2006 Annual Report
Freddie Mac Facts

n Since 1970, Freddie Mac has made home 

possible more than 50 million times.

n More than half of all Freddie Mac 

mortgage purchases support housing 

for low- to moderate-income families. 

More than 90% of all the apartment units 

financed by Freddie Mac are for low- to 

moderate-income families.

n Corporate Responsibility Officer 

Magazine has named Freddie Mac to 

its list of “100 Best Corporate Citizens” 

for 2007, putting our company near the 

top of America’s corporations based on 

environmental responsibility, corporate 

governance and ethics, fairness toward 

employees, accountability to local 

community, providing responsible 

products and service to customers 

and maintaining a healthy rate of return 

for investors.

n Since December 2003, we have 

increased the dividend on our common 

stock by 92%.

n Freddie Mac Foundation celebrated its 

15th anniversary last year.

n Freddie Mac’s annual Hoops for the 

Homeless event raised more than 

$900,000 for homeless families in 2006.

n Freddie Mac 2006 workplace awards:

Fortune Magazine

“Best Companies for Minorities”

Latina Style Magazine

“Best Places for Women—Honorary”

Hispanic Business Inc.

“Top Companies for Diversity”

Business Ethics Magazine

“100 Best Corporate Citizens”

Washington Business Journal

“Top Local Corporate Philanthropists”
Company Overview

Congress chartered Freddie Mac in 1970 with the mission 

of bringing liquidity, stability and affordability to the nation’s 

mortgage markets and expanding homeownership and 

affordable rental housing opportunities. Since then, Freddie 

Mac has made home possible more than 50 million times. 

As one of the largest purchasers of mortgage loans in 

the United States, Freddie Mac provides a vital link 

between mortgage lenders and investors. We don’t make 

mortgage loans directly to homebuyers. Rather, we benefit 

consumers by providing lenders across the country with 

a steady flow of low-cost mortgage funding in good times 

and bad. Because Freddie Mac also provides assistance 

for affordable rental housing, we’ve helped make home 

possible for more than 4 million renters.

Our mission of expanding affordable housing opportunities 

is the foundation of our business. It forms the framework 

for our business activities, shapes the products we bring to 

market and drives the services we provide to the nation’s 

housing and mortgage industry. Everything we do comes 

back to making America’s mortgage markets liquid and 

stable and increasing opportunities for homeownership 

and affordable rental housing across America. n

Freddie Mac 2006 Annual Report
2006 was a challenging year in the U.S. housing and mortgage markets, and 

Freddie Mac shared in those challenges. But even though housing weakened last 

year, Freddie Mac gained some strength.

Housing starts tumbled by 13 percent in 2006. Home purchases fell 10 percent. 

Mortgage originations dropped and home prices began to decline in a number of 

local markets. And the possibility of further weakness in the sector remains a leading 

concern for economic growth in 2007—particularly if accompanied by widespread 

loan defaults or a severe tightening of credit standards.

At this writing, defaults and late payments have remained relatively low on prime mortgages, which are made to lower-risk borrowers and account for the lion’s share of home 

loans. But late payments have risen swiftly over the past year on subprime mortgages, 

those made to borrowers having spottier credit histories and posing higher risks.

Yet despite last year’s many challenges—which included reduced housing affordability, 

rising mission demands, tight spreads, intense competition and voluntary limits on 

our retained portfolio—Freddie Mac made continued progress. We increased our 

earnings, served our vital public mission and strengthened our franchise.

We did not meet all our 2006 objectives, particularly as to financial reporting and 

internal controls. This was very disappointing to me and to your entire management 

team. But we have implemented a sound, comprehensive plan to make the needed 

improvements and are moving ahead briskly. The timing of this annual report is itself 

one small sign of progress. Our plan should allow us to resume quarterly reporting 

in the second half of 2007.

A Message from the Chairman
Key Accomplishments

Building Shareholder Value

I’ll begin by summarizing Freddie Mac’s improved business and financial performance. 

Our net income grew last year to approximately $2.2 billion, up roughly 4 percent 

from 2005. Return on common equity was 8.6 percent, up from 7.7 percent for 2005. 

Fair value, another very important measure of our performance, grew before capital 

transactions by approximately $2.5 billion last year, compared to a $1.0 billion increase 

in 2005. Fair value return on equity was approximately 9.5 percent, rebounding from 3.7 

percent the previous year.

This improved performance was based on several factors. For starters, we achieved 

strong growth of 10.6 percent in our credit guarantee portfolio—slightly outpacing 

the overall market. By earning high marks for customer satisfaction and purchasing a 

broader range of loans, we were able to buy not only a larger volume but also a more 

representative mix of mortgages in 2006. This performance reflected the company’s 

enhanced responsiveness and the efforts of our sales force. We ended the year with a 

total of $1.5 trillion in mortgage securities issued—up from less than $1 trillion in 2001.

Another key to Freddie Mac’s success in 2006 was our disciplined management 

of interest-rate risk. One of the many reasons was our extensive use of callable 

debt—which we use more than most mortgage investors and believe gives us a real 

comparative advantage in managing risk. As a result, we came through a challenging 

year well positioned to deal with a broad range of interest-rate conditions, and with the 

value of our shareholders’ equity well protected from interest rate swings.

On the credit risk side, Freddie Mac’s exposures remained well controlled and our total 

single-family 90-day delinquencies actually declined during the year. At year’s end, 

only 6 percent of our total mortgage portfolio was in nontraditional mortgages and the 

portfolio’s average loan-to-value ratio was 57 percent. Experience and recent market 

developments tell us to be careful, however, and we are keeping a watchful eye on our 

2006 book of business. While we are in better position than many, we have set aside 

increased loan loss reserves, as our credit portfolio remains vulnerable to significant 

declines in house prices.

Low funding costs were another building block of our success in 2006, with improvements 

across the yield curve. As an example, our funding cost advantage relative to LIBOR for 

our 10-year Reference Notes® securities increased in 2005 and 2006 by almost 20 basis 

points. We’ve said before that when spreads are tight, we may lose some return on the 

asset side, but we can often make up ground on the debt side. That is exactly what we 

did last year, by capitalizing on our improved funding costs.

Freddie Mac 2006 Annual Report
Capital management remains a priority for us. Freddie Mac increased our common 

dividend again in 2006 to $2.00 per share annually, bringing the total increase in our 

dividend to 92 percent since the end of 2003. Moreover, we returned $2 billion to our 

common shareholders in a preferred-for-common restructuring. All told, we returned 

some $3.3 billion to common shareholders last year—the most in Freddie Mac history.

Going forward, Freddie Mac remains strongly capitalized. With a strong balance sheet, 

our estimated regulatory core capital grew in 2006 to over $36 billion. As we complete 

our financial reporting and internal controls remediation, I hope we will be in a better 

position to return some of the capital in excess of our statutory minimum that we have 

accumulated over the past several years. And I’m pleased to report that, consistent 

with discussions with our regulator, our board has approved an additional $1 billion in 

common repurchases and preferred offerings this year.

Serving Our Mission 

As a government-sponsored enterprise (GSE), Freddie Mac faced mounting mission 

challenges in 2006: reduced affordability, rising concerns about credit quality and 

predatory lending, a housing sector losing momentum, and HUD affordable housing 

goals of unprecedented difficulty. Despite these challenges, we served our mission 

well—providing liquidity, affordability and stability to the housing finance market, and 

to a broader economy hoping to see a “soft landing” for housing.

I am proud that Freddie Mac’s affordable performance in 2006 was among our 

strongest ever. We believe we met the most demanding affordable housing goals in 

the company’s history, pending determination by the U.S. Department of Housing and 

Urban Development. Of the nearly 3.3 million homes we financed last year, almost 

56 percent were affordable to low- or moderate-income families. We served 300,000 

first-time homebuyers. And in another record year for our growing multifamily business, 

we financed almost half a million affordable apartment homes.

We also believe we achieved two of our three subgoals, although we reported to HUD 

that we just missed one of the extremely challenging subgoals by less than 700 loans out 

of more than 900,000 eligible mortgage purchases. The difficulty of this challenge was 

magnified by market forces affecting the entire housing sector that made the average 

home less affordable in 2006. It also highlighted the GSEs’ need to strike a balance 

between striving to achieve demanding housing goals and ensuring that we do not 

encourage imprudent lending.

When Hurricane Katrina riveted the nation’s attention in 2005, Freddie Mac was there to 

help. In 2006, long after most television cameras were gone, Freddie Mac stayed actively 

involved in rebuilding the Gulf Coast region. After the hurricanes struck, we pledged to 

Freddie Mac 2006 Annual Report
buy $1 billion in mortgage revenue bonds (MRBs) from state and local housing finance 

agencies in the Gulf. We fully met that commitment in 2006, less than 12 months later. 

The MRBs we have purchased will provide low-cost financing for more than 10,000 

families. In addition, Freddie Mac provided well over $700 million in mortgage funding last 

year for multifamily properties along the Gulf Coast.

Freddie Mac acted last year to ease the increasing strains on housing affordability. We 

supported our lenders by introducing an innovative 40-year product that combines the 

advantages of a fixed-rate loan with lower monthly costs. And we expanded our special 

workforce housing initiative to include military families, as well as police, firefighters, 

teachers and nurses. Those who defend us from harm, teach our children and care for 

our sick should be able to live in the communities they serve.

This February, in order to protect consumers and raise underwriting standards, Freddie Mac 

took the lead in announcing that after September 1, we will not buy subprime mortgages 

that pose an unacceptable risk of excessive payment shock and possible foreclosure. As 

a GSE, we feel a responsibility not only to help families buy their own homes, but to help 

them keep their homes, as well.

Freddie Mac also exerted responsible leadership in 2006 by addressing concerns about 

credit quality and practices in the housing finance market. For instance, we developed 

and instituted workout policies that can significantly reduce the odds of home loss 

through foreclosure. We also continued educating consumers on how to avoid predatory 

practices, and maintained our pioneering policies that led the industry in recent years to 

reject abusive loans that limit consumers’ rights.

Strengthening Our Team

We strengthened Freddie Mac last year by building out the company’s executive team 

in several areas vital to our success. Of great interest to our investors is the addition of 

Buddy Piszel as Chief Financial Officer. Buddy brings experience and zeal to the task of 

making Freddie Mac’s financials more transparent, accessible and useful to investors. 

Other key additions included our new head of Enterprise Operational Risk, Gareth Davies; 

General Auditor, Kirk Die; Corporate Controller, Jim Egan; Chief Information Officer, 

Jim Hughes; Senior Vice President for Market Risk Oversight, Manoj Singh; and Vice 

President for Internal Controls, Jim Larkin, among others.

Of course, the strength of our team goes far beyond its executives. Freddie Mac’s greatest 

asset is its skilled and dedicated employees, and their efforts are critical to our success. 

So we were gratified by our enhanced employee engagement in 2006, and we thank all 

our employees for their hard work.

Freddie Mac 2006 Annual Report
Challenges to be Addressed

While Freddie Mac reached many of our goals last year, some major challenges remained 

unmet. Foremost among them was the essential task of getting current in our financials 

and strengthening our internal controls. There’s no question this has taken longer than 

any of us expected.

Fortunately, we have developed and are carrying out a comprehensive plan that 

embodies our detailed blueprint for completing this job. We have first-rate teams and 

project leaders implementing this plan and they are making good progress. Our goal 

is to return to quarterly financial reporting this year. And we are working assiduously to 

improve our internal controls systems and infrastructure. As I said in last year’s letter 

to stockholders, Freddie Mac must become the standard of excellence not only for 

managing mortgage risk, but for the accounting and internal controls associated with it. 

The highly competitive, tight-spread environment we faced last year is another ongoing 

challenge for us in 2007. Our improved funding costs are part of the answer, as I 

mentioned. More broadly, we must continue to take other steps going forward—as with 

our expanded use of structured securities, for example—to generate acceptable returns 

in spite of tight margins.

Freddie Mac worked hard to hold its own in market share last year. While last year’s 43 

percent share was marginally below our 2005 figure, we consciously turned away some 

business that would not have served our mission or return objectives, rather than pursue 

additional share for share’s sake. Looking ahead, we are focused on pricing issues as 

well as strong customer relationships.

Senior management is also keenly focused on Freddie Mac’s expenses. Although 

these rose modestly last year—mostly in professional services related to our financial 

remediation—their rate of growth still was exceeded by the rate of growth in our business. 

This was in keeping with our long-term goal of managing administrative expenses to be a 

decreasing percentage of our mortgage portfolio, subject to the near-term imperative that 

we complete our needed investments in financial reporting and internal controls.

Building a stronger future for this company includes building support for the GSE model. 

Freddie Mac continues to strongly support an appropriate legislative solution that would 

strengthen our oversight and enable us to fulfill our vital housing mission. And we are 

playing a constructive role toward that end. Throughout 2006, we worked closely with our 

regulators at OFHEO and HUD, with the Administration and with Congress, to achieve 

balanced legislative and regulatory solutions that address the concerns of the past but 

are consistent with the growing demands of the future. This will remain a focus for me, 

and for this company, until the job is done. 

Freddie Mac 2006 Annual Report
Our guiding principle in this is that we support an independent regulatory structure 

modeled on that for banks. Once legislation is enacted, it is likely to remain in place for a 

very long time. Accordingly, we feel we have a responsibility to housing, our shareholders 

and the country at large to make our views known.

That’s why I have explained publicly how the GSEs will become even more important in 

the years to come. And that, in turn, is why I have asked decision-makers not to unduly 

hamper the GSEs, just as the nation is about to need us most.

Conclusion

Looking at 2006 as a whole—from our growing guarantee volumes and earnings, to 

our vital housing mission, to our internal and external progress—one overarching fact 

emerges. While we did not accomplish everything we wanted to, Freddie Mac ended the 

year in a stronger position than we began it.

Our challenge is to put enough years like that back to back and become a high 

performer. All my experience makes me confident that this is what is happening at 

Freddie Mac—and our trajectory is clear.

However, it is your confidence in this company that truly matters. For it is what allows 

us to make home possible for America’s families; to exert responsible leadership; and 

to lower costs for homeowners and renters alike. The congressional genius in designing 

the GSEs was to accomplish a public mission not with federal expenditures, but using 

private capital.

So thank you for your confidence in this franchise. It is what makes the GSE model work. 

And our aim every day is to earn it. n

Sincerely,

Richard F. Syron

Chairman and Chief Executive Officer

Freddie Mac 2006 Annual Report
2006 Annual Report to Stockholders
INFORMATION STATEMENT

AND

ANNUAL REPORT TO STOCKHOLDERS

For the Ñscal year ended December 31, 2006

This Information Statement contains important Ñnancial and other information about Freddie Mac. We will supplement

this Information Statement periodically. You should read all available supplements together with this Information

Statement. We also provide information about the securities we issue in the OÅering Circular for each securities program

and any supplement for each particular oÅering. You can obtain copies of the Information Statement, OÅering Circulars,

all available supplements, Ñnancial reports and other similar information by visiting our Internet website

(www.freddiemac.com) or by writing or calling us at:

Freddie Mac

Investor Relations Department

Mailstop 486

8200 Jones Branch Drive

McLean, Virginia 22102-3110

Telephone: 571-382-4732 or 1-800-FREDDIE (800-373-3343)

shareholder@freddiemac.com

Our principal oÇces are located at 8200 Jones Branch Drive, McLean, Virginia 22102 (telephone: 703-903-2000).

THIS INFORMATION STATEMENT IS DATED MARCH 23, 2007
TABLE OF CONTENTS

Page

BUSINESSÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1

REGULATION AND SUPERVISION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6

RISK FACTORS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10

MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17

FORWARD-LOOKING STATEMENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21

SELECTED FINANCIAL DATAÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23

EXECUTIVE SUMMARY ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23

CONSOLIDATED RESULTS OF OPERATIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28

CONSOLIDATED BALANCE SHEETS ANALYSIS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 40

CONSOLIDATED FAIR VALUE BALANCE SHEETS ANALYSIS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 47

LIQUIDITY AND CAPITAL RESOURCES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 50

RISK MANAGEMENT ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 56

Operational Risks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 56

Interest-Rate Risk and Other Market Risks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 60

Credit Risks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 66

OFF-BALANCE SHEET ARRANGEMENTSÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 80

CRITICAL ACCOUNTING POLICIES AND ESTIMATES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 81

PORTFOLIO BALANCES AND ACTIVITIESÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 85

QUARTERLY SELECTED FINANCIAL DATA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 91

RISK MANAGEMENT AND DISCLOSURE COMMITMENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 92

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 94

PROPERTIES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152

LEGAL PROCEEDINGS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSUREÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152

CONTROLS AND PROCEDURES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 153

EXECUTIVE COMPENSATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 154

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERSÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 154

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR

INDEPENDENCE ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 154

PRINCIPAL ACCOUNTANT FEES AND SERVICES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 154

CERTIFICATIONS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 155

RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES

AND PREFERRED STOCK DIVIDENDSÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 156

ADDITIONAL FINANCIAL INFORMATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 156

INDEX OF ACRONYMS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 157

i Freddie Mac
This Information Statement and Annual Report includes forward-looking statements, which may include expectations

and objectives for our operating results, Ñnancial condition, business, remediation of internal controls and trends and other

matters that could aÅect our business. You should not unduly rely on our forward-looking statements. Actual results might

diÅer signiÑcantly from our forecasts and expectations due to several factors that involve risks and uncertainties, including

those described in ""BUSINESS,'' ""RISK FACTORS,'' ""FORWARD-LOOKING STATEMENTS'' and ""MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,'' or

MD&A. These forward-looking statements are made as of the date of this Information Statement and we undertake no

obligation to update any forward-looking statement to reÖect events or circumstances after the date of this Information

Statement, or to reÖect the occurrence of unanticipated events.

BUSINESS

Overview

Freddie Mac is a stockholder-owned company chartered by Congress in 1970 to stabilize the nation's residential

mortgage markets and expand opportunities for homeownership and aÅordable rental housing. Our mission is to provide

liquidity, stability and aÅordability to the U.S. housing market. We fulÑll our mission by purchasing residential mortgages

and mortgage-related securities in the secondary mortgage market. We are one of the largest purchasers of mortgage loans

in the U.S. We purchase mortgages and bundle them into mortgage-related securities that can be sold to investors. We can

use the proceeds to purchase additional mortgages from primary market mortgage lenders, thus providing them with a

continuous Öow of funds. We also purchase mortgage loans and mortgage-related securities for our investments portfolio. We

Ñnance our purchases for our investments portfolio and manage associated interest-rate and other market risks primarily by

issuing a variety of debt instruments and entering into derivative contracts in the capital markets.

Though we are chartered by Congress, our business is funded completely with private capital. We are responsible for

making payments on our securities. Neither the U.S. government nor any other agency or instrumentality of the U.S.

government is obligated to fund our mortgage purchase or Ñnancing activities or to guarantee our securities and other

obligations.

Our Charter and Mission

The Federal Home Loan Mortgage Corporation Act, which we refer to as our charter, forms the framework for our

business activities, shapes the products we bring to market and drives 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,

as described in ""Business Activities Ì Types of Mortgages We Purchase.'' 

Our mission is deÑned in our charter:

‚ to provide stability in the secondary market for residential mortgages;

‚ to respond appropriately to the private capital market;

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

mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be less

than the return earned on other activities) by increasing the liquidity of mortgage investments and improving the

distribution of investment capital available for residential mortgage Ñnancing; and

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

areas) by increasing the liquidity of mortgage investments and improving the distribution of investment capital

available for residential mortgage Ñnancing.

To facilitate our mission, our charter provides us with special attributes including:

‚ exemption from the registration and reporting requirements of the Securities Act of 1933, or the Securities Act, and

the Securities Exchange Act of 1934, or the Exchange Act. We are, however, subject to the general antifraud

provisions of the federal securities laws and have committed to the voluntary registration of our common stock with

the Securities and Exchange Commission under the Exchange Act;

‚ favorable treatment of our securities under various investment laws and other regulations;

‚ discretionary authority of the Secretary of the Treasury to purchase up to $2.25 billion of our securities; and

‚ exemption from state and local taxes, except for taxes on real property that we own.

Our activities in the secondary mortgage market beneÑt consumers by providing lenders a steady Öow of low-cost

mortgage funding. This Öow of funds helps moderate cyclical swings in the housing market, equalizes the Öow of mortgage

funds regionally throughout the U.S. and makes mortgage funds available in a variety of economic conditions. In addition,

the supply of cash made available to lenders through this process reduces mortgage rates on loans within the dollar limits

1 Freddie Mac
set in accordance with our charter. These lower rates help make home ownership aÅordable for more families and individuals

than would be possible without our participation in the secondary mortgage market.

Residential Mortgage Debt Market

We compete in the large and growing U.S. residential mortgage debt market. This market consists of a primary

mortgage market that links homebuyers and lenders and a secondary mortgage market that links lenders and investors. At

December 31, 2006, our Total mortgage portfolio was $1.8 trillion, while the total U.S. residential mortgage debt

outstanding was estimated to be approximately $10.9 trillion.

Growth in the U.S. residential mortgage debt market is aÅected by several factors, including changes in interest rates,

employment rates in various regions of the country, home ownership rates, home price appreciation, 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 aÅected by several factors, including the volume of singlefamily mortgages meeting the requirements of our charter and the purchase and securitization activity of other Ñnancial

institutions. See ""RISK FACTORS.''

Following several years of substantial growth in the residential mortgage market, driven by historically low interest rates

and a strong housing market with record home sales and signiÑcant home price appreciation, the residential mortgage

market slowed in 2006. Home sales declined, inventories of homes for sale increased and the rate of home price appreciation

slowed. However, mortgage rates remained low by historical standards and continued to contribute to demand in the

residential mortgage market.

Home price appreciation is an important market indicator for us because it represents the general trend in value

associated with the single-family mortgage loans underlying our Mortgage Participation CertiÑcates, or PCs, and Structured

Securities. As home prices appreciate, the risk of borrower defaults generally declines and the severity of credit losses also

declines. Estimates of nationwide home price appreciation varied for 2006, with some indicating a slight overall decline in

home prices and others indicating moderate growth. However, by any measure, the nationwide rate of home price

appreciation is well below that seen in recent years and we expect that it will continue to weaken in the near term. Despite

the slowdown in the housing market, total residential mortgage debt outstanding in the U.S. grew by an estimated 9 percent

in 2006 as compared with 14 percent in 2005. We expect that the amount of total residential mortgage debt outstanding will

continue to rise in 2007, though at a slower rate than in the past few years. Table 1 includes some important indicators for

the U.S. residential mortgage market.

Table 1 Ì Mortgage Market Indicators

Year-Ended December 31,

2006 2005 2004

Home sale units (in thousands)(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,737 7,463 7,161

Home price appreciation(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6% 13% 12%

Single-family mortgage originations (in billions) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,000 $ 3,257 $2,906

ReÑnancing share of single-family mortgage originations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43% 44% 46%

U.S. residential mortgage debt outstanding (in billions)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $10,921 $10,046 $8,847

(1) Includes sales of new and existing detached single-family homes in the U.S. and excludes condos/co-ops. Sources: National Association of Realtors

news release dated February 27, 2007 (sales of existing homes) and U.S. Census Bureau news release dated February 28, 2007 (sales of new homes).

(2) Source: Freddie Mac's Conventional Mortgage Home Price Index release dated March 5, 2007.

(3) U.S. residential mortgage debt outstanding as of December 31 for 2006, 2005 and 2004. Source: Federal Reserve Flow of Funds Accounts of the

United States dated March 8, 2007.

Primary Mortgage Market Ì Our Customers

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

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

and local housing Ñnance agencies and savings and loan associations. A lender that originates a mortgage can hold the

mortgage in its own portfolio, securitize the mortgage or sell the mortgage to a secondary mortgage market investor, such as

Freddie Mac.

We acquire a signiÑcant portion of our single-family mortgages from several large lenders. In 2006, three mortgage

lenders each accounted for 10 percent or more of our single-family mortgage purchase volume. These lenders collectively

accounted for approximately 51 percent of this volume. In addition, in 2006, our top ten lenders represented approximately

76 percent of our single-family mortgage purchase volume. These top lenders are among the largest mortgage loan

originators in the U.S. We have contracts with a number of mortgage lenders that include a commitment by the lender to sell

us a minimum percentage or dollar amount of its mortgage origination volume. These contracts typically last for one year. If

a mortgage lender fails to meet its contractual commitment, we have a variety of contractual remedies, including the right

to assess certain fees. As the mortgage industry has been consolidating, we, as well as our competitors, have been seeking

2 Freddie Mac
increased business from a decreasing number of key lenders. We are continuing to work to diversify our customer base and

thus reduce the risk and impact of losing a key customer. See ""RISK FACTORS Ì Competitive and Market Risks.''

Secondary Mortgage Market

We participate in the secondary mortgage market generally by buying whole loans (i.e., mortgage loans that have not

been securitized) and mortgage-related securities for our Retained portfolio and by issuing guaranteed mortgage-related

securities. We do not lend money directly to homebuyers. Our principal competitors are the Federal National Mortgage

Association, or Fannie Mae, a similarly chartered government-sponsored enterprise, or GSE, the Federal Home Loan Banks

and other Ñnancial institutions that retain or securitize mortgages, such as commercial and investment banks, dealers and

thrift institutions. We compete on the basis of price, products, structure and service.

Business Activities

We generate income primarily through two business activities Ì portfolio investment activities and credit guarantee

activities Ì operating as one business segment. For a summary and description of our Ñnancial performance and Ñnancial

condition, see ""MD&A'' and ""CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA''

and the accompanying notes to our consolidated Ñnancial statements. At December 31, 2006, we had total assets of

$813.1 billion and total stockholders' equity of $28.3 billion, and for the year ended December 31, 2006, we reported net

income of $2.2 billion. At February 28, 2007, we had 5,400 full-time and 135 part-time employees. Our principal oÇces are

located in McLean, Virginia.

Types of Mortgages We Purchase

Our charter establishes general parameters for the terms and principal amounts of the mortgages we may purchase, as

described below. We also purchase mortgage-related securities that are backed by single-family or multifamily mortgages.

Within our charter parameters, the residential mortgage loans we purchase or that underlie mortgage-related securities we

purchase generally fall into one of two categories:

‚ Single-Family Mortgages. Single-family mortgages are secured by one- to four-family properties. The types of

single-family mortgages we purchase include 40-year, 30-year, 20-year, 15-year and 10-year Ñxed-rate mortgages,

interest-only mortgages, adjustable-rate mortgages, or ARMs, and balloon/reset mortgages.

‚ Multifamily Mortgages. Multifamily mortgages are secured by properties with Ñve or more residential rental units.

These mortgages have terms generally ranging from Ñve to thirty years. Our multifamily mortgage products, services

and initiatives are designed primarily to Ñnance aÅordable rental housing for low- and moderate-income families.

Conforming Loan Limits. Our charter places a dollar amount cap, called the ""conforming loan limit,'' on the size of

the original principal balance of single-family mortgage loans we purchase. This limit is determined annually using a

methodology that is based on changes in the national average price of a one-family residence, as surveyed by the Federal

Housing Finance Board, or FHFB, each October. For 2007 and 2006, the conforming loan limit for a one-family residence

was set at $417,000; for 2005, the limit was set at $359,650; and for 2004, the limit was set at $333,700. Higher limits apply

to two- to four-family residences. The conforming loan limits are also 50 percent higher for mortgages secured by properties

in Alaska, Guam, Hawaii and the U.S. Virgin Islands. No comparable limits apply to our purchases of multifamily

mortgages.

Loan-to-Value Ratios and Mortgage Insurance. Under our charter, mortgages that are not guaranteed or insured by

any agency or instrumentality of the U.S. government are referred to as ""conventional mortgages.'' Our charter requires that

we obtain additional credit protection if the unpaid principal balance of a conventional single-family mortgage that we

purchase exceeds 80 percent of the value of the property securing the mortgage. See ""MD&A Ì RISK MANAGEMENT Ì Credit Risks Ì Mortgage Credit Risk Ì Credit Enhancements'' for more information regarding the credit

enhancements and other credit protections we obtain.

Loan Quality. Under our charter, our mortgage purchases are limited, so far as practicable, to mortgages we deem to

be of a quality, type and class that generally meet the purchase standards of private institutional mortgage investors. To

manage credit risks with respect to our mortgage purchases, we have developed internal credit policies and appraisal,

underwriting and other purchase policies and guidelines. We design mortgage loan underwriting guidelines to enable primary

mortgage market lenders to assess the creditworthiness of the borrower and the borrower's capacity to fulÑll the obligations

of the mortgage. We review these guidelines in an eÅort to ensure their eÅectiveness and to address the needs of the

changing marketplace Ì including the needs of minorities, low- and moderate-income borrowers and other borrowers who

are underserved by the traditional housing Ñnance system. In many cases, underwriting standards are tailored under

contracts with individual customers. We have also been expanding the share of mortgages we purchase that were

underwritten by our seller/servicers using alternative automated underwriting systems or agreed-upon underwriting

3 Freddie Mac
standards that diÅer from our systems or guidelines. See ""MD&A Ì RISK MANAGEMENT Ì Credit Risks Ì Mortgage

Credit Risk Ì Underwriting Requirements and Quality Control Standards'' for additional information regarding our

underwriting standards.

Investment and Funding Activities

We purchase mortgage loans and mortgage-related securities and hold them in our Retained portfolio for investment

purposes. We invest in mortgage-related securities issued by GSEs or government agencies, referred to as agency securities.

We also invest in non-agency mortgage-related securities. Our portfolio purchases replenish the capital available for

mortgage lending. We face competition from other Ñnancial institutions that buy mortgage-related securities issued by the

GSEs and non-agency issuers.

We manage our Retained portfolio through a strategy of long-term capital deployment. We apply our expertise in

mortgage markets and mortgage assets to identify attractive asset purchase opportunities while managing our interest-rate

risk. Our asset selection process may contemplate restructuring activities to improve our investment returns and fair value

results. We may purchase mortgage loans and mortgage-related securities with less attractive investment returns as part of

our eÅorts to achieve our aÅordable housing goals and subgoals.

In response to a request by the OÇce of Federal Housing Enterprise Oversight, or OFHEO, we announced on August 1,

2006 that we would voluntarily limit the growth of our Retained portfolio to no more than 2.0 percent annually (and

0.5 percent quarterly on a cumulative basis), based on its carrying value as contained in our minimum capital report to

OFHEO Ñled on July 28, 2006, which was $710.3 billion. We expect to keep the limit, which was eÅective as of July 1, 2006,

in place until we return to producing and publicly releasing quarterly Ñnancial statements prepared in conformity with

U.S. generally accepted accounting principles, or GAAP. Changes in the carrying value of our Retained portfolio are

aÅected by several factors, including purchases, sales, prepayments on mortgage-related investments and changes in fair

value primarily related to changes in interest rates. As market interest rates change, we may adjust our purchase and/or sale

decisions in order to remain within the limit.

We issue short-, medium- and long-term debt securities, subordinated debt securities and preferred stock to Ñnance

purchases of mortgages and mortgage-related securities and other business activities. Our debt funding program is designed

to oÅer liquid securities to the global capital markets in a transparent and predictable manner. By diversifying our investor

base and the types of debt securities we oÅer, we believe we enhance our ability to maintain continuous access to the debt

markets under a variety of conditions. We manage our debt funding costs by issuing debt of various maturities that is either

callable (i.e., redeemable at our option at one or more times before its scheduled maturity) or non-callable. Our funding

mix also helps us manage our interest-rate risk by closely matching the interest obligations on our debt with the expected

cash inÖows from our mortgage-related investments. To further manage interest-rate risks, we use a variety of derivatives.

We also use Structured Securities, described below, to restructure cash Öows from mortgage-related securities, retaining a

portion of these restructured cash Öows. See ""MD&A Ì RISK MANAGEMENT Ì Interest-Rate Risk and Other

Market Risks'' for more information.

Because of our GSE status and the special attributes granted to us under our charter, our debt securities and those of

other GSE issuers trade in the so-called ""agency sector'' of the debt markets. This highly liquid market segment exhibits its

own yield curve reÖecting our ability to borrow at lower rates than many other corporate debt issuers. As a result, we mainly

compete for funds in the debt issuance markets with Fannie Mae and the Federal Home Loan Banks, which issue debt

securities of comparable quality and ratings. However, we also compete for funding with other debt issuers. The demand

for, and liquidity of, our debt securities, and those of other GSEs, beneÑt from their status as permitted investments for

banks, investment companies and other Ñnancial institutions under their statutory and regulatory framework. Competition

for funding can vary with economic, Ñnancial market and regulatory environments.

For additional information about our debt securities, see ""MD&A Ì LIQUIDITY AND CAPITAL RESOURCES Ì Liquidity Ì Debt Securities.''

Credit Guarantee Activities

We guarantee the payment of principal and interest on mortgage-related securities in exchange for a fee, which we refer

to as a guarantee fee. The types of mortgage-related securities we guarantee include the following:

‚ PCs we issue;

‚ single-class and multi-class Structured Securities we issue; and

‚ securities related to tax-exempt multifamily housing revenue bonds.

We enhance our ability to attract a representative mix of mortgage debt outstanding by diversifying our seller base,

expanding new product capabilities and improving customer service. Through investor and dealer outreach programs,

4 Freddie Mac
securitization product development and improvements to liquidity, transparency and predictability, we attract a broad array

of investors. Our eÅorts to improve the supply of, and demand for, our products are critical to their liquidity and support our

mission.

The securitization market is extremely competitive and we have reduced our guarantee fees on new business in order to

maintain our market share. At the same time, the expected future credit costs associated with our new credit guarantee

business have increased. We make trade-oÅs in our pricing in order to support liquidity in various segments of the residential

mortgage market, to support the liquidity and price performance of our PCs and to acquire business in pursuit of our

aÅordable housing goals and subgoals. In addition, we seek to maintain our share of the total residential mortgage

securitization market and our share of the GSE securitization market by improving customer service, and expanding our

customer base, the types of mortgages we guarantee and the products we oÅer.

Because the price performance of, and demand for, our PCs have generally been less than Fannie Mae's securities, we

may use market-adjusted pricing for our guarantees through which we provide guarantee fee or other transaction fee price

adjustments to partially oÅset weaknesses in prevailing security prices. We believe these price-adjustments increase the

competitiveness of our credit guarantee business. The use of such market-adjusted pricing reduces the proÑtability of our

new credit guarantee business over its life.

Guarantees of PCs. We issue single-class mortgage-related securities that represent undivided interests in pools of

mortgages we have purchased. We refer to these mortgage-related securities as PCs. We guarantee the payment of principal

and interest to the holders of our PCs. We issue most of our PCs in transactions in which our customers sell us mortgage

loans in exchange for PCs. Other PC investors may include pension funds, insurance companies, securities dealers, money

managers, foreign central banks and other Ñxed-income investors. Investors may choose to hold these PCs in their portfolios

or sell them to others. Our guarantee increases the marketability of our PCs, providing additional liquidity to the mortgage

market.

Guarantees of Structured Securities. We also issue securities representing beneÑcial interests in pools of PCs and

certain other types of mortgage-related assets. We refer to these mortgage-related securities as Structured Securities. We

guarantee the payment of principal and interest on most of the Structured Securities we issue. By issuing Structured

Securities, we seek to provide liquidity to alternative segments of the mortgage market. We issue many of our Structured

Securities in transactions in which securities dealers or investors sell us the mortgage-related assets underlying the

Structured Securities in exchange for the Structured Securities. We also sell Structured Securities to securities dealers or

investors in exchange for cash.

We issue single-class Structured Securities and multi-class Structured Securities. Single-class Structured Securities

pass through the cash Öows on the underlying mortgage-related assets. Multi-class Structured Securities divide the cash

Öows of the underlying mortgage-related assets into two or more classes that meet the investment criteria and portfolio needs

of diÅerent investors. Our principal multi-class Structured Securities qualify for tax treatment as Real Estate Mortgage

Investment Conduits, or REMICs. For purposes of this Information Statement, multi-class Structured Securities include

Structured Securities backed by non-agency mortgage-related securities.

Guarantees Related to Tax-Exempt Multifamily Housing Revenue Bonds. We guarantee the payment of principal and

interest on tax-exempt multifamily housing revenue bonds that support pass-through certiÑcates issued by third parties.

These housing revenue bonds are collateralized by mortgage loans on low- and moderate-income multifamily housing

projects. In addition, we guarantee the payment of principal and interest related to low- and moderate-income multifamily

mortgage loans underlying tax-exempt multifamily housing revenue bonds.

PC and Structured Securities Support Activities. We support the liquidity and depth of the market for PCs through a

variety of activities, including educating dealers and investors about the merits of trading and investing in PCs, enhancing

disclosure related to the collateral underlying our securities and introducing new mortgage-related securities products and

initiatives. We support the price performance of our PCs through a variety of strategies, including the issuance of Structured

Securities and the purchase and sale by our Retained portfolio of PCs and other agency securities, including Fannie Mae

securities. While some purchases of PCs may result in expected returns that are substantially below our normal thresholds,

this strategy is not expected to have a material eÅect on our long-term economic returns. Depending upon market conditions,

including the relative prices, supply of and demand for PCs and comparable Fannie Mae securities, as well as other factors,

such as the voluntary limit on the growth of our Retained portfolio, there may be substantial variability in any period in the

total amount of securities we purchase or sell for our Retained portfolio in accordance with this strategy. We may increase,

reduce or discontinue these or other related activities at any time, which could aÅect the liquidity and depth of the market

for PCs.

The To Be Announced Market. In connection with our credit guarantee activities, we issue PCs that represent pools of

mortgages with similar characteristics. Because these PCs are homogeneous and are issued in high volume, they are highly

5 Freddie Mac
liquid and trade with similar securities on a ""generic'' basis, also referred to as trading in the To Be Announced, or 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 speciÑc PCs that will be delivered to fulÑll the trade obligation, and thus the speciÑc

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 Securities Industry and Financial Markets Association publishes guidelines pertaining

to the types of mortgages that are eligible for TBA trades.

The use of the TBA market increases the liquidity of mortgage investments and improves the distribution of investment

capital available for residential mortgage Ñnancing, thereby helping us to accomplish our statutory mission. During 2006, we

issued approximately $264.7 billion of PCs backed by single-family mortgage loans that were eligible to be delivered to

settle TBA trades, representing approximately 74 percent of our total guaranteed PCs and Structured Securities issuances. 

Available Information

Our Information Statements, Supplements and other Ñnancial disclosure documents are available free of charge on our

website at www.freddiemac.com. (We do not intend this internet address to be an active link and are not using references to

this internet address here or elsewhere in this Information Statement to incorporate additional information into this

Information Statement.) Our corporate governance guidelines, Codes of Conduct for employees and members of the board

of directors (and any amendments or waivers that would be required to be disclosed) and the charters of the board's Ñve

standing committees (the Audit; Finance and Capital Deployment; Mission, Sourcing and Technology; Governance,

Nominating and Risk Oversight; and Compensation and Human Resources Committees) are also available on our website at

www.freddiemac.com. Printed copies of these documents may be obtained upon request from our Investor Relations

department.

REGULATION AND SUPERVISION

Department of Housing and Urban Development

The U.S. Department of Housing and Urban Development, or HUD, has general regulatory power over Freddie Mac,

including power over new programs, aÅordable housing goals and fair lending. HUD periodically conducts reviews of our

activities to ensure conformity with our charter and other regulatory obligations. For example, HUD is currently reviewing

certain of our investments and other assets and liabilities.

Housing Goals

We are subject to aÅordable housing goals set by HUD. The goals, which are set as a percentage of the total number of

dwelling units underlying our total mortgage purchases, have risen steadily since they became permanent in 1995. The goals

are intended to expand housing opportunities for low- and moderate-income families, low-income families living in lowincome areas, very low-income families and families living in HUD-deÑned underserved areas. The goal relating to lowincome families living in low-income areas and very low-income families is referred to as the ""special aÅordable'' housing

goal. This special aÅordable housing goal also includes a multifamily subgoal that sets an annual minimum dollar volume

of qualifying multifamily mortgage purchases. In addition, HUD has established three subgoals that are expressed as

percentages of the total number of mortgages we purchased that Ñnance the purchase of single-family, owner-occupied

properties located in metropolitan areas.

The HUD goals and subgoals are summarized in Table 2 below. Our performance with respect to the goals and

subgoals, as reported to HUD, is set forth in Table 3.

Table 2 Ì Housing Goals and Home Purchase Subgoals for 2006 through 2008(1)

Housing Goals

2008 2007 2006

Low- and moderate-income goal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 56% 55% 53%

Underserved areas goal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 39 38 38

Special aÅordable goal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27 25 23

Multifamily special aÅordable volume target (dollars in billions) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3.92 $3.92 $3.92

Home Purchase Subgoals

2008 2007 2006

Low- and moderate-income subgoalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 47% 47% 46%

Underserved areas subgoalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34 33 33

Special aÅordable subgoal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18 18 17

(1) An individual mortgage may qualify for more than one of the goals or subgoals. Each of the goal and subgoal percentages will be determined

independently and cannot be aggregated to determine a percentage of total purchases that qualiÑes for these goals or subgoals.

6 Freddie Mac
Table 3 Ì Housing Goals and Home Purchase Subgoals and Reported Results(1)

Housing Goals and Reported Results

Year Ended December 31,

2006 2005 2004

Goal Result Goal Result Goal Result

Low- and moderate-income goal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 53% 55.9% 52% 54.1% 50% 51.6%

Underserved areas goal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 38 42.6 37 42.2 31 32.3

Special aÅordable goalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23 26.5 22 24.5 20 22.7

Multifamily special aÅordable volume target (dollars in billions) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3.92 $14.01 $3.92 $11.41 $2.11 $7.77

Home Purchase Subgoals and Reported Results

Year Ended December 31,

2006 2005

Subgoal Result Subgoal Result

Low- and moderate-income subgoal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 46% 46.9% 45% 46.9%

Underserved areas subgoal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33 33.7 32 35.4

Special aÅordable subgoalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17 16.9 17 17.8

(1) An individual mortgage may qualify for more than one of the goals or subgoals. Each of the goal and subgoal percentages and each of our percentage

results is determined independently and cannot be aggregated to determine a percentage of total purchases that qualiÑes for these goals or subgoals.

Meeting our aÅordable housing goals and subgoals is increasingly challenging and there can be no assurance that we will

do so. See ""RISK FACTORS Ì Legal and Regulatory Risks.'' However, we view the purchase of mortgage loans that

count toward our aÅordable housing goals to be a principal part of our mission and business and we are committed to

facilitating the Ñnancing of aÅordable housing for low- and moderate-income families.

We reported to HUD that we met our three aÅordable housing goals and the multifamily special aÅordable volume

target subgoal for 2006. With respect to the home purchase subgoals, we reported that we met the low- and moderateincome subgoal and the underserved areas subgoal. However, our result for the special-aÅordable subgoal was 16.9 percent

as compared with the subgoal of 17.0 percent. HUD has determined that we met the goals and subgoals for 2005 and 2004,

and will evaluate our performance with respect to 2006.

We are engaged in ongoing discussions with HUD regarding interpretive issues relating to the purchase and counting of

mortgages for purposes of housing goals and subgoals performance for 2006. If the Secretary of HUD Ñnds that we failed to

meet a housing goal established under section 1332, 1333, or 1334 of the Federal Housing Enterprises Financial Safety and

Soundness Act of 1992, or the GSE Act, and that achievement of the housing goal was feasible, the GSE Act states that the

Secretary shall require the submission of a housing plan with respect to the housing goal for approval by the Secretary. The

housing plan must describe the actions we would take to achieve the unmet goal in the future. HUD has the authority to

take enforcement 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 eÅort to comply with a plan approved by HUD; or

(b) fail to submit certain data relating to our mortgage purchases, information or reports as required by law. See ""RISK

FACTORS Ì Legal and Regulatory Risks.'' While the GSE Act is silent, HUD has indicated that it has authority under

the GSE Act to establish and enforce a separate speciÑc subgoal within the special aÅordable housing goal.

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 and requires us to undertake remedial actions against 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 GSE Act.

Predatory Lending

A core component of our mission is to facilitate the Ñnancing of aÅordable housing for low- and moderate-income

families. Predatory lending practices include the origination of loans with excessive interest rates or Ñnancing costs. Such

practices are in direct opposition to our mission, our goals and our practices. Since 2000, we have taken a number of

voluntary steps to combat predatory lending and support responsible lending. We have instituted anti-predatory lending

policies intended to prevent the purchase or assignment of mortgage loans with unacceptable terms or conditions or resulting

from unacceptable practices. In addition to the purchase policies we have instituted, we promote consumer education and

Ñnancial literacy eÅorts 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 Ñnancing options.

7 Freddie Mac
New Program Approval

We are required under our charter and the GSE Act to obtain the approval of the Secretary of HUD for any new

program for the purchasing, servicing, selling, lending on the security of, or otherwise dealing in, conventional mortgages that

is signiÑcantly diÅerent from programs that have been approved by HUD or that were approved or engaged in before the

date the GSE Act was enacted in 1992; or that represents an expansion of programs above limits expressly contained in any

prior approval regarding the dollar volume or number of mortgages or securities involved. HUD must approve any new

program unless the Secretary determines that the new program is not authorized under our charter or that the program is not

in the public interest.

OÇce of Federal Housing Enterprise Oversight

OFHEO is the safety and soundness regulator for Freddie Mac and Fannie Mae. The GSE Act established OFHEO as

a separate oÇce within HUD, substantially independent of the HUD Secretary. OFHEO is headed by a Director who is

appointed by the President and conÑrmed by the Senate. The OFHEO Director is responsible for ensuring that Freddie

Mac and Fannie Mae are adequately capitalized and operating safely in accordance with the GSE Act. OFHEO's authority

with regard to Freddie Mac and Fannie Mae includes authority to:

‚ issue regulations to carry out its responsibilities;

‚ conduct examinations;

‚ require reports of Ñnancial condition and operation;

‚ develop and apply critical, minimum and risk-based capital standards, including classifying the capital levels not less

than quarterly;

‚ prohibit excessive executive compensation under prescribed standards; and

‚ impose temporary and Ñnal cease-and-desist orders and civil money penalties, provided certain conditions are met.

From time to time, OFHEO also has adopted examination guidance on a number of diÅerent topics, including

accounting practices, corporate governance and compensation practices.

OFHEO also has exclusive administrative enforcement authority that is generally similar to that of other federal

Ñnancial institutions regulatory agencies. That authority can be exercised in the event we fail to meet regulatory capital

requirements; violate our charter, the GSE Act, OFHEO regulations, a written agreement with or order issued by OFHEO;

or engage in conduct that signiÑcantly threatens our Core capital. Core capital consists 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, as determined in accordance with GAAP.

Consent Order

On December 9, 2003, we entered into a consent order and settlement with OFHEO that concluded its special

investigation of the company related to our restatement. Under the terms of the consent order, we agreed to undertake

certain remedial actions related to governance, corporate culture, internal controls, accounting practices, disclosure and

oversight. We have taken actions to comply with the terms of the consent order and OFHEO continues to monitor our

progress.

Nontraditional Mortgage Product Risks

In December 2006, OFHEO notiÑed us that it expects us to take action consistent with the Interagency Guidance on

Nontraditional Mortgage Product Risks adopted in October 2006 by the federal Ñnancial institutions regulatory agencies.

The Interagency Guidance clariÑes how Ñnancial institutions should oÅer nontraditional mortgage products in a safe and

sound manner and in a way that clearly discloses the risks that borrowers may assume. We have submitted a report to

OFHEO describing the actions we propose to take consistent with the Interagency Guidance. Our proposed actions include

measures to consistently apply the principles of the Interagency Guidance to all of our mortgage purchases. It is possible

that implementation of the Interagency Guidance and the actions we propose to take will reduce the number of mortgages

available to us for purchase and increase the diÇculty we face in meeting our aÅordable housing goals and subgoals. See

""RISK FACTORS Ì Legal and Regulatory Risks.''

Capital Standards

OFHEO's oversight of our safety and soundness includes the implementation, monitoring and enforcement of capital

standards. OFHEO's regulatory capital requirements include ratio-based minimum and critical capital requirements and a

risk-based capital requirement designed to ensure that we maintain suÇcient capital to survive a sustained severe downturn

in the economic environment. The GSE Act requires OFHEO to classify our capital adequacy at least quarterly. OFHEO

has always classiÑed us as ""adequately capitalized,'' the highest possible classiÑcation.

8 Freddie Mac
If we were classiÑed as less than adequately capitalized, our ability to pay dividends on common or preferred stock could

be restricted. Also, if a dividend payment on our common or preferred stock would cause us to fail to meet our minimum

capital or risk-based capital requirements, we would not be able to make the payment without prior written approval from

OFHEO. For additional information about our regulatory capital requirements, see ""NOTE 10: REGULATORY

CAPITAL'' to our consolidated Ñnancial statements.

In a letter dated January 28, 2004, OFHEO created a framework for monitoring our capital due to our higher

operational risk, including our inability to produce timely Ñnancial statements in conformity with GAAP. The letter directed

that we maintain a mandatory target capital surplus of 30 percent over our minimum capital requirement, subject to certain

conditions and variations; that we submit weekly reports concerning our capital levels; and that we obtain prior approval of

certain capital transactions including common stock repurchases, redemption of any preferred stock or payment of dividends

on preferred stock above stated contractual rates. For additional information about the OFHEO mandatory target capital

surplus framework, see ""NOTE 10: REGULATORY CAPITAL'' to our consolidated Ñnancial statements. Also, see

""RISK FACTORS Ì Legal and Regulatory Risks Ì Developments aÅecting our legislative and regulatory environment

could materially harm our business prospects or competitive position'' for more information.

Department of the Treasury

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 oÅerings with Treasury funding activities. The Treasury Department is reviewing its process for

approving our debt oÅerings.

Securities and Exchange Commission

While we are exempt from Securities Act and Exchange Act registration and reporting requirements, we are dedicated

to fulÑlling our commitment to register our common stock under the Exchange Act. We plan to begin the process of

registering our common stock with the SEC after resuming timely quarterly Ñnancial reporting. Once this process is

complete, we will be subject to the Ñnancial reporting requirements applicable to registrants under the Exchange Act,

including the requirement to Ñle with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q and current

reports on Form 8-K. In addition, OFHEO issued a supplemental disclosure regulation that will obligate us to submit proxy

statements and insider transaction reports to the SEC in accordance with rules promulgated under the Exchange Act. After

our common stock is registered under the Exchange Act, our securities will continue to be exempt from the securities

oÅering registration requirements of the Securities Act and certain other provisions of the federal securities laws.

GSE Regulatory Oversight Legislation

We face a highly uncertain regulatory environment in light of GSE regulatory oversight legislation currently under

consideration in Congress. During 2005, the House of Representatives and the Senate Committee on Banking, Housing, and

Urban AÅairs each passed a bill that would have resulted in signiÑcant changes in the existing GSE regulatory oversight

structure. Congressional consideration of those bills ended with the expiration of the 109th Congress in December 2006.

A new session of Congress began in January 2007. Legislation has been introduced in the House of Representatives,

containing provisions that would substantially alter the current regulatory framework under our charter and the GSE Act.

The bill that was introduced includes provisions that would:

‚ give our regulator substantial authority to regulate the amount and composition of our portfolio investments and to

require substantial reductions in those investments;

‚ increase the regulator's authority to require us to maintain higher minimum and risk-based capital levels and to

approve new products;

‚ modify our aÅordable housing goals; and

‚ for 2007 through 2011, require us to make an annual contribution to an aÅordable housing fund in an amount equal to

1.2 basis points of our average total mortgage portfolio.

While new GSE oversight legislation has yet to be introduced in the Senate, we believe the Senate is likely to consider

legislation that poses similar issues, but may also include provisions that diÅer materially from any bill considered in the

House. Provisions of the bill introduced in the House or any other bill considered by the House or Senate, individually and

in certain combinations, could have a material adverse eÅect on our ability to fulÑll our mission, future earnings, stock price

and stockholder returns, the rate of growth in our fair value and our ability to recruit qualiÑed oÇcers and directors.

We believe appropriate GSE regulatory oversight legislation would strengthen market conÑdence and promote our

mission. We cannot predict the prospects for the enactment, timing or content of any Ñnal legislation.

9 Freddie Mac
RISK FACTORS

Before you invest in our securities, you should know that making such an investment involves risks, including the risks

described below and in ""BUSINESS,'' ""FORWARD-LOOKING STATEMENTS,'' ""MD&A'' and elsewhere in this

Information Statement. The risks that we have highlighted here are not the only ones that we face. These risks could lead to

circumstances where our business, Ñnancial condition and/or results of operations could be adversely aÅected. In that case,

the trading price of our securities could decline and you may lose all or part of your investment. Some of these risks are

managed under our risk management framework, as described in ""MD&A Ì RISK MANAGEMENT.'' We may also

encounter risks of which we are currently not aware or that we currently deem immaterial. These risks also may impair our

business operations, Ñnancial results or your investment in our securities.

Business and Operational Risks

Material weaknesses and other deÑciencies related to internal control over Ñnancial reporting could result in errors,

aÅect operating results and cause investors to lose conÑdence in our reported results.

EÅective internal control over Ñnancial reporting and eÅective disclosure controls and procedures are essential to

management's ability to produce reliable and timely Ñnancial statements and other disclosures and to prevent fraud. While

we have not completed our evaluation of our internal control over Ñnancial reporting, we have identiÑed, and may in the

future identify, material weaknesses and signiÑcant deÑciencies in our internal controls that impair our ability to produce

reliable and timely Ñnancial reports. Because of the material weaknesses, management concluded that our internal control

over Ñnancial reporting was not eÅective as of December 31, 2006. A ""material weakness'' is a signiÑcant deÑciency or

combination of signiÑcant deÑciencies that results in a more than remote likelihood that a material misstatement of the

annual or interim Ñnancial statements will not be prevented or detected. A ""signiÑcant deÑciency'' is a control deÑciency or

combination of control deÑciencies that adversely aÅects a company's ability to initiate, authorize, record, process, or report

external Ñnancial data reliably in accordance with GAAP such that there is a more than remote likelihood that a

misstatement of our annual or interim Ñnancial statements that is more than inconsequential will not be prevented or

detected. For a description of our existing material weaknesses and certain of our signiÑcant deÑciencies and our eÅorts to

mitigate and remediate them, see ""MD&A Ì RISK MANAGEMENT Ì Operational Risks Ì Internal Control Over

Financial Reporting.''

We face continuing challenges because of the deÑciencies in our accounting infrastructure and the operational

complexities of our business. We have not made suÇcient progress remediating our material weaknesses and signiÑcant

deÑciencies to return to regular, timely reporting and we have been unable to provide investors with timely quarterly Ñnancial

reports.

In order to devote the resources needed to complete the remediation of our internal control environment, we decided to

limit the number of systems and business related initiatives we undertook in 2006 and will undertake in 2007. Because of

delays in some of our systems initiatives, lower priority systems initiatives continue to be deferred until we progress further

with the remediation of our internal control deÑciencies. As a result, our Öexibility to deploy new products for business and

credit-risk management purposes in response to competitive market forces and changing trends has been limited. Additional

delays or limits on our ability to implement new initiatives may arise in connection with our remediation activities and

could further constrain our ability to introduce new products or execute new business strategies. Such constraints may

adversely impact our business and results of operations.

Although we have implemented a comprehensive plan to remediate our internal control deÑciencies and return to

quarterly Ñnancial reporting, there are a number of factors that may impede our eÅorts to remediate our internal control

weaknesses and deÑciencies, including: the complexity associated with the interdependent nature of the remediation

activities; uncertainty regarding the quality and sustainability of newly established controls; and potentially ineÅective

compensating controls. We cannot be certain that our eÅorts to improve our internal control over Ñnancial reporting will be

successful.

Controls and procedures, no matter how well designed and operated, provide only reasonable assurance of achieving the

desired control objectives. A failure to establish and maintain eÅective internal control over Ñnancial reporting could result

in a material error in our reported Ñnancial results and additional delays in our Ñnancial reporting timeline. Depending on

the nature of a failure and any required remediation, ineÅective controls could have a material adverse eÅect on our business.

Failure to eÅectively and timely implement the remediation plan we have undertaken to correct the identiÑed deÑciencies in

our internal control over Ñnancial reporting could similarly adversely aÅect our business. Further, OFHEO could require us

to take additional remedial actions.

10 Freddie Mac
Delays in meeting our Ñnancial reporting obligations could aÅect our ability to maintain the listing of our securities on

the New York Stock Exchange, or NYSE. IneÅective controls could also cause investors to lose conÑdence in our reported

Ñnancial information, which may have an adverse eÅect on the trading price of our securities.

We rely on internal models for Ñnancial accounting and reporting purposes, to make business decisions, and to manage

risks, and our business could be adversely aÅected if those models fail to produce reliable results.

We make signiÑcant use of business and Ñnancial models for Ñnancial accounting and reporting purposes and to manage

risk. For example, we use models in determining the fair value of Ñnancial instruments for which independent price

quotations are not available or reliable or to extrapolate third-party values to our portfolio. We also use models to measure

and monitor our exposures to interest-rate and other market risks and credit risk. The information provided by these models

is also used in making business decisions relating to strategies, initiatives, transactions and products.

Models are inherently imperfect predictors of actual results because they are based on assumptions about future

performance. Our models could produce unreliable results for a number of reasons, including invalid or incorrect

assumptions underlying the models or incorrect data being used by the models. The valuations, risk metrics, amortization

results and loan loss reserve estimations produced by our internal models may be diÅerent from actual results, which could

adversely aÅect our business results, cash Öows, fair value of net assets, business prospects and future earnings. Changes in

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 diÅerent. The diÅerent results could cause a revision of previously reported Ñnancial condition

or results of operations, depending on when the change to the model, judgment or assumption is implemented. Any such

changes may also cause diÇculties in comparisons of the Ñnancial condition or results of operations of prior or future periods.

If our models are not reliable we could also make poor business decisions, including loan purchase decisions, guarantee fee

pricing decisions, asset and liability management decisions, or other decisions, which could result in an adverse Ñnancial

impact. Furthermore, any strategies we employ to attempt to manage the risks associated with our use of models may not be

eÅective. See ""MD&A Ì CRITICAL ACCOUNTING POLICIES AND ESTIMATES Ì Valuation of Financial

Instruments'' and ""MD&A Ì RISK MANAGEMENT Ì 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 aÅect how we report our Ñnancial

condition or results of operations.

Our accounting policies are fundamental to understanding our Ñnancial condition and results of operations. We have

identiÑed certain accounting policies and estimates as being ""critical'' to the presentation of our Ñnancial condition and

results of operations because they require management to make particularly subjective or complex judgments about matters

that are inherently uncertain and for which materially diÅerent amounts could be recorded using diÅerent assumptions or

estimates. For a description of our critical accounting policies, see ""MD&A Ì CRITICAL ACCOUNTING POLICIES

AND ESTIMATES.'' As new information becomes available and we update the assumptions underlying our estimates, we

could be required to revise previously reported Ñnancial results if our results for accounting periods remain subject to change

as a result of delays in the release of Ñnancial statements.

From time to time, the Financial Accounting Standards Board, or FASB, and the SEC can change the Ñnancial

accounting and reporting standards that govern the preparation of our Ñnancial statements. These changes are beyond our

control, can be diÇcult to predict and could materially impact how we report our Ñnancial condition and results of

operations. We could be required to apply a new or revised standard retroactively, which may result in the restatement of

prior period Ñnancial statements by material amounts.

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, Ñnancial

loss, disruption of our business, liability to customers, legislative or regulatory intervention or reputational damage. For

example, our business is highly dependent on our ability to process a large number of transactions on a daily basis. The

transactions we process have become increasingly complex and are subject to various legal and regulatory standards. Our

Ñnancial, accounting, data processing or other operating systems and facilities may fail to operate properly or become

disabled, adversely aÅecting our ability to process these transactions. 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.

We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or

other Ñnancial intermediaries we use to facilitate our securities and derivatives transactions. Any such failure or termination

could adversely aÅect our ability to eÅect transactions, service our customers and manage our exposure to risk.

11 Freddie Mac
Most of our key business activities are conducted in our principal oÇces located in McLean, Virginia. Despite the

contingency plans and facilities we have in place, our ability to conduct business may be adversely impacted by a disruption

in the infrastructure that supports our business and the communities in which we are located. Potential disruptions may

include those involving 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 oÇces or communicate with or travel to other locations, our

ability to service and interact with our customers or counterparties may suÅer and we may not be able to successfully

implement contingency plans that depend on communication or travel.

Our operations rely on the secure processing, storage and transmission of conÑdential and other information in our

computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances

warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other

malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could

jeopardize conÑdential and other information, including nonpublic personal information and sensitive business data,

processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or

malfunctions in our operations or the operations of our customers or counterparties, which could result in signiÑcant losses

or reputational damage. We may be required to expend signiÑcant additional resources to modify our protective measures

or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and Ñnancial losses that

are not fully insured. For a discussion of our material weaknesses related to our information technology and systems and our

plans to remediate such weaknesses, see ""MD&A Ì RISK MANAGEMENT Ì Operational Risks Ì Internal Control

Over Financial Reporting.''

We rely on third parties for certain functions that are critical to Ñnancial reporting, our Retained portfolio activity and

mortgage loan underwriting. Any failures by those vendors could disrupt our business operations.

We outsource certain key functions to external parties, including but not limited to (a) processing functions for trade

capture, market risk management analytics, and asset valuation, (b) custody and recordkeeping for our investments

portfolios, and (c) processing functions for mortgage loan underwriting. 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

conÑdential information or other harm. Financial or operational diÇculties of an outside vendor could also hurt our

operations if those diÇculties interfere with the vendor's ability to provide services to us.

Our risk management eÅorts may not eÅectively mitigate the risks we seek to manage.

We could incur substantial losses and our business operations could be disrupted if we are unable to eÅectively identify,

manage, monitor and mitigate operational risks, interest-rate and other market risks and credit risks related to our business.

We have devoted signiÑcant resources to develop an enterprise risk management framework establishing governance over

certain risks we face. However, our risk management policies, procedures and techniques may not be suÇcient to mitigate

the risks we have identiÑed or to appropriately identify additional risks to which we are subject. See ""MD&A Ì RISK

MANAGEMENT'' for a discussion of our approach to managing the risks we face.

Our ability to hire, train and retain qualiÑed employees aÅects our business and operations.

Our continued success depends, in large part, on our ability to hire and retain highly qualiÑed people. Our business is

complex and many of our positions require speciÑc skills. Undesirable voluntary employee turnover strains existing resources

and contributes to increased operational risk. Although voluntary employee turnover improved in 2006, if we experience

turnover rates at or above the level experienced in 2005 or are unable to attract, train and retain talented people, our business

and operations could be impaired or disrupted. Competition for highly qualiÑed personnel is intense and there can be no

assurances that we will retain our key personnel or that we will be successful in attracting, training or retaining other highly

qualiÑed personnel in the future. Furthermore, there is a risk that we may not have suÇcient personnel or personnel with

suÇcient training in key roles. See ""MD&A Ì RISK MANAGEMENT Ì Operational Risks'' for a description of the

impact of our staÇng and turnover.

Legal and Regulatory Risks

Developments aÅecting our legislative and regulatory environment could materially harm our business prospects or

competitive position.

Various developments or factors may aÅect our applicable legislative or regulatory environment, including any changes

or developments aÅecting our charter, aÅordable housing goals, or regulatory capital requirements (including the 30 percent

mandatory target capital surplus OFHEO imposed on us in January 2004); the interpretation of these requirements by our

regulators; the adequacy of internal systems, controls and processes related to these requirements; the exercise or assertion of

12 Freddie Mac
regulatory or administrative authority beyond current practice; the imposition of additional remedial measures; voluntary

agreements with our regulators; or the enactment of proposed legislation. In August 2006, we announced that we would

voluntarily limit the growth of our Retained portfolio, as described in ""BUSINESS Ì Business Activities Ì Investment and

Funding Activities.'' HUD is reviewing certain of our investments and other assets and liabilities to ensure conformity with

our public purpose, charter authorities and investment guidelines. In addition, the Treasury Department is reviewing its

process for approving our debt oÅerings. We cannot predict the outcomes of these reviews or whether our business activities

will be restricted as a result of these or other reviews.

We are also exposed to the risk that weaknesses in our internal systems, controls and processes could aÅect the accuracy

or timing of the data we provide to HUD or OFHEO or our compliance with legal requirements, and could ultimately lead

to regulatory actions (by HUD, OFHEO or both) or other adverse impacts on our business (including our ability or intent

to retain investments). Any assertions of non-compliance with existing or new statutory or regulatory requirements could

result in Ñnes, penalties, litigation and damage to our reputation.

Furthermore, we could be required, or may Ñnd it advisable, to change the nature or extent of our business activities if

our various exemptions and special attributes were modiÑed or eliminated, new or additional fees or substantive regulation of

our business activities were imposed, our relationship to the federal government were altered or eliminated, or our charter,

the GSE Act, or other federal legislation aÅecting us were signiÑcantly amended. Any of these changes could have a

material adverse eÅect on the scope of our activities, Ñnancial condition and results of operations. For example, such changes

could (a) reduce the supply of mortgages available to us, (b) limit a signiÑcant revenue source by imposing restrictions on

the size of our Retained portfolio, (c) make us less competitive by otherwise limiting our business activities or our ability to

create new products, (d) increase our capital requirements, or (e) require us to make an annual contribution to an aÅordable

housing fund equal to a speciÑed percentage of our average total mortgage portfolio. We cannot predict when or whether

any potential legislation will be enacted or regulation will be promulgated.

Any of the developments or factors described above could materially adversely aÅect: our ability to fulÑll our mission;

our ability to meet our aÅordable housing goals; our ability or intent to retain investments; the size and growth of our

mortgage portfolios; our future earnings, stock price and stockholder returns; the value of our assets; the rate of growth of the

fair value of our assets; or our ability to recruit qualiÑed oÇcers and directors.

We are making certain changes to our business to meet HUD's housing goals and subgoals, which may adversely aÅect

our proÑtability.

We are making signiÑcant adjustments to our mortgage sourcing and purchase strategies in an eÅort to meet our

housing goals and subgoals, including changes to our underwriting guidelines and the expanded use of targeted initiatives to

reach underserved populations. For example, we are purchasing loans and mortgage-related securities that oÅer lower

expected returns on our investment and increase our exposure to credit losses. In addition, in order to meet future housing

goals and subgoals, our purchases of goal-eligible loans need to increase as a percentage of total new mortgage purchases,

which is causing us to forego other purchase opportunities that we would expect to be more proÑtable. If our current eÅorts

to meet the goals and subgoals prove to be insuÇcient, we may need to take additional steps that could lead to a further

reduction of service to portions of the conventional conforming mortgage market, and also a reduction in our proÑtability. In

fact, for 2006, we reported to HUD that we did not meet one of the three home purchase subgoals. See ""REGULATION

AND SUPERVISION Ì Department of Housing and Urban Development'' for additional information about HUD's

regulation of our business.

We are involved in legal proceedings 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, oÇcers and employees 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 make substantial payments in the event of adverse judgments or settlements of any such

claims, investigations or proceedings. Any legal proceeding, even if resolved in our favor, could result in negative publicity or

cause us to incur signiÑcant legal and other expenses. Furthermore, developments in, outcomes of, impacts of, and costs,

expenses, settlements and judgments related to these legal proceedings may diÅer from our expectations and exceed any

amounts for which we have reserved or require adjustments to such reserves. See ""NOTE 13: LEGAL CONTINGENCIES'' to our consolidated Ñnancial statements for information about our pending legal proceedings and related reserves.

Legislation or regulation aÅecting the Ñnancial services industry generally may adversely aÅect our business activities.

Our business activities may be aÅected by a variety of legislative and regulatory actions related to the activities of banks,

savings institutions, insurance companies, securities dealers and other regulated entities that comprise a signiÑcant part of

our customer base. Legislative or regulatory provisions that create or remove incentives for these entities either to sell

13 Freddie Mac
mortgage loans to us or to purchase our securities could have a material adverse eÅect on our business results. Among the

legislative and regulatory provisions applicable to these entities are capital requirements for federally insured depository

institutions and regulated bank holding companies.

For example, the Basel Committee on Banking Supervision, composed of representatives of certain central banks and

bank supervisors, has developed a proposed set of risk-based capital standards for banking organizations. The U.S. banking

regulators have proposed new capital standards for certain banking organizations that would incorporate the Basel

Committee's proposed risk-based capital standards into existing requirements. If Ñnal rules adopted by the U.S. banking

regulators revise the capital treatment of mortgage assets, decisions by U.S. banking organizations about whether to hold or

sell such assets could be aÅected. However, the contents and timing of any Ñnal rules remain uncertain, as does the manner

in which U.S. banking organizations may respond to them.

The actions we expect to take in connection with the Interagency Guidance on Nontraditional Mortgage Product Risks

are described in ""REGULATION AND SUPERVISION Ì OÇce of Federal Housing Enterprise Oversight Ì Nontraditional Mortgage Product Risks.'' On March 2, 2007, the federal Ñnancial institutions regulatory agencies issued for public

comment a ""statement'' on subprime mortgage lending. If adopted, the statement would instruct lenders to apply

underwriting standards similar to those in the Interagency Guidance on non-traditional products to hybrid ARMs. In

addition, on February 27, 2007, we announced that we would implement stricter investment standards for certain subprime

ARMs originated after September 1, 2007 and develop new mortgage products providing lenders with more choices to oÅer

subprime borrowers. This initiative could reduce the number of subprime mortgages available to us for purchase,

potentially reducing our proÑtability, and is likely to make it more diÇcult for us to achieve our housing goals and subgoals.

In addition, our business could also be adversely aÅected by any modiÑcation, reduction or repeal of the federal income

tax deductibility of mortgage interest payments.

Competitive and Market Risks

Changes in general business and economic conditions may adversely aÅect our business and earnings.

Our business and earnings may be adversely aÅected by changes in general business and economic conditions, including

changes in the markets for our portfolio investments or our mortgage-related and debt securities. These conditions include

employment rates, Öuctuations in both debt and equity capital markets, the value of the U.S. dollar as compared to foreign

currencies, and the strength of the U.S. economy and the local economies in which we conduct business. An economic

downturn or increase in the unemployment rate could result in fewer mortgages for us to purchase, an increase in mortgage

delinquencies or defaults and a higher level of credit-related losses than we estimated, which could reduce our earnings or

reduce the fair value of our net assets. Various factors could cause the economy to slow down or even decline, including

higher energy costs, higher interest rates, pressure on housing prices, reduced consumer or corporate spending, natural

disasters such as hurricanes, terrorist activities, military conÖicts and the normal cyclical nature of the economy.

A general decline in U.S. housing prices or changes in the U.S. housing market could negatively impact our business and

earnings.

The rate of home price appreciation in the U.S. declined in 2006 as the housing market slowed. This decline follows a

decade of strong appreciation and particularly dramatic price increases in the past few years. Home price appreciation

generally has increased the values of properties underlying the mortgages in our portfolio. A continued reversal of this strong

home price appreciation in any of the geographic markets we serve could result in an increase in delinquencies or defaults

and a higher level of credit-related losses, which could reduce our earnings. For more information, see ""MD&A Ì RISK

MANAGEMENT Ì Credit Risks.''

If the conforming loan limits are decreased as a result of a decline in the index upon which such limits are based, we

may face operational and legal challenges associated with changing our mortgage purchase commitments to conform with

the lower limits and there could be fewer loans available for us to purchase. In October 2006, the FHFB reported that the

national average price of a one-family residence had declined slightly, the Ñrst time this has occurred since its 1992-1993

survey. OFHEO announced that the conforming loan limits would be maintained at the 2006 limits for 2007 and deferred the

decrease for one year.

In addition, 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. The rate of growth in total residential mortgage debt declined to

9 percent in 2006 from 14 percent in 2005. If the rate of growth in total outstanding U.S. residential mortgage debt were to

continue to decline, there could be fewer mortgage loans available for us to purchase. A decline in the volume of loans

available for us to purchase could reduce our earnings and margins, as we could face more competition to purchase a smaller

number of loans.

14 Freddie Mac
Competition from banking and non-banking companies may harm our business.

We operate in a highly competitive environment and we expect competition to increase as Ñnancial services companies

continue to consolidate to produce larger companies that are able to oÅer similar mortgage-related products at competitive

prices. Increased competition in the secondary mortgage market and a decreased rate of growth in residential mortgage

debt outstanding may make it more diÇcult for us to purchase mortgages to meet our mission objectives while providing

favorable returns for our business. Furthermore, competitive pricing pressures may make our products less attractive in the

market and negatively impact our proÑtability.

We also compete for low-cost debt funding with Fannie Mae, the Federal Home Loan Banks and other institutions that

hold mortgage portfolios. Competition for debt funding from these entities can vary with changes in economic, Ñnancial

market and regulatory environments. Increased competition for low-cost debt funding may result in a higher cost to Ñnance

our business, which could decrease our net income.

We may face limited availability of Ñnancing, variation in our funding costs and uncertainty in our securitization

Ñnancing.

