UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

Commission File Number: 001-34139

Federal Home Loan Mortgage Corporation

(Exact name of registrant as specified in its charter)

Federally chartered 52-0904874 8200 Jones Branch Drive 22102-3110 (703) 903-2000

corporation McLean, Virginia

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.) (Address of principal executive offices) (Zip Code) (Registrant’s telephone number,including area code)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

past 90 days. Yes No 

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

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

registrant was required to submit and post such files). Yes No 

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

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

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

growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of 

the Exchange Act.

Large accelerated filer Accelerated filer 

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

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised 

financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

The aggregate market value of the common stock held by non-affiliates computed by reference to the price at which the common equity was last sold on June 30, 

2017 (the last business day of the registrant’s most recently completed second fiscal quarter) was $1.4 billion.

As of February 1, 2018, there were 650,054,731 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None
Table of Contents

FREDDIE MAC | 2017 Form 10-K i

Table of Contents

INTRODUCTION

About Freddie Mac

Our Business

Forward-Looking Statements

SELECTED FINANCIAL DATA

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Key Economic Indicators

Consolidated Results of Operations

Consolidated Balance Sheets Analysis

Our Business Segments

Risk Management

Credit Risk

Operational Risk

Market Risk

Liquidity and Capital Resources

Conservatorship and Related Matters

Regulation and Supervision

Contractual Obligations

Off-Balance Sheet Arrangements

Critical Accounting Policies and Estimates

RISK FACTORS

LEGAL PROCEEDINGS

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONTROLS AND PROCEDURES

DIRECTORS, CORPORATE GOVERNANCE, AND EXECUTIVE OFFICERS

Directors

Corporate Governance

Executive Officers

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Compensation and Risk

2017 Compensation Information for NEOs

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PRINCIPAL ACCOUNTING FEES AND SERVICES

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

GLOSSARY

EXHIBIT INDEX

SIGNATURES

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Introduction About Freddie Mac

FREDDIE MAC | 2017 Form 10-K 1

Introduction

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

expectations and are subject to significant risks and uncertainties. These forward-looking statements are 

made as of the date of this Form 10-K. We undertake no obligation to update any forward-looking 

statement to reflect events or circumstances after the date of this Form 10-K. Actual results might differ 

significantly from those described in or implied by such statements due to various factors and 

uncertainties, including those described in the Forward-Looking Statements and Risk Factors

sections of this Form 10-K.

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

ABOUT FREDDIE MAC

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

and affordability to the U.S. housing market. We do this primarily by purchasing residential mortgage 

loans originated by lenders. In most instances, we package these loans into mortgage-related securities, 

which are guaranteed by us and sold in the global capital markets. We also invest in mortgage loans and 

mortgage-related securities. We do not originate loans or lend money directly to mortgage borrowers.

We support the U.S. housing market and the overall economy by enabling America’s families to access 

mortgage loan funding with better terms and by providing consistent liquidity to the multifamily 

mortgage market. We have helped many distressed borrowers keep their homes or avoid foreclosure. 

We are working with FHFA, our customers and the industry to build a better housing finance system for 

the nation.

Conservatorship and Government Support for Our 

Business

Since September 2008, we have been operating in conservatorship, with FHFA as our Conservator. The 

conservatorship and related matters significantly affect our management, business activities, financial 

condition and results of operations. Our future is uncertain, and the conservatorship has no specified 

termination date. We do not know what changes may occur to our business model during or following 

conservatorship, including whether we will continue to exist.

Our Purchase Agreement with Treasury and the terms of the senior preferred stock we issued to 

Treasury also affect our business activities. Our ability to access funds from Treasury under the Purchase 

Agreement is critical to keeping us solvent and avoiding the appointment of a receiver by FHFA under 

statutory mandatory receivership provisions. We believe that the support provided by Treasury pursuant 

to the Purchase Agreement currently enables us to have adequate liquidity to conduct normal business 

activities.

In connection with our entry into conservatorship, we entered into the Purchase Agreement with 

Treasury. Under the Purchase Agreement, we issued to Treasury both senior preferred stock and a 
Introduction About Freddie Mac

FREDDIE MAC | 2017 Form 10-K 2

warrant to purchase common stock. The senior preferred stock and warrant were issued as an initial 

commitment fee in consideration of Treasury's commitment to provide funding to us under the Purchase 

Agreement. Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative 

quarterly cash dividends, when, as and if declared by our Board of Directors. Under the August 2012 

amendment to the Purchase Agreement, our cash dividend requirement each quarter is the amount, if 

any, by which our Net Worth Amount, at the end of the immediately preceding fiscal quarter, less the 

applicable Capital Reserve Amount, exceeds zero. The applicable Capital Reserve Amount was $600 

million in 2017.

On December 21, 2017, the Conservator, acting on our behalf, entered into a Letter Agreement with 

Treasury. The principal changes pursuant to the Letter Agreement are as follows:

The senior preferred stock dividend for the dividend period from October 1, 2017 through and 

including December 31, 2017 was reduced to $2.25 billion.

The applicable Capital Reserve Amount from January 1, 2018 and thereafter will be $3.0 billion, 

rather than zero as previously provided. If for any reason we were not to pay our dividend 

requirement on the senior preferred stock in full in any future period, the applicable Capital Reserve 

Amount would thereafter be zero.

The liquidation preference of the senior preferred stock increased by $3.0 billion, to $75.3 billion, on 

December 31, 2017. 

The graph below shows our cumulative draws from Treasury and cumulative dividend payments to 

Treasury. The Treasury draw amounts shown are the total draws requested based on our quarterly net 

deficits for the periods presented. Draw requests are funded in the quarter subsequent to any net deficit. 

Under the Purchase Agreement, the payment of dividends does not reduce the outstanding liquidation 

preference of the senior preferred stock. The amount of available funding remaining under the Purchase 

Agreement is $140.5 billion, and will be reduced by any future draws, including the $312 million draw we 

will take based on our negative net worth at December 31, 2017. For more information on the 

conservatorship and government support for our business, see MD&A - Conservatorship and 

Related Matters and Note 2.
Introduction About Freddie Mac

FREDDIE MAC | 2017 Form 10-K 3

Draw Requests from and Dividend Payments to Treasury
Introduction About Freddie Mac

FREDDIE MAC | 2017 Form 10-K 4

Business Results

Portfolio Balances

Guarantee Portfolios

 

Investments Portfolios

Commentary

Total Guarantee Portfolio

2017 vs. 2016 and 2016 vs. 2015 - In 2017, the total guarantee portfolio grew $119 billion, or 6%, 

driven by a 4% increase in our single-family credit guarantee portfolio and a 28% increase in our 

multifamily guarantee portfolio. The total guarantee portfolio grew $91 billion, or 5%, in 2016, driven 

by a 3% increase in our single-family credit guarantee portfolio and a 32% increase in our 

multifamily guarantee portfolio. 

The growth in our single-family credit guarantee portfolio in 2017 and 2016 was driven in part by 

an increase in U.S. single-family mortgage debt outstanding as a result of continued home price 
Introduction About Freddie Mac

FREDDIE MAC | 2017 Form 10-K 5

appreciation, combined with our share of U.S. single-family origination volume remaining stable. 

In addition, new business acquisitions had a higher average loan size compared to older vintages 

that continued to run off.

 The considerable growth in our multifamily guarantee portfolio in both 2017 and 2016 was 

primarily driven by an increase in U.S. multifamily mortgage debt outstanding that can be 

attributed to strong multifamily market fundamentals and low interest rates, coupled with the 

growth in our share of market new business volume due to our strategic pricing efforts, 

expansion of our new product offerings and purchase activity associated with certain targeted 

loans in underserved markets.

Total Investments Portfolio 

2017 vs. 2016 and 2016 vs. 2015 - Declined $52 billion, or 13%, and $55 billion, or 12%, in 2017 

and 2016, respectively, primarily due to repayments and the active disposition of less liquid assets.

We continue to reduce the mortgage-related investments portfolio as required by the Purchase 

Agreement and FHFA.
Introduction About Freddie Mac

FREDDIE MAC | 2017 Form 10-K 6

Consolidated Financial Results

Comprehensive Income

Commentary

Key Drivers:

2017 vs. 2016

Continued growth in our single-family credit guarantee portfolio and higher average contractual 

guarantee fee rates, offset by the continued reduction in the balance of our mortgage-related 

investments portfolio, resulted in lower net interest income.

Decline in benefit for credit losses in 2017 primarily driven by estimated losses related to the 

hurricanes.

Increased spread-related fair value gains driven by market spread tightening primarily on nonagency mortgage-related securities, partially offset by increased interest rate-related fair value 

losses driven by lower levels of volatility.

Gains on sales of reperforming loans in 2017, compared to losses on sales of seriously 

delinquent loans in 2016.

Proceeds received in 2017 from the Royal Bank of Scotland plc (or RBS) related to litigation 

involving certain of our non-agency mortgage-related securities.

Higher income tax expense due to a reduction in our net deferred tax asset driven by the impact 

of the Tax Cuts and Jobs Act enacted in December 2017, which reduced the statutory corporate 

income tax rate from 35% to 21%.
Introduction About Freddie Mac

FREDDIE MAC | 2017 Form 10-K 7

2016 vs. 2015

Continued growth in our single-family credit guarantee portfolio and higher average contractual 

guarantee fee rates, as well as higher amortization of upfront fees due to increased loan 

prepayments, offset by the continued reduction in the balance of our mortgage-related 

investments portfolio, resulted in lower net interest income. 

Decline in benefit for credit losses in 2016 due to a decrease in the number of seriously 

delinquent loans reclassified from held-for-investment to held-for-sale.

Higher fair value gains in 2016 due to an increase in long-term interest rates compared to 2015 

when long-term interest rates declined slightly.

Higher fair value gains in 2016 driven by tightening K Certificate benchmark spreads, coupled 

with improved pricing on K Certificates and SB Certificates and higher new business volume, 

compared to losses during 2015 as market spreads widened.
Introduction Our Business

FREDDIE MAC | 2017 Form 10-K 8

OUR BUSINESS

Primary Business Strategies

Our primary business strategies describe how we plan to pursue our Charter Mission through at least 

2020. Our core assumption is that the conservatorship will continue with no material changes during 

that period. 

Charter Mission

We are a GSE with a specific and limited corporate purpose (i.e., "Charter Mission") to support the 

liquidity, stability and affordability of U.S. housing mortgage markets as a participant in the secondary 

mortgage market, while operating as a commercial enterprise earning an appropriate return. Everything 

we do must be done within the constraints of our Charter Mission.

Our Twin Goals

We have established overarching twin goals to enable us to reach our Charter Mission:

A Better Freddie Mac; and 

A Better Housing Finance System

Our Key Strategies

A Better Freddie Mac

We are focused on operating as a very well-run large financial institution by:

Being a very effective operating organization;

Being a market leader through customer focus and innovation; and

Managing risk and economic capital for quality risk-adjusted returns.

A Better Housing Finance System

We are focused on providing leadership, through innovation and constructive forward-looking 

engagement with FHFA, to improve the liquidity, stability and affordability of the U.S. housing markets 

by:

Modernizing and improving the functioning of the mortgage markets;

Developing greater responsible access to affordable housing; and

Reducing taxpayer exposure to mortgage risks.

For further information on our goals and detailed strategies for each of our business segments, see 

MD&A — Our Business Segments.
Introduction Our Business

FREDDIE MAC | 2017 Form 10-K 9

Our Charter

Our Charter forms the framework for our business activities. Our Charter Mission is to:

Provide stability in the secondary mortgage market for residential loans;

Respond appropriately to the private capital market;

Provide ongoing assistance to the secondary mortgage market for residential loans (including 

activities relating to loans 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 financing; and

Promote access to mortgage loan credit throughout the United States (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 financing.

Our Charter permits us to purchase first-lien single-family loans with LTV ratios at the time of our 

purchase of less than or equal to 80%. Our Charter also permits us to purchase first-lien single-family 

loans that do not meet this criterion if we have certain specified credit protections, which include 

mortgage insurance from a qualified insurer on the portion of the UPB of the loan that exceeds an 80% 

LTV ratio, a seller's agreement to repurchase or replace a defaulted loan or the retention by the seller of 

at least a 10% participation interest in the loan. 

This Charter requirement does not apply to multifamily loans or to loans that have the benefit of any 

guarantee, insurance or other obligation by the United States or any of its agencies or instrumentalities 

(e.g., the FHA, VA or USDA Rural Development). Additionally, as part of HARP, we purchase singlefamily refinanced loans we currently own or guarantee without obtaining additional credit enhancement 

in excess of that already in place for any such loan, even when the LTV ratio of the new loan is above 

80%.

Our Charter does not permit us to originate loans or lend money directly to mortgage borrowers in the 

primary mortgage market. Our Charter limits our purchase of single-family loans to the conforming loan 

market, which consists of loans originated with UPBs at or below limits determined annually based on 

changes in FHFA’s housing price index. In most of the United States, the maximum conforming loan limit 

for a one-family residence has been set at $453,100 for 2018, an increase from $424,100 for 2017 and 

$417,000 from 2006 to 2016. Higher limits have been established in certain "high-cost" areas (for 2018, 

up to $679,650 for a one-family residence). Higher limits also apply to two- to four-family residences and 

to one- to four-family residences in Alaska, Guam, Hawaii and the U.S. Virgin Islands.
Introduction Our Business

FREDDIE MAC | 2017 Form 10-K 10

Business Segments

We have three reportable segments: Single-family Guarantee, Multifamily and Capital Markets. Certain 

activities that are not part of a reportable segment are included in the All Other category. For more 

information on our segments, see MD&A - Our Business Segments and Note 13.

Employees

At February 1, 2018, we had 6,144 full-time and 41 part-time employees. 

Properties

Our principal offices consist of four office buildings we own in McLean, Virginia, comprising 

approximately 1.3 million square feet. We operate our business in the United States and its territories, 

and accordingly, we generate no revenue from and have no long-lived assets, other than financial 

instruments, in geographic locations other than the United States and its territories.

Available Information

We file reports and other information with the SEC. In view of the Conservator’s succession to all of the 

voting power of our stockholders, we have not prepared or provided proxy statements for the solicitation 

of proxies from stockholders since we entered into conservatorship, and do not expect to do so while 

we remain in conservatorship. Pursuant to SEC rules, our annual reports on Form 10-K contain certain 

information typically provided in an annual proxy statement.

We make available, free of charge through our website at www.freddiemac.com, our annual reports on 

Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other SEC reports and 

amendments to those reports as soon as reasonably practicable after we electronically file the material 

with the SEC. In addition, materials that we file with the SEC are available for review and copying at the 

SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain 

information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The 

SEC also maintains an internet site (www.sec.gov) that contains reports, proxy and information 

statements and other information regarding companies that file electronically with the SEC.

We are providing our website addresses and the website address of the SEC here and elsewhere in this 

Form 10-K solely for your information. Information appearing on our website or on the SEC’s website is 

not incorporated into this Form 10-K.

Pursuant to SEC regulations, public companies are required to disclose certain information when they 

incur a material direct financial obligation or become directly or contingently liable for a material 

obligation under an off-balance sheet arrangement. The disclosure must be made in a current report on 

Form 8-K under Item 2.03 or, if the obligation is incurred in connection with certain types of securities 

offerings, in prospectuses for those offerings that are filed with the SEC.

Freddie Mac’s securities offerings are exempted from SEC registration requirements. As a result, we do 
Introduction Our Business

FREDDIE MAC | 2017 Form 10-K 11

not file registration statements or prospectuses with the SEC with respect to our securities offerings. To 

comply with the disclosure requirements of Form 8-K relating to the incurrence of material financial 

obligations, we report these types of obligations either in offering circulars or offering circular 

supplements that we post on our website or in a current report on Form 8-K, in accordance with a "noaction" letter we received from the SEC staff. In cases where the information is disclosed in an offering 

circular or offering circular supplement, the document will be posted on our website within the same 

time period that a prospectus for a non-exempt securities offering would be required to be filed with the 

SEC.

The website address for disclosure about our debt securities is www.freddiemac.com/debt. From this 

address, investors can access the offering circular and related supplements for debt securities offerings 

under Freddie Mac’s global debt facility, including pricing supplements for individual issuances of debt 

securities. Similar information about our STACR and SCR debt notes is available at 

www.freddiemac.com/creditriskofferings and www.freddiemac.com/multifamily/investors/

structured-credit-risk, respectively.

Disclosure about the mortgage-related securities we issue, some of which are off-balance sheet 

obligations (e.g., K Certificates and SB Certificates), can be found at www.freddiemac.com/mbs. From 

this address, investors can access information and documents about our mortgage-related securities, 

including offering circulars and offering circular supplements.

We provide additional information, including product descriptions, investor presentations, securities 

issuance calendars, transaction volumes and details, redemption notices, and Freddie Mac research, in 

each case as applicable, on the websites for our business segments, which can be found at 

www.freddiemac.com/singlefamily, www.freddiemac.com/multifamily, and www.freddiemac.com/

capital-markets.
Introduction Forward-Looking Statements

FREDDIE MAC | 2017 Form 10-K 12

FORWARD-LOOKING STATEMENTS

We regularly communicate information concerning our business activities to investors, the news media, 

securities analysts and others as part of our normal operations. Some of these communications, 

including this Form 10-K, contain "forward-looking statements." Examples of forward-looking 

statements include, but are not limited to, statements pertaining to the conservatorship, our current 

expectations and objectives for the Single-family Guarantee, Multifamily and Capital Markets segments 

of our business, our efforts to assist the housing market, our liquidity and capital management, 

economic and market conditions and trends, our market share, the effect of legislative and regulatory 

developments and new accounting guidance, the credit quality of loans we own or guarantee, the costs 

and benefits of our credit risk transfer transactions and our results of operations and financial condition 

on a GAAP, Segment Earnings and fair value basis. Forward-looking statements involve known and 

unknown risks and uncertainties, some of which are beyond our control. Forward-looking statements are 

often accompanied by, and identified with, terms such as "could," "may," "will," "believe," "expect," 

"anticipate," "forecast" and similar phrases. These statements are not historical facts, but rather 

represent our expectations based on current information, plans, judgments, assumptions, estimates and 

projections. Actual results may differ significantly from those described in or implied by such forwardlooking statements due to various factors and uncertainties, including those described in the Risk 

Factors section of this Form 10-K and:

The actions the U.S. government (including FHFA, Treasury and Congress) may take, or require us to 

take, including to support the housing markets or to implement FHFA's Conservatorship Scorecards 

and other objectives for us;

The effect of the restrictions on our business due to the conservatorship and the Purchase 

Agreement, including our dividend requirement on the senior preferred stock;

Changes in our Charter or in applicable legislative or regulatory requirements (including any 

legislation affecting the future status of our company);

Changes in the fiscal and monetary policies of the Federal Reserve, including the balance sheet 

normalization program announced in October 2017 to reduce the Federal Reserve's holdings of 

mortgage-related securities;

Changes in tax laws, including those made by the Tax Cuts and Jobs Act enacted in December 

2017;

Changes in accounting policies, practices or guidance (e.g., FASB's accounting standards update 

related to the measurement of credit losses of financial instruments);

Changes in economic and market conditions, including changes in employment rates, interest rates, 

spreads and home prices;

Changes in the U.S. residential mortgage market, including changes in the supply and type of loan 

products (e.g., refinance vs. purchase, and fixed-rate vs. ARM);

The success of our efforts to mitigate our losses on our Legacy and relief refinance single-family loan 

portfolio;

The success of our strategy to transfer mortgage credit risk through STACR debt note, ACIS, K 

Certificate, SB Certificate and other credit risk transfer transactions;

Our ability to maintain adequate liquidity to fund our operations;
Introduction Forward-Looking Statements

FREDDIE MAC | 2017 Form 10-K 13

Our ability to maintain the security and resiliency of our operational systems and infrastructure (e.g., 

against cyberattacks);

Our ability to effectively execute our business strategies, implement new initiatives and improve 

efficiency;

The adequacy of our risk management framework;

Our ability to manage mortgage credit risk, including the effect of changes in underwriting and 

servicing practices;

Our ability to limit or manage our economic exposure and GAAP earnings exposure to interest-rate 

volatility and spread volatility, including the availability of derivative financial instruments needed for 

interest-rate risk management purposes;

Our operational ability to issue new securities, make timely and correct payments on securities and 

provide initial and ongoing disclosures;

Changes or errors in the methodologies, models, assumptions and estimates we use to prepare our 

financial statements, make business decisions and manage risks;

Changes in investor demand for our debt or mortgage-related securities;

Changes in the practices of loan originators, servicers, investors and other participants in the 

secondary mortgage market; 

The occurrence of a major natural or other disaster in areas in which our offices or significant 

portions of our total mortgage portfolio are located; and

Other factors and assumptions described in this Form 10-K, including in the MD&A section.

Forward-looking statements are made only as of the date of this Form 10-K, and we undertake no 

obligation to update any forward-looking statements we make to reflect events or circumstances 

occurring after the date of this Form 10-K.
Selected Financial Data

FREDDIE MAC | 2017 Form 10-K 14

Selected Financial Data

The selected financial data presented below should be reviewed in conjunction with MD&A and our 

consolidated financial statements and accompanying notes.

As of or For the Year Ended December 31,

(Dollars in millions, except share-related amounts) 2017 2016 2015 2014 2013

Statements of Comprehensive Income Data

Net interest income $14,164 $14,379 $14,946 $14,263 $16,468

Benefit (provision) for credit losses 84 803 2,665 (58) 2,465

Non-interest income (loss) 6,869 500 (3,599) (113) 8,519

Non-interest expense (4,283) (4,043) (4,738) (3,090) (2,089)

Income tax (expense) benefit (11,209) (3,824) (2,898) (3,312) 23,305

Net income 5,625 7,815 6,376 7,690 48,668

Comprehensive income 5,558 7,118 5,799 9,426 51,600

Net income (loss) attributable to common stockholders (3,244) 97 (23) (2,336) (3,531)

Net income (loss) per common share - basic and diluted (1.00) 0.03 (0.01) (0.72) (1.09)

Cash dividends per common share — — — — —

Weighted average common shares outstanding - basic and

diluted (in millions) 3,234 3,234 3,235 3,236 3,238

Balance Sheets Data

Loans held-for-investment, at amortized cost by consolidated

trusts (net of allowances for loan losses) $1,774,286 $1,690,218 $1,625,184 $1,558,094 $1,529,905

Real estate owned, net 892 1,198 1,725 2,558 4,551

Total assets 2,049,776 2,023,376 1,985,892 1,945,360 1,965,831

Debt securities of consolidated trusts held by third parties 1,720,996 1,648,683 1,556,121 1,479,473 1,433,984

Other debt 313,634 353,321 414,148 449,890 506,537

All other liabilities 15,458 16,297 12,683 13,346 12,475

Total stockholders' equity (312) 5,075 2,940 2,651 12,835

Portfolio Balances - UPB

Mortgage-related investments portfolio $253,455 $298,426 $346,911 $408,414 $461,024

Total Freddie Mac mortgage-related securities 1,962,372 1,832,810 1,729,493 1,637,086 1,592,511

Total mortgage portfolio 2,097,630 2,011,414 1,941,587 1,910,106 1,914,661

TDRs on accrual status 51,720 77,399 82,347 82,908 78,708

Non-accrual loans 17,817 16,272 22,649 33,130 43,457

Ratios

Return on average assets 0.3% 0.4% 0.3% 0.4% 2.5%

Allowance for loan losses as percentage of loans, held-forinvestment 0.5 0.7 0.9 1.3 1.4

Equity to assets 0.1 0.2 0.1 0.4 0.5
Management's Discussion and Analysis Key Economic Indicators | Single-Family Home Prices

FREDDIE MAC | 2017 Form 10-K 15

Management's Discussion and 

Analysis of Financial Condition and 

Results of Operations

KEY ECONOMIC INDICATORS

The following graphs and related discussion present certain macroeconomic indicators that can 

significantly affect our business and financial results. 

Single-Family Home Prices

National Home Prices Effects on Financial Results

Changes in home prices affect the amount 

of equity that borrowers have in their homes. 

Borrowers with less equity typically have 

higher delinquency rates.

As home prices decline, the severity of 

losses we incur on defaulted loans that we 

hold or guarantee increases because the 

amount we can recover from the property 

securing the loan decreases. Increases in 

home prices lower the losses we incur on 

defaulted loans.

Commentary 

Home prices continued to appreciate during 2017, increasing 7.1%, compared to an increase of 

6.4% during 2016, based on our own non-seasonally adjusted price index of single-family homes 

funded by loans owned or guaranteed by us or Fannie Mae. 

We expect near-term home price growth will moderate driven by a gradual increase in housing 

supply and modestly higher mortgage interest rates.
Management's Discussion and Analysis Key Economic Indicators | Single-Family Home Prices

FREDDIE MAC | 2017 Form 10-K 16

We do not expect national home prices to be substantially affected by the Tax Cuts and Jobs Act, 

but home price growth in housing markets with higher state and local taxes (e.g., New Jersey and 

New York) could be affected.
Management's Discussion and Analysis Key Economic Indicators | Interest Rates

FREDDIE MAC | 2017 Form 10-K 17

Interest Rates

Key Market Interest Rates

Effects on Financial Results

The 30-year Primary Mortgage Market Survey ("PMMS") interest rate is indicative of what a 

consumer could expect to be offered on a first-lien, prime, home purchase or refinance mortgage 

with an LTV of 80%. Increases in the PMMS rate typically result in decreases in refinancing activity 

and originations. Decreases in the PMMS rate typically result in increases in refinancing activity and 

originations.

Changes in the 10-year and 2-year LIBOR interest rates affect the fair value of certain of our assets 

and liabilities, including derivatives, measured at fair value. A smaller interest rate fluctuation from 

period to period generally results in smaller fair value gains and losses, while a larger fluctuation 

generally results in larger fair value gains and losses.
Management's Discussion and Analysis Key Economic Indicators | Interest Rates

FREDDIE MAC | 2017 Form 10-K 18

Changes in the 3-month LIBOR rate affect the interest earned on our short-term investments and 

interest expense on our short-term funding.

For additional information on the effect of LIBOR rates on our financial results, see Our Business 

Segments - Capital Markets - Market Conditions.

Commentary 

Mortgage interest rates for 30-year fixed-rate loans are closely related to other long-term interest 

rates such as the 10-year LIBOR rate. When the 10-year LIBOR rate increases, mortgage interest 

rates for 30-year fixed-rate loans usually also increase. When the 10-year LIBOR rate declines, 

mortgage interest rates for 30-year fixed-rate loans usually also decline. 

Mortgage interest rates, as indicated by the PMMS rate, were lower at the end of 2017 than the end 

of 2016, while long-term interest rates, as indicated by the 10-year LIBOR rate, were higher. The 

PMMS rate and 10-year LIBOR rate were both higher at the end of 2016 than the end of 2015.

The quarterly ending and quarterly average short-term interest rates, as indicated by the 3-month 

LIBOR rate, were higher at the end of 2017 than the end of 2016 and higher at the end of 2016 than 

the end of 2015. 

The Federal Reserve raised short-term interest rates five times over the last three years, most 

recently in December 2017.
Management's Discussion and Analysis Key Economic Indicators | Unemployment Rate

FREDDIE MAC | 2017 Form 10-K 19

Unemployment Rate

Unemployment Rate and Job 

Creation(1)

Source: U.S. Bureau of Labor Statistics

(1) Excludes Puerto Rico and the U.S. Virgin Islands.

 

Effect on Financial Results

Changes in the national unemployment rate 

can affect several market factors, including 

the demand for both single-family and 

multifamily housing and the level of loan 

delinquencies.

Decreases in the national unemployment 

rate typically result in lower levels of 

delinquencies, which often result in a 

decrease in expected credit losses on our 

total mortgage portfolio. 

Increases in the national unemployment rate 

typically result in higher levels of 

delinquencies, which often result in an 

increase in expected credit losses on our 

total mortgage portfolio. 

Commentary 

During 2017, average monthly net new jobs (non-farm) decreased, while the national unemployment 

rate declined to the lowest level since December 2000.
Management's Discussion and Analysis Consolidated Results of Operations

FREDDIE MAC | 2017 Form 10-K 20

CONSOLIDATED RESULTS OF OPERATIONS

You should read this discussion of our consolidated results of operations in conjunction with our 

consolidated financial statements and accompanying notes.

The table below compares our consolidated results of operations for the past three years. 

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Net interest income $14,164 $14,379 $14,946 ($215) (1)% ($567) (4)%

Benefit (provision) for credit losses 84 803 2,665 (719) (90)% (1,862) (70)%

Net interest income after benefit (provision) for

credit losses 14,248 15,182 17,611 (934) (6)% (2,429) (14)%

Non-interest income (loss):

Gains (losses) on extinguishment of debt 341 (211) (240) 552 262 % 29 12 %

Derivative gains (losses) (1,988) (274) (2,696) (1,714) (626)% 2,422 90 %

Net impairment of available-for-sale securities

recognized in earnings (18) (191) (292) 173 91 % 101 35 %

Other gains (losses) on investment securities

recognized in earnings 1,054 (78) 508 1,132 1,451 % (586) (115)%

Other income (loss) 7,480 1,254 (879) 6,226 496 % 2,133 243 %

Total non-interest income (loss) 6,869 500 (3,599) 6,369 1,274 % 4,099 114 %

Non-interest expense:

Administrative expense (2,106) (2,005) (1,927) (101) (5)% (78) (4)%

REO operations expense (189) (287) (338) 98 34 % 51 15 %

Temporary Payroll Tax Cut Continuation Act of

2011 expense (1,340) (1,152) (967) (188) (16)% (185) (19)%

Other expense (648) (599) (1,506) (49) (8)% 907 60 %

Total non-interest expense (4,283) (4,043) (4,738) (240) (6)% 695 15 %

Income before income tax expense 16,834 11,639 9,274 5,195 45 % 2,365 26 %

Income tax expense (11,209) (3,824) (2,898) (7,385) (193)% (926) (32)%

Net income (loss) 5,625 7,815 6,376 (2,190) (28)% 1,439 23 %

Total other comprehensive income (loss), net of

taxes and reclassification adjustments (67) (697) (577) 630 90 % (120) (21)%

Comprehensive income (loss) $5,558 $7,118 $5,799 ($1,560) (22)% $1,319 23 %

See Critical Accounting Policies and Estimates for information concerning certain significant 

accounting policies and estimates applied in determining our reported results of operations and Note 1

for information on our accounting policies and a summary of other significant accounting policies and 

the related notes in which information about them can be found.
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

FREDDIE MAC | 2017 Form 10-K 21

Net Interest Income

Explanation of Key Drivers of Net Interest Income

Net interest income consists of several primary components: 

Contractual net interest income - consists of two components:

Guarantee fees on debt securities issued by consolidated trusts. We record interest income on 

loans held by consolidated trusts and interest expense on the debt securities issued by the 

trusts. The difference between the interest income on the loans and the interest expense on the 

debt represents the guarantee fee income we receive as compensation for our guarantee of the 

principal and interest payments of the issued debt securities. This difference includes the 

legislated 10 basis point increase in guarantee fees that is remitted to Treasury as part of the 

Temporary Payroll Tax Cut Continuation Act of 2011; and

The difference between the interest income earned on all other interest-earning assets, 

excluding loans held by consolidated trusts, and the interest expense incurred on the liabilities 

used to fund those assets. 

Contractual net interest income is driven by the volume of assets in the mortgage-related 

investments portfolio and the interest rate differential between those interest-earning assets and the 

related interest-bearing liabilities.

Amortization of cost basis adjustments - consists of cost basis adjustments, such as premiums 

and discounts on loans, investment securities and debt that are amortized into interest income or 

interest expense based on the effective yield over the contractual life of the associated financial 

instrument. 

The largest portion of our total net amortization relates to loans and debt securities of consolidated 

trusts, which includes amortization of the upfront fees we receive when we acquire a loan. 

Amortization related to investment securities, other debt and other assets and liabilities makes up a 

smaller portion. 

The net amortization of loans and debt securities of consolidated trusts is primarily driven by actual 

prepayments on the underlying loans. Increases in actual prepayments result in higher net 

amortization, while decreases in actual prepayments result in lower net amortization. The timing of 

amortization of loans may differ from the timing of amortization of the securities backed by the loans, 

as the proceeds from the loans backing these securities are remitted to the security holders at a date 

subsequent to the date these proceeds are received by us. 

Hedge accounting impact - consists of deferred gains and losses on closed cash flow hedges 

related to forecasted debt issuances that are reclassified from AOCI to net interest income when the 

related forecasted transaction affects net interest income. Upon adoption of amended hedge 

accounting guidance in 4Q 2017, for qualifying fair value hedges, we began recording both the 

change in the fair value of the hedging instrument, including the accrual of periodic cash 

settlements, and the change in the fair value of the hedged item attributable to the risk being 

hedged, within net interest income. See Note 9 for additional detail on this change. 
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

FREDDIE MAC | 2017 Form 10-K 22

Components of Net Interest Income

The table below presents the components of net interest income.

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Contractual net interest income:

Guarantee fee income $3,270 $2,997 $2,722 $273 9 % $275 10 %

Guarantee fee income related to the Temporary

Payroll Tax Cut Continuation Act of 2011 1,314 1,142 957 172 15 % 185 19 %

Other contractual net interest income 6,400 6,896 8,106 (496) (7)% (1,210) (15)%

Total contractual net interest income 10,984 11,035 11,785 (51) — % (750) (6)%

Net amortization - loans and debt securities of

consolidated trusts 3,258 3,333 2,883 (75) (2)% 450 16 %

Net amortization - other assets and debt (85) 202 506 (287) (142)% (304) (60)%

Hedge accounting impact 7 (191) (228) 198 104 % 37 16 %

Net interest income $14,164 $14,379 $14,946 ($215) (1)% ($567) (4)%

Key Drivers:

Guarantee fee income

2017 vs. 2016 and 2016 vs. 2015 - increased during both comparative periods as a result of 

higher average contractual guarantee fee rates, as well as the continued growth in the size of the 

Core single-family loan portfolio. Average contractual guarantee fees are generally higher on 

mortgage loans in our Core single-family loan portfolio compared to those in our Legacy and 

relief refinance single-family loan portfolio. 

Other contractual net interest income

2017 vs. 2016 and 2016 vs. 2015 - decreased during both comparative periods primarily due to 

the continued reduction in the balance of our mortgage-related investments portfolio, pursuant 

to the portfolio limits established by the Purchase Agreement and FHFA. See Conservatorship 

and Related Matters - Limits on Our Mortgage-Related Investments Portfolio and 

Indebtedness for additional discussion of the limits on the mortgage-related investments 

portfolio.

Net amortization of loans and debt securities of consolidated trusts

2016 vs. 2015 - increased primarily due to higher amortization of mortgage loan upfront fees and 

basis adjustments on debt securities of consolidated trusts. The increase in amortization was 

primarily driven by higher prepayment rates on single-family loans during 2016 compared to 

2015. 
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

FREDDIE MAC | 2017 Form 10-K 23

Net amortization of other assets and debt

2017 vs. 2016 and 2016 vs. 2015 - decreased during both comparative periods primarily due to 

less accretion of previously recognized other-than-temporary impairments on non-agency 

mortgage-related securities. The decrease in accretion is due to a decline in the population of 

impaired securities as a result of our active disposition of these securities and a decline in new 

other-than-temporary impairments recognized.

Hedge accounting impact

2017 vs. 2016 - increased primarily due to the inclusion of fair value hedge accounting results 

within net interest income beginning in 4Q 2017, due to the adoption of amended hedge 

accounting guidance. In prior periods, this activity was included in other income and derivative 

gains (losses). 
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

FREDDIE MAC | 2017 Form 10-K 24

Net Interest Yield Analysis

The table below presents an analysis of interest-earning assets and interest-bearing liabilities. To 

calculate the average balances, we generally use a daily weighted average of amortized cost. When 

daily average balance information is not available, such as for mortgage loans, we use monthly 

averages. Mortgage loans on non-accrual status, where interest income is generally recognized when 

collected, are included in the average balances.

Year Ended December 31,

2017 2016 2015

(Dollars in millions)

Average

Balance

Interest

Income

(Expense)

Average

Rate

Average

Balance

Interest

Income

(Expense)

Average

Rate

Average

Balance

Interest

Income

(Expense)

Average

Rate

Interest-earning assets:

Cash and cash equivalents $10,965 $48 0.44 % $16,932 $42 0.25 % $12,482 $8 0.06 %

Securities purchased under

agreements to resell 57,883 588 1.02 59,639 217 0.36 51,219 58 0.11

Advances to lenders and other

secured lending 859 21 2.42 484 11 2.28 161 4 2.48

Mortgage-related securities:

Mortgage-related securities 164,663 6,402 3.89 189,982 7,262 3.82 226,162 8,706 3.85

Extinguishment of PCs held by

Freddie Mac (87,665) (3,264) (3.72) (94,624) (3,509) (3.71) (107,986) (3,929) (3.64)

Total mortgage-related

securities, net 76,998 3,138 4.08 95,358 3,753 3.94 118,176 4,777 4.04

Non-mortgage-related securities 17,558 277 1.58 15,734 102 0.65 10,699 17 0.16

Loans held by consolidated trusts(1) 1,730,000 58,746 3.40 1,649,727 55,417 3.36 1,590,768 55,867 3.51

Loans held by Freddie Mac(1) 117,043 4,989 4.26 135,882 5,623 4.14 157,261 6,359 4.04

Total interest-earning

assets $2,011,306 $67,807 3.37 % $1,973,756 $65,165 3.30 % $1,940,766 $67,090 3.46 %

Interest-bearing liabilities:

Debt securities of consolidated

trusts including PCs held by

Freddie Mac

$1,753,983 ($50,920) (2.90)% $1,674,474 ($48,108) (2.87)% $1,611,388 ($49,465) (3.07)%

Extinguishment of PCs held by

Freddie Mac (87,665) 3,264 3.72 (94,624) 3,509 3.71 (107,986) 3,929 3.64

Total debt securities of

consolidated trusts held by

third parties

1,666,318 (47,656) (2.86) 1,579,850 (44,599) (2.82) 1,503,402 (45,536) (3.03)

Other debt:

Short-term debt 72,071 (615) (0.85) 86,284 (350) (0.41) 108,096 (173) (0.16)

Long-term debt 264,354 (5,372) (2.03) 298,040 (5,837) (1.96) 313,502 (6,435) (2.05)

Total other debt 336,425 (5,987) (1.78) 384,324 (6,187) (1.61) 421,598 (6,608) (1.57)

Total interest-bearing

liabilities

2,002,743 (53,643) (2.68) 1,964,174 (50,786) (2.58) 1,925,000 (52,144) (2.71)

Impact of net non-interest-bearing

funding 8,563 — 0.01 9,582 — 0.01 15,766 — 0.02

Total funding of interestearning assets $2,011,306 ($53,643) (2.67)% $1,973,756 ($50,786) (2.57)% $1,940,766 ($52,144) (2.69)%

Net interest income/yield $14,164 0.70 % $14,379 0.73 % $14,946 0.77 %

(1) Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $2.4 billion, $2.6 billion and $2.0 billion for loans 

held by consolidated trusts and $162 million, $215 million and $383 million for loans held by Freddie Mac during 2017, 2016 and 2015, respectively.
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

FREDDIE MAC | 2017 Form 10-K 25

Net Interest Income Rate / Volume Analysis 

The table below presents a rate and volume analysis of our net interest income. Our net interest income 

reflects the reversal of interest income accrued, net of interest received on a cash basis, related to 

mortgage loans that are on non-accrual status.

Variance Analysis

2017 vs. 2016 2016 vs. 2015

(Dollars in millions) Rate Volume

Total

Change Rate Volume

Total

Change

Interest-earning assets:

Cash and cash equivalents $8 ($2) $6 $34 $— $34

Securities purchased under agreements to resell 380 (9) 371 147 12 159

Advances to lenders and other secured lending 1 9 10 — 7 7

Mortgage-related securities:

Mortgage-related securities 123 (983) (860) (61) (1,383) (1,444)

Extinguishment of PCs held by Freddie Mac (14) 259 245 (74) 494 420

Total mortgage-related securities, net 109 (724) (615) (135) (889) (1,024)

Non-mortgage-related securities 161 14 175 74 11 85

Loans held by consolidated trusts 609 2,720 3,329 (2,479) 2,029 (450)

Loans held by Freddie Mac 165 (799) (634) 146 (882) (736)

Total interest-earning assets $1,433 $1,209 $2,642 ($2,213) $288 ($1,925)

Interest-bearing liabilities:

Debt securities of consolidated trusts including PCs held by

Freddie Mac ($508) ($2,304) ($2,812) $3,246 ($1,889) $1,357

Extinguishment of PCs held by Freddie Mac 14 (259) (245) 74 (494) (420)

Total debt securities of consolidated trusts held by

third parties (494) (2,563) (3,057) 3,320 (2,383) 937

Other debt:

Short-term debt (331) 66 (265) (218) 41 (177)

Long-term debt (214) 679 465 299 299 598

Total other debt (545) 745 200 81 340 421

Total interest-bearing liabilities ($1,039) ($1,818) ($2,857) $3,401 ($2,043) $1,358

Net interest income $394 ($609) ($215) $1,188 ($1,755) ($567)
Management's Discussion and Analysis Consolidated Results of Operations | Benefit (Provision) for Credit Losses

FREDDIE MAC | 2017 Form 10-K 26

Benefit (Provision) for Credit Losses

Explanation of Key Drivers of Provision for Credit Losses

The benefit (provision) for credit losses predominantly relates to single-family loans and includes 

components for both collectively impaired loans and individually impaired loans. 

Collectively impaired loans - The provision for collectively impaired loans is primarily driven by the 

volume of newly impaired loans and changes in estimated probabilities of default and estimated loss 

severities for these loans. Estimated probabilities of default and estimated loss severities are based 

on current conditions and historical data and are heavily influenced by changes in home prices. 

These estimates are also affected by a number of other factors, such as local and regional economic 

conditions, changes in reperformance and default rates and the success of our borrower assistance 

programs. 

Individually impaired loans - The provision for individually impaired loans is primarily driven by the 

volume of our loss mitigation activity (e.g., loan modifications) that results in loans being considered 

TDRs, the payment performance of our individually impaired mortgage portfolio and changes in 

estimated probabilities of default and estimated loss severities, which affect the future cash flows we 

expect to receive from these loans. Estimated probabilities of default and estimated loss severities 

for individually impaired loans are based on the same current conditions and historical data and are 

affected by the same factors noted above for collectively impaired loans.

Our allowance for loan losses and provision for credit losses are significantly affected by the "interest 

rate concessions" we make on loans that we have modified (i.e., reductions in the contractual interest 

rate). When a loan is modified and considered individually impaired, we measure impairment based on 

the present value of the expected future cash flows discounted at the loan’s original effective interest 

rate. Under this methodology, we record a loss at the time a loan is modified equal to the difference in 

the present value of expected future cash flows resulting from the change in the modified loan’s 

contractual interest rate, which increases the provision for credit losses in that period. An increase in 

mortgage interest rates lengthens the expected life of individually impaired loans, which increases the 

impairment on these loans and results in an increase in the provision for credit losses. When a modified 

loan subsequently performs according to its new contractual terms and we receive the new contractual 

cash flows (i.e., principal and interest payments), a portion of the discount that was previously applied to 

those cash flows is amortized into earnings each period and is recognized as a reduction in the 

provision for credit losses in the period in which the cash flows are received. We refer to this reduction in 

the provision for credit losses as the "amortization of interest rate concessions."

Our benefit (provision) for credit losses and the amount of charge-offs that we record in the future will be 

affected by a number of factors, such as:

Actual level of loan defaults;

The effect of loss mitigation efforts; 

Any government actions or programs that affect the ability of borrowers to refinance loans, such as 

loans with an LTV ratio greater than 100%, or obtain modifications; 

Changes in property values; 
Management's Discussion and Analysis Consolidated Results of Operations | Benefit (Provision) for Credit Losses

FREDDIE MAC | 2017 Form 10-K 27

Regional economic conditions, including unemployment rates; 

Additional delays in the foreclosure process; and 

Third-party mortgage insurance coverage and recoveries. 

Management adjustments may be necessary to take into consideration external factors and current 

economic events that have occurred but that are not yet reflected in the factors used to derive the 

outputs of the models used in our provisioning process. Significant judgment is exercised in making 

these adjustments. 

The amount of our benefit (provision) for credit losses may also vary from period to period based on 

additional factors, such as reclassification of loans from held-for-investment to held-for-sale.

Components of Benefit (Provision) for Credit Losses

The table below presents the components of our benefit (provision) for credit losses.

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in billions) 2017 2016 2015 $ % $ %

Benefit (provision) for newly impaired loans ($0.7) ($0.8) ($0.9) $0.1 13 % $0.1 11 %

Amortization of interest rate concessions 0.7 0.9 1.2 (0.2) (22)% (0.3) (25)%

Reclassifications of held-for-investment loans to held-for-sale loans 0.5 0.8 2.3 (0.3) (38)% (1.5) (65)%

Other, including changes in estimated default probability and loss

severity (0.4) (0.1) 0.1 (0.3) (300)% (0.2) (200)%

Benefit (provision) for credit losses $0.1 $0.8 $2.7 ($0.7) (88)% ($1.9) (70)%

Key Drivers:

2017 vs. 2016 - Benefit for credit losses declined in 2017 compared to 2016 primarily driven by:

Estimated losses related to hurricanes in 2017;

A decrease in the accretion of TDR concessions due to a significant increase in the 

reclassification of reperforming loans from held-for-investment to held-for-sale; and

A change in accounting policy that was elected on January 1, 2017 for loan reclassification from 

held-for-investment to held-for-sale. See Item Affecting Multiple Lines - Single-Family 

Loan Reclassifications for further information about this change.

This decrease was partially offset by:

Improvement in our estimated loss severity.

2016 vs. 2015 - Benefit for credit losses declined in 2016 compared to 2015 primarily due to a 

decrease in the number of seasoned single-family loans reclassified from held-for-investment to 

held-for sale in 2016.
Management's Discussion and Analysis Consolidated Results of Operations | Derivative Gains (Losses)

FREDDIE MAC | 2017 Form 10-K 28

Derivative Gains (Losses)

Explanation of Key Drivers of Derivative Gains (Losses)

Derivative instruments are a key component of our interest-rate risk management strategy. We use 

derivatives to economically hedge our interest-rate risk exposure. We primarily use interest-rate swaps, 

option-based derivatives such as swaptions and futures to manage our exposure to changes in interestrates. We consider the cost of derivatives used in interest-rate risk management to be an inherent part of 

the cost of funding our mortgage-related investments portfolio. 

In addition, we routinely enter into commitments to purchase and sell loans and mortgage-related 

securities. The majority of these commitments are accounted for as derivative instruments.

We continue to align our derivative portfolio with the changing duration of our assets and liabilities so as 

to economically hedge them. We manage our exposure to interest-rate risk on an economic basis to a 

low level as measured by our models. We believe the impact of derivatives on our GAAP financial results 

should be considered in the context of our overall interest-rate risk profile, including our PMVS and 

duration gap results. For more information about our interest-rate risk management activities and the 

sensitivity of reported GAAP earnings to those activities, see Risk Management - Market Risk.

During 2017, we started applying hedge accounting to certain single-family mortgage loans and longterm debt to reduce our GAAP earnings volatility. For the first three quarters of 2017, we included gains 

and losses on derivatives designated in qualifying hedge relationships in other income. Beginning in 4Q 

2017, due to the adoption of amended hedge accounting guidance, we included gains and losses on 

derivatives designated in qualifying hedge relationships in the same line used to present the earnings 

effect of the hedged item. See Note 9 for more information on hedge accounting and the changes 

made during 2017.

In addition to fair value changes, derivative gains (losses) include accrual of periodic cash settlements 

for derivatives while not designated in qualifying hedge relationships. For the first three quarters of 2017, 

we included the accrual of periodic cash settlements on derivatives in qualifying hedge relationships in 

derivatives gains (losses). Beginning in 4Q 2017, we included the accrual of periodic cash settlements 

on derivatives in qualifying hedge relationships in the same line used to present the earnings effect of 

the hedged item. 

Fair value changes - Represent changes in the fair value of our derivatives based on market 

conditions at the end of the period or at the time the derivative instrument is terminated. These 

amounts may or may not be realized over time, depending on future changes in market conditions 

and the terms of our derivative instruments.

Accrual of periodic cash settlements - Consists of the net amount we accrue during a period for 

interest-rate swap payments that we will make or receive. This accrual represents the ongoing cost 

of our hedging activities, and is economically equivalent to interest expense. 

Gains and losses on derivatives are affected by a number of factors, including:

Changes in interest rates - Our primary derivative instruments are interest-rate swaps, including 

pay-fixed and receive-fixed interest-rate swaps. With a pay-fixed interest-rate swap, we pay a fixed 
Management's Discussion and Analysis Consolidated Results of Operations | Derivative Gains (Losses)

FREDDIE MAC | 2017 Form 10-K 29

rate of interest and receive a variable rate of interest based on a specified notional balance (the 

notional balance is for calculation purposes only). As interest rates decline, we recognize derivative 

losses, as the amount of interest we pay remains fixed, and the amount of interest we receive 

declines. As rates rise, we recognize derivative gains, as the amount of interest we pay remains 

fixed, but the amount of interest we receive increases. With a receive-fixed interest-rate swap, the 

opposite results occur.

Implied volatility - Many of our assets and liabilities have embedded prepayment options. We use 

option-based derivatives, including swaptions, to economically hedge the prepayment options 

embedded in our mortgage assets and callable debt. Fair value gains and losses on swaptions are 

sensitive to changes in both interest rates and implied volatility, which reflects the market’s 

expectation of future changes in interest rates. Assuming all other factors are unchanged, including 

interest rates, purchased swaptions generally become more valuable as implied volatility increases 

and less valuable as implied volatility decreases, with the opposite being true for written swaptions.

Changes in the shape of the yield curve - We own assets and have outstanding debt with different 

cash flows along the yield curve. We use derivatives to hedge the yield exposure of assets and debt, 

resulting in derivatives with different maturities. As a result, changes in the shape of the yield curve 

will affect our derivative gains (losses). 

Changes in the composition of our derivative portfolio - The mix and balance of our derivative 

portfolio changes from period to period as we enter into or terminate derivative instruments to 

respond to changes in interest rates and changes in the balances and modeled characteristics of our 

assets and liabilities. Changes in the composition of our derivative portfolio will affect the derivative 

gains and losses we recognize in a given period, thereby affecting the volatility of comprehensive 

income.

Components of Derivative Gains (Losses)

The table below presents the components of derivative gains (losses).

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Fair value change in interest-rate swaps $626 $178 ($778) $448 252 % $956 123%

Fair value change in option-based derivatives (1,041) 421 258 (1,462) (347)% 163 63%

Fair value change in other derivatives 17 887 22 (870) (98)% 865 3,932%

Accrual of periodic cash settlements (1,590) (1,760) (2,198) 170 10 % 438 20%

Derivative gains (losses) ($1,988) ($274) ($2,696) ($1,714) (626)% $2,422 90%

Key Drivers:

2017 vs. 2016 - Losses increased, driven by lower levels of volatility during 2017, resulting in larger 

losses in our options portfolio, coupled with lower fair value gains in our pay-fixed interest rate 

swaps as long-term interest rates increased less. This was partially offset by reduced fair value 

losses in our receive-fixed interest rate swaps.

2016 vs. 2015 - Derivative losses declined during 2016 primarily due to an increase in longer-term 

interest rates during the fourth quarter of 2016 resulting in an improvement in the fair value of our 
Management's Discussion and Analysis Consolidated Results of Operations | Derivative Gains (Losses)

FREDDIE MAC | 2017 Form 10-K 30

pay-fixed interest-rate swaps and forward commitments to issue debt securities of consolidated 

trusts. This improvement in fair value was partially offset by losses in our receive-fixed-interest-rate 

swaps. The 10-year par swap rate increased 13 basis points during 2016, while the 10-year par 

swap rate declined 10 basis points during 2015. 
Management's Discussion and Analysis Consolidated Results of Operations | Other Income (Loss)

FREDDIE MAC | 2017 Form 10-K 31

Other Income (Loss) 

Explanation of Key Drivers of Other Income (Loss)

The table below presents the components of other income (loss).

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Other income (loss)

Non-agency mortgage-related

securities settlements $4,532 $— $65 $4,532 N/A ($65) N/A

Gains (losses) on loans $928 ($463) ($2,094) $1,391 300 % $1,631 78 %

Gains (losses) on held-for-sale loan

purchase commitments 1,098 663 — 435 66 % 663 N/A

All other 786 1,054 1,150 (268) (25)% (96) (8)%

 Fair value hedge accounting

Change in fair value of derivatives in

qualifying hedge relationships (215) N/A N/A (215) N/A N/A N/A

Change in fair value of hedged items

in qualifying hedge relationships 351 N/A N/A 351 N/A N/A N/A

Total other income (loss) $7,480 $1,254 ($879) $6,226 496 % $2,133 243 %

Key Drivers:

2017 vs. 2016 - Other income (loss) increased reflecting:

Increased income from our litigation settlement related to our non-agency mortgage-related 

securities. While we had one large settlement with RBS during 2017, we did not have any 

significant settlements during 2016; and

Greater gains recognized on a higher volume of reperforming loans reclassified from held-forinvestment to held-for-sale and subsequently sold, coupled with less loss recognized in 2017 on 

the reclassification of seriously delinquent loans from held-for-investment to held-for-sale as a 

result of an accounting policy change in 2017. See Item Affecting Multiple Lines - SingleFamily Loan Reclassifications for more information.

2016 vs. 2015 - Other income (loss) increased reflecting:

Decreased lower-of-cost-or-fair-value adjustments as we reclassified fewer seasoned singlefamily loans from held-for-investment to held-for-sale during 2016; and

Increased gains on multifamily mortgage loans and commitments for which we have elected the 

fair value option, due to increased market spread-related fair value gains. K Certificate 

benchmark spreads tightened during 2016 compared to these spreads widening during 2015.
Management's Discussion and Analysis Consolidated Results of Operations | Other Comprehensive Income (Loss)

FREDDIE MAC | 2017 Form 10-K 32

Other Comprehensive Income (Loss)

Explanation of Key Drivers of Other Comprehensive Income (Loss)

Our investments in securities classified as available-for-sale are measured at fair value on our 

consolidated balance sheets. The fair value of these securities is primarily affected by changes in 

interest rates, market spreads and the movement of these securities towards maturity. All unrealized 

gains and losses on these securities are excluded from earnings and reported in other comprehensive 

income until realized. We reclassify our unrealized gains and losses from AOCI to earnings upon the sale 

of the securities or if the securities are determined to be other-than-temporarily impaired.

If, subsequent to the recognition of other-than-temporary impairment, our expectation of the cash flows 

we will receive on a previously impaired security has significantly increased, we will accrete that increase 

in cash flows into earnings. The accretion into earnings will generally reduce the amount of unrealized 

gains that we would have otherwise recognized if not for the accretion. 

The following table presents the attribution of the other comprehensive income (loss) reported in our 

consolidated statements of comprehensive income.

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Other comprehensive income, excluding certain items $1,084 ($29) $374 $1,113 3,838 % ($403) (108)%

Excluded items

Accretion due to significant increases in expected

cash flows on previously impaired available-for-sale

securities

(164) (299) (449) 135 45 % 150 33 %

Realized (gains) losses reclassified from AOCI (987) (369) (502) (618) (167)% 133 26 %

Total excluded items (1,151) (668) (951) (483) (72)% 283 30 %

Total other comprehensive income (loss) ($67) ($697) ($577) $630 90 % ($120) (21)%

Key Drivers:

Other comprehensive income, excluding certain items

2017 vs. 2016 - increased primarily due to market spread related gains as market spreads on 

non-agency and agency mortgage-related securities tightened more during 2017, coupled with 

smaller interest rate-related losses due to smaller increases in long-term interest rates during 

2017.

2016 vs. 2015 - decreased primarily due to unrealized losses resulting from an increase in 

longer-term interest rates, coupled with a decrease in unrealized gains as our non-agency 

mortgage-related securities portfolio continued to decline consistent with the reduction of our 

mortgage-related investments portfolio pursuant to the limits established by the Purchase 

Agreement and FHFA.
Management's Discussion and Analysis Consolidated Results of Operations | Other Comprehensive Income (Loss)

FREDDIE MAC | 2017 Form 10-K 33

Excluded items include:

Accretion due to significant increases in expected cash flows on previously impaired 

available-for-sale securities

2017 vs. 2016 and 2016 vs. 2015 - decreased during both comparative periods primarily due to 

a decline in the population of impaired securities as a result of our active dispositions of these 

securities, coupled with a decline in new other-than-temporary impairments. 

Realized (gains) losses reclassified from AOCI

2017 vs. 2016 - reflected larger amounts of reclassified gains during 2017 due to higher realized 

gains on our non-agency and agency mortgage-related securities sold, as a result of additional 

spread tightening and an increase in sales of non-agency mortgage-related securities.

2016 vs. 2015 - reflected smaller amounts of reclassified gains during 2016 primarily due to a 

decline in sales of non-agency mortgage-related securities in an unrealized gain position. 
Management's Discussion and Analysis Consolidated Results of Operations | Other Key Drivers

FREDDIE MAC | 2017 Form 10-K 34

Other Key Drivers

Explanation of Other Key Drivers 

Key drivers for other line items for 2017 vs. 2016 and 2016 vs. 2015 include:

Gains (losses) on extinguishment of debt

2017 vs. 2016 - improved primarily due to an increase in the amount of gains recognized from 

the extinguishment of certain fixed-rate debt securities of consolidated trusts (i.e., PCs), as 

market interest rates increased between the time of issuance and repurchase. The amount of 

extinguishment gains or losses may vary, as the type and amount of PCs selected for repurchase 

are based on our investment and funding strategies, including our efforts to support the liquidity 

and price performance of our PCs.

2016 vs. 2015 - losses decreased primarily due to an increase in longer-term interest rates during 

the fourth quarter of 2016, coupled with a decline in our repurchase of single-family PCs. The 

increase in longer-term interest rates resulted in net extinguishment gains for PCs repurchased 

during the fourth quarter, which partially offset the net extinguishment losses recognized for PCs 

repurchased during the nine months ended September 30, 2016. 

Other gains (losses) on investment securities recognized in earnings

2017 vs. 2016 - improved primarily due to the recognition of smaller fair value losses on our 

mortgage and non-mortgage-related securities classified as trading as long-term interest rates 

increased less during 2017, coupled with larger gains due to additional spread tightening during 

2017 on our sales of agency and non-agency mortgage-related securities.

2016 vs. 2015 - worsened as we recognized net losses during 2016 compared to net gains 

during 2015, primarily due to losses on our mortgage-related and non-mortgage-related 

securities as a result of increasing longer-term interest rates, coupled with less realized gains 

from our available-for-sale securities, as we sold fewer non-agency securities in an unrealized 

gain position.

Net impairment of available-for-sale securities recognized in earnings

2017 vs. 2016 and 2016 vs. 2015 - decreased primarily due to a decline in the population of 

non-agency mortgage-related securities, including those non-agency mortgage-related 

securities we intend to sell, as we continue to reduce the less liquid assets in our mortgagerelated investments portfolio.

Other expense

2016 vs. 2015 - decreased primarily driven by property taxes and insurance costs associated 

with seasoned single-family loans reclassified from held-for-investment to held-for-sale as we 

reclassified fewer loans in 2016 compared to 2015. These costs are considered part of the loan 

loss reserves while the loans are classified as held-for-investment. See Item Affecting 

Multiple Lines - Single-Family Loan Reclassifications for more information. 

 Income tax expense

2017 vs. 2016 - increased primarily as a result of the impact of the Tax Cuts and Jobs Act 

enacted in December 2017, which reduced the statutory corporate income tax rate from 35% to 

21%. We measured our net deferred tax asset using the reduced rate and recognized a charge to 
Management's Discussion and Analysis Consolidated Results of Operations | Other Key Drivers

FREDDIE MAC | 2017 Form 10-K 35

income tax expense of $5.4 billion.

2016 vs. 2015 - increased primarily due to an increase in pre-tax income.
Management's Discussion and Analysis Consolidated Results of Operations | Item Affecting Multiple Lines

FREDDIE MAC | 2017 Form 10-K 36

Item Affecting Multiple Lines

Single-Family Loan Reclassifications

During 2017, 2016 and 2015, we reclassified $26.2 billion, $4.7 billion and $13.6 billion, respectively, in 

UPB of seasoned single-family mortgage loans from held-for-investment to held-for-sale, as we 

continue to focus on reducing the balance of our less liquid assets. 

On January 1, 2017, we elected a new accounting policy for reclassifications from held-for-investment 

to held-for-sale. Under the new policy, when we reclassify (transfer) a loan from held-for-investment to 

held-for-sale, we charge off the entire difference between the loan’s recorded investment and its fair 

value if the loan has a history of credit-related issues. Expenses related to property taxes and insurance 

are included as part of the charge-off. If the charge-off amount exceeds the existing loan loss reserve 

amount, an additional provision for credit losses is recorded. If the charge-off amount is less than the 

existing loan loss reserve amount, a benefit for credit losses is recorded. Any declines in loan fair value 

after the date of transfer will be recognized as a valuation allowance, with an offset recorded to other 

income (loss). 

This new policy election was applied prospectively, as it was not practical to apply it retrospectively.

The table below presents the effect of single-family loan reclassifications on income before income tax 

expense. Beginning in 2017, benefit (provision) for credit losses is the only line item affected by the loan 

reclassifications from held-for-investment to held-for-sale. Prior to this change (including 2016 and 2015 

as presented below), the reclassifications from held-for-investment to held-for-sale affected several line 

items on our consolidated results of operations.

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Benefit (provision) for credit losses $546 $812 $2,314 ($266) (33)% ($1,502) (65)%

Other income (loss) - lower-of-cost-or-fair-value adjustment — (1,005) (2,193) 1,005 100 % 1,188 54 %

Other (expense) - property taxes and insurance associated

with these loans — (195) (1,178) 195 100 % 983 83 %

Effect on income before income tax expense $546 ($388) ($1,057) $934 241 % $669 63 %

Key Drivers:

2017 vs. 2016 - Effect on income before income tax expense changed to a gain due to a higher 

volume primarily of reperforming loans reclassified from held-for-investment to held-for-sale during 

2017 compared to a loss recognized primarily on seriously delinquent loans reclassified from heldfor-investment to held-for-sale during 2016.

2016 vs. 2015 - Effect on income before income tax expense decreased due to a decline in the 

number of seasoned single-family loans reclassified from held-for-investment to held-for-sale.
Management's Discussion and Analysis Consolidated Balance Sheet Analysis

FREDDIE MAC | 2017 Form 10-K 37

CONSOLIDATED BALANCE SHEETS 

ANALYSIS

The table below compares our summarized consolidated balance sheets.

As of December 31, Year Over Year Change

(Dollars in millions) 2017 2016 $ %

Assets:

Cash and cash equivalents $6,848 $12,369 ($5,521) (45)%

Restricted cash and cash equivalents 2,963 9,851 (6,888) (70)%

Securities purchased under agreements to resell 55,903 51,548 4,355 8 %

Subtotal 65,714 73,768 (8,054) (11)%

Investments in securities, at fair value 84,318 111,547 (27,229) (24)%

Mortgage loans, net 1,871,217 1,803,003 68,214 4 %

Accrued interest receivable 6,355 6,135 220 4 %

Derivative assets, net 375 747 (372) (50)%

Deferred tax assets, net 8,107 15,818 (7,711) (49)%

Other assets 13,690 12,358 1,332 11 %

Total assets $2,049,776 $2,023,376 $26,400 1 %

Liabilities and Equity:

Liabilities:

Accrued interest payable $6,221 $6,015 $206 3 %

Debt, net 2,034,630 2,002,004 32,626 2 %

Derivative liabilities, net 269 795 (526) (66)%

Other liabilities 8,968 9,487 (519) (5)%

Total liabilities 2,050,088 2,018,301 31,787 2 %

Total equity (312) 5,075 (5,387) (106)%

Total liabilities and equity $2,049,776 $2,023,376 $26,400 1 %

Key Drivers:

As of December 31, 2017 compared to December 31, 2016:

Cash and cash equivalents, restricted cash and cash equivalents and securities purchased 

under agreements to resell affect one another and changes in the balances should be viewed 

together (e.g., cash and cash equivalents can be invested in securities purchased under agreements 

to resell or other investments). The decrease in the combined balance was primarily due to lower 

near term cash needs for fewer upcoming maturities and anticipated calls of other debt, and a 

decrease in prepayment proceeds received by the custodial account driven by increased interest 

rates, at the end of 2017 compared to the end of 2016.

Investments in securities, at fair value decreased as we continued to reduce the mortgage-related 

investments portfolio during 2017 as required by the Purchase Agreement and FHFA.

Deferred tax assets, net decreased primarily due to a reduction in the statutory corporate income 

tax rate as a result of the Tax Cuts and Jobs Act enacted in December 2017.

Other assets increased primarily due to the recognition of receivables on sales of securities which 

had traded but not settled at year end.

Total equity decreased primarily as a result of higher income tax expense due to the reduction of 

our net deferred tax asset as a result of the Tax Cuts and Jobs Act. 
Management's Discussion and Analysis Our Business Segments | Segment Earnings

FREDDIE MAC | 2017 Form 10-K 38

OUR BUSINESS SEGMENTS

As shown in the table below, we have three reportable segments, which are based on the way we 

manage our business. Certain activities that are not part of a reportable segment are included in the All 

Other category.

Segment/

Category Description Primary Income Drivers Primary Expense Drivers

Single-family

Guarantee

Reflects results from our purchase, securitization and

guarantee of single-family loans and the management

of single-family mortgage credit risk

• Guarantee fee income • Credit-related expenses

• Administrative expenses

• Credit risk transfer expenses

Multifamily

Reflects results from our purchase, sale, securitization

and guarantee of multifamily loans and securities, our

investments in those loans and securities and the

management of multifamily mortgage credit risk and

market spread risk

• Net interest income • Losses on loans

• Guarantee fee income • Investment losses

• Gains on loans • Derivative losses

• Investment gains • Administrative expenses

• Derivative gains • Credit-related expenses

Capital Markets

Reflects results from managing our mortgage-related

investments portfolio (excluding Multifamily segment

investments, single-family seriously delinquent loans

and the credit risk of single-family performing and

reperforming loans), treasury function, single-family

securitization activities and interest-rate risk

• Net interest income • Investment losses

• Investment gains • Derivative losses

• Derivative gains • Administrative expenses

All Other

Consists of material corporate-level activities that are

infrequent in nature and based on decisions outside

the control of the management of our reportable

segments

N/A N/A

Segment Earnings

We evaluate segment performance and allocate resources based on a Segment Earnings approach:

We make significant reclassifications among certain line items in our GAAP financial statements to 

reflect measures of guarantee fee income on guarantees, net interest income on investments and 

benefit (provision) for credit losses on loans that are in line with how we manage our business.

We allocate certain revenues and expenses, including certain returns on assets and funding costs, 

and all administrative expenses to our three reportable segments.

The sum of Segment Earnings for each segment and the All Other category equals GAAP net 

income (loss). Likewise, the sum of comprehensive income (loss) for each segment and the All Other 

category equals GAAP comprehensive income (loss).

During 1Q 2017 and 4Q 2017, we changed how we calculate certain components of our Segment 

Earnings for our Capital Markets segment. Prior period results have been revised to conform to the 

current period presentation for the 1Q 2017 change. No prior period results required updates for the 4Q 

2017 change. For more information on these changes and our segment reclassifications, see Note 13.

Segment Earnings differs significantly from, and should not be used as a substitute for, net income (loss) 

as determined in accordance with GAAP. Our definition of Segment Earnings may differ from similar 

measures used by other companies. We believe that Segment Earnings provides us with meaningful 

metrics to assess the financial performance of each segment and our company as a whole. See Note 
Management's Discussion and Analysis Our Business Segments | Segment Earnings

FREDDIE MAC | 2017 Form 10-K 39

13 for additional details on Segment Earnings, including additional financial information for our 

segments.

Segment Comprehensive Income

The graph below shows our comprehensive income by segment.

 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 40

Single-Family Guarantee

Business Overview

Our Single-family Guarantee segment supports our primary business strategies by creating:

A Better Freddie Mac:

Providing market leadership by delivering quality offerings, programs and services to an increasingly 

diversified customer base and an evolving mortgage market; 

Improving the customer experience through continued enhancement of our products, programs, 

processes and technology; 

Establishing effective risk management activities, including credit risk transfer transactions, that are 

appropriate for the level of risk; and

Developing innovative technology platforms to provide sellers and servicers and Freddie Mac with 

better methods of assessing and managing single-family mortgage credit risk.

A Better Housing Finance System:

Developing and implementing initiatives to cost-effectively reduce taxpayer exposure and offer thirdparty investors new and innovative ways to share in the credit risk of the single-family credit 

guarantee portfolio;

Expanding access to affordable housing in a responsible manner to support our Charter Mission as 

well as to meet specific mandated goals;

Working with FHFA, Fannie Mae and CSS on the development of a new common securitization 

platform; and

Implementing the single (common) security initiative for Freddie Mac and Fannie Mae, which is 

intended to increase the liquidity of the TBA market and to reduce the disparities in trading value 

between our PCs and Fannie Mae's single-class mortgage-related securities.

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

lenders and a secondary mortgage market that links lenders and investors. The size of the U.S. 

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

unemployment rates, homeownership rates, housing prices, the supply of housing, lender preferences 

regarding credit risk and borrower preferences regarding mortgage debt.

In accordance with our Charter, we participate in the secondary mortgage market. The Single-family 

Guarantee segment provides liquidity and support to the single-family market through a variety of 

activities that include the purchase, securitization and guarantee of single-family loans originated by 

sellers and servicers. The mix of loan products available for us to purchase is affected by several 

factors, including the volume of loans meeting the requirements of our Charter, our own preference for 

credit risk reflected in our purchase standards and the loan purchase and securitization activity of other 

financial institutions.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 41

Our primary business model is to acquire loans that lenders originate and then pool those loans into 

mortgage-related securities that can be sold in the capital markets. The returns we generate from these 

activities are primarily derived from the ongoing guarantee fee we receive in exchange for providing our 

guarantee of the issued mortgage-related securities.

In order to issue mortgage-related securities, we establish trusts pursuant to our Master Trust 

Agreements and serve as the trustee of those trusts. The lender or servicer administers the collection of 

borrowers' payments on their loans and remits the collected funds to us. We administer the distribution 

of payments to the investors in the mortgage-related securities, net of any applicable guarantee fees. To 

reduce our exposure under our guarantee, we transfer credit risk on a portion of our single-family credit 

guarantee portfolio to the private market when it is cost-effective to do so. 

The diagram below illustrates our primary business model.

When a borrower prepays a loan that we have securitized, the outstanding balance of the security 

owned by investors is reduced by the amount of the prepayment. If the borrower becomes delinquent, 

we continue to make the applicable payments to the investors in the mortgage-related securities 

pursuant to our guarantee until we purchase the loan out of the trust. We have the option to purchase 

specified loans, including certain delinquent loans, from the trusts at a purchase price equal to the 

current UPB of the loan, less any outstanding advances of principal that have been previously 

distributed. If borrowers become delinquent, we work with the borrowers through our servicers to 

mitigate our losses through our loan workout programs, which are discussed in more detail in Risk 

Management. If we are unable to achieve a successful loan workout, we will pursue foreclosure of the 

underlying property, which will result in a third party sale or an acquisition of the property as REO. The 

purchase and sale of delinquent loans are done in conjunction with the Capital Markets segment.

Guarantee Fees

We enter into loan purchase agreements with many of our single-family customers that outline the terms 

under which we agree to purchase loans from them over a period of time. For most of the loans we 

purchase, the guarantee fees are not specified contractually. Instead, we bid for some or all of the 

lender’s loan volume on a monthly basis at a guarantee fee that we specify. As a result, our loan 

purchase volumes from individual customers can fluctuate significantly.

We seek to issue guarantees with fee terms that are commensurate with the aggregate risks assumed 

and that will, over the long-term, provide guarantee fee income that exceeds the credit-related and 

administrative expenses on the underlying loans and also provide a return on the capital that would be 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 42

needed to support the related credit risk. The guarantee fees charged on new acquisitions generally 

consist of:

A contractual monthly fee paid as a percentage of the UPB of the underlying loan;

Upfront fees, which primarily include delivery fees that are calculated based on credit risk factors 

such as the loan product type, loan purpose, LTV ratio and credit score. These delivery fees are 

charged to compensate us for higher levels of risk in some loan products;

Upfront payments made or received to buy up or buy down, respectively, the monthly contractual 

guarantee fee ("buy-up fees" or "buy-down fees"). These fees are paid in conjunction with the 

formation of a PC to provide for a uniform coupon rate for the mortgage pool underlying the PC. The 

payments made to buy-up the monthly contractual guarantee fee are not considered compensation 

for the credit risk assumed for purposes of our financial statements. Consequently, these amounts 

are allocated to the Capital Markets segment; and

Market adjusted pricing costs based on the price performance of our PCs relative to comparable 

Fannie Mae securities.

We operate in a competitive market by varying our pricing for different customers, loan products and 

underwriting characteristics. We seek to maintain a broad-ranging mix of loan quality for the loans we 

purchase. However, sellers may elect to retain loans with better credit characteristics. A seller's decision 

to retain these loans could result in our purchases having a more adverse credit profile.

We must obtain FHFA's approval to implement across-the-board changes to our guarantee fees. In 

addition, from time to time, FHFA issues directives or guidance to us affecting the levels of guarantee 

fees that we may charge for various types of loans. In July 2016, FHFA issued a directive that addressed 

the safety and soundness risk that could arise if our guarantee fees were not sufficient to compensate 

us adequately for the credit risk we are taking. This directive puts some constraints on certain aspects 

of our guarantee fees, such as our ability to reduce the contractual guarantee fee. In December 2017 

and February 2018, FHFA issued additional guidance that requires the GSEs to meet certain profitability 

levels on new fundings beginning in 2018.

Products and Activities

Securitization and Guarantee Products

We offer various types of guarantee and securitization products, primarily single-class securitizations 

and resecuritizations. In these securitization products, Freddie Mac functions in its capacity as 

depositor, guarantor, administrator and trustee. We retain the credit risk and transfer the interest-rate 

and prepayment risks to the investors. While the Single-family Guarantee segment is responsible for the 

guarantee of our securities, the Capital Markets segment manages the securitization and resecuritization 

processes.

Single-class Securitization Products

We offer a variety of single-class securitization products to our customers. Our single-class 

securitization products are pass-through securities that represent undivided beneficial interests in trusts 

that hold pools of loans. For our fixed-rate PCs, we guarantee the timely payment of principal and 

interest. For our ARM PCs, we guarantee the timely payment of the weighted average coupon interest 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 43

rate for the underlying loans. We also guarantee the full and final payment of principal, but not the timely 

payment of principal, on ARM PCs. In exchange for our guarantee, we receive an ongoing fee as 

described in the Guarantee Fees section above.

We issue the following types of single-class securitization products:

Guarantor Swap PCs - We offer transactions in which our customers, primarily large mortgage 

banking companies and commercial banks, provide us with loans in exchange for PCs, as shown in 

the diagram below:

Cash PCs - We offer cash products to our customers, primarily community and regional banks. In 

these transactions, we purchase performing loans for cash and securitize them for retention in our 

mortgage-related investments portfolio or for sale to third parties. For the period of time between 

loan purchase and securitization, we refer to the loan as being in our securitization pipeline. The 

purchase of loans and sale of PCs are managed by the Capital Markets segment. The diagram 

below illustrates a cash PC transaction. We securitize reperforming loans using a similar process.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 44

Resecuritization Products 

We offer resecuritization products to our customers. Our resecuritization products represent beneficial 

interests in pools of PCs and certain other types of mortgage assets. We create these securities by 

using PCs or our previously issued resecuritization products as the underlying collateral. We leverage 

the issuance of these securities to expand the range of investors in our mortgage-related securities to 

include those seeking specific security attributes. Similar to our PCs, we guarantee the payment of 

principal and interest to the investors in our resecuritization products. We do not charge a guarantee fee 

for these securities if the underlying collateral is already guaranteed by us since no additional credit risk 

is introduced, although we typically receive a transaction fee as compensation for creating the security 

and future administrative responsibilities. 

All of the cash flows from the collateral underlying our resecuritization products are generally passed 

through to investors in these securities. We do not issue resecuritization products that have 

concentrations of credit risk beyond those embedded in the underlying assets. In many of our 

resecuritization transactions, securities dealers or investors deliver mortgage assets in exchange for the 

resecuritization product. In certain cases, we may also transfer our own mortgage assets in exchange 

for the resecuritization product. The resecuritization activities are managed by the Capital Markets 

segment. The following diagram provides a general example of how we create resecuritization products:
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 45

We issue the following types of resecuritization products:

Giant PCs - Resecuritizations of previously issued PCs or Giant PCs. Giant PCs are single-class 

securities that involve the straight pass through of all cash flows of the underlying collateral to 

holders of the beneficial interests.

Stripped Giant PCs - Multiclass securities that are formed by resecuritizing previously issued PCs 

or Giant PCs and issuing stripped securities, including principal-only and interest-only securities or 

floating rate and inverse interest-only securities, backed by the cash flows from the underlying 

collateral.

REMICs - Resecuritizations of previously issued PCs, Giant PCs, Stripped Giant PCs or REMICs. 

REMICs are multiclass securities that divide all cash flows of the underlying collateral into two or 

more classes with varying maturities, payment priorities and coupons.

Other securitization products - Guaranteed mortgage-related securities collateralized by nonFreddie Mac mortgage-related securities. However, we have not entered into these types of 

transactions as part of our Single-family Guarantee business in several years.

Sale of Mortgage Loans

We continually manage the balance of our less liquid assets. We offer to sell select mortgage loans 

through a variety of methods that include whole loan sales or certain securitization transactions. In these 

transactions, we reduce or eliminate our credit risk, in addition to our interest-rate and prepayment risk, 

associated with the underlying mortgage loans. The sale of mortgage loans is managed by the Capital 

Markets segment.

Our mortgage loans are sold through the following transactions:

Whole loan sales - Sales of seriously delinquent or reperforming loans for cash.
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FREDDIE MAC | 2017 Form 10-K 46

Senior subordinate securitization structures (non-consolidated) - Transactions where we issue 

guaranteed senior securities and unguaranteed subordinated securities. The collateral for these 

structures primarily consists of reperforming loans. The unguaranteed subordinated securities 

absorb first losses on the related loans. In these transactions, the loans are not serviced in 

accordance with our Guide and we do not control the servicing.

Long-term Standby Commitments 

We also offer to provide a guarantee on mortgage assets held by third parties, in exchange for 

guarantee fees, without securitizing those assets. These long-term standby commitments obligate us to 

purchase seriously delinquent loans that are covered by those commitments. From time to time, we 

have consented to the termination of our long-term standby commitments and simultaneously entered 

into guarantor swap transactions with the same counterparty, issuing PCs backed by many of the same 

loans.

The primary impacts of the aforementioned products and transactions to Segment Earnings are:

• Guarantee fee income earned on our guarantee of principal and interest payments on these mortgage-related securities;

• Benefit (provision) for credit losses, which is affected by changes in estimated probabilities of default and estimated loss severities,

the actual level of loan defaults, the effect of loss mitigation efforts and payment performance of our individually impaired mortgage

portfolio; and

• Gains and losses recognized on the reclassification of loans held-for-investment to held-for-sale and subsequent sale of these loans.

Common Securitization Platform and the Single (Common) Security

In accordance with FHFA’s 2014 Strategic Plan and the Conservatorship Scorecards, we continue to 

work with FHFA, Fannie Mae and CSS on the development of a new common securitization platform 

and the implementation of the single (common) security initiative for Freddie Mac and Fannie Mae.

In December 2016, we and FHFA announced the implementation of Release 1 of the common 

securitization platform. Under Release 1, we began using the common securitization platform for data 

acceptance, issuance support and bond administration activities related to certain Freddie Mac singlefamily fixed-rate mortgage-related securities. 

In March 2017, FHFA published "An Update on Implementation of the Single Security and the Common 

Securitization Platform," which included the timeframe for implementation of Release 2 of the common 

securitization platform, planned for the second quarter of 2019. Release 2 will allow Freddie Mac and 

Fannie Mae to issue a single (common) mortgage-related security, to be called the Uniform MortgageBacked Security or UMBS. Release 2 will add to the functionality of the platform by, among other 

things, enabling commingling of Freddie Mac and Fannie Mae UMBS in securitization transactions. 

Freddie Mac intends to offer an optional exchange program to enable holders to exchange existing 45-

day delay fixed-rate Gold PCs for 55-day delay Freddie Mac securities.

On December 4, 2017, FHFA published the "December 2017 FHFA Update on the Single Security 

Initiative and the Common Securitization Platform." The report emphasized the importance of 

stakeholder readiness by the end of 2018 and provided updates on key initiative areas such as market 

outreach activities, continued work with regulatory and industry bodies to resolve open issues and 

questions and FHFA and Enterprise efforts concerning prepayment speed alignment for TBA securities. 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 47

The target implementation date for Release 2 of the single security initiative remains the second quarter 

of 2019.

Credit Risk Transfer Transactions

We offer credit risk transfer transactions to third-party investors. Most of our credit risk transfer 

transactions are designed to transfer a small portion of the expected credit losses, and a significant 

portion of credit losses in a stressed economic environment, on groups of previously acquired loans to 

third-party investors. These transactions often have termination dates that are earlier than the maturities 

of the related loans, and losses on the loans occurring beyond the terms of the transactions are not 

covered. The following strategic considerations were incorporated into the design of our credit risk 

transfer transactions:

Repeatable and scalable execution with a broad appeal to diversified investors;

Execution at a cost that is economically sensible;

Minimal effect on the TBA market;

Minimize changes required of, and effects on, sellers and servicers by having Freddie Mac serve as 

the credit manager for investors; and

Avoid or seek to mitigate the risk that our losses are not reimbursed timely and in full.

Our primary credit risk transfer transactions include: 

STACR debt notes - Transactions in which we create a reference pool of loans from our singlefamily loan portfolio and an associated securitization-like structure with notional credit risk positions 

(e.g., first loss, mezzanine and senior positions). We issue STACR debt notes related to certain 

notional credit risk positions to third-party investors and retain the remaining credit risk. In certain of 

our STACR debt note transactions to date, we transferred risk in both first loss and mezzanine 

notional credit risk positions, while in other transactions we only transferred risk in the mezzanine 

notional credit risk position.

We make payments of principal and interest on the issued STACR debt notes, but are not required to 

repay principal to the extent that the notional credit risk position is reduced as a result of a specified 

credit event. The interest rate on STACR debt notes is generally higher than on our other unsecured 

debt securities due to the potential for reductions to their principal balance. The amount of risk 

transferred in each transaction affects the interest rate we pay on the notes. 

Generally, the notional amounts of the credit risk positions will be reduced based on scheduled and 

unscheduled principal payments that occur on the loans in the reference pool. The notional amounts 

are also reduced by losses from loans in the reference pool when certain specified credit events 

occur. Losses may be allocated to the notional amounts of the credit risk positions based on 

calculated losses using a predefined formula or based on the actual losses on the loans in the 

reference pool. For loans that are covered by credit risk transfer transactions based on calculated 

losses, we may write down STACR debt notes or receive reimbursement of losses when the loans 

experience a credit event, which predominantly includes a loan becoming 180 days delinquent. For 

loans that are covered by credit risk transfer transactions based on actual losses, we may write 

down STACR debt notes or receive reimbursement of losses once an actual loss event (e.g., short 

sale, third-party sale or REO disposition) occurs.
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FREDDIE MAC | 2017 Form 10-K 48

The following diagram illustrates a typical STACR debt note transaction:

ACIS insurance policies - Transactions in which we purchase insurance policies, generally 

underwritten by a group of insurers and reinsurers, that provide credit protection for certain specified 

credit events that occur and are typically allocated to the non-issued notional credit risk positions of 

a STACR debt note transaction (i.e., the risk positions that Freddie Mac retains). Under each of these 

insurance policies, we pay monthly premiums that are determined based on the outstanding balance 

of the reference pool. We may also enter into ACIS transactions that provide credit protection for 

certain specified credit events on loans not included in a reference pool created for a STACR debt 

note transaction. When specific credit events occur, we receive compensation from the insurance 

policy up to an aggregate limit based on actual losses. We require our counterparties to partially 

collateralize their exposure to reduce the risk that we will not be reimbursed for our claims under the 

policies.
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FREDDIE MAC | 2017 Form 10-K 49

The primary impacts of our credit risk transfer transactions to Segment Earnings are:

• Interest expense on our STACR debt notes;

• Fair value gains and losses recognized on certain of our STACR debt notes;

• Premium expense for insurance coverage under the ACIS contracts; and

• Benefits recognized from recoveries under the CRT transactions. Benefits from certain of our STACR debt notes are recognized as

gains on extinguishment of debt, whereas benefits from other CRT transactions are recognized as other income.

We also use other types of credit risk transfer transactions and credit enhancements, such as senior 

subordinate securitization transactions and primary mortgage insurance, to mitigate our credit risk 

exposure. See Risk Management - Single-Family Mortgage Credit Risk for additional 

information on our credit risk transfer transactions, as well as the other types of credit enhancements we 

use.

Customers

Our customers in the Single-family Guarantee segment are predominantly financial institutions that 

originate, sell and perform the ongoing servicing of loans for new or existing homeowners. These 

companies include mortgage banking companies, commercial banks, regional banks, community 

banks, credit unions, HFAs, savings institutions and other non-depository financial institutions. Many of 

these companies are both sellers and servicers for us. In addition, we also maintain relationships with 

investors and dealers in our guaranteed mortgage-related securities.

We acquire a significant portion of our loans from several lenders that are among the largest originators 

in the U.S. In addition, a significant portion of our single-family loans is serviced by several large 

servicers. The graphs below present the concentration of our single-family purchase volume for 2017 

and our loan servicing as of December 31, 2017 among our top five customers.
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Percentage of Single-Family Purchase Volume Percentage of Single-Family Servicing Volume(1)

(1) Percentage of servicing volume is based on the total single-family 

credit guarantee portfolio, excluding loans where we do not 

exercise control over the associated servicing.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 51

For additional information about seller and servicer concentration risk and our relationships with our 

seller and servicer customers, see Risk Management - Counterparty Credit Risk - Sellers and 

Servicers and Note 14.

Competition

Our principal competitors in the Single-family Guarantee segment are Fannie Mae, FHA/VA (with Ginnie 

Mae securitization) and other financial institutions that retain or securitize loans, such as commercial and 

investment banks, dealers and savings institutions. We compete on the basis of price, products, 

securities structure and service. Competition to acquire single-family loans can also be significantly 

affected by changes in our credit standards. The conservatorship, including direction provided to us by 

our Conservator, may affect our ability to compete. For more information, see Risk Factors - Other 

Risks - Competition from banking and non-banking institutions (including Fannie Mae 

and FHA/VA with Ginnie Mae securitization) may harm our business. FHFA’s actions as 

Conservator of both companies could affect competition between us and Fannie Mae.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 52

Market Conditions

The graphs and related discussion below present certain single-family market indicators, for the most 

recent five years, that can significantly affect the business and financial results of our Single-family 

Guarantee segment.

U.S. Single-Family Originations

Source: Inside Mortgage Finance dated January 26, 2018. 

U.S. Single-Family Home Sales

Source: National Association of Realtors news release dated January 

24, 2018 and U.S. Census Bureau news release dated January 25, 

2018.

Commentary

U.S. single-family loan origination volumes decreased in 2017 compared to 2016, driven by lower 

refinance volume as a result of higher average mortgage interest rates. 

U.S. single-family home sales volume increased in 2017 compared to 2016, driven by favorable 

economic conditions, such as historically low mortgage interest rates, continued home price 

appreciation and a declining unemployment rate.

In 2018, we expect continued growth in U.S. single-family home purchase volume due to a gradual 

increase in housing supply, and lower refinance volume driven by a moderate increase in mortgage 

interest rates. Freddie Mac's single-family loan purchase volumes typically follow similar trends.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 53

Single-Family Mortgage Debt 

Outstanding as of December 31, 

Source: Federal Reserve Financial Accounts of the United States of 

America dated December 7, 2017. For 2017, the amount is as of 

September 30, 2017 (latest available information).

Single-Family Serious Delinquency Rates as of 

December 31,

Source: National Delinquency Survey from the Mortgage Bankers 

Association. For 2017, the rates (excluding Freddie Mac) are as of 

September 30, 2017 (latest available information).

Commentary

U.S. single-family mortgage debt outstanding increased in 2017 compared to 2016, primarily driven 

by house price appreciation. An increase in U.S. single-family mortgage debt outstanding, combined 

with our sustained market share, typically results in growth of our single-family credit guarantee 

portfolio. 

The U.S. single-family serious delinquency rate decreased slightly in 2017 compared to 2016 due to 

macroeconomic factors, such as a low unemployment rate and continued home price appreciation, 

offset by the impacts of the hurricanes in 2017. Our single-family serious delinquency rate typically 

follows a similar trend. See Risk Management - Single-Family Mortgage Credit Risk - 

Single-Family Credit Guarantee Portfolio for additional information on our serious delinquency 

rate. 

As reported by the U.S. Census Bureau, the U.S. homeownership rate was 64.2% in the fourth 

quarter of 2017 compared to a high point of 69.2% in the fourth quarter of 2004, and the average of 

66.1% from 1990 to the present.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 54

Business Results

The following graphs and related discussion present the business results of our Single-family Guarantee 

segment.

New Business Activity

UPB of Single-Family Loan Purchases and Guarantees 

by Loan Purpose

Number of Families Helped to Own a Home
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 55

Commentary

We maintain a consistent market presence by providing lenders with a constant source of liquidity 

for conforming loan products. We have funded approximately 15.7 million single-family homes since 

January 1, 2009 and purchased approximately 1.4 million HARP loans since the initiative began in 

2009, including over 13,000 during 2017.

Our loan purchase and guarantee activity decreased in 2017 compared to 2016 due to lower 

refinance volume driven by higher average mortgage interest rates, partially offset by an increase in 

home purchase loan volume due to favorable macroeconomic conditions, such as historically low 

mortgage interest rates and a declining unemployment rate. 

We continued working to improve access to affordable housing, including through our Home 

Possible® loan initiatives. Our Home Possible® loan initiatives offer down payment options as low as 

3% and are designed to help qualified borrowers with limited savings buy a home. We purchased 

over 95,000 loans under these initiatives in 2017. We also continue to implement programs that 

support responsibly broadening access to affordable housing by:

Improving the effectiveness of pre-purchase and early delinquency counseling for borrowers; 

Expanding our ability to support borrowers who do not have a credit score;

Implementing the Duty To Serve Underserved Markets plan; and 

Increasing support for first-time home buyers. 

While we are responsibly expanding our programs and outreach capabilities to better serve low- and 

moderate-income borrowers and underserved markets, these loans result in increased credit risk. 

Expanding access to affordable housing will continue to be a top priority in 2018. See Regulation 

and Supervision - Legislative and Regulatory Developments - Duty to Serve 

Underserved Markets Plan for more information.
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Single-Family Credit Guarantee Portfolio

Single-Family Credit Guarantee Portfolio as of 

December 31,

Single-Family Loans as of December 31,

Commentary

The single-family credit guarantee portfolio increased during 2017 by approximately 4%, driven in 

part by an increase in U.S. single-family mortgage debt outstanding as a result of continued home 

price appreciation, combined with our share of U.S. single-family origination volume remaining 

stable.

The Core single-family loan portfolio grew to 78% of the single-family credit guarantee portfolio at 

December 31, 2017 compared to 73% at December 31, 2016.

The Legacy and relief refinance single-family loan portfolio declined to 22% of the single-family 

credit guarantee portfolio at December 31, 2017 compared to 27% at December 31, 2016, primarily 

driven by liquidations.
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Guarantee Fees

The average portfolio Segment Earnings guarantee fee rate recognizes upfront fee income over the 

contractual life of the related loans (usually 30 years). If the related loans prepay, the remaining upfront 

fee income is recognized immediately. In contrast, the average guarantee fee rate charged on new 

acquisitions recognizes upfront fee income over the estimated life of the related loans using our 

expectations of prepayments and other liquidations. See Single-family Guarantee - Business 

Overview - Guarantee Fees for more information on our guarantee fees.

Average Portfolio Segment Earnings Guarantee Fee 

Rate(1)(2) for the Year Ended December 31, 

Average Guarantee Fee Rate(1) Charged on New 

Acquisitions for the Year Ended December 31,

(1) Excludes the legislated 10 basis point increase in guarantee fees.

(2) Reflects an average rate for our total single-family credit guarantee portfolio and is not limited to purchases in the applicable period.

Commentary

Average portfolio Segment Earnings guarantee fees decreased slightly in 2017 compared to 2016 

due to a decline in the recognition of amortized fees driven by lower prepayments as a result of 

higher average mortgage interest rates. This decrease was partially offset by an increase in 

contractual guarantee fees as older vintages were replaced by acquisitions of new loans with higher 

contractual guarantee fees.

Guarantee fees charged on new acquisitions decreased in 2017 compared to 2016 due to 

competitive pricing, partially offset by lower market-adjusted pricing costs based on the improved 

price performance of our PCs relative to Fannie Mae securities. 
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Credit Risk Transfer (CRT) Activities

We transfer credit risk on a portion of our single-family credit guarantee portfolio to the private market, 

which reduces the risk of future losses to us and taxpayers when borrowers go into default. In our 

STACR debt note and ACIS transactions, we pay interest to investors or premiums to insurers or 

reinsurers in exchange for their taking on a portion of the credit risk on the mortgage loans in the related 

reference pool. These payments effectively reduce our guarantee fee income from the PCs backed by 

the mortgage loans in the related reference pools. See Single-Family Guarantee - Business 

Overview - Credit Risk Transfer Transactions for more information on our CRT transactions.

The following charts present the issuance amounts for the STACR debt note, ACIS and Deep MI CRT 

transactions that occurred during 2017 and the cumulative issuance amount of all STACR debt note, 

ACIS and Deep MI CRT transactions as of December 31, 2017 by loss position and the party holding 

each loss position.

New STACR Debt Note, ACIS and Deep MI CRT 

Transactions for the Year Ended December 31, 2017(1)

(In billions)

Senior

Freddie Mac

$258.3

Reference 

Pool

$268.3

Mezzanine

Freddie 

Mac 

$0.7

ACIS

$1.9

STACR 

Debt 

Notes

$4.7

Deep MI 

CRT

$0.1

First 

Loss

Freddie 

Mac

$1.4

ACIS

$0.3

STACR 

Debt Notes

$0.9

Cumulative STACR Debt Note, ACIS and Deep MI CRT 

Transactions as of December 31, 2017(1)(2)

(In billions)

Senior

Freddie Mac

$826.8

Reference 

Pool

$866.1

Mezzanine

Freddie 

Mac 

$2.1

ACIS

$7.5

STACR 

Debt 

Notes

$22.0

Deep MI 

CRT

$0.2

First

 Loss

Freddie 

Mac

$4.7

ACIS

$0.9

STACR 

Debt Notes

$1.9

(1) The amounts represent the UPB upon issuance of STACR debt notes and execution of ACIS and Deep MI CRT transactions.

(2) For the current outstanding coverage provided by our STACR debt note and ACIS transactions, see Risk Management - Single-Family 

Mortgage Credit Risk - Offering Private Investors New and Innovative Ways to Share in the Credit Risk of 

the Single-Family Loan Portfolio.

Commentary

In 2017, we transferred a portion of credit risk associated with $280.1 billion in UPB of loans in our 

single-family credit guarantee portfolio through STACR debt note, ACIS, senior subordinate 

securitization structure, seller indemnification and Deep MI CRT transactions. Significant recent 

developments include the following:

We executed a new senior subordinate securitization structure transaction, which allows for 

issuance of guaranteed PCs and unguaranteed subordinated certificates backed by participation 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

FREDDIE MAC | 2017 Form 10-K 59

interests in recently originated mortgage loans acquired by Freddie Mac through our cash loan 

purchase program.

We developed a new ACIS transaction, which unlike prior ACIS transactions, allows for coverage 

to begin at the time Freddie Mac purchases the mortgage loans. The reference pool associated 

with this transaction will aggregate over a period of time and will be based on a pre-negotiated 

forward contract with one or more reinsurers.

We executed a new STACR debt note transaction backed by HARP fixed-rate mortgages issued 

after 2008.

Since we began transferring credit risk in 2013, we have completed 84 credit risk transfer 

transactions that, upon execution, covered $881.9 billion in principal of loans in our single-family 

credit guarantee portfolio.

Our expected guarantee fee income on the loans within the STACR debt note and ACIS reference 

pools has been effectively reduced by approximately 30%, on average, for transactions executed as 

of December 31, 2017. 

Due to differences in accounting, there could be a significant time lag between when we recognize a 

provision for credit losses on the mortgage loans in the reference pools and when we recognize the 

related recovery for the majority of our STACR debt note transactions. A credit expense on a loan in 

a reference pool related to these transactions is recorded when it is probable that we have incurred a 

loss, while a benefit is recorded when an actual loss event occurs.

As of December 31, 2017 there has not been a significant number of loans in our STACR debt note 

and ACIS reference pools that have experienced a credit event. As a result, we experienced minimal 

write-downs on our STACR debt notes and filed minimal claims for reimbursement of losses under 

our ACIS transactions. We expect losses may increase on loans in the reference pools in our existing 

CRT transactions from Hurricanes Harvey and Irma.

The 2018 Conservatorship Scorecard sets a goal for us to transfer a meaningful portion of credit risk 

on at least 90% of the UPB of certain categories of newly acquired single-family loans, such as nonHARP fixed-rate loans with terms greater than 20 years and LTV ratios above 60%.

We continue to evaluate our credit risk transfer strategy and to make changes depending on market 

conditions and our business strategy. The aggregate cost of our credit risk transfer activity will continue 

to increase as we continue to transfer risk on new originations.
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Loss Mitigation Activities

Number of Families Helped to Avoid Foreclosure Loan Workout Activity

Commentary

We continue to help struggling families retain their homes or otherwise avoid foreclosure through 

loan workouts. Our loan workout activity increased slightly in 2017 compared to 2016, consistent 

with the increase in the number of delinquent loans in the single-family credit guarantee portfolio due 

to the hurricane events in the third quarter of 2017.

As part of our strategy to mitigate losses and reduce our holdings of less liquid assets, we sold 

seriously delinquent loans totaling $0.5 billion in UPB during 2017. Of the $17.0 billion in UPB of 

single-family loans classified as held-for-sale at December 31, 2017, $2.1 billion related to loans that 

were seriously delinquent. We believe selling these loans provides better economic returns than 

continuing to hold them. 

The relief refinance program is being replaced with the high LTV relief refinance (Enhanced Relief 

RefinanceSM) program, which will be available in January 2019 for loans originated on or after 

October 1, 2017. This program provides liquidity for borrowers who are current on their mortgages 

but are unable to refinance because their LTV ratios exceed our standard refinance limits. In addition, 

the HARP program has been extended for applications through December 31, 2018 to ensure that 

borrowers who have a high LTV ratio and are eligible for HARP will continue to have a refinance 

option. See Risk Management for additional information on our loan workout activities. 
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Financial Results

The table below presents the components of the Segment Earnings and comprehensive income for our 

Single-family Guarantee segment.

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Guarantee fee income $6,094 $6,091 $5,152 $3 — % $939 18 %

Provision for credit losses (816) (517) (283) (299) (58)% (234) (83)%

Other non-interest income 1,505 447 136 1,058 237 % 311 229 %

Administrative expense (1,381) (1,323) (1,285) (58) (4)% (38) (3)%

REO operations expense (203) (298) (341) 95 32 % 43 13 %

Other non-interest expense (1,382) (1,169) (794) (213) (18)% (375) (47)%

Segment Earnings before income tax expense 3,817 3,231 2,585 586 18 % 646 25 %

Income tax expense (1,316) (1,061) (807) (255) (24)% (254) (31)%

Segment Earnings, net of taxes 2,501 2,170 1,778 331 15 % 392 22 %

Total other comprehensive income (loss), net of tax 40 (9) 12 49 544 % (21) (175)%

Total comprehensive income $2,541 $2,161 $1,790 $380 18 % $371 21 %

Key Drivers:

2017 vs. 2016

Continued growth in our single-family credit guarantee portfolio and higher average contractual 

guarantee fee rates, offset by lower upfront fee amortization due to lower prepayments, resulted 

in guarantee fee income remaining relatively unchanged.

Increased provision for credit losses due to estimated losses related to the hurricanes in 2017, 

offset by improvements in loss severity.

Higher volume of reperforming loans reclassified from held-for-investment to held-for-sale and 

subsequently sold resulted in gains in 2017 compared to losses recognized on seriously 

delinquent loans in 2016.

Higher outstanding cumulative volumes of credit risk transfer transactions resulted in increased 

credit risk transfer expense (interest expense on STACR debt notes and premiums paid to ACIS 

counterparties) in 2017.

2016 vs. 2015

Continued growth in our single-family credit guarantee portfolio and higher average contractual 

guarantee fee rates, as well as higher amortization of upfront fees due to increased loan 

prepayments, resulted in increased guarantee fee income.

Increased provision for credit losses primarily due to higher total interest rate concessions 

resulting from the longer expected life of certain modified loans driven by rising mortgage 

interest rates in 4Q 2016.

Lower volume of seriously delinquent single-family loans reclassified from held-for-investment to 

held-for-sale in 2016.
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Increased fair value losses on STACR debt notes, as market spreads between STACR yields and 

LIBOR tightened more in 2016.

Higher outstanding cumulative volumes of credit risk transfer transactions resulted in increased 

credit risk transfer expense (interest expense on STACR debt notes and premiums paid to ACIS 

counterparties) in 2016.
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Multifamily

Business Overview

The Multifamily segment supports our primary business strategies by creating:

A Better Freddie Mac:

Continuing to provide financing to the multifamily mortgage market and expanding our market 

presence for workforce housing in line with our mission;

Improving our risk-adjusted returns by leveraging private capital in our credit risk transfer 

transactions; 

Identifying new opportunities beyond our existing K Certificate and SB Certificate transactions to 

cost-effectively transfer credit risk to third parties and reduce taxpayer exposure; and

Maintaining strong credit and capital management discipline.

A Better Housing Finance System:

Operating in a customer focused manner, in an effort to build value and support the creation of a 

strong, long-lasting rental housing system; and

Fostering innovation through the development of products that expand the availability of workforce 

housing in the marketplace.

The Multifamily segment provides liquidity and support to the multifamily mortgage market through a 

variety of activities that include the purchase, guarantee, sale and/or securitization of multifamily 

mortgage loans and mortgage-related securities. The overall market demand for multifamily loans is 

generally affected by local and regional economic factors, such as unemployment rates, construction 

cycles, property prices, preferences for homeownership versus renting and the relative affordability of 

single-family homes, as well as certain macroeconomic factors, such as interest rates. 

Our primary business model is to acquire multifamily loans for aggregation and then securitization 

through the issuance and guarantee of debt securities. The returns we generate from these activities are 

primarily derived from (i) the net interest income we earn on the loans prior to their securitization, (ii) the 

price received upon securitization of the loans versus the price we paid to acquire the loans and (iii) the 

ongoing guarantee fee we receive in exchange for providing our guarantee of the issued debt securities. 

We evaluate these factors collectively in order to maximize our returns and to assess the profitability of 

any given transaction.

Our securitization activities generally provide us with a mechanism to finance our loan product offerings 

and to transfer a large majority of expected and stress credit losses of the loans that we purchase to 

third parties. For multifamily loans that we do not intend to securitize, we may pursue other strategies, 

including structured sales or the execution of other credit risk transfer products designed to transfer all 

or a portion of the loans' credit risk to third parties, therefore reducing taxpayer exposure.

Our support of the multifamily market generally begins with our underwriting of the mortgage loans that 

we commit to purchase from our approved lenders and typically ends with the disposition of those 

loans, generally through a borrower payoff. Through our support of the multifamily mortgage market, 
Management's Discussion and Analysis Our Business Segments | Multifamily

FREDDIE MAC | 2017 Form 10-K 64

borrowers can obtain lower financing costs, which can benefit renters through lower rental rates and/or 

improved services or amenities.

Products and Activities

Loan Products

Through our network of approved lenders, we offer borrowers a variety of loan products for the 

acquisition, construction, refinance and/or rehabilitation of multifamily properties. While our approved 

lenders originate the loans that we purchase, we use a prior-approval underwriting approach, in contrast 

to the delegated underwriting approach used in our Single-Family Guarantee segment. Under this 

approach, we maintain credit discipline by completing our own underwriting, credit review and legal 

review for each loan, including review of third-party appraisals and cash flow analysis, prior to issuing a 

loan purchase commitment. We also price every loan or transaction based on the specific terms, 

structure and type of execution.

Multifamily loans are typically originated by our lenders without recourse to the borrower, making 

repayment dependent on the cash flows generated by the underlying property. Cash flows generated by 

a property are significantly influenced by vacancy and rental rates, as well as conditions in the local 

rental market, the physical condition of the property, the quality of property management and the level 

of operating expenses.

Our primary multifamily loan products include the following:

Conventional loans - Financing that includes fixed-rate and floating-rate loans, loans in lease-up 

and with moderate property upgrades, manufactured housing community loans, student housing 

loans, supplemental loans and certain Green Advantage loans.

Senior housing loans - Financing for independent living properties, assisted living properties and 

properties with skilled nursing or memory care. 

Small balance loans - Financing provided to small rental property borrowers for the acquisition or 

refinance of multifamily properties. Financing ranges from $1 million to $7.5 million and is focused on 

properties from 5 to 50 units. 

Targeted affordable housing - Financing provided to borrowers in underserved areas that have 

restricted units affordable to households with low income (earning up to 80% of the area median 

income) and very-low income (earning up to 50% of the area median income) and that typically 

receive government subsidies. 

The amount and type of multifamily loans that we purchase is significantly influenced by the production 

cap that is established by the annual Conservatorship Scorecard, which limits the aggregate UPB of 

multifamily loans we may purchase in a year. While purchases of certain multifamily loans are subject to 

the cap, purchases of multifamily loans that support workforce housing in affordable and underserved 

markets and that support improvements to energy or water efficiency are generally not subject to the 

cap. Examples of multifamily loans that are either not subject to the cap or only partially subject to the 

cap include certain small balance loans, senior housing loans, manufactured housing loans, targeted 

affordable housing loans and Green Advantage loans.
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In addition, the amount and type of multifamily loans that we purchase is influenced by our current 

business strategy (e.g., whether to maintain or grow our share of the multifamily mortgage market) and 

overall market demand for multifamily loan products.

Loan Purchase Commitments

Prior to issuing an unconditional commitment to purchase a multifamily loan, we negotiate with the 

lender and borrower to determine the specific economic terms and conditions of our commitment, 

including the loan's purchase price or mortgage spread. During periods when we seek to increase our 

share of the total multifamily mortgage debt outstanding, we strategically bid more competitively, 

generally resulting in a higher commitment price or lower mortgage spread, and potentially reduced 

profitability. 

At the time we commit to purchase a multifamily loan, we preliminarily determine our intent with respect 

to that loan. For commitments to purchase loans that we intend to sell or securitize (i.e., held-for-sale 

commitments), we elect the fair value option and therefore recognize and measure these commitments 

at fair value in our consolidated financial statements. No such election is made for commitments to 

purchase loans that we intend to hold for the foreseeable future (i.e., held-for-investment commitments), 

and therefore these commitments are not recognized in our consolidated financial statements. 

The primary impacts to Segment Earnings are:

• For each of our held-for-sale commitments, at commitment date, we recognize the estimated fair value of the commitment into 

earnings, which represents the gain we expect to realize on the sale of the loan. This unrealized gain, which results from our ability to 

purchase loans in the whole loan market while exiting through the securitization market effectively represents the incremental benefit 

that can be realized by accessing the securitization market; and 

• After commitment date, but prior to settlement, we recognize changes in the fair value of the commitment into earnings. These fair 

value adjustments result from changes in the pricing of our securitizations due to changes in interest rates and securitization market 

spreads.

Loan Purchase

When we purchase a loan, we finalize our intent with respect to that loan. Multifamily loans that we 

intend to hold for the foreseeable future are classified as held-for-investment and measured at 

amortized cost, while multifamily loans that we intend to sell or securitize are classified as held-for-sale 

and typically measured at fair value through a separate fair value option election. 

The vast majority of all new multifamily loan purchases are initially classified as held-for-sale and 

included in our securitization pipeline. The holding period for loans in our securitization pipeline 

generally ranges between two and five months, as we aggregate sufficient loan products with similar 

terms and risk characteristics to securitize. For example, loans purchased during the first quarter will 

generally be used as collateral for securitizations that occur in the second and third quarters of that 

same year.

Our multifamily held-for-sale commitments and held-for-sale loans are subject to changes in fair value 

due to two main risks: (i) interest-rate risk and (ii) spread risk. While we use derivatives to economically 

hedge the interest rate-related fair value changes of most of our multifamily commitments and loans 

measured at fair value, we continue to be exposed to spread-related fair value changes. We partially 

reduce our spread-related fair value exposure by purchasing certain spread-related derivatives, thereby 

obtaining protection against adverse movements in market spreads. We refer to the fair value 
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adjustments resulting from changes in these risks, net of any offsetting fair value adjustments from our 

derivatives, as our holding period fair value gains and losses.

The primary impacts to Segment Earnings are:

• During the holding period, we recognize changes in the fair value of loans classified as held-for-sale into earnings. These fair value

adjustments result from changes in the pricing of our securitizations due to changes in interest rates and securitization market

spreads;

• Fair value gains or losses recognized on interest-rate and spread-related derivatives. These changes generally offset fair value

changes on the loans; and

• Interest income on loans while held in our Mortgage Investments Portfolio.

Securitization, Guarantee and Credit Risk Transfer Products

In our Multifamily segment, we issue or enter into various types of securitization, guarantee and credit 

risk transfer products or transactions. These products, except for our other credit risk transfer products 

(i.e., loan sales and SCR debt notes), make up our guarantee portfolio.

The collateral used in our securitization products can vary and may include loans underwritten and 

purchased by us at loan origination or loans we do not own prior to securitization and that we 

underwrite after (rather than at) origination. In our typical securitizations, we guarantee some or all of the 

securities issued as part of the transaction. In exchange for providing this guarantee, we receive an 

ongoing guarantee fee that is commensurate with the risks assumed and that will, over the long-term, 

provide us with guarantee fee income that is expected to exceed the credit-related and administrative 

expenses of the underlying loans. Structural deal features, such as term, type of underlying loan product 

and subordination levels generally influence the deal's risk profile, which ultimately affects the guarantee 

fee rate we set at the time of securitization.

For securitizations using collateral that we own, we select a securitization structure and level of 

subordination to optimize the combination of gains we earn when we sell the loans for securitization and 

the ongoing guarantee fees we will receive over time. For example, depending on the securitization 

product and subordination levels selected, we may realize a higher (lower) gain on sale, but recognize 

lower (higher) ongoing guarantee fee income. 

