lawmakers and the public with an outline of how FHFA as Conservator intends to guide Freddie

Mac and Fannie Mae over the next few years, and identifies three strategic goals:

• Build. Build a new infrastructure for the secondary mortgage market;

• Contract. Gradually contract Freddie Mac and Fannie Mae’s dominant presence in the marketplace while simplifying

and shrinking their operations; and

• Maintain. Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages.

The first of these goals establishes the steps FHFA, Freddie Mac, and Fannie Mae will take to create the necessary

infrastructure, including a new securitization platform and national standards for mortgage securitization, that Congress and

market participants may use to develop the secondary mortgage market of the future. This securitization platform would

replace our and Fannie Mae’s current separate proprietary systems. In addition, we completed a key milestone of the UMDP

with the launch of the Uniform Collateral Data Portal for the electronic submission of appraisal reports for conventional

mortgages. We also implemented ULDD, which provides for the efficient collection and use of consistent information about

loan terms, collateral, and borrowers. In October 2012, we announced, pursuant to a directive by FHFA, changes to

requirements in certain areas related to loan servicing, including a process and criteria for evaluating servicer performance.

These changes align our and Fannie Mae’s requirements in these areas.

The second goal describes steps that FHFA plans to take to gradually shift mortgage credit risk from Freddie Mac and

Fannie Mae to private investors and eliminate the direct funding of mortgages by the enterprises. The plan states that the goal

of gradually shifting mortgage credit risk from Freddie Mac and Fannie Mae to private investors could be accomplished, in

the case of single-family credit guarantees, in several ways, including increasing guarantee fees, establishing loss-sharing

arrangements and expanding reliance on mortgage insurance. To evaluate how to accomplish the goal of contracting

enterprise operations in the multifamily business, the plan states that Freddie Mac and Fannie Mae will each undertake a

market analysis of the viability of its respective multifamily operations without government guarantees.

For the third goal, the plan states that programs and strategies to ensure ongoing mortgage credit availability, assist

troubled homeowners, and minimize taxpayer losses while restoring stability to housing markets continue to require energy,

focus, and resources. The plan states that activities that must be continued and enhanced include: (a) successful

implementation of HARP, including the significant program changes announced in October 2011; (b) continued

implementation of the Servicing Alignment Initiative; (c) renewed focus on short sales, deeds-in-lieu, and deeds-for-lease

options that enable households and Freddie Mac and Fannie Mae to avoid foreclosure; and (d) further development and

implementation of the REO disposition initiative announced by FHFA in 2011.

The Conservatorship Scorecard provides the implementation roadmap for the strategic plan. For information about our

performance with respect to the scorecard, see “EXECUTIVE COMPENSATION — Compensation Discussion and

Analysis.”

Legislation Related to the Future Status of Freddie Mac and Fannie Mae

Our future structure and role will be determined by the Administration and Congress, and there are likely to be

significant changes beyond the near-term. Congress did not adopt any significant legislation on the future status of Freddie

Mac and Fannie Mae in 2012. However, a number of bills were introduced in Congress in 2011 relating to the future status of

Freddie Mac, Fannie Mae, and the secondary mortgage market. Several of the bills would have revoked our charter and

wound us down or placed us into receivership. Other bills would have limited the companies’ operations or altered FHFA’s

or Treasury’s authority over the companies. These bills were not enacted prior to the adjournment of the 112th Congress on

January 3, 2013 and would need to be reintroduced in the 113th Congress. It is likely that similar or new bills will be

introduced and considered in the 113th Congress.

For more information, see “RISK FACTORS — Conservatorship and Related Matters — The future status and role of

Freddie Mac is uncertain and could be materially adversely affected by legislative and regulatory action that alters the

ownership, structure, and mission of the company.”

44 Freddie Mac
Dodd-Frank Act

The Dodd-Frank Act, which was signed into law on July 21, 2010, significantly changed the regulation of the financial

services industry, including by creating new standards related to regulatory oversight of systemically important financial

companies, derivatives, capital requirements, asset-backed securitization, mortgage underwriting, and consumer financial

protection. The Dodd-Frank Act has directly affected and will continue to directly affect the business and operations of

Freddie Mac by subjecting us to new and additional regulatory oversight and standards, including with respect to our

activities and products. We may also be affected by provisions of the Dodd-Frank Act and implementing regulations that

affect the activities of other financial services entities that are our customers and counterparties.

Implementation of the Dodd-Frank Act is being accomplished through numerous rulemakings, many of which are still

in process. Accordingly, it is difficult to assess fully the impact of the Dodd-Frank Act on Freddie Mac and the financial

services industry at this time. The final effects of the legislation will not be known with certainty until these rulemakings are

complete. The Dodd-Frank Act also mandates the preparation of studies on a wide range of issues, which could lead to

additional legislation or regulatory changes.

Recent developments with respect to Dodd-Frank rulemakings that may have a significant impact on Freddie Mac

include the following:

• CFPB final rules: The Consumer Financial Protection Bureau, or CFPB, adopted a number of final rules in early 2013

relating to mortgage finance and servicing practices. The rules generally will become effective by January 2014,

although some provisions have earlier effective dates. The ability-to-repay rule requires mortgage originators to make

a reasonable and good faith determination that a borrower has a reasonable ability to repay the loan according to its

terms. This rule provides certain protection from liability for originators making loans that satisfy the definition of a

qualified mortgage. The rule includes several alternative definitions of a qualified mortgage, one of which is a loan

that, in addition to meeting certain other requirements, is eligible to be purchased or guaranteed by Freddie Mac or

Fannie Mae. This provision expires on January 10, 2021 (or earlier if Freddie Mac and Fannie Mae cease operating

under FHFA conservatorship or receivership). The CFPB concurrently proposed an amendment to the rule to add an

exemption for the GSEs’ refinancing programs, subject to certain conditions.

Other CFPB rules include: (a) the high-cost mortgage and homeownership counseling rule, which extends consumer

protections related to high-cost mortgages; (b) the mortgage servicing rule, which substantially reforms servicers’

procedural obligations to borrowers when servicing mortgage loans; (c) the escrow accounts rule, which requires that

escrow accounts be established for a minimum of five years for higher-cost mortgages; (d) the loan originator

compensation rule, which expands and strengthens loan originator qualification requirements and regulates loan

originator compensation practices; and (e) the appraisals rule, which sets disclosure and delivery requirements for

appraisals and other written valuations. In addition, the CFPB, FHFA, and four other agencies jointly adopted a rule

on appraisals for higher priced mortgage loans, which requires creditors for certain mortgages to obtain an appraisal

or appraisals meeting specified standards, among other requirements.

These rules will, individually and in combination, significantly change many aspects of the mortgage industry and

may affect us both directly and indirectly. Certain of these rules establish requirements that apply directly to us, and

may cause operational and compliance challenges. These rules also may lead to significant changes in the structure of

the mortgage industry or the business practices of our customers and counterparties, which may affect us indirectly.

For example, customers and counterparties could change their pricing practices, which could cause the volume of

mortgage originations to decline, which would in turn adversely affect our business and financial results. Some of

these changes could slow the rate of foreclosures generally and result in significant changes to mortgage servicing

and foreclosure practices that could adversely affect our business. Mortgage originators and assignees, including

Freddie Mac, may be subject to increased legal risk for loans that do not meet the requirements of the new rules.

• Derivatives: Pursuant to rules adopted by the U.S. Commodity Futures Trading Commission, or CFTC, many of the

types of interest rate swaps that we use will become subject to central clearing requirements in 2013. For more

information, see “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Derivative

Counterparties.”

• Annual stress tests: On October 5, 2012, FHFA proposed a rule that would require Freddie Mac, Fannie Mae and the

FHLBs to conduct annual stress tests. If adopted as proposed, the rule would require Freddie Mac to conduct annual

stress tests using scenarios specified by FHFA.

45 Freddie Mac
We continue to review and assess the impact of rulemakings and other activities under the Dodd-Frank Act. For more

information, see “RISK FACTORS — Legal and Regulatory Risks — The Dodd-Frank Act and related regulation may

adversely affect our business activities and financial results.”

Developments Concerning Single-Family Servicing Practices

In addition to regulatory changes related to the Dodd-Frank Act discussed above, there have been a number of

legislative and regulatory developments in recent periods impacting single-family mortgage servicing and foreclosure

practices, including those discussed below. It is possible that these developments will result in significant changes to

mortgage servicing and foreclosure practices that could adversely affect our business. New compliance requirements placed

on servicers as a result of these developments could expose Freddie Mac to financial risk as a result of further extensions of

foreclosure timelines if home prices remain weak or decline. We may need to make additional significant changes to our

practices, which could increase our operational risk. It is difficult to predict other impacts on our business of these changes,

though such changes could adversely affect our credit losses and costs of servicing, and make it more difficult for us to

transfer mortgage servicing rights to a successor servicer should we need to do so. The legislative and regulatory

developments and changes include the following:

• On February 9, 2012, a coalition of state attorneys general and federal agencies announced that it had entered into a

settlement with five large seller/servicers concerning certain issues related to mortgage servicing practices. The

settlement includes changes to mortgage servicing practices. We believe that resource constraints on these servicers’

foreclosure activities affected our REO acquisition volumes in 2012.

• On July 11, 2012, the Governor of California signed into law a package of foreclosure prevention bills that will likely

slow foreclosures in California.

For more information on operational risks related to these developments in mortgage servicing, see “MD&A — RISK

MANAGEMENT — Operational Risks.”

FHFA Advisory Bulletin

On April 9, 2012, FHFA issued an advisory bulletin, “Framework for Adversely Classifying Loans, Other Real Estate

Owned, and Other Assets and Listing Assets for Special Mention,” which was effective upon issuance and is applicable to

Freddie Mac, Fannie Mae, and the FHLBs. The advisory bulletin establishes guidelines for adverse classification and

identification of specified assets and off-balance sheet credit exposures. The Advisory Bulletin indicates that this guidance

considers and is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued

by the federal banking regulators in June 2000. Among other provisions, the advisory bulletin requires that we classify a

single-family loan as “loss” when the loan is no more than 180 days delinquent. The advisory bulletin, and subsequent FHFA

guidance, specify that, once a loan is classified as “loss,” we generally are required to charge off the portion of the loan

balance that exceeds the fair value of the property, less cost to sell and other available cash flows. The advisory bulletin also

specifies that, if we subsequently receive full or partial payment of a previously charged-off loan, we may report a recovery

of the amount, either through our loan loss reserves or as a reduction in REO operations expenses.

We continue to work with FHFA and Fannie Mae to determine how to apply the guidance to loans that reperform after

having previously been 180 days or more delinquent. Our historical experience shows that a significant number of singlefamily loans that are 180 days or more delinquent will subsequently return to a current payment status either under the

original loan’s terms or after a modification is completed. FHFA has informed us that we are required to implement the

advisory bulletin by phasing in the adverse classification and charge-off requirements in 2014 and 2015, respectively. On

January 31, 2013, we submitted a comprehensive implementation plan for the advisory bulletin to FHFA. We are currently

assessing the operational and accounting impacts of this advisory bulletin and have not yet determined its impact on our

consolidated financial statements.

Bank Regulatory Guidance on Accounting for Loans Discharged in Chapter 7 Bankruptcy

Regulatory guidance from the Office of the Comptroller of the Currency in 2012 effectively changed industry practice

to require single-family mortgage loans discharged in Chapter 7 bankruptcy to be classified as TDRs, regardless of

delinquency status or payment history. As a result of this guidance, in the third quarter of 2012, we changed our accounting

treatment for single-family loans discharged in Chapter 7 bankruptcy to classify these loans as TDRs (unless they were

already classified as such for other reasons). For information on our accounting policy regarding TDRs and the impact of this

46 Freddie Mac
guidance, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Impaired Loans” and “— Basis of

Presentation,” respectively.

Employees

At February 15, 2013, we had 4,961 full-time and 56 part-time employees. Our principal offices are located in McLean,

Virginia.

Available Information

SEC Reports

We file reports and other information with the SEC. In view of the Conservator’s succession to all of the voting power

of our stockholders, we have not prepared or provided proxy statements for the solicitation of proxies from stockholders

since we entered into conservatorship, and do not expect to do so while we remain in conservatorship. We make available

free of charge through our website at www.freddiemac.com our annual reports on Form 10-K, quarterly reports on

Form 10-Q, current reports on Form 8-K, and all other SEC reports and amendments to those reports as soon as reasonably

practicable after we electronically file the material with, or furnish it to, the SEC. In addition, materials that we file with the

SEC are available for review and copying at the SEC’s Public Reference Room at 100 F Street, N.E., Washington,

D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at

1-800-SEC-0330. The SEC also maintains an internet site (www.sec.gov) that contains reports, proxy and information

statements, and other information regarding companies that file electronically with the SEC.

We are providing our website addresses and the website address of the SEC here or elsewhere in this Form 10-K solely

for your information. Information appearing on our website or on the SEC’s website is not incorporated into this Form 10-K.

Information about Certain Securities Issuances by Freddie Mac

Pursuant to SEC regulations, public companies are required to disclose certain information when they incur a material

direct financial obligation or become directly or contingently liable for a material obligation under an off-balance sheet

arrangement. The disclosure must be made in a current report on Form 8-K under Item 2.03 or, if the obligation is incurred in

connection with certain types of securities offerings, in prospectuses for that offering that are filed with the SEC.

Freddie Mac’s securities offerings are exempted from SEC registration requirements. As a result, we are not required to

and do not file registration statements or prospectuses with the SEC with respect to our securities offerings. To comply with

the disclosure requirements of Form 8-K relating to the incurrence of material financial obligations, we report our incurrence

of these types of obligations either in offering circulars (or supplements thereto) that we post on our website or in a current

report on Form 8-K, in accordance with a “no-action” letter we received from the SEC staff. In cases where the information

is disclosed in an offering circular posted on our website, the document will be posted on our website within the same time

period that a prospectus for a non-exempt securities offering would be required to be filed with the SEC.

The website address for disclosure about our debt securities is www.freddiemac.com/debt. From this address, investors

can access the offering circular and related supplements for debt securities offerings under Freddie Mac’s global debt facility,

including pricing supplements for individual issuances of debt securities.

Disclosure about the mortgage-related securities we issue, some of which are off-balance sheet obligations, can be

found at www.freddiemac.com/mbs. From this address, investors can access information and documents about our mortgagerelated securities, including offering circulars and related offering circular supplements.

Forward-Looking Statements

We regularly communicate information concerning our business activities to investors, the news media, securities

analysts, and others as part of our normal operations. Some of these communications, including this Form 10-K, contain

“forward-looking statements,” including statements pertaining to the conservatorship, our current expectations and objectives

for our efforts under the MHA Program, the servicing alignment initiative and other programs to assist the U.S. residential

mortgage market, future business plans, liquidity, capital management, economic and market conditions and trends, market

share, the effect of legislative and regulatory developments, implementation of new accounting guidance, credit losses,

internal control remediation efforts, and results of operations and financial condition on a GAAP, Segment Earnings, and fair

value basis. Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond our

47 Freddie Mac
control. Forward-looking statements are often accompanied by, and identified with, terms such as “objective,” “expect,”

“trend,” “forecast,” “anticipate,” “believe,” “intend,” “could,” “future,” “may,” “will,” and similar phrases. These statements

are not historical facts, but rather represent our expectations based on current information, plans, judgments, assumptions,

estimates, and projections. Actual results may differ significantly from those described in or implied by such forward-looking

statements due to various factors and uncertainties, including those described in the “RISK FACTORS” section of this

Form 10-K, and:

• the actions FHFA, Treasury, the Federal Reserve, the SEC, HUD, other federal agencies, the Administration,

Congress, and our management may take, including actions related to implementing FHFA’s strategic plan for

Freddie Mac and Fannie Mae’s conservatorships and the Conservatorship Scorecard;

• the effect of the restrictions and other terms of the conservatorship and the Treasury Agreements on our business,

including payment of our dividend obligation on the senior preferred stock;

• our ability to maintain adequate liquidity to fund our operations, including following any changes in the support

provided to us by Treasury or FHFA, a change in the credit ratings of our debt securities or a change in the credit

rating of the U.S. government;

• changes in our charter or applicable legislative or regulatory requirements (including any restructuring or

reorganization in the form of our company, whether we will remain a stockholder-owned company or continue to

exist and whether we will be wound down or placed under receivership), regulations under the GSE Act, the Reform

Act, or the Dodd-Frank Act, regulatory or legislative actions that require us to support non-mortgage market

initiatives, changes to affordable housing goals regulation, reinstatement of regulatory capital requirements, or the

exercise or assertion of additional regulatory or administrative authority;

• changes in the regulation of the mortgage, housing finance, and financial services industries, including changes

caused by the Dodd-Frank Act, or any other legislative, regulatory, or judicial action at the federal, state, or local

level;

• actions against mortgage originators and servicers, mortgage insurers, and other mortgage industry participants by

federal or state authorities;

• the scope of various initiatives designed to help in the housing recovery (including the extent to which borrowers

participate in HAMP, HARP, the non-HAMP standard loan modification initiative, and the new short sale initiative),

and the effect of such programs on our credit losses, expenses, and the size and composition of our mortgage-related

investments portfolio;

• the effect of any deficiencies in foreclosure documentation practices and related lengthening of the foreclosure

timeline;

• the ability of our financial, accounting, data processing, and other operating systems or infrastructure, and those of

our vendors to process the complexity and volume of our transactions;

• changes in accounting or tax guidance or in our accounting policies or estimates, and our ability to effectively

implement any such changes in guidance, policies, or estimates;

• changes in general regional, national, or international economic, business, or market conditions and competitive

pressures, including changes in employment rates and interest rates, and changes in the federal government’s fiscal

and monetary policy;

• changes in the U.S. residential mortgage market, including changes in the rate of growth in total outstanding U.S.

residential mortgage debt, the size of the U.S. residential mortgage market, and home prices;

• our ability to effectively implement our business strategies, including any efforts to improve the supply and liquidity

of, and demand for, our mortgage-related and debt securities, and restrictions on our ability to offer new products or

engage in new activities;

• our ability to recruit and retain executive officers and other key employees;

• our ability to effectively identify and manage credit, interest-rate, operational, and other risks in our business,

including changes to the credit environment and the levels and volatilities of interest rates, as well as the shape and

slope of the yield curves;

48 Freddie Mac
• the effects of internal control deficiencies and our ability to effectively identify, assess, evaluate, manage, mitigate, or

remediate control deficiencies and risks, including material weaknesses and significant deficiencies, in our internal

control over financial reporting and disclosure controls and procedures;

• incomplete or inaccurate information provided by customers and counterparties;

• consolidation among, or adverse changes in the financial condition of, our customers and counterparties;

• the failure of our customers and counterparties to fulfill their obligations to us, including (a) the failure of seller/

servicers to meet their obligations to repurchase loans sold to us in breach of their representations and warranties, and

the potential cost and difficulty of legally enforcing those obligations, and (b) the failure of mortgage insurers to pay

our claims in full;

• changes in our judgments, assumptions, forecasts, or estimates regarding the volume of our business and spreads we

expect to earn;

• the availability of options, interest-rate and currency swaps, and other derivative financial instruments of the types

and quantities, on acceptable terms, and with acceptable counterparties needed for investment funding and risk

management purposes;

• changes in pricing, valuation or other methodologies, models, assumptions, judgments, estimates and/or other

measurement techniques, or their respective reliability;

• changes in mortgage-to-debt OAS;

• the potential effect on the market for our securities resulting from any purchases or sales by any large investor,

including the Federal Reserve, of Freddie Mac debt or mortgage-related securities;

• adverse judgments or settlements in connection with legal proceedings, governmental investigations, and IRS

examinations;

• volatility of reported results due to changes in the fair value of certain instruments or assets;

• the development of different types of mortgage servicing structures and servicing compensation;

• preferences of originators in selling into the secondary mortgage market;

• changes to our underwriting or servicing requirements (including servicing alignment efforts under the servicing

alignment initiative), our practices with respect to the disposition of REO properties, or investment standards for

mortgage-related products;

• investor preferences for mortgage loans and mortgage-related and debt securities compared to other investments;

• borrower preferences for fixed-rate mortgages versus ARMs;

• the occurrence of a major natural or other disaster in geographic areas in which our offices or portions of our total

mortgage portfolio are concentrated;

• other factors and assumptions described in this Form 10-K, including in the “MD&A” section;

• our assumptions and estimates regarding the foregoing and our ability to anticipate the foregoing factors and their

effects; and

• market reactions to the foregoing.

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any

forward-looking statements we make to reflect events or circumstances occurring after the date of this Form 10-K.

ITEM 1A. RISK FACTORS

Investing in our securities involves risks, including the risks described below and in “BUSINESS,” “MD&A,” and

elsewhere in this Form 10-K. These risks and uncertainties could, directly or indirectly, adversely affect our business,

financial condition, results of operations, cash flows, strategies and/or prospects.

49 Freddie Mac
Conservatorship and Related Matters

The future status and role of Freddie Mac is uncertain and could be materially adversely affected by legislative and

regulatory action that alters the ownership, structure, and mission of the company.

The Acting Director of FHFA stated on November 15, 2011 that “the long-term outlook is that neither [Freddie Mac nor

Fannie Mae] will continue to exist, at least in its current form, in the future.” Future legislation will likely materially affect

the role of the company, our business model, our structure, and future results of operations. Some or all of our functions

could be transferred to other institutions, and we could cease to exist as a stockholder-owned company or at all. If any of

these events were to occur, our shares could further diminish in value, or cease to have any value, and there can be no

assurance that our stockholders would receive any compensation for such loss in value.

While there have not been significant legislative developments on the future status of Freddie Mac and Fannie Mae in

recent quarters, it is likely that bills related to GSE reform will be introduced and considered during the 113th Congress that

began in January 2013. There were a number of significant developments in 2011, including the Administration’s February

2011 report to Congress that, among other items, recommends reducing the role of Freddie Mac and Fannie Mae and

ultimately winding down both companies. In addition, a number of bills were introduced in Congress in 2011 concerning the

future status of Freddie Mac and Fannie Mae, including several bills that would have wound down Freddie Mac and Fannie

Mae (or completely restructured the companies).

FHFA is driving significant changes in our business model, primarily in our single-family guarantee business, through

its strategic plan for Freddie Mac and Fannie Mae and the Conservatorship Scorecard. At the time FHFA released its

strategic plan, it stated that the steps envisioned in the plan were consistent with each of the housing finance reform

frameworks set forth in the Administration’s February 2011 report, as well as with the leading congressional proposals

previously introduced. In addition, FHFA has expansive regulatory authority over us, and the manner in which FHFA will

use its authority in the future is unclear. FHFA could take a number of regulatory actions that could materially adversely

affect our company, such as changing or reinstating our current capital requirements, which are not binding during

conservatorship, or imposing additional restrictions on our portfolio activities or new initiatives.

For more information on the Administration’s February 2011 report, proposed GSE reform legislation, and FHFA’s

strategic plan and the Conservatorship Scorecard, see “BUSINESS — Regulation and Supervision — Legislative and

Regulatory Developments.”

The conservatorship is indefinite in duration and the timing, conditions, and likelihood of our emerging from

conservatorship are uncertain. Even if the conservatorship is terminated, we would remain subject to the Purchase

Agreement, senior preferred stock, and warrant.

FHFA has stated that there is no exact time frame as to when the conservatorship may end. Termination of the

conservatorship (other than in connection with receivership) also requires Treasury’s consent under the Purchase Agreement.

There can be no assurance as to when, and under what circumstances, Treasury would give such consent. There is also

significant uncertainty as to what changes may occur to our business structure during or following our conservatorship,

including whether we will continue to exist. It is possible that the conservatorship will end with us being placed into

receivership.

In addition, Treasury has the ability to acquire almost 80% of our common stock for nominal consideration by

exercising the warrant we issued to it pursuant to the Purchase Agreement. Consequently, the company could effectively

remain under the control of the U.S. government even if the conservatorship was ended and the voting rights of common

stockholders restored. The warrant held by Treasury, the restrictions on our business contained in the Purchase Agreement,

and the senior status of the senior preferred stock issued to Treasury under the Purchase Agreement, if the senior preferred

stock has not been redeemed, also could adversely affect our ability to attract new private sector capital in the future should

the company be in a position to seek such capital.

Moreover, we do not have the ability over the long-term to retain any capital generated by our business operations.

Under the Purchase Agreement, as revised on August 17, 2012, we are required to pay dividends to the extent that our Net

Worth Amount exceeds a permitted capital reserve amount. The amount of this reserve decreases over time. Accordingly,

over the long-term, we will not be able to build or retain any net worth surplus or return capital to stockholders other than

Treasury.

50 Freddie Mac
We may request additional draws under the Purchase Agreement in future periods.

We may request additional draws under the Purchase Agreement in future periods. The need for any such future draws

will be determined by a variety of factors that could adversely affect our net worth or our ability to generate comprehensive

income, including the following:

• how long and to what extent the U.S. economy and housing market, including home prices, remain weak, which

could increase credit expenses and cause additional other-than-temporary impairments of the non-agency mortgagerelated securities we hold;

• foreclosure prevention and other loss mitigation efforts, and foreclosure processing delays, which could increase our

expenses;

• competitiveness with other mortgage market participants, including Fannie Mae;

• adverse changes in interest rates, the yield curve, implied volatility or mortgage-to-debt OAS, which could increase

realized and unrealized mark-to-fair value losses recorded in earnings or AOCI;

• required reductions in the size of our mortgage-related investments portfolio and other limitations on our investment

activities that reduce the earnings capacity of our investment activities;

• adverse changes in our funding costs or limitations in our access to public debt markets;

• changes in accounting practices or guidance;

• effects of the MHA Program and other government initiatives, including any future requirements to reduce the

principal amount of loans;

• losses resulting from control failures, including any control failures because of our inability to retain staff;

• prohibition on developing new products and limitations on our ability to enter into new lines of business;

• introduction of additional public mission-related initiatives that may adversely affect our financial results;

• establishment of additional valuation allowances for our remaining net deferred tax asset; or

• changes in business practices resulting from legislative and regulatory developments or direction from our

Conservator.

Through the fourth quarter of 2012, we paid cash dividends to Treasury on the senior preferred stock at an annual rate of

10%. In past periods, this fixed-rate dividend obligation substantially contributed to draws under the Purchase Agreement.

However, on August 17, 2012, Freddie Mac, acting through FHFA, as Conservator, and Treasury entered into an amendment

to the Purchase Agreement. Under this amendment, the fixed dividend rate was replaced with a net worth sweep dividend

beginning in the first quarter of 2013. This effectively ends the circular practice of Treasury advancing funds to us to pay

dividends back to Treasury. As a result, beginning in 2013, the need for future draws will not be driven by the dividend

obligation. This amendment also suspended the periodic commitment fee, beginning in the first quarter of 2013. The amount

of the net worth sweep dividend could vary substantially from quarter to quarter for a number of reasons, including as a

result of non-cash changes in net worth. It is possible that, due to non-cash changes in net worth, the amount of our dividend

for a quarter could exceed the amount of available cash, which could have an adverse effect on our financial results.

Although additional draws under the Purchase Agreement will allow us to remain solvent and avoid mandatory

receivership, they will also increase the liquidation preference of the senior preferred stock, which was $72.3 billion as of

December 31, 2012. In addition, draws we take for deficits in our net worth will reduce the amount of available funding

remaining under the Purchase Agreement, which beginning January 1, 2013, is $140.5 billion. Additional draws and

corresponding increases in the already substantial liquidation preference, along with limited flexibility to redeem the senior

preferred stock, may add to the uncertainty regarding our long-term financial sustainability.

Our business objectives and strategies have in some cases been significantly altered since we were placed into

conservatorship, and may continue to change, in ways that negatively affect our future financial condition and results of

operations.

Our current business objectives reflect direction we have received from the Conservator (including the Conservatorship

Scorecard), and have changed considerably since we entered into conservatorship. See “BUSINESS — Executive

Summary — Our Primary Business Objectives” for more information.

51 Freddie Mac
At the direction of the Conservator, we have made changes to certain business practices that are designed to provide

support for the mortgage market in a manner that serves our public mission and other non-financial objectives but may not

contribute to our profitability. Some of these changes have increased our expenses or caused us to forego revenue

opportunities. For example, FHFA has directed that we implement various initiatives under the MHA Program. We have

incurred significant costs associated with the implementation of these initiatives and we cannot currently estimate whether,

or the extent to which, costs incurred in the near term from these initiatives may be offset, if at all, by the prevention or

reduction of potential future costs of serious delinquencies and foreclosures due to these initiatives. The Conservator and

Treasury have also not authorized us to engage in certain business activities and transactions, including the purchase or sale

of certain assets, which we believe might have had a beneficial impact on our results of operations or financial condition, if

executed. Other agencies of the U.S. government, as well as Congress, also have an interest in the conduct of our business.

We do not know what actions they may request us to take.

In view of the conservatorship and the reasons stated by FHFA for its establishment, it is likely that our business model

and strategic objectives will continue to change, possibly significantly, including in pursuit of our public mission and other

non-financial objectives. Among other things, we could experience significant changes in the size, growth, and

characteristics of our guarantee activities, and we could further change our operational objectives, including our pricing

strategy in our core mortgage guarantee business.

One of FHFA’s goals for conservatorship, as set forth in its strategic plan, is to contract our presence in the mortgage

market and shrink our operations. The conservatorship has significantly affected our investment activity, and we may face

further restrictions on this activity. For example, on August 17, 2012, the Purchase Agreement was amended to, among other

items, accelerate the wind-down of our mortgage-related investments portfolio. Accordingly, our strategic and operational

focus may not always be consistent with the generation of net income. It is possible that we will make material changes to

our capital strategy and to our accounting policies, methods, and estimates. In addition, we may be directed to engage in

initiatives that are operationally difficult or costly to implement, unprofitable, or that otherwise adversely affect our financial

results. For example, FHFA has directed us to take various actions in support of the objectives of a gradual transition to

greater private capital participation in housing finance and greater distribution of risk to participants other than the

government, such as developing security structures that allow for private sector risk sharing.

FHFA, as our Conservator, could further change our business objectives and strategies at any time. As our Conservator,

FHFA possesses all of the powers of our stockholders, officers, and directors. During the conservatorship, the Conservator

has delegated certain authority to the Board of Directors to oversee, and to management to conduct, day-to-day operations so

that the company can continue to operate in the ordinary course of business. However, FHFA has the ability to withdraw or

revise its delegations of authority and override actions of our Board of Directors or management at any time. The directors

serve on behalf of, and exercise authority as directed by, the Conservator. In addition, FHFA has the power to take actions

without our knowledge that could be material to investors and could significantly affect our financial performance.

These changes and other factors could have material adverse effects on, among other things, our portfolio growth, net

worth, credit losses, net interest income, guarantee fee income, net deferred tax assets, loan loss reserves, and future results

of operations and financial condition, and thus could contribute to a need for additional draws under the Purchase

Agreement. In light of the significant uncertainty surrounding these changes, there can be no assurances regarding our future

profitability.

We have a variety of different, and potentially competing, objectives that could lead to suboptimal outcomes for these

objectives.

We have a variety of different, and potentially competing, objectives. For example, we are focused on the following

primary business objectives: (a) providing credit availability for mortgages and maintaining foreclosure prevention activities;

(b) minimizing our credit losses; (c) developing mortgage market enhancements in support of a new infrastructure for the

secondary mortgage market; (d) maintaining sound credit quality on the loans we purchase or guarantee; (e) contracting the

dominant presence of the GSEs in the marketplace; and (f) strengthening our infrastructure and improving overall efficiency

while also focusing on retention of key employees. However, FHFA has also stated that the focus of the conservatorship is

on, among other items, conserving assets and minimizing corporate losses.

These objectives can create conflicts in strategic and day-to-day decision making that could lead to suboptimal

outcomes for one or more, or possibly all, of these objectives. For example, our efforts to provide credit availability for

mortgages and maintain foreclosure prevention activities could increase our expenses, thereby affecting our ability to

52 Freddie Mac
conserve assets and minimize corporate losses. Failure to achieve a satisfactory outcome with respect to any one objective

could lead to negative publicity and damage our reputation. We may face increased operational risk from these competing

objectives, particularly given the difficulty of devoting sufficient resources and management attention to multiple priorities.

FHFA directives that we and Fannie Mae adopt uniform approaches in many areas could have an adverse impact on our

business or on our competitive position with respect to Fannie Mae.

FHFA is also Conservator of Fannie Mae, our primary competitor. On multiple occasions, FHFA has directed us and

Fannie Mae to confer and suggest to FHFA possible uniform approaches to particular business and accounting issues and

problems. It is likely that we will receive additional directives in the future. In most such cases, FHFA subsequently directed

us and Fannie Mae to adopt a specific uniform approach. For example, we and Fannie Mae:

• have aligned many of our standards and approaches for addressing non-performing loans, including certain standards

relating to our respective loan workout activities;

• have aligned certain aspects of our respective relief refinance initiatives (including HARP);

• have been directed to adopt a new framework for representation and warranty obligations;

• were directed to implement certain across-the-board guarantee fee price increases in 2012 to make certain aspects of

our pricing more uniform; and

• are working together in a number of areas to develop mortgage market enhancements in support of a new

infrastructure for the secondary mortgage market, including (a) improving and standardizing certain mortgage data

requirements; (b) aligning certain terms of the contracts we and Fannie Mae use with our respective single-family

seller/servicers, as well as certain practices we follow in managing our remedies and our respective business

relationships with these companies; and (c) designing and developing a new securitization platform.

We cannot predict the impact on our business of these actions or any similar actions FHFA may require us and Fannie

Mae to take in the future. It is possible that in some areas FHFA could require us and Fannie Mae to take a uniform approach

that, because of differences in our respective businesses, could place Freddie Mac at a competitive disadvantage to Fannie

Mae. We may be required to adopt approaches that are operationally difficult for us to implement. It also is possible that in

some cases identifying, adopting and maintaining a uniform approach could entail higher costs than would a unilateral

approach, and that when market conditions merit a change in a uniform approach, coordinating the change might entail

additional cost and delay. If and when conservatorship ends, market acceptance of a uniform approach could make it difficult

to depart from that approach even if doing so would be economically desirable.

We are subject to significant limitations on our business under the Purchase Agreement and Senior Preferred Stock that

could have a material adverse effect on our results of operations and financial condition.

The Purchase Agreement and terms of the senior preferred stock include significant restrictions on our ability to manage

our business, including limitations on the amount of indebtedness we may incur, the size of our mortgage-related investments

portfolio, and the circumstances in which we may pay dividends, transfer certain assets, raise capital, and pay down the

liquidation preference on the senior preferred stock. Over the long-term, as a result of the net worth sweep dividend

provisions of the senior preferred stock, we do not have the ability to retain any capital generated by our business operations

and will not be able to build or retain any net worth surplus or return capital to stockholders other than Treasury. In addition,

the Purchase Agreement provides that we may not enter into any new compensation arrangements or increase amounts or

benefits payable under existing compensation arrangements of any executive officers without the consent of the Director of

FHFA, in consultation with the Secretary of the Treasury. In deciding whether or not to consent to any request for approval it

receives from us under the Purchase Agreement, Treasury has the right to withhold its consent for any reason and is not

required by the agreement to consider any particular factors, including whether or not management believes that the

transaction would benefit the company. The limitations under the Purchase Agreement and terms of the senior preferred

stock could have a material adverse effect on our future results of operations and financial condition.

53 Freddie Mac
Our regulator may, and in some cases must, place us into receivership, which would result in the liquidation of our assets

and terminate all rights and claims that our stockholders and creditors may have against our assets or under our charter;

if we are liquidated, there may not be sufficient funds to pay the secured and unsecured claims of the company, repay the

liquidation preference of any series of our preferred stock, or make any distribution to the holders of our common stock.

We could be put into receivership at the discretion of the Director of FHFA at any time for a number of reasons,

including conditions that FHFA has already asserted existed at the time the then Director of FHFA placed us into

conservatorship. These include: (a) a substantial dissipation of assets or earnings due to unsafe or unsound practices; (b) the

existence of an unsafe or unsound condition to transact business; (c) an inability to meet our obligations in the ordinary

course of business; (d) a weakening of our condition due to unsafe or unsound practices or conditions; (e) critical

undercapitalization; (f) the likelihood of losses that will deplete substantially all of our capital; or (g) by consent. In addition,

FHFA could be required to place us in receivership if Treasury is unable to provide us with funding requested under the

Purchase Agreement to address a deficit in our net worth. For more information, see “— If Treasury is unable to provide us

with funding requested under the Purchase Agreement to address a deficit in our net worth, FHFA could be required to place

us into receivership.”

A receivership would terminate the conservatorship. The appointment of FHFA as our receiver would terminate all

rights and claims that our stockholders and creditors may have against our assets or under our charter arising as a result of

their status as stockholders or creditors, other than the potential ability to be paid upon our liquidation. Unlike

conservatorship, the purpose of which is to conserve our assets and return us to a sound and solvent condition, the purpose of

receivership is to liquidate our assets and resolve claims against us.

In the event of a liquidation of our assets, there can be no assurance that there would be sufficient proceeds to pay the

secured and unsecured claims of the company, repay the liquidation preference of any series of our preferred stock or make

any distribution to the holders of our common stock. To the extent that we are placed into receivership and do not or cannot

fulfill our guarantee to the holders of our mortgage-related securities, such holders could become unsecured creditors of ours

with respect to claims made under our guarantee. Only after paying the secured and unsecured claims of the company, the

administrative expenses of the receiver and the liquidation preference of the senior preferred stock, which ranks senior to our

common stock and all other series of preferred stock upon liquidation, would any liquidation proceeds be available to repay

the liquidation preference on any other series of preferred stock. Finally, only after the liquidation preference on all series of

preferred stock is repaid would any liquidation proceeds be available for distribution to the holders of our common stock.

The aggregate liquidation preference on the senior preferred stock owned by Treasury is $72.3 billion as of December 31,

2012. The liquidation preference will increase further if we make additional draws under the Purchase Agreement.

If we are placed into receivership or no longer operate as a going concern, we would no longer be able to assert that we

will realize assets and satisfy liabilities in the normal course of business, and, therefore, our basis of accounting would

change to liquidation-based accounting. Under the liquidation basis of accounting, assets are stated at their estimated net

realizable value and liabilities are stated at their estimated settlement amounts, which could adversely affect our net worth. In

addition, the amounts in AOCI would be reclassified to earnings, which could also adversely affect our net worth.

If Treasury is unable to provide us with funding requested under the Purchase Agreement to address a deficit in our net

worth, FHFA could be required to place us into receivership.

Under the Purchase Agreement, Treasury made a commitment to provide funding, under certain conditions, to eliminate

deficits in our net worth. Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our

assets are less than our obligations for a period of 60 calendar days. FHFA has notified us that the measurement period for

any mandatory receivership determination with respect to our assets and obligations would commence no earlier than the

SEC public filing deadline for our quarterly or annual financial statements and would continue for 60 calendar days after that

date. FHFA has also advised us that, if, during that 60-day period, we receive funds from Treasury in an amount at least

equal to the deficiency amount under the Purchase Agreement, the Director of FHFA will not make a mandatory receivership

determination. If funding has been requested under the Purchase Agreement to address a deficit in our net worth, and

Treasury is unable to provide us with such funding within the 60-day period specified by FHFA, FHFA would be required to

place us into receivership if our assets remain less than our obligations during that 60-day period.

54 Freddie Mac
The conservatorship, uncertainty concerning our future, and restrictions on our ability to compensate employees have

had, and may continue to have, an adverse effect on the retention and recruitment of executives and other employees,

which could have a material adverse effect on our ability to operate our business.

Our ability to recruit and retain executives and other employees with the necessary skills to conduct our business has

been, and may continue to be, adversely affected by the actions taken by Congress, Treasury, and the Conservator to date, or

that may be taken by them or other government agencies in the future, the uncertainty regarding the duration of the

conservatorship, the potential for future legislative or regulatory actions that could significantly affect our existence and our

role in the secondary mortgage market, and the negative publicity concerning the GSEs. Accordingly, we may not be able to

retain or replace executives or other employees with the requisite institutional knowledge and the technical, operational, risk

management, and other key skills needed to conduct our business effectively.

For example, we are subject to restrictions on the amount and type of compensation we may pay our executives under

conservatorship. Also contributing to our concerns regarding executive retention risk is the aggregate level of target

compensation paid to our executive officers, which for 2012 performance was below the 25th percentile of the competitive

market. See “EXECUTIVE COMPENSATION” for more information. We cannot offer equity-based compensation, which is

both common in our industry and provides a key incentive for employees to stay with the company. Our senior executives are

prohibited by law from receiving bonuses during any period of conservatorship.

Voluntary turnover moderated in 2012 compared to 2011. However, we may find it difficult to retain critical employees

and attract people with the skills and experience we need for the reasons discussed above. In addition, the level of scrutiny

from FHFA and its Office of Inspector General and other regulators has contributed to stress levels throughout the

organization and placed additional burdens on staff. For more information about risks related to employee retention, see

“MD&A — RISK MANAGEMENT — Operational Risks.”

In 2011, the Financial Services Committee of the House of Representatives approved a bill that would generally put our

employees on the federal government’s pay scale. If this or similar legislation were to become law, many of our employees

would experience a sudden and sharp decrease in compensation. The Acting Director of FHFA stated on November 15, 2011

that this “would certainly risk a substantial exodus of talent, the best leaving first in many instances. [Freddie Mac and

Fannie Mae] likely would suffer a rapidly growing vacancy list and replacements with lesser skills and no experience in their

specific jobs. A significant increase in safety and soundness risks and in costly operational failures would, in my opinion, be

highly likely.” The Acting Director noted that “[s]hould the risks I fear materialize, FHFA might well be forced to limit

[Freddie Mac and Fannie Mae’s] business activities. Some of the business [Freddie Mac and Fannie Mae] would be unable to

undertake might simply not occur, with potential disruption in housing markets and the economy.”

The conservatorship and investment by Treasury has had, and will continue to have, a material adverse effect on our

common and preferred stockholders.

Prior to our entry into conservatorship, the market price for our common stock declined substantially. After our entry

into conservatorship, the market price of our common stock continued to decline, and has been $1 or less per share since June

2010. As a result, the investments of our common and preferred stockholders lost substantial value, which they may never

recover. There is significant uncertainty as to what changes may occur to our business structure during or following our

conservatorship, including whether we will continue to exist. Therefore, it is likely that our shares could further diminish in

value, and they are not likely to have any value in the longer-term. The Acting Director of FHFA has stated that “[Freddie

Mac and Fannie Mae’s] equity holders retain an economic claim on the companies but that claim is subordinate to taxpayer

claims. As a practical matter, taxpayers are not likely to be repaid in full, so [Freddie Mac and Fannie Mae] stock lower in

priority is not likely to have any value.”

The conservatorship and investment by Treasury has had, and will continue to have, other material adverse effects on

our common and preferred stockholders, including the following:

• No voting rights during conservatorship. The rights and powers of our stockholders are suspended during the

conservatorship and our common stockholders do not have the ability to elect directors or to vote on other matters.

• Our future profits will effectively be distributed to Treasury. Under the Purchase Agreement, we are required to pay

dividends to the extent that our Net Worth Amount exceeds a permitted capital reserve amount. The amount of this

reserve decreases over time. Accordingly, over the long-term, we will not be able to build or retain any net worth

surplus, and our future profits will effectively be distributed to Treasury. Therefore, the holders of our common stock

and non-senior preferred stock will not receive benefits that would otherwise flow from any such future profits.

55 Freddie Mac
• Priority of Senior Preferred Stock. The senior preferred stock ranks senior to the common stock and all other series of

preferred stock as to both dividends and distributions upon dissolution, liquidation or winding up of the company.

• Dividends have been eliminated. The Conservator has eliminated dividends on Freddie Mac common and preferred

stock (other than dividends on the senior preferred stock) during the conservatorship. In addition, under the terms of

the Purchase Agreement, dividends may not be paid to common or preferred stockholders (other than on the senior

preferred stock) without the consent of Treasury, regardless of whether or not we are in conservatorship.

• Warrant may substantially dilute investment of current stockholders. If Treasury exercises its warrant to purchase

shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully

diluted basis, the ownership interest in the company of our then existing common stockholders will be substantially

diluted. It is possible that stockholders, other than Treasury, will not own more than 20.1% of our total common stock

for the duration of our existence. Under our charter, bylaws and applicable law, 20.1% is insufficient to control the

outcome of any vote that is presented to the common stockholders. Accordingly, existing common stockholders have

no assurance that, as a group, they will be able to control the election of our directors or the outcome of any other

vote after the time, if any, that the conservatorship ends.

Competitive and Market Risks

Our investment activity is significantly limited under the Purchase Agreement and by FHFA, which will reduce our

earnings from investment activities over time and result in greater reliance on our guarantee activities to generate

revenue.

We are subject to significant limitations on our investment activity, which have and will continue to adversely affect the

earnings capacity of our mortgage-related investments portfolio. These limitations include: (a) a requirement to reduce the

size of our mortgage-related investments portfolio; and (b) significant constraints on our ability to purchase or sell mortgage

assets.

Under the terms of the Purchase Agreement and FHFA regulation, our mortgage-related investments portfolio is subject

to a cap that decreases each year until the portfolio reaches $250 billion. As a result of the August 2012 amendment to the

Purchase Agreement, the annual rate at which the mortgage-related investments portfolio limit declines increased from 10%

to 15%. As a result, the UPB of our mortgage-related investments portfolio could not exceed $650 billion as of December 31,

2012 and may not exceed $553 billion as of December 31, 2013. FHFA has indicated that such portfolio reduction targets

should be viewed as minimum reductions and has encouraged us to reduce the mortgage-related investments portfolio at a

faster rate than required, while indicating that the pace of reducing the portfolio may be moderated by conditions in the

housing and financial markets. Our mortgage-related investments portfolio has contracted considerably since we entered into

conservatorship. Our ability to take advantage of opportunities to purchase or sell mortgage assets at attractive prices has

been, and likely will continue to be, limited. In addition, we can provide no assurance that the cap on our mortgage-related

investments portfolio will not, over time, force us to sell mortgage assets at unattractive prices. For more information on the

various restrictions and limitations on our investment activity and our mortgage-related investments portfolio, see

“BUSINESS — Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related

Investments Portfolio.”

These limitations will reduce the earnings capacity of our mortgage-related investments portfolio business and require

us to place greater emphasis on our guarantee activities to generate revenue. However, under conservatorship, our ability to

generate revenue through guarantee activities may be limited, as we may be required to adopt business practices that provide

support for the mortgage market in a manner that serves our public mission and other non-financial objectives, but that may

negatively impact our future financial results from guarantee activities. In addition, the overall volume of our guarantee

business will likely decline over time, as one of FHFA’s goals for conservatorship, as set forth in its strategic plan, is to

contract our presence in the mortgage market and shrink our operations. The combination of the restrictions on our business

activities under the Purchase Agreement and FHFA regulation, combined with our potential inability to generate sufficient

revenue through our guarantee activities to offset the effects of those restrictions, may have an adverse effect on our results

of operations and financial condition. There can be no assurance that current or future profitability levels on our new singlefamily business would be sufficient to attract new private sector capital in the future, should the company be in a position to

seek such capital. We generally must obtain FHFA’s approval to implement across-the-board price increases in our guarantee

business, and although FHFA has recently directed us to increase our prices, there can be no assurance FHFA will approve

any such increase requests in the future. It is also possible that we could be required to increase our guarantee fees, but not

receive the benefit from such an increase. For example, effective April 1, 2012, at the direction of FHFA, we increased the

56 Freddie Mac
guarantee fee on single-family residential mortgages sold to us by 10 basis points. However, under the Temporary Payroll

Tax Cut Continuation Act of 2011, the proceeds from this legislated increase are being remitted to Treasury to fund the

payroll tax cut that occurred in 2012. Therefore, our business and financial condition will not benefit from this increase in

guarantee fees. For more information, see “BUSINESS — Our Business Segments — Single-Family Guarantee Segment —

Overview of the Mortgage Securitization Process.”

We are subject to mortgage credit risks, including mortgage credit risk relating to off-balance sheet arrangements;

increased credit costs related to these risks could adversely affect our financial condition and/or results of operations.

Mortgage credit risk is the risk that a borrower will fail to make timely payments on a mortgage we own or guarantee,

exposing us to the risk of credit losses and credit-related expenses. We are primarily exposed to mortgage credit risk with

respect to the single-family and multifamily loans that we own or guarantee and hold on our consolidated balance sheets. We

are also exposed to mortgage credit risk with respect to securities and guarantee arrangements that are not reflected as assets

on our consolidated balance sheets. These relate primarily to: (a) Freddie Mac mortgage-related securities backed by

multifamily loans; (b) certain Other Guarantee Transactions; and (c) other guarantee commitments, including long-term

standby commitments and liquidity guarantees.

Single-family mortgage credit risk is primarily influenced by the credit profile of the borrower (e.g., credit score, credit

history, and monthly income relative to debt payments), documentation level, the number of borrowers, the features of the

mortgage itself, the purpose of the mortgage, occupancy type, the type of property securing the mortgage, the LTV ratio of

the loan, and local and regional economic conditions, including home prices and unemployment rates. Our credit losses will

remain elevated for the near term due to the substantial number of mortgage loans in our single-family credit guarantee

portfolio on which borrowers owe more than their home is currently worth, as well as the substantial inventory of seriously

delinquent loans.

While mortgage interest rates remained low in 2012, there can be no assurance that continued low mortgage interest

rates or efforts to modify and refinance mortgages pursuant to the MHA Program (including pursuant to the revisions to

HARP announced in October 2011) and to modify mortgages under our other loss mitigation initiatives will reduce our

overall mortgage credit risk.

We also continue to have significant amounts of mortgage loans in our single-family credit guarantee portfolio with

certain characteristics, such as Alt-A, interest-only, option ARMs, loans with original LTV ratios greater than 90%, and loans

where borrowers had FICO scores less than 620 at the time of origination, that expose us to greater credit risk than do other

types of mortgage loans. As of December 31, 2012, loans with one or more of the above characteristics comprised

approximately 22% of our single-family credit guarantee portfolio. See “Table 46 — Certain Higher-Risk Categories in the

Single-Family Credit Guarantee Portfolio” for more information.

Our multifamily mortgage credit risk is affected by the mortgaged property’s ability to generate rental income from

which debt service can be paid. That ability in turn is affected by rental market conditions (e.g., rental and vacancy rates), the

physical condition of the property, the quality of the property’s management, and the level of operating costs. Our primary

multifamily business strategy is to purchase loans for aggregation and then securitization through K Certificates, whereby we

mitigate our credit risk exposure by structuring our securities to shift a significant portion of expected losses to third party

investors through the sale of subordinate tranches. The subordinate tranches that we do not guarantee provide credit loss

protection to the senior classes that we do guarantee. While the subordination is set at an amount we believe is adequate to

cover expected credit losses, the amount of such subordination may not be sufficient to prevent us from incurring credit

losses with respect to any senior classes that we guarantee.

A risk we continue to monitor is that multifamily borrowers will default if they are unable to refinance their loans at an

affordable rate. This risk is particularly important with respect to multifamily loans because such loans generally have a

balloon payment and typically have a shorter contractual term than single-family mortgages. Borrowers may be less able to

refinance their obligations during periods of rising interest rates, reduced demand for rental housing, or weak economic

conditions, which could lead to default if the borrower is unable to find affordable refinancing. However, of the

$127.4 billion in UPB of loans in our multifamily mortgage portfolio as of December 31, 2012, only approximately 3% and

5% will reach their maturity during 2013 and 2014, respectively.

57 Freddie Mac
We are exposed to significant credit risk related to the subprime, Alt-A, and option ARM loans that back the non-agency

mortgage-related securities we hold.

Our investments in non-agency mortgage-related securities include securities that are backed by subprime, Alt-A, and

option ARM loans. As of December 31, 2012, we held $69.0 billion of such securities, which represented approximately

12% of our total mortgage-related investments portfolio. Since 2007, mortgage loan delinquencies and credit losses in the

U.S. mortgage market have substantially increased, particularly in the subprime, Alt-A, and option ARM sectors of the

residential mortgage market. In addition, home prices have experienced significant cumulative declines, after extended

periods during which home prices appreciated. As a result, the fair value of these investments has declined significantly since

2007, and we have recorded substantial other-than-temporary impairments, which has adversely impacted our net worth. In

addition, most of these investments do not trade in a liquid secondary market and the size of our holdings relative to normal

market activity is such that, if we were to attempt to sell a significant quantity of these securities, the pricing in such markets

could be significantly disrupted and the price we ultimately realize may be materially lower than the value at which we carry

these investments on our consolidated balance sheets.

We could experience additional GAAP losses due to other-than-temporary impairments on our investments in these

non-agency mortgage-related securities if, among other things: (a) interest rates change; (b) delinquency and loss rates on

subprime, Alt-A, and option ARM loans further increase; (c) there is a future decline in actual or forecasted home prices; or

(d) there is a deterioration in servicing performance on the underlying loans. In addition, the fair value of these investments

may decline in the future due to additional ratings downgrades or market events, including overall uncertainty related to

recovery efforts, capital requirements or regulatory changes. Any such declines would adversely affect our net worth. Any

credit enhancements covering these securities, including subordination and other structural enhancements, may not prevent

us from incurring losses. During 2012, we continued to experience the erosion of structural credit enhancements on many

securities backed by subprime, option ARM, and Alt-A loans due to poor performance of the underlying mortgages. The

financial condition of bond insurers also continued to deteriorate in 2012. See “MD&A — CONSOLIDATED BALANCE

SHEETS ANALYSIS — Investments in Securities” for information about the credit ratings for these securities and the extent

to which these securities have been downgraded.

Certain strategies to mitigate our losses as an investor in non-agency mortgage-related securities may adversely affect our

relationships with some of our largest seller/servicers and counterparties.

In 2011, FHFA, as Conservator for Freddie Mac and Fannie Mae, filed lawsuits against 18 corporate families of

financial institutions and related defendants seeking to recover losses and damages sustained by Freddie Mac and Fannie

Mae as a result of their investments in certain residential non-agency mortgage-related securities issued or sold by, or backed

by mortgages originated by, these financial institutions or control persons thereof. These institutions include some of our

largest seller/servicers and counterparties, including counterparties to debt funding and derivatives transactions. One of these

lawsuits was settled recently.

At the direction of our Conservator, we are also working to enforce contractual rights of certain trusts with respect to the

non-agency mortgage-related securities we hold, and are engaged in other efforts to mitigate losses on our investments in

these securities, in some cases in conjunction with other investors. We have directed the trustees of certain of these nonagency mortgage-related securities to initiate litigation on behalf of certificate holders against several financial institutions

(many of whom are Freddie Mac counterparties) for breach of contract claims.

These and other loss mitigation efforts may lead to further disputes with some of our largest seller/servicers and

counterparties that may result in further litigation. This could adversely affect our relationship with any such company and

could, for example, result in the loss of some or all of our business with a large seller/servicer. For more information, see

“Our financial condition or results of operations may be adversely affected if mortgage seller/servicers fail to repurchase

loans sold to us in breach of representations and warranties or fail to honor any related indemnification or recourse

obligations” and “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS.”

The effectiveness of these various loss mitigation efforts is highly uncertain, in part because our rights as an investor are

limited, and any potential recoveries may take significant time to realize.

58 Freddie Mac
The credit losses we experience in future periods could be larger, perhaps substantially larger in the event of another

recession or another sharp drop in home prices, than our current loan loss reserves.

Our loan loss reserves, as reflected on our consolidated balance sheets, do not reflect the total of all future credit losses

we will ultimately incur with respect to our single-family and multifamily mortgage loans, including those underlying our

financial guarantees. Rather, pursuant to GAAP, our reserves only reflect probable losses we believe we have already

incurred as of the balance sheet date. Accordingly, it is likely that the credit losses we ultimately incur on the loans we

currently own or guarantee will exceed the amounts we have already reserved for such loans. If we were to experience

another recession or another sharp drop in home prices, it is possible that the credit losses we ultimately incur related to such

an event could be larger, perhaps substantially larger, than our current loan loss reserves. Additional credit losses we incur in

future periods will adversely affect our business, results of operations, financial condition, liquidity, and net worth.

Future declines in U.S. home prices or other adverse changes in the U.S. housing market could negatively impact our

business and increase our losses.

Our financial results and business volumes can be significantly, negatively affected by declines in home prices and other

adverse changes in the housing market. Although the single-family housing market exhibited certain signs of improvement in

2012, our credit losses remained high, in part because home prices have experienced significant cumulative declines in many

geographic areas since 2006. While we expect modest home price increases in 2013, there can be no assurance that this will

occur. In addition, it is likely that we will continue to experience a high rate of serious delinquencies or defaults and an

elevated level of credit losses.

We prepare internal forecasts of future home prices, which we use for certain business activities, including: (a) hedging

prepayment risk; (b) setting fees for new guarantee business; and (c) portfolio activities. It is possible that a sustained

recovery in home prices would not begin until much later than we anticipate, or that home prices could decline in the future,

which could adversely affect our performance of these business activities. For example, this could cause the return we earn

on new single-family guarantee business to be less than expected. This could also result in higher losses due to other-thantemporary impairments on our investments in non-agency mortgage-related securities (which would be recognized in

earnings) or fair value declines on our investments in non-agency mortgage-related securities (which would be recognized in

AOCI). Government programs designed to strengthen the U.S. housing market, such as the MHA Program, may fail to

achieve expected results, and new programs could be instituted that cause our credit losses to increase. For more information,

see “MD&A — RISK MANAGEMENT — Credit Risk.”

Our business volumes are closely tied to the rate of growth in total outstanding U.S. residential mortgage debt and the

size of the U.S. residential mortgage market. Total residential mortgage debt declined approximately 2.3% in the first nine

months of 2012 (the most recent data available) compared to a decline of approximately 2.4% in 2011. If total outstanding

U.S. residential mortgage debt were to continue to decline, there would likely be fewer mortgage loans available for us to

purchase, and we could face more competition to purchase a smaller number of loans.

While multifamily market fundamentals (i.e., vacancy rates and effective rents) improved on a national level during

2012, this trend may not continue. The multifamily market is affected by regional and local economic factors, such as

employment rates, construction cycles, and the relative affordability of single-family home prices, all of which influence

supply and demand for multifamily properties and pricing for apartment rentals. Any softening of the broader economy could

have negative impacts on multifamily markets, which could cause delinquencies and credit losses relating to our multifamily

activities to increase beyond our current expectations.

Our refinance volumes could decline if interest rates rise, which could cause our overall new mortgage-related security

issuance volumes to decline.

We continued to experience a high percentage of refinance mortgages in our purchase volume during 2012 due to

continued low interest rates and the impact of our relief refinance initiatives. However, originations of refinance mortgages

will likely decline if HARP expires as currently scheduled in December 2013. Interest rates have been at historically low

levels for an extended period of time. In addition, many eligible borrowers have already refinanced at least once during this

period of low interest rates, and therefore may be unlikely to do so again in the near future. Overall originations of refinance

mortgages, and our purchases of them, will likely decrease if interest rates rise. It is possible that our overall mortgagerelated security issuance volumes could decline if our volumes of purchase money mortgages do not increase to offset any

such decrease in refinance mortgages. This could adversely affect the amount of revenue we receive from our guarantee

activities.

59 Freddie Mac
We could incur significant credit losses and credit-related expenses in the event of a major natural disaster or other

catastrophic event in geographic areas in which portions of our total mortgage portfolio and REO holdings are

concentrated.

We own or guarantee mortgage loans and own REO properties throughout the United States. The occurrence of a major

natural or environmental disaster (such as an earthquake, hurricane, tsunami, flood, or widespread damage caused to the

environment by commercial entities), terrorist attack, pandemic, or similar catastrophic event in a regional geographic area of

the United States could negatively impact our credit losses and credit-related expenses in the affected area.

The occurrence of a catastrophic event could negatively impact a geographic area in a number of different ways,

depending on the nature of the event. A catastrophic event that either damaged or destroyed residential real estate underlying

mortgage loans we own or guarantee or negatively impacted the ability of homeowners to continue to make principal and

interest payments on mortgage loans we own or guarantee could increase our serious delinquency rates and average loan loss

severity in the affected region or regions, which could have a material adverse effect on our business, results of operations,

financial condition, liquidity and net worth. Such an event could also damage or destroy REO properties we own. While we

attempt to maintain a geographically diverse portfolio, there can be no assurance that a catastrophic event, depending on its

magnitude, scope and nature, will not generate significant credit losses and credit-related expenses. We may not have

insurance coverage for some of these catastrophic events. In some cases, we may be prohibited by state law from requiring

such insurance as a condition to our purchasing or guaranteeing loans. In addition, any efforts we make to assist borrowers in

affected areas could increase our expenses.

We depend on our institutional counterparties to provide services that are critical to our business, and our results of

operations or financial condition may be adversely affected if one or more of our institutional counterparties do not meet

their obligations to us.

We face the risk that one or more of the institutional counterparties that has entered into a business contract or

arrangement with us may fail to meet its obligations to us. We face similar risks with respect to contracts or arrangements we

benefit from indirectly or that we enter into on behalf of our securitization trusts. Our primary exposures to institutional

counterparty risk are with:

• mortgage seller/servicers;

• mortgage insurers;

• issuers, guarantors or third-party providers of other credit enhancements (including bond insurers);

• counterparties to short-term lending and other investment-related agreements and cash equivalent transactions,

including such agreements and transactions we manage for our PC trusts;

• derivative counterparties;

• hazard and title insurers;

• mortgage investors; and

• document custodians and funds custodians.

Many of our counterparties provide several types of services to us. In some cases, our business with institutional

counterparties is concentrated. The concentration of our exposure to our counterparties has increased in recent years due to

industry consolidation and counterparty failures or downgrades, and we continue to face challenges in reducing our risk

concentrations with counterparties. Efforts we take to reduce exposure to financially weakened counterparties could further

increase our exposure to other individual counterparties. A significant failure by a major institutional counterparty could

harm our business and financial results in a variety of ways, including by adversely affecting our ability to conduct

operations efficiently and at cost-effective rates, and have a material adverse effect on our investments in mortgage loans,

investments in securities, our derivative portfolio or our credit guarantee activities.

Some of our counterparties may become subject to serious liquidity problems affecting their businesses, either

temporarily or permanently, which may adversely affect their ability to meet their obligations to us. In recent years,

challenging market conditions have, at times, adversely affected the liquidity and financial condition of our counterparties.

These trends may continue. In particular, we believe all of our derivative portfolio and cash and other investments portfolio

counterparties are exposed to fiscally troubled European countries. It is possible that continued adverse developments in the

60 Freddie Mac
Eurozone could significantly impact such counterparties. In turn, this could adversely affect their ability to meet their

obligations to us.

In the past few years, some of our largest seller/servicers have experienced ratings downgrades and liquidity constraints,

and certain large lenders have failed. These challenging market conditions could also increase the likelihood that we will

have disputes with our counterparties concerning their obligations to us, especially with respect to counterparties that have

experienced financial strain and/or have large exposures to us. See “MD&A — RISK MANAGEMENT — Credit Risk —

Institutional Credit Risk” and “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for additional

information regarding our credit risks to certain categories of counterparties and how we seek to manage them.

The servicing of mortgage loans backing our single-family non-agency mortgage-related securities investments is

concentrated in a small number of institutions. We could experience losses on these investments from servicing performance

deterioration should one of these institutions come under financial distress. Furthermore, Freddie Mac’s rights as a nonagency mortgage-related securities investor to transfer servicing are limited.

Our financial condition or results of operations may be adversely affected if mortgage seller/servicers fail to repurchase

loans sold to us in breach of representations and warranties or fail to honor any related indemnification or recourse

obligations.

We require seller/servicers to make certain representations and warranties regarding the loans they sell to us. If loans are

sold to us in breach of those representations and warranties, we have the contractual right to require the seller/servicer to

repurchase those loans from us. In lieu of repurchase, we may agree to allow a seller/servicer to indemnify us against losses

on such mortgages or otherwise compensate us for the risk of continuing to hold the mortgages. Sometimes a seller/servicer

sells us mortgages with recourse, meaning that the seller/servicer agrees to repurchase any mortgage that is delinquent for

more than a specified period (usually 120 days), regardless of whether there has been a breach of representations and

warranties. If a seller/servicer does not satisfy its repurchase or indemnification obligations with respect to a loan, we will be

subject to the full range of credit risks posed by the loan if the loan fails to perform, including the risk that a mortgage insurer

may deny or rescind coverage on the loan (if the loan is insured) and the risk that we will incur credit losses on the loan

through the workout or foreclosure process.

As of December 31, 2012 and 2011, the UPB of loans subject to repurchase requests based on breaches of

representations and warranties issued to our single-family seller/servicers was approximately $3.0 billion and $2.7 billion,

respectively. As of December 31, 2012, approximately $1.2 billion of such loans were subject to repurchase requests issued

due to mortgage insurance rescission or mortgage insurance claim denial.

Our contracts require that a seller/servicer repurchase a mortgage within 30 days after we issue a repurchase request,

unless the seller/servicer avails itself of an appeal process provided for in our contracts, in which case the deadline for

repurchase is extended until we decide the appeal. As of December 31, 2012 and 2011, approximately 41% and 39%,

respectively, of these repurchase requests were outstanding more than four months since issuance of our repurchase request

(these figures include repurchase requests for which appeals were pending).

The amount we collect on these requests and others we may make in the future could be significantly less than the UPB

of the loans subject to the repurchase requests primarily because we expect many of these requests will likely be satisfied by

reimbursement of our realized credit losses by seller/servicers, instead of repurchase of loans at their UPB, or may be

rescinded in the course of the contractual appeals process. Based on our historical loss experience and the fact that many of

these loans are covered by credit enhancement, we expect the actual credit losses experienced by us should we fail to collect

on these repurchase requests will also be less than the UPB of the loans. We may also enter into agreements with seller/

servicers to resolve claims for repurchases. The amounts we receive under any such agreements may be less than the losses

we ultimately incur.

Our credit losses may increase to the extent our seller/servicers do not fully perform their repurchase obligations.

Enforcing repurchase obligations of seller/servicers could also negatively impact our relationships with such customers and

could result in the loss of some or all of our business with such customers, which could negatively impact our ability to retain

market share. This could also lead to further disputes with such customers. It may be difficult, expensive, and timeconsuming to legally enforce a seller/servicer’s repurchase obligations, in the event a seller/servicer continues to fail to

perform such obligations. We are also acquiring an increasing portion of single-family business volume directly from smaller

61 Freddie Mac
financial institutions. We may face increased risk that these institutions would not be able to satisfy their repurchase

obligations, as these institutions may not have the same financial strength as our larger seller/servicers.

At the direction of FHFA, we have launched a new representation and warranty framework for conventional loans

purchased by us on or after January 1, 2013. We may face greater exposure to credit and other losses under this new

framework since it relieves lenders of certain repurchase obligations in specific cases, such as for loans that perform for 36

consecutive months after we purchase them, with certain exclusions. For more information, see “MD&A — RISK

MANAGEMENT — Credit Risk — Institutional Credit Risk — Single-Family Mortgage Seller/Servicers.”

In 2012 and late 2011, we changed our relief refinance program (which includes HARP) such that we are relieving

lenders of certain representations and warranties on the original mortgage being refinanced. As a result, we may face greater

exposure to credit and other losses on these loans. For more information, see “MD&A — RISK MANAGEMENT — Credit

Risk — Mortgage Credit Risk — Single-Family Mortgage Credit Risk — Single-Family Loan Workouts and the MHA

Program — Relief Refinance Mortgage Initiative and the Home Affordable Refinance Program.”

We also have exposure to seller/servicers with respect to mortgage insurance. When a mortgage insurer rescinds

coverage or denies or curtails a claim, we may require the seller/servicer to repurchase the mortgage or to indemnify us for

additional loss. The volume of rescissions, claim denials, and curtailments by mortgage insurers remains high.

Seller/servicers may fail to perform their obligations to service loans in our single-family and multifamily mortgage

portfolios or their servicing performance could decline.

Our seller/servicers have a significant role in servicing loans in our single-family credit guarantee portfolio, which

includes an active role in our loss mitigation efforts. Therefore, a decline in their performance could impact our credit

performance (including through missed opportunities for mortgage modifications), which could adversely affect our financial

condition or results of operations and have a significant impact on our ability to mitigate credit losses. The risk of such a

decline in performance remains high. The high levels of seriously delinquent loan volume, the weak conditions of the

mortgage market, and the number and variety of additions and changes to our loan modification and other loss mitigation

initiatives have placed a strain on the loss mitigation resources of many of our seller/servicers. This has also increased the

operational complexity of the servicing function, as well as the risk that errors will occur. A number of seller/servicers have

had to address issues relating to the improper preparation and execution of certain documents used in foreclosure

proceedings, which has further strained their resources. There have also been a number of legislative and regulatory

developments that have increased, or could increase, the complexity of the servicing function. It is also possible that we

could be directed to introduce additional changes to the servicing function that increase its complexity, such as new or

revised loan modification or loss mitigation initiatives or new compensation arrangements. Our expected ability to partially

mitigate losses through loan modifications and other alternatives to foreclosure is a factor we consider in determining our

allowance for loan losses. Therefore, the inability to realize the anticipated benefits of our loss mitigation plans could cause

our losses to be significantly higher than those currently estimated. Weak economic conditions continue to affect the liquidity

and financial condition of many of our seller/servicers, including some of our largest seller/servicers. Any efforts we take to

attempt to improve our servicers’ performance could adversely affect our relationships with such servicers, many of which

also sell loans to us.

In recent periods, a number of our servicers who specialize in servicing troubled loans have experienced rapid growth in

their servicing portfolios, including an increase in troubled loans they service for Freddie Mac. Although the ability of these

servicers to service troubled loans may benefit us by reducing our credit losses, the rapid expansion of their servicing

portfolios could expose us to increased risks in the event that it results in operational strains that adversely affect their

servicing performance or weakens their financial strength.

If a servicer does not fulfill its servicing obligations (including its repurchase or other responsibilities), we may seek

partial or full recovery of the amounts that such servicer owes us, such as by attempting to sell the applicable mortgage

servicing rights to a different servicer and applying the proceeds to such owed amounts, or by contracting the servicing

responsibilities to a different servicer and retaining the net servicing fee. The weakness in the housing market has negatively

affected the market for mortgage servicing rights, which increases the risk that we might not receive a sufficient price for

such rights or that we may be unable to find buyers who: (a) have sufficient capacity to service the affected mortgages in

compliance with our servicing standards; (b) are willing to assume the representations and warranties of the former servicer

regarding the affected mortgages (which we typically require); and (c) have sufficient capacity to service all of the affected

mortgages. Increased industry consolidation, bankruptcies of mortgage bankers or bank failures may also make it more

62 Freddie Mac
difficult for us to sell such rights, because there may not be sufficient capacity in the market, particularly in the event of

multiple failures. This option may be difficult to accomplish with respect to our larger seller/servicers due to operational and

capacity challenges of transferring a large servicing portfolio.

Our seller/servicers also have a significant role in servicing loans in our multifamily mortgage portfolio. We are

exposed to the risk that multifamily seller/servicers could come under financial pressure, which could potentially cause

degradation in the quality of the servicing they provide us including their monitoring of each property’s financial

performance and physical condition. This could also, in certain cases, reduce the likelihood that we could recover losses

through lender repurchases, recourse agreements, or other credit enhancements, where applicable.

See “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Single-family Mortgage Seller/

Servicers” and “— Multifamily Mortgage Seller/Servicers” for additional information on our institutional credit risk related

to our mortgage seller/servicers.

Our financial condition or results of operations may be adversely affected by the financial distress of our counterparties

to derivatives, funding, and other transactions.

We use derivatives for several purposes, including to adjust or rebalance our funding mix in response to changes in the

interest-rate characteristics of our mortgage-related assets and to hedge forecasted issuances of debt. The relative

concentration of our derivative exposure among our primary derivative counterparties remains high as compared to historical

levels. This concentration increased in the last several years due to industry consolidation and the failure or downgrade of

certain counterparties, and could further increase. Five of our derivative counterparties each accounted for greater than 10%

of our net uncollateralized exposure, excluding commitments, at December 31, 2012. For a further discussion of our

exposure to derivative counterparties, see “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk —

Derivative Counterparties” and “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS.”

Some of our derivative and other capital markets counterparties have experienced various degrees of financial distress in

the past few years, including liquidity constraints, and credit downgrades. Our financial condition and results of operations

may be adversely affected by the financial distress of these derivative and other capital markets counterparties to the extent

that they fail to meet their obligations to us. For example, our OTC derivative counterparties are required to post collateral to

us in certain circumstances to cover our net exposure to them on derivative contracts. We may incur losses if the collateral

held by us cannot be liquidated at prices that are sufficient to cover the amount of such exposure. We also face the risk that,

if a counterparty becomes insolvent, we may not be able to recover any collateral we posted to the counterparty.

Our ability to engage in routine derivatives, funding, and other transactions could be adversely affected by the actions of

other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or

other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or

the financial services industry generally, could lead to market-wide disruptions in which it may be difficult for us to find

acceptable counterparties for such transactions.

We also use derivatives to synthetically create the substantive economic equivalent of various debt funding structures.

Thus, if our access to the derivative markets were disrupted, it may become more difficult or expensive to fund our business

activities and achieve the funding mix we desire, which could adversely affect our business and results of operations.

Our credit losses and other-than-temporary impairments recognized in earnings could increase if more of our mortgage

or bond insurers become insolvent or fail to perform their obligations to us.

A number of our mortgage insurers (that insure single-family mortgages we purchase or guarantee) and bond insurers

(that insure certain of the non-agency mortgage-related securities we hold) are insolvent or are not fully performing their

obligations to us. We are exposed to the risk that additional mortgage or bond insurance counterparties could become

insolvent or fail to fully perform their obligations to us. The weakened financial condition and liquidity position of many of

these counterparties increases the risk that additional entities will fail to fully reimburse us for claims under insurance

policies. This risk could increase if home prices decline in the future or if the economy worsens.

As a guarantor, we remain responsible for the payment of principal and interest if a mortgage insurer fails to meet its

obligations to reimburse us for claims. Thus, if any of our mortgage insurers that provide credit enhancement fails to fulfill

its obligation, we could experience increased credit losses. In addition, if a regulator determined that a mortgage insurer

lacked sufficient capital to pay all claims when due, the regulator could take action that might impact the timing and amount

63 Freddie Mac
of claim payments made to us. We independently assess the financial condition, including the claims-paying resources, of

each of our mortgage insurers. Based on our analysis of the financial condition of a mortgage insurer and pursuant to our

eligibility requirements for mortgage insurers, we could take action against a mortgage insurer intended to protect our

interests that may impact the timing and amount of claims payments received from that insurer.

We believe that certain of our mortgage insurers are not sufficiently capitalized to withstand the stress of the current

weak economic environment. We expect to receive substantially less than full payment of our claims from Triad Guaranty

Insurance Corporation, Republic Mortgage Insurance Company and PMI Mortgage Insurance Co. We also believe that

certain other of our mortgage insurance counterparties lack sufficient ability to meet all their expected lifetime claims paying

obligations to us as such claims emerge. In the future, we believe our mortgage insurance exposure will likely be

concentrated among a smaller number of counterparties.

In the event one or more of our bond insurers were to become insolvent, it is likely that we would not collect our claims

from the affected insurer. This would impact our ability to recover certain unrealized losses on our investments in nonagency mortgage-related securities, and could contribute to net impairment of available-for-sale securities recognized in

earnings. We evaluate the expected recovery from primary bond insurance policies as part of our impairment analysis for our

investments in securities. If a bond insurer’s performance with respect to its obligations on our investments in securities is

worse than expected, this could contribute to additional net impairment of those securities.

Some of our larger bond insurers are in runoff mode and are not writing new business. We expect to receive

substantially less than full payment from Ambac Assurance Corporation and Financial Guaranty Insurance Company, as

these companies are insolvent. Financial Guaranty Insurance Company is currently not paying any of its claims. Ambac,

which had not paid claims since March 2010, began paying a portion of its claims in cash in the fall of 2012. We believe that

we will likely receive substantially less than full payment of our claims from some of our other bond insurers, because we

believe they also lack sufficient ability to fully meet all of their expected lifetime claims-paying obligations to us as such

claims emerge.

For more information on developments concerning our mortgage insurers and bond insurers, see “MD&A — RISK

MANAGEMENT — Credit Risk — Institutional Credit Risk — Mortgage Insurers” and “— Bond Insurers.”

If mortgage insurers were to tighten their standards or fall out of compliance with regulatory capital requirements, the

volume of high LTV ratio mortgages available for us to purchase could be reduced, which could reduce our overall

volume of new business. Mortgage insurance standards could constrain our future ability to purchase loans with LTV

ratios over 80%.

Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by

specified credit enhancements or participation interests. Our purchases of mortgages with LTV ratios above 80% (other than

relief refinance mortgages) have generally been low in recent years, as compared to 2005 – 2008 levels, in part because

mortgage insurers tightened their eligibility requirements with respect to the issuance of insurance on new mortgages with

such higher LTV ratios. However, our acquisitions of non-HARP mortgages with LTV ratios greater than 90% increased

during 2012 compared to 2011, in part because most mortgage insurance companies lowered their premiums in 2011 for

certain higher-risk loans. For more information, see “MD&A — RISK MANAGEMENT — Credit Risk — Mortgage Credit

Risk — Single-Family Mortgage Credit Risk — Other Categories of Single-Family Mortgage Loans — Higher-Risk Loans in

the Single-Family Credit Guarantee Portfolio.” There can be no assurance that this will continue. If mortgage insurers restrict

their eligibility requirements or increase premiums for loans with LTV ratios over 80%, or if we are no longer willing or able

to obtain mortgage insurance from these counterparties under terms we find reasonable, and we are not able to avail

ourselves of suitable alternative methods of obtaining credit enhancement for these loans, we may be restricted in our ability

to purchase or securitize such loans. This could reduce our overall volume of new business. This could also negatively

impact our ability to participate in a significant segment of the mortgage market (i.e., loans with LTV ratios over 80%)

should we seek, or be directed, to do so. See “Table 40 — Characteristics of Purchases for the Single-Family Credit

Guarantee Portfolio” for more information about our mortgage purchases.

If a mortgage insurance company were to fall out of compliance with regulatory capital requirements and not obtain

appropriate waivers, it could become subject to regulatory actions that restrict its ability to write new business in certain, or

in some cases all, states. Over the past several years, three of our mortgage insurers (Triad Guaranty Insurance Corporation,

Republic Mortgage Insurance Company and PMI Mortgage Insurance Co.) were each prohibited from writing new business

by their primary state regulators and none of them writes new business in any state any longer. Given the difficulties in the

64 Freddie Mac
mortgage insurance industry, we believe it is likely that other companies may be unable to meet regulatory capital

requirements.

A mortgage insurer may attempt a corporate restructuring designed to enable it to continue to write new business

through a new entity in the event the insurer falls out of compliance with regulatory capital requirements. However, there can

be no assurance that an insurer would be able to accomplish such a restructuring, as the restructured entity would be required

to satisfy regulatory requirements as well as our own conditions. We monitor the claim paying ability of our mortgage

insurers. As these restructuring plans are presented to us for review, we attempt to determine whether the insurers’ plans

make available sufficient resources to meet their obligations to policyholders of the insurance entities involved in the

restructuring. However, there can be no assurance that any such restructuring will enable payment in full of all claims in the

future. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for Loan Losses and

Reserve for Guarantee Losses — Single-Family Loans” for more information.

The loss of business volume from key mortgage originators could result in a decline in our market share and revenues.

Our business depends on our ability to acquire a steady flow of mortgage loans. We purchase a significant percentage of

our single-family mortgages from several large mortgage originators. During 2012 and 2011, approximately 73% and 82%,

respectively, of our single-family mortgage purchase volume was associated with our ten largest customers. During 2012,

three mortgage lenders (Wells Fargo Bank, N.A., U.S. Bank N.A., and JPMorgan Chase Bank, N.A.) each accounted for

more than 10% of our single-family mortgage purchase volume and collectively accounted for approximately 49% of our

single-family mortgage purchase volume. Similarly, we acquire a significant portion of our multifamily mortgage loans from

several large lenders.

We enter into mortgage purchase volume commitments with many of our single-family customers that provide for the

customers to deliver to us a certain volume of mortgages during a specified period of time. Some commitments may also

provide for the lender to deliver to us a minimum percentage of their total sales of conforming loans. There is a risk that we

will not be able to enter into new commitments with our single-family customers that will maintain mortgage purchase

volume following the expiration of our existing commitments with them. The loss of business from any one of our major

lenders could adversely affect our market share and our revenues. Many of our seller/servicers also have tightened their

lending criteria in recent years, which has reduced their loan volume, thus reducing the volume of loans available for us to

purchase.

Weak business and economic conditions in the U.S. and abroad may adversely affect our business and results of

operations.

Our business and results of operations are significantly affected by general business and economic conditions, including

conditions in the international markets for our mortgage-related and debt securities and for the various types of securities we

hold as investments. These conditions include employment rates, fluctuations in both debt and equity capital markets, the

value of the U.S. dollar as compared to foreign currencies, the strength of the U.S. financial markets and national economy

and the local economies in which we conduct business, the regulatory environment, and the economies of other countries that

purchase our mortgage-related and debt securities. Concerns about fiscal challenges in several Eurozone economies

continued during 2012, creating significant uncertainty in the financial markets and potential increased risk exposure for our

counterparties and for us. There is also significant uncertainty regarding fiscal challenges facing the U.S. and the strength of

the U.S. economic recovery. Weak economic conditions in the U.S. could result in high serious delinquencies and credit

losses, which would adversely affect our results of operations and financial condition.

The mortgage credit markets continue to be impacted by relatively low levels of corporate credit and liquidity within the

mortgage industry, which has at times caused disruptions to normal operations of major mortgage servicers and originators,

including some of our largest customers. This has, at times, also contributed to significant volatility, wide credit spreads and

a lack of price transparency, and the potential for further consolidation within the financial services industry.

Competition from banking and non-banking companies may harm our business.

Competition in the secondary mortgage market combined with a decline in the amount of residential mortgage debt

outstanding may make it more difficult for us to purchase mortgages. Furthermore, competitive pricing pressures may make

our products less attractive in the market and negatively impact our financial results. Increased competition from Fannie

Mae, Ginnie Mae, FHA/VA, and new entrants may alter our product mix, lower volumes, and reduce revenues on new

business. FHFA is also Conservator of Fannie Mae, our primary competitor, and FHFA’s actions as Conservator of both

65 Freddie Mac
companies could affect competition between us and Fannie Mae. It is possible that FHFA could require us and Fannie Mae to

take a uniform approach that, because of differences in our respective businesses, could place Freddie Mac at a competitive

disadvantage to Fannie Mae. FHFA may also prevent us from taking actions that could provide us with a competitive

advantage. Efforts we may make or may be directed to make to increase the profitability of new single-family guarantee

business, such as by tightening credit standards or raising guarantee fees, could cause our market share to decrease and the

volume of our single-family guarantee business to decline. Historically, we also competed with other financial institutions

that retain or securitize mortgages, such as commercial and investment banks, dealers, thrift institutions, and insurance

companies. Many of these institutions have ceased or substantially reduced their activities in the secondary market for singlefamily mortgages since 2008. However, one of FHFA’s goals for conservatorship, as set forth in its strategic plan, is to

contract our presence in the mortgage market and shrink our operations, and FHFA is taking a number of actions designed to

encourage these other financial institutions to return to the mortgage market.

We could be prevented from competing efficiently and effectively by competitors who use their patent portfolios to

prevent us from using necessary business processes and products, or to require us to pay significant royalties to use those

processes and products.

Beginning in 2010, as multifamily market fundamentals were starting to improve, more market participants began to reenter the multifamily market, and as a result we have faced increased competition. Although we continued to be a significant

participant in the multifamily market in 2012, other participants, including life insurers, banks, and CMBS issuers, also were

active in acquiring multifamily mortgages and we expect continued competition in the multifamily market.

Our investment activities may be adversely affected by limited availability of financing and increased funding costs.

The amount, type and cost of our funding, including financing from other financial institutions and the capital markets,

directly impacts our interest expense and results of operations. A number of factors could make such financing more difficult

to obtain, more expensive or unavailable on any terms, both domestically and internationally, including:

• changes in our government support;

• reduced demand for our debt securities;

• competition for debt funding from other debt issuers; and

• downgrades in our credit ratings or the credit ratings of the U.S. government.

Our ability to obtain funding in the public debt markets or by pledging mortgage-related securities as collateral to other

financial institutions could cease or change rapidly, and the cost of available funding could increase significantly, due to

changes in market confidence and other factors. For example, in the fall of 2008, we experienced significant deterioration in

our access to the unsecured medium- and long-term debt markets, and were forced to rely on short-term debt to fund our

purchases of mortgage assets and refinance maturing debt and to rely on derivatives to synthetically create the substantive

economic equivalent of various debt funding structures.

We follow certain liquidity management practices and procedures. However, in the event we were unable to obtain

funding from the public debt markets, there can be no assurance that such practices and procedures would provide us with

sufficient liquidity to meet ongoing cash obligations for an extended period.

Since 2008, the ratings on the non-agency mortgage-related securities we hold backed by Alt-A, subprime, and option

ARM loans have decreased, limiting their availability as a significant source of liquidity for us through sales or use as

collateral in secured lending transactions.

The composition of our mortgage-related investments portfolio has changed significantly since we entered into

conservatorship, as the proportion of single-family whole loans has significantly increased and the proportion of agency

mortgage-related securities has significantly declined. This changing composition presents heightened liquidity risk, which

influences management’s decisions regarding funding and hedging.

Changes in Government Support

Changes or perceived changes in the government’s support of us could have a severe negative effect on our access to the

debt markets and our debt funding costs. Beginning January 1, 2013, the amount of available funding remaining under the

Purchase Agreement is $140.5 billion. This amount will be reduced by any future draws. The provisions of the Purchase

Agreement whereby Treasury’s funding commitment would increase as necessary to accommodate any cumulative reduction

66 Freddie Mac
in our net worth during 2010, 2011, and 2012 no longer apply. While we believe that the support provided by Treasury

pursuant to the Purchase Agreement currently enables us to maintain our access to the debt markets and to have adequate

liquidity to conduct our normal business activities, the costs of our debt funding could vary due to the uncertainty about the

future of the GSEs. The cost of our debt funding could increase if debt investors believe that the risk that we could be placed

into receivership is increasing. Our access to the debt markets and the cost of funding could also be adversely affected if we

were to make significant draws in the future, and thereby significantly reduce the amount of available funding remaining

under the Purchase Agreement. In addition, under the Purchase Agreement, without the prior consent of Treasury, we may

not increase our total indebtedness above a specified limit or become liable for any subordinated indebtedness. For more

information, see “MD&A — LIQUIDITY AND CAPITAL RESOURCES — Liquidity — Actions of Treasury and FHFA.”

We do not currently have a liquidity backstop available to us (other than draws from Treasury under the Purchase

Agreement and Treasury’s ability to purchase up to $2.25 billion of our obligations under its permanent statutory authority) if

we are unable to obtain funding from issuances of debt or other conventional sources. At present, we are not able to predict

the likelihood that a liquidity backstop will be needed, or to identify the alternative sources of liquidity that might be

available to us if needed, other than from Treasury as referenced above.

Demand for Debt Funding

The willingness of investors to purchase or hold our debt securities, and any changes to such willingness, may

materially affect our liquidity, business and results of operations. The willingness of domestic and foreign investors to

purchase and hold our debt securities can be influenced by many factors, including changes in the world economy, changes

in foreign-currency exchange rates, regulatory and political factors, as well as the availability of and preferences for other

investments. If investors were to divest their holdings or reduce their purchases of our debt securities, our funding costs could

increase and our business activities could be curtailed.

Competition for Debt Funding

We compete for debt funding with Fannie Mae, the FHLBs, and other institutions. Competition for debt funding from

these entities can vary with changes in economic, financial market, and regulatory environments. Increased competition for

debt funding may result in a higher cost to finance our business, which could negatively affect our financial results. An

inability to issue debt securities at attractive rates in amounts sufficient to fund our business activities and meet our

obligations could have an adverse effect on our business, liquidity, financial condition, and results of operations. See

“MD&A — LIQUIDITY AND CAPITAL RESOURCES — Liquidity — Other Debt Securities” for a description of our

debt issuance programs. Our funding costs may also be affected by changes in the amount of, and demand for, debt issued by

Treasury.

Line of Credit

We maintain a secured intraday line of credit to provide additional intraday liquidity to fund our activities through the

Fedwire system. This line of credit requires us to post collateral to a third party. In certain circumstances, this secured

counterparty may be able to repledge the collateral underlying our financing without our consent. In addition, because the

secured intraday line of credit is uncommitted, we may not be able to continue to draw on it if and when needed.

Any downgrade in the credit ratings of the U.S. government would likely be followed by a downgrade in our credit ratings.

A downgrade in the credit ratings of our debt could adversely affect our liquidity and other aspects of our business.

Nationally recognized statistical rating organizations play an important role in determining, by means of the ratings they

assign to issuers and their debt, the availability and cost of funding. Our credit ratings are important to our liquidity. We

currently receive ratings from three nationally recognized statistical rating organizations (S&P, Moody’s, and Fitch) for our

unsecured borrowings. These ratings are primarily based on the support we receive from Treasury, and therefore are affected

by changes in the credit ratings of the U.S. government. Any downgrade in the credit ratings of the U.S. government would

be expected to be followed or accompanied by a downgrade in our credit ratings.

In August 2011, S&P lowered our senior long-term debt credit rating to “AA+” from “AAA” and assigned a negative

outlook to the rating. This action followed S&P’s downgrade of the credit rating of the U.S. government. In addition,

Moody’s confirmed our senior long-term debt and subordinated debt ratings and assigned a negative outlook to the ratings in

August 2011. This action accompanied Moody’s confirmation of the U.S. government’s AAA long-term credit rating and

assignment of a negative outlook to the rating. In November 2011, Fitch affirmed our long-term Issuer Default Rating (IDR)

67 Freddie Mac
at “AAA” and revised the outlook to negative from stable. This action followed Fitch’s affirmation of the U.S. government’s

“AAA” IDR and revision of its long-term rating to negative from stable. S&P, Moody’s, and Fitch have indicated that

additional actions on the U.S. government’s ratings could occur if steps toward a credible deficit reduction plan are not taken

or if the U.S. experiences a weaker than expected economic recovery.

In addition to a downgrade in the credit ratings of or outlook on the U.S. government, a number of other events could

adversely affect our debt credit ratings, including actions by governmental entities or others, changes in government support

for us, future GAAP losses, and additional draws under the Purchase Agreement. Any such downgrades could lead to major

disruptions in the mortgage market and to our business due to lower liquidity, higher borrowing costs, lower asset values, and

higher credit losses, and could cause us to experience net losses and net worth deficits. The full range and extent of the

adverse effects to our business that would result from any such ratings downgrades and market disruptions cannot be

predicted with certainty. However, we expect that they could: (a) adversely affect our liquidity and cause us to limit or

suspend new business activities that entail outlays of cash; (b) make new issuances of debt significantly more costly, or

potentially prohibitively expensive, and adversely affect the supply of debt financing available to us; (c) reduce the value of

our guarantee to investors and adversely affect our ability to issue our guaranteed mortgage-related securities; (d) reduce the

value of Treasury and agency mortgage securities we hold; (e) increase the cost of mortgage financing for borrowers, thereby

reducing the supply of mortgages available to us to purchase; (f) adversely affect home prices, reducing the value of our REO

and likely leading to additional borrower defaults on mortgage loans we guarantee; and (g) trigger additional collateral

requirements under our derivatives contracts.

A significant decline in the price performance of or demand for our PCs could have an adverse effect on the volume

and/or profitability of our new single-family guarantee business.

Security performance is one of Freddie Mac’s more significant risks and competitive issues, with both short- and longterm implications. Our PCs are an integral part of our mortgage purchase program. Our competitiveness in purchasing singlefamily mortgages from our seller/servicers, and thus the volume and/or profitability of our new single-family guarantee

business, can be directly affected by the relative price performance of our PCs and comparable Fannie Mae securities.

The profitability of our securitization financing and our ability to compete for mortgage purchases are affected by the

price differential between PCs and comparable Fannie Mae securities. Freddie Mac fixed-rate PCs provide for faster

remittance of mortgage principal and interest payments to investors than Fannie Mae fixed-rate securities. However, our PCs

have typically traded at prices below the level that we believe reflects the full value of their faster remittance cycle, resulting

in a pricing discount relative to comparable Fannie Mae securities. This difference in relative pricing creates an economic

incentive for customers to conduct a disproportionate share of their single-family business with Fannie Mae and negatively

affects the financial performance of our business.

Recent deterioration in the pricing of our PCs relative to comparable Fannie Mae securities has adversely affected our

competitiveness. Our 2012 mortgage purchase market share was volatile and at times significantly below its average levels

during 2010 and 2011. We believe the primary factor adversely affecting our security performance was the substantially

lower liquidity of our PCs versus comparable Fannie Mae securities. If this trend continues, the volume and/or profitability

of our new single-family guarantee business could be adversely affected. Market conditions can also affect the price

performance of our PCs.

We may be unable to maintain a liquid market for our PCs, which could adversely affect the price performance of PCs

and our single-family market share. A significant reduction in our market share, and thus in the volume of mortgage loans

that we securitize, could further reduce the liquidity of our PCs. While we may employ a variety of strategies in an effort to

support the liquidity and price performance of our PCs and may consider additional strategies, any such strategies may fail or

adversely affect our business or we may cease such activities if deemed appropriate. In addition, we believe the liquidityrelated price differences between our PCs and comparable Fannie Mae securities are, in part, the result of factors that are

largely outside of our control. Thus, while we may employ strategies in an effort to support the liquidity-related price

differences, we do not believe the strategies currently available to us can fully eliminate these price differences over the longterm. A curtailment of such mortgage-related investments portfolio purchase and retention activities that are undertaken

primarily in an effort to support the price performance of our PCs may result in a decline in the volume and/or profitability of

our new single-family guarantee business, lower comprehensive income, and an accelerated decline in the size of our total

mortgage portfolio.

68 Freddie Mac
In certain circumstances, we compensate customers for the difference in price between our PCs and comparable Fannie

Mae securities, and this could adversely affect the volume and/or profitability of our new single-family guarantee business.

We also incur costs in connection with our efforts to support the liquidity and price performance of our PCs, including

engaging in transactions that yield less than our target rate of return. For more information, see “BUSINESS — Our Business

Segments — Single-Family Guarantee Segment — Securitization Activities” and “— Investments Segment — PC Support

Activities.”

Mortgage fraud could result in significant financial losses and harm to our reputation.

We rely on representations and warranties by seller/servicers about the characteristics of the single-family mortgage

loans we purchase and securitize, and we do not independently verify most of the information that is provided to us before

we purchase the loan. This exposes us to the risk that one or more of the parties involved in a transaction (such as the

borrower, seller, broker, appraiser, title agent, loan officer, lender or servicer) will engage in fraud by misrepresenting facts

about the property underlying the real estate transaction, borrower, or mortgage loan. While we subsequently review a

sample of these loans to determine if such loans are in compliance with our contractual standards, there can be no assurance

that this would detect or deter mortgage fraud, or otherwise reduce our exposure to the risk of fraud. We are also exposed to

fraud by third parties in the mortgage servicing function, particularly with respect to sales of REO properties, single-family

short sales, and other dispositions of non-performing assets. We may experience significant financial losses and reputational

damage as a result of such fraud.

The value of mortgage-related securities guaranteed by us and held as investments may decline if we are unable to

perform under our guarantee or if investor confidence in our ability to perform under our guarantee diminishes.

A portion of our investments in mortgage-related securities are securities guaranteed by us. Our valuation of these

securities is consistent with GAAP and the legal structure of the guarantee transaction. These securities are collateralized by

Freddie Mac assets transferred to the securitization trusts and include: (a) REMICs and Other Structured Securities;

(b) certain Other Guarantee Transactions; and (c) multifamily PCs. The valuation of our guaranteed mortgage-related

securities reflects investor confidence in our ability to perform under our guarantee and the liquidity that our guarantee

provides. If we were unable to perform under our guarantee or if investor confidence in our ability to perform under our

guarantee were to diminish, the value of our guaranteed securities may decline, thereby reducing the value of the securities

reported on our consolidated balance sheets, which could have an adverse effect on our financial condition and results of

operations. This could also adversely affect our ability to sell or otherwise use these securities for liquidity purposes.

Changes in interest rates could negatively impact our results of operations, net worth, and fair value of net assets.

Our investment activities and credit guarantee activities expose us to interest rate and other market risks. Changes in

interest rates, up or down, could adversely affect our net interest yield. Although the yield we earn on our assets and our

funding costs tend to move in the same direction in response to changes in interest rates, either can rise or fall faster than the

other, causing our net interest yield to expand or compress. For example, due to the timing of maturities or rate reset dates on

variable-rate instruments, when interest rates rise, our funding costs may rise faster than the yield we earn on our assets. This

rate change could cause our net interest yield to compress until the effect of the increase is fully reflected in asset yields.

Changes in the slope of the yield curve could also reduce our net interest yield.

Our GAAP results can be significantly affected by changes in interest rates, and adverse changes in interest rates could

adversely affect our net income or net worth. For example, changes in interest rates affect the fair value of our derivative

portfolio. Since we generally record changes in fair values of our derivatives in current income, such changes could

significantly impact our GAAP results. While derivatives are an important aspect of our management of interest-rate risk,

they generally increase the volatility of reported net income (loss), because, while fair value changes in derivatives affect net

income, fair value changes in several of the types of assets and liabilities being hedged do not affect net income. We could

record substantial gains or losses from derivatives in any period, which could significantly contribute to our overall results

for the period and affect our net worth as of the end of such period. It is difficult for us to predict the amount or direction of

derivative results. Additionally, increases in interest rates could increase other-than-temporary impairments on our

investments in non-agency mortgage-related securities. Higher interest rates can result in a reduction in the benefit from

expected structural credit enhancements on these securities.

Changes in interest rates may also affect prepayment assumptions, thus potentially impacting the fair value of our

assets, including our investments in mortgage-related assets. When interest rates fall, borrowers are more likely to prepay

69 Freddie Mac
their mortgage loans by refinancing them at a lower rate. An increased likelihood of prepayment on the mortgages underlying

our mortgage-related securities may adversely impact the value of these securities.

When interest rates increase, our credit losses from ARM and interest-only ARM loans may increase as borrower

payments increase at their reset dates, which increases the borrower’s risk of default. Rising interest rates may also reduce

the opportunity for these borrowers to refinance into a fixed-rate loan.

Interest rates can fluctuate for a number of reasons, including changes in the fiscal and monetary policies of the federal

government and its agencies, such as the Federal Reserve. Federal Reserve policies directly and indirectly influence the yield

on our interest-earning assets and the cost of our interest-bearing liabilities.

Changes in OAS could materially impact our fair value of net assets and adversely affect future results of operations and

net worth.

OAS is an estimate of the incremental yield spread between a particular financial instrument and a benchmark yield

curve. This includes consideration of potential variability in the instrument’s cash flows resulting from any options

embedded in the security, such as prepayment options. The OAS between the mortgage and agency debt sectors can

significantly affect the fair value of our net assets. The fair value impact of changes in OAS for a given period represents an

estimate of the net unrealized increase or decrease in the fair value of net assets arising from net fluctuations in OAS during

that period. We do not attempt to hedge or actively manage the impact of changes in mortgage-to-debt OAS.

Changes in market conditions, including changes in interest rates, liquidity, prepayment and/or default expectations, and

the level of uncertainty in the market for a particular asset class may cause fluctuations in OAS. A widening of the OAS on a

given asset, which typically causes a decline in the current fair value of that asset, may cause significant mark-to-fair value

losses, and may adversely affect our financial results and net worth. Conversely, a narrowing or tightening of the OAS

typically causes an increase in the current fair value of that asset, but may reduce the number of attractive investment

opportunities in mortgage loans and mortgage-related securities. Consequently, a tightening of the OAS may adversely affect

our future financial results and net worth. See “MD&A — FAIR VALUE MEASUREMENTS AND ANALYSIS —

Consolidated Fair Value Balance Sheets Analysis — Discussion of Fair Value Results” for a more detailed description of the

impacts of changes in mortgage-to-debt OAS.

While wider spreads might create favorable investment opportunities, we are limited in our ability to take advantage of

any such opportunities due to various restrictions on our mortgage-related investments portfolio activities. See

“BUSINESS — Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related

Investments Portfolio.”

We could experience significant reputational harm, which could affect the future of our company, if our efforts to support

the U.S. residential mortgage market do not succeed.

We are focused on a number of initiatives designed to support the U.S. residential mortgage market, including the MHA

Program and other foreclosure avoidance programs, the servicing alignment initiative and various other alignment initiatives,

and the development of various mortgage market enhancements. If these initiatives do not achieve their desired results, or are

otherwise perceived to have failed to achieve their objectives, we may experience damage to our reputation, which may

impact the extent of future government support for our business and government decisions with respect to the future status

and role of Freddie Mac.

Negative publicity causing damage to our reputation could adversely affect our business prospects, financial results, or

net worth.

Reputation risk, or the risk to our financial results and net worth from negative public opinion, is inherent in our

business. Negative public opinion could adversely affect our ability to keep and attract customers or otherwise impair our

customer relationships, adversely affect our ability to obtain financing, impede our ability to hire and retain qualified

personnel, hinder our business prospects, or adversely impact the trading price of our securities. Perceptions regarding the

practices of our competitors, our seller/servicers or the financial services and mortgage industries as a whole, particularly as

they relate to the recent housing and economic downturn, may also adversely impact our reputation. Adverse reputation

impacts on third parties with whom we have important relationships may impair market confidence or investor confidence in

our business operations as well. In addition, negative publicity could expose us to adverse legal and regulatory consequences,

including greater regulatory scrutiny or adverse regulatory or legislative changes, and could affect what changes may occur

70 Freddie Mac
to our business structure during or following conservatorship, including whether we will continue to exist. These adverse

consequences could result from perceptions concerning our activities and role in addressing the housing and economic

downturn, concerns about our compensation practices, concerns about deficiencies in foreclosure documentation practices or

our actual or alleged action or failure to act in any number of areas, including corporate governance, regulatory compliance,

financial reporting and disclosure, purchases of products perceived to be predatory, safeguarding or using nonpublic personal

information, or from actions taken by government regulators in response to our actual or alleged conduct.

The servicing alignment initiative, MHA Program, and other efforts to reduce foreclosures, modify loan terms and

refinance mortgages, including HARP, may fail to mitigate our credit losses and may adversely affect our results of

operations or financial condition.

The servicing alignment initiative, MHA Program, and other loss mitigation activities are a key component of our

strategy for managing and resolving troubled assets and lowering credit losses. However, our loss mitigation strategies may

not be successful and our credit losses may continue to remain high. The costs we incur related to loan modifications and

other activities have been, and will likely continue to be, significant because we bear the full cost of the monthly payment

reductions related to modifications of loans we own or guarantee, and all applicable servicer and borrower incentives. We are

not reimbursed for these costs by Treasury. For information on our loss mitigation activities, see “MD&A — RISK

MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit Risk — Single-Family Loan

Workouts and the MHA Program.”

We could be required or elect to make changes to our implementation of our loss mitigation activities that could make

these activities more costly to us, both in terms of credit expenses and the cost of implementing and operating the activities.

For example, we could be required to use principal reduction to achieve reduced payments for borrowers. This could further

increase our losses, as we could bear some or all of the costs of such reductions.

A significant number of loans are in the trial period of HAMP or our non-HAMP standard loan modification. For

information on completion rates for HAMP and non-HAMP modifications, see “MD&A — RISK MANAGEMENT —

Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit Risk — Single-Family Loan Workouts and the MHA

Program.” A number of loans will fail to complete the applicable trial period or qualify for our other loss mitigation

programs. For these loans, the trial period will have effectively delayed the foreclosure process and could increase our losses,

to the extent the prices we ultimately receive for the foreclosed properties are less than the prices we could have received had

we foreclosed upon the properties earlier. These delays in foreclosure could also cause our REO operations expense to

increase, perhaps substantially.

Mortgage modification initiatives, particularly any future focus on principal reductions (which at present we do not offer

to borrowers), have the potential to change borrower behavior and mortgage underwriting. Principal reductions may create an

incentive for borrowers that are current to become delinquent in order to receive a principal reduction. This, coupled with the

phenomenon of widespread underwater mortgages, could significantly affect borrower attitudes towards homeownership, the

commitment of borrowers to making their mortgage payments, the way the market values residential mortgage assets, the

way in which we conduct business and, ultimately, our financial results.

Depending on the type of loss mitigation activities we pursue, those activities could result in accelerating or slowing

prepayments on our PCs and REMICs and Other Structured Securities, either of which could affect the pricing of such

securities. At the direction of FHFA, we implemented a series of changes to HARP in late 2011 and 2012. We subsequently

made similar changes to the relief refinance mortgage initiative for loans with LTV ratios of 80% and less. There can be no

assurance that the benefits from the revised programs will exceed our costs. We may face greater exposure to credit and other

losses on HARP and other relief refinance loans (starting in late 2012) because we are relieving lenders of certain

representations and warranties on the original mortgage being refinanced. Due to the impact of HARP and other refinance

initiatives of Freddie Mac and Fannie Mae, we could experience declines in the fair values of certain agency security

investments classified as available-for-sale or trading resulting from changes in expectations of mortgage prepayments and

lower net interest yields over time on other mortgage-related investments. The ultimate impact of the HARP revisions on our

financial results will be driven by the level of borrower participation and the volume of loans with high LTV ratios that we

acquire under the program. Over time, relief refinance mortgages with LTV ratios above 80% may not perform as well as

relief refinance mortgages with LTV ratios of 80% and below because of the continued high LTV ratios of these loans. Based

on our historical experience, there is an increase in borrower default risk as LTV ratios increase. In addition, relief refinance

mortgages may not be covered by mortgage insurance for the full excess of their UPB over 80%. For more information, see

“MD&A — RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit Risk —

Single-Family Loan Workouts and the MHA Program.”

71 Freddie Mac
We are devoting significant internal resources to the implementation of the servicing alignment initiative and the MHA

Program. The costs we incur related to these initiatives have been, and will likely continue to be, significant. The size and

scope of these efforts may also limit our ability to pursue other business opportunities or corporate initiatives.

We may experience further write-downs and losses relating to our assets, including our investment securities, net deferred

tax assets, REO properties or mortgage loans, that could materially adversely affect our business, results of operations,

financial condition, liquidity and net worth.

We experienced significant losses and write-downs relating to certain of our assets during the past several years,

including significant declines in market value, impairments of our investment securities, write-downs of REO properties,

losses on non-performing loans removed from PC pools, and impairments on other assets. The fair value of our assets may be

further adversely affected by continued weakness in the economy, any further deterioration in the housing and financial

markets, additional ratings downgrades, or other events.

Since we entered into conservatorship in September 2008, we have established a significant valuation allowance on our

deferred tax assets. If future events significantly alter our current outlook, additional valuation allowances may need to be

established for the remaining deferred tax asset. The future status and role of Freddie Mac could be affected by actions of the

Conservator, and legislative and regulatory action that alters the ownership, structure, and mission of the company. The

uncertainty of these developments could materially affect our operations, which could in turn affect our ability or intent to

hold investments until the recovery of any temporary unrealized losses.

We may experience additional write-downs and losses relating to our assets, including those that are currently AAArated, and the fair values of our assets may decline in the future. This could adversely affect our results of operations,

financial condition, liquidity, and net worth.

There may not be an active, liquid trading market for our equity securities.

Our common stock and classes of preferred stock that previously were listed and traded on the NYSE were delisted

from the NYSE effective July 8, 2010, and now trade on the OTCQB Marketplace. The market price of our common stock

declined significantly between June 16, 2010, the date we announced our intention to delist these securities, and July 8, 2010,

the first day the common stock traded exclusively on the OTC market, and may decline further. Trading volumes on the

OTCQB Marketplace have generally been, and will likely continue to be, less than those on the NYSE, which would make it

more difficult for investors to execute transactions in our securities and could make the prices of our securities decline or be

more volatile.

Operational Risks

We face significant levels of operational risk. Our risk management efforts may not effectively mitigate the risks we seek

to manage.

We face significant levels of operational risk, due to a variety of factors, including: (a) the level and pace of

organizational change within our company; (b) the complexity of our business operations; (c) limitation in our core systems;

(d) the fact that we face a variety of different, and potentially competing, business objectives and new FHFA-mandated

activities (e.g., the initiatives we are pursuing under the Conservatorship Scorecard); and (e) employee turnover.

We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify,

manage, monitor and mitigate operational risks related to our business. Our risk management policies, procedures and

techniques may not be sufficient to mitigate the risks we have identified or to appropriately identify additional risks to which

we are subject. See “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” and “MD&A —

RISK MANAGEMENT” for a discussion of our approach to managing certain of the risks we face.

We have incurred, and will continue to incur, expenses and we may otherwise be adversely affected by delays and

deficiencies in the foreclosure process.

We have been, and will likely continue to be, adversely affected by delays and deficiencies in the foreclosure process,

which could increase our expenses.

The average length of time for foreclosure of a Freddie Mac loan significantly increased in recent years, particularly in

states that require a judicial foreclosure process, and may further increase. A number of factors have contributed to this

72 Freddie Mac
increase, including: (a) the increasingly lengthy foreclosure process in many states (affected, in some states, by new

foreclosure requirements); (b) the difficulty of servicers in processing the high volume of seriously delinquent loans, due in

part to general constraints on servicer capacity and the increasing complexity of the servicing function; and (c) concerns

about deficiencies in seller/servicers’ conduct of the foreclosure process. For more information on these developments, see

“BUSINESS — Regulation and Supervision — Legislative and Regulatory Developments — Developments Concerning

Single-Family Servicing Practices.”

Delays in the foreclosure process could cause our credit losses to increase for a number of reasons. For example,

properties awaiting foreclosure could deteriorate until we acquire ownership of them through foreclosure. This would

increase our expenses to repair and maintain the properties when we do acquire them. Such delays may also adversely affect

the values of, and our losses on, the non-agency mortgage-related securities we hold. Delays in the foreclosure process may

also adversely affect trends in home prices regionally or nationally, which could also adversely affect our financial results.

It also is possible that mortgage insurance claims could be reduced if delays caused by servicers’ deficient foreclosure

practices prevent servicers from completing foreclosures within required timelines defined by mortgage insurers. Mortgage

insurance companies establish foreclosure timelines that vary by state and range between 60 and 990 days.

Delays in the foreclosure process could create fluctuations in our single-family credit statistics. For example, our

realization of credit losses, which consists of REO operations income (expense) plus charge-offs, net, could be delayed

because we typically record charge-offs at the time we take ownership of a property through foreclosure. Delays could also

temporarily increase the number of seriously delinquent loans that remain in our single-family mortgage portfolio, which

could result in higher reported serious delinquency rates and a larger number of non-performing loans than would otherwise

have been the case.

In the fall of 2010, several large seller/servicers announced issues relating to the improper preparation and execution of

certain documents used in foreclosure proceedings. These announcements raised various concerns relating to foreclosure

practices, and caused significant delays in the foreclosure process, particularly during 2011. It is possible that additional

deficiencies in foreclosure practices will be identified in the future. The integrity of the foreclosure process is critical to our

business, and our financial results could be adversely affected by deficiencies in the conduct of that process.

Issues related to mortgages recorded through the MERS System could delay or disrupt foreclosure activities and have an

adverse effect on our business.

The Mortgage Electronic Registration System, or the MERS® System, is an electronic registry that is widely used by

seller/servicers, Freddie Mac, and other participants in the mortgage finance industry, to maintain records of beneficial

ownership of mortgages. The MERS System is owned, operated, and maintained by MERSCORP Holdings, Inc., a privately

held company (which we refer to below as MERSCORP), the shareholders of which include a number of organizations in the

mortgage industry, including Freddie Mac, Fannie Mae, and certain seller/servicers, mortgage insurance companies, and title

insurance companies.

Mortgage Electronic Registration Systems, Inc., or MERS, a wholly-owned subsidiary of MERSCORP, has the ability

to serve as a nominee for the owner of a mortgage loan and in that role become the mortgagee of record for the loan in local

land records. Freddie Mac seller/servicers may choose to use MERS as a nominee, though they are no longer permitted to

initiate foreclosures in MERS’ name with respect to mortgages owned or guaranteed by us. Approximately 41% of the loans

Freddie Mac owns or guarantees were registered in MERS’ name as of December 31, 2012; the beneficial ownership and the

ownership of the servicing rights related to those loans are tracked in the MERS System.

MERS has been the subject of numerous lawsuits challenging foreclosures on mortgages for which MERS is mortgagee

of record as nominee for the beneficial owner. It is possible that adverse judicial decisions, regulatory proceedings or action,

or legislative action related to MERS, could delay or disrupt foreclosure of mortgages that are registered on the MERS

System. Negative publicity about MERS could adversely affect the mortgage industry and negatively impact public

confidence in the foreclosure process, which could lead to legislative or regulatory action. Because MERS often executes

legal documents in connection with foreclosure proceedings, it is possible that investigations by governmental authorities and

others into deficiencies in foreclosure practices may negatively impact MERS and the MERS System.

Federal or state legislation or regulatory action could prevent us from using the MERS System for mortgages that we

own, guarantee, and securitize, or could create additional requirements for the transfer of mortgages that could affect the

process for and costs of acquiring, transferring, servicing, and foreclosing on mortgages. Such legislation or regulatory action

73 Freddie Mac
could increase our costs or otherwise adversely affect our business. For example, we could be required to transfer mortgages

out of the MERS System. There is also uncertainty regarding the extent to which seller/servicers will choose to use the

MERS System in the future.

Failures by MERS to apply prudent and effective process controls and to comply with legal and other requirements in

the foreclosure process could pose legal and operational risks for us. We may also face significant reputational risk due to our

ties to MERS, as we are a shareholder of MERSCORP and a Freddie Mac officer serves on MERSCORP’s board of

directors. In April 2011, federal banking regulators and FHFA entered into a consent order with MERSCORP and MERS,

which stated that such regulators had identified a number of deficiencies and unsafe or unsound practices by both entities that

present financial, operational, compliance, legal and reputational risk to both entities and to participating members, including

Freddie Mac. The regulators required MERSCORP and MERS to take certain corrective actions, including simplifying

MERSCORP’s governance structures. Such changes have resulted in our giving up certain governance rights. For example,

while Freddie Mac had the right to appoint a Freddie Mac officer to serve on MERS’ board of directors in the past, it is not

certain if this will continue. It is unclear what the consequent impact of these changes will be on Freddie Mac’s relationship

with and rights with respect to the two entities.

Weaknesses in internal control over financial reporting and in disclosure controls could result in errors and inadequate

disclosures, affect operating results, and cause investors to lose confidence in our reported results.

We face continuing challenges because of deficiencies in our controls. Control deficiencies could result in errors, and

lead to inadequate or untimely disclosures, and affect operating results. Control deficiencies could also cause investors to

lose confidence in our reported financial results, which may have an adverse effect on the trading price of our securities. For

information about our ineffective disclosure controls and one material weakness in internal control over financial reporting,

see “CONTROLS AND PROCEDURES.”

There are a number of factors that may impede our efforts to establish and maintain effective disclosure controls and

internal control over financial reporting, including: (a) the nature of the conservatorship and our relationship with FHFA;

(b) the complexity of, and significant changes in, our business activities and related GAAP requirements; (c) employee and

management turnover; (d) internal reorganizations; (e) uncertainty regarding the sustainability of newly established controls;

(f) data quality or servicing-related issues; and (g) the uncertain long-term impacts of the recent housing and economic

downturn on the results of our models, which are used for financial accounting and reporting purposes. Disruptive levels of

employee turnover could negatively impact our internal control environment, including internal control over financial

reporting, and ability to issue timely financial statements. We cannot be certain that our efforts to improve and maintain our

internal control over financial reporting will ultimately be successful.

Effectively designed and operated internal control over financial reporting provides only reasonable assurance that

material errors in our financial statements will be prevented or detected on a timely basis. A failure to maintain effective

internal control over financial reporting increases the risk of a material error in our reported financial results and delay in our

financial reporting timeline. Depending on the nature of a control failure and any required remediation, ineffective controls

could have a material adverse effect on our business.

We face risks and uncertainties associated with the models that we use for financial accounting and reporting purposes,

to make business decisions, and to manage risks. Market conditions have raised these risks and uncertainties.

We make significant use of business and financial models for financial accounting and reporting purposes and to

manage risk. We face risk associated with our use of models. First, there is inherent uncertainty associated with model

results. Second, we could fail to properly implement, operate, or use our models. Either of these situations could adversely

affect our financial statements and our ability to manage risks.

We use market-based information as inputs to our models. However, it can take time for data providers to prepare

information, and thus the most recent information may not be available for the preparation of our financial statements. When

market conditions change quickly and in unforeseen ways, there is an increased risk that the inputs reflected in our models

are not representative of current market conditions.

The severe deterioration of the housing and credit markets beginning in 2008 and, more recently, the extended period of

economic weakness and uncertainty have increased the risks associated with our use of models. For example, certain

economic events or the implementation of government policies could create increased model uncertainty as models may not

fully capture these events, which makes it more difficult to assess model performance and requires a higher degree of

74 Freddie Mac
management judgment. Our models may not perform as well in situations for which there are few or no recent historical

precedents. We have adjusted our models in response to recent events, but there remains considerable uncertainty about

model results.

Models are inherently imperfect predictors of actual results. Our models rely on various assumptions that may be

incorrect, including that historical experience can be used to predict future results. It has been more difficult to predict the

behaviors of the housing and credit capital markets and market participants over the past several years, due to, among other

factors: (a) the uncertainty concerning trends in home prices; (b) the lack of historical evidence about the behavior of deeply

underwater borrowers, the effect of an extended period of extremely low interest rates on prepayments, and the impact of

widespread loan refinancing and modification programs (such as HARP and HAMP), including the potential for the

extensive use of principal reductions; and (c) the impact of the concerns about deficiencies in foreclosure documentation

practices and related delays in the foreclosure process.

We face the risk that we could fail to implement, operate, or adjust or use our models properly. For example, the

assumptions underlying a model could be invalid, or we could apply a model to events or products outside the model’s

intended use. We may fail to code a model correctly or we could use incorrect data. The complexity and interconnectivity of

our models create additional risk regarding the accuracy of model output. While we have processes and controls in place

designed to mitigate these risks, there can be no assurances that such processes and controls will be successful. This risk may

be elevated to the extent that we have difficulty attracting and retaining employees with the necessary experience and skills.

We have increased our use of third-party models. This may expose us to additional risk, as third-parties typically do not

provide us with proprietary information regarding their models. As a result, we may not fully understand the risks associated

with the use of such models.

Management often needs to exercise judgment to interpret or adjust modeled results to take into account new

information or changes in conditions. The dramatic changes in the housing and credit capital markets in recent years have

required frequent adjustments to our models and the application of greater management judgment in the interpretation and

adjustment of the results produced by our models. This further increases both the uncertainty about model results and the risk

of errors in the implementation, operation, or use of the models.

We face the risk that the valuations, risk metrics, amortization results, loan loss reserve estimations, and security

impairment charges produced by our models may be different from actual results, which could adversely affect our business

results, cash flows, fair value of net assets, business prospects, and future financial results. For example, our models may

under-predict the losses we will suffer in various aspects of our business. Changes in, or replacements of, any of our models

or in any of the assumptions, judgments, or estimates used in the models may cause the results generated by the model to be

materially different from those generated by the prior model. The different results could cause a revision of previously

reported financial condition or results of operations, depending on when the change to the model, assumption, judgment, or

estimate is implemented. Any such changes may also cause difficulties in comparisons of the financial condition or results of

operations of prior or future periods.

Due to increased uncertainty about model results, we also face increased risk that we could make poor business

decisions in areas where model results are an important factor, including loan purchases, management and guarantee fee

pricing, asset and liability management, market risk management, and quality-control sampling strategies for loans in our

single-family credit guarantee portfolio. Furthermore, any strategies we employ to attempt to manage the risks associated

with our use of models may not be effective. See “MD&A — CRITICAL ACCOUNTING POLICIES AND ESTIMATES”

and “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — Interest-Rate Risk and Other

Market Risks” for more information on our use of models.

Changes in our accounting policies, as well as estimates we make, could materially affect how we report our financial

condition or results of operations.

Our accounting policies are fundamental to understanding our financial condition and results of operations. Certain of

our accounting policies, as well as estimates we make, are “critical,” as they are both important to the presentation of our

financial condition and results of operations and they require management to make particularly difficult, complex or

subjective judgments and estimates, often regarding matters that are inherently uncertain. Actual results could differ from our

estimates and the use of different judgments and assumptions related to these policies and estimates could have a material

75 Freddie Mac
impact on our consolidated financial statements. For a description of our critical accounting policies, see “MD&A —

CRITICAL ACCOUNTING POLICIES AND ESTIMATES.”

From time to time, the FASB and the SEC change the financial accounting and reporting guidance that governs the

preparation of our financial statements. These changes are beyond our control, can be difficult to predict and could materially

impact how we report our financial condition and results of operations. We could be required to apply new or revised

guidance retrospectively, which may result in the revision of prior period financial statements by material amounts. The

implementation of new or revised accounting guidance could result in material adverse effects to our net worth and result in

or contribute to the need for additional draws under the Purchase Agreement.

FHFA may require us to change our accounting policies, including to align more closely with those of Fannie Mae.

FHFA may also require us and Fannie Mae to have the same independent public accounting firm. Either of these events

could significantly increase our expenses and require a substantial time commitment of management. For example, in April

2012, FHFA issued an advisory bulletin that could have an effect on our provision for credit losses in the future. The

accounting methods outlined in FHFA’s advisory bulletin are significantly different from our current methods of accounting

for single-family loans that are 180 days or more delinquent. For more information, see “BUSINESS — Regulation and

Supervision — Legislative and Regulatory Developments — FHFA Advisory Bulletin.”

See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for more information.

A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our

business, damage our reputation, and cause losses.

Shortcomings or failures in our internal processes, people, or systems could lead to impairment of our liquidity,

financial loss, errors in our financial statements, disruption of our business, liability to customers, further legislative or

regulatory intervention, or reputational damage. Servicing and loss mitigation processes are currently under considerable

stress, which increases the risk that we may experience further operational problems in the future. Our core systems and

technical architecture include many legacy systems and applications that lack scalability and flexibility, which increases the

risk of system failure. While we are working to enhance the quality of our infrastructure, we have had difficulty in the past

conducting large-scale infrastructure improvement projects.

Our business is highly dependent on our ability to process a large number of transactions on a daily basis and manage

and analyze significant amounts of information, much of which is provided by third parties. The transactions we process are

complex and are subject to various legal, accounting, and regulatory standards. The types of transactions we process and the

standards relating to those transactions can change rapidly in response to external events, such as the implementation of

government-mandated programs and changes in market conditions. Our financial, accounting, data processing, or other

operating systems and facilities may fail to operate properly or become disabled, adversely affecting our ability to process

these transactions. The information provided by third parties may be incorrect, or we may fail to properly manage or

analyze it. The inability of our systems to accommodate an increasing volume of transactions or new types of transactions or

products could constrain our ability to pursue new business initiatives or change or improve existing business activities.

Our employees could act improperly for their own gain and cause unexpected losses or reputational damage. While we

have processes and systems in place designed to prevent and detect fraud, there can be no assurance that such processes and

systems will be successful.

We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearinghouses, or

other financial intermediaries we use to facilitate our securities and derivatives transactions. Any such failure or termination

could adversely affect our ability to effect transactions, service our customers, and manage our exposure to risk.

Most of our key business activities are conducted in our principal offices located in McLean, Virginia and represent a

concentrated risk of people, technology, and facilities. Despite the contingency plans and local recovery facilities we have in

place, our ability to conduct business would be adversely impacted by a disruption in the infrastructure that supports our

business and the geographical area in which we are located. Potential disruptions may include outages or disruptions to

electrical, communications, transportation, or other services we use or that are provided to us. If a disruption occurs and our

employees are unable to occupy our offices or communicate with or travel to other locations, our ability to service and

interact with our customers or counterparties may deteriorate and we may not be able to successfully implement contingency

plans that allow us to carry out critical business functions at an acceptable level.

76 Freddie Mac
This geographical concentration also creates exposure to the risk that a catastrophic event, such as a terrorist event or

natural disaster, could result in a significant business disruption and an inability to process transactions through normal

business operations. Any measures we take to mitigate this risk may not be sufficient to respond to the full range of

catastrophic events that may occur. Freddie Mac management has determined that current business recovery capabilities

would not be effective in the event of a catastrophic regional business event and could result in a significant business

disruption and inability to process transactions through normal business processes. While management has developed a

remediation plan to address the current capability gaps, any measures we take to mitigate this risk may not be sufficient to

respond to the full range of catastrophic events that may occur.

Management changes and turnover of key staff could increase our operational and control risks and have a material

adverse effect on our ability to do business and our results of operations.

Disruptive levels of turnover among both executives and other employees could lead to operational or control failures,

affect our ability to execute ongoing business activities, cause delays and disruptions in the implementation of FHFAdirected and other important business initiatives, delay or disrupt critical technology and other projects, and erode our

business, modeling, internal audit, risk management, information security, financial reporting, legal, compliance, and other

capabilities. Internal reorganizations could have a similar effect. Any such event could add to the risk of operational or

control failures, including a failure in the effective operation of our internal control over financial reporting or our disclosure

controls and procedures. Operational or control failures could result in material adverse effects on our financial condition and

results of operations. For more information, see “MD&A — RISK MANAGEMENT — Operational Risks” and

“CONTROLS AND PROCEDURES.”

We may not be able to protect the security of our systems or the confidentiality of our information from cyber attack and

other unauthorized access, disclosure, and disruption.

Our operations rely on the secure receipt, processing, storage, and transmission of confidential and other information in

our computer systems and networks and with our business partners. Like many corporations and government entities, from

time to time we have been, and likely will continue to be, the target of attempted cyber attacks. Although Freddie Mac

devotes significant resources to maintain and regularly upgrade its systems and processes which are designed to protect the

security of its computer systems, software, networks and other technology assets and the confidentiality, integrity and

availability of information belonging to Freddie Mac and its customers, there is no assurance that all of Freddie Mac’s

security measures will provide fully effective security. Our computer systems, software, and networks may be vulnerable to

cyber attack, unauthorized access, computer viruses or other malicious code, or other attempts to harm our systems or misuse

our confidential information. If one or more of such events were to occur, this potentially could jeopardize or result in the

unauthorized disclosure, misuse or corruption of confidential and other information (including information of our customers

or our counterparties), or otherwise cause interruptions or malfunctions in our operations or the operations of our customers

or counterparties. This could result in significant losses or reputational damage, adversely affect our relationships with our

customers and counterparties, and otherwise harm our business. We could also face regulatory action. We might be required

to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or

other exposures, and we might be subject to litigation and financial losses that are not fully insured.

We rely on third parties for certain important functions, including some that are critical to financial reporting, our

mortgage-related investment activity, and mortgage loan underwriting. Any failures by those vendors could disrupt our

business operations.

At times, we outsource certain key functions to external parties, which may include processes related to: (a) functions

for trade capture, market risk management analytics, and financial instrument valuation, (b) modeling, (c) custody and

recordkeeping for our mortgage-related investments; (d) processing functions for mortgage loan underwriting and servicing;

(e) certain services we provide to Treasury in our role as program compliance agent under HAMP; and (f) certain technology

infrastructure and operations. We may enter into other key outsourcing relationships in the future. If one or more of these key

external parties were not able to perform their functions for a period of time, at an acceptable service level, or for increased

volumes, our business operations could be constrained, disrupted, or otherwise negatively impacted. Our use of vendors also

exposes us to the risk of a loss of intellectual property or of confidential information or other harm. We may also be exposed

to reputational harm, to the extent vendors do not conduct their activities under appropriate ethical standards. Our ability to

monitor the activities or performance of vendors may be constrained. Financial or operational difficulties of an outside

vendor could also hurt our operations if those difficulties interfere with the vendor’s ability to provide services to us.

77 Freddie Mac
Legal and Regulatory Risks

The Dodd-Frank Act and related regulation may adversely affect our business activities and financial results.

The Dodd-Frank Act, which was signed into law on July 21, 2010, significantly changed the regulation of the financial

services industry and could affect us in substantial and unforeseeable ways and have an adverse effect on our business,

results of operations, financial condition, liquidity, and net worth. For example, the Dodd-Frank Act and related current and

future regulatory changes could affect the value of assets that we hold, require us to change certain of our business practices,

impose significant additional costs on us, limit the products we offer, require us to increase our regulatory capital, or make it

more difficult for us to retain and recruit executives and other employees. We will also face a more complicated regulatory

environment due to the Dodd-Frank Act and related current and future regulatory changes, which will increase compliance

costs and could divert management attention or other resources. The Dodd-Frank Act and related current and future

regulatory changes also significantly affect many aspects of the financial services industry and may significantly change the

business practices of our customers and counterparties; it is possible that any such changes will adversely affect our business

and financial results.

Implementation of the Dodd-Frank Act is being accomplished through numerous rulemakings, many of which are still

in process. The final effects of the legislation will not be known with certainty until these rulemakings are complete. The

Dodd-Frank Act also mandates the preparation of studies of a wide range of issues, which could lead to additional legislative

or regulatory changes. It could be difficult for us to comply with any future regulatory changes in a timely manner, due to the

potential scope and number of such changes, which could limit our operations and expose us to liability.

The long-term impact of the Dodd-Frank Act and related current and future regulatory changes on our business and the

financial services industry will depend on a number of factors that are difficult to predict, including our ability to

successfully implement any changes to our business, changes in consumer behavior, and our competitors’ and customers’

responses to the Dodd-Frank Act and related current and future regulatory changes.

Examples of aspects of the Dodd-Frank Act that may significantly affect us include the following:

• The Financial Stability Oversight Council could designate Freddie Mac as a non-bank financial company to be

subject to supervision and regulation by the Federal Reserve. If this occurs, the Federal Reserve will have authority to

examine Freddie Mac and we may be required to meet more stringent prudential standards than those applicable to

other non-bank financial companies. New prudential standards could include requirements related to risk-based

capital and leverage, liquidity, single-counterparty credit limits, overall risk management and risk committees, stress

tests, and debt-to-equity limits, among other requirements.

• The Dodd-Frank Act will create new standards and requirements related to asset-backed securities, including

requiring securitizers and potentially originators to retain a portion of the underlying loans’ credit risk. Any such new

standards and requirements could modify or remove incentives for financial institutions to sell mortgage loans to us.

• The Dodd-Frank Act and related current and future regulatory changes could have a negative effect on the volume of

mortgage originations, and thus adversely affect the number of mortgages available for us to purchase or guarantee.

For more information on the Dodd-Frank Act, see “BUSINESS — Regulation and Supervision — Legislative and

Regulatory Developments.”

Legislative or regulatory actions could adversely affect our business activities and financial results.

In addition to the Dodd-Frank Act discussed in the immediately preceding risk factor, and possible GSE reform

discussed in “Conservatorship and Related Matters — The future status and role of Freddie Mac is uncertain and could be

materially adversely affected by legislative and regulatory action that alters the ownership, structure, and mission of the

company,” our business initiatives may be directly adversely affected by other legislative and regulatory actions at the

federal, state, and local levels. We could be negatively affected by legislation or regulatory action that changes the

foreclosure process of any individual state. For example, various states and local jurisdictions have implemented mediation

programs designed to bring servicers and borrowers together to negotiate workout options. These actions could delay the

foreclosure process and increase our expenses, including by potentially delaying the final resolution of seriously delinquent

mortgage loans and the disposition of non-performing assets. We could also be affected by any legislative or regulatory

changes that would expand the responsibilities and liability of servicers and assignees for maintaining vacant properties prior

to foreclosure. These laws and regulatory changes could significantly expand mortgage costs and liabilities. We could be

affected by legislative or regulatory changes that permit or require principal reductions, including through the bankruptcy

78 Freddie Mac
process. Our business could also be adversely affected by any modification, reduction, or repeal of the federal income tax

deductibility of mortgage interest payments. A number of local governments are considering or may consider using eminent

domain to seize mortgage loans and forgive principal on the loans. Such seizures, if they are successful, could result in

further losses and write-downs relating to our investment securities and could increase our credit losses.

We are subject to a number of lawsuits challenging our statutory exemption from real estate transfer taxes imposed on

the transfer of real property for which we were the grantor or grantee. If we were to become subject to transfer taxes in a

large number of states and localities, and if we were required to pay a number of years of past transfer taxes in these states

and localities, it would increase our costs going forward and could have an adverse effect on our financial results. For more

information, see “NOTE 17: LEGAL CONTINGENCIES — Lawsuits Involving Real Estate Transfer Taxes.”

Pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011, FHFA required Freddie Mac and Fannie Mae to

increase guarantee fees by no less than 10 basis points above the average guarantee fees charged in 2011 on single-family

mortgage-backed securities to fund the payroll tax cut that occurred in 2012. If we are found to be out of compliance with

this requirement of the Act for two consecutive years, we will be precluded from providing any guarantee for a period to be

determined by FHFA, but in no case less than one year.

Legislation or regulatory actions could indirectly adversely affect us to the extent such legislation or actions affect the

activities of banks, savings institutions, insurance companies, securities dealers, and other regulated entities that constitute a

significant part of our customer base or counterparties, or could indirectly affect us to the extent that they modify industry

practices. Legislative or regulatory provisions that remove incentives for these entities to sell mortgage loans to us, purchase

our securities or enter into derivatives, or other transactions with us could have a material adverse effect on our business

results and financial condition.

The Office of the Comptroller of the Currency, the Federal Reserve and the FDIC (collectively, the “Banking

Agencies”) are in the process of substantially revising capital requirements applicable to banking organizations. In June

2012, the Banking Agencies jointly released three notices of proposed rulemaking that would revise and replace the Banking

Agencies’ current capital rules by implementing the Basel III regulatory reforms as well as certain provisions of the DoddFrank Act. In addition, in June 2012, the Banking Agencies jointly announced the finalization of a market risk capital rule

applicable to banking organizations with significant trading assets and liabilities. Phase-in of new bank capital requirements

is expected to take several years and there is significant uncertainty about how the proposed regulations will be finalized and

what effects any new bank capital requirements will have on us. For example, it is possible that any new regulations on the

capital treatment of mortgage servicing rights, risk-based capital requirements for credit risk, and liquidity treatment of our

debt and guarantee obligations could adversely affect our business results and financial condition.

We may make certain changes to our business in an attempt to meet our housing goals and subgoals.

We may make adjustments to our mortgage loan sourcing and purchase strategies in an effort to meet our housing goals

and subgoals, including changes to our underwriting standards and the expanded use of targeted initiatives to reach

underserved populations. For example, we may purchase loans that offer lower expected returns on our investment and

potentially increase our exposure to credit losses. Doing so could cause us to forgo other purchase opportunities that we

would expect to be more profitable. If our current efforts to meet the goals and subgoals prove to be insufficient, we may

need to take additional steps that could potentially adversely affect our profitability. FHFA has not yet published a final rule

with respect to our duty to serve underserved markets. However, it is possible that we could also make changes to our

business in the future in response to this duty. If we do not meet our housing goals or duty to serve requirements, and FHFA

finds that the goals or requirements were feasible, we may become subject to a housing plan that could require us to take

additional steps that could have an adverse effect on our results of operations and financial condition.

We are involved in legal proceedings and governmental investigations that could result in the payment of substantial

damages or otherwise harm our business.

We are a party to various legal actions. In addition, certain of our former directors and officers are involved in legal

proceedings for which they may be entitled to reimbursement by us for costs and expenses of the proceedings. The defense of

these or any future claims or proceedings could divert management’s attention and resources from the needs of the business.

We may be required to establish reserves and to make substantial payments in the event of adverse judgments or settlements

of any such claims, investigations, proceedings, or examinations. Any legal proceeding, governmental investigation, or IRS

examination issue, even if resolved in our favor, could result in negative publicity or cause us to incur significant legal and

79 Freddie Mac
other expenses. Furthermore, developments in, outcomes of, impacts of, and costs, expenses, settlements, and judgments

related to these legal proceedings and governmental investigations and examinations may differ from our expectations and

exceed any amounts for which we have reserved or require adjustments to such reserves. We are also cooperating with other

investigations. These proceedings could divert management’s attention or other resources. See “LEGAL PROCEEDINGS”

and “NOTE 17: LEGAL CONTINGENCIES” for information about our pending legal proceedings.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal offices consist of five office buildings in McLean, Virginia. We own four of the office buildings,

comprising approximately 1.3 million square feet. We occupy the fifth building, comprising approximately 200,000 square

feet, under a lease from a third party.

ITEM 3. LEGAL PROCEEDINGS

We are involved as a party to a variety of legal proceedings arising from time to time in the ordinary course of business.

See “NOTE 17: LEGAL CONTINGENCIES” for more information regarding our involvement as a party to various legal

proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock, par value $0.00 per share, trades on the OTCQB Marketplace, operated by the OTC Markets Group

Inc., under the ticker symbol “FMCC.” As of February 15, 2013, there were 650,038,674 shares of our common stock

outstanding.

The table below sets forth the high and low bid information for our common stock on the OTCQB Marketplace for the

indicated periods and reflects inter-dealer prices, without retail mark-up, mark-down, or commission, and may not

necessarily represent actual transactions.

Table 7 — Quarterly Common Stock Information

High Low

2012 Quarter Ended

December 31 ..................................................................................... $0.32 $0.24

September 30 ..................................................................................... 0.33 0.14

June 30 ......................................................................................... 0.33 0.24

March 31 ........................................................................................ 0.42 0.21

2011 Quarter Ended ...............................................................................

December 31 ..................................................................................... $0.27 $0.18

September 30 ..................................................................................... 0.41 0.24

June 30 ......................................................................................... 0.54 0.34

March 31 ........................................................................................ 1.00 0.13

Holders

As of February 15, 2013, we had 2,023 common stockholders of record.

80 Freddie Mac
Dividends and Dividend Restrictions

We did not pay any cash dividends on our common stock during 2012 or 2011.

Our payment of dividends is subject to the following restrictions:

Restrictions Relating to the Conservatorship

As Conservator, FHFA announced on September 7, 2008 that we would not pay any dividends on Freddie Mac’s

common stock or on any series of Freddie Mac’s preferred stock (other than the senior preferred stock). FHFA has instructed

our Board of Directors that it should consult with and obtain the approval of FHFA before taking actions involving

dividends. In addition, FHFA has adopted a regulation prohibiting us from making capital distributions during

conservatorship, except as authorized by the director of FHFA.

Restrictions Under the Purchase Agreement

The Purchase Agreement prohibits us and any of our subsidiaries from declaring or paying any dividends on Freddie

Mac equity securities (other than with respect to the senior preferred stock or warrant) without the prior written consent of

Treasury.

Restrictions Under the GSE Act

Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends, if we fail to

meet applicable capital requirements. Under the GSE Act, we are not permitted to make a capital distribution if, after making

the distribution, we would be undercapitalized, except the Director of FHFA may permit us to repurchase shares if the

repurchase is made in connection with the issuance of additional shares or obligations in at least an equivalent amount and

will reduce our financial obligations or otherwise improve our financial condition. If FHFA classifies us as undercapitalized,

we are not permitted to make a capital distribution that would result in our being reclassified as significantly undercapitalized

or critically undercapitalized. If FHFA classifies us as significantly undercapitalized, approval of the Director of FHFA is

required for any dividend payment; the Director may approve a capital distribution only if the Director determines that the

distribution will enhance the ability of the company to meet required capital levels promptly, will contribute to the long-term

financial safety-and-soundness of the company, or is otherwise in the public interest. Our capital requirements have been

suspended during conservatorship.

Restrictions Under our Charter

Without regard to our capital classification, we must obtain prior written approval of FHFA to make any capital

distribution that would decrease total capital to an amount less than the risk-based capital level or that would decrease core

capital to an amount less than the minimum capital level. As noted above, our capital requirements have been suspended

during conservatorship.

Restrictions Relating to Subordinated Debt

During any period in which we defer payment of interest on qualifying subordinated debt, we may not declare or pay

dividends on, or redeem, purchase or acquire, our common stock or preferred stock. Our qualifying subordinated debt

provides for the deferral of the payment of interest for up to five years if either: (a) our core capital is below 125% of our

critical capital requirement; or (b) our core capital is below our statutory minimum capital requirement, and the Secretary of

the Treasury, acting on our request, exercises his or her discretionary authority pursuant to Section 306(c) of our charter to

purchase our debt obligations. FHFA has directed us to make interest and principal payments on our subordinated debt, even

if we fail to maintain required capital levels. As a result, the terms of any of our subordinated debt that provide for us to defer

payments of interest under certain circumstances, including our failure to maintain specified capital levels, are no longer

applicable. As noted above, our capital requirements have been suspended during conservatorship.

Restrictions Relating to Preferred Stock

Payment of dividends on our common stock is also subject to the prior payment of dividends on our 24 series of

preferred stock and one series of senior preferred stock, representing an aggregate of 464,170,000 shares and

1,000,000 shares, respectively, outstanding as of December 31, 2012. Payment of dividends on all outstanding preferred

stock, other than the senior preferred stock, is subject to the prior payment of dividends on the senior preferred stock. We

paid dividends on the senior preferred stock during 2012 at the direction of the Conservator, as discussed in “MD&A —

81 Freddie Mac
LIQUIDITY AND CAPITAL RESOURCES — Liquidity – Dividend Obligation on the Senior Preferred Stock” and

“NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT) — Dividends Declared During 2012.” We did not declare or pay

dividends on any other series of preferred stock outstanding in 2012.

Recent Sales of Unregistered Securities

The securities we issue are “exempted securities” under the Securities Act of 1933, as amended. As a result, we do not

file registration statements with the SEC with respect to offerings of our securities.

Following our entry into conservatorship, we suspended the operation of, and ceased making grants under, equity

compensation plans. Previously, we had provided equity compensation under these plans to employees and members of our

Board of Directors. Under the Purchase Agreement, we cannot issue any new options, rights to purchase, participations, or

other equity interests without Treasury’s prior approval. However, grants outstanding as of the date of the Purchase

Agreement remain in effect in accordance with their terms.

No stock options were exercised during the three months ended December 31, 2012, and all remaining restrictions on

restricted stock units lapsed during the first quarter of 2012.

See “NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT)” for more information.

Issuer Purchases of Equity Securities

We did not repurchase any of our common or preferred stock during 2012. Additionally, we do not currently have any

outstanding authorizations to repurchase common or preferred stock. Under the Purchase Agreement, we cannot repurchase

our common or preferred stock without Treasury’s prior consent, and we may only purchase or redeem the senior preferred

stock in certain limited circumstances set forth in the Amended and Restated Certificate of Creation, Designation, Powers,

Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions of Variable Liquidation

Preference Senior Preferred Stock.

Transfer Agent and Registrar

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

Telephone: 781-575-2879

http://www.computershare.com/investors

82 Freddie Mac
ITEM 6. SELECTED FINANCIAL DATA(1)

The selected financial data presented below should be reviewed in conjunction with MD&A and our consolidated

financial statements and related notes.

At or For The Year Ended December 31,

2012 2011 2010 2009 2008

(dollars in millions, except share-related amounts)

Statements of Comprehensive Income Data

Net interest income ......................................... $ 17,611 $ 18,397 $ 16,856 $ 17,073 $ 6,796

Provision for credit losses .................................... (1,890) (10,702) (17,218) (29,530) (16,432)

Non-interest income (loss) .................................... (4,083) (10,878) (11,588) (2,732) (29,175)

Non-interest expense ........................................ (2,193) (2,483) (2,932) (7,195) (5,753)

Net income (loss) attributable to Freddie Mac ...................... 10,982 (5,266) (14,025) (21,553) (50,119)

Total comprehensive income (loss) attributable to Freddie Mac ......... 16,039 (1,230) 282 (2,913) (70,483)

Net loss attributable to common stockholders(2) ..................... (2,074) (11,764) (19,774) (25,658) (50,795)

Net loss per common share – basic and diluted ..................... (0.64) (3.63) (6.09) (7.89) (34.60)

Cash dividends per common share .............................. ———— 0.50

Weighted average common shares outstanding (in thousands) – basic and

diluted(3) ................................................ 3,240,028 3,244,896 3,249,369 3,253,836 1,468,062

Balance Sheets Data

Mortgage loans held-for-investment, at amortized cost by consolidated trusts

(net of allowances for loan losses) ............................. $1,495,932 $1,564,131 $1,646,172 $ — $ —

Total assets ............................................... 1,989,856 2,147,216 2,261,780 841,784 850,963

Debt securities of consolidated trusts held by third parties ............. 1,419,524 1,471,437 1,528,648 — —

Other debt ................................................ 547,518 660,546 713,940 780,604 843,021

All other liabilities .......................................... 13,987 15,379 19,593 56,808 38,576

Total Freddie Mac stockholders’ equity (deficit) .................... 8,827 (146) (401) 4,278 (30,731)

Portfolio Balances(4)

Mortgage-related investments portfolio ........................... $ 557,544 $ 653,313 $ 696,874 $ 755,272 $ 804,762

Total Freddie Mac mortgage-related securities(5) ..................... 1,562,040 1,624,684 1,712,918 1,854,813 1,807,553

Total mortgage portfolio(6) ..................................... 1,956,276 2,075,394 2,164,859 2,250,539 2,207,476

Non-performing assets(7) ...................................... 135,677 129,152 125,405 104,984 46,620

Ratios(8)

Return on average assets(9) .................................... 0.5% (0.2)% (0.6)% (2.5)% (6.1)%

Non-performing assets ratio(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 6.8 6.4 5.2 2.4

Equity to assets ratio(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 — (0.2) (1.6) (0.2)

(1) See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for information regarding our accounting policies and the impact of new

accounting policies on our consolidated financial statements. Effective January 1, 2010, we adopted amendments to the accounting guidance for

transfers of financial assets and the consolidation of VIEs. This had a significant impact on our consolidated financial statements. Consequently, certain

of the line items in our consolidated financial statements for 2008 and 2009 are not comparable with those of more recent years.

(2) For a discussion of how the change in the manner in which the senior preferred stock dividend is determined affects net income (loss) attributable to

common stockholders beginning in the fourth quarter of 2012, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —

Earnings Per Common Share.”

(3) Includes the weighted average number of shares that are associated with the warrant for our common stock issued to Treasury as part of the Purchase

Agreement, because it is unconditionally exercisable by the holder at a cost of $0.00001 per share.

(4) Represents the UPB and excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(5) See ‘‘Table 35 — Freddie Mac Mortgage-Related Securities’’ for the composition of this line item.

(6) See ‘‘Table 16 — Composition of Segment Mortgage Portfolios and Credit Risk Portfolios’’ for the composition of our total mortgage portfolio.

(7) See ‘‘Table 55 — Non-Performing Assets’’ for a description of our non-performing assets.

(8) The dividend payout ratio on common stock is not presented because: (a) the amount of cash dividends per common share is zero for all periods

presented after 2008; and (b) we reported a net loss attributable to common stockholders in 2008. The return on common equity ratio is not presented

because the simple average of the beginning and ending balances of total Freddie Mac stockholders’ equity (deficit), net of preferred stock (at

redemption value) is less than zero for all periods presented.

(9) Ratio computed as net income (loss) attributable to Freddie Mac divided by the simple average of the beginning and ending balances of total assets.

(10) Ratio computed as non-performing assets divided by the ending UPB of our total mortgage portfolio, excluding non-Freddie Mac mortgage-related

securities.

(11) Ratio computed as the simple average of the beginning and ending balances of total Freddie Mac stockholders’ equity (deficit) divided by the simple

average of the beginning and ending balances of total assets.

83 Freddie Mac
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read this MD&A in conjunction with “BUSINESS — Executive Summary” and our consolidated financial

statements and related notes.

MORTGAGE MARKET AND ECONOMIC CONDITIONS, AND OUTLOOK

Mortgage Market and Economic Conditions

Overview

The U.S. real gross domestic product rose by 1.5% during 2012, compared to 2.0% in 2011, according to the Bureau of

Economic Analysis. The national unemployment rate was 7.8% in December 2012, compared to 8.5% in December 2011,

based on data from the U.S. Bureau of Labor Statistics. In the data underlying the unemployment rate, an average of

approximately 181,000 monthly net new jobs (non-farm) were added to the economy during 2012, which shows evidence of

a slow, but steady positive trend for the economy and the labor market.

Table 8 — Mortgage Market Indicators

Year Ended December 31,

2012 2011 2010

Home sale units (in thousands)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,027 4,566 4,513

Home price change(2) ................................................................. 6.4% (3.7)% (5.4)%

Single-family originations (in billions)(3) ................................................... $1,835 $ 1,470 $ 1,630

ARM share(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11% 12% 10%

Refinance share(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84% 79% 80%

U.S. single-family mortgage debt outstanding (in billions)(6) ..................................... $9,926 $10,158 $10,413

U.S. multifamily mortgage debt outstanding (in billions)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 847 $ 830 $ 835

(1) Consists of sales of new and existing homes in the U.S. Source: National Association of Realtors news release dated February 21, 2013 (sales of existing

homes) and U.S. Census Bureau news release dated January 25, 2013 (sales of new homes).

(2) Calculated internally using estimates of changes in single-family home prices by state, which are weighted using the property values underlying our

single-family credit guarantee portfolio to obtain a national index. The rate for each year presented incorporates property value information on loans

purchased by both Freddie Mac and Fannie Mae through December 31, 2012 and the percentage change will be subject to revision based on more recent

purchase information. Other indices of home prices may have different results, as they are determined using different pools of mortgage loans and

calculated under different conventions than our own.

(3) Source: Inside Mortgage Finance estimates of originations of single-family first-and second liens dated February 1, 2013.

(4) ARM share of the dollar amount of total mortgage applications. Source: Mortgage Bankers Association’s Mortgage Applications Survey. Data reflect

annual average of weekly figures.

(5) Refinance share of the number of conventional mortgage applications. Source: Mortgage Bankers Association’s Mortgage Applications Survey. Data

reflect annual average of weekly figures.

(6) Source: Federal Flow of Funds Accounts of the United States dated December 6, 2012. The outstanding amounts for 2012 presented above reflect

balances as of September 30, 2012.

Single-Family Housing Market

The single-family housing market showed significant improvement in 2012 despite continued weakness in the

employment market and a significant inventory of seriously delinquent loans and REO properties in the market.

Based on data from the National Association of Realtors, sales of existing homes in 2012 were 4.66 million, increasing

9.4% from 4.26 million in 2011. Based on data from the U.S. Census Bureau and HUD, sales of new homes in 2012 were

367,000, increasing 19.9% from 306,000 in 2011. Home prices increased during 2012, with our nationwide index registering

approximately a 6.4% increase from December 2011 through December 2012 and a 0.4% increase from September 2012 to

December 2012 without seasonal adjustment. The increase in national home prices during 2012 represents the first such fullyear increase since 2006. These estimates were based on our own price index of mortgage loans on one-family homes funded

by us or Fannie Mae. Other indices of home prices may have different results, as they are determined using different pools of

mortgage loans and calculated under different conventions than our own.

The serious delinquency rate of our single-family loans declined during 2012, but remained near historically high levels.

The Mortgage Bankers Association reported in its National Delinquency Survey that serious delinquency rates on all singlefamily loans in the survey declined to 6.8% as of December 31, 2012, down from 7.7% at year-end 2011. Residential loan

performance has been generally worse in areas with higher unemployment rates and where declines in property values have

been more significant during recent years. In its survey, the Mortgage Bankers Association presents delinquency rates both

84 Freddie Mac
for mortgages it classifies as subprime and for mortgages it classifies as prime conventional. The delinquency rates of

subprime mortgages are markedly higher than those of prime conventional loan products in the Mortgage Bankers

Association survey; however, the delinquency experience in prime conventional mortgage loans during the last five years has

been significantly worse than in any year since the 1930s.

Based on data from the Federal Reserve’s Flow of Funds Accounts, there was a sustained and significant increase in

single-family mortgage debt outstanding from 2001 to 2006. This increase in mortgage debt was driven by increasing sales of

new and existing single-family homes during this same period. As reported by FHFA in its Conservator’s Report on the

Enterprises’ Financial Condition, dated June 13, 2011, the market share of mortgage-backed securities issued by the GSEs

and Ginnie Mae declined significantly from 2001 to 2006 while the market share of non-GSE securities peaked. Nontraditional mortgage types, such as interest-only, Alt-A, and option ARMs, also increased in market share during these years,

which we believe introduced greater risk into the market. We believe these shifts in market activity, in part, help explain the

significant differentiation in delinquency performance of securitized non-GSE and GSE mortgage loans as discussed below.

Based on the National Delinquency Survey’s data, we estimate that we owned or guaranteed approximately 23% of the

outstanding single-family mortgages in the U.S. at December 31, 2012, based on number of loans. At December 31, 2012, we

held or guaranteed approximately 353,000 seriously delinquent single-family loans, representing approximately 11% of the

seriously delinquent single-family mortgages in the market as of that date. We estimate that loans backing non-GSE

securities comprised approximately 8% of the single-family mortgages in the U.S. and represented approximately 26% of the

seriously delinquent single-family mortgages at September 30, 2012 (based on the latest information available). As of

December 31, 2012, we held non-GSE single-family mortgage-related securities with a UPB of $71.2 billion as investments.