The amount, type and cost of our funding, including Ñnancing from other Ñnancial institutions and the capital markets,

directly impacts our interest expense and results of operations and can therefore aÅect our ability to grow our assets. A

number of factors could make such Ñnancing more diÇcult to obtain, more expensive or unavailable on any terms, both

domestically and internationally (where funding transactions may be on terms more or less favorable than in the U.S.),

including:

‚ adverse business or Ñnancial results or other adverse changes to our Ñnancial condition;

‚ speciÑc events that adversely impact our reputation;

‚ changes in the activities of our business partners;

‚ disruptions in the capital markets;

‚ speciÑc events that adversely impact the Ñnancial services industry;

‚ counterparty availability;

‚ changes in the preferences of the holders of our securities;

‚ changes in the breadth of our investor base;

‚ changes aÅecting the fair value of our assets;

‚ interest-rate Öuctuations, or rating agency actions;

‚ changes in our charter or regulatory oversight;

‚ changes to or developments in the legal, regulatory, accounting and tax environments governing our funding

transactions, including the outcome of the Treasury Department's review of its process for approving our debt

oÅerings;

‚ the general state of the U.S., Asian and other world economies, and factors aÅecting those economies; and

‚ public perception of any of the foregoing.

Foreign investors, particularly in Asia, hold a signiÑcant portion of our debt securities and are an important source of

funding for our business. Foreign investors' willingness to purchase and hold our debt securities can be inÖuenced by many

factors, including changes in the world economies, changes in foreign currency exchange rates, regulatory and political

factors, as well as the availability of and preferences for other investments. If foreign investors were to divest their holdings or

reduce their purchases of our debt securities, our funding costs may increase. The willingness of foreign investors to

purchase or hold our debt securities, and any changes to such willingness, may materially aÅect our liquidity, our business

and results of operations. Foreign investors are also signiÑcant purchasers of mortgage-related securities and changes in the

strength and stability of foreign demand for mortgage-related securities could aÅect the overall market for those securities

and the returns available to us on our portfolio investments.

Other GSEs also issue signiÑcant amounts of agency debt, which may negatively impact the prices we are able to obtain

for our debt securities. An inability to issue debt securities at attractive rates in amounts suÇcient to fund our business

activities and meet our obligations could have an adverse eÅect on our liquidity, Ñnancial condition and results of operations.

See ""MD&A Ì LIQUIDITY AND CAPITAL RESOURCES Ì Liquidity Ì Debt Securities'' for a more detailed

description of our debt issuance programs.

We maintain secured intraday lines of credit to provide additional intraday liquidity to fund our activities through the

Fedwire system. These lines of credit may require us to post collateral to third parties. In certain limited circumstances,

these secured counterparties may be able to repledge the collateral underlying our Ñnancing without our consent. In

addition, because these secured intraday lines of credit are uncommitted, we may not be able to continue to draw on them if

and when needed.

15 Freddie Mac
Our PCs and Structured Securities are also an integral part of our mortgage purchase program and any decline in the

price performance of or demand for our PCs could have an adverse eÅect on the proÑtability of our securitization Ñnancing

activities. There is a risk that our PC and Structured Securities support activities may not be suÇcient to support the

liquidity and depth of the market for PCs.

A reduction in our credit ratings could adversely aÅect our liquidity.

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 debt funding. We currently receive ratings from three nationally

recognized statistical rating organizations for our unsecured borrowings. Our credit ratings are important to our liquidity.

Actions by governmental entities or others could adversely aÅect our credit ratings. A reduction in our credit ratings could

adversely aÅect our liquidity, competitive position, or the supply or cost of equity capital or debt Ñnancing available to us. A

signiÑcant increase in our borrowing costs could cause us to sustain losses and impair our liquidity by requiring us to Ñnd

other sources of Ñnancing.

Fluctuations in interest rates could negatively impact our reported net interest income, earnings and fair value of net

assets.

Our portfolio investment activities and credit guarantee activities expose us to interest-rate and other market risks and

credit risks. Changes in interest rates Ì up or down Ì could adversely aÅect 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, when interest rates

rise, our funding costs may rise faster than the yield we earn on our assets, causing our net interest yield to compress until

the eÅect of the increase is fully reÖected in asset yields. Changes in the slope of the yield curve could also reduce our net

interest yield.

Changes in interest rates could reduce our GAAP net income materially, especially if actual conditions vary

considerably from our expectations. For example, if interest rates rise or fall faster than estimated or the slope of the yield

curve varies other than expected, we may incur signiÑcant losses. Changes in interest rates may also aÅect prepayment

assumptions thus potentially impacting the fair value of our assets, including investments in our Retained portfolio, our

derivative portfolio and our Guarantee asset. When interest rates fall, borrowers are more likely to prepay their mortgage

loans by reÑnancing them at a lower rate. An increased likelihood of prepayment on the mortgages underlying our

mortgage-related securities may adversely impact the performance of these securities. An increased likelihood of prepayment

on the mortgage loans we hold may also negatively impact the performance of our Retained portfolio. Interest rates can

Öuctuate for a number of reasons, including changes in the Ñscal and monetary policies of the federal government and its

agencies, such as the Federal Reserve. Federal Reserve policies directly and indirectly inÖuence the yield on our interestearning assets and the cost of our interest-bearing liabilities. The availability of derivative Ñnancial instruments (such as

options and interest-rate and foreign-currency swaps) from acceptable counterparties of the types and in the quantities

needed could also aÅect our ability to eÅectively manage the risks related to our investment funding. Our strategies and

eÅorts to manage our exposures to these risks may not be as eÅective as they have been in the past. See ""MD&A Ì RISK

MANAGEMENT Ì Interest-Rate Risk and Other Market Risks'' for a description of the types of market risks to which

we are exposed and how we manage those risks.

Higher credit losses and increased expected future credit costs could adversely aÅect our Ñnancial condition and/or

results of operations.

There can be no assurances that our risk management strategies will be eÅective to manage our credit risks or that our

credit losses will not be higher than expected. Higher credit losses on our guarantees could require us to increase our

allowances for credit losses through charges to earnings. Other credit exposures could also result in Ñnancial losses.

Although we regularly review credit exposures to speciÑc customers and counterparties, default risk may arise from events or

circumstances that are diÇcult to detect or foresee. In addition, concerns about, or default by, one institution could lead to

signiÑcant liquidity problems, losses or defaults by other institutions. This risk may also adversely aÅect Ñnancial

intermediaries, such as clearing agencies, clearinghouses, banks, securities Ñrms and exchanges with which we interact.

These potential risks could ultimately cause liquidity problems or losses for us as well.

Changes in the mortgage credit environment also aÅect our credit guarantee activities through the valuation of our

Guarantee obligation. If expected future credit costs increase and we are not able to increase our guarantee fees due to

competitive pressures or other factors, then the overall proÑtability of our new business would be lower and could result in

losses on guarantees at their inception. Moreover, an increase in expected future credit costs generally increases the fair

value of our existing Guarantee obligation.

16 Freddie Mac
The loss of business volume from one or more key lenders could result in a decline in our market share and revenues.

Our business depends on our ability to acquire a steady Öow of mortgage loans from the originators of those loans. We

purchase a signiÑcant percentage of our single-family mortgages from several large mortgage originators. The mortgage

industry has been consolidating and a decreasing number of large lenders originate most single-family mortgages. We could

lose signiÑcant business volume and may be unable to replace it if one or more of our key lenders signiÑcantly reduces the

volume of mortgages it delivers to us or is acquired or otherwise ceases to exist. The loss of business from any one of our

key lenders could adversely aÅect our market share, our revenues and the performance of our mortgage-related securities.

Negative publicity causing damage to our reputation could adversely aÅect our business prospects, earnings or capital.

Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business.

Negative public opinion could adversely aÅect our ability to keep and attract customers or otherwise impair our customer

relationships, adversely aÅect our ability to obtain Ñnancing, impede our ability to hire and retain qualiÑed personnel, hinder

our business prospects or adversely impact the trading price of our securities. Perceptions regarding the practices of our

competitors or our industry as a whole may also adversely impact our reputation. Adverse reputation impacts on third parties

with whom we have important relationships may impair market conÑdence or investor conÑdence 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. These adverse consequences could result from our actual or

alleged action or failure to act in any number of activities, including corporate governance, regulatory compliance, Ñnancial

reporting and disclosure, purchases of products perceived to be predatory, safeguarding or using nonpublic personal

information, or from actions taken by government regulators and community organizations in response to our actual or

alleged conduct. Negative public opinion associated with our accounting restatement and material weaknesses in our internal

control over Ñnancial reporting and related problems could continue to have adverse consequences.

MARKET FOR THE COMPANY'S

COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock, par value $0.21 per share, is listed on the NYSE under the symbol ""FRE.'' From time to time, our

common stock may be admitted to unlisted trading status on other national securities exchanges. Put and call options on our

common stock are traded on U.S. options exchanges. At February 28, 2007, there were 661,430,516 shares outstanding of

our common stock.

On December 14, 2006, we announced our intent to withdraw our common stock from listing on NYSE Arca, Inc.,

formerly the PaciÑc Exchange. The decision to voluntarily withdraw listing from NYSE Arca was made to eliminate

duplicative administrative requirements inherent with dual listings as a result of the NYSE Group's recent merger with

Archipelago Holdings, the parent company of NYSE Arca. NYSE Arca will continue trading our common stock on an

unlisted trading privilege basis.

Table 4 sets forth the high and low sale prices of our common stock for the periods indicated.

Table 4 Ì Quarterly Common Stock Information

Sale Prices(1)

High Low

2006 Quarter Ended

December 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $71.92 $64.80

September 30ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 66.47 55.64

June 30 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 63.99 56.50

March 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 68.75 60.64

2005 Quarter Ended

December 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $67.49 $54.85

September 30ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 66.91 54.50

June 30 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 67.87 58.51

March 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 73.91 59.74

(1) The principal market is the NYSE and prices are based on the Composite Tape.

At February 28, 2007, the closing price for our common stock was $64.13 per share.

17 Freddie Mac
Holders

As of February 28, 2007, we had 2,201 common stockholders of record.

Dividends

Table 5 sets forth the cash dividend per common share that we have declared for the periods indicated.

Table 5 Ì Dividends Per Common Share

Regular Cash

Dividend Per Share

2007 Quarter Ended

March 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $0.50

2006 Quarter Ended

December 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $0.50

September 30 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.47

June 30 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.47

March 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.47

2005 Quarter Ended

December 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $0.47

September 30 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.35

June 30 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.35

March 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.35

We have historically paid dividends to our stockholders in each quarter. Our board of directors will determine the

amount of dividends, if any, declared and paid in any quarter after considering our capital position and earnings and growth

prospects, among other factors. See ""NOTE 10: REGULATORY CAPITAL'' to our consolidated Ñnancial statements for

additional information regarding dividend payments and potential restrictions on such payments and ""NOTE 9:

STOCKHOLDERS' EQUITY'' to our consolidated Ñnancial statements for additional information regarding our preferred

stock dividend rates.

18 Freddie Mac
Stock Performance Graph

The following graph compares the Ñve-year cumulative total stockholder return on our common stock with that of the

Standard and Poor's, or S&P, 500 Financial Sector Index and the S&P 500 Index. On January 1, 2002, the composition of

the S&P 500 Financial Sector Index was modiÑed. Historical data has been recalculated to reÖect this change. The graph

assumes $100 invested in each of our common stock, the S&P 500 Financial Sector Index and the S&P 500 Index on

December 31, 2001. Total return calculations assume annual dividend reinvestment. The graph does not forecast

performance of our common stock.

Comparative Cumulative Total Stockholder Return

(in dollars)

$50

$75

$100

$125

$150

$175

Freddie Mac S&P 500 Financials S&P 500

12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005 12/31/2006

2004 

$118 

124 

111 

 2005 

$107 

131 

116 

2003

$92 

112 

100 

2002

$92 

86 

78 

2001

$100 

 100 

 100 

2006 

$115 

156 

134 

Freddie Mac

S&P 500 Financials

S&P 500

At December 31,

Issuer Purchases of Equity Securities

Table 6 sets forth our common share repurchase activity during 2006. See ""MD&A Ì LIQUIDITY AND CAPITAL

RESOURCES'' for additional information.

Table 6 Ì Common Share Repurchase Activity in 2006

Total Number of Approximate Dollar

Shares Purchased Value of Shares

Average as Part of a That May Yet be

Total Number of Price Paid Publicly Announced Purchased Under

Period Shares Purchased per Share Program(1) the Program

(in millions) (in millions) (in millions)

January - May ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì $ Ì Ì $2,000

June ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8.6 58.05 8.6 1,500

July ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.1 57.47 4.1 1,263

August ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12.2 59.56 12.2 540

September ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.6 63.99 0.6 501

OctoberÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.9 68.74 2.9 299

NovemberÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.3 69.06 4.3 Ì

December ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì Ì

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32.7 61.06 32.7

(1) On October 5, 2005, we announced our board of directors authorized us to repurchase up to $2 billion of outstanding shares of common stock. The

repurchase program was completed in November 2006.

19 Freddie Mac
Recent Sales of Unregistered Securities

The securities we issue are ""exempted securities'' under the Securities Act and the Exchange Act. As a result, we do not

Ñle registration statements with the SEC with respect to oÅerings of our securities.

During 2006, we completed two preferred stock oÅerings, underwritten by syndicates of dealers headed by (a) Bear

Stearns & Co. Inc. and UBS Securities LLC and (b) Lehman Brothers and Merrill Lynch, for aggregate oÅering proceeds

of $1.5 billion and an aggregate underwriting discount of $15 million. See ""NOTE 9: STOCKHOLDERS' EQUITY'' to

our consolidated Ñnancial statements for more information.

We regularly provide stock compensation to our employees and members of our board of directors. We have three

stock-based compensation plans under which grants are currently being made: (a) the Employee Stock Purchase Plan, or

ESPP; (b) the 2004 Stock Compensation Plan, or 2004 Employee Plan; and (c) the 1995 Directors' Stock Compensation

Plan, as amended and restated, or Directors' Plan. Prior to the stockholder approval of the 2004 Employee Plan, employee

stock-based compensation was awarded in accordance with the terms of the 1995 Stock Compensation Plan, or

1995 Employee Plan. Although grants are no longer made under the 1995 Employee Plan, we currently have awards

outstanding under this plan. We collectively refer to the 2004 Employee Plan and 1995 Employee Plan as the Employee

Plans.

During the year ended December 31, 2006, 914,368 stock options were exercised and 423,294 stock options were

granted under our Employee Plans and Directors' Plan. Under our ESPP, 222,703 options to purchase stock were exercised

and 226,266 options to purchase stock were granted. Further, for the year ended December 31, 2006, under the Employee

Plans and Directors' Plan, 1,486,080 restricted stock units were granted and restrictions lapsed on 384,649 and

28,542 restricted stock units and restricted stock awards, respectively. See ""NOTE 11: STOCK-BASED COMPENSATION'' to our consolidated Ñnancial statements for more information.

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

NYSE Corporate Governance Listing Standards

On October 9, 2006, our Chief Executive OÇcer submitted to the NYSE the certiÑcation required by

Section 303A.12(a) of the NYSE Listed Company Manual regarding our compliance with the NYSE's corporate

governance listing standards.

20 Freddie Mac
FORWARD-LOOKING STATEMENTS

We regularly communicate information concerning our business activities to investors, securities analysts, the news

media and others as part of our normal operations. Some of these communications, including this Information Statement,

contain ""forward-looking statements'' pertaining to our current expectations and objectives for Ñnancial reporting,

remediation eÅorts, future business plans, results of operations, Ñnancial condition and market trends and developments.

Forward-looking statements are often accompanied by, and identiÑed with, terms such as ""predict,'' ""ability,'' ""intent,''

""indicator,'' ""trend,'' ""eÅorts,'' ""assumptions,'' ""judgments,'' ""models,'' ""developments,'' ""estimates,'' ""continue,'' ""promote,'' ""aÅect,'' ""consider,'' ""enable,'' ""currently,'' ""priorities,'' ""remain,'' ""anticipate,'' ""initiative,'' ""ongoing,'' ""believe,''

""expect,'' ""plan,'' ""targeted,'' ""depend,'' ""proposed,'' ""projections,'' ""until,'' ""attempt,'' ""forecasts,'' ""outlook,'' ""over

time,'' ""future,'' ""seek,'' ""potential,'' ""objective,'' ""long-term,'' ""ultimately,'' ""goal,'' ""will,'' ""may,'' ""might,'' ""should,''

""can,'' ""could,'' ""would,'' ""likely,'' ""if,'' ""typically,'' ""generally,'' ""new,'' ""uncertain'' and similar phrases. These statements

are not historical facts, but rather represent our expectations based on current information, plans, estimates and projections.

Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond

our control. You should be careful about relying on any forward-looking statements and should also consider all risks,

uncertainties and other factors described in this Information Statement in considering any forward-looking statements.

Actual results may diÅer materially from those discussed as a result of various factors, including those factors described in

the ""RISK FACTORS'' section of this Information Statement. Factors that could cause actual results to diÅer materially

from the expectations expressed in these and other forward-looking statements by management include, among others:

‚ our ability to eÅectively and timely implement the remediation plan undertaken as a result of the restatement of our

consolidated Ñnancial statements and the consent order entered into with OFHEO, including particular initiatives

relating to technical infrastructure and controls over Ñnancial reporting;

‚ changes in applicable legislative or regulatory requirements, including enactment of GSE oversight legislation,

changes to our charter, aÅordable housing goals, regulatory capital requirements, the exercise or assertion of

regulatory or administrative authority beyond historical practice, or regulation of the subprime market;

‚ our ability to eÅectively implement our business strategies and manage the risks in our business, including our eÅorts

to improve the supply and liquidity of, and demand for, our products;

‚ changes in our assumptions or estimates regarding rates of growth in our business, spreads we expect to earn, required

capital levels, the timing and impact of capital transactions;

‚ our ability to eÅectively manage and implement changes, developments or impacts of accounting or tax standards and

interpretations;

‚ the availability of debt Ñnancing and equity capital in suÇcient quantity and at attractive rates to support growth in

our Retained portfolio, to reÑnance maturing debt and to meet regulatory capital requirements;

‚ changes in pricing or valuation methodologies, models, assumptions, estimates and/or other measurement techniques;

‚ volatility of reported results due to changes in fair value of certain instruments or assets;

‚ changes in general economic conditions;

‚ the rate of growth in total outstanding U.S. residential mortgage debt and the size of the U.S. residential mortgage

market;

‚ preferences of originators in selling into the secondary market;

‚ borrower preferences for Ñxed-rate mortgages or ARMs;

‚ investor preferences for mortgage loans and mortgage-related and debt securities versus other investments;

‚ the occurrence of a major natural or other disaster in geographic areas in which portions of our Total mortgage

portfolio are concentrated;

‚ other factors and assumptions described in this Information Statement, including in the sections titled

""BUSINESS,'' ""RISK FACTORS'' and ""MD&A;''

‚ our assumptions and estimates regarding the foregoing and our ability to anticipate the foregoing factors and their

impacts; and

‚ market reactions to the foregoing.

We undertake no obligation to update forward-looking statements we make to reÖect events or circumstances after the date

of this Information Statement or to reÖect the occurrence of unanticipated events.

21 Freddie Mac
SELECTED FINANCIAL DATA(1)

At or for the Year Ended December 31,

2006 2005 2004 2003 2002

(dollars in millions, except share-related amounts)

Income Statement Data

Net interest incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,235 $ 5,370 $ 9,137 $ 9,498 $ 9,525

Non-interest income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 915 199 (3,039) (244) 7,154

Net income before cumulative eÅect of changes in accounting

principlesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,211 2,189 2,937 4,816 10,090

Cumulative eÅect of changes in accounting principles, net of taxes ÏÏÏÏ Ì (59) Ì Ì Ì

Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,211 2,130 2,937 4,816 10,090

Net income available to common stockholders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,936 $ 1,907 $ 2,727 $ 4,600 $ 9,851

Earnings per common share before cumulative eÅect of changes in

accounting principles:

Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2.84 $ 2.84 $ 3.96 $ 6.69 $ 14.22

Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.84 2.83 3.94 6.68 14.17

Earnings per common share after cumulative eÅect of changes in

accounting principles:

Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2.84 $ 2.76 $ 3.96 $ 6.69 $ 14.22

Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.84 2.75 3.94 6.68 14.17

Dividends per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.91 $ 1.52 $ 1.20 $ 1.04 $ 0.88

Weighted average common shares outstanding (in thousands):

Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 680,856 691,582 689,282 687,094 692,727

Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 682,664 693,511 691,521 688,675 695,116

Balance Sheet Data

Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 813,081 $ 806,222 $ 795,284 $ 803,449 $ 752,249

Senior debt due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 294,861 288,532 282,303 295,262 244,429

Senior debt due after one yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 452,677 454,627 443,772 438,738 415,662

Subordinated debt due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,400 5,633 5,622 5,613 5,605

Miscellaneous liabilities(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30,326 29,290 30,662 30,420 52,914

Minority interests in consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 516 949 1,509 1,929 2,309

Stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28,301 27,191 31,416 31,487 31,330

Portfolio Balances(3)

Retained portfolio (unpaid principal balances)(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 703,959 $ 710,346 $ 653,261 $ 645,767 $ 567,366

Total Guaranteed PCs and Structured Securities issued (unpaid

principal balances)(5)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,477,023 1,335,524 1,208,968 1,162,068 1,090,624

Total mortgage portfolio (unpaid principal balances) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,826,720 1,684,546 1,505,531 1,414,700 1,316,703

Ratios

Return on average assets(6)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.3% 0.3% 0.4% 0.6% 1.4%

Return on common equity(7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8.6 7.7 10.2 17.2 47.2

Return on total equity(8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8.0 7.3 9.3 15.3 39.6

Dividend payout ratio on common stock(9)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 67.7 56.4 30.7 15.6 6.2

Equity to assets ratio(10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.4 3.7 3.9 4.0 3.7

(1) EÅective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123(R), ""Share-based

Payment'' and also changed our method of estimating prepayments for the purpose of amortizing premiums, discounts and deferred fees related to

mortgage revenue bonds and commercial mortgage-backed securities held in the Retained portfolio. EÅective December 31, 2006, we adopted the

provisions of SFAS No. 158, ""Employers' Accounting for DeÑned BeneÑt Pension and Other Postretirement Plans, an amendment of

FASB Statements No. 87, 88, 106 and 132(R),'' or SFAS 158. EÅective January 1, 2005, we changed our method of accounting for interest expense

related to callable debt instruments to recognize interest expense using an eÅective interest method over the contractual life of the debt and changed

our method for determining gains and losses upon the re-sale of PCs and Structured Securities related to deferred items recognized in connection

with our guarantee of those securities. See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' to our consolidated

Ñnancial statements for more information regarding these accounting changes. EÅective January 1, 2003, we adopted the provisions of FASB

Interpretation No. 45, ""Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of

Others, an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34,'' or FIN 45, and FASB StaÅ

Position FIN 45-2, ""Whether FASB Interpretation No. 45 Provides Support for Subsequently Accounting for a Guarantor's Liability at Fair Value.''

(2) Includes (a) Due to Participation CertiÑcate investors, (b) Accrued interest payable, (c) Guarantee obligation, (d) Derivative liabilities, at fair

value, (e) Reserve for guarantee losses on Participation CertiÑcates and (f) Other liabilities, as presented on our consolidated balance sheets.

(3) Excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(4) The Retained portfolio presented on our consolidated balance sheets diÅers from the Retained portfolio in this table because the consolidated balance

sheet caption includes valuation adjustments and deferred balances. See ""MD&A Ì CONSOLIDATED BALANCE SHEETS ANALYSIS Ì

Table 19 Ì Characteristics of Mortgage Loans and Mortgage-Related Securities in the Retained Portfolio'' for more information.

(5) Excludes Structured Securities where we have resecuritized PCs and other previously issued Structured Securities. These excluded Structured

Securities do not increase our credit-related exposure and consist of single-class Structured Securities backed by PCs, REMICs and principal-only

strips. The notional balances of interest-only strips are excluded because this line item is based on unpaid principal balance. Also excluded from this

line item are modiÑable and combinable REMIC tranches and interest and principal classes where the holder has the option to exchange the

security tranches for other pre-deÑned security tranches.

(6) Ratio computed as Net income divided by the simple average of beginning and ending Total assets.

(7) Ratio computed as Net income available to common stockholders divided by the simple average of beginning and ending Stockholders' equity, net of

Preferred stock, at redemption value.

(8) Ratio computed as Net income divided by the simple average of beginning and ending Stockholders' equity.

(9) Ratio computed as Common stock dividends declared divided by Net income available to common stockholders.

(10) Ratio computed as the simple average of beginning and ending Stockholders' equity divided by the simple average of beginning and ending Total

assets.

22 Freddie Mac
MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE SUMMARY

Our Business

To achieve our objective for long-term growth of the fair value of our net assets, we focus on three long-term business

drivers Ì the proÑtability of new investment and guarantee business, growth in our investment and total credit guarantee

portfolios and market share. Competition, other market factors, our housing mission under our charter and the HUD

aÅordable housing goals and subgoals require that we make trade-oÅs in our business that aÅect each of these drivers. Our

purchases of mortgage loans beneÑting low- and moderate-income families and neighborhoods are an integral part of our

mission and business, and we are committed to fulÑlling the needs of these borrowers and markets.

Retained portfolio activities

Through our Retained portfolio investment activities, we seek to produce long-term growth of the fair value of our net

assets primarily by opportunistically purchasing mortgage assets that oÅer attractive investment returns while meeting the

requirements of our charter and supporting the aÅordable housing goals and subgoals set for us by HUD. We estimate our

expected investment returns using an option-adjusted spread approach. We select our investments based on these expected

returns and our market expertise, regardless of the timing of the recognition of these returns in net income.

During 2006, the unpaid principal balance of our Retained portfolio declined by 1 percent as relatively tight mortgageto-debt option-adjusted spreads limited attractive investment opportunities and resulted in lower expected investment

returns on new business. Also, as discussed in ""BUSINESS Ì Business Activities Ì Investment and Funding Activities,''

we began managing our Retained portfolio under a voluntary temporary growth limit eÅective July 1, 2006. We will keep

this limit in place until we return to producing and publicly releasing quarterly Ñnancial statements prepared in conformity

with GAAP. While operating under this limit, we continue to be selective about the new investments we make in order to

achieve acceptable investment returns.

Over the last several years, there has been a particularly strong demand for mortgage assets by investors. This demand

was driven in part by the steep yield curve evident up until the second half of 2005. When short-term interest rates are low

relative to mortgage interest rates, initial returns on mortgage-related investments are relatively high. A signiÑcant portion

of our current Retained portfolio was acquired at attractive spreads when the slope of the yield curve was steep compared to

historical levels. As a result, the initial net interest yields on our Ñxed-rate mortgage-related investments were relatively

high. However, over the last three years, the net interest yield on those assets declined as our initial medium-term funding

matured and was replaced with higher-coupon funding as the yield curve Öattened. In addition, throughout 2006 and 2005,

new Ñxed-rate mortgage investments were acquired at lower initial net interest yields, which adversely aÅected the overall

net interest yield of the Retained portfolio.

While the natural decline of net interest yields of our Ñxed-rate mortgage investments is a driver of the decline in our net

interest yield over the last three years, other factors have also contributed to the decline. For example, the increase of our

issuances of callable debt put downward pressure on net interest yield in the near term; however, we expect this funding to

reduce future rebalancing requirements and related costs over time. In addition, during 2006 and the latter part of 2005,

while the yield curve was Öattening, we retired debt in order to take advantage of favorable funding spreads on our new debt

issuances. While improving the spreads on our Retained portfolio had a positive impact on the fair value of our net assets,

these debt retirements adversely impacted our net interest yields because retired lower-coupon debt was replaced at higher

interest rates. During 2006, our average funding levels remained signiÑcantly below the London Interbank OÅered Rate, or

LIBOR, with spreads relative to LIBOR for our Reference Notes» securities improving by 2 to 5 basis points along the

interest-rate curve. Also, in 2005 and 2004, we increased our purchases of variable-rate non-agency mortgage-related

securities, taking advantage of attractive spreads. While the net interest yields on variable-rate securities are less sensitive to

changes in the yield curve, they generally have lower initial net interest yields than Ñxed-rate investments.

Credit guarantee activities

We seek to generate fair value growth through our credit guarantee activities by issuing guarantees that oÅer attractive

long-term returns relative to anticipated credit costs. The securitization market is increasingly competitive and we have

reduced our guarantee fees on new business in an eÅort to maintain our market share. In addition, during 2006, the

residential mortgage market weakened and the rate of home price appreciation slowed.

During 2006 and 2005, increases in the expected future credit costs associated with our credit guarantee activities

increased the fair value of our Guarantee obligation, adversely impacting the fair value of our net assets. Also, as a result of

the increase in expected future credit costs and competitive pressure on our guarantee fees, some of our new credit

guarantee business was acquired below our normal expected return thresholds and we realized increased losses on certain

23 Freddie Mac
guarantees at their inception. These trends have also contributed to a decline in the overall expected returns on our credit

guarantee activities.

During 2006, 2005 and 2004, the growth rates of our credit guarantee portfolio were 10.6 percent, 10.5 percent and

4.0 percent, respectively. For 2006, we estimate that our share of the total residential mortgage securitization market

declined slightly due, in part, to lower purchase volumes of non-agency mortgage-related securities into our Retained

portfolio. Also, our share of the GSE securitization market declined to approximately 43 percent in 2006 from approximately

45 percent in 2005 due to competitive pressures.

The credit quality of our guarantee portfolio remains strong, with a weighted average current loan-to-value ratio of

approximately 57 percent as of the end of 2006 as compared with 56 percent at the end of 2005, and the portfolio remains

geographically well diversiÑed. In addition, our guarantee portfolio has beneÑted from several years of strong home price

appreciation. However, as discussed in ""BUSINESS,'' the mortgages added to our portfolio in recent years do not have the

beneÑt of signiÑcant home price appreciation and, in some markets, recent values of the properties underlying the mortgages

have declined. As recently acquired credit guarantee business matures and enters its peak default years, we anticipate that

default rates and loss severities will trend higher.

As the residential mortgage market continues to grow, competition among loan originators and other market factors,

such as relatively low interest rates and generally high home prices, have led to a higher proportion of variable-rate

mortgage products and the proliferation of new mortgage products that oÅer borrowers a variety of payment options. We

increased our purchases of these variable-rate and non-traditional mortgage products as they became more prevalent in the

market. However, at December 31, 2006, long-term, Ñxed-rate mortgages comprised more than 80 percent of our credit

guarantee portfolio. During 2006, interest-only mortgages comprised approximately 16 percent of our purchases and, at

December 31, 2006, comprised approximately 5 percent of the total credit guarantee portfolio. Mortgages with optional

payment terms, referred to as ""option ARMs,'' comprised approximately 2 percent of purchases and approximately 1 percent

of our total credit guarantee portfolio. We generally seek higher compensation for the additional credit risk inherent in these

products; however, our ability to do so has been limited due to competition for this business.

Summary of 2006 Financial Results

GAAP Results

Net income was $2.2 billion in 2006, up 4 percent compared to $2.1 billion in 2005. In 2006, diluted earnings per

common share increased by $0.09 reÖecting the increase in net income and the reduction in the diluted weighted average

number of common shares outstanding, arising from our repurchase of approximately 32.7 million common shares during

the year, partially oÅset by an increase in preferred dividends associated with our issuance of $1.5 billion in new preferred

stock. Pre-tax income declined by $0.5 billion to $2.1 billion in 2006 from $2.6 billion in 2005.

Net interest income declined to $4.2 billion in 2006 from $5.4 billion in 2005. While our Retained portfolio declined

slightly year-over-year, the average balance of our interest-earning assets increased, as did the related average yields.

Notwithstanding this improvement, net interest income declined as we replaced, at higher contractual interest rates,

approximately $129 billion in long-term debt, which either matured or was repurchased during 2006.

Derivative gains (losses), a component of non-interest income, includes another component of our investment returns;

interest received or paid on interest rate swaps. In 2006, we recognized $92 million of interest income, as compared to

$337 million of interest expense in 2005, an improvement of $429 million. This change primarily resulted from the impact of

rising short-term interest rates, and partially oÅset the reduction in net interest income discussed above.

Management and guarantee income increased to $1.7 billion in 2006 from $1.5 billion in 2005; however, our contractual

guarantee fee rate declined modestly as the average balance of outstanding PCs increased by approximately 15 percent

during 2006.

Total non-interest expenses were unchanged year over year at $3.0 billion. Administrative expenses increased slightly to

$1.6 billion in 2006 from $1.5 billion in 2005, primarily due to higher professional services costs related to improving

technology and our internal control over Ñnancial reporting. Our administrative expenses declined as a percent of the average

total mortgage portfolio to 9.3 basis points from 9.7 basis points in 2005.

In 2006 and 2005, our provision for credit losses was $215 million and $251 million, respectively. The provision for

credit losses in 2005 included $128 million related to properties aÅected by Hurricane Katrina, of which we reversed

$82 million in 2006 because the related payment and delinquency experience on aÅected properties was better than expected.

Absent the adjustments related to Hurricane Katrina in both years, from 2005 to 2006 our provision for credit losses

increased by $174 million due to credit deterioration in our single-family credit guarantee portfolio as more loans

transitioned through delinquency to foreclosure and the expected severity of losses on a per-property basis increased, driven

24 Freddie Mac
in part by slower home price appreciation in certain areas. Consistent with this trend, our REO expenses increased to

$60 million in 2006 from $40 million in 2005.

Net charge-oÅs for 2006 increased to $147 million, representing approximately 1.0 basis point of our average credit

guarantee portfolio, compared with $109 million for 2005, representing approximately 0.8 basis points. The increase in net

charge-oÅs primarily relates to a regional economic downturn aÅecting properties in the North Central region of the U.S.

We reported an income tax beneÑt for 2006 of $108 million as compared with income tax expense of $367 million in

2005. In 2006, we reduced our tax reserves by $174 million as a result of a favorable U.S. Tax Court decision and a separate

Internal Revenue Service settlement. Our negative eÅective tax rate in 2006, and the decrease in our eÅective tax rate over

the past three years, also resulted from declines in pre-tax income, year-over-year increases in tax credits related to our

investments in low-income housing tax credit partnerships and interest earned on tax-exempt housing related securities.

Capital Management

Our primary objective in managing capital is preserving our safety and soundness. We also seek to have suÇcient capital

to support our business and mission. As appropriate, we will consider opportunities to return excess capital to stockholders

and to optimize our capital structure. At December 31, 2006, our estimated regulatory core capital was $36.2 billion, with

an estimated regulatory minimum capital surplus of $10.3 billion, and an estimated $2.6 billion in excess of the 30 percent

mandatory target capital surplus.

During 2006, we repurchased $2.0 billion of outstanding shares of common stock and issued $1.5 billion of noncumulative, perpetual preferred stock in connection with a plan to replace $2.0 billion of common stock with an equal

amount of preferred stock. During the Ñrst quarter of 2007, we issued $1.1 billion of non-cumulative, perpetual preferred

stock, including $500 million to complete the planned issuance described above and $600 million to replace higher-cost

preferred stock that we redeemed in 2007. Also, during the Ñrst quarter of 2007 we received approval from OFHEO and our

board of directors to repurchase up to an additional $1 billion in common stock in conjunction with the issuance of up to

$1 billion in preferred stock.

Our board of directors approved a dividend per common share of $0.50 for the fourth quarter of 2006, an increase of

6 percent over the $0.47 per share common dividend paid for the Ñrst three quarters of 2006. On March 2, 2007, our board

of directors declared a dividend per common share of $0.50 for the Ñrst quarter of 2007.

Fair Value Results

We believe fair value measures provide an important view of our business economics and risks because fair value takes a

consistent approach to the representation of substantially all Ñnancial assets and liabilities, rather than an approach that

combines historical cost and fair value measurements, as is the case with our GAAP-based consolidated Ñnancial

statements. We use estimates of fair value on a routine basis to make decisions about our business activities. Our

consolidated fair value measurements are an important component of our risk management processes, as we use daily

estimates of the changes in fair value to calculate our Portfolio Market Value Sensitivity, or PMVS, and duration gap

measures. For information about how we estimate the fair value of Ñnancial instruments, see ""NOTE 16: FAIR VALUE

DISCLOSURES'' to our consolidated Ñnancial statements. In addition, we use fair value derived performance measures to

establish corporate objectives and as a factor in determining management compensation.

In 2006, the fair value of net assets attributable to common stockholders, before capital transactions, increased by

$2.5 billion, resulting in a return on the average fair value of net assets attributable to common stockholders of approximately

9.5 percent, compared to a $1.0 billion increase, or 3.7 percent return, in 2005. In addition, the payment of common

dividends and the repurchase of common shares reduced total fair value by $3.3 billion. The fair value of net assets

attributable to common stockholders as of December 31, 2006 was $26.0 billion, compared to $26.8 billion as of

December 31, 2005.

Our attribution of changes in the fair value of net assets relies on models, assumptions, and other measurement

techniques that will evolve over time. The following attribution of changes in fair value is our current estimate of the items

presented (on a pre-tax basis) and excludes the eÅect of returns on capital and administrative expenses.

Our investment activities contributed to the increase in fair value by an estimated $1.3 billion in 2006. This estimate

includes reductions in fair value of approximately $0.9 billion attributable to the net widening of mortgage-to-debt optionadjusted spreads, or OAS. In 2006, asset-liability management returns and other market conditions did not meaningfully

add to fair value results on the Retained portfolio, which remained generally consistent with 2005 levels.

Our investment activities increased fair value by an estimated $0.5 billion in 2005. This estimate includes reductions in

fair value of approximately $2.7 billion attributable to the net widening of OAS. In 2005, asset-liability management returns

and other market conditions added signiÑcantly to core spread results.

25 Freddie Mac
Our credit guarantee activities increased fair value by an estimated $1.9 billion in 2006, including a $0.3 billion increase

attributable to reduced estimates of the impact of Hurricane Katrina. During 2005, our credit guarantee activities increased

fair value by an estimated $1.1 billion, which included a reduction in fair value of approximately $1.2 billion related to the

change in valuation methodology on our Guarantee asset and Guarantee obligation and a $0.4 billion decrease attributable to

2005 estimates of the impact of Hurricane Katrina.

During 2006, we recognized a more signiÑcant mark-to-market decline in our existing credit guarantee portfolio due to

the eÅect of credit deterioration and increased market risk premiums on our Guarantee obligation. In addition, we estimate

that the fair value of new business entered into during 2006 was lower than the fair value of new business entered into

during 2005.

We revised the method we previously used to report the impact that changes in OAS have on fair value results. This

methodology change had no impact on the actual change in the fair value of net assets, only our attribution of that change.

This change was made in order to more closely align the process we use to report the impact of changes in OAS with the

interest-rate risk management framework of our investment activities. See ""CONSOLIDATED FAIR VALUE BALANCE SHEETS ANALYSIS Ì Discussion of Fair Value Results Ì How we estimate the impact of changes in mortgageto-debt OAS on fair value results,'' for additional information about this change.

Business Outlook

Portfolio Growth and Credit

We expect that the amount of U.S. residential mortgage debt outstanding will continue to rise in 2007, at a rate more in

line with an expected long-term growth projection of 7.0 to 9.5 percent. While our Total mortgage portfolio should beneÑt

from continued growth in mortgage debt outstanding, we expect that our GSE and total securitization market shares will be

under pressure in 2007 as our primary competitors bid for mortgages and there is continued consolidation in the mortgage

lending business. We will manage the Retained portfolio in accordance with the voluntary temporary growth limit until we

resume producing and publicly releasing quarterly Ñnancial statements prepared in conformity with GAAP.

We expect near-term credit losses to rise while still remaining below longer-term historical levels, as home price

appreciation slows.

Fair Value Returns

We expect to achieve long-term returns, before capital transactions, on the average fair value of net assets attributable

to common stockholders in the low-to mid-teens, although period-to-period returns may Öuctuate substantially due to

market conditions. These long-term expectations are based on assumptions regarding rates of growth in our business, spreads

that we expect to earn and a return over a period of years to capital levels consistent with current statutory requirements,

among other factors. Our assumptions do not contemplate that the challenging market conditions and competitive pressures

we are currently experiencing will continue through the next several years. We have also made no assumptions regarding any

potential impact of pending legislation or regulatory actions, discussed more extensively in ""Legislative and Regulatory

Matters.'' Our actual results may diÅer materially from these expectations.

Capital Management

Management expects to initiate a common stock repurchase in conjunction with the issuance of preferred stock under

the new $1 billion authorization from time to time depending on market conditions.

Financial Reporting

An important milestone for our return to quarterly reporting will be the progress achieved in the remediation of internal

controls and implementation of new accounting systems. Throughout 2007, we will evaluate our remediation progress each

quarter to determine whether we have reduced the risk of a material misstatement. It is our objective to resume quarterly

Ñnancial reporting in the second half of 2007. See ""RISK MANAGEMENT Ì Operational Risks Ì Internal Control Over

Financial Reporting'' and ""RISK FACTORS Ì Business and Operational Risks.''

Risk Management

Our portfolio investment and credit guarantee activities expose us to three broad categories of risk: (a) operational risks,

(b) interest-rate and other market risks, and (c) credit risks. Risk management is a critical aspect of our business.

EÅectively managing risk enables us to accomplish our mission and generate revenue and long-term value.

Operational Risks Ì Internal Control Over Financial Reporting

In 2006, we continued working on initiatives to improve our Ñnancial reporting infrastructure and remediate material

weaknesses and other deÑciencies in our internal controls. Although we have made substantial progress on our plan, we

26 Freddie Mac
continue to have a signiÑcant number of material weaknesses and other internal control deÑciencies that have not been fully

remediated and considerable challenges remain.

Interest-Rate Risk

Our interest-rate risk remains low. For 2006, PMVS-L and duration gap averaged 1 percent and zero months,

respectively.

Credit Risk

See ""RISK MANAGEMENT Ì Credit Risks'' for information about our credit risks and our strategies for managing

them.

Legislative and Regulatory Matters

We face a highly uncertain regulatory environment in light of GSE regulatory oversight legislation currently under

consideration in Congress. We generate a signiÑcant portion of our net income through our Retained portfolio. Currently, we

have in place a voluntary temporary growth limit on our Retained portfolio. GSE regulatory oversight legislation under

consideration in the House of Representatives would give our regulator substantial authority to regulate the amount and

composition of our portfolio investments and to require substantial reductions in those investments. This legislation also

includes provisions that would increase the regulator's authority to require us to maintain higher minimum and risk-based

capital levels and, for 2007 through 2011, require us to make an annual contribution to an aÅordable housing fund in an

amount equal to 1.2 basis points of our average total mortgage portfolio. See ""REGULATION AND SUPERVISION Ì

GSE Regulatory Oversight Legislation'' for more information regarding this bill. We cannot predict the prospects for the

enactment, timing or content of any Ñnal legislation. The provisions of this legislation, individually and in certain

combinations, could have a material adverse eÅect on our ability to fulÑll our mission, future earnings, stock price and

stockholder returns, the rate of growth in our fair value, and our ability to recruit qualiÑed oÇcers and directors.

27 Freddie Mac
CONSOLIDATED RESULTS OF OPERATIONS

The following discussion of our consolidated results of operations should be read in conjunction with our consolidated

Ñnancial statements, including the accompanying notes. Also see ""CRITICAL ACCOUNTING POLICIES AND

ESTIMATES'' for more information concerning the most signiÑcant accounting policies and estimates applied in

determining our reported Ñnancial position and results of operations.

Table 7 Ì Summary Consolidated Statements of Income

Year Ended December 31,

2006 2005 2004

(in millions)

Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,235 $5,370 $9,137

Non-interest income (loss):

Management and guarantee income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,672 1,450 1,382

Gains (losses) on Guarantee asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (800) (1,064) (1,135)

Income on Guarantee obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 867 920 732

Derivative gains (losses)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,164) (1,357) (4,475)

Hedge accounting gains (losses) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 22 743

Gains (losses) on investment activity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (474) (127) (348)

Gains (losses) on debt retirement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 466 206 (327)

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 346 149 389

Non-interest income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 915 199 (3,039)

Non-interest expense:

Administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,641) (1,535) (1,550)

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,406) (1,478) (821)

Non-interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3,047) (3,013) (2,371)

Income before income tax expense and cumulative eÅect of change in accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,103 2,556 3,727

Income tax beneÑt (expense) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 108 (367) (790)

Net income before cumulative eÅect of change in accounting principle, net of taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,211 2,189 2,937

Cumulative eÅect of change in accounting principle, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (59) Ì

Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,211 $2,130 $2,937

Net Interest Income

Table 8 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 weighted average balance information was not available, a simple monthly average

balance was calculated.

28 Freddie Mac
Table 8 Ì Average Balance, Net Interest Income and Rate/Volume Analysis

Year Ended December 31,

2006 2005 2004

Interest Interest Interest

Average Income Average Average Income Average Average Income Average

Balance(1)(2) (Expense)(1) Rate Balance(1)(2) (Expense)(1) Rate Balance(1)(2) (Expense)(1) Rate

(dollars in millions)

Interest-earning assets:

Mortgage loans(3)(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 63,870 $ 4,152 6.50% $ 61,248 $ 4,037 6.59% $ 61,576 $ 4,007 6.51%

Mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 650,059 34,673 5.33 611,452 29,684 4.85 590,213 28,460 4.82

Total Retained portfolioÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 713,929 38,825 5.44 672,700 33,721 5.01 651,789 32,467 4.98

Investments(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 57,705 2,789 4.83 53,252 1,773 3.33 81,833 2,716 3.32

Securities purchased under agreements to resell and

Federal funds sold ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28,577 1,473 5.15 25,344 833 3.28 29,996 420 1.40

Total interest-earning assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $800,211 $ 43,087 5.38 $751,296 $ 36,327 4.83 $763,618 $ 35,603 4.66

Interest-bearing liabilities:

Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $179,882 $ (8,665) (4.82) $192,497 $ (6,102) (3.17) $205,072 $ (2,908) (1.42)

Long-term debt(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 587,978 (28,218) (4.80) 524,270 (23,246) (4.43) 530,816 (22,950) (4.32)

Total debt securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 767,860 (36,883) (4.80) 716,767 (29,348) (4.09) 735,888 (25,858) (3.51)

Due to Participation CertiÑcate investors ÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,475 (387) (5.18) 10,399 (551) (5.30) 12,401 (708) (5.71)

Total interest-bearing liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 775,335 (37,270) (4.81) 727,166 (29,899) (4.11) 748,289 (26,566) (3.55)

Income (expense) related to derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,582) (0.20) (1,058) (0.15) 100 0.01

Impact of net non-interest-bearing funding ÏÏÏÏÏÏÏÏÏÏÏÏ 24,876 Ì 0.16 24,130 Ì 0.14 15,329 Ì 0.07

Total funding of interest-earning assets ÏÏÏÏÏÏÏÏÏÏÏ $800,211 $(38,852) (4.85) $751,296 $(30,957) (4.12) $763,618 $(26,466) (3.47)

Net interest income/yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,235 0.53 $ 5,370 0.71 $ 9,137 1.20

Fully taxable-equivalent adjustments(7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 392 0.05 339 0.05 267 0.03

Net interest income/yield (fully taxable-equivalent

basis) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,627 0.58% $ 5,709 0.76% $ 9,404 1.23%

2006 vs. 2005 Variance 2005 vs. 2004 Variance

Due to Due to

Total Total

Rate(8) Volume(8) Change Rate(8) Volume(8) Change

(in millions)

Interest-earning assets:

Mortgage loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (56) $ 171 $ 115 $ 51 $ (21) $ 30

Mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,042 1,947 4,989 194 1,030 1,224

Total Retained portfolioÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,986 2,118 5,104 245 1,009 1,254

Investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 857 159 1,016 9 (952) (943)

Securities purchased under agreements to resell and Federal funds soldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 523 117 640 487 (74) 413

Total interest-earning assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,366 $ 2,394 $ 6,760 $ 741 $ (17) $ 724

Interest-bearing liabilities:

Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(2,986) $ 423 $(2,563) $(3,383) $ 189 $(3,194)

Long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2,008) (2,964) (4,972) (581) 285 (296)

Total debt securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4,994) (2,541) (7,535) (3,964) 474 (3,490)

Due to Participation CertiÑcate investors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 152 164 48 109 157

Total interest-bearing liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4,982) (2,389) (7,371) (3,916) 583 (3,333)

Income (expense) related to derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (524) Ì (524) (1,158) Ì (1,158)

Total funding of interest-earning assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(5,506) $(2,389) $(7,895) $(5,074) $ 583 $(4,491)

Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(1,140) $ 5 $(1,135) $(4,333) $ 566 $(3,767)

Fully taxable-equivalent adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30 23 53 76 (4) 72

Net interest income (fully taxable-equivalent basis) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(1,110) $ 28 $(1,082) $(4,257) $ 562 $(3,695)

(1) Excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(2) For securities classiÑed as available-for-sale, we calculated average balances based on their unpaid principal balance plus their associated deferred fees

and costs (e.g., premiums and discounts), but excluded the eÅects of mark-to-fair-value changes. For securities in the Retained portfolio classiÑed as

trading, we calculated average balances excluding their mark-to-fair-value adjustments. For securities in the Cash and investments portfolio classiÑed

as trading during 2004, we calculated average balances based on their fair values.

(3) Non-accrual loans are included in average balances.

(4) Loan fees included in mortgage loan interest income were $280 million, $371 million and $223 million for the years ended December 31, 2006, 2005

and 2004, respectively.

(5) For 2006 and 2005, Investments consisted of Cash and cash equivalents and non-mortgage-related securities. For 2004, Investments also included

Mortgage-related securities held in the Cash and investments portfolio.

(6) Includes current portion of long-term debt. See ""NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS'' to our consolidated

Ñnancial statements for a reconciliation of Senior debt, due within one year on our consolidated balance sheets.

(7) The determination of Net interest income/yield (fully taxable-equivalent basis), which reÖects fully taxable-equivalent adjustments to interest income,

involves the conversion of tax-exempt sources of interest income to the equivalent amounts of interest income that would be necessary to derive the

same net return if the investments had been subject to income taxes using our statutory tax rate of 35 percent.

(8) Rate and volume changes are calculated on the individual Ñnancial statement line item level. Combined rate/volume changes were allocated to the

individual rate and volume change based on their relative size.

29 Freddie Mac
Table 9 summarizes components of our Net interest income.

Table 9 Ì Net Interest Income

Year Ended December 31,

2006 2005(1) 2004(1)

(in millions)

Contractual amounts of Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 8,059 $ 8,897 $11,735

Amortization expense, net:(2)

Asset-related amortization expense, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (639) (1,023) (1,397)

Debt-related amortization expense, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,603) (1,446) (1,301)

Total amortization expense, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2,242) (2,469) (2,698)

Income (expense) related to derivatives:

Amortization of deferred balances in Accumulated other comprehensive income(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,620) (1,966) (1,814)

Accrual of periodic settlements of derivatives:(4)

Pay-Ñxed swapsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì (427)

Receive-Ñxed swaps(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 502 1,185 1,968

Foreign-currency swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (464) (277) 376

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì (3)

Total accrual of periodic settlements of derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 38 908 1,914

Total income (expense) related to derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,582) (1,058) 100

Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,235 5,370 9,137

Fully taxable-equivalent adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 392 339 267

Net interest income (fully taxable-equivalent basis) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,627 $ 5,709 $ 9,404

(1) Certain amounts for 2005 and 2004 have been revised to conform with the 2006 presentation.

(2) Represents amortization related to premiums, discounts, deferred fees and other adjustments to the carrying value of our Ñnancial instruments and the

reclassiÑcation of previously deferred balances from Accumulated other comprehensive income, or AOCI, for certain derivatives in cash Öow hedge

relationships related to individual debt issuances and mortgage purchase transactions.

(3) Represents changes in fair value of derivatives in cash Öow hedge relationships that were previously deferred in AOCI and have been reclassiÑed to

earnings as the associated hedged forecasted issuance of debt and mortgage purchase transactions aÅect earnings.

(4) ReÖects the accrual of periodic cash settlements of all derivatives in qualifying hedge accounting relationships.

(5) The accrual of periodic settlements of Receive-Ñxed swaps includes imputed interest on zero-coupon swaps.

2006 versus 2005

Net interest income and net interest yield on a fully taxable-equivalent basis decreased in 2006 as spreads on Ñxed-rate

investments continued to narrow, driven by increases in long- and medium-term interest rates. The increase in our long-term

debt interest costs reÖects the turnover of medium-term debt that we issued during the past few years to fund our

investments in Ñxed-rate mortgage-related investments when the yield curve was steep (i.e. short- and medium-term interest

rates were low as compared to long-term interest rates). As the yield curve Öattened during 2005 and 2006, we experienced

increased funding costs associated with replacing maturing lower-cost debt used to fund existing Ñxed-rate mortgage

investments. During 2006, net interest margins declined as a result of changes in interest rates on variable-rate assets

acquired in 2004 and 2005 impacted our results. Also, we adjusted our funding mix in 2006 by increasing the proportion of

callable debt outstanding, which we use to manage prepayment risk associated with our mortgage-related investments, and

which generally has a higher interest cost than non-callable debt. In 2006, we considered the issuance of callable debt to be

more cost eÅective than alternative interest-rate risk management strategies, primarily the issuance of non-callable bullet

debt combined with the use of derivatives. We also reduced the balance of our short-term debt securities to approximately

23 percent of total outstanding debt as of December 31, 2006, from approximately 26 percent at the beginning of the year, to

take advantage of the attractive funding spreads relative to LIBOR on our long-term debt. The impact of rising short-term

rates on our short-term debt was largely oÅset by the impact of rising rates on our variable-rate assets in our Retained

portfolio and our Cash and investments portfolio.

Net interest income for 2006 also reÖected lower net interest income on derivatives in qualifying hedge accounting

relationships. Net interest income associated with the accrual of periodic settlements declined as the benchmark LIBOR and

the Euro Interbank OÅered Rate, or Euribor, interest rates increased during the year, adversely aÅecting net settlements on

our receive-Ñxed swaps and foreign-currency swaps (primarily Euro-denominated). Net interest income was also aÅected

by our decisions in March and December 2006 to discontinue hedge accounting treatment for a signiÑcant amount of our

receive-Ñxed swaps and foreign-currency swaps, as discussed in ""NOTE 12: DERIVATIVES'' to our consolidated Ñnancial

statements. The net interest expense related to these swaps is no longer a component of Net interest income, after hedge

accounting was discontinued, but instead is recognized as a component of Derivative gains (losses). By the end of 2006,

nearly all of our derivatives were not in hedge accounting relationships.

EÅective January 1, 2006, we enhanced our process for forecasting interest rates and estimating prepayments used to

amortize discounts, premiums and deferred fees for assets held in the Retained portfolio. This change in estimate resulted in

a $93 million pre-tax reduction in Net interest income on mortgage-related securities.

30 Freddie Mac
Enhancements to certain models used to estimate prepayment speeds on mortgage-related securities and our approach

for estimating uncollectible interest on single-family mortgages greater than 90 days delinquent resulted in a net decrease in

Retained portfolio interest income of $166 million (pre-tax) during the Ñrst quarter of 2005.

2005 versus 2004

Net interest income and net interest yield on a fully taxable-equivalent basis decreased in 2005 due to narrowing spreads

on Ñxed-rate assets as the yield curve Öattened and the composition of our Retained portfolio changed toward a greater

percentage of lower-yielding, variable-rate assets.

The decline in Net interest income for 2005 also reÖected higher interest expense on derivatives in qualifying hedge

accounting relationships. Net interest income associated with the accrual of periodic settlements related to our receive-Ñxed

swaps and foreign-currency swaps declined as the benchmark LIBOR interest rate increased. Net interest income was also

aÅected by our decision in 2004 to discontinue hedge accounting treatment for a signiÑcant amount of our pay-Ñxed swaps

and receive-Ñxed swaps, as discussed in ""NOTE 12: DERIVATIVES'' to our consolidated Ñnancial statements. The net

interest expense related to these swaps was no longer a component of Net interest income after hedge accounting was

discontinued, but was recognized as a component of Non-interest income (loss) in Derivative gains (losses).

Another factor in the decline in Net interest income for 2005 was our decision to cease the PC market-making and

support activities conducted through our Securities Sales and Trading Group, or SS&TG, business unit and our external

Money Manager program during the fourth quarter of 2004. By the end of 2004, we divested the trading portfolios related

to our SS&TG business unit and our external Money Manager program in the Investments portfolio. This divestiture

reduced the interest expense for funding the Investments portfolio as well as the hedging costs associated with it, which were

reÖected in Gains (losses) on investment activity. Our investments in mortgage-related securities held by our SS&TG

business unit and external Money Manager program were generally hedged by entering into forward sales of mortgagerelated securities. For 2004, the valuation diÅerence between the trading securities and the related forward sale

commitments resulted in a loss of $1,101 million in Gains (losses) on investment activity that was oÅset by Net interest

income on the held position.

Non-Interest Income (Loss)

Management and Guarantee Income

Table 10 provides summary information about Management and guarantee income. Management and guarantee income

consists of contractual amounts due to us related to our management and guarantee fee as well as amortization of certain

pre-2003 deferred fees, including credit and buy-down fees. Other guarantee-related revenue is deferred and recognized

over time as a component of Income on Guarantee obligation.

Table 10 Ì Management and Guarantee Income(1)

Year Ended December 31,

2006 2005 2004

Amount Rate Amount Rate Amount Rate

(dollars in millions, rate in basis points)

Contractual management and guarantee feesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,613 15.4 $1,431 15.7 $1,303 16.5

Amortization of credit and buy-down fees included in Other liabilities(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 59 0.6 19 0.2 79 1.0

Total management and guarantee income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,672 16.0 $1,450 15.9 $1,382 17.5

Unamortized balance of credit and buy-down fees included in Other liabilities, at

period endÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 136 $ 186 $ 323

(1) Excludes amounts related to PCs we held in our Retained portfolio, which are reported in Net interest income.

(2) A change in estimate resulted in a net pre-tax increase (decrease) in the Amortization of credit and buy down fees of $18 million and $(17) million for

2006 and 2005, respectively. See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' to our consolidated Ñnancial

statements for further information.

Management and guarantee income increased in both 2006 and 2005, primarily reÖecting increases in the average

outstanding PC balances of 15 percent in each year. The average contractual management and guarantee fee rate decreased

in both years from the prior years, reÖecting lower guarantee fee rates on new business and the liquidation of existing

business with relatively higher guarantee fee rates. The continued decline in guarantee fee rates on new business is the result

of competitive pricing pressures. Management and guarantee income includes the amortization of pre-2003 deferred credit

fees and buy-down fees on our outstanding PCs. However, similar fees received after January 1, 2003 are primarily deferred

and recognized over time as a component of Income on Guarantee obligation.

Gains (Losses) on Guarantee Asset

Upon issuance of a guarantee of securitized assets, we may record a Guarantee asset on our consolidated balance sheets

representing the fair value of the guarantee fees we expect to receive over the life of the related PCs and Structured

31 Freddie Mac
Securities. Subsequent changes in the fair value of the Guarantee asset are reported in current period income as Gains

(losses) on Guarantee asset.

The change in fair value of the Guarantee asset reÖects:

‚ reductions related to the contractual guarantee fees due that are considered a return of our recorded investment in the

Guarantee asset; and

‚ changes in the fair value of expected future guarantee fees we expect to receive over the life of the related PC or

Structured Security.

As shown on ""Table 11 Ì Attribution of Change Ì Gains (Losses) on Guarantee Asset,'' contractual guarantee fees

due represent Management and guarantee income realized in the current period related to PCs and Structured Securities

held by third parties with an established Guarantee asset. A portion of contractual guarantee fees due is attributed to

imputed interest income on the Guarantee asset.

The fair value of expected future cash Öows is driven by changes in the expected interest and related discount rates that

aÅect the estimated life of the mortgages underlying the outstanding PCs and Structured Securities and other economic

factors that inÖuence the amount and timing of the future cash Öows. Our valuation methodology for the Guarantee asset,

Ñrst implemented for 2005, uses market-based information to determine the fair value of future cash Öows associated with

the Guarantee asset. Changes in the fair value of the Guarantee asset, which are recorded in current period earnings through

Gains (losses) on Guarantee asset, reÖect the volatility associated with the market-based inputs used in our valuation.

Changes in the estimated lives of the underlying mortgages also aÅect the fair value of the Guarantee asset. See

""CONSOLIDATED BALANCE SHEETS ANALYSIS Ì Table 25 Ì Changes in Guarantee Asset'' for additional

information about the Guarantee asset.

Table 11 Ì Attribution of Change Ì Gains (Losses) on Guarantee Asset

Year Ended December 31,

2006 2005 2004

(in millions)

Contractual guarantee fees dueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(1,475) $(1,270) $(1,086)

Portion of contractual guarantee fees due related to imputed interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 466 371 257

Return of investment on Guarantee asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,009) (899) (829)

Change in fair value of future cash Öows ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 169 (138) (306)

Change in estimate(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 40 (27) Ì

Gains (losses) on Guarantee asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (800) $(1,064) $(1,135)

(1) Represents a change in estimate resulting from enhancing our approach for determining the fair value of the Guarantee asset. See ""NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' to our consolidated Ñnancial statements for further information.

The reduction in our Guarantee asset attributable to the Return of investment on Guarantee asset increased during

2006, 2005 and 2004. The Return of investment on Guarantee asset increased as the outstanding PCs and Structured

Securities have grown each year.

Losses on the Guarantee asset decreased in 2006 as compared with 2005, due to increases in the fair value of the

Guarantee asset consistent with the increase in mortgage interest rates during the year, which generally extends the life of

the Guarantee asset. Losses on the Guarantee asset decreased in 2005 as compared with 2004, reÖecting the increase in

mortgage interest rates during the year oÅset by the eÅect of the change in our valuation method.

Income on Guarantee Obligation

Upon issuance of a guarantee of securitized assets, we record a Guarantee obligation on our consolidated balance sheets

representing the fair value of our obligation to perform under the terms of the guarantee. The Guarantee obligation consists

of the following:

‚ performance and other related costs, which consist of: estimated default costs, including the unrecoverable principal

and interest that will be incurred over the expected life of the underlying mortgages; estimated foreclosure-related

costs; and estimated administrative and other costs related to our guarantee; and

‚ deferred guarantee income on newly-issued Guarantor Swap transactions, which represents the excess of compensation received on issued guarantees and the fair value of the related Guarantee asset, as compared to the fair value of

the corresponding Guarantee obligation. Compensation received includes cash, credit and buy-down fees received at

the time of securitization. Credit fees vary with the relative credit quality of the underlying mortgages and buydown

fees vary based on customer compensation payment preferences.

The Guarantee obligation is amortized into income in relation to the decline in the unpaid principal balance on the

mortgage loans underlying the PCs and Structured Securities.

32 Freddie Mac
Table 12 provides information about the components of Income on Guarantee obligation.

Table 12 Ì Income on Guarantee Obligation

Year Ended December 31,

2006 2005 2004

(in millions)

Amortization income related to:

Performance and other related costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 584 $ 616 $ 537

Deferred guarantee income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 283 304 195

Income on Guarantee obligation(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 867 $ 920 $ 732

Components of the Guarantee obligation, at period end:

Unamortized balance of performance and other related costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,869 $3,743 $2,738

Unamortized balance of deferred guarantee incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,248 1,798 1,327

Ending Guarantee obligation(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $7,117 $5,541 $4,065

Liquidation rate for outstanding PCs and Structured Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17% 24% 29%

(1) Includes $170 million, $197 million and $128 million of amortization related to deferred credit and buydown fees received from counterparties in

Guarantor Swap and similar transactions, or ""upfront fees,'' at December 31, 2006, 2005 and 2004, respectively.

(2) Includes $1,391 million, $1,167 million and $940 million of unamortized upfront fees at December 31, 2006, 2005 and 2004, respectively.

In 2006, Income on Guarantee obligation decreased as increasing mortgage interest rates resulted in lower liquidation

rates on outstanding PCs and Structured Securities and lower rates of amortization. In 2005, Income on Guarantee

obligation increased as compared with 2004 as the additions to the Guarantee obligation from new business more than oÅset

the impact of lower PC and Structured Security liquidation rates caused by increases in mortgage interest rates. During

2006 and 2005, the growth in unamortized balances reÖects the increase in our portfolio of outstanding PCs and Structured

Securities and increased expected credit costs associated with newly-issued guarantees.

Derivative Overview

Table 13 presents the notional amount for each of our hedge accounting classiÑcations and the corresponding impact of

those positions on our consolidated Ñnancial statements.

Table 13 Ì Summary of the EÅect of Derivatives on Selected Consolidated Financial Statement Captions

Consolidated Balance Sheets

December 31, 2006 December 31, 2005

Notional Fair Value AOCI Notional Fair Value AOCI

Description Amount (Pre-Tax)(1) (Net of Taxes)(2) Amount (Pre-Tax)(1) (Net of Taxes)(2)

(in millions)

Fair value hedges-open ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì $ Ì $ Ì $115,146 $3,402 $ Ì

Cash Öow hedges-openÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 70 Ì Ì 668 (26) 4

No hedge designationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 757,127 7,729 Ì 567,558 3,131 Ì

Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 757,197 7,729 Ì 683,372 6,507 4

Balance related to closed cash Öow hedges ÏÏÏÏ Ì Ì (5,033) Ì Ì (6,291)

TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $757,197 $7,729 $(5,033) $683,372 $6,507 $(6,287)

Consolidated Statements of Income

Year Ended December 31,

2006 2005 2004

Hedge Hedge Hedge

Derivative Accounting Derivative Accounting Derivative Accounting

Gains Gains Gains Gains Gains Gains

Description (Losses) (Losses)(3) (Losses) (Losses)(3) (Losses) (Losses)(3)

(in millions)

Fair value hedges-open(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì $ 2 $ Ì $22 $ Ì $742

Cash Öow hedges-open(4)(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì (25) Ì 2 1

No hedge designationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,164) Ì (1,332) Ì (4,477) Ì

TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(1,164) $ 2 $(1,357) $22 $(4,475) $743

(1) The fair values of derivatives (netted by counterparty) are presented as Derivative assets, at fair value, and Derivative liabilities, at fair value, on our

consolidated balance sheets.

(2) Derivatives that meet speciÑc criteria may be accounted for as cash Öow hedges. Changes in the fair value of the eÅective portion of these open

derivatives contracts are recorded in AOCI, net of taxes. Net deferred gains and losses on closed cash Öow hedges (i.e., where the derivative is either

terminated or redesignated) are also included in AOCI, net of taxes, until the related forecasted transaction aÅects earnings or is determined to be

probable of not occurring.

(3) Hedge accounting gains (losses) arise when the fair value change of a derivative does not exactly oÅset the fair value change of the hedged item

attributable to the hedged risk. For further information, see ""Hedge Accounting Gains (Losses)'' below and ""NOTE 12: DERIVATIVES'' to our

consolidated Ñnancial statements.

(4) For all derivatives in qualifying hedge accounting relationships, the accrual of periodic cash settlements is recorded in Net interest income on our

consolidated statements of income and those amounts are not included in the table. 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 income.

(5) Derivative gains (losses) in each period include gains or losses reclassiÑed from AOCI, net of taxes, as a result of the termination of cash Öow hedge

designations because we determined that the related forecasted transaction is probable of not occurring.

33 Freddie Mac
Over the course of 2006, 2005 and 2004, we discontinued nearly all of our cash Öow hedge and fair value hedge

accounting relationships. At December 31, 2006, the only derivatives in hedge accounting relationships were certain

commitments to forward sell mortgage-related securities, which were designated in cash Öow hedge relationships. See

""NOTE 12: DERIVATIVES'' to our consolidated Ñnancial statements for additional information on our discontinuation of

hedge accounting treatment. Derivatives that are not in qualifying hedge accounting relationships generally increase the

volatility of reported Non-interest income (loss) because the fair value gains and losses on the derivatives are recognized in

earnings without the oÅsetting recognition in earnings of the change in value of the economically hedged exposures.

For derivatives designated in cash Öow hedge accounting relationships during 2006 and in prior years, the eÅective

portion of the change in fair value of the derivative asset or derivative liability is presented in the stockholders' equity section

of our consolidated balance sheets in AOCI, net of taxes.

At December 31, 2006 and 2005, the net cumulative change in the fair value of all derivatives designated in cash Öow

hedge relationships for which the forecasted transactions had not yet aÅected earnings (net of amounts previously

reclassiÑed to earnings through each year end) was a loss of approximately $5.0 billion and $6.3 billion, respectively, on an

after-tax basis. These amounts relate almost entirely to net deferred losses on closed cash Öow hedges. The majority of the

closed cash Öow hedges relate to hedging the variability of cash Öows from forecasted issuances of debt. Fluctuations in

prevailing market interest rates have no impact on the deferred portion of AOCI, net of taxes, relating to closed cash Öow

hedges. The deferred amounts related to closed cash Öow hedges will be recognized into earnings as the hedged forecasted

transactions aÅect earnings, unless it becomes probable that the forecasted transactions will not occur. If it is probable that

the forecasted transactions will not occur, then the deferred amount associated with the forecasted transactions will be

reclassiÑed into earnings immediately.

At December 31, 2006, over 70 percent and 90 percent of the $5.0 billion net deferred losses in AOCI, net of taxes,

relating to cash Öow hedges were linked to forecasted transactions occurring in the next 5 and 10 years, respectively. Over

the next 10 years, the forecasted debt issuance needs associated with these hedges range from approximately $21.5 billion

to $104.7 billion in any one quarter, with an average of $66.2 billion per quarter.

Table 14 presents the scheduled amortization of the net deferred losses in AOCI at December 31, 2006, related to

closed cash Öow hedges. The scheduled amortization is based on a number of assumptions. Actual amortization will diÅer

from the scheduled amortization, perhaps materially, as we make decisions on debt funding levels or as changes in market

conditions occur that diÅer from these assumptions. For example, for the scheduled amortization for cash Öow hedges

related to future debt issuances, we assume that we will not repurchase the related debt and that no other factors aÅecting

debt issuance probabilities will change.

Table 14 Ì Scheduled Amortization to Income of Net Deferred Losses in AOCI Related to Closed Cash Flow Hedge

Relationships

December 31, 2006

Amount Amount

Period of Scheduled Amortization to Income (Pre-tax) (After-tax)

(in millions)

2007ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(1,466) $ (953)

2008ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,334) (867)

2009ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,109) (721)

2010ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (914) (594)

2011ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (723) (470)

2012 to 2016ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,562) (1,016)

Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (635) (412)

Total net deferred losses in AOCI related to closed cash Öow hedge relationships ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(7,743) $(5,033)

34 Freddie Mac
Derivative Gains (Losses)

Table 15 provides a summary of the period-end notional amounts and the gains and losses related to derivatives that we

used to manage interest-rate risk, but that were not accounted for in hedge accounting relationships.

Table 15 Ì Derivatives Not in Hedge Accounting Relationships

Year Ended December 31,

2006 2005 2004

Notional or Derivative Notional or Derivative Notional or Derivative

Contractual Gains Contractual Gains Contractual Gains

Amount (Losses) Amount (Losses) Amount (Losses)

(in millions)

Call swaptions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $194,200 $(1,128) $146,615 $ (402) $189,945 $ 386

Put swaptions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29,725 (100) 34,675 202 25,175 (1,423)

Receive-Ñxed swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 222,631 (290) 81,185 (1,535) 25,572 (396)

Pay-Ñxed swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 217,565 649 181,562 612 95,043 (793)

Futures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22,400 (248) 86,252 63 129,110 (213)

Other(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 70,606 (139) 37,269 40 157,618 (320)

Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 757,127 (1,256) 567,558 (1,020) 622,463 (2,759)

Accrual of periodic settlements:

Receive-Ñxed swaps(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (418) 426 104

Pay-Ñxed swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 541 (763) (1,826)

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (31) Ì 6

Total accrual of periodic settlements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 92 (337) (1,716)

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $757,127 $(1,164) $567,558 $(1,357) $622,463 $(4,475)

(1) Consisted of basis swaps, certain option-based contracts, foreign-currency swaps, interest-rate caps, forward purchase and sale commitments, credit

derivatives and swap guarantee derivatives not accounted for in hedge accounting relationships. 2004 and 2005 also included a prepayment

management agreement which was terminated eÅective December 31, 2005.

(2) The accrual of periodic settlements of Receive-Ñxed swaps includes imputed interest on zero-coupon swaps.

Derivative gains (losses) reÖect the change in the fair value of and the accrual of periodic settlements of all derivatives

not in hedge accounting relationships. From 2004 through 2006, we experienced signiÑcant periodic income volatility due to

changes in the fair values of our derivatives and changes in the composition of our portfolio of derivatives not in hedge

accounting relationships.

A receive-Ñxed swap results in our receipt of a Ñxed interest-rate payment from our counterparty in exchange for a

variable-rate payment to our counterparty. Conversely, a pay-Ñxed swap requires us to make a Ñxed interest-rate payment to

our counterparty in exchange for a variable-rate payment from our counterparty. We use receive- and pay-Ñxed 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 assets. Call and put swaptions are options to enter into receive- and pay-Ñxed swaps,

respectively. We use swaptions and other option-based derivatives to adjust the characteristics of our debt in response to

changes in the expected lives of mortgage-related assets in the Retained portfolio. Generally, receive-Ñxed swaps increase in

value and pay-Ñxed swaps decrease in value when interest rates decrease (with the opposite being true when interest rates

increase). The fair values of 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. See ""CONSOLIDATED BALANCE SHEETS ANALYSIS Ì Derivative Assets and Liabilities, at Fair Value'' for information about changes in the notional amounts and the fair value of our derivatives.