While most of our securitizations result in the transfer of credit risk through the issuance of multi-class 

securities, typically through the issuance of K Certificates and SB Certificates, we also issue and 

guarantee a smaller number of other types of single-class and multi-class securities that do not result in 

the transfer of credit risk. We continue to seek new and innovative credit risk transfer opportunities 

beyond our current product offerings so that we can provide further liquidity to the multifamily market 

and reduce taxpayer exposure to credit risk. 

Credit Risk Transfer Securitizations

Our credit risk transfer securitizations typically involve the issuance of senior, mezzanine and 

subordinated securities that represent undivided beneficial interests in trusts that hold pools of 

multifamily loans that we previously purchased. The volume of our credit risk transfer securitizations is 

generally influenced by the size of our securitization pipeline, along with market demand for multifamily 

securities. Our principal credit risk transfer securitization products are K Certificates and SB Certificates. 

As shown in the diagram below, in a typical K Certificate transaction, we sell multifamily loans to a non-
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Freddie Mac securitization trust that issues senior, mezzanine and subordinated securities, and 

simultaneously purchase and place the senior securities into a Freddie Mac securitization trust that 

issues guaranteed K Certificates. In these transactions, we guarantee the senior securities, but do not 

issue or guarantee the mezzanine or subordinated securities. As a result, a large majority of expected 

and stress credit risk is sold to third-party investors through the mezzanine and subordinated securities, 

thereby reducing our credit risk exposure.

K Certificates - Regularly issued structured pass-through securities backed by recently originated 

multifamily loans. This product provides investors with a wide-range of structural and collateral 

options that provide for stable cash flows and a structured credit enhancement. While the amount of 

guarantee fee we receive may vary by collateral type, it is generally fixed for those K Certificate 

series that we issue with regular frequency (e.g., 5, 7 and 10-year fixed-rate K Certificates and our 

Floating Rate K Certificates). The guarantee fee received on these standard K Certificates currently 

ranges between 20 basis points and 50 basis points. 

The guarantee fee on K Certificates that we do not issue on a regular basis, such as our singlesponsor K Certificates, is determined based on the specific risks associated with the underlying 

collateral and the structure of the securitization, including tranche sizes and risk distribution.

SB Certificates - Regularly issued securities typically backed by multifamily small balance loans 

that we underwrite at loan origination and purchase prior to securitization. Similar to our K Certificate 

transactions, a non-Freddie Mac trust will issue the senior classes of securities, which we guarantee, 

as well as the unguaranteed subordinated securities. However, unlike our K Certificate transactions, 

we do not purchase the senior classes of securities, nor do we place those securities into a Freddie 

Mac Trust. The guarantee fee we receive in these transactions is generally 35 basis points.

From time to time, we may undertake certain activities to support the liquidity of K Certificates and SB 

Certificates. For more information, see Risk Factors - Other Risks - The profitability of our 
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multifamily business could be adversely affected by a significant decrease in demand for our K 

Certificates and SB Certificates.

In addition to our K Certificate and SB Certificate transactions, we also issue the following credit risk 

transfer securitization products:

ML Certificates - We securitize pools of tax-exempt or taxable loans that we underwrite and own 

prior to securitization and issue both guaranteed senior ML Certificates and unguaranteed 

subordinated ML Certificates. The guarantee fee received on our ML Certificates is negotiated.

Multifamily Aggregation Risk Transfer Certificates (KT Certificates) - These securities are 

backed by a revolving pool of multifamily loans that are awaiting sale into a K Certificate transaction. 

Using this structure, we issue guaranteed senior securities and unguaranteed mezzanine and 

subordinated securities to third parties. During the revolving period of this product, we will purchase 

loans from the KT trust for sale into a K Certificate transaction and replace those purchased loans 

with additional eligible loans. Through this product we are able to transfer a portion of the front-end 

credit risk associated with our securitization pipeline prior to final securitization. Given our right to 

purchase loans from the KT trust, we consolidate this structure and the loans in the revolving pool 

remain in our securitization pipeline until securitization.

Other Securitization Products

Our other securitization products involve the issuance of single-class or multiclass pass-through 

securities that represent beneficial interests in trusts that hold pools of multifamily loans. We guarantee 

the single-class securities and may guarantee some or all of the multi-class securities. The collateral for 

these securitizations may include loans underwritten and purchased by us at loan origination or loans 

we do not own prior to securitization and that we underwrite after (rather than at) origination. 

Our other securitization products generally do not transfer credit risk away from Freddie Mac, as we 

guarantee all of the issued securities, or there is no credit risk to transfer through securitization as we 

were not previously exposed to the underlying collateral’s credit risk prior to securitization (the collateral 

is contributed to the securitization by third parties). However, certain of these other securitization 

products transfer a portion or all of the interest rate risk associated with the underlying collateral to third 

parties. The guarantee fee received for our other securitization products will vary and is typically 

negotiated with the loan seller or established by us, based on the specific risks of the underlying 

collateral and the structure of the securitization.

Our principal other securitization products include the following:

PCs - We securitize multifamily loans into fixed-rate pass-through securities that are similar in 

structure to our Single-Family Guarantee segment fixed-rate PCs. In these securitizations, we 

guarantee the full payment of principal and timely payment of interest. 

K Certificates without subordination - We securitize multifamily loans that we own and issue K 

Certificates without subordination using a transaction structure similar to our K Certificates. 

However, unlike K Certificates, these transactions are fully guaranteed by Freddie Mac and no 

mezzanine or subordinated securities are issued.

Q Certificates - We issue Q Certificates using a securitization structure that is similar to our K 

Certificates and that provides for structural credit enhancements that may include either 

subordination or other loss sharing features. However, unlike K Certificates, the loans backing the Q 
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Certificates are contributed by third parties and are underwritten by us after (rather than at) 

origination. 

M Certificates - We securitize pools of tax-exempt or taxable multifamily housing revenue bonds 

contributed by third parties and issue guaranteed senior M Certificates and unguaranteed 

subordinated M Certificates. 

Summary of our Primary Business Model and Its Impacts to Segment Earnings

The following diagram summarizes the activities included in our primary business model and the 

corresponding impacts to our Segment Earnings. 

Other Credit Risk Transfer Products

For the credit risk of multifamily assets that we have not transferred through securitizations, we may 

pursue other strategies to reduce our credit risk exposure. Our principal other credit risk transfer 

products include the following:

SCR debt notes - Unsecured and unguaranteed corporate debt obligations. We began issuing our 

SCR debt notes in 2016 in order to transfer a portion of the credit risk of the loans underlying certain 

of our other mortgage-related guarantees to third parties. The interest we pay on our SCR debt 

notes effectively reduces the guarantee fee income we would otherwise earn on the other mortgagerelated guarantees. SCR debt notes are generally similar in structure to our Single-Family Guarantee 

segment's STACR debt notes. 

Loan sales - To reduce our credit risk exposure related to certain loans, we engage in nonsecuritization related transactions, including whole loan sales. These loan sales are to third parties 

and may include sales to funds that invest in loans where we may also provide secured financing. 

Other Guarantees 

Other mortgage-related guarantees - We guarantee mortgage-related assets held by third parties 

in exchange for guarantee fee income, without securitizing those assets. For example, we provide 

guarantees on certain tax-exempt multifamily housing revenue bonds secured by low- and 
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moderate-income multifamily loans. The guarantee fees we receive on these transactions are 

negotiated.

Investing Activities

Mortgage loans - We hold a portfolio of multifamily mortgage loans as part of a buy-and-hold 

investment strategy. Although we continue to purchase new multifamily mortgage loans for this 

portfolio, our new purchase activity has leveled off as this buy-and-hold strategy is not part of our 

primary business model.

Agency mortgage-related securities - We may purchase or retain a portion of the K Certificates or 

SB Certificates and other types of multifamily securitization products we issue, depending on market 

conditions, and we may also buy or sell these securities in the secondary market.

Non-agency mortgage-related securities - We may purchase a portion of the unguaranteed 

mezzanine and subordinated securities related to our securitization transactions, depending on 

market conditions. However, to date, we have not purchased any of the unguaranteed subordinated 

securities that are in the first loss position.

CMBS - We are not currently an active purchaser of CMBS. However, we continue to hold a portfolio 

of CMBS and other multifamily investment securities that we acquired under a prior buy-and-hold 

investment strategy. This portfolio is declining primarily due to runoff.

Customers

Our multifamily loan volume is sourced through our approved lenders, who are primarily non-bank real 

estate finance companies and banks. We generally provide post-construction financing to apartment 

project operators with established performance records. The following charts show the concentration of 

our 2017 multifamily new business volume by our largest sellers and loan servicing by our largest 

servicers as of December 31, 2017. Any seller or servicer with a 10% or greater share is listed 

separately.
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Percentage of Multifamily New Business Volume Percentage of Multifamily Servicing Volume(1)

(1) Excludes loans underlying securitizations where we are not in a 

first loss position, primarily K Certificates and SB Certificates.

Competition

We compete on the basis of price, service and products, including our use of certain securitization 

structures. Our principal competitors in the Multifamily segment are Fannie Mae, FHA, commercial and 

investment banks, CMBS conduits, savings institutions and life insurance companies.
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Market Conditions

The graphs and related discussion below present certain multifamily market indicators that can 

significantly affect the business and financial results of our Multifamily segment.

Change in Effective Rents for the Year Ended 

December 31,

Source: REIS, Inc.

Apartment Vacancy Rates as of December 31, 

Source: REIS, Inc.

Apartment Completions and Net Absorption for the Year Ended December 31,

Source: REIS, Inc.
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Commentary

Apartment completions are an indication of the supply of rental housing. Net absorption, which is a 

measurement of the rate at which available apartments are occupied, is an indication of demand for 

rental housing.

While vacancy rates increased during 2017 as apartment completions outpaced net absorption, 

these rates remain well below the long-term average. Due to the introduction of a significant amount 

of new supply in the latter half of the year, net absorptions significantly lagged behind new 

apartment completions in 2017. Although we expect continued strong demand, it may take longer to 

absorb these new units compared to prior years. 

Effective rent (i.e., the average rent paid by the tenant over the term of the lease, adjusted for 

concessions by the landlord and costs borne by the tenant) growth for 2017 remained strong relative 

to the long-term average, primarily due to an increase in potential renters from healthy employment, 

higher single family home prices and a growing household preference for rental housing due to 

changes in lifestyle preferences and demographic trends.

Our financial results for 2017 were not significantly affected by these market conditions. 

Multifamily property prices continued to grow with 11% annualized growth in 2017, indicating a 

healthy multifamily market, though prices were tempered by moderating effective rent growth, higher 

vacancy rates and rising interest rates.

While the impacts of Hurricanes Irma and Maria on the multifamily markets located in the affected 

areas are still being evaluated, we have seen effective rents increase and vacancy rates decrease in 

the areas affected by Hurricane Harvey, as displaced single-family homeowners require temporary 

housing, resulting in increased demand for rental housing.
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K Certificate Benchmark Spreads as of December 31,

Source: Independent Dealers

Commentary

The valuation of our securitization pipeline and the profitability of our primary credit risk transfer 

securitization product, the K Certificate, are affected by changes in K Certificate benchmark spreads 

as well as deal-specific attributes, such as tranche size, risk distribution and collateral characteristics 

(loan term, coupon type, prepayment restrictions and underlying property type). These market 

spread movements and deal-specific attributes contribute to our earnings volatility, which we 

manage by controlling the size of our securitization pipeline and by entering into certain spreadrelated derivatives.

K Certificate benchmark spreads are market-quoted spreads over the U.S. swap curve. The 10-year 

fixed-rate spread represents the spread for the largest guaranteed class of a typical fixed-rate K 

Certificate, while the 7-year ARM spread represents the spread for the largest guaranteed class of a 

typical floating-rate K Certificate.

K Certificate benchmark spreads tightened throughout 2017, due to a reduction in macroeconomic 

market volatility. By comparison, K Certificate benchmark spreads were more volatile during the first 

half of 2016, prior to tightening sharply in the second half of 2016. Overall, this tightening had a 

positive effect in 2016 and 2017 on the valuation of our securitization pipeline and K Certificate 

profitability.
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Multifamily Mortgage Debt Outstanding as of 

December 31,

Source: Federal Reserve Financial Accounts of the United States of 

America. For 2017, the amount is as of September 30, 2017 (latest 

available information). 

Multifamily Delinquency Rates as of December 31,

 

Source: Freddie Mac, FDIC Quarterly Banking Profile, Trepp, LLC. 

(Multifamily CMBS market, excluding REOs), American Council of Life 

Insurers (ACLI). For 2017, the amounts for Multifamily CMBS market 

and FDIC insured institutions are as of September 30, 2017 and the 

amount for ACLI investment bulletin is as of December 31, 2017 (latest 

available information). 

Commentary

During 2017, the multifamily mortgage market grew significantly because of stronger demand for 

multifamily loan products due to an elevated number of new apartment completions, strong 

multifamily market fundamentals and low interest rates. Multifamily market fundamentals were 

primarily driven by a healthy job market, population growth, high propensity to rent among young 

adults and rising single-family home prices. We expect continued growth in the multifamily mortgage 

market during 2018 due to these same drivers.

Our share of multifamily mortgage debt outstanding grew slightly during 2017, primarily due to our 

strategic pricing efforts and the expansion of our new product offerings, which were generally 

excluded from the Conservatorship Scorecard production cap. 

Our multifamily delinquency rates during 2017 remained low compared to other industry participants, 

ending the year at 2 bps, primarily due to our prior-approval underwriting approach, strong 

multifamily market fundamentals and low interest rates. See Risk Management - Multifamily 
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Mortgage Credit Risk - Managing Our Portfolio, Including Loss Mitigation Activities for 

additional information on our delinquency rates.

We expect the credit losses and delinquency rates for the multifamily mortgage portfolio to remain 

low in the near term.
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Business Results

The graphs, tables and related discussion below present the business results of our Multifamily 

segment.

New Business Volume

New Business Volume for the Year Ended 

December 31,

Acquisition of Units by Area Median Income (AMI) for 

the Year Ended December 31,

Commentary

The 2017 Conservatorship Scorecard production cap remained at $36.5 billion and will decrease to 

$35.0 billion in 2018. The production cap is subject to reassessment throughout the year by FHFA to 

determine whether an increase in the cap is appropriate based on a stronger than expected overall 

market. We do not expect that the decrease in the cap will have a material impact on our 2018 new 

business volume.
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Outstanding loan purchase commitments were $14.5 billion and $12.4 billion as of December 31, 

2017 and December 31, 2016, respectively. Both period-end balances include loan purchase 

commitments where we have elected the fair value option.

Our new business volume and outstanding loan purchase commitments were higher during 2017 

compared to 2016 due to the overall growth of the multifamily mortgage market resulting from 

stronger demand for multifamily loan products and our strategic pricing efforts. Despite the 

unchanged production cap, we had a record volume in 2017 primarily due to a focus on purchase 

activity associated with targeted loan types that were considered uncapped.

Approximately 46% of our new business volume for 2017 counted towards the 2017 

Conservatorship Scorecard production cap, while the remaining 54% was considered uncapped. 

The increase in uncapped new business volume was primarily driven by the growth in purchases of 

loans originated pursuant to our Green Advantage initiative, which we expanded during 2017, along 

with our effort to support the growth of the overall multifamily market.

While our share of multifamily mortgage debt outstanding increased slightly during 2017, we expect 

increased competition from other market participants to continue in the future. 

Approximately 88% of our 2017 new business volume was designated for securitization and 

included in our securitization pipeline. Combined with market demand for our securities, our new 

business volumes from the second half of 2017 will be the primary driver of and collateral for our 

credit risk transfer securitizations, primarily our K Certificate and SB Certificate issuances, for the 

first half of 2018.

Approximately 83% of the eligible units we financed during 2017 were affordable to households 

earning at or below the median income in their area (eligible units are multifamily units that qualify 

towards our affordable housing goal). Furthermore, during 2017, we continued our support of 

workforce housing through our continued purchases of manufactured housing community loans and 

small balance loans.
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Multifamily Portfolio and Market Support

Total Multifamily Portfolio as of December 31, Multifamily Mortgage Investments Portfolio as of 

December 31,

Multifamily Market Support

The following table summarizes our support of the multifamily market.

(UPB in millions) December 31, 2017 December 31, 2016

Unsecuritized mortgage loans held-for-sale $20,537 $16,544

Unsecuritized mortgage loans held-for-investment 17,702 25,873

Unsecuritized non-mortgage loans(1) 473 —

Mortgage-related securities 7,451 12,517

Guarantee portfolio 203,074 157,993

Total multifamily portfolio 249,237 212,927

Add: Unguaranteed securities(2) 30,772 24,573

Less: Acquired mortgage-related securities(3) (7,109) (5,793)

Total multifamily market support $272,900 $231,707

(1) Reflects the UPB of loans sold to a whole loan investment fund that was financed by Freddie Mac.

(2) Reflects the UPB of unguaranteed securities issued as part of our securitization products.

(3) Reflects the UPB of mortgage-related securities that were both issued and acquired by us. This UPB must be removed to avoid a double-count, as 

it is already reflected within the guarantee portfolio and/or unguaranteed securities.
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Commentary

Our total multifamily portfolio increased during 2017, primarily due to a 29% growth in new business 

volume, coupled with an increase in our issuance of certain other securitization products (e.g., Q 

Certificates and M Certificates). The vast majority of the growth in our guarantee portfolio was 

associated with ongoing credit risk transfer securitizations, primarily K Certificate and SB Certificate 

transactions.

At December 31, 2017, the UPB of our unsecuritized held-for-sale loans and mortgage-related 

securities, which are measured at fair value or lower-of-cost-or-fair-value, declined slightly from 

December 31, 2016. The overall decline, which was attributable to the runoff of our CMBS portfolio, 

was largely offset by an increase in the balance of our securitization pipeline due to the growth of our 

new business volume and the reclassification of certain loans from held-for-investment to held-forsale during 4Q 2017.

At December 31, 2017, approximately 68% of our held-for-sale loans and held-for-sale loan 

commitments were fixed-rate, while the remaining 32% were floating rate. 

We expect our guarantee portfolio to continue to grow as a result of ongoing credit risk transfer 

securitizations, primarily K Certificate and SB Certificate transactions, which we expect to be driven 

by continued strong new business volume. We also expect a continued reduction in our CMBS 

portfolio due to ongoing principal repayments and maturities, which will serve to reduce our less 

liquid assets.
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Net Interest Yield Earned for the Year Ended December 31,

Commentary

Net interest yield increased significantly during 2017 compared to 2016 primarily due to higher 

prepayment income received from interest-only securities that we hold in certain of our more 

seasoned K Certificate transactions and from loans.

The weighted average portfolio balance of interest-earning assets decreased due to the run-off of 

our held-for investment loans and non-agency CMBS.
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Credit Risk Transfer Activity

Credit Risk Transfer Activity for the 

Quarter Ended

Credit Risk Transfer Activity for the Year Ended 

December 31,(1)

(1) The amounts disclosed in the bar graph above represent the net 

credit risk transferred to third parties.

Commentary

The UPB of assets subject to credit risk transfer transactions was higher during 2017 compared to 

2016, primarily due to a larger average balance in our securitization pipeline, which was driven by 

our strong 2017 new business volume. Through these transactions, we transferred a large majority of 

the expected and stress credit losses of these assets to third parties, primarily by issuing 
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unguaranteed subordinated securities as part of our K Certificate and SB Certificate transactions. 

We began selling certain of our loans to investment funds in 2017, resulting in the full transfer of the 

associated credit risk on the loans to third parties. 

In 2017, we have transferred a large majority of the expected and stress credit losses related to a 

record $65 billion in UPB of loans, and since 2009, $249 billion in UPB of loans through our credit 

risk transfer products, primarily K Certificates and SB Certificates.

Based on the strength of our new business volume for the second half of 2017, we expect our credit 

risk transfer activity for 1Q 2018 to exceed our 1Q 2017 activity.

While our K Certificate and SB Certificate issuances continue to be our primary mechanism to 

transfer multifamily mortgage credit risk, we introduced new initiatives to transfer credit risk during 

2017 and expect to continue to develop new credit risk transfer initiatives in 2018.
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Guarantee Activities

Guarantee Assets for Year Ended December 31, Unearned Guarantee Fees as of December 31,

Commentary

We generally recognize a guarantee asset on our consolidated balance sheets each time we enter 

into a financial guarantee contract. This asset represents the present value of guarantee fees we 

expect to receive in the future from those guarantee transactions. We recognize these fees in 

segment earnings over the expected remaining guarantee term. While we expect to collect these 

future fees based on historical performance, the actual amount collected will depend on the 

performance of the underlying collateral subject to our financial guarantee.

The amount of new guarantee assets recognized in 2017 exceeded the new guarantee assets 

recognized in 2016, primarily due to an increase in the UPB of our credit risk transfer securitizations, 

primarily K Certificate and SB Certificate issuances, coupled with longer average guarantee terms. 

This increase was partially offset by slightly lower average guarantee fee rates on these same 

securitizations due to underlying loan products that, by their nature and design, have less risk.

The balance of unearned guarantee fees increased during 2017 due to the continued growth of our 

multifamily guarantee business, as our credit risk transfer securitization volume continued to be 

strong, significantly outpacing runoff.
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Financial Results

The table below presents the components of the Segment Earnings and comprehensive income for our 

Multifamily segment. As we use derivatives to economically hedge interest-rate related fair value 

changes of most of our assets measured at fair value, interest rates have a minimal impact on our total 

comprehensive income. 

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Net interest income $1,206 $1,022 $1,049 $184 18 % ($27) (3)%

Guarantee fee income 676 511 339 165 32 % 172 51 %

Benefit (provision) for credit losses (13) 22 26 (35) (159)% (4) (15)%

Gains (losses) on loans and other non-interest income 1,485 1,166 (198) 319 27 % 1,364 689 %

Derivative gains (losses) 181 407 372 (226) (56)% 35 9 %

Administrative expense (395) (362) (325) (33) (9)% (37) (11)%

Other non-interest expense (66) (58) (60) (8) (14)% 2 3 %

Segment Earnings before income tax expense 3,074 2,708 1,203 366 14 % 1,505 125 %

Income tax expense (1,060) (890) (376) (170) (19)% (514) (137)%

Segment Earnings, net of taxes 2,014 1,818 827 196 11 % 991 120 %

Total other comprehensive income (loss), net of tax (77) (236) (261) 159 67 % 25 10 %

Total comprehensive income (loss) $1,937 $1,582 $566 $355 22 % $1,016 180 %

While certain multifamily properties underlying our loans and financial guarantees were damaged by the 

hurricane events of 3Q 2017, such events did not significantly affect our 2017 segment financial results.

Key Drivers: 

2017 vs. 2016

Higher net interest yields, partially offset by a decline in our weighted average portfolio balance 

of interest-earning assets, resulted in increased net interest income;

Continued growth in our multifamily guarantee portfolio, partially offset by slightly lower average 

guarantee fee rates on new guarantee business volume, resulted in increased guarantee fee 

income;

Larger average balances of held-for-sale commitments and securitization pipeline loans due to 

greater new business volume, partially offset by less tightening of K Certificate benchmark 

spreads and the effects of strategic pricing, resulted in larger fair value gains; and

Disposition of certain non-agency CMBS, coupled with spread tightening, resulted in larger gains 

on non-agency CMBS. 

2016 vs. 2015

Lower weighted average portfolio balance of interest-earning assets, partially offset by a higher 

net interest yield, resulted in decreased net interest income;

Continued growth in our multifamily guarantee portfolio and higher average guarantee fee rates 

on new guarantee business volume resulted in increased guarantee fee income; and

Tightening of K Certificate benchmark spreads, coupled with improved pricing of K Certificates 

and SB Certificates, as well as greater new business volume, resulted in fair value gains during 
Management's Discussion and Analysis Our Business Segments | Multifamily

FREDDIE MAC | 2017 Form 10-K 86

2016, while widening of K Certificate benchmark spreads resulted in fair value losses during 

2015. 
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 87

Capital Markets

Business Overview

The Capital Markets segment supports our primary business strategies by creating: 

A Better Freddie Mac:

Engaging in economically sensible transactions to reduce our less liquid assets; 

Managing the mortgage-related investments portfolio’s risk-versus-return profile based on our 

internal economic capital framework, which is aligned with the Conservatorship Capital Framework;

Enhancing the liquidity of our issued securities in the secondary mortgage market to support our 

business needs;

Responding to market opportunities in funding our business activities;

Managing our economic interest-rate risk through the use of derivatives and various debt 

instruments; and

Attempting to align prepayment and pooling profiles for Freddie Mac TBA programs to match Fannie 

Mae's TBA characteristics.

A Better Housing Finance System:

Delivering mortgage capital markets services including our cash loan purchase program, in 

conjunction with the Single-family Guarantee segment; and

Implementing the single (common) security initiative for Freddie Mac and Fannie Mae, which is 

intended to increase the liquidity of the TBA market and to reduce the disparities in trading value 

between our PCs and Fannie Mae's single-class mortgage-related securities.

The Capital Markets segment is responsible for managing the majority of our mortgage-related 

investments portfolio, and providing company-wide treasury and interest-rate risk management 

functions. In addition, we are responsible for managing our securitization and resecuritization activities 

related to single-family loans.

Our mortgage portfolio management activities primarily include single-family unsecuritized loans, a 

diminishing portfolio of non-agency mortgage-related securities, and purchases and sales of agency 

mortgage-related securities. In addition, we actively engage in the structuring of our agency mortgagerelated securities. Our portfolio management activities also include responsibility for maintaining the 

other investments and cash portfolio for purposes of short-term liquidity management. However, 

certain portions of the mortgage-related investments portfolio are not managed by us, including the 

portions of the portfolio related to multifamily assets, single-family seriously delinquent loans and the 

credit risk on single-family performing loans. 

We provide a company-wide treasury function, primarily managing our funding and liquidity needs on 

both a short- and long-term basis. The primary activities of the treasury function include issuing, calling 

and repurchasing debt, and maintaining a portfolio of non-mortgage investments. 

Our interest-rate risk management function consolidates and manages the overall interest-rate risk of 

the company. To reduce our exposure to changes in the cash flows of interest-rate sensitive assets and 
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 88

liabilities due to interest rate changes, we actively monitor and economically hedge this risk, primarily 

through the use of derivative instruments. In addition, we further reduce these interest-rate exposures 

through active management of our debt funding mix and through the structuring of our investments in 

mortgage-related securities.

Finally, our segment is responsible for management of our securitization and resecuritization activities 

related to single-family loans, which are discussed in more detail in Our Business Segments - 

Single-Family Guarantee.

Although we manage our business on an economic basis, we have executed certain transactions in an 

effort to reduce the probability of our having a negative net worth due to changes in interest rates and 

thus being required to draw from Treasury. In 2017, we implemented hedge accounting, which may 

reduce the need for these types of transactions. Also, we may forgo certain investment opportunities for 

a variety of reasons, including the limit on the size of our mortgage-related investments portfolio or the 

risk that a particular accounting treatment may create earnings variability as well as result in a future 

draw from Treasury. For additional information on the limits on the mortgage-related investments 

portfolio established by the Purchase Agreement and by FHFA, see Conservatorship and Related 

Matters - Limits on Our Mortgage-Related Investments Portfolio and Indebtedness.

Products and Activities

Investing, Liquidity Management and Related Activities

In our Capital Markets segment, our objectives are to make appropriate risk and capital management 

decisions, effectively execute our strategy and be responsive to market conditions. We manage the 

following types of products:

Agency mortgage-related securities - We primarily invest in Freddie Mac mortgage-related 

securities, but may also invest in Fannie Mae and Ginnie Mae mortgage-related securities from time 

to time. Our activities with respect to this product may include purchases and sales, dollar roll 

transactions and structuring activities (e.g., resecuritizing existing agency securities into REMICs and 

selling some or all of the resulting REMIC tranches).

Non-agency mortgage-related securities - We generally no longer purchase non-agency 

mortgage-related securities that have not been guaranteed by a GSE, but continue to have a 

portfolio of such securities that we acquired in prior years. Our activities with respect to this product 

are primarily sales. In recent years, we and FHFA reached settlements with a number of institutions 

to mitigate or recover losses we recognized in prior years. 

Single-family unsecuritized loans - We acquire single-family unsecuritized loans in two primary 

ways:

Loans acquired through our cash loan purchase program that are awaiting 

securitization - We securitize a majority of the loans acquired through our cash loan purchase 

program into Freddie Mac mortgage-related securities, primarily PCs, which may be sold to 

investors or retained in our mortgage-related investments portfolio; and

Seriously delinquent or modified loans that we have removed from PC pools:
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 89

Certain of these loans may re-perform, either on their own or through modification. 

Reperforming loans are managed by both the Capital Markets and Single-family Guarantee 

segments, but are included in the Capital Markets segment's financial results. 

We continue to reduce the balance of our reperforming loans through a variety of 

methods, including the following:

– Securitization into Freddie Mac PCs, with all of the resulting mortgage-related 

securities initially being retained. We may resecuritize a portion of the retained 

mortgage-related securities, with some of the resulting interests being sold to third 

parties; and

Sales and securitization using a senior subordinate securitization structure, where we 

guarantee the resulting senior securities. 

Loans that remain seriously delinquent are also managed by both the Capital Markets and 

Single-family Guarantee segments, but are included in the Single-family Guarantee 

segment's financial results. 

We continue to reduce the balance of our seriously delinquent loans through loss 

mitigation and foreclosure activities, which are managed by the Single-family Guarantee 

segment; and

We also continue to reduce the balance of our seriously delinquent loans through direct 

loan sales.

Other investments and cash portfolio - We invest in other investments, including: (i) the Liquidity 

and Contingency Operating Portfolio, primarily used for short-term liquidity management, (ii) cash 

and other investments held by consolidated trusts, (iii) collateral pledged by derivative and other 

counterparties, (iv) investments used to pledge as collateral, (v) advances to lenders and (vi) other 

secured lending activities. In our advances to lenders program, we provide funds to lenders for 

mortgage loans that they will subsequently either sell through our cash purchase program or 

securitize into PCs that they will deliver to us. In our other secured lending activities, we invest in 

securities purchased under agreements to resell as a mechanism to provide financing to investors in 

Freddie Mac securities to increase liquidity and expand the investor base for those securities. We 

may do other types of secured lending transactions in the future. 

The primary impacts to Segment Earnings are:

• Interest income on agency and non-agency mortgage-related securities, unsecuritized loans and our other investments and cash

portfolio;

• Fair value gains and losses due to changes in interest rate and market spreads on our agency and non-agency mortgage-related

securities and on certain securities held within our other investments and cash portfolio that are accounted for as investment

securities. These amounts are recognized in Segment Earnings or Total other comprehensive income(loss) depending upon their

classification (trading or available-for-sale, respectively); and

• Gains and losses on the sale of unsecuritized loans.

We evaluate the liquidity of our mortgage-related assets based on three categories (in order of liquidity): 

Liquid - single-class and multi-class agency securities, excluding certain structured agency 

securities collateralized by non-agency mortgage-related securities. Also includes certain nonagency mortgage-related securities guaranteed by a GSE; 
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 90

Securitization Pipeline - performing single-family loans purchased for cash and primarily held for a 

short period until securitized, with the resulting Freddie Mac issued securities being sold or retained; 

and 

Less Liquid - assets that are less liquid than both agency securities and loans in the securitization 

pipeline (e.g., reperforming loans and non-agency mortgage-related securities not guaranteed by a 

GSE). 

We may undertake various activities in an effort to support our presence in the agency securities market 

or to support the liquidity of our PCs, including their price performance relative to comparable Fannie 

Mae securities. These activities may include the purchase and sale of agency securities, the purchase of 

loans, dollar roll transactions and structuring activities, such as resecuritization of existing agency 

securities and the sale of some or all of the resulting securities. Depending upon market conditions, 

there may be substantial variability in any period in the total amount of securities we purchase or sell. 

The purchase or sale of agency securities could, at times, adversely affect the price performance of our 

PCs relative to comparable Fannie Mae securities. 

We incur costs in connection with our efforts to support our presence in the agency securities market 

and to support the liquidity and price performance of our PCs, including by engaging in transactions 

that yield less than our target rate of return. For more information, see Risk Factors - Other Risks - 

A significant decline in the price performance of or demand for our PCs could have an 

adverse effect on the volume and/or profitability of our new single-family guarantee 

business.

Funding and Liquidity Management Activities

Our treasury function manages the funding needs of the company, including the Capital Markets 

segment, primarily through the issuance of unsecured other debt. The type and term of debt issued is 

based on a variety of factors and is designed to meet our ongoing cash needs and to comply with our 

Liquidity Management Framework. This Framework provides a mechanism for us to sustain periods of 

market illiquidity, while being able to maintain certain business activities and remain current on our 

obligations. See Liquidity and Capital Resources - Liquidity Management Framework for 

additional discussion of our Liquidity Management Framework. 

We primarily use the following types of products as part of our funding and liquidity management 

activities:

Discount Notes and Reference Bills - We issue short-term instruments with maturities of one year 

or less. These products are generally sold on a discounted basis, paying principal only at maturity. 

Reference Bills are auctioned to dealers on a regular schedule, while discount notes are issued in 

response to investor demand and our cash needs. 

Medium-term Notes - We issue a variety of fixed-rate and variable-rate medium-term notes, 

including callable and non-callable securities, and zero-coupon securities, with various maturities. 

Reference Notes Securities - Reference Notes securities are non-callable fixed-rate securities, 

which we currently issue with original maturities greater than or equal to two years.

Securities sold under agreements to repurchase - Collateralized short-term borrowings where we 

sell securities to a counterparty with an agreement to repurchase those securities at a future date. 
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 91

In addition, proceeds from the issuance of STACR and SCR debt notes are used to meet the funding 

needs of the company. We consider the issuance of these debt notes when managing the treasury 

function for the company. For a description of STACR debt notes, see Our Business Segments - 

Single-Family Guarantee - Business Overview - Products and Activities, and for a description 

of SCR debt notes, see Our Business Segments - Multifamily - Business Overview - Products 

and Activities.

The average life of our assets is longer than the average life of our liabilities, which creates liquidity risk. 

To manage short-term liquidity risk, we may hold a combination of cash, cash-equivalent and nonmortgage-related investments in our Liquidity and Contingency Operating Portfolio. These instruments 

are limited to those we expect to be liquid or mature in the short term. We also lend available cash on a 

short-term basis through transactions where we purchase securities under agreements to resell. This 

portfolio is designed to allow us to meet all of our obligations in the event that we lose access to the 

unsecured debt markets for a period of time. 

See Liquidity and Capital Resources for a further discussion of our funding and liquidity 

management activities. 

The primary impacts to Segment Earnings are:

• Interest expense on our various funding products; and

• Gains and losses on the early termination (call or repurchase) of our funding products.

Interest-Rate Risk Management Activities

We manage the economic interest-rate risk for the company and have management-approved limits for 

interest-rate risk, as measured by our models. See Risk Management - Market Risk for additional 

information, including the measurement of the interest rate sensitivity of our financial assets and 

liabilities. 

There is a cash flow mismatch between our financial assets and the other debt that we use to fund 

those assets. This mismatch in cash flows not only leads to liquidity risk, but also results in interest-rate 

risk. We typically use interest-rate derivatives to reduce the economic risk exposure due to this 

mismatch. Using our risk management practices described in the Risk Management - Market Risk

section, we seek to reduce this impact to low levels. Additionally, financial assets that are likely to be 

sold prior to their final maturity may have a different debt and derivative mix than financial assets that 

we plan to hold for a longer period. As a result, interest rate risk measurements for those assets may 

include additional assumptions (such as a view on expected changes in market spreads) concerning 

their price sensitivity rather than just a longer-term view of cash flows. 

To manage our interest rate risk, we primarily use interest rate swaps, options, swaptions and futures. 

When we use derivatives to mitigate our risk exposures, we consider a number of factors, including 

cost, exposure to counterparty credit risk and our overall risk management strategy. 

While our interest-rate risk management activities are primarily focused on reducing our economic 

interest-rate risk, during 2017, we adopted hedge accounting strategies to reduce our GAAP earnings 

variability. The adoption of hedge accounting was a business decision intended to better align earnings 

with the economics of our business, but it is not intended to change the investment and portfolio 
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 92

management decisions that our segment would otherwise make. For more information on our use of 

hedge accounting see Risk Management - Market Risk - GAAP Earnings Variability and Note 

9.

The primary impacts to Segment Earnings are:

• Fair value gains and losses on derivatives not designated in qualifying hedge relationships;

• Interest income/expense on derivatives; and

• Differences between the change in fair value of the hedged item attributable to the risk being hedged and changes in the fair value of

the hedging instrument for derivatives designated in qualifying fair value hedge accounting relationships.

Summary of our Primary Business Model and Its Impacts to Segment Earnings

Securitization Activities

We manage the company's securitization and resecuritization activities related to single-family loans. 

See Our Business Segments - Single-Family Guarantee for a discussion of our single-family 

securitization and guarantee products.

Customers

Our customers include banks and other depository institutions, insurance companies, money managers, 

central banks, pension funds, state and local governments, REITs, brokers and dealers, and a variety of 

lenders as discussed in Our Business Segments - Single-Family Guarantee - Business 

Overview - Customers. Our unsecured other debt securities and structured mortgage-related 

securities are initially purchased by dealers and redistributed to their customers.
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 93

Competition

Our competitors in the Capital Markets segment are firms that invest in loans and mortgage-related 

assets and issue corporate debt, including Fannie Mae, REITs, supranationals (international institutions 

that provide development financing for member countries), commercial and investment banks, dealers, 

savings institutions, insurance companies, the Federal Farm Credit Banks and the FHLBs.
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 94

Market Conditions

The following graph and related discussion present the par swap rate curve for the most recent three 

years. Changes in par swap rates can significantly affect the fair value of our debt, derivatives and 

mortgage and non-mortgage-related securities. As a result, changes in par swap rates will affect the 

business and financial results of our Capital Markets segment.

Par Swap Rates as of December 31,

Source: BlackRock

Commentary

We primarily use LIBOR-based derivatives and fixed-rate debt to hedge our interest rate risk. The 

mortgage-related investments portfolio's exposure to interest rate risk is calculated by our models 

that project loan and security cash flows over a variety of scenarios. For additional information on 

our exposure to interest rate risk, see Risk Management - Market Risk.
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 95

2017 vs. 2016 and 2016 vs. 2015

The 2-year and 10-year swap rates increased, resulting in gains for our pay-fixed interest rate 

swaps and losses for our receive-fixed interest rate swaps, certain of our option contracts and 

the vast majority of our investments in securities.

3-month LIBOR increased during 2017 and during the fourth quarter of 2016, resulting in higher 

yields for our short-term interest-earning assets, higher costs for our short-term interest-bearing 

liabilities and interest-rate related losses for certain of our shorter duration trading securities.
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 96

Business Results

The graphs and related discussion below present the business results of our Capital Markets segment.

Investing Activity

The following graphs present the Capital Markets segment's total investments portfolio and the 

composition of its mortgage investments portfolio by liquidity category.

Investments Portfolio Mortgage Investments Portfolio

Commentary

We continue to reduce the size of our mortgage investments portfolio in order to comply with the 

mortgage-related investments portfolio's year-end limits. The balance of our mortgage investments 

portfolio declined 14.9% between December 31, 2016 and December 31, 2017.

The balance of our other investments and cash portfolio decreased 7.2% primarily due to lower 

near-term cash needs for upcoming maturities and anticipated calls of other debt at the end of 2017 

compared to the end of 2016.

The percentage of less liquid assets relative to our total mortgage investments portfolio declined to 

28.4% at December 31, 2017 from 34.4% at December 31, 2016, primarily due to repayments, sales 

and securitizations of our less liquid assets. 
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 97

The overall liquidity of our mortgage investments portfolio continued to improve as our less liquid 

assets decreased at a faster pace than the overall decline of our mortgage investments portfolio.
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 98

Reduction in Less Liquid Assets

Securitizations of Reperforming Loans into Freddie 

Mac PCs

Sales of Less Liquid Assets 

Commentary

Since 2013, we have focused on reducing, in an economically sensible manner, our holdings of 

certain less liquid assets, including single-family reperforming loans and non-agency mortgagerelated securities. Our disposition strategies for our less liquid assets include securitizations and 

sales. 

During 2017, our sales of less liquid assets included $9.2 billion in UPB of non-agency mortgagerelated securities and $8.2 billion of reperforming loans. Our sales of reperforming loans involved 

securitization of the loans using senior subordinate securitization structures, in which we guaranteed 

the resulting senior securities. As part of these transactions, we retained certain of the guaranteed 

senior securities for our mortgage-related investments portfolio.

One of our principal strategies related to the securitization of reperforming loans is to create Freddie 

Mac PCs and initially retain all of the resulting mortgage-related securities. This strategy also 

includes the resecuritization of a portion of the retained mortgage-related securities, with some of 

the resulting interests being sold to third parties. During 2017, we securitized $1.2 billion of singlefamily reperforming loans through PC securitization. 
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 99

Net Interest Yield and Average Balances

Net Interest Yield & Average Investments Portfolio Balance

Commentary

Net Interest Yield 

2017 vs. 2016 - remained relatively flat.

2016 vs. 2015 - decreased 17 basis points, primarily due to the reduction in the balance of our 

higher yielding mortgage investments portfolio, pursuant to the portfolio limits established by the 

Purchase Agreement and FHFA.
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 100

Financial Results

The table below presents the components of the Segment Earnings and comprehensive income for our 

Capital Markets segment.

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Net interest income $3,381 $3,812 $4,665 ($431) (11)% ($853) (18)%

Net impairment of available-for-sale securities

recognized in earnings 236 269 420 (33) (12)% (151) (36)%

Derivative gains (losses) (587) 1,151 (833) (1,738) (151)% 1,984 238 %

Gains (losses) on trading securities (570) (1,077) (737) 507 47 % (340) (46)%

Other non-interest income 7,813 1,865 2,288 5,948 319 % (423) (18)%

Administrative expense (330) (320) (317) (10) (3)% (3) (1)%

Segment Earnings before income tax expense 9,943 5,700 5,486 4,243 74 % 214 4 %

Income tax expense (3,428) (1,873) (1,715) (1,555) (83)% (158) (9)%

Segment Earnings, net of taxes 6,515 3,827 3,771 2,688 70 % 56 1 %

Total other comprehensive income (loss), net of tax (30) (452) (356) 422 93 % (96) (27)%

Total comprehensive income (loss) $6,485 $3,375 $3,415 $3,110 92 % ($40) (1)%

The portion of total comprehensive income (loss) driven by interest rate-related and market spreadrelated fair value changes, after-tax, is presented in the table below. These amounts affect various line 

items in the table above, including derivative gains (losses), gains (losses) on trading securities, other 

non-interest income, income tax expense and total other comprehensive income (loss), net of tax.

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Interest rate-related ($0.3) $0.2 ($0.5) ($0.5) (250)% $0.7 140%

Market spread-related 0.8 0.3 0.2 0.5 167 % 0.1 50%

Key Drivers: 

2017 vs. 2016

The continued reduction in the balance of our mortgage-related investments portfolio resulted in 

a decrease in net interest income. 

Interest rate-related fair value changes during 2017. Losses increased, driven by lower levels of 

volatility during 2017, resulting in larger losses in our options portfolio, coupled with lower fair 

value gains in our pay-fixed interest rate swaps as long-term interest rates increased less. This 

was partially offset by reduced fair value losses in our receive-fixed interest rate swaps and the 

majority of our investments in securities.

Increased spread-related fair value gains driven by market spread tightening during 2017 on our 

non-agency mortgage-related securities.

The volume of PCs we repurchased during 2017 increased only slightly, but we recognized 

increased gains on the extinguishment of debt as long-term interest rates increased between the 
Management's Discussion and Analysis Our Business Segments | Capital Markets

FREDDIE MAC | 2017 Form 10-K 101

time of issuance and repurchase, as compared to 2016 when long-term interest rates generally 

decreased between the time of issuance and repurchase.

Proceeds of $4.5 billion received from the RBS settlement during 2017 related to certain of our 

non-agency mortgage-related securities. For more information on this settlement, see Note 14.

2016 vs. 2015

The continued reduction in the balance of our mortgage-related investments portfolio resulted in 

a decrease in net interest income. 

Interest rate-related fair value changes during 2016. Long-term interest rates increased during the 

fourth quarter of 2016 but decreased during 2015. This resulted in gains in our pay-fixed interest 

rate swaps and losses in our receive-fixed interest-rate swaps, certain of our option contracts 

and the vast majority of our investments in securities.

Increased spread-related fair value gains driven by market spread tightening during 2016 on our 

agency mortgage-related securities.

Decreased sales of available-for-sale agency and non-agency mortgage-related securities in 

unrealized gain positions resulted in lower gains.
Management's Discussion and Analysis Our Business Segments | All Other

FREDDIE MAC | 2017 Form 10-K 102

All Other

Comprehensive Income

The table below shows our comprehensive income (loss) for the All Other category.

Year Over Year Change

Year Ended December 31, 2017 vs. 2016 2016 vs. 2015

(Dollars in millions) 2017 2016 2015 $ % $ %

Comprehensive income (loss) - All Other ($5,405) $— $28 ($5,405) N/A ($28) (100)%

Key Drivers: 

2017 vs. 2016 - Comprehensive loss in 2017 was driven by:

Higher income tax expense due to the revaluation of our net deferred tax asset driven by the Tax 

Cuts and Jobs Act, which reduced the statutory corporate income tax rate from 35% to 21%. For 

more information on the statutory tax rate change, see Note 12.
Management's Discussion and Analysis Risk Management | Overview

FREDDIE MAC | 2017 Form 10-K 103

RISK MANAGEMENT

Overview 

Risk is an inherent part of our business activities. We are exposed to four main categories of risk: credit 

risk, operational risk, market risk and liquidity risk. We discuss credit risk, operational risk and market 

risk in this section. See Liquidity and Capital Resources for a discussion of liquidity risk. 

Credit risk is the risk associated with the inability or failure of a borrower, issuer or counterparty to meet 

its financial and/or contractual obligations.

Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, 

people, or systems or from external events. 

Market risk is the economic risk associated with adverse changes in interest rates, volatility and 

spreads. 

Liquidity risk is the risk associated with the inability to meet financial obligations as they come due or 

meet the needs of customers in a timely and cost-efficient manner. 

For more discussion of these and other risks facing our business, see Risk Factors.

Enterprise Risk Framework and Governance Structure

We manage risk using a three-lines-of-defense risk management model and governance structure that 

includes enterprise-wide oversight by the Board and its committees, CERO, CCO and our corporate 

ERC. These roles and responsibilities continue to evolve.

The information and diagram below present the responsibilities associated with our three-lines-ofdefense risk management model and our governance structure.

We have made considerable enhancements to our enterprise risk framework in recent years, including: 

Revising our integrated enterprise risk framework to enable us to place more focus on high risk 

business processes and activities; 

Utilizing our three-lines-of-defense risk management model both to strengthen risk ownership in our 

business units and to assign specific responsibilities and accountabilities for risk management; 

Implementing variable compensation programs that do not encourage excessive risk taking and 

balance risk and rewards; and

Continuing to emphasize from the tone at the top the importance of a strong risk culture. 

Our framework focuses on balancing ownership of risk by our business units with independent risk 

management and independent assurance of the design and effectiveness of our risk management 

activities. For more information on the role of the Board and its committees, see Directors, Corporate 

Governance, and Executive Officers - Corporate Governance - Board and Committee 

Information.
Management's Discussion and Analysis Risk Management | Overview

FREDDIE MAC | 2017 Form 10-K 104
Management's Discussion and Analysis Risk Management | Overview

FREDDIE MAC | 2017 Form 10-K 105

Capital Framework 

During 2017, we and Fannie Mae worked with FHFA to develop an overall risk measurement framework 

for evaluating our risk management and business decisions during conservatorship, known as the 

Conservatorship Capital Framework (CCF). We use both CCF and our internal capital methodologies, 

which are aligned, to measure risk for making economically effective decisions. We are required to 

submit quarterly reports to FHFA related to CCF requirements. In addition, we are subject to the annual 

Dodd-Frank Act Stress Test as required by FHFA.
Management's Discussion and Analysis Risk Management | Credit Risk

FREDDIE MAC | 2017 Form 10-K 106

Credit Risk

Overview

We are exposed to both mortgage credit risk and counterparty credit risk. 

Mortgage credit risk is the risk that a borrower will fail to make timely payments on a loan that we own 

or guarantee. We are exposed to three types of mortgage credit risk:

Single-family mortgage credit risk, through our ownership or guarantee of loans in the singlefamily credit guarantee portfolio;

Multifamily mortgage credit risk, through our ownership or guarantee of loans in the multifamily 

mortgage portfolio; and

Mortgage-related securities credit risk, through our ownership of non-Freddie Mac mortgagerelated securities in the mortgage-related investments portfolio.

Counterparty credit risk is the risk associated with the inability or failure of a counterparty to meet its 

contractual obligations. 

In the sections below, we provide a general discussion of our enterprise risk framework and current risk 

environment for the three types of mortgage credit risk, as well as for counterparty credit risk.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 107

Single-Family Mortgage Credit Risk

We manage our exposure to single-family mortgage credit risk, which is a type of consumer credit risk, 

using the following principal strategies:

Maintaining policies and procedures for new business activity, including prudent underwriting 

standards;

Offering private investors new and innovative ways to share in the credit risk of the single-family 

credit guarantee portfolio;

Monitoring loan performance and characteristics of the single-family credit guarantee portfolio and 

individual sellers and servicers;

Engaging in loss mitigation activities; and

Managing foreclosure and REO activities.

Maintaining Policies and Procedures for New Business Activity, Including Prudent 

Underwriting Standards

We use a delegated underwriting process in connection with our acquisition of single-family loans 

whereby we set eligibility and underwriting standards and sellers represent and warrant to us that loans 

they sell to us meet these standards. Our eligibility and underwriting standards evaluate loans based on 

a number of characteristics.

Limits are established on the purchase of loans with certain higher risk characteristics. These limits are 

designed to balance our credit risk exposure with the facilitation of affordable housing in a responsible 

manner. Our purchase guidelines generally provide for a maximum original LTV ratio of 95%, a maximum 

LTV ratio of 80% for cash-out refinance loans and no maximum LTV ratio for fixed-rate HARP loans. In 

March 2015, we began to purchase certain loans with LTV ratios up to 97% under an initiative designed 

to serve a targeted segment of creditworthy borrowers. We fully discontinued purchases of Alt-A loans 

in 2009, interest-only loans in 2010 and option ARM loans in 2007. 

The majority of our purchase volume is evaluated using our own proprietary underwriting software (Loan 

Product Advisor ("LPA")), the seller’s software or Fannie Mae’s comparable software. The performance 

of non-LPA loans is monitored to ensure compliance with our risk appetite.

We employ a quality control process to review loan underwriting documentation for compliance with our 

standards using both random and targeted samples. We also perform quality control reviews of many 

delinquent loans and review all loans that have resulted in credit losses before the representations and 

warranties are relieved. Sellers may appeal ineligible loan determinations prior to repurchase of the loan. 

Our reviews of 2016 originations are largely complete, while our reviews of 2017 originations are 

ongoing. The average aggregate ineligible loan rate across all sellers for loans funded during 2016, 2015

and 2014, excluding HARP and other relief refinance loans, was approximately 0.7%, 0.8% and 1.1%, 

respectively. The most common underwriting defect found in our review of loans funded during 2016

related to the delivery of insufficient income documentation.

We have made changes in recent periods to standardize our quality control process and facilitate more 

timely reviews. These changes are designed to identify breaches of representations and warranties early 
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 108

in the life of the loan. We also implemented new tools, such as our proprietary Quality Control Advisor, 

to provide greater transparency into our customer quality control reviews. 

In July 2016, we launched our Loan Advisor Suite, which is a set of integrated software applications 

designed to give lenders a way to originate and deliver high quality mortgage loans to us and to actively 

monitor representation and warranty relief earlier in the mortgage loan production process. In 2017, we 

enhanced our Loan Advisor Suite to offer limited relief of representations and warranties for certain loans 

that satisfy new automated controls related to appraisal quality, collateral valuation, borrower assets and 

borrower income. In general, limited representation and warranty relief is offered when information 

provided by lenders is validated against independent data sources. Further enhancements to the Loan 

Advisor Suite are expected in 2018. These evolving technologies are designed to establish the loan 

manufacturing quality required for greater purchase certainty.

If we discover that the representations or warranties related to a loan were breached (i.e., that 

contractual standards were not followed), we can exercise certain contractual remedies to mitigate our 

actual or potential credit losses. These contractual remedies include the ability to require the seller or 

servicer to repurchase the loan at its current UPB, reimburse us for losses realized with respect to the 

loan after consideration of any other recoveries, and/or indemnify us. At the direction of FHFA, we 

implemented a new remedies framework for the categorization of loan origination defects for loans with 

settlement dates on or after January 1, 2016. Among other items, the framework provides that 

"significant defects" will result in a repurchase request or a repurchase alternative, such as recourse or 

indemnification.

At the direction of FHFA, we made a number of changes to our selling and servicing representation and 

warranty framework for our mortgage loans. FHFA may require further changes to the framework in the 

future. Under the revised selling framework, we relieve sellers of repurchase obligations for breaches of 

certain selling representations and warranties for certain types of loans, including:

Loans that have established an acceptable payment history for 36 months (12 months for relief 

refinance loans) of consecutive, on-time payments after purchase, subject to certain exclusions; and

Loans that have satisfactorily completed a quality control review.

As part of the revised framework, we also made changes that provide additional clarity on life-ofmortgage loan exclusions from repurchase relief for breaches of certain selling representations and 

warranties. These changes are designed to provide sellers with a higher degree of certainty regarding 

their repurchase exposure and liability on loans sold to us. 

In February 2016, at the direction of FHFA, we published guidelines for a new independent dispute 

resolution process for alleged breaches of selling or servicing representations and warranties on our 

loans. Under the new process, a neutral third party renders a decision on demands that remain 

unresolved after the existing appeal and escalation processes have been exhausted.

The credit quality of our single-family loan purchases remained strong during the past several years. The 

graphs below show the credit profile of the single-family loans we purchased or guaranteed in the last 

three years.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 109

Weighted Average Original LTV Ratio

 

Weighted Average Credit Score

The table below contains additional information about the single-family loans we purchased or 

guaranteed in the last three years.

Year Ended December 31,

2017 2016 2015

(Dollars in millions) Amount % of Total Amount % of Total Amount % of Total

30-year or more amortizing fixed-rate $275,677 80% $307,572 78% $262,209 75%

20-year amortizing fixed-rate 12,338 4 17,011 4 16,470 5

15-year amortizing fixed-rate 45,597 13 61,223 16 58,958 17

Adjustable-rate 9,841 3 6,555 2 12,760 3

FHA/VA and other governmental 113 — 146 — 163 —

Total $343,566 100% $392,507 100% $350,560 100%

Percentage of purchases

With credit enhancements 30% 26% 23%

Detached/townhome property type 91% 92% 92%

Primary residence 89% 90% 90%

Loan purpose

Purchase 58% 45% 44%

Cash-out refinance 22% 22% 21%

Other refinance 20% 33% 35%
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 110

The table below contains additional detail on the relief refinance loans we purchased. 

Year Ended December 31,

2017 2016

(UPB in millions) UPB Loan Count

Average 

Loan Size UPB Loan Count

Average 

Loan Size

Above 125% Original LTV $141 936 $151,000 $271 1,799 $151,000

Above 100% to 125% Original LTV 589 3,197 184,000 1,107 6,220 178,000

Above 80% to 100% Original LTV 1,760 9,737 181,000 3,034 17,277 176,000

80% and below Original LTV 5,900 40,941 144,000 8,562 60,353 142,000

Total $8,390 54,811 $153,000 $12,974 85,649 $151,000

Offering Private Investors New and Innovative Ways to Share in the Credit Risk of the 

Single-Family Credit Guarantee Portfolio

Our Charter requires coverage by specified credit enhancements or participation interests on singlefamily loans with LTV ratios above 80% at the time of purchase. In addition to obtaining credit 

enhancements required by our Charter, we also enter into various other types of transactions in which 

we transfer mortgage credit risk to third parties. 

The table below contains a description of the credit enhancements we use to transfer a portion of the 

credit risk on our single-family loans.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 111

Credit

Enhancement Description

When

Coverage is

Effective

Primary

mortgage

insurance

• Provides loan-level protection against loss up to a specified amount and the premium is typically

paid by the borrower. Generally, an insured loan must be in default and the borrower’s interest in

the underlying property must have been extinguished, such as through a short sale or foreclosure

sale, before a claim can be filed under a primary mortgage insurance policy. The mortgage insurer

has a prescribed period of time within which to process a claim and make a determination as to its

validity and amount. Most of our loans with LTV ratios above 80% are protected by primary

mortgage insurance.

At the time we

acquire the loan

STACR debt

notes

• Unsecured debt obligations that we issue to third-party investors related to certain notional credit

risk positions. We make payments of principal and interest on the issued STACR debt notes. The

amount of principal that we are required to pay the STACR debt note investors is linked to the

credit performance of certain loans (referred to as a reference pool) that we have previously

guaranteed. As a result, we are not required to repay principal to the extent that the notional credit

risk position is reduced as a result of a specified credit event.

Subsequent to

our purchase or

guarantee of

loans

ACIS

insurance

policies

• Policies that provide credit protection on a portion of the non-issued notional credit risk positions

we retain in a STACR debt note transaction. We also enter into ACIS transactions that provide credit

protection for certain specified credit events on loans not included in a reference pool created for a

STACR debt note transaction. In exchange for our payment of premiums, we receive compensation

for certain losses under the insurance policy up to an aggregate limit when specified credit events

occur.

At both the time

we acquire the

loan and

subsequent to

our purchase or

guarantee of

loans

Senior

subordinate

securitization

structures

• Structures in which we issue guaranteed senior securities or PCs and unguaranteed subordinated

securities backed by certain single-family loans that were previously purchased or participation

interests in recently originated single-family loans. The unguaranteed subordinated securities

absorb first losses on the related loans. In certain of these transactions, the loans are not serviced

in accordance with our Guide and we do not control the servicing.

Subsequent to

our purchase or

guarantee of

loans

Other

• Seller indemnification agreement - Requires the seller to absorb a portion of the losses on the 

related single-family loans in exchange for Freddie Mac's payment of a fee or a guarantee fee 

reduction. The indemnification amount may be fully or partially collateralized.

At the time we

acquire the loan

• Deep MI CRT - Provides additional coverage beyond primary mortgage insurance. Deep MI CRT is 

a credit enhancement we purchase from affiliates of mortgage insurance companies. Deep MI CRT 

covers a pool of loans and takes effect immediately upon sale of the mortgage loans to us over a 

pre-defined loan aggregation period. We require our counterparties to partially collateralize their 

exposure to reduce the risk that we will not be reimbursed for our claims under the policies, and 

also to adhere to other terms beyond what is contained in primary mortgage insurance.

At the time we

acquire the loan

• Lender recourse and indemnification agreements - Require a lender to repurchase a loan upon 

default or to reimburse us for realized credit losses. Lender recourse and lender indemnification 

agreements are entered into as an alternative to requiring primary mortgage insurance or in 

exchange for a lower guarantee fee. We have not used lender recourse or lender indemnification 

agreements on a broad basis in recent years. 

At the time we

acquire the loan

• Pool insurance - Provides insurance on a group of loans up to a stated aggregate loss limit. We 

have not purchased pool insurance policies since 2008, and the majority of our pool insurance 

policies will expire in the next three years.

At the time we

acquire the loan

See Our Business Segments - Single-Family Guarantee, Note 3 and Note 6 for additional 

information on these transactions.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 112

The table below provides information on the total current and protected UPB and maximum coverage 

associated with credit enhanced loans in our single-family credit guarantee portfolio as of December 31, 

2017 and 2016, respectively. The table includes all types of single-family credit enhancements.

As of December 31,

2017 2016

(In millions)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Primary mortgage insurance $334,189 $85,429 $291,217 $74,345

STACR debt note(3) 604,356 17,788 427,978 14,507

ACIS transactions(4) 617,730 6,736 453,670 5,355

Senior subordinate securitization structures 12,283 1,913 3,988 605

Other(5) 15,975 6,479 12,827 7,373

Less: UPB with more than one type of credit enhancement (775,751) — (559,400) —

Single-family credit guarantee portfolio with credit enhancement 808,782 118,345 630,280 102,185

Single-family credit guarantee portfolio without credit enhancement 1,020,098 — 1,124,446 —

Total $1,828,880 $118,345 $1,754,726 $102,185

(1) Except for the majority of our STACR debt notes and ACIS transactions, our credit enhancements generally provide protection for the first, or initial, 

credit losses associated with the related loans. For subordination, total current and protected UPB represents the UPB of the guaranteed 

securities. For STACR debt notes and ACIS transactions, total current and protected UPB represents the UPB of the assets included in the 

reference pool. 

(2) Except for subordination, this represents the remaining amount of loss recovery that is available subject to the terms of counterparty agreements. 

For subordination, this represents the UPB of the securities that are subordinate to our guarantee and held by third parties, which could provide 

protection by absorbing first losses.

(3) Maximum coverage amounts presented represent the outstanding balance of STACR debt notes held by third parties. 

(4) Maximum coverage amounts presented represent the remaining aggregate limit of insurance purchased from third parties in ACIS transactions. 

(5) Includes seller indemnification, Deep MI CRT, lender recourse and indemnification, pool insurance, HFA indemnification and other credit 

enhancements.

We had coverage remaining of $118.3 billion and $102.2 billion on our single-family credit guarantee 

portfolio as of December 31, 2017 and 2016, respectively. Credit risk transfer transactions provided 

22.4% and 19.9% of the coverage remaining at those dates.

The table below provides information on the non-credit-enhanced and credit-enhanced loans in our 

single-family credit guarantee portfolio. The credit enhanced categories are not mutually exclusive as a 

single loan may be covered by both primary mortgage insurance and other credit protection.

As of December 31,

2017 2016 2015

(Percentage of portfolio based on UPB) % of Portfolio SDQ Rate % of Portfolio SDQ Rate % of Portfolio SDQ Rate

Non-credit-enhanced 56% 1.16% 64 % 1.02 % 70 % 1.30 %

Credit-enhanced

 Primary mortgage insurance 18% 1.43% 17 % 1.46 % 15 % 2.06 %

 Other 37% 0.53% 27 % 0.43 % 20 % 0.58 %

Total N/A 1.08% N/A 1.00% N/A 1.32%

The table below provides information on estimated recoveries we could receive over the risk transfer 

coverage period from our most significant credit risk transfer transactions (i.e., STACR debt notes and 

ACIS insurance policies) under various home price scenarios.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 113

The timing of our recognition of the recoveries in our statements of comprehensive income will depend 

on the type of credit risk transfer transaction and whether we are reimbursed based on calculated losses 

or actual losses, which may result in timing differences between the recognition of recoveries and the 

related credit event. We recognize losses on the loans in the reference pool when losses are 

incurred. Recoveries from credit risk transfer transactions based on actual losses are generally 

recognized in the financial statements when the loss confirming event occurs (i.e. foreclosure, deed in 

lieu of foreclosure, short sale, etc.), which may be several years after the related losses are incurred. 

Credit risk transfer transactions based on calculated losses are measured at fair value through earnings, 

so the change in fair value may be recognized prior to the incurrence of the loss.

In the table below, we estimate the potential recoveries from our STACR debt note and ACIS 

transactions using a sensitivity analysis that utilizes our historical loss and prepayment experience 

related to loans originated during periods that experienced above average home price appreciation, 

moderate home price appreciation and severe home price depreciation. We match these loans to similar 

groups within the reference pools (related to our STACR debt note and ACIS transactions) using two of 

the more significant observed credit sensitive mortgage loan attributes, LTV ratios and origination FICO 

scores. Our recoveries under these scenarios were estimated based on loan losses, net of mortgage 

insurance claim amounts. 

These are only estimated projections and are designed to illustrate the potential for significant 

differences in losses and recoveries depending on the economic environment and other factors. Our 

actual losses and recoveries under these scenarios could differ materially from these estimates. For 

example, significant improvements to underwriting standards, as well as origination practices, since the 

financial crisis may result in lower loan losses and loss coverage ratio than the projections in the table 

below. In addition, these estimates do not include interest expense and transaction costs we incur to 

issue our STACR debt notes and premiums we pay on ACIS transactions.

(In millions) As of December 31, 2017

UPB of loans covered by STACR debt notes and ACIS

insurance policies $607,019

Performance Under Home Price Scenarios at December 31, 2017

Above Average Home Price 

Appreciation (47%)(1)

Moderate Home Price 

Appreciation (7%)(1)

Severe Home Price 

Depreciation (-24%)(1)

(Dollars in millions) Amount bps Amount bps Amount bps

Estimated credit losses $157 6 $1,007 40 $16,741 276

Estimated recoveries from STACR debt notes and ACIS

insurance policies $56 1 $654 11 $10,438 172

Loss coverage ratio 15% N/A 27% N/A 62% N/A

(1) Home price change is over a four-year period.

Monitoring Loan Performance and Characteristics of the Single-Family Credit 

Guarantee Portfolio and Individual Sellers and Servicers

We review loan performance, including delinquency statistics and related loan characteristics in 

conjunction with housing market and economic conditions, to determine if our pricing and eligibility 

standards reflect the risk associated with the loans we purchase and guarantee. We review the payment 
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 114

performance of our loans to facilitate early identification of potential problem loans, which could inform 

our loss mitigation strategies. We also review performance metrics for additional loan characteristics 

that may expose us to concentrations of credit risk, including: 

Higher risk loan attributes and attribute combinations;

Higher risk loan product types; and

Geographic concentrations. 

We actively monitor seller and servicer performance, including compliance with our standards, and 

periodically review their operational processes. We also periodically change seller/servicer guidelines 

based on the results of our mortgage portfolio monitoring, if warranted. 

Single-Family Credit Guarantee Portfolio 

Our single-family serious delinquency rate increased in 2017 compared to 2016 due to impacts of the 

hurricane events in 2017. As a result, we expect an increase in our loan workout activities as well as our 

expected credit losses. 

Outside of the areas affected by the hurricanes, our single-family serious delinquency rate decreased to 

0.83% in 2017 from 0.97% in 2016 due to our continued loss mitigation efforts and sales of certain 

seriously delinquent loans, as well as home price appreciation and a low unemployment rate. This 

improvement was also driven by the continued shift in the single-family credit guarantee portfolio mix, as 

the Legacy and relief refinance loan portfolio runs off and we add high credit quality loans to our Core 

single-family loan portfolio.

Our loss mitigation activities may create fluctuations in our delinquency statistics. For example, loans in 

modification trial periods, loans subject to forbearance agreements and loans in repayment plans 

continue to be reported as seriously delinquent. There may also be temporary lags in the reporting of 

payment status and modification completion due to differing practices of our servicers that can affect 

our delinquency statistics.

The charts below show the credit losses and serious delinquency rates for each of our single-family loan 

portfolios. Our Core single-family loan portfolio continues to perform well and account for a small 

percentage of our credit losses, as shown below. Our Legacy and relief refinance single-family loan 

portfolio continues to decline as a percentage of our overall portfolio, but continues to account for the 

majority of our credit losses.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 115

Portfolio Composition and Credit Losses Serious Delinquency Rates as of December 31,
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 116

The chart below shows the delinquency rates for mortgage loans in our single-family credit guarantee 

portfolio that are one month and two months past due.

Total Delinquency Rates for Loans One Month and Two Months Past Due

The tables below provide credit quality information about our single-family loan portfolios.

As of December 31, 2017

(Dollars in billions) UPB

Average

Credit

Score

Original

LTV Ratio

Current

LTV

Ratio

Current

LTV Ratio

>100%

Foreclosure 

Sale

and Short

Sale Rate(1) Alt-A %

Core single-family loan portfolio $1,424 751 73% 59% —% 0.16% —%

Legacy and relief refinance single-family loan portfolio 405 707 77% 47% 3% 3.98% 7%

Total $1,829 743 75% 59% 1% N/A 1%

As of December 31, 2016

(Dollars in billions) UPB

Average

Credit

Score

Original

LTV Ratio

Current

LTV

Ratio

Current

LTV Ratio

>100%

Foreclosure 

Sale and 

Short

Sale Rate(1) Alt-A %

Core single-family loan portfolio $1,275 752 72% 60% —% 0.15% —%

Legacy and relief refinance single-family loan portfolio 480 708 77% 51% 5% 3.91% 7%

Total $1,755 743 75% 61% 2% N/A 2%

(1) The foreclosure sale and short sale rate presented for the Legacy and relief refinance single-family loan portfolio represents the rate associated 

with loans originated in 2000 through 2008, as well as other relief refinance loans, including HARP loans.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 117

The table below contains a description of some of the loan characteristics we monitor in our singlefamily credit guarantee portfolio.

Characteristic Description Impact on Credit Quality

LTV Ratio

Ratio of the UPB of the loan to the value of the

underlying property collateralizing the loan. Original

LTV ratio is measured at loan origination, while

current LTV (CLTV) ratio is defined as the ratio of the

current loan UPB to the estimated current property

value

• Measures ability of the underlying property to cover our 

exposure on the loan

• Higher LTV ratios indicate higher risk, as proceeds from

sale of the property may not cover our exposure on the

loan

• Lower LTV ratios indicate borrowers are more likely to

repay

Credit Score

Statistically-derived number used by lenders to

assess a borrower’s likelihood to repay debt. We use

FICO scores, which are currently the most

commonly used credit scores for mortgages

• Borrowers with higher credit scores are generally more

likely to repay or have the ability to refinance their loans

than those with lower scores

• Credit scores presented in this Form 10-K are at the time

of origination and may not be indicative of the borrowers’

current creditworthiness

Loan Purpose

Indicates how the borrower intends to use the

proceeds from a loan (i.e., purchase, cash-out

refinance or other refinance)

• Cash-out refinancings, which increase the LTV ratios,

generally have had a higher risk of default than loans

originated in purchase or other refinance transactions

Property Type Indicates whether the property is a detached singlefamily house, townhouse, condominium or co-op

• Detached single-family houses and townhouses are the

predominant type of single-family property

• Condominiums historically have experienced greater

volatility in home prices than detached single-family

houses, which may expose us to more risk

Occupancy Type

Indicates whether the borrower intends to use the

property as a primary residence, second home or

investment property

• Loans on primary residence properties tend to have

lower credit risk than loans on second homes or

investment properties

Product Type

Indicates the type of loan based on key loan terms,

such as the contractual maturity, type of interest

rate and payment characteristics of the loan

• Loan products that contain terms which result in

scheduled changes in monthly payments may result in

higher risk

• Shorter loan terms result in faster repayment of principal

and may indicate lower risk

Second Liens

Indicates whether the underlying property is

covered by more than one loan at the time of

origination

• Second liens can increase the risk of default

• Borrowers are free to obtain second-lien financing after

origination, and we are not entitled to receive notification

when a borrower does so
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 118

The table below contains details on characteristics of the loans in our single-family credit guarantee 

portfolio.

As of December 31,

(Percentage of portfolio based on UPB) 2017 2016 2015

Original LTV Ratio Range

60% and below 20% 20% 20%

Above 60% to 80% 52% 53% 53%

Above 80% to 100% 24% 23% 22%

Above 100% 4% 4% 5%

Portfolio weighted average original LTV ratio 75% 75% 75%

Current LTV Ratio Range

60% and below 49% 45% 43%

Above 60% to 80% 37% 38% 37%

Above 80% to 100% 13% 15% 16%

Above 100% 1% 2% 4%

Portfolio weighted average current LTV ratio 59% 61% 63%

Credit Score

740 and above 60% 60% 59%

700 to 739 21% 21% 21%

660 to 699 12% 12% 13%

620 to 659 5% 5% 5%

Less than 620 2% 2% 2%

Portfolio weighted average credit score 743 743 741

Loan Purpose

Purchase 39% 35% 32%

Cash-out refinance 21% 21% 21%

Other refinance 40% 44% 47%

In addition, at December 31, 2017, 2016 and 2015:

More than 90% of our loans were secured by detached homes or townhomes; 

Approximately 90% of our loans were secured by properties used as the borrower’s primary 

residence at origination; and

More than 90% of our loans were fixed-rate.

At December 31, 2017, approximately 9% of our loans had second-lien financing by the originator or 

other third party at origination, and these loans comprised approximately 15% of our seriously 

delinquent loan population. It is likely that additional borrowers have post-origination second-lien 

financing.

Higher Risk Loan Attributes and Attribute Combinations

Certain of the loan attributes shown above may indicate a higher risk of default. For example, loans with 

original LTV ratios over 90% and/or credit scores below 620 at origination may be higher risk. The tables 

below provide information on loans in our portfolio with these characteristics. The tables include a 

presentation of each higher risk category in isolation. A single loan may fall within more than one 

category. 
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 119

As of December 31, 2017

(Dollars in billions) UPB CLTV % Modified SDQ Rate

Original LTV ratio greater than 90%, HARP loans $98.9 76% 2.3% 1.37%

Original LTV ratio greater than 90%, all other loans $205.5 80% 5.6% 1.88%

Loans with credit scores below 620 at origination $35.2 65% 21.4% 6.34%

As of December 31, 2016

(Dollars in billions) UPB CLTV % Modified SDQ Rate

Original LTV ratio greater than 90%, HARP loans $115.1 83% 1.8% 1.07%

Original LTV ratio greater than 90%, all other loans $169.4 82% 7.2% 1.92%

Loans with credit scores below 620 at origination $37.5 69% 21.7% 5.73%

In addition, certain combinations of loan attributes can indicate an even higher degree of credit risk, 

such as loans with both higher LTV ratios and lower credit scores. The following tables show the 

combination of credit score and CLTV ratio attributes of loans in our single-family credit guarantee 

portfolio.

As of December 31, 2017

CLTV > 80 to 100 CLTV > 100 All Loans

(Credit score)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

% 

Modified(

1)

Core single-family loan portfolio:

< 620 0.3% 2.89% —% NM —% NM 0.3% 3.18% 3.3%

620 to 659 1.8 1.63% 0.3 1.92% — NM 2.1 1.67% 1.4%

65.9 0.27% 9.5 0.46% — NM 75.4 0.29% 0.2%

Not available 0.1 2.48% — NM — NM 0.1 4.47% 3.6%

Total 68.1% 0.32% 9.8% 0.55% —% NM 77.9% 0.35% 0.3%

Legacy and relief refinance singlefamily loan portfolio:

< 620 1.2% 5.61% 0.3% 10.17% 0.1% 16.24% 1.6% 6.71% 23.5%

620 to 659 2.0 4.17% 0.4 8.05% 0.2 13.75% 2.6 5.04% 20.3%

14.9 1.47% 2.2 4.11% 0.7 6.67% 17.8 1.81% 7.3%

Not available 0.1 5.60% — NM — NM 0.1 6.07% 17.8%

Total 18.2% 2.11% 2.9% 5.39% 1.0% 9.14% 22.1% 2.59% 10.1%
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 120

As of December 31, 2016

CLTV > 80 to 100 CLTV > 100 All Loans

(Credit score)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

% 

Modified(1)

Core single-family loan portfolio:

< 620 0.2% 2.18% —% NM —% NM 0.2% 2.45% 3.0%

620 to 659 1.6 1.02% 0.3 1.30% — NM 1.9 1.07% 1.3%

60.9 0.15% 9.7 0.22% 0.1 1.88% 70.7 0.16% 0.2%

Not available — NM — NM — NM — NM NM

Total 62.7% 0.18% 10.0% 0.27% 0.1% 3.29% 72.8% 0.20% 0.2%

Legacy and relief refinance

single-family loan portfolio:

< 620 1.3% 4.76% 0.4% 8.53% 0.2% 13.93% 1.9% 6.03% 23.4%

620 to 659 2.1 3.48% 0.6 6.61% 0.4 11.41% 3.1 4.51% 20.0%

17.1 1.18% 3.6 3.24% 1.4 5.68% 22.1 1.60% 7.2%

Not available 0.1 4.87% — NM — NM 0.1 5.54% 15.7%

Total 20.6% 1.70% 4.6% 4.25% 2.0% 7.57% 27.2% 2.28% 9.9%

(1) NM - not meaningful due to the percentage of the portfolio rounding to zero.

Higher Risk Loan Product Types

There are several types of loan products that contain terms which result in scheduled changes in the 

borrower’s monthly payments after specified initial periods, such as interest-only and option ARM loans. 

These products may result in higher credit risk because the payment changes may increase the 

borrower’s monthly payment, resulting in a higher risk of default. The majority of these loans are in our 

Legacy and relief refinance single-family loan portfolio. Only a small percentage of our Core single-family 

loan portfolio consists of ARM loans.

The balance of our interest-only and option ARM loans has continued to decline in recent years as many 

of these borrowers have repaid or refinanced their loans, received loan modifications or completed 

foreclosure alternatives or foreclosure sales. 

While we have not categorized option ARM loans as either subprime or Alt-A for presentation in this 

Form 10-K and elsewhere in our reporting, they could exhibit similar credit performance to collateral 

sometimes referred to as subprime or Alt-A by market participants. For reporting purposes, loans within 

the option ARM category continue to be presented in that category following a modification of the loan, 

even though the modified loan no longer provides for optional payment provisions.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 121

The tables below provide credit characteristic information on higher risk loan product types.

As of December 31, 2017

(Dollars in billions) UPB CLTV % Modified SDQ Rate

Amortizing ARM and option ARM(1) $56.0 52% 1.7% 1.13%

Interest-only $13.0 68% 0.1% 4.97%

Step-rate modified $22.2 70% 100% 8.03%

As of December 31, 2016

(Dollars in billions) UPB CLTV % Modified SDQ Rate

Amortizing ARM and option ARM(1) $60.5 53% 1.7% 1.20%

Interest-only $16.6 73% 0.1% 4.34%

Step-rate modified $32.0 78% 100% 6.37%

(1) Includes $3.6 billion and $4.1 billion in UPB of option ARM loans as of December 31, 2017 and 2016, respectively. As of December 31, 2017 and 

2016, the option ARM loans had: (a) current LTV ratios of 58% and 64%, (b) loan modification percentages of 15.6% and 14.6%; and (c) serious 

delinquency rates of 4.58% and 5.24%, respectively. 

The table below shows the timing of scheduled payment changes for certain types of loans within our 

single-family credit guarantee portfolio. The amounts in the table below are aggregated by product type 

and categorized by the year in which the loan will experience a payment change. The timing of the 

actual payment change may differ from that presented in the table due to a number of factors, including 

if the borrower refinances the loan. Loans where the year of first payment change is 2017 or prior have 

already had one or more payment changes as of December 31, 2017; loans where the year of first 

payment change is 2018 or later have not had a payment change as of December 31, 2017 and will not 

experience a payment change until a future period. Step-rate modified loans are shown in each year that 

the borrower will experience a scheduled interest-rate increase; therefore, a single loan may be included 

in multiple periods. However, the total of step-rate loans in the table reflects the ending UPB of such 

loans as of December 31, 2017.

As of December 31, 2017

(In millions)

2017 

and Prior 2018 2019 2020 2021 2022 Thereafter Total(1)

ARM/amortizing $12,409 $2,461 $5,027 $6,314 $5,881 $6,744 $13,244 $52,080

ARM/interest-only 8,456 1,185 70 149 — — — 9,860

Fixed/interest-only 813 184 3 2 12 45 2 1,061

Step-rate modified 16,657 10,254 4,071 3,171 2,382 537 175 22,169

Total $38,335 $14,084 $9,171 $9,636 $8,275 $7,326 $13,421 $85,170

(1) Excludes loans underlying certain other securitization products since the payment change information is not available to us for these loans.

We believe that the performance of these types of loans has been affected by prior adverse 

macroeconomic conditions, such as unemployment rates and home price declines in many geographic 

areas in addition to the increase in the borrower’s monthly payment. However, we continue to monitor 

the performance of these loans as many have experienced a payment change or are scheduled to have 

a payment change in 2018 or thereafter, which is likely to subject the borrowers to higher monthly 

payments. Since a substantial portion of these loans were originated in 2005 through 2008 and are 

located in geographic areas that were most affected by declines in home prices that began in 2006, we 

believe that the serious delinquency rate for these types of loans will remain high in 2018.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 122

Other Higher Risk Loans - Alt-A and Subprime Loans

While we have referred to certain loans as subprime or Alt-A for purposes of the discussion below and 

elsewhere in this Form 10-K, there is no universally accepted definition of subprime or Alt-A, and the 

classification of such loans may differ from company to company. We do not rely on these loan 

classifications to evaluate the credit risk exposure relating to such loans in our single-family credit 

guarantee portfolio.

Participants in the mortgage market have characterized single-family loans based upon their overall 

credit quality at the time of origination, including as prime or subprime. While we have not historically 

characterized the loans in our single-family credit guarantee portfolio as either prime or subprime, we 

monitor the amount of loans we have guaranteed with characteristics that indicate a higher degree of 

credit risk. In addition, we estimate that approximately $1.1 billion and $1.3 billion of security collateral 

underlying our other securitization products at December 31, 2017 and 2016, respectively, were 

identified as subprime based on information provided to us when we entered into these transactions.

Mortgage market participants have classified single-family loans as Alt-A if these loans have credit 

characteristics that range between their prime and subprime categories, if they are underwritten with 

lower or alternative income or asset documentation requirements compared to a full documentation 

loan, or both. Although we have discontinued new purchases of loans with lower documentation 

standards, we continue to purchase certain amounts of such loans in cases where the loan was either 

purchased pursuant to a previously issued guarantee, part of our relief refinance initiative or part of 

another refinance loan initiative and the pre-existing loan was originated under less than full 

documentation standards. In the event we purchase a refinance loan and the original loan had been 

previously identified as Alt-A, such refinance loan may no longer be categorized or reported as an Alt-A 

loan in this Form 10-K and our other financial reports because the new refinance loan replacing the 

original loan would not be identified by the seller or servicer as an Alt-A loan. As a result, our reported 

Alt-A balances may be lower than would otherwise be the case had such refinancing not occurred. From 

the time the relief refinance initiative began in 2009 to December 31, 2017, we have purchased 

approximately $35.9 billion of relief refinance loans that were previously categorized as Alt-A loans in our 

portfolio, including $1.5 billion in 2017. 

The table below contains information on Alt-A loans in our single-family credit guarantee portfolio. 

As of December 31, 2017 As of December 31, 2016

(Dollars in billions) UPB CLTV % Modified SDQ Rate UPB CLTV % Modified SDQ Rate

Alt-A $27.1 67% 24.1% 5.62% $32.6 72% 25.9% 5.21%

The UPB of Alt-A loans in our single-family credit guarantee portfolio declined during 2017 primarily due 

to borrowers refinancing into other mortgage products, foreclosure sales and other liquidation events. 

Significant portions of the Alt-A loans in our portfolio are concentrated in Arizona, California, Florida and 

Nevada.

Geographic Concentrations

We purchase mortgage loans from across the U.S. and maintain a geographically diverse portfolio. 

However, local economic conditions can affect borrowers’ ability to repay and the value of the 

underlying collateral, leading to concentrations of credit risk in certain geographic areas. 
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 123

The following table presents certain geographic concentrations in our single-family credit guarantee 

portfolio. The states presented below had the largest number of seriously delinquent loans as of 

December 31, 2017. See Note 14 for additional information on the concentration of credit risk in our 

single-family credit guarantee portfolio. 

As of December 31, 2017 Full Year

2017

Credit

Losses

As of December 31, 2016 Full Year

2016

Credit

Losses

As of December 31, 2015 Full Year

2015

Credit

(Dollars in millions) Losses

SDQ

Loan 

Count

% of SDQ

Loans SDQ Rate

SDQ

Loan 

Count

% of SDQ

Loans SDQ Rate

SDQ

Loan 

Count

% of SDQ

Loans SDQ Rate

Florida 22,253 19% 3.33% $614 9,355 9% 1.42% $157 14,070 10% 2.16% $850

Texas 8,908 8 1.36% 44 4,357 4 0.70% 15 4,888 3 0.80% 25

New York 8,117 7 1.74% 415 9,574 9 2.05% 163 13,981 10 2.94% 557

Illinois 6,228 5 1.13% 445 7,291 7 1.34% 170 8,841 6 1.62% 381

New Jersey 5,539 5 1.78% 432 6,913 7 2.26% 204 11,978 9 3.90% 689

All Others 64,644 56 0.79% 2,865 68,444 64 0.85% 1,019 85,963 62 1.06% 2,186

Total 115,689 100% 1.08% $4,815 105,934 100% 1.00% $1,728 139,721 100% 1.32% $4,688

The following table presents our single-family charge-offs and recoveries in each geographic region. See 

Single-Family Credit Guarantee Portfolio in Note 14 for a description of these regions.

Year Ended December 31,

2017 2016 2015

(In millions)

Chargeoffs,

gross (1)

Recoveries

Chargeoffs,

net

Chargeoffs,

gross (1)

Recoveries

Chargeoffs,

net

Chargeoffs,

gross (1)

Recoveries

Chargeoffs,

net

Northeast $1,690 ($155) $1,535 $752 ($188) $564 $2,056 ($207) $1,849

West 1,382 (62) 1,320 247 (58) 189 688 (105) 583

Southeast 1,001 (95) 906 401 (121) 280 1,270 (204) 1,066

North Central 774 (81) 693 425 (94) 331 854 (149) 705

Southwest 204 (32) 172 113 (36) 77 203 (52) 151

Total $5,051 ($425) $4,626 $1,938 ($497) $1,441 $5,071 ($717) $4,354

(1) 2016 and 2015 do not include lower-of-cost-or-fair-value adjustments and other expenses related to property taxes and insurance recognized 

when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion and $3.4 billion, respectively. 2017 includes chargeoffs of $3.8 billion related to the transfer of loans from held-for-investment to held-for-sale. 
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 124

The tables below present the concentration of loans in each geographic region by CLTV ratio.

As of December 31, 2017

CLTV <= 80% CLTV > 80% to 100% CLTV > 100% All Loans

% of Portfolio SDQ Rate % of Portfolio SDQ Rate % of Portfolio SDQ Rate % of Portfolio SDQ Rate

North Central 13% 0.65% 3% 1.29% —% 6.77% 16% 0.81%

Northeast 21 0.96% 4 2.13% — 11.17% 25 1.24%

Southeast 14 1.67% 2 3.34% — 10.58% 16 1.95%

Southwest 11 0.94% 2 1.23% — 6.73% 13 0.98%

West 27 0.40% 2 1.14% 1 5.36% 30 0.47%

Total 86% 0.89% 13% 1.87% 1% 8.95% 100% 1.08%

As of December 31, 2016

CLTV <= 80% CLTV > 80% to 100% CLTV > 100% All Loans

% of Portfolio SDQ Rate % of Portfolio SDQ Rate % of Portfolio SDQ Rate % of Portfolio SDQ Rate

North Central 13% 0.67% 3% 1.53% —% 6.36% 16% 0.93%

Northeast 20 1.04% 4 2.35% 1 10.92% 25 1.45%

Southeast 12 0.92% 3 1.95% 1 6.35% 16 1.19%

Southwest 11 0.71% 2 1.13% — 6.75% 13 0.78%

West 27 0.43% 3 1.38% — 5.00% 30 0.57%

Total 83% 0.74% 15% 1.75% 2% 7.43% 100% 1.00%

Credit Losses and Recoveries 

On January 1, 2017, we elected a new accounting policy for loan reclassifications from held-forinvestment to held-for-sale that increased the amount of charge-offs recognized during 2017. Under the 

new policy, when we reclassify (transfer) a loan from held-for-investment to held-for-sale, we charge off 

the entire difference between the loan's recorded investment and its fair value if the loan has a history of 

credit-related issues. Expenses related to property taxes and insurance are included as part of the 

charge-off. See Note 4 for further information about this change. 

We expect the level of charge-offs in 2018 to be lower than in 2017 as we continue our loss mitigation 

activities and our efforts to sell certain seriously delinquent single-family loans. 

The table below contains certain credit performance metrics of our single-family credit guarantee 

portfolio.

Year Ended December 31,

(Dollars in millions) 2017 2016 2015

Charge-offs, gross(1)(2) $5,051 $1,938 $5,071

Recoveries (425) (497) (717)

Charge-offs, net 4,626 1,441 4,354

REO operations expense 189 287 334

Total credit losses $4,815 $1,728 $4,688

Total credit losses(1)(2) (in bps) 27.0 9.9 27.6

(1) For 2015, includes $1.9 billion due to the adoption of FHFA Advisory Bulletin 2012-02 ("AB 2012-02") Framework for Adversely Classifying Loans, 

Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention. See Note 1 for additional information. 

(2) 2016 and 2015 do not include lower-of-cost-or-fair value adjustments and other expenses related to property taxes and insurance recognized 

when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion and $3.4 billion, respectively. 2017 includes chargeoffs of $3.8 billion related to the transfer of loans from held-for-investment to held-for-sale.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 125

Credit loss recoveries during 2017, 2016 and 2015 included $5 million, $14 million and $17 million, 

respectively, related to settlement agreements with certain sellers that released specified loans from 

certain repurchase obligations in exchange for one-time cash payments. We recognized recoveries from 

primary mortgage insurance (excluding recoveries that represent reimbursements for our expenses, 

such as REO operations expenses) of $0.3 billion, $0.3 billion and $0.5 billion that reduced our chargeoffs of single-family loans during 2017, 2016 and 2015, respectively. We also recognized recoveries from 

primary mortgage insurance of $50 million, $47 million and $76 million during 2017, 2016 and 2015, 

respectively, as part of REO operations (expense) income.

Our credit losses and seriously delinquent loan population are concentrated in the Legacy and relief 

refinance single-family loan portfolio. In addition, our credit losses and seriously delinquent loan 

population are also concentrated within loans having certain characteristics, as shown in the table 

below. These categories are not mutually exclusive; for example, an Alt-A loan can be associated with a 

property located in a judicial foreclosure state and/or have a CLTV ratio of greater than 100%. Additional 

detail on loans in judicial foreclosure states is presented in the Managing Foreclosure and REO 

Activities section below.

2017 2016

As of December 31 Year Ended

December 31 As of December 31 Year EndedDecember 31

% of

Portfolio SDQ Rate % of CreditLosses

% of

Portfolio SDQ Rate % of CreditLosses

CLTV > 100% 1% 8.95% 28% 2% 7.43% 34%

Alt-A loans 1% 5.62% 22% 2% 5.21% 15%

Judicial foreclosure states 38% 1.56% 53% 38% 1.36% 62%

Loan Loss Reserves 

Our loan loss reserves continued to decline in 2017, primarily driven by an increase in charge-offs due to 

the accounting policy change effective January 1, 2017 related to the reclassification of loans from heldfor-investment to held-for-sale. See Note 4 for more information on this accounting policy change. 

The table below summarizes our single-family loan loss reserves activity.

 Year Ended December 31,

(Dollars in millions) 2017 2016 2015 2014 2013

Beginning balance $13,463 $15,348 $21,793 $24,578 $30,508

Provision (benefit) for credit losses (97) (781) (2,639) 113 (2,247)

Charge-offs, gross(1) (5,051) (1,938) (5,071) (4,892) (8,995)

Recoveries 425 497 717 1,258 4,313

Transfers, net — — — — —

Other(2) 239 337 548 736 999

Ending balance $8,979 $13,463 $15,348 $21,793 $24,578

As a percentage of our single-family credit guarantee portfolio 0.49% 0.77% 0.90% 1.31% 1.49%

(1) 2016, 2015, 2014 and 2013 do not include lower-of-cost-or-fair value adjustments and other expenses related to property taxes and insurance 

recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion, $3.4 billion, $0.3 billion and $0.0 billion, 

respectively. 2017 includes charge-offs of $3.8 billion related to the transfer of loans from held-for-investment to held-for-sale.

(2) Primarily includes capitalization of past due interest on modified loans.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 126

TDRs and Individually Impaired Loans

Single-family loans that have been individually evaluated for impairment, such as modified loans, 

generally have a higher associated loan loss reserve than loans that have been collectively evaluated for 

impairment. Due to the large number of loan modifications completed in recent years, a significant 

portion of our loan loss reserves is attributable to individually impaired single-family loans. As of 

December 31, 2017, 48% of the loan loss reserves for single-family loans related to interest rate 

concessions provided to borrowers as part of loan modifications. Most of our modified single-family 

loans, including TDRs, were current and performing at December 31, 2017. We expect our loan loss 

reserve associated with existing single-family TDRs to decline over time as we continue to sell 

reperforming loans. In addition, these loan loss reserves will decline as borrowers continue to make 

monthly payments under the modified terms and interest rate concessions are amortized into earnings.

The table below summarizes the carrying value for individually impaired single-family loans on our 

consolidated balance sheets for which we have recorded a specific reserve.

2017 2016

(Dollars in millions) Loan Count Amount Loan Count Amount

TDRs, at January 1 485,709 $78,869 512,253 $85,960

New additions 41,343 5,714 43,153 5,956

Repayments and reclassifications to held-for-sale (151,941) (28,737) (58,153) (11,405)

Foreclosure sales and foreclosure alternatives (10,407) (1,431) (11,544) (1,642)

TDRs, at December 31, 364,704 54,415 485,709 78,869

Loans impaired upon purchase 5,040 340 7,977 542

Total impaired loans with specific reserve 369,744 54,755 493,686 79,411

Allowance for loan losses (6,630) (11,980)

Net investment, at December 31, $48,125 $67,431

The tables below present information about the UPB of single-family TDRs and non-accrual loans on our 

consolidated balance sheets. 

As of December 31,

(In millions) 2017 2016 2015 2014 2013

TDRs on accrual status $51,644 $77,122 $82,026 $82,373 $78,033

Non-accrual loans 17,748 16,164 22,460 32,745 42,829

Total TDRs and non-accrual loans $69,392 $93,286 $104,486 $115,118 $120,862

Loan loss reserves associated with:

 TDRs on accrual status $5,257 $10,295 $12,105 $13,728 $14,239

 Non-accrual loans 1,883 2,290 2,677 6,935 8,805

Total $7,140 $12,585 $14,782 $20,663 $23,044

Year Ended December 31,

(In millions) 2017 2016 2015 2014 2013

Foregone interest income on TDRs and non-accrual loans(1) $1,604 $2,109 $2,690 $3,235 $3,552

(1) Represents the amount of interest income that we would have recognized for loans outstanding at the end of each period, had the loans 

performed according to their original contractual terms.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 127

Engaging in Loss Mitigation Activities 

Servicers perform loss mitigation activities as well as foreclosures on loans that they service for us. Our 

loss mitigation strategy emphasizes early intervention by servicers in delinquent loans and offers 

alternatives to foreclosure by providing servicers with default management programs designed to 

manage non-performing loans more effectively and to assist borrowers in maintaining home ownership 

or to facilitate foreclosure alternatives. 

We offer a variety of borrower assistance programs, including refinance programs for certain eligible 

loans and loan workout activities for struggling borrowers. Our loan workouts include both home 

retention options and foreclosure alternatives. We also engage in transfers of servicing for and sales of 

certain seriously delinquent loans.

Relief Refinance Program 

As part of our loss mitigation activities, servicers contact borrowers that are eligible for the relief 

refinance initiative. In recent years, our relief refinance program has been one of our more significant 

borrower assistance programs. Our relief refinance initiative allows eligible homeowners whose loans we 

already own or guarantee to refinance with more favorable terms (such as reduction in payment, 

reduction in interest rate, extension of amortization term, or movement to a more stable loan product) 

and without the need to obtain additional mortgage insurance. Our relief refinance program includes 

HARP, the portion of our relief refinance initiative for loans with LTV ratios above 80%.

The relief refinance program is being replaced with the high LTV relief refinance (Enhanced Relief 

RefinanceSM) program, which will be available in January 2019 for loans originated on or after October 1, 

2017. This program provides liquidity for borrowers who are current on their mortgages but are unable to 

refinance because their LTV ratios exceed our standard refinance limits. In addition, the HARP program 

has been extended for applications through December 31, 2018 to ensure that borrowers who have a 

high LTV ratio and are eligible for HARP will continue to have a refinance option.

The following table includes information about the performance of our relief refinance mortgage 

portfolio. 

As of December 31,

2017 2016

(Dollars in millions) UPB Loan Count SDQ Rate UPB Loan Count SDQ Rate

Above 125% Original LTV $21,814 131,045 1.76% $25,027 144,719 1.24%

Above 100% to 125% Original LTV 43,177 256,189 1.34% 50,618 288,697 1.10%

Above 80% to 100% Original LTV 71,559 455,451 1.05% 82,987 506,932 0.84%

80% and below Original LTV 95,700 835,381 0.58% 106,350 892,471 0.38%

Total $232,250 1,678,066 0.92% $264,982 1,832,819 0.69%

Loan Workout Activities

When refinancing is not practicable, we require our servicers first to evaluate the loan for a forbearance 

agreement, repayment plan or loan modification, because our level of recovery on a loan that reperforms 

is often much higher than for a loan that proceeds to a foreclosure alternative or foreclosure. We offer 

the following types of home retention options:
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 128

Forbearance agreements - Arrangements that require reduced or no payments during a defined 

period, generally less than one year, to allow borrowers to return to compliance with the original 

mortgage terms or to implement another loan workout. For agreements completed in 2017, the 

average time period for reduced or suspended payments was between three and four months.

Repayment plans - Contractual plans designed to repay past due amounts to allow borrowers to 

return to compliance with the original mortgage terms. For plans completed in 2017, the average 

time period to repay past due amounts was between three and four months. Servicers are paid 

incentive fees for repayment plans that are paid in full and loans brought to current status.

Loan modifications - Contractual plans that may involve changing the terms of the loan, adding 

outstanding indebtedness, such as delinquent interest, to the UPB of the loan, or a combination of 

both, including principal forbearance. Our modification programs generally require completion of a 

trial period of at least three months prior to receiving the modification. If a borrower fails to complete 

the trial period, the loan is considered for our other workout activities. These modification programs 

offer eligible borrowers extension of the loan’s term up to 480 months and a fixed interest rate. 

Servicers are paid incentive fees for each completed modification, and there are limits on the 

number of times a loan may be modified. 

The volume of these activities increased during 2017 compared to 2016, consistent with the increase in 

the number of delinquent loans in the single-family credit guarantee portfolio due to the hurricane events 

in 2017. 

When a seriously delinquent single-family loan cannot be resolved through an economically sensible 

home retention option, we typically seek to pursue a foreclosure alternative or sale of the seriously 

delinquent loan. We pay servicers incentive fees for each completed foreclosure alternative. In some 

cases, we provide cash relocation assistance to the borrower, while allowing the borrower to exit the 

home in an orderly manner. We offer the following types of foreclosure alternatives:

Short sale - The borrower sells the property for less than the total amount owed under the terms of 

the loan. A short sale is preferable to a borrower because we provide limited relief to the borrower 

from repaying the entire amount owed on the loan. A short sale allows Freddie Mac to avoid the 

costs we would otherwise incur to complete the foreclosure and subsequently sell the property. 

Deed in lieu of foreclosure - The borrower voluntarily agrees to transfer title of the property to us 

without going through formal foreclosure proceedings.

We discuss sales of seriously delinquent loans in the Servicing Transfers and Sales of Certain 

Seriously Delinquent Loans section below.

The volume of foreclosures moderated in recent periods, primarily due to generally declining volumes of 

seriously delinquent loans, the success of our loan workout programs and our sales of certain seriously 

delinquent loans. The volume of our short sale transactions declined in 2017 compared to 2016, 

continuing the trend in recent periods. Similarly, the volume of short sales in the overall market also 

declined in recent periods as home prices have continued to increase. 

The following graphs provide detail about our single-family loan workout activities and foreclosure sales.
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 129

Home Retention Actions Foreclosure Alternatives and Foreclosure Sales

The tables below contain credit characteristic data on our single-family modified loans. 

As of December 31, 2017

(Dollars in billions) UPB % of Portfolio CLTV Ratio SDQ Rate

HAMP $23.6 2% 70% 8.08%

Non-HAMP 41.0 2 75% 12.99%

Total $64.6 4% 73% 11.34%

As of December 31, 2016

(Dollars in billions) UPB % of Portfolio CLTV Ratio SDQ Rate

HAMP $33.8 2% 78% 6.49%

Non-HAMP 43.1 2 82% 11.76%

Total $76.9 4% 80% 9.64%

The table below contains information about the payment performance of modified loans in our singlefamily credit guarantee portfolio, based on the number of loans that were current or paid off one year 

and, if applicable, two years after modification. 

Quarter of Loan Modification Completion

4Q 2016 3Q 2016 2Q 2016 1Q 2016 4Q 2015 3Q 2015 2Q 2015 1Q 2015

Current or paid off

one year after modification: 57% 62% 63% 67% 64% 66% 66% 69%

Current or paid off

two years after modification: N/A N/A N/A N/A 60% 63% 64% 67%
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 130

Servicing Transfers and Sales of Certain Seriously Delinquent Loans

From time to time, we facilitate the transfer of servicing for certain groups of loans that are delinquent or 

are deemed at risk of default to servicers that we believe have capabilities and resources necessary to 

improve the loss mitigation associated with the loans. See Sellers and Servicers in Counterparty 

Credit Risk for additional information on these activities.

We pursue sales of seriously delinquent loans when we believe the sale of these loans provides better 

economic returns than continuing to hold them. During 2017 and 2016, we completed sales of $0.5 

billion and $3.1 billion, respectively, in UPB of seriously delinquent single-family loans. Of the $17.0 

billion in UPB of single-family loans classified as held-for-sale at December 31, 2017, $2.1 billion related 

to loans that were seriously delinquent. The FHFA requirements guiding these transactions, including 

bidder qualifications, loan modifications and performance reporting, are designed to improve borrower 

outcomes.

Managing Foreclosure and REO Activities

In a foreclosure, we may acquire the underlying property and later sell it, using the proceeds of the sale 

to reduce our losses.

We typically acquire properties as a result of borrower defaults and subsequent foreclosures on loans 

that we own or guarantee. We evaluate the condition of, and market for, newly acquired REO properties 

to determine if repairs are needed, determine occupancy status and whether there are legal or other 

issues to be addressed, and determine our sale or disposition strategy. When we sell an REO property, 

we typically provide an initial period where we consider offers by owner occupants and others before 

offers by investors. We also consider alternative disposition processes, such as REO auctions, bulk 

sales channels and partnering with locally-based entities to facilitate dispositions.

In recent years, the volume of REO acquisitions has been significantly affected by the length of the 

foreclosure process, which extends the time it takes for loans to be foreclosed upon and the underlying 

properties to transition to REO. As of December 31, 2017 and 2016, the percentage of seriously 

delinquent loans that have been delinquent for more than six months was 44% and 57%, respectively.

Delays in Foreclosure Process and Average Foreclosure Completion Timelines 

Our serious delinquency rates and credit losses continue to be adversely affected by delays in the 

foreclosure process in states where a judicial foreclosure is required. Foreclosures generally take longer 

to complete in such states, resulting in concentrations of delinquent loans in those states, as shown in 

the table below. At December 31, 2017, loans in states with a judicial foreclosure process comprised 

38% of our single-family credit guarantee portfolio. 
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The table below presents the length of time our loans have been seriously delinquent, by jurisdiction 

type.

As of December 31,

2017 2016 2015

Aging, by locality Loan Count Percent Loan Count Percent Loan Count Percent

Judicial states

<= 1 year 50,554 44% 35,599 34% 40,265 29%

> 1 year and <= 2 years 10,649 9 12,257 11 16,199 12

> 2 years 10,863 9 14,318 14 28,265 20

Non-judicial states

<= 1 year 34,850 30 32,949 31 38,010 27

> 1 year and <= 2 years 5,406 5 6,075 6 8,660 6

> 2 years 3,367 3 4,736 4 8,322 6

Combined

<= 1 year 85,404 74 68,548 65 78,275 56

> 1 year and <= 2 years 16,055 14 18,332 17 24,859 18

> 2 years 14,230 12 19,054 18 36,587 26

Total 115,689 100% 105,934 100% 139,721 100%

The longer a loan remains delinquent, the greater the associated costs we incur. Loans that remain 

delinquent for more than one year are more challenging to resolve as many of these borrowers may not 

be in contact with the servicer, may not be eligible for loan modifications or may determine that it is not 

economically beneficial for them to enter into a loan modification due to the amount of costs incurred on 

their behalf while the loan was delinquent. We expect the portion of our credit losses related to loans in 

states with judicial foreclosure processes will remain high as loans awaiting court proceedings in those 

states transition to REO or other loss events. The number of our single-family loans delinquent for more 

than one year declined 19% during 2017. 

Our servicing guidelines do not allow initiation of the foreclosure process on a primary residence until a 

loan is at least 121 days delinquent, regardless of where the property is located. However, we evaluate 

the timeliness of foreclosure completion by our servicers based on the state where the property is 

located. Our servicing guide provides for instances of allowable foreclosure delays in excess of the 

expected timelines for specific situations involving delinquent loans, such as when the borrower files for 

bankruptcy or appeals a denial of a loan modification. 
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The table below presents average completion times for foreclosures of our single-family loans.

Year Ended December 31,

(Average days) 2017 2016 2015

Judicial states

Florida 1,069 1,205 1,332

New Jersey 1,497 1,767 1,602

New York 1,658 1,599 1,553

All other judicial states 704 742 828

Judicial states, in aggregate 907 1,030 1,076

Non-judicial states, in aggregate 545 562 637

Total 751 827 892

We believe that our average foreclosure timeline is likely to remain elevated in the near term due to the 

backlog of loans that have been delinquent for more than one year, particularly in the judicial states of 

Florida, New Jersey and New York.

Our REO inventory declined in 2017 primarily due to a decrease in REO acquisitions driven by a large 

proportion of property sales to third parties at foreclosure. Third-party sales at foreclosure auction allow 

us to avoid the REO property expenses that we would have otherwise incurred if we held the property in 

our REO inventory until disposition.

We expect the rate of decline in our REO inventory will slow as a large portion of newly acquired REO 

properties are older, low value and rural properties which are more challenging to market and sell. In 

addition, legal-related delays (i.e., redemption periods and eviction procedures) and a business strategy 

to repair more homes affect significant portions of our REO inventory, resulting in extended holding 

periods. As our REO inventory declines, we would expect REO dispositions to decline as well. 

The table below shows our single-family REO activity.

Year Ended December 31,

2017 2016 2015

(Dollars in millions)

Number of

Properties Amount

Number of

Properties Amount

Number of

Properties Amount

Beginning balance - REO 11,418 $1,215 17,004 $1,774 25,768 $2,684

Acquisitions 12,240 1,191 16,161 1,562 23,171 2,235

Dispositions (15,359) (1,506) (21,747) (2,121) (31,935) (3,145)

Ending balance - REO 8,299 900 11,418 1,215 17,004 1,774

Beginning balance, valuation allowance (17) (52) (126)

Change in valuation allowance 3 35 73

Ending balance, valuation allowance (14) (17) (53)

Ending balance - REO $886 $1,198 $1,721

Severity Ratios

Severity ratios are the percentages of our realized losses when loans are resolved by the completion of 

REO dispositions and third-party foreclosure sales or short sales. Severity ratios are calculated as the 

amount of our recognized losses divided by the aggregate UPB of the related loans. The amount of 

recognized losses is equal to the amount by which the UPB of the loans exceeds the amount of sales 

proceeds from disposition of the properties, net of capitalized repair and selling expenses, if applicable. 
Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 133

The table below presents single-family severity ratios.

Year Ended December 31,

2017 2016 2015

REO dispositions and third-party foreclosure sales 27.2% 32.8% 34.3%

Short sales 27.7% 29.0% 30.1%

Our severity ratios remained relatively stable during 2017 compared to 2016. These severity ratios are 

influenced by several factors, including the geographic location of the property and the related selling 

expenses for REO dispositions and short sales. 

REO Property Status

A significant portion of our REO properties is unable to be marketed at any given time because the 

properties are occupied, under repair or subject to a redemption period, which is a post-foreclosure 

period during which borrowers may reclaim a foreclosed property. Redemption periods can increase the 

average holding period of our inventory, and have done so in recent years. As of December 31, 2017, 

approximately 47% of our REO properties were unable to be marketed because the properties were 

occupied, under repair or located in states with a redemption period, and 14% of the properties were 

being evaluated for listing and determination of our sales or disposition strategy. As of December 31, 

2017, approximately 26% of our REO properties were listed and available for sale, and 13% of our 

inventory was pending the settlement of sales. Though it varied significantly in different states, the 

average holding period of our single-family REO properties, excluding any redemption period, was 265

days and 275 days for our REO dispositions during 2017 and 2016, respectively.
Management's Discussion and Analysis Risk Management | Multifamily Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 134

Multifamily Mortgage Credit Risk

We manage our exposure to multifamily mortgage credit risk, which is a type of commercial real estate 

credit risk, using the following principal strategies:

Maintaining policies and procedures for new business activity, including prudent underwriting 

standards;

Transferring a large majority of expected and stress credit losses to third parties through our credit 

risk transfer products, primarily K Certificates and SB Certificates; and

Managing our portfolio, including loss mitigation activities.

Maintaining Policies and Procedures for New Business Activity, Including Prudent 

Underwriting Standards

We use a prior approval underwriting approach for multifamily loans, in contrast to the delegated 

underwriting approach used for single-family loans. Under this approach, we maintain credit discipline 

by completing our own underwriting and credit review for each new loan prior to issuance of a loan 

commitment, including review of third-party appraisals and cash flow analysis. Our underwriting 

standards focus on the LTV ratio and DSCR, which estimates ability to repay using the secured 

property’s cash flow, after expenses. A higher DSCR indicates lower credit risk. Our standards require 

maximum LTV ratios and minimum DSCRs that vary based on the characteristics and features of the 

loan. Loans are generally underwritten with a maximum original LTV ratio of 80% and a DSCR of greater 

than 1.25, assuming monthly payments that reflect amortization of principal. However, certain loans may 

have a higher LTV ratio and/or a lower DSCR, typically where this will serve our mission and contribute 

to achieving our affordable housing goals. For more detail on LTV ratios of our portfolio, see Managing 

Our Portfolio, Including Loss Mitigation Activities in this section. Consideration is also given to other 

qualitative factors, such as borrower experience, location of the property and the strength of the local 

market. Sellers provide certain representations and warranties to us regarding the loans they sell to us, 

and are required to repurchase loans for which there has been a breach of representation or warranty. 

However, repurchases of multifamily loans have been extremely rare due to our underwriting approach 

prior to issuance of a loan commitment.

Multifamily loans may be amortizing or interest-only (for the full term or a portion thereof) and have a 

fixed or variable rate of interest. Multifamily loans generally have shorter terms than single-family loans 

and typically have maturities ranging from five to ten years. Most multifamily loans require a balloon 

payment at maturity, making ability to refinance or pay off the loan at maturity a key attribute. Some 

borrowers may be unable to refinance during periods of rising interest rates or adverse market 

conditions, increasing the likelihood of borrower default.

We may take on additional credit risk through the issuance of certain other securitization products (e.g., 

Q Certificates and M Certificates). In these transactions, the loans or bonds underlying the issued 

securities are contributed by third parties and are underwritten by us after (rather than at) origination. 

Prior to securitization, we are not exposed to the credit risk of these loans or bonds. However, as we 

may guarantee some or all of the securities issued by the trusts used in these transactions, we 

effectively assume credit risk equal to the guaranteed UPB. Similar to our K Certificates and SB 

Certificates, these other securitization products generally provide for structural credit enhancements 
Management's Discussion and Analysis Risk Management | Multifamily Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 135

(e.g., subordination or other loss sharing features) that allocate first loss exposure to bonds held by third 

parties.