The foreclosure process has lengthened significantly in recent years, due to a number of factors, but particularly in states

that require a judicial foreclosure process. A number of legislative and regulatory developments in recent periods have

resulted in significant changes to mortgage servicing and foreclosure practices that could adversely affect our business. For

information on these matters, see “RISK FACTORS — Operational Risks — We have incurred, and will continue to incur,

expenses and we may otherwise be adversely affected by delays and deficiencies in the foreclosure process” and

“BUSINESS — Legislative and Regulatory Developments — Developments Concerning Single-Family Servicing Practices.”

Multifamily Housing Market

Multifamily market fundamentals continued to improve on a national level during 2012, although at a slower pace as

compared to 2011. As reported by REIS, Inc., the national apartment vacancy rate was 4.5% and 5.2% at the end of 2012 and

2011, respectively, and remained at the lowest levels since 2001. The multifamily sector continued to experience strong

investor interest and continued to outperform other commercial real estate sectors. Vacancy rates and effective rents are

important to loan performance because multifamily loans are generally repaid from the cash flows generated by the

underlying property and these factors significantly influence those cash flows. We believe positive market fundamentals,

such as low vacancy rates and increasing effective rents, as well as optimism about demand for multifamily housing have

contributed to improvement in property values in most markets during 2012.

Outlook

Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond our control.

These statements are not historical facts, but rather represent our expectations based on current information, plans,

judgments, assumptions, estimates, and projections. Actual results may differ significantly from those described in or implied

by such forward-looking statements due to various factors and uncertainties. For example, a number of factors could

adversely impact the performance of the housing and mortgage markets and the U.S. economy in the near term, including

adverse changes in national or international economic conditions and changes in the federal government’s fiscal or monetary

policies. See “FORWARD-LOOKING STATEMENTS” for additional information.

Overview

We continue to expect key macroeconomic drivers of the economy, such as income growth, employment, and inflation,

to affect the performance of the housing and mortgage markets in 2013. Since we expect that economic growth will continue

and mortgage interest rates will remain low in 2013, we believe that housing affordability will remain relatively high in 2013

for potential home buyers. We also expect that the volume of home sales will likely increase in 2013, but still remain

relatively low compared to historical levels. Important factors that we believe will continue to negatively affect single-family

housing demand are the relatively high unemployment rate and relatively low consumer confidence measures. Consumer

85 Freddie Mac
confidence measures, while up from recession lows of 2009, remain below long-term averages and suggest that households

will likely continue to be cautious in home buying. We also expect to continue to experience high levels of refinancing

activity in the near term, due to the impact of the expanded HARP initiative as well as the historically low interest rates on

fixed-rate single-family mortgages. For information on the HARP initiative, see “RISK MANAGEMENT — Credit Risk —

Mortgage Credit Risk — Single-Family Mortgage Credit Risk — Single-Family Loan Workouts and the MHA Program.”

While home prices remained at significantly lower levels from their peak in most areas during 2012, declines in the

market’s inventory of vacant housing have supported stabilization in home prices in a number of metropolitan areas.

However, to the extent a large volume of loans complete the foreclosure process in a short period, the resulting increase in

the market’s inventory of homes for sale could have a negative effect on home prices. Our expectation is that national

average home prices will experience a modest increase in 2013.

Single-Family

Our charge-offs remained elevated during 2012 and we expect they will remain elevated during 2013. This is in part due

to the substantial number of underwater mortgage loans in our single-family credit guarantee portfolio. For the near term, we

also expect:

• REO disposition severity ratios and losses on short sale transactions to remain high. However, our recovery rates have

been positively impacted by recent improvements in home prices and home sales, as well as, to a lesser extent, by

recent changes in our process for determining our estimate of market values for properties, which we use to determine

the list price for our REO;

• the amount of non-performing assets and the volume of our loan workouts to remain high;

• continued high volume of loans in the foreclosure process as well as prolonged foreclosure timelines; and

• continued high rates of rescission and reduced payments for mortgage insurance coverage compared to periods before

2008.

Multifamily

During 2012, we continued to serve as a stable source of liquidity and continued our support of the multifamily market

and the nation’s renters, as evidenced by our $28.8 billion of multifamily loan purchases and issuance of other guarantee

commitments in 2012, which provided financing for more than 1,600 properties amounting to more than 435,000 apartment

units. The majority of these apartments were affordable to low and moderate income families. We expect similar purchase

and guarantee volumes for 2013, as demand for multifamily financing is expected to remain strong.

We expect continued strength in the multifamily market during 2013. As a result of the positive market fundamentals

and continuing strong portfolio performance, we expect our credit losses and delinquency rates to remain low in 2013. We

believe that the supply of multifamily housing will remain relatively low in the near term and that new construction, while

increasing, will continue to be constrained by the availability of financing and rising construction costs.

CONSOLIDATED RESULTS OF OPERATIONS

The following discussion of our consolidated results of operations should be read in conjunction with our consolidated

financial statements, including the accompanying notes. Also see “CRITICAL ACCOUNTING POLICIES AND

ESTIMATES” for information concerning certain significant accounting policies and estimates applied in determining our

reported results of operations.

86 Freddie Mac
Table 9 — Summary Consolidated Statements of Comprehensive Income

Year Ended December 31,

2012 2011 2010

(in millions)

Net interest income .................................................................... $17,611 $ 18,397 $ 16,856

Provision for credit losses ............................................................... (1,890) (10,702) (17,218)

Net interest income (loss) after provision for credit losses ........................................ 15,721 7,695 (362)

Non-interest income (loss):

Gains (losses) on extinguishment of debt securities of consolidated trusts ........................... (58) (219) (164)

Gains (losses) on retirement of other debt .................................................. (77) 44 (219)

Gains (losses) on debt recorded at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 91 580

Derivative gains (losses) .............................................................. (2,448) (9,752) (8,085)

Impairment of available-for-sale securities:

Total other-than-temporary impairment of available-for-sale securities ........................... (1,236) (2,101) (1,778)

Portion of other-than-temporary impairment recognized in AOCI ............................... (932) (200) (2,530)

Net impairment of available-for-sale securities recognized in earnings .......................... (2,168) (2,301) (4,308)

Other gains (losses) on investment securities recognized in earnings ............................... (1,522) (896) (1,252)

Other income ....................................................................... 2,174 2,155 1,860

Total non-interest income (loss) ......................................................... (4,083) (10,878) (11,588)

Non-interest expense:

Administrative expenses............................................................... (1,561) (1,506) (1,597)

REO operations expense .............................................................. (59) (585) (673)

Other expenses ..................................................................... (573) (392) (662)

Total non-interest expense ........................................................... (2,193) (2,483) (2,932)

Income (loss) before income tax benefit ..................................................... 9,445 (5,666) (14,882)

Income tax benefit ..................................................................... 1,537 400 856

Net income (loss) ..................................................................... 10,982 (5,266) (14,026)

Other comprehensive income (loss), net of taxes and reclassification adjustments:

Changes in unrealized gains (losses) related to available-for-sale securities .......................... 4,769 3,465 13,621

Changes in unrealized gains (losses) related to cash flow hedge relationships. . . . . . . . . . . . . . . . . . . . . . . . . 414 509 673

Changes in defined benefit plans ......................................................... (126) 62 13

Total other comprehensive income (loss), net of taxes and reclassification adjustments ................ 5,057 4,036 14,307

Comprehensive income (loss) ............................................................. $16,039 $ (1,230) $ 281

Less: Comprehensive loss attributable to noncontrolling interest.................................. — — 1

Total comprehensive income (loss) attributable to Freddie Mac .................................... $16,039 $ (1,230) $ 282

Net Interest Income

The table below summarizes our net interest income and net interest yield and provides an attribution of changes in

annual results to changes in interest rates or changes in volumes of our interest-earning assets and interest-bearing liabilities.

Average balance sheet information is presented because we believe end-of-period balances are not representative of activity

throughout the periods presented. For most components of the average balances, a daily weighted average balance was

calculated for the period. When daily average balance information was not available, a simple monthly average balance was

calculated.

87 Freddie Mac
Table 10 — Net Interest Income/Yield, Average Balance, and Rate/Volume Analysis

Year Ended December 31,

2012 2011 2010

Average

Balance(1)(2)

Interest

Income

(Expense)(1)

Average

Rate

Average

Balance(1)(2)

Interest

Income

(Expense)(1)

Average

Rate

Average

Balance(1)(2)

Interest

Income

(Expense)(1)

Average

Rate

(dollars in millions)

Interest-earning assets:

Cash and cash equivalents ...................... $ 35,476 $ 20 0.06% $ 45,381 $ 34 0.07% $ 48,803 $ 77 0.16%

Federal funds sold and securities purchased under

agreements to resell ......................... 38,944 66 0.17 27,557 33 0.12 46,739 79 0.17

Mortgage-related securities:

Mortgage-related securities(3) ................... 357,197 15,853 4.44 442,284 20,357 4.60 526,748 25,366 4.82

Extinguishment of PCs held by Freddie Mac ........ (119,181) (5,328) (4.47) (162,600) (7,665) (4.71) (213,411) (11,182) (5.24)

Total mortgage-related securities, net ........... 238,016 10,525 4.42 279,684 12,692 4.54 313,337 14,184 4.53

Non-mortgage-related securities(3) ................. 23,763 58 0.25 24,587 99 0.40 27,995 191 0.68

Mortgage loans held by consolidated trusts(4)(5) ........ 1,529,213 65,089 4.26 1,627,956 77,158 4.74 1,722,387 86,698 5.03

Unsecuritized mortgage loans(4)(6) ................. 237,942 8,960 3.77 244,134 9,124 3.74 206,116 8,727 4.23

Total interest-earning assets ................ $2,103,354 $ 84,718 4.03 $2,249,299 $ 99,140 4.41 $2,365,377 $109,956 4.65

Interest-bearing liabilities:

Debt securities of consolidated trusts including PCs held

by Freddie Mac ............................ $1,552,207 $(61,437) (3.96) $1,643,939 $(74,784) (4.55) $1,738,330 $ (86,398) (4.97)

Extinguishment of PCs held by Freddie Mac ......... (119,181) 5,328 4.47 (162,600) 7,665 4.71 (213,411) 11,182 5.24

Total debt securities of consolidated trusts held by third

parties ................................. 1,433,026 (56,109) (3.92) 1,481,339 (67,119) (4.53) 1,524,919 (75,216) (4.93)

Other debt:

Short-term debt ............................ 129,504 (176) (0.14) 186,304 (331) (0.18) 219,654 (552) (0.25)

Long-term debt(7) ........................... 463,308 (10,217) (2.21) 503,842 (12,538) (2.49) 543,306 (16,363) (3.01)

Total other debt .......................... 592,812 (10,393) (1.75) 690,146 (12,869) (1.86) 762,960 (16,915) (2.22)

Total interest-bearing liabilities ............. 2,025,838 (66,502) (3.28) 2,171,485 (79,988) (3.68) 2,287,879 (92,131) (4.03)

Expense related to derivatives(8) .................. — (605) (0.03) — (755) (0.04) — (969) (0.04)

Impact of net non-interest-bearing funding .......... 77,516 — 0.12 77,814 — 0.13 77,498 — 0.13

Total funding of interest-earning assets ........... $2,103,354 $(67,107) (3.19) $2,249,299 $(80,743) (3.59) $2,365,377 $ (93,100) (3.94)

Net interest income/yield ..................... $ 17,611 0.84 $ 18,397 0.82 $ 16,856 0.71

2012 vs. 2011 Variance Due to 2011 vs. 2010 Variance Due to

Rate(9) Volume(9) Total Change Rate(9) Volume(9) Total Change

(in millions)

Interest-earning assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2) $ (12) $ (14) $ (33) $ (10) $ (43)

Federal funds sold and securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . 16 17 33 (19) (27) (46)

Mortgage-related securities:

Mortgage-related securities (3) ................................................ (706) (3,798) (4,504) (1,082) (3,927) (5,009)

Extinguishment of PCs held by Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 1,958 2,337 1,042 2,475 3,517

Total mortgage-related securities, net ........................................ (327) (1,840) (2,167) (40) (1,452) (1,492)

Non-mortgage-related securities(3) .............................................. (38) (3) (41) (71) (21) (92)

Mortgage loans held by consolidated trusts(4)(5) ..................................... (7,566) (4,503) (12,069) (4,921) (4,619) (9,540)

Unsecuritized mortgage loans (4)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 (233) (164) (1,097) 1,494 397

Total interest-earning assets ............................................. $ (7,848) $(6,574) $(14,422) $(6,181) $(4,635) $(10,816)

Interest-bearing liabilities:

Debt securities of consolidated trusts including PCs held by Freddie Mac .................. $ 9,337 $ 4,010 $ 13,347 $ 7,077 $ 4,537 $ 11,614

Extinguishment of PCs held by Freddie Mac ...................................... (379) (1,958) (2,337) (1,042) (2,475) (3,517)

Total debt securities of consolidated trusts held by third parties ....................... 8,958 2,052 11,010 6,035 2,062 8,097

Other debt:

Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 88 155 145 76 221

Long-term debt(7) ........................................................ 1,360 961 2,321 2,697 1,128 3,825

Total other debt ....................................................... 1,427 1,049 2,476 2,842 1,204 4,046

Total interest-bearing liabilities .......................................... 10,385 3,101 13,486 8,877 3,266 12,143

Expense related to derivatives(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 — 150 214 — 214

Total funding of interest-earning assets ........................................ $10,535 $ 3,101 $ 13,636 $ 9,091 $ 3,266 $ 12,357

Net interest income ....................................................... $ 2,687 $(3,473) $ (786) $ 2,910 $(1,369) $ 1,541

(1) Excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(2) We calculate average balances based on amortized cost.

(3) Interest income (expense) includes accretion of the portion of impairment charges recognized in earnings where we expect a significant improvement in cash

flows.

(4) Non-performing loans, where interest income is generally recognized when collected, are included in average balances.

(5) Loan fees, primarily consisting of delivery fees, included in interest income for mortgage loans held by consolidated trusts were $929 million, $405 million, and

$127 million for 2012, 2011, and 2010, respectively.

(6) Loan fees, primarily consisting of delivery fees and multifamily prepayment fees, included in unsecuritized mortgage loan interest income were $446 million,

$223 million, and $130 million for 2012, 2011, and 2010, respectively.

(7) Includes current portion of long-term debt.

(8) Represents changes in fair value of derivatives in closed cash flow hedge relationships that were previously deferred in AOCI and have been reclassified to

earnings as the associated hedged forecasted issuance of debt affects earnings.

(9) Rate and volume changes are calculated on the individual financial statement line item level. Combined rate/volume changes were allocated to the individual rate

and volume change based on their relative size.

88 Freddie Mac
The table below summarizes components of our net interest income.

Table 11 — Net Interest Income

Year Ended December 31,

2012 2011 2010

(in millions)

Contractual amounts of net interest income(1) ................................................... $16,162 $18,448 $17,743

Amortization income (expense), net:(2)

Accretion of impairments on available-for-sale securities(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 115 392

Asset-related amortization income (expense), net: ............................................. Mortgage loans held by consolidated trusts ................................................ (4,536) (1,942) (712)

Unsecuritized mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 182 311

Mortgage-related securities ........................................................... (59) (239) (272)

Other assets ....................................................................... (281) (122) (23)

Asset-related amortization expense, net ................................................. (4,720) (2,121) (696)

Debt-related amortization income (expense), net:

Debt securities of consolidated trusts ..................................................... 7,112 3,383 1,152

Other long-term debt securities ......................................................... (552) (673) (766)

Debt-related amortization income, net .................................................. 6,560 2,710 386

Total amortization income, net ....................................................... 2,054 704 82

Expense related to derivatives(4) ............................................................ (605) (755) (969)

Net interest income ..................................................................... $17,611 $18,397 $16,856

(1) Includes the reversal of interest income accrued, net of interest received on a cash basis, related to mortgage loans that are on non-accrual status.

(2) Represents amortization related to premiums, discounts, deferred fees and other adjustments to the carrying value of our financial instruments, and the

reclassification of previously deferred balances from AOCI for certain derivatives in closed cash flow hedge relationships related to individual debt

issuances and mortgage purchase transactions.

(3) The portion of the impairment charges recognized in earnings where we expect a significant improvement in cash flows is recognized as net interest

income.

(4) Represents changes in fair value of derivatives in closed cash flow hedge relationships that were previously deferred in AOCI and have been reclassified

to earnings as the associated hedged forecasted issuance of debt affects earnings.

Net interest income decreased by $786 million to $17.6 billion for 2012 compared to $18.4 billion for 2011. The

decrease in net interest income was primarily due to the reduction in the balance of higher-yielding mortgage-related assets

due to continued liquidations. Net interest yield increased by two basis points to 84 basis points for 2012 compared to 82

basis points for 2011. The increase in net interest yield was primarily due to the benefit of lower funding costs from the

replacement of debt at lower rates, partially offset by the negative impact of the reduction in the higher-yielding mortgagerelated assets.

Net interest income and net interest yield increased $1.5 billion and 11 basis points, respectively, during 2011,

compared to 2010. The primary driver of the increases was lower funding costs from the replacement of debt at lower rates,

partially offset by the reduction in the balance of higher-yielding mortgage-related assets due to continued liquidations.

We recognize interest income on non-performing loans that have been placed on non-accrual status only when cash

payments are received. We refer to the interest income that we do not recognize as foregone interest income (i.e., interest

income we would have recorded if the loans had been current in accordance with their original terms). Foregone interest

income and reversals of previously recognized interest income, net of cash received, related to non-performing loans was

$3.1 billion, $4.0 billion and $4.7 billion during 2012, 2011, and 2010, respectively. These amounts have declined since 2010

primarily because of the reduction in the volume of non-performing loans on non-accrual status.

During 2012, spreads on our debt and our access to the debt markets remained favorable relative to historical levels. For

more information, see “LIQUIDITY AND CAPITAL RESOURCES — Liquidity.”

The objectives set for us under our charter and conservatorship, restrictions in the Purchase Agreement and restrictions

imposed by FHFA have negatively impacted, and will continue to negatively impact, our net interest income. For example,

our mortgage-related investments portfolio is subject to a cap that decreases by 15% each year until the portfolio reaches

$250 billion. This decline in asset balances will cause a reduction in our interest income over time. For more information on

the various restrictions and limitations on our investment activity and our mortgage-related investments portfolio, see

“BUSINESS — Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related

Investments Portfolio.” However, we had two across-the-board increases in guarantee fees during 2012, which increased our

net interest income in 2012 and will positively affect it in the future. For additional information on these increases in

guarantee fees, see “BUSINESS — Our Business Segments — Single-Family Guarantee Segment.”

89 Freddie Mac
Provision for Credit Losses

We maintain loan loss reserves at levels we believe are appropriate to absorb probable incurred losses on mortgage

loans held-for-investment and loans underlying our financial guarantees. Our loan loss reserves are increased through the

provision for credit losses and are reduced by net charge-offs. The provision for credit losses primarily reflects our estimate

of incurred losses for newly impaired loans as well as changes in our estimates of incurred losses for previously impaired

loans.

Our provision for credit losses declined to $1.9 billion in 2012 compared to $10.7 billion in 2011. The significant

reduction in provision for credit losses in 2012 primarily reflects declines in the volume of newly delinquent loans (largely

due to a decline in the portion of our single-family credit guarantee portfolio originated in 2005 through 2008), and lower

estimates of incurred loss due to the positive impact of an increase in national home prices. Assuming that all other factors

remain the same, an increase in home prices can reduce the likelihood that loans will default and may also reduce the amount

of credit loss on the loans that do default. The provision for credit losses declined to $10.7 billion in 2011 compared to $17.2

billion in 2010, and reflected a decline in the rate at which single-family loans were expected to transition into serious

delinquency or were expected to be modified, but was partially offset by our lower expectations for mortgage insurance

recoveries, reflecting the further deterioration in the financial condition of certain counterparties.

During 2012, our charge-offs, net of recoveries for single-family loans, exceeded the amount of our provision for credit

losses. Our charges-offs in 2012 remained elevated, but reflect continued suppression of loan and collateral resolution

activity due to the length of the foreclosure process. We believe the level of our charge-offs will continue to remain elevated

for 2013.

The total number of single-family seriously delinquent loans declined approximately 15% and 10% during 2012 and

2011, respectively. However, our serious delinquency rates remain high compared to the rates we experienced in years prior

to 2009. We also continued to experience a high volume of completed loan modifications classified as TDRs during 2012. As

of December 31, 2012 and 2011, the UPB of our single-family non-performing loans was $128.6 billion and $120.5 billion,

respectively. These amounts include $65.8 billion and $44.4 billion, respectively, of single-family TDRs that are less than

three months past due. However, modified loans that have been classified as TDRs remain categorized as non-performing

throughout the remaining life of the loan regardless of the payment status. See “RISK MANAGEMENT — Credit Risk —

Mortgage Credit Risk” for further information on our single-family credit guarantee portfolio, including credit performance,

serious delinquency rates, charge-offs, our loan loss reserves balance, and our non-performing assets.

Since the beginning of 2008, on an aggregate basis, we have recorded provision for credit losses associated with singlefamily loans of approximately $75.2 billion, and have recorded an additional $3.9 billion in losses on loans purchased from

our PCs, net of recoveries. The majority of these losses are associated with loans originated in 2005 through 2008. While

loans originated in 2005 through 2008 will give rise to additional credit losses that have not yet been incurred, and thus have

not been provisioned for, we believe that, as of December 31, 2012, we have reserved for or charged-off the majority of the

total expected credit losses for these loans. Nevertheless, various factors, such as continued high unemployment rates or

future declines in home prices, could require us to provide for losses on these loans beyond our current expectations. See

“Table 3 — Credit Statistics, Single-Family Credit Guarantee Portfolio” for certain quarterly credit statistics for our singlefamily credit guarantee portfolio.

Our provision for credit losses and amount of charge-offs in the future will be affected by a number of factors. These

factors include: (a) the actual level of mortgage defaults; (b) the effect of the MHA Program, the servicing alignment

initiative, and other current and future loss mitigation efforts; (c) any government actions or programs that affect the ability

of troubled borrowers to obtain modifications, including legislative changes to bankruptcy laws; (d) changes in property

values; (e) regional economic conditions, including unemployment rates; (f) additional delays in the foreclosure process;

(g) third-party mortgage insurance coverage and recoveries; and (h) the realized rate of seller/servicer repurchases.

We recognized a benefit for credit losses associated with our multifamily mortgage portfolio of $123 million and $196

million for 2012 and 2011, respectively, compared to a provision for credit losses of $99 million in 2010. Our loan loss

reserves associated with our multifamily mortgage portfolio were $382 million, $545 million, and $828 million as of

December 31, 2012, 2011, and 2010, respectively. The decline in loan loss reserves for multifamily loans in 2012 and 2011

was primarily driven by an improvement in the expected performance of the underlying loans.

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Non-Interest Income (Loss)

Gains (Losses) on Extinguishment of Debt Securities of Consolidated Trusts

When we purchase PCs that have been issued by consolidated PC trusts, we extinguish a pro rata portion of the

outstanding debt securities of the related consolidated trusts. We recognize a gain (loss) on extinguishment of the debt

securities to the extent the amount paid to extinguish the debt security differs from its carrying value. For the years ended

December 31, 2012 and 2011, we extinguished debt securities of consolidated trusts with a UPB of $13.5 billion and $75.4

billion, respectively (representing our purchase of single-family PCs with a corresponding UPB amount). The decrease in

purchases of single-family PCs in 2012 was due to a decrease in the volume of dollar roll transactions to support the market

and pricing of our single-family PCs. Losses on extinguishment of these debt securities of consolidated trusts were $58

million and $219 million for the years ended December 31, 2012 and 2011, respectively. The losses during 2012 and 2011

were primarily due to the repurchase of our debt securities of consolidated trusts at higher net purchase premiums driven by a

decline in interest rates during the periods. See “Table 25 — Mortgage-Related Securities Purchase Activity” for additional

information regarding purchases of mortgage-related securities, including those issued by consolidated PC trusts.

Gains (Losses) on Retirement of Other Debt

We repurchase or call our outstanding other debt securities from time to time when we believe it is economically

beneficial and to manage the mix of liabilities funding our assets. When we repurchase or call outstanding debt securities, or

holders put outstanding debt securities to us, we recognize a gain or loss to the extent the amount paid to redeem the debt

security differs from its carrying value. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for

more information regarding our accounting policies related to debt retirements.

Gains (losses) on retirement of other debt were $(77) million, $44 million, and $(219) million during the years ended

December 31, 2012, 2011, and 2010, respectively. We recognized losses on the retirement of other debt during 2012

primarily due to write-offs of unamortized deferred issuance costs related to calls of other debt securities. We recognized

gains on the retirement of other debt during 2011 primarily due to the repurchase of other debt securities at less than par. We

recognized losses on the retirement of other debt during 2010 primarily due to write-offs of unamortized deferred issuance

costs related to calls of other debt securities. For more information, see “LIQUIDITY AND CAPITAL RESOURCES —

Liquidity — Other Debt Securities — Other Debt Retirement Activities.”

Gains (Losses) on Debt Recorded at Fair Value

Gains (losses) on debt recorded at fair value primarily relate to changes in the fair value of our foreign-currency

denominated debt. During 2012, 2011, and 2010, we recognized gains on debt recorded at fair value of $16 million, $91

million, and $580 million, respectively, primarily due to a combination of the U.S. dollar strengthening relative to the Euro

and changes in interest rates. We mitigate changes in the fair value of our foreign-currency denominated debt by using

foreign currency swaps and foreign-currency denominated interest-rate swaps.

Derivative Gains (Losses)

The table below presents derivative gains (losses) reported in our consolidated statements of comprehensive income.

See “NOTE 10: DERIVATIVES — Table 10.2 — Gains and Losses on Derivatives” for information about gains and losses

related to specific categories of derivatives. Changes in fair value and interest accruals on derivatives not in hedge accounting

relationships are recorded as derivative gains (losses) in our consolidated statements of comprehensive income. At

December 31, 2012, 2011, and 2010, we did not have any derivatives in hedge accounting relationships; however, there are

amounts recorded in AOCI related to discontinued cash flow hedges. Amounts recorded in AOCI associated with these

closed cash flow hedges are reclassified to earnings when the forecasted transactions affect earnings. If it is probable that the

forecasted transaction will not occur, then the deferred gain or loss associated with the forecasted transaction is reclassified

into earnings immediately.

While derivatives are an important aspect of our strategy to manage interest-rate risk, they generally increase the

volatility of reported net income because, while fair value changes in derivatives affect net income, fair value changes in

several of the types of assets and liabilities being hedged do not affect net income. Beginning in the fourth quarter of 2011,

we began to increase the portion of our debt issued with longer-term maturities. This allows us to take advantage of attractive

long-term rates while decreasing our reliance on interest-rate swaps.

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Table 12 — Derivative Gains (Losses)

Derivative Gains (Losses)

Year Ended December 31,

2012 2011 2010

(in millions)

Interest-rate swaps ..................................................................... $ (204) $(10,367) $(7,679)

Option-based derivatives(1) ................................................................ 1,250 7,176 4,843

Other derivatives(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 (1,529) (755)

Accrual of periodic settlements(3) ........................................................... (3,802) (5,032) (4,494)

Total ............................................................................. $(2,448) $ (9,752) $(8,085)

(1) Primarily includes purchased call and put swaptions and purchased interest-rate caps and floors.

(2) Includes futures, foreign-currency swaps, commitments, swap guarantee derivatives, and credit derivatives.

(3) Includes imputed interest on zero-coupon swaps.

Gains (losses) on derivatives are principally driven by changes in: (a) interest rates and implied volatility; and (b) the

mix and volume of derivatives in our derivative portfolio.

Our mix and volume of derivatives change from period to period as we respond to changing interest rate environments.

We use receive- and pay-fixed interest-rate swaps to adjust the interest-rate characteristics of our debt funding in order to

more closely match changes in the interest-rate characteristics of our mortgage-related assets. A receive-fixed swap results in

our receipt of a fixed interest-rate payment from our counterparty in exchange for a variable-rate payment. Conversely, a

pay-fixed swap requires us to make a fixed interest-rate payment to our counterparty in exchange for a variable-rate payment.

Receive-fixed swaps increase in value and pay-fixed swaps decrease in value when interest rates decrease (with the opposite

being true when interest rates increase).

We use swaptions and other option-based derivatives to adjust the interest-rate characteristics of our debt in response to

changes in the expected lives of our investments in mortgage-related assets. Purchased call and put swaptions, where we

make premium payments, are options for us to enter into receive- and pay-fixed swaps, respectively. Conversely, written call

and put swaptions, where we receive premium payments, are options for our counterparty to enter into receive and pay-fixed

swaps, respectively. The fair values of both purchased and written call and put swaptions are sensitive to changes in interest

rates and are also driven by the market’s expectation of potential changes in future interest rates (referred to as “implied

volatility”). Purchased swaptions generally become more valuable as implied volatility increases and less valuable as implied

volatility decreases. Recognized losses on purchased options in any given period are limited to the premium paid to purchase

the option plus any unrealized gains previously recorded. Potential losses on written options are unlimited.

We also use derivatives to synthetically create the substantive economic equivalent of various debt funding structures.

For example, the combination of a series of short-term debt issuances over a defined period and a pay-fixed interest-rate

swap with the same maturity as the last debt issuance is the substantive economic equivalent of a long-term fixed-rate debt

instrument of comparable maturity. Similarly, the combination of non-callable debt and a call swaption with the same

maturity as the non-callable debt is the substantive economic equivalent of callable debt. For more information about these

and other uses of derivatives, see “NOTE 10: DERIVATIVES.”

During 2012, we recognized losses on derivatives of $2.4 billion, primarily due to losses related to the accrual of

periodic settlements on interest-rate swaps as we were a net payer on our interest-rate swaps based on the coupons of the

instruments. We recognized fair value losses on our pay-fixed swaps, which were offset by: (a) fair value gains on our

receive-fixed swaps; and (b) fair value gains on our option-based derivatives resulting from gains on our purchased call

swaptions due to a decrease in interest rates. In 2012, the effect of the decline in interest rates and a steepening of the yield

curve was coupled with a change in the mix of our derivative portfolio, whereby we increased our holdings of receive-fixed

swaps relative to pay-fixed swaps to rebalance our portfolio during a period of steadily declining interest rates, and increased

our issuances of debt with longer-term maturities.

During 2011, we recognized losses on derivatives of $9.8 billion, primarily due to declines in long-term swap interest

rates. Specifically, during 2011, we recognized fair value losses on our pay-fixed swap positions of $23.0 billion, partially

offset by fair value gains on our receive-fixed swaps of $12.6 billion. We also recognized fair value gains of $7.2 billion

during 2011 on our option-based derivatives, resulting from gains on our purchased call swaptions as interest rates decreased.

Additionally, we recognized losses of $5.0 billion related to the accrual of periodic settlements during 2011 due to our net

pay-fixed swap position and a declining interest rate environment during the year.

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During 2010, declining long-term swap interest rates resulted in a loss on derivatives of $8.1 billion. Specifically, the

decrease in long-term swap interest rates resulted in fair value losses on our pay-fixed swaps of $17.5 billion, partially offset

by fair value gains on our receive-fixed swaps of $9.7 billion. We recognized fair value gains of $4.8 billion on our optionbased derivatives, resulting from gains on our purchased call swaptions primarily due to the declines in interest rates during

2010. Additionally, we recognized losses of $4.5 billion related to the accrual of periodic settlements during 2010 due to our

net pay-fixed swap position and a declining interest rate environment during the year.

Investment Securities-Related Activities

Impairments of Available-For-Sale Securities

We recorded net impairments of available-for-sale securities recognized in earnings, which were related to non-agency

mortgage-related securities, of $2.2 billion, $2.3 billion and $4.3 billion during 2012, 2011, and 2010, respectively. The

decrease in net impairments recognized in earnings during 2012 compared to 2011 was driven by improvements in forecasted

home prices over the expected life of our available-for-sale securities and lower interest rates resulting in a benefit from

expected structural credit enhancements on the securities. These improvements were offset by the impact of our

implementation, in the fourth quarter of 2012, of a third-party model, which enhanced our approach to estimating other-thantemporary impairments of our single-family non-agency mortgage-related securities. The decision to transition to a thirdparty model was made to increase the level of disaggregation for certain assumptions used in projecting cash flow estimates

of these securities. For information concerning the estimated impact this enhancement would have had on our net income, as

of the beginning of the fourth quarter of 2012, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES — Change in Estimate — Other-Than-Temporary Impairments of Single-Family Non-Agency Mortgage-Related

Securities.” The decrease in net impairments recognized in earnings during 2011 compared to 2010 was primarily due to the

impact of lower interest rates in 2011. The impact of lower interest rates during 2011 was partially offset by the impact of

declines in forecasted home prices over the expected life of our available-for-sale securities. See “CONSOLIDATED

BALANCE SHEETS ANALYSIS — Investments in Securities — Mortgage-Related Securities — Other-Than-Temporary

Impairments on Available-For-Sale Mortgage-Related Securities” and “NOTE 7: INVESTMENTS IN SECURITIES” for

additional information.

Other Gains (Losses) on Investment Securities Recognized in Earnings

Other gains (losses) on investment securities recognized in earnings primarily consist of gains (losses) on trading

securities. Trading securities mainly include Treasury securities, agency fixed-rate and variable-rate pass-through mortgagerelated securities, and agency REMICs, including inverse floating-rate, interest-only and principal-only securities. With the

exception of principal-only securities, our agency securities, classified as trading, were valued at a net premium (i.e., net fair

value was higher than UPB) as of December 31, 2012. Gains (losses) on trading securities do not include the interest earned

on these assets, which is recorded as part of net interest income.

Our trading securities are managed in the overall context of our interest-rate risk management strategy and framework.

However, the impacts of changes in fair value of related derivatives and other debt are not recognized in other gains (losses)

on investment securities recognized in earnings on our consolidated statements of comprehensive income. For information

about our interest-rate risk management strategy and framework, see “QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISKS.”

We recognized $(1.7) billion, $(1.0) billion, and $(1.3) billion related to losses on trading securities during 2012, 2011,

and 2010, respectively. The losses on trading securities during all periods were primarily due to the movement of securities

with unrealized gains towards maturity. These losses were partially offset by the increase in the fair value of our trading

securities as a result of the decline in interest rates during 2012 and 2011. The increased losses in 2012 compared to 2011

resulted from lower interest rate-related gains in 2012 as interest rates declined less in 2012 compared to 2011.

Other Income

Other income includes items associated with our guarantee activities on non-consolidated trusts, including management

and guarantee income, gains (losses) on guarantee asset, income on guarantee obligation, gains (losses) on sale of mortgage

loans, and recoveries on loans impaired upon purchase. The table below summarizes the significant components of other

income.

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Table 13 — Other Income

Year Ended December 31,

2012 2011 2010

(in millions)

Other income:

Gains (losses) on sale of mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275 $ 411 $ 267

Gains (losses) on mortgage loans recorded at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735 418 (249)

Recoveries on loans impaired upon purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380 473 806

Guarantee-related income, net(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 245 217

All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441 608 819

Total other income ........................................................................ $2,174 $2,155 $1,860

(1) Most of our guarantee-related income relates to securitized multifamily mortgage loans where we have not consolidated the securitization trusts on our

consolidated balance sheets.

Gains (Losses) on Sale of Mortgage Loans

In 2012, 2011, and 2010, we recognized $275 million, $411 million, and $267 million, respectively, of gains on sale of

mortgage loans with associated UPB of $21.2 billion, $13.7 billion, and $6.6 billion, respectively. All such amounts relate to

our securitizations of multifamily loans on our consolidated balance sheets, which we elected to carry at fair value. We

recognized lower gains on sale of mortgage loans in 2012, compared to 2011, as a significant portion of the improved fair

value of the loans was recognized within gains (losses) on mortgage loans recorded at fair value during periods prior to the

loans’ securitization. We recognized higher gains on sale of mortgage loans in 2011, compared to 2010, primarily due to a

higher volume of securitizations during 2011.

Gains (Losses) on Mortgage Loans Recorded at Fair Value

In 2012, 2011, and 2010, we recognized $735 million, $418 million, and $(249) million, respectively, of gains (losses)

on mortgage loans recorded at fair value. These amounts relate to multifamily loans which we had elected to carry at fair

value and were designated for securitization. We recognize changes in fair value of these loans as gains (losses) on mortgage

loans recorded at fair value while we hold them on our consolidated balance sheets. In the period we sell these multifamily

loans (e.g., through securitization), we recognize a gain or loss on sale of mortgage loans based on proceeds of the sale.

Together, these amounts represent the holding period gains or losses associated with the loans. Favorable market spread

movements, declines in interest rates, and higher balances of multifamily loans on our consolidated balance sheets during

both 2012 and 2011, resulted in higher gains in those years compared to the respective prior year.

Recoveries on Loans Impaired upon Purchase

Recoveries on loans impaired upon purchase represent the recapture into income of previously recognized losses

associated with purchases of delinquent loans from our PCs in conjunction with our guarantee activities. Recoveries

generally occur when a loan that was impaired upon purchase is repaid in full or when at the time of foreclosure the

estimated fair value of the acquired property, less costs to sell, exceeds the carrying value of the loan. For impaired loans

where the borrower has made required payments that return the loan to less than three months past due, the recovery amounts

are recognized as interest income over time as periodic payments are received.

In 2012, 2011, and 2010, we recognized recoveries on loans impaired upon purchase of $380 million, $473 million, and

$806 million, respectively. Our recoveries on loans impaired upon purchase declined in both 2012 and 2011, compared to the

prior year, due to a lower volume of foreclosure transfers and payoffs associated with loans impaired upon purchase.

Commencing January 1, 2010, we no longer recognize losses on loans purchased from PC pools related to our singlefamily PC trusts and certain Other Guarantee Transactions due to adoption of the amendments to the accounting guidance for

transfers of financial assets and consolidation of VIEs. Beginning in 2010, our recoveries principally relate to impaired loans

purchased prior to January 1, 2010, due to the change in accounting guidance effective on that date. Consequently, our

recoveries on loans impaired upon purchase will generally continue to decline over time.

All Other

All other income consists primarily of transactional fees, fees assessed to our servicers for technology use and late fees

or other penalties, and other miscellaneous income. All other income decreased to $441 million in 2012, compared to $608

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million in 2011 and $819 million in 2010. The decline in 2012, compared to 2011, was primarily due to: (a) income

recognized in 2011 related to proceeds received from an agreement with Bank of America with respect to repurchase

obligations; and (b) income recognized in 2011 related to a settlement with Taylor, Bean & Whitaker (TBW), one of our

former seller/servicers. The decline in 2011, compared to 2010, was primarily due to: (a) gains recognized in 2010 due to the

recognition of income related to mortgage-servicing rights associated with TBW, and (b) the negative impact in 2011 of the

correction of certain prior period accounting errors not material to our financial statements. The largest correction in 2011

related to an error associated with the accrual of interest income for certain impaired mortgage-related securities during 2010

and 2009.

Non-Interest Expense

The table below summarizes the components of non-interest expense.

Table 14 — Non-Interest Expense

Year Ended December 31,

2012 2011 2010

(in millions)

Administrative expenses:

Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 810 $ 832 $ 895

Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 270 297

Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 62 64

Other administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 342 341

Total administrative expenses ............................................................ 1,561 1,506 1,597

REO operations expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 585 673

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573 392 662

Total non-interest expense ................................................................... $2,193 $2,483 $2,932

Administrative Expenses

Administrative expenses increased during 2012 compared to 2011 due to an increase in professional services expense.

Professional services expense increased as a result of initiatives we are pursuing under the Conservatorship Scorecard and

other FHFA-mandated strategic initiatives.

Administrative expenses decreased in 2011 compared to 2010, largely due to a reduction in the number of employees as

part of cost reduction measures.

We believe the various FHFA-mandated strategic initiatives we are pursuing will likely continue to require significant

resources and thus continue to affect our level of administrative expenses going forward.

REO Operations Expense

The table below presents the components of our REO operations expense, and information about REO inventory and

REO dispositions.

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Table 15 — REO Operations Expense, REO Inventory, and REO Dispositions

Year Ended December 31,

2012 2011 2010

(dollars in millions)

REO operations expense:

Single-family:

REO property expenses(1) ........................................................... $ 1,203 $ 1,205 $ 1,163

Disposition (gains) losses, net(2) ....................................................... (682) 179 102

Change in holding period allowance, dispositions .......................................... (108) (456) (286)

Change in holding period allowance, inventory(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) 302 497

Recoveries(4) ..................................................................... (342) (634) (800)

Total single-family REO operations expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 596 676

Multifamily REO operations (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (11) (3)

Total REO operations expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59 $ 585 $ 673

REO inventory (in properties), at December 31:

Single-family ..................................................................... 49,071 60,535 72,079

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 20 14

Total ............................................................................. 49,077 60,555 72,093

REO property dispositions (in properties):

Single-family ..................................................................... 94,276 110,175 101,206

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 19 9

Total ............................................................................. 94,296 110,194 101,215

(1) Consists of costs incurred to maintain or protect a property after it is acquired in a foreclosure transfer, such as legal fees, insurance, taxes, and cleaning

and other maintenance charges.

(2) Represents the difference between the disposition proceeds, net of selling expenses, and the fair value of the property on the date of the foreclosure

transfer.

(3) Represents the (increase) decrease in the estimated fair value of properties that were in inventory during the period.

(4) Includes recoveries from primary mortgage insurance, pool insurance and seller/servicer repurchases.

REO operations expense was $59 million in 2012, as compared to $585 million in 2011 and $673 million in 2010. The

decline in REO operations expense in 2012, compared to 2011, was primarily due to improving home prices in certain

geographical areas with significant REO activity, which resulted in gains on disposition of properties, partially offset by

lower recoveries on REO properties during 2012 . Recoveries on REO properties were lower in 2012, compared to 2011,

primarily due to reduced recoveries from mortgage insurers and a decline in reimbursements of losses from seller/servicers

associated with repurchase requests. The decline in REO operations expense in 2011, compared to 2010, was primarily due

to the impact of a less significant decline in home prices in certain geographical areas with significant REO activity resulting

in lower write-downs of single-family REO inventory during 2011, partially offset by lower recoveries on REO properties

during 2011.

We believe the volume of our single-family REO acquisitions in recent years was less than it otherwise would have

been due to several factors, including the length of the foreclosure process and increased volume of foreclosure alternatives.

Lower acquisitions, coupled with high disposition levels, led to lower REO property inventory levels in both 2012 and 2011,

compared to the respective prior year. We expect that the length of the foreclosure process will continue to remain above

historical levels. Additionally, we expect our REO activity to remain at elevated levels, as we have a large inventory of

seriously delinquent loans in our single-family credit guarantee portfolio. See “RISK MANAGEMENT — Credit Risk —

Mortgage Credit Risk — Non-Performing Assets” for additional information about our REO activity.

Other Expenses

Other expenses were $573 million, $392 million, and $662 million in 2012, 2011, and 2010, respectively. Other

expenses include HAMP servicer incentive fees, costs related to terminations and transfers of mortgage servicing, and other

miscellaneous expenses. Other expenses in 2012 also included $108 million related to amounts paid and due to Treasury for

the legislated 10 basis point increase in guarantee fees, which was implemented in April 2012.

Other expenses were higher in 2012 compared to 2011, primarily due to the expense related to the legislated 10 basis

point increase in guarantee fees and expenses recorded in 2012 to establish reserves related to pending litigation. Other

expenses were lower in 2011 compared to 2010, primarily due to lower expenses associated with transfers and terminations

of mortgage servicing, primarily related to TBW, partially offset by higher servicer incentive fees associated with HAMP

during 2011.

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Income Tax Benefit

For 2012, 2011, and 2010, we reported an income tax benefit of $1.5 billion, $0.4 billion, and $0.9 billion, respectively.

We have had ongoing discussions with the IRS regarding litigation related to various uncertain tax positions, and based on

the favorable resolution of the matters in dispute, the previously unrecognized tax benefits were reduced to zero in the fourth

quarter of 2012. See “NOTE 12: INCOME TAXES — Unrecognized Tax Benefits — IRS Examinations and Litigation” for

additional information.

Comprehensive Income (Loss)

Our comprehensive income (loss) was $16.0 billion, $(1.2) billion, and $0.3 billion for the years ended December 31,

2012, 2011, and 2010, respectively, consisting of: (a) $11.0 billion, $(5.3) billion, and $(14.0) billion of net income (loss),

respectively; and (b) $5.1 billion, $4.0 billion, and $14.3 billion of total other comprehensive income, respectively, primarily

related to a reduction in net unrealized losses related to our available-for-sale securities. See “CONSOLIDATED BALANCE

SHEETS ANALYSIS — Total Equity (Deficit)” for additional information regarding total other comprehensive income.

Segment Earnings

Our operations consist of three reportable segments, which are based on the type of business activities each performs —

Investments, Single-family Guarantee, and Multifamily. Certain activities that are not part of a reportable segment are

included in the All Other category.

The Investments segment reflects results from our investment, funding and hedging activities. In our Investments

segment, we invest principally in mortgage-related securities and single-family performing mortgage loans, which are funded

by other debt issuances and hedged using derivatives. In our Investments segment, we also provide funding and hedging

management services to the Single-family Guarantee and Multifamily segments. The Investments segment reflects changes

in the fair value of the Multifamily segment investment securities, primarily CMBS, and held-for-sale loans that are

associated with changes in interest rates. Segment Earnings for this segment consist primarily of the returns on these

investments, less the related funding, hedging, and administrative expenses.

The Single-family Guarantee segment reflects results from our single-family credit guarantee activities. In our Singlefamily Guarantee segment, we purchase single-family mortgage loans originated by our seller/servicers in the primary

mortgage market. In most instances, we use the mortgage securitization process to package the purchased mortgage loans

into guaranteed mortgage-related securities. We guarantee the payment of principal and interest on the mortgage-related

securities in exchange for management and guarantee fees. Segment Earnings for this segment consist primarily of

management and guarantee fee revenues, including amortization of upfront fees, less credit-related expenses, administrative

expenses, allocated funding costs, and amounts related to net float benefits or expenses.

The Multifamily segment reflects results from our investment (both purchases and sales), securitization, and guarantee

activities in multifamily mortgage loans and securities. Our primary business model is to purchase held-for-sale multifamily

loans for aggregation and then securitization through multifamily K Certificates, which are considered Other Guarantee

Transactions. To a lesser extent, we provide guarantees of the payment of principal and interest on tax-exempt multifamily

pass-through certificates backed by multifamily housing revenue bonds. In addition, we guarantee the payment of principal

and interest on tax-exempt multifamily housing revenue bonds secured by low- and moderate-income multifamily mortgage

loans. Segment Earnings for this segment consist primarily of the interest earned on assets related to multifamily investment

activities and management and guarantee fee income, less credit-related expenses, administrative expenses, and allocated

funding costs. In addition, the Multifamily segment reflects gains on sale of mortgages and the impact of changes in fair

value of our investment securities and held-for-sale loans associated with market factors other than changes in interest rates,

such as liquidity and credit.

We evaluate segment performance and allocate resources based on a Segment Earnings approach, subject to the conduct

of our business under the direction of the Conservator. The financial performance of our Single-family Guarantee segment

and Multifamily segment are measured based on each segment’s contribution to GAAP net income (loss). Our Investments

segment is measured on its contribution to GAAP comprehensive income (loss), which consists of the sum of its contribution

to: (a) GAAP net income (loss); and (b) GAAP total other comprehensive income (loss), net of taxes. The sum of Segment

Earnings for each segment and the All Other category equals GAAP net income (loss). Likewise, the sum of comprehensive

income (loss) for each segment and the All Other category equals GAAP comprehensive income (loss).

97 Freddie Mac
The All Other category consists of material corporate level activities that are: (a) infrequent in nature; and (b) based on

decisions outside the control of the management of our reportable segments. By recording these types of activities to the All

Other category, we believe the financial results of our three reportable segments reflect the decisions and strategies that are

executed within the reportable segments and provide greater comparability across time periods. The All Other category also

includes the deferred tax asset valuation allowance associated with previously recognized income tax credits carried forward

and tax settlements, as applicable. Segment Earnings for the All Other category was $788 million, $49 million, and

$15 million for 2012, 2011, and 2010, respectively. Segment Earnings for the All Other category for 2012 primarily reflects

the results of the ongoing discussions with the IRS regarding litigation related to various uncertain tax positions. Based on

the favorable resolution of the matters in dispute, the previously unrecognized tax benefits were reduced to zero in the fourth

quarter of 2012. For more information regarding the discussions with the IRS, see “NOTE 12: INCOME TAXES —

Unrecognized Tax Benefits — IRS Examinations and Litigation.”

In presenting Segment Earnings, we make significant reclassifications among certain financial statement line items in

order to reflect a measure of net interest income on investments and a measure of management and guarantee income on

guarantees that is in line with how we manage our business. We present Segment Earnings by: (a) reclassifying certain

investment-related activities and credit guarantee-related activities between various line items on our GAAP consolidated

statements of comprehensive income; and (b) allocating certain revenues and expenses, including certain returns on assets

and funding costs, and all administrative expenses to our three reportable segments.

As a result of these reclassifications and allocations, Segment Earnings for our reportable segments differs significantly

from, and should not be used as a substitute for, net income (loss) as determined in accordance with GAAP. Our definition of

Segment Earnings may differ from similar measures used by other companies. However, we believe that Segment Earnings

provides us with meaningful metrics to assess the financial performance of each segment and our company as a whole.

See “BUSINESS — Our Business Segments” for further information regarding our segments, including the descriptions

and activities of our segments, and “NOTE 13: SEGMENT REPORTING” for further information regarding the

reclassifications and allocations used to present Segment Earnings.

98 Freddie Mac
The table below provides information about our various segment mortgage and credit risk portfolios at December 31,

2012 and December 31, 2011. For a discussion of each segment’s portfolios, see “Segment Earnings — Results.”

Table 16 — Composition of Segment Mortgage Portfolios and Credit Risk Portfolios(1)

December 31, 2012 December 31, 2011

(in millions)

Segment mortgage portfolios:

Investments — Mortgage investments portfolio:

Single-family unsecuritized mortgage loans(2) ............................................ $ 91,411 $ 109,190

Freddie Mac mortgage-related securities ............................................... 184,381 220,659

Non-agency mortgage-related securities ................................................ 76,457 86,526

Non-Freddie Mac agency securities ................................................... 23,675 32,898

Total Investments — Mortgage investments portfolio ........................................ 375,924 449,273

Single-family Guarantee — Managed loan portfolio:(3)

Single-family unsecuritized mortgage loans(4) ............................................ 53,333 62,469

Single-family Freddie Mac mortgage-related securities held by us ............................. 184,381 220,659

Single-family Freddie Mac mortgage-related securities held by third parties ...................... 1,335,393 1,378,881

Single-family other guarantee commitments(5) ............................................ 13,798 11,120

Total Single-family Guarantee — Managed loan portfolio .................................... 1,586,905 1,673,129

Multifamily — Guarantee portfolio:

Multifamily Freddie Mac mortgage related securities held by us .............................. 2,382 3,008

Multifamily Freddie Mac mortgage related securities held by third parties ....................... 39,884 22,136

Multifamily other guarantee commitments(5) ............................................. 9,657 9,944

Total Multifamily — Guarantee portfolio ................................................. 51,923 35,088

Multifamily — Mortgage investments portfolio:

Multifamily investment securities portfolio ............................................. 51,718 59,260

Multifamily loan portfolio .......................................................... 76,569 82,311

Total Multifamily — Mortgage investments portfolio ........................................ 128,287 141,571

Total Multifamily portfolio ........................................................... 180,210 176,659

Less: Freddie Mac single-family and certain multifamily securities(6) ............................. (186,763) (223,667)

Total mortgage portfolio ............................................................. $1,956,276 $2,075,394

Credit risk portfolios:(7)

Single-family credit guarantee portfolio:(3)

Single-family mortgage loans, on-balance sheet .......................................... $1,621,774 $1,733,215

Non-consolidated Freddie Mac mortgage-related securities .................................. 8,897 10,735

Other guarantee commitments(5) ...................................................... 13,798 11,120

Less: HFA-related guarantees(8) ...................................................... (6,270) (8,637)

Less: Freddie Mac mortgage-related securities backed by Ginnie Mae certificates(8) ................. (654) (779)

Total single-family credit guarantee portfolio .............................................. $1,637,545 $1,745,654

Multifamily mortgage portfolio:

Multifamily mortgage loans, on-balance sheet ........................................... $ 77,017 $ 82,311

Non-consolidated Freddie Mac mortgage-related securities .................................. 41,819 25,144

Other guarantee commitments(5) ...................................................... 9,657 9,944

Less: HFA-related guarantees(8) ...................................................... (1,112) (1,331)

Total multifamily mortgage portfolio .................................................... $ 127,381 $ 116,068

(1) Based on UPB and excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(2) Excludes unsecuritized seriously delinquent single-family loans managed by the Single-family Guarantee segment. The Single-family Guarantee

segment earns management and guarantee fees associated with unsecuritized single-family loans in the Investments segment’s mortgage investments

portfolio.

(3) The balances of the mortgage-related securities in the Single-family Guarantee managed loan portfolio are based on the UPB of the security, whereas the

balances of our single-family credit guarantee portfolio presented in this report are based on the UPB of the mortgage loans underlying the related

security. The differences in the loan and security balances result from the timing of remittances to security holders, which is typically 45 or 75 days after

the mortgage payment cycle of fixed-rate and ARM PCs, respectively.

(4) Represents unsecuritized seriously delinquent single-family loans managed by the Single-family Guarantee segment.

(5) Represents the UPB of mortgage-related assets held by third parties for which we provide our guarantee without our securitization of the related assets.

(6) Freddie Mac single-family mortgage-related securities held by us are included in both our Investments segment’s mortgage investments portfolio and

our Single-family Guarantee segment’s managed loan portfolio, and Freddie Mac multifamily mortgage-related securities held by us are included in both

the multifamily investment securities portfolio and the multifamily guarantee portfolio. Therefore, these amounts are deducted in order to reconcile to

our total mortgage portfolio.

(7) Represents the UPB of loans for which we present characteristics, delinquency data, and certain other statistics in this report. See “GLOSSARY” for

further description.

(8) We exclude HFA-related guarantees and our resecuritizations of Ginnie Mae certificates from our credit risk portfolios and most related statistics

because these guarantees do not expose us to meaningful amounts of credit risk due to the credit enhancement provided on them by the U.S. government.

99 Freddie Mac
Segment Earnings — Results

Investments

The table below presents the Segment Earnings of our Investments segment.

Table 17 — Segment Earnings and Key Metrics — Investments(1)

Year Ended December 31,

2012 2011 2010

(dollars in millions)

Segment Earnings:

Net interest income ................................................................ $ 6,110 $ 7,339 $ 6,192

Non-interest income (loss):

Net impairment of available-for-sale securities recognized in earnings .......................... (1,831) (1,833) (3,819)

Derivative gains (losses) ........................................................... 1,970 (3,597) (1,859)

Gains (losses) on trading securities ................................................... (1,755) (993) (1,386)

Gains (losses) on sale of mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 28 (76)

Gains (losses) on mortgage loans recorded at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 501 34

Other non-interest income (loss) ..................................................... 2,357 1,266 1,023

Total non-interest income (loss) .................................................... 1,044 (4,628) (6,083)

Non-interest expense:

Administrative expenses ........................................................... (430) (398) (455)

Other non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (2) (18)

Total non-interest expense ........................................................ (431) (400) (473)

Segment adjustments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799 661 1,358

Segment Earnings before income tax benefit .............................................. 7,522 2,972 994

Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690 394 259

Segment Earnings, net of taxes, including noncontrolling interest ............................... 8,212 3,366 1,253

Less: Net income — noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (2)

Segment Earnings attributable to Freddie Mac ............................................. 8,212 3,366 1,251

Total other comprehensive income, net of taxes ............................................ 3,185 3,107 10,226

Total comprehensive income attributable to Freddie Mac ..................................... $ 11,397 $ 6,473 $ 11,477

Key metrics:

Portfolio balances:

Average balances of interest-earning assets:(3)(4)

Mortgage-related securities(5) ........................................................ $308,698 $386,115 $465,048

Non-mortgage-related investments(6) .................................................. 98,176 97,519 123,537

Single-family unsecuritized loans(7) ................................................... 97,951 94,894 59,028

Total average balances of interest-earning assets ........................................ $504,825 $578,528 $647,613

Return:

Net interest yield — Segment Earnings basis .............................................. 1.21% 1.27% 0.96%

(1) For reconciliations of the Segment Earnings line items to the comparable line items in our consolidated financial statements prepared in accordance with

GAAP, see “NOTE 13: SEGMENT REPORTING — Table 13.2 — Segment Earnings and Reconciliation to GAAP Results.”

(2) For a description of our segment adjustments, see “NOTE 13: SEGMENT REPORTING — Segment Earnings.”

(3) Excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(4) We calculate average balances based on amortized cost.

(5) Includes our investments in single-family PCs and certain Other Guarantee Transactions, which are consolidated under GAAP on our consolidated

balance sheets.

(6) Includes the average balances of interest-earning cash and cash equivalents, non-mortgage-related securities, and federal funds sold and securities

purchased under agreements to resell.

(7) Excludes unsecuritized seriously delinquent single-family mortgage loans.

2012 vs. 2011

Segment Earnings for our Investments segment increased by $4.8 billion to $8.2 billion in 2012, compared to $3.4

billion in 2011, primarily due to derivative gains during 2012 versus derivative losses during 2011. Comprehensive income

for our Investments segment increased by $4.9 billion to $11.4 billion in 2012, compared to $6.5 billion in 2011, primarily

due to higher Segment Earnings. Other comprehensive income was relatively unchanged in 2012 compared to 2011, as

higher gains on our non-agency mortgage-related securities were largely offset by the impact of a smaller decline in interest

rates and less spread tightening on our agency securities.

During 2012, the UPB of the Investments segment mortgage investments portfolio decreased by 16%. We held $208.1

billion and $253.6 billion of agency securities, $76.5 billion and $86.5 billion of non-agency mortgage-related securities, and

$91.4 billion and $109.2 billion of single-family unsecuritized mortgage loans at December 31, 2012 and 2011, respectively.

The decline in UPB of agency securities is due mainly to liquidations. The decline in UPB of non-agency mortgage-related

100 Freddie Mac
securities is due mainly to the receipt of monthly remittances of principal repayments from both the recoveries from

liquidated loans and, to a lesser extent, voluntary repayments of the underlying collateral, representing a partial return of our

investments in these securities. The decline in the UPB of single-family unsecuritized mortgage loans is primarily related to

our securitization of mortgage loans that we had purchased for cash. See “CONSOLIDATED BALANCE SHEETS

ANALYSIS — Investments in Securities” and “— Mortgage Loans” for additional information regarding our mortgagerelated securities and mortgage loans.

Segment Earnings net interest income decreased $1.2 billion, and Segment Earnings net interest yield decreased six

basis points during 2012, compared to 2011. The primary driver of the decreases was the reduction in the balance of higheryielding mortgage-related assets due to continued liquidations, partially offset by lower funding costs primarily due to the

replacement of debt at lower rates.

Segment Earnings non-interest income (loss) was $1.0 billion in 2012, compared to $(4.6) billion in 2011. This

improvement was primarily due to derivative gains during 2012 versus derivative losses during 2011 and an increase in other

non-interest income, partially offset by an increase in losses on trading securities.

Impairments recorded in our Investments segment were $1.8 billion during both 2012 and 2011. In the fourth quarter of

2012 we implemented the use of a third-party model, which enhanced our approach to estimating other-than-temporary

impairments of our single-family non-agency mortgage-related securities. The decision to transition to a third-party model

was made to increase the level of disaggregation for certain assumptions used in projecting cash flow estimates of these

securities. Absent the adverse impact from the implementation of the third-party model, our 2012 impairments were

otherwise positively impacted by improvements in forecasted home prices over the expected life of the available-for-sale

securities and lower interest rates, resulting in a benefit from expected structural credit enhancements on the securities. See

“CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities — Mortgage-Related Securities —

Other-Than-Temporary Impairments on Available-For-Sale Mortgage-Related Securities” and “NOTE 7: INVESTMENTS

IN SECURITIES” for additional information on our impairments.

We recorded gains (losses) on trading securities of $(1.8) billion during 2012 compared to $(1.0) billion during 2011.

The losses on trading securities during both periods were primarily due to the movement of securities with unrealized gains

towards maturity. These losses were partially offset by the increase in the fair value of our trading securities as a result of the

decline in interest rates during 2012 and 2011. The increased losses in 2012 compared to 2011 resulted from lower interest

rate-related gains in 2012 as interest rates declined less in 2012 compared to 2011.

While derivatives are an important aspect of our strategy to manage interest-rate risk, they generally increase the

volatility of reported Segment Earnings, because while fair value changes in derivatives affect Segment Earnings, fair value

changes in several of the types of assets and liabilities being hedged do not affect Segment Earnings. We recorded derivative

gains (losses) for this segment of $2.0 billion during 2012 compared to $(3.6) billion during 2011. This improvement was

primarily due to the impact of a smaller decline in interest rates coupled with a yield curve steepening in 2012 compared to

2011. In addition, a change in the mix of our derivatives portfolio, whereby we increased our holdings of receive-fixed swaps

relative to pay-fixed swaps as we rebalanced our portfolio during a period of steadily declining interest rates in 2012,

contributed to the gain. See “Non-Interest Income (Loss) — Derivative Gains (Losses)” for additional information on our

derivatives.

Other non-interest income (loss) for this segment was $2.4 billion during 2012 compared to $1.3 billion during 2011.

The improvement in other non-interest income was primarily due to an increase in amortization income related to premiums

on debt securities of consolidated trusts held by third parties. This amortization income increased due to additional

prepayments on the debt securities of consolidated trusts held by third parties due in part to the low interest rate environment

and an increase in basis adjustments. Basis adjustments related to these debt securities of consolidated trusts held by third

parties are generated through the securitization and sale of retained mortgage loans or sales of Freddie Mac mortgage-related

securities from our mortgage-related investments portfolio.

Our Investments segment’s total other comprehensive income was relatively unchanged at $3.2 billion during 2012

compared to $3.1 billion during 2011, as higher gains on our non-agency mortgage-related securities were largely offset by

the impact of a smaller decline in interest rates and less spread tightening on our agency securities. Changes in fair value of

the Multifamily segment investment securities, excluding impacts from the changes in interest rates which are included in the

Investments segment, are reflected in the Multifamily segment.

101 Freddie Mac
2011 vs. 2010

Segment Earnings for our Investments segment increased by $2.1 billion to $3.4 billion in 2011, compared to

$1.3 billion in 2010, primarily due to an increase in net interest income and a decrease in net impairments recognized in

earnings, partially offset by larger derivative losses. Comprehensive income for our Investments segment decreased by $5.0

billion to $6.5 billion in 2011, compared to $11.5 billion in 2010, primarily due to a smaller improvement in net unrealized

losses on our available-for-sale securities.

During 2011, the UPB of the Investments segment mortgage investments portfolio decreased by 6.7%. We held $253.6

billion of agency securities and $86.5 billion of non-agency mortgage-related securities as of December 31, 2011, compared

to $302.9 billion of agency securities and $99.6 billion of non-agency mortgage-related securities as of December 31, 2010.

The decline in UPB of agency securities is due mainly to liquidations, including prepayments and selected sales. The decline

in UPB of non-agency mortgage-related securities is due mainly to the receipt of monthly remittances of principal

repayments from both the recoveries from liquidated loans and, to a lesser extent, voluntary repayments of the underlying

collateral, representing a partial return of our investments in these securities.

Segment Earnings net interest income increased $1.1 billion, and Segment Earnings net interest yield increased 31 basis

points during 2011, compared to 2010. The primary driver was lower funding costs, primarily due to the replacement of debt

at lower rates. These lower funding costs were partially offset by the reduction in the balance of higher-yielding mortgagerelated assets due to continued liquidations.

Segment Earnings non-interest income (loss) was $(4.6) billion in 2011, compared to $(6.1) billion in 2010. This

improvement in non-interest loss was mainly due to decreased net impairment of available-for-sale securities and decreased

losses on trading securities, partially offset by increased derivative losses.

Impairments recorded in our Investments segment decreased by $2.0 billion during 2011, compared to 2010, primarily

due to the impact of lower interest rates in 2011 resulting in a benefit from expected structural credit enhancements on the

securities. The impact of lower interest rates was partially offset by the impact of declines in forecasted home prices.

We recorded losses on trading securities of $(1.0) billion during 2011, compared to $(1.4) billion during 2010. Losses in

both periods are primarily due to the movement of securities with unrealized gains towards maturity. These losses were

partially offset by larger fair value gains in 2011, due to a more significant decline in long-term interest rates, compared to

2010.

We recorded derivative gains (losses) for this segment of $(3.6) billion during 2011, compared to $(1.9) billion during

2010. During 2011 and 2010, swap interest rates decreased, resulting in fair value losses on our pay-fixed swaps, partially

offset by fair value gains on our receive-fixed swaps and purchased call swaptions.

Our Investments segment’s total other comprehensive income declined to $3.1 billion in 2011 compared to $10.2 billion

in 2010, primarily due to lower gains on non-agency mortgage-related securities as spreads widened more in 2011 compared

to 2010.

For a discussion of items that have affected our Investments segment net interest income over time, and will likely

continue to do so, see “BUSINESS — Conservatorship and Related Matters — Limits on Investment Activity and Our

Mortgage-Related Investments Portfolio.”

102 Freddie Mac
Single-Family Guarantee

The table below presents the Segment Earnings of our Single-family Guarantee segment.

Table 18 — Segment Earnings and Key Metrics — Single-Family Guarantee(1)

Year Ended December 31,

2012 2011 2010

(dollars in millions)

Segment Earnings:

Net interest income (expense) .......................................................... $ (147) $ (23) $ 72

Provision for credit losses ............................................................. (3,168) (12,294) (18,785)

Non-interest income:

Management and guarantee income .................................................... 4,389 3,647 3,635

Other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 931 1,216 1,351

Total non-interest income .......................................................... 5,320 4,863 4,986

Non-interest expense:

Administrative expenses ............................................................ (890) (888) (930)

REO operations expense ............................................................ (62) (596) (676)

Other non-interest expense ........................................................... (393) (321) (578)

Total non-interest expense ......................................................... (1,345) (1,805) (2,184)

Segment adjustments(2) ................................................................ (832) (699) (953)

Segment Earnings (loss) before income tax (expense) benefit ................................... (172) (9,958) (16,864)

Income tax (expense) benefit ........................................................... 8 (42) 608

Segment Earnings (loss), net of taxes ..................................................... (164) (10,000) (16,256)

Total other comprehensive income (loss), net of taxes ........................................... (63) 30 6

Total comprehensive income (loss) attributable to Freddie Mac .................................... $ (227) $ (9,970) $(16,250)

Key metrics:

Balances and Volume (in billions, except rate):

Average balance of single-family credit guarantee portfolio and HFA guarantees ..................... $ 1,692 $ 1,801 $ 1,861

Issuance — Single-family credit guarantees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 446 $ 305 $ 385

Fixed-rate products — Percentage of purchases(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96% 92% 95%

Liquidation rate — Single-family credit guarantees(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33% 24% 29%

Management and Guarantee Fee Rate (in bps):

Contractual management and guarantee fees(6) ............................................... 14.7 13.7 13.5

Amortization of delivery fees(7) .......................................................... 11.2 6.5 6.0

Segment Earnings management and guarantee income ........................................ 25.9 20.2 19.5

Credit:

Serious delinquency rate, at end of period .................................................. 3.25% 3.58% 3.84%

REO inventory, at end of period (number of properties) ....................................... 49,071 60,535 72,079

Single-family credit losses, in bps(8) ...................................................... 68.3 72.0 75.8

Market:

Single-family mortgage debt outstanding (total U.S. market, in billions)(9) ........................... $ 9,926 $ 10,158 $ 10,413

30-year fixed mortgage rate(10) .......................................................... 3.4% 4.0% 4.9%

(1) For reconciliations of the Segment Earnings line items to the comparable line items in our consolidated financial statements prepared in accordance

with GAAP, see “NOTE 13: SEGMENT REPORTING — Table 13.2 — Segment Earnings and Reconciliation to GAAP Results.”

(2) For a description of our segment adjustments, see “NOTE 13: SEGMENT REPORTING — Segment Earnings.”

(3) Based on UPB.

(4) Excludes Other Guarantee Transactions.

(5) Represents principal repayments relating to loans underlying Freddie Mac mortgage-related securities and other guarantee commitments, including

those related to our removal of seriously delinquent and modified mortgage loans and balloon/reset mortgage loans out of PC pools.

(6) Results for the 2012 periods include the effect of the legislated 10 basis point increase in guarantee fees that became effective April 1, 2012.

(7) Beginning in the fourth quarter of 2012, includes the amortization of buy-down fees.

(8) Calculated as the amount of single-family credit losses divided by the sum of the average carrying value of our single-family credit guarantee portfolio

and the average balance of our single-family HFA initiative guarantees.

(9) Source: Federal Reserve Flow of Funds Accounts of the United States of America dated December 6, 2012. The outstanding amount for December 31,

2012 reflects the balance as of September 30, 2012.

(10) Based on Freddie Mac’s Primary Mortgage Market Survey rate for the last week in the period, which represents the national average mortgage

commitment rate to a qualified borrower exclusive of any fees and points required by the lender. This commitment rate applies only to financing on

conforming mortgages with LTV ratios of 80%.

Segment Earnings (loss) for our Single-family Guarantee segment improved to $(0.2) billion in 2012 compared to

$(10.0) billion in 2011 and $(16.3) billion in 2010. Segment Earnings (loss) for the Single-family Guarantee segment is

largely driven by management and guarantee fee income, offset by the provision for credit losses. The improvement in both

2012 and 2011, compared to the respective prior year, was primarily due to a significant decline in Segment Earnings

provision for credit losses.

103 Freddie Mac
The table below provides summary information about the composition of Segment Earnings (loss) for this segment for

2012 and 2011.

Table 19 — Segment Earnings Composition — Single-Family Guarantee Segment

Year Ended December 31, 2012

Segment Earnings

Management and

Guarantee Income(1) Credit Expenses(2)

Amount

Average

Rate(3) Amount

Average

Rate(3)

Net

Amount(4)

(dollars in millions, rates in bps)

Year of origination:(5)

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 525 27.1 $ (142) 6.7 $ 383

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792 29.7 (214) 8.1 578

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794 29.7 (292) 10.5 502

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 738 29.6 (221) 8.9 517

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 27.6 (50) 5.3 280

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 20.2 (1,064) 77.6 (752)

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 19.4 (673) 66.1 (481)

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 19.7 (643) 55.4 (422)

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485 21.1 69 (2.8) 554

Total ............................................................... $4,389 25.9 $ (3,230) 19.0 $ 1,159

Administrative expenses ............................................... (890)

Net interest income (expense) ............................................ (147)

Other non-interest income and expenses, net ................................. (286)

Segment Earnings (loss), net of taxes ...................................... $ (164)

Year Ended December 31, 2011

Segment Earnings

Management and

Guarantee Income(1) Credit Expenses(2)

Amount

Average

Rate(3) Amount

Average

Rate(3)

Net

Amount(4)

(dollars in millions, rates in bps)

Year of origination:(5)

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 362 21.2 $ (93) 6.5 $ 269

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 763 22.4 (339) 9.6 424

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713 20.6 (385) 10.9 328

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382 23.4 (1,169) 86.2 (787)

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 18.6 (4,432) 242.8 (4,064)

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 17.7 (3,387) 248.8 (3,160)

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 17.5 (2,116) 135.8 (1,859)

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575 18.7 (969) 28.5 (394)

Total ............................................................... $3,647 20.2 $(12,890) 71.5 $ (9,243)

Administrative expenses ............................................... (888)

Net interest income (expense) ............................................ (23)

Other non-interest income and expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

Segment Earnings (loss), net of taxes ...................................... $(10,000)

(1) Includes amortization of delivery fees of $1.7 billion and $1.2 billion for 2012 and 2011, respectively. For 2012, includes the effect of the legislated 10

basis point increase in guarantee fees that became effective April 1, 2012, as well as an additional increase in guarantee fees that became effective in the

fourth quarter of 2012.

(2) Consists of the aggregate of the Segment Earnings provision for credit losses and Segment Earnings REO operations expense. Historical rates of average

credit expenses may not be representative of future results. In 2012, we enhanced our method of allocating credit expenses by loan origination year.

Prior period amounts have been revised to conform to the current period presentation.

(3) Calculated as the amount of Segment Earnings management and guarantee income or credit expenses, respectively, divided by the sum of the average

carrying values of the single-family credit guarantee portfolio and the average balance of our single-family HFA initiative guarantees.

(4) Calculated as Segment Earnings management and guarantee income less credit expenses.

(5) Segment Earnings management and guarantee income is presented by year of guarantee origination, whereas credit expenses are presented based on year

of loan origination.

As of December 31, 2012, loans originated after 2008 have, on a cumulative basis, provided management and guarantee

income that has exceeded the credit-related and administrative expenses associated with these loans. Nevertheless, various

factors, such as continued high unemployment rates, future declines in home prices, or negative impacts of HARP loans

(which may not perform as well as other refinance mortgages, due in part to the high LTV ratios of the loans), could require

us to incur expenses on these loans beyond our current expectations.

104 Freddie Mac
Based on our historical experience, the performance of the loans in an individual origination year can vary over time.

The aggregate UPB of loans and the corresponding management and guarantee fee income from an origination year will

decline over time due to repayments, refinancing, and other liquidation events. In addition, credit-related expenses related to

the remaining loans in the origination year will increase over time, as some borrowers experience financial difficulties and

default on their loans. As a result, there will likely be periods when an origination year is not profitable, though it may

remain profitable on a cumulative basis. We currently believe our management and guarantee fee rates for guarantee

issuances after 2008 (excluding the amounts associated with the Temporary Payroll Tax Cut Continuation Act of 2011),

when coupled with the higher credit quality of the mortgages within these new guarantee issuances, will provide

management and guarantee fee income, over the long term, that exceeds our expected credit-related and administrative

expenses associated with the underlying loans.

Our management and guarantee income associated with guarantee issuances in 2005 through 2008 has not been

adequate to cover the credit and administrative expenses associated with such loans, on a cumulative basis, primarily due to

the high rate of defaults on the loans originated in those years coupled with the high volume of refinancing of these loans that

has occurred since 2008. High levels of refinancing and delinquency since 2008 have significantly reduced the balance of

performing loans from those years that remain in our portfolio and consequently reduced management and guarantee income

associated with loans originated in 2005 through 2008 (we do not recognize Segment Earnings management and guarantee

income on non-accrual mortgage loans).

Segment Earnings management and guarantee income increased during 2012 compared to 2011, primarily due to an

increase in amortization of delivery fees. The higher volume of delivery fees in recent periods was driven by a lower interest

rate environment during 2012, which increased refinance activity. At the direction of FHFA, we also implemented two

across-the-board increases in guarantee fees in 2012, as discussed below.

• Effective April 1, 2012, we increased the guarantee fee on single-family residential mortgages sold to us by 10 basis

points. Under the Temporary Payroll Tax Cut Continuation Act of 2011, the proceeds from this legislated increase are

being remitted to Treasury to fund the payroll tax cut that occurred in 2012. We pay these fees to Treasury on a

quarterly basis. The receipt of these fees is recognized within Segment Earnings management and guarantee income,

and the remittance of these fees to Treasury is reported in Segment Earnings non-interest expense. We recognized

$108 million of expense in 2012 (and a similar amount of income) related to these fees. While we expect these fees to

become significant over time, the effect of these fees was less than a 1 basis point increase to the average rate of our

aggregate Segment Earnings management and guarantee income in 2012. As of December 31, 2012, there were

approximately 1.5 million loans totaling $311.9 billion in UPB in our single-family credit guarantee portfolio that are

subject to these fees.

• In the fourth quarter of 2012, we implemented, at FHFA’s direction, a further increase of an average of 10 basis

points in our guarantee fees on single-family mortgages sold to us.

Our management and guarantee fee income is also influenced by our PC price performance because we adjust our fees

based on the relative price performance of our PCs compared to comparable Fannie Mae securities. A decline in security

performance could negatively impact our segment financial results. While security performance and single-family market

share improved on average, in the second half of 2012, security performance was volatile and weaker than historical trends

near the end of 2012. For more information, see “BUSINESS — Our Business Segments — Investments Segment — PC

Support Activities,” and “RISK FACTORS — Competitive and Market Risks — A significant decline in the price

performance of or demand for our PCs could have an adverse effect on the volume and/or profitability of our new singlefamily guarantee business.”

The UPB of the Single-family Guarantee managed loan portfolio was $1.6 trillion and $1.7 trillion at December 31,

2012 and, 2011, respectively. The liquidation rate on our securitized single-family credit guarantees was approximately 33%,

24%, and 29% for 2012, 2011, and 2010, respectively, and increased in 2012 due to significant refinancing activity caused by

historically low interest rates and, to a lesser extent, the impact of the expanded HARP initiative. Our guarantee issuances

increased from $305 billion in 2011 to $446 billion in 2012 primarily due to refinance activity. However, we expect the size

of our Single-family Guarantee managed loan portfolio will continue to decline during 2013.

Refinance volumes represented 82% of our single-family mortgage purchase volume in 2012, compared to 78% in

2011, based on UPB. We purchased significant volumes of relief refinance mortgages and HARP loans (i.e., relief refinance

loans with LTV ratios above 80%) in both 2012 and 2011. Over time, HARP loans may not perform as well as other

105 Freddie Mac
refinance mortgages because of the continued high LTV ratios and reduced underwriting standards of these loans. Based on

our historical experience, there is an increased probability of borrower defaults as LTV ratios increase. In addition, HARP

loans may not be covered by mortgage insurance for the full excess of their UPB over 80%. Approximately 20% and 12% of

our single-family purchase volume in 2012 and 2011, respectively, were HARP loans. For more information about HARP

loans and our relief refinance mortgage initiative, see “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk —

Single-Family Mortgage Credit Risk — Single-Family Loan Workouts and the MHA Program.”

The credit quality of the single-family loans we acquired beginning in 2009 (excluding HARP loans and other relief

refinance mortgages) is significantly better than that of loans we acquired from 2005 through 2008, as measured by original

LTV ratios, FICO scores, and the proportion of loans underwritten with fully documented income. HARP loans represented

11% and 6% of the UPB of our single-family credit guarantee portfolio as of December 31, 2012 and 2011, respectively.

Mortgages originated after 2008, including HARP loans, represented 63% and 51% of the UPB of our single-family credit

guarantee portfolio as of December 31, 2012 and 2011, respectively, and their composition of that portfolio continues to

increase.

Provision for credit losses for the Single-family Guarantee segment declined to $3.2 billion in 2012 compared to $12.3

billion in 2011 and $18.8 billion in 2010. The significant reduction in Segment Earnings provision for credit losses for 2012

primarily reflects declines in the volume of newly delinquent loans (largely due to a decline in the portion of our singlefamily credit guarantee portfolio originated in 2005 through 2008), and lower estimates of incurred loss due to the positive

impact of an increase in national home prices. Segment Earnings provision for credit losses in 2011 reflected a decline in the

rate at which single-family loans were expected to transition into serious delinquency or were expected to be modified, but

was partially offset by our lowered expectations for mortgage insurance recoveries, reflecting the further deterioration in the

financial condition of certain counterparties.

The serious delinquency rate on our single-family credit guarantee portfolio was 3.25%, 3.58%, and 3.84% as of

December 31, 2012, 2011, and 2010, respectively. Our serious delinquency rate remains high compared to the rates we

experienced in years prior to 2009. Charge-offs, net of recoveries, associated with single-family loans were $11.6 billion,

$12.4 billion, and $13.4 billion in 2012, 2011, and 2010, respectively. Single-family credit losses as a percentage of the

average balance of the single-family credit guarantee portfolio and HFA-related guarantees were 68.3 basis points, 72.0 basis

points and 75.8 basis points for 2012, 2011, and 2010, respectively. See “RISK MANAGEMENT — Credit Risk —

Mortgage Credit Risk — Single-Family Mortgage Credit Risk” for further information on our single-family credit guarantee

portfolio, including credit performance, serious delinquency rates, charge-offs, and our non-performing assets.

REO operations expense for the Single-family Guarantee segment was $62 million in 2012, compared to $596 million

in 2011 and $676 million in 2010. The decline in REO operations expense in 2012, compared to 2011, was primarily due to

improving home prices in certain geographical areas with significant REO activity, which resulted in gains on disposition of

properties, partially offset by lower recoveries on REO properties during 2012. Recoveries on REO properties were lower in

2012, compared to 2011, primarily due to reduced recoveries from mortgage insurers and a decline in reimbursements of

losses from seller/servicers associated with repurchase requests. The decline in REO operations expense in 2011, compared

to 2010, was primarily due to the impact of a less significant decline in home prices in certain geographical areas with

significant REO activity resulting in lower write-downs of single-family REO inventory during 2011, partially offset by

lower recoveries on REO properties during 2011.

Our REO inventory (measured in number of properties) declined 19% and 16% during 2012 and 2011, respectively, as

the volume of single-family REO dispositions exceeded the volume of single-family REO acquisitions in both years.

Although there was an improvement in REO disposition severity during 2012, the REO disposition severity ratios on sales of

our REO inventory remain high as compared to periods before 2008. We believe the volume of our single-family REO

acquisitions during 2012, 2011, and 2010 was less than it otherwise would have been due to several factors, including the

length of the foreclosure process and increased volume of foreclosure alternatives. See “RISK MANAGEMENT — Credit

Risk — Mortgage Credit Risk — Non-Performing Assets” for additional information about our REO activity.

Net interest income (expense) for the Single-Family guarantee segment was $(147) million in 2012 and $(23) million in

2011, with the change primarily driven by increased amortization expense in 2012 associated with mortgage loans held by

consolidated trusts. The increased amortization expense was mainly due to a higher number of single-family loans with

premiums and increased liquidations driven by higher refinance activity during 2012 compared to 2011.

106 Freddie Mac
Other non-interest income for the Single-family Guarantee segment was $0.9 billion in 2012, compared to $1.2 billion

in 2011 and $1.4 billion in 2010. The decline in income in 2012, compared to 2011, was primarily due to: (a) income

recognized in 2011 related to proceeds received from certain repurchase settlements while no such income was recognized in

2012; and (b) lower recoveries related to loans impaired upon purchase. The decline in other non-interest income in 2011,

compared to 2010, was primarily due to a decline in the amount of recoveries on loans impaired upon purchase since the

volume of foreclosure transfers and payoffs associated with loans impaired upon purchase also declined in 2011.

Other non-interest expense for the Single-family Guarantee segment was $0.4 billion in 2012, compared to $0.3 billion

in 2011 and $0.6 billion in 2010. The increase in other non-interest expense in 2012, compared to 2011, was primarily driven

by the expense associated with the legislated 10 basis point increase to guarantee fees, which we implemented in April 2012.

The decline in other non-interest expense in 2011, compared to 2010, was primarily due to lower expenses associated with

transfers and terminations of mortgage servicing.

107 Freddie Mac
Multifamily

The table below presents the Segment Earnings of our Multifamily segment.

Table 20 — Segment Earnings and Key Metrics — Multifamily(1)

Year Ended December 31,

2012 2011 2010

Segment Earnings:

Net interest income ................................................................ $ 1,291 $ 1,200 $ 1,114

(Provision) benefit for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 196 (99)

Non-interest income:

Management and guarantee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 127 101

Net impairment of available-for-sale securities recognized in earnings .......................... (123) (353) (96)

Gains (losses) on sale of mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 383 343

Gains (losses) on mortgage loans recorded at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438 (83) (283)

Other non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363 128 183

Total non-interest income ........................................................ 1,098 202 248

Non-interest expense: ............................................................... Administrative expenses ........................................................... (241) (220) (212)

REO operations income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 11 3

Other non-interest expense ......................................................... (129) (69) (66)

Total non-interest expense ........................................................ (367) (278) (275)

Segment Earnings before income tax benefit (expense) ...................................... 2,145 1,320 988

Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (1) (26)

Segment Earnings, net of taxes, including noncontrolling interest ............................... 2,146 1,319 962

Less: Net (income) loss — noncontrolling interest ........................................ — — 3

Segment Earnings, net of taxes ........................................................ 2,146 1,319 965

Total other comprehensive income, net of taxes ............................................ 1,935 899 4,075

Total comprehensive income attributable to Freddie Mac ..................................... $ 4,081 $ 2,218 $ 5,040

Key metrics:

Balances and Volume:

Average balance of Multifamily loan portfolio(2) ............................................ $ 80,826 $ 83,593 $ 83,163

Average balance of Multifamily guarantee portfolio ......................................... $ 43,247 $ 29,861 $ 21,787

Average balance of Multifamily investment securities portfolio ................................ $ 54,992 $ 61,296 $ 61,332

Multifamily new loan purchase and other guarantee commitment volume(3) ........................ $ 28,774 $ 20,325 $ 14,800

Multifamily units financed from new volume activity(3) ....................................... 435,653 311,046 231,453

Multifamily K Certificate issuance — guaranteed portion ..................................... $ 17,922 $ 11,722 $ 5,694

Multifamily K Certificate issuance — unguaranteed portion ................................... $ 3,281 $ 1,936 $ 750

Yield and Rate:

Net interest yield — Segment Earnings basis .............................................. 0.95% 0.83% 0.77%

Average Management and guarantee fee rate, in bps(4) ........................................ 35.6 42.4 50.1

Credit:

Delinquency rate:

Credit-enhanced loans, at period end .................................................. 0.36% 0.52% 0.85%

Non-credit-enhanced loans, at period end ............................................... 0.10% 0.11% 0.12%

Total delinquency rate, at period end(5) .................................................. 0.19% 0.22% 0.26%

Allowance for loan losses and reserve for guarantee losses, at period end . . . . . . . . . . . . . . . . . . . . . . . . . $ 382 $ 545 $ 828

Allowance for loan losses and reserve for guarantee losses, in bps ............................... 29.7 46.4 75.3

Credit losses, in bps(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 6.3 9.6

REO inventory, at net carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64 $ 133 $ 107

REO inventory, at period end (number of properties) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 20 14

(1) For reconciliations of Segment Earnings line items to the comparable line items in our consolidated financial statements prepared in accordance with

GAAP, see “NOTE 13: SEGMENT REPORTING — Table 13.2 — Segment Earnings and Reconciliation to GAAP Results.”

(2) Includes both unsecuritized multifamily mortgage loans and multifamily mortgage loans underlying consolidated trusts.

(3) Excludes our guarantees issued under the HFA initiative.

(4) Represents Multifamily Segment Earnings — management and guarantee income, excluding prepayment and certain other fees, divided by the sum of

the average balance of the multifamily guarantee portfolio and the average balance of guarantees associated with the HFA initiative, excluding certain

bonds under the NIBP.

(5) See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Multifamily Mortgage Credit Risk” for information on our reported

multifamily delinquency rate.

(6) Calculated as the amount of multifamily credit losses divided by the sum of the average carrying value of our multifamily loan portfolio and the average

balance of the multifamily guarantee portfolio, including multifamily HFA initiative guarantees.

108 Freddie Mac
Segment Earnings for our Multifamily segment increased to $2.1 billion in 2012, compared to $1.3 billion in 2011. The

improvement in 2012 was primarily due to gains on mortgage loans recorded at fair value in 2012 compared to losses in

2011. Segment Earnings were also higher in 2012 compared to 2011 due to lower impairments of available-for-sale securities

and higher other non-interest income during 2012. Segment Earnings for our Multifamily segment increased to $1.3 billion in

2011, compared to $965 million in 2010, primarily due to improvement in provision (benefit) for credit losses and lower

losses on mortgage loans recorded at fair value, partially offset by higher security impairments on the CMBS portfolio.

Comprehensive income for our Multifamily segment was $4.1 billion for 2012, consisting of: (a) Segment Earnings of

$2.1 billion; and (b) total other comprehensive income, which was mainly attributable to an increase in the fair value of

available-for-sale CMBS during 2012. This increase was driven by favorable non-interest rate-related market spread

movements in 2012. Comprehensive income for our Multifamily segment was $2.2 billion in 2011, consisting of:

(a) Segment Earnings of $1.3 billion; and (b) total other comprehensive income of $0.9 billion, which was mainly

attributable to non-interest rate-related increases in the fair value of available-for-sale CMBS in 2011.

Our multifamily loan purchases and other guarantee commitment issuance volume increased 42% to $28.8 billion for

2012 compared to $20.3 billion for 2011 and $14.8 billion for 2010. There was strong demand for multifamily financing in

2012 as historically low interest rates combined with positive multifamily market fundamentals encouraged borrower

interest. We issued guarantees on K Certificates of $17.9 billion in UPB in 2012, compared to $11.7 billion in 2011 and

$5.7 billion in 2010. The UPB of the total multifamily portfolio increased 2% to $180.2 billion at December 31, 2012 from

$176.7 billion at December 31, 2011. During 2012, the increase in new business volume was partially offset by higher

liquidations of our multifamily investment securities and multifamily loan portfolios.

Segment Earnings net interest income increased by 8%, to $1.3 billion, in 2012 from $1.2 billion in 2011, and $1.1

billion in 2010. The increase in both 2012 and 2011, compared to the respective prior year, was primarily due to the

cumulative effect of new business volumes since 2008, which have higher yields relative to allocated funding costs compared

to pre-2008 volumes. Net interest yield was 95, 83, and 77 basis points for 2012, 2011, and 2010, respectively.

Segment Earnings non-interest income was $1.1 billion, $202 million, and $248 million in 2012, 2011, and 2010,

respectively. We recognize changes in fair value on multifamily mortgage loans we purchase for securitization as gains

(losses) on mortgage loans recorded at fair value while we hold them on our consolidated balance sheets. In the period we

sell these loans (e.g., through securitization), we recognize a gain or loss on sale of mortgage loans based on proceeds of the

sale. Together, these amounts represent the holding period gains or losses associated with the loans. Favorable market spread

movements and higher balances of multifamily loans on our consolidated balance sheets during both 2012 and 2011 resulted

in higher total gains in those years compared to the respective prior year. Segment Earnings gains (losses) on mortgage loans

recorded at fair value are presented net of changes in fair value due to changes in interest rates. Segment Earnings noninterest income also benefitted in 2012 from improved market pricing and overall improvement in the market for CMBS,

which resulted in gains on the disposition of certain previously-impaired available-for-sale securities and lower impairments

on available-for-sale securities. The decline in non-interest income in 2011, compared to 2010, was primarily driven by

higher security impairments on CMBS.

Multifamily Segment Earnings management and guarantee income increased 19% in 2012, compared to 2011, and

increased 26% in 2011, compared to 2010, reflecting an increased issuance of K Certificates in both years. However, the

average management and guarantee fee rate on our guarantee portfolio declined to 36 basis points in 2012 from 42 basis

points in 2011, and was 50 basis points in 2010. These declines primarily reflect an increased issuance volume of K

Certificates, which have lower fees than our other guarantee activities. The lower fees reflect our reduced credit risk

exposure due to the use of subordination. The amount of subordination employed in our K Certificates is based on our

expectations of potential future credit losses associated with these transactions.

Multifamily Segment Earnings (provision) benefit for credit losses was $123 million, $196 million, and $(99) million in

2012, 2011, and 2010, respectively. Our loan loss reserves associated with our multifamily mortgage portfolio were $382

million, $545 million, and $828 million as of December 31, 2012, 2011, and 2010, respectively. The decline in loan loss

reserves for multifamily loans in 2012 and 2011 was primarily driven by an improvement in the expected performance of the

underlying loans.

109 Freddie Mac
As a result of our underwriting standards and practices, which we believe are prudent, and positive multifamily market

fundamentals, the credit quality of the multifamily mortgage portfolio remains strong. Our portfolio performance continued

to experience minimal credit losses due to low foreclosure activity and an increase in net operating income of the underlying

multifamily properties in most regional areas. Multifamily credit losses as a percentage of the combined average balance of

our multifamily loan and guarantee portfolios were 2.8, 6.3, and 9.6 basis points in 2012, 2011, and 2010 respectively. The

delinquency rate for loans in the multifamily mortgage portfolio was 0.19%, 0.22%, and 0.26%, as of December 31, 2012,

2011, and 2010, respectively. As of December 31, 2012, more than half of the multifamily loans that were two or more

monthly payments past due, measured on a UPB basis, had credit enhancements that we currently believe will mitigate our

expected losses on those loans and guarantees. Recent market data, such as improving vacancy rates and effective rents,

continues to reflect positive multifamily market fundamentals on a national level. As a result, we expect our multifamily

delinquency rate to remain low in 2013. See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk —

Multifamily Mortgage Credit Risk” for further information about our reported multifamily delinquency rates and credit

enhancements on multifamily loans. For further information on delinquencies, including geographical and other

concentrations, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS.”

CONSOLIDATED BALANCE SHEETS ANALYSIS

The following discussion of our consolidated balance sheets should be read in conjunction with our consolidated

financial statements, including the accompanying notes. Also, see “CRITICAL ACCOUNTING POLICIES AND

ESTIMATES” for information concerning certain significant accounting policies and estimates applied in determining our

reported financial position.

Cash and Cash Equivalents, Federal Funds Sold and Securities Purchased Under Agreements to Resell

Cash and cash equivalents, federal funds sold and securities purchased under agreements to resell, and other liquid

assets discussed in “Investments in Securities — Non-Mortgage-Related Securities,” are important to our cash flow and asset

and liability management, and our ability to provide liquidity and stability to the mortgage market. We use these assets to

help manage recurring cash flows and meet our other cash management needs. We consider federal funds sold to be

overnight unsecured trades executed with commercial banks that are members of the Federal Reserve System. Securities

purchased under agreements to resell principally consist of short-term contractual agreements such as reverse repurchase

agreements involving Treasury and agency securities.

The short-term assets on our consolidated balance sheets also include those related to our consolidated VIEs, which

consisted primarily of restricted cash and cash equivalents and securities purchased under agreements to resell at

December 31, 2012. These short-term assets related to our consolidated VIEs increased by $5.9 billion from December 31,

2011 to December 31, 2012, primarily due to an increase in the level of refinancing activity.

Excluding amounts related to our consolidated VIEs, we held $8.5 billion and $28.4 billion of cash and cash

equivalents, no federal funds sold, and $18.3 billion and $12.0 billion of securities purchased under agreements to resell at

December 31, 2012 and 2011, respectively. The aggregate decrease in these assets was primarily driven by a decline in

funding needs for debt redemptions. Excluding amounts related to our consolidated VIEs, we held on average $15.0 billion

and $20.3 billion of cash and cash equivalents and $25.0 billion and $25.1 billion of federal funds sold and securities

purchased under agreements to resell during the three and twelve months ended December 31, 2012, respectively.

For information regarding our liquidity management practices and policies, see “LIQUIDITY AND CAPITAL

RESOURCES.”

Investments in Securities

The two tables below provide detail regarding our investments in securities as of December 31, 2012, 2011 and 2010.

The tables do not include our holdings of single-family PCs and certain Other Guarantee Transactions. For information on

our holdings of such securities, see “Table 16 — Composition of Segment Mortgage Portfolios and Credit Risk Portfolios.”

110 Freddie Mac
Table 21 — Investments in Available-For-Sale Securities

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses Fair Value

(in millions)

December 31, 2012

Available-for-sale mortgage-related securities:

Freddie Mac ............................................................ $ 53,965 $ 4,602 $ (52) $ 58,515

Fannie Mae ............................................................. 14,183 1,099 (2) 15,280

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 26 — 209

CMBS ................................................................. 47,606 3,882 (181) 51,307

Subprime ............................................................... 35,503 83 (9,129) 26,457

Option ARM ............................................................ 7,454 48 (1,785) 5,717

Alt-A and other .......................................................... 11,861 244 (1,201) 10,904

Obligations of states and political subdivisions.................................... 5,647 154 (3) 5,798

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716 24 (31) 709

Total investments in available-for-sale mortgage-related securities ....................... $177,118 $10,162 $(12,384) $174,896

December 31, 2011

Available-for-sale mortgage-related securities:

Freddie Mac ............................................................ $ 74,711 $ 6,429 $ (48) $ 81,092

Fannie Mae ............................................................. 19,023 1,303 (4) 20,322

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 30 — 249

CMBS ................................................................. 53,637 2,574 (548) 55,663

Subprime ............................................................... 41,347 60 (13,408) 27,999

Option ARM ............................................................ 9,019 15 (3,169) 5,865

Alt-A and other .......................................................... 13,659 32 (2,812) 10,879

Obligations of states and political subdivisions.................................... 7,782 108 (66) 7,824

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820 6 (60) 766

Total investments in available-for-sale mortgage-related securities ....................... $220,217 $10,557 $(20,115) $210,659

December 31, 2010

Available-for-sale mortgage-related securities:

Freddie Mac ............................................................ $ 80,742 $ 5,142 $ (195) $ 85,689

Fannie Mae ............................................................. 23,025 1,348 (3) 24,370

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 28 — 296

CMBS ................................................................. 58,455 1,551 (1,919) 58,087

Subprime ............................................................... 47,916 1 (14,056) 33,861

Option ARM ............................................................ 10,726 16 (3,853) 6,889

Alt-A and other .......................................................... 15,561 58 (2,451) 13,168

Obligations of states and political subdivisions.................................... 9,885 31 (539) 9,377

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 945 13 (61) 897

Total investments in available-for-sale mortgage-related securities ....................... $247,523 $ 8,188 $(23,077) $232,634

111 Freddie Mac
Table 22 — Investments in Trading Securities

December 31,

2012 2011 2010

(in millions)

Trading mortgage-related securities:

Freddie Mac ........................................................................ $10,354 $16,047 $13,437

Fannie Mae ......................................................................... 10,338 15,165 18,726

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 156 172

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 164 31

Total trading mortgage-related securities .................................................. 20,979 31,532 32,366

Trading non-mortgage-related securities:

Asset-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 302 44

Treasury bills ........................................................................ 1,160 100 17,289

Treasury notes ....................................................................... 19,061 24,712 10,122

FDIC-guaranteed corporate medium-term notes ............................................... — 2,184 441

Total trading non-mortgage-related securities ............................................... 20,513 27,298 27,896

Total fair value of investments in trading securities .............................................. $41,492 $58,830 $60,262

Non-Mortgage-Related Securities

Our investments in non-mortgage-related securities provide an additional source of liquidity. We held investments in

non-mortgage-related securities classified as trading of $20.5 billion and $27.3 billion as of December 31, 2012 and

December 31, 2011, respectively.

Mortgage-Related Securities

Our investments in mortgage-related securities consist of securities issued by Fannie Mae, Ginnie Mae, and other

financial institutions. We also invest in our own mortgage-related securities. However, the single-family PCs and certain

Other Guarantee Transactions we purchase as investments are not accounted for as investments in securities because we

recognize the underlying mortgage loans on our consolidated balance sheets through consolidation of the related trusts.

The table below provides the UPB of our investments in mortgage-related securities classified as available-for-sale or

trading on our consolidated balance sheets. The table below does not include our holdings of our own single-family PCs and

certain Other Guarantee Transactions. For further information on our holdings of such securities, see “Table 16 —

Composition of Segment Mortgage Portfolios and Credit Risk Portfolios.”

112 Freddie Mac
Table 23 — Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets

December 31, 2012 December 31, 2011

Fixed

Rate

Variable

Rate (1) Total

Fixed

Rate

Variable

Rate (1) Total

(in millions)

Freddie Mac mortgage-related securities:(2)

Single-family .......................................... $50,979 $ 7,256 $ 58,235 $ 72,795 $ 9,753 $ 82,548

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750 1,632 2,382 1,216 1,792 3,008

Total Freddie Mac mortgage-related securities ............. 51,729 8,888 60,617 74,011 11,545 85,556

Non-Freddie Mac mortgage-related securities:

Agency securities:(3)

Fannie Mae:

Single-family ....................................... 10,864 12,518 23,382 16,543 15,998 32,541

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 49 84 52 76 128

Ginnie Mae:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 91 293 253 104 357

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 — 15 16 — 16

Total Non-Freddie Mac agency securities ................. 11,116 12,658 23,774 16,864 16,178 33,042

Non-agency mortgage-related securities:

Single-family:(4)

Subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 44,086 44,397 336 48,696 49,032

Option ARM ....................................... — 12,012 12,012 — 13,949 13,949

Alt-A and other ..................................... 1,774 13,036 14,810 2,128 14,662 16,790

CMBS .............................................. 17,657 30,300 47,957 19,735 34,375 54,110

Obligations of states and political subdivisions(5) ................ 5,637 19 5,656 7,771 22 7,793

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741 121 862 831 129 960

Total non-agency mortgage-related securities(6) ............. 26,120 99,574 125,694 30,801 111,833 142,634

Total UPB of mortgage-related securities ................. $88,965 $121,120 210,085 $121,676 $139,556 261,232

Premiums, discounts, deferred fees, impairments of UPB

and other basis adjustments ................................ (13,922) (12,363)

Net unrealized (losses) on mortgage-related securities,

pre-tax ............................................... (288) (6,678)

Total carrying value of mortgage-related securities ................. $195,875 $242,191

(1) Variable-rate mortgage-related securities include those with a contractual coupon rate that, prior to contractual maturity, is either scheduled to change or

is subject to change based on changes in the composition of the underlying collateral.

(2) When we purchase REMICs and Other Structured Securities and certain Other Guarantee Transactions that we have issued, we account for these

securities as investments in debt securities as we are investing in the debt securities of a non-consolidated entity. We do not consolidate our

resecuritization trusts unless we are deemed to be the primary beneficiary of such trusts. We are subject to the credit risk associated with the mortgage

loans underlying our Freddie Mac mortgage-related securities. Mortgage loans underlying our issued single-family PCs and certain Other Guarantee

Transactions are recognized on our consolidated balance sheets as held-for-investment mortgage loans, at amortized cost. See “NOTE 1: SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities” for further information.

(3) Agency securities are generally not separately rated by nationally recognized statistical rating organizations, but have historically been viewed as having

a level of credit quality at least equivalent to non-agency mortgage-related securities AAA-rated or equivalent.

(4) For information about how these securities are rated, see ‘‘Table 29 — Ratings of Non-Agency Mortgage-Related Securities Backed by Subprime,

Option ARM, Alt-A and Other Loans, and CMBS.’’

(5) Consists of housing revenue bonds. Approximately 36% and 37% of these securities held at December 31, 2012 and 2011, respectively, were AAA-rated

as of those dates, based on the UPB and the lowest rating available.

(6) Credit ratings for most non-agency mortgage-related securities are designated by no fewer than two nationally recognized statistical rating organizations.

Approximately 21% of total non-agency mortgage-related securities held at both December 31, 2012 and 2011, were AAA-rated as of those dates, based

on the UPB and the lowest rating available.

113 Freddie Mac
The table below provides the UPB and fair value of our investments in mortgage-related securities classified as

available-for-sale or trading on our consolidated balance sheets.

Table 24 — Additional Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets

December 31, 2012 December 31, 2011

UPB Fair Value UPB Fair Value

(in millions)

Agency pass-through securities(1) ............................................... $ 17,614 $ 19,125 $ 24,283 $ 26,193

Agency REMICs and Other Structured Securities:

Interest-only securities(2) .................................................... — 2,023 — 2,863

Principal-only securities(3) ................................................... 2,291 2,169 3,569 3,344

Inverse floating-rate securities(4) .............................................. 2,804 4,106 4,839 6,826

Other(5) ................................................................ 61,682 67,404 85,907 93,805

Total agency securities ................................................... 84,391 94,827 118,598 133,031

Non-agency securities(6) ...................................................... 125,694 101,048 142,634 109,160

Total mortgage-related securities ............................................... $210,085 $195,875 $261,232 $242,191

(1) Represents an undivided beneficial interest in trusts that hold pools of mortgages.

(2) Represents securities where the holder receives only the interest cash flows.

(3) Represents securities where the holder receives only the principal cash flows.

(4) Represents securities where the holder receives interest cash flows that change inversely with the reference rate (i.e., higher cash flows when interest

rates are low and lower cash flows when interest rates are high). Additionally, these securities receive a portion of principal cash flows associated with

the underlying collateral.

(5) Includes REMICs and Other Structured Securities. See “GLOSSARY” for more information on these securities.

(6) Includes fair values of $3 million and $2 million of interest-only securities at December 31, 2012 and 2011, respectively.

The total UPB of our investments in mortgage-related securities on our consolidated balance sheets decreased from

$261.2 billion at December 31, 2011 to $210.1 billion at December 31, 2012, while the fair value of these investments

decreased from $242.2 billion at December 31, 2011 to $195.9 billion at December 31, 2012. The reduction in UPB resulted

from liquidations, consistent with our efforts to reduce the size of our mortgage-related investments portfolio, as described in

“BUSINESS — Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related

Investments Portfolio.”

The table below summarizes our mortgage-related securities purchase activity for 2012, 2011, and 2010. This activity

primarily consists of purchases of single-family PCs and multifamily Other Guarantee Transactions. Our purchases of singlefamily PCs and certain Other Guarantee Transactions issued by trusts that we consolidated are recorded as an extinguishment

of debt securities of consolidated trusts held by third parties on our consolidated balance sheets.

114 Freddie Mac
Table 25 — Mortgage-Related Securities Purchase Activity (1)

Year Ended December 31,

2012 2011 2010

(in millions)

Non-Freddie Mac mortgage-related securities purchased for resecuritization:

Ginnie Mae Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21 $ 77 $ 69

Non-agency mortgage-related securities purchased for Other Guarantee Transactions(2) ................. 17,908 11,527 9,579

Total non-Freddie Mac mortgage-related securities purchased for resecuritization ................... 17,929 11,604 9,648

Non-Freddie Mac mortgage-related securities purchased as investments in securities:

Agency securities:

Fannie Mae:

Fixed-rate ..................................................................... — 5,835 —

Variable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 2,297 373

Total agency securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 8,132 373

Non-agency mortgage-related securities:

CMBS:

Fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 14 —

Variable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 179 40

Total non-agency mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 193 40

Total non-Freddie Mac mortgage-related securities purchased as investments in securities . . . . . . . . . 249 8,325 413

Total non-Freddie Mac mortgage-related securities purchased ................................... $18,178 $ 19,929 $10,061

Freddie Mac mortgage-related securities purchased:

Single-family:

Fixed-rate ....................................................................... $52,882 $ 94,543 $40,462

Variable-rate ..................................................................... 4,856 5,057 923

Multifamily:

Fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 355 271

Variable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 117 111

Total Freddie Mac mortgage-related securities purchased ...................................... $57,857 $100,072 $41,767

(1) Based on UPB. Excludes mortgage-related securities traded but not yet settled.

(2) Purchases in 2010 include HFA bonds we acquired and resecuritized under the NIBP. See “NOTE 2: CONSERVATORSHIP AND RELATED

MATTERS” for further information on this component of the HFA initiative.

The purchases of Freddie Mac mortgage-related securities we made during 2012, as reflected in the table above,

primarily related to our securitization of mortgage loans that we had purchased for cash, and our subsequent retention of the

PCs created from such securitizations. During 2011, as reflected in the table above, we increased our participation in dollar

roll transactions compared to 2010, primarily in an effort to support the liquidity and price performance of our PCs. When

these transactions involve our consolidated PC trusts, the purchase and sale represents an extinguishment and issuance of

debt securities, respectively, and impacts our net interest income and recognition of gain or loss on the extinguishment of

debt on our consolidated statements of comprehensive income. These dollar roll transactions can cause short-term

fluctuations in the balance of our mortgage-related investments portfolio. For more information, see “BUSINESS — Our

Business Segments — Investments Segment — PC Support Activities” and “RISK FACTORS — Competitive and Market

Risks — A significant decline in the price performance of or demand for our PCs could have an adverse effect on the volume

and/or profitability of our new single-family guarantee business.”

Unrealized Losses on Available-For-Sale Mortgage-Related Securities

At December 31, 2012, our gross unrealized losses, pre-tax, on available-for-sale mortgage-related securities were $12.4

billion, compared to $20.1 billion at December 31, 2011. The decrease was primarily due to fair value gains related to:

(a) our investments in single-family non-agency mortgage-related securities, primarily due to the movement of these

securities with unrealized losses towards maturity; (b) the impact of spread tightening on our CMBS; and (c) the impact of

declining interest rates. We believe the unrealized losses related to these securities at December 31, 2012 were mainly

attributable to poor underlying collateral performance, limited liquidity and large risk premiums in the market for residential

non-agency mortgage-related securities. All available-for-sale securities in an unrealized loss position are evaluated to

determine if the impairment is other-than-temporary. See “Total Equity (Deficit)” and “NOTE 7: INVESTMENTS IN

SECURITIES” for additional information regarding unrealized losses on our available-for-sale securities.

115 Freddie Mac
Higher-Risk Components of Our Investments in Mortgage-Related Securities

As discussed below, we have exposure to subprime, option ARM, interest-only, and Alt-A and other loans as part of our

investments in mortgage-related securities as follows:

• Single-family non-agency mortgage-related securities: We hold non-agency mortgage-related securities backed by

subprime, option ARM, and Alt-A and other loans.

• Single-family Freddie Mac mortgage-related securities: We hold certain Other Guarantee Transactions as part of our

investments in securities. There are subprime and option ARM loans underlying some of these Other Guarantee

Transactions. For more information on single-family loans with certain higher-risk characteristics underlying our

issued securities, see “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk.”

Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, and Alt-A Loans

We categorize our investments in non-agency mortgage-related securities as subprime, option ARM, or Alt-A if the

securities were identified as such based on information provided to us when we entered into these transactions. We have not

identified option ARM, CMBS, obligations of states and political subdivisions, and manufactured housing securities as either

subprime or Alt-A securities. Since the first quarter of 2008, we have not purchased any non-agency mortgage-related

securities backed by subprime, option ARM, or Alt-A loans. The two tables below present information about our holdings of

available-for-sale non-agency mortgage-related securities backed by subprime, option ARM and Alt-A loans.

116 Freddie Mac
Table 26 — Non-Agency Mortgage-Related Securities Backed by Subprime First Lien, Option ARM, and Alt-A Loans

and Certain Related Credit Statistics(1)

As of

12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011

(dollars in millions)

UPB:

Subprime first lien(2) ................................................ $44,066 $45,166 $46,306 $47,478 $48,644

Option ARM ..................................................... 12,012 12,477 12,958 13,508 13,949

Alt-A(3) .......................................................... 12,634 13,055 13,471 13,885 14,260

Gross unrealized losses, pre-tax:(4)

Subprime first lien (2) ................................................ $ 9,128 $10,464 $12,810 $12,661 $13,401

Option ARM ..................................................... 1,785 2,502 2,997 2,909 3,169

Alt-A(3) .......................................................... 1,093 1,488 2,082 2,094 2,612

Present value of expected future credit losses:(5)

Subprime first lien (2) ................................................ $ 7,159 $ 7,129 $ 6,571 $ 7,325 $ 6,746

Option ARM ..................................................... 3,542 3,442 3,296 3,908 4,251

Alt-A (3) ......................................................... 1,739 1,699 1,956 2,237 2,235

Collateral delinquency rate: (6)

Subprime first lien (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39% 39% 40% 42% 42%

Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 40 42 43 44

Alt-A (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 24 24 25 25

Average credit enhancement: (7)

Subprime first lien (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% 17% 19% 20% 21%

Option ARM ..................................................... 3 4 5 6 7

Alt-A (3) ......................................................... 4 5 5 6 7

Cumulative collateral loss: (8)

Subprime first lien (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26% 25% 24% 23% 22%

Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 20 19 18 17

Alt-A (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10 9 9 8

(1) See “Ratings of Non-Agency Mortgage-Related Securities” for additional information about these securities.

(2) Excludes non-agency mortgage-related securities backed exclusively by subprime second liens. Certain securities identified as subprime first lien may be

backed in part by subprime second-lien loans, as the underlying loans of these securities were permitted to include a small percentage of subprime

second-lien loans.

(3) Excludes non-agency mortgage-related securities backed by other loans, which are primarily comprised of securities backed by home equity lines of

credit.

(4) Represents the aggregate of the amount by which amortized cost, after other-than-temporary impairments, exceeds fair value measured at the individual

lot level.

(5) Represents our estimate of the present value of future contractual cash flows that we do not expect to collect, discounted at the effective interest rate

determined based on the security’s contractual cash flows and the initial acquisition costs. This discount rate is only utilized to analyze the cumulative

credit deterioration for securities since acquisition and may be lower than the discount rate used to measure ongoing other-than-temporary impairment to

be recognized in earnings for securities that have experienced a significant improvement in expected cash flows since the last recognition of other-thantemporary impairment recognized in earnings.

(6) Determined based on the number of loans that are two monthly payments or more past due that underlie the securities using information obtained from a

third-party data provider.

(7) Reflects the ratio of the current principal amount of the securities issued by a trust that will absorb losses in the trust before any losses are allocated to

securities that we own. Percentage generally calculated based on: (a) the total UPB of securities subordinate to the securities we own, divided by (b) the

total UPB of all of the securities issued by the trust (excluding notional balances). Only includes credit enhancement provided by subordinated securities;

excludes credit enhancement provided by bond insurance.

(8) Based on the actual losses incurred on the collateral underlying these securities. Actual losses incurred on the securities that we hold are significantly

less than the losses on the underlying collateral as presented in this table, as non-agency mortgage-related securities backed by subprime, option ARM,

and Alt-A loans were generally structured to include credit enhancements, particularly through subordination and other structural enhancements.

For purposes of our cumulative credit deterioration analysis, our estimate of the present value of expected future credit

losses on our available-for-sale non-agency mortgage-related securities decreased to $13.2 billion at December 31, 2012

from $14.0 billion at December 31, 2011. All of these amounts have been reflected in our net impairment of available-forsale securities recognized in earnings in this period or prior periods. The decrease in the present value of expected future

credit losses was primarily driven by: (a) improvements in forecasted home prices over the expected life of our available-forsale securities; (b) the impact of lower interest rates in 2012 resulting in a benefit from expected structural credit

enhancements on the securities; and (c) realized cash shortfalls. This decrease was partially offset by an increase in the

present value of expected future credit loss estimates related to the impact of our implementation, in the fourth quarter of

2012, of a third-party model, which enhanced our approach to estimating other-than-temporary impairments of our singlefamily non-agency mortgage-related securities. For more information regarding our implementation of this model, see

“NOTE 7: INVESTMENTS IN SECURITIES — Impairment Recognition on Investments in Securities.”

Since the beginning of 2007, we have incurred actual principal cash shortfalls of $2.8 billion on impaired non-agency

mortgage-related securities, including $315 million and $1.3 billion related to the three and twelve months ended

December 31, 2012, respectively. Many of the trusts that issued non-agency mortgage-related securities we hold were

structured so that realized collateral losses in excess of structural credit enhancements are not passed on to investors until the

investment matures. We currently estimate that the future expected principal and interest shortfalls on non-agency mortgage117 Freddie Mac
related securities we hold will be significantly less than the fair value declines experienced on these securities. As noted

above, at December 31, 2012, our estimate of the present value of expected future credit losses was $13.2 billion.

The investments in non-agency mortgage-related securities we hold backed by subprime, option ARM, and Alt-A loans

were generally structured to include credit enhancements, particularly through subordination and other structural

enhancements. Bond insurance is an additional credit enhancement covering some of the non-agency mortgage-related

securities. These credit enhancements are the primary reason we expect our actual losses, through principal or interest

shortfalls, to be less than the underlying collateral losses in the aggregate. During 2012, we continued to experience the

erosion of structural credit enhancements on many securities backed by subprime, option ARM, and Alt-A loans due to poor

performance of the underlying collateral. For more information on bond insurance coverage, see “RISK MANAGEMENT —

Credit Risk — Institutional Credit Risk — Bond Insurers.”

The table below provides principal repayment and cash shortfall information for our investments in non-agency

mortgage-related securities backed by subprime, option ARM, Alt-A and other loans.

Table 27 — Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other Loans(1)

Three Months Ended

12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011

(in millions)

Principal repayments and cash shortfalls:(2)

Subprime:

Principal repayments .............................................. $1,106 $1,149 $1,180 $1,175 $1,159

Principal cash shortfalls ........................................... 7 4 7 6 7

Option ARM:

Principal repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 239 $ 269 $ 300 $ 272 $ 298

Principal cash shortfalls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 211 234 169 103

Alt-A and other:

Principal repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 423 $ 393 $ 405 $ 374 $ 385

Principal cash shortfalls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 101 106 97 80

(1) See “Ratings of Non-Agency Mortgage-Related Securities” for additional information about these securities.

(2) In addition to the contractual interest payments, we receive monthly remittances of principal repayments from both the recoveries from liquidated loans

and, to a lesser extent, voluntary repayments of the underlying collateral of these securities representing a partial return of our investment in these

securities.

We and FHFA, as Conservator, are involved in efforts to mitigate our losses as an investor with respect to certain of the

non-agency mortgage-related securities we hold. See “RISK MANAGEMENT — Credit Risk — Institutional Credit Risk —

Non-Agency Mortgage-Related Security Issuers” for more information.

Other-Than-Temporary Impairments on Available-For-Sale Mortgage-Related Securities

The table below provides information about the mortgage-related securities for which we recognized other-thantemporary impairments in earnings.

118 Freddie Mac
Table 28 — Net Impairment of Available-For-Sale Mortgage-Related Securities Recognized in Earnings

Net Impairment of Available-For-Sale Securities Recognized in Earnings

Three Months Ended

12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011

(in millions)

Subprime:(1)

2006 & 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 591 $159 $51 $433 $472

Other years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 1 7 8 8

Total subprime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 615 160 58 441 480

Option ARM:

2006 & 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 62 18 32 40

Other years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 — — 16 19

Total option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428 62 18 48 59

Alt-A:

2006 & 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 — — 16 22

Other years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 — 1 36 21

Total Alt-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 — 1 52 43

Other loans .................................................. — — 1 5 3

Total subprime, option ARM, Alt-A and other loans ................... 1,180 222 78 546 585

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 45 19 16 8

Manufactured housing .......................................... 1 — 1 2 2

Total available-for-sale mortgage-related securities ..................... $1,239 $267 $98 $564 $595

(1) Includes all first and second liens.

We recorded net impairment of available-for-sale mortgage-related securities recognized in earnings of $1.2 billion and

$2.2 billion during the three and twelve months ended December 31, 2012, respectively, compared to $595 million and

$2.3 billion during the three and twelve months ended December 31, 2011, respectively. We recorded these impairments

because our estimate of the present value of expected future credit losses on certain individual available-for-sale securities

increased during these periods. These impairments include $1.2 billion and $2.0 billion related to securities backed by

subprime, option ARM, and Alt-A and other loans during the three and twelve months ended December 31, 2012,

respectively, compared to $585 million and $1.9 billion during the three and twelve months ended December 31, 2011,

respectively. In addition, during 2011, we recognized the unrealized fair value losses of $181 million related to certain

investments in CMBS as a net impairment of available-for-sale securities recognized in earnings because we had the intent to

sell these securities prior to the recovery of the unrealized losses. We did not recognize any net impairment of available-forsale securities in earnings during 2012 as a result of an intent to sell available-for-sale securities prior to the recovery of the

unrealized losses. For more information, including information regarding a model change related to impairments

implemented in the fourth quarter of 2012, see “CONSOLIDATED RESULTS OF OPERATIONS — Non-Interest Income

(Loss) — Investment Securities-Related Activities” and “NOTE 7: INVESTMENTS IN SECURITIES — Other-ThanTemporary Impairments on Available-for-Sale Securities.”

While it is reasonably possible that collateral losses on our available-for-sale mortgage-related securities where we have

not recorded an impairment charge in earnings could exceed our credit enhancement levels, we do not believe that those

conditions were likely at December 31, 2012. Based on our conclusion that we do not intend to sell our remaining availablefor-sale mortgage-related securities that are in an unrealized loss position and it is not more likely than not that we will be

required to sell these securities before a sufficient time to recover all unrealized losses and our consideration of other

available information, we have concluded that the reduction in fair value of these securities was temporary at December 31,

2012 and have recorded these unrealized losses in AOCI.

The credit performance of loans underlying our holdings of non-agency mortgage-related securities has declined since

2007. This decline has been particularly severe for subprime, option ARM, and Alt-A and other loans. Economic factors

negatively impacting the performance of our investments in non-agency mortgage-related securities since 2007 include high

unemployment, a large inventory of seriously delinquent mortgage loans and unsold homes, tight credit conditions, and weak

consumer confidence. In addition, subprime, option ARM, and Alt-A and other loans backing the securities we hold have

significantly greater concentrations in the states that have undergone the greatest economic stress, such as California and

Florida. Loans in these states are more likely to become seriously delinquent and the credit losses associated with such loans

are likely to be higher than in other states.

119 Freddie Mac
We rely on bond insurance, including secondary coverage, to provide credit protection on some of our investments in

non-agency mortgage-related securities. We have determined that there is substantial uncertainty surrounding certain bond

insurers’ ability to pay our future claims on expected credit losses related to our non-agency mortgage-related security

investments. This uncertainty contributed to the impairments recognized in earnings during 2012, 2011, and 2010. See

“RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Bond Insurers” and “NOTE 15: CONCENTRATION

OF CREDIT AND OTHER RISKS — Bond Insurers” for additional information.

Our assessments concerning other-than-temporary impairment require significant judgment and the use of models, and

are subject to potentially significant change as conditions evolve. In addition, changes in the performance of the individual

securities and in mortgage market conditions may also affect our impairment assessments. Depending on the structure of the

individual mortgage-related security and our estimate of collateral losses relative to the amount of credit support expected to

be available for the tranches we own, a change in collateral loss estimates can have a disproportionate impact on the loss

estimate for the security. Additionally, servicer performance, loan modification programs and backlogs, bankruptcy reform

and other forms of government intervention in the housing market can significantly affect the performance of these

securities, including the timing of loss recognition of the underlying loans and thus the timing of losses we recognize on our

securities. Impacts related to changes in interest rates may also affect our losses due to the structural credit enhancements on

our investments in non-agency mortgage-related securities. The lengthening of the foreclosure timelines that has occurred in

recent years can also affect our losses. For example, while defaulted loans remain in the trusts prior to completion of the

foreclosure process, the subordinate classes of securities issued by the securitization trusts may continue to receive interest

payments, rather than absorbing default losses. This may reduce the amount of funds available for the tranches we own.

Given the uncertainty of the housing and economic environment, it is difficult to estimate the future performance of

mortgage loans and mortgage-related securities with high assurance, and actual results could differ materially from our

expectations. Furthermore, various market participants could arrive at materially different conclusions regarding estimates of

future cash shortfalls.

For more information on risks associated with the use of models, see “RISK FACTORS — Operational Risks — We

face risks and uncertainties associated with the models that we use for financial accounting and reporting purposes, to make

business decisions, and to manage risks. Market conditions have raised these risks and uncertainties.”

Ratings of Non-Agency Mortgage-Related Securities

The table below shows the ratings of non-agency mortgage-related securities backed by subprime, option ARM, Alt-A

and other loans, and CMBS held at December 31, 2012 based on their ratings as of December 31, 2012, as well as those held

at December 31, 2011 based on their ratings as of December 31, 2011 using the lowest rating available for each security.

120 Freddie Mac
Table 29 — Ratings of Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and

Other Loans, and CMBS

Credit Ratings as of December 31, 2012 UPB

Percentage

of UPB

Amortized

Cost

Gross

Unrealized

Losses

Bond

Insurance

Coverage (1)

(dollars in millions)

Subprime loans:

AAA-rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 268 1% $ 268 $ (21) $ 18

Other investment grade .......................................... 1,989 4 1,945 (110) 366

Below investment grade (2) ......................................... 42,140 95 33,290 (8,998) 1,474

Total ...................................................... $ 44,397 100% $ 35,503 $ (9,129) $1,858

Option ARM loans:

AAA-rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — —% $ — $ — $ —

Other investment grade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 — 32 (2) 32

Below investment grade (2) ......................................... 11,980 100 7,422 (1,783) 12

Total ...................................................... $ 12,012 100 % $ 7,454 $ (1,785) $ 44

Alt-A and other loans:

AAA-rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48 —% $ 48 $ (2) $ 6

Other investment grade .......................................... 1,570 11 1,581 (133) 261

Below investment grade (2) ......................................... 13,192 89 10,234 (1,066) 1,862

Total ...................................................... $ 14,810 100% $ 11,863 $ (1,201) $2,129

CMBS:

AAA-rated ................................................... $ 24,401 51% $ 24,431 $ (4) $ 41

Other investment grade .......................................... 20,860 43 20,813 (87) 1,698

Below investment grade (2) ......................................... 2,696 6 2,490 (90) 1,568

Total ...................................................... $ 47,957 100% $ 47,734 $ (181) $3,307

Total subprime, option ARM, Alt-A and other loans, and CMBS:

AAA-rated ................................................... $ 24,717 21% $ 24,747 $ (27) $ 65

Other investment grade .......................................... 24,451 20 24,371 (332) 2,357

Below investment grade (2) ......................................... 70,008 59 53,436 (11,937) 4,916

Total ...................................................... $119,176 100% $102,554 $(12,296) $7,338

Total investments in mortgage-related securities .......................... $210,085

Percentage of subprime, option ARM, Alt-A and other loans, and CMBS of total

investments in mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57%

Credit Ratings as of December 31, 2011

Subprime loans:

AAA-rated ................................................... $ 1,000 2% $ 1,000 $ (115) $ 23

Other investment grade .......................................... 2,643 5 2,643 (399) 383

Below investment grade (2) ......................................... 45,389 93 37,704 (12,894) 1,641

Total ...................................................... $ 49,032 100% $ 41,347 $(13,408) $2,047

Option ARM loans:

AAA-rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — —% $ — $ — $ —

Other investment grade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 1 76 (8) 76

Below investment grade (2) ......................................... 13,873 99 8,943 (3,161) 39

Total ...................................................... $ 13,949 100% $ 9,019 $ (3,169) $ 115

Alt-A and other loans:

AAA-rated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 350 2% $ 348 $ (20) $ 6

Other investment grade .......................................... 2,237 13 2,260 (371) 310

Below investment grade (2) ......................................... 14,203 85 11,053 (2,421) 2,139

Total ...................................................... $ 16,790 100% $ 13,661 $ (2,812) $2,455

CMBS:

AAA-rated ................................................... $ 25,499 47% $ 25,540 $ (22) $ 42

Other investment grade .......................................... 25,421 47 25,394 (346) 1,585

Below investment grade (2) ......................................... 3,190 6 2,851 (180) 1,697

Total ...................................................... $ 54,110 100% $ 53,785 $ (548) $3,324

Total subprime, option ARM, Alt-A and other loans, and CMBS:

AAA-rated ................................................... $ 26,849 20% $ 26,888 $ (157) $ 71

Other investment grade .......................................... 30,377 23 30,373 (1,124) 2,354

Below investment grade (2) ......................................... 76,655 57 60,551 (18,656) 5,516

Total ...................................................... $133,881 100% $117,812 $(19,937) $7,941

Total investments in mortgage-related securities .......................... $261,232

Percentage of subprime, option ARM, Alt-A and other loans, and CMBS of total

investments in mortgage-related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51%

(1) Represents the amount of UPB covered by bond insurance. This amount does not represent the maximum amount of losses we could recover, as the

bond insurance also covers interest.

(2) Includes securities with S&P equivalent credit ratings below BBB– and certain securities that are no longer rated.

121 Freddie Mac
Mortgage Loans

The UPB of mortgage loans on our consolidated balance sheets declined to $1.7 trillion as of December 31, 2012, from

$1.8 trillion as of December 31, 2011. This decline reflects that the amount of single-family loan liquidations during the

period exceeded new loan purchase and guarantee activity, which we believe is due, in part, to declines in the amount of

single-family mortgage debt outstanding in the market and a decline in our single-family competitive position compared to

other market participants (primarily Fannie Mae and Ginnie Mae). See “RISK FACTORS — Competitive and Market

Risks — A significant decline in the price performance of or demand for our PCs could have an adverse effect on the volume

and/or profitability of our new single-family guarantee business” for further information on our competitive position in the

single-family mortgage market. Most of the loans on our consolidated balance sheets are securitized (e.g., held in PC trusts).

The unsecuritized loans on our consolidated balance sheets generally consist of loans held for investment purposes, loans that

are awaiting securitization, or delinquent or modified loans that we removed from PC trusts.

The UPB of unsecuritized single-family mortgage loans declined by $27.0 billion to $144.7 billion at December 31,

2012, from $171.7 billion at December 31, 2011, primarily due to: (a) loan prepayments, foreclosure transfers, and

foreclosure alternative activities; and (b) securitizations of loans through our PC cash auction process.

Based on the amount of the recorded investment of single-family loans on our consolidated balance sheets,

approximately $59.8 billion, or 3.6%, of these loans were seriously delinquent as of December 31, 2012, as compared to

$72.4 billion, or 4.2%, as of December 31, 2011. This decline was primarily due to a slowdown in new serious delinquencies

(largely due to a decline in the portion of our single-family loans that were originated in 2005 through 2008), and the impact

of our loss mitigation efforts, including short sales. The majority of these seriously delinquent loans are unsecuritized, and

were removed by us from our PC trusts. As guarantor, we have the right to remove mortgages that back our PCs from the

underlying loan pools under certain circumstances. See “NOTE 5: INDIVIDUALLY IMPAIRED AND NONPERFORMING LOANS” for more information on our removal of single-family loans from PC trusts.

The UPB of unsecuritized multifamily mortgage loans was $76.6 billion at December 31, 2012 and $82.3 billion at

December 31, 2011. This decline is primarily the result of principal repayments on our loans held for investment during the

period, which were partially offset by an increase in the balance of loans held-for-sale or securitization. Our principal

multifamily business activity involves purchasing and aggregating loans for securitization. We expect to continue our

securitization activity since it provides liquidity for the multifamily market, supports affordability for multifamily rental

housing, and helps us to manage credit risk.

We maintain an allowance for loan losses on mortgage loans that we classify as held-for-investment on our consolidated

balance sheets. We also maintain a reserve for guarantee losses that is associated with Freddie Mac mortgage-related

securities backed by multifamily loans, certain single-family Other Guarantee Transactions, and other guarantee

commitments for which we have incremental credit risk. Collectively, we refer to our allowance for loan losses and our

reserve for guarantee losses as our loan loss reserves. Our loan loss reserves were $30.9 billion and $39.5 billion at

December 31, 2012 and 2011, respectively, including $30.5 billion and $38.9 billion, respectively, related to single-family

loans. At December 31, 2012 and 2011, our loan loss reserves, as a percentage of our total mortgage portfolio, excluding

non-Freddie Mac securities, were 1.7% and 2.1%, respectively, and as a percentage of the UPB associated with our nonperforming loans were 23.5% and 32.0%, respectively. Our loan loss reserves declined during 2012 primarily due to

continued high levels of charge-offs that exceeded the amount of our provision for credit losses during the period. See “RISK

MANAGEMENT — Credit Risk — Mortgage Credit Risk” and “NOTE 4: MORTGAGE LOANS AND LOAN LOSS

RESERVES” for further detail about the mortgage loans and associated allowance for loan losses recorded on our

consolidated balance sheets.

The table below summarizes the amount of mortgages we purchased and the amount of guarantees we issued in the

applicable periods. The activity presented in the table consists of: (a) mortgage loans underlying consolidated single-family

PCs issued in the period (regardless of whether such securities are held by us or third parties); (b) single-family and

multifamily mortgage loans purchased, but not securitized, in the period; and (c) mortgage loans underlying our mortgagerelated financial guarantees issued in the period, which are not consolidated on our balance sheets.

122 Freddie Mac
Table 30 — Mortgage Loan Purchases and Other Guarantee Commitment Issuances(1)

Year Ended December 31,

2012 2011 2010

UPB

Amount

% of

Total

UPB

Amount

% of

Total

UPB

Amount

% of

Total

(dollars in millions)

Mortgage loan purchases and guarantee issuances:

Single-family:

30-year or more amortizing fixed-rate ................................ $275,632 60% $194,746 57% $258,621 64%

20-year amortizing fixed-rate ...................................... 29,614 7 21,378 6 23,852 6

15-year amortizing fixed-rate ...................................... 103,141 23 78,543 23 83,025 21

Adjustable-rate (2) ................................................ 18,075 4 25,685 8 16,534 4

Interest-only (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 909 <1

HFA bonds .................................................... — — — — 2,469 1

FHA/VA and other governmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 <1 441 <1 968 <1

Total single-family (4) ........................................... 426,849 94 320,793 94 386,378 96

Multifamily ..................................................... 28,774 6 20,325 6 15,372 4

Total mortgage loan purchases and other guarantee commitment

issuances(5) ............................................... $455,623 100% $341,118 100% $401,750 100%

Percentage of mortgage purchases and other guarantee commitment issuances with

credit enhancements(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11% 8% 9%

(1) Based on UPB. Excludes mortgage loans traded but not yet settled. Excludes the removal of seriously delinquent loans and balloon/reset mortgages out

of PC trusts. Includes other guarantee commitments associated with mortgage loans. See endnote (5) for further information.

(2) Includes amortizing ARMs with 1-, 3-, 5-, 7-, and 10-year initial fixed-rate periods. We did not purchase any option ARM loans during the years ended

December 31, 2012, 2011, or 2010.

(3) Represents loans where the borrower pays interest only for a period of time before the borrower begins making principal payments. Includes both fixedrate and variable-rate interest-only loans.

(4) Includes $32.6 billion, $27.7 billion, and $23.9 billion of mortgage loans in excess of $417,000, which we refer to as conforming jumbo mortgages, for

the years ended December 31, 2012, 2011, and 2010, respectively.

(5) Includes issuances of other guarantee commitments on single-family loans of $6.8 billion, $4.4 billion, and $5.7 billion and issuances of other guarantee

commitments on multifamily loans of $2.4 billion, $1.0 billion, and $1.7 billion during the years ended December 31, 2012, 2011, and 2010,

respectively, which include our unsecuritized guarantees of HFA bonds under the TCLFP in 2010.

(6) See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES — Credit Protection and Other Forms of Credit Enhancement” for further

details on credit enhancement of mortgage loans in our multifamily mortgage and single-family credit guarantee portfolios.

See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit Risk” and

“NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Table 15.2 — Certain Higher-Risk Categories in the

Single-Family Credit Guarantee Portfolio” for information about mortgage loans in our single-family credit guarantee

portfolio that we believe have higher-risk characteristics.

Derivative Assets and Liabilities, Net

The composition of our derivative portfolio changes from period to period as a result of purchases and terminations of

derivatives, assignments of derivatives prior to their contractual maturity, and expiration of derivatives at their contractual

maturity. We classify net derivative interest receivable or payable, trade/settle receivable or payable, and cash collateral held

or posted on our consolidated balance sheets in derivative assets, net and derivative liabilities, net. Non-cash collateral held is

not recognized on our consolidated balance sheets as we do not obtain effective control over the collateral. See “NOTE 7:

INVESTMENTS IN SECURITIES — Collateral Pledged” for more information about collateral held and posted and

“NOTE 10: DERIVATIVES” for additional information regarding our derivatives.

The table below shows the fair value for each derivative type, the weighted average fixed rate of our pay-fixed and

receive-fixed swaps, and the maturity profile of our derivative positions reconciled to the amounts presented on our

consolidated balance sheets as of December 31, 2012. A positive fair value in the table below for each derivative type is the

estimated amount, prior to netting by counterparty, that we would be entitled to receive if the derivatives of that type were

terminated. A negative fair value for a derivative type is the estimated amount, prior to netting by counterparty, that we

would owe if the derivatives of that type were terminated.

123 Freddie Mac
Table 31 — Derivative Fair Values and Maturities

December 31, 2012

Notional or

Contractual

Amount (2)

Total Fair

Value (3)

Fair Value (1)

Less than

1 Year

1 to 3

Years

Greater than 3

and up to 5 Years

In Excess

of 5 Years

(dollars in millions)

Interest-rate swaps:

Receive-fixed:

Swaps .......................................... $262,609 $ 12,525 $ 70 $ 941 $ 3,573 $ 7,941

Weighted average fixed rate (4) ....................... 1.18% 1.06% 1.75% 2.82%

Forward-starting swaps(5) ............................ 12,490 1,160 — — — 1,160

Weighted average fixed rate (4) . . . . . . . . . . . . . . . . . . . . . . . —% —% —% 3.41%

Total receive-fixed ............................... 275,099 13,685 70 941 3,573 9,101

Basis (floating to floating) ............................. 2,300 6 — — 6 —

Pay-fixed:

Swaps .......................................... 257,327 (28,443) (86) (3,217) (4,852) (20,288)

Weighted average fixed rate (4) ....................... 1.13% 3.04 % 3.07% 3.58%

Forward-starting swaps(5) ............................ 12,765 (1,527) — — — (1,527)

Weighted average fixed rate (4) . . . . . . . . . . . . . . . . . . . . . . . —% —% —% 3.25%

Total pay-fixed .................................. 270,092 (29,970) (86) (3,217) (4,852) (21,815)

Total interest-rate swaps ............................... 547,491 (16,279) (16) (2,276) (1,273) (12,714)

Option-based:

Call swaptions ...................................... Purchased ....................................... 37,650 7,360 1,432 3,576 906 1,446

Written ......................................... 6,195 (749) — (749) — —

Put swaptions ...................................... Purchased ....................................... 43,200 288 2 13 25 248

Other option-based derivatives(6) ......................... 31,540 2,448 — — — 2,448

Total option-based ................................. 118,585 9,347 1,434 2,840 931 4,142

Futures ............................................. 41,123 35 35 — — —

Foreign-currency swaps ................................. 1,167 67 49 18 — —

Commitments ........................................ 25,530 (27) (27) — — —

Swap guarantee derivatives .............................. 3,628 (35) — (2) (1) (32)

Subtotal ........................................... 737,524 (6,892) $1,475 $ 580 $ (343) $ (8,604)

Credit derivatives ..................................... 8,307 (4)

Subtotal ........................................... 745,831 (6,896)

Derivative interest receivable (payable), net .................. (830)

Derivative cash collateral (held) posted, net ................... 8,205

Total ............................................... $745,831 $ 479

(1) Fair value is categorized based on the period from December 31, 2012 until the contractual maturity of the derivative.

(2) Notional or contractual amounts are used to calculate the periodic settlement amounts to be received or paid and generally do not represent actual

amounts to be exchanged. Notional or contractual amounts are not recorded as assets or liabilities on our consolidated balance sheets.

(3) The value of derivatives on our consolidated balance sheets is reported as derivative assets, net and derivative liabilities, net, and includes derivative

interest receivable or (payable), net, trade/settle receivable or (payable), net and derivative cash collateral (held) or posted, net. Excludes $501 million of

non-cash collateral held. See endnote (5) to “Table 67 — Derivative Counterparty Credit Exposure” for information about non-cash collateral held or

posted.

(4) Represents the notional weighted average rate for the fixed leg of the swaps.

(5) Represents interest-rate swap agreements that are scheduled to begin on future dates ranging from less than one year to thirteen years as of December 31,

2012.

(6) Primarily includes purchased interest-rate caps and floors.

At December 31, 2012, the net fair value of our total derivative portfolio was $479 million, as compared to

$(317) million at December 31, 2011. The increase in the net fair value of derivatives resulted from the effects of non-cash

collateral held, which was $501 million and $0 million as of December 31, 2012 and 2011, respectively. As discussed above,

non-cash collateral held is not recognized on our consolidated balance sheets. See “NOTE 10: DERIVATIVES” for the

notional or contractual amounts and related fair values of our total derivative portfolio by product type at December 31, 2012

and December 31, 2011, as well as derivative collateral posted and held.

124 Freddie Mac
The table below summarizes the changes in derivative fair values.

Table 32 — Changes in Derivative Fair Values

2012(1) 2011(2)

(in millions)

Beginning balance, at January 1 — Net asset (liability) .................................................... $(8,662) $(6,560)

Net change in:

Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 (36)

Credit derivatives ........................................................................... — (11)

Swap guarantee derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (1)

Other derivatives:(3)

Changes in fair value ......................................................................... 1,051 (3,383)

Fair value of new contracts entered into during the period(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 594

Contracts realized or otherwise settled during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682 735

Ending balance, at December 31 — Net asset (liability) ................................................... $(6,896) $(8,662)

(1) Refer to ‘‘Table 31 — Derivative Fair Values and Maturities’’ for a reconciliation of net fair value to the amounts presented on our consolidated balance

sheets as of December 31, 2012.

(2) At December 31, 2011, fair value in this table excludes derivative interest receivable or (payable), net of $(1.1) billion, trade/settle receivable or

(payable), net of $1 million, and derivative cash collateral posted, net of $9.4 billion.

(3) Includes fair value changes for interest-rate swaps, option-based derivatives, futures, and foreign-currency swaps.

(4) Consists primarily of cash premiums paid or received on options.

See “CONSOLIDATED RESULTS OF OPERATIONS — Non-Interest Income (Loss) — Derivative Gains (Losses)”

for a description of gains (losses) on our derivative positions.

REO, Net

We acquire properties, which are recorded as REO assets on our consolidated balance sheets, typically as a result of

borrower default (and subsequent foreclosures) on mortgage loans that we own or guarantee. The balance of our REO, net,

declined to $4.4 billion at December 31, 2012, from $5.7 billion at December 31, 2011. We believe the volume of our singlefamily REO acquisitions in recent years was less than it otherwise would have been due to several factors, including the

length of the foreclosure process and increased volume of foreclosure alternatives. Lower acquisitions, coupled with high

disposition levels, led to a lower REO property inventory level in 2012 compared to 2011. We expect that the length of the

foreclosure process will continue to remain above historical levels and may further increase. Additionally, we expect our

REO activity to remain at elevated levels, as we have a large inventory of seriously delinquent loans in our single-family

credit guarantee portfolio. See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Non-Performing Assets”

for additional information about our REO activity.

Deferred Tax Assets, Net

After evaluating all available evidence, including our prior years’ losses, the events and developments related to our

conservatorship, volatility in the economy, related difficulty in forecasting future profit levels, and our assertion that we have

the intent and ability to hold our available-for-sale securities until any temporary unrealized losses are recovered, we

continue to record a valuation allowance on a portion of our net deferred tax assets as of December 31, 2012 and 2011. We

will continue to evaluate our conclusion regarding the need for a valuation allowance. It is possible that, in future periods, the

uncertainties regarding our future operations and profitability could be resolved such that it could become more likely than

not that the deferred tax assets would be realized and that a valuation allowance would no longer be necessary. See

“NOTE 12: INCOME TAXES” for additional information.

Other Assets

Other assets consist of the guarantee asset related to non-consolidated trusts and other guarantee commitments, accounts

and other receivables, and other miscellaneous assets. Other assets increased to $13.8 billion as of December 31, 2012 from

$10.5 billion as of December 31, 2011 primarily due to an increase in servicer receivables resulting from an increase in

mortgage loans paid off by borrowers at the end of the year that had not yet been remitted to us. Other assets also increased

as we reduced certain unrecognized tax benefits to zero as a result of a favorable resolution of matters in dispute with the

IRS. For more information regarding the discussions with the IRS, see “NOTE 12: INCOME TAXES — Unrecognized Tax

Benefits — IRS Examinations and Litigation.” For more information on other assets, see “NOTE 18: SELECTED

FINANCIAL STATEMENT LINE ITEMS.”

125 Freddie Mac
Total Debt, Net

Total debt, net on our consolidated balance sheets consists of: (a) debt securities of consolidated trusts held by third

parties; and (b) other debt.

• PCs and Other Guarantee Transactions issued by our consolidated trusts and held by third parties are recognized as

debt securities of consolidated trusts held by third parties on our consolidated balance sheets. Debt securities of

consolidated trusts held by third parties represent our liability to third parties that hold beneficial interests in our

consolidated trusts. The debt securities of our consolidated trusts may be prepaid at any time, as the loans that

collateralize the debt may be prepaid without penalty at any time.

• Other debt consists of unsecured short-term and long-term debt securities we issue to third parties to fund our

business activities. It is classified as either short-term or long-term based on the contractual maturity of the debt

instrument. See “LIQUIDITY AND CAPITAL RESOURCES” for information about our other debt.

The table below reconciles the par value of other debt and the UPB of debt securities of consolidated trusts held by third

parties to the amounts shown in our consolidated balance sheets.

Table 33 — Reconciliation of the Par Value and UPB to Total Debt, Net

December 31,

2012 2011

(in millions)

Total debt:

Other debt: ............................................................................. Par value ............................................................................ $ 552,472 $ 674,314

Unamortized balance of discounts and premiums(1) .............................................. (5,031) (13,891)

Hedging-related and other basis adjustments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 123

Subtotal ........................................................................... 547,518 660,546

Debt securities of consolidated trusts held by third parties:

UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,387,259 1,452,476

Unamortized balance of discounts and premiums ............................................... 32,265 18,961

Subtotal ........................................................................... 1,419,524 1,471,437

Total debt, net .......................................................................... $1,967,042 $2,131,983

(1) Primarily represents unamortized discounts on zero-coupon debt.

(2) Primarily represents deferrals related to debt instruments that were in hedge accounting relationships, and changes in the fair value attributable to

instrument-specific interest-rate and credit risk related to foreign-currency denominated debt.

126 Freddie Mac
The table below summarizes our other short-term debt.

Table 34 — Other Short-Term Debt

2012

December 31,

Average Outstanding

During the Year Maximum

Balance, Net

Outstanding at

Balance, Net(1) Any Month End

Weighted

Average

Effective Rate(2) Balance, Net(3)

Weighted

Average

Effective Rate(4)

(dollars in millions)

Reference Bills® securities and discount notes .............. $117,889 0.15% $126,919 0.14% $155,285

Medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 21 0.44 250

Federal funds purchased and securities sold under agreements to

repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 12 0.28 —

Other short-term debt .............................. $117,889 0.15

2011

December 31,

Average Outstanding

During the Year Maximum

Balance, Net

Outstanding at

Balance, Net(1) Any Month End

Weighted

Average

Effective Rate(2) Balance, Net(3)

Weighted

Average

Effective Rate(4)

(dollars in millions)

Reference Bills® securities and discount notes .............. $161,149 0.11% $181,209 0.17% $196,126

Medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 0.24 826 0.23 2,564

Federal funds purchased and securities sold under agreements to

repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 13 0.16 —

Other short-term debt .............................. $161,399 0.11

2010

December 31,

Average Outstanding

During the Year Maximum

Balance, Net

Outstanding at

Balance, Net(1) Any Month End

Weighted

Average

Effective Rate(2) Balance, Net(3)

Weighted

Average

Effective Rate(4)

(dollars in millions)

Reference Bills® securities and discount notes .............. $194,742 0.24% $213,465 0.25% $240,037

Medium-term notes ................................. 2,364 0.31 1,955 0.34 3,661

Federal funds purchased and securities sold under agreements to

repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 72 0.30 —

Other short-term debt .............................. $197,106 0.25

(1) Represents par value, net of associated discounts and premiums, of which $0 billion, $0.2 billion, and $0.9 billion of short-term debt represents the fair

value of debt securities with the fair value option elected at December 31, 2012, 2011, and 2010, respectively.

(2) Represents the approximate weighted average effective rate for each instrument outstanding at the end of the period, which includes the amortization of

discounts or premiums and issuance costs.

(3) Represents par value, net of associated discounts, premiums, and issuance costs. Issuance costs are reported in the other assets caption on our

consolidated balance sheets.

(4) Represents the approximate weighted average effective rate during the period, which includes the amortization of discounts or premiums and issuance

costs.

127 Freddie Mac
The table below presents the UPB for Freddie Mac-issued mortgage-related securities by the underlying mortgage

product type.

Table 35 — Freddie Mac Mortgage-Related Securities(1)

December 31, 2012 December 31, 2011

Issued by

Consolidated

Trusts

Issued by

NonConsolidated

Trusts Total

Issued by

Consolidated

Trusts

Issued by

NonConsolidated

Trusts Total

(in millions)

Single-family:

30-year or more amortizing fixed-rate ............... $1,039,439 $ — $1,039,439 $1,123,105 $ — $1,123,105

20-year amortizing fixed-rate ..................... 78,122 — 78,122 68,584 — 68,584

15-year amortizing fixed-rate ..................... 270,032 — 270,032 252,563 — 252,563

Adjustable-rate (2) .............................. 68,470 — 68,470 69,402 — 69,402

Interest-only (3) ................................ 41,275 — 41,275 59,007 — 59,007

FHA/VA and other governmental .................. 3,084 — 3,084 3,267 — 3,267

Total single-family ........................... 1,500,422 — 1,500,422 1,575,928 — 1,575,928

Multifamily ................................... — 4,224 4,224 — 4,496 4,496

Total single-family and multifamily ............... 1,500,422 4,224 1,504,646 1,575,928 4,496 1,580,424

Other Guarantee Transactions:

Non-HFA bonds:

Single-family(4) ............................. 10,455 3,415 13,870 12,877 3,838 16,715

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 36,732 37,180 — 19,682 19,682

Total Non-HFA bonds ........................ 10,903 40,147 51,050 12,877 23,520 36,397

HFA Bonds: (5)

Single-family ............................... — 4,827 4,827 — 6,118 6,118

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 863 863 — 966 966

Total HFA bonds ............................ — 5,690 5,690 — 7,084 7,084

Total Other Guarantee Transactions .................. 10,903 45,837 56,740 12,877 30,604 43,481

REMICs and Other Structured Securities backed by Ginnie

Mae certificates(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 654 654 — 779 779

Total Freddie Mac Mortgage-Related Securities ......... $1,511,325 $50,715 $1,562,040 $1,588,805 $35,879 $1,624,684

Less: Repurchased Freddie Mac Mortgage-Related

Securities(7) .................................. (124,066) (136,329)

Total UPB of debt securities of consolidated trusts held by

third parties .................................. $1,387,259 $1,452,476

(1) Amounts are based on UPB of the securities and exclude mortgage-related securities traded, but not yet settled.

(2) Includes $1.0 billion and $1.2 billion in UPB of option ARM mortgage loans as of December 31, 2012 and 2011, respectively. See endnote (4) for

additional information on option ARM loans that back our Other Guarantee Transactions.

(3) Represents loans where the borrower pays interest only for a period of time before the borrower begins making principal payments. Includes both fixedand variable-rate interest-only loans.

(4) Backed by non-agency mortgage-related securities that include prime, FHA/VA, and subprime mortgage loans and also include $6.3 billion and

$7.3 billion in UPB of securities backed by option ARM mortgage loans at December 31, 2012 and 2011, respectively.

(5) Consists of bonds we acquired and resecuritized under the NIBP.

(6) Backed by FHA/VA loans.

(7) Represents the UPB of repurchased Freddie Mac mortgage-related securities that are consolidated on our balance sheets and includes certain remittance

amounts associated with our security trust administration that are payable to third-party mortgage-related security holders. Our holdings of nonconsolidated Freddie Mac mortgage-related securities are presented in “Table 23 — Characteristics of Mortgage-Related Securities on Our Consolidated

Balance Sheets.”

Excluding Other Guarantee Transactions, the percentage of amortizing fixed-rate single-family loans underlying our

consolidated trust debt securities, based on UPB, was approximately 93% and 92% at December 31, 2012 and 2011,

respectively. Freddie Mac single-family mortgage-related securities that we issued during 2012 were backed by a significant

proportion of refinance mortgages. During 2012, the total UPB of debt securities of consolidated trusts held by third parties

declined approximately 4.5%, as the volume of our new issuances was less than the volume of liquidations of these

securities. The UPB of multifamily Other Guarantee Transactions, excluding HFA bonds, increased to $37.2 billion as of

December 31, 2012 from $19.7 billion as of December 31, 2011, due to multifamily loan securitization activity.

128 Freddie Mac
The table below presents additional details regarding our issued and guaranteed mortgage-related securities.

Table 36 — Freddie Mac Mortgage-Related Securities by Class Type(1)

December 31,

2012 2011

(in millions)

Held by Freddie Mac:

Single-class ............................................................................ $ 111,519 $ 125,271

Multiclass ............................................................................. 75,244 98,396

Total held by Freddie Mac ................................................................... 186,763 223,667

Held by third parties:

Single-class ............................................................................ 947,627 949,301

Multiclass ............................................................................. 427,650 451,716

Total held by third parties ................................................................... 1,375,277 1,401,017

Total Freddie Mac mortgage-related securities .................................................. $1,562,040 $1,624,684

(1) Based on UPB of the securities and excludes mortgage-related securities traded, but not yet settled.

The table below presents issuances and extinguishments of the debt securities of our consolidated trusts during 2012 and

2011, as well as the UPB of consolidated trusts held by third parties.

Table 37 — Issuances and Extinguishments of Debt Securities of Consolidated Trusts(1)

Year Ended December 31,

2012 2011

(in millions)

Beginning balance of debt securities of consolidated trusts held by third parties ............................. $1,452,476 $1,517,001

Issuances to third parties of debt securities of consolidated trusts:

Issuances based on underlying mortgage product type:

30-year or more amortizing fixed-rate ....................................................... 284,381 177,951

20-year amortizing fixed-rate ............................................................. 31,142 19,250

15-year amortizing fixed-rate ............................................................. 105,603 76,917

Adjustable-rate ........................................................................ 18,189 25,675

Interest-only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 152

FHA/VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 160

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 —

Debt securities of consolidated trusts retained by us at issuance ..................................... (36,317) (10,910)

Net issuances of debt securities of consolidated trusts .......................................... 403,446 289,195

Reissuances of debt securities of consolidated trusts previously held by us(2) .............................. 29,384 80,485

Total issuances to third parties of debt securities of consolidated trusts .............................. 432,830 369,680

Extinguishments, net (3) ...................................................................... (498,047) (434,205)

Ending balance of debt securities of consolidated trusts held by third parties ............................... $1,387,259 $1,452,476

(1) Based on UPB.