During 2006, fair value losses on our swaptions increased as implied volatility declined and both long-term and shortterm swap interest rates increased. During 2006 and 2005, fair value changes of our pay-Ñxed and receive-Ñxed swaps were

primarily driven by increases in long-term swap interest rates. An increase in the notional balance of our receive-Ñxed

swaps not in qualifying hedge accounting relationships as a result of our discontinuation of hedge accounting treatment,

combined with Öuctuations in swap interest rates throughout the year, reduced fair value losses recognized on our receiveÑxed swaps during 2006. See ""NOTE 12: DERIVATIVES'' to our consolidated Ñnancial statements for additional

information on our discontinuation of hedge accounting treatment.

During 2004, losses on our put swaptions resulted from changes in swap interest rates and a decline in implied volatility

of interest rates. Additionally, in 2004, a large portion of our pay-Ñxed swaps that were not in hedge accounting relationships

was scheduled to begin on a future date. The net loss on our pay-Ñxed swaps in 2004 resulted from the overall decline in

forward swap interest rates.

35 Freddie Mac
The accrual of periodic settlements for derivatives not in qualifying hedge accounting relationships increased during

2006 compared to 2005 as short-term interest rates increased and the net income due to the receive variable-rate leg of our

pay-Ñxed swaps was only partly oÅset by the net expense due to the pay variable-rate leg of our receive-Ñxed swaps.

The expense associated with accrual of periodic settlements for derivatives not in qualifying hedge accounting

relationships declined during 2005 compared to 2004 because interest accruals related to our pay-Ñxed and receive-Ñxed

swaps largely oÅset one another during 2005, but only did so for the later part of 2004, following the discontinuation of hedge

accounting for certain receive-Ñxed swaps in November 2004.

Hedge Accounting Gains (Losses)

Hedge accounting gains (losses) represent the extent to which diÅerences in the characteristics or terms of a derivative

in a hedge accounting relationship and the hedged item result in fair value or cash Öow changes that are not exactly oÅset.

Our net hedge ineÅectiveness gains in 2006 and 2005 were not signiÑcant. Net hedge ineÅectiveness gains in 2004 related

primarily to fair value hedge accounting relationships where the derivative was valued using forward rates while the hedged

debt was valued using spot rates. As discussed in ""NOTE 12: DERIVATIVES'' to our consolidated Ñnancial statements, a

substantial portion of our derivatives in fair value hedge accounting relationships was reclassiÑed to no hedge designation

during 2004 and 2006.

Gains (Losses) on Investment Activity

Table 16 summarizes the components of Gains (losses) on investment activity.

Table 16 Ì Gains (Losses) on Investment Activity

Year Ended December 31,

2006 2005 2004

(in millions)

Gains (losses) on trading securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (3) $(289) $(1,071)

Gains (losses) on PC residuals, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (19) (95) 58

Gains (losses) on sale of mortgage loans(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 86 92 209

Gains (losses) on sale of available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22 546 584

Security impairments:

Interest-only security impairments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (147) (71) (66)

Other security impairments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (393) (300) (60)

Total security impairments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (540) (371) (126)

Lower-of-cost-or-market adjustmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (20) (10) (2)

Total gains (losses) on investment activity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(474) $(127) $ (348)

(1) Represents mortgage loans sold in connection with securitization transactions.

Gains (losses) on trading securities

In 2006 and 2005, the increases in long-term interest rates resulted in losses on mortgage-related securities classiÑed as

trading. However, these losses were signiÑcantly lower in 2006 than in 2005 as interest rates increased less in 2006 than in

2005. The losses in both years were partly oÅset by gains on interest-only mortgage-related securities classiÑed as trading,

which generally increased in fair value as interest rates rose.

Prior to 2005, our trading positions related primarily to our SS&TG business unit and external Money Manager

program, both of which ceased operations in the fourth quarter of 2004. The trading activities of our SS&TG business unit

resulted in valuation diÅerences, recorded as trading losses, that totaled $1,101 million in 2004, which were oÅset by net

interest income on the trading securities held. Absent the SS&TG business unit, our trading gains (losses) netted to a

$30 million gain in 2004.

Gains (losses) on PC residuals, at fair value

Gains (losses) on PC residuals relate to certain PCs and Structured Securities we hold in our Retained portfolio and

represent the net fair value of the future cash inÖows and cash outÖows related to our guarantee of these securities. The fair

value of PC residuals is aÅected by several factors including: (a) changes in interest rates, which aÅects the expected lives

of the related PCs and Structured Securities; (b) default experience and loss severity trends related to our guarantees and

(c) third party information with respect to fair value.

The decrease in net losses on PC residuals in 2006 as compared to 2005 resulted from increasing interest rates in 2006

which increased the expected lives of related PCs and Structured Securities. In 2005, net losses on PC residuals included

the eÅect of changes in the approach we used to estimate the fair values of our guarantee-related assets and liabilities,

which resulted in net pre-tax losses of $78 million in the Ñrst quarter of 2005. In 2004, expected default costs declined due to

continued home price appreciation and generated gains, partially oÅset by declines in mortgage interest rates which reduced

the estimated fair value of future contractual guarantee fees related to securities we hold.

36 Freddie Mac
Gains (losses) on sale of available-for-sale securities

In 2006, gains on sales of available-for-sale securities included net gains of $188 million related to the sale of certain

commercial mortgage-backed securities as discussed in ""Total security impairments.'' These gains were partly oÅset by net

losses due primarily to the increase in interest rates during the year. In 2005, gains on sales of available-for-sale securities

declined as the impact of rising interest rates was partly oÅset by an increase in the volume of resecuritization activity.

Total security impairments

Total security impairments in 2006, 2005 and 2004 included:

‚ $147 million, $71 million and $66 million, respectively, related to mortgage-related interest-only securities, primarily

due to periodic declines in mortgage interest rates experienced during those years;

‚ $332 million, $115 million and $60 million, respectively, related to mortgage-related securities where we determined

that a decline in fair value below amortized cost was other-than-temporary due to the deterioration of the credit

quality of the underlying mortgage loans or because the impairment was interest-rate related and we did not have the

intent to hold the security until the loss would be recovered; and

‚ $61 million, $185 million and $Ì million, respectively, related to impairments of certain commercial mortgagebacked securities which involved cash Öows from mixed pools of multifamily and non-residential commercial

mortgages. In December 2005, HUD determined that these mixed-pool investments were not authorized under our

charter and OFHEO subsequently directed us to divest these investments, which we did in 2006.

Gains (Losses) on Debt Retirement

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 assets and liabilities. When we repurchase outstanding debt,

we recognize a gain or loss related to the diÅerence between its fair value and its carrying value, including any remaining

unamortized deferred items (e.g., premiums, discounts, issuance costs and hedging-related basis adjustments). When we

exercise a call option on our callable debt, we recognize a gain or loss related to the diÅerence between its call price and its

carrying value, including any remaining unamortized deferred items.

In 2006 and 2005, we recognized net gains on debt retirements due primarily to the repurchases of outstanding debt

trading at attractive prices to take advantage of favorable funding spreads relative to LIBOR on our new debt issuances. In

2004, we recognized net losses on debt retirements due primarily to the repurchase of outstanding debt to help preserve the

liquidity and price performance of our debt securities as market interest rates declined, particularly in the early part of the

year.

Other Income

Other income increased in 2006 as we recognized net foreign-currency gains on foreign-currency denominated debt as

the U.S. dollar strengthened relative to the Euro during December 2006. We actively manage the foreign-currency risk

associated with our foreign-currency denominated debt using derivatives, which were designated in fair value hedge

accounting relationships until we voluntarily discontinued hedge accounting for those derivatives on December 1, 2006.

After that date, we continued to manage our foreign-currency risk; however, translation gains and losses on our foreigncurrency denominated debt were recorded in Other income and were substantially oÅset by net losses we recorded in

Derivative gains (losses). In 2005, Other income included approximately $80 million of expense, net, related to certain errors

not material to our consolidated Ñnancial statements with respect to income in previously reported periods.

37 Freddie Mac
Non-Interest Expense

Table 17 summarizes the components of Non-interest expense.

Table 17 Ì Non-Interest Expense

Year Ended December 31,

2006 2005 2004

(in millions)

Administrative Expenses:

Salaries and employee beneÑts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 830 $ 805 $ 758

Professional services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 460 386 588

Occupancy expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 61 58 60

Other administrative expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 290 286 144

Total administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,641 1,535 1,550

Provision for credit losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 215 251 143

REO operations (income) expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 60 40 (3)

Losses on certain credit guarantees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 476 234 33

Housing tax credit partnershipsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 407 320 281

Minority interests in earnings of consolidated subsidiariesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 58 96 129

Other expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 190 537 238

Total Non-interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3,047 $3,013 $2,371

Administrative Expenses

Salaries and employee beneÑts increased during each of the past three years primarily because we hired additional

employees in support of our Ñnancial reporting and infrastructure-related activities. In an eÅort to recruit new talent and

retain existing employees, we continued to experience increases in employee incentive compensation costs, such as employee

stock compensation, special incentive awards and annual employee bonuses. The cessation of our SS&TG business unit and

external Money Manager program activities during the fourth quarter of 2004 and related employee terminations partially

oÅset other increases in Salaries and employee beneÑts during 2005.

In 2006, professional services expense increased as we progressed with various initiatives to improve our Ñnancial

accounting systems and continued our remediation activities. Professional services expense declined during 2005 in part

because we were able to replace consultants with employees, increasing our Salaries and employee beneÑts expense as a

consequence.

Other administrative expenses are presented net of certain expenses that we defer related to software development

activities. The net eÅect of these capitalized software costs, including the write-oÅ of previously capitalized amounts, was an

increase (reduction) to Other administrative expenses totaling $15 million, $29 million and $(94) million in 2006, 2005 and

2004, respectively. In addition, Other administrative expenses increased in 2006 and 2005 compared to 2004 as a result of

higher OFHEO regulatory assessments associated with its oversight responsibilities and charitable contributions,

particularly associated with Hurricane Katrina.

Provision for Credit Losses

The provision for credit losses declined in 2006 as compared with 2005, which included an additional provision of $128

million for our estimate of incurred losses for loans aÅected by Hurricane Katrina. In 2006, we reversed $82 million of the

provision for credit losses recorded in 2005 associated with Hurricane Katrina because the related payment and delinquency

experience on aÅected properties was more favorable than expected. Absent the adjustments related to Hurricane Katrina,

the provision for credit losses would have been $297 million, $123 million and $143 million in 2006, 2005 and 2004,

respectively. We recorded additional reserves in 2006 related to our single-family portfolio reÖecting:

‚ increased estimates of incurred losses with respect to delinquent loans that are expected to experience higher default

rates based on their year of origination;

‚ an observed increase in the transition rates of loans through delinquency to foreclosure and corresponding increases in

the number of properties that we acquired as real estate owned; and

‚ increases in the expected severity of losses on a per-property basis, driven in part by the expectation of low or slower

home price appreciation in certain areas.

We expect that near-term credit losses, which include net charge-oÅs and REO expenses, will rise while still remaining

below longer-term historical levels, as home price appreciation continues to slow signiÑcantly.

Losses on Certain Credit Guarantees

Losses on certain credit guarantees includes (a) losses recognized upon the issuance of PCs in Guarantor Swap

transactions and (b) losses on non-performing loans repurchased from PC loan pools.

38 Freddie Mac
We negotiate contracts with our customers in Guarantor Swap transactions based upon our view of the overall

economics of the transaction, considering the volume and types of mortgage loans to be delivered to us and our estimates of

the net present value of related future guarantee fees, credit costs and other associated cash Öows. However, the accounting

for our guarantee-related assets and liabilities is not determined at the contract level, rather it is determined separately for

each PC-related loan pool. We determine the initial fair value of the pool-level guarantee-related assets and liabilities using

methodologies that employ direct market-based information that may diÅer from the estimates we use to negotiate the

guarantee fee we charge customers. While our guarantee fees are subject to competitive pressure and we may enter into

transactions for which our expectations of economic returns are below our normal return thresholds (e.g., to achieve our

aÅordable housing goals or maintain our market share), we expect the vast majority of our Guarantor Swap transactions

will generate positive economic returns over the lives of the related PCs.

For each loan pool created, we compare the initial fair value of the related Guarantee obligation to the initial fair value

of the related Guarantee asset and credit enhancement-related assets. If the Guarantee obligation is greater than the

Guarantee asset, we immediately recognize a loss equal to the diÅerence with respect to that pool. If the Guarantee

obligation is less than the Guarantee asset, no initial gain is recorded; rather, guarantee income equal to the diÅerence is

deferred as an addition to the Guarantee obligation and is recognized as that liability is amortized. Accordingly, a Guarantor

Swap transaction may result in some loan pools for which a loss is recognized immediately in earnings and other loan pools

where guarantee income is deferred. We record these losses as Losses on certain credit guarantees.

In 2006 and 2005, we realized losses of $350 million and $234 million, respectively, on certain Guarantor Swap

transactions entered into during those years. The increase in these losses was driven by a combination of higher expected

future credit costs and competitive pressure on guarantee fees. In addition, our Guarantee asset associated with certain nontraditional mortgage products, including interest-only loans and option ARMs, is subject to a lower market valuation than

traditional mortgage products due to the lower liquidity or corresponding lack of observable market prices for the associated

cash Öows.

Losses on non-performing loans repurchased from the mortgage loan pools underlying PCs and Structured Securities

held by third parties occur when the carrying value of the repurchased loan, net of any allocated loan loss reserve, exceeds

the estimated fair value of the loan. Increases in market interest rates and declining market values for delinquent loans led

to the recognition of losses of $126 million in 2006.

Losses on certain credit guarantees increased during 2005 when compared to 2004, as a result of the initial application

of our approach for determining the fair values of our guarantee-related assets and liabilities at inception. This approach

uses more market-based information and is discussed in ""NOTE 2: TRANSFERS OF SECURITIZED INTERESTS IN

MORTGAGE-RELATED ASSETS'' to our consolidated Ñnancial statements. We also realized losses in 2005 and to a

lesser extent in 2006, as a result of our eÅorts to acquire business at competitive prices in order to meet the aÅordable

housing goals and subgoals established by HUD.

Housing Tax Credit Partnerships

Operating losses of our housing tax credit partnerships, which are recorded as a component of Non-interest expense,

have increased over the last three years as our investments in these partnerships have increased. The increased investment

in housing tax credit partnerships generated related tax beneÑts, which consisted of tax credits and tax deductible operating

losses. Tax beneÑts associated with our investments in housing tax credit partnerships reduced Income tax expense by

$603 million, $476 million and $378 million for 2006, 2005 and 2004, respectively. See ""Income Tax Expense (BeneÑt)'' for

additional information about the impact of these investments on our income tax expense.

Other Expenses

In April 2006, we reached an agreement in principle to settle the securities class action and shareholder derivative

lawsuits relating to our restatement. The settlement became Ñnal in November 2006. In 2005, we recorded expenses of

$339 million to increase our reserves for legal settlements, including this settlement, net of expected insurance proceeds. See

""NOTE 13: LEGAL CONTINGENCIES'' to our consolidated Ñnancial statements for more information.

Income Tax Expense (BeneÑt)

For 2006, 2005 and 2004, our eÅective tax rates were (5.1) percent, 14.4 percent and 21.2 percent, respectively. The

decrease in the eÅective tax rate over the past three years is primarily due to the decline in pre-tax income, the year-overyear increases in tax credits related to our investments in low-income housing tax credit partnerships and interest earned on

tax-exempt housing-related securities. We expect tax credits resulting from our investments in housing tax credit

partnerships to grow in the future. However, our ability to use all of the tax credits generated by existing or future

investments in housing tax credit partnerships to reduce our federal income tax liability may be limited.

39 Freddie Mac
Our eÅective tax rate for 2006 and 2004 also beneÑted from reductions to our tax reserves of $174 million and

$94 million, respectively, due predominantly to a favorable U.S. Tax Court decision in 2006 and separate settlements with

the Internal Revenue Service in both years. For additional information, see ""NOTE 14: INCOME TAXES'' to our

consolidated Ñnancial statements.

CONSOLIDATED BALANCE SHEETS ANALYSIS

The following discussion of our consolidated balance sheets should be read in conjunction with our consolidated

Ñnancial statements, including the accompanying notes. Also see ""CRITICAL ACCOUNTING POLICIES AND

ESTIMATES'' for more information concerning our signiÑcant accounting policies.

Table 18 Ì Summary Consolidated Balance Sheets

December 31,

2006 2005

(in millions)

Assets:

Retained portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $700,543 $709,384

Cash and investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 79,973 67,792

Derivative assets, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,908 7,097

Guarantee asset, at fair valueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,070 5,083

OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18,587 16,866

Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $813,081 $806,222

Liabilities and stockholders' equity:

Liabilities:

Total debt securities, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $753,938 $748,792

Guarantee obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,117 5,541

Derivative liabilities, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 179 590

OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23,030 23,159

Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 784,264 778,082

Minority interests in consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 516 949

Stockholders' equity:

Preferred stock, at redemption value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,109 4,609

Common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152 152

Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 962 924

Retained earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32,177 31,559

AOCI, net of taxes:

Available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2,749) (2,485)

Cash Öow hedge relationships ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5,033) (6,287)

DeÑned beneÑt plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (87) (1)

Total AOCI, net of taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (7,869) (8,773)

Treasury stock, at cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3,230) (1,280)

Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28,301 27,191

Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $813,081 $806,222

Retained Portfolio

As discussed in ""BUSINESS Ì Business Activities Ì Investment and Funding Activities,'' beginning July 1, 2006, we

voluntarily limited the annual growth of our Retained portfolio. At December 31, 2006, the carrying value of the Retained

portfolio was $700.5 billion, which was below the voluntary limit of $717.4 billion.

40 Freddie Mac
Table 19 provides detail regarding the mortgage loans and mortgage-related securities in our Retained portfolio.

Table 19 Ì Characteristics of Mortgage Loans and Mortgage-Related Securities in the Retained Portfolio

December 31,

2006 2005(1)

Fixed Variable Fixed Variable

Rate Rate(2) Total Rate Rate(2) Total

(in millions)

Mortgage loansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 61,273 $ 4,574 $ 65,847 $ 56,458 $ 5,023 $ 61,481

Guaranteed PCs and Structured Securities:(3)

Single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 282,052 71,828 353,880 299,167 61,766 360,933

MultifamilyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 241 141 382 247 144 391

Total Guaranteed PCs and Structured Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 282,293 71,969 354,262 299,414 61,910 361,324

Non-Freddie Mac mortgage-related securities:

Agency mortgage-related securities:(4)

Fannie Mae:

Single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25,805 17,640 43,445 28,818 13,180 41,998

MultifamilyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 987 2 989 1,294 41 1,335

Ginnie Mae:

Single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 707 231 938 1,045 218 1,263

MultifamilyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13 Ì 13 30 Ì 30

Total agency mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27,512 17,873 45,385 31,187 13,439 44,626

Non-agency mortgage-related securities:

Single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,280 174,081 178,361 4,749 181,678 186,427

Commercial mortgage-backed securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23,768 20,992 44,760 34,533 8,954 43,487

Mortgage revenue bonds(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,760 74 13,834 11,229 92 11,321

Manufactured housing(6)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,381 129 1,510 1,508 172 1,680

Total non-agency mortgage-related securities(7)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43,189 195,276 238,465 52,019 190,896 242,915

Total unpaid principal balance of Retained portfolioÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $414,267 $289,692 703,959 $439,078 $271,268 710,346

Premiums, discounts, deferred fees, impairments of unpaid principal balances and

other basis adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 103 2,111

Net unrealized gains (losses) on mortgage-related securities, pre-tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4,046) (3,551)

Participation CertiÑcate residuals, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 597 597

Reserve for losses on mortgage loans held-for-investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (70) (119)

Total Retained portfolio per consolidated balance sheets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $700,543 $709,384

(1) Certain amounts for 2005 have been revised to conform with the 2006 presentation.

(2) Variable-rate mortgage loans and mortgage-related securities include those with a contractual coupon rate that, prior to contractual maturity, is either

scheduled to change or subject to change based on changes to the composition of the underlying collateral. Mortgage loans also include mortgages

with balloon/reset provisions.

(3) For Guaranteed PCs and Structured Securities we issue, we are subject to the credit risk associated with the underlying mortgage loan collateral.

(4) Agency mortgage-related securities are generally not separately rated by nationally recognized statistical rating organizations, but are viewed as having

a level of credit quality at least equivalent to non-agency mortgage-related securities rated AAA or equivalent.

(5) Consists of obligations of states and political subdivisions. Approximately 67 percent and 66 percent of these securities were AAA-rated at

December 31, 2006 and 2005, respectively.

(6) At December 31, 2006 and 2005, 38 percent and 51 percent, respectively, of mortgage-related securities backed by manufactured housing were rated

BBB¿ or above. For the same dates, 97 percent of these securities were supported by third-party credit enhancements (e.g., bond insurance) and other

credit enhancements (e.g., deal structure through subordination). Approximately 30 percent and 33 percent of these securities were AAA-rated at

December 31, 2006 and 2005, respectively.

(7) Credit ratings for most non-agency mortgage-related securities are designated by at least two nationally recognized statistical rating organizations. At

December 31, 2006 and 2005, approximately 96 percent and 98 percent, respectively, of total non-agency mortgage-related securities were AAArated.

41 Freddie Mac
Table 20 provides additional detail regarding the fair value of mortgage-related securities in the Retained portfolio.

Table 20 Ì Fair Value of Available-For-Sale and Trading Mortgage-Related Securities in the Retained Portfolio

December 31,

2006 2005 2004

(in millions)

Available-for-sale securities:

Mortgage-related securities issued by:

Freddie Mac ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $344,088 $351,447 $352,102

Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43,886 43,306 59,519

Ginnie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 733 1,115 1,762

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 224,099 231,356 168,058

Obligations of states and political subdivisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,925 11,241 9,020

Total available-for-sale mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 626,731 638,465 590,461

Trading securities:

Mortgage-related securities issued by:

Freddie Mac ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,573 8,156 11,398

Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 802 534 385

Ginnie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 222 204 59

Total trading mortgage-related securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,597 8,894 11,842

Total fair value of available-for-sale and trading mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $634,328 $647,359 $602,303

Issuers Greater than 10 Percent of Stockholders' Equity

We held Fannie Mae securities in our Retained portfolio with a fair value of $44.7 billion, which represented

158 percent of Total stockholders' equity of $28.3 billion at December 31, 2006. In addition, we held at the individual trust

level in our Retained portfolio securities issued by Countrywide Home Equity Loan Trust with a fair value of $3.3 billion,

which represented 11.5 percent of Total stockholders' equity at December 31, 2006. No other individual issuer at the

individual trust level exceeded 10 percent of Total stockholders' equity at December 31, 2006.

Cash and Investments

Table 21 provides additional detail regarding the non-mortgage-related securities in our Cash and investments portfolio.

Table 21 Ì Cash and Investments

December 31,

2006 2005 2004

Average Average Average

Fair Maturity Fair Maturity Fair Maturity

Value (Months) Value (Months) Value (Months)

(dollars in millions)

Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $11,359 G3 $10,468 G3 $35,253 G3

Investments:

Available-for-sale securities:

Non-mortgage-related securities:

Asset-backed securities(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32,122 N/A 30,578 N/A 21,733 N/A

Obligations of state and political subdivisions(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,273 363 5,823 282 8,097 303

Commercial paper ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,191 G3 5,764 G3 ÌÌ

Total available-for-sale non-mortgage-related securities(2) ÏÏÏÏÏÏÏÏÏÏ 45,586 42,165 29,830

Federal funds sold and Eurodollars ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19,778 G3 9,909 G3 18,647 G3

Securities purchased under agreements to resell ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,250 G3 5,250 G3 13,550 G3

Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23,028 15,159 32,197

Total investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 68,614 57,324 62,027

Total Cash and investments per consolidated balance sheets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $79,973 $67,792 $97,280

(1) Consists primarily of securities that can be prepaid prior to their contractual maturity without penalty.

(2) Credit ratings for most securities are designated by at least two nationally recognized statistical rating organizations. At December 31, 2006 and 2005,

all of our available-for-sale non-mortgage-related securities were rated A or better. At December 31, 2004, 99.9% of these securities were rated A or

better.

The increase in the Cash and investments portfolio during 2006 compared to 2005 was in part driven by our decision to

maintain higher levels of liquid investments to ensure that we could appropriately service our outstanding debt and PCs and

Structured Securities while operating under the Federal Reserve Board's intraday overdraft policy, which was revised

eÅective July 2006. The revised policy restricts the GSEs, among others, from maintaining intraday overdraft positions at the

Federal Reserve.

42 Freddie Mac
Derivative Assets and Liabilities, at Fair Value

Table 22 summarizes the notional or contractual amounts and related fair value of our total derivative portfolio by

product type.

Table 22 Ì Total Derivative Portfolio

December 31,

2006 2005

Notional or Notional or

Contractual Contractual

Amount(1) Fair Value(2) Amount(1) Fair Value(2)

(in millions)

Interest-rate swaps:

Receive-ÑxedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $222,631 $ (334) $159,212 $ 756

Pay-Ñxed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 217,565 (1,352) 181,562 (991)

Basis (Öoating to Öoating)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 683 Ì 234 Ì

Total interest-rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 440,879 (1,686) 341,008 (235)

Option-based:

Call swaptions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 194,200 4,034 146,615 3,453

Put swaptions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29,725 958 34,675 1,200

Other option-based derivatives(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27,185 (15) 11,814 (7)

Total option-based ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 251,110 4,977 193,104 4,646

FuturesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22,400 28 86,252 19

Foreign-currency swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29,234 4,399 37,850 2,124

Interest-rate caps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 45 Ì

Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 743,623 7,718 658,259 6,554

Forward purchase and sale commitments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10,012 15 21,961 (44)

Credit derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,605 (1) 2,414 (1)

Swap guarantee derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 957 (3) 738 (2)

Total derivative portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $757,197 $ 7,729 $683,372 $6,507

(1) Notional or contractual amounts are used to calculate the periodic amounts to be received and paid and generally do not represent actual amounts to be

exchanged or directly reÖect our exposure to institutional credit risk. Notional or contractual amounts are not recorded as assets or liabilities on our

consolidated balance sheets.

(2) The fair value by derivative type presented in this table is shown prior to netting by counterparty. The fair value of derivatives presented on our

consolidated balance sheets, however, is netted by counterparty, and is reported in the Derivative assets, at fair value and Derivative liabilities, at fair

value captions. The total fair value of the derivative portfolio presented in this table equals the diÅerence between the fair value of the derivative assets

and derivative liabilities presented on our consolidated balance sheets. The fair values for futures are directly derived from quoted market prices. Fair

values of other derivatives are derived primarily from valuation models using market data inputs.

(3) Primarily represents written options, including guarantees of stated Ñnal maturity of issued Structured Securities and written call options on PCs we

issued.

The carrying value of our derivative assets and liabilities on our consolidated balance sheets is equal to their fair value.

The composition of our derivative portfolio will change from period to period as a result of derivative purchases,

terminations or assignments prior to contractual maturity and expiration of the derivatives at their contractual maturity. We

record changes in fair values of our derivatives in current income or, to the extent our accounting hedge relationships are

eÅective, we defer those changes in AOCI or oÅset them with basis adjustments to the related hedged item. As a result, the

increases or decreases in fair value by derivative categories will not correspond directly to Derivative gains (losses) or Hedge

accounting gains (losses) on our consolidated statements of income.

The fair value of the total derivative portfolio increased in 2006 due primarily to the increase in the fair value of foreigncurrency swaps we use to economically hedge Euro-denominated debt as the U.S. dollar weakened relative to the Euro.

Several factors contributed to the change in the composition of our derivative portfolio during 2006. We entered into

additional pay-Ñxed swaps with relatively short maturities to oÅset our yield curve exposure in response to the continued

Öattening of the yield curve and generally higher interest rates in 2006. We entered into additional receive-Ñxed swaps as a

result of economic hedging activities related to our callable debt securities outstanding, which increased as a proportion of

our total debt portfolio during 2006. We employ receive-Ñxed swaps to protect against a decline in interest rates until the

speciÑed call date and between speciÑed call dates of our callable debt. We increased the notional balance of our call

swaptions to manage the risk of further declines in market interest rates following the declines observed in the second half of

the year. The notional balance of our futures declined in 2006 primarily because we continued to reduce our position in

Eurodollar future contracts held for risk management purposes in response to movements in short-term rates. The notional

balance of our foreign-currency swaps declined due to maturities of such swaps throughout 2006 that were not replaced by

new contracts as the balance of our Euro-denominated debt securities declined during the year.

43 Freddie Mac
Table 23 summarizes the changes in derivative fair values.

Table 23 Ì Changes in Derivative Fair Values

2006 2005

(in millions)

Beginning balance, at January 1 Ì Net asset (liability) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 6,507 $15,031

Net change in:

Forward purchase and sale commitments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 59 (35)

Credit derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 1

Swap guarantee derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1) (1)

Other derivatives:(1)

Changes in fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,008 (8,417)

Fair value of new contracts entered into during the period(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,577 2,522

Contracts realized or otherwise settled during the period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3,421) (2,594)

Ending balance, at December 31 Ì Net asset (liability) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 7,729 $ 6,507

(1) Includes fair value changes for interest-rate swaps, option-based derivatives, futures, foreign-currency swaps and interest-rate caps.

(2) Consists primarily of cash premiums paid or received on options and the initial value of interest-rate swaps after we have exercised related swaptions.

Option premiums paid were $2,784 million and $2,248 million during 2006 and 2005, respectively.

Table 24 shows the fair value for each derivative type and the maturity proÑle of our derivative positions. A positive fair

value in Table 24 for each derivative type is the estimated amount, prior to netting by counterparty, that we would be

entitled to receive if we terminated the derivatives of that type. A negative fair value for a derivative type is the estimated

amount, prior to netting by counterparty, that we would owe if we terminated the derivatives of that type. See ""Table 36 Ì

Derivative Counterparty Credit Exposure'' under ""RISK MANAGEMENT Ì Interest-Rate Risk and Other Market

Risks'' for additional information regarding derivative counterparty credit exposure. Table 24 also provides the weighted

average Ñxed rate of our pay-Ñxed and receive-Ñxed swaps.

Table 24 Ì Derivative Fair Values and Maturities

December 31, 2006

Fair Value(1)

Greater than

Total Fair Less than 1 to 3 3 and up to In Excess

Value 1 Year Years 5 Years of 5 Years

(dollars in millions)

Interest-rate swaps:

Receive-Ñxed:

SwapsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (373) $(149) $ (285) $ 106 $ (45)

Weighted average Ñxed rate(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.64% 4.81% 5.01% 5.33%

Forward-starting swaps(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 39 Ì Ì Ì 39

Weighted average Ñxed rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì 5.47%

Total receive-Ñxed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (334) (149) (285) 106 (6)

Pay-Ñxed:

SwapsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 419 93 90 3 233

Weighted average Ñxed rate(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.22% 5.07% 5.08% 5.09%

Forward-starting swaps(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,771) Ì Ì Ì (1,771)

Weighted average Ñxed rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì 5.77%

Total pay-Ñxed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,352) 93 90 3 (1,538)

Total interest-rate swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,686) (56) (195) 109 (1,544)

Option-based:

Call swaptions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,034 12 703 1,647 1,672

Put swaptions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 958 Ì Ì 219 739

Other option-based derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (15) (5) Ì (1) (9)

Total option-based ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,977 7 703 1,865 2,402

FuturesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28 28 Ì Ì Ì

Foreign-currency swaps ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,399 788 747 1,788 1,076

Forward purchase and sale commitments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15 15 Ì Ì Ì

Swap guarantee derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3) Ì Ì Ì (3)

Subtotal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,730 $ 782 $1,255 $3,762 $ 1,931

Credit derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1)

TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 7,729

(1) Fair value is categorized based on the period from December 31, 2006 until the contractual maturity of the derivative.

(2) Represents the notional weighted average rate for the Ñxed leg of the swaps.

(3) Represents interest-rate swap agreements that are scheduled to begin on future dates which range from less than one year to ten years.

44 Freddie Mac
Guarantee Asset

See ""CONSOLIDATED RESULTS OF OPERATIONS Ì Non-Interest Income (Loss) Ì Gains (Losses) on

Guarantee Asset'' for a description of the Guarantee asset. Table 25 summarizes changes in the Guarantee asset balance.

Table 25 Ì Changes in Guarantee Asset

December 31,

2006 2005

(in millions)

Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,083 $4,516

Additions, net of repurchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,787 1,631

Return of investment on Guarantee assetÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,009) (899)

Changes in fair value of future cash Öows ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 209 (165)

Gains (losses) on Guarantee asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (800) (1,064)

Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $6,070 $5,083

In 2006 and 2005, the primary drivers aÅecting the net increase in our Guarantee asset balance were our business

volumes and changes in mortgage interest rates. Additions, net of repurchases, increased in 2006 primarily because net

repurchases of PCs and Structured Securities into the Retained portfolio declined. When a PC or Structured Security is

repurchased into the Retained portfolio, any related Guarantee asset becomes a component of the associated PC residual,

therefore such repurchases reduce the balance of the Guarantee asset. Losses on Guarantee asset decreased as mortgage

interest rates increased during 2006, which extended the expected lives of the PCs and Structured Securities and increased

the fair value of the Guarantee asset.

Total Debt Securities, Net

Table 26 reconciles the par value of our debt securities to the amounts shown on our consolidated balance sheets. See

""LIQUIDITY AND CAPITAL RESOURCES'' for further discussion of our debt management activities.

Table 26 Ì Reconciliation of the Par Value of Total Debt Securities to Our Consolidated Balance Sheets

December 31,

2006 2005

(in millions)

Total debt securities:

Par value(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $787,970 $780,382

Unamortized balance of discounts and premiums(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (41,769) (39,338)

Foreign-currency-related and hedging-related basis adjustments(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,737 7,748

Total debt securities, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $753,938 $748,792

(1) Includes securities sold under agreements to repurchase and Federal funds purchased and swap collateral obligations.

(2) Primarily represents unamortized discounts on zero-coupon debt securities. Also, includes accrued interest payable on swap collateral obligations.

(3) Primarily represents deferrals related to the translation gain (loss) on foreign-currency denominated debt that was in hedge accounting relationships.

45 Freddie Mac
Table 27 summarizes our Senior debt, due within one year.

Table 27 Ì Senior Debt, Due Within One Year

2006

Average Outstanding

December 31, During the Year Maximum

Weighted Weighted Balance, Net

Average Average Outstanding at Any

Balance, Net(1) EÅective Rate(2) Balance, Net(3) EÅective Rate(4) Month End

(dollars in millions)

Reference Bills» securities and discount notes ÏÏÏÏÏÏÏÏÏÏÏÏÏ $157,553 5.14% $165,270 4.76% $182,946

Medium-term Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,832 5.16 4,850 4.82 9,832

Securities sold under agreements to repurchase and Federal

funds purchased ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 81 5.48 2,200

Swap collateral obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,597 5.17 9,705 5.07 11,528

Hedging-related basis adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì N/A

Short-term debt securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 176,982 5.14

Current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 117,879 4.10

Senior debt, due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $294,861 4.73

2005

Average Outstanding

December 31, During the Year Maximum

Weighted Weighted Balance, Net

Average Average Outstanding at Any

Balance, Net(1) EÅective Rate(2) Balance, Net(3) EÅective Rate(4) Month End

(dollars in millions)

Reference Bills» securities and discount notes ÏÏÏÏÏÏÏÏÏÏÏÏÏ $181,468 4.00% $181,878 3.11% $194,578

Medium-term Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,032 4.17 850 3.35 2,032

Securities sold under agreements to repurchase and Federal

funds purchased ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 450 4.25 267 3.08 1,000

Swap collateral obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,768 4.09 10,374 3.14 13,533

Hedging-related basis adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5) N/A

Short-term debt securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 192,713 4.01

Current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 95,819 3.42

Senior debt, due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $288,532 3.81

2004

Average Outstanding

December 31, During the Year Maximum

Weighted Weighted Balance, Net

Average Average Outstanding at Any

Balance, Net(1) EÅective Rate(2) Balance, Net(3) EÅective Rate(4) Month End

(dollars in millions)

Reference Bills» securities and discount notes ÏÏÏÏÏÏÏÏÏÏÏÏÏ $180,198 2.04% $184,834 1.40% $212,715

Medium-term Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 162 2.51 4,289 1.31 5,320

Securities sold under agreements to repurchase and Federal

funds purchased ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 801 1.37 3,046

Swap collateral obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16,279 2.24 13,549 1.36 16,279

Short-term debt securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 196,639 2.05

Current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 85,664 3.33

Senior debt, due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $282,303 2.44

(1) Represents par value, net of associated discounts, premiums and foreign-currency-related and hedging-related basis adjustments. Swap collateral obligations

include the related accrued interest payable.

(2) Represents the approximate weighted average eÅective rate for each instrument outstanding at the end of the period, which includes the amortization of

discounts or premiums and issuance costs, but excludes the amortization of hedging-related basis adjustments.

(3) Includes unamortized discounts or premiums and issuance costs. Issuance costs are reported in the Other assets caption on our consolidated balance sheets.

(4) Represents the approximate weighted average eÅective rate during the period, which includes the amortization of discounts or premiums and issuance costs,

but excludes the amortization of hedging-related basis adjustments.

46 Freddie Mac
Guarantee Obligation

See ""CONSOLIDATED RESULTS OF OPERATIONS Ì Non-Interest Income (Loss) Ì Income on Guarantee

Obligation'' for a description of the components of the Guarantee obligation. Table 28 summarizes the changes in the

Guarantee obligation balance.

Table 28 Ì Changes in Guarantee Obligation

December 31,

2006 2005

(in millions)

Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,541 $4,065

Transfer-out to the loan loss reserve(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (9) (10)

Additions, net of repurchases:

Fair value of performance and other related costs of newly-issued guarantees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,719 1,629

Deferred guarantee income of newly-issued guarantees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 733 777

Amortization income related to:

Performance and other related costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (584) (616)

Deferred guarantee incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (283) (304)

Income on Guarantee obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (867) (920)

Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $7,117 $5,541

Components of the Guarantee obligation, at period end:

Unamortized balance of performance and other related costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,869 $3,743

Unamortized balance of deferred guarantee income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,248 1,798

Ending Guarantee obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $7,117 $5,541

(1) Represents portions of the Guarantee obligation recognized through Guarantor Swap transactions or upon the sale of PCs and Structured Securities

that correspond to incurred credit losses reclassiÑed to Reserve for guarantee losses on Participation CertiÑcates at initial recognition of a Guarantee

obligation.

The Guarantee obligation increased in 2006 due to business volume and a decline in the rate of amortization. Generally

increasing mortgage interest rates resulted in lower liquidation rates on outstanding PCs and Structured Securities.

Total Stockholders' Equity

The balance of Total stockholders' equity increased in 2006 primarily as a result of Net income, partially oÅset by

preferred and common stock dividends declared during 2006. During 2006, we repurchased $2.0 billion of outstanding shares

of common stock and issued $1.5 billion of non-cumulative, perpetual preferred stock in connection with a plan to replace

$2.0 billion of common stock with an equal amount of preferred stock. The repurchase of outstanding shares of common

stock and the issuance of non-cumulative, perpetual preferred stock during 2006 resulted in a net reduction of $0.5 billion to

the balance of Total stockholders' equity. During the Ñrst quarter of 2007, we issued $1.1 billion of non-cumulative,

perpetual preferred stock, including $500 million to complete the planned issuance described above and $600 million to

replace higher-cost preferred stock that we redeemed in 2007. See ""LIQUIDITY AND CAPITAL RESOURCES Ì

Capital Resources Ì Core Capital'' for additional information.

The balance of AOCI at December 31, 2006 was a net loss of approximately $7.9 billion, net of taxes, compared to a net

loss of $8.8 billion, net of taxes, at December 31, 2005. The reduction in the net loss in AOCI was primarily the result of the

amortization of deferred losses in Net interest income related to closed cash Öow hedge relationships, partially oÅset by an

increase in unrealized losses on available-for-sale securities primarily driven by the increase in interest rates during 2006.

CONSOLIDATED FAIR VALUE BALANCE SHEETS ANALYSIS

Our consolidated fair value balance sheets include the estimated fair values of Ñnancial instruments recorded on our

consolidated balance sheets prepared in accordance with GAAP, as well as oÅ-balance sheet Ñnancial instruments that

represent our assets or liabilities that are not recorded on our GAAP consolidated balance sheets. These oÅ-balance sheet

items predominantly consist of: (a) the unrecognized Guarantee asset and Guarantee obligation associated with our PCs

issued through our Guarantor Swap program prior to the implementation of FIN 45, (b) certain commitments to purchase

mortgage loans and (c) certain credit enhancements on manufactured housing asset-backed securities. The fair value

balance sheets also include certain assets and liabilities that are not Ñnancial instruments (such as property and equipment

and real estate owned, which are included in Other assets) at their carrying value in accordance with GAAP. During 2006

and 2005, our fair value results were impacted by several improvements in our approach for estimating the fair value of

certain Ñnancial instruments. See ""OFF-BALANCE SHEET ARRANGEMENTS'' and ""CRITICAL ACCOUNTING

POLICIES AND ESTIMATES'' as well as ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES''

and ""NOTE 16: FAIR VALUE DISCLOSURES'' to our consolidated Ñnancial statements for more information on fair

values.

47 Freddie Mac
In conjunction with the preparation of our consolidated fair value balance sheets, we use a number of Ñnancial models.

See ""RISK MANAGEMENT Ì Operational Risks'' and ""RISK MANAGEMENT Ì Interest-Rate Risk and Other

Market Risks'' for information concerning the risks associated with these models.

Table 29 Ì Summary Consolidated Fair Value Balance Sheets(1)

December 31,

2006 2005

Carrying Fair Carrying Fair

Amount(2) Value Amount(2) Value

(in billions)

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $813.1 $811.3 $806.2 $805.2

Total liabilities and minority interests ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $784.8 $779.5 $779.0 $774.3

Net assets attributable to stockholders:

Preferred stockholders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6.1 5.8 4.6 4.1

Common stockholders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22.2 26.0 22.6 26.8

Total net assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28.3 31.8 27.2 30.9

Total liabilities and net assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $813.1 $811.3 $806.2 $805.2

(1) The summary 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 signiÑcantly from the fair values presented.

(2) Carrying amounts equal the amounts reported on our GAAP consolidated balance sheets.

Key Components of Changes in Fair Value of Net Assets

Changes in the fair value of net assets from period to period result from returns (measured on a fair value basis) and

capital transactions and are primarily attributable to changes in a number of key components:

Core spread income

Core spread income on the Retained portfolio is 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. OAS is an estimate of

the yield spread between a given Ñnancial instrument and a benchmark (LIBOR, agency or Treasury) yield curve, after

consideration of potential variability in the instrument's cash Öows 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 signiÑcantly aÅected 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 Öuctuations 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 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 Öuctuations in OAS will signiÑcantly aÅect the

long-term value of the Retained portfolio. Our estimate of the eÅect of changes in OAS excludes the impact of other

market risk factors we actively manage, or economically hedge, to keep interest-rate risk exposure within prescribed limits.

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 Retained portfolio 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 portfolio management strategy.

Taking these risk positions and managing them within prudent limits is an integral part of our strategy to optimize the risk/

reward proÑle of our investment activity and produce fair value growth. We expect that the residual risk positions we take

and manage under our integrated risk management framework will produce fair value returns that contribute to meeting our

fair value growth objectives, although those positions may result in a net increase or decrease in fair value for a given period.

During 2006, our duration and convexity risk level as measured by our PMVS was below the risk limits set by management

and the board of directors. See ""RISK MANAGEMENT Ì Interest-Rate Risk and Other Market Risks'' for more

information.

Core guarantee fees, net

Core guarantee fees, net represents a fair value estimate of the annual income of the credit guarantee portfolio, based on

current portfolio characteristics and market conditions. This estimate considers both contractual guarantee fees collected

48 Freddie Mac
over the life of the credit guarantee portfolio 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 the credit guarantee portfolio

Change in the fair value of the credit guarantee portfolio represents the estimated impact on the fair value of the credit

guarantee business resulting from additions to the portfolio (net diÅerence between the fair values of the Guarantee asset

and Guarantee obligation recorded when pools are formed) plus the eÅect 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 Öow discounting). In 2005, we

changed our method for estimating the fair values of the Guarantee asset and Guarantee obligation. See ""NOTE 2:

TRANSFERS OF SECURITIZED INTERESTS IN MORTGAGE-RELATED ASSETS'' to our consolidated Ñnancial

statements for additional information.

We generally do not hedge changes in the fair value of our existing credit guarantee portfolio, with two exceptions

discussed below. While periodic changes in the fair value of the credit guarantee portfolio may have a signiÑcant impact on

the fair value of net assets, we believe that changes in the fair value of our existing credit guarantee portfolio are not the best

indication of long-term fair value expectations because such changes do not reÖect our expectation that, over time,

replacement business will largely replenish guarantee fee income lost because of prepayments. However, to the extent that

projections of the future credit outlook are realized our fair value results may be aÅected.

We hedge interest-rate exposure related to net buy-ups (up-front payments we made that increase the guarantee fee

that we will receive over the life of the pool) and Öoat (expected gains or losses resulting from our mortgage security

program remittance cycles). These value changes are excluded from our estimate of the changes in fair value of the credit

guarantee portfolio, so that it reÖects only the impact of changes in interest rates and other market factors on the unhedged

portion of the projected cash Öows from the credit guarantee business. The fair value changes associated with net buy-ups

and Öoat are considered in asset-liability management return (described above) because they relate to hedged positions.

Fee income

Fee income includes miscellaneous fees, such as resecuritization fees, fees generated by our automated underwriting

service and delivery fees on some mortgage purchases.

Discussion of Fair Value Results

In 2006, the fair value of net assets attributable to common stockholders, before capital transactions, increased by

$2.5 billion, resulting in a return on the average fair value of net assets attributable to common stockholders of approximately

9.5 percent, compared to a $1.0 billion increase, or 3.7 percent return, in 2005. In addition, the payment of common

dividends and the repurchase of common shares reduced total fair value by $3.3 billion. The fair value of net assets

attributable to common stockholders as of December 31, 2006 was $26.0 billion, compared to $26.8 billion as of

December 31, 2005.

Estimated impact of changes in mortgage-to-debt OAS on fair value results

For the years ended December 31, 2006 and 2005, we estimate that on a pre-tax basis the increases in the fair value of

net assets attributable to common stockholders, before capital transactions included decreases of approximately $0.9 billion

and $2.7 billion, respectively, due to a net widening of mortgage-to-debt OAS.

We believe disclosing the estimated impact of changes in mortgage-to-debt OAS on the fair value of net assets is

helpful to understanding our current period fair value results in the context of our long-term fair value return expectation.

Our long-term expectation is to generate returns, before capital transactions, over time on the average fair value of net assets

attributable to common stockholders in the low- to mid-teens. However, period-to-period returns may Öuctuate

substantially due to market conditions. These market conditions include changes in interest rates and other market factors

that aÅect certain components of our fair value changes, including those which we do not attempt to hedge or actively

manage, speciÑcally, the change in mortgage-to-debt OAS with respect to our Retained portfolio and the change in the fair

value of the single-family guarantee portfolio.

Our estimate of the periodic increases or decreases in the fair value of net assets associated with Öuctuations in optionadjusted spreads provides insight into a component of our fair value results that we do not believe will signiÑcantly aÅect the

long-term fair value of the Retained portfolio. This belief is based on our expectation that diÅerences between the

prepayments forecasted by our models and the actual prepayments we will experience are not likely to be signiÑcant.

How we estimate the impact of changes in mortgage-to-debt OAS on fair value results

The impact of changes in OAS on fair value should be understood as an estimate rather than a precise measurement. To

estimate the impact of OAS changes, we use models that involve the forecast of interest rates and prepayment behavior and

other inputs. We also make assumptions about a variety of factors, including macroeconomic and security-speciÑc data,

49 Freddie Mac
interest-rate paths, cash Öows and prepayment rates. We use these models and assumptions in running our business, and we

rely on many of the models in producing our Ñnancial statements and measuring, managing and reporting interest-rate and

other market risks. The use of diÅerent estimation methods or the application of diÅerent assumptions could result in a

materially diÅerent estimate of OAS impact.

We revised the method we previously used to report the impact that changes in OAS have on our fair value results. This

methodology change had no impact on the actual change in the fair value of net assets, only our attribution of that change.

This change was made in order to more closely align the process we use to report the impact of changes in OAS with the

interest rate risk management framework of our investment activities.

An integral part this framework includes the attribution of fair value changes to assess the performance of our

investment activities. On a daily basis, all interest rate sensitive assets, liabilities and derivatives are modeled using our

proprietary prepayment and interest rate models. Management uses interest-rate risk statistics generated from this process,

along with daily market movements, coupon accruals and price changes, to estimate and attribute returns into various risk

factors commonly used in the Ñxed income industry to quantify and understand sources of fair value return. One important

risk factor is the change in fair value due to changes in mortgage-to-debt OAS.

The method previously used to estimate the impact of mortgage-to-debt OAS changes on fair value was performed on a

monthly basis and excluded certain portions of the investment portfolio. The new methodology estimates the impact of

mortgage-to-debt OAS changes on fair value on a daily basis and includes all Ñnancial instruments.

On a pre-tax basis for 2006 and 2005, the reported OAS impacts using our new methodology were reductions in fair

value of $0.9 billion and $2.7 billion, respectively. Using our previous methodology, the OAS impacts were pre-tax

reductions in fair value of $0.6 billion and $2.0 billion, respectively.

Understanding our estimate of the impact of changes in mortgage-to-debt OAS on fair value results

A number of important qualiÑcations apply to our disclosed estimates. The estimated impact of the change in optionadjusted spreads on the fair value of our net assets in any given period does not depend on other components of the change

in fair value. Although the fair values of our Ñnancial instruments will generally move toward their par values as the

instruments approach maturity, investors should not expect that the eÅect of past changes in OAS will necessarily reverse

through future changes in OAS. To the extent that actual prepayment or interest rate distributions diÅer from the forecasts

contemplated in our models, changes in values reÖected in mortgage-to-debt OAS may not be recovered in fair value

returns at a later date.

When the OAS on a given asset widens, the fair value of that asset will typically decline, all other things being equal.

However, we believe such OAS widening has the eÅect 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 Ì 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. Although a widening of OAS is generally accompanied by lower current

period fair values, it can also provide us with greater opportunity to purchase new assets for our Retained portfolio at the

wider mortgage-to-debt OAS.

For these reasons, our estimate of the impact of the change in OAS provides information regarding one component of

the change in fair value for the particular period being evaluated. However, results for a single period should not be used to

extrapolate long-term fair value returns. We believe the potential fair value return of our business over the long term

depends primarily on our ability to add new assets at attractive mortgage-to-debt OAS and to eÅectively manage over time

the risks associated with these assets, as well as the risks of our existing portfolio to ensure that we realize anticipated

returns on our business. In other words, to capture the fair value returns we expect, we have to apply accurate estimates of

future prepayment rates and other performance characteristics at the time we purchase assets, and then manage

successfully the range of market risks associated with a debt-funded mortgage portfolio over the life of these assets.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our business activities require that we maintain adequate liquidity to make payments upon the maturity or repurchase

of our debt securities, purchase mortgage loans, mortgage-related securities and other investments, make payments of

principal and interest on our debt securities and on our guaranteed PCs and Structured Securities, make net payments on

derivative instruments, fund our general operations and pay dividends on our preferred and common stock.

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 we hold or mortgage loans we have securitized and sold;

‚ sales of securities we hold;

50 Freddie Mac
‚ borrowings against mortgage-related securities and other investment securities we hold;

‚ other cash Öows from operating activities, including guarantee activities; and

‚ issuances of common and preferred stock.

We measure our cash position on a daily basis, netting uses of cash with sources of cash. We manage the net cash

position over a rolling forecasted 120-day period, with the goal of providing the amount of debt funding needed to cover

expected net cash outÖows without adversely aÅecting our overall funding levels. We maintain alternative sources of liquidity

to allow normal operations for 120 days without relying upon the issuance of unsecured debt consistent with industry

practices of sound liquidity management. Our daily liquidity management activities are consistent with the liquidity

component of our commitment with OFHEO to maintain alternative sources of liquidity to allow normal operations for

90 days without relying upon issuance of unsecured debt. See ""RISK MANAGEMENT AND DISCLOSURE COMMITMENTS'' for further information.

The Federal Reserve Board revised its payments system risk policy, eÅective in July 2006, to restrict or eliminate

daylight overdrafts by GSEs in connection with their use of the Fedwire system. The revised policy also includes a

requirement that the GSEs fully fund their accounts in the system to the extent necessary to cover payments on their debt

and mortgage-related securities each day, before the Federal Reserve Bank of New York, acting as Ñscal agent for the

GSEs, will initiate such payments. We have taken actions to fully fund our account as necessary, such as opening lines of

credit with third parties. Certain of these lines of credit require that we post collateral that, in certain limited circumstances,

the secured party has the right to repledge to other third parties, including the Federal Reserve Bank. As of December 31,

2006, we pledged approximately $20.2 billion of securities to these secured parties. These lines of credit, which provide

additional intraday liquidity to fund our activities through the Fedwire system, are uncommitted intraday loan facilities. As a

result, while we expect to continue to use these facilities, we may not be able to draw on them if and when needed. See

""NOTE 5: RETAINED PORTFOLIO AND CASH AND INVESTMENTS PORTFOLIO'' to our consolidated

Ñnancial statements for further information. We believe that the revisions to the Federal Reserve Board's policies will not

have a material adverse eÅect on our liquidity.

To fund our business activities, we depend on the continuing willingness of investors to purchase our debt securities.

Any change in applicable legislative or regulatory exemptions, including those described in ""REGULATION AND

SUPERVISION,'' could adversely aÅect our access to some debt investors, thereby potentially increasing our debt funding

costs. However, because of our Ñnancial performance and our regular and signiÑcant participation as an issuer in the capital

markets, our sources of liquidity have remained adequate to meet our needs and we anticipate that they will continue to be

so.

Under our charter, the Secretary of the Treasury has discretionary authority to purchase our obligations up to a

maximum of $2.25 billion principal balance outstanding at any one time. However, we do not rely on this authority as a

source of liquidity to meet our obligations.

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 Ñnancing 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 5: RETAINED

PORTFOLIO AND CASH AND INVESTMENTS PORTFOLIO'' to our consolidated Ñnancial statements for information about assets we pledge as collateral.

We are involved in various legal proceedings, including those discussed in ""NOTE 13: LEGAL CONTINGENCIES''

to our consolidated Ñnancial statements, which may result in a use of cash.

Debt Securities

We fund our operating cash needs and Ñnance our purchases of mortgage loans, mortgage-related securities and nonmortgage-related securities held in our Retained portfolio and Cash and investments portfolio primarily through the

issuance of short-term and long-term debt. Table 30 summarizes the par value of the debt securities we issued, based on

settlement dates, during 2006 and 2005. We seek to maintain a variety of consistent, active funding programs that promote

high-quality coverage by market makers and reach a broad group of institutional and retail investors. By diversifying our

investor base and the types of debt securities we oÅer, we believe we enhance our ability to maintain continuous access to

the debt markets under a variety of market conditions.

51 Freddie Mac
Table 30 Ì Debt Security Issuances by Product, at Par Value(1)

Year Ended December 31,

2006 2005

(in millions)

Short-term debt:

Reference Bills» securities and discount notesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $593,444 $826,253

Medium-term Notes Ì Callable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,532 1,745

Medium-term Notes Ì Non-callable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,550 360

Total short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 603,526 828,358

Long-term debt:

Medium-term Notes Ì Callable(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 106,777 87,047

Medium-term Notes Ì Non-callable(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17,721 33,624

U.S. dollar Reference Notes» securities Ì Non-callable(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 55,000 48,146

Freddie SUBS» securities(5)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,299 Ì

Total long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 182,797 168,817

Total debt securities issuedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $786,323 $997,175

(1) Excludes securities sold under agreements to repurchase and Federal funds purchased, swap collateral obligations and securities sold but not yet

purchased.

(2) Includes $100 million and $Ì million of Medium-term Notes Ì Callable issued for the years ended December 31, 2006 and 2005, respectively, which

were accounted for as debt exchanges.

(3) Includes $1,000 million and $Ì million of Medium-term Notes Ì Non-callable issued for the years ended December 31, 2006 and 2005, respectively,

which were accounted for as debt exchanges.

(4) Includes $Ì million and $3,396 million of U.S. dollar Reference Notes» securities issued for the years ended December 31, 2006 and 2005,

respectively, which were accounted for as debt exchanges.

(5) Includes $1,549 million of Freddie SUBS» securities issued for the year ended December 31, 2006, which were accounted for as debt exchanges.

Short-Term Debt. We fund our operating cash needs primarily 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. Short-term debt also includes certain Medium-term Notes that have

original maturities of one year or less.

Long-Term Debt. We issue long-term debt primarily through our Medium-term Notes program and our Reference

Notes» securities program.

Medium-term Notes. We issue a variety of Ñxed- and variable-rate Medium-term Notes, including callable and

non-callable Ñxed-rate securities, zero-coupon securities and variable-rate securities, with various maturities ranging up

to 30 years. Medium-term Notes with original maturities of one year or less are classiÑed as short-term debt. Mediumterm Notes typically contain call provisions, eÅective as early as three months or as distant as 10 years after the

securities are issued.

Reference Notes» Securities. Through our Reference Notes» securities program, we sell large issues of long-term

debt that provide investors worldwide with a high-quality, liquid investment vehicle. Reference Notes» securities are

regularly issued, non-callable Ñxed-rate securities, which we currently issue with original maturities ranging from two

through ten years. We primarily issue securities denominated in U.S. dollars. We have also issued 4Reference Notes»

securities denominated in Euros, but did not issue any such securities in 2006 or 2005. 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 ""RISK MANAGEMENT Ì Interest-Rate Risk and

Other Market Risks Ì Sources of Interest-Rate Risk and Other Market Risks'' for more information.

The investor base for our debt is predominantly institutional. However, we also conduct weekly oÅerings of

FreddieNotes» securities, a Medium-term Notes program designed to meet the investment needs of retail investors.

Subordinated Debt. In December 2006, we issued approximately $2.0 billion of Freddie SUBS» securities, including

approximately $1.5 billion issued in exchange for previously issued Freddie SUBS» securities. In addition, we called

approximately $1.0 billion of previously issued Freddie SUBS» securities in August 2006 and issued approximately

$1.25 billion of Freddie SUBS» securities in June 2006. We did not issue, call or repurchase any Freddie SUBS» securities

during 2005 and 2004. Our issuance of subordinated debt in the form of Freddie SUBS» securities supports our risk

management and disclosure commitments with OFHEO (described in ""RISK MANAGEMENT AND DISCLOSURE

COMMITMENTS'').

Debt Retirement Activities. 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 interest rate risk associated with our

assets and liabilities. When our debt securities become seasoned or European 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

52 Freddie Mac
liquidity of our debt securities and improve their price performance, which helps to reduce our funding costs over the longterm. 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 the mortgage-related securities held in our Retained

portfolio decrease, reducing the need for long-term debt. We use a number of diÅerent means to shorten the eÅective

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-Ñxed swaps or terminating or assigning pay-Ñxed 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. These transactions are accounted for as debt exchanges. See ""CONSOLIDATED RESULTS OF

OPERATIONS Ì Non-Interest Income (Loss) Ì Gains (Losses) on Debt Retirement'' for more information.

Table 31 provides the par value, based on settlement dates, of debt securities we repurchased, called and exchanged

during 2006 and 2005.

Table 31 Ì Debt Security Repurchases, Calls and Exchanges

Year Ended

December 31,

2006 2005

(in millions)

Repurchases of outstanding 4Reference Notes» securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 5,210 $ Ì

Repurchases of outstanding Medium-term NotesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28,560 11,663

Calls of callable Medium-term Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26,559 36,236

Calls of callable Freddie SUBS» securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,000 Ì

Exchanges of U.S. dollar Reference Notes» securities and Medium-term Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,074 3,043

Exchanges of Freddie SUBS» securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,480 Ì

Credit Ratings. Our ability to access the capital markets and other sources of funding, as well as our cost of funds, are

highly dependent upon our credit ratings. Table 32 indicates our credit ratings at March 1, 2007.

Table 32 Ì Freddie Mac Credit Ratings

Nationally Recognized Statistical Rating Organization

Standard & Poor's Moody's Fitch

Senior long-term debt(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AAA Aaa AAA

Short-term debt(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ A-1° P-1 F-1°

Subordinated debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AA¿ Aa2 AA¿

Preferred stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ AA¿ Aa3 AA¿

(1) Includes Medium-term Notes, U.S. dollar Reference Notes» securities and 4Reference Notes» securities.

(2) Includes Reference Bills» securities and discount notes.

In addition to the ratings described in Table 32, S&P provides a ""Risk-To-The-Government'' rating that measures our

ability to meet our debt obligations and the value of our franchise in the absence of any implied government support. Our

""Risk-To-The-Government'' rating was AA¿ at March 1, 2007. Moody's also provides a ""Bank Financial Strength'' rating

that represents Moody's opinion of our intrinsic safety and soundness and, as such, excludes certain external credit risks and

credit support elements. Ratings under this measure range from A, the highest, to E. Our ""Bank Financial Strength'' rating

was A¿ at March 1, 2007.

Equity Securities

See ""Capital Resources Ì Core Capital'' and ""MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES'' for information

about issuances and repurchases of our equity securities.

Cash and Investments Portfolio

We maintain a cash and investments portfolio that is important to our Ñnancial management and our ability to provide

liquidity and stability to the mortgage market. At December 31, 2006, the investments in this portfolio consisted of liquid

non-mortgage-related securities that we could sell or Ñnance to provide us with an additional source of liquidity to fund our

business operations. We also use the portfolio to help manage recurring cash Öows and meet our other cash management

needs. In addition, we use the portfolio to hold capital on a temporary basis until we can deploy it into Retained portfolio

investments or credit guarantee opportunities. We may also sell or Ñnance the securities in this portfolio to maintain capital

reserves to meet mortgage funding needs, provide diverse sources of liquidity or help manage the interest-rate risk inherent

in mortgage-related assets.

The non-mortgage-related securities in the Cash and investments portfolio consist principally of asset-backed securities

and other marketable assets that can be readily converted to cash. For additional information on our Cash and investments

portfolio, see ""CONSOLIDATED BALANCE SHEETS ANALYSIS Ì Cash and Investments.'' The non-mortgage53 Freddie Mac
related investments in this portfolio may expose us to institutional credit risk and the risk that the investments could decline

in value due to market-driven events such as credit downgrades or changes in interest rates and other market conditions. See

""RISK MANAGEMENT Ì Credit Risks Ì Institutional Credit Risk'' for more information.

Contractual Obligations

Table 33 provides aggregated information about the listed categories of our contractual obligations. These contractual

obligations aÅect 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 proÑle of our debt securities and other liabilities reported on our consolidated balance

sheet and our operating leases at December 31, 2006. The timing of actual future payments may diÅer 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. For purposes of this table, purchase obligations are included through the

termination date speciÑed in the respective agreements, even if the contract is renewable. Many of our purchase agreements

for goods or services include clauses that would allow us to cancel the agreement prior to the expiration of the contract within

a speciÑed notice period; however, this table includes such obligations without regard to such termination clauses (unless

we have provided the counterparty with actual notice of our intention to terminate the agreement).

In addition, in Table 33, the amounts of future interest payments on debt securities outstanding at December 31, 2006

are based on the contractual terms of our debt securities at that date. These amounts were determined using the key

assumptions that (a) variable-rate debt continues to accrue interest at the contractual rates in eÅect at December 31, 2006

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 reÖect certain factors that will change the amounts of interest payments

on our debt securities after December 31, 2006, such as (a) changes in interest rates, (b) the call or retirement of any debt

securities, (c) the issuance of new debt securities and (d) other factors. Accordingly, the amounts presented in the table do

not represent a forecast of our future cash interest payments or interest expense.

Table 33 excludes the following items:

‚ future payments related to our Guarantee obligation, because the amount and timing of such payments are generally

contingent upon the occurrence of future events and are therefore uncertain;

‚ future contributions to our Pension Plan, as we have not yet determined whether a contribution is required for 2007.

See ""NOTE 15: EMPLOYEE BENEFITS'' to our consolidated Ñnancial statements for additional information

about contributions to our Pension Plan;

‚ future cash settlements on derivative agreements not yet accrued, because the amount and timing of such payments

are dependent upon changes in the underlying Ñnancial instruments and are therefore uncertain; and

‚ future dividends on the preferred stock we issued, because dividends on these securities are non-cumulative. In

addition, the classes of preferred stock issued by our two consolidated real estate investment trust, or REIT,

subsidiaries pay dividends and are cumulative. However, dividends on the REIT preferred stock are excluded because

the timing of these payments is dependent upon declaration by the boards of the REITs.

54 Freddie Mac
Table 33 Ì Contractual Obligations by Year at December 31, 2006

Total 2007 2008 2009 2010 2011 Thereafter

(in millions)

Long-term debt securities(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $609,083 $117,972 $ 98,313 $63,231 $46,681 $55,208 $227,678

Short-term debt securities(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 178,887 178,887 ÌÌÌÌ Ì Interest payable(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 140,167 26,095 20,878 17,029 14,516 11,589 50,060

Other liabilities reÖected on our consolidated balance sheet:

Due to Participation CertiÑcate investors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,123 11,123 ÌÌÌÌ Ì

Other contractual liabilities(3)(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,704 1,711 556 178 78 41 140

Purchase obligations:

Purchase commitments(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,856 9,856 ÌÌÌÌ Ì

Other purchase obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 418 247 82 35 19 14 21

Operating lease obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 114 18 16 13 12 7 48

Total speciÑed contractual obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $952,352 $345,909 $119,845 $80,486 $61,306 $66,859 $277,947

(1) Represents par value. Callable debt is included in this table at its contractual maturity. For additional information about our debt securities, see

""NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS'' to our consolidated Ñnancial statements.

(2) Includes estimated future interest payments on our short-term and long-term debt securities. Also includes accrued interest payable recorded on our

consolidated balance sheet, which consists primarily of the accrual of interest on short-term and long-term debt as well as the accrual of periodic cash

settlements of derivatives, netted by counterparty.

(3) Other contractual liabilities primarily represents future cash payments due under our contractual obligations to make delayed equity contributions to

low-income housing tax credit partnerships that are unconditional and legally binding.

(4) Accrued obligations related to our deÑned beneÑt plans, deÑned contribution plans and executive deferred compensation plan are included in the Total

and 2007 columns. However, the timing of payments due under these obligations is uncertain. See ""NOTE 15: EMPLOYEE BENEFITS'' to our

consolidated Ñnancial statements for additional information.

(5) Purchase commitments represents 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 SFAS No. 133, ""Accounting for Derivative

Instruments and Hedging Activities,'' or SFAS 133.

Capital Resources

Capital Management

Our primary objective in managing capital is preserving our safety and soundness. We also seek to have suÇcient capital

to support our business and mission at attractive long-term returns. See ""NOTE 10: REGULATORY CAPITAL'' to our

consolidated Ñnancial statements for more information regarding our regulatory capital requirements and OFHEO's capital

monitoring framework. As appropriate, we will consider opportunities to return excess capital to shareholders (through

dividends and share repurchases) and optimize our capital structure to lower our cost of capital.

We assess and project our capital adequacy relative to our regulatory requirements as well as our economic risks. This

includes targeting a level of additional capital above each of our capital requirements to help support ongoing compliance

and to accommodate future uncertainties. We evaluate the adequacy of our targeted additional capital in light of changes in

our business and risk exposures.

We develop an annual capital plan that is approved by our board of directors and updated periodically. This plan

provides projections of capital adequacy, taking into consideration our business plans, forecasted earnings, economic risks

and regulatory requirements.

Capital Adequacy

We estimate as of December 31, 2006 that we exceeded each of our regulatory capital requirements, including the

30 percent mandatory target capital surplus, based on our most recent submissions to OFHEO. See ""NOTE 10:

REGULATORY CAPITAL'' to our consolidated Ñnancial statements for further information regarding our regulatory

capital requirements and OFHEO's capital monitoring framework.

Core Capital

During 2006 and 2005, we added approximately $0.2 billion and $1.0 billion, respectively, to Core capital primarily from

Net income of $2.2 billion and $2.1 billion, respectively, partly oÅset by the payment of common and preferred stock

dividends totaling $1.6 billion and $1.3 billion, respectively. In addition, during 2006, we repurchased $2.0 billion of

outstanding shares of common stock and issued $1.5 billion of non-cumulative, perpetual preferred stock in connection with

a plan to replace $2.0 billion of common stock with an equal amount of preferred stock. During the Ñrst quarter of 2007, we

issued $1.1 billion of non-cumulative, perpetual preferred stock, including $500 million to complete the planned issuance

described above and $600 million to replace higher-cost preferred stock that we redeemed in 2007. In accordance with

OFHEO's capital monitoring framework, we obtained OFHEO's approval for both the common stock repurchases and

preferred stock redemption described above. Also, during the Ñrst quarter of 2007, we received approval from OFHEO and

our board of directors to repurchase up to an additional $1 billion in common stock in conjunction with the issuance of up to

$1 billion in preferred stock.

55 Freddie Mac
Our board of directors approved a dividend per common share of $0.50 for the fourth quarter of 2006 and the Ñrst

quarter of 2007, an increase over the $0.47 per share common dividend that was paid for each of the Ñrst three quarters of

2006 and the fourth quarter of 2005. Our common dividend per share was $0.35 for each of the Ñrst three quarters of 2005

and $0.30 for the fourth quarter of 2004. Our board of directors will determine the amount of future dividends, if any, after

considering factors such as our capital position, and our earnings and growth prospects.

For the fourth quarter of 2004 through the Ñrst quarter of 2007, our board of directors also approved quarterly preferred

stock dividends that were consistent with the contractual rates and terms of the preferred stock. See ""NOTE 9:

STOCKHOLDERS' EQUITY'' to our consolidated Ñnancial statements for information regarding our outstanding

issuances of preferred stock.

RISK MANAGEMENT

We are exposed to risks that include interest-rate and other market risks, operational risks and credit risks, among

others, including those described in ""RISK FACTORS.'' We manage risk through a framework, approved by our board of

directors, that recognizes primary risk ownership and management by our business areas. Within this framework, our

executive management committees and divisions responsible for independent risk oversight, which include Enterprise Risk

Oversight, Corporate Compliance and Internal Audit, monitor performance against our risk management strategies and

established risk limits, identify and assess potential issues, and provide oversight regarding changes in business processes and

activities. Oversight of risk management is also provided by our board of directors and its committees. Together, these

groups assess the adequacy and eÅectiveness of the risk management functions across the company.

While we consider both our day-to-day and long-term management of interest-rate and other market risks and credit

risks to be satisfactory, we identiÑed weaknesses in prior years in our overall risk governance framework. We created an

executive management enterprise risk committee in June 2006 to provide a company-wide view of risk and have formed Ñve

subcommittees to focus on credit, market, models, operational and regulatory risks. Our board of directors has also assigned

primary responsibility for oversight of enterprise risk management to the Governance, Nominating and Risk Oversight

Committee of the board of directors. We have taken steps to strengthen our capacity in four important areas: risk

governance, risk identiÑcation, risk measurement and assessment and related education and communication. Accordingly,

we believe we have reduced the severity of the deÑciencies in our risk governance framework so that they no longer

represent a signiÑcant deÑciency in our internal control over Ñnancial reporting.

Operational Risks

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, failures of the technology used to support our business

activities and other operational challenges from failed or inadequate internal controls. We face a number of signiÑcant

operational risks, including material weaknesses and other signiÑcant deÑciencies in our internal control over Ñnancial

reporting. These operational risks may expose us to Ñnancial loss, may delay or interfere with our ability to return to and

sustain timely Ñnancial reporting, or may result in other adverse consequences. Governance over the management of our

operational risks takes place through the enterprise risk management framework described above. Business areas retain

primary responsibility for identifying, assessing and reporting their operational risks.

Our business processes are highly dependent on our use of technology and business and Ñnancial models. We face

challenges in the areas of system security, change management and information technology application and general controls.

See ""Internal Control Over Financial Reporting'' for more information concerning material weaknesses related to our

systems. In recent years, we have strengthened our processes to validate model assumptions, code, theory and the system

applications that utilize our models. We are currently improving our model oversight processes and enhancing our staÇng

both within the business areas and in our risk oversight functions.

We continue to make signiÑcant investments to build new Ñnancial reporting systems and move to more eÅective and

eÇcient business processing systems. Until those systems are implemented, we continue to remain more reliant on end-user

computing systems than is desirable and we are challenged to eÅectively and timely deliver integrated production systems.