The table below presents our new business activity related to loan purchases and guarantees by 

product term.

Year Ended December 31,

2017 2016 2015

(Dollars in millions) Amount % of Total Amount % of Total Amount % of Total

10-year loans, fixed or adjustable $31,338 43% $24,378 43% $20,603 43%

7-year loans, fixed or adjustable 23,844 33 19,367 34 16,875 36

Other 18,019 24 13,085 23 9,786 21

Total $73,201 100% $56,830 100% $47,264 100%

Transferring a Large Majority of Expected and Stress Credit Losses to Third Parties 

Through Our Credit Risk Transfer Products, Primarily K Certificates and SB 

Certificates 

In connection with the acquisition of a loan or group of loans, we may obtain various forms of credit 

protection that reduce our credit risk exposure to the underlying mortgage borrower. Examples of this 

credit protection may include obtaining recourse and/or indemnification protection from our lenders or 

sellers. 

In addition to obtaining credit protection at the time of loan acquisition, we may also reduce our credit 

risk exposure to the underlying borrower by using one or more of our credit risk transfer products. Our 

principal credit risk transfer mechanism continues to be our credit risk transfer securitizations, primarily 

K Certificates and SB Certificates. In these transactions, we sell loans to a securitization trust that issues 

senior, mezzanine and subordinated classes of securities. While we guarantee the senior classes of 

securities and therefore retain the associated credit risk of those securities, we transfer a large majority 

of the expected and stress credit losses of the underlying loans through the sale of the unguaranteed 

mezzanine and subordinate classes of securities to third-party investors, thereby reducing our overall 

credit risk exposure. These unguaranteed mezzanine and subordinate classes of securities will absorb 

any credit losses prior to our guarantee.

Since 2009, we have transferred a portion of the credit risk related to $249 billion in UPB of multifamily 

loans through our credit risk transfer products, primarily K Certificates and SB Certificates. The average 

remaining level of subordination on all outstanding K Certificates and SB Certificates was 14% at both 

December 31, 2017 and 2016. Since we began issuing K Certificates and SB Certificates, we have not 

experienced credit losses associated with our guarantees on these securities. 
Management's Discussion and Analysis Risk Management | Multifamily Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 136

We may also transfer credit risk through a variety of other credit risk transfer products, including loan 

sales and SCR debt notes. A SCR debt note is an unsecured and unguaranteed corporate debt 

obligation where the amount of principal and interest payments due to investors is linked to the credit 

performance of a reference pool of mortgage assets where we currently have credit risk exposure. The 

reference pool is structured to include multiple notional credit risk positions (e.g., first loss, mezzanine 

and senior positions) with the issued SCR debt notes being linked to one or more of these notional 

positions. To the extent that the notional credit risk position of the reference pool is reduced because of 

a specified credit event, the associated SCR debt note will be written down, reducing the amount of 

principal and interest payments that the investor will ultimately receive. 

We continue to develop other strategies to reduce our credit risk exposure to multifamily loans and 

securities. See Our Business Segments - Multifamily for additional information on our existing 

credit risk transfer products.

See Our Business Segments - Multifamily - Credit Risk Transfer Activity for additional 

information on our 2017 credit risk transfer activity. 

Managing Our Portfolio, Including Loss Mitigation Activities

To help mitigate our potential losses, we generally require sellers to act as the primary servicer for loans 

they have sold to us, including property monitoring tasks beyond those typically performed by singlefamily servicers. We typically transfer the role of master servicer in our K Certificate transactions to third 

parties, while retaining that role in our SB Certificate transactions. Servicers for unsecuritized loans over 

$1 million must generally provide us with an assessment of the mortgaged property at least annually 

based on the servicer’s analysis of the property as well as the borrower’s financial statements. In 

situations where a borrower or property is in distress, the frequency of communications with the 

borrower may be increased. We rate servicing performance on a regular basis, and we may conduct onsite reviews to confirm compliance with our standards.

We primarily use credit enhancements, such as the subordination provided by our credit risk transfer 

securitizations (e.g., K Certificates and SB Certificates), to mitigate our credit losses. For unsecuritized 

loans, we may offer a workout option to give the borrower an opportunity to bring the loan current and 

retain ownership of the property, such as providing a short-term extension of up to 12 months. These 

arrangements are entered into with the expectation that we will recover our initial investment or minimize 

our losses. We do not enter into these arrangements in situations where we believe we would 

experience a loss in the future that is greater than or equal to the loss we would experience if we 

foreclosed on the property at the time of the agreement. Our multifamily loan modification and other 

workout activities have been minimal in the last three years.

After the loans have been securitized and the large majority of the expected and stress credit losses has 

been transferred to third-party investors, we monitor the performance of our credit risk transfer 

securitizations to assess our potential exposure to losses. Due to the subordination protection provided 

by our credit risk transfer securitizations, our primary credit risk exposure in our multifamily mortgage 

portfolio results from our unsecuritized loans. By their nature, loans awaiting securitization that we hold 

for sale remain on our balance sheet for a shorter period of time than loans we hold for investment.
Management's Discussion and Analysis Risk Management | Multifamily Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 137

In addition to subordination, the Multifamily segment has various other credit enhancements, primarily 

related to our mortgage loans, other securitization products and other mortgage-related guarantees, in 

the form of collateral posting requirements, bond insurance, loss sharing agreements and other similar 

arrangements. These credit enhancements, along with the proceeds received from the sale of the 

underlying mortgage collateral are designed to enable us to recover all or a portion of our losses on our 

mortgage loans or the amounts paid under our financial guarantee contracts. Our historical losses paid 

under our guarantee contracts and related recoveries pursuant to these agreements have not been 

significant.

The table below presents the total current and protected UPB of our multifamily mortgage portfolio that 

is credit-enhanced and the associated maximum coverage provided by subordination and SCR debt 

notes: 

As of December 31, 2017 As of December 31, 2016

(In millions)

Total Current and 

Protected UPB(1)

Maximum 

Coverage(2)

Total Current and 

Protected UPB(1)

Maximum 

Coverage(2)

Subordination $189,099 $30,869 $143,802 $24,522

SCR debt notes 2,732 137 1,898 95

Other(3) 1,833 726 1,159 701

Total credit enhancements $31,732 $25,318

(1) For subordination and other, total current and protected UPB represents the UPB of the guaranteed securities. For SCR debt notes, total current 

and protected UPB represents the UPB of the assets included in the reference pool. 

(2) For subordination, maximum coverage represents the UPB of the securities that are subordinate to our guarantee and held by third parties. For 

SCR debt notes, maximum coverage represents the outstanding balance of SCR debt notes held by third parties. For other credit enhancements, 

maximum coverage represents the remaining amount of loss recovery that is available subject to terms of the counterparty agreements.

(3) Consists of multifamily HFA indemnification and loss reimbursement agreements with third parties obtained in certain of our Q Certificate 

transactions. 

We report multifamily delinquency rates based on the UPB of loans in our multifamily mortgage portfolio 

that are two monthly payments or more past due or in the process of foreclosure, as reported by our 

servicers. Loans that have been modified (or are subject to forbearance agreements) are not counted as 

delinquent as long as the borrower is less than two monthly payments past due under the modified (or 

forbearance) terms. The vast majority of our forbearance agreements are short-term (3 months) and 

resulted from the 3Q 2017 hurricane impacts. At December 31, 2017, the total loan UPB subject to 

forbearance agreements was $673 million, which consisted of $489 million of loans underlying offbalance sheet securitizations and $184 million of on-balance sheet loans held in our retained portfolio. 

We expect the majority of these loans will be current at the expiration of the forbearance period, 

resulting in no significant impact to our financial results.

The table below shows the delinquency rates for both credit-enhanced and non-credit-enhanced loans 

in our multifamily mortgage portfolio.

As of December 31,

2017 2016 2015

% of Portfolio Delinquency

Rate % of Portfolio DelinquencyRate % of Portfolio DelinquencyRate

Non-credit-enhanced 18% 0.06% 24% 0.04% 32% 0.03%

Credit-enhanced 82 0.01% 76 0.02% 68 0.02%

Total 100% 0.02% 100% 0.03% 100% 0.02%
Management's Discussion and Analysis Risk Management | Multifamily Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 138

The table below presents information about the composition and delinquency rates of the multifamily 

mortgage portfolio.

As of December 31,

2017 2016

(Dollars in billions) UPB Delinquency Rate UPB Delinquency Rate

Unsecuritized loans $38.2 0.01% $42.4 0.04%

Securitization-related products 192.5 0.02% 147.6 0.03%

Other mortgage-related guarantees 10.0 —% 9.7 —%

Total $240.7 0.02% $199.7 0.03%

Unsecuritized loans, excluding HFS loans

Original LTV ratio

Below 75% $10.0 —% $16.8 —%

75% to 80% 6.1 —% 7.0 —%

Above 80% 1.6 —% 2.1 —%

Total $17.7 —% $25.9 —%

Weighted average LTV ratio at origination 69% 68%

Maturity dates

2017 N/A N/A $1.9 —%

2018 $2.4 —% 6.7 —%

2019 3.9 —% 6.1 —%

2020 2.2 —% 2.2 —%

2021 3.0 —% 3.3 —%

Thereafter 6.2 —% 5.7 —%

Total $17.7 —% $25.9 —%

Year of acquisition

2010 and prior $6.7 —% $14.5 —%

2011 and after 11.0 —% 11.4 —%

Total $17.7 —% $25.9 —%

K Certificates, SB Certificates and other securitization

products:

Year of issuance

2012 and prior $39.2 0.09% $35.5 0.10%

2013 20.7 —% 21.6 —%

2014 13.8 —% 15.4 —%

2015 26.7 0.01% 30.0 —%

2016 37.7 —% 45.1 0.01%

2017 54.4 —% N/A N/A

Total $192.5 0.02% $147.6 0.03%

Subordination level at issuance

No subordination $9.0 0.22% $3.3 —%

Less than 10% 3.9 —% 4.5 0.71%

10% to 15% 116.0 0.01% 75.6 0.01%

Greater than 15% 63.6 —% 64.2 —%

Total $192.5 0.02% $147.6 0.03%
Management's Discussion and Analysis Risk Management | Multifamily Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 139

Our REO activity has remained low in the past several years as a result of the strong property 

performance of our multifamily mortgage portfolio. As of December 31, 2017, we had two REO 

properties.

Credit Losses and Recoveries

Our multifamily credit losses remain low as a result of the strong property performance of our multifamily 

mortgage portfolio. The table below contains details on our multifamily credit losses and delinquencies. 

Year Ended December 31,

(Dollars in millions) 2017 2016 2015

Charge-offs, gross(1) $4 $2 $9

Recoveries — — —

Charge-offs, net 4 2 9

REO operations expense (income) — — 4

Credit losses (gains) $4 $2 $13

Credit losses (gains) (in bps) 0.2 0.1 0.8

Number of delinquent loans 5 6 4

(1) Includes cumulative fair value losses recognized through the date of foreclosure for multifamily loans we elected to carry at fair value at the time 

of our purchase.

Loan Loss Reserves 

The table below summarizes our multifamily loan loss reserves activity. 

Year Ended December 31,

(Dollars in millions) 2017 2016 2015 2014 2013

Beginning balance $35 $59 $94 $151 $382

Provision (benefit) for credit losses 13 (22) (26) (55) (218)

Charge-offs, gross (4) (2) (9) (3) (7)

Recoveries — — — 1 1

Transfers, net — — — — (7)

Ending balance $44 $35 $59 $94 $151

As a percentage of non-credit-enhanced multifamily mortgage portfolio 0.10% 0.07% 0.11% 0.16% 0.24%

TDRs and Non-accrual Loans

The tables below provide information about the UPB of multifamily TDRs and non-accrual loans on our 

consolidated balance sheets. 
Management's Discussion and Analysis Risk Management | Multifamily Mortgage Credit Risk

FREDDIE MAC | 2017 Form 10-K 140

As of December 31,

(In millions) 2017 2016 2015 2014 2013

TDRs on accrual status $76 $277 $321 $535 $675

Non-accrual loans 69 108 189 385 628

Total TDRs and non-accrual loans $145 $385 $510 $920 $1,303

Loan loss reserves associated with:

 TDRs on accrual status $— $3 $9 $21 $15

 Non-accrual loans 7 7 12 31 65

Total $7 $10 $21 $52 $80

Year Ended December 31,

(In millions) 2017 2016 2015 2014 2013

Foregone interest income on TDRs and non-accrual loans (1) $2 $3 $3 $4 $8

(1) Represents the amount of interest income that we would have recognized for loans outstanding at the end of each period, had the loans 

performed according to their original contractual terms.

The balance of our multifamily TDR and non-accrual loans has declined for the last four years, which 

reflects continued strong portfolio performance and positive market fundamentals.
Management's Discussion and Analysis Risk Management | Mortgage-Related Securities Credit Risk

FREDDIE MAC | 2017 Form 10-K 141

Mortgage-Related Securities Credit Risk

Our mortgage-related securities portfolio consists of investments in agency and non-agency securities. 

Agency securities have historically presented minimal credit risk as a result of the guarantee provided 

by, and the U.S. government’s support of, the institutions that issue agency securities. Because nonagency securities generally do not include a guarantee from a GSE or governmental agency, we have 

credit risk exposure to the underlying collateral of these securities. This credit risk exposure, which 

principally arises from securities purchased prior to conservatorship, has declined in recent years as we 

have reduced our positions in non-agency securities. Substantially all of our recent mortgage-related 

securities purchases have consisted of agency securities.

Risk Management Activities - Non-Agency Mortgage Related Securities 

As the non-agency mortgage-related securities pay down, our credit risk exposure is reduced. In 

addition, we further reduce our credit risk exposure by selling or securitizing certain assets and pursuing 

litigation and other loss recovery efforts. For information on our remaining litigation related to certain of 

our non-agency mortgage-related securities, see Note 14. 

While we continue to have a portfolio of non-agency mortgage-related securities, our investments in 

these securities have declined in recent years, as we continue our efforts to dispose of certain of these 

securities in an economically sensible manner. See Reducing Our Mortgage-Related Investments 

Portfolio Over Time for information concerning our disposition of these securities.

Our Investments in Non-Agency Mortgage-Related Securities

Our investments in non-agency mortgage-related securities are classified according to the nature of the 

underlying collateral, as either non-agency RMBS or non-agency CMBS. 

Non-Agency RMBS 

Our non-agency RMBS are backed by single-family real estate loans, including subprime, option ARM, 

Alt-A and other loans. We categorize our non-agency RMBS as subprime, option ARM or Alt-A if the 

securities were identified as such based on information provided to us when we acquired these 

securities. Since the beginning of 2007, most of the actual principal shortfalls on our non-agency 

mortgage-related securities have resulted from non-agency RMBS backed by subprime, option ARM 

and Alt-A loans. As of December 31, 2017, approximately 94% of the total $5.3 billion (by UPB) of our 

non-agency RMBS backed by subprime, option ARM and Alt-A loans were below investment grade. Our 

non-agency RMBS credit risk exposure is expected to continue to decline over time as we reduce the 

less liquid assets held in our investments portfolio, primarily through sales. See Note 7 for information 

concerning our investments in non-agency RMBS.

Non-Agency CMBS

We have investments in certain non-agency CMBS backed by multifamily real estate loans. While we 

have credit risk exposure to the underlying collateral of these securities and therefore exposure to the 

stresses of the multifamily real estate market, we believe such exposure is mitigated by the presence of 

structural subordination, as we principally invest in the most senior tranches of the CMBS deals. As of 
Management's Discussion and Analysis Risk Management | Mortgage-Related Securities Credit Risk

FREDDIE MAC | 2017 Form 10-K 142

December 31, 2017, approximately 99% of the total $2.7 billion of our non-agency CMBS (by UPB) were 

investment grade or above or guaranteed by us. As a result, while we monitor these securities for credit 

losses, we believe our exposure to credit risk is limited. See Note 7 for information concerning our 

investments in non-agency CMBS.
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 143

Counterparty Credit Risk

We are exposed to counterparty credit risk, which is a type of institutional credit risk, as a result of our 

contracts with sellers and servicers, mortgage insurers, bond insurers, credit insurers, derivative 

counterparties, including clearing members and clearinghouses, mortgage-related security issuers and 

document custodians. We manage our exposure to counterparty credit risk using the following principal 

strategies:

Maintaining eligibility standards;

Evaluating counterparty financial strength and performance and monitoring our exposure; and

Working with underperforming counterparties and limiting our losses from their nonperformance of 

obligations, when possible.

In the sections below, we discuss our management of counterparty credit risk for each type of 

counterparty to which we have significant exposure.

Sellers and Servicers

Overview 

In our single-family guarantee business, we do not originate loans or have our own loan servicing 

operation. Instead, our sellers and servicers perform the primary loan origination and loan servicing 

functions on our behalf. We establish standards for our sellers and servicers to follow and have 

contractual arrangements with them under which they represent and warrant that the loans they sell to 

us meet our standards and that they will service loans in accordance with our standards. If we discover 

that the representations or warranties related to a loan were breached (i.e., that contractual standards 

were not followed), we can exercise certain contractual remedies to mitigate our actual or potential 

credit losses. If our sellers or servicers lack appropriate controls, experience a failure in their controls, or 

experience an operating disruption, including as a result of financial pressure, legal or regulatory actions 

or ratings downgrades, we could experience a decline in mortgage servicing quality and/or be less likely 

to recover losses through lender repurchases, recourse agreements or other credit enhancements, 

where applicable. 

In our multifamily business, we are exposed to the risk that multifamily sellers and servicers could come 

under financial pressure, which could potentially cause degradation in the quality of the servicing they 

provide us, including their monitoring of each property’s financial performance and physical condition. 

This could also, in certain cases, reduce the likelihood that we could recover losses through lender 

repurchases, recourse agreements or other credit enhancements, where applicable. This risk primarily 

relates to multifamily loans that we hold on our consolidated balance sheets where we retain all of the 

related credit risk.

Maintaining Eligibility Standards

Our eligibility standards for sellers and servicers require the following: a demonstrated operating history 

in residential mortgage origination and servicing, or an eligible agent acceptable to us; adequate 

insurance coverage; a quality control program that meets our standards; and sufficient net worth, 

capital, liquidity and funding sources.
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 144

Evaluating Counterparty Financial Strength and Performance and Monitoring our Exposure

We perform ongoing monitoring and review of our exposure to individual sellers or servicers in 

accordance with our counterparty credit risk management framework, including requiring our 

counterparties to provide regular financial reporting to us. We also monitor and rate our sellers and 

servicers' compliance with our standards and periodically review their operational processes. We may 

disqualify or suspend a seller or servicer with or without cause at any time. Once a seller or servicer is 

disqualified or suspended, we no longer purchase loans originated by that counterparty and no longer 

allow that counterparty to service loans for us, while seeking to transfer servicing of existing portfolios.

As discussed in more detail in Our Business Segments, we acquire a significant portion of both our 

single-family and multifamily loan purchase volume from several large lenders, and a large percentage of 

our loans are also serviced by several large servicers. 

We have significant exposure to non-depository and smaller depository financial institutions in our 

single-family business. These institutions may not have the same financial strength or operational 

capacity, or be subject to the same level of regulatory oversight as large depository institutions.

Although our business with our single-family loan sellers is concentrated, a number of our largest singlefamily loan seller counterparties reduced or eliminated their purchases of loans from mortgage brokers 

and correspondent lenders in recent years. As a result, we acquire a greater portion of our single-family 

business volume directly from non-depository and smaller depository financial institutions. 

Also in recent years, there has been a shift in our single-family servicing from depository institutions to 

non-depository institutions. Some of these non-depository institutions have grown rapidly in recent 

years and now service a large share of our loans. The table below summarizes the concentration of nondepository servicers of our single-family credit guarantee portfolio.

As of December 31,

2017 2016

% of Portfolio(1)

% of Serious

Delinquent SingleFamily Loans % of Portfolio(1)

% of Serious

Delinquent SingleFamily Loans

Top five non-depository servicers 15% 23% 13% 24%

Other non-depository servicers 20% 30% 18% 27%

Total 35% 53% 31% 51%

(1) Excludes loans where we do not exercise control over the associated servicing.

Working with Underperforming Counterparties and Limiting our Losses from Their 

Nonperformance of Obligations, when Possible

We actively manage the current quality of loan originations of our largest single-family sellers by 

performing loan quality control sampling reviews and communicating loan defect rates and the causes 

of those defects to such sellers on a monthly basis. If necessary, we work with these sellers to develop 

an appropriate plan of corrective action.

We use a variety of tools and techniques to engage our single-family sellers and servicers and limit our 

losses, including the following:
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 145

Repurchases and other remedies - For certain violations of our single-family selling or servicing 

policies, we can require the counterparty to repurchase loans or provide alternative remedies, such 

as reimbursement of realized losses or indemnification. We typically first issue a notice of defect and 

allow a period of time to correct the problem prior to issuing a repurchase request. 

The UPB of loans subject to repurchase obligations from single-family loan sellers was $0.2 

billion at both December 31, 2017 and 2016. See Note 14 for additional information about loans 

subject to repurchase obligations.

Incentives and compensatory fees - We pay various incentives to single-family servicers for 

completing workouts of problem loans. We also assess compensatory fees if single-family servicers 

do not achieve certain benchmarks with respect to servicing delinquent loans. 

Servicing transfers - From time to time, we may facilitate the transfer of servicing as a result of 

poor servicer performance, or for certain groups of single-family loans that are delinquent or are 

deemed at risk of default, to servicers that we believe have the capabilities and resources necessary 

to improve the loss mitigation associated with the loans. We may also facilitate the transfer of 

servicing on loans at the request of the servicer.

Mortgage, Bond and Credit Insurers

Overview

We have exposure to mortgage and bond insurers through credit enhancements we obtain on singlefamily loans and certain investments in non-agency mortgage-related securities. We also have exposure 

to insurers and reinsurers through our ACIS transactions and to mortgage insurer affiliates through our 

Deep MI CRT transactions (we sometimes refer to these insurers as credit insurers). If any of our 

mortgage or bond insurers fail to fulfill their obligations, we may not receive reimbursement for credit 

losses to which we are contractually entitled pursuant to our credit enhancement arrangements.

With respect to primary mortgage insurers, we currently cannot differentiate pricing based on 

counterparty strength or revoke a primary mortgage insurer's status as an eligible insurer without FHFA 

approval. Further, we do not select the insurance provider on a specific loan, because the selection is 

made by the lender at the time the loan is originated. Accordingly, we are unable to manage our 

concentration risk with respect to primary mortgage insurers. In recent years, new entrants emerged that 

have helped diversify our concentrated primary mortgage insurer exposure among more market 

participants. However, mortgage insurers have recently become attractive candidates for acquisition as 

legacy risks abate and profitability increases, which could lead to increased concentration among 

mortgage insurers.

As part of our ACIS credit risk transfer transactions, we regularly obtain insurance coverage from global 

insurers and reinsurers. These transactions incorporate several features designed to increase the 

likelihood that we will recover on the claims we file with the insurers, including the following:

In each ACIS transaction, we require the individual ACIS insurers and reinsurers to post collateral to 

cover portions of their exposure, which helps to promote certainty and timeliness of claim payment; 

and

While private mortgage insurance companies are required to be monoline (i.e., to participate solely in 

the mortgage insurance business, although the holding company may be a diversified insurer), our 
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 146

ACIS insurers and reinsurers generally participate in multiple types of insurance businesses, which 

helps to diversify their risk exposure.

For our Deep MI CRT transactions, we obtain insurance coverage from insurers and reinsurers that are 

currently limited to affiliates of primary mortgage insurers, some of whom also participate in our ACIS 

transactions. Deep MI CRT transactions include partially collateralized obligations. 

We acquired our bond insurance coverage when purchasing non-agency mortgage-related securities in 

prior years and have not obtained any new bond insurance coverage in many years.

Maintaining Eligibility Standards

We maintain eligibility standards for mortgage insurers. Our eligibility requirements include financial 

requirements determined using a risk-based framework and were designed to promote the ability of 

mortgage insurers to fulfill their intended role of providing consistent liquidity throughout the mortgage 

cycle. Our mortgage insurers are required to submit audited financial information and certify compliance 

with these requirements on an annual basis. 

Evaluating Counterparty Financial Strength and Performance and Monitoring Our Exposure

We monitor our exposure to individual insurers by performing periodic analysis of the financial capacity 

of each insurer under various adverse economic conditions. 

The table below summarizes our exposure to single-family mortgage insurers as of December 31, 2017. 

In the event a mortgage insurer fails to perform, the coverage amounts represent our maximum 

exposure to credit losses resulting from such a failure.
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 147

As of December 31, 2017

UPB Coverage

(In millions)

Credit 

Rating(1)

Credit 

Rating

Outlook(1)

Primary

MI

Pool

Insurance

Primary

MI

Pool

Insurance

Arch Mortgage Insurance Company A- Stable $78,981 $12 $20,370 $7

Radian Guaranty Inc. (Radian) BBB- Positive 69,436 15 17,803 20

Mortgage Guaranty Insurance Corporation (MGIC) BBB Stable 65,119 1 16,721 —

Genworth Mortgage Insurance Corporation BB+

Watch

Negative 49,424 12 12,692 13

Essent Guaranty, Inc. BBB+ Stable 41,164 — 10,422 —

National Mortgage Insurance (NMI) BB+ Positive 18,193 — 4,447 —

PMI Mortgage Insurance Co. (PMI) Not Rated N/A 5,440 49 1,363 36

Republic Mortgage Insurance Company (RMIC) Not Rated N/A 4,160 17 1,041 11

Triad Guaranty Insurance Corporation (Triad) Not Rated N/A 2,225 6 560 3

Others N/A N/A 47 — 10 —

Total $334,189 $112 $85,429 $90

(1) Ratings and outlooks are for the corporate entity to which we have the greatest exposure. Coverage amounts may include coverage provided by 

consolidated affiliates and subsidiaries of the counterparty. Latest rating available as of December 31, 2017. Represents the lower of S&P and 

Moody’s credit ratings and outlooks stated in terms of the S&P equivalent.

The majority of our mortgage insurance exposure is concentrated with five mortgage insurers. Although 

the financial condition of our mortgage insurers improved in recent years, there is still a risk that some of 

these counterparties may fail to fully meet their obligations under a stress economic scenario since they 

are monoline entities primarily exposed to mortgage credit risk.

On October 23, 2016, Genworth Financial, Inc. announced that it had entered into an agreement to be 

acquired by China Oceanwide Holdings Group Co., Ltd. Because Genworth Mortgage Insurance 

Corporation, a subsidiary of Genworth Financial, Inc., is an approved mortgage insurer, Freddie Mac will 

evaluate the financial strength of China Oceanwide Holdings Group Co., Ltd. when considering whether 

to approve the planned acquisition. The transaction is also subject to other required approvals. For more 

information about counterparty credit risk associated with mortgage insurers, see Note 14.

PMI and Triad are both under the control of their state regulators and no longer issue new insurance. 

Both of these insurers pay a substantial portion of their claims as deferred payment obligations. RMIC is 

under regulatory supervision and is no longer issuing new insurance; however, it continues to pay its 

claims in cash.

If, as we currently expect, PMI and Triad do not pay the full amount of their deferred payment 

obligations in cash, we would lose a portion of the coverage from these insurers shown in the table 

above. As of December 31, 2017, we had cumulative unpaid deferred payment obligations of $0.5 billion

from these insurers. We have fully reserved for all of these unpaid amounts as collectability is uncertain. 

Except for those insurers under regulatory supervision, which no longer issue new coverage, we 

continue to acquire new loans with mortgage insurance from the mortgage insurers shown in the table 

above, some of which have credit ratings below investment grade.

We have exposure to bond insurers in the event that a bond insurer fails to perform. As of December 31, 

2017, our maximum exposure to losses related to such a failure was $3.5 billion. 

We expect to receive substantially less than full payment of our claims from certain of our bond insurers 

because we believe these bond insurers lack sufficient ability to fully meet all of their expected lifetime 
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 148

claims-paying obligations to us as such claims emerge. See Note 14 for additional information on our 

exposure to these bond insurers.

Bond insurance is included as a feature at issuance of some of our non-agency mortgage-related 

securities. The expected benefits from bond insurers, or the inability of bond insurers to perform on their 

obligations, is captured in the fair value of these securities.

Derivative Counterparties

Overview

We use cleared derivatives, exchange-traded derivatives and OTC derivatives, and are exposed to the 

non-performance of each of our derivative counterparties. The Capital Markets segment manages this 

risk for the company. Our derivative counterparty credit exposure relates principally to interest-rate 

derivative contracts. We maintain internal standards for approving new derivative counterparties, 

clearinghouses and clearing members. 

Cleared derivatives - Cleared derivatives expose us to counterparty credit risk of central clearing 

houses and our clearing members. Our exposure to the clearinghouses we use to clear interest-rate 

derivatives has increased and may become more concentrated over time. The use of cleared 

derivatives mitigates our counterparty credit risk exposure to individual counterparties because a 

central counterparty is substituted for individual counterparties, and changes in the value of open 

contracts are settled daily via payments. We are required to post initial and variation margin to the 

clearing houses. The amount of initial margin we must post for cleared and exchange-traded 

derivatives may be based, in part, on S&P or Moody’s credit rating of our long-term senior 

unsecured debt securities. The lowering or withdrawal of our credit rating by S&P or Moody’s may 

increase our obligation to post margin, depending on the amount of the counterparty’s exposure to 

Freddie Mac with respect to the derivative transactions.

Exchange-traded derivatives - Exchange-traded derivatives expose us to counterparty risk of the 

central clearing houses and our clearing members. We are required to post initial and variation 

margin with our clearing members in connection with exchange-traded derivatives. The use of 

exchange-traded derivatives mitigates our counterparty credit risk exposure to individual 

counterparties because a central counterparty is substituted for individual counterparties, and 

changes in the value of open exchange-traded contracts are settled daily via payments made 

through the financial clearinghouse established by each exchange.

OTC derivatives - OTC derivatives expose us to counterparty credit risk to individual counterparties, 

because these transactions are executed and settled directly between us and each counterparty, 

exposing us to potential losses if a counterparty fails to meet its contractual obligations. When a 

counterparty in OTC derivatives that is subject to a master netting agreement has a net obligation to 

us with a market value above an agreed upon threshold, if any, the counterparty is obligated to 

deliver collateral in the form of cash, securities or a combination of both to satisfy its obligation to us 

under the master netting agreement. Our OTC derivatives also require us to post collateral to 

counterparties in accordance with agreed upon thresholds, if any, when we are in a derivative liability 

position. OTC derivatives transactions executed prior to March 1, 2017 are subject to collateral 

posting thresholds. The collateral posting thresholds we assign to our OTC counterparties, as well as 

the ones they assign to us, are generally based on S&P or Moody’s credit rating. The lowering or 
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 149

withdrawal of our credit rating by S&P or Moody’s may increase our obligation to post collateral, 

depending on the amount of the counterparty’s exposure to Freddie Mac with respect to the 

derivative transactions. Based upon regulations that took effect March 1, 2017, OTC derivative 

transactions executed after that date require posting of variation margin without the application of 

any thresholds. 

In the event a counterparty defaults, our economic loss may be higher than the uncollateralized 

exposure of our derivatives if we are not able to replace the defaulted derivatives in a timely and costeffective fashion (e.g., due to a significant interest rate movement during the period or other factors). We 

could also incur economic losses if non-cash collateral posted to us by the defaulting counterparty 

cannot be liquidated at prices that are sufficient to recover the amount of such exposure. 

Evaluating Counterparty Financial Strength and Performance and Monitoring Our Exposure

Over time, our exposure to derivative counterparties varies depending on changes in fair values, which 

are affected by changes in interest rates and other factors. Due to risk limits with certain counterparties, 

we may be forced to execute transactions with lower returns with other counterparties when managing 

our interest-rate risk. We manage our exposure through master netting and collateral agreements and 

stress-testing to evaluate potential exposure under possible adverse market scenarios. Collateral is 

typically transferred within one business day based on the values of the related derivatives. We regularly 

review the market values of the securities pledged to us as non-cash collateral, primarily agency and 

U.S.Treasury securities, to manage our exposure to loss. We conduct additional reviews of our exposure 

when market conditions dictate or certain events affecting an individual counterparty occur. When noncash collateral is posted to us, we require collateral in excess of our exposure to satisfy the net 

obligation to us in accordance with the counterparty agreement. 

The table below compares the gross fair value of our derivative asset positions after counterparty netting 

with our net exposure to these positions after considering cash and non-cash collateral held.

As of December 31, 2017

(Dollars in millions)

Number of

Counterparties

Fair Value -

Gain positions

Fair Value -

Gain positions,

net of collateral

OTC interest-rate swap and swaption counterparties (by rating)

AA- or above 4 $115 $29

A+, A, or A- 13 1,827 12

BBB+, BBB, or BBB- 3 207 —

Total OTC 20 2,149 41

Cleared and exchange-traded derivatives 2 279 17

Total 22 $2,428 $58

Approximately 98% of our exposure at fair value for OTC interest-rate swap and option-based 

derivatives, excluding amounts related to our posting of cash collateral in excess of our derivative 

liability determined at the counterparty level, was collateralized at December 31, 2017. The remaining 

exposure was primarily due to market movements between the measurement of a derivative at fair value 

and our receipt of the related collateral, as well as exposure amounts below the then applicable 

counterparty collateral posting threshold, if any. The concentration of our derivative exposure among our 

primary OTC derivative counterparties remains high and could further increase. 
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 150

Other Counterparties

We have exposure to other types of counterparties to transactions that we enter into in the ordinary 

course of business, including the following:

Mortgage related-security issuers and servicers - We are exposed to the non-performance of 

issuers and servicers of our investments in non-Freddie Mac mortgage-related securities, which can 

result in credit losses, impairments and declines in the fair value of these securities. See Credit 

Risk - Mortgage-Related Securities Credit Risk section for more information on how we 

manage risk associated with non-agency mortgage-related securities. A significant portion of the 

single-family loans underlying our investments in non-agency mortgage-related securities is serviced 

by non-depository servicers. These servicers may not have the same financial strength, internal 

controls or operational capacity as depository servicers. 

Document custodians - We use third-party document custodians to provide loan document 

certification and custody services for the loans that we purchase and securitize. In many cases, our 

sellers and servicers or their affiliates also serve as document custodians for us. Our ownership 

rights to the loans that we own or that back our securitization products could be challenged if a 

seller or servicer intentionally or negligently pledges, sells or fails to obtain a release of prior liens on 

the loans that we purchased, which could result in financial losses to us. When a seller or servicer, or 

one of its affiliates, acts as a document custodian for us, the risk that our ownership interest in the 

loans may be adversely affected is increased, particularly in the event the seller or servicer were to 

become insolvent. To manage these risks, we establish qualifying standards for our document 

custodians and maintain legal and contractual arrangements that identify our ownership interest in 

the loans. We also monitor the financial strength of our document custodians on an ongoing basis in 

accordance with our counterparty credit risk management framework, and we require transfer of 

documents to a different third-party document custodian if we have concerns about the solvency or 

competency of the document custodian.

The MERS® System - The MERS System is an electronic registry that is widely used by sellers and 

servicers, Freddie Mac and other participants in the mortgage industry to maintain records of 

beneficial ownership of loans. The MERS System is owned and operated by MERSCORP Holdings, 

Inc. In 2016, Intercontinental Exchange, Inc. acquired a majority equity position in MERSCORP 

Holdings, Inc. Freddie Mac and Fannie Mae also have equity positions in MERSCORP Holdings, Inc. 

A significant portion of the loans we own or guarantee are registered in the MERS System. Our 

business could be adversely affected if we were prevented from using the MERS System, or if our 

use of the MERS System adversely affects our ability to enforce our rights with respect to our loans 

registered in the MERS System.

Cash and other investments counterparties - We are exposed to the non-performance of 

counterparties relating to cash and other investments (including non-mortgage-related securities and 

cash equivalents) transactions, including those entered into on behalf of our securitization trusts. Our 

policies require that the counterparty be evaluated using our internal counterparty rating model prior 

to our entering into such transactions. We monitor the financial strength of our counterparties to 

these transactions and may use collateral maintenance requirements to manage our exposure to 

individual counterparties. The permitted term and dollar limits for each of these transactions are also 

based on the counterparty's financial strength. 
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 151

Our cash and other investments (including non-mortgage-related securities and cash equivalents) 

counterparties are primarily major financial institutions, including other GSEs, Treasury, the Federal 

Reserve Bank of New York, the Government Securities Division of Fixed Income Clearing 

Corporation (GSD/FICC), highly-rated supranational institutions and government money market 

funds.

Beginning in 2017, we began to utilize the GSD/FICC as a clearinghouse to transact many of our 

trades involving securities purchased under agreements to resell, securities sold under agreements 

to repurchase, and other non-mortgage related securities. As a clearing member of GSD/FICC, we 

are required to post initial and variation margin payments and are exposed to the counterparty credit 

risk of GSD/FICC (including its clearing members). In the event a clearing member fails and causes 

losses to the GSD/FICC clearing system, we could be subject to the loss of any or the entire margin 

that we have posted to the GSD/FICC. Moreover, our exposure could exceed that amount, as 

members are generally required to cover losses caused by defaulting members on a pro rata basis. It 

is difficult to estimate our maximum exposure under these transactions, as this would require an 

assessment of transactions that we and other members of the GSD/FICC may execute in the future. 

We believe that it is unlikely we will have to make any material payments under these arrangements 

and the risk of loss is expected to be remote because of the GSD/FICC’s financial safeguards and 

our ability to terminate our membership in the clearinghouse (which would limit our loss).

As of December 31, 2017, 2016 and 2015, the fair value of the securities in our cash and other 

investment portfolio was $22.8 billion, $21.1 billion and $17.2 billion, respectively, and primarily 

consisted of investments in U.S. Treasury securities. 

We enter into secured lending arrangements to provide financing for certain Freddie Mac securities 

and other assets related to our guarantee businesses in an attempt to improve the market for these 

assets. Additionally, these transactions differ from those we use for liquidity purposes, as the 

counterparties we face may not be major financial institutions, and we are therefore exposed to the 

counterparty credit risk of these institutions. For additional information, see Note 14. 

Forward settlement counterparties - We are exposed to the non-performance (settlement risk) of 

counterparties relating to the forward settlement of loans and securities (including agency debt, 

agency RMBS, and cash loan purchase program loans). Our policies require that the counterparty be 

evaluated using our internal counterparty rating model prior to our entering into such transactions. 

We monitor the financial strength of these counterparties and may use collateral maintenance 

requirements to manage our exposure to individual counterparties.

We also execute forward purchase and sale commitments of mortgage-related securities, including 

dollar roll transactions, that are treated as derivatives for accounting purposes and utilize the 

Mortgage Backed Securities Division of the Fixed Income Clearing Corporation ("MBSD/FICC") as a 

clearinghouse. As a clearing member of the clearinghouse, we post margin to the MBSD/FICC and 

are exposed to the counterparty credit risk of the organization. In the event a clearing member fails 

and causes losses to the MBSD/FICC clearing system, we could be subject to the loss of the margin 

that we have posted to the MBSD/FICC. Moreover, our exposure could exceed the amount of margin 

we have posted to the MBSD/FICC, as clearing members are generally required to cover losses 

caused by defaulting members on a pro rata basis. It is difficult to estimate our maximum exposure, 

as this would require an assessment of transactions that we and other members of the MBSD/FICC 

may execute in the future. We believe that it is unlikely we will have to make any material payments 
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

FREDDIE MAC | 2017 Form 10-K 152

under these arrangements and the risk of loss is expected to be remote because of the MBSD/

FICC’s financial safeguards and our ability to terminate our membership in the clearinghouse (which 

would limit our loss). As of December 31, 2017, the gross fair value of such forward purchase and 

sale commitments that were in derivative asset positions was $37 million.
Management's Discussion and Analysis Risk Management | Operational Risk

FREDDIE MAC | 2017 Form 10-K 153

Operational Risk

We define operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal 

processes, people or systems or from external events. Operational risk is inherent in all of our activities. 

Operational risk events include accounting, financial reporting or operational errors, business 

interruptions, non-compliance with legal or regulatory requirements, fraudulent acts, inappropriate acts 

by employees, information security incidents or third parties who do not perform in accordance with 

their contracts. These events could result in financial loss, legal actions, regulatory fines and reputational 

harm.

Operational Risk Management and Risk Profile

Our operational risk management framework includes risk identification, assessment, measurement, 

monitoring, mitigation and reporting. When operational risk events are identified, our policies require that 

the events be documented and analyzed to determine whether changes are required in our systems, 

people and/or processes to mitigate the risk of future events. 

During 2017, we continued to enhance and refine our three-lines-of-defense framework to both 

strengthen risk ownership in our business units and add clarity to risk management roles and 

responsibilities. Our framework focuses on balancing ownership of risk by our business units with 

corporate oversight and independent assurance of the design and effectiveness of our risk management 

activities.

In order to evaluate and monitor operational risk, each business unit periodically completes an 

assessment using the Risk and Control Self-Assessment ("RCSA") framework. The framework is 

designed to identify and assess the business unit's exposure to operational risk and determine if action 

is required to manage the risk to an acceptable level.

In addition to the RCSA process, we employ several tools to identify, measure and monitor operational 

risks, including loss event data, key risk indicators, root cause analysis and testing. Our operational risk 

framework requires that the primary responsibility for managing both the day-to-day risk and longerterm or emerging risks lies with the business units, with oversight performed by the second line of 

defense.

We continue to face heightened operational risk and expect the risk to remain elevated for the near term. 

This elevated risk profile is due to the layering impact of several factors including: legacy systems 

requiring upgrade for operational resiliency; reliance on manual processes; external events such as 

cybersecurity threats; volume and complexity of new business initiatives, including those we are 

pursuing under the Conservatorship Scorecards; and issues requiring remediation. Other factors 

contributing to our heightened operational risk are discussed in Risk Factors - Operational Risks.

While our operational risk profile remains elevated, we are continuing to strengthen our operational 

control environment by building out our operational risk resources within Enterprise Risk Management 

and within the first line of defense.

We continue to make improvements to reduce technology risk, including the enhancement of our 

business resiliency capabilities for mission critical systems and processes. We also continue to invest in 
Management's Discussion and Analysis Risk Management | Operational Risk

FREDDIE MAC | 2017 Form 10-K 154

the information risk and security area to strengthen our capabilities to prevent, detect, respond to and 

mitigate risk and protect our critical assets.

We continue to make various multi-year investments to build the infrastructure for a better housing 

finance system, including the development of the common securitization platform by CSS (jointly owned 

by Freddie Mac and Fannie Mae) and a single (common) security. With regard to the common 

securitization platform, while we exercise influence over CSS through our representation on the CSS 

Board of Managers, we do not control its day-to-day operations. CSS' day-to-day operations are 

managed by CSS management, which is overseen by the CSS Board of Managers. The Board of 

Managers consists of two Freddie Mac and two Fannie Mae representatives. We may not realize the 

benefits of our investments if the common securitization platform and single (common) security do not 

operate successfully, or if the market does not accept the single (common) security. In addition, the 

transition to the common securitization platform presents significant operational and technological 

challenges. Freddie Mac began its transition to the common securitization platform in late 2016 through 

Release 1. We are employing various processes and procedures to mitigate the operational risks related 

to Release 1. We will continue working with FHFA, CSS and Fannie Mae to develop processes and 

procedures related to the risks associated with Release 2, which has a target implementation date of the 

second quarter of 2019.

Model Risk

Model risk is defined as the potential for adverse consequences from model errors or decisions based 

on incorrect or misused model outputs. Our business activities significantly rely on the use of models. 

We use a variety of models to inform management decisions related to our businesses. These include 

models that forecast significant factors such as interest rates, mortgage rates and house prices, as well 

as models that project future cash flows related to borrower prepayment and default behavior.

Model development, changes to existing models and model risks are managed in each line of business 

according to our three-lines-of-defense framework. New model development and changes to existing 

models undergo a review process. Each business periodically reviews model performance, embedded 

assumptions and limitations and modeling techniques, and updates its models as it deems appropriate. 

The ERM Division, the second line of defense, develops corporate model risk policies and standards 

and independently validates the work done by the first line of defense (i.e., the business units). The 

Internal Audit Division, the third line of defense, provides additional periodic independent assessment 

that model governance, policies and procedures are followed appropriately.

Given the importance and complexity of models in our business, model development may take 

significant time to complete. Delays in our model development process could affect our ability to make 

sound business and risk management decisions, and increase our exposure to risk. We have procedures 

designed to mitigate this risk.

In 2016, we improved our model governance processes by strengthening model policies, standards and 

procedures. We face heightened exposure to risk in our model governance processes as we implement 

these enhancements. We will continue to refine these processes to increase effectiveness and 

efficiency. Additionally, we will continue to refine our model risk rating methodology and its use as an 

input into overarching model risk appetite.
Management's Discussion and Analysis Risk Management | Operational Risk

FREDDIE MAC | 2017 Form 10-K 155

A corporate Model Risk Committee serves as a coordination forum for any issues arising from models 

that are used across divisions. Issues that remain unresolved at the Model Risk Committee are 

escalated to the ERC as necessary. We face significant risks associated with our use of models, as 

discussed in Risk Factors - Operational Risks - We face risks and uncertainties associated 

with the models that we use to inform business and risk management decisions and for 

financial accounting and reporting purposes.

Cybersecurity Risk Management

Our operations rely on the secure, accurate and timely receipt, processing, storage and transmission of 

confidential and other information in our computer systems and networks and with customers, 

counterparties, service providers and financial institutions. Information risks for companies like ours 

have increased significantly in recent years. Like many companies and government entities, from time to 

time we have been, and likely will continue to be, the target of attempted cyberattacks and other 

information security threats. In addition, one of our major vendors has recently reported that it has been 

the subject of significant cyberattacks. 

We have developed and continue to enhance our cybersecurity risk management program to protect the 

security of our computer systems, software, networks and other technology assets against unauthorized 

attempts to access confidential information or to disrupt or degrade our business operations. We have 

obtained insurance coverage relating to cybersecurity risks. However, this insurance may not be 

sufficient to provide adequate loss coverage. Although to date we have not experienced any 

cyberattacks resulting in significant impact to the company, there is no assurance that our cybersecurity 

risk management program will prevent cyberattacks from having significant impacts in the future.

For additional information, see Risk Factors - Operational Risks - Potential cybersecurity 

threats are changing rapidly and growing in sophistication. We may not be able to 

protect our systems or the confidentiality of our information from cyberattack and other 

unauthorized access, disclosure and disruption. 

Effectiveness of Our Disclosure Controls and Procedures

Management, including the company’s CEO and CFO, conducted an evaluation of the effectiveness of 

our disclosure controls and procedures as of December 31, 2017. As of December 31, 2017, we had 

one material weakness related to conservatorship, which remained unremediated, causing us to 

conclude that our disclosure controls and procedures were not effective at a reasonable level of 

assurance. For additional information, see Controls and Procedures.
Management's Discussion and Analysis Risk Management | Market Risk

FREDDIE MAC | 2017 Form 10-K 156

Market Risk

Overview

Our business segments have embedded exposure to market risk, including interest-rate and spread 

risks. Interest-rate risk is consolidated and primarily managed by the Capital Markets segment, while 

spread risk is owned and managed by each individual business segment. Market risk can adversely 

affect future cash flows, or economic value, as well as earnings and net worth.

The majority of our interest-rate risk comes from our investments in mortgage-related assets (securities 

and loans) and the debt we issue to fund them. Typically, an existing loan or bond investment is worth 

less to an investor when interest rates (yields) rise and worth more when they decline. In addition, for a 

majority of our single-family mortgage-related assets, the borrower has the option to make unscheduled 

principal payments at any time before maturity without incurring a prepayment penalty. Thus, our 

mortgage-related asset portfolio is also exposed to the uncertainty as to when borrowers will exercise 

their option and pay the outstanding principal balance of their loans. We face similar (and in most cases 

directionally opposite) exposure related to unsecured debt. Unsecured debt is typically worth less to an 

investor when interest rates (yields) rise and worth more when they decline. In addition, we issue debt 

with embedded options, such as an option to call, which provides us flexibility concerning the timing of 

our debt maturities. We actively manage our economic exposure to interest rate fluctuations.

Our primary goal in managing interest-rate risk is to reduce the amount of change in the value of our 

future cash flows due to future changes in interest rates. We use models to analyze possible future 

interest-rate scenarios, along with the cash flows of our assets and liabilities over those scenarios.

Management of Market Risk

We employ risk management practices that seek to maintain certain interest-rate characteristics of our 

assets and liabilities within our risk limits through a number of different strategies, including:

Asset selection and structuring, such as acquiring or structuring mortgage-related securities with 

certain expected prepayment and other characteristics;

Issuance of both callable and non-callable unsecured debt; and

Use of interest-rate derivatives, including swaps, swaptions, and futures.

Our use of derivatives is an important part of our strategy to manage interest-rate risk. When deciding to 

use derivatives to mitigate our exposures, we consider a number of factors, including cost, exposure to 

counterparty credit risks and our overall risk management strategy. See Credit Risk - Counterparty 

Credit Risk and Risk Factors for more discussion of our market risk exposures, including those 

related to derivatives, institutional counterparties and other market risks.

Although we have limited ability to manage spread risk, we do employ the following strategies:

Limiting the size of our assets that are exposed to spread risk; and

Entering into certain spread-related derivatives to offset our spread exposures.
Management's Discussion and Analysis Risk Management | Market Risk

FREDDIE MAC | 2017 Form 10-K 157

Governance

The Risk Committee of our Board of Directors establishes Board limits for certain interest-rate and 

spread risk measures, and if we exceed these limits, we are required to notify the Risk Committee and 

address the limit breach. These limits encompass a range of interest-rate risks that include duration risk, 

convexity risk, volatility risk and yield curve risk associated with our use of various financial instruments, 

including derivatives. The Board limits also include a spread volatility limit on certain Multifamily assets. 

The management limits are set at values below those set at the Board level, which is intended to allow 

us to follow a series of predetermined actions in the event of a breach of the management limits and 

helps ensure proper oversight to reduce the possibility of exceeding the Board limits. Our ERC is 

responsible for reviewing performance as compared to the Board and management limits. 

Measurement of Market Risk

The principal types of market risks to which we are exposed are described below.

Risk Description Risk Exposure

Interest-rate Risk

Interest-rate risk is the economic risk 

related to adverse changes in the level or 

volatility of interest rates.

• A change in the level of interest rates (represented by a parallel

shift of the yield curve, all else constant) exposes our assets and

liabilities to risk, potentially affecting expected future cash flows

and their present values. This is reflected in our PMVS-L and

duration gap disclosures.

• Similarly, changes in the shape or slope of the yield curve (often

reflecting changes in the market’s expectation of future interest

rates) expose our assets and liabilities to risk, potentially

affecting expected future cash flows and their present values.

This is reflected in our PMVS-YC disclosure.

• Volatility risk is the risk that changes in the market's

expectation of the magnitude of future variations in interest

rates will adversely affect our economic value. We are exposed

to volatility risk in both our mortgage-related assets and

liabilities, especially in instruments with embedded options.

Spread Risk

Spread risk is the risk that yields in different

asset classes may not move together and

may adversely affect our economic value.

• This risk arises principally because interest rates on our

mortgage-related investments may not move in tandem with

interest rates on our financial liabilities and derivatives,

potentially affecting the effectiveness of our hedges.

• We are continually exposed to significant market spread risk,

also referred to as mortgage-to-debt OAS risk, arising from

funding mortgage-related investments with debt securities.

• We also incur market spread risk when we use LIBOR- or

Treasury-based instruments in our risk management activities.

• We are exposed to market spread risk arising from the

difference in time between when we commit to purchase a

multifamily mortgage loan and when we securitize the loan.

During this time, market spreads can widen, causing losses due

to changes in fair value. We also have market spread risk on the

K Certificates and SB Certificates we hold in our mortgagerelated investments portfolio.

Interest-Rate Risk

We calculate our exposure to changes in interest rates for our interest rate sensitive assets and liabilities 

using effective duration and effective convexity, based on our models. 
Management's Discussion and Analysis Risk Management | Market Risk

FREDDIE MAC | 2017 Form 10-K 158

Effective duration measures the percentage change in the price of financial instruments from a 100 

basis point change in interest rates. Financial instruments with positive duration increase in value as 

interest rates decline. Conversely, financial instruments with negative duration increase in value as 

interest rates rise. 

Effective convexity measures the change in effective duration for a 100 basis point change in interest 

rates. Effective duration is not constant over the entire yield curve and effective convexity measures 

how effective duration changes over large changes in interest rates.

Together, effective duration and effective convexity provide a measure of an instrument’s overall price 

sensitivity to changes in interest rates. We utilize the concepts of effective duration and effective 

convexity in calculating our primary interest-rate risk measures: duration gap and PMVS.

Duration gap - The net effective duration of our overall portfolio of interest-rate sensitive assets and 

liabilities is expressed in months as our duration gap. Duration gap measures the difference in price 

sensitivity to interest rate changes between our financial assets and liabilities and is expressed in 

months relative to the market value of assets. For example, assets with a six-month duration and 

liabilities with a five-month duration would result in a positive duration gap of one month.

The table below shows various duration gap measurements and the effects that changes in interest 

rates would generally have on portfolio value.

Negative Duration Gap Zero Duration Gap Positive Duration Gap

Asset Duration < Liability Duration Asset Duration = Liability Duration Asset Duration > Liability Duration

Net portfolio will increase in value when

interest rates rise and decrease in value

when interest rates fall.

Net portfolio economic value will be

unchanged. The change in the value of

assets from an instantaneous move in

interest rates, either up or down, would

be expected to be accompanied by an

equal and offsetting change in the value

of liabilities.

Net portfolio will increase in value when

interest rates fall and decrease in value

when interest rates rise.

We actively measure and manage our duration gap exposure on a daily basis. In addition to duration gap 

management, we also measure and manage the price sensitivity of our portfolio to a number of different 

specific interest rate changes along the yield curve. The price sensitivity of an instrument to specific 

changes in interest rates is known as the instrument’s key rate duration risk. By managing our duration 

exposure both in aggregate through duration gap and to specific changes in interest rates through key 

rate duration, we expect to limit our exposure to interest rate changes for a wide range of interest rate 

yield curve scenarios. 

PMVS - PMVS is our estimate of the change in the market value of our financial assets and liabilities 

from an instantaneous shock to interest rates, assuming spreads are held constant and no 

rebalancing actions are undertaken. PMVS is measured in two ways, one measuring the estimated 

sensitivity of our portfolio’s market value to a 50 basis point parallel movement in interest rates 

(PMVS-L) and the other to a nonparallel movement (PMVS-YC), resulting from a 25 basis point 

change in slope of the LIBOR yield curve. The 50 basis point shift and 25 basis point change in 

slope of the LIBOR yield curve used for our PMVS measures reflect reasonably possible near-term 

changes that we believe provide a meaningful measure of our interest-rate risk sensitivity.
Management's Discussion and Analysis Risk Management | Market Risk

FREDDIE MAC | 2017 Form 10-K 159

To calculate PMVS, the interest rate shock is applied to the duration (and convexity for PMVS-L) of 

all interest-rate sensitive financial instruments. The resulting change in market value for the 

aggregate portfolio is computed for both the up rate and down rate shock, and whichever produces 

the more adverse outcome is the PMVS. In cases where both the up rate and down rate shocks 

result in a positive effect, the PMVS is zero. PMVS results are shown on a pre-tax basis.

Economic Market Risk Results

Interest-Rate Risk 

The tables below provide our duration gap, estimated point-in-time and minimum and maximum PMVSL and PMVS-YC results and an average of the daily values and standard deviation for the years ended 

December 31, 2017 and 2016. The tables below also provide PMVS-L estimates assuming an immediate 

100 basis point shift in the LIBOR yield curve. The interest-rate sensitivity of our mortgage portfolio 

varies across a wide range of interest rates. 

As of December 31,

2017 2016

PMVS-YC PMVS-L PMVS-YC PMVS-L

(In millions) 25 bps 50 bps 100 bps 25 bps 50 bps 100 bps

Assuming shifts of the LIBOR yield curve, 

(gains) losses on:(1)

Assets $463 $5,587 $11,446 $573 $6,397 $12,950

Liabilities 185 (2,377) (4,968) 155 (2,747) (5,715)

Derivatives (646) (3,200) (6,477) (721) (3,662) (7,317)

Total $2 $10 $1 $7 ($12) ($82)

PMVS $2 $10 $1 $7 $— $—

(1) The categorization of the PMVS impact between assets, liabilities, and derivatives on this table is based upon the economic characteristics of those 

assets and liabilities, not their accounting classification. For example, purchase and sale commitments of mortgage-related securities and debt 

securities of consolidated trusts held by the mortgage-related investments portfolio are both categorized as assets on this table.

Year Ended December 31,

2017 2016

(Duration gap in months, dollars in millions)

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Average 0.1 $7 $16 0.1 $6 $20

Minimum (0.4) $— $— (0.4) $— $—

Maximum 0.8 $26 $78 0.7 $31 $92

Standard deviation 0.2 $5 $19 0.2 $5 $21

The disclosure in our Monthly Volume Summary reports, which are available on our website 

www.freddiemac.com/investors/financials/monthly-volume-summaries, reflects the average of the 

daily PMVS-L, PMVS-YC and duration gap estimates for a given reporting period (a month, a quarter, or 

a year). 

Derivatives enable us to reduce our economic interest-rate risk exposure as we continue to align our 

derivative portfolio with the changing duration of our economically hedged assets and liabilities. The 

table below shows that the PMVS-L risk levels, assuming a 50 basis point shift in the LIBOR yield curve 

for the periods presented, would have been higher if we had not used derivatives. 
Management's Discussion and Analysis Risk Management | Market Risk

FREDDIE MAC | 2017 Form 10-K 160

PMVS-L (50 bps)

(In millions)

Before

Derivatives

After

Derivatives

Effect of

Derivatives

December 31, 2017 $3,210 $10 ($3,200)

December 31, 2016 $3,651 $— ($3,651)

Limitations of Market Risk Measures

While we believe that PMVS and duration gap are useful risk management tools, they should be 

understood as estimates rather than as precise measurements. Mis-estimation of economic market risk 

could result in over or under hedging of interest-rate risk, significant economic losses and an adverse 

impact on earnings. The limitations of our economic market risk measures include the following:

Our PMVS and duration gap estimates are determined using models that involve our judgment of 

interest-rate and prepayment assumptions. 

There could be times when we hedge differently than our model estimates during the period, such as 

when we are making changes or market updates to these models. 

PMVS and duration gap do not capture the potential effect of certain other market risks, such as 

changes in volatility and market spread risk. The effect of these other market risks can be significant.

Our sensitivity analyses for PMVS and duration gap contemplate only certain movements in interest 

rates and are performed at a particular point in time based on the estimated fair value of our existing 

portfolio.

In recent years it has been more difficult to measure and manage the interest-rate risk related to 

mortgage assets as risk for prepayment model error remains high due to the low interest rate 

environment and uncertainty regarding default rates, unemployment, government policy changes 

and programs, loan modifications and the volatility and impact of home price movements on 

mortgage durations. 

Although the mortgage-related investments portfolio is the main contributor of interest-rate risk to 

the company, other core businesses also contribute to our interest-rate risk and may be managed 

differently. We have certain assets that have a relatively short holding period. As a result, we may 

manage the risk of these assets based on their disposition, while our risk measures use long-term 

cash flows. Hedging these businesses at times requires additional assumptions concerning risk 

metrics to accommodate changes in pricing that may not be related to the future cash flow of the 

assets. This could create a perceived risk exposure as the hedged risk may differ from the model 

risk.

The choice of the benchmark rate used to model and hedge our positions is a significant 

assumption. The effectiveness of our hedges ultimately depends on how closely the different 

instruments (assets, liabilities and derivatives) react to the underlying chosen benchmark. In the 

simplest example, all instruments would have interest-rate risk based on the same underlying 

benchmark, in our case, the swap rate. In practice, however, different instruments react differently 

versus the benchmark rate, which creates a market spread between the benchmark rate and the 

instrument. As the market spreads of these instruments move differently, our ability to predict the 

behavior of each instrument relative to the others is reduced, potentially affecting the effectiveness 

of our hedges.
Management's Discussion and Analysis Risk Management | Market Risk

FREDDIE MAC | 2017 Form 10-K 161

Our measurements do not include the sensitivity to interest-rate changes of the following assets and 

liabilities:

Credit guarantee activities - We generally do not hedge the interest-rate exposure of our credit 

guarantees except for the interest-rate exposure related to buy-ups, float and STACR debt notes. 

Float, which arises from timing differences between the borrower's principal payments on the 

loan and the reduction of the PC balance, can lead to significant interest expense if the interest 

rate paid to a PC investor is higher than the reinvestment rate earned by the securitization trusts 

on payments received from borrowers and paid to us as trust management income.

Other assets with minimal interest-rate sensitivity - We do not include other assets, primarily 

non-financial instruments such as fixed assets and REO, because we estimate their impact on 

PMVS and duration gap to be minimal.

GAAP Earnings Variability

The GAAP accounting treatment for our financial assets and liabilities (i.e., some are measured at 

amortized cost, while others are measured at fair value) creates variability in our GAAP earnings when 

interest rates and spreads change. This variability of GAAP earnings, which may not reflect the 

economics of our business, increases the risk of our having a negative net worth and thus being 

required to draw from Treasury. 

Interest-rate Volatility

While we manage our interest-rate risk exposure on an economic basis to a low level as measured by 

our models, our GAAP financial results are still subject to significant earnings variability from period to 

period. Based upon the composition of our financial assets and liabilities, including derivatives, at 

December 31, 2017, we generally recognize fair value losses in GAAP earnings when interest rates 

decline. 

In an effort to reduce our GAAP earnings variability and better align our GAAP results with the 

economics of our business, we began using hedge accounting during 2017. See Note 9 for additional 

information on hedge accounting.

The table below presents the effect of derivatives used in our interest-rate risk management activities on 

our comprehensive income, after considering any offsetting interest rate effects related to financial 

instruments measured at fair value and the effects of fair value hedge accounting.

Year Ended December 31,

(In billions) 2017 2016

Interest rate effect on derivative fair values $— $1.6

Estimate of offsetting interest rate effect related to financial instruments measured at fair value(1) (0.7) (1.2)

Gains (losses) on mortgage loans and debt in fair value hedge relationships 0.3 —

Income tax (expense) benefit 0.1 (0.1)

Estimated net interest rate effect on comprehensive income (loss) ($0.3) $0.3

(1) Includes the interest-rate effect on our trading securities, available-for-sale securities, mortgage loans held-for-sale and other assets and debt for 

which we elected the fair value option, which is reflected in other non-interest income (loss) and total other comprehensive income (loss) on our 

consolidated statements of comprehensive income.
Management's Discussion and Analysis Risk Management | Market Risk

FREDDIE MAC | 2017 Form 10-K 162

We evaluate the potential benefits of fair value hedge accounting by evaluating a range of interest rate 

scenarios and identifying which of those scenarios produces the most adverse GAAP earnings outcome. 

The interest rate scenarios evaluated include parallel shifts in the yield curve of plus and minus 100 

basis points, non-parallel yield curve shifts in which long-term interest rates increase or decrease by 100 

basis points and non-parallel yield curve shifts in which short-term and medium-term interest rates 

increase or decrease by 100 basis points.

At December 31, 2017, the GAAP adverse scenario both before and after fair value hedge accounting 

was a non-parallel shift in which long-term rates decrease by 100 basis points. The results of this 

evaluation are shown in the table below.

GAAP Adverse Scenario (Before-Tax)

(Dollars in billions) Before Hedge Accounting After Hedge Accounting % Change

December 31, 2017 ($3.1) ($0.5) 84%

For further discussion of financial results related to interest-rate risk, see Our Business Segments -

Capital Markets.

Spread Volatility

We have limited ability to manage our spread risk exposure and therefore the volatility of market spreads 

may contribute to significant GAAP earnings variability. For financial assets measured at fair value, we 

generally recognize fair value losses when market spreads widen. Conversely, for financial liabilities 

measured at fair value, we generally recognize fair value gains when market spreads widen.

The table below shows the estimated effect of spreads on our comprehensive income (loss), after tax, 

by segment.

Year Ended December 31,

(In billions) 2017 2016

Capital Markets $0.8 $0.3

Multifamily 0.3 —

Single-family Guarantee(1) (0.2) (0.2)

Spread effect on comprehensive income (loss) $0.9 $0.1

(1) Represents spread exposure on certain STACR debt securities for which we have elected the fair value option.

For further discussion of significant financial results related to spread risk, see Our Business 

Segments - Multifamily and Our Business Segments - Capital Markets.
Management's Discussion and Analysis Liquidity and Capital Resources | Overview

FREDDIE MAC | 2017 Form 10-K 163

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our business activities require that we maintain adequate liquidity to fund our operations, which 

primarily include the following:

Principal payments due to the maturity, redemption or repurchase of our other debt;

Interest payments on our other debt;

Dividend requirements on our senior preferred stock;

Cash purchases of single-family and multifamily loans;

Purchases of mortgage-related securities and non-mortgage investments;

Removal of modified or seriously delinquent mortgage loans from PC trusts;

Any shortfall related to the payments of principal and interest on our debt securities issued by 

consolidated trusts and any other payments related to our guarantees of mortgage assets;

Payments to affordable housing funds under the GSE Act;

Payments to Treasury associated with the legislated 10 basis point increase under the Temporary 

Payroll Tax Cut Continuation Act; 

Any costs related to the disposition of our REO properties;

Payments related to derivative contracts;

Posting or pledging collateral to third parties in connection with secured financing and daily trade 

activities; and

Administrative expenses.

We fund our cash needs primarily by issuing other debt. Other sources of cash primarily include:

Interest and principal payments on and sales of securities or loans that we hold in our mortgagerelated investments portfolio or our Liquidity and Contingency Operating Portfolio;

Repurchase transactions with counterparties;

Guarantee fees we receive in connection with our guarantee activities, excluding those fees 

associated with the legislated 10 basis point increase we remit to Treasury; and

Quarterly draws from Treasury under the Purchase Agreement, which are made if we have a quarterly 

deficit in our net worth.

In addition to the uses and sources of cash described above, we are involved in various legal 

proceedings, including those discussed in Legal Proceedings, which may result in a need to use cash 

to settle claims or pay certain costs or receipt of cash from settlements.

Our securities and other obligations are not guaranteed by the U.S. government and do not constitute a 

debt or obligation of the U.S. government or any agency or instrumentality thereof, other than Freddie 

Mac. We continue to manage our debt issuances to remain in compliance with the aggregate 

indebtedness limits set forth in the Purchase Agreement. For a description of our debt products, see 

Our Business Segments - Capital Markets.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Management Framework

FREDDIE MAC | 2017 Form 10-K 164

Liquidity Management Framework

The support provided by Treasury pursuant to the Purchase Agreement enables us to have adequate 

liquidity to conduct our normal business activities. However, the costs and availability of our debt 

funding could vary for a number of reasons, including the uncertainty about the future of the GSEs and 

any future downgrades in our credit ratings or the credit ratings of the U.S. government. 

We make extensive use of the Federal Reserve's payment system in our business activities. The Federal 

Reserve requires that we fully fund our accounts at the Federal Reserve Bank of New York to the extent 

necessary to cover cash payments on our debt and mortgage-related securities each day, before the 

Federal Reserve Bank of New York, acting as our fiscal agent, will initiate such payments. Although we 

seek to maintain sufficient intraday liquidity to fund our activities through the Federal Reserve's payment 

system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash 

may cause our account to be overdrawn, potentially resulting in penalties and reputational harm.

Maintaining sufficient liquidity is of primary importance to, and a cost of, our business. Under our 

liquidity management practices and policies, we:

Manage intraday cash needs and provide for the contingency of an unexpected cash demand;

Maintain cash and non-mortgage investments to enable us to meet ongoing cash obligations for a 

limited period of time, assuming no access to unsecured debt markets;

Maintain unencumbered securities with a value greater than or equal to the largest projected daily 

cash shortfall for an extended period of time, assuming no access to unsecured debt markets; and

Manage the maturity of our unsecured debt based on our asset profile.

To facilitate cash management, we forecast cash outflows and inflows using assumptions and models. 

These forecasts help us to manage our liabilities with respect to the timing of our cash flows. Differences 

between actual and forecasted cash flows have resulted in higher costs from issuing a higher amount of 

debt than needed or unexpectedly needing to issue debt, and may do so in the future. Differences 

between actual and forecasted cash flows also could result in our account at the Federal Reserve Bank 

of New York being overdrawn. We maintain daily cash reserves to manage this risk.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

FREDDIE MAC | 2017 Form 10-K 165

Liquidity Profile

During 2017, the majority of the funds in our Liquidity and Contingency Operating Portfolio were 

deposited with the Federal Reserve Bank of New York, invested in U.S. Treasury securities, or invested 

in securities purchased under agreements to resell. In the event of a downgrade of a position or 

counterparty, as applicable, below minimum rating requirements, we make an assessment whether to 

exit the existing position or continue to do business with the counterparty.

During 2017, we had sufficient access to the debt markets due largely to support from the U.S. 

government. We rely significantly on our ability to issue debt on an on-going basis to refinance our 

effective short-term debt. Our effective short-term debt percentage, which represents the percentage of 

our total other debt that is expected to mature within one year, was 45.4% and 46.1% as of December 

31, 2017 and 2016, respectively.

Our debt cap under the Purchase Agreement was $407.2 billion in 2017 and declined to $346.1 billion 

on January 1, 2018. As of December 31, 2017, our aggregate indebtedness, calculated as the par value 

of other debt, was $316.7 billion. We disclose the amount of our indebtedness on this basis monthly 

under the caption "Other Debt Activities - Total Debt Outstanding" in our Monthly Volume Summary 

reports, which are available on our web site at www.freddiemac.com/investors/financials/monthlyvolume-summaries.

Our ability to maintain sufficient liquidity, including by pledging mortgage-related and other securities as 

collateral to other institutions, could cease or change rapidly and the cost of the available funding could 

increase significantly due to changes in market interest rates, market confidence, operational risks and 

other factors. 

To fund our business activities, we depend on the continuing willingness of investors to purchase our 

debt securities. The reduction in our mortgage-related investments portfolio has reduced our funding 

needs. We expect that this trend will continue in 2018 as the mortgage-related investments portfolio 

shrinks to the required Purchase Agreement limit. Changes or perceived changes in the government's 

support of us could have a severe negative effect on our access to the debt markets and on our debt 

funding costs. 

In addition, any change in applicable legislative or regulatory exemptions, including those described in 

Regulation and Supervision, could adversely affect our access to some debt investors, thereby 

potentially increasing our debt funding costs. For more information on our short- and long-term liquidity 

needs, see Contractual Obligations.

Other Debt Activities

Debt securities that we issue are classified either as debt securities of consolidated trusts held by third 

parties or other debt. We issue other debt to fund our operations. Competition for funding can vary with 

economic, financial market and regulatory environments. 

The tables below summarize the par value and the average rate of other debt securities we issued or 

paid off, including regularly scheduled principal payments, payments resulting from calls and payments 

for repurchases. We call, exchange or repurchase our outstanding debt securities from time to time for a 
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

FREDDIE MAC | 2017 Form 10-K 166

variety of reasons, including managing our funding composition and supporting the liquidity of our debt 

securities.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

FREDDIE MAC | 2017 Form 10-K 167

Year Ended December 31, 2017

(Dollars in millions) Short-term Average Rate(1) Long-term Average Rate(1)

Discount notes and Reference Bills

Beginning balance $61,042 0.47% $— —%

Issuances 376,685 0.85% — —%

Repurchases (57) 0.91% — —%

Maturities (391,953) 0.76% — —%

Ending Balance 45,717 1.19% — —%

Securities sold under agreements to repurchase

Beginning balance 3,040 0.42% — —%

Additions 133,223 0.72% — —%

Repayments (126,582) 0.67% — —%

Ending Balance 9,681 1.06% — —%

Callable debt

Beginning balance — —% 98,420 1.44%

Issuances — —% 56,894 1.92%

Repurchases — —% (335) 1.83%

Calls — —% (27,414) 1.75%

Maturities — —% (13,743) 0.87%

Ending Balance — —% 113,822 1.58%

Non-callable debt(2)

Beginning balance 7,435 0.41% 186,806 2.10%

Issuances 21,504 0.99% 25,510 2.11%

Repurchases (500) 0.82% (1,211) 1.40%

Maturities (10,647) 0.52% (82,011) 1.59%

Ending Balance 17,792 1.03% 129,094 2.52%

Total other debt $73,190 1.14% $242,916 2.08%

Year Ended December 31, 2016

(Dollars in millions) Short-term Average Rate(1) Long-term Average Rate(1)

Discount notes and Reference Bills

Beginning balance $104,088 0.28% $— —%

Issuances 424,256 0.30% — —%

Maturities (467,302) 0.27% — —%

Ending Balance 61,042 0.47% — —%

Securities sold under agreements to repurchase

Beginning balance — —% — —%

Additions 61,284 0.07% — —%

Repayments (58,244) 0.05% — —%

Ending Balance 3,040 0.42% — —%

Callable debt

Beginning balance — —% 107,675 1.61%

Issuances — —% 115,930 1.47%

Calls — —% (123,475) 1.46%

Maturities — —% (1,710) 0.65%

Ending Balance — —% 98,420 1.44%

Non-callable debt(2)

Beginning balance 9,545 0.20% 196,713 2.34%

Issuances 7,435 0.41% 49,383 1.17%

Repurchases — —% (53) 11.78%

Maturities (9,545) 0.20% (59,237) 2.26%

Ending Balance 7,435 0.41% 186,806 2.10%

Total other debt $71,517 0.47% $285,226 1.87%

(1) Average rate is weighted based on par value.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

FREDDIE MAC | 2017 Form 10-K 168

(2) Includes STACR and SCR debt notes and certain multifamily other debt. STACR and SCR debt notes are subject to prepayment risk as their 

payments are based upon the performance of a reference pool of mortgage assets that may be prepaid by the related mortgage borrower at any 

time without penalty.

Our outstanding other debt balance continues to decline as we reduce our indebtedness along with the 

decline in our mortgage-related investments portfolio. As a result, our total issuances, payoffs and 

maturities of other debt, excluding securities sold under agreements to repurchase, decreased in 2017 

compared to 2016.

Our short-term debt issuances provide us with overall lower funding costs relative to medium and longer 

term debt. In October 2016, amendments to the SEC's rules that govern money market mutual funds 

became effective. These amendments make certain structural and operational reforms to address the 

risks of investor withdrawals from money market funds. These amendments do not apply to mutual 

funds that invest solely in debt issued or guaranteed by the U.S. government or its agencies and 

instrumentalities, including GSEs. As a result, the demand for short-term government and agency debt 

has increased, which contributed to the improvement in our short-term and non-callable debt spreads 

during 2016. This increased demand continued in 2017.

During 2017, we replaced a portion of called or matured medium-term and long-term debt with callable 

debt. Our callable debt provides us with the option to repay the outstanding principal balance of the 

debt prior to its contractual maturity date. As of December 31, 2017, $75 billion of the outstanding $114 

billion of callable debt may be called within one year, not including callable debt due to contractually 

mature within one year.

Other Short-term Debt

The tables below contain details on the characteristics of our other short-term debt.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

FREDDIE MAC | 2017 Form 10-K 169

As of December 31, 2017

Ending Balance Yearly Average

(Dollars in millions)

Carrying

Value

Weighted 

Average 

Effective Rate(1)

Carrying

Value

Weighted 

Average 

Effective Rate(1)

Maximum Carrying

Value Outstanding

at Any Month End

Discount notes and Reference Bills $45,596 1.19% $50,867 0.85% $60,967

Medium-term notes 17,792 1.03 12,172 0.78 17,967

Securities sold under agreements to repurchase 9,681 1.06 8,092 0.65 11,491

Total $73,069 1.14%

As of December 31, 2016

Ending Balance Yearly Average

(Dollars in millions)

Carrying

Value

Weighted 

Average 

Effective Rate(1)

Carrying

Value

Weighted 

Average 

Effective Rate(1)

Maximum Carrying

Value Outstanding

at Any Month End

Discount notes and Reference Bills $60,976 0.47% $73,169 0.41% $96,767

Medium-term notes 7,435 0.41 7,035 0.23 9,545

Securities sold under agreements to repurchase 3,040 0.42 3,112 0.10 8,294

Total $71,451 0.47%

As of December 31, 2015

Ending Balance Yearly Average

(Dollars in millions)

Carrying

Value

Weighted 

Average 

Effective Rate(1)

Carrying

Value

Weighted 

Average 

Effective Rate(1)

Maximum Carrying

Value Outstanding

at Any Month End

Discount notes and Reference Bills $104,027 0.28% $102,540 0.16% $123,248

Medium-term notes 9,545 0.20 3,173 0.09 9,454

Securities sold under agreements to repurchase — — 15 0.21 —

Total $113,572 0.27%

(1) Average rate is weighted based on carrying value.

The following graphs present our other debt by contractual maturity date and earliest redemption date. 

The earliest redemption date refers to the earliest call date for callable debt and the contractual maturity 

date for all other debt.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

FREDDIE MAC | 2017 Form 10-K 170

Contractual Maturity Date as of December 31, 2017 Earliest Redemption Date as of December 31, 2017
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

FREDDIE MAC | 2017 Form 10-K 171

Debt Securities of Consolidated Trusts

The table below shows the issuance and extinguishment activity for the debt securities of our 

consolidated trusts.

Year Ended December 31,

(In millions) 2017 2016

Beginning balance $1,602,162 $1,513,089

Issuances:

New issuances to third parties 256,931 309,021

Additional issuances of securities 150,651 162,386

Total issuances 407,582 471,407

Extinguishments:

Purchases of debt securities from third parties (42,797) (42,716)

Debt securities received in settlement of advances to lenders (34,560) (29,292)

Repayments of debt securities (259,782) (310,326)

Total extinguishments (337,139) (382,334)

Ending balance 1,672,605 1,602,162

Unamortized premiums and discounts 48,391 46,521

Debt securities of consolidated trusts held by third parties $1,720,996 $1,648,683

Debt securities of our consolidated trusts represent our liability to third parties that hold beneficial 

interests in our consolidated securitization trusts. Our exposure on debt securities of consolidated trusts 

is limited to the guarantee we provide on the payment of principal and interest on these securities, as 

the primary source of repayment of these debt securities comes from the cash flows of the mortgage 

loans held by the trusts which back the securities. At December 31, 2017, our estimated exposure 

(including the amounts that are due to Freddie Mac for debt securities of consolidated trusts that we 

purchased) to these debt securities is recognized as the allowance for credit losses on mortgage loans 

held by consolidated trusts. See Note 4 for details on our allowance for loan losses.

The table below provides information on the UPB of debt securities issued by our consolidated trusts.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

FREDDIE MAC | 2017 Form 10-K 172

As of December 31,

(In millions) 2017 2016

Single-family

PCs:

30-year or more amortizing fixed-rate $1,331,463 $1,235,862

20-year amortizing fixed-rate 81,889 82,118

15-year amortizing fixed-rate 274,561 282,520

Adjustable-rate 52,870 57,038

Interest-only 9,867 15,043

FHA/VA and other governmental 2,157 2,421

Total single-family PCs 1,752,807 1,675,002

Other single-family 3,650 4,531

Total single-family 1,756,457 1,679,533

Multifamily

Credit risk transfer securitizations 2,000 —

Other securitization products 3,747 3,048

Total multifamily 5,747 3,048

Total Freddie Mac mortgage-related securities 1,762,204 1,682,581

Freddie Mac mortgage-related securities repurchased or retained at issuance (89,599) (80,419)

Debt securities of consolidated trusts held by third parties $1,672,605 $1,602,162

Credit Ratings

Our ability to access the capital markets and other sources of funding, as well as our cost of funds, is 

highly dependent upon our credit ratings. The table below indicates our credit ratings as of February 1, 

2018.

Nationally Recognized Statistical Rating

Organization

S&P Moody's Fitch

Senior long-term debt AA+ Aaa AAA

Short-term debt A-1+ P-1 F1+

Subordinated debt AA- Aa2 AAPreferred stock(1) D Ca C/RR6

Outlook Stable Stable Stable

(1) Does not include senior preferred stock issued to Treasury.

Our credit ratings and outlooks are primarily based on the support we receive from Treasury, and 

therefore, are affected by changes in the credit ratings and outlooks of the U.S. government.

A security rating is not a recommendation to buy, sell or hold securities. It may be subject to revision or 

withdrawal at any time by the assigning rating organization. Each rating should be evaluated 

independently of any other rating.

Other Investments and Cash Portfolio

The investments in our other investments and cash portfolio are important to our cash flow, collateral 

management, asset and liability management and our ability to provide liquidity and stability to the 
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

FREDDIE MAC | 2017 Form 10-K 173

mortgage market. The table below summarizes the balances in our other investments and cash 

portfolio, which includes the Liquidity and Contingency Operating Portfolio.

As of December 31, 2017 As of December 31, 2016

(In billions)

Liquidity and

Contingency

Operating

Portfolio

Custodial

Account Other(1)

Total Other

Investments

and Cash

Portfolio

Liquidity and

Contingency

Operating

Portfolio

Custodial

Account Other(1)

Total Other

Investments

and Cash

Portfolio

Cash and cash equivalents $6.8 $— $— $6.8 $12.4 $— $— $12.4

Restricted cash and cash equivalents — 0.5 2.5 3.0 — 9.5 0.4 9.9

Securities purchased under

agreements to resell 38.9 16.8 0.2 55.9 37.5 13.6 0.4 51.5

Non-mortgage related securities 22.2 — 0.6 22.8 19.6 — 1.5 21.1

Advances to lenders — — 0.8 0.8 — — 1.3 1.3

Total $67.9 $17.3 $4.1 $89.3 $69.5 $23.1 $3.6 $96.2

(1) Consists of amounts related to collateral held by us from derivative and other counterparties, investments in unsecured agency debt in which we 

may not otherwise invest, other than to pledge as collateral to our counterparties when our derivatives are in a liability position, advances to 

lenders and other secured lending transactions.

Our non-mortgage-related securities in the Liquidity and Contingency Operating Portfolio consist of U.S. 

Treasury securities and other investments that we could sell to provide us with an additional source of 

liquidity to fund our business operations. We also maintain non-interest-bearing deposits at the Federal 

Reserve Bank of New York.

Mortgage Loans and Mortgage-Related Securities

We invest principally in mortgage loans and mortgage-related securities, certain categories of which are 

largely unencumbered and liquid. Our primary source of liquidity among these mortgage assets is our 

holdings of single-class and multiclass agency securities, excluding certain structured agency securities 

collateralized by non-agency mortgage-related securities.

In addition, we hold unsecuritized single-family loans and multifamily held-for-sale loans that could be 

securitized and would then be available for sale or use as collateral for repurchase agreements. Due to 

the large size of our portfolio of liquid assets, the amount of mortgage-related assets that we may 

successfully sell or borrow against in the event of a liquidity crisis or significant market disruption may 

be substantially less than the amount of mortgage-related assets we hold. There would likely be 

insufficient market demand for large amounts of these assets over a prolonged period of time, which 

would limit our ability to sell or borrow against these assets.

We hold other mortgage assets, but given their characteristics, they may not be available for immediate 

sale or for use as collateral for repurchase agreements. These assets consist of certain structured 

agency securities collateralized by non-agency mortgage-related securities, non-agency CMBS, nonagency RMBS backed by subprime, option ARM, Alt-A and other loans and unsecuritized seriously 

delinquent and modified single-family loans.

We are subject to limits on the amount of mortgage assets we can sell in any calendar month without 

review and approval by FHFA and, if FHFA so determines, Treasury. 
Management's Discussion and Analysis Liquidity and Capital Resources I Cash Flows

FREDDIE MAC | 2017 Form 10-K 174

Cash Flows

We evaluate our cash flow performance by comparing the net cash flows from operating and investing 

activities to the net cash flows required to finance those activities. The following graphs present the 

results of these activities for the years ended December 31, 2015, 2016 and 2017. 

 Operating Cash Flows Investing Cash Flows Financing Cash Flows

Commentary

2017 vs. 2016

Cash provided by operating activities increased $0.6 billion primarily due to the following:

Increase in other income due to settlement proceeds received from RBS related to litigation 

involving certain of our non-agency mortgage-related securities.

This increase was partially offset by:

Increase in net purchases of mortgage loans acquired as held-for-sale due to the overall growth 

of the multifamily mortgage market.

Cash provided by investing activities decreased $17.8 billion primarily due to the following:

Increase in securities purchased under agreements to resell, as excess cash was invested in 

securities to earn a yield; and

Decrease in net repayments of mortgage loans acquired as held-for-investment primarily due to 

lower prepayments as a result of higher average mortgage interest rates.

This decrease was partially offset by:

Increase in net proceeds received from sales of investment securities driven by the continued 

reduction in the balance of our mortgage investment portfolio as required by the Purchase 

Agreement and FHFA.

Cash used in financing activities decreased $4.9 billion primarily due to the following:

Increase in net repayments and redemptions of debt securities of consolidated trusts held by 

third parties due to a decline in the volume of single-family PC issuance for cash; and

Decrease in net repayments of other debt, as we reduced our indebtedness along with the 

decline in our mortgage-related investments portfolio.
Management's Discussion and Analysis Liquidity and Capital Resources I Cash Flows

FREDDIE MAC | 2017 Form 10-K 175

2016 vs. 2015 

Cash used by operating activities increased $5.8 billion primarily due to the following:

Increase in net sales of mortgage loans acquired as held-for-sale, primarily due to an increase in 

the volume of our multifamily securitizations.

This increase was partially offset by:

Decrease in our net interest income.

Cash provided by investing activities decreased $9.7 billion primarily due to the following:

Increase in advances to lenders;

Increase in net purchases of investment securities, primarily due to more investment securities 

being retained from our agency resecuritizations. 

This decrease was partially offset by:

Decrease in securities purchased under agreements to resell due to lower near-term cash needs 

for upcoming maturities and anticipated calls of other debt at the end of 2016 compared to the 

end of 2015; and 

Decrease in restricted cash due to the withdrawal of company funds from the custodial account.

Cash used in financing activities decreased $16.0 billion primarily due to the following:

Decrease in net repayments and redemptions of debt securities of consolidated trusts held by 

third parties due to an increase in the volume of our single-family PC issuances for cash.

This decrease was partially offset by:

Increase in net repayments of other debt, as we reduced our indebtedness along with the decline 

in our mortgage-related investments portfolio.
Management's Discussion and Analysis Liquidity and Capital Resources I Capital Resources

FREDDIE MAC | 2017 Form 10-K 176

Capital Resources

Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy 

and our management of capital. Under the Purchase Agreement, Treasury made a commitment to 

provide us with equity funding, under certain conditions, to eliminate deficits in our net worth. Obtaining 

equity funding from Treasury pursuant to its commitment under the Purchase Agreement enables us to 

avoid being placed into receivership by FHFA and maintain the confidence of the debt markets as a very 

high quality credit, upon which our business model is dependent. 

At December 31, 2017, we had a net worth deficit of $312 million. As a result, FHFA, as Conservator, will 

submit a draw request, on our behalf, to Treasury under the Purchase Agreement in the amount of $312 

million. Upon the funding of this draw request, the aggregate liquidation preference of the senior 

preferred stock will increase to $75.6 billion and the amount of available funding remaining under the 

Purchase Agreement will decrease to $140.2 billion. To the extent we draw additional funds in the future, 

the aggregate liquidation preference will increase and the amount of available funding will decrease by 

the amount of those draws. See Conservatorship and Related Matters and Regulation and 

Supervision for more information. 

In June 2016, FASB issued a new Accounting Standards Update (ASU 2016-13, Financial Instruments—

Credit Losses) related to the measurement of credit losses on financial instruments that will be effective 

as of January 1, 2020, with early adoption permitted as of January 1, 2019. This Update replaces the 

incurred loss impairment methodology in current GAAP with a methodology that reflects lifetime 

expected credit losses. While we are still evaluating the effect that the adoption of this Update will have 

on our financial results, it will increase (perhaps substantially) our provision for credit losses in the period 

of adoption. This Update increases the risk that we will need to request a draw from Treasury for the 

period of adoption.

The table below presents activity related to our net worth.

Year Ended December 31,

(In millions) 2017 2016 2015

Beginning balance $5,075 $2,940 $2,651

Comprehensive income 5,558 7,118 5,799

Capital draws received from Treasury — — —

Senior preferred stock dividends declared (10,945) (4,983) (5,510)

Total equity / net worth ($312) $5,075 $2,940

Aggregate draws requested under Purchase Agreement $71,336 $71,336 $71,336

Aggregate cash dividends paid to Treasury $112,393 $101,448 $96,465
Management's Discussion and Analysis Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 177

CONSERVATORSHIP AND RELATED 

MATTERS

Supervision of Our Company During Conservatorship

FHFA has broad powers when acting as our Conservator. Upon its appointment, the Conservator 

immediately succeeded to all rights, titles, powers and privileges of Freddie Mac and of any stockholder, 

officer or director of Freddie Mac with respect to Freddie Mac and its assets. The Conservator also 

succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian 

or third party. 

Under the GSE Act, the Conservator may take any actions it determines are necessary to put us in a 

safe and solvent condition and appropriate to carry on our business and preserve and conserve our 

assets and property. The Conservator’s powers include the ability to transfer or sell any of our assets or 

liabilities, subject to certain limitations and post-transfer notice provisions, without any approval, 

assignment of rights or consent of any party. However, the GSE Act provides that loans and mortgagerelated assets that have been transferred to a Freddie Mac securitization trust must be held by the 

Conservator for the beneficial owners of the trust and cannot be used to satisfy our general creditors.

We conduct our business subject to the direction of FHFA as our Conservator. The Conservator has 

delegated certain authority to the Board of Directors to oversee, and to management to conduct, 

business operations so we can operate in the ordinary course. The directors serve on behalf of, and 

exercise authority as directed by, and owe their fiduciary duties of care and loyalty to, the Conservator. 

The Conservator retains the authority to withdraw or revise its delegations of authority at any time. The 

Conservator also retains certain significant authorities for itself, and has not delegated them to the 

Board. The Conservator continues to provide strategic direction for the company and directs the efforts 

of the Board and management to implement its strategy. Despite the delegations of authority to 

management, many management decisions are subject to review and/or approval by FHFA and 

management frequently receives direction from FHFA on various matters involving day-to-day 

operations. 

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

Conservatorship Scorecards. At the direction of the Conservator, we have made changes to certain 

business practices that are designed to provide support for the mortgage market in a manner that 

serves our public mission and other non-financial objectives. Given our public mission and the important 

role our Conservator has placed on Freddie Mac in addressing housing and mortgage market 

conditions, we sometimes take actions that could have a negative impact on our business, operating 

results or financial condition, and could thus contribute to a need for additional draws under the 

Purchase Agreement. Certain of these actions are intended to help homeowners and the mortgage 

market. 

Purchase Agreement, Warrant and Senior Preferred 

Stock

In connection with our entry into conservatorship, we entered into the Purchase Agreement with 
Management's Discussion and Analysis Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 178

Treasury. Under the Purchase Agreement, we issued to Treasury both senior preferred stock and a 

warrant to purchase common stock. The Purchase Agreement, the warrant and the senior preferred 

stock do not contain any provisions causing them to terminate or cease to exist upon the termination of 

conservatorship. The conservatorship, the Purchase Agreement, the warrant and the senior preferred 

stock materially limit the rights of our common and preferred stockholders (other than Treasury). 

Pursuant to the Purchase Agreement, which we entered into through FHFA, in its capacity as 

Conservator, on September 7, 2008, we issued to Treasury one million shares of Variable Liquidation 

Preference Senior Preferred Stock with an initial liquidation preference of $1 billion and a warrant to 

purchase, for a nominal price, shares of our common stock equal to 79.9% of the total number of shares 

outstanding. The senior preferred stock and warrant were issued to Treasury as an initial commitment 

fee in consideration of Treasury's commitment to provide funding to us under the Purchase Agreement. 

We did not receive any cash proceeds from Treasury as a result of issuing the senior preferred stock or 

the warrant. Under the Purchase Agreement, our ability to repay the liquidation preference of the senior 

preferred stock is limited and we will not be able to do so for the foreseeable future, if at all. 

The Purchase Agreement provides that, on a quarterly basis, we generally may draw funds up to the 

amount, if any, by which our total liabilities exceed our total assets, as reflected on our GAAP 

consolidated balance sheet for the applicable fiscal quarter, provided that the aggregate amount funded 

under the Purchase Agreement may not exceed Treasury's commitment. The amount of any draw will be 

added to the aggregate liquidation preference of the senior preferred stock and will reduce the amount 

of available funding remaining. Deficits in our net worth have made it necessary for us to make 

substantial draws on Treasury's funding commitment under the Purchase Agreement. In addition, the 

Letter Agreement increased the aggregate liquidation preference of the senior preferred stock by $3.0 

billion on December 31, 2017. As of December 31, 2017, the aggregate liquidation preference of the 

senior preferred stock was $75.3 billion, and the amount of available funding remaining under the 

Purchase Agreement was $140.5 billion. 

Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash 

dividends, when, as and if declared by our Board of Directors. The dividends we have paid to Treasury 

on the senior preferred stock have been declared by, and paid at the direction of, the Conservator, 

acting as successor to the rights, titles, powers and privileges of the Board. Under the August 2012 

amendment to the Purchase Agreement, our cash dividend requirement each quarter is the amount, if 

any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less the 

applicable Capital Reserve Amount, exceeds zero. The applicable Capital Reserve Amount was $0.6 

billion in 2017. Under the Letter Agreement, the dividend for the dividend period from October 1, 2017 

through and including December 31, 2017 was reduced to $2.25 billion. The applicable Capital Reserve 

Amount from January 1, 2018 and thereafter will be $3.0 billion. As a result of the net worth sweep 

dividend, our future profits in excess of the applicable Capital Reserve Amount will be distributed to 

Treasury, and the holders of our common stock and non-senior preferred stock will not receive benefits 

that could otherwise flow from such future profits. If for any reason we were not to pay the amount of 

our dividend requirement on the senior preferred stock in full, the unpaid amount would be added to the 

liquidation preference and our applicable Capital Reserve Amount would thereafter be zero, but this 

would not affect our ability to draw funds from Treasury under the Purchase Agreement.

The senior preferred stock is senior to our common stock and all other outstanding series of our 

preferred stock, as well as any capital stock we issue in the future, as to both dividends and rights upon 
Management's Discussion and Analysis Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 179

liquidation. We are not permitted to redeem the senior preferred stock prior to the termination of 

Treasury’s funding commitment under the Purchase Agreement. 

The Purchase Agreement and warrant contain covenants that significantly restrict our business and 

capital activities. For example, the Purchase Agreement provides that, until the senior preferred stock is 

repaid or redeemed in full, we may not, without the prior written consent of Treasury:

Pay dividends on our equity securities, other than the senior preferred stock or warrant, or 

repurchase our equity securities;

Issue any additional equity securities, except in limited instances;

Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value 

in the ordinary course of business, consistent with past practices, and in other limited 

circumstances; and

Issue any subordinated debt.

Limits on Our Mortgage-Related Investments Portfolio 

and Indebtedness

Our ability to acquire and sell mortgage assets is significantly constrained by limitations under the 

Purchase Agreement and other limitations imposed by FHFA:

Under the Purchase Agreement and FHFA regulation, the UPB of our mortgage-related investments 

portfolio is subject to a cap that decreases by 15% each year until the cap reaches $250 billion. 

Under the Purchase Agreement, we may not incur indebtedness that would result in the par value of 

our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are permitted to 

own on December 31 of the immediately preceding calendar year. 

Our Retained Portfolio Plan, which we adopted in 2014, provides for us to manage the mortgagerelated investments portfolio so that it does not exceed 90% of the cap established by the Purchase 

Agreement, subject to certain exceptions. Under the plan, we may seek permission from FHFA to 

increase the plan's limit on the mortgage-related investments portfolio to 95% of the Purchase 

Agreement cap. 

FHFA indicated that any portfolio sales should be commercially reasonable transactions that 

consider impacts to the market, borrowers and neighborhood stability. 

Our decisions with respect to managing the decline of the mortgage-related investments portfolio affect 

all three business segments. In order to achieve all of our portfolio reduction goals, it is possible that we 

may forgo economic opportunities in one business segment in order to pursue opportunities in another 

business segment. The reduction in the mortgage-related investments portfolio will result in a decline in 

income from this portfolio over time.

Our results against the limits imposed on our mortgage-related investments portfolio and aggregate 

indebtedness for the year ended December 31, 2017 are shown below.
Management's Discussion and Analysis Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 180

Mortgage Assets Indebtedness

Reducing our Mortgage-Related Investments Portfolio Over Time

Our mortgage-related investments portfolio includes assets held by all three business segments and 

consists of: 

Agency securities, which include both single-family and multifamily Freddie Mac mortgage-related 

securities and non-Freddie Mac agency mortgage-related securities; 

Non-agency mortgage-related securities, which include single-family non-agency mortgage-related 

securities, CMBS, housing revenue bonds and other multifamily securities; and 

Single-family and multifamily unsecuritized loans. 
Management's Discussion and Analysis Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 181

We evaluate the liquidity of the assets in our mortgage-related investments portfolio based on three 

categories (in order of liquidity): 

Liquid - single-class and multi-class agency securities, excluding certain structured agency 

securities collateralized by non-agency mortgage-related securities. Also includes certain nonagency mortgage-related securities guaranteed by a GSE; 

Securitization Pipeline - primarily includes performing multifamily and single-family loans 

purchased for cash and primarily held for a short period until securitized, with the resulting Freddie 

Mac issued securities being sold or retained; and 

Less Liquid - assets that are less liquid than both agency securities and loans in the securitization 

pipeline (e.g., reperforming loans, single-family seriously delinquent loans and non-agency 

mortgage-related securities not guaranteed by a GSE). 

The table below presents the UPB of our mortgage-related investments portfolio, for purposes of the 

limit imposed by the Purchase Agreement and FHFA regulation. The cap for this portfolio will decrease 

to $250 billion at December 31, 2018.

As of December 31, 2017 As of December 31, 2016

(Dollars in millions) Liquid

Securitization

Pipeline

Less

Liquid Total Liquid

Securitization

Pipeline

Less

Liquid Total

Capital Markets segment - Mortgage

investments portfolio

Single-family unsecuritized loans

Performing loans $— $9,999 $— $9,999 $— $13,113 $— $13,113

Reperforming loans — — 46,666 46,666 — — 58,326 58,326

Total single-family unsecuritized loans — 9,999 46,666 56,665 — 13,113 58,326 71,439

Freddie Mac mortgage-related securities 123,905 — 3,817 127,722 125,652 — 4,776 130,428

Non-agency mortgage-related securities 749 — 5,152 5,901 113 — 16,059 16,172

Other Non-Freddie Mac agency mortgagerelated securities 5,211 — — 5,211 11,759 — — 11,759

Total Capital Markets segment -

Mortgage investments portfolio 129,865 9,999 55,635 195,499 137,524 13,113 79,161 229,798

Single-family Guarantee segment - Singlefamily unsecuritized seriously delinquent

loans — — 12,267 12,267 — — 13,692 13,692

Multifamily segment

Unsecuritized mortgage loans — 19,653 18,585 38,238 — 16,372 26,047 42,419

Mortgage-related securities 6,181 — 1,270 7,451 7,447 — 5,070 12,517

Total Multifamily segment 6,181 19,653 19,855 45,689 7,447 16,372 31,117 54,936

Total mortgage-related investments

portfolio $136,046 $29,652 $87,757 $253,455 $144,971 $29,485 $123,970 $298,426

Percentage of total mortgage-related

investments portfolio 54% 12% 34% 100% 49% 10% 41% 100%

Mortgage-related investments portfolio cap

at December 31, 2017 and 2016 $288,408 $339,304

90% of mortgage-related investments 

portfolio cap at December 31, 2017 and 

2016(1)

$259,567 $305,374

(1) Represents the amount to which we manage under our Retained Portfolio Plan, subject to certain exceptions.

We are particularly focused on reducing, in an economically sensible manner, the balance of the less 

liquid assets that we hold in our mortgage-related investments portfolio. Our efforts to reduce our 
Management's Discussion and Analysis Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 182

holdings of these assets help satisfy several objectives, including to improve the overall liquidity of our 

mortgage-related investments portfolio and comply with the mortgage-related investments portfolio 

limits. The decline in our holdings of less liquid assets, which included repayments and active 

dispositions, accounted for the majority of the decline in our mortgage-related investments portfolio 

during 2017. Our active dispositions of less liquid assets included the following:

Sales of $18.4 billion of less liquid assets, including $9.2 billion in UPB of single-family non-agency 

mortgage-related securities, $0.5 billion in UPB of seriously delinquent unsecuritized single-family 

loans, $8.2 billion in UPB of single-family reperforming loans and $0.5 billion in UPB of multifamily 

non-agency CMBS;

Securitizations of $1.8 billion in UPB of less liquid multifamily loans; 

Transfers of $1.6 billion in UPB of less liquid multifamily loans to the securitization pipeline; and

Securitization of $1.2 billion in UPB of single-family reperforming loans into Freddie Mac PCs, 

thereby enhancing their liquidity.

FHFA’s Strategic Plan and Scorecards for Freddie 

Mac and Fannie Mae Conservatorships

In May 2014, FHFA issued its 2014 Strategic Plan. The 2014 Strategic Plan updated FHFA's vision for 

implementing its obligations as Conservator of Freddie Mac and Fannie Mae. 

The 2014 Strategic Plan established three reformulated strategic goals for the conservatorships of 

Freddie Mac and Fannie Mae:

Maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new 

and refinanced loans to foster liquid, efficient, competitive and resilient national housing finance 

markets.

Reduce taxpayer risk through increasing the role of private capital in the mortgage market.

Build a new single-family securitization infrastructure for use by Freddie Mac and Fannie Mae and 

adaptable for use by other participants in the secondary market in the future.

FHFA also published annual Conservatorship Scorecards for Freddie Mac and Fannie Mae, which 

establish annual objectives as well as performance targets and measures related to the strategic goals 

set forth in the 2014 Strategic Plan for each year from 2014 to 2018. FHFA issued the 2017 and 2018 

Conservatorship Scorecards in December 2016 and December 2017, respectively. We continue to align 

our resources and internal business plans to meet the goals and objectives provided by FHFA.

For information about the 2017 Conservatorship Scorecard, and our performance with respect to it, see 

Executive Compensation - Compensation Discussion and Analysis. For information about the 

2018 Conservatorship Scorecard, see our current report on Form 8-K filed on December 22, 2017.

For more information on the conservatorship and related matters, see Regulation and Supervision, 

Risk Factors - Conservatorship and Related Matters, Note 2, Note 11 and Directors, 

Corporate Governance, and Executive Officers - Authority of the Board and Board 

Committees.
Management's Discussion and Analysis Regulation and Supervision

FREDDIE MAC | 2017 Form 10-K 183

REGULATION AND SUPERVISION

In addition to our oversight by FHFA as our Conservator, we are subject to regulation and oversight by 

FHFA under our Charter and the GSE Act and to certain regulation by other government agencies. 

Furthermore, regulatory activities by other government agencies can affect us indirectly, even if we are 

not directly subject to such agencies’ regulation or oversight. For example, regulations that modify 

requirements applicable to the purchase or servicing of mortgages can affect us.

Federal Housing Finance Agency

FHFA is an independent agency of the federal government responsible for oversight of the operations of 

Freddie Mac, Fannie Mae and the FHLBs.

Under the GSE Act, FHFA has safety and soundness authority that is comparable to, and in some 

respects broader than, that of the federal banking agencies. FHFA is responsible for implementing the 

various provisions of the GSE Act that were added by the Reform Act.

Receivership

Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets 

are less than our obligations for a period of 60 days. FHFA notified us that the measurement period for 

any mandatory receivership determination with respect to our assets and obligations would commence 

no earlier than the SEC public filing deadline for our quarterly or annual financial statements and would 

continue for 60 calendar days after that date. FHFA also advised us that, if, during that 60-day period, 

we receive funds from Treasury in an amount at least equal to the deficiency amount under the Purchase 

Agreement, the Director of FHFA will not make a mandatory receivership determination. In addition, we 

could be put into receivership at the discretion of the Director of FHFA at any time for other reasons set 

forth in the GSE Act.

Certain aspects of conservatorship and receivership operations of Freddie Mac, Fannie Mae and the 

FHLBs are addressed in an FHFA rule. Among other provisions, the rule indicates that FHFA generally 

will not permit payment of securities litigation claims during conservatorship and that claims by current 

or former shareholders arising as a result of their status as shareholders would receive the lowest 

priority of claim in receivership. In addition, the rule indicates that administrative expenses of the 

conservatorship will also be deemed to be administrative expenses of receivership and that capital 

distributions may not be made during conservatorship, except as specified in the rule.

Capital Standards

FHFA suspended capital classification of us during conservatorship in light of the Purchase Agreement. 

The existing statutory and FHFA regulatory capital requirements are not binding during the 

conservatorship. These capital standards are described in Note 17. Under the GSE Act, FHFA has the 

authority to increase our minimum capital levels temporarily or to establish additional capital and reserve 

requirements for particular purposes.

Pursuant to an FHFA rule, FHFA-regulated entities are required to conduct annual stress tests to 
Management's Discussion and Analysis Regulation and Supervision

FREDDIE MAC | 2017 Form 10-K 184

determine whether such companies have sufficient capital to absorb losses as a result of adverse 

economic conditions. Under the rule, Freddie Mac is required to conduct annual stress tests using 

scenarios specified by FHFA that reflect a minimum of three sets of economic and financial conditions 

and publicly disclose the results of the stress test under the "severely adverse" scenario. In August 

2017, we disclosed the results of our most recent "severely adverse" scenario stress test which 

projected an improvement in the amount of available funding remaining under the Purchase Agreement 

compared to the test results disclosed in August 2016.

New Products

The GSE Act requires Freddie Mac and Fannie Mae to obtain the approval of FHFA before initially 

offering any product (as defined in the statute), subject to certain exceptions. The GSE Act also requires 

us to provide FHFA with written notice of any new activity that we consider not to be a product. While 

FHFA published an interim final rule on prior approval of new products, it stated that permitting us to 

engage in new products is inconsistent with the goals of conservatorship and instructed us not to 

submit such requests under the interim final rule. 

Affordable Housing Goals

We are subject to annual affordable housing goals. We view the purchase of loans that are eligible to 

count toward our affordable housing goals to be a principal part of our mission and business, and we 

are committed to facilitating the financing of affordable housing for very low-, low- and moderateincome families. In light of the affordable housing goals, we may make adjustments to our strategies for 

purchasing loans, which could potentially increase our credit losses. These strategies could include 

entering into purchase and securitization transactions with lower expected economic returns than our 

typical transactions. In February 2010, FHFA stated that it does not intend for us to undertake 

uneconomic or high risk activities in support of the housing goals nor does it intend for the state of 

conservatorship to be a justification for withdrawing our support from these market segments.

If the Director of FHFA finds that we failed (or there is a substantial probability that we will fail) to meet a 

housing goal and that achievement of the housing goal was or is feasible, the Director may require the 

submission of a housing plan that describes the actions we will take to achieve the unmet goal. FHFA 

has the authority to take actions against us if we fail to submit a required housing plan, submit an 

unacceptable plan, fail to comply with a plan approved by FHFA, or fail to submit certain mortgage 

purchase data, information or reports as required by law. We are currently operating under an FHFArequired housing plan. See Risk Factors - Legal And Regulatory Risks - We may make certain 

changes to our business in an attempt to meet our housing goals and duty to serve 

requirements, which may cause us to forgo other more profitable opportunities.

Current FHFA housing goals applicable to our purchases consist of four goals and one subgoal for 

single-family owner-occupied housing, one multifamily affordable housing goal and two multifamily 

affordable housing subgoals. Single-family goals are expressed as a percentage of the total number of 

eligible loans underlying our total single-family loan purchases, while the multifamily goals are expressed 

in terms of minimum numbers of units financed.

Three of the single-family housing goals and the subgoal target purchase money loans for low-income 
Management's Discussion and Analysis Regulation and Supervision

FREDDIE MAC | 2017 Form 10-K 185

families, very low-income families and/or families that reside in low-income areas. The single-family 

housing goals also include one goal that targets refinancing loans for low-income families. The 

multifamily affordable housing goal targets multifamily rental housing affordable to low-income families. 

The multifamily affordable housing subgoals target multifamily rental housing affordable to very lowincome families and small (5- to 50-unit) multifamily properties affordable to low-income families. 

The single-family goals are measured by comparing our performance with the actual share of the market 

that meets the criteria for each goal and a benchmark level established by FHFA. If our performance on 

a single-family goal falls short of the benchmark, we still could achieve the goal if our performance 

meets or exceeds the actual share of the market that meets the criteria for the goal for that year.

Our goals for 2017 and 2018 are set forth below.

2017 2018

Single-family purchase money goals (Benchmark levels):

Low-income 24% 24%

Very low-income 6% 6%

Low-income areas 18% TBD

Low-income areas subgoal 14% 14%

Single-family refinance low-income goal (Benchmark level) 21% 21%

Multifamily low-income goal (In units) 300,000 315,000

Multifamily very low-income subgoal (In units) 60,000 60,000

Multifamily small property low-income subgoal (In units) 10,000 10,000

We expect to report our performance with respect to the 2017 affordable housing goals in March 2018. 

At this time, based on preliminary information, we believe we met all five of our single-family goals and 

our three multifamily goals for 2017. FHFA will not be able to make a final determination on our 

performance until market data is released in October 2018.

Affordable Housing Fund Allocations

The GSE Act requires us to set aside in each fiscal year an amount equal to 4.2 basis points of each 

dollar of total new business purchases, and pay such amount to certain housing funds. FHFA 

suspended this requirement when we were placed into conservatorship. However, in December 2014, 

FHFA terminated the suspension and instructed us to begin setting aside amounts and paying amounts 

into those funds in accordance with the following terms and conditions, subject to any subsequent 

guidance or instruction from FHFA:

The amount we set aside each fiscal year based on our total new business purchases during such 

fiscal year; and

Within 60 days after the end of each fiscal year, we transfer the amount set aside. However, if we 

have made a draw under the Purchase Agreement during that fiscal year or if such transfer will cause 

us to have to make a draw, then we will not make a transfer and the amount set aside for that fiscal 

year will be reversed.

During 2017, we completed $416.2 billion of new business purchases subject to this requirement and 

accrued $174.8 million of related expense. On February 7, 2018, FHFA directed us to pay the funds 
Management's Discussion and Analysis Regulation and Supervision

FREDDIE MAC | 2017 Form 10-K 186

allocated for 2017 in light of FHFA's determination that any draw we are required to make under the 

Purchase Agreement to eliminate our fourth quarter net worth deficit is triggered by a one-time remeasurement of our net deferred asset under the provisions of the Tax Cuts and Job Act of 2017 and 

does not relate to any financial instability at Freddie Mac. We expect to pay this amount in February 

2018 through the following payments: $113.6 million to the Housing Trust Fund administered by HUD 

and $61.2 million to the Capital Magnet Fund administered by Treasury. We are prohibited from passing 

through the costs of these allocations to the originators of the loans that we purchase.