(2) Represents our sales of PCs and certain Other Guarantee Transactions previously held by us.

(3) Represents: (a) UPB of our purchases from third parties of PCs and Other Guarantee Transactions issued by our consolidated trusts; (b) principal

repayments related to PCs and Other Guarantee Transactions issued by our consolidated trusts; and (c) certain remittance amounts associated with our

trust security administration that are payable to third-party mortgage-related security holders as of December 31, 2012 and 2011.

The UPB of debt securities of consolidated trusts held by third parties was $1.4 trillion and $1.5 trillion at December 31,

2012, and 2011, respectively. Extinguishments, net increased in 2012 compared to 2011 primarily due to significant

refinance activity caused by historically low interest rates and the effect of the expanded HARP initiative. Net issuances of

debt securities of consolidated trusts increased in 2012 compared to 2011 primarily due to the refinance activity noted above.

Debt securities of consolidated trusts retained by us at issuance increased in 2012 compared to 2011 primarily due to

mortgage loans that we had purchased for cash, subsequently securitized, and retained in our mortgage-related investments

portfolio. Reissuances of debt securities of consolidated trusts previously held by us declined in 2012 compared to 2011 due

to a decrease in the volume of dollar roll transactions.

In the third quarter of 2012, we corrected an error associated with the consolidation of certain of our REMIC trusts for

which we held substantially all of the beneficial interests issued by the trusts, but did not consolidate the trusts in prior

periods. In “Table 37 — Issuances and Extinguishments of Debt Securities of Consolidated Trusts,” extinguishments, net for

2012 include $4.4 billion related to the consolidation of these REMIC trusts related to the correction of the error. See

“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Basis of Presentation” for more information.

129 Freddie Mac
Other Liabilities

Other liabilities consist of the guarantee obligation, the reserve for guarantee losses on non-consolidated trusts and other

mortgage-related financial guarantees, servicer liabilities, accounts payable and accrued expenses, and other miscellaneous

liabilities. Other liabilities increased to $6.1 billion as of December 31, 2012 from $6.0 billion as of December 31, 2011

primarily due to an increase in: (a) accrued estimated losses on unsettled foreclosure alternative transactions at year end

primarily related to an increase in short sale activity; and (b) real estate services payable relating to estimated taxes and

insurance on REO properties held in inventory at year end, partially offset by a decline in servicer liabilities primarily due to

a decrease in the population of seriously delinquent loans. See “NOTE 18: SELECTED FINANCIAL STATEMENT LINE

ITEMS” for additional information.

Total Equity (Deficit)

The table below presents the changes in total equity (deficit) and certain capital-related disclosures.

Table 38 — Changes in Total Equity (Deficit)

Three Months Ended

Twelve Months

Ended

12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011 12/31/2012

(in millions)

Beginning balance ....................................... $ 4,907 $ 1,086 $ (18) $ (146) $ (5,991) $ (146)

Net income ............................................ 4,457 2,928 3,020 577 619 10,982

Other comprehensive income (loss), net of taxes:

Changes in unrealized gains (losses) related to available-for-sale

securities .......................................... 1,261 2,599 (238) 1,147 701 4,769

Changes in unrealized gains (losses) related to cash flow hedge

relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 102 107 111 118 414

Changes in defined benefit plans ........................... (84) 1 3 (46) 68 (126)

Comprehensive income ................................... 5,728 5,630 2,892 1,789 1,506 16,039

Capital draw funded by Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 19 146 5,992 165

Senior preferred stock dividends declared ...................... (1,808) (1,809) (1,809) (1,807) (1,655) (7,233)

Other ................................................ — — 2 — 2 2

Total equity (deficit)/Net worth ............................. $ 8,827 $ 4,907 $ 1,086 $ (18) $ (146) $ 8,827

Aggregate draws under the Purchase Agreement (as of period

end)(1) .............................................. $71,336 $71,336 $71,336 $71,317 $71,171 $71,336

Aggregate senior preferred stock dividends paid to Treasury in cash (as

of period end) ........................................ $23,754 $21,946 $20,137 $18,328 $16,521 $23,754

Percentage of dividends paid to Treasury in cash to aggregate draws (as

of period end) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33% 31% 28% 26% 23% 33%

(1) Does not include the initial $1.0 billion liquidation preference of senior preferred stock that we issued to Treasury in September 2008 as an initial

commitment fee and for which no cash was received.

We requested a total of $19 million and $7.6 billion in draws from Treasury under the Purchase Agreement to eliminate

quarterly deficits in net worth for 2012 and 2011, respectively. At December 31, 2012, our assets exceeded our liabilities

under GAAP; therefore no draw is being requested from Treasury under the Purchase Agreement for the fourth quarter of

2012. We paid cash dividends to Treasury of $7.2 billion and $6.5 billion during 2012 and 2011, respectively. Based on our

Net Worth Amount at December 31, 2012, our dividend obligation to Treasury in March 2013 will be $5.8 billion.

Net unrealized losses on our available-for-sale securities in AOCI decreased by $4.8 billion during 2012. The decrease

was primarily due to fair value gains related to: (a) the movement of our single-family non-agency mortgage-related

securities with unrealized losses towards maturity; (b) the impact of spread tightening on our CMBS; and (c) the impact of

declining interest rates. Net unrealized losses on our closed cash flow hedge relationships in AOCI decreased by $414

million during 2012, primarily attributable to the reclassification of losses into earnings related to our closed cash flow

hedges as the originally forecasted transactions affected earnings.

RISK MANAGEMENT

Our investment and credit guarantee activities expose us to three broad categories of risk: (a) credit risk; (b) interest-rate

risk and other market risk; and (c) operational risk. See “RISK FACTORS” for additional information regarding these and

other risks.

130 Freddie Mac
Risk management is a critical aspect of our business. We manage risk through a framework whereby our executive

management is responsible for independent risk evaluation. Within this framework, executive management monitors

performance against our risk management strategies and established risk limits and reporting thresholds, identifies and

assesses potential issues and provides oversight regarding changes in business processes and activities. For information about

our Board’s role in oversight of risk management, see “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,

AND DIRECTOR INDEPENDENCE — Board Leadership Structure and Role in Risk Oversight.”

We utilize an internal economic capital framework and models to help inform our risk management process. Our

economic capital framework provides a risk-based measurement of capital to reflect relevant market, credit, counterparty,

and operational risks. We assign economic capital internally to asset classes based on their respective risks. We use economic

capital as an input to inform economic decisions, establish risk limits, measure profitability, and estimate fair values.

Overall, the legal, political and regulatory influences on the financial services industry have continued to create

significant challenges and, as a result, we believe that our risk profile remained elevated in 2012. Drivers of this continued

elevated risk are: (a) continued uncertainty in the mortgage industry, including the future structure of the U.S. housing

market; (b) continued pressure on mortgage seller/servicers, including changing practices in underwriting and foreclosure

processes as well as on-going litigation by federal agencies related to prior practices; and (c) continued deterioration of the

mortgage insurer sector, resulting in further concentration issues.

Internally, our environment has also contributed to an elevated risk profile. Management took actions in 2012 to

mitigate these risks. For a discussion of the operational risks we face, see “Operational Risks.”

We expect legal, political and regulatory influences to continue to be significant factors in 2013, which could further

increase uncertainty in the mortgage industry, increase our operational and people risks, or increase the uncertainty

associated with the use of our models.

Credit Risk

We are subject primarily to two types of credit risk: mortgage credit risk and institutional credit risk. Mortgage credit

risk is the risk that a borrower will fail to make timely payments on a mortgage we own or guarantee. We are exposed to

mortgage credit risk on our total mortgage portfolio because we either hold the mortgage assets or have guaranteed

mortgages in connection with the issuance of a Freddie Mac mortgage-related security, or other guarantee commitment.

Institutional credit risk is the risk that a counterparty that has entered into a business contract or arrangement with us will fail

to meet its obligations to us.

Mortgage Credit Risk

We are exposed to mortgage credit risk principally in our single-family credit guarantee and multifamily mortgage

portfolios because we either hold the mortgage assets or have guaranteed mortgages in connection with the issuance of a

Freddie Mac mortgage-related security, or other guarantee commitment. All mortgages that we purchase or guarantee have

an inherent risk of default. We are also exposed to mortgage credit risk related to our investments in non-Freddie Mac

mortgage-related securities. For information about our holdings of these securities, see “CONSOLIDATED BALANCE

SHEETS ANALYSIS — Investments in Securities — Mortgage-Related Securities.”

Single-Family Mortgage Credit Risk

Single-family mortgage credit risk is primarily influenced by the credit profile of the borrower of the mortgage (e.g.,

credit score, credit history, and monthly income relative to debt payments), documentation level, the number of borrowers,

the features of the mortgage itself, the purpose of the mortgage, occupancy type, property type and value, the LTV ratio, and

local and regional economic conditions, including home prices and unemployment rates.

We use a process of delegated underwriting for the single-family mortgages we purchase or securitize. In this process,

our contracts with seller/servicers describe mortgage underwriting standards and the seller/servicers represent and warrant to

us that the mortgages sold to us meet these standards. In our contracts with individual seller/servicers, we may waive or

modify selected underwriting standards. Through our delegated underwriting process, mortgage loans and the borrowers’

ability to repay the loans are evaluated using a number of critical risk characteristics, including, but not limited to, the

borrower’s credit score and credit history, the borrower’s monthly income relative to debt payments, the original LTV ratio,

the type of mortgage product, the property type and market value, and the occupancy type of the loan. Our single-family

131 Freddie Mac
loans are generally underwritten with a requirement for a maximum original LTV ratio of 95% (excluding jumbo

conforming, cash-out refinance, and HARP mortgages). We prescribe maximum LTV ratio limits of 80% and 90% for cashout refinancing and jumbo conforming mortgages, respectively. For more information on the underwriting process, see

“BUSINESS — Our Business Segments — Single-Family Guarantee Segment — Underwriting Requirements and Quality

Control Standards.”

We were significantly adversely affected by deteriorating conditions in the single-family housing and mortgage markets

during 2008 and 2009. During 2005 to 2007, financial institutions substantially increased origination and securitization of

certain higher risk mortgage loans, such as subprime, option ARM, interest-only and Alt-A, and these loans comprised a

much larger proportion of origination and securitization issuance volumes during 2006 and 2007, and to a lesser extent in

2005, as compared to prior or subsequent years. During this time, we increased our participation in the market for these

products through our purchases of non-agency mortgage-related securities and through our loan securitization and guarantee

activities. Our expanded participation in these products was driven by a combination of competing objectives and pressures,

including meeting our affordable housing goals, competition, the desire to maintain or increase market share, and generating

returns for investors. The mortgage market has changed considerably since 2007. Financial institutions have tightened their

underwriting standards and the mortgage origination market is predominately comprised of fixed-rate amortizing loans.

During 2012, conditions in the mortgage market improved in most geographical areas, but continued to remain

challenging. Many single-family mortgage loans, especially those originated from 2005 through 2008, have been affected by

the compounding pressures on household wealth caused by significant declines in home values that began in 2006 and the

ongoing weak employment environment in many areas. Our serious delinquency rate remained high in 2012 compared to the

rates we experienced in years prior to 2009, as discussed in “Credit Performance — Delinquencies.” The UPB of our singlefamily non-performing loans also remained at high levels during 2012.

The table below presents certain credit information about loans in our single-family credit guarantee portfolio by year of

origination as of December 31, 2012 and for the year then ended.

Table 39 — Single-Family Credit Guarantee Portfolio Data by Year of Origination(1)

At December 31, 2012

Year Ended

December 31, 2012

Percent of

Portfolio

Average

Credit

Score(2)

Original

LTV Ratio(3)

Current

LTV Ratio(4)

Current

LTV Ratio

>100%(4)(5)

Serious

Delinquency

Rate(6)

Percent of Credit

Losses

Year of Origination

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22% 755 78% 76% 13% 0.05% <1%

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 753 72 67 4 0.26 <1

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 751 72 68 4 0.53 2

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 750 70 69 4 0.88 2

Combined-2009 to 2012 . . . . . . . . . . . . . . . . . . 63 753 74 71 7 0.39 4

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 719 74 88 28 6.80 9

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 700 77 107 55 12.37 36

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 705 75 104 50 11.37 25

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 712 73 89 32 7.20 17

Combined-2005 to 2008 . . . . . . . . . . . . . . . . . . 24 708 75 98 42 9.56 87

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 715 72 56 6 3.20 9

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 % 737 74 75 15 3.25 100%

(1) Based on the loans remaining in the portfolio at December 31, 2012, which totaled $1.6 trillion, rather than all loans originally guaranteed by us and

originated in the respective year. Includes loans acquired under our relief refinance initiative, which began in 2009.

(2) Based on FICO score of the borrower as of the date of loan origination and may not be indicative of the borrowers’ creditworthiness at December 31,

2012. Excludes less than 1% of loans in the portfolio because the FICO scores at origination were not available.

(3) See endnote (2) to “Table 40 — Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio” for information on our calculation of

original LTV ratios.

(4) We estimate current market values by adjusting the value of the property at origination based on changes in the market value of homes in the same

geographical area since origination.

(5) Calculated as a percentage of the aggregate UPB of loans with LTV ratios greater than 100% in relation to the total UPB of loans in the category.

(6) See “Delinquencies” for further information about our reported serious delinquency rates.

Gains in home prices in many areas of the U.S. during 2012 led to improved current LTV ratios of the loans in our

portfolio as of December 31, 2012. We estimate that as of December 31, 2012 and 2011, approximately 42% and 48%,

respectively, of the loans originated in 2005 through 2008 that remained in our single-family credit guarantee portfolio as of

132 Freddie Mac
those dates had current LTV ratios greater than 100%. Loans with current LTV ratios greater than 100% comprised 15% and

20%, of our single-family credit guarantee portfolio, based on UPB at December 31, 2012 and 2011, respectively, and

comprised approximately 82% and 83% of our credit losses recognized in 2012 and 2011, respectively. As of December 31,

2012 and 2011, for the loans in our single-family credit guarantee portfolio with greater than 80% estimated current LTV

ratios, the borrowers had a weighted average credit score at origination of 722 and 724, respectively.

We believe the replacement of the loans originated in 2005 to 2008 has positively impacted the payment performance,

including the serious delinquency rates, of our single-family credit guarantee portfolio. However, the rate at which this

replacement is occurring continues to be negatively affected by low demand for new purchase mortgage originations and a

lengthy foreclosure process in many states. For the years ended December 31, 2012 and 2011, loans originated in 2005

through 2008 in our single-family credit guarantee portfolio comprised approximately 87% and 90%, respectively, of our

credit losses.

Characteristics of the Single-Family Credit Guarantee Portfolio

The average UPB of loans in our single-family credit guarantee portfolio was approximately $151,000 at both

December 31, 2012 and 2011, respectively. We purchased or issued other guarantee commitments for approximately

2,036,000 and 1,519,000 single-family loans totaling $426.8 billion and $320.8 billion of UPB during 2012 and 2011,

respectively. Our single-family credit guarantee portfolio predominately consists of first-lien, fixed-rate mortgage loans

secured by the borrower’s primary residence. Our guarantees related to second-lien mortgage loans in the single-family credit

guarantee portfolio are insignificant. Approximately 96% of the single-family mortgages we purchased in 2012 were fixedrate amortizing mortgages, based on UPB. Approximately 82% of the single-family mortgages we purchased in 2012 were

refinance mortgages, including approximately 29% that were relief refinance mortgages, based on UPB.

The credit quality of the single-family loans we acquired beginning in 2009 (excluding HARP and other relief refinance

mortgages) is significantly better than that of loans we acquired from 2005 through 2008, as measured by original LTV

ratios, FICO scores, and the proportion of loans underwritten with fully documented income. Mortgages originated after

2008, including HARP loans, comprised an increasing proportion of the portfolio during 2012, and the proportion of loans

originated prior to 2009 within the portfolio continued to decline.

The percentage of home purchase loans in our loan acquisition volume continued to remain at low levels and refinance

activity remained high during 2012. During 2012 and 2011, we purchased or guaranteed 1.7 million and 1.2 million,

respectively, of single-family loans that were refinance mortgages totaling $351.1 billion and $249.5 billion in UPB,

respectively. As of December 31, 2012 and 2011, there were approximately 10.9 million and 11.6 million loans, respectively,

in our single-family credit guarantee portfolio, including 1.6 million and 1.1 million, respectively, of these that were relief

refinance mortgages.

The tables below provide additional characteristics of single-family mortgage loans purchased during 2012, 2011 and

2010, and of our single-family credit guarantee portfolio at December 31, 2012, 2011, and 2010.

133 Freddie Mac
Table 40 — Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio(1)

Percent of Purchases During the Year ended December 31,

2012 2011 2010

Relief Refi All Other Total Relief Refi All Other Total Relief Refi All Other Total

Original LTV Ratio Range(2)

60% and below . . . . . . . . . . . . . . . . . . . . . . . . . . 4% 21% 25% 6% 23% 29% 6% 22% 28%

Above 60% to 70% . . . . . . . . . . . . . . . . . . . . . . . 2 12 14 3 13 16 4 12 16

Above 70% to 80% . . . . . . . . . . . . . . . . . . . . . . . 3 29 32 5 32 37 6 33 39

Above 80% to 100% . . . . . . . . . . . . . . . . . . . . . . 8 9 17 8 6 14 9 5 14

Above 100% to 125% . . . . . . . . . . . . . . . . . . . . . 7 <1 7 4 <1 4 3 <1 3

Above 125% . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 <1 5 — — — — — —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29% 71% 100% 26% 74% 100% 28% 72% 100%

Weighted average original LTV ratio . . . . . . . . . . 97% 68% 76% 77% 67% 70% 77% 67% 70%

Credit Score(3)

740 and above . . . . . . . . . . . . . . . . . . . . . . . . . . 17% 55% 72% 16% 55% 71% 18% 53% 71%

700 to 739 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 11 17 5 13 18 5 13 18

660 to 699 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 8 3 5 8 3 5 8

620 to 659 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 2 1 1 2 1 1 2

Less than 620 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 <1 1 1 <1 1 1 <1 1

Not available . . . . . . . . . . . . . . . . . . . . . . . . . . . <1 <1 <1 <1 <1 <1 <1 <1 <1

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29% 71% 100% 26% 74% 100% 28% 72% 100%

Weighted average credit score:

Total mortgages . . . . . . . . . . . . . . . . . . . . . . . 740 762 756 744 759 755 747 758 755

Percent of Purchases During

the Year ended December 31,

2012 2011 2010

Loan Purpose

Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18% 22% 20%

Cash-out refinance . . . . . . . . . . . . . . . . . . . . . . . 15 18 21

Other refinance(4) . . . . . . . . . . . . . . . . . . . . . . . . . 67 60 59

Total ................................. 100% 100% 100%

Property Type

Detached/townhome(5) . . . . . . . . . . . . . . . . . . . . . 94% 94% 94%

Condo/Co-op ........................... 6 6 6

Total ................................. 100% 100% 100%

Occupancy Type

Primary residence . . . . . . . . . . . . . . . . . . . . . . . . 91% 92% 93%

Second/vacation home .................... 4 4 4

Investment ............................. 5 4 3

Total ................................. 100% 100% 100%

(1) Percentages are based on the UPB of the single-family credit guarantee portfolio.

(2) Original LTV ratios are calculated as the amount of the mortgage we guarantee including the credit-enhanced portion, divided by the lesser of the

appraised value of the property at the time of mortgage origination or the mortgage borrower’s purchase price. Second liens not owned or guaranteed by

us are excluded from the LTV ratio calculation because we generally do not receive data about them. The existence of a second-lien mortgage reduces

the borrower’s equity in the home and, therefore, can increase the risk of default.

(3) Credit score data is based on FICO scores, which are ranked on a scale of approximately 300 to 850 points. Although we obtain updated credit

information on certain borrowers after the origination of a mortgage, such as those borrowers seeking a modification, the scores presented in this table

represent the credit score of the borrower at the time of loan origination and may not be indicative of the borrowers’ creditworthiness at December 31,

2012.

(4) Other refinance loans include: (a) refinance mortgages with “no cash out” to the borrower; and (b) refinance mortgages for which the delivery data

provided was not sufficient for us to determine whether the mortgage was a cash-out or a no cash-out refinance transaction.

(5) Includes manufactured housing and homes within planned unit development communities. The UPB of manufactured housing mortgage loans purchased

during 2012, 2011, and 2010, was $676 million, $376 million, and $403 million, respectively.

134 Freddie Mac
Table 41 — Characteristics of the Single-Family Credit Guarantee Portfolio(1)

Portfolio Balance at December 31,(2)

2012 2011 2010

Original LTV Ratio Range(3)

60% and below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22% 23% 23%

Above 60% to 70% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16 16

Above 70% to 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 42 43

Above 80% to 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 17 17

Above 100% ............................................................................... 5 2 1

Total .................................................................................... 100% 100% 100%

Weighted average original LTV ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74% 72% 71%

Estimated Current LTV Ratio Range(4)

60% and below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28% 25% 27%

Above 60% to 70% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 12 12

Above 70% to 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 18 17

Above 80% to 90% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 15 16

Above 90% to 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10 10

Above 100% to 120% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 10 10

Above 120% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 10 8

Total .................................................................................... 100% 100% 100%

Weighted average estimated current LTV ratio:

Relief refinance mortgages(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83% 79% 78%

All other mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74% 80% 78%

Total mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75% 80% 78%

Credit Score(6)

740 and above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56% 55% 53%

700 to 739 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 21 21

660 to 699 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 14 15

620 to 659 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7 7

Less than 620 .............................................................................. 3 3 3

Not available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . <1 <1 1

Total .................................................................................... 100% 100% 100%

Weighted average credit score:

Relief refinance mortgages(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741 744 745

All other mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 736 734 732

Total mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 737 735 733

Loan Purpose

Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27% 30% 31%

Cash-out refinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 27 29

Other refinance(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 43 40

Total .................................................................................... 100% 100% 100%

Property Type

Detached/townhome(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92% 92% 92%

Condo/Co-op .............................................................................. 8 8 8

Total .................................................................................... 100% 100% 100%

Occupancy Type

Primary residence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90% 91% 91%

Second/vacation home ........................................................................ 5 5 5

Investment ................................................................................ 5 4 4

Total .................................................................................... 100% 100% 100%

(1) Ending balances are based on the UPB of the single-family credit guarantee portfolio. Other Guarantee Transactions with ending balances of $1 billion

at December 31, 2012, and $2 billion at both December 31, 2011, and 2010, respectively, are excluded since these securities are backed by non-Freddie

Mac issued securities for which the loan characteristics data was not available.

(2) Includes loans acquired under our relief refinance initiative, which began in 2009.

(3) Original LTV ratios are calculated as the amount of the mortgage we guarantee including the credit-enhanced portion, divided by the lesser of the

appraised value of the property at the time of mortgage origination or the mortgage borrower’s purchase price. Second liens not owned or guaranteed by

us are excluded from the LTV ratio calculation because we generally do not receive data about them. The existence of a second-lien mortgage reduces

the borrower’s equity in the home and, therefore, can increase the risk of default.

(4) Current LTV ratios are management estimates, which are updated on a monthly basis. Current market values are estimated by adjusting the value of the

property at origination based on changes in the market value of homes in the same geographical area since origination.

(5) Relief refinance mortgages of all LTV ratios comprised approximately 18%, 11%, and 7% of our single-family credit guarantee portfolio by UPB as of

December 31, 2012, 2011, and 2010, respectively.

(6) Credit score data is based on FICO scores, which are ranked on a scale of approximately 300 to 850 points. Although we obtain updated credit

information on certain borrowers after the origination of a mortgage, such as those borrowers seeking a modification, the scores presented in this table

represent the credit score of the borrower at the time of loan origination and may not be indicative of the borrowers’ creditworthiness at December 31,

2012. Excludes less than 1% of loans in the portfolio because the FICO scores at origination were not available at December 31, 2012.

(7) Other refinance loans include: (a) refinance mortgages with “no cash out” to the borrower; and (b) refinance mortgages for which the delivery data

provided was not sufficient for us to determine whether the mortgage was a cash-out or a no cash-out refinance transaction.

(8) Includes manufactured housing and homes within planned unit development communities.

135 Freddie Mac
LTV Ratio

As estimated current LTV ratios increase, the borrower’s equity in the home decreases, which negatively affects the

borrower’s ability to refinance or sell the property for an amount at or above the balance of the outstanding mortgage loan.

Based on our historical experience, there is an increase in borrower default risk as LTV ratios increase. Due to our

participation in HARP, we purchase a significant number of loans that have LTV ratios over 100%. The proportion of loans

we purchased with original LTV ratios over 100% increased from approximately 4% of our single-family mortgage

purchases (including HARP loans) in 2011 to 12% of our single-family mortgage purchases in 2012 due to the changes in

HARP announced in the fourth quarter of 2011, which allow borrowers (whose loans we already hold in our single-family

credit guarantee portfolio) with higher LTV ratios to refinance. The percentage of mortgages in our single-family credit

guarantee portfolio with estimated current LTV ratios greater than 100% was 15% and 20% at December 31, 2012 and 2011,

respectively, and the serious delinquency rate for these loans was 12.7% and 12.8%, respectively.

Credit Score

Credit scores are a useful measure for assessing the credit quality of a borrower. Credit scores are numbers reported by

credit repositories, based on statistical models, that summarize an individual’s credit record. FICO scores are the most

commonly used credit scores today. Statistically, borrowers with higher credit scores are more likely to repay or have the

ability to refinance than those with lower scores. Credit scores presented within this Form 10-K are at the time of origination

and may not be indicative of the borrowers’ creditworthiness at December 31, 2012.

Loan Purpose

Loan purpose indicates how the borrower intends to use the funds from a mortgage loan. In a purchase transaction, the

funds are used to acquire a property. In a cash-out refinance transaction, in addition to paying off existing mortgage liens, the

borrower obtains additional funds that may be used for other purposes, including paying off subordinate mortgage liens and

providing unrestricted cash proceeds to the borrower. In other refinance transactions, the funds are used to pay off existing

mortgage liens and may be used in limited amounts for certain specified purposes; such refinances are generally referred to

as “no cash-out” or “rate and term” refinances. The percentage of home purchase loans in our loan acquisition volume

remained at low levels during 2012, as low interest rates contributed to high refinance activity in 2012 and 2011. Cash-out

refinancings generally have had a higher risk of default than mortgages originated in no cash-out, or rate and term, refinance

transactions.

Property Type

Townhomes and detached single-family houses are the predominant type of single-family property. Condominiums are

a property type that historically experiences greater volatility in home prices than detached single-family residences.

Condominium loans in our single-family credit guarantee portfolio have a higher percentage of first-time homebuyers and

homebuyers whose purpose is for investment or for a second home. In practice, investors and second home borrowers often

seek to finance the condominium purchase with loans having a higher original LTV ratio than other borrowers.

Approximately 36% of the condominium loans within our single-family credit guarantee portfolio are in California, Florida,

and Illinois, which are among the states that have been most adversely affected by the recent housing and economic

downturn. Condominium loans comprised 15% of our credit losses during both 2012 and 2011, while these loans comprised

8% of our single-family credit guarantee portfolio at both December 31, 2012 and 2011.

Occupancy Type

Borrowers may purchase a home as a primary residence, second home or investment property that is typically a rental

property. Mortgage loans on properties occupied by the borrower as a primary residence tend to have a lower credit risk than

mortgages on investment properties or secondary residences.

Geographic Concentration

Local economic conditions can affect borrowers’ ability to repay loans and the value of the collateral underlying the

loans. Because our business involves purchasing mortgages from every geographic region in the U.S., we maintain a

geographically diverse single-family credit guarantee portfolio. While our single-family credit guarantee portfolio remains

broadly diversified across geographic regions, we were negatively impacted by overall home price declines in each region

that began in 2006. Our credit losses continue to be greatest in those states that experienced significant cumulative declines

136 Freddie Mac
in property values since 2006, such as California, Florida, Nevada and Arizona. See “NOTE 15: CONCENTRATION OF

CREDIT AND OTHER RISKS” for more information concerning the distribution of our single-family credit guarantee

portfolio by geographic region.

Mortgages with Second Liens

The presence of a second lien can increase the risk that a borrower will default. A second lien reduces the borrower’s

equity in the home, and has a negative effect on the borrower’s ability to refinance or sell the property for an amount at or

above the combined balances of the first mortgage and second lien. As of December 31, 2012 and 2011, approximately 14%

and 15%, respectively, of the loans in our single-family credit guarantee portfolio had second-lien financing by third parties

at the time of origination of the first mortgage, and we estimate that these loans comprised 17% of our seriously delinquent

loans at both dates, based on UPB. Borrowers are free to obtain second-lien financing after origination and we are not

entitled to receive notification when a borrower does so. Therefore, it is likely that additional borrowers have post-origination

second-lien mortgages.

Attribute Combinations

Certain combinations of loan characteristics often can indicate a higher degree of credit risk. For example, single-family

mortgages with both high LTV ratios and borrowers who have lower credit scores typically experience higher rates of serious

delinquency and default. We estimate that there were $12.0 billion and $11.1 billion at December 31, 2012 and 2011,

respectively, of loans in our single-family credit guarantee portfolio with both original LTV ratios greater than 90% and

FICO scores less than 620 at the time of loan origination. Certain mortgage product types, including interest-only or option

ARM loans, that have additional higher risk characteristics, such as lower credit scores or higher LTV ratios, will also have a

higher risk of default than those same products without these characteristics. See “Table 52 — Single-Family Credit

Guarantee Portfolio by Attribute Combinations” for information about certain attribute combinations of our single-family

mortgage loans.

Single-Family Mortgage Product Types

Product mix affects the credit risk profile of our total mortgage portfolio. The primary mortgage products in our singlefamily credit guarantee portfolio are first lien, fixed-rate mortgage loans. In general, 15-year amortizing fixed-rate mortgages

exhibit the lowest default rate among the types of mortgage loans we securitize and purchase, due to the accelerated rate of

principal amortization on these mortgages and the credit profiles of borrowers who qualify for them. In a rising interest rate

environment, balloon/reset and ARM borrowers typically default at a higher rate than fixed-rate borrowers. However, in

recent years, during which interest rates have generally remained relatively low, our delinquency and default rates on

adjustable-rate and balloon/reset mortgage loans have continued to be as high as, or higher than, those on fixed-rate loans

because these borrowers also have been affected by declining housing and economic conditions and/or had other higher-risk

characteristics. Effective January 1, 2013, we no longer purchase balloon/reset mortgages. Interest-only and option ARM

loans are higher-risk mortgage products based on the features of these types of loans. See “Other Categories of SingleFamily Mortgage Loans” below for additional information on higher-risk mortgages in our single-family credit guarantee

portfolio.

For purposes of presentation within this Form 10-K and elsewhere in our reporting, we have categorized loans that have

been modified under HAMP as fixed-rate loans, notwithstanding the rate adjustment provision of HAMP. Our HAMP loan

modifications typically result in an initial below-market interest rate that after five years gradually adjusts to a new rate that

is fixed for the remaining life of the loan. While HAMP loans have a rate adjustment provision, the future rates of the loans

are determined at the time of modification rather than at a subsequent date.

The following paragraphs provide information on the interest-only, option ARM, adjustable-rate, and conforming jumbo

loans in our single-family credit guarantee portfolio. Interest-only and option ARM loans have experienced significantly

higher serious delinquency rates than fixed-rate amortizing mortgage products.

Interest-Only Loans

Interest-only loans have an initial period during which the borrower pays only interest, and at a specified date the

monthly payment increases to begin reflecting repayment of principal. Interest-only loans represented approximately 3% and

4% of the UPB of our single-family credit guarantee portfolio at December 31, 2012 and 2011, respectively. We

discontinued purchasing such loans on September 1, 2010. The balance of these loans has declined significantly in recent

137 Freddie Mac
years since we no longer purchase them and many of these borrowers have completed foreclosure transfers, refinanced or

received loan modifications into an amortizing loan product (and thus these loans are no longer classified as interest-only

loans).

The table below presents information for single-family mortgage loans in our single-family credit guarantee portfolio,

excluding Other Guarantee Transactions, at December 31, 2012 that contain interest-only payment terms. The reported

balances in the table below are aggregated by interest-only loan product type and categorized by the year in which the loan

begins to require payments of principal. At December 31, 2012, approximately 6% of these interest-only loans are scheduled

to begin requiring payments of principal in 2013 or 2014. The timing of the actual change in payment terms may differ from

those presented due to a number of factors, including refinancing.

Table 42 — Single-Family Loans Scheduled Payment Change to Include Principal by Year at December 31, 2012(1)

2012 and Prior 2013 2014 2015 2016 2017 Thereafter Total

(in millions)

ARM/interest-only ............................. $13,113 $1,922 $978 $3,412 $5,500 $ 9,184 $4,804 $38,913

Fixed/interest-only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — <1 13 281 1,475 7,544 2,006 11,319

Total ..................................... $13,113 $1,922 $991 $3,693 $6,975 $16,728 $6,810 $50,232

(1) Based on the UPBs of mortgage products that contain interest-only provisions and that begin amortization of principal in each of the years shown. These

reported balances are based on the UPB of the underlying mortgage loans and do not reflect the publicly-available security balances we use to report the

composition of our PCs and REMICs and Other Structured Securities. Excludes: (a) mortgage loans underlying Other Guarantee Transactions since the

payment change information is not available to us for these loans; and (b) any mortgage loans which completed a modification before the end of the

respective period and for which the terms of the loan were changed to an amortizing loan product.

The table below presents the trend of serious delinquency information for single-family interest-only mortgage loans in

our single-family credit guarantee portfolio, excluding Other Guarantee Transactions, categorized by the year in which the

loan begins to require payments of principal. Loans where the year of payment change is 2012 or prior have already changed

to require payments of principal as of December 31, 2012; loans where the year of payment change is 2013 or later still

require only payments of interest as of December 31, 2012 and will not require payments of principal until a future period.

Table 43 — Serious Delinquency Rates by Year of Payment Change to Include Principal(1)

As of December 31,

Year of payment change: 2012 2011 2010

2010 and prior ............................................................................. 7.97% 9.42% 11.53%

2011 ..................................................................................... 14.92 18.96 19.65

2012 ..................................................................................... 19.35 20.98 19.02

2013 and after ............................................................................. 17.70 18.43 19.11

(1) Based on loans remaining in the single-family guarantee portfolio as of December 31, 2012, 2011, and 2010, rather than all loans guaranteed by us and

originated in the respective year. Excludes mortgage loans which completed a modification before the end of the respective period and for which the

terms of the loan were changed to an amortizing loan product.

In recent years, interest-only loans experienced high serious delinquency rates well before reaching the dates at which

the loans begin to require amortization of principal. We believe that interest-only loan performance during the last three

years was more adversely affected by changes in employment, home prices, and other regional and macro-economic

conditions, than by the increase in the borrower’s monthly payment (when the loans begin to require payments of principal).

In addition, a number of these loans were categorized as Alt-A, due to reduced documentation standards at the time of loan

origination. The overall serious delinquency rate for all interest-only loans in our single-family credit guarantee portfolio was

16.3% as of December 31, 2012. Approximately 74% of all interest-only loans in our single-family credit guarantee portfolio

had not yet begun amortization of principal and 60% of all interest-only loans in our single-family credit guarantee portfolio

had current LTV ratios greater than 100% as of December 31, 2012. Since a substantial portion of these loans were

originated in 2005 through 2008 and are located in geographical areas that have been most impacted by declines in home

prices since 2006, we believe that the serious delinquency rate for interest-only loans will remain high in 2013.

Option ARM Loans

Most option ARM loans have initial periods during which the borrower has various options as to the amount of each

monthly payment, until a specified date, when the terms are recast. At both December 31, 2012 and 2011, option ARM loans

represented less than 1% of the UPB of our single-family credit guarantee portfolio. Included in this exposure was

$6.3 billion and $7.3 billion of option ARM securities underlying certain of our Other Guarantee Transactions at

138 Freddie Mac
December 31, 2012 and 2011, respectively. While we have not categorized these option ARM securities as either subprime

or Alt-A securities for presentation within this Form 10-K and elsewhere in our reporting, they could exhibit similar credit

performance to collateral identified as subprime or Alt-A. We have not purchased option ARM loans in our single-family

credit guarantee portfolio since 2007. For reporting purposes, loans within the option ARM category continue to be presented

in that category following a modification of the loan, even though the modified loan no longer provides for optional payment

provisions. As of December 31, 2012 and 2011, approximately 8.1% and 5.5%, respectively, of the option ARM loans within

our single-family credit guarantee portfolio had completed a modification. For information on our exposure to option ARM

loans through our holdings of non-agency mortgage-related securities, see “CONSOLIDATED BALANCE SHEETS

ANALYSIS — Investments in Securities.”

Adjustable-Rate Mortgage Loans

The table below presents information for single-family mortgage loans in our single-family credit guarantee portfolio,

excluding Other Guarantee Transactions, at December 31, 2012 that contain adjustable payment terms. The reported balances

in the table below are aggregated by product type and categorized by year of the next scheduled contractual reset date. At

December 31, 2012, approximately 57% of these loans have interest rates that are scheduled to reset in 2013 or 2014. The

timing of the actual reset dates may differ from those presented due to a number of factors, including prepayments or

exercising provisions within the terms of the mortgage (certain of which could delay or accelerate the timing of the reset

date).

Table 44 — Single-Family Next Scheduled Adjustable-Rate Resets by Year at December 31, 2012(1)

2013 2014 2015 2016 2017 Thereafter Total

(in millions)

ARMs/amortizing ..................................... $26,079 $1,371 $5,550 $10,099 $ 9,013 $16,417 $ 68,529

ARMs/interest-only(2) ................................... 31,065 2,189 1,850 1,492 1,818 499 38,913

Balloon/resets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 9 5 — <1 1 141

Total ............................................. $57,270 $3,569 $7,405 $11,591 $10,831 $16,917 $107,583

(1) Based on the UPBs of mortgage products that contain adjustable-rate interest provisions and are scheduled to reset during the periods specified above.

These reported balances are based on the UPB of the underlying mortgage loans and do not reflect the publicly-available security balances we use to

report the composition of our PCs and REMICs and Other Structured Securities. Excludes: (a) mortgage loans underlying Other Guarantee Transactions

since rate reset information is not available to us for these loans; and (b) any amortizing ARM loans which completed a modification before the end of

the respective period and for which the terms of the loan were changed to a fixed-rate loan product.

(2) Reflects the UPB of interest-only loans that reset in each of the years shown. We report loans in the interest-only category if their original terms include

interest-only provisions for a pre-determined period of time before the monthly payment changes to include amortization of principal. Includes $13.1

billion of loans that were interest-only at origination that have converted to include amortization of principal as of December 31, 2012.

The table below presents serious delinquency information for single-family adjustable-rate mortgage loans in our singlefamily credit guarantee portfolio, excluding Other Guarantee Transactions, categorized by the year in which the loan first had

an interest rate reset. Loans where the year of first interest rate reset is 2012 or prior have already had one or more interest

rate resets as of December 31, 2012; loans where the year of first interest rate reset is 2013 or later have not yet had an

interest rate reset as of December 31, 2012 and will not have an interest rate reset until a future period.

Table 45 — Serious Delinquency Rates by Year of First Rate Reset(1)

As of December 31,

Year of payment change: 2012 2011 2010

2010 and prior ............................................................................. 4.24% 4.84% 5.78%

2011 ..................................................................................... 13.16 17.50 18.00

2012 ..................................................................................... 19.45 22.70 22.70

2013 and after ............................................................................. 4.90 6.61 9.15

(1) Based on loans remaining in the single-family credit guarantee portfolio as of December 31, 2012, 2011, and 2010, rather than all loans guaranteed by us

and originated in the respective year. Excludes mortgage loans which completed a modification before the end of the respective period and for which the

terms of the loan were changed to a fixed-rate loan product.

As shown in the table above, the trend in serious delinquency rates of adjustable-rate loans that experienced an interest

rate reset during the last three years has not been significantly affected by the change in interest rate of the loan. Except for

interest-only loans that began to amortize at the reset date, there were not significant increases to the borrowers’ payments

when these loans reached their first reset dates because market interest rates have generally declined in recent years. Interestonly loans are a higher-risk mortgage product, which feature an increase in the monthly payment at the date of first reset

which is not solely related to the contractual interest rate (i.e., when the monthly payment begins to include principal). In

139 Freddie Mac
recent years, ARM loans have experienced high serious delinquency rates well before reaching the dates at which the loans

have reached their first rate reset. We believe that ARM loan performance during the last three years has been more

adversely affected by changes in employment, home prices, and other regional and macro-economic conditions, than by

changes in the interest rates of the loans. See “RISK FACTORS — Competitive and Market Risks — Changes in interest

rates could negatively impact our results of operations, net worth and fair value of net assets” for additional information.

Since a substantial portion of ARM loans were originated in 2005 through 2008 and are located in geographical areas that

have been most impacted by declines in home prices since 2006, we believe that the serious delinquency rate for ARM loans

will continue to remain high in 2013.

Conforming Jumbo Loans

For loans originated after September 30, 2011, conforming jumbo loans on a one-family residence have UPB at

origination that is greater than $417,000 and up to $625,500 in certain “high-cost” areas. We purchased $32.6 billion and

$27.7 billion of conforming jumbo loans during the years ended December 31, 2012 and 2011, respectively. The UPB of

conforming jumbo loans in our single-family credit guarantee portfolio as of December 31, 2012 and 2011 was $55.5 billion

and $49.8 billion, respectively, or 3% of the UPB of our single-family credit guarantee portfolio at both dates. The average

size of these loans was approximately $531,000 and $545,000 at December 31, 2012 and 2011, respectively. See

“BUSINESS — Our Business” for further information on the conforming loan limits.

Other Categories of Single-Family Mortgage Loans

While we have classified certain loans as subprime or Alt-A for purposes of the discussion below and elsewhere in this

Form 10-K, there is no universally accepted definition of subprime or Alt-A, and our classification of such loans may differ

from those used by other companies. For example, some financial institutions may use FICO scores to delineate certain

residential mortgages as subprime. In addition, we do not rely primarily on these loan classifications to evaluate the credit

risk exposure relating to such loans in our single-family credit guarantee portfolio. For a definition of the subprime and Alt-A

single-family loans and securities in this Form 10-K, see “GLOSSARY.”

Subprime Loans

Participants in the mortgage market may characterize single-family loans based upon their overall credit quality at the

time of origination, generally considering them to be prime or subprime. While we have not historically characterized the

loans in our single-family credit guarantee portfolio as either prime or subprime, we do monitor the amount of loans we have

guaranteed with characteristics that indicate a higher degree of credit risk (see “Higher-Risk Loans in the Single-Family

Credit Guarantee Portfolio” and “Table 52 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for

further information). In addition, we estimate that approximately $2.0 billion and $2.3 billion of security collateral

underlying our Other Guarantee Transactions at December 31, 2012 and 2011, respectively, were identified as subprime

based on information provided to us when we entered into these transactions.

We also categorize our investments in non-agency mortgage-related securities as subprime if they were identified as

such based on information provided to us when we entered into these transactions. At December 31, 2012 and December 31,

2011, we held $44.4 billion and $49.0 billion, respectively, in UPB of non-agency mortgage-related securities backed by

subprime loans. These securities were structured to provide credit enhancements. Approximately 5% and 7% of these

securities were investment grade at December 31, 2012 and 2011, respectively. The credit performance of loans underlying

these securities has deteriorated significantly since 2008. For more information on our exposure to subprime mortgage loans

through our investments in non-agency mortgage-related securities see “CONSOLIDATED BALANCE SHEETS

ANALYSIS — Investments in Securities.”

Alt-A Loans

Although there is no universally accepted definition of Alt-A, many mortgage market participants classify single-family

loans with credit characteristics that range between their prime and subprime categories as Alt-A because these loans have a

combination of characteristics of each category, may be underwritten with lower or alternative income or asset

documentation requirements compared to a full documentation mortgage loan, or both. The UPB of Alt-A loans in our

single-family credit guarantee portfolio declined to $73.7 billion as of December 31, 2012 from $94.3 billion as of

December 31, 2011. The UPB of our Alt-A loans declined in 2012 primarily due to refinancing into other mortgage products,

foreclosure transfers, and other liquidation events. For reporting purposes, loans within the Alt-A category continue to be

reported in that category following a modification of the loan, even though the borrower may have provided full

140 Freddie Mac
documentation of assets and income before completing the modification. As of December 31, 2012 and 2011, approximately

11.8% and 8.8%, respectively, of the Alt-A loans within our single-family credit guarantee portfolio had completed a

modification. As of December 31, 2012, for Alt-A loans in our single-family credit guarantee portfolio, the average FICO

score at origination was 714. Although Alt-A mortgage loans comprised approximately 5% of our single-family credit

guarantee portfolio as of both December 31, 2012 and 2011, respectively, these loans represented approximately 23% and

28% of our credit losses during 2012 and 2011, respectively.

Although we discontinued new purchases of mortgage loans with lower documentation standards for assets or income

beginning March 1, 2009 (or later, as our customers’ contracts permitted), we continued to purchase certain amounts of these

mortgages in cases where the loan was either: (a) purchased pursuant to a previously issued other guarantee commitment;

(b) part of our relief refinance mortgage initiative; or (c) in another refinance mortgage initiative and the pre-existing

mortgage (including Alt-A loans) was originated under less than full documentation standards. In the event we purchase a

refinance mortgage and the original loan had been previously identified as Alt-A, such refinance loan may no longer be

categorized or reported as an Alt-A mortgage in this Form 10-K and our other financial reports because the new refinance

loan replacing the original loan would not be identified by the seller/servicer as an Alt-A loan. As a result, our reported Alt-A

balances may be lower than would otherwise be the case had such refinancing not occurred. From the time the relief

refinance initiative began in 2009 to December 31, 2012, we purchased approximately $22.1 billion of relief refinance

mortgages that were previously categorized as Alt-A loans in our portfolio, including $6.8 billion during 2012.

We also hold investments in non-agency mortgage-related securities backed by single-family Alt-A loans. At

December 31, 2012 and 2011, we held investments of $14.8 billion and $16.8 billion, respectively, of non-agency mortgagerelated securities backed by Alt-A and other mortgage loans. Approximately 11% and 15%, respectively, of these securities

were categorized as investment grade. The credit performance of loans underlying these securities has deteriorated

significantly since 2008. We categorize our investments in non-agency mortgage-related securities as Alt-A if the securities

were identified as such based on information provided to us when we entered into these transactions. For more information

on our exposure to Alt-A mortgage loans through our investments in non-agency mortgage-related securities see

“CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities.”

Higher-Risk Loans in the Single-Family Credit Guarantee Portfolio

The table below presents information about certain categories of single-family mortgage loans within our single-family

credit guarantee portfolio that we believe have certain higher-risk characteristics. These loans include categories based on

product type and borrower characteristics present at origination. The table includes a presentation of each higher risk

category in isolation. A single loan may fall within more than one category (for example, an interest-only loan may also have

an original LTV ratio greater than 90%). Loans with a combination of these characteristics will have an even higher risk of

default than those with an individual characteristic.

141 Freddie Mac
Table 46 — Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio(1)

As of December 31, 2012

UPB

Estimated

Current LTV(2)

Percentage

Modified(3)

Serious

Delinquency

Rate(4)

(dollars in billions)

Loans with one or more specified characteristics ................................. $355.3 101% 7.6% 7.5%

Categories (individual characteristics): ......................................... Alt-A ............................................................... 73.7 100 11.8 11.4

Interest-only(5) ......................................................... 50.2 110 0.3 16.3

Option ARM(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 105 8.1 16.3

Original LTV ratio greater than 90%, non-HARP mortgages(7) ...................... 98.5 100 9.4 7.8

Original LTV ratio greater than 90%, HARP mortgages(7) ......................... 120.4 108 0.2 1.0

Lower FICO scores at origination (less than 620)(7) .............................. 50.9 89 15.3 12.2

As of December 31, 2011

UPB

Estimated

Current LTV(2)

Percentage

Modified(3)

Serious

Delinquency

Rate(4)

(dollars in billions)

Loans with one or more specified characteristics ................................. $342.9 105% 7.2% 9.3%

Categories (individual characteristics):

Alt-A ............................................................... 94.3 107 8.8 11.9

Interest-only(5) ......................................................... 72.0 120 0.2 17.6

Option ARM(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 119 5.5 20.5

Original LTV ratio greater than 90%, non-HARP mortgages(7) ...................... 107.9 108 8.1 8.5

Original LTV ratio greater than 90%, HARP mortgages(7) ......................... 59.3 104 0.1 1.3

Lower FICO scores at origination (less than 620)(7) .............................. 55.6 93 13.4 12.9

(1) Categories are not additive and a single loan may be included in multiple categories if more than one characteristic is associated with the loan.

(2) See endnote (4) to “Table 41 — Characteristics of the Single-Family Credit Guarantee Portfolio” for information on our calculation of current LTV

ratios.

(3) Represents the percentage of loans based on loan count in our single-family credit guarantee portfolio at period end that have been modified, including

those with no changes in the interest rate or maturity date, but where past due amounts are added to the outstanding principal balance of the loan.

Excludes loans underlying certain Other Guarantee Transactions for which data was not available.

(4) See “Credit Performance — Delinquencies” for further information about our reported serious delinquency rates.

(5) When an interest-only loan is modified to require repayment of principal, the loan is removed from the interest-only category. The percentages of

interest-only loans which have been modified at period end reflect loans that have not yet been assigned to their new product category (postmodification), primarily due to delays in processing.

(6) For reporting purposes, loans within the option ARM category continue to be reported in that category following modification, even though the modified

loan no longer provides for optional payment provisions.

(7) See endnotes (2) and (3) to “Table 40 — Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio” for information on our

calculation of original LTV ratios and our presentation of FICO scores, respectively.

A significant portion of the loans in the higher-risk categories presented in the table above were originated in 2005

through 2008. We have fully discontinued purchases of Alt-A (effective March 1, 2009), interest-only (effective

September 1, 2010), and option ARM (since 2007) loans. Excluding HARP loans, the UPB of loans with these higher-risk

characteristics in our single-family credit guarantee portfolio continued to decline in 2012 primarily due to repayments

(including refinancing) and other liquidations, including completed foreclosure alternatives and foreclosure transfers. While

the balance of our non-HARP mortgages with original LTV ratios greater than 90% declined during 2012 because of

liquidations, our purchases of these loans increased because: (a) most mortgage insurance companies lowered their premiums

in 2011 for certain higher-risk loans; and (b) in both 2011 and 2012, FHA implemented price increases in its mortgage

insurance premium. These changes improved the economics for a borrower to obtain private mortgage insurance on a

conforming loan as compared to the purchase of FHA insurance.

Loans within one or more of the higher-risk categories presented in the table above comprised approximately 22% and

20% of our single-family credit guarantee portfolio as of December 31, 2012 and 2011, respectively. The total UPB of loans

in our single-family credit guarantee portfolio with one or more of these characteristics increased to $355 billion as of

December 31, 2012 from $343 billion as of December 31, 2011. This increase was due to increased purchases of loans with

original LTV ratios greater than 90% primarily resulting from significant HARP activity in 2012. The serious delinquency

rates associated with loans with one or more of the above characteristics declined to 7.5% as of December 31, 2012 from

9.3% as of December 31, 2011.

Credit Enhancements

The portfolio information below excludes our holdings of non-Freddie Mac mortgage-related securities. See

“CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities — Mortgage-Related Securities” for

credit enhancement and other information about our investments in non-Freddie Mac mortgage-related securities.

142 Freddie Mac
Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by

specified credit enhancements or participation interests. However, as discussed below, under HARP, we allow eligible

borrowers who have mortgages with current LTV ratios over 80% to refinance their mortgages without obtaining new

mortgage insurance in excess of what was already in place. As guarantor, we remain responsible for the payment of principal

and interest if mortgage insurance or other credit enhancements do not provide full reimbursement for covered losses. Our

credit losses could increase if an entity that provides credit enhancement fails to fulfill its obligation, as this would reduce the

amount of our credit loss recoveries.

Our ability and desire to expand or reduce the portion of our total mortgage portfolio covered by credit enhancements

will depend on: (a) our evaluation of the credit quality of new business purchase opportunities; (b) the risk profile of our

portfolio; (c) the credit worthiness of potential counterparties; and (d) the future availability of effective credit enhancements

at prices that permit an attractive return.

At December 31, 2012 and 2011, our credit-enhanced mortgages represented 13% and 14%, respectively, of our singlefamily credit guarantee portfolio, excluding those backing Ginnie Mae Certificates and HFA bonds guaranteed by us under

the HFA initiative. Our financial guarantees backed by Ginnie Mae Certificates and HFA bonds under the HFA initiative are

excluded because we consider the incremental credit risk to which we are exposed to be insignificant. During 2012 and 2011,

the percentage of our single-family loan purchases with credit enhancement coverage was lower than in periods before 2009,

primarily as a result of high refinance activity. Refinance loans (other than HARP loans) typically have lower LTV ratios

than home purchase loans, and are more likely to have an LTV ratio below 80% and not require credit protection as specified

in our charter. Since 2009, we have been purchasing significant amounts of HARP loans. These mortgages allow for the

refinance of existing loans guaranteed by us under terms such that we may not have mortgage insurance for some or all of the

UPB of the mortgage in excess of 80% of the value of the property.

We recognized recoveries from credit enhancements (excluding reimbursements for our expenses) of $1.6 billion and

$1.8 billion that reduced our charge-offs of single-family loans during the years ended December 31, 2012 and 2011,

respectively. These amounts included $1.5 billion and $1.7 billion during 2012 and 2011, respectively, in recognized

recoveries associated with our primary and pool mortgage insurance policies. REO operations expenses included recoveries

from credit enhancements of $0.1 billion and $0.3 billion during 2012 and 2011, respectively, primarily associated with our

primary and pool mortgage insurance policies. The declines in our recoveries in 2012 compared to 2011 were primarily due

to the effect of the weakened financial condition of several of our mortgage insurance counterparties, some of which have

instituted plans of deferred payment obligation on our claims. See “Institutional Credit Risk” for information about our

counterparties that provide credit enhancement on loans in our single-family credit guarantee portfolio, including information

about pool insurance coverage and our mortgage loan insurers.

Certain of our single-family Other Guarantee Transactions utilize subordinated security structures as a form of credit

enhancement. At December 31, 2012 and 2011, the UPB of single-family Other Guarantee Transactions with subordination

coverage at origination was $3.0 billion and $3.3 billion, and the subordination coverage on these securities was $503 million

and $647 million, respectively. At December 31, 2012 and 2011, the serious delinquency rate on single-family Other

Guarantee Transactions with subordination coverage was 20.5% and 20.9%, respectively.

See “BUSINESS — Our Business Segments — Single-Family Guarantee Segment — Credit Enhancements” and

“NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES” for additional information about credit protection and

other forms of credit enhancements covering loans in our single-family credit guarantee portfolio.

Single-Family Loan Workouts and the MHA Program

Loan workout activities are a key component of our loss mitigation strategy for managing and resolving troubled assets

and lowering credit losses. Our loan workouts consist of: (a) forbearance agreements; (b) repayment plans; (c) loan

modifications; and (d) foreclosure alternatives (e.g., short sales or deed in lieu of foreclosure transactions). Our single-family

loss mitigation strategy emphasizes early intervention by servicers in delinquent mortgages and provides alternatives to

foreclosure. See “BUSINESS — Our Business Segments — Single-Family Guarantee Segment — Loss Mitigation and Loan

Workout Activities” for more information, including a description of our loan workouts (e.g., HAMP) and HARP. During

2012, we helped approximately 169,000 borrowers either stay in their homes or sell their properties and avoid foreclosures

through our various workout programs, including HAMP, and we completed approximately 105,000 foreclosures.

143 Freddie Mac
Our seller/servicers have an active role in our loss mitigation efforts. A decline in their performance could impact the

overall quality of our credit performance (including through missed opportunities for mortgage modifications), which could

have significant effects on our ability to mitigate credit losses. The risk of such a decline in performance remains high.

During 2012, we began to permit the transfer of servicing for certain groups of loans that were delinquent or were deemed at

risk of default to servicers that we believe have capabilities and resources necessary to improve the loss mitigation associated

with the loans. Depending on our experience with the results of these transfers and specific servicer experience and capacity,

we may permit additional transfers in the future. For more information, see “RISK FACTORS — Competitive and Market

Risks — Seller/servicers may fail to perform their obligations to service loans in our single-family and multifamily mortgage

portfolios or that their servicing performance could decline.”

Home Affordable Modification Program

HAMP commits U.S. government, Freddie Mac and Fannie Mae funds to help eligible homeowners avoid foreclosures

and keep their homes through mortgage modifications. Under this program, we offer loan modifications to financially

struggling homeowners with mortgages on their primary residences that reduce the monthly principal and interest payments

on their mortgages. HAMP requires that each borrower complete a trial period during which the borrower will make monthly

payments based on the estimated amount of the modification payments. Trial periods are required to be at least three months.

After the final trial-period payment is received by our servicer the borrower and servicer will enter into the modification.

Based on information provided by the MHA Program administrator, our servicers had completed more than 217,000

loan modifications under HAMP from the introduction of the initiative in 2009 through December 31, 2012, compared to

approximately 181,000 cumulative HAMP completions as of December 31, 2011. The number of our loans in the HAMP

trial period declined to 9,440 as of December 31, 2012 from 12,802 as of December 31, 2011. We expect fewer borrowers

will initiate HAMP modifications during 2013 than 2012 because a large number of the delinquent borrowers that were

eligible for the program have already completed the trial period or attempted to do so, but failed.

Approximately 27% of our loans in the HAMP trial period as of December 31, 2012 have been in the trial period for

more than the minimum duration of three months. Based on information provided by the MHA Program administrator, the

average length of the trial period for loans in the program as of December 31, 2012 was 5 months. For information about the

percentage of completed loan modifications that remained current, see “Table 49 — Quarterly Percentages of Modified

Single-Family Loans — Current and Performing.”

As of December 31, 2012, the borrower’s monthly payment was reduced on average by an estimated $536, which

amounts to an average of $6,432 per year, and a total of $1.4 billion in annual reductions for all of our completed HAMP

modifications (these amounts are calculated by multiplying the number of completed modifications by the average reduction

in monthly payment, and have not been adjusted to reflect the actual performance of the loans following modification).

The costs we incur related to HAMP have been, and will likely continue to be, significant. We incurred $177 million

and $214 million of servicer incentive expenses during 2012 and 2011, respectively. We also incurred borrower incentives

which are included within our provision for credit losses on our consolidated statements of comprehensive income. We have

the potential to incur additional servicer incentives and borrower incentives as long as the borrower remains current on a loan

modified under HAMP. Other costs of this program include:

• Under HAMP, we typically provide concessions to borrowers, which generally include interest rate reductions and

often also provide for forbearance (but not forgiveness) of principal.

• Some borrowers will fail to complete the HAMP trial period and others will default on their HAMP modified loans.

For those borrowers who redefault or who do not complete the trial period and do not qualify for another loan

workout, HAMP will have delayed the resolution of the loans through the foreclosure process. If home prices decline

while these events take place, such delay in the foreclosure process may increase the losses we recognize on these

loans, to the extent the prices we ultimately receive for the foreclosed properties are less than the prices we could

have received had we foreclosed upon the properties earlier.

• Non-GSE mortgages modified under HAMP include mortgages backing our investments in non-agency mortgagerelated securities. Such modifications reduce the monthly payments due from affected borrowers, and thus reduce the

payments we receive on these securities (to the extent the payment reductions have not been absorbed by

subordinated investors or by other credit enhancement).

144 Freddie Mac
Non-HAMP Standard Modifications

In late 2011, we implemented a new non-HAMP standard loan modification initiative; this replaced our previous nonHAMP modification initiative. During 2012 approximately 29,000 borrowers having loans with aggregate UPB of $6.0

billion had completed this type of modification, and as of December 31, 2012, approximately 15,000 borrowers were in the

modification trial period. Our completed modification volume under the new standard modification initiative during 2012

was below what otherwise would be expected, as servicers completed the transition to the new initiative and borrowers

completed the trial period.

We expect that the costs we incur related to our new non-HAMP standard loan modifications will likely be significant.

These costs will be similar to those described above under “Home Affordable Modification Program” relating to: (a) bearing

the full cost of monthly payment reductions; (b) paying initial incentive fees to servicers; and (c) the potential for delaying

the resolution of loans through the foreclosure process.

Relief Refinance Mortgage Initiative and Home Affordable Refinance Program

Our relief refinance mortgage initiative, including HARP (which is the portion of our relief refinance initiative for loans

with LTV ratios above 80%), gives eligible homeowners with existing loans that are owned or guaranteed by us an

opportunity to refinance into loans with more affordable monthly payments and/or fixed-rate terms. HARP is targeted at

borrowers with current LTV ratios above 80%; however, our relief refinance initiative also allows borrowers with LTV ratios

of 80% and below to participate.

In October 2011, FHFA, Freddie Mac, and Fannie Mae announced a series of FHFA-directed changes to HARP in an

effort to attract more eligible borrowers who can benefit from refinancing their home mortgages. We subsequently made

similar changes to the relief refinance mortgage initiative for loans with LTV ratios of 80% and less.

The volume of our purchases of HARP loans more than doubled during 2012, compared to 2011, driven by historically

low interest rates and the revisions to the program implemented in 2012 that expanded eligibility and reduced operational

complexities for originators.

We believe that relief refinance mortgages (including HARP loans) generally present higher risk to us than other

refinance loans we have purchased since 2009 because:

• underwriting procedures for relief refinance mortgages are limited in many cases, and such procedures generally do

not include all of the changes in underwriting standards we have implemented since 2008;

• many of these loans have higher LTV ratios (i.e., greater than 90%), which can increase the possibility of default and

increase the amount of our loss if the borrower does default;

• HARP loans may not be covered by mortgage insurance for the full excess of their UPB over 80%; and

• beginning with changes announced in the fourth quarter of 2011, we have relieved the lenders of certain

representations and warranties on the original mortgage being refinanced, which limits our ability to seek recovery or

repurchase from the seller for breach.

We believe that relief refinance mortgages (including HARP loans) generally have lower risk to us than loans remaining

in our single-family credit guarantee portfolio that were originated prior to 2009 with similar characteristics because:

• under the relief refinance initiative, borrowers must meet eligibility requirements, such as having no more than one

late payment within the previous 12 months and no late payments within the six months prior to refinancing; and

• the refinanced loan generally has lower required total payments, reflecting a lower interest rate than the original loan.

In addition, many relief refinance loans may have shorter terms compared to the original loan or have fixed (rather

than adjustable) rates.

The substantial majority of relief refinance mortgages we purchased in 2012 (including approximately $74 billion in

UPB of HARP loans) have reduced representations and warranties. However, our seller/servicers remain obligated to follow

the underwriting standards for the relief refinance initiative and to service these loans in accordance with our mortgage

servicing standards. We continue to bear the credit risk for refinanced loans under this program, to the extent that such risk is

not covered by existing mortgage insurance or other existing credit enhancements. The following table provides information

about the volume of our relief refinance purchases during 2012 and 2011 as well as information about the balance and

serious delinquency rates of these loans as of December 31, 2012 and 2011.

145 Freddie Mac
Table 47 — Single-Family Relief Refinance Loans(1)

Year Ended December 31, 2012 Year Ended December 31, 2011

UPB

Number of

Loans

Average Loan

Balance(2) UPB

Number of

Loans

Average loan

Balance(2)

(dollars in millions, except for average loan balances)

Purchases of relief refinance mortgages:

HARP:

Above 125% LTV ratio ........................... $ 20,364 98,559 $207,000 $ — — $ —

Above 100% to 125% LTV ratio .................... 29,648 144,529 205,000 13,263 59,330 224,000

Above 80% to 100% LTV ratio ..................... 36,886 191,208 193,000 26,477 125,619 211,000

Other (80% and below LTV ratio) ..................... 35,870 252,569 142,000 42,304 267,636 158,000

Total relief refinance mortgages ........................ $122,768 686,865 179,000 $ 82,044 452,585 181,000

As of December 31, 2012 As of December 31, 2011

UPB

Number of

Loans

Serious

Delinquency

Rate UPB

Number of

Loans

Serious

Delinquency

Rate

(dollars in millions)

Balance of relief refinance mortgages:

HARP:

Above 125% LTV ratio ........................... $ 20,163 98,371 0.29% $ — — —%

Above 100% to 125% LTV ratio .................... 52,761 251,497 1.20 25,538 113,760 1.46

Above 80% to 100% LTV ratio ..................... 100,122 499,125 1.00 74,132 345,865 0.92

Other (80% and below LTV ratio) ..................... 114,164 774,212 0.32 100,861 621,720 0.23

Total relief refinance mortgages ........................ $287,210 1,623,205 0.66% $200,531 1,081,345 0.58%

(1) Consists of all single-family relief refinance mortgage loans that we either purchased or guaranteed during the period, including those associated with

other guarantee commitments and Other Guarantee Transactions. Prior period amounts have been revised to conform to current period presentation.

(2) Rounded to the nearest thousand.

Relief refinance mortgages comprised approximately 35% and 33% of our total refinance volume during 2012 and

2011, respectively, based on UPB. Relief refinance mortgages with LTV ratios above 80% (i.e., HARP loans) represented

approximately 20% and 12% of our total single-family credit guarantee portfolio purchases during 2012 and 2011,

respectively. Relief refinance mortgages of all LTV ratios comprised approximately 18% and 11% of the UPB in our total

single-family credit guarantee portfolio at December 31, 2012 and 2011, respectively.

Home Affordable Foreclosure Alternatives Program

HAFA is designed to permit borrowers who meet basic HAMP eligibility requirements to sell their homes in short sales,

if such borrowers did not qualify for or participate in a HAMP trial period, failed to complete their HAMP trial period, or

defaulted on their HAMP modification. HAFA also provides a process for borrowers to convey title to their homes through a

deed in lieu of foreclosure. We completed a small number of HAFA transactions on our single-family mortgage loans during

2012 and 2011.

Hardest Hit Fund

In 2010, the federal government created the Hardest Hit Fund, which provides funding for state HFAs to create

unemployment assistance initiatives to help homeowners in those states that have been hit hardest by the housing crisis and

economic downturn. To the extent our borrowers participate in the HFA unemployment assistance programs and the full

contractual payment is made by an HFA, a borrower’s mortgage delinquency status will remain static and will not fall into

further delinquency. Based on information provided to us by our seller/servicers, we believe participation in these programs

by our borrowers was limited in 2012 and 2011.

Loan Workout Volumes and Modification Performance

The table below presents single-family loan workout volumes, serious delinquency rates, and foreclosure volumes for

the years ended December 31, 2012, 2011, and 2010.

146 Freddie Mac
Table 48 — Single-Family Loan Workouts, Serious Delinquency, and Foreclosures Volumes(1)

Years Ended December 31,

2012 2011 2010

Number

of Loans

Loan

Balances

Number

of Loans

Loan

Balances

Number

of Loans

Loan

Balances

(dollars in millions)

Home retention actions:

Loan modifications

with no change in terms(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533 $ 95 4,371 $ 778 4,639 $ 799

with term extension ....................................... 3,894 313 16,354 3,011 20,664 3,602

with reduction of contractual interest rate and, in certain cases, term

extension ............................................. 38,871 6,246 68,584 15,231 114,686 25,277

with rate reduction, term extension and principal forbearance ......... 26,283 8,483 19,865 5,319 30,288 7,915

Total loan modifications(3) ....................................... 69,581 15,137 109,174 24,339 170,277 37,593

Repayment plans(4) .......................................... 33,350 4,746 33,421 4,787 31,210 4,523

Forbearance agreements(5) ..................................... 13,026 2,557 19,516 3,821 34,594 7,156

Total home retention actions ..................................... 115,957 22,440 162,111 32,947 236,081 49,272

Foreclosure alternatives:

Short sale ................................................ 51,972 11,626 45,623 10,524 38,773 9,109

Deed in lieu of foreclosure transactions ........................... 1,036 179 540 94 402 63

Total foreclosure alternatives .................................... 53,008 11,805 46,163 10,618 39,175 9,172

Total single-family loan workouts ................................. 168,965 $34,245 208,274 $43,565 275,256 $58,444

Seriously delinquent loan additions ................................ 305,449 374,970 502,710

Single-family foreclosures(6) ..................................... 105,060 121,751 142,877

Seriously delinquent loans, at period end ............................ 352,860 414,134 462,439

(1) Based on completed actions with borrowers for loans within our single-family credit guarantee portfolio. Excludes those modification, repayment and

forbearance activities for which the borrower has started the required process, but the actions have not been made permanent or effective, such as loans

in modification trial periods. Also excludes certain loan workouts where our single-family seller/servicers have executed agreements in the current or

prior periods, but these have not been incorporated into certain of our operational systems, due to delays in processing. These categories are not mutually

exclusive and a loan in one category may also be included within another category in the same period (see endnote 5).

(2) Under this modification type, past due amounts are added to the principal balance and reamortized based on the original contractual loan terms.

(3) Includes completed loan modifications under HAMP; however, the number of such completions differs from that reported by the MHA Program

administrator in part due to differences in the timing of recognizing the completions by us and the administrator.

(4) Represents the number of borrowers as reported by our seller/servicers that have completed the full term of a repayment plan for past due amounts.

Excludes the number of borrowers that are actively repaying past due amounts under a repayment plan, which totaled 15,467 and 21,382 borrowers as of

December 31, 2012 and 2011, respectively.

(5) Excludes loans with long-term forbearance under a completed loan modification. Many borrowers complete a short-term forbearance agreement before

another loan workout is pursued or completed. We only report forbearance activity for a single loan once during each quarter; however, a single loan

may be included under separate forbearance agreements in separate periods.

(6) Represents the number of our single-family loans that complete foreclosure transfers, including third-party sales at foreclosure auction in which

ownership of the property is transferred directly to a third-party rather than to us.

We experienced a decline in home retention actions, particularly loan modifications, in 2012 compared to 2011;

however, the volume of our modifications that include forbearance of principal and the portion of our modification volume

that was non-HAMP-related both increased in 2012 compared to 2011. We attribute the increase in the portion of our

modification volume that was non-HAMP-related to the introduction of our non-HAMP standard modification in late 2011.

The decline in the total volume of completed loan modifications was primarily due to improved loan performance, which

resulted in a reduction in the volume of loans transitioning to serious delinquency, as well as the fact that a large number of

troubled borrowers have already completed loan modifications or foreclosure alternatives. While our overall loan workout

volume declined more than 18% in 2012, our foreclosure alternative volume increased 15%, compared to 2011. We expect

the volume of foreclosure alternatives will remain high in 2013 primarily because we offer incentives to servicers to

complete short sales instead of foreclosures. See “BUSINESS — Our Business Segments — Single-Family Guarantee

Segment — Servicing Alignment Initiative.”

The UPB of loans in our single-family credit guarantee portfolio for which we have completed a loan modification

increased to $75 billion as of December 31, 2012 from $69 billion as of December 31, 2011. The number of modified loans

in our single-family credit guarantee portfolio continued to increase and such loans comprised approximately 3.4% and 2.9%

of our single-family credit guarantee portfolio as of December 31, 2012 and December 31, 2011, respectively. For the year

ended December 31, 2012, approximately 55% of our loan modifications related to loans which were 180 days or more

delinquent prior to the modification effective date. The estimated current LTV ratio for all modified loans in our singlefamily credit guarantee portfolio was 115% at December 31, 2012. The serious delinquency rate on these loans was 16.6% as

of December 31, 2012.

147 Freddie Mac
The table below presents the percentage of modified single-family loans that were current and performing in each of the

last eight quarterly periods.

Table 49 — Quarterly Percentages of Modified Single-Family Loans — Current and Performing(1)

Quarter of Loan Modification Completion(2)

HAMP loan modifications: 3Q 2012 2Q 2012 1Q 2012 4Q 2011 3Q 2011 2Q 2011 1Q 2011 4Q 2010

Time since modification3 to 5 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87% 89% 89% 89% 86% 87% 86% 85%

6 to 8 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 84 85 84 82 83 82

9 to 11 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 81 81 82 79 78

12 to 14 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 78 79 80 76

15 to 17 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 75 77 76

18 to 20 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 74 74

21 to 23 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 71

24 to 26 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Quarter of Loan Modification Completion(2)

Non-HAMP loan modifications: 3Q 2012 2Q 2012 1Q 2012 4Q 2011 3Q 2011 2Q 2011 1Q 2011 4Q 2010

Time since modification3 to 5 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82% 84% 72% 78% 73% 76% 78% 80%

6 to 8 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 64 69 70 67 69 71

9 to 11 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 62 64 67 63 66

12 to 14 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 59 62 64 61

15 to 17 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 57 60 63

18 to 20 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 57 60

21 to 23 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 56

24 to 26 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Quarter of Loan Modification Completion(2)

Total (HAMP and Non-HAMP): 3Q 2012 2Q 2012 1Q 2012 4Q 2011 3Q 2011 2Q 2011 1Q 2011 4Q 2010

Time since modification3 to 5 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84% 87% 85% 86% 81% 83% 83% 82%

6 to 8 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 80 80 79 77 77 76

9 to 11 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 75 75 76 73 72

12 to 14 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 71 73 73 68

15 to 17 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 69 70 69

18 to 20 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 67 67

21 to 23 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 64

24 to 26 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

(1) Represents the percentage of loans that are current and performing (no payment is 30 days or more past due) or have been paid in full. Excludes loans in

modification trial periods.

(2) Loan modifications are recognized as completed in the quarterly period in which the servicer has reported the modification as effective and the

agreement has been accepted by us. For loans that have been remodified (e.g., where a borrower has received a new modification after defaulting on the

prior modification) the rates reflect the status of each modification separately. For example, in the case of a remodified loan where the borrower is

performing, the previous modification would be presented as being in default in the applicable period.

As of December 31, 2012, the percentage of our modified loans that have become seriously delinquent (i.e., three

months or more delinquent or in foreclosure), transitioned to REO, or completed a loss-producing foreclosure alternative, for

all of our single-family loan modifications (including those under HAMP) completed during the first nine months of 2012,

and full years of 2011, 2010 and 2009, was 7%, 20%, 27%, and 54%, respectively. Many of the borrowers that received

modifications in 2009 were negatively affected by worsening economic conditions after their modification, including high

unemployment rates during the last several years. As of December 31, 2012, the percentage of our HAMP modifications that

have become seriously delinquent (i.e., three months or more delinquent or in foreclosure), transitioned to REO, or

completed a loss-producing foreclosure alternative, during the first nine months of 2012, and full years of 2011, 2010, and

2009, was approximately 5%, 14%, 22%, and 25%, respectively.

Approximately $45 billion in UPB of our completed HAMP loan modifications at December 31, 2012 had provisions

for reduced interest rates that remain fixed for the first five years of the modification and then increase at a rate of one

percent per year (or such lesser amount as may be needed) until the interest rate has been adjusted to the market rate that was

in effect at the time of the modification. As a result, the risk of redefault may increase for these borrowers due to the increase

in monthly payments resulting from these scheduled increases in the contractual interest rate of the modified loan. A

significant number of HAMP loan modifications were completed in 2010 and these loans will begin to experience their

scheduled rate increases in 2015.

148 Freddie Mac
Credit Performance

Delinquencies

We report single-family serious delinquency rate information based on the number of loans that are three monthly

payments or more past due or in the process of foreclosure, as reported by our servicers. Mortgage loans that have been

modified are not counted as seriously delinquent as long as the borrower is less than three monthly payments past due under

the modified terms. Single-family loans for which the borrower is subject to a forbearance agreement or a repayment plan

will continue to reflect the past due status of the borrower. To the extent our borrowers participate in the HFA unemployment

assistance initiatives and the full contractual payment is made by an HFA, a borrower’s mortgage delinquency status will

remain static and will not fall into further delinquency.

Our single-family delinquency rates include all single-family loans that we own, that back Freddie Mac securities, and

that are covered by our other guarantee commitments, except Freddie Mac financial guarantees that are backed by either

Ginnie Mae Certificates or HFA bonds due to the credit enhancements provided on them by the U.S. government.

Some of our workout and other loss mitigation activities create fluctuations in our delinquency statistics. For example,

single-family loans that we report as seriously delinquent before they enter a modification trial period continue to be reported

as seriously delinquent for purposes of our delinquency reporting until the modifications become effective and the loans are

removed from delinquent status by our servicers. Consequently, the volume and timing of loan modifications impact our

reported serious delinquency rate. In addition, there may be temporary timing differences, or lags, in the reporting of

payment status and modification completion due to differing practices of our servicers that can affect our delinquency

reporting.

Our serious delinquency rates have been affected by delays, including those due to increases in foreclosure process

timeframes, general constraints on servicer capacity (which affects the rate at which servicers modify or foreclose upon

loans), and court backlogs (in states that require a judicial foreclosure process). These delays lengthen the period of time in

which loans remain in seriously delinquent status, as the delays extend the time it takes for seriously delinquent loans to be

modified, foreclosed upon or otherwise resolved and thus transition out of seriously delinquent status. As a result, we believe

our single-family serious delinquency rates were higher in 2012 and 2011 than they otherwise would have been.

Many of the seriously delinquent loans that remained in our single-family credit guarantee portfolio at December 31,

2012 have been delinquent for a considerable period of time, particularly in states with a judicial foreclosure process. Loans

that have been delinquent for more than six months are more challenging to resolve as many of these borrowers are not

eligible for modifications and are in geographic areas where the foreclosure process is subject to judicial review or has

lengthened. As of December 31, 2012 and 2011, the percentage of seriously delinquent loans that have been delinquent for

more than six months was 73% and 70%, respectively. As of December 31, 2012 and 2011, the percentage of seriously

delinquent loans located in states with a judicial foreclosure process that have been delinquent for more than one year was

61% and 57%, respectively, and the percentage delinquent for more than two years was 37% and 27%, respectively. As of

December 31, 2012 and 2011, the percentage of seriously delinquent loans located in states with a non-judicial foreclosure

process that have been delinquent for more than one year was 36% and 35%, respectively, and the percentage delinquent for

more than two years was 15% and 11%, respectively.

149 Freddie Mac
The table below presents serious delinquency rates for our single-family credit guarantee portfolio.

Table 50 — Single-Family Serious Delinquency Rates

As of December 31,

2012 2011 2010

Percentage

of Portfolio

Serious

Delinquency

Rate

Percentage

of Portfolio

Serious

Delinquency

Rate

Percentage

of Portfolio

Serious

Delinquency

Rate

Single-family:

Non-credit-enhanced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87% 2.66% 86% 2.84% 85% 3.01%

Credit-enhanced(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.34 14 8.03 15 8.27

Total single-family credit guarantee portfolio(2) .............. 100% 3.25 100% 3.58 100% 3.84

(1) See “Institutional Credit Risk” for information about our counterparties that provide credit enhancement on loans in our single-family credit guarantee

portfolio.

(2) As of December 31, 2012, 2011, and 2010, approximately 68%, 68%, and 61%, respectively, of the single-family loans reported as seriously delinquent

were in the process of foreclosure.

Serious delinquency rates of our single-family credit guarantee portfolio declined to 3.25% as of December 31, 2012,

from 3.58% as of December 31, 2011 continuing the trend of improvement that began in 2010. Our serious delinquency rate

remains high compared to the rates in years prior to 2009 due to weakness in home prices in the last several years,

persistently high unemployment in many areas, extended foreclosure timelines, and continued challenges faced by servicers

in processing large volumes of problem loans, including adjusting their processes to accommodate changes in servicing

standards, such as those dictated by legislative or regulatory authorities. In addition, our serious delinquency rate at

December 31, 2012 was higher than it otherwise would have been due to the decline in the size of our single-family credit

guarantee portfolio during 2012, as this rate is calculated on a smaller number of loans at the end of the period.

Serious delinquency rates for interest-only and option ARM products, which together represented approximately 3% of

our total single-family credit guarantee portfolio at December 31, 2012, were both 16.3% as compared with 17.6% and

20.5%, respectively, at December 31, 2011. Serious delinquency rates of single-family fixed rate, amortizing loans with a

term of 20 years or more, a more traditional mortgage product, were approximately 3.7% and 3.9% at December 31, 2012

and 2011, respectively.

The tables below present serious delinquency rates categorized by borrower and loan characteristics, including

geographic region and origination year, which indicate that certain concentrations of loans have been more adversely affected

by declines in home prices and weak economic conditions since 2006. In certain states, our single-family serious delinquency

rates have remained persistently high. As of December 31, 2012, single-family loans in Arizona, California, Florida, and

Nevada comprised 25% of our single-family credit guarantee portfolio, and the serious delinquency rate of loans in these

states was 5.0%. As of December 31, 2012, seriously delinquent loans in the states of Florida, California, New York, New

Jersey, and Illinois collectively comprised approximately 47% of the seriously delinquent loans in our single-family credit

guarantee portfolio. During 2012, we also continued to experience high serious delinquency rates on single-family loans

originated between 2005 and 2008. We purchased significant amounts of loans with higher-risk characteristics in those years

and those borrowers have been more susceptible to the declines in home prices and weak economic conditions since 2006.

150 Freddie Mac
The table below presents credit concentrations for certain loan groups in our single-family credit guarantee portfolio.

Table 51 — Credit Concentrations in the Single-Family Credit Guarantee Portfolio

As of December 31, 2012

Alt-A

UPB

Non Alt-A

UPB Total UPB

Estimated

Current LTV

Ratio(1)

Percentage

Modified(2)

Serious

Delinquency

Rate

(dollars in billions)

Geographical distribution:

Arizona, California, Florida, and Nevada(3) . . . . . . . . . . . . . . . . . . . $ 30 $ 386 $ 416 82% 5.4% 5.0%

All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 1,178 1,222 73 2.9 2.8

Year of origination:

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 364 364 76 — 0.1

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 226 226 67 <0.1 0.3

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 237 237 68 0.1 0.5

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . <1 205 205 69 0.3 0.9

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 73 79 88 7.4 6.8

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 97 119 107 14.9 12.4

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 69 89 104 13.4 11.4

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 87 101 89 7.5 7.2

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 206 218 56 3.3 3.2

As of December 31, 2011

Alt-A

UPB

Non Alt-A

UPB Total UPB

Estimated

Current LTV

Ratio(1)

Percentage

Modified(2)

Serious

Delinquency

Rate

(dollars in billions)

Geographical distribution:

Arizona, California, Florida, and Nevada(3) . . . . . . . . . . . . . . . . . . . $ 38 $ 406 $ 444 93% 4.6% 6.2%

All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 1,246 1,302 75 2.5 2.9

Year of origination:

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 250 250 70 — 0.1

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 324 324 71 <0.1 0.3

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . <1 315 315 72 0.1 0.5

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 113 120 92 4.4 5.7

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 138 167 113 10.2 11.6

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 99 124 112 9.3 10.8

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 124 142 96 5.1 6.5

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 289 304 61 2.5 2.8

2012 2011

Alt-A Non Alt-A Total Alt-A Non Alt-A Total

(in millions) (in millions)

Credit Losses

Geographical distribution:

Arizona, California, Florida, and Nevada(3) ................... $1,816 $4,526 $6,342 $2,641 $5,081 $7,722

All other states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 886 4,397 5,283 1,050 4,209 5,259

Year of origination:

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4 4 N/A N/A N/A

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 44 44 — 2 2

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 155 155 — 62 62

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . <1 219 219 <1 177 177

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 949 1,046 102 903 1,005

2007 ............................................... 1,015 3,127 4,142 1,455 3,245 4,700

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 952 2,009 2,961 1,314 2,328 3,642

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537 1,460 1,997 713 1,566 2,279

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 956 1,057 107 1,007 1,114

(1) See endnote (4) to “Table 41 — Characteristics of the Single-Family Credit Guarantee Portfolio” for information on our calculation of estimated current

LTV ratios.

(2) Represents the percentage of loans, based on loan count, in our single-family credit guarantee portfolio at period end that have been modified, including

those with no changes in interest rate or maturity date, but where past due amounts are added to the outstanding principal balance of the loan.

(3) Represents the four states with the largest cumulative declines in home prices since 2006 as measured using Freddie Mac’s home price index.

151 Freddie Mac
The table below presents statistics for combinations of certain characteristics of the mortgages in our single-family

credit guarantee portfolio as of December 31, 2012 and 2011.

Table 52 — Single-Family Credit Guarantee Portfolio by Attribute Combinations

December 31, 2012

Current LTV Ratio ≤ 80(1)

Current LTV Ratio of > 80 to 100(1) Current LTV > 100(1)Current LTV Ratio All Loans(1)

Percentage of

Portfolio(2)

Serious Delinquency Rate

Percentage of

Portfolio(2)

Serious Delinquency Rate

Percentage of

Portfolio(2)

Serious Delinquency Rate

Percentage of

Portfolio(2)

Percentage

Modified(3)

Serious Delinquency Rate

By Product Type

FICO scores < 620:

20 and 30- year or more amortizing

fixed-rate ................... 1.0% 8.3% 0.8% 13.4% 0.9% 22.9% 2.7% 18.8% 13.4%

15- year amortizing fixed-rate . . . . . . 0.2 4.2 <0.1 8.0 <0.1 9.5 0.2 1.2 4.5

ARMs/adjustable rate(4) . . . . . . . . . . . 0.1 10.0 <0.1 16.5 <0.1 26.7 0.1 11.4 14.1

Interest-only(5) .................. <0.1 15.0 <0.1 20.8 0.1 33.6 0.1 0.6 27.6

Other(6) ....................... <0.1 4.0 <0.1 8.4 <0.1 14.9 <0.1 4.9 5.7

Total FICO scores < 620 . . . . . . . . . . 1.3 7.2 0.8 13.4 1.0 23.2 3.1 15.3 12.2

FICO scores of 620 to 659:

20 and 30- year or more amortizing

fixed-rate . . . . . . . . . . . . . . . . . . . 2.2 5.5 1.3 9.7 1.7 18.8 5.2 13.8 9.8

15- year amortizing fixed-rate . . . . . . 0.6 2.5 <0.1 5.1 <0.1 8.4 0.6 0.6 2.7

ARMs/adjustable rate(4) . . . . . . . . . . . 0.1 5.1 0.1 11.7 0.1 23.7 0.3 2.6 10.9

Interest-only(5) .................. <0.1 10.7 0.1 17.2 0.2 30.0 0.3 0.5 24.4

Other(6) ....................... <0.1 2.8 <0.1 4.6 <0.1 7.0 <0.1 1.9 4.7

Total FICO scores of 620 to 659 . . . . . 2.9 4.7 1.5 9.7 2.0 19.5 6.4 10.7 9.0

FICO scores of >=660:

20 and 30- year or more amortizing

fixed-rate ................... 40.1 1.1 17.0 2.9 9.8 9.4 66.9 3.3 2.6

15- year amortizing fixed-rate ...... 14.7 0.4 1.0 0.9 0.3 2.3 16.0 0.1 0.5

ARMs/adjustable rate(4) . . . . . . . . . . . 3.0 1.0 0.7 4.6 0.5 15.4 4.2 0.6 3.4

Interest-only(5) . . . . . . . . . . . . . . . . . . 0.4 4.2 0.7 9.7 1.6 20.6 2.7 0.2 15.0

Other(6) ....................... <0.1 1.9 0.1 1.5 0.1 2.5 0.2 0.7 1.9

Total FICO scores >= 660 ......... 58.2 0.9 19.5 3.0 12.3 10.6 90.0 2.3 2.3

Total FICO scores not available . . . . . 0.3 5.4 0.1 11.6 0.1 23.0 0.5 6.5 8.9

All FICO scores:

20 and 30- year or more amortizing

fixed-rate ................... 43.4 1.7 19.1 4.0 12.6 11.8 75.1 4.9 3.7

15- year amortizing fixed-rate ...... 15.4 0.6 1.1 1.2 0.3 2.8 16.8 0.1 0.6

ARMs/adjustable rate(4) . . . . . . . . . . . 3.3 1.6 0.8 5.8 0.6 17.1 4.7 1.2 4.3

Interest-only(5) . . . . . . . . . . . . . . . . . . 0.5 4.9 0.8 10.7 1.8 22.0 3.1 0.2 16.3

Other(6) . . . . . . . . . . . . . . . . . . . . . . . 0.1 9.6 0.1 6.8 0.1 10.2 0.3 7.9 8.9

Total single-family credit guarantee

portfolio(7) ................... 62.7% 1.4% 21.9% 4.1% 15.4% 12.7% 100.0% 3.4% 3.3%

By Region(8)

FICO scores < 620:

North Central .................. 0.2% 5.9% 0.2% 10.4% 0.2% 18.1% 0.6% 14.8% 10.5%

Northeast . . . . . . . . . . . . . . . . . . . . . 0.5 10.4 0.2 19.7 0.2 30.6 0.9 16.6 16.1

Southeast . . . . . . . . . . . . . . . . . . . . . 0.2 7.9 0.2 13.5 0.3 27.7 0.7 16.0 14.5

Southwest . . . . . . . . . . . . . . . . . . . . . 0.2 5.2 0.1 11.2 <0.1 19.5 0.3 10.6 7.4

West . . . . . . . . . . . . . . . . . . . . . . . . 0.2 4.9 0.1 10.2 0.3 17.3 0.6 18.0 10.1

Total FICO scores < 620 . . . . . . . . . . 1.3 7.2 0.8 13.4 1.0 23.2 3.1 15.3 12.2

FICO scores of 620 to 659:

North Central . . . . . . . . . . . . . . . . . . 0.5 3.9 0.3 7.7 0.4 14.5 1.2 10.2 7.5

Northeast . . . . . . . . . . . . . . . . . . . . . 0.9 6.6 0.4 14.4 0.4 25.8 1.7 11.1 11.5

Southeast . . . . . . . . . . . . . . . . . . . . . 0.5 5.4 0.3 10.2 0.5 23.9 1.3 11.0 11.3

Southwest . . . . . . . . . . . . . . . . . . . . . 0.5 3.3 0.2 7.6 0.1 14.5 0.8 6.8 4.8

West . . . . . . . . . . . . . . . . . . . . . . . . 0.5 3.4 0.3 8.0 0.6 16.1 1.4 14.2 8.3

Total FICO scores of 620 to 659 . . . . 2.9 4.7 1.5 9.7 2.0 19.5 6.4 10.7 9.0

FICO scores >=660:

North Central . . . . . . . . . . . . . . . . . . 9.4 0.7 4.4 2.2 2.3 7.0 16.1 1.9 1.7

Northeast ..................... 15.9 1.2 5.2 4.6 1.9 14.2 23.0 2.0 2.6

Southeast . . . . . . . . . . . . . . . . . . . . . 8.3 1.3 3.5 3.3 3.0 14.2 14.8 2.5 3.7

Southwest . . . . . . . . . . . . . . . . . . . . . 8.0 0.7 2.1 2.0 0.3 5.9 10.4 1.1 1.0

West ........................ 16.6 0.6 4.3 2.8 4.8 9.1 25.7 3.4 2.3

Total FICO scores >= 660 ......... 58.2 0.9 19.5 3.0 12.3 10.6 90.0 2.3 2.3

Total FICO scores not available . . . . . 0.3 5.4 0.1 11.6 0.1 23.0 0.5 6.5 8.9

All FICO scores:

North Central .................. 10.1 1.0 4.8 3.0 3.0 9.0 17.9 3.0 2.5

Northeast ..................... 17.1 1.9 5.9 6.1 2.5 17.6 25.5 3.3 3.8

Southeast . . . . . . . . . . . . . . . . . . . . . 9.1 1.9 4.0 4.5 3.8 16.7 16.9 4.0 5.0

Southwest . . . . . . . . . . . . . . . . . . . . . 8.9 1.1 2.5 3.2 0.4 9.3 11.8 2.1 1.7

West ........................ 17.5 0.8 4.7 3.3 5.7 10.2 27.9 4.4 2.8

Total single-family credit guarantee

portfolio(7) ..................... 62.7% 1.4% 21.9% 4.1% 15.4% 12.7% 100.0% 3.4% 3.3%

152 Freddie Mac
As of December 31, 2011

Current LTV Ratio ≤ 80(1)

Current LTV Ratio of > 80 to 100(1) Current LTV > 100(1)Current LTV Ratio All Loans(1)

Percentage of

Portfolio(2)

Serious Delinquency Rate

Percentage of

Portfolio(2)

Serious Delinquency Rate

Percentage of

Portfolio(2)

Serious Delinquency Rate

Percentage of

Portfolio(2)

Percentage

Modified(3)

Serious Delinquency Rate

By Product Type

FICO scores < 620:

20 and 30- year or more amortizing fixed- rate .......................... 0.9% 8.1% 0.8% 13.4% 1.0% 23.7% 2.7% 16.6% 14.2%

15- year amortizing fixed-rate . . . . . . . . . 0.2 4.2 <0.1 10.1 <0.1 17.6 0.2 1.2 4.7

ARMs/adjustable rate(4) . . . . . . . . . . . . . . 0.1 10.8 <0.1 17.2 <0.1 25.4 0.1 9.8 15.4

Interest only(5) ..................... <0.1 16.0 <0.1 22.4 0.1 34.9 0.1 0.4 30.3

Other(6) .......................... <0.1 3.6 <0.1 7.4 0.1 14.1 0.1 4.2 5.6

Total FICO scores < 620 . . . . . . . . . . . . 1.2 7.0 0.8 13.5 1.2 24.1 3.2 13.4 12.9

FICO scores of 620 to 659:

20 and 30- year or more amortizing fixed- rate . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 5.2 1.5 8.9 2.0 18.4 5.5 11.5 10.1

15- year amortizing fixed-rate . . . . . . . . . 0.6 2.5 <0.1 6.1 <0.1 15.1 0.6 0.6 2.8

ARMs/adjustable rate(4) . . . . . . . . . . . . . . 0.1 5.5 0.1 11.7 0.1 23.6 0.3 2.0 12.6

Interest only(5) ..................... <0.1 10.4 0.1 18.6 0.3 31.7 0.4 0.3 27.2

Other(6) .......................... <0.1 2.8 <0.1 4.8 <0.1 5.5 <0.1 1.4 4.5

Total FICO scores of 620 to 659 . . . . . . . 2.7 4.4 1.7 9.1 2.4 19.4 6.8 8.9 9.4

FICO scores of >=660:

20 and 30- year or more amortizing fixedrate .......................... 34.6 1.0 20.3 2.4 12.4 9.2 67.3 2.7 2.8

15- year amortizing fixed-rate ......... 13.1 0.4 1.0 1.1 0.2 6.0 14.3 0.1 0.5

ARMs/adjustable rate(4) . . . . . . . . . . . . . . 2.5 1.1 0.8 4.3 0.8 14.8 4.1 0.5 4.5

Interest only(5) . . . . . . . . . . . . . . . . . . . . . 0.4 3.7 0.7 9.2 2.5 20.7 3.6 0.2 16.2

Other(6) .......................... <0.1 2.0 <0.1 2.0 0.1 2.0 0.1 0.5 2.0

Total FICO scores >= 660 ........... 50.6 0.8 22.8 2.6 16.0 10.8 89.4 1.9 2.6

Total FICO scores not available . . . . . . . . 0.3 4.8 0.2 11.9 0.1 21.4 0.6 5.5 8.9

All FICO scores:

20 and 30- year or more amortizing fixedrate .......................... 37.7 1.6 22.5 3.4 15.6 11.5 75.8 4.1 3.9

15- year amortizing fixed-rate ......... 13.8 0.6 1.1 1.5 0.2 7.3 15.1 0.1 0.7

ARMs/adjustable rate(4) . . . . . . . . . . . . . . 2.7 1.8 1.0 5.5 0.9 16.4 4.6 1.0 5.5

Interest only(5) . . . . . . . . . . . . . . . . . . . . . 0.5 4.4 0.8 10.5 2.8 22.2 4.1 0.2 17.6

Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 8.9 0.1 8.4 0.2 8.4 0.4 6.8 8.6

Total single-family credit guarantee

portfolio(7) ...................... 54.8% 1.3% 25.5% 3.6% 19.7% 12.8% 100.0% 2.9% 3.6%

By Region(8)

FICO scores < 620:

North Central ..................... 0.2% 6.3% 0.2% 11.7% 0.2% 20.1% 0.6% 13.4% 12.0%

Northeast . . . . . . . . . . . . . . . . . . . . . . . . 0.4 9.3 0.2 19.0 0.3 28.9 0.9 14.3 14.9

Southeast . . . . . . . . . . . . . . . . . . . . . . . . 0.2 7.9 0.2 13.9 0.3 29.5 0.7 13.9 15.9

Southwest . . . . . . . . . . . . . . . . . . . . . . . 0.2 5.1 0.1 11.0 0.1 19.5 0.4 9.4 8.0

West . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 4.6 0.1 9.1 0.3 19.5 0.6 16.2 11.8

Total FICO scores < 620 . . . . . . . . . . . . 1.2 7.0 0.8 13.5 1.2 24.1 3.2 13.4 12.9

FICO scores of 620 to 659:

North Central . . . . . . . . . . . . . . . . . . . . . 0.5 4.0 0.3 8.2 0.5 15.1 1.3 8.7 8.4

Northeast . . . . . . . . . . . . . . . . . . . . . . . . 0.8 5.8 0.5 12.9 0.4 23.3 1.7 9.1 10.3

Southeast . . . . . . . . . . . . . . . . . . . . . . . . 0.5 5.2 0.3 9.5 0.6 24.1 1.4 9.1 12.2

Southwest . . . . . . . . . . . . . . . . . . . . . . . 0.5 3.1 0.3 7.0 0.1 13.6 0.9 5.9 5.1

West . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 3.1 0.3 6.8 0.8 17.6 1.5 12.0 10.0

Total FICO scores of 620 to 659 . . . . . . . 2.7 4.4 1.7 9.1 2.4 19.4 6.8 8.9 9.4

FICO scores of >=660:

North Central . . . . . . . . . . . . . . . . . . . . . 8.5 0.7 4.7 2.3 2.8 7.4 16.0 1.6 2.0

Northeast ........................ 14.9 1.0 5.7 3.9 2.0 12.6 22.6 1.6 2.3

Southeast . . . . . . . . . . . . . . . . . . . . . . . . 7.1 1.2 3.9 2.8 3.8 14.4 14.8 2.1 4.2

Southwest . . . . . . . . . . . . . . . . . . . . . . . 7.4 0.6 2.7 2.0 0.4 6.2 10.5 0.9 1.1

West ........................... 12.7 0.5 5.8 1.7 7.0 10.1 25.5 2.9 3.0

Total FICO scores >= 660 ........... 50.6 0.8 22.8 2.6 16.0 10.8 89.4 1.9 2.6

Total FICO scores not available . . . . . . . 0.3 4.8 0.2 11.9 0.1 21.4 0.6 5.5 8.9

All FICO scores:

North Central . . . . . . . . . . . . . . . . . . . . . 9.1 1.0 5.3 3.2 3.6 9.5 18.0 2.6 2.9

Northeast ........................ 16.1 1.6 6.4 5.3 2.7 15.8 25.2 2.7 3.4

Southeast . . . . . . . . . . . . . . . . . . . . . . . . 7.9 1.8 4.4 4.0 4.7 16.8 17.0 3.4 5.5

Southwest . . . . . . . . . . . . . . . . . . . . . . . 8.2 1.1 3.2 3.1 0.6 9.4 12.0 1.8 1.8

West ........................... 13.5 0.7 6.2 2.1 8.1 11.3 27.8 3.8 3.6

Total single-family credit guarantee

portfolio(7) ....................... 54.8% 1.3% 25.5% 3.6% 19.7% 12.8% 100.0% 2.9% 3.6%

(1) The current LTV ratios are our estimates. See endnote (4) to “Table 41 — Characteristics of the Single-Family Credit Guarantee Portfolio” for further information.

(2) Based on UPB of the single-family credit guarantee portfolio.

(3) See endnote (2) to “Table 51 — Credit Concentrations in the Single-Family Credit Guarantee Portfolio.”

(4) Includes balloon/resets and option ARM mortgage loans.

(5) Includes both fixed rate and adjustable rate loans. The percentages of interest-only loans which have been modified at period end reflect that a number of these loans have not

yet been assigned to their new product category (post-modification), primarily due to delays in processing.

(6) Consist of FHA/VA and other government guaranteed mortgages.

(7) The total of all FICO scores categories may not sum due to the inclusion of loans where FICO scores are not available in the respective totals for all loans. See endnote (6) to

“Table 41 — Characteristics of the Single-Family Credit Guarantee Portfolio” for further information about our presentation of FICO scores.

(8) Presentation with the following regional designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI,

VT, VA, WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); and Southwest (AR, CO, KS, LA, MO, NE,

NM, OK, TX, WY).

153 Freddie Mac
The table below presents foreclosure and short sale rate information for loans in our single-family credit guarantee

portfolio based on year of origination.

Table 53 — Single-Family Credit Guarantee Portfolio Foreclosure and Short Sale Rates

As of December 31,

2012 2011 2010

Year of Loan Origination

Percentage

of Portfolio

Foreclosure and

Short Sale

Rate(1)

Foreclosure and

Short Sale

Rate(1)

Foreclosure and

Short Sale

Rate(1)

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22% <0.01% N/A N/A

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 0.06 —% N/A

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 0.20 0.05 —%

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 0.34 0.17 0.04

Combined — 2009 to 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 0.17 0.08 0.02

2008 ......................................................... 6 3.26 2.23 1.26

2007 ......................................................... 7 9.74 7.49 4.92

2006 ......................................................... 5 8.66 6.95 5.00

2005 ......................................................... 6 5.11 4.07 2.95

Combined — 2005 to 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.87 5.35 3.66

2004 and prior(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.20 1.04 0.88

Total ........................................................ 100%

(1) Calculated for each year of origination as the number of loans that have proceeded to foreclosure transfer or short sale and resulted in a credit loss,

excluding any subsequent recoveries, during the period from origination to December 31, 2012, 2011, and 2010, respectively, divided by the number of

loans originated in that year that were acquired in our single-family credit guarantee portfolio.

(2) The foreclosure and short sale rate presented for loans originated in 2004 and prior represents the rate associated with loans originated in 2000 through

2004.

Loans originated from 2005 through 2008 have experienced higher foreclosure and short sale rates as compared to our

historical experience. We attribute this performance to a number of factors, including: (a) the expansion of credit terms under

which loans were underwritten during these years; (b) an increase in the origination and our purchase of interest-only and

Alt-A mortgage products in these years; and (c) an environment of persistently high unemployment, decreasing home sales,

and broadly declining home prices in the period following the loans’ origination.

Multifamily Mortgage Credit Risk

To manage our multifamily mortgage portfolio credit risk, we focus on several key areas: (a) underwriting standards and

processes we believe to be prudent; (b) selling significant portions of the expected credit risk through subordination by

issuance of our multifamily K Certificates; (c) portfolio diversification, particularly by product and geographical area; and

(d) portfolio management activities, including loss mitigation and use of credit enhancements. We monitor the loan

performance, the underlying properties and a variety of mortgage loan characteristics that may affect the default experience

on our multifamily mortgage portfolio, such as DSCR, LTV ratio, geographic location, payment type, and loan maturity. See

“BUSINESS — Our Business Segments — Multifamily Segment” for information on our multifamily underwriting standards.

See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for more information about the loans in our

multifamily mortgage portfolio.

154 Freddie Mac
The table below provides certain attributes of our multifamily mortgage portfolio at December 31, 2012 and 2011.

Table 54 — Multifamily Mortgage Portfolio — by Attribute

UPB at Delinquency Rate(1) at

December 31,

2012

December 31,

2011

December 31,

2012

December 31,

2011

(dollars in billions)

Original LTV ratio(2)

Below 75% ....................................................... $ 87.6 $ 78.8 0.04% 0.10%

75% to 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.0 30.9 0.22 0.08

Above 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 6.4 2.31 2.34

Total ........................................................... $127.4 $116.1 0.19% 0.22%

Weighted average LTV ratio at origination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70% 70%

Maturity Dates

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A $ 3.0 N/A 1.35%

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.3 5.6 0.90% —

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 7.6 — 0.03

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8 11.0 0.53 0.17

2016 ............................................................. 13.0 13.5 0.05 0.06

Beyond 2016 ...................................................... 95.5 75.4 0.17 0.25

Total ........................................................... $127.4 $116.1 0.19% 0.22%

Year of Acquisition or Guarantee(3)

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.2 $ 12.4 0.35% 0.40%

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 7.2 0.17 0.20

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 10.8 — 0.25

2007 ............................................................. 17.8 19.8 0.86 0.74

2008 ............................................................. 16.6 20.6 0.30 0.09

2009 ............................................................. 12.2 13.8 — —

2010 ............................................................. 12.0 12.7 — —

2011 ............................................................. 17.0 18.8 — —

2012 ............................................................. 26.6 N/A — N/A

Total ........................................................... $127.4 $116.1 0.19% 0.22%

Current Loan Size

Above $25 million .................................................. $ 48.5 $ 42.8 0.06% 0.06%

Above $5 million to $25 million ........................................ 70.0 64.0 0.26 0.31

$5 million and below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 9.3 0.37 0.31

Total ........................................................... $127.4 $116.1 0.19% 0.22%

Legal Structure

Unsecuritized loans ................................................. $ 76.6 $ 82.3 0.08% 0.10%

Freddie Mac mortgage-related securities .................................. 41.4 24.2 0.41 0.64

Other guarantee commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4 9.6 0.13 0.18

Total ........................................................... $127.4 $116.1 0.19% 0.22%

Credit Enhancement

Credit-enhanced .................................................... $ 47.8 $ 31.6 0.36% 0.52%

Non-credit-enhanced ................................................ 79.6 84.5 0.10 0.11

Total ........................................................... $127.4 $116.1 0.19% 0.22%

Payment Type

Interest-only ...................................................... $ 22.8 $ 24.2 0.05% 0.16%

Partial interest-only(4) ................................................ 29.8 21.4 0.05 0.22

Amortizing ....................................................... 74.8 70.5 0.30 0.25

Total .......................................................... $127.4 $116.1 0.19% 0.22%

(1) See “Delinquencies” below for more information about our multifamily delinquency rates.

(2) Original LTV ratios are calculated as the UPB of the mortgage, divided by the lesser of the appraised value of the property at the time of mortgage

origination or, except for refinance loans, the mortgage borrower’s purchase price. Second liens not owned or guaranteed by us are excluded in the LTV

ratio calculation. We do not permit second lien financing with third parties on our multifamily loans without our prior consent.

(3) Based on either: (a) the year of acquisition, for loans recorded on our consolidated balance sheets; or (b) the year that we issued our guarantee, for the

remaining loans in our multifamily mortgage portfolio.

(4) Represent loans that have an interest-only period and where the borrower’s payments were interest-only at the respective reporting date. Loans which

have reached the end of their interest-only period by the respective reporting date have converted to, and are classified as, amortizing loans.

155 Freddie Mac
Multifamily Product Types

Our multifamily mortgage portfolio consists of product types that are categorized based on loan terms. Multifamily

loans may: (a) be amortizing or interest-only (on a full or partial basis); and (b) have a fixed or variable rate of interest. Our

multifamily loans generally have balloon maturities ranging from five to ten years. At December 31, 2012 and 2011,

approximately 59% and 61%, respectively, of our multifamily mortgage portfolio consisted of amortizing loans, which

reduce our credit exposure over time since the UPB of the loan declines with each mortgage payment. In addition, as of

December 31, 2012 and 2011, approximately 23% and 18%, respectively, of our multifamily mortgage portfolio consisted of

partial interest-only loans, which after a defined period of time will begin to include amortization of principal.

Because most multifamily loans require a significant lump sum (i.e., balloon) payment of unpaid principal at maturity,

the borrower’s potential inability to refinance or pay off the loan at maturity is a primary concern for us. Borrowers may be

less able to refinance their obligations during periods of rising interest rates, which could lead to default if the borrower is

unable to find affordable refinancing. Of the $127.4 billion in UPB of our multifamily mortgage portfolio as of December 31,

2012, only 3% and 5% will mature during 2013 and 2014, respectively, and the remaining 92% will mature in 2015 and

beyond.

Multifamily Credit Enhancements

Our primary business model in the multifamily segment is to purchase multifamily mortgage loans for aggregation and

then securitization through issuance of multifamily K Certificates, which we categorize as Other Guarantee Transactions.

Substantially all of our multifamily K Certificates use subordination in order to provide credit enhancement to the most

senior classes of these securities, which we guarantee. Subordinated classes are allocated credit losses prior to the senior

classes. As a result, a significant portion of our expected credit risk associated with these loans is sold in subordinated

tranches to third-party investors, thereby substantially reducing our credit risk. At December 31, 2012 and 2011, the UPB of

guaranteed multifamily K Certificates with subordination coverage was $36.7 billion and $19.7 billion, and the average

subordination coverage on these securities was 17% and 15%, respectively. See “NOTE 4: MORTGAGE LOANS AND

LOAN LOSS RESERVES” for additional information about credit protections and other forms of credit enhancements

covering loans in our multifamily mortgage portfolio as of December 31, 2012 and 2011.

Delinquencies and Loss Mitigation Activities

Our multifamily delinquency rates include all multifamily loans that we own, that are collateral for Freddie Mac

securities, and that are covered by our other guarantee commitments, except financial guarantees that are backed by HFA

bonds due to the credit enhancement provided by the U.S. government. We report multifamily delinquency rates based on

UPB of mortgage loans that are two monthly payments or more past due or in the process of foreclosure, as reported by our

servicers. Mortgage loans that have been modified are not counted as delinquent as long as the borrower is less than two

monthly payments past due under the modified terms.

Our multifamily mortgage portfolio delinquency rate was 0.19% at December 31, 2012 and 0.22% at December 31,

2011. Our delinquency rate for credit-enhanced loans was 0.36% and 0.52% at December 31, 2012 and 2011, respectively,

and for non-credit-enhanced loans was 0.10% and 0.11% at December 31, 2012 and 2011, respectively. As of December 31,

2012, more than one-half of our multifamily loans that were two or more monthly payments past due, measured on a UPB

basis, had credit enhancements that we currently believe will mitigate our expected losses on those loans and guarantees.

Our delinquency rates have remained low compared to other industry participants, which we believe to be, in part, the

result of our prudent underwriting standards and practices versus those used by others in the industry. Our delinquency rates

for multifamily loans are positively affected to the extent we have been successful in working with troubled borrowers to

modify their loans prior to becoming delinquent or by providing temporary relief through loan modifications or entering into

a forbearance agreement. For loans for which we are the master servicer, if a borrower is in distress, we may offer a workout

option to the borrower. For example, we may modify the terms of a multifamily mortgage loan (e.g., short-term loan

extension of up to 12 months), which gives the borrower an opportunity to bring the loan current and retain ownership of the

property. These arrangements are made with the expectation that we will recover our initial investment or minimize our

losses. We do not enter into these arrangements in situations where we believe we would experience a loss in the future that

is greater than or equal to the loss we would experience if we foreclosed on the property at the time of the agreement. See

“NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for information about loss mitigation

156 Freddie Mac
activities that we have classified as TDRs and subsequent performance information of these loans. As a result of the positive

market fundamentals and continued strong portfolio performance, we expect our multifamily credit losses and delinquency

rate to remain relatively low in 2013.

Non-Performing Assets

Non-performing assets consist of single-family and multifamily loans that have undergone a TDR, single-family

seriously delinquent loans, multifamily loans that are three or more payments past due or in the process of foreclosure, and

REO assets, net. Non-performing assets also include multifamily loans that are deemed impaired based on management

judgment. We place non-performing loans on non-accrual status when we believe the collectability of interest and principal

on a loan is not reasonably assured, unless the loan is well secured and in the process of collection. When a loan is placed on

non-accrual status, any interest income accrued but uncollected is reversed. Thereafter, interest income is recognized only

upon receipt of cash payments. We did not accrue interest on any loans three monthly payments or more past due in 2012

and 2011.

We classify TDRs as those loans where we have granted a concession to a borrower that is experiencing financial

difficulties. Modified loans that have been classified as TDRs remain categorized as non-performing throughout the

remaining life of the loan regardless of whether the borrower makes payments which return the loan to a current payment

status. See “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for further information about

our TDRs.

The table below provides detail on non-performing loans and REO assets on our consolidated balance sheets and nonperforming loans underlying our financial guarantees.

Table 55 — Non-Performing Assets(1)

December 31,

2012 2011 2010 2009 2008

(dollars in millions)

Non-performing mortgage loans — on balance sheet:

Single-family TDRs:(2)

Less than three monthly payments past due ............................ $ 65,784 $ 44,440 $ 26,612 $ 711 $ 484

Seriously delinquent ............................................. 22,008 11,639 3,144 477 163

Multifamily TDRs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 815 893 911 229 150

Total TDRs ................................................... 88,607 56,972 30,667 1,417 797

Other seriously delinquent single-family loans(4) ........................... 39,711 63,205 84,272 12,106 5,590

Other multifamily loans(5) ........................................... 1,411 1,819 1,750 1,196 197

Total non-performing mortgage loans — on balance sheet ................. 129,729 121,996 116,689 14,719 6,584

Non-performing mortgage loans — off-balance sheet:

Single-family loans ............................................... 1,096 1,230 1,450 85,395 36,718

Multifamily loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474 246 198 178 63

Total non-performing mortgage loans — off-balance sheet ................. 1,570 1,476 1,648 85,573 36,781

Real estate owned, net ............................................... 4,378 5,680 7,068 4,692 3,255

Total non-performing assets ......................................... $135,677 $129,152 $125,405 $104,984 $46,620

Loan loss reserves as a percentage of our non-performing mortgage loans ...... 23.5% 32.0% 33.7% 33.8% 36.0%

Total non-performing assets as a percentage of the total mortgage portfolio,

excluding non-Freddie Mac securities ................................ 7.5% 6.8% 6.4% 5.2% 2.4%

(1) Mortgage loan amounts are based on UPB and REO, net is based on carrying values.

(2) In the third quarter of 2012, we changed the treatment of single-family loans discharged in Chapter 7 bankruptcy to classify these loans as TDRs (unless

they were already classified as TDRs for other reasons), regardless of the borrowers’ payment status. The majority of these loans were not seriously

delinquent at the time of reclassification. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Basis of Presentation” for

further information about our TDR classification of loans discharged in Chapter 7 bankruptcy.

(3) As of December 31, 2012, approximately $806 million in UPB of these loans were current.

(4) Represents loans recognized by us on our consolidated balance sheets, including loans removed from PC trusts due to the borrower’s serious

delinquency.

(5) Of this amount, $1.4 billion, $1.8 billion, $1.6 billion, and $1.1 billion of UPB were current at December 31, 2012, 2011, 2010, and 2009, respectively.

Our loan loss reserves as a percentage of our non-performing mortgage loans declined at December 31, 2012 compared

to December 31, 2011 primarily due to the increase in non-performing assets combined with an improvement in borrower

payment performance within our single-family credit guarantee portfolio, which led to a decline in the level of our loan loss

reserves in 2012. The amount of non-performing assets increased to $135.7 billion as of December 31, 2012, from $129.2

157 Freddie Mac
billion as of December 31, 2011, and the UPB of loans categorized as TDRs also increased at December 31, 2012 as

compared to December 31, 2011. These increases were primarily due to a change in the treatment of single-family loans

discharged in Chapter 7 bankruptcy to classify these loans as TDRs (unless they were already classified as a TDR for other

reasons), regardless of the borrowers’ payment status. Except for this change in classification, which resulted in

approximately $19.5 billion in UPB of loans being newly classified as TDRs in the third quarter of 2012, the balance of our

non-performing loans would have declined in 2012 due to a combination of improved borrower payment performance and

the continued high levels of foreclosure transfers, short sales, and REO dispositions during 2012. TDRs include HAMP and

non-HAMP loan modifications, as well as loans in modification trial periods and certain other loss mitigation actions. See

“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” and “NOTE 5: INDIVIDUALLY IMPAIRED

AND NON-PERFORMING LOANS” for information about TDRs, including our implementation of an amendment to the

accounting guidance on classification of loans as TDRs in 2011. We expect our non-performing assets, including loans

deemed to be TDRs, to remain at elevated levels for 2013.

The table below provides detail by region for REO activity. Our REO activity consists almost entirely of single-family

residential properties. See “Table 52 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for

information about regional serious delinquency rates.

Table 56 — REO Activity by Region(1)

December 31,

2012 2011 2010

(number of properties)

REO Inventory

Beginning property inventory ........................................................... 60,555 72,093 45,052

Adjustment to beginning balance(2) ....................................................... — — 1,340

Properties acquired by region:

Northeast ....................................................................... 7,353 6,970 11,022

Southeast ....................................................................... 23,907 23,195 35,409

North Central .................................................................... 27,586 26,259 29,550

Southwest ....................................................................... 10,199 12,861 14,092

West ........................................................................... 13,773 29,371 36,843

Total properties acquired .......................................................... 82,818 98,656 126,916

Properties disposed by region:

Northeast ....................................................................... (7,545) (8,883) (8,490)

Southeast ....................................................................... (25,813) (28,310) (26,082)

North Central .................................................................... (28,140) (25,971) (22,349)

Southwest ....................................................................... (12,138) (13,099) (11,044)

West ........................................................................... (20,660) (33,931) (33,250)

Total properties disposed .......................................................... (94,296) (110,194) (101,215)

Ending property inventory ............................................................. 49,077 60,555 72,093

(1) See endnote (8) to “Table 52 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for a description of these regions.

(2) Represents REO assets associated with previously non-consolidated mortgage trusts recognized upon adoption of the amendment to the accounting

guidance for consolidation of VIEs on January 1, 2010.

Our REO inventory (measured in number of properties) declined 19% and 16% in 2012 and 2011 as compared to the

inventory balance in the preceding year, respectively, as the volume of our single-family REO dispositions exceeded the

volume of single-family REO acquisitions in both 2012 and 2011. We believe our single-family REO acquisition volume

during 2012 and 2011 was less than it otherwise would have been due to the length of the single-family foreclosure timeline,

particularly in states that require a judicial foreclosure process. Foreclosures generally take longer to complete in states

where judicial foreclosures (those conducted under the supervision of a court) are required than in states where non-judicial

foreclosures are permitted. We also believe that resource constraints on foreclosure activities for five larger servicers

involved in a February 2012 settlement with a coalition of state attorneys general and federal agencies further limited our

REO acquisition volume in 2012. In addition, our expanded loss mitigation efforts, including short sales, are providing

borrowers with viable alternatives to foreclosure. As a result of increasing short sales and a declining amount of problem

loans during 2012, fewer of our loans proceeded to foreclosure and subsequent REO sale.

The average length of time for foreclosure of a Freddie Mac loan has significantly increased in recent years, and may

further increase, due to temporary suspensions, delays, legislative and regulatory developments, changes in servicing

practices, and other factors. During 2012 and 2011, respectively, the nationwide average for completion of a foreclosure (as

measured from the date of the last scheduled payment made by the borrower) on our single-family delinquent loans,

158 Freddie Mac
excluding those underlying our Other Guarantee Transactions, was 611 days and 506 days, respectively, which included:

(a) an average of 769 days and 633 days, respectively, for foreclosures completed in states that require a judicial foreclosure

process; and (b) an average of 467 days and 449 days, respectively, for foreclosures completed in states that do not require a

judicial foreclosure process. We continue to experience significant variability in the average time for foreclosure by state.

For example, during 2012, the average time for completion of foreclosures associated with loans in our single-family credit

guarantee portfolio, excluding Other Guarantee Transactions, ranged from 390 days in Michigan to 1,026 days in Florida. As

of December 31, 2012, our serious delinquency rate for the aggregate of those states that require a judicial foreclosure and all

other states was 4.25% and 2.24%, respectively, compared to 4.47% and 2.74%, respectively, as of December 31, 2011.

We expect the pace of our REO acquisitions will continue to be negatively affected in 2013 by the length of the

foreclosure process, particularly in states with a judicial foreclosure process. However, we expect the volume of our REO

acquisitions will likely remain elevated, as we have a large inventory of seriously delinquent loans in our single-family credit

guarantee portfolio. This large inventory of seriously delinquent loans arose due to various factors and events that have

lengthened the problem loan resolution process and delayed the transition of such loans to a workout or foreclosure transfer

(and then, to REO).

Our single-family REO acquisitions during 2012 were most significant in the states of Florida, Illinois, Michigan,

California and Ohio, which collectively represented 42% of total REO acquisitions based on the number of properties. The

North Central region comprised 42% and 35% of our REO property inventory, based on the number of properties, as of

December 31, 2012 and 2011, respectively. The states with the most properties in our REO inventory as of December 31,

2012 were Michigan and Illinois, which are states in this region that have experienced the greatest cumulative decline in

home prices since 2006. As of December 31, 2012, Michigan and Illinois each comprised 12% of total REO property

inventory, based on the number of properties, compared to 12% and 8%, respectively, of the inventory at December 31,

2011. During 2012, our REO property inventory declined most in the West region, which comprised 13% and 22% of our

total REO property inventory as of December 31, 2012 and 2011, respectively. California experienced an approximately 13%

increase in home prices during 2012, based on our own home price index, and comprised approximately 6% and 10% of our

REO property inventory as of December 31, 2012 and 2011, respectively.

The percentage of interest-only and Alt-A loans in our single-family credit guarantee portfolio, based on UPB, was

approximately 3% and 5%, respectively, at December 31, 2012 and was 6% on a combined basis. The percentage of our REO

acquisitions in 2012 that had been financed by either of these loan types represented approximately 24% of our total REO

acquisitions, based on loan amount prior to acquisition.

We have a variety of alternative methods and tools for REO dispositions that we may employ, as appropriate, including

auction sales, bulk sales, and financing options. Our aggregate REO dispositions through these methods represented an

insignificant portion of our REO dispositions during 2012. In June 2012, we implemented a streamlined bulk sale process

and expect to see increased sales of our REO properties through this channel in 2013; however, the volume of our bulk sales

is likely to remain modest relative to individual property sales. We also developed and implemented a new financing option

during the third quarter of 2012 for both owner-occupied and investor purchases of REO properties in a few states. Although

this initiative did not significantly impact our results in 2012, we expect to expand this initiative nationally in 2013 and we

believe that it may help reduce our REO inventory in the future.

A significant portion of our REO property inventory is unmarketable at any given time, which can increase the aging of

our inventory. For example, some jurisdictions require a period of time after foreclosure during which the borrower may

reclaim the property. During this period, we are not able to sell the property. As of December 31, 2012 and 2011, the

percentage of our single-family REO property inventory that had been held for sale longer than one year was 5.8% and 7.1%,

respectively. Though it varied significantly in different states, the average holding period of our single-family REO

properties was little changed during 2012. Excluding any post-foreclosure period during which borrowers may reclaim a

foreclosed property, the average holding period associated with our single-family REO dispositions during the years ended

December 31, 2012 and 2011 was 200 days and 197 days, respectively.

159 Freddie Mac
The table below provides information about the status of the REO properties on our consolidated balance sheets.

Table 57 — Single-Family REO Property Status

As of December 31,

2012 2011

(Percent of properties)

Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27% 29%

Pending settlement for sale(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 15

Pre-listing (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 18

Unable to market:

Redemption status(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 15

Occupied (waiting for eviction) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 19

Other(4) .................................................................................... 3 4

Subtotal — unable to market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 38

Total ....................................................................................... 100% 100%

(1) Consists of properties where we have an executed sales contract and settlement has not yet occurred.

(2) Consists of properties that are not being actively marketed because we are evaluating the property condition and preparing the property for sale.

(3) Consists of properties located in jurisdictions that require a period of time after foreclosure during which the borrower may reclaim the property.

(4) Includes properties where marketing is on hold, including where we are involved in litigation or other legal and regulatory issues concerning the

property.

As shown in the table above, the composition of our REO inventory that is not yet listed on the market, primarily

because many of these properties are under repair or are otherwise being prepared for sale, increased in 2012. We continue to

have a significant number of properties in our REO inventory that are occupied or in states with a redemption period,

particularly in the states of Illinois, Michigan, and Minnesota.

Credit Loss Performance

Many loans that are seriously delinquent, or in foreclosure, result in credit losses. The table below provides detail on our

credit loss performance associated with mortgage loans and REO assets on our consolidated balance sheets and underlying

our non-consolidated mortgage-related financial guarantees.

160 Freddie Mac
Table 58 — Credit Loss Performance

December 31,

2012 2011 2010

(dollars in millions)

REO

REO balances, net:

Single-family ..................................................................... $ 4,314 $ 5,548 $ 6,961

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 132 107

Total .......................................................................... $ 4,378 $ 5,680 $ 7,068

REO operations (income) expense:

Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62 $ 596 $ 676

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (11) (3)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59 $ 585 $ 673

Charge-offs

Single-family:

Charge-offs, gross(1) (including $13.5 billion, $14.7 billion, and $16.2 billion relating to loan loss reserves,

respectively) .................................................................... $13,825 $15,149 $16,746

Recoveries(2) ...................................................................... (2,262) (2,764) (3,362)

Single-family, net ................................................................ $11,563 $12,385 $13,384

Multifamily:

Charge-offs, gross(1) (including $36 million, $75 million, and $104 million relating to loan loss reserves,

respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39 $ 83 $ 104

Recoveries(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (1) (1)

Multifamily, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37 $ 82 $ 103

Total Charge-offs:

Charge-offs, gross(1) (including $13.6 billion, $14.8 billion, and $16.3 billion relating to loan loss reserves,

respectively) .................................................................... $13,864 $15,232 $16,850

Recoveries(2) ...................................................................... (2,264) (2,765) (3,363)

Total Charge-offs, net ............................................................. $11,600 $12,467 $13,487

Credit Losses(3)

Single-family ..................................................................... $11,625 $12,981 $14,060

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 71 100

Total .......................................................................... $11,659 $13,052 $14,160

Total (in bps)(4) ..................................................................... 63.8 68.1 72.2

(1) Represent the carrying amount of a loan that has been discharged in order to remove the loan from our consolidated balance sheet at the time of

resolution, regardless of when the impact of the credit loss was recorded on our consolidated statements of comprehensive income through the provision

for credit losses or losses on loans purchased. Charge-offs primarily result from foreclosure transfers and short sales and are generally calculated as the

recorded investment of a loan at the date it is discharged less the estimated value in final disposition or actual net sales in a short sale.

(2) Recoveries of charge-offs primarily result from foreclosure alternatives and REO acquisitions on loans where: (a) a share of default risk has been

assumed by mortgage insurers, servicers, or other third parties through credit enhancements; or (b) we received a reimbursement of our losses from a

seller/servicer associated with a repurchase request on a loan that experienced a foreclosure transfer or a foreclosure alternative. Includes $0.7 billion,

$1.0 billion, and $1.3 billion in 2012, 2011, and 2010, respectively, related to repurchase requests from our seller/servicers.

(3) Excludes foregone interest on non-performing loans, which reduces our net interest income but is not reflected in our total credit losses. In addition,

excludes other market-based credit losses: (a) incurred on our investments in mortgage loans and mortgage-related securities; and (b) recognized in our

consolidated statements of comprehensive income.

(4) Calculated as credit losses divided by the average carrying value of our total mortgage portfolio, excluding non-Freddie Mac mortgage-related securities

and that portion of REMICs and Other Structured Securities that are backed by Ginnie Mae Certificates.

Our credit loss performance metric generally measures losses at the conclusion of the loan and related collateral

resolution process. There is a significant lag in time from the start of loan workout activities by our servicers on problem

loans (e.g., seriously delinquent loans) to the final resolution of those loans by the completion of foreclosures (and

subsequent REO sales) and foreclosure alternatives. Most of our expenses associated with home retention actions (e.g., loan

modifications) are not reflected in our credit loss metric. Our credit loss performance is based on our charge-offs, REO

expenses, and recoveries of loss from credit enhancement and seller/servicer repurchases. We primarily record charge-offs at

the time we take ownership of a property through foreclosure and at the time of settlement of foreclosure alternatives (e.g.,

short sales). Single-family charge-offs, gross, for 2012 and 2011 were $13.8 billion and $15.1 billion, respectively, and were

associated with approximately $28.1 billion and $31.5 billion in UPB of loans for 2012 and 2011, respectively. Our chargeoffs and credit losses in 2012 and 2011 remained elevated, but were less than they otherwise would have been because of the

suppression of loan and collateral resolution activity due to the length of the foreclosure timeline, particularly in states that

require a judicial foreclosure process. Our recoveries have declined in recent years primarily due to: (a) declining volumes of

foreclosures on which we may recover losses; and (b) declines in repurchase recoveries due to negotiated agreements and

counterparties that

161 Freddie Mac
are insolvent or for which we otherwise have limited or no recourse. We expect our charge-offs and credit losses to continue

to remain elevated in 2013 due to the large number of single-family non-performing loans that will likely be resolved and

because of the cumulative declines in home prices that occurred since 2006 in many areas.

Our credit losses during 2012 continued to be disproportionately high in those states that experienced significant

declines in property values since 2006, such as California, Florida, Nevada, and Arizona, which collectively comprised

approximately 54% of our total credit losses in 2012. Loans originated in 2005 through 2008 comprised approximately 24%

of our single-family credit guarantee portfolio, based on UPB at December 31, 2012, however, these loans accounted for

approximately 87% of our credit losses during 2012. Due to declines in property values since 2006, we continued to

experience high REO disposition severity ratios on sales of our REO inventory and similarly high rates of loss associated

with short sale transactions. In addition, although Alt-A loans comprised approximately 5% of our single-family credit

guarantee portfolio at both December 31, 2012 and 2011, respectively, these loans accounted for approximately 23% and

28% of our credit losses during 2012 and 2011, respectively. As of both December 31, 2012 and 2011, loans in states with a

judicial foreclosure process comprised 47% of our single-family credit guarantee portfolio, based on UPB, while loans in

these states contributed to approximately 41% and 29% of our credit losses recognized in 2012 and 2011, respectively. See

“Table 3 — Credit Statistics, Single-Family Credit Guarantee Portfolio” for information on REO disposition severity ratios,

and see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for additional information about our credit

losses.

The table below provides detail by region for charge-offs.

Table 59 — Single-Family Charge-offs and Recoveries by Region(1)

Year Ended December 31,

2012 2011 2010

Charge-offs,

gross Recoveries(2)

Charge-offs,

net

Charge-offs,

gross Recoveries(2)

Charge-offs,

net

Charge-offs,

gross Recoveries(2)

Charge-offs,

net

(in millions)

Northeast ......... $ 1,180 $ (249) $ 931 $ 1,033 $ (226) $ 807 $ 1,367 $ (318) $ 1,049

Southeast ......... 3,530 (694) 2,836 3,210 (693) 2,517 4,311 (1,005) 3,306

North Central ...... 2,726 (526) 2,200 2,502 (615) 1,887 2,638 (694) 1,944

Southwest . . . . . . . . . 647 (160) 487 777 (243) 534 761 (288) 473

West ............. 5,742 (633) 5,109 7,627 (987) 6,640 7,669 (1,057) 6,612

Total ............. $13,825 $(2,262) $11,563 $15,149 $(2,764) $12,385 $16,746 $(3,362) $13,384

(1) See endnote (8) to “Table 52 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for a description of these regions.

(2) Recoveries of charge-offs primarily result from foreclosure alternatives and REO acquisitions on loans where a share of default risk has been assumed

by mortgage insurers, servicers, or other third parties through credit enhancements.

As shown in the table above, our charge-offs improved during 2012 compared to 2011 in the West and Southwest

regions of the U.S., but our charge-offs increased in all other regions. Our foreclosure activity in the North Central region has

remained high relative to historical experience and some of the states in this region have experienced significant cumulative

declines in home prices since 2006, including Illinois, Michigan, and Minnesota.

Loan Loss Reserves

We maintain mortgage-related loan loss reserves at levels we believe appropriate to absorb probable incurred losses on

mortgage loans held-for-investment on our consolidated balance sheets and those underlying Freddie Mac mortgage-related

securities and other guarantee commitments. Determining the loan loss reserves is complex and requires significant

management judgment about matters that involve a high degree of subjectivity. See “NOTE 1: SUMMARY OF

SIGNIFICANT ACCOUNTING POLICIES” for additional information on our accounting policies for loan loss reserves and

impaired loans.

The table below summarizes our loan loss reserves activity for held-for-investment mortgage loans recognized on our

consolidated balance sheets and underlying Freddie Mac mortgage-related securities and other guarantee commitments, in

total.

162 Freddie Mac
Table 60 — Loan Loss Reserves Activity(1)

Year ended December 31,

2012 2011 2010 2009 2008

(dollars in millions)

Total loan loss reserves:

Beginning balance ................................................... $ 39,461 $ 39,926 $ 33,857 $15,618 $ 2,822

Adjustments to beginning balance(2) ..................................... — — (186) — —

Provision for credit losses ............................................ 1,890 10,702 17,218 29,530 16,432

Charge-offs, gross(3) ................................................. (13,556) (14,810) (16,322) (9,402) (3,072)

Recoveries(4) ...................................................... 2,264 2,765 3,363 2,088 779

Transfers, net(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 831 878 1,996 (3,977) (1,343)

Ending balance ...................................................... $ 30,890 $ 39,461 $ 39,926 $33,857 $15,618

Components of loan loss reserves:

Single-family ..................................................... $ 30,508 $ 38,916 $ 39,098 $33,026 $15,341

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 382 $ 545 $ 828 $ 831 $ 277

Total loan loss reserve, as a percentage of the total mortgage portfolio, excluding nonFreddie Mac securities ............................................... 1.71% 2.08% 2.03% 1.69% 0.81%

(1) Consists of reserves for loans held-for-investment and those underlying Freddie Mac mortgage-related securities and other guarantee commitments.

(2) Adjustments relate to the adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of VIEs. See “NOTE 1:

SUMMARY OF SIGNFICANT ACCOUNTING POLICIES — Recently Adopted Accounting Guidance” for further information.

(3) Charge-offs related to loan loss reserves represent the amount of a loan that has been discharged to remove the loan from our consolidated balance sheet

due to either foreclosure transfer or a short sale or deed in lieu of foreclosure transaction. Charge-offs exclude $307 million, $422 million, $528 million,

$280 million, and $377 million for the years ended December 31, 2012, 2011, 2010, 2009, and 2008, respectively, related to certain loans purchased

under financial guarantees and reflected within losses on loans purchased on our consolidated statements of comprehensive income.

(4) Recoveries of charge-offs primarily result from foreclosure alternatives and REO acquisitions on loans where: (a) a share of default risk has been

assumed by mortgage insurers, servicers or other third parties through credit enhancements; or (b) we received a reimbursement of our losses from a

seller/servicer associated with a repurchase request on a loan that experienced a foreclosure transfer or a foreclosure alternative.

(5) Consist primarily of: (a) amounts related to agreements with seller/servicers where the transfer relates to recoveries received under these agreements to

compensate us for previously incurred and recognized losses; (b) the transfer of a proportional amount of the recognized reserves for guarantee losses

associated with loans purchased from non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments; and (c) net amounts

attributable to recapitalization of past due interest on modified mortgage loans.

Our loan loss reserves declined in 2012, which reflects improvement in both borrower payment performance and lower

severity ratios for both REO dispositions and short sale transactions due to the improvements in home prices in most areas

during the year. In 2012, the portion of our loan loss reserves attributable to individually impaired loans has increased while

the portion of our loan loss reserves determined on a collective basis has declined. As of December 31, 2012 and 2011, the

recorded investment of individually impaired single-family mortgage loans was $89.3 billion and $60.0 billion, respectively,

and the loan loss reserves associated with these loans were $17.9 billion and $15.1 billion, respectively. See “NOTE 5:

INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for additional information about our impaired loans.

See “CONSOLIDATED RESULTS OF OPERATIONS — Provision for Credit Losses,” for a discussion of our provision for

credit losses and charge-off activity.

The table below summarizes our allowance for loan loss activity for individually impaired single-family mortgage loans

on our consolidated balance sheets for which we have recorded a specific reserve.

163 Freddie Mac
Table 61 — Single-Family Impaired Loans with Specific Reserve Recorded

2012 2011

# of Loans Amount # of Loans Amount

(in millions) (in millions)

TDRs (recorded investment):

TDRs, at beginning of year ................................................ 252,749 $ 53,494 128,241 $ 28,440

New additions(1) ....................................................... 227,576 36,074 136,316 27,791

Repayments ......................................................... (10,442) (2,070) (4,655) (1,243)

Loss events(2) ......................................................... (19,376) (3,756) (7,607) (1,537)

Other .............................................................. (1,362) (258) 454 43

TDRs, at end of year ..................................................... 449,145 83,484 252,749 53,494

Other (recorded investment)(3) ............................................. 18,416 1,672 25,565 2,433

Total impaired loans with specific reserve ..................................... 467,561 85,156 278,314 55,927

Allowance for loan losses of individually impaired single-family loans ............... (17,935) (15,100)

Net investment, at December 31 ............................................ $ 67,221 $ 40,827

(1) In the third quarter of 2012, we changed the treatment of single-family loans discharged in Chapter 7 bankruptcy to classify these loans as TDRs,

regardless of the borrowers’ payment status. As a result, we newly classified approximately $19.5 billion in UPB of loans discharged in Chapter 7

bankruptcy as TDRs in the third quarter of 2012. The majority of these loans were not seriously delinquent at the time of reclassification.

(2) Consists of foreclosure transfers or foreclosure alternatives, such as a deed in lieu of foreclosure or short sale transaction.

(3) Consists of loans impaired upon purchase, which experienced further deterioration in borrower credit.

Credit Risk Sensitivity

Under a 2005 agreement with FHFA, then OFHEO, we are required to disclose the estimated increase in the NPV of

future expected credit losses for our single-family credit guarantee portfolio over a ten year period as the result of an

immediate 5% decline in home prices nationwide, followed by a stabilization period and return to the base case. This

sensitivity analysis is hypothetical and may not be indicative of our actual results. We do not use this analysis for

determination of our reported results under GAAP.

The table below presents the estimated credit loss sensitivity of our single-family credit guarantee portfolio, based on

assumptions required by FHFA, both before and after consideration of credit enhancements, measured at the end of the last

five quarterly periods.

Table 62 — Single-Family Credit Loss Sensitivity

Before Receipt of

Credit Enhancements(1)

After Receipt of

Credit Enhancements(2)

NPV(3) NPV Ratio(4) NPV(3) NPV Ratio(4)

(dollars in millions)

At:

December 31, 2012 ........................................................... $6,356 38.8 bps $5,908 36.1 bps

September 30, 2012 .......................................................... $6,479 39.2 bps $6,085 36.8 bps

June 30, 2012 ............................................................... $7,131 42.2 bps $6,713 39.7 bps

March 31, 2012 ............................................................. $8,568 49.6 bps $8,095 46.8 bps

December 31, 2011 ........................................................... $8,328 47.7 bps $7,842 44.9 bps

(1) Assumes that none of the credit enhancements currently covering our mortgage loans has any mitigating effect on our credit losses.

(2) Assumes we collect amounts due from credit enhancement providers after giving effect to certain assumptions about counterparty default rates.

(3) Based on the single-family credit guarantee portfolio, excluding REMICs and Other Structured Securities backed by Ginnie Mae Certificates.

(4) Calculated as the ratio of NPV of increase in credit losses to the single-family credit guarantee portfolio, defined in note (3) above.

Institutional Credit Risk

The concentration of our exposure to our counterparties increased beginning in 2008 due to industry consolidation and

counterparty failures. Many of our remaining counterparties were adversely affected in recent years by challenging market

and economic conditions as well as the stress on their resources to meet increased regulatory requirements and oversight.

Our exposure to single-family mortgage seller/servicers remained high during 2012 with respect to their repurchase

obligations arising from breaches of representations and warranties made to us for loans they underwrote and sold to us, or

service for us. We rely on our single-family seller/servicers to perform loan workout activities as well as foreclosures on

loans that they service for us. Our credit losses could increase to the extent that our seller/servicers do not fully perform these

obligations in a timely manner. The financial condition of the mortgage insurance industry remained weak during 2012, and

the substantial majority of our mortgage insurance exposure is concentrated with four counterparties, certain of which are

164 Freddie Mac
under significant financial stress. In addition, our exposure to derivatives counterparties remains highly concentrated as

compared to historical levels.

We continue to face challenges in reducing our risk concentrations with counterparties. Efforts we make to reduce

exposure to financially weakened counterparties could further increase our exposure to other individual counterparties or

increase concentration risk overall. The failure of any of our significant counterparties to meet their obligations to us could

have a material adverse effect on our results of operations, financial condition, and our ability to conduct future business. For

more information, see “RISK FACTORS — Competitive and Market Risks — We depend on our institutional counterparties

to provide services that are critical to our business, and our results of operations or financial condition may be adversely

affected if one or more of our institutional counterparties do not meet their obligations to us.”

Non-Agency Mortgage-Related Security Issuers

Our investments in securities expose us to institutional credit risk to the extent that servicers, issuers, guarantors, or

third parties providing credit enhancements become insolvent or do not perform their obligations. Our investments in nonFreddie Mac mortgage-related securities include both agency and non-agency securities. Agency securities have historically

presented minimal institutional credit risk due to the guarantee provided by those institutions, and the U.S. government’s

support of those institutions. However, we recognized impairment charges in 2012 and 2011 related to certain of our

investments in non-agency mortgage-related securities. See “CONSOLIDATED BALANCE SHEETS ANALYSIS —

Investments in Securities” for further information, including a discussion of the higher-risk components of these investments.

At the direction of our Conservator, we are working to enforce our rights as an investor with respect to the non-agency

mortgage-related securities we hold, and are engaged in efforts to mitigate losses on our investments in these securities, in

some cases in conjunction with other investors. The effectiveness of our efforts is highly uncertain and any potential

recoveries may take significant time to realize. For more information, see “RISK FACTORS — Competitive and Market

Risks — Certain strategies to mitigate our losses as an investor in non-agency mortgage-related securities may adversely

affect our relationships with some of our largest seller/servicers and counterparties” and “NOTE 15: CONCENTRATION

OF CREDIT AND OTHER RISKS — Non-Agency Mortgage-Related Security Issuers.”

For information about institutional credit risk associated with our investments in non-mortgage-related securities, see

“NOTE 7: INVESTMENTS IN SECURITIES — Table 7.9 — Trading Securities” as well as “Cash and Other Investments

Counterparties” below.

Single-family Mortgage Seller/Servicers

We acquire a significant portion of our single-family mortgage purchase volume from several large lenders, or seller/

servicers. Our top 10 single-family seller/servicers provided approximately 73% of our single-family purchase volume

during 2012. Wells Fargo Bank, N.A., U.S. Bank, N.A., and JPMorgan Chase Bank, N.A. accounted for 27%, 12%, and 10%,

respectively, of our single-family mortgage purchase volume and were the only single-family seller/servicers that comprised

10% or more of our purchase volume during 2012.

We are exposed to institutional credit risk arising from the potential insolvency of or non-performance by our mortgage

seller/servicers, including non-performance of their repurchase obligations arising from breaches of the representations and

warranties made to us for loans they underwrote and sold to us or failure to honor their recourse and indemnification

obligations to us. We have contractual arrangements with our seller/servicers under which they agree to sell us mortgage

loans, and represent and warrant that those loans have been originated under specified underwriting standards. In addition,

our servicers represent and warrant to us that those loans will be serviced in accordance with our servicing contract. If we

subsequently discover that the representations and warranties were breached (i.e., that contractual standards were not

followed), we can exercise certain contractual remedies to mitigate our actual or potential credit losses. These contractual

remedies include the ability to require the seller/servicer to repurchase the loan at its current UPB and/or make us whole for

losses realized with respect to the loan after consideration of other recoveries, if any. For loans that have proceeded through

foreclosure and REO sale or other workouts (e.g. short sales) and that we have determined were ineligible to be delivered to

us, we will accept reimbursement for realized credit losses in lieu of repurchase. For all other loans that we determine were

ineligible to be delivered to us, we issue a repurchase request for the loan’s UPB, plus interest and fees. In limited

circumstances, we may choose to accept alternative remedies to those stated above, such as allowing a seller/servicer to

indemnify us against losses realized on such mortgages or otherwise compensate us for the risk of continuing to hold the

mortgages. Our decision on whether to accept an alternative remedy is based on a number of factors, including: (a) the

165 Freddie Mac
payment history of the loan; (b) the current status and outstanding UPB of the loan; (c) the estimated loss; (d) the type of

deficiency that led to the repurchase request; and (e) the customer’s current status and eligibility for an alternative remedy.

As part of our expansion of our relief refinance initiative (including HARP), we may face greater exposure to credit and other

losses on these loans because we are relieving lenders of certain representations and warranties on the original mortgage

being refinanced. For more information on HARP, see “Mortgage Credit Risk — Single-Family Mortgage Credit Risk —

Single-Family Loan Workouts and the MHA Program — Relief Refinance Mortgage Initiative and the Home Affordable

Refinance Program.”

We launched a new representation and warranty framework for conventional loans purchased on or after January 1,

2013. We may face greater exposure to credit and other losses under this new framework since it relieves lenders of certain

repurchase obligations in specific cases (such as for loans that perform for 36 consecutive months, with certain exclusions).

The new framework does not affect seller/servicers’ obligations under their contracts with us with respect to loans sold to us

prior to January 1, 2013. The new framework also does not affect their obligation to service these loans in accordance with

our servicing standards. For additional information, see “BUSINESS — Our Business Segments — Single-Family Guarantee

Segment — New Representation and Warranty Framework.”

Our contracts require that a seller/servicer repurchase a mortgage after we issue a repurchase request, unless the seller/

servicer avails itself of an appeals process provided for in our contracts, in which case the deadline for repurchase is extended

until we decide the appeal. The table below provides a summary of our repurchase request activity for 2012, 2011, and 2010.

Table 63 — Repurchase Request Activity and Counterparty Balances(1)

Year Ended December 31,

2012 2011 2010

(in millions)

Beginning balance ...................................................................... $ 2,716 $ 3,807 $ 4,201

New requests issued ................................................................... 9,246 9,172 16,498

Requests collected(2) ................................................................... (3,487) (4,490) (7,467)

Requests cancelled(3) ................................................................... (5,417) (5,707) (9,298)

Other(4) ............................................................................. (30) (66) (127)

Ending balance ........................................................................ $ 3,028 $ 2,716 $ 3,807

As of December 31,

2012 2011

(in millions)

Seller/servicer counterparty:

Bank of America, N.A. ................................................................. $ 1,029 $ 627

Wells Fargo Bank, N.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662 756

JPMorgan Chase Bank, N.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 270

U.S. Bank, N.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 94

CitiMortgage, N.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 159

Other counterparties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846 810

Total .............................................................................. $ 3,028 $ 2,716

(1) Amounts are based on the UPB of the loans associated with the repurchase requests.

(2) Requests collected are based on the UPB of the loans associated with the repurchase requests, which in many cases is more than the amount of payments

received for reimbursement of losses for requests associated with foreclosed mortgage loans, negotiated settlements, and other alternative remedies. For

the three years ended December 31, 2012, 2011, and 2010, approximately 35%, 31%, and 32%, respectively, of the requests collected in each period

were satisfied by reimbursement of losses associated with the request.

(3) Consists primarily of those requests that were resolved by the servicer providing missing documentation or rescinded through a successful appeal of the

request.

(4) Other includes items that affect the UPB of the loan while the repurchase request is outstanding, such as changes in UPB due to payments made on the

loan. Also includes requests deemed uncollectible due to the insolvency or other failure of the counterparty.

Historically, we have used a process of reviewing a sample of the loans we purchase to validate compliance with our

standards. In addition, we review many delinquent loans and loans that have resulted in credit losses, such as through

foreclosure or short sale. Beginning in 2012, we made revisions to our selection approach for these loans that expanded the

coverage of our loan reviews. Certain of these changes are designed to increase our loss recoveries. We expect that the

changes made to our loan review process will increase our repurchase request volumes with our seller/servicers in the future.

In addition, our new representation and warranty framework may further change the way we approach our review process in

the future.

During 2012, our increased reviews of defaulted loans that were originated prior to 2009 resulted in a slightly higher

amount of new repurchase requests in 2012 compared to 2011. The amount of new repurchase requests declined significantly

in 2011 compared to 2010, primarily as a result of: (a) a lower volume of loan reviews performed in 2011 relating to loans

166 Freddie Mac
originated in 2008 and prior years; and (b) the increase in the number of loans covered by negotiated agreements (as

discussed below) or originated by counterparties that had defaulted.

The UPB of loans subject to open repurchase requests increased to $3.0 billion at December 31, 2012 from $2.7 billion

at December 31, 2011 because the volume of new request issuances exceeded the combined volume of requests collected and

cancelled. As measured by UPB, approximately 41% and 39% of the repurchase requests outstanding at December 31, 2012

and December 31, 2011, respectively, were outstanding for four months or more since issuance of the initial request (these

figures include repurchase requests for which appeals were pending). As of December 31, 2012, two of our largest seller/

servicers (Bank of America, N.A. and Wells Fargo Bank, N.A.) had aggregate repurchase requests outstanding, based on

UPB, of $1.7 billion, and approximately 53% of these requests were outstanding for four months or more since issuance of

the initial request. The amount we expect to collect on the outstanding requests is significantly less than the UPB of the loans

subject to the repurchase requests primarily because many of these requests will likely be satisfied by reimbursement of our

realized credit losses by seller/servicers, instead of repurchase of loans at their UPB. Some of these requests also may be

rescinded in the course of the contractual appeal process. Based on our historical loss experience and the fact that many of

these loans are covered by credit enhancements (e.g., mortgage insurance), we expect the actual credit losses experienced by

us should we fail to collect on these repurchase requests will also be less than the UPB of the loans. In order to resolve

outstanding repurchase requests on a more timely basis with our single-family seller/servicers, we have required certain of

our larger seller/servicers to commit to plans for completing repurchases, with financial consequences or with stated

remedies for non-compliance, as part of the annual renewals of our contracts with them. As of December 31, 2012, our 14

largest seller/servicers, which held more than 80% of all outstanding repurchase requests, are subject to the revised contract

terms. For mortgages we purchase beginning in 2013, under our new representation and warranty framework, all of our

seller/servicers will be subject to the same process for repurchase requests, including remedies for non-compliance, and we

will no longer include such provisions in individual seller/servicer contracts.

Repurchase requests related to mortgage insurance rescission and claim denial tend to be outstanding longer than other

repurchase requests for a number of reasons, including: (a) lenders may not agree with the basis used by the mortgage

insurers to rescind coverage; (b) the mortgage insurers’ appeals process for rescissions can be lengthy (as long as one year or

more); (c) lenders expect us to suspend repurchase enforcement until after the appeal decision by the mortgage insurer is

made (although this is not our practice); and (d) in certain cases, we have agreed to consider a repurchase alternative that

would allow certain of our seller/servicers to provide us a commitment for the amount of lost mortgage insurance coverage in

lieu of a full repurchase. Of the total amount of repurchase requests outstanding at December 31, 2012, approximately

$1.2 billion were issued due to mortgage insurance rescission or mortgage insurance claim denial.

During 2010 and 2009, we entered into agreements with certain of our seller/servicers to release specified loans from

certain repurchase obligations in exchange for one-time cash payments. As of December 31, 2012, loans totaling $120.9

billion in UPB, representing 7.4% of our single-family credit guarantee portfolio, were subject to such negotiated

agreements. In a memorandum to the FHFA Office of Inspector General dated September 19, 2011, FHFA stated that it had

“suspended certain future repurchase agreements with seller/servicers concerning their repurchase obligations pending the

outcome” of a review by Freddie Mac of its loan sampling methodology. Since the issuance of this memorandum, FHFA

conducted its evaluation of our loan review process and provided us with guidelines for future repurchase-related

agreements, under which larger agreements will generally need to be reviewed and approved by FHFA. We did not enter into

any negotiated agreements with seller/servicers concerning release of their repurchase obligations during 2012 or 2011.

However, in the ordinary course of business we sometimes rescind certain repurchase requests through the contractual

appeals process.

Our estimate of recoveries from seller/servicer repurchase obligations is considered in our allowance for loan losses;

however, our actual recoveries may be different than our estimates. Such differences are reflected in our allowance for loan

losses and impact the amount of the provision for credit losses that we record during a given period. See “NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for Loan Losses and Reserve for Guarantee

Losses” for further information. We believe we have appropriately provided for these exposures, based upon our estimates of

incurred losses, in our loan loss reserves at December 31, 2012 and 2011; however, our actual losses may exceed our

estimates.

The table below summarizes the percentage of our single-family credit guarantee portfolio by year of loan origination

that is subject to agreements releasing loans from certain repurchase obligations, including defaulted counterparties. Since

167 Freddie Mac
January 1, 2009, we have entered into three negotiated agreements and have released repurchase obligations with 70 other

seller/servicers who were either no longer in business or no longer approved as our seller/servicers, at December 31, 2012.