Reliance on certain of these end-user computing systems increases the risk of errors in some of our core operational

processes and increases our dependency on monitoring controls. In the near term, we are mitigating this risk by improving

our documentation and controls over these systems and placing certain key end-user systems into a change management

process controlled by our information technology group.

Our eÅorts to develop and deploy new Ñnancial reporting and business process systems have limited our Öexibility to

release new products and other business initiatives in response to competitive market forces. We manage this risk through a

management committee that monitors key projects and allocates resources to development eÅorts.

56 Freddie Mac
We outsource certain key functions to external parties, including (a) processing functions for trade capture, market risk

management analytics and asset valuation, (b) custody and recordkeeping and (c) processing functions for mortgage loan

underwriting. In addition, we use a process of delegated underwriting for the single-family mortgages we purchase or

securitize. We also expect to implement a process of delegated underwriting for certain multifamily mortgages we purchase

or securitize. See ""Credit Risks Ì Mortgage Credit Risk Ì Underwriting Requirements and Quality Control Standards''

for information about how we mitigate the risks associated with delegated underwriting. We mitigate the risk from our use

of external parties by engaging in active vendor management, such as establishing detailed vendor requirements, reviewing

business continuity plans, monitoring quality assurance processes and using third party reviews of our vendors.

In recognition of the importance of the accuracy and reliability of our valuation of Ñnancial instruments, we engage in an

ongoing internal review of our valuations. We perform analysis of internal valuations on a monthly basis to conÑrm the

reasonableness of the valuations. This analysis is performed by a group that is independent of the business area responsible

for valuing the positions. Our veriÑcation and validation procedures depend on the nature of the security and valuation

methodology being reviewed and may include: comparisons with external pricing sources, comparisons with observed trades,

independent veriÑcation of key valuation model inputs and independent security modeling. Results of the monthly

veriÑcation process, as well as any changes in our valuation methodologies, are reported to a management committee that is

responsible for reviewing and approving the approaches used in our valuations to ensure that they are well controlled and

eÅective, and result in reasonable fair values.

We are also exposed to the risk that our business processes could be adversely aÅected by inadequate staÇng, which

strains existing resources and increases the risk that an error or fraud will not be detected. This risk is of particular concern

for us because of high voluntary employee turnover rates experienced in 2005, critical vacancies and recent changes in our

senior management. During 2006, we Ñlled some important vacancies such as Chief Financial OÇcer, General Counsel,

General Auditor, Corporate Controller and Principal Accounting OÇcer and Chief Information OÇcer. While we have

made progress in our eÅorts to reduce voluntary employee turnover rates and to build a strong management team by Ñlling

several senior positions, we need to continue to recruit additional qualiÑed people into key positions across the organization in

order to achieve our remediation objectives. See ""Internal Control Over Financial Reporting'' for more information

concerning staÇng adequacy risk related to Ñnancial reporting.

In addition to the particular risks and challenges we are facing, we experience ongoing risks that are similar to those of

other large Ñnancial institutions. For example, we are exposed to the risk that a catastrophic event, such as a terrorist event

or natural disaster, could result in a signiÑcant business disruption and an inability to process transactions through normal

business processes. To mitigate this risk, we maintain and test business continuity plans and have established backup

facilities for critical business processes and systems away from, although in the same metropolitan area as, our main oÇces.

In 2006, we established out-of-region capabilities for clearing and treasury services. However, we can make no assurances

that these measures will be suÇcient to respond to the full range of catastrophic events that might occur.

Internal Control Over Financial Reporting

Improving internal control over Ñnancial reporting and mitigating the risks presented by material weaknesses and

signiÑcant deÑciencies in our Ñnancial reporting processes continue to be top corporate priorities. During 2006, we developed

a comprehensive plan for returning to quarterly Ñnancial reporting. The comprehensive plan includes mitigation and

remediation of identiÑed material weaknesses and signiÑcant deÑciencies; strengthening of our Ñnancial close process;

implementation of critical systems initiatives; and completion of a review of our system of internal controls related to the

processing and recording of Ñnancial transactions.

We have made progress implementing changes to our accounting, Ñnancial reporting and operational infrastructure that

have improved our internal control environment, including outsourcing the custody and recordkeeping functions for our

Retained portfolio and Cash and investments portfolio, implementing a new accounting sub-ledger for our Cash and

investments portfolio and upgrading our general ledger system. However, certain key initiatives, including the implementation of a new sub-ledger for our Retained portfolio, were not completed by year-end as originally planned and will continue

to be part of our remediation eÅorts in 2007.

As a result of our eÅorts, we made signiÑcant progress toward the remediation of our material weaknesses, as described

below. However, each of the material weaknesses identiÑed in prior years persisted throughout 2006 and they continue to

present challenges for us in 2007.

We also made progress in the remediation of the signiÑcant deÑciencies in our internal control and we have mitigated

some of them so that they have been reduced to control deÑciencies in our internal control over Ñnancial reporting. For

example, we enhanced our risk governance framework thereby reducing the severity of the weaknesses that existed in this

area. We also improved our processes for identifying security impairments and the governance of and change management

57 Freddie Mac
processes related to the amortization of deferred premiums, discounts and deferred fees for assets held in our Retained

portfolio.

While we have made progress in our remediation eÅorts, our material weaknesses and remaining signiÑcant deÑciencies

will continue to pose signiÑcant risks to our Ñnancial reporting processes until adequately remediated. The material

weaknesses that aÅected us through December 31, 2006 and continue to present challenges for us, as well as our related

remediation activities, are described below:

Integration among our systems, business units and external service providers. Our systems and processes related to our

operational and Ñnancial accounting systems, business units and external service providers are not adequately integrated.

This inadequate integration increases the risk of error in our Ñnancial reporting due to: (a) the potential failure to correctly

pass information between systems and processes; (b) incompatibility of data between systems; (c) incompatible systems;

or (d) a lack of clarity in process ownership. To compensate for this weakness, we have implemented mitigating controls,

including extensive manual procedures to perform data validation and Ñnancial analytics. We have also enhanced the

communication and coordination between our business units.

Our remediation eÅorts are targeted to address risks posed by (a) the hand-oÅ of data between systems, business units

and various data owners, (b) the reliance on end-user computing solutions or (c) reliance on simplifying assumptions in the

applications of our accounting policies. We have also formalized internal guidance for controls over the hand-oÅ of data at

all stages of our Ñnancial close processes, end-user computing solutions and the use of simplifying assumptions in our

accounting policies. Our remediation plans include identifying areas that require attention, evaluating our application of the

new internal guidance for the hand-oÅ of data and remediating any control deÑciencies identiÑed. We have also undertaken

an initiative to more clearly link the application of our accounting policies to our systems and our end-user computing

solutions.

We have undertaken an initiative to redesign our Ñnancial close process to make timely Ñnancial reporting possible. Our

remediation eÅorts currently focus on implementing enhancements to our current Ñnancial close process, while addressing

our objective of long-term sustainability in our processes. We have deÑned and begun monitoring performance metrics to

evaluate our progress in achieving close targets, with a focus on accuracy and timeliness.

Information technology general controls as they relate to change management. Our controls over managing the

introduction of program and data changes need improvement. Weaknesses in these controls include a lack of consistent

standards and inadequate testing of changes prior to deployment; an environment and processes that increase the diÇculties

of establishing and maintaining internal control; and issues arising from inherent system limitations.

We are implementing new change management processes so that changes to our system applications and new system

implementations are properly designed and approved, fully tested and meet the requirements of the business. We are also

focused on promoting an environment of accountability for adhering to change management processes and providing our

staÅ with the tools and training to implement system changes appropriately.

Information technology general controls as they relate to security administration, management and technology. Our

controls over information systems security administration and management functions need to improve in the following areas:

(a) granting and revoking user access rights; (b) segregation of duties; (c) monitoring user access rights; and (d) periodic

review of the appropriateness of access rights. Weaknesses in these controls could allow unauthorized users to access, enter,

delete or change data in these systems, as well as increase the possibility that entries could be duplicated or omitted

inadvertently.

Our remediation eÅorts include reviewing the design of our existing controls against industry standards, establishing new

procedures to secure data and restrict access to appropriate users, and the development of new tools to monitor access to

data and the types of access granted to speciÑc users. We are also centralizing the responsibility for granting user access to

key system applications and enhancing our automation of controls designed to prevent unauthorized or inappropriate levels

of system access.

Monitoring of results within Ñnancial operations and reporting functions. The controls we use to monitor the results of

our Ñnancial reporting process, such as the performance of Ñnancial analytics and account reconciliations, failed to identify

certain issues that required adjustments to our Ñnancial results prior to our reporting them.

Our remediation eÅorts have included a detailed evaluation and redesign of our Ñnancial analytics and reconciliation

procedures, and the implementation of regular, structured reviews of monthly Ñnancial results and accounting matters. We

are continuing to identify additional Ñnancial analytics improvements that we need to make. Additionally, we need to

continue to execute the new controls for a period of time in order to assess their eÅectiveness.

StaÇng adequacy. During 2006, we made progress in our eÅorts to build a strong management team by Ñlling several

key senior management positions. However, we must continue to recruit additional qualiÑed people into leadership and key

58 Freddie Mac
staÅ positions in targeted functions within the company to achieve our objectives for the remediation of our internal control

deÑciencies. Our employee voluntary turnover rate was higher in 2005 than prior years, but voluntary turnover in 2006 was

signiÑcantly lower than 2005. Undesirable voluntary turnover strains existing resources and contributes to increased

operational risk. Furthermore, our standards of performance need to be enforced in order to create a more eÅective culture of

accountability.

Our remediation activities are focused on addressing staÇng issues in targeted areas across the company by identifying

and Ñlling critical vacancies, addressing staÅ development and training needs, and eliminating key person dependencies in

critical roles. Additionally, we are taking steps to build a culture of accountability that supports operational risk

management decision-making and promotes the urgency to identify and address deÑciencies in our internal controls. For

example, risk management accountability has been formally included as a performance objective for all our employees. We

are also reinforcing accountability through staÅ training that raises the awareness of risks in our business and highlights the

importance of maintaining eÅective internal controls.

Management risk and control self-assessment process. We do not currently have a self-assessment process for our

internal control over Ñnancial reporting in order to reliably enable management to identify deÑciencies in our internal control,

evaluate the eÅectiveness of internal control or modify our control procedures in response to changes in risk in a timely

manner.

Our remediation activities are focused on an in-depth assessment of the design of internal control over Ñnancial

reporting in our existing business processes and the development of a self-assessment process that will provide management

with a more timely and reliable tool to identify changes to our processes, risks, and controls in order to identify and

remediate control deÑciencies. The new management self-assessment process will be implemented under an enhanced risk

governance structure designed to identify and escalate risk issues and control deÑciencies in a timely manner. Our objective

for this new process is to allow us to assess the design and eÅectiveness of our internal control over Ñnancial reporting in a

manner consistent with the requirements of the Sarbanes-Oxley Act of 2002.

In addition to these material weaknesses, we identiÑed a number of signiÑcant deÑciencies in our internal control over

Ñnancial reporting that, although not determined to be material weaknesses as of the end of the year, still present risks of

error in our Ñnancial statements and disclosures. These signiÑcant deÑciencies include:

‚ deÑciencies in our processes related to the valuation of our guarantee-related assets and liabilities;

‚ deÑciencies in our controls over the accuracy and completeness of data received from external counterparties or

passed between our business processes and used in our transaction processing and Ñnancial reporting systems;

‚ over-reliance on end-user computing solutions with insuÇcient development, documentation and change controls;

‚ deÑciencies in our new product implementation process; and

‚ deÑciencies in our procedures for monitoring our use of simplifying assumptions in the application of our accounting

policies, and our excessive reliance on such assumptions. The excessive use of simplifying assumptions increases the

risk that insigniÑcant diÅerences, when compared to a stricter application of our accounting policies, could become

consequential over time and result in errors that are not detected (e.g., if the underlying transaction volume aÅected

by a simplifying assumption increases).

As we continue our remediation activities, we may identify additional material weaknesses, signiÑcant deÑciencies or

other operational issues in our internal controls or conclude that signiÑcant deÑciencies we have already identiÑed should be

regarded as material weaknesses, either individually or in the aggregate. Improvements to the processes and controls we put

in place to remediate our control deÑciencies need to operate for a period of time to enable us to evaluate their eÅectiveness.

The material weaknesses and signiÑcant deÑciencies in our internal control over Ñnancial reporting adversely aÅect our

ability to record, process, summarize and report Ñnancial data in a timely manner. Based on the continued existence of

material weaknesses at December 31, 2006, our Chief Executive OÇcer and Chief Financial OÇcer have concluded that our

internal control over Ñnancial reporting was not eÅective at December 31, 2006. In order to compensate for the material

weaknesses and other deÑciencies in our internal controls, we continue to perform extensive veriÑcation and validation

procedures to provide reasonable assurance that our consolidated Ñnancial statements are prepared in accordance with

GAAP. Therefore, in view of the additional procedures we performed, we believe that these weaknesses do not prevent us

from preparing and issuing our consolidated Ñnancial statements in conformity with GAAP.

Our resumption of interim Ñnancial reporting will depend on continued progress with our remediation eÅorts; however,

our objective is to return to quarterly reporting during the second half of 2007. We will begin the process of registering our

common stock with the SEC after resuming timely quarterly reporting.

59 Freddie Mac
Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the

information required to be disclosed by a company in its Ñnancial reports is accumulated and communicated to its senior

management team as appropriate to allow timely decisions regarding required disclosure. Full evaluation of our disclosure

controls and procedures has been delayed as our resources are focused on the remediation of our internal control over

Ñnancial reporting.

Interest-Rate Risk and Other Market Risks

Our interest-rate risk management objective is to serve our housing mission by protecting shareholder value in all

interest-rate environments. Our disciplined approach to interest-rate risk management is essential to maintaining a strong

and durable capital base and uninterrupted access to debt and equity capital markets.

Sources of Interest-Rate Risk and Other Market Risks

Our Retained portfolio activities 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 held in the Retained portfolio, known as prepayment risk, and the resulting potential mismatch in the timing of our

receipt of cash Öows on our assets versus the timing of our obligation to make payments on our liabilities. 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 oÅ a mortgage loan at any time before its scheduled maturity date (without having

to pay a prepayment penalty) or to hold the mortgage loan to its stated maturity.

Our credit guarantee activities also expose us to interest-rate risk because changes in interest rates can cause

Öuctuations in the fair value of our existing credit guarantee portfolio. We generally do not hedge these changes in fair value

except for interest-rate exposure related to net buy-ups and Öoat. Float, which arises from timing diÅerences between when

the borrower pays us and when we reduce the PC balance, can lead to signiÑcant interest expense if the interest rate paid to

a PC investor is higher than the reinvestment rate we earn on payments received from mortgage borrowers.

The types of interest-rate risk and other market risks to which we are exposed are described below.

Duration Risk and Convexity Risk. Duration is a measure of a Ñnancial instrument's price sensitivity to changes in

interest rates. Convexity is a measure of how much a Ñnancial instrument's duration changes as interest rates change. Our

convexity risk primarily results from prepayment risk. We actively manage duration risk and convexity risk through asset

selection and structuring (that is, by identifying 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. 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. Expected results can be aÅected by diÅerences between prepayments forecasted by the

models and actual prepayments.

Yield Curve Risk. Yield curve risk is the risk that non-parallel shifts in the yield curve (such as a Öattening or

steepening) will adversely aÅect shareholder value. 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 diÅerent 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. Our yield

curve risk under a speciÑed yield curve scenario is reÖected in our PMVS-Yield Curve, or 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 aÅect shareholder value. Implied volatility is a key determinant of the value of an

interest-rate option. Since mortgage assets generally include the borrower's option to prepay a loan without penalty, changes

in implied volatility aÅect the value of mortgage assets. We manage volatility risk through asset selection and by

maintaining a consistently high percentage of option-embedded liabilities relative to our mortgage assets. We monitor

volatility risk by measuring exposure levels on a daily basis and we maintain internal limits on the amount of volatility risk

exposure that is acceptable to us.

Basis Risk. Basis risk is the risk that interest rates in diÅerent market sectors will not move in tandem and will

adversely aÅect shareholder value. This risk arises principally because we generally hedge mortgage-related investments with

debt securities. We do not actively manage the basis risk arising from funding Retained portfolio investments with our debt

securities, also referred to as mortgage-to-debt option-adjusted spread risk. See ""CONSOLIDATED FAIR VALUE

BALANCE SHEETS ANALYSIS Ì Key Components of Changes in Fair Value of Net Assets Ì Changes in mortgageto-debt OAS '' for additional information. We also incur basis risk when we use LIBOR- or Treasury-based instruments in

our risk management activities.

60 Freddie Mac
Foreign-Currency Risk. Foreign-currency risk is the risk that Öuctuations in currency exchange rates (e.g., foreign

currencies to the U.S. dollar) will adversely aÅect shareholder value. We are exposed to foreign-currency risk because we

have debt denominated in currencies other than the U.S. dollar, our functional currency. We eliminate virtually all of our

foreign-currency risk by entering into swap transactions that eÅectively convert foreign-currency denominated obligations

into U.S. dollar-denominated obligations.

Portfolio Market Value Sensitivity and Measurement of Interest-Rate Risk

We employ a risk management strategy that seeks to substantially match the duration characteristics of our assets and

liabilities. To accomplish this, we employ an integrated strategy encompassing asset selection and structuring and asset and

liability management.

Through our asset selection process, we seek to purchase mortgage assets with desirable prepayment expectations based

on our evaluation of their yield-to-maturity, option-adjusted spreads and credit characteristics. Through this selection

process and the restructuring of mortgage assets, we seek to retain cash Öows with more stable risk and investment return

characteristics while selling oÅ the cash Öows that do not meet our investment proÑle.

Through our asset and liability management process, we mitigate interest-rate risk by issuing a wide variety of 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 signiÑcantly in either

direction. We mitigate much of our exposure to changes in interest rates by funding a signiÑcant portion of our mortgage

portfolio with callable debt. When interest rates change, our option to redeem this debt oÅsets a large portion of the fair

value change driven by the mortgage prepayment option. At December 31, 2006, approximately 50 percent of our Ñxedrate mortgage assets were funded and economically hedged with callable debt. 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 aÅected by

changes in interest rates.

To further reduce our exposure to changes in interest rates, we hedge a signiÑcant 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. With the addition of

these option-based derivatives, the fair value of net assets becomes relatively stable over a wide range of interest rates

because a greater portion of our prepayment risk has been hedged. The fair value of net assets is further stabilized by our

ongoing portfolio rebalancing, primarily involving interest-rate swaps. Although we do not hedge all of our exposure to

changes in interest rates, these exposures are generally well understood, are subject to established limits, and are monitored

and controlled through our disciplined risk management process. See ""CONSOLIDATED FAIR VALUE BALANCE

SHEETS ANALYSIS Ì Key Components of Changes in Fair Value of Net Assets Ì Changes in mortgage-to-debt OAS''

for further information.

We measure our exposure to key interest-rate risks every day against both internal management limits and limits set by

our board of directors. Throughout 2006, our interest-rate risk remained low and well below management and board limits.

PMVS and Duration Gap. Our primary interest-rate risk measures are PMVS and duration gap. PMVS is measured

in two ways, one measuring the estimated sensitivity of our portfolio market value (as deÑned below) to parallel moves in

interest rates (PMVS-L) and the other to nonparallel movements (PMVS-YC).

Our PMVS and duration gap estimates are determined using models that involve our best judgment of interest-rate and

prepayment assumptions. In addition, in the case of PMVS, daily calculations are based on an estimate of the fair value of

our net assets attributable to common stockholders. 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 the exposure of the fair value of net assets attributable to common stockholders

(measured as the fair value of total net assets less the fair value of preferred stock) to changes in interest rates, they do not

capture the potential impact of certain other market risks, such as changes in volatility, basis, prepayment model,

mortgage-to-debt option-adjusted spreads and foreign-currency risk. The impact of these other market risks can be

signiÑcant. See ""Sources of Interest-Rate Risk and Other Market Risks'' discussed above and ""CONSOLIDATED FAIR

VALUE BALANCE SHEETS ANALYSIS Ì Key Components of Changes in Fair Value of Net Assets Ì Changes in

mortgage-to-debt OAS '' for further information.

‚ PMVS-L shows the estimated loss in pre-tax portfolio market value, expressed as a percentage of our after-tax fair

value of net assets attributable to common stockholders, from an immediate adverse 50 basis point parallel shift in

the level of LIBOR rates (i.e., when the yield at each point on the LIBOR yield curve increases or decreases by

50 basis points).

61 Freddie Mac
‚ PMVS-YC shows the estimated loss in pre-tax portfolio market value, expressed as a percentage of our after-tax fair

value of net assets attributable to common stockholders, from an immediate adverse 25 basis point change in the

slope (up and down) of the LIBOR yield curve. The 25 basis point change in slope for the PMVS-YC measure is

obtained by shifting the two-year and ten-year LIBOR rates by an equal amount (12.5 basis points), but in opposite

directions. LIBOR rate shifts between the two-year and ten-year points are interpolated.

‚ Duration gap estimates the net sensitivity of the fair value of our Ñnancial instruments to movements in interest rates.

Duration gap is presented in units expressed as months. A duration gap of zero implies that the change in value of

assets from an instantaneous rate move will be accompanied by an equal and oÅsetting move in the value of debt

and derivatives thus leaving the net fair value of equity unchanged. However, because duration does not capture

convexity exposure (the amount by which duration itself changes as rates move), actual changes in fair value from

interest-rate changes may diÅer from those implied by duration gap alone. For that reason, we believe duration gap is

most useful when used in conjunction with PMVS.

The 50 basis point shift and 25 basis point change in slope of the LIBOR yield curve used for our PMVS measures

represent events that are expected to have an approximately 5 percent probability of occurring over a one-month time

horizon. We believe that our PMVS measures represent conservative measures of interest-rate risk because these assumed

scenarios are unlikely, and because the scenarios assume instantaneous shocks, therefore these PMVS measures do not

consider the eÅects on fair value of any rebalancing actions that we would typically take to reduce our risk exposure.

The expected loss in portfolio market value, which is the numerator in the fraction used to calculate the PMVS

percentages, is an estimate of the sensitivity to changes in interest rates of the fair value of all interest-earning assets and

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 Öows related to certain credit guarantee-related items, including net

buy-ups and expected gains or losses due to net interest from Öoat. In making these calculations, we do not consider the

sensitivity to interest-rate changes of the following assets and liabilities:

‚ Credit guarantee portfolio. We do not consider the sensitivity of the fair value of the credit guarantee portfolio to

changes in interest rates except for the guarantee-related items mentioned above (i.e., net buy-ups and Öoat),

because we believe the expected beneÑts from replacement business provide an adequate hedge against interest-rate

changes.

‚ Other assets with minimal interest-rate sensitivity. We do not include other assets, primarily non-Ñnancial

instruments such as Ñxed assets and REO, because of the minimal impact they would have on both PMVS and

duration gap.

These two categories of assets and liabilities are included in our estimate of the after-tax fair value of net assets

attributable to common stockholders, which is the denominator of the fraction used to calculate the PMVS-L and

PMVS-YC percentages.

PMVS Results. Table 34 provides estimated point-in-time PMVS-L and PMVS-YC results at December 31, 2006

and 2005. Table 34 also provides PMVS-L estimates assuming an immediate 100 basis point shift in the LIBOR yield curve.

Because we do not hedge all prepayment option risk, the duration of our mortgage assets changes more rapidly as changes

in interest rates increase. Accordingly, as shown in Table 34, the PMVS-L results based on a 100 basis point shift in the

LIBOR curve are disproportionately higher than the PMVS-L results based on a 50 basis point shift in the LIBOR curve.

Table 34 Ì Portfolio Market Value Sensitivity Assuming Shifts of the LIBOR Yield Curve

Potential Pre-Tax Loss in

Portfolio Market Value Sensitivity Portfolio Market Value (in millions)

PMVS-YC PMVS-L PMVS-YC PMVS-L

25 bps 50 bps 100 bps 25 bps 50 bps 100 bps

At:

December 31, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì% 1% 2% $27 $146 $560

December 31, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì% 1% 3% $26 $236 $798

Derivatives have enabled us to keep our interest-rate risk exposure at consistently low levels in a wide range of interestrate environments. By keeping PMVS-L and PMVS-YC low, we have been able to reduce the exposure of the fair value of

our stockholders' equity to adverse changes in interest rates.

Table 35 shows that the low PMVS-L risk levels for the periods presented would generally have been higher if we had

not used derivatives to manage our interest-rate risk exposure.

62 Freddie Mac
Table 35 Ì Derivative Impact on Portfolio Market Value Sensitivity

Before After EÅect of

Derivatives Derivatives Derivatives

At December 31, 2006

PMVS-L (50 bps) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2% 1% (1)%

At December 31, 2005

PMVS-L (50 bps) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2% 1% (1)%

Duration Gap Results. Our estimated average duration gap for the months of December 2006 and 2005 was zero

months.

The disclosure in our Monthly Volume Summary reports, which are available on our website at www.freddiemac.com,

reÖects the average of the daily PMVS-L, PMVS-YC and duration gap estimates for a given reporting period (a month,

quarter or year).

Use of Derivatives and Interest-Rate Risk Management

Use of Derivatives. We use derivatives primarily to:

‚ hedge forecasted issuances of debt and synthetically create callable and non-callable funding;

‚ regularly adjust or rebalance our funding mix in order to more closely match changes in the interest-rate

characteristics of our mortgage assets; and

‚ hedge foreign-currency exposure (see ""Sources of Interest-Rate Risk and Other Market Risks Ì Foreign-Currency

Risk.'')

Hedge Forecasted Debt Issuances and Create Synthetic Funding. We typically commit to purchase mortgage

investments on an opportunistic basis for a future settlement, typically 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. 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

deÑned longer-term period and a pay-Ñxed swap with the same maturity as the last issuance is the substantive economic

equivalent of a long-term Ñxed-rate debt instrument of comparable maturity. Similarly, the combination of non-callable debt

and a call swaption, or option to enter into a receive-Ñxed swap, with the same maturity as the non-callable debt, is the

substantive economic equivalent of callable debt. These derivatives strategies increase our funding Öexibility and allow us to

better match asset and liability cash Öows, 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 contractual funding of our debt

in response to changes in the expected lives of mortgage-related assets in the Retained portfolio. 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-Ñxed swaps or purchase Treasury-based derivatives to shorten the

duration of our funding to oÅset the declining duration of our mortgage assets. In a rising interest-rate environment, we

typically enter into pay-Ñxed swaps or sell Treasury-based derivatives in order to lengthen the duration of our funding to

oÅset the increasing duration of our mortgage assets.

Types of Derivatives. The derivatives we use to hedge interest-rate and foreign-currency risk are common in the

Ñnancial markets. We principally use the following types of derivatives:

‚ LIBOR- and Euribor-based interest-rate swaps;

‚ LIBOR- and Treasury-based exchange-traded futures;

‚ LIBOR- and Treasury-based options (including swaptions); and

‚ Foreign-currency swaps.

In addition to swaps, futures and options, our derivative positions include the following:

Forward Purchase and Sale Commitments. We routinely enter into forward purchase and sale commitments for

mortgage loans and mortgage-related securities. Most of these commitments are derivatives subject to the requirements of

SFAS 133.

Swap Guarantee Derivatives. We guarantee the payment of principal and interest on (a) multifamily mortgage loans

that are originated and held by state and municipal housing Ñnance agencies to support tax-exempt multifamily housing

revenue bonds, (b) tax-exempt multifamily housing revenue bonds that support pass-through certiÑcates issued by third

parties and (c) Freddie Mac pass-through certiÑcates which are backed by tax-exempt multifamily housing revenue bonds

and related taxable bonds and/or loans. In connection with some of these guarantees, we may also guarantee the sponsor's or

63 Freddie Mac
the borrower's performance as a counterparty on any related interest-rate swaps used to mitigate interest-rate risk.

Guarantees of these interest-rate swaps entered into after June 30, 2003 are treated as derivatives and are reported as swap

guarantee derivatives.

Credit Derivatives. See ""Credit Risks Ì Mortgage Credit Risk Ì Mortgage Credit Risk Management Strategies'' for

more information.

Derivative-Related Risks

Our use of derivatives exposes us to derivative market liquidity risk and counterparty credit risk.

Derivative Market Liquidity Risk. Derivative market liquidity risk 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 suÇcient 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 many diÅerent derivative counterparties. In addition to

over-the-counter, or OTC, derivatives, we also use exchange-traded derivatives, asset securitization activities, callable debt

and short-term debt to rebalance our portfolio.

We limit our duration and convexity exposure to each counterparty. At December 31, 2006, the largest single

uncollateralized exposure of our 27 approved OTC counterparties listed in ""Table 36 Ì Derivative Counterparty Credit

Exposure'' was related to a AAA-rated counterparty, constituting $403 million, or 60 percent, of the total uncollateralized

exposure of our OTC interest-rate swaps, option-based derivatives and foreign-currency swaps.

Derivative Counterparty Credit Risk. Counterparty credit risk arises from the possibility that the derivative

counterparty will not be able to meet its contractual obligations. Exchange-traded derivatives, such as futures contracts, do

not measurably increase our counterparty credit risk because changes in the value of open exchange-traded contracts are

settled daily through a Ñnancial clearinghouse established by each exchange. OTC derivatives, however, expose us to

counterparty credit risk because transactions are executed and settled between us and the counterparty. When an OTC

derivative has a market value above zero at a given date (i.e., it is an asset reported as Derivative assets, at fair value on our

consolidated balance sheets), then the counterparty could potentially be obligated to deliver cash, securities or a

combination of both having that market value to satisfy its obligation to us under the derivative.

We actively manage our exposure to counterparty credit risk using several tools, including:

‚ review of external rating analyses;

‚ strict standards for approving new derivative counterparties;

‚ ongoing monitoring of our positions with each counterparty;

‚ 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 derivative counterparties to conÑrm 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 events aÅecting an individual counterparty occur.

Derivative Counterparties. Our use of OTC interest-rate swaps, option-based derivatives and foreign-currency swaps is

subject to rigorous internal credit and legal reviews. Our derivative counterparties carry external credit ratings among the

highest available from major rating agencies. All of these counterparties are major Ñnancial institutions and are experienced

participants in the OTC derivatives market.

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. See ""NOTE 17: CONCENTRATION OF CREDIT AND OTHER RISKS'' to our consolidated Ñnancial

statements for additional information.

Table 36 summarizes our exposure to counterparty credit risk in our derivatives, which represents the net positive fair

value of derivative contracts and related accrued interest after netting by counterparty as applicable (i.e., net amounts due to

us under derivative contracts). This table is useful in understanding the counterparty credit risk related to our derivative

portfolio.

64 Freddie Mac
Table 36 Ì Derivative Counterparty Credit Exposure

December 31, 2006

Weighted Average

Total Exposure, Contractual

Number of Notional Exposure at Net of Maturity Collateral Posting

Rating(1) Counterparties(2) Amount Fair Value(3) Collateral(4) (in years) Threshold

(dollars in millions)

AAAÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 $ 3,408 $ 411 $411 1.6 Mutually agreed upon

AA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 269,126 2,134 92 4.7 $10 million or less

AA¿ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 278,993 6,264 161 5.2 $10 million or less

A° ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 142,332 1,393 7 6.1 $1 million or less

A¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 210 1 1 5.0 $1 million or less

Subtotal(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27 694,069 10,203 672 5.2

Other derivatives(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 49,554 Ì Ì

Forward purchase and sale commitmentsÏÏÏÏ 10,012 24 24

Credit derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,605 Ì Ì

Swap guarantee derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 957 Ì Ì

Total derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $757,197 $10,227 $696

December 31, 2005

Weighted Average

Total Exposure, Contractual

Number of Notional Exposure at Net of Maturity Collateral Posting

Rating(1) Counterparties(2) Amount Fair Value(3) Collateral(4) (in years) Threshold

(dollars in millions)

AAAÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 $ 3,102 $ 93 $ 93 2.7 Mutually agreed upon

AA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 148,135 619 16 4.3 $10 million or less

AA¿ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 156,058 2,499 73 5.8 $10 million or less

A° ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 227,842 5,297 2 5.8 $1 million or less

A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 24,879 364 5 4.0 $1 million or less

A¿ ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 210 3 1 6.0 $1 million or less

Subtotal(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 560,226 8,875 190 5.3

Other derivatives(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 98,033 Ì Ì

Forward purchase and sale commitmentsÏÏÏÏ 21,961 35 35

Credit derivative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,414 Ì Ì

Swap guarantee derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 738 Ì Ì

Total derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $683,372 $8,910 $225

(1) We use the lower of S&P and Moody's ratings to manage collateral requirements. In this table, the rating of the legal entity is stated in terms of the

S&P equivalent.

(2) Based on legal entities. AÇliated legal entities are reported separately.

(3) For each counterparty, this amount includes derivatives with a net positive fair value (recorded as Derivative assets, at fair value), including the related

accrued interest receivable/payable (net) (recorded in Accounts and other receivables, net or Accrued interest payable).

(4) Total Exposure at Fair Value less collateral held as determined at the counterparty level.

(5) Consists of OTC derivative agreements for interest-rate swaps, option-based derivatives (excluding written options), foreign-currency swaps and

purchased interest-rate caps. 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 speciÑed terms, which generally puts us in a liability position.

(6) Consists primarily of exchange-traded contracts and written options.

Over time, our exposure to individual counterparties for OTC interest-rate swaps, option-based derivatives and foreigncurrency swaps varies depending on changes in fair values, which are aÅected by changes in period-end interest rates, the

implied volatility of interest rates, foreign-currency exchange rates and the amount of derivatives held. Our uncollateralized

exposure to counterparties for these derivatives, after applying netting agreements and collateral, increased to $672 million

at December 31, 2006 from $190 million at December 31, 2005. This increase was primarily due to a signiÑcant increase in

uncollateralized exposure to AAA-rated counterparties, which typically are not required to post collateral given their low

risk proÑle.

At December 31, 2006, the uncollateralized exposure to non-AAA-rated counterparties was primarily due to

uncollateralized exposure 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.

Collateral is typically transferred within one business day based on the values of the related derivatives.

As indicated in Table 36, approximately 93 percent of our counterparty credit exposure for OTC interest-rate swaps,

option-based derivatives and foreign-currency swaps was collateralized at December 31, 2006. If all of our counterparties

for these derivatives had defaulted simultaneously on December 31, 2006, our maximum loss for accounting purposes

would have been approximately $672 million. Our economic loss, as measured by our potential additional uncollateralized

exposure, may be higher than the uncollateralized exposure of our derivatives if we were not able to replace the defaulted

derivatives in a timely fashion. We monitor the risk that our uncollateralized exposure to each of our OTC counterparties

for interest-rate swaps, option-based derivatives and foreign-currency swaps will increase under certain adverse market

65 Freddie Mac
conditions by performing daily market stress tests. These tests evaluate the potential additional uncollateralized exposure we

would have to each of these derivative counterparties assuming changes in the level and implied volatility of interest rates

and changes in foreign-currency exchange rates over a brief time period.

To date, we have not incurred any credit losses on OTC derivative counterparties or set aside speciÑc reserves for

institutional credit risk exposure. We do not believe such reserves are necessary, given our counterparty credit risk

management policies and collateral requirements.

OTC Forward Purchase and Sale Commitments Treated as Derivatives. Because the typical maturity of our OTC

commitments is less than one year, we do not require master netting and collateral agreements for the counterparties of these

commitments. However, we monitor the credit fundamentals of our OTC commitments counterparties on an ongoing basis

to ensure that they continue to meet our internal risk-management standards. As indicated in Table 36, the exposure to

OTC commitments counterparties of $24 million and $35 million at December 31, 2006 and 2005, respectively, was

uncollateralized.

Credit Risks

Our credit guarantee portfolio is 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 or security we own or

guarantee. 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. See ""PORTFOLIO BALANCES AND ACTIVITIES Ì Table 47 Ì Total

Mortgage Portfolio and Total Guaranteed PCs and Structured Securities Issued Based on Unpaid Principal Balances'' for

more information on the composition of our Total mortgage portfolio.

Mortgage Credit Risk

Mortgage Credit Risk Management Strategies. Mortgage credit risk is primarily inÖuenced by the credit proÑle of the

borrower on the mortgage, the features of the mortgage itself, the type of property securing the mortgage and the general

economy. To manage our mortgage credit risk, we focus on three key areas: underwriting requirements and quality control

standards; portfolio diversiÑcation; and portfolio management activities, including loss mitigation and the use of credit

enhancements. While we have historically focused on obtaining credit enhancements at the time of mortgage purchase, we

are continuing to expand our capabilities in this area to allow more active and ongoing credit portfolio rebalancing and risk

transfers.

Underwriting Requirements and Quality Control Standards. All mortgages that we purchase for our Retained

portfolio or guarantee have an inherent risk of default. We seek to manage the underlying risk by adequately pricing for the

risk we assume using our underwriting and quality control processes.

We use a process of delegated underwriting for the single-family mortgages we purchase or securitize. In this process,

we provide originators with a series of mortgage underwriting standards and the originators represent and warrant to us that

the mortgages sold to us meet these requirements. We subsequently review a sample of these loans and, if we determine

that any loan is not in compliance with our contractual standards, we may require the seller/servicer to repurchase that

mortgage or make us whole in the event of a default. We provide originators with written standards and/or automated

underwriting software tools, such as Loan Prospector» and other quantitative credit risk management tools that are designed

to evaluate single-family mortgages and monitor the related mortgage credit risk for loans we may purchase. Loan

Prospector» generates a credit risk classiÑcation by evaluating information on signiÑcant indicators of mortgage default risk,

such as loan-to-value ratios, credit scores and other mortgage and borrower characteristics. These statistically-based risk

assessment tools increase our ability to distinguish among single-family loans based on their expected risk, return and

importance to our mission. In many cases, underwriting standards are tailored under contracts with individual customers. We

have been expanding the share of mortgages we purchase that were underwritten by our seller/servicers using alternative

automated underwriting systems or agreed-upon underwriting standards that diÅer from our system or guidelines. We

regularly monitor the performance of mortgages purchased using these systems and standards, and if they underperform

mortgages originated using Loan Prospector», we may seek additional guarantee fee compensation for future purchases of

similar mortgages.

The percentage of our single-family mortgage purchase volume evaluated using Loan Prospector» prior to purchase has

declined over the last three years. As part of our post-purchase quality control review process, we use Loan Prospector» to

evaluate the credit quality of virtually all single-family mortgages that were not evaluated by Loan Prospector» prior to

purchase. Loan Prospector» risk classiÑcations inÖuence both the price we charge to guarantee loans and the loans we review

in quality control.

For multifamily mortgage loans, we use an intensive pre-purchase underwriting process for the mortgages we purchase,

unless the mortgage loans have signiÑcant credit enhancements. Our underwriting process includes assessments of the local

66 Freddie Mac
market, the borrower, the property manager, the property's historical and projected Ñnancial performance and the

property's physical condition, which may include a physical inspection of the property. In addition to our own inspections, we

rely on third-party appraisals and environmental and engineering reports. Beginning in 2007, we also expect to begin a

program of delegated underwriting for certain multifamily mortgages we purchase or securitize.

Credit Enhancements. Our charter requires that single-family mortgages with loan-to-value ratios above 80 percent at

the time of purchase must be covered by one or more of the following: (a) primary mortgage insurance; (b) a seller's

agreement to repurchase or replace any mortgage in default (for such period and under such circumstances as we may

require); or (c) retention by the seller of at least a 10 percent participation interest in the mortgages. In addition, 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. In many cases, the lender's or third party's risk is limited to a speciÑc level of losses at

the time the credit enhancement becomes eÅective.

At December 31, 2006 and 2005, credit-enhanced single-family mortgages and mortgage-related securities represented

approximately 16 percent and 17 percent of the $1,541 billion and $1,395 billion, respectively, unpaid principal balance of

the Total mortgage portfolio, excluding non-Freddie Mac mortgage-related securities and that portion of issued Structured

Securities that is backed by Ginnie Mae CertiÑcates. We exclude non-Freddie Mac mortgage-related securities because

they expose us primarily to institutional credit risk. We exclude that portion of Structured Securities backed by Ginnie Mae

CertiÑcates because the incremental credit risk to which we are exposed is considered de minimis. See ""CONSOLIDATED BALANCE SHEETS ANALYSIS Ì Table 19 Ì Characteristics of Mortgage Loans and Mortgage-Related

Securities in the Retained Portfolio'' for additional information about our non-Freddie Mac mortgage-related securities. Our

ability and desire to expand or reduce the portion of our Total mortgage portfolio with credit enhancements will depend on

our evaluation of the credit quality of new business purchase opportunities, the risk proÑle of our portfolio and the future

availability of eÅective credit enhancements at prices that permit an attractive return. While the use of credit enhancements

reduces our exposure to mortgage credit risk, it increases our exposure to institutional credit risk.

Primary mortgage insurance is the most prevalent type of credit enhancement protecting our Total mortgage portfolio

and is typically provided on a loan-level basis for certain single-family mortgages. Primary mortgage insurance transfers

varying portions of the credit risk associated with a mortgage to a third-party insurer. The amount of insurance we obtain on

any mortgage depends on our requirements and on our assessment of risk. We may from time to time agree with the insurer

to reduce the amount of coverage that is in excess of our charter's minimum requirement and may also furnish certain

services to the insurer in exchange for fees paid by the insurer. As is the case with credit enhancement agreements generally,

these agreements often improve the overall value of purchased mortgages and thus may allow us to oÅer lower guarantee

fees to sellers.

The second most prevalent type of credit enhancement that we use is pool insurance. 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. For pool insurance contracts that expire before the completion of

the contractual term of the mortgage loan, we seek to ensure that the contracts cover the period of time during which we

believe the mortgage loans are most likely to default.

As of December 31, 2006 and 2005, in connection with PCs and Structured Securities backed by single-family

mortgage loans, we had maximum coverage totaling $30.7 billion and $27.5 billion, respectively, in primary mortgage

insurance. Other forms of credit enhancements on single-family mortgage loans include indemniÑcation agreements (under

which we may require a lender to reimburse us for credit losses realized on mortgages), government guarantees, collateral

(including cash or high-quality marketable securities) pledged by a lender, excess interest and subordinated security

structures. As of December 31, 2006 and 2005, in connection with PCs and Structured Securities backed by single-family

mortgage loans, we had maximum coverage totaling $8.9 billion and $5.6 billion, respectively, in recourse to lenders and

$3.2 billion and $3.4 billion, respectively, in other credit enhancements.

We occasionally use credit enhancements to mitigate risk on multifamily mortgages. The types of credit enhancements

used for multifamily mortgage loans include recourse, third-party guarantees or letters of credit, cash escrows, subordinated

participations in mortgage loans or structured pools, sharing of losses with sellers, and cross-default and crosscollateralization provisions. Cross-default and cross-collateralization provisions typically work in tandem. With a crossdefault provision, if the loan on a property goes into default, we have the right to declare speciÑed other mortgage loans of the

same borrower or certain of its aÇliates to be in default and to foreclose those other mortgages. In cases where the borrower

agrees to cross-collateralization, we have the additional right to apply excess proceeds from the foreclosure of one mortgage

to amounts owed to us by the same borrower or its speciÑed aÇliates relating to other multifamily mortgage loans we own.

We also receive similar credit enhancements for multifamily PC Guarantor Swaps; for tax-exempt multifamily housing

revenue bonds that support pass-through certiÑcates issued by third parties for which we provide our guarantee of the

67 Freddie Mac
payment of principal and interest; for Freddie Mac pass-through certiÑcates that are backed by tax-exempt multifamily

housing revenue bonds and related taxable bonds and/or loans; and for multifamily mortgage loans that are originated and

held by state and municipal agencies to support tax-exempt multifamily housing revenue bonds for which we provide our

guarantee of the payment of principal and interest.

Portfolio DiversiÑcation. A key characteristic of our credit risk portfolio is diversiÑcation along a number of critical

risk dimensions. We continually monitor a variety of mortgage loan characteristics such as product mix, loan-to-value ratios

and geographic concentrations, which may aÅect the default experience on our overall mortgage portfolio. As part of our

risk management practices, we have adopted a set of limits on our purchases and holdings of certain types of newer

nontraditional mortgage products that are deemed to have higher risks or lack suÇcient historical experience to conÑdently

forecast performance expectations over a full housing cycle. These newer loan products include interest-only loans and

option ARMs, loans with high loan-to-value ratios, and mortgages originated with limited or no underwriting

documentation.

To improve our ability to fulÑll our mission, we have increased our participation in nontraditional mortgage market

products. To that end, we issue Structured Securities backed by mortgage loans or mortgage-related securities using

collateral pools transferred to trusts that were speciÑcally created for the purpose of issuing the securities. These trusts issue

various senior interests, subordinated interests or both. We purchase senior interests of the trusts and simultaneously issue

and guarantee Structured Securities backed by these interests. We refer to these Structured Securities as Structured

Transactions. Although Structured Transactions generally have underlying mortgage loans with higher risk characteristics,

they may aÅord us credit protection from losses due to the structure employed and other credit enhancement features.

Product mix aÅects the credit risk proÑle of our Total mortgage portfolio. In general, 15-year amortizing Ñxed-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 proÑles of borrowers who seek and qualify for

them. The next lowest rate of default is associated with 30-year amortizing Ñxed-rate mortgages. In a rising interest

environment, balloon/reset mortgages and ARMs typically default at a higher rate than Ñxed-rate mortgages, although

default rates for diÅerent types of ARMs may vary. In the low interest rate environment experienced during 2006, 2005 and

2004, this trend was reversed with ARMs exhibiting lower default rates than Ñxed-rate mortgages. Table 37 provides the

distribution of our Total mortgage portfolio.

Table 37 Ì Product Distribution(1)(2)

December 31,

2006 2005

(dollars in millions)

Unpaid Principal Balances related to:

Guaranteed PCs and Structured Securities:

Single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,442,306 $1,294,521

Multifamily ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,415 14,503

Structured Securities backed by non-Freddie Mac mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26,302 26,500

Mortgage loans in the Retained portfolio:

Single-Family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20,640 20,396

Multifamily ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45,207 41,085

Total Unpaid Principal Balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,542,870 $1,397,005

Product Distribution

Single-family

30-year amortizing Ñxed-rate(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 63% 59%

15-year amortizing Ñxed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19 23

ARMs/Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 8

Option ARMsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 1

Interest OnlyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 2

Balloon/Resets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 2

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 1

Total single-familyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 97% 96%

Multifamily

Conventional(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3% 4%

Total multifamilyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3% 4%

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 100%

(1) Based on unpaid principal balances.

(2) Excludes non-Freddie Mac mortgage-related securities held in our Retained portfolio other than those that underlie Freddie Mac Structured

Securities.

(3) Includes 40-year and 20-year Ñxed-rate mortgages.

(4) Also includes Structured Transactions backed by multifamily collateral.

68 Freddie Mac
During the past several years, there was a rapid proliferation of nontraditional mortgage product types designed to

address a variety of borrower and lender needs, including issues of aÅordability and reduced income documentation

requirements. While features of these products have been on the market for some time, their prevalence in the market and

our Total mortgage portfolio increased in 2006 and 2005. See ""REGULATION AND SUPERVISION Ì OÇce of

Federal Housing Enterprise Oversight Ì Nontraditional Mortgage Product Risks'' and ""RISK FACTORS Ì Legal and

Regulatory Risks.'' We expect each of these products to default more often than traditional products and we consider this

when determining our credit and guarantee fees. Our purchases of interest-only and option ARM mortgage products

increased in 2006, representing approximately 18 percent of our Total mortgage portfolio purchases as compared to

11 percent in 2005. Despite this recent increase in purchases, these products represent a small percentage of the unpaid

principal balance of our Total mortgage portfolio. At December 31, 2006 and 2005, interest-only and option ARMs

collectively represented approximately 6 percent and 3 percent, respectively, of the unpaid principal balance of the Total

mortgage portfolio. We will continue to monitor the growth of these products in our portfolio and, if appropriate, may seek

credit enhancements to further manage the incremental risk.

Interest-only and option ARM loans. These mortgages are designed to allow borrowers to have Öexibility in their

payment terms. Interest-only mortgages allow the borrower to pay only interest for a Ñxed period of time before the loan

begins to amortize. Option ARM loans permit a variety of repayment options, which include minimum, interest only, fully

amortizing 30-year and fully amortizing 15-year payments. Minimum payment option loans allow the borrower to make

monthly payments that are 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. The amount of

option ARM mortgages within our Total mortgage portfolio was 1 percent for both 2006 and 2005 and the amount of related

negative amortization in both years was not material.

We also hold securities issued by third parties where the underlying collateral may include interest-only and option

ARM mortgage products. Delinquencies on total interest-only and option ARM products increased to 0.41 percent in 2006

from 0.08 percent in 2005. Mortgages generally have a lower rate of delinquency in the year in which they are originated.

We generally mitigate credit risk inherent in these securities through a guarantee from the third party issuer or the

underlying structure of the security. For additional information about the credit quality and credit risk management of nonFreddie Mac securities we hold see ""Institutional Credit Risk Ì Non-Freddie Mac Mortgage-Related Securities'' and

""CONSOLIDATED BALANCE SHEETS ANALYSIS Ì Retained Portfolio.''

Subprime loans. Participants in the mortgage market often characterize loans based upon their overall credit quality

at the time of origination, generally considering them to be prime or subprime. There is no universally accepted deÑnition 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 a combination of high loan-to-value ratios, low FICO scores

or originations using lower underwriting standards such as limited or no documentation of a borrower's income. The

subprime market helps certain borrowers by increasing the availability of mortgage credit.

While we do not characterize the single-family loans underlying the PCs and Structured Securities in our credit

guarantee portfolio as either prime or subprime, we believe that, based on lender-type, underwriting practice and product

structure, the number of loans underlying these securities that are subprime is not signiÑcant. Also included in our credit

guarantee portfolio are Structured Securities backed by non-agency mortgage-related securities where the underlying

collateral was identiÑed as being subprime by the original issuer. At December 31, 2006 and 2005, the Structured Securities

backed by subprime mortgages constituted approximately 0.1 percent and 0.2 percent, respectively of our credit guarantee

portfolio.

With respect to our Retained portfolio, we do not believe that any meaningful amount of the agency securities we hold is

backed by subprime mortgages. However, at December 31, 2006 and 2005, we held approximately $124 billion and

$139 billion, respectively, of non-agency mortgage-related securities backed by subprime loans. These securities include

signiÑcant credit enhancement based on their structure and more than 99.9 percent of these securities were rated AAA at

December 31, 2006.

We announced on February 27, 2007 that we would implement stricter investment standards for certain subprime

ARMs with short adjustment periods originated after September 1, 2007. First, we will only buy ARMs, and mortgagerelated securities backed by those loans, for which borrowers have been qualiÑed at the fully-indexed and fully-amortizing

rate in order to help protect these borrowers from the payment shock that could occur when the interest rates on their

ARMs increase. Second, we will limit the use of low-documentation underwriting for these types of mortgages to help

ensure that borrowers have the income necessary to aÅord their homes.

69 Freddie Mac
Table 38 Ì Characteristics of Single-Family Total Mortgage Portfolio(1)

Purchases During

the Year Ended Ending Balance

December 31, December 31,

2006 2005 2004 2006 2005 2004

Original Loan-to-Value, or LTV, Ratio Range(2)

Less than 60%ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19% 21% 23% 24% 25% 26%

Above 60% to 70% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14 16 16 16 17 17

Above 70% to 80% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 54 50 46 46 44 42

Above 80% to 90% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 7 8 7 8 9

Above 90% to 100% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 6 7 7 6 6

TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 100% 100% 100% 100% 100%

Weighted average original loan-to-value ratio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 73% 71% 71% 70% 70% 70%

Estimated Current LTV Ratio Range(3)(4)

Less than 60% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 53% 56% 52%

Above 60% to 70% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17 18 19

Above 70% to 80% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18 18 18

Above 80% to 90% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 6 7

Above 90% to 100% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 2 3

Above 100% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 Ì 1

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 100% 100%

Weighted average estimated current LTV ratio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 57% 56% 58%

Credit Score(5)

740 and aboveÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42% 44% 41% 45% 45% 44%

700 to 739 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 24 23 24 23 23 23

660 to 699 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19 19 20 18 18 18

620 to 659 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10 10 11 9 9 9

Less than 620 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 4 4 4 4 4

Not Available ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì 1 1 2

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 100% 100% 100% 100% 100%

Weighted average credit score ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 720 722 719 725 725 723

Loan Purpose

Purchase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 53% 44% 40% 37% 32% 28%

Cash-out reÑnance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32 35 27 29 29 27

Other reÑnanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15 21 33 34 39 45

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 100% 100% 100% 100% 100%

Property Type

1 unit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 97% 97% 97% 97% 97% 97%

2-4 units ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 3 3 3 3 3

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 100% 100% 100% 100% 100%

Occupancy Type

Primary residenceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 89% 91% 92% 92% 93% 94%

Second/vacation home ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 5 4 5 4 3

Investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 4 4 3 3 3

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 100% 100% 100% 100% 100%

(1) Purchases and ending balances are based on the unpaid principal balance of the single-family mortgage portfolio (excluding certain Structured Securities that

are backed by non-Freddie Mac mortgage-related securities). Such purchases included in the data totaled $358 billion, $396 billion and $360 billion at

December 31, 2006, 2005 and 2004, respectively. Such ending balances included in the data totaled $1,482 billion, $1,333 billion and $1,203 billion at

December 31, 2006, 2005 and 2004, respectively.

(2) Our charter requires that mortgage loans purchased with loan-to-value ratios above 80 percent be covered by mortgage insurance or other credit enhancements.

(3) Current market values are estimated by adjusting the value of the property at origination based on changes in the market value of homes since origination.

Estimated current LTV excludes Structured Transactions and option ARMs. Estimated current LTV ratio range is not applicable to purchases made during

the year.

(4) 2005 and 2004 ratios have been revised to conform to the current year presentation.

(5) Credit score data are as of mortgage loan origination.

Loan-to-Value Ratios. An important safeguard against credit losses for mortgage loans in our single-family, noncredit-enhanced portfolio is provided by the borrowers' equity in the underlying properties. Mortgage loans with higher loanto-value ratios (and therefore lower levels of borrower equity) at the time of purchase are also protected by credit

enhancements, because our charter requires that loans with loan-to-value ratios above 80 percent at the time of purchase be

covered by mortgage insurance or certain other credit protections.

The likelihood of single-family mortgage default depends not only on the initial credit quality of the loan, but also on

events that occur after origination. Accordingly, we monitor changes in home prices across the country and the impact of

70 Freddie Mac
these home price changes on the underlying loan-to-value ratio of mortgages in our portfolio. While home prices rose

signiÑcantly over the previous 10 years, this growth has slowed signiÑcantly in 2006 and home prices have declined in some

parts of the United States. Home price appreciation over the past several years has increased the values of properties

underlying the mortgages in our portfolio. We monitor regional geographic markets for changes in these trends, particularly

with respect to new loans originated in regional markets that have had signiÑcant home price appreciation, and we may seek

to reinsure a portion of this risk should we determine that the possibility of such changes warrants action. Historical

experience has shown that defaults are less likely to occur on mortgages with lower estimated current loan-to-value ratios. In

the event of a default, lower loan-to-value ratios generally reduce the total amount of loss, thereby mitigating credit losses.

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 and predict

the likelihood that a borrower will repay future obligations as expected. FICO» scores, developed by Fair, Isaac and Co.,

Inc., are the most commonly used credit scores today. FICO» scores are ranked on a scale of approximately 300 to

850 points. Statistically, consumers with higher credit scores are more likely to repay their debts as expected than those with

lower scores. At December 31, 2006, 2005 and 2004, the weighted average credit score for the Total mortgage portfolio

(based on the credit score at origination) remained high at 725, 725 and 723, respectively, indicating borrowers with strong

credit quality.

Loan Purpose. Mortgage loan purpose indicates how the borrower intends to use the funds from a mortgage loan. The

three general categories are: purchase, cash-out reÑnance and other reÑnance. In a purchase transaction, funds are used to

acquire a property. In a cash-out reÑnance transaction, in addition to paying oÅ an existing Ñrst mortgage lien, the borrower

obtains additional funds that may be used for other purposes, including paying oÅ subordinate mortgage liens and providing

unrestricted cash proceeds to the borrower. In other reÑnance transactions, the funds are used to pay oÅ an existing Ñrst

mortgage lien and may be used in limited amounts for certain speciÑed purposes; such reÑnances are generally referred to as

""no cash-out'' or ""rate and term'' reÑnances. Other reÑnance transactions also include reÑnance mortgages for which the

delivery data provided was not suÇcient for us to determine whether the mortgage was a cash-out or a no cash-out reÑnance

transaction. The portion of our single-family mortgage purchases that were reÑnance-related declined in 2006 as interest

rates increased during the year. Given similar loan characteristics (e.g., loan-to-value ratios), purchase transactions have the

lowest likelihood of default followed by no cash-out reÑnances and then cash-out reÑnances. As a practical matter, however,

no cash-out reÑnances tend to have lower loan-to-value ratios, borrowers with higher credit scores and better overall

performance than purchase transactions.

Property Type. Single-family mortgage loans are deÑned as mortgages secured by housing with up to four living units.

Mortgages on one-unit properties tend to have lower credit risk than mortgages on multiple-unit properties.

Occupancy Type. Borrowers may purchase a home as a primary residence, second/vacation home or investment

property that is typically a rental property. Mortgage loans on properties occupied by the borrower as a primary or secondary

residence tend to have a lower credit risk than mortgages on investment properties.

Geographic Concentration. Because our business involves purchasing mortgages from every geographic region in the

U.S., we maintain a geographically diverse mortgage portfolio. This diversiÑcation generally mitigates credit risks arising

from changing local economic conditions. Our Total mortgage portfolio's geographic distribution was relatively stable from

2004 to 2006, and remains broadly diversiÑed across these regions. See ""NOTE 17: CONCENTRATION OF CREDIT

AND OTHER RISKS'' to our consolidated Ñnancial statements for more information concerning the distribution of our

Total mortgage portfolio by geographic region.

Loss Mitigation Activities. Loss mitigation activities are a key component of our strategy for managing and resolving

troubled assets and lowering credit losses. Our single-family loss mitigation strategy emphasizes early intervention in

delinquent mortgages and providing alternatives to foreclosure. Other single-family loss mitigation activities include

providing our single-family servicers with default management tools designed to help them manage non-performing loans

more eÅectively and support fulÑllment of our mission by assisting borrowers in retaining home ownership. Foreclosure

alternatives are intended to reduce the number of delinquent mortgages that proceed to foreclosure and, ultimately, mitigate

our total credit losses by eliminating a portion of the costs related to foreclosed properties and avoiding the credit loss in

REO. Repayment plans, the most common type of foreclosure alternative, mitigate our credit losses because they assist

borrowers in returning to compliance with the original terms of their mortgages. Forbearance agreements, the second most

common type of foreclosure alternative, provide a temporary suspension of the foreclosure process to allow additional time

for the borrower to return to compliance with the original terms of the borrower's mortgage or to implement another

foreclosure alternative. Loan modiÑcations, the third most common type of foreclosure alternative, involve changing the

terms of a mortgage, such as the loan term. The total number of loans with foreclosure alternatives was approximately

59,100, 60,000 and 48,300 for the years ended December 31, 2006, 2005 and 2004, respectively. In 2005, the total number of

71 Freddie Mac
loans with foreclosure alternatives increased as forbearance agreements were extended to single-family borrowers aÅected

by Hurricane Katrina in an eÅort to mitigate the risk of default and foreclosure and assist impacted borrowers. In 2006, the

number of loans with foreclosure alternatives declined slightly as loans previously subject to forbearance either resumed

payments, paid-oÅ or defaulted. However, the number of loans with foreclosure alternatives in the North Central region of

the U.S., which has been adversely aÅected by a downturn in the automotive industry, increased.

We require multifamily seller/servicers to closely manage mortgage loans they have sold us in order to mitigate

potential losses. For loans over $1 million, servicers must generally submit an annual assessment of the mortgaged property

to us based on the servicer's analysis of Ñnancial and other information about the property and, except for certain higher

performing loans, an inspection of the property. We evaluate these assessments internally and may direct the servicer to

take speciÑc actions to reduce the likelihood of delinquency or default. If a loan defaults despite this intervention, we may

oÅer a foreclosure alternative 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. Because multifamily

seller/servicers are an important part of our loss mitigation process, we rate their performance regularly and conduct on-site

reviews of their servicing operations to conÑrm compliance with our standards.

Within our Total mortgage portfolio, our pricing reÖects our expectation that some mortgage loans will become nonperforming due to changes in general economic conditions, the Ñnancial status of individual borrowers or other factors.

Table 39 summarizes our non-performing assets.

Table 39 Ì Non-Performing Assets

Based on unpaid principal balance

December 31,

2006 2005 2004 2003 2002

(in millions)

Troubled debt restructuring:

Reperforming or less than 90 days delinquent(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,633 $2,108 $1,807 $ 1,874 $1,776

Serious delinquencies(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 470 497 490 496 388

Total troubled debt restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,103 2,605 2,297 2,370 2,164

Other serious delinquencies(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,700 6,438 6,318 7,470 6,830

Non-accrual multifamily loans(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 1 27 21 47

Subtotal(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,803 9,044 8,642 9,861 9,041

REO, net(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 743 629 741 795 594

TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $9,546 $9,673 $9,383 $10,656 $9,635

Detail of other serious delinquencies:(7)

Retained and repurchased mortgage loans(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,982 $2,889

Loans underlying outstanding PCs and Structured Securities(8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,721 2,100

Loans underlying outstanding Structured Transactions(9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 997 1,449

Total serious delinquencies(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,700 $6,438

(1) Includes previously delinquent loans whose terms have been modiÑed.

(2) Includes single-family loans 90 days or more delinquent. We fully reserve current period accruals for mortgages greater than 120 days delinquent. For

serious delinquencies in restructurings, we also fully reserve all uncollected interest after a mortgage becomes 90 days delinquent.

(3) Includes single-family loans 90 days or more delinquent and not in troubled debt restructurings. For multifamily loans, the population includes all loans

60 days or more delinquent but less than 90 days delinquent. Also included are multifamily loans greater than 90 days past due but where principal and

interest are being paid to us under the terms of a credit enhancement agreement. For more information about delinquency rates, see ""Table 6.3 Ì

Delinquency Performance'' in ""NOTE 6: LOAN LOSS RESERVES'' to our consolidated Ñnancial statements.

(4) Non-accrual mortgage loans are loans for which interest income is recognized only on a cash basis and only include multifamily loans that are 90 days

or more delinquent. No single-family mortgage loans in our Retained portfolio are classiÑed as non-accrual, since we generally begin establishing

reserves for current accruals after 90 days delinquency.

(5) For the year ended December 31, 2006, $481 million was included in Net interest income and Management and guarantee income related to these

mortgage loans. The amount of forgone net interest income and additional management and guarantee income that we would have recorded had these

loans been current is $34 million for the year ended December 31, 2006.

(6) For more information about REO balances, see ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' and ""NOTE 7: REAL

ESTATE OWNED'' to our consolidated Ñnancial statements.

(7) Detail of other serious delinquencies is not available for 2004, 2003 and 2002.

(8) Includes mortgages greater than 90 days, but generally less than 120 days, delinquent. Once a loan is delinquent for 120 days it is generally repurchased

out of the security and becomes part of our Retained portfolio.

(9) Consists of mortgages 90 days or more delinquent that underlie the non-agency securities that back our Structured Transactions.

Total non-performing assets declined during 2006 as many of the mortgages aÅected by Hurricane Katrina in 2005 have

resumed payments following the forbearance period we oÅered and others were modiÑed from their original terms to help

borrowers avoid foreclosure. Many of these loans were reported as serious delinquencies at the end of 2005, but have been

reclassiÑed to troubled debt restructuring in 2006, as a result of loss mitigation activities. In addition, the increase in the

REO balance is attributable to lower turnover caused by slower disposition of properties in the North Central region as well

as an increase in market values of the new REO inventory due to appreciation in all regions over the last few years. The

increase in troubled debt restructurings and serious delinquencies from 2004 to 2005 was in part a result of the eÅects of

Hurricane Katrina as well as increases in the North Central region.

72 Freddie Mac
Other Credit Risk Management Activities. To compensate us for unusual levels of risk in some mortgage products, we

may charge incremental fees above a base guarantee fee calculated based on credit risk factors such as the mortgage product

type, loan purpose, loan-to-value ratio, and other loan or borrower attributes. In addition, we occasionally use Ñnancial

incentives and credit derivatives, as described below, in situations where we believe they will beneÑt our credit risk

management strategy. These arrangements are intended to reduce our credit-related expenses, thereby improving our overall

returns.

In some cases, we provide Ñnancial incentives in the form of lump sum payments to selected seller/servicers if they

deliver a speciÑed volume or percentage of mortgage loans meeting speciÑed credit risk standards over a deÑned period of

time. These Ñnancial incentives may also take the form of a fee payable to us by the seller if the mortgages delivered to us

do not meet certain credit standards.

We have also entered into credit derivatives, including risk-sharing agreements. Under these risk-sharing agreements,

default losses on speciÑc mortgage loans delivered by sellers are compared to default losses on reference pools of mortgage

loans with similar characteristics. Based upon the results of that comparison, we remit or receive payments based upon the

default performance of the speciÑed mortgage loans. These agreements are accounted for as credit derivatives rather than

Ñnancial guarantees, in part, because we may make payments to the seller/servicer under these agreements (depending upon

actual default experience over the lives of the mortgages). The total notional amount of mortgage loans subject to these

agreements was approximately $1.9 billion and $2.4 billion at December 31, 2006 and 2005, respectively. In addition, the

total notional amount of mortgage loans in other credit derivatives was approximately $0.7 billion and $Ì billion at

December 31, 2006 and 2005, respectively. All credit derivatives were classiÑed as no hedge designation. The fair value of

these credit derivatives was not material at either December 31, 2006 or 2005.

Although these arrangements are part of our overall credit risk management strategy, we have not treated them as credit

enhancements for purposes of describing our Total mortgage portfolio characteristics because the risk-sharing and credit

derivative agreements may result in us making payments to the seller/servicer.

Delinquencies. We report single-family delinquency information based on the number of single-family mortgages that

are 90 days or more past due or in foreclosure. For multifamily loans, we report the delinquency when payment is 60 days or

more past due. Delinquencies on mortgage loans underlying Structured Transactions may be categorized as delinquent on a

diÅerent schedule than other mortgage loans due to variances in industry practice. We include all the single-family loans that

we own and those that are collateral for our PCs and Structured Securities, including those with signiÑcant credit

enhancement, in the calculation of delinquency information; however, we exclude that portion of Structured Securities that

is backed by Ginnie Mae CertiÑcates and certain Structured Transactions where delinquency data on the underlying

mortgage-related securities is not available. The Structured Transactions we have excluded represented 0.06 percent,

0.04 percent and 0.07 percent of our Total mortgage portfolio at December 31, 2006, 2005 and 2004, respectively, and these

securities were shadow rated AAA at the initial securitization. Shadow ratings are credit assessments performed by a rating

agency at time of origination, but are not published nor subsequently monitored. Multifamily delinquencies may include

mortgage loans where the borrowers are not paying as agreed, but principal and interest are being paid to us under the terms

of a credit enhancement agreement. Table 40 presents delinquency information for the single-family loans underlying our

Total mortgage portfolio.

Table 40 Ì Single-Family Ì Delinquency Rates Ì By Region(1)

December 31,

2006 2005 2004

Northeast(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.24% 0.22% 0.24%

Southeast(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.30 0.38 0.31

North Central(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.32 0.30 0.27

Southwest(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.26 0.64 0.26

West(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.12 0.11 0.15

Total non-credit-enhanced Ì all regions(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.25 0.30 0.24

Total credit-enhanced Ì all regions(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.86 2.46 2.75

Total credit-enhanced and non-credit-enhanced Ì all regions(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.53% 0.69% 0.73%

(1) 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). Beginning in 2005, Puerto Rico and Virgin Islands were reclassiÑed from Northeast to Southeast.

(2) Based on mortgage loans in the Retained portfolio and Total Guaranteed PCs and Structured Securities Issued, excluding that portion of Structured

Securities that is backed by Ginnie Mae CertiÑcates and Structured Transactions.

(3) Based on mortgage loans in the Retained portfolio and Total Guaranteed PCs and Structured Securities Issued, excluding that portion of Structured

Securities that is backed by Ginnie Mae CertiÑcates.

Our total single-family delinquency rate has declined over the past three years, with some regional variation, reÖecting

generally strong economic conditions and strong, but recently slowing, home price appreciation.

73 Freddie Mac
Both our total credit-enhanced and total non-credit-enhanced delinquency rates improved in 2006. Many of the loans in

the Southwest and Southeast regions that were aÅected by Hurricane Katrina, and were delinquent at the end of 2005,

resumed payments following the forbearance period we oÅered and others were modiÑed from their original terms to help

borrowers avoid foreclosure. Excluding the loans aÅected by Hurricane Katrina, our total non-credit-enhanced delinquency

rate at December 31, 2006 was unchanged from December 31, 2005. However, the total non-credit-enhanced delinquency

rate for the North Central region rose in 2006, primarily due to a regional economic downturn.

In addition to the improvement attributable to loans aÅected by Hurricane Katrina, our total credit-enhanced

delinquency rate declined as the number of loans added to the portfolio increased. The delinquency rates on new loans are

generally lower than more seasoned loans and we expect that delinquency rates for these loans will increase as they age.

Our multifamily delinquency rate remained very low at 0.05 percent, zero percent and 0.06 percent at the end of 2006,

2005 and 2004, respectively. Hurricane Katrina has not aÅected our reported multifamily delinquency rate because the

contractual terms of certain aÅected mortgage loans, with unpaid principal balances totaling $149 million at December 31,

2006, were modiÑed.

Table 41 Ì Single-Family Mortgages By Year of Origination Ì Percentage of Mortgage Portfolio and Non-CreditEnhanced Delinquency Rates(1)

December 31,

2006 2005 2004

Percent of Non-Credit- Percent of Non-Credit- Percent of Non-CreditSingle-Family Enhanced Single-Family Enhanced Single-Family Enhanced

Year of Origination UPB Balance Delinquency Rate UPB Balance Delinquency Rate UPB Balance Delinquency Rate

Pre-1999 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3% 0.57% 5% 0.70% 7% 0.61%

1999ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 0.67 1 0.89 2 0.78

2000ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ G1 1.83 G1 2.09 1 1.94

2001ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 0.60 4 0.75 6 0.59

2002ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 0.32 11 0.38 16 0.26

2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26 0.15 34 0.17 44 0.06

2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 0.22 21 0.21 24 0.03

2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23 0.19 24 0.08 Ì Ì

2006ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19 0.09 Ì Ì Ì Ì

At December 31, 100% 0.25% 100% 0.30% 100% 0.24%

(1) Excludes Structured Transactions.

Our single-family portfolio was aÅected by heavy reÑnance volumes in recent years. At December 31, 2006,

approximately 58 percent of our single-family mortgage portfolio consisted of mortgage loans originated in 2006, 2005 or

2004. Mortgage loans originated in 2003 and earlier, which represent approximately 42 percent of our single-family mortgage

portfolio, have delinquency rates that are generally higher than the overall portfolio delinquency rate due to the natural

aging of the loans and, in some instances, the weaker credit quality of these loans. The Ñrst year delinquency rate associated

with new originations increased in each of the last three years due to a number of factors, including the expansion of credit

terms under which loans are underwritten and an increase in our purchases of variable-rate and non-traditional mortgage

products that have higher inherent credit risk than traditional Ñxed-rate mortgage products.