Portfolio Activities

The GSE Act provides FHFA with the power to regulate the size and content of our mortgage-related 

investments portfolio. The GSE Act requires FHFA to establish, by regulation, criteria governing portfolio 

holdings to ensure the holdings are backed by sufficient capital and consistent with our mission and 

safe and sound operations. FHFA adopted the portfolio holdings criteria established in the Purchase 

Agreement, as it may be amended from time to time, for so long as we remain subject to the Purchase 

Agreement. See Conservatorship And Related Matters - Limits On Our Mortgage-Related 

Investments Portfolio And Indebtedness for more information.

Subordinated Debt

FHFA directed us to continue to make interest and principal payments on our subordinated debt, even if 

we fail to maintain required capital levels. As a result, the terms of any of our subordinated debt that 

provide for us to defer payments of interest under certain circumstances, including our failure to 

maintain specified capital levels, are no longer applicable. 

Under the Purchase Agreement, we may not issue subordinated debt without Treasury's consent. During 

2017 and 2016, we did not call, repurchase or issue any Freddie SUBS® securities.

Department of Housing and Urban Development

HUD has regulatory authority over Freddie Mac with respect to fair lending. Our loan purchase activities 

are subject to federal anti-discrimination laws. In addition, the GSE Act prohibits discriminatory practices 

in our loan purchase activities, requires us to submit data to HUD to assist in its fair lending 

investigations of primary market lenders with which we do business and requires us to undertake 

remedial actions against such lenders found to have engaged in discriminatory lending practices. HUD 

periodically reviews and comments on our underwriting and appraisal guidelines for consistency with 

the Fair Housing Act and the anti-discrimination provisions of the GSE Act.

Department of the Treasury

Treasury has significant rights and powers as a result of the Purchase Agreement. In addition, under our 

Charter, the Secretary of the Treasury has approval authority over our issuances of notes, debentures 

and substantially identical types of unsecured debt obligations (including the interest rates and 

maturities of these securities), as well as new types of mortgage-related securities issued subsequent to 

the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The 
Management's Discussion and Analysis Regulation and Supervision

FREDDIE MAC | 2017 Form 10-K 187

Secretary of the Treasury has performed this debt securities approval function by coordinating GSE debt 

offerings with Treasury funding activities. Our Charter also authorizes Treasury to purchase Freddie Mac 

debt obligations not exceeding $2.25 billion in aggregate principal amount at any time. In February 2018, 

Treasury released its Strategic Plan 2018-2022, which includes a goal of promoting financial stability 

through housing finance reform, including resolution of the conservatorships of Freddie Mac and Fannie 

Mae.

Consumer Financial Protection Bureau

The CFPB regulates consumer financial products and services. The CFPB adopted a number of final 

rules relating to loan origination, finance and servicing practices that generally went into effect in 

January 2014. The rules include an ability-to-repay rule, which requires loan originators to make a 

reasonable and good faith determination that a borrower has a reasonable ability to repay the loan 

according to its terms. This rule provides certain protection from liability for originators making loans that 

satisfy the definition of a qualified mortgage. The ability-to-repay rule applies to most loans acquired by 

Freddie Mac, and for loans covered by the rule, FHFA has directed us to limit our single-family 

acquisitions to loans that generally would constitute qualified mortgages under applicable CFPB 

regulations. The directive generally restricts us from acquiring loans that are not fully amortizing, have a 

term greater than 30 years, or have points and fees in excess of 3% of the total loan amount.

Securities and Exchange Commission

We are subject to the reporting requirements applicable to registrants under the Exchange Act, including 

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

current reports on Form 8-K. Although our common stock is required to be registered under the 

Exchange Act, we continue to be exempt from certain federal securities law requirements, including the 

following:

Securities we issue or guarantee are "exempted securities" and may be sold without registration 

under the Securities Act of 1933;

We are excluded from the definitions of "government securities broker" and "government securities 

dealer" under the Exchange Act;

The Trust Indenture Act of 1939 does not apply to securities issued by us; and

We are exempt from the Investment Company Act of 1940 and the Investment Advisers Act of 1940, 

as we are an "agency, authority or instrumentality" of the U.S. for purposes of such Acts.

Legislative and Regulatory Developments

Legislation Related to Freddie Mac and its Future Status

Our future structure and role will be determined by the Administration, Congress and potentially FHFA, 

and it is possible, and perhaps likely, that there will be significant changes beyond the near-term.

Several bills were introduced in recent sessions of Congress concerning the future status of Freddie 

Mac, Fannie Mae and the mortgage finance system, including bills that provided for the wind down of 
Management's Discussion and Analysis Regulation and Supervision

FREDDIE MAC | 2017 Form 10-K 188

Freddie Mac and Fannie Mae, modification of the terms of the Purchase Agreement or an increase in 

credit risk transfer transactions. None of these bills was enacted. It is likely that similar or new bills will 

be introduced and considered in the current or future sessions of Congress. We cannot predict whether 

any of such bills will be enacted.

2016 Affordable Housing Goals and Housing Plan

In December 2017, FHFA determined that we achieved all five single-family housing goals and all three 

multifamily goals for 2016. We may achieve a single-family housing goal by meeting or exceeding either:

the FHFA benchmark for the goal (Goals); or

the actual share of the market that meets the criteria for that goal (Market Level).

Due to our failure to meet two of the five single-family housing goals for 2014 and 2015, we will remain 

under an FHFA-required Housing Plan through 2018. Our performance compared to our goals, as 

determined by FHFA for 2016 and 2015, is set forth below.

2016 2015

Affordable Housing Goals Goals

Market

Level Results Goals

Market

Level Results

Single-family purchase money goals (benchmark levels):

Low-income 24% 22.9% 23.8% 24% 23.6% 22.3%

Very low-income 6% 5.4% 5.7% 6% 5.8% 5.4%

Low-income areas 17% 19.7% 19.9% 19% 19.8% 19.0%

Low-income areas subgoal 14% 15.9% 15.6% 14% 15.2% 14.5%

Single-family refinance low-income goal (benchmark level) 21% 19.8% 21.0% 21% 22.5% 22.8%

Multifamily low-income goal (In units) 300,000 N/A 406,958 300,000 N/A 379,042

Multifamily very low-income subgoal (In units) 60,000 N/A 73,030 60,000 N/A 76,935

Multifamily small property low-income subgoal (In units) 8,000 N/A 22,101 6,000 N/A 12,801

Duty to Serve Underserved Markets Plan

The GSE Act establishes a duty for Freddie Mac and Fannie Mae to serve three underserved markets 

(manufactured housing, affordable housing preservation and rural areas) by developing loan products 

and flexible underwriting guidelines to facilitate a secondary market for mortgages for very low-, lowand moderate-income families in those markets. 

In December 2016, FHFA published a final rule regarding the duty of Freddie Mac and Fannie Mae to 

serve these underserved markets. In April 2017, as required by the rule, Freddie Mac and Fannie Mae 

each submitted to FHFA an underserved markets plan covering a three-year period that describes the 

activities and objectives it will undertake to meet its duty to serve. The rule provides duty to serve credit 

for eligible activities that facilitate a secondary market for mortgages on residential properties in the 

specified underserved markets. It also establishes a method for evaluating and rating Freddie Mac's and 

Fannie Mae's performance each year, on which FHFA will report annually to Congress. FHFA released 

the draft plans for public comment in May 2017, and the public comment period on the plans ended in 

July 2017. In December 2017, FHFA provided Freddie Mac with a notice of non-objection, and the 
Management's Discussion and Analysis Regulation and Supervision

FREDDIE MAC | 2017 Form 10-K 189

company released its final underserved markets plan for 2018-2020. The plan became effective January 

1, 2018. 

Common Securitization Platform and the Single (Common) 

Security Update

On December 4, 2017, FHFA published the "December 2017 FHFA Update on the Single Security 

Initiative and the Common Securitization Platform." The report emphasizes the importance of 

stakeholder readiness by the end of 2018 and provides updates on key initiative areas such as market 

outreach activities, continued work with regulatory and industry bodies to resolve open issues and 

questions and FHFA and Enterprise efforts concerning prepayment speed alignment for TBA securities. 

The target implementation date for the Single Security initiative is the second quarter of 2019.
Management's Discussion and Analysis Contractual Obligations

FREDDIE MAC | 2017 Form 10-K 190

CONTRACTUAL OBLIGATIONS

Our contractual obligations affect our short- and long-term liquidity and capital resource needs. The 

table below provides aggregated information about the listed categories of our contractual obligations 

as of December 31, 2017. The table includes information about undiscounted future cash payments due 

under these contractual obligations, aggregated by type of contractual obligation, including the 

contractual maturity profile of our debt securities (other than debt securities of consolidated trusts held 

by third parties and STACR and SCR debt notes). The timing of actual future payments may differ from 

those presented due to a number of factors, including discretionary debt repurchases.

The amounts of future interest payments on debt securities outstanding at December 31, 2017 are 

based on the contractual terms of our debt securities at that date. These amounts were determined 

using certain assumptions, including that variable-rate debt continues to accrue interest at the 

contractual rates in effect at December 31, 2017 until maturity and callable debt continues to accrue 

interest until its contractual maturity. Accordingly, the amounts presented in the table do not represent a 

forecast of our future cash interest payments or interest expense.

Our contractual obligations include purchase obligations that are enforceable and legally binding, and 

exclude contracts that we may cancel without penalty. We include our purchase obligations through the 

termination date specified in the respective agreement, even if the contract is renewable.

The table excludes certain obligations that could significantly affect our short- and long-term liquidity 

and capital resource needs. These items, which are listed below, have generally been excluded because 

the amount and timing of the related future cash payments are uncertain:

Future payments of principal and interest related to debt securities of consolidated trusts held by 

third parties because the amount and timing of such payments are generally contingent upon the 

occurrence of future events and are therefore uncertain. These payments generally include payments 

of principal and interest we make to the holders of our guaranteed mortgage-related securities in the 

event a loan underlying a security becomes delinquent. We remove loans from pools underlying our 

PCs in certain circumstances, including when loans are 120 days or more delinquent, and retire the 

associated debt securities of consolidated trusts;

Future payments of principal and interest related to STACR and SCR debt notes because the amount 

and timing of such payments are contingent upon the occurrence of future events on the reference 

pool of mortgage loans and are therefore uncertain;

Future cash payments associated with the liquidation preference of the senior preferred stock, the 

quarterly commitment fee (which has been suspended) and dividends on the senior preferred stock;

Future cash settlements on derivative agreements not yet accrued, because the amount and timing 

of such payments are dependent upon items such as changes in interest rates;

Future dividends on outstanding preferred stock (other than the senior preferred stock), because 

dividends on these securities are non-cumulative and because we are currently prohibited from 

paying dividends on these securities; and

The guarantee payments and commitments to advance funds pertaining to off-balance sheet 

arrangements.
Management's Discussion and Analysis Contractual Obligations

FREDDIE MAC | 2017 Form 10-K 191

(In millions) Total 2018 2019 2020 2021 2022 Thereafter

Other long-term debt(1) $224,991 $70,557 $57,689 $38,117 $22,809 $18,538 $17,281

Other short-term debt(1) 73,190 73,190 — — — — —

Interest payable(2) 22,863 10,150 2,706 2,013 1,541 960 5,493

Other contractual liabilities reflected on our 

consolidated balance sheets(3) 4,689 4,463 5 6 5 5 205

Purchase obligations:

Purchase commitments(4) 29,780 29,780 — — — — —

Other purchase obligations(5) 2,487 361 258 248 243 238 1,139

Lease obligations 36 13 11 7 4 1 —

Total specified contractual obligations $358,036 $188,514 $60,669 $40,391 $24,602 $19,742 $24,118

(1) Represents par value. Callable debt is included in this table at its contractual maturity. For additional information about our debt, see Note 8.

(2) Includes estimated future interest payments on our short-term and long-term debt securities as well as the accrual of periodic cash settlements of 

derivatives, netted by counterparty. Also includes accrued interest payable recorded on our consolidated balance sheet.

(3) Includes (i) obligations related to our qualified and non-qualified defined contribution plans, retiree medical plan and other benefit plans; (ii) future 

cash payments due under our contractual obligations to make delayed equity contributions to LIHTC partnerships; and (iii) payables to the 

consolidated trusts established for the administration of cash remittances received related to the underlying assets of Freddie Mac mortgagerelated securities.

(4) Purchase commitments represent our obligations to purchase loans and mortgage-related securities from third parties, most of which are 

accounted for as derivatives in accordance with the accounting guidance for derivatives and hedging.

(5) Primarily includes unconditional purchase obligations that are legally binding and that are subject to a cancellation penalty.
Management's Discussion and Analysis Off-Balance Sheet Arrangements

FREDDIE MAC | 2017 Form 10-K 192

OFF-BALANCE SHEET ARRANGEMENTS

We enter into certain business arrangements that are not recorded on our consolidated balance sheets 

or that may be recorded in amounts that differ from the full contract or notional amount of the 

transaction and that may expose us to potential losses in excess of the amounts recorded on our 

consolidated balance sheets. See Note 3 and Note 5 for more information on our off-balance sheet 

securitization and guarantee activities.

Securitization Activities and Other Guarantees

We have certain off-balance sheet arrangements related to our securitization activities involving 

guaranteed loans and mortgage-related securities, though most of our securitization activities are onbalance sheet. Our off-balance sheet arrangements related to these securitization activities primarily 

consist of K Certificates and SB Certificates. We also have off-balance sheet arrangements related to 

certain other securitization products and other mortgage-related guarantees.

Our maximum potential off-balance sheet exposure to credit losses relating to these securitization 

activities and guarantees is primarily represented by the UPB of the underlying loans and securities, 

which was $215.7 billion and $166.7 billion at December 31, 2017 and 2016, respectively.

As part of the guarantee arrangements pertaining to certain multifamily housing revenue bonds and 

securities backed by multifamily housing revenue bonds, we provided commitments to advance funds, 

commonly referred to as "liquidity guarantees," which were $7.4 billion and $8.5 billion at December 31, 

2017 and 2016, respectively. These guarantees require us to advance funds to third parties that enable 

them to repurchase tendered bonds or securities that are unable to be remarketed. At both 

December 31, 2017 and 2016, there were no liquidity guarantee advances outstanding.

Our exposure to losses on the transactions described above would be partially mitigated by the 

recovery we would receive through exercising our rights to the collateral backing the underlying loans 

and the available credit enhancements, which may include recourse and primary mortgage insurance 

with third parties. In addition, we provide for incurred losses each period on these guarantees within our 

provision for credit losses.

Other Agreements

We own interests in numerous entities that are considered to be VIEs for which we are not the primary 

beneficiary and which we do not consolidate in accordance with the accounting guidance for the 

consolidation of VIEs. These VIEs relate primarily to our investment activity in mortgage-related assets. 

Our consolidated balance sheets reflect only our investment in the VIEs, rather than the full amount of 

the VIEs’ assets and liabilities. 

As part of our credit guarantee business, we routinely enter into forward purchase and sale 

commitments for loans and mortgage-related securities. Some of these commitments are accounted for 

as derivatives. Their fair values are reported as either derivative assets, net or derivative liabilities, net on 

our consolidated balance sheets. For more information, see Risk Management - Credit Risk - 

Counterparty Credit Risk - Derivative Counterparties and Note 9. We also enter into purchase 

commitments primarily related to future guarantor swap transactions for single-family loans, and, to a 
Management's Discussion and Analysis Off-Balance Sheet Arrangements

FREDDIE MAC | 2017 Form 10-K 193

lesser extent, commitments to purchase or guarantee multifamily loans. These non-derivative 

commitments totaled $296.4 billion and $267.4 billion in notional value at December 31, 2017 and 2016, 

respectively.

In connection with the execution of the Purchase Agreement, we, through FHFA, in its capacity as 

Conservator, issued a warrant to Treasury to purchase 79.9% of our common stock outstanding on a 

fully diluted basis on the date of exercise. See Note 11 for further information.
Management's Discussion and Analysis Critical Accounting Policies and Estimates

FREDDIE MAC | 2017 Form 10-K 194

CRITICAL ACCOUNTING POLICIES AND 

ESTIMATES

The preparation of financial statements in accordance with GAAP requires us to make a number of 

judgments, estimates and assumptions that affect the reported amounts within our consolidated 

financial statements. Certain of our accounting policies, as well as estimates we make, are critical, as 

they are both important to the presentation of our financial condition and results of operations and 

require management to make difficult, complex, or subjective judgments and estimates, often regarding 

matters that are inherently uncertain. Actual results could differ from our estimates, and the use of 

different judgments and assumptions related to these policies and estimates could have a material 

impact on our consolidated financial statements.

Our critical accounting policies and estimates relate to the single-family allowance for loan losses and 

fair value measurements. For additional information about our critical accounting policies and estimates 

and other significant accounting policies, as well as recently issued accounting guidance, see Note 1.

Single-Family Allowance for Loan Losses

The single-family allowance for loan losses represents an estimate of probable incurred credit losses. 

The single-family allowance for loan losses pertains to all single-family loans classified as held-forinvestment on our consolidated balance sheets.

Determining the appropriateness of the single-family allowance for loan losses is a complex process that 

is subject to numerous estimates and assumptions requiring significant management judgment about 

matters that involve a high degree of subjectivity. This process involves the use of models that require us 

to make judgments about matters that are difficult to predict, the most significant of which are the 

probability of default, prepayment and loss severity. We regularly evaluate the underlying estimates and 

models we use when determining the single-family allowance for loan losses and update our 

assumptions to reflect our historical experience and current view of economic factors. See Risk 

Factors - Operational Risks - We face risks and uncertainties associated with the models 

that we use to inform business and risk management decisions and for financial 

accounting and reporting purposes.

We believe the level of our single-family allowance for loan losses is appropriate based on internal 

reviews of the factors and methodologies used. No single statistic or measurement determines the 

appropriateness of the allowance for loan losses. Changes in one or more of the estimates or 

assumptions used to calculate the single-family allowance for loan losses could have a material impact 

on the loan loss reserves and provision for credit losses.

Most single-family loans are aggregated into pools based on similar risk characteristics and measured 

collectively using a statistically based model that evaluates a variety of factors affecting collectability, 

including but not limited to current LTV ratios, trends in home prices, loan product type, delinquency/

default status and history and geographic location. Inputs used by the model are regularly updated for 

changes in the underlying data, assumptions and market conditions. We review the output of this model 

by considering qualitative factors such as macroeconomic and other factors to see whether the model 

outputs are consistent with our expectations. Management adjustments may be necessary to take into 
Management's Discussion and Analysis Critical Accounting Policies and Estimates

FREDDIE MAC | 2017 Form 10-K 195

consideration external factors and current economic events that have occurred but that are not yet

reflected in the factors used to derive the model outputs. Significant judgment is exercised in making 

these adjustments. 

Some examples of the qualitative factors considered include: 

Regional housing trends;

Applicable home price indices;

Unemployment and employment dislocation trends;

The effects of changes in government policies and programs;

Industry trends;

Consumer credit statistics; and

Third-party credit enhancements.

The inability to realize the benefits of our loss mitigation activities, a lower realized rate of seller/servicer 

repurchases, declines in home prices, deterioration in the financial condition of our mortgage insurers, or 

increases in delinquency rates would cause our losses to be significantly higher than those currently 

estimated.

Individually impaired single-family loans include loans that have undergone a TDR and are measured for 

impairment as the excess of our recorded investment in the loan over the present value of the expected 

future cash flows. Our expectation of future cash flows incorporates many of the judgments indicated 

above.

Fair Value Measurements

We use fair value measurements for the initial recording of certain assets and liabilities and periodic 

remeasurement of certain assets and liabilities on a recurring or non-recurring basis. Assets and 

liabilities within our consolidated financial statements measured at fair value include: 

Mortgage-related and non-mortgage related securities;

Certain loans held-for-sale;

Derivative instruments; and

Certain debt securities of consolidated trusts held by third parties and certain other debt.

The accounting guidance for fair value measurements establishes a framework for measuring fair value, 

and also establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques 

used to measure fair value based on the assumptions a market participant would use at the 

measurement date. Fair value measurements under this hierarchy are distinguished among quoted 

market prices, observable inputs and unobservable inputs. The measurement of fair value requires 

management to make judgments and assumptions. The process for determining fair value using 

unobservable inputs is generally more subjective and involves a higher degree of management judgment

and assumptions than the measurement of fair value using observable inputs. These judgments and 

assumptions may have a significant effect on our measurements of fair value, and the use of different 

judgments and assumptions, as well as changes in market conditions, could have a material effect on 

our consolidated statements of comprehensive income and consolidated balance sheets. See Note 15
Management's Discussion and Analysis Critical Accounting Policies and Estimates

FREDDIE MAC | 2017 Form 10-K 196

for additional information regarding fair value hierarchy and measurements, valuation risk and controls 

over fair value measurement.
Risk Factors Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 197

Risk Factors

The following section discusses material risks and uncertainties that could adversely affect our 

business, financial condition, results of operations, cash flows, reputation, strategies and/or prospects.

CONSERVATORSHIP AND RELATED 

MATTERS

Freddie Mac’s future is uncertain.

It is possible and perhaps likely that future legislative or regulatory action will materially affect our role in 

the mortgage industry, business model, structure and results of operations. Some or all of our functions 

could be transferred to other institutions, and we could cease to exist as a stockholder-owned company, 

or at all. If any of these events occur, our shares could further diminish in value, or cease to have any 

value. Our stockholders may not receive any compensation for such loss in value.

Several bills have been introduced in recent sessions of Congress concerning the future status of 

Freddie Mac, Fannie Mae and the mortgage finance system, including bills which provided for the wind 

down of Freddie Mac and Fannie Mae, modification of the terms of the Purchase Agreement, or an 

increase in credit risk transfer transactions. None of these bills were enacted. It is likely that similar or 

new bills will be introduced and considered in future sessions of Congress. In addition, in February 2018, 

Treasury released its Strategic Plan 2018-2022, which includes a goal of promoting financial stability 

through housing finance reform, including resolution of the conservatorships of Freddie Mac and Fannie 

Mae. 

The conservatorship is indefinite in duration. The timing, likelihood and circumstances under which we 

might emerge from conservatorship are uncertain. Under the Purchase Agreement, Treasury would be 

required to consent to the termination of the conservatorship, other than in connection with receivership, 

and there can be no assurance it would do so. Even if the conservatorship is terminated, we would 

remain subject to the Purchase Agreement and the terms of the senior preferred stock. It is possible that 

the conservatorship could end with our being placed into receivership.

Because Treasury holds a warrant to acquire nearly 80% of our common stock for nominal 

consideration, we could effectively remain under the control of the U.S. government even if the 

conservatorship ends and the voting rights of common stockholders are restored. If Treasury exercises 

the warrant, the ownership interest of our existing common stockholders will be substantially diluted. 

In the past several years, a number of lawsuits were filed against the U.S. government, Freddie Mac and 

Fannie Mae challenging certain government actions related to the conservatorship and the Purchase 

Agreement. This may add to the uncertainty surrounding our future.

For more information, see MD&A - Regulation and Supervision - Legislative and Regulatory 

Developments, Legal Proceedings, and Note 16.

We cannot retain capital from the earnings generated by our business operations in excess 

of the applicable Capital Reserve Amount under the Purchase Agreement (which is $3.0 

billion as of January 1, 2018 but will be reduced to zero if we do not pay any future dividend 
Risk Factors Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 198

requirements in full), which could result in our having to request additional draws from 

Treasury under the Purchase Agreement in future periods.

We cannot retain capital from the earnings generated by our business operations in excess of the 

applicable Capital Reserve Amount of $3.0 billion as of January 1, 2018, as a result of the net worth 

sweep dividend requirement. If we were not to pay our full dividend requirement in any future period, the 

applicable Capital Reserve Amount would thereafter be zero so that we would not be able to retain any 

capital from the earnings generated by our business. While in conservatorship, dividends we pay to 

Treasury are declared by, and paid at the direction of, the Conservator, acting as successor to the rights, 

titles, powers and privileges of the Board. Our inability to build and retain capital in excess of the 

applicable Capital Reserve Amount could cause us to require draws in future periods. A variety of 

factors could influence whether we could require a draw, including the following:

Deterioration of economic conditions, including increased levels of unemployment and declines in 

home prices or family incomes;

Adverse changes in interest rates, yield curves, implied volatility or market spreads, which could 

affect our financial assets and liabilities, including derivatives, and increase realized and unrealized 

losses recorded in earnings or AOCI;

The success of any transactions or other steps we may take intended to help reduce earnings 

variability and address some of the measurement differences between our GAAP financial results 

and the underlying economics of our business, including the adoption of hedge accounting;

Required reductions in the size of our mortgage-related investments portfolio, reductions of higher 

yielding assets, or other limitations on our investment activities that reduce our earnings capacity;

Restrictions on our single-family guarantee activities that could reduce our income from these 

activities;

Restrictions on the volume of multifamily business we may conduct or other limits on multifamily 

business activities that could reduce our income from these activities;

Adverse changes in our liquidity or funding costs or limitations on our access to public debt markets;

A failure of one or more of our major counterparties to meet their obligations to us;

The effects of our foreclosure prevention and loss mitigation efforts;

Changes in accounting policies, practices, or guidance (for example, FASB’s new accounting 

standards update related to the measurement of credit losses on financial instruments will increase 

(perhaps substantially) our provision for credit losses in the period of adoption);

The occurrence of a major natural or other disaster in areas in which our offices or significant 

portions of our total mortgage portfolio are located; or

Changes in business practices resulting from legislative and regulatory developments or direction 

from our Conservator.

Additional draws, which will increase the already substantial liquidation preference of our senior 

preferred stock and decrease the amount of Treasury's remaining commitment under the Purchase 
Risk Factors Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 199

Agreement, may add to the uncertainty regarding our long-term financial sustainability.

FHFA as our Conservator controls our business activities. In addition, the terms of the 

Purchase Agreement and the senior preferred stock significantly limit our business 

activities. We may be required to take actions that reduce our profitability, are difficult to 

implement, or expose us to additional risk.

We are under the control of FHFA, as our Conservator, and are not managed to maximize stockholder 

returns. FHFA determines our strategic direction. We face a variety of different, and sometimes 

competing, business objectives and FHFA-mandated activities (e.g., the initiatives we are pursuing 

under the Conservatorship Scorecard). It may be difficult for us to devote sufficient resources and 

management attention to these multiple priorities. Some of the activities FHFA has required us to 

undertake are costly and difficult to implement, such as building the common securitization platform.

FHFA has required us to make changes to our business that have adversely affected our financial 

results. FHFA could require us to make additional changes at any time. For example, FHFA may require 

us to undertake activities that:

Reduce our profitability;

Expose us to additional credit, market, funding, operational and other risks; or

Provide additional support for the mortgage market that serves our public mission, but adversely 

affects our financial results.

From time to time, FHFA and Treasury have prevented us from engaging in business activities or 

transactions that we believe would be profitable, and they may do so again in the future. For example, 

FHFA could limit the amount of securities we could sell or further limit the size of our mortgage-related 

investments portfolio or the amount of new multifamily business we may obtain.

The Purchase Agreement and the terms of the senior preferred stock also place significant restrictions 

on our ability to manage our business, including limiting:

The amount of indebtedness we may incur;

The size of our mortgage-related investments portfolio; and

Our ability to pay dividends, transfer certain assets, raise capital and pay down the liquidation 

preference of the senior preferred stock. 

The Purchase Agreement prohibits us from taking a variety of actions without Treasury's consent. 

Treasury has the right to withhold its consent for any reason. The warrant held by Treasury, the 

restrictions on our business under the Purchase Agreement and the senior status and net worth sweep 

dividend provisions of the senior preferred stock could adversely affect our ability to attract capital from 

the private sector in the future, should we be in a position to do so.

If FHFA placed us into receivership, our assets would be liquidated. The liquidation proceeds 

might not be sufficient to pay claims outstanding against Freddie Mac, repay the liquidation 

preference of our preferred stock, or make any distribution to our common stockholders.

We can be put into receivership at the discretion of the Director of FHFA at any time for a number of 

reasons set forth in the GSE Act. Several bills considered by Congress in the past several years 

provided for Freddie Mac to be placed into receivership. In addition, FHFA could be required to place us 
Risk Factors Conservatorship and Related Matters

FREDDIE MAC | 2017 Form 10-K 200

into receivership if Treasury were unable to provide us with funding requested under the Purchase 

Agreement to address a deficit in our net worth. Treasury might not be able to provide the requested 

funding if, for example, the U.S. government were not fully operational because Congress had failed to 

approve funding or the government had reached its borrowing limit. For more information, see MD&A - 

Regulation and Supervision - Federal Housing Finance Agency - Receivership.

Being placed into receivership would terminate the conservatorship. The purpose of receivership is to 

liquidate our assets and resolve claims against us. The appointment of FHFA as our receiver would 

terminate all rights and claims that our stockholders and creditors might have against our assets or 

under our Charter as a result of their status as stockholders or creditors, other than possible payment 

upon our liquidation. 

If our assets were liquidated, the liquidation proceeds might not be sufficient to pay the secured and 

unsecured claims against us (including claims on our guarantees), repay the liquidation preference on 

any series of our preferred stock, or make any distribution to our common stockholders. The GSE Act 

provides that, if we were placed into receivership, the receiver would hold the mortgages underlying our 

mortgage-related securities (and the payments thereon) for the benefit of the holders of those securities. 

However, payments on the mortgages underlying our mortgage-related securities might not be sufficient 

to make full payments of principal and interest on the securities. In that event, if we were unable to fulfill 

our guarantee, the holders of our mortgage-related securities would experience delays in receiving 

payments on the securities because the relevant systems are not designed to make partial payments.

Proceeds would be available to repay the liquidation preference of other series of preferred stock only 

after paying the secured and unsecured claims of the company, the administrative expenses of the 

receiver and the liquidation preference of the senior preferred stock. Only after the liquidation preference 

of all series of preferred stock is repaid would any proceeds be available for distribution to the holders of 

our common stock.
Risk Factors Credit Risk

FREDDIE MAC | 2017 Form 10-K 201

CREDIT RISK

We are subject to mortgage credit risk, including mortgage credit risk relating to off-balance 

sheet arrangements; credit costs related to this risk could adversely affect our financial 

results.

Mortgage credit risk is the risk that a borrower will fail to make timely payments on a loan we own or 

guarantee. This exposes us to the risk of credit losses and credit-related expenses, which could 

adversely affect our financial results. We are primarily exposed to mortgage credit risk with respect to 

the single-family and multifamily loans and securities reflected as assets on our consolidated balance 

sheets that we own or guarantee. We are also exposed to mortgage credit risk with respect to 

guaranteed securities and guarantee arrangements that are not reflected as assets on our consolidated 

balance sheets. This exposure primarily relates to K Certificates, SB Certificates and senior subordinate 

securitization structures. We also have off-balance sheet arrangements related to certain other 

securitization products and other mortgage-related guarantees.

We continue to have a number of loans in our single-family credit guarantee portfolio with certain 

characteristics, such as Alt-A loans, interest-only loans, option ARM loans, loans with original LTV ratios 

greater than 90% and loans to borrowers with credit scores less than 620 at the time of origination, that 

expose us to greater credit risk than other types of loans. See MD&A - Risk Management - Credit 

Risk - Single-Family Mortgage Credit Risk - Monitoring Loan Performance and 

Characteristics of the Single-family Credit Guarantee Portfolio and Individual Sellers and 

Servicers.

Our efforts to increase access to single-family mortgage credit, including our expanded affordable 

housing program and our duty to serve underserved markets, expose us to increased mortgage credit 

risk. 

Our credit risk transfer transactions may not be available to us in adverse economic 

conditions. These transactions also lower our profitability.

We are increasingly using credit risk transfer transactions to mitigate some of our potential credit losses. 

Our ability to transfer credit risk (and the cost to us of doing so) could change rapidly depending on 

market conditions. In particular, it is possible that there will not be sufficient investor demand for credit 

risk transfer transactions during a housing downturn. Some of our credit risk transfer transactions are 

new, and it is uncertain if there will be adequate demand for them over the long term. Some of these 

transactions use novel structures that have not yet been tested in adverse market conditions; it is 

possible that, under such conditions, they will provide less protection than we expect. These 

transactions may not prevent us from incurring substantial losses in adverse market conditions. These 

transactions have termination dates that are earlier than the maturities of the related loans, and losses 

on the loans occurring beyond the terms of the transactions are not covered. The costs associated with 

these transactions are significant and may increase. There could be a significant difference in time 

between when we recognize a credit loss in earnings and when we recognize the related recovery in 

earnings, and this lag could adversely affect our financial results in the earlier period. For more 

information regarding these transactions, see Note 4. Some of these transactions are complex, which 

may increase our exposure to operational risk.
Risk Factors Credit Risk

FREDDIE MAC | 2017 Form 10-K 202

We face significant risks related to our delegated underwriting process for single-family 

loans, including risks related to data accuracy and mortgage fraud. Changes to the process 

could increase our risks.

We delegate to our sellers the underwriting for the single-family loans we purchase or securitize. Our 

contracts with sellers describe mortgage eligibility and underwriting standards, and the sellers represent 

and warrant to us that the loans they deliver to us meet these standards. We do not independently verify 

most of the information provided to us before we purchase or securitize a loan. This exposes us to the 

risk that one or more of the parties involved in a transaction (such as the borrower, seller, broker, 

appraiser, title agent, loan officer or lender) misrepresented the facts about the underlying property, 

borrower, or loan, or engaged in fraud. 

We review a sample of these loans after we purchase them to determine if they are in compliance with 

our contractual standards. However, our review may not detect any misrepresentations by the parties 

involved in the transaction, deter loan fraud, or reduce our exposure to these risks. 

We can exercise certain contractual remedies, including requiring repurchase of the loan, for loans that 

do not meet our standards. However, in recent years, at the direction of FHFA, we have significantly 

revised our representation and warranty framework (including changes to remedies for certain defects) 

to relieve sellers of certain repurchase obligations in specific cases with respect to single-family loans. 

As a result, we may face greater exposure to credit and other losses because our ability to seek 

recovery or repurchase from sellers under this revised framework is more limited. Under the revised 

framework, it is critical that we identify breaches of representations and warranties early in the life of the 

loan. 

In 2017, we enhanced our Loan Advisor Suite to offer limited representation and warranty relief for 

certain loans that satisfy new automated controls related to appraisal quality, collateral valuation, 

borrower assets and borrower income. In general, limited representation and warranty relief is offered 

when information provided by the lender is validated against independent data sources. Further 

enhancements to the Loan Advisor Suite are expected in 2018. These continued changes in practice 

may present operational and systems challenges. Once fully implemented, there is a risk that the 

enhanced tools and processes will not enable us to identify all breaches in a timely manner. For more 

information, see MD&A - Risk Management - Credit Risk - Single-Family Mortgage Credit 

Risk - Maintaining Policies and Procedures for New Business Activity, Including Prudent 

Underwriting Standards.

Declines in national or regional home prices or other adverse changes in the housing market 

could negatively affect our business and financial results.

Our financial results and business volumes can be negatively affected by declines in home prices and 

other adverse changes in the housing market. This could: 

Reduce our actual return or result in losses on new single-family guarantee business, as actual 

default rates could be higher than we expected when we issued the guarantee;

Cause us to hedge prepayment risk incorrectly;

Negatively affect loan pricing, which could cause us to change our disposition strategies for our 

single-family unsecuritized loans; or

Increase our losses on foreclosure alternatives, third-party sales and dispositions of REO properties.
Risk Factors Credit Risk

FREDDIE MAC | 2017 Form 10-K 203

For more information regarding these risks, see MD&A - Risk Management - Credit Risk.

Our loan purchases and guarantee issuances are closely tied to the rate of growth in total outstanding 

U.S. residential mortgage loan debt, the size of the U.S. residential mortgage market and the amount of 

new mortgage loan originations. Total residential mortgage loan debt increased approximately 2.2% in 

the first nine months of 2017 (the most recent data available) and approximately 2.3% in 2016.

The proportion of our refinance loan purchases to total loan purchases could decrease if mortgage 

interest rates increase. This could increase our exposure to mortgage credit risk, as refinance loans 

(particularly those that do not involve "cash-out") generally present less credit risk than purchase loans. 

Some of our seller/servicer counterparties are highly dependent on refinance loan volumes. A decrease 

in refinance loan volumes could adversely affect these counterparties, which could increase our 

exposure to counterparty credit risk.

While the multifamily market has experienced strong rent growth and occupancy trends in the past 

several years, these trends are likely to moderate from their current pace. New supply of multifamily 

housing has been increasing in recent periods and could potentially outpace demand, which could result 

in excess supply and rising vacancy rates. Any softening of the multifamily market could cause 

delinquencies and credit losses relating to our multifamily activities to increase beyond our current 

expectations.

We are exposed to counterparty credit risk with respect to our business counterparties. Our 

financial results may be adversely affected if one or more of our counterparties fail to meet 

their contractual obligations to us. 

We depend on our institutional counterparties to provide services that are critical to our business. We 

face the risk that one or more of our counterparties may fail to meet their contractual obligations to us. 

Our important counterparties include seller/servicers, mortgage and credit insurers and counterparties 

to derivatives and short-term lending and other funding transactions (i.e., cash and other investments 

transactions).

Many of our major counterparties provide several types of services to us. The concentration of our 

exposure to our counterparties remains high, and we continue to face challenges in reducing our risk 

concentrations with counterparties. Efforts we take to reduce exposure to financially weak 

counterparties could concentrate our exposure to other counterparties, and increase our costs and 

reduce our revenue. In recent years, challenging market conditions have, at times, adversely affected 

the liquidity and financial condition of our counterparties, and some of our major counterparties have 

failed. Similar events may occur in future periods. Many of our counterparties are subject to increasingly 

complex regulatory requirements and oversight, which place additional stress on their resources and 

may affect their ability or willingness to do business with us.

Credit risk related to seller/servicers 

We are exposed to credit risk from the seller/servicers of our single-family loans, as described below. 

A decline in servicing performance - A decline in a servicer’s performance, such as delayed 

foreclosures or missed opportunities for loan modifications, could significantly affect our ability to 

mitigate credit losses and could affect the overall credit performance of our single-family credit 

guarantee portfolio. A large volume of seriously delinquent loans and the complexity of the servicing 
Risk Factors Credit Risk

FREDDIE MAC | 2017 Form 10-K 204

function are significant factors contributing to the risk of a decline in performance by servicers. We 

could be adversely affected if our servicers lack appropriate controls, experience a failure in their 

controls, or experience a disruption in their ability to service loans, including as a result of legal or

regulatory actions or ratings downgrades. We also are exposed to fraud by third parties in the loan 

servicing function, particularly with respect to short sales and other dispositions of non-performing 

assets.

We could attempt to mitigate our exposure to a poorly performing servicer by terminating its right to 

service our loans; however, we may not be able to find successor servicers who have the capacity to 

service the affected loans and who are also willing to assume the representations and warranties of 

the terminated servicer. In addition, terminating a large servicer may not be feasible because of the 

operational and capacity challenges related to transfers of large servicing portfolios. If we replace a 

servicer, we would likely incur costs and potential increases in servicing fees.

A failure by seller/servicers to fulfill their obligations to repurchase loans or indemnify us as a 

result of breaches of representations and warranties - While we may have the contractual right 

to require a seller or servicer to repurchase loans from us, it may be difficult, expensive and timeconsuming to enforce such repurchase obligations. We could enter into settlements to resolve 

repurchase obligations; however, the amounts we receive under any such settlements may be less 

than the losses we ultimately incur on the underlying loans.

Under our revised representation and warranty framework, as directed by FHFA, we are required in 

some cases to utilize an alternative remedy, such as indemnification, in lieu of repurchase. The 

amount we recover under an alternative remedy may be less than the amount we could have 

recovered in a repurchase.

Increased exposure to non-depository and smaller financial institutions - Over the last several 

years, we have acquired a greater portion of our single-family business volume from non-depository 

and smaller financial institutions. In addition, a large and increasing volume of our single-family loans 

are serviced by non-depository financial institutions. These non-depository and smaller financial 

institutions may not have the same financial strength or operational capacity, or be subject to the 

same level of regulatory oversight, as large depository institutions. As a result, we face increased risk 

that these counterparties could fail to perform their obligations to us. In particular, non-depository 

servicers rapidly grew their servicing portfolios in the last several years. This appears to have 

resulted in operational strains that have subjected some of these servicers to regulatory 

scrutiny. This rapid growth could expose us to increased risks if any operational strain adversely 

affects these servicers’ servicing performance or their financial strength. In addition, if these 

servicers reduce their servicing portfolios, there may be a constraint in overall servicing capacity. 

Our seller/servicers also have a significant role in servicing loans in our multifamily mortgage portfolio. 

We are exposed to the risk that multifamily seller/servicers could come under financial pressure, which 

could potentially cause a decline in their servicing performance.

For more information, see MD&A - Risk Management - Credit Risk - Counterparty Credit Risk 

- Sellers and Servicers. 
Risk Factors Credit Risk

FREDDIE MAC | 2017 Form 10-K 205

Credit risk related to counterparties to derivatives, short-term lending and other transactions 

We have significant exposure to institutions in the financial services industry relating to derivatives, 

funding, short-term lending, securities and other transactions (e.g., cash and other investments 

transactions). These transactions are critical to our business, including our ability to: 

Manage interest rate risk and other risks related to our investments in mortgage-related assets;

Fund our business operations; and

Service our customers. 

We face the risk of operational failure of the clearing members, exchanges, clearinghouses, or other 

financial intermediaries we use to facilitate derivatives, short-term lending and other transactions. If a 

clearing member or clearinghouse were to fail, we could lose some or all of the collateral or margin 

posted with the clearing member or clearinghouse. 

We are a clearing member of the clearinghouse through which we execute mortgage-related securities 

transactions. As a result, we could be subject to losses because we are required to participate in the 

coverage of losses incurred by other clearing members if they fail to meet their obligations to the 

clearinghouse.

If our counterparties to short-term lending transactions fail, we are exposed to losses to the extent the 

transaction is unsecured or the collateral posted to us is insufficient. 

For more information, see MD&A - Risk Management - Credit Risk - Counterparty Credit Risk 

- Derivative Counterparties, Other Counterparties.

Credit risk related to mortgage and credit insurers

It is unlikely that we will receive full payment of our claims from several of the mortgage insurers of our 

single-family loans that we purchased prior to 2009, as these insurers are insolvent or are paying only a 

portion of our claims under our mortgage insurance policies. For more information, see Note 14.

If a mortgage insurer fails to meet its obligations to reimburse us for claims, our credit losses could 

increase. In addition, if a regulator determines that a mortgage insurer lacks sufficient capital to pay all 

claims when due, the regulator could take action that might affect the timing and amount of claim 

payments made to us. We face similar risks with respect to our counterparties on ACIS and Deep MI 

CRT transactions. 

We cannot differentiate pricing based on the strength of a mortgage insurer or revoke a mortgage 

insurer's status as an eligible insurer without FHFA approval. In addition, we do not select the mortgage 

insurance provider on a specific loan because the selection is made by the lender at the time the loan is 

originated. As a result, we could acquire a concentration of risk to certain insurance providers. We 

continue to acquire new loans with mortgage insurance from mortgage insurers that have credit ratings 

below investment grade.

For more information, see MD&A - Risk Management - Credit Risk - Counterparty Credit Risk 

- Mortgage, Bond and Credit Insurers.
Risk Factors Credit Risk

FREDDIE MAC | 2017 Form 10-K 206

Our loss mitigation activities may be costly and may adversely affect our financial results.

Our loss mitigation activities may not be successful. The costs we incur related to loan modifications 

and other loss mitigation activities have been, and could continue to be, significant. For example, we 

bear the full cost of the monthly payment reductions related to modifications of loans we own or 

guarantee, as well as all applicable servicer incentive fees for our mortgage modifications. However, for 

certain CRT transactions we share the cost of modifications with the investors.

We could elect or be required to make changes to our loss mitigation activities that could make these 

activities more costly to us. For example, we could be required to use principal forgiveness on a broad 

basis to reduce payments for borrowers and to bear some or all of the costs of such reductions.

Loan modification initiatives, particularly any future focus on principal forgiveness on a broad basis, 

could have the potential to change borrower behavior and loan underwriting. Principal reductions may 

create an incentive for borrowers who are current on their loans to become delinquent to receive a 

principal reduction. 

We have loans on trial period plans as required under certain loan modification programs. Some of these 

loans will fail to complete the trial period or fail to qualify for our other borrower assistance programs. 

For these loans, the trial period will have effectively delayed the foreclosure process and could increase 

our losses.

Many of our HAMP loans, which initially were set at a below-market interest rate, have provisions for the 

interest rates to increase gradually until they reach the market rate that was in effect at the time of the 

modification. The resulting increase in the borrowers' payments may increase the risk that these 

borrowers will default.

The type of loss mitigation activities we pursue could affect prepayments on our PCs and REMICs, 

which could affect the value of these securities or the earnings from mortgage-related assets in our 

Capital Markets segment-mortgage investments portfolio. In addition, loss mitigation activities may 

adversely affect our ability to securitize, resecuritize and sell the loans subject to those activities (e.g., 

investors may become unwilling to purchase securities backed by modified single-family loans).

The effect of refinance initiatives of the GSEs, such as HARP, on prepayment expectations is difficult to 

estimate, and we could experience declines in the fair values of certain agency security investments and 

lower net interest yields over time on other mortgage-related investments. The difficulty in estimating the 

effect of prepayments could also adversely affect our ability to hedge our mortgage-related investments.

We devote significant resources to our borrower assistance initiatives. The size and scope of these 

efforts may compete with other business opportunities or corporate initiatives.

For more information on our loss mitigation activities, see MD&A - Our Business Segments - 

Single-Family Guarantee - Loss Mitigation Activities and MD&A - Risk Management - 

Credit Risk - Single-Family Mortgage Credit Risk - Engaging in Loss Mitigation Activities.
Risk Factors Credit Risk

FREDDIE MAC | 2017 Form 10-K 207

We have been, and will continue to be, adversely affected by delays and deficiencies in the 

single-family foreclosure process.

The average length of time for foreclosure of a Freddie Mac loan has significantly increased since 2008, 

particularly in states that require a judicial foreclosure process, and may further increase. Delays in the 

foreclosure process could:

Cause our expenses to increase. For example, properties awaiting foreclosure could deteriorate until 

we acquire them, resulting in increased expenses to repair and maintain the properties; and

Adversely affect trends in home prices regionally or nationally, which could adversely affect our 

financial results.

We may experience further losses relating to our assets that could materially adversely 

affect our financial results, liquidity and net worth.

We may experience additional losses relating to our assets, including those that are currently AAA-rated, 

and the fair values of our assets may decline in the future. This could adversely affect our financial 

results, liquidity and net worth. We may decide to pursue certain mortgage-related investments portfolio 

strategies that could result in the immediate recognition of losses, such as paying a premium to 

repurchase debt or engaging in certain asset structuring activities that result in the write-off of 

premiums.

We are exposed to increased credit losses and credit related expenses in the event of a 

major natural disaster or other catastrophic event.

The occurrence of a major natural or environmental disaster or similar catastrophic event in an area 

where we own or guarantee mortgage loans or REO properties, especially in densely populated 

geographic areas, could increase our credit losses and credit related expenses. A natural disaster or 

catastrophic event that either damages or destroys residential or multifamily real estate underlying 

mortgage loans or REO properties we own or guarantee, or negatively affects the ability of the borrower 

to continue to make payments on mortgage loans we own or guarantee, could increase our serious 

delinquency rates and average loan loss severity in the affected areas. Such events could have a 

material adverse effect on our business and financial results. We may lack or not have adequate 

insurance coverage for some of these catastrophic events.
Risk Factors Market Risk

FREDDIE MAC | 2017 Form 10-K 208

MARKET RISK

Changes in interest rates could negatively affect the fair value of financial assets and 

liabilities, our results of operations and our net worth.

Our investment and credit guarantee activities in single-family and multifamily mortgage assets expose 

us to market risk, including prepayment risk. 

Interest rates can fluctuate for a number of reasons, including changes in the fiscal and monetary 

policies of the federal government and its agencies. Federal Reserve policies directly and indirectly 

influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. Interest 

rates also can fluctuate as a result of geopolitical events or changes in general economic conditions, 

including events or conditions that alter investor demand for Treasury or other fixed-income securities. 

Changes in interest rates could adversely affect the cash flows and prepayment rates on assets that we 

own and related debt and derivatives. We incur costs in connection with our efforts to manage these 

risks, which may not be successful. In addition, changes in interest-rates could adversely affect the 

prepayment rate on the loans that we guarantee. For example:

When interest rates decrease, borrowers are more likely to prepay their loans by refinancing them at 

a lower rate. An increased likelihood of prepayment on the loans underlying our mortgage-related 

securities may adversely affect the value of these securities.

When interest rates increase:

Borrowers with higher risk adjustable-rate loans may have fewer opportunities to refinance into 

fixed-rate loans;

A borrower's payment on additional debt obligations (such as home equity lines of credit and 

second liens) that have adjustable payment terms may increase, which in turn increases the risk 

that the borrower may default on a loan we own or guarantee; and

Our credit losses from loans with adjustable payment terms may increase as borrower payments 

increase at their reset dates, which increases the borrower’s risk of default.

Our financial results can be significantly affected by changes in interest rates and changes in yield 

curves, as certain of our assets and liabilities are recorded at fair value. Our interest rate risk 

management activities are designed to reduce our economic exposure to changes in interest rates to a 

low level as measured by our models. However, the accounting treatment for those assets and liabilities, 

including derivatives, creates variability in our earnings when interest rates fluctuate as some assets and 

liabilities are measured at amortized cost and some are measured at fair value, while all derivatives are 

measured at fair value. This variability generally is not indicative of the underlying economics of our 

business.

During 2017, we began using hedge accounting for certain single-family mortgage loans and long-term 

debt, which is intended to partially reduce the interest-rate volatility in our GAAP earnings by eliminating 

a portion of the measurement differences between our GAAP financial results and the underlying 

economics of our business. Our single-family mortgage hedge accounting program is complex and 

unique in the industry. We may fail to properly implement this program and related changes to systems 

and processes. Our hedges may fail in any given future period, which could expose us to significant 

earnings variability in that period and increase the risk that we will need a draw from Treasury.
Risk Factors Market Risk

FREDDIE MAC | 2017 Form 10-K 209

Changes in market spreads could materially affect our results of operations and net worth.

Changes in market conditions, including changes in interest rates, liquidity, prepayment and/or default 

expectations and the level of uncertainty in the market for a particular asset class, may cause 

fluctuations in market spreads (also referred to as OAS). Our financial results and net worth can be 

significantly affected by changes in market spreads, especially results driven by financial instruments 

that are measured at fair value. These instruments include trading securities, available-for-sale 

securities, loans held-for-sale and loans and debt with the fair value option elected. 

A widening of the market spreads on a given asset is typically associated with a decline in the fair value 

of that asset, which may adversely affect our near-term financial results and net worth. While wider 

market spreads may create favorable investment opportunities, our ability to take advantage of any such 

opportunities is limited due to various restrictions on our mortgage-related investments portfolio 

activities. See MD&A - Conservatorship and Related Matters - Limits on Our MortgageRelated Investments Portfolio and Indebtedness.

A narrowing or tightening of the market spreads on a given asset is typically associated with an increase 

in the fair value of that asset. Narrowing market spreads may reduce the number of attractive investment 

opportunities in loans and mortgage-related securities and could increase the cost of our activities to 

support the liquidity and price performance of our PCs and other securities. Consequently, a tightening 

of the market spreads on our assets may adversely affect our future financial results and net worth.

Changes in market spreads also affect the fair value of our debt with the fair value option elected. A 

narrowing or tightening of the market spreads on a given liability is typically associated with an increase 

in the fair value of that liability, which is recognized as a loss by us. 

Negative values for certain interest rate indices could have an adverse effect on our 

operational and interest-rate risk management processes.

Freddie Mac purchases and securitizes various types of ARMs and issues, invests in and hedges with 

various types of adjustable-rate financial instruments. Interest rates have been at historically low levels 

for a considerable period of time and, in certain countries have been negative. If the interest rate indices 

used to adjust our ARMs and other financial instruments (primarily LIBOR and Constant Maturity 

Treasury indices of various durations) were to become negative, our operational and interest-rate risk 

management processes could be adversely affected. If systems cannot process such rates 

appropriately, we may experience disruptions of our business operations, which could result in adverse 

effects on our relationships with customers, counterparties and investors, damage to our reputation and 

legal or regulatory actions. In addition, in the event the relevant index has a negative value, the terms of 

the adjustable-rate loans (originated prior to our October 2016 implementation of a new uniform ARM 

note) underlying certain of our outstanding ARM securities products may result in our having to pay a 

greater amount of interest to securities investors than we are entitled to receive on the underlying 

mortgages. See MD&A - Risk Management - Market Risk for a discussion of the implications of 

this issue for our measurement and management of interest-rate risk.
Risk Factors Operational Risks

FREDDIE MAC | 2017 Form 10-K 210

OPERATIONAL RISKS

A failure in our operational systems or infrastructure, or those of third parties, could impair 

our liquidity, disrupt our business, damage our reputation and cause losses.

We face significant levels of operational risk due to a variety of factors, including the size and complexity 

of our business operations and the amount of change to our core systems required to keep pace with 

regulatory and other requirements and business initiatives, as well as the ever changing cybersecurity 

landscape and increasing digitization of our business.

Shortcomings or failures in our internal processes, people or systems, or those of third parties with 

which we interact, could lead to impairment of our liquidity, financial and economic loss, errors in our 

financial statements, disruption of our business (e.g., issuing mortgage and/or debt securities), incorrect 

payments to investors in our securities, liability to customers or investors, further legislative or regulatory 

intervention, or reputational damage. We have certain systems that require manual support and 

intervention, which may lead to heightened risk of system failures. Our business is highly dependent on 

our ability to process a large number of transactions on a daily basis and manage and analyze 

significant amounts of information, much of which is provided by third parties. The transactions we 

process are complex and are subject to various legal, accounting and regulatory standards. The types of 

transactions we process and the standards relating to those transactions can change rapidly in response 

to external events, such as the implementation of government-mandated programs and changes in 

market conditions. Our financial, accounting, data processing, or other operating systems and facilities 

may fail to operate properly or become disabled, adversely affecting our ability to process these 

transactions, including our ability to compile and process legally required information. Our systems may 

contain design flaws. The information provided by third parties may be incorrect, or we may fail to 

properly manage or analyze it. The inability of our systems to accommodate an increasing volume of 

transactions or new types of transactions or products could constrain our ability to pursue new business 

initiatives or improve existing business activities. Our connectivity with our customers, counterparties, 

service providers and other financial institutions continues to increase, which increases our risk 

exposure with respect to an operational failure of their infrastructure systems.

We have developed, and expect to continue to develop, software tools for use by our customers in the 

customers’ loan production and other processes. These tools may fail to operate properly, which could 

disrupt our or our customers’ business and adversely affect our relationships with our customers.

We also face increased operational risk due to the magnitude and complexity of the new initiatives we 

are undertaking, including our efforts to help build a better housing finance system. Some of these 

initiatives require significant changes to our operational systems. In some cases, the changes must be 

implemented within a short period of time. Our legacy systems may also create increased operational 

risk for these new initiatives. Internal corporate reorganizations may also increase our operational risk, 

particularly during the period of implementation. 

We also face significant risks related to the FHFA-directed development of the single (common) security 

with Fannie Mae and CSS and the development and operation of the common securitization platform. 

The transition to the common securitization platform, which began in November 2016, presents 

significant operational and technological challenges. In addition, we will increasingly rely on CSS and the 

common securitization platform (which is owned and operated by CSS) for the operation of our single-
Risk Factors Operational Risks

FREDDIE MAC | 2017 Form 10-K 211

family securitization activities, particularly after Release 2 is implemented. We currently use the common 

securitization platform to perform certain data acceptance, issuance support and bond administration 

activities for us (i.e., Release 1). In December 2017, FHFA announced that the target implementation 

date for Release 2 remains the second quarter of 2019, noting that certain testing schedules have been 

extended. Our business activities could be adversely affected and the market for Freddie Mac securities 

could be disrupted if the common securitization platform were to fail or otherwise become unavailable to 

us or if CSS were unable to perform its obligations to us. Any measures we could take to mitigate these 

risks might not be sufficient to prevent our business from being harmed.

Our employees could act improperly for their own or third-party gain and cause unexpected losses or 

reputational damage. While we have processes and systems in place designed to prevent and detect 

fraud, there can be no assurance that such processes and systems will be successful.

Most of our key business activities are conducted in our offices in Virginia and represent a concentrated 

risk of people, technology and facilities. As a result, an infrastructure disruption in the area near our 

offices or affecting the power grid could significantly adversely affect our ability to conduct normal 

business operations. A terrorist event or natural disaster in the area near our offices or affecting the 

power grid could have a similar impact. Any measures we take to mitigate this risk may not be sufficient 

to respond to the full range of events that may occur or allow us to resume normal business operations 

in a timely manner.

Potential cybersecurity threats are changing rapidly and growing in sophistication. We may 

not be able to protect our systems or the confidentiality of our information from cyberattack 

and other unauthorized access, disclosure and disruption.

Our operations rely on the secure, accurate and timely receipt, processing, storage and transmission of 

confidential and other information in our computer systems and networks and with customers, 

counterparties, service providers and financial institutions. 

Information risks for companies like ours have significantly increased in recent years, in part because of 

the proliferation of new technologies, the use of the internet and telecommunications technologies to 

conduct financial transactions and the increased sophistication and activities of organized crime, 

hackers, terrorists and other external parties, including foreign state-sponsored actors. There have been 

several recent, highly publicized cases involving financial services companies, consumer-based 

companies and other organizations reporting the unauthorized disclosure of client, customer or other 

confidential information, as well as cyberattacks involving the dissemination, theft and destruction of 

corporate information, intellectual property, cash or other valuable assets. There have also been several 

highly publicized cases where hackers have requested "ransom" payments in exchange for not 

disclosing customer information or for not making the targets' computer systems unavailable.

Like many companies and government entities, from time to time we have been, and likely will continue 

to be, the target of attempted cyberattacks, including malware and denial-of-service, as part of an effort 

to disrupt operations, potentially test cybersecurity capabilities, or obtain confidential, proprietary or 

other information. We could also be adversely affected by cyberattacks that target the infrastructure of 

the internet, as such attacks could cause widespread unavailability of websites and degrade website 

performance. Our risk and exposure to these matters remain heightened because of, among other 

things, the evolving nature of these threats, our role in the financial services industry, the outsourcing of 

some of our business operations and the current global economic and political environment. 
Risk Factors Operational Risks

FREDDIE MAC | 2017 Form 10-K 212

Because we are interconnected with and dependent on third-party vendors, exchanges, clearing 

houses , fiscal and paying agents and other financial institutions, we could be adversely affected if any 

of them is subject to a successful cyberattack or other information security event. Third parties with 

which we do business may also be sources of cybersecurity or other technology risks. We routinely 

transmit and receive personal, confidential and proprietary information by electronic means. This 

information could be subject to interception, misuse or mishandling. 

Although we devote significant resources to protecting our critical assets and provide employee 

awareness training around phishing, malware and other cyber risks, there is no assurance that these 

measures will provide effective security. Our computer systems, software, end point devices and 

networks may be vulnerable to cyberattack, unauthorized access, supply chain disruptions, computer 

viruses or other malicious code, or other attempts to harm them or misuse or steal information. We 

routinely identify cyber threats as well as vulnerabilities in our systems and work to address them, but 

these efforts may be insufficient. Breaches of our security measures may result from employee error or 

misconduct. Outside parties may attempt to induce employees, customers, counterparties, service 

providers, financial institution or other users of our systems to disclose sensitive information in order to 

gain access to our systems and the information they contain. We may not be able to anticipate, detect 

or recognize threats to our systems and assets, or implement effective preventative measures against 

security breaches, especially because the techniques used change frequently or are not recognized until 

launched. 

A cyberattack could occur and persist for an extended period of time without detection. We expect that 

any investigation of a cyberattack would take time, during which we would not necessarily know the 

extent of the harm or how best to remediate it. In addition, announcing that a cyberattack has occurred 

could increase the risk of additional attacks. Although we have obtained insurance coverage relating to 

cybersecurity risks, this insurance may not be sufficient to provide adequate loss coverage. Although to 

date we have not experienced any cyberattacks resulting in significant impact to the company, there is 

no assurance that our cybersecurity risk management program will prevent cyberattacks from having 

significant impacts in the future. 

The occurrence of one or more cyberattacks could result in thefts of important assets (such as cash or 

source code), or the unauthorized disclosure, misuse or corruption of confidential and other information 

(including information about our borrowers, our customers or our counterparties), or could otherwise 

cause interruptions or malfunctions in our operations or the operations of our customers or 

counterparties. This could result in significant losses or reputational damage, adversely affect our 

relationships with our customers and counterparties, negatively affect our competitive position and 

otherwise harm our business. We could also face regulatory and other legal action. We might be 

required to expend significant additional resources to modify our protective measures or to investigate 

and remediate vulnerabilities or other exposures, and we might be subject to litigation and financial 

losses that are not fully insured. In addition, there can be no assurance that customers, counterparties, 

financial intermediaries and governmental organizations are adequately protecting the information that 

we share with them. As a result, a cyberattack on their systems and networks, or breach of their security 

measures, may result in harm to our business and business relationships.
Risk Factors Operational Risks

FREDDIE MAC | 2017 Form 10-K 213

We rely on third parties for certain important functions. Any failures by those vendors and 

service providers (or other third parties that work for the vendors/service providers), could 

disrupt our business operations or expose us to loss of confidential information or 

intellectual property.

Our use of vendors and service providers increases our risk exposure to possible failures in their risk 

and control environments. We outsource certain key functions to external parties, including some that 

are critical to financial reporting (including our use of hedge accounting), valuations, our mortgagerelated investment activity, loan underwriting, loan servicing and PC issuance and administration (i.e., 

CSS). 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, perform them at an 

acceptable service level, or handle increased volumes, or if one of them experiences a disruption in its 

own business or technology from any cause, including a cybersecurity breach, our business operations 

could be constrained, disrupted, or otherwise negatively affected. Our use of vendors also exposes us 

to the risk of losing intellectual property or confidential information and to other harm, including to our 

reputation. Our ability to monitor the activities or performance of vendors may be constrained, which 

may make it difficult for us to assess and manage the risks associated with these relationships.

We face risks and uncertainties associated with the models that we use to inform business 

and risk management decisions and for financial accounting and reporting purposes.

Models are inherently imperfect predictors of actual results. We use models to project significant factors 

in our businesses, including, but not limited to, interest rates, house prices and mortgage rates under a 

variety of scenarios. We also use models to project borrower prepayment, default behavior and loss 

severity over long periods of time. There is inherent uncertainty associated with model projections of 

economic variables and the downstream projections of prepayment and default behavior dependent on 

these variables. 

Uncertainty and risks related to models may arise from a number of sources, including the following:

We could fail to implement, operate, adjust, or use our models as intended. We may fail to code a 

model correctly, we could use incorrect or insufficient data inputs or fail to fully understand the data 

inputs, or model implementation software could malfunction. The complexity and interconnectivity of 

our models create additional risk regarding the accuracy of model output. We may not be able to 

deploy or update models in a timely manner.

The data we use as inputs into our models, much of which we receive from third-party data 

providers, may be insufficient, inaccurate or incorrectly formatted.

When market conditions change in unforeseen ways, our model projections may not accurately 

reflect these conditions or we may not fully understand the model outputs. For example, models may 

not fully reflect the effect of certain government policy changes or new industry trends. In such 

cases, it is often necessary to make assumptions and judgments to accommodate the effect of 

scenarios that are not sufficiently well represented in the historical data. While we may adjust our 

models in response to new events, considerable residual uncertainty remains.

We also use select third-party vendor models. While the use of such models may reduce our risk 

where no internal model is available, it exposes us to additional risk, as third parties typically do not 

provide us with proprietary information regarding their models. We have little control over the 
Risk Factors Operational Risks

FREDDIE MAC | 2017 Form 10-K 214

process by which vendor models are adjusted or changed. As a result, we may be unable to fully 

evaluate the risks associated with the use of such models.

We risk making poor business decisions in situations where we rely on models to provide key 

information. Our use of models could affect decisions concerning the purchase, sale and securitization 

of loans, the purchase and sale of securities, funding, the setting of guarantee fee prices and the 

management of interest-rate, market, or credit risk. Our use of models also affects our quality-control 

sampling strategies for loans in our single-family credit guarantee portfolio and potential settlements 

with our counterparties. Our adoption of hedge accounting increases our reliance on models for financial 

reporting. See MD&A - Risk Management - Market Risk and Critical Accounting Policies and 

Estimates for more information on our use of models.
Risk Factors Liquidity Risks

FREDDIE MAC | 2017 Form 10-K 215

LIQUIDITY RISKS

Our activities may be adversely affected by limited availability of financing and increased 

funding costs.

The amount, type and cost of our unsecured funding, including financing from other financial institutions 

and the capital markets, directly affects our interest expense and results of operations. A number of 

factors could make such financing more difficult to obtain, more expensive or unavailable on any terms, 

both domestically and internationally, including:

Market and other factors;

Changes in U.S. government support for us;

Reduced demand for our debt securities; and

Competition for debt funding from other debt issuers.

Market and Other Factors

Our ability to obtain funding in the public unsecured debt markets or by selling or pledging mortgagerelated and other securities as collateral to other institutions could change rapidly or cease. The cost of 

available funding could increase significantly due to changes in market interest rates, market 

confidence, operational risks, regulatory requirements and other factors. We may incur higher funding 

costs due to our liquidity management practices and procedures. There can be no assurance that such 

practices and procedures would provide us with sufficient liquidity to meet our ongoing cash obligations 

under all circumstances. In particular, we believe that our liquidity contingency plans may be inadequate 

or difficult to execute during a liquidity crisis or period of significant market turmoil. If we cannot access 

the unsecured debt markets, our ability to repay maturing indebtedness and fund our operations could 

be significantly impaired or eliminated, as our alternative sources of liquidity (e.g., cash and other 

investments) may not be sufficient to meet our liquidity needs.

We make extensive use of the Federal Reserve's payment system in our business activities. The Federal 

Reserve requires that we fully fund accounts at the Federal Reserve Bank of New York to the extent 

necessary to cover cash payments on our debt and mortgage-related securities each day, before the 

Federal Reserve Bank of New York, acting as our fiscal agent, will initiate such payments. Although we 

seek to maintain sufficient intraday liquidity to fund our activities through the Federal Reserve's payment 

system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash 

may cause our account to be overdrawn, potentially resulting in penalties and reputational harm.

Prolonged wide market spreads on long-term debt could cause us to reduce our long-term debt 

issuances and further increase our reliance on short-term and callable debt issuances. This increased 

reliance could increase the risk that we may be unable to refinance our debt when it becomes due and 

result in a greater use of derivatives. This greater use of derivatives could increase the variability of our 

comprehensive income or increase our credit exposure to our counterparties.

Our mortgage-related investments portfolio has contracted significantly since we entered into 

conservatorship, but continues to contain assets that are less liquid than agency securities. Our ability 

to use these less liquid assets as a significant source of liquidity (for example, through sales or use as 

collateral in secured lending transactions) is limited.
Risk Factors Liquidity Risks

FREDDIE MAC | 2017 Form 10-K 216

We pay net worth sweep dividends to Treasury on the senior preferred stock on a quarterly basis. The 

amount of the net worth sweep dividend could vary substantially from quarter to quarter for a number of 

reasons, including as a result of non-cash changes in net worth. It is possible that, due to non-cash 

increases in net worth, such as increases in the fair value of our securities or a reduction in our loan loss 

reserves, the amount of our dividend for a quarter could exceed the amount of available cash, which 

could have an adverse effect on our financial results.

Changes in U.S. Government Support

Treasury supports us through the Purchase Agreement and Treasury’s ability to purchase up to 

$2.25 billion of our obligations under its permanent statutory authority. Unlike certain of our competitors, 

we do not have access to the Federal Reserve's discount window or emergency credit facilities. 

Changes or perceived changes in the U.S. government’s support for us could have a severe negative 

effect on our access to the unsecured debt markets and our debt funding costs. Our access to the 

unsecured debt markets and the costs of our debt funding could be adversely affected by a number of 

factors relating to U.S. government support, including:

Uncertainty about the future of the GSEs;

Any concerns by debt investors that the risk of us being placed in receivership is increasing; and

Future draws that significantly reduce the amount of available funding remaining under the Purchase 

Agreement. 

For more information, see MD&A - Liquidity and Capital Resources - Capital Resources.

Reduced Demand for Debt Securities

If investor demand for our debt securities were to decrease, our liquidity, business and results of 

operations could be materially adversely affected. The willingness of domestic and foreign investors to 

purchase and hold our debt securities can be influenced by many factors, including changes in the 

world economy, changes in foreign-currency exchange rates, regulatory and political factors, as well as 

the availability of and investor preferences for other investments. If investors were to reduce their 

purchases of our debt securities or divest their holdings, our funding costs could increase and our 

business activities could be curtailed. 

The market for our debt securities may become less liquid as the size of our mortgage-related 

investments portfolio declines, as we will be issuing fewer debt securities. This could lead to a decrease 

in demand for our debt securities and an increase in our funding costs.

Competition for Debt Funding

We compete for debt funding with Fannie Mae, the FHLBs and other institutions. Competition for debt 

funding from these entities can vary with changes in economic, financial market and regulatory 

environments. Increased competition for debt funding may result in a higher cost to finance our 

business, which could negatively affect our financial results. See MD&A - Our Business Segments - 

Capital Markets for a description of our debt issuance programs. Our funding costs and liquidity 

contingency plans may also be affected by changes in the amount of, and demand for, debt issued by 

Treasury.
Risk Factors Liquidity Risks

FREDDIE MAC | 2017 Form 10-K 217

Any downgrade in the credit ratings of the U.S. government would likely be followed by a 

downgrade in our credit ratings. A downgrade in the credit ratings of our debt could 

adversely affect our liquidity and other aspects of our business.

Our credit ratings are important to our liquidity. We currently receive ratings for our unsecured debt from 

three nationally recognized statistical rating organizations (S&P, Moody’s and Fitch). These ratings are 

primarily based on the support we receive from Treasury, and therefore are affected by changes in the 

credit ratings of the U.S. government. Any downgrade in the credit ratings of the U.S. government would 

be expected to be followed or accompanied by a downgrade in our credit ratings. In addition to a 

downgrade in the credit ratings of or outlook on the U.S. government, a number of other events could 

adversely affect our debt credit ratings, including actions by governmental entities, changes in 

government support for us, future GAAP losses and additional draws under the Purchase Agreement. 

Any such downgrades could lead to major disruptions in the mortgage and financial markets and to our 

business due to lower liquidity, higher borrowing costs, lower asset values and higher credit losses, and 

could cause us to experience net losses and net worth deficits. A downgrade in our credit ratings could 

require us to post additional collateral to certain of our derivative and other counterparties.

For more information, see MD&A - Liquidity and Capital Resources - Liquidity Profile - Credit 

Ratings.
Risk Factors Legal and Regulatory Risks

FREDDIE MAC | 2017 Form 10-K 218

LEGAL AND REGULATORY RISKS

Legislative or regulatory actions could adversely affect our business activities and financial 

results.

We operate in a highly regulated industry and are subject to heightened supervision from FHFA, as our 

Conservator. Our compliance systems and programs may not be adequate to ensure that we are in 

compliance with all legal and other requirements. We could incur fines or other negative consequences 

for inadvertent violations. 

Our business may be directly adversely affected by future legislative and regulatory actions at the 

federal, state and local levels, including actions by FHFA as Conservator. Judicial actions at the federal, 

state, or local level could also adversely affect us. Legislative, regulatory or judicial actions could affect 

us in a number of ways, including by imposing significant additional legal, compliance and other costs 

on us, limiting our business activities and diverting management attention or other resources. 

For example, our ability to recruit and retain executives and other employees with the necessary skills to 

conduct our business may be adversely affected by legislative or regulatory actions (e.g., significant 

restrictions on compensation). We could also be negatively affected by legislative, regulatory or judicial 

action that:

Changes the foreclosure process of any individual state;

Limits or otherwise adversely affects the rights of a holder of a first lien on a mortgage (such as 

through granting priority rights in foreclosure proceedings for homeowner associations or through 

initiatives that provide a lien priority in connection with loans to finance energy efficiency or similar 

improvements);

Expands the responsibilities of (and costs to) servicers for maintaining vacant properties prior to 

foreclosure; or

Prevents us from using the MERS System or disrupts foreclosures of loans registered in the MERS 

System. 

We are subject to complex and evolving laws and regulations governing privacy and the protection of 

personal information of individuals. Our business could be adversely affected if we fail to protect the 

confidentiality of such information or if it is mishandled or misused.

The Dodd-Frank Act significantly changed the regulation of loans and the financial services industry and 

could continue to affect us in substantial ways. For example, the Dodd-Frank Act and related regulatory 

changes could cause or require us to make further changes to our business practices, such as practices 

related to mortgage underwriting and servicing.

Legislation or regulatory actions could indirectly adversely affect us to the extent they affect the 

activities of banks, savings institutions, insurance companies, derivative counterparties, clearinghouses, 

securities dealers and other regulated entities that constitute a significant portion of our customers or 

counterparties, or to the extent that they modify industry practices. Legislative or regulatory actions that 

remove incentives for these entities to purchase our securities or enter into derivatives or other 

transactions with us could have a material adverse effect on our business and financial results. For 

example, changes in business practices resulting from new laws and regulations could have a negative 

effect on the volume of loan originations or could modify or remove incentives for financial institutions to 
Risk Factors Legal and Regulatory Risks

FREDDIE MAC | 2017 Form 10-K 219

sell loans to us, either of which could adversely affect the number of loans available for us to purchase 

or guarantee.

The Basel III standards could affect demand for our debt and mortgage-related securities. 

U.S. banking regulators have substantially revised the capital and liquidity requirements applicable to 

banking organizations, based on the Basel III standards developed by the Basel Committee on Banking 

Supervision. Phase-in of the new bank capital and liquidity requirements will take several years. The new 

requirements do not directly apply to us, and there is significant uncertainty about the extent to which 

implementation of the new requirements by banking organizations may affect us. For example, the 

emerging regulatory framework could decrease demand for our debt and mortgage-related securities 

and/or affect competition in the market for loan originations and servicing, with possible adverse 

consequences for our business and financial results. In addition, the phase-in of enhanced capital and 

liquidity requirements for banking organizations may reduce the level of participation of such 

organizations in (and thus the liquidity of) trading markets for various types of financial instruments, 

including asset-backed securities. In turn, this could decrease the liquidity of the markets for our debt 

and mortgage-related securities, which could increase our funding and other costs and adversely affect 

our business.

In January 2016, the Basel Committee on Banking Supervision issued revised standards for minimum 

capital requirements for market risk that are applicable to banking organizations. In addition, the Basel 

Committee has recently announced further revisions to the Basel III standards.

There is significant uncertainty as to when, and the extent to which, U.S. banking regulators will adopt 

any new standards, and the effect any such standards may have on us.

We may make certain changes to our business in an attempt to meet our housing goals and 

duty to serve requirements, which may cause us to forgo other more profitable 

opportunities.

We may make adjustments to our loan sourcing and purchase strategies in an effort to meet our housing 

goals and subgoals, including relaxing some of our underwriting standards and expanding the use of 

targeted initiatives to reach underserved populations. For example, we may purchase loans that offer 

lower expected returns on our investment and potentially increase our exposure to credit losses. Doing 

so could cause us to forgo other purchase opportunities that we would expect to be more profitable. 

It is possible that we could also make changes to our business in the future in response to our duty to 

serve underserved markets that could adversely affect our profitability. If we do not meet our housing 

goals or duty to serve requirements, and FHFA finds that the goals or requirements were feasible, we 

may become subject to a housing plan that could require us to take additional steps that could 

potentially adversely affect our profitability. Due to our failure to meet two single-family housing goals for 

2014 and 2015, we have been operating under an FHFA-required Housing Plan that addresses 

achievement of the missed goals through 2018. Even though we met our housing goals for 2016, we 

continue to operate under the Housing Plan. If we fail to comply with the plan, FHFA could take 

additional action against us.
Risk Factors Legal and Regulatory Risks

FREDDIE MAC | 2017 Form 10-K 220

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 claims and other legal proceedings. We also have been, and in the future may 

be, involved in governmental investigations and regulatory proceedings and IRS examinations. In 

addition, certain of our former officers are involved in legal proceedings for which they may be entitled 

to reimbursement by us for costs and expenses of the proceedings. We may be required to establish 

reserves and to make substantial payments in the event of adverse judgments or settlements of any 

such claims, proceedings, investigations or examinations. Any legal proceeding, governmental 

investigation, or IRS examination issue, even if resolved in our favor, could result in negative publicity or 

cause us to incur significant legal and other expenses. Furthermore, the costs (including settlement 

costs) related to these legal proceedings and governmental investigations and examinations may differ 

from our expectations and exceed any amounts for which we have reserved or require adjustments to 

such reserves. These various matters could divert management’s attention and other resources from the 

needs of the business. In addition, a number of lawsuits have been filed against the U.S. government 

relating to conservatorship and the Purchase Agreement that could adversely affect us. See Legal 

Proceedings and Note 16 for information about these various pending legal proceedings.
Risk Factors Other Risks

FREDDIE MAC | 2017 Form 10-K 221

OTHER RISKS

Our investment activity is significantly limited under the Purchase Agreement and by FHFA, 

which will reduce our earnings from investment activities over time and result in greater 

reliance on our guarantee activities to generate revenue.

Declines in the size of our mortgage-related investments portfolio, as required by the Purchase 

Agreement and FHFA, will reduce our earnings over the long term. We are also subject to other 

limitations on our investment activity, including significant constraints on our ability to purchase or sell 

mortgage assets. These limitations will reduce the earnings capacity of our mortgage-related 

investments portfolio. We can provide no assurance that the cap on our mortgage-related investments 

portfolio will not, over time, force us to sell mortgage assets at unattractive prices or that our current 

strategies will not have an adverse impact on our business or financial results. For more information, see 

MD&A - Conservatorship and Related Matters - Limits on Our Mortgage-Related 

Investments Portfolio and Indebtedness.

Due to the reduced earnings capacity of our mortgage-related investments portfolio, we are placing 

greater emphasis on our guarantee activities to generate revenue. However, our ability to generate 

revenue through guarantee activities may be limited for a number of reasons. We may be required to 

adopt business practices that help serve our public mission and other non-financial objectives, but that 

may negatively affect our future financial results. We must obtain FHFA’s approval to implement acrossthe-board increases in our guarantee fees, and there can be no assurance FHFA will approve any such 

increase requests in the future. Congress or FHFA may require us to set aside or otherwise pay monies 

to fund third party initiatives, such as the existing requirement under the GSE Act that we allocate 

amounts for certain housing funds. The combination of the restrictions on our business activities and 

our potential inability to generate sufficient revenue through our guarantee activities to offset the effects 

of those restrictions may have an adverse effect on our results of operations and financial condition.

The loss of business from a key customer or a decrease in the availability of mortgage 

insurance could result in a decline in our market share and revenues.

Our business depends on our ability to acquire a steady flow of loans. We purchase a significant 

percentage of our single-family loans from several large loan originators. Similarly, we acquire a 

significant portion of our multifamily loans from several large lenders. For more information, see Note 

14.

We enter into loan purchase commitments with many of our single-family customers that are typically 

less than one year in duration. Lenders may fail to deliver loans to us in accordance with their 

commitments. The loss of business from any of our major lenders could adversely affect our market 

share and our revenues.

Our Charter requires that single-family loans with LTV ratios above 80% at the time of purchase be 

covered by mortgage insurance or other credit enhancements. If the availability of mortgage insurance 

for loans with LTV ratios above 80% is reduced, we may be restricted in our ability to purchase or 

securitize such loans. This could reduce our overall volume of new business.
Risk Factors Other Risks

FREDDIE MAC | 2017 Form 10-K 222

Competition from banking and non-banking institutions (including Fannie Mae and FHA/VA 

with Ginnie Mae securitization) may harm our business. FHFA’s actions as Conservator of 

both companies could affect competition between us and Fannie Mae. 

Competition in the secondary mortgage market may make it more difficult for us to purchase mortgage 

loans. Furthermore, competitive pricing pressures may make our products less attractive in the market 

and negatively affect our financial results. Increased competition from Fannie Mae, FHA/VA (with Ginnie 

Mae securitization), and new entrants may alter our product mix, lower our volumes and reduce our 

revenues on new business.

We also compete with other financial institutions that retain or securitize loans, such as commercial and 

investment banks, dealers, savings institutions and insurance companies. In recent years, FHFA took a 

number of actions designed to encourage these other financial institutions to increase their activities in 

the mortgage market (e.g., increasing our guarantee fees in 2012), and FHFA could take additional 

actions in the future. There is a risk that financial institutions may retain loans with better credit 

characteristics rather than sell them to us, or otherwise seek to structure financial transactions that 

result in our loan purchases having a higher proportion of loans with lower credit scores and higher LTV 

ratios. While we compensate ourselves for higher levels of credit risk through charging upfront fees, 

sellers' retention of loans with better credit characteristics could result in us having lower overall 

purchase volumes, revenues and returns (as a result of us having loans with a more adverse credit risk 

profile).

FHFA is also Conservator of Fannie Mae, our primary competitor. FHFA’s actions as Conservator of both 

companies could affect competition between us and Fannie Mae. It is possible that FHFA could require 

us and Fannie Mae to take a uniform approach that, because of differences in our respective 

businesses, could place Freddie Mac at a competitive disadvantage to Fannie Mae. FHFA also may 

prevent us from taking actions that could give us a competitive advantage.

We have faced increased competition in the multifamily market in recent years from life insurers, banks, 

CMBS conduits and other market participants as multifamily market fundamentals have improved. FHFA 

may take actions that could encourage further competition.

A significant decline in the price performance of or demand for our PCs could have an 

adverse effect on the volume and/or profitability of our new single-family guarantee 

business. 

The price performance of our PCs relative to comparable Fannie Mae securities is one of Freddie Mac’s 

more significant risks and competitive issues, with both short- and long-term implications. Our PCs are 

an integral part of our loan purchase program. Our competitiveness in purchasing single-family loans 

from our sellers and the volume and/or profitability of our new single-family guarantee business are 

directly affected by the price performance of our PCs relative to comparable Fannie Mae securities.

Freddie Mac fixed-rate PCs provide for faster scheduled monthly remittance of loan principal and 

interest payments to investors than Fannie Mae fixed-rate securities. Despite the faster remittance cycle 

of our PCs, our PCs have typically traded at a discount relative to comparable Fannie Mae securities. 

This difference in relative pricing creates an economic incentive for sellers to conduct a disproportionate 

share of their single-family business with Fannie Mae. 

There may not be a liquid market for our PCs, which could adversely affect the price performance of 
Risk Factors Other Risks

FREDDIE MAC | 2017 Form 10-K 223

PCs and our single-family market share. A significant reduction in our market share, and thus in the 

volume of loans that we securitize, or a reduction in the trading volume of our PCs could further reduce 

the liquidity of our PCs. While we may employ various strategies to support the liquidity and price 

performance of our PCs, and may consider additional strategies, those strategies may fail or adversely 

affect our business. We may cease such activities at any time, or FHFA could require us to do so, which 

could adversely affect the liquidity and price performance of our PCs. 

The liquidity-related price differences between our PCs and comparable Fannie Mae securities could be 

influenced by factors that are largely outside of our control. For example, the level of the Federal 

Reserve’s purchases and sales of agency mortgage-related securities, including the balance sheet 

normalization program announced in October 2017 to reduce the Federal Reserve's holdings of 

mortgage-related securities, could affect the demand for and values of our PCs. Therefore, any 

strategies we employ to reduce the liquidity-related price differences may not reduce or eliminate these 

price differences over the long term. 

In certain circumstances, we compensate sellers for the difference in price between our PCs and 

comparable Fannie Mae securities by reducing our guarantee fees, which adversely affects the 

profitability of our single-family guarantee business. We also incur costs in connection with our efforts to 

support the liquidity and price performance of our PCs, including by engaging in transactions that yield 

less than our target rate of return. For more information, see MD&A - Our Business Segments - 

Single-Family Guarantee - Business Overview - Products and Activities and - Capital 

Markets Segment - Business Overview - Products and Activities.

In accordance with FHFA's 2014 Strategic Plan and the Conservatorship Scorecards, we are developing 

a single (common) security, which is designed to reduce the price performance disparities between the 

mortgage-related securities of Freddie Mac and Fannie Mae. This initiative is complex and costly, and 

requires us to align our business processes more closely with those of Fannie Mae. It is possible that we 

could experience a disruption in the liquidity of Freddie Mac securities during the period in which we 

transition to the single (common) security. We may be required by FHFA to modify our mortgage 

purchase offerings, servicing and securitization practices to more closely align with Fannie Mae to 

achieve market acceptance of the single (common) security. Further, there can be no assurance that a 

single (common) security will reduce the pricing disparities discussed above. Uncertainty concerning the 

timing of implementation of the single (common) security or the extent of the alignment between Freddie 

Mac's and Fannie Mae's mortgage purchase, servicing and securitization practices may affect the 

degree to which the single (common) security receives widespread market acceptance. 

The single (common) security initiative will also cause us to have counterparty credit exposure to Fannie 

Mae. Once the initiative is implemented, investors will be able to commingle Freddie Mac and Fannie 

Mae securities in resecuritizations. When we resecuritize Fannie Mae securities, our guarantee of 

principal and interest would extend to the underlying Fannie Mae securities. In the event Fannie Mae 

were to fail to make a payment on a Fannie Mae security that we resecuritized, Freddie Mac would be 

responsible for making the payment. We will not control or limit the amount of resecuritized Fannie Mae 

securities that we could be required to guarantee. We will be dependent on FHFA, Fannie Mae and 

Treasury (pursuant to Fannie Mae’s and our Purchase Agreements with Treasury) to avoid a liquidity 

event or default. We are not planning to modify our liquidity strategies to address the possibility of nontimely payment by Fannie Mae.
Risk Factors Other Risks

FREDDIE MAC | 2017 Form 10-K 224

The profitability of our Multifamily business could be adversely affected by a significant 

decrease in demand for our K Certificates and SB Certificates.

Our current Multifamily business model is highly dependent on our ability to finance purchased 

multifamily loans through securitization into K Certificates and SB Certificates. A significant decrease in 

demand for K Certificates and SB Certificates could have an adverse impact on the profitability of the 

Multifamily business to the extent that our holding period for the loans increases and we are exposed to 

credit, spread and other market risks for a longer period of time or receive reduced proceeds from 

securitization. We employ various strategies to support the liquidity of our K Certificates and SB 

Certificates, and may consider additional strategies. From time to time, we purchase and sell guaranteed 

K Certificates and SB Certificates and related unguaranteed securities associated with K Certificates 

and SB Certificates as well as our other securitization products through our mortgage-related 

investments portfolio.

There may not be an active, liquid trading market for our equity securities.

Our common stock and the publicly traded classes of our preferred stock trade exclusively on the 

OTCQB Marketplace. Trading volumes on the OTCQB Marketplace can fluctuate significantly, which 

could make it difficult for investors to execute transactions in our securities and could cause declines or 

volatility in the prices of our equity securities.

The intention of the United Kingdom’s Financial Conduct Authority (FCA) to cease sustaining 

LIBOR after 2021 could negatively affect the fair value of our financial assets and liabilities, 

results of operations and net worth.

In July 2017, the Chief Executive of the United Kingdom’s Financial Conduct Authority (FCA) announced 

the FCA’s intention to cease sustaining LIBOR after 2021. The Federal Reserve Board convened the 

Alternative Reference Rates Committee (ARRC) to identify a set of alternative reference interest rates for 

possible use as market benchmarks. The ARRC identified such a rate in June 2017, and in August 2017, 

the Federal Reserve Board requested public comment on a proposal to begin publishing that and two 

other alternative rates beginning in 2018.

We are not able to predict whether LIBOR will cease to be available after 2021, whether the alternative 

rates the Federal Reserve Board proposes to publish will become market benchmarks in place of LIBOR, 

or what the impact of such a transition may be on our business, results of operations and financial 

condition.
Legal Proceedings

FREDDIE MAC | 2017 Form 10-K 225

Legal Proceedings

We are involved as a party to a variety of legal proceedings arising from time to time in the ordinary 

course of business. See Note 16 for more information regarding our involvement as a party to various 

legal proceedings. We discuss below certain litigation against the U.S. government concerning 

conservatorship and the Purchase Agreement.

Over the last several years, numerous lawsuits have been filed against the U.S. government and, in 

some cases, the Secretary of the Treasury and the Director of FHFA. These lawsuits challenge certain 

government actions related to the conservatorship (including actions taken in connection with the 

imposition of conservatorship) and the Purchase Agreement. Several of the lawsuits seek to invalidate 

the net worth sweep dividend provisions of the senior preferred stock, which were implemented 

pursuant to the August 2012 amendment to the Purchase Agreement. A number of cases have been 

dismissed. Cases are currently pending in the U.S. Court of Federal Claims, the U.S. District Court for 

the Western District of Michigan and the U.S. District Court for the District of Minnesota. In addition, 

plaintiffs are appealing a March 2017 order by the U.S. District Court for the Northern District of Iowa to 

dismiss the case in that Court, and plaintiffs are appealing a May 2017 order by the U.S. District Court 

for the Southern District of Texas to dismiss the case in that Court. Plaintiffs filed a petition for certiorari 

with the U.S. Supreme Court to appeal the June 2017 affirmance by the U.S. Court of Appeals for the 

Fifth Circuit of the March 2017 order by the U.S. District Court for the Western District of Texas to 

dismiss the Case in that Court. Plaintiffs also appealed a September 2016 order by the U.S. District 

Court for the Eastern District of Kentucky to dismiss the case in that Court. On November 22, 2017, the 

U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal. It is possible that additional similar 

lawsuits will be filed in the future.

Freddie Mac is not a party to any of these lawsuits. However, a number of other lawsuits have been filed 

against Freddie Mac concerning the August 2012 amendment to the Purchase Agreement. See Note 

16 for information on the lawsuits filed against Freddie Mac. Pershing Square Capital Management, L.P. 

(Pershing) is a plaintiff in one of the lawsuits filed against Freddie Mac. Pershing has filed reports with 

the SEC, most recently in March 2014, indicating that it beneficially owned more than 5% of our 

common stock. We do not know Pershing's current beneficial ownership of our common stock. For 

more information, see Security Ownership of Certain Beneficial Owners and Management 

and Related Stockholder Matters.

It is not possible for us to predict the outcome of these lawsuits (including the outcome of any appeal), 

or the actions the U.S. government (including Treasury and FHFA) might take in response to any ruling or 

finding in any of these lawsuits or any future lawsuits. However, it is possible that we could be adversely 

affected by these events, including, for example, by changes to the Purchase Agreement, or any 

resulting actual or perceived changes in the level of U.S. government support for our business.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

FREDDIE MAC | 2017 Form 10-K 226

Market for Registrant’s Common 

Equity, Related Stockholder Matters 

and Issuer Purchases of Equity 

Securities

MARKET INFORMATION

Our common stock, par value $0.00 per share, trades on the OTCQB Marketplace, operated by the OTC 

Markets Group Inc., under the ticker symbol "FMCC." As of February 1, 2018, there were 

650,054,731 shares of our common stock outstanding.

The table below sets forth the high and low bid information for our common stock on the OTCQB 

Marketplace for the indicated periods and reflects inter-dealer prices, without retail mark-up, markdown, or commission, and may not necessarily represent actual transactions.

2017 Quarter Ended High Low

December 31 $3.24 $2.50

September 30 2.98 2.13

June 30 2.94 2.10

March 31 4.27 2.30

2016 Quarter Ended High Low

December 31 $4.84 $1.52

September 30 1.90 1.46

June 30 2.20 1.21

March 31 1.75 0.97

Holders

As of February 1, 2018, we had 1,659 common stockholders of record.

Dividends and Dividend Restrictions

We did not pay any cash dividends on our common stock during 2017 or 2016. Our payment of 

dividends is subject to the following restrictions:

Restrictions Relating to the Conservatorship - The Conservator has prohibited us from paying 

any dividends on our common stock or on any series of our preferred stock (other than the senior 

preferred stock). FHFA has instructed our Board of Directors that it should consult with and obtain 

the approval of FHFA before taking actions involving dividends. In addition, FHFA has adopted a 

regulation prohibiting us from making capital distributions during conservatorship, except as 

authorized by the Director of FHFA.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

FREDDIE MAC | 2017 Form 10-K 227

Restrictions Under the Purchase Agreement - The Purchase Agreement prohibits us and any of 

our subsidiaries from declaring or paying any dividends on Freddie Mac equity securities (other than 

with respect to the senior preferred stock or warrant) without the prior written consent of Treasury.

Restrictions Under the GSE Act - Under the GSE Act, FHFA has authority to prohibit capital 

distributions, including payment of dividends, if we fail to meet applicable capital requirements. 

However, our capital requirements have been suspended during conservatorship.

 Restrictions Under our Charter - Without regard to our capital classification, we must obtain prior 

written approval of FHFA to make any capital distribution that would decrease total capital to an 

amount less than the risk-based capital level or that would decrease core capital to an amount less 

than the minimum capital level. As noted above, our capital requirements have been suspended 

during conservatorship.

Restrictions Relating to Subordinated Debt - During any period in which we defer payment of 

interest on qualifying subordinated debt, we may not declare or pay dividends on, or redeem, 

purchase or acquire, our common stock or preferred stock. Our qualifying subordinated debt 

provides for the deferral of the payment of interest for up to five years if either our core capital is 

below 125% of our critical capital requirement or our core capital is below our statutory minimum 

capital requirement, and the Secretary of the Treasury, acting on our request, exercises his or her 

discretionary authority pursuant to Section 306(c) of our Charter to purchase our debt obligations. 

FHFA has directed us to make interest and principal payments on our subordinated debt, even if we 

fail to maintain required capital levels. As a result, the terms of any of our subordinated debt that 

provide for us to defer payments of interest under certain circumstances, including our failure to 

maintain specified capital levels, are no longer applicable.

Restrictions Relating to Preferred Stock - Payment of dividends on our common stock is also 

subject to the prior payment of dividends on our 24 series of preferred stock and one series of senior 

preferred stock, representing an aggregate of 464,170,000 shares and 1,000,000 shares, 

respectively, outstanding as of December 31, 2017. Payment of dividends on all outstanding 

preferred stock, other than the senior preferred stock, is subject to the prior payment of dividends on 

the senior preferred stock. We paid dividends on the senior preferred stock during 2017 at the 

direction of the Conservator, as discussed in MD&A - Liquidity and Capital Resources and 

Note 11. We did not declare or pay dividends on any other series of preferred stock outstanding in 

2017.

Recent Sales of Unregistered Securities

The securities we issue are "exempted securities" under the Securities Act of 1933. As a result, we do 

not file registration statements with the SEC with respect to offerings of our securities.

Following our entry into conservatorship, we suspended the operation of, and ceased making grants 

under, equity compensation plans. Previously, we had provided equity compensation under these plans 

to employees and members of our Board of Directors. Under the Purchase Agreement, we cannot issue 

any new options, rights to purchase, participations or other equity interests without Treasury’s prior 

approval. However, grants outstanding as of the date of the Purchase Agreement remain in effect in 

accordance with their terms. No stock options were exercised during the three months ended 

December 31, 2017. See Note 11 for more information.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

FREDDIE MAC | 2017 Form 10-K 228

ISSUER PURCHASES OF EQUITY SECURITIES

We did not repurchase any of our common or preferred stock during 2017. Additionally, we do not 

currently have any outstanding authorizations to repurchase common or preferred stock. Under the 

Purchase Agreement, we cannot repurchase our common or preferred stock without Treasury’s prior 

consent, and we may only purchase or redeem the senior preferred stock in certain limited 

circumstances set forth in the certificate of designation of the senior preferred stock.

TRANSFER AGENT AND REGISTRAR

Computershare Trust Company, N.A.

P.O. Box 505000

Louisville, KY 40233-5000

Telephone: 877-373-6374

https://www-us.computershare.com/investor
Financial Statements

FREDDIE MAC | 2017 Form 10-K 229

Financial Statements and

Supplementary Data
Financial Statements Report of Independent Registered Public Accounting Firm

FREDDIE MAC | 2017 Form 10-K 230

Report of Independent Registered 

Public Accounting Firm

To the Board of Directors and Stockholders of Freddie Mac

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Freddie Mac, a stockholder-owned 

government sponsored enterprise, and its subsidiaries (the "Company") as of December 31, 2017 and 

2016, and the related consolidated statements of comprehensive income, of equity and of cash flows for 

each of the three years in the period ended December 31, 2017, including the related notes (collectively 

referred to as the "consolidated financial statements"). We also have audited the Company's internal 

control over financial reporting as of December 31, 2017, based on criteria established in Internal 

Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the 

Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material 

respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of 

their operations and their cash flows for each of the three years in the period ended December 31, 2017

in conformity with accounting principles generally accepted in the United States of America. Also in our 

opinion, the Company did not maintain, in all material respects, effective internal control over financial 

reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated 

Framework (2013) issued by the COSO because a material weakness in internal control over financial 

reporting related to disclosure controls and procedures that do not provide adequate mechanisms for 

information known to the Federal Housing Finance Agency ("FHFA") that may have financial statement 

disclosure ramifications to be communicated to management of Freddie Mac existed as of that date.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial 

reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim 

financial statements will not be prevented or detected on a timely basis. The material weakness referred 

to above is described in Management’s Report on Internal Control over Financial Reporting, appearing 

under Item 9A. We considered this material weakness in determining the nature, timing, and extent of 

audit tests applied in our audit of the 2017 consolidated financial statements, and our opinion regarding 

the effectiveness of the Company’s internal control over financial reporting does not affect our opinion 

on those consolidated financial statements.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining 

effective internal control over financial reporting, and for its assessment of the effectiveness of internal 

control over financial reporting included in management's report referred to above. Our responsibility is 

to express opinions on the Company’s consolidated financial statements and on the Company's internal 

control over financial reporting based on our audits. We are a public accounting firm registered with the 

Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be 

independent with respect to the Company in accordance with the U.S. federal securities laws and the 

applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Financial Statements Report of Independent Registered Public Accounting Firm

FREDDIE MAC | 2017 Form 10-K 231

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that 

we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial 

statements are free of material misstatement, whether due to error or fraud, and whether effective 

internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks 

of material misstatement of the consolidated financial statements, whether due to error or fraud, and 

performing procedures that respond to those risks. Such procedures included examining, on a test 

basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our 

audits also included evaluating the accounting principles used and significant estimates made by 

management, as well as evaluating the overall presentation of the consolidated financial statements. 

Our audit of internal control over financial reporting included obtaining an understanding of internal 

control over financial reporting, assessing the risk that a material weakness exists, and testing and 

evaluating the design and operating effectiveness of internal control based on the assessed risk. Our 

audits also included performing such other procedures as we considered necessary in the 

circumstances. We believe that our audits provide a reasonable basis for our opinions.

Emphasis of Matter - Conservatorship

As discussed in Note 2: Conservatorship and Related Matters, in September 2008, the Company 

was placed into conservatorship by FHFA. The U.S. Department of the Treasury (“Treasury”) has 

committed financial support to the Company and management continues to conduct business 

operations pursuant to the delegated authorities from FHFA during conservatorship. The Company is 

dependent upon the continued support of Treasury and FHFA.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable 

assurance regarding the reliability of financial reporting and the preparation of financial statements for 

external purposes in accordance with generally accepted accounting principles. A company’s internal 

control over financial reporting includes those policies and procedures that (i) pertain to the maintenance 

of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the 

assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to 

permit preparation of financial statements in accordance with generally accepted accounting principles, 

and that receipts and expenditures of the company are being made only in accordance with 

authorizations of management and directors of the company; and (iii) provide reasonable assurance 

regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the 

company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect 

misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the 

risk that controls may become inadequate because of changes in conditions, or that the degree of 

compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

February 15, 2018

We have served as the Company’s auditor since 2002.
Financial Statements Consolidated Statements of Comprehensive Income

FREDDIE MAC | 2017 Form 10-K 232

FREDDIE MAC

Consolidated Statements of Comprehensive Income

Year Ended December 31,

(In millions, except share-related amounts) 2017 2016 2015

Interest income

Mortgage loans $63,735 $61,040 $62,226

Investments in securities 3,415 3,855 4,794

Other 657 270 70

Total interest income 67,807 65,165 67,090

Interest expense (53,643) (50,786) (52,144)

Net interest income 14,164 14,379 14,946

Benefit (provision) for credit losses 84 803 2,665

Net interest income after benefit (provision) for credit losses 14,248 15,182 17,611

Non-interest income (loss)

Gains (losses) on extinguishment of debt 341 (211) (240)

Derivative gains (losses) (1,988) (274) (2,696)

Net impairment of available-for-sale securities recognized in earnings (18) (191) (292)

Other gains (losses) on investment securities recognized in earnings 1,054 (78) 508

Other income (loss) 7,480 1,254 (879)

Non-interest income (loss) 6,869 500 (3,599)

Non-interest expense

Salaries and employee benefits (1,098) (989) (975)

Professional services (452) (489) (497)

Other administrative expense (556) (527) (455)

Total administrative expense (2,106) (2,005) (1,927)

Real estate owned operations expense (189) (287) (338)

Temporary Payroll Tax Cut Continuation Act of 2011 expense (1,340) (1,152) (967)

Other expense (648) (599) (1,506)

Non-interest expense (4,283) (4,043) (4,738)

Income before income tax expense 16,834 11,639 9,274

Income tax expense (11,209) (3,824) (2,898)

Net income 5,625 7,815 6,376

Other comprehensive income (loss), net of taxes and reclassification adjustments:

Changes in unrealized gains (losses) related to available-for-sale securities (253) (825) (806)

Changes in unrealized gains (losses) related to cash flow hedge relationships 124 141 182

Changes in defined benefit plans 62 (13) 47

Total other comprehensive income (loss), net of taxes and reclassification adjustments (67) (697) (577)

Comprehensive income $5,558 $7,118 $5,799

Net income $5,625 $7,815 $6,376

Undistributed net worth sweep and senior preferred stock dividends (8,869) (7,718) (6,399)

Net income (loss) attributable to common stockholders ($3,244) $97 ($23)

Net income (loss) per common share — basic and diluted ($1.00) $0.03 ($0.01)

Weighted average common shares outstanding (in millions) — basic and diluted 3,234 3,234 3,235

The accompanying notes are an integral part of these consolidated financial statements.
Financial Statements Consolidated Balance Sheets

FREDDIE MAC | 2017 Form 10-K 233

FREDDIE MAC

Consolidated Balance Sheets

As of December 31,

(In millions, except share-related amounts) 2017 2016

Assets

Cash and cash equivalents (Notes 3, 14) $6,848 $12,369

Restricted cash and cash equivalents (Notes 3, 14) 2,963 9,851

Securities purchased under agreements to resell (Notes 3, 10) 55,903 51,548

Investments in securities, at fair value (Note 7) 84,318 111,547

Mortgage loans held-for-sale (Notes 3, 4) (includes $20,054 and $16,255 at fair value) 34,763 18,088

Mortgage loans held-for-investment (Notes 3, 4) (net of allowance for loan losses of $8,966 and $13,431) 1,836,454 1,784,915

Accrued interest receivable (Note 3) 6,355 6,135

Derivative assets, net (Notes 9, 10) 375 747

Deferred tax assets, net (Note 12) 8,107 15,818

Other assets (Notes 3, 18) (includes $3,353 and $2,408 at fair value) 13,690 12,358

Total assets $2,049,776 $2,023,376

Liabilities and equity

Liabilities

Accrued interest payable (Note 3) $6,221 $6,015

Debt, net (Notes 3, 8) (includes $5,799 and $6,010 at fair value) 2,034,630 2,002,004

Derivative liabilities, net (Notes 9, 10) 269 795

Other liabilities (Notes 3, 18) 8,968 9,487

Total liabilities 2,050,088 2,018,301

Commitments and contingencies (Notes 5, 9 and 16)

Equity (Note 11)

Senior preferred stock (redemption value of $75,336 and $72,336) 72,336 72,336

Preferred stock, at redemption value 14,109 14,109

Common stock, $0.00 par value, 4,000,000,000 shares authorized, 725,863,886 shares issued and

650,054,731 shares and 650,046,828 shares outstanding — —

Additional paid-in capital — —

Retained earnings (accumulated deficit) (83,261) (77,941)

AOCI, net of taxes, related to:

Available-for-sale securities (includes $593 and $782, related to net unrealized gains on securities for

which other-than-temporary impairment has been recognized in earnings) 662 915

Cash flow hedge relationships (356) (480)

Defined benefit plans 83 21

Total AOCI, net of taxes 389 456

Treasury stock, at cost, 75,809,155 shares and 75,817,058 shares (3,885) (3,885)

Total equity (See Note 11 for information on our dividend obligation to Treasury) (312) 5,075

Total liabilities and equity $2,049,776 $2,023,376

The table below represents the carrying value and classification of the assets and liabilities of consolidated VIEs on our consolidated balance sheets.

As of December 31,

(In millions) 2017 2016

Consolidated Balance Sheet Line Item

Assets: (Note 3)

Mortgage loans held-for-sale $— $—

Mortgage loans held-for-investment 1,774,286 1,690,218

All other assets 25,753 32,262

Total assets of consolidated VIEs $1,800,039 $1,722,480

Liabilities: (Note 3)

Debt, net $1,720,996 $1,648,683

All other liabilities 5,030 4,846

Total liabilities of consolidated VIEs $1,726,026 $1,653,529

The accompanying notes are an integral part of these consolidated financial statements.
Financial Statements Consolidated Statements of Equity

FREDDIE MAC | 2017 Form 10-K 234

FREDDIE MAC

Consolidated Statements of Equity

Shares Outstanding

Senior

Preferred

Stock

Preferred

Stock, at

Redemption

Value

Common

Stock, at

Par Value

Additional

Paid-In

Capital

Retained

Earnings

(Accumulated

Deficit)

AOCI,

Net of

Tax

Treasury

Stock, at

Cost

Total

(In millions) Equity 

Senior

Preferred

Stock

Preferred

Stock

Common

Stock

Balance at December 31, 2014 1 464 650 $72,336 $14,109 $— $— ($81,639) $1,730 ($3,885) $2,651

Comprehensive income:

Net income — — — — — — — 6,376 — — 6,376

Other comprehensive income, net of taxes — — — — — — — — (577) — (577)

Comprehensive income — — — — — — — 6,376 (577) — 5,799

Senior preferred stock dividends declared — — — — — — — (5,510) — — (5,510)

Ending balance at December 31, 2015 1 464 650 $72,336 $14,109 $— $— ($80,773) $1,153 ($3,885) $2,940

Balance at December 31, 2015 1 464 650 $72,336 $14,109 $— $— ($80,773) $1,153 ($3,885) $2,940

Comprehensive income:

Net income — — — — — — — 7,815 — — 7,815

Other comprehensive income, net of taxes — — — — — — — — (697) — (697)

Comprehensive income — — — — — — — 7,815 (697) — 7,118

Senior preferred stock dividends declared — — — — — — — (4,983) — — (4,983)

Ending balance at December 31, 2016 1 464 650 $72,336 $14,109 $— $— ($77,941) $456 ($3,885) $5,075

Balance at December 31, 2016 1 464 650 $72,336 $14,109 $— $— ($77,941) $456 ($3,885) $5,075

Comprehensive income:

Net income — — — — — — — 5,625 — — 5,625

Other comprehensive income, net of taxes — — — — — — — — (67) — (67)

Comprehensive income — — — — — — — 5,625 (67) — 5,558

Senior preferred stock dividends declared — — — — — — — (10,945) — — (10,945)

Ending balance at December 31, 2017 1 464 650 $72,336 $14,109 $— $— ($83,261) $389 ($3,885) ($312)

The accompanying notes are an integral part of these consolidated financial statements.
Financial Statements Consolidated Statements of Cash Flows

FREDDIE MAC | 2017 Form 10-K 235

FREDDIE MAC

Consolidated Statements of Cash Flows

Year Ended December 31,

(In millions) 2017 2016 2015

Cash flows from operating activities

Net income $5,625 $7,815 $6,376

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Derivative (gains) losses 370 (1,516) 456

Asset related amortization — premiums, discounts, and basis adjustments 6,038 7,089 5,321

Debt related amortization — premiums and discounts on certain debt securities and basis adjustments (8,653) (10,151) (8,295)

Losses (gains) on extinguishment of debt (341) 211 240

(Benefit) provision for credit losses (84) (803) (2,665)

Losses (gains) on investment activity (3,403) 69 1,878

Deferred income tax expense (benefit) 7,773 2,787 1,655

Purchases of mortgage loans acquired as held-for-sale (64,827) (48,379) (41,728)

Sales of mortgage loans acquired as held-for-sale 61,744 49,350 36,034

Repayments of mortgage loans acquired as held-for-sale 306 1,259 150

Payments to servicers for pre-foreclosure expense and servicer incentive fees (377) (585) (867)

Change in:

Accrued interest receivable (220) (61) (40)

Accrued interest payable 273 (52) (43)

Income taxes receivable 1,912 (1,230) 1,022

Other, net (674) (944) (428)

Net cash provided by (used in) operating activities 5,462 4,859 (934)

Cash flows from investing activities

Purchases of trading securities (160,333) (104,045) (40,614)

Proceeds from sales of trading securities 150,448 79,095 14,847

Proceeds from maturities and repayments of trading securities 8,570 22,244 16,377

Purchases of available-for-sale securities (10,549) (28,306) (6,818)

Proceeds from sales of available-for-sale securities 23,034 20,699 18,900

Proceeds from maturities and repayments of available-for-sale securities 11,758 15,869 20,807

Purchases of held-for-investment mortgage loans (126,162) (169,948) (122,082)

Proceeds from sales of mortgage loans held-for-investment 8,883 4,507 2,727

Repayments of mortgage loans held-for-investment 277,819 340,348 302,364

(Increase) decrease in restricted cash 6,888 4,682 (5,998)

Advances to lenders (35,452) (30,730) (12,527)

Net proceeds from dispositions of real estate owned and other recoveries 1,861 2,519 3,650

Net (increase) decrease in securities purchased under agreements to resell (4,355) 12,096 (11,741)

Derivative premiums and terminations, swap collateral, and exchange settlement payments, net (538) 555 (749)

Changes in other assets (428) (357) (197)

Net cash provided by investing activities 151,444 169,228 178,946

Cash flows from financing activities

Proceeds from issuance of debt securities of consolidated trusts held by third parties 191,638 254,236 174,561

Repayments and redemptions of debt securities of consolidated trusts held by third parties (303,142) (355,020) (316,306)

Proceeds from issuance of other debt 613,280 659,108 610,091

Repayments of other debt (653,255) (720,648) (646,176)

Payment of cash dividends on senior preferred stock (10,945) (4,983) (5,510)

Changes in other liabilities (3) (6) (5)

Net cash used in financing activities (162,427) (167,313) (183,345)

Net increase (decrease) in cash and cash equivalents (5,521) 6,774 (5,333)

Cash and cash equivalents at beginning of year 12,369 5,595 10,928

Cash and cash equivalents at end of year $6,848 $12,369 $5,595

Supplemental cash flow information

Cash paid for:

Debt interest $63,574 $60,862 $61,120

Income taxes 1,872 2,324 1,095

Non-cash investing and financing activities (Notes 4 and 7)

 

The accompanying notes are an integral part of these consolidated financial statements.
Financial Statements Notes to the Consolidated Financial Statements | Note 1

FREDDIE MAC | 2017 Form 10-K 236

Notes to Consolidated Financial 

Statements

NOTE 1 

Summary of Significant Accounting Policies

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

and affordability to the U.S. housing market. We are regulated by FHFA, the SEC, HUD and Treasury, 

and are currently operating under the conservatorship of FHFA. For more information on the roles of 

FHFA and Treasury, see Note 2. Throughout our consolidated financial statements and related notes, 

we use certain acronyms and terms which are defined in the Glossary.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with GAAP and 

include our accounts as well as the accounts of other entities in which we have a controlling financial 

interest. All intercompany balances and transactions have been eliminated.