Table 64 — Loans Released from Repurchase Obligations(1)

As of December 31, 2012

Year of origination: UPB

Percentage of

Single-family

Credit Guarantee

Portfolio

(in billions)

Negotiated agreements:

2008 ............................................................................... $ 14.8 0.9%

2007 ............................................................................... 35.4 2.2

2006 ............................................................................... 27.6 1.7

2005 ............................................................................... 25.3 1.5

2004 and prior ........................................................................ 17.8 1.1

Subtotal ............................................................................ 120.9 7.4

Other released loans:(2)

2010 through 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 <0.1

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 0.5

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.0 0.5

2007 ............................................................................... 13.4 0.8

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 0.5

2005 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7 0.5

Total ............................................................................... $167.6 10.2%

(1) Consists of all loans, excluding relief refinance mortgages, released from certain repurchase obligations since January 1, 2009. See “Mortgage Credit

Risk — Single-Family Mortgage Credit Risk — Single-Family Loan Workouts and the MHA Program — Relief Refinance Mortgage and the Home

Affordable Refinance Program” for further information.

(2) Consists of loans associated with seller/servicers who were either no longer in business or no longer approved as our seller/servicers at,

December 31, 2012.

A significant portion of our single-family mortgage loans are serviced by several large seller/servicers. Our top two

single-family loan servicers, Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A., serviced approximately 26% and

12%, respectively, of our single-family mortgage loans as of December 31, 2012, and together serviced approximately 38%

of our single-family mortgage loans. Because we are the master servicer and delegate the primary servicing function to our

servicers, if our servicers lack appropriate process controls, experience a failure in their controls, or experience an operating

disruption in their ability to service mortgage loans, our business and financial results could be adversely affected. We also

continue to be adversely affected by the length of the foreclosure timeline, particularly in states that require a judicial

foreclosure process, which has provided challenges to our seller/servicers because they have had to change their processes

for compliance with regulations in each jurisdiction. See “RISK FACTORS — Operational Risks — We have incurred, and

will continue to incur, expenses and we may otherwise be adversely affected by delays and deficiencies in the foreclosure

process” and “BUSINESS — Regulation and Supervision — Legislative and Regulatory Developments — Developments

Concerning Single-Family Servicing Practices.”

We also are exposed to the risk that seller/servicers might fail to service mortgages in accordance with our contractual

requirements, resulting in increased credit losses. For example, our seller/servicers have an active role in our loss mitigation

efforts, including under the servicing alignment initiative and the MHA Program, and therefore, we also have exposure to

them to the extent a decline in their performance results in a failure to realize the anticipated benefits of our loss mitigation

plans. During 2012, we made changes to our monitoring program under which we pay incentives to servicers that exceed

certain performance standards with respect to servicing delinquent loans and also allow for the assessment of certain fees to

compensate us for deficiencies in servicer performance. These fees are recorded in other expenses, and other income,

respectively, within our consolidated statements of comprehensive income. These fees were not significant to our

consolidated financial results for 2012.

Residential Capital LLC (“ResCap”) and a number of its subsidiaries, including GMAC Mortgage, LLC and Residential

Funding Company, LLC (with GMAC Mortgage, LLC, collectively, “GMAC”), filed for bankruptcy in the U.S. Bankruptcy

Court for the Southern District of New York on May 14, 2012. ResCap and GMAC are direct or indirect subsidiaries of Ally

Financial Inc. GMAC serviced (either as a servicer or a subservicer) approximately 3% of our single-family mortgage loans

as of December 31, 2012. In March 2010, we entered into an agreement with GMAC, under which GMAC made a one-time

payment to us for the partial release of repurchase obligations relating to loans sold to us prior to January 1, 2009. We

continued to purchase loans from GMAC after January 1, 2009; Ally Bank (a subsidiary of Ally Financial Inc.) is liable for

168 Freddie Mac
breaches of representations and warranties with respect to these loans. See “NOTE 17: LEGAL CONTINGENCIES” for

additional information on our legal claims against certain of our former single-family seller/servicers.

Multifamily Mortgage Seller/Servicers

A significant portion of our multifamily mortgage portfolio is serviced by several large multifamily servicers. We are

exposed to certain institutional credit risks arising from the potential non-performance by our multifamily mortgage servicers

and our multifamily sellers. As of December 31, 2012, our top three multifamily servicers, Berkadia Commercial

Mortgage LLC, Wells Fargo Bank, N.A., and CBRE Capital Markets, Inc., each serviced more than 10% of our multifamily

mortgage portfolio, excluding Other Guarantee Transactions, and together serviced approximately 40% of this portfolio. We

also acquire a significant portion of our multifamily purchase volume from several large sellers. For 2012, our top two

multifamily sellers, CBRE Capital Markets, Inc. and Berkadia Commercial Mortgage LLC , accounted for 21% and 12%,

respectively, of our multifamily purchase and guarantee issuance volume. Our top 10 multifamily sellers represented an

aggregate of approximately 80% of our multifamily purchase and guarantee issuance volume for 2012.

In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under financial

pressure, which could potentially cause degradation in the quality of the servicing they provide us, including their monitoring

of each property’s financial performance and physical condition. This could also, in certain cases, reduce the likelihood that

we could recover losses through lender repurchases, recourse agreements or other credit enhancements, where applicable.

This risk primarily relates to multifamily loans that we hold on our consolidated balance sheets where we retain all of the

related credit risk. We monitor the status of all our multifamily seller/servicers in accordance with our counterparty credit

risk management framework.

Mortgage Insurers

We have institutional credit risk relating to the potential insolvency of, or non-performance by, mortgage insurers that

insure single-family mortgages we purchase or guarantee. As a guarantor, we remain responsible for the payment of principal

and interest if a mortgage insurer fails to meet its obligations to reimburse us for claims. If any of our mortgage insurers that

provide credit enhancement fail to fulfill their obligation, we could experience increased credit losses.

We attempt to manage this risk by establishing eligibility standards for mortgage insurers and by monitoring our

exposure to individual mortgage insurers. Our monitoring includes performing regular analysis of the estimated financial

capacity of mortgage insurers under different adverse economic conditions. In addition, state insurance authorities regulate

mortgage insurers and we periodically meet with certain state authorities to discuss their views. We also monitor the

mortgage insurers’ credit ratings, as provided by nationally recognized statistical rating organizations, and we periodically

review the methods used by such organizations. None of our mortgage insurers had a rating higher than BBB as of

February 15, 2013. In evaluating the likelihood that an insurer will have the ability to pay our expected claims, we consider

our own analysis of the insurer’s financial capacity, any downgrades in the insurer’s credit rating, and various other factors.

As part of the estimate of our loan loss reserves, we evaluate the recovery and collectability related to mortgage

insurance policies for mortgage loans that we hold on our consolidated balance sheets as well as loans underlying our nonconsolidated Freddie Mac mortgage-related securities or covered by other guarantee commitments. We also evaluate the

collectability of outstanding receivables from these counterparties related to outstanding and unpaid claims. We believe that

certain of our mortgage insurers, who provide the substantial majority of our coverage, are not sufficiently capitalized to

withstand the stress of the current economic environment. Additionally, a number of our mortgage insurers have exceeded

risk to capital ratios required by their state insurance regulators. In some cases, such states have issued waivers to allow the

companies to continue writing new business in their states. Most waivers are temporary in duration or contain other

conditions that the companies may be unable to continue to meet due to their weakened condition or other factors. Given the

difficulties in the mortgage insurance industry, we believe it is likely that other mortgage insurers may exceed their

regulatory capital limit in the future. As a result of these and other factors, we reduced our estimates of recovery associated

with the expected amount of our claims for several insurers in determining our allowance for loan losses associated with our

single-family loans or receivables from these mortgage insurers on our consolidated balance sheets at both December 31,

2012 and 2011.

The table below summarizes our exposure to mortgage insurers as of December 31, 2012. In the event that a mortgage

insurer fails to perform, the coverage outstanding represents our maximum exposure to credit losses resulting from such

failure. Our most significant exposure to these insurers is through primary mortgage insurance. As of December 31, 2012, we

169 Freddie Mac
had primary mortgage insurance coverage on loans that represented approximately 12% of the UPB of our single-family

credit guarantee portfolio.

Table 65 — Mortgage Insurance by Counterparty

As of December 31, 2012

UPB of Covered Loans Coverage Outstanding

Counterparty Name Credit Rating(1)

Credit Rating

Outlook(1)

Primary

Insurance(2)

Pool

Insurance(2)

Primary

Insurance(3)

Pool

Insurance(3)

(in billions)

Mortgage Guaranty Insurance Corporation (MGIC) ........ BNegative $ 44.1 $ 1.9 $11.0 $<0.1

Radian Guaranty Inc. .............................. BNegative 37.8 5.5 9.3 1.1

United Guaranty Residential Insurance Company . . . . . . . . . BBB Stable 32.3 0.2 8.0 <0.1

Genworth Mortgage Insurance Corporation .............. B Negative 27.1 0.7 6.8 0.1

PMI Mortgage Insurance Co. (PMI)(4) . . . . . . . . . . . . . . . . . . CCCNegative 18.4 0.7 4.5 0.1

Republic Mortgage Insurance Company (RMIC)(5) . . . . . . . . . Not Rated N/A 15.1 1.3 3.8 0.1

Triad Guaranty Insurance Corporation (Triad)(6) . . . . . . . . . . . Not Rated N/A 6.6 0.3 1.6 <0.1

Essent Guaranty, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Rated N/A 4.3 — 1.0 —

CMG Mortgage Insurance Company . . . . . . . . . . . . . . . . . . BBBNegative 2.7 <0.1 0.7 —

Total ......................................... $188.4 $10.6 $46.7 $ 1.4

(1) Represents the rating and exposure for the corporate entity to which we have the greatest exposure. Coverage amounts may include coverage provided

by consolidated affiliates and subsidiaries of the counterparty. Latest rating available as of February 15, 2013. Represents the lower of S&P and

Moody’s credit ratings and outlooks stated in terms of the S&P equivalent.

(2) These amounts are based on gross coverage without regard to netting of coverage that may exist to the extent an affected mortgage is covered under both

types of insurance. See “Table 4.5 — Recourse and Other Forms of Credit Protection” in “NOTE 4: MORTGAGE LOANS AND LOAN LOSS

RESERVES” for further information.

(3) Represents the remaining aggregate contractual limit for reimbursement of losses under the respective policy type. These amounts are based on gross

coverage without regard to netting of coverage that may exist to the extent an affected mortgage is covered under both types of insurance.

(4) In October 2011, PMI began paying valid claims 50% in cash and 50% in deferred payment obligations under order of its state regulator.

(5) In January 2012, RMIC began paying valid claims 50% in cash and 50% in deferred payment obligations under order of its state regulator. In November

2012, RMIC announced that its state regulator had approved a corrective plan. Under the plan, RMIC is paying all valid claims settled on or after

January 19, 2012, 60% in cash and 40% in deferred payment obligations.

(6) In June 2009, Triad began paying valid claims 60% in cash and 40% in deferred payment obligations under order of its state regulator.

We received proceeds of $2.0 billion and $2.5 billion during the years ended December 31, 2012 and 2011, respectively,

from our primary and pool mortgage insurance policies for recovery of losses on our single-family loans. We had outstanding

receivables from mortgage insurers, net of associated reserves, of $0.8 billion and $1.0 billion as of December 31, 2012 and

2011, respectively.

The UPB of single-family loans covered by pool insurance declined approximately 73% during 2012, primarily due to a

settlement with MGIC concerning our current and future claims under certain of MGIC’s pool insurance policies, as

discussed below, as well as prepayments and other liquidation events. We have not purchased pool insurance on singlefamily loans since March 2008 and have reached the maximum limit of recovery on certain pool insurance policies. Our pool

insurance policies generally have original coverage periods that range from 10 to 12 years. In many cases, we entered into

these agreements to cover higher-risk mortgage product types delivered to us through bulk transactions. As of December 31,

2012, pool insurance policies that will expire: (a) during 2013 covered approximately $1.7 billion in UPB of loans, and the

remaining contractual limit for reimbursement of losses on such loans was approximately $0.2 billion; (b) between 2014 and

2018 covered approximately $6.4 billion in UPB of loans, and the remaining contractual limit for reimbursement of losses on

such loans was approximately $0.4 billion; and (c) after 2018 covered approximately $2.5 billion in UPB of loans, and the

remaining contractual limit for reimbursement of losses was approximately $0.8 billion. Any losses in excess of the

contractual limit will be borne by us. These figures include coverage under our pool insurance policies based on the stated

coverage amounts under such policies and we may exhaust such coverage before these policies expire. As noted below, we

do not expect to receive full payment of our claims from several of these counterparties.

During 2012, we and MGIC were involved in litigation concerning our current and future claims under certain of

MGIC’s pool insurance policies. In the litigation, we contended that the policies had approximately $0.5 billion more in

coverage than MGIC contended was provided for under the policies. In December 2012, we entered into a settlement

agreement with MGIC concerning this dispute. Under the terms of the settlement, MGIC paid us $100 million in December

2012, and will pay us an additional $167.5 million in monthly installments over four years beginning on January 2, 2013. For

more information, see “NOTE 17: LEGAL CONTINGENCIES — Mortgage Guaranty Insurance Corporation.”

PMI, RMIC, and Triad are all under regulatory or court ordered supervision, and a substantial portion of their claims are

being paid in the form of deferred payment obligations. The state regulators of these companies have generally not allowed

170 Freddie Mac
them to pay their respective deferred payment obligations in cash, and it is uncertain when or if they will be permitted to do

so. If PMI, RMIC, and Triad do not pay the full amount of their deferred payment obligations, we would lose a portion of the

coverage from these counterparties shown in the table above. For more information, see “NOTE 15: CONCENTRATION OF

CREDIT AND OTHER RISKS — Mortgage Insurers.”

In addition to PMI, RMIC, and Triad, we believe that certain other of our mortgage insurance counterparties lack

sufficient ability to meet all their expected lifetime claims paying obligations to us as those claims emerge. In January 2013,

we approved National Mortgage Insurance Corporation as an eligible mortgage insurer. In the future, we believe our

mortgage insurance exposure will likely be concentrated among a smaller number of counterparties.

Bond Insurers

Bond insurance, which may be either primary or secondary policies, is a credit enhancement covering certain of the

non-agency mortgage-related securities we hold. Primary policies are acquired by the securitization trust issuing the

securities we purchase, while secondary policies are acquired by us. Bond insurance exposes us to the risk that the bond

insurer will be unable to satisfy claims.

The table below presents our coverage amounts of bond insurance, including secondary coverage, for the non-agency

mortgage-related securities we hold. In the event a bond insurer fails to perform, the coverage outstanding represents our

maximum exposure to credit losses related to such a failure.

Table 66 — Bond Insurance by Counterparty

As of December 31, 2012

Counterparty Name Credit Rating(1)

Credit Rating

Outlook(1)

Gross

Unrealized

Losses(2)

Coverage

Outstanding(3)

Percent of

Total Coverage

Outstanding(3)

(dollars in millions)

Ambac Assurance Corporation (Ambac)(4) . . . . . . . . . . . . . . . . . . . . . Not Rated N/A $177 $3,958 46%

Financial Guaranty Insurance Company (FGIC)(4) . . . . . . . . . . . . . . . . Not Rated N/A 202 1,608 18

MBIA Insurance Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CCC Negative 18 1,062 12

National Public Finance Guarantee Corp. . . . . . . . . . . . . . . . . . . . . . BBB Negative 24 1,097 13

Assured Guaranty Municipal Corp. .......................... A Stable 101 865 10

Syncora Guarantee Inc. (Syncora)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . Not Rated N/A 1 56 1

CIFG Assurance Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Rated N/A 5 30 <1

Total ................................................ $528 $8,676 100%

(1) Represents the rating and outlook of the corporate entity to which we have the greatest exposure, which in some cases is a holding company. Coverage

amounts may include coverage provided by consolidated affiliates and subsidiaries of the counterparty. Latest ratings available as of February 15, 2013.

Represents the lower of S&P and Moody’s credit ratings stated in terms of the S&P equivalent.

(2) Represents the amount of gross unrealized losses on the non-agency mortgage-related securities with insurance.

(3) Represents the remaining contractual limit for reimbursement of losses, including lost interest and other expenses, on non-agency mortgage-related

securities.

(4) Ambac, FGIC, and Syncora are currently operating under regulatory or court ordered supervision.

We monitor the financial strength of our bond insurers in accordance with our risk management policies. Some of our

larger bond insurers are in runoff mode where no new business is being written. We expect to receive substantially less than

full payment of our claims from Ambac and FGIC as these companies are insolvent. FGIC is currently not paying any of its

claims. Ambac, which had not paid claims since March 2010, began paying a portion of its claims in cash in the fall of 2012.

For information about developments concerning Ambac and FGIC, see “NOTE 15: CONCENTRATION OF CREDIT AND

OTHER RISKS — Bond Insurers.” We believe that we will likely receive substantially less than full payment of our claims

from some of our other bond insurers, because we believe they also lack sufficient ability to fully meet all of their expected

lifetime claims-paying obligations to us as such claims emerge. In the event one or more of our other bond insurers were to

become subject to a regulatory order or insolvency proceeding, our ability to recover certain unrealized losses on our nonagency mortgage-related securities would be negatively affected. We considered our expectations regarding our bond

insurers’ ability to meet their obligations in making our impairment determinations on our non-agency mortgage-related

securities at December 31, 2012 and 2011. See “NOTE 7: INVESTMENTS IN SECURITIES — Other-Than-Temporary

Impairments on Available-For-Sale Securities” for additional information regarding impairment losses on securities covered

by bond insurers.

171 Freddie Mac
Cash and Other Investments Counterparties

We are exposed to institutional credit risk arising from the potential insolvency or non-performance of counterparties of

non-mortgage-related investment agreements and cash equivalent transactions, including those entered into on behalf of our

securitization trusts. These financial instruments are investment grade at the time of purchase and primarily short-term in

nature, which mitigates institutional credit risk for these instruments.

Our cash and other investment counterparties are primarily major financial institutions and the Federal Reserve Bank.

As of December 31, 2012 and 2011, including amounts related to our consolidated VIEs, there were $60.7 billion and

$68.5 billion, respectively, of: (a) cash and securities purchased under agreements to resell invested with institutional

counterparties; or (b) cash deposited with the Federal Reserve Bank. See “NOTE 15: CONCENTRATION OF CREDIT

AND OTHER RISKS” for further information on counterparty credit ratings and concentrations within our cash and other

investments.

Document Custodians

We use third-party document custodians to provide loan document certification and custody services for the loans that

we purchase and securitize. In many cases, our seller/servicer customers or their affiliates also serve as document custodians

for us. Our ownership rights to the mortgage loans that we own or that back our PCs and REMICs and Other Structured

Securities could be challenged if a seller/servicer intentionally or negligently pledges or sells the loans that we purchased or

fails to obtain a release of prior liens on the loans that we purchased, which could result in financial losses to us. When a

seller/servicer or one of its affiliates acts as a document custodian for us, the risk that our ownership interest in the loans may

be adversely affected is increased, particularly in the event the seller/servicer were to become insolvent. We seek to mitigate

these risks through legal and contractual arrangements with these custodians that identify our ownership interest, as well as

by establishing qualifying standards for document custodians and requiring transfer of the documents to our possession or to

an independent third-party document custodian if we have concerns about the solvency or competency of the document

custodian.

Derivative Counterparties

We use exchange-traded derivatives and OTC derivatives, and are exposed to institutional credit risk with respect to

both types of derivatives. We are an active user of exchange-traded derivatives, such as Treasury and Eurodollar futures, and

are required to post initial and maintenance margin with our clearing firm in connection with such transactions. The posting

of this margin exposes us to institutional credit risk in the event that our clearing firm or the exchange’s clearinghouse fail to

meet their obligations. However, the use of exchange-traded derivatives mitigates our institutional credit risk exposure to

individual counterparties because a central counterparty is substituted for individual counterparties, and changes in the value

of open exchange-traded contracts are settled daily via payments made through the financial clearinghouse established by

each exchange. OTC derivatives that are not subject to regulatory clearing requirements under the Dodd-Frank Act expose us

to institutional credit risk to individual counterparties, because these transactions are executed and settled directly between us

and each counterparty, exposing us to potential losses if a counterparty fails to meet its contractual obligations. When our net

position with a counterparty in OTC derivatives subject to a master netting agreement has a market value above zero (i.e., it

would be an asset reported as derivative assets, net on our consolidated balance sheets), the counterparty is obligated to

deliver collateral in the form of cash, securities, or a combination of both, in an amount equal to that market value (less a

small unsecured “threshold” amount in most cases) as necessary to satisfy its net obligation to us under the master

agreement.

The Dodd-Frank Act requires central clearing and trading on exchanges or comparable trading facilities of many types

of derivatives. Pursuant to the Dodd-Frank Act, the CFTC has determined that many of the types of interest rate derivatives

that we use will become subject to the central clearing requirement in 2013. See “BUSINESS — Regulation and

Supervision — Legislative and Regulatory Developments — Dodd-Frank Act” for more information. We will be exposed to

institutional credit risk with respect to the exchanges or trading facilities we use in the future to clear and trade such interest

rate derivatives, and to the members of such clearing organizations that execute and submit our transactions for clearing.

We seek to manage our exposure to institutional credit risk related to our derivative counterparties using several tools,

including:

• review of external rating analyses;

172 Freddie Mac
• strict standards for approving new derivative counterparties, clearing organizations, and clearing firms;

• ongoing monitoring and internal analysis of our positions with, and credit rating of, each counterparty, clearing

organization, and clearing firm;

• managing diversification mix among counterparties;

• master netting agreements and collateral agreements; and

• stress-testing to evaluate potential exposure under possible adverse market scenarios.

On an ongoing basis, we review the credit fundamentals of all of our OTC derivative counterparties, clearing

organizations, and clearing firms to confirm that they continue to meet our internal standards. We assign internal ratings,

credit capital, and exposure limits to each counterparty based on quantitative and qualitative analysis, which we update and

monitor on a regular basis. We conduct additional reviews when market conditions dictate or certain events affecting an

individual counterparty occur.

All of our OTC derivative counterparties are major financial institutions and are experienced participants in the OTC

derivatives market. On June 21, 2012, Moody’s downgraded the credit ratings of several banks, which resulted in changes to

their collateral posting thresholds with us and a reduction of certain activities we undertake with these counterparties. In

order to mitigate the credit risk we face from lower rated derivative counterparties, we are enhancing our collateral

management process to require such counterparties to post additional collateral to us in an amount that exceeds our credit

exposure to the counterparty. Additionally, the CFTC and other regulatory agencies, including FHFA, have issued proposed

margin rules that generally would require counterparties to OTC swaps to post collateral as initial margin for all trades even

where there are no counterparty credit exposures. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS”

for additional information.

The relative concentration of our derivative exposure among our primary derivative counterparties remains high as

compared to historical levels. This concentration has increased significantly since 2008 primarily due to industry

consolidation and the failure or weakening of certain counterparties, and could further increase.

The table below summarizes our exposure to our derivative counterparties, which represents the net positive fair value

of derivative contracts, related accrued interest and collateral held by us from our counterparties, after netting by

counterparty as applicable (i.e., net amounts due to us under derivative contracts which are recorded as derivative assets). In

addition, we have derivative liabilities where we post collateral to counterparties. Pursuant to certain collateral agreements

we have with derivative counterparties, the amount of collateral that we are required to post is based on the credit rating of

our long-term senior unsecured debt securities from S&P or Moody’s. The lowering or withdrawal of our credit rating by

S&P or Moody’s may increase our obligation to post collateral, depending on the amount of the counterparty’s exposure to

Freddie Mac with respect to the derivative transactions. At December 31, 2012, our collateral posted exceeded our collateral

held. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Derivative Assets and Liabilities, Net” and “Table 31 —

Derivative Fair Values and Maturities” for a reconciliation of fair value to the amounts presented on our consolidated balance

sheets as of December 31, 2012, which includes both cash collateral held and posted by us, net.

173 Freddie Mac
Table 67 — Derivative Counterparty Credit Exposure

As of December 31, 2012

Rating (1)

Number of

Counterparties(2)

Notional or

Contractual

Amount(3)

Total Exposure

at Fair Value(4)

Exposure,

Net of

Collateral(5)

Weighted Average

Contractual

Maturity

(in years)

Collateral Posting

Threshold(6)

(dollars in millions)

AA................................. 4 $ 41,169 $ — $ — 5.6 $10 million or less

A+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 86,717 1,220 15 6.0 $ 1 million or less

A ..................................... 5 343,353 734 32 5.8 $ 1 million or less

A................................... 4 148,271 6 22 5.7 $ 1 million or less

BBB+ ................................. 1 42,643 — — 6.0 $ —

Subtotal(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 662,153 1,960 69 5.8

Futures and clearinghouse-settled derivatives ..... 42,673 66 66

Commitments ............................ 25,530 20 20

Swap guarantee derivatives .................. 3,628 — —

Other derivatives(8) ........................ 11,847 1 1

Total derivatives .......................... $745,831 $2,047 $156

As of December 31, 2011

Rating (1)

Number of

Counterparties(2)

Notional or

Contractual

Amount(3)

Total Exposure

at Fair Value(4)

Exposure,

Net of

Collateral(5)

Weighted Average

Contractual

Maturity

(in years)

Collateral Posting

Threshold(6)

(dollars in millions)

AA................................. 5 $ 73,277 $ 536 $ 19 5.0 $10 million or less

A+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 337,013 2,538 1 5.8 $ 1 million or less

A ..................................... 5 208,416 12 51 6.2 $ 1 million or less

A................................... 2 89,284 — — 5.5 $ 1 million or less

Subtotal(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 707,990 3,086 71 5.8

Futures and clearinghouse-settled derivatives ..... 43,831 8 8

Commitments ............................ 14,318 38 38

Swap guarantee derivatives .................. 3,621 — —

Other derivatives(8) ........................ 18,489 1 1

Total derivatives .......................... $788,249 $3,133 $118

(1) We use the lower of S&P and Moody’s ratings to manage collateral requirements. In this table, the Moody’s rating of the legal entity is stated in terms of

the S&P equivalent.

(2) Based on legal entities.

(3) Notional or contractual amounts are used to calculate the periodic settlement amounts to be received or paid and generally do not represent actual

amounts to be exchanged.

(4) For each counterparty, this amount includes derivatives with a positive fair value (recorded as derivative assets, net), including the related accrued

interest receivable/payable, when applicable. For counterparties included in the subtotal, positions are shown netted at the counterparty level including

accrued interest receivable/payable and trade/settle fees.

(5) Calculated as Total Exposure at Fair Value less both cash and non-cash collateral held as determined at the counterparty level. At December 31, 2012

and 2011, $501 million and $0 million, respectively, of non-cash collateral had been posted to us. We regularly review the market values of the

securities pledged to us to minimize our exposure to loss. When non-cash collateral is posted to us, we require collateral in excess of our exposure to

satisfy the net obligation to us in accordance with the counterparty agreement. Includes amounts related to our posting of cash collateral in excess of our

derivative liability as determined at the counterparty level. For derivatives settled through an exchange or clearinghouse, excludes consideration of

maintenance margin posted by our counterparty.

(6) Counterparties are required to post collateral when their exposure exceeds agreed-upon collateral posting thresholds. These thresholds are typically

based on the counterparty’s credit rating and are individually negotiated.

(7) Consists of OTC derivative agreements for interest-rate swaps, option-based derivatives (excluding certain written options), foreign-currency swaps, and

purchased interest-rate caps.

(8) Consists primarily of certain written options, and certain credit derivatives. Written options do not present counterparty credit exposure, because we

receive a one-time up-front premium in exchange for giving the holder the right to execute a contract under specified terms, which generally puts us in a

liability position.

Over time, our exposure to individual counterparties for OTC interest-rate swaps, option-based derivatives, foreigncurrency swaps, and purchased interest rate caps varies depending on changes in fair values, which are affected by changes in

period-end interest rates, the implied volatility of interest rates, foreign-currency exchange rates, and the amount of

derivatives held. If all of our counterparties for these derivatives had defaulted simultaneously on December 31, 2012, the

combined amount of our uncollateralized and overcollateralized exposure to these counterparties, or our maximum loss for

accounting purposes after applying netting agreements and collateral, would have been approximately $69 million. Our

similar exposure as of December 31, 2011 was $71 million. At December 31, 2012, five counterparties each accounted for

greater than 10% and collectively accounted for 83% of our net uncollateralized exposure to derivative counterparties set

forth in the table above, excluding futures and clearinghouse-settled derivatives, commitments, swap guarantee derivatives,

certain written options and certain credit derivatives. These counterparties were Credit Suisse International, Deutsche

Bank, A.G., UBS A.G., Citibank, N.A. and Royal Bank of Scotland, all of which were rated “A” or above using the lower

of S&P’s or Moody’s rating stated in terms of the S&P equivalent as of February 15, 2013.

174 Freddie Mac
Nearly all of our counterparty credit exposure for OTC interest-rate swaps, option-based derivatives, foreign-currency

swaps, and purchased interest rate caps was collateralized at December 31, 2012 (excluding amounts related to our posting of

cash collateral in excess of our derivative liability as determined at the counterparty level). The remaining exposure was

primarily due to exposure amounts below the applicable counterparty collateral posting threshold, as well as market

movements during the time period between when a derivative was marked to fair value and the date we received the related

collateral. In some instances, these market movements result in us having provided collateral that has fair value in excess of

our obligation, which represents our overcollateralization exposure. Collateral is typically transferred within one business

day based on the values of the related derivatives.

For futures and clearinghouse-settled derivatives in the table above, exposure, net of collateral does not include the

maintenance margin held by clearing firms or clearinghouses which mitigates our exposure to loss from individual

counterparties. However, maintenance margin held by clearing firms or clearinghouses exposes us to institutional credit risk

in the event that our clearing firm or the exchange’s clearinghouse fail to meet their obligations. The use of exchange-traded

derivatives mitigates our institutional credit risk exposure to individual counterparties because a central counterparty is

substituted for individual counterparties, and changes in the value of open exchange-traded contracts are settled daily via

payments made through the financial clearinghouse established by each exchange.

In the event a derivative counterparty defaults, our economic loss may be higher than the uncollateralized exposure of

our derivatives if we are not able to replace the defaulted derivatives in a timely and cost-effective fashion. We could also

incur economic loss if the collateral held by us cannot be liquidated at prices that are sufficient to recover the amount of such

exposure. We monitor the risk that our uncollateralized exposure to each of our OTC counterparties for interest-rate swaps,

option-based derivatives, foreign-currency swaps, and purchased interest rate caps will increase under certain adverse market

conditions by performing daily market stress tests. These tests, which involve significant management judgment, evaluate the

potential additional uncollateralized exposure we would have to each of these derivative counterparties on OTC derivatives

contracts assuming certain changes in the level and implied volatility of interest rates and certain changes in foreign currency

exchange rates over a brief time period. Our actual exposure could vary significantly from amounts forecasted by these tests.

The total exposure on our OTC forward purchase and sale commitments, which are treated as derivatives for accounting

purposes, was $20 million and $38 million at December 31, 2012 and 2011, respectively. We do not require master netting

and collateral agreements for the counterparties of these commitments. However, the typical maturity of our forward

purchase and sale commitments is less than 60 days, and we monitor the credit fundamentals of the counterparties to these

commitments on an ongoing basis in an effort to ensure that they continue to meet our internal risk-management standards.

Selected European Sovereign and Non-Sovereign Exposures

The sovereign debt of Spain, Italy, Ireland, Portugal, and Greece (which we refer to herein as the “troubled European

countries”) and the credit status of financial institutions with significant exposure to the troubled European countries has

been adversely affected due to ongoing weaknesses in the economic and fiscal situations of those countries. In recent periods,

Moody’s and S&P downgraded a number of European countries. We are monitoring our exposures to European countries and

institutions.

As of December 31, 2012, we did not hold any debt issued by the governments of the troubled European countries and

did not hold any financial instruments entered into with sovereign governments in those countries. As of that date, we also

did not hold any debt issued by corporations or financial institutions domiciled in the troubled European countries and did

not hold any other financial instruments entered into with corporations or financial institutions domiciled in those countries.

For purposes of this discussion, we consider an entity to be domiciled in a country if its parent entity is headquartered in that

country.

Our derivative portfolio and cash and other investments portfolio counterparties include a number of major European

and non-European financial institutions. Many of these institutions operate in Europe, and we believe that all of these

financial institutions have direct or indirect exposure to the troubled European countries. For many of these institutions, their

direct and indirect exposures to the troubled European countries change on a daily basis. We monitor our major

counterparties’ exposures to the troubled European countries, and adjust our exposures and risk limits to individual

counterparties accordingly. Our exposures to derivative portfolio and cash and other investments portfolio counterparties are

described in “Derivative Counterparties,” “Cash and Other Investments Counterparties” and “NOTE 15:

CONCENTRATION OF CREDIT AND OTHER RISKS.”

175 Freddie Mac
We took a number of actions in 2011 designed to reduce our exposures to certain derivative portfolio and cash and other

investments portfolio counterparties due to their exposure to the troubled European countries, including substantially

reducing our derivative exposure limits, our limits on the amount of unsecured overnight deposits, and our limits for assetbacked commercial paper. For certain repurchase counterparties, we reduced the credit limit and restricted the term of such

transactions to overnight. We also ceased investing in prime money funds that could hold substantial amounts of non-U.S.

sovereign debt.

It is possible that continued adverse developments in Europe could significantly affect our counterparties that have

direct or indirect exposure to the troubled European countries. In turn, this could adversely affect their ability to meet their

obligations to us. For more information, see “RISK FACTORS — Competitive and Market Risks – We depend on our

institutional counterparties to provide services that are critical to our business, and our results of operations or financial

condition may be adversely affected if one or more of our institutional counterparties do not meet their obligations to us.”

Interest Rate and Other Market Risks

For a discussion of our interest rate and other market risks, see “QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK.”

Operational Risks

Risk types have become increasingly inter-related such that an operational breakdown can result in a credit- or marketrelated event or loss. Operational risks are inherent in all of our business activities and can become apparent in various ways,

including accounting or operational errors, business interruptions, fraud, and failures of the technology used to support our

business activities. Our risk of operational failure may be increased by vacancies or turnover in executive and key business

unit positions and failed or inadequate internal controls. These operational risks may expose us to financial loss, interfere

with our ability to sustain timely and reliable financial reporting, or result in other adverse consequences. We face a variety

of operational risks, including those described below and in “RISK FACTORS – Operational Risks.”

We have faced challenges with respect to managing servicers and credit loss mitigation due to a number of factors,

including high volumes of seriously delinquent loans and inadequate systems. We may face increased operational risk due to

the servicing alignment initiative and other new FHFA-mandated activities, such as the initiatives we are pursuing under the

Conservatorship Scorecard. While the servicing alignment initiative is a top priority for the company, it may pose significant

short-term operational challenges in data management and place additional strain on existing systems, processes, and key

resources. See “BUSINESS — Our Business Segments — Single-Family Guarantee Segment — Servicing Alignment

Initiative” for more information. There also have been a number of legislative and regulatory developments in recent periods

impacting single-family mortgage servicing and foreclosure practices, including top servicers entering into settlements with

state attorneys general and consent orders with federal banking regulators. The servicing model for single-family mortgages

may face further significant changes in the future. As a result, we may be required to make additional significant changes to

our practices, which could further increase our operational risk. See “BUSINESS — Regulation and Supervision —

Legislative and Regulatory Developments — Developments Concerning Single-Family Servicing Practices” for more

information.

Our business decision-making, risk management, and financial reporting are highly dependent on our use of models. In

recent periods, external market factors have continued to create difficulties in maintaining the performance of these models.

Certain economic events or the implementation of government policies could create increased model uncertainty as models

may not fully capture these events, which could make it more difficult to assess model performance and requires a higher

degree of management judgment. We have taken certain actions to mitigate the risk to the extent possible, including

additional efforts in the area of model oversight and governance, adding modeling and review resources where appropriate,

and providing more transparency to management over model issues and changes.

Our primary business processing and financial accounting systems lack sufficient flexibility to handle all the

complexities of, and changes in, our business transactions and related accounting policies and methods. This requires us to

rely more extensively on spreadsheets and other end-user computing systems. These systems could have a higher risk of

operational failure and error than our primary systems which are subject to our information technology general controls. We

believe we are mitigating this risk through active monitoring of, and improvements to, controls over the development and use

of end-user computing systems.

176 Freddie Mac
In order to manage the risk of inaccurate or unreliable valuations of our financial instruments, we engage in an ongoing

internal review of our valuations. We perform analysis of valuations on a monthly basis to confirm the reasonableness of the

valuations. For more information on the controls in our valuation process, see “FAIR VALUE MEASUREMENTS AND

ANALYSIS — Fair Value Measurements — Valuation Processes and Controls over Fair Value Measurement.”

In the first half of 2012, we introduced a new compensation program for employees to help mitigate the uncertainty

surrounding compensation. Under the program, the majority of employees have a more predictable income, as the program

either reduces or eliminates the amount of compensation that is subject to variability. In the last three quarters of 2012,

employee turnover was lower than in the corresponding quarters of 2011. While employee turnover moderated in 2012

compared to 2011, we are exploring options to enter into various strategic arrangements with outside firms to provide

operational capability and staffing for key functions, if needed. Should we experience significant turnover in key areas, we

may need to exercise strategic arrangements and significantly increase the number of outside firms and consultants used in

our business operations, limit certain business activities, and/or increase our operational costs. The use of outside firms and

consultants could increase our operational risk in the near term until they become accustomed to our business systems and

practices and their new roles and responsibilities.

We have, at times, found it challenging to fill executive positions given the restrictions around compensation. We

operate in an environment in which many of our business decisions are closely scrutinized and subject to public criticism and

review by various government authorities. Some executives are unwilling to work in such an environment for potentially

significantly less than what they could earn elsewhere. Accordingly, we may not be able to retain or replace executives or

other employees with the requisite institutional knowledge and the technical, operational, risk management, and other key

skills needed to conduct our business effectively.

Disruptive levels of turnover at both the executive and employee levels could lead to breakdowns in many of our

operations that impact our ability to: (a) serve our mission and meet our objectives; (b) manage credit and other risks related

to our mortgage portfolio; (c) reduce the need to draw funds from Treasury; and (d) issue timely financial statements. Our

ability to attract and retain executives and other employees is also adversely affected by the ongoing debate in Congress

regarding our: (a) current primary business objectives and whether we should be doing more to help distressed homeowners;

and (b) future business structure following conservatorship, including whether we will continue to exist. Moreover, the

Administration has called for a “wind down” of the GSEs, an ongoing development our employees follow closely.

A recovering economy may put additional pressures on turnover in 2013, as other attractive opportunities could become

available to people who we want to retain. For more information on these matters, including the potential impacts of the risks

related to employee retention, see “RISK FACTORS — Conservatorship and Related Matters — The conservatorship,

uncertainty concerning our future, and restrictions on our ability to compensate employees have had, and may continue to

have, an adverse effect on the retention and recruitment of executives and other employees, which could have a material

adverse effect on our ability to operate our business,” “— Operational Risks — Weaknesses in internal control over

financial reporting and in disclosure controls could result in errors and inadequate disclosures, affect operating results, and

cause investors to lose confidence in our reported results” and “— Management changes and turnover of key staff could

increase our operational and control risks and have a material adverse effect on our ability to do business and our results of

operations.”

Freddie Mac management has determined that current business recovery capabilities may not be effective in the event of

a catastrophic regional business event (e.g., a disaster that affects our Northern Virginia facilities) and could result in a

significant business disruption and inability to process transactions through normal business processes. While management

has developed a remediation plan to address the current capability gaps, any measures we take to mitigate this risk may not

be sufficient to respond to the full range of catastrophic events that may occur. The remediation plan is designed to improve

Freddie Mac’s ability to recover an acceptable level of critical business functionality within predetermined time frames to

address regional business disruptions, such as a terrorist event, natural disaster, loss of infrastructure services, denial of

access, and/or a pandemic. For more information, see “RISK FACTORS — Operational Risks — A failure in our

operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our business, damage our

reputation, and cause losses.”

Management, including the company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of

the effectiveness of our internal control over financial reporting and our disclosure controls and procedures as of

December 31, 2012. As of December 31, 2012, we had one material weakness, related to conservatorship, which remained

unremediated, causing us to conclude that our internal control over financial reporting and our disclosure controls and

177 Freddie Mac
procedures were not effective as of December 31, 2012, at a reasonable level of assurance. In view of the mitigating actions

we have undertaken related to the material weakness, we believe that our consolidated financial statements for the year ended

December 31, 2012 have been prepared in conformity with GAAP. For additional information, see “CONTROLS AND

PROCEDURES.”

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our business activities require that we maintain adequate liquidity to fund our operations, which may include the need

to make payments of principal and interest on our debt securities, including securities issued by our consolidated trusts, and

otherwise make payments related to our guarantees of mortgage assets; make payments upon the maturity, redemption or

repurchase of our other debt securities; make net payments on derivative instruments; pay dividends on our senior preferred

stock; purchase mortgage-related securities and other investments; purchase mortgage loans; and remove modified or

seriously delinquent loans from PC trusts.

We fund our cash requirements primarily by issuing short-term and long-term debt. Other sources of cash include:

• receipts of principal and interest payments on securities or mortgage loans we hold;

• other cash flows from operating activities, including the management and guarantee fees we receive in connection

with our guarantee activities (excluding those fees we remit to Treasury pursuant to the Temporary Payroll Tax Cut

Continuation Act of 2011);

• borrowings against mortgage-related securities and other investment securities we hold; and

• sales of securities we hold.

We have also received substantial amounts of cash from Treasury pursuant to draws under the Purchase Agreement,

which are made to address quarterly deficits in our net worth. We received $165 million in cash from Treasury during 2012

(related to net worth deficits at December 31, 2011 and March 31, 2012), pursuant to draws under the Purchase Agreement.

We believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to maintain

our access to the debt markets and to have adequate liquidity to conduct our normal business activities, although the costs of

our debt funding could vary.

The costs of our debt funding could increase and its availability could decrease in the event of any future downgrades in

our credit ratings or the credit ratings of the U.S. government. For more information, see “Other Debt Securities — Credit

Ratings” and “RISK FACTORS — Competitive and Market Risks — Any downgrade in the credit ratings of the U.S.

government would likely be followed by a downgrade in our credit ratings. A downgrade in the credit ratings of our debt

could adversely affect our liquidity and other aspects of our business.”

We may require cash in order to fulfill our mortgage purchase commitments. Historically, we fulfilled our purchase

commitments related to our mortgage purchase flow business primarily by swap transactions, whereby our customers

exchanged mortgage loans for PCs, rather than using cash. However, we also provide liquidity to our seller/servicers through

our cash purchase program and it is at the discretion of the customer, subject to limitations imposed by the contract

governing the commitment, whether the purchase commitment is fulfilled through a swap transaction or with cash. Loans

purchased through the cash purchase program can be sold to investors through a cash auction of PCs, and, in the interim, are

carried as mortgage loans on our consolidated balance sheets. See “OFF-BALANCE SHEET ARRANGEMENTS” for

additional information regarding our mortgage purchase commitments.

We make extensive use of the Fedwire system in our business activities. The Federal Reserve requires that we fully fund

our account in the Fedwire system to the extent necessary to cover cash payments on our debt and mortgage-related securities

each day, before the Federal Reserve Bank of New York, acting as our fiscal agent, will initiate such payments. We routinely

use an open line of credit with a third party, which provides intraday liquidity to fund our activities through the Fedwire

system. This line of credit is an uncommitted intraday loan facility. As a result, while we expect to continue to use the

facility, we may not be able to draw on it, if and when needed. This line of credit requires that we post collateral that, in

certain circumstances, the secured party has the right to repledge to other third parties, including the Federal Reserve Bank.

As of December 31, 2012, we pledged approximately $10.5 billion of securities to this secured party. See “NOTE 7:

INVESTMENTS IN SECURITIES — Collateral Pledged” for further information.

178 Freddie Mac
Depending on market conditions and the mix of derivatives we employ in connection with our ongoing risk

management activities, our derivative portfolio can be either a net source or a net use of cash. For example, depending on the

prevailing interest-rate environment, interest-rate swap agreements could cause us either to make interest payments to

counterparties or to receive interest payments from counterparties. Purchased options require us to pay a premium while

written options allow us to receive a premium.

We are required to pledge collateral to third parties in connection with secured financing and daily trade activities. In

accordance with contracts with certain derivative counterparties, we post collateral to those counterparties for derivatives in a

net loss position, after netting by counterparty, above agreed-upon posting thresholds. See “NOTE 7: INVESTMENTS IN

SECURITIES — Collateral Pledged” for information about assets we pledge as collateral.

We are involved in various legal proceedings, including those discussed in “LEGAL PROCEEDINGS,” which may

result in a use of cash in order to settle claims or pay certain costs.

For more information on our short- and long-term liquidity needs, see “CONTRACTUAL OBLIGATIONS.”

Our securities and other obligations are not guaranteed by the U.S. government and do not constitute a debt or

obligation of the U.S. government or any agency or instrumentality thereof, other than Freddie Mac.

Liquidity Management

Maintaining sufficient liquidity is of primary importance and we continually strive to enhance our liquidity management

practices and policies. Under these practices and policies, we maintain an amount of cash and cash equivalent reserves in the

form of liquid, high quality short-term investments that is intended to enable us to meet ongoing cash obligations for an

extended period, in the event we do not have access to the short- or long-term unsecured debt markets. We also actively

manage the concentration of debt maturities and closely monitor our monthly maturity profile.

Our liquidity management policies generally provide for us to:

• maintain funds sufficient to cover our maximum cash liquidity needs for at least the following 35 calendar days,

assuming no access to the short- or long-term unsecured debt markets;

• limit the proportion of debt maturing within the next year. We actively manage the composition of short- and longterm debt, as well as our patterns of redemption of callable debt, to manage the proportion of effective short-term debt

to reduce the risk that we will be unable to refinance our debt as it comes due; and

• maintain unencumbered collateral with a value greater than or equal to the largest projected cash shortfall on any one

day over the following 365 calendar days, assuming no access to the short- and long-term unsecured debt markets.

This is based on a daily forecast of all existing contractual cash obligations over the following 365 calendar days.

On February 7, 2013, FHFA provided updated liquidity guidance which generally requires that our liquidity-related

investments be comprised of short-maturity U.S. Treasury or government guaranteed securities, overnight and term

repurchase agreements, unsecured Federal Funds, bank certificates of deposit, and cash. Throughout 2012, we complied with

all requirements under our liquidity management policies or FHFA guidance, as applicable. Furthermore, during 2012 the

majority of the funds used to cover our short-term cash liquidity needs was invested in short-term assets with a rating of

A-1/P-1 or AAA or was issued by a counterparty with that rating. In the event of a downgrade of a position or counterparty,

as applicable, below minimum rating requirements, our credit governance policies require us to exit from the position within

a specified period.

We also continue to manage our debt issuances to remain in compliance with the aggregate indebtedness limits set forth

in the Purchase Agreement.

We continue to monitor events related to the troubled European countries and took a number of actions in 2011

designed to reduce our exposures, including exposures related to certain derivative portfolio and cash and other investments

portfolio counterparties. For more information, see “RISK MANAGEMENT — Credit Risk — Institutional Credit Risk —

Selected European Sovereign and Non-Sovereign Exposures.”

To facilitate cash management, we forecast cash outflows. These forecasts help us to manage our liabilities with respect

to asset purchases and runoff, when financial markets are not in crisis. For further information on our management of

179 Freddie Mac
interest-rate risk associated with asset and liability management, see “QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK.”

Notwithstanding these practices and policies, our ability to maintain sufficient liquidity, including by pledging

mortgage-related and other securities as collateral to other financial institutions, could cease or change rapidly and the cost of

the available funding could increase significantly due to changes in market confidence and other factors. For more

information, see “RISK FACTORS — Competitive and Market Risks — Our investment activities may be adversely affected

by limited availability of financing and increased funding costs.”

Actions of Treasury and FHFA

Since our entry into conservatorship, Treasury and FHFA have taken a number of actions that affect our cash

requirements and ability to fund those requirements. The conservatorship, and the resulting support we have received from

Treasury, has enabled us to access debt funding on terms sufficient for our needs.

Beginning January 1, 2013, the amount of available funding remaining under the Purchase Agreement is $140.5 billion.

This amount will be reduced by any future draws. The provisions of the Purchase Agreement whereby Treasury’s funding

commitment would increase as necessary to accommodate any cumulative reduction in our net worth during 2010, 2011, and

2012 no longer apply.

While we believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to

maintain our access to the debt markets and to have adequate liquidity to conduct our normal business activities, the costs of

our debt funding could vary due to the uncertainty about the future of the GSEs. At December 31, 2012, our aggregate

funding received from Treasury under the Purchase Agreement was $71.3 billion. This aggregate funding amount does not

include the initial $1.0 billion liquidation preference of senior preferred stock that we issued to Treasury in September 2008

as an initial commitment fee and for which no cash was received.

The GSE Act requires us to set aside or allocate monies each year to certain funds managed by HUD and Treasury.

However, FHFA has suspended this requirement. For more information, see “BUSINESS — Regulation and Supervision —

Federal Housing Finance Agency — Affordable Housing Allocations.”

For more information on these matters, see “BUSINESS — Conservatorship and Related Matters” and “— Regulation

and Supervision.”

Dividend Obligation on the Senior Preferred Stock

On August 17, 2012, Freddie Mac, acting through FHFA, as Conservator, and Treasury entered into an amendment to

the Purchase Agreement, that, among other items, replaced the 10% fixed rate dividend rate on the senior preferred stock

with a net worth sweep dividend beginning in the first quarter of 2013. This amendment effectively ends the circular practice

of taking draws from Treasury to pay dividends to Treasury, thereby helping to preserve remaining funding available to us

under the Purchase Agreement. Based on our Net Worth Amount at December 31, 2012, our dividend obligation to Treasury

in March 2013 will be $5.8 billion.

We paid dividends of $7.2 billion in cash on the senior preferred stock in 2012, based upon the previous senior preferred

stock dividend rate of 10%, at the direction of our Conservator. Through December 31, 2012, we have paid aggregate cash

dividends to Treasury of $23.8 billion, an amount equal to 33% of our aggregate draws received under the Purchase

Agreement. In addition, we are required under the Purchase Agreement to pay a quarterly commitment fee to Treasury.

However, Treasury waived the fee for all quarters of 2012, and the amendment to the Purchase Agreement noted above

suspends this fee for each quarter commencing January 1, 2013 for as long as the net worth sweep dividend provisions are

applicable.

Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred stock is limited

and we will not be able to do so for the foreseeable future, if at all.

For more information on the Purchase Agreement, see “BUSINESS — Treasury Agreements.”

Other Debt Securities

We fund our business activities primarily through the issuance of short- and long-term debt. The investor base for our

debt is predominantly institutional. Competition for funding can vary with economic, financial market, and regulatory

180 Freddie Mac
environments. Historically, we have mainly competed for funds in the debt issuance markets with Fannie Mae and the

FHLBs. We repurchase or call our outstanding debt securities from time to time to help support the liquidity and

predictability of the market for our debt securities and to manage our mix of liabilities funding our assets.

To fund our business activities, we depend on the continuing willingness of investors to purchase our debt securities.

The required reduction in our mortgage-related investments portfolio has reduced our funding needs. We expect that this

trend will continue over time as the mortgage-related investments portfolio shrinks. Changes or perceived changes in the

government’s support of us could have a severe negative effect on our access to the debt markets and on our debt funding

costs. In addition, any change in applicable legislative or regulatory exemptions, including those described in

“BUSINESS — Regulation and Supervision,” could adversely affect our access to some debt investors, thereby potentially

increasing our debt funding costs.

Spreads on our debt and our access to the debt markets remained favorable relative to historical levels during the three

months and year ended December 31, 2012, which, we believe, is due largely to support from the U.S. government. As a

result, we were able to replace certain higher cost debt with lower cost debt. Our short-term debt was 22% of outstanding

other debt at December 31, 2012 as compared to 24% at December 31, 2011. Beginning in the fourth quarter of 2011, we

started issuing a higher percentage of debt with longer-term maturities. This allows us to take advantage of attractive longterm rates while decreasing our reliance on interest-rate swaps.

Because of the debt limit under the Purchase Agreement, we may be restricted in the amount of debt we are allowed to

issue to fund our operations. Our debt cap under the Purchase Agreement was $874.8 billion in 2012 and declined to

$780.0 billion on January 1, 2013. As of December 31, 2012, we estimate that the par value of our aggregate indebtedness

totaled $552.5 billion, which was approximately $322.3 billion below the applicable debt cap. Our aggregate indebtedness is

calculated as the par value of other debt. We disclose the amount of our indebtedness on this basis monthly under the caption

“Other Debt Activities — Total Debt Outstanding” in our Monthly Volume Summary reports, which are available on our

web site at www.freddiemac.com and in current reports on Form 8-K we file with the SEC.

Other Debt Issuance Activities

The table below summarizes the par value of other debt securities we issued, based on settlement dates, during 2012 and

2011.

Table 68 — Other Debt Security Issuances by Product, at Par Value(1)

Year Ended December 31,

2012 2011

(in millions)

Other short-term debt:

Reference Bills® securities and discount notes ...................................................... $290,501 $412,165

Medium-term notes — non-callable(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 450

Total other short-term debt .................................................................. 290,501 412,615

Other long-term debt:

Medium-term notes — callable ................................................................. 88,504 172,464

Medium-term notes — non-callable ............................................................. 25,242 77,810

U.S. dollar Reference Notes® securities — non-callable ............................................... 51,000 47,500

Total other long-term debt .................................................................. 164,746 297,774

Total other debt issued ......................................................................... $455,247 $710,389

(1) Excludes federal funds purchased and securities sold under agreements to repurchase, and lines of credit. Also excludes debt securities of consolidated

trusts held by third parties.

(2) Includes $0 billion and $0.5 billion of medium-term notes — non-callable issued for the years ended December 31, 2012 and 2011, respectively, which

were related to debt exchanges.

Other Short-Term Debt

We fund our operating cash needs, in part, by issuing Reference Bills® securities and other discount notes, which are

short-term instruments with maturities of one year or less that are sold on a discounted basis, paying only principal at

maturity. Our Reference Bills® securities program consists of large issues of short-term debt that we auction to dealers on a

regular schedule. We issue discount notes with maturities ranging from one day to one year in response to investor demand

and our cash needs. For purposes of presentation in this report, short-term debt also includes certain medium-term notes that

have original maturities of one year or less.

181 Freddie Mac
See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Total Debt, Net” for more information about our other

short-term debt.

Other Long-Term Debt

We issue debt with maturities greater than one year primarily through our medium-term notes program and our

Reference Notes® securities program.

Medium-term Notes

We issue a variety of fixed- and variable-rate medium-term notes, including callable and non-callable fixed-rate

securities, zero-coupon securities and variable-rate securities, with various maturities ranging up to 30 years. For purposes of

presentation in this report, medium-term notes with original maturities of one year or less are classified as short-term debt.

Medium-term notes typically contain call provisions, effective as early as three months or as long as ten years after the

securities are issued.

Reference Notes® Securities

Reference Notes® securities are regularly issued, U.S. dollar denominated, non-callable fixed-rate securities, which we

generally issue with original maturities ranging from two through ten years. Prior to 2005, we issued €Reference Notes®

securities denominated in Euros, which remain outstanding. We hedge our exposure to changes in foreign-currency exchange

rates by entering into swap transactions that convert foreign-currency denominated obligations to U.S. dollar-denominated

obligations. See “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — Interest-Rate Risk

and Other Market Risks — Sources of Interest-Rate Risk and Other Market Risks” for more information.

Subordinated Debt

During 2012 and 2011, we did not call or issue any Freddie SUBS® securities. At both December 31, 2012 and 2011,

the balance of our subordinated debt outstanding was $0.4 billion. Our subordinated debt in the form of Freddie SUBS®

securities is a component of our risk management and disclosure commitments with FHFA. See “BUSINESS — Regulation

and Supervision — Subordinated Debt” for a discussion of changes affecting our subordinated debt as a result of our

placement in conservatorship and the Purchase Agreement, and the Conservator’s suspension of certain requirements relating

to our subordinated debt. Under the Purchase Agreement, we may not issue subordinated debt without Treasury’s consent.

Other Debt Retirement Activities

We repurchase, call, or exchange our outstanding medium- and long-term debt securities from time to time to help

support the liquidity and predictability of the market for our other debt securities and to manage our mix of liabilities funding

our assets. When our debt securities become seasoned or one-time call options on our debt securities expire, they may

become less liquid, which could cause their price to decline. By repurchasing debt securities, we help preserve the liquidity

of our debt securities and improve their price performance, which helps to reduce our funding costs over the long-term. Our

repurchase activities also help us manage the funding mismatch, or duration gap, created by changes in interest rates. For

example, when interest rates decline, the expected lives of our investments in mortgage-related securities decrease which

reduces the need for long-term debt. We use a number of different means to shorten the effective weighted average lives of

our outstanding debt securities and thereby manage the duration gap, including retiring long-term debt through repurchases

or calls; changing our debt funding mix between short- and long-term debt; or using derivative instruments, such as entering

into receive-fixed swaps or terminating or assigning pay-fixed swaps. From time to time, we may also enter into transactions

in which we exchange newly issued debt securities for similar outstanding debt securities held by investors.

The table below provides the par value, based on settlement dates, of other debt securities we repurchased, called, and

exchanged during 2012 and 2011.

182 Freddie Mac
Table 69 — Other Debt Security Repurchases, Calls, and Exchanges(1)

Year Ended December 31,

2012 2011

Repurchases of outstanding €Reference Notes® securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 258

Repurchases of outstanding medium-term notes .................................................... 1,839 12,064

Calls of callable medium-term notes ............................................................ 114,884 185,489

Exchanges of medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 450

(1) Excludes debt securities of consolidated trusts held by third parties.

Credit Ratings

Our ability to access the capital markets and other sources of funding, as well as our cost of funds, is highly dependent

upon our credit ratings. The table below indicates our credit ratings as of February 15, 2013.

Table 70 — Freddie Mac Credit Ratings

Nationally Recognized Statistical Rating Organization

S&P Moody’s Fitch

Senior long-term debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AA+ Aaa AAA

Short-term debt(2) ......................................... A-1+ P-1 F1+

Subordinated debt(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Aa2 AAPreferred stock(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C Ca C/RR6

Outlook ............................................... Negative (for senior

long-term debt and

subordinated debt)

Negative (for senior

long-term debt and

subordinated debt)

Negative (for AAA-rated

long-term Issuer Default

Rating)

(1) Consists of medium-term notes, U.S. dollar Reference Notes® securities and €Reference Notes® securities.

(2) Consists of Reference Bills® securities and discount notes.

(3) Consists of Freddie SUBS® securities.

(4) Does not include senior preferred stock issued to Treasury.

Our credit ratings are primarily based on the support we receive from Treasury, and therefore are affected by changes in

the credit ratings of the U.S. government.

For information about factors that could lead to future ratings actions, and the potential impact of a downgrade in our

credit ratings, see “RISK FACTORS — Competitive and Market Risks — Any downgrade in the credit ratings of the U.S.

government would likely be followed by a downgrade in our credit ratings. A downgrade in the credit ratings of our debt

could adversely affect our liquidity and other aspects of our business.”

A security rating is not a recommendation to buy, sell or hold securities. It may be subject to revision or withdrawal at

any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Cash and Cash Equivalents, Federal Funds Sold, Securities Purchased Under Agreements to Resell, and Non-MortgageRelated Securities

Excluding amounts related to our consolidated VIEs, we held $47.3 billion in the aggregate of cash and cash

equivalents, securities purchased under agreements to resell, and non-mortgage-related securities at December 31, 2012.

These investments are important to our cash flow and asset and liability management and our ability to provide liquidity and

stability to the mortgage market. At December 31, 2012, our non-mortgage-related securities consisted of Treasury bills,

Treasury notes, and asset-backed securities that we could sell to provide us with an additional source of liquidity to fund our

business operations. For additional information on these assets, see “CONSOLIDATED BALANCE SHEETS

ANALYSIS — Cash and Cash Equivalents, Federal Funds Sold and Securities Purchased Under Agreements to Resell” and

“— Investments in Securities — Non-Mortgage-Related Securities.”

Mortgage Loans and Mortgage-Related Securities

We invest principally in mortgage loans and mortgage-related securities, certain categories of which are largely

unencumbered and highly liquid. Our primary source of liquidity among these mortgage assets is our holdings of agency

securities. In addition, our unsecuritized performing single-family mortgage loans are also a potential source of liquidity. Our

holdings of CMBS are less liquid than agency securities. Our holdings of non-agency mortgage-related securities backed by

subprime, option ARM, and Alt-A and other loans are illiquid due to market conditions and the continued poor credit quality

183 Freddie Mac
of the underlying assets. Our holdings of unsecuritized seriously delinquent and modified single-family mortgage loans are

also illiquid.

We are subject to limits on the amount of mortgage assets we can sell in any calendar month without review and

approval by FHFA and, if FHFA so determines, Treasury. See “BUSINESS — Conservatorship and Related Matters —

Limits on Investment Activity and Our Mortgage-Related Investments Portfolio” for more information on the relative

liquidity of our mortgage assets.

Cash Flows

Our cash and cash equivalents decreased $19.9 billion to $8.5 billion during 2012, as compared to a decrease of $8.6

billion to $28.4 billion during 2011 and a decrease of $27.7 billion to $37.0 billion during 2010. Cash flows provided by

operating activities during 2012, 2011, and 2010 were $8.5 billion, $10.3 billion, and $10.8 billion, respectively, primarily

driven by cash proceeds from net interest income. Cash flows provided by investing activities during 2012, 2011, and 2010

were $494.4 billion, $373.7 billion, and $385.6 billion, respectively, primarily resulting from net proceeds received as a

result of repayments of single-family held-for-investment mortgage loans. Cash flows used for financing activities during

2012, 2011, and 2010 were $522.8 billion, $392.6 billion, and $424.1 billion, respectively, largely attributable to funds used

to repay debt securities of consolidated trusts held by third parties. In addition, during 2012, our net repayments of other debt

were $113.1 billion.

Capital Resources

Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy and our

management of capital. On October 9, 2008, FHFA announced that it was suspending capital classification of us during

conservatorship in light of the Purchase Agreement. FHFA continues to monitor our capital levels, but the existing statutory

and FHFA-directed regulatory capital requirements are not binding during conservatorship. We continue to provide

submissions to FHFA on minimum capital. See “NOTE 14: REGULATORY CAPITAL” for our minimum capital

requirement, core capital, and GAAP net worth results as of December 31, 2012 and 2011. In addition, notwithstanding our

failure to maintain required capital levels, FHFA directed us to continue to make interest and principal payments on our

subordinated debt. For more information, see “BUSINESS — Regulation and Supervision — Federal Housing Finance

Agency — Subordinated Debt.”

Under the Purchase Agreement, Treasury made a commitment to provide us with funding, under certain conditions, to

eliminate deficits in our net worth. The Purchase Agreement provides that, if FHFA determines as of quarter end that our

liabilities have exceeded our assets under GAAP, Treasury will contribute funds to us in an amount equal to the difference

between such liabilities and assets; a higher amount may be drawn if Treasury and Freddie Mac mutually agree that the draw

should be increased beyond the level by which liabilities exceed assets under GAAP. In each case, the amount of the draw

cannot exceed the maximum aggregate amount that may be funded under the Purchase Agreement.

Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are and have

been less than our obligations for a period of 60 days. Obtaining funding from Treasury pursuant to its commitment under the

Purchase Agreement enables us to avoid being placed into receivership by FHFA. At December 31, 2012, our assets

exceeded our liabilities under GAAP; therefore no draw is being requested from Treasury under the Purchase Agreement.

See “BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — Receivership” for additional

information on mandatory receivership.

Pursuant to the August 2012 amendment to the Purchase Agreement, the fixed dividend rate on the senior preferred

stock has been replaced with a net worth sweep dividend. The amendment effectively ends the circular practice of taking

draws from Treasury to pay dividends to Treasury, thereby helping to preserve remaining funding available to us under the

Purchase Agreement. For more information, see “Liquidity — Dividend Obligation on the Senior Preferred Stock.”

In future periods, we may continue to experience variability in our net income and/or comprehensive income due to

changes in factors such as interest rates, mortgage spreads, and home prices. Such changes could adversely affect our net

worth and result in additional draws under the Purchase Agreement. For more information, see “RISK FACTORS —

Conservatorship and Related Matters — We may request additional draws under the Purchase Agreement in future periods.”

184 Freddie Mac
For more information on the effect of the Purchase Agreement on our business and capital management activities, and

the potential impact of making additional draws, see “BUSINESS — Conservatorship and Government Support for Our

Business.”

FAIR VALUE MEASUREMENTS AND ANALYSIS

Fair Value Measurements

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of

certain assets and liabilities on a recurring or non-recurring basis.

Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date. The accounting guidance for fair value measurements and

disclosures establishes a three-level fair value hierarchy that prioritizes the inputs into the valuation techniques used to

measure fair value.

The three levels of the fair value hierarchy under the accounting guidance for fair value measurements and disclosures

are described below:

• Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets

or liabilities;

• Level 2: Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets

and liabilities in markets that are not active; inputs other than quoted market prices that are observable for the asset or

liability; and inputs that are derived principally from or corroborated by observable market data for substantially the

full term of the assets or liabilities; and

• Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity and that are

significant to the fair values.

We categorize assets and liabilities recorded or disclosed at fair value within the fair value hierarchy based on the

valuation processes used to derive their fair values and our judgment regarding the observability of the related inputs. Those

judgments are based on our knowledge and observations of the markets relevant to the individual assets and liabilities and

may vary based on current market conditions. In applying our judgments, we review ranges of third-party prices and

transaction volumes, and hold discussions with dealers and pricing service vendors to understand and assess the extent of

market benchmarks available and the judgments or modeling required in their processes. Based on these factors, we

determine whether the inputs are observable and whether the principal markets are active or inactive. For additional

information regarding our classification of assets, liabilities, and equity within the fair value hierarchy and the valuation

techniques used to measure fair value, see “NOTE 16: FAIR VALUE DISCLOSURES.”

The table below summarizes our assets and liabilities measured at fair value on a recurring basis on our consolidated

balance sheets at December 31, 2012 and 2011.

185 Freddie Mac
Table 71 — Summary of Assets and Liabilities Measured at Fair Value on a Recurring Basis on Our Consolidated

Balance Sheets

December 31,

2012 2011

Total GAAP

Recurring

Fair Value

Percentage

in Level 3

Total GAAP

Recurring

Fair Value

Percentage

in Level 3

(dollars in millions)

Assets:

Investments in securities:

Available-for-sale, at fair value ............................................ $174,896 31% $210,659 28%

Trading, at fair value ................................................... 41,492 4 58,830 4

Mortgage loans:

Held-for-sale, at fair value ............................................... 14,238 100 9,710 100

Derivative assets, net(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657 — 118 —

Other assets:

Guarantee asset, at fair value ............................................. 1,029 100 752 100

All other, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 100 151 100

Total assets carried at fair value on a recurring basis(1) .......................... $232,426 28 $280,220 23

Liabilities:

Debt securities of consolidated trusts held by third parties, at fair value . . . . . . . . . . . . . . . . . $ 70 —% $ — —%

Other debt, at fair value ................................................... 2,187 100 3,015 —

Derivative liabilities, net(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 — 435 —

Total liabilities carried at fair value on a recurring basis(1) ....................... $ 2,435 7 $ 3,450 —

(1) Percentages by level are based on gross fair value of derivative assets and derivative liabilities before counterparty netting, cash collateral netting, net

trade/settle receivable or payable and net derivative interest receivable or payable.

Level 3 Recurring Fair Value Measurements

At December 31, 2012 and 2011, we measured and recorded at fair value on a recurring basis, assets of $72.0 billion

and $72.5 billion, respectively, or approximately 28% and 23% of total assets carried at fair value on a recurring basis, using

significant unobservable inputs (Level 3), before the impact of counterparty and cash collateral netting. Our Level 3 assets at

December 31, 2012 primarily consisted of non-agency mortgage-related securities and multifamily held-for-sale loans. At

December 31, 2012 and 2011, we also measured and recorded at fair value on a recurring basis, Level 3 liabilities of $2.3

billion and $0.1 billion, or 7% and less than 1%, respectively, of total liabilities carried at fair value on a recurring basis,

before the impact of counterparty and cash collateral netting. Our Level 3 liabilities at December 31, 2012 primarily

consisted of foreign-currency denominated debt recorded at fair value.

The non-agency mortgage-related securities market continued to be illiquid during 2012, with low transaction volumes,

wide credit spreads, and limited transparency. We continue to utilize the prices on such securities provided to us by various

pricing services and dealers and believe that the procedures executed by the pricing services and dealers, combined with our

internal verification and analytical processes, help ensure that the prices used to develop our financial statements are in

accordance with the accounting guidance for fair value measurements and disclosures.

See “NOTE 16: FAIR VALUE DISCLOSURES – Changes in Fair Value Levels” for a discussion of changes in our

Level 3 assets and liabilities and “— Table 16.2 — Fair Value Measurements of Assets and Liabilities Using Significant

Unobservable Inputs” for the Level 3 reconciliation. For discussion of types and characteristics of mortgage loans underlying

our mortgage-related securities, see “Table 23 — Characteristics of Mortgage-Related Securities on Our Consolidated

Balance Sheets” and “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit

Risk.”

Consideration of Credit Risk in Our Valuation

We consider credit risk in the valuation of our assets and liabilities through consideration of credit risk of the

counterparty in asset valuations and through consideration of our own institutional credit risk in liability valuations on our

GAAP consolidated balance sheets.

We consider credit risk in our valuation of investments in securities based on fair value measurements that are largely

the result of price quotes received from multiple dealers or pricing services. Some of the key valuation drivers of such fair

value measurements include the collateral type, collateral performance, credit quality of the issuer, tranche type, weighted

average life, vintage, coupon, and interest rates. We also make adjustments for items such as credit enhancements or other

186 Freddie Mac
types of subordination and liquidity, where applicable. In cases where internally developed models are used, we maximize

the use of market-based inputs or calibrate such inputs to market data.

We also consider credit risk when we evaluate the valuation of our derivative positions. The fair value of derivative

assets considers the impact of institutional credit risk in the event that the counterparty does not honor its payment obligation.

For derivatives that are in an asset position, we hold collateral against those positions in accordance with agreed upon

thresholds. The amount of collateral held depends on the credit rating of the counterparty and is based on our credit risk

policies. Similarly, for derivatives that are in a liability position, we post collateral to counterparties in accordance with

agreed upon thresholds. Based on this evaluation, our fair value of derivatives is not adjusted for credit risk because we

obtain collateral from, or post collateral to, most counterparties, typically within one business day of the daily market value

calculation. See “RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Derivative Counterparties” for a

discussion of our counterparty credit risk.

See “NOTE 16: FAIR VALUE DISCLOSURES — Valuation Techniques for Assets and Liabilities Measured at Fair

Value in Our Consolidated Balance Sheets” for additional information regarding the valuation of our assets and liabilities.

Valuation Processes and Controls over Fair Value Measurement

We have control processes designed to ensure that our fair value measurements are appropriate and reliable, that they

are based on observable inputs where possible, and that our valuation approaches are consistently applied and the

assumptions and inputs are reasonable. Our control processes provide a framework that ensures a segregation of duties and

oversight of our fair value methodologies, techniques, validation procedures, and results.

See “NOTE 16: FAIR VALUE DISCLOSURES — Valuation Processes and Controls Over Fair Value Measurement”

for additional information.

Consolidated Fair Value Balance Sheets Analysis

Our consolidated fair value balance sheets present our estimates of the fair value of our financial assets and liabilities.

See “NOTE 16: FAIR VALUE DISCLOSURES — Table 16.6 — Consolidated Fair Value Balance Sheets” for our fair value

balance sheets. In conjunction with the preparation of our consolidated fair value balance sheets, we use a number of

financial models. See “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — InterestRate Risk and Other Market Risks,” and “RISK FACTORS” and “RISK MANAGEMENT — Operational Risks” for

information concerning the risks associated with these models.

During 2012 and 2011, our fair value results were affected by several improvements in our approach for estimating the

fair value of certain financial instruments. See “CRITICAL ACCOUNTING POLICIES AND ESTIMATES,” “NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” and “NOTE 16: FAIR VALUE DISCLOSURES” for more

information on fair values.

Key Components of Changes in the Fair Value of Net Assets

Our attribution of changes in the fair value of net assets relies on models, assumptions, and other measurement

techniques that evolve over time. The following are the key components of the attribution analysis:

Core Spread Income

Core spread income on our investments in mortgage loans and mortgage-related securities is a fair value estimate of the

net current period accrual of income from the spread between our mortgage-related investments and our debt, calculated on

an option-adjusted basis. OAS is an estimate of the yield spread between a given financial instrument and a benchmark

(LIBOR, agency or Treasury) yield curve, after consideration of potential variability in the instrument’s cash flows resulting

from any options embedded in the instrument, such as prepayment options.

Changes in Mortgage-To-Debt OAS

The fair value of our net assets can be significantly affected from period to period by changes in the net OAS between

the mortgage and agency debt sectors. The fair value impact of changes in OAS for a given period represents an estimate of

the net unrealized increase or decrease in fair value of net assets arising from net fluctuations in OAS during that period. We

do not attempt to hedge or actively manage the basis risk represented by the impact of changes in mortgage-to-debt OAS

187 Freddie Mac
because we generally hold a substantial portion of our mortgage assets for the long-term and we do not believe that periodic

increases or decreases in the fair value of net assets arising from fluctuations in OAS will significantly affect the long-term

value of our investments in mortgage loans and mortgage-related securities.

Asset-Liability Management Return

Asset-liability management return represents the estimated net increase or decrease in the fair value of net assets

resulting from net exposures related to the market risks we actively manage. We do not hedge all of the interest-rate risk that

exists at the time a mortgage is purchased or that arises over its life. The market risks to which we are exposed as a result of

our investment activities that we actively manage include duration and convexity risks, yield curve risk and volatility risk.

We seek to manage these risk exposures within prescribed limits as part of our overall investment strategy. Taking these

risk positions and managing them within prudent limits is an integral part of our investment activity. We expect that the net

exposures related to market risks we actively manage will generate fair value returns, although those positions may result in a

net increase or decrease in fair value for a given period. See “QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK — Interest-Rate Risk and Other Market Risks” for more information.

Core Management and Guarantee Fees, Net

Core management and guarantee fees, net represents a fair value estimate of the annual income of our credit guarantee

activities, based on current credit guarantee characteristics and market conditions. This estimate considers both contractual

management and guarantee fees collected over the life of the credit guarantees and credit-related delivery fees collected up

front when pools are formed, and associated costs and obligations, which include default costs.

Change in the Fair Value of Credit Guarantee Activities

Change in the fair value of credit guarantee activities represents the estimated impact on the fair value of the credit

guarantee business resulting from changes in the amount of such business we conduct plus the effect of changes in interest

rates, projections of the future credit outlook and other market factors (e.g., impact of the passage of time on cash flow

discounting). Our estimated fair value of credit guarantee activities will change as credit conditions change.

Discussion of Fair Value Results

The table below summarizes the change in the fair value of net assets for 2012 and 2011.

Table 72 — Summary of Change in the Fair Value of Net Assets

2012 2011

(in billions)

Beginning balance ................................................................................ $(78.4) $(58.6)

Changes in fair value of net assets, before capital transactions ............................................... 27.2 (21.3)

Capital transactions:

Dividends and share issuances, net(1) ................................................................ (7.1) 1.5

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(58.3) $(78.4)

(1) Includes the funds received from Treasury of $0.2 billion and $8.0 billion for 2012 and 2011, respectively, under the Purchase Agreement, which

increased the liquidation preference of our senior preferred stock.

During 2012, the fair value of net assets, before capital transactions, increased by $27.2 billion, compared to a $21.3

billion decrease during 2011. The increase in the fair value of net assets, before capital transactions, during 2012 was

primarily due to an increase in the fair value of our single-family mortgage loans as the result of continued improvement in

realized and expected home prices and improvement in the overall credit environment coupled with high estimated core

spread income on our mortgage-related securities and a tightening of OAS levels on our agency securities, multifamily

securities, and unsecuritized loans. These benefits were offset by a decrease of $13.8 billion in the fair value of our singlefamily mortgage loans as the result of the adoption of an amendment to the guidance pertaining to fair value measurements

and disclosures in the first quarter of 2012. See “NOTE 16: FAIR VALUE DISCLOSURES — Consolidated Fair Value

Balance Sheets” for additional details.

For loans that have been refinanced under HARP, we value our guarantee obligation using the delivery and guarantee

fees currently charged by us under that initiative. If, subsequent to delivery, the refinanced loan no longer qualifies for

purchase based on current underwriting standards (such as becoming past due or being modified as a part of a troubled debt

188 Freddie Mac
restructuring), the fair value of the guarantee obligation is then measured using our internal credit models or third-party

market pricing. See “NOTE 16: FAIR VALUE DISCLOSURES — Valuation Techniques for Assets and Liabilities Not

Measured at Fair Value in Our Consolidated Balance Sheets, but for Which the Fair Value is Disclosed — Mortgage

Loans — Single-Family Loans” for additional details.

The decrease in the fair value of net assets, before capital transactions, during 2011, was primarily due to: (a) a decrease

in the fair value of our single-family loans due to our fourth quarter 2011 change in estimate discussed below, coupled with a

decline in seasonally adjusted home prices; and (b) unrealized losses from the widening of OAS levels on our single-family

non-agency mortgage-related securities. The decrease in fair value was partially offset by a tightening of OAS levels on our

agency securities and high estimated core spread income.

During the fourth quarter of 2011, our fair value results were affected by a change in estimate which increased the

implied capital costs included in our valuation of single-family mortgage loans due to a change in the estimation of a risk

premium assumption embedded in our modeled valuation of such loans. This change in estimate led to a $14.2 billion

decrease in our fair value measurement of mortgage loans.

When the OAS on a given asset widens, the fair value of that asset will typically decline, all other market factors being

equal. However, we believe such OAS widening has the effect of increasing the likelihood that, in future periods, we will

recognize income at a higher spread on this existing asset. The reverse is true when the OAS on a given asset tightens —

current period fair values for that asset typically increase due to the tightening in OAS, while future income recognized on

the asset is more likely to be earned at a reduced spread. However, as market conditions change, our estimate of expected fair

value gains and losses from OAS may also change, and the actual core spread income recognized in future periods could be

significantly different from current estimates.

OFF-BALANCE SHEET ARRANGEMENTS

We enter into certain business arrangements that are not recorded on our consolidated balance sheets or may be

recorded in amounts that differ from the full contract or notional amount of the transaction, and that may expose us to

potential losses in excess of the amounts recorded on our consolidated balance sheets.

Securitization Activities and Other Guarantee Commitments

We have certain off-balance sheet arrangements related to our securitization activities involving guaranteed mortgages

and mortgage-related securities, though most of our securitization activities are on-balance sheet. Our off-balance sheet

arrangements related to these securitization activities primarily consist of: (a) Freddie Mac mortgage-related securities

backed by multifamily loans; and (b) certain single-family Other Guarantee Transactions. We also have off-balance sheet

arrangements related to other guarantee commitments, including long-term standby commitments and liquidity guarantees.

We guarantee the payment of principal and interest on non-consolidated Freddie Mac mortgage-related securities we

issue and on mortgage loans covered by our other guarantee commitments. Our maximum potential off-balance sheet

exposure to credit losses relating to these securitization activities and the other guarantee commitments is primarily

represented by the UPB of the underlying loans and securities, which was $74.2 billion and $56.9 billion at December 31,

2012 and 2011, respectively. The UPB of non-consolidated mortgage-related securities backed by multifamily loans grew

significantly during 2012 and we expect that the balance of these off-balance sheet obligations will continue to increase in

2013 since this form of securitization is the primary business activity for our Multifamily segment.

As part of the guarantee arrangements pertaining to certain multifamily housing revenue bonds and securities backed by

multifamily housing revenue bonds, we provided commitments to advance funds, commonly referred to as “liquidity

guarantees,” which were $10.2 billion and $12.0 billion at December 31, 2012 and 2011, respectively. These guarantees

require us to advance funds to third parties that enable them to repurchase tendered bonds or securities that are unable to be

remarketed. Any repurchased securities are pledged to us to secure funding until the securities are remarketed. We hold cash

and cash equivalents in excess of the amount of these commitments. At December 31, 2012 and 2011, there were no liquidity

guarantee advances outstanding. In addition, as part of the HFA initiative, we, together with Fannie Mae, provide liquidity

guarantees for certain variable-rate single-family and multifamily housing revenue bonds, under which Freddie Mac

generally is obligated to purchase 50% of any tendered bonds that cannot be remarketed within five business days.

189 Freddie Mac
Our exposure to losses on the transactions described above would be partially mitigated by the recovery we would

receive through exercising our rights to the collateral backing the underlying loans and the available credit enhancements,

which may include recourse and primary insurance with third parties. In addition, we provide for incurred losses each period

on these guarantees within our provision for credit losses. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES — Recently Adopted Accounting Guidance,” “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS —

Housing Finance Agency Initiative,” and “NOTE 9: FINANCIAL GUARANTEES” for more information on our off-balance

sheet securitization activities and other guarantee commitments.

Other Agreements

We own interests in numerous entities that are considered to be VIEs for which we are not the primary beneficiary and

which we do not consolidate in accordance with the accounting guidance for the consolidation of VIEs. These VIEs relate

primarily to our investment activity in mortgage-related assets and non-mortgage assets, and include LIHTC partnerships,

certain Other Guarantee Transactions, and certain asset-backed investment trusts. Our consolidated balance sheets reflect

only our investment in the VIEs, rather than the full amount of the VIEs’ assets and liabilities. See “NOTE 3: VARIABLE

INTEREST ENTITIES” for additional information related to our variable interests in these VIEs.

As part of our credit guarantee business, we routinely enter into forward purchase and sale commitments for mortgage

loans and mortgage-related securities. Some of these commitments are accounted for as derivatives. Their fair values are

reported as either derivative assets, net or derivative liabilities, net on our consolidated balance sheets. For more information,

see “RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Derivative Counterparties.” We also enter into

purchase commitments primarily related to future guarantor swap transactions for single-family loans, and, to a lesser extent,

commitments to purchase or guarantee multifamily mortgage loans. These non-derivative commitments totaled

$291.5 billion and $271.8 billion, in notional value at December 31, 2012 and 2011, respectively.

In connection with the execution of the Purchase Agreement, we, through FHFA, in its capacity as Conservator, issued a

warrant to Treasury to purchase 79.9% of our common stock outstanding on a fully diluted basis on the date of exercise. See

“NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT)” for further information.

CONTRACTUAL OBLIGATIONS

The table below provides aggregated information about the listed categories of our contractual obligations as of

December 31, 2012. These contractual obligations affect our short- and long-term liquidity and capital resource needs. The

table includes information about undiscounted future cash payments due under these contractual obligations, aggregated by

type of contractual obligation, including the contractual maturity profile of our debt securities (other than debt securities of

consolidated trusts held by third parties). The timing of actual future payments may differ from those presented due to a

number of factors, including discretionary debt repurchases. Our contractual obligations include other purchase obligations

that are enforceable and legally binding, and exclude contracts that we may cancel at will without penalty. For purposes of

this table, purchase obligations are included through the termination date specified in the respective agreement, even if the

contract is renewable.

In the table below, the amounts of future interest payments on debt securities outstanding at December 31, 2012 are

based on the contractual terms of our debt securities at that date. These amounts were determined using certain assumptions

including, that: (a) variable-rate debt continues to accrue interest at the contractual rates in effect at December 31, 2012 until

maturity; and (b) callable debt continues to accrue interest until its contractual maturity. The amounts of future interest

payments on debt securities presented do not reflect certain factors that will change the amounts of interest payments on our

debt securities after December 31, 2012, such as: (a) changes in interest rates; (b) the call or retirement of any debt securities;

and (c) the issuance of new debt securities. Accordingly, the amounts presented in the table do not represent a forecast of our

future cash interest payments or interest expense.

The table below excludes certain obligations that could significantly affect our short- and long-term liquidity and capital

resource needs. These items, which are listed below, have generally been excluded because the amount and timing of the

related future cash payments are uncertain:

• future payments related to debt securities of consolidated trusts held by third parties, because the amount and timing

of such payments are generally contingent upon the occurrence of future events and are therefore uncertain. These

payments generally include payments of principal and interest we make to the holders of our guaranteed mortgage190 Freddie Mac
related securities in the event a loan underlying a security becomes delinquent. We also remove mortgages from pools

underlying our PCs in certain circumstances, including when loans are 120 days or more delinquent, and retire the

associated PC debt;

• any future cash payments associated with the liquidation preference of the senior preferred stock, as well as the

quarterly commitment fee (which has been suspended) and the dividends on the senior preferred stock because the

timing and amount of any such future cash payments are uncertain. As of December 31, 2012, the aggregate

liquidation preference of the senior preferred stock was $72.3 billion. See “BUSINESS — Conservatorship and

Related Matters — Treasury Agreements” for additional information including changes to the quarterly commitment

fee and dividends on the senior preferred stock beginning in 2013;

• future cash settlements on derivative agreements not yet accrued, because the amount and timing of such payments

are dependent upon changes in the underlying financial instruments in response to items such as changes in interest

rates and foreign exchange rates and are therefore uncertain;

• future dividends on the preferred stock we have issued (other than the senior preferred stock), because dividends on

these securities are non-cumulative;

• the guarantee arrangements pertaining to multifamily housing revenue bonds, where we provided commitments to

advance funds, commonly referred to as “liquidity guarantees,” because the amount and timing of such payments are

generally contingent upon the occurrence of future events and are therefore uncertain; and

• future cash contributions to our Pension Plan, as we have not yet determined whether to make a cash contribution in

2013.

Table 73 — Contractual Obligations by Year at December 31, 2012

Total 2013 2014 2015 2016 2017 Thereafter

(in millions)

Long-term debt(1) .................................... $434,542 $115,577 $85,798 $52,968 $38,882 $57,664 $83,653

Short-term debt(1) ................................... 117,930 117,930 ———— —

Interest payable(2) ................................... 48,230 14,363 6,614 5,352 4,266 3,089 14,546

Other liabilities reflected on our consolidated balance sheet:

Other contractual liabilities(3)(4) . . . . . . . . . . . . . . . . . . . . . . . . 900 623 16 13 14 14 220

Purchase obligations:

Purchase commitments(5) ............................ 13,985 13,985 ———— —

Other purchase obligations(6) . . . . . . . . . . . . . . . . . . . . . . . . . . 281 232 26 12 8 1 2

Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 12 11431 1

Total specified contractual obligations .................. $615,900 $262,722 $92,465 $58,349 $43,173 $60,769 $98,422

(1) Represents par value. Callable debt is included in this table at its contractual maturity. Excludes debt securities of consolidated trusts held by third

parties. For additional information about our debt, see “NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS.”

(2) Includes estimated future interest payments on our short-term and long-term debt securities as well as the accrual of periodic cash settlements of

derivatives, netted by counterparty. Also includes accrued interest payable recorded on our consolidated balance sheet, which consists primarily of the

accrual of interest for our PCs and certain Other Guarantee Transactions, and the accrual of interest on short-term and long-term debt.

(3) Includes obligations related to our non-qualified defined benefit plan, qualified and non-qualified defined contribution plans, retiree medical plan, and

other benefit plans.

(4) Other contractual liabilities include future cash payments due under our contractual obligations to make delayed equity contributions to LIHTC

partnerships and payables to the consolidated trusts established for the administration of cash remittances received related to the underlying assets of

Freddie Mac mortgage-related securities.

(5) Purchase commitments represent our obligations to purchase mortgage loans and mortgage-related securities from third parties. The majority of purchase

commitments included in this caption are accounted for as derivatives in accordance with the accounting guidance for derivatives and hedging.

(6) Primarily includes unconditional purchase obligations that are legally binding and that are subject to a cancellation penalty. Does not include contracts

that we may cancel at will without penalty.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires us to make a number of judgments,

estimates, and assumptions that affect the reported amounts within our consolidated financial statements. Certain of our

accounting policies, as well as estimates we make, are critical, as they are both important to the presentation of our financial

condition and results of operations and require management to make difficult, complex, or subjective judgments and

estimates, often regarding matters that are inherently uncertain. Actual results could differ from our estimates and the use of

different judgments and assumptions related to these policies and estimates could have a material impact on our consolidated

financial statements.

191 Freddie Mac
Our critical accounting policies and estimates relate to: (a) the allowance for loan losses and the reserve for guarantee

losses; (b) fair value measurements; (c) impairment recognition on investments in securities; and (d) realizability of net

deferred tax assets. For additional information about our critical accounting policies and estimates and other significant

accounting policies, as well as recently issued accounting guidance, see “NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES.”

Allowance for Loan Losses and Reserve for Guarantee Losses

The allowance for loan losses and the reserve for guarantee losses represent estimates of incurred credit losses. The

allowance for loan losses pertains to all single-family and multifamily loans classified as held-for-investment on our

consolidated balance sheets, whereas the reserve for guarantee losses relates to single-family and multifamily loans

underlying our non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments. We use the

same methodology to determine our allowance for loan losses and reserve for guarantee losses, as the relevant factors

affecting credit risk are the same. Determining the appropriateness of the loan loss reserves is a complex process that is

subject to numerous estimates and assumptions requiring significant management judgment about matters that involve a high

degree of subjectivity. The process we currently use involves a greater degree of management judgment than the process we

used prior to the onset of the recent housing and economic downturn.

We estimate incurred credit losses related to homogeneous pools of loans in accordance with the accounting guidance

for contingencies. Loans that we evaluate for individual impairment are measured in accordance with the subsequent

measurement requirements of the accounting guidance for receivables.

We believe the level of our loan loss reserves is appropriate based on internal reviews of the factors and methodologies

used. No single statistic or measurement determines the appropriateness of the loan loss reserves. Changes in one or more of

the estimates or assumptions used to calculate the loan loss reserves could have a material impact on the loan loss reserves

and provision for credit losses.

Single-Family Loan Loss Reserves

Most single-family loans are aggregated into pools based on similar risk characteristics and measured collectively using

a statistically based model that evaluates a variety of factors affecting collectability, including but not limited to: current

LTV ratios, a loan’s product type, delinquency/default status and history, and geographic location. Inputs used by the model

are regularly updated for changes in the underlying data, assumptions, and market conditions. We consider the output of this

model, together with other information such as expected future levels of loan modifications and expected repurchases by

seller/servicers of loans, the adequacy of third-party credit enhancements, the effects of changes in government policies and

programs, the effects of macroeconomic variables such as rates of unemployment, and the effects of home price changes on

borrower behavior. The inability to realize the benefits of our loss mitigation plans, a lower realized rate of seller/servicer

repurchases, further declines in home prices, further deterioration in the financial condition of our mortgage insurance

counterparties, or delinquency rates that exceed our current projections would cause our losses to be significantly higher than

those currently estimated.

There is significant risk and uncertainty associated with our estimate of credit losses incurred on our single-family

loans. The process for determining the estimate is complex. It uses models and requires us to make judgments about matters

that are difficult to predict, the most significant of which are the probability of default and loss severity. We regularly

evaluate the underlying estimates and models we use when determining loan loss reserves and update our assumptions to

reflect our historical experience and current view of economic factors. See “RISK FACTORS — Operational Risks — We

face risks and uncertainties associated with the models that we use for financial accounting and reporting purposes, to make

business decisions, and to manage risks. Market conditions have raised these risks and uncertainties.”

Individually impaired single-family loans include loans that have undergone a TDR and are measured for impairment as

the excess of our recorded investment in the loan over the present value of the expected future cash flows. Our expectation of

future cash flows incorporates many of the judgments indicated above.

Multifamily Loan Loss Reserves

To determine loan loss reserves for the multifamily loan portfolio, including determining which loans are individually

impaired, we consider all available evidence including, but not limited to, operating cash flows from the underlying property

as represented by its current DSCR, the fair value of collateral underlying the loans, evaluation of the repayment prospects,

192 Freddie Mac
the adequacy of third-party credit enhancements, year of origination, certain macroeconomic data, and available economic

data related to multifamily real estate, including apartment vacancy and rental rates.

Multifamily loans evaluated collectively for impairment are aggregated into book year vintages and measured by

benchmarking published historical commercial mortgage data to those vintages based upon some of the factors listed above.

Individually impaired multifamily loans are measured for impairment based on the fair value of the underlying

collateral, as reduced by estimated disposition costs, as multifamily loans are generally collateral-dependent and most

multifamily loans are non-recourse to the borrower. As a result, the cash flows of the underlying property (including any

associated credit enhancements) serve as the source of funds for repayment of the loan.

Fair Value Measurements

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of

certain assets and liabilities on a recurring or non-recurring basis. Assets and liabilities within our consolidated financial

statements measured at fair value include: (a) mortgage-related and non-mortgage related securities; (b) mortgage loans heldfor-sale; (c) derivative instruments; (d) debt securities denominated in foreign currencies and certain other debt; and (e) REO.

The accounting guidance for fair value measurements and disclosures defines fair value, establishes a framework for

measuring fair value, and sets forth disclosure requirements regarding fair value measurements. This accounting guidance

also establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value

based on the assumptions a market participant would use at the measurement date. Fair value measurements under this

hierarchy are distinguished among quoted market prices, observable inputs, and unobservable inputs. The measurement of

fair value requires management to make judgments and assumptions. The process for determining fair value using

unobservable inputs is generally more subjective and involves a higher degree of management judgment and assumptions

than the measurement of fair value using observable inputs. These judgments and assumptions may have a significant effect

on our measurements of fair value, and the use of different judgments and assumptions, as well as changes in market

conditions, could have a material effect on our consolidated statements of comprehensive income as well as our consolidated

fair value balance sheets. See “NOTE 16: FAIR VALUE DISCLOSURES” and “FAIR VALUE MEASUREMENTS AND

ANALYSIS” for additional information regarding fair value hierarchy and measurements.

Impairment Recognition on Investments in Securities

We evaluate available-for-sale securities in an unrealized loss position as of the end of each quarter for other-thantemporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its

amortized cost basis. As discussed further below, certain other-than-temporary impairment losses are recognized in earnings.

These losses are recorded within our consolidated statements of comprehensive income as net impairment of available-forsale securities recognized in earnings.

We recognize other-than-temporary impairment in earnings if one of the following conditions exists: (a) we have the

intent to sell the security; (b) it is more likely than not that we will be required to sell the security before recovery of its

unrealized loss; or (c) we do not expect to recover the amortized cost basis of the security. If we do not intend to sell the

security and we believe it is not more likely than not that we will be required to sell prior to recovery of the security’s

unrealized loss, we recognize only the credit component of other-than-temporary impairment in earnings and the amounts

attributable to all other factors are recognized, net of tax, in AOCI. The credit component represents the amount by which the

present value of cash flows expected to be collected from the security is less than the amortized cost basis of the security.

The evaluation of whether unrealized losses on available-for-sale securities are other-than-temporary requires

significant management judgments and assumptions and consideration of numerous factors. We perform an evaluation on a

security-by-security basis considering all available information. The relative importance of this information varies based on

the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment. For

information regarding important factors, judgments and assumptions, see “NOTE 7: INVESTMENTS IN SECURITIES —

Impairment Recognition on Investments in Securities.”

For our available-for-sale securities in an unrealized loss position at December 31, 2012, we have asserted that we have

no intent to sell and that we believe it is not more likely than not that we will be required to sell the security before recovery

of its amortized cost basis. In cases where such an assertion cannot be made, the security’s entire decline in fair value is

deemed to be other-than-temporary and is recorded within our consolidated statements of comprehensive income as net

impairment of available-for-sale securities recognized in earnings.

193 Freddie Mac
See “NOTE 7: INVESTMENTS IN SECURITIES — Table 7.2 — Available-For-Sale Securities in a Gross Unrealized

Loss Position” for the length of time our available-for-sale securities have been in an unrealized loss position. Also see

“NOTE 7: INVESTMENTS IN SECURITIES — Table 7.3 — Significant Modeled Attributes for Certain Non-Agency

Mortgage-Related Securities” for the modeled default rates and severities that were used to determine whether our senior

interests in certain non-agency mortgage-related securities would experience a cash shortfall. See “CONSOLIDATED

BALANCE SHEETS ANALYSIS — Investments in Securities” for more information on impairment recognition on

securities.

We believe our judgments and assumptions used in our evaluation of other-than-temporary impairment are reasonable.

However, different judgments or assumptions could have resulted in materially different recognition of other-than-temporary

impairment. It is possible that the losses we ultimately realize could be significantly higher or lower than the losses we have

recognized in our financial results to date.

Realizability of Deferred Tax Assets, Net

We use the asset and liability method to account for income taxes pursuant to the accounting guidance for income taxes.

Under this method, deferred tax assets and liabilities are recognized based upon the expected future tax consequences of

existing temporary differences between the financial reporting and the tax reporting basis of assets and liabilities using

enacted statutory tax rates. Valuation allowances are recorded to reduce net deferred tax assets when it is more likely than not

that a tax benefit will not be realized. The realization of these net deferred tax assets is dependent upon the generation of

sufficient taxable income in available carryback years, from current operations and from unrecognized tax benefits, and upon

our intent and ability to hold available-for-sale debt securities until the recovery of any temporary unrealized losses.

On a quarterly basis, we determine whether a valuation allowance is necessary. In doing so, we consider all evidence

currently available, both positive and negative, in determining whether, based on the weight of that evidence, it is more likely

than not that the net deferred tax assets will be realized. Evidence that we consider includes, but is not limited to: (a) our

cumulative loss position for the past three years; (b) our current taxable loss position; (c) the amount and estimated time

required to realize our estimated cumulative tax net operating loss carryforward; (d) difficulty in predicting unsettled

circumstances related to the conservatorship; (e) our access to capital under the agreements associated with the

conservatorship; (f) management’s intent and ability to hold our available-for-sale securities until losses can be recovered;

and (g) the improving trend of our financial results.

The consideration of this evidence requires significant estimates, assumptions, and judgments, particularly about our

future financial condition and results of operations and our intent and ability to hold available-for-sale debt securities with

temporary unrealized losses until recovery. As discussed in “RISK FACTORS,” the conservatorship and related matters

fundamentally affecting our control, management, and operations are likely to affect our future financial condition and

results of operations. These events have resulted in a variety of uncertainties regarding our future operations, our business

objectives and strategies, and our future profitability, the impact of which cannot be reliably forecasted at this time. As such,

any changes in these estimates, assumptions or judgments may have a material effect on our financial position and results of

operations.

We determined that, as of September 30, 2008, it was more likely than not that we would not realize the portion of our

net deferred tax assets that is dependent upon the generation of future taxable income. This determination was driven by the

events and the resulting uncertainties as of that date. Those conditions continued to exist as of December 31, 2012. As a

result, we continue to maintain a valuation allowance against these net deferred tax assets at December 31, 2012. It is

possible that, in future periods, the uncertainties regarding our future operations and profitability could be resolved such that

it could become more likely than not that these net deferred tax assets would be realized due to the generation of sufficient

taxable income. If that were to occur, we would assess the need for a reduction of the valuation allowance, which could have

a material effect on our financial position and results of operations in the period of the reduction.

Also, we determined that a valuation allowance is not necessary for the portion of our net deferred tax assets that is

dependent upon our intent and ability to hold available-for-sale debt securities until the recovery of any temporary unrealized

losses. These temporary unrealized losses have only impacted AOCI, not income from continuing operations or our taxable

income, nor will they impact income from continuing operations or taxable income if they are held to maturity. As such, the

realization of this deferred tax asset is not dependent upon the generation of sufficient taxable income but rather on our intent

and ability to hold these securities until recovery of these unrealized losses, which may be at maturity. Our conclusion that

these unrealized losses are temporary and that we have the intent and ability to hold these securities until recovery requires

194 Freddie Mac
significant estimates, assumptions, and judgments, as described above in “Impairment Recognition on Investments in

Securities.” Any changes in these estimates, assumptions, or judgments in future periods may result in the recognition of an

other-than-temporary impairment, which would result in some of this deferred tax asset not being realized and may have a

material effect on our financial position and results of operations. For more information see “NOTE 12: INCOME TAXES.”

RISK MANAGEMENT AND DISCLOSURE COMMITMENTS

In October 2000, we announced our adoption of a series of commitments designed to enhance market discipline,

liquidity and capital. In September 2005, we entered into a written agreement with FHFA, then OFHEO, that updated these

commitments and set forth a process for implementing them. A copy of the letters between us and OFHEO dated

September 1, 2005 constituting the written agreement has been filed as an exhibit to our Registration Statement on Form 10,

filed with the SEC on July 18, 2008, and is available on the Investor Relations page of our web site at www.freddiemac.com/

investors/sec_filings/index.html.

In November 2008, FHFA suspended our periodic issuance of subordinated debt disclosure commitment during the term

of conservatorship and thereafter until directed otherwise. In March 2009, FHFA suspended the remaining disclosure

commitments under the September 1, 2005 agreement until further notice, except that: (a) FHFA will continue to monitor our

adherence to the substance of the liquidity management and contingency planning commitment through normal supervision

activities; and (b) we will continue to provide interest-rate risk and credit risk disclosures in our periodic public reports.

For disclosures concerning our PMVS and duration gap, see “QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK — Interest-Rate and Other Market Risks — PMVS and Duration Gap.” Our 2012

monthly average PMVS results, duration gap, and related disclosures are provided in our Monthly Volume Summary reports,

which are available on our web site, www.freddiemac.com and in current reports on Form 8-K we file with the SEC. For

disclosures concerning credit risk sensitivity, see “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Credit

Risk Sensitivity.”

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest-Rate Risk and Other Market Risks

Sources of Interest-Rate Risk and Other Market Risks

Our investments in mortgage loans and mortgage-related securities expose us to interest-rate risk and other market risks

arising primarily from the uncertainty as to when borrowers will pay the outstanding principal balance of mortgage loans and

mortgage-related securities, known as prepayment risk, and the resulting potential mismatch between the timing of: (a) our

receipt of cash flows related to our assets; and (b) payment of cash flows related to the liabilities we use to fund those assets.

For the vast majority of our mortgage-related investments, the mortgage borrower has the option to make unscheduled

payments of additional principal or to completely pay off a mortgage loan at any time before its scheduled maturity date

(without having to pay a prepayment penalty) or make principal payments in accordance with their contractual obligation.

We use derivatives as an important part of our strategy to manage interest-rate and prepayment risk. When determining to

use derivatives to mitigate our exposures, we consider a number of factors, including cost, efficiency, exposure to

counterparty risks, and our overall risk management strategy. See “MD&A — RISK MANAGEMENT” and “RISK

FACTORS” for a discussion of our market risk exposures, including those related to derivatives, institutional counterparties,

and other market risks.

Our credit guarantee activities also expose us to interest-rate risk because changes in interest rates can cause fluctuations

in the fair value of our existing credit guarantees. We generally do not hedge these changes in fair value except for interestrate exposure related to buy-ups and float. Float, which arises from timing differences between when the borrower makes

principal payments on the loan and the reduction of the PC balance, can lead to significant interest expense if the interest rate

paid to a PC investor is higher than the reinvestment rate earned by the securitization trusts on payments received from

mortgage borrowers and paid to us as trust management income.

The principal types of interest-rate risk and other market risks to which we are exposed are described below.

195 Freddie Mac
Duration Risk and Convexity Risk

Duration is a measure of a financial instrument’s price sensitivity to changes in interest rates along the yield curve

(expressed in percentage terms). We compute each instrument’s duration by applying an interest-rate shock, both upward and

downward, to the LIBOR curve and evaluating the impact on the instrument’s fair value. As interest rates reached

historically low levels in 2011, the methodology then used by management to calculate duration and convexity began to

produce risk sensitivities that were increasingly unstable and not representative of expected price movements. In order to

alleviate the instability, we changed the shift size required to calculate duration and convexity from 50 basis points to

25 basis points beginning on November 14, 2011. The effect of this change on our duration and convexity measures was not

material. Convexity is a measure of how much a financial instrument’s duration changes as interest rates change. Similar to

the duration calculation, we compute each instrument’s convexity by applying the shock, both upward and downward, to the

LIBOR curve and evaluating the impact on the duration. Currently, short-term interest rates are at historically low levels and,

at some points, the LIBOR curve is less than 25 basis points (and less than 50 basis points that was the threshold before the

November 14, 2011 change). As a result, the basis point shock to the LIBOR curve described above is bounded by zero. Our

convexity risk primarily results from prepayment risk.

We seek to manage duration risk and convexity risk through asset selection and structuring (that is, by acquiring or

structuring mortgage-related securities with attractive prepayment and other characteristics), by issuing a broad range of both

callable and non-callable debt instruments, and by using interest-rate derivatives and written options. Managing the impact of

duration risk and convexity risk is the principal focus of our daily market risk management activities. These risks are

encompassed in our PMVS and duration gap risk measures, discussed in greater detail below. We use prepayment models to

determine the estimated duration and convexity of mortgage assets for our PMVS and duration gap measures. When interest

rates decline, mortgage asset prices tend to rise, but the rise is limited by the increased likelihood of prepayments, which

exposes us to negative convexity. Through the use of our models, we estimate on a weekly basis the negative convexity

profile of our portfolio over a wide range of interest rates. This process is designed to help us to identify the particular

interest rate scenarios where the convexity of our portfolio appears to be most negative, and therefore the particular interest

rate scenario where the interest rate price sensitivity of our financial instruments appears to be most acute. We use this

information to develop hedging strategies that are customized to provide interest-rate risk protection for the specific interest

rate environment where we believe we are most exposed to negative convexity risk. This strategy allows us to select hedging

instruments that are expected to be most efficient for our portfolio, thereby reducing the overall cost of interest rate hedging

activities.

By managing our convexity profile over a wide range of interest rates, we are able to hedge prepayment risk for

particular interest rate scenarios. As a result, the intensity and frequency of our ongoing risk management actions is relatively

constant over a wide range of interest rate environments. Our approach to convexity risk management focuses our portfolio

rebalancing activities for the specific interest rate scenario where market and interest rate volatility appear to be most

pronounced. This approach to convexity risk reduces our ongoing rebalancing activity to a relatively low level compared to

the overall daily trading volume of interest-rate swaps and Treasury futures.

PMVS (i.e., the expected loss in portfolio market value) is an estimate of the sensitivity to changes in interest rates of

the fair value of all interest-earning assets, interest-bearing liabilities, and derivatives on a pre-tax basis. When we calculate

the expected loss in portfolio market value and duration gap, we also take into account the cash flows related to certain credit

guarantee-related items, including net buy-ups and expected gains or losses due to net interest from float. In making these

calculations, we do not consider the sensitivity to interest-rate changes of the following assets and liabilities:

• Credit guarantee activities. We do not consider the sensitivity of the fair value of credit guarantee activities to

changes in interest rates except for the guarantee-related items mentioned above (i.e., buy-ups and float), because we

do not actively manage the change in the fair value of our guarantee business that is attributable to changes in interest

rates. We do not believe that periodic changes in fair value due to movements in interest rates are the best indication

of the long-term value of our guarantee business because these changes do not take into account the potential for new

future guarantee business activity.

• Other assets with minimal interest-rate sensitivity. We do not include other assets, primarily non-financial

instruments such as fixed assets and REO, because we estimate their impact on PMVS and duration gap to be

minimal.

196 Freddie Mac
Yield Curve Risk

Yield curve risk is the risk that non-parallel shifts in the yield curve (such as a flattening or steepening) will adversely

affect the fair value of net assets and ultimately adversely affect our net worth. Because changes in the shape, or slope, of the

yield curve often arise due to changes in the market’s expectation of future interest rates at different points along the yield

curve, we evaluate our exposure to yield curve risk by examining potential reshaping scenarios at various points along the

yield curve. We manage yield curve risk with the use of derivatives. Our yield curve risk under a specified yield curve

scenario is reflected in our PMVS-YC disclosure.

Volatility Risk

Volatility risk is the risk that changes in the market’s expectation of the magnitude of future variations in interest rates

will adversely affect the fair value of net assets and ultimately adversely affect our net worth. Volatility risk arises from the

prepayment risk that is inherent in mortgages or mortgage-related securities. Volatility risk is the risk that the homeowner’s

prepayment option will gain or lose value as the expected volatility of future interest rates changes. In general, as expected

future interest rate volatility increases, the homeowner’s prepayment option increases in value, thus negatively impacting the

value of the mortgage security backed by the underlying mortgages. We manage volatility risk by maintaining a portfolio of

callable debt and option-based interest rate derivatives that have relatively long option terms. We actively manage and

monitor our volatility risk exposure over a range of changing interest rate scenarios; however, we do not eliminate our

volatility risk exposure completely.

Basis Risk

Basis risk is the risk that interest rates in different market sectors will not move in tandem and will adversely affect the

fair value of net assets and ultimately adversely affect our net worth. This risk arises principally because we generally hedge

mortgage-related investments with debt securities. As principally a buy-and-hold investor, we do not actively manage overall

basis risk, also referred to as mortgage-to-debt OAS risk or spread risk, arising from funding mortgage-related investments

with debt securities. See “MD&A — FAIR VALUE MEASUREMENTS AND ANALYSIS — Key Components of Changes

in Fair Value of Net Assets — Changes in Mortgage-To-Debt OAS” for additional information. We also incur basis risk

when we use LIBOR- or Treasury-based instruments in our risk management activities.

Model Risk

Proprietary models, including mortgage prepayment models, interest rate models, and mortgage default models, are an

integral part of our investment framework. As market conditions change rapidly, as they have on a number of occasions since

2007, the assumptions that we use in our models for our sensitivity analyses (including PMVS and duration gap measures)

may not keep pace with these market changes. As such, these analyses are not intended to provide precise forecasts of the

effect a change in market interest rates would have on the estimated fair values of our assets. We actively manage our model

risk by reviewing the performance of our models. To improve the accuracy of our models, changes to the underlying

assumptions or modeling techniques are made on a periodic basis. Model development and model testing are reviewed and

approved independently by our Enterprise Risk Management division. Model performance is also reported regularly through

a series of internal management committees. See “MD&A — RISK MANAGEMENT — Operational Risks” and “RISK

FACTORS — Operational Risks — We face risks and uncertainties associated with the models that we use for financial

accounting and reporting purposes, to make business decisions and to manage risks. Market conditions have raised these

risks and uncertainties” for a discussion of the risks associated with our use of models. Given the importance of models to

our investment management practices, model changes undergo a rigorous review process. As a result, it is common for model

changes to take several months to complete. Given the time consuming nature of the model change review process, it is

sometimes necessary for risk management purposes for management to make adjustments to our interest-rate risk statistics

that reflect the expected impact of the pending model change. These adjustments are included in our PMVS and duration gap

disclosures.

Foreign-Currency Risk

Foreign-currency risk is the risk that fluctuations in currency exchange rates (e.g., Euros to the U.S. dollar) will

adversely affect the fair value of net assets and ultimately adversely affect our net worth. We are exposed to foreign-currency

risk because we have debt denominated in currencies other than the U.S. dollar, our functional currency. We mitigate

virtually all of our foreign-currency risk by entering into swap transactions that effectively convert foreign-currency

denominated obligations into U.S. dollar-denominated obligations.

197 Freddie Mac
Interest-Rate Risk Management Strategy and Framework

Although we cannot hedge all of our exposure to changes in interest rates, this exposure is subject to established limits

and is monitored through our risk management process. We employ a risk management strategy that seeks to substantially

match the duration characteristics of our assets and liabilities. Through our asset and liability management process, we seek

to mitigate interest-rate risk by issuing a wide variety of callable and non-callable debt products. The prepayment option held

by mortgage borrowers drives the fair value of our mortgage assets such that the combined fair value of our mortgage assets

and non-callable debt will decline if interest rates move significantly in either direction. We seek to mitigate much of our

exposure to changes in interest rates by funding a significant portion of our mortgage portfolio with callable debt. When

interest rates change, our option to redeem this debt offsets a large portion of the fair value change driven by the mortgage

prepayment option. However, because the mortgage prepayment option is not fully hedged by callable debt, the combined

fair value of our mortgage assets and debt will be affected by changes in interest rates.

To further reduce our exposure to changes in interest rates, we hedge a significant portion of the remaining prepayment

risk with option-based derivatives. These derivatives primarily consist of call swaptions, which tend to increase in value as

interest rates decline, and put swaptions, which tend to increase in value as interest rates increase. We also seek to manage

interest-rate risk by changing the effective interest terms of the portfolio, primarily using interest-rate swaps, which we refer

to as rebalancing. For further discussion of why we use derivatives and the types of derivatives we use, see “NOTE 10:

DERIVATIVES.”

Our approach to managing interest-rate risk is designed to be disciplined and comprehensive. Our objective is to

minimize our interest-rate risk exposure across a range of interest-rate scenarios. To do this, we analyze the interest-rate

sensitivity of financial assets and liabilities at the instrument level on a daily basis and across a variety of interest rate

scenarios. For risk management purposes, the interest-rate characteristics of each instrument are determined daily based on

market prices and models. The fair values of our assets, liabilities and derivatives are primarily based on either third party

prices, or observable market-based inputs. These fair values, whether direct from third parties or derived from observable

inputs, are reviewed and validated by groups that are separate from our trading and investing function. See “NOTE 16: FAIR

VALUE DISCLOSURES — Valuation Processes and Controls over Fair Value Measurement.”

Annually, the Business and Risk Committee of our Board of Directors establishes certain Board limits for interest-rate

risk measures, and if we exceed these limits we are required to notify the Business and Risk Committee and address the limit

overage. These limits encompass a range of interest-rate risks that include duration risk, convexity risk, volatility risk, and

yield curve risk associated with our use of various financial instruments, including derivatives. Also on an annual basis, our

Enterprise Risk Management division establishes management limits and makes recommendations with respect to the limits

to be established at the Board level. These limits are reviewed by our Enterprise Risk Management Committee, which is

responsible for reviewing performance as compared to the established limits. The management limits are set at values below

those set at the Board level, which is intended to allow us to follow a series of predetermined actions in the event of a breach

of the management limits and helps ensure proper oversight to reduce the possibility of exceeding the Board limits. We also

establish management limits that do not have corresponding Board limits.

Portfolio Market Value Sensitivity and Measurement of Interest-Rate Risk

PMVS and Duration Gap

Our primary interest-rate risk measures are PMVS and duration gap. PMVS is an estimate of the change in the fair value

of all interest-earning assets, interest-bearing liabilities, and derivatives on a pre-tax basis from an instantaneous 50 basis

point shock to interest rates, assuming no rebalancing actions are undertaken and assuming the mortgage-to-LIBOR basis

does not change. (The shock used for calculating PMVS is not the same as the shock used for calculating duration and

convexity, described above under “Duration Risk and Convexity Risk.”) PMVS is measured in two ways, one measuring the

estimated sensitivity of our portfolio market value to parallel movements in interest rates (PMVS-Level or PMVS-L) and the

other to nonparallel movements (PMVS-YC).

• We calculate our exposure to changes in interest rates using effective duration. Effective duration measures the

percentage change in the price of financial instruments from a 1% change in interest rates. Financial instruments with

positive duration increase in value as interest rates decline. Conversely, financial instruments with negative duration

increase in value as interest rates rise.

• Together, duration and convexity provide a measure of an instrument’s overall price sensitivity to changes in interest

rates. We utilize the aggregate duration and convexity risk of all interest-rate sensitive instruments on a daily basis to

198 Freddie Mac
estimate the two PMVS metrics. The duration and convexity measures are used to estimate PMVS under the

following formula:

PMVS = [Duration] multiplied by [rate shock] plus [0.5 multiplied by Convexity] multiplied by [rate shock]2

In the equation, [rate shock] represents the interest-rate change expressed in fair value terms. For example, a 50 basis

point adverse change will be expressed as 0.5%. The result of this formula is the fair value of sensitivity to the change

in rate, which is expressed as: PMVS = (0.5 absolute value of duration) + (0.125 convexity), assuming convexity is

negative.

• To estimate PMVS-L, an instantaneous parallel 50 basis point shock is applied to the yield curve, as represented by

the US swap curve, holding all spreads to the swap curve constant. This shock is applied to the duration and

convexity of all interest-rate sensitive financial instruments. The resulting change in market value for the aggregate

portfolio is computed for both the up rate and down rate shock and the change in market value in the more adverse

scenario of the up and down rate shocks is the PMVS. In cases where both the up rate and down rate shock results in

a positive impact, the PMVS is zero. Because this process uses a parallel, or level, shock to interest rates, we refer to

this measure as PMVS-L.

• To estimate sensitivity related to the shape of the yield curve, a yield curve steepening and flattening of 25 basis

points is applied to the duration of all interest-rate sensitive instruments. The resulting change in market value for the

aggregate portfolio is computed for both the steepening and flattening yield curve scenarios. The more adverse yield

curve scenario is then used to determine the PMVS-yield curve. Because this process uses a non-parallel shock to

interest rates, we refer to this measure as PMVS-YC.

• The 50 basis point shift and 25 basis point change in slope of the LIBOR yield curve used for our PMVS measures

reflect reasonably possible near-term changes that we believe provide a meaningful measure of our interest-rate risk

sensitivity. Our PMVS measures assume instantaneous shocks. Therefore, these PMVS measures do not consider the

effects on fair value of any rebalancing actions that we would typically expect to take to reduce our risk exposure.

Duration gap measures the difference in price sensitivity to interest rate changes between our assets and liabilities, and

is expressed in months relative to the market value of assets. For example, assets with a six month duration and liabilities

with a five month duration would result in a positive duration gap of one month. A duration gap of zero implies that the

duration of our assets equals the duration of our liabilities. As a result, the change in the value of assets from an

instantaneous move in interest rates, either up or down, would be expected to be accompanied by an equal and offsetting

change in the value of liabilities, thus leaving the fair value of net assets unchanged. A positive duration gap indicates that

the duration of our assets exceeds the duration of our liabilities which, from a net perspective, implies that the fair value of

net assets will increase in value when interest rates fall and decrease in value when interest rates rise. A negative duration

gap indicates that the duration of our liabilities exceeds the duration of our assets which, from a net perspective, implies that

the fair value of net assets will increase in value when interest rates rise and decrease in value when interest rates fall.

Limitations of Market Risk Measures

Our PMVS and duration gap estimates are determined using models that involve our best judgment of interest-rate and

prepayment assumptions. Accordingly, while we believe that PMVS and duration gap are useful risk management tools, they

should be understood as estimates rather than as precise measurements. While PMVS and duration gap estimate our exposure

to changes in interest rates, they do not capture the potential impact of certain other market risks, such as changes in

volatility, basis, and foreign-currency risk. The impact of these other market risks can be significant.

There are inherent limitations in any methodology used to estimate exposure to changes in market interest rates. Our

sensitivity analyses for PMVS and duration gap contemplate only certain movements in interest rates and are performed at a

particular point in time based on the estimated fair value of our existing portfolio. These sensitivity analyses do not consider

other factors that may have a significant effect on our financial instruments, most notably business activities and strategic

actions that management may take in the future to manage interest-rate risk. As such, these analyses are not intended to

provide precise forecasts of the effect a change in market interest rates would have on the estimated fair value of our net

assets.

In addition, it has been more difficult in recent years to measure and manage the interest-rate risk related to mortgage

assets as risk for prepayment model error remains high due to the low interest rate environment and uncertainty regarding

default rates, unemployment rates, the effect of widespread loan modification programs, and the volatility and impact of

home price movements on mortgage durations. Misestimation of prepayments could result in hedging-related losses.

199 Freddie Mac
PMVS Results

The table below provides duration gap, estimated point-in-time and minimum and maximum PMVS-L and PMVS-YC

results, and an average of the daily values and standard deviation for the years ended December 31, 2012 and 2011. The

table below also provides PMVS-L estimates assuming an immediate 100 basis point shift in the LIBOR yield curve. We do

not hedge the entire prepayment risk exposure embedded in our mortgage assets. The interest-rate sensitivity of a mortgage

portfolio varies across a wide range of interest rates. Therefore, the difference between PMVS at 50 basis points and

100 basis points is non-linear. Our PMVS-L (50 basis points) exposure at December 31, 2012 was $209 million, primarily

driven by our convexity exposure. The PMVS-L at December 31, 2012 declined compared to December 31, 2011 primarily

due to a decline in our duration exposure. On an average basis for the year ended December 31, 2012, our PMVS-L (50 basis

points) was $212 million which was primarily driven by our net duration exposure on our mortgage assets.

To improve the accuracy of our models, we make changes to the underlying assumptions or modeling techniques on a

periodic basis. During the third and fourth quarters of 2012, we made assumption changes related to our prepayment model

for non-HARP eligible loans underlying our securities. In addition, we enhanced our process used to estimate duration and

convexity of our unsecuritized single-family loans by incorporating additional loan characteristics. The impact of

incorporating additional loan characteristics increased our duration and produced an estimated $560 million impact on

PMVS-L and a two month impact on duration gap at implementation. We believe that this change would not have had a

materially different impact on either item at December 31, 2011 if implemented at that time. As these changes extended the

duration of our assets, we increased the use of derivatives to hedge our overall exposure.

Table 74 — PMVS and Duration Gap Results

PMVS-YC PMVS-L

25 bps 50 bps 100 bps

(in millions)

Assuming shifts of the LIBOR yield curve:

December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61 $209 $ 737

December 31, 2011 ....................................................................... $ 7 $465 $1,349

Year Ended December 31,

2012 2011

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

(in months) (dollars in millions) (in months) (dollars in millions)

Average ................................................. (0.2) $ 36 $212 (0.0) $21 $359

Minimum ............................................... (2.4) $ 1 $ — (1.0) $— $ —

Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 $117 $661 1.2 $94 $721

Standard deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 $ 32 $109 0.3 $15 $126

Derivatives have historically enabled us to keep our interest-rate risk exposure at consistently low levels in a wide range

of interest-rate environments. The table below shows that the PMVS-L risk levels for the periods presented would have been

higher if we had not used derivatives. The derivative impact on our PMVS-L (50 basis points) was $(0.9) billion at

December 31, 2012, a decline of $1.1 billion from December 31, 2011. The decline was primarily driven by an increase in

our issuance of longer-term debt beginning in the fourth quarter of 2011, which decreased our reliance on derivatives. In

addition, the decline in interest rates during 2012 decreased the duration of our hedged assets, which resulted in requiring

fewer derivatives to hedge our portfolio.

Table 75 — Derivative Impact on PMVS-L (50 bps)

Before After Effect of

Derivatives Derivatives Derivatives

(in millions)

At:

December 31, 2012 ................................................................. $1,102 $209 $ (893)

December 31, 2011 ................................................................. $2,470 $465 $(2,005)

Duration Gap Results

We actively measure and manage our duration gap exposure on a daily basis. In addition to duration gap management,

we also measure and manage the price sensitivity of our portfolio to a number of different specific interest rate changes along

the yield curve. The price sensitivity of an instrument to specific changes in interest rates is known as the instrument’s key

rate duration risk. By managing our duration exposure both in aggregate through duration gap and to specific changes in

interest rates through key rate duration, we expect to limit our exposure to interest rate changes for a wide range of interest

200 Freddie Mac
rate yield curve scenarios. Our average duration gap, rounded to the nearest month, for the months of December 2012 and

2011 was zero months in both periods. Our average duration gap, rounded to the nearest month, during the years ended

December 31, 2012 and 2011 was zero months in both periods.

The disclosure in our Monthly Volume Summary reports, which are available on our web site at www.freddiemac.com

and in current reports on Form 8-K we file with the SEC, reflects the average of the daily PMVS-L, PMVS-YC and duration

gap estimates for a given reporting period (a month, quarter or year).

Derivative-Related Risks

Our use of derivatives exposes us to credit risk with respect to our counterparties to derivative transactions. Through

counterparty selection, all derivative transactions are executed in a manner that seeks to control and reduce counterparty

credit exposure. In order to attempt to minimize the potential replacement cost should a derivative counterparty fail, we

utilize derivative counterparty limits. Board-level counterparty limits are approved by the Board’s Business and Risk

Committee. Management and Board counterparty limits, which include current exposure and potential exposure in a stress

scenario, are monitored by members of our Enterprise Risk Management division, which is responsible for establishing and

monitoring credit and counterparty risk tolerances for our business activities and reporting to the Business and Risk

Committee as appropriate. See “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Derivative

Counterparties” for information on derivative counterparty credit risk.

Our use of derivatives also exposes us to derivative market liquidity risk, which is the risk that we may not be able to

enter into or exit out of derivative transactions at a reasonable cost. A lack of sufficient capacity or liquidity in the derivatives

market could limit our risk management activities, increasing our exposure to interest-rate risk. To help maintain continuous

access to derivative markets, we use a variety of products and transact with a number of different derivative counterparties.

In addition to OTC derivatives, we also use exchange-traded derivatives, asset securitization activities, callable debt, and

short-term debt to rebalance our portfolio.

The Dodd-Frank Act requires that many types of derivatives be centrally cleared and traded on exchanges or

comparable trading facilities. See “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk —

Derivative Counterparties” for additional information on this requirement.

201 Freddie Mac
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

202 Freddie Mac
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Freddie Mac

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive

income, of equity (deficit), and of cash flows present fairly, in all material respects, the financial position of Freddie Mac, a

stockholder-owned government-sponsored enterprise, and its subsidiaries, (the “Company”), at December 31, 2012 and 2011,

and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in

conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the

Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31,

2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting

related to disclosure controls and procedures that do not provide adequate mechanisms for information known to the Federal

Housing Finance Agency (“FHFA”) that may have financial statement disclosure ramifications to be communicated to

management existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control

over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim

financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described

in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. We considered this material

weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2012 consolidated financial

statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not

affect our opinion on those consolidated financial statements. The Company’s management is responsible for these financial

statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of

internal control over financial reporting included in management’s report referred to above. Our responsibility is to express

opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated

audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board

(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement and whether effective internal control over financial reporting was

maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant

estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control

over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk

that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on

the assessed risk. Our audits also included performing such other procedures as we considered necessary in the

circumstances. We believe that our audits provide a reasonable basis for our opinions.

We have also audited in accordance with the standards of the Public Company Accounting Oversight Board (United

States) the supplemental consolidated fair value balance sheets of the Company as of December 31, 2012 and 2011. As

described in “Note 16: Fair Value Disclosures”, the supplemental consolidated fair value balance sheets have been prepared

by management to present relevant financial information that is not provided by the historical-cost consolidated balance

sheets and is not intended to be a presentation in conformity with accounting principles generally accepted in the United

States of America. In addition, the supplemental consolidated fair value balance sheets do not purport to present the net

realizable, liquidation, or market value of the Company as a whole. Furthermore, amounts ultimately realized by the

Company from the disposal of assets or amounts required to settle obligations may vary significantly from the fair values

presented. In our opinion, the supplemental consolidated fair value balance sheets referred to above present fairly, in all

material respects, the information set forth therein as described in “Note 16: Fair Value Disclosures”.

As discussed in “Note 2: Conservatorship and Related Matters”, in September 2008, the Company was placed into

conservatorship by the FHFA. The U.S. Department of Treasury (“Treasury”) has committed financial support to the

Company and management continues to conduct business operations pursuant to the delegated authorities from FHFA during

conservatorship. The Company is dependent upon the continued support of Treasury and FHFA.

As discussed in “Note 1: Summary of Significant Accounting Policies”, the Company adopted as of January 1, 2010,

amendments to the accounting guidance for transfers of financial assets and the consolidation of variable interest entities,

which changed, among other things, how it evaluates securitization trusts for purposes of consolidation.

203 Freddie Mac
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with

generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and

procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as

necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that

receipts and expenditures of the company are being made only in accordance with authorizations of management and

directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become

inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may

deteriorate.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

February 28, 2013

204 Freddie Mac
FREDDIE MAC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,

2012 2011 2010

(in millions, except share-related amounts)

Interest income

Mortgage loans:

Held by consolidated trusts .......................................................... $ 65,089 $ 77,158 $ 86,698

Unsecuritized ................................................................... 8,960 9,124 8,727

Total mortgage loans ............................................................ 74,049 86,282 95,425

Investments in securities ............................................................. 10,583 12,791 14,375

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 67 156

Total interest income .............................................................. 84,718 99,140 109,956

Interest expense

Debt securities of consolidated trusts..................................................... (56,109) (67,119) (75,216)

Other debt ........................................................................ (10,393) (12,869) (16,915)

Total interest expense .............................................................. (66,502) (79,988) (92,131)

Expense related to derivatives ......................................................... (605) (755) (969)

Net interest income ................................................................... 17,611 18,397 16,856

Provision for credit losses .............................................................. (1,890) (10,702) (17,218)

Net interest income (loss) after provision for credit losses ....................................... 15,721 7,695 (362)

Non-interest income (loss)

Gains (losses) on extinguishment of debt securities of consolidated trusts .......................... (58) (219) (164)

Gains (losses) on retirement of other debt ................................................. (77) 44 (219)

Gains (losses) on debt recorded at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 91 580

Derivative gains (losses) ............................................................. (2,448) (9,752) (8,085)

Impairment of available-for-sale securities:

Total other-than-temporary impairment of available-for-sale securities .......................... (1,236) (2,101) (1,778)

Portion of other-than-temporary impairment recognized in AOCI .............................. (932) (200) (2,530)

Net impairment of available-for-sale securities recognized in earnings ......................... (2,168) (2,301) (4,308)

Other gains (losses) on investment securities recognized in earnings .............................. (1,522) (896) (1,252)

Other income ..................................................................... 2,174 2,155 1,860

Non-interest income (loss) .............................................................. (4,083) (10,878) (11,588)

Non-interest expense

Salaries and employee benefits ......................................................... (810) (832) (895)

Professional services ................................................................ (361) (270) (297)

Occupancy expense ................................................................. (57) (62) (64)

Other administrative expenses ......................................................... (333) (342) (341)

Total administrative expenses ........................................................ (1,561) (1,506) (1,597)

Real estate owned operations expense .................................................... (59) (585) (673)

Other expenses .................................................................... (573) (392) (662)

Non-interest expense .................................................................. (2,193) (2,483) (2,932)

Income (loss) before income tax benefit .................................................... 9,445 (5,666) (14,882)

Income tax benefit .................................................................... 1,537 400 856

Net income (loss) .................................................................... 10,982 (5,266) (14,026)

Other comprehensive income (loss), net of taxes and reclassification adjustments:

Changes in unrealized gains (losses) related to available-for-sale securities ......................... 4,769 3,465 13,621

Changes in unrealized gains (losses) related to cash flow hedge relationships . . . . . . . . . . . . . . . . . . . . . . . . 414 509 673

Changes in defined benefit plans........................................................ (126) 62 13

Total other comprehensive income (loss), net of taxes and reclassification adjustments ............... 5,057 4,036 14,307

Comprehensive income (loss) ........................................................... 16,039 (1,230) 281

Less: Comprehensive loss attributable to noncontrolling interest ................................. — — 1

Total comprehensive income (loss) attributable to Freddie Mac ................................... $ 16,039 $ (1,230) $ 282

Net income (loss) .................................................................... $ 10,982 $ (5,266) $ (14,026)

Less: Net loss attributable to noncontrolling interest .......................................... — — 1

Net income (loss) attributable to Freddie Mac ................................................ 10,982 (5,266) (14,025)

Preferred stock dividends ............................................................. (7,229) (6,498) (5,749)

Preferred stock dividends — undistributed net worth sweep .................................... (5,827) — —

Net loss attributable to common stockholders ................................................ $ (2,074) $ (11,764) $ (19,774)

Net loss per common share — basic and diluted .............................................. $ (0.64) $ (3.63) $ (6.09)

Weighted average common shares outstanding (in thousands) — basic and diluted ..................... 3,240,028 3,244,896 3,249,369

The accompanying notes are an integral part of these consolidated financial statements.

205 Freddie Mac
FREDDIE MAC

CONSOLIDATED BALANCE SHEETS

December 31, 2012 December 31, 2011

(in millions,

except share-related amounts)

Assets

Cash and cash equivalents (includes $1 and $2, respectively, related to our consolidated VIEs) .......... $ 8,513 $ 28,442

Restricted cash and cash equivalents (includes $14,289 and $27,675, respectively, related to our

consolidated VIEs) ............................................................... 14,592 28,063

Federal funds sold and securities purchased under agreements to resell (includes $19,250 and $0,

respectively, related to our consolidated VIEs) ........................................... 37,563 12,044

Investments in securities:

Available-for-sale, at fair value (includes $132 and $204, respectively, pledged as collateral that may be

repledged) .................................................................... 174,896 210,659

Trading, at fair value .............................................................. 41,492 58,830

Total investments in securities ....................................................... 216,388 269,489

Mortgage loans:

Held-for-investment, at amortized cost:

By consolidated trusts (net of allowances for loan losses of $4,919 and $8,351, respectively) ........ 1,495,932 1,564,131

Unsecuritized (net of allowances for loan losses of $25,788 and $30,912, respectively) ............ 176,177 207,418

Total held-for-investment mortgage loans, net ........................................ 1,672,109 1,771,549

Held-for-sale, at fair value .......................................................... 14,238 9,710

Total mortgage loans, net ........................................................... 1,686,347 1,781,259

Accrued interest receivable (includes $5,426 and $6,242, respectively, related to our consolidated VIEs) . . . 6,875 8,062

Derivative assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657 118

Real estate owned, net (includes $45 and $60, respectively, related to our consolidated VIEs) ........... 4,378 5,680

Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778 3,546

Other assets (Note 18) (includes $7,986 and $6,083, respectively, related to our consolidated VIEs) ....... 13,765 10,513

Total assets ..................................................................... $1,989,856 $2,147,216

Liabilities and equity (deficit)

Liabilities

Accrued interest payable (includes $5,142 and $5,943, respectively, related to our consolidated VIEs) ..... $ 7,710 $ 8,898

Debt, net:

Debt securities of consolidated trusts held by third parties (includes $70 and $0 at fair value,

respectively) .................................................................. 1,419,524 1,471,437

Other debt (includes $2,187 and $3,015 at fair value, respectively) ............................. 547,518 660,546

Total debt, net ................................................................... 1,967,042 2,131,983

Derivative liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 435

Other liabilities (Note 18) (includes $1 and $3, respectively, related to our consolidated VIEs) ........... 6,099 6,046

Total liabilities .................................................................. 1,981,029 2,147,362

Commitments and contingencies (Notes 9, 10, and 17)

Equity (deficit)

Senior preferred stock, at redemption value .............................................. 72,336 72,171

Preferred stock, at redemption value ................................................... 14,109 14,109

Common stock, $0.00 par value, 4,000,000,000 shares authorized, 725,863,886 shares issued and

650,033,623 shares and 649,725,302 shares outstanding, respectively ......................... — —

Additional paid-in capital ........................................................... 1 3

Retained earnings (accumulated deficit) ................................................ (70,796) (74,525)

AOCI, net of taxes, related to:

Available-for-sale securities (includes $6,606 and $10,334, respectively, related to net unrealized losses

on securities for which other-than-temporary impairment has been recognized in earnings) ........ (1,444) (6,213)

Cash flow hedge relationships...................................................... (1,316) (1,730)

Defined benefit plans ............................................................ (178) (52)

Total AOCI, net of taxes ........................................................ (2,938) (7,995)

Treasury stock, at cost, 75,830,263 shares and 76,138,584 shares, respectively .................... (3,885) (3,909)

Total equity (deficit) .............................................................. 8,827 (146)

Total liabilities and equity (deficit) .................................................... $1,989,856 $2,147,216

The accompanying notes are an integral part of these consolidated financial statements.

206 Freddie Mac
FREDDIE MAC

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

Freddie Mac Stockholders’ Equity (Deficit)

Shares Outstanding Senior

Preferred

Stock, at

Redemption Value

Preferred

Stock, at

Redemption Value

Common

Stock, at

Par Value

Additional

Paid-In

Capital

Retained

Earnings

(Accumulated

Deficit)

AOCI,

Net of Tax

Treasury

Stock, at

Cost

Noncontrolling Interest

Total

Equity

(Deficit)

Senior

Preferred

Stock

Preferred

Stock

Common

Stock

(in millions)

Balance as of December 31, 2009 . . . . . . . . 1 464 649 $51,700 $14,109 $— $ 57 $(33,921) $(23,648) $(4,019) $ 94 $ 4,372

Cumulative effect of change in accounting

principle ......................... — — — — — — — (9,011) (2,690) — (2) (11,703)

Balance as of January 1, 2010 . . . . . . . . . . . . 1 464 649 51,700 14,109 — 57 (42,932) (26,338) (4,019) 92 (7,331)

Comprehensive income (loss):

Net loss ........................... — — — — — — — (14,025) — — (1) (14,026)

Other comprehensive income, net of

taxes ............................ — — — — — — — — 14,307 — — 14,307

Comprehensive income (loss) .......... — — — — — — — (14,025) 14,307 — (1) 281

Increase in liquidation preference ......... — — — 12,500 — — — — — — — 12,500

Stock-based compensation . . . . . . . . . . . . . . — — — — — — 24 — — — — 24 Income tax benefit from stock-based compensation ..................... — — — — — — 1 — — — — 1 Common stock issuances ............... — — — — — — (67) — — 66 — (1)

Noncontrolling interest purchase .......... — — — — — — (31) — — — (89) (120)

Transfer from retained earnings (accumulated

deficit) to additional paid-in capital . . . . . . — — — — — — 23 (23) — — — —

Senior preferred stock dividends declared . . . — — — — — — — (5,749) — — — (5,749)

Dividend equivalent payments on expired

stock options . . . . . . . . . . . . . . . . . . . . . . — — — — — — — (4) — — — (4) Dividends and other . . . . . . . . . . . . . . . . . . . — — — — — — — — — — (2) (2)

Ending balance at December 31, 2010 . . . . 1 464 649 $64,200 $14,109 $— $ 7 $(62,733) $(12,031) $(3,953) $ — $ (401)

Balance as of December 31, 2010 . . . . . . . . 1 464 649 $64,200 $14,109 $— $ 7 $(62,733) $(12,031) $(3,953) $ — $ (401)

Comprehensive income (loss):

Net loss ........................... — — — — — — — (5,266) — — — (5,266)

Other comprehensive income, net of

taxes ............................ — — — — — — — — 4,036 — — 4,036

Comprehensive income (loss) .......... — — — — — — — (5,266) 4,036 — — (1,230)

Increase in liquidation preference ......... — — — 7,971 — — — — — — — 7,971

Stock-based compensation . . . . . . . . . . . . . . — — — — — — 11 — — — — 11

Income tax benefit from stock-based

compensation ..................... — — — — — — 1 — — — — 1

Common stock issuances ............... — — 1 — — — (44) — — 44 — —

Transfer from retained earnings (accumulated

deficit) to additional paid-in capital . . . . . . — — — — — — 28 (28) — — — —

Senior preferred stock dividends declared . . . — — — — — — — (6,495) — — — (6,495)

Dividend equivalent payments on expired

stock options . . . . . . . . . . . . . . . . . . . . . . — — — — — — — (3) — — — (3)

Ending balance at December 31, 2011 . . . . 1 464 650 $72,171 $14,109 $— $ 3 $(74,525) $ (7,995) $(3,909) $ — $ (146)

Balance as of December 31, 2011 . . . . . . . . 1 464 650 $72,171 $14,109 $— $ 3 $(74,525) $ (7,995) $(3,909) $ — $ (146)

Comprehensive income:

Net income ......................... — — — — — — — 10,982 — — — 10,982

Other comprehensive income, net of

taxes ............................ — — — — — — — — 5,057 — — 5,057

Comprehensive income .............. — — — — — — — 10,982 5,057 — — 16,039

Increase in liquidation preference . . . . . . . . . — — — 165 — — — — — — — 165

Stock-based compensation .............. — — — — — — 2 — — — — 2

Income tax benefit from stock-based

compensation ..................... — — — — — — 1 — — — 1

Common stock issuances ............... — — — — — — (24) — — 24 — —

Transfer from retained earnings (accumulated

deficit) to additional paid-in capital . . . . . . — — — — — — 19 (19) — — — —

Senior preferred stock dividends declared . . . — — — — — — — (7,233) — — — (7,233)

Dividend equivalent payments on expired

stock options . . . . . . . . . . . . . . . . . . . . . . — — — — — — — (1) — — — (1)

Ending balance at December 31, 2012 . . . . 1 464 650 $72,336 $14,109 $— $ 1 $(70,796) $ (2,938) $(3,885) $ — $ 8,827

The accompanying notes are an integral part of these consolidated financial statements.

207 Freddie Mac
FREDDIE MAC

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2012 2011 2010

(in millions)

Cash flows from operating activities

Net income (loss) ................................................................. $ 10,982 $ (5,266) $ (14,026)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Derivative (gains) losses .......................................................... (1,350) 4,721 3,591

Asset related amortization — premiums, discounts, and basis adjustments ..................... 4,624 2,063 326

Debt related amortization — premiums and discounts on certain debt securities and basis

adjustments ................................................................. (5,782) (1,629) 1,127

Net discounts paid on retirements of other debt ......................................... (680) (713) (1,959)

Net premiums received from issuance of debt securities of consolidated trusts .................. 3,897 4,091 3,888

Losses on extinguishment of debt securities of consolidated trusts and other debt ................ 135 175 383

Provision for credit losses ......................................................... 1,890 10,702 17,218

Losses on investment activity ...................................................... 2,680 2,368 5,542

Gains on debt recorded at fair value ................................................. (16) (91) (580)

Deferred income tax expense (benefit) ............................................... 3 (117) (670)

Purchases of held-for-sale mortgage loans ............................................. (25,340) (16,550) (10,330)

Sales of mortgage loans acquired as held-for-sale ....................................... 21,769 14,027 6,728

Repayments of mortgage loans acquired as held-for-sale .................................. 59 54 21

Payments to servicers for pre-foreclosure expense and servicer incentive fees ................... (1,269) (1,169) (1,010)

Change in:

Accrued interest receivable ...................................................... 1,187 651 832

Accrued interest payable ........................................................ (1,094) (1,080) (1,700)

Income taxes payable .......................................................... (1,523) (281) 662

Other, net ..................................................................... (1,706) (1,636) 777

Net cash provided by operating activities ............................................. 8,466 10,320 10,820

Cash flows from investing activities

Purchases of trading securities ..................................................... (33,880) (47,977) (55,509)

Proceeds from sales of trading securities .............................................. 17,641 33,734 17,771

Proceeds from maturities of trading securities .......................................... 31,106 14,545 40,389

Purchases of available-for-sale securities .............................................. (3,252) (12,171) (6,542)

Proceeds from sales of available-for-sale securities ...................................... 1,729 2,643 2,645

Proceeds from maturities of available-for-sale securities .................................. 38,517 34,316 44,398

Purchases of held-for-investment mortgage loans........................................ (79,492) (44,129) (68,180)

Repayments of mortgage loans acquired as held-for-investment ............................. 522,242 369,981 425,298

Decrease (increase) in restricted cash ................................................ 13,471 (19,952) 7,399

Net proceeds from mortgage insurance and acquisitions and dispositions of real estate owned ....... 11,265 12,665 13,093

Net (increase) decrease in federal funds sold and securities purchased under agreements to resell .... (25,519) 34,480 (32,023)

Derivative premiums and terminations and swap collateral, net ............................. 569 (4,447) (3,075)

Purchase of noncontrolling interest .................................................. — — (23)

Net cash provided by investing activities .............................................. 494,397 373,688 385,641

Cash flows from financing activities

Proceeds from issuance of debt securities of consolidated trusts held by third parties .............. 91,544 96,042 96,253

Repayments of debt securities of consolidated trusts held by third parties ...................... (494,115) (436,320) (461,084)

Proceeds from issuance of other debt ................................................. 718,252 1,024,323 1,115,097

Repayments of other debt ......................................................... (831,393) (1,078,050) (1,180,935)

Increase in liquidation preference of senior preferred stock ................................ 165 7,971 12,500

Repurchase of REIT preferred stock ................................................. — — (100)

Payment of cash dividends on senior preferred stock ..................................... (7,233) (6,495) (5,749)

Excess tax benefits associated with stock-based awards ................................... 111

Payments of low-income housing tax credit partnerships notes payable ........................ (13) (50) (115)

Net cash used in financing activities ................................................. (522,792) (392,578) (424,132)

Net decrease in cash and cash equivalents ............................................. (19,929) (8,570) (27,671)

Cash and cash equivalents at beginning of year ......................................... 28,442 37,012 64,683

Cash and cash equivalents at end of year ............................................. $ 8,513 $ 28,442 $ 37,012

Supplemental cash flow information

Cash paid (received) for:

Debt interest .................................................................... $ 75,328 $ 84,370 $ 95,468

Net derivative interest carry ......................................................... 4,044 4,791 4,305

Income taxes .................................................................... (18) (1) (848)

Non-cash investing and financing activities:

Underlying mortgage loans related to guarantor swap transactions ............................. 358,074 280,621 324,004

Debt securities of consolidated trusts held by third parties established for guarantor swap

transactions ................................................................... 358,074 280,621 324,004

Elimination of investments in securities and debt securities of consolidated trusts held by third parties

related to consolidation of variable interest entities for which we are the primary beneficiary ........ (4,590) — —

Transfers from held-for-investment mortgage loans to held-for-sale mortgage loans ................ 6 — 196

The accompanying notes are an integral part of these consolidated financial statements.

208 Freddie Mac
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Freddie Mac was chartered by Congress in 1970 to stabilize the nation’s residential mortgage market and expand

opportunities for home ownership and affordable rental housing. Our statutory mission is to provide liquidity, stability and

affordability to the U.S. housing market. We are a GSE regulated by FHFA, the SEC, HUD, and the Treasury, and are

currently operating under the conservatorship of FHFA. For more information on the roles of FHFA and the Treasury, see

“NOTE 2: CONSERVATORSHIP AND RELATED MATTERS.”

We are involved in the U.S. housing market by participating in the secondary mortgage market. We do not participate

directly in the primary mortgage market. Our participation in the secondary mortgage market includes providing our credit

guarantee for mortgages originated by mortgage lenders in the primary mortgage market and investing in mortgage loans and

mortgage-related securities.

Our operations consist of three reportable segments, which are based on the type of business activities each performs —

Single-family Guarantee, Investments, and Multifamily. Our Single-family Guarantee segment reflects results from our

single-family credit guarantee activities. In our Single-family Guarantee segment, we purchase single-family mortgage loans

originated by our seller/servicers in the primary mortgage market. In most instances, we use the mortgage securitization

process to package the purchased mortgage loans into guaranteed mortgage-related securities. We guarantee the payment of

principal and interest on the mortgage-related securities in exchange for management and guarantee fees. Our Investments

segment reflects results from our investment, funding, and hedging activities. In our Investments segment, we invest

principally in mortgage-related securities and single-family performing mortgage loans, which are funded by debt issuances

and hedged using derivatives. Our Multifamily segment reflects results from our investment (both purchases and sales),

securitization, and guarantee activities in multifamily mortgage loans and securities. In our Multifamily segment, our primary

business strategy is to purchase multifamily mortgage loans for aggregation and then securitization. See “NOTE 13:

SEGMENT REPORTING” for additional information.

We are focused on the following primary business objectives: (a) providing credit availability for mortgages and

maintaining foreclosure prevention activities; (b) minimizing our credit losses; (c) developing mortgage market

enhancements in support of a new infrastructure for the secondary mortgage market; (d) maintaining sound credit quality on

the loans we purchase or guarantee; (e) contracting the dominant presence of the GSEs in the marketplace; and

(f) strengthening our infrastructure and improving overall efficiency while also focusing on retention of key employees. Our

business objectives reflect direction we have received from the Conservator. In March 2012, FHFA instituted the 2012

conservatorship scorecard, or the Conservatorship Scorecard, for use by both us and Fannie Mae that established business

objectives and performance targets and measures, and provided the implementation roadmap for FHFA’s strategic plan for

Freddie Mac and Fannie Mae. We continue to align our resources and internal business plans to meet the goals and objectives

in FHFA’s directives. For information regarding these objectives, see “NOTE 2: CONSERVATORSHIP AND RELATED

MATTERS — Business Objectives.”

Throughout our consolidated financial statements and related notes, we use certain acronyms and terms which are

defined in the “GLOSSARY.”

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with GAAP and include our

accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany balances

and transactions have been eliminated.

Our current accounting policies are described below. We are operating under the basis that we will realize assets and

satisfy liabilities in the normal course of business as a going concern and in accordance with the delegation of authority from

FHFA to our Board of Directors and management. Certain amounts in prior periods’ consolidated financial statements have

been reclassified to conform to the current presentation.

We evaluate the materiality of identified errors in the financial statements using both an income statement, or

“rollover,” and a balance sheet, or “iron curtain,” approach, based on relevant quantitative and qualitative factors. Net

income (loss) includes certain adjustments to correct immaterial errors related to previously reported periods.

209 Freddie Mac
We recorded the cumulative effect of the correction of certain miscellaneous errors related to previously reported

periods in the year ended December 31, 2012. We concluded that these errors are not material individually or in the

aggregate to our previously issued consolidated financial statements for any of the periods affected, or to our earnings for the

full year ended December 31, 2012, or to the trend of earnings. The impact to earnings, net of taxes, of the errors corrected

during the year ended December 31, 2012 was $0.6 billion. The most significant corrections relate to: (a) classification of

loans discharged in Chapter 7 bankruptcy; and (b) consolidation of certain REMIC trusts, and are described further below.

As of September 30, 2012, we classified loans discharged in Chapter 7 bankruptcy as TDRs. Prior to the third quarter of

2012, these loans were not classified as TDRs (unless they were already classified as such for other reasons) and we

measured those loans collectively for impairment. As a result, loans representing $19.5 billion in UPB as of September 30,

2012 were newly classified as TDRs and have been individually measured for impairment regardless of the loan’s payment

status. The cumulative effect of correcting this error on our loan loss reserves was an increase of $0.3 billion, reflecting the

additional provision for credit losses recorded in 2012 related to these loans. See “NOTE 5: INDIVIDUALLY IMPAIRED

AND NONPERFORMING LOANS” for additional information on loans where the borrowers’ debts have been discharged in

Chapter 7 bankruptcy.

During the third quarter of 2012, we corrected an error associated with the consolidation of certain of our REMIC trusts

for which we held substantially all of the beneficial interests issued by the trusts, but did not consolidate the trusts in prior

periods. We consolidated these trusts during the third quarter of 2012 by derecognizing our investments in these entities,

which totaled $4.4 billion, and recognizing the assets and liabilities of the consolidated entities at their fair values. This

correction also reduced other income by $0.1 billion during the third quarter of 2012.

Use of Estimates

The preparation of financial statements requires us to make estimates and assumptions that affect: (a) the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and

(b) the reported amounts of revenues and expenses and gains and losses during the reporting period. Management has made

significant estimates in preparing the financial statements, including, but not limited to, establishing the allowance for loan

losses and reserve for guarantee losses, valuing financial instruments and other assets and liabilities, assessing impairments

on investments, and assessing the realizability of net deferred tax assets. Actual results could be different from these

estimates.

Change in Estimate

Other-Than-Temporary Impairments of Single-Family Non-Agency Mortgage-Related Securities

During the fourth quarter of 2012, we enhanced our approach to estimating other-than-temporary-impairments of our

single-family non-agency mortgage-related securities by implementing a third-party model, which increases the level of

disaggregation for certain assumptions used in projecting cash flow estimates for these securities. We estimate that, as of the

beginning of the fourth quarter of 2012, these enhancements would have increased net impairment of available-for-sale

securities recognized in earnings and therefore decreased net income by $1.3 billion. See “NOTE 7: INVESTMENTS IN

SECURITIES” for more information.

Single-Family Loan Loss Reserve Severity

During the second quarter of 2012, we updated our method of estimating loss severity rates for single-family loan loss

reserves to change from the most recent three months of sales experience on our distressed property dispositions to the most

recent six months of sales experience on our distressed property dispositions. This change did not have a material impact on

our consolidated financial statements.

Consolidation and Equity Method of Accounting

The consolidated financial statements include our accounts and those of our subsidiaries. The net earnings attributable to

the noncontrolling interests in our consolidated subsidiaries are reported separately in the consolidated statements of

comprehensive income as comprehensive (income) loss attributable to noncontrolling interest. All intercompany transactions

have been eliminated in consolidation.

For each entity with which we are involved, we determine whether the entity should be consolidated in our financial

statements. We consolidate entities in which we have a controlling financial interest. The method for determining whether a

210 Freddie Mac
controlling financial interest exists varies depending on whether the entity is a VIE or non-VIE. A VIE is an entity: (a) that

has a total equity investment at risk that is not sufficient to finance its activities without additional subordinated financial

support provided by another party; or (b) where the group of equity holders does not have: (i) the power, through voting

rights or similar rights, to direct the activities of an entity that most significantly impact the entity’s economic performance;

(ii) the obligation to absorb the entity’s expected losses; or (iii) the right to receive the entity’s expected residual returns.

Our policy is to consolidate VIEs in which we hold a controlling financial interest and are therefore deemed to be the

primary beneficiary. An enterprise has a controlling financial interest in, and thus is deemed to be the primary beneficiary of,

a VIE if it has both: (a) the power to direct the activities of the VIE that most significantly impact its economic performance;

and (b) exposure to losses or benefits of the VIE that could potentially be significant to the VIE. We perform ongoing

assessments to determine if we are the primary beneficiary of the VIEs with which we are involved and, as such, conclusions

may change over time as the nature and extent of our involvement changes.