74 Freddie Mac
Table 42 Ì Single-Family Ì Delinquency Rates Ì By Product

Non-Credit-Enhanced, December 31,

2006 2005 2004

Percent of Percent of Percent of

Number of Number of Number of

Single- Single- SingleFamily Delinquency Family Delinquency Family Delinquency

Loans Rate Loans Rate Loans Rate

Conventional:

30-year amortizing Ñxed rate(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 55% 0.31% 52% 0.40% 49% 0.36%

15-year amortizing Ñxed rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34 0.14% 38 0.19% 42 0.12%

ARMs/Variable rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 0.26% 6 0.23% 7 0.17%

Interest Only ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 0.30% 1 0.04% Ì Ì

Balloon/Resets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 0.19% 2 0.19% 2 0.12%

Total Mortgage Loans, PCs and Structured Securities ÏÏÏÏÏÏÏÏÏÏÏ 99 0.25% 99 0.30% 100 0.24%

Structured Transactions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 0.26% 1 0.08% Ì Ì

Total Mortgage Portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 0.25% 100% 0.30% 100% 0.24%

Number of single-family loans (in millions)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9.22 8.67 8.19

Credit-Enhanced(2), December 31,

2006 2005 2004

Percent of Percent of Percent of

Number of Number of Number of

Single- Single- SingleFamily Delinquency Family Delinquency Family Delinquency

Loans Rate Loans Rate Loans Rate

Conventional:

30-year amortizing Ñxed rate(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 76% 1.32% 73% 1.74% 71% 1.69%

15-year amortizing Ñxed rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 0.64% 9 0.81% 11 0.53%

ARMs/Variable rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 1.24% 7 1.08% 7 0.81%

Interest Only ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 1.05% 2 0.23% Ì Ì

Balloon/Resets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 0.98% 1 0.91% 1 0.63%

FHA/VAÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 2.99% 2 4.03% 2 3.88%

Rural Housing Service and other federally guaranteed loans ÏÏÏÏ 1 2.65% 1 3.34% 1 3.20%

Total Mortgage Loans, PCs and Structured Securities ÏÏÏÏÏÏÏÏÏÏÏ 96 1.30% 95 1.61% 93 1.53%

Structured Transactions(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 14.82% 5 19.19% 7 19.24%

Total Mortgage Portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 1.86% 100% 2.46% 100% 2.75%

Number of single-family loans (in millions)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.94 1.91 1.99

Total, December 31,

2006 2005 2004

Percent of Percent of Percent of

Number of Number of Number of

Single- Single- SingleFamily Delinquency Family Delinquency Family Delinquency

Loans Rate Loans Rate Loans Rate

Conventional:

30-year amortizing Ñxed rate(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 60% 0.54% 56% 0.72% 53% 0.71%

15-year amortizing Ñxed rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29 0.16% 33 0.22% 36 0.15%

ARMs/Variable rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 0.44% 6 0.40% 7 0.31%

Interest Only ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 0.44% 1 0.10% Ì Ì

Balloon/Resets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 0.25% 2 0.25% 2 0.17%

FHA/VAÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ G 1 2.99% G 1 4.03% G1 3.88%

Rural Housing Service and other federally guaranteed loans ÏÏÏÏ G 1 2.65% G 1 3.34% G1 3.20%

Total Mortgage Loans, PCs and Structured Securities ÏÏÏÏÏÏÏÏÏÏÏ 99 0.42% 98 0.53% 98 0.48%

Structured Transactions(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 7.71% 2 10.79% 2 16.01%

Total Mortgage Portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100% 0.53% 100% 0.69% 100% 0.73%

Number of single-family loans (in millions)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11.16 10.58 10.18

Net Charge-oÅs (dollars in millions)

Mortgage Loans, PCs and Structured Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 141 $ 101 $ 140

Structured Transactions(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 Ì Ì

Total Mortgage Portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 142 $ 101 $ 140

(1) Includes 40-year and 20-year Ñxed-rate mortgages.

(2) Credit-enhanced loans are primarily those mortgage loans for which a third party has primary default risk. The total credit-enhanced unpaid principal

balance as of December 31, 2006, 2005 and 2004 was $266 billion, $253 billion and $248 billion, respectively, for which the maximum coverage of

third party primary liability was $58 billion, $53 billion and $52 billion, respectively.

(3) Structured Transactions generally have underlying mortgage loans with higher risk characteristics but provide inherent credit protection from losses

due to the structure employed, including subordination, excess interest, overcollateralization and other features.

75 Freddie Mac
Credit Loss Performance. Table 43 provides detail on our credit loss performance, including REO activity, charge-oÅs

and credit losses.

Table 43 Ì Credit Loss Performance

Year Ended December 31,

2006 2005 2004

(dollars in millions)

REO

REO balances:

Single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 734 $ 611 $ 740

MultifamilyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 18 1

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 743 $ 629 $ 741

REO activity (number of properties):(1)

Beginning property inventory, at January 1 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,070 9,604 9,170

Properties acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16,387 15,861 18,489

Properties disposed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (15,672) (17,395) (18,055)

Ending property inventory, at December 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,785 8,070 9,604

Average holding period (in days)(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 175 186 177

REO operations income (expense):

Single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (61) $ (40) $ (1)

MultifamilyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 Ì 4

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (60) $ (40) $ 3

CHARGE-OFFS

Single-family:

Foreclosure alternatives, gross ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (50) $ (44) $ (47)

Recoveries(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11 23 21

Foreclosure alternatives, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (39) (21) (26)

REO acquisitions, gross ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (258) (242) (253)

Recoveries(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 155 162 139

REO acquisitions, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (103) (80) (114)

Single-family totals:

Charge-oÅs, grossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (308) (286) (300)

Recoveries(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 166 185 160

Single-family charge-oÅs, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (142) (101) (140)

Multifamily:

Charge-oÅs, grossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5) (8) Ì

Recoveries(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì

Multifamily charge-oÅs, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5) (8) Ì

Total Charge-oÅs:

Charge-oÅs, grossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (313) (294) (300)

Recoveries:

Related to primary mortgage insuranceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 112 119 85

Not related to primary mortgage insurance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 54 66 75

Total recoveries(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 166 185 160

Charge-oÅs, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (147) $ (109) $ (140)

CREDIT LOSSES(4)

Single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (203) $ (141) $ (141)

MultifamilyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4) (8) 4

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (207) $ (149) $ (137)

In basis points:(5)

Single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1.4) (1.1) (1.1)

MultifamilyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1.4) (1.1) (1.1)

(1) Includes single-family and multifamily REO properties.

(2) Represents weighted average holding period for single-family and multifamily properties based on number of REO properties disposed.

(3) Includes recoveries of charge-oÅs primarily resulting 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. Recoveries of charge-oÅs through credit enhancements

are limited in some instances to amounts less than the full amount of the loss.

(4) Equal to REO operations income (expense) plus Charge-oÅs, net.

(5) Calculated as credit losses divided by the average Total mortgage portfolio, excluding non-Freddie Mac mortgage-related securities and that portion of

Structured Securities that is backed by Ginnie Mae CertiÑcates.

Table 44 and Table 45 provide detail by region for two credit performance statistics, REO activity and charge-oÅs.

Regional REO acquisition and charge-oÅ trends generally follow a pattern that is similar to, but lags, that of regional

delinquency trends. Increases in the volume of REO properties in the North Central region were driven by impacts to

borrowers aÅected by an economic downturn and weakening housing markets within the region.

76 Freddie Mac
Table 44 Ì REO Activity By Region(1)

Year Ended December 31,

2006 2005 2004

(number of properties)

REO Inventory

Beginning property inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,070 9,604 9,170

Properties acquired by region:

NortheastÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,253 1,306 1,500

SoutheastÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,970 4,504 5,499

North Central ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,237 5,790 5,787

Southwest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,497 3,412 3,926

WestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 430 849 1,777

Total properties acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16,387 15,861 18,489

Properties disposed by region:

NortheastÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,260) (1,384) (1,562)

SoutheastÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4,132) (5,221) (5,596)

North Central ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (6,294) (5,715) (5,111)

Southwest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3,441) (3,820) (3,605)

WestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (545) (1,255) (2,181)

Total properties disposed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (15,672) (17,395) (18,055)

Ending property inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,785 8,070 9,604

(1) See ""Table 40 Ì Single-Family Ì Delinquency Rates Ì By Region'' for a description of these regions.

Table 45 Ì Single-Family Charge-oÅs and Recoveries By Region(1)(2)

Year Ended December 31,

2006 2005 2004

Charge-oÅs, Charge-oÅs, Charge-oÅs, Charge-oÅs, Charge-oÅs, Charge-oÅs,

gross Recoveries net gross Recoveries net gross Recoveries net

(in millions)

Northeast ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 22 $ (9) $ 13 $ 21 $ (10) $ 11 $ 24 $ (10) $ 14

Southeast ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 72 (42) 30 76 (54) 22 84 (49) 35

North CentralÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 133 (66) 67 102 (66) 36 92 (49) 43

Southwest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 73 (44) 29 68 (44) 24 66 (35) 31

West ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 (5) 3 19 (11) 8 34 (17) 17

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $308 $(166) $142 $286 $(185) $101 $300 $(160) $140

(1) See ""Table 40 Ì Single-Family Ì Delinquency Rates Ì By Region'' for a description of these regions.

(2) Includes recoveries of charge-oÅs primarily resulting 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. Recoveries of charge-oÅs through credit enhancements

are limited in some instances to amounts less than the full amount of the loss.

Single-family charge-oÅs, gross, increased in 2006 primarily due to a modest increase in the volume of REO properties

acquired at foreclosure, as noted in Table 44.

We maintain two loan loss reserves Ì Reserve for losses on mortgage loans held-for-investment and Reserve for

guarantee losses on Participation CertiÑcates Ì at levels we deem adequate to absorb probable incurred losses on mortgage

loans held-for-investment in the Retained portfolio and certain mortgages underlying PCs held by third parties. See

""CRITICAL ACCOUNTING POLICIES AND ESTIMATES Ì Credit Losses,'' ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' and ""NOTE 6: LOAN LOSS RESERVES'' to our consolidated Ñnancial

statements for further information. Table 46 summarizes our loan loss reserves activity for both of our reserves in total.

77 Freddie Mac
Table 46 Ì Loan Loss Reserves Activity

Year Ended December 31,

2006 2005 2004 2003 2002

(dollars in millions)

Total loan loss reserves:(1)

Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 414 $ 264 $ 299 $ 265 $ 224

Provision (beneÑt) for credit losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 215 251 143 (5) 122

Charge-oÅs, grossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (313) (294) (300) (224) (171)

Recoveries(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 166 185 160 145 99

Charge-oÅs, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (147) (109) (140) (79) (72)

Adjustment for change in accounting(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì 110 Ì

Transfers-outÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (71) (11) (20) (11) (9)

Other transfers, net(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 19 (18) 19 Ì

Ending balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 420 $ 414 $ 264 $ 299 $ 265

Charge-oÅs, net to Total mortgage portfolio(5)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.0 bps 0.8 bps 1.1 bps 0.7 bps 0.7 bps

Coverage ratio (reserves to charge-oÅs, net) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.9 3.8 1.9 3.8 3.7

(1) Includes Reserves for loans held-for-investment in the Retained portfolio and Reserves for guarantee losses on Participation CertiÑcates.

(2) Includes recoveries of charge-oÅs primarily resulting from foreclosure alternatives and REO acquisitions on loans where a share of default risk has been

assumed by mortgage insurers, servicers or third parties through credit enhancements. Recoveries of charge-oÅs through credit enhancements are

limited in some instances to amounts less than the full amount of the loss.

(3) On January 1, 2003, $110 million of recognized Guarantee obligation attributable to estimated incurred losses on outstanding PCs or Structured

Securities was reclassiÑed to Reserve for guarantee losses on Participation CertiÑcates.

(4) Represents the portion of the Guarantee obligation recognized through Guarantor Swap transactions or upon the sale of PCs and Structured Securities

that corresponds to incurred credit losses reclassiÑed to Reserve for guarantee losses on Participation CertiÑcates upon initial recognition of a

Guarantee obligation. In addition, the amount includes an increase (reduction) of loan loss reserves of $9 million and $(31) million in 2005 and 2004,

respectively, related to prior period adjustments for which the related income was recorded in Other income.

(5) Calculated using the average Total mortgage portfolio, excluding non-Freddie Mac mortgage-related securities and that portion of Structured

Securities that is backed by Ginnie Mae CertiÑcates.

Our total loan loss reserves increased in 2006 as additional reserves we recorded to reÖect incurred losses related to our

single-family portfolio were partly oÅset by the reversal of $82 million of the Provision for credit losses recorded in 2005

associated with Hurricane Katrina. The increase in loan loss reserves during 2005 was primarily related to our estimate of

incurred losses associated with Hurricane Katrina which was $128 million at December 31, 2005. See ""CONSOLIDATED

RESULTS OF OPERATIONS Ì Non-Interest Expense Ì Provision for Credit Losses,'' for additional information.

Credit Risk Sensitivity. Our credit risk sensitivity analysis assesses the assumed increase in the present value of

expected single-family mortgage portfolio credit losses over ten years as the result of an estimated immediate 5 percent

decline in home prices nationwide, followed by a return to more normal growth in home prices based on historical

experience. We use an internally developed Monte Carlo simulation-based model to generate our credit risk sensitivity

analyses. The Monte Carlo model uses a simulation program to generate numerous potential interest-rate paths that, in

conjunction with a prepayment model, are used to estimate mortgage cash Öows along each path. In the credit risk sensitivity

analysis, we adjust the home-price assumption used in the base case to estimate the level and sensitivity of potential credit

costs resulting from a sudden decline in home prices. Our credit risk sensitivity results are presented in ""RISK

MANAGEMENT AND DISCLOSURE COMMITMENTS.''

Institutional Credit Risk

Our primary institutional credit risk exposure, other than counterparty credit risk exposure relating to derivatives, arises

from agreements with the following entities: mortgage loan insurers; mortgage seller/servicers; issuers, guarantors or third

party providers of credit enhancements on non-Freddie Mac mortgage-related securities held in our Retained portfolio;

mortgage investors and originators; and issuers, guarantors and insurers of investments held in our Cash and investments

portfolio. See ""RISK MANAGEMENT Ì Interest-Rate Risk and Other Market Risks Ì Use of Derivatives and InterestRate Risk Management'' for information concerning counterparty credit risk exposure relating to derivatives.

Mortgage Loan Insurers. We have institutional credit risk relating to the potential insolvency or non-performance of

mortgage insurers that insure mortgages we purchase or guarantee. We manage this risk by establishing eligibility standards

for mortgage insurers and by regularly monitoring our exposure to individual mortgage insurers. We also monitor the

mortgage insurers' credit ratings, as provided by nationally recognized statistical rating organizations, and we periodically

review the methods used by the nationally recognized statistical rating organizations. We also perform periodic on-site

reviews of mortgage insurers to conÑrm compliance with our eligibility requirements and to evaluate their management and

control practices. In addition, state insurance authorities regulate mortgage insurers. See ""NOTE 17: CONCENTRATION

OF CREDIT AND OTHER RISKS'' to our consolidated Ñnancial statements for additional information.

Mortgage Seller/Servicers. We are exposed to institutional credit risk arising from the insolvency of or nonperformance by our mortgage seller/servicers, including non-performance of their repurchase obligations arising from the

representations and warranties made to us for loans they underwrote and sold to us. The servicing fee charged by mortgage

78 Freddie Mac
servicers varies by mortgage product. We generally require our single-family servicers to retain a minimum percentage fee

for mortgages serviced on our behalf, typically 0.25 percent of the unpaid principal balance of the mortgage loans. However,

on an exception basis, we allow a lower or no minimum servicing amount. The credit risk associated with servicing fees

relates to whether we could transfer the applicable servicing rights to a successor servicer and recover amounts owed to us by

the defaulting servicer in the event the current servicer is unable to fulÑll its responsibilities.

In order to manage the credit risk associated with our mortgage seller/servicers, we require them to meet minimum

Ñnancial capacity standards, insurance and other eligibility requirements. We do not believe we have any signiÑcant exposure

to seller/servicers identiÑed as primarily subprime lenders that are not currently in compliance with our Ñnancial

monitoring standards. We institute remedial actions against seller/servicers that fail to comply with our standards. These

actions may include transferring mortgage servicing to other qualiÑed servicers or terminating our relationship with the

seller/servicer. We conduct periodic operational reviews of our single-family mortgage seller/servicers to help us better

understand their control environment and its impact on the quality of loans sold to us. We use this information to determine

the terms of business we conduct with a particular seller/servicer.

We manage the credit risk associated with our multifamily seller/servicers by establishing eligibility requirements for

participation in our multifamily programs. These seller/servicers must also meet our standards for originating and servicing

multifamily loans. We conduct regular quality control reviews of our multifamily mortgage seller/servicers to determine

whether they remain in compliance with our standards.

Non-Freddie Mac Mortgage-Related Securities. Investments for our Retained portfolio expose us to institutional

credit risk on non-Freddie Mac mortgage-related securities to the extent that servicers, issuers, guarantors, or third parties

providing credit enhancements become insolvent or do not perform. See ""CONSOLIDATED BALANCE SHEETS

ANALYSIS Ì Table 19 Ì Characteristics of Mortgage Loans and Mortgage-Related Securities in the Retained Portfolio''

for more information concerning our Retained portfolio.

Our non-Freddie Mac mortgage-related securities portfolio consists of both agency and non-agency mortgage-related

securities. Agency mortgage-related securities, which are securities issued or guaranteed by Fannie Mae or Ginnie Mae,

present minimal institutional credit risk due to the high credit quality of Fannie Mae and Ginnie Mae. Agency mortgagerelated securities are generally not separately rated by nationally recognized statistical rating organizations, but are viewed as

having a level of credit quality at least equivalent to non-agency mortgage-related securities rated AAA (based on the S&P

rating scale or an equivalent rating from other nationally recognized statistical rating organizations). At December 31, 2006,

we held approximately $45 billion of agency securities, representing approximately 2 percent of our Total mortgage

portfolio.

Non-agency mortgage-related securities expose us to institutional credit risk if the nature of the credit enhancement

relies on a third party to cover potential losses. However, most of our non-agency mortgage-related securities rely primarily

on subordinated tranches to provide credit loss protection and therefore expose us to limited counterparty risk. In those

instances where we desire further protection, we may choose to mitigate our exposure with bond insurance or by purchasing

additional subordination. Bond insurance exposes us to the risks related to the bond insurer's ability to satisfy claims. At

December 31, 2006, a signiÑcant portion of the bond insurers providing coverage for non-agency mortgage-related securities

held by us were rated AAA or equivalent by at least one nationally recognized statistical rating organization. At

December 31, 2006, we held approximately $238 billion of non-agency mortgage-related securities. Of this amount,

96.2 percent was rated AAA or equivalent.

We manage institutional credit risk on non-Freddie Mac mortgage-related securities by only purchasing securities that

meet our investment guidelines and performing ongoing analysis to evaluate the creditworthiness of the issuers and servicers

of these securities and the bond insurers that guarantee them. To assess the creditworthiness of these entities, we may

perform additional analysis, including on-site visits, veriÑcation of loan documentation, review of underwriting or servicing

processes and similar due diligence measures. In addition, we regularly evaluate our investments to determine if any

impairment in fair value requires an impairment loss recognition in earnings, warrants divestiture or requires a combination

of both. See ""RISK FACTORS Ì Legal and Regulatory Risks'' for more information.

Mortgage Investors and Originators. We are exposed to pre-settlement risk through the purchase, sale and Ñnancing

of mortgage loans and mortgage-related securities with mortgage investors and originators. The probability of such a default

is generally remote over the short time horizon between the trade and settlement date. We manage this risk by evaluating

the creditworthiness of our counterparties and monitoring and managing our exposures. In some instances, we may require

these counterparties to post collateral.

Cash and Investments Portfolio. Institutional credit risk also arises from the potential insolvency or non-performance

of issuers or guarantors of investments held in our Cash and investments portfolio. Instruments in this portfolio are

investment grade at the time of purchase and primarily short-term in nature, thereby substantially mitigating institutional

79 Freddie Mac
credit risk in this portfolio. We regularly evaluate these investments to determine if any impairment in fair value requires an

impairment loss recognition in earnings, warrants divestiture or requires a combination of both.

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 diÅer from the full contract or notional amount of the transaction. Most of these arrangements

relate to our Ñnancial guarantee and securitization activity for which we record guarantee-related assets and obligations, but

the related securitized assets are owned by third parties. See ""CRITICAL ACCOUNTING POLICIES AND

ESTIMATES Ì Issuances and Transfers of PCs and Structured Securities'' for more discussion of oÅ-balance sheet

arrangements. These oÅ-balance sheet arrangements may expose us to potential losses in excess of the amounts recorded on

our consolidated balance sheets.

Guarantee of PCs and Structured Securities

As discussed in ""BUSINESS Ì Business Activities Ì Credit Guarantee Activities,'' we guarantee the payment of

principal and interest on issued PCs or Structured Securities. Mortgage-related assets that back PCs and Structured

Securities held by third parties are not reÖected as our assets, unless we retained or repurchased an interest in the PCs that

back Structured Securities that were issued and sold to third parties.

We manage the risks of our credit guarantee activity carefully, sharing the risk in some cases with third parties through

the use of primary loan-level mortgage insurance, pool insurance and other credit enhancements. ""NOTE 4: FINANCIAL

GUARANTEES'' of our consolidated Ñnancial statements provides information about our guarantees, including details

related to credit protections and maximum coverages that we obtain through credit enhancements. Also, see ""RISK

MANAGEMENT Ì Credit Risks'' for more information.

Credit guarantee activity also occurs through the Guarantor Swap program in the form of mortgage swap transactions.

In a mortgage swap transaction, a mortgage lender delivers mortgages to us in exchange for our guaranteed PCs that

represent undivided interests in those same mortgages. We receive various forms of consideration in exchange for providing

our guarantee on issued PCs, including (a) the contractual right to receive a management and guarantee fee, (b) delivery

or credit fees for higher-risk mortgages and (c) other forms of credit enhancements received from counterparties or

mortgage loan insurers.

Credit guarantee activity also occurs through our Cash Window and our MultiLender Swap program. Single-family

mortgage loans we purchase for cash through the Cash Window are typically either retained by us in our Retained portfolio

or pooled together with other single-family mortgage loans we purchase in connection with PC swap-based transactions in

our MultiLender Program executed with various lenders. We may issue such PCs to these lenders in exchange for the

mortgage loans we purchase from them or, to the extent these loans are pooled with loans purchased for cash, we may sell

them to third parties for cash consideration through an auction.

In addition to the issuance and transfer of PCs to third parties, we also sell PCs from our Retained portfolio in

resecuritized form. We issue single- and multi-class Structured Securities that are backed by securities held in our Retained

portfolio and subsequently transfer such Structured Securities to third parties in exchange for cash, PCs or other mortgagerelated securities. We generally earn resecuritization fees in connection with the creation of Structured Securities and can

earn an ongoing management and guarantee fee for certain issued Structured Securities. Our principal credit risk exposure

on Structured Securities relates only to that portion of resecuritized assets that consists of non-Freddie Mac mortgagerelated securities. For information about our purchase, securitization and resecuritization activities, see ""PORTFOLIO

BALANCES AND ACTIVITIES.''

Our maximum potential exposure to credit losses relating to our outstanding guaranteed mortgage-related securities

held by third parties is primarily represented by the unpaid principal balance of those securities, which was $1,123 billion as

of December 31, 2006. Based on our historical credit losses, which in 2006 averaged approximately 1.4 basis points of the

balance of guaranteed securities outstanding (including those owned in our Retained portfolio), we do not believe that the

maximum exposure is representative of our actual exposure on these guarantees. The maximum exposure does not take into

consideration the recovery we would receive through exercising our rights to the collateral backing the underlying loans nor

the available credit enhancements, which includes recourse and primary insurance with third parties.

The accounting policies and fair value estimation methodologies we apply to our credit guarantee activities signiÑcantly

aÅect the volatility of our reported earnings. See ""CONSOLIDATED RESULTS OF OPERATIONS Ì Non-Interest

Income (Loss)'' for an analysis of the eÅects on our consolidated statements of income related to our credit guarantee

activities. See ""CONSOLIDATED BALANCE SHEETS ANALYSIS'' for a description of our Guarantee asset and

Guarantee obligation. The accounting for our securitization transactions and the signiÑcant assumptions used to determine

80 Freddie Mac
the gains or losses from such transfers that are accounted for as sales are discussed in ""NOTE 2: TRANSFERS OF

SECURITIZED INTERESTS IN MORTGAGE-RELATED ASSETS'' to our consolidated Ñnancial statements.

Other

We extend other guarantees and provide indemniÑcation to counterparties for breaches of standard representations and

warranties in contracts entered into in the normal course of business based on an assessment that the risk of loss would be

remote. See ""NOTE 4: FINANCIAL GUARANTEES'' to our consolidated Ñnancial statements for additional

information.

We are a party to numerous entities that are considered to be variable interest entities, or VIEs, in accordance with

FASB Interpretation No. 46 (Revised December 2003), ""Consolidation of Variable Interest Entities (revised December 2003), an interpretation of APB No. 51,'' or FIN 46(R). These variable interest entities include low-income multifamily

housing tax credit partnerships, certain Structured Transactions and certain asset-backed investment trusts. See ""NOTE 3:

VARIABLE INTEREST ENTITIES'' to our consolidated Ñnancial statements for additional information related to our

signiÑcant 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 with their fair values

reported as either Derivative assets, at fair value or Derivative liabilities, at fair value on our consolidated balance sheets.

See ""RISK MANAGEMENT Ì Interest-Rate Risk and Other Market Risks'' for further information. Certain nonderivative commitments are related to commitments arising from mortgage swap transactions and commitments to purchase

certain multifamily mortgage loans that will be classiÑed as held-for-investment. These non-derivative commitments totaled

$264.4 billion and $178.8 billion at December 31, 2006 and 2005, respectively. Such commitments are not accounted for as

derivatives and are not recorded on our consolidated balance sheets.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of Ñnancial statements in accordance with GAAP requires us to make a number of judgments,

estimates and assumptions that aÅect the reported amounts of our assets, liabilities, income, and expenses. Certain of our

accounting policies, as well as estimates we make, are critical to the presentation of our Ñnancial condition and results of

operations. They often require management to make diÇcult, complex or subjective judgments and estimates, at times,

regarding matters that are inherently uncertain. The accounting policies discussed in this section are particularly critical to

understanding our consolidated Ñnancial statements. Actual results could diÅer from our estimates and diÅerent judgments

and assumptions related to these policies and estimates could have a material impact on the consolidated Ñnancial

statements.

Our critical accounting policies and estimates relate to: (a) valuation of Ñnancial instruments; (b) issuances and

transfers of PCs and Structured Securities; (c) derivative instruments and hedging activities; (d) credit losses;

(e) amortization of cost basis adjustments using the eÅective interest method; and (f) impairment recognition on

investments in securities. For additional information about these and other signiÑcant accounting policies, including recently

issued accounting pronouncements, see ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' to

our consolidated Ñnancial statements.

Valuation of Financial Instruments

A signiÑcant portion of our assets and liabilities are Ñnancial instruments that are recorded on our consolidated Ñnancial

statements at estimated fair value. The estimation of fair value applies to instruments that are complex in nature and

requires signiÑcant management judgments and assumptions. These judgments and assumptions, as well as changes in

market conditions, may have a material eÅect on our GAAP consolidated balance sheets and statements of income as well as

our consolidated fair value balance sheets.

Fair value is deÑned as the amount at which an asset or liability could be exchanged in a current transaction between

willing parties, other than in a forced or liquidation sale. The selection of a method to estimate fair value for each type of

Ñnancial instrument depends on both the reliability and availability of relevant market data. The amount of judgment

involved in estimating the fair value of a Ñnancial instrument is aÅected by a number of factors, such as the type of

81 Freddie Mac
instrument, the liquidity of the markets for the instrument and the contractual characteristics of the instrument. We estimate

fair value according to the following hierarchy of sources:

‚ quoted market prices for identical and similar instruments;

‚ industry standard models that consider market inputs such as yield curves, duration, volatility factors and prepayment

speeds; and

‚ internally developed models that consider inputs based on management's judgment of market-based assumptions.

We use quoted market prices when they are available and reliable. Financial instruments with active markets and

readily available market prices are valued based on independent price quotations obtained from third party sources, such as

pricing services, dealer marks or direct market observations. Independent price quotations obtained from pricing services are

valuations estimated by a service provider using market information. Dealer marks are prices obtained from dealers that

generally make markets in the relevant products and are an indication of the price at which the dealer would consider

transacting in normal market conditions. Market observable prices are prices that are retrieved from sources in which market

trades are executed, such as electronic trading platforms. When quoted market prices are not readily available, we utilize

models, including industry-standard models and internally developed models. These models use market inputs such as

interest rate curves, market volatilities and pricing spreads. We maximize the use of market inputs to the extent available.

Certain complex Ñnancial instruments have signiÑcant data inputs that cannot be validated by reference to the market.

These instruments are typically illiquid or unique in nature and require the use of management's judgment of market-based

assumptions. The use of diÅerent pricing models or assumptions could produce materially diÅerent estimates of fair value.

Fair value aÅects our statement of income in the following ways:

‚ For certain Ñnancial instruments that are recorded in the GAAP consolidated balance sheets at fair value, changes in

fair value are recognized in current period earnings. These include:

Ì securities and PC residuals classiÑed as trading, which are recorded in Gains (losses) on investment activity;

Ì derivatives in a fair value hedge accounting relationship and the related adjustments to the hedged items, which

are recorded in Hedge accounting gains (losses);

Ì derivatives with no hedge designation, which are recorded in Derivative gains (losses); and

Ì the Guarantee asset, which is recorded in Gains (losses) on Guarantee asset.

‚ For other Ñnancial instruments that are recorded in the GAAP consolidated balance sheets at fair value, changes in

fair value are deferred, net of tax, in AOCI. These include:

Ì securities and PC residuals classiÑed as available-for-sale, which are initially measured at fair value with deferred

gains and losses recognized in AOCI. These deferred gains and losses aÅect earnings over time through

amortization, sale or impairment recognition; and

Ì changes in derivatives that are designated in cash Öow hedge accounting relationships.

‚ Our Guarantee obligation is initially measured at fair value, but is not remeasured at fair value on a periodic basis.

This obligation aÅects earnings over time through amortization to Income on Guarantee obligation.

‚ Mortgage loans that are held-for-sale are recorded at the lower-of-cost-or-market with changes in fair value recorded

through earnings in Gains (losses) on investment activity.

We periodically evaluate our valuation methodologies and may change them to improve our fair value estimates, to

accommodate market developments or to compensate for changes in data availability and reliability or other operational

constraints.

At December 31, 2006 and 2005, the fair values for approximately 99 percent of our mortgage-related securities were

based on prices obtained from third parties or were determined using models with signiÑcant market inputs. The fair values

for the remainder of our mortgage-related securities are obtained from internal models with few or no market inputs. The

majority of the fair values for our non-mortgage-related securities are based on prices obtained from third parties. For some

of these securities, where the interest rates frequently reset, the carrying value is presumed to be a reasonable approximation

of fair value. The majority of our derivative positions are valued using internally developed models that use market inputs

because few of the derivative contracts we use are listed on exchanges. At December 31, 2006 and 2005, approximately

65 percent and 68 percent, respectively, of the gross fair value of our derivatives portfolio related to interest-rate and

foreign-currency swaps that did not have embedded options. These derivatives were valued using a discounted cash Öow

model that projects future cash Öows and discounts them at the spot rate related to each cash Öow. The remaining 35 percent

and 32 percent, respectively, of our derivatives portfolio was valued based on prices obtained from third parties or using

models with signiÑcant market inputs. The fair values for all of our debt securities are based on prices obtained from third

parties or are determined using models with signiÑcant market inputs.

82 Freddie Mac
See ""RISK MANAGEMENT Ì Interest-Rate Risk and Other Market Risks'' for discussion of market risks and our

interest-rate sensitivity measures, PMVS and duration gap.

Issuances and Transfers of PCs and Structured Securities

We issue PCs and Structured Securities to third parties in several diÅerent ways. In general, we account for such

transfers as sales of Ñnancial assets or as Ñnancial guarantee transactions. We evaluate whether transfers of PCs or

Structured Securities qualify as sales based upon the requirements of SFAS No. 140, ""Accounting for Transfers and

Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125,'' or SFAS 140.

If a transfer of PCs or Structured Securities qualiÑes as a sale, we recognize a gain or loss on the sale immediately in

earnings. The gain or loss is calculated as cash received less the recognized carrying value of interests sold and the fair value

of liabilities incurred upon sale.

If we determine that a transfer of PCs or Structured Securities does not qualify as a sale, we account for the transfer as a

secured borrowing pursuant to SFAS 140 or as a Ñnancial guarantee transaction pursuant to the provisions of FIN 45. Many

of the transfers of PCs and Structured Securities that we make are accounted for as Ñnancial guarantee transactions

pursuant to FIN 45. For such transactions, we recognize a Guarantee obligation at the inception of an executed guarantee.

We also recognize the fair value of any consideration received in such transactions.

For transfers of PCs and Structured Securities to third parties, the fair value measurements involve our best estimate

with respect to key assumptions. These key assumptions include expected credit losses, exposure to credit losses that could

be greater than expected, prepayment rates, forward yield curves and discount rates. We believe that these assumptions are

comparable to those used by other market participants. The use of diÅerent pricing models or assumptions could produce

materially diÅerent results. See ""NOTE 2: TRANSFERS OF SECURITIZED INTERESTS IN MORTGAGERELATED ASSETS'' to our consolidated Ñnancial statements for further discussion of the approach we use to determine

fair values.

Derivative Instruments and Hedging Activities

The determination of whether a derivative qualiÑes for hedge accounting requires signiÑcant judgment and has a

signiÑcant impact on how such instruments are accounted for in our consolidated Ñnancial statements. As described more

fully in ""NOTE 12: DERIVATIVES'' to our consolidated Ñnancial statements, by December 31, 2006 we had discontinued

substantially all of our hedge accounting relationships.

We report the change in fair value of derivatives that are not designated in hedge accounting relationships on our

consolidated statements of income in the period in which the change in value occurs. We record the change in fair value of

derivatives that are in cash Öow hedge accounting relationships, to the extent these relationships are eÅective, as a separate

component of AOCI and reclassify this amount into earnings when the hedged item or forecasted transaction aÅects

earnings. We record the change in fair value of derivatives in fair value hedge relationships each period in earnings along

with the change in fair value of the hedged item attributable to the hedged risk.

The determination of whether a derivative qualiÑes for hedge accounting requires judgment about the application of

SFAS 133, as amended by SFAS No. 138, ""Accounting for Certain Derivative Instruments and Certain Hedging Activities,

an amendment of FASB Statement No. 133,'' and SFAS No. 149, ""Amendment of Statement 133 on Derivative

Instruments and Hedging Activities,'' collectively referred to as SFAS 133. SFAS 133 requires contemporaneous

documentation of our hedge relationships, including identiÑcation of the hedged item, the hedging instrument, the nature of

the hedged risk and the method used to assess the eÅectiveness of the hedge relationship.

Derivatives previously designated as cash Öow hedges generally have hedged interest-rate risk related to the forecasted

issuances of debt. For these hedging relationships to qualify for hedge accounting both at inception and over the life of the

derivative, we must estimate the probable future level of certain types of debt issuances. These estimates are based on our

expectation of future funding needs and the future mix of debt issuances. Our expectations about future funding are based

upon projected growth and historical activity. If these estimates had been lower, a smaller notional amount of the derivatives

would have been eligible for designation as cash Öow hedges and potentially material amounts that were deferred and

reported in AOCI would have been reported as Derivative gains (losses) on our consolidated statements of income in the

period in which they occurred. If estimated future fundings do not occur, or are probable of not occurring, potentially

material amounts that were deferred and reported in AOCI would be immediately recognized in Derivative gains (losses) on

our consolidated statements of income.

We believe that the forecasted issuances of debt previously hedged in cash Öow hedging relationships are probable of

occurring, therefore we may continue to include previously deferred amounts in AOCI. For a more detailed description of

our use of derivatives and summaries of derivative positions, see ""CONSOLIDATED RESULTS OF OPERATIONS Ì

Derivative Overview'' and ""NOTE 12: DERIVATIVES'' to our consolidated Ñnancial statements.

83 Freddie Mac
Credit Losses

We maintain a Reserve for losses on mortgage loans held-for-investment to provide for incurred credit losses from our

mortgage loan portfolio. We also maintain a Reserve for guarantee losses on Participation CertiÑcates to provide for losses

incurred on mortgages underlying PCs or Structured Securities held by third parties that we guarantee. We use the same

methodology to determine our Reserve for losses on mortgage loans held-for-investment and our Reserve for guarantee

losses on Participation CertiÑcates, as the relevant factors aÅecting credit risk are the same. The Reserve for losses on

mortgage loans held-for-investment and the Reserve for guarantee losses on Participation CertiÑcates are collectively

referred to as the loan loss reserves.

To calculate the loan loss reserves for the single-family loan portfolio, we aggregate homogenous loans into pools based

on common underlying characteristics, using statistically based models to evaluate relevant factors aÅecting loan

collectibility, and determine the best estimate of loss. To calculate loan loss reserves for the multifamily loan portfolio, we

use models, evaluate certain larger loans for impairment, and review repayment prospects and collateral values underlying

individual loans.

We regularly evaluate the underlying estimates and models we use when determining the loan loss reserves and update

our assumptions to reÖect our own historical experience and our current view of overall economic conditions and other

relevant factors.

Determining the adequacy of the loan loss reserves is a complex process that is subject to numerous estimates and

assumptions requiring judgment. Key estimates and assumptions that impact our loan loss reserves include:

‚ loss severity trends;

‚ default experience;

‚ expected proceeds from credit enhancements;

‚ collateral valuation; and

‚ identiÑcation and impact assessment of macroeconomic factors.

No single statistic or measurement determines the adequacy of the loan loss reserves. We exercise a signiÑcant amount of

judgment in selecting the above factors. 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 provisions for credit losses.

We believe the level of our loan loss reserves is reasonable based on internal reviews of the factors and methodologies

used. An independent management group reviews the level of loan loss reserves, as well as the factors and methodologies

that give rise to the estimate, and submits the best point estimate for review by senior management. This review process

provides consistent implementation and disclosure.

Loan loss reserves associated with Hurricane Katrina in 2005 were established based on preliminary estimates that were

higher than current estimates. We have revised these estimates based on additional information about property damage and

recoveries. During 2006, our revised estimates of incurred losses related to Hurricane Katrina resulted in a reduction of

$82 million in the loan loss reserves originally recorded in 2005 for loans aÅected by the hurricane.

Amortization of Cost Basis Adjustments Using the EÅective Interest Method

We recognize interest income on certain mortgage-related and non-mortgage-related investments, using the retrospective eÅective interest method in accordance with SFAS No. 91, ""Accounting for Nonrefundable Fees and Costs Associated

with Originating or Acquiring Loans and Initial Direct Costs of Leases, an amendment of FASB Statements No. 13, 60,

and 65 and a rescission of FASB Statement No. 17,'' or SFAS 91. Deferred items, including premiums, discounts and other

basis adjustments, are amortized into interest income over the estimated lives of the securities using the retrospective

eÅective interest method. SFAS 91 allows estimates of principal prepayments for pools of assets containing similar

characteristics where prepayments are probable and the timing and amount of prepayments can be reasonably estimated.

Most of our mortgage-related and non-mortgage-related investments meet this requirement. Therefore, we recalculate the

constant eÅective yield at each period end using our current estimate of principal prepayments. Adjustments that result

from applying the updated eÅective yield as if it had been in eÅect since the acquisition of the securities are recognized

through interest income.

For certain other investments in mortgage-related securities classiÑed as available-for-sale, interest income is

recognized using the prospective eÅective interest method in accordance with Emerging Issues Task Force Issue No. 99-20,

""Recognition of Interest Income and Impairment on Purchased BeneÑcial Interests and BeneÑcial Interests That Continue

to Be Held by a Transferor in Securitized Financial Assets,'' or EITF 99-20. Under this method, changes in the eÅective

yield due to changes in estimated lives are recognized as adjustments to interest income in future periods rather than as

84 Freddie Mac
catch up adjustments in the current period. We speciÑcally apply such guidance to beneÑcial interests (including undivided

interests which are similar to beneÑcial interests) in securitized Ñnancial assets that:

‚ can contractually be prepaid or otherwise settled in such a way that we may not recover substantially all of our

recorded investment (such as interest-only securities); or

‚ were not of high credit quality at the date that we acquired them.

Determination of the eÅective yield requires signiÑcant judgment in estimating expected prepayment behavior, which is

inherently uncertain. Estimates of future prepayments are derived from market sources and our internal prepayment models.

Judgment is involved in making initial determinations about prepayment expectations and in changing those expectations

over time in response to changes in market conditions, such as interest rates and other macroeconomic factors. The eÅects of

future changes in market conditions may be material. We believe that the above assumptions are comparable to those used

by other market participants. However, the use of diÅerent assumptions in our prepayment models could have resulted in

materially diÅerent income recognition results. See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES'' to our consolidated Ñnancial statements for more information on interest income recognition on securities.

Impairment Recognition on Investments in Securities

We recognize impairment losses on available-for-sale securities through the income statement when we have concluded

that a decrease in the fair value of a security is not temporary. For securities accounted for under EITF 99-20, an

impairment loss is recognized when there is both a decline in fair value below the carrying amount and an adverse change in

expected cash Öows. Determination of whether an adverse change has occurred involves judgment about expected

prepayments and credit events. We review securities not accounted for under EITF 99-20 for potential impairment whenever

the security's fair value is less than its amortized cost. This review considers a number of factors, including the severity of

the decline in fair value, credit ratings, the length of time the investment has been in an unrealized loss position, and the

likelihood of sale in the near term. We recognize impairment losses when quantitative and qualitative factors indicate that it

is likely that we will not fully recover the unrealized loss. One of the factors we consider is our intent and ability to hold the

investment until a point in time at which recovery can be reasonably expected to occur. We apply signiÑcant judgment in

determining whether impairment loss recognition is appropriate. We believe our judgments are reasonable. However,

diÅerent judgments could have resulted in materially diÅerent impairment loss recognition. See ""NOTE 1: SUMMARY OF

SIGNIFICANT ACCOUNTING POLICIES'' to our consolidated Ñnancial statements for more information on

impairment recognition on securities.

Accounting Changes and Recently Issued Accounting Pronouncements

See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' to our consolidated Ñnancial

statements for more information concerning our accounting policies and recently issued accounting pronouncements,

including those that we have not yet adopted, that will likely aÅect our consolidated Ñnancial statements.

PORTFOLIO BALANCES AND ACTIVITIES

Total Mortgage Portfolio

Our Total mortgage portfolio includes the unpaid principal balances of mortgage loans and mortgage-related securities

held in our Retained portfolio and the unpaid principal balances of guaranteed PCs and Structured Securities held by third

parties. Guaranteed PCs and Structured Securities held by third parties are considered outstanding and are not included on

our consolidated balance sheets.

85 Freddie Mac
Table 47 provides information about our Total mortgage portfolio at December 31, 2006 and 2005.

Table 47 Ì Total Mortgage Portfolio and Total Guaranteed PCs and Structured Securities Issued Based on Unpaid

Principal Balances(1)(2)

December 31,

2006 2005

% of Total % of Total

Mortgage Mortgage

Amounts Portfolio Amounts Portfolio

(dollars in (dollars in

millions) millions)

Outstanding Guaranteed PCs and Structured Securities(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,122,761 61% $ 974,200 58%

Retained portfolio:

PCs and Structured Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 354,262 19 361,324 21

Non-Freddie Mac mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 283,850 16 287,541 17

Mortgage loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 65,847 4 61,481 4

Total Retained portfolio(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 703,959 39 710,346 42

Total mortgage portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,826,720 100% $1,684,546 100%

(1) Excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(2) The 2006 amounts exclude the eÅect of credit-related impairments on mortgage-related securities in our Retained portfolio. The 2005 amounts have

been revised to conform with the current year presentation.

(3) Represents Guaranteed PCs and Structured Securities held by third parties.

(4) The Retained portfolio presented in this table diÅers from the Retained portfolio presented on our consolidated balance sheets because the amounts

presented on our consolidated balance sheets include valuation adjustments and deferred balances. See ""CONSOLIDATED BALANCE SHEETS

ANALYSIS Ì Table 19 Ì Characteristics of Mortgage Loans and Mortgage-Related Securities in the Retained Portfolio'' for a reconciliation of

the Retained portfolio amounts shown in this table to the amounts shown under such caption on our consolidated balance sheets.

See ""Table 50 Ì Guaranteed PCs and Structured Securities Issued and Outstanding'' for more information concerning

outstanding guaranteed PCs and Structured Securities. Also see ""CONSOLIDATED BALANCE SHEETS

ANALYSIS Ì Table 19 Ì Characteristics of Mortgage Loans and Mortgage-Related Securities in the Retained Portfolio''

for more information concerning the non-Freddie Mac mortgage-related securities in our Retained portfolio.

Table 48 presents the distribution of unsecuritized mortgage loans held in our Retained portfolio.

Table 48 Ì Mortgage Loans Held in the Retained Portfolio(1)

December 31,

2006 2005

(in millions)

Single-family:

Conventional

Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $18,427 $18,532

Variable-rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,233 903

Total conventional ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19,660 19,435

FHA/VA Ì Fixed-rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 196 255

Rural Housing Service and other federally guaranteed loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 784 706

Total single-familyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20,640 20,396

Multifamily:

Conventional

Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 41,863 36,961

Variable-rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,341 4,121

Total conventional ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45,204 41,082

Rural Housing Service ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 3

Total multifamily ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45,207 41,085

Total mortgagesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $65,847 $61,481

(1) Based on unpaid principal balances. Excludes mortgage loans traded, but not yet settled.

86 Freddie Mac
Table 49 summarizes purchases into our Total mortgage portfolio.

Table 49 Ì Total Mortgage Portfolio Activity Detail(1)

Year Ended December 31,

2006 2005 2004

% of % of % of

Purchase Purchase Purchase

Amounts Amounts Amounts Amounts Amounts Amounts

(dollars in millions)

New business purchases:(2)

Single-family mortgage purchases:

Conventional:

30-year amortizing Ñxed-rate(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $251,143 67% $272,702 67% $220,867 59%

15-year amortizing Ñxed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21,556 6 40,963 10 72,754 19

ARMs/Variable-rate(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18,854 5 35,677 9 50,187 14

Interest Only(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 58,176 16 26,516 7 818 Ì

Option ARMs(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 3,918 1 Ì Ì

Balloon/Resets(7)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 419 Ì 1,720 Ì 9,658 3

FHA/VA(8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 946 Ì Ì Ì 319 Ì

Rural Housing Service and other federally guaranteed loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 176 Ì 177 Ì 209 Ì

Total single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 351,270 94 381,673 94 354,812 95

Multifamily:

Conventional ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,031 4 11,172 3 12,712 3

Total multifamily ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,031 4 11,172 3 12,712 3

Total mortgage purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 364,301 98 392,845 97 367,524 98

Non-Freddie Mac mortgage-related securities purchased for Structured Securities:

Ginnie Mae CertiÑcates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 48 Ì 37 Ì 85 Ì

Structured Transactions(9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,592 2 14,331 3 7,205 2

Total Non-Freddie Mac mortgage-related securities purchased for Structured Securities ÏÏÏÏÏÏÏÏÏÏÏÏ 8,640 2 14,368 3 7,290 2

Total single-family and multifamily mortgage purchases and total non-Freddie Mac mortgage-related

securities purchased for Structured Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $372,941 100% $407,213 100% $374,814 100%

Non-Freddie Mac mortgage-related securities purchased into the Retained portfolio:

Agency securities:

Fannie Mae:

Single-family:

Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,259 $ 2,854 $ 756

Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,014 3,368 3,282

Total Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12,273 6,222 4,038

Ginnie Mae:

Single-family:

Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 64 Ì

Total Ginnie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 64 Ì

Total agency mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12,273 6,286 4,038

Non-agency securities:

Single-family

Single-family:

Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 718 2,154 1,294

Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 96,906 148,600 101,620

Total single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 97,624 150,754 102,914

Commercial mortgage-backed securities:

Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,534 10,343 8,841

Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,432 4,497 2,037

Total commercial mortgage-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15,966 14,840 10,878

Mortgage revenue bonds:

Single-family:

Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,062 2,374 1,499

Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 27 Ì

Multifamily:

Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 116 434 414

Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 5 31

Total mortgage revenue bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,178 2,840 1,944

Total non-agency mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 116,768 168,434 115,736

Total non-Freddie Mac mortgage-related securities purchased into the Retained portfolio ÏÏÏÏÏÏÏ 129,041 174,720 119,774

Total new business purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $501,982 $581,933 $494,588

Mortgage purchases with credit enhancements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17% 17% 19%

Mortgage liquidations(10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $339,814 $384,674 $401,029

Mortgage liquidations rate(10)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20% 26% 28%

Freddie Mac securities repurchased into the Retained portfolio:

Single-family:

Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 76,378 $106,682 $ 72,147

Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27,146 29,805 23,942

Multifamily:

Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 146

Total Freddie Mac securities repurchased into the Retained portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $103,524 $136,487 $ 96,235

(1) Based on unpaid principal balances. Excludes mortgage loans and mortgage-related securities traded but not yet settled.

(2) 2004 data includes certain mortgage-related securities that have been transferred from the Investments caption to the Retained portfolio caption on

our consolidated balance sheets.

(3) Includes 40-year and 20-year Ñxed-rate mortgages.

(4) Includes ARMs with 1-, 3-, 5-, 7- and 10-year initial Ñxed-rate periods.

(5) Represents loans where the borrower pays interest only for a period of time before the borrower begins making principal payments.

87 Freddie Mac
(6) Includes mortgage loans we purchased that underlie whole-loan REMICs except for $83 million of mortgage loan purchases that collateralize the

non-guaranteed portion of whole-loan REMICs.

(7) Mortgages whose terms require lump sum principal payments on contractually determined future dates unless the borrower qualiÑes for and elects an

extension of the maturity date at an adjusted interest rate.

(8) Excludes FHA/VA loans that back Structured Transactions.

(9) Includes $6,908 million, $14,331 million and $5,653 million at December 31, 2006, 2005 and 2004, respectively, of option ARM loans.

(10) Based on total mortgage portfolio. Excludes the eÅect of sales of non-Freddie Mac mortgage-related securities.

Our new business purchases consist of mortgage loans and non-Freddie Mac mortgage-related securities that are

purchased for our Retained portfolio and serve as collateral for our issued PCs and Structured Securities. We generate a

signiÑcant portion of our mortgage purchase volume through several key mortgage lenders that have entered into unique

business arrangements with us. See ""BUSINESS Ì Business Activities Ì Credit Guarantee Activities'' for information

about these relationships and consequent risks. During 2006 and 2005, we increased purchases of adjustable-rate (i.e.,

ARMs/Variable-rate and option ARMs) and interest-only mortgage loans and non-Freddie Mac mortgage-related securities

because these products generally oÅered more attractive option-adjusted spreads than Ñxed-rate products.

Guaranteed PCs and Structured Securities

Guaranteed PCs and Structured Securities Issued represent the unpaid principal balances of the mortgage-related

securities we issue or otherwise guarantee. Table 50 presents the distribution of underlying mortgage assets for total PCs and

Structured Securities issued and outstanding.

Table 50 Ì Guaranteed PCs and Structured Securities Issued and Outstanding

December 31,

2006 2005

Total Issued PCs Outstanding PCs Total Issued PCs Outstanding PCs

and Structured and Structured and Structured and Structured

Securities(1) Securities(2) Securities(1) Securities(2)

(in millions)

PCs and Structured Securities

Single-family:

Conventional:

30-year Ñxed-rate(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 956,842 $ 763,563 $ 810,897 $614,112

15-year Ñxed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 290,314 202,747 321,176 220,225

ARMs/Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 169,254 116,910 131,294 88,898

Option ARMs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,808 303 3,830 414

Balloons/ResetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21,551 20,508 26,321 24,973

FHA/VA(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,398 1,267 849 823

Rural Housing Service and other federally guaranteed loans ÏÏÏÏÏÏÏÏÏÏ 139 139 154 154

Total single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,442,306 1,105,437 1,294,521 949,599

Multifamily:

Conventional:

Fixed-rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,449 3,208 10,149 9,902

Variable-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,966 4,825 4,354 4,210

Total multifamily ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,415 8,033 14,503 14,112

Structured Securities backed by non-Freddie Mac mortgage-related

securities:

Ginnie Mae CertiÑcates(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,510 1,481 2,021 1,900

Structured Transactions(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 24,792 7,810 24,479 8,589

Total Structured Securities backed by non-Freddie Mac mortgagerelated securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26,302 9,291 26,500 10,489

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,477,023 $1,122,761 $1,335,524 $974,200

(1) Based on unpaid principal balances. Excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(2) Represents PCs and Structured Securities held by third parties.

(3) Issued balances include $42 million and $Ì million of 40-year Ñxed-rate mortgages at December 31, 2006 and 2005, respectively; and $66,779 million

and $67,937 million of 20-year Ñxed-rate mortgages at December 31, 2006 and 2005, respectively.

(4) Excludes FHA and VA loans that are collateral for Structured Transactions.

(5) Represents Ginnie Mae CertiÑcates that are backed by FHA/VA loans.

(6) Represents Structured Securities backed by non-agency securities that include $1,122 million and $1,520 million of Ñxed-rate, $4,019 million and

$3,472 million of ARMs/variable-rate, $2,648 million and $3,566 million of FHA/VA, $9 million and $12 million of the Rural Housing Service and

other federally guaranteed loans and $12 million and $19 million of second mortgages, which are mortgage loans that are subordinate to a superior

mortgage lien on the property, at December 31, 2006 and 2005, respectively.

88 Freddie Mac
Table 51 provides further detail regarding both issued and outstanding Guaranteed PCs and Structured Securities.

Table 51 Ì Single-Class and Multi-Class PCs and Other Structured Securities Based on Unpaid Principal Balances(1)

PCs and Structured

PCs and Structured Securities Outstanding Total Guaranteed

Securities in (held by PCs and Structured

December 31, 2006 Retained Portfolio third parties) Securities Issued

(in millions)

PCs and Structured Securities:

Single-class(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $194,057 $ 624,383 $ 818,440

Multi-class(3)(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 160,205 491,696 651,901

Other(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 6,682 6,682

Total PCs and Structured Securities(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $354,262 $1,122,761 $1,477,023

December 31, 2005

PCs and Structured Securities:

Single-class(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $202,970 $529,901 $ 732,871

Multi-class(3)(4)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 158,354 437,668 596,022

Other(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 6,631 6,631

Total PCs and Structured Securities(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $361,324 $974,200 $1,335,524

(1) Excludes Freddie Mac mortgage-related securities traded, but not yet settled.

(2) Includes PCs not backing Structured Securities and single-class Structured Securities backed by PCs and Ginnie Mae CertiÑcates.

(3) Includes that portion of multi-class Structured Securities that are backed by PCs and non-agency mortgage-related securities. Also includes multiclass Structured Securities backed by Ginnie Mae CertiÑcates.

(4) Principal-only strips backed by Freddie Mac mortgage-related Securities held in the Retained portfolio are classiÑed as multi-class for the purpose of

this table.

(5) See ""NOTE 4: FINANCIAL GUARANTEES'' to our consolidated Ñnancial statements for a discussion of our guarantees of principal and interest

related to these securities.

(6) PCs and Structured Securities Issued exclude $1,240,221 million and $961,777 million at December 31, 2006 and 2005, respectively, of Structured

Securities backed by resecuritized PCs and other previously issued Structured Securities. These excluded Structured Securities, which do not increase

our credit related exposure, consist of single-class Structured Securities backed by PCs, REMICs, and principal-only strips. The notional balances of

interest-only strips are excluded because this table is based on unpaid principal balances. Also excluded are modiÑable and combinable REMIC

tranches and interest and principal classes, where the holder has the option to exchange the security tranches for other pre-deÑned security tranches.

89 Freddie Mac
Table 52 provides settlement detail for the mortgage-related securities that we issued during the past three years.

Table 52 Ì Total Guaranteed PCs and Structured Securities Issued(1)

Year Ended December 31,

2006 2005 2004

(in millions)

Total Guaranteed PCs and Structured Securities Issuance Detail:

Single-family:

Conventional:(2)

30-year amortizing Ñxed-rate(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $250,616 $272,910 $220,137

15-year amortizing Ñxed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21,542 41,037 72,358

ARMs/Variable-Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18,819 35,666 50,226

Interest Only ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 58,112 26,487 818

Option ARMs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 3,918 Ì

Balloon/Resets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 410 1,817 9,737

FHA/VA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 946 Ì 319

Rural Housing Service and other federally guaranteed loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 10 48

Total single-familyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 350,453 381,845 353,643

Multifamily:

ConventionalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 930 1,654 4,175

Total multifamily ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 930 1,654 4,175

Non-Freddie Mac mortgage-related securities purchased for Structured Securities:

Ginnie Mae CertiÑcates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 48 37 85

Structured Transactions(4)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,592 14,331 7,205

Total Non-Freddie Mac mortgage-related securities purchased for Structured Securities ÏÏÏÏÏÏÏ 8,640 14,368 7,290

Total Guaranteed PCs and Structured Securities Issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $360,023 $397,867 $365,108

Resecuritization Activity:

Multi-class ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $169,396 208,450 $215,506

Single-class ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 219,493 204,984 72,686

Total activity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $388,889 $413,434 $288,192

(1) Based on unpaid principal balances. Excludes Freddie Mac mortgage-related securities traded, but not yet settled.

(2) The single-family product detail in this table does not agree to similar detail in ""Table 49 Ì Total Mortgage Portfolio Activity Detail'' due to timing

diÅerences associated with mortgage loan purchases into the Retained portfolio and sales from the Retained portfolio. SpeciÑcally, we report mortgage

loans in Table 49 when we purchase them into the Retained portfolio whereas we report mortgage loans in Table 52 when we sell them from the

Retained portfolio to create PCs and Structured Securities.

(3) Includes 40-year and 20-year Ñxed-rate mortgages.

(4) Represents Structured Securities backed by non-agency securities that are backed by a mixture of prime, FHA/VA and subprime mortgage loans,

including $6,908 million, $14,331 million and $5,653 million at December 31, 2006, 2005 and 2004, respectively, of Option ARMs.

90 Freddie Mac
QUARTERLY SELECTED FINANCIAL DATA

In our opinion, Ñnancial data for each quarter and full-year 2006 and 2005 reÖects all adjustments, consisting of normal

recurring adjustments, necessary for a fair statement of the results of operations for such periods. See ""NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Ì Estimates'' and ""Ì Changes in Accounting Principles'' for more information concerning some of these adjustments.

2006

1Q 2Q 3Q 4Q Full-Year

(in millions, except share-related amounts)

Net interest incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,131 $1,172 $ 959 $ 973 $ 4,235

Non-interest income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,347 979 (868) (543) 915

Non-interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (584) (714) (827) (922) (3,047)

Income tax beneÑt (expense) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 115 (40) 21 12 108

Net income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,009 $1,397 $ (715) $ (480) $ 2,211

Earnings (loss) per common share:

Basic(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2.81 $ 1.93 $(1.17) $(0.85) $ 2.84

Diluted(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2.80 $ 1.93 $(1.17) $(0.85) $ 2.84

2005

1Q 2Q 3Q 4Q Full-Year

(in millions, except share-related amounts)

Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,501 $1,269 $ 1,363 $1,237 $ 5,370

Non-interest income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (292) (278) 423 346 199

Non-interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (940) (583) (729) (761) (3,013)

Income tax beneÑt (expense)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 (68) (177) (138) (367)

Net income before cumulative eÅect of change in accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 285 340 880 684 2,189

Cumulative eÅect of change in accounting principle, net of taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (59) Ì Ì Ì (59)

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 226 $ 340 $ 880 $ 684 $ 2,130

Earnings per common share before cumulative eÅect of change in accounting principle:

Basic(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.34 $ 0.41 $ 1.19 $ 0.90 $ 2.84

Diluted(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.33 $ 0.41 $ 1.19 $ 0.90 $ 2.83

Earnings per common share after cumulative eÅect of change in accounting principle:

Basic(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.25 $ 0.41 $ 1.19 $ 0.90 $ 2.76

Diluted(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.25 $ 0.41 $ 1.19 $ 0.90 $ 2.75

(1) Earnings (loss) per 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 share

amounts may not recalculate using the amounts in this table due to rounding.

91 Freddie Mac
RISK MANAGEMENT AND DISCLOSURE COMMITMENTS

In October 2000, we announced our voluntary adoption of a series of commitments designed to enhance market

discipline, liquidity and capital. In September 2005, we entered into a written agreement with OFHEO that updated these

commitments and set forth a process for implementing them. The letters between the company and OFHEO dated

September 1, 2005 constituting the written agreement are available on the Investor Relations page of our website at

www.freddiemac.com/investors/reports.html#commit. As noted in these letters, disclosures may be aÅected by situations

where current Ñnancial statements are not available. The status of our commitments at December 31, 2006 follows:

Description Status

1. Periodic Issuance of Subordinated Debt:

‚ We will issue Freddie SUBS» securities for public ‚ Consistent with promoting the liquidity of our securities,

secondary market trading that are rated by no less in December 2006 we issued approximately $2.0 billion

than two nationally recognized statistical rating of Freddie SUBS» securities, including approximately

organizations. $1.5 billion issued in exchange for previously issued

Freddie SUBS» securities. In addition, we called ‚ Freddie SUBS» securities will be issued in an amount approximately $1.0 billion of previously issued Freddie such that the sum of Total capital (Core capital plus SUBS» securities in August 2006 and issued general allowance for losses) and the outstanding approximately $1.25 billion of Freddie SUBS» securities balance of ""Qualifying subordinated debt'' will equal in June 2006. We did not issue, call or repurchase any or exceed the sum of 0.45 percent of outstanding PCs Freddie SUBS» securities during 2005 and 2004. Our and Structured Securities we guaranteed and ability to issue additional subordinated debt may be 4 percent of total on-balance sheet assets. Qualifying limited until we return to regular Ñnancial reporting. subordinated debt is discounted by one-Ñfth each year

during the instrument's last Ñve years before maturity; ‚ All Freddie SUBS» securities issued in 2006 were rated

when the remaining maturity is less than one year, by no less than two nationally recognized statistical

the instrument is entirely excluded. We will take rating organizations.

reasonable steps to maintain outstanding subordinated ‚ We reported to OFHEO that at December 31, 2006, we debt of suÇcient size to promote liquidity and reliable had $42.6 billion in Total capital plus qualifying market quotes on market values. subordinated debt, resulting in a surplus of $5.0 billion.

‚ Each quarter we will submit to OFHEO calculations During 2006, we submitted our quarterly Total capital

of the quantity of qualifying Freddie SUBS» plus qualifying subordinated debt reports to OFHEO.

securities and Total capital as part of our quarterly ‚ We have submitted our semi-annual subordinated debt capital report. management plans to OFHEO.

‚ Every six months, we will submit to OFHEO a

subordinated debt management plan that includes any

issuance plans for the six months following the date

of the plan.

2. Liquidity Management and Contingency Planning:

‚ We will maintain a contingency plan providing for at ‚ We have in place a liquidity contingency plan, upon

least three months' liquidity without relying upon the which we report to OFHEO on a weekly basis. We

issuance of unsecured debt. We will also periodically periodically test this plan in accordance with our

test the contingency plan in consultation with agreement with OFHEO.

OFHEO.

3. Interest-Rate Risk Disclosures:

‚ We will provide public disclosure of our duration gap, ‚ For the twelve months ended December 31, 2006, our

PMVS-L and PMVS-YC interest-rate risk sensitivity duration gap averaged zero month, PMVS-L averaged

results on a monthly basis. See ""RISK 1 percent and PMVS-YC averaged zero percent. Our

MANAGEMENT Ì Interest-Rate Risk and Other 2006 monthly average duration gap, PMVS results and

Market Risks Ì Portfolio Market Value Sensitivity and related disclosures are provided in our Monthly Volume

Measurement of Interest-Rate Risk'' for a description of Summary which is available on our website,

these metrics. www.freddiemac.com/investors/volsum.

92 Freddie Mac
Description Status

4. Credit Risk Disclosures:

‚ We will make quarterly assessments of the impact on ‚ Our quarterly credit risk sensitivity estimates are as

expected credit losses from an immediate 5 percent follows:

decline in single-family home prices for the entire

U.S. We will disclose the impact in present value

terms and measure our losses both before and after

receipt of private mortgage insurance claims and

other credit enhancements.

(1) Assumes that none of the credit enhancements currently covering our mortgage loans

has any mitigating impact on our credit losses.

(2) Assumes we collect amounts due from credit enhancement providers after giving eÅect

to certain assumptions about counterparty default rates.

(3) Based on single-family Total mortgage portfolio, excluding Structured Securities

backed by Ginnie Mae CertiÑcates.

(4) Calculated as the ratio of net present value of increase in credit losses to the singlefamily Total mortgage portfolio, deÑned in footnote (3) above.

5. Public Disclosure of Risk Rating:

‚ We will seek to obtain a rating, that will be ‚ At March 1, 2007, our ""risk-to-the-government'' rating

continuously monitored by at least one nationally from S&P was ""AA¿'' and Moody's Bank Financial

recognized statistical rating organization, assessing Strength Rating for us was ""A¿''.

""risk-to-the-government'' or independent Ñnancial

strength.

Before Receipt After Receipt

of Credit of Credit

Enhancements(1) Enhancements(2)

Net Present NPV Net Present NPV

Value, or NPV(3) Ratio(4) Value, or NPV(3) Ratio(4)

(dollars in (dollars in

millions) millions)

As of:

12/31/06 $1,128 7.6 bps $770 5.2 bps

09/30/06 $1,071 7.4 bps $724 5.0 bps

06/30/06 $1,018 7.2 bps $686 4.9 bps

03/31/06 $ 915 6.6 bps $598 4.3 bps

12/31/05 $ 873 6.5 bps $564 4.2 bps

93 Freddie Mac
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

94 Freddie Mac
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Freddie Mac:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of

cash Öows, and of stockholders' equity present fairly, in all material respects, the Ñnancial position of Freddie Mac, a

stockholder-owned government-sponsored enterprise (the ""company''), and its subsidiaries at December 31, 2006 and 2005,

and the results of their operations and their cash Öows for each of the three years in the period ended December 31, 2006, in

conformity with accounting principles generally accepted in the United States of America. These Ñnancial statements are

the responsibility of the company's management. Our responsibility is to express an opinion on these Ñnancial statements

based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted

in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance

about whether the Ñnancial statements are free of material misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the Ñnancial statements, assessing the accounting principles used and

signiÑcant estimates made by management, and evaluating the overall Ñnancial statement presentation. We believe that our

audits provide a reasonable basis for our opinion.

We have also audited in accordance with auditing standards generally accepted in the United States of America the

supplemental consolidated fair value balance sheets of the company as of December 31, 2006 and 2005. As described in

""NOTE 16: FAIR VALUE DISCLOSURES,'' the supplemental consolidated fair value balance sheets have been prepared

by management to present relevant Ñnancial information that is not provided by the historical-cost consolidated balance

sheets and is not intended to be a presentation in conformity with generally accepted accounting principles. 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 signiÑcantly 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 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,'' the company changed

its method of accounting for deÑned beneÑt plans as of December 31, 2006, its method of accounting for interest expense

related to callable debt instruments as of January 1, 2005, and its method for determining gains and losses on sales of

certain guaranteed securities as of October 1, 2005.

McLean, Virginia

March 20, 2007

95 Freddie Mac
FREDDIE MAC

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,

2006 2005 2004

(dollars in millions, except sharerelated amounts)

Interest income

Mortgage loansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,152 $ 4,037 $ 4,007

Mortgage-related securities in the Retained portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34,673 29,684 28,460

Cash and investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,262 2,606 3,136

Total interest incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43,087 36,327 35,603

Interest expense

Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (8,665) (6,102) (2,908)

Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (28,218) (23,246) (22,950)

Total interest expense on debt securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (36,883) (29,348) (25,858)

Due to Participation CertiÑcate investors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (387) (551) (708)

Total interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (37,270) (29,899) (26,566)

Income (expense) related to derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,582) (1,058) 100

Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,235 5,370 9,137

Non-interest income (loss)

Management and guarantee income (includes interest on Guarantee asset of $466, $371 and $257) ÏÏÏÏ 1,672 1,450 1,382

Gains (losses) on Guarantee asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (800) (1,064) (1,135)

Income on Guarantee obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 867 920 732

Derivative gains (losses)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,164) (1,357) (4,475)

Hedge accounting gains (losses) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 22 743

Gains (losses) on investment activity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (474) (127) (348)

Gains (losses) on debt retirement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 466 206 (327)

Resecuritization fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 129 125 159

Other income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 217 24 230

Non-interest income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 915 199 (3,039)

Non-interest expense

Salaries and employee beneÑtsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (830) (805) (758)

Professional services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (460) (386) (588)

Occupancy expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (61) (58) (60)

Other administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (290) (286) (144)

Total administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,641) (1,535) (1,550)

Provision for credit losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (215) (251) (143)

Real estate owned, or REO, operations income (expense)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (60) (40) 3

Losses on certain credit guarantees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (476) (234) (33)

Housing tax credit partnerships ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (407) (320) (281)

Minority interests in earnings of consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (58) (96) (129)

Other expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (190) (537) (238)

Non-interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3,047) (3,013) (2,371)

Income before income tax expense and cumulative eÅect of change in accounting principle ÏÏÏÏÏÏÏÏÏÏÏ 2,103 2,556 3,727

Income tax beneÑt (expense) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 108 (367) (790)

Net income before cumulative eÅect of change in accounting principleÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,211 2,189 2,937

Cumulative eÅect of change in accounting principle, net of tax beneÑt of $32 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (59) Ì

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,211 $ 2,130 $ 2,937

Preferred stock dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (270) (223) (210)

Amount allocated to participating stock option holders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5) Ì Ì

Net income available to common stockholdersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,936 $ 1,907 $ 2,727

Basic earnings per common share:

Earnings before cumulative eÅect of change in accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2.84 $ 2.84 $ 3.96

Cumulative eÅect of change in accounting principle, net of taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì $ (0.09) $ Ì

Basic earnings per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2.84 $ 2.76 $ 3.96

Diluted earnings per common share:

Earnings before cumulative eÅect of change in accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2.84 $ 2.83 $ 3.94

Cumulative eÅect of change in accounting principle, net of taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì $ (0.08) $ Ì

Diluted earnings per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2.84 $ 2.75 $ 3.94

Weighted average common shares outstanding (in thousands)

Basic ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 680,856 691,582 689,282

Diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 682,664 693,511 691,521

Dividends per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.91 $ 1.52 $ 1.20

The accompanying notes are an integral part of these Ñnancial statements.

96 Freddie Mac
FREDDIE MAC

CONSOLIDATED BALANCE SHEETS

December 31,

2006 2005

(in millions, except

share-related amounts)

Assets

Retained portfolio

Mortgage loans:

Held-for-investment, at amortized costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 63,780 $ 60,009

Reserve for losses on mortgage loans held-for-investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (70) (119)

Held-for-sale, at lower-of-cost-or-market ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,908 1,538

Mortgage loans, net of reserve ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 65,618 61,428

Mortgage-related securities:

Available-for-sale, at fair value (includes $20,463 and $168, respectively, pledged as collateral that may be repledged) ÏÏÏ 626,731 638,465

Trading, at fair valueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,597 8,894

Participation CertiÑcate residuals, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 597 597

Total mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 634,925 647,956

Retained portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 700,543 709,384

Cash and investments

Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,359 10,468

Investments:

Non-mortgage-related securities:

Available-for-sale, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45,586 42,165

Securities purchased under agreements to resell and Federal funds sold ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23,028 15,159

Cash and investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 79,973 67,792

Accounts and other receivables, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,461 6,373

Derivative assets, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,908 7,097

Guarantee asset, at fair valueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,070 5,083

Real estate owned, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 743 629

Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10,383 9,864

Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $813,081 $806,222

Liabilities and stockholders' equity

Debt securities, net

Senior debt:

Due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $294,861 $288,532

Due after one yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 452,677 454,627

Subordinated debt, due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,400 5,633

Total debt securities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 753,938 748,792

Due to Participation CertiÑcate investors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,123 10,607

Accrued interest payableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,345 7,611

Guarantee obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,117 5,541

Derivative liabilities, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 179 590

Reserve for guarantee losses on Participation CertiÑcates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 350 295

Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,212 4,646

Total liabilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 784,264 778,082

Commitments and contingencies (Notes 1, 3, 4, 13 and 14)

Minority interests in consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 516 949

Stockholders' equity

Preferred stock, at redemption value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,109 4,609

Common stock, $0.21 par value, 726,000,000 shares authorized, 725,863,886 shares and 725,882,280 shares issued,

respectively, and 661,254,178 shares and 692,717,422 shares outstanding, respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 152 152

Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 962 924

Retained earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32,177 31,559

Accumulated other comprehensive income (loss), or AOCI, net of taxes, related to:

Available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2,749) (2,485)

Cash Öow hedge relationships ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5,033) (6,287)

DeÑned beneÑt plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (87) (1)

Total AOCI, net of taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (7,869) (8,773)

Treasury stock, at cost, 64,609,708 shares and 33,164,858 shares, respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3,230) (1,280)

Total stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28,301 27,191

Total liabilities and stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $813,081 $806,222

The accompanying notes are an integral part of these Ñnancial statements.