We are operating under the basis that we will realize assets and satisfy liabilities in the normal course of 

business as a going concern and in accordance with the delegation of authority from FHFA to our Board 

of Directors and management. Certain amounts in prior periods’ consolidated financial statements have 

been reclassified to conform to the current presentation.

We evaluate the materiality of identified errors in the financial statements using both an income 

statement, or "rollover," and a balance sheet, or "iron curtain," approach, based on relevant quantitative 

and qualitative factors. Net income includes certain adjustments to correct immaterial errors related to 

previously reported periods.

Use of Estimates

The preparation of financial statements requires us to make estimates and assumptions that affect the 

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date 

of the financial statements and the reported amounts of revenues and expenses and gains and losses 

during the reporting period. Management has made significant estimates in preparing the financial 

statements for establishing the allowance for loan losses and reserve for guarantee losses, valuing 

financial instruments and other assets and liabilities and assessing impairments on investments. Actual 

results could be different from these estimates.
Financial Statements Notes to the Consolidated Financial Statements | Note 1

FREDDIE MAC | 2017 Form 10-K 237

Change in Estimate 

Adoption of Regulatory Guidance on Determining when a Loan is Uncollectible 

On January 1, 2015, we adopted regulatory guidance issued by FHFA that establishes guidelines for 

adverse classification and identification of specified single-family and multifamily assets, including 

guidelines for recognizing charge-offs on certain single-family loans. We analyze loans for collectability 

based on several factors, including, but not limited to:

 Servicing actions that indicate the potential for near-term loss mitigation, such as whether we have 

achieved quality borrower contact;

Credit risk factors, such as whether the loan is in a state with foreclosure practices that prevent 

timely resolution of delinquencies; and

 Loan characteristics that indicate whether repayment is likely to occur, such as the borrower's 

payment history, loan status and historical performance of loans with similar characteristics. 

Upon adoption, we changed the timing of when we deem certain single-family loans to be uncollectible, 

and we began to charge-off the amount of recorded investment in excess of the fair value of the 

underlying collateral for loans that have been deemed uncollectible prior to foreclosure, based on the 

factors identified above. 

This adoption resulted in a reduction to both the recorded investment of loans, held-for-investment and 

our allowance for loan losses of $1.9 billion on January 1, 2015. However, these additional charge-offs 

did not have a material impact on our comprehensive income for 2015, as we had already reserved for 

these losses in our allowance for loan losses in prior periods. 

Consolidation and Equity Method Accounting

For each entity with which we are involved, we determine whether the entity should be consolidated in 

our financial statements. We generally consolidate entities in which we have a controlling financial 

interest. The method for determining whether a controlling financial interest exists varies depending on 

whether the entity is a VIE. For entities that are not VIEs, we hold a controlling financial interest in entities 

where we hold a majority of the voting rights or where we are able to exercise control through 

substantive participating rights or as a general partner. We do not currently consolidate any entities 

which are not VIEs. We use the equity method to account for our interests in entities in which we do not 

have a controlling financial interest, but over which we have significant influence.

Cash and Cash Equivalents

Highly liquid investment securities that have an original maturity of three months or less are accounted 

for as cash equivalents.
Financial Statements Notes to the Consolidated Financial Statements | Note 1

FREDDIE MAC | 2017 Form 10-K 238

Restricted Cash and Cash Equivalents

Cash collateral accepted from counterparties that we do not have the right to use for general corporate 

purposes is recorded as restricted cash in our consolidated balance sheets. Restricted cash includes 

cash remittances received from servicers of the underlying assets of our consolidated trusts which are 

deposited into a separate custodial account. We invest the cash held in the custodial account in shortterm investments and are entitled to the interest income earned on these short-term investments, which 

is recorded as interest income, other on our consolidated statements of comprehensive income.

Comprehensive Income

Comprehensive income includes all changes in equity during a period, except those resulting from 

investments by stockholders. We define comprehensive income as consisting of net income (loss) plus 

after-tax changes in:

 The unrealized gains and losses on available-for-sale securities;

 The effective portion of derivatives accounted for as cash flow hedge relationships; and

Defined benefit plans.

Other Significant Accounting Policies

The table below identifies our other significant accounting policies and the related note in which 

information about them can be found. 

Note Accounting Policy

Note 3 Variable Interest Entities

Note 4 Mortgage Loans and Allowance for Loan Losses

Note 5 Financial Guarantees

Note 6 Credit Enhancements

Note 7 Investments in Securities

Note 8 Debt

Note 9 Derivatives

Note 10 Collateralized Agreements and Offsetting Arrangements

Note 10 Repurchase and Resale Agreements and Dollar Roll Transactions

Note 11 Earnings Per Share

Note 11 Stockholders’ Equity

Note 12 Income Taxes

Note 13 Segment Reporting

Note 15 Fair Value Measurements
Financial Statements Notes to the Consolidated Financial Statements | Note 1

FREDDIE MAC | 2017 Form 10-K 239

Recently Issued Accounting Guidance

Recently Adopted Accounting Guidance

Standard Description Date of

Adoption

Effect on Consolidated Financial

Statements

ASU 2016-06, Derivatives 

and Hedging (Topic 815)

The amendment clarifies the requirements for

assessing whether contingent call (put) options

that can accelerate the payment of principal on

debt instruments are clearly and closely related to

their debt hosts. An entity performing the

assessment under the amendment is required to

assess the embedded call (put) options solely in

accordance with the four-step decision sequence.

January 1,

2017

The adoption of this amendment did

not have a material effect on our

consolidated financial statements.

ASU 2016-17, 

Consolidation (Topic 810): 

Interests Held through 

Related Parties That Are 

under Common Control

The Board issued this Update to amend the

consolidation guidance on how a reporting entity

that is the single decision maker of a VIE should

treat indirect interests in the entity held through

related parties that are under common control with

the reporting entity when determining whether it is

the primary beneficiary of that VIE.

January 1,

2017

The adoption of this amendment did

not have a material effect on our

consolidated financial statements.

ASU 2017-12, Derivatives 

and Hedging (Topic 815)

The amendments in this Update made targeted

improvements to accounting for hedging activities.

The Update changes the recognition and

presentation requirements of hedge accounting

and provides new alternatives on how to measure

and account for certain aspects of hedging

activities.

October 1,

2017

The adoption of the amendments did

not affect the application of hedge

accounting for our existing hedge

strategies; however, we modified the

presentation of hedge results on our

consolidated statements of

comprehensive income and in the

financial statement notes upon

adoption.

Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements

Standard Description

Date of

Planned

Adoption

Effect on Consolidated Financial

Statements

ASU 2014-09, Revenue 

from Contracts with 

Customers (Topic 606) and 

ASU 2015-14

The amendment requires entities to recognize

revenue to depict the transfer of promised goods

or services to customers in amounts that reflect

the consideration to which the entity expects to be

entitled in exchange for those goods or services.

ASU 2015-14 defers the effective date of ASU

2014-09 for all entities by one year.

January 1,

2018

The adoption of the guidance in Topic 

606 will be applied retrospectively. The 

adoption of the amendments will not 

have a material effect on our 

consolidated financial statements or 

on our disclosures. 

ASU 2016-01, Recognition 

and Measurement of 

Financial Assets and 

Financial Liabilities 

(Subtopic 825-10)

The amendment addresses certain aspects of

recognition, measurement, presentation and

disclosure of financial instruments.

January 1,

2018

The adoption of the amendments will 

not have a material effect on our 

consolidated financial statements. 

ASU 2016-08, Revenue 

from Contracts with 

Customers (Topic 606): 

Principal versus Agent 

Considerations (Reporting 

Revenue Gross versus Net)

The amendments in this Update do not change the

core principle of the guidance in Topic 606. The

amendments clarify the implementation guidance

on principal versus agent considerations.

January 1,

2018

The adoption of the guidance in Topic 

606 will be applied retrospectively. The 

adoption of the amendments will not 

have a material effect on our 

consolidated financial statements or 

on our disclosures. 
Financial Statements Notes to the Consolidated Financial Statements | Note 1

FREDDIE MAC | 2017 Form 10-K 240

Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements

Standard Description

Date of

Planned

Adoption

Effect on Consolidated Financial

Statements

ASU 2016-10, Revenue 

from Contracts with 

Customers (Topic 606)

The amendments in this Update do not change the

core principle of the guidance in Topic 606, but

clarify two issues: i) identifying performance

obligations; and ii) licensing. These clarifications

are intended to reduce diversity in practice and to

reduce the cost and complexity of Topic 606 at

transition and on an ongoing basis.

January 1,

2018

The adoption of the guidance in Topic 

606 will be applied retrospectively. The 

adoption of the amendments will not 

have a material effect on our 

consolidated financial statements or 

on our disclosures. 

ASU 2016-12, Revenue 

from Contracts with 

Customers (Topic 606)

The amendments in this Update do not change the

core principle of the guidance in Topic 606, but

affect aspects of the guidance and technical

corrections.

January 1,

2018

The adoption of the guidance in Topic 

606 will be applied retrospectively. The 

adoption of the amendments will not 

have a material effect on our 

consolidated financial statements or 

on our disclosures. 

ASU 2016-15, Statement of 

Cash Flows (Topic 230): 

Classification of Certain 

Cash Receipts and Cash 

Payments (a consensus of 

the Emerging Issues Task 

Force)

The main objective of this Update is to address the

diversity in practice that currently exists in regards

to how certain cash receipts and cash payments

are presented and classified in the statement of

cash flows under Topic 230, Statement of Cash

Flows, and other Topics. This Update addresses

eight specific cash flow issues with the objective

of reducing the existing diversity in practice.

January 1,

2018

Upon adoption, the portion of the cash

payment attributable to the accreted

interest related to zero-coupon debt

will be presented in the operating

activities section, a classification

change from the financing activities

section where this item is currently

presented. As a result, we estimate

that we will reclassify approximately

$1.2 billion and $0.5 billion of cash

payments from financing activities to

operating activities on our consolidated

statements of cash flows for the years

ended December 31, 2017 and 2016,

respectively, upon adoption.

ASU 2016-18, Statement of 

Cash Flows (Topic 230): 

Restricted Cash (a 

consensus of the FASB 

Emerging Issues Task 

Force)

The amendments in this Update address the

diversity in the classification and presentation of

changes in restricted cash on the statement of

cash flows under Topic 230, Statement of Cash

Flows. Specifically, this amendment dictates that

the statement of cash flows should explain the

change in the period of the total of cash, cash

equivalents and restricted cash balances.

January 1,

2018

The adoption of the amendments will 

not have a material effect on our 

consolidated financial statements. 

ASU 2016-20, Technical 

Corrections and 

Improvements to Topic 606, 

Revenue from Contracts 

with Customers

The amendments in this Update are of a similar

nature to the items typically addressed in the

Technical Corrections and Improvements project.

However, the Board decided to issue a separate

Update for technical corrections and improvements

to Topic 606 and other Topics amended by Update

2014-09 to increase stakeholders’ awareness of

the proposals and to expedite improvements to

Update 2014-09.

January 1,

2018

The adoption of the guidance in Topic 

606 will be applied retrospectively. The 

adoption of the amendments will not 

have a material effect on our 

consolidated financial statements or 

on our disclosures. 

ASU 2018-02, Income 

Statement—Reporting 

Comprehensive Income 

(Topic 220): 

Reclassification of Certain 

Tax Effects from 

Accumulated Other 

Comprehensive Income

The amendments in this Update allow a

reclassification from accumulated other

comprehensive income to retained earnings for

stranded tax effects resulting from the Tax Cuts

and Jobs Act.

1Q 2018 The adoption of the amendments will 

not have a material effect on our 

consolidated financial statements. 
Financial Statements Notes to the Consolidated Financial Statements | Note 1

FREDDIE MAC | 2017 Form 10-K 241

Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements

Standard Description

Date of

Planned

Adoption

Effect on Consolidated Financial

Statements

ASU 2016-02, Leases 

(Topic 842)

The amendment addresses the accounting for

lease arrangements.

January 1,

2019

We do not expect that the adoption of

this amendment will have a material

effect on our consolidated financial

statements.

ASU 2016-13, Financial

Instruments—Credit Losses

(Topic 326): Measurement

of Credit Losses on

Financial Instruments

The amendments in this Update replace the

incurred loss impairment methodology in current

GAAP with a methodology that reflects lifetime

expected credit losses and requires consideration

of a broader range of reasonable and supportable

information to inform credit loss estimates.

January 1,

2020

While we are evaluating the effect that

the adoption of this amendment will

have on our consolidated financial

statements, it will increase (perhaps

substantially) our provision for credit

losses in the period of adoption.
Financial Statements Notes to the Consolidated Financial Statements | Note 2

FREDDIE MAC | 2017 Form 10-K 242

NOTE 2

Conservatorship and Related Matters

Business Objectives

We operate under the conservatorship that commenced on September 6, 2008, conducting our 

business under the direction of FHFA, as our Conservator. The conservatorship and related matters 

significantly affect our management, business activities, financial condition and results of operations. 

Upon its appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and 

privileges of Freddie Mac, and of any stockholder, officer or director thereof, with respect to the 

company and its assets. The Conservator also succeeded to the title to all books, records and assets of 

Freddie Mac held by any other legal custodian or third party. The Conservator delegated certain 

authority to the Board of Directors to oversee, and management to conduct, business operations so that 

the company can continue to operate in the ordinary course. The directors serve on behalf of, and 

exercise authority as directed by, the Conservator.

We are subject to certain constraints on our business activities under the Purchase Agreement. 

However, the support provided by Treasury pursuant to the Purchase Agreement currently enables us to 

maintain our access to the debt markets and to have adequate liquidity to conduct our normal business 

activities, although the costs of our debt funding could vary. Our ability to access funds from Treasury 

under the Purchase Agreement is critical to keeping us solvent.

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

Conservatorship Scorecards). At the direction of the Conservator, we have made changes to certain 

business practices that are designed to provide support for the mortgage market in a manner that 

serves our public mission and other non-financial objectives but may not contribute to our profitability. 

Certain of these objectives are intended to help homeowners and the mortgage market and may help to 

mitigate future credit losses. Some of these initiatives affect our near- and long-term financial results. 

Given our public mission and the important role the Administration and our Conservator have placed on 

Freddie Mac in addressing housing and mortgage market conditions, we may be required to take 

actions that could have a negative impact on our business, operating results or financial condition, and 

thus contribute to a need for additional draws under the Purchase Agreement.

In May 2014, FHFA issued its 2014 Strategic Plan, which updated FHFA's vision for implementing its 

obligations as Conservator of Freddie Mac and Fannie Mae and established three reformulated strategic 

goals. FHFA also has issued annual Conservatorship Scorecards each year between 2014 and 2018. 

The annual Conservatorship Scorecards establish objectives and performance targets and measures for 

Freddie Mac and Fannie Mae (the "Enterprises") related to the strategic goals set forth in the Strategic 

Plan.

The 2014 Strategic Plan established three reformulated strategic goals for the conservatorships of 

Freddie Mac and Fannie Mae:

Maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new 

and refinanced loans to foster liquid, efficient, competitive and resilient national housing finance 

markets;
Financial Statements Notes to the Consolidated Financial Statements | Note 2

FREDDIE MAC | 2017 Form 10-K 243

Reduce taxpayer risk through increasing the role of private capital in the mortgage market; and

Build a new single-family securitization infrastructure for use by the Enterprises and adaptable for 

use by other participants in the secondary market in the future.

As part of the first goal, the 2014 Strategic Plan describes various steps related to increasing access to 

mortgage credit for credit-worthy borrowers. The 2014 Strategic Plan provides for the Enterprises to 

continue to play an ongoing role in supporting multifamily housing needs, particularly for low-income 

households. The plan states that FHFA will continue to impose a production cap on Freddie Mac’s and 

Fannie Mae’s multifamily businesses. However, in 2015, FHFA allowed loans in certain affordable and 

underserved market segments to be excluded from the production cap. This allowance was maintained 

in the 2016, 2017 and 2018 Conservatorship Scorecards with slight modification.

The second goal focuses on ways to transfer risk to private market participants and away from the 

Enterprises in a responsible way that does not reduce liquidity or adversely affect the availability of 

mortgage credit. The second goal provides for us to increase the use of single-family credit risk transfer 

transactions, continue using credit risk transfer transactions in the multifamily business and continue 

shrinking our mortgage-related investments portfolio consistent with the requirements in the Purchase 

Agreement, with a focus on selling less liquid assets.

The third goal includes the continued development of the common securitization platform. FHFA refined 

the scope of this project to focus on making the new shared system operational for Freddie Mac’s and 

Fannie Mae’s existing single-family securitization activities. The third goal also provides for the 

Enterprises to work towards the development of a single (common) security.

We continue to align our resources and internal business plans to meet the goals and objectives 

provided to us by FHFA.

As a result of the net worth sweep dividend provisions of the senior preferred stock, we cannot retain 

capital from the earnings generated by our business operations in excess of the applicable Capital 

Reserve Amount under the Purchase Agreement (which is $3.0 billion as of January 1, 2018 but will be 

reduced to zero if for any reason we do not pay the full dividend requirement in a future period) or return 

capital to stockholders other than Treasury, the holder of our senior preferred stock. Our future is 

uncertain, and the conservatorship has no specified termination date. We do not know what changes 

may occur to our business model during or following conservatorship, including whether we will 

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

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

the Administration and Congress, and it is possible and perhaps likely that there will be significant 

changes beyond the near term. We have no ability to predict the outcome of these deliberations.

Purchase Agreement and Warrant

Overview

On September 7, 2008, we, through FHFA, in its capacity as Conservator, entered into the Purchase 

Agreement with Treasury. The Purchase Agreement was subsequently amended and restated on 

September 26, 2008, and further amended on May 6, 2009, December 24, 2009, August 17, 2012, and 

December 21, 2017. The amount of available funding remaining under the Purchase Agreement was 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

FREDDIE MAC | 2017 Form 10-K 244

$140.5 billion as of December 31, 2017 and will be reduced to $140.2 billion once the draw request 

related to our net worth deficit as of December 31, 2017 is funded. This amount will be further reduced 

by any future draws. 

The Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to us 

after any quarter in which we have a negative net worth (that is, our total liabilities exceed our total 

assets, as reflected on our consolidated balance sheet). In addition, the Purchase Agreement requires 

Treasury, upon the request of the Conservator, to provide funds to us if the Conservator determines, at 

any time, that it will be mandated by law to appoint a receiver for us unless we receive these funds from 

Treasury. In exchange for Treasury's funding commitment, we issued to Treasury, as an aggregate initial 

commitment fee, one million shares of Variable Liquidation Preference Senior Preferred Stock (with an 

initial liquidation preference of $1 billion), which we refer to as the senior preferred stock, and a warrant 

to purchase, for a nominal price, shares of our common stock equal to 79.9% of the total number of 

shares of our common stock outstanding on a fully diluted basis at the time the warrant is exercised, 

which we refer to as the warrant. We received no cash proceeds or other consideration from Treasury for 

issuing the senior preferred stock or the warrant.

Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, 

when, as and if declared by our Board of Directors. The dividends we have paid to Treasury on the 

senior preferred stock have been declared by, and paid at the direction of, the Conservator, acting as 

successor to the rights, titles, powers and privileges of the Board. Through December 31, 2012, the 

senior preferred stock accrued quarterly cumulative dividends at a rate of 10% per year. However, under 

the August 2012 amendment to the Purchase Agreement, the fixed dividend rate was replaced with a 

net worth sweep dividend beginning in the first quarter of 2013. 

Under the August 2012 amendment to the Purchase Agreement and the December 2017 Letter 

Agreement, for each quarter from January 1, 2013 and thereafter, the dividend payment will be the 

amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, 

less the applicable Capital Reserve Amount, exceeds zero. The term Net Worth Amount is defined as the 

total assets of Freddie Mac (excluding Treasury's commitment and any unfunded amounts thereof), less 

our total liabilities (excluding any obligation in respect of capital stock), in each case as reflected on our 

consolidated balance sheets prepared in accordance with GAAP. If the calculation of the dividend 

payment for a quarter does not exceed zero, then no dividend will accrue or be payable for that quarter. 

The applicable Capital Reserve Amount was $0.6 billion for 2017 and, pursuant to the Letter Agreement, 

will be $3.0 billion for 2018 and thereafter rather than zero as previously provided. If for any reason we 

do not pay the net worth sweep dividend in full for any period, the applicable Capital Reserve Amount 

will thereafter be zero. The amounts payable for dividends on the senior preferred stock could be 

substantial and will have an adverse impact on our financial position and net worth. The senior preferred 

stock is senior in liquidation preference to our common stock and all other series of preferred stock.

In addition to the issuance of the senior preferred stock and warrant, we are required under the 

Purchase Agreement to pay a quarterly commitment fee to Treasury. Under the Purchase Agreement, the 

fee is to be determined in an amount mutually agreed to by us and Treasury with reference to the market 

value of Treasury's funding commitment as then in effect. However, pursuant to the August 2012 

amendment to the Purchase Agreement, for each quarter commencing January 1, 2013, and for as long 

as the net worth sweep dividend provisions remain in form and content substantially the same, no 

periodic commitment fee under the Purchase Agreement will be set, accrue or be payable. 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

FREDDIE MAC | 2017 Form 10-K 245

Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred 

stock is limited, and we will not be able to do so for the foreseeable future, if at all. On December 31, 

2017, the aggregate liquidation preference of the senior preferred stock increased by $3.0 billion, or the 

amount of dividends we would have paid but for the Letter Agreement, to $75.3 billion. The liquidation 

preference will increase to $75.6 billion once the draw request related to our net worth deficit as of 

December 31, 2017 is funded and will increase further if we receive additional draws under the Purchase 

Agreement or if any dividends or quarterly commitment fees payable under the Purchase Agreement are 

not paid in cash. 

The Purchase Agreement includes significant restrictions on our ability to manage our business, 

including limiting the amount of indebtedness we can incur and capping the size of our mortgagerelated investments portfolio. 

The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which 

do not include the end of the conservatorship. The Purchase Agreement therefore could continue after 

the conservatorship ends. However, Treasury's consent is required for a termination of conservatorship 

other than in connection with receivership. Treasury has the right to exercise the warrant, in whole or in 

part, at any time on or before September 7, 2028.

Purchase Agreement Covenants

The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we 

may not, without the prior written consent of Treasury:

Declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to 

any Freddie Mac equity securities (other than with respect to the senior preferred stock or warrant);

Redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the 

senior preferred stock or warrant);

Sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant 

and the common stock issuable upon exercise of the warrant and other than as required by the 

terms of any binding agreement in effect on the date of the Purchase Agreement);

Terminate the conservatorship (other than in connection with a receivership);

Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value:

To a limited life regulated entity (in the context of a receivership);

Of assets and properties in the ordinary course of business, consistent with past practice;

Of assets and properties having fair market value individually or in aggregate less than $250 

million in one transaction or a series of related transactions;

In connection with our liquidation by a receiver; 

Of cash or cash equivalents for cash or cash equivalents; or

To the extent necessary to comply with the covenant described below relating to the reduction of 

our mortgage-related investments portfolio;

Issue any subordinated debt;

Enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or

Engage in transactions with affiliates unless the transaction is: 

Pursuant to the Purchase Agreement, the senior preferred stock or the warrant; 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

FREDDIE MAC | 2017 Form 10-K 246

Upon arm's length terms; or 

A transaction undertaken in the ordinary course or pursuant to a contractual obligation or 

customary employment arrangement in existence on the date of the Purchase Agreement.

The Purchase Agreement also requires us to reduce the amount of mortgage assets we own. The 

Purchase Agreement, as revised in the August 2012 amendment, provides that we could not own 

mortgage assets with UPB in excess of $650 billion on December 31, 2012, and on December 31 of 

each year thereafter may not own mortgage assets with UPB in excess of 85% of the aggregate amount 

of mortgage assets we are permitted to own as of December 31 of the immediately preceding calendar 

year, provided that we are not required to own less than $250 billion in mortgage assets. Under the 

Purchase Agreement, we also may not, without the prior written consent of Treasury, incur indebtedness 

that would result in the par value of our aggregate indebtedness exceeding 120% of the amount of 

mortgage assets we are permitted to own on December 31 of the immediately preceding calendar year. 

The mortgage asset and indebtedness limitations are determined without giving effect to the changes to 

the accounting guidance for transfers of financial assets and consolidation of VIEs, under which we 

consolidated our single-family PC trusts and certain other VIEs in our financial statements as of 

January 1, 2010.

In addition, the Purchase Agreement provides that we may not enter into any new compensation 

arrangements or increase amounts or benefits payable under existing compensation arrangements of 

any named executive officer or other executive officer (as such terms are defined by SEC rules) without 

the consent of the Director of FHFA, in consultation with the Secretary of the Treasury.

The Purchase Agreement also provides that, on an annual basis, we are required to deliver a risk 

management plan to Treasury setting out our strategy for reducing our enterprise-wide risk profile and 

the actions we will take to reduce the financial and operational risk associated with each of our 

reportable business segments.

Warrant Covenants

The warrant we issued to Treasury includes, among others, the following covenants: 

Our SEC filings under the Exchange Act will comply in all material respects as to form with the 

Exchange Act and the rules and regulations thereunder; 

Without the prior written consent of Treasury, we may not permit any of our significant subsidiaries 

to issue capital stock or equity securities, or securities convertible into or exchangeable for such 

securities, or any stock appreciation rights or other profit participation rights to any person other 

than Freddie Mac or its wholly-owned subsidiaries; 

We may not take any action that will result in an increase in the par value of our common stock; 

Unless waived or consented to in writing by Treasury, we may not take any action to avoid the 

observance or performance of the terms of the warrant and we must take all actions necessary or 

appropriate to protect Treasury’s rights against impairment or dilution; and 

We must provide Treasury with prior notice of specified actions relating to our common stock, such 

as setting a record date for a dividend payment, granting subscription or purchase rights, authorizing 

a recapitalization, reclassification, merger or similar transaction, commencing a liquidation of the 

company or any other action that would trigger an adjustment in the exercise price or number or 

amount of shares subject to the warrant.
Financial Statements Notes to the Consolidated Financial Statements | Note 2

FREDDIE MAC | 2017 Form 10-K 247

Termination Provisions

The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of 

the following circumstances:

The completion of our liquidation and fulfillment of Treasury’s obligations under its funding 

commitment at that time;

The payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, 

including mortgage guarantee obligations); and 

The funding by Treasury of the maximum amount of the commitment under the Purchase 

Agreement. 

In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null 

and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the 

appointment of the Conservator or otherwise curtails the Conservator’s powers. Treasury may not 

terminate its funding commitment under the Purchase Agreement solely by reason of our being in 

conservatorship, receivership or other insolvency proceeding, or due to our financial condition or any 

adverse change in our financial condition.

Waivers and Amendments

The Purchase Agreement provides that most provisions of the agreement may be waived or amended 

by mutual written agreement of the parties; however, no waiver or amendment of the agreement is 

permitted that would decrease Treasury’s aggregate funding commitment or add conditions to 

Treasury’s funding commitment if the waiver or amendment would adversely affect in any material 

respect the holders of our debt securities or mortgage guarantee obligations.

Third-party Enforcement Rights

In the event of our default on payments with respect to our debt securities or mortgage guarantee 

obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the 

Conservator are not diligently pursuing remedies in respect of that failure, the holders of these debt 

securities or mortgage guarantee obligations may file a claim in the United States Court of Federal 

Claims for relief requiring Treasury to fund to us the lesser of:

The amount necessary to cure the payment defaults on our debt and mortgage guarantee 

obligations; and

The lesser of:

The deficiency amount; and

The maximum amount of the commitment less the aggregate amount of funding previously 

provided under the commitment. 

Any payment that Treasury makes under those circumstances will be treated for all purposes as a draw 

under the Purchase Agreement that will increase the liquidation preference of the senior preferred stock.
Financial Statements Notes to the Consolidated Financial Statements | Note 2

FREDDIE MAC | 2017 Form 10-K 248

Impact of Conservatorship and Related Developments on the 

Mortgage-Related Investments Portfolio

For purposes of the limit imposed by the Purchase Agreement and FHFA regulation, the UPB of our 

mortgage-related investments portfolio could not exceed $288.4 billion at December 31, 2017 and was 

$253.5 billion at that date. Our Retained Portfolio Plan, which we adopted in 2014, provides for us to 

manage the UPB of the mortgage-related investments portfolio so that it does not exceed 90% of the 

annual cap established by the Purchase Agreement (subject to certain exceptions). Our mortgagerelated investments portfolio cap is reduced by 15% annually until it reaches $250 billion. This amount 

is calculated based on the maximum allowable size of the mortgage-related investments portfolio, rather 

than the actual UPB of the mortgage-related investments portfolio, as of December 31 of the 

immediately preceding calendar year. Our ability to acquire and sell mortgage assets is significantly 

constrained by limitations of the Purchase Agreement and those imposed by FHFA. 

Government Support for Our Business

We receive substantial support from Treasury and are dependent upon its continued support in order to 

continue operating our business. Our ability to access funds from Treasury under the Purchase 

Agreement is critical to:

Keeping us solvent;

Allowing us to focus on our primary business objectives under conservatorship; and

Avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions. 

At September 30, 2017, our assets exceeded our liabilities under GAAP; therefore, FHFA did not request 

a draw on our behalf and, as a result, we did not receive any funding from Treasury under the Purchase 

Agreement during the three months ended December 31, 2017. Since conservatorship began through 

December 31, 2017, we have paid cash dividends of $112.4 billion to Treasury at the direction of the 

Conservator.

At December 31, 2017, our liabilities exceeded our assets under GAAP by $312 million. As a result, 

FHFA, as Conservator, will submit a draw request, on our behalf, to Treasury under the Purchase 

Agreement to eliminate our net worth deficit. Upon the funding of this draw request, the aggregate 

liquidation preference of the senior preferred stock will increase to $75.6 billion. Because we had a net 

worth deficit at December 31, 2017, no dividend will be paid to Treasury in March 2018.

Additionally, in recent years, the Federal Reserve purchased significant amounts of mortgage-related 

securities issued by us, Fannie Mae and Ginnie Mae.

See Note 8 and Note 11 for more information on the conservatorship and the Purchase Agreement.

Related Parties as a Result of Conservatorship

As a result of our issuance to Treasury of the warrant to purchase shares of our common stock equal to 

79.9% of the total number of shares of our common stock outstanding, on a fully diluted basis, we are 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

FREDDIE MAC | 2017 Form 10-K 249

deemed a related party to the U.S. government. During the years ended December 31, 2017, 2016 and 

2015, no transactions outside of normal business activities have occurred between us and the U.S. 

government (or any of its related parties), except for the following:

The transactions with Treasury discussed above in Purchase Agreement and Warrant and 

Government Support for our Business; 

The transactions entered into whereby we and Fannie Mae, in conjunction with Treasury, provided 

assistance to state and local HFAs. Treasury will reimburse Freddie Mac for initial guarantee losses 

on these transactions;

The transactions discussed in Note 4, Note 8 and Note 11; and

The allocation or transfer of 4.2 basis points of each dollar of new business purchases to certain 

housing funds as required under the GSE Act.

In addition, we are deemed related parties with Fannie Mae as both we and Fannie Mae have the same 

relationships with FHFA and Treasury. All transactions between us and Fannie Mae have occurred in the 

normal course of business in conservatorship. In October 2013, FHFA announced the formation of CSS. 

CSS is equally-owned by Freddie Mac and Fannie Mae. In connection with the formation of CSS, we 

entered into a limited liability company agreement with Fannie Mae. In November 2014, we and Fannie 

Mae announced that a chief executive officer had been named for CSS. Additionally, we and Fannie 

Mae each appointed two executives to the CSS Board of Managers and signed governance and 

operating agreements for CSS. Therefore, CSS is also deemed a related party. During the year ended 

December 31, 2017, we contributed $102 million of capital to CSS. 
Financial Statements Notes to the Consolidated Financial Statements | Note 3

FREDDIE MAC | 2017 Form 10-K 250

NOTE 3 

Securitization Activities and Consolidation

Our primary business activities in our Single-family Guarantee and Multifamily segments involve the 

securitization of loans or other mortgage-related assets using trusts that are VIEs. These trusts issue 

beneficial interests in the loans or other mortgage-related assets that they own. We guarantee the 

principal and interest payments on some or all of the issued beneficial interests in substantially all of our 

securitization transactions. See Note 5 for additional information on our guarantee activities.

We consolidate VIEs when we have a controlling financial interest in the VIE and are therefore 

considered the primary beneficiary of the VIE. We are the primary beneficiary of a VIE when we have 

both the power to direct the activities of the VIE that most significantly impact its economic performance 

and exposure to losses or benefits of the VIE that could potentially be significant to the VIE. We evaluate 

whether we are the primary beneficiary of VIEs in which we have interests on an ongoing basis, and our 

primary beneficiary determination may change over time as our interest in the VIE changes.

Securitization Activities

PCs

PCs are pass-through debt securities that represent undivided beneficial interests in a pool of loans held 

by a securitization trust. We serve as both administrator and guarantor for our PC trusts. As 

administrator, we have the right to establish servicing terms and direct loss mitigation activities for the 

loans held by the PC trusts. As guarantor, we guarantee the payment of principal and interest on our 

PCs in exchange for a guarantee fee, and we have the right to purchase delinquent loans from the PC 

trust to help improve the economic performance of the trust. We absorb all credit losses of the PC trusts 

through our guarantee of the principal and interest payments. 

The economic performance of our PC trusts is most significantly affected by the performance of the 

underlying loans. Our rights as administrator and guarantor provide us with the power to direct the 

activities that most significantly affect the performance of the underlying loans. We also have the 

obligation to absorb losses of our PC trusts that could potentially be significant through our guarantee of 

principal and interest payments. Accordingly, we concluded that we are the primary beneficiary of our 

PC trusts and, therefore, consolidate those trusts.

Loans held by our PC trusts are recognized on our consolidated balance sheets as mortgage loans heldfor-investment. The corresponding PCs held by third parties are recognized on our consolidated balance 

sheets as debt, net. We extinguish the outstanding debt securities of the related consolidated trust and 

recognize gains or losses on debt extinguishment for the difference between the consideration paid and 

the debt carrying value when we purchase PCs as investments in our mortgage-related investments 

portfolio. Sales of PCs previously held as investments in our mortgage-related investments portfolio are 

accounted for as debt issuances. See Note 4 and Note 8 for additional information on loans and debt 

securities of consolidated trusts.

At December 31, 2017 and 2016, we were the primary beneficiary of, and therefore consolidated, PC 

trusts with assets totaling $1.8 trillion and $1.7 trillion, respectively. Substantially all of these 
Financial Statements Notes to the Consolidated Financial Statements | Note 3

FREDDIE MAC | 2017 Form 10-K 251

consolidated trusts were single-family PC trusts. During the years ended December 31, 2017 and 2016, 

we issued approximately $347.7 billion and $391.5 billion, respectively, of guaranteed PCs. Our 

exposure for guarantees to consolidated securitization trusts is generally equal to the UPB of the loans 

recorded on our consolidated balance sheets. 

Resecuritization Products

We create resecuritization products primarily by using PCs or our previously issued resecuritization 

products as the underlying collateral. In a typical resecuritization transaction, previously issued PCs or 

resecuritization products are transferred to a resecuritization trust that issues beneficial interests in the 

underlying collateral. We establish parameters that define eligibility standards for assets that may be 

used as collateral for each of our resecuritization programs. Resecuritization products can then be 

created based on the parameters that we have established. Similar to our PCs, we guarantee the 

payment of principal and interest to the investors in our resecuritization products. However, because we 

have already guaranteed the underlying assets, we do not assume any incremental credit risk by issuing 

these securities. The main types of resecuritization products we create are Giant PCs, REMICs and 

Stripped Giant PCs. 

Giant PCs - Giant PCs are direct pass-throughs of the cash flows of the underlying collateral, which 

may be previously issued PCs or Giant PCs. We do not consolidate Giant PCs as their 

resecuritization does not result in any new or incremental risk to the holders of the securities issued 

by the resecuritization trust and because we are not exposed to any incremental rights to receive 

benefits or obligations to absorb losses that could be significant to the resecuritization trust.

Purchases of Giant PCs as investments in our mortgage-related investments portfolio are accounted 

for as debt extinguishments of a pro-rata portion of the underlying single-family PCs because Giant 

PCs are considered substantially the same as the underlying single-family PCs. Similarly, sales of 

Giant PCs previously held as investments in our mortgage-related investments portfolio are 

accounted for as debt issuances of a pro-rata portion of the underlying single-family PCs. 

REMICs and Stripped Giant PCs - REMICs and Stripped Giant PCs are multiclass resecuritizations 

of the cash flows of the underlying collateral, which may be previously issued PCs, Giant PCs, or 

other REMICs and Stripped Giant PCs. The activity that most significantly impacts the economic 

performance of our multiclass resecuritization trusts is typically the initial design and structuring of 

the trust. Substantially all multiclass resecuritization trusts are created as part of customer-driven 

transactions in which an investor or dealer participates in the decisions made during the design and 

establishment of the trust. As a result, we do not have the unilateral ability to direct the activities of 

our multiclass resecuritization trusts that most significantly impact the economic performance of 

those trusts. In addition, we do not have the right to receive benefits or the obligation to absorb 

losses that could potentially be significant to the trusts because we have already provided a 

guarantee on the underlying assets. As a result, we have concluded that we are not the primary 

beneficiary of our multiclass resecuritization trusts and, therefore, do not consolidate those trusts. 
Financial Statements Notes to the Consolidated Financial Statements | Note 3

FREDDIE MAC | 2017 Form 10-K 252

Because we have already guaranteed the underlying assets, we do not receive any incremental 

guarantee fees in exchange for our guarantee, and, accordingly, we do not recognize any additional 

guarantee assets, guarantee obligations or reserves for guarantee losses related to multiclass 

resecuritization trusts. Instead, we receive a one-time transaction fee which represents 

compensation for both the structuring and creation of the securities and for our ongoing 

administrative responsibilities to service the securities. We recognize the portion of the transaction 

fee related to creation of the securities immediately in earnings. We defer the portion of the fee 

related to ongoing administrative responsibilities and amortize it over the life of the associated trust. 

When we purchase a REMIC or Stripped Giant PC as an investment in our mortgage-related 

investments portfolio, we generally record the security as an investment in debt securities rather than 

extinguishment of debt since we are generally investing in the debt securities of a non-consolidated 

entity. We do not consolidate REMIC or Stripped Giant PC trusts in which we hold variable interests, 

as we are not deemed to be the primary beneficiary of the trusts, unless we have the unilateral ability 

to collapse the trust. Similarly, sales of REMICs or Stripped Giant PCs previously held as 

investments in our mortgage-related investments portfolio are accounted for as sales of investments 

in debt securities. See Note 7 for additional information on accounting for investments in debt 

securities.

Senior Subordinate Securitization Structures

We are the primary beneficiary of and, therefore, consolidate certain of our single-family senior 

subordinate securitization structures because we have both the ability to direct the loss mitigation 

activities of the underlying loans and have the obligation to absorb credit losses through our guarantee 

of the issued senior securities. As a result, we consolidated certain of the trusts used in these senior 

subordinate securitization structures with underlying assets totaling $3.6 billion and $1.5 billion, at 

December 31, 2017 and 2016, respectively.

We do not consolidate the other single-family senior subordinate securitization structures as we do not 

have the ability to direct the loss mitigation activities of the underlying loans, which is the most 

significant activity affecting the economic performance of the VIE. For those securitizations where we 

sell loans to the VIE, we derecognize the transferred loans and account for our guarantee to the nonconsolidated VIE. We account for our investments in the beneficial interests issued by the nonconsolidated VIE as investments in debt securities. During 2017 and 2016, we issued approximately 

$6.8 billion and $0.8 billion, respectively, of guaranteed securities in these senior subordinate 

securitization structures for which a guarantee asset and guarantee obligation were generally 

recognized.

K Certificates

In a K Certificate transaction, we sell multifamily loans to a non-Freddie Mac securitization trust that 

issues senior, mezzanine and subordinate securities, and simultaneously purchase and place the senior 

securities into a Freddie Mac securitization trust that issues guaranteed K Certificates. In these 

transactions, we guarantee the senior securities issued by the Freddie Mac securitization trust and do 

not issue or guarantee the mezzanine or subordinate securities issued by the non-Freddie Mac 

securitization trust. We receive a guarantee fee in exchange for our guarantee. We serve as guarantor of 

our K Certificate trusts and, from time to time, as master servicer. However, in contrast to single-family 

PC trusts, the rights to direct loss mitigation activities of the underlying loans and to purchase 
Financial Statements Notes to the Consolidated Financial Statements | Note 3

FREDDIE MAC | 2017 Form 10-K 253

delinquent loans from the securitization trust are held by the investor in the most subordinate remaining 

securities issued by the non-Freddie Mac trust, and therefore we do not have any power to direct those 

activities unless we are the investor in the most subordinate remaining securities. 

The economic performance of our K Certificate trusts is most significantly affected by the performance 

of the underlying loans. Because our rights in a K Certificate transaction do not provide us with the 

power to direct the activities that most significantly affect the performance of the underlying loans, we 

are not the primary beneficiary of our K Certificate trusts and, therefore, do not consolidate those trusts. 

When we sell loans to a K Certificate trust, we derecognize the transferred loans and account for our 

guarantee to the non-consolidated K Certificate trust. We account for our investments in the beneficial 

interests issued by non-consolidated K Certificate trusts as investments in debt securities.

During 2017 and 2016, we issued approximately $48.5 billion and $40.6 billion, respectively, of K 

Certificates for which a guarantee asset and guarantee obligation were recognized.

SB Certificates

In SB Certificate transactions, we securitize multifamily small balance loans using a non-Freddie Mac SB 

Certificate trust that issues senior classes of securities that we guarantee, as well as subordinated 

classes of securities that we do not guarantee. Similar to our K Certificate transactions, we are not the 

primary beneficiary of and, therefore, do not consolidate our SB Certificate trusts, as we do not have the 

ability to direct loss mitigation activities of the underlying loans, which is the most significantly activity 

affecting the economic performance of the VIE.

In a typical SB Certificate transaction, we sell loans to a SB Certificate trust, derecognize the transferred 

loans and account for our guarantee to the non-consolidated SB Certificate trust. We account for our 

investments in the beneficial interests issued by non-consolidated SB Certificate trusts as investments 

in debt securities.

During 2017 and 2016, we issued approximately $4.9 billion and $3.5 billion, respectively, of SB 

Certificates for which a guarantee asset and guarantee obligation were recognized.

Other Securitization Products

We are the primary beneficiary of and, therefore, consolidate the trusts used to issue certain of our other 

securitization products, including trusts that issue multifamily K Certificates without subordination and 

KT Certificates, as well as certain other single-family securitization products, because we have the 

ability to direct the activities that most significantly affect the economic performance of the trusts and 

we have the obligation to absorb credit losses through our guarantee of some or all of the issued 

securities. As a result, we consolidated trusts used to issue certain of our other securitization products 

with underlying assets totaling $8.5 billion and $7.5 billion at December 31, 2017 and 2016, respectively. 

We do not consolidate the trusts used to issue other securitization products that do not meet these 

conditions, including those trusts that issue multifamily M Certificates, ML Certificates and Q 

Certificates. For those products, we account for our guarantee to the non-consolidated VIE. During 2017 

and 2016, we issued approximately $5.6 billion and $0.5 billion, respectively, of these securities for 

which a guarantee asset and guarantee obligation were generally recognized.
Financial Statements Notes to the Consolidated Financial Statements | Note 3

FREDDIE MAC | 2017 Form 10-K 254

Consolidated VIEs

We determined we are the primary beneficiary of the VIEs used to issue our PCs, certain senior 

subordinate securitization structures, and certain other securitization products as previously discussed 

and, therefore, consolidate these VIEs. Our exposure on debt securities of consolidated trusts 

represents our liability to third parties that hold beneficial interests in our consolidated securitization 

trusts. 

When we consolidate a VIE, we recognize the assets and liabilities of the VIE on our consolidated 

balance sheets and account for those assets and liabilities based on the applicable GAAP for each 

specific type of asset or liability. Assets and liabilities that we transfer to a VIE at, after or shortly before 

the date we become the primary beneficiary of the VIE are initially measured at the same amounts that 

they would have been measured if they had not been transferred, and no gain or loss is recognized on 

these transfers. For all other VIEs that we consolidate, we recognize the assets and liabilities of the VIE 

at fair value, and we recognize a gain or loss for the difference between:

The sum of the fair value of the consideration paid, the fair value of any noncontrolling interests and 

the reported amount of any previously held interests; and

The net fair value of the assets and liabilities recognized. Guarantees to consolidated VIEs are 

eliminated in consolidation and are therefore not separately recognized on our consolidated balance 

sheets.

The table below presents the carrying value and classification of the assets and liabilities of 

consolidated VIEs on our consolidated balance sheets.

(In millions) As of December 31, 2017 As of December 31, 2016

Consolidated Balance Sheet Line Item

Assets:

Cash and cash equivalents $— $—

Restricted cash and cash equivalents 518 9,431

Securities purchased under agreements to resell 16,750 13,550

Mortgage loans held-for-investment 1,774,286 1,690,218

Accrued interest receivable 5,747 5,454

Other assets 2,738 3,827

Total assets of consolidated VIEs $1,800,039 $1,722,480

Liabilities:

Accrued interest payable $5,028 $4,846

Debt, net 1,720,996 1,648,683

Other liabilities 2 —

Total liabilities of consolidated VIEs $1,726,026 $1,653,529
Financial Statements Notes to the Consolidated Financial Statements | Note 3

FREDDIE MAC | 2017 Form 10-K 255

Non-Consolidated VIEs

Our involvement with VIEs for which we are not the primary beneficiary may take the form of purchasing 

an investment in these entities or providing a guarantee to these entities. Our maximum exposure to loss 

for those VIEs where we have purchased an investment is calculated as the maximum potential charge 

that we would recognize in earnings if that investment were to become worthless. Our maximum 

exposure to loss for those VIEs where we have provided a guarantee represents the contractual 

amounts that could be lost under the guarantees if counterparties or borrowers defaulted, without 

consideration of possible recoveries under credit enhancement arrangements. We do not believe the 

maximum exposure to loss disclosed in the table below is representative of the actual loss we are likely 

to incur, based on our historical loss experience and after consideration of proceeds from related 

collateral liquidation, including possible recoveries under credit enhancement arrangements. See Note 6

for additional information on credit enhancement arrangements.

The following table presents the carrying amounts and classification of the assets and liabilities 

recorded on our consolidated balance sheets related to our variable interests in non-consolidated VIEs 

with which we were involved in the design and creation and have a significant continuing involvement, 

as well as our maximum exposure to loss. 

(In millions) As of December 31, 2017 As of December 31, 2016

Assets and Liabilities Recorded on our Consolidated Balance Sheets(1)

Assets:

Investments in securities $51,494 $58,995

Accrued interest receivable 233 254

Derivative assets, net 7 —

Other assets 2,591 1,708

 Liabilities:

Other liabilities 2,489 1,604

Maximum Exposure to Loss(2)(3) $200,196 $150,227

Total Assets of Non-Consolidated VIEs(3) $232,762 $175,713

(1) Includes our variable interests in REMICs and Stripped Giant PCs, K Certificates, SB Certificates, certain senior subordinate securitization 

structures and certain other securitization products.

(2) Our maximum exposure to loss includes the guaranteed UPB of assets held by the non-consolidated VIEs as well as the UPB of unguaranteed 

securities that we acquired from these securitization transactions. 

(3) Our maximum exposure to loss and total assets of non-consolidated VIEs exclude our investments in and obligations to REMICs and Stripped Giant 

PCs, because we already consolidate the underlying collateral of these trusts on our consolidated balance sheets.

We also obtain interests in various other VIEs created by third parties through the normal course of 

business, such as through our investments in certain non-Freddie Mac mortgage-related securities, 

purchases of multifamily loans, guarantees of multifamily housing revenue bonds, as a derivative 

counterparty or through other activities. To the extent that we were not involved in the design or creation 

of these VIEs, they are excluded from the table above. Our interests in these VIEs are generally passive 

in nature and are not expected to result in us obtaining a controlling financial interest in these VIEs in the 

future. As a result, we do not consolidate these VIEs and we account for our interests in these VIEs in 

the same manner that we account for our interests in other third-party transactions. See Note 7 for 

additional information regarding our investments in non-Freddie Mac mortgage-related securities. See 

Note 4 for more information regarding multifamily loans.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 256

NOTE 4

Mortgage Loans and Loan Loss Reserves

The table below provides details of the loans on our consolidated balance sheets as of December 31, 

2017 and 2016. 

December 31, 2017 December 31, 2016

(In millions)

Held by

Freddie Mac

Held by

consolidated

trusts Total

Held by

Freddie Mac

Held by

consolidated

trusts Total

Held-for sale:

Single-family $17,039 $— $17,039 $2,092 $— $2,092

Multifamily 20,537 — 20,537 16,544 — 16,544

Total UPB 37,576 — 37,576 18,636 — 18,636

Cost basis and fair value adjustments, net (2,813) — (2,813) (548) — (548)

Total held-for-sale loans, net 34,763 — 34,763 18,088 — 18,088

Held-for-investment:

Single-family 51,893 1,742,736 1,794,629 83,040 1,659,591 1,742,631

Multifamily 17,702 3,747 21,449 25,873 3,048 28,921

Total UPB 69,595 1,746,483 1,816,078 108,913 1,662,639 1,771,552

Cost basis adjustments (2,148) 31,490 29,342 (3,755) 30,549 26,794

Allowance for loan losses (5,279) (3,687) (8,966) (10,461) (2,970) (13,431)

Total held-for-investment loans, net 62,168 1,774,286 1,836,454 94,697 1,690,218 1,784,915

Total loans, net $96,931 $1,774,286 $1,871,217 $112,785 $1,690,218 $1,803,003

On February 2, 2017, we started applying fair value hedge accounting to certain single-family mortgage 

loans. The fair value hedge accounting related loan basis adjustments are included in the table above.

We own both single-family loans, which are secured by one to four unit residential properties, and 

multifamily loans, which are secured by properties with five or more residential rental units. Our singlefamily loans are predominantly first lien, fixed-rate loans secured by the borrower’s primary residence. 

Upon acquisition, we classify a loan as either held-for-sale or held-for-investment. Loans that we have 

the ability and intent to hold for the foreseeable future are classified as held-for-investment. Loans that 

we intend to securitize using an entity we will consolidate are classified as held-for-investment both prior 

to and subsequent to their securitization. Otherwise, they will be classified as held-for-sale. Held-forinvestment loans are reported in our consolidated balance sheets at their outstanding UPB, net of 

deferred fees and other cost basis adjustments (including unamortized premiums and discounts, upfront 

fees and other pricing adjustments). 

Loans not classified as held-for-investment are classified as held-for-sale. Held-for-sale loans are 

reported at lower-of-cost-or-fair-value on our consolidated balance sheets. Any excess of a held-forsale loan’s cost over its fair value is recognized as a valuation allowance in other income on our 

consolidated statements of comprehensive income, with changes in this valuation allowance also being 

recorded in other income. Premiums, discounts and other cost basis adjustments (including lower-ofcost-or-fair-value adjustments) on single-family loans classified as held-for-sale are deferred and not 

amortized. We elected the fair value option for certain multifamily loans that we intend to securitize and 

sell to investors. Therefore, these multifamily loans are measured at fair value on a recurring basis, with 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 257

subsequent gains or losses related to changes in fair value reported in other income in our consolidated 

statements of comprehensive income.

Cash flows related to loans originally classified as held-for-investment are classified as either investing 

activities (e.g., principal repayments) or operating activities (e.g., interest payments received from 

borrowers included within net income (loss)). Cash flows related to loans originally classified as held-forsale are classified as operating activities.

During 2017 and 2016, we purchased $343.0 billion and $388.9 billion, respectively, in UPB of singlefamily loans, and $5.3 billion and $6.1 billion, respectively, in UPB of multifamily loans that were 

classified as held-for-investment. 

Our sales of multifamily loans occur primarily through the issuance of multifamily K Certificates and SB 

Certificates. During 2017 and 2016, we sold $61.9 billion and $49.9 billion, respectively, of held-for-sale 

multifamily loans. See Note 3 for more information on our issuances of K Certificates and SB 

Certificates. 

As part of our strategy to mitigate losses and reduce our holdings of less liquid assets, we completed 

sales of $8.7 billion and $4.2 billion in UPB of seasoned single-family loans during 2017 and 2016, 

respectively.

In connection with our efforts to sell certain of our single-family loans, we reclassified $26.2 billion and 

$4.7 billion in UPB of seasoned single-family loans from held-for-investment to held-for-sale in 2017 and 

2016, respectively. In addition, we reclassified $1.6 billion in UPB of multifamily mortgage loans from 

held-for-investment to held-for-sale in 2017. We did not reclassify any multifamily mortgage loans in 

2016. For additional information regarding the fair value of our loans classified as held-for-sale, see 

Note 15.

Interest Income

We recognize interest income on an accrual basis except when we believe the collection of principal and 

interest in full is not reasonably assured, which generally occurs when a loan is three monthly payments 

past due, unless the loan is well secured and in the process of collection based upon an individual loan 

assessment. A loan is considered past due if a full payment of principal and interest is not received 

within one month of its due date. 

Cost basis adjustments on held-for-investment loans are amortized into interest income over the 

contractual lives of the loans using the effective interest method.

A non-accrual loan may be returned to accrual status when the collectability of principal and interest in 

full is reasonably assured. For single-family loans, we determine that collectability is reasonably assured 

when we have received payment of principal and interest such that the loan becomes less than three 

monthly payments past due. For multifamily loans, the collectability of principal and interest is 

considered reasonably assured based on an analysis of the factors specific to the loan being assessed. 

Upon a loan’s return to accrual status, all previously reversed interest income is recognized and 

amortization of any basis adjustments into interest income is resumed.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 258

Credit Quality

The current LTV ratio is one key factor we consider when estimating our loan loss reserves for singlefamily loans. As current LTV ratios increase, the borrower’s equity in the home decreases, which may 

negatively affect the borrower’s ability to refinance (outside of HARP) or to sell the property for an 

amount at or above the balance of the outstanding loan. A second-lien loan also reduces the borrower’s 

equity in the home, and has a similar negative effect on the borrower’s ability to refinance or sell the 

property for an amount at or above the combined balances of the first and second loans. As of 

December 31, 2017 and 2016, based on data collected by us at loan delivery, approximately 9% and 

11%, respectively, of loans in our single-family credit guarantee portfolio had second-lien financing by 

third parties at origination of the first loan. However, borrowers are free to obtain second-lien financing 

after origination, and we are not entitled to receive notification when a borrower does so. For further 

information about concentrations of risk associated with our single-family and multifamily loans, see 

Note 14.

We discontinued our purchases of Alt-A, interest-only and option ARM loans a number of years ago. For 

reporting purposes:

Loans within the Alt-A category continue to be presented in that category following modification, 

even though the borrower may have provided full documentation of assets and income to complete 

the modification; and

Loans within the option ARM category continue to be presented in that category following 

modification, even though the modified loan no longer provides for optional payment provisions.

The table below presents the recorded investment of single-family held-for-investment loans by current 

LTV ratios. Our current LTV ratios are estimates based on available data through the end of each 

respective period presented. 

As of December 31, 2017 As of December 31, 2016

Current LTV Ratio

Total

Current LTV Ratio

Total

(In millions) > 80 to 100 > 100(1) > 80 to 100 > 100(1)

20 and 30-year or more, amortizing 

fixed-rate(2) $1,240,224 $214,177 $13,303 $1,467,704 $1,120,722 $236,111 $30,063 $1,386,896

15-year amortizing fixed-rate(2) 270,266 7,351 381 277,998 274,967 11,016 887 286,870

Adjustable-rate 48,596 2,963 28 51,587 52,319 2,955 85 55,359

Alt-A, interest-only and option ARM 21,013 4,256 1,429 26,698 26,293 9,392 4,634 40,319

Total single-family loans $1,580,099 $228,747 $15,141 $1,823,987 $1,474,301 $259,474 $35,669 $1,769,444

(1) The serious delinquency rate for the total of single-family held-for-investment mortgage loans with current LTV ratios in excess of 100% was 

8.43% and 6.80% as of December 31, 2017 and 2016, respectively.

(2) The majority of our loan modifications result in new terms that include fixed interest rates after modification. As of December 31, 2017 and 2016, 

we have categorized UPB of approximately $22.2 billion and $32.0 billion, respectively, of modified loans as fixed-rate loans (instead of as 

adjustable rate loans), even though the modified loans have rate adjustment provisions. In these cases, while the terms of the modified loans 

provide for the interest rate to adjust in the future, such future rates are determined at the time of modification rather than at a subsequent date.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 259

The following table presents the recorded investment in our multifamily held-for-investment loans, by 

credit quality indicator as of December 31, 2017 and 2016. The multifamily credit quality indicator is 

based on available data through the end of each period presented. These indicators involve significant 

management judgment.

(In millions) As of December 31, 2017 As of December 31, 2016

Credit risk profile by internally assigned grade:(1)

Pass $20,963 $27,830

Special mention 301 502

Substandard 169 570

Doubtful — —

Total $21,433 $28,902

(1) A loan categorized as: "Pass" is current and adequately protected by the current financial strength and debt service capacity of the borrower; In 

2017, "Special mention" has administrative issues that may affect future repayment prospects but do not have current credit weaknesses, while 

in 2016, "Special mention" has signs of potential financial weakness; "Substandard" has a well-defined weakness that jeopardizes the timely full 

repayment; and "Doubtful" has a weakness that makes collection or liquidation in full highly questionable and improbable based on existing 

conditions.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 260

Mortgage Loan Performance

The following tables present the recorded investment of our single-family and multifamily loans, held-forinvestment, by payment status.

As of December 31, 2017

(In millions) Current

One

Month

Past Due

Two

Months

Past Due

Three Months or

More Past Due,

or in Foreclosure(1) Total Non-accrual

Single-family:

20 and 30-year or more, amortizing fixed-rate $1,431,342 $18,297 $5,660 $12,405 $1,467,704 $12,401

15-year amortizing fixed-rate 275,864 1,288 290 556 277,998 556

Adjustable-rate 50,915 383 84 205 51,587 205

Alt-A, interest-only and option ARM 23,235 1,297 509 1,657 26,698 1,656

Total single-family 1,781,356 21,265 6,543 14,823 1,823,987 14,818

Total multifamily 21,414 — — 19 21,433 64

Total single-family and multifamily $1,802,770 $21,265 $6,543 $14,842 $1,845,420 $14,882

As of December 31, 2016

(In millions) Current

One

Month

Past Due

Two

Months

Past Due

Three Months or

More Past Due,

or in Foreclosure(1) Total Non-accrual

Single-family:

20 and 30-year or more, amortizing fixed-rate $1,354,511 $16,645 $4,865 $10,875 $1,386,896 $10,868

15-year amortizing fixed-rate 285,373 1,010 178 309 286,870 309

Adjustable-rate 54,738 354 77 190 55,359 190

Alt-A, interest-only and option ARM 35,994 1,748 650 1,927 40,319 1,927

Total single-family 1,730,616 19,757 5,770 13,301 1,769,444 13,294

Total multifamily 28,902 — — — 28,902 89

Total single-family and multifamily $1,759,518 $19,757 $5,770 $13,301 $1,798,346 $13,383

(1) Includes $4.1 billion and $5.3 billion of loans that were in the process of foreclosure as of December 31, 2017 and 2016, respectively.

We have the option under our PC master trust agreement to remove loans that underlie our PCs under 

certain circumstances to resolve an existing or impending delinquency or default. Our practice generally 

has been to remove loans from PC trusts when the loans have been delinquent for 120 days or more. 

When we remove loans from PC trusts, we record an extinguishment of the corresponding portion of the 

debt securities of the consolidated trusts and we reclassify the loans from mortgage loans held-forinvestment by consolidated trusts to mortgage loans held-for-investment by Freddie Mac. We removed 

$6.3 billion and $6.8 billion in UPB of loans from PC trusts (or purchased delinquent loans associated 

with other mortgage-related guarantees) during the years ended December 31, 2017 and 2016, 

respectively. 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 261

The table below summarizes the delinquency rates of loans within our single-family credit guarantee and 

multifamily mortgage portfolios.

(Dollars in millions) December 31, 2017 December 31, 2016

Single-family(1)

Non-credit-enhanced portfolio:

Serious delinquency rate 1.16% 1.02%

Total number of seriously delinquent loans 81,668 77,662

Credit-enhanced portfolio:(2)

Primary mortgage insurance:

 Serious delinquency rate 1.43% 1.46%

 Total number of seriously delinquent loans 23,275 21,460

Other credit protection:(3)

 Serious delinquency rate 0.53% 0.43%

 Total number of seriously delinquent loans 16,259 9,455

Total Single-family

Serious delinquency rate 1.08% 1.00%

Total number of seriously delinquent loans 116,662 107,170

Multifamily(4)

Non-credit-enhanced portfolio:

Delinquency rate 0.06% 0.04%

UPB of delinquent loans $24 $19

Credit-enhanced portfolio:

Delinquency rate 0.01% 0.02%

UPB of delinquent loans $16 $37

Total Multifamily

Delinquency rate 0.02% 0.03%

UPB of delinquent loans $40 $56

(1) Serious delinquencies on single-family loans underlying certain REMICs, other securitization products and other mortgage-related guarantees may 

be reported on a different schedule due to variances in industry practice.

(2) The credit enhanced categories are not mutually exclusive as a single loan may be covered by both primary mortgage insurance and other credit 

protection.

(3) Consists of single-family loans covered by financial arrangements (other than primary mortgage insurance) that are designed to reduce our credit 

risk exposure. See Note 6 for additional information on our credit enhancements. 

(4) Multifamily delinquency performance is based on the UPB of loans that are two monthly payments or more past due or those in the process of 

foreclosure. 

We continue to implement a number of initiatives to refinance and modify single-family loans. As part of 

these initiatives, we pay various incentives to servicers and borrowers. HAMP ended in December 2016. 

The relief refinance program is being replaced with the high LTV relief refinance (Enhanced Relief 

RefinanceSM) program, which will be available in January 2019 for loans originated on or after October 1, 

2017. This program provides liquidity for borrowers who are current on their mortgages but are unable to 

refinance because their LTV ratios exceed our standard refinance limits. In addition, the HARP program 

has been extended for applications through December 31, 2018 to ensure that borrowers who have a 

high LTV ratio and are eligible for HARP will continue to have a refinance option.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 262

Loan Loss Reserves

The loan loss reserves represent estimates of probable incurred credit losses. We recognize probable 

incurred losses by recording a charge to the provision for credit losses in our consolidated statements of 

comprehensive income. The loan loss reserves include:

Our allowance for loan losses, which pertains to all single-family and multifamily loans classified as 

held-for-investment on our consolidated balance sheets; and

Our reserve for guarantee losses, which pertains to single-family and multifamily loans underlying 

our K Certificates and SB Certificates, senior subordinate securitization structures, other 

securitization products and other mortgage-related guarantees. 

A significant portion of the unsecuritized single-family loans on our consolidated balance sheets include 

seriously delinquent and TDR loans that we previously removed from our PC pools. These seriously 

delinquent and TDR loans typically have a higher associated allowance for loan loss than loans that 

remain in consolidated trusts.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 263

The table below presents our loan loss reserves activity.

Year Ended December 31,

2017 2016

Allowance for Loan Losses Reserve 

for

Guarantee

Losses Total

Allowance for Loan Losses Reserve 

for

Guarantee

 (In millions) Losses Total

Held by

Freddie Mac

Held By

Consolidated

Trusts

Held by

Freddie Mac

Held By

Consolidated

Trusts

Single-family:

Beginning balance $10,443 $2,968 $52 $13,463 $12,517 $2,775 $56 $15,348

Provision (benefit) for credit

losses (1,447) 1,350 — (97) (1,384) 599 4 (781)

Charge-offs(1) (4,939) (108) (4) (5,051) (1,757) (173) (8) (1,938)

Recoveries 419 6 — 425 487 10 — 497

Transfers, net(2) 540 (540) — — 248 (248) — —

Other(3) 235 4 — 239 332 5 — 337

Ending balance $5,251 $3,680 $48 $8,979 $10,443 $2,968 $52 $13,463

Multifamily:

Beginning balance $18 $2 $15 $35 $38 $1 $20 $59

Provision (benefit) for credit

losses 15 4 (6) 13 (17) — (5) (22)

Charge-offs(1) (4) — — (4) (2) — — (2)

Recoveries — — — — — — — —

Transfers, net(2) (1) 1 — — (1) 1 — —

Other(3) — — — — — — — —

Ending balance $28 $7 $9 $44 $18 $2 $15 $35

Total:

Beginning balance $10,461 $2,970 $67 $13,498 $12,555 $2,776 $76 $15,407

Provision (benefit) for credit

losses (1,432) 1,354 (6) (84) (1,401) 599 (1) (803)

Charge-offs(1) (4,943) (108) (4) (5,055) (1,759) (173) (8) (1,940)

Recoveries 419 6 — 425 487 10 — 497

Transfers, net(2) 539 (539) — — 247 (247) — —

Other(3) 235 4 — 239 332 5 — 337

Ending balance $5,279 $3,687 $57 $9,023 $10,461 $2,970 $67 $13,498

(1) The year ended December 31, 2016 does not include lower-of-cost-or-fair-value adjustments and other expenses related to property taxes and 

insurance recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion. The year ended December 31, 

2017 includes charge-offs of $3.8 billion related to the transfer of loans from held-for-investment to held-for-sale.

(2) Relates to removal of delinquent single-family loans from consolidated trusts and resecuritization after such removal. 

(3) Primarily includes capitalization of past due interest on modified loans.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 264

Loan Loss Reserves Determined on a Collective Basis

Single-Family Loans

We estimate loan loss reserves on homogeneous pools of single-family loans using a model that 

evaluates a variety of factors affecting collectability. We review the outputs of this model by considering 

qualitative factors such as macroeconomic and other factors to see whether the model outputs are 

consistent with our expectations. Management adjustments may be necessary to take into 

consideration external factors and current economic events that have occurred but that are not yet 

reflected in the factors used to derive the model outputs. Significant judgment is exercised in making 

these adjustments. The homogeneous pools of single-family loans are determined based on common 

underlying characteristics, including current LTV ratios, trends in home prices, loan product type and 

geographic region.

We rely upon third-parties to service our loans. At loan delivery, the seller provides us with loan data, 

which includes characteristics and underwriting information. Each subsequent month, the servicers 

provide us with monthly loan level servicing data, including delinquency and loss information. 

Our single-family loan loss reserve default models produce estimates based on 12 months of loan level 

performance data, which includes a history of delinquency, foreclosures, foreclosure alternatives and 

modifications. Our loan loss reserve estimate includes projections of:

Loss mitigation activities, including loan modifications for troubled borrowers and the incidence of 

redefault we have experienced on similar loans that have completed a loan modification; and

Defaults we believe are likely to occur as a result of loss events that have occurred through the 

respective balance sheet date.

These projections are based on our recent historical experience and current business practices and 

require significant management judgment. We monitor our projections of recoveries through seller/

servicer repurchases to ensure that these projections are reasonable and consistent with our 

assessment of the credit capacity of our seller/servicer counterparties. We validate and update our 

models and factors to capture changes in actual loss experience, as well as the effects of changes in 

underwriting practices and in our loss mitigation strategies. In determining our loan loss reserves, we 

also consider macroeconomic and other factors that affect the quality of the loans underlying our 

portfolio, including regional housing trends, applicable home price indices, unemployment and 

employment dislocation trends, the effects of changes in government policies and programs, consumer 

credit statistics and the extent of third-party insurance.

Our single-family loan loss reserve severity is based on the repeat housing sales index and actual REO 

dispositions, short sales and third-party sales that incorporate the most recent:

Twelve months of sales experience realized on our distressed property dispositions; and

Twelve months of pre-foreclosure expenses on our distressed properties, including REO, short sales 

and third-party sales. 

Our single-family loan loss severity estimate also captures expectations about recoveries from primary 

mortgage insurance or from seller/servicers due to repurchases. We use historical trends in home prices 

in our single-family loan loss reserve process, primarily through the use of current LTV ratios in our 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 265

default models and through the use of recent home price sales experience in our severity estimate. 

However, we do not use a forecast of trends in home prices in our single-family loan loss reserve 

process. 

For loans where foreclosure is probable, we measure impairment based upon an estimate of the fair 

value of the underlying collateral less estimated disposition costs. Our estimate also considers the effect 

of historical home price changes on borrower behavior.

We apply proceeds from primary mortgage insurance and from other credit enhancements, including 

repurchase recoveries, entered into contemporaneously with, and in contemplation of, a guarantee or 

loan purchase transaction as a recovery of our recorded investment in a charged-off loan, up to the 

amount of loss recognized as a charge-off. Proceeds received in excess of our recorded investment in 

loans are recorded as a decrease to REO operations expense in our consolidated statements of 

comprehensive income. We record benefits related to most of our credit enhancements (e.g., primary 

mortgage insurance and certain ACIS insurance policies) when realization of our claims is deemed 

probable. We record benefits for certain of our other credit enhancements (e.g., certain STACR debt 

notes and certain senior subordinate securitization structures) when the realized loss event occurs. We 

generally record repurchase recoveries on a cash basis due to the uncertainty of the timing and amount 

of collections of such recoveries.

Multifamily Loans

Multifamily loans evaluated collectively for impairment are aggregated into book year vintage portfolios. 

Potential impairment related to these portfolios is measured by benchmarking published historical 

commercial loan performance data to those vintages based upon available economic data related to 

multifamily real estate, including apartment vacancy and rental rates.

Loan Loss Reserves Determined on an Individual Basis

We consider a loan to be impaired when, based on current information, it is probable that we will not 

receive all amounts due (including both principal and interest) in accordance with the contractual terms 

of the original loan agreement. 

Single-family loans individually evaluated for impairment include TDRs, as well as loans acquired under 

our financial guarantees with deteriorated credit quality prior to 2010. Multifamily loans individually 

evaluated for impairment include TDRs, loans three monthly payments or more past due and loans that 

are impaired based on management judgment.

Troubled Debt Restructurings

A modification to the contractual terms of a loan that results in granting a concession to a borrower 

experiencing financial difficulties is considered a TDR. A concession is deemed granted when, as a 

result of the restructuring, we do not expect to collect all amounts due, including interest accrued, at the 

original contractual interest rate. As appropriate, we also consider other qualitative factors in 

determining whether a concession is deemed granted, including whether the borrower’s modified 

interest rate is consistent with that of a non-troubled borrower. We do not consider restructurings that 

result in an insignificant delay in payment to be a concession. We generally consider a delay in monthly 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 266

amortizing payments of three months or less to be insignificant. A concession typically includes one or 

more of the following being granted to the borrower: 

A trial period where the expected permanent modification will change our expectation of collecting 

all amounts due at the original contract rate;

A delay in payment that is more than insignificant; 

A reduction in the contractual interest rate; 

Interest forbearance for a period of time that is more than insignificant or forgiveness of accrued but 

uncollected interest amounts; 

Principal forbearance that is more than insignificant; and

Discharge of the borrower’s obligation in Chapter 7 bankruptcy.

The table below presents the volume of single-family and multifamily loans that were newly classified as 

TDRs during the years ended December 31, 2017 and 2016, based on the original category of the loan 

before the loan was classified as a TDR. Loans classified as a TDR in one period may be subject to 

further action (such as a modification or remodification) in a subsequent period. In such cases, the 

subsequent action would not be reflected in the table below since the loan would already have been 

classified as a TDR.

Year Ended December 31,

2017 2016

(Dollars in millions)

Number of 

Loans

Post-TDR

Recorded

Investment

Number of 

Loans

Post-TDR

Recorded

Investment

Single-family:(1)

20 and 30-year or more, amortizing fixed-rate 33,745 $4,818 35,503 $5,092

15-year amortizing fixed-rate 4,569 356 4,623 338

Adjustable-rate 892 128 969 140

Alt-A, interest-only and option ARM 2,784 495 3,115 548

Total single-family 41,990 5,797 44,210 6,118

Multifamily 1 — 2 8

Total 41,991 $5,797 44,212 $6,126

(1) The pre-TDR recorded investment for single-family loans initially classified as TDR during the years ended December 31, 2017 and 2016 was $5.8 

billion and $6.2 billion, respectively.

The table below presents the volume of our TDR modifications that experienced payment defaults (i.e., 

loans that became two months delinquent or completed a loss event) during the applicable periods and 

had completed a modification during the year preceding the payment default. The table presents loans 

based on their original product category before modification.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 267

Year Ended December 31,

2017 2016

(Dollars in millions)

Number of

Loans

Post-TDR

Recorded

Investment(1)

Number of

Loans

Post-TDR

Recorded

Investment(1)

Single-family

20 and 30-year or more, amortizing fixed-rate 13,973 $2,231 16,139 $2,520

15-year amortizing fixed-rate 720 57 813 66

Adjustable-rate 225 33 277 41

Alt-A, interest-only and option ARM 1,254 253 1,535 305

Total single-family 16,172 $2,574 18,764 $2,932

Multifamily(2) — $— — $—

(1) Represents the recorded investment at the end of the period in which the loan was modified and does not represent the recorded investment as of 

December 31.

(2) The post-TDR recorded investment is not meaningful.

In addition to modifications, loans may be initially classified as TDRs as a result of other loss mitigation 

activities (i.e., repayment plans, forbearance agreements, or trial period modifications). During the years 

ended December 31, 2017 and 2016, 7,090 and 8,083, respectively, of such loans (with a post-TDR 

recorded investment of $0.9 billion and $1.0 billion, respectively) experienced a payment default within a 

year after the loss mitigation activity occurred.

Loans may also be initially classified as TDRs because the borrowers’ debts were discharged in Chapter 

7 bankruptcy (and the loan was not already classified as a TDR for other reasons). During the years 

ended December 31, 2017 and 2016, 867 and 1,154, respectively, of such loans (with a post-TDR 

recorded investment of $0.1 billion in both periods) experienced a payment default within a year after 

the borrowers' Chapter 7 bankruptcy.

Single-Family Loans

Impairment of a single-family loan having undergone a TDR is generally measured as the excess of our 

recorded investment in the loan over the present value of the expected future cash flows, discounted at 

the loan’s original effective interest rate for fixed-rate loans, or at the loan’s effective interest rate prior to 

the restructuring for ARM loans. Our expectation of future cash flows incorporates, among other items, 

an estimated probability of default which is based on a number of market factors as well as the 

characteristics of the loan, such as past due status. Subsequent to the restructuring date, interest 

income is recognized at the modified interest rate, subject to our non-accrual policy as discussed in 

"Interest Income" above, with all other changes in the present value of expected future cash flows being 

recognized as a component of the provision for credit losses in our consolidated statements of 

comprehensive income. If we determine that foreclosure on the underlying collateral is probable, we 

measure impairment based upon the fair value of the collateral, as reduced by estimated disposition 

costs and adjusted for estimated proceeds from insurance and similar sources.

Approximately 37% and 43% of single-family loan modifications completed during 2017 and 2016, 

respectively, that were classified as TDRs involved interest rate reductions and, in certain cases, term 

extensions. Approximately 14% and 16% of single-family loan modifications completed during 2017 and 

2016, respectively, that were classified as TDRs involved principal forbearance in addition to interest rate 

reductions and, in certain cases, term extensions. During 2017 and 2016, the average term extension 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 268

was 176 months and 177 months, respectively, and the average interest rate reduction was 0.6% and 

0.8%, respectively, on completed single-family loan modifications classified as TDRs.

Substantially all of our completed single-family loan modifications classified as a TDR during 2017

resulted in a modified loan with a fixed interest rate. However, many of these fixed-rate loans include 

provisions for the reduced interest rates to remain fixed for the first five years of the modification and 

then increase at a rate of up to one percent per year until the interest rate has been adjusted to the 

market rate that was in effect at the time of the modification. 

Multifamily Loans

Multifamily impaired loans include TDRs, loans three monthly payments or more past due and loans that 

are deemed impaired based on management judgment. Factors considered by management in 

determining whether a loan is impaired include the underlying property’s operating performance as 

represented by its current DSCR, available credit enhancements, current LTV ratio, management of the 

underlying property and the property’s geographic location.

Multifamily loans are generally measured individually for impairment based on the fair value of the 

underlying collateral, as reduced by estimated disposition costs, as the repayment of these loans is 

generally provided from the cash flows of the underlying collateral and any associated credit 

enhancement. Except for cases of fraud and certain other types of borrower defaults, most multifamily 

loans are non-recourse to the borrower. As a result, the cash flows of the underlying property (including 

any associated credit enhancements) serve as the source of funds for repayment of the loan. Interest 

income recognition on multifamily impaired loans is subject to our non-accrual policy as discussed in 

Interest Income above.

The assessment as to whether a multifamily loan restructuring is considered a TDR contemplates the 

unique facts and circumstances of each loan. This assessment considers qualitative factors such as 

whether the borrower’s modified interest rate is consistent with that of a non-troubled borrower having a 

similar credit profile at the time of modification. In certain cases, for maturing loans we may provide 

short-term loan extensions of up to one year with no changes to the effective borrowing rate. In other 

cases, we may make more significant modifications of terms for borrowers experiencing financial 

difficulty, such as reducing the interest rate, extending the maturity for longer than one year, providing 

principal forbearance, or some combination of these terms.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 269

Impaired Loans

The tables below present the UPB, recorded investment, the related allowance for loan losses, average 

recorded investment and interest income recognized for individually impaired loans.

Balance at December 31, 2017 Balance at December 31, 2016

(In millions) UPB

Recorded

Investment

Associated

Allowance UPB

Recorded

Investment

Associated

Allowance

Single-family —

With no specific allowance recorded:(1)

20 and 30-year or more, amortizing fixed-rate $3,768 $2,908 N/A $4,963 $3,746 N/A

15-year amortizing fixed-rate 24 21 N/A 31 26 N/A

Adjustable-rate 259 256 N/A 292 289 N/A

Alt-A, interest-only and option ARM 1,558 1,297 N/A 1,935 1,561 N/A

Total with no specific allowance recorded 5,609 4,482 N/A 7,221 5,622 N/A

With specific allowance recorded:(2)

20 and 30-year or more, amortizing fixed-rate 47,897 46,783 ($5,505) 67,853 66,143 ($9,678)

15-year amortizing fixed-rate 752 757 (24) 847 851 (25)

Adjustable-rate 232 228 (14) 319 312 (19)

Alt-A, interest-only and option ARM 7,407 6,987 (1,087) 12,699 12,105 (2,258)

Total with specific allowance recorded 56,288 54,755 (6,630) 81,718 79,411 (11,980)

Combined single-family:

20 and 30-year or more, amortizing fixed-rate 51,665 49,691 (5,505) 72,816 69,889 (9,678)

15-year amortizing fixed-rate 776 778 (24) 878 877 (25)

Adjustable-rate 491 484 (14) 611 601 (19)

Alt-A, interest-only and option ARM 8,965 8,284 (1,087) 14,634 13,666 (2,258)

Total single-family 61,897 59,237 (6,630) 88,939 85,033 (11,980)

Multifamily —

With no specific allowance recorded 106 97 N/A 321 308 N/A

With specific allowance recorded 35 35 (7) 44 42 (9)

Total multifamily 141 132 (7) 365 350 (9)

Total single-family and multifamily $62,038 $59,369 ($6,637) $89,304 $85,383 ($11,989)

Referenced footnotes are included after the next table.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 270

Year Ended December 31,

2017 2016

(In millions)

Average

Recorded

Investment

Interest

Income

Recognized

Interest 

Income 

Recognized On 

Cash Basis(3)

Average

Recorded

Investment

Interest

Income

Recognized

Interest 

Income 

Recognized On 

Cash Basis(3)

Single-family —

With no specific allowance recorded:(1)

20 and 30-year or more, amortizing fixed-rate $3,556 $399 $16 $4,033 $447 $14

15-year amortizing fixed-rate 25 1 — 33 5 —

Adjustable rate 292 11 — 259 9 —

Alt-A, interest-only and option ARM 1,471 110 5 1,417 117 3

Total with no specific allowance recorded 5,344 521 21 5,742 578 17

With specific allowance recorded:(2)

20 and 30-year or more, amortizing fixed-rate 44,057 2,513 248 68,402 2,668 251

15-year amortizing fixed-rate 599 32 6 884 39 7

Adjustable rate 261 9 3 384 14 3

Alt-A, interest-only and option ARM 7,366 378 33 12,916 437 34

Total with specific allowance recorded 52,283 2,932 290 82,586 3,158 295

Combined single-family:

20 and 30-year or more, amortizing fixed-rate 47,613 2,912 264 72,435 3,115 265

15-year amortizing fixed-rate 624 33 6 917 44 7

Adjustable rate 553 20 3 643 23 3

Alt-A, interest-only and option ARM 8,837 488 38 14,333 554 37

Total single-family 57,627 3,453 311 88,328 3,736 312

Multifamily —

With no specific allowance recorded 286 9 3 356 15 4

With specific allowance recorded 45 1 1 63 3 2

Total multifamily 331 10 4 419 18 6

Total single-family and multifamily $57,958 $3,463 $315 $88,747 $3,754 $318

(1) Individually impaired loans with no specific related valuation allowance primarily represent those loans for which the collateral value is sufficiently 

in excess of the loan balance to result in recovery of the entire recorded investment if the property were foreclosed upon or otherwise subject to 

disposition.

(2) Consists primarily of loans classified as TDRs.

(3) Consists of income recognized during the period related to loans on non-accrual status.

The table below presents our allowance for loan losses and our recorded investment in loans, held-forinvestment, by impairment evaluation methodology.

December 31, 2017 December 31, 2016

(In millions) Single-family Multifamily Total Single-family Multifamily Total

Recorded investment:

Collectively evaluated $1,764,750 $21,301 $1,786,051 $1,684,411 $28,552 $1,712,963

Individually evaluated 59,237 132 59,369 85,033 350 85,383

Total recorded investment 1,823,987 21,433 1,845,420 1,769,444 28,902 1,798,346

Ending balance of the allowance for loan losses:

Collectively evaluated (2,301) (28) (2,329) (1,431) (11) (1,442)

Individually evaluated (6,630) (7) (6,637) (11,980) (9) (11,989)

Total ending balance of the allowance (8,931) (35) (8,966) (13,411) (20) (13,431)

Net investment in loans $1,815,056 $21,398 $1,836,454 $1,756,033 $28,882 $1,784,915

A significant number of unsecuritized single-family loans on our consolidated balance sheets are 

individually evaluated for impairment while substantially all single-family loans held by our consolidated 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

FREDDIE MAC | 2017 Form 10-K 271

trusts are collectively evaluated for impairment. The ending balance of the allowance for loan losses 

associated with our held-for-investment unsecuritized loans represented approximately 7.8% and 9.9%

of the recorded investment in such loans at December 31, 2017 and 2016, respectively, and a 

substantial portion of the allowance associated with these loans represented interest rate concessions 

provided to borrowers as part of loan modifications. The ending balance of the allowance for loan losses 

associated with loans held by our consolidated trusts represented approximately 0.2% of the recorded 

investment in such loans as of both December 31, 2017 and 2016.

Loan Reclassifications

On January 1, 2017, we elected a new accounting policy for loan reclassifications from held-forinvestment to held-for-sale. Under the new policy, when we reclassify (transfer) a loan from held-forinvestment to held-for-sale, we charge off the entire difference between the loan’s recorded investment 

and its fair value if the loan has a history of credit-related issues. Expenses related to property taxes and 

insurance are included as part of the charge-off. If the charge-off amount exceeds the existing loan loss 

reserve amount, an additional provision for credit losses is recorded. Any declines in loan fair value after 

the date of transfer will be recognized as a valuation allowance, with an offset recorded to other income 

(loss). This new policy election was applied prospectively, as it was not practical to apply it 

retrospectively.

The new policy election did not affect our net income; however, it affected where the loan 

reclassifications from held-for-investment to held-for-sale were recorded in our consolidated statements 

of comprehensive income. Prior to the policy change, upon a loan reclassification from held-forinvestment to held-for-sale, we reversed the related allowance for loan losses to the benefit (provision) 

for credit losses, recorded a valuation allowance for any difference between the loan's recorded 

investment and its fair value to other income (loss), and recorded property taxes and insurance 

expenses related to the transferred loans in other expense. Under the new policy, benefit (provision) for 

credit losses is the only line item affected when a transfer occurs.

Non-Cash Investing and Financing Activities

During the years ended December 31, 2017, 2016 and 2015, we acquired $229.2 billion, $234.6 billion

and $237.5 billion, respectively, of loans held-for-investment in exchange for the issuance of debt 

securities of consolidated trusts in guarantor swap transactions. We received approximately $35.9 

billion, $30.3 billion and $11.6 billion of loans from sellers during the years ended December 31, 2017, 

2016 and 2015, respectively, to satisfy advances to lenders that were recorded in other assets on our 

consolidated balance sheets. These loans were primarily included in the guarantor swap transactions. 

In addition, we acquire REO properties through foreclosure sales or by deed in lieu of foreclosure. These 

acquisitions represent non-cash transfers. During the years ended December 31, 2017, 2016 and 2015, 

we had transfers of $1.1 billion, $1.5 billion and $2.0 billion, respectively, from loans to REO.
Financial Statements Notes to the Consolidated Financial Statements | Note 5

FREDDIE MAC | 2017 Form 10-K 272

NOTE 5 

Guarantee Activities

We generate revenue through our guarantee activities by agreeing to absorb the credit risk associated 

with certain financial instruments that are owned or held by third parties. In exchange for providing this 

guarantee, we receive an ongoing guarantee fee that is commensurate with the risks assumed and that 

will, over the long-term, provide us with cash flows that are expected to exceed the credit-related and 

administrative expenses of the underlying financial instruments. The profitability of our guarantee 

activities may vary and will be dependent on our guarantee fee and the actual credit performance of the 

underlying financial instruments that we have guaranteed.

Guarantees to consolidated entities are eliminated in consolidation and therefore are not separately 

recognized on our consolidated balance sheets. The accounting treatment for guarantees provided to 

non-consolidated entities or other third parties will depend on whether the guarantee contract qualifies 

as a financial guarantee. 

If the guarantee contract qualifies as a financial guarantee and exposes us to incremental credit risk, we 

will recognize both a guarantee obligation at fair value and the consideration we receive for providing the 

guarantee, which typically consists of a guarantee asset that represents the fair value of future guarantee 

fees. As a practical expedient, the measurement of the fair value of the guarantee obligation is set equal 

to the consideration we receive to provide the guarantee, and no gain or loss is recognized upon 

issuance of the guarantee. Subsequently, we recognize changes in the fair value of the guarantee asset 

in current period earnings and amortize the guarantee obligation into earnings as we are released from 

risk under the guarantee. We also recognize a reserve for guarantee losses when it is probable that a 

loss has been incurred under the guarantee.

If the guarantee contract provided to non-consolidated entities does not qualify as a financial guarantee, 

that contract will generally be accounted for as a credit derivative and measured at fair value on our 

consolidated financial statements.

Guarantee Activities

Our principal guarantee activities include the following:

Securitization Activity Guarantees

For substantially all of our securitization transactions, we guarantee the principal and interest payments 

on some or all of the issued beneficial interests. Typically, these guarantees will cover the senior classes 

of beneficial interests issued by the securitization trust(s). Securitization activity guarantees provided to 

non-consolidated trusts will generally be accounted for, and qualify as, financial guarantees. Our 

maximum exposure on these guarantees is generally limited to the UPB of the beneficial interests that 

we have guaranteed.

Other Mortgage-related Guarantees

In certain circumstances, we provide a guarantee of mortgage-related assets held by third parties, in 
Financial Statements Notes to the Consolidated Financial Statements | Note 5

FREDDIE MAC | 2017 Form 10-K 273

exchange for a guarantee fee, without securitizing those assets. These guarantees consist of the 

following:

Long-term standby commitments of single-family loans which obligate us to purchase the covered 

loans when they become seriously delinquent. Periodically, certain of our customers seek to 

terminate long-term standby commitments and simultaneously enter into guarantor swap 

transactions to obtain our PCs backed by many of the same loans. During 2017 and 2016, we 

guaranteed $0.5 billion and $3.6 billion, respectively, of loans under new long-term standby 

commitments; and

Guarantees of multifamily bonds, including guarantees that require us to advance funds to enable 

others to repurchase any tendered tax-exempt and related taxable bonds that are unable to be sold. 

The vast majority of these guarantees were guarantees of multifamily housing revenue bonds that 

were issued by HFAs. No advances under these guarantees were outstanding at both December 31, 

2017 and 2016. During 2017 and 2016, we guaranteed $1.1 billion and $1.7 billion, respectively, of 

multifamily bonds.

Our other mortgage-related guarantees will generally be accounted for, and qualify as, financial 

guarantees. Our maximum exposure on these guarantees is limited to the UPB of the mortgage-related 

assets that we have guaranteed.

Other Guarantees Measured at Fair Value 

Other guarantees that do not qualify as financial guarantees are generally accounted for as derivative 

instruments and measured at fair value. These guarantees primarily include:

Certain guarantees related to our securitization activities and other mortgage-related guarantees.

Certain market value guarantees, including written options and written swaptions.

Guarantees of third party derivative instruments.

Other Indemnifications

In connection with certain business transactions, we may provide indemnification to counterparties for 

claims arising out of breaches of certain obligations (e.g., those arising from representations and 

warranties) in contracts entered into in the normal course of business. Our assessment is that the risk of 

any material loss from such a claim for indemnification is remote and there are no significant probable 

and estimable losses associated with these contracts. In addition, we provided indemnification for 

litigation defense costs to certain former officers who are subject to ongoing litigation. See Note 16 for 

information on ongoing litigation. These indemnification guarantees will generally be accounted for and 

qualify as financial guarantees. The recognized liabilities on our consolidated balance sheets related to 

indemnifications were not significant at both December 31, 2017 and 2016.

The table below shows our maximum exposure, recognized liability and maximum remaining term of our 

recognized guarantees to non-consolidated VIEs and other third parties. This table does not include our 

unrecognized guarantees, such as guarantees to consolidated VIEs or to resecuritization trusts that do 

not expose us to incremental credit risk. The maximum exposure disclosed in the table is not 

representative of the actual loss we are likely to incur, based on our historical loss experience and after 

consideration of proceeds from related collateral liquidation, including possible recoveries under credit 

enhancement arrangements. See Note 6 for additional information on our credit enhancement 
Financial Statements Notes to the Consolidated Financial Statements | Note 5

FREDDIE MAC | 2017 Form 10-K 274

arrangements.

As of December 31, 2017 As of December 31, 2016

(Dollars in millions, terms in years)

Maximum

Exposure(1)

Recognized

Liability(2)

Maximum

Remaining

Term

Maximum

Exposure(1)

Recognized

Liability(2)

Maximum

Remaining

Term

Single-Family:

Securitization activity guarantees $10,817 $120 40 $5,016 $22 40

Other mortgage-related guarantees 6,264 190 31 6,713 206 32

Total single-family $17,081 $310 $11,729 $228

Multifamily:

Securitization activity guarantees $188,768 $2,305 40 $145,211 $1,510 39

Other mortgage-related guarantees 9,888 466 36 9,732 473 34

Total multifamily $198,656 $2,771 $154,943 $1,983

Other guarantees measured at fair value $9,661 $141 28 $6,396 $127 29

(1) The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of 

possible recoveries under credit enhancement arrangements, such as recourse provisions, third-party insurance contracts or from collateral held 

or pledged. For other guarantees measured at fair value, this amount represents the notional value if it relates to our market value guarantees or 

guarantees of third party derivative instruments; or the UPB if it relates to a guarantee of a mortgage-related asset. For certain of our other 

guarantees measured at fair value, our exposure may be unlimited. We generally reduce our exposure to these guarantees with unlimited exposure 

through separate contracts with third parties.

(2) For securitization activity guarantees and other mortgage-related guarantees, this amount represents the guarantee obligation on our consolidated 

balance sheets. This amount excludes our reserve for guarantee losses, which totaled $57 million and $67 million as of December 31, 2017 and 

2016, respectively, and is included within other liabilities on our consolidated balance sheets. For other guarantees measured at fair value, this 

amount represents the fair value of the contract.
Financial Statements Notes to the Consolidated Financial Statements | Note 6

FREDDIE MAC | 2017 Form 10-K 275

NOTE 6

Credit Enhancements

In connection with many of our mortgage loans, securitization activity guarantees, other mortgagerelated guarantees and other credit risk transfer transactions, we obtain various forms of credit 

enhancements that reduce our exposure to credit losses. These credit enhancements may be attached 

to the underlying mortgage loans, freestanding or embedded in debt instruments. 

Attached Credit Enhancements 

Attached credit enhancements are obtained contemporaneously with, and in contemplation of, the 

origination of the underlying mortgage loans. These credit enhancements are considered attached, as 

they effectively travel with the loan upon sale. Attached credit enhancements include primary mortgage 

insurance that provides us with loan-level protection up to a specified amount. 

Expected recoveries from attached credit enhancements are considered in determining the allowance 

for loan losses, resulting in a reduction in the recognized provision for credit losses by the amount of the 

expected credit enhancement recoveries. See Note 4 for additional information concerning the 

determination of our loan loss reserves.

The table below presents the total current and protected UPB and maximum coverage provided by our 

attached credit enhancements. For information about counterparty credit risk associated with mortgage 

insurers, see Note 14.

As of December 31, 2017 As of December 31, 2016

(In millions)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Single-family:

Primary mortgage insurance $334,189 $85,429 $291,217 $74,345

(1) Underlying loans may be covered by more than one form of credit enhancement, including freestanding credit enhancements and debt with 

embedded credit enhancements.

(2) Represents the remaining amount of loss recovery that is available subject to the terms of counterparty agreements.

Freestanding Credit Enhancements 

Freestanding credit enhancements are contracts that are entered into separately from the origination of 

the mortgage loans or entered into in conjunction with some other transaction and are legally detachable 

and separately exercisable. Freestanding credit enhancements are accounted for separately from the 

underlying mortgage loans. 

In connection with our securitization activity guarantees, we obtain freestanding credit enhancement 

through the creation of unguaranteed subordinated securities. In these transactions, the securities that 

are subordinate to our guarantee provide protection by absorbing first losses prior to us having to 

perform on our guarantee of the senior securities. We recognize a reserve for guarantee losses when it is 
Financial Statements Notes to the Consolidated Financial Statements | Note 6

FREDDIE MAC | 2017 Form 10-K 276

probable that a loss has been incurred under our guarantee, which occurs only when losses exceed 

subordination.

ACIS transactions are insurance policies we purchase, generally underwritten by a group of insurers and 

reinsurers, that provide credit protection for certain specified credit events that occur on a reference 

pool of single-family mortgage loans. When specific credit events occur, we receive compensation from 

the insurance policy up to an aggregate limit based on actual losses. We require our counterparties to 

partially collateralize their exposure to reduce the risk that we will not be reimbursed for our claims under 

the policies. As of December 31, 2017 and 2016, our counterparties posted collateral on our ACIS 

transactions of $1.1 billion and $877 million, respectively.

Under the ACIS contracts, we pay insurers and reinsurers direct premiums for insurance coverage. Each 

month, we accrue for our obligation to make such payments for all tranches covered by the ACIS 

contracts. Expected recoveries for credit losses covered under the ACIS contracts are recognized 

separately in other assets on our consolidated balance sheets, with an offset to other income when 

realization of our claims for recovery is deemed probable. 

We also have various other credit enhancements that provide credit protection on our single-family 

loans, where we recognize a separate credit enhancement asset in other assets on our consolidated 

balance sheets upon acquisition of coverage. If the coverage is acquired as part of a transaction in 

which we also acquire mortgage loans, the credit enhancement asset is recognized based on the 

relative fair values of the consideration paid for the mortgage loan and the credit enhancement. If the 

coverage is acquired as a standalone transaction, the credit enhancement asset is recognized at cost. 

Subsequent accounting for credit enhancement assets and expected recoveries assets are the same as 

for ACIS transactions. 

The Multifamily segment also has various other credit enhancements, primarily related to our mortgage 

loans, certain other securitization products and other mortgage-related guarantees, in the form of 

collateral posting requirements, indemnification, bond insurance, recourse and other similar 

arrangements. These credit enhancements, along with the proceeds received from the sale of the 

underlying mortgage collateral, are designed to recover all or a portion of our losses on our mortgage 

loans or the amounts paid under our financial guarantee contracts. Our historical losses paid under our 

guarantee contracts and related recoveries pursuant to these agreements have not been significant and 

therefore these other types of credit enhancements are excluded from the table below.

The table below presents the total current and protected UPB and maximum amounts of potential loss 

recovery related to our single-family and multifamily freestanding credit enhancements.
Financial Statements Notes to the Consolidated Financial Statements | Note 6

FREDDIE MAC | 2017 Form 10-K 277

As of December 31, 2017 As of December 31, 2016

(In millions)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Single-family:

Subordination (non-consolidated VIEs) $8,953 $1,734 $2,701 $522

ACIS 617,730 6,736 453,670 5,355

Other(3) 15,975 6,479 12,827 7,373

Total Single-family 14,949 13,250

Multifamily:

Subordination (non-consolidated VIEs) 187,299 30,689 143,802 24,522

Other(4) 1,833 726 1,159 701

Total Multifamily 31,415 25,223

Total Single-family and Multifamily freestanding credit enhancements $46,364 $38,473

(1) Underlying loans may be covered by more than one form of credit enhancement, including attached credit enhancements and debt with embedded 

credit enhancements. For subordination, total current and protected UPB represents the UPB of the guaranteed securities.

(2) For subordination, maximum coverage represents the UPB of the securities that are subordinate to our guarantee and held by third parties. For all 

other freestanding credit enhancements, maximum coverage represents the remaining amount of loss recovery that is available subject to the 

terms of counterparty agreements.

(3) Includes seller indemnification, Deep MI CRT, lender recourse and indemnification agreements, pool insurance, HFA indemnification, and other 

credit enhancements. 

(4) Consists of multifamily HFA indemnification and loss reimbursement agreements with third parties obtained in certain of our Q Certificate 

transactions. 

Debt with Embedded Credit Enhancements 

In addition to our attached and freestanding credit enhancements, we also transfer credit risk after 

acquisition or guarantee of mortgage assets by either issuing unsecured debt with embedded credit 

enhancements or recognizing debt of consolidated VIEs that include structural credit enhancements. 

Unsecured Debt with Embedded Credit Enhancements 

For certain of our unsecured debt issuances, we create a reference pool of mortgage assets (generally 

loans) to which we currently have credit risk exposure and an associated securitization-like structure 

with notional credit risk positions. To the extent a specified credit event occurs on the mortgage assets 

in the reference pool, the outstanding balance of our debt obligations is written down, thereby reducing 

our future principal and interest payment obligations. The principal types of unsecured debt with 

embedded credit enhancements are single-family STACR debt notes and multifamily SCR debt notes. 

Most of our STACR debt notes are recorded as other debt on our consolidated balance sheets and 

accounted for at amortized cost. When the realized loss events (e.g., third-party foreclosure sale, short 

sale, or REO disposition) occur on the underlying loans in the reference pool, the STACR debt notes are 

written down and the benefits are recognized as gains on extinguishment of debt on our consolidated 

statements of comprehensive income.

The structure of Multifamily SCR debt notes is similar to STACR debt notes, although the mortgage 

assets within the reference pool may be loans or bonds to which we have credit exposure. While our 

SCR debt notes are recorded as other debt on our consolidated balance sheets, these debt obligations 
Financial Statements Notes to the Consolidated Financial Statements | Note 6

FREDDIE MAC | 2017 Form 10-K 278

are measured at fair value, as we elected the fair value option for them. Fair value changes are recorded 

in other income in our consolidated statement of comprehensive income.

Consolidated Debt with Structural Credit Enhancements

Similar to our non-consolidated VIEs, we obtain credit enhancement in certain of our consolidated 

senior subordinate and other securitization products through the creation of unguaranteed subordinated 

securities. These unguaranteed subordinated securities will absorb first losses on the underlying loans 

prior to us performing pursuant to our guarantee obligation. The unguaranteed subordinated debt 

securities held by third parties are recorded as debt of consolidated trusts on our consolidated balance 

sheets and accounted for at amortized cost. When losses are realized on the loans underlying the 

securities, the subordinated debt is written down and the benefits are recognized as gains on 

extinguishment of debt on our consolidated statements of comprehensive income.

The table below presents the total current and protected UPB and maximum amounts of potential loss 

recovery related to debt with embedded credit enhancements.

As of December 31, 2017 As of December 31, 2016

(In millions)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Single-family:

STACR debt notes $604,356 $17,788 $427,978 $14,507

Subordination (consolidated VIEs) 3,330 179 1,287 83

Total Single-family 17,967 14,590

Multifamily:

SCR debt notes 2,732 137 1,898 95

Subordination (consolidated VIEs) 1,800 180 — —

Total Multifamily 317 95

Total Single-family and Multifamily debt with embedded credit

enhancements $18,284 $14,685

(1) Underlying loans may be covered by more than one form of credit enhancement, including attached credit enhancements and freestanding credit 

enhancements. For STACR debt notes and SCR debt notes, total current and protected UPB represents the UPB of the assets included in the 

reference pool. For subordination, total current and protected UPB represents the UPB of the guaranteed securities.

(2) For STACR debt notes and SCR debt notes, maximum coverage amount represents the outstanding balance of the STACR debt notes and SCR debt 

notes held by third parties. For subordination, maximum coverage amount represents the UPB of the securities that are subordinate to our 

guarantee and held by third parties. 
Financial Statements Notes to the Consolidated Financial Statements | Note 7

FREDDIE MAC | 2017 Form 10-K 279

NOTE 7

Investments in Securities

The table below summarizes the fair values of our investments in debt securities by classification.

(In millions) As of December 31, 2017 As of December 31, 2016

Trading securities $40,721 $44,790

Available-for-sale securities 43,597 66,757

Total $84,318 $111,547

We currently classify and account for our securities as either available-for-sale or trading. As of 

December 31, 2017 and 2016, we did not classify any securities as held-to-maturity, although we may 

elect to do so in the future. Securities classified as available-for-sale and trading are reported at fair 

value with changes in fair value included in AOCI, net of income taxes and other gains (losses) on 

investment securities recognized in earnings, respectively. See Note 15 for more information on how 

we determine the fair value of securities.

We generally record purchases and sales of securities on the trade date when the related forward 

commitments are exempt from the accounting guidance for derivatives. Alternatively, we record 

purchases and sales of securities on the expected settlement date, with a corresponding derivative 

recorded on the trade date, when the related forward commitments are not exempt from the accounting 

guidance for derivatives.

We include interest on securities in our consolidated statements of comprehensive income. For most of 

our securities, interest income is recognized using the effective interest method, which considers the 

contractual terms of the security. Deferred items, including premiums, discounts and other basis 

adjustments, are amortized into interest income over the contractual lives of the securities.

For certain securities, interest income is recognized using the prospective effective interest method. We 

apply this method to securities that: 

Can contractually be prepaid or otherwise settled in such a way that we may not recover 

substantially all of our recorded investment;

Are not of high credit quality at acquisition; or 

Have been determined to be other-than-temporarily impaired.

Under this method, we recognize as interest income, over the life of the securities, the excess of the 

cash flows expected to be collected over the securities' carrying value. We update our estimates of 

expected cash flows periodically and recognize changes in the calculated effective interest rate on a 

prospective basis.

For securities classified as trading or available-for-sale, we classify the cash flows as investing activities 

because we hold these securities for investment purposes. In cases where the transfer of a security 

represents a secured borrowing, we classify the related cash flows as financing activities.
Financial Statements Notes to the Consolidated Financial Statements | Note 7

FREDDIE MAC | 2017 Form 10-K 280

Trading Securities

The table below presents the estimated fair values by major security type for our securities classified as 

trading. Our non-mortgage-related securities primarily consist of investments in U.S. Treasury securities.

(In millions) As of December 31, 2017 As of December 31, 2016

Mortgage-related securities:

Freddie Mac $12,235 $15,343

Other agency 3,574 8,161

Non-agency RMBS 750 113

Non-agency CMBS 1,343 36

Total mortgage-related securities 17,902 23,653

Non-mortgage-related securities 22,819 21,137

Total fair value of trading securities $40,721 $44,790

For trading securities held at December 31, 2017, 2016 and 2015, we recorded net unrealized gains 

(losses) of ($365) million, ($791) million and ($856) million during 2017, 2016 and 2015, respectively.
Financial Statements Notes to the Consolidated Financial Statements | Note 7

FREDDIE MAC | 2017 Form 10-K 281

Available-for-Sale Securities

At December 31, 2017 and 2016, all available-for-sale securities were mortgage-related securities.

The table below presents the amortized cost, gross unrealized gains and losses, and fair value by major 

security type for our securities classified as available-for-sale.

As of December 31, 2017

Amortized

Cost

Gross

Unrealized

Gains

Gross Unrealized Losses

Fair

(In millions) Value

Other-ThanTemporary 

Impairment(1)

Temporary 

Impairment(2)

Available-for-sale securities:

Freddie Mac $35,433 $499 $— ($462) $35,470

Other agency 2,008 56 — (11) 2,053

Non-agency RMBS 3,012 927 (5) (1) 3,933

Non-agency CMBS 1,773 22 (9) (2) 1,784

Obligations of states and political subdivisions 352 5 — — 357

Total available-for-sale securities $42,578 $1,509 ($14) ($476) $43,597

As of December 31, 2016

Amortized

Cost

Gross

Unrealized

Gains

Gross Unrealized Losses

Fair

(In millions) Value

Other-ThanTemporary 

Impairment(1)

Temporary 

Impairment(2)

Available-for-sale securities:

Freddie Mac $43,671 $563 $— ($582) $43,652

Other agency 4,127 119 — (25) 4,221

Non-agency RMBS 10,606 1,271 (62) (18) 11,797

Non-agency CMBS 6,288 160 (3) (23) 6,422

Obligations of states and political subdivisions 657 8 — — 665

Total available-for-sale securities $65,349 $2,121 ($65) ($648) $66,757

(1) Represents the gross unrealized losses for securities for which we have previously recognized other-than-temporary impairment in earnings.

(2) Represents the gross unrealized losses for securities for which we have not previously recognized other-than-temporary impairment in earnings.

The fair value of our available-for-sale securities held at December 31, 2017 scheduled to contractually 

mature after ten years was $41.1 billion, with an additional $1.9 billion scheduled to contractually mature 

after five years through ten years.
Financial Statements Notes to the Consolidated Financial Statements | Note 7

FREDDIE MAC | 2017 Form 10-K 282

Available-For-Sale Securities in a Gross Unrealized Loss Position

The table below presents available-for-sale securities in a gross unrealized loss position, and whether 

such securities have been in a gross unrealized loss position for less than 12 months, or 12 months or 

greater.

As of December 31, 2017

Less than 12 Months 12 Months or Greater

(In millions)

Fair

Value

Gross Unrealized

Losses

Fair

Value

Gross Unrealized

Losses

Available-for-sale securities:

Freddie Mac $10,337 ($107) $9,251 ($355)

Other agency 40 — 1,079 (11)

Non-agency RMBS 5 — 105 (6)

Non-agency CMBS 1,026 (2) 52 (9)

Obligations of states and political subdivisions 12 — 21 —

Total available-for-sale securities in a gross unrealized loss

position $11,420 ($109) $10,508 ($381)

As of December 31, 2016

Less than 12 Months 12 Months or Greater

(In millions)

Fair

Value

Gross Unrealized

Losses

Fair

Value

Gross Unrealized

Losses

Available-for-sale securities:

Freddie Mac $19,786 ($559) $1,732 ($23)

Other agency 542 (6) 2,040 (19)

Non-agency RMBS 309 (1) 2,188 (79)

Non-agency CMBS 383 (2) 204 (24)

Obligations of states and political subdivisions 83 — — —

Total available-for-sale securities in a gross unrealized loss

position $21,103 ($568) $6,164 ($145)

At December 31, 2017, total gross unrealized losses on available-for-sale securities were $0.5 billion. 

The gross unrealized losses relate to 290 separate securities. We purchase multiple lots of individual 

securities at different times and at different costs. We determine gross unrealized gains and gross 

unrealized losses by specifically evaluating investment positions at the lot level; therefore, some of the 

lots we hold for an individual security may be in a gross unrealized gain position, while other lots for that 

security may be in a gross unrealized loss position.

Impairment Recognition on Investments in Securities

We evaluate available-for-sale securities in an unrealized loss position as of the end of each quarter to 

determine whether the decline in value is other-than-temporary. An unrealized loss exists when the fair 

value of an individual lot is less than its amortized cost basis. As discussed further below, certain otherthan-temporary impairment losses are recognized in earnings.

Other-than-temporary impairment is considered to have occurred if the fair value of the security lot is 

less than its amortized cost basis and we either intend to sell the security or more likely than not will be 

required to sell the security lot prior to recovery of its amortized cost basis. Under these circumstances, 

the security’s entire decline in fair value is deemed to be other-than-temporary and is recorded within 
Financial Statements Notes to the Consolidated Financial Statements | Note 7

FREDDIE MAC | 2017 Form 10-K 283

our consolidated statements of comprehensive income as net impairment of available-for-sale securities 

recognized in earnings. 

If we do not intend to sell the security and we believe it is not more likely than not that we will be 

required to sell prior to recovery of the security’s amortized cost basis, we recognize only the credit 

component of other-than-temporary impairment in earnings and the amounts attributable to all other 

factors are recorded in AOCI. The credit component represents the amount by which the present value 

of cash flows expected to be collected from the security is less than its amortized cost basis. The 

present value of cash flows expected to be collected represents our estimate of future contractual cash 

flows that we expect to collect, discounted at the security’s original effective interest rate or, if 

applicable, the effective interest rate determined based on significantly improved cash flows subsequent 

to a prior other-than-temporary impairment.

The evaluation of whether unrealized losses on available-for-sale securities are other-than-temporary 

requires significant management judgments, assumptions and consideration of numerous factors. We 

perform an evaluation on a security lot basis considering all available information. The relative 

importance of this information varies based on the facts and circumstances surrounding each security, 

as well as the economic environment at the time of assessment. 

Freddie Mac and Other Agency Securities

The principal and interest on these securities are guaranteed. We generally hold these securities that are 

in an unrealized loss position to recovery. As a result, unless we intend to sell the security, we consider 

unrealized losses on these securities to be temporary.

Non-Agency Commercial Mortgage-Backed Securities

Non-agency CMBS are exposed to stresses in the commercial real estate market. We use an external 

model that utilizes underlying collateral performance, current and expected credit enhancements, and 

assumptions about the underlying collateral cash flows to identify securities that may have an increased 

risk of failing to make their contractual payments. While it is possible that, under certain conditions, 

collateral losses on our non-agency CMBS for which we have not recorded an impairment charge could 

exceed our credit enhancement levels and a principal or interest loss could occur, we do not believe that 

those conditions were likely as of December 31, 2017.