We use securitization trusts in our securities issuance process that are VIEs. We are the primary beneficiary of trusts

that issue our single-family PCs and certain Other Guarantee Transactions. See “NOTE 3: VARIABLE INTEREST

ENTITIES” for more information. When we transfer assets into a VIE that we consolidate at the time of the transfer (or

shortly thereafter), we recognize the assets and liabilities of the VIE at the amounts that they would have been recognized if

they had not been transferred, and no gain or loss is recognized on these transfers. For all other VIEs that we consolidate, we

recognize the assets and liabilities of the VIE at fair value, and we recognize a gain or loss for the difference between: (a) the

fair value of the consideration paid and the fair value of any noncontrolling interests held by third parties; and (b) the net

amount, as measured on a fair value basis, of the assets and liabilities consolidated.

For entities that are not VIEs, the usual condition of a controlling financial interest is ownership of a majority voting

interest in an entity. We use the equity method of accounting for entities over which we have the ability to exercise

significant influence, but not control.

Fair Value Measurements

Consistent with the accounting guidance for fair value measurements and disclosures, we use a three-level fair value

hierarchy to measure the fair value of assets and liabilities. Fair value represents the price that would be received to sell an

asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value

measurements under this hierarchy are distinguished among quoted market prices, observable inputs, and unobservable

inputs. We use quoted market prices and valuation techniques that seek to maximize the use of observable inputs, where

available, and minimize the use of unobservable inputs. Our inputs are based on the assumptions a market participant would

use in valuing the asset or liability. Assets and liabilities are classified in their entirety within the fair value hierarchy based

on the lowest level input that is significant to the fair value measurement. See “NOTE 16: FAIR VALUE DISCLOSURES”

for additional information regarding the fair value measurements and the hierarchy.

Securitization Activities through Issuances of Freddie Mac Mortgage-Related Securities

Overview

When we securitize single-family mortgages that we purchase, we issue mortgage-related securities called PCs that can

be sold to investors or held by us. Guarantor swaps are transactions where financial institutions exchange mortgage loans for

PCs backed by these mortgage loans. Multilender swaps are similar to guarantor swaps, except that formed PC pools include

loans that are contributed by more than one party. We issue PCs through various swap-based exchanges significantly more

often than through cash-based transfers. We issue REMICs and Other Structured Securities in transactions in which securities

dealers or investors sell us mortgage-related assets in exchange for REMICs and Other Structured Securities. We also issue

Other Guarantee Transactions to third parties in exchange for non-Freddie Mac mortgage-related securities.

PCs

Our PCs are pass-through debt securities that represent undivided beneficial interests in a pool of mortgages held by a

securitization trust. For our fixed-rate PCs, we guarantee the timely payment of interest and principal. For our ARM PCs, we

guarantee the timely payment of the weighted average coupon interest rate for the underlying mortgage loans. We do not

guarantee the timely payment of principal for ARM PCs; however, we do guarantee the full and final payment of principal.

Various types of fixed income investors purchase our PCs, including pension funds, insurance companies, securities

dealers, money managers, REITs, and commercial banks. PCs differ from most other fixed-income securities in several ways.

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For example, and most significantly, single-family PCs can be partially or fully prepaid at any time. Homeowners have the

right to prepay their mortgage at any time (known as the prepayment option), and homeowner mortgage payments are passed

through to the PC holder. Consequently, mortgage-related securities implicitly have a call option that significantly reduces

the average life of the security from the contractual loan maturity. As a result, our PCs generally provide a higher nominal

yield than certain other fixed-income products. In contrast to U.S. Treasury securities, PCs are not backed by the full faith

and credit of the United States and are instead backed by interests in real estate, in addition to our own guarantee.

In return for providing our guarantee of the payment of principal and interest, we earn a management and guarantee fee

that is paid to us over the life of an issued PC, representing a portion of the interest collected on the underlying loans.

PC Trusts

We are the primary beneficiary of VIE securitization trusts that issue our single-family PCs and therefore consolidate

the assets and liabilities of these trusts at either their: (a) carrying value, if the underlying assets are contributed by us to the

trust; or (b) fair value, for those securitization trusts established for our guarantor swap program. Mortgage loans underlying

our issued single-family PCs are recognized on our consolidated balance sheets as mortgage loans held-for-investment by

consolidated trusts, at amortized cost. The corresponding single-family PCs held by third parties are recognized on our

consolidated balance sheets as debt securities of consolidated trusts held by third parties. Refer to “Mortgage Loans” and

“Debt Securities Issued” below for further information on the subsequent accounting treatment of these assets and liabilities,

respectively.

REMICs and Other Structured Securities

Our REMICs and Other Structured Securities use resecuritization trusts that meet the definition of a VIE. REMICs and

Other Structured Securities represent beneficial interests in groups of PCs and other types of mortgage-related assets. We

create these securities primarily by using PCs or previously issued mortgage-related securities as collateral. Similar to our

PCs, we guarantee the payment of principal and interest to the holders of the tranches of our REMICs and Other Structured

Securities. However, for REMICs and Other Structured Securities where we have already guaranteed the underlying assets,

there is no incremental exposure to credit loss assumed by us.

With respect to the resecuritization trusts used for REMICs and Other Structured Securities whose underlying assets are

PCs, we do not have rights to receive benefits or obligations to absorb losses that could potentially be significant to the trusts

because we have already provided a guarantee on the underlying assets. Additionally, our involvement with these trusts does

not provide us with any power that would enable us to direct the significant economic activities of these entities. Although

we may be exposed to prepayment risk through our ownership of the securities issued by these trusts, we do not have the

ability through our involvement with the trust to impact the economic risks to which we are exposed. As a result, we are not

the primary beneficiary of, and therefore do not consolidate, the resecuritization trusts used for REMICs and Other

Structured Securities whose underlying assets are PCs unless we hold substantially all of the outstanding beneficial interests

that have been issued by the trust.

We receive a transaction fee from third parties for issuing REMICs and Other Structured Securities in exchange for PCs

or other mortgage-related assets. We defer the portion of the transaction fee that is equal to the estimated value of our future

administrative responsibilities for issued REMICs and Other Structured Securities. These responsibilities include ongoing

trustee services, administration of pass-through amounts, paying agent services, tax reporting, and other required services.

We estimate the value of these future responsibilities based on quotes from third-party vendors who perform each type of

service and, where quotes are not available, based on our estimates of what those vendors would charge. The remaining

portion of the transaction fee relates to compensation earned in connection with structuring-related services we rendered to

third parties and is allocated between REMICs and Other Structured Securities we retain, if any, and the REMICs and Other

Structured Securities acquired by third parties, based on the relative fair value of the securities. The portion of the fee

allocated to any REMICs and Other Structured Securities we retain is deferred as a carrying value adjustment and is

amortized into interest income using the effective interest method over the contractual lives of these securities. The fee

allocated to REMICs and Other Structured Securities acquired by third parties is recognized immediately in earnings as other

income.

Other Guarantee Transactions

Other Guarantee Transactions are mortgage-related securities that we issue to third parties in exchange for non-Freddie

Mac mortgage-related securities. Other Guarantee Transactions typically involve us purchasing either the senior tranches

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from a non-Freddie Mac senior-subordinated securitization or single-class pass-through securities, placing the acquired assets

into a securitization trust, providing a guarantee of the principal and interest of the acquired assets and issuing securities

backed by these assets. To the extent that we are deemed to be the primary beneficiary of such a securitization trust, we

recognize the mortgage loans underlying the Other Guarantee Transaction as mortgage loans held-for-investment, at

amortized cost. Correspondingly, we recognize the issued securities held by third parties as debt securities of consolidated

trusts. However, to the extent we are not deemed to be the primary beneficiary of such a securitization trust, we recognize a

guarantee asset, to the extent a management and guarantee fee is charged, and we recognize a guarantee obligation at fair

value. We do not receive transaction fees, apart from our management and guarantee fee, for these transactions.

Purchases and Sales of Freddie Mac Mortgage-Related Securities

PCs

When we purchase PCs that have been issued by consolidated PC trusts, we extinguish the outstanding debt securities of

the related consolidated trust. We recognize a gain (loss) on extinguishment of the debt securities to the extent the amount

paid to redeem the debt differs from its carrying value, adjusted for any related purchase commitments accounted for as

derivatives.

When we sell PCs that have been issued by consolidated PC trusts, we recognize a liability to the third-party beneficial

interest holders of the related consolidated trust as debt securities of consolidated trusts held by third parties. That is, our sale

of PCs issued by consolidated PC trusts is accounted for as the issuance of debt.

Single-Class REMICs and Other Structured Securities

Our mortgage-related securities that we classify as REMICs and Other Structured Securities may be single-class or

multiclass resecuritization transactions. In REMICs and Other Structured Securities that are single-class securities, the

collateral includes PCs and single-class REMICs and Other Structured Securities. We do not consolidate these

resecuritization trusts as we are not deemed to be the primary beneficiary of such trusts. Our single-class REMICs and Other

Structured Securities pass through all of the cash flows of the underlying PCs directly to the holders of the securities and are

deemed to be substantially the same as the underlying PCs. As a result, when we purchase single-class REMICs and Other

Structured Securities, we extinguish a pro rata portion of the outstanding debt securities of the related PC trust on our

consolidated balance sheets.

When we sell single-class REMICs and Other Structured Securities, we recognize a liability to the third-party beneficial

interest holders of the related consolidated PC trust as debt securities of consolidated trusts held by third parties. That is, our

sale of single-class REMICs and Other Structured Securities is accounted for as the issuance of debt.

Multiclass REMICs and Other Structured Securities

In multiclass REMICs and Other Structured Securities, the collateral includes PCs and REMICs and Other Structured

Securities. Generally, PCs serve as the primary type of collateral for these resecuritizations. We do not consolidate most of

these resecuritization trusts as we are not deemed to be the primary beneficiary of such trusts unless we hold substantially all

of the outstanding beneficial interests that have been issued by the trust. In our multiclass REMICs and Other Structured

Securities, the cash flows of the underlying PCs are divided (e.g., stripped and/or time tranched). Due primarily to this

division of cash flows, these securities are not deemed to be substantially the same as the underlying PCs. As a result, when

we purchase multiclass REMICs and Other Structured Securities, we record these securities as investments in debt securities

rather than as the extinguishment of debt since we are investing in the debt securities of a non-consolidated entity. See

“Investments in Securities” for further information regarding our accounting for investments in multiclass REMICs and

Other Structured Securities.

We recognize, as assets, both the investment in the multiclass REMICs and Other Structured Securities and the

mortgage loans backing the PCs held by the trusts which underlie the multiclass REMICs and Other Structured Securities.

Additionally, we recognize, as liabilities, the unsecured debt issued to third parties to fund the purchase of the multiclass

REMICs and Other Structured Securities as well as the debt issued to third parties of the PC trusts we consolidate which

underlie the multiclass REMICs and Other Structured Securities. This results in recognition of interest income from both

assets and interest expense from both liabilities.

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When we sell multiclass REMICs and Other Structured Securities in which we are not the primary beneficiary of the

resecuritization trust, we account for the transfer in accordance with the accounting guidance for transfers of financial assets.

To the extent the transfer of multiclass REMICs and Other Structured Securities qualifies as a sale, we de-recognize all assets

sold and recognize all assets obtained and liabilities incurred. Any gain (loss) on the sale of multiclass REMICs and Other

Structured Securities is reflected in our consolidated statements of comprehensive income as a component of other gains

(losses) on investment securities. To the extent the transfer of multiclass REMICs and Other Structured Securities does not

qualify as a sale, we account for the transfer as a financing transaction and recognize a liability for the proceeds received

from third parties in the transfer.

Other Guarantee Commitments

In certain circumstances, we also provide our guarantee of mortgage-related assets held by third parties, in exchange for

a guarantee fee, without our securitization of the related assets. For example, we provide long-term standby commitments to

certain of our single-family customers, which obligate us to purchase seriously delinquent loans that are covered by those

agreements. In addition, during 2010 and 2009, we issued guarantees under the TCLFP on securities backed by HFA bonds

as part of the HFA Initiative.

Cash and Cash Equivalents

Highly liquid investment securities that have an original maturity of three months or less are accounted for as cash

equivalents. In addition, cash collateral that we have the right to use for general corporate purposes and that we obtain from

counterparties to derivative contracts is recorded as cash and cash equivalents.

Restricted Cash and Cash Equivalents

Cash collateral accepted from counterparties that we do not have the right to use for general corporate purposes is

recorded as restricted cash in our consolidated balance sheets. Restricted cash includes cash remittances received on the

underlying assets of our consolidated trusts, which are deposited into a separate custodial account. These cash remittances

include both scheduled and unscheduled principal and interest payments. The cash remittances are segregated in the separate

custodial account until they are remitted to the PC, REMIC and Other Structured Securities holders on their respective

security payment dates, and are not commingled with our general operating funds. As securities administrator, we invest the

cash held in the custodial account, pending distribution to our PC, REMIC, and Other Structured Securities holders, in shortterm investments and are entitled to the interest income earned on these short-term investments, which is recorded as interest

income, other on our consolidated statements of comprehensive income.

Mortgage Loans

Upon acquisition, we classify a loan as either held-for-sale or held-for-investment. Mortgage loans that we have the

ability and intent to hold for the foreseeable future are classified as held-for-investment. Loans we acquire and which we

intend to securitize using an entity we will consolidate will generally be classified as held-for-investment both prior to and

subsequent to their securitization, in accordance with our intent and ability to hold such loans for the foreseeable future.

Held-for-investment mortgage loans are reported in our consolidated balance sheets at their outstanding UPB, net of

deferred fees and other cost basis adjustments (including unamortized premiums and discounts, delivery fees and other

pricing adjustments). These deferred items are amortized into interest income over the contractual lives of the loans using the

effective interest method. We recognize interest income on an accrual basis except when we believe the collection of

principal and interest in full is not reasonably assured. If the collection of principal and interest in full is not reasonably

assured, we cease the accrual of interest income and any interest income accrued but uncollected is reversed.

Mortgage loans not classified as held-for-investment are classified as held-for-sale. Held-for-sale loans are reported at

lower-of-cost-or-fair-value on our consolidated balance sheets. Any excess of a held-for-sale loan’s cost over its fair value is

recognized as a valuation allowance in other income on our consolidated statements of comprehensive income, with changes

in this valuation allowance also being recorded in other income. Premiums, discounts, and other cost basis adjustments

recognized upon acquisition on single-family loans classified as held-for-sale are deferred and not amortized. We elected the

fair value option for multifamily mortgage loans held for sale that we intend to securitize and sell to investors. See

“NOTE 16: FAIR VALUE DISCLOSURES — Fair Value Option — Multifamily Held-For-Sale Mortgage Loans” and

“NOTE 16: FAIR VALUE DISCLOSURES — Fair Value Option — Changes in Fair Value under the Fair Value Option

Election.” Thus, these multifamily mortgage loans are measured at fair value on a recurring basis, with subsequent gains or

214 Freddie Mac
losses related to sales or changes in fair value reported in other income in our consolidated statements of comprehensive

income. We do not have any held-for-sale loans reported at the lower-of-cost-or-fair-value on our consolidated balance

sheets as of December 31, 2012 or 2011.

Cash flows related to mortgage loans held by our consolidated trusts are classified as either investing activities (e.g.,

principal repayments) or operating activities (e.g., interest payments received from borrowers included within net income

(loss)). In addition, cash flows related to purchases of mortgage loans held-for-sale are classified in operating activities.

When mortgage loans held-for-sale are sold or securitized, proceeds from the sale or securitization and any related gain or

loss are classified in operating activities.

Allowance for Loan Losses and Reserve for Guarantee Losses

The allowance for loan losses and the reserve for guarantee losses represent estimates of incurred credit losses. The

allowance for loan losses pertains to all single-family and multifamily loans classified as held-for-investment on our

consolidated balance sheets whereas the reserve for guarantee losses relates to single-family and multifamily loans

underlying our non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments. Total held-forinvestment mortgage loans, net are shown net of the allowance for loan losses on our consolidated balance sheets. The

reserve for guarantee losses is included within other liabilities on our consolidated balance sheets. We recognize incurred

losses by recording a charge to the provision for credit losses in our consolidated statements of comprehensive income.

Determining the appropriateness of the loan loss reserves is a complex process that is subject to numerous estimates and

assumptions requiring significant judgment about matters that involve a high degree of subjectivity.

We estimate credit losses related to homogeneous pools of loans in accordance with the accounting guidance for

contingencies. Accordingly, we maintain an allowance for loan losses on mortgage loans held-for-investment when it is

probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Loans that we evaluate for

individual impairment are measured in accordance with the subsequent measurement requirements of the accounting

guidance for receivables.

For both the single-family and multifamily portfolios, we charge off (in full or in part) our recorded investment in a loan

in the period it is determined that the loan (or a portion thereof) is uncollectible, which generally occurs at final disposition of

the loan through foreclosure or other loss event. However, if losses are evident prior to final disposition, earlier recognition

of a charge-off is required by our policies. We also consider charge-offs for certain very small balance loans and upon the

occurrence of certain events such as natural disasters. A charge-off is also recorded if we realize a specific credit loss upon

the modification of a loan in a TDR. We do not have any established threshold in terms of days past due beyond which we

partially or fully charge-off loans.

Single-Family Loans

We determine single-family loan loss reserves both on a collective and individual basis. For further discussion on

individually impaired single-family loans, refer to “Impaired Loans” below.

We estimate loan loss reserves on homogeneous pools of single-family loans using a statistically based model that

evaluates a variety of factors affecting collectability. The homogeneous pools of single-family mortgage loans are

determined based on common underlying characteristics, including estimated current LTV ratios and trends in home prices,

loan product type and geographic region. In determining the loan loss reserves for single-family loans at the balance sheet

date, we evaluate key inputs and factors including, but not limited to:

• estimated current LTV ratios and historical trends in home prices;

• loan product type;

• delinquency/default status and history;

• actual and estimated rates of collateral loss severity for similar loans;

• geographic location;

• loan age;

• sourcing channel;

• occupancy type;

215 Freddie Mac
• UPB at origination;

• expected ability to partially mitigate losses through loan modification or other alternatives to foreclosure;

• expected proceeds from mortgage insurance contracts that are contractually attached to a loan or other credit

enhancements that were entered into contemporaneous with and in contemplation of a guarantee or loan purchase

transaction;

• expected repurchases of mortgage loans by seller/servicers;

• counterparty credit of mortgage insurers and seller/servicers;

• pre-foreclosure real estate taxes and insurance;

• estimated selling costs should the underlying property ultimately be sold; and

• trends in the timing of foreclosures.

For additional information on estimated current LTV ratios and single-family loan loss reserves, see “NOTE 4:

MORTGAGE LOANS AND LOAN LOSS RESERVES — Credit Quality of Mortgage Loans.”

Freddie Mac relies upon third-parties to provide primary servicing for the performing and non-performing loan

portfolio. At loan delivery, the seller provides us with the loan data, which includes loan characteristics and underwriting

information. Each month, the servicers provide us with monthly loan level servicing data, including delinquency and loss

information.

Certain loan servicing data is reported to us on a real-time basis, such as loan pay-offs and foreclosure events. However,

certain monthly servicing data, including delinquency status, is delivered on a one-month delay. For example, December loan

delinquency data delivered to Freddie Mac at the end of December or beginning of January reflects the loan delinquency

status related to the December 1 payment cycle. We incorporate the delinquency status data into our allowance for loan loss

calculation generally without adjustment for the one month delay.

Our single-family loan loss reserve default models are estimated based on the most recent 12 months of actual loan

performance data, including loan status and delinquency data reported by our servicers. The loan performance data provides

a loan level history of delinquency, foreclosures, foreclosure alternatives, modifications, and seller/servicer repurchases. Our

single-family loan loss reserve severity is estimated from the most recent six months of: (a) sales experience realized on our

distressed property dispositions; (b) mortgage insurance recoveries and pre-foreclosure expenses on our distressed properties

including REO, short sales, and third-party sales; and (c) recoveries due to seller/servicer repurchases. We use historical

trends in home prices in our single-family loan loss reserve process, primarily through the use of estimated current total LTV

ratios in our default models and through the use of recent home price sales experience in our severity estimate. However, we

do not use a forecast of trends in home prices in our single-family loan loss reserve process.

Our loan loss reserves reflect our best current estimates of incurred losses. Our loan loss reserve estimate includes

projections related to strategic loss mitigation activities, including loan modifications for troubled borrowers, and projections

of recoveries through repurchases by seller/servicers of defaulted loans due to failure to follow contractual underwriting

requirements at the time of the loan origination. These projections are based on our recent historical experience and current

business practices and require significant management judgment. We monitor our projections of recoveries through seller/

servicer repurchases to ensure that these projections are reasonable and consistent with our assessment of the credit capacity

of our seller/servicer counterparties. For loans where foreclosure is probable, impairment is measured on an aggregate basis

based upon an estimate of the underlying collateral value. At an individual loan level, our estimate also considers the effect

of historical home price changes on borrower behavior and the impact of our loss mitigation actions, including our loan

modification efforts.

Our reserve estimate also reflects our best projection of delinquencies we believe are likely to occur as a result of loss

events that have occurred through December 31, 2012 and 2011, respectively. However, the continued weakness in the

national housing market, the uncertainty in other macroeconomic factors, and uncertainty of the success of modification

efforts under HAMP and other loan workout programs, make forecasting of delinquency rates inherently imprecise.

We validate and update our models and factors to capture changes in actual loss experience, as well as the effects of

changes in underwriting practices and in our loss mitigation strategies. We also consider macroeconomic and other factors

that impact the quality of the loans underlying our portfolio including regional housing trends, applicable home price indices,

216 Freddie Mac
unemployment and employment dislocation trends, the effects of changes in government policies and programs, consumer

credit statistics and the extent of third party insurance. We consider our assessment of these factors in determining our loan

loss reserves.

We apply proceeds from primary mortgage insurance that is contractually attached to a loan and other credit

enhancements, including repurchase recoveries, entered into contemporaneously with and in contemplation of a guarantee or

loan purchase transaction, as a recovery of our recorded investment in a charged-off loan, up to the amount of loss

recognized as a charge-off. Proceeds from credit enhancements received in excess of our recorded investment in charged-off

loans are recorded as a decrease to REO operations expense in our consolidated statements of comprehensive income when

received. We record receivables for proceeds from primary mortgage insurance and other credit enhancements, including

repurchase recoveries, when the proceeds are estimable and collectability is reasonably assured. We generally accrue

receivables for primary mortgage insurance, pool insurance, and most other types of credit enhancements as we have a

history of collection of these types of recoveries and the amounts are estimable based on the contractual terms of the

agreements. However, due to the uncertainty of the timing and amount of collections of repurchase recoveries, we generally

do not accrue receivables for repurchase recoveries and instead record repurchase recoveries received on a cash basis.

Multifamily Loans

For multifamily loans identified as impaired, we individually determine the specific loan loss reserves. Refer to

“Impaired Loans” below for further discussion on individually impaired multifamily loans. Multifamily loans evaluated

collectively for impairment are aggregated into book year vintages and measured by benchmarking published historical

commercial mortgage data to those vintages based upon available economic data related to multifamily real estate, including

apartment vacancy and rental rates.

Non-Performing Loans

Non-performing loans consist of single-family and multifamily loans that have undergone a TDR, single-family

seriously delinquent loans, multifamily loans that are three or more payments past due or in the process of foreclosure, and

multifamily loans that are deemed impaired based upon management judgment. We place mortgage loans on non-accrual

status when we believe collectability of principal and interest in full is not reasonably assured, which generally occurs when

a loan is three monthly payments past due, unless the loan is well secured and in the process of collection based upon an

individual loan assessment. A loan is considered past due if a full payment of principal and interest is not received within one

month of its due date. When a loan is placed on non-accrual status, any interest income accrued but uncollected is reversed.

Thereafter, interest income is recognized only upon receipt of cash payments.

A non-accrual mortgage loan may be returned to accrual status when the collectability of principal and interest in full is

reasonably assured. For single-family loans, we determine that collectability is reasonably assured when we have received

payment of principal and interest such that the loan becomes less than three monthly payments past due. For multifamily

loans, the collectability of principal and interest is considered reasonably assured based on a quantitative and qualitative

analysis of the factors specific to the loan being assessed. Upon a loan’s return to accrual status, all previously reversed

interest income is recognized and amortization of any basis adjustments into interest income is resumed.

Impaired Loans

We consider a loan to be impaired when it is probable, based on current information, that we will not receive all

amounts due (including both principal and interest) in accordance with the contractual terms of the original loan agreement.

Delays in the timing of our expected receipt of these amounts that are more than insignificant are considered in making this

assessment.

Single-Family

Individually impaired single-family loans include loans that have undergone a TDR. Impairment and interest income

recognition are discussed separately in the paragraphs that follow. All other single-family loans are aggregated and measured

collectively for impairment based on similar risk characteristics. Collective impairment is measured as described above in the

“Allowance for Loan Losses and Reserve for Guarantee Losses — Single-Family Loans” section of this note. If we

determine that foreclosure on the underlying collateral is probable, we measure impairment based upon the fair value of the

collateral, as reduced by estimated disposition costs and adjusted for estimated proceeds from insurance and similar sources.

217 Freddie Mac
Multifamily

Multifamily impaired loans include TDRs, loans three monthly payments or more past due, and loans that are deemed

impaired based on management judgment. Factors considered by management in determining whether a loan is impaired

include, but are not limited to, the underlying property’s operating performance as represented by its current DSCR, available

credit enhancements, current LTV ratio, management of the underlying property, and the property’s geographic location.

Multifamily loans are measured individually for impairment based on the fair value of the underlying collateral, as reduced

by estimated disposition costs, as the repayment of these loans is generally provided from the cash flows of the underlying

collateral and any associated credit-enhancement. Except for cases of fraud and certain other types of borrower defaults, most

multifamily loans are non-recourse to the borrower. As a result, the cash flows of the underlying property (including any

associated credit enhancements) serve as the source of funds for repayment of the loan. Interest income recognition on nonTDR multifamily impaired loans is subject to our non-accrual policy as discussed in “Non-Performing Loans.”

Troubled Debt Restructurings

Both single-family and multifamily loans which experience a modification to their contractual terms which results in a

concession being granted to a borrower experiencing financial difficulties are considered TDRs. A concession is deemed

granted when, as a result of the restructuring, we do not expect to collect all amounts due, including interest accrued, at the

original contractual interest rate. As appropriate, we also consider other qualitative factors in determining whether a

concession is deemed granted, including whether the borrower’s modified interest rate is consistent with that of a nontroubled borrower. We do not consider restructurings that result in a delay in payment that is insignificant to be a concession.

We generally consider a delay in monthly amortizing payments of three months or less to be insignificant. We generally

consider all other delays to be more than insignificant. A concession typically includes one or more of the following being

granted to the borrower: (a) a trial period where the expected permanent modification will change our expectation of

collecting all amounts due at the original contract rate; (b) a delay in payment that is more than insignificant; (c) a reduction

in the contractual interest rate; (d) interest forbearance for a period of time that is not insignificant or forgiveness of accrued

but uncollected interest amounts; (e) a reduction in the principal amount of the loan; and (f) discharge of the borrower’s

obligation in Chapter 7 bankruptcy.

On July 1, 2011, we adopted an amendment to the accounting guidance related to the classification of loans as TDRs.

This amendment clarified when a restructuring such as a loan modification is considered a TDR. For additional information,

see “Recently Adopted Accounting Guidance — A Creditor’s Determination of Whether a Restructuring is a Troubled Debt

Restructuring,” below.

Impairment of a loan having undergone a TDR is measured as the excess of our recorded investment in the loan over the

present value of the expected future cash flows, discounted at the loan’s original effective interest rate for fixed-rate loans or

at the loan’s effective interest rate prior to modification for ARM loans. Our expectation of future cash flows incorporates,

among other items, an estimated probability of default which is based on a number of market factors as well as the

characteristics of the loan, such as past due status. Subsequent to the modification date, interest income is recognized at the

modified interest rate, subject to our non-accrual policy as discussed in “Non-Performing Loans” above, with all other

changes in the present value of expected future cash flows being recognized as a component of the provision for credit losses

in our consolidated statements of comprehensive income.

Investments in Securities

Investments in securities consist primarily of mortgage-related securities. We classify securities as “available-for-sale”

or “trading.” We currently do not classify any securities as “held-to-maturity,” although we may elect to do so in the future.

In addition, we elected the fair value option for certain available-for-sale mortgage-related securities, including investments

in securities that: (a) can contractually be prepaid or otherwise settled in such a way that we may not recover substantially all

of our initial recorded investment; or (b) are not of high credit quality at the acquisition date and are identified as within the

scope of the accounting guidance for investments in beneficial interests in securitized financial assets. Subsequent to our

election, these securities were classified as trading securities. Securities classified as available-for-sale and trading are

reported at fair value with changes in fair value included in AOCI and other gains (losses) on investment securities,

respectively. See “NOTE 16: FAIR VALUE DISCLOSURES” for more information on how we determine the fair value of

securities.

We record purchases and sales of securities that are exempt from the requirements of derivatives and hedge accounting

on a trade date basis. Securities underlying forward purchases and sales contracts that are not exempt from the requirements

218 Freddie Mac
of derivatives and hedge accounting are recorded on the expected settlement date with a corresponding commitment recorded

on the trade date.

When we purchase REMICs and Other Structured Securities and certain Other Guarantee Transactions that we have

issued, we account for these securities as investments in debt securities, as we are investing in the debt securities of a nonconsolidated entity. We consolidate the trusts that issue these securities when we hold substantially all of the outstanding

beneficial interests issued by the trusts. We recognize interest income on the securities and interest expense on the debt we

issued. See “Securitization Activities through Issuances of Freddie Mac Mortgage-Related Securities — Purchases and Sales

of Freddie Mac Mortgage-Related Securities” for additional information on accounting for purchases of PCs and beneficial

interests issued by resecuritization trusts.

For most of our investments in securities, interest income is recognized using the effective interest method. Deferred

items, including premiums, discounts, and other basis adjustments, are amortized into interest income over the contractual

lives of the securities.

For certain investments in securities, interest income is recognized using the prospective effective interest method. We

specifically apply this accounting to beneficial interests in securitized financial assets that: (a) can contractually be prepaid or

otherwise settled in such a way that we may not recover substantially all of our recorded investment; (b) are not of high

credit quality at the acquisition date; or (c) have been determined to be other-than-temporarily impaired. We recognize as

interest income (over the life of these securities) the excess of all estimated cash flows attributable to these interests over

their book value using the effective interest method. We update our estimates of expected cash flows periodically and

recognize changes in the calculated effective interest rate on a prospective basis.

We evaluate available-for-sale securities in an unrealized loss position as of the end of each quarter for other-thantemporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its

amortized cost basis. As discussed further below, certain other-than-temporary impairment losses are recognized in earnings.

These losses are recorded within our consolidated statements of comprehensive income as net impairment of available-forsale securities recognized in earnings.

We recognize other-than-temporary impairment in earnings if one of the following conditions exists: (a) we have the

intent to sell the security; (b) it is more likely than not that we will be required to sell the security before recovery of its

unrealized loss; or (c) we do not expect to recover the amortized cost basis of the security. If we do not intend to sell the

security and we believe it is not more likely than not that we will be required to sell prior to recovery of the security’s

unrealized loss, we recognize only the credit component of other-than-temporary impairment in earnings and the amounts

attributable to all other factors are recognized, net of tax, in AOCI. The credit component represents the amount by which the

present value of cash flows expected to be collected from the security is less than the amortized cost basis of the security.

The evaluation of whether unrealized losses on available-for-sale securities are other-than-temporary requires

significant management judgments and assumptions and consideration of numerous factors. We perform an evaluation on a

security-by-security basis considering all available information. The relative importance of this information varies based on

the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment. For

information regarding important factors, judgments and assumptions, see “NOTE 7: INVESTMENTS IN SECURITIES —

Impairment Recognition on Investments in Securities.”

For our available-for-sale securities in an unrealized loss position at December 31, 2012, we have asserted that we have

no intent to sell and that we believe it is not more likely than not that we will be required to sell the security before recovery

of its amortized cost basis. In cases where such an assertion cannot be made, the security’s entire decline in fair value is

deemed to be other than temporary and is recorded within our consolidated statements of comprehensive income as net

impairment of available-for-sale securities recognized in earnings.

We elected the fair value option for available-for-sale securities identified as within the scope of the accounting

guidance for investments in beneficial interests in securitized financial assets to better reflect the valuation changes that

occur subsequent to impairment write-downs recorded on these instruments. By electing the fair value option for these

instruments, we reflect valuation changes through our consolidated statements of comprehensive income in the period they

occur, including increases in value. For additional information on our election of the fair value option, see “NOTE 16: FAIR

VALUE DISCLOSURES.”

219 Freddie Mac
Gains and losses on the sale of securities are included in other gains (losses) on investment securities recognized in

earnings, including those gains (losses) reclassified into earnings from AOCI. We use the specific identification method for

determining the cost basis of a security in computing the gain or loss.

For securities classified as trading or available-for-sale and those securities where we elected the fair value option, we

classify the cash flows as investing activities because we hold these securities for investment purposes. In cases where the

transfer of available-for-sale securities represents a secured borrowing, we classify the related cash flows as financing

activities.

Repurchase and Resale Agreements and Dollar Roll Transactions

We enter into repurchase and resale agreements primarily as an investor or to finance certain of our security positions.

Such transactions are accounted for as secured financings because the transferor does not relinquish control over the

transferred assets.

We also engage in dollar roll transactions whereby we enter into an agreement to sell and subsequently repurchase (or

purchase and subsequently resell) agency securities. When these transactions involve securities issued by consolidated

entities, they are treated as issuances and extinguishments of debt. When these transactions involve securities issued by

entities we do not consolidate, they are treated as purchases and sales as the security initially transferred is not required to be

the same or substantially the same as the security subsequently returned.

Debt Securities Issued

Debt securities that we issue are classified on our consolidated balance sheets as either debt securities of consolidated

trusts held by third parties or other debt. The debt securities of our consolidated trusts are prepayable without penalty at any

time. Other debt represents short-term and long-term debt securities that we issue to third parties to fund our general business

activities.

Both debt of our consolidated trusts and other debt, except for certain debt for which we elected the fair value option,

are reported at amortized cost. Deferred items, including premiums, discounts, and hedging-related basis adjustments are

reported as a component of total debt, net. Issuance costs are reported as a component of other assets. These items are

amortized and reported through interest expense using the effective interest method over the contractual life of the related

indebtedness. Amortization of premiums, discounts, and issuance costs begins at the time of debt issuance. Amortization of

hedging-related basis adjustments begins upon the discontinuation of the related hedge relationship.

We elected the fair value option on foreign-currency denominated debt and certain other debt securities. The change in

fair value for debt recorded at fair value is reported as gains (losses) on debt recorded at fair value in our consolidated

statements of comprehensive income. Upfront costs and fees on foreign-currency denominated debt and certain other debt

securities are recognized in earnings as incurred and not deferred. For additional information on our election of the fair value

option, see “NOTE 16: FAIR VALUE DISCLOSURES.”

When we purchase a PC or a REMIC and Other Structured Security that is a single-class security from a third party, we

extinguish the debt of the related PC trusts and recognize a gain or loss related to the difference between the amount paid to

redeem the debt security and its carrying value, adjusted for any related purchase commitments accounted for as derivatives,

in earnings as a component of gains (losses) on extinguishment of debt securities of consolidated trusts. Cash flows related to

debt securities issued by our consolidated trusts are classified as either financing activities (e.g., repayment of principal to PC

holders) or operating activities (e.g., interest payments to PC holders included within net income (loss)). Other than interest

paid, cash flows related to other debt are classified as financing activities. Interest paid on other debt is classified as operating

activities.

When we repurchase or call outstanding other debt, we recognize a gain or loss related to the difference between the

amount paid to redeem the debt security and the carrying value in earnings as a component of gains (losses) on retirement of

other debt. Contemporaneous transfers of cash between us and a creditor in connection with the issuance of a new debt

security and satisfaction of an existing debt security are accounted for as either an extinguishment or a modification of an

existing debt security. If the debt securities have substantially different terms, the transaction is accounted for as an

extinguishment of the existing debt security. The issuance of a new debt security is recorded at fair value, fees paid to the

creditor are expensed and fees paid to third parties are deferred and amortized into interest expense over the life of the new

debt security using the effective interest method. If the terms of the existing debt security and the new debt security are not

220 Freddie Mac
substantially different, the transaction is accounted for as a modification of the existing debt. Fees paid to the creditor are

deferred and amortized over the life of the modified unsecured debt security using the effective interest method and fees paid

to third parties are expensed as incurred.

Derivatives

Derivatives are reported at their fair value on our consolidated balance sheets. Derivatives in a net asset position,

including net derivative interest receivable or payable, are reported as derivative assets, net. Similarly, derivatives in a net

liability position, including net derivative interest receivable or payable, are reported as derivative liabilities, net. We offset

fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair

value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement.

Changes in fair value and interest accruals on derivatives are recorded as derivative gains (losses) in our consolidated

statements of comprehensive income.

We evaluate whether financial instruments that we purchase or issue contain embedded derivatives. In accordance with

an amendment to derivatives and hedging accounting guidance regarding certain hybrid financial instruments, we elected to

measure newly acquired or issued financial instruments that contain embedded derivatives at fair value, with changes in fair

value recorded in our consolidated statements of comprehensive income. At December 31, 2012 and 2011, we did not have

any embedded derivatives that were bifurcated and accounted for as freestanding derivatives.

At December 31, 2012 and 2011, we did not have any derivatives in hedge accounting relationships; however, there are

amounts recorded in AOCI related to discontinued cash flow hedges which are recognized in earnings when the originally

forecasted transactions affect earnings. If it becomes probable the originally forecasted transaction will not occur, the

associated deferred gain or loss in AOCI would be reclassified to earnings immediately.

In the consolidated statements of cash flows, cash flows related to the acquisition and termination of derivatives, other

than forward commitments, are generally classified in investing activities. Cash flows related to forward commitments are

classified within the section of the consolidated statements of cash flows in accordance with the cash flows of the financial

instruments to which they relate.

REO

REO is initially recorded at fair value less costs to sell and is subsequently carried at the lower of cost or fair value less

costs to sell. When we acquire REO, losses arise when the carrying value of the loan (including accrued interest) exceeds the

fair value of the foreclosed property, net of estimated costs to sell and expected recoveries through credit enhancements.

Losses are charged off against the allowance for loan losses at the time of REO acquisition. REO gains arise and are

recognized immediately in earnings when the fair value of the foreclosed property less costs to sell plus expected recoveries

through credit enhancements exceeds the recorded investment in the loan (including all amounts due from the borrower).

Amounts we expect to receive from third-party insurance (primary mortgage insurance and pool insurance) and most

other credit enhancements are recorded as receivables when REO is acquired. The receivable is adjusted when the actual

claim is filed and is reported as a component of other assets on our consolidated balance sheets. We do not record receivables

for repurchase recoveries. We record these on a cash basis due to uncertainty of the timing and amount of collections.

Material development and improvement costs relating to REO are capitalized. Operating expenses specifically

identifiable with an REO property are included in REO operations income (expense) in our consolidated statements of

comprehensive income; all other expenses are recognized within other administrative expenses in our consolidated

statements of comprehensive income. Estimated declines in REO fair value that result from ongoing valuation of the

properties are provided for and charged to REO operations income (expense) when identified. Any gains and losses from

REO dispositions are included in REO operations income (expense).

Income Taxes

We use the asset and liability method of accounting for income taxes under GAAP. Under this method, deferred tax

assets and liabilities are recognized based upon the expected future tax consequences of existing temporary differences

between the financial reporting and the tax reporting basis of assets and liabilities using enacted statutory tax rates as well as

tax net operating loss and tax credit carryforwards. To the extent tax laws change, deferred tax assets and liabilities are

adjusted, when necessary, in the period that the tax change is enacted. Valuation allowances are recorded to reduce net

221 Freddie Mac
deferred tax assets when it is more likely than not that a tax benefit will not be realized. The realization of these net deferred

tax assets is dependent upon the generation of sufficient taxable income in available carryback years, from current operations

and from unrecognized tax benefits, and upon our intent and ability to hold available-for-sale debt securities until the

recovery of any temporary unrealized losses. On a quarterly basis, we determine whether a valuation allowance is necessary.

In so doing, we consider all evidence currently available, both positive and negative, in determining whether, based on the

weight of that evidence, it is more likely than not that the net deferred tax assets will be realized. We determined that, as of

December 31, 2012 and 2011, it was more likely than not that we would not realize the portion of our net deferred tax assets

that is dependent upon the generation of future taxable income. This determination was driven by events and the resulting

uncertainties that existed as of December 31, 2012 and 2011. We will continue to evaluate our conclusion regarding the need

for a valuation allowance. It is possible that, in future periods, the uncertainties regarding our future operations and

profitability could be resolved such that it could become more likely than not that the deferred tax assets would be realized

and that a valuation allowance would no longer be necessary. For more information about the evidence that management

considers and our determination of the need for a valuation allowance, see “NOTE 12: INCOME TAXES.”

Income tax benefit (expense) includes: (a) deferred tax benefit (expense), which represents the net change in the

deferred tax asset or liability balance during the year plus any change in a valuation allowance; and (b) current tax benefit

(expense), which represents the amount of tax currently payable to or receivable from a tax authority including any related

interest and penalties plus amounts accrued for unrecognized tax benefits (also including any related interest and penalties).

Income tax benefit (expense) excludes the tax effects related to adjustments recorded to equity, such as unrealized gains and

losses related to available-for-sale securities.

Regarding tax positions taken or expected to be taken (and any associated interest and penalties), we recognize a tax

position so long as it is more likely than not that it will be sustained upon examination, including resolution of any related

appeals or litigation processes, based on the technical merits of the position. We measure the tax position at the largest

amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. See “NOTE 12: INCOME

TAXES” for additional information.

Earnings Per Common Share

In 2012, an amendment to the Purchase Agreement changed the manner in which the dividend on the senior preferred

stock is determined. For each quarter from January 1, 2013 through and including December 31, 2017, the dividend payment

will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less the

applicable capital reserve amount, exceeds zero. For each quarter beginning January 1, 2018, the dividend payment will be

the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter exceeds zero. The

dividend is presented in each period as a reduction to net income (loss) available to common stockholders and net income

(loss) per common share.

We have participating securities related to options and restricted stock units with dividend equivalent rights that receive

dividends as declared on an equal basis with common shares but are not obligated to participate in undistributed net losses.

These participating securities consist of: (a) vested and unvested options to purchase common stock; and (b) restricted stock

units that earn dividend equivalents at the same rate when and as declared on common stock. Consequently, in accordance

with accounting guidance, we use the “two-class” method of computing earnings per common share. The “two-class” method

is an earnings allocation formula that determines earnings per share for common stock and participating securities based on

dividends declared and participation rights in undistributed earnings.

Basic earnings per common share is computed as net income attributable to common stockholders divided by the

weighted average common shares outstanding for the period. The weighted average common shares outstanding for the

period includes the weighted average number of shares that are associated with the warrant for our common stock issued to

Treasury pursuant to the Purchase Agreement. This warrant is included since it is unconditionally exercisable by the holder at

a minimal cost. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS” for further information.

Diluted earnings per common share is computed as net income attributable to common stockholders divided by the

weighted average common shares outstanding during the period adjusted for the dilutive effect of common equivalent shares

outstanding. For periods with net income attributable to common stockholders, the calculation includes the effect of the

following common equivalent shares outstanding: (a) the weighted average shares related to stock options if the average

market price during the period exceeds the exercise price; and (b) the weighted average of unvested restricted stock units.

During periods in which a net loss attributable to common stockholders has been incurred, potential common equivalent

222 Freddie Mac
shares outstanding are not included in the calculation because it would have an antidilutive effect. See “NOTE 11:

STOCKHOLDER’S EQUITY (DEFICIT) — Stock-Based Compensation” for additional information on our earnings-pershare calculation.

Comprehensive Income

Comprehensive income is the change in equity, on a net of tax basis, resulting from transactions and other events and

circumstances from non-owner sources during a period. It includes all changes in equity during a period, except those

resulting from investments by stockholders. We define comprehensive income as consisting of net income (loss) plus

changes in: (a) the unrealized gains and losses on available-for-sale securities; (b) the effective portion of derivatives

accounted for as cash flow hedge relationships; and (c) defined benefit plans.

Recently Adopted Accounting Guidance

Fair Value Measurement

On January 1, 2012, we adopted an amendment to the accounting guidance pertaining to fair value measurement and

disclosure. This amendment provided: (a) clarification about the application of existing fair value measurement and

disclosure requirements; and (b) changes to the guidance for measuring fair value and disclosing information about fair value

measurements. The adoption of this amendment did not have a material impact on our consolidated financial statements.

Reconsideration of Effective Control for Repurchase Agreements

On January 1, 2012, we adopted an amendment to the accounting guidance for transfers and servicing with regard to

repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial

assets before their maturity. This amendment removed the criterion related to collateral maintenance from the transferor’s

assessment of effective control. It focuses the assessment of effective control on the transferor’s rights and obligations with

respect to the transferred financial assets and not whether the transferor has the practical ability to perform in accordance

with those rights or obligations. The adoption of this amendment did not have a material impact on our consolidated financial

statements.

A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring

On July 1, 2011, we adopted an amendment to the accounting guidance related to the classification of loans as TDRs,

which clarifies when a restructuring such as a loan modification is considered a TDR. This amendment clarifies the guidance

regarding a creditor’s evaluation of whether a debtor is experiencing financial difficulty and whether a creditor has granted a

concession to a debtor for purposes of determining if a restructuring constitutes a TDR.

Both single-family and multifamily loans that experience restructurings resulting in a concession being granted to a

borrower experiencing financial difficulties are considered TDRs. The amendment provides guidance to determine whether a

borrower is experiencing financial difficulties, which is largely consistent with the guidance for debtors. As we had

previously analogized to the guidance for debtors, this change does not have a significant impact on our determination of

whether a borrower is experiencing financial difficulties. Pursuant to this amendment, a concession is deemed to have been

granted when, as a result of the restructuring, we do not expect to collect all amounts due, including interest accrued, at the

original contractual interest rate. The amendment also specifies that a concession shall not be determined by comparing the

borrower’s pre-restructuring effective interest rate to the post-restructuring effective interest rate. These changes result in a

significant impact on our determination of whether a concession has been granted.

The amendment was effective for interim and annual periods beginning on or after June 15, 2011 and applied as of

July 1, 2011 to restructurings occurring on or after January 1, 2011. As of September 30, 2011, the total recorded investment

in loans identified as TDRs during the third quarter of 2011 which relate to modifications or agreements entered into between

January 1, 2011 and June 30, 2011 was $7.5 billion, and the allowance for credit losses related to those loans was

$1.7 billion. We recognized additional provision for credit losses of $0.2 billion during the third quarter of 2011 due to the

population of restructurings occurring in the first half of 2011 that are now considered TDRs.

Please refer to “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for further disclosures

regarding our loan restructurings accounted for and disclosed as TDRs and for discussion regarding how modifications and

other loss mitigation activities are factored into our allowance for loan losses.

223 Freddie Mac
Accounting for Transfers of Financial Assets and Consolidation of VIEs

On January 1, 2010, we prospectively adopted amendments to the accounting guidance applicable to the accounting for

transfers of financial assets and the consolidation of VIEs. The amendment for transfers of financial assets was applicable on

a prospective basis to new transfers, while the amendment relating to consolidation of VIEs was applied prospectively to all

entities within its scope as of the date of adoption.

We use securitization trusts in our securities issuance process. Prior to January 1, 2010, these trusts met the definition of

QSPEs and were not subject to consolidation. Effective January 1, 2010, the concept of a QSPE was removed from GAAP

and entities previously considered QSPEs were required to be evaluated for consolidation. Based on our consolidation

evaluation, we determined that we are the primary beneficiary of trusts that issue our single-family PCs and certain Other

Guarantee Transactions. Effective January 1, 2010, we consolidated these trusts and recognized the assets and liabilities at

their UPB, with accrued interest, allowance for credit losses or other-than-temporary impairments recognized as appropriate,

using the practical expedient permitted upon adoption since we determined that calculation of historical carrying values was

not practical. Other newly consolidated assets and liabilities that either do not have a UPB or are required to be carried at fair

value were measured at fair value. See “Consolidation and Equity Method of Accounting” above for a discussion of our

assessment to determine whether we are considered the primary beneficiary of a trust and thus need to consolidate it.

In light of the consolidation of our single-family PC trusts and certain Other Guarantee Transactions as discussed above,

effective January 1, 2010 we elected to change the amortization method for deferred items (e.g., premiums, discounts, and

other basis adjustments) related to mortgage loans and investments in securities. We made this change to align the

amortization method for these assets with the amortization method for deferred items associated with the related liabilities.

As a result of this change, deferred items are amortized into interest income using an effective interest method over the

contractual lives of these assets instead of the estimated life that was used for periods prior to 2010. It was impracticable to

retrospectively apply this change to prior periods, so we recognized this change as a cumulative effect adjustment to the

opening balance of retained earnings (accumulated deficit), and future amortization of these deferred items will be

recognized using this new method. The effect of the change in the amortization method for deferred items was immaterial to

our consolidated financial statements in 2010.

The cumulative effect of these changes in accounting principles was a net decrease of $11.7 billion to total equity

(deficit) as of January 1, 2010, which includes changes to the opening balances of retained earnings (accumulated deficit)

and AOCI. This net decrease was driven principally by: (a) the elimination of unrealized gains resulting from the

extinguishment of PCs held as investment securities upon consolidation of the PC trusts, representing the difference between

the UPB of the loans underlying the PC trusts and the fair value of the PCs, including premiums, discounts, and other basis

adjustments; (b) the elimination of the guarantee asset and guarantee obligation established for guarantees issued to

securitization trusts we consolidated; and (c) the application of our non-accrual policy to single-family seriously delinquent

mortgage loans consolidated as of January 1, 2010.

NOTE 2: CONSERVATORSHIP AND RELATED MATTERS

Entry Into Conservatorship

On September 6, 2008, the Director of FHFA placed us into conservatorship. On September 7, 2008, Treasury and

FHFA announced several actions regarding Freddie Mac and Fannie Mae. These actions included the execution of the

Purchase Agreement, pursuant to which we issued to Treasury both senior preferred stock and a warrant to purchase common

stock.

Business Objectives

We continue to operate under the direction of FHFA, as our Conservator. The conservatorship and related matters have

had a wide-ranging impact on us, including our regulatory supervision, management, business, financial condition and results

of operations. Upon its appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and

privileges of Freddie Mac, and of any stockholder, officer or director thereof, with respect to the company and its assets. The

Conservator also succeeded to the title to all books, records, and assets of Freddie Mac held by any other legal custodian or

third party. During the conservatorship, the Conservator has delegated certain authority to the Board of Directors to oversee,

and management to conduct, day-to-day operations so that the company can continue to operate in the ordinary course of

business. The directors serve on behalf of, and exercise authority as directed by, the Conservator.

224 Freddie Mac
We are also subject to certain constraints on our business activities by Treasury due to the terms of, and Treasury’s

rights under, the Purchase Agreement. Our ability to access funds from Treasury under the Purchase Agreement is critical to

keeping us solvent.

The Conservator continues to determine, and direct the efforts of the Board of Directors and management to address, the

strategic direction for the company. While the Conservator has delegated certain authority to management to conduct day-today operations, many management decisions are subject to review and approval by FHFA and Treasury. In addition,

management frequently receives directions from FHFA on various matters involving day-to-day operations.

Our current business objectives reflect direction we have received from the Conservator (including the Conservatorship

Scorecard), and have changed considerably since we entered into conservatorship. At the direction of the Conservator, we

have made changes to certain business practices that are designed to provide support for the mortgage market in a manner

that serves our public mission and other non-financial objectives but may not contribute to our profitability.

Certain of these objectives are intended to help homeowners and the mortgage market and may help to mitigate future

credit losses. However, some of our initiatives are expected to have an adverse impact on our near- and long-term financial

results. Given the important role the Administration and our Conservator have placed on Freddie Mac in addressing housing

and mortgage market conditions and our public mission, we may be required to take additional actions that could have a

negative impact on our business, operating results or financial condition.

The Conservator stated that it is taking actions in support of the objectives of gradual transition to greater private capital

participation in housing finance and greater distribution of risk to participants other than the government. The Conservator

also stated that it is focusing on retaining value in the business operations of Freddie Mac and Fannie Mae, overseeing

remediation of identified weaknesses in corporate operations and risk management, and ensuring that sound corporate

governance principles are followed.

On February 21, 2012, FHFA sent to Congress a strategic plan for the next phase of the conservatorships of Freddie

Mac and Fannie Mae. The plan sets forth objectives and steps FHFA is taking or will take to meet FHFA’s obligations as

Conservator. FHFA stated that the steps envisioned in the plan are consistent with each of the housing finance reform

frameworks set forth in the report delivered by the Administration to Congress in February 2011, which is described below,

as well as with the leading congressional proposals previously introduced. FHFA indicated that the plan leaves open all

options for Congress and the Administration regarding the resolution of the conservatorships and the degree of government

involvement in supporting the secondary mortgage market in the future.

FHFA’s plan provides lawmakers and the public with an outline of how FHFA, as Conservator, intends to guide Freddie

Mac and Fannie Mae over the next few years, and identifies three strategic goals:

• Build. Build a new infrastructure for the secondary mortgage market;

• Contract. Gradually contract Freddie Mac and Fannie Mae’s dominant presence in the marketplace while simplifying

and shrinking their operations; and

• Maintain. Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages.

The Conservatorship Scorecard, instituted by FHFA, established objectives, performance targets and measures, and

provided the implementation roadmap for FHFA’s strategic plan. We continue to align our resources and internal business

plans to meet the goals and objectives in FHFA’s directives.

We regularly receive direction from our Conservator on how to pursue our objectives under conservatorship, including

direction to focus our efforts on assisting homeowners in the housing and mortgage markets. The Conservator and Treasury

have also not authorized us to engage in certain business activities and transactions, including the purchase or sale of certain

assets, which we believe might have had a beneficial impact on our results of operations or financial condition, if executed.

Our inability to execute such transactions may adversely affect our profitability, and thus contribute to our need to draw

additional funds in the future under the Purchase Agreement. However, we believe that the support provided by Treasury

pursuant to the Purchase Agreement currently enables us to maintain our access to the debt markets and to have adequate

liquidity to conduct our normal business activities, although the costs of our debt funding could vary.

The Acting Director of FHFA stated that FHFA does not expect we will be a substantial buyer or seller of mortgages for

our mortgage-related investments portfolio. We are also subject to limits on the amount of assets we can sell from our

225 Freddie Mac
mortgage-related investments portfolio in any calendar month without review and approval by FHFA and, if FHFA

determines, Treasury.

Certain changes to our business objectives and strategies are designed to provide support for the mortgage market in a

manner that serves our public mission and other non-financial objectives, but may not contribute to our profitability. Some of

these changes increase our expenses, while others require us to forego revenue opportunities. There is significant uncertainty

as to the ultimate impact that our efforts to aid the housing and mortgage markets, including our efforts in connection with

the MHA Program, will have on our future capital or liquidity needs. We are allocating significant internal resources to the

implementation of the various initiatives under the MHA Program and to the servicing alignment initiative, which has

increased, and will continue to increase, our expenses. We cannot currently estimate whether, or the extent to which, costs

incurred in the near term from HAMP, HARP, or other MHA Program efforts may be offset, if at all, by the prevention or

reduction of potential future costs of serious delinquencies and foreclosures due to these initiatives.

There is significant uncertainty as to whether or when we will emerge from conservatorship, as it has no specified

termination date, and as to what changes may occur to our business structure during or following conservatorship, including

whether we will continue to exist. The Acting Director of FHFA stated on September 19, 2011 that “it ought to be clear to

everyone at this point, given [Freddie Mac and Fannie Mae’s] losses since being placed into conservatorship and the terms of

the Treasury’s financial support agreements, that [Freddie Mac and Fannie Mae] will not be able to earn their way back to a

condition that allows them to emerge from conservatorship.” The Acting Director of FHFA stated on November 15, 2011

that “the long-term outlook is that neither [Freddie Mac nor Fannie Mae] will continue to exist, at least in its current form, in

the future.” We are not aware of any current plans of our Conservator to significantly change our business model or capital

structure in the near-term. Our future structure and role will be determined by the Administration and Congress, and there are

likely to be significant changes beyond the near-term. We have no ability to predict the outcome of these deliberations.

On February 11, 2011, the Administration delivered a report to Congress that lays out the Administration’s plan to

reform the U.S. housing finance market, including options for structuring the government’s long-term role in a housing

finance system in which the private sector is the dominant provider of mortgage credit. The report recommends winding

down Freddie Mac and Fannie Mae, and states that the Administration will work with FHFA to determine the best way to

responsibly reduce the role of Freddie Mac and Fannie Mae in the market and ultimately wind down both institutions. The

report states that these efforts must be undertaken at a deliberate pace, which takes into account the impact that these changes

will have on borrowers and the housing market.

The report states that the government is committed to ensuring that Freddie Mac and Fannie Mae have sufficient capital

to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations, and further

states that the Administration will not pursue policies or reforms in a way that would impair the ability of Freddie Mac and

Fannie Mae to honor their obligations. The report states the Administration’s belief that under the companies’ senior

preferred stock purchase agreements with Treasury, there is sufficient funding to ensure the orderly and deliberate wind

down of Freddie Mac and Fannie Mae, as described in the Administration’s plan.

The report identifies a number of policy levers that could be used to wind down Freddie Mac and Fannie Mae, shrink

the government’s footprint in housing finance, and help bring private capital back to the mortgage market, including

increasing guarantee fees, phasing in a 10% down payment requirement, reducing conforming loan limits, and winding down

Freddie Mac and Fannie Mae’s investment portfolios, consistent with the senior preferred stock purchase agreements. These

recommendations, if implemented, would have a material impact on our business volumes, market share, results of

operations, and financial condition.

Since the report was delivered, temporary high-cost area limits that had been in place since 2008 expired (effectively

reducing the conforming loan limits in certain high-cost areas). In addition, as discussed below, we implemented two acrossthe-board increases in guarantee fees in 2012, and the required reduction in our mortgage-related investments portfolio was

accelerated. We cannot predict the extent to which the other recommendations in the report will be implemented or when any

actions to implement them may be taken.

On December 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011.

Among its provisions, this law directed FHFA to require Freddie Mac and Fannie Mae to increase guarantee fees by no less

than 10 basis points above the average guarantee fees charged in 2011 on single-family mortgage-backed securities. Effective

April 1, 2012, at the direction of FHFA, the guarantee fee on single-family residential mortgages sold to Freddie Mac and

226 Freddie Mac
Fannie Mae was increased by 10 basis points. Under the law, the proceeds we receive from this increase are being remitted to

Treasury to fund the payroll tax cut, rather than retained by us.

On August 31, 2012, FHFA announced that it had directed Freddie Mac and Fannie Mae to further increase guarantee

fees on single-family mortgages by an average of 10 basis points, which was implemented in 2012. The announcement stated

that the changes to the guarantee fee pricing represent a step toward encouraging greater participation in the mortgage market

by private firms. The announcement stated that the increase in guarantee fees will:

• Make more uniform the guarantee fees that Freddie Mac and Fannie Mae charge lenders who deliver large volumes

of loans as compared to those who deliver smaller volumes; and

• Reduce cross-subsidies between higher-risk and lower-risk mortgages by increasing guarantee fees on loans with

maturities longer than fifteen years more than on shorter-maturity loans.

On October 24, 2011, FHFA, Freddie Mac, and Fannie Mae announced a series of FHFA-directed changes to HARP in

an effort to attract more eligible borrowers who can benefit from refinancing their home mortgages. The revisions to HARP

are available to borrowers with loans that were sold to Freddie Mac and Fannie Mae on or before May 31, 2009 and who

meet program criteria.

Purchase Agreement

Overview

On September 7, 2008, we, through FHFA, in its capacity as Conservator, and Treasury entered into the Purchase

Agreement. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended

on May 6, 2009, December 24, 2009, and August 17, 2012. Under the Purchase Agreement, the $200 billion maximum

amount of the commitment from Treasury was increased to accommodate the cumulative reduction in our net worth during

2010, 2011 and 2012. Beginning January 1, 2013, the amount of available funding remaining under the Purchase Agreement

is $140.5 billion. This amount will be reduced by any future draws. The provisions of the Purchase Agreement whereby

Treasury’s funding commitment would increase as necessary to accommodate any cumulative reduction in our net worth

during 2010, 2011, and 2012 no longer apply.

The Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to us after any quarter

in which we have a negative net worth (that is, our total liabilities exceed our total assets, as reflected on our GAAP balance

sheet). In addition, the Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to us if

the Conservator determines, at any time, that it will be mandated by law to appoint a receiver for us unless we receive these

funds from Treasury. In exchange for Treasury’s funding commitment, we issued to Treasury, as an aggregate initial

commitment fee: (a) one million shares of Variable Liquidation Preference Senior Preferred Stock (with an initial liquidation

preference of $1 billion), which we refer to as the senior preferred stock; and (b) a warrant to purchase, for a nominal price,

shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted

basis at the time the warrant is exercised, which we refer to as the warrant. We received no other consideration from Treasury

for issuing the senior preferred stock or the warrant.

Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as and if

declared by our Board of Directors. Through December 31, 2012, the senior preferred stock accrued quarterly cumulative

dividends at a rate of 10% per year. However, under the August 2012 amendment to the Purchase Agreement, the fixed

dividend rate was replaced with a net worth sweep dividend beginning in the first quarter of 2013. This amendment

effectively ends the circular practice of taking draws from Treasury to pay dividends to Treasury, thereby helping to preserve

remaining funding available to us under the Purchase Agreement.

For each quarter from January 1, 2013 through and including December 31, 2017, the dividend payment will be the

amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less the applicable

capital reserve amount, exceeds zero. The term Net Worth Amount is defined as: (a) the total assets of Freddie Mac

(excluding Treasury’s commitment and any unfunded amounts thereof), less; (b) our total liabilities (excluding any

obligation in respect of capital stock), in each case as reflected on our consolidated balance sheets prepared in accordance

with GAAP. If the calculation of the dividend payment for a quarter does not exceed zero, then no dividend will accrue or be

payable for that quarter. The applicable capital reserve amount will be $3 billion for 2013 and will be reduced by $600

million each year thereafter until it reaches zero on January 1, 2018. For each quarter beginning January 1, 2018, the

dividend payment will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal

227 Freddie Mac
quarter exceeds zero. The amounts payable for dividends on the senior preferred stock could be substantial and will have an

adverse impact on our financial position and net worth. To the extent we draw on Treasury’s funding commitment, the

liquidation preference of the senior preferred stock is increased by the amount of funds we receive. The senior preferred

stock is senior in liquidation preference to our common stock and all other series of preferred stock.

In addition to the issuance of the senior preferred stock and warrant, we are required under the Purchase Agreement to

pay a quarterly commitment fee to Treasury. Under the Purchase Agreement, the fee is to be determined in an amount

mutually agreed to by us and Treasury with reference to the market value of Treasury’s funding commitment as then in

effect. However, pursuant to the August 2012 amendment to the Purchase Agreement, for each quarter commencing

January 1, 2013, and for as long as the net worth sweep dividend provisions remain in form and content substantially the

same, no periodic commitment fee under the Purchase Agreement will be set, accrue or be payable. Treasury had waived the

fee for all applicable quarters prior to that date.

Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred stock is limited

and we will not be able to do so for the foreseeable future, if at all. The aggregate liquidation preference of the senior

preferred stock will increase further if we receive additional draws under the Purchase Agreement or if any dividends or

quarterly commitment fees payable under the Purchase Agreement are not paid in cash (this quarterly commitment fee has

been suspended). We may need to make additional draws in future periods due to a variety of factors that could adversely

affect our net worth.

The Purchase Agreement includes significant restrictions on our ability to manage our business, including limiting the

amount of indebtedness we can incur and capping the size of our mortgage-related investments portfolio. While the senior

preferred stock is outstanding, we are prohibited from paying dividends (other than on the senior preferred stock) or issuing

equity securities without Treasury’s consent.

The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include

the end of the conservatorship. The Purchase Agreement therefore could continue after the conservatorship ends. Treasury

has the right to exercise the warrant, in whole or in part, at any time on or before September 7, 2028.

Purchase Agreement Covenants

The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not,

without the prior written consent of Treasury:

• declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac

equity securities (other than with respect to the senior preferred stock or warrant);

• redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock

or warrant);

• sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common

stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect

on the date of the Purchase Agreement);

• terminate the conservatorship (other than in connection with a receivership);

• sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited

life regulated entity (in the context of a receivership); (b) of assets and properties in the ordinary course of business,

consistent with past practice; (c) of assets and properties having fair market value individually or in aggregate less

than $250 million in one transaction or a series of related transactions; (d) in connection with our liquidation by a

receiver; (e) of cash or cash equivalents for cash or cash equivalents; or (f) to the extent necessary to comply with the

covenant described below relating to the reduction of our mortgage-related investments portfolio;

• issue any subordinated debt;

• enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or

• engage in transactions with affiliates unless the transaction is: (a) pursuant to the Purchase Agreement, the senior

preferred stock or the warrant; (b) upon arm’s length terms; or (c) a transaction undertaken in the ordinary course or

pursuant to a contractual obligation or customary employment arrangement in existence on the date of the Purchase

Agreement.

228 Freddie Mac
The covenants also apply to our subsidiaries.

The Purchase Agreement also requires us to reduce the amount of mortgage assets we own. The Purchase Agreement, as

revised in the August 2012 amendment, provides that we could not own mortgage assets with UPB in excess of $650 billion

on December 31, 2012 and on December 31 of each year thereafter, may not own mortgage assets with UPB in excess of

85% of the aggregate amount of mortgage assets we are permitted to own as of December 31 of the immediately preceding

calendar year, provided that we are not required to own less than $250 billion in mortgage assets. Under the Purchase

Agreement, we also may not incur indebtedness that would result in the par value of our aggregate indebtedness exceeding

120% of the amount of mortgage assets we are permitted to own on December 31 of the immediately preceding calendar

year. The mortgage asset and indebtedness limitations are determined without giving effect to the changes to the accounting

guidance for transfers of financial assets and consolidation of VIEs, under which we consolidated our single-family PC trusts

and certain of our Other Guarantee Transactions in our financial statements as of January 1, 2010.

In addition, the Purchase Agreement provides that we may not enter into any new compensation arrangements or

increase amounts or benefits payable under existing compensation arrangements of any named executive officer or other

executive officer (as such terms are defined by SEC rules) without the consent of the Director of FHFA, in consultation with

the Secretary of the Treasury.

The Purchase Agreement also provides that, on an annual basis, we are required to deliver a risk management plan to

Treasury setting out our strategy for reducing our enterprise-wide risk profile and the actions we will take to reduce the

financial and operational risk associated with each of our reportable business segments.

Warrant Covenants

The warrant we issued to Treasury includes, among others, the following covenants: (a) our SEC filings under the

Exchange Act will comply in all material respects as to form with the Exchange Act and the rules and regulations thereunder;

(b) we may not permit any of our significant subsidiaries to issue capital stock or equity securities, or securities convertible

into or exchangeable for such securities, or any stock appreciation rights or other profit participation rights; (c) we may not

take any action that will result in an increase in the par value of our common stock; (d) we may not take any action to avoid

the observance or performance of the terms of the warrant and we must take all actions necessary or appropriate to protect

Treasury’s rights against impairment or dilution; and (e) we must provide Treasury with prior notice of specified actions

relating to our common stock, such as setting a record date for a dividend payment, granting subscription or purchase rights,

authorizing a recapitalization, reclassification, merger or similar transaction, commencing a liquidation of the company or

any other action that would trigger an adjustment in the exercise price or number or amount of shares subject to the warrant.

Termination Provisions

The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of the following

circumstances: (a) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding commitment

at that time; (b) the payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including

mortgage guarantee obligations); and (c) the funding by Treasury of the maximum amount of the commitment under the

Purchase Agreement. In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null

and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the

Conservator or otherwise curtails the Conservator’s powers. Treasury may not terminate its funding commitment under the

Purchase Agreement solely by reason of our being in conservatorship, receivership or other insolvency proceeding, or due to

our financial condition or any adverse change in our financial condition.

Waivers and Amendments

The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written

agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s

aggregate funding commitment or add conditions to Treasury’s funding commitment if the waiver or amendment would

adversely affect in any material respect the holders of our debt securities or Freddie Mac mortgage guarantee obligations.

Third-party Enforcement Rights

In the event of our default on payments with respect to our debt securities or Freddie Mac mortgage guarantee

obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the Conservator are

229 Freddie Mac
not diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage

guarantee obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to us

the lesser of: (a) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee

obligations; and (b) the lesser of: (i) the deficiency amount; and (ii) the maximum amount of the commitment less the

aggregate amount of funding previously provided under the commitment. Any payment that Treasury makes under those

circumstances will be treated for all purposes as a draw under the Purchase Agreement that will increase the liquidation

preference of the senior preferred stock.

Impact of the Purchase Agreement and FHFA Regulation on the Mortgage-Related Investments Portfolio

The UPB of our mortgage-related investments portfolio, for purposes of the limit imposed by the Purchase Agreement,

as amended on August 17, 2012, and FHFA regulation, may not exceed $650 billion at December 31, 2012 and was

$558 billion at December 31, 2012. The annual 15% reduction in the size of our mortgage-related investments portfolio until

it reaches $250 billion is calculated based on the maximum allowable size of the mortgage-related investments portfolio,

rather than the actual UPB of the mortgage-related investments portfolio, as of December 31 of the preceding year. The

limitation is determined without giving effect to the January 1, 2010 change in the accounting guidance related to transfers of

financial assets and consolidation of VIEs. FHFA has stated that we will not be a substantial buyer or seller of mortgages for

our mortgage-related investments portfolio.

Government Support for our Business

We are dependent upon the continued support of Treasury and FHFA in order to continue operating our business. Our

ability to access funds from Treasury under the Purchase Agreement is critical to keeping us solvent and avoiding the

appointment of a receiver by FHFA under statutory mandatory receivership provisions. Significant recent developments with

respect to the support we received from the government during 2012 included receiving $165 million in funding from

Treasury under the Purchase Agreement related to quarterly deficits in our net worth at December 31, 2011 and March 31,

2012. Since conservatorship began through December 31, 2012, we have paid cash dividends of $23.8 billion to Treasury at

the direction of the Conservator.

At December 31, 2012, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from

Treasury under the Purchase Agreement for the fourth quarter of 2012.

See “NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS” and “NOTE 11: STOCKHOLDERS’

EQUITY (DEFICIT)” for more information on the terms of the conservatorship and the Purchase Agreement.

Housing Finance Agency Initiative

In 2009, we entered into a Memorandum of Understanding with Treasury, FHFA, and Fannie Mae, which sets forth the

terms under which Treasury and, as directed by FHFA, we and Fannie Mae, would provide assistance, through three separate

initiatives, to state and local HFAs so that the HFAs can continue to meet their mission of providing affordable financing for

both single-family and multifamily housing. FHFA directed us and Fannie Mae to participate in the HFA initiative on a basis

that is consistent with the goals of being commercially reasonable and safe and sound. Treasury’s participation in these

assistance initiatives does not affect the amount of funding that Treasury can provide to Freddie Mac under the terms of the

Purchase Agreement.

The initiatives are as follows:

• TCLFP — In December 2009, on a 50-50 pro rata basis, Freddie Mac and Fannie Mae agreed to provide $8.2 billion

of credit and liquidity support, including outstanding interest at the date of the guarantee, for variable rate demand

obligations, or VRDOs, previously issued by HFAs. This support was provided through the issuance of guarantees,

which provide credit enhancement to the holders of such VRDOs and also create an obligation to provide funds to

purchase any VRDOs that are put by their holders and are not remarketed. Treasury provided a credit and liquidity

backstop on the TCLFP. These guarantees replaced existing liquidity facilities from other providers. The guarantees

were scheduled to expire on December 31, 2012. However, Treasury gave TCLFP participants the option to extend

their individual TCLFP facilities to December 31, 2015. Certain participants elected to extend their TCLFP facilities

to December 2015.

• NIBP — In December 2009, on a 50-50 pro rata basis, Freddie Mac and Fannie Mae agreed to issue in total

$15.3 billion of partially guaranteed pass-through securities backed by new single-family and certain new multifamily

230 Freddie Mac
housing bonds issued by HFAs. Treasury purchased all of the pass-through securities issued by Freddie Mac and

Fannie Mae. This initiative provides financing for HFAs to issue new housing bonds.

Treasury will bear the initial losses of principal up to 35% of total principal for these two initiatives combined, and

thereafter Freddie Mac and Fannie Mae each will be responsible only for losses of principal on the securities that it issues to

the extent that such losses are in excess of 35% of all losses under both initiatives. Treasury will bear all losses of unpaid

interest. Under both initiatives, we and Fannie Mae were paid fees at the time bonds were securitized and are also paid

ongoing fees for as long as the bonds remain outstanding.

The third initiative under the HFA initiative is described below:

• Multifamily Credit Enhancement Initiative. Using existing housing bond credit enhancement products, Freddie Mac

is providing a guarantee of new housing bonds issued by HFAs, which Treasury purchased from the HFAs. Treasury

will not be responsible for a share of any losses incurred by us in this initiative.

Related Parties as a Result of Conservatorship

As a result of our issuance to Treasury of the warrant to purchase shares of our common stock equal to 79.9% of the

total number of shares of our common stock outstanding, on a fully diluted basis, we are deemed a related party to the U.S.

government. Except for the transactions with Treasury discussed above in “Business Objectives,” “Government Support for

our Business” and “Housing Finance Agency Initiative” as well as in “NOTE 8: DEBT SECURITIES AND

SUBORDINATED BORROWINGS,” and “NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT),” no transactions outside of

normal business activities have occurred between us and the U.S. government (or any of its related parties) during the years

ended December 31, 2012, 2011 and 2010. In addition, we are deemed related parties with Fannie Mae as both we and

Fannie Mae have the same relationships with FHFA and Treasury. All transactions between us and Fannie Mae have

occurred in the normal course of business.

NOTE 3: VARIABLE INTEREST ENTITIES

We use securitization trusts in our securities issuance process, and are required to evaluate the trusts for consolidation

on an ongoing basis. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Consolidation and

Equity Method of Accounting” for further information regarding the consolidation of certain VIEs.

Based on our evaluation of whether we hold a controlling financial interest in these VIEs, we determined that we are the

primary beneficiary of trusts that issue our single-family PCs and certain Other Guarantee Transactions. Therefore, we

consolidate on our balance sheet the assets and liabilities of these trusts. In addition to our PC trusts, we are involved with

numerous other entities that meet the definition of a VIE, as discussed below.

VIEs for which We are the Primary Beneficiary

See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Securitization Activities through

Issuances of Freddie Mac Mortgage-Related Securities” for information on the nature of single-family PC trusts, REMICs

and Other Structured Securities, and Other Guarantee Transactions.

Single-family PC Trusts

Our single-family PC trusts issue pass-through securities that represent undivided beneficial interests in pools of

mortgages held by these trusts. PCs are designed so that we bear the credit risk inherent in the loans underlying the PCs

through our guarantee of principal and interest payments on the PCs. The PC holders bear the interest rate or prepayment risk

on the mortgage loans and the risk that we will not perform on our obligation as guarantor. For purposes of our consolidation

assessments, our evaluation of power and economic exposure with regard to PC trusts focuses on credit risk because the

credit performance of the underlying mortgage loans was identified as the activity that most significantly impacts the

economic performance of these entities. We have the power to impact the activities related to this risk in our role as

guarantor and master servicer.

Specifically, in our role as master servicer, we establish requirements for how mortgage loans are serviced and what

steps are to be taken to mitigate credit losses (e.g., modification, foreclosure). Additionally, in our capacity as guarantor, we

have the ability to remove defaulted mortgage loans out of the PC trust to help mitigate credit losses. See “NOTE 5:

231 Freddie Mac
INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for further information regarding our removal of

mortgage loans out of PC trusts. These powers allow us to direct the activities of the VIE (i.e., the PC trust) that most

significantly impact its economic performance. In addition, we determined that our guarantee to each PC trust to provide

principal and interest payments obligates us to absorb losses that could potentially be significant to the PC trusts.

Accordingly, we concluded that we are the primary beneficiary of our single-family PC trusts.

At December 31, 2012 and 2011, we were the primary beneficiary of, and therefore consolidated, single-family PC

trusts with assets totaling $1.5 trillion and $1.6 trillion, respectively, as measured using the UPB of issued PCs. The assets of

each PC trust can be used only to settle obligations of that trust. In connection with our PC trusts, we have credit protection

in the form of primary mortgage insurance, pool insurance, recourse to lenders, and other forms of credit enhancement. We

also have credit protection for certain of our PC trusts that issue PCs backed by loans or certificates of federal agencies (such

as FHA, VA, and USDA). See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES — Credit Protection and

Other Forms of Credit Enhancement” for additional information regarding third-party credit enhancements related to our PC

trusts.

REMICs and Other Structured Securities

REMICs and Other Structured Securities are mortgage-related securities that we issue to third parties. We do not

consolidate these securities unless we hold substantially all of the beneficial interests in the trust and are therefore considered

to be the primary beneficiary. We have investments in certain REMIC trusts where we held substantially all the outstanding

beneficial interests in the trusts in prior periods, but did not consolidate the trusts in those periods. We began consolidating

these trusts during the third quarter of 2012 by derecognizing our investments in these entities, which totaled approximately

$4.4 billion, and recognizing the assets and liabilities of the consolidated entities at their fair values. See “NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Basis of Presentation” for more information on the

correction of this prior period error that was not material to our consolidated financial statements.

Other Guarantee Transactions

Other Guarantee Transactions are mortgage-related securities that we issue to third parties in exchange for non-Freddie

Mac mortgage-related securities. The degree to which our involvement with securitization trusts that issue Other Guarantee

Transactions provides us with power to direct the activities that most significantly impact the economic performance of these

VIEs (e.g., the ability to direct the servicing of the underlying assets of these entities) and our obligation to absorb losses that

could potentially be significant to the VIEs (e.g., the existence of third-party credit enhancements) varies by transaction. For

all Other Guarantee Transactions, our variable interest in these VIEs represents some form of credit guarantee, whether

covering all the issued beneficial interests or only the most senior ones. The nature of our credit guarantee typically

determines whether we have power to direct the activities that most significantly impact the economic performance of the

VIE.

We consolidate Other Guarantee Transactions when our credit guarantee is in a first loss position to absorb credit losses

on the underlying assets of these entities as of the reporting date and we also have the ability to direct the servicing of the

underlying assets, which is the power to direct the activities that most significantly impact the economic performance of

these VIEs. For those Other Guarantee Transactions in which our credit guarantee is not in a first loss position to absorb

credit losses on the underlying assets of these entities as of the reporting date (i.e., our credit guarantee is in a secondary loss

position), or we do not have the ability to direct the servicing of the underlying assets, then we are not the primary

beneficiary, and we do not consolidate the VIE. Our consolidation determination took into consideration the specific facts

and circumstances of our involvement with each of these entities. As a result, we have concluded that we are the primary

beneficiary of Other Guarantee Transactions with underlying assets totaling $11.0 billion and $12.9 billion at December 31,

2012 and 2011, respectively.

Consolidated VIEs

The table below represents the carrying amounts and classification of the assets and liabilities of consolidated VIEs on

our consolidated balance sheets.

232 Freddie Mac
Table 3.1 — Assets and Liabilities of Consolidated VIEs

Consolidated Balance Sheets Line Item December 31, 2012 December 31, 2011

(in millions)

Cash and cash equivalents ............................................................ $ 1 $ 2

Restricted cash and cash equivalents ..................................................... 14,289 27,675

Federal funds sold and securities purchased under agreements to resell ............................ 19,250 —

Mortgage loans held-for-investment by consolidated trusts..................................... 1,495,932 1,564,131

Accrued interest receivable ........................................................... 5,426 6,242

Real estate owned, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 60

Other assets ...................................................................... 7,986 6,083

Total assets of consolidated VIEs ..................................................... $1,542,929 $1,604,193

Accrued interest payable ............................................................. $ 5,142 $ 5,943

Debt securities of consolidated trusts held by third parties ..................................... 1,419,524 1,471,437

Other liabilities .................................................................... 1 3

Total liabilities of consolidated VIEs .................................................. $1,424,667 $1,477,383

VIEs for which We are not the Primary Beneficiary

The table below represents the carrying amounts and classification of the assets and liabilities recorded on our

consolidated balance sheets related to our variable interests in non-consolidated VIEs, as well as our maximum exposure to

loss as a result of our involvement with these VIEs. Our involvement with VIEs for which we are not the primary beneficiary

generally takes one of two forms: (a) purchasing an investment in these entities; or (b) providing a guarantee to these entities.

Our maximum exposure to loss for those VIEs in which we have purchased an investment is calculated as the maximum

potential charge that we would recognize in earnings if that investment were to become worthless. This amount does not

include other-than-temporary impairments or other write-downs that we previously recognized through earnings. Our

maximum exposure to loss for those VIEs for which we have provided a guarantee represents the contractual amounts that

could be lost under the guarantees if counterparties or borrowers defaulted, without consideration of possible recoveries

under credit enhancement arrangements. We do not believe the maximum exposure to loss disclosed in the table below is

representative of the actual loss we are likely to incur, based on our historical loss experience and after consideration of

proceeds from related collateral liquidation, including possible recoveries under credit enhancement arrangements.

233 Freddie Mac
Table 3.2 — Variable Interests in VIEs for which We are not the Primary Beneficiary

December 31, 2012

Asset-Backed

Investment Trusts(1)

Mortgage-Related Security Trusts Unsecuritized

Multifamily

Loans(3) Other(1)

Freddie Mac

Securities(2)

Non-Freddie Mac

Securities(1)

(in millions)

Assets and Liabilities Recorded on our Consolidated Balance

Sheets

Assets:

Cash and cash equivalents ........................... $ — $ — $ — $ — $ —

Restricted cash and cash equivalents . . . . . . . . . . . . . . . . . . . . — 24 — 22 119

Investments in securities:

Available-for-sale, at fair value ...................... — 58,515 110,583 — —

Trading, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 10,354 10,617 — —

Mortgage loans:

Held-for-investment, unsecuritized ................... — — — 62,245 —

Held-for-sale ................................... — — — 14,238 —

Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . — 324 350 326 7

Derivative assets, net ............................... — — — — 1

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 558 2 381 482

Liabilities:

Derivative liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1) — — (40)

Other liabilities ................................... — (667) (2) (29) (635)

Maximum Exposure to Loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ 292 $51,045 $128,475 $ 77,213 $10,871

Total Assets of Non-Consolidated VIEs(4) ................. $10,901 $59,302 $768,704 $130,512 $25,004

December 31, 2011

Asset-Backed

Investment Trusts(1)

Mortgage-Related Security Trusts Unsecuritized

Multifamily

Loans(3) Other(1)

Freddie Mac

Securities(2)

Non-Freddie Mac

Securities(1)

(in millions)

Assets and Liabilities Recorded on our Consolidated Balance

Sheets

Assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 447 $ — $ — $ — $ —

Restricted cash and cash equivalents . . . . . . . . . . . . . . . . . . . . — 53 — 33 167

Investments in securities:

Available-for-sale, at fair value ...................... — 81,092 121,743 — —

Trading, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 16,047 15,473 — —

Mortgage loans:

Held-for-investment, unsecuritized ................... — — — 72,295 —

Held-for-sale ................................... — — — 9,710 —

Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . — 471 420 353 6

Derivative assets, net ............................... — — — — 1

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 432 1 375 434

Liabilities:

Derivative liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1) — — (42)

Other liabilities ................................... — (585) — (39) (675)

Maximum Exposure to Loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ 749 $36,438 $153,620 $ 82,766 $11,198

Total Assets of Non-Consolidated VIEs(4) ................. $16,748 $41,740 $921,219 $134,145 $25,616

(1) For our involvement with non-consolidated asset-backed investment trusts, non-Freddie Mac security trusts and certain other VIEs where we do not

provide a guarantee, our maximum exposure to loss is computed as the carrying amount if the security is classified as trading or the amortized cost if the

security is classified as available-for-sale for our investments and related assets recorded on our consolidated balance sheets, including any unrealized

amounts recorded in AOCI for securities classified as available-for-sale.

(2) Freddie Mac securities include our variable interests in single-family multiclass REMICs and Other Structured Securities, multifamily PCs, multifamily

Other Structured Securities, and Other Guarantee Transactions that we do not consolidate. Our investments in single-family REMICs and Other

Structured Securities that are not consolidated do not give rise to any additional exposure to credit loss as we already consolidate the underlying

collateral.

(3) For unsecuritized multifamily loans, our maximum exposure to loss includes accrued interest receivable associated with these loans.

(4) Except for unsecuritized multifamily loans, this represents the remaining UPB of assets held by non-consolidated VIEs using the most current

information available, where our continuing involvement is significant. For unsecuritized multifamily loans, this represents the fair value of the property

serving as collateral for the loan. We do not include the assets of our non-consolidated trusts related to single-family REMICs and Other Structured

Securities in this amount as we already consolidate the underlying collateral of these trusts on our consolidated balance sheets.

Asset-Backed Investment Trusts

We invest in a variety of short-term non-mortgage-related, asset-backed investment trusts. These short-term investments

represent interests in trusts consisting of a pool of receivables or other financial assets, typically auto and equipment loans.

These trusts act as vehicles to allow originators to securitize assets. Securities are structured from the underlying pool of

assets to provide for varying degrees of risk. Primary risks include potential loss from the credit risk and interest-rate risk of

the underlying pool. The originators of the financial assets or the underwriters of the securities offering create the trusts and

typically own the residual interest in the trust assets.

234 Freddie Mac
At both December 31, 2012 and 2011, we had investments in 11 asset-backed investment trusts in which we had a

variable interest but were not considered the primary beneficiary. Our investments in these asset-backed investment trusts as

of December 31, 2012 were made during 2012. At both December 31, 2012 and 2011, we were not the primary beneficiary

of any such trusts because our investments are passive in nature and do not provide us with the power to direct the activities

of the trusts that most significantly impact their economic performance. As such, our investments in these asset-backed

investment trusts are accounted for as investment securities as described in “NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES.” Our investments in these trusts totaled $0.3 billion and $0.7 billion at December 31, 2012 and

2011, respectively, and are included as cash and cash equivalents, available-for-sale securities, or trading securities on our

consolidated balance sheets. At both December 31, 2012 and 2011, we did not guarantee any obligations of these investment

trusts and our exposure was limited to the amount of our investment. See “NOTE 7: INVESTMENTS IN SECURITIES” for

additional information regarding our asset-backed investments.

Mortgage-Related Security Trusts

Freddie Mac Securities

Freddie Mac securities related to our variable interests in non-consolidated VIEs primarily consist of our REMICs and

Other Structured Securities and Other Guarantee Transactions. REMICs and Other Structured Securities are created by using

PCs or previously issued REMICs and Other Structured Securities as collateral. Other Guarantee Transactions are created by

using non-Freddie Mac mortgage-related securities as collateral.

At both December 31, 2012 and 2011, our involvement with most of our REMICS and Other Structured Securities as

well as certain Other Guarantee Transactions does not provide us with the power to direct the activities that most

significantly impact the economic performance of these VIEs. As a result, we hold a variable interest in, but are not the

primary beneficiary of those securitization trusts. For non-consolidated REMICs and Other Structured Securities and Other

Guarantee Transactions, our investments are primarily included in either available-for-sale securities or trading securities on

our consolidated balance sheets. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —

Securitization Activities through Issuances of Freddie Mac Mortgage-Related Securities” for additional information on

accounting for purchases of PCs and beneficial interests issued by resecuritization trusts. Our investments in these trusts are

funded through the issuance of unsecured debt, which is recorded as other debt on our consolidated balance sheets.

Non-Freddie Mac Securities

We invest in a variety of mortgage-related securities issued by third-parties, including non-Freddie Mac agency

securities, CMBS, other private-label securities backed by various mortgage-related assets, and obligations of states and

political subdivisions. These investments typically represent interests in trusts that consist of a pool of mortgage-related

assets and act as vehicles to allow originators to securitize those assets. Securities are structured from the underlying pool of

assets to provide for varying degrees of risk, including potential loss from the credit risk and interest-rate risk of the

underlying pool of mortgages. The originators of the financial assets or the underwriters of the securities offering create the

trusts and typically own the residual interest in the trust assets. See “NOTE 7: INVESTMENTS IN SECURITIES” for

additional information regarding our non-Freddie Mac securities.

Our investments in these non-Freddie Mac securities at December 31, 2012 were made between 1994 and 2012. We are

not generally the primary beneficiary of non-Freddie Mac securities trusts because our investments are passive in nature and

do not provide us with the power to direct the activities of the trusts that most significantly impact their economic

performance. We were not the primary beneficiary of any significant non-Freddie Mac securities trusts as of December 31,

2012 or 2011. At both December 31, 2012 and 2011, we did not guarantee any obligations of these investment trusts and our

exposure was limited to the amount of our investment. Our investments in these trusts are funded through the issuance of

unsecured debt, which is recorded as other debt on our consolidated balance sheets.

Unsecuritized Multifamily Loans

We purchase loans made to various multifamily real estate entities. We primarily purchase such loans for securitization.

The loans we acquire usually are, at origination, equal to 80% or less of the value of the related underlying property. The

remaining 20% of value is typically funded through equity contributions by the partners or members of the borrower entity.

In a few cases, the 20% not funded through the loan we acquire also includes subordinate loans or mezzanine financing from

third-party lenders.

235 Freddie Mac
We held more than 6,000 and 7,000 unsecuritized multifamily loans at December 31, 2012 and 2011, respectively. The

UPB of our investments in these loans was $76.6 billion and $82.3 billion as of December 31, 2012 and 2011, respectively,

and was included in unsecuritized held-for-investment mortgage loans, at amortized cost, and held-for-sale mortgage loans at

fair value on our consolidated balance sheets. We are not generally the primary beneficiary of the multifamily real estate

borrowing entities because the loans we acquire are passive in nature and do not provide us with the power to direct the

activities of these entities that most significantly impact their economic performance. However, when a multifamily loan

becomes delinquent, we may become the primary beneficiary of the borrowing entity depending upon the structure of this

entity and the rights granted to us under the governing legal documents. At both December 31, 2012 and 2011, the amount of

unsecuritized multifamily loans for which we could be considered the primary beneficiary of the underlying borrowing entity

was not material. See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES” for more information.

Other

Our involvement with other VIEs primarily includes certain of our other mortgage-related guarantees, investments in

LIHTC partnerships, and other guarantee commitments that we account for as derivatives.

We hold equity investments in various LIHTC partnerships that invest in lower-tier or project partnerships that are

single asset entities. In early 2010, the Acting Director of FHFA informed us that we may not sell or transfer our investments

in LIHTC assets and that he sees no other disposition options. As a result, we wrote down the carrying value of our LIHTC

investments to zero as we determined we could not realize any value from these investments.

At December 31, 2012 and 2011, we were the primary beneficiary of two and one, respectively, real estate entities that

invest in multifamily property, related to credit-enhanced multifamily housing revenue bonds that were not deemed to be

material. We were not the primary beneficiary of the remainder of other VIEs because our involvement in these VIEs is

passive in nature and does not provide us with the power to direct the activities of the VIEs that most significantly impact

their economic performance. See “Table 3.2 — Variable Interests in VIEs for which We are not the Primary Beneficiary” for

the carrying amounts and classification of the assets and liabilities recorded on our consolidated balance sheets related to our

other variable interests in non-consolidated VIEs, as well as our maximum exposure to loss as a result of our involvement

with these VIEs.

NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES

We own both single-family mortgage loans, which are secured by one to four unit residential properties, and

multifamily mortgage loans, which are secured by properties with five or more residential rental units. Our single-family

loans are predominately first lien, fixed-rate mortgages secured by the borrower’s primary residence. For a discussion of our

significant accounting policies regarding our mortgage loans and loan loss reserves, see “NOTE 1: SUMMARY OF

SIGNIFICANT ACCOUNTING POLICIES.”

236 Freddie Mac
The table below summarizes the types of loans on our consolidated balance sheets as of December 31, 2012 and 2011.

Table 4.1 — Mortgage Loans

December 31, 2012 December 31, 2011

Unsecuritized

Held by

Consolidated

Trusts Total Unsecuritized

Held by

Consolidated

Trusts Total

(in millions)

Single-family:(1)

Fixed-rate

Amortizing ............................... $131,061 $1,356,030 $1,487,091 $153,177 $1,418,751 $1,571,928

Interest-only .............................. 2,445 8,874 11,319 3,184 14,758 17,942

Total fixed-rate ........................... 133,506 1,364,904 1,498,410 156,361 1,433,509 1,589,870

Adjustable-rate

Amortizing ............................... 2,630 67,067 69,697 3,428 68,362 71,790

Interest-only .............................. 7,323 31,590 38,913 10,376 43,655 54,031

Total adjustable-rate ....................... 9,953 98,657 108,610 13,804 112,017 125,821

Other Guarantee Transactions .................... — 10,407 10,407 — 12,776 12,776

FHA/VA and other governmental ................. 1,285 3,062 4,347 1,494 3,254 4,748

Total single-family ............................. 144,744 1,477,030 1,621,774 171,659 1,561,556 1,733,215

Multifamily:(1)

Fixed-rate .................................. 66,384 448 66,832 69,647 — 69,647

Adjustable-rate .............................. 10,182 — 10,182 12,661 — 12,661

Other governmental ........................... 3 — 3 3 — 3

Total multifamily ............................... 76,569 448 77,017 82,311 — 82,311

Total UPB of mortgage loans ...................... 221,313 1,477,478 1,698,791 253,970 1,561,556 1,815,526

Deferred fees, unamortized premiums, discounts and

other cost basis adjustments ................... (5,376) 23,373 17,997 (6,125) 10,926 4,801

Fair value adjustments on loans held-for-sale(2) . . . . . . . . 266 — 266 195 — 195

Allowance for loan losses on mortgage loans held-forinvestment ................................ (25,788) (4,919) (30,707) (30,912) (8,351) (39,263)

Total mortgage loans, net ......................... $190,415 $1,495,932 $1,686,347 $217,128 $1,564,131 $1,781,259

Mortgage loans, net:

Held-for-investment ........................... $176,177 $1,495,932 $1,672,109 $207,418 $1,564,131 $1,771,549

Held-for-sale ................................ 14,238 — 14,238 9,710 — 9,710

Total mortgage loans, net ......................... $190,415 $1,495,932 $1,686,347 $217,128 $1,564,131 $1,781,259

(1) Based on UPB and excluding mortgage loans traded, but not yet settled.

(2) Consists of fair value adjustments associated with multifamily mortgage loans for which we have made a fair value election.

During 2012 and 2011, we purchased $420.0 billion and $316.3 billion, respectively, in UPB of single-family mortgage

loans and $1.1 billion and $2.7 billion, respectively, in UPB of multifamily loans that were classified as held-for-investment

at purchase. Our sales of multifamily mortgage loans occur primarily through the issuance of multifamily K Certificates,

which we categorize as Other Guarantee Transactions. See “NOTE 9: FINANCIAL GUARANTEES” for more information

on our issuances of Other Guarantee Transactions. We did not have significant reclassifications of mortgage loans into heldfor-sale from held-for-investment during 2012. We did not sell any held-for-investment loans during 2012.

Credit Quality of Mortgage Loans

We evaluate the credit quality of single-family loans using different criteria than the criteria we use to evaluate

multifamily loans. The current LTV ratio is one key factor we consider when estimating our loan loss reserves for singlefamily loans. As estimated current LTV ratios increase, the borrower’s equity in the home decreases, which negatively

affects the borrower’s ability to refinance or to sell the property for an amount at or above the balance of the outstanding

mortgage loan. A second-lien mortgage also reduces the borrower’s equity in the home, and has a similar negative effect on

the borrower’s ability to refinance or sell the property for an amount at or above the combined balances of the first and

second mortgages. As of December 31, 2012 and 2011, approximately 14% and 15%, respectively, of loans in our singlefamily credit guarantee portfolio had second-lien financing by third parties at the time of origination of the first mortgage.

However, borrowers are free to obtain second-lien financing after origination, and we are not entitled to receive notification

when a borrower does so. Therefore, it is likely that additional borrowers have post-origination second-lien mortgages. For

further information about concentrations of risk associated with our single-family and multifamily mortgage loans, see

“NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS.”

237 Freddie Mac
The table below presents information on the estimated current LTV ratios of single-family loans on our consolidated

balance sheets, all of which are held-for-investment. Our current LTV ratio estimates are based on available data through the

end of each respective period presented.

Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio

As of December 31, 2012 As of December 31, 2011

Estimated Current LTV Ratio(1) Estimated Current LTV Ratio(1)

<= 80 >80 to 100 > 100(2) Total <= 80 >80 to 100 > 100(2) Total

(in millions)

Single-family loans:

20 and 30-year or more, amortizing

fixed-rate(3) .................... $ 699,386 $309,099 $188,048 $1,196,533 $641,698 $383,320 $247,468 $1,272,486

15-year amortizing fixed-rate(3) ....... 249,666 18,473 5,433 273,572 238,287 18,280 2,966 259,533

Adjustable-rate(4) ................. 50,764 10,341 4,845 65,950 43,728 13,826 9,180 66,734

Alt-A, interest-only, and option

ARM(5) ...................... 27,642 24,030 52,057 103,729 30,589 29,251 79,418 139,258

Total single-family loans ............. $1,027,458 $361,943 $250,383 1,639,784 $954,302 $444,677 $339,032 1,738,011

Multifamily loans .................. 63,032 72,801

Total recorded investment of held-forinvestment loans ................. $1,702,816 $1,810,812

(1) The current LTV ratios are management estimates, which are updated on a monthly basis. Current market values are estimated by adjusting the value of

the property at origination based on changes in the market value of homes in the same geographical area since that time. The value of a property at

origination is based on: (a) for purchase mortgages, either the lesser of the appraised value of the property at the time of mortgage origination or the

mortgage borrower’s purchase price; or (b) for refinance mortgages, a third-party appraisal. Changes in market value are derived from our internal index

which measures price changes for repeat sales and refinancing activity on the same properties using Freddie Mac and Fannie Mae single-family

mortgage acquisitions, including foreclosure sales. Estimates of the current LTV ratio include the credit-enhanced portion of the loan and exclude any

secondary financing by third parties. The existence of a second lien reduces the borrower’s equity in the property and, therefore, can increase the risk of

default.

(2) The serious delinquency rate for the total of single-family held-for-investment mortgage loans with estimated current LTV ratios in excess of 100% was

12.7% and 12.8% as of December 31, 2012 and 2011, respectively.

(3) The majority of our loan modifications result in new terms that include fixed interest rates after modification. However, our HAMP loan modifications

result in an initial interest rate that subsequently adjusts gradually after five years to a new rate that is fixed for the remaining life of the loan. We have

classified these loans as fixed-rate for purposes of this presentation even though they have a rate adjustment provision, because the future rates are

determined at the time of the modification rather than at a subsequent date.

(4) Includes balloon/reset mortgage loans and excludes option ARMs.

(5) We have discontinued our purchases of Alt-A, interest-only, and option ARM loans. For reporting purposes, loans within the Alt-A category continue to

be presented in that category following modification, even though the borrower may have provided full documentation of assets and income to complete

the modification. For reporting purposes, loans within the option ARM category continue to be presented in that category following modification, even

though the modified loan no longer provides for optional payment provisions.

For information about the payment status of single-family and multifamily mortgage loans, including the amount of

such loans we deem impaired, see “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS.” For a

discussion of certain indicators of credit quality for the multifamily loans on our consolidated balance sheets, see “NOTE 15:

CONCENTRATION OF CREDIT AND OTHER RISKS — Multifamily Mortgage Portfolio.”

Allowance for Loan Losses and Reserve for Guarantee Losses, or Loan Loss Reserve

We maintain an allowance for loan losses on mortgage loans that we classify as held-for-investment on our consolidated

balance sheets. Our reserve for guarantee losses is associated with Freddie Mac mortgage-related securities backed by

multifamily loans, certain single-family Other Guarantee Transactions, and other guarantee commitments, for which we have

incremental credit risk. A significant portion of the unsecuritized single-family loans on our consolidated balance sheets are

seriously delinquent and/or TDR loans that we previously removed from our PC pools. As a result, these seriously delinquent

and TDR loans typically have a higher associated allowance for loan loss than loans that remain in consolidated trusts.

Single-family loans that remain in consolidated trusts are generally aggregated and measured collectively for impairment

based on similar risk characteristics of the loans.

238 Freddie Mac
The table below summarizes loan loss reserve activity.

Table 4.3 — Detail of Loan Loss Reserves

Year Ended December 31,

2012 2011

Allowance for Loan Losses Allowance for Loan Losses

Unsecuritized

Held By

Consolidated

Trusts

Reserve for

Guarantee

Losses(1) Total Unsecuritized

Held By

Consolidated

Trusts

Reserve for

Guarantee

Losses(1) Total

(in millions)

Single-family:

Beginning balance ............ $ 30,406 $ 8,351 $159 $ 38,916 $ 27,317 $ 11,644 $137 $ 39,098

Provision (benefit) for credit

losses .................... (3,186) 5,199 — 2,013 2,796 8,059 43 10,898

Charge-offs(2) ................ (12,559) (950) (11) (13,520) (13,756) (970) (9) (14,735)

Recoveries(2) ................. 2,136 126 — 2,262 2,618 146 - 2,764

Transfers, net(3) ............... 8,652 (7,808) (7) 837 11,431 (10,528) (12) 891

Ending balance ............... $ 25,449 $ 4,918 $141 $ 30,508 $ 30,406 $ 8,351 $159 $ 38,916

Multifamily:

Beginning balance . . . . . . . . . . . . $ 506 $ — $ 39 $ 545 $ 730 $ — $ 98 $ 828

Provision (benefit) for credit

losses .................... (132) — 9 (123) (152) — (44) (196)

Charge-offs(2) ................ (34) — (2) (36) (73) — (2) (75)

Recoveries(2) ................. — — 2 2 1 — — 1

Transfers, net . . . . . . . . . . . . . . . . (1) 1 (6) (6) — — (13) (13)

Ending balance . . . . . . . . . . . . . . . $ 339 $ 1 $ 42 $ 382 $ 506 $ — $ 39 $ 545

Total:

Beginning balance ............ $ 30,912 $ 8,351 $198 $ 39,461 $ 28,047 $ 11,644 $235 $ 39,926

Provision (benefit) for credit

losses .................... (3,318) 5,199 9 1,890 2,644 8,059 (1) 10,702

Charge-offs(2) ................ (12,593) (950) (13) (13,556) (13,829) (970) (11) (14,810)

Recoveries(2) ................. 2,136 126 2 2,264 2,619 146 — 2,765

Transfers, net(3) ............... 8,651 (7,807) (13) 831 11,431 (10,528) (25) 878

Ending balance ............... $ 25,788 $ 4,919 $183 $ 30,890 $ 30,912 $ 8,351 $198 $ 39,461

Total loan loss reserve as a percentage of the total mortgage portfolio,

excluding non-Freddie Mac securities .......................... 1.71% 2.08%

(1) Loans associated with our reserve for guarantee losses are those loans that underlie our non-consolidated securitization trusts and other guarantee

commitments and are evaluated for impairment on a collective basis. Our reserve for guarantee losses is included in other liabilities on our consolidated

balance sheets.

(2) Charge-offs represent the amount of a loan that has been discharged to remove the loan from our consolidated balance sheet principally due to either

foreclosure transfers or short sales. Charge-offs exclude $308 million and $422 million for the years ended December 31, 2012 and 2011, respectively,

recorded as losses on loans purchased within other expenses on our consolidated statements of comprehensive income, which relate to certain loans

purchased under financial guarantees. We record charge-offs and recoveries on loans held by consolidated trusts when a loss event (such as a foreclosure

transfer or foreclosure alternative) occurs on a loan while it remains in a consolidated trust. Recoveries of charge-offs primarily result from foreclosure

alternatives and REO acquisitions on loans where: (a) a share of default risk has been assumed by mortgage insurers, servicers, or other third parties

through credit enhancements; or (b) we received a reimbursement of our losses from a seller/servicer associated with a repurchase request on a loan that

experienced a foreclosure transfer or a foreclosure alternative.

(3) For the years ended December 31, 2012 and 2011, consists of: (a) approximately $7.8 billion and $10.5 billion, respectively, of reclassified single-family

reserves related to our removal of loans previously held by consolidated trusts; (b) approximately $0.8 billion and $1.1 billion, respectively, attributable

to recapitalization of past due interest on modified mortgage loans; (c) $0 million and $(258) million, respectively, related to agreements with seller/

servicers where the transfer relates to recoveries received under these agreements to compensate us for estimated credit losses; and (d) $1 million and

$48 million respectively, of other transfers.

239 Freddie Mac
The table below presents our allowance for loan losses and our recorded investment in mortgage loans, held-forinvestment, by impairment evaluation methodology.

Table 4.4 — Net Investment in Mortgage Loans

December 31, 2012 December 31, 2011

Singlefamily Multifamily TotalSinglefamily Multifamily Total

(in millions)

Recorded investment:

Collectively evaluated ............................ $1,550,493 $60,836 $1,611,329 $1,677,974 $70,131 $1,748,105

Individually evaluated ............................ 89,291 2,196 91,487 60,037 2,670 62,707

Total recorded investment ........................ 1,639,784 63,032 1,702,816 1,738,011 72,801 1,810,812

Ending balance of the allowance for loan losses:

Collectively evaluated ............................ (12,432) (135) (12,567) (23,657) (260) (23,917)

Individually evaluated ............................ (17,935) (205) (18,140) (15,100) (246) (15,346)

Total ending balance of the allowance ............... (30,367) (340) (30,707) (38,757) (506) (39,263)

Net investment in mortgage loans ...................... $1,609,417 $62,692 $1,672,109 $1,699,254 $72,295 $1,771,549

A significant number of unsecuritized single-family mortgage loans on our consolidated balance sheets are individually

evaluated for impairment and substantially all single-family mortgage loans held by our consolidated trusts are collectively

evaluated for impairment. The ending balance of the allowance for loan losses associated with our held-for-investment

unsecuritized mortgage loans represented approximately 12.8% and 13.0% of the recorded investment in such loans at

December 31, 2012 and 2011, respectively. The ending balance of the allowance for loan losses associated with mortgage

loans held by our consolidated trusts represented approximately 0.3% and 0.5% of the recorded investment in such loans as

of December 31, 2012 and 2011, respectively.

Credit Protection and Other Forms of Credit Enhancement

In connection with many of our mortgage loans held-for-investment and other mortgage-related guarantees, we have

credit protection in the form of primary mortgage insurance, pool insurance, recourse to lenders, and other forms of credit

enhancements.

The table below presents the UPB of loans on our consolidated balance sheets or underlying our financial guarantees

with credit protection and the maximum amounts of potential loss recovery by type of credit protection.

240 Freddie Mac
Table 4.5 — Recourse and Other Forms of Credit Protection(1)

UPB at Maximum Coverage(2) at

December 31,

2012

December 31,

2011

December 31,

2012

December 31,

2011

(in millions)

Single-family:

Primary mortgage insurance ......................................... $188,419 $198,007 $46,685 $48,741

Lender recourse and indemnifications .................................. 7,875 8,798 7,718 8,453

Pool insurance(3) .................................................. 7,307 26,754 1,355 2,210

HFA indemnification(4) ............................................. 6,270 8,637 3,323 3,323

Subordination(5) ................................................... 2,960 3,281 503 647

Other credit enhancements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 133 62 99

Total ........................................................ $212,893 $245,610 $59,646 $63,473

Multifamily:

HFA indemnification(4) ............................................. $ 1,112 $ 1,331 $ 699 $ 466

Subordination(5) ................................................... 40,549 23,637 6,698 3,439

Other credit enhancements .......................................... 7,235 7,934 2,263 2,474

Total ........................................................ $ 48,896 $ 32,902 $ 9,660 $ 6,379

(1) Includes the credit protection associated with unsecuritized mortgage loans, loans held by our consolidated trusts as well as our non-consolidated

mortgage guarantees and excludes FHA/VA and other governmental loans. Except for subordination coverage, these amounts exclude credit protection

associated with $13.8 billion and $16.6 billion in UPB of single-family loans underlying Other Guarantee Transactions as of December 31, 2012 and

December 31, 2011, respectively, for which the information was not available.

(2) Except for subordination, this represents the remaining amount of loss recovery that is available subject to terms of counterparty agreements.

(3) Maximum coverage amounts presented have been limited to the remaining UPB at period end. Prior period amounts have been revised to conform to

current period presentation. Excludes approximately $3.3 billion and $13.5 billion in UPB at December 31, 2012 and December 31, 2011, respectively,

where the related loans are also covered by primary mortgage insurance.

(4) Represents the amount of potential reimbursement of losses on securities we have guaranteed that are backed by state and local HFA bonds, under which

Treasury bears initial losses on these securities up to 35% of the original UPB issued under the HFA initiative on a combined program-wide basis.

Treasury will also bear losses of unpaid interest.

(5) Represents Freddie Mac issued mortgage-related securities with subordination protection, excluding those backed by HFA bonds. Excludes mortgagerelated securities where subordination coverage was exhausted or maximum coverage amounts were limited to the remaining UPB at that date.

Primary mortgage insurance is the most prevalent type of credit enhancement protecting our single-family credit

guarantee portfolio, and is typically provided on a loan-level basis. Pool insurance contracts provide insurance on a group of

mortgage loans up to a stated aggregate loss limit. We have not purchased pool insurance on single-family loans since March

2008. We also reached the maximum limit of recovery on certain pool insurance contracts. For information about

counterparty risk associated with mortgage insurers, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER

RISKS — Mortgage Insurers.”

We also have credit enhancements protecting our multifamily mortgage portfolio. Subordination, primarily through our

K Certificates, is the most prevalent type, whereby we mitigate our credit risk exposure by structuring our securities to shift a

significant portion of expected credit losses to third party investors through the sale of subordinate tranches.

We also have credit protection for certain of the mortgage loans on our consolidated balance sheets that are covered by

insurance or partial guarantees issued by federal agencies (such as FHA, VA, and USDA). The total UPB of these loans was

$4.3 billion and $4.7 billion as of December 31, 2012 and 2011, respectively.

NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS

Individually Impaired Loans

Individually impaired single-family loans include performing and non-performing TDRs, as well as loans acquired

under our financial guarantees with deteriorated credit quality. Individually impaired multifamily loans include TDRs, loans

three monthly payments or more past due, and loans that are impaired based on management judgment. For a discussion of

our significant accounting policies regarding impaired and non-performing loans, which are applied consistently for

multifamily loans and single-family loan classes, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES.”

Total loan loss reserves consist of a specific valuation allowance related to individually impaired mortgage loans, and a

general reserve for other probable incurred losses. Our recorded investment in individually impaired mortgage loans and the

related specific valuation allowance are summarized in the table below by product class (for single-family loans).

241 Freddie Mac
Table 5.1 — Individually Impaired Loans

Balance at December 31, 2012 For The Year Ended December 31, 2012

UPB

Recorded

Investment

Associated

Allowance

Net

Investment

Average

Recorded

Investment

Interest

Income

Recognized

Interest

Income

Recognized

On Cash Basis

(in millions)

Single-family —

With no specific allowance recorded(1): 20 and 30-year or more, amortizing fixed-rate(2) ................... $ 6,582 $ 3,236 $ — $ 3,236 $ 3,136 $ 339 $ 46

15-year amortizing fixed-rate(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 30 — 30 25 6 1

Adjustable rate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 12 — 12 7 — —

Alt-A, interest-only, and option ARM(4) ......................... 1,799 857 — 857 847 63 11

Total with no specific allowance recorded ......................... 8,464 4,135 — 4,135 4,015 408 58

With specific allowance recorded:(5)

20 and 30-year or more, amortizing fixed-rate(2) ................... 67,473 66,501 (13,522) 52,979 55,431 1,632 279

15-year amortizing fixed-rate(2) ............................... 1,134 1,125 (55) 1,070 714 31 8

Adjustable rate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 883 874 (107) 767 558 14 5

Alt-A, interest-only, and option ARM(4) ......................... 16,946 16,656 (4,251) 12,405 14,278 326 82

Total with specific allowance recorded ........................... 86,436 85,156 (17,935) 67,221 70,981 2,003 374

Combined single-family:

20 and 30-year or more, amortizing fixed-rate(2) ................... 74,055 69,737 (13,522) 56,215 58,567 1,971 325

15-year amortizing fixed-rate(2) ............................... 1,198 1,155 (55) 1,100 739 37 9

Adjustable rate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 902 886 (107) 779 565 14 5

Alt-A, interest-only, and option ARM(4) ......................... 18,745 17,513 (4,251) 13,262 15,125 389 93

Total single-family(6) ........................................ $94,900 $89,291 $(17,935) $71,356 $74,996 $2,411 $432

Multifamily —

With no specific allowance recorded (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 978 $ 966 $ — $ 966 $ 1,420 $ 61 $ 37

With specific allowance recorded ............................... 1,248 1,230 (205) 1,025 1,470 68 51

Total multifamily .......................................... $ 2,226 $ 2,196 $ (205) $ 1,991 $ 2,890 $ 129 $ 88

Total single-family and multifamily ............................. $97,126 $91,487 $(18,140) $73,347 $77,886 $2,540 $520

Balance at December 31, 2011 For The Year Ended December 31, 2011

UPB

Recorded

Investment

Associated

Allowance

Net

Investment

Average

Recorded

Investment

Interest

Income

Recognized

Interest

Income

Recognized

On Cash Basis

(in millions)

Single-family —

With no specific allowance recorded(1): 20 and 30-year or more, amortizing fixed-rate(2) ................... $ 7,073 $ 3,200 $ — $ 3,200 $ 3,352 $ 336 $ 48

15-year amortizing fixed-rate(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 23 — 23 26 7 1

Adjustable rate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6 — 6 7 1 —

Alt-A, interest-only, and option ARM(4) ......................... 1,987 881 — 881 940 72 9

Total with no specific allowance recorded ......................... 9,130 4,110 — 4,110 4,325 416 58

With specific allowance recorded:(5)

20 and 30-year or more, amortizing fixed-rate(2) ................... 44,672 43,533 (11,253) 32,280 35,707 889 129

15-year amortizing fixed-rate(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367 347 (43) 304 230 12 4

Adjustable rate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 268 (59) 209 155 5 2

Alt-A, interest-only, and option ARM(4) ......................... 12,103 11,779 (3,745) 8,034 9,391 173 34

Total with specific allowance recorded ........................... 57,422 55,927 (15,100) 40,827 45,483 1,079 169

Combined single-family:

20 and 30-year or more, amortizing fixed-rate(2) ................... 51,745 46,733 (11,253) 35,480 39,059 1,225 177

15-year amortizing fixed-rate(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424 370 (43) 327 256 19 5

Adjustable rate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 274 (59) 215 162 6 2

Alt-A, interest-only, and option ARM(4) ......................... 14,090 12,660 (3,745) 8,915 10,331 245 43

Total single-family(6) ........................................ $66,552 $60,037 $(15,100) $44,937 $49,808 $1,495 $227

Multifamily —

With no specific allowance recorded(7) ............................ $ 1,049 $ 1,044 $ — $ 1,044 $ 1,427 $ 65 $ 34

With specific allowance recorded ............................... 1,644 1,626 (246) 1,380 1,920 81 67

Total multifamily .......................................... $ 2,693 $ 2,670 $ (246) $ 2,424 $ 3,347 $ 146 $101

Total single-family and multifamily ............................. $69,245 $62,707 $(15,346) $47,361 $53,155 $1,641 $328

(1) Individually impaired loans with no specific related valuation allowance primarily represent mortgage loans purchased out of PC pools and accounted for in

accordance with the accounting guidance for loans and debt securities acquired with deteriorated credit quality that have not experienced further deterioration.

(2) See endnote (3) of “Table 4.2 — Recorded Investment of Held-for-Investment Mortgage Loans, by LTV Ratio.”

(3) Includes balloon/reset mortgage loans and excludes option ARMs.

(4) See endnote (5) of “Table 4.2 — Recorded Investment of Held-for-Investment Mortgage Loans, by LTV Ratio.”

(5) Consists primarily of mortgage loans classified as TDRs.

(6) As of December 31, 2012 and 2011 includes $86.4 billion and $57.4 billion, respectively, of UPB associated with loans for which we have recorded a specific

allowance, and $8.5 billion and $9.1 billion, respectively, of UPB associated with loans that have no specific allowance recorded. See endnote (1) for additional

information.

(7) Individually impaired multifamily loans with no specific related valuation allowance primarily represent those loans for which the collateral value is sufficiently

in excess of the loan balance to result in recovery of the entire recorded investment if the property were foreclosed upon or otherwise subject to disposition.

242 Freddie Mac
The average recorded investment in individually impaired loans for the year ended December 31, 2010, was

approximately $27.5 billion.

We recognized interest income on individually impaired loans of $1.4 billion for the year ended December 31, 2010.

Interest income recognized on a cash basis on individually impaired loans was $0.2 billion for the year ended December 31,

2010. Interest income foregone on individually impaired loans was $2.3 billion, $1.6 billion, and $0.8 billion for the years

ended December 31, 2012, 2011, and 2010, respectively.

Mortgage Loan Performance

We do not accrue interest on loans three months or more past due.

The table below presents the recorded investment of our single-family and multifamily mortgage loans, held-forinvestment, by payment status.

Table 5.2 — Payment Status of Mortgage Loans(1)

December 31, 2012

Current

One

Month

Past Due

Two

Months

Past Due

Three Months or

More Past Due,

or in Foreclosure Total Non-accrual

(in millions)

Single-family —

20 and 30-year or more, amortizing fixed-rate(2) ........... $1,125,996 $21,509 $ 8,051 $40,977 $1,196,533 $40,833

15-year amortizing fixed-rate(2) ....................... 270,730 1,320 338 1,184 273,572 1,177

Adjustable-rate(3) ................................. 63,736 614 212 1,388 65,950 1,383

Alt-A, interest-only, and option ARM(4) ................. 82,438 3,439 1,582 16,270 103,729 16,237

Total single-family ................................. 1,542,900 26,882 10,183 59,819 1,639,784 59,630

Total multifamily .................................. 63,000 — 2 30 63,032 1,457

Total single-family and multifamily ..................... $1,605,900 $26,882 $10,185 $59,849 $1,702,816 $61,087

December 31, 2011

Current

One

Month

Past Due

Two

Months

Past Due

Three Months or

More Past Due,

or in Foreclosure Total Non-accrual

(in millions)

Single-family —

20 and 30-year or more, amortizing fixed-rate(2) ........... $1,191,809 $24,964 $ 9,006 $46,707 $1,272,486 $46,600

15-year amortizing fixed-rate(2) ....................... 256,306 1,499 361 1,367 259,533 1,361

Adjustable-rate(3) ................................. 63,929 724 239 1,842 66,734 1,838

Alt-A, interest-only, and option ARM(4) ................. 109,967 4,617 2,172 22,502 139,258 22,473

Total single-family ................................. 1,622,011 31,804 11,778 72,418 1,738,011 72,272

Total multifamily .................................. 72,715 2 15 69 72,801 1,882

Total single-family and multifamily ..................... $1,694,726 $31,806 $11,793 $72,487 $1,810,812 $74,154

(1) Based on recorded investment in the loan. Mortgage loans that have been modified are not counted as past due as long as the borrower is current under

the modified terms. The payment status of a loan may be affected by temporary timing differences, or lags, in the reporting of this information to us by

our servicers.

(2) See endnote (3) of “Table 4.2 — Recorded Investment of Held-for-Investment Mortgage Loans, by LTV Ratio.”

(3) Includes balloon/reset mortgage loans and excludes option ARMs.

(4) See endnote (5) of “Table 4.2 — Recorded Investment of Held-for-Investment Mortgage Loans, by LTV Ratio.”

We have the option under our PC agreements to remove mortgage loans that underlie our PCs under certain

circumstances to resolve an existing or impending delinquency or default. Our practice generally has been to remove loans

from PC trusts when the loans have been delinquent for 120 days or more. As of December 31, 2012, there were $2.2 billion

in UPB of loans underlying our PCs that were 120 days or more delinquent, and that met our criteria for removing the loan

from the PC trust. Generally, we remove these delinquent loans from the PC trust, and thereby extinguish the related PC

debt, at the next scheduled PC payment date, unless the loans proceed to foreclosure transfer, complete a foreclosure

alternative or are paid in full by the borrower before such date.

243 Freddie Mac
When we remove mortgage loans from PC trusts, we reclassify the loans from mortgage loans held-for-investment by

consolidated trusts to unsecuritized mortgage loans held-for-investment and record an extinguishment of the corresponding

portion of the debt securities of the consolidated trusts. We removed $29.6 billion and $44.1 billion in UPB of loans from PC

trusts (or purchased delinquent loans associated with other guarantee commitments) during the years ended December 31,

2012 and 2011, respectively.

The table below summarizes the delinquency rates of mortgage loans within our single-family credit guarantee and

multifamily mortgage portfolios.

Table 5.3 — Delinquency Rates(1)

December 31, 2012 December 31, 2011

Single-family:

Non-credit-enhanced portfolio (excluding Other Guarantee Transactions):

Serious delinquency rate ......................................................... 2.62% 2.80%

Total number of seriously delinquent loans ............................................ 244,533 273,184

Credit-enhanced portfolio (excluding Other Guarantee Transactions):

Serious delinquency rate ......................................................... 6.83% 7.56%

Total number of seriously delinquent loans ............................................ 90,747 120,622

Other Guarantee Transactions:(2)

Serious delinquency rate ......................................................... 10.60% 10.54%

Total number of seriously delinquent loans ............................................ 17,580 20,328

Total single-family:

Serious delinquency rate ........................................................... 3.25% 3.58%

Total number of seriously delinquent loans .............................................. 352,860 414,134

Multifamily:(3)

Non-credit-enhanced portfolio:

Delinquency rate ............................................................... 0.10% 0.11%

UPB of delinquent loans (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76 $ 93

Credit-enhanced portfolio:

Delinquency rate ............................................................... 0.36% 0.52%

UPB of delinquent loans (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 172 $ 166

Total Multifamily:

Delinquency rate ............................................................... 0.19% 0.22%

UPB of delinquent loans (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 248 $ 259

(1) Single-family mortgage loans that have been modified are not counted as seriously delinquent if the borrower is less than three monthly payments past

due under the modified terms. Serious delinquencies on single-family mortgage loans underlying certain REMICs and Other Structured Securities, Other

Guarantee Transactions, and other guarantee commitments may be reported on a different schedule due to variances in industry practice.

(2) Other Guarantee Transactions generally have underlying mortgage loans with higher risk characteristics, but some Other Guarantee Transactions may

provide inherent credit protections from losses due to underlying subordination, excess interest, overcollateralization and other features.

(3) Multifamily delinquency performance is based on UPB of mortgage loans that are two monthly payments or more past due or those in the process of

foreclosure and includes multifamily Other Guarantee Transactions. Excludes mortgage loans that have been modified as long as the borrower is less

than two monthly payments past due under the modified contractual terms.

We continue to implement a number of initiatives to modify and restructure loans, including the MHA Program. Our

implementation of the MHA Program, for our loans, includes the following: (a) an initiative to allow mortgages currently

owned or guaranteed by us to be refinanced without obtaining additional credit enhancement beyond that already in place for

the loan (i.e., our relief refinance mortgage, which is our implementation of HARP); (b) an initiative to modify mortgages for

both homeowners who are in default and those who are at risk of imminent default (i.e., HAMP); and (c) an initiative

designed to permit borrowers who meet basic HAMP eligibility requirements to sell their homes in short sales or to complete

a deed in lieu transaction (i.e., HAFA). As part of accomplishing certain of these initiatives, we pay various incentives to

servicers and borrowers. We bear the full costs associated with these loan workout and foreclosure alternatives on mortgages

that we own or guarantee, including the cost of any monthly payment reductions, and do not receive any reimbursement from

Treasury.

Troubled Debt Restructurings

On July 1, 2011, we adopted an amendment to the accounting guidance for receivables, which clarifies the guidance

regarding a creditor’s evaluation of when a restructuring is considered a TDR. While our adoption of this amendment did not

have an effect on how we account for TDRs, it did significantly expand the population of loans that we account for as TDRs.

See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Recently Adopted Accounting Guidance” for

further information on our implementation of this guidance.

In the third quarter of 2012, we changed the treatment of single-family loans discharged in Chapter 7 bankruptcy to

classify these loans as TDRs (unless they were already classified as such for other reasons), regardless of the borrowers’

244 Freddie Mac
payment status. The majority of these TDR loans were not seriously delinquent at the time of this reclassification and, in

many cases, the borrowers were continuing to make timely payments.

Single-Family TDRs

We require our single-family servicers to contact borrowers who are in default and to evaluate loan workout options in

accordance with our requirements. We establish guidelines for our servicers to follow and provide them default management

tools to use, in part, in determining which type of loan workout would be expected to provide the best opportunity for

minimizing our credit losses. We require our single-family servicers to first evaluate problem loans for a repayment or

forbearance plan before considering modification. If a borrower is not eligible for a modification, our seller/servicers pursue

other workout options before considering foreclosure. We receive information related to loan workouts, such as completed

modifications and loans in a modification trial period, and other alternatives to foreclosure from our servicers at the loan

level on at least a monthly basis. For loans in a modification trial period, we do not receive the terms of the expected

completed modification until the modification is completed. For these loans, we only receive notification that they are in a

modification trial period. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for

Loan Losses and Reserve for Guarantee Losses” for more detail.

Repayment plans are agreements with the borrower that give the borrower a defined period of time to reinstate the

mortgage by paying regular payments plus an additional agreed upon amount in repayment of the past due amount. These

agreements are considered TDRs if they result in a delay in payment that is considered to be more than insignificant.

Forbearance agreements are agreements between the servicer and the borrower where reduced payments or no payments

are required during a defined period. These agreements are considered TDRs if they result in a delay in payment that is

considered to be more than insignificant.

In the case of borrowers considered for modifications, our servicers typically obtain information on income, assets, and

other borrower obligations to determine modified loan terms. Under HAMP, the goal of a single-family loan modification is

to reduce the borrower’s monthly mortgage payments to a specified percentage of the borrower’s gross monthly income,

which may be achieved through a combination of methods, including: (a) interest rate reduction; (b) term extension; and

(c) principal forbearance. Principal forbearance is when a portion of the principal is made non-interest-bearing and nonamortizing, but this does not represent principal forgiveness. Although HAMP contemplates that some servicers will also

make use of principal forgiveness to achieve reduced payments for borrowers, we have only used forbearance of principal

and have not used principal forgiveness in modifying our loans.

We implemented a non-HAMP standard loan modification initiative in late 2011, which replaced our previous nonHAMP modification initiative beginning January 1, 2012. Our HAMP and non-HAMP modification initiatives are available

for borrowers experiencing what is generally expected to be a longer-term financial hardship. Both HAMP and our nonHAMP standard modification require a three month trial period during which the borrower will make monthly payments

based on the estimated amount of the modification payments. After the final trial-period payment is received by our servicer,

the borrower and servicer enter into the modification. We consider restructurings under these initiatives as TDRs at the

inception of the trial period if the expected modification will result in a change in our expectation to collect all amounts due

at the original contract rate. Since we do not receive the terms of the modification until completion of the trial period, we

estimate the impairment for loans in a modification trial period that are considered TDRs using the average impairment

recorded for completed modifications and the estimated likelihood of completion of the trial period. If the borrower fails to

successfully complete the trial period, the impairment for the loan is then based on the original terms of the loan. If the

borrower successfully completes the trial period, the impairment for the loan is then based on the modified terms of the loan.

These subsequent adjustments to impairment are based on the success or failure of the borrower to complete the trial period

and are recorded through the provision for credit losses.

During 2012, approximately 57%, of completed modifications that were classified as TDRs involved interest rate

reductions and term extensions and approximately 37% involved principal forbearance in addition to interest rate reductions

and term extensions. During 2012, the average term extension was 130 months and the average interest rate reduction was

2.4% on completed modifications classified as TDRs. The aggregate recorded investment of single-family loans classified as

TDRs during 2012 and 2011 was higher post-modification than the aggregate recorded investment of the pre-modified loans

since past due amounts are added to the principal balance at the time of restructuring.

245 Freddie Mac
Multifamily TDRs

The assessment as to whether a multifamily loan restructuring is considered a TDR contemplates the unique facts and

circumstances of each loan. This assessment considers qualitative factors such as whether the borrower’s modified interest

rate is consistent with that of a borrower having a similar credit profile at the time of modification. In certain cases, for

maturing loans we may provide short-term loan extensions of up to one year with no changes to the effective borrowing rate.

In other cases, we may make more significant modifications of terms for borrowers experiencing financial difficulty, such as

reducing the interest rate or extending the maturity for longer than one year. In cases where we do modify the contractual

terms of the loan, the changes in terms may be similar to those of single-family loans, such as an extension of the term,

reduction of contractual rate, principal forbearance, or some combination of these features.

TDR Activity and Performance

The table below presents the volume of single-family and multifamily loans that were newly classified as TDRs during

2012 and 2011, based on the original category of the loan before the loan was classified as a TDR. Loans classified as a TDR

in one period may be subject to further action (such as a modification or remodification) in a subsequent period. In such

cases, the subsequent action would not be reflected in the table below since the loan would already have been classified as a

TDR.

Table 5.4 — TDR Activity, by Segment

Year Ended

December 31, 2012

Year Ended

December 31, 2011

# of Loans

Post-TDR

Recorded

Investment # of Loans

Post-TDR

Recorded

Investment

(dollars in millions)

Single-family(1)

20 and 30-year or more, amortizing fixed-rate .................................... 177,930 $27,076 100,948 $19,263

15-year amortizing fixed-rate ................................................ 17,549 1,176 6,529 651

Adjustable-rate(2) ......................................................... 6,496 977 3,287 657

Alt-A, interest-only, and option ARM .......................................... 35,012 7,834 31,094 8,355

Total Single-family ....................................................... 236,987 37,063 141,858 28,926

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 202 23 254

Total ................................................................... 237,007 $37,265 141,881 $29,180

(1) The pre-TDR recorded investment for single-family loans initially classified as TDR during the years ended December 31, 2012 and 2011, was

$37.0 billion and $28.1 billion, respectively.

(2) Includes balloon/reset mortgage loans.

The measurement of impairment for single-family TDRs is based on the excess of our recorded investment in the loan

over the present value of the loan’s expected future cash flows. For multifamily loans, we use an estimate of the fair value of

the loan’s collateral rather than the present value of expected future cash flows to determine the amount of impairment.

Generally, restructurings of single-family loans that are TDRs have a higher allowance for loan losses than restructurings that

are not considered TDRs because TDRs involve a concession being granted to the borrower. Our process for determining the

appropriate allowance for loan losses for both single-family and multifamily loans considers the impact that our loss

mitigation activities, such as loan restructurings, have on probabilities of default. For single-family loans evaluated

individually and collectively for impairment that have been modified, the probability of default is affected by the incidence

of redefault that we have experienced on similar loans that have completed a modification. For multifamily loans, the

incidence of redefault on loans that have been modified does not directly affect the allowance for loan losses as our

multifamily loans are generally evaluated individually for impairment based on the fair value of the underlying collateral.

The process for determining the appropriate allowance for loan losses for multifamily loans evaluated collectively for

impairment considers the incidence of redefault on loans that have completed a modification.

The table below presents the volume of payment defaults of our TDR modifications based on the original category of

the loan before modification and excludes loans subject to other loss mitigation activity that were classified as TDRs during

the period. For reporting purposes, loans within the Alt-A category continue to be presented in that category following

modification, even though the borrower may have provided full documentation of assets and income before completing the

modification. For reporting purposes, loans within the option ARM category continue to be presented in that category

following modification, even though the modified loan no longer provides for optional payment provisions. Substantially all

of our completed single-family loan modifications classified as a TDR during 2012 resulted in a modified loan with a fixed

246 Freddie Mac
interest rate. Approximately $45.0 billion in UPB of our completed HAMP loan modifications at December 31, 2012 had

provisions for reduced interest rates that remain fixed for the first five years of the modification and then increase at a rate of

one percent per year (or such lesser amount as may be needed) until the interest rate has been adjusted to the market rate that

was in effect at the time of the modification.

Table 5.5 — Payment Defaults of Completed TDR Modifications, by Segment(1)

Year Ended December 31, 2012 Year Ended December 31, 2011

# of Loans

Post-TDR

Recorded

Investment(2) # of Loans

Post-TDR

Recorded

Investment(2)

(dollars in millions)

Single-family

20 and 30-year or more, amortizing fixed-rate ........................... 15,718 $2,905 23,592 $4,417

15-year amortizing fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716 73 890 91

Adjustable-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 71 519 111

Alt-A, interest-only, and option ARM ................................. 3,042 805 5,794 1,529

Total single-family ................................................. 19,807 $3,854 30,795 $6,148

Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 $ 82 8 $ 31

(1) Represents TDR loans that experienced a payment default during the period and had completed a modification during the year preceding the payment

default. A payment default occurs when a borrower either: (a) became two or more months delinquent; or (b) completed a loss event, such as a short sale

or foreclosure transfer. We only include payment defaults for a single loan once during each quarterly period within a year; however, a single loan will

be reflected more than once if the borrower experienced another payment default in a subsequent quarterly period.

(2) Represents the recorded investment at the end of the period in which the loan was modified and does not represent the recorded investment as of

December 31.

There were 3,845 loans where we engaged in other loss mitigation activities (i.e., repayment plan, forbearance

agreement, or trial period modifications) initially classified as TDRs, with a post-TDR recorded investment of $576 million,

that returned to a current payment status, and then subsequently became two months delinquent during 2012. In addition,

there were 5,220 loans with other loss mitigation activities initially classified as TDRs, with a post-TDR recorded investment

of $876 million, that subsequently completed a loss event, such as a short sale or a foreclosure transfer during 2012. There

were also 9,390 loans with a recorded investment of $ 1.5 billion that were initially classified as TDRs because the

borrowers’ debts were discharged in Chapter 7 bankruptcy (and the loan was not already classified as TDR for other reasons)

and the loan subsequently experienced a loss event in 2012.

NOTE 6: REAL ESTATE OWNED

We obtain REO properties: (a) when we are the highest bidder at foreclosure sales of properties that collateralize nonperforming single-family and multifamily mortgage loans owned by us; or (b) when a delinquent borrower chooses to

transfer the mortgaged property to us in lieu of going through the foreclosure process. Upon acquiring single-family

properties, we establish a marketing plan to sell the property as soon as practicable by determining an estimated market value

and listing it for sale with a real estate broker. Upon acquiring multifamily properties, we may operate them using third-party

property-management firms for a period to stabilize value and then sell the properties through commercial real estate brokers.

However, certain jurisdictions require a period of time after foreclosure during which the borrower may reclaim the property.

During the period when the borrower may reclaim the property, or we are completing the eviction process, we are not able to

market the property and this extends our holding period for these properties. See “NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES” for a discussion of our significant accounting policies for REO.

The table below provides a summary of the change in the carrying value of our combined single-family and multifamily

REO balances. For the periods presented in the table below, the weighted average holding period for our disposed properties

was less than one year.

247 Freddie Mac
Table 6.1 — REO(1)

Year Ended December 31,

2012 2011 2010

(in millions)

Beginning balance — REO ............................................................... $ 5,827 $ 7,368 $ 4,787

Adjustment to beginning balance(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 147

Additions .......................................................................... 7,029 8,970 12,304

Dispositions ........................................................................ (8,449) (10,511) (9,870)

Ending balance — REO ................................................................. 4,407 5,827 7,368

Beginning balance, valuation allowance ...................................................... (147) (300) (95)

Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 153 (205)

Ending balance, valuation allowance ........................................................ (29) (147) (300)

Ending balance — REO, net .............................................................. $ 4,378 $ 5,680 $ 7,068

(1) In the fourth quarter of 2012, we revised our presentation of REO activity to include the initial estimated costs to sell within REO activities rather than

within the change in valuation allowance. Prior period amounts have been revised to conform to current period presentation.

(2) Adjustment to the beginning balance related to the adoption of new accounting guidance for transfers of financial assets and consolidation of VIEs. See

“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for further information.

The REO balance, net at December 31, 2012 and 2011 associated with single-family properties was $4.3 billion and

$5.5 billion, respectively, and the balance associated with multifamily properties was $64 million and $133 million,

respectively. The North Central region represented approximately 33% and 27% of our single-family REO additions during

2012 and 2011, respectively, based on the number of properties, and the Southeast region represented approximately 29%

and 24% of our single-family REO additions during 2012 and 2011. Our single-family REO inventory consisted of 49,071

properties and 60,535 properties at December 31, 2012 and 2011, respectively. In recent years, the foreclosure process has

been significantly slowed in many geographical areas due to lengthening of the foreclosure process, particularly in states that

require a judicial foreclosure process. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for

additional information about regional concentrations in our portfolio.

Our REO operations expenses include: (a) REO property expenses; (b) net gains or losses incurred on disposition of

REO properties; (c) adjustments to the holding period allowance associated with REO properties to record them at the lower

of their carrying amount or fair value less the estimated costs to sell; and (d) recoveries from insurance and other credit

enhancements. An allowance for estimated declines in the REO fair value during the period properties are held reduces the

carrying value of REO property. Excluding holding period valuation adjustments, we recognized gains (losses) of $693

million, $(165) million, and $(93) million on REO dispositions during 2012, 2011, and 2010, respectively. We increased

(decreased) our valuation allowance for properties in our REO inventory by $(7) million, $304 million, and $498 million in

2012, 2011, and 2010, respectively.

REO property acquisitions that result from extinguishment of our mortgage loans held on our consolidated balance

sheets are treated as non-cash transfers. The amount of non-cash acquisitions of REO properties during the years ended

December 31, 2012, 2011, and 2010 was $6.8 billion, $8.7 billion, and $12.3 billion respectively.

NOTE 7: INVESTMENTS IN SECURITIES

The table below summarizes amortized cost, estimated fair values, and corresponding gross unrealized gains and gross

unrealized losses for available-for-sale securities by major security type. At December 31, 2012 and 2011, all available-forsale securities are mortgage-related securities.

248 Freddie Mac
Table 7.1 — Available-For-Sale Securities

December 31, 2012

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses Fair Value

(in millions)

Available-for-sale securities:

Freddie Mac ............................................................ $ 53,965 $ 4,602 $ (52) $ 58,515

Fannie Mae ............................................................. 14,183 1,099 (2) 15,280

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 26 — 209

CMBS ................................................................. 47,606 3,882 (181) 51,307

Subprime ............................................................... 35,503 83 (9,129) 26,457

Option ARM ............................................................ 7,454 48 (1,785) 5,717

Alt-A and other .......................................................... 11,861 244 (1,201) 10,904

Obligations of states and political subdivisions.................................... 5,647 154 (3) 5,798

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716 24 (31) 709

Total available-for-sale securities ............................................... $177,118 $10,162 $(12,384) $174,896

December 31, 2011

Available-for-sale securities:

Freddie Mac ............................................................ $ 74,711 $ 6,429 $ (48) $ 81,092

Fannie Mae ............................................................. 19,023 1,303 (4) 20,322

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 30 — 249

CMBS ................................................................. 53,637 2,574 (548) 55,663

Subprime ............................................................... 41,347 60 (13,408) 27,999

Option ARM ............................................................ 9,019 15 (3,169) 5,865

Alt-A and other .......................................................... 13,659 32 (2,812) 10,879

Obligations of states and political subdivisions.................................... 7,782 108 (66) 7,824

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820 6 (60) 766

Total available-for-sale securities ............................................... $220,217 $10,557 $(20,115) $210,659

Available-For-Sale Securities in a Gross Unrealized Loss Position

The table below shows the fair value of available-for-sale securities in a gross unrealized loss position, and whether they

have been in that position less than 12 months, or 12 months or greater, including the non-credit-related portion of otherthan-temporary impairments, which have been recognized in AOCI.

249 Freddie Mac
Table 7.2 — Available-For-Sale Securities in a Gross Unrealized Loss Position

Less than 12 Months 12 Months or Greater Total

Gross Unrealized Losses Gross Unrealized Losses Gross Unrealized Losses

December 31, 2012

Fair

Value

Other-ThanTemporary

Impairment (1)

Temporary

Impairment (2) Total

Fair

Value

Other-ThanTemporary

Impairment (1)

Temporary

Impairment (2) Total

Fair

Value

Other-ThanTemporary

Impairment (1)

Temporary

Impairment (2) Total

(in millions)

Available-for-sale securities:

Freddie Mac .............. $1,811 $ — $(25) $ (25) $ 1,872 $ — $ (27) $ (27) $ 3,683 $ — $ (52) $ (52)

Fannie Mae . . . . . . . . . . . . . . . 170 — — — 55 — (2) (2) 225 — (2) (2)

CMBS . . . . . . . . . . . . . . . . . . 340 — (3) (3) 3,425 (22) (156) (178) 3,765 (22) (159) (181)

Subprime . . . . . . . . . . . . . . . . 298 (23) — (23) 25,676 (7,189) (1,917) (9,106) 25,974 (7,212) (1,917) (9,129)

Option ARM . . . . . . . . . . . . . . 82 (3) — (3) 5,182 (1,729) (53) (1,782) 5,264 (1,732) (53) (1,785)

Alt-A and other . . . . . . . . . . . . 50 (4) — (4) 7,938 (961) (236) (1,197) 7,988 (965) (236) (1,201)

Obligations of states and

political subdivisions . . . . . . 37 — (1) (1) 45 — (2) (2) 82 — (3) (3)

Manufactured housing . . . . . . . . . 46 — — — 222 (26) (5) (31) 268 (26) (5) (31)

Total available-for-sale securities

in a gross unrealized loss

position ................. $2,834 $ (30) $(29) $ (59) $44,415 $ (9,927) $(2,398) $(12,325) $47,249 $ (9,957) $(2,427) $(12,384)

Less than 12 Months 12 Months or Greater Total

Gross Unrealized Losses Gross Unrealized Losses Gross Unrealized Losses

December 31, 2011

Fair

Value

Other-ThanTemporary

Impairment (1)

Temporary

Impairment (2) Total

Fair

Value

Other-ThanTemporary

Impairment (1)

Temporary

Impairment (2) Total

Fair

Value

Other-ThanTemporary

Impairment (1)

Temporary

Impairment (2) Total

(in millions)

Available-for-sale securities:

Freddie Mac .............. $2,196 $ — $ (4) $ (4) $ 1,884 $ — $ (44) $ (44) $ 4,080 $ — $ (48) $ (48)

Fannie Mae ............... 1,144 — (2) (2) 14 — (2) (2) 1,158 — (4) (4)

CMBS . . . . . . . . . . . . . . . . . . 997 (20) (41) (61) 3,573 (9) (478) (487) 4,570 (29) (519) (548)

Subprime . . . . . . . . . . . . . . . . 8 (1) — (1) 27,742 (10,785) (2,622) (13,407) 27,750 (10,786) (2,622) (13,408)

Option ARM . . . . . . . . . . . . . . 95 (13) — (13) 5,743 (3,067) (89) (3,156) 5,838 (3,080) (89) (3,169)

Alt-A and other ............ 1,197 (114) (4) (118) 9,070 (2,088) (606) (2,694) 10,267 (2,202) (610) (2,812)

Obligations of states and

political subdivisions . . . . . . 292 — (6) (6) 2,157 — (60) (60) 2,449 — (66) (66)

Manufactured housing . . . . . . . . . 197 (5) — (5) 345 (44) (11) (55) 542 (49) (11) (60)

Total available-for-sale securities

in a gross unrealized loss

position ................. $6,126 $(153) $(57) $(210) $50,528 $(15,993) $(3,912) $(19,905) $56,654 $(16,146) $(3,969) $(20,115)

(1) Represents the gross unrealized losses for securities for which we have previously recognized other-than-temporary impairments in earnings.

(2) Represents the gross unrealized losses for securities for which we have not previously recognized other-than-temporary impairments in earnings.

At December 31, 2012, total gross unrealized losses on available-for-sale securities were $12.4 billion. The gross

unrealized losses relate to 1,134 individual lots representing 1,084 separate securities, including securities with non-creditrelated other-than-temporary impairments recognized in AOCI. We purchase multiple lots of individual securities at different

times and at different costs. We determine gross unrealized gains and gross unrealized losses by specifically evaluating

investment positions at the lot level; therefore, some of the lots we hold for a single security may be in an unrealized gain

position while other lots for that security may be in an unrealized loss position, depending upon the amortized cost of the

specific lot.

Impairment Recognition on Investments in Securities

We recognize impairment losses on available-for-sale securities within our consolidated statements of comprehensive

income as net impairment of available-for-sale securities recognized in earnings when we conclude that a decrease in the fair

value of a security is other-than-temporary.

We evaluate available-for-sale securities in an unrealized loss position as of the end of each quarter for other-thantemporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its

amortized cost basis. We recognize other-than-temporary impairment in earnings if one of the following conditions exists:

(a) we have the intent to sell the security; (b) it is more likely than not that we will be required to sell the security before

recovery of its unrealized loss; or (c) we do not expect to recover the amortized cost basis of the security. If we do not intend

to sell the security and we believe it is not more likely than not that we will be required to sell prior to recovery of the

security’s unrealized loss, we recognize only the credit component of other-than-temporary impairment in earnings and the

amounts attributable to all other factors are recognized, net of tax, in AOCI. The credit component represents the amount by

which the present value of expected future cash flows to be collected from the security is less than the amortized cost basis of

the security. The present value of expected future cash flows represents our estimate of future contractual cash flows that we

expect to collect, discounted at the effective interest rate determined based on the security’s contractual cash flows and the

initial acquisition costs or the effective interest rate determined based on significantly improved cash flows subsequent to

initial impairment.

250 Freddie Mac
Our net impairment of available-for-sale securities recognized in earnings on our consolidated statements of

comprehensive income for the years ended December 31, 2012, 2011, and 2010, includes amounts related to certain

securities where we have previously recognized non-credit other-than-temporary impairments through AOCI, but upon the

recognition of additional credit losses, these amounts were reclassified out of AOCI and charged to earnings. In certain

instances, we recognized credit losses in excess of unrealized losses in AOCI.

The evaluation of whether unrealized losses on available-for-sale securities are other-than-temporary requires

significant management judgments and assumptions and consideration of numerous factors. We perform an evaluation on a

security-by-security basis considering all available information. The relative importance of this information varies based on

the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment.

Important factors include, but are not limited to:

• whether we intend to sell the security or it is more likely than not that we will be required to sell the security before

sufficient time elapses to recover all unrealized losses;

• the use of a third-party model for single-family non-agency mortgage-related securities that considers the credit

performance of the underlying collateral, including current LTV ratio, delinquency status, servicer performance, and

borrower credit information. The model also incorporates assumptions about the economic environment, including

future home prices, unemployment, and interest rates to project underlying collateral prepayment speeds, default

rates, loss severities, and delinquency rates. Our estimation approach for CMBS includes the use of a separate thirdparty model that utilizes underlying collateral performance, current and expected credit enhancements, and

incorporates assumptions about the underlying collateral cash flows; and

• the incorporation of security-level subordination information and the priority of cash flow payments by the models to

project and estimate cash flows expected to be collected for each security.

For our available-for-sale securities in an unrealized loss position at December 31, 2012, we have asserted that we have

no intent to sell and that we believe it is not more likely than not that we will be required to sell the security before recovery

of its amortized cost basis. In cases where such an assertion cannot be made, the security’s entire decline in fair value would

be deemed to be other-than-temporary and is recorded within our consolidated statements of comprehensive income as net

impairment of available-for-sale securities recognized in earnings.

See “Table 7.2 — Available-For-Sale Securities in a Gross Unrealized Loss Position” for the length of time our

available-for-sale securities have been in an unrealized loss position. Also see “Table 7.3 — Significant Modeled Attributes

for Certain Available-For-Sale Non-Agency Mortgage-Related Securities” for the modeled default rates and severities that

were used to determine whether our senior interests in certain non-agency mortgage-related securities would experience a

cash shortfall.

Freddie Mac and Fannie Mae Securities

We record the purchase of mortgage-related securities issued by Fannie Mae as investments in securities in accordance

with the accounting guidance for investments in debt and equity securities. In contrast, our purchase of mortgage-related

securities that we issued (e.g., PCs, REMICs and Other Structured Securities, and Other Guarantee Transactions) is recorded

as either investments in securities or extinguishment of debt securities of consolidated trusts depending on the nature of the

mortgage-related security that we purchase. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —

Securitization Activities through Issuances of Freddie Mac Mortgage-Related Securities” for additional information.

We hold these investments in securities that are in an unrealized loss position at least to recovery and typically to

maturity. As the principal and interest on these securities are guaranteed and we do not intend to sell these securities and it is

not more likely than not that we will be required to sell such securities before a recovery of the unrealized losses, we consider

these unrealized losses to be temporary.

Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other Loans

We believe the unrealized losses on the non-agency mortgage-related securities we hold are a result of poor underlying

collateral performance, limited liquidity, and large risk premiums. Our review of the securities backed by subprime, option

ARM, and Alt-A and other loans includes the third-party loan level default modeling and analyses of the individual securities

based on underlying collateral performance, including the collectability of amounts from bond insurers. In the case of bond

insurers, we consider factors that affect both the bond insurers’ financial performance and ability to pay their obligations. We

251 Freddie Mac
consider loan level information including estimated current LTV ratios, FICO scores, and other loan level characteristics. For

additional information regarding bond insurers, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS —

Bond Insurers.”

The table below presents the modeled attributes, including default rates, prepayment rates, and severities, without regard

to subordination, that are used to determine whether our interests in certain available-for-sale non-agency mortgage-related

securities will experience a cash shortfall.

Table 7.3 — Significant Modeled Attributes for Certain Available-For-Sale Non-Agency Mortgage-Related Securities

December 31, 2012

Subprime First

Lien(2)

Alt-A(1)

Option ARM Fixed Rate Variable Rate Hybrid Rate

(dollars in millions)

Issuance Date

2004 and prior:

UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,112 $ 106 $ 715 $ 446 $2,008

Weighted average collateral defaults(3) . . . . . . . . . . . . . . . . . . . . . . . . . 45% 41% 17% 40% 23%

Weighted average collateral severities(4) . . . . . . . . . . . . . . . . . . . . . . . 68% 57% 46% 55% 47%

Weighted average voluntary prepayment rates(5) . . . . . . . . . . . . . . . . . . 6% 6% 12% 5% 7%

Average credit enhancement(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40% 9% 14% 17% 14%

2005:

UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,033 $ 2,511 $1,028 $ 740 $3,614

Weighted average collateral defaults(3) . . . . . . . . . . . . . . . . . . . . . . . . . 58% 52% 30% 56% 27%

Weighted average collateral severities(4) . . . . . . . . . . . . . . . . . . . . . . . 73% 65% 58% 66% 53%

Weighted average voluntary prepayment rates(5) . . . . . . . . . . . . . . . . . . 3% 5% 9% 4% 6%

Average credit enhancement(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49% 6% 1% 23% 3%

2006:

UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,137 $ 5,655 $ 468 $ 955 $1,041

Weighted average collateral defaults(3) . . . . . . . . . . . . . . . . . . . . . . . . . 67% 64% 41% 59% 34%

Weighted average collateral severities(4) . . . . . . . . . . . . . . . . . . . . . . . 75% 66% 59% 67% 57%

Weighted average voluntary prepayment rates(5) . . . . . . . . . . . . . . . . . . 2% 4% 7% 4% 6%

Average credit enhancement(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9% (2)% 3% (5)% (2)%

2007:

UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,784 $ 3,740 $ 148 $1,207 $ 264

Weighted average collateral defaults(3) . . . . . . . . . . . . . . . . . . . . . . . . . 66% 63% 59% 56% 52%

Weighted average collateral severities(4) . . . . . . . . . . . . . . . . . . . . . . . 73% 64% 58% 62% 65%

Weighted average voluntary prepayment rates(5) . . . . . . . . . . . . . . . . . . 2% 4% 4% 4% 5%

Average credit enhancement(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% 8% 5% (14)% — %

Total:

UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,066 $12,012 $2,359 $3,348 $6,927

Weighted average collateral defaults(3) . . . . . . . . . . . . . . . . . . . . . . . . . 65% 61% 30% 54% 28%

Weighted average collateral severities(4) . . . . . . . . . . . . . . . . . . . . . . . 74% 65% 54% 64% 53%

Weighted average voluntary prepayment rates(5) . . . . . . . . . . . . . . . . . . 3% 4% 9% 4% 6%

Average credit enhancement(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% 3% 6% 1% 5%

(1) Excludes non-agency mortgage-related securities backed by other loans, which are primarily comprised of securities backed by home equity lines of

credit.

(2) Excludes non-agency mortgage-related securities backed exclusively by subprime second liens. Certain securities identified as subprime first lien may be

backed in part by subprime second-lien loans, as the underlying loans of these securities were permitted to include a small percentage of subprime

second-lien loans.

(3) The expected cumulative default rate is expressed as a percentage of the current collateral UPB.

(4) The expected average loss given default is calculated as the ratio of cumulative loss over cumulative default for each security.

(5) The security’s voluntary prepayment rate represents the average of the monthly voluntary prepayment rate weighted by the security’s outstanding UPB.

(6) Reflects the amount of subordination and other financial support (excluding credit enhancement provided by bond insurance) that will incur losses in the

securitization structure before any losses are allocated to securities that we own. Percentage generally calculated based on: (a) the total UPB of securities

subordinate to the securities we own; divided by (b) the total UPB of all of the securities issued by the trust (excluding notional balances). Negative

values are shown when collateral losses that have yet to be applied to the tranches exceed the remaining credit enhancement, if any. The level of credit

enhancement, including those securities with negative values, has been considered in our assessment of other-than temporary impairment.