97 Freddie Mac
FREDDIE MAC

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Year Ended December 31,

2006 2005 2004

Shares Amount Shares Amount Shares Amount

(in millions)

Preferred stock, at redemption value

Balance, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 92 $ 4,609 92 $ 4,609 92 $ 4,609

Preferred stock issuances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 40 1,500 Ì Ì Ì Ì

Preferred stock, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 132 6,109 92 4,609 92 4,609

Common stock, par value

Balance, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 726 152 726 152 726 152

Common stock, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 726 152 726 152 726 152

Additional paid-in capital

Balance, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 924 873 814

Stock-based compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 60 67 56

Income tax beneÑt from employee stock option exercises ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 6 20

Preferred stock issuance costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (15) Ì Ì

Common stock issuances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (15) (13) (17)

Real Estate Investment Trust, or REIT, preferred stock repurchase ÏÏÏÏÏÏÏÏÏÏ (1) (9) Ì

Additional paid-in capital, end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 962 924 873

Retained earnings

Balance, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 31,559 30,728 28,837

Cumulative eÅect of change in accounting principle, net of taxes ÏÏÏÏÏÏÏÏÏÏÏÏ (13) Ì Ì

Balance, beginning of year, as adjusted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 31,546 30,728 28,837

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,211 2,130 2,937

Preferred stock dividends declared ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (270) (223) (210)

Common stock dividends declared ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,310) (1,076) (836)

Retained earnings, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32,177 31,559 30,728

AOCI, net of taxes

Balance, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (8,773) (3,593) (1,498)

Changes in unrealized gains (losses) related to available-for-sale securities, net

of reclassiÑcation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (264) (6,824) (2,010)

Changes in unrealized gains (losses) related to cash Öow hedge relationships,

net of reclassiÑcation adjustmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,254 1,637 (87)

Changes in minimum pension liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2) 7 2

Changes in other comprehensive income, net of taxes, net of reclassiÑcation

adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 988 (5,180) (2,095)

Adjustment to initially apply Statement of Financial Accounting Standard, or

SFAS, No. 158, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (84) Ì Ì

AOCI, net of taxes, end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (7,869) (8,773) (3,593)

Treasury stock, at cost

Balance, beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33 (1,280) 35 (1,353) 37 (1,427)

Common stock issuances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1) 50 (2) 73 (2) 74

Common stock repurchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33 (2,000) Ì Ì Ì Ì

Treasury stock, end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 65 (3,230) 33 (1,280) 35 (1,353)

Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $28,301 $27,191 $31,416

Comprehensive income (loss)

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,211 $ 2,130 $ 2,937

Changes in other comprehensive income, net of taxes, net of reclassiÑcation

adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 988 (5,180) (2,095)

Total comprehensive income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,199 $(3,050) $ 842

The accompanying notes are an integral part of these Ñnancial statements.

98 Freddie Mac
FREDDIE MAC

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2006 2005 2004

(in millions)

Cash Öows from operating activities

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,211 $ 2,130 $ 2,937

Adjustments to reconcile net income to net cash provided by operating activities:

Cumulative eÅect of change in accounting principle, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 59 Ì

Hedge accounting gains ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2) (22) (743)

Unrealized losses (gains) on derivatives not in hedge accounting relationships, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,253 1,014 2,758

Asset related amortization Ì premiums, discounts and hedging basis adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26 791 1,302

Debt related amortization Ì premiums and discounts on certain debt securities and hedging basis

adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,176 9,129 5,748

Net discounts paid on retirements of debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (7,430) (5,207) (3,085)

(Gains) losses on debt retirement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (466) (206) 327

Provision for credit losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 215 260 143

Housing tax credit partnership losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 407 320 281

Losses on investment activity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 494 343 738

Decrease in deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,074) (1,452) (346)

Purchases of held-for-sale mortgages ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (18,352) (26,763) (31,698)

Sales of held-for-sale mortgages ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18,722 23,662 30,965

Repayments of held-for-sale mortgages ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 104 118 162

Net proceeds of trading securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,085 2,598 38,672

Change in accounts and other receivables, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,040) 661 1,870

Change in amounts due to Participation CertiÑcate investors, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 434 (3,077) 529

Change in accrued interest payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 734 282 (235)

Change in income taxes payableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (282) 607 773

Change in Guarantee asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (987) (567) (830)

Change in Guarantee obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,540 1,413 1,173

Change in Participation CertiÑcate residuals, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 112 (170)

Other, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 446 42 (19)

Net cash provided by operating activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,220 6,247 51,252

Cash Öows from investing activities

Purchases of available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (386,394) (414,063) (276,573)

Proceeds from sales of available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 86,745 94,961 85,583

Proceeds from maturities of available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 305,317 249,857 176,432

Purchases of held-for-investment mortgages ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (15,410) (12,826) (12,270)

Repayments of held-for-investment mortgages ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10,466 11,897 11,256

Proceeds from sales of REO ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,212 1,380 1,552

Net (increase) decrease in securities purchased under agreements to resell and Federal funds soldÏÏÏÏÏÏÏ (7,869) 17,038 (11,615)

Derivative premiums and terminations, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (97) 932 (193)

Investments in housing tax credit partnerships ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (161) (127) (69)

Net cash used for investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (6,191) (50,951) (25,897)

Cash Öows from Ñnancing activities

Proceeds from issuance of short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 750,201 857,361 826,020

Repayments of short-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (766,598) (862,176) (841,638)

Proceeds from issuance of long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 177,361 153,504 187,779

Repayments of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (159,204) (125,959) (183,541)

Repayments of minority interest in consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (469) (436) (405)

Repurchase of REIT preferred stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (27) (142) Ì

Proceeds from the issuance of preferred stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,485 Ì Ì

Proceeds from issuance of common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35 60 57

Repurchases of common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2,000) Ì Ì

Payment of cash dividends on preferred stock and common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,580) (1,299) (1,046)

Tax beneÑt from the exercise of stock-based awards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 Ì Ì

Payments of housing tax credit partnerships notes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,382) (940) (498)

Increase (decrease) in cash overdraft ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 36 (54) 28

Net cash (used for) provided by Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2,138) 19,919 (13,244)

Net increase (decrease) in cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 891 (24,785) 12,111

Cash and cash equivalents at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10,468 35,253 23,142

Cash and cash equivalents at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 11,359 $ 10,468 $ 35,253

Supplemental cash Öow information

Cash paid (received) for:

InterestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 34,399 $ 26,797 $ 23,902

Derivative interest carry, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 325 (590) 325

Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,250 1,212 363

Non-cash investing and Ñnancing activities:

Held-for-sale mortgages securitized and retained as available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13 175 272

Transfers from mortgage loans to REO ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,603 1,517 1,733

Investments in housing tax credit partnerships Ñnanced by notes payableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 324 1,095 1,184

Transfers from held-for-sale mortgages to held-for-investment mortgages ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 123 291 198

Transfers from held-for-investment mortgages to held-for-sale mortgages ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 950 Ì Ì

Transfers from Retained portfolio PCs to held-for-investment mortgages ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,316 1,372 1,716

The accompanying notes are an integral part of these Ñnancial statements.

99 Freddie Mac
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We are a stockholder-owned government-sponsored enterprise, or GSE, established by Congress in 1970 to provide a

continuous Öow of funds for residential mortgages. Our obligations are ours alone and are not insured or guaranteed by the

U.S. government, or any other agency or instrumentality of the U.S. We play a fundamental role in the U.S. housing

Ñnance system, linking the domestic mortgage market and the global capital markets. Our participation in the secondary

mortgage market includes providing our credit guarantee for residential mortgages originated by mortgage lenders and

investing in mortgage loans and mortgage-related securities that we hold in our Retained portfolio. Through our credit

guarantee activities, we securitize mortgage loans by issuing Mortgage Participation CertiÑcates, or PCs, to third-party

investors. We also resecuritize mortgage-related securities that are issued by us or the Government National Mortgage

Association, or Ginnie Mae, as well as non-agency entities. We also guarantee multifamily mortgage loans that support

housing revenue bonds issued by third parties and we guarantee other mortgage loans held by third parties. Securitized

mortgage-related assets that back PCs and Structured Securities that are held by third parties are not reÖected as our assets.

In return for providing our guarantee on issued PCs and Structured Securities, we may earn a management and guarantee

fee that is paid to us over the life of the related PCs and Structured Securities. Our obligation to guarantee the payment of

principal and interest on issued PCs and Structured Securities usually results in the recognition of a Guarantee asset and

Guarantee obligation.

Our Ñnancial reporting and accounting policies conform to U.S. generally accepted accounting principles, or GAAP.

Certain amounts in prior periods have been reclassiÑed to conform to the current presentation. We evaluate the materiality

of identiÑed errors in the Ñnancial statements using both an income statement, or ""rollover,'' and a balance sheet, or ""ironcurtain,'' approach, based on relevant quantitative and qualitative factors. Our approach is consistent with the Securities and

Exchange Commission's StaÅ Accounting Bulletin No. 108, ""Considering the EÅects of Prior Year Misstatements when

Quantifying Misstatements in Current Year Financial Statements,'' or SAB 108, which is eÅective for the year ended

December 31, 2006.

Estimates

The preparation of Ñnancial statements requires us to make estimates and assumptions that aÅect (a) the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Ñnancial statements and

(b) the reported amounts of revenues and expenses and gains and losses during the reporting period. Actual results could

diÅer from those estimates.

Our estimates and judgments include the following:

‚ estimating fair value for Ñnancial instruments (See ""NOTE 16: FAIR VALUE DISCLOSURES'' for a discussion

of our fair value estimates);

‚ determining the expected future cash Öows (including the timing and amounts of prepayments) of mortgage-related

assets in the Retained portfolio for the purpose of amortizing deferred amounts and assessing when securities are

other-than-temporarily impaired;

‚ assessing the reserves for credit losses on mortgage loans and guarantee losses on PCs;

‚ assessing our legal and tax contingencies;

‚ estimating the expected timing and amounts of future issuances of non-callable debt; and

‚ determining other matters that aÅect the reported amounts and disclosure of contingencies in the Ñnancial

statements.

Net income for 2006 was increased by approximately $8 million (after-tax), or $0.01 per diluted common share, due

primarily to changes in estimates related to the amortization of discounts, premiums and deferred fees for assets held in the

Retained portfolio and enhancements to our approach for certain valuations including the Guarantee asset and Guarantee

obligation.

EÅective January 1, 2006, we enhanced our process for forecasting interest rates and estimating prepayments used to

amortize discounts, premiums and deferred fees for assets held in the Retained portfolio. This change resulted in a

$49 million (after-tax) reduction in Net income for 2006, including the eÅect of the amortization of deferred credit fees.

Also, eÅective January 1, 2006, we enhanced our approach for Guarantee asset and Guarantee obligation valuations

primarily with respect to applying dealer prices in estimating the fair value of our guarantee-related assets. We also enhanced

our approach for applying loan characteristics in the valuation of our Guarantee obligation. These changes resulted in a

$57 million (after-tax) increase in Net income for 2006.

In 2005, Net income was reduced by approximately $206 million (after-tax), or $0.30 per diluted common share,

related to the implementation of enhancements to our approach for Guarantee asset and Guarantee obligation valuations, the

100 Freddie Mac
estimation of reserves for uncollectible interest, and models used to estimate prepayment behavior of mortgage assets, all of

which were recorded as changes in accounting estimates.

In 2004, Net income was decreased by approximately $56 million (after-tax), or $0.08 per diluted common share, as the

result of a change in estimate related to enhancements to certain assumptions and calculations in the amortization process

for deferred fees recorded as basis adjustments on assets in our Retained portfolio.

Table 1.1 shows the pre-tax impact of the changes in estimates in our consolidated statements of income:

Table 1.1 Ì Summary of Change in Estimates (Pre-Tax)

Year ended December 31,

2006 2005 2004

(in millions)

Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(93) $(166) $(86)

Non-interest income (loss)

Management and guarantee income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18 (17) Ì

Gains (losses) on Guarantee asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 40 (27) Ì

Gains (losses) on investment activity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 47 (78) Ì

Other income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (27) Ì

Total Non-interest income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 105 (149) Ì

Total pre-tax impact of changes in estimatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 12 $(315) $(86)

Changes in Accounting Principles

At December 31, 2006, we adopted Statement of Financial Accounting Standards, or SFAS, No. 158, ""Employers'

Accounting for DeÑned BeneÑt Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88,

106, and 132(R),'' or SFAS 158, which requires the recognition of our pension and other postretirement plans' overfunded

or underfunded status in the statement of Ñnancial position beginning December 31, 2006. See ""Recently Adopted

Accounting Standards'' for additional information. Table 1.2 summarizes the incremental eÅect of applying SFAS 158 on

individual line items on our consolidated balance sheets.

Table 1.2 Ì Change in Accounting for DeÑned BeneÑt Plans Ì Impact on Financial Statements

December 31, 2006

Prior to Adoption of EÅect of Adopting

SFAS 158 SFAS 158 As Reported

(in millions)

Consolidated Balance Sheet Line Items(1)

Assets:

Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 10,432 $(49) $ 10,383

Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 813,130 (49) 813,081

Liabilities and stockholders' equity:

Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,177 35 3,212

AOCI, net of taxes:

DeÑned beneÑt plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (3) (84) (87)

Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 813,130 (49) 813,081

(1) Allocation between Other assets and Other liabilities on our consolidated balance sheets depends upon whether the deÑned beneÑt plans are either

overfunded (impacting Other assets) or underfunded (impacting Other liabilities). Included in the Other assets line on our consolidated balance

sheets is a Deferred tax asset of $45 million based on the amount reclassiÑed into AOCI, net of taxes at December 31, 2006.

EÅective January 1, 2006, we made a change to our method of amortization for certain types of non-agency securities

resulting in a $13 million (after-tax) reduction to the opening balance of retained earnings.

EÅective January 1, 2005, we changed our method of accounting for interest expense related to callable debt

instruments to recognize interest expense using an eÅective interest method over the contractual life of the debt. For periods

prior to 2005, we amortized premiums, discounts, deferred issuance costs and other basis adjustments into interest expense

using an eÅective interest method over the estimated life of the debt. We implemented this change in accounting method to

facilitate improved Ñnancial reporting, particularly to promote the comparability of our Ñnancial reporting with that of our

primary competitor. The change in accounting method also reduced the operational complexity associated with determining

the estimated life of callable debt. The cumulative eÅect of this change was a $59 million (after-tax) reduction in net

income for 2005.

Table 1.3 summarizes the pro forma net income and related basic and diluted earnings per common share, had the

amortization of premiums, discounts, deferred issuance costs and other basis adjustments related to callable debt based on

the contractual maturity been in eÅect for the year ended December 31, 2004.

101 Freddie Mac
Table 1.3 Ì Pro Forma Information Ì Change in Accounting for Interest Expense Related to Callable Debt

Year Ended

December 31, 2004

(in millions, except

share-related amounts)

As reported:

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,937

Basic earnings per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3.96

Diluted earnings per common shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3.94

Pro forma:

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,910

Basic earnings per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3.92

Diluted earnings per common shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3.90

Beginning October 1, 2005, we changed our method for determining gains and losses upon the resale of PCs and

Structured Securities related to deferred items recognized in connection with our guarantee of those securities. This change

in accounting principle was facilitated by system changes that now allow us to apply and track these deferred items relative

to the speciÑc portions of the purchased PCs and Structured Securities. The lack of certain historical data precluded us

from calculating the cumulative eÅect of the change. We were not able to determine the pro forma eÅects of applying the

new method retroactively. See ""NOTE 2: TRANSFERS OF SECURITIZED INTERESTS IN MORTGAGERELATED ASSETS'' for additional information.

Consolidation and Equity Method of Accounting

The consolidated Ñnancial statements include our accounts and those of our subsidiaries. All material intercompany

transactions have been eliminated in consolidation. For each entity with which we are involved, we determine whether the

entity should be considered our subsidiary and included in our consolidated Ñnancial statements. We consolidate (a) all

variable interest entities, or VIEs, in which we are the primary beneÑciary and (b) entities in which we hold more than

50 percent of the voting rights or have the ability to exercise control over the entity.

We are considered the primary beneÑciary and must consolidate a VIE when we absorb a majority of expected losses or

expected residual returns, or both. In addition to the VIEs that are consolidated, we have signiÑcant variable interest in

certain other VIEs that are not consolidated because we are not the primary beneÑciary. See ""NOTE 3: VARIABLE

INTEREST ENTITIES'' for more information.

We consolidate entities when we hold more than 50 percent of the voting rights or have the ability to exercise control

over the entity. Accordingly, we consolidate our two majority-owned REITs, Home Ownership Funding Corporation and

Home Ownership Funding Corporation II. The equity and net earnings attributable to the minority shareholder interests in

our consolidated subsidiaries are reported separately on our consolidated balance sheets as Minority interests in consolidated

subsidiaries and in the consolidated statements of income as Minority interests in earnings of consolidated subsidiaries.

We use the equity method of accounting for VIEs when we are not the primary beneÑciary and for entities that are not

VIEs over which we have the ability to exercise signiÑcant inÖuence, but not control. Under the equity method of

accounting, we report our recorded investment as part of Other assets on our consolidated balance sheets and recognize our

share of the entity's net income or losses in the consolidated statements of income as Non-interest income/expense, with an

oÅset to the recorded investment on our consolidated balance sheets. Losses are recognized up to the amount of investment

recorded.

We regularly invest as a limited partner in qualiÑed low-income housing tax credit, or LIHTC, partnerships that are

eligible for federal tax credits. Most of these are VIEs. We are the primary beneÑciary and consolidate certain of these

partnerships as described further in ""NOTE 3: VARIABLE INTEREST ENTITIES.'' Our recorded investment in those

partnerships that are not consolidated is accounted for under the equity method and reported as part of Other assets on our

consolidated balance sheets. Our share of partnership income or loss is reported in our consolidated statements of income as

Non-interest expense Ì Housing tax credit partnerships. Our obligations to make delayed equity contributions that are

unconditional and legally binding are recorded at their present value in Other liabilities on the consolidated balance sheets.

To the extent our cost basis in qualiÑed LIHTC partnerships diÅers from the book basis reÖected at the partnership level,

the diÅerence is amortized over the life of the tax credits and included in our share of earnings (losses) from housing tax

credit partnerships. We periodically review these investments for impairment and adjust them to fair value when a decline in

market value below the recorded investment is deemed to be other-than-temporary. Impairment losses are included in our

consolidated statements of income as part of Non-interest expense Ì Housing tax credit partnerships.

Cash and Cash Equivalents and Statements of Cash Flows

Highly liquid investment securities that have an original maturity of three months or less and are used for cash

management purposes are accounted for as cash equivalents. In addition, cash collateral we obtained from counterparties to

102 Freddie Mac
derivative contracts where we are in a net unrealized gain position is recorded as Cash and cash equivalents. The vast

majority of the Cash and cash equivalents balance is interest-bearing in nature.

In the consolidated statements of cash Öows, cash Öows related to the acquisition and termination of derivatives other

than forward commitments are generally classiÑed in investing activities, without regard to whether the derivatives are

designated as a hedge of another item. Cash Öows from commitments accounted for as derivatives that result in the

acquisition or sale of mortgage securities or mortgage loans are classiÑed in either: (a) operating activities for trading

securities or mortgage loans classiÑed as held-for-sale, or (b) investing activities for available-for-sale securities or mortgage

loans classiÑed as held-for-investment. Cash Öows related to mortgage loans classiÑed as held-for-sale are classiÑed in

operating activities until the loans have been securitized and retained as available-for-sale PCs, at which time the cash Öows

are classiÑed as investing activities. Cash Öows related to guarantee fees, including buy-up and buy-down payments, are

classiÑed as operating activities, along with the cash Öows related to the collection and distribution of payments on the

mortgage loans underlying PCs. Buy-up and buy-down payments are discussed further below in ""Swap-Based Issuances of

PCs and Structured Securities.''

Transfers of PCs and Structured Securities that Qualify as Sales

Upon completion of a transfer of a Ñnancial asset that qualiÑes as a sale under SFAS No. 140, ""Accounting for

Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, a replacement of FASB Statement No. 125,''

or SFAS 140, we de-recognize all assets sold and recognize all assets obtained and liabilities incurred. Upon sale, we

recognize the fair value of our obligation to guarantee the payment of principal and interest of PCs and Structured Securities

transferred in sale transactions. The portion of such obligation that relates to our non-contingent obligation to stand ready to

perform under our guarantee is recognized as a Guarantee obligation, while the portion of the obligation that relates to

estimated incurred losses on securitized assets is recognized for consolidated balance sheet purposes as Reserve for guarantee

losses on Participation CertiÑcates. The resulting gain (loss) on sale of transferred PCs and Structured Securities is

reÖected in our consolidated statements of income as a component of Gains (losses) on investment activity.

In recording a sales transaction, we also continue to carry on our consolidated balance sheets any retained interests in

securitized Ñnancial assets. Such retained interests include our right to receive management and guarantee fees on PCs or

Structured Securities, which is classiÑed on our consolidated balance sheets as a Guarantee asset. The carrying amount of

all such retained interests is determined by allocating the previous carrying amount of the transferred assets between assets

sold and the retained interests based upon their relative fair values at the date of transfer. Other retained interests include

PCs or Structured Securities that are not transferred to third parties upon the completion of a securitization or

resecuritization transaction.

Swap-Based Issuances of PCs and Structured Securities

We issue PCs and Structured Securities through cash-based sales transactions and through various swap-based

exchanges. In the case of PC-based swaps, we issue such securities to third parties through Guarantor and MultiLender

Swap transactions. Guarantor Swaps are transactions in which Ñnancial institutions transfer mortgage loans to us in exchange

for PCs we issue that are backed by such mortgage loans. MultiLender Swaps are similar to Guarantor Swaps, except that

formed pools include loans that are contributed by more than one other party or by us. In Guarantor and MultiLender

Swaps, as in sales transactions, in return for providing our guarantee, we earn a guarantee fee that is paid to us over the life of

an issued PC. It is also common for buy-up or buy-down payments to be exchanged between our counterparties and us upon

the issuance of a PC. Buy-ups are upfront payments made by us that increase the guarantee fee we will receive over the life

of the PC. Buy-downs are upfront payments that are made to us that decrease (i.e., partially prepay) the guarantee fee we

will receive over the life of the PC. We may also receive upfront, cash-based payments as additional compensation for our

guarantee of mortgage loans, referred to as credit fees. As additional consideration received on swap-based exchanges, we

may receive various types of seller-provided credit enhancements related to the underlying mortgage loans. We also issue

and transfer Structured Securities to third parties in exchange for PCs and non-Freddie Mac mortgage-related securities.

We recognize the fair value of our contractual right to receive guarantee fees as a Guarantee asset at the inception of an

executed guarantee. Additionally, at inception of an executed guarantee, we recognize a Guarantee obligation at the greater

of (a) fair value or (b) the contingent liability amount required by SFAS No. 5, ""Accounting for Contingencies,'' or

SFAS 5. Similar to transfers of PCs and Structured Securities that qualify as sales, that portion of our estimated guarantee

liability that relates to our non-contingent obligation to stand ready to perform under a PC guarantee is recognized as

Guarantee obligation, while that portion of such estimated guarantee liability that relates to our contingent obligation to

make payments under our guarantee is recognized on our consolidated balance sheets as Reserve for guarantee losses on

Participation CertiÑcates. Credit enhancements received in connection with Guarantor Swaps and other similar exchange

transactions of PCs are measured at fair value and recognized as follows: (a) pool insurance is recognized as an Other asset;

(b) recourse and/or indemniÑcations that are provided by counterparties to Guarantor Swap transactions are recognized as

103 Freddie Mac
Other assets; and (c) primary mortgage insurance is recognized at inception as a component of the recognized Guarantee

obligation.

Because Guarantee asset, Guarantee obligation and credit enhancement-related assets that are recognized at the

inception of an executed Guarantor Swap are valued independently of each other, net diÅerences between these recognized

assets and liabilities may exist at inception. If the amount of the Guarantee asset plus the credit enhancement-related assets

is greater than the total amount of the Guarantee obligation, the diÅerence between such amounts is deferred on our

consolidated balance sheets as a component of Guarantee obligation and referred to as deferred guarantee income. If the

amount of the Guarantee asset and the credit enhancement-related assets is less than the total amount of the Guarantee

obligation, the diÅerence between such amounts is expensed immediately to earnings as a component of Non-interest

expense Ì Other expenses. Additionally, cash payments that are made or received in connection with buy-ups and buydowns are recognized as adjustments of recognized deferred guarantee income. Likewise, credit fees that we receive at

inception are also recognized as adjustments of recognized deferred guarantee income.

We account for a portion of PCs that we issue through our MultiLender Swap Program in the same manner as transfers

that are accounted for as sales. The remaining portion of such PC issuances is accounted for in a manner consistent with the

accounting for PCs issued through the Guarantor Swap program.

For Structured Securities that we issue to third parties in exchange for PCs and non- Freddie Mac mortgage-related

securities, we generally do not recognize any incremental Guarantee asset or Guarantee obligation. Rather, we defer and

amortize into income on a straight-line basis that portion of the transaction fee that we receive that relates to the estimated

fair value of our future administrative responsibilities for issued Structured Securities. In cases where we retain portions of

Structured Securities issued in such transactions, a portion of the received transaction fee is deferred as a carrying value

adjustment of retained Structured Securities. The balance of transaction fees received, which relates to compensation earned

in connection with structuring-related services we rendered to third parties, is recognized immediately in earnings as Noninterest income Ì Resecuritization fees.

Purchases of PCs or Structured Securities

The purchase of a PC or Structured Security prompts the extinguishment of the corresponding, recognized Guarantee

obligation. We de-recognize an extinguished Guarantee obligation against earnings as a component of Gains (losses) on

investment activity. Correspondingly, the recognized Guarantee asset is reclassiÑed on our consolidated balance sheets as a

component of PC residuals. PC residuals are remeasured at fair value, including the fair value of the inherent credit

obligation associated with the purchased PC or Structured Security. The unamortized balance of deferred guarantee income

is extinguished as a basis adjustment to the recognized value of purchased PCs. Such basis adjustments are subsequently

amortized into earnings as Interest income pursuant to the requirements of SFAS No. 91, ""Accounting for Nonrefundable

Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, an amendment of FASB

Statements No. 13, 60 and 65 and a rescission of FASB Statement No. 17,'' or SFAS 91, using the eÅective interest

method.

Subsequent Measurement of Recognized Guarantee-Related Assets and Liabilities

Deferred Guarantee Income

Deferred guarantee income is amortized into earnings at a rate that is commensurate with the observed rate of decline in

the unpaid principal balance of securitized mortgage loans. Periodic amortization of recognized deferred guarantee income

is reÖected in earnings as a component of Income on Guarantee obligation.

Recognized Guarantee Asset

We generally account for a Guarantee asset like a debt instrument classiÑed as trading under SFAS 115, ""Accounting

for Certain Investments in Debt and Equity Securities,'' or SFAS 115. Changes in the fair value of the recognized

Guarantee asset are reÖected in earnings as a component of Gains (losses) on Guarantee asset. Cash collections of our

contractual guarantee fee reduce the value of the Guarantee asset. All guarantee-related compensation that is received over

the life of the loan in cash is reÖected in earnings as a component of Management and guarantee income.

Recognized Guarantee Obligation

We amortize the recognized Guarantee obligation into earnings commensurate with the observed decline in the unpaid

principal balance of securitized mortgage loans. Periodic amortization of a recognized Guarantee obligation is reÖected in

earnings as a component of Income on Guarantee obligation. Separately, the subsequent measurement of our contingent

obligation to make guarantee payments is further discussed below in ""Reserves for Losses on Mortgage Loans Held-forInvestment and Losses on PCs.''

104 Freddie Mac
Recognized Credit Enhancements

Credit enhancements that are separately recognized as Other assets are amortized into earnings as Non-interest

expense. Such assets are amortized over related contract terms at the greater of amounts calculated by amortizing recognized

credit enhancements (a) commensurate with the observed decline in the unpaid principal balance of covered mortgage

loans or (b) on a straight-line basis over a credit enhancement's contract term. Recurring insurance premiums are recorded

at the amount paid and amortized over their contractual life and, if provided quarterly, then the amortization period is three

months.

PC Residuals

PC residuals relate to certain PCs or Structured Securities that we hold as investments and represent the fair value of

the expected future cash Öows associated with the guarantee contracts (including cash Öows related to Management and

guarantee fees and our Guarantee obligation) that are inherent within such securities.

We recognize a PC residual in connection with PCs or Structured Securities that we hold that (a) were previously

transferred to third parties as part of transactions that were accounted for either as sales or in a manner described above for

Guarantor Swap transactions (such that a Guarantee asset and Guarantee obligation were previously established for held

PCs or Structured Securities), or (b) were formed from mortgage loans purchased through our Cash Window, referred to

as ""Cash Window Purchases,'' and that were never transferred to third parties.

Similar to our recognized Guarantee asset, a PC residual is accounted for like a debt security and is classiÑed as either

available-for-sale or trading under SFAS 115. PC residuals relating to PCs or Structured Securities that were transferred to

third parties and for which a Guarantee asset and Guarantee obligation was recognized are accounted for like debt

securities that are classiÑed as trading. PC residuals relating to PCs held in portfolio that were formed from Cash Window

Purchases and that were never transferred to third parties are generally accounted for like debt securities that are classiÑed

as available-for-sale.

PC residuals are subsequently carried at fair value considering the future inherent credit obligation. All changes in the

fair value of PC residuals that are designated as trading are reÖected in earnings as a component of Gains (losses) on

investment activity. All changes in the fair value of PC residuals that are accounted for as available-for-sale are reÖected as

a component of Accumulated other comprehensive income (loss), net of taxes, or AOCI, a component of Stockholders'

equity. All cash received over the life of the underlying loans with respect to the Guarantee asset component of the PC

residuals is reÖected in earnings as a component of Net interest income.

Due to Participation CertiÑcate Investors

Timing diÅerences between our receipt of scheduled and unscheduled principal and interest payments from seller/

servicers on mortgages underlying PCs and the subsequent pass through of those payments on PCs owned by third-party

investors result in the liability Due to Participation CertiÑcate investors. In those cases, the PC balance is not reduced for

payments of principal received from seller/servicers in a given month until the Ñrst day of the next month and we do not

release the cash received (principal and interest) to the PC investor until the Ñfteenth day of that next month. We generally

invest the principal and interest amounts we receive in short-term investments from the time the cash is received until the

time we pay the PC investor. Interest income resulting from investment of principal and interest payments from seller/

servicers is reported in interest income.

For unscheduled principal prepayments, these timing diÅerences result in an expense accrual upon prepayment of the

underlying mortgage. This is because the related PCs continue to bear interest due to the PC investor at the PC coupon rate

from the date of prepayment until the date the PC security balance is reduced, while generally no interest is received from

the mortgage on that prepayment amount during that period. The expense recognized upon prepayment is reported in

Interest expense Ì Due to Participation CertiÑcate investors. We report PC coupon interest amounts relating to our

investment in PCs consistent with GAAP applied by third party investors in PCs. Accordingly, the PC coupon interest on

prepayments of a mortgage pending remittance on PCs held by us is reported as both Interest Income Ì Mortgage-related

securities in the Retained portfolio and Interest expense Ì Due to Participation CertiÑcate investors. Scheduled and

unscheduled principal payments received by us that relate to our investment in PCs are reported as a reduction to our

investment in PCs on our consolidated balance sheets.

Mortgage Loans

Mortgage loans that we intend to sell are classiÑed as held-for-sale. If we decide to retain a loan, the loan is transferred

to the held-for-investment portfolio. Loans transferred to the held-for-investment portfolio are transferred at lower of cost or

market. Lower-of-cost-or-market valuation adjustments relating to these loans are treated as basis adjustments and are

subsequently amortized into interest income over the estimated lives of the mortgages using the eÅective interest method.

105 Freddie Mac
We recognize interest on mortgage loans on an accrual basis, except when we believe the collection of principal or interest is

doubtful. See ""Non-Performing Loans'' for additional information.

Held-for-sale mortgages are reported at lower-of-cost-or-market, on a portfolio basis, with gains and losses reported in

Gains (losses) on investment activity. Premiums and discounts on loans classiÑed as held-for-sale are not amortized during

the period that such loans are classiÑed as held-for-sale. For a description of how we determine the fair value of our heldfor-sale mortgage loans, see ""NOTE 16: FAIR VALUE DISCLOSURES.''

Mortgage loans that we have the ability and intent to hold for the foreseeable future or to maturity are classiÑed as heldfor-investment. These mortgage loans are reported at their outstanding principal balances, net of deferred fees (including

premiums and discounts). These deferred items are amortized into interest income over the estimated lives of the

mortgages using the eÅective interest method. We use actual prepayment experience and estimates of future prepayments to

determine the constant yield needed to apply the eÅective interest method. For purposes of estimating future prepayments,

the mortgages are aggregated by similar characteristics such as origination date, coupon and maturity.

Reserves for Losses on Mortgage Loans Held-for-Investment and Losses on PCs

We maintain a reserve for losses on mortgage loans held-for-investment to provide for credit losses inherent in that

portfolio. We also maintain a reserve for guarantee losses on PCs to provide for credit losses inherent in mortgages underlying

PCs or Structured Securities held by third parties. The reserve for losses on mortgage loans held-for-investment and the

reserve for guarantee losses on PCs and Structured Securities held by third parties are collectively referred to as ""loan loss

reserves.'' Increases in loan loss reserves are reÖected in earnings as a component of the Provision for credit losses.

Decreases in loan loss reserves are reÖected through (a) charging-oÅ such balances (net of recoveries) when realized losses

are recorded or (b) a reduction in the Provision for credit losses.

Upon sale of PCs or Structured Securities, we re-establish a Guarantee obligation, which includes the consideration of

inherent credit losses. Also, upon sale, we recognize incurred losses as a component of Gains (losses) on investment activity.

Single-family loan portfolio Ì We estimate credit losses on homogeneous pools of single-family loans using statistically-based models that evaluate a variety of factors. The homogeneous pools of single-family mortgage loans are determined

based on common underlying characteristics, including year of origination, loan-to-value ratio and geographic region. In

determining the loan loss reserves for impaired single-family loans at the balance sheet date, we evaluate factors including:

‚ the year of loan origination;

‚ geographic location;

‚ actual and estimated amounts for loss severity trends for similar loans;

‚ default experience;

‚ expected proceeds from credit enhancements;

‚ pre-foreclosure real estate taxes and insurance; and

‚ estimated costs should the underlying property ultimately be foreclosed upon and sold.

Our best estimate of each of these factors is used to estimate the amount of our probable loss at the balance sheet date.

Favorable trends in these factors decrease our estimate of probable losses, while negative trends increase our estimate.

We frequently validate and update the models and factors to capture changes in actual loss experience, as well as

changes in underwriting practices and in our loss mitigation strategies. We also consider macroeconomic and other factors

including regional housing trends, applicable home price indices, unemployment and employment dislocation trends,

consumer credit statistics, recent changes in credit underwriting practices, the extent of third party insurance, and other

measurable factors that inÖuence the quality of the portfolio at the balance sheet date. We then adjust the loan loss reserves

to the level required based on our best assessment of these factors.

Multifamily loan portfolio Ì We estimate credit losses on the multifamily loan portfolio based on all available

evidence, including adequacy of third-party credit enhancements, evaluation of the repayment prospects, and fair value of

collateral underlying the individual loans. The review of the repayment prospects and value of collateral underlying

individual loans is based on property-speciÑc and market-level risk characteristics including apartment vacancy rates,

apartment rental rates, and property sales information. Loans individually evaluated for impairment include loans that

become 60 days past due for principal and interest, certain loans with observable collateral deÑciencies and loans whose

contractual terms were modiÑed due to credit concerns. When loan loss reserves for individual loans are established,

consideration is given to all available evidence, such as the present value of discounted expected future cash Öows, fair value

of collateral, and credit enhancements.

106 Freddie Mac
Non-Performing Loans

Non-performing loans consist of: (a) loans whose terms have been modiÑed due to previous delinquency or risk of

delinquency and, therefore, are now considered part of our impaired loan population, referred to as ""troubled debt

restructurings,'' (b) serious delinquencies and (c) non-accrual loans. Serious delinquencies are those single-family loans that

are 90 days or more past due or in foreclosure, and multifamily loans that are more than 60 days but less than 90 days past

due. This category also includes multifamily loans that are 90 days or more past due but where principal and interest are

being paid to us under the terms of a credit enhancement agreement. Non-performing loans generally accrue interest in

accordance with their contractual terms unless they are in non-accrual status. Non-accrual loans are loans where interest

income is recognized on a cash basis, and only include multifamily loans 90 days or more past due. For non-accrual loans,

any existing accruals are reversed against interest income unless they are both well secured and in the process of collection.

For single-family retained and repurchased mortgage loans, interest income is accrued; however, we begin to fully reserve

for accrued interest on these loans after a mortgage becomes 90 days past due. For single-family loans underlying

outstanding PCs and Structured Securities held by third parties, we reserve for lost interest using a statistically based model.

Impaired loans include single-family loans, both performing and non-performing, that are troubled debt restructurings

and delinquent loans purchased from PC pools whose fair value was less than acquisition cost at the date of purchase.

Multifamily impaired loans are deÑned as performing and non-performing troubled debt restructurings, loans 60 days or

more past due (except for certain credit-enhanced loans) and certain mortgage loans with real estate collateral values less

than the outstanding unpaid principal balances. See ""Table 6.2 Ì Impaired Loans'' in ""NOTE 6: LOAN LOSS

RESERVES'' for further discussion.

We have the option to purchase mortgage loans out of PC pools under certain circumstances, such as to resolve an

existing or impending delinquency or default. Our general practice is to purchase the mortgage loans out of pools after the

loans are 120 days delinquent. Loans that are purchased from PC pools held by third parties are recorded on our

consolidated balance sheets at fair value at the date of purchase and are subsequently carried at amortized cost. Loans

purchased out of PC pools held in the Retained portfolio are recorded on our consolidated balance sheets at the adjusted cost

basis. Increases in market interest rates and declining market values for delinquent loans resulted in all loans purchased out

of PC pools during 2006 being classiÑed as impaired loans. We record realized losses on certain guaranteed loans when the

fair value is less than the unpaid principal balance, net of related reserves, as of the date of our repurchase. For loans that

later re-perform, a portion of the valuation discount applied when the loan was repurchased will be accreted back into

income over the estimated life of the loan.

Charge-OÅs

The loan loss reserves are reduced for charge-oÅs when a loss is speciÑcally identiÑed. For both single-family and

multifamily mortgages where the original terms of the mortgage loan agreement are modiÑed for economic or legal reasons

related to the borrower's Ñnancial diÇculties, losses are recorded at the time of modiÑcation and the loans are subsequently

accounted for as troubled debt restructurings. For mortgages that are foreclosed upon and thus transferred to Real estate

owned, net, or REO, or are involved in a pre-foreclosure sale, losses at the time of transfer or pre-foreclosure sale are

charged-oÅ against Reserve for losses on mortgage loans held-for-investment. For transfers to REO, losses arise when the

carrying basis of the loan (including accrued interest) exceeds the fair value of the foreclosed property (after deduction for

estimated selling costs and consideration of third-party insurance or other credit enhancements). REO gains arise and are

recognized immediately in earnings when the fair market value of the acquired asset (after deduction for estimated

disposition costs) exceeds the carrying value of the mortgage (including accrued interest). REO gains and losses subsequent

to foreclosure are included in REO operations income (expense).

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.

Securities classiÑed as available-for-sale and trading are reported at fair value with changes in fair value included in AOCI

and Gains (losses) on investment activity, respectively. See ""NOTE 16: FAIR VALUE DISCLOSURES'' for more

information on how we determine the fair value of securities.

We record forward purchases and sales of securities that are speciÑcally exempt from the requirements of

SFAS No. 133, ""Accounting for Derivative Instruments and Hedging Activities,'' or SFAS 133, on a trade date basis.

Securities underlying forward purchases and sales contracts that are not exempt from the requirements of SFAS 133 are

recorded on the contractual settlement date with a corresponding commitment recorded on the trade date.

107 Freddie Mac
We often retain Structured Securities created through resecuritizations of mortgage-related securities held by us. The

new Structured Securities we acquire in these transactions are classiÑed as available-for-sale or trading based upon the

predominant classiÑcation of the mortgage-related security collateral we contributed.

For most of our investments in securities, interest income is recognized using the retrospective eÅective interest method.

Deferred items, including premiums, discounts and other basis adjustments, are amortized into interest income over the

estimated lives of the securities. We use actual prepayment experience and estimates of future prepayments to determine the

constant yield needed to apply the eÅective interest method. We recalculate the constant eÅective yield based on changes in

estimated prepayments as a result of changes in interest rates and other factors. When the constant eÅective yield changes,

an adjustment to interest income is made for the amount of amortization that would have been recorded if the new eÅective

yield had been applied since the mortgage assets were acquired.

For certain securities investments, interest income is recognized using the prospective eÅective interest method. We

speciÑcally apply this accounting to beneÑcial interests in securitized Ñnancial 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 (such as interest-only

strips) or (b) are not of high credit quality at the acquisition date. We recognize as interest income (over the life of these

securities) the excess of all estimated cash Öows attributable to these interests over their principal amount using the

eÅective yield method. We update our estimates of expected cash Öows periodically and recognize changes in calculated

eÅective yield on a prospective basis.

We review securities for potential impairment on an ongoing basis. We consider a number of factors, including the

severity of the decline in fair value, credit ratings, the length of time the investment has been in an unrealized loss position

and the likelihood of sale in the near term. We also recognize impairment when qualitative factors indicate that it is likely

we will not recover the unrealized loss. When evaluating these factors, we consider our intent and ability to hold the

investment until a point in time at which recovery of the unrealized loss can be reasonably expected to occur. Impairment

losses on manufactured housing securities exclude the eÅects of separate Ñnancial guarantee contracts that are not

embedded in the securities because the beneÑts of such contracts are not recognized until claims become probable of

recovery under the contracts. We resecuritize securities held in the Retained portfolio and we typically retain the majority of

the cash Öows from resecuritization transactions in the form of Structured Securities. Certain securities in the Retained

portfolio have a high probability of being resecuritized and therefore, for those in an unrealized loss position, we may not

have the intent to hold for a period of time suÇcient to recover those unrealized losses. In that case, the impairment is

deemed other-than-temporary. For certain securities meeting the criteria of (a) or (b) in the preceding paragraph, otherthan-temporary impairment is deÑned as occurring whenever there is an adverse change in estimated future cash Öows

coupled with a decline in fair value below the amortized cost basis. When a security is deemed to be other-than-temporarily

impaired, the cost basis of the security is written down to fair value, with the loss recorded to Gains (losses) on investment

activity. Based on the new cost basis, the adjusted deferred amounts related to the impaired security are amortized over the

security's remaining life in a manner consistent with the amount and timing of the future estimated cash Öows. The security

cost basis is not changed for subsequent recoveries in fair value.

Gains and losses on the sale of securities are included in Gains (losses) on investment activity, including those gains

(losses) reclassiÑed into earnings from AOCI. We use the speciÑc identiÑcation method for determining the cost of a

security in computing the gain or loss.

Repurchase and Resale Agreements

We enter into repurchase and resale agreements primarily as an investor or to Ñnance our security positions. Such

transactions are accounted for as purchases and sales when the transferor relinquishes control over transferred securities and

as secured Ñnancings when the transferor does not relinquish control. Our policy is to take possession of securities purchased

under agreements to resell and reverse dollar roll transactions.

Debt Securities Issued

Debt securities that we issue are classiÑed as either due within one year or due after one year, based on their remaining

contractual maturity. The classiÑcation of interest expense on debt securities as either short-term or long-term is based on

the original contractual maturity of the debt security. Deferred items, including premiums, discounts, issuance costs and

hedging-related basis adjustments, are amortized and reported through interest expense using the eÅective interest method

over the contractual life of the related indebtedness. The balance of deferred items remaining when debt is extinguished prior

to its contractual maturity is reÖected in earnings in the period of extinguishment as a component of Gains (losses) on debt

retirement. Prior to 2005, for callable debt, deferred items were amortized over the period during which the related

indebtedness was expected to be outstanding and changes in the expected life were reÖected prospectively as an adjustment

108 Freddie Mac
to the eÅective yield on the debt. Amortization of hedging-related basis adjustments is initiated upon the termination of the

related hedge relationship. Amortization of premiums, discounts and issuance costs begins at the time of debt issuance.

Premiums, discounts and hedging-related basis adjustments are reported as a component of Debt securities, net.

Issuance costs are reported as a component of Other assets. Debt securities denominated in a foreign currency are translated

into U.S. dollars using foreign exchange spot rates at the balance sheet dates and any translation gains or losses are reported

in Non-interest income (loss) Ì Other income.

Contemporaneous transfers of cash between us and a creditor in connection with the issuance of a new debt obligation

and satisfaction of an existing debt obligation are accounted for as extinguishments, with recognition of any gains or losses in

earnings if the debt instruments have substantially diÅerent terms. If the debt instruments do not have substantially

diÅerent terms, the transaction is accounted for as an exchange rather than an extinguishment and the fees associated with

the new debt obligation, along with the existing unamortized premium or discount, concession fees and hedge gains and

losses on the existing debt obligation, are considered a basis adjustment on the new debt obligation and are amortized as an

adjustment of interest expense over the remaining term of the new debt obligation.

Derivatives

Derivatives are reported at their fair value on our consolidated balance sheets. The fair value of derivatives is generally

reported net by counterparty, provided that a legally enforceable master netting agreement exists. Derivatives in a net

unrealized gain position are reported as Derivative assets, at fair value. Similarly, derivatives in a net unrealized loss position

are reported as Derivative liabilities, at fair value.

At December 31, 2006 nearly all of our derivatives were not designated in hedge accounting relationships. For those

derivatives not designated as an accounting hedge, fair value gains and losses are reported as Derivative gains (losses) in

the consolidated statements of income. For purchase and sale commitments of securities classiÑed as trading, fair value gains

and losses are reported as Gains (losses) on investment activity on our consolidated statements of income.

Subject to certain qualifying conditions, we may designate a derivative as either a hedge of the cash Öows of a variablerate instrument or forecasted transaction, referred to as a cash Öow hedge; a hedge of the fair value of a Ñxed-rate

instrument, referred to as a fair value hedge; or a foreign-currency fair value or cash Öow hedge, referred to as a foreigncurrency hedge. In order to be designated as an accounting hedge, the derivative must be expected to be highly eÅective in

oÅsetting the changes in cash Öows or fair value of the hedged item resulting from the hedged risk. In addition, the

documentation of the hedging designation must include identiÑcation of the hedged item, the hedging instrument, the risk

exposure and corresponding risk management objective, how eÅectiveness will be assessed and how ineÅectiveness will be

measured.

For a derivative accounted for as a cash Öow hedge, we report changes in the fair value of these instruments in AOCI to

the extent the hedge is eÅective. The remaining ineÅective portion is reported as Hedge accounting gains (losses). In

general, we recognize the associated amounts reported in AOCI as Net interest income during the period or periods in which

the hedged item aÅects earnings. Deferred amounts linked to interest payments on long-term debt are recorded as longterm debt interest expense and amounts not linked to interest payments on long-term debt are recorded in Income (expense)

related to derivatives. Amounts reported in AOCI related to changes in the fair value of commitments to purchase or sell

securities that are designated as cash Öow hedges are recognized as basis adjustments to the assets held which are

amortized in earnings as interest income using the eÅective interest method and, for assets sold, as Gains (losses) on

investment activity.

If the hedged item in a cash Öow hedge is the forecasted issuance of debt and the occurrence of the forecasted

transaction becomes probable of not occurring, the amount in AOCI is reclassiÑed to earnings immediately. If we expect at

any time that continued reporting of a net loss in AOCI would lead to recognizing a net loss on the combination of a hedging

instrument and the hedged transaction (and related asset acquired or liability incurred) in one or more future periods, the

loss is reclassiÑed immediately into earnings for the amount that is not expected to be recovered.

For a derivative accounted for as a fair value hedge, we report changes in the fair value of the derivative as Hedge

accounting gains (losses) along with the changes in the fair value of the hedged item attributable to the risk being hedged.

Any diÅerence between these two amounts results in ineÅectiveness recognized in the income statement. When the hedge is

terminated or redesignated, the fair value adjustment to the carrying amount of the hedged asset or liability is amortized to

earnings as a component of the hedged item's interest income or expense over the remaining life of the hedged item using

the eÅective interest method. If a derivative no longer qualiÑes as a cash Öow or fair value hedge, or if we voluntarily

terminate the hedging relationship, we discontinue hedge accounting prospectively. We continue to carry the derivative on

our consolidated balance sheets at fair value and record further fair value gains and losses as Derivative gains (losses) in

our consolidated statements of income until the derivative is terminated or redesignated.

109 Freddie Mac
The periodic interest cash Öows related to derivative contracts currently accrued, which are derived primarily from

interest-rate swap contracts and include imputed interest on zero-coupon swaps, are classiÑed as Income (expense) related

to derivatives for derivatives in hedge relationships and as Derivative gains (losses) for derivatives not in hedge accounting

relationships.

Real Estate Owned

REO is initially recorded at fair value, net of estimated disposition costs and is subsequently carried at the lower-ofcost-or-market. Amounts we expect to receive from third-party insurance or other credit enhancements are recorded when

the asset is acquired. The receivable is adjusted when the actual claim is Ñled, and is a component of Accounts and other

receivables, net on our consolidated balance sheets. Material development and improvement costs relating to REO are

capitalized. Operating expenses on the properties, net of any rental or other income, are included in REO operations income

(expense). 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 identiÑed. Any gains and losses on REO dispositions are included in

REO operations income (expense).

Income Taxes

We use the asset and liability method of accounting for income taxes pursuant to SFAS No. 109, ""Accounting for

Income Taxes.'' Under this method, deferred tax assets and liabilities are recognized based upon the expected future tax

consequences of existing temporary diÅerences between the Ñnancial reporting and the tax reporting basis of assets and

liabilities using enacted statutory tax rates. 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 deferred tax

assets when it is more likely than not that a tax beneÑt will not be realized. For all periods presented, no such valuation

allowance was deemed necessary by our management. Reserves are recorded for income tax contingencies and related

contingent interest where the potential for loss is probable and reasonably estimable in accordance with SFAS 5.

Income tax expense includes (a) deferred tax 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 expense, which represents the

amount of tax currently payable to or receivable from a tax authority plus amounts accrued for expected tax deÑciencies

(including tax and related interest and penalties). Income tax expense excludes the tax eÅects related to adjustments

recorded to equity as well as the tax eÅects of the cumulative eÅect of changes in accounting principles.

Stock-Based Compensation

We record compensation expense for stock-based compensation awards based on the grant-date fair value of the award

and expected forfeitures. Compensation expense is recognized over the period during which an employee is required to

provide service in exchange for the stock-based compensation award. The recorded compensation expense is accompanied

by an adjustment to Additional paid-in capital on our consolidated balance sheets. The vesting period for stock-based

compensation awards is generally three to Ñve years for options, restricted stock and restricted stock units. The vesting period

for the option to purchase stock under the Employee Stock Purchase Plan, or ESPP, is three months. See ""NOTE 11:

STOCK-BASED COMPENSATION'' for additional information.

The fair value of options to purchase shares of our common stock, including options issued pursuant to the ESPP, is

estimated using a Black-Scholes option pricing model, taking into account the exercise price and an estimate of the

expected life of the option, the market value of the underlying stock, expected volatility, expected dividend yield, and the

risk-free interest rate for the expected life of the option. The fair value of restricted stock and restricted stock unit awards is

based on the fair value of our common stock on the grant date.

Incremental compensation expense related to the modiÑcation of awards is based on a comparison of the fair value of

the modiÑed award with the fair value of the original award before modiÑcation. We generally expect to settle our stockbased compensation awards in shares. In limited cases, an award may be cash-settled upon a contingent event such as

involuntary termination. These awards are accounted for as an equity award until the contingency becomes probable of

occurring, when the award is reclassiÑed from equity to a liability. We initially measure the cost of employee service received

in exchange for a stock-based compensation award of liability instruments based on the fair value of the award at the grant

date. The fair value of that award is remeasured subsequently at each reporting date through the settlement date. Changes

in the fair value during the service period are recognized as compensation cost over that period.

Excess tax beneÑts are recognized in Additional paid-in capital. Cash retained as a result of the excess tax beneÑts is

presented in the consolidated statements of cash Öows as Ñnancing cash inÖows. The write-oÅ of deferred tax assets relating

to unrealized tax beneÑts associated with recognized compensation costs reduces Additional paid-in capital to the extent

there are excess tax beneÑts from previous stock-based awards remaining in Additional paid-in capital, with any remainder

reported as part of income tax expense.

110 Freddie Mac
Earnings Per Common Share

Because we have participating securities, 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. Our participating securities consist

of vested options to purchase common stock that earn dividend equivalents at the same rate when and as declared on

common stock.

Basic earnings per common share is computed as net income available to common stockholders divided by the weighted

average common shares outstanding for the period. Diluted earnings per common share is determined using the weighted

average number of common shares during the period, adjusted for the dilutive eÅect of common stock equivalents. Dilutive

common stock equivalents reÖect the assumed net issuance of additional common shares pursuant to certain of our stockbased compensation plans that could potentially dilute earnings per common share.

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 deÑne comprehensive income as consisting of net income plus changes in

the unrealized gains and losses on available-for-sale securities, the eÅective portion of derivatives accounted for as cash Öow

hedge relationships, changes in the minimum pension liability, and changes in components of pension liability that receive

deferred expense recognition.

Reportable Segments

We have one business segment for Ñnancial reporting purposes under SFAS No. 131, ""Disclosures About Segments of

an Enterprise and Related Information,'' or SFAS 131, for all periods presented on our consolidated Ñnancial statements.

Recently Adopted Accounting Standards

Accounting for Stock-Based Compensation Ì EÅective January 1, 2006, we adopted SFAS 123(R), ""Share-Based

Payment,'' or SFAS 123(R), which requires compensation expense for stock options and other share-based payments to be

measured based on the instruments' grant-date fair value, and for the expense to be recorded based on the fair value reduced

by expected forfeitures. We adopted this standard by using the modiÑed prospective method of transition which requires

the provisions of SFAS 123(R) to be applied to new awards as well as awards modiÑed, repurchased or cancelled after the

eÅective date. In adopting SFAS 123(R), we recognized compensation expense for stock-based compensation awards net

of estimated forfeitures. Previously, the eÅects of forfeitures were recorded as they occurred. The eÅect of adopting

SFAS 123(R) did not have a material impact on our consolidated Ñnancial statements.

Accounting Changes and Error Corrections Ì On January 1, 2006, we adopted SFAS No. 154, ""Accounting Changes

and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3,'' or SFAS 154. SFAS 154

changes the requirements for the accounting for and reporting of a change in accounting principle. It applies to all voluntary

changes in accounting principle and changes required by an accounting pronouncement in the instance that the

pronouncement does not include speciÑc transition provisions. APB Opinion No. 20, ""Accounting Changes,'' or APB 20,

requires that the cumulative eÅect of most voluntary changes in accounting principles be included in net income in the

period of adoption. The new statement requires retrospective application to prior periods' Ñnancial statements of a voluntary

change in accounting principle, unless it is impracticable to determine either period-speciÑc eÅects or the cumulative eÅect

of the change. SFAS 154 is eÅective for accounting changes and corrections of errors made in Ñscal years beginning after

December 15, 2005. Our adoption of SFAS 154 did not have a material impact on our consolidated Ñnancial statements.

Accounting for Employers' DeÑned BeneÑt Pension and Other Postretirement Plans Ì On December 31, 2006, we

adopted SFAS 158. In accordance with this standard, on December 31, 2006, we recorded the funded status of each of our

deÑned beneÑt pension and postretirement plans as an asset or liability on our consolidated balance sheet with a

corresponding oÅset, net of taxes, recorded in AOCI within Stockholders' Equity. See ""Table 1.2 Ì Change in Accounting

for DeÑned BeneÑt Plans Ì Impact on Financial Statements.''

EÅective December 31, 2008, SFAS 158 also requires our deÑned beneÑt plan assets and obligations to be measured as

of the date of our consolidated balance sheet. We expect that the eÅect of implementing the change in measurement date

from September 30 to December 31 will not be material to our Ñnancial condition or our results of operations.

Determining Variability in Applying FASB Interpretation No. 46(R) Ì EÅective July 1, 2006, we adopted FASB StaÅ

Position No. FIN 46(R)-6, ""Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R),''

or FSP FIN 46(R)-6. The adoption of FSP FIN 46(R)-6 was not material to our Ñnancial condition or results of

operations.

111 Freddie Mac
Recently Issued Accounting Standards, Not Yet Adopted

Accounting for Certain Hybrid Instruments Ì In February 2006, the FASB issued SFAS No. 155, ""Accounting for

Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140,'' or SFAS 155, with further

guidance provided in Derivatives Implementation Group (DIG) Issue B-40 ""Embedded Derivatives: Application of

Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets,'' or DIG B-40. These statements amend

SFAS 133 and SFAS 140. The objective of these statements is to simplify the accounting for certain hybrid Ñnancial

instruments, permitting fair value measurement for any hybrid Ñnancial instrument with an embedded derivative that

otherwise would require bifurcation. In addition, these statements establish a requirement to evaluate interests in securitized

Ñnancial assets to identify instruments that are freestanding derivatives or that are hybrid Ñnancial instruments that contain

an embedded derivative requiring bifurcation. SFAS 155 is eÅective for all Ñnancial instruments acquired or issued after

the beginning of an entity's Ñrst Ñscal year that begins after September 15, 2006. Because SFAS 155 is to be adopted

prospectively, it will not result in a cumulative eÅect of a change in accounting principle. In connection with the adoption of

this accounting standard, we will elect to measure, at fair value, newly acquired interests in securitized Ñnancial assets that

contain embedded derivatives requiring bifurcation with periodic market adjustments reÖected in the income statement.

We expect the amount of our securities that will be impacted by SFAS 155 will be minimal.

Fair Value Measurements Ì In September 2006, the FASB issued SFAS No. 157, ""Fair Value Measurements,'' or

SFAS 157. This statement deÑnes fair value, establishes a framework for measuring fair value in GAAP and expands

disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit

fair value measurements but does not change existing guidance as to whether or not a Ñnancial asset or liability is carried at

fair value. SFAS 157 is eÅective for Ñnancial statements issued for Ñscal years beginning after November 15, 2007 with

earlier adoption permitted. We do not plan to elect early adoption and are currently evaluating the eÅect of SFAS 157 on our

Ñnancial position and results of operations. We do not believe the implementation will likely result in a material diÅerence

to our fair value measurements.

The Fair Value Option for Financial Assets and Financial Liabilities Ì In February 2007, the FASB issued

SFAS No. 159, ""The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB

Statement No. 115,'' or SFAS 159. This statement permits companies to choose to measure certain Ñnancial assets and

liabilities at fair value with changes in fair value recognized in earnings as they occur. The objective is to improve Ñnancial

reporting by providing entities with the opportunity to measure both assets and liabilities at fair value without having to

apply complex hedge accounting provisions. SFAS 159 is eÅective as of the beginning of an entity's Ñrst Ñscal year beginning

after November 15, 2007, with earlier adoption permitted. We do not plan to elect early adoption and are still evaluating

how we will adopt SFAS 159. We have not yet determined the impact, if any, on our consolidated Ñnancial statements of

adopting this standard.

Accounting for Uncertainty in Income Taxes Ì In June 2006, the Financial Accounting Standards Board, or FASB,

issued Interpretation No. 48, ""Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,''

or FIN 48. FIN 48 provides a single model to address accounting for uncertainty in tax positions and clariÑes the

accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being

recognized in the Ñnancial statements. FIN 48 also provides guidance on derecognition, measurement, classiÑcation,

interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is eÅective for Ñscal years beginning

after December 15, 2006. We will adopt FIN 48 as of January 1, 2007, as required. The cumulative eÅect of adopting

FIN 48 will be recorded to retained earnings. We do not anticipate this interpretation will have a material impact on our

retained earnings. We have determined that adoption of FIN 48 will result in an overall increase to our retained earnings

primarily as a result of a gain contingency for which we have not recognized a Ñnancial statement beneÑt.

112 Freddie Mac
NOTE 2: TRANSFERS OF SECURITIZED INTERESTS IN MORTGAGE-RELATED ASSETS

Securitization Transactions We Executed

As discussed in ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,'' we issue two types of

mortgage-related securities: PCs and Structured Securities.

Table 2.1 below presents the unpaid principal balances of issued PCs and Structured Securities.

Table 2.1 Ì Guaranteed PCs and Structured Securities Issued Based on Unpaid Principal Balances(1)

December 31,

2006 2005

(in millions)

Guaranteed PCs and Structured Securities Issued:

Held by third parties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,122,761 $ 974,200

Held in the Retained portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 354,262 361,324

Total Guaranteed PCs and Structured Securities issued(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,477,023 $1,335,524

(1) Excludes mortgage loans and mortgage-related securities traded, but not yet settled. Due to timing diÅerences in our receipt of principal and interest

payments from mortgage servicers and subsequent pass-through of payments to PC investors, the unpaid principal balances of the underlying

mortgage loans do not equal the unpaid principal balances of issued PCs and Structured Securities. See ""NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES Ì Due to Participation CertiÑcate Investors'' for more information.

(2) As further discussed in ""NOTE 4: FINANCIAL GUARANTEES,'' we guarantee certain mortgage-related securities issued by third parties.

Guaranteed PCs and Structured Securities exclude $1,240.2 billion and $961.8 billion at December 31, 2006 and 2005, respectively, of Structured

Securities backed by resecuritized PCs and other previously issued Structured Securities. These excluded Structured Securities do not increase our

credit-related exposure and consist of single-class and multi-class Structured Securities backed by PCs, Real Estate Mortgage Investment Conduits,

or REMICs, and principal-only strips. The notional balance of interest-only strips is excluded because this table is based on unpaid principal balances.

Also excluded are modiÑable and combinable REMIC tranches and interest and principal classes where the holder has the option to exchange the

security tranches for other pre-deÑned security tranches.

At December 31, 2006 and 2005, approximately 94 percent and 92 percent, respectively, of issued PCs and Structured

Securities (excluding securities we issued that are backed by Ginnie Mae CertiÑcates) had a corresponding Guarantee

asset, Guarantee obligation or PC residual recognized on our consolidated balance sheets. With respect to such securities

held by third parties at December 31, 2006 and 2005, 95 percent and 93 percent, respectively, had a related Guarantee asset

and Guarantee obligation established.

Of those issued PCs and Structured Securities that had a corresponding Guarantee asset, Guarantee obligation or PC

residual at December 31, 2006 and 2005, 57 percent and 50 percent, respectively, were issued in Ñnancial guarantee

transactions, while the rest of those securities were issued as a result of sales or secured borrowing transactions.

Gains and Losses on Transfers of PCs and Structured Securities that are Accounted for as Sales

We recognized net pre-tax gains of approximately $86 million, $364 million and $356 million for the years ended

December 31, 2006, 2005 and 2004, respectively, on transfers of PCs and Structured Securities that were accounted for as

sales under SFAS 140.

In connection with the derivation of such gains (losses) upon sale prior to October 1, 2005, we had consistently applied

a methodology for determining the order in which to record extinguishments of unamortized deferred guarantee income,

buy-down fees and credit fees as adjustments to the carrying value of the repurchased securities. Beginning October 1, 2005,

we changed our methodology for determining gains (losses) upon the re-sale of PCs and Structured Securities related to

unamortized deferred guarantee income, buy-down fees and credit fees. Our methodology now applies a speciÑc

identiÑcation method of associating the extinguished deferred guarantee income, buy-down fees and credit fees to the

speciÑc portions of purchased PCs and Structured Securities and relieves those carrying value adjustments through gains

(losses) when the speciÑc portion of the PC or Structured Security is re-sold. This change in accounting principle was

facilitated by system changes that allow us to apply and track the carrying value adjustments to the speciÑc portions of the

purchased PCs and Structured Securities.

Valuation of Recognized Guarantee Asset, Guarantee Obligation and PC Residuals

Recognized Guarantee asset

Our approach for estimating the fair value of the Guarantee asset makes use of third-party market data as practicable.

For approximately 75 percent of the fair value of the Guarantee asset, the valuation approach involves obtaining dealer

quotes on proxy securities with collateral similar to aggregated characteristics of our portfolio, eÅectively equating the

Guarantee asset with current, or ""spot,'' market values for excess servicing interest-only, or IO, securities, which trade at a

discount to trust IO security prices. We consider excess servicing securities to be comparable to the Guarantee asset, in that

they represent an IO-like income stream, have less liquidity than trust IO securities and do not have matching principalonly securities. The remaining 25 percent of the fair value of the Guarantee asset related to underlying loan products for

which comparable market prices were not readily available. This portion of the Guarantee asset was valued using an expected

113 Freddie Mac
cash Öow approach with market input assumptions extracted from the dealer quotes provided on the more liquid products,

reduced by an estimated liquidity discount.

For 2004, we calculated the Guarantee asset fair value using an expected cash Öow approach. SpeciÑcally, Monte Carlo

projections were used to forecast Guarantee asset-related future cash Öows. The forecasted cash Öows were then discounted

using factors that were derived from modeled forward interest rates for each scenario path, to which we then applied a

trailing average option-adjusted spread of up to 24 months that was based on trust IO security prices.

Recognized Guarantee obligation

Our approach for estimating the fair value of the Guarantee obligation makes use of third-party market data as

practicable. We divided the credit aspects of our Guarantee obligation portfolio into three primary components: performing

loans, non-performing loans and manufactured housing. For each component, we developed a speciÑc valuation approach

for capturing its unique characteristics.

For performing loans, we use capital markets information and rating agency models to estimate subordination levels and

dealer price quotes on proxy securities with collateral characteristics matched to our portfolio to value the expected credit

losses and the risk premium for unexpected losses related to our guarantee portfolio. We segmented the portfolio into

distinct loan cohorts to diÅerentiate between product types, coupon rate, seasoning, and interests retained by us versus those

held by third parties.

Because typical structured securitizations of single-family collateral only include performing loans, we utilize a separate

method for estimating the fair value of the Guarantee obligation for non-performing loans. For loans that are extremely

delinquent and have been purchased out of pools, we obtained dealer indications that reÖect their non-performing status. To

value delinquent loans remaining in PCs, we started with the market driven performing loan and non-performing whole loan

values and used empirically observed delinquency transition rates to interpolate the appropriate values in each phase of

delinquency (i.e., 30 days, 60 days, 90 days).

We evaluated market sources to determine the appropriate credit costs associated with the Guarantee obligation for the

manufactured housing portfolio, approximately 1 percent of our total guarantee portfolio and 19 percent of the fair value of

the Guarantee obligation, and determined that there is not suÇciently reliable market data. As a result, we used our

judgment to develop an alternative approach for estimating the incremental credit costs associated with the manufactured

housing portfolio. SpeciÑcally, we calculated the ratio of realized credit losses for performing loans and manufactured

housing loans to determine a loss history ratio. We then applied the loss history ratio to market implied performing loan

Guarantee obligation fair value estimates to calculate the implied credit costs for the manufactured housing portfolio. This

approach grounded the Guarantee obligation related to manufactured housing in performing loan market prices, while

adjusting for the loss history reÖected in empirical data. We undertook a similar process for estimating the fair value of

seriously delinquent manufactured housing loans.

The components of the Guarantee obligation associated with administering the collection and distribution of payments

on the mortgage loans underlying a PC are estimated based upon amounts we believe other market participants would

charge. Finally, we use our models to estimate the present value of net cash Öows related to security program cycles. This

estimate is included in the Guarantee obligation valuation.

For 2004, the Guarantee obligation fair value was calculated using internal models to estimate future cash Öows using a

Monte Carlo simulation. The components of estimated cash Öows associated with the Guarantee obligation included

estimates of expected future credit losses using statistically based models that were benchmarked periodically to the nonconforming loan, or jumbo, securitization market. For all periods our estimates included costs to administer the collection

and distribution of payments on the mortgage loans underlying a PC and considered net cash Öows due to security program

cycles.

Recognized PC residuals

The fair value of recognized PC residuals is determined in a manner that is consistent with the approach described

above for the recognized Guarantee asset and Guarantee obligation.

Key assumptions used in the valuation of the Guarantee asset

Table 2.2 summarizes the key assumptions associated with the fair value measurements of the recognized Guarantee

asset. The assumptions included in this table for 2004 relate to those used in our internal models. For 2006 and 2005, the fair

values at the time of securitization and the subsequent fair value measurements were estimated using third party

information. However, the assumptions included in this table for those years are those implied by our fair value estimates,

with the Internal Rates of Return, or IRRs, adjusted where necessary to align our internal models with estimated fair values

determined using third party information. Prepayment rates are presented as implied by our internal models which are

benchmarked periodically to market prepayment estimates.

114 Freddie Mac
At December 31, 2006, our Guarantee asset totaled $6,070 million on our consolidated balance sheets and of that

amount, approximately $5,905 million (or approximately 97 percent), related to PCs and Structured Securities backed by

single-family mortgage loans. The key assumptions utilized in fair value measurements of the Guarantee asset presented in

Table 2.2 and the sensitivity analysis presented in Table 2.3 and Table 2.4 relate solely to the Guarantee asset associated

with PCs and Structured Securities backed by single-family mortgage loans.

Table 2.2 Ì Key Assumptions Utilized in Fair Value Measurements of the Guarantee Asset

2006 2005 2004

Valuation Assumptions for the Guarantee Asset Range(3) Mean(4) Range(3) Mean(4) Range(3) Mean(4)

Internal rates of return(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.3% - 13.5% 8.4% 1.8% - 13.8% 8.7% (1.4)% - 13.6% 6.7%

Prepayment rates(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.4% - 57.8% 15.7% 7.6% - 59.8% 17.2% 6.9% - 58.6% 19.1%

(1) The IRRs reported above represent an unpaid principal balance weighted average of the discount rates inherent in the fair value of the recognized

Guarantee asset.

(2) Average Prepayment rates are simulated on a monthly frequency, although rates reported above represent an unpaid principal balance weighted

average of annualized values of such Prepayment rates.

(3) The lowest value in each presented range represents the Ñrst percentile IRRs and prepayment rates throughout 2006, 2005 and 2004. Likewise, the

highest value in each range represents the 99th percentile IRRs and prepayment rates throughout 2006, 2005 and 2004.

(4) Reported values represent the weighted average value of all IRRs and prepayment rates throughout the 2006, 2005 and 2004 periods.

Weighted average lives of the Guarantee asset during 2006, 2005 and 2004 ranged between 1.7 and 9.0 years, 1.6 and

8.9 years, and 1.2 and 8.7 years, respectively, while the derived weighted average lives of the Guarantee asset for the same

periods were 5.5, 5.1 and 5.3 years, respectively. Such derived weighted average lives are reÖective of prepayment speed

assumptions cited in Table 2.2 above.

At December 31, 2006 and 2005, the fair value of the recognized Guarantee asset was based upon a valuation approach

that incorporates market-based information. In order to report the hypothetical sensitivity of the carrying value of the

Guarantee asset to changes in key assumptions, we used internal models to approximate their reported carrying values. We

then measured the hypothetical impact of changes in key assumptions using our models to estimate the potential view of

fair value the market might have in response to those changes. In our models, the assumed Internal Rates of Return were

adjusted to calibrate our model results with the reported carrying value. However, the weighted average prepayment rate

assumption used in this hypothetical sensitivity was based on our internal model which is benchmarked periodically to

market prepayment estimates. The sensitivity analysis in Table 2.3 illustrates hypothetical adverse changes in the fair value

of the Guarantee asset for changes in key assumptions.

Table 2.3 Ì Sensitivity Analysis of the Guarantee Asset

December 31, 2006

Guarantee Asset

(dollars in millions)

Fair value(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,905

Weighted average IRR assumptions: ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.0%

Impact on fair value of 100 bps upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (224)

Impact on fair value of 200 bps upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (431)

Weighted average prepayment rate assumptions: ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18.4%

Impact on fair value of 10% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (298)

Impact on fair value of 20% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (565)

(1) At December 31, 2006, our Guarantee asset totaled $6,070 million on our consolidated balance sheet and of that amount, approximately $165 million

(or approximately 3 percent), related to PCs backed by multifamily mortgage loans. The sensitivity analysis presented in Table 2.3 relates solely to the

Guarantee asset associated with PCs backed by single-family mortgage loans.

Valuation of Other Retained Interests

Other retained interests include securities that were issued by us as part of a resecuritization transaction which was

recorded as a sale. The majority of these securities are classiÑed as available-for-sale. The fair value of Other retained

interests is generally based on independent price quotations obtained from third-party pricing services or dealer marks.

To report the hypothetical sensitivity of the carrying value of Other retained interests, we used internal models

calibrated to the fair values. The sensitivity analysis in Table 2.4 illustrates hypothetical adverse changes in the fair value of

Other retained interests for changes in key assumptions based on these models.

115 Freddie Mac
Table 2.4 Ì Sensitivity Analysis of Other Retained Interests

December 31, 2006

Other Retained

Interests(1)

(dollars in millions)

Fair valueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $127,490

Weighted average IRR assumptions: ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5.6%

Impact on fair value of 100 bps upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (4,551)

Impact on fair value of 200 bps upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (8,813)

Weighted average prepayment rate assumptions: ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11.0%

Impact on fair value of 10% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (66)

Impact on fair value of 20% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (132)

(1) The fair value of Other retained interests includes accrued interest. The sensitivity analysis presented in Table 2.4 includes only Other retained interests

whose fair value is impacted as a result of changes in IRR and prepayment rate assumptions. At December 31, 2006, the fair value of Other retained

interests not impacted due to IRR and prepayment assumptions was $51 million.

Cash Flows on Transfers of Securitized Interests and Corresponding Retained Interests

Table 2.5 below summarizes cash Öows on retained interests.

Table 2.5 Ì Details of Cash Flows

Year Ended December 31,

2006 2005 2004

(in millions)

Cash Öows from:

Transfers of Freddie Mac securities that were accounted for as sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $63,613 $74,005 $138,541

Cash Öows received on the Guarantee asset(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,475 1,270 1,086

Other Retained Interests principal and interest(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 24,784 25,611 28,439

Purchases of delinquent or foreclosed loans(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (4,748) (4,373) (4,931)

(1) Represents contractual guarantee-related cash Öows received by us in connection with the recognized Guarantee asset.