Non-Agency Residential Mortgage-Backed Securities Backed by Subprime, Option ARM, AltA and Other Loans

We believe the unrealized losses on the non-agency RMBS we hold are mainly attributable to poor 

underlying collateral performance, limited liquidity and risk premiums. In evaluating securities for 

impairment, we use an internal model that considers the credit performance of the underlying collateral, 

including current LTV ratio, delinquency status, servicer performance, loan modification terms and 

status, borrower credit information and the collectability of amounts from bond insurers. The model also 

incorporates assumptions about the economic environment, including future home prices and interest 

rates to project underlying collateral prepayment speeds, delinquency and default rates and loss 

severities. Circumstances in which it is expected that a principal and interest shortfall will occur and 

there is substantial uncertainty surrounding a bond insurer’s ability to pay all future claims can give rise 

to recognition of other-than-temporary impairment in earnings. For additional information regarding 

bond insurers, see Note 14.
Financial Statements Notes to the Consolidated Financial Statements | Note 7

FREDDIE MAC | 2017 Form 10-K 284

Our analysis is subject to change as new information regarding delinquencies, severities, loss timing, 

prepayments and other factors becomes available. While it is possible that, under certain conditions, 

collateral losses on our remaining available-for-sale securities for which we have not recorded an 

impairment charge could exceed our credit enhancement levels and a principal or interest loss could 

occur, we do not believe that those conditions were likely as of December 31, 2017.

Obligations of States and Political Subdivisions

These investments consist of housing revenue bonds. We believe the unrealized losses on obligations of 

states and political subdivisions are primarily a result of movements in interest rates and liquidity and 

risk premiums. We believe that any credit risk related to these securities is minimal because of the issuer 

guarantees provided on these securities.

Other-than-temporary Impairments

We recognized $18 million, $191 million and $292 million in net impairment of available-for-sale 

securities in earnings during 2017, 2016 and 2015, respectively. For our available-for-sale securities in 

an unrealized loss position at December 31, 2017, we have asserted that we have no intent to sell and 

believe it is not more likely than not that we will be required to sell the security before recovery of its 

amortized cost basis.

The ending balance of remaining credit losses on available-for-sale securities where a portion of otherthan-temporary impairment was recognized in other comprehensive income was $1.1 billion, $4.1 billion

and $5.3 billion as of 4Q 2017, 4Q 2016 and 4Q 2015, respectively.

Realized Gains and Losses on Sales of Available-For-Sale Securities

Gains and losses on the sale of securities are included in other gains (losses) on investment securities 

recognized in earnings, including those gains (losses) reclassified into earnings from AOCI. We use the 

specific identification method for determining the cost basis of a security in computing the gain or loss.

The table below summarizes the gross realized gains and gross realized losses from the sale of 

available-for-sale securities.

Year Ended December 31,

(In millions) 2017 2016 2015

Gross realized gains $1,792 $1,062 $1,371

Gross realized losses (66) (91) (33)

Net realized gains $1,726 $971 $1,338

Non-Cash Investing and Financing Activities

From time to time, we contribute PCs and Giant PCs held in our mortgage-related investments portfolio 

to non-consolidated REMIC trusts in exchange for beneficial interests in those same REMIC trusts. We 

account for this type of transaction as the acquisition of investment securities and the issuance of debt 

securities of consolidated trusts. During the years ended December 31, 2017 and 2015, we received 

investment securities as consideration for the issuance of debt securities of consolidated trusts of $0.9 
Financial Statements Notes to the Consolidated Financial Statements | Note 7

FREDDIE MAC | 2017 Form 10-K 285

billion and $0.3 billion, respectively, as a result of these transactions. We did not have such activity 

during the year ended December 31, 2016.

In addition, from time to time, we may recombine all of the outstanding beneficial interests in a REMIC 

trust to effectively recreate the original Giant PC trust. In certain cases, we may receive only beneficial 

interests in the Giant PC trust as proceeds for our contribution of the collateral. Because the beneficial 

interest issued by the Giant PC is substantially the same as the PCs that ultimately collateralized the 

trust, we account for our interest in the Giant PC as an extinguishment of the outstanding debt securities 

of the underlying PC trusts. As a result, we account for this type of transaction as the transfer of 

investment securities in exchange for the extinguishment of debt securities of consolidated trusts. 

During the years ended December 31, 2017 and 2015, we extinguished debt securities of consolidated 

trusts as consideration for the transfer of investment securities of $0.2 billion and $0.5 billion as a result 

of these transactions. We did not have such activity during the year ended December 31, 2016.

During the fourth quarter of 2017, the following non-cash investing activities occurred:

We purchased $2.8 billion and sold $2.9 billion of non-mortgage-related securities that were traded, 

but not settled. We settled our purchase obligation during the first quarter of 2018.

We transferred unguaranteed multifamily CMBS securities to a non-consolidated resecuritization 

trust in exchange for guaranteed multifamily CMBS securities in the amount of $2.9 billion, of which 

$1.3 billion was reclassified from available-for-sale to trading.
Financial Statements Notes to the Consolidated Financial Statements | Note 8

FREDDIE MAC | 2017 Form 10-K 286

NOTE 8

Debt Securities and Subordinated Borrowings

The table below summarizes the interest expense per our consolidated statements of comprehensive 

income and the balances of total debt, net per our consolidated balance sheets.

Balance, Net Interest Expense

As of December 31, For The Year Ended December 31,

(In millions) 2017 2016 2017 2016 2015

Debt securities of consolidated trusts held by third parties $1,720,996 $1,648,683 $47,656 $44,599 $45,536

Other debt:

Short-term debt 73,069 71,451 615 350 173

Long-term debt 240,565 281,870 5,372 5,837 6,435

Total other debt 313,634 353,321 5,987 6,187 6,608

Total debt, net $2,034,630 $2,002,004 $53,643 $50,786 $52,144

On November 30, 2017, we started applying fair value hedge accounting to certain debt issuances. The 

fair value hedge accounting related basis adjustments are included in the table above.

Debt securities that we issue are classified as either debt securities of consolidated trusts held by third 

parties or other debt. We issue other debt to fund our operations. 

With the exception of certain debt for which we elected the fair value option or designated in a qualifying 

fair value hedge relationship, our debt is reported at amortized cost. Deferred items, including 

premiums, discounts, issuance costs and hedging-related basis adjustments, are reported as a 

component of total debt, net. These items are amortized and reported through interest expense using 

the effective interest method over the contractual life of the related indebtedness. Amortization of 

premiums, discounts and issuance costs begins at the time of debt issuance. Amortization of hedgingrelated basis adjustments begins upon the discontinuation of the related hedge relationship.

We elected the fair value option on debt that contains embedded derivatives, including certain STACR 

and SCR debt notes. For additional information on STACR and SCR debt notes, see Note 6. Changes 

in the fair value of these debt obligations are recorded in other income, with any upfront costs and fees 

incurred or received in exchange for the issuance of the debt being recognized in earnings as incurred 

and not deferred. Related interest expense continues to be reported as interest expense based on the 

stated terms of the debt securities. For additional information on our election of the fair value option, see 

Note 15. 

When we repurchase or call outstanding debt securities, we recognize the difference between the 

amount paid to redeem the debt security and the carrying value in earnings as a component of gains 

(losses) on extinguishment of debt. Contemporaneous transfers of cash between us and a creditor in 

connection with the issuance of a new debt security and satisfaction of an existing debt security are 

accounted for as either an extinguishment or a modification of an existing debt security. If the debt 

securities have substantially different terms, the transaction is accounted for as an extinguishment of the 

existing debt security. The issuance of a new debt security is recorded at fair value, fees paid to the 

creditor are expensed as incurred and fees paid to third parties are deferred and amortized into interest 

expense over the life of the new debt security using the effective interest method. If the terms of the 
Financial Statements Notes to the Consolidated Financial Statements | Note 8

FREDDIE MAC | 2017 Form 10-K 287

existing debt security and the new debt security are not substantially different, the transaction is 

accounted for as a modification of the existing debt. Fees paid to the creditor are deferred and 

amortized into interest expense over the life of the modified debt security using the effective interest 

method and fees paid to third parties are expensed as incurred.

We also engage in dollar roll transactions whereby we enter into an agreement to sell and subsequently 

repurchase (or purchase and subsequently resell) agency securities. When these transactions involve 

securities issued by consolidated entities, they are treated as issuances and extinguishments of debt.

Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur 

indebtedness that would result in the par value of our aggregate indebtedness exceeding 120% of the 

amount of mortgage assets we are allowed to own on December 31 of the immediately preceding 

calendar year. Because of this debt limit, we may be restricted in the amount of debt we are allowed to 

issue to fund our operations. Under the Purchase Agreement, the amount of our "indebtedness" is 

determined without giving effect to the January 1, 2010 change in the accounting guidance related to 

transfers of financial assets and consolidation of VIEs. Therefore, "indebtedness" generally does not 

include debt securities of consolidated trusts held by third parties. We also cannot become liable for any 

subordinated indebtedness without the prior consent of Treasury. See Note 2 for information regarding 

restrictions on the amount of mortgage-related securities that we may own.

Our debt cap under the Purchase Agreement was $407.2 billion in 2017 and declined to $346.1 billion

on January 1, 2018. As of December 31, 2017, our aggregate indebtedness for purposes of the debt cap 

was $316.7 billion. Our aggregate indebtedness primarily includes the par value of other short- and 

long-term debt.

Debt Securities of Consolidated Trusts Held By Third Parties

Debt securities of consolidated trusts held by third parties represents our liability to third parties that 

hold beneficial interests in our consolidated securitization trusts. Debt securities of consolidated trusts 

held by third parties are subject to prepayment risk as their payments are based upon the performance 

of the underlying mortgage loans that may be prepaid by the related mortgage borrower at any time 

without penalty.
Financial Statements Notes to the Consolidated Financial Statements | Note 8

FREDDIE MAC | 2017 Form 10-K 288

The table below summarizes the debt securities of consolidated trusts held by third parties based on 

underlying loan product type.

As of December 31, 2017 As of December 31, 2016

(Dollars in millions)

Contractual

Maturity UPB

Carrying 

Amount(1)

Weighted

Average

Coupon(2)

Contractual

Maturity UPB

Carrying 

Amount(1)

Weighted

Average

Coupon(2)

Single-family:

30-year or more, fixed-rate 2018 - 2055 $1,278,911 $1,318,350 3.68% 2017 - 2055 $1,193,329 $1,229,849 3.71%

20-year fixed-rate 2018 - 2038 73,866 76,022 3.43% 2017 - 2037 74,033 76,331 3.49%

15-year fixed-rate 2018 - 2033 260,633 266,241 2.86% 2017 - 2032 267,739 273,978 2.90%

Adjustable-rate 2018 - 2048 47,169 48,220 2.85% 2017 - 2047 52,991 54,205 2.69%

Interest-only 2026 - 2041 7,303 7,379 3.74% 2026 - 2041 10,007 10,057 3.47%

FHA/VA 2018 - 2046 847 866 4.85% 2017 - 2046 1,015 1,038 4.92%

Total Single-family 1,668,729 1,717,078 1,599,114 1,645,458

Multifamily 2019-2047 3,876 3,918 3.99% 2019 - 2033 3,048 3,225 4.63%

Total debt securities of consolidated

trusts held by third parties $1,672,605 $1,720,996 $1,602,162 $1,648,683

(1) Includes $639 million and $144 million at December 31, 2017 and 2016, respectively, of debt of consolidated trusts that represents the fair value 

of debt securities with the fair value option elected.

(2) The effective rate for debt securities of consolidated trusts held by third parties was 2.84% and 2.63% as of December 31, 2017 and 2016, 

respectively.

Other Short-Term Debt

As indicated in the table below, a majority of other short-term debt consisted of discount notes and 

Reference Bills® securities, paying only principal at maturity. Discount notes, Reference Bills® securities 

and medium-term notes are unsecured general corporate obligations. Securities sold under agreements 

to repurchase are effectively collateralized borrowings where we sell securities with an agreement to 

repurchase such securities at a future date. Certain medium-term notes that have original maturities of 

one year or less are classified as other short-term debt for purposes of this presentation.

The table below summarizes the balances and effective interest rates for other short-term debt. 

As of December 31, 2017 As of December 31, 2016

(Dollars in millions) Par Value

Carrying

Amount

Weighted

Average

Effective Rate Par Value

Carrying

Amount

Weighted

Average

Effective Rate

Other short-term debt:

Discount notes and Reference Bills® $45,717 $45,596 1.19% $61,042 $60,976 0.47%

Medium-term notes 17,792 17,792 1.03% 7,435 7,435 0.41%

Securities sold under agreements to repurchase 9,681 9,681 1.06% 3,040 3,040 0.42%

Total other short-term debt $73,190 $73,069 1.14% $71,517 $71,451 0.47%
Financial Statements Notes to the Consolidated Financial Statements | Note 8

FREDDIE MAC | 2017 Form 10-K 289

Other Long-Term Debt

The table below summarizes our other long-term debt.

As of December 31, 2017 As of December 31, 2016

(Dollars in millions)

Contractual

Maturity Par Value

Carrying 

Amount(1)

Weighted 

Average

Effective 

Rate(2) Par Value

Carrying

Amount

Weighted

 Average

Effective 

Rate(2)

Other long-term debt:

Other senior debt:

Fixed-rate:

Medium-term notes — callable 2018 - 2037 $86,311 $86,284 1.47% $76,412 $76,383 1.24%

Medium-term notes — non-callable 2018 - 2028 10,839 10,973 1.40% 13,742 13,987 1.08%

Reference Notes securities — non-callable 2018 - 2032 79,991 80,019 2.17% 118,702 118,727 2.17%

STACR and SCR 2031 - 2042 137 140 12.77% 95 95 13.00%

Variable-rate:

Medium-term notes — callable 2018 - 2032 27,510 27,475 1.95% 21,008 20,972 1.94%

Medium-term notes — non-callable 2018 - 2026 14,746 14,746 0.68% 33,077 33,076 0.48%

STACR 2023 - 2042 17,788 18,198 5.00% 14,507 14,745 4.34%

Zero-coupon:

Medium-term notes — callable — — —% 1,000 296 6.17%

Medium-term notes — non-callable 2018 - 2039 5,141 2,415 5.94% 5,792 2,925 5.01%

Other — — — —% 438 281 5.93%

Hedging-related basis adjustments N/A (79) N/A 15

Total other senior debt 242,463 240,171 284,773 281,502

Other subordinated debt:

Fixed-rate 2018 121 121 7.83% 121 120 7.84%

Zero-coupon 2019 332 273 10.51% 332 248 10.51%

Total other subordinated debt 453 394 453 368

Total other long-term debt $242,916 $240,565 2.04% $285,226 $281,870 1.81%

(1) Represents par value, net of associated discounts or premiums and issuance costs. Includes $5.2 billion and $5.9 billion at December 31, 2017 

and 2016, respectively, of other long term-debt that represents the fair value of debt securities with the fair value option elected. 

(2) Based on carrying amount.

A portion of our other long-term debt is callable. Callable debt gives us the option to redeem the debt 

security at par on one or more specified call dates or at any time on or after a specified call date.
Financial Statements Notes to the Consolidated Financial Statements | Note 8

FREDDIE MAC | 2017 Form 10-K 290

The table below summarizes the contractual maturities of other long-term debt securities at 

December 31, 2017.

(In millions) Par Value

Annual Maturities

Other long-term debt (excluding STACR and SCR):

2018 $70,557

2019 57,689

2020 38,117

2021 22,809

2022 18,538

Thereafter 17,281

Debt securities of consolidated trusts held by third parties, STACR and SCR(1) 1,690,530

Total 1,915,521

Net discounts, premiums, debt issuance costs, hedge-related and other basis adjustments(2) 46,040

Total debt securities of consolidated trusts held by third parties, STACR, SCR and other long-term debt $1,961,561

(1) Contractual maturities of these debt securities are not presented because they are subject to prepayment risk, as their payments are based upon 

the performance of a pool of mortgage assets that may be prepaid by the related mortgage borrower at any time without penalty.

(2) Other basis adjustments primarily represent changes in fair value attributable to instrument-specific credit risk.

Subordinated Debt Interest and Principal Payments

The terms of certain of our subordinated debt securities provide for us to defer payments of interest in 

the event we fail to maintain specified capital levels. However, in a September 23, 2008 statement 

concerning the conservatorship, the Director of FHFA stated that we would continue to make interest 

and principal payments on our subordinated debt, even if we fail to maintain required capital levels. 
Financial Statements Notes to the Consolidated Financial Statements | Note 9

FREDDIE MAC | 2017 Form 10-K 291

NOTE 9

Derivatives

On October 1, 2017, we adopted accounting guidance that modifies the presentation of hedge 

accounting results disclosed in our consolidated statements of comprehensive income and in the notes 

to the consolidated financial statements. For qualifying fair value hedge relationships, the modifications 

include presenting all changes in the fair value of the derivative hedging instrument in the same 

consolidated statements of comprehensive income line used to present the earnings effect of the 

hedged item. For qualifying fair value hedge relationships, the modifications also include separate 

disclosures of cumulative basis adjustments and their impact to the hedged item’s carrying value. 

Derivatives are reported at their fair value on our consolidated balance sheets. Derivatives in a net asset 

position, including net derivative interest receivable or payable, are reported as derivative assets, net. 

Similarly, derivatives in a net liability position, including net derivative interest receivable or payable, are 

reported as derivative liabilities, net. We offset fair value amounts recognized for the right to reclaim 

cash collateral or the obligation to return cash collateral against fair value amounts recognized for 

derivative instruments executed with the same counterparty under a master netting agreement. Changes 

in fair value and interest accruals on derivatives not in qualifying fair value hedge relationships are 

recorded as derivative gains (losses) in our consolidated statements of comprehensive income. Noncash collateral held is not recognized on our consolidated balance sheets as we do not obtain effective 

control over the collateral, and non-cash collateral posted is not de-recognized from our consolidated 

balance sheets as we do not relinquish effective control over the collateral. Therefore, non-cash 

collateral held or posted is not presented as an offset against derivative assets or derivative liabilities on 

our consolidated balance sheets.

We evaluate whether financial instruments that we purchase or issue contain embedded derivatives. We 

generally elect to measure newly acquired or issued financial instruments that contain embedded 

derivatives at fair value, with changes in fair value recorded in earnings.

In the consolidated statements of cash flows, cash flows related to the acquisition and termination of 

derivatives, other than forward commitments, are generally classified in investing activities. Cash flows 

related to forward commitments are classified within the section of the consolidated statements of cash 

flows in accordance with the cash flows of the financial instruments to which they relate.

Use of Derivatives

We use derivatives primarily to hedge interest-rate sensitivity mismatches between our financial assets 

and liabilities. We analyze the interest-rate sensitivity of financial assets and liabilities on a daily basis 

across a variety of interest-rate scenarios based on market prices, models and economics. When we 

use derivatives to mitigate our exposures, we consider a number of factors, including cost, exposure to 

counterparty credit risk and our overall risk management strategy.

We classify derivatives into three categories: 

Exchange-traded derivatives; 

Cleared derivatives; and 
Financial Statements Notes to the Consolidated Financial Statements | Note 9

FREDDIE MAC | 2017 Form 10-K 292

OTC derivatives.

Exchange-traded derivatives include standardized interest-rate futures contracts and options on futures 

contracts. Cleared derivatives include interest-rate swaps that the U.S. Commodity Futures Trading 

Commission has determined are subject to the central clearing requirement of the Dodd-Frank Act. OTC 

derivatives refer to those derivatives that are neither exchange-traded derivatives nor cleared 

derivatives.

Types of Derivatives

We principally use the following types of derivatives:

LIBOR-based interest-rate swaps;

LIBOR- and Treasury-based purchased options (including swaptions); and

LIBOR- and Treasury-based exchange-traded futures.

We also purchase swaptions on credit indices in order to obtain protection against adverse movements 

in multifamily spreads which may affect the profitability of our K Certificate or SB Certificate 

transactions. 

In addition to swaps, futures and purchased options, our derivative positions include written options and 

swaptions, commitments and credit derivatives.

Written Options and Swaptions

Written call and put swaptions are sold to counterparties allowing them the option to enter into receivefixed and pay-fixed interest rate swaps, respectively. Written call and put options on mortgage-related 

securities give the counterparty the right to execute a contract under specified terms, which generally 

occurs when we are in a liability position. We may, from time to time, write other derivative contracts 

such as interest-rate futures.

Commitments

We routinely enter into commitments that include commitments to:

Purchase and sell investments in securities; 

Purchase and sell loans; and 

Purchase and extinguish or issue debt securities of our consolidated trusts. 

Most of these commitments are considered derivatives and therefore are subject to the accounting 

guidance for derivatives and hedging.

Credit Derivatives

We have purchased loans containing debt cancellation contracts, which provide for mortgage debt or 

payment cancellation for borrowers who experience unanticipated losses of income dependent on a 
Financial Statements Notes to the Consolidated Financial Statements | Note 9

FREDDIE MAC | 2017 Form 10-K 293

covered event. The rights and obligations under these agreements have been assigned to the servicers. 

However, in the event the servicer does not perform as required by contract, we would be obligated 

under our guarantee to make the required contractual payments.

Hedge Accounting

Fair Value Hedges

On February 2, 2017, we started applying fair value hedge accounting to certain single-family mortgage 

loans where we hedge the changes in fair value of these loans attributable to the designated benchmark 

interest rate (i.e., LIBOR), using LIBOR-based interest-rate swaps. The hedge period is one day, and we 

re-balance our hedge relationships on a daily basis. In addition, on November 30, 2017, we started 

applying fair value hedge accounting to certain issuances of debt where we hedge the changes in fair 

value of the debt attributable to the designated benchmark interest rate (i.e., LIBOR), using LIBORbased interest-rate swaps.

We apply hedge accounting to qualifying hedge relationships. A qualifying hedge relationship exists 

when changes in the fair value of a derivative hedging instrument are expected to be highly effective in 

offsetting changes in the fair value of the hedged item attributable to the risk being hedged during the 

term of the hedge relationship. No amounts have been excluded from the assessment of hedge 

effectiveness. To assess hedge effectiveness, we use a statistical regression analysis.

At inception of the hedge relationship, we prepare formal contemporaneous documentation of our risk 

management objective and strategies for undertaking the hedge. 

Beginning on October 1, 2017, due to the adoption of amended hedge accounting guidance, if a hedge 

relationship qualifies for fair value hedge accounting, all changes in fair value of the derivative hedging 

instrument, including interest accruals, are recognized in the same consolidated statements of 

comprehensive income line item used to present the earnings effect of the hedged item. Therefore, 

changes in the fair value of the hedged item, mortgage loans and debt, attributable to the risk being 

hedged are recognized in interest income - mortgage loans and interest expense, respectively, along 

with the changes in the fair value of the respective derivative hedging instruments. Prior to October 1, 

2017, if the hedge relationship qualified for hedge accounting, changes in fair value of the derivative 

hedging instrument and changes in the fair value of the hedged item attributable to the risk being 

hedged were recognized in other income (loss) and interest accruals on the derivative hedging 

instrument were included in derivative gains (losses). 

Changes in the fair value of the hedged item attributable to the risk being hedged are recognized as a 

cumulative basis adjustment against the mortgage loans and debt. The cumulative basis adjustments 

are amortized to the same consolidated statements of comprehensive income line item used to present 

the changes in fair value of the hedged item using the effective interest method considering the 

contractual terms of the hedged item, with amortization beginning no later than the period in which 

hedge accounting was discontinued.
Financial Statements Notes to the Consolidated Financial Statements | Note 9

FREDDIE MAC | 2017 Form 10-K 294

Cash Flow Hedges

There are amounts recorded in AOCI related to discontinued cash flow hedges which are recognized in 

earnings when the originally forecasted transactions affect earnings. If it becomes probable the originally 

forecasted transaction will not occur, the associated deferred gain or loss in AOCI would be reclassified 

to earnings immediately. Amounts reclassified from AOCI are recorded in interest expense. In the years 

ended December 31, 2017 and 2016, we reclassified from AOCI into earnings, losses of $164 million

and $192 million, respectively, related to closed cash flow hedges. See Note 11 for information about 

future reclassifications of deferred net losses related to closed cash flow hedges to net income.

Derivative Assets and Liabilities at Fair Value

The table below presents the notional value and fair value of derivatives reported on our consolidated 

balance sheets.

As of December 31, 2017 As of December 31, 2016

Notional or

Contractual

Amount

Derivatives at Fair Value Notional or

Contractual

Amount

Derivatives at Fair Value

(In millions) Assets Liabilities Assets Liabilities

Not designated as hedges

Interest-rate swaps:

Receive-fixed $213,717 $2,121 ($1,224) $313,106 $4,337 ($2,703)

Pay-fixed 185,400 751 (5,008) 271,477 2,586 (9,684)

Basis (floating to floating) 5,244 — (2) 1,450 1 —

Total interest-rate swaps 404,361 2,872 (6,234) 586,033 6,924 (12,387)

Option-based:

Call swaptions

Purchased 58,975 2,709 — 60,730 2,817 —

Written 4,650 — (101) 1,350 — (78)

Put swaptions

Purchased(1) 47,810 1,058 — 48,080 1,442 —

Written 3,000 — (20) 3,200 — (28)

Other option-based derivatives(2) 10,683 757 — 11,032 795 —

Total option-based 125,118 4,524 (121) 124,392 5,054 (106)

Futures 267,385 — — 138,294 — —

Commitments 54,207 44 (64) 45,353 289 (151)

Credit derivatives 3,569 7 (46) 2,951 1 (27)

Other 2,906 1 (19) 2,879 — (21)

Total derivatives not designated as hedging

instruments 857,546 7,448 (6,484) 899,902 12,268 (12,692)

Designated as fair value hedges

Interest-rate swaps:

Receive-fixed 83,352 2 (714) — — —

Pay-fixed 69,402 1,388 (291) — — —

Total derivatives designated as fair value hedges 152,754 1,390 (1,005) — — —

Derivative interest receivable (payable) 1,407 (1,596) 1,442 (1,770)

Netting adjustments(3) (9,870) 8,816 (12,963) 13,667

Total derivative portfolio, net $1,010,300 $375 ($269) $899,902 $747 ($795)

(1) Includes swaptions on credit indices with a notional or contractual amount of $13.4 billion and $10.9 billion at December 31, 2017 and December 

31, 2016, respectively, and a fair value of $5 million at both December 31, 2017 and December 31, 2016.

(2) Primarily consists of purchased interest-rate caps and floors and options on Treasury futures.
Financial Statements Notes to the Consolidated Financial Statements | Note 9

FREDDIE MAC | 2017 Form 10-K 295

(3) Represents counterparty netting and cash collateral netting. 

See Note 10 for information related to our derivative counterparties and collateral held and posted.

Gains and Losses on Derivatives

The table below presents the gains and losses on derivatives, including the accrual of periodic cash 

settlements, while not designated in qualifying hedge relationships and reported on our consolidated 

statements of comprehensive income as derivative gains (losses). In addition, for the first three quarters 

of 2017, the table includes the accrual of periodic cash settlements on derivatives in qualifying hedge 

relationships.

Year Ended December 31,

(In millions) 2017 2016 2015

Not designated as hedges

Interest-rate swaps:

Receive-fixed ($1,343) ($3,539) $35

Pay-fixed 1,972 3,717 (811)

Basis (floating to floating) (3) — (2)

Total interest-rate swaps 626 178 (778)

Option based:

Call swaptions

Purchased (404) 234 371

Written 24 (45) (9)

Put swaptions

Purchased (673) 210 (249)

Written 50 35 77

Other option-based derivatives(1) (38) (13) 68

Total option-based (1,041) 421 258

Other:

Futures 144 334 (5)

Commitments (91) 631 63

Credit derivatives (29) (75) (37)

Other (7) (3) 1

Total other 17 887 22

Accrual of periodic cash settlements:

Receive-fixed interest-rate swaps 1,511 2,316 2,568

Pay-fixed interest-rate swaps (3,101) (4,077) (4,768)

Other — 1 2

Total accrual of periodic cash settlements (1,590) (1,760) (2,198)

Total ($1,988) ($274) ($2,696)

(1) Primarily consists of purchased interest-rate caps and floors and options on Treasury futures.

The table below presents the gains and losses on derivatives and hedged items while designated in 

qualifying fair value hedge relationships. During 2016, there were no derivatives designated in qualifying 

fair value hedge relationships.
Financial Statements Notes to the Consolidated Financial Statements | Note 9

FREDDIE MAC | 2017 Form 10-K 296

Year Ended December 31, 2017

(In millions)

Interest Income -

Mortgage Loans Interest Expense Other Income (Loss)

Total amounts of income and expense line items presented in

our consolidated statements of comprehensive income in

which the effects of fair value hedges are recorded:

$63,735 ($53,643) $7,480

Gain or (loss) on fair value hedging relationships:

Interest contracts on mortgage loans held-for-investment:(1)

Hedged items ($107) $— $351

Derivatives designated as hedging instruments(2) $313 $— ($215)

Interest contracts on debt:

Hedged items $— $93 $—

Derivatives designated as hedging instruments(3) $— ($53) $—

(1) For the first three quarters of 2017, the gains or losses on derivatives and hedged items were recorded in other income (loss). Beginning in 4Q 

2017, gains or losses are recorded in interest income - mortgage loans in our consolidated statements of comprehensive income due to adoption 

of amended hedge accounting guidance. 

(2) The gain or (loss) on fair value hedging relationships excludes $(83) million of interest accruals which were recorded in interest income - 

mortgage loans in our consolidated statements of comprehensive income.

(3) The gain or (loss) on fair value hedging relationships excludes $8 million of interest accruals which were recorded in interest expense in our 

consolidated statements of comprehensive income.

Cumulative Basis Adjustments due to Fair Value Hedging

The table below presents the hedged item cumulative basis adjustments due to qualifying fair value 

hedging and the related hedged item carrying amounts by their respective balance sheet line item.

As of December 31, 2017

Carrying Amount

Assets / (Liabilities)

Cumulative Amount of Fair Value Hedging Basis

Adjustment Included in the Carrying Amount

(In millions) Total

Discontinued - Hedge

Related

Mortgage loans held-for-investment $128,140 $198 $198

Debt ($92,277) $79 ($14)

As of December 31, 2016

Carrying Amount

Assets / (Liabilities)

Cumulative Amount of Fair Value Hedging Basis

Adjustment Included in the Carrying Amount

(In millions) Total

Discontinued - Hedge

Related

Mortgage loans held-for-investment $— $— $—

Debt ($8,546) ($15) ($15)
Financial Statements Notes to the Consolidated Financial Statements | Note 10

FREDDIE MAC | 2017 Form 10-K 297

NOTE 10

Collateralized Agreements and Offsetting 

Arrangements

Derivative Portfolio

Derivative Counterparties

Our use of cleared derivatives, exchange-traded derivatives and OTC derivatives exposes us to 

counterparty credit risk. We are required to post margin in connection with our derivatives transactions. 

This requirement exposes us to counterparty credit risk in the event that our counterparties fail to meet 

their obligations. However, the use of cleared and exchange-traded derivatives decreases our credit risk 

exposure to individual counterparties because a central counterparty is substituted for individual 

counterparties. OTC derivatives expose us to the credit risk of individual counterparties because 

transactions are executed and settled between us and each counterparty, exposing us to potential 

losses if a counterparty fails to meet its obligations. 

Our use of interest-rate swaps and option-based derivatives is subject to internal credit and legal 

reviews. On an ongoing basis, we review the credit fundamentals of all of our derivative counterparties, 

clearinghouses and clearing members to confirm that they continue to meet our internal risk 

management standards.

Over-the-Counter Derivatives

We use master netting and collateral agreements to reduce our credit risk exposure to our OTC 

derivative counterparties for interest-rate swap and option-based derivatives. Master netting agreements 

provide for the netting of amounts receivable and payable from an individual counterparty, as well as 

posting of collateral in the form of cash, Treasury securities or agency mortgage-related or debt 

securities, or a combination of both by either the counterparty or us, depending on which party is in a 

liability position. Although it is our practice not to repledge assets held as collateral, these agreements 

may allow us or our counterparties to repledge all or a portion of the collateral.

We have master netting agreements in place with all of our OTC derivative counterparties. 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 the market value of derivatives in a net gain 

position by counterparty after giving consideration to collateral posted. In the event a counterparty 

defaults on its obligations under the derivatives agreement and the default is not remedied in the 

manner prescribed in the agreement, we have the right under the agreement to sell the collateral. As a 

result, our use of master netting and collateral agreements reduces our exposure to our counterparties in 

the event of default.

In the event that all of our counterparties for OTC interest-rate swaps and option-based derivatives were 

to have defaulted simultaneously on December 31, 2017, our maximum loss for accounting purposes 

after applying netting agreements and collateral on an individual counterparty basis would have been 
Financial Statements Notes to the Consolidated Financial Statements | Note 10

FREDDIE MAC | 2017 Form 10-K 298

approximately $41 million. A significant majority of our net uncollateralized exposure to OTC derivative 

counterparties is concentrated among four counterparties, all of which were investment grade as of 

December 31, 2017. We regularly review the market value of securities pledged as collateral and 

derivative counterparty collateral posting thresholds, where applicable, in an effort to manage our 

exposure to losses.

Regulations adopted by certain financial institution regulators (including FHFA) that became effective 

March 1, 2017 require posting of variation margin without the application of any thresholds for OTC 

derivative transactions executed after that date. As a result, our and the counterparties' credit ratings are 

no longer used in determining the amount of collateral to be posted in connection with these 

transactions.

However, for OTC derivative transactions executed before March 1, 2017 the amount of collateral we 

pledge to counterparties related to our derivative instruments is determined after giving consideration to 

our credit rating. The aggregate fair value of our OTC derivative instruments containing credit-risk related 

contingent features, netted by counterparty, that were in a liability position on December 31, 2017 was 

$0.8 billion for which we posted cash and non-cash collateral of $0.7 billion in the normal course of 

business. A reduction in our credit ratings may trigger additional collateral requirements related to these 

OTC derivative instruments. If a reduction in our credit ratings had triggered additional collateral 

requirements related to these OTC derivative instruments on December 31, 2017, we would have been 

required to post an additional $99 million of collateral to our counterparties. 

Cleared and Exchange-Traded Derivatives

The majority of our interest-rate swaps are subject to the central clearing requirement. Changes in the 

value of open exchange-traded contracts and cleared derivatives are settled or collateralized daily via 

payments made through the clearinghouse. We net our exposure to cleared derivatives by clearinghouse 

and clearing member. Exchange-traded derivatives are settled on a daily basis through the payment of 

variation margin. A reduction in our credit ratings could cause the clearinghouses or clearing members 

we use for our cleared and exchange-traded derivatives to demand additional collateral. 

In October 2017, the CFTC issued an interpretation letter clarifying that variation margin payments for 

cleared swaps constitute daily settlement of exposure and not the posting of margin collateral. For 

certain of our cleared swaps transacted with the Chicago Mercantile Exchange (CME), during 1Q 2017 

we changed the characterization of variation margin payments from posting of margin collateral to 

settlements, as a result of certain rule amendments made by the CME. Consistent with the CFTC 

interpretation letter, the LCH Group updated its rulebook during 1Q 2018 to change the characterization 

of variation margin payments on cleared swaps to constitute settlements. However, we do not expect 

this change to materially affect our financial condition or result of operations.

Other Derivatives

We also execute forward purchase and sale commitments of loans and mortgage-related securities, 

including dollar roll transactions, that are treated as derivatives for accounting purposes. The total 

exposure on our forward purchase and sale commitments was $44 million and $289 million at 

December 31, 2017 and 2016, respectively. 
Financial Statements Notes to the Consolidated Financial Statements | Note 10

FREDDIE MAC | 2017 Form 10-K 299

Many of our transactions involving forward purchase and sale commitments of mortgage-related 

securities utilize the Mortgage Backed Securities Division of the Fixed Income Clearing Corporation 

("MBSD/FICC") as a clearinghouse. As a clearing member of the clearinghouse, we post margin to the 

MBSD/FICC and are exposed to the counterparty credit risk of the organization (including its clearing 

members). In the event a clearing member fails and causes losses to the MBSD/FICC clearing system, 

we could be subject to the loss of any or the entire margin that we have posted to the MBSD/FICC. 

Moreover, our exposure could exceed that amount, as members are generally required to cover losses 

caused by defaulting members on a pro rata basis. It is difficult to estimate our maximum exposure 

under these transactions, as this would require an assessment of transactions that we and other 

members of the MBSD/FICC may execute in the future.

Securities Purchased Under Agreements to Resell

As an investor, we enter into arrangements to purchase securities under agreements to subsequently 

resell the identical or substantially the same securities to our counterparty. Our counterparties to these 

transactions are required to pledge the purchased securities as collateral for their obligation to 

repurchase those securities at a later date. While such transactions involve the legal transfer of 

securities, they are accounted for as secured financings because the transferor does not relinquish 

effective control over the securities transferred. Although it is our practice not to repledge assets held as 

collateral, these agreements may allow us to repledge all or a portion of the collateral.

We consider the types of securities being pledged to us as collateral when determining how much we 

lend in transactions involving securities purchased under agreements to resell. Additionally, we regularly 

review the market values of these securities compared to amounts loaned in an effort to manage our 

exposure to losses. 

Beginning in 2017, we began to utilize the GSD/FICC as a clearinghouse to transact many of our trades 

involving securities purchased under agreements to resell, securities sold under agreements to 

repurchase, and other non-mortgage related securities. As a clearing member of GSD/FICC, we are 

required to post initial and variation margin payments and are exposed to the counterparty credit risk of 

GSD/FICC (including its clearing members). Although our membership provides us with the right to 

offset certain of our open receivable and payable positions by collateral type, we have elected not to 

offset these positions within our condensed consolidated balance sheets. In the event a clearing 

member fails and causes losses to the GSD/FICC clearing system, we could be subject to the loss of 

any or the entire margin that we have posted to the GSD/FICC. Moreover, our exposure could exceed 

that amount, as members are generally require to cover losses caused by defaulting members on a pro 

rata basis. It is difficult to estimate our maximum exposure under these transactions, as this would 

require an assessment of transactions that we and other members of the GSD/FICC may execute in the 

future. 

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are effectively collateralized borrowings where we sell 

securities with an agreement to repurchase such securities at a future date. We are required to pledge 

the sold securities to the counterparties to these transactions as collateral for our obligation to 
Financial Statements Notes to the Consolidated Financial Statements | Note 10

FREDDIE MAC | 2017 Form 10-K 300

repurchase these securities at a later date. Similar to the securities purchased under agreements to 

resell transactions, these transactions involve the legal transfer of securities. However, they are 

accounted for as secured financings because they require the identical or substantially the same 

securities to be subsequently repurchased. These agreements may allow our counterparties to repledge 

all or a portion of the collateral. Beginning in 2017, certain of our trades involving securities sold under 

agreements to repurchase utilized GSD/FICC as a clearinghouse.

Offsetting of Financial Assets and Liabilities

When we receive cash collateral, we recognize the amount received along with a corresponding 

obligation to return the collateral. When we post cash collateral, we derecognize the amount posted 

along with a corresponding asset for our right to receive the return of the collateral. We generally do not 

recognize or derecognize collateral received or pledged in the form of securities as the transferor in such 

arrangements does not relinquish effective control over the securities transferred. See Note 9 for 

additional information on our consolidated balance sheets presentation of collateral related to 

derivatives transactions. At December 31, 2017 and 2016, all amounts of cash collateral related to 

derivatives with master netting and collateral agreements were offset against derivative assets, net or 

derivative liabilities, net, as applicable.

The table below displays offsetting and collateral information related to derivatives, securities purchased 

under agreements to resell and securities sold under agreements to repurchase. Securities sold under 

agreements to repurchase are included in debt, net on our consolidated balance sheets.
Financial Statements Notes to the Consolidated Financial Statements | Note 10

FREDDIE MAC | 2017 Form 10-K 301

As of December 31, 2017

Gross

Amount

Recognized

Amount Offset in the 

Consolidated

Balance Sheets Net Amount

Presented in

the Consolidated

Balance Sheets

Gross Amount

Not Offset in

the Consolidated

Balance Sheets(2)

Net

(In millions) Amount

Counterparty

Netting

Cash 

Collateral 

Netting(1)

Assets:

Derivatives:

OTC derivatives $7,648 ($5,499) ($1,903) $246 ($205) $41

Cleared and exchange-traded derivatives 2,545 (2,266) (202) 77 — 77

Other 52 — — 52 — 52

Total derivatives 10,245 (7,765) (2,105) 375 (205) 170

Securities purchased under agreements to resell(3) 55,903 — — 55,903 (55,903) —

Total $66,148 ($7,765) ($2,105) $56,278 ($56,108) $170

Liabilities:

Derivatives:

OTC interest-rate swaps and option-based

derivatives ($6,285) $5,499 $688 ($98) $— ($98)

Cleared and exchange-traded derivatives (2,671) 2,266 363 (42) — (42)

Other (129) — — (129) — (129)

Total derivatives (9,085) 7,765 1,051 (269) — (269)

Securities sold under agreements to repurchase (9,681) — — (9,681) 9,681 —

Total ($18,766) $7,765 $1,051 ($9,950) $9,681 ($269)

As of December 31, 2016

Gross

Amount

Recognized

Amount Offset in the 

Consolidated

Balance Sheets Net Amount

Presented in

the Consolidated

Balance Sheets

Gross Amount

Not Offset in

the Consolidated

Balance Sheets(2)

Net

(In millions) Amount

Counterparty

Netting

Cash 

Collateral 

Netting(1)

Assets:

Derivatives:

OTC derivatives $8,531 ($6,367) ($1,760) $404 ($353) $51

Cleared and exchange-traded derivatives 4,889 (4,674) (162) 53 — 53

Other 290 — — 290 — 290

Total derivatives 13,710 (11,041) (1,922) 747 (353) 394

Securities purchased under agreements to resell(3) 51,548 — — 51,548 (51,548) —

Total $65,258 ($11,041) ($1,922) $52,295 ($51,901) $394

Liabilities:

Derivatives:

OTC interest-rate swaps and option-based

derivatives ($7,298) $6,367 $469 ($462) $274 ($188)

Cleared and exchange-traded derivatives (6,965) 4,705 2,126 (134) — (134)

Other (199) — — (199) — (199)

Total derivatives (14,462) 11,072 2,595 (795) 274 (521)

Securities sold under agreements to repurchase (3,040) — — (3,040) 3,040 —

Total ($17,502) $11,072 $2,595 ($3,835) $3,314 ($521)

(1) Excess cash collateral held is presented as a derivative liability, while excess cash collateral posted is presented as a derivative asset.

(2) Does not include the fair value amount of non-cash collateral posted or held that exceeds the associated net asset or liability, netted by 

counterparty, presented on the consolidated balance sheets. For cleared and exchange-traded derivatives, does not include non-cash collateral 

posted by us as initial margin with an aggregate fair value of $3.1 billion and $3.4 billion as of December 31, 2017 and 2016, respectively.

(3) At December 31, 2017 and 2016, we had $3.4 billion and $4.0 billion, respectively, of securities pledged to us for transactions involving securities 

purchased under agreements to resell that we had the right to repledge. 
Financial Statements Notes to the Consolidated Financial Statements | Note 10

FREDDIE MAC | 2017 Form 10-K 302

Collateral Pledged

Collateral Pledged to Freddie Mac

We have cash pledged to us as collateral primarily related to OTC derivative transactions. At December 

31, 2017, we had $2.4 billion pledged to us as collateral that was classified as restricted cash on our 

consolidated balance sheets. 

Collateral Pledged by Freddie Mac

The table below summarizes the fair value of the securities pledged as collateral by us for derivatives 

and collateralized borrowing transactions, including securities that the secured party may repledge.

As of December 31, 2017

(In millions) Derivatives

Securities sold under

agreements to

repurchase Other(2) Total

Debt securities of consolidated trusts(1) $375 $— $111 $486

Trading securities 2,766 9,705 362 12,833

Total securities pledged $3,141 $9,705 $473 $13,319

(1) Represents PCs held by us in our Capital Markets segment mortgage investments portfolio which are recorded as a reduction to debt securities of 

consolidated trusts held by third parties on our consolidated balance sheets.

(2) Includes other collateralized borrowings and collateral related to transactions with certain clearinghouses.

The table below summarizes the underlying collateral pledged and the remaining contractual maturity of 

our gross obligations under securities sold under agreements to repurchase.

As of December 31, 2017

(In millions)

Overnight and

continuous 30 days or less

After 30 days

through 90 days

Greater than 

90 days Total

U.S. Treasury securities $— $9,705 $— $— $9,705
Financial Statements Notes to the Consolidated Financial Statements | Note 11

FREDDIE MAC | 2017 Form 10-K 303

NOTE 11

Stockholders’ Equity and Earnings Per Share

Accumulated Other Comprehensive Income

The table below presents changes in AOCI after the effects of our 35% federal statutory tax rate related 

to available-for-sale securities, closed cash flow hedges and our defined benefit plans.

Year Ended December 31, 2017

(In millions)

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

Beginning balance $915 ($480) $21 $456

Other comprehensive income before 

reclassifications(1) 857 — 63 920

Amounts reclassified from accumulated other

comprehensive income (1,110) 124 (1) (987)

Changes in AOCI by component (253) 124 62 (67)

Ending balance $662 ($356) $83 $389

Year Ended December 31, 2016

(In millions)

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

Beginning balance $1,740 ($621) $34 $1,153

Other comprehensive income before 

reclassifications(1) (318) — (10) (328)

Amounts reclassified from accumulated other

comprehensive income (507) 141 (3) (369)

Changes in AOCI by component (825) 141 (13) (697)

Ending balance $915 ($480) $21 $456

Year Ended December 31, 2015

(In millions)

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

Beginning balance $2,546 ($803) ($13) $1,730

Other comprehensive income before 

reclassifications(1) (123) — 48 (75)

Amounts reclassified from accumulated other

comprehensive income (683) 182 (1) (502)

Changes in AOCI by component (806) 182 47 (577)

Ending balance $1,740 ($621) $34 $1,153

(1) For the years ended December 31, 2017, 2016 and 2015, net of tax expense of $0.5 billion, ($0.2) billion and $0.1 billion, respectively, for AOCI 

related to available-for-sale securities.
Financial Statements Notes to the Consolidated Financial Statements | Note 11

FREDDIE MAC | 2017 Form 10-K 304

Reclassifications from AOCI to Net Income

The table below presents reclassifications from AOCI to net income, including the affected line item in 

our consolidated statements of comprehensive income.

Year Ended December 31,

(In millions) 2017 2016 2015

AOCI related to available-for-sale securities

Affected line items in the consolidated statements of comprehensive income:

Other gains (losses) on investment securities recognized in earnings $1,726 $971 $1,343

Net impairment of available-for-sale securities recognized in earnings (18) (191) (292)

Total before tax 1,708 780 1,051

Income tax (expense) or benefit (598) (273) (368)

Net of tax 1,110 507 683

AOCI related to cash flow hedge relationships

Affected line items in the consolidated statements of comprehensive income:

Interest expense (164) (192) (230)

Income tax (expense) or benefit 40 51 48

Net of tax (124) (141) (182)

AOCI related to defined benefit plans

Affected line items in the consolidated statements of comprehensive income:

Salaries and employee benefits 2 4 1

Income tax (expense) or benefit (1) (1) —

Net of tax 1 3 1

Total reclassifications in the period net of tax $987 $369 $502

Future Reclassifications from AOCI to Net Income Related to 

Closed Cash Flow Hedges

The total AOCI related to derivatives designated as cash flow hedges was a loss of $0.4 billion and $0.5 

billion at December 31, 2017 and 2016, respectively, composed of deferred net losses on closed cash 

flow hedges. Closed cash flow hedges involve derivatives that have been terminated or are no longer 

designated as cash flow hedges. Fluctuations in prevailing market interest rates have no effect on the 

deferred portion of AOCI relating to losses on closed cash flow hedges.

The previously deferred amount related to closed cash flow hedges remains in our AOCI balance and 

will be recognized into earnings over the expected time period for which the forecasted transactions 

affect earnings, unless it is deemed probable that the forecasted transactions will not occur. Over the 

next 12 months, we estimate that approximately $111 million, net of taxes, of the $0.4 billion of cash 

flow hedge losses in AOCI at December 31, 2017 will be reclassified into earnings. The maximum 

remaining length of time over which we have hedged the exposure related to the variability in future cash 

flows on forecasted transactions, primarily forecasted debt issuances, is 16 years. 
Financial Statements Notes to the Consolidated Financial Statements | Note 11

FREDDIE MAC | 2017 Form 10-K 305

Senior Preferred Stock

Pursuant to the Purchase Agreement described in Note 2, we issued one million shares of senior 

preferred stock to Treasury on September 8, 2008, in partial consideration of Treasury’s commitment to 

provide funds to us.

Shares of the senior preferred stock have a par value of $1, and have a stated value and initial 

liquidation preference equal to $1,000 per share. The liquidation preference of the senior preferred stock 

is subject to adjustment. Dividends that are not paid in cash for any dividend period will accrue and be 

added to the liquidation preference of the senior preferred stock. In addition, any amounts Treasury pays 

to us pursuant to its funding commitment under the Purchase Agreement and any quarterly commitment 

fees that are not paid in cash to Treasury nor waived by Treasury will be added to the liquidation 

preference of the senior preferred stock. The liquidation preference also was increased by $3.0 billion on 

December 31, 2017 pursuant to the Letter Agreement. As described below, we may make payments to 

reduce the liquidation preference of the senior preferred stock in limited circumstances. As discussed in 

Note 2, the quarterly commitment fee has been suspended.

Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, 

when, as and if declared by our Board of Directors. The dividends we have paid to Treasury on the 

senior preferred stock have been declared by, and paid at the direction of, the Conservator, acting as 

successor to the rights, titles, powers and privileges of the Board. The dividend is presented in the 

period in which it is determinable for the senior preferred stock, as a reduction to net income (loss) 

available to common stockholders and net income (loss) per common share. The dividend is declared 

and paid in the following period and recorded as a reduction to equity in the period declared. Total 

dividends paid in cash during 2017, 2016 and 2015 at the direction of the Conservator were $10.9 

billion, $5.0 billion and $5.5 billion, respectively. See Note 2 for a discussion of our net worth sweep 

dividend.

The senior preferred stock is senior to our common stock and all other outstanding series of our 

preferred stock, as well as any capital stock we issue in the future, as to both dividends and rights upon 

liquidation. The senior preferred stock provides that we may not, at any time, declare or pay dividends 

on, make distributions with respect to, redeem, purchase or acquire, or make a liquidation payment with 

respect to, any common stock or other securities ranking junior to the senior preferred stock unless: 

 Full cumulative dividends on the outstanding senior preferred stock (including any unpaid dividends 

added to the liquidation preference) have been declared and paid in cash; and 

 All amounts required to be paid with the net proceeds of any issuance of capital stock for cash (as 

described below) have been paid in cash. 

Shares of the senior preferred stock are not convertible. Shares of the senior preferred stock have no 

general or special voting rights, other than those set forth in the certificate of designation for the senior 

preferred stock or otherwise required by law. The consent of holders of at least two-thirds of all 

outstanding shares of senior preferred stock is generally required to amend the terms of the senior 

preferred stock or to create any class or series of stock that ranks prior to or on parity with the senior 

preferred stock.
Financial Statements Notes to the Consolidated Financial Statements | Note 11

FREDDIE MAC | 2017 Form 10-K 306

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding 

commitment set forth in the Purchase Agreement; however, we are permitted to pay down the 

liquidation preference of the outstanding shares of senior preferred stock to the extent of accrued and 

unpaid dividends previously added to the liquidation preference and not previously paid down and 

quarterly commitment fees previously added to the liquidation preference and not previously paid down. 

In addition, if we issue any shares of capital stock for cash while the senior preferred stock is 

outstanding, the net proceeds of the issuance must be used to pay down the liquidation preference of 

the senior preferred stock; however, the liquidation preference of each share of senior preferred stock 

may not be paid down below $1,000 per share prior to the termination of Treasury’s funding 

commitment. Following the termination of Treasury’s funding commitment, we may pay down the 

liquidation preference of all outstanding shares of senior preferred stock at any time, in whole or in part. 

If, after termination of Treasury’s funding commitment, we pay down the liquidation preference of each 

outstanding share of senior preferred stock in full, the shares will be deemed to have been redeemed as 

of the payment date. 

The table below provides a summary of our senior preferred stock outstanding at December 31, 2017.

(In millions, except initial liquidation 

preference price per share)

Shares

Authorized

Shares

Outstanding

Total

Par Value

Initial

Liquidation

Preference

Price per Share

Total

Liquidation

Preference

Non-draw Adjustment Dates:

September 8, 2008 1.00 1.00 $1.00 $1,000 $1,000

December 31, 2017 — — — N/A 3,000

Draw Dates:

November 24, 2008 — — — N/A 13,800

March 31, 2009 — — — N/A 30,800

June 30, 2009 — — — N/A 6,100

June 30, 2010 — — — N/A 10,600

September 30, 2010 — — — N/A 1,800

December 30, 2010 — — — N/A 100

March 31, 2011 — — — N/A 500

September 30, 2011 — — — N/A 1,479

December 30, 2011 — — — N/A 5,992

March 30, 2012 — — — N/A 146

June 29, 2012 — — — N/A 19

Total, senior preferred stock 1.00 1.00 $1.00 $75,336

No cash was received from Treasury under the Purchase Agreement in 2017, because we had positive 

net worth at December 31, 2016, March 31, 2017, June 30, 2017, and September 30, 2017 and, 

consequently, FHFA did not request a draw on our behalf. Pursuant to the Letter Agreement, the 

aggregate liquidation preference of the senior preferred stock increased by $3.0 billion to $75.3 billion on 

December 31, 2017.

Because we had a net worth deficit at December 31, 2017, FHFA, as Conservator, will submit a draw 

request, on our behalf, to Treasury under the Purchase Agreement. Upon the funding of this draw 

request, the aggregate liquidation preference of the senior preferred stock will increase to $75.6 billion. 

Since we had a net worth deficit at December 31, 2017, no dividend will be paid to Treasury in March 

2018. 
Financial Statements Notes to the Consolidated Financial Statements | Note 11

FREDDIE MAC | 2017 Form 10-K 307

Our quarterly senior preferred stock dividend requirement is the amount, if any, by which our Net Worth 

Amount at the end of the immediately preceding fiscal quarter exceeds the applicable Capital Reserve 

Amount, which was established at $3.0 billion for 2013; gradually declined to $600 million for 2017; and 

will be $3.0 billion in 2018 and thereafter (unless we were not to pay a dividend requirement in full in a 

future period, which would cause the applicable Capital Reserve Amount to thereafter be zero). See 

Note 2 for additional information.

Common Stock Warrant

Pursuant to the Purchase Agreement described in Note 2, on September 7, 2008, we issued a warrant 

to purchase common stock to Treasury, in partial consideration of Treasury’s commitment to provide 

funds to us.

The warrant may be exercised in whole or in part at any time on or before September 7, 2028, by 

delivery to us of a notice of exercise, payment of the exercise price of $0.00001 per share and the 

warrant. If the market price of one share of our common stock is greater than the exercise price, then, 

instead of paying the exercise price, Treasury may elect to receive shares equal to the value of the 

warrant (or portion thereof being canceled) pursuant to the formula specified in the warrant. Upon 

exercise of the warrant, Treasury may assign the right to receive the shares of common stock issuable 

upon exercise to any other person.

We account for the warrant in permanent equity. At issuance on September 7, 2008, we recognized the 

warrant at fair value, and we do not recognize subsequent changes in fair value while the warrant 

remains classified in equity. We recorded an aggregate fair value of $2.3 billion for the warrant as a 

component of additional paid-in-capital. We derived the fair value of the warrant using a modified BlackScholes model. If the warrant is exercised, the stated value of the common stock issued will be 

reclassified to common stock in our consolidated balance sheets. The warrant was determined to be insubstance non-voting common stock, because the warrant’s exercise price of $0.00001 per share is 

considered non-substantive (compared to the market price of our common stock). As a result, the 

shares associated with the warrant are included in the computation of basic and diluted earnings (loss) 

per share. The weighted average shares of common stock outstanding for the years ended 

December 31, 2017, 2016 and 2015 included shares of common stock that would be issuable upon full 

exercise of the warrant issued to Treasury.

Preferred Stock

We have the option to redeem our preferred stock on specified dates, at their redemption price plus 

dividends accrued through the redemption date. However, without the consent of Treasury, we are 

restricted from making payments to purchase or redeem preferred stock as well as paying any preferred 

dividends, other than dividends on the senior preferred stock. All 24 classes of preferred stock are 

perpetual and non-cumulative, and carry no significant voting rights or rights to purchase additional 

Freddie Mac stock or securities. Costs incurred in connection with the issuance of preferred stock are 

charged to additional paid-in capital.
Financial Statements Notes to the Consolidated Financial Statements | Note 11

FREDDIE MAC | 2017 Form 10-K 308

The table below provides a summary of our preferred stock outstanding at their redemption values at 

December 31, 2017.

(In millions, except 

redemption price per share) Issue Date

Shares

Authorized

Shares

Outstanding

Total

Par Value

Redemption

Price per

Share

Total

Outstanding

Balance

Redeemable

On or After

OTCQB

Symbol

Preferred stock:

1996 Variable-rate(1) April 26, 1996 5.00 5.00 $5.00 $50.00 $250 June 30, 2001 FMCCI

5.81% October 27, 1997 3.00 3.00 3.00 50.00 150 October 27, 1998 (2)

5% March 23, 1998 8.00 8.00 8.00 50.00 400 March 31, 2003 FMCKK

1998 Variable-rate(3) September 23 and 29, 1998 4.40 4.40 4.40 50.00 220 September 30, 2003 FMCCG

5.10% September 23, 1998 8.00 8.00 8.00 50.00 400 September 30, 2003 FMCCH

5.30% October 28, 1998 4.00 4.00 4.00 50.00 200 October 30, 2000 (2)

5.10% March 19, 1999 3.00 3.00 3.00 50.00 150 March 31, 2004 (2)

5.79% July 21, 1999 5.00 5.00 5.00 50.00 250 June 30, 2009 FMCCK

1999 Variable-rate(4) November 5, 1999 5.75 5.75 5.75 50.00 287 December 31, 2004 FMCCL

2001 Variable-rate(5) January 26, 2001 6.50 6.50 6.50 50.00 325 March 31, 2003 FMCCM

2001 Variable-rate(6) March 23, 2001 4.60 4.60 4.60 50.00 230 March 31, 2003 FMCCN

5.81% March 23, 2001 3.45 3.45 3.45 50.00 173 March 31, 2011 FMCCO

6% May 30, 2001 3.45 3.45 3.45 50.00 173 June 30, 2006 FMCCP

2001 Variable-rate(7) May 30, 2001 4.02 4.02 4.02 50.00 201 June 30, 2003 FMCCJ

5.70% October 30, 2001 6.00 6.00 6.00 50.00 300 December 31, 2006 FMCKP

5.81% January 29, 2002 6.00 6.00 6.00 50.00 300 March 31, 2007 (2)

2006 Variable-rate(8) July 17, 2006 15.00 15.00 15.00 50.00 750 June 30, 2011 FMCCS

6.42% July 17, 2006 5.00 5.00 5.00 50.00 250 June 30, 2011 FMCCT

5.90% October 16, 2006 20.00 20.00 20.00 25.00 500 September 30, 2011 FMCKO

5.57% January 16, 2007 44.00 44.00 44.00 25.00 1,100 December 31, 2011 FMCKM

5.66% April 16, 2007 20.00 20.00 20.00 25.00 500 March 31, 2012 FMCKN

6.02% July 24, 2007 20.00 20.00 20.00 25.00 500 June 30, 2012 FMCKL

6.55% September 28, 2007 20.00 20.00 20.00 25.00 500 September 30, 2017 FMCKI

2007 Fixed-to-floating rate(9) December 4, 2007 240.00 240.00 240.00 25.00 6,000 December 31, 2012 FMCKJ

Total, preferred stock 464.17 464.17 $464.17 $14,109

(1) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 9.00%.

(2) Issued through private placement.

(3) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 7.50%.

(4) Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury rate, and is capped at 11.00%.Optional 

redemption on December 31, 2004 and on December 31 every five years thereafter. 

(5) Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.10%, and is capped at 11.00%.

Optional redemption on March 31, 2003 and on March 31 every two years thereafter. 

(6) Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%, and is capped at 11.00%. Optional redemption on March 31, 2003 and on 

March 31 every year thereafter.

(7) Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.20%, and is capped at 11.00%.

Optional redemption on June 30, 2003 and on June 30 every two years thereafter. 

(8) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%. 

(9) Dividend rate is set at an annual fixed rate of 8.375% from December 4, 2007 through December 31, 2012. For the period beginning on or after January 1, 2013, 

dividend rate resets quarterly and is equal to the higher of: (a) the sum of three-month LIBOR plus 4.16% per annum; or (b) 7.875% per annum. Optional redemption 

on December 31, 2012, and on December 31 every five years thereafter. 
Financial Statements Notes to the Consolidated Financial Statements | Note 11

FREDDIE MAC | 2017 Form 10-K 309

Stock-based Compensation

Following the implementation of the conservatorship in September 2008, we suspended the operation of 

and/or ceased making grants under our stock-based compensation plans. Under the Purchase 

Agreement, we cannot issue any new options, rights to purchase, participations or other equity interests 

without Treasury’s prior approval. However, grants outstanding as of the date of the Purchase 

Agreement remain in effect in accordance with their terms.

We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 

2017 and 2016, except for issuances of treasury stock as reported on our consolidated statements of 

equity relating to stock-based compensation granted prior to conservatorship. Common stock delivered 

under these stock-based compensation plans consists of treasury stock or shares acquired in market 

transactions on behalf of the participants. During 2017, the deferral period lapsed on 8,107 RSUs. At 

December 31, 2017, 1,403 RSUs remained outstanding. There are no remaining restrictions on 

outstanding RSUs. In addition, there were 41,160 shares of restricted stock outstanding at both 

December 31, 2017 and 2016. At December 31, 2017, no stock options were outstanding. 

Earnings Per Share

Under our prior stock-based compensation plans we issued participating securities related to options 

and RSUs with dividend equivalent rights that receive dividends as declared on an equal basis with 

common shares but are not obligated to participate in undistributed net losses. These participating 

securities consist of: 

 Vested options to purchase common stock; and 

 Vested RSUs that earn dividend equivalents at the same rate when and as declared on common 

stock. 

Consequently, in accordance with accounting guidance, we use the "two-class" method of computing 

earnings per common share. The "two-class" method is an earnings allocation formula that determines 

earnings per share for common stock and participating securities based on dividends declared and 

participation rights in undistributed earnings.

Basic earnings per common share is computed as net income attributable to common stockholders 

divided by the weighted average common shares outstanding for the period. The weighted average 

common shares outstanding for the period includes the weighted average number of shares that are 

associated with the warrant for our common stock issued to Treasury pursuant to the Purchase 

Agreement. These shares are included since the warrant is unconditionally exercisable by the holder at a 

minimal cost. 

Diluted earnings per common share is computed as net income attributable to common stockholders 

divided by the weighted average common shares outstanding during the period adjusted for the dilutive 

effect of common equivalent shares outstanding. For periods with net income attributable to common 

stockholders, the calculation includes the effect of the following common stock equivalent shares 

outstanding: 

 Weighted average shares related to stock options if the average market price during the period 
Financial Statements Notes to the Consolidated Financial Statements | Note 11

FREDDIE MAC | 2017 Form 10-K 310

exceeds the exercise price; and

 The weighted-average of RSUs. 

During periods in which a net loss attributable to common stockholders has been incurred, potential 

common equivalent shares outstanding are not included in the calculation because it would have an 

antidilutive effect. 

For purposes of the earnings-per-share calculation, antidilutive potential common shares excluded from 

the computation of dilutive potential common shares were 0, 22,684 and 146,474 at December 31, 

2017, 2016, and 2015, respectively.

Dividends Declared

No common dividends were declared in 2017. During the three months ended March 31, 2017, June 30, 

2017, September 30, 2017, and December 31, 2017, we paid dividends of $4.5 billion, $2.2 billion $2.0 

billion, and $2.2 billion, respectively, in cash on the senior preferred stock at the direction of our 

Conservator. We did not declare or pay dividends on any other series of Freddie Mac preferred stock 

outstanding during 2017.

Delisting of Common Stock and Preferred Stock from NYSE

On July 8, 2010, we delisted our common and 20 previously listed classes of preferred stock from the 

NYSE pursuant to a directive by our Conservator.

Our common stock and the classes of preferred stock that were previously listed on the NYSE are 

traded exclusively in the OTCQB Marketplace. Shares of our common stock now trade under the ticker 

symbol FMCC. We expect that our common stock and the previously listed classes of preferred stock 

will continue to trade in the OTCQB Marketplace so long as market makers demonstrate an interest in 

trading the common and preferred stock.
Financial Statements Notes to the Consolidated Financial Statements | Note 12

FREDDIE MAC | 2017 Form 10-K 311

NOTE 12: INCOME TAXES

Income Tax Expense

Total income tax expense includes: 

 Current income tax expense, which represents the amount of federal tax currently payable to or 

receivable from the Internal Revenue Service, including interest and penalties and amounts accrued 

for unrecognized tax benefits, if any, and;

 Deferred income tax expense, which represents the net change in the deferred tax asset or liability 

balance during the year, including any change in the valuation allowance.

Income tax expense excludes the tax effects related to adjustments recorded to other comprehensive 

income, such as unrealized gains and losses on available-for-sale securities. 

The Tax Cuts and Jobs Act enacted in December 2017 reduced the statutory corporate income tax rate 

from 35% to 21%. Although not effective until January 1, 2018, accounting rules require that we 

measure our net deferred tax asset using the reduced rate in the period in which the legislation was 

enacted. Therefore, we reduced our net deferred tax asset by $5.4 billion, with a corresponding charge 

to deferred income tax expense.

The table below presents the components of our federal income tax expense for 2017, 2016 and 2015. 

We are exempt from state and local income taxes.

 Year Ended December 31,

(In millions) 2017 2016 2015

Current income tax expense ($3,436) ($1,037) ($1,243)

Deferred income tax expense (7,773) (2,787) (1,655)

Total income tax expense ($11,209) ($3,824) ($2,898)

The increase in income tax expense from 2016 to 2017 is primarily due to the reduction of our net 

deferred tax asset as a result of the enactment of the Tax Cuts and Jobs Act. The increase in income tax 

expense from 2015 to 2016 is primarily due to an increase in pre-tax income.
Financial Statements Notes to the Consolidated Financial Statements | Note 12

FREDDIE MAC | 2017 Form 10-K 312

The table below presents the reconciliation between our federal statutory income tax rate and our 

effective tax rate for 2017, 2016 and 2015.

 Year Ended December 31,

2017 2016 2015

(Dollars in millions) Amount Percent Amount Percent Amount Percent

Statutory corporate tax rate ($5,892) 35.0 % ($4,074) 35.0 % ($3,246) 35.0 %

Tax-exempt interest 39 (0.2)% 36 (0.3)% 52 (0.6)%

Tax credits 135 (0.8)% 243 (2.1)% 346 (3.7)%

Valuation allowance (54) 0.3 % — — — —

Revaluation of deferred tax asset to enacted

rate (5,405) 32.1 % — — — —

Other (32) 0.2 % (29) 0.3 % (50) 0.5 %

Effective tax rate ($11,209) 66.6 % ($3,824) 32.9 % ($2,898) 31.2 %

Deferred Tax Assets, Net

We use the asset and liability method of accounting for income taxes for financial reporting purposes. 

Under this method, deferred tax assets and liabilities are recognized based upon the expected future tax 

consequences of existing temporary differences between the financial reporting and the tax reporting 

basis of assets and liabilities using enacted statutory tax rates as well as tax net operating loss and tax 

credit carryforwards, if any. To the extent tax laws change, deferred tax assets and liabilities are 

adjusted in the period that the tax change is enacted. The realization of our net deferred tax assets is 

dependent upon the generation of sufficient taxable income.

The table below presents the balance of significant deferred tax assets and liabilities at December 31, 

2017 and 2016. The valuation allowance relates to capital loss carryforwards included in Other Items, 

net that we expect to expire unused.

Year Ended December 31,

(In millions) 2017 2016

Deferred tax assets:

Deferred fees $4,679 $6,662

Basis differences related to derivative instruments 2,041 4,006

Credit related items and allowance for loan losses 291 1,045

Basis differences related to assets held for investment 1,288 2,310

LIHTC partnerships and AMT credit carryforward — 2,156

Other items, net 55 131

Total deferred tax assets 8,354 16,310

Deferred tax liabilities:

Unrealized gains related to available-for-sale securities (214) (492)

Total deferred tax liabilities (214) (492)

Valuation Allowance (33) —

Deferred tax assets, net $8,107 $15,818
Financial Statements Notes to the Consolidated Financial Statements | Note 12

FREDDIE MAC | 2017 Form 10-K 313

Valuation Allowance

A valuation allowance is recorded to reduce the net deferred tax asset when it is more likely than not 

that all or part of our tax benefits will not be realized. On a quarterly basis, we determine whether a 

valuation allowance is necessary. In doing so, we consider all evidence available, both positive and 

negative, in determining whether, based on the weight of the evidence, it is more likely than not that the 

net deferred tax asset will be realized.

We are not permitted to consider in our analysis the impacts proposed legislation may have on our 

business because the timing and certainty of those actions are unknown and beyond our control.

Based on all positive and negative evidence available at December 31, 2017, we determined that it is 

more likely than not that our net deferred tax assets, except for a portion of the deferred tax asset 

related to our capital loss carryforwards, will be realized. 

Unrecognized Tax Benefits and IRS Examinations

We recognize a tax position taken or expected to be taken (and any associated interest and penalties) if 

it is more likely than not that it will be sustained upon examination, including resolution of any related 

appeals or litigation processes, based on the technical merits of the position. We measure the tax 

position at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate 

settlement. We evaluated all income tax positions and determined that there were no uncertain tax 

positions that required reserves as of December 31, 2017.
Financial Statements Notes to the Consolidated Financial Statements | Note 13

FREDDIE MAC | 2017 Form 10-K 314

NOTE 13

Segment Reporting

We have three reportable segments, which are based on the type of business activities each performs - 

Single-family Guarantee, Multifamily and Capital Markets. The chart below provides a summary of our 

three reportable segments and the All Other category. 

Segment/

Category Description Activities/Items

Financial

Performance

Measurement

Basis

Singlefamily

Guarantee

The Single-family Guarantee segment reflects 

results from our purchase, securitization and 

guarantee of single-family loans and the 

management of single-family mortgage credit 

risk. In most instances, we securitize the loans 

and guarantee the payment of principal and 

interest on the mortgage-related securities in 

exchange for guarantee fees. 

Segment Earnings for this segment consist 

primarily of guarantee fee income, less creditrelated expenses, credit risk transfer expenses, 

administrative expenses, allocated funding 

costs and amounts related to net float income 

or expenses.

• Purchase and guarantee of single-family

mortgage loans

• Contribution to

GAAP net

• Credit risk transfer transactions income (loss)

• Loss mitigation activities

• Managing foreclosure and REO activities

• Tax expense/benefit

• Allocated debt costs and administrative expenses
Financial Statements Notes to the Consolidated Financial Statements | Note 13

FREDDIE MAC | 2017 Form 10-K 315

Segment/

Category Description Activities/Items

Financial

Performance

Measurement

Multifamily

The Multifamily segment reflects results from 

our purchase, sale, securitization and guarantee 

of multifamily loans and securities, our 

investments in those loans and securities and 

the management of multifamily mortgage credit 

risk and market spread risk. Our primary 

business model is to purchase multifamily loans 

for aggregation and then securitization through 

issuance of multifamily K Certificates and SB 

Certificates. We also issue and guarantee other 

securitization products, issue other credit risk 

transfer products and provide other mortgagerelated guarantees.

Segment Earnings for this segment consist 

primarily of returns on assets related to 

multifamily investment activities and guarantee 

fee income, less credit-related expenses, 

administrative expenses and allocated funding 

costs.

• Multifamily loans held-for-sale and associated

securitization activities (i.e., K Certificates and SB

Certificates)

• Contribution to

GAAP

comprehensive

income (loss) • Investments in CMBS and multifamily loans heldfor-investment

• Other mortgage-related guarantees

• Other securitization products

• Other credit risk transfer products

• Tax expense/benefit

• Allocated debt costs and administrative expenses

Capital

Markets

The Capital Markets segment reflects results 

from managing the company’s mortgagerelated investments portfolio (excluding 

Multifamily segment investments, single-family 

seriously delinquent loans and the credit risk of 

single-family performing and reperforming 

loans), treasury function, single-family 

securitization activities and interest-rate risk.

Segment Earnings for this segment consist 

primarily of the returns on these investments, 

less the related funding, hedging and 

administrative expenses.

• Investments in single-family mortgage-related

securities and single-family performing loans and

reperforming loans

• Contribution to

GAAP

comprehensive

income (loss) • All other traded non-mortgage related

instruments and securities

• Debt issuances

• Interest-rate risk management

• Guarantee buy-ups, net of execution gains/losses

• Cash and liquidity management

• Settlements, including legal settlements, relating

to non-agency mortgage-related securities

• Tax expense/benefit

• Allocated administrative expenses

All Other

The All Other category consists of material

corporate-level activities that are infrequent in

nature and based on decisions outside the

control of the management of our reportable

segments.

• Tax settlements, as applicable

N/A

• Legal settlements, as applicable

• Tax expense/benefit associated with changes in

the deferred tax asset valuation allowance or

revaluation associated with a statutory tax rate

change

• FHFA-mandated termination of our pension plan
Financial Statements Notes to the Consolidated Financial Statements | Note 13

FREDDIE MAC | 2017 Form 10-K 316

Segment Earnings

We present Segment Earnings by reclassifying certain credit guarantee-related activities and 

investment-related activities between various line items on our GAAP consolidated statements of 

comprehensive income and allocating certain revenues and expenses, including funding costs and 

administrative expenses, to our three reportable segments. 

We do not consider our assets by segment when evaluating segment performance or allocating 

resources. We operate our business in the United States and its territories, and accordingly, we generate 

no revenue from and have no long-lived assets, other than financial instruments, in geographic locations 

other than the United States and its territories.

We evaluate segment performance and allocate resources based on a Segment Earnings approach, 

subject to the conduct of our business under the direction of the Conservator. See Note 2 for 

information about the conservatorship. 

During 1Q 2017, we changed how we calculate certain components of our Segment Earnings for our 

Capital Markets segment. The purpose of this change is to more closely align Segment Earnings results 

relative to GAAP results and to better reflect how management evaluates the Capital Markets segment. 

Prior period results have been revised to conform to the current period presentation. The change 

includes:

No longer reclassifying the amortization of upfront cash associated with the acquisition or issuance 

of swaptions and options from derivative gains (losses) to net interest income. This change resulted 

in an increase to net interest income and a corresponding decrease to derivative gains (losses) for 

the Capital Markets segment of $1.3 billion and $763 million for 2016 and 2015, respectively. 

During 4Q 2017, we changed our GAAP accounting for qualifying hedges due to the adoption of 

amended hedge accounting guidance. As a result, we modified our investment activity-related 

reclassifications beginning in 4Q 2017 in order to continue to reflect Segment Earnings for our Capital 

Markets segment consistently with prior periods. No prior period results required updates.

The sum of Segment Earnings for each segment and the All Other category equals GAAP net income 

(loss). Likewise, the sum of comprehensive income (loss) for each segment and the All Other category 

equals GAAP comprehensive income (loss). However, the accounting principles we apply to present 

certain financial statement line items in Segment Earnings for our reportable segments differ significantly 

from those applied in preparing the comparable line items in our consolidated financial statements 

prepared in accordance with GAAP in order to reflect the business activities each segment performs. 

The significant reclassifications are discussed below. Many of the reclassifications and allocations 

described below relate to the amendments to the accounting guidance for transfers of financial assets 

and consolidation of VIEs, which we adopted effective January 1, 2010. These amendments require us 

to consolidate our single-family PC trusts and certain other VIEs. Due to the adoption of this guidance, 

the results of our operating segments from a GAAP perspective do not reflect how the Segments are 

managed. 
Financial Statements Notes to the Consolidated Financial Statements | Note 13

FREDDIE MAC | 2017 Form 10-K 317

Credit Activity-Related Reclassifications

Certain credit activity-related income and costs are included in Segment Earnings guarantee fee income 

or provision for credit losses.

Net guarantee fees are reclassified in Segment Earnings from net interest income to guarantee fee 

income.

Implied guarantee fee income related to unsecuritized loans held in the mortgage investments 

portfolio is reclassified in Segment Earnings from net interest income to guarantee fee income.

A portion of the amount reversed for accrued but uncollected interest upon placing loans on nonaccrual status is reclassified in Segment Earnings from net interest income to provision for credit 

losses.

The revenue and expense related to the 10 basis point increase which was legislated in the 

Temporary Payroll Tax Cut Continuation Act of 2011 are netted within guarantee fee income.

Investment Activity-Related Reclassifications

We move certain items into or out of net interest income so that, on a Segment Earnings basis, net 

interest income reflects how we measure the effective yield earned on securities held in our mortgage 

investments portfolio and our other investments and cash portfolio.

We use derivatives extensively in our investment activity. The reclassifications described below allow us 

to reflect, in Segment Earnings net interest income, the costs associated with this use of derivatives.

The accrual of periodic cash settlements of derivatives recorded within derivative gains (losses) is 

reclassified in Segment Earnings from derivatives gains (losses) into net interest income to fully 

reflect the periodic cost associated with the protection provided by these contracts. Beginning in 4Q 

2017, the accrual of periodic cash settlements of derivatives in qualifying hedge relationships is 

recorded directly to net interest income due to the adoption of amended hedge accounting 

guidance. As a result, only the accrual of periodic cash settlements of derivatives while not in 

qualifying hedge relationships is reclassified for Segment Earnings.

For Segment Earnings, changes in the fair value of the hedging instrument and changes in the fair 

value of the hedged item attributable to the risk being hedged are recorded in other income. 

Beginning in 4Q 2017, for qualifying hedge relationships, changes in the fair value of the derivative 

hedging instrument and changes in fair value of the hedged item attributable to the risk being 

hedged are reclassified in Segment Earnings from net interest income to other income. For periods 

prior to the adoption of amended hedge accounting guidance in 4Q 2017, these amounts were 

recorded directly to other income. As a result, no reclassification for Segment Earnings was 

necessary.

Amortization related to certain items is not relevant to how we measure the effective yield earned on the 

securities held in our investments portfolios. Therefore, as described below, we reclassify the following 

items in Segment Earnings from net interest income to non-interest income:

Amortization related to derivative commitment basis adjustments associated with mortgage-related 
Financial Statements Notes to the Consolidated Financial Statements | Note 13

FREDDIE MAC | 2017 Form 10-K 318

and non-mortgage-related securities.

Amortization related to accretion of other-than-temporary impairments on available-for-sale 

securities.

Amortization related to premiums and discounts, including non-cash premiums and discounts, on 

single-family loans in trusts and on the associated consolidated PCs. 

Amortization of discounts on loans purchased with deteriorated credit quality that are on accrual 

status.

Amortization related to premiums and discounts associated with PCs issued by our consolidated 

trusts that we previously held and subsequently transferred to third parties.

Certain debt-related costs are not relevant to how we measure the effective yield earned on the 

securities held in our investments portfolio. Therefore, as described below, we reclassify the following 

items in Segment Earnings:

Costs associated with STACR debt note expenses are reclassified from net interest income to other 

non-interest expense.

Internally allocated costs associated with the refinancing of debt related to Multifamily segment heldfor-investment loans which we securitized are reclassified from net interest income to other noninterest income.

Mortgage Loan Classification-Related Reclassifications

The GAAP impacts of our reclassification of mortgage loans from held-for-investment to held-for-sale 

affect various financial statement line items. In order to better reflect how we manage our Single-family 

Guarantee segment, we reclassify the impacts of these mortgage loan reclassifications from benefit 

(provision) for credit losses and other non-interest expense into other non-interest income (loss).

Segment Allocations

The results of each reportable segment include directly attributable revenues and expenses. 

Administrative expenses that are not directly attributable to a segment are allocated to our segments 

using various methodologies, depending on the nature of the expense. Net interest income for each 

segment includes allocated debt funding and hedging costs related to certain assets of each segment. 

Funding and interest rate risk is consolidated and primarily managed by the Capital Markets segment for 

all other business segments. In connection with this activity, the Capital Markets segment transfers a 

cost to the other segments. The actual costs may vary relative to these intra-company transfers. In 

addition, the financial statement variability associated with the use of derivatives to hedge certain assets 

outside the Capital Markets segment is not fully allocated to other segments. These allocations do not 

include the effects of dividends paid on our senior preferred stock. 
Financial Statements Notes to the Consolidated Financial Statements | Note 13

FREDDIE MAC | 2017 Form 10-K 319

The table below presents Segment Earnings by segment.

Year Ended December 31,

(In millions) 2017 2016 2015

Segment Earnings (loss), net of taxes:

Single-family Guarantee $2,501 $2,170 $1,778

Multifamily 2,014 1,818 827

Capital Markets 6,515 3,827 3,771

All Other (5,405) — —

Total Segment Earnings, net of taxes 5,625 7,815 6,376

Net income $5,625 $7,815 $6,376

Comprehensive income (loss) of segments:

Single-family Guarantee $2,541 $2,161 $1,790

Multifamily 1,937 1,582 566

Capital Markets 6,485 3,375 3,415

All Other (5,405) — 28

Comprehensive income of segments 5,558 7,118 5,799

Comprehensive income $5,558 $7,118 $5,799

The table below presents detailed reconciliations between our GAAP financial statements and Segment 

Earnings for our reportable segments and All Other.

Year Ended December 31, 2017

Singlefamily

Guarantee Multifamily

Capital

Markets

All

Other

Total 

Segment

Earnings 

(Loss) Reclassifications

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Net interest income $— $1,206 $3,381 $— $4,587 $9,577 $14,164

Guarantee fee income(1) 6,094 676 — — 6,770 (6,108) 662

Benefit (Provision) for credit losses (816) (13) — — (829) 913 84

Net impairment of available-for-sale

securities recognized in earnings — (5) 236 — 231 (249) (18)

Derivative gains (losses) (37) 181 (587) — (443) (1,545) (1,988)

Gains (losses) on trading securities — (102) (570) — (672) — (672)

Gains (losses) on loans — (2) — — (2) 930 928

Other non-interest income 1,542 1,594 7,895 — 11,031 (3,074) 7,957

Administrative expense (1,381) (395) (330) — (2,106) — (2,106)

REO operations (expense) income (203) — — — (203) 14 (189)

Other non-interest (expense) income (1,382) (66) (82) — (1,530) (458) (1,988)

Income tax expense (1,316) (1,060) (3,428) (5,405) (11,209) — (11,209)

Net income (loss) 2,501 2,014 6,515 (5,405) 5,625 — 5,625

Changes in unrealized gains (losses)

related to available-for-sale securities — (86) (167) — (253) — (253)

Changes in unrealized gains (losses)

related to cash flow hedge relationships — — 124 — 124 — 124

Changes in defined benefit plans 40 9 13 — 62 — 62

Total other comprehensive income

(loss), net of taxes 40 (77) (30) — (67) — (67)

Comprehensive income (loss) $2,541 $1,937 $6,485 ($5,405) $5,558 $— $5,558

Referenced footnote is included after the next table.
Financial Statements Notes to the Consolidated Financial Statements | Note 13

FREDDIE MAC | 2017 Form 10-K 320

Year Ended December 31, 2016

Singlefamily

Guarantee Multifamily

Capital

Markets

All

Other

Total 

Segment

Earnings 

(Loss) Reclassifications

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Net interest income $— $1,022 $3,812 $— $4,834 $9,545 $14,379

Guarantee fee income(1) 6,091 511 — — 6,602 (6,089) 513

Benefit (Provision) for credit losses (517) 22 — — (495) 1,298 803

Net impairment of available-for-sale securities

recognized in earnings — — 269 — 269 (460) (191)

Derivative gains (losses) (69) 407 1,151 — 1,489 (1,763) (274)

Gains (losses) on trading securities — 28 (1,077) — (1,049) — (1,049)

Gains (losses) on loans — 309 — — 309 (772) (463)

Other non-interest income 516 829 1,846 — 3,191 (1,227) 1,964

Administrative expense (1,323) (362) (320) — (2,005) — (2,005)

REO operations (expense) income (298) — — — (298) 11 (287)

Other non-interest (expense) income (1,169) (58) 19 — (1,208) (543) (1,751)

Income tax expense (1,061) (890) (1,873) — (3,824) — (3,824)

Net income (loss) 2,170 1,818 3,827 — 7,815 — 7,815

Changes in unrealized gains (losses) related to

available-for-sale securities — (234) (591) — (825) — (825)

Changes in unrealized gains (losses) related to

cash flow hedge relationships — — 141 — 141 — 141

Changes in defined benefit plans (9) (2) (2) — (13) — (13)

Total other comprehensive income (loss), net

of taxes (9) (236) (452) — (697) — (697)

Comprehensive income (loss) $2,161 $1,582 $3,375 $— $7,118 $— $7,118

Referenced footnote is included after the next table.

Year Ended December 31, 2015

Singlefamily

Guarantee Multifamily

Capital

Markets

All

Other

Total 

Segment

Earnings 

(Loss) Reclassifications

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Net interest income $— $1,049 $4,665 $— $5,714 $9,232 $14,946

Guarantee fee income(1) 5,152 339 — — 5,491 (5,122) 369

Benefit (Provision) for credit losses (283) 26 — — (257) 2,922 2,665

Net impairment of available-for-sale securities

recognized in earnings — (22) 420 — 398 (690) (292)

Derivative gains (losses) (37) 372 (833) — (498) (2,198) (2,696)

Gains (losses) on trading securities — (98) (737) — (835) — (835)

Gains (losses) on loans — (93) — — (93) (2,001) (2,094)

Other non-interest income 173 15 2,292 — 2,480 (531) 1,949

Administrative expense (1,285) (325) (317) — (1,927) — (1,927)

REO operations (expense) income (341) (4) — — (345) 7 (338)

Other non-interest (expense) income (794) (56) (4) — (854) (1,619) (2,473)

Income tax expense (807) (376) (1,715) — (2,898) — (2,898)

Net income (loss) 1,778 827 3,771 — 6,376 — 6,376

Changes in unrealized gains (losses) related to

available-for-sale securities — (264) (542) — (806) — (806)

Changes in unrealized gains (losses) related to

cash flow hedge relationships — — 182 — 182 — 182

Changes in defined benefit plans 12 3 4 28 47 — 47

Total other comprehensive income (loss), net

of taxes 12 (261) (356) 28 (577) — (577)

Comprehensive income (loss) $1,790 $566 $3,415 $28 $5,799 $— $5,799

(1) Guarantee fee income is included in other income (loss) on our GAAP consolidated statements of comprehensive income.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 321

NOTE 14

Concentration of Credit and Other Risks

Concentrations of credit risk may arise when we do business with a number of customers or 

counterparties that engage in similar activities or have similar economic characteristics that make them 

vulnerable in similar ways to changes in industry conditions, which could affect their ability to meet their 

contractual obligations. Concentrations of credit risk may also arise when there are a limited number of 

counterparties in a certain industry. Based on our assessment of business conditions that could affect 

our financial results, we have determined that concentrations of credit risk exist among certain 

borrowers (including geographic concentrations and loans with certain higher risk characteristics), loan 

sellers and servicers, mortgage insurers, bond insurers, cash, derivative and other investment 

counterparties and non-agency mortgage-related security issuers. In the sections below, we discuss our 

concentration of credit risk for each of the groups to which we are exposed. For a discussion of our 

derivative counterparties as well as related master netting and collateral agreements, see Note 10.

Single-Family Credit Guarantee Portfolio

Regional economic conditions may affect a borrower’s ability to repay his or her loan and the property 

value underlying the loan. Geographic concentrations increase the exposure of our portfolio to changes 

in credit risk. Single-family borrowers are primarily affected by home prices, unemployment rates and 

interest rates.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 322

The table below summarizes the concentration by loan portfolio and geographic area of approximately 

$1.8 trillion UPB of our single-family credit guarantee portfolio at both December 31, 2017 and 2016, 

respectively. See Note 4 and Note 7 for more information about credit risk associated with loans and 

mortgage-related securities that we hold or guarantee.

December 31, 2017 December 31, 2016 Percent of Credit Losses

Percentage of

Portfolio

Serious

Delinquency

Rate

Percentage of

Portfolio

Serious

Delinquency

Rate 2017 2016

Core single-family loan portfolio 78% 0.35% 73% 0.20% 3% 6%

Legacy and relief refinance single-family loan

portfolio 22 2.59% 27 2.28% 97 94

Total 100% 1.08% 100% 1.00% 100% 100%

Region(1)

West 30% 0.47% 30% 0.57% 27% 11%

Northeast 25 1.24% 25 1.45% 34 41

North Central 16 0.81% 16 0.93% 15 24

Southeast 16 1.95% 16 1.19% 20 19

Southwest 13 0.98% 13 0.78% 4 5

Total 100% 1.08% 100% 1.00% 100% 100%

State(2)(3)

California 18% 0.41% 18% 0.46% 18% 5%

Florida 6 3.33% 6 1.42% 13 9

Illinois 5 1.13% 5 1.34% 9 10

New Jersey 3 1.78% 3 2.26% 9 12

New York 5 1.74% 5 2.05% 9 9

All other 63 0.91% 63 0.90% 42 55

Total 100% 1.08% 100% 1.00% 100% 100%

(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).

(2) States presented based on those with the highest percentage of credit losses during the year ended December 31, 2017.

(3) On January 1, 2017, we elected a new accounting policy for reclassifications of loans from held-for-investment to held-for-sale. The charge-offs 

taken under the new policy affected some states more than others. See Note 4 for further information about this change.

The REO balance, net at December 31, 2017 and 2016 associated with single-family properties was 

$0.9 billion and $1.2 billion, respectively, and the balance associated with multifamily properties was $6 

million and $0 million, respectively. Our single-family REO inventory consisted of 8,299 properties and 

11,418 properties at December 31, 2017 and 2016, respectively. In recent years, the foreclosure process 

has been slowed in many geographic areas, particularly in states that require a judicial foreclosure 

process, which extends the time it takes for loans to be foreclosed upon and the underlying property to 

transition to REO.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 323

Credit Performance of Certain Higher-Risk Single-Family Loan 

Categories

Participants in the mortgage market have characterized single-family loans based upon their overall 

credit quality at the time of origination, including as prime or subprime. Mortgage market participants 

have classified single-family loans as Alt-A if these loans have credit characteristics that range between 

their prime and subprime categories, if they are underwritten with lower or alternative income or asset 

documentation requirements compared to a full documentation loan, or both. Although we discontinued 

new purchases of loans with lower documentation standards beginning March 1, 2009, we have 

continued to purchase certain amounts of these loans in cases where the loan was either: 

Purchased pursuant to a previously issued other mortgage-related guarantee; 

Part of our relief refinance initiative; or 

In another refinance loan initiative and the pre-existing loan (including Alt-A loans) was originated 

under less than full documentation standards. 

In the event we purchase a refinance loan and the original loan had been previously identified as Alt-A, 

such refinance loan may no longer be categorized or reported as Alt-A in the table below because the 

new refinance loan replacing the original loan would not be identified by the seller/servicer as an Alt-A 

loan. As a result, our reported Alt-A balances may be lower than would otherwise be the case had such 

refinancing not occurred.

Although we do not categorize single-family loans we purchase or guarantee as prime or subprime, we 

recognize that there are a number of loan types with certain characteristics that indicate a higher degree 

of credit risk.

For example, a borrower’s credit score is a useful measure for assessing the credit quality of the 

borrower. Statistically, borrowers with higher credit scores are more likely to repay or have the ability to 

refinance than those with lower scores.

Presented below is a summary of the serious delinquency rates of certain higher-risk categories (based 

on characteristics of the loan at origination) of single-family loans in our single-family credit guarantee 

portfolio based on UPB. The table includes a presentation of each higher-risk category in isolation. A 

single loan may fall within more than one category (for example, an interest-only loan may also have an 

original LTV ratio greater than 90%). Loans with a combination of these attributes will have an even 

higher risk of delinquency than those with an individual attribute.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 324

Percentage of Portfolio(1) Serious Delinquency Rate(1)

As of December 31, As of December 31,

December 31,

2017

December 31,

2016

December 31,

2017

December 31,

2016

Interest-only 1% 1% 4.97% 4.34%

Alt-A 1% 2% 5.62% 5.21%

Original LTV ratio greater than 90%(2) 17% 16% 1.70% 1.58%

Lower credit scores at origination (less than 620) 2% 2% 6.34% 5.73%

(1) Excludes loans underlying certain other securitization products for which data was not available. 

(2) Includes HARP loans, which we purchase as part of our participation in the MHA Program.

We categorize our investments in non-agency mortgage-related securities as subprime, option ARM, or 

Alt-A if the securities were identified as such based on information provided to us when we entered into 

these transactions. We have not identified option ARM, CMBS, obligations of states and political 

subdivisions and manufactured housing securities as either subprime or Alt-A securities. See Note 7 for 

further information on these categories and other concentrations in our investments in securities.

Multifamily Mortgage Portfolio

Numerous factors affect a multifamily borrower’s ability to repay the loan and the value of the property 

underlying the loan. The most significant factors affecting credit risk are rental rates and capitalization 

rates for the mortgaged property. Rental rates vary among geographic regions of the United States. The 

average UPB for multifamily loans is significantly larger than for single-family loans and, therefore, 

individual defaults for multifamily borrowers can result in more significant losses.

The table below summarizes the concentration of multifamily loans in our multifamily mortgage portfolio 

classified by legal structure, based on UPB.

As of December 31, 2017 As of December 31, 2016

(Dollars in billions) UPB

Delinquency

Rate(1) UPB

Delinquency

Rate(1)

Unsecuritized loans $38.2 0.01% $42.4 0.04%

Securitization-related products 192.5 0.02% 147.6 0.03%

Other mortgage-related guarantees 10.0 —% 9.7 —%

Total $240.7 0.02% $199.7 0.03%

(1) Based on loans two monthly payments or more delinquent or in foreclosure.

In the multifamily mortgage portfolio, the primary concentration of credit risk is based on the legal 

structure of the investments we hold. Our exposure to credit risk in K Certificates and SB Certificates is 

minimal, as the expected credit risk is absorbed by the subordinate tranches, which are generally sold to 

private investors. As a result, our multifamily mortgage credit risk is primarily related to loans that have 

not been securitized.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 325

Sellers and Servicers

We acquire a significant portion of our single-family and multifamily loan purchase volume from several 

large sellers. The table below summarizes the concentration of single-family and multifamily sellers who 

provided 10% or more of our purchase volume.

Single-family Sellers 2017 2016

Wells Fargo Bank, N.A. 15% 15%

Other top 10 sellers 38 34

Top 10 single-family sellers 53% 49%

Multifamily Sellers 2017 2016

CBRE Capital Markets, Inc. 18% 19%

Berkadia Commercial Mortgage LLC 11 17

Walker & Dunlop, LLC 10 10

Other top 10 sellers 39 33

Top 10 multifamily sellers 78% 79%

In recent years, there has been a shift in our single-family purchase volume from depository institutions 

to non-depository and smaller depository financial institutions. Some of these non-depository sellers 

have grown rapidly in recent years, and we purchase a significant share of our loans from them. Our top 

five non-depository sellers provided approximately 20% and 17% of our single-family purchase volume 

during 2017 and 2016, respectively.

We are exposed to counterparty credit risk arising from the potential insolvency or non-performance by 

our sellers and servicers of their obligations to repurchase loans or (at our option) indemnify us in the 

event of breaches of the representations and warranties they made when they sold the loans to us or 

failure to comply with our servicing requirements. Our contracts require that a seller/servicer repurchase 

a loan after we issue a repurchase request, unless the seller/servicer avails itself of an appeals process 

provided for in our contracts, in which case the deadline for repurchase is extended until we decide on 

the appeal. As of December 31, 2017 and 2016, the UPB of loans subject to our repurchase requests 

issued to our single-family sellers and servicers was approximately $0.2 billion and $0.3 billion, 

respectively (these figures include repurchase requests for which appeals were pending). During 2017

and 2016, we recovered amounts that covered losses with respect to $0.3 billion and $0.6 billion, 

respectively, in UPB of loans subject to our repurchase requests.

At the direction of FHFA, we and Fannie Mae revised our representation and warranty framework for 

conventional loans purchased by the GSEs on or after January 1, 2013. The objective of the revised 

framework is to clarify lenders’ repurchase exposures and liability on future sales of loans to Freddie 

Mac and Fannie Mae. This framework does not affect seller/servicers’ obligations under their contracts 

with us with respect to loans sold to us prior to January 1, 2013. This framework also does not affect 

their obligation to service these loans in accordance with our servicing standards. Under this framework, 

sellers are relieved of certain repurchase obligations for loans that meet specific payment requirements. 

This includes, subject to certain exclusions, loans with 36 months (12 months for relief refinance loans) 

of consecutive, on-time payments after we purchase them. 
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 326

In May 2014, we announced changes to our representation and warranty framework for loans acquired 

on and after July 1, 2014. These changes relieve sellers of additional representations and warranties for 

these loans and provide relief for loans we have fully reviewed in our quality control process and 

determined to be acceptable. As of December 31, 2017, approximately 69% in UPB of loans in our 

single-family credit guarantee portfolio were purchased since January 1, 2013 and are subject to our 

revised representation and warranty framework.

At the direction of FHFA, we implemented a new remedies framework for the categorization of loan 

origination defects for loans with settlement dates on or after January 1, 2016. Among other items, the 

framework provides that "significant defects" will result in a repurchase request or a repurchase 

alternative, such as recourse or indemnification. We may require the seller to pay us additional fees or 

provide us with additional data on the loan.

The ultimate amounts of recovery payments we receive from seller/servicers related to their repurchase 

obligations may be significantly less than the amount of our estimates of potential exposure to losses. 

Our estimate of probable incurred losses for exposure to seller/servicers for their repurchase obligations 

is considered in our allowance for loan losses. See Note 4 for further information. 

We are also exposed to the risk that servicers might fail to service loans in accordance with our 

contractual requirements, resulting in increased credit losses. For example, our servicers have an active 

role in our loss mitigation efforts and we therefore have exposure to them to the extent a decline in their 

performance results in a failure to realize the anticipated benefits of our loss mitigation plans. Since we 

do not have our own servicing operation, if our servicers lack appropriate controls, experience a failure 

in their controls, or experience an operating disruption in their ability to service loans, our business and 

financial results could be adversely affected.

Significant portions of our single-family and multifamily loans are serviced by several large servicers. The 

table below summarizes the concentration of single-family and multifamily servicers who serviced 10% 

or more of our single-family credit guarantee portfolio and our multifamily mortgage portfolio, excluding 

loans underlying multifamily securitizations where we are not in first loss position, primarily K Certificates 

and SB Certificates.

Single-family Servicers December 31, 2017(1) December 31, 2016(1)

Wells Fargo Bank, N.A. 18% 19%

Other top 10 servicers 40 41

Top 10 single-family servicers 58% 60%

Multifamily Servicers December 31, 2017 December 31, 2016

Wells Fargo Bank, N.A. 16% 15%

CBRE Capital Markets, Inc. 12 14

Berkadia Commercial Mortgage LLC 11 11

Other top 10 servicers 36 39

Top 10 multifamily servicers 75% 79%

(1) Percentage of servicing volume is based on the total single-family credit guarantee portfolio, excluding loans where we do not exercise control 

over the associated servicing.

In recent years, there has been a shift in our single-family servicing from depository institutions to nondepository servicers. Some of these non-depository servicers have grown rapidly in recent years and 
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 327

now service a large share of our loans. As of December 31, 2017 and 2016, approximately 15% and 

13% of our single-family credit guarantee portfolio, respectively, excluding loans where we do not 

exercise control over the associated servicing, was serviced by our five largest non-depository servicers, 

on a combined basis. One of our non-depository servicers also services a large share of the loans 

underlying our investments in non-agency mortgage-related securities. We routinely monitor the 

performance of our largest non-depository servicers.

In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under 

financial pressure, which could potentially cause degradation in the quality of the servicing they provide 

us, including their monitoring of each property’s financial performance and physical condition. This 

could also, in certain cases, reduce the likelihood that we could recover losses through lender 

repurchases, recourse agreements, or other credit enhancements, where applicable. This risk primarily 

relates to multifamily loans that we hold on our consolidated balance sheets where we retain all of the 

related credit risk. We monitor the status of all our multifamily seller/servicers in accordance with our 

counterparty credit risk management framework.

Mortgage Insurers

We have counterparty credit risk relating to the potential insolvency of, or non-performance by, 

mortgage insurers that insure single-family loans we purchase or guarantee. We evaluate the recovery 

and collectability from mortgage insurers as part of the estimate of our loan loss reserves. See Note 4

for additional information. As of December 31, 2017, mortgage insurers provided coverage with 

maximum loss limits of $85.5 billion, for $334.3 billion of UPB, in connection with our single-family credit 

guarantee portfolio. These amounts are based on gross coverage without regard to netting of coverage 

that may exist to the extent an affected loan is covered under both primary and pool insurance. 

The table below summarizes the concentration of mortgage insurer counterparties who provided 10% or 

more of our overall mortgage insurance coverage. On January 3, 2017, Arch Capital Group Ltd. 

announced that it had completed its purchase of United Guaranty Corporation at the end of 2016. The 

table below reflects this transaction. On October 23, 2016, Genworth Financial, Inc. announced that it 

had entered into an agreement to be acquired by China Oceanwide Holdings Group Co., Ltd. Regulatory 

approvals of the acquisition are still pending. Genworth Mortgage Insurance Corporation is a subsidiary 

of Genworth Financial, Inc.

Mortgage Insurance Coverage

Mortgage Insurer Credit Rating(1) December 31, 2017 December 31, 2016

Arch Mortgage Insurance Company A- 24% 25%

Radian Guaranty Inc. BBB- 21 21

Mortgage Guaranty Insurance Corporation BBB 19 20

Genworth Mortgage Insurance Corporation BB+ 15 15

Essent Guaranty, Inc. BBB+ 12 10

Total 91% 91%

(1) Ratings are for the corporate entity to which we have the greatest exposure. Coverage amounts may include coverage provided by affiliates and 

subsidiaries of the counterparty. Latest rating available as of December 31, 2017. Represents the lower of S&P and Moody’s credit ratings stated 

in terms of the S&P equivalent.

We received proceeds of $0.4 billion and $0.5 billion during 2017 and 2016, respectively, from our 

primary and pool mortgage insurance policies for recovery of losses on our single-family loans. We had 
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 328

outstanding receivables from mortgage insurers of $0.1 billion (excluding deferred payment obligations 

associated with unpaid claim amounts) as of both December 31, 2017 and 2016. The balance of these 

receivables, net of associated reserves, was approximately $0.1 billion at both December 31, 2017 and 

2016.

PMI Mortgage Insurance Co. and Triad Guaranty Insurance Corp. are both under the control of their 

state regulators and are in run-off. A substantial portion of their claims is recorded by us as deferred 

payment obligations. These insurers no longer issue new insurance but continue to pay a portion of their 

respective claims in cash. In 2014, PMI began paying valid claims 67% in cash and 33% in deferred 

payment obligations and made a one-time cash payment to us for claims that were previously settled for 

55% in cash. In 2015, PMI began paying valid claims 70% in cash and 30% in deferred payment 

obligations and made a one-time cash payment to us for claims that were previously settled for 67% in 

cash. In 2013, Triad began paying valid claims 75% in cash and 25% in deferred payment obligations 

and made a one-time cash payment to us for claims that were previously settled for 60% in cash. If, as 

we currently expect, these insurers do not pay the full amount of their deferred payment obligations in 

cash, we would lose a portion of the coverage from these insurers. As of both December 31, 2017 and 

2016, we had cumulative unpaid deferred payment obligations of $0.5 billion from these insurers. We 

reserved for all of these unpaid amounts as collectability is uncertain. It is not clear how the regulators 

of these companies will administer their respective deferred payment plans in the future, nor when or if 

those obligations will be paid.

RMIC is under regulatory supervision and is no longer issuing new insurance. In 2014, RMIC resumed 

paying valid claims at 100% of the claim amount. Previously, RMIC had been paying all valid claims 

60% in cash and 40% in deferred payment obligations. 

Bond Insurers

Bond insurance is a credit enhancement covering certain of the non-agency mortgage-related securities 

that we hold or guarantee. Some policies were acquired by the securitization trust that issued the 

securities we purchased, while others were acquired by us. At December 31, 2017, the maximum 

principal exposure to credit losses related to such policies was $3.5 billion. At December 31, 2017, our 

top three bond insurers, Ambac Assurance Corporation (Ambac), National Public Finance Guarantee 

Corp., and MBIA Insurance Corp., each accounted for more than 10% of our overall bond insurance 

coverage and collectively represented approximately 95% of our coverage. Of our total outstanding 

bond insurance coverage, approximately 77% relates to non-agency commercial mortgage-backed 

securities.

In 2010, Ambac established a segregated account for certain Ambac-insured securities, including some 

of those held by Freddie Mac. Upon the request of the Wisconsin Office of the Commissioner of 

Insurance, the Wisconsin circuit court ("rehabilitation court") put the segregated account into 

rehabilitation (i.e., a state insolvency proceeding). Since its entry into rehabilitation and the subsequent 

approval of an amended rehabilitation plan, Ambac has made one-time and periodic cash payments for 

certain specified securities and policy claims but has deferred a portion of its payment obligations. On 

January 22, 2018, the rehabilitation court approved the second amended rehabilitation exit plan. Under 

this exit plan, Freddie Mac expects to receive a combination of cash and notes issued by Ambac as 

consideration for a substantial portion of our outstanding insurance claims.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 329

We believe that we will likely receive substantially less than full payment of our claims from some of our 

other bond insurers, because we believe they lack sufficient ability to fully meet all of their expected 

lifetime claims-paying obligations to us as such claims emerge. We evaluate the expected recovery from 

bond insurance policies as part of our impairment analysis for our investments in securities and the 

evaluation of our reserve for guarantee losses. The expected benefits from bond insurers, or the inability 

of bond insurers to perform on their obligations, is captured in the fair value of these securities. See 

Note 7 for further information on our investments in securities covered by bond insurance.

Cash and Other Investment Counterparties

We are exposed to counterparty credit risk relating to the potential insolvency of, or the nonperformance by, counterparties relating to cash and other investments (including non-mortgage-related 

securities and cash equivalents) transactions, including those entered into on behalf of our securitization 

trusts. Our policies require that the issuer be rated as investment grade at the time the financial 

instrument is purchased. We base the permitted term and dollar limits for each of these transactions on 

the counterparty's financial strength in order to further mitigate our risk.

Our cash and other investments counterparties are primarily major financial institutions, including other 

GSEs, Treasury, the Federal Reserve Bank of New York, GSD/FICC, highly-rated supranational 

institutions and government money market funds. As of December 31, 2017 and December 31, 2016, 

$239 million and $0 million of our securities purchased under agreements to resell were used to provide 

financing to investors in Freddie Mac securities to increase liquidity and expand the investor base for 

those securities. These transactions differ from the securities purchased under agreements to resell that 

we use for liquidity purposes as the counterparties we face may not be major financial institutions and 

we are exposed to the counterparty credit risk of these institutions. As of December 31, 2017 and 2016, 

including amounts related to our consolidated VIEs, there were $89.3 billion and $96.2 billion, 

respectively, primarily of cash and securities purchased under agreements to resell invested with 

counterparties, U.S.Treasury securities, cash deposited with the Federal Reserve Bank of New York, or 

cash advanced to lenders. As of December 31, 2017, all of our securities purchased under agreements 

to resell were fully collateralized.

Non-Agency Mortgage-Related Security Issuers

We are engaged in various loss mitigation efforts concerning certain investments in non-agency 

mortgage-related securities, including the matters described below.

In 2011, FHFA, as Conservator for Freddie Mac and Fannie Mae, filed lawsuits against a number of 

corporate families of financial institutions and related defendants alleging securities laws violations and, 

in some cases, fraud. On July 12, 2017, FHFA reached a settlement with the Royal Bank of Scotland 

Group plc, related companies and specifically named individuals (collectively RBS). The settlement 

resolves all claims in the lawsuit filed by FHFA against RBS in the U.S. District Court for the District of 

Connecticut. Under the terms of the agreement, RBS paid Freddie Mac $4.5 billion. We recognized this 

amount within non-interest income on our consolidated statements of comprehensive income during the 

third quarter of 2017. The separate lawsuit filed by FHFA against Nomura Holding America, Inc. 

(Nomura) and RBS in the U.S. District Court for the Southern District of New York went to trial in March 
Financial Statements Notes to the Consolidated Financial Statements | Note 14

FREDDIE MAC | 2017 Form 10-K 330

2015. In May 2015, the judge ruled against the defendants and ordered them to pay an aggregate of 

$806 million, of which $779 million will be paid to Freddie Mac. The order also provides for Freddie Mac 

to transfer the mortgage-related securities at issue in this trial to the defendants. The defendants have 

agreed to pay for certain costs, legal fees and expenses if FHFA prevails in the litigation. This expense 

reimbursement payment is subject to various conditions and is capped at $33 million (half of any such 

payment would be made to Freddie Mac). On September 28, 2017, the Second Circuit affirmed the 

District Court's decision in full and, on December 11, 2017, denied the defendants' request for rehearing 

or a rehearing en banc.

We worked with an investor consortium to enforce certain claims with JPMorgan Chase & Co. relating to 

a number of non-agency mortgage-related securities. A settlement agreement was entered into with 

respect to these claims. The settlement is subject to certain conditions, which have not yet been 

satisfied. Our expected benefit from the settlement, which currently totals approximately $29 million, will 

be recognized in earnings over the expected remaining life of the securities, unless the securities are 

sold, at which time the benefit would be considered in the sales price of the securities.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 331

NOTE 15

Fair Value Disclosures

The accounting guidance for fair value measurements and disclosures defines fair value, establishes a 

framework for measuring fair value and sets forth disclosure requirements regarding fair value 

measurements. This guidance applies whenever other accounting guidance requires or permits assets 

or liabilities to be measured at fair value. Fair value represents the price that would be received to sell an 

asset or paid to transfer a liability in an orderly transaction between market participants at the 

measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the 

liability takes place either in the principal market for the asset or liability, or, in the absence of a principal 

market, in the most advantageous market for the asset or liability.

We use fair value measurements for the initial recording of certain assets and liabilities and periodic 

remeasurement of certain assets and liabilities on a recurring or non-recurring basis.

Fair Value Measurements

The accounting guidance for fair value measurements and disclosures establishes a three-level fair value 

hierarchy that prioritizes the inputs into the valuation techniques used to measure fair value. The levels 

of the fair value hierarchy are defined as follows in priority order:

Level 1 - inputs to the valuation techniques are based on quoted prices in active markets for 

identical assets or liabilities. 

 Level 2 - inputs to the valuation techniques are based on observable inputs other than quoted prices 

in active markets for identical assets or liabilities. 