In evaluating the non-agency mortgage-related securities backed by subprime, option ARM, and Alt-A and other loans

for other-than-temporary impairment, we noted that the percentage of securities that were AAA-rated and the percentage that

were investment grade declined significantly since acquisition. While these ratings have declined, the ratings themselves are

not determinative that a loss is more or less likely. While we consider credit ratings in our analysis, we believe that our

detailed security-by-security analyses provide a more consistent view of the ultimate collectability of contractual amounts

due to us.

Our analysis is subject to change as new information regarding delinquencies, severities, loss timing, prepayments, and

other factors becomes available. While it is reasonably possible that, under certain conditions, collateral losses on our

remaining available-for-sale securities for which we have not recorded an impairment charge could exceed our credit

252 Freddie Mac
enhancement levels and a principal or interest loss could occur, we do not believe that those conditions were likely as of

December 31, 2012.

Commercial Mortgage-Backed Securities

CMBS are exposed to stresses in the commercial real estate market. We use an external model to identify securities that

may have an increased risk of failing to make their contractual payments. We then perform an analysis of the underlying

collateral on a security-by-security basis to determine whether we will receive all of the contractual payments due to us.

While it is reasonably possible that, under certain conditions, collateral losses on our CMBS for which we have not recorded

an impairment charge could exceed our credit enhancement levels and a principal or interest loss could occur, we do not

believe that those conditions were likely as of December 31, 2012. We do not intend to sell our CMBS and it is not more

likely than not that we will be required to sell such securities before recovery of the unrealized losses.

Obligations of States and Political Subdivisions

These investments consist of housing revenue bonds. We believe the unrealized losses on obligations of states and

political subdivisions are primarily a result of movements in interest rates and liquidity and risk premiums. We have

determined that the impairment of these securities is temporary based on our conclusion that we do not intend to sell these

securities and it is not more likely than not that we will be required to sell such securities before a recovery of the unrealized

losses. We believe that any credit risk related to these securities is minimal because of the issuer guarantees provided on

these securities.

Bond Insurance

We rely on bond insurance to provide credit protection on some of our non-agency mortgage-related securities.

Circumstances in which: (a) it is likely a principal and interest shortfall will occur; and (b) there is substantial uncertainty

surrounding a bond insurer’s ability to pay all future claims can give rise to recognition of other-than-temporary impairment

recognized in earnings. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Bond Insurers” for

additional information.

Other-Than-Temporary Impairments on Available-for-Sale Securities

The table below summarizes our net impairment of available-for-sale securities recognized in earnings by security type.

The net impairment of available-for-sale securities recognized in earnings includes the impact of our implementation of a

third-party model, which enhanced our approach to estimating other-than-temporary impairment of our single-family nonagency mortgage-related securities. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Change

in Estimate” for additional information.

Table 7.4 — Net Impairment of Available-For-Sale Securities Recognized in Earnings

Net Impairment of Available-For-Sale

Securities Recognized in Earnings

For the Year Ended December 31,

2012 2011 2010

(in millions)

Available-for-sale securities:

CMBS(1) ......................................................................... $ (138) $ (353) $ (97)

Subprime ........................................................................ (1,274) (1,315) (1,769)

Option ARM ..................................................................... (556) (424) (1,395)

Alt-A and other ................................................................... (196) (198) (1,020)

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (11) (27)

Total other-than-temporary impairments on available-for-sale securities ............................ $(2,168) $(2,301) $(4,308)

(1) Includes $181 million of other-than-temporary impairments recognized in earnings for the year ended December 31, 2011, as we had the intent to sell

the related securities before recovery of their amortized cost basis.

The table below presents the changes in the unrealized credit-related other-than-temporary impairment component of

the amortized cost related to available-for-sale securities: (a) that we have written down for other-than-temporary

impairment; and (b) for which the credit component of the loss has been recognized in earnings. The credit-related otherthan-temporary impairment component of the amortized cost represents the difference between the present value of expected

future cash flows, including the estimated proceeds from bond insurance, and the amortized cost basis of the security prior to

considering credit losses. The beginning balance represents the other-than-temporary impairment credit loss component

253 Freddie Mac
related to available-for-sale securities for which other-than-temporary impairment occurred prior to January 1, 2012, but will

not be realized until the securities are sold, written off, or mature. Net impairment of available-for-sale securities recognized

in earnings is presented as additions in two components based upon whether the current period is: (a) the first time the debt

security was credit-impaired; or (b) not the first time the debt security was credit-impaired. The credit loss component is

reduced if we sell, intend to sell or believe we will be required to sell previously credit-impaired available-for-sale securities.

Additionally, the credit loss component is reduced by the amortization resulting from significant increases in cash flows

expected to be collected that are recognized over the remaining life of the security.

Table 7.5 — Other-Than-Temporary Impairments Related to Credit Losses on Available-For-Sale Securities

Year Ended

December 31, 2012

(in millions)

Credit-related other-than-temporary impairments on available-for-sale securities recognized in earnings:

Beginning balance — remaining credit losses on available-for-sale securities held at the beginning of the period where otherthan-temporary impairments were recognized in earnings ................................................. $15,988

Additions:

Amounts related to credit losses for which an other-than-temporary impairment was not previously recognized . . . . . . . . . . 141

Amounts related to credit losses for which an other-than-temporary impairment was previously recognized ............. 2,027

Reductions:

Amounts related to securities which were sold, written off or matured ........................................ (1,289)

Amounts previously recognized in other comprehensive income that were recognized in earnings because we intend to sell

the security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost

basis ...................................................................................... (15)

Amounts related to amortization resulting from significant increases in cash flows expected to be collected that are

recognized over the remaining life of the security ..................................................... (266)

Ending balance — remaining credit losses on available-for-sale securities held at period end where other-than-temporary

impairments were recognized in earnings ............................................................. $16,586

Realized Gains and Losses on Sales of Available-For-Sale Securities

The table below illustrates the gross realized gains and gross realized losses received from the sale of available-for-sale

securities.

Table 7.6 — Gross Realized Gains and Gross Realized Losses on Sales of Available-For-Sale Securities

Year Ended December 31,

2012 2011 2010

(in millions)

Gross realized gains

Mortgage-related securities:

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34 $ 77 $27

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 14 54

CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 37 —

Option ARM ........................................................................... 3 — —

Obligations of states and political subdivisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 11 3

Total mortgage-related securities gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 139 84

Non-mortgage-related securities:

Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 10

Total non-mortgage-related securities gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 10

Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 139 94

Gross realized losses

Mortgage related securities:(1)

Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (1)

CMBS ................................................................................ — (81) —

Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (6)

Total mortgage-related securities gross realized losses ............................................ — (81) (7)

Gross realized losses ......................................................................... — (81) (7)

Net realized gains (losses) ..................................................................... $152 $ 58 $87

(1) These individual sales do not change our conclusion that we do not intend to sell the majority of our remaining mortgage-related securities and it is not

more likely than not that we will be required to sell such securities before a recovery of the unrealized losses.

254 Freddie Mac
Maturities of Available-For-Sale Securities

The table below summarizes the remaining contractual maturities of available-for-sale securities.

Table 7.7 — Maturities of Available-For-Sale Securities(1)

December 31, 2012 Amortized Cost Fair Value

Weighted

Average Yield(2)

(dollars in millions)

Available-for-sale securities:

Due within 1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87 $ 89 4.53%

Due after 1 through 5 years .................................................... 1,899 2,042 5.42

Due after 5 through 10 years ................................................... 1,985 2,094 4.89

Due after 10 years ........................................................... 173,147 170,671 3.41

Total available-for-sale securities .................................................. $177,118 $174,896 3.45

(1) Maturity information provided is based on contractual maturities, which may not represent the expected life as obligations underlying these securities

may be prepaid at any time without penalty.

(2) The weighted average yield is calculated based on a yield for each individual lot held at December 31, 2012 excluding any fully taxable-equivalent

adjustments related to tax exempt sources of interest income. The numerator for the individual lot yield consists of the sum of: (a) the year-end interest

coupon rate multiplied by the year-end UPB; and (b) the annualized amortization income or expense calculated for December 2012 (excluding the

accretion of non-credit-related other-than-temporary impairments and any adjustments recorded for changes in the effective rate). The denominator for

the individual lot yield consists of the year-end amortized cost of the lot excluding effects of other-than-temporary impairments on the UPB of impaired

lots.

AOCI Related to Available-For-Sale Securities

The table below presents the changes in AOCI related to available-for-sale securities. The net unrealized holding gains

represent the net fair value adjustments recorded on available-for-sale securities throughout the periods presented, after the

effects of our federal statutory tax rate of 35%. The net reclassification adjustment for net realized losses represents the

amount of those fair value adjustments, after the effects of our federal statutory tax rate of 35%, that have been recognized in

earnings due to a sale of an available-for-sale security or the recognition of an impairment loss.

Table 7.8 — AOCI Related to Available-For-Sale Securities

Year Ended December 31,

2012 2011 2010

(in millions)

Beginning balance ...................................................................... $(6,213) $(9,678) $(20,616)

Adjustment to initially apply the adoption of amendments to accounting guidance for transfers of financial

assets and the consolidation of VIEs(1) .................................................... — — (2,683)

Net unrealized holding gains(2) ........................................................... 3,458 2,007 10,876

Net reclassification adjustment for net realized losses(3)(4) ........................................ 1,311 1,458 2,745

Ending balance ........................................................................ $(1,444) $(6,213) $ (9,678)

(1) Net of tax benefit of $1.4 billion for the year ended December 31, 2010.

(2) Net of tax expense of $1.9 billion, $1.1 billion, and $5.9 billion for the years ended December 31, 2012, 2011, and 2010, respectively.

(3) Net of tax benefit of $706 million, $785 million, and $1.5 billion for the years ended December 31, 2012, 2011, and 2010, respectively.

(4) Includes the reversal of previously recorded unrealized losses that have been recognized on our consolidated statements of comprehensive income as

impairment losses on available-for-sale securities of $1.4 billion, $1.5 billion, and $2.8 billion, net of taxes, for the years ended December 31, 2012,

2011, and 2010, respectively.

255 Freddie Mac
Trading Securities

The table below summarizes the estimated fair values by major security type for trading securities.

Table 7.9 — Trading Securities

December 31, 2012 December 31, 2011

(in millions)

Mortgage-related securities:

Freddie Mac .................................................................... $10,354 $16,047

Fannie Mae ..................................................................... 10,338 15,165

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 156

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 164

Total mortgage-related securities ................................................... 20,979 31,532

Non-mortgage-related securities:

Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 302

Treasury bills ................................................................... 1,160 100

Treasury notes ................................................................... 19,061 24,712

FDIC-guaranteed corporate medium-term notes........................................... — 2,184

Total non-mortgage-related securities ................................................ 20,513 27,298

Total fair value of trading securities ..................................................... $41,492 $58,830

Trading securities mainly consist of Treasury securities, agency fixed-rate and variable-rate pass-through mortgagerelated securities, and agency REMICs, including inverse floating rate, interest-only and principal-only securities. With the

exception of principal-only securities, our agency securities, classified as trading, were valued at a net premium (i.e., net fair

value was higher than UPB) as of December 31, 2012.

For the years ended December 31, 2012, 2011, and 2010, we recorded net unrealized gains (losses) on trading securities

held at those dates of $(1.7) billion, $(1.0) billion, and $(1.4) billion, respectively.

Total trading securities include $1.2 billion and $1.9 billion, respectively, of hybrid financial assets as defined by the

derivative and hedging accounting guidance regarding certain hybrid financial instruments as of December 31, 2012 and

2011. Gains (losses) on trading securities on our consolidated statements of comprehensive income include gains (losses) of

$(167) million and $(109) million, respectively, related to these hybrid financial securities for the years ended December 31,

2012 and 2011.

Collateral Pledged

Collateral Pledged to Freddie Mac

Our counterparties are required to pledge collateral for securities purchased under agreements to resell transactions, and

most derivative instruments are subject to collateral posting thresholds generally related to a counterparty’s credit rating. We

consider the types of securities being pledged to us as collateral when determining how much we lend related to securities

purchased under agreements to resell transactions. Additionally, we subsequently and regularly review the market values of

these securities compared to amounts loaned and derivative counterparty collateral posting thresholds in an effort to

minimize our exposure to losses. We had cash and cash equivalents pledged to us under master netting agreements related to

derivative instruments of $1.5 billion and $3.2 billion at December 31, 2012 and 2011, respectively. At December 31, 2012

and 2011, we had $501 million and $0 million, respectively, of collateral in the form of securities pledged to and held by us

under these master netting agreements. Although it is our practice not to repledge assets held as collateral, a portion of the

collateral may be repledged based on master netting agreements related to our derivative instruments. Also, at December 31,

2012 and 2011, we had $1.5 billion and $0 billion, respectively, of securities pledged to us for securities purchased under

agreements to resell transactions that we had the right to repledge. From time to time we may obtain pledges of collateral

from certain seller/servicers as additional security for certain of their obligations to us, including their obligations to

repurchase mortgages sold to us in breach of representations and warranties. This collateral may, at our discretion, take the

form of cash, cash equivalents, or agency securities.

In addition, we hold cash and cash equivalents as collateral in connection with certain of our multifamily guarantees and

mortgage loans as credit enhancements. The cash and cash equivalents held as collateral related to these transactions at

December 31, 2012 and 2011 was $158 million and $246 million, respectively.

256 Freddie Mac
We consider federal funds sold to be overnight unsecured trades executed with commercial banks that are members of

the Federal Reserve System. We did not hold any federal funds sold at December 31, 2012 or 2011.

Collateral Pledged by Freddie Mac

We are required to pledge collateral for margin requirements with third-party custodians in connection with secured

financings and derivative transactions with some counterparties. The amount of collateral pledged related to our derivative

instruments is determined after giving consideration to our credit rating. As of December 31, 2012, we had one secured,

uncommitted intraday line of credit with a third party in connection with the Federal Reserve’s payments system risk policy,

which restricts or eliminates daylight overdrafts by the GSEs, in connection with our use of the Fedwire system. In certain

circumstances, the line of credit agreement gives the secured party the right to repledge the securities underlying our

financing to other third parties, including the Federal Reserve Bank. We pledge collateral to meet our collateral requirements

under the line of credit agreement upon demand by the counterparty.

The table below summarizes all securities pledged as collateral by us, including assets that the secured party may

repledge and those that may not be repledged.

Table 7.10 — Collateral in the Form of Securities Pledged

December 31, 2012 December 31, 2011

(in millions)

Securities pledged with the ability for the secured party to repledge:

Debt securities of consolidated trusts held by third parties(1) .................................. $10,390 $10,293

Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 204

Securities pledged without the ability for the secured party to repledge:

Debt securities of consolidated trusts held by third parties(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 88

Total securities pledged ............................................................. $10,670 $10,585

(1) Represents PCs held by us in our Investments segment mortgage investments portfolio and pledged as collateral which are recorded as a reduction to

debt securities of consolidated trusts held by third parties on our consolidated balance sheets.

Securities Pledged with the Ability of the Secured Party to Repledge

At December 31, 2012, we pledged securities with the ability of the secured party to repledge of $10.5 billion, of which

$10.5 billion was collateral posted in connection with our secured uncommitted intraday line of credit with a third party as

discussed above.

At December 31, 2011, we pledged securities with the ability of the secured party to repledge of $10.5 billion, of which

$10.5 billion was collateral posted in connection with our secured uncommitted intraday line of credit with a third party as

discussed above.

The remaining $65 million and $25 million of collateral posted with the ability of the secured party to repledge at

December 31, 2012 and 2011, respectively, was posted in connection with our margin account related to futures transactions.

Securities Pledged without the Ability of the Secured Party to Repledge

At December 31, 2012 and 2011, we pledged securities, without the ability of the secured party to repledge, of

$148 million and $88 million, respectively, at a clearinghouse in connection with the trading and settlement of securities.

Collateral in the Form of Cash Pledged

At December 31, 2012, we pledged $9.8 billion of collateral in the form of cash and cash equivalents, of which

$9.7 billion related to our derivative agreements as we had $9.7 billion of such derivatives in a net loss position. At

December 31, 2011, we pledged $12.7 billion of collateral in the form of cash and cash equivalents, of which $12.6 billion

related to our derivative agreements as we had $12.7 billion of such derivatives in a net loss position. The remaining $110

million and $133 million was posted at clearinghouses in connection with our securities transactions at December 31, 2012

and 2011, respectively.

257 Freddie Mac
NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS

Debt securities that we issue are classified on our consolidated balance sheets as either debt securities of consolidated

trusts held by third parties or other debt. We issue other debt to fund our operations.

Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur indebtedness that

would result in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are

allowed to own on December 31 of the immediately preceding calendar year. Because of this debt limit, we may be restricted

in the amount of debt we are allowed to issue to fund our operations. Under the Purchase Agreement, the amount of our

“indebtedness” is determined without giving effect to the January 1, 2010 change in the accounting guidance related to

transfers of financial assets and consolidation of VIEs. Therefore, “indebtedness” does not include debt securities of

consolidated trusts held by third parties. We also cannot become liable for any subordinated indebtedness without the prior

consent of Treasury. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS” for information regarding

changes to the restrictions on the amount of mortgage-related securities that we may own.

Our debt cap under the Purchase Agreement was $874.8 billion in 2012 and declined to $780.0 billion on January 1,

2013. As of December 31, 2012, we estimate that the par value of our aggregate indebtedness totaled $552.5 billion, which

was approximately $322.3 billion below the applicable debt cap. Our aggregate indebtedness is calculated as the par value of

other debt.

In the tables below, the categories of short-term debt (due within one year) and long-term debt (due after one year) are

based on the original contractual maturity of the debt instruments classified as other debt.

The table below summarizes the interest expense and the balances of total debt, net.

Table 8.1 — Total Debt, Net

Interest Expense For The

Year Ended December 31, Balance, Net(1)

2012 2011 2010 December 31, 2012 December 31, 2011

(in millions) (in millions)

Other debt:

Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 176 $ 331 $ 552 $ 117,889 $ 161,399

Long-term debt:

Senior debt ........................................... 10,187 12,505 16,317 429,245 498,779

Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 33 46 384 368

Total long-term debt .................................. 10,217 12,538 16,363 429,629 499,147

Total other debt ......................................... 10,393 12,869 16,915 547,518 660,546

Debt securities of consolidated trusts held by third parties ............. 56,109 67,119 75,216 1,419,524 1,471,437

Total debt, net ........................................... $66,502 $79,988 $92,131 $1,967,042 $2,131,983

(1) Represents par value, net of associated discounts, premiums, and hedge-related basis adjustments, with $0 billion and $0.2 billion, respectively, of other

short-term debt, and $2.2 billion and $2.8 billion, respectively, of other long-term debt that represents the fair value of debt securities with the fair value

option elected at December 31, 2012 and 2011.

During 2012, 2011, and 2010, we recognized fair value gains (losses) of $16 million, $91 million, and $581 million,

respectively, on our foreign-currency denominated debt, of which $(7) million, $40 million, and $461 million, respectively,

are gains (losses) related to foreign-currency translation.

Other Short-Term Debt

As indicated in “Table 8.2 — Other Short-Term Debt”, a majority of other short-term debt consisted of Reference Bills®

securities and discount notes, paying only principal at maturity. Reference Bills® securities, discount notes, and mediumterm notes are unsecured general corporate obligations. Certain medium-term notes that have original maturities of one year

or less are classified as other short-term debt for purposes of this presentation.

258 Freddie Mac
The table below summarizes the balances and effective interest rates for other short-term debt.

Table 8.2 — Other Short-Term Debt

December 31, 2012 December 31, 2011

Par Value Balance, Net(1)

Weighted Average

Effective Rate(2) Par Value Balance, Net(1)

Weighted Average

Effective Rate(2)

(dollars in millions)

Other short-term debt:

Reference Bills® securities and discount

notes ............................... $117,930 $117,889 0.15% $161,193 $161,149 0.11%

Medium-term notes . . . . . . . . . . . . . . . . . . . . . . — — — 250 250 0.24

Total other short-term debt ............... $117,930 $117,889 0.15 $161,443 $161,399 0.11

(1) Represents par value, net of associated discounts or premiums.

(2) Represents the weighted average effective rate that remains constant over the life of the instrument, which includes the amortization of discounts or

premiums, and issuance costs.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are effectively collateralized borrowing transactions where we sell

securities with an agreement to repurchase such securities. These agreements require the underlying securities to be delivered

to the dealers who are the counterparties to the transactions. Federal funds purchased are unsecuritized borrowings from

commercial banks that are members of the Federal Reserve System. At both December 31, 2012 and 2011, we had no

balances in federal funds purchased and securities sold under agreements to repurchase.

Other Long-Term Debt

The table below summarizes our other long-term debt.

259 Freddie Mac
Table 8.3 — Other Long-Term Debt

December 31, 2012 December 31, 2011

Contractual

Maturity(1) Par Value

Balance,

Net(2)

Weighted Average

Effective Rate(3) Par Value

Balance,

Net(2)

Weighted Average

Effective Rate(3)

(dollars in millions)

Other long-term debt:

Other senior debt:(4)

Fixed-rate:

Medium-term notes —

callable(5) .................. 2013 – 2037 $ 94,655 94,842 1.62% $ 96,958 $ 96,938 1.78%

Medium-term notes —

non-callable ................ 2013 – 2028 42,623 42,877 1.08 41,303 41,470 1.33

U.S. dollar Reference Notes®

securities — non-callable ...... 2013 – 2032 225,857 225,885 2.82 238,145 238,244 3.17

€Reference Notes® securities —

non-callable ................ 2013 – 2014 1,167 1,187 4.58 1,722 1,766 4.76

Variable-rate:

Medium-term notes —

callable(6) .................. 2013 – 2032 6,953 6,953 2.57 21,230 21,229 2.40

Medium-term notes —

non-callable ................ 2013 – 2026 46,194 46,197 0.27 86,010 86,019 0.26

Zero-coupon:

Medium-term notes — callable .... 2037 – 2040 1,300 324 5.71 12,475 3,281 5.39

Medium-term notes —

non-callable ................ 2013 – 2039 15,240 10,923 4.03 14,475 9,753 4.67

Hedging-related basis adjustments . . . N/A 57 N/A 79

Total other senior debt ............ 433,989 429,245 512,318 498,779

Other subordinated debt: ............

Fixed-rate ..................... 2016 – 2018 221 218 6.59 221 218 6.59

Zero-coupon ................... 2019 332 166 10.51 332 150 10.51

Total other subordinated debt . . . . . . . 553 384 553 368

Total other long-term debt ............. $434,542 $429,629 2.15 $512,871 $499,147 2.27

(1) Represents contractual maturities at December 31, 2012.

(2) Represents par value of long-term debt securities and subordinated borrowings, net of associated discounts or premiums and hedge-related basis

adjustments.

(3) Represents the weighted average effective rate that remains constant over the life of the instrument, which includes the amortization of discounts or

premiums, issuance costs, and hedging-related basis adjustments.

(4) For debt denominated in a currency other than the U.S. dollar, the outstanding balance is based on the exchange rate at December 31, 2012 and 2011,

respectively.

(5) Includes callable FreddieNotes® securities of $1.2 billion and $2.9 billion at December 31, 2012 and 2011, respectively.

(6) Includes callable FreddieNotes® securities of $0 billion and $1.3 billion at December 31, 2012 and 2011, respectively.

A portion of our other long-term debt is callable. Callable debt gives us the option to redeem the debt security at par on

one or more specified call dates or at any time on or after a specified call date.

Debt Securities of Consolidated Trusts Held by Third Parties

Debt securities of consolidated trusts held by third parties represents our liability to third parties that hold beneficial

interests in our consolidated securitization trusts (i.e., single-family PC trusts and certain single-family and multifamily Other

Guarantee Transactions).

The table below summarizes the debt securities of consolidated trusts held by third parties based on underlying

mortgage product type.

260 Freddie Mac
Table 8.4 — Debt Securities of Consolidated Trusts Held by Third Parties

December 31, 2012 December 31, 2011

Contractual

Maturity(1) UPB

Balance,

Net(2)

Weighted

Average

Coupon(1)

Contractual

Maturity(1) UPB

Balance,

Net(2)

Weighted

Average

Coupon(1)

(dollars in millions) (dollars in millions)

Single-family:(3)

30-year or more, fixed-rate ..... 2013 – 2048 $ 960,176 $ 982,718 4.53% 2012 – 2048 $1,034,680 $1,047,556 4.92%

20-year fixed-rate ............ 2013 – 2033 73,902 76,079 4.09 2012 – 2032 67,323 68,502 4.53

15-year fixed-rate ............ 2013 – 2028 257,083 263,244 3.59 2012 – 2027 242,077 246,023 4.09

Adjustable-rate ............. 2013 – 2047 62,424 63,649 2.88 2012 – 2047 60,544 61,395 3.18

Interest-only(4) .............. 2026 – 2041 31,588 31,642 4.37 2026 – 2041 45,807 45,884 4.91

FHA/VA .................. 2013 – 2041 1,638 1,663 5.67 2012 – 2041 2,045 2,077 5.67

Total single-family ............ 1,386,811 1,418,995 1,452,476 1,471,437

Multifamily(5) ............... 2019 448 529 4.96 — — — —

Total debt securities of consolidated

trusts held by third parties(6) ..... $1,387,259 $1,419,524 $1,452,476 $1,471,437

(1) Based on the contractual maturity and interest rate of debt securities of our consolidated trusts held by third parties.

(2) Represents par value, net of associated discounts, premiums, and other basis adjustments.

(3) Debt securities of consolidated trusts held by third parties are prepayable as the loans that collateralize the debt may prepay without penalty at any time.

(4) Includes interest-only securities and interest-only mortgage loans that allow the borrowers to pay only interest for a fixed period of time before the loans

begin to amortize.

(5) Balance, Net includes interest-only securities recorded at fair value.

(6) The effective rate for debt securities of consolidated trusts held by third parties was 3.49% and 4.22% as of December 31, 2012 and 2011, respectively.

The table below summarizes the contractual maturities of other long-term debt securities and debt securities of

consolidated trusts held by third parties at December 31, 2012.

Table 8.5 — Contractual Maturity of Other Long-Term Debt and Debt Securities of Consolidated Trusts Held by

Third Parties

Annual Maturities Par Value(1)(2)

(in millions)

Other debt:

2013 ........................................................................................... $ 115,577

2014 ........................................................................................... 85,798

2015 ........................................................................................... 52,968

2016 ........................................................................................... 38,882

2017 ........................................................................................... 57,664

Thereafter ....................................................................................... 83,653

Debt securities of consolidated trusts held by third parties(3) ..................................................... 1,387,259

Total ............................................................................................. 1,821,801

Net discounts, premiums, hedge-related and other basis adjustments(4) 27,352

Total debt securities of consolidated trusts held by third parties and other long-term debt ................................ $1,849,153

(1) Represents par value of long-term debt securities and subordinated borrowings and UPB of debt securities of our consolidated trusts held by third

parties.

(2) For other debt denominated in a currency other than the U.S. dollar, the par value is based on the exchange rate at December 31, 2012.

(3) Contractual maturities of debt securities of consolidated trusts held by third parties may not represent expected maturity as they are prepayable at any

time without penalty.

(4) Other basis adjustments primarily represent changes in fair value attributable to instrument-specific credit risk and interest-rate risk related to other

foreign-currency denominated debt.

Lines of Credit

At both December 31, 2012 and 2011, we had one secured, uncommitted intraday line of credit with a third party

totaling $10 billion. We use this line of credit regularly to provide us with additional liquidity to fund our intraday payment

activities through the Fedwire system in connection with the Federal Reserve’s payments system risk policy, which restricts

or eliminates daylight overdrafts by the GSEs. No amounts were drawn on this line of credit at December 31, 2012 or 2011.

We expect to continue to use the current facility to satisfy our intraday financing needs; however, as the line is uncommitted,

we may not be able to draw on it if and when needed.

Subordinated Debt Interest and Principal Payments

The terms of certain of our subordinated debt securities provide for us to defer payments of interest in the event we fail

to maintain specified capital levels. However, in a September 23, 2008 statement concerning the conservatorship, the

261 Freddie Mac
Director of FHFA stated that we would continue to make interest and principal payments on our subordinated debt, even if

we fail to maintain required capital levels.

NOTE 9: FINANCIAL GUARANTEES

When we securitize single-family mortgages that we purchase, we issue mortgage-related securities that can be sold to

investors or held by us. During the years ended December 31, 2012, and 2011, we issued approximately $439.3 billion and

$300.2 billion respectively, in UPB of Freddie Mac mortgage-related securities backed by single-family mortgage loans

(excluding those backed by HFA bonds). Beginning January 1, 2010, we no longer recognize a financial guarantee for such

arrangements as we instead recognize both the mortgage loans and the debt securities of these securitization trusts on our

consolidated balance sheets.

For securities issued by non-consolidated securitization trusts and other guarantee commitments for which we are

exposed to incremental credit risk, we recognize a guarantee asset, guarantee obligation and a reserve for guarantee losses, as

necessary. Our guarantee obligation represents the recognized liability, net of cumulative amortization, associated with our

guarantee.

The table below presents our maximum potential exposure, our recognized liability, and the maximum remaining term

of our financial guarantees that are not consolidated on our balance sheets.

Table 9.1 — Financial Guarantees

December 31, 2012 December 31, 2011

Maximum

Exposure(1)

Recognized

Liability

Maximum

Remaining

Term

Maximum

Exposure(1)

Recognized

Liability

Maximum

Remaining

Term

(dollars in millions, terms in years)

Non-consolidated Freddie Mac securities ..................... $50,715 $430 41 $35,879 $ 300 42

Other guarantee commitments ............................. 23,455 575 37 21,064 487 37

Derivative instruments ................................... 10,306 789 33 37,737 2,977 34

Servicing-related premium guarantees . . . . . . . . . . . . . . . . . . . . . . . 210 — 5 151 — 5

(1) Maximum exposure represents the contractual amounts that could be lost under the non-consolidated guarantees if counterparties or borrowers defaulted,

without consideration of possible recoveries under credit enhancement arrangements, such as recourse provisions, third-party insurance contracts, or

from collateral held or pledged. The maximum exposure disclosed above is not representative of the actual loss we are likely to incur, based on our

historical loss experience and after consideration of proceeds from related collateral liquidation. The maximum exposure for our liquidity guarantees is

not mutually exclusive of our default guarantees on the same securities; therefore, these amounts are included within the maximum exposure of nonconsolidated Freddie Mac securities and other guarantee commitments.

Non-Consolidated Freddie Mac Securities

We issue three types of mortgage-related securities: (a) PCs; (b) REMICs and Other Structured Securities; and (c) Other

Guarantee Transactions. We guarantee the payment of principal and interest on these securities, which are backed by pools of

mortgage loans, irrespective of the cash flows received from the borrowers.

Our single-family securities issued in resecuritizations of our PCs and other previously issued REMICs and Other

Structured Securities are not consolidated unless we hold substantially all of the beneficial interests of the trust and are

therefore considered the primary beneficiary of the trust. Our resecuritizations of PCs and other previously issued REMICs

and Structured Securities do not give rise to any additional exposure to credit loss as we already consolidate the underlying

collateral. The securities issued in these resecuritizations consist of single-class and multiclass securities backed by PCs,

REMICs, interest-only strips, and principal-only strips. Since these resecuritizations do not increase our credit-risk, no

guarantee asset or guarantee obligation is recognized for these transactions and they are excluded from the table above.

During 2012 we issued approximately $17.5 billion, compared to $11.8 billion in 2011, in UPB of non-consolidated

Freddie Mac securities primarily backed by multifamily mortgage loans, for which a guarantee asset and guarantee obligation

were recognized.

We recognize a reserve for guarantee losses, which is included within other liabilities on our consolidated balance

sheets, which totaled $183 million and $198 million at December 31, 2012 and 2011, respectively. For many of the loans

underlying our non-consolidated guarantees, there are credit protections from third parties, including subordination, covering

a portion of our exposure. See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES” for information about

credit protections on loans we guarantee.

262 Freddie Mac
Other Guarantee Commitments

We provide long-term standby commitments to certain of our customers, which obligate us to purchase seriously

delinquent loans that are covered by those agreements. During 2012 and 2011, we issued and guaranteed $6.8 billion and

$4.4 billion, respectively, in UPB of long-term standby commitments. These long-term standby commitments totaled

$12.4 billion and $8.6 billion of UPB at December 31, 2012 and 2011, respectively. We also had other guarantee

commitments on multifamily housing revenue bonds that were issued by HFAs of $9.4 billion and $9.6 billion in UPB at

December 31, 2012 and 2011, respectively. In addition, as of December 31, 2012, and 2011, we had issued guarantees under

the TCLFP on securities backed by HFA bonds with UPB of $1.7 billion, and $2.9 billion, respectively.

Derivative Instruments

Derivative instruments include written options, written swaptions, interest-rate swap guarantees, and short-term default

guarantee commitments accounted for as credit derivatives. See “NOTE 10: DERIVATIVES” for further discussion of these

derivative guarantees.

We guarantee the performance of interest-rate swap contracts in two circumstances. First, in connection with certain

other guarantee commitments, we guarantee that a multifamily borrower will perform under an interest-rate swap contract

linked to the borrower’s ARM. And second, in connection with our issuance of certain REMICs and Other Structured

Securities, which are backed by tax-exempt bonds, we guarantee that the sponsor of the transaction will perform under the

interest-rate swap contract linked to the senior variable-rate certificates that we issued.

We also have issued certain REMICs and Other Structured Securities with stated final maturities that are shorter than

the stated maturity of the underlying mortgage loans. If the underlying mortgage loans to these securities have not been

purchased by a third party or fully matured as of the stated final maturity date of such securities, we will sponsor an auction

of the underlying assets. To the extent that purchase or auction proceeds are insufficient to cover unpaid principal amounts

due to investors in such REMICs and Other Structured Securities, we are obligated to fund such principal. Our maximum

exposure on these derivative guarantees represents the outstanding UPB of the REMICs and Other Structured Securities

subject to stated final maturities.

Servicing-Related Premium Guarantees

We provide guarantees to reimburse servicers for premiums paid to acquire servicing in situations where the original

seller is unable to perform under its separate servicing agreement. The liability associated with these agreements was not

significant at December 31, 2012 and 2011.

Other Indemnifications

In connection with certain business transactions, we may provide indemnification to counterparties for claims arising

out of breaches of certain obligations (e.g., those arising from representations and warranties) in contracts entered into in the

normal course of business. Our assessment is that the risk of any material loss from such a claim for indemnification is

remote and there are no significant probable and estimable losses associated with these contracts. In addition, we provided

indemnification for litigation defense costs to certain former officers who are subject to ongoing litigation. See “NOTE 17:

LEGAL CONTINGENCIES” for further information on ongoing litigation. The recognized liabilities on our consolidated

balance sheets related to indemnifications were not significant at December 31, 2012 and 2011.

As part of the guarantee arrangements pertaining to multifamily housing revenue bonds, we provided commitments to

advance funds, commonly referred to as “liquidity guarantees.” These guarantees require us to advance funds to enable

others to repurchase any tendered tax-exempt and related taxable bonds that are unable to be remarketed. Any such advances

are treated as loans and are secured by a pledge to us of the repurchased securities until the securities are remarketed. We

hold cash and cash equivalents on our consolidated balance sheets for the amount of these commitments. No advances under

these liquidity guarantees were outstanding at December 31, 2012 and 2011.

NOTE 10: DERIVATIVES

Use of Derivatives

We use derivatives primarily to:

• hedge forecasted issuances of debt;

263 Freddie Mac
• synthetically create callable and non-callable funding;

• adjust or rebalance our funding mix in response to changes in the interest-rate characteristics of our mortgage-related

assets; and

• hedge foreign-currency exposure.

Hedge Forecasted Debt Issuances

When we commit to purchase mortgages and mortgage-related investments, such commitments are typically for a future

settlement ranging from two weeks to three months after the date of the commitment. To facilitate larger and more

predictable debt issuances that contribute to lower funding costs, we use interest-rate derivatives to economically hedge the

interest-rate risk exposure from the time we commit to purchase a mortgage to the time the related debt is issued.

Create Synthetic Funding

We also use derivatives to synthetically create the substantive economic equivalent of various debt funding structures.

For example, the combination of a series of short-term debt issuances over a defined period and a pay-fixed interest rate swap

with the same maturity as the last debt issuance is the substantive economic equivalent of a long-term fixed-rate debt

instrument of comparable maturity. Similarly, the combination of non-callable debt and a call swaption, or option to enter

into a receive-fixed interest rate swap, with the same maturity as the non-callable debt, is the substantive economic

equivalent of callable debt. These derivatives strategies increase our funding flexibility and allow us to better match asset and

liability cash flows, often reducing overall funding costs.

Adjust Funding Mix

We generally use interest-rate swaps to mitigate contractual funding mismatches between our assets and liabilities. We

also use swaptions and other option-based derivatives to adjust the economic terms of our overall mix of debt funding in

response to changes in the expected lives of our investments in mortgage-related assets. As market conditions dictate, we

take rebalancing actions to keep our interest-rate risk exposure within management-set limits. In a declining interest-rate

environment, we typically enter into receive-fixed interest rate swaps or purchase Treasury-based derivatives to shorten the

duration of our funding to offset the declining duration of our mortgage assets. In a rising interest-rate environment, we

typically enter into pay-fixed interest rate swaps or sell Treasury-based derivatives in order to lengthen the duration of our

funding to offset the increasing duration of our mortgage assets.

Foreign-Currency Exposure

We use foreign-currency swaps to eliminate virtually all of our exposure to fluctuations in exchange rates related to our

foreign-currency denominated debt by entering into swap transactions that effectively convert foreign-currency denominated

obligations into U.S. dollar-denominated obligations. Foreign-currency swaps are defined as swaps in which one leg is

calculated in a foreign-currency and the other leg is calculated in U.S. dollars.

Types of Derivatives

We principally use the following types of derivatives:

• LIBOR- and Euribor-based interest-rate swaps;

• LIBOR- and Treasury-based options (including swaptions);

• LIBOR- and Treasury-based exchange-traded futures; and

• Foreign-currency swaps.

In addition to swaps, futures, and purchased options, our derivative positions include the following:

Written Options and Swaptions

Written call and put swaptions are sold to counterparties allowing them the option to enter into receive- and pay-fixed

interest rate swaps, respectively. Written call and put options on mortgage-related securities give the counterparty the right to

execute a contract under specified terms, which generally occurs when we are in a liability position. We use these written

options and swaptions to manage convexity risk over a wide range of interest rates. Written options lower our overall

hedging costs, allow us to hedge the same economic risk we assume when selling guaranteed final maturity REMICs with a

264 Freddie Mac
more liquid instrument, and allow us to rebalance the options in our callable debt and REMICs portfolios. We may, from

time to time, write other derivative contracts such as interest-rate futures.

Commitments

We routinely enter into commitments that include our: (a) commitments to purchase and sell investments in securities;

(b) commitments to purchase mortgage loans; and (c) commitments to purchase and extinguish or issue debt securities of our

consolidated trusts. Most of these commitments are considered derivatives and therefore are subject to the accounting

guidance for derivatives and hedging.

Swap Guarantee Derivatives

In connection with some of the guarantee arrangements pertaining to multifamily housing revenue bonds and

multifamily pass-through certificates, we may also guarantee the sponsor’s or the borrower’s obligations as a counterparty on

any related interest-rate swaps used to mitigate interest-rate risk, which are accounted for as swap guarantee derivatives.

Credit Derivatives

We entered into credit-risk sharing agreements for certain credit enhanced multifamily housing revenue bonds held by

third parties in exchange for a monthly fee. In addition, we have purchased mortgage loans containing debt cancellation

contracts, which provide for mortgage debt or payment cancellation for borrowers who experience unanticipated losses of

income dependent on a covered event. The rights and obligations under these agreements have been assigned to the servicers.

However, in the event the servicer does not perform as required by contract we would be obligated under our guarantee to

make the required contractual payments.

For a discussion of our significant accounting policies related to derivatives, see “NOTE 1: SUMMARY OF

SIGNIFICANT ACCOUNTING POLICIES — Derivatives.”

Derivative Assets and Liabilities at Fair Value

The table below presents the location and fair value of derivatives reported on our consolidated balance sheets.

265 Freddie Mac
Table 10.1 — Derivative Assets and Liabilities at Fair Value

At December 31, 2012 At December 31, 2011

Notional or

Contractual

Amount

Derivatives at Fair Value Notional or

Contractual

Amount

Derivatives at Fair Value

Assets(1) Liabilities(1) Assets(1) Liabilities(1)

(in millions)

Total derivative portfolio

Derivatives not designated as hedging instruments under the

accounting guidance for derivatives and hedging(2)

Interest-rate swaps:

Receive-fixed ....................................... $275,099 $ 13,782 $ (97) $211,808 $ 12,998 $ (108)

Pay-fixed .......................................... 270,092 177 (30,147) 289,335 19 (34,507)

Basis (floating to floating) .............................. 2,300 6 — 2,750 5 (7)

Total interest-rate swaps ............................. 547,491 13,965 (30,244) 503,893 13,022 (34,622)

Option-based:

Call swaptions

Purchased ........................................ 37,650 7,360 — 76,275 12,975 —

Written ......................................... 6,195 — (749) 27,525 — (2,932)

Put Swaptions

Purchased ........................................ 43,200 288 — 70,375 638 —

Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 500 — (2)

Other option-based derivatives(3) ......................... 31,540 2,449 (1) 38,549 2,256 (2)

Total option-based ................................. 118,585 10,097 (750) 213,224 15,869 (2,936)

Futures ............................................. 41,123 37 (2) 41,281 5 —

Foreign-currency swaps ................................. 1,167 73 (6) 1,722 106 (9)

Commitments ........................................ 25,530 20 (47) 14,318 38 (94)

Credit derivatives ...................................... 8,307 1 (5) 10,190 1 (5)

Swap guarantee derivatives ............................... 3,628 — (35) 3,621 — (37)

Total derivatives not designated as hedging instruments ........ 745,831 24,193 (31,089) 788,249 29,041 (37,703)

Netting adjustments(4) ................................... (23,536) 30,911 (28,923) 37,268

Total derivative portfolio, net ........................... $745,831 $ 657 $ (178) $788,249 $ 118 $ (435)

(1) The value of derivatives on our consolidated balance sheets is reported as derivative assets, net and derivative liabilities, net. Excludes $501 million and

$0 million of non-cash collateral held at December 31, 2012 and 2011, respectively.

(2) See “Use of Derivatives” for additional information about the purpose of entering into derivatives not designated as hedging instruments and our overall

risk management strategies.

(3) Primarily includes purchased interest-rate caps and floors.

(4) Represents counterparty netting, cash collateral netting, net trade/settle receivable or payable, and net derivative interest receivable or payable. The net

cash collateral posted and net trade/settle receivable were $8.2 billion and $0 million, respectively, at December 31, 2012. The net cash collateral posted

and net trade/settle receivable were $9.4 billion and $1 million, respectively, at December 31, 2011. The net interest receivable (payable) of derivative

assets and derivative liabilities was approximately $(0.8) billion and $(1.1) billion at December 31, 2012 and 2011, respectively, which was mainly

related to interest-rate swaps.

The carrying value of our derivatives on our consolidated balance sheets is equal to their fair value, including net

derivative interest receivable or payable and net trade/settle receivable or payable and is net of cash collateral held or posted,

where allowable by a master netting agreement. Derivatives in a net asset position are reported as derivative assets, net.

Similarly, derivatives in a net liability position are reported as derivative liabilities, net. Cash collateral we obtained from

counterparties to derivative contracts that has been offset against derivative assets at December 31, 2012 and 2011 was

$1.5 billion and $3.2 billion, respectively. Cash collateral we posted to counterparties to derivative contracts that has been

offset against derivative liabilities at December 31, 2012 and 2011 was $9.7 billion and $12.6 billion, respectively. Non-cash

collateral held is not recognized on our consolidated balance sheets as we do not obtain effective control over the collateral,

and non-cash collateral posted is not de-recognized from our consolidated balance sheets as we do not relinquish effective

control over the collateral. Therefore, non-cash collateral held or posted is not presented as an offset against derivative assets

or derivative liabilities, even where a master netting agreement is in effect. See “NOTE 7: INVESTMENTS IN

SECURITIES — Collateral Pledged” for more information about collateral held and posted. We are subject to collateral

posting thresholds based on the credit rating of our long-term senior unsecured debt securities from S&P or Moody’s. The

lowering or withdrawal of our credit rating by S&P or Moody’s may increase our obligation to post collateral, depending on

the amount of the counterparty’s exposure to Freddie Mac with respect to the derivative transactions.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability

position on December 31, 2012, was $9.7 billion for which we posted collateral of $9.7 billion in the normal course of

business. Since we were fully collateralized as of December 31, 2012, we would not have had to post additional collateral on

that day if credit-risk-related contingent features underlying these agreements were triggered.

266 Freddie Mac
At December 31, 2012 and 2011, there were no amounts of cash collateral that were not offset against derivative assets,

net or derivative liabilities, net, as applicable. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for

further information related to our derivative counterparties.

Gains and Losses on Derivatives

The table below presents the gains and losses on derivatives reported in our consolidated statements of comprehensive

income.

Table 10.2 — Gains and Losses on Derivatives

Amount of Gain or (Loss)

Reclassified from AOCI into

Earnings (Effective Portion)

Derivatives in Cash Flow

Hedging Relationships(1)(2)

Year Ended December 31,

2012 2011 2010

(in millions)

Closed cash flow hedges(3) ............................................................... $ (612) $ (758) $ (1,010)

Derivatives not designated as hedging

instruments under the accounting

guidance for derivatives and hedging(5)

Derivative Gains (Losses)(4)

Year Ended December 31,

2012 2011 2010

(in millions)

Interest-rate swaps:

Receive-fixed

Foreign-currency denominated ........................................................ $ (33) $ (49) $ (119)

U.S. dollar denominated ............................................................. 2,686 12,686 9,825

Total receive-fixed swaps ............................................................ 2,653 12,637 9,706

Pay-fixed ......................................................................... (2,865) (22,999) (17,450)

Basis (floating to floating) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (5) 65

Total interest-rate swaps ............................................................. (204) (10,367) (7,679)

Option based:

Call swaptions

Purchased ....................................................................... 1,365 10,234 6,548

Written ......................................................................... (38) (2,337) (199)

Put swaptions

Purchased ....................................................................... (273) (1,614) (1,621)

Written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 14 82

Other option-based derivatives(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 879 33

Total option-based ................................................................. 1,250 7,176 4,843

Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (154) (210)

Foreign-currency swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) (41) (468)

Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 (1,340) (85)

Credit derivatives ..................................................................... — — 5

Swap guarantee derivatives .............................................................. 7 3 3

Other(7) ............................................................................. — 3 —

Subtotal .......................................................................... 1,354 (4,720) (3,591)

Accrual of periodic settlements:(8)

Receive-fixed interest-rate swaps(9) ....................................................... 3,511 4,173 6,381

Pay-fixed interest-rate swaps ........................................................... (7,318) (9,241) (10,909)

Foreign-currency swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 22 19

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 14 15

Total accrual of periodic settlements ...................................................... (3,802) (5,032) (4,494)

Total ........................................................................... $(2,448) $ (9,752) $ (8,085)

(1) Derivatives that meet specific criteria may be accounted for as cash flow hedges. Net deferred gains and losses on closed cash flow hedges (i.e., where

the derivative is either terminated or redesignated) are included in AOCI until the related forecasted transaction affects earnings or is determined to be

probable of not occurring.

(2) No amounts of gains or (losses) were recognized in AOCI on derivatives (effective portion) and in other income (ineffective portion and amount

excluded from effectiveness testing).

(3) Amounts reported in AOCI linked to interest payments on long-term debt are recorded in other debt interest expense and amounts not linked to interest

payments on long-term debt are recorded in expense related to derivatives.

(4) Gains (losses) are reported as derivative gains (losses) on our consolidated statements of comprehensive income.

(5) See “Use of Derivatives” for additional information about the purpose of entering into derivatives not designated as hedging instruments and our overall

risk management strategies.

(6) Primarily includes purchased interest-rate caps and floors.

(7) Related to the bankruptcy of Lehman Brothers Holdings, Inc.

(8) For derivatives not in qualifying hedge accounting relationships, the accrual of periodic cash settlements is recorded in derivative gains (losses) on our

consolidated statements of comprehensive income.

(9) Includes imputed interest on zero-coupon swaps.

267 Freddie Mac
Hedge Designation of Derivatives

At December 31, 2012 and 2011, we did not have any derivatives in hedge accounting relationships; however, there are

deferred net losses recorded in AOCI related to closed cash flow hedges. As shown in “Table 10.3 — AOCI Related to Cash

Flow Hedge Relationships,” the total AOCI related to derivatives designated as cash flow hedges was a loss of $1.3 billion

and $1.7 billion at December 31, 2012 and 2011, respectively, composed of deferred net losses on closed cash flow hedges.

Closed cash flow hedges involve derivatives that have been terminated or are no longer designated as cash flow hedges.

Fluctuations in prevailing market interest rates have no effect on the deferred portion of AOCI relating to losses on closed

cash flow hedges.

The previous deferred amount related to closed cash flow hedges remains in our AOCI balance and will be recognized

into earnings over the expected time period for which the forecasted transactions affect earnings. Over the next 12 months,

we estimate that approximately $316 million, net of taxes, of the $1.3 billion of cash flow hedge losses in AOCI at

December 31, 2012 will be reclassified into earnings. The maximum remaining length of time over which we have hedged

the exposure related to the variability in future cash flows on forecasted transactions, primarily forecasted debt issuances, is

21 years. However, over 70% and 90% of AOCI relating to closed cash flow hedges at December 31, 2012 will be

reclassified to earnings over the next five and ten years, respectively.

The table below presents the changes in AOCI related to derivatives designated as cash flow hedges. Net

reclassifications of losses to earnings represents the AOCI amount that was recognized in earnings as the originally hedged

forecasted transactions affected earnings, unless it was deemed probable that the forecasted transaction would not occur. If it

is probable that the forecasted transaction will not occur, then the deferred gain or loss associated with the hedge related to

the forecasted transaction would be reclassified into earnings immediately.

Table 10.3 — AOCI Related to Cash Flow Hedge Relationships

Year Ended December 31,

2012 2011 2010

(in millions)

Beginning balance(1) ..................................................................... $(1,730) $(2,239) $(2,905)

Cumulative effect of change in accounting principle(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (7)

Net reclassifications of losses to earnings(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414 509 673

Ending balance(1) ........................................................................ $(1,316) $(1,730) $(2,239)

(1) Represents net deferred gains and losses on closed (i.e., terminated or redesignated) cash flow hedges.

(2) Represents adjustment to initially apply the accounting guidance for accounting for transfers of financial assets and consolidation of VIEs, as well as a

change in the amortization method for certain related deferred items. Net of tax benefit of $4 million for the year ended December 31, 2010.

(3) Net of tax benefit of $198 million, $249 million, and $337 million for the years ended December 31, 2012, 2011, and 2010, respectively.

NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT)

Issuance of Senior Preferred Stock

Pursuant to the Purchase Agreement described in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS,” we

issued one million shares of senior preferred stock to Treasury on September 8, 2008. The senior preferred stock was issued

to Treasury in partial consideration of Treasury’s commitment to provide funds to us under the Purchase Agreement.

Shares of the senior preferred stock have a par value of $1, and have a stated value and initial liquidation preference

equal to $1,000 per share. The liquidation preference of the senior preferred stock is subject to adjustment. Dividends that are

not paid in cash for any dividend period will accrue and be added to the liquidation preference of the senior preferred stock.

In addition, any amounts Treasury pays to us pursuant to its funding commitment under the Purchase Agreement and any

quarterly commitment fees that are not paid in cash to Treasury nor waived by Treasury will be added to the liquidation

preference of the senior preferred stock. As described below, we may make payments to reduce the liquidation preference of

the senior preferred stock in limited circumstances. As discussed in “NOTE 2: CONSERVATORSHIP AND RELATED

MATTERS — Purchase Agreement,” the quarterly commitment fee has been suspended.

Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as and if

declared by our Board of Directors. Through December 31, 2012, the senior preferred stock accrued quarterly cumulative

dividends at a rate of 10% per year. However, under the August 2012 amendment to the Purchase Agreement, the fixed

dividend rate was replaced with a net worth sweep dividend beginning in the first quarter of 2013. Total dividends paid in

268 Freddie Mac
cash during 2012, 2011, and 2010 at the direction of the Conservator were $7.2 billion, $6.5 billion, and $5.7 billion,

respectively. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS” for a discussion of our net worth sweep

dividend.

The senior preferred stock ranks ahead of our common stock and all other outstanding series of our preferred stock, as

well as any capital stock we issue in the future, as to both dividends and rights upon liquidation. The senior preferred stock

provides that we may not, at any time, declare or pay dividends on, make distributions with respect to, or redeem, purchase

or acquire, or make a liquidation payment with respect to, any Freddie Mac common stock or other securities ranking junior

to the senior preferred stock unless: (a) full cumulative dividends on the outstanding senior preferred stock (including any

unpaid dividends added to the liquidation preference) have been declared and paid in cash; and (b) all amounts required to be

paid with the net proceeds of any issuance of capital stock for cash (as described in the following paragraph) have been paid

in cash. Shares of the senior preferred stock are not convertible. Shares of the senior preferred stock have no general or

special voting rights, other than those set forth in the certificate of designation for the senior preferred stock or otherwise

required by law. The consent of holders of at least two-thirds of all outstanding shares of senior preferred stock is generally

required to amend the terms of the senior preferred stock or to create any class or series of stock that ranks prior to or on

parity with the senior preferred stock.

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment

set forth in the Purchase Agreement; however, we are permitted to pay down the liquidation preference of the outstanding

shares of senior preferred stock to the extent of: (a) accrued and unpaid dividends previously added to the liquidation

preference and not previously paid down; and (b) quarterly commitment fees previously added to the liquidation preference

and not previously paid down. In addition, if we issue any shares of capital stock for cash while the senior preferred stock is

outstanding, the net proceeds of the issuance must be used to pay down the liquidation preference of the senior preferred

stock; however, the liquidation preference of each share of senior preferred stock may not be paid down below $1,000 per

share prior to the termination of Treasury’s funding commitment. Following the termination of Treasury’s funding

commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock at any time, in

whole or in part. If, after termination of Treasury’s funding commitment, we pay down the liquidation preference of each

outstanding share of senior preferred stock in full, the shares will be deemed to have been redeemed as of the payment date.

The table below provides a summary of our senior preferred stock outstanding at December 31, 2012.

Table 11.1 — Senior Preferred Stock

Draw Date

Shares

Authorized

Shares

Outstanding

Total

Par Value

Initial

Liquidation

Preference

Price per Share

Total

Liquidation

Preference(1)

Senior preferred stock: (in millions, except initial liquidation preference price per share)

10% . . . . . . . . . . . . . . . . . . . . . . . September 8, 2008(2) 1.00 1.00 $1.00 $1,000 $ 1,000

10%(3) ...................... November 24, 2008 — — — N/A 13,800

10%(3) ...................... March 31, 2009 — — — N/A 30,800

10%(3) ...................... June 30, 2009 — — — N/A 6,100

10%(3) ...................... June 30, 2010 — — — N/A 10,600

10%(3) ...................... September 30, 2010 — — — N/A 1,800

10%(3) ...................... December 30, 2010 — — — N/A 100

10%(3) ...................... March 31, 2011 — — — N/A 500

10%(3) ...................... September 30, 2011 — — — N/A 1,479

10%(3) ...................... December 30, 2011 — — — N/A 5,992

10%(3) ...................... March 30, 2012 — — — N/A 146

10%(3) ...................... June 29, 2012 — — — N/A 19

Total, senior preferred stock ................................ 1.00 1.00 $1.00 $72,336

(1) Amounts stated at redemption value.

(2) We did not receive any cash proceeds from Treasury as a result of issuing these shares.

(3) Represents an increase in the liquidation preference of our senior preferred stock due to the receipt of funds from Treasury.

We received $146 million in March 2012 and $19 million in June 2012 pursuant to draw requests that FHFA submitted

to Treasury on our behalf to address the deficits in our net worth as of December 31, 2011 and March 31, 2012, respectively.

At December 31, 2012, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from Treasury

under the Purchase Agreement. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Government

Support for our Business” for additional information. The aggregate liquidation preference on the senior preferred stock

269 Freddie Mac
owned by Treasury was $72.3 billion and $72.2 billion as of December 31, 2012 and 2011, respectively. See “NOTE 14:

REGULATORY CAPITAL” for additional information.

Common Stock Warrant

Pursuant to the Purchase Agreement described in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS,” on

September 7, 2008, we, through FHFA, in its capacity as Conservator, issued a warrant to purchase common stock to

Treasury. The warrant was issued to Treasury in partial consideration of Treasury’s commitment to provide funds to us under

the terms set forth in the Purchase Agreement.

The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total number of

shares of our common stock outstanding on a fully diluted basis on the date of exercise. The warrant may be exercised in

whole or in part at any time on or before September 7, 2028, by delivery to us of: (a) a notice of exercise; (b) payment of the

exercise price of $0.00001 per share; and (c) the warrant. If the market price of one share of our common stock is greater

than the exercise price, then, instead of paying the exercise price, Treasury may elect to receive shares equal to the value of

the warrant (or portion thereof being canceled) pursuant to the formula specified in the warrant. Upon exercise of the

warrant, Treasury may assign the right to receive the shares of common stock issuable upon exercise to any other person.

We account for the warrant in permanent equity. At issuance on September 7, 2008, we recognized the warrant at fair

value, and we do not recognize subsequent changes in fair value while the warrant remains classified in equity. We recorded

an aggregate fair value of $2.3 billion for the warrant as a component of additional paid-in-capital. We derived the fair value

of the warrant using a modified Black-Scholes model. If the warrant is exercised, the stated value of the common stock

issued will be reclassified to common stock in our consolidated balance sheets. The warrant was determined to be insubstance non-voting common stock, because the warrant’s exercise price of $0.00001 per share is considered nonsubstantive (compared to the market price of our common stock). As a result, the warrant is included in the computation of

basic and diluted earnings (loss) per share. The weighted average shares of common stock outstanding for the years ended

December 31, 2012, 2011, and 2010, respectively, included shares of common stock that would be issuable upon full

exercise of the warrant issued to Treasury.

Preferred Stock

The table below provides a summary of our preferred stock outstanding at December 31, 2012. We have the option to

redeem our preferred stock on specified dates, at their redemption price plus dividends accrued through the redemption date.

However, without the consent of Treasury, we are restricted from making payments to purchase or redeem preferred stock as

well as paying any preferred dividends, other than dividends on the senior preferred stock. In addition, all 24 classes of

preferred stock are perpetual and non-cumulative, and carry no significant voting rights or rights to purchase additional

Freddie Mac stock or securities. Costs incurred in connection with the issuance of preferred stock are charged to additional

paid-in capital.

270 Freddie Mac
Table 11.2 — Preferred Stock

Issue Date

Shares

Authorized

Shares

Outstanding

Total

Par Value

Redemption

Price per

Share

Total

Outstanding

Balance(1)

Redeemable

On or After(2)

OTCQB

Symbol(3)

Preferred stock: (in millions except redemption price per share)

1996 Variable-rate(4) ....... April 26, 1996 5.00 5.00 $ 5.00 $50.00 $ 250 June 30, 2001 FMCCI

5.81% ................. October 27, 1997 3.00 3.00 3.00 50.00 150 October 27, 1998 (5)

5% . . . . . . . . . . . . . . . . . . . March 23, 1998 8.00 8.00 8.00 50.00 400 March 31, 2003 FMCKK

1998 Variable-rate(6) ....... September 23 and 29, 1998 4.40 4.40 4.40 50.00 220 September 30, 2003 FMCCG

5.10% ................. September 23, 1998 8.00 8.00 8.00 50.00 400 September 30, 2003 FMCCH

5.30% ................. October 28, 1998 4.00 4.00 4.00 50.00 200 October 30, 2000 (5)

5.10% ................. March 19, 1999 3.00 3.00 3.00 50.00 150 March 31, 2004 (5)

5.79% ................. July 21, 1999 5.00 5.00 5.00 50.00 250 June 30, 2009 FMCCK

1999 Variable-rate(7) ....... November 5, 1999 5.75 5.75 5.75 50.00 287 December 31, 2004 FMCCL

2001 Variable-rate(8) ....... January 26, 2001 6.50 6.50 6.50 50.00 325 March 31, 2003 FMCCM

2001 Variable-rate(9) ....... March 23, 2001 4.60 4.60 4.60 50.00 230 March 31, 2003 FMCCN

5.81% ................. March 23, 2001 3.45 3.45 3.45 50.00 173 March 31, 2011 FMCCO

6% . . . . . . . . . . . . . . . . . . . May 30, 2001 3.45 3.45 3.45 50.00 173 June 30, 2006 FMCCP

2001 Variable-rate(10) . . . . . . . May 30, 2001 4.02 4.02 4.02 50.00 201 June 30, 2003 FMCCJ

5.70% ................. October 30, 2001 6.00 6.00 6.00 50.00 300 December 31, 2006 FMCKP

5.81% ................. January 29, 2002 6.00 6.00 6.00 50.00 300 March 31, 2007 (5)

2006 Variable-rate(11) ....... July 17, 2006 15.00 15.00 15.00 50.00 750 June 30, 2011 FMCCS

6.42% ................. July 17, 2006 5.00 5.00 5.00 50.00 250 June 30, 2011 FMCCT

5.90% ................. October 16, 2006 20.00 20.00 20.00 25.00 500 September 30, 2011 FMCKO

5.57% ................. January 16, 2007 44.00 44.00 44.00 25.00 1,100 December 31, 2011 FMCKM

5.66% ................. April 16, 2007 20.00 20.00 20.00 25.00 500 March 31, 2012 FMCKN

6.02% ................. July 24, 2007 20.00 20.00 20.00 25.00 500 June 30, 2012 FMCKL

6.55% ................. September 28, 2007 20.00 20.00 20.00 25.00 500 September 30, 2017 FMCKI

2007 Fixed-to-floating rate(12) ................ December 4, 2007 240.00 240.00 240.00 25.00 6,000 December 31, 2012 FMCKJ

Total, preferred stock ..... 464.17 464.17 $464.17 $14,109

(1) Amounts stated at redemption value.

(2) In accordance with the Purchase Agreement, until the senior preferred stock is repaid or redeemed in full, we may not, without the prior written consent

of Treasury, redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock or warrant).

(3) Preferred stock trades exclusively through the OTCQB Marketplace unless otherwise noted.

(4) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 9.00%.

(5) Issued through private placement.

(6) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 7.50%.

(7) Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury rate, and is capped at 11.00%.

Optional redemption on December 31, 2004 and on December 31 every five years thereafter.

(8) Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.10%, and is capped at

11.00%. Optional redemption on March 31, 2003 and on March 31 every two years thereafter.

(9) Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%, and is capped at 11.00%. Optional redemption on March 31, 2003

and on March 31 every year thereafter.

(10) Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.20%, and is capped at

11.00%. Optional redemption on June 30, 2003 and on June 30 every two years thereafter.

(11) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%.

(12) Dividend rate is set at an annual fixed rate of 8.375% from December 4, 2007 through December 31, 2012. For the period beginning on or after

January 1, 2013, dividend rate resets quarterly and is equal to the higher of: (a) the sum of three-month LIBOR plus 4.16% per annum; or (b) 7.875%

per annum. Optional redemption on December 31, 2012, and on December 31 every five years thereafter.

Stock-Based Compensation

Following the implementation of the conservatorship in September 2008, we suspended the operation of our ESPP, and

are no longer making grants under our 2004 Employee Plan or our Directors’ Plan. We collectively refer to the 2004

Employee Plan and the 1995 Employee Plan as the Employee Plans. Under the Purchase Agreement, we cannot issue any

new options, rights to purchase, participations or other equity interests without Treasury’s prior approval. However, grants

outstanding as of the date of the Purchase Agreement remain in effect in accordance with their terms.

We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 2012 and 2011,

except for issuances of treasury stock as reported on our consolidated statements of equity (deficit) relating to stock-based

compensation granted prior to conservatorship. Common stock delivered under these stock-based compensation plans

consists of treasury stock or shares acquired in market transactions on behalf of the participants. During 2012, restrictions

lapsed on 460,846 restricted stock units and 2,200 restricted stock units were forfeited. At December 31, 2012, 28,317

restricted stock units remained outstanding. There are no remaining restrictions on outstanding restricted stock units. In

addition, there were 41,160 shares of restricted stock outstanding at both December 31, 2012 and 2011. During 2012, no

stock options were exercised and 712,336 stock options were forfeited or expired. At December 31, 2012, 1,309,296 stock

options were outstanding.

271 Freddie Mac
For purposes of the earnings-per-share calculation, antidilutive potential common shares excluded from the computation

of dilutive potential common shares were 1,606,097, 3,383,185, and 5,290,347 at December 31, 2012, 2011, and 2010,

respectively.

Dividends Declared During 2012

No common dividends were declared in 2012. In 2012, we paid dividends of $7.2 billion in cash on the senior preferred

stock at the direction of our Conservator. We did not declare or pay dividends on any other series of Freddie Mac preferred

stock outstanding during 2012.

REIT Dividends

On March 30, 2010, our REIT subsidiaries paid preferred stock dividends for one quarter, consistent with approval from

Treasury and direction from FHFA. During 2010, each of our two REIT subsidiaries was eliminated via a merger transaction

and no other preferred or common stock dividends were paid by the REITs during the year ended December 31, 2010.

Delisting of Common Stock and Preferred Stock from NYSE

On July 8, 2010, we delisted our common and 20 previously listed classes of preferred stock from the NYSE pursuant to

a directive by our Conservator.

Our common stock and the classes of preferred stock that were previously listed on the NYSE are traded exclusively in

the OTCQB Marketplace. Shares of our common stock now trade under the ticker symbol FMCC. We expect that our

common stock and the previously listed classes of preferred stock will continue to trade in the OTCQB Marketplace so long

as market makers demonstrate an interest in trading the common and preferred stock.

NOTE 12: INCOME TAXES

Income Tax Benefit

The table below presents the components of our federal income tax benefit for 2012, 2011, and 2010. We are exempt

from state and local income taxes.

Table 12.1 — Federal Income Tax Benefit

Year Ended December 31,

2012 2011 2010

(in millions)

Current income tax benefit ..................................................................... $1,540 $283 $186

Deferred income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) 117 670

Total income tax benefit ..................................................................... $1,537 $400 $856

Our income tax benefit for 2012 primarily relates to the favorable resolution of various uncertain tax positions which

allowed for the release of the associated tax reserves.

The table below presents a reconciliation between our federal statutory income tax rate and our effective tax rate for

2012, 2011, and 2010.

272 Freddie Mac
Table 12.2 — Reconciliation of Statutory to Effective Tax Rate

Year Ended December 31,

2012 2011 2010

Amount Percent Amount Percent Amount Percent

(dollars in millions)

Statutory corporate tax rate ........................................... $(3,306) 35.0% $ 1,983 35.0% $ 5,209 35.0%

Tax-exempt interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 (1.4) 179 3.2 213 1.4

Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536 (5.7) 566 10.0 585 3.9

Valuation allowance

Current year activity .............................................. 2,637 (27.9) (2,728) (48.2) (6,007) (40.4)

Unrecognized tax benefits(1) ......................................... 1,205 (12.8) (21) (0.4) (12) (0.1)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 (0.5) 403 7.2 852 5.8

Total valuation allowance ............................................ 3,887 (41.2) (2,346) (41.4) (5,167) (34.7)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 (3.0) 18 0.3 16 0.1

Effective tax rate .................................................. $ 1,537 (16.3)% $ 400 7.1% $ 856 5.7%

(1) See “Unrecognized Tax Benefits” for more information on the change in unrecognized tax benefits in 2012.

In 2012, 2011, and 2010, our effective tax rate differs from the statutory tax rate of 35% primarily due to the valuation

allowance on a portion of our net deferred tax assets and the recognition of uncertain tax positions.

Deferred Tax Assets, Net

The table below presents the balances of significant deferred tax assets, liabilities, and the valuation allowance for the

years ended December 31, 2012 and 2011.

Table 12.3 — Deferred Tax Assets, Net

2012 2011

(in millions)

Deferred tax assets:

Deferred fees .............................................................................. $ 4,330 $ 3,957

Basis differences related to derivative instruments(1) ................................................... 10,294 4,903

Credit related items and allowance for loan losses .................................................... 6,785 12,398

Unrealized (gains) losses related to available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778 3,345

LIHTC and AMT credit carryforward ............................................................. 3,408 2,885

Net operating loss carryforward, net of unrecognized tax benefits(1) ........................................ 11,479 18,053

Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 172

Total deferred tax assets ...................................................................... 37,220 45,713

Deferred tax liabilities:

Basis differences related to assets held for investment(2) ................................................ (4,609) (6,367)

Basis differences related to debt ................................................................. (149) (140)

Total deferred tax liability ..................................................................... (4,758) (6,507)

Valuation allowance ........................................................................... (31,684) (35,660)

Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 778 $ 3,546

(1) In 2012, we changed our tax accounting method for certain hedging transactions and, as a result, the deferred tax asset related to the net operating loss

carryforward was reduced by approximately $6.7 billion. A corresponding adjustment is reflected in basis differences related to derivative instruments.

See “Unrecognized Tax Benefits — IRS Examinations and Litigation” below for more information.

(2) The deferred tax liability balance for basis differences related to assets held for investment includes a basis adjustment on seriously delinquent loans.

This deferred tax liability offsets a portion of the deferred tax asset for credit related items and the allowance for loan losses.

On a quarterly basis, we determine whether a valuation allowance is necessary. In doing so, we consider all evidence

currently available, both positive and negative, in determining whether, based on the weight of that evidence, it is more likely

than not that the net deferred tax assets will be realized. Evidence that we considered in making our assessments as of

December 31, 2012 and 2011 included: (a) our cumulative loss position for the past three years; (b) our current taxable loss

position; (c) the amount and estimated time required to realize our estimated cumulative tax net operating loss carryforward;

(d) difficulty in predicting unsettled circumstances related to the conservatorship; (e) our access to capital under the

agreements associated with the conservatorship; (f) management’s intent and ability to hold our available-for-sale securities

until losses can be recovered; and (g) the improving trend of our financial results.

273 Freddie Mac
After evaluating all available evidence, including our prior years’ losses, the events and developments related to our

conservatorship, volatility in the economy, related difficulty in forecasting future profit levels, and our assertion that we have

the intent and ability to hold our available-for-sale securities until any temporary unrealized losses are recovered, we

continue to record a valuation allowance on a portion of our net deferred tax assets as of December 31, 2012 and 2011. As of

December 31, 2012, after consideration of the valuation allowance, our net deferred tax asset is the tax effect of unrealized

losses on our available-for-sale securities.

As of December 31, 2012, we had a net operating loss carryforward of $32.8 billion and a LIHTC carryforward of $3.4

billion that will expire over multiple years beginning in 2030 and 2027, respectively.

Unrecognized Tax Benefits

Table 12.4 — Unrecognized Tax Benefits

2012 2011 2010

(in millions)

Balance at January 1 ....................................................................... $ 1,355 $1,220 $ 805

Changes based on tax positions in prior years ................................................... (41) 130 372

Changes based on tax positions in current years ................................................. (28) 6 48

Decreases in unrecognized tax benefits due to settlements with taxing authorities ......................... (1,286) (1) (5)

Balance at December 31 .................................................................... $ — $1,355 $1,220

At December 31, 2012, we have assessed all income tax uncertainties and have determined that no reserves currently are

needed. As a result, the balance of unrecognized tax benefits was reduced to zero. See “IRS Examinations and Litigation”

below for more information.

We have accrued gross interest receivable of $523 million and $520 million as of December 31, 2012 and December 31,

2011, respectively, related to payments on account with the IRS. Previously recorded accrued interest payable of

$266 million associated with certain unrecognized tax benefits was reversed in 2012. We anticipate refunds of accrued

interest receivable upon final settlement of the Statutory Notices for the 1998 to 2005 tax years. See “IRS Examinations and

Litigation” below.

IRS Examinations and Litigation

In 2010 and 2011, we received Statutory Notices from the IRS assessing $3.0 billion of additional income taxes and

penalties for the 1998 to 2007 tax years, primarily related to our tax accounting method for certain hedging transactions. We

filed a petition with the U.S. Tax Court on October 22, 2010 in response to the Statutory Notices for the 1998 to 2005 tax

years. A Tax Court trial date was originally scheduled for November 13, 2012; however, on June 7, 2012 the Tax Court

granted a joint motion for continuance in order for both parties to explore settlement options. We have had ongoing

discussions with the IRS regarding the litigation, and based on the favorable resolution of the matters in dispute, the

previously unrecognized tax benefits were reduced to zero in the fourth quarter of 2012.

In addition, the IRS is currently auditing our income tax returns for tax years 2008 through 2011. Although the audit has

not concluded, on July 25, 2012 the IRS advised us that they would not challenge certain deductions in 2008 and 2009, and

the associated unrecognized tax benefits were reduced to zero in the third quarter of 2012.

For a discussion of our significant accounting policies related to income taxes, please see “NOTE 1: SUMMARY OF

SIGNIFICANT ACCOUNTING POLICIES — Income Taxes.”

NOTE 13: SEGMENT REPORTING

We evaluate segment performance and allocate resources based on a Segment Earnings approach, subject to the conduct

of our business under the direction of the Conservator. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS”

for additional information about the conservatorship.

We present Segment Earnings by: (a) reclassifying certain investment-related activities and credit guarantee-related

activities between various line items on our GAAP consolidated statements of comprehensive income; and (b) allocating

certain revenues and expenses, including certain returns on assets and funding costs, and all administrative expenses to our

three reportable segments. These reclassifications and allocations are described in “Segment Earnings.”

274 Freddie Mac
We do not consider our assets by segment when evaluating segment performance or allocating resources. We conduct

our operations solely in the U.S. and its territories. Therefore, we do not generate any revenue from geographic locations

outside of the U.S. and its territories.

Segments

Our operations consist of three reportable segments, which are based on the type of business activities each performs —

Investments, Single-family Guarantee, and Multifamily. The chart below provides a summary of our three reportable

segments and the All Other category as of December 31, 2012. Certain immaterial changes were made to our Segment

Earnings definitions in 2012. As reflected in the chart, certain activities that are not part of a reportable segment are included

in the All Other category. The All Other category consists of material corporate level activities that are: (a) infrequent in

nature; and (b) based on decisions outside the control of the management of our reportable segments. By recording these

types of activities to the All Other category, we believe the financial results of our three reportable segments reflect the

decisions and strategies that are executed within the reportable segments and provide greater comparability across time

periods.

275 Freddie Mac
Segment Description Activities/Items

Investments The Investments segment reflects results from our

investment, funding and hedging activities. In our

Investments segment, we invest principally in mortgagerelated securities and single-family performing mortgage

loans, which are funded by other debt issuances and

hedged using derivatives. In our Investments segment, we

also provide funding and hedging management services to

the Single-family Guarantee and Multifamily segments.

The Investments segment reflects changes in the fair value

of the Multifamily segment securities, primarily CMBS,

and held-for-sale loans that are associated with changes in

interest rates. Segment Earnings for this segment consist

primarily of the returns on these investments, less the

related funding, hedging, and administrative expenses.

• Investments in mortgage-related securities and singlefamily performing mortgage loans

• Investments in short-term asset-backed securities

• All other traded instruments / securities, excluding

CMBS and multifamily housing revenue bonds

• Debt issuances

• All asset / liability management returns

• Guarantee buy-ups, net of execution gains / losses

• Cash and liquidity management

• Deferred tax asset valuation allowance

• Allocated administrative expenses and taxes

Single-Family Guarantee The Single-family Guarantee segment reflects results from our

single-family credit guarantee activities. In our Single-family

Guarantee segment, we purchase single-family mortgage loans

originated by our seller/servicers in the primary mortgage

market. In most instances, we use the mortgage securitization

process to package the purchased mortgage loans into

guaranteed mortgage-related securities. We guarantee the

payment of principal and interest on the mortgage-related

securities in exchange for management and guarantee fees.

Segment Earnings for this segment consist primarily of

management and guarantee fee revenues, including

amortization of upfront fees, less credit-related expenses,

administrative expenses, allocated funding costs, and amounts

related to net float benefits or expenses.

• Management and guarantee fees on PCs, including

those retained by us, and single-family mortgage loans

in the mortgage investments portfolio, inclusive of upfront credit delivery fees

• Recognition and remittance to Treasury of guarantee

fees resulting from the 10 basis point legislated increase

• Adjustments for security performance

• Credit losses on all single-family assets

• Guarantee buy-downs

• Expected net float income or expense on the singlefamily credit guarantee portfolio

• Deferred tax asset valuation allowance

• Allocated debt costs, administrative expenses and taxes

Multifamily The Multifamily segment reflects results from our investment

(both purchases and sales), securitization, and guarantee

activities in multifamily mortgage loans and securities. Our

primary business model is to purchase held-for-sale

multifamily loans for aggregation and then securitization

through multifamily K Certificates, which are considered

Other Guarantee Transactions. To a lesser extent, we provide

guarantees of the payment of principal and interest on taxexempt multifamily pass-through certificates backed by

multifamily housing revenue bonds. In addition, we guarantee

the payment of principal and interest on tax-exempt

multifamily housing revenue bonds secured by low- and

moderate-income multifamily mortgage loans. Segment

Earnings for this segment consist primarily of the interest

earned on assets related to multifamily investment activities

and management and guarantee fee income, less credit-related

expenses, administrative expenses, and allocated funding

costs. In addition, the Multifamily segment reflects gains on

sale of mortgages and the impact of changes in fair value of

our investment securities and held-for-sale loans associated

with market factors other than changes in interest rates, such as

liquidity and credit.

• Multifamily mortgage loans held-for-sale and associated

securitization activities

• Investments in CMBS, multifamily housing revenue

bonds, and multifamily mortgage loans held-forinvestment

• Allocated debt costs, administrative expenses and taxes

• Other guarantee commitments on multifamily housing

revenue bonds

• LIHTC and valuation allowance

• Deferred tax asset valuation allowance

All Other The All Other category consists of material corporatelevel activities that are: (a) infrequent in nature; and (b)

based on decisions outside the control of the management

of our reportable segments.

• Tax settlements, as applicable

• Legal settlements, as applicable

• The deferred tax asset valuation allowance associated

with previously recognized income tax credits carried

forward.

276 Freddie Mac
Segment Earnings

The financial performance of our Single-family Guarantee segment and Multifamily segment are measured based on

each segment’s contribution to GAAP net income (loss). Our Investments segment is measured on its contribution to GAAP

comprehensive income (loss), which consists of the sum of its contribution to: (a) GAAP net income (loss); and (b) GAAP

total other comprehensive income (loss), net of taxes.

The sum of Segment Earnings for each segment and the All Other category equals GAAP net income (loss). Likewise,

the sum of comprehensive income (loss) for each segment and the All Other category equals GAAP comprehensive income

(loss). However, the accounting principles we apply to present certain financial statement line items in Segment Earnings for

our reportable segments, in particular Segment Earnings net interest income and management and guarantee income, differ

significantly from those applied in preparing the comparable line items in our consolidated financial statements prepared in

accordance with GAAP. Accordingly, the results of such line items differ significantly from, and should not be used as a

substitute for, the comparable line items as determined in accordance with GAAP. For reconciliations of the Segment

Earnings line items to the comparable line items in our consolidated financial statements prepared in accordance with GAAP,

see “Table 13.2 — Segment Earnings and Reconciliation to GAAP Results.”

Many of the reclassifications, adjustments and allocations described below relate to the amendments to the accounting

guidance for transfers of financial assets and consolidation of VIEs, which we adopted effective January 1, 2010. These

amendments require us to consolidate our single-family PC trusts and certain Other Guarantee Transactions, which makes it

difficult to view the results of the three operating segments from a GAAP perspective. For example, as a result of the

amendments, the net guarantee fee earned on mortgage loans held by our consolidated trusts is included in net interest

income on our GAAP consolidated statements of comprehensive income. Through the reclassifications described below, we

move the net guarantee fees earned on mortgage loans into Segment Earnings management and guarantee income.

Investment Activity-Related Reclassifications

In preparing certain line items within Segment Earnings, we make various reclassifications to earnings determined

under GAAP related to our investment activities, including those described below. Through these reclassifications, we move

certain items into or out of net interest income so that, on a Segment Earnings basis, net interest income reflects how we

measure the effective yield earned on securities held in our mortgage investments portfolio and our cash and other

investments portfolio.

We use derivatives extensively in our investment activity. The reclassifications described below allow us to reflect, in

Segment Earnings net interest income, the costs associated with this use of derivatives.

• The accrual of periodic cash settlements of all derivatives is reclassified in Segment Earnings from derivative gains

(losses) into net interest income to fully reflect the periodic cost associated with the protection provided by these

contracts.

• Up-front cash paid or received upon the purchase or writing of swaptions and other option contracts is reclassified in

Segment Earnings prospectively on a straight-line basis from derivative gains (losses) into net interest income over

the contractual life of the instrument to fully reflect the periodic cost associated with the protection provided by these

contracts.

Amortization related to certain items is not relevant to how we measure the effective yield earned on the securities held

in our investments portfolios. Therefore, as described below, we reclassify these items in Segment Earnings from net interest

income to non-interest income.

• Amortization related to derivative commitment basis adjustments associated with mortgage-related and nonmortgage-related securities.

• Amortization related to accretion of other-than-temporary impairments on non-mortgage-related securities held in our

cash and other investments portfolio.

• Amortization related to premiums and discounts associated with PCs and Other Guarantee Transactions issued by our

consolidated trusts that we previously held and subsequently transferred to third parties. The amortization is related to

deferred gains (losses) on transfers of these securities.

277 Freddie Mac
Credit Guarantee Activity-Related Reclassifications

In preparing certain line items within Segment Earnings, we make various reclassifications to earnings determined

under GAAP related to our credit-guarantee activities, including those described below. All credit guarantee-related income

and costs are included in Segment Earnings management and guarantee income.

• Net guarantee fee is reclassified in Segment Earnings from net interest income to management and guarantee income.

• Implied management and guarantee fee related to unsecuritized mortgage loans held in the mortgage investments

portfolio is reclassified in Segment Earnings from net interest income to management and guarantee income.

• The portion of the amount reversed for accrued but uncollected interest upon placing loans on a non-accrual status

that relates to guarantee fees is reclassified in Segment Earnings from net interest income to management and

guarantee income. The remaining portion of the allowance for lost interest is reclassified in Segment Earnings from

net interest income to provision for credit losses.

Segment Adjustments

In presenting Segment Earnings net interest income and management and guarantee income, we make adjustments to

better reflect how management measures and assesses the performance of each segment and the company as a whole. These

adjustments relate to amounts that are not reflected in net income (loss) as determined in accordance with GAAP. These

adjustments are reversed through the segment adjustments line item within Segment Earnings, so that Segment Earnings

(loss) for each segment equals GAAP net income (loss) for each segment. Segment adjustments consist of the following:

• We adjust our Segment Earnings net interest income for the Investments segment to include the amortization of cash

premiums and discounts, as well as buy-up fees, on the consolidated Freddie Mac mortgage-related securities we

purchase as investments. As of December 31, 2012, the unamortized balance of such premiums and discounts, net

was $3.2 billion and the unamortized balance of buy-up fees was $0.8 billion. These adjustments are necessary to

reflect the effective yield realized on investments in consolidated Freddie Mac mortgage-related securities purchased

at a premium or discount or with buy-up fees.

• We adjust our Segment Earnings management and guarantee income for the Single-family Guarantee segment to

include the amortization of buy-down fees and credit delivery fees recorded in periods prior to the January 1, 2010

adoption of accounting guidance for the transfers of financial assets and the consolidation of VIEs. As of

December 31, 2012, the unamortized balance of buy-down fees was $0.6 billion and the unamortized balance of

credit delivery fees was $1.4 billion. We consider such fees to be part of the effective rate of the guarantee fee on

guaranteed mortgage loans. These adjustments are necessary in order to better reflect the realization of revenue

associated with guarantee contracts over the life of the underlying loans.

Segment Allocations

The results of each reportable segment include directly attributable revenues and expenses. Administrative expenses that

are not directly attributable to a segment are allocated to our segments using various methodologies, depending on the nature

of the expense (i.e., semi-direct versus indirect). Net interest income for each segment includes allocated debt funding costs

related to certain assets of each segment. These allocations, however, do not include the effects of dividends paid on our

senior preferred stock. The tax credits generated by the LIHTC partnerships and any valuation allowance on these tax credits

are allocated to the Multifamily segment. The deferred tax asset valuation allowance associated with previously recognized

income tax credits carried forward and tax settlements, as applicable, are allocated to the “All Other” category. All remaining

taxes are calculated based on a 35% federal statutory rate as applied to pre-tax Segment Earnings.

The table below presents Segment Earnings by segment.

278 Freddie Mac
Table 13.1 — Summary of Segment Earnings and Comprehensive Income (Loss)

Year Ended December 31,

2012 2011 2010

(in millions)

Segment Earnings (loss), net of taxes:

Investments ....................................................................... $ 8,212 $ 3,366 $ 1,251

Single-family Guarantee .............................................................. (164) (10,000) (16,256)

Multifamily ....................................................................... 2,146 1,319 965

All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788 49 15

Total Segment Earnings (loss), net of taxes .................................................. 10,982 (5,266) (14,025)

Net income (loss) attributable to Freddie Mac ................................................. $10,982 $ (5,266) $(14,025)

Comprehensive income (loss) of segments:

Investments ....................................................................... $11,397 $ 6,473 $ 11,477

Single-family Guarantee .............................................................. (227) (9,970) (16,250)

Multifamily ....................................................................... 4,081 2,218 5,040

All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788 49 15

Comprehensive income (loss) of segments ................................................... 16,039 (1,230) 282

Total comprehensive income (loss) attributable to Freddie Mac .................................... $16,039 $ (1,230) $ 282

The table below presents detailed reconciliations between our GAAP financial statements and Segment Earnings by

financial statement line item for our reportable segments and All Other.

279 Freddie Mac
Table 13.2 — Segment Earnings and Reconciliation to GAAP Results

Year Ended December 31, 2012

Investments

Single-family

Guarantee Multifamily All Other

Total Segment

Earnings (Loss),

Net of Taxes

Reconciliation to Consolidated Statements of Comprehensive Income Total per

Consolidated

Statements of

Comprehensive Reclassifications Income (1)Segment

Adjustments(2)

Total Reconciling Items

(in millions)

Net interest income ......................... $ 6,110 $ (147) $1,291 $ — $ 7,254 $ 9,558 $ 799 $10,357 $ 17,611

(Provision) benefit for credit losses .............. — (3,168) 123 — (3,045) 1,155 — 1,155 (1,890)

Non-interest income (loss):

Management and guarantee income(3) .......... — 4,389 151 — 4,540 (3,507) (832) (4,339) 201

Net impairment of available-for-sale securities

recognized in earnings ................... (1,831) — (123) — (1,954) (214) — (214) (2,168)

Derivative gains (losses) ................... 1,970 — 7 — 1,977 (4,425) — (4,425) (2,448)

Gains (losses) on trading securities ............ (1,755) — 81 — (1,674) — — — (1,674)

Gains (losses) on sale of mortgage loans . . . . . . . . 6 — 269 — 275 — — — 275 Gains (losses) on mortgage loans recorded at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 — 438 — 735 — — — 735 Other non-interest income (loss) .............. 2,357 931 275 — 3,563 (2,567) — (2,567) 996

Non-interest expense:

Administrative expenses ................... (430) (890) (241) — (1,561) — — — (1,561)

REO operations income (expense) ............ — (62) 3 — (59) — — — (59)

Other non-interest expense . . . . . . . . . . . . . . . . . . (1) (393) (129) (50) (573) — — — (573)

Segment adjustments(2) . . . . . . . . . . . . . . . . . . . . . . . 799 (832) — — (33) — 33 33 — Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . 690 8 1 838 1,537 — — — 1,537

Net income (loss) attributable to Freddie Mac ...... 8,212 (164) 2,146 788 10,982 — — — 10,982

Total other comprehensive income (loss), net of

taxes .................................. 3,185 (63) 1,935 — 5,057 — — — 5,057

Total comprehensive income (loss) attributable to

Freddie Mac ............................ $11,397 $ (227) $4,081 $788 $ 16,039 $ — $ — $ — $ 16,039

Year Ended December 31, 2011

Investments

Single-family

Guarantee Multifamily All Other

Total Segment

Earnings (Loss),

Net of Taxes

Reconciliation to Consolidated Statements of

Comprehensive Income Total per

Consolidated

Statements of

Comprehensive

Reclassifications Income (1)

Segment

Adjustments(2)

Total

Reconciling

Items

(in millions)

Net interest income ......................... $ 7,339 $ (23) $1,200 $ — $ 8,516 $ 9,220 $ 661 $ 9,881 $ 18,397

(Provision) benefit for credit losses ............. — (12,294) 196 — (12,098) 1,396 — 1,396 (10,702)

Non-interest income (loss):

Management and guarantee income(3) .......... — 3,647 127 — 3,774 (2,905) (699) (3,604) 170

Net impairment of available-for-sale securities

recognized in earnings ................... (1,833) — (353) — (2,186) (115) — (115) (2,301)

Derivative gains (losses) ................... (3,597) — 3 — (3,594) (6,158) — (6,158) (9,752)

Gains (losses) on trading securities ............ (993) — 39 — (954) — — — (954)

Gains (losses) on sale of mortgage loans . . . . . . . . 28 — 383 — 411 — — — 411

Gains (losses) on mortgage loans recorded at fair

value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501 — (83) — 418 — — — 418

Other non-interest income (loss) .............. 1,266 1,216 86 — 2,568 (1,438) — (1,438) 1,130

Non-interest expense:

Administrative expenses ................... (398) (888) (220) — (1,506) — — — (1,506)

REO operations income (expense) ............ — (596) 11 — (585) — — — (585)

Other non-interest expense . . . . . . . . . . . . . . . . . . (2) (321) (69) — (392) — — — (392)

Segment adjustments(2) . . . . . . . . . . . . . . . . . . . . . . . 661 (699) — — (38) — 38 38 —

Income tax (expense) benefit . . . . . . . . . . . . . . . . . . 394 (42) (1) 49 400 — — — 400

Net income (loss) attributable to Freddie Mac ...... 3,366 (10,000) 1,319 49 (5,266) — — — (5,266)

Total other comprehensive income, net of taxes .... 3,107 30 899 — 4,036 — — — 4,036

Total comprehensive income (loss) attributable to

Freddie Mac ............................ $ 6,473 $ (9,970) $2,218 $ 49 $ (1,230) $ — $ — $ — $ (1,230)

280 Freddie Mac
Year Ended December 31, 2010

Investments

Single-family

Guarantee Multifamily All Other

Total Segment

Earnings (Loss),

Net of Taxes

Reconciliation to Consolidated Statements of Comprehensive Income Total per

Consolidated

Statements of

Comprehensive Reclassifications Income (1)Segment

Adjustments(2)

Total Reconciling Items

(in millions)

Net interest income .................. $ 6,192 $ 72 $1,114 $— $ 7,378 $ 8,120 $1,358 $ 9,478 $ 16,856

Provision for credit losses ............. — (18,785) (99) — (18,884) 1,666 — 1,666 (17,218)

Non-interest income (loss):

Management and guarantee income(3) .... — 3,635 101 — 3,736 (2,640) (953) (3,593) 143

Net impairment of available-for-sale

securities recognized in earnings ..... (3,819) — (96) — (3,915) (393) — (393) (4,308)

Derivative gains (losses) ............ (1,859) — 6 — (1,853) (6,232) — (6,232) (8,085)

Gains (losses) on trading securities ..... (1,386) — 47 — (1,339) — — — (1,339)

Gains (losses) on sale of mortgage

loans ......................... (76) — 343 — 267 — — — 267

Gains (losses) on mortgage loans recorded

at fair value . . . . . . . . . . . . . . . . . . . . 34 — (283) — (249) — — — (249)

Other non-interest income (loss) ....... 1,023 1,351 130 — 2,504 (521) — (521) 1,983

Non-interest expense:

Administrative expenses ............. (455) (930) (212) — (1,597) — — — (1,597)

REO operations income (expense) ..... — (676) 3 — (673) — — — (673)

Other non-interest expense ........... (18) (578) (66) — (662) — — — (662)

Segment adjustments(2) ................ 1,358 (953) — — 405 — (405) (405) —

Income tax (expense) benefit . . . . . . . . . . . 259 608 (26) 15 856 — — — 856

Net income (loss) ................... 1,253 (16,256) 962 15 (14,026) — — — (14,026)

Less: net (income) loss—noncontrolling

interests . . . . . . . . . . . . . . . . . . . . . . . (2) — 3 — 1 — — — 1

Net income (loss) attributable to Freddie

Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,251 (16,256) 965 15 (14,025) — — — (14,025)

Total other comprehensive income, net of taxes ........................... 10,226 6 4,075 — 14,307 — — — 14,307

Total comprehensive income (loss)

attributable to Freddie Mac ........... $11,477 $(16,250) $5,040 $15 $ 282 $ — $ — $ — $ 282

(1) See “Segment Earnings — Investment Activity-Related Reclassifications” and “— Credit Guarantee Activity-Related Reclassifications” for information

regarding these reclassifications.

(2) See “Segment Earnings — Segment Adjustments” for information regarding these adjustments.

(3) Management and guarantee income total per consolidated statements of comprehensive income is included in other income on our GAAP consolidated

statements of comprehensive income.

281 Freddie Mac
The table below presents comprehensive income (loss) by segment.

Table 13.3 — Comprehensive Income (Loss) of Segments

Year Ended December 31, 2012

Other Comprehensive Income (Loss), Net of Taxes

Net Income

(Loss) — Freddie Mac

Changes in

Unrealized Gains

(Losses) Related to

Available-For-Sale

Securities

Changes in

Unrealized Gains

(Losses) Related to

Cash Flow Hedge

Relationships

Changes in

Defined

Benefit Plans

Total Other

Comprehensive

Income (Loss),

Net of Taxes

Total

Comprehensive Income

(Loss) — Freddie Mac

(in millions)

Total comprehensive income

(loss) of segments:

Investments ............ $ 8,212 $ 2,821 $414 $ (50) $ 3,185 $ 11,397

Single-family

Guarantee ........... (164) — — (63) (63) (227)

Multifamily ............ 2,146 1,948 — (13) 1,935 4,081

All Other . . . . . . . . . . . . . . 788 — — — — 788

Total per consolidated

statements of comprehensive

income ............... $ 10,982 $ 4,769 $414 $(126) $ 5,057 $ 16,039

Year Ended December 31, 2011

Other Comprehensive Income (Loss), Net of Taxes

Net Income

(Loss) — Freddie Mac

Changes in

Unrealized Gains

(Losses) Related to

Available-For-Sale

Securities

Changes in

Unrealized Gains

(Losses) Related to

Cash Flow Hedge

Relationships

Changes in

Defined

Benefit Plans

Total Other

Comprehensive

Income (Loss),

Net of Taxes

Total

Comprehensive Income

(Loss) — Freddie Mac

(in millions)

Total comprehensive income

(loss) of segments:

Investments ............ $ 3,366 $ 2,573 $508 $ 26 $ 3,107 $ 6,473

Single-family

Guarantee ........... (10,000) — — 30 30 (9,970)

Multifamily ............ 1,319 892 1 6 899 2,218

All Other . . . . . . . . . . . . . . 49 — — — — 49

Total per consolidated

statements of comprehensive

income ............... $ (5,266) $ 3,465 $509 $ 62 $ 4,036 $ (1,230)

Year Ended December 31, 2010

Other Comprehensive Income (Loss), Net of Taxes

Net Income

(Loss) — Freddie Mac

Changes in

Unrealized Gains

(Losses) Related to

Available-For-Sale

Securities

Changes in

Unrealized Gains

(Losses) Related to

Cash Flow Hedge

Relationships

Changes in

Defined

Benefit Plans

Total Other

Comprehensive

Income (Loss),

Net of Taxes

Total

Comprehensive Income

(Loss) — Freddie Mac

(in millions)

Total comprehensive income

(loss) of segments:

Investments ............ $ 1,251 $ 9,547 $673 $ 6 $10,226 $ 11,477

Single-family

Guarantee ........... (16,256) — — 6 6 (16,250)

Multifamily . . . . . . . . . . . . 965 4,074 — 1 4,075 5,040

All Other . . . . . . . . . . . . . . 15 — — — — 15

Total per consolidated

statements of comprehensive

income ............... $(14,025) $13,621 $673 $ 13 $14,307 $ 282

NOTE 14: REGULATORY CAPITAL

On October 9, 2008, FHFA announced that it was suspending capital classification of us during conservatorship in light

of the Purchase Agreement. FHFA continues to closely monitor our capital levels, but the existing statutory and FHFAdirected regulatory capital requirements are not binding during conservatorship. We continue to provide our submission to

FHFA on minimum capital, however we no longer provide our submission of risk-based capital to FHFA.

Our regulatory minimum capital is a leverage-based measure that is generally calculated based on GAAP and reflects a

2.50% capital requirement for on-balance sheet assets and 0.45% capital requirement for off-balance sheet obligations. Based

upon our adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of VIEs, we

282 Freddie Mac
determined that, under the new consolidation guidance, we are the primary beneficiary of trusts that issue our single-family

PCs and certain Other Guarantee Transactions and, therefore, effective January 1, 2010, we consolidated on our balance

sheet the assets and liabilities of these trusts. Pursuant to regulatory guidance from FHFA, our minimum capital requirement

was not automatically affected by adoption of these amendments. Specifically, upon adoption of these amendments, FHFA

directed us, for purposes of minimum capital, to continue reporting single-family PCs and certain Other Guarantee

Transactions held by third parties using a 0.45% capital requirement. FHFA reserves the authority under the GSE Act to raise

the minimum capital requirement for any of our assets or activities.

Regulatory Capital Standards

The GSE Act established minimum, critical, and risk-based capital standards for us, however per guidance received

from FHFA we no longer are required to submit risk-based capital reports to FHFA.

Prior to our entry into conservatorship, those standards determined the amounts of core capital that we were to maintain

to meet regulatory capital requirements. Core capital consisted of the par value of outstanding common stock (common stock

issued less common stock held in treasury), the par value of outstanding non-cumulative, perpetual preferred stock,

additional paid-in capital and retained earnings (accumulated deficit), as determined in accordance with GAAP.

Minimum Capital

The minimum capital standard required us to hold an amount of core capital that was generally equal to the sum of

2.50% of aggregate on-balance sheet assets and approximately 0.45% of the sum of our PCs held by third parties and other

aggregate off-balance sheet obligations.

Critical Capital

The critical capital standard required us to hold an amount of core capital that was generally equal to the sum of 1.25%

of aggregate on-balance sheet assets and approximately 0.25% of the sum of our PCs held by third parties and other

aggregate off-balance sheet obligations.

Performance Against Regulatory Capital Standards

The table below summarizes our minimum capital requirements and deficits and net worth.

Table 14.1 — Net Worth and Minimum Capital

December 31, 2012 December 31, 2011

(in millions)

GAAP net worth(1) ................................................................. $ 8,827 $ (146)

Core capital (deficit)(2)(3) ............................................................. $(60,571) $(64,322)

Less: Minimum capital requirement(2) .................................................... 22,063 24,405

Minimum capital surplus (deficit)(2) ................................................... $(82,634) $(88,727)

(1) Net worth (deficit) represents the difference between our assets and liabilities under GAAP.

(2) Core capital and minimum capital figures for December 31, 2012 are estimates. FHFA is the authoritative source for our regulatory capital.

(3) Core capital excludes certain components of GAAP total equity (deficit) (i.e., AOCI and the liquidation preference of the senior preferred stock) as these

items do not meet the statutory definition of core capital.

Following our entry into conservatorship and consistent with the objectives of conservatorship, we have focused our risk

and capital management on, among other things, maintaining a positive balance of GAAP equity in order to reduce the

likelihood that we will need to make additional draws on the Purchase Agreement with Treasury. The Purchase Agreement

provides that, if FHFA determines as of quarter end that our liabilities have exceeded our assets under GAAP, Treasury will

contribute funds to us in an amount at least equal to the difference between such liabilities and assets.

Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are and have

been less than our obligations for a period of 60 days. FHFA has notified us that the measurement period for any mandatory

receivership determination with respect to our assets and obligations would commence no earlier than the SEC public filing

deadline for our quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA has

advised us that, if, during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency

amount under the Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination. If

283 Freddie Mac
funding has been requested under the Purchase Agreement to address a deficit in our net worth, and Treasury is unable to

provide us with such funding within the 60-day period specified by FHFA, FHFA would be required to place us into

receivership if our assets remain less than our obligations during that 60-day period.

At December 31, 2012, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from

Treasury under the Purchase Agreement. As of December 31, 2012, our aggregate funding received from Treasury under the

Purchase Agreement was $71.3 billion. This aggregate funding amount does not include the initial $1.0 billion liquidation

preference of senior preferred stock that we issued to Treasury in September 2008 as an initial commitment fee and for which

no cash was received. We paid quarterly dividends of $1.8 billion on the senior preferred stock in cash in March 2012, June

2012, September 2012, and December 2012 at the direction of the Conservator.

Subordinated Debt Commitment

In October 2000, we announced our adoption of a series of commitments designed to enhance market discipline,

liquidity and capital. In September 2005, we entered into a written agreement with FHFA that updated those commitments

and set forth a process for implementing them. FHFA, as Conservator of Freddie Mac, has suspended the requirements in the

September 2005 agreement with respect to issuance, maintenance and reporting and disclosure of Freddie Mac subordinated

debt during the term of conservatorship and thereafter until directed otherwise.

NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS

Single-Family Credit Guarantee Portfolio

Our business activity is to participate in and support the residential mortgage market in the United States, which we

pursue by both issuing guaranteed mortgage securities and investing in mortgage loans and mortgage-related securities.

The table below summarizes the concentration by year of origination and geographical area of the approximately

$1.6 trillion UPB and $1.7 trillion UPB of our single-family credit guarantee portfolio at December 31, 2012 and 2011,

respectively. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” and “NOTE 4: MORTGAGE

LOANS AND LOAN LOSS RESERVES” and “NOTE 7: INVESTMENTS IN SECURITIES” for more information about

credit risk associated with loans and mortgage-related securities that we hold.

284 Freddie Mac
Table 15.1 — Concentration of Credit Risk — Single-Family Credit Guarantee Portfolio

December 31, 2012 December 31, 2011

Percent of Credit Losses(1)

Year Ended

Percentage of

Portfolio (2)

Serious

Delinquency Rate

Percentage of

Portfolio (2)

Serious

Delinquency Rate

December 31,

2012

December 31,

2011

Year of Origination

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22% 0.1% N/A N/A <1% N/A

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 0.3 14% 0.1% <1 —%

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 0.5 19 0.3 2 <1

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 0.9 18 0.5 2 1

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.8 7 5.7 9 8

2007 ................................. 7 12.4 10 11.6 36 36

2006 ................................. 5 11.4 7 10.8 25 28

2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.2 8 6.5 17 18

2004 and prior . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.2 17 2.8 9 9

Total ............................... 100% 3.3% 100% 3.6% 100% 100%

Region (3)

West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28% 2.8% 28% 3.6% 44% 53%

Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.8 25 3.4 8 7

North Central . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.5 18 2.9 20 16

Southeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.0 17 5.5 24 20

Southwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.7 12 1.8 4 4

Total ............................... 100% 3.3% 100% 3.6% 100% 100%

State (4)

California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16% 2.3% 16% 3.4% 24% 29%

Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 9.9 6 10.9 17 13

Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.1 5 4.7 9 5

Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.5 2 4.3 7 11

Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8.1 1 9.8 6 7

Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.9 3 2.3 4 4

Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.8 3 3.3 4 4

All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 2.8 64 2.8 29 27

Total ............................... 100% 3.3% 100% 3.6% 100% 100%

(1) Credit losses consist of the aggregate amount of charge-offs, net of recoveries, and REO operations expense in each of the respective periods and

exclude foregone interest on non-performing loans and other market-based losses recognized on our consolidated statements of comprehensive income.

(2) Based on the UPB of our single-family credit guarantee portfolio, which includes unsecuritized single-family mortgage loans held by us on our

consolidated balance sheets and those underlying Freddie Mac mortgage-related securities, or covered by our other guarantee commitments.

(3) Region designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI, VT, VA,

WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); Southwest (AR, CO, KS, LA,

MO, NE, NM, OK, TX, WY).

(4) States presented are those with the highest percentage of credit losses during the year ended December 31, 2012. Our top seven states based on the

highest percentage of UPB as of December 31, 2012 are: California (16%), Florida (6%), Illinois (5%), New York (5%), Texas (4%), New Jersey (4%),

and Virginia (4%), which collectively comprised 44% of our single-family credit guarantee portfolio as of December 31, 2012.

Credit Performance of Certain Higher Risk Single-Family Loan Categories

Participants in the mortgage market often characterize single-family loans based upon their overall credit quality at the

time of origination, generally considering them to be prime or subprime. Many mortgage market participants classify singlefamily loans with credit characteristics that range between their prime and subprime categories as Alt-A because these loans

have a combination of characteristics of each category, may be underwritten with lower or alternative income or asset

documentation requirements compared to a full documentation mortgage loan, or both. However, there is no universally

accepted definition of subprime or Alt-A. Although we discontinued new purchases of mortgage loans with lower

documentation standards for assets or income beginning March 1, 2009 (or later, as our customers’ contracts permitted), we

continued to purchase certain amounts of these mortgages in cases where the loan was either: (a) purchased pursuant to a

previously issued other guarantee commitment; (b) part of our relief refinance mortgage initiative; or (c) in another refinance

mortgage initiative and the pre-existing mortgage (including Alt-A loans) was originated under less than full documentation

standards. In the event we purchase a refinance mortgage and the original loan had been previously identified as Alt-A, such

refinance loan may no longer be categorized or reported as Alt-A in the table below because the new refinance loan replacing

the original loan would not be identified by the seller/servicer as an Alt-A loan. As a result, our reported Alt-A balances may

be lower than would otherwise be the case had such refinancing not occurred.

285 Freddie Mac
Although we do not categorize single-family mortgage loans we purchase or guarantee as prime or subprime, we

recognize that there are a number of mortgage loan types with certain characteristics that indicate a higher degree of credit

risk. For example, a borrower’s credit score is a useful measure for assessing the credit quality of the borrower. Statistically,

borrowers with higher credit scores are more likely to repay or have the ability to refinance than those with lower scores.

Presented below is a summary of the serious delinquency rates of certain higher-risk categories (based on characteristics

of the loan at origination) of single-family loans in our single-family credit guarantee portfolio. The table includes a

presentation of each higher risk category in isolation. A single loan may fall within more than one category (for example, an

interest-only loan may also have an original LTV ratio greater than 90%). Loans with a combination of these attributes will

have an even higher risk of delinquency than those with an individual attribute.

Table 15.2 — Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio (1)

Percentage of Portfolio (1) Serious Delinquency Rate

December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011

Interest-only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% 4% 16.3% 17.6%

Option ARM(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . <1 <1 16.3 20.5

Alt-A(3) ............................................. 5 5 11.4 11.9

Original LTV ratio greater than 90%(4) . . . . . . . . . . . . . . . . . . . . . . 13 10 4.8 6.7

Lower FICO scores at origination (less than 620) .............. 3 3 12.2 12.9

(1) Based on UPB.

(2) For reporting purposes, loans within the option ARM category continue to be reported in that category following modification, even though the modified

loan no longer provides for optional payment provisions.

(3) Alt-A loans may not include those loans that were previously classified as Alt-A and that have been refinanced as either a relief refinance mortgage or in

another refinance mortgage initiative.

(4) Based on our first lien exposure on the property. The LTV ratio considers the credit-enhanced portion of the loan and excludes any secondary financing

by third parties. The existence of a second lien reduces the borrower’s equity in the property and, therefore, increases the risk of default. Includes HARP

loans, which we are required to purchase as part of our participation in the MHA Program.

The percentage of borrowers in our single-family credit guarantee portfolio, based on UPB, with estimated current LTV

ratios greater than 100% was 15% and 20% at December 31, 2012 and 2011, respectively. As estimated current LTV ratios

increase, the borrower’s equity in the home decreases, which negatively affects the borrower’s ability to refinance or to sell

the property for an amount at or above the balance of the outstanding mortgage loan. The serious delinquency rate for singlefamily loans with estimated current LTV ratios greater than 100% was 12.7% and 12.8% as of December 31, 2012 and 2011,

respectively. Loans originated in 2005 through 2008 have been more affected by declines in home prices since 2006 than

loans originated in other years. Loans originated in 2005 through 2008 comprised approximately 24% of our single-family

credit guarantee portfolio, based on UPB at December 31, 2012, and these loans accounted for approximately 87% and 90%

of our credit losses during 2012 and 2011, respectively.

We categorize our investments in non-agency mortgage-related securities as subprime, option ARM, or Alt-A if the

securities were identified as such based on information provided to us when we entered into these transactions. We have not

identified option ARM, CMBS, obligations of states and political subdivisions, and manufactured housing securities as either

subprime or Alt-A securities. See “NOTE 7: INVESTMENTS IN SECURITIES” for further information on these categories

and other concentrations in our investments in securities.

Multifamily Mortgage Portfolio

The table below summarizes the concentration of multifamily mortgages in our multifamily mortgage portfolio by

certain attributes. Information presented for multifamily mortgage loans includes certain categories based on loan or

borrower characteristics present at origination. The table includes a presentation of each category in isolation. A single loan

may fall within more than one category (for example, a non-credit enhanced loan may also have an original DSCR

below 1.10).

286 Freddie Mac
Table 15.3 — Concentration of Credit Risk — Multifamily Mortgage Portfolio

December 31, 2012 December 31, 2011

UPB

Delinquency

Rate(1) UPB

Delinquency

Rate(1)

State(2) (in billions)

California ................................................................. $ 21.1 0.12% $ 20.2 0.02%

Texas .................................................................... 15.9 0.13 14.0 0.46

New York ................................................................. 10.7 0.09 9.6 —

Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 0.12 7.1 0.05

Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 — 5.7 —

Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 — 6.3 —

All other states .............................................................. 57.8 0.32 53.2 0.35

Total ................................................................... $127.4 0.19% $116.1 0.22%

Region(3) ...................................................................

Northeast .................................................................. $ 36.1 0.04% $ 33.1 0.01%

West ..................................................................... 31.8 0.09 29.9 0.07

Southwest ................................................................. 25.4 0.22 22.4 0.44

Southeast .................................................................. 23.4 0.54 20.7 0.65

North Central ............................................................... 10.7 0.19 10.0 0.01

Total ................................................................... $127.4 0.19% $116.1 0.22%

Category(4) .................................................................

Original LTV ratio greater than 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.8 2.31% $ 6.4 2.34%

Original DSCR below 1.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 2.97 2.8 2.58

(1) Based on the UPB of multifamily mortgages two monthly payments or more delinquent or in foreclosure.

(2) Represents the six states with the highest UPB at December 31, 2012.

(3) See endnote (3) to “Table 15.1 — Concentration of Credit Risk — Single-family Credit Guarantee Portfolio” for a description of these regions.

(4) These categories are not mutually exclusive and a loan in one category may also be included within another category.

One indicator of risk for mortgage loans in our multifamily mortgage portfolio is the amount of a borrower’s equity in

the underlying property. A borrower’s equity in a property decreases as the LTV ratio increases. Higher LTV ratios

negatively affect a borrower’s ability to refinance or sell a property for an amount at or above the balance of the outstanding

mortgage. The DSCR is another indicator of future credit performance. The DSCR estimates a multifamily borrower’s ability

to service its mortgage obligation using the secured property’s cash flow, after deducting non-mortgage expenses from

income. The higher the DSCR, the more likely it is that a multifamily borrower will be able to continue servicing its

mortgage obligation.

We estimate that the percentage of loans in our multifamily mortgage portfolio with a current LTV ratio of greater than

100% was approximately 3% and 5% at December 31, 2012 and 2011, respectively, and our estimate of the current average

DSCR for these loans was 1.0 and 1.1, at December 31, 2012 and 2011 respectively. We estimate that the percentage of loans

in our multifamily mortgage portfolio with a current DSCR less than 1.0 was 3% and 5% at December 31, 2012 and 2011,

respectively, and the average current LTV ratio of these loans was 111% and 107%, respectively. Our estimates of current

DSCRs are based on the latest available income information for these properties and our assessments of market conditions.

Our estimates of the current LTV ratios for multifamily loans are based on values we receive from a third-party service

provider as well as our internal estimates of property value, for which we may use changes in tax assessments, market

vacancy rates, rent growth and comparable property sales in local areas as well as third-party appraisals for a portion of the

portfolio. We periodically perform our own valuations or obtain third-party appraisals in cases where a significant

deterioration in a borrower’s financial condition has occurred, the borrower has applied for refinancing, or in certain other

circumstances where we deem it appropriate to reassess the property value. Although we use the most recently available

financial results of our multifamily borrowers to estimate a property’s value, there may be a significant lag in reporting,

which could be six months or more, as they complete their financial results in the normal course of business. Our internal

estimates of property valuation are derived using techniques that include income capitalization, discounted cash flows, sales

comparables, or replacement costs.

287 Freddie Mac
Non-Agency Mortgage-Related Security Issuers

As discussed below, we are engaged in various loss mitigation efforts concerning certain investments in non-agency

mortgage-related securities. The effectiveness of these various loss mitigation efforts is highly uncertain, in part because our

rights as an investor are limited, and any potential recoveries may take significant time to realize.

In 2011, FHFA, as Conservator for Freddie Mac and Fannie Mae, filed lawsuits against 18 corporate families of

financial institutions and related defendants seeking to recover losses and damages sustained by Freddie Mac and Fannie

Mae as a result of their investments in certain residential non-agency mortgage-related securities issued or sold by, or backed

by mortgages originated by, these financial institutions or control persons thereof. These institutions include some of our

largest seller/servicers and counterparties, including counterparties to debt funding and derivatives transactions. Recent

developments include:

• Ally Financial Inc. is one of the financial institutions. Certain of the Ally entities that are defendants in the Ally

lawsuit (with respect to the securities owned by Freddie Mac) filed for bankruptcy protection in the U.S. Bankruptcy

Court for the Southern District of New York on May 14, 2012. This creates additional uncertainty as to the likelihood,

timing, and nature of potential recoveries from the Ally lawsuit.

• On January 16, 2013, Freddie Mac and FHFA entered into a settlement agreement with General Electric Company

and affiliates in connection with FHFA’s lawsuit against the GE companies.

At the direction of our Conservator, we are also working to enforce contractual rights of certain trusts with respect to the

non-agency mortgage-related securities we hold, and are engaged in other efforts to mitigate losses on our investments in

these securities, in some cases in conjunction with other investors. We have directed certain trustees to initiate litigation on

behalf of certificate holders against several financial institutions (many of whom are Freddie Mac counterparties) for breach

of contract claims.

In June 2011, Bank of America Corporation announced that it, BAC Home Loans Servicing, LP, Countrywide Financial

Corporation and Countrywide Home Loans, Inc. entered into a settlement agreement with The Bank of New York Mellon, as

trustee, to resolve certain claims with respect to a number of Countrywide first-lien and second-lien residential mortgagerelated securitization trusts. We have investments in certain of these Countrywide securitization trusts and would expect to

benefit from this settlement, if final court approval is obtained. Bank of America indicated that the settlement is subject to

final court approval and certain other conditions. There can be no assurance that final court approval of the settlement will be

obtained or that all conditions will be satisfied. Bank of America noted that, given the number of investors and the

complexity of the settlement, it is not possible to predict the timing or ultimate outcome of the court approval process, which

could take a substantial period of time.

Seller/Servicers

We acquire a significant portion of our single-family mortgage purchase volume from several large seller/servicers with

whom we have entered into mortgage purchase volume commitments that provide for the lenders to deliver us up to a certain

volume of mortgages during a specified period of time. Our top 10 single-family seller/servicers provided approximately

73% of our single-family purchase volume during the year ended December 31, 2012. Wells Fargo Bank, N.A., U.S.

Bank, N.A., and JPMorgan Chase Bank, N.A., accounted for 27%, 12%, and 10%, respectively, of our single-family

mortgage purchase volume and were the only single-family seller/servicers that comprised 10% or more of our purchase

volume during the year ended December 31, 2012. We are exposed to the risk that we could lose purchase volume to the

extent these arrangements are terminated without replacement from other lenders.

We are exposed to institutional credit risk arising from the potential insolvency or non-performance by our seller/

servicers of their obligations to repurchase mortgages or (at our option) indemnify us in the event of: (a) breaches of the

representations and warranties they made when they sold the mortgages to us; or (b) failure to comply with our servicing

requirements. Our contracts require that a seller/servicer repurchase a mortgage after we issue a repurchase request, unless

the seller/servicer avails itself of an appeals process provided for in our contracts, in which case the deadline for repurchase

is extended until we decide the appeal. As of December 31 2012 and 2011 the UPB of loans subject to our repurchase

requests issued to our single-family seller/servicers was approximately $3.0 billion and $2.7 billion, and approximately 41%

and 39% of these requests, respectively, were outstanding for four months or more since issuance of our initial repurchase

request as measured by the UPB of the loans subject to the requests (these figures include repurchase requests for which

appeals were pending). As of December 31, 2012, two of our largest seller/servicers (Bank of America, N.A. and Wells

288 Freddie Mac
Fargo Bank, N.A.) had aggregate repurchase requests outstanding, based on UPB, of $ 1.7 billion, and approximately 53% of

these requests were outstanding for four months or more since issuance of the initial request. During 2012 and 2011, we

recovered amounts that covered losses with respect to $3.5 billion and $4.4 billion, respectively, of UPB on loans subject to

our repurchase requests.

Residential Capital LLC (“ResCap”) and a number of its subsidiaries, including GMAC Mortgage, LLC and Residential

Funding Company, LLC (with GMAC Mortgage, LLC, collectively, “GMAC”), filed for bankruptcy in the U.S. Bankruptcy

Court for the Southern District of New York on May 14, 2012. ResCap and GMAC are direct or indirect subsidiaries of Ally

Financial Inc. GMAC serviced (either as a servicer or a subservicer) approximately 3% of our single-family mortgage loans

as of December 31, 2012. In connection with the bankruptcy filing, the bankruptcy court approved a package of servicing

assurances designed to provide comfort that GMAC will continue to maintain the existing quality of its servicing during the

bankruptcy case, and that we will have the right to transfer our loans to another servicer in the event that GMAC fails to meet

certain servicing quality criteria. The primary purpose of the bankruptcy was to effect the sale and transfer of the GMAC

origination and servicing platform, including servicing rights with respect to Freddie Mac loans, free and clear of liens and

claims in an auction sale supervised by the bankruptcy court. Ocwen Loan Servicing, LLC was the successful bidder for the

servicing rights with respect to Freddie Mac loans in an auction held on October 23, 2012. On November 21, 2012, the

bankruptcy court approved the sale to Ocwen, and the sale was completed on February 15, 2013.

At the direction of FHFA, Freddie Mac and Fannie Mae have launched a new representation and warranty framework

for conventional loans purchased by the GSEs on or after January 1, 2013. The objective of the new framework is to clarify

lenders’ repurchase exposures and liability on future sales of mortgage loans to Freddie Mac and Fannie Mae. The new

framework does not affect seller/servicers’ obligations under their contracts with us with respect to loans sold to us prior to

January 1, 2013. The new framework also does not affect their obligation to service these loans in accordance with our

servicing standards. Under this new framework, lenders will be relieved of certain repurchase obligations for loans that meet

specific payment requirements. Examples, subject to certain exclusions, include:

• Loans with 36 months of consecutive, on-time payments after we purchase them; and

• Relief refinance mortgages with 12 months of consecutive, on-time payments after we purchase them.

The ultimate amounts of recovery payments we receive from seller/servicers related to their repurchase obligations may

be significantly less than the amount of our estimates of potential exposure to losses. Our estimate of probable incurred

losses for exposure to seller/servicers for their repurchase obligations is considered in our allowance for loan losses as of

December 31, 2012 and 2011. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for

Loan Losses and Reserve for Guarantee Losses” for further information. We believe we have appropriately provided for

these exposures, based upon our estimates of incurred losses, in our loan loss reserves at December 31, 2012 and 2011;

however, our actual losses may exceed our estimates.

We are also exposed to the risk that seller/servicers might fail to service mortgages in accordance with our contractual

requirements, resulting in increased credit losses. For example, our seller/servicers have an active role in our loss mitigation

efforts, including under the servicing alignment initiative and the MHA Program, and therefore, we have exposure to them to

the extent a decline in their performance results in a failure to realize the anticipated benefits of our loss mitigation plans.

A significant portion of our single-family mortgage loans are serviced by several large seller/servicers. Our top two

single-family loan servicers, Wells Fargo Bank N.A. and JP Morgan Chase Bank, N.A., serviced approximately 26% and

12%, respectively, of our single-family mortgage loans, as of December 31, 2012 and together serviced approximately 38%

of our single-family mortgage loans. Since we do not have our own servicing operation, if our servicers lack appropriate

process controls, experience a failure in their controls, or experience an operating disruption in their ability to service

mortgage loans, it could have an adverse impact on our business and financial results.

As of December 31, 2012 our top three multifamily servicers, Berkadia Commercial Mortgage, LLC, Wells Fargo

Bank, N.A., and CBRE Capital Markets, Inc., each serviced more than 10% of our multifamily mortgage portfolio, excluding

Other Guarantee Transactions, and together serviced approximately 40% of this portfolio.

In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under financial

pressure, which could potentially cause degradation in the quality of the servicing they provide us, including their monitoring

of each property’s financial performance and physical condition. This could also, in certain cases, reduce the likelihood that

we could recover losses through lender repurchases, recourse agreements, or other credit enhancements, where applicable.

289 Freddie Mac
This risk primarily relates to multifamily loans that we hold on our consolidated balance sheets where we retain all of the

related credit risk. We monitor the status of all our multifamily seller/servicers in accordance with our counterparty credit

risk management framework.

Mortgage Insurers

We have institutional credit risk relating to the potential insolvency of, or non-performance by, mortgage insurers that

insure single-family mortgages we purchase or guarantee. We evaluate the recovery and collectability from insurance

policies for mortgage loans that we hold for investment as well as loans underlying our non-consolidated Freddie Mac

mortgage-related securities or covered by other guarantee commitments as part of the estimate of our loan loss reserves. See

“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for Loan Losses and Reserve for

Guarantee Losses” for additional information. As of December 31, 2012, these insurers provided coverage, with maximum

loss limits of $48.1 billion, for $199.0 billion of UPB, in connection with our single-family credit guarantee portfolio. Our

top four mortgage insurer counterparties, Mortgage Guaranty Insurance Corporation (or “MGIC”), Radian Guaranty Inc.,

United Guaranty Residential Insurance Company, and Genworth Mortgage Insurance Corporation each accounted for more

than 10% and collectively represented approximately 75% of our overall mortgage insurance coverage at December 31,

2012. Certain of our mortgage insurance counterparties are no longer rated by either S&P or Moody’s. The remaining

counterparties, including the top four counterparties, are rated BBB or below as of February 15, 2013, based on the lower of

the S&P or Moody’s rating scales and stated in terms of the S&P equivalent.

We and MGIC were involved in litigation concerning our current and future claims under certain of MGIC’s pool

insurance policies. In the litigation, we contended that the policies had approximately $0.5 billion more in coverage than

MGIC contended was provided for under the policies. In December 2012, we entered into a settlement agreement with MGIC

concerning this dispute. Under the terms of the settlement, MGIC paid us $100 million in December 2012, and will pay us an

additional $167.5 million in monthly installments over four years beginning on January 2, 2013. The effect of this settlement

was immaterial to our consolidated financial statements in 2012. See “NOTE 17: LEGAL CONTINGENCIES — Mortgage

Guaranty Insurance Corporation” for further information.

We received proceeds of $2.0 billion and $2.5 billion during 2012 and 2011, respectively, from our primary and pool

mortgage insurance policies for recovery of losses on our single-family loans. We had outstanding receivables from

mortgage insurers of $1.3 billion and $1.8 billion as of December 31, 2012 and 2011, respectively. The balance of our

outstanding accounts receivable from mortgage insurers, net of associated reserves, was approximately $0.8 billion and

$1.0 billion as of December 31, 2012, and 2011, respectively.

In August 2011, we suspended RMIC and its affiliates, and PMI and its affiliates, as approved mortgage insurers for

Freddie Mac loans, making loans insured by either company ineligible for sale to Freddie Mac (except relief refinance loans

with pre-existing insurance). Both of these companies ceased writing new business during the third quarter of 2011, and have

been put under state supervision. PMI instituted a partial claim payment plan in October 2011, under which claim payments

will be made 50% in cash, with the remaining amount deferred as a policyholder claim. RMIC instituted a partial claim

payment plan in January 2012, under which claim payments will be made 50% in cash and 50% in deferred payment

obligations for an initial period not to exceed one year. In November 2012, RMIC announced that its state regulator had

approved its corrective plan, which provides for the run-off of its existing business. Under the plan, RMIC is paying valid

claims, settled on or after January 19, 2012, 60% in cash and a deferred payment obligation for the remaining 40% which

will be retained in claim reserves until a future pay-out date. We and FHFA are in discussions with the state regulators of

PMI and RMIC concerning future payments of our claims. It is not yet clear how the state regulators of PMI and RMIC will

administer their respective deferred payment plans, and neither company has begun to pay its deferred payment obligations

in cash. In the future, our mortgage insurance exposure will likely be concentrated among a smaller number of mortgage

insurer counterparties.

Triad Guaranty Insurance Corporation, or Triad, is continuing to pay claims 60% in cash and 40% in deferred payment

obligations under orders of its state regulator. To date, the state regulator has not allowed Triad to begin paying its deferred

payment obligations in cash and it is uncertain when or if Triad will be permitted to do so.

Bond Insurers

Bond insurance, which may be either primary or secondary policies, is a credit enhancement covering some of the nonagency mortgage-related securities we hold. Primary policies are acquired by the securitization trust issuing the securities we

290 Freddie Mac
purchase, while secondary policies are acquired by us. At December 31, 2012, the remaining contractual limit for

reimbursement of losses under such policies was $8.7 billion. At December 31, 2012, our top five bond insurers, Ambac

Assurance Corporation (or Ambac), Financial Guaranty Insurance Company (or FGIC), MBIA Insurance Corp., National

Public Finance Guarantee Corp., and Assured Guaranty Municipal Corp., each accounted for more than 10% of our overall

bond insurance coverage and collectively represented approximately 99% of our total coverage.

We evaluate the expected recovery from primary bond insurance policies as part of our impairment analysis for our

investments in securities. If a bond insurer fails to meet its obligations on our investments in securities, then the fair values of

our securities may further decline, which could have a material adverse effect on our results and financial condition. We

recognized other-than-temporary impairment losses during 2012 and 2011 related to investments in mortgage-related

securities covered by bond insurance as a result of our uncertainty over whether or not certain insurers would be able to pay

our future claims on expected credit losses on the securities. See “NOTE 7: INVESTMENTS IN SECURITIES” for further

information on our evaluation of impairment on securities covered by bond insurance.

FGIC is currently not paying any of its claims. On June 28, 2012, a rehabilitation order was signed granting the

Superintendent of Financial Services of the State of New York the authority to take possession and/or control of FGIC’s

property and assets and to conduct FGIC’s business. On September 27, 2012, the Superintendent of Financial Services filed a

proposed plan of rehabilitation for FGIC. Certain trustees objected to the proposed plan, and a revised plan was filed on

December 12, 2012.

Ambac, which had not paid claims since March 2010, began paying a portion of its claims in cash in late 2012. In

March 2010, Ambac established a segregated account for certain Ambac-insured securities, including some of those held by

Freddie Mac. Upon the request of the Wisconsin Office of the Commissioner of Insurance, the Wisconsin circuit court put

the segregated account into rehabilitation (i.e., a state insolvency proceeding). The Office of the Commissioner of Insurance

subsequently filed a plan of rehabilitation with the court. The plan was approved by the court in January 2011, but has not yet

been implemented due to various disputes among interested parties. In November 2010, Ambac Financial Group Inc., the

parent company of Ambac, filed for bankruptcy. We continue to monitor these developments and assess the impact to our

investments.

Cash and Other Investments Counterparties

We are exposed to institutional credit risk arising from the potential insolvency or non-performance of counterparties of

non-mortgage-related investment agreements and cash equivalent transactions, including those entered into on behalf of our

securitization trusts. These financial instruments are investment grade at the time of purchase and primarily short-term in

nature, which mitigates institutional credit risk for these instruments.

Our cash and other investment counterparties are primarily major financial institutions and the Federal Reserve Bank.

As of December 31, 2012 and 2011, including amounts related to our consolidated VIEs, there were $60.7 billion and

$68.5 billion, respectively, of: (a) cash and securities purchased under agreements to resell invested with institutional

counterparties; or (b) cash deposited with the Federal Reserve Bank. As of December 31, 2012, these included:

• $1.2 billion of cash equivalents invested in one counterparty that had a short-term credit rating of A-1 or above on the

S&P or equivalent scale;

• $34.4 billion of securities purchased under agreements to resell with nine counterparties that had short-term S&P

ratings of A-1;

• $3.2 billion of securities purchased under agreements to resell with two counterparties that had short-term S&P

ratings of A-2; and

• $21.6 billion of cash deposited with the Federal Reserve Bank (as a non-interest-bearing deposit).

Derivative Portfolio

Derivative Counterparties

Our use of exchange-traded derivatives and OTC derivatives exposes us to institutional credit risk. The requirement that

we post initial and maintenance margin with our clearing firm in connection with exchange-traded derivatives such as futures

contracts and cleared OTC derivatives exposes us to institutional credit risk in the event that our clearing firm or the

exchange’s clearinghouse fail to meet their obligations. However, the use of exchange-traded derivatives and cleared OTC

derivatives mitigates our institutional credit risk exposure to individual counterparties because a central counterparty is

291 Freddie Mac
substituted for individual counterparties, and changes in the value of open exchange-traded contracts and cleared OTC

derivatives are settled daily via payments made through the financial clearinghouse established by each exchange. OTC

derivatives that are not cleared, however, expose us to institutional credit risk to individual counterparties because

transactions are executed and settled between us and each counterparty, exposing us to potential losses if a counterparty fails

to meet its contractual obligations.

Our use of OTC interest-rate swaps, option-based derivatives, and foreign-currency swaps is subject to internal credit

and legal reviews. All of our OTC derivative counterparties are major financial institutions and are experienced participants

in the OTC derivatives market.

On an ongoing basis, we review the credit fundamentals of all of our OTC derivative counterparties, clearing

organizations, and clearing firms to confirm that they continue to meet our internal standards. We assign internal ratings,

credit capital, and exposure limits to each counterparty based on quantitative and qualitative analysis, which we update and

monitor on a regular basis. We conduct additional reviews when market conditions dictate or certain events affecting an

individual counterparty occur.

Master Netting and Collateral Agreements

We use master netting and collateral agreements to reduce our credit risk exposure to our active OTC derivative

counterparties for interest-rate swaps, option-based derivatives, and foreign-currency swaps. Master netting agreements

provide for the netting of amounts receivable and payable from an individual counterparty, which reduces our exposure to a

single counterparty in the event of default. On a daily basis, the market value of each counterparty’s derivatives outstanding

is calculated to determine the amount of our net credit exposure, which is equal to derivatives in a net gain position by

counterparty after giving consideration to collateral posted. Our collateral agreements require most counterparties to post

collateral to us for the amount of our net exposure to them above the applicable threshold. Bilateral collateral agreements are

in place for all of our active OTC derivative counterparties. Collateral posting thresholds are tied to a counterparty’s credit

rating. Derivative exposures and collateral amounts are monitored on a daily basis using both internal pricing models and

dealer price quotes. Collateral is typically transferred within one business day based on the values of the related derivatives.

This time lag in posting collateral can affect our net uncollateralized exposure to derivative counterparties.

Collateral posted by a derivative counterparty is typically in the form of cash, although U.S. Treasury securities and

Freddie Mac mortgage-related securities may also be posted. In the event a counterparty defaults on its obligations under the

derivatives agreement and the default is not remedied in the manner prescribed in the agreement, we have the right under the

agreement to direct the custodian bank to transfer the collateral to us or, in the case of non-cash collateral, to sell the

collateral and transfer the proceeds to us.

Our uncollateralized exposure to counterparties for OTC interest-rate swaps, option-based derivatives, foreign-currency

swaps, and purchased interest-rate caps, after applying netting agreements and collateral, was $69 million and $71 million at

December 31, 2012 and 2011, respectively. In the event that all of our counterparties for these derivatives were to have

defaulted simultaneously on December 31, 2012, our maximum loss for accounting purposes after applying netting

agreements and collateral, would have been approximately $69 million. Five counterparties each accounted for greater than

10% and collectively accounted for 83% of our net uncollateralized exposure to derivative counterparties, excluding futures

and clearinghouse-settled derivatives, commitments, swap guarantee derivatives, certain written options, and certain credit

derivatives at December 31, 2012. These counterparties were Credit Suisse International, Deutsche Bank, A.G., UBS A.G.,

Citibank, N.A. and Royal Bank of Scotland, all of which were rated “A” or above using the lower of S&P’s or Moody’s

rating stated in terms of the S&P equivalent as of February 15, 2013.

The total exposure on our OTC forward purchase and sale commitments, which are treated as derivatives, was

$20 million and $38 million at December 31, 2012 and 2011, respectively. We do not require master netting and collateral

agreements for the counterparties of these commitments. However, the typical maturity of our forward purchase and sale

commitments is less than 60 days, and we monitor the credit fundamentals of the counterparties to these commitments on an

ongoing basis to ensure that they continue to meet our internal risk-management standards.

292 Freddie Mac
NOTE 16: FAIR VALUE DISCLOSURES

The accounting guidance for fair value measurements and disclosures defines fair value, establishes a framework for

measuring fair value, and sets forth disclosure requirements regarding fair value measurements. This guidance applies

whenever other accounting guidance requires or permits assets or liabilities to be measured at fair value. Fair value

measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market for

the asset or liability, or, in the absence of a principal market, in the most advantageous market for the asset or liability.

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of

certain assets and liabilities on a recurring or non-recurring basis.

Fair Value Measurements

The accounting guidance for fair value measurements and disclosures establishes a three-level fair value hierarchy that

prioritizes the inputs into the valuation techniques used to measure fair value. The fair value hierarchy gives the highest

priority, Level 1, to measurements based on quoted prices in active markets for identical assets or liabilities. The next highest

priority, Level 2, is given to measurements based on observable inputs other than quoted prices in active markets for identical

assets or liabilities. The lowest priority, Level 3, is given to measurements based on unobservable inputs. Assets and

liabilities are classified in their entirety within the fair value hierarchy based on the lowest level input that is significant to the

fair value measurement.

During the first quarter of 2012, we adopted an amendment to the guidance pertaining to fair value measurements and

disclosure. The amendment changed the definition of the principal market to the perspective of the overall market for the

particular asset or liability being valued, with less emphasis on the perspective of the reporting entity. As a result of adopting

this guidance, we made a change to our principal market assessment for certain single-family mortgage loans, primarily for

loans that have not been modified and are delinquent four months or more or are in foreclosure. For these loans, we changed

our principal market assessment to the whole loan market. The resulting impact was a decrease of $13.8 billion to our fair

value of net assets in our consolidated fair value balance sheets.

During the fourth quarter of 2011, our fair value results as presented in our consolidated fair value balance sheets were

affected by a change in estimate which increased the implied capital costs included in our valuation of single-family

mortgage loans due to a change in the estimation of a risk premium assumption embedded in our modeled valuation of such

loans. This change in estimate led to a $14.2 billion decrease in our fair value measurement of mortgage loans as of

December 31, 2011.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents our assets and liabilities measured in our consolidated balance sheets at fair value on a

recurring basis subsequent to initial recognition, including instruments where we have elected the fair value option, as of

December 31, 2012 and 2011.

293 Freddie Mac
Table 16.1 — Assets and Liabilities Measured at Fair Value on a Recurring Basis

Fair Value at December 31, 2012

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant

Unobservable Inputs

(Level 3)

Netting

Adjustment(1) Total

(in millions)

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac .................................. $ — $ 56,713 $ 1,802 $ — $ 58,515

Fannie Mae ................................... — 15,117 163 — 15,280

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 193 16 — 209

CMBS ...................................... — 47,878 3,429 — 51,307

Subprime .................................... — — 26,457 — 26,457

Option ARM .................................. — — 5,717 — 5,717

Alt-A and other ................................ — — 10,904 — 10,904

Obligations of states and political subdivisions ......... — — 5,798 — 5,798

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 709 — 709

Total available-for-sale securities, at fair value ........ — 119,901 54,995 — 174,896

Trading, at fair value:

Mortgage-related securities:

Freddie Mac .................................. — 9,189 1,165 — 10,354

Fannie Mae ................................... — 10,026 312 — 10,338

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 39 92 — 131

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 135 21 — 156

Total mortgage-related securities ................. — 19,389 1,590 — 20,979

Non-mortgage-related securities:

Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . — 292 — — 292

Treasury bills ................................. 1,160 — — — 1,160

Treasury notes ................................. 19,061 — — — 19,061

FDIC-guaranteed corporate medium-term notes ......... — — — — —

Total non-mortgage-related securities .............. 20,221 292 — — 20,513

Total trading securities, at fair value ............. 20,221 19,681 1,590 — 41,492

Total investments in securities ................ 20,221 139,582 56,585 — 216,388

Mortgage loans:

Held-for-sale, at fair value ............................ — — 14,238 — 14,238

Derivative assets, net:

Interest-rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 13,920 18 — 13,965

Option-based derivatives ........................... — 10,097 — — 10,097

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 92 2 — 131

Subtotal, before netting adjustments . . . . . . . . . . . . . . . . . 64 24,109 20 — 24,193

Netting adjustments(1) .............................. — — — (23,536) (23,536)

Total derivative assets, net . . . . . . . . . . . . . . . . . . . . . . . . 64 24,109 20 (23,536) 657

Other assets:

Guarantee asset, at fair value .......................... — — 1,029 — 1,029

All other, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 114 — 114

Total other assets ................................ — — 1,143 — 1,143

Total assets carried at fair value on a recurring basis ..... $20,285 $163,691 $71,986 $(23,536) $232,426

Liabilities:

Debt securities of consolidated trusts held by third parties, at fair

value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 70 $ — $ — $ 70

Other debt, at fair value ............................... — — 2,187 — 2,187

Derivative liabilities, net:

Interest-rate swaps ................................. 5 30,213 26 — 30,244

Option-based derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 749 1 — 750

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 52 40 — 95

Subtotal, before netting adjustments ................... 8 31,014 67 — 31,089

Netting adjustments(1) ............................... — — — (30,911) (30,911)

Total derivative liabilities, net ....................... 8 31,014 67 (30,911) 178

Total liabilities carried at fair value on a recurring

basis ...................................... $ 8 $ 31,084 $ 2,254 $(30,911) $ 2,435

294 Freddie Mac
Fair Value at December 31, 2011

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant

Unobservable Inputs

(Level 3)

Netting

Adjustment(1) Total

(in millions)

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac ............................. $ — $ 79,044 $ 2,048 $ — $ 81,092

Fannie Mae ............................. — 20,150 172 — 20,322

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 237 12 — 249

CMBS ................................. — 51,907 3,756 — 55,663

Subprime ............................... — — 27,999 — 27,999

Option ARM ............................ — — 5,865 — 5,865

Alt-A and other . . . . . . . . . . . . . . . . . . . . . . . . . . — 11 10,868 — 10,879

Obligations of states and political subdivisions .... — — 7,824 — 7,824

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . — — 766 — 766

Total available-for-sale securities, at fair

value ............................... — 151,349 59,310 — 210,659

Trading, at fair value:

Mortgage-related securities:

Freddie Mac ............................. — 14,181 1,866 — 16,047

Fannie Mae ............................. — 14,627 538 — 15,165

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 134 22 — 156

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 74 90 — 164

Total mortgage-related securities ............ — 29,016 2,516 — 31,532

Non-mortgage-related securities:

Asset-backed securities . . . . . . . . . . . . . . . . . . . . . — 302 — — 302

Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 — — — 100

Treasury notes ........................... 24,712 — — — 24,712

FDIC-guaranteed corporate medium-term notes . . . — 2,184 — — 2,184

Total non-mortgage-related securities ......... 24,812 2,486 — — 27,298

Total trading securities, at fair value ........ 24,812 31,502 2,516 — 58,830

Total investments in securities .......... 24,812 182,851 61,826 — 269,489

Mortgage loans:

Held-for-sale, at fair value ...................... — — 9,710 — 9,710

Derivative assets, net:

Interest-rate swaps ............................ — 12,976 46 — 13,022

Option-based derivatives ....................... 1 15,868 — — 15,869

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 110 35 — 150

Subtotal, before netting adjustments ............. 6 28,954 81 — 29,041

Netting adjustments(1) .......................... — — — (28,923) (28,923)

Total derivative assets, net .................... 6 28,954 81 (28,923) 118

Other assets:

Guarantee asset, at fair value . . . . . . . . . . . . . . . . . . . . . — — 752 — 752

All other, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . — — 151 — 151

Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 903 — 903

Total assets carried at fair value on a recurring

basis ................................. $24,818 $211,805 $72,520 $(28,923) $280,220

Liabilities:

Other debt, at fair value .......................... $ — $ 3,015 $ — $ — $ 3,015

Derivative liabilities, net:

Interest-rate swaps ............................ — 34,601 21 — 34,622

Option-based derivatives ....................... 1 2,934 1 — 2,936

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 103 42 — 145

Subtotal, before netting adjustments ............. 1 37,638 64 — 37,703

Netting adjustments(1) .......................... — — — (37,268) (37,268)

Total derivative liabilities, net .................. 1 37,638 64 (37,268) 435

Total liabilities carried at fair value on a recurring

basis ................................. $ 1 $ 40,653 $ 64 $(37,268) $ 3,450

(1) Represents counterparty netting, cash collateral netting, net trade/settle receivable or payable and net derivative interest receivable or payable. The net

cash collateral posted and net trade/settle receivable were $8.2 billion and $0 million, respectively, at December 31, 2012. The net cash collateral posted

and net trade/settle receivable were $9.4 billion and $1 million, respectively, at December 31, 2011. The net interest receivable (payable) of derivative

assets and derivative liabilities was approximately $(0.8) billion and $(1.1) billion at December 31, 2012 and 2011, respectively, which was mainly

related to interest rate swaps that we have entered into.

295 Freddie Mac
Changes in Fair Value Levels

We monitor the availability of observable market data to: (a) assess the appropriate classification of financial

instruments within the fair value hierarchy; and (b) transfer assets and liabilities between Level 1, Level 2, and Level 3

accordingly. Observable market data includes, but is not limited to, quoted prices and market transactions. Changes in

economic conditions or the volume and level of activity in a market generally will drive changes in availability of observable

market data. Changes in availability of observable market data, which also may result in changing the valuation technique

used, are generally the cause of transfers between Level 1, 2, or 3.

For the year ended December 31, 2012, our transfers between Level 1 and Level 2 assets and liabilities were less than

$1 million.

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using

significant unobservable inputs (Level 3) for the years ended December 31, 2012 and 2011. The table also presents gains and

losses due to changes in fair value, including both realized and unrealized gains and losses, recognized in our consolidated

statements of comprehensive income for Level 3 assets and liabilities for the years ended December 31, 2012 and 2011.

When assets and liabilities are transferred between levels, we recognize the transfer as of the beginning of the period.

296 Freddie Mac
Table 16.2 — Fair Value Measurements of Assets and Liabilities Using Significant Unobservable Inputs

For The Year Ended December 31, 2012

Realized and unrealized gains (losses)

Balance,

January 1,

2012

Included in

earnings(1)(2)(3)(4)

Included in

other

comprehensive

income (1) Total Purchases Issues Sales Settlements, net

Transfers

into

Level 3 (5)

Transfers

out of

Level 3 (5)

Balance,

December 31,

2012

Unrealized

gains

(losses)

still held (6)

(in millions)

AssetsInvestments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac ............. $ 2,048 $ — $ 18 $ 18 $ — $ — $ — $ (144) $ — $(120) $ 1,802 $ —

Fannie Mae . . . . . . . . . . . . . . 172 — 1 1 — — — (31) 21 — 163 —

Ginnie Mae . . . . . . . . . . . . . . 12 — — — — — — (4) 8 — 16 —

CMBS .................. 3,756 76 (38) 38 — — (331) (34) — — 3,429 —Subprime ................ 27,999 (1,274) 4,301 3,027 — — — (4,569) — — 26,457 (1,274)Option ARM ............. 5,865 (552) 1,417 865 — — (15) (998) — — 5,717 (556)Alt-A and other ........... 10,868 (196) 1,822 1,626 — — — (1,601) 11 — 10,904 (196)

Obligations of states and

political subdivisions ..... 7,824 19 108 127 — — (482) (1,671) — — 5,798 —

Manufactured housing . . . . . . 766 (4) 47 43 — — — (100) — — 709 (4)

Total available-for-sale

mortgage-relatedsecurities ............ 59,310 (1,931) 7,676 5,745 — — (828) (9,152) 40 (120) 54,995 (2,030)

Trading, at fair value:

Mortgage-related securities:

Freddie Mac ............. 1,866 (389) — (389) 25 95 (76) (206) 92 (242) 1,165 (390)

Fannie Mae . . . . . . . . . . . . . . 538 (131) — (131) (5) — 5 (35) — (60) 312 (131)

Ginnie Mae . . . . . . . . . . . . . . 22 1 — 1 — — — (16) 98 (13) 92 1

Other . . . . . . . . . . . . . . . . . . . 90 — — — — 18 (10) (3) — (74) 21 (1)

Total trading mortgagerelated securities ....... 2,516 (519) — (519) 20 113 (81) (260) 190 (389) 1,590 (521)

Mortgage loans:

Held-for-sale, at fair value ....... 9,710 1,011 — 1,011 25,340 — (21,764) (59) — — 14,238 263

Other assets:

Guarantee asset(7) . . . . . . . . . . . . . . 752 (23) — (23) — 382 — (82) — — 1,029 (23)

All other . . . . . . . . . . . . . . . . . . . . 151 (37) — (37) — — — — — — 114 (37)

Total other assets . . . . . . . . . . . . 903 (60) — (60) — 382 — (82) — — 1,143 (60)

Realized and unrealized (gains) losses

Balance,

January 1,

2012

Included in

earnings(1)(2)(3)(4)

Included in

other

comprehensive

income (1) Total Purchases Issues Sales Settlements, net

Transfers

into

Level 3 (5)

Transfers

out of

Level 3 (5)

Balance,

December 31,

2012

Unrealized

(gains)

losses still

held (6)

(in millions)

LiabilitiesOther debt, at fair value ........... $ — $ (16) $ — $ (16) $ — $ — $ — $ (812) $3,015 $ — $ 2,187 $ (6)Net derivatives(8) ................ (17) 30 — 30 — 3 — (2) — 33 47 15

297 Freddie Mac
For The Year Ended December 31, 2011

Realized and unrealized gains (losses)

Balance,

January 1,

2011

Included in

earnings(1)(2)(3)(4)

Included in

other

comprehensive

income (1) Total Purchases Issues Sales Settlements, net

Net transfers

in and/or out

of Level 3

Balance,

December 31,

2011

Unrealized

gains (losses)

still held (6)

(in millions)

AssetsInvestments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac .................. $ 2,037 $ — $ 83 $ 83 $ 119 $ — $ — $ (92) $ (99) $ 2,048 $ —

Fannie Mae . . . . . . . . . . . . . . . . . . 212 — 2 2 — — — (37) (5) 172 —

Ginnie Mae . . . . . . . . . . . . . . . . . . 16 — (1) (1) — — — (3) — 12 —CMBS ...................... 3,115 (152) 802 650 — — (67) (115) 173 3,756 (162)

Subprime .................... 33,861 (1,315) 707 (608) — — — (5,254) — 27,999 (1,315)

Option ARM ................. 6,889 (424) 684 260 — — — (1,284) — 5,865 (424)Alt-A and other ............... 13,155 (198) (387) (585) — — — (1,702) — 10,868 (198)

Obligations of states and political

subdivisions ................ 9,377 13 550 563 — — (609) (1,507) — 7,824 —

Manufactured housing . . . . . . . . . . . 897 (11) (6) (17) — — — (114) — 766 (11)

Total available-for-sale mortgagerelated securities ........... 69,559 (2,087) 2,434 347 119 — (676) (10,108) 69 59,310 (2,110)

Trading, at fair value:

Mortgage-related securities:

Freddie Mac .................. 2,299 (832) — (832) 492 25 (92) (213) 187 1,866 (834)

Fannie Mae . . . . . . . . . . . . . . . . . . 854 (340) — (340) 137 — (81) (43) 11 538 (340)

Ginnie Mae . . . . . . . . . . . . . . . . . . 27 (1) — (1) — — — (4) — 22 (1)Other . . . . . . . . . . . . . . . . . . . . . . . 20 — — — — 91 (18) (3) — 90 —

Total trading mortgage- related

securities ................. 3,200 (1,173) — (1,173) 629 116 (191) (263) 198 2,516 (1,175)

Mortgage loans:

Held-for-sale, at fair value ........... 6,413 828 — 828 16,550 — (14,027) (54) — 9,710 214

Net derivatives(8) ..................... (691) 907 — 907 — (46) — (155) 2 17 165

Other assets:

Guarantee asset(7) . . . . . . . . . . . . . . . . . . 541 (25) — (25) — 288 — (52) — 752 (25)

All other . . . . . . . . . . . . . . . . . . . . . . . . 235 (84) — (84) — — — — — 151 (84)

Total other assets . . . . . . . . . . . . . . . . 776 (109) — (109) — 288 — (52) — 903 (109)

(1) Changes in fair value for available-for-sale investment securities are recorded in AOCI, while gains and losses from sales are recorded in other gains (losses) on investment securities recognized in

earnings on our consolidated statements of comprehensive income. For mortgage-related securities classified as trading, the realized and unrealized gains (losses) are recorded in other gains (losses) oninvestment securities recognized in earnings on our consolidated statements of comprehensive income.

(2) Changes in fair value of derivatives not designated as accounting hedges are recorded in derivative gains (losses) on our consolidated statements of comprehensive income.(3) Changes in fair value of the guarantee asset are recorded in other income on our consolidated statements of comprehensive income.(4) For held-for-sale mortgage loans with fair value option elected, gains (losses) on fair value changes and from sales of mortgage loans are recorded in other income on our consolidated statements of

comprehensive income.

(5) Transfers out of Level 3 during the year ended December 31, 2012 consist primarily of certain mortgage-related securities due to an increased volume and level of activity in the market and availability

of price quotes from dealers and third-party pricing services. Transfers into Level 3 during the year ended December 31, 2012 consist primarily of foreign-currency denominated debt due to a decline inobservable market activity.

(6) Represents the amount of total gains or losses for the period, included in earnings, attributable to the change in unrealized gains and losses related to assets and liabilities classified as Level 3 that were

still held at December 31, 2012 and 2011, respectively. Included in these amounts are credit-related other-than-temporary impairments recorded on available-for-sale securities.

(7) We estimate that all amounts recorded for unrealized gains and losses on our guarantee asset relate to those guarantee asset amounts still recorded on our balance sheet. The amounts reflected as

included in earnings represent the periodic fair value changes of our guarantee asset.

(8) Net derivatives include derivative assets and derivative liabilities prior to counterparty netting, cash collateral netting, net trade/settle receivable or payable and net derivative interest receivable or

payable.

298 Freddie Mac
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis. These

adjustments usually result from application of lower-of-cost-or-fair-value accounting or write-downs of individual assets.

These assets include impaired held-for-investment multifamily mortgage loans and REO, net.

The table below presents assets measured in our consolidated balance sheets at fair value on a non-recurring basis at

December 31, 2012 and 2011, respectively.

Table 16.3 — Assets Measured at Fair Value on a Non-Recurring Basis

Fair Value at December 31, 2012

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

Significant Other

Observable

Inputs (Level 2)

Significant

Unobservable

Inputs

(Level 3) Total

Total Gains

(Losses)(3)

(in millions)

Assets measured at fair value on a non-recurring basis:

Mortgage loans:(1)

Held-for-investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— $— $1,025 $1,025 $ (49)

REO, net(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 776 776 (22)

Total assets measured at fair value on a non-recurring basis . . . . . . . . . . $— $— $1,801 $1,801 $ (71)

Fair Value at December 31, 2011

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

Significant Other

Observable

Inputs (Level 2)

Significant

Unobservable

Inputs

(Level 3) Total

Total Gains

(Losses)(3)

(in millions)

Assets measured at fair value on a non-recurring basis:

Mortgage loans:(1)

Held-for-investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— $— $1,380 $1,380 $ (16)

REO, net(2) .............................................. — — 3,146 3,146 (118)

Total assets measured at fair value on a non-recurring basis . . . . . . . . . . $— $— $4,526 $4,526 $(134)

(1) Represents carrying value and related write-downs of loans for which adjustments are based on the fair value amounts. These loans consist of impaired

multifamily mortgage loans that are classified as held-for-investment and have a related valuation allowance.