(2) Excludes cash Öows related to retained interests held in the portfolio of our Securities Sales and Trading Group, or SS&TG, business unit which ceased

operations in the fourth quarter of 2004. Such cash Öows were not material.

(3) Represents delinquent mortgage loans purchased out of securitized pools that back issued PCs or Structured Securities.

NOTE 3: VARIABLE INTEREST ENTITIES

We are a party to numerous entities that are considered to be variable interest entities, or VIEs. A VIE is an entity

(a) that has a total equity investment at risk that is not suÇcient to Ñnance its activities without additional subordinated

Ñnancial support from other entities or (b) where the group of equity holders does not have the ability to make signiÑcant

decisions about the entity's activities, or obligation to absorb the entity's expected losses or right to receive the entity's

expected residual returns, or both. Our investments in VIEs include LIHTC partnerships, certain Structured Securities

transactions and a mortgage reinsurance entity. In addition, we buy the highly-rated senior securities in certain securitization

trusts that are VIEs. Highly-rated senior securities issued by these securitization trusts are not designed to absorb a

signiÑcant portion of the variability created by the assets/collateral in the trusts. Therefore, our investments in these

securities do not represent a signiÑcant variable interest in the securitization trusts and we do not consolidate them. Further,

we invest in securitization entities that are qualifying special purpose entities, which are not subject to consolidation because

of our inability to unilaterally liquidate or change the qualifying special purpose entity. See ""NOTE 1: SUMMARY OF

SIGNIFICANT ACCOUNTING POLICIES Ì Consolidation and Equity Method of Accounting'' for further information regarding the consolidation practices of our VIEs.

Low-Income Housing Tax Credit Partnerships

We invest as a limited partner in LIHTC partnerships formed for the purpose of providing funding for aÅordable

multifamily rental properties. These LIHTC partnerships invest directly in limited partnerships that develop or rehabilitate

multifamily rental properties. Completed properties are rented to qualiÑed low-income tenants, allowing the properties to be

eligible for federal tax credits. Most of these LIHTC partnerships are VIEs. A general partner operates the partnership,

identifying investments and obtaining debt Ñnancing as needed to Ñnance partnership activities. Although these partnerships

generate operating losses, we realize a return on our investment through reductions in income tax expense that result from

tax credits and the deductibility of the operating losses of these partnerships. The partnership agreements are typically

structured to meet a required 15-year period of occupancy by qualiÑed low-income tenants. These investments were made

between 1989 and 2006. At December 31, 2006 and 2005, we did not guarantee any obligations of these partnerships and our

exposure was limited to the amount of our investments. At December 31, 2006 and 2005, we were the primary beneÑciary

of investments in six LIHTC partnerships and we consolidated these investments. The investors in the obligations of the

consolidated LIHTC partnerships have recourse only to the assets of those VIEs and do not have recourse to us.

116 Freddie Mac
Consolidated VIEs

Table 3.1 represents the carrying amounts and classiÑcation of consolidated assets that are collateral for the

consolidated VIEs.

Table 3.1 Ì Assets of Consolidated VIEs

December 31,

Consolidated Balance Sheets Line Item 2006 2005

(in millions)

Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 44 $ 45

Accounts and other receivables, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 173 167

Total assets of consolidated VIEs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $217 $212

VIEs Not Consolidated

Low-Income Housing Tax Credit Partnerships

At December 31, 2006 and 2005, we had unconsolidated investments in 179 and 168 LIHTC partnerships, respectively,

in which we had a signiÑcant variable interest. The size of these partnerships at December 31, 2006 and 2005, as measured

in total assets, was $8.9 billion and $8.1 billion, respectively. These partnerships are accounted for using the equity method,

as described in ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.'' As a limited partner, our

maximum exposure to loss equals the undiscounted book value of our equity investment. At December 31, 2006 and 2005,

our maximum exposure to loss on unconsolidated LIHTC partnerships, in which we had a signiÑcant variable interest, was

$3.7 billion and $3.7 billion, respectively.

Asset-Backed Investment Trusts

We invest in a variety of non-mortgage-related, asset-backed investment trusts. These investments represent interests in

trusts consisting of a pool of receivables or other Ñnancial assets, typically credit card receivables, auto loans or student

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 Ñnancial assets or the underwriters of the deal create the trusts and typically

own the residual interest in the trust assets. At December 31, 2006 and 2005, we did not have a signiÑcant variable interest

in and were not the primary beneÑciary of any asset-backed investment trusts.

Structured Transactions

We issue securities in Structured Transactions, which are backed by mortgage loans or mortgage-related securities using

collateral pools transferred to a trust speciÑcally created for the purpose of issuing securities. These trusts issue various

senior interests, subordinated interests or both. We purchase certain senior interests of the trusts and simultaneously issue

and guarantee Structured securities backed by these interests. The subordinated interests are generally either held by the

seller or other party or sold in the capital markets. Generally, the structure of the transactions and the trusts as qualifying

special purpose entities exempts them from the scope of FASB Interpretation No. 46 (Revised December 2003),

""Consolidation of Variable Interest Entities,'' or FIN 46(R). However, at both December 31, 2006 and 2005, we had

investments or guarantees related to two Structured Transactions that did not fall within this scope exception and in which

we had a signiÑcant variable interest. At December 31, 2006 and 2005, we were not the primary beneÑciary of any such

transactions.

Our involvement in the two Structured Transactions, mentioned above, began in 1996 and 2002, respectively. The size

of these two transactions at December 31, 2006 and 2005, as measured in total assets, was $67 million and $105 million,

respectively. At December 31, 2006 and 2005, our maximum exposure to loss on these transactions, in which we had a

signiÑcant variable interest, was $55 million and $88 million, respectively, consisting of the book value of our investments

plus incremental guarantees of the senior interests that are held by third parties.

117 Freddie Mac
NOTE 4: FINANCIAL GUARANTEES

Principal and Interest Guarantees of PCs and Structured Securities

We guarantee the payment of principal and interest on the PCs and Structured Securities we issue that are held by third

parties. At December 31, 2006 and 2005, the maximum potential amount of future payments under these guarantees

approximates the total unpaid principal balance of our PCs and Structured Securities held by third parties, which was

$1,123 billion and $974 billion, respectively. However, the actual amount of future payments under these guarantees will be

determined by the performance of the mortgage loans that underlie these PCs and Structured Securities.

During 2006 and 2005, we guaranteed $360.0 billion and $397.9 billion, respectively, of PCs and Structured Securities

to third parties. Upon completion of the transfer of PCs or Structured Securities to third parties, we recognize the initial fair

value of our obligation to make guarantee payments. The accounting methods for our guarantees of PCs and Structured

Securities are further discussed in ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.'' At

December 31, 2006 and 2005, we had a recognized Guarantee obligation on our consolidated balance sheets of $7.1 billion

and $5.5 billion, respectively, which included $2.2 billion and $1.8 billion, respectively, of deferred guarantee income. In

addition, we have a Reserve for guarantee losses on Participation CertiÑcates that totaled $350 million and $295 million at

December 31, 2006 and 2005, respectively, for incurred credit losses that were recognized in conjunction with PCs and

Structured Securities held by third parties. The balance of PCs and Structured Securities held by third parties also included

securities and loans issued by third parties that we guarantee totaling $6.7 billion and $6.6 billion at December 31, 2006 and

2005, respectively. Details of these guarantees are as follows:

‚ Multifamily: We guaranteed multifamily housing revenue bonds totaling $6.0 billion and $5.8 billion at December 31, 2006 and 2005, respectively, via two principal forms. First, we provide a guarantee of the payment of principal

and interest on tax-exempt (and related taxable) multifamily housing revenue bonds that support pass-through

certiÑcates issued by third parties. These housing revenue bonds are collateralized by mortgage loans on low- and

moderate-income multifamily housing projects. Second, we provide a guarantee of principal and interest on

multifamily mortgage loans that are originated and held by state and municipal housing Ñnance agencies to support

tax-exempt (and related taxable) multifamily housing revenue bonds.

‚ Single-family: We guaranteed single-family mortgage loans held by third parties totaling $0.7 billion and

$0.8 billion at December 31, 2006 and 2005, respectively.

As part of the guarantee arrangements pertaining to multifamily housing revenue bonds, we provided a commitment to

advance funds, commonly referred to as ""liquidity guarantees,'' totaling $5.8 billion and $5.7 billion at December 31, 2006

and 2005, respectively. These guarantees enable the repurchase by others of tendered tax-exempt (and related taxable)

pass-through certiÑcates and housing revenue bonds that are unable to be remarketed. Any repurchased securities would be

pledged to us to secure such funding until such time as the securities could be remarketed. We have not made any payments

to date under these liquidity guarantees.

Generally, the contractual terms of our guarantees on PCs and Structured Securities are 15 to 30 years. However, the

actual term of each guarantee may be signiÑcantly less than the contractual term due to the prepayment characteristics of

the mortgage-related assets that back PCs and Structured Securities. We generally purchase a defaulted mortgage when it

has been delinquent for 120 consecutive days, we do not expect the maximum potential interest payments we would be

required to make associated with these guarantees to signiÑcantly exceed 120 days of interest at the certiÑcate rate.

At December 31, 2006 and 2005, in connection with PCs or Structured Securities backed by single-family mortgage

loans, we had maximum coverage totaling $30.7 billion and $27.5 billion, respectively, in primary mortgage insurance,

$3.2 billion and $3.4 billion, respectively, in pool insurance and other credit enhancements and $8.9 billion and $5.6 billion,

respectively, in recourse to lenders. The coverage does not include credit enhancements related to the outstanding Structured

Transactions which had unpaid principal balances that totaled $7.8 billion and $8.6 billion, at December 31, 2006 and 2005,

respectively. In addition, at December 31, 2006 and 2005, $1.5 billion and $1.9 billion, respectively, of outstanding

Structured Securities related to Ginnie Mae CertiÑcates, which are backed by the full faith and credit of the U.S.

government. With respect to PCs and Structured Securities backed by multifamily mortgage loans, we had maximum

combined credit enhancements totaling $1.2 billion and $7.3 billion at December 31, 2006 and 2005, respectively. At

December 31, 2006 and 2005, our recorded balance of credit enhancements on our consolidated balance sheets was

$466 million and $420 million, respectively.

Guarantees of Stated Final Maturity of Issued Structured Securities

We commonly issue Structured Securities with stated Ñnal maturities that are shorter than the stated maturity of the

underlying mortgage loans. If the assets that back such Structured Securities have not been purchased by a third party or

fully matured as of the stated Ñnal maturity date of such securities, we may sponsor an auction of the underlying assets. To

118 Freddie Mac
the extent that purchase or auction proceeds are insuÇcient to cover unpaid principal amounts due to investors in such

Structured Securities, we are obligated to fund such principal. Such guarantees of stated Ñnal maturity are accounted for as

derivative instruments.

At December 31, 2006 and 2005, the maximum potential amount of payments we could be required to make under

guarantees of stated Ñnal maturity of issued Structured Securities was $22.7 billion and $11.7 billion, respectively, which

represents the outstanding unpaid principal balance of the underlying mortgage loans. At December 31, 2006 and 2005, the

total fair value of recognized liabilities concerning such guarantees was $6 million and $2 million, respectively.

IndemniÑcations

In connection with various business transactions, we sometimes provide indemniÑcation to counterparties for breaches

of certain obligations (e.g., those arising from representations and warrantees) in contracts entered into in the normal course

of business. It is diÇcult to estimate our maximum exposure under these indemniÑcation arrangements because in many

cases there are no stated or notional amounts included in the indemniÑcation clauses. At December 31, 2006, our assessment

is that the risk of any material loss from such a claim for indemniÑcation is remote. Such indemniÑcation provisions pertain

to matters such as hold harmless clauses, adverse changes in tax laws, breaches of conÑdentiality, misconduct and potential

claims from third parties related to items such as actual or alleged infringement of intellectual property. We have not

recorded any liabilities related to these indemniÑcations on our consolidated balance sheets at December 31, 2006 and 2005

because there are no reasonably probable and estimable losses associated with these contracts.

Other Guarantees

We have guaranteed the performance of interest-rate swap contracts in three circumstances. First, as part of a

resecuritization transaction, we transferred certain swaps and related assets to a third party. We guaranteed that interest

income generated from the assets would be suÇcient to cover the required payments under the interest-rate swap contracts.

Second, we guaranteed that a borrower would perform under an interest-rate swap contract linked to a customer's variablerate mortgage. And third, in connection with certain Structured Securities, we guaranteed that the sponsor of the

securitized multifamily housing revenue bonds would perform under the interest-rate swap contract linked to the variablerate certiÑcates we issued, which are backed by the bonds. The maximum remaining terms of any of these guarantees at

December 31, 2006 and 2005 were 28 years and 29 years, respectively; however, the actual terms may be signiÑcantly less

than the contractual terms because the mortgage loans underlying the swaps are prepayable. The maximum potential

amount of future undiscounted payments under the guarantees was $779 million and $717 million at December 31, 2006 and

2005, respectively. At December 31, 2006 and 2005, the total fair value of recognized liabilities concerning such guarantees

was $3 million and $2 million, respectively.

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. Our servicing-related premium guarantees are payable

according to a vesting schedule for up to Ñve years from the date of purchase of servicing rights. The maximum potential

amount of future payments under these servicing-related premium guarantees was $44 million and $54 million at

December 31, 2006 and 2005, respectively. We have not established a liability on our consolidated balance sheets at

December 31, 2006 and 2005 because we do not expect material amounts to be paid under these arrangements.

119 Freddie Mac
NOTE 5: RETAINED PORTFOLIO AND CASH AND INVESTMENTS PORTFOLIO

Table 5.1 summarizes amortized cost, estimated fair values and corresponding gross unrealized gains and gross

unrealized losses by major security type for available-for-sale securities.

Table 5.1 Ì Available-For-Sale Securities

Gross Gross

Amortized Unrealized Unrealized

Cost Gains Losses Fair Value

(in millions)

December 31, 2006

Retained portfolio:

Mortgage-related securities issued by:

Freddie MacÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $347,700 $1,753 $(5,365) $344,088

Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 44,223 323 (660) 43,886

Ginnie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 720 17 (4) 733

OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 224,642 553 (1,096) 224,099

Obligations of states and political subdivisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13,622 334 (31) 13,925

Total mortgage-related securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 630,907 2,980 (7,156) 626,731

Cash and investments portfolio:

Non-mortgage-related securities:

Asset-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32,179 23 (80) 32,122

Obligations of states and political subdivisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,273 Ì Ì 2,273

Commercial paper ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,191 Ì Ì 11,191

Total non-mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45,643 23 (80) 45,586

Total available-for-sale securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $676,550 $3,003 $(7,236) $672,317

December 31, 2005

Retained portfolio:

Mortgage-related securities issued by:

Freddie MacÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $354,573 $1,848 $(4,974) $351,447

Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 43,784 389 (867) 43,306

Ginnie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,085 33 (3) 1,115

OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 231,693 692 (1,029) 231,356

Obligations of states and political subdivisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,022 272 (53) 11,241

Total mortgage-related securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 642,157 3,234 (6,926) 638,465

Cash and investments portfolio:

Non-mortgage-related securities:

Asset-backed securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30,712 22 (156) 30,578

Obligations of states and political subdivisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,835 Ì (12) 5,823

Commercial paper ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,764 Ì Ì 5,764

Total non-mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42,311 22 (168) 42,165

Total available-for-sale securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $684,468 $3,256 $(7,094) $680,630

Table 5.2 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.

Table 5.2 Ì Available-For-Sale Securities in a Gross Unrealized Loss Position

Less than 12 months 12 months or Greater Total

Gross Gross Gross

Unrealized Unrealized Unrealized

December 31, 2006 Fair Value Losses Fair Value Losses Fair Value Losses

(in millions)

Retained portfolio:

Mortgage-related securities issued by:

Freddie Mac ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $38,386 $(262) $190,504 $(5,103) $228,890 $(5,365)

Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,604 (69) 22,567 (591) 28,171 (660)

Ginnie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 146 Ì 99 (4) 245 (4)

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35,228 (110) 36,072 (986) 71,300 (1,096)

Obligations of states and political subdivisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 959 (7) 1,245 (24) 2,204 (31)

Total mortgage-related securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 80,323 (448) 250,487 (6,708) 330,810 (7,156)

Cash and investments portfolio:

Non-mortgage-related securities:

Asset-backed securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,402 (7) 9,141 (73) 15,543 (80)

Total non-mortgage-related securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,402 (7) 9,141 (73) 15,543 (80)

Total available-for-sale securities in a gross unrealized loss position ÏÏÏÏÏÏ $86,725 $(455) $259,628 $(6,781) $346,353 $(7,236)

120 Freddie Mac
At December 31, 2006, gross unrealized losses on available-for-sale securities were $7,236 million, or approximately

2 percent of the fair value of such securities in an unrealized loss position, as noted in Table 5.2. The gross unrealized losses

relate to approximately 84 thousand individual lots representing approximately 16 thousand separate securities. We

routinely purchase multiple lots of individual securities at diÅerent times and at diÅerent costs. We determine gross

unrealized gains and gross unrealized losses by speciÑcally identifying 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 are in an

unrealized loss position, depending upon the amortized cost of the speciÑc lot.

We have the ability and intent to hold the available-for-sale securities in an unrealized loss position for a period of time

suÇcient to recover all unrealized losses. Based on our ability and intent to hold these available-for-sale securities and our

consideration of other factors described below, we have concluded that the impairment of these securities is temporary.

‚ Freddie Mac securities. The unrealized losses on our securities are primarily a result of movements in interest rates.

Because we guarantee the payment of principal and interest on these securities, we review the estimated credit

exposure of the mortgages underlying these securities in evaluating potential impairment. The extent and duration of

the decline in fair value relative to the amortized cost have met our criteria that are used to indicate that the

impairment of these securities is temporary.

‚ Federal National Mortgage Association, or Fannie Mae, securities and Obligations of states and political

subdivisions. The unrealized losses on Fannie Mae securities and Obligations of states and political subdivisions are

primarily a result of movements in interest rates. The extent and duration of the decline in fair value relative to the

amortized cost have met our criteria that are used to indicate that the impairment of these securities is temporary

and no other facts or circumstances existed to suggest that the decline was not temporary. The issuer guarantees

related to these securities have led us to conclude that any credit risk is minimal.

‚ Other securities in the Retained portfolio and Asset-backed securities in the Cash and investments portfolio. The

unrealized losses on mortgage-related securities included in Other and Asset-backed securities are principally a

result of movements in interest rates. The extent and duration of the decline in fair value relative to the amortized

cost have met our criteria that are used to indicate that the impairment of these securities is temporary. Most of

these securities are investment grade (i.e., rated BBB¿ or better on a Standard & Poor's, or S&P, or equivalent

scale).

Table 5.3 below illustrates the gross realized gains and gross realized losses received from the sale of available-for-sale

securities.

Table 5.3 Ì Gross Realized Gains and Gross Realized Losses on Available-For-Sale Securities

Year Ended December 31,

2006 2005 2004

(in millions)

Gross realized gainsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 440 $ 891 $ 787

Gross realized (losses) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (418) (345) (203)

Net realized gains ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 22 $ 546 $ 584

For the years ended December 31, 2006, 2005 and 2004, we recorded impairments related to investments in securities of

$540 million, $371 million and $126 million, respectively.

121 Freddie Mac
Table 5.4 summarizes, by major security type, the remaining contractual maturities and weighted average yield of

available-for-sale securities.

Table 5.4 Ì Maturities and Weighted Average Yield of Available-For-Sale Securities

Weighted

December 31, 2006 Amortized Cost Fair Value Average Yield(1)

(dollars in millions)

Retained portfolio:

Total mortgage-related securities(2)

Due 1 year or less ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 128 $ 127 4.06%

Due after 1 through 5 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,848 2,847 5.41

Due after 5 through 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14,508 14,550 5.62

Due after 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 613,423 609,207 5.32

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $630,907 $626,731 5.33

Cash and investments portfolio:

Non-mortgage-related securities:

Asset-backed securities(2)

Due 1 year or less ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 8 $ 8 2.09

Due after 1 through 5 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20,919 20,866 4.94

Due after 5 through 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,201 9,197 5.27

Due after 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,051 2,051 5.39

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32,179 32,122 5.07

Obligations of states and political subdivisions(2)

Due 1 year or less ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 12 3.01

Due after 1 through 5 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 183 183 4.74

Due after 5 through 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32 32 5.27

Due after 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,046 2,046 5.31

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,273 2,273 5.25

Commercial paper

Due 1 year or less ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,191 11,191 5.25

Due after 1 through 5 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì

Due after 5 through 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì

Due after 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,191 11,191 5.25

Total non-mortgage-related securities

Due 1 year or less ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,211 11,211 5.24

Due after 1 through 5 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 21,102 21,049 4.94

Due after 5 through 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,233 9,229 5.27

Due after 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,097 4,097 5.35

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 45,643 $ 45,586 5.12

Total available-for-sale securities for Retained portfolio and Cash and investments portfolio:

Due 1 year or less ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 11,339 $ 11,338 5.23

Due after 1 through 5 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23,950 23,896 5.00

Due after 5 through 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23,741 23,779 5.48

Due after 10 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 617,520 613,304 5.32

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $676,550 $672,317 5.32

(1) The weighted average yield is calculated based on a yield for each individual lot held at the balance sheet date. The numerator for the individual lot

yield consists of the sum of (a) the year-end interest coupon rate multiplied by the year-end unpaid principal balance and (b) the annualized

amortization income or expense calculated for December 2006 (excluding any adjustments recorded for changes in the eÅective rate). The

denominator for the individual lot yield consists of the year-end amortized cost of the lot excluding eÅects of other-than-temporary impairments on the

unpaid principal balances of impaired lots.

(2) Maturity information provided is based on contractual maturities, which may not represent expected life, as obligations underlying these securities may

be prepaid at any time without penalty.

122 Freddie Mac
Table 5.5 presents the changes in AOCI, net of taxes, related to available-for-sale securities. The Net unrealized

holding (losses), net of tax, represents the net fair value adjustments recorded on available-for-sale securities throughout the

year, after the eÅects of our statutory tax rate of 35 percent. The Net reclassiÑcation adjustment for net realized losses

(gains), net of tax, represents the amount of those fair value adjustments, after the eÅects of our statutory tax rate of

35 percent, that have been recognized in earnings due to a sale of an available-for-sale security or the recognition of an

impairment loss. See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' for further information

regarding the component of AOCI related to available-for-sale securities.

Table 5.5 Ì AOCI, Net of Taxes, Related to Available-For-Sale Securities

Year Ended December 31,

2006 2005 2004

(in millions)

Beginning balanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(2,485) $ 4,339 $ 6,349

Net unrealized holding (losses), net of tax(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (525) (6,707) (1,709)

Net reclassiÑcation adjustment for net realized losses (gains), net of tax(2)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 261 (117) (301)

Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(2,749) $(2,485) $ 4,339

(1) Net of tax (beneÑt) of $(282) million, $(3,611) million and $(920) million for the years ended December 31, 2006, 2005 and 2004, respectively.

(2) Net of tax beneÑt (expense) of $139 million, $(63) million and $(162) million for the years ended December 31, 2006, 2005 and 2004, respectively.

(3) Includes the reversal of previously recorded unrealized losses that have been recognized as impairment losses on available-for-sale securities of

$281 million, $234 million and $72 million, net of taxes, for the years ended December 31, 2006, 2005 and 2004, respectively.

Table 5.6 summarizes the estimated fair values by major security type for trading securities held in our Retained

portfolio.

Table 5.6 Ì Trading Securities in the Retained Portfolio

December 31,

2006 2005

(in millions)

Mortgage-related securities issued by:

Freddie MacÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $6,573 $ 8,156

Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 802 534

Ginnie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 222 204

Total trading securities in the Retained portfolioÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $7,597 $ 8,894

For the years ended December 31, 2006, 2005 and 2004 we recorded net unrealized losses on trading securities held at

December 31, 2006, 2005 and 2004 of $11 million, $261 million and $240 million, respectively.

Retained Portfolio Voluntary Growth Limit

EÅective as of July 1, 2006, we voluntarily limited the growth of our Retained portfolio to no more than 2.0 percent

annually (and 0.5 percent quarterly on a cumulative basis) based on its carrying value as reported in our minimum capital

report to OFHEO Ñled on July 28, 2006, which was $710.3 billion. This voluntary, temporary growth limit was made in

response to a request from OFHEO. At December 31, 2006, the carrying value of the Retained portfolio as reported on our

consolidated balance sheets was $700.5 billion, below the voluntary limit of $717.4 billion at that time.

Collateral Pledged

Collateral Pledged to Freddie Mac

Our counterparties are required to pledge collateral for reverse repurchase transactions and most interest-rate swap

agreements, after giving consideration to collateral posting thresholds generally related to a counterparty's credit rating. Even

though it is our practice not to repledge assets held as collateral, based on master agreements a portion of the collateral may

be repledged. At December 31, 2006 and 2005, we did not have collateral in the form of securities pledged to and held by us

under secured lending transactions and interest-rate swap agreements.

Collateral Pledged by Freddie Mac

We are also required to pledge collateral for margin requirements with third-party custodians in connection with secured

Ñnancings, interest-rate swap agreements, futures and daily trade activities with some counterparties. In 2006, we opened

three uncommitted intraday lines of credit with third-parties, two of which are secured, in connection with the Federal

Reserve Board's revised payments system risk policy, which restricts or eliminates daylight overdrafts by GSEs, including us,

in connection with our use of the Fedwire system. In certain limited circumstances, the line of credit agreements give the

secured parties the right to repledge the securities underlying our Ñnancing to other third parties, including the Federal

Reserve Bank. We pledge collateral to meet these requirements upon a demand by the respective counterparty.

123 Freddie Mac
Table 5.7 summarizes all securities pledged as collateral by us, including assets that the secured party may repledge and

those that may not be repledged.

Table 5.7 Ì Collateral in the Form of Securities Pledged

December 31,

2006 2005

(in millions)

Securities pledged with ability for secured party to repledge (parenthetically disclosed on our consolidated balance sheets)

Available-for-sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $20,463 $168

Securities pledged without ability for secured party to repledge

Available-for-sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 225 161

Total securities pledged ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $20,688 $329

NOTE 6: LOAN LOSS RESERVES

We maintain separate loan loss reserves for mortgage loans in the Retained portfolio that we classify as held-forinvestment and for credit-related losses associated with certain mortgage loans that underlie guaranteed PCs and Structured

Securities held by third parties.

Table 6.1 summarizes loan loss reserve activity:

Table 6.1 Ì Detail of Loan Loss Reserves

Year-Ended December 31,

2006 2005 2004

Reserves related to: Reserves related to: Reserves related to:

Total Loan Total Loan Total Loan

Retained PCs Loss Retained PCs Loss Retained PCs Loss

Mortgages Outstanding Reserves Mortgages Outstanding Reserves Mortgages Outstanding Reserves

(in millions)

Beginning balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 119 $295 $ 414 $ 114 $150 $ 264 $ 174 $125 $ 299

Provision for credit losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 98 117 215 106 145 251 111 32 143

Charge-oÅs(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (313) Ì (313) (294) Ì (294) (300) Ì (300)

Recoveries(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 166 Ì 166 185 Ì 185 160 Ì 160

Transfers-outÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (71) (71) Ì (11) (11) Ì (20) (20)

Other transfers, net(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 9 9 8 11 19 (31) 13 (18)

Ending balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 70 $350 $ 420 $ 119 $295 $ 414 $ 114 $150 $ 264

(1) It is our practice to purchase mortgage loans from the pools that underlie PCs principally at the point the mortgage loan is identiÑed as being 120 days

past due. Because all credit losses related to oÅ-balance sheet PCs are preceded by the purchase of a delinquent mortgage loan from the PC pool, all

charge-oÅs or recoveries are presented in the Retained Mortgages columns above.

(2) Represents the portion of the Guarantee obligation recognized through Guarantor Swap transactions or upon the sale of PCs and Structured Securities

that corresponds to incurred credit losses reclassiÑed to reserve for guarantee losses on Participation CertiÑcates upon initial recognition of a

Guarantee obligation. In addition, the amount includes an increase (reduction) of loan loss reserves of $9 million and $(31) million in 2005 and 2004,

respectively, related to prior period adjustments for which the related income was recorded in Other income.

Impaired Loans

Total loan loss reserves, as presented in ""Table 6.1 Ì Detail of Loan Loss Reserves,'' consists of a speciÑc valuation

allowance related to impaired loans, which is presented in Table 6.2, and an additional reserve for other probable incurred

losses, which totaled $414 million, $398 million and $261 million at December 31, 2006, 2005 and 2004, respectively. Our

recorded investment in impaired loans and the related valuation allowance are summarized in Table 6.2.

Table 6.2 Ì Impaired Loans(1)

December 31,

2006 2005 2004

Recorded SpeciÑc Net Recorded SpeciÑc Net Recorded SpeciÑc Net

Investment(2) Reserve Investment Investment(2) Reserve Investment Investment(2) Reserve Investment

(in millions)

Impaired loans having:

Related-valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 86 $(6) $ 80 $ 54 $(16) $ 38 $ 46 $(3) $ 43

No related-valuation allowance(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,869 Ì 5,869 2,536 Ì 2,536 2,261 Ì 2,261

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,955 $(6) $5,949 $2,590 $(16) $2,574 $2,307 $(3) $2,304

(1) Single-family impaired loans include performing and non-performing troubled debt restructurings. Also, in 2006, all loans purchased out of PC pools

that were 120 days delinquent were impaired. Multifamily impaired loans are deÑned as performing and non-performing troubled debt restructurings,

loans that are 60 days or more delinquent, except for certain credit-enhanced loans, and certain mortgage loans with real estate collateral values less

than the outstanding unpaid principal balances. For more details on multifamily impaired loans, see ""NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES.''

(2) Recorded Investment includes the unpaid principal balance of mortgage loans plus other amortized basis adjustments, which are modiÑcations to their

carrying value.

(3) Impaired loans with no related valuation allowance primarily represent performing single-family troubled debt restructuring loans and impaired loans

purchased out of PC pools.

124 Freddie Mac
For the years ended December 31, 2006, 2005 and 2004, the average recorded investment in impaired loans was

$4,215 million, $2,601 million and $2,311 million, respectively. The increase in impaired loans in 2006 relates to impaired

loans purchased out of PC pools at 120 days of delinquency. In 2006, we purchased approximately $4,833 million of such

impaired loans out of PC pools. At December 31, 2006, the carrying value of such loans was approximately $3,160 million,

net of a related discount of $227 million, a portion of which will be accreted to income if the related loans re-perform. In

addition, impaired loans includes additions related to an economic downturn aÅecting the North Central region in 2006 and

Hurricane Katrina in 2005.

Interest income on multifamily impaired loans is recognized on an accrual basis for loans performing under the original

or restructured terms and on a cash basis for non-performing loans, which collectively totaled approximately $25 million,

$24 million and $13 million for the years ended December 31, 2006, 2005 and 2004, respectively. For single-family

performing and non-performing loans, we recognize interest income on an accrual basis and establish reserves for estimated

accrued but uncollectible interest for these loans at the consolidated balance sheet dates. Gross interest income on impaired

troubled debt restructuring single-family loans totaled $177 million, $149 million and $157 million for the years ended

December 31, 2006, 2005 and 2004, respectively.

Delinquency Rates

Table 6.3 summarizes the delinquency rates for our Total mortgage portfolio, excluding non-Freddie Mac mortgagerelated securities and that portion of Structured Securities that is backed by Ginnie Mae CertiÑcates.

Table 6.3 Ì Delinquency Performance(1)

December 31,

2006 2005 2004

Delinquencies, end of period:

Single-family:(2)

Non-credit-enhanced portfolio:

Delinquency rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.25% 0.30% 0.24%

Total number of delinquent loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22,854 26,037 19,691

Credit-enhanced portfolio:

Delinquency rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.86% 2.46% 2.75%

Total number of delinquent loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 36,008 47,000 54,913

Total portfolio:

Delinquency rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.53% 0.69% 0.73%

Total number of delinquent loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 58,862 73,037 74,604

Multifamily:(3)

Total portfolio:

Delinquency rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.05% Ì% 0.06%

Net carrying value of delinquent loans (in millions) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 30 $ 2 $ 35

(1) Based on mortgage loans in the Retained portfolio and Total Guaranteed PCs and Structured Securities Issued, excluding that portion of Structured

Securities that is backed by Ginnie Mae CertiÑcates and certain Structured Transactions where delinquency data on the underlying mortgage-related

securities is not available. The Structured Transactions we have excluded represented 0.06 percent, 0.04 percent and 0.07 percent of our Total

mortgage portfolio at December 31, 2006, 2005 and 2004, respectively.

(2) Based on the number of mortgage loans 90 days or more delinquent or in foreclosure.

(3) Based on net carrying value of mortgage loans 60 days or more delinquent.

NOTE 7: REAL ESTATE OWNED

We obtain REO properties when we are the highest bidder at foreclosure sales of properties that collateralize nonperforming single-family and multifamily mortgage loans owned by us. Upon acquiring single-family properties, we establish

a marketing plan to sell the property as soon as practicable by either listing it with a sales broker or by other means, such as

arranging a real estate auction. Upon acquiring multifamily properties, we may operate them with third-party propertymanagement Ñrms for a period to stabilize value and then sell the properties through commercial real estate brokers. For

each of the years ended December 31, 2006 and 2005, the weighted average holding period for our disposed REO properties

was less than one year. Table 7.1 provides a summary of our REO activity.

Table 7.1 Ì Real Estate Owned

REO, Valuation REO,

Gross Allowance Net

(in millions)

Balance, December 31, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 867 $(126) $ 741

Additions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,390 (78) 1,312

Dispositions and write-downs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,513) 89 (1,424)

Balance, December 31, 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 744 (115) 629

Additions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,484 (85) 1,399

Dispositions and write-downs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,357) 72 (1,285)

Balance, December 31, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 871 $(128) $ 743

125 Freddie Mac
We recognized net losses of $59 million, $67 million and $67 million on REO dispositions for the years ended

December 31, 2006, 2005 and 2004, respectively, which are included in REO operations income (expense).

NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS

Debt securities are classiÑed as either due within one year or due after one year based on their remaining contractual

maturity. Table 8.1 summarizes the balances and eÅective interest rates for debt securities, as well as subordinated

borrowings.

Table 8.1 Ì Total Debt Securities, Net

December 31,

2006 2005

Balance, EÅective Balance, EÅective

Net(1) Rate(2) Net(1) Rate(2)

(dollars in millions)

Senior debt, due within one year:

Short-term debt securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $176,982 5.14% $192,713 4.01%

Current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 117,879 4.10 95,819 3.42

Senior debt, due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 294,861 4.73 288,532 3.81

Senior debt, due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 452,677 5.08 454,627 4.64

Subordinated debt, due after one yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,400 5.86 5,633 6.15

Senior and subordinated debt, due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 459,077 5.09 460,260 4.66

Total debt securities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $753,938 $748,792

(1) Includes unamortized discounts and premiums, and foreign-currency-related and hedging-related basis adjustments.

(2) Represents the weighted average eÅective rate at the end of the period, which includes the amortization of discounts or premiums and issuance costs,

but excludes the amortization of hedging-related basis adjustments.

Senior Debt, Due Within One Year

As indicated in Table 8.2, a majority of Senior debt, due within one year (excluding current portion of long-term debt)

consisted of Reference Bills» securities and discount notes, paying only principal at maturity. Reference Bills» securities,

discount notes and Medium-term Notes are unsecured general corporate obligations. Certain Medium-term Notes that

have original maturities of one year or less are classiÑed as Short-term debt securities. Securities sold under agreements to

repurchase are eÅectively 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 arranged the

transactions. Federal funds purchased are unsecuritized borrowings from commercial banks that are members of the Federal

Reserve System.

Table 8.2 provides additional information related to our debt securities due within one year.

Table 8.2 Ì Senior Debt, Due Within One Year

December 31,

2006 2005

Balance, Balance,

Par Value Net(1) EÅective Rate Par Value Net(1) EÅective Rate

(dollars in millions)

Reference Bills» securities and discount notes(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $159,503 $157,553 5.14% $183,357 $181,468 4.00%

Medium-term Notes(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,832 9,832 5.16 2,035 2,032 4.17

Securities sold under agreements to repurchase and Federal

funds purchased(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì 450 450 4.25

Swap collateral obligations(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,552 9,597 5.17 8,736 8,768 4.09

Hedging-related basis adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ N/A Ì N/A N/A (5) N/A

Short-term debt securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 178,887 176,982 5.14 194,578 192,713 4.01

Current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 117,972 117,879 4.10 95,596 95,819 3.42

Senior debt, due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $296,859 $294,861 4.73 $290,174 $288,532 3.81

(1) Represents par value, net of associated discounts, premiums and foreign-currency-related and hedging-related basis adjustments. Swap collateral

obligations include the related accrued interest payable.

(2) Represents the approximate weighted average eÅective rate for each instrument outstanding at the end of the period, which includes the amortization

of discounts or premiums and issuance costs, but excludes the amortization of hedging-related basis adjustments.

(3) Represents the weighted average eÅective rate for each instrument outstanding at the end of the period.

126 Freddie Mac
Senior and Subordinated Debt, Due After One Year

Table 8.3 summarizes our senior and subordinated debt, due after one year.

Table 8.3 Ì Senior and Subordinated Debt, Due After One Year

December 31,

2006 2005

Contractual Balance, Interest Balance, Interest

Maturity(1) Par Value Net(2) Rates Par Value Net(2) Rates

(dollars in millions)

Senior debt, due after one year:(3)

Fixed-rate:

Medium-term Notes Ì Callable(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2008-2037 $183,611 $183,532 2.57% - 7.50% $182,251 $182,173 2.00% - 7.91%

Medium-term Notes Ì Non-callable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2008-2028 5,764 5,798 1.00% - 10.27% 19,927 19,936 1.00% - 7.69%

U.S. dollar Reference Notes» securities Ì Non-callableÏÏÏÏÏ 2008-2032 195,289 194,772 2.75% - 7.00% 172,551 171,962 2.38% - 7.00%

4Reference Notes» securities Ì Non-callableÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2008-2014 16,912 16,878 3.50% - 5.75% 25,528 25,478 3.50% - 5.75%

Variable-rate:

Medium-term Notes Ì Callable(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2008-2030 28,617 28,616 Various 28,709 28,709 Various

Medium-term Notes Ì Non-callable(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2008-2026 421 460 Various 5,809 5,858 Various

Zero-coupon:

Medium-term Notes Ì Callable(7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2014-2036 43,248 8,610 Ì% 39,939 7,675 Ì%

Medium-term Notes Ì Non-callable(8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2008-2034 10,535 6,204 Ì% 9,598 5,287 Ì%

Foreign-currency-related and hedging-related basis adjustments ÏÏ N/A 7,807 N/A 7,549

Total senior debt, due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 484,397 452,677 484,312 454,627

Subordinated debt, due after one year:

Fixed-rate(9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2011-2018 6,382 6,309 5.00% - 8.25% 5,564 5,550 5.25% - 8.25%

Zero-coupon(10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2019 332 91 Ì% 332 83 Ì%

Total subordinated debt, due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,714 6,400 5,896 5,633

Total senior and subordinated debt, due after one year ÏÏÏÏÏÏÏÏÏÏ $491,111 $459,077 $490,208 $460,260

(1) Represents contractual maturities at December 31, 2006.

(2) Represents par value of long-term debt securities and subordinated borrowings, net of associated discounts or premiums.

(3) For debt denominated in a currency other than the U.S. dollar, the outstanding balance is based on the exchange rate at the date of the debt issuance.

Subsequent changes in exchange rates are reÖected in Foreign-currency-related and hedging-related basis adjustments.

(4) Includes callable Estate NotesSMsecurities and FreddieNotes» securities of $12,951 million and $11,805 million at December 31, 2006 and 2005,

respectively. These debt instruments represent Medium-term Notes that permit persons acting on behalf of deceased beneÑcial owners to require us to

repay principal prior to the contractual maturity date.

(5) Includes callable Estate NotesSMsecurities and FreddieNotes» securities of $7,800 million and $6,987 million at December 31, 2006 and 2005,

respectively.

(6) Includes Medium-term Notes of $Ì million and $800 million at December 31, 2006 and 2005, which are repayable in whole or in part at the option of

the beneÑcial owner, acting through the holder, on or after November 22, 2002 and prior to November 20, 2007 at 100 percent of the principal

amount plus accrued interest.

(7) The eÅective rates for Zero-coupon Medium-term Notes Ì Callable ranged from 5.57% - 7.17% and 3.53% - 7.12% at December 31, 2006 and 2005,

respectively.

(8) The eÅective rates for Zero-coupon Medium-term Notes Ì Non-callable ranged from 2.65% - 10.68% and 2.56% - 10.68% at December 31, 2006 and

2005, respectively.

(9) Balance, Net includes callable subordinated debt of $1,928 million and $3,493 million at December 31, 2006 and 2005, respectively.

(10) The eÅective rates for Subordinated Debt, due after one year Zero-coupon were 10.20% and 10.20% at December 31, 2006 and 2005, respectively.

A portion of our long-term debt is callable. Callable debt gives us the option to redeem the debt security at par on one or

more speciÑed call dates or at any time on or after a speciÑed call date.

Table 8.4 summarizes the contractual maturities of long-term debt securities (including current portion of long-term

debt) and subordinated borrowings outstanding at December 31, 2006, assuming callable debt is paid at contractual

maturity.

Table 8.4 Ì Senior and Subordinated Debt, Due After One Year (including current portion of long-term debt)

Contractual

Annual Maturities Maturity(1)(2)

(in millions)

2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $117,972

2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 98,313

2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 63,231

2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 46,681

2011 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 55,208

Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 227,678

Total(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 609,083

Net discounts, premiums and foreign-currency-related and hedging-related basis adjustments(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (32,127)

Senior and subordinated debt, due after one year, including current portion of long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $576,956

(1) Represents par value of long-term debt securities and subordinated borrowings.

(2) For debt denominated in a currency other than the U.S. dollar, the par value is based on the exchange rate at the date of the debt issuance. Subsequent

changes in exchange rates are reÖected in Net discounts, premiums and foreign-currency-related and hedging-related basis adjustments.

127 Freddie Mac
Lines of Credit

We opened intraday lines of credit with third-parties to provide additional liquidity to fund our intraday activities

through the Fedwire system in connection with the Federal Reserve Board's revised payments system risk policy, which

restricts or eliminates daylight overdrafts by GSEs, including us. At December 31, 2006, we had three uncommitted lines of

credit of which $20.0 billion is secured and $1.0 billion is unsecured. No amounts were drawn on these lines of credit at

December 31, 2006. We expect to continue to use these facilities from time to time to satisfy our intraday Ñnancing needs;

however, since the lines are uncommitted, we may not be able to draw on them if and when needed.

NOTE 9: STOCKHOLDERS' EQUITY

Preferred Stock

During 2006, we completed two preferred stock oÅerings consisting of three classes. We had no preferred stock oÅerings

during 2005. All 20 classes of preferred stock outstanding at December 31, 2006 have a par value of $1 per share. We have

the option to redeem these shares, on speciÑed dates, at their redemption price plus dividends accrued through the

redemption date. In addition, all 20 classes of preferred stock are perpetual and non-cumulative, and carry no signiÑcant

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.

Table 9.1 provides a summary of our preferred stock outstanding at December 31, 2006.

Table 9.1 Ì Preferred Stock

Redemption Total

Shares Shares Total Par Price per Outstanding Redeemable NYSE

Issue Date Authorized Outstanding Value Share Balance(1) On or After(2) Symbol(3)

(in millions, except redemption price per share)

1996 Variable-rate(4) ÏÏÏ April 26, 1996 5.00 5.00 $ 5.00 $50.00 $ 250 June 30, 2001 FRE.prB

6.14% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ June 3, 1997 12.00 12.00 12.00 50.00 600 June 30, 2002 FRE.prD

5.81% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ October 27, 1997 3.00 3.00 3.00 50.00 150 October 27, 1998 (5)

5% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ March 23, 1998 8.00 8.00 8.00 50.00 400 March 31, 2003 FRE.prF

1998 Variable-rate(6) ÏÏÏ September 23 and 29, 1998 4.40 4.40 4.40 50.00 220 September 30, 2003 FRE.prG

5.1% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ September 23, 1998 8.00 8.00 8.00 50.00 400 September 30, 2003 FRE.prH

5.3% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ October 28, 1998 4.00 4.00 4.00 50.00 200 October 30, 2000 (5)

5.1% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ March 19, 1999 3.00 3.00 3.00 50.00 150 March 31, 2004 (5)

5.79% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ July 21, 1999 5.00 5.00 5.00 50.00 250 June 30, 2009 FRE.prK

1999 Variable-rate(7) ÏÏÏ November 5, 1999 5.75 5.75 5.75 50.00 287 December 31, 2004 FRE.prL

2001 Variable-rate(8) ÏÏÏ January 26, 2001 6.50 6.50 6.50 50.00 325 March 31, 2003 FRE.prM

2001 Variable-rate(9) ÏÏÏ March 23, 2001 4.60 4.60 4.60 50.00 230 March 31, 2003 FRE.prN

5.81% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ March 23, 2001 3.45 3.45 3.45 50.00 173 March 31, 2011 FRE.prO

6% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ May 30, 2001 3.45 3.45 3.45 50.00 173 June 30, 2006 FRE.prP

2001 Variable-rate(10)ÏÏÏ May 30, 2001 4.02 4.02 4.02 50.00 201 June 30, 2003 FRE.prQ

5.7% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ October 30, 2001 6.00 6.00 6.00 50.00 300 December 31, 2006 FRE.prR

5.81% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ January 29, 2002 6.00 6.00 6.00 50.00 300 March 31, 2007 (5)

2006 Variable-rate(11)ÏÏÏ July 17, 2006 15.00 15.00 15.00 50.00 750 June 30, 2011 FRE.prS

6.42% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ July 17, 2006 5.00 5.00 5.00 50.00 250 June 30, 2011 FRE.prT

5.9% ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ October 16, 2006 20.00 20.00 20.00 25.00 500 September 30, 2011 FRE.prU

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 132.17 132.17 $132.17 $6,109

(1) Amounts stated at redemption value.

(2) As long as the capital monitoring framework established by the OÇce of Federal Housing Enterprise Oversight, or OFHEO, in January 2004 remains

in eÅect, any preferred stock redemption will require prior approval by OFHEO. See ""NOTE 10: REGULATORY CAPITAL'' for more

information.

(3) Preferred stock is listed on the New York Stock Exchange, or NYSE, unless otherwise noted.

(4) Dividend rate resets quarterly and is equal to the sum of three-month London Interbank OÅered Rate, or LIBOR, plus 1 percent divided by 1.377,

and is capped at 9.00 percent.

(5) Not listed on any exchange.

(6) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1 percent divided by 1.377, and is capped at 7.50 percent.

(7) Dividend rate resets on January 1 every Ñve years after January 1, 2005 based on a Ñve-year Constant Maturity Treasury, or CMT, rate, and is capped

at 11.00 percent. Optional redemption on December 31, 2004 and on December 31 every Ñve years thereafter.

(8) Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year CMT rate plus 0.10 percent, and is capped at 11.00 percent.

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 percent, and is capped at 11.00 percent. 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 CMT rate plus 0.20 percent, and is capped at 11.00 percent.

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 percent but not less than 4.00 percent.

Stock Repurchase and Issuance Programs

During 2006, we repurchased $2.0 billion of outstanding shares of common stock and issued $1.5 billion of noncumulative, perpetual preferred stock in connection with a plan to replace $2.0 billion of common stock with an equal

amount of preferred stock. During the Ñrst quarter of 2007, we issued $1.1 billion of non-cumulative, perpetual preferred

stock, including $500 million to complete the planned issuance described above and $600 million to replace higher-cost

preferred stock that we redeemed in 2007. In accordance with OFHEO's capital monitoring framework, we obtained

128 Freddie Mac
OFHEO's approval for the common stock repurchases and the preferred stock redemption. We did not repurchase any

outstanding shares of common stock in 2005.

Common Stock Dividends Declared

Common stock dividends declared per share were $1.91, $1.52 and $1.20 for 2006, 2005 and 2004, respectively.

Dividends Declared During the First Quarter of 2007

On March 2, 2007, our board of directors declared a quarterly dividend on our common stock of $0.50 per share and

dividends on our preferred stock consistent with the contractual rates and terms shown in ""Table 9.1 Ì Preferred Stock.''

NOTE 10: REGULATORY CAPITAL

Regulatory Capital Standards

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, or GSE Act, established minimum,

critical and risk-based capital standards for us.

Those standards determine the amounts of Core capital and Total capital that we must maintain to meet regulatory

capital requirements. Core capital consists 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, as determined in accordance with GAAP. Total capital includes Core capital and general

reserves for mortgage and foreclosure losses and any other amounts available to absorb losses that OFHEO includes by

regulation.

Minimum Capital

The minimum capital standard requires us to hold an amount of Core capital that is generally equal to the sum of

2.50 percent of aggregate on-balance sheet assets and approximately 0.45 percent of the sum of outstanding mortgage-related

securities we guaranteed and other aggregate oÅ-balance sheet obligations. As discussed below, in 2004 OFHEO

implemented a framework for monitoring our capital adequacy, which includes a mandatory target capital surplus of

30 percent over the minimum capital requirement.

Critical Capital

The critical capital standard requires us to hold an amount of Core capital that is generally equal to the sum of

1.25 percent of aggregate on-balance sheet assets and approximately 0.25 percent of the sum of outstanding mortgage-related

securities we guaranteed and other aggregate oÅ-balance sheet obligations.

Risk-Based Capital

The risk-based capital standard requires the application of a stress test to determine the amount of Total capital that we

must hold to absorb projected losses resulting from adverse interest-rate and credit-risk conditions speciÑed by the GSE Act

and adds 30 percent additional capital to provide for management and operations risk. The adverse interest-rate conditions

prescribed by the GSE Act include one scenario in which 10-year Treasury yields rise by as much as 75 percent (up-rate

scenario) and one in which they fall by as much as 50 percent (down-rate scenario). The credit risk component of the stress

tests simulates the performance of our mortgage portfolio based on loss rates for a benchmark region. The criteria for the

benchmark region are established by the GSE Act and are intended to capture the credit-loss experience of the region that

experienced the highest historical rates of default and severity of mortgage losses for two consecutive origination years.

ClassiÑcation

OFHEO monitors our performance with respect to the three regulatory capital standards by classifying our capital

adequacy not less than quarterly.

To be classiÑed as ""adequately capitalized,'' we must meet both the risk-based and minimum capital standards. If we

fail to meet the risk-based capital standard, we cannot be classiÑed higher than ""undercapitalized.'' If we fail to meet the

minimum capital requirement but exceed the critical capital requirement, we cannot be classiÑed higher than ""signiÑcantly

undercapitalized.'' If we fail to meet the critical capital standard, we must be classiÑed as ""critically undercapitalized.'' In

addition, OFHEO has discretion to reduce our capital classiÑcation by one level if OFHEO determines that we are engaging

in conduct OFHEO did not approve that could result in a rapid depletion of Core capital or determines that the value of

property subject to mortgage loans we hold or guarantee has decreased signiÑcantly.

When we are classiÑed as adequately capitalized, we generally can pay a dividend on our common or preferred stock or

make other capital distributions (which includes common stock repurchases and preferred stock redemptions) without prior

OFHEO approval so long as the payment would not decrease Total capital to an amount less than our risk-based capital

requirement and would not decrease our Core capital to an amount less than our minimum capital requirement. However,

because we are currently subject to the regulatory capital monitoring framework described below, we are required to obtain

129 Freddie Mac
OFHEO's prior approval of certain capital transactions, including common stock repurchases, redemption of any preferred

stock or payment of dividends on preferred stock above stated contractual rates.

If we were classiÑed as undercapitalized, we would be prohibited from making a capital distribution that would reduce

our Core capital to an amount less than our minimum capital requirement. We also would be required to submit a capital

restoration plan for OFHEO approval, which could adversely aÅect our ability to make capital distributions.

If we were classiÑed as signiÑcantly undercapitalized, we would be prohibited from making any capital distribution that

would reduce our Core capital to less than the critical capital level. We would otherwise be able to make a capital

distribution only if OFHEO determined that the distribution would: (a) enhance our ability to meet the risk-based capital

standard and the minimum capital standard promptly; (b) contribute to our long-term Ñnancial safety and soundness; or

(c) otherwise be in the public interest. Also under this classiÑcation, OFHEO could take action to limit our growth, require

us to acquire new capital or restrict us from activities that create excessive risk. We also would be required to submit a

capital restoration plan for OFHEO approval, which could adversely aÅect our ability to make capital distributions.

If we were classiÑed as critically undercapitalized, OFHEO would be required to appoint a conservator for us, unless

OFHEO made a written Ñnding that it should not do so and the Secretary of the Treasury concurred in that determination.

We would be able to make a capital distribution only if OFHEO determined that the distribution would: (a) enhance our

ability to meet the risk-based capital standard and the minimum capital standard promptly; (b) contribute to our long-term

Ñnancial safety and soundness; or (c) otherwise be in the public interest.

Performance Against Regulatory Capital Standards

OFHEO has never classiÑed us as other than ""adequately capitalized,'' the highest possible classiÑcation, reÖecting our

consistent compliance with the minimum, critical and risk-based capital requirements.

Table 10.1 summarizes our regulatory capital requirements and surpluses.

Table 10.1 Ì Regulatory Capital Requirements(1)

December 31,

2006 2005

(in millions)

Minimum capital requirement(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $25,844 $25,010

Core capital(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 36,170 35,964

Minimum capital surplus(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10,326 10,954

Critical capital requirement(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $13,237 $12,782

Core capital(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 36,170 35,964

Critical capital surplus(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22,933 23,182

Risk-based capital requirement(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ N/A $11,282

Total capital(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ N/A 36,781

Risk-based capital surplus(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ N/A 25,499

(1) OFHEO is the authoritative source of the capital calculations that underlie our capital classiÑcations.

(2) Amounts for 2006 are based on amended reports we submitted to OFHEO in March 2007.

(3) OFHEO determines the amounts reported with respect to our risk-based capital requirement. Amounts for 2006 are not yet available.

Factors that could adversely aÅect the adequacy of our regulatory capital for future periods include declines in GAAP

income; increases in our risk proÑle; changes in the economic environment, such as large interest-rate or implied volatility

moves or home-price declines; changes in option-adjusted spreads; legislative or regulatory action that could increase

capital requirements or changes in or adoption of new accounting standards. See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Ì Recently Issued Accounting Standards, Not Yet Adopted'' for more information.

In particular, interest-rate levels or implied volatility can aÅect the amount of our Core capital, even if we were

economically well hedged against interest-rate changes, because certain gains or losses are recognized through GAAP

earnings while other oÅsetting gains or losses may not be. Changes in option-adjusted spreads can also aÅect the amount of

our Core capital, because option-adjusted spreads are a factor in the valuation of our guaranteed mortgage portfolio.

Subordinated Debt Commitment

In October 2000, we announced our voluntary adoption of a series of commitments designed to enhance market

discipline, liquidity and capital. In September 2005, we entered into a written agreement with OFHEO that updated those

commitments and set forth a process for implementing them. Under the terms of this agreement, we committed to issue

qualifying subordinated debt for public secondary market trading and rated by no less than two nationally recognized

statistical rating organizations in a quantity such that the sum of Total capital plus the outstanding balance of qualifying

subordinated debt will equal or exceed the sum of 0.45 percent of outstanding guaranteed PCs and Structured Securities

and 4 percent of on-balance sheet assets at the end of each quarter. Qualifying subordinated debt is deÑned as subordinated

debt that contains a deferral of interest payments for up to Ñve years if our Core capital falls below 125 percent of our

130 Freddie Mac
critical capital requirement or our Core capital falls below our minimum capital requirement and pursuant to our request,

the Secretary of the Treasury exercises discretionary authority to purchase our obligations under Section 306(c) of our

charter. Qualifying subordinated debt will be discounted for the purposes of this commitment as it approaches maturity with

one-Ñfth of the outstanding amount excluded each year during the instrument's last Ñve years before maturity. When the

remaining maturity is less than one year, the instrument is entirely excluded.

Table 10.2 summarizes our compliance with our subordinated debt commitment.

Table 10.2 Ì Subordinated Debt Commitment

December 31,

2006 2005

(in millions)

Total on-balance sheet assets and guaranteed PCs and Structured Securities outstanding target(1)(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $37,576 $36,633

Total capital plus qualifying subordinated debt(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42,602 41,831

Surplus(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,026 5,198

(1) Equals the sum of 0.45 percent of outstanding guaranteed PCs and Structured Securities and 4 percent of on-balance sheet assets.

(2) Amounts for 2006 are based on amended reports we submitted to OFHEO in March 2007.

Regulatory Capital Monitoring Framework

In a letter dated January 28, 2004, OFHEO created a framework for monitoring our capital due to our higher

operational risk, including our inability to produce timely Ñnancial statements in accordance with GAAP. The letter directed

that we maintain a mandatory target capital surplus of 30 percent over our minimum capital requirement, subject to certain

conditions and variations; that we submit weekly reports concerning our capital levels; and that we obtain prior approval of

certain capital transactions.

Our failure to meet the mandatory target capital surplus would result in an OFHEO inquiry regarding the reason for

such failure. If OFHEO were to determine that we had acted unreasonably regarding our compliance with the framework,

as set forth in OFHEO's letter, OFHEO could seek to require us to submit a remedial plan or take other remedial steps.

In addition, under this framework, we are required to obtain prior written approval from the Director of OFHEO before

engaging in certain capital transactions, as described above. We must also submit a written report to the Director of

OFHEO after the declaration, but before the payment, of any dividend on our common stock. The report must contain

certain information on the amount of the dividend, the rationale for the payment and the impact on our capital surplus.

This framework will remain in eÅect until the Director of OFHEO determines that it should be modiÑed or expire.

OFHEO's letter indicated that this determination would consider our resumption of timely Ñnancial and regulatory reporting

that complies with GAAP, among other factors.

Table 10.3 summarizes our compliance with the mandatory target capital surplus portion of OFHEO's capital

monitoring framework.

Table 10.3 Ì Mandatory Target Capital Surplus

December 31,

2006 2005

(in millions)

Minimum capital requirement plus 30% add-on(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $33,597 $32,513

Core capital(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 36,170 35,964

Surplus(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,573 3,451

(1) Amounts for 2006 are based on amended reports we submitted to OFHEO in March 2007.

NOTE 11: STOCK-BASED COMPENSATION

We have three stock-based compensation plans under which grants are being made: (a) the ESPP; (b) the 2004 Stock

Compensation Plan, or 2004 Employee Plan; and (c) the 1995 Directors' Stock Compensation Plan, as amended and

restated, or Directors' Plan. Prior to the stockholder approval of the 2004 Employee Plan, employee stock-based

compensation was awarded in accordance with the terms of the 1995 Stock Compensation Plan, or 1995 Employee Plan.

Although grants are no longer made under the 1995 Employee Plan, we currently have awards outstanding under this plan.

We collectively refer to the 2004 Employee Plan and 1995 Employee Plan as the Employee Plans.

Common stock delivered under these plans may consist of authorized but previously unissued shares, treasury stock or

shares acquired in market transactions on behalf of the participants. During 2006, stock-based awards we granted consisted

of stock options and restricted stock units. Such awards, discussed below, are generally forfeitable for at least one year after

the grant date, with vesting provisions contingent upon service requirements.

131 Freddie Mac
Stock options

Stock options granted allow for the purchase of our common stock at an exercise price equal to the fair market value of

our common stock on the grant date. During 2006, the 2004 Employee Plan was amended to change the deÑnition of fair

market value to the closing sales price of a share of common stock from the average of the high and low sales prices,

eÅective for all grants after December 6, 2006. Options generally may be exercised for a period of 10 years from the grant

date, subject to a vesting schedule commencing on the grant date.

Stock options that we previously granted included dividend equivalent rights. Depending on the terms of the grant, the

dividend equivalents may be paid when and as dividends on our common stock are declared. Alternatively, dividend

equivalents may be paid upon exercise or expiration of the stock option. Subsequent to November 30, 2005, dividend

equivalent rights were no longer granted in connection with awards of stock options to grantees to address Internal Revenue

Code Section 409A.

Restricted stock units

A restricted stock unit entitles the grantee to receive one share of common stock at a speciÑed future date. Restricted

stock units do not have voting rights, but do have dividend equivalent rights, which are (a) paid to restricted stock unit

holders who are employees as and when dividends on common stock are declared or (b) accrued as additional restricted

stock units for non-employee members of our board of directors.

Restricted stock

Restricted stock entitles participants to all the rights of a stockholder, including dividends, except that the shares

awarded are subject to a risk of forfeiture and may not be disposed of by the participant until the end of the restriction period

established at the time of grant.

The following is a description of each of our stock-based compensation plans under which grants are currently being

made.

ESPP: We have an ESPP that is qualiÑed under Internal Revenue Code Section 423. Under the ESPP, substantially

all full-time and part-time employees that choose to participate in the ESPP have the option to purchase shares of common

stock at speciÑed dates, with an annual maximum market value of $20,000 per employee as determined on the grant date.

The purchase price is equal to 85 percent of the lower of the average price (average of the daily high and low prices) of the

stock on the grant date or the average price of the stock on the purchase (exercise) date.

At December 31, 2006, the maximum number of shares of common stock authorized for grant to employees totaled

6.8 million shares, of which approximately 0.4 million shares had been issued and approximately 6.4 million shares remained

available for grant. At December 31, 2006, no options to purchase stock were exercisable under the ESPP, as the options to

purchase stock outstanding at year-end become exercisable subsequent to year-end, and are exercised or forfeited during the

subsequent year.

2004 Employee Plan: Under the 2004 Employee Plan, we may grant employees stock-based awards, including stock

options, restricted stock units and restricted stock. In addition, we have the right to impose performance conditions with

respect to these awards. Employees may also be granted stock appreciation rights; however, at December 31, 2006, no stock

appreciation rights had been granted under the 2004 Employee Plan. At December 31, 2006, the maximum number of

shares of common stock authorized for grant to employees in accordance with the 2004 Employee Plan totaled 14.3 million

shares, of which approximately 3.4 million shares had been issued and approximately 10.9 million shares remained

available for grant.

Directors' Plan: Under the Directors' Plan, we are permitted to grant stock options, restricted stock units and

restricted stock to non-employee members of our board of directors. At December 31, 2006, the maximum number of shares

of common stock authorized for grant to members of our board of directors in accordance with the Directors' Plan totaled

2.4 million shares, of which approximately 0.9 million shares had been issued and approximately 1.5 million shares

remained available for grant.

See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,'' for a description of the accounting

treatment for stock-based compensation, including grants under the ESPP, Employee Plans and Directors' Plan.

Estimates used to determine the assumptions noted in the table below are determined as follows:

(a) the expected volatility is based on the historical volatility of the stock over a time period equal to the expected life;

(b) the weighted average volatility is the weighted average of the expected volatility;

(c) the weighted average expected dividend yield is based on the most recent dividend announcement relative to the

grant date and the stock price at the grant date;

132 Freddie Mac
(d) the weighted average expected life is based on historical option exercise experience; and

(e) the weighted average risk-free interest rate is based on the U.S. Treasury yield curve in eÅect at the time of the

grant.

Changes in the assumptions used to calculate the fair value of stock options could result in materially diÅerent fair value

estimates. The actual value of stock options will depend on the market value of our common stock when the stock options

are exercised.

Table 11.1 summarizes the assumptions used in determining the fair values of options granted under our stock-based

compensation plans using a Black-Scholes option-pricing model as well as the weighted average grant-date fair value of

options granted and the total intrinsic value of options exercised.

Table 11.1 Ì Assumptions and Valuations

Employee Stock Purchase Plan Employee Plans and Directors' Plan

2006 2005 2004 2006 2005(1) 2004

(dollars in millions, except share-related amounts)

Assumptions:

Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏ 11.2% to 18.7% 16.8% to 21.1% 15.4% to 20.4% 27.8% to 28.9% 18.4% to 30.3% 30.5% to 32.0%

Weighted average:

VolatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15.7% 19.7% 17.8% 28.7% 30.0% 31.5%

Expected dividend yield ÏÏÏÏÏÏ 2.98% 2.15% 1.85% 3.09% Ì Ì

Expected life ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 months 3 months 3 months 7.1 years 7.4 years 7.0 years

Risk-free interest rate ÏÏÏÏÏÏÏÏ 4.82% 3.20% 1.33% 4.91% 4.23% 3.55%

Valuations:

Weighted average grant-date fair

value of options granted ÏÏÏÏÏÏ $11.20 $11.56 $11.23 $16.78 $26.84 $25.04

Total intrinsic value of options

exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3 $2 $3 $20 $32 $66

(1) The value of the dividend equivalent feature of options for the Employee Plans and Directors' Plan was incorporated into the Black-Scholes model by

using an expected dividend yield of zero percent. To account for a modiÑcation of stock options on November 30, 2005, the dividend equivalent feature

of aÅected stock options for the Employee Plans and Directors' Plan was valued separately. Other assumptions used to value the aÅected stock

options were as follows: (a) expected volatility of 25.4 percent, (b) expected dividend yield of 2.96 percent, (c) expected life of 5.1 years, and (d) riskfree interest rate of 4.34 percent. Subsequent to November 30, 2005, dividend equivalent rights are no longer granted in connection with new awards

of stock options to grantees.

Table 11.2 provides a summary of activity under the ESPP for the year ended December 31, 2006, and those options to

purchase stock that are exercisable at December 31, 2006.

Table 11.2 Ì ESPP Activity

Options to Weighted Average Aggregate

Purchase Weighted Average Remaining Intrinsic

Stock Exercise Price Contractual Term Value

(dollars in millions, except share-related amounts)

Outstanding at January 1, 2006(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 61,584 $52.16

Granted(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 226,266 53.73

Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (222,703) 50.51

Forfeited or expired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (12,249) 51.67

Outstanding at December 31, 2006(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 52,898 58.09 1 month $1

Exercisable at December 31, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì Ì

(1) Weighted average exercise price noted for options to purchase stock granted under the ESPP is calculated based on the average price on the grant date.

Table 11.3 provides a summary of option activity under the Employee Plans and Directors' Plan for the year ended

December 31, 2006, and options exercisable at December 31, 2006.

Table 11.3 Ì Employee Plans and Directors' Plan Option Activity

Weighted Average Aggregate

Stock Weighted Average Remaining Intrinsic

Options Exercise Price Contractual Term Value

(dollars in millions, except share-related amounts)

Outstanding at January 1, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,693,684 $56.20

GrantedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 423,294 60.66

Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (914,368) 42.02

Forfeited or expiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (350,685) 61.38

Outstanding at December 31, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,851,925 58.43 5.76 years $55

Exercisable at December 31, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,706,396 57.17 4.61 years $40

We received cash of $35 million from the exercise of stock options under the Employee Plans and the Directors' Plan

during 2006. We realized a tax beneÑt of $7 million as a result of tax deductions available to us upon the exercise of stock

options under the Employee Plans and the Directors' Plan during 2006. During 2006, we did not pay cash to settle share133 Freddie Mac
based liability awards granted under share-based payment arrangements associated with Employee Plans and the Directors'

Plan. During 2005 and 2004, we paid $1 million and $1 million, respectively, to settle share-based awards.

Table 11.4 provides a summary of activity related to restricted stock units and restricted stock under the Employee

Plans and the Directors' Plan.

Table 11.4 Ì Employee Plans and Directors' Plan Restricted Stock Units and Restricted Stock Activity

Year Ended December 31, 2006

Restricted Weighted Average Weighted Average

Stock Units Grant-Date Fair Value Restricted Stock Grant-Date Fair Value

Outstanding at January 1, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,474,183 $61.28 69,702 $63.57

Granted(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,486,080 64.96 Ì Ì

Lapse of restrictions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (384,649) 61.79 (28,542) 67.64

Forfeited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (171,039) 62.95 Ì Ì

Outstanding at December 31, 2006ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,404,575 63.35 41,160 60.75

(1) During 2006, restricted stock units granted under the Employee Plans and the Directors' Plan were 1,469,047 and 17,033, respectively.

The total fair value of restricted stock units vested during 2006, 2005 and 2004 was $24 million, $42 million and

$10 million, respectively. The total fair value of restricted stock vested during 2006, 2005 and 2004 was $2 million, $5 million

and $15 million, respectively. We realized a tax beneÑt of $9 million as a result of tax deductions available to us upon the

lapse of restrictions on restricted stock units and restricted stock under the Employee Plans and the Directors' Plan during

2006.

Table 11.5 provides information on compensation expense related to stock-based compensation plans.

Table 11.5 Ì Compensation Expense Related to Stock-based Compensation

Year Ended

December 31,

2006 2005 2004

(in millions)

Stock-based compensation expense recorded on our consolidated statements of stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $60 $67 $56

Other stock-based compensation expense(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 2 3

Total stock-based compensation expense(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $63 $69 $59

Tax beneÑt related to compensation expense recognized on our consolidated statements of incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $21 $23 $19

Compensation expense capitalized within Other assets on our consolidated balance sheets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 5 6

(1) For 2006, primarily comprised of dividend equivalents paid on stock options and restricted stock units that have been or are expected to be forfeited.

Also included expense related to share-based liability awards granted under share-based payment arrangements.

(2) Component of Salaries and employee beneÑts expense as recorded on our consolidated statements of income.

As of December 31, 2006, $127 million of compensation expense related to non-vested awards had not yet been

recognized in earnings. This amount is expected to be recognized in earnings over the next four years. During 2006, the

modiÑcation of individual awards, which provided for continued or accelerated vesting, was made to fewer than 20 employees

and resulted in incremental compensation expense of $0.1 million.

NOTE 12: DERIVATIVES

We use derivatives to conduct our risk management activities. We principally use the following types of derivatives:

‚ LIBOR- and the Euro Interbank OÅered Rate, or Euribor-, based interest-rate swaps;

‚ LIBOR- and Treasury-based options (including swaptions);

‚ LIBOR- and Treasury-based exchange-traded futures; and

‚ Foreign-currency swaps.

Our derivative portfolio also includes certain forward purchase and sale commitments and other contractual agreements,

including credit derivatives and swap guarantee derivatives in which we guarantee the sponsor's or the borrower's

performance as a counterparty on certain interest-rate swaps.

Hedging Activity

Derivative instruments are reported at their fair value and generally netted by counterparty (provided that a legally

enforceable master netting agreement exists), as either Derivative assets, at fair value, or Derivative liabilities, at fair value,

on our consolidated balance sheets. See ""NOTE 17: CONCENTRATION OF CREDIT AND OTHER RISKS'' for

further information related to our derivative counterparties.

134 Freddie Mac
No Hedge Designation

At December 31, 2006, 2005 and 2004, most of our derivative portfolio was not designated in hedge accounting

relationships. We record changes in the fair value of derivatives not in hedge accounting relationships as Derivative gains

(losses) on our consolidated statements of income. Any associated interest received or paid is recognized on an accrual

basis and also recorded in Derivative gains (losses) on our consolidated statements of income.

At the beginning of the second quarter of 2004, we determined that substantially all pay-Ñxed swaps and other

derivatives that previously had been in cash Öow hedge accounting relationships no longer met the hedged item shared risk

exposure requirement and hedge eÅectiveness assessment as required by SFAS 133. Consequently, we discontinued hedge

accounting treatment for these relationships, resulting in the movement of pay-Ñxed swaps with a notional balance of

approximately $108 billion from the cash Öow hedge designation to no hedge designation. We also voluntarily discontinued

hedge accounting treatment for a signiÑcant amount of our receive-Ñxed swaps eÅective November 1, 2004, resulting in the

movement of receive-Ñxed swaps with a notional balance of approximately $50 billion from the fair value hedge designation

to no hedge designation. At the beginning of the second quarter of 2005, we voluntarily discontinued hedge accounting

treatment for all new forward purchase commitments and the majority of our new commitments to forward sell mortgagerelated securities. In addition, eÅective March 31, 2006, we discontinued hedge accounting treatment for all derivatives,

with the exception of certain derivatives related to foreign-currency debt issuances and certain commitments to forward sell

mortgage-related securities. The discontinuation resulted in the movement of receive-Ñxed swaps with a notional amount

of approximately $58.8 billion from the fair value hedge designation to no hedge designation and the movement of foreigncurrency swaps with a notional amount of approximately $550 million from the cash Öow hedge designation to no hedge

designation. Hedge accounting treatment for the remaining derivatives related to foreign-currency debt issuances was

voluntarily discontinued on December 1, 2006, resulting in a movement of receive-Ñxed swaps and foreign-currency swaps

with a notional amount of approximately $56 billion from the fair value hedge designation to no hedge designation. We

believe that our voluntary discontinuation of hedge accounting treatment for these derivatives assists us in addressing the

operational complexity and related control remediation eÅorts that would otherwise be needed to ensure ongoing compliance

with the requirements for obtaining and maintaining hedge accounting treatment. We may consider implementing new

hedge accounting strategies in the future.