Level 3 - one or more inputs to the valuation techniques are unobservable and significant to the fair 

value measurement.

We use quoted market prices and valuation techniques that seek to maximize the use of observable 

inputs, where available, and minimize the use of unobservable inputs. Our inputs are based on the 

assumptions a market participant would use in valuing the asset or liability. Assets and liabilities are 

classified in their entirety within the fair value hierarchy based on the lowest level input that is significant 

to the fair value measurement.

Valuation Risk and Controls Over Fair Value Measurements

Valuation risk is the risk that fair values used for financial disclosures, risk metrics and performance 

measures do not reasonably reflect market conditions and prices.

We designed our control processes so that our fair value measurements are appropriate and reliable, 

that they are based on observable inputs where possible, and that our valuation approaches are 

consistently applied and the assumptions and inputs are reasonable. Our control processes provide a 

framework for segregation of duties and oversight of our fair value methodologies, techniques, validation 

procedures and results.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 332

Groups within our Finance Division, independent of our business functions, execute and validate the 

valuation processes and are responsible for determining the fair values of the majority of our financial 

assets and liabilities. In determining fair value, we consider the credit risk of our counterparties in 

estimating the fair values of our assets and our own credit risk in estimating the fair values of our 

liabilities. The fair values determined by our Finance Division are further verified by an independent 

group within our ERM Division.

The independent validation procedures performed by the ERM Division are intended to ensure that the 

prices we receive from third parties are consistent with our observations of market activity, and that fair 

value measurements developed using internal data reflect the assumptions that a market participant 

would use in pricing our assets and liabilities. These validation procedures include performing a daily 

price review and a monthly independent verification of fair value measurements through independent 

modeling, analytics and comparisons to other market source data, if available. If we are unable to 

validate the reasonableness of a given price, we ultimately do not use that price for fair value 

measurements in our consolidated financial statements. These procedures are risk-based and are 

executed before we finalize the prices used in preparing our fair value measurements for our financial 

statements.

In addition to performing the validation procedures noted above, the ERM Division provides independent 

risk governance over all valuation processes by establishing and maintaining a corporate-wide valuation 

risk policy. The ERM Division also independently reviews significant judgments, methodologies and 

valuation techniques to ensure compliance with established policies.

Our Valuation & Finance Model Committee ("Valuation Committee"), which includes representation from 

our business lines, the ERM Division and the Finance Division, provides senior management’s 

governance over valuation processes, methodologies, controls and fair value measurements. Identified 

exceptions are reviewed and resolved through the verification process and reviewed at the Valuation 

Committee.

Where models are employed to assist in the measurement and verification of fair values, changes made 

to those models during the period are reviewed and approved according to the corporate model change 

governance process, with material changes reviewed at the Valuation Committee. Inputs used by 

models are regularly updated for changes in the underlying data, assumptions, valuation inputs and 

market conditions, and are subject to the valuation controls noted above.

Use of Third-Party Pricing Data in Fair Value Measurement

Many of our valuation techniques use, either directly or indirectly, data provided by third-party pricing 

services or dealers. The techniques used by these pricing services and dealers to develop the prices 

generally are either: 

A comparison to transactions involving instruments with similar collateral and risk profiles, adjusted 

as necessary based on specific characteristics of the asset or liability being valued; or

Industry-standard modeling, such as a discounted cash flow model. 

The prices provided by the pricing services and dealers reflect their observations and assumptions 

related to market activity, including risk premiums and liquidity adjustments. The models and related 
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 333

assumptions used by the pricing services and dealers are owned and managed by them and, in many 

cases, the significant inputs used in the valuation techniques are not reasonably available to us. 

However, we have an understanding of the processes and assumptions used to develop the prices 

based on our ongoing due diligence, which includes discussions with our vendors at least annually and 

often more frequently. We believe that the procedures executed by the pricing services and dealers, 

combined with our internal verification and analytical procedures, provide assurance that the prices 

used in our financial statements comply with the accounting guidance for fair value measurements and 

disclosures and reflect the assumptions that a market participant would use in pricing our assets and 

liabilities. The price quotes we receive are non-binding both to us and to our counterparties.

In many cases, we receive quotes from third-party pricing services or dealers and use those prices 

without adjustment. For a large majority of the assets and liabilities we value using pricing services and 

dealers, we obtain quotes from multiple external sources and use the median of the prices to measure 

fair value. This technique is referred to below as "median of external sources." The significant inputs 

used in the fair value measurement of assets and liabilities that are valued using the median of external 

sources pricing technique are the third-party quotes. Significant increases (decreases) in any of the 

third-party quotes in isolation may result in a significantly higher (lower) fair value measurement. In 

limited circumstances, we may be able to receive pricing information from only a single external source. 

This technique is referred to below as "single external source."

Valuation Techniques

The following table contains a description of the valuation techniques we use for fair value measurement 

and disclosure; the significant inputs used in those techniques (if applicable); the classification within the 

fair value hierarchy; and, for those measurements that we report on our consolidated balance sheets 

and are classified as Level 3 of the hierarchy, a narrative description of the sensitivity of the fair value 

measurement to changes in significant unobservable inputs. Although the sensitivities of the 

unobservable inputs are discussed below in isolation, interrelationships exist among the inputs such that 

a change in one unobservable input can result in a change to one or more of the other inputs. For 

example, the most common interrelationship that affects the majority of our fair value measurements is 

between future interest rates, prepayment speeds and probabilities of default. Generally, a change in the 

assumption used for future interest rates results in a directionally opposite change in the assumption 

used for prepayment speeds and a directionally similar change in the assumption used for probabilities 

of default.

Each technique discussed below may not be used in a given reporting period, depending on the 

composition of our assets and liabilities measured at fair value and relevant market activity during that

period.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 334

Instrument Valuation Technique Classification in the

Fair Value Hierarchy

Securities

U.S. Treasury Securities Quoted prices in active markets Level 1

Agency mortgagerelated securitiesFixed-rate single-class Median of external sources Level 2

Adjustable-rate single-class and

majority of multi-class securities

Median of external sources Predominantly Level 2

Certain multi-class securities Single external source Levels 2 and 3

Certain multi-class securities

with limited market activity

Discounted cash flows or risk metric pricing. 

Significant inputs used in the discounted cash flow 

technique include OAS. Significant increases 

(decreases) in the OAS in isolation would result in a 

significantly lower (higher) fair value measurement.

Significant inputs used in the risk metric pricing 

technique include key risk metrics, such as key rate 

durations. Significant increases (decreases) in key rate 

durations in isolation would result in a significant 

increase (decrease) in the magnitude of change of fair 

value measurement in response to key rate movements. 

Under risk metric pricing, securities are valued by 

starting with a prior period price and adjusting that 

price for market changes in the key risk metric input 

used. 

Level 3

Commercial mortgage-related securities Single external source or, in limited circumstances, a

median of external sources

Predominantly Level 3

Other non-agency mortgage-related securities Median of external sources Level 3

Derivatives

Exchange-traded futures Quoted prices in active markets Level 1

Interest-rate swaps Discounted cash flows. Significant inputs include

market-based interest rates.

Level 2

Option-based derivatives Option-pricing models. Significant inputs include

interest-rate volatility matrices.

Level 2

Purchase and sale commitments See Agency mortgage-related securities Level 2

Debt

Debt securities of consolidated trusts

held by third parties

See Agency mortgage-related securities Level 2 or 3

Other debt Median of external sources Predominantly Level 2

Single external source

Published yield matrices
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 335

Instrument Valuation Technique Classification in the

Fair Value Hierarchy

Mortgage Loans

Single-family loans GSE securitization market Benchmark security pricing for actively traded

mortgage-related securities with similar characteristics,

adjusting for the value of our guarantee fee and our

credit obligation related to performing our guarantee

(see Guarantee obligation). The credit obligation is

based on: delivery and guarantee fees we charge under

current market pricing for loans that qualify under our

current underwriting standards (Level 2) and internal

credit models for loans that do not qualify under our

current underwriting standards (Level 3).

Level 2 or 3

Whole loan market Median of external sources, referencing market activity

for deeply delinquent and modified loans, where

available

Level 3

Impaired held-for-investment Internal models that estimate the fair value of the

underlying collateral for impaired loans. Significant

inputs used by our internal models include REO

disposition, short sale and third-party sale values,

combined with mortgage loan level characteristics

using the repeat housing sales index to estimate the

current fair value of the mortgage loan. Significant

increases (decreases) in the historical average sales

proceeds per mortgage loan in isolation would result in

significantly higher (lower) fair value measurements.

Level 3

Multifamily loans Held-for-sale Market prices from a third-party pricing service, using

discounted cash flows based on K Certificate and SB

Certificate market spreads

Level 2

Held-for-investment Market prices from a third-party pricing service using

discounted cash flows incorporating credit spreads for

similar loans based on the loan's LTV and DSCR

Level 3

Other Assets

Guarantee asset Single-family Median of external sources with adjustments for

specific loan characteristics

Level 3

Multifamily Discounted cash flows. Significant inputs include

current OAS-to-benchmark interest rates for new

guarantees. Significant increases (decreases) in the

OAS in isolation would result in a significantly lower

(higher) fair value measurement.

Level 3

Mortgage servicing rights Market prices from a third party or internally developed

prices using discounted cash flows. Significant inputs

include:

Level 3

 Estimated prepayment rates,

 Estimated costs to service both performing and nonaccrual loans, and

 Estimated servicing income per loan (including 

ancillary income).
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 336

Instrument Valuation Technique Classification in the

Fair Value Hierarchy

Significant increases (decreases) in cost to service per

loan and prepayment rate in isolation would result in a

significantly lower (higher) fair value measurement.

Significant increases (decreases) in servicing income

per loan in isolation would result in a significantly

higher (lower) fair value measurement.

Other Liabilities

Guarantee

obligation

Single-family Delivery and guarantee fees that we charge under our

current market pricing

Level 2

Internal credit models. Significant inputs include loan

characteristics, loan performance and status

information.

Level 3

Multifamily Discounted cash flows. Significant inputs are similar to

those used in the valuation technique for the Multifamily

guarantee asset.

Level 3

HARP Loans

For loans that have been refinanced under HARP, we value our guarantee obligation using the guarantee 

fees currently charged by us under that initiative. HARP loans valued using this technique are classified 

as Level 2, as the fees charged by us are observable. The majority of our HARP loans are classified as 

Level 2. If, subsequent to delivery, the refinanced loan no longer qualifies for purchase based on current 

underwriting standards (such as becoming past due or being modified), the fair value of the guarantee 

obligation is then measured using our internal credit models or the median of external sources, if the 

loan’s principal market has changed to the whole loan market. HARP loans valued using either of these 

techniques are classified as Level 3 as significant inputs are unobservable. 

The total compensation that we receive for the delivery of a HARP loan reflects the pricing that we are 

willing to offer because HARP is a part of a broader government program intended to provide assistance 

to homeowners and prevent foreclosures. When HARP ends in December 2018, the beneficial pricing 

afforded to HARP loans may no longer be reflected in the pricing structure of our guarantee fees. If 

these benefits were not reflected in the pricing for these loans, the fair value of our loans would have 

decreased by $2.1 billion and $5.3 billion as of December 31, 2017 and 2016, respectively. The total fair 

value of the loans in our portfolio that reflect the pricing afforded to HARP loans as of December 31, 

2017 and 2016 was $30.2 billion and $52.8 billion, respectively.

Assets and Liabilities on Our Consolidated Balance Sheets 

Measured at Fair Value on a Recurring Basis

The following tables present our assets and liabilities measured on our consolidated balance sheets at 

fair value on a recurring basis subsequent to initial recognition, including instruments where we have 

elected the fair value option.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 337

December 31, 2017

(In millions) Level 1 Level 2 Level 3

Netting 

Adjustment(1) Total

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac $— $30,415 $5,055 $— $35,470

Other agency — 2,007 46 — 2,053

Non-agency RMBS — — 3,933 — 3,933

Non-agency CMBS — 87 1,697 — 1,784

Obligations of states and political subdivisions — — 357 — 357

Total available-for-sale securities, at fair value — 32,509 11,088 — 43,597

Trading, at fair value:

Mortgage-related securities:

Freddie Mac — 11,393 842 — 12,235

Other agency — 3,565 9 — 3,574

All other — 27 2,066 — 2,093

Total mortgage-related securities — 14,985 2,917 — 17,902

Non-mortgage-related securities 20,159 2,660 — — 22,819

Total trading securities, at fair value 20,159 17,645 2,917 — 40,721

Total investments in securities 20,159 50,154 14,005 — 84,318

Mortgage loans:

Held-for-sale, at fair value — 20,054 — — 20,054

Derivative assets, net:

Interest-rate swaps — 4,262 — — 4,262

Option-based derivatives — 4,524 — — 4,524

Other — 44 8 — 52

Subtotal, before netting adjustments — 8,830 8 — 8,838

Netting adjustments(1) — — — (8,463) (8,463)

Total derivative assets, net — 8,830 8 (8,463) 375

Other assets:

Guarantee asset, at fair value — — 3,171 — 3,171

Non-derivative held-for-sale purchase commitments, at fair value — 137 — — 137

All other, at fair value — — 45 — 45

Total other assets — 137 3,216 — 3,353

Total assets carried at fair value on a recurring basis $20,159 $79,175 $17,229 ($8,463) $108,100

Liabilities:

Debt securities of consolidated trusts held by third parties, at fair

value $— $9 $630 $— $639

Other debt, at fair value — 5,023 137 — 5,160

Derivative liabilities, net:

Interest-rate swaps — 7,239 — — 7,239

Option-based derivatives — 121 — — 121

Other — 64 65 — 129

Subtotal, before netting adjustments — 7,424 65 — 7,489

Netting adjustments(1) — — — (7,220) (7,220)

Total derivative liabilities, net — 7,424 65 (7,220) 269

Other liabilities:

Non-derivative held-for-sale purchase commitments, at fair value — 4 — — 4

Total liabilities carried at fair value on a recurring basis $— $12,460 $832 ($7,220) $6,072

Referenced footnotes are included after the next table.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 338

December 31, 2016

(In millions) Level 1 Level 2 Level 3

Netting 

Adjustment(1) Total

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac $— $33,805 $9,847 $— $43,652

Other agency — 4,155 66 — 4,221

Non-agency RMBS — — 11,797 — 11,797

Non-agency CMBS — 3,056 3,366 — 6,422

Obligations of states and political subdivisions — — 665 — 665

Total available-for-sale securities, at fair value — 41,016 25,741 — 66,757

Trading, at fair value:

Mortgage-related securities:

Freddie Mac — 14,248 1,095 — 15,343

Other agency — 8,149 12 — 8,161

All other — 36 113 — 149

Total mortgage-related securities — 22,433 1,220 — 23,653

Non-mortgage-related securities 19,402 1,735 — — 21,137

Total trading securities, at fair value 19,402 24,168 1,220 — 44,790

Total investments in securities 19,402 65,184 26,961 — 111,547

Mortgage loans:

Held-for-sale, at fair value — 16,255 — — 16,255

Derivative assets, net:

Interest-rate swaps — 6,924 — — 6,924

Option-based derivatives — 5,054 — — 5,054

Other — 287 3 — 290

Subtotal, before netting adjustments — 12,265 3 — 12,268

Netting adjustments(1) — — — (11,521) (11,521)

Total derivative assets, net — 12,265 3 (11,521) 747

Other assets:

Guarantee asset, at fair value — — 2,298 — 2,298

Non-derivative held-for-sale purchase commitments, at fair value — 108 — — 108

All other, at fair value — — 2 — 2

Total other assets — 108 2,300 — 2,408

Total assets carried at fair value on a recurring basis $19,402 $93,812 $29,264 ($11,521) $130,957

Liabilities:

Debt securities of consolidated trusts held by third parties, at fair

value $— $144 $— $— $144

Other debt, at fair value — 5,771 95 — 5,866

Derivative liabilities, net:

Interest-rate swaps — 12,387 — — 12,387

Option-based derivatives — 106 — — 106

Other — 147 52 — 199

Subtotal, before netting adjustments — 12,640 52 — 12,692

Netting adjustments(1) — — — (11,897) (11,897)

Total derivative liabilities, net — 12,640 52 (11,897) 795

Other liabilities:

Non-derivative held-for-sale purchase commitments, at fair value — 37 — — 37

Total liabilities carried at fair value on a recurring basis $— $18,592 $147 ($11,897) $6,842

(1) Represents counterparty netting, cash collateral netting and net derivative interest receivable or payable.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 339

Assets on Our Consolidated Balance Sheets Measured at Fair 

Value on a Non-recurring Basis

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis 

after our initial recognition. These adjustments usually result from the application of lower-of-cost-orfair-value accounting or measurement of impairment based on the fair value of the underlying collateral. 

The table below presents assets measured on our consolidated balance sheets at fair value on a nonrecurring basis. 

December 31,

2017 2016

(In millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Assets measured at fair value on a

non-recurring basis:

Mortgage loans(1) $— $494 $6,199 $6,693 $— $199 $2,483 $2,682

(1) Includes loans that are classified as held-for-investment and have been measured for impairment based on the fair value of the underlying 

collateral and held-for-sale loans where the fair value is below cost.

Level 3 Fair Value Measurements

The table below presents a reconciliation of all assets and liabilities measured on our consolidated 

balance sheets at fair value on a recurring basis using significant unobservable inputs (Level 3), 

including transfers into and out of Level 3 assets and liabilities. The table also presents gains and losses 

due to changes in fair value, including both realized and unrealized gains and losses, recognized in our 

consolidated statements of comprehensive income for Level 3 assets and liabilities. When assets and 

liabilities are transferred between levels, we recognize the transfer as of the beginning of the period.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 340

Year Ended December 31, 2017

Balance,

January 1,

2017

Realized and unrealized gains (losses)

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

December 31,

2017

Unrealized

gains 

(losses)

still held(3) (In millions)

Included in

earnings

Included in

other

comprehensive

income Total

Assets

Investments in securities:

Available-for-sale, at fair

value:

Mortgage-related

securities:

Freddie Mac $9,847 ($8) $81 $73 $494 $— ($932) ($1,349) $17 ($3,095) $5,055 ($18)

Other agency 66 — (1) (1) — — — (11) — (8) 46 —

Non-agency RMBS 11,797 1,564 (270) 1,294 — — (7,688) (1,470) — — 3,933 124

Non-agency CMBS 3,366 343 (98) 245 1,681 — (3,556) (39) — — 1,697 (2)

Obligations of states

and political

subdivisions 665 1 (3) (2) — — — (306) — — 357 —

Total available-for-sale

mortgage-related securities 25,741 1,900 (291) 1,609 2,175 — (12,176) (3,175) 17 (3,103) 11,088 104

Trading, at fair value:

Mortgage-related

securities:

Freddie Mac 1,095 (171) — (171) 709 — (592) (8) 14 (205) 842 (155)

Other agency 12 (3) — (3) — — — — — — 9 (3)

All other 113 35 — 35 1,946 — — (28) — — 2,066 30

Total trading mortgagerelated securities 1,220 (139) — (139) 2,655 — (592) (36) 14 (205) 2,917 (128)

Other assets:

Guarantee asset 2,298 (27) — (27) — 1,387 — (487) — — 3,171 (26)

All other, at fair value 2 (10) — (10) 33 31 (11) — — — 45 (10)

Total other assets $2,300 ($37) $— ($37) $33 $1,418 ($11) ($487) $— $— $3,216 ($36)

Balance,

January 1,

2017

Realized and unrealized (gains) losses

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

December 31,

2017

Unrealized

(gains) 

losses

still held(3)

Included in

earnings

Included in

other

comprehensive

income Total

Liabilities

Debt securities of

consolidated trusts held by

third parties, at fair value $— $— $— $— $— $630 $— $— $— $— $630 $—

Other debt, at fair value 95 — — — — 50 — (8) — — 137 —

Net derivatives(2) $52 $40 $— $40 $— ($10) $— ($25) $— $— $57 $20

Referenced footnotes are included after the next table.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 341

Year Ended December 31, 2016

Balance,

January 1,

2016

Realized and unrealized gains (losses)

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

December 31,

2016

Unrealized

gains 

(losses)

still held(3) (In millions)

Included in

earnings

Included in

other

comprehensive

income Total

Assets

Investments in securities:

Available-for-sale, at fair

value:

Mortgage-related securities:

Freddie Mac $2,608 $10 ($71) ($61) $8,894 $— ($605) ($703) $29 ($315) $9,847 ($9)

Other agency 91 — (2) (2) — — — (17) — (6) 66 —

Non-agency RMBS 20,333 877 55 932 — — (6,286) (3,182) — — 11,797 236

Non-agency CMBS 3,530 2 (132) (130) — — — (34) — — 3,366 2

Obligations of states and

political subdivisions 1,205 1 (10) (9) — — — (531) — — 665 —

Total available-for-sale

mortgage-related securities 27,767 890 (160) 730 8,894 — (6,891) (4,467) 29 (321) 25,741 229

Trading, at fair value:

Mortgage-related securities:

Freddie Mac 331 (21) — (21) 869 — (142) (3) 190 (129) 1,095 (20)

Other agency 41 — — — — — (22) (7) — — 12 (1)

All other 2 — — — 114 — — (3) — — 113 —

Total trading mortgage-related

securities 374 (21) — (21) 983 — (164) (13) 190 (129) 1,220 (21)

Other assets:

Guarantee asset 1,753 53 — 53 — 850 — (358) — — 2,298 54

All other, at fair value — (2) — (2) 14 — — — (10) — 2 (2)

Total other assets $1,753 $51 $— $51 $14 $850 $— ($358) ($10) $— $2,300 $52

Balance,

January 1,

2016

Realized and unrealized (gains) losses

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

December 31,

2016

Unrealized

(gains)

losses

still held(3)

Included in

earnings

Included in

other

comprehensive

income Total

Liabilities

Other debt, at fair value $— $— $— $— $— $95 $— $— $— $— $95 $—

Net derivatives(2) 8 68 — 68 — 2 — (26) — — 52 40

Other liabilities:

All other, at fair value $10 $— $— $— $— $— $— $— $— ($10) $— $—

(1) Transfers out of Level 3 during 2017 and 2016 consisted primarily of certain mortgage-related securities due to an increased volume and level of activity in the 

market and availability of price quotes from dealers and third-party pricing services. Certain Freddie Mac securities are classified as Level 3 at issuance and 

generally are classified as Level 2 when they begin trading. Transfers into Level 3 during 2017 and 2016 consisted primarily of certain mortgage-related securities 

due to a lack of market activity and relevant price quotes from dealers and third-party pricing services.

(2) Amounts are the net of derivative assets and liabilities prior to counterparty netting, cash collateral netting, net trade/settle receivable or payable and net derivative 

interest receivable or payable.

(3) Represents the amount of total gains or losses for the period, included in earnings, attributable to the change in unrealized gains and losses related to assets and 

liabilities classified as Level 3 that were still held at December 31, 2017 and December 31, 2016, respectively. Included in these amounts are other-than temporary 

impairments recorded on available-for-sale securities.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 342

The table below provides valuation techniques, the range and the weighted average of significant 

unobservable inputs for assets and liabilities measured on our consolidated balance sheets at fair value 

on a recurring basis using unobservable inputs (Level 3).

December 31, 2017

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(Dollars in millions, except for certain unobservable 

inputs as shown) Type Range

Weighted

Average

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Freddie Mac $4,873 Discounted cash flows OAS 27 - 501 bps 68 bps

182 Other

Total Freddie Mac 5,055

Other agency 46 Other

Non-agency RMBS 3,665

Median of external

sources

External pricing

sources $75.6 - $80.8 $77.7

268 Other

Total non-agency RMBS 3,933

Non-agency CMBS 1,696 Single external source

External pricing

sources $108.4 - $108.9 $108.7

1 Other

Total non-agency CMBS 1,697

Obligations of states and political subdivisions 334

Median of external

sources

External pricing

sources $101.2 - $101.6 $101.4

23 Other

Total obligations of states and political

subdivisions 357

Total available-for-sale mortgage-related

securities 11,088

Trading, at fair value

Mortgage-related securities

Freddie Mac 582 Discounted cash flows OAS (8,905) - 27,202 bps (88) bps

243 Risk metrics Effective duration 0.00 - 55.93 years 11.76 years

17 Other

Total Freddie Mac 842

Other agency 9 Other

All other 2,065 Single external source

External pricing

sources $6.4 - $113.2 $98.0

1 Other

Total all other 2,066

Total trading mortgage-related securities 2,917

Total investments in securities $14,005

Other assets:

Guarantee asset, at fair value $3,171 Discounted cash flows OAS 17 - 198 bps 45 bps

All other at fair value 45 Other

Total other assets 3,216

Liabilities

Debt securities of consolidated trusts held by third

parties, at fair value 630 Single External Source

External Pricing

Sources $99.2 - $100.2 $100.1

Other debt, at fair value 137 Other

Net derivatives 57 Other
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 343

December 31, 2016

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(Dollars in millions, except for certain unobservable inputs 

as shown) Type Range

Weighted

Average

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Freddie Mac $7,619 Discounted cash flows OAS (146) - 500 bps 91 bps

129

Median of external

sources

External pricing

sources $100.8 - $103.3 $101.8

2,099 Other

Total Freddie Mac 9,847

Other agency 66 Other

Non-agency RMBS 9,974

Median of external

sources

External pricing

sources $74.0 - $78.8 $76.0

1,823 Other

Total non-agency RMBS 11,797

Non-agency CMBS 3,365 Risk metrics Effective duration 2.15 - 10.02 years 8.57 years

1 Other

Total non-agency CMBS 3,366

Obligations of states and political subdivisions 619

Median of external

sources

External pricing

sources $100.9 - $101.5 $101.2

46 Other

Total obligations of states and political

subdivisions 665

Total available-for-sale mortgage-related

securities 25,741

Trading, at fair value

Mortgage-related securities

Freddie Mac 452 Risk metrics Effective duration (5.07) - 46.37 years 6.94 years

311 Discounted cash flows OAS (3,346) - 2,460 bps (224) bps

332 Other

Total Freddie Mac 1,095

Other agency 12 Other

All other 113 Risk metrics Effective duration 0.14 - 4.08 years 2.52 years

Total trading mortgage-related securities 1,220

Total investments in securities $26,961

Other assets

Guarantee asset, at fair value $2,091 Discounted cash flows OAS 17 - 198 bps 50 bps

207 Other

Total guarantee asset, at fair value 2,298

All other at fair value 2 Other

Total other assets 2,300

Liabilities

Other debt, at fair value 95 Other

Net derivatives 49 Other
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 344

The table below provides valuation techniques, the range and the weighted average of significant 

unobservable inputs for assets and liabilities measured on our consolidated balance sheets at fair value 

on a non-recurring basis using unobservable inputs (Level 3). Certain of the fair values in the table below 

were not obtained as of the period end, but were obtained during the period.

December 31, 2017

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(Dollars in millions, except 

for certain unobservable 

inputs as shown) Type Range

Weighted

Average

Non-recurring fair value

measurements

Mortgage loans $6,199

Internal model Historical sales proceeds $3,000 - $899,000 $176,558

Internal model Housing sales index 43 - 394 bps 102 bps

Median of external sources External pricing sources $36.5 - $94.9 $80.9

December 31, 2016

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(Dollars in millions, except 

for certain unobservable 

inputs as shown) Type Range

Weighted

Average

Non-recurring fair value

measurements

Mortgage loans $2,483

Internal model Historical sales proceeds $3,000 - $770,000 $167,137

Internal model Housing sales index 42 - 374 bps 96 bps

Median of external sources External pricing sources $37.0 - $94.3 $75.0
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 345

Fair Value of Financial Instruments

The table below presents the carrying value and estimated fair value of our financial instruments. For 

certain types of financial instruments, such as cash and cash equivalents, restricted cash and cash 

equivalents, securities purchased under agreements to resell, advances to lenders and certain other 

debt, the carrying value on our GAAP balance sheets approximates fair value, as these assets are shortterm in nature and have limited market value volatility.

December 31, 2017

GAAP

Carrying 

Amount

Fair Value

(In millions) Level 1 Level 2 Level 3

Netting 

Adjustments(1) Total

Financial Assets

Cash and cash 

equivalents $6,848 $6,848 $— $— $— $6,848

Restricted cash and cash equivalents 2,963 2,963 — — — 2,963

Securities purchased under agreements to resell 55,903 — 55,903 — — 55,903

Investments in securities:

Available-for-sale, at fair value 43,597 — 32,509 11,088 — 43,597

Trading, at fair value 40,721 20,159 17,645 2,917 — 40,721

Total investments in securities 84,318 20,159 50,154 14,005 — 84,318

Mortgage loans:

Loans held by consolidated trusts 1,774,286 — 1,635,137 145,911 — 1,781,048

Loans held by Freddie Mac 96,931 — 32,169 67,932 — 100,101

Total mortgage loans 1,871,217 — 1,667,306 213,843 — 1,881,149

Derivative assets, net 375 — 8,830 8 (8,463) 375

Guarantee asset 3,171 — — 3,359 — 3,359

Non-derivative purchase commitments 137 — 137 55 — 192

Advances to lenders and other secured lending 1,269 — 473 796 — 1,269

Total financial assets $2,026,201 $29,970 $1,782,803 $232,066 ($8,463) $2,036,376

Financial Liabilities

Debt, net:

Debt securities of consolidated trusts 

held by third parties $1,720,996 $— $1,721,091 $2,679 $— $1,723,770

Other debt 313,634 — 313,688 3,892 — 317,580

Total debt, net 2,034,630 — 2,034,779 6,571 — 2,041,350

Derivative liabilities, net 269 — 7,424 65 (7,220) 269

Guarantee obligation 3,081 — — 3,742 — 3,742

Non-derivative purchase commitments 4 — 4 15 — 19

Total financial liabilities $2,037,984 $— $2,042,207 $10,393 ($7,220) $2,045,380

Referenced footnotes are included after the next table.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 346

December 31, 2016

GAAP

Carrying

Amount

Fair Value

(In millions) Level 1 Level 2 Level 3

Netting 

Adjustments(1) Total

Financial Assets

Cash and cash equivalents $12,369 $12,369 $— $— $— $12,369

Restricted cash and cash equivalents 9,851 9,851 — — — 9,851

Securities purchased under agreements to resell 51,548 — 51,548 — — 51,548

Investments in securities:

Available-for-sale, at fair value 66,757 — 41,016 25,741 — 66,757

Trading, at fair value 44,790 19,402 24,168 1,220 — 44,790

Total investments in securities 111,547 19,402 65,184 26,961 — 111,547

Mortgage loans:

Loans held by consolidated trusts 1,690,218 — 1,554,143 142,121 — 1,696,264

Loans held by Freddie Mac 112,785 — 31,004 84,227 — 115,231

Total mortgage loans 1,803,003 — 1,585,147 226,348 — 1,811,495

Derivative assets, net 747 — 12,265 3 (11,521) 747

Guarantee asset 2,298 — — 2,490 — 2,490

Non-derivative purchase commitments 108 108 18 — 126

Advances to lenders and other secured lending 1,278 — — 1,278 — 1,278

Total financial assets $1,992,749 $41,622 $1,714,252 $257,098 ($11,521) $2,001,451

Financial Liabilities

Debt, net:

Debt securities of consolidated trusts 

held by third parties $1,648,683 $— $1,651,313 $605 $— $1,651,918

Other debt 353,321 — 352,837 4,809 — 357,646

Total debt, net 2,002,004 — 2,004,150 5,414 — 2,009,564

Derivative liabilities, net 795 — 12,640 52 (11,897) 795

Guarantee obligation 2,208 — — 3,399 — 3,399

Non-derivative purchase commitments 37 — 37 45 — 82

Total financial liabilities $2,005,044 $— $2,016,827 $8,910 ($11,897) $2,013,840

(1) Represents counterparty netting, cash collateral netting and net derivative interest receivable or payable.

Fair Value Option

We elected the fair value option for certain types of investments in securities, multifamily held-for-sale 

loans, certain multifamily held-for-sale loan purchase commitments and certain debt.

Investments in Securities

We elected the fair value option for certain mortgage-related securities that contained embedded 

derivatives, including investments in securities that can contractually be prepaid or otherwise settled in 

such a way that we may not recover substantially all of our initial recorded investment, or are not of high 

credit quality at the acquisition date and are identified as within the scope of the accounting guidance 

for investments in beneficial interests in securitized financial assets. These securities are classified as 

trading securities. By electing the fair value option for these instruments, we reflect valuation changes 

through our consolidated statements of comprehensive income in the period they occur. In addition, 

upon adoption of the accounting guidance for the fair value option, we elected this option for securities 
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 347

within the scope of the accounting guidance for investments in beneficial interests in securitized 

financial assets to better reflect any valuation changes that would occur subsequent to impairment 

write-downs previously recorded on these instruments. 

Interest income is recognized using the prospective effective interest method. We recognize as interest 

income (over the life of these securities) the excess of all estimated cash flows attributable to these 

interests over their book value using the effective interest method. We update our estimates of expected 

cash flows periodically and recognize changes in the calculated effective interest rate on a prospective 

basis. For information regarding the net unrealized gains (losses) on trading securities, which include 

gains (losses) for other items that are not selected for the fair value option, see Gains (losses) on trading 

securities within the reconciliation of Segment Earnings to GAAP results in Note 13.

Multifamily Held-For-Sale Loans

We elected the fair value option for multifamily loan purchase commitments and the related loans that 

were acquired for securitization. We use derivatives to economically hedge the interest rate-related fair 

value changes of the multifamily commitments and loans for which we have elected the fair value 

option. These loans are classified as held-for-sale loans on our consolidated balance sheets to reflect 

our intent to sell in the future and are measured at fair value on a recurring basis, with subsequent gains 

or losses related to changes in fair value (net of accrued interest income) reported in other income in our 

consolidated statements of comprehensive income. We elected to report separately the portion of the 

changes in fair value of the loans related to accrued interest from the remaining changes in fair value. 

Related interest income continues to be reported, based on the stated terms of the loans, as interest 

income in our consolidated statements of comprehensive income. 

Debt Securities of Consolidated Trusts Held by Third Parties and Other Debt

We elected the fair value option on debt that contains embedded derivatives, primarily certain STACR 

debt notes. Fair value changes are recorded in other income in our consolidated statements of 

comprehensive income. For debt where we have elected the fair value option, upfront costs and fees are 

recognized in earnings as incurred and not deferred. Related interest expense continues to be reported 

as interest expense based on the stated terms of the debt securities. 

The table below presents the fair value and UPB related to certain items for which we have elected the 

fair value option.

December 31,

2017 2016

(In millions)

Multifamily

Held-For-Sale

 Loans

Other Debt -

Long Term

Debt securities of 

consolidated 

trusts held by 

third parties (1)

Multifamily

Held-For-Sale

 Loans

Other Debt -

Long Term

Debt securities of 

consolidated 

trusts held by 

third parties (1)

Fair value $20,054 $5,160 $630 $16,255 $5,866 $—

Unpaid principal

balance 19,762 4,666 630 16,231 5,584 —

Difference $292 $494 $— $24 $282 $—

(1) Does not include interest-only securities with fair value of $9 million and $144 million as of December 31, 2017 and December 31, 2016, respectively.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

FREDDIE MAC | 2017 Form 10-K 348

Changes in Fair Value Under the Fair Value Option Election

We recorded gains (losses) of $2 million, $250 million and ($38) million for the years ended 

December 31, 2017, 2016 and 2015, respectively, from the change in fair value on multifamily held-forsale loans recorded at fair value in other income in our consolidated statements of comprehensive 

income.

We recorded gains of $1.1 billion and $663 million for the year ended December 31, 2017 and 2016, 

respectively, from the change in fair value of multifamily held-for-sale loan purchase commitments 

recorded at fair value in other income in our consolidated statements of comprehensive income. We 

elected the fair value option for these commitments in 2016.

Gains (losses) on debt securities with the fair value option elected were ($190) million, $63 million and 

($9) million for the years ended December 31, 2017, 2016 and 2015, respectively, and were recorded in 

other income in our consolidated statements of comprehensive income.

Changes in fair value attributable to instrument-specific credit risk were not material for the years ended 

December 31, 2017, 2016 or 2015 for any assets or liabilities for which we elected the fair value option.
Financial Statements Notes to the Consolidated Financial Statements | Note 16

FREDDIE MAC | 2017 Form 10-K 349

NOTE 16

Legal Contingencies

We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in 

the ordinary course of business including, among other things, contractual disputes, personal injury 

claims, employment-related litigation and other legal proceedings incidental to our business. We are 

frequently involved, directly or indirectly, in litigation involving mortgage foreclosures. From time to time, 

we are also involved in proceedings arising from our termination of a seller's or servicer’s eligibility to sell 

loans to, and/or service loans for, us. In these cases, the former seller or 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 loans. These suits typically involve 

claims alleging wrongful actions of sellers and servicers. Our contracts with our sellers and servicers 

generally provide for indemnification of Freddie Mac against liability arising from sellers' and servicers' 

wrongful actions with respect to loans sold to or serviced for Freddie Mac.

Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate 

prediction. In accordance with the accounting guidance for contingencies, we reserve for litigation 

claims and assessments asserted or threatened against us when a loss is probable (as defined in such 

guidance) and the amount of the loss can be reasonably estimated.

Putative Securities Class Action Lawsuit: Ohio Public Employees 

Retirement System vs. Freddie Mac, Syron, Et Al.

This putative securities class action lawsuit was filed against Freddie Mac and certain former officers on 

January 18, 2008 in the U.S. District Court for the Northern District of Ohio purportedly on behalf of a 

class of purchasers of Freddie Mac stock from August 1, 2006 through November 20, 2007. FHFA later 

intervened as Conservator, and the plaintiff amended its complaint on several occasions. The plaintiff 

alleged, among other things, that the defendants violated federal securities laws by making false and 

misleading statements concerning our business, risk management, and the procedures we put into 

place to protect the company from problems in the mortgage industry. The plaintiff seeks unspecified 

damages and interest, and reasonable costs and expenses, including attorney and expert fees.

In October 2013, defendants filed motions to dismiss the complaint. In October 2014, the District Court 

granted defendants’ motions and dismissed the case in its entirety against all defendants, with 

prejudice. In November 2014, plaintiff filed a notice of appeal in the U.S. Court of Appeals for the Sixth 

Circuit. On July 20, 2016, the Court of Appeals reversed the District Court's dismissal and remanded the 

case to the District Court for further proceedings.

At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect 

on our business, financial condition, liquidity, or results of operations. In addition, we are unable to 

reasonably estimate the possible loss or range of possible loss in the event of an adverse judgment in 

the foregoing matter due to the following factors, among others: the inherent uncertainty of pre-trial 

litigation and the fact that the District Court has not yet ruled upon motions for class certification or 

summary judgment. In particular, absent the certification of a class, the identification of a class period, 
Financial Statements Notes to the Consolidated Financial Statements | Note 16

FREDDIE MAC | 2017 Form 10-K 350

and the identification of the alleged statement or statements that survive dispositive motions, we cannot 

reasonably estimate any possible loss or range of possible loss.

LIBOR Lawsuit

On March 14, 2013, Freddie Mac filed a lawsuit in the U.S. District Court for the Eastern District of 

Virginia against the British Bankers Association and the 16 U.S. Dollar LIBOR panel banks and a number 

of their affiliates. The case was subsequently transferred to the U.S. District Court for the Southern 

District of New York. The complaint alleges, among other things, that the defendants fraudulently and 

collusively depressed LIBOR, a benchmark interest rate indexed to trillions of dollars of financial 

products, and asserts claims for antitrust violations, breach of contract, tortious interference with 

contract and fraud. Freddie Mac filed an amended complaint in July 2013, and a second amended 

complaint in October 2014. In August 2015, the District Court dismissed the portion of our claim related 

to antitrust violations and fraud and we filed a motion for reconsideration. On March 31, 2016, the 

District Court granted a portion of our motion, finding personal jurisdiction over certain defendants, and 

denied the portion of our motion with respect to statutes of limitation for our fraud claims. Subsequently, 

in a related case, the U.S. Court of Appeals for the Second Circuit reversed the District Court’s dismissal 

of certain plaintiffs’ antitrust claims and remanded the case to the District Court for consideration of 

whether, among other things, the plaintiffs are "efficient enforcers" of the antitrust laws. 

On December 20, 2016, after briefing and argument on the defendants' renewed motions to dismiss on 

personal jurisdiction and efficient enforcer grounds, the District Court denied defendants' motions in 

part and granted them in part. The District Court held that Freddie Mac is an efficient enforcer of the 

antitrust laws, but dismissed on personal jurisdiction grounds Freddie Mac's antitrust claims against all 

defendants except HSBC USA, N.A. Then, in an order issued February 2, 2017, the District Court 

effectively dismissed Freddie Mac's remaining antitrust claim against HSBC USA, N.A. At present, 

Freddie Mac's breach of contract actions against Bank of America, N.A., Barclays Bank, Citibank, N.A., 

Credit Suisse, Deutsche Bank, Royal Bank of Scotland and UBS AG are its only claims remaining in the 

District Court.

Litigation Concerning the Purchase Agreement

Since July 2013, a number of lawsuits have been filed against us concerning the August 2012 

amendment to the Purchase Agreement, which created the net worth sweep dividend provisions of the 

senior preferred stock. The plaintiffs in the lawsuits allege that they are holders of common stock and/or 

junior preferred stock issued by Freddie Mac and Fannie Mae. (For purposes of this discussion, junior 

preferred stock refers to the various series of preferred stock of Freddie Mac and Fannie Mae other than 

the senior preferred stock issued to Treasury.) It is possible that similar lawsuits will be filed in the future. 

The lawsuits against us are described below.

Litigation in the U.S. District Court for the District of Columbia

In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action 

Litigations. This case is the result of the consolidation of three putative class action lawsuits: 

Cacciapelle and Bareiss vs. Federal National Mortgage Association, Federal Home Loan Mortgage 
Financial Statements Notes to the Consolidated Financial Statements | Note 16

FREDDIE MAC | 2017 Form 10-K 351

Corporation and FHFA, filed on July 29, 2013; American European Insurance Company vs. Federal 

National Mortgage Association, Federal Home Loan Mortgage Corporation and FHFA, filed on July 30, 

2013; and Marneu Holdings, Co. vs. FHFA, Treasury, Federal National Mortgage Association and Federal 

Home Loan Mortgage Corporation, filed on September 18, 2013. (The Marneu case was also filed as a 

shareholder derivative lawsuit.) A consolidated amended complaint was filed in December 2013. In the 

consolidated amended complaint, plaintiffs allege, among other items, that the August 2012 amendment 

to the Purchase Agreement breached Freddie Mac's and Fannie Mae's respective contracts with the 

holders of junior preferred stock and common stock and the covenant of good faith and fair dealing 

inherent in such contracts. Plaintiffs sought unspecified damages, equitable and injunctive relief, and 

costs and expenses, including attorney and expert fees. 

The Cacciapelle and American European Insurance Company lawsuits were filed purportedly on behalf 

of a class of purchasers of junior preferred stock issued by Freddie Mac or Fannie Mae who held stock 

prior to, and as of, August 17, 2012. The Marneu lawsuit was filed purportedly on behalf of a class of 

purchasers of junior preferred stock and purchasers of common stock issued by Freddie Mac or Fannie 

Mae over a not-yet-defined period of time. 

Arrowood Indemnity Company vs. Federal National Mortgage Association, Federal Home 

Loan Mortgage Corporation, FHFA and Treasury. This case was filed on September 20, 2013. The 

allegations and demands made by plaintiffs in this case were generally similar to those made by the 

plaintiffs in the In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action 

Litigations case described above. Plaintiffs in the Arrowood lawsuit also requested that, if injunctive 

relief were not granted, the Arrowood plaintiffs be awarded damages against the defendants in an 

amount to be determined including, but not limited to, the aggregate par value of their junior preferred 

stock, the total of which they stated to be approximately $42 million. 

American European Insurance Company, Cacciapalle and Miller vs. Treasury and FHFA. This 

case was filed as a shareholder derivative lawsuit, purportedly on behalf of Freddie Mac as a "nominal" 

defendant, on July 30, 2014. The complaint alleged that, through the August 2012 amendment to the 

Purchase Agreement, Treasury and FHFA breached their respective fiduciary duties to Freddie Mac, 

causing Freddie Mac to suffer damages. The plaintiffs asked that Freddie Mac be awarded 

compensatory damages and disgorgement, as well as attorneys’ fees, costs and other expenses. 

FHFA, joined by Freddie Mac and Fannie Mae, moved to dismiss the In re Fannie Mae/Freddie Mac 

Senior Preferred Stock Purchase Agreement Class Action Litigations case and the other related cases in 

January 2014. Treasury filed a motion to dismiss the same day. In September 2014, the District Court 

granted the motions and dismissed the plaintiffs’ claims. All plaintiffs appealed that decision, and on 

February 21, 2017, the U.S. Court of Appeals for the District of Columbia Circuit affirmed in part and 

remanded in part the decision granting the motions to dismiss. The Court of Appeals affirmed dismissal 

of all claims except certain claims seeking monetary damages for breach of contract and breach of 

implied duty of good faith and fair dealing. In March 2017, certain institutional and class plaintiffs filed 

petitions for panel rehearing with respect to certain claims. On July 17, 2017, the Court of Appeals 

granted the petitions for rehearing and issued a modified decision, which permitted the institutional 

plaintiffs to pursue the breach of contract and breach of implied duty of good faith and fair dealing 

claims that had been remanded. The Court of Appeals also removed language related to the standard to 

be applied to the implied duty claims, leaving that issue for the District Court to determine on remand. 

On October 16, 2017, certain institutional and class plaintiffs filed petitions for writ of certiorari in the 
Financial Statements Notes to the Consolidated Financial Statements | Note 16

FREDDIE MAC | 2017 Form 10-K 352

U.S. Supreme Court challenging whether HERA's prohibition on injunctive relief against FHFA bars 

judicial review of the net worth sweep dividend provisions of the August 2012 amendment to the 

Purchase Agreement, as well as whether HERA bars shareholders from pursuing derivative litigation 

where they allege the conservator faces a conflict of interest. The Solicitor General has opposed the 

petitions. On November 1, 2017, certain institutional and class plaintiffs and plaintiffs in another case in 

which Freddie Mac was not originally a defendant, Fairholme Funds, Inc. v. FHFA, Treasury, and Federal 

National Mortgage Association, filed proposed amended complaints in the District Court. Each of the 

proposed amended complaints names Freddie Mac as a defendant for breach of contract and breach of 

the covenant of good faith and fair dealing claims as well as for new claims alleging breach of fiduciary 

duty and breach of Virginia corporate law. On January 10, 2018, FHFA, Freddie Mac, and Fannie Mae 

moved to dismiss the amended complaints.

Litigation in the U.S. Court of Federal Claims

Reid and Fisher vs. the United States of America and Federal Home Loan Mortgage Corporation.

This case was filed as a derivative lawsuit, purportedly on behalf of Freddie Mac as a "nominal" 

defendant, on February 26, 2014. The complaint alleges, among other items, that the net worth sweep 

dividend provisions of the senior preferred stock constitute an unlawful taking of private property for 

public use without just compensation. The plaintiffs ask that Freddie Mac be awarded just 

compensation for the U.S. government’s alleged taking of its property, attorneys’ fees, costs and other 

expenses.

Rafter, Rattien and Pershing Square Capital Management vs. the United States of America et 

al. This case was filed as a shareholder derivative lawsuit, purportedly on behalf of Freddie Mac as a 

"nominal" defendant, on August 14, 2014. The complaint alleges that the net worth sweep dividend 

provisions of the senior preferred stock constitute an unlawful taking of private property for public use 

without just compensation, and the U.S government breached an implied-in-fact contract with Freddie 

Mac. In September 2015, plaintiffs filed an amended complaint, which contains one claim involving 

Freddie Mac. The amended complaint alleges that Freddie Mac’s charter is a contract with its common 

stockholders, and that, through the August 2012 amendment to the Purchase Agreement, the U.S. 

government breached the implied covenant of good faith and fair dealing inherent in such contract. 

Plaintiffs ask that they be awarded damages or other appropriate relief for the alleged breach of contract 

as well as attorneys’ fees, costs and expenses.

Litigation in the U.S. District Court for the District of Delaware

Jacobs and Hindes vs. FHFA and Treasury.This case was filed on August 17, 2015 as a putative class 

action lawsuit purportedly on behalf of a class of holders of preferred stock or common stock issued by 

Freddie Mac or Fannie Mae. The case was also filed as a shareholder derivative lawsuit, purportedly on 

behalf of Freddie Mac and Fannie Mae as "nominal" defendants. The complaint alleges, among other 

items, that the August 2012 amendment to the Purchase Agreement violated applicable state law and 

constituted a breach of contract, as well as a breach of covenants of good faith and fair dealing. 

Plaintiffs seek equitable and injunctive relief (including restitution of the monies paid by Freddie Mac and 

Fannie Mae to Treasury under the net worth sweep dividend), compensatory damages, attorneys’ fees, 

costs and expenses. On November 27, 2017, the Court dismissed the case with prejudice after 
Financial Statements Notes to the Consolidated Financial Statements | Note 16

FREDDIE MAC | 2017 Form 10-K 353

defendants filed a motion to dismiss. On December 21, 2017, plaintiffs filed a notice of appeal to the 

U.S. Court of Appeals for the Third Circuit.

At present, it is not possible for us to predict the probable outcome of the lawsuits discussed above in 

the U.S. District Courts and the U.S. Court of Federal Claims (including the outcome of any appeal) or 

any potential effect on our business, financial condition, liquidity, or results of operations. In addition, we 

are unable to reasonably estimate the possible loss or range of possible loss in the event of an adverse 

judgment in the foregoing matters due to a number of factors, including the inherent uncertainty of pretrial litigation. In addition, with respect to the In re Fannie Mae/Freddie Mac Senior Preferred Stock 

Purchase Agreement Class Action Litigations case, the plaintiffs have not demanded a stated amount of 

damages they believe are due, and the Court has not certified a class.
Financial Statements Notes to the Consolidated Financial Statements | Note 17

FREDDIE MAC | 2017 Form 10-K 354

NOTE 17

Regulatory Capital

In October 2008, FHFA announced that it was suspending capital classification of us during 

conservatorship in light of the Purchase Agreement. FHFA continues to monitor our capital levels, but 

the existing statutory and FHFA regulatory capital requirements are not binding during conservatorship. 

We continue to provide quarterly submissions to FHFA on minimum capital.

During 2017, we and Fannie Mae worked with FHFA to develop an overall risk measurement framework 

for evaluating our risk management and business decisions during conservatorship, known as the 

Conservatorship Capital Framework ("CCF"). We use both CCF and our internal capital methodologies, 

which are aligned, to measure risk for making economically effective decisions. We are required to 

submit quarterly reports to FHFA related to CCF requirements. 

Regulatory Capital Standards

The GSE Act established minimum, critical, and risk-based capital standards for us. However, per 

guidance received from FHFA, we no longer are required to submit risk-based capital reports to FHFA.

Prior to our entry into conservatorship, those standards determined the amounts of core capital that we 

were to maintain to meet regulatory capital requirements. Core capital consisted of the par value of 

outstanding common stock (common stock issued less common stock held in treasury), the par value of 

outstanding non-cumulative, perpetual preferred stock, additional paid-in capital and retained earnings 

(accumulated deficit), as determined in accordance with GAAP.

Minimum Capital

The minimum capital standard required us to hold an amount of core capital that was generally equal to 

the sum of 2.50% of aggregate on-balance sheet assets and approximately 0.45% of the sum of our 

PCs held by third parties and other aggregate off-balance sheet obligations.

Pursuant to regulatory guidance from FHFA, our minimum capital requirement was not affected by 

adoption of amendments to the accounting guidance for transfers of financial assets and consolidation 

of VIEs effective January 1, 2010. Specifically, upon adoption of these amendments, FHFA directed us, 

for purposes of minimum capital, to continue reporting single-family PCs and certain other securitization 

products held by third parties using a 0.45% capital requirement. FHFA reserves the authority under the 

GSE Act to raise the minimum capital requirement for any of our assets or activities.

Critical Capital

The critical capital standard required us to hold an amount of core capital that was generally equal to the 

sum of 1.25% of aggregate on-balance sheet assets and approximately 0.25% of the sum of our PCs 

held by third parties and other aggregate off-balance sheet obligations.
Financial Statements Notes to the Consolidated Financial Statements | Note 17

FREDDIE MAC | 2017 Form 10-K 355

Performance Against Regulatory Capital Standards

The table below summarizes our minimum capital requirements and deficits and net worth.

(In millions) December 31, 2017 December 31, 2016

GAAP net worth (deficit) ($312) $5,075

Core capital (deficit)(1)(2) (73,037) (67,717)

Less: Minimum capital requirement(1) 18,431 18,933

Minimum capital surplus (deficit)(1) ($91,468) ($86,650)

(1) Core capital and minimum capital figures are estimates and represent amounts submitted to FHFA. FHFA is the authoritative source for our regulatory capital.

(2) Core capital excludes certain components of GAAP total equity (i.e., AOCI and the liquidation preference of the senior preferred stock) as these items do not meet the 

statutory definition of core capital.

The Purchase Agreement provides that, if FHFA determines as of quarter end that our liabilities have 

exceeded our assets under GAAP, Treasury will contribute funds to us in an amount at least equal to the 

difference between such liabilities and assets.

Under the GSE Act, FHFA must place us into receivership if FHFA determines that our assets are and 

have been less than our obligations for a period of 60 days. FHFA has notified us that the measurement 

period for any mandatory receivership determination with respect to our assets and obligations would 

commence no earlier than the SEC public filing deadline for our quarterly or annual financial statements 

and would continue for 60 calendar days after that date. FHFA has advised us that, if, during that 60-day 

period, we receive funds from Treasury in an amount at least equal to the deficiency amount under the 

Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination. If 

funding has been requested under the Purchase Agreement to address a deficit in our net worth, and 

Treasury is unable to provide us with such funding within the 60-day period specified by FHFA, FHFA 

would be required to place us into receivership if our assets remain less than our obligations during that 

60-day period.

At December 31, 2017, our liabilities exceeded our assets under GAAP by $312 million. As a result, 

FHFA, as Conservator, will submit a draw request, on our behalf, to Treasury under the Purchase 

Agreement to eliminate our net worth deficit. As of December 31, 2017, our aggregate funding received 

from Treasury under the Purchase Agreement was $71.3 billion. This aggregate funding amount does not 

include the initial $1.0 billion liquidation preference of senior preferred stock that we issued to Treasury 

in September 2008 as an initial commitment fee and for which no cash was received, nor does it include 

the additional $3.0 billion increase in the liquidation preference pursuant to the Letter Agreement.

Subordinated Debt Commitment

In October 2000, we announced our adoption of a series of commitments designed to enhance market 

discipline, liquidity, and capital. In September 2005, we entered into a written agreement with FHFA that 

updated those commitments and set forth a process for implementing them. FHFA, as Conservator, has 

suspended the requirements in the September 2005 agreement with respect to issuance, maintenance, 

and reporting and disclosure of Freddie Mac subordinated debt during the term of conservatorship and 

thereafter until instructed otherwise.
Financial Statements Notes to the Consolidated Financial Statements | Note 18

FREDDIE MAC | 2017 Form 10-K 356

NOTE 18

Selected Financial Statement Line Items

The table below presents the significant components of other income (loss) and other expense on our 

consolidated statements of comprehensive income.

Year Ended December 31,

(In millions) 2017 2016 2015

Other income (loss)

Non-agency mortgage-related securities settlements $4,532 $— $65

Gains (losses) on held-for-sale loan purchase commitments 1,098 663 —

Gains (losses) on loans 928 (463) (2,094)

All other 922 1,054 1,150

Total other income (loss) $7,480 $1,254 ($879)

Other expense

Property tax and insurance expense on held-for-sale loans $45 ($90) ($1,094)

All other (693) (509) (412)

Total other expense ($648) ($599) ($1,506)

The table below presents the significant components of other assets and other liabilities on our 

consolidated balance sheets.

As of December 31,

(In millions) 2017 2016

Other assets

Real estate owned, net $892 $1,198

Accounts and other receivables(1) 7,397 5,083

Guarantee asset 3,171 2,298

Fixed assets 798 630

Advances to lenders 796 1,278

All other 636 1,871

Total other assets $13,690 $12,358

Other liabilities

Servicer liabilities $628 $730

Guarantee obligation 3,081 2,208

Accounts payable and accrued expenses 754 957

Payables related to securities 2,813 4,510

Income taxes payable 656 —

All other 1,036 1,082

Total other liabilities $8,968 $9,487

(1) Primarily consists of servicer receivables and other non-interest receivables.

END OF CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
Financial Statements Quarterly Selected Financial Data

FREDDIE MAC | 2017 Form 10-K 357

QUARTERLY SELECTED FINANCIAL DATA

(UNAUDITED)

2017

(In millions, except share-related amounts) 1Q 2Q 3Q 4Q Full-Year

Net interest income $3,795 $3,379 $3,489 $3,501 $14,164

Benefit (provision) for credit losses 116 422 (716) 262 84

Non-interest income (loss):

Derivative gains (losses) (302) (1,096) (678) 88 (1,988)

Net impairments of available-for-sale securities recognized in

earnings (13) (3) (1) (1) (18)

Other non-interest income (loss) 689 805 6,153 1,228 8,875

Non-interest income (loss) 374 (294) 5,474 1,315 6,869

Non-interest expense:

Administrative expense (511) (513) (524) (558) (2,106)

REO operations income (expense) (56) (37) (35) (61) (189)

Temporary Payroll Tax Cut Continuation Act of 2011 expense (321) (330) (339) (350) (1,340)

Other non-interest expense (76) (126) (159) (287) (648)

Non-interest expense (964) (1,006) (1,057) (1,256) (4,283)

Income tax (expense) benefit (1,110) (837) (2,519) (6,743) (11,209)

Net income (loss) 2,211 1,664 4,671 (2,921) 5,625

Total other comprehensive income (loss), net of taxes 23 322 (21) (391) (67)

Comprehensive income (loss) $2,234 $1,986 $4,650 ($3,312) $5,558

Income (loss) attributable to common stockholders ($23) ($322) $21 ($2,920) ($3,244)

Income (loss) per common share – basic and diluted(1) ($0.01) ($0.10) $0.01 ($0.90) ($1.00)

2016

 (In millions, except share-related amounts) 1Q 2Q 3Q 4Q Full-Year

Net interest income $3,405 $3,443 $3,646 $3,885 $14,379

Benefit (provision) for credit losses 467 775 (113) (326) 803

Non-interest income (loss):

Derivative gains (losses) (4,561) (2,058) (36) 6,381 (274)

Net impairments of available-for-sale securities recognized in

earnings (57) (72) (9) (53) (191)

Other non-interest income (loss) 1,195 306 822 (1,358) 965

Non-interest income (loss) (3,423) (1,824) 777 4,970 500

Non-interest expense:

Administrative expenses (448) (475) (498) (584) (2,005)

REO operations income (expense) (84) (29) (56) (118) (287)

Temporary Payroll Tax Cut Continuation Act of 2011 expense (272) (280) (293) (307) (1,152)

Other non-interest expense (153) (151) (138) (157) (599)

Non-interest expense (957) (935) (985) (1,166) (4,043)

Income tax (expense) benefit 154 (466) (996) (2,516) (3,824)

Net income (loss) (354) 993 2,329 4,847 7,815

Total other comprehensive income (loss), net of taxes 154 140 (19) (972) (697)

Comprehensive income (loss) ($200) $1,133 $2,310 $3,875 $7,118

Income (loss) attributable to common stockholders ($354) $60 $19 $372 $97

Income (loss) per common share – basic and diluted(1) ($0.11) $0.02 $0.01 $0.11 $0.03

(1) Earnings (loss) per common share is computed independently for each of the quarters presented. Due to the use of weighted average common 

shares outstanding when calculating earnings (loss) per share, the sum of the four quarters may not equal the full-year amount. Earnings (loss) 

per common share amounts may not recalculate using the amounts shown in this table due to rounding.
Controls and Procedures

FREDDIE MAC | 2017 Form 10-K 358

Controls and Procedures

MANAGEMENT'S REPORT ON INTERNAL 

CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial 

reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial 

reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief 

Financial Officer and effected by the Board of Directors, management and other personnel to provide 

reasonable assurance regarding the reliability of our financial reporting and the preparation of financial 

statements for external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect 

misstatements. It is a process that involves human diligence and compliance and is, therefore, subject 

to lapses in judgment and breakdowns resulting from human error. It also can be circumvented by 

collusion or improper management override. Because of its limitations, there is a risk that internal control 

over financial reporting may not prevent or detect, on a timely basis, errors that could cause a material 

misstatement of the financial statements.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. 

In making our assessment, we used the criteria set forth by the Committee of Sponsoring Organizations 

of the Treadway Commission, or COSO, in Internal Control — Integrated Framework (2013 Framework). 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial 

reporting, such that there is a reasonable possibility that a material misstatement of the company’s 

annual or interim financial statements will not be prevented or detected on a timely basis by a 

company’s internal controls. Based on our assessment, we identified a material weakness related to our 

inability to update our disclosure controls and procedures in a manner that adequately ensures the 

accumulation and communication to management of information known to FHFA that is needed to meet 

our disclosure obligations under the federal securities laws, including disclosures affecting our 

consolidated financial statements.

We have been under conservatorship of FHFA since September 6, 2008. FHFA is an independent 

agency that currently functions as both our Conservator and our regulator with respect to our safety, 

soundness and mission. Because we are in conservatorship, some of the information that we may need 

to meet our disclosure obligations may be solely within the knowledge of FHFA. As our Conservator, 

FHFA has the power to take actions without our knowledge that could be material to investors and could 

significantly affect our financial performance. Although we and FHFA have attempted to design and 

implement disclosure policies and procedures to account for the conservatorship and accomplish the 

same objectives as disclosure controls and procedures for a typical reporting company, there are 

inherent structural limitations on our ability to design, implement, test or operate effective disclosure 

controls and procedures under the circumstances of conservatorship. As our Conservator and regulator, 

FHFA is limited in its ability to design and implement a complete set of disclosure controls and 

procedures relating to us, particularly with respect to current reporting pursuant to Form 8-K. Similarly, 

as a regulated entity, we are limited in our ability to design, implement, operate and test the controls and 
Controls and Procedures

FREDDIE MAC | 2017 Form 10-K 359

procedures for which FHFA is responsible. For example, FHFA may formulate certain intentions with 

respect to the conduct of our business that, if known to management, would require consideration for 

disclosure or reflection in our financial statements, but that FHFA, for regulatory reasons, may be 

constrained from communicating to management. As a result of these considerations, we have 

concluded that this control deficiency constitutes a material weakness in our internal control over 

financial reporting.

Because of this material weakness, we have concluded that our internal control over financial reporting 

was not effective as of December 31, 2017 based on the COSO criteria (2013 Framework). 

PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the 

effectiveness of our internal control over financial reporting as of December 31, 2017 and also 

determined that our internal control over financial reporting was not effective. 

PricewaterhouseCoopers LLP’s report appears in Financial Statements and Supplementary 

Data — Report of Independent Registered Public Accounting Firm.

EVALUATION OF DISCLOSURE CONTROLS 

AND PROCEDURES 

Disclosure controls and procedures include, without limitation, controls and procedures designed to 

ensure that the information we are required to disclose in reports that we file or submit under the 

Exchange Act is recorded, processed, summarized and reported within the time periods specified by the 

SEC’s rules and forms and that such information is accumulated and communicated to management of 

the company, including the company’s Chief Executive Officer and Chief Financial Officer, as 

appropriate, to allow timely decisions regarding required disclosure. In designing our disclosure controls 

and procedures, we recognize that any controls and procedures, no matter how well designed and 

operated, can provide only reasonable assurance of achieving the desired control objectives, and we 

must apply judgment in implementing possible controls and procedures.

Management, including the company’s Chief Executive Officer and Chief Financial Officer, conducted an 

evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2017. As a 

result of management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded 

that our disclosure controls and procedures were not effective as of December 31, 2017, at a reasonable 

level of assurance, because we have not been able to update our disclosure controls and procedures to 

provide reasonable assurance that information known by FHFA on an ongoing basis is communicated 

from FHFA to Freddie Mac’s management in a manner that allows for timely decisions regarding our 

required disclosure under the federal securities laws. As discussed above, we consider this situation to 

be a material weakness in our internal control over financial reporting. Based on discussions with FHFA 

and the structural nature of this continuing weakness, we believe it is likely that we will not remediate 

this material weakness while we are under conservatorship.
Controls and Procedures

FREDDIE MAC | 2017 Form 10-K 360

MITIGATING ACTIONS RELATED TO THE 

MATERIAL WEAKNESS IN INTERNAL 

CONTROL OVER FINANCIAL REPORTING 

As described above under Management's Report on Internal Control Over Financial 

Reporting, we have one material weakness in internal control over financial reporting as of 

December 31, 2017 that we have not remediated.

Given the structural nature of this material weakness, we believe it is likely that we will not remediate it 

while we are under conservatorship. However, both we and FHFA have continued to engage in activities 

and employ procedures and practices intended to permit accumulation and communication to 

management of information needed to meet our disclosure obligations under the federal securities laws. 

These include the following:

FHFA has established the Division of Conservatorship, which is intended to facilitate operation of the 

company with the oversight of the Conservator.

We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. 

We also provide drafts of external press releases, statements and certain speeches to FHFA 

personnel for their review and comment prior to release.

FHFA personnel, including senior officials, review our SEC filings prior to filing, including this 

Form 10-K, and engage in discussions with us regarding issues associated with the information 

contained in those filings. Prior to filing this Form 10-K, FHFA provided us with a written 

acknowledgment that it had reviewed the Form 10-K, was not aware of any material misstatements 

or omissions in the Form 10-K, and had no objection to our filing the Form 10-K.

The Director of FHFA is in frequent communication with our Chief Executive Officer, typically meeting 

(in person or by phone) on at least a bi-weekly basis.

FHFA representatives attend meetings frequently with various groups within the company to 

enhance the flow of information and to provide oversight on a variety of matters, including 

accounting, credit and capital markets management, external communications and legal matters.

Senior officials within FHFA’s accounting group meet frequently with our senior financial executives 

regarding our accounting policies, practices and procedures.

In view of our mitigating actions related to this material weakness, we believe that our consolidated 

financial statements for the year ended December 31, 2017 have been prepared in conformity with 

GAAP.
Controls and Procedures

FREDDIE MAC | 2017 Form 10-K 361

CHANGES IN INTERNAL CONTROL OVER 

FINANCIAL REPORTING DURING THE 

QUARTER ENDED DECEMBER 31, 2017

We evaluated the changes in our internal control over financial reporting that occurred during the quarter 

ended December 31, 2017 and concluded that there were no changes that materially affected, or are 

reasonably likely to materially affect, our internal control over financial reporting.
Directors, Corporate Governance, and Executive Officers Directors

FREDDIE MAC | 2017 Form 10-K 362

Directors, Corporate Governance, 

and Executive Officers

DIRECTORS

Election of Directors

As Conservator, FHFA determines the size of the company’s Board and the scope of its authority. At the 

start of Conservatorship, FHFA determined that the Board is to have a Non-Executive Chairman, and is 

to consist of a minimum of 9 and not more than 13 directors, with the CEO being the only corporate 

officer serving as a member of the Board. The company currently has 11 Board members. 

In addition, because FHFA as Conservator has succeeded to the rights of all stockholders of the 

company, the Conservator elects the directors. Accordingly, we will not solicit proxies, distribute a proxy 

statement to stockholders, or hold an annual meeting of stockholders in 2018. Instead, the Conservator 

has elected directors by written consent in lieu of an annual meeting. Annually, the Board identifies 

director nominees for the Conservator to consider for election by written consent. When there is a 

vacancy on the Board, the Board may exercise the authority delegated to it by the Conservator to fill 

such vacancy, subject to review by the Conservator.

On February 13, 2018, the Conservator executed a written consent, effective as of that date, re-electing 

each of the 11 incumbent directors submitted by the company for re-election as a member of our Board. 

The individuals elected as directors by the Conservator are listed below.

Carolyn H. Byrd Steven W. Kohlhagen Saiyid T. Naqvi

Lance F. Drummond Donald H. Layton Eugene B. Shanks, Jr.

Thomas M. Goldstein Christopher S. Lynch Anthony A. Williams

Grace A. Huebscher Sara Mathew

Richard C. Hartnack and Nicolas P. Retsinas were not eligible for re-election to the Board based on the 

age and term limits set forth in our Corporate Governance Guidelines, or the "Guidelines". Raphael W. 

Bostic resigned from the Board in May 2017, and Ms. Huebscher was elected to the Board in December 

2017. 

See Director Biographical Information for information about each of our re-elected directors. The 

terms of those directors will end on the date of the next annual meeting of our stockholders or when the 

Conservator next elects directors by written consent, whichever occurs first.
Directors, Corporate Governance, and Executive Officers Directors

FREDDIE MAC | 2017 Form 10-K 363

Director Criteria, Diversity, Qualifications, Experience, 

and Tenure

Our Board seeks candidates for director who have achieved a high level of stature, success, and 

respect in their principal occupations. 

Each of our current directors was selected as a candidate because of his or her character, judgment, 

experience, and expertise. Consistent with our Charter and FHFA’s rule regarding the Responsibilities of 

Boards of Directors, Corporate Practices and Corporate Governance Matters or the “Corporate 

Governance Rule”, the factors considered include the knowledge directors would have, as a group, in 

the areas of business, finance, accounting, risk management, public policy, mortgage lending, real 

estate, low-income housing, homebuilding, regulation of financial institutions, and any other areas that 

may be relevant to our safe and sound operation. We also considered whether a candidate’s other 

commitments, including the number of other board memberships held by the candidate, would permit 

the candidate to devote sufficient time to the candidate’s duties and responsibilities as a director. Our 

Charter provides that our Board must at all times have at least one person from each of the 

homebuilding, mortgage lending, and real estate industries and at least one person from an organization 

representing community or consumer interests or one person who has demonstrated a career 

commitment to the provision of housing for low-income households. 

In addition, the Board has adopted a policy with regard to the consideration of diversity in identifying 

director nominees and candidates. As articulated in the Guidelines, the Board seeks to have a diversity 

of talent, perspectives, expertise, experience, and cultures among its members, including minorities, 

women, and individuals with disabilities, and considers such diversity in the candidate identification and 

nomination processes. The Guidelines explain that when identifying director nominees, the Nominating 

and Governance Committee considers, among other factors, our needs, the talents and skills then 

available on the Board, and, with respect to incumbent directors, their continued involvement in 

business and professional activities relevant to us, the skills and experience that should be represented 

on the Board, the availability of other individuals with desirable skills to join the Board, and the desire to 

maintain a diverse Board.

FHFA's rule regarding minority and women inclusion generally requires us to encourage the 

consideration of diversity and the inclusion of women, minorities, and individuals with disabilities in all 

activities, including considering diversity in the process of nominating directors.
Directors, Corporate Governance, and Executive Officers Directors

FREDDIE MAC | 2017 Form 10-K 364

Director Biographical Information

The following summarizes each director’s Board service, experience, qualifications, attributes, and/or 

skills that led to his or her selection as a director, and provides other biographical information, as of 

February 15, 2018:

Carolyn H. Byrd

Age Director Since Freddie Mac Committees Public Company Directorships

69 December 2008 • Compensation • Regions Financial Corporation

• Risk

Ms. Byrd is an experienced finance executive who has held a variety of leadership positions and has 

significant public company board experience.

Experience and Qualifications

Founder, Chairman, and Chief Executive Officer of GlobalTech Financial, LLC (2000-present)

President of Coca-Cola Financial Corporation (1997-2000)

Various domestic and international positions with The Coca-Cola Company, including Chief of 

Internal Audits and Director of the Corporate Auditing Department (1977-1997)

Member of the Board and Chair of the Audit Committee and former member of the Risk Committee 

of Regions Financial Corporation (2010-present)

Member of the Board, Audit Committee and Executive Committee and Chair of the Corporate 

Governance and Nominating Committee of Popeyes Louisiana Kitchen, Inc. (2001-2017)

Member of the Board and Audit Committee of Circuit City Stores, Inc. (2000-2009) 

Member of the Board and Audit Committee of RARE Hospitality International, Inc. (2000-2007)

Lance F. Drummond

Age Director Since Freddie Mac Committees Public Company Directorships

63 July 2015 • Audit None

• Nominating & Governance

Mr. Drummond is a senior business leader with extensive experience, specializing in business 

transforming strategy development and execution, operations, technology, and process re-engineering.

Experience and Qualifications

Executive Vice President of Operations and Technology of TD Canada Trust (2011-2014)

Executive Vice President of Human Resources and Shared Services of Fiserv Inc. (2009-2011)

Senior Vice President and Supply Chain Executive, Service and Fulfillment Executive for Global 

Technology and Operations, and eCommerce and ATM Executive of Bank of America (2002-2008)

Various positions with Eastman Kodak Company, including Chief Operating Officer and Corporate 

Vice President of Kodak Professional Division (1976-2002)
Directors, Corporate Governance, and Executive Officers Directors

FREDDIE MAC | 2017 Form 10-K 365

Thomas M. Goldstein

Age Director Since Freddie Mac Committees Public Company Directorships

58 October 2014

• Audit • Kemper Corporation

• Executive

• Nominating & Governance, Chair

Mr. Goldstein is an executive with extensive financial services, insurance, mortgage banking, and risk 

management experience.

Experience and Qualifications

Founder of Jamlerpartners LLC (2014-present)

Senior Vice President and Chief Financial Officer of the Protection Division of Allstate Insurance 

Company (2011-2014)

Consultant to the financial services industry, pursuing community bank acquisitions with The GRG 

Group LLC (2009-2011)

Managing Director and Chief Financial Officer of Madison Dearborn Partners (2007-2009)

Various executive and finance positions for LaSalle Bank Corporation, including Chairman, Chief 

Executive Officer, and President of ABN AMRO Mortgage Group and Chief Financial Officer of 

LaSalle Bank Corporation (1998-2007)

Various positions with Morgan Stanley Dean Witter, including Senior Vice President and Head of Risk 

Management and Financial Planning and Analysis of Novus Financial as well as Vice President and 

Head of Finance, Risk Management, Model Development, and Investor Relations of SPS Transaction 

Services (1988-1998)

Member of the Board, Audit, Compensation and Investment Committees of Kemper Corporation 

(2016-present)

Member of the Board of Trustees, Chair of the Audit Committee, and member of the Performance 

and Compliance Committees of Columbia Acorn Trust and Wanger Advisors Trust (2014-present)

Member of the Board of the FHLB of Chicago (2009-2014)

Member of the Board of various Allstate subsidiaries (2011-2014)

Grace A. Huebscher

Age Director Since Freddie Mac Committees Public Company Directorships

58 December 2017 • Nominating & Governance None

• Risk

Ms. Huebscher is an executive with extensive experience in capital markets and real estate. She brings 

to the Board deep multifamily industry knowledge, entrepreneurship and savvy.

Experience and Qualifications

Advisor to Capital One Commercial Bank (2017)

President of Capital One Multifamily Finance, LLC (2013-2017)

Co-Founder and Chief Executive Officer of Beech Street Capital, LLC (2009-2013)
Directors, Corporate Governance, and Executive Officers Directors

FREDDIE MAC | 2017 Form 10-K 366

Various positions with Fannie Mae, including Vice President, Capital Markets (1997-2009)

Member of the Board of The Kenyon Review (1998-present)

Member of the Commercial Board of Governors of the Mortgage Bankers Association (2014-2017)

Steven W. Kohlhagen

Age Director Since Freddie Mac Committees Public Company Directorships

70 February 2013

• Compensation, Chair • AMETEK, Inc.

• Executive

• Risk

Mr. Kohlhagen is nationally recognized as a leading financial expert with extensive knowledge of 

mortgage finance and the capital markets. He brings to the Board a unique combination of senior 

executive leadership skills and a deep understanding of economics, modeling, and complex financial 

instruments.

Experience and Qualifications

Various positions with First Union National Bank (predecessor to Wachovia National Bank and Wells 

Fargo), last serving as Managing Director of the Fixed Income Division (1992-2003)

Various positions with AIG Financial Products (1990-1992); Stamford Capital Group (1987-1990); 

Bankers Trust Corporation (1985-1987); and Lehman Brothers, Inc. (1983-1985)

Consulting work for the Organization for Economic Cooperation and Development (1980-1981), 

Treasury (1976-1977), and the Federal Reserve Board (1976)

Senior Staff Economist for the Council of Economic Advisors, White House Staff (1978-1979)

Professor of International Economics and Finance at the University of California, Berkeley 

(1973-1983)

Member of the Board and Audit Committee of AMETEK, Inc. (2006-present)

Member of the Board, Audit Committee, and Compensation Committee of GulfMark Offshore, Inc. 

(2013-2017)

Member of the Board and Compensation Committee and Chair of the Governance and Nominating 

Committee of Reval, Inc. (2007-2016)

Member of the Board and Audit Committee of Abtech Holdings, Inc. (2013-2014)

Advisory Board member of the Stanford Institute for Economic Policy Research (2001-present)

Advisory Board member of the Roper St. Francis Cancer Center (2011-present)

Member of the Board of IQ Mutual Funds, a family of Merrill Lynch registered, closed-end investment 

companies (2005-2010)
Directors, Corporate Governance, and Executive Officers Directors

FREDDIE MAC | 2017 Form 10-K 367

Donald H. Layton

Age Director Since Freddie Mac Committees Public Company Directorships

67 May 2012 • Executive None

Mr. Layton is an experienced financial institution executive and leader of finance and investment 

organizations. Mr. Layton provides valuable insight to the Board as a result of his leadership of Freddie 

Mac and his knowledge of our business and industry, as well as his extensive financial services industry 

experience.

Experience and Qualifications

Chief Executive Officer of Freddie Mac (2012-present)

Chairman of E*TRADE Financial (2007-2009); Chief Executive Officer (2008-2009)

Senior Advisor to the Securities Industry and Financial Markets Association (2006-2008)

Various positions with JPMorgan Chase and its predecessors, beginning as a trainee and rising to 

Vice Chairman and a member of the company’s three-person Office of the Chairman (1975-2004); 

positions included Head of Chase Financial Services (2002-2004); Co-Chief Executive Officer of J.P. 

Morgan, the investment bank of the company (2000-2002); Head of Treasury and Securities Services 

(1999-2004); and Head of Chase Manhattan’s worldwide capital markets and trading activities, 

including foreign exchange, risk management products, emerging markets, fixed income, and the 

bank’s investment portfolio and funding department (1996 to 2000; prior to Chase’s merger with J.P. 

Morgan)

Chairman Emeritus of the Partnership for the Homeless (2015-present); Chairman of the Board 

(2005-2015)

Member of the Board of Assured Guaranty Ltd. (2006-2012)

Member of the Board of American International Group (2010-2012)

Christopher S. Lynch

Age Director Since Freddie Mac Committees Public Company Directorships

60 December 2008 • Executive, Chair • American International Group Inc.

Mr. Lynch is an experienced senior executive who was responsible for one of the Big Four’s Financial 

Services practice and served as the lead audit signing partner and account executive for several large 

financial institutions with mortgage lending businesses. He also has significant public company audit 

committee and risk management experience. Mr. Lynch’s extensive experience in finance, accounting, 

and risk management enables him to provide valuable guidance to the Board on complex operating, 

strategic, governance, financial reporting, troubled-asset management and risk management issues. He 

has served as Non-Executive Chairman of the company since December 2011.

Experience and Qualifications

Independent consultant providing a variety of services to financial intermediaries, including 

corporate restructuring, risk management, strategy, governance, financial and regulatory reporting, 

and troubled-asset management (2007-present)
Directors, Corporate Governance, and Executive Officers Directors

FREDDIE MAC | 2017 Form 10-K 368

Various positions with KPMG LLP, including National Partner in Charge - Financial Services; 

Chairman of KPMG’s Americas Financial Services; Member of the Global Financial Services and 

U.S. Industries Leadership teams; and Department of Professional Practice partner (1979-2007)

Practice Fellow at the FASB (1987-1989)

Non-Executive Chairman of the Board of Freddie Mac (2011-present)

Member of the Board, Chair of the Nominating and Corporate Governance Committee, member of 

the Risk and Capital, and Technology Committees and former Chair of the Audit Committee of 

American International Group (2009-present)

Advisory Board member of the Stanford Institute for Economic Policy Research (2014-present)

Member of the National Audit Committee Chair Advisory Council of the National Association of 

Corporate Directors (2014-present)

Sara Mathew

Age Director Since Freddie Mac Committees Public Company Directorships

62 December 2013

• Audit, Chair • Campbell Soup Company

• Executive • Shire plc

• Nominating & Governance

Ms. Mathew is an executive with global financial and general management experience. Ms. Mathew’s 

extensive business, financial, and management experience, and her public company board and audit 

committee experience, enable her to contribute to the Board’s oversight of our internal control over 

financial reporting and compliance matters.

Experience and Qualifications

Various positions with Dun & Bradstreet Corporation (2001-2013), including Chairman and Chief 

Executive Officer (2010-2013); President and Chief Operating Officer (2007-2010); and Senior Vice 

President and CFO (2002-2006)

Various finance and management positions with The Procter & Gamble Company, including Vice 

President of Finance for Australia, Asia, and India (1983-2001)

Member of the Board and Finance and Corporate Development Committee and Chair of the Audit 

Committee of Campbell Soup Company (2005-present)

Member of the Board, Chair of the Audit, Compliance and Risk Committee, member of the 

Nomination and Governance Committee, and former member of the Remuneration Committee of 

Shire plc (2015-present)

Member of the Board and Finance and Nominating and Corporate Governance Committees of Avon 

Products, Inc. (2014-2016)

Member of the Board of Dun & Bradstreet Corporation (2008-2013)

Member of the International Advisory Council of Zurich Financial Services Group (2012-2017)
Directors, Corporate Governance, and Executive Officers Directors

FREDDIE MAC | 2017 Form 10-K 369

Saiyid T. Naqvi

Age Director Since Freddie Mac Committees Public Company Directorships

68 August 2013

• Compensation None

• Executive

• Risk, Chair

Mr. Naqvi is a seasoned financial executive with proven leadership experience and detailed knowledge 

of mortgage and consumer financial operations, as well as a deep background in risk and operational 

management.

Experience and Qualifications

President and Chief Executive Officer of PNC Mortgage, a division of PNC Bank, National 

Association, which is a subsidiary of PNC Financial Services Group (2009-2013)

President of Harley-Davidson Financial Services, Inc. (2007-2009)

Chief Executive Officer of DeepGreen Financial, Inc. (2005-2006)

President and Chief Financial Officer of Setara Corporation (2002-2005)

President and Chief Executive Officer of PNC Mortgage Corporation of America (1995-2001)

Member of the Board of Genworth Financial (2005-2009)

Member of the Board of Hanover Mortgage Capital Holdings, Inc. (1998-2006)

Eugene B. Shanks, Jr.

Age Director Since Freddie Mac Committees Public Company Directorships

70 December 2008 • Audit • Chubb (formerly ACE Limited)

• Compensation

Mr. Shanks is an experienced finance executive with leadership and risk management expertise. Mr. 

Shanks’ leadership and risk management experience enables him to provide the Board with valuable 

guidance on risk management issues and our strategic direction.

Experience and Qualifications

Founder, President, and Chief Executive Officer of NetRisk, Inc. (1997-2002)

Various positions with Bankers Trust New York Corporation, including Head of Global Markets and 

President and Director (1973-1978 and 1980-1995)

Treasurer of Commerce Union Bank in Nashville, Tennessee (1978-1980)

Member of the Board and Risk and Finance Committee of Chubb (2011-present)

Advisory Board member of the Stanford Institute for Economic Policy Research (2010-present)

Senior Advisor of Bain and Company (2008-2011)

Founding Director of The Posse Foundation (1992-present)

Trustee Emeritus of Vanderbilt University (2015-present), Trustee (1992-2015)
Directors, Corporate Governance, and Executive Officers Directors

FREDDIE MAC | 2017 Form 10-K 370

Anthony A. Williams

Age Director Since Freddie Mac Committees Public Company Directorships

66 December 2008 • Nominating & Governance None

• Risk

Mr. Williams is an experienced leader in national, state, and local governments, with extensive 

knowledge concerning real estate and housing for low-income individuals. He also has significant 

experience in financial matters and is an experienced academic focusing on public management issues. 

Mr. Williams’ leadership and operating experience in the public sector allows him to provide a unique 

perspective on state and local housing issues.

Experience and Qualifications

Chief Executive Officer and Executive Director of Federal City Council (2012-present)

Senior Advisor at King & Spalding (2016-present)

Senior Advisor at Dentons (2015-2016)

Senior Advisor at McKenna, Long & Aldridge, LLP (2013-2015)

Senior Fellow (2012) and Executive Director of Global Government Practice (2010-2012) of the 

Corporate Executive Board Company

Bloomberg Lecturer in Public Management at Harvard’s Kennedy School of Government 

(2009-2012)

Senior Advisor, Intergovernmental Practice at Arent Fox LLP (2009-2010)

CEO of Primum Public Realty Trust (2007-2008)

Mayor of Washington, DC (1999-2007)

Chief Financial Officer of Washington, DC (1995-1998)

President of the National League of Cities (2005)

Vice-Chair of the Metropolitan Washington Council of Governments (2005-2006)

Chief Financial Officer for the U.S. Department of Agriculture (1993-1995)

Deputy State Comptroller of Connecticut (1991-1993)

Executive Director of the Community Development Agency of St. Louis, Missouri (1989-1991)

Assistant Director of the Boston Redevelopment Agency and Head of the Department of 

Neighborhood Housing and Development (1988-1989)

Member of the Board of the Bank of Georgetown (2012-2016)

Member of the Board and Audit Committee of Calvert Funds (2010-present)

Member of the Board and Audit Committee of Weston Solutions (2008-2015)

Member of the Board and Audit Committee of Meruelo Maddox Properties, Inc. (2007-2009)
Directors, Corporate Governance, and Executive Officers Corporate Governance

FREDDIE MAC | 2017 Form 10-K 371

CORPORATE GOVERNANCE

Our Corporate Governance Practices

The company is committed to best practices in corporate governance. The Board regularly reviews our 

governance practices, assesses the regulatory and legislative environment, and adopts governance 

practices that are in the best interests of the company.

Our Board has adopted the company’s Corporate Governance Guidelines. The Guidelines are available 

on our website at www.freddiemac.com/governance/pdf/gov_guidelines.pdf. The Guidelines are 

reviewed annually by our Board and were last updated in June 2017. The Guidelines establish corporate 

governance practices, and include: qualifications for directors, a limitation on the number of boards on 

which a director may serve, term limits, director orientation and continuing education, and a requirement 

that the Board and each of its committees perform an annual self-evaluation.

We regularly review our practices to ensure effective collaboration of management and the Board. We 

have instituted the following specific corporate governance practices:

Our Board has an independent Non-Executive Chairman, whose responsibilities include presiding 

over meetings of the Board and executive sessions of the non-employee or independent directors. 

Mr. Lynch has served as Non-Executive Chairman since December 2011.

Of the Board’s 11 directors, 10 are independent, including the Non-Executive Chairman.

Our directors are elected annually.

Each of the Audit, Compensation, Nominating and Governance, and Risk Committees consists 

entirely of independent directors.

Each committee operates pursuant to a written charter that has been approved by the Board (these 

charters are available at http://www.freddiemac.com/governance/board-committees.html).

Independent directors meet regularly without management.

The Board and each of the Audit, Compensation, Nominating and Governance, and Risk 

Committees conduct an annual self-evaluation.

New directors receive a full orientation regarding the company and issues specific to the committees 

to which they have been appointed.

All directors are provided with access to, and are encouraged to utilize, third party continuing 

education.

Management provides the Board and committees with in-depth technical briefings on substantive 

issues affecting the company.

The Board reviews management talent and succession planning at least annually.

Director Independence and Relevant Considerations 

Our non-employee Board members have evaluated the independence, as defined in Sections 4 and 5 of 

the Guidelines and in Section 303A.02 of the NYSE Listed Company Manual, of each of our nonemployee Board members and determined that all current members of our Board (other than Mr. Layton, 

our CEO) are, and that Messrs. Bostic, Hartnack and Retsinas were, independent directors. Mr. Layton 

is not considered an independent director because he is our CEO.
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FREDDIE MAC | 2017 Form 10-K 372

Our non-employee Board members concluded that all current members of our Audit Committee, 

Compensation Committee, and Nominating and Governance Committee are independent within the 

meaning of Sections 4 and 5 of the Guidelines and Section 303A.02 of the NYSE Listed Company 

Manual. Our Board also determined that: (i) all current members of our Audit Committee are 

independent within the meaning of Exchange Act Rule 10A-3 and Section 303A.06 of the NYSE Listed 

Company Manual; and (ii) all current members of our Compensation Committee are independent within 

the meaning of Exchange Act Rule 10C-1 and Section 303A.02(a)(ii) of the NYSE Listed Company 

Manual.

In determining the independence of each Board member, our non-employee Board members reviewed 

the following categories or types of relationships, in addition to those specifically addressed by the 

standards contained in Section 5 of the Guidelines, to determine whether those relationships, either 

individually or in aggregate, would constitute a material relationship between the director and us that 

would impair a director’s judgment as a member of the Board or create the perception or appearance of 

such an impairment:

Employment Affiliations with Business Partners - During 2017 and currently, Mr. Williams has 

served as an employee of a firm that engages or has engaged in business with us resulting in 

payments between us and the firm. Under the Guidelines, no specific independence determination is 

required with respect to these payments because they do not exceed the greater of $1 million or 2% 

of the firm’s consolidated gross revenues for each of the last three fiscal years. After considering the 

nature and extent of the specific relationship between the firm and us, our non-employee Board 

members concluded that the business relationship does not constitute a material relationship 

between Mr. Williams and us that would impair his independence as our director.

Employment Affiliations with Competitors - During 2017, an immediate family member of Ms. 

Huebscher served as an employee of a company that is a competitor of Freddie Mac. After 

considering the nature and extent of the specific relationship between the company and the 

immediate family member and between the company and Freddie Mac, our non-employee Board 

members concluded that those business relationships do not constitute material relationships that 

would impair Ms. Huebscher’s independence as our director.

Board Memberships with Charitable Organizations to Which We Have Made Payments - 

During 2017, Mr. Bostic, who served as a director until May 31, 2017, served as a board member of 

a charitable organization that received payments from us. Under the Guidelines, no specific 

independence determination is required with respect to these payments because they did not 

exceed the greater of $1 million or 2% of the organization’s consolidated gross revenues for each of 

the last three fiscal years. During 2017, Mr. Retsinas, who served as a director until February 13, 

2018, served as Director Emeritus of a charitable organization that received payments from us. 

Because the total annual amount paid to the charitable organization did not exceed the greater of $1 

million or 2% of the organization’s consolidated gross revenues for each of the last three fiscal 

years, no specific independence determination with respect to these payments was required under 

the Guidelines; moreover, since Mr. Retsinas was neither a board member nor a trustee of the 

charitable organization, the payments would not have required an independence determination in 

any event. The non-employee members of the Board considered the payments and the nature of the 

organizations and concluded that the relationships with the charitable organizations did not 
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FREDDIE MAC | 2017 Form 10-K 373

constitute a material relationship between Mr. Bostic or Mr. Retsinas and us that impaired their 

independence as our directors.

Board Memberships with Business Partners - During 2017, Ms. Byrd and Messrs. Bostic, Lynch, 

Retsinas, Shanks, and Williams, and currently, Ms. Byrd and Messrs. Lynch, Shanks and Williams, 

have served as directors of other companies that engage or have engaged in business with us 

resulting in payments between us and such companies during the past three fiscal years. After 

considering the nature and extent of the specific relationship between each of those companies and 

us, and the fact that these Board members are directors of these other companies rather than 

employees, our non-employee Board members concluded that those business relationships do not 

constitute material relationships between any of the directors and us that would impair their 

independence as our directors.

Financial Relationships with Business Partners - Mr. Hartnack, who served as a director until 

February 13, 2018, owns stock of US Bancorp. In the aggregate, this stock represented a material 

portion of his net worth. US Bancorp conducts significant business with us, including as a singlefamily seller/servicer and as trustee of some of our securitization transactions. In order to eliminate 

any potential conflict of interest that might have arisen as a result of this stock ownership, Mr. 

Hartnack recused himself from discussing and acting upon any matters considered by the full Board 

or any of the committees of which he was a member, and that related directly to US Bancorp. The 

Audit Committee Chair, in consultation with the Non-Executive Chairman, addressed any questions 

regarding whether recusal from a particular discussion or action was appropriate.

In evaluating Mr. Hartnack’s independence in light of his ownership of US Bancorp stock, our nonemployee Board members considered the nature and extent of our business relationship with US 

Bancorp and any potential impact that his stock ownership might have had on his independent 

judgment as our director, taking into account the recusal arrangement. Our non-employee Board 

members concluded that Mr. Hartnack’s recusal arrangement concerning US Bancorp addressed 

any actual or potential conflicts of interest that might have arisen with respect to his ownership of 

US Bancorp stock. Accordingly, our non-employee Board members concluded that Mr. Hartnack’s 

ownership of US Bancorp stock did not constitute a material relationship between him and Freddie 

Mac that would impair his independence as a Freddie Mac director.

During 2017, Mr. Naqvi owned stock of PNC Financial Services Group, Inc. (“PNC”). In the 

aggregate, this stock represented a material portion of his net worth. PNC conducts significant 

business with Freddie Mac, including as a single-family seller/servicer and as trustee of some of 

Freddie Mac’s securitization transactions. In order to eliminate any potential conflict of interest that 

might have arisen as a result of this stock ownership, Mr. Naqvi agreed to recuse himself from 

discussing and acting upon any matters that were to be considered by the full Board or any of the 

committees of which he is a member, and that related directly to PNC. The Audit Committee Chair, 

in consultation with the Non-Executive Chairman, addressed any questions regarding whether 

recusal from a particular discussion or action was appropriate. In July 2017, Mr. Naqvi reported that 

he substantially reduced his holdings of PNC stock such that it no longer constituted a material 

portion of his net worth and, as a result, the Board determined that his recusal arrangement was no 

longer necessary.

In evaluating Mr. Naqvi’s independence in light of his ownership of PNC stock, our non-employee 

Board members considered the nature and extent of Freddie Mac’s business relationship with PNC 
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FREDDIE MAC | 2017 Form 10-K 374

and any potential impact that his stock ownership might have on his independent judgment as our 

director, taking into account the recusal arrangement. Our non-employee Board members concluded 

that Mr. Naqvi’s recusal arrangement concerning PNC addressed any actual or potential conflicts of 

interest that might have arisen with respect to his ownership of PNC stock. Accordingly, our nonemployee Board members concluded that Mr. Naqvi’s ownership of PNC stock did not constitute a 

material relationship between him and Freddie Mac that would impair his independence as a Freddie 

Mac director.

Board and Committee Information

Authority of the Board and Board Committees

The directors serve on behalf of, and exercise authority as directed by, the Conservator and owe their 

fiduciary duties of care and loyalty to the Conservator. Although the Conservator has delegated to the 

Board and its committees authority to function in accordance with the duties and authorities set forth in 

applicable statutes, regulations, guidance, orders and directives, and our Bylaws and committee 

charters, the Conservator has reserved certain powers of approval to itself. The Conservator provided 

instructions to the Board in 2008 and 2012 to consult with and obtain the Conservator’s decision before 

taking certain actions. In December 2017, the Conservator further revised these instructions, which will 

become effective on March 31, 2018. Until the revised instructions are effective, we remain subject to 

the Conservator’s prior instructions from 2012, which are described in Directors, Corporate 

Governance, and Executive Officers - Corporate Governance - Board and Committee 

Information in our Annual Report on Form 10-K filed on February 16, 2017.

The Conservator’s revised instructions require that we obtain the Conservator’s decision before taking 

action on any matters that require the consent of or consultation with Treasury under the Purchase 

Agreement. See Note 2: Conservatorship and Related Matters for a list of matters that require 

the approval of Treasury under the Purchase Agreement.

The Conservator’s revised instructions also require us to obtain the Conservator’s decision before taking 

action in the areas identified in the table below. For some matters, the Conservator’s revised instructions 

specify that our Board must review and approve the matter before we request the Conservator's 

decision, and for other matters the Board is expected to determine the appropriate level of its 

engagement.
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Matters Requiring Prior Board Review and Approval Other Matters

• redemptions or repurchases of our subordinated debt, except as 

may be necessary to comply with the Purchase Agreement;

• creation of any subsidiary or affiliate, or entering into a 

substantial transaction with a subsidiary or affiliate, except for 

routine, ongoing transactions with CSS or the creation of, or a 

transaction with, a subsidiary or affiliate undertaken in the 

ordinary course of business;

• changes to, or removal of, Board risk limits that would result in 

an increase in the amount of risk that may be taken by us;

• retention and termination of external auditors to perform an 

integrated audit of our financial statements and internal 

controls over financial reporting and termination of law firms 

serving as consultants to the Board;

• proposed amendments to our bylaws or Board committee 

charters;

• setting or increasing the compensation or benefits payable to 

members of the Board; and

• establishing the annual operating budget.

• material changes in accounting policy;

• proposed changes in our business operations, activities, and 

transactions that, in the reasonable business judgment of our 

management, are more likely than not to result in a significant 

increase in credit, market, reputational, operational or other key 

risks;

• matters, including our initiation or substantive response to 

litigation, that impact or question the Conservator’s powers, our 

status in conservatorship, the legal effect of the 

conservatorship, interpretations of the Purchase Agreement or 

terms and conditions of the Financial Agency Agreement with 

Treasury or our performance under the Financial Agency 

Agreement;

• agreements with respect to any securities litigation claim; and 

agreements under which we settle, resolve, or compromise 

demands, claims, litigation, lawsuits, prosecutions, regulatory 

proceedings, or tax matters when the amount in dispute is more 

than $50 million, including each separate agreement with the 

same counterparty involving the same dispute or common facts 

when the aggregate amount in dispute totals more than 

$50 million (excluding loan workouts);

• mergers, acquisitions and changes in control of a Key 

Counterparty where we have a direct contractual right to cease 

doing business with such Key Counterparty or object to the 

merger or acquisition;

• changes to requirements, policies, frameworks, standards or 

products that are aligned with Fannie Mae’s, pursuant to FHFA’s 

direction;

• credit risk transfers that are new transaction types, recurring 

transactions with any material change in terms, and 

transactions that involve collateral types not previously included 

in a risk transfer transaction;

• mortgage servicing rights sales and transfers involving:

100,000 or more loans to a non-bank transferee; or

25,000 or more loans to any transferee servicer when the 

transfer would increase the number of the transferee's 

Freddie Mac- and Fannie Mae-owned seriously delinquent 

loans by at least 25 percent and the servicing transfer has 

a minimum of 500 seriously delinquent loans; and

• changes in employee compensation that could significantly 

impact our employees, including retention awards, special 

incentive plans, and merit increase pool funding.

In addition, FHFA requires us to provide it with timely notice of (i) activities that represent a significant 

change in current business practices, operations, policies, or strategies not otherwise addressed in the 

Conservator decision items referenced above; (ii) exceptions and waivers to aligned requirements, 

policies, frameworks, standards or products if not otherwise submitted to FHFA for Conservator 

approval as required above; and (iii) accounting error corrections to previously issued financial 

statements that are not de minimis. FHFA will then determine whether any such items require 

Conservator approval. For more information on the conservatorship, see MD&A - Conservatorship 

and Related Matters.
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FREDDIE MAC | 2017 Form 10-K 376

Board Committees

The Board has five standing committees: Audit, Compensation, Executive, Nominating and Governance, 

and Risk. All standing committees, other than the Executive Committee, meet regularly and are chaired 

by, and consist entirely of, independent directors. The Committees perform essential functions on behalf 

of the Board. The Committee Chairs review and approve agendas for all meetings of their respective 

Committees. Charters for the standing committees have been adopted by the Board and approved by 

the Conservator, and describe each committee’s responsibilities. These charters are available on our 

website at http://www.freddiemac.com/governance/board-committees.html. The membership of 

each committee as of February 15, 2018 is set forth below, together with a description of the primary 

responsibilities of each committee. 

Committee Meetings in 2017 Chair Members

Audit Committee

9 Committee meetings;

3 joint meetings with the 

Risk Committee

Sara Mathew

• Lance F. Drummond

• Thomas M. Goldstein

• Nicolas P. Retsinas

• Eugene B. Shanks. Jr.

Executive Committee None Christopher S. Lynch

• Thomas M. Goldstein

• Donald H. Layton

• Steven W. Kohlhagen

• Sara Mathew

• Saiyid T. Naqvi

Compensation Committee 8 Committee meetings Steven W. Kohlhagen

• Carolyn H. Byrd

• Saiyid T. Naqvi

• Eugene B. Shanks, Jr.

Nominating and Governance

Committee 5 Committee meetings Thomas M. Goldstein

• Lance F. Drummond

• Grace A. Huebscher

• Sara Mathew

• Anthony A. Williams

Risk Committee

5 Committee meetings;

3 joint meetings with the 

Audit Committee

Saiyid T. Naqvi

• Carolyn H. Byrd

• Grace A. Huebscher

• Steven W. Kohlhagen

• Anthony A. Williams

Audit Committee

The Audit Committee provides oversight of the company’s accounting and financial reporting and 

disclosure processes, the adequacy of the systems of disclosure and internal control established by 

management, and the audit of the company’s financial statements. Among other things, the Audit 

Committee: (i) appoints the independent auditor and evaluates its independence and performance; (ii) 

reviews the audit plans for and results of the independent audit and internal audits; and (iii) reviews 
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FREDDIE MAC | 2017 Form 10-K 377

reports related to processes established by management to provide compliance with legal and 

regulatory requirements. The Audit Committee’s activities during 2017 with respect to the oversight of 

the independent auditor are described in more detail in Principal Accounting Fees and Services — 

Approval of Independent Auditor Services and Fees. The Audit Committee also periodically reviews the 

company’s guidelines and policies governing the processes for assessing and managing the company’s 

risks and generally reviews the company’s major financial risk exposures and the steps taken to monitor 

and control such exposures. The Audit Committee also approves all decisions regarding the 

appointment, removal, and compensation of the General Auditor and the appointment or removal of the 

CCO. The General Auditor reports independently to the Audit Committee. 

Our Audit Committee satisfies the definition of “audit committee” in Exchange Act Section 3(a)(58)(A) 

and the requirements of Exchange Act Rule 10A-3. Although our stock has been delisted from the 

NYSE, certain of the corporate governance requirements of the NYSE Listed Company Manual, 

including those relating to audit committees, continue to apply to us because they are incorporated by 

reference in the Corporate Governance Rule. Our Audit Committee satisfies the “audit committee” 

requirements in Sections 303A.06 and 303A.07 of the NYSE Listed Company Manual. The Board has 

determined that all members of our Audit Committee are independent and that Ms. Mathew, a member 

of the Audit Committee since December 2013 and its current chair, meets the definition of an “audit 

committee financial expert” under SEC regulations. 

Executive Committee

The Executive Committee, which, with the exception of our CEO, Mr. Layton, consists of independent 

directors, is authorized to exercise the corporate powers of the Board between meetings of the Board, 

except for those powers reserved to the Board by our Bylaws or otherwise. 

Compensation Committee

The Compensation Committee oversees the company’s compensation and benefits policies and 

programs. The company’s processes for consideration and determination of executive compensation, 

and the role of the Compensation Committee in those processes, are further described in Executive 

Compensation — CD&A. The Compensation Committee Report is included in Executive 

Compensation — CD&A — Compensation Committee Report. 

The Compensation Committee consists entirely of independent directors. None of the members of the 

Compensation Committee during fiscal year 2017 were officers or employees of Freddie Mac or had any 

relationship with us that would be required to be disclosed by us under Item 407(e)(4) of Regulation S-K. 

Nominating and Governance Committee

The Nominating and Governance Committee, which consists entirely of independent directors, oversees 

the company’s corporate governance, including reviewing the company’s Bylaws and the Guidelines. It 

also assists the Board and its committees in conducting annual self-evaluations and identifying qualified 

individuals to become members of the Board. The Nominating and Governance Committee also reviews 

Board member independence and qualifications and recommends membership of the Board 

committees.
Directors, Corporate Governance, and Executive Officers Corporate Governance

FREDDIE MAC | 2017 Form 10-K 378

Risk Committee

The Risk Committee, which consists entirely of independent directors, oversees on an enterprise-wide 

basis the company’s risk management framework, including credit risk, market risk, liquidity risk, 

operational risk, and enterprise-wide strategic risk. The Risk Committee reviews and approves the 

company’s enterprise risk policy and Board-level risk limits or metrics, and reviews significant: (i) 

enterprise risk exposures; (ii) risk management strategies; (iii) results of risk management reviews and 

assessments; and (iv) emerging risks, among other responsibilities. The Risk Committee also approves 

all decisions regarding the appointment or removal of the CERO, and the CERO reports independently 

to the Risk Committee, in addition to the CEO. 

Board Leadership Structure

The positions of CEO and Non-Executive Chairman of the Board are held by different individuals. This 

leadership structure was established by the Conservator. FHFA’s Corporate Governance Rule requires 

that the position of chairperson of the Board be filled by an independent director as defined under the 

rules of the NYSE. See MD&A — Risk Management — Overview for more information on the 

Board’s role in risk oversight.

For a discussion of the Compensation Committee’s conclusion that our compensation policies and 

practices do not create risks that are reasonably likely to have a material adverse effect on us, see 

Executive Compensation — Compensation and Risk.

Communications with Directors

Interested parties wishing to communicate any concerns or questions about Freddie Mac to the Board 

or its directors may do so by U.S. mail, addressed to the Corporate Secretary, Freddie Mac, 8200 Jones 

Branch Drive, McLean, VA 22102-3110. Communications may be directed to the Non-Executive 

Chairman, to any other director or directors, or to groups of directors, such as the independent or nonemployee directors.

Codes of Conduct

We have separate codes of conduct for our employees and Board members. The employee code also 

serves as the code of ethics for senior executives and financial officers. All employees, including senior 

executives and financial officers, are required to sign an annual acknowledgment that they have read the 

employee code and agree to abide by it and will report suspected deviations from the employee 

code. When joining our Board, our directors acknowledge that they have reviewed and understand the 

director code and agree to be bound by its provisions, and each director executes a related confirmation 

annually.

Copies of our employee and director codes of conduct are available, and any amendments or waivers 

that would be required to be disclosed are posted, on our website at www.freddiemac.com.
Directors, Corporate Governance, and Executive Officers Corporate Governance

FREDDIE MAC | 2017 Form 10-K 379

Director Compensation

Non-employee Board members receive compensation in the form of cash retainers, paid on a quarterly 

basis. Non-employee directors are also reimbursed for reasonable out-of-pocket costs for attending 

meetings of the Board or a Board committee of which they are a member and for other reasonable 

expenses associated with carrying out their responsibilities as directors.

Our directors are compensated entirely in cash because the Purchase Agreement prohibits us from 

issuing any shares of our equity securities without the prior written consent of Treasury. See Executive 

Compensation — CD&A — Overview of Executive Management Compensation Program. 

Unlike compensation for our executives, there is no provision in the director compensation program for 

pay that varies depending on business results. Although such incentive compensation is deemed 

appropriate to give management strong incentives to devise and execute business plans and achieve 

positive financial results, it is viewed as inconsistent with the oversight role of directors.

2017 Non-Employee Director Compensation Levels

Board compensation levels during conservatorship are shown in the table below.

Board Service Cash Compensation

Annual Retainer for Non-Executive Chairman $290,000

Annual Retainer for Directors (other than the Non-Executive Chairman) 160,000

Committee Service Cash Compensation

Annual Retainer for Audit Committee Chair $25,000

Annual Retainer for Risk Committee Chair 15,000

Annual Retainer for Committee Chairs (other than Audit or Risk) 10,000

Annual Retainer for Audit Committee Members 10,000
Directors, Corporate Governance, and Executive Officers Corporate Governance

FREDDIE MAC | 2017 Form 10-K 380

2017 Director Compensation

The following table summarizes the 2017 compensation earned by all persons who served as nonemployee directors during 2017.

Non-Employee Director Fees Earned or

Paid in Cash(1)

All Other

Compensation Total

Christopher S. Lynch $290,000 — $290,000

Raphael W. Bostic(2) 66,374 — 66,374

Carolyn H. Byrd(3) 164,097 — 164,097

Lance F. Drummond 170,000 — 170,000

Thomas M. Goldstein 170,000 — 170,000

Richard C. Hartnack 170,000 — 170,000

Grace A. Huebscher(4) 13,478 — 13,478

Steven W. Kohlhagen 160,000 — 160,000

Sara Mathew(3) 182,542 — 182,542

Saiyid T. Naqvi 175,000 — 175,000

Nicolas P. Retsinas 180,000 654(5) 180,654

Eugene B. Shanks, Jr. 170,000 — 170,000

Anthony A. Williams 160,000 — 160,000

(1) Because we do not have pension or retirement plans for our non-employee directors and all compensation is paid in cash, “Change in Pension Value 

and Non-qualified Deferred Compensation Earnings” and “All Other Compensation” columns have been omitted.

(2) Mr. Bostic resigned from the Board in May 2017. 

(3) In addition to the annual Board service and appropriate Committee Chair retainers, the amount reflects partial annual compensation for service as a 

member of the Audit Committee or as a Committee Chair during 2017. In March 2017, the Chair of the Audit Committee transitioned from Ms. Byrd 

to Ms. Mathew. 

(4) Ms. Huebscher joined the Board in December 2017.

(5) Represents the fair market value of accrued dividend equivalents of vested restricted stock units granted to Mr. Retsinas on June 8, 2007 and June 

5, 2008 which were released on January 2, 2017, the date the restrictions on the units lapsed. 

Indemnification

We have made arrangements to indemnify our directors against certain liabilities which are similar to the 

terms on which our executive officers are indemnified. For a description of such terms, see Executive 

Compensation — CD&A — Written Agreements Relating to NEO Employment — 

Indemnification Agreements.
Directors, Corporate Governance, and Executive Officers Executive Officers

FREDDIE MAC | 2017 Form 10-K 381

EXECUTIVE OFFICERS

As of February 15, 2018, our executive officers are as follows:

Donald H. Layton

Age Year of Affiliation Position

67 2012 Chief Executive Officer

Mr. Layton has served as our CEO and a member of our Board since May 2012. See Director 

Biographical Information for a brief biographical description for Mr. Layton.

James G. Mackey

Age Year of Affiliation Position

50 2013 Executive Vice President - Chief Financial Officer

Mr. Mackey has served as our EVP - Chief Financial Officer since November 2013. He joined us from 

Ally Financial Inc., an auto finance and direct banking financial services company, where he served as 

Executive Vice President and Chief Financial Officer beginning in June 2011, after serving as Interim 

Chief Financial Officer from April 2010. Mr. Mackey joined Ally Financial in March 2009 as Group Vice 

President and Senior Finance Executive. Previously, he served as Chief Financial Officer for the 

Corporate Investments, Corporate Treasury, and Private Equity divisions at Bank of America 

Corporation, a financial services firm, from 2007 to 2009.