(2) Represents the fair value and related losses of foreclosed properties that were measured at fair value subsequent to their initial classification as REO, net.

The carrying amount of REO, net was written down to fair value of $0.8 billion, less estimated costs to sell of $50 million (or approximately

$0.7 billion) at December 31, 2012. The carrying amount of REO, net was written down to fair value of $3.1 billion, less estimated costs to sell of

$221 million (or approximately $2.9 billion) at December 31, 2011.

(3) Represents the total net gains (losses) recorded on items measured at fair value on a non-recurring basis as of December 31, 2012 and 2011, respectively.

Valuation Processes and Controls Over Fair Value Measurement

We have control processes designed to ensure that our fair value measurements are appropriate and reliable, that they

are based on observable inputs where possible, and that our valuation approaches are consistently applied and the

assumptions and inputs are reasonable. Our control processes provide a framework that ensures a segregation of duties and

oversight of our fair value methodologies, techniques, validation procedures, and results.

Groups within our Finance division, independent of our trading and investing function, execute and validate the

valuation processes and are responsible for determining the fair values of the majority of our financial assets and liabilities.

In determining fair value, we consider the credit risk of our counterparties in estimating the fair values of our assets and our

own credit risk in estimating the fair values of our liabilities. The fair values determined by our Finance division are further

verified by an independent group within our Enterprise Risk Management (ERM) division.

The validation procedures performed by ERM are intended to ensure that the prices we receive from third parties are

consistent with our observations of market activity, and that fair value measurements developed using internal data reflect the

assumptions that a market participant would use in pricing our assets and liabilities. These validation procedures include

performing a monthly independent verification of fair value measurements through independent modeling, analytics, and

comparisons to other market source data, if available. Where applicable, prices are back-tested by comparing actual

settlement prices to our fair value measurements. Analytical procedures include automated checks consisting of prior-period

variance analysis, comparisons of actual prices to internally calculated expected prices based on observable market changes,

analysis of changes in pricing ranges, and relative value and yield comparisons using our proprietary models. Thresholds are

set for each product category by ERM to identify exceptions that require further analysis. If a price is outside of our

established thresholds, we perform additional validation procedures, including supplemental analytics and/or follow up

299 Freddie Mac
discussions with the third-party provider. If we are unable to validate the reasonableness of a given price, we ultimately do

not use that price for fair value measurements in our consolidated financial statements. These reviews are risk-based and

cover all product categories, and are executed before we finalize the prices used in preparing our fair value measurements for

our financial statements.

In addition to performing the validation procedures noted above, ERM provides independent risk governance over all

valuation processes by establishing and maintaining corporate-wide valuation control policies. ERM also independently

reviews key judgments, methodologies, and valuation techniques to ensure compliance with its established policies.

Our Valuation & Finance Model Committee (“Valuation Committee”), which includes representation from our business

areas, ERM, and Finance divisions, provides senior management’s governance over valuation processes, methodologies,

controls and fair value measurements. Identified exceptions are reviewed and resolved through the verification process and

the fair value measurements used in the financial statements are approved at the Valuation Committee.

Where models are employed to assist in the measurement and verification of fair values, changes made to those models

during the period are reviewed and approved according to the corporate model change governance process, which specifies

that all material changes be reviewed at the Valuation Committee. Inputs used by models are regularly updated for changes

in the underlying data, assumptions, valuation inputs, and market conditions, and are subject to the valuation controls noted

above.

Use of Third-Party Pricing Data in Fair Value Measurement

As discussed in the sections that follow, many of our valuation techniques use, either directly or indirectly, data

provided by third-party pricing services or dealers. The techniques used by these pricing services and dealers to develop the

prices generally are either: (a) a comparison to transactions involving instruments with similar collateral and risk profiles,

adjusted as necessary based on specific characteristics of the asset or liability being valued; or (b) industry-standard

modeling, such as a discounted cash flow model. The prices provided by the pricing services and dealers reflect their

observations and assumptions related to market activity, including risk premiums and liquidity adjustments. The models and

related assumptions used by the pricing services and dealers are owned and managed by them and, in many cases, the

significant inputs used in the valuation techniques are not reasonably available to us. However, we have an understanding of

the processes and assumptions used to develop the prices based on our ongoing due diligence, which includes discussions

with our vendors at least annually and often more frequently. We believe that the procedures executed by the pricing services

and dealers, combined with our internal verification and analytical procedures, provide assurance that the prices used in our

financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the

assumptions that a market participant would use in pricing our assets and liabilities. The price quotes we receive are nonbinding both to us and to our counterparties.

In many cases, we receive prices from third-party pricing services or dealers and use those prices without adjustment,

and the significant inputs used to develop the prices are not reasonably available to us. For a large majority of the assets and

liabilities we value using pricing services and dealers, we obtain prices from multiple external sources and use the median of

the prices to measure fair value. This technique is referred to below as “median of external sources.” The significant inputs

used in the fair value measurement of assets and liabilities that are valued using the median of external sources pricing

technique are the third-party prices. Significant increases (decreases) in any of the third-party prices in isolation may result in

a significantly higher (lower) fair value measurement. In limited circumstances, we may be able to receive pricing

information from only a single external source. This technique is referred to below as “single external source.”

In limited circumstances, we receive prices or pricing-related data that we adjust or use as an input to our models or

other valuation techniques to measure fair value, as described in “Valuation Techniques for Assets and Liabilities Measured

at Fair Value in Our Consolidated Balance Sheets — Derivative Assets, Net and Derivative Liabilities, Net.” In other limited

circumstances, we receive prices from a third-party provider and use those prices without adjustment, but the inputs used by

the third-party provider to develop the prices are reasonably available to us, as described in “Valuation Techniques for Assets

and Liabilities Measured at Fair Value in Our Consolidated Balance Sheets — Mortgage Loans, Held-for-Sale” and “Other

Assets and Other Liabilities.”

Valuation Techniques for Assets and Liabilities Measured at Fair Value in Our Consolidated Balance Sheets

We categorize assets and liabilities that we measure and report at fair value in our consolidated balance sheets within the

fair value hierarchy based on the valuation techniques used to derive the fair value and our judgment regarding the

300 Freddie Mac
observability of the related inputs. The following is a description of the valuation techniques we use for fair value

measurement and disclosure; the significant inputs used in those techniques (if applicable); our basis for classifying the

measurements as Level 1, Level 2, or Level 3 of the fair value hierarchy; and, for those measurements classified as Level 3 of

the hierarchy, a narrative description of the sensitivity of the fair value measurement to changes in significant unobservable

inputs and a description of any interrelationships between those unobservable inputs. Although the sensitivities of the

unobservable inputs are generally discussed below in isolation, interrelationships exist among the inputs such that a change

in one unobservable input typically results in a change to one or more of the other inputs. For example, the most common

interrelationship that impacts the majority of our fair value measurements is between future interest rates, prepayment

speeds, and probabilities of default. Generally, a change in the assumption used for future interest rates results in a

directionally opposite change in the assumption used for prepayment speeds and a directionally similar change in the

assumption used for probabilities of default.

Each technique discussed below may not be used in a given reporting period, depending on the composition of our

assets and liabilities measured at fair value and relevant market activity during that period.

Investments in Securities

Mortgage-Related Securities

Agency Securities

Agency securities, both trading and available-for-sale, consist of mortgage-related securities issued and guaranteed by

Freddie Mac, Fannie Mae, and Ginnie Mae. The valuation techniques for agency securities vary depending on the type of

security.

Fixed-rate single-class securities are valued using observable prices for similar securities in the TBA market. The

observable TBA prices vary based on agency, term, coupon, and settlement date. In addition, we may adjust the TBA price

accordingly based on matrices we receive from external dealers for securities with specific collateral characteristics if we

observe those collateral characteristics to be trading at a premium or discount to the TBA price. Significant inputs used in

this technique are the TBA prices and the security characteristics mentioned above. These securities have observable market

pricing and are classified as Level 2.

Adjustable-rate single-class securities and the majority of multiclass securities are valued using the median of external

sources. For certain multiclass securities, we are able to receive prices from only a single external source. Adjustable-rate

single-class securities and the multiclass securities valued using these techniques generally have observable market prices

and are classified as Level 2. However, certain multiclass securities valued using these techniques are classified as Level 3

when there is a low volume or level of activity in the market for those securities.

Certain multiclass securities for which we are not able to obtain external prices due to limited relevant market activity

are valued using a discounted cash flow technique. Under this technique, securities are valued by starting with a third-party

market price for a similar security within our portfolio. We then use our proprietary prepayment and interest rate models to

calculate an OAS for the similar security, which is used to determine the net present value of the projected cash flows for the

security to be valued. The significant unobservable input used in the fair value measurement of these securities is the OAS.

Significant increases (decreases) in the OAS in isolation would result in a significantly lower (higher) fair value

measurement. These securities are classified as Level 3 as significant inputs used in the fair value measurement are

unobservable.

Certain complex multiclass securities for which current cash flow information is not readily available are valued using a

risk-metric pricing technique. Under this technique, securities are valued by starting with a prior period price and adjusting

that price for market changes in certain key risk metrics such as key rate durations. If necessary, our judgment is applied to

adjust the price based on specific security characteristics. The significant unobservable inputs used in the fair value

measurement of these securities are the key risk metrics. Significant increases (decreases) in key rate durations in isolation

would result in a significantly lower (higher) fair value measurement. These securities are classified as Level 3 as significant

inputs used in the fair value measurement are unobservable.

Commercial Mortgage-Backed Securities

The majority of our CMBS are valued using the median of external sources. For a small number of CMBS, we are able

to receive prices from only a single external source. CMBS valued using these techniques generally have observable market

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pricing and are classified as Level 2. However, certain CMBS valued using these techniques are classified as Level 3 when

there is a low volume or level of activity in the market for those securities.

Certain CMBS, primarily military housing revenue bonds, are valued using a risk-metric pricing technique, similar to

that described above for agency securities. The significant unobservable inputs used in the fair value measurement of these

CMBS securities are the key risk metrics. Significant increases (decreases) in key rate durations in isolation would result in a

significantly lower (higher) fair value measurement. These securities are classified as Level 3 as significant inputs used in the

fair value measurement are unobservable.

Subprime, Option ARM, and Alt-A and Other (Mortgage-Related); Obligations of States and Political Subdivisions; and

Manufactured Housing

Subprime, option ARM, and Alt-A and other securities consist of non-agency mortgage-related securities backed by

subprime, option ARM, and/or Alt-A and other collateral. Obligations of states and political subdivisions consist primarily of

housing revenue bonds. Manufactured housing securities consist of non-agency mortgage-related securities backed by loans

on manufactured housing properties. These types of securities are all valued based on the median of external sources and are

classified as Level 3 due to the low volume and level of activity in the markets for these securities.

Non-Mortgage-Related Securities

Asset-Backed Securities

Asset-backed securities consist primarily of private-label non-mortgage-related securities. These securities are valued

using the median of external sources. These securities have observable market pricing and are classified as Level 2.

Treasury Bills and Treasury Notes

Treasury bills and Treasury notes are valued using quoted prices in active markets for identical assets and are classified

as Level 1.

FDIC-Guaranteed Corporate Medium-Term Notes

FDIC-guaranteed corporate medium-term notes are securities that are guaranteed by the FDIC and therefore are

considered to have the credit risk of a U.S. federal agency. These securities are valued using the median of external sources.

These securities have observable market pricing and are classified as Level 2.

Mortgage Loans, Held-for-Sale

Mortgage loans, held-for-sale consist of multifamily mortgage loans with the fair value option elected and are measured

at fair value on a recurring basis. Mortgage loans, held-for-sale are primarily valued using market prices from a third-party

pricing service that uses a discounted cash flow technique. Under this technique, the pricing service forecasts cash flows for

the various mortgage loans and discounts them at a market rate, including a spread that is based on pricing data obtained

from purchases and sales of similar mortgage loans, adjusted based on the mortgage loan’s current LTV ratio and DSCR. The

significant unobservable inputs used in the fair value measurement of these loans are the current LTV ratio and DSCR.

Significant increases (decreases) in the current LTV ratio in isolation would result in a significantly lower (higher) fair value

measurement. Significant increases (decreases) in the DSCR in isolation would result in a significantly higher (lower) fair

value measurement. These loans are classified as Level 3 as significant inputs used in the fair value measurement are

unobservable.

Mortgage Loans, Held-for-Investment

Mortgage loans, held-for-investment are measured at fair value on a non-recurring basis and represent multifamily

mortgage loans that have been written down to the fair value of the underlying collateral due to impairment. The underlying

collateral is primarily valued using either an income capitalization technique or third-party appraisals.

Under the income capitalization technique, the collateral is valued by discounting the present value of future cash flows

by applying an overall capitalization rate to the forecasted net operating income. The significant unobservable input used in

the fair value measurement of these loans is the capitalization rate, which is determined through analysis of the DSCR.

Significant increases (decreases) in the capitalization rate in isolation would result in a significantly lower (higher) fair value

measurement.

302 Freddie Mac
Under the third-party appraisal technique, we use the prices provided by third-party appraisers without adjustment. The

third-party appraisers consider the physical condition of the property and use comparable sales and other market data in

determining the appraised value.

Impaired multifamily mortgage loans held-for-investment are classified as Level 3 as significant inputs used in the fair

value measurement are unobservable.

Derivative Assets, Net and Derivative Liabilities, Net

Derivative assets and derivative liabilities consist of interest-rate swaps, option-based derivatives, and other derivatives,

such as exchange-traded futures, foreign-currency swaps, and certain forward purchase and sale commitments.

Interest-Rate Swaps

Interest-rate swaps consist of receive-fixed, pay-fixed, and basis swaps. The majority of our interest-rate swaps are

valued using a discounted cash flow technique. Under this technique, interest-rate swaps are valued by using the appropriate

yield curves to discount the expected cash flows of both the fixed and variable rate components of the swap contracts. The

significant inputs used in the fair value measurement of these derivatives are market-based interest rates. These derivatives

are classified as Level 2 as the significant inputs used in the fair value measurement are observable in active markets. Certain

interest rate swaps that are exchange traded are classified in Level 1.

Option-Based Derivatives

Option-based derivatives consist of interest rate caps, interest rate floors, call swaptions, and put swaptions. We value

the majority of our option-based derivatives using option-pricing models. Dealer-supplied interest rate volatility matrices are

a key input into these models. Within each matrix, prices are provided for a range of option terms, swap terms, and strikes.

Our models then interpolate to determine the volatility for each instrument and use that volatility as an input to the optionpricing model. These derivatives are classified as Level 2 as the significant inputs used are observable in active markets.

Other Derivatives

Other derivatives consist of exchange-traded futures, foreign-currency swaps, and certain forward purchase and sale

commitments.

Exchange-traded futures are valued using quoted prices in active markets for identical assets or liabilities and are

classified as Level 1.

Foreign-currency swaps are valued using a discounted cash flow technique. Under this technique, foreign-currency

swaps are valued using yield curves derived from observable market data to calculate and discount the expected cash flows

for the swap contracts. The significant inputs used in the fair value measurement of these derivatives are market-based

interest rates and foreign currency exchange rates. These derivatives are classified as Level 2 as the significant inputs used in

the fair value measurement are observable in active markets.

Certain purchase and sale commitments are also considered to be derivatives and are valued using the same techniques

we use to value the underlying instruments we are committing to purchase or sell. These instruments generally have

observable market pricing and are classified as Level 2. Valuation techniques for commitments to purchase or sell investment

securities and to extinguish or issue debt securities of consolidated trusts are further discussed in “Investments in Securities.”

Valuation techniques for commitments to purchase single-family mortgage loans are further discussed in “Valuation

Techniques for Assets and Liabilities Not Measured at Fair Value in Our Consolidated Balance Sheets, but for Which the

Fair Value is Disclosed — Mortgage Loans.”

Other Assets and Other Liabilities

Other assets consist of our guarantee asset related to guarantees issued to unconsolidated securitization trusts and

mortgage servicing rights. Other liabilities, from time to time, consist of mortgage servicing rights.

Guarantee Asset

Our guarantee asset is primarily related to our multifamily guarantees. The multifamily guarantee asset is valued using a

discounted cash flow technique. Under this technique, the present value of future cash flows related to our management and

303 Freddie Mac
guarantee fee is discounted based on the current OAS-to-benchmark interest rates for new guarantees, which are driven by

changes in our estimates of credit risk and changes in the credit profile of the multifamily guarantee portfolio. The significant

unobservable input used in the fair value measurement of the guarantee asset is the OAS-to-benchmark rates. Significant

increases (decreases) in the OAS in isolation would result in a significantly lower (higher) fair value measurement. The

guarantee asset is classified as Level 3 as significant inputs used in the fair value measurement are unobservable.

All Other Assets and Liabilities

All other assets and, from time to time, other liabilities consist primarily of mortgage servicing rights. Mortgage

servicing rights are valued using a discounted cash flow technique by a third-party vendor that specializes in valuing and

brokering sales of mortgage servicing rights. Under this technique, the cash flows from the mortgage servicing rights are

discounted based on estimated prepayment rates, estimated costs to service both performing and non-performing loans, and

estimated servicing income per loan (including ancillary income). The significant unobservable inputs used in the fair value

measurement of mortgage servicing rights are the estimates of prepayment rates, costs to service per loan, and servicing

income per loan. Significant increases (decreases) in cost to service per loan, and prepayment rate in isolation would result in

a significantly lower (higher) fair value measurement. Significant increases (decreases) in servicing income per loan in

isolation would result in a significantly higher (lower) fair value measurement. Mortgage servicing rights are classified as

Level 3 as significant inputs used in the fair value measurement are unobservable.

REO, Net

REO, net consists primarily of single-family REO. REO, net is initially measured at its fair value less costs to sell, and

is subsequently measured at the lower of cost or fair value less costs to sell. REO, net is valued using an internal model.

Under this technique, our internal model uses actual disposition prices on REO for the past three months to determine the

average sales proceeds per property at the state level expressed as a fixed percentage based on the ratio of the disposition

price to the UPB of the associated loan immediately prior to our acquisition of the property. This fixed percentage is then

applied to the individual property to determine its fair value. Certain adjustments, such as state-level adjustments, are made

to the estimated fair value, as applicable. The significant unobservable input used in the fair value measurement of REO, net

is the historical average sales proceeds per property by state. Significant increases (decreases) in the historical average sales

proceeds per property by state in isolation would result in a significantly higher (lower) fair value measurement. REO, net is

classified as Level 3 as significant inputs used in the fair value measurement are unobservable.

Debt Securities of Consolidated Trusts Held by Third Parties, at Fair Value

We elected the fair value option for certain debt securities of consolidated trusts held by third parties. These consist of

certain multifamily K certificates. These are valued using either the median of external sources or a single external source

(which may be the counterparty to the transaction) and are classified as Level 2 due to market pricing that is observable. See

“Fair Value Option — Debt Securities of Consolidated Trusts Held by Third Parties” for additional information.

Other Debt, at Fair Value

We elected the fair value option for foreign-currency denominated debt instruments and certain other debt securities.

These are valued using either the median of external sources or a single external source (which may be the counterparty to

the transaction) and are classified as Level 3 due to the low volume and level of activity in the market for these types of debt

instruments. See “Fair Value Option — Other Debt” for additional information.

Quantitative Information about Level 3 Fair Value Measurements for Assets and Liabilities Measured at Fair Value

in Our Consolidated Balance Sheets

The table below provides valuation techniques, the range, and the weighted average of significant unobservable inputs

for assets and liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) as of

December 31, 2012.

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Table 16.4 — Quantitative Information about Recurring Level 3 Fair Value Measurements

December 31, 2012

Unobservable Inputs(1)

Total Fair ValueLevel 3

Fair Value

Predominant Valuation Technique(s) Type RangeWeighted

Average

(dollars in millions)

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Agency securities:

Freddie Mac .................................... $1,477 Risk metric Effective duration(2) 0.89 -1.98 years 0.89 years

325 Other

Total Freddie Mac .............................. $58,515 1,802

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Median of external sources External pricing sources $103.9 - $106.0 $105.2

65 Single external source External pricing source $116.0 - $116.0 $116.0

20 Other

Total Fannie Mae ............................... 15,280 163

Ginnie Mae ..................................... 8 Discounted cash flows

8 Median of external sources

Total Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 16

CMBS .......................................... 2,462 Single external source External pricing source $99.4 - $99.4 $99.4

432 Risk metric Effective duration(2) 9.3 - 14.8 years 12.0 years

535 Other

Total CMBS .................................... 51,307 3,429

Subprime, option ARM, and Alt-A:

Subprime ....................................... 24,890 Median of external sources External pricing sources $54.4 - $64.4 $59.2

1,567 Other

Total subprime ................................. 26,457 26,457

Option ARM .................................... 5,631 Median of external sources External pricing sources $43.8 - $52.6 $47.9

86 Other

Total option ARM .............................. 5,717 5,717

Alt-A and other .................................. 8,562 Median of external sources External pricing sources $69.6 - $77.9 $73.8

1,901 Single external source External pricing source $71.8 - $71.8 $71.8

441 Other

Total Alt-A and other ............................ 10,904 10,904

Obligations of states and political subdivisions . . . .......... 5,533 Median of external sources External pricing sources $102.3 - $103.2 $102.7

265 Other

Total obligations of states and political subdivisions...... 5,798 5,798

Manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693 Median of external sources External pricing sources $80.0 - $85.5 $82.8

16 Other

Total manufactured housing . . . . . . . . . . . . . . . . . . . . . . . . . 709 709

Total available-for-sale mortgage- related securities ...... 174,896 54,995

Trading, at fair value

Mortgage-related securities

Agency securities:

Freddie Mac .................................... 1,112 Discounted cash flows OAS (33,702) -3,251 bps 502 bps

53 Other

Total Freddie Mac .............................. 10,354 1,165

Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 Discounted cash flows OAS (1,263) - 3,251 bps 810 bps

Total Fannie Mae ............................... 10,338 312

Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Median of external sources

5 Other

Total Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 92

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Discounted cash flows

9 Median of external sources

156 21

Total trading mortgage-related securities ............ 20,979 1,590

Total investments in securities .................... $195,875 $56,585

Mortgage loans:

Held-for-sale, at fair value ................................ $14,238 $14,238 Discounted cash flows DSCR 1.25 - 6.88 1.97

Current LTV 19% - 80% 69%

Other assets:

Guarantee asset, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 870 Discounted cash flows OAS 0 - 368 bps 55 bps

159 Other

Total guarantee asset, at fair value ........................ 1,029 1,029

All other, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Discounted cash flows Prepayment rate 7.73% - 39.87% 21.23%

Servicing income per loan 0.19% - 0.52% 0.25%

Cost to service per loan $78 - $354 $141

2 Other

Total all other, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 114

Total other assets ................................... 1,143 1,143

Liabilities

Other debt, at fair value ................................... 1,188 Median of external sources External pricing sources $101.7 - $102.0 $101.7

999 Single external source External pricing source $99.9 - $99.9 $99.9

Total other debt recorded at fair value ....................... 2,187 2,187

Net derivatives .......................................... (479) 47 Other

(1) Certain unobservable input types, range, and weighted average data are not disclosed in this table if they are associated with a class: (a) that has a

Level 3 fair value measurement that is not considered material; or (b) where we have disclosed the predominant valuation technique with related

unobservable inputs for the most significant portion of that class.

(2) Effective duration is used as a proxy to represent the aggregate impact of key rate durations.

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The table below provides valuation techniques, the range, and the weighted average of significant unobservable inputs

for assets and liabilities measured at fair value on a non-recurring basis using unobservable inputs (Level 3) as of

December 31, 2012.

Table 16.5 — Quantitative Information about Non-Recurring Level 3 Fair Value Measurements

December 31, 2012

Total

Fair

Value

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs(1)

Type Range

Weighted

Average

(dollars in millions)

Non-recurring fair value

measurements

Mortgage loans

Held-for-investment .......... $711 Income capitalization Capitalization rates(2) 5% – 9% 7%

314 Third-party appraisal Property value $2 million - $43 million $21 million

Total held-for-investment .... $1,025 1,025

REO, net . . . . . . . . . . . . . . . . . . . . 771 Internal model(3) Historical average sale

proceeds per property

by state(4)

$32,186 - $356,397 $102,697

5 Other

Total REO, net . . . . . . . . . . . . . 776 776

(1) Certain unobservable input types, range, and weighted average data are not disclosed in this table if they are associated with a class: (a) that has a

Level 3 fair value measurement that is not considered material; or (b) where we have disclosed the predominant valuation technique with related

unobservable inputs for the most significant portion of that class.

(2) The capitalization rate “Range” and “Weighted Average” represent those loans that are valued using the Income Capitalization approach, which is the

predominant valuation technique used for this population. Certain loans in this population are valued using other techniques, and the capitalization rate

for those is not represented in the “Range” or “Weighted Average” above.

(3) Represents internal models that use distressed property sales proceeds by state based on a three month average to measure the initial value of REO and

the subsequent write-down to measure the current fair value for REO properties.

(4) Represents the average of three months of REO sales proceeds by state.

Consolidated Fair Value Balance Sheets

The supplemental consolidated fair value balance sheets in the table below present our estimates of the fair value of our

financial assets and liabilities at December 31, 2012 and 2011. The valuations of financial instruments on our consolidated

fair value balance sheets are in accordance with the accounting guidance for fair value measurements and disclosures and the

accounting guidance for financial instruments. The consolidated fair value balance sheets do not purport to present our net

realizable, liquidation, or market value as a whole. Furthermore, amounts we ultimately realize from the disposition of assets

or settlement of liabilities may vary significantly from the fair values presented.

306 Freddie Mac
Table 16.6 — Consolidated Fair Value Balance Sheets

December 31,

2012 2011

Fair Value

Carrying

Amount(1) Level 1 Level 2 Level 3

Netting

Adjustments Total

Carrying

Amount(1)

Fair

Value

(in billions)

Assets

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 8.5 $ 8.5 $ — $ — $ — $ 8.5 $ 28.4 $ 28.4

Restricted cash and cash equivalents ............. 14.6 14.6 — — — 14.6 28.1 28.1

Federal funds sold and securities purchased under

agreements to resell ........................ 37.6 — 37.6 — — 37.6 12.0 12.0

Investments in securities:

Available-for-sale, at fair value ............... 174.9 — 119.9 55.0 — 174.9 210.7 210.7

Trading, at fair value ....................... 41.5 20.2 19.7 1.6 — 41.5 58.8 58.8

Total investments in securities .............. 216.4 20.2 139.6 56.6 — 216.4 269.5 269.5

Mortgage loans:

Mortgage loans held by consolidated trusts ....... 1,495.9 — 1,130.4 409.7 — 1,540.1 1,564.2 1,598.2

Unsecuritized mortgage loans................. 190.4 — 16.4 151.2 — 167.6 217.1 205.9

Total mortgage loans ..................... 1,686.3 — 1,146.8 560.9 — 1,707.7 1,781.3 1,804.1

Derivative assets, net . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 — 24.2 — (23.5) 0.7 0.1 0.1

Other assets ............................... 25.8 — 0.8 25.0 — 25.8 27.8 28.5

Total assets .............................. $1,989.9 $43.3 $1,349.0 $ 642.5 $(23.5) $2,011.3 $2,147.2 $2,170.7

Liabilities

Debt, net:

Debt securities of consolidated trusts held by third

parties ................................ $1,419.5 $ — $1,484.2 $ 2.9 $ — $1,487.1 $1,471.4 $1,552.5

Other debt ............................... 547.5 — 547.0 18.6 — 565.6 660.6 681.2

Total debt, net .......................... 1,967.0 — 2,031.2 21.5 — 2,052.7 2,132.0 2,233.7

Derivative liabilities, net . . . . . . . . . . . . . . . . . . . . . . 0.2 — 31.1 — (30.9) 0.2 0.4 0.4

Other liabilities ............................. 13.8 0.2 7.6 8.9 — 16.7 14.9 15.0

Total liabilities ........................... 1,981.0 0.2 2,069.9 30.4 (30.9) 2,069.6 2,147.3 2,249.1

Net assets

Senior preferred stockholders ................. 72.3 — — 72.3 — 72.3 72.2 72.2

Preferred stockholders ...................... 14.1 — 0.9 — — 0.9 14.1 0.6

Common stockholders ...................... (77.5) — — (131.5) — (131.5) (86.4) (151.2)

Total net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 — 0.9 (59.2) — (58.3) (0.1) (78.4)

Total liabilities and net assets ............... $1,989.9 $ 0.2 $2,070.8 $ (28.8) $(30.9) $2,011.3 $2,147.2 $2,170.7

(1) Equals the amount reported on our GAAP consolidated balance sheets.

Limitations

Our consolidated fair value balance sheets do not capture all elements of value that are implicit in our operations as a

going concern because our consolidated fair value balance sheets only capture the values of the current investment and

securitization portfolios as of the dates presented. For example, our consolidated fair value balance sheets do not capture the

value of new investment and securitization business that would likely replace prepayments as they occur, nor do they include

any estimation of intangible or goodwill values. Thus, the fair value of net assets presented on our consolidated fair value

balance sheets does not represent an estimate of our net realizable, liquidation, or market value as a whole.

The fair value of certain financial instruments is based on our current principal market as of the dates presented. As new

markets evolve, our principal market may change. The use of different assumptions and methodologies to determine the fair

values of certain financial instruments, including the use of different principal markets, could have a material impact on the

fair value of net assets presented on our consolidated fair value balance sheets.

We report certain assets and liabilities that are not financial instruments, such as property and equipment and REO, as

well as certain financial instruments that are not covered by the disclosure requirements in the accounting guidance for

financial instruments, such as pension liabilities, at their carrying amounts in accordance with GAAP on our consolidated fair

value balance sheets. We believe these items do not have a significant impact on our overall fair value results. Other nonfinancial assets and liabilities on our GAAP consolidated balance sheets represent deferrals of costs and revenues that are

amortized in accordance with GAAP, such as deferred debt issuance costs and deferred fees. Cash receipts and payments

307 Freddie Mac
related to these items are generally recognized in the fair value of net assets when received or paid, with no basis reflected on

our fair value balance sheets.

Valuation Techniques for Assets and Liabilities Not Measured at Fair Value in Our Consolidated Balance Sheets, but

for Which the Fair Value is Disclosed

The following is a description of the valuation techniques we use for items measured at fair value either only at

inception or only on our fair value balance sheet, the significant inputs used in those techniques (if applicable), and our basis

for classifying the measurements as Level 1, Level 2, or Level 3 of the valuation hierarchy. Each technique discussed below

may not be used in a given reporting period, depending on the composition of our assets and liabilities measured at fair value

and relevant market activity during that period.

Cash and Cash Equivalents (including Restricted Cash and Cash Equivalents)

Cash and cash equivalents (including restricted cash and cash equivalents) largely consist of highly liquid investment

securities with an original maturity of three months or less used for cash management purposes, as well as cash held at

financial institutions and cash collateral posted by our derivative counterparties. Given that these assets are short-term in

nature with limited market value volatility, the carrying amount on our GAAP consolidated balance sheets is deemed to be a

reasonable approximation of fair value. Cash and restricted cash are classified as Level 1. Cash equivalents (including

restricted cash equivalents) are primarily classified as Level 2 because we use observable inputs other than quoted prices in

active markets for identical assets to determine the fair value measurement. However, cash equivalents (including restricted

cash equivalents) for which we can obtain quoted prices in active markets for identical assets are classified as Level 1.

Federal Funds Sold and Securities Purchased Under Agreements to Resell

Federal funds sold and securities purchased under agreements to resell principally consist of short-term contractual

agreements such as reverse repurchase agreements involving Treasury and agency securities and federal funds sold. Given

that these assets are short-term in nature, the carrying amount on our GAAP consolidated balance sheets is deemed to be a

reasonable approximation of fair value. Federal funds sold and securities purchased under agreements to resell are classified

as Level 2 because these assets have observable market pricing, but quoted prices for identical assets are not available.

Mortgage Loans

Single-family and certain multifamily mortgage loans are classified as held-for-investment and recorded at amortized

cost. Other multifamily mortgage loans that are held for investment are recorded at the fair value of the underlying collateral

upon impairment. Multifamily held-for-sale mortgage loans are recorded at fair value due to the election of the fair value

option.

Single-Family Loans

Determination of Principal Market

In determining the fair value of single-family mortgage loans, valuation outcomes can vary widely based on

management judgments and decisions used in determining: (a) the principal market; (b) modeling assumptions, including

default, severity, home prices, and risk premiums; and (c) inputs used to determine variables including risk premiums, credit

costs, security pricing, and implied management and guarantee fees. Our principal markets include the GSE securitization

market and the whole loan market. To determine the principal market, we considered the market with the greatest volume

and level of activity and our ability to access that market. In the absence of a market with active trading, we determined the

market that would maximize the amount we would receive upon sale. During 2012, we determined that the principal market

is the whole loan market for loans that are four or more months delinquent, loans that are in foreclosure, loans that have

completed a HAMP loan modification, and loans that have completed a non-HAMP loan modification but have not been

current for at least 12 consecutive months. The total UPB of loans where the whole loan market is the principal market was

approximately $110.0 billion as of December 31, 2012. We determined that the principal market for all other loans,

regardless of whether the loan is currently securitized or whether the loan is eligible for purchase under current underwriting

standards, is the GSE securitization market. The total UPB of loans where the GSE securitization market is the principal

market was approximately $1.5 trillion as of December 31, 2012.

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Whole Loan Market as Principal Market

Loans where we determine that the principal market is the whole loan market are valued using the median of external

sources. Under the median of external sources technique, prices for single-family loans are obtained from multiple dealers.

These dealers reference market activity for deeply delinquent and modified loans, where available, and use internal models

and their judgment to determine default rates, severity rates, home prices, and risk premiums. Single-family mortgage loans

valued using this technique are classified as Level 3 due to the low volume and level of activity in this market.

GSE Securitization Market as Principal Market

Loans where we determine that the principal market is the GSE securitization market are valued using the build-up

technique. Under the build-up technique, the fair value of single-family mortgage loans is based on the estimate of the price

we would receive if we were to securitize the loans. These loans are valued by starting with benchmark security pricing for

actively traded mortgage-related securities with similar characteristics; adding in the value of our management and guarantee

fee, which is the compensation we receive for performing our management and guarantee activities; and subtracting the value

of the credit obligation related to performing our guarantee.

The security price is based on benchmark security pricing for similar actively traded mortgage-related securities,

adjusted as necessary based on security characteristics. This security pricing process is consistent with our approach for

valuing similar securities retained in our investment portfolio or issued as debt to third parties. See “Valuation Techniques

for Assets and Liabilities Measured at Fair Value in Our Consolidated Balance Sheets — Investments in Securities.”

The management and guarantee fee is valued by estimating the present value of the additional cash flows related to our

management and guarantee fee. The management and guarantee fees for the majority of our loans are valued using thirdparty dealer prices on hypothetical interest-only securities based on collateral characteristics from our single-family credit

guarantee portfolio. For loans where third-party market data is not readily available, we use a discounted cash flow approach,

leveraging the dealer prices received for the majority of our loans and including only those cash flows related to our

management and guarantee fee.

The credit obligation related to performing our guarantee is valued by estimating the fair value of the related credit and

other costs (such as general and administrative expenses) and benefits (such as credit enhancements) inherent in our

guarantee obligation. For loans that qualify for purchase under current underwriting standards, we use the delivery and

guarantee fees that we charge under our current market pricing as a market observation. For loans that do not qualify for

purchase based on current underwriting standards, we use our internal credit models, which incorporate factors such as loan

characteristics, loan performance status information, expected losses, and risk premiums without further adjustment.

Single-family mortgage loans that qualify for purchase under current underwriting standards are classified as Level 2 as

the significant inputs used for the valuation of these loans, such as security pricing, our externally published credit pricing

matrices, and third-party prices used in valuing the management and guarantee fee, are observable, while the unobservable

inputs, such as general and administrative expenses and credit enhancements, are not significant to the fair value

measurement. Single-family mortgage loans that do not qualify for purchase under current underwriting standards are

classified as Level 3 as the credit cost is based on our internal credit models which use unobservable inputs that are

significant to the fair value measurement.

HARP Loans

For loans that have been refinanced under HARP, we value our guarantee obligation using the delivery and guarantee

fees currently charged by us under that initiative. HARP loans valued using this technique are classified as Level 2, as the

fees charged by us are observable. If, subsequent to delivery, the refinanced loan no longer qualifies for purchase based on

current underwriting standards (such as becoming past due or being modified), the fair value of the guarantee obligation is

then measured using: (a) our internal credit models; or (b) the median of external sources, if the loan’s principal market has

changed to the whole loan market. HARP loans valued using either of these techniques are classified as Level 3 as significant

inputs are unobservable. The majority of our HARP loans are classified as Level 2.

The total compensation that we receive for the delivery of a HARP loan reflects the pricing that we are willing to offer

because HARP is a part of a broader government program intended to provide assistance to homeowners and prevent

foreclosures. When HARP ends, the beneficial pricing afforded to HARP loans will no longer be reflected in our delivery

and guarantee fee pricing structure. If these benefits were not reflected in the pricing for these loans, the fair value of our

309 Freddie Mac
mortgage loans would have decreased by $11.2 billion as of December 31, 2012. The total fair value of the loans in our

portfolio that reflects the pricing afforded to HARP loans as of December 31, 2012 as presented in our consolidated fair

value balance sheets is $153.1 billion.

Multifamily Loans

For a discussion of the techniques used to determine the fair value of held-for-sale and impaired held-for-investment

multifamily mortgage loans, see “Valuation Techniques for Assets and Liabilities Measured at Fair Value in Our

Consolidated Balance Sheets — Mortgage Loans, Held-for-Sale” and “— Mortgage Loans, Held-for-Investment,”

respectively. Non-impaired multifamily mortgage loans are valued using the same technique as held-for-sale multifamily

mortgage loans.

Other Assets

Most of our other assets, such as property and equipment, are not financial instruments required to be valued at fair

value under the accounting guidance for disclosures about the fair value of financial instruments. For most of these nonfinancial instruments in other assets, we use the carrying amounts from our GAAP consolidated balance sheets as the

reported values on our consolidated fair value balance sheets, without any adjustment. These assets represent an insignificant

portion of our GAAP consolidated balance sheets.

We adjust the GAAP-basis deferred taxes reflected on our consolidated fair value balance sheets to include estimated

income taxes on the difference between our consolidated fair value balance sheets net assets, including deferred taxes from

our GAAP consolidated balance sheets, and our GAAP consolidated balance sheets total equity (deficit). To the extent the

adjusted deferred taxes are a net asset, this amount is included in other assets. In addition, if our net deferred tax assets on our

consolidated fair value balance sheets, calculated as described above, exceed our net deferred tax assets on our GAAP

consolidated balance sheets that have been reduced by a valuation allowance, our net deferred tax assets on our consolidated

fair value balance sheets are limited to the amount of our net deferred tax assets on our GAAP consolidated balance sheets. If

the adjusted deferred taxes are a net liability, this amount is included in other liabilities.

Accrued interest receivable is one of the components included within other assets on our consolidated fair value balance

sheets. On our GAAP consolidated balance sheets, we reverse accrued but uncollected interest income when a loan is placed

on non-accrual status. There is no such reversal performed for the fair value of accrued interest receivable disclosed on our

consolidated fair value balance sheets. Rather, we include in our fair value disclosure the amount we deem to be collectible.

As a result, there is a difference between the accrued interest receivable GAAP-basis carrying amount and its fair value

disclosed on our consolidated fair value balance sheets.

Other assets are classified primarily as Level 2 or Level 3 depending on whether the valuation technique uses

unobservable inputs that are significant to the fair value measurement.

Total Debt, Net

Total debt, net represents debt securities of consolidated trusts held by third parties and other debt that we issued to

finance our assets. On our consolidated GAAP balance sheets, total debt, net, excluding debt securities for which the fair

value option has been elected, is reported at amortized cost, which is net of deferred items, including premiums, discounts,

and hedging-related basis adjustments.

For debt securities of consolidated trusts, the valuation techniques we use are similar to the techniques we use to value

our investments in agency securities for GAAP purposes. See “Valuation Techniques for Assets and Liabilities Measured at

Fair Value in Our Consolidated Balance Sheets — Investments in Securities — Mortgage-Related Securities — Agency

Securities” for additional information regarding the valuation techniques we use.

Other debt includes short-term zero-coupon discount notes, callable debt, and non-callable debt. Short-term zero-coupon

discount notes are valued using a yield analysis technique. Under this technique, the debt instruments are valued using

published yield matrices which are based on the days to maturity of the debt and converted into a price. Significant inputs

used in this technique are the published yield matrices. Short-term zero-coupon discount notes are classified as Level 2 as the

significant inputs used are observable in active markets. Other debt securities, including both callable and non-callable debt,

are valued using a single external source or median of external sources. These debt securities generally have observable

310 Freddie Mac
market pricing and are classified as Level 2. However, certain other debt securities are classified as Level 3 when there is a

low volume or level of activity in the market for those types of debt securities.

Total debt, net for which we have elected the fair value option includes certain debt securities of consolidated trusts held

by third parties, foreign-currency denominated debt and certain other debt. We report these items at fair value on our GAAP

consolidated balance sheets. See “Valuation Techniques for Assets and Liabilities Measured at Fair Value in Our

Consolidated Balance Sheets — Debt Securities of Consolidated Trusts Held by Third Parties, at Fair Value” and “— Other

Debt, at Fair Value “ for additional information.

Other Liabilities

Other liabilities consist of accrued interest payable on debt securities, the guarantee obligation for guarantees issued to

unconsolidated entities, the reserve for guarantee losses for guarantees issued to unconsolidated entities, servicer advanced

interest payable and certain other servicer liabilities, accounts payable and accrued expenses, payables related to securities,

and other miscellaneous liabilities. We believe the carrying amount of these liabilities is a reasonable approximation of their

fair value, except for the guarantee obligation for guarantees issued to unconsolidated entities. The technique for estimating

the fair value of our guarantee obligation is described in the “Mortgage Loans — Single-Family Loans” section above.

As discussed in “Other Assets,” other liabilities may include a deferred tax liability adjusted for fair value balance sheet

purposes.

Other liabilities are classified primarily as Level 2 or Level 3 depending on whether the valuation technique uses

unobservable inputs that are significant to the fair value measurement.

Net Assets Attributable to Senior Preferred Stockholders

Our senior preferred stock held by Treasury in connection with the Purchase Agreement is recorded at the stated

liquidation preference for purposes of the consolidated fair value balance sheets, which is the same as the carrying value in

our GAAP consolidated balance sheets, and does not reflect fair value. As the senior preferred stock is restricted as to its

redemption, we consider the liquidation preference to be the most appropriate measure for purposes of the consolidated fair

value balance sheets. Our senior preferred stock is classified as Level 3 because the valuation is based on unobservable

inputs.

Net Assets Attributable to Preferred Stockholders

Preferred stock is valued using a market-based approach incorporating quoted dealer prices. These securities have

observable market pricing and are classified as Level 2.

Net Assets Attributable to Common Stockholders

Net assets attributable to common stockholders is equal to the difference between the fair value of total assets and total

liabilities reported on our consolidated fair value balance sheets, less the value of net assets attributable to senior preferred

stockholders and the fair value attributable to preferred stockholders. Our net assets attributable to common stockholders is

classified as Level 3 because the valuation is based on unobservable inputs.

Fair Value Option

We elected the fair value option for certain types of investments in securities, multifamily held-for-sale mortgage loans,

and certain debt.

Investments in Securities

We elected the fair value option for certain mortgage-related securities to better reflect the natural offset these securities

provide to fair value changes recorded historically on our guarantee asset at the time of our election. In addition, upon

adoption of the accounting guidance for the fair value option, we elected this option for securities within the scope of the

accounting guidance for investments in beneficial interests in securitized financial assets to better reflect any valuation

changes that would occur subsequent to impairment write-downs previously recorded on these instruments. Related interest

income continues to be reported as interest income in our consolidated statements of comprehensive income. See “NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities” for additional information about

the measurement and recognition of interest income on investments in securities. See “NOTE 7: INVESTMENTS IN

311 Freddie Mac
SECURITIES” for additional information regarding the net unrealized gains (losses) on trading securities, which include

gains (losses) for other items that are not selected for the fair value option.

Multifamily Held-For-Sale Mortgage Loans

We elected the fair value option for multifamily mortgage loans that were purchased for securitization. These

multifamily mortgage loans are classified as held-for-sale mortgage loans in our consolidated balance sheets to reflect our

intent to sell in the future. Related interest income continues to be reported as interest income in our consolidated statements

of comprehensive income. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Mortgage Loans”

for additional information about the measurement and recognition of interest income on our mortgage loans.

Debt Securities of Consolidated Trusts Held by Third Parties

We elected the fair value option for certain debt securities of consolidated trusts held by third parties. These consist of

certain multifamily K certificates. We elected the fair value option on these debt instruments as they contain embedded

derivatives that require bifurcation. Fair value changes for debt securities of consolidated trusts held by third parties are

recorded in gains (losses) on debt recorded at fair value in our consolidated statements of comprehensive income. Related

interest expense continues to be reported as interest expense in our consolidated statements of comprehensive income. See

“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Debt Securities Issued” for additional

information about the measurement and recognition of interest expense on debt securities issued.

Other Debt

We elected the fair value option for foreign-currency denominated debt and certain other debt securities. In the case of

foreign-currency denominated debt, we have entered into derivative transactions that effectively convert these instruments to

U.S. dollar denominated floating rate instruments. We elected the fair value option on these debt instruments to better reflect

the economic offset that naturally results from the debt due to changes in interest rates. We also elected the fair value option

for certain other debt securities containing potential embedded derivatives that required bifurcation. Fair value changes for

debt for which we have elected the fair value option are recorded in gains (losses) on debt recorded at fair value in our

consolidated statements of comprehensive income. Related interest expense continues to be reported as interest expense in

our consolidated statements of comprehensive income. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES — Debt Securities Issued” for additional information about the measurement and recognition of interest expense

on debt securities issued.

The table below presents the fair value and UPB related to certain items for which we have elected the fair value option

at December 31, 2012 and 2011.

Table 16.7 — Difference between Fair Value and Unpaid Principal Balance for Certain Financial Instruments with

Fair Value Option Elected

As of December 31,

2012 2011

Multifamily

Held-For-Sale

Mortgage Loans

Other Debt -

Long Term

Multifamily

Held-For-Sale

Mortgage Loans

Other Debt -

Long Term

(in millions)

Fair value ...................................................... $14,238 $2,187 $9,710 $2,765

Unpaid principal balance ........................................... 13,972 2,167 9,515 2,722

Difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 266 $ 20 $ 195 $ 43

Changes in Fair Value under the Fair Value Option Election

The table below presents fair value gains and losses, including changes attributable to instrument-specific credit risk, for

debt securities for which we have elected the fair value option for the years ended December 31, 2012, 2011, and 2010.

For multifamily held-for-sale mortgage loans, we recorded $1.0 billion, $0.8 billion, and $0 billion from the change in

fair value in other income in our consolidated statements of comprehensive income for the years ended 2012, 2011, and

2010, respectively. Multifamily held-for-sale mortgage loans are not included in the table below because we determined that

the changes in fair value attributable to instrument-specific credit risk were not material given that these loans were generally

originated within the past 12 months and have not seen a change in their credit characteristics.

312 Freddie Mac
Table 16.8 — Composition of Changes in Fair Value for Debt Securities with Fair Value Option Elected

Other Debt Gains (Losses)(1)

For The Year Ended December 31,

2012 2011 2010

(in millions)

Changes in instrument-specific credit risk ..................................................... $(24) $ 2 $ (3)

Other changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 89 583

Fair value gains (losses), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16 $91 $580

(1) Fair value changes for debt securities with the fair value option elected are recorded in gains (losses) on debt recorded at fair value in our consolidated

statements of comprehensive income.

For other debt recorded at fair value, the change in fair value attributable to changes in credit risk was primarily

determined by comparing the total change in fair value of the debt to the total change in fair value of the interest-rate and

foreign-currency derivatives used to hedge the debt. Any difference in the fair value change of the debt compared to the fair

value change in the derivatives is attributed to credit risk.

NOTE 17: LEGAL CONTINGENCIES

We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in the ordinary

course of business including, among other things, contractual disputes, personal injury claims, employment-related litigation

and other legal proceedings incidental to our business. We are frequently involved, directly or indirectly, in litigation

involving mortgage foreclosures. From time to time, we are also involved in proceedings arising from our termination of a

seller/servicer’s eligibility to sell mortgages to, and/or service mortgages for, us. In these cases, the former seller/servicer

sometimes seeks damages against us for wrongful termination under a variety of legal theories. In addition, we are

sometimes sued in connection with the origination or servicing of mortgages. These suits typically involve claims alleging

wrongful actions of seller/servicers. Our contracts with our seller/servicers generally provide for indemnification against

liability arising from their wrongful actions with respect to mortgages sold to or serviced for Freddie Mac.

Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. In

accordance with the accounting guidance for contingencies, we reserve for litigation claims and assessments asserted or

threatened against us when a loss is probable (as defined in such guidance) and the amount of the loss can be reasonably

estimated.

During 2012, we paid approximately $6 million for the advancement of legal fees and expenses of former officers and

directors pursuant to our indemnification obligations to them. These fees and expenses related to certain of the matters

described below. This figure does not include certain administrative support costs and certain costs related to document

production and storage.

Putative Securities Class Action Lawsuits

Ohio Public Employees Retirement System (“OPERS”) vs. Freddie Mac, Syron, et al. This putative securities class

action lawsuit was filed against Freddie Mac and certain former officers on January 18, 2008 in the U.S. District Court for

the Northern District of Ohio purportedly on behalf of a class of purchasers of Freddie Mac stock from August 1, 2006

through November 20, 2007. The plaintiff alleges that the defendants violated federal securities laws by making false and

misleading statements concerning our business, risk management and the procedures we put into place to protect the

company from problems in the mortgage industry. The plaintiff seeks unspecified damages and interest, and reasonable costs

and expenses, including attorney and expert fees. On April 10, 2008, the Court appointed OPERS as lead plaintiff and

approved its choice of counsel. On September 2, 2008, defendants filed motions to dismiss plaintiff’s amended complaint.

On November 7, 2008, the plaintiff filed a second amended complaint. On November 19, 2008, the Court granted FHFA’s

motion to intervene in its capacity as Conservator. On April 6, 2009, defendants moved to dismiss the second amended

complaint. On January 23, 2012, the Court denied defendants’ motions to dismiss. On March 28, 2012, the plaintiff filed its

third amended complaint, which included allegations based on a non-prosecution agreement entered into between Freddie

Mac and the SEC on December 15, 2011. On April 26, 2012, defendants filed motions to dismiss the third amended

complaint. The Court denied the motions on May 25, 2012. On August 17, 2012, plaintiff filed a motion to certify a class of

plaintiffs comprised of purchasers of Freddie Mac stock from August 1, 2006 through November 20, 2007, which Freddie

Mac has opposed. Discovery is ongoing.

313 Freddie Mac
At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect on our

business, financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible

loss or range of possible loss in the event of an adverse judgment in the foregoing matter due to the following factors, among

others: the inherent uncertainty of pre-trial litigation; and the fact that the Court has not yet ruled upon motions for class

certification or summary judgment. In particular, absent the certification of a class, the identification of a class period, and

the identification of the alleged statement or statements that survive dispositive motions, we cannot reasonably estimate any

possible loss or range of possible loss.

Kuriakose vs. Freddie Mac, Syron, Piszel and Cook. Another putative class action lawsuit was filed against Freddie Mac

and certain former officers on August 15, 2008 in the U.S. District Court for the Southern District of New York for alleged

violations of federal securities laws purportedly on behalf of a class of purchasers of Freddie Mac stock from November 21,

2007 through August 5, 2008. The plaintiffs claimed that defendants made false and misleading statements about Freddie

Mac’s business that artificially inflated the price of Freddie Mac’s common stock, and sought unspecified damages, costs,

and attorneys’ fees. On February 6, 2009, the Court granted FHFA’s motion to intervene in its capacity as Conservator. On

May 19, 2009, plaintiffs filed an amended consolidated complaint, purportedly on behalf of a class of purchasers of Freddie

Mac stock from November 20, 2007 through September 7, 2008. Defendants filed motions to dismiss the complaint on

February 24, 2010. On March 30, 2011, the Court granted without prejudice the defendants’ motions to dismiss all claims,

and allowed the plaintiffs the option to file a new complaint, which they did on July 18, 2011. On October 13, 2011, the

defendants filed motions to dismiss the second amended consolidated complaint. On February 17, 2012, the plaintiffs served

a motion seeking leave to file a third amended consolidated complaint based on the non-prosecution agreement entered into

between Freddie Mac and the SEC on December 15, 2011. On September 24, 2012, the Court granted with prejudice

defendants’ motions to dismiss plaintiffs’ second amended complaint in its entirety, denied plaintiffs’ motion to file a third

amended complaint, and directed that the case be closed. Judgment was entered in favor of the defendants on September 27,

2012. On October 26, 2012, plaintiffs filed a notice of appeal in the U.S. Court of Appeals for the Second Circuit.

At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect on our

business, financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible

loss or range of possible loss in the event of an adverse judgment in the foregoing matter due to the following factors, among

others: the inherent uncertainty of pre-trial litigation in the event plaintiffs’ appeal is granted and the case is remanded to the

District Court; and the fact that the parties have not briefed and the District Court has not yet ruled upon motions for class

certification or summary judgment. In particular, absent the certification of a class, the identification of a class period, and

the identification of the alleged statement or statements that survive dispositive motions, we cannot reasonably estimate any

possible loss or range of possible loss.

Energy Lien Litigation

On July 14, 2010, the State of California filed a lawsuit against Freddie Mac, Fannie Mae, FHFA, and others in the

U.S. District Court for the Northern District of California, alleging that Freddie Mac and Fannie Mae committed unfair

business practices in violation of California law by advising seller/servicers that property liens arising from governmentsponsored energy initiatives such as California’s Property Assessed Clean Energy, or PACE, program cannot take priority

over a mortgage to be sold to Freddie Mac or Fannie Mae. The lawsuit contends that the PACE programs create liens

superior to such mortgages and that FHFA was engaged in rulemaking when it issued a directive to Freddie Mac and Fannie

Mae affirming that they could not purchase mortgages involving properties subject to PACE liens where those liens

purported to have priority over the mortgage lien. The lawsuit further alleges that, in doing so, FHFA violated the National

Environmental Policy Act, or NEPA, and the Administrative Procedure Act, or APA, by not following required rulemaking

procedures. The complaint seeks declaratory and injunctive relief, costs and such other relief as the court deems proper.

The County of Placer intervened in the lawsuit and, in addition, the lawsuit has been consolidated with two similar

complaints filed in the U.S. District Court for the Northern District of California against Freddie Mac, Fannie Mae, FHFA,

and others by the County of Sonoma and the City of Palm Desert. Freddie Mac, Fannie Mae, FHFA, and others were also

named as defendants in two other similar cases, one filed in the U.S. District Court for the Northern District of Florida by

Leon County and the Leon County Energy Improvement District, and the other filed in the U.S. District Court for the Eastern

District of New York by the Town of Babylon.

The cases filed in Florida and New York were dismissed, and appeals of these decisions have been denied by the U.S.

Courts of Appeals for the Eleventh and Second Circuits, respectively. The U.S. District Court for the Northern District of

California dismissed the claims against Freddie Mac on August 26, 2011, but allowed the NEPA and APA claims against

314 Freddie Mac
FHFA to go forward. During the course of the litigation, the U.S. District Court for the Northern District of California

entered a preliminary injunction requiring FHFA to provide a notice and comment period with regard to its directives to

Freddie Mac and Fannie Mae concerning energy liens. Accordingly, on January 26, 2012, FHFA issued an advance notice of

proposed rulemaking seeking comment on whether the restriction on purchasing mortgage loans secured by properties with

outstanding first-lien PACE obligations should be maintained. On August 9, 2012, the U.S. District Court for the Northern

District of California granted summary judgment against FHFA and found that FHFA had failed to comply with required

notice and comment procedures set forth in the APA in directing Freddie Mac and Fannie Mae concerning energy liens. On

October 16, 2012, the U.S. District Court for the Northern District of California entered judgment and directed that FHFA

complete the notice and comment process, and publish a Final Rule, no later than May 14, 2013. FHFA has appealed the

entry of summary judgment against it. While its appeal is pending, FHFA has undertaken the notice and comment process

and stated it will apprise the Court on February 27, 2013 whether it will be able to complete its review by the current

May 14, 2013 deadline.

At present, it is not possible for us to predict the probable outcome of this litigation or any potential effect on our

business, financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible

loss or range of possible loss in the event of an adverse judgment in this litigation due to the following factors, among others:

the inherent uncertainty of pre-trial litigation; and the fact that additional appeals may follow.

Related Third Party Litigation and Indemnification Requests

On December 16, 2011, the SEC announced that it had charged three former executives of Freddie Mac with securities

laws violations. These executives are former Chairman of the Board and Chief Executive Officer Richard F. Syron, former

Executive Vice President and Chief Business Officer Patricia L. Cook, and former Executive Vice President for the singlefamily guarantee business Donald J. Bisenius.

By letter dated October 17, 2008, Freddie Mac received formal notification of a putative class action securities lawsuit,

Mark vs. Goldman, Sachs & Co., J.P. Morgan Chase & Co., and Citigroup Global Markets Inc., filed on September 23,

2008, in the U.S. District Court for the Southern District of New York, regarding the company’s November 29, 2007 public

offering of $6 billion of 8.375% Fixed to Floating Rate Non-Cumulative Perpetual Preferred Stock.

On January 29, 2009, a plaintiff filed a putative class action lawsuit in the U.S. District Court for the Southern District

of New York styled Kreysar vs. Syron, et al. On April 30, 2009, the Court consolidated the Mark case with the Kreysar case,

and the plaintiffs filed a consolidated class action complaint on July 2, 2009. The consolidated complaint alleged that three

former Freddie Mac officers, certain underwriters and Freddie Mac’s auditor violated federal securities laws by making

material false and misleading statements in connection with the company’s November 29, 2007 public offering of $6 billion

of 8.375% Fixed to Floating Rate Non-Cumulative Perpetual Preferred Stock. The complaint further alleged that certain

defendants and others made additional false statements following the offering. The complaint named as defendants Syron,

former Executive Vice President and Chief Financial Officer Anthony S. Piszel, Cook, Goldman, Sachs & Co., JPMorgan

Securities Inc., Banc of America Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC,

Deutsche Bank Securities Inc., Morgan Stanley & Co. Incorporated, UBS Securities LLC and PricewaterhouseCoopers LLP.

After the Court dismissed, without prejudice, the plaintiffs’ consolidated complaint, amended consolidated complaint,

and second consolidated complaint, the plaintiffs filed a third amended consolidated complaint against

PricewaterhouseCoopers LLP, Syron and Piszel, omitting Cook and the underwriter defendants, on November 14, 2010. On

January 11, 2011, the Court granted the remaining defendants’ motion to dismiss the complaint with respect to

PricewaterhouseCoopers LLP, but denied the motion with respect to Syron and Piszel. On April 4, 2011, Piszel filed a

motion for partial judgment on the pleadings. The Court granted that motion on April 28, 2011. The plaintiffs moved for

class certification, which motion was ultimately denied by the Court. On May 31, 2012, the U.S. Court of Appeals for the

Second Circuit denied plaintiffs’ motion for leave to appeal the denial of class certification. In August 2012, plaintiffs sought

leave to file another motion for class certification, which request the Court denied on September 25, 2012.

Freddie Mac is not named as a defendant in the consolidated lawsuit, but the underwriters previously gave notice to

Freddie Mac of their intention to seek full indemnity and contribution under the underwriting agreement in this case,

including reimbursement of fees and disbursements of their legal counsel. At present, it is not possible for us to predict the

probable outcome of the lawsuit or any potential effect on our business, financial condition, liquidity, or results of operations.

In addition, we are unable to reasonably estimate the possible loss or range of possible loss in the event of an adverse

judgment in the foregoing matter due to the inherent uncertainty of litigation and the fact that plaintiffs may appeal the denial

315 Freddie Mac
of class certification. Absent the certification of a specified class, the identification of a class period, and the identification of

the alleged statement or statements that survive dispositive motions, we cannot reasonably estimate any possible loss or

range of possible loss.

On July 6, 2011, plaintiffs filed a lawsuit in the U.S. District Court for Massachusetts styled Liberty Mutual Insurance

Company, Peerless Insurance Company, Employers Insurance Company of Wausau, Safeco Corporation and Liberty Life

Assurance Company of Boston vs. Goldman, Sachs & Co. The complaint alleges that Goldman, Sachs & Co. made materially

misleading statements and omissions in connection with Freddie Mac’s November 29, 2007 public offering of $6 billion of

8.375% Fixed to Floating Rate Non-Cumulative Perpetual Preferred Stock. Freddie Mac is not named as a defendant in this

lawsuit.

In an amended complaint dated February 17, 2012, Western and Southern Life Insurance Company and others asserted

claims against GS Mortgage Securities Corp., Goldman Sachs Mortgage Company and Goldman Sachs & Co. in the Court of

Common Pleas, Hamilton County, Ohio. The amended complaint asserts, among other things, that “Goldman Sachs” is liable

to plaintiffs under the Ohio Securities Act for alleged misstatements and omissions in connection with $6 billion of preferred

stock issued by Freddie Mac on December 4, 2007. Freddie Mac is not named as a defendant in this lawsuit.

Lehman Bankruptcy

On September 15, 2008, Lehman filed a chapter 11 bankruptcy petition in the U.S. Bankruptcy Court for the Southern

District of New York. Thereafter, many of Lehman’s U.S. subsidiaries and affiliates also filed bankruptcy petitions

(collectively, the “Lehman Entities”). Freddie Mac had numerous relationships with the Lehman Entities which gave rise to

several claims. On September 22, 2009, Freddie Mac filed proofs of claim in the Lehman bankruptcies aggregating

approximately $2.1 billion. On December 6, 2011, the Court confirmed Lehman’s chapter 11 plan of liquidation, which

provides for the liquidation of the bankruptcy estate’s assets over the next three years. The plan leaves open for subsequent

determination whether our claim relating to losses incurred on short-term lending transactions with certain Lehman Entities

will be accorded priority status. The Lehman estate has set aside $1.2 billion to be available for payment of our claim in full

if, after litigation or settlement, this claim is allowed as a priority claim. In the event that this claim is not ultimately accorded

priority status, it will be treated as a senior unsecured claim under the plan, pursuant to which Freddie Mac would be entitled

to receive an estimated distribution of approximately 21% (or approximately $250 million) over the next three years. Freddie

Mac’s total $2.1 billion in claims also includes an $868 million claim relating to Lehman’s repurchase obligations. The plan

does not adjudge or allow this claim, and instead permits claims allowance proceedings to continue. To the extent this claim

is allowed, it will be treated as a general unsecured claim, for which Freddie Mac would ultimately receive a distribution of

approximately 19.9% of the allowed amount. Finally, the plan entitles Freddie Mac to a distribution of approximately 39%

(or about $6.4 million) payable over the next three years on our allowed claim exceeding $16 million relating to losses on

derivative transactions.

Taylor, Bean & Whitaker and Ocala Funding, LLC Bankruptcies

On August 24, 2009, TBW, which had been one of our single-family seller/servicers, filed for bankruptcy in the U.S.

Bankruptcy Court for the Middle District of Florida. In 2011, with the approval of FHFA, as Conservator, we entered into a

settlement with TBW and the creditors’ committee appointed in the TBW bankruptcy proceeding to represent the interests of

the unsecured trade creditors of TBW. The settlement was subsequently approved by the Court.

On July 10, 2012, Ocala Funding, LLC, or Ocala, which is a wholly owned subsidiary of TBW, filed for bankruptcy in

the U.S. Bankruptcy Court for the Middle District of Florida. In connection with the bankruptcy filing, Ocala also filed a

motion seeking an examination of and subsequent document discovery from Freddie Mac and FHFA, asserting that it has

“viable, legitimate and valuable causes of action against Freddie Mac” to recover approximately $805 million of funds that

were allegedly transferred from Ocala to Freddie Mac custodial accounts maintained by TBW, prior to the TBW bankruptcy.

In its filings, Ocala also indicated that it wishes to use the examination to obtain information relating to whether it may have

other claims against Freddie Mac relating to TBW’s fraudulent conduct prior to the TBW bankruptcy. Ocala intends to

distribute any monies recovered from Freddie Mac among its creditors, including various banks and the FDIC. The Court has

authorized discovery to proceed, subject to subsequent rulings or objections filed by Freddie Mac and FHFA to specific

document requests.

On or about May 14, 2010, certain underwriters at Lloyds, London and London Market Insurance Companies brought

an adversary proceeding in the U.S. Bankruptcy Court for the Middle District of Florida against TBW, Freddie Mac and

316 Freddie Mac
other parties seeking a declaration rescinding $90 million of mortgage bankers bonds providing fidelity and errors and

omissions insurance coverage. Several excess insurers on the bonds thereafter filed similar claims in that action. Freddie Mac

has filed a proof of loss under the bonds, but we are unable at this time to estimate our potential recovery, if any, thereunder.

Discovery is proceeding.

IRS Litigation

In 2010 and 2011, we received Statutory Notices from the IRS assessing a total of $3.0 billion of additional income

taxes and penalties for the 1998 to 2007 tax years. We filed a petition with the U.S. Tax Court on October 22, 2010 in

response to the Statutory Notices for the 1998 to 2005 tax years. We paid the tax assessed in the Statutory Notices for the

years 2006 to 2007 of $36 million in 2012 and will seek a refund through the administrative process, which could include

filing suit in District Court. A Tax Court trial date was scheduled for November 13, 2012; however, on June 7, 2012, the Tax

Court granted a joint motion for continuance in order for both parties to explore settlement options, suspending the trial date

until further notice. We have had ongoing discussions with the IRS regarding the litigation, and favorably resolved the

matters in dispute. As a result, the previously unrecognized tax benefits were reduced to zero in the fourth quarter of 2012.

For information on this matter, see “NOTE 12: INCOME TAXES — Unrecognized Tax Benefits — IRS Examinations and

Litigation.”

Lawsuits Involving Real Estate Transfer Taxes

Several lawsuits have been filed against Freddie Mac, Fannie Mae, and FHFA (as Conservator) in Michigan challenging

Freddie Mac and Fannie Mae’s statutory exemption from real estate transfer taxes imposed on the transfer of real property

for which Freddie Mac or Fannie Mae was the grantor or grantee. Similar lawsuits were filed in 20 other states and the

District of Columbia after we received the unfavorable ruling in Michigan on March 23, 2012, which is discussed below.

Plaintiffs in these cases are generally seeking a declaration that Freddie Mac and Fannie Mae are not exempt from transfer

taxes, damages for unpaid transfer taxes, as well as other items, which may include penalties, interest, liquidated penalties,

pre-judgment interest, costs and attorneys’ fees. (Several of these lawsuits were recently resolved in our favor.) We are also a

defendant in a second similar lawsuit in the District of Columbia. This lawsuit was dismissed with prejudice in August 2012,

but that ruling has been appealed to the U.S. Court of Appeals.

On June 20, 2011, Oakland County (Michigan) and the Oakland County Treasurer filed a lawsuit against Freddie Mac

and Fannie Mae in the U.S. District Court for the Eastern District of Michigan alleging that the enterprises failed to pay real

estate transfer taxes on transfers of real property in Oakland County where the enterprises were the grantors. FHFA later

intervened as Conservator for Freddie Mac and Fannie Mae. On November 10, 2011, Genesee County (Michigan) and the

Genesee County Treasurer filed a class action lawsuit in the same court on behalf of itself and the other 82 Michigan counties

raising similar claims against FHFA (as Conservator), Freddie Mac, and Fannie Mae. The Court later certified the class, with

two Michigan counties opting out. The Michigan Department of Attorney General and the Michigan Department of Treasury

intervened in both actions against the defendants. In both actions, FHFA, Freddie Mac and Fannie Mae asserted that they

were not liable for the transfer taxes based on federal statutory tax exemptions applicable to each. On March 23, 2012, the

Court granted summary judgment against FHFA (as Conservator), Freddie Mac, and Fannie Mae in both actions, determining

that the statutory exemptions did not exempt them from Michigan’s state and county transfer tax. The plaintiffs in both cases

subsequently filed amended complaints to cover purportedly taxable transactions where Freddie Mac and Fannie Mae

received property as grantees through a Michigan Sheriff’s deed or a deed in lieu of foreclosure. FHFA (as Conservator),

Freddie Mac, and Fannie Mae filed an appeal to the U.S. Court of Appeals for the Sixth Circuit, and the District Court has

stayed the actions pending resolution of the appeal. The District Court has not yet addressed the amount of damages the

plaintiffs contend are owed in either case.

On or about June 22, 2011, Curtis Hertel (individually and as Register of Deeds of Ingham County, Michigan) filed suit

in Michigan state court against Freddie Mac, Fannie Mae and others alleging, among other things, that the defendants failed

to pay real estate transfer taxes on transfers of real property in Ingham County where the enterprises were the grantors and

grantees. FHFA later intervened as Conservator for Freddie Mac and Fannie Mae, and the Michigan Department of Attorney

General and the Michigan Department of Treasury intervened against the defendants. The defendants removed the case to the

U.S. District Court for the Western District of Michigan and then filed motions to dismiss and/or for summary judgment. The

Court dismissed plaintiff Hertel from the case concluding that Hertel was not a proper plaintiff. On September 18, 2012, the

Court ruled in favor of Freddie Mac, Fannie Mae and FHFA on their motion to dismiss and/or for summary judgment as to

the claims asserted by the Michigan Department of Attorney General and the Michigan Department of Treasury, finding

Freddie Mac and Fannie Mae exempt from the Michigan transfer taxes.

317 Freddie Mac
At present, it is not possible for us to predict the probable outcome of these lawsuits or any potential effect on our

business, financial condition, liquidity, or results of operation. In addition, we are unable to reasonably estimate the possible

loss or range of possible loss with respect to these lawsuits due to the following factors, among others: (a) none of the

plaintiffs have demanded a stated amount of damages they believe are due; (b) with respect to the Oakland County and

Genesee County lawsuits, the scope of permissible claims has not yet been determined and discovery regarding the amount

of damages is still in the early stages; and (c) with respect to the other lawsuits, discovery regarding the amount of damages

has not yet begun.

Mortgage Guaranty Insurance Corporation

Freddie Mac and Mortgage Guaranty Insurance Corporation, or MGIC, were involved in litigation concerning our

current and future claims under certain of MGIC’s pool insurance policies, as discussed below. In the litigation, Freddie Mac

contended that the policies had approximately $0.5 billion more in coverage than MGIC contended was provided for under

the policies.

On May 16, 2012, MGIC filed a lawsuit against Freddie Mac and FHFA in the U.S. District Court for the Eastern

District of Wisconsin seeking, among other items, a declaration that its interpretation of the policies is correct or, in the

alternative, seeking reformation of the policies consistent with MGIC’s interpretation. On May 17, 2012, Freddie Mac filed a

lawsuit against MGIC in the U.S. District Court for the Eastern District of Virginia seeking, among other items, a declaratory

judgment that its interpretation of the policies is correct and that, pursuant to the doctrines of waiver, estoppel, and/or laches,

MGIC may not take a contrary position. Freddie Mac and MGIC each subsequently filed motions to dismiss, stay, or transfer

the other party’s lawsuit.

In December 2012, Freddie Mac entered into a settlement agreement with MGIC under which MGIC agreed, among

other things, to pay Freddie Mac $267.5 million in satisfaction of Freddie Mac’s current and future claims under the pool

policies at issue in the pending litigation. Under the terms of the settlement, MGIC paid Freddie Mac $100 million in

December 2012 with the remaining $167.5 million to be paid in equal monthly installments over four years beginning on

January 2, 2013. The Virginia and Wisconsin actions have been dismissed by the parties without prejudice.

NOTE 18: SELECTED FINANCIAL STATEMENT LINE ITEMS

Gains (losses) on mortgage loans recorded at fair value is a significant component of other income. For the amounts

recorded to gains (losses) on mortgage loans recorded at fair value during 2012, 2011, and 2010, see “Table 13.2 — Segment

Earnings and Reconciliation to GAAP Results.”

The table below presents the significant components of other assets and other liabilities on our consolidated balance

sheets.

Table 18.1 — Significant Components of Other Assets and Other Liabilities on Our Consolidated Balance Sheets

December 31, 2012 December 31, 2011

(in millions)

Other assets:

Guarantee asset .................................................................. $ 1,029 $ 752

Accounts and other receivables....................................................... 10,091 8,350

All other ....................................................................... 2,645 1,411

Total other assets ................................................................. $13,765 $10,513

Other liabilities:

Guarantee obligation .............................................................. $ 1,004 $ 787

Servicer liabilities ................................................................ 3,304 3,600

Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984 845

All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 807 814

Total other liabilities .............................................................. $ 6,099 $ 6,046

END OF CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES

318 Freddie Mac
QUARTERLY SELECTED FINANCIAL DATA

(UNAUDITED)

2012

1Q 2Q 3Q 4Q Full-Year

(in millions, except share-related amounts)

Net interest income ..................................................... $ 4,500 $ 4,386 $ 4,269 $ 4,456 $ 17,611

(Provision) benefit for credit losses .......................................... (1,825) (155) (610) 700 (1,890)

Non-interest income (loss) ................................................ (1,516) (751) (560) (1,256) (4,083)

Non-interest expense .................................................... (596) (536) (473) (588) (2,193)

Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 76 302 1,145 1,537

Net income attributable to Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 577 $ 3,020 $ 2,928 $ 4,457 $ 10,982

Net income (loss) attributable to common stockholders(1) .......................... $(1,227) $ 1,212 $ 1,119 $(3,178) $ (2,074)

Net income (loss) per common share – basic and diluted(2) ......................... $ (0.38) $ 0.37 $ 0.35 $ (0.98) $ (0.64)

2011

1Q 2Q 3Q 4Q Full-Year

(in millions, except share-related amounts)

Net interest income ..................................................... $ 4,540 $ 4,561 $ 4,613 $ 4,683 $ 18,397

Provision for credit losses ................................................ (1,989) (2,529) (3,606) (2,578) (10,702)

Non-interest income (loss) ................................................ (1,252) (3,857) (4,798) (971) (10,878)

Non-interest expense .................................................... (697) (546) (687) (553) (2,483)

Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 232 56 38 400

Net income (loss) attributable to Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 676 $(2,139) $(4,422) $ 619 $ (5,266)

Net loss attributable to common stockholders .................................. $ (929) $(3,756) $(6,040) $(1,039) $(11,764)

Net loss per common share – basic and diluted(2) ................................ $ (0.29) $ (1.16) $ (1.86) $ (0.32) $ (3.63)

(1) For a discussion of how the change in the manner in which the senior preferred stock dividend is determined affects net income (loss) attributable to

common stockholders beginning in the fourth quarter of 2012, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Earnings

Per Common Share.”

(2) Earnings (loss) per common share is computed independently for each of the quarters presented. Due to the use of weighted average common shares

outstanding when calculating earnings (loss) per share, the sum of the four quarters may not equal the full-year amount. Earnings (loss) per common

share amounts may not recalculate using the amounts shown in this table due to rounding.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the

information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed,

summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is

accumulated and communicated to management of the company, including the company’s Chief Executive Officer and Chief

Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing our disclosure

controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can

provide only reasonable assurance of achieving the desired control objectives, and we must apply judgment in implementing

possible controls and procedures.

Management, including the company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of

the effectiveness of our disclosure controls and procedures as of December 31, 2012. As a result of management’s

evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures

were not effective as of December 31, 2012, at a reasonable level of assurance, because we have not been able to update our

disclosure controls and procedures to provide reasonable assurance that information known by FHFA on an ongoing basis is

communicated from FHFA to Freddie Mac’s management in a manner that allows for timely decisions regarding our

required disclosure. Based on discussions with FHFA and the structural nature of this continuing weakness, we believe it is

likely that we will not remediate this material weakness while we are under conservatorship. As discussed below, we

consider this situation to be a material weakness in our internal control over financial reporting.

319 Freddie Mac
Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such

term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed by, or under

the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by the Board of Directors,

management and other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the

preparation of financial statements for external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It

is a process that involves human diligence and compliance and is, therefore, subject to lapses in judgment and breakdowns

resulting from human error. It also can be circumvented by collusion or improper management override. Because of its

limitations, there is a risk that internal control over financial reporting may not prevent or detect, on a timely basis, errors that

could cause a material misstatement of the financial statements.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making our

assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or

COSO, in Internal Control — Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies,

in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the

company’s annual or interim financial statements will not be prevented or detected on a timely basis by a company’s internal

controls. Based on our assessment, we identified a material weakness related to our inability to update our disclosure controls

and procedures in a manner that adequately ensures the accumulation and communication to management of information

known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including disclosures

affecting our consolidated financial statements.

We have been under conservatorship of FHFA since September 6, 2008. FHFA is an independent agency that currently

functions as both our Conservator and our regulator with respect to our safety, soundness and mission. Because we are in

conservatorship, some of the information that we may need to meet our disclosure obligations may be solely within the

knowledge of FHFA. As our Conservator, FHFA has the power to take actions without our knowledge that could be material

to investors and could significantly affect our financial performance. Although we and FHFA have attempted to design and

implement disclosure policies and procedures that would account for the conservatorship and accomplish the same objectives

as disclosure controls and procedures for a typical reporting company, there are inherent structural limitations on our ability

to design, implement, test or operate effective disclosure controls and procedures under the current circumstances. As our

Conservator and regulator, FHFA is limited in its ability to design and implement a complete set of disclosure controls and

procedures relating to us, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a regulated entity,

we are limited in our ability to design, implement, operate and test the controls and procedures for which FHFA is

responsible. For example, FHFA may formulate certain intentions with respect to the conduct of our business that, if known

to management, would require consideration for disclosure or reflection in our financial statements, but that FHFA, for

regulatory reasons, may be constrained from communicating to management. As a result, we have concluded that this control

deficiency constitutes a material weakness in our internal control over financial reporting.

Because of this material weakness, we have concluded that our internal control over financial reporting was not

effective as of December 31, 2012 based on the COSO criteria. PricewaterhouseCoopers LLP, an independent registered

public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2012 and

also determined that our internal control over financial reporting was not effective. PricewaterhouseCoopers LLP’s report

appears in “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM.”

Mitigating Actions Related to the Material Weakness in Internal Control Over Financial Reporting

As described under “Management’s Report on Internal Control Over Financial Reporting,” we have one material

weakness in internal control over financial reporting as of December 31, 2012 that we have not remediated.

Given the structural nature of the material weakness related to our inability to update our disclosure controls and

procedures in a manner that adequately ensures the accumulation and communication to management of information known

to FHFA that is needed to meet our disclosure obligations under the federal securities laws, we believe it is likely that we will

not remediate this material weakness while we are under conservatorship. However, both we and FHFA have continued to

engage in activities and employ procedures and practices intended to permit accumulation and communication to

320 Freddie Mac
management of information needed to meet our disclosure obligations under the federal securities laws. These include the

following:

• FHFA has established the Office of Conservatorship Operations, which is intended to facilitate operation of the

company with the oversight of the Conservator.

• We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also

provide drafts of external press releases, statements and speeches to FHFA personnel for their review and comment

prior to release.

• FHFA personnel, including senior officials, review our SEC filings prior to filing, including this Form 10-K, and

engage in discussions regarding issues associated with the information contained in those filings. Prior to filing this

Form 10-K, FHFA provided us with a written acknowledgement that it had reviewed the Form 10-K, was not aware

of any material misstatements or omissions in the Form 10-K, and had no objection to our filing the Form 10-K.

• The Acting Director of FHFA is in frequent communication with our Chief Executive Officer, typically meeting (in

person or by phone) on a weekly basis.

• FHFA representatives hold frequent meetings, typically weekly, with various groups within the company to enhance

the flow of information and to provide oversight on a variety of matters, including accounting, capital markets

management, external communications, and legal matters.

• Senior officials within FHFA’s accounting group meet frequently, typically weekly, with our senior financial

executives regarding our accounting policies, practices, and procedures.

In view of our mitigating actions related to this material weakness, we believe that our consolidated financial statements

for the year ended December 31, 2012 have been prepared in conformity with GAAP.

Changes in Internal Control Over Financial Reporting During the Quarter Ended December 31, 2012

We evaluated the changes in our internal control over financial reporting that occurred during the quarter ended

December 31, 2012 and concluded that the following matters have materially affected, or are reasonably likely to materially

affect, our internal control over financial reporting.

On December 18, 2012, Ross J. Kari, Executive Vice President — Chief Financial Officer, informed us of his intent to

retire in the second half of 2013.

Based on our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011,

we identified a material weakness related to our inability to effectively manage information technology changes and maintain

adequate controls over information security monitoring, which resulted from increased levels of employee turnover. We

implemented certain activities to remediate this material weakness, including updating policies and procedures to document

control processes, developing cross-training programs within this area, providing additional training to information

technology individuals, reviewing staffing requirements, hiring of additional personnel to fill key positions, and enhancing

the monitoring of control execution in areas affected by employee turnover. Throughout 2012, these activities, including the

results of our control testing, had the cumulative effect of remediating the material weakness as of December 31, 2012.

321 Freddie Mac
ITEM 9B. OTHER INFORMATION

Election of Directors

Upon the appointment of FHFA as our Conservator on September 6, 2008, the Conservator immediately succeeded to

all rights, titles, powers and privileges of Freddie Mac, and of any stockholder, officer or director thereof, with respect to the

company and its assets, including, without limitation, the right of holders of our common stock to vote with respect to the

election of directors and any other matter for which stockholder approval is required or deemed advisable.

On February 26, 2013, the Conservator executed a written consent re-electing each of the then-current directors as

members of our Board of Directors, effective as of that date. The individuals elected as directors by the Conservator are

listed below.

Linda B. Bammann

Carolyn H. Byrd

Steven W. Kohlhagen

Donald H. Layton

Christopher S. Lynch

Nicolas P. Retsinas

Eugene B. Shanks, Jr.

Anthony A. Williams

The terms of the directors elected under the February 26, 2013 consent will continue until the date of the next annual

meeting of stockholders or the Conservator next elects directors by written consent, whichever occurs first.

2013 Target Total Direct Compensation

The Compensation Committee’s 2013 Target TDC recommendation for each Named Executive Officer who is a current

employee remains unchanged from 2012 Target TDC and was approved by FHFA. Each Named Executive Officer’s 2013

Target TDC will remain in effect on an annual basis unless modified by the Compensation Committee and FHFA.

The following table sets forth the components of compensation on an annual basis for each of our Named Executive

Officers who is a current employee.

Table 76 — 2013 Target TDC

Named Executive Officer Base Salary

Fixed

Deferred Salary

At-Risk

Deferred Salary Target TDC

Donald H. Layton .................................................. $600,000 $ — $ — $ 600,000

Ross J. Kari ...................................................... 675,000 1,530,000 945,000 3,150,000

Paul E. Mullings................................................... 412,500 658,500 459,000 1,530,000

Jerry Weiss ...................................................... 495,000 891,000 594,000 1,980,000

Paige H. Wisdom .................................................. 467,500 757,500 525,000 1,750,000

322 Freddie Mac
PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Background

On September 6, 2008, the Director of FHFA appointed FHFA as our Conservator. Upon its appointment as

Conservator, FHFA immediately succeeded to, among other things, the right of holders of our common stock to vote with

respect to the election of directors. As a result, stockholders no longer have the ability to recommend director nominees or

vote for the election of our directors. Accordingly, we will not solicit proxies, distribute a proxy statement to stockholders, or

hold an annual meeting of stockholders in 2013. Instead, the Conservator has elected directors by a written consent in lieu of

an annual meeting, as it has done in previous years.

Directors

On November 24, 2008, the Conservator reconstituted our Board of Directors and delegated certain powers to the Board

while reserving certain powers of approval to itself. See “Authority of the Board and Board Committees.” The Conservator

determined that the Board is to have a non-executive Chairman, and is to consist of a minimum of nine and not more than

13 directors, with the Chief Executive Officer being the only corporate officer serving as a member of the Board.

On February 26, 2013 the Conservator executed a written consent, effective as of that date, re-electing each of the thencurrent directors as a member of our Board of Directors. The terms of those directors will end: (a) on the date of the next

annual meeting of our stockholders; or (b) when the Conservator next elects directors by written consent, whichever occurs

first. Currently, we have eight directors. The Board is conducting a search for individuals qualified to fill the remaining seats

on the Board that are currently vacant.

Our Board seeks candidates for director who have achieved a high level of stature, success, and respect in their principal

occupations. Each of our current directors was selected as a candidate because of his or her character, judgment, experience,

and expertise. The qualifications of candidates also were evaluated in light of the requirement in our charter, as amended by

the Reform Act, that our Board must at all times have at least one individual from the homebuilding, mortgage lending and

real estate industries, and at least one person from an organization representing consumer or community interests or one

person who has demonstrated a career commitment to the provision of housing for low-income households. Consistent with

the examination guidance for corporate governance issued by FHFA, the factors considered also include the knowledge

directors would have, as a group, in the areas of business, finance, accounting, risk management, public policy, mortgage

lending, real estate, low-income housing, homebuilding, regulation of financial institutions, and any other areas that may be

relevant to our safe and sound operation. Additionally, in accordance with the guidance issued by FHFA, we considered

whether a candidate’s other commitments, including the number of other board memberships held by the candidate, would

permit the candidate to devote sufficient time to the candidate’s duties and responsibilities as a director. See “CERTAIN

RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE — Board Diversity” for

additional information concerning the Board’s consideration of diversity in identifying director nominees and candidates.

The following is a brief discussion of: the age and length of Board service of each director; each director’s experience,

qualifications, attributes, and/or skills that led to his or her selection as a director; and other biographical information about

our directors, as of February 26, 2013:

• Linda B. Bammann joined the Board in December 2008. She is 56 years old. She is an experienced finance executive

with in-depth knowledge of risk management gained from her previous employment and board memberships.

Ms. Bammann’s risk management experience enables her to contribute significantly to the Board’s oversight of our

enterprise risk management.

Ms. Bammann was Executive Vice President, Deputy Chief Risk Officer for JPMorgan Chase & Co. (JPMorgan

Chase) from July 2004 until her retirement in January 2005. Prior to that, Ms. Bammann held several positions with

Bank One Corporation beginning in 2000, including Executive Vice President and Chief Risk Management Officer

from 2001 until its acquisition by JPMorgan Chase in July 2004. Ms. Bammann also was a member of Bank One’s

executive planning group. From 1992 to 2000, Ms. Bammann was a Managing Director with UBS Warburg LLC and

predecessor firms. Ms. Bammann was a board member of the Risk Management Association, and chairperson of the

Loan Syndications and Trading Association. From August 2009 until May 2012, Ms. Bammann was a director of

Manulife Financial Corporation, and of The Manufacturers Life Insurance Company, a subsidiary of Manulife

Financial Corporation.

323 Freddie Mac
• Carolyn H. Byrd joined the Board in December 2008. She is 64 years old. She is an experienced finance executive

who has held a variety of leadership positions. She also has significant public company audit committee experience.

Ms. Byrd’s internal audit and public company audit committee experience enables her to support the Board’s

oversight of our internal control over financial reporting and compliance matters.

Ms. Byrd has served as Chairman and Chief Executive Officer of GlobalTech Financial, LLC, a financial services

company she founded, since 2000. From 1997 to 2000, Ms. Byrd was President of Coca-Cola Financial Corporation.

From 1977 to 1997, Ms. Byrd held a variety of domestic and international positions with The Coca-Cola Company,

including Chief of Internal Audits and Director of the Corporate Auditing Department. She is currently a director of

AFC Enterprises, Inc., where she is a member of the Audit Committee and the Corporate Governance and

Nominating Committee and of Regions Financial Corporation, where she is a member of the Audit Committee and

the Risk Committee. Ms. Byrd is a former member of the board of directors and audit committee member of Circuit

City Stores, Inc. and RARE Hospitality International, Inc., and she also served on the board of directors of St. Paul

Travelers Companies, Inc.

• Steven W. Kohlhagen joined the Board in February 2013. He is 65 years old. He is nationally recognized as a leading

financial expert with extensive knowledge of mortgage finance and the capital markets. He brings to the Board a

unique combination of senior executive leadership skills and a deep understanding of economics, modeling and

complex financial instruments.

Over the course of his career, Mr. Kohlhagen held senior executive positions at leading financial institutions. From

1992 to 2003 he worked at First Union National Bank (predecessor to Wachovia National Bank), last serving as

managing director of the Fixed Income Division. Mr. Kohlhagen served in senior roles at AIG Financial Products

from 1990 to 1992, Stamford Capital Group from 1987 to 1990, Bankers Trust Corporation from 1985 to 1987, and

Lehman Brothers, Inc. from 1983 to 1985. Mr. Kohlhagen’s public sector experience encompasses consulting work

for the Organization for Economic Cooperation and Development from 1980 to 1981, the United States Department

of the Treasury from 1976 to 1977, and the Federal Reserve Board in 1976. He was also senior staff economist for the

Council of Economic Advisors, White House Staff from 1978 to 1979.

Since 2006, Mr. Kohlhagen has been a director of AMETEK Inc., a global manufacturer of electronic instruments and

electromechanical devices, where he is a member of the Audit Committee. He is also a director of Abtech Holdings

Inc., a developer and manufacturer of environmental technologies, where he is a member of the Audit Committee,

and Reval Inc., a financial risk management consulting firm, where he is a member of the Governance and

Nominating Committee. Mr. Kohlhagen served as a director of the IQ Mutual Funds, a family of Merrill Lynch

registered, closed-end investment companies, from 2005 to 2010. Since 2001, Mr. Kohlhagen has been an Advisory

Board member of the Stanford Institute for Economic Policy Research. He also served as a professor of international

economics and finance at the University of California, Berkeley from 1973 to 1983.

• Donald H. Layton joined the Board in May 2012, upon commencement of his employment as Chief Executive

Officer. He is 62 years old. He is an experienced finance executive and leader of finance and investment

organizations. Mr. Layton’s experience as a leader of financial organizations enables him to provide valuable

business and operating perspectives to the Board.

Prior to joining Freddie Mac, Mr. Layton worked for nearly 30 years at JPMorgan Chase and its predecessors, starting

as a trainee and rising to vice chairman and a member of the company’s three-person Office of the Chairman, retiring

in 2004. In his career at JPMorgan Chase, Mr. Layton’s responsibilities spanned capital markets and investment

banking, consumer banking and operating services. From 2002 to 2004, he was responsible for the company’s Chase

Financial Services unit, which included the fourth largest mortgage firm in the U.S. He was co-chief executive officer

of J.P. Morgan, the investment bank of JPMorgan Chase, overseeing the entire range of the investment bank’s global

activities, from 2000 to 2002. Prior to the merger of Chase Manhattan and J.P. Morgan in 2000, Mr. Layton was

responsible for Chase’s worldwide capital markets and trading activities, including foreign exchange, risk

management products, emerging markets, and fixed income, as well as its operating services businesses. He

additionally supervised the bank’s investment portfolio for many years. More recently, Mr. Layton served as

chairman and chief executive officer of online brokerage E*TRADE Financial Corporation. He joined E*TRADE

Financial Corporation as chairman in November 2007 and became chief executive officer in March 2008, retiring in

December 2009. Mr. Layton also served as a senior advisor to the Securities Industry and Financial Markets

Association from 2006 to 2008 and is chairman of the board of the Partnership for the Homeless, a nonprofit

dedicated to reducing homelessness in New York City. Mr. Layton was a member of the board of directors of

324 Freddie Mac
Assured Guaranty Ltd. from May 2006 to May 2012 and a member of the board of directors of the American

International Group, Inc. from April 2010 to May 2012.

• Christopher S. Lynch joined the Board in December 2008. He is 55 years old. He is an experienced senior accounting

executive who served as the lead audit signing partner and account executive for several large financial institutions

with mortgage lending businesses. He also has significant public company audit committee experience and risk

management experience. Mr. Lynch’s extensive experience in finance, accounting and risk management enables him

to provide valuable guidance to the Board on complex accounting and risk management issues.

Mr. Lynch has served as Non-Executive Chairman of Freddie Mac since December 2011. Mr. Lynch is an

independent consultant providing a variety of services to financial intermediaries, including corporate restructuring,

risk management, strategy, governance, financial and regulatory reporting and troubled-asset management. Mr. Lynch

retired from KPMG LLP in May 2007, where he held a variety of leadership positions, including National Partner in

Charge — Financial Services, the U.S. firm’s largest industry division. Mr. Lynch chaired KPMG’s Americas

Financial Services Leadership team, was a member of the Global Financial Services Leadership and the

U.S. Industries Leadership teams and led the Banking & Finance practice. Mr. Lynch also served as a partner in

KPMG’s Department of Professional Practice and as a Practice Fellow at the Financial Accounting Standards Board.

Mr. Lynch also is a director of American International Group, Inc., where he is the Chair of the Audit Committee and

a member of the Finance and Risk Management Committee. In addition, Mr. Lynch serves on the National Audit

Committee Chair Advisory Council of the National Association of Corporate Directors. Mr. Lynch is a frequent

speaker on matters pertaining to corporate governance, risk management, corporate restructuring, executive

development, housing finance, and regulatory reporting.

• Nicolas P. Retsinas joined the Board in June 2007. He is 66 years old. He is an experienced leader in the

governmental and educational sectors, with in-depth knowledge of the mortgage lending and real estate industries. He

also has represented consumer and community interests and has demonstrated a career commitment to the provision

of housing for low-income households. Mr. Retsinas’ public, private and academic experience, including his service

on the boards of several not-for-profit organizations, enables him to bring to the Board broad knowledge and

understanding of housing and consumer and community issues.

Mr. Retsinas is a senior lecturer in Real Estate at the Harvard Business School and is Director Emeritus of Harvard

University’s Joint Center for Housing Studies, where he served as Director from 1998 to 2010. He is also a lecturer in

Housing Studies at the Graduate School of Design. Prior to his Harvard appointment, Mr. Retsinas served as Assistant

Secretary for Housing — Federal Housing Commissioner at the United States Department of Housing and Urban

Development from 1993 to 1998 and as Director of the Office of Thrift Supervision from 1996 to 1997. He served on

the Board of the Federal Deposit Insurance Corporation from 1996 to 1997, the Federal Housing Finance Board from

1993 to 1998 and the Neighborhood Reinvestment Corporation from 1993 to 1998. Mr. Retsinas also formerly served

on the Board of Trustees for the National Housing Endowment. Currently, Mr. Retsinas serves on the Board of

Trustees for Enterprise Community Partners, on the Board of Directors of the Center for Responsible Lending, as a

member of the Bipartisan Policy Center’s Housing Commission, and as chair of the Providence Housing Authority.

• Eugene B. Shanks, Jr. joined the Board in December 2008. He is 65 years old. He is an experienced finance executive

with leadership and risk management expertise. Mr. Shanks’ leadership and risk management experience enables him

to provide the Board with valuable guidance on risk management issues and our strategic direction.

Mr. Shanks is a Trustee of Vanderbilt University, a member of the Advisory Board of the Stanford Institute for

Economic Policy Research, a director of ACE Limited, where he serves as a member of the Risk and Finance

Committee, a Senior Advisor to Bain and Company, and a founding director at The Posse Foundation. From

November 2007 until August 2008, Mr. Shanks was a senior consultant to Trinsum Group, Incorporated, a strategic

consulting and asset management company. From 1997 until its sale in 2002, Mr. Shanks was President and Chief

Executive Officer of NetRisk, Inc., a risk management software and advisory services company he founded. From

1973 to 1978 and from 1980 to 1995, Mr. Shanks held a variety of positions with Bankers Trust New York

Corporation, including head of Global Markets from 1986 to 1992 and President and Director from 1992 to 1995.

From 1978 to 1980, he was Treasurer of Commerce Union Bank in Nashville, Tennessee.

• Anthony A. Williams joined the Board in December 2008. He is 61 years old. He is an experienced leader in national,

state and local governments, with extensive knowledge concerning real estate and housing for low-income

individuals. He also has significant experience in financial matters and is an experienced academic focusing on public

325 Freddie Mac
management issues. Mr. Williams’ leadership and operating experience in the public sector allows him to provide a

unique perspective on state and local housing issues.

Mr. Williams is the CEO and Executive Director of the Federal City Council of Washington, DC, an organization

instrumental in projects such as the Metro, Ronald Reagan Building and International Trade Center, and revitalization

of Union Station in Washington, DC. He was the Bloomberg Lecturer in Public Management at Harvard’s Kennedy

School of Government from 2009 through 2012. He also served as the Executive Director of Global Government

Practice from January 2010 until January 2012 and as a Senior Fellow from January 2012 until June 2012 at the

Corporate Executive Board Company. Since September 2011, Mr. Williams has been affiliated with McKenna,

Long & Aldridge, LLP, a law firm, and from May 2009 until September 2011 he was affiliated with the law firm of

Arent Fox LLP. Mr. Williams served as Chief Executive Officer of Primum Public Realty Trust, from January 2007

until December 2008.

Mr. Williams was elected to two terms as the fourth mayor of Washington, D.C. from 1999 to January 2007, having

served as Chief Financial Officer from 1995 to 1998. He also served as President of the National League of Cities and

as Vice-Chair of the Metropolitan Washington Council of Governments. From 1993 to 1995, Mr. Williams was the

first Chief Financial Officer for the U.S. Department of Agriculture. From 1991 to 1993, Mr. Williams was the

Deputy State Comptroller of Connecticut. From 1989 to 1991, Mr. Williams was the Executive Director of the

Community Development Agency of St. Louis, Missouri. From 1988 to 1989, he worked as Assistant Director of the

Boston Redevelopment Agency where he led the Department of Neighborhood Housing and Development, one of the

authority’s primary divisions. Mr. Williams also previously served as a director of Meruelo Maddux Properties, Inc.

Mr. Williams is also on the board of the Calvert Sage Fund and of each fund comprising the Calvert Multiple Funds.

Authority of the Board and Board Committees

The directors serve on behalf of, and exercise authority as directed by, the Conservator. The Conservator has delegated

to the Board and its committees authority to function in accordance with the duties and authorities set forth in applicable

statutes, regulations, guidance, orders and directives and our Bylaws and Board committee charters, but reserved certain

items requiring Conservator approval. On November 15, 2012, the Conservator revised and expanded the categories of items

requiring Conservator approval, instructing the Board that it should oversee that management consults with and obtains

approval of the Conservator before taking action in the following areas:

• matters requiring the approval of or consultation with Treasury under the covenants of the Purchase Agreement (see

“BUSINESS — Conservatorship and Related Matters — Treasury Agreements – Covenants Under Treasury

Agreement”);

• redemptions or repurchases of subordinated debt, except as necessary to comply with the limit in the Purchase

Agreement;

• increases in Board risk limits, material changes in accounting policy, and reasonably foreseeable material increases in

operational risk;

• matters that relate to the Conservator’s powers, the status of Freddie Mac in conservatorship, or the legal effect of the

conservatorship on contracts, such as, but not limited to, the initiation of material actions in connection with litigation

addressing the actions or authority of the Conservator, repudiation of contracts, qualified financial contracts in dispute

due to conservatorship status, and counterparties attempting to nullify or amend contracts due to conservatorship

status;

• retention and termination of external auditors and law firms serving as consultants to the Board;

• agreements relating to litigation, claims, regulatory proceedings, or tax-related matters where the value of the claim is

in excess of $50 million, including related matters that aggregate to more than $50 million (but excluding loan

workouts);

• alterations or changes to the terms of any master agreement between us and any of our top five single-family sellers

or servicers that are not otherwise mandated by FHFA and that will alter, in a material way, the business relationship

between the parties;

• termination of a contract (other than by expiration pursuant to its terms) between us and any of our top five singlefamily sellers or servicers;

326 Freddie Mac
• actions that, in the reasonable business judgment of management at the time that the action is to be taken, are likely to

cause significant reputational risk to us or result in substantial negative publicity;

• creation of any subsidiary or affiliate, or entering into a substantial transaction with a subsidiary or affiliate, except

for the creation of, or a transaction with, a subsidiary or affiliate undertaken in the ordinary course of business (e.g.,

creation of a securitization trust or REMIC);

• setting or increasing the compensation or benefits payable to directors;

• entering into new compensation arrangements or increasing amounts or benefits payable under existing compensation

arrangements for senior vice presidents and above and other officers as FHFA may deem necessary to successfully

execute its role as Conservator;

• any establishment or modification by us of performance management processes for such officers, including the

establishment or modification of a Conservator scorecard;

• any assessment by us of our performance against a Conservator scorecard; and

• establishing the annual operating budget.

FHFA has indicated that it expects the Board to review and approve all matters that will require Conservator approval before

such matters are submitted to FHFA. In addition, FHFA requires us to provide timely notice to it of any planned changes in

business processes or operations, including changes to single-family or multifamily credit policies and loss mitigation

strategies that management has determined in its reasonable business judgment to be significant, other than changes made at

the direction or request of FHFA. FHFA will then determine whether any such actions or plans require Conservator and/or

Board review or approval.

The Board has five standing committees: Audit; Business and Risk; Compensation; Coordinating; and Nominating and

Governance. All standing committees other than the Coordinating Committee meet regularly. The membership of each

committee as of February 26, 2013 is shown in the table below.

Table 77 — Board of Directors Committee Membership

Director Audit

Business

and Risk(1) Compensation(1) Coordinating

Nominating and

Governance

L. Bammann ............................................... C ✓ ✓

C. Byrd ................................................... C ✓ ✓

D. Layton .................................................

C. Lynch .................................................. ✓ ✓ C

N. Retsinas ................................................ ✓ ✓

E. Shanks ................................................. ✓ ✓ C

A. Williams ................................................ ✓ C ✓

✓ = Member of the Committee

C = Chairman of the Committee

(1) Mr. Kohlhagen has been appointed to the Business and Risk Committee and the Compensation Committee of the Board, effective March 15, 2013.

Charters reflecting the duties of the committees have been adopted by the Board and approved by the Conservator. All

of the charters of standing committees are available on our website at www.freddiemac.com/governance/bd committees.html.

Our Board has an independent Non-Executive Chairman, whose responsibilities include presiding over meetings of the

Board, regularly scheduled executive sessions of the non-employee directors, and executive sessions including only the

independent directors that occur at least once annually if any of the non-employee directors are not independent. Mr. Lynch

has served as Non-Executive Chairman since his appointment to that position in December 2011.

Communications with Directors

Interested parties wishing to communicate any concerns or questions about Freddie Mac to the Non-Executive

Chairman of the Board or to our non-employee directors as a group may do so by U.S. mail, addressed to the Corporate

Secretary, Freddie Mac, Mail Stop 200, 8200 Jones Branch Drive, McLean, VA 22102-3110. Communications may be

addressed to a specific director or directors or to groups of directors, such as the independent or non-employee directors.

327 Freddie Mac
Executive Officers

As of February 26, 2013, our executive officers are as follows:

Name Age

Year of

Affiliation Position

Donald H. Layton . . . . . . . . . . . . . . . . . 62 2012 Chief Executive Officer

Ross J. Kari . . . . . . . . . . . . . . . . . . . . . 54 2009 Executive Vice President — Chief Financial Officer

William H. McDavid . . . . . . . . . . . . . . 66 2012 Executive Vice President — General Counsel & Corporate Secretary

Jerry Weiss . . . . . . . . . . . . . . . . . . . . . 55 2003 Executive Vice President — Chief Administrative Officer

Paige H. Wisdom . . . . . . . . . . . . . . . . . 51 2008 Executive Vice President — Chief Enterprise Risk Officer

David M. Brickman . . . . . . . . . . . . . . . 47 1999 Senior Vice President — Multifamily

Devajyoti Ghose . . . . . . . . . . . . . . . . . . 61 1997 Senior Vice President — Investments and Capital Markets, and Treasurer

Timothy F. Kenny . . . . . . . . . . . . . . . . 51 2007 Senior Vice President — General Auditor

Robert Lux . . . . . . . . . . . . . . . . . . . . . 49 2010 Senior Vice President — Chief Information Officer

Robert D. Mailloux . . . . . . . . . . . . . . . 45 2002 Senior Vice President — Corporate Controller & Principal Accounting Officer

Paul E. Mullings . . . . . . . . . . . . . . . . . 62 2005 Senior Vice President —Single-Family Sourcing and Securitization (Interim Head —

Single-Family Business)

Dwight P. Robinson . . . . . . . . . . . . . . . 59 1998 Senior Vice President — Human Resources, Diversity and Outreach

Carol A. Wambeke . . . . . . . . . . . . . . . . 53 1997 Senior Vice President — Chief Compliance Officer

The following is a brief biographical description of each executive officer who is not also a member of the Board.

Ross J. Kari was appointed Executive Vice President — Chief Financial Officer in October 2009. Mr. Kari joined us

from Fifth Third Bancorp, a financial services firm, where he served as Executive Vice President and Chief Financial Officer

beginning in November 2008. Previously, he served as Executive Vice President and Chief Financial Officer of Safeco

Corporation, an insurance firm, from June 2006 to October 2008. Prior to that, Mr. Kari served as Executive Vice President

and Chief Operating Officer of the Federal Home Loan Bank of San Francisco, a government sponsored enterprise and part

of the Federal Home Loan Bank System, from February 2002 to June 2006. Mr. Kari is a member of the board of directors of

KKR Financial Holdings LLC where he is the Chairman of the Audit Committee.

William H. McDavid was appointed Executive Vice President — General Counsel and Corporate Secretary in July

2012. Previously, Mr. McDavid was Co-General Counsel of JPMorgan Chase from 2004 until his retirement in 2006, and

was General Counsel of JPMorgan Chase from 2000 to 2004. Prior to that, he was General Counsel of various predecessors

to JPMorgan Chase, including The Chase Manhattan Corporation from 1996 to 2000 and of Chemical Banking Corporation

from 1988 to 1996. From 1981 to 1988, he was an Associate General Counsel at Bankers Trust Company, and from 1972 to

1981 he was an attorney with the law firm of Debevoise & Plimpton.

Jerry Weiss was appointed Executive Vice President — Chief Administrative Officer in August 2010. In this role,

Mr. Weiss manages the services and operations of Freddie Mac’s Strategy; External Relations, including Government and

Industry Relations; Public Relations and Corporate Marketing; Internal Communications; Models, Mission and Research;

Conservatorship and Corporate Initiatives; Enterprise Project Management; and Making Home Affordable — Compliance

organizations. For a period subsequent to his appointment as Executive Vice President — Chief Administrative Officer, he

also served as our Chief Compliance Officer from August 2010 until June 2011. Prior to August 2010, Mr. Weiss served as

our Senior Vice President and Chief Compliance Officer and in various other senior management capacities since joining us

in October 2003. Prior to joining us, Mr. Weiss worked from 1990 at Merrill Lynch Investment Managers, most recently as

First Vice President and Global Head of Compliance. From 1982 to 1990, Mr. Weiss was with a national law practice in

Washington, D.C., where he specialized in securities regulation and corporate finance matters.

Paige H. Wisdom has served as our Chief Enterprise Risk Officer since April 2010. She currently serves as our

Executive Vice President — Chief Enterprise Risk Officer, a position to which she was appointed in October 2010. Prior to

this appointment, she served as our Senior Vice President — Chief Enterprise Risk Officer from April 2010 until October

2010. In these roles, Ms. Wisdom has been responsible for providing overall leadership and direction for enterprise risk

management and leading an integrated framework for managing credit risk, market risk, operational risk and all other aspects

of risk across the organization. Prior to this, she served as the Senior Vice President — Business Unit Chief Financial Officer

from January 2008 until April 2010. From August 2004 until December 2007, Ms. Wisdom served as a Business Unit Chief

Financial Officer at Bank of America for key businesses including: Global Business and Financial Services; Business

Lending; and Global Technology, Service and Fulfillment. Prior to joining Bank of America, Ms. Wisdom served at Bank

One Corporation/JPMorgan from June 2000 until July 2004, as the Chief Financial Officer, Corporate Bank and Co-Head

Credit Portfolio Management. Prior to that she served in capital markets positions at UBS/Warburg Dillon Read, Citibank

Salomon Smith Barney, and Swiss Bank Corporation.

328 Freddie Mac
David M. Brickman was appointed Senior Vice President — Multifamily in July 2011. In this role, he is responsible for

overall management of our Multifamily business line. From June 2011 until July 2011, he served as Senior Vice President —

Multifamily Commercial Mortgage-Backed Security Capital Markets. From March 2004 until June 2011, he served as Vice

President in charge of various units responsible for Multifamily Capital Markets. In his previous roles at Freddie Mac,

Mr. Brickman led the multifamily pricing, costing and research teams, was responsible for the development and

implementation of new quantitative pricing models and financial risk analysis frameworks for all multifamily programs, and

designed several of Freddie Mac’s multifamily financing products, including the Capital Markets Execution and the K-Deal

Securitization Program. Prior to joining Freddie Mac in 1999, Mr. Brickman co-led the Mortgage Finance and Credit

Analysis group in the consulting practice at Pricewaterhouse Coopers LLP.

Devajyoti Ghose was appointed Senior Vice President — Investments and Capital Markets, and Treasurer in May 2011.

Prior to this, he served as Vice President — Asset Liability Management and Deputy Treasurer from October 2010 until May

2011. From December 2008 until October 2010, he served as Vice President in charge of various units responsible for Debt

and Liquidity Management, Debt Portfolio Management and Single-Family Pricing and Analytics. From February 2005 until

December 2008, Mr. Ghose served as Vice President — Convexity Management. Before that, he held various senior

positions at Freddie Mac in which he was responsible for evaluating the risks and returns of Freddie Mac’s guarantee fee

business and developing valuation models for various fixed income securities including mortgage-related products,

debentures and interest-rate derivatives. Prior to joining Freddie Mac in 1997, Mr. Ghose was an assistant professor in

econometrics at the University of Arizona.

Timothy F. Kenny was appointed Senior Vice President — General Auditor in July 2008. Prior to this appointment,

Mr. Kenny served as Vice President and Interim General Auditor starting in May 2008. Before that, he served as our Vice

President — Assistant General Auditor from September 2007 to May 2008. From 2001 to 2007, Mr. Kenny was a Managing

Director with BearingPoint, Inc. (formerly KPMG Consulting, Inc.) where he directed a large team of financial professionals

on a variety of financial risk management consulting projects with Ginnie Mae, the Federal Housing Administration, private

sector mortgage bankers and other federal credit agencies. He joined KPMG LLP, the predecessor organization to KPMG

Consulting, in 1986, was promoted to a KPMG Audit Partner in 1997, and served in that position until the separation of

KPMG Consulting from KPMG LLP in February 2001. From 2004 until 2008, Mr. Kenny was a member of the board of

directors of Farmer Mac, a government sponsored enterprise that has established a secondary market for agricultural loans.

Robert Lux was appointed Senior Vice President – Chief Information Officer in October 2010. Prior to joining Freddie

Mac, from 2008 to 2010, Mr. Lux served as a Principal at Towers Watson, a leading global professional services company,

where he was responsible for leading teams on three continents in the delivery of commercial risk modeling applications for

the insurance industry. From 2003 to 2008, Mr. Lux held a series of positions with increasing responsibilities, including

service as the Chief Architect for GMAC Financial Services and Chief Technology Officer for GMAC Residential Capital.

Prior to that, he held information technology leadership positions at Electronic Data Systems and Reuters Group PLC.

Robert D. Mailloux was appointed Senior Vice President — Corporate Controller & Principal Accounting Officer in

April 2010. Prior to holding his current position, Mr. Mailloux served as our Vice President — Acting Corporate Controller

beginning in October 2008. Prior to that appointment, he served as Vice President — Multifamily & Corporate Segment

Controller, from May 2008 until October 2008, and as Vice President — Corporate Financial Accounting from September

2004 until May 2008. Before that, Mr. Mailloux held the position of Director — Corporate Reporting and Analysis from

March 2002 until September 2004. Before joining us, Mr. Mailloux served for 12 years at a leading accounting firm, where

he managed a variety of large audit and consulting engagements in the financial services and real estate industries.

Paul E. Mullings was appointed Senior Vice President – Single Family Sourcing & Securitization in May 2011, and in

May 2012, he was designated the interim head of the Single-Family Business. Prior to his May 2011 appointment,

Mr. Mullings served as Senior Vice President — Single Family Sourcing since July 2005. Before joining us, Mr. Mullings

was Senior Vice President of JPMorgan Chase and Mortgage Finance Manager and Fair Lending Executive at Chase Home

Finance. Prior to joining Chase Home Finance in 1997, Mr. Mullings was President and Chief Executive Officer of Mortgage

Electronic Registration Systems, Inc. Mr. Mullings was also President and Chief Executive Officer of the residential

mortgage division of First Interstate Bank, Los Angeles. Prior to First Interstate, he held a series of senior management

positions with increasing responsibilities at Glendale Federal Bank, Glendale, California.

329 Freddie Mac
Dwight P. Robinson was appointed Senior Vice President — Human Resources, Diversity and Outreach in September

2012. Prior to holding his current position, Mr. Robinson served as Senior Vice President – Housing Outreach and Chief

Diversity Officer beginning in October 2011. Prior to that appointment, he served as Senior Vice President – Corporate

Relations & Housing Outreach beginning in February 2005. Prior to that appointment, Mr. Robinson served as Senior Vice

President — Corporate Relations beginning in September 1999. Mr. Robinson joined us in March 1998 as Vice President —

Industry Relations. Prior to joining Freddie Mac, from 1994 to 1998 Mr. Robinson served as the Deputy Secretary of HUD,

functioning as Chief Operating Officer. Before assuming the position at HUD, from 1993 to 1994 Mr. Robinson served as the

president of Ginnie Mae, where he was responsible for all major policy decisions affecting Ginnie Mae issuers and

purchasers worldwide.

Carol A. Wambeke was appointed Senior Vice President — Chief Compliance Officer in June 2011. In this position,

she manages Freddie Mac’s compliance with legal and regulatory requirements and related controls that govern the

company’s business activities. Prior to this, Ms. Wambeke served as Vice President of Compliance & Regulatory Affairs

from June 2008 until June 2011. In this role, she was responsible for coordinating regulatory-related activities across the

company and advising management on regulatory concerns and initiatives. Prior to transferring to the Compliance Division,

she was Vice President — Regulatory Reporting & Analysis from February 2005 to June 2008 and Vice President —

Regulatory Capital Operations from March 2004 to February 2005. She joined Freddie Mac in 1997 as a senior economist

and served in various positions prior to 2004 with responsibility for financial and housing economics and regulatory capital

management.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the directors and executive officers of a reporting company and persons who

own more than 10% of a registered class of such company’s equity securities to file reports of ownership and changes in

ownership with the SEC. Based solely on a review of such reports, we believe that during 2012 all of our directors and

executive officers complied with such reporting obligations.

Codes of Conduct

We have separate codes of conduct applicable to all employees and to Board members that outline the principles,

policies, and laws governing their activities. Upon joining us or our Board, all employees and directors, respectively, are

required to sign acknowledgements that they have read the applicable code and agree to abide by it. In addition, all

employees and directors must respond to an annual questionnaire concerning code compliance. The employee code also

serves as the code of ethics for senior executives and financial officers required by the Sarbanes-Oxley Act and SEC

regulations. Copies of our employee and director codes of conduct are available, and any amendments or waivers that would

be required to be disclosed are posted, on our website at www.freddiemac.com.

Audit Committee Financial Expert

We have a standing Audit Committee that satisfies the “audit committee” definition under Section 3(a)(58)(A) of the

Exchange Act and the requirements of Rule 10A-3 under the Exchange Act. Although our stock was delisted from the NYSE

in July 2010, certain of the corporate governance requirements of the NYSE Listed Company Manual, including those

relating to audit committees, continue to apply to us because they are incorporated by reference in the FHFA corporate

governance regulations. Our Audit Committee satisfies the “audit committee” requirements set forth in Sections 303A.06 and

303A.07 of the NYSE Listed Company Manual. The current members of the Audit Committee are Carolyn H. Byrd,

Christopher S. Lynch and Anthony A. Williams, all of whom the Board determined in January 2013 are independent within

the meaning of Rule 10A-3 under the Exchange Act and Section 303A.02 of the NYSE Listed Company Manual.

Ms. Byrd has been a member of the Audit Committee since December 2008 and is currently its chairman. The Board

determined in March 2012 and again in January 2013 that Ms. Byrd meets the definition of an “audit committee financial

expert” under SEC regulations.

330 Freddie Mac
ITEM 11. EXECUTIVE COMPENSATION

Executive Summary

2012 Business Highlights

During 2012, Freddie Mac made substantial progress in pursuing its primary business objectives, as summarized below.

See “BUSINESS — Executive Summary” for further information.

Summary of Financial Results

Our comprehensive income for the year ended December 31, 2012 was $16.0 billion, consisting of $11.0 billion of net

income and $5.1 billion of other comprehensive income. We paid cash dividends of $7.2 billion to Treasury at the direction

of FHFA during 2012.

Providing Credit Availability for Mortgages, Maintaining Foreclosure Prevention Activities and Minimizing Credit Losses

During 2012, we purchased or issued other guarantee commitments for $426.8 billion in UPB of single-family

conforming mortgage loans, representing approximately 2.0 million loans. This includes purchases of HARP loans totaling

$86.9 billion, and representing approximately 434,000 borrowers.

Under our loan workout programs, our servicers contact borrowers and attempt to help them stay in their homes or

avoid foreclosure. Based on information provided by the MHA Program administrator, our servicers had completed

approximately 217,209 loan modifications under HAMP from the introduction of the initiative in 2009 through

December 31, 2012. As of December 31, 2012, approximately 24,000 borrowers were in modification trial periods, including

approximately 15,000 borrowers in trial periods for our non-HAMP standard modification.

Since 2009, we have helped more than 785,000 borrowers experiencing hardship to complete a loan workout.

Developing Mortgage Market Enhancements in Support of a New Infrastructure for the Secondary Mortgage Market

During 2012, we continued efforts that we believe will create value for the industry by building the infrastructure for a

future housing finance system. These efforts include the implementation of the Uniform Mortgage Data Program, which

provides us with the ability to collect additional data that we believe will improve our risk management practices, and the

Uniform Loan Delivery Dataset, which provides for the efficient collection and use of consistent information about loan

terms, collateral, and borrowers.

We are also continuing to work with FHFA and others to develop a plan for the design and development of a

securitization platform that can be used in a future secondary mortgage market. In addition, we are continuing to work with

FHFA and Fannie Mae to develop recommendations to align certain of the terms of the contracts we and Fannie Mae use

with our respective single-family seller/servicers, as well as certain other practices we follow in managing our remedies and

our respective business relationships with these companies.

Maintaining Sound Credit Quality on the Loans We Purchase or Guarantee

During 2012, we continued to focus on maintaining credit policies, including our underwriting standards, that allow us

to purchase and guarantee loans made to qualified borrowers that we believe will provide management and guarantee fee

income (excluding the amounts associated with the Temporary Payroll Tax Cut Continuation Act of 2011), over the longterm that exceeds our expected credit-related and administrative expenses on such loans.

The credit quality of the single-family loans we acquired beginning in 2009 (excluding HARP and other relief refinance

mortgages) is significantly better than that of loans we acquired from 2005 to 2008 as measured by original LTV ratios,

FICO scores, and the proportion of loans underwritten with fully documented income. Based on UPB, approximately 96% of

the single-family mortgages we purchased in 2012 were fixed rate, first lien amortizing mortgages, approximately 82% were

refinance mortgages, and approximately 24% of these refinance mortgages were HARP loans.

Contracting the Dominant Presence of the GSEs in the Marketplace

During 2012, we continued to take steps toward the goal of gradually shifting mortgage credit risk from Freddie Mac to

private investors, while simplifying and shrinking certain of our operations. In the case of single-family credit guarantees, we

are exploring several ways to accomplish this goal, including increasing guarantee fees and evaluating new risk-sharing

331 Freddie Mac
transactions beyond the traditional charter-required mortgage insurance coverage. Two across-the-board increases in

guarantee fees occurred in 2012 and FHFA has proposed additional fee adjustments. In addition, an August 2012 amendment

to the Purchase Agreement accelerates the wind down of our mortgage-related investments portfolio. This strategy is

designed to reduce the portfolio and provide the best return to the taxpayer while minimizing market disruption.

Strengthening Our Infrastructure and Improving Overall Efficiency While Also Focusing On Retention of Key Employees

We continue to work to both enhance the quality of our infrastructure and improve our efficiency to preserve the

taxpayers’ investment. We are focusing our resources primarily on key projects, many of which are related to strategic

initiatives mandated by FHFA that will likely take several years to fully implement. We are also focused on making

significant improvements to our systems infrastructure in order to: (a) replace legacy hardware or software systems at the end

of their useful lives and to strengthen our disaster recovery capabilities; and (b) improve our data collection and

administration capabilities as well as our ability to assist in the servicing of loans.

We continued to actively manage our general and administrative expenses during 2012, while also continuing to focus

on retaining key talent. In the first half of 2012, we introduced a new compensation program for employees to help mitigate

the uncertainty surrounding compensation. Under the new program, the majority of employees have a more predictable

income, as the program either reduces or eliminates the amount of compensation that is subject to variability. Our employee

turnover moderated in 2012 compared to 2011.

Our Executive Compensation Program

Since being placed in conservatorship in 2008, the compensation of our executives has received a high level of scrutiny

from FHFA, Treasury, Congress, and the public, and our executive compensation program has been substantially redesigned,

resulting in a significant decrease in the amount of compensation paid to our executive team. Specific changes include:

• Senior executive target compensation was reduced by 10 percent in 2009 and by 10 percent again in 2012;

• Bonuses were eliminated;

• A pay freeze was instituted by FHFA for all of 2011 and 2012, providing for pay increases only for promotions and

other significant increases in responsibility;

• CEO compensation has been reduced to $600,000 annually; and

• The variable elements of compensation for our other senior executives are subject only to reduction based on the

company’s and their individual performance, with no upside potential.

As a result of these and other actions taken since entering conservatorship, the aggregate level of compensation for our

executives is now well below market levels. The aggregate level of 2012 target compensation for our executive officers as a

group was below the 25th percentile of the competitive market, our new CEO’s compensation of $600,000 is 90 percent

below his predecessor’s target compensation, and overall compensation of our senior management team has decreased by

almost 75 percent since 2008.

While the below-market compensation paid to our executives contributes to concerns about our ability to attract and

retain competent and experienced executives and employees — especially given the company’s current status and uncertain

future — our public mission and certain features of our executive compensation program have enabled us to do so despite the

challenges resulting from our unique circumstances. Our public mission to expand opportunities for homeownership and

affordable rental housing attracts employees at all levels who seek meaningful work that makes a difference during this

important time for the nation. Also, the higher proportion of fixed compensation in our executive compensation program —

only 30 percent of pay is at-risk, significantly below the levels at companies with which we compete for talent — provides a

degree of certainty that offsets, at least to some degree, the uncertain future of the company and the below market

compensation levels.

332 Freddie Mac
As Acting FHFA Director Edward DeMarco said, “[T]he new compensation program strikes the balance between

prudent executive pay — including the elimination of bonuses — with the need to safeguard quality staffing in order to

protect the taxpayers’ investment and achieve the objectives in the Conservatorship Scorecard.”

As discussed more fully below in the Compensation Discussion and Analysis, the Compensation Committee and FHFA

considered our achievements in pursuing our primary business objectives, as well as other factors, in determining the funding

levels for the following elements of compensation in 2012.

Table 78 — Funding Levels for 2012 Performance-Based Compensation

2012 At-Risk Deferred Salary

(Portion Based on

Corporate Performance)

2011 Target Opportunity

(2nd Installment)

Funding Level Percent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95% 95%

Compensation Discussion and Analysis

This section contains information regarding our compensation programs and policies, which reflect direction we

received from FHFA as Conservator. These programs and policies were applicable to the following individuals, who were

determined, pursuant to SEC rules, to be our Named Executive Officers, or NEOs, for the year ended December 31, 2012.

• Donald H. Layton, Chief Executive Officer

• Ross J. Kari, Executive Vice President — Chief Financial Officer

• Charles E. Haldeman, Jr., Former Chief Executive Officer

• Paul E. Mullings, Senior Vice President — Single-Family Sourcing and Securitization (Interim Head — SingleFamily Business)

• Jerry Weiss, Executive Vice President — Chief Administrative Officer

• Paige H. Wisdom, Executive Vice President — Chief Enterprise Risk Officer

Executive Management Compensation Program

Overview of Program Structure

The 2012 Executive Management Compensation Program, or the Executive Compensation Program, was adopted

effective January 1, 2012. It attempts to balance our need to retain critical executives and attract new executive talent with

promotion of the goals of conservatorship and the interests of taxpayers. It contains a number of significant changes from the

prior executive compensation program, including: (i) a further reduction in the target pay levels of senior officers; (ii) the

elimination of bonuses; and (iii) the elimination of any potential upside in the deferred pay element, which now can only be

reduced — not increased — based on both company and individual performance.

Compensation for each NEO other than Mr. Layton is governed by the Executive Compensation Program. A further

discussion of Mr. Layton’s compensation is set forth below in “— Chief Executive Officer Compensation.” All compensation

under the Executive Compensation Program is delivered exclusively in cash because we cannot provide equity-based

compensation to our employees under the terms of the Purchase Agreement, unless such grants are approved by Treasury.

Although the Compensation Committee plays a significant role in considering and recommending executive

compensation, FHFA continues to be actively involved in determining such compensation. During conservatorship, the

Compensation Committee’s authority and flexibility have been exercised while recognizing the following circumstances:

• When FHFA was appointed as our Conservator in September 2008, it assumed all of the rights, titles, powers, and

privileges of the company and its stockholders, directors and management, including the authority to set executive

compensation. Under the terms of the Purchase Agreement, FHFA is required to consult with Treasury on any

increases in compensation or new compensation arrangements for our executive officers.

• Our directors serve on behalf of FHFA and exercise their authority as directed by FHFA. More information about the

role of our directors is provided above in “DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE

GOVERNANCE — Authority of the Board and Board Committees.”

333 Freddie Mac
• FHFA has directed that its approval be obtained before taking action involving: (i) entering into new compensation

arrangements or increasing amounts or benefits payable under existing compensation arrangements for senior vice

presidents and above and other officers as FHFA may deem necessary to successfully execute its role as Conservator;

(ii) any establishment or modification by us of performance management processes for such officers, including the

establishment or modification of a conservatorship scorecard; and (iii) any assessment by us of our performance

against a conservatorship scorecard.

• FHFA retains the authority not only to approve both the terms and amount of any compensation prior to payment to

any of our executive officers, but also to modify any existing compensation arrangements.

Chief Executive Officer Compensation

Mr. Layton’s compensation consists solely of an annual base salary of $600,000, a level established by FHFA. He does

not participate in the Executive Compensation Program and therefore has no compensation subject to either corporate or

individual performance. Mr. Layton is, however, eligible to participate in all other employee benefit plans offered to Freddie

Mac’s other senior executives pursuant to the terms of those plans.

Elements of Total Direct Compensation (TDC)

Compensation under the Executive Compensation Program for the NEOs other than Mr. Layton consists solely of salary

with two components — Base Salary and Deferred Salary — which are described in the table below.

Element of

Compensation Description

Primary

Compensation Objective Key Features

Base Salary Earned and paid on a semimonthly basisTo provide a fixed level of

compensation to each NEO for

the responsibility level of his/

her position.

Cannot exceed $500,000 per

year, except for the CEO and

CFO, or other exceptions as

approved by FHFA.

Deferred Salary Fixed Deferred Salary is earned

on a semi-monthly basis. The

amount earned each quarter is

paid on the last business day of

the corresponding quarter of the

following year, referred to as the

Approved Payment Schedule.

To encourage executive

retention.

Equal to Target TDC less Base

Salary and At-Risk Deferred

Salary.

At-Risk Deferred Salary is

earned and paid in the same

manner as Fixed Deferred

Salary, but is subject to

reduction based on corporate

and individual performance.

To encourage achievement of

corporate and individual

performance goals.

Equal to 30% of Target TDC.

Half of At-Risk Deferred Salary

is subject to reduction based on

corporate performance, and half

is subject to reduction based on

individual performance.

The objectives against which

2012 corporate performance

was measured are described in

“At-Risk Deferred Salary Based

on Corporate Performance.”

See Other Executive Compensation Considerations — Effect of Termination of Employment for more information on the

effect of a termination of employment, including a discussion of the timing and payment of any unpaid portion of Deferred

Salary upon all types of termination events.

Compensation Applicable to the Prior Executive Compensation Program

In addition to the compensation earned during 2012 under the Executive Compensation Program, each of the current

NEOs other than Mr. Layton was eligible to receive the second installment of the 2011 Target Opportunity, or TO, for 2012

under the terms of the executive compensation program previously in effect. The second installment of the 2011 TO is the

final remaining element of the prior executive compensation program and was the primary reason for the year-over-year

increase in actual total compensation for certain of our NEOs, as reported in the Summary Compensation Table. The TO was

a performance-based award designed to encourage the NEOs to achieve specific corporate performance measures.

334 Freddie Mac
Performance Measures for the Performance-Based Elements of Compensation

The performance measures for At-Risk Deferred Salary and the second installment of the 2011 TO grant, together with

a description of the assessment of actual performance against such measures, are presented below in “Determination of

Actual 2012 Compensation — At-Risk Deferred Salary Based on Corporate Performance,” “— At-Risk Deferred Salary

Based on Individual Performance,” and “— Second Installment of the 2011 Target Opportunity.” These performance

measures were chosen because they reflect our priorities during conservatorship. They also generally require the participation

and support of employees throughout the company.

Executive Compensation Best Practices

We employ the following executive compensation best practices:

• No tax “gross-ups”;

• Limited executive perquisites;

• Clawback provisions that result in a significant portion of the compensation earned under the Executive

Compensation Program being subject to recapture and/or forfeiture;

• No right to severance for senior executives, even in the event of an involuntary, without cause termination;

• No agreements that guarantee any amount of compensation for a specified term of employment; and

• No change in control provisions in any of our compensation or benefit programs.

Determination of 2012 Target TDC for NEOs

Role of Compensation Consultants

As part of the annual process to determine the Target TDC for each of the NEOs other than Mr. Layton, whose

compensation is fixed as described in “— Chief Executive Officer Compensation,” the Compensation Committee receives

guidance from Meridian Compensation Partners, LLC (Meridian), its independent compensation consultant. In addition to

the annual process to determine the Target TDC, Meridian provides guidance to the Compensation Committee during the

course of the year on other executive compensation matters.

Meridian has not provided the Compensation Committee with any non-executive compensation services, nor has the

firm provided any consulting services to our management.

2012 Comparator Group Companies

The Compensation Committee annually evaluates each senior executive’s Target TDC in relation to the compensation

of executives in comparable positions at companies that are either in a similar line of business or are otherwise comparable

for purposes of recruiting and retaining individuals with the requisite skills and capabilities. We refer to this group of

companies as the Comparator Group. The Comparator Group included the following companies for purposes of establishing

Target TDC for the NEOs for 2012:

Allstate The Hartford Prudential

American Express JPMorgan Chase* State Street

Bank of America* MasterCard SunTrust

Bank of New York Mellon MetLife U.S. Bancorp

Capital One Northern Trust Visa

Citigroup* PNC Wells Fargo*

Fannie Mae

* Only mortgage or real estate division-level compensation data from these diversified banking firms may be utilized where available and

appropriate for the position being benchmarked.

If there is either no reasonable match or insufficient data from the Comparator Group for a position, or if Meridian

believes that additional data sources would strengthen the analysis of competitive market compensation levels, the

Compensation Committee uses alternative survey data.

335 Freddie Mac
Establishing Target TDC

While we are in conservatorship, the role of the annual review to establish Target TDC has changed. First, annual Target

TDC adjustments have been limited by FHFA. For 2012, the Compensation Committee was directed by FHFA to set Target

TDC at a level that was either the same as or lower than each NEO’s 2011 Target TDC and that the company maintain

individual salaries and wage rates at 2010 levels for 2011 and 2012, absent a promotion or a significant change in

responsibilities. As a result, competitive market data is generally used only when establishing Target TDC for newly hired

senior executives or current senior executives who are promoted or experience a significant expansion in the scope of their

responsibilities. Second, FHFA’s view is that the compensation for our senior officers, in the aggregate, should be positioned

closer to the 25th percentile of the competitive market, rather than our practice prior to entering conservatorship, which

generally was to target compensation, in the aggregate, at the 50th percentile of the competitive market.

The Compensation Committee developed its 2012 Target TDC recommendations for each NEO by reviewing 2011 data

from the Comparator Group and, as appropriate, alternative survey sources. For Mr. Haldeman, our CEO at that time, as well

as our CFO and EVP-Chief Enterprise Risk Officer, the Compensation Committee reviewed competitive market data solely

from the 2012 Comparator Group. For the SVP-Single-Family Sourcing and Securitization — who subsequently assumed the

role of Interim Head-Single-Family Business — the Compensation Committee reviewed competitive market data from an

alternative survey published by McLagan, while for the EVP-Chief Administrative Officer, two alternative survey sources

were used, one from McLagan and the other from AonHewitt.

The Compensation Committee’s 2012 Target TDC recommendation for each of the NEOs other than Mr. Layton was

reviewed by FHFA. While the Target TDC recommendations for our NEOs, in the aggregate, were below the 25th percentile

of the competitive market, FHFA instructed the Compensation Committee, as part of the implementation of the Executive

Compensation Program, to reduce the Target TDC for each of the NEOs by 10%, with the exception of Ms. Wisdom. For

Ms. Wisdom, 2012 Target TDC was unchanged from 2011 in consideration of the expansion in the scope of her

responsibilities during 2011 resulting from the integration of the credit risk management function in her division.

Additionally, for Mr. Weiss and Ms. Wisdom, the Compensation Committee increased Base Salary by 10%, with an equal

decrease in Deferred Salary, to create more consistent Base Salary levels for EVPs with comparable levels of responsibility.

The following table sets forth the components of 2012 Target TDC for each of our NEOs.

Table 79 — 2012 Target TDC

2012 Target TDC (Annualized)

Named Executive Officer

Base

Salary

Fixed

Deferred

Salary

At-Risk

Deferred

Salary Target TDC

Donald H. Layton ...................................................... $600,000 $ — $ — $ 600,000

Ross J. Kari ........................................................... 675,000 1,530,000 945,000 3,150,000

Charles E. Haldeman, Jr. ................................................. 900,000 2,880,000 1,620,000 5,400,000

Paul E. Mullings ....................................................... 412,500 658,500 459,000 1,530,000

Jerry Weiss ........................................................... 495,000 891,000 594,000 1,980,000

Paige H. Wisdom ....................................................... 467,500 757,500 525,000 1,750,000

2013 Comparator Group Companies

Prior to the Compensation Committee’s review to determine the Comparator Group companies to be used to establish

2013 Target TDC, FHFA recommended that Freddie Mac and Fannie Mae align their Comparator Groups so that consistent

compensation data is used by both companies for the same or similar senior officer positions. Representatives of the two

companies and their independent compensation consultants identified a group of companies to be used by both us and Fannie

Mae as the 2013 Comparator Group. The 2013 Comparator Group includes five new companies — Ally Financial, AIG,

BB&T, Fifth Third Bancorp, and Regions Financial — and excludes the three credit card issuers — American Express,

MasterCard, and Visa — that were included in the 2012 Comparator Group. Additionally, we are included in our own

Comparator Group to ensure that both we and Fannie Mae use identical data for compensation benchmarking. As with the

2012 Comparator Group, and where appropriate for the position being benchmarked, mortgage or real estate division-level

compensation data from four diversified banking firms — Bank of America, Citigroup, JPMorgan Chase, and Wells

Fargo — may be utilized.

336 Freddie Mac
Determination of Actual 2012 Compensation

At-Risk Deferred Salary Based on Corporate Performance

Over the course of 2012, the Compensation Committee received updates from management on our achievement against

the performance objectives in the Conservatorship Scorecard that were used to determine the reduction for the portion of AtRisk Deferred Salary based on corporate performance. In January 2013, management presented the Compensation

Committee with a final assessment and concluded that we achieved most, but not all, of the performance objectives. The

Compensation Committee reviewed and concurred with management’s assessment of performance against the

Conservatorship Scorecard, but did not make recommended reductions.

FHFA then independently assessed the company’s 2012 performance against the Conservatorship Scorecard. FHFA’s

assessment took into consideration the following:

• the ultimate accomplishment of results as well as our cooperation, relative contribution, and collaboration with the

Board, FHFA, Fannie Mae, and market participants, as appropriate to the particular measure;

• our creativity, collaboration, effectiveness, and commitment to the particular goal; and

• whether we are able to accomplish goals earlier in the year than scheduled.

Based on the company’s performance against the Conservatorship Scorecard, FHFA provided a numerical score for

each performance measure and determined that the funding level for the portion of At-Risk Deferred Salary subject to

reduction based on corporate performance should be 95%. The table below presents the performance objectives and the

assessment of our achievement against those performance objectives.

337 Freddie Mac
Table 80 — Achievement of Corporate Performance Measures for At-Risk Deferred Salary

Performance Measure Weighting Targets/Goals Scoring

Summary of Performance

Against Targets

1. Build a New Infrastructure 30% 28.4%

• Continued progress on, or

completion of, mortgage

market enhancement activities

already underway

15% • Develop template for enhanced loan-level disclosures for single-family

MBS that incorporates market standards and is consistent with maintaining

liquidity in the to-be-announced market. Template to be submitted to

FHFA by June 30, 2012.

14.9% • Substantially achieved all

targets/goals. While the

company notified the market

of the servicing data

proposal, the standard itself

was not issued by year-end.

– Loan-level disclosure in

Mortgage-Backed Security

(MBS);

• Meet articulated Uniform Mortgage Data Program (UMDP) timetables as

follows:

– Uniform Mortgage Data

Program (UMDP) ; and

— Uniform Collateral Data Portal (UCDP) electronic appraisal submission

requirement by March 19, 2012.

– Seller Servicer contract

harmonization.

— Uniform Loan Delivery Data (ULDD) format loan delivery data by July

23, 2012.

— Deliver new ULDD data point in compliance with SEC Rule 15Ga-1 by

November 30, 2012.

— Notify market of optional ULDD data points, including those necessary to

improve disclosure and for other business uses in 2012.

• Notify market of servicing data standard, including data necessary to

improve disclosure, and agree on timetable for data collection to begin in

2013 by December 31, 2012.

• Develop plans that leverage uniform appraisal data and ULDD for

enhanced risk management by December 31, 2012.

• Cooperate with FHFA implementation of portal to accept electronic

appraisals.

• Appropriate resource allocation to seller-servicer contract harmonization

and commitment to targeted timetables as outlined in FHFA directive.

• Securitization Platform 10% • In collaboration with FHFA and Fannie Mae, develop and finalize a plan

by December 31, 2012 for the design and build of a single securitization

platform that can serve both GSEs and a post-conservatorship market with

multiple future issuers.

9.0% • Substantially achieved all

targets/goals, but the

platform design was not

finalized by December 31,

2012.

• Pooling and Servicing

Agreements

5% • Propose a model pooling and servicing agreement, collaborate with other

Enterprise and FHFA on a specific proposal, seek public comment, and

produce final recommendations for standard GSE trust documentation by

December 31, 2012.

4.5% • Substantially achieved all

targets/goals. However,

while recommendations were

submitted to FHFA on

December 20, they were not

finalized by year-end.

2. Contract the Enterprises

dominant presence in the

marketplace while simplifying

and shrinking certain

operations.

30% 28.3%

• Work with FHFA to evaluate

options for meeting

conservatorship goals,

including shifting mortgage

credit risk to private investors

via assessment of:

10% • Undertake a market analysis by December 31, 2012, of the viability of

multifamily business operations without government guarantees. Review

the likely viability of these models operating on a stand-alone basis after

attracting private capital and adjusting pricing if needed.

10.0% • All targets/goals were

achieved.

• Perform analysis of investments portfolio as described in the strategic plan

by the fourth quarter of 2012 and make preparations for the competitive

disposition of a pool of nonperforming assets by September 30, 2012.

– Multifamily line of business • Review options with board of directors and FHFA and make appropriate

– Investment assets and recommendations for future actions.

nonperforming loans • Implement plan agreed to by board and FHFA.

• Risk Sharing 10% • Initiate risk sharing transactions by September 30, 2012. 8.3% • Substantially achieved all

targets/goals. However, no

risk-sharing transactions

were entered into during

2012.

• Execute new risk-sharing transactions beyond the traditional charter

required mortgage insurance coverage.

• Propose timeline for continued growth in risk-sharing transactions through

2013.

• Pricing 10% • Develop and begin implementing plan to increase guarantee fee pricing to

more closely approximate the private sector.

10.0% • All targets/goals were

– Single-family Guarantee Fee achieved.

Pricing Increases • Set uniform pricing across loan sellers to extent practicable.

– Set plan to price for state law

effects on mortgage credit

losses given default

• Work with FHFA to develop appropriate risk-based pricing by state. Statelevel pricing grid to be completed by August 31, 2012.

338 Freddie Mac
Performance Measure Weighting Targets/Goals Scoring

Summary of Performance

Against Targets

3. Maintain foreclosure

prevention activities and credit

availability for new and

refinanced mortgages.

20% 20.0%

• Loss Mitigation through

continued implementation and

enhancement of Servicer

Alignment Initiative

10% • Enhance transparency of servicer requirements around foreclosure

timelines and compensatory fees and publish applicable announcements by

September 30, 2012.

10.0% • All targets/goals were

achieved.

• Enhance short sales programs that include efforts to identify program

obstacles that impact utilization by June 30, 2012. Applicable lender

announcements to foreclosure alternatives by September 30, 2012.

• Short Sales

• Deeds-in-Lieu and Deeds-forLease • Design, develop or enhance deed-in-lieu and deed-for-lease programs that

include efforts to identify and resolve program obstacles that impact

utilization by September 30, 2012. Applicable lender announcements to

foreclosure alternatives by December 31, 2012.

• Real Estate Owned Sales 10% • Implement, as needed, loans to facilitate REO sales program by June 30,

2012.

10.0% • All targets/goals were

achieved.

• Expand financing for small investors in REO properties by June 30, 2012.

• Initiate disposition pilot, either through financing or bulk sales, by

September 30, 2012.

• Expand pilot programs and establish ongoing sales program, as agreed to

with FHFA, during 2012.

4. Manage Efficiently in Support

of Conservatorship Goals

20% 18.7%

• Conservatorship/ Board

Priorities

20% • Work closely with FHFA toward concluding litigation associated with

private-label securities and whole loan repurchase claims, as appropriate.

18.7% • Substantially achieved all

targets/goals. However,

certain control weaknesses

require remediation and

other aspects of the internal

controls environment need

strengthening.

• Prioritize and manage operations in support of conservatorship goals and

board directions.

• Adapt to evolving conservatorship requirements.

• Collaborate fully with FHFA and, when requested, Fannie Mae.

• Actively seek and consider public input on conservatorship-related

projects, as requested.

• Effectively identify, communicate, and remediate situations that create risk

for the conservatorships or avoidable taxpayer losses.

• Ensure corporate governance procedures are maintained, including timely

reporting to the board and adhering to board mandates and expectations.

• Take steps to mitigate key person dependencies and maintain appropriate

internal controls and risk management governance.

• Achieve milestones agreed to within the year with regard to accounting

alignment.

339 Freddie Mac
At-Risk Deferred Salary Based on Individual Performance

In addition to shared objectives on the Conservatorship Scorecard, each NEO participating in the Executive

Compensation Program had individual performance objectives for the year. The level of achievement against each NEO’s

individual performance objectives is evaluated using two considerations – business results and leadership effectiveness –

which are given equal weight.

The table below describes those individual performance objectives considered, as well as management’s and the

Compensation Committee’s assessment of the level of achievement against those objectives. Certain of the individual

performance objectives were either also corporate performance objectives or directly supported achievement of one or more

of the corporate performance objectives. Achievement against the corporate performance objectives is discussed in

“Determination of Actual 2012 Compensation – At-Risk Deferred Salary Based on Corporate Performance” and “– Second

Installment of the 2011 Target Opportunity.”

Mr. Layton is not included in the table below because none of his compensation is subject to reduction based on his

individual performance.

Table 81 — Named Executive Officer Individual Performance Summaries

Individual Performance Objectives Assessment of Performance

Mr. Kari:

• Strengthen the control and operating environment; Under Mr. Kari’s leadership, the finance organization met or exceeded its

goals for 2012. Although internal controls over financial reporting were

determined to be not effective, mitigating actions have been taken to enable us

to prepare our financial statements in conformity with GAAP. For the

assessment period, the material weakness related to our inability to effectively

manage information technology changes and maintain adequate controls over

information security monitoring was remediated by December 31, 2012 in line

with the previously agreed upon schedule. Mr. Kari and his team have worked

closely with FHFA and, where appropriate, Fannie Mae to align accounting

policies and practices as new accounting rules are adopted. In addition,

significant work has been done to improve financial disclosures and align

them with Fannie Mae’s comparable disclosures where appropriate.

Administrative expenses continued to be well managed, with 2012 expenses

coming in within budget, as adjusted for Board-approved variances. Under

Mr. Kari’s leadership, the finance organization continued to provide training

and professional development opportunities for its staff. One such program

developed in 2012 is a mid-level manager rotational program which is

providing opportunities for enhancement of manager skill sets. As a result of

this and other programs, voluntary attrition among finance employees is below

levels experienced in 2011.

• Align accounting policies, as appropriate, with Fannie Mae’s

comparable policies;

• Manage administrative expenses within approved budget;

• Expand leadership, management and professional development

opportunities for Finance employees; and

• Identify and execute on opportunities to reduce voluntary attrition in

the Finance division.

Mr. Haldeman:

• Lead the execution of the Conservatorship Scorecard; In October 2011, Mr. Haldeman announced his intent to step down as both our

CEO and a member of the Board of Directors. At the time, he committed to

remain as CEO until his successor was named and the transition was

complete. Due to the lengthy search, Mr. Haldeman continued as CEO for

over six months after his announcement. During this time, he provided the

company with needed senior executive continuity and enabled the

management team to focus on meeting the objectives in the Conservatorship

Scorecard instituted by FHFA. He also worked collaboratively with Mr.

Layton following his appointment as CEO to support a smooth leadership

transition. Partially offsetting these contributions were ongoing challenges

associated with our internal control environment and certain organizational

matters.

• Ensure continuity of operations during the CEO search process; and

• Assist with the on-boarding and integration of the new CEO.

Mr. Mullings:

• Implement initiatives to improve customer satisfaction levels and the

overall customer experience;

Mr. Mullings assumed expanded responsibilities in May 2012, when he was

named the interim leader of the single-family business. Under Mr. Mullings’

leadership, customer satisfaction improved due to faster decision-making,

seeking customer feedback on process changes and providing customer

service training to hundreds of customer-facing staff. Single-family segment

earnings improved year-over-year, driven by higher revenues and strong credit

quality on new mortgage purchases, combined with strong loss mitigation and

growing REO recovery values. Struggling borrowers were helped through the

expanded HARP initiative, loan modifications and other foreclosure

alternatives. In addition, Mr. Mullings directed the successful implementation

of several single-family deliverables named in the Conservatorship Scorecard,

most notably the UMDP, contract harmonization and the pricing and servicing

alignment initiatives.

• Increase single-family segment earnings by improving the

profitability of new business and maximizing the value of loss

mitigation efforts;

• Assist borrowers in avoiding foreclosure while optimizing servicing

performance and effectively manage the real estate owned portfolio;

and

• Implement the Single-Family related deliverables contained in the

Conservatorship Scorecard, including the Uniform Mortgage Data

Program, contract harmonization and the pricing and servicing

alignment initiative.

340 Freddie Mac
Individual Performance Objectives Assessment of Performance

Mr. Weiss:

• Serve as the senior executive liaison to FHFA and Treasury, and

oversee the company’s execution of effective regulatory affairs;

During 2012, Mr. Weiss continued to provide steady leadership during a

period of great change. His knowledge of the company, industry and the

regulatory environment, along with his ability to manage multiple business

and staff functions led to a further expansion in his operating responsibilities

in 2012. In support of the company’s focus on execution of key

conservatorship and corporate goals, Mr. Weiss successfully established two

new teams – one responsible for conservatorship and corporate initiatives and

another for enterprise-wide project management – to more effectively manage

cross-divisional strategic initiatives. This involved overseeing the company’s

launch of a multiyear effort to establish a common securitization platform for

the GSEs and the broader housing finance system. Mr. Weiss also developed a

comprehensive orientation and integration plan as part of the onboarding of

Mr. Layton, which identified key business and organizational challenges that

would present opportunities for his focus. Mr. Weiss also oversaw the

successful restructuring of the company’s compensation programs in a manner

that balances conservatorship goals, taxpayer interests, and employee retention

concerns. Under Mr. Weiss, the MHA-C function continued to perform

services for Treasury in a highly effective manner. In addition, throughout the

year, Mr. Weiss successfully guided and enhanced the company’s

collaborative relationship with FHFA on many forward-looking industry

objectives.

• Oversee the company’s execution of corporate and conservatorship

initiatives and strategies;

• Execute a comprehensive on-boarding, integration, and

communication process for the CEO transition;

• Restructure the compensation program for non-senior executive

employees at all levels;

• Oversee the company’s execution of the Making Home AffordableCompliance (MHA-C) function in support of the Administration’s

Home Affordable Modification Program; and

• Reorganize the company’s project management function to ensure

standardization in the execution of significant initiatives and instill

greater accountability for delivery of business and operational

benefits.

Ms. Wisdom:

• Integrate the credit management function into the enterprise risk

management organization;

Ms. Wisdom continued to demonstrate an ability to drive for results across a

wide range of activities. During 2012, Ms. Wisdom merged the credit

management function into enterprise risk management, resulting in a more

efficient and effective organization, primarily by establishing separate singlefamily and multifamily credit functions, eliminating duplicative processes, and

establishing a streamlined and clearer governance structure. Within the

counterparty credit and operational risk areas, Ms. Wisdom’s team completed

a comprehensive review of the functions, reprioritized deliverables based on

an impact assessment, and redesigned processes. Ms. Wisdom led the effort to

strengthen the internal control environment within her organization, through

the remediation of control weaknesses, and within the enterprise by leading

the effort to remediate a long-outstanding Significant Deficiency related to

model and model application governance. Ms. Wisdom established the

financial instrument fraud unit in accordance with guidance provided by

FHFA, which also supported the contract harmonization effort. Finally, Ms.

Wisdom strengthened her organization’s relationship with FHFA through

interaction on multiple Conservatorship Scorecard objectives, involvement in

the analysis of various homeowner relief efforts, and proposals to address

outstanding issues related to mortgage insurers.

• Strengthen the company’s risk management capabilities, which

includes a redesign of the counterparty credit and external operational

risk management functions;

• Strengthen the internal control environment within the enterprise risk

management organization and continue to enhance model governance

within the company;

• Establish the Financial Instrument Fraud Unit; and

• Identify additional opportunities to collaborate with FHFA on

business issues.

Each NEO’s level of achievement was used to determine the recommended reduction, if any, to this component for the

portion of At-Risk Deferred Salary based on individual performance. A two-step process was employed by Mr. Layton to

achieve appropriate and consistent levels of differentiation among all senior vice presidents and above, including the NEOs.

For Mr. Haldeman, these steps were completed by the Compensation Committee. The first step was the completion of the

individual performance assessment. The second step was the recommended reductions, which were made taking into

consideration the factors listed below.

• Each officer’s performance against his/her individual 2012 performance objectives in terms of both business results

and leadership effectiveness;

• The relative contributions of each officer in relation to the contributions of the other officers; and

• The combined accomplishments of the entire senior officer team during 2012.

Based on these factors and their individual performance, Mr. Layton recommended no reduction of this component for

Messrs. Kari and Weiss and Ms. Wisdom and a 5% reduction of this component for Mr. Mullings. The Compensation

Committee concurred with Mr. Layton’s recommendations. The Compensation Committee also determined that a 10%

reduction should be applied to this component for Mr. Haldeman. The relatively narrow spread of the individual

differentiation between the largest and smallest reductions for the portion of At-Risk Deferred Salary based on individual

performance (expressed as a percentage of each NEO’s target) supports our continued emphasis of the need for highly

coordinated, cross-functional collaboration.

The following chart compares the target and actual amounts of 2012 Deferred Salary for each NEO other than

Mr. Layton. The actual amount earned is scheduled to be paid in equal quarterly installments on the last business day of each

calendar quarter of 2013, except in the case of Mr. Haldeman, who is scheduled to receive quarterly installments on the last

business days of March and June, 2013.

341 Freddie Mac
Table 82 — 2012 Deferred Salary

Target 2012 Deferred Salary Actual 2012 Deferred Salary

At-Risk At-Risk

Named Executive Officer Fixed

Portion Based

on Corporate

Performance

Portion Based

on Individual

Performance

Total Target

Deferred

Salary Fixed

Portion Based

on Corporate

Performance

Portion Based

on Individual

Performance

Total Actual

Deferred

Salary

Mr. Kari ............... $1,530,000 $472,500 $472,500 $2,475,000 $1,530,000 $448,875 $472,500 $2,451,375

Mr. Haldeman(1) ......... 1,440,000 405,000 405,000 2,250,000 892,800 384,750 364,500 1,642,050

Mr. Mullings ........... 658,500 229,500 229,500 1,117,500 658,500 218,025 218,025 1,094,550

Mr. Weiss ............. 891,000 297,000 297,000 1,485,000 891,000 282,150 297,000 1,470,150

Ms. Wisdom ............ 757,500 262,500 262,500 1,282,500 757,500 249,375 262,500 1,269,375

(1) All amounts reported for Mr. Haldeman are pro-rated to reflect his voluntary termination on June 30, 2012. Under the terms of the Executive

Compensation Program, Mr. Haldeman’s earned but unpaid Fixed Deferred Salary is reduced by 2% for each full or partial month by which his

termination preceded January 31, 2014. Accordingly, his Actual 2012 Fixed Deferred Salary reflects a 38% reduction from the target.