Fair Value Hedges

Fair value hedges represented hedges of exposure to foreign-currency Öuctuations and changes in the fair value of a

recognized liability. We primarily used interest-rate swaps and foreign-currency swaps to hedge against the changes in fair

value of Ñxed-rate debt due to changes in benchmark interest rates (either LIBOR or Euribor), or foreign-currency

Öuctuations, or a combination of both.

For a derivative accounted for in a fair value hedge relationship, we reported changes in the fair value of the derivative

as Hedge accounting gains (losses) on our consolidated statements of income along with the oÅsetting changes in the fair

value of the hedged item attributable to the risk being hedged. Any diÅerences arising from fair value changes that were not

exactly oÅset resulted in hedge ineÅectiveness. Hedge accounting gains (losses) varied from period to period based on the

notional amount of derivatives accounted for in hedge accounting relationships and the extent of hedge ineÅectiveness.

Table 12.1 summarizes certain gains (losses) recognized related to our hedge accounting categories.

Table 12.1 Ì Hedge Accounting Categories Information

Year Ended December 31,

2006 2005 2004

(in millions)

Fair value hedges

Hedge ineÅectiveness recognized in Hedge accounting gains (losses) Ì pre-tax(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2 $ 22 $742

Cash Öow hedges

Hedge ineÅectiveness recognized in Hedge accounting gains (losses) Ì pre-tax(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 1

Net pre-tax gains (losses) resulting from the determination that it was probable that forecasted transactions would

not occur ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (25) 2

(1) No amounts have been excluded from the assessment of eÅectiveness.

Cash Flow Hedges

Cash Öow hedges represent hedges of exposure to the variability in the cash Öows of a variable-rate or foreign-currency

denominated instrument or related to a forecasted transaction. We used interest-rate swaps, foreign-currency swaps and

forward purchase and sale commitments to hedge the changes in cash Öows associated with the forecasted issuances of debt,

forecasted purchase or sale of mortgage-related assets, and foreign-currency Öuctuations. At December 31, 2006, the only

derivatives accounted for as cash Öow hedges were certain commitments to forward sell mortgage-related securities with a

total notional amount of $70 million.

135 Freddie Mac
For a derivative accounted for as a cash Öow hedge, changes in fair value are reported in AOCI, net of taxes, on our

consolidated balance sheets to the extent the hedge is eÅective. The remaining ineÅective portion of changes in fair value is

reported as Hedge accounting gains (losses) on our consolidated statements of income. As shown in Table 12.2 below, the

total AOCI, net of taxes, related to cash Öow hedge relationships was a loss of $5,033 million at December 31, 2006,

primarily composed of deferred net losses on closed cash Öow hedges. Closed cash Öow hedges involve derivatives that have

been terminated or are no longer designated as cash Öow hedges. Fluctuations in prevailing market interest rates have no

impact on the deferred portion of AOCI relating to losses on closed cash Öow hedges.

Over the 12 months beginning January 1, 2007, we estimate that approximately $953 million of deferred losses in

AOCI, net of taxes, will be reclassiÑed into earnings. The maximum remaining length of time over which we have hedged

the exposure related to the variability in future cash Öows on forecasted transactions, primarily interest payments on

forecasted debt issuances, is 27 years. However, over 70 percent and 90 percent of the AOCI, net of taxes, balance relating

to cash Öow hedges at December 31, 2006 is linked to forecasted transactions occurring in the next 5 and 10 years,

respectively. The occurrence of forecasted transactions may be satisÑed by either periodic issuances of short-term debt over

the required time period or longer-term debt, such as Reference Notes» securities.

Table 12.2 presents the changes in AOCI, net of taxes, related to derivatives designated as cash Öow hedges. Net change

in fair value related to cash Öow hedging activities, net of tax, represents the net change in the fair value of the derivatives

that were designated as cash Öow hedges, after the eÅects of our statutory tax rate of 35 percent, to the extent the hedges

were eÅective. Net reclassiÑcations of losses to earnings, net of tax, represents the AOCI amount, after the eÅects of our

statutory tax rate of 35 percent, that was recognized in earnings as the originally hedged forecasted transactions aÅected

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 entire deferred gain or loss associated with the hedge related to the forecasted

transaction would be reclassiÑed into earnings immediately.

Table 12.2 Ì AOCI, Net of Taxes, Related to Cash Flow Hedge Relationships

Year Ended December 31,

2006 2005 2004

(in millions)

Beginning balance(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(6,287) $(7,924) $(7,837)

Net change in fair value related to cash Öow hedging activities, net of tax (beneÑt) expense of $(5),

$27 and $(1,089), respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (9) 50 (2,021)

Net reclassiÑcations of losses to earnings, net of tax beneÑt of $680, $855 and $1,042, respectively ÏÏÏÏÏÏ 1,263 1,587 1,934

Ending balance(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(5,033) $(6,287) $(7,924)

(1) Represents the eÅective portion of the fair value of open derivative contracts (i.e., net unrealized gains and losses) and net deferred gains and losses on

closed (i.e., terminated or redesignated) cash Öow hedges.

NOTE 13: LEGAL CONTINGENCIES

We are involved as a party to a variety of legal 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 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.

We are subject to various other legal proceedings, including regulatory investigations and administrative and civil

litigation, arising from the restatement of our previously issued consolidated Ñnancial statements for the years 2000 and 2001

and the Ñrst three quarters of 2002 and the revision of fourth quarter and full-year consolidated Ñnancial statements for 2002

(collectively referred to as the ""restatement''). In the Ñrst quarter of 2005, we recorded a $339 million expense related to

our litigation reserves for legal settlements, including our settlement of the securities class action lawsuits, the shareholder

derivative lawsuits and the Federal Election Commission, or FEC, investigation, discussed below. We maintain reserves for

the amount of the estimated probable loss in connection with the remaining legal proceedings related to the restatement.

As of the Ñrst quarter of 2006, we recorded a $25 million reduction in our reserves for this loss contingency. Litigation and

claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. Any additional losses that

might result from the adverse resolution of any of the remaining legal proceedings could be greater than our current

reserves.

136 Freddie Mac
SEC Investigation. In June 2003, the SEC initiated a formal investigation of Freddie Mac in connection with the

restatement. On August 18, 2004, we announced that we had received a ""Wells Notice'' from the staÅ of the SEC. The

Wells Notice advised us that the SEC staÅ is considering recommending that the SEC initiate a civil injunctive action

against us for possible violations of federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934

and the SEC's Rule 10b-5, as well as Sections 17(a)(1), (2) and (3) of the Securities Act of 1933. The Wells Notice also

indicated that the SEC staÅ may seek a permanent injunction and a civil money penalty in connection with the

contemplated action. We continue to cooperate fully with the SEC's investigation.

Securities Class Action Lawsuits. In June 2003 and thereafter, securities class action lawsuits were brought in against

us and certain former executive oÇcers in connection with the restatement and eventually in the U.S. District Court for the

Southern District of New York. The plaintiÅs claimed that the defendants improperly managed earnings to create a

misleading impression of steady earnings by Freddie Mac, that they engaged in a number of improper transactions that

violated GAAP and that they made false and misleading statements regarding the same. On October 26, 2006, the court

approved a settlement of the securities class action lawsuits, as well as the shareholder derivative actions described below.

The settlement of these actions included a cash payment of $410 million. The settlement does not include any admission of

wrongdoing by the company.

Shareholder Derivative Lawsuits. Two shareholder derivative lawsuits were Ñled during 2003 against certain former

and current executives and, in one of the suits, certain former and current members of the board of directors and Ñve

counterparties. The plaintiÅs alleged claims for breach of Ñduciary duties, indemniÑcation, waste of corporate assets, unjust

enrichment and aiding and abetting breach of Ñduciary duties in connection with the restatement. Both cases were

ultimately assigned to the same judge in New York who handled the securities class action lawsuits described above. As

described above, on October 26, 2006, the court approved a settlement of both shareholder derivative actions, as well as the

securities class action lawsuits. The settlement of these cases was based in part on corporate governance reforms we

instituted under our current management.

ERISA Lawsuits. Two class action lawsuits were Ñled in 2003 in the U.S. District Court for the Southern District of

Ohio against us, certain former executives, a former member of our board of directors, and our Retirement Committee

alleging violations of the Employee Retirement Income Security Act, or ERISA. On March 1, 2007, the court approved a

settlement of the ERISA lawsuits, which resulted in the closure of the Department of Labor investigation described below.

The settlement of these actions includes a payment of $4.65 million, which will be fully covered by insurance, and certain

non-monetary relief, including an agreement to appoint an independent Ñduciary to oversee the Freddie Mac Stock Fund,

one of the investment options under our Thrift/401(k) Savings Plan. The settlement does not include any admission of

wrongdoing by the company.

Department of Labor Investigation. In July 2003, the Department of Labor began an investigation of our

Thrift/401(k) Savings Plan in relation to the restatement. We announced on August 21, 2006, that in anticipation of the

proposed settlement of the ERISA litigation, the Labor Department informed the company that it closed its investigation of

the Thrift/401(k) Savings Plan.

OFHEO Proceedings. In December 2003, OFHEO Ñled administrative notices of charges against us and

Messrs. Brendsel and Clarke, two of our former executive oÇcers. In its charge against us, OFHEO sought to have us take

certain actions in connection with these individuals' salaries and compensation as well as their termination status with the

company. On September 9, 2005, we entered into a stipulated consent order with OFHEO to settle the administrative

notice of charges against us. Under the terms of the consent order, we agreed to produce certain documents and make

available any current employees that OFHEO requests to interview in connection with its ongoing administrative actions

against Messrs. Brendsel and Clarke, and to take certain additional steps following the administrative actions against the

former oÇcers in accordance with any Ñnal order resulting in those actions. The text of this consent order and a related

production agreement are available on OFHEO's website at www.ofheo.gov. In agreeing to the consent order, we made no

admission regarding any wrongdoing by the company. Based on the consent order, OFHEO has dismissed the administrative

notice of charges against us and we have produced certain documents for OFHEO's review and made numerous current

employees available for interviews at OFHEO's request.

U.S. Attorney's Investigation. In June 2003, the U.S. Attorney's OÇce in Alexandria, Virginia commenced an

investigation of us related to the restatement. At present, we do not believe that the U.S. Attorney's OÇce will take any

adverse action against the company related to the restatement given the passage of time and the fact that no action has been

taken to date. It is the policy of the U.S. Attorney's OÇce not to comment on investigations or announce when an

investigation is closed without action. Accordingly, we cannot make any assurances that this matter has been resolved.

Antitrust Lawsuits. Consolidated lawsuits were Ñled against Fannie Mae and us in the U.S. District Court for the

District of Columbia, originally Ñled on January 10, 2005, alleging that both companies conspired to establish and maintain

137 Freddie Mac
artiÑcially high guarantee fees. The complaint covers the period January 1, 2001 to the present and asserts a variety of claims

under federal and state antitrust laws, as well as claims under consumer-protection and similar state laws. The plaintiÅs seek

injunctive relief, unspeciÑed damages (including treble damages with respect to the antitrust claims and punitive damages

with respect to some of the state claims) and other forms of relief. We Ñled a motion to dismiss the action and are awaiting a

ruling from the court. At present, it is not possible for us to predict the probable outcome of the consolidated lawsuit or any

potential impact on our business, Ñnancial condition or results of operations.

Other Inquiries. We receive inquiries from the Internal Revenue Service, or IRS, in connection with its regular audits

of our tax returns for prior years, some of which relate to matters connected with the restatement. We continue to respond to

these inquiries. See ""NOTE 14: INCOME TAXES'' for more information.

FEC Investigation. In March 2004, we provided certain information to the FEC concerning compliance with federal

election laws. The FEC conducted an investigation into this matter and, on April 18, 2006, we announced we had entered

into a conciliation agreement with the FEC. Under the terms of the conciliation agreement, we agreed to pay a civil penalty

of $3.8 million and to cease and desist from engaging in activities that violate speciÑed provisions of the Federal Election

Campaign Act relating to prohibitions on the use of corporate resources for political fundraising.

NOTE 14: INCOME TAXES

We are exempt from state and local income taxes. Table 14.1 presents the components of our provision for income

taxes.

Table 14.1 Ì Provision for Income Taxes

Year Ended December 31,

2006 2005 2004

(in millions)

Current tax provision (beneÑt) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 966 $ 1,819 $1,136

Deferred tax provision (beneÑt) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,074) (1,452) (346)

Total provision (beneÑt) for income taxes(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (108) $ 367 $ 790

(1) Does not reÖect (a) the deferred tax eÅects of unrealized (gains) losses on available-for-sale securities, net (gains) losses related to the eÅective

portion of derivatives designated in cash Öow hedge relationships, and certain changes in our deÑned beneÑt plans which are reported as part of AOCI,

(b) certain stock-based compensation tax eÅects reported as part of additional paid-in capital, and (c) the tax eÅect of cumulative eÅect of change in

accounting principles.

Table 14.2 summarizes our deferred tax assets and liabilities.

Table 14.2 Ì Deferred Tax Assets and (Liabilities)

December 31,

2006 2005

(in millions)

Deferred tax assets:

Deferred fees related to securitizations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,870 $ 1,779

Credit related items and reserve for loan lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 108 61

Employee compensation and beneÑt plans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 148 171

Cash Öow hedge deferrals and unrealized (gains) losses related to available-for-sale securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,237 4,724

Other items, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 36

Total deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6,363 6,771

Deferred tax liabilities:

Premium and discount amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,320) (1,426)

Basis diÅerences related to assets held-for-investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (357) (560)

Basis diÅerences related to derivative instrumentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1,034) (1,779)

Other items, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (52) Ì

Total deferred tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2,763) (3,765)

Net deferred tax assets and (liabilities)(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,600 $ 3,006

(1) Included in Other assets on our consolidated balance sheets.

138 Freddie Mac
Table 14.3 reconciles the statutory federal tax rate to the eÅective tax rate.

Table 14.3 Ì Reconciliation of Statutory to EÅective Tax Rate

Year Ended December 31,

2006 2005 2004

Statutory corporate rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35.0% 35.0% 35.0%

Tax-exempt interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (12.2) (8.7) (4.7)

Tax credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (21.9) (14.3) (7.3)

Provision related to tax contingencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (6.4) 1.9 (2.0)

Penalties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 0.1 Ì

OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.4 0.4 0.2

EÅective rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5.1)% 14.4% 21.2%

Our negative eÅective tax rate in 2006 and the decrease in our eÅective tax rate over the past three years is primarily

due to the decline in pre-tax income, the year-over-year increases in tax credits related to our investments in low-income

housing tax credit partnerships and interest earned on tax-exempt housing-related securities. In 2006, our negative eÅective

tax rate also reÖects reductions in our tax reserves as discussed below.

Impact of tax issues. The IRS has a policy to examine the income tax returns of large corporate taxpayers, including

us, generally every year. We believe that an adequate provision has been made for contingencies related to all income taxes

and related interest and potential penalties in accordance with SFAS 5. However, making a provision for such

contingencies requires signiÑcant judgment. The ultimate outcome of these tax contingencies is subject to uncertainties,

diÇcult to predict and could result in a tax beneÑt or tax provision that could be material to our quarterly or annual results of

operations. We do not believe that liabilities arising from these matters, if any, will have a material adverse eÅect on our

consolidated Ñnancial condition.

Tax Years 1985 through 1997. We are in litigation in the U.S. Tax Court, or Court, to contest income tax deÑciencies

asserted by the IRS for years 1985 through 1997. The principal matters in controversy in the case involve questions of tax

law as applied to our transition from non-taxable to taxable status in 1985 and primarily involve the amortization of two

types of intangible assets:

‚ Favorable Financing. A number of Ñnancing arrangements where the contract rates of interest were less than the

market rates of interest as of January 1, 1985 due to an increase in interest rates since the date on which we had

entered into the respective arrangements; and,

‚ Customer Relationships. Our business relationships with a substantial number of mortgage originating institutions

that sold mortgages to us on a regular basis.

In July 2006, the Court ruled favorably for Freddie Mac on the questions of value and useful life of Favorable

Financing. In response to this decision, we recorded a $108 million reduction in our tax contingency reserves as of Ñrst

quarter 2006. The Court's rulings to date in the case are subject to appeal by the parties upon Ñnal resolution by the Court. If

the IRS were to appeal the July 2006 or any prior Court decisions and any adverse rulings resulted, we may reconsider our

reserves.

We are in discussions with the IRS regarding settlement of the Customer Relationships controversy. The favorable

resolution of this controversy would represent a gain contingency which we have not recorded.

In November 2006, Freddie Mac entered into a settlement with the IRS that included resolution of several other

controversies in the case, including a controversy regarding the timing for recognition of certain Management and guarantee

fees. In view of the settlement, we recorded a $50 million reduction in our tax contingency reserves as of Ñrst quarter 2006.

Tax Years 1998 through 2005. The IRS has completed its regular examination of our 1998 through 2002 tax returns,

but could raise additional issues. As a result of the regular examination, the principal matter in controversy involves

questions of timing and potential penalties regarding our tax accounting method for certain hedging transactions. We believe

the risk of loss due to the assertion of penalties by the IRS related to our tax accounting methods is remote. As to the

questions of timing, we believe that an adequate provision in accordance with SFAS 5 has been made for contingencies

related to income taxes and related interest as described under ""Impact of tax issues'' above.

The tax years 2003 to 2005 are being examined by the IRS.

NOTE 15: EMPLOYEE BENEFITS

DeÑned BeneÑt Plans

We maintain a tax-qualiÑed, funded deÑned beneÑt pension plan, or Pension Plan, covering substantially all of our

employees. Pension Plan beneÑts are based on an employee's years of service and highest average compensation, up to legal

plan limits, over any consecutive 36 months of employment. Pension Plan assets are held in trust and the investments consist

139 Freddie Mac
primarily of funds comprised of listed stocks and corporate bonds. In addition to our Pension Plan, we maintain a

nonqualiÑed, unfunded deÑned beneÑt pension plan for our oÇcers, referred to as our Supplemental Executive Retirement

Plan, or SERP. The related retirement beneÑts for our SERP are paid from our general assets. Our qualiÑed and

nonqualiÑed deÑned beneÑt pension plans are collectively referred to as deÑned beneÑt pension plans.

We maintain a deÑned beneÑt postretirement health care plan, or Retiree Health Plan, that generally provides

postretirement health care beneÑts on a contributory basis to retired employees age 55 or older who rendered at least 10 years

of service (Ñve years of service if the employee is eligible to retire prior to March 1, 2007) and who, upon separation or

termination, immediately elected to commence beneÑts under the Pension Plan in the form of an annuity. Our Retiree

Health Plan is currently unfunded and the beneÑts are paid from our general assets. This plan and our deÑned beneÑt

pension plans are collectively referred to as deÑned beneÑt plans.

For Ñnancial reporting purposes, we use a September 30 valuation measurement date for all of our deÑned beneÑt plans.

See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' for further information regarding the

pending change to our measurement date.

We are required to accrue the estimated cost of retiree beneÑts as employees render the services necessary to earn their

pension and postretirement health beneÑts. Our pension and postretirement health care costs related to these deÑned beneÑt

plans for 2006, 2005 and 2004 presented in the following tables were calculated using assumptions as of September 30,

2005, 2004 and 2003, respectively. The funded status of our deÑned beneÑt plans for 2006, 2005 and 2004 presented in the

following tables was calculated using assumptions as of September 30, 2006, 2005 and 2004, respectively.

Table 15.1 below shows the changes in our beneÑt obligations and fair value of plan assets using a September 30

valuation measurement date for amounts recognized on our consolidated balance sheets at December 31, 2006 and 2005,

respectively.

Table 15.1 Ì Obligation and Funded Status of our DeÑned BeneÑt Plans

Postretirement

Pension BeneÑts Health BeneÑts

2006 2005 2006 2005

(in millions)

Change in beneÑt obligation:

BeneÑt obligation at October 1 (prior year) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $457 $ 385 $ 110 $ 102

Service cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 31 27 9 9

Interest costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26 22 6 6

Net actuarial loss (gain) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (1) 28 (3) (6)

BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (9) (5) (1) (1)

BeneÑt obligation at September 30 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 504 457 121 110

Change in plan assets:

Fair value of plan assets at October 1 (prior year) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $333 $ 260

Actual return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 31 29

Employer contributions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 146 49

BeneÑts paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (9) (5)

Fair value of plan assets at September 30 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 501 333

Funded status at September 30 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (3) $(124) $(121) $(110)

Amounts recognized on our consolidated balance sheets at December 31:

Other assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 42 $ 29 $ Ì $ Ì

Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (45) (28) (121) (84)

AOCI, net of taxes related to deÑned beneÑt plans:

Net actuarial loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 72 $ 1 $ 17 $ Ì

Prior service cost (credit) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 Ì (3) Ì

Total AOCI, net of taxes(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 73 $ 1 $ 14 $ Ì

(1) These amounts represent a reduction to AOCI.

The amount included in AOCI, net of taxes, arising from a change in the minimum pension liability was a loss of

$2 million for the year ended December 31, 2006, and a gain of $7 million for the year ended December 31, 2005.

The accumulated beneÑt obligation for all deÑned beneÑt pension plans was $362 million and $316 million at

September 30, 2006 and 2005, respectively. The accumulated beneÑt obligation represents the actuarial present value of

future expected beneÑts attributed to employee service rendered before the measurement date and based on employee

service and compensation prior to that date.

140 Freddie Mac
Table 15.2 provides additional information for our deÑned beneÑt pension plans. The aggregate accumulated beneÑt

obligation and fair value of plan assets are disclosed as of September 30, 2006, with the projected beneÑt obligation included

for illustrative purposes.

Table 15.2 Ì Additional Information for DeÑned BeneÑt Pension Plans

2006 2005

Pension Pension

Plan SERP Total Plan SERP Total

(in millions)

Projected beneÑt obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $458 $ 46 $504 $416 $ 41 $457

Fair value of plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $501 $ Ì $501 $333 $ Ì $333

Accumulated beneÑt obligationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 329 33 362 288 28 316

Fair value of plan assets over (under) accumulated beneÑt obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $172 $(33) $139 $ 45 $(28) $ 17

The measurement of our beneÑt obligations includes assumptions about the rate of future compensation increases

included in Table 15.3 below. For the 2006 and 2005 plan years for our deÑned beneÑt pension plans, we reÑned our

assumptions related to the rate of future compensation increase used to determine our beneÑt obligations to include

assumptions that designate diÅerent compensation rate increases for participants based on their age.

Table 15.3 Ì Weighted Average Assumptions Used to Determine Projected and Accumulated BeneÑt Obligations

Postretirement

Pension BeneÑts Health BeneÑts

September 30, September 30,

2006 2005 2006 2005

Discount rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6.00% 5.75% 6.00% 5.75%

Rate of future compensation increase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5.10% to 6.50% 5.10% to 6.50% Ì Ì

Table 15.4 presents the components of the net periodic beneÑt cost with respect to pension and postretirement health

care beneÑts for the years ended December 31, 2006, 2005 and 2004. Net periodic beneÑt cost is included in Salaries and

employee beneÑts on our consolidated statements of income.

Table 15.4 Ì Net Periodic BeneÑt Cost Detail

Postretirement

Pension BeneÑts Health BeneÑts

Year Ended December 31, Year Ended December 31,

2006 2005 2004 2006 2005 2004

(in millions)

Net periodic beneÑt cost detail:

Service costÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 31 $ 27 $ 24 $ 9 $ 9 $10

Interest cost on beneÑt obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26 22 20 6 6 6

Expected return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (24) (18) (16) Ì Ì Ì

Recognized net (gain) loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 5 7 2 3 5

Recognized prior service cost (credit)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 1 Ì (1) (1) (1)

Net periodic beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 39 $ 37 $ 35 $16 $17 $20

Table 15.5 presents the changes in AOCI, net of taxes, related to our deÑned beneÑt plans recorded to AOCI

throughout the year, after the eÅects of our statutory tax rate of 35 percent.

Table 15.5 Ì AOCI, Net of Taxes, Related to DeÑned BeneÑt Plans

Year Ended

December 31, 2006

(in millions)

DeÑned beneÑt plans:

Minimum pension liability:

Balance, at December 31, 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (1)

2006 activity(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (2)

Adjustment to initially apply SFAS 158(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (84)

DeÑned beneÑt plans, at December 31, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(87)

(1) Net of tax (beneÑt) of $(1) million for the year ended December 31, 2006.

(2) Net of tax (beneÑt) of $(45) million for the year ended December 31, 2006.

141 Freddie Mac
Table 15.6 below includes the assumptions used in the measurement of our net periodic beneÑt cost.

Table 15.6 Ì Weighted Average Assumptions Used to Determine Net Periodic BeneÑt Cost

Postretirement

Pension BeneÑts Health BeneÑts

Year Ended December 31, Year Ended December 31,

2006 2005 2004 2006 2005 2004

Discount rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5.75% 5.75% 6.00% 5.75% 5.75% 6.00%

Rate of future compensation increase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5.10% to 6.50% 4.50% 4.50% Ì Ì Ì

Expected long-term rate of return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.25% 7.00% 7.00% Ì Ì Ì

For the 2006 and 2005 beneÑt obligations, we determined the discount rate using a yield curve consisting of spot interest

rates at half-year increments for each of the next 30 years, developed with pricing and yield information from high-quality

bonds. The future beneÑt plan cash Öows were then matched to the appropriate spot rates and discounted back to the

measurement date. Finally, a single equivalent discount rate was calculated that, when applied to the same cash Öows, results

in the same present value of the cash Öows as of the measurement date. For 2004, we used the Moody's Aa Corporate Bond

Rate Index as a basis for selecting the discount rate shown above.

The expected long-term rate of return on plan assets was estimated using a portfolio return calculator model. The model

considered the historical returns and the future expectations of returns for each asset class in our deÑned beneÑt plans in

conjunction with our target investment allocation to arrive at the expected rate of return.

The assumed health care cost trend rates used in measuring the accumulated postretirement beneÑt obligation as of

September 30, 2006 are 10 percent in 2007, gradually declining to an ultimate rate of 5 percent in 2011 and remaining at that

level thereafter.

Table 15.7 sets forth the eÅect on the accumulated postretirement beneÑt obligation for health care beneÑts as of

September 30, 2006, and the eÅect of the service cost and interest cost components of the net periodic postretirement health

beneÑt cost that would result from a 1 percent increase or decrease in the assumed health care cost trend rate.

Table 15.7 Ì Selected Data Regarding our Retiree Medical Plan

One Percent One Percent

Increase Decrease

(in millions)

EÅect on the accumulated postretirement beneÑt obligation for health care beneÑtsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $28 $(22)

EÅect on the service and interest cost components of the net periodic postretirement health beneÑt cost ÏÏÏÏÏÏÏÏÏ 4 (3)

Plan Assets

Table 15.8 sets forth our Pension Plan asset allocations, based on fair value, at September 30, 2006 and 2005, and target

allocation by asset category.

Table 15.8 Ì Pension Plan Assets by Category

Plan Assets at

September 30, Target

Asset Category Allocation 2006 2005

Equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 65.0% 49.6% 55.9%

Debt securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35.0 25.9 29.4

Other(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 24.5 14.7

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100.0% 100.0% 100.0%

(1) Consists of cash contributions made on September 29, 2006 and September 30, 2005, respectively, which were not fully invested by September 30th of

that year.

The Pension Plan's retirement investment committee has Ñduciary responsibility for establishing and overseeing the

investment policies and objectives of our Pension Plan. The Pension Plan's retirement investment committee reviews the

appropriateness of our Pension Plan's investment strategy on an ongoing basis. Our Pension Plan employs a total return

investment approach whereby a diversiÑed blend of equities and Ñxed income investments is used to maximize the long-term

return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan

characteristics, such as business and Ñnancial characteristics, demographics, and actuarial and company funding policies.

Furthermore, equity investments are diversiÑed across U.S. and non-U.S. listed companies with small and large

capitalizations. Derivatives may be used to gain market exposure in an eÇcient and timely manner; however, derivatives may

not be used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured

142 Freddie Mac
and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and

periodic asset and liability studies.

Our Pension Plan assets did not include any direct ownership of our securities at September 30, 2006 and 2005.

Cash Flows Related to DeÑned BeneÑt Plans

Our general practice is to contribute to our Pension Plan an amount equal to at least the minimum required

contribution, if any, but no more than the maximum amount deductible for federal income tax purposes each year. During

2006, we made two contributions totaling $143 million to our Pension Plan compared to one contribution totaling

$48 million during 2005. The increase in contributions made to our Pension Plan was in response to the increase in taxdeductible contributions allowed under the Pension Protection Act passed in August 2006. We have not yet determined

whether a contribution to our Pension Plan is required for 2007.

In addition to the Pension Plan contributions noted above, we paid $3 million during 2006 and $1 million during 2005 in

beneÑts under our SERP. Allocations under our SERP, as well as our Retiree Health Plan, are in the form of beneÑt

payments, as these plans are required to be unfunded.

Table 15.9 sets forth estimated future beneÑt payments expected to be paid for our deÑned beneÑt plans. The expected

beneÑts are based on the same assumptions used to measure our beneÑt obligation at September 30, 2006.

Table 15.9 Ì Estimated Future BeneÑt Payments

Postretirement

Pension BeneÑts Health BeneÑts

(in millions)

2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 7 $ 2

2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 2

2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 2

2010 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11 3

2011 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 3

Years 2012-2016ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 108 25

DeÑned Contribution Plans

Our Thrift/401(k) Savings Plan, or Savings Plan, is a tax-qualiÑed deÑned contribution pension plan oÅered to all

eligible employees. Employees are permitted to contribute from 1 percent to 25 percent of their eligible compensation to the

Savings Plan, subject to limits set by the Internal Revenue Code. We match employees' contributions up to 6 percent of

their eligible compensation per pay period; the percentage matched depends upon the employee's length of service.

Employee contributions and our matching contributions are immediately vested. We also have discretionary authority to

make additional contributions to our Savings Plan that are allocated to each eligible employee, based on the employee's

eligible compensation. Employees become vested in our discretionary contributions after 5 years of service. In addition to

our Savings Plan, we maintain a non-qualiÑed deÑned contribution plan for our oÇcers, designed to make up for beneÑts lost

due to limitations on eligible compensation imposed by the Internal Revenue Code and to make up for deferrals of eligible

compensation under our Executive Deferred Compensation Plan. We incurred costs of $34 million, $31 million and

$29 million for the years ended December 31, 2006, 2005 and 2004, respectively, related to these plans. These expenses were

included in Salaries and employee beneÑts on our consolidated statements of income.

Executive Deferred Compensation Plan

Our Executive Deferred Compensation Plan is an unfunded, non-qualiÑed plan that allows certain key employees to

elect to defer substantially all or a portion of their annual salary and cash bonus, and certain key management employees to

defer the settlement of restricted stock units received from us, as well as substantially all or a portion of their annual salary

and cash bonus, for any number of years speciÑed by the employee, but under no circumstances may the period elected

exceed his or her life expectancy. During 2005, we amended the plan to modify certain provisions to address Internal

Revenue Code Section 409A as a result of the issuance of proposed regulations and other guidance. Distributions are paid

from our general assets. We record a liability equal to the accumulated deferred salary, cash bonus and accrued interest as

set forth in the plan, net of any related distributions made to plan participants. We recognize expense equal to the interest

accrued on deferred salary and bonus throughout the year. Expense associated with unvested deferred restricted stock units

is recognized as part of stock-based compensation.

NOTE 16: FAIR VALUE DISCLOSURES

The supplemental consolidated fair value balance sheets in Table 16.1 present our estimates of the fair value of our

recorded Ñnancial assets and liabilities and oÅ-balance sheet Ñnancial instruments at December 31, 2006 and 2005. Our

consolidated fair value balance sheets include the estimated fair values of Ñnancial instruments recorded on our

consolidated balance sheets prepared in accordance with GAAP, as well as oÅ-balance sheet Ñnancial instruments that

143 Freddie Mac
represent our assets or liabilities that are not recorded on our GAAP consolidated balance sheets. These oÅ-balance sheet

items predominantly consist of: (a) the unrecognized Guarantee asset and Guarantee obligation associated with our PCs

issued through our Guarantor Swap program prior to the implementation of FIN 45, (b) certain commitments to purchase

mortgage loans and (c) certain credit enhancements on manufactured housing asset-backed securities. The fair value

balance sheets also include certain assets and liabilities that are not Ñnancial instruments (such as property and equipment

and real estate owned, which are included in Other assets) at their carrying value in accordance with GAAP. The valuations

of Ñnancial instruments on our consolidated fair value balance sheets are in accordance with GAAP fair value guidelines

prescribed by SFAS No. 107, ""Disclosures about Fair Value of Financial Instruments,'' and other relevant pronouncements.

Table 16.1 Ì Consolidated Fair Value Balance Sheets(1)

December 31,

2006 2005

Carrying Fair Carrying Fair

Amount(2) Value Amount(2) Value

(in billions)

Assets

Mortgage loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 65.6 $ 65.4 $ 61.4 $ 62.3

Mortgage-related securities excluding PC residuals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 634.3 634.3 647.4 647.4

PC residuals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.6 0.6 0.6 0.6

Retained portfolio ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 700.5 700.3 709.4 710.3

Cash and cash equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11.4 11.4 10.5 10.5

Investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 45.6 45.6 42.2 42.2

Securities purchased under agreements to resell and Federal funds soldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23.0 23.0 15.2 15.2

Derivative assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.9 7.9 7.1 7.1

Guarantee asset(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6.1 6.4 5.1 5.6

Other assets(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18.6 16.7 16.7 14.3

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $813.1 $811.3 $806.2 $805.2

Liabilities and minority interests

Total debt securities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $753.9 $752.3 $748.8 $747.0

Guarantee obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7.1 4.7 5.5 3.7

Derivative liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.2 0.2 0.6 0.6

Reserve for guarantee losses on PCs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.4 Ì 0.3 Ì

Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22.7 21.8 22.9 22.0

Minority interests in consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.5 0.5 0.9 1.0

Total liabilities and minority interests ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 784.8 779.5 779.0 774.3

Net assets attributable to stockholders

Preferred stockholders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6.1 5.8 4.6 4.1

Common stockholders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22.2 26.0 22.6 26.8

Total net assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28.3 31.8 27.2 30.9

Total liabilities and net assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $813.1 $811.3 $806.2 $805.2

(1) 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 signiÑcantly from the fair values presented.

(2) Carrying amounts equal the amounts reported on our GAAP consolidated balance sheets.

(3) The fair value of the Guarantee asset reported exceeds the carrying value primarily because the fair value includes the Guarantee asset related to some

PCs held by third parties that are not recognized on our GAAP consolidated balance sheets because such PCs were issued prior to the implementation

of FIN 45 in 2003.

(4) Fair values include estimated income taxes calculated using the 35 percent statutory rate on the diÅerence between the consolidated fair value balance

sheets net assets, including deferred taxes from our GAAP consolidated balance sheets, and the GAAP consolidated balance sheets equity attributable

to common stockholders.

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. 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. In addition, our consolidated fair value

balance sheets do not capture the value associated with future growth opportunities in our investment and securitization

portfolios. Thus, the fair value of net assets attributable to stockholders presented on our consolidated fair value balance

sheets does not represent an estimate of our net realizable, liquidation or market value as a whole.

We report certain assets and liabilities that are not Ñnancial instruments (such as property and equipment and real

estate owned), as well as certain Ñnancial instruments that are not covered by the SFAS 107 disclosure requirements (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 signiÑcant impact on our overall fair value results. Other non-Ñnancial 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 credit fees. Cash receipts and payments related to

144 Freddie Mac
these items are generally recognized in the fair value of net assets when received or paid, with no basis reÖected on our fair

value balance sheets.

Valuation Methods and Assumptions

Fair value is generally based on independent price quotations obtained from third-party pricing services, dealer marks or

direct market observations, where available. However, certain Ñnancial instruments are less actively traded and, therefore,

are not always able to be valued based on prices obtained from third parties. If quoted prices or market data are not

available, fair value is based on internal valuation models using market data inputs or internally developed assumptions,

where appropriate.

During 2006 and 2005, our fair value results were impacted by several improvements in our approach for estimating the

fair value of certain Ñnancial instruments. In the Ñrst quarter of 2006, we enhanced our approach for estimating the fair

value of certain Ñnancial instruments resulting in (a) an increase in the fair value of Total net assets of approximately

$0.2 billion (after-tax) related to our guarantee-related assets and liabilities and (b) a net decrease in the fair value of Total

net assets of approximately $0.1 billion (after-tax) related to other Ñnancial instruments. In the Ñrst quarter of 2005, we

improved our approach for estimating the fair values of certain Ñnancial instruments resulting in (a) a decrease in the fair

value of Total net assets of approximately $0.8 billion (after-tax) related to our guarantee-related assets and liabilities and

(b) an increase in the fair value of Total net assets of approximately $0.3 billion (after-tax) related to our multifamily whole

loans, the minority interests in our consolidated REIT subsidiaries and other Ñnancial instruments. Also, in the second

quarter of 2005, we improved our approach for estimating the fair values of certain securities we hold, which increased the

fair value of Total net assets by approximately $0.1 billion. The changes in our approach for estimating the fair values of

these Ñnancial instruments are described below.

The following methods and assumptions were used to estimate the fair value of assets and liabilities at December 31,

2006 and 2005.

Mortgage loans

Mortgage loans represent single-family and multifamily whole loans held in our Retained portfolio. For GAAP

purposes, we must determine the fair value of these mortgage loans to calculate lower-of-cost-or-market adjustments for

mortgages classiÑed as held-for-sale. For fair value balance sheet purposes, we used this same approach when determining

the fair value of whole loans, including those held-for-investment.

We determine the fair value of mortgage loans, excluding delinquent single-family loans purchased out of pools, based

on comparisons to actively traded mortgage-related securities with similar characteristics, with adjustments for yield, credit

and liquidity diÅerences. SpeciÑcally, we aggregate mortgage loans into pools by product type, coupon and maturity and

then convert the pools into notional mortgage-related securities based on their speciÑc characteristics. We then calculate fair

values for these notional mortgage-related securities as described below in ""Mortgage-related securities, excluding PC

residuals.''

Part of the adjustments for yield, credit and liquidity diÅerences represent an implied guarantee fee. To accomplish this,

the fair value of the single-family whole loans, excluding delinquent single-family loans purchased out of pools, includes an

adjustment representing the estimated present value of the additional cash Öows on the mortgage coupon in excess of the

coupon expected on the notional mortgage-related securities. For multifamily whole loans, the fair value adjustment is

estimated by calculating the net present value of guarantee fees we expect to retain. This retained guarantee fee is estimated

by subtracting the expected cost of funding and securitizing a multifamily whole loan of a comparable maturity and credit

rating from the coupon on the whole loan at the time of purchase.

The implied guarantee fee for both single-family and multifamily whole loans is also net of the related credit and other

components inherent in our Guarantee obligation. For single-family whole loans, the process for estimating the related

credit and other Guarantee obligation components is described in the ""Guarantee obligation'' section. For multifamily whole

loans, the related credit and other Guarantee obligation components were estimated by extracting the credit risk premium

that multifamily whole loan investors require from market prices on similar securities. This credit risk premium is net of

expected funding, liquidity and other risk premiums that are embedded in the market price of the reference securities.

Beginning in 2005, we reÑned the fair value estimates of multifamily whole loans by incorporating additional

information and guidance from active market participants into the pricing of notional mortgage-related securities. In

addition, beginning in 2005, for single-family whole loans that are extremely delinquent and have been purchased out of

pools, we obtained dealer indications on aggregated groups of similar loans that reÖect their current performance status.

These market price indications reÖect the estimated present value of all cash Öows related to the whole loans, including

expected credit losses and recoveries.

145 Freddie Mac
Mortgage-related securities, excluding PC residuals

Mortgage-related securities represent pass-throughs and other mortgage-related securities classiÑed as available-for-sale

and trading, which are already reÖected at fair value on our GAAP consolidated balance sheets. Mortgage-related securities

consist of securities issued by us, Fannie Mae and Ginnie Mae, as well as non-agency mortgage-related securities.

The fair value of securities with readily available third-party market prices is generally based on market prices obtained

from broker/dealers or reliable third-party pricing service providers. Fair value may be estimated by using third-party quotes

for similar instruments, adjusted for diÅerences in contractual terms. For other securities, a market option-adjusted spread

approach based on observable market parameters is used to estimate fair value. Option-adjusted spreads for certain securities

are estimated by deriving the option-adjusted spread for the most closely comparable security with an available market

price, using proprietary interest-rate and prepayment models. If necessary, our judgment is applied to estimate the impact of

diÅerences in prepayment uncertainty or other unique cash Öow characteristics related to that particular security. Fair values

for these securities are then estimated by using the estimated option-adjusted spread as an input to the interest-rate and

prepayment models, and estimating the net present value of the projected cash Öows. The remaining instruments are priced

using other modeling techniques or by using other securities as proxies.

PC residuals

PC residuals are reported at fair value on our GAAP consolidated balance sheets. Fair value for PC residuals is

estimated in the same manner as described for the Guarantee asset and the Guarantee obligation for PCs below.

Cash and cash equivalents

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 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.

Investments

At December 31, 2006 and 2005, Investments consists solely of non-mortgage-related securities, which are reported at

fair value on our GAAP consolidated balance sheets. The fair values of Investments were estimated using the methods

described above in ""Mortgage-related securities, excluding PC residuals.''

Securities purchased under agreements to resell and Federal funds sold

Securities purchased under agreements to resell and Federal funds sold principally consists of short-term contractual

agreements such as reverse repurchase agreements involving Treasury and agency securities, Federal funds sold and

Eurodollar time deposits. 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.

Derivative assets

Derivative assets, at fair value largely consists of interest-rate swaps, option-based derivatives, futures, and forward

purchase and sale commitments that we account for as derivatives, which are reÖected at fair value on our GAAP

consolidated balance sheets. The fair values of interest-rate swaps are determined by using the appropriate yield curves to

calculate and discount the expected cash Öows for both the Ñxed-rate and variable-rate components of the swap contracts.

Option-based derivatives, which principally include call and put swaptions, are valued using an option-pricing model. This

model uses market interest rates and market-implied option volatilities, where available, to calculate the option's fair value.

Market-implied option volatilities are based on information obtained from broker/dealers. The fair value of exchangetraded futures is based on end-of-day closing prices obtained from third-party pricing services. Derivative forward purchase

and sale commitments are valued using the methods described for mortgage-related securities valuation above.

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. Our fair value of derivatives is not adjusted for expected credit losses because we obtain

collateral from most counterparties typically within one business day of the daily market value calculation and substantially

all of our credit risk arises from counterparties with investment-grade credit ratings of A¿ or above.

Guarantee asset

At December 31, 2006 and 2005, we had a Guarantee asset on our GAAP consolidated balance sheets for

approximately 95 percent and 93 percent, respectively, of PCs and Structured Securities held by third parties. For more

information regarding the accounting for the Guarantee asset related to PCs and Structured Securities, see ""NOTE 1:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.''

146 Freddie Mac
For fair value balance sheet purposes, the Guarantee asset is reÖected for all PCs and Structured Securities held by

third parties and is valued using the same method as used for GAAP fair value purposes. For a description of how we

determine the fair value of our Guarantee asset, see ""NOTE 2: TRANSFERS OF SECURITIZED INTERESTS IN

MORTGAGE-RELATED ASSETS.''

Other assets

Other assets consists of accrued interest and other receivables, investments in qualiÑed LIHTC partnerships that are

eligible for federal tax credits, credit enhancement contracts related to PCs and Structured Securities (pool insurance and

recourse and/or indemniÑcation agreements), Ñnancial guarantee contracts for additional credit enhancements on certain

manufactured housing asset-backed securities, REO, property and equipment, and other miscellaneous assets.

The receivables are Ñnancial instruments and are required to be measured at fair value for disclosure purposes pursuant

to SFAS 107. Because these receivables are short-term in nature, we believe the carrying amount on our GAAP

consolidated balance sheets is a reasonable approximation of their fair values. Our investments in LIHTC partnerships,

reported as consolidated entities or equity method investments in the GAAP Ñnancial statements, are not within the scope of

SFAS 107 disclosure requirements. However, we present the fair value of these investments in Other assets. For the

LIHTC partnerships, the fair value of expected tax beneÑts is estimated using expected cash Öows discounted at a marketbased yield.

For the credit enhancement contracts related to PCs and Structured Securities (pool insurance and recourse and/or

indemniÑcation agreements), fair value is estimated using an expected cash Öow approach, and is intended to reÖect the

estimated amount that a third party would be willing to pay for the contracts. On our consolidated fair value balance sheets,

these contracts are reported at fair value at each balance sheet date based on current market conditions. On our GAAP

consolidated balance sheets, these contracts are initially recorded at fair value at inception, then amortized to expense.

For the credit enhancements on manufactured housing asset-backed securities, the fair value is based on the diÅerence

between the market price of non-credit-impaired manufactured housing securities and credit-impaired manufactured

housing securities that are likely to produce future credit losses, as adjusted for our estimate of a risk premium attributable

to the Ñnancial guarantee contracts. The value of the contracts, over time, will be determined by the actual credit-related

losses incurred and, therefore, may have a value that is higher or lower than our market-based estimate. On our GAAP

consolidated Ñnancial statements, these contracts are recognized as realized.

The other categories of assets that comprise Other assets are not Ñnancial instruments required to be valued at fair value

under SFAS 107, such as REO and property and equipment. For the majority of these non-Ñnancial assets 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 insigniÑcant portion of our GAAP consolidated

balance sheets, and any change in their fair value would not be a meaningful part of our fair value of net assets business

results. Certain non-Ñnancial assets in Other assets on our GAAP consolidated balance sheets are assigned a zero value on

our consolidated fair value balance sheets. This treatment is applied to deferred items such as deferred debt issuance costs.

We adjust the GAAP-basis deferred taxes reÖected on our consolidated fair value balance sheets to include estimated

income taxes on the diÅerence between our consolidated fair value balance sheets net assets, including deferred taxes from

our GAAP consolidated balance sheets, and our GAAP consolidated balance sheets equity attributable to common

stockholders. To the extent the adjusted deferred taxes are a net asset, this amount is included in Other assets. If the

adjusted deferred taxes are a net liability, this amount is included in Other liabilities.

Total debt securities, net

Total debt securities, net represents short-term and long-term debt used to Ñnance our assets and, on our consolidated

GAAP balance sheets, debt securities are reported at amortized cost, which is net of deferred items, including premiums,

discounts and hedging-related basis adjustments. This item includes both non-callable and callable debt as well as shortterm zero-coupon discount notes. The fair value of the short-term zero-coupon discount notes is based on a discounted cash

Öow model with market inputs. The valuation of other debt securities is generally based on market prices obtained from

broker/dealers, reliable third-party pricing service providers or direct market observations.

Guarantee obligation

We did not establish a Guarantee obligation for GAAP purposes for PCs and Structured Securities held by third parties

that were issued through our Guarantor Swap program prior to adoption of FIN 45. In addition, after it is initially recorded

at fair value the Guarantee obligation is not subsequently carried at fair value for GAAP purposes. On our consolidated fair

value balance sheets, the Guarantee obligation reÖects the fair value of our Guarantee obligation on all PCs held by third

parties. Additionally, for fair value balance sheet purposes, the Guarantee obligation is valued using the same method as used

for GAAP to determine its initial fair value. Because Guarantee asset, Guarantee obligation and credit enhancement-related

147 Freddie Mac
assets that are recognized at the inception of an executed Guarantor Swap are valued independently of each other, net

diÅerences between these recognized assets and liabilities may exist at inception. If the amount of the Guarantee asset plus

the credit enhancement-related assets is greater than the amount of the Guarantee obligation, the diÅerence between such

amounts is deferred on our GAAP consolidated balance sheets as a component of the Guarantee obligation. This

component of the Guarantee obligation is not recorded on the consolidated fair value balance sheets. The diÅerence between

the fair value and carrying value of the Guarantee obligation shown in Table 16.1 reÖects the diÅerent basis of accounting

for this liability. For example, the fair value of the Guarantee obligation does not include the unamortized balance of

deferred guarantee income that is a component of its carrying value on the GAAP consolidated balance sheets. For

information concerning our valuation approach and accounting policies related to guarantee-related credit losses, see

""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,'' and ""NOTE 2: TRANSFERS OF

SECURITIZED INTERESTS IN MORTGAGE-RELATED ASSETS.''

Derivative liabilities

See discussion under ""Derivative assets'' above.

Reserve for guarantee losses on PCs

The carrying amount of the Reserve for guarantee losses on PCs on our GAAP consolidated balance sheets represents

loan loss reserves for oÅ-balance sheet PCs in accordance with GAAP that are not already accounted for under SFAS 140.

This line item has no basis on our consolidated fair value balance sheets, because the estimated fair value of all expected

default losses is included in the Guarantee obligation reported on our consolidated fair value balance sheets.

Other liabilities

Other liabilities principally consists of amounts due to PC investors (i.e., principal and interest), funding liabilities

associated with investments in LIHTC partnerships, accrued interest payable on debt securities and other miscellaneous

obligations of less than one year. We believe the carrying amount of these liabilities is a reasonable approximation of their

fair value, except for funding liabilities associated with investments in LIHTC partnerships, for which fair value is estimated

using expected cash Öows discounted at a market-based yield. Furthermore, certain deferred items reported as Other

liabilities on our GAAP consolidated balance sheets are assigned zero value on our consolidated fair value balance sheets,

such as deferred credit fees. Also, as discussed in ""Other assets,'' Other liabilities may include a deferred tax liability

adjusted for fair value balance sheet purposes.

Minority interests in consolidated subsidiaries

Minority interests in consolidated subsidiaries primarily represent preferred stock interests that third parties hold in our

two majority-owned REIT subsidiaries. In accordance with GAAP, we consolidated the REITs. The preferred stock

interests are not within the scope of SFAS 107 disclosure requirements. However, we present the fair value of these interests

on our consolidated fair value balance sheets. The fair value of the third-party minority interests in these REITs was based

on the estimated value of the underlying REIT preferred stock we determined based on a valuation model. In 2005, we

improved our fair value estimates to reÖect observed market activity.

Net assets attributable to preferred stockholders

To determine the preferred stock fair value, we use a market-based approach incorporating quoted dealer prices.

Net assets attributable to common stockholders

Net assets attributable to common stockholders is equal to the diÅerence between the fair value of total assets and the

sum of total liabilities and minority interests reported on our consolidated fair value balance sheets, less the fair value of net

assets attributable to preferred stockholders.

148 Freddie Mac
NOTE 17: CONCENTRATION OF CREDIT AND OTHER RISKS

Mortgages and Mortgage-Related Securities

Table 17.1 summarizes the geographical concentration of mortgages and mortgage-related securities that are held by us

or that are collateral for PCs and Structured Securities, excluding:

‚ $1,510 million and $2,021 million of mortgage-related securities issued by Ginnie Mae that back Structured

Securities at December 31, 2006 and 2005, respectively, because these securities do not expose us to meaningful

amounts of credit risk;

‚ $45,385 million and $44,626 million of agency mortgage-related securities at December 31, 2006 and 2005,

respectively, because these securities do not expose us to meaningful amounts of credit risk; and

‚ $238,465 million and $242,915 million of non-agency mortgage-related securities held in the Retained portfolio at

December 31, 2006 and 2005, respectively, because geographic information regarding these securities is not available.

With respect to these securities, we look to third party credit enhancements (e.g., bond insurance) or other credit

enhancements resulting from the securitization structure supporting such securities (e.g., subordination levels) as a

primary means of managing credit risk.

See ""NOTE 5: RETAINED PORTFOLIO AND CASH AND INVESTMENTS PORTFOLIO'' for more information

about the securities we hold.

Table 17.1 Ì Concentration of Credit Risk

December 31,

2006 2005

Amount(1) Percentage Amount(2) Percentage

(dollars in millions)

By Region(3)

Northeast ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 375,844 24% $ 340,821 24%

West ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 366,492 24 327,029 23

North Central ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 324,255 21 304,288 22

Southeast ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 279,984 18 247,484 18

Southwest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 194,785 13 175,362 13

$1,541,360 100% $1,394,984 100%

By State

California ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 195,964 13% $ 182,267 13%

Florida ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 101,901 7 86,916 6

IllinoisÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 80,130 5 72,952 5

New York ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 77,614 5 71,961 5

All Others ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,085,751 70 980,888 71

$1,541,360 100% $1,394,984 100%

(1) Calculated as Total mortgage portfolio less Structured Securities backed by Ginnie Mae CertiÑcates and agency and non-agency mortgage-related

securities held in the Retained portfolio.

(2) 2005 data has been revised to conform to the current year presentation.

(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).

Mortgage Lenders and Insurers

A signiÑcant portion of our single-family mortgage purchase volume is generated from several key mortgage lenders that

have entered into business arrangements with us. These arrangements generally involve a lender's commitment to sell a high

proportion of its conforming mortgage origination volume to us. During 2006, three mortgage lenders each accounted for

10 percent or more of our mortgage purchase volume. These lenders collectively accounted for approximately 51 percent of

this volume. In addition, in 2006, our top ten lenders represented approximately 76 percent of our mortgage purchase

volume. These top lenders are among the largest mortgage loan originators in the U.S. We are exposed to the risk that we

could lose purchase volume to the extent these arrangements are terminated or modiÑed without replacement from other

lenders.

We have institutional credit risk relating to the potential insolvency or non-performance of mortgage insurers that insure

mortgages we purchase or guarantee. Approximately 99 percent of all mortgage insurers providing primary mortgage

insurance and pool insurance coverage on single-family mortgages we purchased during 2006 were rated ""AA'' or better by

S&P. Excluding insurers of our non-agency mortgage-related securities portfolio at December 31, 2006, there were seven

mortgage insurers that each provided more than 7 percent of our total mortgage insurance coverage (including primary

mortgage insurance and pool insurance) and together accounted for approximately 99 percent of our overall coverage. In

February 2007, two of these mortgage insurance companies announced an agreement to merge, with one acquiring the other.

149 Freddie Mac
At December 31, 2006, these two companies together represented approximately 52 percent of our total mortgage insurance

coverage.

Derivative Portfolio

On an ongoing basis, we review the credit fundamentals of all of our derivative counterparties to conÑrm 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 events aÅecting an individual counterparty occur.

Derivative Counterparties. Our use of derivatives exposes us to counterparty credit risk, which arises from the

possibility that the derivative counterparty will not be able to meet its contractual obligations. Exchange-traded derivatives,

such as futures contracts, do not measurably increase our counterparty credit risk because changes in the value of open

exchange-traded contracts are settled daily through a Ñnancial clearinghouse established by each exchange. Over-thecounter, or OTC, derivatives, however, expose us to counterparty credit risk because transactions are executed and settled

between us and the counterparty. Our use of OTC interest-rate swaps, option-based derivatives and foreign-currency swaps

is subject to rigorous internal credit and legal reviews. Our derivative counterparties carry external credit ratings among the

highest available from major rating agencies. All of these counterparties are major Ñnancial institutions and are experienced

participants in the OTC derivatives market.

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 for the amount of our net exposure to them above the applicable

threshold. Bilateral collateral agreements are in place for the majority of our 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 aÅect our net uncollateralized exposure to derivative

counterparties.

Collateral posted by a derivative counterparty is typically in the form of cash, U.S. Treasury securities, our PCs and

Structured Securities or our debt securities. 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 sale the collateral and

transfer the proceeds to us.

Our uncollateralized exposure to counterparties for OTC interest-rate swaps, option-based derivatives and foreigncurrency swaps, after applying netting agreements and collateral, was $672 million and $190 million at December 31, 2006

and 2005, respectively. In the event that all of our counterparties for these derivatives were to have defaulted simultaneously

on December 31, 2006, our maximum loss for accounting purposes would have been approximately $672 million.

Our exposure to counterparties for OTC forward purchase and sale commitments treated as derivatives was $24 million

and $35 million at December 31, 2006 and 2005, respectively. Because the typical maturity for our OTC commitments is

less than one year, we do not require master netting and collateral agreements for the counterparties of these commitments.

Therefore, the exposure to our OTC commitments counterparties is uncollateralized. Similar to counterparties for our

OTC interest-rate swaps, option-based derivatives and foreign-currency swaps, we monitor the credit fundamentals of our

OTC commitments counterparties on an ongoing basis to ensure that they continue to meet our internal risk-management

standards.

NOTE 18: MINORITY INTERESTS

The equity and net earnings attributable to the minority stockholder interests in consolidated subsidiaries are reported

on our consolidated balance sheets as Minority interests in consolidated subsidiaries and on our consolidated statements of

income as Minority interests in earnings of consolidated subsidiaries. The majority of the balances in these accounts relate

to our two majority-owned REITs.

In February 1997, we formed two majority-owned REIT subsidiaries funded through the issuance of common stock

(99.9 percent of which is held by us) and a total of $4.0 billion of perpetual, step-down preferred stock issued to outside

investors. The dividend rate on the step-down preferred stock was 13.3 percent from initial issuance through December 2006

(the initial term). Beginning in 2007, the dividend rate will step-down to 1.0 percent. Dividends on this preferred stock

150 Freddie Mac
accrue in arrears. The balance of the two step-down preferred stock issuances as recorded within Minority interests in

consolidated subsidiaries on our consolidated balance sheets totaled $503 million and $934 million at December 31, 2006

and 2005, respectively.

On November 10, 2005, we oÅered to purchase for cash any and all of the outstanding shares of the outstanding stepdown preferred stock, of which $142 million was purchased between the oÅer date and December 31, 2005. During 2006, we

purchased an additional $27 million of the preferred stock. The preferred stock continues to be redeemable by the REITs

under certain circumstances described in the preferred stock oÅering documents as a ""tax event redemption.''

NOTE 19: EARNINGS PER COMMON SHARE

Because we have participating securities, we use the ""two-class'' method of computing earnings per share. Basic

earnings per common share are computed by dividing Net income available to common stockholders by Weighted average

common shares outstanding-basic for the period. Diluted earnings per common share are computed as Net income available

to common stockholders divided by Weighted average common shares outstanding-diluted for the period, which consider

the eÅect of dilutive common equivalent shares outstanding. The eÅect of dilutive common equivalent shares outstanding

includes: (a) the weighted average shares related to stock options (including the ESPP) that have an exercise price lower

than the average market price during the period; (b) the weighted average of non-vested restricted shares; and (c) all

restricted stock units. Such items are excluded from Weighted average common shares outstanding Ì basic. See

""NOTE 11: STOCK-BASED COMPENSATION'' for additional information. For the years ended December 31, 2006,

2005 and 2004, there were approximately 1,808,000, 1,929,000 and 2,239,000 of dilutive common equivalent shares

outstanding that could potentially dilute earnings per common share.

Options to purchase 1.9 million, 2.3 million and 2.4 million shares of common stock were excluded from the

computation of Diluted earnings per common share at December 31, 2006, 2005 and 2004, respectively, because the options'

exercise price exceeded the average market price of the common stock for the years ended December 31, 2006, 2005 and

2004, respectively.

END OF CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

151 Freddie Mac
PROPERTIES

We own a 75 percent interest in a limited partnership that owns our principal oÇces, consisting of four oÇce buildings

in McLean, Virginia, that comprise approximately 1.3 million square feet. We occupy this headquarters complex under a

long-term lease from the partnership.

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

including, among other things, contractual disputes, personal injury claims, employment-related litigation and other legal

proceedings incidental to our business.

Furthermore, we are frequently involved, directly or indirectly, in litigation involving mortgage foreclosures. We also are

involved in proceedings arising from our termination of a seller/servicer's eligibility to sell mortgages to, and 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 generally involve claims alleging wrongful actions of seller/servicers. Our contracts with our seller/

servicers generally provide for them to indemnify us against liability arising from their wrongful actions.

We are also subject to various legal proceedings, including regulatory investigations and administrative and civil

litigation, arising from the restatement of our 2002 and prior consolidated Ñnancial statements. In addition, we have been

named in multiple lawsuits alleging violations of federal and state antitrust laws and state consumer protection laws in

connection with the setting of our guarantee fees.

Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. For

additional information on our legal proceedings, see ""NOTE 13: LEGAL CONTINGENCIES'' and ""NOTE 14:

INCOME TAXES'' to our consolidated Ñnancial statements.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The following matters were presented for stockholder vote at our annual meeting of stockholders held on September 8,

2006: (a) election of 13 members to our board of directors, each for a term ending on the date of our next annual meeting of

stockholders; (b) ratiÑcation of the appointment of PricewaterhouseCoopers LLP as our independent auditors for 2006;

and (c) a stockholder proposal concerning charitable contributions. As shown in Table 53 below, the following persons were

elected to our board of directors at the meeting by the respective votes indicated:

Table 53 Ì Election of Directors

Votes For Votes Withheld

Barbara T. Alexander ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 596,345,274 7,932,999

GeoÅrey T. Boisi ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 598,396,467 5,881,806

Michelle Engler ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 598,900,945 5,377,328

Robert R. GlauberÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 599,045,153 5,233,120

Richard Karl Goeltz ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 599,036,707 5,241,566

Thomas S. Johnson ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 565,811,704 38,466,569

William M. Lewis, Jr.ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 598,961,629 5,316,644

Eugene M. McQuade ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 599,202,215 5,076,058

Shaun F. O'Malley ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 575,195,153 29,083,120

JeÅrey M. Peek ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 598,987,195 5,291,078

Ronald F. Poe ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 594,482,272 9,796,001

Stephen A. Ross ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 575,283,117 28,995,156

Richard F. Syron ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 594,431,345 9,846,928

The appointment of PricewaterhouseCoopers LLP was ratiÑed at the meeting by the following votes:

Votes for Votes Against Abstentions

596,289,143 4,496,273 3,492,857

The stockholder proposal concerning charitable contributions was not adopted and received the following votes:

Votes for Votes Against Abstentions Broker Non-Votes

24,166,819 439,759,549 49,290,127 91,061,778

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

None.

CONTROLS AND PROCEDURES

See ""MD&A Ì RISK MANAGEMENT Ì Operational Risks Ì Internal Control Over Financial Reporting'' for a

description of our material weaknesses and other control deÑciencies.

152 Freddie Mac
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Our Board of Directors (as of March 15, 2007)(1)

Richard F. Syron William M. Lewis, Jr.C, E

Chairman and Chief Executive OÇcer Managing Director and Co-Chairman

Freddie Mac of Investment Banking

McLean, Virginia Lazard Ltd.

Barbara T. Alexander An investment banking company C, E

Independent Consultant New York, New York

Monarch Beach, California Eugene M. McQuade

GeoÅrey T. Boisi President and Chief Operating OÇcer B, D, E

Chairman and Senior Partner Freddie Mac

Roundtable Investment Partners LLC McLean, Virginia

Shaun F. O'Malley (Lead Director)A, B, D A private investment management Ñrm

New York, New York Chairman Emeritus

Michelle Engler Price Waterhouse LLP B, E

Trustee An accounting and consulting Ñrm

JNL Investor Series Trust and JNL Series Trust Philadelphia, Pennsylvania

JeÅrey M. PeekC, E and Member of Board of Managers

JNL/NY Variable Funds Chairman and Chief Executive OÇcer

Each an investment company CIT Group, Inc.

Lansing, Michigan A global commercial and consumer Ñnance company

Robert R. Glauber New York, New York A, C

Ronald F. PoeB, D, E Retired Chairman and Chief Executive OÇcer

National Association of Securities Dealers, Inc. President

A private-sector regulator of the securities industry Ronald F. Poe & Associates

Washington, District of Columbia A private real estate investment Ñrm

Richard Karl Goeltz White Plains, New York A, C, D

Stephen A. RossA, C, D Retired Vice Chairman and Chief Financial OÇcer

American Express Company Franco Modigliani Professor of Financial Economics

A Ñnancial services company Massachusetts Institute of Technology

New York, New York Cambridge, Massachusetts

Thomas S. JohnsonA, B

Retired Chairman and Chief Executive OÇcer

GreenPoint Financial Corporation

A Ñnancial services company

New York, New York

Committees A Audit

B Compensation and Human Resources

C Finance and Capital Deployment

D Governance, Nominating and Risk Oversight

E Mission, Sourcing and Technology

(1) Our enabling legislation establishes the membership of the board of directors at 18 directors: 13 directors elected by the stockholders and 5 directors

appointed by the President of the United States. Prior to our March 31, 2004 Annual Meeting, the OÇce of Counsel to the President informed us that

the President did not intend to reappoint any of his then-current presidential appointees. Consequently, each of their terms as presidential appointees

ended on the date of that annual meeting. No new appointees have been named by the President as of March 15, 2007.

Additional information regarding our directors and executive oÇcers is set forth in our proxy statement for our annual

meeting of stockholders to be held on June 8, 2007, and is incorporated herein by reference. Additional information

concerning our Audit Committee may be found in our proxy statement. We also provide information regarding beneÑcial

ownership reporting compliance in our proxy statement, incorporated herein by reference.

We have adopted a Code of Conduct for employees which is available on our website at www.freddiemac.com. Printed

copies of the Code of Conduct may be obtained free of charge upon request from our Investor Relations department. We

intend to disclose any amendments to, or waivers from, the employee Code of Conduct on behalf of the chief executive

oÇcer, chief Ñnancial oÇcer, controller and persons performing similar functions on our website.

153 Freddie Mac
EXECUTIVE COMPENSATION

Information regarding executive compensation is set forth in our proxy statement and is incorporated by reference into

this Information Statement. Information regarding compensation of our board of directors and information concerning

members of the Compensation and Human Resources Committee is set forth in our proxy statement and is incorporated

here by reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans

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, 2006 is set forth in our proxy statement and is incorporated here by

reference.

Security Ownership of Management

Information regarding the beneÑcial ownership of our common stock by each of our directors, each director nominee,

certain executive oÇcers and by all directors and executive oÇcers as a group is set forth in our proxy statement and is

incorporated here by reference.

Security Ownership of Certain BeneÑcial Owners

Information regarding the beneÑcial ownership of our common stock by certain beneÑcial owners is set forth in our

proxy statement and is incorporated here by reference.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information regarding director independence, certain relationships and related transactions is set forth in our proxy

statement and is incorporated here by reference.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal accountant fees and services is set forth in our proxy statement and is incorporated here

by reference.

154 Freddie Mac
CERTIFICATION*

I, Richard F. Syron, certify that:

1. I have reviewed this Information Statement of Freddie Mac;

2. Based on my knowledge, this Information Statement 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 Information Statement; and

3. Based on my knowledge, the consolidated Ñnancial statements, and other Ñnancial information included in this

Information Statement, fairly present in all material respects the Ñnancial condition, results of operations and cash

Öows of Freddie Mac as of, and for, the periods presented in this Information Statement.

Date: March 23, 2007

Richard F. Syron

Chairman and Chief Executive OÇcer

CERTIFICATION*

I, Anthony S. Piszel, certify that:

1. I have reviewed this Information Statement of Freddie Mac;

2. Based on my knowledge, this Information Statement 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 Information Statement; and

3. Based on my knowledge, the consolidated Ñnancial statements, and other Ñnancial information included in this

Information Statement, fairly present in all material respects the Ñnancial condition, results of operations and cash

Öows of Freddie Mac as of, and for, the periods presented in this Information Statement.

Date: March 23, 2007

Anthony S. Piszel

Executive Vice President and Chief Financial OÇcer

* For a discussion of our progress with respect to our internal control over Ñnancial reporting and disclosure controls and procedures, see ""MD&A Ì RISK

MANAGEMENT Ì Operational Risks Ì Internal Control Over Financial Reporting.''

155 Freddie Mac
RATIO OF EARNINGS TO FIXED CHARGES

Year Ended December 31,

2006 2005 2004 2003 2002

(dollars in millions)

Net income before cumulative eÅect of changes in accounting principlesÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,211 $ 2,189 $ 2,937 $ 4,816 $10,090

Add:

Income tax expense (beneÑt) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (108) 367 790 2,202 4,713

Minority interests in earnings of consolidated subsidiariesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 58 96 129 157 184

Total interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37,270 29,899 26,566 26,509 26,876

Interest factor in rental expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 6 6 5 5

Capitalized interestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 1 Ì 1

Earnings, as adjusted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $39,437 $32,557 $30,429 $33,689 $41,869

Fixed charges:

Total interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $37,270 $29,899 $26,566 $26,509 $26,876

Interest factor in rental expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 6 6 5 5

Capitalized interestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 1 Ì 1

Total Ñxed charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $37,276 $29,905 $26,573 $26,514 $26,882

Ratio of earnings to Ñxed charges(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.06 1.09 1.15 1.27 1.56

(1) Ratio of earnings to Ñxed charges is computed by dividing Earnings, as adjusted by Total Ñxed charges.

RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND 

PREFERRED STOCK DIVIDENDS

Year Ended December 31,

2006 2005 2004 2003 2002

(dollars in millions)

Net income before cumulative eÅect of changes in accounting principlesÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,211 $ 2,189 $ 2,937 $ 4,816 $10,090

Add:

Income tax expense (beneÑt) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (108) 367 790 2,202 4,713

Minority interests in earnings of consolidated subsidiariesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 58 96 129 157 184

Total interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37,270 29,899 26,566 26,509 26,876

Interest factor in rental expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 6 6 5 5

Capitalized interestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 1 Ì 1

Earnings, as adjusted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $39,437 $32,557 $30,429 $33,689 $41,869

Fixed charges:

Total interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $37,270 $29,899 $26,566 $26,509 $26,876

Interest factor in rental expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 6 6 5 5

Capitalized interestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 1 Ì 1

Preferred stock dividends(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 270 261 266 315 351

Total Ñxed charges including preferred stock dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $37,546 $30,166 $26,839 $26,829 $27,233

Ratio of earnings to combined Ñxed charges and preferred stock dividends(2) ÏÏÏÏÏÏÏÏÏÏ 1.05 1.08 1.13 1.26 1.54

(1) Preferred stock dividends represent pre-tax earnings required to cover any preferred stock dividend requirements using our eÅective tax rate for the

relevant periods.

(2) Ratio of earnings to combined Ñxed charges and preferred stock dividends is computed by dividing Earnings, as adjusted by Total Ñxed charges

including preferred stock dividends.

ADDITIONAL FINANCIAL INFORMATION

ANNUAL MEETING DIVIDEND PAYMENTS

The annual meeting of Freddie Mac's stockholders will be held: Approved by Freddie Mac's board of directors, dividends on the

company's common stock and non-cumulative, preferred stock in June 8, 2007 2006 and the Ñrst three months of 2007 were or are expected to be 8000 Jones Branch Drive paid on: McLean, Virginia 22102 March 31, 2006

Proxy materials will be mailed to stockholders of record in accor- June 30, 2006

dance with Freddie Mac's bylaws and New York Stock Exchange September 29, 2006

requirements. December 29, 2006

March 30, 2007

Subject to approval by Freddie Mac's board of directors, dividends

on the company's common stock and non-cumulative, preferred

stock in the remaining nine months of 2007 are expected to be paid

on or about:

June 29, 2007

September 28, 2007

December 28, 2007

156 Freddie Mac
INDEX OF ACRONYMS

We are providing this index of acronyms used in this Information Statement for the convenience of the reader. All of

the acronyms listed below are deÑned at their Ñrst use in this document.

AOCI Accumulated other comprehensive income (loss), net of taxes

ARM Adjustable-rate mortgage

CMT Constant Maturity Treasury

EITF Emerging Issues Task Force

ERISA Employee Retirement Income Security Act

ESPP Employee Stock Purchase Plan

Euribor Euro Interbank OÅered Rate

Fannie Mae Federal National Mortgage Association

FASB Financial Accounting Standards Board

FEC Federal Election Commission

FHA Federal Housing Administration

FHFB Federal Housing Finance Board

FICO Credit scores initially developed by Fair, Isaac and Co., Inc.

FIN Financial Accounting Standards Board Interpretation

FSP Financial Accounting Standards Board StaÅ Position

GAAP U.S. generally accepted accounting principles

Ginnie Mae Government National Mortgage Association

GSE Government-sponsored enterprise

GSE Act The Federal Housing Enterprises Financial Safety and Soundness Act of 1992

HUD Department of Housing and Urban Development

IRS Internal Revenue Service

LIBOR London Interbank OÅered Rate

LIHTC Low-Income Housing Tax Credit

LTV Loan-to-Value

MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations

NYSE New York Stock Exchange

OAS Option-Adjusted Spread

OFHEO OÇce of Federal Housing Enterprise Oversight

OTC Over-the-Counter

PC Mortgage Participation CertiÑcate

PMVS Portfolio Market Value Sensitivity

PMVS-L Portfolio Market Value Sensitivity-Level

PMVS-YC Portfolio Market Value Sensitivity-Yield Curve

REIT Real Estate Investment Trust

REMIC Real Estate Mortgage Investment Conduit

REO Real Estate Owned

S&P Standard & Poor's

SEC Securities and Exchange Commission

SFAS Statement of Financial Accounting Standards

SS&TG Securities Sales and Trading Group

TBA To Be Announced

VIE Variable interest entity

157 Freddie Mac
8200 Jones Branch Drive, McLean, Virginia 22102 n FreddieMac.com