Second Installment of the 2011 Target Opportunity

Over the course of 2012, the Compensation Committee received updates from management on our achievement against

the performance objectives used to determine the funding level for the second installment of the 2011 TO. In January 2013,

management presented the Compensation Committee with its assessment that we had met or exceeded all of the objectives

for the second installment of the 2011 TO. The Committee agreed with management’s assessment of the company’s

performance against the objectives.

The table below presents the performance measures and the assessment of our achievement against those performance

objectives.

Table 83 — Achievement of Performance Measures for Second Installment of 2011 Target Opportunity

Performance Measure Weighting Key Factors Impacting Achievement Assessment

Business Infrastructure

Achieve benefit realization from key capabilities completed

and deployed through the second quarter of 2012, based on

key metrics outlined in business cases.

40% Of the three initiatives to which this objective applies, the benefit

realization exceeded expectations for one, met expectations for

another and fell short of expectations for the third, as follows:

• Cash Pipeline Management – The financial benefits of this software

application, which manages the pipeline of whole loans purchased

for cash, significantly exceeded our projections;

• Servicing Alignment Initiative – The implementation – at FHFA’s

direction – of this new set of mortgage loan servicing and

delinquency management requirements has, as expected, brought

significant benefits to borrowers and the mortgage system as a

whole.

• Multifamily Originating and Underwriting – This system will be

used to quote, underwrite and approve deals for purchase, but

adoption was delayed and benefits were below expectations.

Financial and Risk

Conserve capital by limiting the 2012 draw from Treasury

to within a range from $0 to $6 billion.

40% The Treasury draw applicable to 2012 financial results was $19

million, at the low end of the target range. In addition, we had positive

equity of $8.8 billion at December 31, 2012.

Mission

Achieve the following Mission objectives:

20% • We completed 69,581 HAMP and non-HAMP modifications, in the

middle of the target range of 55,000 – 75,000. We also completed

53,008 short sales and deed in lieu of foreclosure transactions,

above the high-end of the target range of 40,000 – 50,000.

Additionally, we purchased 434,296 HARP loans, significantly

above the high-end of the target range of 180,000 – 270,000.

• Support loss mitigation and foreclosure prevention

activities;

• Achieve the 2012 affordable housing goals; and

• Provide market support, as measured by single-family

purchases as a percentage of agency volume. • We expect to report our performance with respect to the 2012

affordable housing goals in March 2013.

• Single-family purchases as a percentage of estimated agency

volume were 26%, which was at the low end of the target range of

26%- 30%.

In evaluating the company’s performance against the performance objectives, the following additional factors were

considered in determining the appropriate funding level.

• The relatively low weighting assigned to the Multifamily Originating and Underwriting System, a business

infrastructure project for which 2012 progress was below plan;

342 Freddie Mac
• The company’s performance in responding to a series of FHFA-directed changes to HARP designed to attract more

eligible borrowers to that program; and

• The company’s overall internal control environment.

Based on the assessment of performance, including the additional considerations described above, the Compensation

Committee recommended a score of 95% for corporate performance. FHFA approved the Compensation Committee’s

recommendation. This score was then applied to the funding level for the long-term incentive awards made to vice presidents

and certain non-officers and the TO payments to eligible senior officers, including the NEOs.

The Compensation Committee and FHFA concurred with the CEO’s recommended allocation of the TO funds to the

NEOs. That allocation was based on the same assessment of performance and took into consideration the same additional

factors as for the portion of At-Risk Deferred Salary based on individual performance discussed in “– At-Risk Deferred

Salary Based on Individual Performance.”

Based on these factors and their individual performance, Mr. Layton recommended no reduction be taken for

Ms. Wisdom, a reduction of 5% for Messrs. Kari and Weiss and a reduction of 15% for Mr. Mullings. The Compensation

Committee concurred with Mr. Layton’s recommendations. The following chart summarizes the target TO applicable to

performance during 2012 for each of the NEOs other than Mr. Layton, and the allocation of the pool of funds to be

distributed to the NEOs.

Table 84 — 2011 Target Opportunity

2011 Second Installment

Named Executive Officer Target Actual

Mr. Kari .................................................................................. $ 583,333 $554,167

Mr. Haldeman(1) ............................................................................ 1,000,000 —

Mr. Mullings .............................................................................. 273,172 232,196

Mr. Weiss ................................................................................ 366,667 348,333

Ms. Wisdom ............................................................................... 291,667 291,667

(1) In accordance with the terms of the prior executive compensation program, Mr. Haldeman forfeited his 2011 TO when he voluntarily terminated his

employment, effective June 30, 2012.

Written Agreements Relating to Employment of CEO and CFO

As described below, we have entered into certain agreements with Mr. Layton (our CEO), Mr. Kari (our CFO), and

Mr. Haldeman (our former CEO), including a Memorandum Agreement with each when they joined the company.

We entered into a Memorandum Agreement with Mr. Layton in connection with his employment as our Chief Executive

Officer. A copy of the Memorandum Agreement with Mr. Layton was filed as Exhibit 10.1 to our Current Report on Form 8-

K filed on May 10, 2012. We also have entered into: (a) a Memorandum Agreement; and (b) a recapture agreement with each

of Messrs. Kari and Haldeman in connection with their employment as our executive officers. Copies of the Memorandum

Agreement and the recapture agreement regarding Messrs. Kari and Haldeman were filed as Exhibits 10.1 and 10.2,

respectively, to our Current Reports on Form 8-K filed on September 24 and July 21, 2009, respectively, with respect to each

executive’s employment with us.

The compensation provisions of each executive’s Memorandum Agreement are summarized separately below.

Additional information about the components of executive compensation is discussed above in “— Elements of Total Direct

Compensation (TDC).”

Mr. Layton’s compensation, as provided in his Memorandum Agreement, consists of an annual base salary of $600,000.

Mr. Layton’s Memorandum Agreement provides that he will be eligible to participate in all employee benefit plans offered to

our senior executive officers, including our SERP, pursuant to the terms of these plans.

Mr. Kari’s compensation, as provided in his Memorandum Agreement, is as follows:

• A Semi-Monthly Base Salary of no less than $675,000 per year;

• Deferred Base Salary of $1,658,333 for 2010, payable as described above;

343 Freddie Mac
• A Target Opportunity of $1,166,667 for 2010, payable as described above; and

• A cash sign-on award of $1,950,000 in recognition of the annual incentive opportunity and unvested equity that

Mr. Kari forfeited by leaving his previous employer. This award was paid in installments during Mr. Kari’s first year

of employment with us.

Mr. Kari’s Memorandum Agreement provides for the following additional forms of compensation during his

employment with us:

• The opportunity to participate in all employee benefit plans offered to our senior executive officers, including our

SERP, pursuant to the terms of these plans. For a description of these plans see “Compensation Tables” below; and

• Eligibility to receive termination benefits pursuant to the terms of any then-applicable severance plan or policy,

subject to the approval of FHFA.

Mr. Haldeman’s compensation, as provided in his Memorandum Agreement, was as follows:

• A Semi-Monthly Base Salary of $900,000 per year;

• Deferred Base Salary in the amount of $3.1 million for 2010, payable as described above; and

• A Target Opportunity in the amount of $2 million for 2010, payable as described above.

Executive Compensation Program participants, including Mr. Kari, are not currently entitled to a guaranteed level of

severance benefits upon any type of termination event. Mr. Haldeman did not receive any such benefits in connection with

his departure from the company in June 2012. For additional information on compensation and benefits payable in the event

of a termination of employment, see “Potential Payments Upon Termination of Employment or Change-in-Control” below.

We also entered into a restrictive covenant agreement with Mr. Layton and recapture and restrictive covenant

agreements with Messrs. Kari and Haldeman. We did not enter into a recapture agreement with Mr. Layton because he only

receives base salary, which is not subject to recapture. The recapture requirements included in the agreements with Messrs.

Kari and Haldeman, and the similar recapture requirements applicable to all other participants in the Executive

Compensation Program, are described below under “Other Executive Compensation Considerations — Recapture and

Forfeiture Agreement.” The non-competition and non-solicitation provisions included in the restrictive covenant agreement

are described in “Potential Payments Upon Termination of Employment or Change-in-Control.”

We have also entered into indemnification agreements with certain of our current and former directors and executive

officers, each an indemnitee, including Messrs. Layton, Kari, and Haldeman. With respect to indemnification agreements

entered into with executive officers in or after August 2011, the form of agreement has been revised to provide that

indemnification rights under the agreement would terminate if and when the executive officer remained with Freddie Mac

after ceasing to report directly to the CEO with respect to any claims arising from matters occurring after the officer was no

longer a direct CEO report. Similar indemnification rights would continue to be available to such executive officers under the

Bylaws going forward.

The indemnification agreements provide that we will indemnify the indemnitee to the fullest extent permitted by our

Bylaws and Virginia law. This obligation includes, subject to certain terms and conditions, indemnification against all

liabilities and expenses (including attorneys’ fees) actually and reasonably incurred by the indemnitee in connection with any

threatened or pending action, suit or proceeding, except such liabilities and expenses as are incurred because of the

indemnitee’s willful misconduct or knowing violation of criminal law. The indemnification agreements provide that if

requested by the indemnitee, we will advance expenses, subject to repayment by the indemnitee of any funds advanced if it is

ultimately determined that the indemnitee is not entitled to indemnification. The rights to indemnification under the

indemnification agreements are not exclusive of any other right the indemnitee may have under any statute, agreement or

otherwise. Our obligations under the indemnification agreements will continue after the indemnitee is no longer a director or

officer of the company with respect to any possible claims based on the fact that the indemnitee was a director or officer, and

the indemnification agreements will remain in effect in the event the conservatorship is terminated. The indemnification

agreements also provide that indemnification for actions instituted by FHFA will be governed by the standards set forth in

FHFA’s Notice of Proposed Rulemaking published in the Federal Register on November 14, 2008, proposing an amendment

to FHFA’s interim final golden parachute payments regulation to address prohibited and permissible indemnification

payments. In January 2009, FHFA issued final regulations relating to golden parachute payments. Under those final

regulations, FHFA may limit golden parachute payments, and the regulations set forth factors to be considered by the

Director of FHFA in acting upon his authority to limit these payments. A proposed rule was published by FHFA in June 2009

344 Freddie Mac
that has not yet been adopted in final form. In general, this proposal would give FHFA the authority to prohibit

indemnification payments in cases involving administrative proceedings before FHFA or civil actions initiated by FHFA.

Other Executive Compensation Considerations

Effect of Termination of Employment

Under the Executive Compensation Program, Base Salary ceases upon an NEO’s termination of employment, regardless

of the reason for such termination. The treatment of Deferred Salary upon an NEO’s termination is as described below.

• Fixed Deferred Salary. The timing and payment of any unpaid portion of Fixed Deferred Salary is based on the

reason for the termination of employment, as follows:

• Forfeiture Event — All earned but unpaid Fixed Deferred Salary is subject to forfeiture upon the occurrence of a

“forfeiture event,” as described below under “— Recapture and Forfeiture Agreement.”

• Death — All earned but unpaid Fixed Deferred Salary is paid in full as soon as administratively possible, but not

later than 90 calendar days after the date of death.

• Long-Term Disability — All earned but unpaid Fixed Deferred Salary is paid in full in accordance with the

Approved Payment Schedule.

• Any Other Reason (including, but not limited to, voluntary termination, retirement, and involuntary termination for

any reason other than a “forfeiture event”) — All earned but unpaid Fixed Deferred Salary is paid in accordance

with the Approved Payment Schedule. The amount paid will be reduced by 2% for each full or partial month by

which the NEO’s termination precedes (i) January 31, 2014, for an NEO who was an employee on January 1, 2012

and who remained continuously employed through the termination date, or (ii) the 25-month anniversary of the hire

date for an NEO hired after January 1, 2012.

• At-Risk Deferred Salary. The timing and payment of any unpaid portion of At-Risk Deferred Salary is based on the

reason for termination of employment, as follows:

• Forfeiture Event — All earned but unpaid At-Risk Deferred Salary is subject to forfeiture upon the occurrence of a

“forfeiture event,” as described below under “— Recapture and Forfeiture Agreement.”

• Death — All earned but unpaid At-Risk Deferred Salary is paid as soon as administratively possible and without

being subject to reduction based on corporate and individual performance, but not later than 90 days after the date

of death.

• Long-Term Disability — All earned but unpaid Fixed Deferred Salary is paid in full in accordance with the

Approved Payment Schedule without being subject to reduction based on corporate and individual performance.

• Any Other Reason (including, but not limited to, voluntary termination, retirement, and involuntary termination for

any reason other than a “forfeiture event”) — All earned but unpaid At-Risk Deferred Salary is paid in accordance

with the Approved Payment Schedule, subject to the performance assessment and reduction process for At-Risk

Deferred Salary.

Perquisites

We believe that perquisites should be a minimal part of the compensation package for our NEOs. We provide certain

perquisites because we believe there is a business-related benefit, including that the perquisites assist in attracting and

retaining executive talent. None of the perquisites offered provide for a gross-up to cover the taxes due on the perquisite

itself. The only perquisite provided to the NEOs during 2012 was reimbursement for assistance with personal financial

planning, tax planning, and/or estate planning, up to an annual maximum benefit that varies by position. The following

perquisites were available to NEOs – but none of the NEOs received any of these perquisites – during 2012:

• Physical Examination. Reimbursement of up to $700 of expenses associated with a comprehensive annual physical

exam that are not otherwise covered by the NEO’s medical insurance;

• Relocation Benefits. Under our relocation program, we provide assistance in finding and moving into a new home and

selling an existing home, temporary lodging, reimbursement of certain travel expenses, and a one-time payment to

cover miscellaneous expenses; and

• Spousal Travel Expenses. Reimbursement of business-related spousal travel expenses.

Additionally, total annual perquisites for any NEO cannot exceed $25,000 without FHFA approval.

345 Freddie Mac
Supplemental Executive Retirement Plan

Our NEOs are eligible to participate in our Supplemental Executive Retirement Plan, or SERP. We provide a SERP

because it helps us to remain competitive with the companies with which we compete for talent and thereby assists in

attracting and retaining executive talent. The SERP is designed to provide participants with the full amount of benefits to

which they would have been entitled under our Pension Plan and Thrift/401(k) Savings Plan if those plans: (a) were not

subject to certain dollar limits under the Internal Revenue Code; and (b) did not exclude from “compensation” Deferred Base

Salary prior to 2012 and amounts deferred under our Executive Deferred Compensation Plan (discussed below).

Effective January 1, 2012, eligibility for the “Pension SERP Benefit” (as defined in the SERP) is limited, and

Executives (as defined in the SERP) whose employment with the company commenced after December 31, 2011 (or who are

rehired after that date) are not eligible for the Pension SERP Benefit. However, non-Executives employed as of

December 31, 2011 who are subsequently promoted to Executive positions will be eligible for the Pension SERP Benefit.

On August 27, 2012, the SERP was amended, with approval of FHFA. Under this amendment, which became effective

as of January 1, 2012, benefits under the SERP are limited to two times a participant’s “base salary” in any calendar year in

which the participant’s compensation is covered by the Executive Compensation Program.

For additional information regarding this benefit see “Compensation Tables” below.

Recapture and Forfeiture Agreement

Freddie Mac has adopted, with the approval of FHFA, a 2012 Executive Management Compensation Program

Recapture and Forfeiture Agreement (the “Recapture and Forfeiture Agreement”) for Freddie Mac executives in the

following positions: chief executive officer; chief operating officer; chief financial officer; executive vice presidents; and

senior vice presidents, including each of the NEOs, unless an executive’s participation is specifically excluded in a separate

agreement. An NEO’s agreement to the Recapture and Forfeiture Agreement is a condition of his or her participation in the

Executive Compensation Program.

The Recapture and Forfeiture Agreement sets forth terms and conditions pursuant to which an NEO’s compensation

under the Executive Compensation Program may be recaptured and/or forfeited. The Recapture and Forfeiture Agreement

applies to Deferred Salary earned, paid or to be paid pursuant to the terms of the Executive Compensation Program and any

determination of a Forfeiture Event (as defined in the Recapture and Forfeiture Agreement) that occurs on or after January 1,

2012. The Deferred Salary and the period during which it is subject to recapture and/or forfeiture vary depending on which

Forfeiture Event has occurred.

The Recapture and Forfeiture Agreement provides for the recapture and/or forfeiture of specified compensation if, after

providing the requisite notice under the agreement, our Board of Directors determines that any Forfeiture Event has occurred.

The Forfeiture Events and the compensation subject to recapture and/or forfeiture are described below.

1) Forfeiture Event: The NEO has earned or obtained the legally binding right to a payment of Deferred Salary based on

materially inaccurate financial statements (including without limitation, statements of earnings, revenues, or gains) or

any other materially inaccurate performance measure.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred Salary in excess of the amounts that the

Board of Directors determines likely would have been otherwise earned using accurate measures during the

two years prior to the Forfeiture Event.

2) Forfeiture Events:

a) The NEO’s employment is terminated because the NEO is either convicted of, or pleads guilty or nolo contendere

to, a felony;

b) Subsequent to termination of employment:

i) the NEO is convicted of, or pleads guilty or nolo contendere to, a felony, based on conduct occurring prior to

termination; and

ii) within one year of such conviction or plea, the Board of Directors determines in good faith that such conduct is

materially harmful to the business or reputation of Freddie Mac.

346 Freddie Mac
c) The NEO’s employment is terminated because, or within two years of the NEO’s termination of employment, the

Board of Directors determines in good faith that, the NEO engaged in any willful (as defined in the Recapture and

Forfeiture Agreement) misconduct in the performance of his or her duties with Freddie Mac that is materially

harmful to the business or reputation of Freddie Mac.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred Salary earned by the NEO during the two

years prior to the date that the NEO is terminated, any Deferred Salary that is scheduled to be paid to the NEO

within two years after termination of employment and any cash payment made or to be made to the NEO as

consideration for any release of claims agreement between the NEO and Freddie Mac.

3) Forfeiture Event: The NEO’s employment is terminated because, in carrying out his or her duties, the NEO engages

in conduct that constitutes gross neglect or gross misconduct that is materially harmful to Freddie Mac, or within two

years after the NEO’s termination of employment, the Board of Directors determines in good faith that the NEO,

prior to his or her termination of employment, engaged in conduct that constitutes gross neglect or gross misconduct

and that such actions resulted in material harm to Freddie Mac.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred Salary paid to the NEO at the time of

termination or subsequent to the date of termination, including any cash payment made to the NEO as

consideration for any release of claims agreement between the NEO and Freddie Mac.

4) Forfeiture Event: The NEO has violated a post-termination non-competition covenant set forth in the Restrictive

Covenant and Confidentiality Agreement between the NEO and Freddie Mac in effect when a payment of Deferred

Salary is scheduled to be made.

Compensation Subject to Recapture and/or Forfeiture: 50% of the Deferred Salary paid to the NEO during the

12 months immediately preceding the violation and 100% of all Deferred Salary unpaid at the time of such

violation.

Under the Recapture and Forfeiture Agreement, the Board of Directors has discretion to determine the appropriate dollar

amount to be recaptured from and/or forfeited by the NEO, if any, which is intended to be the gross amount of compensation

in excess of what Freddie Mac would have paid the NEO had Freddie Mac taken the Forfeiture Event into consideration at

the time such compensation decision was made.

A copy of the form of the Recapture and Forfeiture Agreement was filed as Exhibit 10.3 to our quarterly report on Form

10-Q filed on November 6, 2012. The Recapture Policy applicable to compensation earned in 2011 and 2010 was filed as

Exhibit 10.4 to our Current Report on Form 8-K filed on December 24, 2009.

The additional event listed below is applicable only to the CEO and the CFO, to the extent they have compensation

subject to recapture.

• Accounting Restatement Resulting from the Executive’s Misconduct — If misconduct by the CEO and/or the CFO

necessitates the preparation of an accounting restatement due to material non-compliance with financial reporting

requirements.

For this triggering event, the compensation subject to recapture will be determined in accordance with Section 304 of

the Sarbanes-Oxley Act.

Stock Ownership and Hedging Policies

In November 2008, FHFA approved the suspension of our stock ownership guidelines because we had ceased paying

our executives stock-based compensation. Also, the Purchase Agreement prohibits us from issuing any shares of our equity

securities without the prior written consent of Treasury. The suspension of stock ownership requirements is expected to

continue through the conservatorship and until we resume granting stock-based compensation.

All employees, including our NEOs, are prohibited from purchasing and selling derivative securities related to our

equity securities, including warrants, puts and calls, or from dealing in any derivative securities other than pursuant to our

stock-based benefit plans. All directors and employees (including the NEOs) are prohibited from transacting in options (other

than options granted by us) or other hedging instruments as specified in our Insider Trading Policy. In addition, all directors

347 Freddie Mac
and employees (including our NEOs) are prohibited from holding our securities in a margin account or pledging our

securities as collateral for a loan.

Section 162(m) Limits on the Tax Deductibility of Our Compensation Expenses

Section 162(m) of the Internal Revenue Code imposes a $1 million limit on the amount that a company may annually

deduct for compensation to its CEO and certain other NEOs, unless, among other things, the compensation is “performancebased,” as defined in section 162(m). Given the conservatorship and the desire to maintain flexibility to promote our

corporate goals, the at-risk element of Deferred Salary and the Target Opportunity applicable to performance during 2012 are

not structured to qualify as performance-based compensation under section 162(m).

Compensation Committee Interlocks and Insider Participation

None of the members of the Board of Directors who served on the Compensation Committee during fiscal year 2012

were our officers or employees or had any relationship with us that would be required to be disclosed by us under

Item 407(e)(4) of Regulation S-K.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with

management and, based on such review and discussion, has recommended to the Board that the Compensation Discussion

and Analysis be included in this Annual Report on Form 10-K.

This report is respectfully submitted by the members of the Compensation Committee of the Board.

Anthony A. Williams, Chairman

Linda B. Bammann

Christopher S. Lynch

Compensation and Risk

With respect to 2012, our management conducted an assessment of our compensation plans and programs that were in

place during the year and that were applicable to employees at all levels, including the Executive Compensation Program in

which our executives participate. The purpose of the assessment was to determine whether the design and operation of our

compensation plans create incentives for employees to take inappropriate risks that are reasonably likely to have a material

adverse effect on us. The assessment was conducted by members of our enterprise risk management and human resources

teams, as well as by Aon Hewitt, management’s compensation consultant.

The review included an evaluation of:

• the mix of fixed and variable compensation;

• eligibility for participation in compensation programs;

• the process by which target TDC levels are established;

• the process for establishing performance objectives and for evaluating performance against those objectives

(including maximum individual payout levels); and

• the involvement of the Compensation Committee and FHFA in the compensation process.

An evaluation was also made of the linkage between corporate and divisional performance objectives.

The assessment was discussed with the Compensation Committee in December 2012. Management’s conclusion, with

which the Compensation Committee concurred, is that our compensation policies and practices in place during 2012 do not

create risks that are reasonably likely to have a material adverse effect on us.

Compensation Tables

The following tables set forth compensation information for our NEOs: our CEO, our CFO, our former CEO and our

three other most highly compensated executive officers who were serving as executive officers as of December 31, 2012.

348 Freddie Mac
Table 85 — Summary Compensation Table — 2012

Salary

Non-Equity Incentive

Plan Compensation (4)

Change in

Pension Value

and Nonqualified

Deferred

Compensation

Earnings Name and Principal Position Year (5)

Paid During

Year(1) Deferred(2) Bonus(3)

At-Risk

Deferred Salary

Target

Opportunity

All Other

Compensation(6) Total

Donald H. Layton ................... 2012 $368,750 $ — $ — $ — $ — $ — $ — $ 368,750

Chief Executive Officer

Ross J. Kari ....................... 2012 675,000 1,530,000 — 921,375 554,167 156,794 133,464 3,970,800

EVP — Chief Financial Officer 2011 675,000 829,167 — 721,375 988,771 118,428 55,292 3,388,033

2010 675,000 829,167 1,462,500 728,838 676,133 69,742 391,276 4,832,656

Charles E. Haldeman, Jr. ............. 2012 450,000 892,800 — 749,250 — — 124,464 2,216,514

Former Chief Executive Officer 2011 900,000 1,550,000 — 1,348,500 — 239,255 72,915 4,110,670

2010 900,000 1,550,000 — 1,362,450 1,322,250 214,460 104,374 5,453,534

Paul E. Mullings .................... 2012 412,500 658,500 — 436,050 232,196 182,258 77,628 1,999,132

SVP — Single-Family Sourcing and

Securitization

(Interim Head – Single-Family Business)

Jerry Weiss ....................... 2012 495,000 891,000 — 579,150 348,333 218,711 94,584 2,626,778

EVP — Chief Administrative Officer 2011 450,000 508,334 — 442,249 618,732 164,482 73,735 2,257,532

Paige H. Wisdom ................... 2012 467,500 757,500 — 511,875 291,667 134,434 89,517 2,252,493

EVP — Chief Enterprise Risk Officer 2011 425,000 370,834 — 322,624 484,223 102,074 48,129 1,752,884

(1) The amounts shown represent Base Salary under the Executive Compensation Program as described in “Compensation Discussion and Analysis —

Executive Management Compensation Program.”

(2) The 2012 amounts shown represent Fixed Deferred Salary earned under the terms of the Executive Compensation Program. Fixed Deferred Salary

earned during each calendar quarter will be paid in cash on the last business day of the corresponding quarter in the following year. The remaining

portion of Deferred Salary is reported in “Non-Equity Incentive Plan Compensation” and is referred to as “At-Risk” because it is subject to reduction

based upon corporate and individual performance. The amounts shown for 2011 and 2010 reflect the fixed portion of Deferred Base Salary earned under

the prior executive compensation program in place during those years. The timing of payments for the fixed portion earned during those years is the

same as described above under the Executive Compensation Program, except that Deferred Base Salary was paid only if the NEO was employed by us

on each payment date (except in cases of death, retirement, or long-term disability). As with the amounts reported for 2012, the remaining portion of

2011 and 2010 Deferred Base Salary is reflected in “Non-Equity Incentive Plan Compensation” because it is performance-based.

(3) The amount shown represents cash sign-on payments made to Mr. Kari in 2010. The cash sign-on award was made to Mr. Kari upon hire in 2009, in

recognition of the forfeited annual incentive opportunity and unvested equity at his previous employer. See “Compensation Discussion and Analysis —

Written Agreements Relating to Employment of CEO and CFO.”

(4) The 2012 amounts reported reflect (i) the At-Risk Deferred Salary earned during each calendar quarter in 2012, which is scheduled to be paid on the last

business day of the corresponding quarter in 2013, and (ii) the portion of the 2011 Target Opportunity that was earned for 2012 and paid on February 15,

2013. See “Compensation Discussion and Analysis — Executive Management Compensation Program — Performance Measures for the PerformanceBased Elements of Compensation.”

The 2011 amounts reported reflect (i) the performance-based portion of the 2011 Deferred Base Salary earned during each calendar quarter in 2011 and

paid on the last business day of the corresponding quarter in 2012, and (ii) the portion of the 2011 and 2010 Target Opportunities that were earned for

2011 and paid on February 16, 2012.

The 2010 amounts reported reflect (i) the performance-based portion of the 2010 Deferred Base Salary earned during each calendar quarter in 2010 and

paid on the last business day of the corresponding quarter in 2011, and (ii) the portion of the 2010 and 2009 Target Opportunities that were earned for

2010 and paid on February 18, 2011.

(5) The amounts reported in this column reflect the actuarial increase in the present value of each NEO’s accrued benefits under our Pension Plan and the

Pension SERP Benefit determined using the time periods and assumptions applied in our consolidated financial statements for the years ended

December 31, 2012, 2011, and 2010, respectively.

Mr. Layton, who joined the company in May 2012, is not eligible to participate in the Pension Plan or Pension SERP Benefit because participation is

limited to those individuals who were hired (or rehired) prior to January 1, 2012.

Mr. Haldeman terminated employment prior to becoming vested in his benefits under the Pension Plan and Pension SERP Benefit. As a result, the

aggregate change in the actuarial present value of Mr. Haldeman’s accumulated pension benefit in these plans from December 31, 2011 to December 31,

2012 was a reduction of ($66,196) and ($387,519) respectively. However, it is reflected as zero for this period.

For Mr. Kari only, the values reported include amounts that he is not currently entitled to receive because such amounts are not yet vested. The amounts

reported do not include values associated with retiree medical benefits, which are generally available on the same terms to all employees.

(6) Amounts reflect (i) matching contributions we made to our tax-qualified Thrift/401(k) Savings Plan; (ii) accruals we made pursuant to the Thrift/401(k)

SERP Benefit; (iii) Perquisites; and (iv) Health Assessment Credits, which are generally available to all employees. The amounts for 2012 are as

follows:

Thrift/401(k)

Savings Plan

Contributions

Thrift/401(k)

SERP Benefit

Accruals Perquisites

Health

Assessment

Credit(s)

Mr. Layton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $— $ —

Mr. Kari ...................................................................... 23,264 110,200 — —

Mr. Haldeman ................................................................. 23,264 101,200 — —

Mr. Mullings .................................................................. 23,845 53,783 — —

Mr. Weiss .................................................................... 23,714 70,750 — 120

Ms. Wisdom ................................................................... 24,127 65,300 — 90

Employer contributions to the Thrift/401(k) Savings Plan are available on the same terms to all of our employees. After the first year of employment, we

match up to the first 6% of eligible compensation at 100% of the employee’s contributions. Employee contributions and our matching contributions are

invested in accordance with the employee’s investment elections and are immediately vested. In addition, on a discretionary basis, we may make an

additional contribution to our Thrift/401(k) Savings Plan. Contributions made during 2012 and prior years were called the “Basic Contribution.” These

contributions were allocated on behalf of each eligible employee and are based on a stated percentage of each employee’s eligible compensation. The

formula for the Basic Contribution was 2% of eligible compensation up to the Social Security wage base and 4% of eligible compensation above the

Social Security wage base. When we made a Basic Contribution, it was applicable to the eligible compensation earned in the prior year and occurred

after the end of the calendar year to which it related. Basic Contributions were approved and posted to employees’ accounts in 2010 and 2012, but not in

2011. Basic Contributions received on or after January 1, 2008 are subject to a graded vesting schedule such that employees with less than five years of

service are not fully vested in the Basic Contribution on the contribution date, but become vested at the rate of 20% per year over their first five years of

service.

349 Freddie Mac
For additional information regarding the Thrift/401(k) SERP Benefit, see “Non-qualified Deferred Compensation” below. Amounts for the Thrift/401(k)

Savings Plan contributions and Thrift/401(k) SERP Benefit accruals are presented without regard to vesting status. To be eligible for the portion of the

Thrift/401(k) SERP Benefit attributable to matching contributions, the NEO must contribute the maximum amount permitted under the terms of the

Thrift/401(k) Savings Plan on a pre-tax basis throughout the entire period of the year in which the NEO is eligible to make such contributions.

Perquisites are valued at their aggregate incremental cost to us. During the years reported, the aggregate value of perquisites received by all NEOs other

than Messrs. Kari and Haldeman was less than $10,000. In accordance with SEC rules, amounts shown under “All Other Compensation” do not include

perquisites or personal benefits for an NEO that, in the aggregate, amount to less than $10,000.

The amount shown in the “All Other Compensation” column for 2010 for Mr. Haldeman consists entirely of relocation expenses paid as part of the

relocation benefit we agreed to provide when we hired him. The amount shown in the “All Other Compensation” column for 2010 for Mr. Kari consists

of (a) relocation expenses of $369,484 paid as part of the relocation benefit we agreed to provide when we hired him; and (b) financial planning services.

As part of our standard executive relocation program, we purchased Mr. Kari’s former home at a price equal to the average of two independent

appraisals, while the price at which the home ultimately sold was significantly lower because of a decline in the home’s value between our purchase and

the sale. SEC rules require that we include this difference as fiscal year 2010 compensation.

We calculated the incremental cost to us of providing each of Mr. Kari’s and Mr. Haldeman’s relocation expenses based on actual cost; that is, the total

amount of expenses incurred by us in providing the benefit.

Grants of Plan-Based Awards — 2012

The following table contains information concerning grants of plan-based awards to each of the NEOs during 2012. We

are prohibited from issuing equity securities without Treasury’s consent under the terms of the Purchase Agreement.

Accordingly, no stock awards were granted during 2012. For a description of the performance and other measures used to

determine payouts, see “Compensation Discussion & Analysis — Executive Management Compensation Program —

Elements of Total Direct Compensation (TDC),” “— Performance Measures for the Performance-Based Elements of

Compensation,” “— Determination of 2012 Target TDC for NEOs,” and “Compensation Discussion & Analysis —

Determination of Actual 2012 Compensation.”

Table 86 — Grants of Plan-Based Awards — 2012

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(1)

Name Award Threshold Target / Maximum

Mr. Layton(2) ............................... At-Risk Deferred Salary – Corporate $ — $ —

At-Risk Deferred Salary – Individual — —

Total — —

Mr. Kari .................................. At-Risk Deferred Salary – Corporate — 472,500

At-Risk Deferred Salary – Individual — 472,500

Total — 945,000

Mr. Haldeman .............................. At-Risk Deferred Salary – Corporate — 810,000

At-Risk Deferred Salary – Individual — 810,000

Total — 1,620,000

Mr. Mullings ............................... At-Risk Deferred Salary – Corporate — 229,500

At-Risk Deferred Salary – Individual — 229,500

Total — 459,000

Mr. Weiss ................................. At-Risk Deferred Salary – Corporate — 297,000

At-Risk Deferred Salary – Individual — 297,000

Total — 594,000

Ms. Wisdom ............................... At-Risk Deferred Salary – Corporate — 262,500

At-Risk Deferred Salary – Individual — 262,500

Total — 525,000

(1) The amounts reported reflect At-Risk Deferred Salary granted in 2012, which is subject to reduction based on corporate and individual performance, as

assessed by the Compensation Committee and FHFA. The amount of At-Risk Deferred Salary actually earned can range from 0% of target (reported in

the Threshold column) up to a maximum of 100% of target (reported in the Target/Maximum column). Actual At-Risk Deferred Salary amounts earned

are reported in the “Non-Equity Incentive Plan Compensation” column of “Table 85 — Summary Compensation Table — 2012.”

(2) Mr. Layton is not eligible to receive Deferred Salary.

350 Freddie Mac
Outstanding Equity Awards at Fiscal Year-End — 2012

The following table shows outstanding equity awards held by the NEOs as of December 31, 2012. As of December 31,

2012, there are no outstanding RSUs.

Table 87 — Outstanding Equity Awards at Fiscal Year-End — 2012

Option Awards(2)

Name Grant Date

Number of Securities

Underlying

Unexercised Options

Exercisable

Number of Securities

Underlying

Unexercised Options

Unexercisable

Option

Exercise

Price(1)

Option

Expiration

Date

Mr. Layton .......................................... — — — $ — —

Mr. Kari ............................................ — — — — — Mr. Haldeman ........................................ — — — — — Mr. Mullings ........................................ 6/5/2006 9,710 — 60.45 6/4/2016

Mr. Weiss........................................... 8/9/2004 4,970 — 64.36 8/8/2014

5/6/2005 5,640 — 62.69 5/5/2015

6/5/2006 5,980 — 60.45 6/4/2016

Ms. Wisdom ......................................... — — — — —

(1) Consistent with the terms of our 2004 Employee Plan, the option exercise price was set at a price equal to the fair market value of our common stock on

the grant date.

(2) Amounts reported in this table represent the unexercised portion of stock option awards. The vesting schedules are as follows:

• Stock options granted on August 9, 2004 vested at a rate of 25% beginning on the first anniversary of the grant date, and 25% on April 1, 2006,

April 1, 2007, and April 1, 2008.

• Stock options granted on May 6, 2005 and June 5, 2006 vested at a rate of 25% annually beginning on the anniversary of the grant dates.

Option Exercises and Stock Vested — 2012

The following table sets forth information concerning value realized upon the vesting of RSUs during 2012 by each of

the NEOs. No NEO exercised options in 2012.

Table 88 — Option Exercises and Stock Vested — 2012

Stock Awards

Name

Number of Shares

Acquired on Vesting(1)

Value Realized

on Vesting(2)

Mr. Layton ....................................................................... — $ —

Mr. Kari ......................................................................... — —

Mr. Haldeman ..................................................................... — —

Mr. Mullings ...................................................................... 6,699 2,030

Mr. Weiss ........................................................................ 5,726 1,735

Ms. Wisdom ...................................................................... 8,270 2,506

(1) Amounts reported reflect the number of RSUs that vested during 2012 prior to our withholding of shares to satisfy applicable taxes.

(2) Amounts reported are calculated by multiplying the number of RSUs that vested during 2012 by the fair market value of our common stock on the date

of vesting.

Pension Benefits — 2012

The following table shows the actuarial present value of the accumulated retirement benefits payable to each of the

NEOs under our Pension Plan and the Pension SERP Benefit (the component of the SERP that relates to the Pension Plan),

computed as of December 31, 2012. A summary of the material terms of each plan follows the table, including information

on early retirement.

351 Freddie Mac
Table 89 — Pension Benefits — 2012

Name Plan Name

Number of Years

Credited Service(1)

Present value of

Accumulated Benefit(2)

Payments During

Last Fiscal Year

Mr. Layton ..................................... Pension Plan — $ — $—

Pension SERP Benefit — — —

Mr. Kari ....................................... Pension Plan 3.2 68,205 —

Pension SERP Benefit 3.2 276,759 —

Mr. Haldeman .................................. Pension Plan — — —

Pension SERP Benefit — — —

Mr. Mullings ................................... Pension Plan 8 238,399 —

Pension SERP Benefit 8 610,617 —

Mr. Weiss ..................................... Pension Plan 9.2 235,711 —

Pension SERP Benefit 9.2 553,724 —

Ms. Wisdom .................................... Pension Plan 5 107,963 —

Pension SERP Benefit 5 237,517 —

(1) Amounts reported represent the credited years of service for each NEO as of December 31, 2012, under the Pension Plan and the Pension SERP Benefit,

respectively.

(2) Amounts reported reflect the present value, expressed as a lump sum as of December 31, 2012, of each NEO’s benefits under the Pension Plan and the

Pension SERP Benefit, respectively. Amounts reported are calculated assuming payment at the earliest unreduced retirement date, as specified in the

Plans. For benefits earned through December 31, 2010, the Pension Plan provides an unreduced early retirement benefit at the earlier of: (a) age 62 and

15 years of service; and (b) age 65. The Pension SERP Benefit does not provide an early retirement benefit, therefore age 65 is the assumed

commencement date. For Mr. Kari, the amount shown includes amounts in which he is not yet vested. Pension Plan and Pension SERP Benefits do not

vest until the participant attains five years of vesting service, at which time the participant vests fully. Mr. Haldeman was not vested in the Pension Plan

or Pension SERP Benefit when his employment with the company terminated. Mr. Layton is not eligible to participate in the Pension Plan or Pension

SERP Benefit since he was hired after December 31, 2011, when the plans closed to new hires. Because Mr. Haldeman terminated employment prior to

becoming vested in his benefits under the Pension Plan and Pension SERP, the aggregate change in the actuarial present value of Mr. Haldeman’s

accumulated benefit in these plans from December 31, 2011 to December 31, 2012 was ($66,196) and ($387,519) respectively.

Pension Plan

The Pension Plan is a tax-qualified, defined benefit pension plan that we maintain, covering substantially all employees

hired before 2012 who have attained age 21 and completed one year of service with us. Amendments were made to the

Pension Plan, effective January 1, 2012, that limit participation in the Pension Plan to those individuals who were hired (or

rehired) prior to January 1, 2012. As shown above, each of the current NEOs (other than Mr. Layton) is eligible to participate

in the Pension Plan. Pension Plan benefits are based on an employee’s years of service and compensation, up to limits

imposed by law. Specifically, the normal retirement benefit under the Pension Plan for service after December 31, 1988 is a

monthly payment commencing at age 65 calculated as follows:

• 1% of the participant’s highest average monthly compensation for the 36-consecutive month period during which the

participant’s compensation was the highest;

• multiplied by the participant’s full and partial years of credited service under the Pension Plan.

For purposes of the Pension Plan, compensation includes cash payments to each employee for non-deferred base salary,

deferred salary under the Executive Compensation Program, supplemental pay under our current pay structure for vice

presidents and below, as well as overtime pay, shift differentials, non-deferred bonuses paid under a corporate-wide annual

bonus program (if any) or pursuant to a functional incentive plan (excluding the value of any stock options or cash

equivalents), commissions and salary reductions under the Thrift/401(k) Savings Plan and the Flexible Benefits Plan (i.e. our

cafeteria plan under the Internal Revenue Code Section 125), and qualified transportation benefits under Internal Revenue

Code Section 132(f)(4). Compensation does not include, among other things, supplemental compensation plans providing

temporary pay, Deferred Base Salary amounts under the prior pay structure and amounts deferred under the EDCP (discussed

below), or amounts paid after termination of employment other than amounts included in a final paycheck.

The normal form of benefit under the Pension Plan is an annuity providing monthly payments for the life of the

participant (and a survivor annuity for the participant’s spouse if applicable). Optional forms of benefit payment are

available. A benefit with an actuarial present value equal to or less than $5,000 may only be paid as a lump sum. Participants

that terminate after December 31, 2011, may elect a lump sum payout.

Participants under the Pension Plan who terminate employment before age 55 with at least five years of service are

considered “terminated vested” participants. Such participants may commence their benefit under the Pension Plan as early

as age 55. The benefit is equal to the vested portion of the participant’s accrued benefit, reduced by 1/180th for each of the

first 60 months, and by 1/360th for each of the next 60 months, by which the commencement of such benefits precedes

age 65.

352 Freddie Mac
An early retirement benefit is available to a participant who terminates employment on or after age 55 with at least five

years of service. For service before January 1, 2011, this early retirement benefit is reduced by 3% for each year (prorated

monthly for partial years) by which the commencement of such benefits precedes the earlier of: (a) the participant’s

attainment of age 65; or (b) the participant’s attainment of age 62 or later with at least 15 years of service. For service after

December 31, 2010, the reduction is 5% for each year (prorated monthly for partial years) by which the commencement of

benefits precedes the participant’s attainment of age 65. For participants with service prior to January 1, 2011 and after

December 31, 2010, the reductions are separately calculated, and the early retirement benefit is the sum of the two

calculations. Death benefits are available provided the participant completed at least five years of service prior to death.

Supplemental Executive Retirement Plan — Pension SERP Benefit

To be eligible for the Pension SERP Benefit for any year, the NEO must be eligible to participate in the Pension Plan.

Each of the NEOs other than Mr. Layton and Mr. Haldeman is eligible to participate in the Pension Plan. Eligibility for the

Pension SERP Benefit and the Pension Plan has been eliminated for employees (including executive officers) hired or rehired

after January 1, 2012. See “Other Executive Compensation Considerations — Supplemental Executive Retirement Plan”

above.

The Pension SERP Benefit component of the SERP is an unfunded (benefits are paid from general assets), non-qualified

plan designed to provide participants with the full amount of benefits to which they would have been entitled under the

Pension Plan if that plan: (a) was not subject to certain dollar limits under the Internal Revenue Code; and (b) did not exclude

from “compensation” Deferred Base Salary amounts prior to 2012 and amounts deferred under our EDCP (discussed below).

For example, the Pension Plan is only permitted under the Internal Revenue Code to consider the first $250,000 of an

employee’s compensation during 2012 for the purpose of determining the participant’s compensation-based normal

retirement benefit. The SERP has been amended to provide that the maximum covered compensation for purposes of the

SERP, relative to an NEO, may not exceed two times the NEO’s Semi-Monthly Base Salary or Base Salary (as defined in the

pre-2012 executive compensation program and the Executive Compensation Program, respectively). We believe the Pension

SERP Benefit is an appropriate benefit because offering such a benefit helps us remain competitive with companies in the

Comparator Group.

The Pension SERP Benefit is calculated as the participant’s accrued annual benefit payable at age 65 (or current age, if

greater) under the Pension Plan without application of the limits described in the preceding paragraph, less the participant’s

actual accrued benefit under the Pension Plan. The Pension SERP Benefit is vested for each participant to the same extent

that the participant is vested in the corresponding benefit under the Pension Plan.

Pension SERP Benefits that vest on or after January 1, 2005 are generally distributed in a lump sum after separation

from service and are payable 90 days after the end of the calendar year in which separation occurs. Subject to plan limitations

and restrictions under Internal Revenue Code Section 409A, employees may elect that this portion of the Pension SERP

Benefit be paid upon separation in the form of a single life annuity at age 65 or in reasonably equal annual installments over

five, 10 or 15 years (including interest). Under IRS rules, distributions to so-called “key employees” (as defined by the IRS

in regulations concerning Internal Revenue Code Section 409A) on account of separation from service may not commence

earlier than six months from the key employee’s separation from service. Payments under the SERP will be delayed if

necessary to meet this requirement. In the case of death, the Pension SERP Benefit is distributed as a lump sum within

90 days of such event.

Pension SERP Benefits that vested prior to January 1, 2005 are generally distributed after separation from service (other

than retirement) in the form of a single life annuity commencing at age 65. In the case of retirement, the vested pre-2005

Pension SERP Benefit is combined with the vested pre-2005 Thrift/401(k) SERP Benefit and is paid out in the form of a

single life annuity payable at age 65 (or in a series of reasonably equal installments over 15 years commencing with

retirement if actuarial estimates indicate that payment form would yield a longer period of payment). In the case of death

while employed, the vested pre-2005 Pension SERP Benefit is paid in the form of a lump sum within 90 days of such event.

Non-qualified Deferred Compensation

Executive Deferred Compensation Plan

The EDCP is a non-qualified plan and is unfunded (benefits are paid from our general assets). The EDCP has, in the

past, allowed the NEOs to defer receipt of a portion of their annual base pay and cash bonus (and to defer settlement of RSUs

granted between 2002 and 2007). Deferrals of pay under the EDCP were suspended beginning with calendar year 2011 and

353 Freddie Mac
continue to be suspended. We will review future deferral options on an annual basis. None of the NEOs have a balance under

the EDCP.

Supplemental Executive Retirement Plan — Thrift/401(k) SERP Benefit

The Thrift/401(k) SERP Benefit component of the SERP is an unfunded (benefits are paid from general assets), nonqualified defined contribution plan designed to provide participants with the full amount of benefits that they would have

been entitled to under the Thrift/401(k) Savings Plan if that plan: (a) was not subject to certain dollar limits under the Internal

Revenue Code; and (b) did not exclude from “compensation” Deferred Base Salary amounts prior to 2012 and amounts

deferred under our EDCP. For example, in 2012 under the Internal Revenue Code, only the first $250,000 of an employee’s

compensation is considered when determining our percentage-based matching contribution and the Discretionary

Contribution for any participant in the Thrift/401(k) Savings Plan. The SERP was amended to provide that the maximum

covered compensation for purposes of the SERP, relative to an NEO, may not exceed two times the NEO’s Semi-Monthly

Base Salary or Base Salary (as defined in the pre-2012 executive compensation program and the Executive Compensation

Program, respectively). We believe the Thrift/401(k) SERP Benefit is an appropriate benefit because offering such a benefit

helps us remain competitive with companies in the Comparator Group.

The Thrift/401(k) SERP Benefit equals the amount of the employer matching contributions and Basic Contribution (or,

as of January 1, 2012, Discretionary Contribution) for each NEO that would have been made to the Thrift/401(k) Savings

Plan during the year, based upon the participant’s eligible compensation, without application of the above limits, less the

amount of the matching contributions and Basic Contribution (or, as of January 1, 2012, Discretionary Contribution) actually

made to the Thrift/401(k) Savings Plan during the year. Participants are credited with earnings or losses in their Thrift/401(k)

SERP Benefit accounts based upon each participant’s individual direction of the investment of such notional amounts among

the virtual investment funds available under the SERP. Such investment options are based upon and mirror the performance

of the investment options available under the Thrift/401(k) Savings Plan. As of December 31, 2012, there were 21

investment options in which participants’ notional amounts could be deemed invested.

To be eligible for the Thrift/401(k) SERP Benefit, the NEO must be eligible for matching contributions and Basic

Contributions (or, as of January 1, 2012, Discretionary Contribution) under the Thrift/401(k) Savings Plan for part of the

year. In addition, to be eligible for the portion of the Thrift/401(k) SERP Benefit attributable to employer matching

contributions, the NEO must contribute the maximum amount permitted under the terms of the Thrift/401(k) Savings Plan on

a pre-tax basis throughout the entire portion of the year in which the NEO is eligible to make such contributions. The portion

of the Thrift/401(k) SERP Benefit that is attributable to employer matching contributions is vested when accrued, while the

accrual relating to the Basic Contribution paid prior to 2008 is subject to five-year cliff vesting, the accrual relating to the

Basic Contribution attributable to calendar years 2008-2011 is subject to five-year graded vesting of 20% per year, and the

accrual relating to the new employer Discretionary Contribution (which replaced the Basic Contribution as of January

2012) will be subject to three-year cliff vesting.

The Thrift/401(k) SERP Benefits that vest on or after January 1, 2005 are generally distributed in a lump sum payable

90 days after the end of the calendar year in which separation from service occurs. A six-month delay in commencement of

distributions on account of separation from service applies to key employees, in accordance with Internal Revenue Code

Section 409A. If the NEO dies, the vested Thrift/401(k) SERP Benefit is paid in the form of a lump sum within 90 days of

death.

Thrift/401(k) SERP Benefits that vested prior to January 1, 2005 are generally distributed after separation from service

(other than retirement) in the form of three reasonably equal annual installments, starting in the first quarter of the calendar

year following the year in which the separation from service occurs. In the case of retirement, the vested pre-2005 Thrift/

401(k) SERP Benefit is combined with the vested pre-2005 Pension SERP Benefit and is payable in the form of a single life

annuity at age 65 (or in a series of reasonably equal installments over 15 years commencing with retirement if actuarial

estimates indicate that this payment form would yield a longer period of payment). In the case of death while employed, the

vested pre-2005 Thrift/401(k) SERP Benefit is paid in the form of a lump sum within 90 days of such event.

The following table shows the contributions, earnings, withdrawals and distributions, and accumulated balances under

the Thrift/401(k) SERP Benefit for each NEO. As of December 31, 2012, none of the NEOs was a participant in the EDCP.

354 Freddie Mac
Table 90 — Non-Qualified Deferred Compensation

Name

Executive

Contribution in

Last FY ($)(1)

Freddie Mac

Accruals in

Last FY ($)(2)

Aggregate

Earnings in

Last FY ($)(3)

Aggregate

Withdrawals/

Distributions ($)

Aggregate

Balance at

Last FYE ($)(4)

Mr. Layton

Thrift/401(k) SERP Benefit ............................ $ — $ — $ — $ — $ —

Mr. Kari

Thrift/401(k) SERP Benefit ............................ — 110,200 2,917 — 146,872

Mr. Haldeman

Thrift/401(k) SERP Benefit ............................ — 101,200 134 — 171,127

Mr. Mullings

Thrift/401(k) SERP Benefit ............................ — 53,783 32,756 — 318,627

Mr. Weiss

Thrift/401(k) SERP Benefit ............................ — 70,750 61,059 — 476,627

Ms. Wisdom

Thrift/401(k) SERP Benefit ............................ — 65,300 102 — 140,119

(1) The SERP does not allow for employee contributions.

(2) Amounts reported reflect our accruals under the Thrift/401(k) SERP Benefit during 2012. These amounts are also reported in the “All Other

Compensation” column in the Summary Compensation Table.

(3) Amounts reported represent the total interest and other earnings credited to each NEO under the Thrift/401(k) SERP Benefit.

(4) Amounts reported reflect the accumulated balances under the Thrift/401(k) SERP Benefit for each NEO. Mr. Layton has not satisfied the one year

service requirement for matching and Discretionary Contributions. Messrs. Kari and Haldeman have not met the five-year vesting requirement for the

Basic Contribution. Messrs. Mullings and Weiss, and Ms. Wisdom are fully vested in their accounts. The difference in the aggregate balance above and

the vested balance is equal to the non-vested Basic Contribution plus earnings. The vested and non-vested components under the Thrift/401(k) SERP

Benefit for each NEO are as follows: (i) Mr. Kari: vested balance: $128,549; non-vested balance: $18,322; (ii) Mr. Haldeman: vested balance: $146,226;

non-vested balance: $24,901 (iii) Mr. Mullings: vested balance: $318,627; non-vested balance: $0; (iv) Mr. Weiss: vested balance: $476,627; non-vested

balance: $0; (v) Ms. Wisdom: vested balance: $140,119; non-vested balance: $0. For a more detailed discussion of the matching contribution accruals

and Basic Contribution accruals, see “— Supplemental Executive Retirement Plan—Thrift/401(k) SERP Benefit” above.

The following 2011 Thrift/401(k) SERP Benefit accrual amounts were reported in the column “All Other Compensation” in the 2011 Summary

Compensation Table as compensation for each NEO for whom such accruals were made and reported during 2011 as follows: Mr. Kari: $33,750;

Mr. Haldeman: $47,250; Mr. Weiss: $40,500; and Ms. Wisdom: $28,688. See our Form 10-K filed on March 9, 2012. Mr. Mullings had Thrift/401(k)

SERP Benefit accrual in the amount of $30,394 for 2011, although it was not reported in the Summary Compensation Table because he was not an NEO

for 2011. The following 2010 Thrift/401(k) SERP Benefit accrual amounts were reported in the column “All Other Compensation” in the 2010

Summary Compensation Table as compensation for each NEO for whom such accruals were made and reported during 2010 as follows: Mr. Kari: $0;

and Mr. Haldeman: $22,500. See our Form 10-K filed on February 24, 2011. In addition, Messrs. Weiss and Mullings, and Ms. Wisdom had Thrift/

401(k) SERP Benefit accrual amounts of $57,300, $44,175, and $33,529 respectively in 2010, although this was not reported in the Summary

Compensation Table because they were not NEOs for 2010.

Potential Payments Upon Termination of Employment or Change-in-Control

We have entered into certain agreements and maintain certain plans that call for us to pay compensation to our NEOs in

the event of a termination of employment with us. The table below describes the compensation and benefits that would have

been payable to each NEO other than Mr. Layton (who is not entitled to receive any payments in connection with a

termination of employment) if the officer had terminated his employment under various circumstances as of December 31,

2012. The actual payment of any level of termination benefits, however, is subject to FHFA review and approval. For more

information, see “Employment and Separation Agreements” below.

The table below does not address changes in control as we are not obligated to provide any additional compensation to

our NEOs in connection with a change in control. The table below also does not address potential payments upon a

termination for cause, which is a termination resulting from the occurrence of an event or conduct described in the Recapture

and Forfeiture Agreement. All earned but unpaid Deferred Salary and TO payments are subject to forfeiture upon the

occurrence of such a termination. However, the amount of compensation, if any, to be recaptured and/or forfeited is

determined by the Board of Directors, which can only occur following the occurrence of a for cause termination. See Other

Executive Compensation Considerations — Recapture and Forfeiture Agreement.

Additionally, each of our NEOs is subject to a restrictive covenant agreement with us. Each agreement provides that the

NEO will not seek employment with designated competitors for a specified period immediately following termination of

employment, regardless of whether the executive’s employment is terminated by the executive, by us, or by mutual

agreement. The specified period is 24 months for Messrs. Layton, Kari and Haldeman and 12 months for Messrs. Mullings

and Weiss and Ms. Wisdom. During the 12-month period immediately following termination, each executive also agrees not

to: (a) solicit or recruit any of our managerial employees; (b) compete against us in any of our business activities; or (c) make

disparaging remarks about us. The agreement also provides for confidentiality of information that constitutes trade secrets or

proprietary or other confidential information.

The table below does not include vested balances in the Thrift/401(k) SERP Benefit or vested benefits in the Pension

SERP Benefit, because such vesting was not in connection with a termination. Amounts shown in the tables also do not

355 Freddie Mac
include certain items available to all employees generally upon a termination event. As of December 31, 2012, Messrs.

Mullings and Weiss and Ms. Wisdom had vested in their benefits under the Thrift/401(k) SERP Benefit and the Pension

SERP Benefit, while Mr. Kari has not. Mr. Layton is not eligible for the Pension SERP Benefit and has not satisfied the one

year service requirement for matching and discretionary contributions available under the Thrift/401(k) SERP Benefit.

There were no outstanding RSUs held by NEOs as of December 31, 2012 and no value is included in the tables for stock

options because the exercise prices for all such options outstanding are substantially higher than the closing price of our

common stock on December 31, 2012.

Potential Payments Under the Executive Compensation Program

The Executive Compensation Program addresses the treatment of Base Salary and Deferred Salary and the prior

executive compensation program addresses the treatment of the Target Opportunity upon various termination events.

Base Salary ceases upon an NEO’s termination of employment, regardless of the termination reason. An NEO generally

does not need to be employed by us on the payment date to receive payments of Fixed and At-Risk Deferred Salary that is

unpaid at the time of termination of employment. The discussion that follows describes the termination benefits, if any,

provided upon the following types of termination events.

• Death. All earned but unpaid Deferred Salary and TO will be paid as soon as administratively possible in the event of

death. For At-Risk Deferred Salary, the corporate and individual performance assessment and reduction process is

waived and there is no reduction. For the Target Opportunity, if the funding level has not been determined at the time

of death, the award will remain outstanding until such determination is made, with payment occurring as soon as

administratively possible following the determination of the funding level.

• Disability. Treatment upon a Long-Term Disability (as defined in the Executive Compensation Program) is the same

as upon death, except that payment of any earned but unpaid Deferred Salary will occur in accordance with the

Approved Payment Schedule and not as soon as administratively possible following termination of employment. The

treatment of a TO upon a Long-Term Disability (as defined in the prior executive compensation program) is the same

as upon death.

• Forfeiture Event (i.e. – For Cause). All earned but unpaid Deferred Salary or Target Opportunity is subject to

forfeiture upon the occurrence of any of the events or conduct described in the Recapture and Forfeiture Agreement.

• Any Other Reason.

Deferred Salary

All earned but unpaid Deferred Salary is paid in accordance with the Approved Payment Schedule. The amount

paid for At-Risk Deferred Salary continues to be subject to the corporate and individual performance assessment

process. Additionally, the amount of unpaid Fixed Deferred Salary will be reduced by 2% for each full or partial

month by which the termination precedes:

• January 31, 2014 for an NEO who was an employee on January 1, 2012 and who remained continuously

employed through the termination date; or,

• The 25-month anniversary of the hire date for an NEO hired after January 1, 2012.

Each of the NEOs other than Mr. Layton, who does not receive Deferred Salary, was employed by us on January 1,

2012.

Target Opportunity

The unpaid portion of any outstanding TO award is forfeited upon a voluntary termination.

While the prior executive compensation program, which governs the TO, included a definition of retirement, none

of the NEOs were retirement-eligible as of December 31, 2012. Accordingly, no information is provided in the

table below for TO awards with respect to a termination of employment on account of retirement.

NEOs are not entitled to any payment of the unpaid portion of any outstanding TO upon an involuntary without

cause termination unless the Compensation Committee recommends that they receive payment in part or in full and

356 Freddie Mac
the Committee’s recommendation is approved by FHFA after consulting with Treasury, as appropriate. In

determining whether to recommend payment of any portion of the Target Opportunity, the Compensation

Committee will take into account one or more factors that it determines are relevant, including:

• The facts and circumstances associated with the termination;

• The performance and contributions of the NEO during his or her tenure with us; and

• Our need to provide reasonable and competitive termination benefits in order to attract and retain high caliber

executives during conservatorship.

Table 91 — Potential Payments Upon Termination of Employment or Change-in-Control as of December 31, 2012

Death Disability

All Other Not

For Cause

Terminations(6)

Ross Kari

Compensation:

Deferred Salary – Fixed(1) ...................................................... $1,530,000 $1,530,000 $1,132,200

Deferred Salary – At Risk-Corporate(2) ............................................. 472,500 472,500 448,875

Deferred Salary – At Risk-Individual(3) ............................................. 472,500 472,500 472,500

Target Opportunity(4) .......................................................... 554,167 554,167 —

Benefits:

Non-Qualified Pension(5) ....................................................... — 276,759 —

Non-Qualified Deferred Compensation(5) ........................................... — 18,322 —

Total ....................................................................... $3,029,167 $3,324,248 $2,053,575

Paul Mullings

Compensation:

Deferred Salary – Fixed(1) ...................................................... $ 658,500 $ 658,500 $ 487,290

Deferred Salary – At Risk-Corporate(2) ............................................. 229,500 229,500 218,025

Deferred Salary – At Risk-Individual(3) ............................................. 229,500 229,500 218,025

Target Opportunity(4) .......................................................... 232,196 232,196 —

Total ....................................................................... $1,349,696 $1,349,696 $ 923,340

Jerry Weiss

Compensation:

Deferred Salary – Fixed(1) ...................................................... $ 891,000 $ 891,000 $ 659,340

Deferred Salary – At Risk-Corporate(2) ............................................. 297,000 297,000 282,150

Deferred Salary – At Risk-Individual(3) ............................................. 297,000 297,000 297,000

Target Opportunity(4) .......................................................... 348,333 348,333 —

Total ....................................................................... $1,833,333 $1,833,333 $1,238,490

Paige H. Wisdom

Compensation:

Deferred Salary – Fixed(1) ...................................................... $ 757,500 $ 757,500 $ 560,550

Deferred Salary – At Risk-Corporate(2) ............................................. 262,500 262,500 249,375

Deferred Salary – At Risk-Individual(3) ............................................. 262,500 262,500 262,500

Target Opportunity(4) .......................................................... 291,667 291,667 —

Total ....................................................................... $1,574,167 $1,574,167 $1,072,425

(1) In accordance with the termination provisions in the Executive Compensation Program, the amounts disclosed in the All Other Not For Cause

Terminations column reflect a reduction of 26% for the 13-month period from January 2013 to January 2014, inclusive.

(2) The amounts reported for Deferred Salary – At-Risk-Corporate in the All Other Not For Cause Terminations column have been adjusted to reflect the

funding level determined by FHFA with respect to performance against the Conservatorship Scorecard.

(3) The amounts reported for Deferred Salary – At-Risk-Individual in the All Other Not For Cause Terminations column have been adjusted to reflect the

assessment of 2012 individual performance approved by the Compensation Committee and FHFA.

(4) The amounts reported for Target Opportunity are equal to the second installment associated with the 2011 TO, and reflect the approved funding level

and individual differentiation based on division and/or individual performance.

(5) The amounts reported under Non-Qualified Pension and Non-Qualified Deferred Compensation reflect the non-vested Pension SERP Benefit and the

non-vested Thrift/401(k) SERP Benefit, respectively, as of December 31, 2012. Under the terms of the SERP, a participant continues to accrue service

while disabled (as defined in the SERP).

(6) All Other Not For Cause Terminations generally refer to all voluntary terminations and involuntary terminations other than for cause.

357 Freddie Mac
Former Named Executive Officer – Mr. Haldeman

Mr. Haldeman resigned his position as Chief Executive Officer effective June 30, 2012. Under the terms of the

Executive Compensation Program, he is eligible to receive the following amounts of Deferred Salary, which will be paid in

2013 on the Approved Payment Schedule:

Deferred Salary: Fixed $892,800

Deferred Salary: At-Risk (Corporate) 384,750

Deferred Salary: At-Risk (Individual) 364,500

Mr. Haldeman will not receive any other payments in connection with his termination.

Alternative Settlement Provisions for Equity Awards in the Event of Certain Terminations

Stock Options

The stock options granted to our employees, including our NEOs, all of which were exercisable as of December 31,

2012, include alternative settlement provisions in the event of certain terminations, as follows:

• Death. Stock options remain exercisable until the earlier of the original expiration date or three years after the date of

termination in the event of death.

• Disability. Stock options remain exercisable for the full balance of their term in the event of disability.

• Retirement. Stock options remain exercisable for the full balance of their term in the event of retirement.

• All Other Terminations. If the individual’s employment is terminated for any reason other than those described

above, the stock options remain exercisable until the earlier of the original expiration date or 90 days following

termination.

Employment and Separation Agreements

Messrs. Layton, Kari, and Haldeman

The various agreements entered into in connection with the employment of Messrs. Layton, Kari, and Haldeman are

summarized above. See “— Written Agreements Relating to Employment of CEO and CFO.”

Messrs. Mullings and Weiss and Ms. Wisdom

We do not have any continuing obligations under the letter agreements that were entered into with Mr. Mullings,

Mr. Weiss, and Ms. Wisdom at the time of their employment.

Director Compensation

After we entered conservatorship, FHFA approved compensation for Board members in the form of cash retainers only,

paid on a quarterly basis. Under the terms of the Purchase Agreement, without Treasury’s consent, we are prohibited from

making stock grants to directors while this agreement remains in effect. We do not maintain any pension or retirement plans

for directors. Non-employee directors are reimbursed for reasonable out-of-pocket costs for attending each meeting of the

Board or a Board committee of which they are a member and for other reasonable expenses associated with carrying out their

responsibilities as directors.

The reasons for this shift toward compensation delivered entirely in cash were similar, in the case of director

compensation, to some of those described above regarding the structural change in executive compensation (see

“Compensation Discussion and Analysis — Executive Management Compensation Program — Overview of Program

Structure”). However, the considerations underlying director and executive compensation differed in one key respect. There

is no provision in the director compensation program for pay that varies depending on business results. Although such

incentive compensation is deemed appropriate to give management strong incentives to devise and execute business plans

and achieve positive financial results, it is viewed in the case of directors as inconsistent with their oversight role.

358 Freddie Mac
Board compensation levels during conservatorship are shown in the table below.

Table 92 — Board Compensation — 2012 Non-Employee Director Compensation Levels

Board Service

Cash Compensation

Annual Retainer ..................................................................................... $160,000

Annual Retainer for Non-Executive Chairman ............................................................... 290,000

Committee Service (Cash)

Annual Retainer for Audit Committee Chair ................................................................ $25,000

Annual Retainer for Business and Risk Committee Chair ....................................................... 15,000

Annual Retainer for Committee Chairs (other than Audit or Business and Risk) ....................................... 10,000

Annual Retainer for Audit Committee Members ............................................................. 10,000

The following table summarizes the 2012 compensation provided to all persons who served as non-employee directors

during 2012.

Table 93 — 2012 Director Compensation

Name

Fees Earned or

Paid in Cash

Change in Pension Value and

Nonqualified Deferred

Compensation Earnings(3)

All Other

Compensation(4) Total

C. Lynch .............................................. $300,000 $— $ — $300,000

J. Koskinen(1)(2) .......................................... 28,571 — — 28,571

L. Bammann ........................................... 175,000 — — 175,000

C. Byrd ............................................... 181,951 — 20,000 201,951

R. Glauber(1)(2) ........................................... 30,357 — — 30,357

L. Hirsch(1) ............................................. 28,571 — — 28,571

N. Retsinas ............................................ 160,000 — 4,600 164,600

C. Rose(1) .............................................. 35,069 — — 35,069

E. Shanks, Jr. ........................................... 170,000 — 20,000 190,000

A. Williams ............................................ 180,000 — — 180,000

(1) The amount represents partial annual compensation for the period served during 2012. Messrs. Glauber and Koskinen retired, and Messrs. Hirsch and

Rose resigned, from the Board in March 2012.

(2) Amounts shown reflect Messrs. Glauber and Koskinen’s compensation for service during 2012. As a result of the changes in board assignments and

responsibilities during the fourth quarter of 2011, the compensation earned by Messrs. Glauber and Koskinen during the fourth quarter of 2011 was less

than the amounts paid to them at the beginning of the quarter. The overpayments in 2011 were deducted from payments of amounts owed for services

performed in 2012 as follows: Messrs. Glauber ($1,495) and Koskinen ($10,598). However the full amount earned for service during 2012 is reflected in

the table above in the column “Fees Earned or Paid in Cash.”

(3) We do not have any pension or retirement plans for our non-employee directors.

(4) In 2012, the Freddie Mac Foundation provided a dollar-for-dollar match to eligible organizations and institutions, up to an aggregate amount of $20,000

per director per calendar year. Matching contributions made to charities designated by the non-employee directors were as follows: Ms. Byrd, $20,000;

Mr. Retsinas, $4,600; and Mr. Shanks, Jr., $20,000.

Indemnification. We have also made arrangements to indemnify our directors against certain liabilities which are

similar to the terms on which our executive officers are indemnified. For a description of such terms, see “— Written

Agreements Relating to Employment of CEO and CFO.”

359 Freddie Mac
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

Security Ownership

Our only class of voting stock is our common stock. (Upon its appointment as Conservator, FHFA immediately

succeeded to the voting rights of holders of our common stock.) The following table shows the beneficial ownership of our

common stock as of February 26, 2013 by our current directors, our NEOs, all of our directors and executive officers as a

group, and holders of more than 5% of our common stock. Beneficial ownership is determined in accordance with SEC rules

for computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that

person. As of February 26, 2013, each director and NEO, and all of our directors and executive officers as a group, owned

less than 1% of our outstanding common stock. The information presented below is based on information provided to us by

the individuals or entities specified in the table.

Table 94 — Stock Ownership by Directors, Executive Officers, and Greater-Than-5% Holders

Name Position

Common Stock

Beneficially Owned

Excluding

Stock Options(1)

Stock Options

Exercisable

Within 60 Days of

Feb. 26, 2013

Total Common Stock

Beneficially Owned

Linda B. Bammann ...... Director — — —

Carolyn H. Byrd ........ Director — — —

Christopher S. Lynch .... Director — — —

Nicolas P. Retsinas ...... Director 10,824(2) — 10,824

Steven W. Kohlhagen .... Director — — —

Eugene B. Shanks, Jr. .... Director — — —

Anthony A. Williams .... Director — — —

Donald H. Layton ....... Chief Executive Officer — — —

Ross J. Kari . . . . . . . . . . . EVP — Chief Financial Officer — — —

Paul E. Mullings . . . . . . . . SVP — SF Sourcing and Sec. (Interim Head —SF Bus.) 44,333 9,710 54,043

Jerry Weiss. . . . . . . . . . . . EVP — Chief Administrative Officer 35,815 16,590 52,405

Paige H. Wisdom . . . . . . . EVP — Chief Enterprise Risk Officer 22,551 — 22,551

All directors and executive officers as a group (20 persons) ................... 185,508(2) 59,188 244,696

5% Holder Common Stock Beneficially Owned Percent of Class

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, D.C. 20220

Variable(3) 79.9%

(1) Includes shares of stock beneficially owned as of February 26, 2013.

(2) Includes 6,866 RSU’s and 169 dividend equivalents on RSUs.

(3) In September 2008, we issued to Treasury a warrant to purchase, for one one-thousandth of a cent ($0.00001) per share, shares of our common stock

equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the time the warrant is exercised. The warrant

may be exercised in whole or in part at any time until September 7, 2028. As of the date of this filing, Treasury has not exercised the warrant. The

information above assumes Treasury beneficially owns no other shares of our common stock.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information about our common stock that may be issued upon the exercise of options,

warrants, and rights under our existing equity compensation plans at December 31, 2012. Our stockholders have approved

the ESPP, the 2004 Employee Plan and the 1995 Employee Plan (together, the Employee Plans) , and the Directors’ Plan. We

suspended the operation of these plans following our entry into conservatorship and are no longer granting awards under

such plans.

Table 95 — Equity Compensation Plan Information

Plan Category

Number of securities to be issued

upon exercise of outstanding options,

warrants and rights

Weighted average exercise price of

outstanding options,

warrants and rights

Number of securities remaining

available for future issuance under

equity compensation plans (excluding

securities reflected in column (a))

Equity compensation plans approved

by stockholders ............. 1,378,773(1) $55.41(2) 34,556,106(3)

Equity compensation plans not

approved by stockholders ...... None N/A None

(1) Includes 69,477 restricted stock units and shares of restricted stock issued under the Directors’ Plan and the Employee Plans.

(2) For the purpose of calculating this amount, the restricted stock units and shares of restricted stock are assigned a value of zero.

(3) Includes 27,075,758 shares, 5,845,739 shares, and 1,634,609 shares available for issuance under the 2004 Employee Plan, the ESPP and the Directors’

Plan, respectively. No shares are available for issuance under the 1995 Employee Plan.

360 Freddie Mac
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,

AND DIRECTOR INDEPENDENCE

Policy Governing Related Person Transactions

The Board has adopted a written policy governing the approval of related person transactions. This policy sets forth

procedures for the review and approval or ratification of transactions involving related persons, which consist of any person

who is, or was at any time since the beginning of our last completed fiscal year, a director, a director nominee, an executive

officer, or an immediate family member of any of the foregoing persons.

Under authority delegated by the Board, our General Counsel and the Nominating and Governance Committee (or its

Chair under certain circumstances), each, an Authorized Approver, are responsible for applying the Related Person

Transactions Policy. Transactions covered by the Related Person Transactions Policy consist of any transaction, arrangement

or relationship or series of similar transactions, arrangements or relationships, in which: (a) the aggregate amount involved

exceeded or is expected to exceed $120,000; (b) we were or are expected to be a participant; and (c) any related person had

or will have a direct or indirect material interest. The Related Person Transactions Policy includes a list of categories of

transactions identified by the Board as having no significant potential for an actual conflict of interest or the appearance of a

conflict or improper benefit to a related person, and thus not considered potential related person transactions subject to

review.

Our Legal Division assesses whether any proposed transaction involving a related person is covered by the Related

Person Transactions Policy. If so, the transaction is reviewed by the appropriate Authorized Approver. In consultation with

the Chair of the Nominating and Governance Committee, the General Counsel may refer any proposed transaction to the

Nominating and Governance Committee for review and approval.

If possible, approval of a related person transaction is obtained prior to the effectiveness or consummation of the

transaction. If advance approval of a related person transaction by the appropriate Authorized Approver is not feasible or

otherwise not obtained, then the transaction is considered promptly by the appropriate Authorized Approver to determine

whether ratification is warranted.

In determining whether to approve or ratify a related person transaction covered by the Related Person Transactions

Policy, the appropriate Authorized Approver reviews and considers all relevant information which may include: (a) the

nature of the related person’s interest in the transaction; (b) the approximate total dollar value of, and extent of the related

person’s interest in, the transaction; (c) whether the transaction was or would be undertaken in the ordinary course of our

business; (d) whether the transaction is proposed to be, or was, entered into on terms no less favorable to us than terms that

could have been reached with an unrelated third party; and (e) the purpose, and potential benefits to us, of the transaction.

Corporate Governance Guidelines

In September 2012, the Board adopted our amended Corporate Governance Guidelines, or our Guidelines, which are

available on our website at www.freddiemac.com/governance/pdf/gov_guidelines.pdf.

Director Independence

The non-employee members of the Board evaluated the independence, as defined in both Sections 4 and 5 of our

Guidelines and in Section 303A.02 of the NYSE Listed Company Manual, of (i) each of the non-employee members of our

Board currently serving (including Mr. Kohlhagen, our new director), each of whom (other than Mr. Kohlhagen) also served

on our Board in 2012, and (ii) Messrs. Robert R. Glauber, Laurence E. Hirsch, John A. Koskinen, and Clayton S. Rose, each

of whom served on our Board until March 2012. In connection with these evaluations, the non-employee members of the

Board determined that (i) all current members of our Board (other than Mr. Layton, our CEO) are independent and

(ii) Messrs. Glauber, Hirsch, Koskinen, and Rose were independent during their service in 2012. Mr. Layton is not

considered an independent director because he is our CEO. Mr. Haldeman was not an independent director with respect to his

service in 2012 because he served as our CEO until May 2012.

The non-employee members of the Board also concluded that all current members of the Audit Committee, the

Compensation Committee, and the Nominating and Governance Committee are independent within the meaning of both

Sections 4 and 5 of our Guidelines and Section 303A.02 of the NYSE Listed Company Manual. The non-employee members

of the Board also determined that all current members of the Audit Committee are independent within the meaning of

Rule 10A-3 promulgated under the Exchange Act, and Section 303A.06 of the NYSE Listed Company Manual.

361 Freddie Mac
In determining the independence of each Board member, the non-employee members of the Board reviewed the

following categories or types of relationships, in addition to those specifically addressed by the standards contained in

Section 5 of our Guidelines, to determine whether those relationships, either individually or when aggregated with other

relationships, would constitute a material relationship between the Director and us that would impair a Director’s judgment

as a member of the Board or create the perception or appearance of such an impairment:

• Board Memberships With For-Profit Business Partners. During 2012 Ms. Bammann and Messrs. Glauber and Rose

served, and, also in 2012 and currently, Ms. Byrd and Messrs. Lynch, Retsinas, and Shanks serve, as directors of

other companies that engage or have engaged in business with us resulting in payments between us and such

companies during the past three fiscal years. After considering the nature and extent of the specific relationship

between each of those companies and us, and the fact that these Board members are directors of these other

companies rather than employees, the non-employee members of the Board concluded that those business

relationships did not constitute material relationships between any of the Directors and us that would impair their

independence as our Directors.

• Board Memberships With Charitable Organizations To Which We Have Made Contributions. Mr. Retsinas serves as a

board member of a charitable organization that has received monetary contributions from us or the Freddie Mac

Foundation. The total annual amount contributed was below the applicable threshold in our Guidelines that would

require a specific determination that Mr. Retsinas is independent in spite of the contributions. The non-employee

members of the Board considered the contributions and the nature of the organization and concluded that the

relationship with the charitable organization did not constitute a material relationship between Mr. Retsinas and us

that would impair his independence as our Director.

• Board Members Who Are Executive Officers Or Employees Of Business Partners. Mr. Retsinas is employed by

Harvard University (“Harvard”) as a senior lecturer at the Harvard Business School and a lecturer at the Graduate

School of Design and in 2012 the Harvard Business School received a charitable contribution of less than $100,000

from one of our executive officers. Under our Guidelines, no specific independence determination is required with

respect to this contribution because it does not exceed the greater of $100,000 or 2% of Harvard’s consolidated gross

revenues for 2012, the year in which the charitable contribution was made.

Mr. Williams was appointed as Executive Director of the Government Practice at The Corporate Executive Board

Company, or CEB, in January 2010 and served in that role during 2011. From January 2012 until June 2012,

Mr. Williams served as a Senior Fellow of CEB. As of June 2012 he left his positions with CEB. CEB provides best

practices research and analysis and executive education to corporations through memberships in various subjectmatter interest groups organized and managed by CEB. Mr. Williams’ responsibilities at CEB included contributing

to and authoring literature; advising on the development of CEB’s state and local government service strategy; and

promoting future CEB services. In 2010, 2011, 2012, and 2013 year-to-date we paid CEB $515,700, $447,500,

$650,200, and $500,400, respectively, for memberships in certain of CEB’s subject-matter interest groups and related

training and development. Currently, we are a member of 17 groups and in 2010, 2011, and 2012, we were a member

of 12, 13, and 17 groups, respectively. The annual amounts of our payments to CEB in 2010 and 2011 were

substantially below 2% of CEB’s annual revenues for the applicable years and the 2012 and 2013 payments are

substantially less than 2% of CEB’s 2011 revenues (the latest year for which CEB revenue is publicly available).

Therefore, under our Guidelines, those annual payments do not preclude the non-employee members of the Board

from concluding that Mr. Williams is independent. The non-employee members of the Board considered those

payments and the nature and extent of the relationship between us and CEB and concluded that this business

relationship did not constitute a material relationship between Mr. Williams and us that would impair Mr. Williams’

independence as our Director.

• Financial Relationships with For-Profit Business Partners. Since 2005, Ms. Bammann has owned stock of JPMorgan

Chase. In the aggregate, this stock represents a material portion of her net worth. JPMorgan Chase conducts

significant business with Freddie Mac, including, among other things, as a single-family and multifamily seller/

servicer, as an underwriter of our debt and mortgage securities and as a capital markets counterparty. In order to

eliminate any potential conflict of interest that might arise as a result of this stock ownership, Ms. Bammann has

agreed to recuse herself from discussing and acting upon any matters that are to be considered by the full Board or

any of the committees of which she is a member (including the Business and Risk Committee, which she chairs), and

that relate directly to JPMorgan Chase. The Audit Committee Chairman, in consultation with the Non-Executive

362 Freddie Mac
Chairman, will address any questions that may arise regarding whether recusal from a particular discussion or action

is appropriate.

In evaluating Ms. Bammann’s independence in light of her ownership of JPMorgan Chase stock, the non-employee

members of the Board considered the nature and extent of Freddie Mac’s business relationship with JPMorgan Chase and

any potential impact that her stock ownership might have on her independent judgment as a Freddie Mac director, taking into

account the recusal arrangement. The non-employee members of the Board concluded that Ms. Bammann’s recusal

arrangement concerning JPMorgan Chase would address any actual or potential conflicts of interest that might arise with

respect to her ownership of JPMorgan stock. Accordingly, the non-employee members concluded that Ms. Bammann’s

ownership of JPMorgan Chase stock does not constitute a material relationship between her and Freddie Mac that would

impair her independence as a Freddie Mac Director.

Mr. Rose, who served as a director until March 2012, receives an annuity and retiree medical benefits from JPMorgan

Chase in connection with his retirement from that firm in 2001. The amount of Mr. Rose’s annuity is fixed and does not

depend in any way on JPMorgan Chase’s revenues or profits. In evaluating the impact of Mr. Rose’s annuity from JPMorgan

Chase on his independence, the non-employee members of the Board considered the structure of the annuity, the amount of

the annuity as a percentage of Mr. Rose’s annual adjusted gross income, the retiree medical benefits and Freddie Mac’s

business relationship with JPMorgan Chase. The non-employee members of the Board also were informed that Mr. Rose had

agreed, during his service on our Board, to recuse himself from discussing or acting upon any matter to be considered by our

Board that could threaten the viability of JPMorgan Chase. The non-employee members of the Board concluded that

Mr. Rose’s JPMorgan Chase annuity and retiree medical benefits did not constitute a material relationship between him and

Freddie Mac that would impair his independence as a Freddie Mac Director.

Board Diversity

The Board identifies Director nominees or candidates when the Conservator has requested that the Board identify

candidates for the Conservator to consider for election by written consent and when there is a vacancy on the Board, at which

time the Board may exercise the authority delegated to it by the Conservator to fill such vacancies, subject to review by the

Conservator.

Our charter provides that our Board must at all times have at least one person from the homebuilding, mortgage lending,

and real estate industries, and at least one person from an organization representing community or consumer interests or one

person who has demonstrated a career commitment to the provision of housing for low-income households. In addition, the

examination guidance for corporate governance issued by FHFA provides that in identifying individuals for nomination for

election to the Board, the Board should consider the knowledge of such individuals, as a group, in the areas of business,

finance, accounting, risk management, public policy, mortgage lending, real estate, low-income housing, homebuilding,

regulation of financial institutions, and any other areas that may be relevant to our safe and sound operation.

In addition, the Board has adopted a formal policy (articulated in our Guidelines) with regard to the consideration of

diversity in identifying director nominees and candidates. As articulated in the policy, the Board seeks to have a diversity of

talent, perspectives, experience and cultures among its members, including minorities, women and individuals with

disabilities, and considers such diversity in the candidate solicitation and nomination processes. The policy also states that

the Board seeks to have a diversity of talent on the Board and that candidates are selected, in part, for their experience and

expertise. The policy also explains that when identifying director nominees, the Nominating and Governance Committee

considers, among other factors, our needs, the talents and skills then available on the Board, and, with respect to incumbent

directors, their continued involvement in business and professional activities relevant to us, the skills and experience that

should be represented on the Board, the availability of other individuals with desirable skills to join the Board, and the desire

to maintain a diverse Board.

FHFA also has adopted a final rule regarding minority and women inclusion that became effective in January 2011. The

final rule implements section 1116 of the Reform Act and generally requires us to promote diversity and the inclusion of

women, minorities, and individuals with disabilities in all activities, including considering diversity in the process of

nominating directors, as required by these regulations.

Board Leadership Structure and Role in Risk Oversight

The positions of Chief Executive Officer and Non-Executive Chairman of the Board are held by different individuals.

This leadership structure was established by the Conservator when it appointed separate individuals to hold those two

363 Freddie Mac
positions in September 2008. The examination guidance for corporate governance issued by FHFA provides that once

separated, the functions of the Chief Executive Officer and the Non-Executive Chairman of the Board should remain

separated until such time as the Director of FHFA determines otherwise.

The responsibility for risk oversight is shared by two committees of the Board, the Business and Risk Committee and

the Audit Committee. The Business and Risk Committee is responsible for assisting the Board in the oversight, on an

enterprise-wide basis, of our risk management framework, including management of credit risk (including counterparty risk),

market risk (including interest rate and liquidity risk), model risk, operational risk, strategic risk, and reputation risk. The risk

oversight responsibilities of the Audit Committee include reviewing: (a) management’s guidelines and policies governing the

processes for assessing and managing our risks; and (b) our major financial risk exposures (including but not limited to

market, credit, and operational risks) and the steps management has taken to monitor and control such exposures.

The Business and Risk Committee and the Audit Committee have at times met in joint session to carry out their

respective risk oversight responsibilities on behalf of the Board. The membership of those two committees collectively

consists of all members of the Board except Mr. Layton. Copies of the Charters of the Audit Committee and the Business and

Risk Committee are available on our website at http://www.freddiemac.com/governance/bd committees.html.

The Enterprise Risk Management Division (“ERM”) is responsible for the independent assessment and management of

risks across the company, including credit, credit workout, counterparty credit, market, model and operational risk. ERM’s

mandate is primarily governed through a Board – approved enterprise risk management policy that establishes the Board’s

risk appetite, risk limits and Board reporting thresholds (the “ERM Policy”). ERM is led by the Executive Vice President —

Chief Enterprise Risk Officer, who reports directly to the Chief Executive Officer. The Executive Vice President — Chief

Enterprise Risk Officer also reports to the Business and Risk Committee of the Board of Directors on a quarterly basis and to

the full Board of Directors, as appropriate. ERM’s Board reports include standard quarterly risk reports and ad hoc agenda

items on specific topics. The ERM Policy and the ERM framework outlined therein apply to all areas of the company, and

are complemented by underlying policies at the division and department levels that support the management, monitoring and

reporting of risk across the company. The overall ERM framework includes a risk inventory, risk appetite, risk limits, as well

as monitoring and reporting requirements. The Chief Executive Officer has also established a corporate enterprise risk

management committee (the “ERMC”) to monitor, coordinate and oversee the management of the company’s risks consistent

with the ERM Policy. The Executive Vice President — Chief Enterprise Risk Officer chairs the ERMC, which comprises

most members of senior management. ERM aggregates risk exposures managed throughout the company from the relevant

risk owners for review and discussion at the ERMC. The ERMC is supported by additional subcommittees, which focus on

specific risk types, such as credit, counterparty, market and operational risk. Information flows from the subcommittees to

the ERMC as appropriate, and information and reports to be provided to the Board’s Business and Risk Committee, the

Board or any other Board committee are usually reviewed and discussed in the ERMC prior to the relevant Board or Board

committee meeting.

For a discussion of the Compensation Committee’s conclusion that our compensation policies and practices do not

create risks that are reasonably likely to have a material adverse effect on us, see “Executive Compensation — Compensation

and Risk.”

Transactions with 5% Shareholders

As a result of our issuance to Treasury of the warrant to purchase shares of our common stock equal to 79.9% of the

total number of shares of our common stock outstanding, on a fully diluted basis, we are deemed a related party to the

U.S. government. Except for the transactions with Treasury discussed in “BUSINESS — Conservatorship and Government

Support for our Business,” “BUSINESS — Regulation and Supervision — Legislative and Regulatory Developments —

Legislated Increase to Guarantee Fees,” “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Related Parties

as a Result of Conservatorship” as well as in “NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS,”

and “NOTE 11: FREDDIE MAC STOCKHOLDERS’ EQUITY (DEFICIT),” no transactions outside of normal business

activities have occurred between us and the U.S. government (or any of its related parties) since the beginning of 2012.

FHFA, as conservator, approved the Purchase Agreement and our administrative role in the MHA Program and the

Memorandum of Understanding with Treasury, FHFA, and Fannie Mae (see “NOTE 2: CONSERVATORSHIP AND

RELATED MATTERS — Housing Finance Agency Initiative”). The remaining transactions described in the sections

referenced above did not require review and approval under any of our policies and procedures relating to transactions with

related persons.

364 Freddie Mac
In addition, we are deemed related parties with Fannie Mae as both we and Fannie Mae have the same relationships with

FHFA and Treasury. All transactions between us and Fannie Mae have occurred in the normal course of business.

Transactions with Institutions Related to Directors

In the ordinary course of business, we were a party during 2012, and expect to continue to be a party during 2013, to

certain business transactions with institutions affiliated with members of our Board. Management believes that the terms and

conditions of the transactions were no more and no less favorable to us than the terms of similar transactions with

unaffiliated institutions to which we are, or expect to be, a party. None of these transactions were required to be disclosed

under SEC rules.

Mr. Williams joined our Board in December 2008. In January of 2010, he was appointed Executive Director of the

Government Practice at CEB and from January 2012 until June 2012 he served as a Senior Fellow. As of June 30, 2012 he

left his positions with CEB. CEB provides best practices research and analysis and executive education to corporations

through memberships in various subject-matter interest groups organized and managed by CEB. Mr. Williams’

responsibilities at CEB included contributing to and authoring literature; advising on the development of CEB’s state and

local government service strategy; and promoting future CEB services. We purchased memberships in certain membership

groups, and paid CEB approximately $650,200 and $500,400 for those memberships and related training and development, in

2012 and 2013 year-to-date, respectively.

This transaction was not required to be reviewed, approved or ratified under our Related Person Transactions Policy

because the Board concluded that our business relationship with CEB did not constitute a material relationship between

Mr. Williams and us that would impair Mr. Williams’ independence as our director.

Transactions with Institutions Related to Executive Officers

Mr. Layton joined us in May 2012 as CEO and as a member of the Board of Directors, and Mr. McDavid joined us in

July 2012 as Executive Vice President — General Counsel and Corporate Secretary. Both Mr. Layton and Mr. McDavid

previously served as senior executive officers of JPMorgan Chase, ending their service in 2004 and 2006, respectively.

Freddie Mac has an extensive business relationship with JPMorgan Chase (through its subsidiaries). As of

December 31, 2012, JPMorgan Chase was Freddie Mac’s second largest servicer, and serviced approximately 1.17 million

loans for Freddie Mac. JPMorgan Chase had an aggregate unpaid principal balance of approximately $183.6 billion as of

December 31, 2012 and approximately $183.2 billion as of January 31, 2013. JPMorgan Chase sold approximately $42.8

billion in single-family loans to Freddie Mac in 2012.

JPMorgan Chase also is a significant capital markets, derivatives and multifamily counterparty and is an underwriter of

our debt and mortgage securities. As of January 31, 2013, JPMorgan Chase and its subsidiaries had an aggregate notional

balance of $70 billion of derivatives (including $41 billion of exchange-traded instruments) with Freddie Mac and was the

company’s counterparty in securities repurchase transactions with a total unpaid principal balance of $850 million. From

January 1, 2012 through January 31, 2013, JPMorgan Chase served as underwriter for $40.8 billion of Freddie Mac’s debt

securities and $525.4 million of Freddie Mac’s mortgage-related securities.

Mr. Layton receives a pension from JPMorgan Chase in connection with his retirement in 2004. In addition, Mr. Layton

has a deferred compensation balance under JPMorgan Chase’s Deferred Compensation Plan, of which approximately 80% is

payable in fifteen annual installments beginning in January 2016 and earns a return based upon a defined list of mutual funds

that Mr. Layton designates. The remaining 20% is in the form of a “private equity balance” that is payable as proceeds are

realized from the underlying private equity transactions into which the funds were invested. Mr. Layton’s deferred

compensation balance is less than ten percent of his total net worth on an after-tax basis. In January 2013, Mr. Layton

exercised all of his options to buy JPMorgan Chase common stock and divested the resulting shares. When he joined the

company in May 2012, these options represented less than one percent of his net worth. Mr. Layton also has brokerage and

deposit accounts with JPMorgan Chase.

Mr. McDavid receives a pension from JPMorgan Chase in connection with his retirement in 2006. Mr. McDavid also

owns stock and stock appreciation rights to buy JPMorgan Chase common stock, which represent less than five percent of his

net worth. Mr. McDavid and members of his family also have brokerage and deposit accounts at JPMorgan Chase and have

investments in funds managed by JPMorgan Chase or its affiliates.

365 Freddie Mac
The amount of Mr. Layton’s and Mr. McDavid’s pension and Mr. Layton’s deferred compensation do not depend in any

way on JPMorgan Chase’s results as long as JPMorgan Chase is able to meet its obligations. In addition, in order to eliminate

any potential conflicts of interest, Mr. Layton and Mr. McDavid has each agreed to recuse himself in specified circumstances

from acting upon matters directly relating to JPMorgan Chase that may be considered by the Board of Directors, or presented

to him in his capacity as CEO and a member of the Board, or as EVP — General Counsel and Corporate Secretary,

respectively, including if such matter: i) has the potential to impact JPMorgan Chase’s ability to satisfy its obligations to him;

ii) otherwise raises an actual or potential conflict of interest; or iii) poses a significant reputation risk to the company. As a

result, neither Mr. Layton nor Mr. McDavid has a material interest in our relationship with JPMorgan Chase and their

respective relationships described above were not required to be reviewed, approved or ratified under our Related Person

Transactions Policy.

Anthony Renzi joined us in April 2010 and served as our Executive Vice President — Single Family Business,

Operations and Technology through May 2012, when his employment with Freddie Mac ended. Prior to joining Freddie Mac,

he served as the Chief Operating Officer of GMAC Residential Capital and as President of GMAC Mortgage Corporation.

That employment ended in March 2010.

GMAC Residential Capital, LLC, GMAC Mortgage Corporation, GMAC Mortgage, LLC, and Residential Funding

Company, LLC are all affiliated entities, and were reorganized as subsidiaries of Ally Financial Inc., or Ally. Residential

Capital LLC (“ResCap”) and a number of its subsidiaries, including GMAC Mortgage, LLC and Residential Funding

Company, LLC (with GMAC Mortgage, LLC, collectively, “GMAC”), filed for bankruptcy in the U.S. Bankruptcy Court for

the Southern District of New York on May 14, 2012.

GMAC Mortgage, LLC, is a seller/servicer that sold mortgages to Freddie Mac with an aggregate unpaid principal

balance of approximately $3.1 billion from January 1, 2012 through April 17, 2012. Effective April 18, 2012, mortgages

previously sold under the GMAC Mortgage, LLC purchase contract were sold to Freddie Mac under a purchase contract with

Ally Bank, a seller/servicer that is also a GMAC-affiliated entity and a subsidiary of Ally Financial. Ally Bank sold

mortgages to Freddie Mac with an aggregate unpaid principal balance of approximately $3.8 billion through December 31,

2012 and mortgages with an aggregate unpaid principal balance of approximately $345 million through January 31, 2013.

GMAC serviced (either as a servicer or a subservicer) approximately 3% of our single-family mortgage loans as of

December 31, 2012. In March 2010, we entered into an agreement with GMAC, under which GMAC made a one-time

payment to us for the partial release of repurchase obligations relating to loans sold to us prior to January 1, 2009. We

continued to purchase loans from GMAC after January 1, 2009; Ally Bank is liable for breaches of representations and

warranties with respect to these loans.

In connection with the bankruptcy filing, the bankruptcy court approved a package of servicing assurances designed to

provide comfort that GMAC will continue to maintain the existing quality of its servicing during the bankruptcy case, and

that we will have the right to transfer our loans to another servicer in the event that GMAC fails to meet certain servicing

quality criteria. The primary purpose of the bankruptcy was to effect the sale and transfer of the GMAC origination and

servicing platform, including servicing rights with respect to Freddie Mac loans, free and clear of liens and claims in an

auction sale supervised by the bankruptcy court. Ocwen Loan Servicing, LLC was the successful bidder for the servicing

rights with respect to Freddie Mac loans in an auction held on October 23, 2012. On November 21, 2012, the bankruptcy

court approved the sale to Ocwen, and the sale was completed on February 15, 2013.

At the time Mr. Renzi joined us, he was entitled to payments from Ally consisting of unpaid deferred stock units granted

during his employment. At that time, the remaining payments had an aggregate grant date value of approximately $860,000.

The aggregate amount actually paid could be either higher or lower based on Ally’s value. Payments were scheduled to be

made in cash semi-monthly and continue through March 2015.

In order to eliminate any potential conflict of interest, Mr. Renzi, in his capacity as an employee of Freddie Mac, was

recused from any transactions with or decisions relating to Ally or its affiliates through such time that he received his last

payment from Ally and its affiliates. Specifically, Mr. Renzi was recused from serving as the final decision-maker, and from

influencing final decisions, relating to: (a) any and all aspects of Freddie Mac’s relationship with Ally or its affiliates

pertaining to both performing and non-performing loan servicing; (b) any other business transactions with Ally or its

affiliates or their status as a counterparty with us; or (c) reviews of Ally or its affiliates by our MHA — Compliance function

under the Financial Agency Agreement with Treasury.

366 Freddie Mac
Mr. Renzi’s relationship with Ally and its affiliates was not required to be reviewed, approved or ratified under our

Related Person Transactions Policy because Mr. Renzi, in his capacity as an employee, was recused from any involvement in

transactions with or decisions relating to Ally and its affiliates for the period that he received payments on unpaid stock units.

For this reason, Mr. Renzi did not have a material interest in our relationship with Ally or its affiliates.

Conservatorship Agreements

Treasury, FHFA, and the Board of Governors of the Federal Reserve System have taken a number of actions to support

us during conservatorship, including entering into the Purchase Agreement, described in this Form 10-K. See

“BUSINESS — Conservatorship and Related Matters — Treasury Agreements,” “BUSINESS — Conservatorship and

Government Support for our Business” and “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Related

Parties as a Result of Conservatorship.”

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Description of Fees

The following is a description of fees billed to us by PricewaterhouseCoopers LLP, our independent public accountants,

during 2012 and 2011.

Table 96 — Auditor Fees(1)

2012 2011

Audit Fees(2) ............................................................................ $30,651,367 $25,617,867

Audit-Related Fees(3) ...................................................................... 76,119 8,725

Tax Fees(4) ............................................................................. 109,250 3,040,750

All Other Fees(5) ......................................................................... — 11,399

Total ................................................................................. $30,836,736 $28,678,741

(1) These fees represent amounts billed within the designated year and include reimbursable expenses of $365,016 and $283,246 for 2012 and 2011,

respectively.

(2) Audit fees include fees and reimbursable expenses billed by PricewaterhouseCoopers LLP in connection with the SAS 100 quarterly reviews of our

interim financial information and the audit of our annual consolidated financial statements. The audit fees billed during 2012 include fees and

reimbursable expenses related to the 2012 ($19,911,326) and 2011 ($10,740,041) audits. In addition to the amounts shown above, approximately $10.4

million of fees and reimbursable expenses will be billed in 2013 for the 2012 audit. The audit fees billed during 2011 include fees and reimbursable

expenses related to the 2011 ($17,715,607) and 2010 ($7,902,260) audits. Audit fees of $84,500 and $102,020 in 2012 and 2011, respectively, related to

the Freddie Mac Foundation are excluded because these fees are incurred and paid separately by the Freddie Mac Foundation.

(3) The 2012 and 2011 audit-related fees resulted from renewals of our Comperio subscription ($9,000 and $8,725, respectively). The 2012 audit-related

fees also include fees billed by PricewaterhouseCoopers LLP for the performance of certain agreed-upon procedures regarding aspects of compliance

with the Purchase Agreement covenants ($67,119).

(4) The tax fees billed in 2012 related to non-audit tax advisory services to provide assistance with the Internal Revenue Service tax audit matters, including

information requests and associated responses. The tax fees billed in 2011 related to non-audit tax compliance services and primarily related to the

preparation of the company’s 2010 tax return.

(5) All other fees for 2011 resulted from fees billed by PricewaterhouseCoopers LLP for the performance of non-audit advisory services related to a

preliminary assessment of certain aspects of the company’s technology implementation ($11,399).

Approval of Independent Auditor Services and Fees

As provided in its charter, the Audit Committee appoints, subject to FHFA approval, our independent public accounting

firm and reviews the scope of the annual audit and pre-approves, subject (as required) to FHFA approval, all audit and nonaudit services permitted under applicable law to be performed by the independent public accounting firm.

The Sarbanes-Oxley Act and related rules adopted by the SEC require that all services provided to companies subject to

the reporting requirements of the Exchange Act by their independent auditors be pre-approved by their audit committee or by

authorized members of the committee, with certain exceptions. The Audit Committee’s charter requires that the Audit

Committee pre-approve any audit services, and any non-audit services permitted under applicable law, to be performed by

our independent auditors (or to designate one or more members of the Audit Committee to pre-approve such services and

report such pre-approval to the Audit Committee).

Audit services that are within the scope of an auditor’s engagement approved by the Audit Committee prior to the

performance of those services are deemed pre-approved and do not require separate pre-approval. Audit services not within

the scope of an Audit Committee-approved engagement, as well as permissible non-audit services, must be separately preapproved by the Audit Committee.

367 Freddie Mac
When the Audit Committee pre-approves a service, the Audit Committee typically sets a dollar limit for such service.

Management endeavors to obtain pre-approval of the Audit Committee, or of the Chairman of the Audit Committee (when

the Chairman of the Audit Committee has been delegated such authority), before it incurs fees exceeding the dollar limit. If

the Chairman of the Audit Committee approves the increase, the Chairman will report such approval at the Audit

Committee’s next scheduled meeting.

The pre-approval procedure is administered by our senior financial management, which reports throughout the year to

the Audit Committee. The Audit Committee pre-approved all audit, audit-related, tax, and other services performed in 2011

and 2012.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report:

(1) Consolidated Financial Statements

The consolidated financial statements required to be filed in this Form 10-K are included in Part II, Item 8.

(2) Financial Statement Schedules

None.

(3) Exhibits

An Exhibit Index has been filed as part of this Form 10-K beginning on page E-1 and is incorporated herein

by reference.

368 Freddie Mac
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly

caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Federal Home Loan Mortgage Corporation

By: /s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer

Date: February 28, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Capacity Date

/s/ Christopher S. Lynch* Non-Executive Chairman of the Board February 28, 2013

Christopher S. Lynch

/s/ Donald H. Layton Chief Executive Officer and Director February 28, 2013

Donald H. Layton (Principal Executive Officer)

/s/ Ross J. Kari Executive Vice President — Chief Financial Officer February 28, 2013

Ross J. Kari (Principal Financial Officer)

/s/ Robert D. Mailloux Senior Vice President — Corporate Controller and February 28, 2013

Robert D. Mailloux Principal Accounting Officer (Principal Accounting Officer)

/s/ Linda B. Bammann* Director February 28, 2013

Linda B. Bammann

/s/ Carolyn H. Byrd* Director February 28, 2013

Carolyn H. Byrd

/s/ Nicolas P. Retsinas* Director February 28, 2013

Nicolas P. Retsinas

/s/ Eugene B. Shanks, Jr.* Director February 28, 2013

Eugene B. Shanks, Jr.

/s/ Anthony A. Williams* Director February 28, 2013

Anthony A. Williams

*By: /s/ William H. McDavid

William H. McDavid

Attorney-in-Fact

369 Freddie Mac
GLOSSARY

This Glossary includes acronyms and defined terms that are used throughout this report.

1995 Employee Plan — 1995 Stock Compensation Plan, as amended

2004 Employee Plan — 2004 Stock Compensation Plan, as amended and restated June 6, 2008

Administration — Executive branch of the U.S. government.

Agency securities — Generally refers to mortgage-related securities issued by the GSEs or government agencies.

Alt-A loan — Although there is no universally accepted definition of Alt-A, many mortgage market participants classify

single-family loans with credit characteristics that range between their prime and subprime categories as Alt-A because these

loans have a combination of characteristics of each category, may be underwritten with lower or alternative income or asset

documentation requirements compared to a full documentation mortgage loan, or both. In determining our Alt-A exposure on

loans underlying our single-family credit guarantee portfolio, we classified mortgage loans as Alt-A if the lender that delivers

them to us classified the loans as Alt-A, or if the loans had reduced documentation requirements, as well as a combination of

certain credit characteristics and expected performance characteristics at acquisition which, when compared to full

documentation loans in our portfolio, indicate that the loan should be classified as Alt-A. In the event we purchase a

refinance mortgage in either our relief refinance mortgage initiative or in another mortgage refinance initiative and the

original loan had been previously identified as Alt-A, such refinance loan may no longer be categorized or reported as an AltA mortgage in this report and our other financial reports because the new refinance loan replacing the original loan would not

be identified by the servicer as an Alt-A loan. As a result, our reported Alt-A balances may be lower than would otherwise be

the case had such refinancing not occurred. For non-agency mortgage-related securities that are backed by Alt-A loans, we

categorize our investments in non-agency mortgage-related securities as Alt-A if the securities were identified as such based

on information provided to us when we entered into these transactions.

AMT — Alternative Minimum Tax

AOCI — Accumulated other comprehensive income (loss), net of taxes

ARM — Adjustable-rate mortgage — A mortgage loan with an interest rate that adjusts periodically over the life of the

mortgage loan based on changes in a benchmark index.

Board — Board of Directors

Bond insurers — Companies that provide credit insurance principally covering securitized assets in both the primary

issuance and secondary markets.

BPs — Basis points — One one-hundredth of 1%. This term is commonly used to quote the yields of debt instruments or

movements in interest rates.

Cash and other investments portfolio — Our cash and other investments portfolio is comprised of our cash and cash

equivalents, federal funds sold and securities purchased under agreements to resell, and investments in non-mortgage-related

securities.

CD&A — Compensation Discussion and Analysis

CEB — The Corporate Executive Board Company

CEO — Chief Executive Officer

CFO — Chief Financial Officer

Charter — The Federal Home Loan Mortgage Corporation Act, as amended, 12 U.S.C. § 1451 et seq.

CMBS — Commercial mortgage-backed security — A security backed by mortgages on commercial property (often

including multifamily rental properties) rather than one-to-four family residential real estate. Although the mortgage pools

underlying CMBS can include mortgages financing multifamily properties and commercial properties, such as office

buildings and hotels, the classes of CMBS that we hold receive distributions of scheduled cash flows only from multifamily

370 Freddie Mac
properties. Military housing revenue bonds are included as CMBS within investments-related disclosures. We have not

identified CMBS as either subprime or Alt-A securities.

Comprehensive income (loss) — Consists of net income (loss) plus total other comprehensive income (loss).

Conforming loan/Conforming jumbo loan/Conforming loan limit — A conventional single-family mortgage loan with an

original principal balance that is equal to or less than the applicable conforming loan limit, which is a dollar amount cap on

the size of the original principal balance of single-family mortgage loans we are permitted by law to purchase or securitize.

The conforming loan limit is determined annually based on changes in FHFA’s housing price index. Any decreases in the

housing price index are accumulated and used to offset any future increases in the housing price index so that conforming

loan limits do not decrease from year-to-year. Since 2006, the base conforming loan limit for a one-family residence has been

set at $417,000, and higher limits have been established in certain “high-cost” areas (currently, up to $625,500 for a onefamily residence). Higher limits also apply to two- to four-family residences, and for mortgages secured by properties in

Alaska, Guam, Hawaii and the U.S. Virgin Islands.

Actual loan limits are set by FHFA for each county (or equivalent), and the loan limit for specific high-cost areas may

be lower than the maximum amounts. We refer to loans that we have purchased with UPB exceeding the base conforming

loan limit (i.e., $417,000) as conforming jumbo loans.

Beginning in 2008, pursuant to a series of laws, our loan limits in certain high-cost areas were increased temporarily

above the limits that otherwise would have been applicable (up to $729,750 for a one-family residence). The latest of these

increases expired on September 30, 2011.

Conservator — The Federal Housing Finance Agency, acting in its capacity as conservator of Freddie Mac.

Convexity — A measure of how much a financial instrument’s duration changes as interest rates change.

Core spread income — Refers to a fair value estimate of the net current period accrual of income from the spread between

mortgage-related investments and debt, calculated on an option-adjusted basis.

Covered Officer — Those executives in the following positions, each of whom are compensated pursuant to the Executive

Management Compensation Program: (a) Chief Executive Officer; (b) Chief Operating Officer; (c) Chief Financial Officer;

(d) all Executive Vice Presidents; and (e) all Senior Vice Presidents. Each of the Named Executive Officers is a Covered

Officer.

Credit enhancement — Any number of different financial arrangements that are designed to reduce credit risk by partially

or fully compensating an investor in the event of certain financial losses. Examples of credit enhancements include mortgage

insurance, overcollateralization, indemnification agreements, and government guarantees.

Credit losses — Consists of charge-offs and REO operations expense.

Credit-related expenses — Consists of our provision for credit losses and REO operations expense.

Deed in lieu of foreclosure — An alternative to foreclosure in which the borrower voluntarily conveys title to the property

to the lender and the lender accepts such title (sometimes together with an additional payment by the borrower) in full

satisfaction of the mortgage indebtedness.

Delinquency — A failure to make timely payments of principal or interest on a mortgage loan. For single-family mortgage

loans, we generally report delinquency rate information based on the number of loans that are seriously delinquent. For

multifamily loans, we report delinquency rate information based on the UPB of loans that are two monthly payments or more

past due or in the process of foreclosure.

Derivative — A financial instrument whose value depends upon the characteristics and value of an underlying financial asset

or index, such as a security or commodity price, interest or currency rates, or other financial indices.

Directors’ Plan — 1995 Directors’ Stock Compensation Plan, as amended and restated

Dodd-Frank Act — Dodd-Frank Wall Street Reform and Consumer Protection Act.

371 Freddie Mac
Dollar roll transactions — Transactions whereby we enter into an agreement to sell and subsequently repurchase (or

purchase and subsequently resell) agency securities.

DSCR — Debt Service Coverage Ratio — An indicator of future credit performance for multifamily loans. The DSCR

estimates a multifamily borrower’s ability to service its mortgage obligation using the secured property’s cash flow, after

deducting non-mortgage expenses from income. The higher the DSCR, the more likely a multifamily borrower will be able

to continue servicing its mortgage obligation.

Duration — Duration is a measure of a financial instrument’s price sensitivity to changes in interest rates.

Duration gap — One of our primary interest-rate risk measures. Duration gap is a measure of the difference between the

estimated durations of our interest rate sensitive assets and liabilities. We present the duration gap of our financial

instruments in units expressed as months. A duration gap of zero implies that the change in value of our interest rate sensitive

assets from an instantaneous change in interest rates would be expected to be accompanied by an equal and offsetting change

in the value of our debt and derivatives, thus leaving the net fair value of equity unchanged.

EDCP — Executive Deferred Compensation Plan

Effective rent — The average rent actually paid by the tenant over the term of a lease.

ESPP — Employee Stock Purchase Plan

Euribor — Euro Interbank Offered Rate

EVP — Executive Vice President

Exchange Act — Securities and Exchange Act of 1934, as amended

Executive Compensation Program — Executive Management Compensation Program, as amended and restated

Fannie Mae — Federal National Mortgage Association

FASB — Financial Accounting Standards Board

FDIC — Federal Deposit Insurance Corporation

Federal Reserve — Board of Governors of the Federal Reserve System

FHA — Federal Housing Administration

FHFA — Federal Housing Finance Agency — An independent agency of the U.S. government with responsibility for

regulating Freddie Mac, Fannie Mae, and the FHLBs.

FHLB — Federal Home Loan Bank

FICO score — A credit scoring system developed by Fair, Isaac and Co. FICO scores are the most commonly used credit

scores today. FICO scores are ranked on a scale of approximately 300 to 850 points with a higher value indicating a lower

likelihood of credit default.

Fixed-rate mortgage — Refers to a mortgage originated at a specific rate of interest that remains constant over the life of

the loan. For purposes of presentation in this report and elsewhere in our reporting, we have categorized loans that have been

modified under HAMP as fixed-rate loans, notwithstanding the rate adjustment provision of HAMP.

Foreclosure alternative — A workout option pursued when a home retention action is not successful or not possible. A

foreclosure alternative is either a short sale or deed in lieu of foreclosure.

Foreclosure transfer — Refers to our completion of a transaction provided for by the foreclosure laws of the applicable

state, in which a delinquent borrower’s ownership interest in a mortgaged property is terminated and title to the property is

transferred to us or to a third party. State foreclosure laws commonly refer to such transactions as foreclosure sales, sheriff’s

sales, or trustee’s sales, among other terms. When we, as mortgage holder, acquire a property in this manner, we pay for it by

extinguishing some or all of the mortgage debt.

372 Freddie Mac
Freddie Mac mortgage-related securities — Securities we issue and guarantee, including PCs, REMICs and Other

Structured Securities, and Other Guarantee Transactions.

GAAP — Generally accepted accounting principles in the United States of America.

Ginnie Mae — Government National Mortgage Association

GSE Act — The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Reform Act.

GSEs — Government sponsored enterprises — Refers to certain legal entities created by the U.S. government, including

Freddie Mac, Fannie Mae, and the FHLBs.

Guarantee fee — The fee that we receive for guaranteeing the payment of principal and interest to mortgage security

investors, which consists primarily of a combination of management and guarantee fees paid on a monthly basis, as a

percentage of the UPB underlying loans, and initial upfront payments, such as delivery fees.

Guidelines — Corporate Governance Guidelines, as revised

HAFA — Home Affordable Foreclosures Alternative program — In 2009, the Treasury Department introduced the HAFA

program to provide an option for HAMP-eligible homeowners who are unable to keep their homes. The HAFA program took

effect on April 5, 2010 and we implemented it effective August 1, 2010.

HAMP — Home Affordable Modification Program — Refers to the effort under the MHA Program whereby the

U.S. government, Freddie Mac and Fannie Mae commit funds to help eligible homeowners avoid foreclosure and keep their

homes through mortgage modifications.

HARP — Home Affordable Refinance Program — Refers to the effort under the MHA Program that seeks to help eligible

borrowers with existing loans that are guaranteed by us or Fannie Mae to refinance into loans with more affordable monthly

payments and/or fixed-rate terms without obtaining new mortgage insurance in excess of what is already in place. Originally,

only borrowers who had mortgages sold to Freddie Mac or Fannie Mae on or before May 31, 2009 with current LTV ratios

above 80% (and up to 125%) were eligible to refinance their mortgages under the program. In October 2011, HARP was

expanded to allow eligible borrowers who have mortgages with current LTV ratios above 125% to refinance under the

program. The relief refinance initiative, under which we also allow borrowers with LTV ratios of 80% and below to

participate, is our implementation of HARP for our loans.

HFA — State or local Housing Finance Agency

HFA initiative — An initiative among Treasury, FHFA, Freddie Mac, and Fannie Mae that commenced in 2009. Under the

HFA initiative, we and Fannie Mae provide assistance to state and local HFAs so that the HFAs can continue to meet their

mission of providing affordable financing for both single-family and multifamily housing. The HFA initiative includes the

NIBP and the TCLFP.

HUD — U.S. Department of Housing and Urban Development —HUD has authority over Freddie Mac with respect to fair

lending.

Implied volatility — A measurement of how the value of a financial instrument changes due to changes in the market’s

expectation of potential changes in future interest rates. A decrease in implied volatility generally increases the estimated fair

value of our mortgage assets and decreases the estimated fair value of our callable debt and options-based derivatives, while

an increase in implied volatility generally has the opposite effect.

Interest-only loan — A mortgage loan that allows the borrower to pay only interest (either fixed-rate or adjustable-rate) for

a fixed period of time before principal amortization payments are required to begin. After the end of the interest-only period,

the borrower can choose to refinance the loan, pay the principal balance in total, or begin paying the monthly scheduled

principal due on the loan.

IRS — Internal Revenue Service

K Certificates — Multifamily regularly issued, structured pass-through securities backed primarily by recently originated

multifamily mortgage loans. We categorize K Certificates that we guarantee as Other Guarantee Transactions. See “Other

Guarantee Transactions” for more information.

373 Freddie Mac
LIBOR — London Interbank Offered Rate

LIHTC partnerships — Low-income housing tax credit partnerships — Prior to 2008, we invested as a limited partner in

LIHTC partnerships, which are formed for the purpose of providing funding for affordable multifamily rental properties.

These LIHTC partnerships invest directly in limited partnerships that own and operate multifamily rental properties that

generate federal income tax credits and deductible operating losses.

Liquidation preference — Generally refers to an amount that holders of preferred securities are entitled to receive out of

available assets, upon liquidation of a company. The initial liquidation preference of our senior preferred stock was

$1.0 billion. The aggregate liquidation preference of our senior preferred stock includes the initial liquidation preference plus

amounts funded by Treasury under the Purchase Agreement. In addition, dividends and periodic commitment fees not paid in

cash are added to the liquidation preference of the senior preferred stock. We may make payments to reduce the liquidation

preference of the senior preferred stock only in limited circumstances.

LTV ratio — Loan-to-value ratio — The ratio of the unpaid principal amount of a mortgage loan to the value of the property

that serves as collateral for the loan, expressed as a percentage. Loans with high LTV ratios generally tend to have a higher

risk of default and, if a default occurs, a greater risk that the amount of the gross loss will be high compared to loans with

lower LTV ratios. We report LTV ratios based solely on the amount of the loan purchased or guaranteed by us, generally

excluding any second-lien mortgages (unless we own or guarantee the second lien).

MD&A — Management’s Discussion and Analysis of Financial Condition and Results of Operations

MHA Program — Making Home Affordable Program — Formerly known as the Housing Affordability and Stability Plan,

the MHA Program was announced by the Administration in February 2009. The MHA Program is designed to help in the

housing recovery, promote liquidity and housing affordability, expand foreclosure prevention efforts and set market

standards. The MHA Program includes HARP and HAMP.

Mortgage assets — Refers to both mortgage loans and the mortgage-related securities we hold in our mortgage-related

investments portfolio.

Mortgage-related investments portfolio — Our investment portfolio, which consists principally of mortgage-related

securities and single-family and multifamily mortgage loans. The size of our mortgage-related investments portfolio under

the Purchase Agreement is determined without giving effect to the January 1, 2010 change in accounting guidance related to

transfers of financial assets and consolidation of VIEs. Accordingly, for purposes of the portfolio limit, when PCs and certain

Other Guarantee Transactions are purchased into the mortgage-related investments portfolio, this is considered the

acquisition of assets rather than the reduction of debt.

Mortgage-to-debt OAS — The net OAS between the mortgage and agency debt sectors. This is an important factor in

determining the expected level of net interest yield on a new mortgage asset. Higher mortgage-to-debt OAS means that a

newly purchased mortgage asset is expected to provide a greater return relative to the cost of the debt issued to fund the

purchase of the asset and, therefore, a higher net interest yield. Mortgage-to-debt OAS tends to be higher when there is weak

demand for mortgage assets and lower when there is strong demand for mortgage assets.

Multifamily mortgage — A mortgage loan secured by a property with five or more residential rental units.

Multifamily mortgage portfolio — Consists of multifamily mortgage loans held by us on our consolidated balance sheets as

well as our guarantee of non-consolidated Freddie Mac mortgage-related securities, and other guarantee commitments, but

excluding those underlying our guarantees of HFA bonds under the HFA initiative.

Net worth (deficit) — The amount by which our total assets exceed (or are less than) our total liabilities as reflected on our

consolidated balance sheets prepared in conformity with GAAP.

Net worth sweep dividend and Net Worth Amount — For each quarter from January 1, 2013 through and including

December 31, 2017, the dividend payment on the senior preferred stock will be the amount, if any, by which our Net Worth

Amount at the end of the immediately preceding fiscal quarter, less the applicable capital reserve amount, exceeds zero. The

term Net Worth Amount is defined as: (a) the total assets of Freddie Mac (excluding Treasury’s commitment and any

unfunded amounts thereof, less; (b) our total liabilities (excluding any obligation in respect of capital stock), in each case as

reflected on our consolidated balance sheets prepared in accordance with GAAP. If the calculation of the dividend payment

for a quarter does not exceed zero, then no dividend shall accrue or be payable for that quarter. The applicable capital reserve

374 Freddie Mac
amount will be $3 billion for 2013 and will be reduced by $600 million each year thereafter until it reaches zero on

January 1, 2018. For each quarter beginning January 1, 2018, the dividend payment will be the amount, if any, by which our

Net Worth Amount at the end of the immediately preceding fiscal quarter exceeds zero.

NIBP — New Issue Bond Program is a component of the HFA initiative in which we and Fannie Mae issued partiallyguaranteed pass-through securities to Treasury that are backed by bonds issued by various state and local HFAs. The

program provides financing for HFAs to issue new housing bonds. Treasury is obligated to absorb any losses under the

program up to a certain level before we are exposed to any losses.

NPV — Net present value

NYSE — New York Stock Exchange

OAS — Option-adjusted spread — An estimate of the incremental yield spread between a particular financial instrument

(e.g., a security, loan or derivative contract) and a benchmark yield curve (e.g., LIBOR or agency or U.S. Treasury

securities). This includes consideration of potential variability in the instrument’s cash flows resulting from any options

embedded in the instrument, such as prepayment options.

OFHEO — Office of Federal Housing Enterprise Oversight, the predecessor to FHFA.

Option ARM loan — Mortgage loans that permit a variety of repayment options, including minimum, interest-only, fully

amortizing 30-year and fully amortizing 15-year payments. The minimum payment alternative for option ARM loans allows

the borrower to make monthly payments that may be less than the interest accrued for the period. The unpaid interest, known

as negative amortization, is added to the principal balance of the loan, which increases the outstanding loan balance. For our

non-agency mortgage-related securities that are backed by option ARM loans, we categorize securities as option ARM if the

securities were identified as such based on information provided to us when we entered into these transactions. We have not

identified option ARM securities as either subprime or Alt-A securities.

OTC — Over-the-counter

OTCQB — is a marketplace, operated by the OTC Markets Group Inc., for OTC-traded U.S. companies that are registered

and current in their reporting with the SEC or a U.S. banking or insurance regulator.

Other guarantee commitments — Mortgage-related assets held by third parties for which we provide our guarantee without

our securitization of the related assets.

Other Guarantee Transactions — Transactions in which third parties transfer non-Freddie Mac mortgage-related securities

to trusts specifically created for the purpose of issuing mortgage-related securities, or certificates, in the Other Guarantee

Transactions. In the securities market, our non-HFA related multifamily Other Guarantee Transactions are known as “K

Certificates.”

PCs — Participation Certificates — Securities that we issue as part of a securitization transaction. Typically we purchase

mortgage loans from parties who sell mortgage loans, place a pool of loans into a PC trust and issue PCs from that trust. The

PCs are generally transferred to the seller of the mortgage loans in consideration of the loans or are sold to third-party

investors if we purchased the mortgage loans for cash.

Pension Plan — Employees’ Pension Plan

Pension SERP Benefit — The component of the SERP that relates to the Pension Plan.

PMVS — Portfolio Market Value Sensitivity — One of our primary interest-rate risk measures. PMVS measures are

estimates of the amount of average potential pre-tax loss in the market value of our net assets due to parallel (PMVS-L) and

non-parallel (PMVS-YC) changes in LIBOR.

Primary mortgage market — The market where lenders originate mortgage loans and lend funds to borrowers. We do not

lend money directly to homeowners, and do not participate in this market.

Purchase Agreement / Senior Preferred Stock Purchase Agreement — An agreement the Conservator, acting on our

behalf, entered into with Treasury on September 7, 2008, which was subsequently amended and restated on September 26,

2008 and further amended on May 6, 2009, December 24, 2009, and August 17, 2012.

375 Freddie Mac
QSPE — Qualifying Special Purpose Entity — A term used within the former accounting guidance on transfers and

servicing of financial assets to describe a particular trust or other legal vehicle that was demonstrably distinct from the

transferor, had significantly limited permitted activities and could only hold certain types of assets, such as passive financial

assets. Prior to January 1, 2010, the securitization trusts that were used for the administration of cash remittances received on

the underlying assets of our PCs and REMICs and Other Structured Securities were QSPEs and, as such, they were not

consolidated.

Recorded Investment — The dollar amount of a loan recorded on our consolidated balance sheets, excluding any valuation

allowance, such as the allowance for loan losses, but which does reflect direct write-downs of the investment. For mortgage

loans, direct write-downs consist of valuation allowances associated with recording our initial investment in loans acquired

with evidence of credit deterioration at the time of purchase. Recorded investment excludes accrued interest income.

Reform Act — The Federal Housing Finance Regulatory Reform Act of 2008, which, among other things, amended the GSE

Act by establishing a single regulator, FHFA, for Freddie Mac, Fannie Mae, and the FHLBs.

REIT — Real estate investment trust

Relief refinance mortgage — A single-family mortgage loan delivered to us for purchase or guarantee that meets the

criteria of the Freddie Mac Relief Refinance Mortgagesm initiative. Part of this initiative is our implementation of HARP for

our loans, and relief refinance options are also available for certain non-HARP loans. Although HARP is targeted at

borrowers with current LTV ratios above 80%, our initiative also allows borrowers with LTV ratios of 80% and below to

participate.

REMIC — Real Estate Mortgage Investment Conduit — A type of multiclass mortgage-related security that divides the cash

flows (principal and interest) of the underlying mortgage-related assets into two or more classes that meet the investment

criteria and portfolio needs of different investors.

REMICs and Other Structured Securities (or in the case of Multifamily securities, Other Structured Securities) —

Single- and multiclass securities issued by Freddie Mac that represent beneficial interests in pools of PCs and certain other

types of mortgage-related assets. REMICs and Other Structured Securities that are single-class securities pass through the

cash flows (principal and interest) on the underlying mortgage-related assets. REMICs and Other Structured Securities that

are multiclass securities divide the cash flows of the underlying mortgage-related assets into two or more classes designed to

meet the investment criteria and portfolio needs of different investors. Our principal multiclass securities qualify for tax

treatment as REMICs.

REO — Real estate owned — Real estate which we have acquired through foreclosure or through a deed in lieu of

foreclosure.

RSU — Restricted stock unit

S&P — Standard & Poor’s

SEC — Securities and Exchange Commission

Secondary mortgage market — A market consisting of institutions engaged in buying and selling mortgages in the form of

whole loans (i.e., mortgages that have not been securitized) and mortgage-related securities. We participate in the secondary

mortgage market by purchasing mortgage loans and mortgage-related securities for investment and by issuing guaranteed

mortgage-related securities, principally PCs.

Senior preferred stock — The shares of Variable Liquidation Preference Senior Preferred Stock issued to Treasury under

the Purchase Agreement.

Seriously delinquent — Single-family mortgage loans that are three monthly payments or more past due or in the process of

foreclosure as reported to us by our servicers.

SERP — Supplemental Executive Retirement Plan

Short sale — Typically an alternative to foreclosure consisting of a sale of a mortgaged property in which the homeowner

sells the home at market value and the lender accepts proceeds (sometimes together with an additional payment or

promissory note from the borrower) that are less than the outstanding mortgage indebtedness in full satisfaction of the loan.

376 Freddie Mac
Single-family credit guarantee portfolio — Consists of unsecuritized single-family loans, single-family loans held by

consolidated trusts, and single-family loans underlying non-consolidated Other Guarantee Transactions and covered by other

guarantee commitments. Excludes our REMICs and Other Structured Securities that are backed by Ginnie Mae Certificates

and our guarantees under the HFA initiative.

Single-family mortgage — A mortgage loan secured by a property containing four or fewer residential dwelling units.

Spread — The difference between the yields of two debt securities, or the difference between the yield of a debt security and

a benchmark yield, such as LIBOR.

Strips — Mortgage pass-through securities created by separating the principal and interest payments on a pool of mortgage

loans. A principal-only strip entitles the security holder to principal cash flows, but no interest cash flows, from the

underlying mortgages. An interest-only strip entitles the security holder to interest cash flows, but no principal cash flows,

from the underlying mortgages.

Subprime — Participants in the mortgage market may characterize single-family loans based upon their overall credit

quality at the time of origination, generally considering them to be prime or subprime. Subprime generally refers to the credit

risk classification of a loan. There is no universally accepted definition of subprime. The subprime segment of the mortgage

market primarily serves borrowers with poorer credit payment histories and such loans typically have a mix of credit

characteristics that indicate a higher likelihood of default and higher loss severities than prime loans. Such characteristics

might include, among other factors, a combination of high LTV ratios, low credit scores or originations using lower

underwriting standards, such as limited or no documentation of a borrower’s income. While we have not historically

characterized the loans in our single-family credit guarantee portfolio as either prime or subprime, we do monitor the amount

of loans we have guaranteed with characteristics that indicate a higher degree of credit risk. Notwithstanding our historical

characterizations of the single family credit guarantee portfolio, certain security collateral underlying our Other Guarantee

Transactions has been identified as subprime based on information provided to Freddie Mac when the transactions were

entered into. We also categorize our investments in non-agency mortgage-related securities as subprime if they were

identified as such based on information provided to us when we entered into these transactions.

SVP — Senior Vice President

Swaption — An option contract to enter into an interest-rate swap. In exchange for an option premium, a buyer obtains the

right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.

TBA — To be announced

TCLFP — Temporary Credit and Liquidity Facility Program is a component of the HFA initiative in which we and Fannie

Mae issued credit and liquidity guarantees to holders of variable-rate demand obligations issued by various state and local

HFAs. Treasury is obligated to absorb any losses under the program up to a certain level before we are exposed to any losses.

The program was scheduled to expire on December 31, 2012. However, Treasury gave participants the option to extend their

individual TCLFP facilities to December 31, 2015. Certain participants elected to extend their TCLFP facilities to December

2015.

TDC — Total direct compensation

TDR — Troubled debt restructuring — A type of loan modification in which the changes to the contractual terms result in

concessions to borrowers that are experiencing financial difficulties. Beginning in the third quarter of 2012, TDRs also

include single-family loans discharged in Chapter 7 bankruptcy, regardless of the borrowers’ payment status.

Thrift/401(k) SERP Benefit — The component of the SERP that relates to the Thrift/401(k) Savings Plan.

TO — Target Incentive Opportunity, or Target Opportunity

Total comprehensive income (loss) — Consists of net income (loss) plus total other comprehensive income (loss).

Total other comprehensive income (loss) — Consists of the after-tax changes in: (a) the unrealized gains and losses on

available-for-sale securities; (b) the effective portion of derivatives accounted for as cash flow hedge relationships; and

(c) defined benefit plans.

377 Freddie Mac
Total mortgage portfolio — Includes mortgage loans and mortgage-related securities held on our consolidated balance

sheets as well as the balances of our non-consolidated issued and guaranteed single-class and multiclass securities, and other

mortgage-related financial guarantees issued to third parties.

Treasury — U.S. Department of the Treasury

ULDD — Uniform Loan Delivery Dataset

UMDP — Uniform Mortgage Data Program

UPB — Unpaid principal balance

USDA — U.S. Department of Agriculture

VA — U.S. Department of Veterans Affairs

VIE — Variable Interest Entity — A VIE is an entity: (a) that has a total equity investment at risk that is not sufficient to

finance its activities without additional subordinated financial support provided by another party; or (b) where the group of

equity holders does not have: (i) the ability to make significant decisions about the entity’s activities; (ii) the obligation to

absorb the entity’s expected losses; or (iii) the right to receive the entity’s expected residual returns.

Warrant — Refers to the warrant we issued to Treasury on September 7, 2008 pursuant to the Purchase Agreement. The

warrant provides Treasury the ability to purchase, for a nominal price, shares of our common stock equal to 79.9% of the

total number of shares of Freddie Mac common stock outstanding on a fully diluted basis on the date of exercise.

Workout, or loan workout — A workout is either: (a) a home retention action, which is either a loan modification,

repayment plan, or forbearance agreement; or (b) a foreclosure alternative, which is either a short sale or a deed in lieu of

foreclosure.

XBRL — eXtensible Business Reporting Language

Yield curve — A graphical display of the relationship between yields and maturity dates for bonds of the same credit

quality. The slope of the yield curve is an important factor in determining the level of net interest yield on a new mortgage

asset, both initially and over time. For example, if a mortgage asset is purchased when the yield curve is inverted (i.e., shortterm rates higher than long-term rates), our net interest yield on the asset will tend to be lower initially and then increase over

time. Likewise, if a mortgage asset is purchased when the yield curve is steep (i.e., short-term rates lower than long-term

rates), our net interest yield on the asset will tend to be higher initially and then decrease over time.

378 Freddie Mac
EXHIBIT INDEX

Exhibit No. Description*

3.1 Federal Home Loan Mortgage Corporation Act (12 U.S.C. §1451 et seq.), as amended through July 21, 2010 (incorporated by

reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010, as filed

on August 9, 2010)

3.2 Bylaws of the Federal Home Loan Mortgage Corporation, as amended and restated December 20, 2012 (incorporated by reference to

Exhibit 3.1 to the Registrant’s Current Report on Form 8-K as filed on December 20, 2012)

4.1 Eighth Amended and Restated Certificate of Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Voting Common Stock (no par value per share) dated September 10, 2008 (incorporated by

reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K as filed on September 11, 2008)

4.2 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated April 23, 1996 (incorporated by

reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.3 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 27, 1997 (incorporated by

reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.4 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 1998 (incorporated by reference

to Exhibit 4.4 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.5 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated September 23, 1998 (incorporated by

reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.6 Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated

September 29, 1998 (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form 10 as filed on

July 18, 2008)

4.7 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.3% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 28, 1998 (incorporated by

reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.8 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 19, 1999 (incorporated by

reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.9 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.79% Non-Cumulative Preferred Stock (par value $1.00 per share), dated July 21, 1999 (incorporated by reference

to Exhibit 4.9 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.10 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated November 5, 1999 (incorporated

by reference to Exhibit 4.10 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.11 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated January 26, 2001 (incorporated

by reference to Exhibit 4.11 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.12 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 2001 (incorporated by

reference to Exhibit 4.12 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.13 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 2001 (incorporated by

reference to Exhibit 4.13 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.14 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated May 30, 2001 (incorporated by

reference to Exhibit 4.14 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.15 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 6% Non-Cumulative Preferred Stock (par value $1.00 per share), dated May 30, 2001 (incorporated by reference to

Exhibit 4.15 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.16 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.7% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 30, 2001 (incorporated by

reference to Exhibit 4.16 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

E-1 Freddie Mac
Exhibit No. Description*

4.17 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated January 29, 2002 (incorporated by

reference to Exhibit 4.17 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.18 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 17, 2006

(incorporated by reference to Exhibit 4.18 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.19 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 6.42% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 17, 2006 (incorporated by

reference to Exhibit 4.19 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.20 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.9% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated October 16, 2006 (incorporated

by reference to Exhibit 4.20 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.21 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.57% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated January 16, 2007 (incorporated

by reference to Exhibit 4.21 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.22 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.66% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated April 16, 2007 (incorporated

by reference to Exhibit 4.22 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.23 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 6.02% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 24, 2007 (incorporated by

reference to Exhibit 4.23 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.24 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 6.55% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated September 28, 2007

(incorporated by reference to Exhibit 4.24 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.25 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated December 4,

2007 (incorporated by reference to Exhibit 4.25 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

4.26 Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (par value $1.00 per share), dated

September 27, 2012

4.27 Federal Home Loan Mortgage Corporation Global Debt Facility Agreement, dated March 9, 2012 (incorporated by reference to

Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, as filed on May 3,

2012)

10.1 Federal Home Loan Mortgage Corporation 2004 Stock Compensation Plan (as amended and restated as of June 6, 2008)

(incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.2 First Amendment to the Federal Home Loan Mortgage Corporation 2004 Stock Compensation Plan (incorporated by reference to

Exhibit 10.2 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.3 Second Amendment to the Federal Home Loan Mortgage Corporation 2004 Stock Compensation Plan (incorporated by reference to

Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, as filed on

August 7, 2009)†

10.4 Form of Nonqualified Stock Option Agreement for executive officers under the Federal Home Loan Mortgage Corporation 2004

Stock Compensation Plan for awards on and after March 4, 2005 but prior to January 1, 2006 (incorporated by reference to

Exhibit 10.3 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.5 Form of Nonqualified Stock Option Agreement for executive officers under the Federal Home Loan Mortgage Corporation 2004

Stock Compensation Plan for awards on and after January 1, 2006 (incorporated by reference to Exhibit 10.4 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)†

10.6 Form of Restricted Stock Units Agreement for executive officers under the Federal Home Loan Mortgage Corporation 2004 Stock

Compensation Plan for awards on and after March 4, 2005 (incorporated by reference to Exhibit 10.5 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)†

10.7 Form of Restricted Stock Units Agreement for executive officers under the Federal Home Loan Mortgage Corporation 2004 Stock

Compensation Plan for supplemental bonus awards on March 7, 2008 (incorporated by reference to Exhibit 10.6 to the

Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.8 Form of Performance Restricted Stock Units Agreement for executive officers under the Federal Home Loan Mortgage Corporation

2004 Stock Compensation Plan for supplemental bonus awards on March 29, 2007 (incorporated by reference to Exhibit 10.7 to

the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

E-2 Freddie Mac
Exhibit No. Description*

10.9 Form of Performance Restricted Stock Units Agreement for executive officers under the Federal Home Loan Mortgage Corporation

2004 Stock Compensation Plan for awards on March 7, 2008 (incorporated by reference to Exhibit 10.8 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)†

10.10 Federal Home Loan Mortgage Corporation Global Amendment to Affected Stock Options under Nonqualified Stock Option

Agreements and Separate Dividend Equivalent Rights, effective December 31, 2005 (incorporated by reference to Exhibit 10.9 to

the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.11 Federal Home Loan Mortgage Corporation Amendment to Restricted Stock Units Agreements and Performance Restricted Stock

Units Agreements, dated December 31, 2008 (incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on

Form 10-K for the fiscal year ended December 31, 2008, as filed on March 11, 2009)†

10.12 Federal Home Loan Mortgage Corporation 1995 Stock Compensation Plan (incorporated by reference to Exhibit 10.10 to the

Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.13 First Amendment to the Federal Home Loan Mortgage Corporation 1995 Stock Compensation Plan (incorporated by reference to

Exhibit 10.11 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.14 Second Amendment to the Federal Home Loan Mortgage Corporation 1995 Stock Compensation Plan (incorporated by reference to

Exhibit 10.12 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.15 Third Amendment to the Federal Home Loan Mortgage Corporation 1995 Stock Compensation Plan (incorporated by reference to

Exhibit 10.13 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.16 Form of Nonqualified Stock Option Agreement for executive officers under the Federal Home Loan Mortgage Corporation 1995

Stock Compensation Plan (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form 10 as

filed on July 18, 2008)†

10.17 Form of Restricted Stock Units Agreement for executive officers under the Federal Home Loan Mortgage Corporation 1995 Stock

Compensation Plan (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form 10 as filed on

July 18, 2008)†

10.18 Federal Home Loan Mortgage Corporation Employee Stock Purchase Plan (as amended and restated as of January 1, 2005)

(incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.19 Federal Home Loan Mortgage Corporation 1995 Directors’ Stock Compensation Plan (as amended and restated June 8, 2007)

(incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.20 Form of Nonqualified Stock Option Agreement for non-employee directors under the Federal Home Loan Mortgage Corporation

1995 Directors’ Stock Compensation Plan for awards in 2006 (incorporated by reference to Exhibit 10.20 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)†

10.21 Form of Restricted Stock Units Agreement for non-employee directors under the Federal Home Loan Mortgage Corporation 1995

Directors’ Stock Compensation Plan for awards in 2006 (incorporated by reference to Exhibit 10.23 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)†

10.22 Form of Restricted Stock Units Agreement for non-employee directors under the Federal Home Loan Mortgage Corporation 1995

Directors’ Stock Compensation Plan for awards since 2006 (incorporated by reference to Exhibit 10.24 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)†

10.23 Federal Home Loan Mortgage Corporation Directors’ Deferred Compensation Plan (as amended and restated April 3, 1998)

(incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.24 First Amendment to the Federal Home Loan Mortgage Corporation Directors’ Deferred Compensation Plan (as amended and

restated April 3, 1998) (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the fiscal

year ended December 31, 2008, as filed on March 11, 2009)†

10.25 Federal Home Loan Mortgage Corporation Executive Deferred Compensation Plan (as amended and restated effective January 1,

2008) (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form 10 as filed on July 18,

2008)†

10.26 First Amendment to the Federal Home Loan Mortgage Corporation Executive Deferred Compensation Plan (as amended and

restated effective January 1, 2008) (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q

for the quarterly period ended September 30, 2008, as filed on November 14, 2008)†

10.27 Federal Home Loan Mortgage Corporation Severance Plan (as restated and amended effective January 1, 1997) (incorporated by

reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.28 First Amendment to the Federal Home Loan Mortgage Corporation Severance Plan (incorporated by reference to Exhibit 10.32 to

the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.29 Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated effective January 1,

2008) (incorporated by reference to Exhibit 10.33 to the Registrant’s Registration Statement on Form 10 as filed on July 18,

2008)†

E-3 Freddie Mac
Exhibit No. Description*

10.30 First Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (As Amended and

Restated January 1, 2008) (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the

fiscal year ended December 31, 2009, as filed on February 24, 2010)†

10.31 Second Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as Amended and

Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed on

June 28, 2011)†

10.32 Third Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as Amended and

Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q as filed

on November 6, 2012)†

10.33 Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit 10.34 to the

Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.34 First Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to

Exhibit 10.35 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.35 Second Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to

Exhibit 10.36 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.36 Executive Management Compensation Program (as amended and restated as of June 2, 2011) (incorporated by reference to

Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, as filed on

August 8, 2011)†

10.37 Federal Home Loan Mortgage Corporation Mandatory Executive Deferred Base Salary Plan, Effective as of January 1, 2009

(incorporated by reference to Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December

31, 2009, as filed on February 24, 2010)†

10.38 First Amendment To The Federal Home Loan Mortgage Corporation Mandatory Executive Deferred Base Salary Plan (As Effective

January 1, 2009) (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly

period ended June 30, 2011, as filed on August 8, 2011)†

10.39 Second Amendment To The Federal Home Loan Mortgage Corporation Mandatory Executive Deferred Base Salary Plan (As

Effective January 1, 2009) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the

quarterly period ended June 30, 2012, as filed on August 7, 2012)†

10.40 Executive Management Compensation Recapture Policy (incorporated by reference to Exhibit 10.4 to the Registrant’s Current

Report on Form 8-K, as filed on December 24, 2009)†

10.41 2012 Executive Management Compensation Program Recapture and Forfeiture Agreement (incorporated by reference to

Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q as filed on November 6, 2012)†

10.42 2012 Executive Management Compensation Program for Virginia-Based Covered Officers (incorporated by reference to

Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q as filed on November 6, 2012)†

10.43 2012 Executive Management Compensation Program for Non-Virginia-Based Covered Officers (incorporated by reference to

Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q as filed on November 6, 2012)†

10.44 Memorandum Agreement, dated May 7, 2012, between Freddie Mac and Donald H. Layton (incorporated by reference to

Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed on May 10, 2012)†

10.45 Restrictive Covenant and Confidentiality Agreement, dated May 7, 2012, between Freddie Mac and Donald H. Layton (incorporated

by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K as filed on May 10, 2012)†

10.46 Memorandum Agreement, dated July 20, 2009, between Freddie Mac and Charles E. Haldeman, Jr. (incorporated by reference to

Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on July 21, 2009)†

10.47 Recapture Agreement, dated July 21, 2009, between Freddie Mac and Charles E. Haldeman, Jr. (incorporated by reference to

Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed on July 21, 2009)†

10.48 Restrictive Covenant and Confidentiality Agreement, dated July 21, 2009, between Freddie Mac and Charles E. Haldeman, Jr.

(incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended

September 30, 2009, as filed on November 6, 2009)†

10.49 Memorandum Agreement, dated September 24, 2009, between Freddie Mac and Ross J. Kari (incorporated by reference to

Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on September 24, 2009)†

10.50 Recapture Agreement, dated September 24, 2009, between Freddie Mac and Ross J. Kari (incorporated by reference to Exhibit 10.2

to the Registrant’s Current Report on Form 8-K, as filed on September 24, 2009)†

10.51 Restrictive Covenant and Confidentiality Agreement, dated September 24, 2009, between Freddie Mac and Ross J. Kari

(incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended

September 30, 2009, as filed on November 6, 2009)†

E-4 Freddie Mac
Exhibit No. Description*

10.52 Restrictive Covenant and Confidentiality Agreement, dated October 15, 2004, between Freddie Mac and Jerry Weiss (incorporated

by reference to Exhibit 10.49 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed on

March 9, 2012)†

10.53 Restrictive Covenant and Confidentiality Agreement, dated December 19, 2007, between Freddie Mac and [Paige H. Wisdom]

(incorporated by reference to Exhibit 10.50 to the Registrant’s Annual Report on Form 10-K for the year ended December 31,

2011, as filed on March 9, 2012)†

10.54 Restrictive Covenant and Confidentiality Agreement, dated July 11, 2005, between Freddie Mac and Paul E. Mullings†

10.55 Description of non-employee director compensation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on

Form 8-K as filed on December 23, 2008)†

10.56 PC Master Trust Agreement dated December 20, 2012

10.57 Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and executive officers (for agreements

with officers entered into prior to August 2011) and outside Directors (incorporated by reference to Exhibit 10.2 to the

Registrant’s Current Report on Form 8-K as filed on December 23, 2008)†

10.58 Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and executive officers (for agreements

with officers entered into beginning in August 2011) (incorporated by reference to Exhibit 10.54 to the Registrant’s Annual

Report on Form 10-K for the year ended December 31, 2011, as filed on March 9, 2012)†

10.59 Consent of Defendant Federal Home Loan Mortgage Corporation with the Securities and Exchange Commission, dated September

18, 2007 (incorporated by reference to Exhibit 10.65 to the Registrant’s Registration Statement on Form 10 as filed on July 18,

2008)

10.60 Letters, dated September 1, 2005, setting forth an agreement between Freddie Mac and FHFA (incorporated by reference to

Exhibit 10.67 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

10.61 Amended and Restated Senior Preferred Stock Purchase Agreement dated as of September 26, 2008, between the United States

Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through the Federal Housing Finance Agency

as its duly appointed Conservator (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q

for the quarterly period ended September 30, 2008, as filed on November 14, 2008)

10.62 Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of May 6, 2009, between the United

States Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through the Federal Housing Finance

Agency as its duly appointed Conservator (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on

Form 10-Q for the period ended March 31, 2009, as filed on May 12, 2009)

10.63 Second Amendment dated as of December 24, 2009, to the Amended and Restated Senior Preferred Stock Purchase Agreement

dated as of September 26, 2008, between the United States Department of the Treasury and Federal Home Loan Mortgage

Corporation, acting through the Federal Housing Finance Agency as its duly appointed Conservator (incorporated by reference to

Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on December 29, 2009)

10.64 Third Amendment dated as of August 17, 2012, to the Amended and Restated Senior Preferred Stock Purchase Agreement dated as

of September 26, 2008, between the United States Department of the Treasury and Federal Home Loan Mortgage Corporation,

acting through the Federal Housing Finance Agency as its duly appointed Conservator (incorporated by reference to Exhibit 10.1

to the Registrant’s Current Report on Form 8-K, as filed on August 17, 2012)

10.65 Warrant to Purchase Common Stock, dated September 7, 2008 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current

Report on Form 8-K as filed on September 11, 2008)

10.66 Memorandum of Understanding Among the Department of Treasury, the Federal Housing Finance Agency, the Federal National

Mortgage Association, and the Federal Home Loan Mortgage Corporation, dated October 19, 2009 (incorporated by reference to

Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on October 23, 2009)

10.67 Omnibus Consent to HFA Initiative Program Modifications, dated November 23, 2011, among the U.S. Department of the Treasury,

the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Federal Housing Finance

Agency (incorporated by reference to Exhibit 10.62 to the Registrant’s Annual Report on Form 10-K for the year ended

December 31, 2011, as filed on March 9, 2012)

12.1 Statement re: computation of ratio of earnings to fixed charges and computation of ratio of earnings to combined fixed charges and

preferred stock dividends

24.1 Powers of Attorney

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)

31.2 Certification of Executive Vice President —Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2 Certification of Executive Vice President —Chief Financial Officer pursuant to 18 U.S.C. Section 1350

E-5 Freddie Mac
Exhibit No. Description*

101.INS XBRL Instance Document(1)

101.SCH XBRL Taxonomy Extension Schema(1)

101.CAL XBRL Taxonomy Extension Calculation(1)

101.LAB XBRL Taxonomy Extension Labels(1)

101.PRE XBRL Taxonomy Extension Presentation(1)

101.DEF XBRL Taxonomy Extension Definition(1)

(1) The financial information contained in these XBRL documents is unaudited. The information in these exhibits shall not be deemed “filed” for purposes

of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of Section 18, nor shall they be deemed incorporated by

reference into any disclosure document relating to Freddie Mac, except to the extent, if any, expressly set forth by specific reference in such filing.

* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and

Current Reports on Form 8-K are 000-53330 and 001-34139.

† This exhibit is a management contract or compensatory plan or arrangement.

E-6 Freddie Mac
Exhibit 12.1

RATIO OF EARNINGS TO FIXED CHARGES AND

RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

Year Ended December 31,

2012 2011 2010 2009 2008

(dollars in millions)

Net income (loss) before income tax benefit (expense) and cumulative effect of changes

in accounting principles .............................................. $ 9,445 $ (5,666) $(14,882) $(22,384) $(44,564)

Add:

Low-income housing tax credit partnerships ............................... — — — 4,155 453

Total interest expense ............................................... 66,502 79,988 92,131 22,150 33,332

Interest factor in rental expenses ........................................ 4 4578

Earnings (loss), as adjusted ............................................. $75,951 $74,326 $ 77,254 $ 3,928 $(10,771)

Fixed charges:

Total interest expense ............................................... $66,502 $79,988 $ 92,131 $ 22,150 $ 33,332

Interest factor in rental expenses ........................................ 4 4578

Capitalized interest ................................................. — ————

Total fixed charges ................................................... $66,506 $79,992 $ 92,136 $ 22,157 $ 33,340

Senior preferred stock and preferred stock dividends(1) ........................ 7,229 6,498 5,749 4,105 675

Total fixed charges including preferred stock dividends ......................... $73,735 $86,490 $ 97,885 $ 26,262 $ 34,015

Ratio of earnings to fixed charges(2) ....................................... 1.14 ————

Ratio of earnings to combined fixed charges and preferred stock dividends(3) .......... 1.03 ————

(1) Senior preferred stock and preferred stock dividends represent pre-tax earnings required to cover any senior preferred stock and preferred stock dividend

requirements computed using our effective tax rate, whenever there is an income tax provision, for the relevant periods.

(2) Ratio of earnings to fixed charges is computed by dividing earnings (loss), as adjusted by total fixed charges. For the ratio to equal 1.00, earnings (loss),

as adjusted must increase by $5.7 billion, $14.9 billion, $18.2 billion, and $44.1 billion for the years ended December 31, 2011, 2010, 2009, and 2008,

respectively.

(3) Ratio of earnings to combined fixed charges and preferred stock dividends is computed by dividing earnings (loss), as adjusted by total fixed charges

including preferred stock dividends. For the ratio to equal 1.00, earnings (loss), as adjusted must increase by $12.2 billion, $20.6 billion, $22.3 billion,

and $44.8 billion for the years ended December 31, 2011, 2010, 2009, and 2008, respectively.
Exhibit 31.1

CERTIFICATION

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, Donald H. Layton, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2012 of the Federal Home Loan

Mortgage Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact

necessary to make the statements made, in light of the circumstances under which such statements were made, not

misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in

all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods

presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed

under our supervision, to ensure that material information relating to the registrant, including its consolidated

subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is

being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this

report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the

registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has

materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control

over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or

persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report

financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the

registrant’s internal control over financial reporting.

Date: February 28, 2013

/s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer
Exhibit 31.2

CERTIFICATION

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, Ross J. Kari, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2012 of the Federal Home Loan

Mortgage Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact

necessary to make the statements made, in light of the circumstances under which such statements were made, not

misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in

all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods

presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed

under our supervision, to ensure that material information relating to the registrant, including its consolidated

subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is

being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this

report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the

registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has

materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control

over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or

persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report

financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the

registrant’s internal control over financial reporting.

Date: February 28, 2013

/s/ Ross J. Kari

Ross J. Kari

Executive Vice President – Chief Financial Officer
Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2012 of the Federal Home Loan

Mortgage Corporation (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the

“Report”), I, Donald H. Layton, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as

adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of

operations of the Company.

Date: February 28, 2013

/s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer
Exhibit 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2012 of the Federal Home Loan

Mortgage Corporation (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the

“Report”), I, Ross J. Kari, Executive Vice President – Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of

operations of the Company.

Date: February 28, 2013

/s/ Ross J. Kari

Ross J. Kari

Executive Vice President – Chief Financial Officer