David M. Brickman

Age Year of Affiliation Position

52 1999 Executive Vice President - Multifamily

Mr. Brickman has served as our EVP - Multifamily since February 2014 and prior to that served as our 

SVP - Multifamily since July 2011. In these roles, he has been responsible for overall management of our 

Multifamily business line. From June 2011 until July 2011, he served as SVP - Multifamily Capital 

Markets, and from March 2004 to June 2011, he served as Vice President in charge of Multifamily 

Capital Markets. In his previous roles at Freddie Mac, Mr. Brickman led the multifamily securitization, 

pricing, costing, portfolio management, and research teams; was responsible for the development and 

implementation of new quantitative pricing models and financial risk analysis frameworks for all 

multifamily programs; and designed and led the development of several of our multifamily loan and 

securitization products, including the Capital Markets Execution and the K-Deal Securitization Program. 

Prior to joining Freddie Mac in 1999, Mr. Brickman co-led the Mortgage Finance and Credit Analysis 

group in the consulting practice at PricewaterhouseCoopers LLP.
Directors, Corporate Governance, and Executive Officers Executive Officers

FREDDIE MAC | 2017 Form 10-K 382

Stacey Goodman

Age Year of Affiliation Position

55 2017 Executive Vice President - Chief Information Officer

Ms. Goodman has served as our EVP - Chief Information Officer since September 2017. In this role, she 

leads the Information Technology division and provides enterprise-wide leadership for the company’s 

technology activities. Previously, Ms. Goodman spent four years at CIT where she was the EVP and 

Chief Information and Operations Officer. Prior to working at CIT, she worked at Bank of America from 

2005 to 2011 in roles of increasing responsibility, last serving as managing director and divisional Chief 

Information Officer of global technology and operations. 

Anil D. Hinduja

Age Year of Affiliation Position

54 2015 Executive Vice President - Chief Enterprise Risk Officer

Mr. Hinduja has served as our EVP - Chief Enterprise Risk Officer since July 2015. In this role, he 

provides overall direction and leadership for the Risk function and is responsible for leading an 

integrated risk management framework for all aspects of risk across the entire company. He joined 

Freddie Mac from Barclays PLC, where he served in increasingly broader risk management roles 

beginning in 2009, including Chief Risk Officer for Barclays Africa Group Limited, Group Credit Director 

for Retail Credit Risk, and Chief Risk Officer for Barclays’ retail bank in the U.K. Prior to joining Barclays, 

Mr. Hinduja spent 19 years at Citigroup in diverse roles with increasing responsibility across finance, 

operations, sales and distribution, business, and risk management in global consumer businesses. In 

risk, he was Director for Global Consumer Credit Risk and then Chief Risk Officer for the Consumer 

Lending Group, where he was responsible for managing risk in the mortgage, auto, and student loan 

businesses. His tenure at Citigroup culminated in his term as President and CEO of Citi Home Equity.

Michael T. Hutchins

Age Year of Affiliation Position

62 2013 Executive Vice President - Investments and Capital Markets

Mr. Hutchins has served as our EVP - Investments and Capital Markets since January 2015 and prior to 

that served as SVP - Investments and Capital Markets from July 2013. Previously, Mr. Hutchins was CoFounder and Chief Executive Officer of PrinceRidge, a financial services firm. Prior to PrinceRidge, he 

was with UBS from 1996 to 2007, holding a variety of positions, including the Global Head of the Fixed 

Income Rates & Currencies Group. Prior to UBS, Mr. Hutchins worked at Salomon Brothers from 1986 

to 1996, where he held a number of management positions, including Co-Head of Fixed Income Capital 

Markets.
Directors, Corporate Governance, and Executive Officers Executive Officers

FREDDIE MAC | 2017 Form 10-K 383

David B. Lowman

Age Year of Affiliation Position

60 2013 Executive Vice President - Single-Family Business

Mr. Lowman has served as our EVP - Single-Family Business since May 2013. In addition, he served as 

a member of the Board of Managers of CSS from November 2014 through April 2017. Previously, Mr. 

Lowman served as a Senior Advisor to The Boston Consulting Group. Prior to that, he was the Chief 

Executive Officer of Chase Home Lending from 2006 to 2011. Before Chase Home Lending, he spent a 

decade in senior leadership roles in various lending businesses of Citigroup, including head of 

CitiMortgage and Citicorp Trust Bank, FSB. Before joining Citigroup, Mr. Lowman spent 11 years at The 

Prudential Home Mortgage Company, Inc. in progressively senior leadership roles. He started his career 

at KPMG where his clients included banks, thrifts, and mortgage bankers.

William H. McDavid

Age Year of Affiliation Position

71 2012 Executive Vice President - General Counsel & Corporate Secretary

Mr. McDavid has served as our EVP - General Counsel & Corporate Secretary since July 2012. 

Previously, he was Co-General Counsel of JPMorgan Chase from 2004 until his retirement in 2006 and 

was General Counsel of JPMorgan Chase from 2000 to 2004. Prior to that, he was General Counsel of 

various predecessors to JPMorgan Chase, including The Chase Manhattan Corporation from 1996 to 

2000 and Chemical Banking Corporation from 1988 to 1996. From 1981 to 1988, he was an Associate 

General Counsel at Bankers Trust Company, and from 1972 to 1981, he was an attorney with the law 

firm of Debevoise & Plimpton.

Jerry Weiss

Age Year of Affiliation Position

59 2003 Executive Vice President - Chief Administrative Officer

Mr. Weiss has served as our EVP - Chief Administrative Officer since August 2010. In this role, he 

manages the services and operations of Freddie Mac’s External Relations, including Government and 

Industry Relations and Public Policy; Public Relations and Corporate Marketing; Internal 

Communications; Making Home Affordable - Compliance; Conservatorship and Regulatory Affairs; and 

Economic and Housing Research organizations. In addition, since November 2014 he has served as a 

member of the Board of Managers of CSS and currently serves as its Chair. He also served as our CCO 

from August 2010 until June 2011. Prior to August 2010, Mr. Weiss served as our SVP and CCO and in 

various other senior management capacities since joining us in October 2003. Prior to joining us, 

Mr. Weiss worked from 1990 at Merrill Lynch Investment Managers, most recently as First Vice 

President and Global Head of Compliance. From 1982 to 1990, Mr. Weiss was with a national law 

practice in Washington, D.C., where he specialized in securities regulation and corporate finance 

matters.
Executive Compensation Compensation Discussion and Analysis

FREDDIE MAC | 2017 Form 10-K 384

Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

This section contains information regarding our compensation programs and policies (all of which have 

been approved by FHFA) and the compensation of the following individuals who we determined to be 

our Named Executive Officers, or NEOs, for the year ended December 31, 2017.

Named Executive Officers

Donald H. Layton Chief Executive Officer

James G. Mackey Executive Vice President - Chief Financial Officer

Michael T. Hutchins Executive Vice President - Investments and Capital Markets

David B. Lowman Executive Vice President - Single-Family Business

William H. McDavid Executive Vice President - General Counsel & Corporate Secretary

For information on our primary business objectives and the progress we made during 2017 toward 

accomplishing those objectives, see Introduction — About Freddie Mac.

Overview of Executive Management Compensation 

Program

Compensation in 2017 for each NEO, other than Mr. Layton, whose compensation is discussed below, 

was governed by the Executive Management Compensation Program, or EMCP. The EMCP balances 

our need to retain and attract executive talent with promoting the conservatorship objectives included in 

FHFA’s Conservatorship Scorecard, as well as goals separately established by management related to 

the commercial aspects of our business, which are included in our Corporate Scorecard. All 

compensation under the EMCP is delivered in cash because the Purchase Agreement does not permit 

us to provide equity-based compensation to our employees unless approved by Treasury. 

Additional information about the EMCP is provided below and in our Quarterly Report on Form 10-Q 

filed on August 4, 2015. 
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 385

Elements of Target TDC

Compensation under the EMCP in 2017 consisted of the following elements: 

Base Salary

Deferred Salary

The amount earned in each quarter, including interest, is paid on the last pay date of the corresponding quarter in the following year.

Fixed Deferred Salary

At-Risk Deferred Salary

To encourage achievement of conservatorship, corporate, and individual performance goals

Conservatorship Scorecard Corporate Scorecard/

Individual

$500,000 or less with

limited exceptions and

requires FHFA approval

To encourage executive retention Subject to reduction based on

Conservatorship Scorecard performance

Subject to reduction based on

performance against both the Corporate

Scorecard and individual objectives Equal to total Deferred Salary less

the At-Risk portion

Earned and paid bi-weekly

The objectives against which 2017 corporate performance was measured, together with the assessment 

of actual performance against those objectives, are described in Determination of 2017 At-Risk 

Deferred Salary — At-Risk Deferred Salary Based on Conservatorship Scorecard 

Performance and Determination of 2017 At-Risk Deferred Salary — At-Risk Deferred 

Salary Based on Corporate Scorecard Goals and Individual Performance. These 

performance measures were chosen because they reflected our 2017 priorities during conservatorship.

See Other Executive Compensation Considerations — Effect of Termination of 

Employment for information on the effect of a termination of employment, including the timing and 

payment of any unpaid portion of Deferred Salary and related interest. 

Executive Compensation Best Practices

What We Do What We Don't Do

Clawback provisions with a significant portion of

compensation subject to recapture and/or forfeiture

No agreements that guarantee a specific amount of

compensation for a specified term of employment

Use of an independent compensation consultant by the

Board’s Compensation Committee

No golden parachute payments or other similar change

in control provisions

Annual compensation risk review No tax “gross-ups”

Single executive perquisite, reimbursement of tax, estate,

and/or personal financial planning expenses (up to

$4,500 annually, with an additional $2,500 in the first

year of eligibility)

No hedging or pledging of company securities permitted

Evaluation of company performance against multiple

measures, including non-financial measures
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 386

CEO Compensation

Mr. Layton’s compensation in 2017 consisted solely of an annual Base Salary of $600,000, a level 

established by FHFA pursuant to the Equity in Government Compensation Act of 2015. In 2017, he did 

not, and currently does not, participate in the EMCP and therefore has no compensation subject to 

either corporate or individual performance. Mr. Layton's compensation in 2018 is unchanged from 2017.

Mr. Layton is eligible to participate in all employee benefit plans offered to Freddie Mac’s other senior 

executives under the terms of those plans.

Determination of 2017 Target TDC for Eligible NEOs 

Role of Compensation Consultant

As part of the annual process to determine the Target TDC for each of the eligible NEOs, the 

Compensation Committee receives guidance from Meridian Compensation Partners, LLC (“Meridian”), 

its independent compensation consultant. In addition to the annual process to determine Target TDC, 

Meridian provides guidance to the Compensation Committee throughout the year on other executive 

compensation matters.

Meridian has not provided the Compensation Committee with any non-executive compensation 

services, nor has the firm provided any consulting services to our management. During 2017, the 

Compensation Committee reviewed Meridian’s independence based on the factors outlined in Exchange 

Act Rule 10C-1(b)(4) and determined that Meridian continues to be independent.

2017 Comparator Group Companies

The Compensation Committee annually evaluates each eligible NEO’s Target TDC in relation to the 

compensation of executives in comparable positions at companies that are either in a similar line of 

business or are otherwise comparable for purposes of recruiting and retaining individuals with the 

necessary skills and capabilities. We refer to this group of companies as the Comparator Group.

When there is either no reasonable match or insufficient data from the Comparator Group for a position, 

or if Meridian believes that additional data sources would strengthen the analysis of competitive market 

compensation levels, the Compensation Committee may use alternative survey sources.

At FHFA’s recommendation, Freddie Mac and Fannie Mae have aligned their Comparator Groups so that 

consistent compensation data is used by both companies for the same or similar senior officer 

positions.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 387

The Comparator Group used in determining compensation for 2017 consisted of the following 

companies, which include no changes from the 2016 Comparator Group:

Allstate Citigroup* PNC

Ally Financial Fannie Mae Prudential

AIG Fifth Third Bancorp Regions Financial

Bank of America* The Hartford State Street

Bank of New York Mellon JPMorgan Chase* SunTrust

BB&T MetLife U.S. Bancorp

Capital One Northern Trust Wells Fargo*

* Only mortgage or real estate division-level compensation data from these diversified banking firms may be utilized where 

available and appropriate for the position being benchmarked.

The Compensation Committee has determined that, in addition to the companies above, the following 

companies will be included in the 2018 Comparator Group. These additional companies reflect our 

growing technology focus and provide the Compensation Committee with additional data to use when 

making executive compensation decisions. 

American Express KeyCorp Visa

Citizens Financial Group Mastercard Voya Financial

Discover Financial Services Synchrony Financial 

Establishing Target TDC

The Compensation Committee developed its 2017 Target TDC recommendations for the eligible NEOs, 

other than Mr. Hutchins, by reviewing data from the Comparator Group. For Mr. Hutchins, the 

Compensation Committee reviewed data from a broader financial services survey reflecting companies 

with significant assets under management. The Compensation Committee’s 2017 Target TDC 

recommendation for each of the eligible NEOs was reviewed and approved by FHFA. 

2017 Target TDC

The following table sets forth the components of 2017 Target TDC for each of our eligible NEOs.

2017 Target TDC

Named Executive Officer(1)

Base

Salary

Fixed

Deferred Salary

At-Risk

Deferred Salary Target TDC

James G. Mackey 500,000 1,775,000 975,000 3,250,000

Michael T. Hutchins 500,000 1,425,000 825,000 2,750,000

David B. Lowman 500,000 1,775,000 975,000 3,250,000

William H. McDavid 500,000 1,460,000 840,000 2,800,000

(1) Mr. Layton did not participate in the EMCP in 2017 and therefore is not included in this table. For a discussion of Mr. Layton’s compensation, see CEO 

Compensation.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 388

The 2017 Target TDC amounts reflected modest increases effective in late January 2017 from 2016 

levels for each eligible NEO after taking into account their individual performance and to move their 

compensation closer to the 50th percentile of competitive market compensation levels. For additional 

information, see 2017 Target TDC in our Annual Report on Form 10-K filed on February 16, 2017. 
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 389

Determination of 2017 At-Risk Deferred Salary

The Compensation Committee and FHFA considered our achievements in pursuing our primary 

business objectives, as well as other factors, in determining the funding level for At-Risk Deferred Salary 

in 2017. FHFA determined the funding level for the portion of At-Risk Deferred Salary based on 

Conservatorship Scorecard performance, and the Compensation Committee determined, with FHFA’s 

review and approval, the amounts payable to each eligible NEO for the portion of At-Risk Deferred 

Salary based on Corporate Scorecard goals and individual performance.

At-Risk Deferred Salary Based on Conservatorship Scorecard 

Performance

Half of each eligible NEO’s 2017 At-Risk Deferred Salary, or 15% of Target TDC, was subject to 

reduction based on FHFA’s assessment of the company’s performance against the objectives in the 

2017 Conservatorship Scorecard. FHFA independently assessed the company’s performance and 

determined that a 98% funding level was justified for the portion of the eligible NEOs’ At-Risk Deferred 

Salary based on the 2017 Conservatorship Scorecard. FHFA noted the following considerations in 

assessing our performance against the 2017 Conservatorship Scorecard:

Our contribution to maintaining the national housing finance markets through our efforts to simplify 

and standardize forms and approaches and refine aspects of loss mitigation, as well as continuing to 

advance the Neighborhood Stabilization Initiative;

Our continuing efforts to reduce taxpayer risk by pursuing new and innovative approaches to singlefamily and multifamily credit risk transfer transactions;

Our effective collaboration with CSS and Fannie Mae in moving the single security initiative and the 

common securitization platform forward, and our contribution to the successful implementation of 

the Uniform Closing Disclosure Dataset;

Our creativity, collaboration, and speed in evaluating and delivering solutions for those affected by 

Hurricanes Irma, Harvey, and Maria, which allowed homeowners to stay in their homes and move 

forward to focus on recovery; and

The important steps we took in the diversity and inclusion (“D&I”) area, including transactions with 

minority- and women-owned businesses. FHFA noted, however, that although we failed to establish 

certain quantifiable goals for D&I, substantial efforts made in 2017 position us to achieve this goal in 

early 2018.

In making its assessment, FHFA also considered the following:

The extent to which the company conducts initiatives in a safe and sound manner consistent with 

FHFA’s expectations for all activities; 

The extent to which the outcomes of the company’s activities support a competitive and resilient 

secondary mortgage market to support homeowners and renters; 

The extent to which the company conducts initiatives with consideration for D&I consistent with 

FHFA’s expectations for all activities; 

Cooperation and collaboration with FHFA, Fannie Mae, CSS, the industry, and other stakeholders; 

and

The quality, thoroughness, creativity, effectiveness, and timeliness of the company’s work products.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 390

The table below presents the Conservatorship Scorecard objectives and FHFA’s assessment of our 

achievement against those objectives.

Performance Goals FHFA’s Summary of Performance

Maintain, in a safe and sound manner, credit availability and foreclosure prevention activities for new and

refinanced mortgages to foster liquid, efficient, competitive, and resilient national housing finance markets. (40%)

Work to increase access to single-family mortgage credit for creditworthy

borrowers, including underserved segments of the market:

All goals were achieved with the creation of a

multiyear plan to support access to credit for

underserved segments in 2018 and beyond; the

launch of policies and products to support future

borrowers; and the implementation of Loan

Prospector Advisor, a tool for counselors to assess

consumers' readiness for homeownership.

• Continue to assess opportunities to address credit access and develop

recommendations for improvements where appropriate:

Conduct research to assess opportunities for responsibly supporting

access to credit for underserved borrower groups.

Leveraging research and analysis, develop pilots and initiatives that take

into account the changing circumstances and needs of the borrower

population.

Support access to credit for borrowers with limited English proficiency by

assessing the impact of language barriers throughout the mortgage life

cycle and developing a plan to improve access to credit that is

appropriate for the company.

• Continue to improve the effectiveness of pre-purchase counseling and

homeownership education through technology, data analysis, and other

opportunities as appropriate.

• Conclude assessment of updated credit score models for underwriting,

pricing, and investor disclosures, and, as appropriate, plan for

implementation.

Finalize post-crisis loss mitigation activities: All goals were achieved with the implementation of 

the Flex Modification program; the Mortgage 

Assistance Application program, which replaces the 

Uniform Borrower Assistance Form; and Imminent 

Default determination. 

• Implement the post-crisis permanent modification for borrowers with longterm hardships and finalize related activities, including updates to the

Uniform Borrower Assistance Form.

• Develop other post-crisis loss mitigation options for borrowers, including

solutions for borrowers with short-term hardships and guidelines for

foreclosure alternatives such as short sale and deed-in-lieu. Develop an

implementation plan and timeline for these offerings.

Continue to responsibly reduce the number of severely-aged delinquent

loans and real estate owned properties:

All goals were achieved with the company

demonstrating diligence and collaboration in the

Neighborhood Stabilization Initiative ("NSI")

program resulting in responsible disposition of Real

Estate Owned properties in hardest-hit

communities, the implementation of a donation and

demolition plan that supports neighborhood

stabilization and the expansion of the NSI into ten

additional markets.

• Continue to implement strategies to responsibly reduce the number of

severely-aged delinquent loans held by the company with a focus on

providing home retention options for borrowers when possible, including

through non-performing loan sales.

• Continue to responsibly reduce the number of real estate owned properties

held by the company, including through the Neighborhood Stabilization

Initiative.

Assess the current mortgage servicing business model: All goals were achieved.

• With the objective of ensuring ongoing liquidity in the mortgage servicing

market and ensuring counterparty strength, initiate a multiyear assessment

of both the challenges facing the mortgage servicing market and potential

solutions for identified issues.

• Work collaboratively with industry stakeholders and seek stakeholder

feedback in assessing these challenges and potential solutions.

Explore opportunities to further support liquidity in multifamily affordable

housing:

Goal was achieved.

• Explore opportunities to further support liquidity in multifamily affordable

housing, including through pilots and initiatives. Research and analysis are

encouraged in the following areas: workforce housing, affordability in highcost and very-high cost areas, targeted affordable housing, small multifamily

properties, manufactured housing rental community blanket loans, senior

housing, rural housing, energy efficiency, and other areas as identified by the

company.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 391

Performance Goals FHFA’s Summary of Performance

Manage the dollar volume of new multifamily business to remain at or

below $36.5 billion:

Goal was achieved.

• Loans in affordable and underserved market segments, as defined by FHFA,

are to be excluded from the $36.5 billion cap for the company.

Reduce taxpayer risk through increasing the role of private capital in the mortgage market (30%)

Single-Family Credit Risk Transfers: All goals were achieved through the company's

innovative approaches to transferring credit risk on

single-family mortgages. • Transfer a meaningful portion of credit risk on at least 90 percent of the UPB

of newly acquired single-family mortgages in loan categories targeted for

risk transfer. For 2017, targeted single-family loan categories include: nonHARP and non-high LTV refinance, fixed-rate mortgages with terms greater

than 20 years and loan to value ratios above 60 percent.

• Continue efforts to evaluate and implement economically feasible ways to

transfer credit risk on other types of newly acquired single-family mortgages

that are not included in the targeted loan categories.

• Identify, evaluate, and address significant issues from the 2016 Request for

Input on advancing the company's and Fannie Mae's credit risk transfer

programs, including through consideration of front-end credit risk transfers.

Multifamily Credit Risk Transfers: All goals were achieved through the company’s 

innovative approaches to transfer risk on 

multifamily mortgages. • Transfer a meaningful portion of credit risk on at least 80 percent of the UPB

of newly acquired multifamily mortgages.

• Continue efforts to evaluate, and implement if economically feasible, further

ways to transfer additional credit risk.

Retained Portfolio: Goal was achieved.

• Execute FHFA-approved retained portfolio plans that meet, even under

adverse conditions, the annual PSPA requirements and the $250 billion PSPA

cap by December 31, 2018.

Any sales should be commercially reasonable transactions that consider

impacts to the market, borrowers, and neighborhood stability.

Private Mortgage Insurer Eligibility Requirements (PMIERs 2.0): Goal was achieved.

• Evaluate existing PMIERs and whether changes or updates are appropriate.

Build a new single-family infrastructure for use by the Enterprises and adaptable for use by other participants in

the secondary market in the future (30%)

Common Securitization Platform and Single Security: All goals were achieved with focus on activities to

support the implementation of Single Security in 2Q

2019. • Continue working with FHFA, each other, and CSS to: 1) build and test the

CSP; 2) implement the changes necessary to integrate the Enterprises’

related systems and operations with the CSP; and 3) implement the Single

Security on the CSP for both Enterprises.

• Incorporate the following design principles in developing the CSP:

Focus on the functions necessary for current Enterprise single-family

securitization activities.

Include the development of operational and system capabilities necessary

for CSP to facilitate the issuance and administration of a Single Security

for the Enterprises.

Allow for the integration of additional market participants in the future.

• Continue to work with each other and CSS to obtain and utilize input from

the Single Security/CSP Industry Advisory Group.

Provide Active Support for Mortgage Data Standardization Initiatives: Goal was achieved.

• Continue the development and implementation of the Uniform Closing

Disclosure Dataset.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 392

At-Risk Deferred Salary Based on Corporate Scorecard Goals and 

Individual Performance

The other half of each eligible NEO’s At-Risk Deferred Salary, also equal to 15% of Target TDC, was 

subject to reduction based on the company’s performance against the Corporate Scorecard goals and 

the NEO’s individual performance. The five Corporate Scorecard goals drive how we manage and 

improve the commercial aspects of our business and are intended to complement the FHFA Strategic 

Plan and Conservatorship Scorecard. Certain of the individual performance objectives for the eligible 

NEOs were either Conservatorship Scorecard objectives or Corporate Scorecard goals, or directly 

supported their achievement. 

No weightings were assigned to the Corporate Scorecard goals. As a result, it was necessary for the 

Compensation Committee to use its judgment in determining the overall level of performance. In making 

its determination, the Committee primarily considered the fact that the vast majority of the Corporate 

Scorecard goals were achieved or exceeded. The Compensation Committee determined that, based on 

the company’s performance against the Corporate Scorecard, no reduction should be applied due to 

company performance for this portion of At-Risk Deferred Salary.

The Board has adopted Corporate Scorecard goals for 2018 that are substantially similar to the 2017 

goals.

The table below presents the Corporate Scorecard goals and the Compensation Committee’s 

assessment of our achievement against those goals. 

Corporate Scorecard Goal Assessment of Performance

Customer The company achieved or exceeded all elements of this goal. The multifamily business exceeded 

its target for customer satisfaction while the single-family business achieved its target for 

customer satisfaction, remaining in line with top performing financial institutions. Compete for business by being a

customer-centric organization

People and Culture The company achieved or exceeded all elements of this goal. The company continued to improve 

leadership diversity, and the retention of high-performing employees remained strong resulting 

in above-plan results for both. Focused efforts to build the company's desired culture continue to 

yield positive results, including strong scores on the company's People Survey and 

improvements in the practice of filling management roles with internal candidates.

Hire and retain talented people in a

winning culture

Operating Performance The company achieved or exceeded all but three elements of this goal. Comprehensive income 

was above-plan, except for one single-family element, which was below-plan. The corporate 

G&A expenses were above-plan, as were both the multifamily new business volume and the 

company focus on reducing less liquid assets in the retained portfolio. The company failed to 

achieve two other elements, related to single-family GSE market share and single-family current 

year returns.

Operate as well as the best-run

financial institutions

Risk and Capital Management The company achieved or exceeded all elements of this goal. The company continued to mitigate

its risk through the transfer of credit risk on single-family new business. The multifamily

business exceeded its risk transfer target.

Manage risk and capital as well as

the largest financial institutions

Community Mission Based on preliminary information, the company believes it met all five single-family affordable 

housing goals. The company also believes it achieved all three multifamily affordable housing 

goals and exceeded the target for uncapped new multifamily volume (including Green Advantage 

offerings). 

Responsibly increase access to 

housing finance
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 393

The Compensation Committee also assessed the individual performance of each eligible NEO. In 

making its assessments, the Committee took into consideration input from Mr. Layton as well as the 

company’s Corporate Scorecard performance. In each case, the Compensation Committee’s 

determination was consistent with Mr. Layton’s recommendation. FHFA reviewed and approved the 

compensation associated with these determinations.

Each NEO’s individual performance is discussed below.

James G. Mackey, Executive Vice President - Chief Financial Officer

Performance Highlights

Implemented hedge accounting successfully to better align economic and GAAP earnings.

Continued operational efficiency improvements, which included enhanced financial planning and analysis capabilities, 

increased use of reporting tools to simplify operations, and either streamlined or automated redundant manual processes.

Implemented a new framework to manage G&A costs, which included identification of operational efficiencies, developing 

new approaches to reinvest in the business and generally better discipline, along with effective intra-year resource 

redeployment.

Strong leadership in the ongoing development of management in the Finance Division, including the continued build-out 

of the leadership team and ongoing job rotation programs for key personnel. 

At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision

The Compensation Committee determined that Mr. Mackey should receive 100% of his At-Risk Deferred Salary that was

subject to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.

Michael T. Hutchins, Executive Vice President - Investments and Capital Markets

Performance Highlights

Strong leadership of the company’s market activities, with continuing innovation of new ways to support the guarantee 

businesses and reduce legacy and on-going risk exposures.

Continued to execute multi-year Retained Portfolio Plan, which included reduction in the overall size of the retained 

portfolio.

Partnered with other divisions, especially the Single-Family Business, to expand the suite of mortgage capital market 

services offered to Freddie Mac customers.

Continued to enhance the liquidity and efficiency of the company’s mortgage-related securities.

Managed successful execution of risk management objectives, including credit risk transfer of legacy mortgage credit 

risk, maintaining economic interest-rate risk at modeled low levels and efficiently meeting the company’s liquidity and 

funding needs.

Demonstrated strong expense discipline while supporting investments to strengthen operational, technology and model 

risk management.

Partnered with the Finance Division to successfully implement hedge accounting to better align economic and GAAP 

earnings.

At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision

The Compensation Committee determined that Mr. Hutchins should receive 100% of his At-Risk Deferred Salary that was

subject to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 394

David B. Lowman, Executive Vice President - Single-Family Business

Performance Highlights

Strong leadership of the Single-Family Business, with continued focus on increasing competitiveness, managing risks, 

improving operations, and enhancing technology.

Achieved higher Single-Family earnings in 2017 versus 2016.

Expanded the utilization and capabilities of the Loan Advisor Suite.

Continued to innovate and execute credit risk transfer transactions. Further expanded offerings to include HARP collateral 

and enhanced loss layer structuring to optimize coverage and deepen investor market.

FHFA declared that all Single-Family affordable housing goals were achieved.

At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision

The Compensation Committee determined that Mr. Lowman should receive 100% of his At-Risk Deferred Salary that was

subject to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.

William H. McDavid, Executive Vice President - General Counsel & Corporate Secretary

Performance Highlights

Supervised the successful resolution of a variety of lawsuits resulting in favorable terms; helped effectively navigate a 

variety of regulatory initiatives.

Advised the Board and senior management on a wide variety of significant legal and governance issues.

Effectively supported the increased volumes and complexity of mortgage purchases and securitizations, the increased 

volume and new designs for credit risk transfer transactions, and the new types of loan sales and securitizations in the 

retained portfolio.

Provided effective legal support for the evolving needs of the company, and continued to maintain a high level of internal 

client satisfaction.

At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision

The Compensation Committee determined that Mr. McDavid should receive 95% of his At-Risk Deferred Salary that was

subject to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.

2017 Deferred Salary

The following chart reports the actual amounts of 2017 Deferred Salary for each eligible NEO, which 

reflect proration of the target amounts of deferred salary, as such targets were increased in late January 

2017. The actual amount earned in each calendar quarter is scheduled to be paid on the last pay date of 

the corresponding calendar quarter in 2018. 

 2017 Actual Deferred Salary(2)

Fixed

At-Risk

Total Actual 

Deferred

Salary

% of

Target Named Executive 

Officer(1)

Conservatorship

Scorecard

% of

Target

Corporate

Scorecard/

Individual

% of

Target

Mr. Mackey 1,763,818 475,402 98% 485,104 100% 2,724,324 99.6%

Mr. Hutchins 1,394,575 396,432 98% 404,522 100% 2,195,529 99.6%

Mr. Lowman 1,763,818 475,402 98% 485,104 100% 2,724,324 99.6%

Mr. McDavid 1,451,054 409,721 98% 397,179 95% 2,257,954 98.7%

(1) Mr. Layton was not eligible for deferred salary in 2017 and therefore is not included in this table.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 395

(2) The amounts of actual deferred salary differ from the amounts presented in the 2017 Target TDC table because the slight increase to NEO target 

TDC amounts only became effective in late January 2017.

Written Agreements Relating to NEO Employment

We entered into letter agreements with each of our NEOs in connection with their hiring. Although the 

letter agreements set forth specific initial levels of Base Salary and, where applicable, Target TDC, the 

compensation of each NEO is subject to change by FHFA and to the terms of the EMCP.

We also entered into restrictive covenant and confidentiality agreements with each of our NEOs in 

connection with their hiring. The non-competition and non-solicitation provisions included in the 

restrictive covenant and confidentiality agreements are described in Restrictive Covenant and 

Confidentiality Agreements.

The NEOs are not currently entitled to a guaranteed level of severance benefits upon any type of 

termination event. For additional information on compensation and benefits payable in the event of a 

termination of employment, see Potential Payments Upon Termination of Employment.

Mr. Layton

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with 

Mr. Layton in connection with his employment as our CEO. The terms of Mr. Layton’s letter agreement 

provide him with an annual Base Salary of $600,000 and the opportunity to participate in all employee 

benefit plans offered to Freddie Mac’s executive officers pursuant to the terms of these plans. Copies of 

Mr. Layton’s letter agreement and restrictive covenant and confidentiality agreement were filed as 

Exhibits 10.1 and 10.2, respectively, to our Current Report on Form 8-K filed on May 10, 2012. 

Mr. Mackey

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with Mr. 

Mackey in connection with his employment as our CFO. The terms of Mr. Mackey’s letter agreement 

originally provided him with an annual Target TDC opportunity of $3,000,000, consisting of Base Salary 

of $500,000 and Deferred Salary of $2,500,000, and the opportunity to participate in all employee 

benefit plans offered to Freddie Mac’s executive officers pursuant to the terms of these plans. Copies of 

Mr. Mackey’s letter agreement and restrictive covenant and confidentiality agreement were filed as 

Exhibits 10.1 and 10.2, respectively, to our Current Report on Form 8-K filed on September 30, 2013. 

Mr. Hutchins

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with Mr. 

Hutchins in connection with his employment as our EVP - Investments and Capital Markets (SVP - 

Investments and Capital Markets at the time he began his service). The terms of Mr. Hutchins’ letter 

agreement originally provided him with an annual Target TDC opportunity of $2,000,000, consisting of 

Base Salary of $500,000 and Deferred Salary of $1,500,000, and the opportunity to participate in all 

employee benefit plans offered to Freddie Mac’s executive officers pursuant to the terms of these plans. 

The company has also agreed that Mr. Hutchins may, subject to Mr. Layton’s approval, take additional 

days off from time to time as unpaid leave. Copies of Mr. Hutchins’ letter agreement and restrictive 
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 396

covenant and confidentiality agreement were filed as Exhibits 10.32 and 10.33, respectively, to our 

Annual Report on Form 10-K filed on February 18, 2016.

Mr. Lowman

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with Mr. 

Lowman in connection with his employment as our EVP - Single-Family Business. The terms of Mr. 

Lowman’s letter agreement originally provided him with an annual Target TDC opportunity of 

$3,000,000, consisting of Base Salary of $500,000 and Deferred Salary of $2,500,000, and the 

opportunity to participate in all employee benefit plans offered to Freddie Mac’s executive officers 

pursuant to the terms of these plans. Copies of Mr. Lowman’s letter agreement and restrictive covenant 

and confidentiality agreement were filed as Exhibits 10.48 and 10.49, respectively, to our Annual Report 

on Form 10-K filed on February 27, 2014.

Mr. McDavid

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with Mr. 

McDavid in connection with his employment as our EVP - General Counsel and Corporate Secretary. 

The terms of Mr. McDavid’s letter agreement originally provided him with an annual Target TDC 

opportunity of $2,600,000, which consists of Base Salary of $500,000 and Deferred Salary of 

$2,100,000, and the opportunity to participate in all employee benefit plans offered to Freddie Mac’s 

executive officers pursuant to the terms of these plans. Copies of Mr. McDavid’s letter agreement and 

restrictive covenant and confidentiality agreement were filed as Exhibits 10.1 and 10.2, respectively, to 

our Current Report on Form 8-K filed on July 9, 2012. 

Restrictive Covenant and Confidentiality Agreements

Each of our NEOs is subject to a restrictive covenant and confidentiality agreement with us. Each 

agreement provides that the NEO will not seek employment with designated competitors that involves 

performing similar duties for a specified period immediately following termination of employment, 

regardless of whether the executive’s employment is terminated by the executive, by us, or by mutual 

agreement. The specified period is twenty-four months for Mr. Layton and twelve months for the other 

NEOs. During the twelve-month period immediately following termination, each NEO agrees not 

to solicit or recruit any of our managerial employees. The agreements also provide for the confidentiality 

of information that constitutes trade secrets or proprietary or other confidential information.

Recapture and Forfeiture Agreement

Freddie Mac has adopted, with the approval of FHFA, the Recapture and Forfeiture Agreement (the 

“Recapture Agreement”). In order to participate in the EMCP, each of our NEOs has entered into a 

Recapture Agreement. 

The Recapture Agreement provides for the recapture and/or forfeiture of Deferred Salary (including 

related interest) earned, paid, or to be paid pursuant to the terms of the EMCP if, after providing the 

required notice, our Board of Directors, in the good faith exercise of its sole discretion, determines that a 

Forfeiture Event has occurred. The Forfeiture Events and the Deferred Salary subject to recapture and/or 
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 397

forfeiture are described below. Mr. Layton’s Recapture Agreement applies only to the Deferred Salary he 

earned from July 1, 2015 through November 24, 2015. 

Materially Inaccurate Information

Forfeiture Event: The NEO has earned or obtained the legally binding right to a payment of Deferred 

Salary based on materially inaccurate financial statements or any other materially inaccurate 

performance measure.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred Salary in excess of the 

amount that the Board determines would likely have been otherwise earned using accurate 

measures during the two years prior to the Forfeiture Event.

Termination for Felony Conviction or Willful Misconduct

Forfeiture Event: The NEO’s employment is terminated in any of the following circumstances:

Termination of employment because the NEO is convicted of, or pleads guilty or nolo contendere 

to, a felony;

Subsequent to termination of employment, the NEO is convicted of, or pleads guilty or nolo 

contendere to, a felony, based on conduct occurring prior to termination, and within one year of 

such conviction or plea, the Board determines that such conduct is materially harmful to Freddie 

Mac.

Termination of employment because, or within two years of termination, the Board determines 

that, the NEO engaged in willful misconduct in the performance of his or her duties that was 

materially harmful to Freddie Mac.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred Salary earned during the 

two years prior to the date that the NEO is terminated, any Deferred Salary scheduled to be paid 

within two years after termination, and any cash payment made or to be made as consideration for 

any release of claims agreement.

Gross Neglect or Gross Misconduct

Forfeiture Event: The NEO’s employment is terminated because, in carrying out his or her duties, 

the NEO engages in conduct that constitutes gross neglect or gross misconduct that is materially 

harmful to Freddie Mac, or within two years after the NEO’s termination of employment, the Board 

determines that the NEO, prior to his or her termination, engaged in such conduct.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred Salary paid at the time of 

termination or subsequent to the date of termination, including any cash payment made as 

consideration for any release of claims agreement.

Violation of a Post-Termination Non-Competition Covenant 

Forfeiture Event: The NEO violates a post-termination non-competition covenant set forth in the 

restrictive covenant and confidentiality agreement in effect when a payment of Deferred Salary is 

scheduled to be made.

Compensation Subject to Recapture and/or Forfeiture: 50% of the Deferred Salary paid during 

the twelve months immediately preceding the violation and 100% of any unpaid Deferred Salary.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 398

Under the Recapture Agreement, the Board has discretion to determine the appropriate dollar amount, if 

any, to be recaptured from and/or forfeited by the NEO, which is intended to be the gross amount of 

compensation in excess of what Freddie Mac would have paid the NEO had Freddie Mac taken the 

Forfeiture Event into consideration at the time such compensation decision was made.

A copy of the form of the Recapture Agreement was filed as Exhibit 10.18 to our Annual Report on Form 

10-K filed on February 16, 2017.

The following additional event is applicable only to the CEO and CFO, to the extent they have 

compensation subject to reimbursement in accordance with Section 304 of the Sarbanes-Oxley Act.

Accounting Restatement Resulting from Misconduct — If, as a result of misconduct, we are 

required to prepare an accounting restatement due to material non-compliance with financial 

reporting requirements, the CEO and CFO are required to reimburse us for amounts determined in 

accordance with Section 304.

Indemnification Agreements

We have entered into indemnification agreements with each of our current executive officers (including 

each of our NEOs) and directors, each an indemnitee. For indemnification agreements entered into with 

executive officers in or after August 2011, the form of agreement has been revised to provide that 

indemnification rights under the agreement would terminate if and when the executive officer remained 

with Freddie Mac after ceasing to report directly to the CEO with respect to any claims arising from 

matters occurring after the officer no longer reported directly to the CEO. Similar indemnification rights 

would continue to be available to such executive officers under the Bylaws going forward. The 

indemnification agreements provide that we will indemnify the indemnitee to the fullest extent permitted 

by our Bylaws and Virginia law. This obligation includes, subject to certain terms and conditions, 

indemnification against all liabilities and expenses (including attorneys’ fees) actually and reasonably 

incurred by the indemnitee in connection with any threatened or pending action, suit, or proceeding, 

except such liabilities and expenses as are incurred because of the indemnitee’s willful misconduct or 

knowing violation of criminal law. The indemnification agreements provide that if requested by the 

indemnitee, we will advance expenses, subject to repayment by the indemnitee of any funds advanced if 

it is ultimately determined that the indemnitee is not entitled to indemnification. The rights to 

indemnification under the indemnification agreements are not exclusive of any other right the indemnitee 

may have under any statute, agreement, or otherwise. Our obligations under the indemnification 

agreements will continue after the indemnitee is no longer a director or officer of the company with 

respect to any possible claims based on the fact that the indemnitee was a director or officer, and the 

indemnification agreements will remain in effect in the event the conservatorship is terminated. The 

indemnification agreements also provide that indemnification for actions instituted by FHFA will be 

governed by the standards set forth in FHFA’s Notice of Proposed Rulemaking, published in the Federal 

Register on November 14, 2008, implementing 12 U.S.C. 4518. That proposed rulemaking has not yet 

been finalized, and FHFA published a revised Proposed Rule on Indemnification Payments in the Federal 

Register on September 20, 2016. The revised Proposed Rule specifies restrictions on indemnification for 

actions instituted by FHFA, but indicates that the rule would not apply to regulated entities that are 

operating in conservatorship.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 399

Other Executive Compensation Considerations

Effect of Termination of Employment

The timing and payment of any unpaid portion of Deferred Salary and related interest is based upon the 

reason for termination, as discussed in Potential Payments Upon Termination of Employment.

Perquisites

We believe that perquisites should be a minimal part of the compensation package for our NEOs. Total 

annual perquisites for any NEO cannot exceed $25,000 without FHFA approval, and we do not provide a 

gross-up to cover any taxes due on the perquisite itself. The only perquisite provided to our NEOs during 

2017 was reimbursement for assistance with personal financial planning, tax planning, and/or estate 

planning, up to an annual maximum benefit of $4,500, with an additional $2,500 allowance provided in 

the first year in which an NEO becomes eligible for the benefit.

SERP

Our NEOs are eligible to participate in our SERP. The SERP is designed to provide participants with the 

full amount of benefits to which they would have been entitled under our Thrift/401(k) Plan if that plan 

was not subject to certain dollar limits under the Internal Revenue Code. This is referred to as the “SERP 

Benefit.” As of 2012, for participants in the EMCP (or prior executive compensation programs), no SERP 

Benefit is accrued with respect to annual pay in excess of two times a participant’s Base Salary. 

For additional information regarding these benefits, see 2017 Compensation Information for 

NEOs and Nonqualified Deferred Compensation.

Stock Ownership, Hedging, and Pledging Policies

Our stock ownership guidelines were suspended when conservatorship began because we ceased 

paying our executives stock-based compensation. The Purchase Agreement prohibits us from issuing 

any shares of our equity securities without the prior written consent of Treasury. The suspension of stock 

ownership requirements is expected to continue through conservatorship and until such time that we 

resume granting stock-based compensation.

Pursuant to our company policy, all employees, including our NEOs, are prohibited from: 

Engaging in all transactions (including purchasing and selling equity and non-equity securities) 

involving our securities (except selling company securities owned prior to the implementation of the 

policy and then only with pre-clearance);

Purchasing or selling derivative securities related to our equity securities or dealing in any derivative 

securities related to our equity securities;

Transacting in options (other than options granted by us, and then only with pre-clearance) or other 

hedging instruments related to our securities; and

Holding our securities in a margin account or pledging our securities as collateral for a loan.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 400

FHFA's Role in Setting Compensation

Although the Compensation Committee plays a significant role in considering and recommending 

executive compensation, FHFA is actively involved in determining such compensation in its role as our 

Conservator and as our regulator. The Compensation Committee’s authority and flexibility is, therefore, 

subject to certain limitations, including:

The powers of FHFA as our Conservator include the authority to set executive compensation. Under 

the terms of the Purchase Agreement, FHFA is required to consult with Treasury on any increases in 

compensation or new compensation arrangements for our executive officers.

Our directors serve on behalf of the Conservator and exercise their authority as directed by the 

Conservator. More information about the role of our directors is provided above in Directors, 

Corporate Governance, and Executive Officers — Board and Committee Information — 

Authority of the Board and Board Committees.

FHFA requires us to submit to it proposed new compensation arrangements or increased amounts or 

benefits payable under existing compensation arrangements for certain senior officers.

FHFA retains the authority not only to approve both the terms and amount of any compensation prior 

to payment to any of our executive officers, but also to modify any existing compensation 

arrangements.

Section 162(m) Limits on the Tax Deductibility of Compensation 

Expenses

Section 162(m) of the Internal Revenue Code imposes a $1 million limit on the amount that a company 

may annually deduct for compensation to its CEO and certain other NEOs. Prior to the enactment of the 

Tax Cuts and Jobs Act, this limit did not apply if the compensation was “performance-based,” as 

defined in section 162(m). Given the conservatorship and the desire to maintain flexibility to promote our 

corporate goals, At-Risk Deferred Salary has not been structured to qualify as performance-based 

compensation under section 162(m).

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and 

Analysis with management and, based on such review and discussion, has recommended to the Board 

that the Compensation Discussion and Analysis be included in this Form 10-K.

This report is respectfully submitted by the members of the Compensation Committee.

Steven W. Kohlhagen, Chair

Carolyn H. Byrd

Saiyid T. Naqvi

Eugene B. Shanks, Jr.
Executive Compensation Compensation and Risk

FREDDIE MAC | 2017 Form 10-K 401

COMPENSATION AND RISK

Our management conducted an assessment of our compensation policies and practices that apply to 

employees at all levels, including those participating in the EMCP. The purpose of the assessment was 

to determine whether any elements of the overall compensation program encourage unnecessary or 

excessive risk taking by employees in the achievement of stated corporate objectives or pursuit of 

individual compensation targets. The assessment was conducted by members of our ERM and human 

resources teams.

The review included an evaluation of:

The types of compensation offered (including fixed, variable, and deferred);

Eligibility for participation in compensation programs;

Compensation program design and governance;

The process for establishing performance objectives; and

Processes and program approvals for our compensation programs.

The assessment was discussed with the Compensation Committee in January 2018. Management’s 

conclusion, with which the Compensation Committee concurred, is that the company’s compensation 

programs and practices do not encourage unnecessary or excessive risk behaviors in pursuit of 

Corporate or Conservatorship Scorecard objectives or otherwise, and the programs and practices would 

not be reasonably likely to have a material adverse effect on Freddie Mac.

CEO PAY RATIO

SEC rules require annual disclosure of the ratio of a company's CEO’s total annual compensation to that 

of its median employee. For 2017, we identified our median employee as of October 29, 2017, using 

payroll data as reported on Form W-2, Box 1 and annualized the compensation for individuals that had 

not worked the full year. After identifying the median employee, we calculated that employee’s total 

annual compensation for 2017 using the same method required for calculating the CEO's (and other 

NEOs') total annual compensation for purposes of the Summary Compensation Table. The table 

below sets forth the total annual compensation for our CEO and median employee and the ratio 

between the two.

CEO Pay Ratio

Employee Total Compensation Ratio

Donald H. Layton (CEO) $651,000

5.29 to 1

Median Employee $123,027

Per the Equity in Government Compensation Act of 2015, the CEO’s compensation is limited to a base 

salary of $600,000. See CEO Compensation for further discussion of Mr. Layton’s compensation. 

Given the different methodologies that companies may use to determine their CEO pay ratio, the ratio 

reported above should not be used as a basis for comparison between companies.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 402

2017 COMPENSATION INFORMATION FOR 

NEOs

The following sections set forth compensation information for our NEOs: our CEO, CFO, and the three 

other most highly compensated executive officers who were serving as executive officers as of 

December 31, 2017.

Summary Compensation Table

 Salary

Bonus

Non-Equity 

Incentive Plan 

Compensation(3)

All Other 

Compensation(4) Total Named Executive

Officer Year

Earned 

During Year(1) Deferred(2)

Donald H. Layton 2017 $600,000 $— $— $— $51,000 $651,000

Chief Executive Officer 2016 600,000 — — — 101,609 701,609

2015(5) 660,345 818,886 — 472,748 56,958 2,008,937

James G. Mackey 2017 500,000 1,763,818 — 964,588 92,496 3,320,902

EVP — Chief Financial

Officer

2016 500,000 1,600,000 — 893,896 89,874 3,083,770

2015 500,000 1,600,000 — 887,608 86,674 3,074,282

Michael T. Hutchins(6) 2017 490,447 1,394,575 — 804,358 89,305 2,778,685

EVP — Investments and

Capital Markets

2016(7) 482,759 1,219,178 — 726,545 85,897 2,514,379

2015 461,810 1,181,728 — 699,274 79,659 2,422,471

David B. Lowman 2017 500,000 1,763,818 — 964,588 92,496 3,320,902

EVP — Single-Family

Business

2016 500,000 1,600,000 — 893,896 89,874 3,083,770

2015 500,000 1,600,000 — 887,608 86,674 3,074,282

William H. McDavid 2017 500,000 1,451,054 — 810,330 91,167 2,852,551

EVP — General Counsel

& Corporate Secretary

2016 500,000 1,320,000 — 755,146 88,964 2,664,110

2015 500,000 1,320,000 — 769,260 86,324 2,675,584

(1) Amounts shown reflect Base Salary earned during the year. 

(2) Amounts shown reflect Fixed Deferred Salary earned during the year. The interest rate for Fixed Deferred Salary earned during 2017, 2016, and 

2015 was 0.425%, 0.325%, and 0.125%, respectively, which is equal to 50% of the one-year Treasury Bill rate as of December 31 of the applicable 

prior year. Fixed Deferred Salary earned during each quarter is paid in cash on the last pay date of the corresponding quarter in the following year, 

along with accrued interest. The remaining portion of Deferred Salary is reported in “Non-Equity Incentive Plan Compensation” and is referred to as 

“At-Risk” because it is subject to reduction based on corporate and individual performance. Interest on Fixed Deferred Salary earned during 2017, 

2016, and 2015 is included in All Other Compensation. 

(3) Amounts shown reflect At-Risk Deferred Salary earned during each year as well as interest on that At-Risk Deferred Salary. The interest rate for AtRisk Deferred Salary earned during 2017, 2016, and 2015 was the same as noted for the interest rate for the Fixed Deferred Salary. At-Risk Deferred 

Salary earned during each quarter is paid in cash on the last pay date of the corresponding quarter in the following year. See Determination of 

2017 At-Risk Deferred Salary.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 403

(4) Amounts for 2017 reflect (i) employer contributions earned under our tax-qualified Thrift/401(k) Plan for the year; (ii) accruals earned pursuant to the 

SERP Benefit for the year; (iii) interest (as described in footnote 2) on Fixed Deferred Salary earned during the year; and (vi) perquisites. These 

amounts for 2017 are as follows:

Named Executive Officer Thrift/401(k) Plan

Contributions

SERP Benefit

Accruals

Interest on Fixed

Deferred Salary Perquisites

Mr. Layton $22,950 $28,050 $— $—

Mr. Mackey 22,950 62,050 7,496 —

Mr. Hutchins 22,950 60,428 5,927 —

Mr. Lowman 22,950 62,050 7,496 —

Mr. McDavid 22,950 62,050 6,167 —

Employer contributions to the Thrift/401(k) Plan are generally available on the same terms to all of our employees. After the first year of employment, 

we match up to 6% of eligible compensation at 100% of the employee’s contributions. Employee contributions and our matching contributions are 

invested in accordance with the employee’s investment elections and are immediately vested. After their first year of employment, employees 

receive an additional employer contribution to our Thrift/401(k) Plan equal to 2.5% of compensation earned in the prior year and are automatically 

vested in that contribution. For additional information regarding the SERP Benefit, see Nonqualified Deferred Compensation.

Perquisites are valued at their aggregate incremental cost to us. During the years reported, the aggregate value of perquisites received by all NEOs 

was less than $10,000. In accordance with SEC rules, amounts shown under “All Other Compensation” do not include perquisites for an NEO that, in 

the aggregate, amount to less than $10,000.

(5) On June 29, 2015, FHFA approved Mr. Layton’s participation in the EMCP, effective July 1, 2015. On December 1, 2015, FHFA subsequently directed 

Freddie Mac to suspend, pursuant to the Equity in Government Compensation Act of 2015, his participation as of November 24, 2015. The 

components of Mr. Layton’s Target TDC under the EMCP are described in the company’s Annual Report on Form 10-K filed on February 18, 2016 in 

Executive Compensation — Compensation Discussion and Analysis — Determination of 2015 Target TDC for NEOs — 2015 Target 

TDC.

(6) Amounts reported for Mr. Hutchins in the Salary-Earned During Year, Salary-Deferred and Non-Equity Incentive Plan Compensation columns are less 

than the corresponding annual target amounts because he took additional vacation as leave without pay during 2015, 2016 and 2017.

(7) Pursuant to SEC reporting requirements, we are reporting amounts earned by Mr. Hutchins in 2016 even though he was not an NEO for that fiscal 

year.

Grants of Plan-Based Awards

The following table contains information concerning grants of plan-based awards to each of the NEOs 

during 2017. The Purchase Agreement prohibits us from issuing equity securities without Treasury’s 

consent. No stock awards were granted during 2017. For a description of the performance and other 

measures used to determine payouts, see Elements of Target Total Direct Compensation, 

Determination of 2017 Target TDC for NEOs, Determination of At-Risk Deferred Salary, 

and 2017 Deferred Salary.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 404

 

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(2)

Named Executive Officer(1) At-Risk Deferred Salary Award Threshold Target/Maximum

Mr. Mackey Conservatorship Scorecard — 485,104

Corporate Scorecard/Individual — 485,104

Total — 970,208

Mr. Hutchins Conservatorship Scorecard — 404,522

Corporate Scorecard/Individual — 404,522

Total — 809,044

Mr. Lowman Conservatorship Scorecard — 485,104

Corporate Scorecard/Individual — 485,104

Total — 970,208

Mr. McDavid Conservatorship Scorecard — 418,083

Corporate Scorecard/Individual — 418,083

Total — 836,166

(1) Mr. Layton was not eligible to receive Deferred Salary in 2017 and therefore is not included in this table.

(2) The amounts reported reflect At-Risk Deferred Salary granted in 2017 which is subject to reduction based on: (i) corporate performance against the 

Conservatorship Scorecard; and (ii) the company’s performance against the Corporate Scorecard goals and an officer’s individual performance. The 

amount of At-Risk Deferred Salary actually earned can range from 0% of target (reported in the Threshold column) to a maximum of 100% of target 

(reported in the Target/Maximum column). Actual At-Risk Deferred Salary amounts earned during 2017 are reported in the Non-Equity Incentive 

Plan Compensation column of the Summary Compensation Table.

Outstanding Equity Awards at Fiscal Year-End

None of the NEOs had unexercised options or unvested RSUs as of December 31, 2017.

Option Exercises and Stock Vested

None of the NEOs exercised options or had RSUs vest during 2017.

Pension Benefits

Freddie Mac previously offered a Pension Plan, which was a tax-qualified, defined benefit pension plan, 

covering substantially all employees hired before 2012 who had attained age 21 and completed one 

year of service with us. In October 2013, FHFA directed us to cease accruals under the Pension Plan 

effective December 31, 2013, and to commence terminating the Pension Plan. None of the NEOs was 

pension-eligible prior to the termination of the Pension Plan. Accordingly, a Pension Benefits table is not 

presented.

Nonqualified Deferred Compensation

Non-qualified deferred compensation for the NEOs consists of the SERP Benefit. The SERP is an 

unfunded, non-qualified defined contribution plan designed to provide participants with the full amount 
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 405

of benefits to which they would have been entitled under the Thrift/401(k) Plan if that plan was not 

subject to certain dollar limits under the Internal Revenue Code. The SERP Benefit equals the amount of 

the employer matching and 2.5% contributions for each NEO that would have been made to the Thrift/

401(k) Plan during the year, based upon the participant’s eligible compensation, without application of 

those limits, less the amount of the matching contributions and 2.5% contributions made to the Thrift/

401(k) Plan during the year, but does not take into account pay that exceeds two times the NEO’s Base 

Salary. We believe the SERP Benefit is an appropriate benefit because offering such a benefit helps us 

remain competitive with the companies in our Comparator Group. Participants are credited with 

earnings or losses in their SERP Benefit accounts based upon each participant’s individual direction of 

the investment of such notional amounts among the virtual investment funds available under the SERP, 

which are the same as the investment options available under the Thrift/401(k) Plan.

To be eligible for the SERP Benefit, the NEO must be eligible for matching contributions and the 2.5% 

contribution under the Thrift/401(k) Plan for part of the year, as discussed in Footnote 4 to the Summary 

Compensation Table. In addition, to be eligible for the portion of the SERP Benefit attributable to 

employer matching contributions, the NEO must contribute the maximum amount permitted under the 

terms of the Thrift/401(k) Plan on either a pre- or post-tax basis.

SERP Benefits are generally distributed in a lump sum 90 days after the end of the calendar year in 

which a separation from service occurs. A six-month delay in the commencement of distributions on 

account of a separation from service applies to key employees, in accordance with Internal Revenue 

Code Section 409A. If the NEO dies, the vested SERP Benefit is paid in the form of a lump sum within 

90 days of death.

The following table shows the contributions, earnings, withdrawals and distributions, and accumulated 

balances under the SERP Benefit for each NEO. 

SERP Benefit

Named

Executive

Officer

Executive

Contribution in

Last FY ($)(1)

Freddie Mac

Accruals in

Last FY ($)(2)

Aggregate

Earnings in

Last FY ($)(3)

Aggregate

Withdrawals/

Distributions ($)

Balance at

Last FYE ($)(4)

Mr. Layton $— $28,050 $39,810 $— $250,723

Mr. Mackey — 62,050 1,837 — 202,376

Mr. Hutchins — 60,428 2,045 — 223,280

Mr. Lowman — 62,050 26,944 — 262,260

Mr. McDavid — 62,050 2,869 — 300,765

(1) The SERP does not allow for employee contributions.

(2) Amounts reported reflect accruals under the SERP Benefit during 2017, including the 2.5% contribution accruals which will be allocated to NEO 

accounts in 2018. These amounts are also reported in the “All Other Compensation” column in the Summary Compensation Table.

(3) Amounts reported represent the total interest and other earnings credited to each NEO under the SERP Benefit.

(4) Amounts reported reflect the accumulated balances under the SERP Benefit for each NEO and include the plan year 2017 2.5% contribution which 

will be allocated to NEO accounts in 2018. All NEOs are fully vested in their SERP Benefit account balances. 

The following 2016 SERP Benefit accrual amounts were reported in the “All Other Compensation” column in the 2016 Summary Compensation Table 

as compensation for each NEO for whom accruals were made during 2016: Mr. Layton: $79,084, Mr. Mackey: $62,149, Mr. Hutchins: $59,218, Mr. 

Lowman: $62,149, and Mr. McDavid: $62,149. See our Annual Report on Form 10-K filed on February 16, 2017. The following 2015 SERP Benefit 
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 406

accrual amounts were made in the “All Other Compensation” column in the 2015 Summary Compensation Table as compensation for each NEO for 

whom accruals were made and reported during 2015: Mr. Layton: $33,409, Mr. Mackey: $62,149, Mr. Hutchins: $55,657, Mr. Lowman: $62,149, 

and Mr. McDavid: $62,149. See our Annual Report on Form 10-K filed on February 18, 2016. 

Potential Payments Upon Termination of Employment

The EMCP addresses the treatment of Base Salary and Deferred Salary upon various termination 

events. Base Salary ceases upon an NEO’s termination of employment, regardless of the termination 

reason. An NEO generally does not need to be employed by us on the payment date to receive 

payments of Deferred Salary (including related interest) that are unpaid at the time of termination of 

employment. The following table describes the effect of various termination events upon unpaid 

Deferred Salary. The actual payment of any level of termination benefits that is not otherwise provided 

for in the EMCP is subject to FHFA review and approval.

Forfeiture Event — All earned but unpaid Fixed and At-Risk Deferred Salary (including related 

interest) is subject to forfeiture upon the occurrence of a Forfeiture Event, as described above under 

Written Agreements Relating to NEO Employment — Recapture and Forfeiture 

Agreement.

Death — All earned but unpaid Fixed and At-Risk Deferred Salary (including related interest) is paid 

in full as soon as administratively possible, but not later than 90 calendar days after the date of 

death. Any earned but unpaid At-Risk Deferred Salary is not subject to reduction based on corporate 

and individual performance if the reduction has not been determined as of the date of death.

Long-Term Disability — All earned but unpaid Fixed and At-Risk Deferred Salary (including related 

interest) is paid in full in accordance with the Approved Payment Schedule. Any earned but unpaid 

At-Risk Deferred Salary is not subject to reduction based on corporate and individual performance if 

the reduction has not been determined as of the termination date.

Any Other Reason (including, but not limited to, voluntary termination, retirement, and 

involuntary termination for any reason other than a Forfeiture Event) — All earned but unpaid 

Deferred Salary (including related interest) is paid in accordance with the Approved Payment 

Schedule, and earned but unpaid At-Risk Deferred Salary remains subject to the performance 

assessment and reduction process. Except in the case of retirement, the amount of earned but 

unpaid Fixed Deferred Salary will be reduced by 2% for each full or partial month by which the 

NEO’s termination precedes January 31 of the second calendar year following the calendar year in 

which the Fixed Deferred Salary is earned. No such reduction is applicable if an NEO retires, which is 

deemed to have occurred upon a voluntary termination of employment after attaining or exceeding 

62 years of age, without regard to length of service, or attaining or exceeding 55 years of age with 10 

or more years of service.

The table below describes the compensation and benefits that would have been payable to each NEO 

had the officer terminated his employment under various circumstances as of December 31, 2017. Mr. 

Layton is excluded from this table because he is not entitled to receive any payments in connection with 

a termination of employment. 

The table below does not address changes in control, as we are not obligated to provide any additional 

compensation to our NEOs in connection with a change in control. The table also does not address 
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 407

potential payments upon a termination for cause, which is a termination resulting from the occurrence of 

an event or conduct described in the Recapture Agreement. All earned but unpaid Deferred Salary is 

subject to forfeiture upon the occurrence of such a termination. However, the amount of compensation, 

if any, to be recaptured and/or forfeited is determined by the Board of Directors, which can only occur 

following the occurrence of a for cause termination. See Written Agreements Relating to NEO 

Employment — Recapture and Forfeiture Agreement.

The table below also does not include vested balances in the SERP. All NEOs are fully vested in their 

account balances. Amounts shown in the table also do not include certain items available to all 

employees generally upon a termination event.

The table below also does not include stock options or RSUs, as there were no outstanding stock 

options or RSUs held by NEOs as of December 31, 2017.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 408

Named Executive Officer(1) Death Disability Retirement(2)

All Other Not

For Cause

Terminations(3)

James G. Mackey

Deferred Salary:

Fixed $1,763,818 $1,763,818 $— $1,305,225

At Risk-Conservatorship Scorecard(4) 485,104 485,104 — 475,402

At Risk-Corporate Scorecard/Individual(5) 485,104 485,104 — 485,104

Interest on Deferred Salary(6) 7,225 11,620 — 9,629

Total $2,741,251 $2,745,646 $— $2,275,360

Michael T. Hutchins

Deferred Salary:

Fixed $1,394,575 $1,394,575 $1,394,575 $—

At Risk-Conservatorship Scorecard(4) 404,522 404,522 396,432 —

At Risk-Corporate Scorecard/Individual(5) 404,522 404,522 404,522 —

Interest on Deferred Salary(6) 5,844 9,365 9,331 —

Total $2,209,463 $2,212,984 $2,204,860 $—

David B. Lowman

Deferred Salary:

Fixed $1,763,818 $1,763,818 $— $1,305,225

At Risk-Conservatorship Scorecard(4) 485,104 485,104 — 475,402

At Risk-Corporate Scorecard/Individual(5) 485,104 485,104 — 485,104

Interest on Deferred Salary(6) 7,225 11,620 — 9,629

Total $2,741,251 $2,745,646 $— $2,275,360

William H. McDavid

Deferred Salary:

Fixed $1,451,054 $1,451,054 $1,451,054 $—

At Risk-Conservatorship Scorecard(4) 418,083 418,083 409,721 —

At Risk-Corporate Scorecard/Individual(5) 418,083 418,083 397,179 —

Interest on Deferred Salary(6) 6,045 9,721 9,596 —

Total $2,293,265 $2,296,941 $2,267,550 $—

(1) Mr. Layton is excluded from this table because he is not entitled to receive any payments in connection with a termination of employment.

(2) Messrs. Hutchins and McDavid are the only retirement-eligible NEOs under the EMCP. 

(3) All Other Not For Cause Terminations refer to voluntary terminations other than for retirement and involuntary terminations other than for cause. No 

amounts are shown for Messrs. Hutchins and McDavid because each is retirement eligible. In accordance with early termination provisions in the 

EMCP, the amounts disclosed for Deferred Salary: Fixed for all other NEOs have been reduced by 26% to reflect a December 31, 2017 termination 

event.

(4) The amounts reported for Deferred Salary: At Risk-Conservatorship Scorecard in the Retirement and All Other Not For Cause Terminations columns 

reflect the funding level determined by FHFA with respect to performance against the 2017 Conservatorship Scorecard. In cases of death or 

disability, the process for determining the funding level is waived if the funding level has not been determined at the date of termination. The funding 

level had not been determined as of December 31, 2017 and, as a result, no reduction has been applied to these amounts.
Executive Compensation 2017 Compensation Information for NEOs

FREDDIE MAC | 2017 Form 10-K 409

(5) The amounts reported for Deferred Salary: At Risk-Corporate Scorecard/Individual in the Retirement and All Other Not For Cause Terminations 

columns reflect the assessment of 2017 performance approved by the Compensation Committee and FHFA. For death or disability, the provisions are 

the same as for the amounts reported for Deferred Salary: At Risk-Conservatorship Scorecard.

(6) Interest on Deferred Salary is accrued and paid in accordance with the terms of the EMCP. The amount of interest in the Death column assumes that 

payment occurs on the 90th day following the date of death, which is assumed to be December 31, 2017.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

FREDDIE MAC | 2017 Form 10-K 410

Security Ownership of Certain 

Beneficial Owners and Management 

and Related Stockholder Matters

SECURITY OWNERSHIP

Our only class of voting stock is our common stock. Upon its appointment as Conservator, FHFA 

immediately succeeded to the voting rights of holders of our common stock. The following table shows 

the beneficial ownership of our common stock as of February 13, 2018 by our current directors, our 

NEOs, all of our directors and executive officers as a group, and holders of more than 5% of our 

common stock. Beneficial ownership is determined in accordance with SEC rules for computing the 

number of shares of common stock beneficially owned by a person and the percentage ownership of 

that person. As of February 13, 2018, each director and NEO, and all of our directors and executive 

officers as a group, owned less than 1% of our outstanding common stock. Unless otherwise noted, the 

information presented below is based on information provided to us by the individuals or entities 

specified in the table.

Stock Ownership By Directors and Executive Officers

Directors and

Named Executive

Officers

Position

Common Stock

Beneficially Owned

Excluding

Stock Options(1)

Stock Options

Exercisable

Within 60 Days of

Feb. 13, 2018

Total Common 

Stock

Beneficially Owned

Carolyn H. Byrd Director — — —

Lance F. Drummond Director — — —

Thomas M. Goldstein Director — — —

Grace A. Huebscher Director — — —

Steven W. Kohlhagen Director — — —

Christopher S. Lynch Director — — —

Sara Mathew Director — — —

Saiyid T. Naqvi Director — — —

Eugene B. Shanks, Jr. Director — — —

Anthony A. Williams Director — — —

Donald H. Layton Chief Executive Officer — — —

James G. Mackey EVP - Chief Financial Officer — — —

Michael T. Hutchins EVP - Investments and Capital

Markets

— — —

David B. Lowman EVP - Single-Family Business — — —

William H. McDavid EVP - General Counsel & Corp. Sec. — — —

All directors and executive officers as a group (20 persons) 19,774 — 19,774
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

FREDDIE MAC | 2017 Form 10-K 411

(1) Includes shares of stock beneficially owned as of February 13, 2018.

Stock Ownership by Greater-Than 5% Holders

5% Holder(1)

Common Stock 

Beneficially Owned Percent of Class

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, D.C. 20220

Variable(2) 79.9%

(1) Pershing Square Capital Management, L.P., PS Management GP, LLC, and William A. Ackerman (“Pershing”) have filed certain reports on Schedule 

13D, the latest of which was filed on March 31, 2014. In that report, Pershing reported a beneficial ownership percentage calculation of 9.78%, 

based solely on the 650,039,533 shares of our common stock outstanding as reported in our Annual Report on Form 10-K filed on February 27, 

2014, and excluding the shares issuable to Treasury pursuant to the warrant. The Schedule 13D indicated that Pershing also had additional 

economic exposure to approximately 8,434,958 notional shares of common stock, bringing the total aggregate economic exposure on the date of 

that filing to 72,010,523 shares of common stock (approximately 11.08% of the outstanding common stock). In that filing, Pershing indicated that 

because it believes our common stock is not a voting security, it had determined not to file future reports on Schedule 13D. We do not know 

Pershing’s current beneficial ownership of our common stock.

(2) In September 2008, we issued to Treasury a warrant to purchase, for one one-thousandth of a cent ($0.00001) per share, shares of our common 

stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the time the warrant is exercised. 

The warrant may be exercised in whole or in part at any time until September 7, 2028. As of the date of this filing, Treasury has not exercised the 

warrant. The information above assumes Treasury beneficially owns no other shares of our common stock.

Section 16(a) Beneficial Ownership Reporting 

Compliance

Section 16(a) of the Exchange Act requires the directors and executive officers of a reporting company 

and persons who own more than 10% of a registered class of such company’s equity securities to file 

reports of ownership and changes in ownership with the SEC. Based solely on a review of such reports, 

we believe that during 2017 all of our directors and executive officers complied with such reporting 

obligations, except for one sale transaction by David Brickman, our EVP - Multifamily, as a result of an 

oversight. A Form 5 disclosing the transaction was filed on January 18, 2018. 

SECURITIES AUTHORIZED FOR ISSUANCE 

UNDER EQUITY COMPENSATION PLANS

The following table provides information about our common stock that may be issued upon the exercise 

of options, warrants, and rights under our existing equity compensation plans at December 31, 2017. 

Prior to conservatorship, stockholders approved the Employee Stock Purchase Plan, the 2004 Stock 

Compensation Plan, and the 1995 Stock Compensation Plan (together, the “Employee Plans”), and the 

1995 Directors’ Stock Compensation Plan (the “Directors’ Plan”). We suspended the operation of these 

plans following our entry into conservatorship and are no longer granting awards under such plans.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

FREDDIE MAC | 2017 Form 10-K 412

Equity Compensation Plan Information

Plan Category

Number of securities to 

be issued upon exercise 

of outstanding options,

warrants and rights

 

Weighted average exercise 

price of outstanding options,

warrants and rights

 

Number of securities remaining 

available for future issuance under 

equity compensation plans 

(excluding securities reflected in column (a))

Equity compensation plans

approved by stockholders 42,563 N/A 35,871,377(1)

Equity compensation plans

not approved by stockholders None N/A None

(1) Includes 28,352,481 shares, 5,845,739 shares, and 1,673,157 shares available for issuance under the 2004 Stock Compensation Plan, the Employee Stock Purchase 

Plan, and the Directors’ Plan, respectively. No shares are available for issuance under the 1995 Stock Compensation Plan.
Certain Relationships and Related Transactions

FREDDIE MAC | 2017 Form 10-K 413

Certain Relationships And Related 

Transactions

POLICY GOVERNING RELATED PERSON 

TRANSACTIONS

The Board has adopted a written policy governing the approval of related person transactions. This 

policy sets forth procedures for the review and approval or ratification of transactions involving related 

persons. Under the policy, “related person” means any person who is, or was at any time since the 

beginning of our last completed fiscal year, a director, a director nominee, an executive officer, or an 

immediate family member of any of the foregoing persons.

Under authority delegated by the Board, our General Counsel and the Nominating and Governance 

Committee (or its Chair under certain circumstances), each an Authorized Approver, are responsible for 

applying the Related Person Transactions Policy. Transactions covered by the Related Person 

Transactions Policy consist of any transaction, arrangement, or relationship or series of similar 

transactions, arrangements, or relationships, in which: 

The aggregate amount involved exceeded or is expected to exceed $120,000; 

We were or are expected to be a participant; and 

Any related person had or will have a direct or indirect material interest. 

The Related Person Transactions Policy includes a list of categories of transactions identified by the 

Board as having no significant potential for an actual conflict of interest or the appearance of a conflict 

or improper benefit to a related person, and thus such transactions are not considered potential related 

person transactions subject to review.

Our Legal Division assesses whether any proposed transaction involving a related person is covered by 

the Related Person Transactions Policy. If so, the transaction is reviewed by the appropriate Authorized 

Approver. In consultation with the Chair of the Nominating and Governance Committee, the General 

Counsel may refer any proposed transaction to the Nominating and Governance Committee for review 

and approval.

If possible, approval of a related person transaction is obtained prior to the effectiveness or 

consummation of the transaction. If advance approval of a related person transaction by the appropriate 

Authorized Approver is not feasible or otherwise not obtained, then the transaction is considered 

promptly by the appropriate Authorized Approver to determine whether ratification is warranted.

In determining whether to approve or ratify a related person transaction covered by the Related Person 

Transactions Policy, the appropriate Authorized Approver reviews and considers all relevant information, 

which may include: 

The nature of the related person’s interest in the transaction; 
Certain Relationships and Related Transactions

FREDDIE MAC | 2017 Form 10-K 414

The approximate total dollar value of, and extent of the related person’s interest in, the transaction;

Whether the transaction was or would be undertaken in the ordinary course of our business; 

Whether the transaction is proposed to be, or was, entered into on terms no less favorable to us than 

terms that could have been reached with an unrelated third party; and 

The purpose, and potential benefits to us, of the transaction.

TRANSACTIONS WITH 5% SHAREHOLDERS

In connection with our entry into conservatorship, we issued a warrant to Treasury to purchase shares of 

our common stock equal to 79.9% of the total number of shares of our common stock outstanding, on a 

fully diluted basis. There have been a number of transactions between us and Treasury since the 

beginning of 2017, as discussed in MD&A — Consolidated Results of Operations, MD&A — 

Liquidity and Capital Resources, MD&A — Conservatorship and Related Matters, MD&A — 

Regulation and Supervision, Note 2, Note 8, and Note 11.

We are the compliance agent for Treasury for certain foreclosure avoidance activities under HAMP. 

Among other duties, as the program compliance agent, we conduct examinations and review servicer 

compliance with the published requirements for the program.

FHFA, as conservator, approved the Purchase Agreement and our role as compliance agent in the MHA 

Program and the Memorandum of Understanding with Treasury, FHFA, and Fannie Mae under the HFA 

Initiative. FHFA also instructed us to implement a $5,000 principal reduction incentive under HAMP in 

which Treasury will pay the incentive for borrowers with certain of our HAMP modified loans. The 

remaining transactions described in the sections referenced above did not require review and approval 

under any of our policies and procedures relating to transactions with related persons.

TRANSACTIONS WITH INSTITUTIONS 

RELATED TO DIRECTORS

In the ordinary course of business, we were a party during 2017, and expect to continue to be a party 

during 2018, to certain business transactions with institutions affiliated with members of our Board. 

Management believes that the terms and conditions of the transactions were no more and no less 

favorable to us than the terms of similar transactions with unaffiliated institutions to which we are, or 

expect to be, a party. None of these transactions were required to be disclosed under SEC rules.

TRANSACTIONS WITH INSTITUTIONS 

RELATED TO EXECUTIVE OFFICERS

Mr. Layton joined us in May 2012 as CEO and as a member of the Board. Mr. Layton previously served 

as a senior executive officer of JPMorgan Chase, ending his service in 2004. Mr. Layton receives a 

pension from JPMorgan Chase and has a deferred compensation balance under JPMorgan Chase’s 

Deferred Compensation Plan which earns a return based upon a defined list of mutual funds that 

Mr. Layton designates. Mr. Layton’s deferred compensation balance is less than 10% of his total net 

worth on an after-tax basis. The payment amounts of Mr. Layton’s pension and deferred compensation 

do not depend on JPMorgan Chase’s performance.
Certain Relationships and Related Transactions

FREDDIE MAC | 2017 Form 10-K 415

Freddie Mac has an extensive business relationship with JPMorgan Chase (through its subsidiaries) as it 

is one of our largest seller/servicers and a significant counterparty in capital markets, derivatives and 

multifamily transactions. The Board has reviewed Mr. Layton’s and the company’s relationship with 

JPMorgan Chase and determined that Mr. Layton does not have a material interest in our relationship 

with JPMorgan Chase. Nevertheless, to eliminate any potential conflicts of interest, Mr. Layton has 

agreed to recuse himself from acting upon matters directly relating to JPMorgan Chase that may be 

considered by the Board, or presented to him in his capacity as CEO and a member of the Board, if 

such matter has the potential to affect JPMorgan Chase’s ability to satisfy its obligations to him. 

CONSERVATORSHIP AGREEMENTS

Treasury, FHFA, and the Federal Reserve have taken a number of actions to support us during 

conservatorship, including entering into the Purchase Agreement, described in this Form 10-K. See 

MD&A — Conservatorship and Related Matters and Note 2.
Principal Accounting Fees and Services

FREDDIE MAC | 2017 Form 10-K 416

Principal Accounting Fees and 

Services

DESCRIPTION OF FEES

PricewaterhouseCoopers LLP has served as our independent public accountants since 2002. The 

following is a description of fees billed to us by PricewaterhouseCoopers LLP during 2017 and 2016. 

Auditor Fees(1)

(In thousands) 2017 2016

Audit Fees(2) $22,582 $23,175

Audit-Related Fees(3) 5,580 5,122

Tax Fees(4) 23 55

All Other Fees(5) 243 218

Total $28,428 $28,570

(1) These fees represent amounts billed (including reimbursable expenses within the designated year).

(2) Audit fees include fees in connection with quarterly reviews of our interim financial information and the audit of our annual consolidated 

financial statements.

(3) Audit-related fees include: (i) fees for the performance of certain agreed-upon procedures regarding aspects of compliance with the 

Purchase Agreement covenants; (ii) compliance evaluation of the minimum servicing standards as set forth in the Uniform Single Attestation 

Program for Mortgage Bankers; (iii) transaction validation and attestation related to certain of Freddie Mac’s risk transfer and structured 

transactions; (iv) fees for pre-implementation assistance for hedge accounting; and (v) fees related to accounting policy consultations. 

(4) The tax fees billed relate to non-audit tax consulting services to provide advice and recommendations related to tax planning or reporting 

matters.

(5) All other fees include: (i) our subscription to a web-based suite of human resources benchmark data; (ii) advice and recommendations 

related to retention strategies; (iii) our subscription to accounting research software; and (iv) non-audit advice and recommendations related 

to technology implementation in the governance process.

APPROVAL OF INDEPENDENT AUDITOR 

SERVICES AND FEES

Under its charter, the Audit Committee is responsible for the following: 

Appointing our independent public accounting firm (subject to FHFA approval as required); 

Approving all audit and non-audit services permitted under applicable law to be performed by the 

independent public accounting firm (subject to FHFA approval as required); and 

Approving the scope of the annual audit.

The Sarbanes-Oxley Act of 2002 and related SEC rules require that all services provided to companies 

subject to the reporting requirements of the Exchange Act by their independent auditors be preapproved by their audit committee or by authorized members of the committee, with certain exceptions. 

The Audit Committee’s charter requires that the Audit Committee pre-approve any audit services, and 
Principal Accounting Fees and Services

FREDDIE MAC | 2017 Form 10-K 417

any non-audit services permitted under applicable law, to be performed by our independent auditors (or 

to designate one or more members of the Audit Committee to pre-approve such services and report 

such pre-approval to the Audit Committee). 

Audit services that are within the scope of an auditor’s engagement approved by the Audit Committee 

prior to the performance of those services are deemed pre-approved and do not require separate preapproval. Audit services not within the scope of an Audit Committee-approved engagement, as well as 

permissible non-audit services, must be separately pre-approved by the Audit Committee.

When the Audit Committee pre-approves a service, it typically sets a dollar limit for such service. 

Management endeavors to obtain pre-approval of the Audit Committee, or of the Chair of the Audit 

Committee (when the Chair of the Audit Committee has been delegated such authority), before it incurs 

fees exceeding the dollar limit. If the Chair of the Audit Committee approves the increase, the Chair will 

report such approval at the Audit Committee’s next scheduled meeting. The Audit Committee has 

delegated to the Chair the authority to address requests to pre-approve certain additional audit and 

non-audit services to be performed by the company’s independent auditor with fees totaling up to a 

maximum of $250,000 per quarter, with reporting of any such approval decisions to the Audit Committee 

at its next scheduled meeting.

The pre-approval procedure is administered by our senior financial management, which reports 

throughout the year to the Audit Committee. The Audit Committee pre-approved all audit, audit-related, 

tax, and other services performed by our independent public accounting firm in 2017 and 2016.

The Audit Committee appoints the independent public accounting firm on an annual basis. In evaluating 

the performance of the independent public accounting firm, the Audit Committee considers a number of 

factors, including the following:

The firm’s status as a registered public accounting firm with the Public Company Accounting 

Oversight Board (United States) (“PCAOB”) as required by the Sarbanes-Oxley Act of 2002 and the 

Rules of the PCAOB; 

Its independence and processes for maintaining its independence;

Its approach to resolving significant accounting and auditing matters;

Its capability and expertise in handling the complexity of the company’s business, including the 

capability and expertise of the lead audit partner and of the key members of the engagement team;

Historical and recent performance, including the extent and quality of the independent public 

accounting firm’s communications with the Audit Committee, and the results of a management 

survey of the independent public accounting firm’s overall performance;

Data related to audit quality and performance, including recent PCAOB inspection reports on the 

firm; and

The appropriateness of its fees, both on an absolute basis and as compared with peers.

The Audit Committee has determined that the non-audit services rendered by PricewaterhouseCoopers 

during its most recent fiscal year are compatible with maintaining PricewaterhouseCoopers’ 

independence.
Exhibits and Financial Statement Schedules

FREDDIE MAC | 2017 Form 10-K 418

Exhibits and Financial Statement 

Schedules

(a) Documents filed as part of this report:

(1) Consolidated Financial Statements

The consolidated financial statements required to be filed in this Form 10-K are 

included in Financial Statements and Supplementary Data.

(2) Financial Statement Schedules

None.

(3) Exhibits

An Exhibit Index has been filed as part of this Form 10-K beginning on 

page 431. 
Glossary

FREDDIE MAC | 2017 Form 10-K 419

Glossary

This Glossary includes acronyms and defined terms that are used throughout this report.

ACIS - Agency Credit Insurance Structure - In a typical ACIS credit risk transfer transaction, we 

purchase insurance policies (typically underwritten by a group of insurers and reinsurers) that 

obligate the counterparties to reimburse us for specified credit events (based on either actual losses 

or losses calculated using a predefined formula) up to an aggregate limit that occur on our first loss 

and/or mezzanine loss positions associated with STACR debt note transactions in exchange for our 

payment of periodic premiums. We also enter into ACIS transactions that provide credit protection 

for certain specified credit events on loans not included in a reference pool created for a STACR debt 

note transaction.

Administration - Executive branch of the U.S. government.

Agency securities - Generally refers to mortgage-related securities issued by the GSEs or 

government agencies.

Alt-A loan - Although there is no universally accepted definition of Alt-A, many mortgage market 

participants have classified single-family loans as Alt-A if these loans have credit characteristics that 

range between their prime and subprime categories, if these loans are underwritten with lower or 

alternative income or asset documentation requirements compared to a full documentation loan, or 

both. We categorize loans in our single-family credit guarantee portfolio as Alt-A if the lender that 

delivers them to us classified the loans as Alt-A, or if the loans had reduced documentation 

requirements as well as a combination of certain credit characteristics and expected performance 

characteristics at acquisition which, when compared to full documentation loans in our portfolio, 

indicate that the loan should be classified as Alt-A. In the event we purchase a refinance loan and 

the original loan had been previously identified as Alt-A, such refinance loan may no longer be 

categorized as an Alt-A loan because the refinance loan is not identified by the servicer as an Alt-A 

loan. We categorize our investments in non-agency mortgage-related securities as Alt-A if the 

securities were identified as such based on information provided to us when we entered into these 

transactions.

AMT - Alternative Minimum Tax 

AOCI - Accumulated other comprehensive income (loss), net of taxes

ARM - Adjustable-rate mortgage - A mortgage loan with an interest rate that adjusts periodically 

over the life of the loan based on changes in a benchmark index.

Board - Board of Directors

Bps - Basis points - One one-hundredth of 1%. This term is commonly used to quote the yields of 

debt instruments or movements in interest rates.

CCO - Chief Compliance Officer

CD&A - Compensation Discussion and Analysis

CEO - Chief Executive Officer

CERO - Chief Enterprise Risk Officer

CFO - Chief Financial Officer

CFPB - Consumer Financial Protection Bureau
Glossary

FREDDIE MAC | 2017 Form 10-K 420

Charge-offs, gross - Represent the amount of a loan that has been discharged in order to remove 

the loan from our consolidated balance sheets when the loan is deemed uncollectible, regardless of 

when the impact of the credit loss was recorded on our consolidated statements of comprehensive 

income. Generally the amount of a charge-off is the recorded investment in excess of the fair value 

of the loan's collateral.

Charter - The Federal Home Loan Mortgage Corporation Act, as amended, 12 U.S.C. § 1451 et seq.

CMBS - Commercial mortgage-backed security - A security backed by loans on commercial 

property (often including multifamily rental properties) as opposed to one-to-four family residential 

real estate. Although the loan pools underlying CMBS can include loans financing multifamily 

properties and commercial properties, such as office buildings and hotels, the classes of CMBS that 

we hold receive distributions of scheduled cash flows only from multifamily properties.

Comprehensive income (loss) - Consists of net income (loss) plus other comprehensive income 

(loss).

Conforming loan/Super conforming loan/Conforming loan limit - A conventional single-family 

loan with an original principal balance that is equal to or less than the applicable statutory 

conforming loan limit, which is a dollar amount cap on the original principal balance of single-family 

loans we are permitted by law to purchase or securitize. The conforming loan limit is determined 

annually based on changes in FHFA’s housing price index. The base conforming loan limit for a onefamily residence has been set at $453,100 for 2018, and was set at $424,100 for 2017 and $417,000 

from 2006 to 2016. Higher limits have been established in certain "high-cost" areas (for 2018, up to 

$679,650 for a one-family residence). Higher limits also apply to two- to four-family residences and 

to one- to four-family residences in Alaska, Guam, Hawaii and the U.S. Virgin Islands. Actual highcost area loan limits are set by FHFA for each county (or equivalent), and the loan limit for specific 

high-cost areas may be lower than the maximum amounts. We refer to loans that we have 

purchased with a UPB exceeding the base conforming loan limit (i.e., $453,100 for 2018) as super 

conforming loans.

Conservator - The Federal Housing Finance Agency, acting in its capacity as Conservator of Freddie 

Mac.

Convexity - A measure of how much a financial instrument’s duration changes as interest rates 

change.

Core single-family loan portfolio - Consists of loans in our single-family credit guarantee portfolio 

that were originated after 2008. We do not include relief refinance loans, including HARP loans, in 

this loan portfolio as underwriting procedures for relief refinance loans are limited, and, in many 

cases, do not include all of the changes in underwriting standards we have implemented since 2008.

Credit enhancement - A financial arrangement that is designed to reduce credit risk by partially or 

fully compensating an investor in a mortgage or security (e.g., Freddie Mac) in the event of specified 

losses. Examples of credit enhancements include insurance, credit risk transfer transactions, 

overcollateralization, indemnification agreements and government guarantees.

Credit losses - Consists of charge-offs and REO operations (income) expense, which are both net 

of recoveries.

Credit-related (benefit) expenses (or credit-related expenses) - Consists of our provision (benefit) 

for credit losses and REO operations (income) expense.

Credit score - Credit score data is based on FICO scores, a credit scoring system developed by 
Glossary

FREDDIE MAC | 2017 Form 10-K 421

Fair, Isaac and Co. FICO scores are currently the most commonly used credit scores. FICO scores 

are ranked on a scale of approximately 300 to 850 points with a higher value indicating a lower 

likelihood of credit default. Although we obtain updated credit information on certain borrowers after 

the origination of a loan, such as those borrowers seeking a modification, the scores presented in 

our reports represent the credit score of the borrower at either the time of loan origination or our 

purchase and may not be indicative of the current credit worthiness of the borrower.

CSS - Common Securitization Solutions, LLCSM

CSP - Common Securitization Platform

Current LTV Ratio or CLTV - The current LTV ratios are management estimates, which are updated 

on a monthly basis. Current market values are estimated by adjusting the value of the property at 

origination based on changes in the market value of homes in the same geographic area since that 

time. Changes in market value are derived from our internal index, which measures price changes for 

repeat sales and refinancing activity on the same properties using Freddie Mac and Fannie Mae 

single-family loan acquisitions. Estimates of the current LTV ratio exclude any secondary financing 

by third parties.

Deed in lieu of foreclosure - An alternative to foreclosure in which the borrower voluntarily conveys 

title to the property to the lender and the lender accepts such title (sometimes together with an 

additional payment by the borrower) in full satisfaction of the mortgage indebtedness.

Delinquency - A failure to make timely payments of principal and/or interest on a loan. For singlefamily loans, we generally report delinquency rate information based on the number of loans that are 

seriously delinquent. For multifamily loans, we report delinquency rate information based on the UPB 

of loans that are two monthly payments or more past due or in the process of foreclosure. Loans that 

have been modified are not counted as delinquent as long as the borrower is not delinquent under 

the modified terms.

Delivery fee - An upfront fee charged to sellers above base contractual guarantee fees to 

compensate us for higher levels of risk in some loan products.

Derivative - A financial instrument whose value depends upon the characteristics and value of an 

underlying such as a financial asset or index. Examples of an underlying include a security or 

commodity price, interest or currency rates, and other financial indices.

Dodd-Frank Act - Dodd-Frank Wall Street Reform and Consumer Protection Act

Dollar roll transactions - Transactions whereby we enter into an agreement to sell and 

subsequently repurchase (or purchase and subsequently resell) agency securities.

DSCR - Debt Service Coverage Ratio - An indicator of future credit performance for multifamily 

loans. The DSCR estimates a multifamily borrower’s ability to service its mortgage obligation using 

the secured property’s cash flow, after deducting non-mortgage expenses from income. The higher 

the DSCR, the more likely a multifamily borrower will be able to continue servicing its loan obligation.

Duration - Duration is a measure of a financial instrument’s price sensitivity to changes in interest 

rates.

Duration gap - One of our primary interest rate risk measures. Duration gap is a measure of the 

difference between the estimated durations of our interest rate sensitive assets and liabilities. We 

present the duration gap of our financial instruments in units expressed as months. A duration gap of 

zero implies that the change in value of our interest rate sensitive assets from an instantaneous 

change in interest rates would be expected to be accompanied by an equal and offsetting change in 
Glossary

FREDDIE MAC | 2017 Form 10-K 422

the value of our interest rate sensitive liabilities, thus leaving economic value unchanged.

EMCP - Executive Management Compensation Program

ER Policy - Enterprise Risk Policy - The ER Policy sets forth the core components of the enterprise 

risk framework that defines how we identify, access, manage, control and report on risks.

ERC - Enterprise Risk Committee

ERM - Enterprise Risk Management

EVP - Executive Vice President

Exchange Act - Securities Exchange Act of 1934, as amended

Fannie Mae - Federal National Mortgage Association

FASB - Financial Accounting Standards Board

Federal Reserve - Board of Governors of the Federal Reserve System

FHA - Federal Housing Administration

FHFA - Federal Housing Finance Agency - An independent agency of the U.S. government with 

responsibility for regulating Freddie Mac, Fannie Mae and the FHLBs.

FHLB - Federal Home Loan Bank

Fixed-rate loan - Refers to a loan originated at a specific rate of interest that remains constant over 

the life of the loan. For purposes of presentation in this report, we have categorized a number of 

modified loans as fixed-rate loans, even though the modified loans have rate adjustment provisions. 

In these cases, while the terms of the modified loans provide for the interest rate to adjust in the 

future, such future rates are determined at the time of the modification rather than at a subsequent 

date.

Foreclosure alternative - A workout option pursued when a home retention action is not successful 

or not possible. A foreclosure alternative is either a short sale or deed in lieu of foreclosure.

Foreclosure or foreclosure sale - Refers to our completion of a transaction provided for by the 

foreclosure laws of the applicable state, in which a delinquent borrower’s ownership interest in a 

mortgaged property is terminated and title to the property is transferred to us or to a third party. 

When we, as loan holder, acquire a property in this manner, we pay for it by extinguishing some or all 

of the mortgage debt.

Freddie Mac mortgage-related securities - Securities we issue and guarantee that are backed by 

mortgages.

GAAP - Generally accepted accounting principles in the United States of America.

Giant PCs - Resecuritizations of previously issued PCs or Giant PCs. Giant PCs are single-class 

securities that involve the straight pass through of all of the cash flows of the underlying collateral to 

holders of the beneficial interests.

Ginnie Mae - Government National Mortgage Association, which guarantees the timely payment of 

principal and interest on mortgage-related securities backed by federally insured or guaranteed 

loans, primarily those insured by FHA or guaranteed by the VA.

Green Advantage loan - A multifamily loan that we offer under our Green Advantage initiative, 

whereby borrowers finance the installation of green technologies that reduce energy and water 

consumption.

GSE Act - The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as 

amended by the Reform Act.
Glossary

FREDDIE MAC | 2017 Form 10-K 423

GSEs - Government sponsored enterprises - Refers to certain legal entities created by the 

U.S. government, including Freddie Mac, Fannie Mae and the FHLBs.

Guarantee fee - The fee that we receive for guaranteeing the payment of principal and interest to 

mortgage security investors, which consists primarily of a combination of base contractual 

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

initial upfront payments, such as delivery fees.

Guidelines - Corporate Governance Guidelines, as revised

HAMP - Home Affordable Modification Program - Refers to the effort under the MHA Program 

whereby the U.S. government, Freddie Mac and Fannie Mae committed funds to help eligible 

homeowners avoid foreclosure and keep their homes through loan modifications. HAMP ended in 

December 2016.

HARP - Home Affordable Refinance Program - Refers to the effort under the MHA Program that 

seeks to help eligible borrowers with existing loans that are guaranteed by us or Fannie Mae to 

refinance into loans with more affordable monthly payments and/or fixed-rate terms without 

obtaining new mortgage insurance in excess of the insurance coverage, if any, that was already in 

place. HARP is targeted at borrowers with current LTV ratios above 80%. The HARP program has 

been extended for applications through December 31, 2018 to ensure that borrowers who have a 

high LTV ratio and are eligible for HARP will continue to have a refinance option. 

HFA - State or local Housing Finance Agency

HUD - U.S. Department of Housing and Urban Development - HUD has authority over Freddie Mac 

with respect to fair lending. 

Implied volatility - A measurement of how the value of a financial instrument changes due to 

changes in the market’s expectation of potential changes in future interest rates. A decrease in 

implied volatility generally increases the estimated fair value of our mortgage-related assets and 

decreases the estimated fair value of our callable debt and option-based derivatives, while an 

increase in implied volatility generally has the opposite effect.

Initial margin - The collateral that we post with a derivatives clearinghouse in order to do business 

with such clearinghouse. The amount of initial margin varies over time.

Interest-only loan - A loan that allows the borrower to pay only interest (either fixed-rate or 

adjustable-rate) for a fixed period of time before payments of principal begin. After the interest-only 

period, the borrower may choose to refinance the loan, pay off the principal balance in total, or pay 

the scheduled principal and interest payment due on the loan.

IRS - Internal Revenue Service

K Certificates - Structured pass-through certificates backed primarily by recently originated 

multifamily loans purchased by Freddie Mac.

Legacy and relief refinance single-family loan portfolio - Consists of loans in our single-family 

credit guarantee portfolio that were originated in 2008 and prior, as well as relief refinance loans, 

including HARP loans.

Letter Agreement - An agreement the Conservator, acting on our behalf, entered into with Treasury 

on December 21, 2017 to amend the Amended and Restated Certificate of Creation, Designation, 

Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and 

Conditions of Variable Liquidation Preference Senior Preferred Stock (Par Value $1.00 Per Share) 

dated September 27, 2012.
Glossary

FREDDIE MAC | 2017 Form 10-K 424

LIBOR - London Interbank Offered Rate

LIHTC partnerships - Low-income housing tax credit partnerships - These LIHTC partnerships 

invest directly in limited partnerships that own and operate affordable multifamily rental properties 

that generate federal income tax credits and deductible operating losses.

Liquidation preference - Generally refers to an amount that holders of preferred securities are 

entitled to receive out of available assets upon liquidation of a company. The initial liquidation 

preference of our senior preferred stock was $1.0 billion. The aggregate liquidation preference of our 

senior preferred stock includes the initial liquidation preference plus amounts funded by Treasury 

under the Purchase Agreement, as well as $3.0 billion added pursuant to the Letter Agreement. In 

addition, dividends not paid in cash are added to the liquidation preference of the senior preferred 

stock. We may make payments to reduce the liquidation preference of the senior preferred stock 

only in limited circumstances.

Liquidity and Contingency Operating Portfolio - Subset of our other investments and cash 

portfolio. Consists of cash and cash equivalents, certain securities purchased under agreements to 

resell, and certain non-mortgage-related securities.

Loan liquidations - Loans removed from the pools underlying Freddie Mac mortgage-related 

securities and other mortgage-related guarantees due to prepayment, maturity, repurchase or 

charge-off, foreclosure alternatives, third-party sales and loans going into REO. Loans are also 

terminated through reperforming and seriously delinquent loan sales. In addition, periodic paydown 

of loan principal is also included in loan liquidations.

Long-term debt - Other debt due after one year based on the original contractual maturity of the 

debt instrument. Our long-term debt issuances include medium-term notes, Reference Notes®

securities, STACR debt notes and SCR debt notes.

LTV ratio - Loan-to-value ratio - The ratio of the unpaid principal amount of a loan to the value of the 

property that serves as collateral for the loan, expressed as a percentage. We report LTV ratios 

based solely on the amount of the loan purchased or guaranteed by us, generally excluding any 

second-lien loans (unless we own or guarantee the second lien).

Market spread - The difference between the yields of two debt securities, or the difference between 

the yield of a debt security and a benchmark yield, such as LIBOR. We measure market spreads 

primarily using our models.

MD&A - Management’s Discussion and Analysis of Financial Condition and Results of Operations

MHA Program - Making Home Affordable Program - The MHA Program is designed to help in the 

housing recovery, promote liquidity and housing affordability, expand foreclosure prevention efforts 

and set market standards. The MHA Program includes HARP and HAMP.

Mortgage assets - Refers to both loans and the mortgage-related securities we hold in our 

mortgage-related investments portfolio.

Mortgage-related investments portfolio - Our mortgage investment portfolio, which consists of 

mortgage-related securities and unsecuritized single-family and multifamily loans. The size of our 

mortgage-related investments portfolio under the Purchase Agreement is determined without giving 

effect to the January 1, 2010 change in accounting guidance related to transfers of financial assets 

and consolidation of VIEs.

Mortgage-to-debt OAS - The net OAS between the mortgage asset and agency debt sectors. This 

is an important factor in determining the expected level of net interest yield on a new mortgage 
Glossary

FREDDIE MAC | 2017 Form 10-K 425

asset. Higher mortgage-to-debt OAS means that a newly purchased mortgage asset is expected to 

provide a greater return relative to the cost of the debt issued to fund the purchase of the asset and, 

therefore, a higher net interest yield. Mortgage-to-debt OAS tends to be higher when there is weak 

demand for mortgage assets and lower when there is strong demand for mortgage assets.

Multifamily loan - A loan secured by a property with five or more residential rental units or by a 

manufactured housing community.

Multifamily mortgage portfolio - Consists of multifamily mortgage loans held by us on our 

consolidated balance sheets as well as our guarantee of securitization products, primarily K 

Certificates, SB Certificates, and other mortgage-related guarantees that are held by third parties. It 

excludes loans underlying our guarantees of HFA bonds.

Multifamily new business activity - Represents loan purchases, issuances of other mortgagerelated guarantees and issuances of other securitization products for which we have not previously 

purchased the underlying loans.

Net worth (deficit) - The amount by which our total assets exceed (or are less than) our total 

liabilities as reflected on our consolidated balance sheets prepared in conformity with GAAP.

Net worth sweep dividend, Net Worth Amount and Capital Reserve Amount - For each quarter 

from January 1, 2013 and thereafter, the dividend payment on the senior preferred stock will be the 

amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal 

quarter, less the applicable Capital Reserve Amount, exceeds zero. The term Net Worth Amount is 

defined as the total assets of Freddie Mac (excluding Treasury's commitment and any unfunded 

amounts thereof), less our total liabilities (excluding any obligation in respect of capital stock), in 

each case as reflected on our consolidated balance sheets prepared in conformity with GAAP. If the 

calculation of the dividend payment for a quarter does not exceed zero, then no dividend shall 

accrue or be payable for that quarter. The applicable Capital Reserve Amount was $1.2 billion for 

2016 and $600 million for 2017, and will be $3.0 billion in 2018 and thereafter (unless we were not to 

pay our full dividend requirement in a future period, which would cause the applicable Capital 

Reserve Amount to thereafter be zero).

Non-accrual loan - A loan for which we are not accruing interest income. We place loans on nonaccrual status when we believe collectability of principal and interest in full is not reasonably 

assured, which generally occurs when a loan is three monthly payments past due, unless the loan is 

well secured and in the process of collection based upon an individual loan assessment.

Non-performing loan - a loan where the borrower is three months or more past due or is in the 

process of foreclosure.

NYSE - New York Stock Exchange

OAS - Option-adjusted spread - An estimate of the incremental yield spread between a particular 

financial instrument (e.g., a security, loan or derivative contract) and a benchmark yield curve (e.g., 

LIBOR or agency or U.S. Treasury securities). This includes consideration of potential variability in 

the instrument’s cash flows resulting from any options embedded in the instrument, such as 

prepayment options. When the OAS on a given asset widens, the fair value of that asset will typically 

decline, all other market factors being equal. The opposite is true when the OAS on a given asset 

tightens.

Option ARM loan - Loans that permit a variety of repayment options, including minimum, interestonly, fully amortizing 30-year and fully amortizing 15-year payments. The minimum payment 

alternative for option ARM loans allows the borrower to make monthly payments that may be less 
Glossary

FREDDIE MAC | 2017 Form 10-K 426

than the interest accrued for the period. The unpaid interest is added to the principal balance of the 

loan, known as negative amortization. For our non-agency mortgage-related securities that are 

backed by option ARM loans, we categorize securities as option ARM if the securities were identified 

as such based on information provided to us when we entered into these transactions. We have not 

identified option ARM securities as either subprime or Alt-A securities.

Original LTV ratio - A credit measure for loans, calculated as the UPB of the loan divided by the 

lesser of the appraised value of the property at the time of loan origination or the borrower’s 

purchase price. Second liens not owned or guaranteed by us are excluded from the LTV ratio 

calculation. The existence of a second-lien loan reduces the borrower’s equity in the home and, 

therefore, can increase the risk of default and the amount of the gross loss if a default occurs.

OTC - Over-the-counter

OTCQB - A marketplace, operated by the OTC Markets Group Inc., for OTC-traded U.S. companies 

that are registered and current in their reporting with the SEC or a U.S. banking or insurance 

regulator.

PCs - Participation Certificates - Single-class pass-through securities that we issue and guarantee 

as part of a securitization transaction. Typically we purchase loans from sellers, place a pool of loans 

into a PC trust and issue PCs from that trust. The PCs are generally transferred to the seller of the 

loans as consideration for the loans or are sold to third-party investors or retained by us if we 

purchased the loans for cash.

Pension Plan - The Federal Home Loan Mortgage Corporation Employees’ Pension Plan

Performing loan - A loan where the borrower is less than three months past due and is not in the 

process of foreclosure. 

PMVS - Portfolio Market Value Sensitivity - One of our primary interest-rate risk measures. PMVS 

measures are estimates of the amount of average potential pre-tax loss in the market value of our 

net assets due to parallel (PMVS-L) and non-parallel (PMVS-YC) changes in LIBOR.

Primary mortgage market - The market where lenders originate loans by lending funds to 

borrowers. We do not lend money directly to homeowners and do not participate in this market.

Purchase Agreement / Senior Preferred Stock Purchase Agreement - An agreement the 

Conservator, acting on our behalf, entered into with Treasury on September 7, 2008, relating to 

Treasury's purchase of senior preferred stock, which was subsequently amended and restated on 

September 26, 2008 and further amended on May 6, 2009, December 24, 2009, August 17, 2012, 

and December 21, 2017.

Recorded investment - The dollar amount of a loan recorded on our consolidated balance sheets, 

excluding any allowance, such as the allowance for loan losses, but including direct write-downs of 

the investment. Recorded investment excludes accrued interest income.

Recoveries of charge-offs - Recoveries of charge-offs generally occur after loans go into 

foreclosure alternatives or foreclosure sales and where a share of default risk is assumed by 

mortgage insurers or a reimbursement of our losses from a seller or servicer associated with a 

repurchase request is received by us on such loans.

Reform Act - The Federal Housing Finance Regulatory Reform Act of 2008, which, among other 

things, amended the GSE Act by establishing a single regulator, FHFA, for Freddie Mac, Fannie Mae 

and the FHLBs.

REIT - Real estate investment trust
Glossary

FREDDIE MAC | 2017 Form 10-K 427

Relief refinance loan - A single-family loan delivered to us for purchase or guarantee that meets the 

criteria of the Freddie Mac Relief Refinance Mortgage SM initiative. Part of this initiative is our 

implementation of HARP for our loans, and relief refinance options are also available for certain nonHARP loans. Although HARP is targeted at borrowers with current LTV ratios above 80%, our 

initiative also allows borrowers with LTV ratios of 80% and below to participate.

REMIC - Real Estate Mortgage Investment Conduit - A type of multiclass mortgage-related security 

that divides the cash flows (principal and interest) of the underlying mortgage-related assets into two 

or more classes that meet the investment criteria and portfolio needs of different investors.

REO - Real estate owned - Real estate which we have acquired through a foreclosure sale or 

through a deed in lieu of foreclosure.

Reperforming loan - A loan that was previously three months or more past due or in the process of 

foreclosure, but the borrower subsequently made payments such that the loan returns to less than 

three months past due, or a performing modified loan, which is a loan that was modified and is less 

than three months past due and is not in the process of foreclosure.

Risk appetite - The risk appetite is the aggregate level and types of risk that the Board and 

management are willing to assume to achieve the company's strategic objectives.

RMBS - Residential mortgage-backed security - A security backed by loans on one-to-four family 

residential real estate.

RSU - Restricted stock unit

2014 Strategic Plan - The 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie 

Mac, published by FHFA on May 13, 2014.

S&P - Standard & Poor’s

SB Certificates - Structured pass-through certificates backed primarily by recently originated small 

balance multifamily loans purchased by Freddie Mac.

SCR debt note - Structured Credit Risk debt notes - A debt security where the principal balance is 

subject to the performance of a reference pool of multifamily loans guaranteed by Freddie Mac.

SEC - U.S. Securities and Exchange Commission

Seasoned single-family mortgage loans - Includes seriously delinquent and reperforming loans.

Secondary mortgage market - A market consisting of institutions engaged in buying and selling 

loans in the form of whole loans (i.e., loans that have not been securitized) and mortgage-related 

securities. We participate in the secondary mortgage market by issuing guaranteed mortgagerelated securities, principally PCs, and by purchasing loans and mortgage-related securities for 

investment.

Segment Earnings - Segment Earnings are presented for each segment by reclassifying certain 

credit guarantee-related activities and investment-related activities between various line items on our 

GAAP consolidated statements of comprehensive income and allocating certain revenues and 

expenses, including funding costs and administrative expenses, to our three reportable segments - 

Single-family Guarantee, Multifamily and Capital Markets. Certain activities that are not part of a 

reportable segment are included in the All Other category. 

Senior preferred stock - The shares of Variable Liquidation Preference Senior Preferred Stock 

issued to Treasury under the Purchase Agreement.

Seriously delinquent or SDQ - Single-family loans that are three monthly payments or more past 

due or in the process of foreclosure as reported to us by our servicers.
Glossary

FREDDIE MAC | 2017 Form 10-K 428

SERP - The Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan

Short sale - An alternative to foreclosure consisting of a sale of a mortgaged property in which the 

homeowner sells the home at market value and the lender accepts proceeds (sometimes together 

with an additional payment or promissory note from the borrower) that are less than the outstanding 

loan indebtedness in full satisfaction of the loan.

Short-term debt - Other debt due within one year based on the original contractual maturity of the 

debt instrument. Our short-term debt issuances include discount notes and Reference Bills®

securities.

Single-family credit guarantee portfolio - Consists of unsecuritized single-family loans, singlefamily loans held by consolidated trusts, single-family loans underlying non-consolidated 

resecuritization products, single-family loans covered by long-term standby commitments and 

certain mortgage-related securities not issued by us that we guarantee that are collateralized by 

single-family loans. Excludes our resecuritizations of Ginnie Mae Certificates because these 

guarantees do not expose us to meaningful amounts of credit risk due to the credit enhancement 

provided on them by the U.S. government.

Single-family loan - A loan secured by a property containing four or fewer residential dwelling units.

STACR debt note - Structured Agency Credit Risk debt note - A debt security where the principal 

balance is subject to the performance of a reference pool of single-family loans owned or 

guaranteed by Freddie Mac.

Step-rate modified loan - A term that we generally use to refer to our HAMP loans that have 

provisions for reduced interest rates that remain fixed for the first five years and then increase over a 

period of time to a market rate.

Stripped Giant PCs - Multiclass securities that are formed by resecuritizing previously issued PCs 

or Giant PCs and issuing principal-only and interest-only securities backed by the cash flows from 

the underlying collateral.

Subprime - Participants in the mortgage market may characterize single-family loans, based upon 

their overall credit quality at the time of origination, generally considering them to be prime or 

subprime. Subprime generally refers to the credit risk classification of a loan. There is no universally 

accepted definition of subprime. The subprime segment of the mortgage market primarily serves 

borrowers with poorer credit payment histories and such loans typically have a mix of credit 

characteristics that indicate a higher likelihood of default and higher loss severities than prime loans. 

Such characteristics might include, among other factors, a combination of high LTV ratios, low credit 

scores or originations using lower underwriting standards, such as limited or no documentation of a 

borrower’s income. While we have not historically characterized the loans in our single-family credit 

guarantee portfolio as either prime or subprime, we monitor the amount of loans we have 

guaranteed with characteristics that indicate a higher degree of credit risk. Certain security collateral 

underlying our other securitization products has been identified as subprime based on information 

provided to Freddie Mac when the transactions were entered into. We also categorize our 

investments in non-agency mortgage-related securities as subprime if they were identified as such 

based on information provided to us when we entered into these transactions.

SVP - Senior Vice President

Swaption - An option contract to enter into an interest-rate swap. In exchange for an option 

premium, a buyer obtains the right but not the obligation to enter into a specified swap agreement 

with the issuer on a specified future date.
Glossary

FREDDIE MAC | 2017 Form 10-K 429

Target TDC - Target total direct compensation

TBA - To be announced

The Tax Cuts and Jobs Act - The tax reform bill ("An Act to Provide for Reconciliation Pursuant to 

Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, Pub. Law No. 

115-97") enacted on December 22, 2017, which included a reduction of the statutory corporate 

income tax rate from 35% to 21%.

TDR - Troubled debt restructuring - A restructuring of a debt constitutes a TDR if the creditor for 

economic or legal reasons related to the debtor's financial difficulties grants a concession to the 

debtor that it would not otherwise consider.

Thrift/401(k) Plan - The Federal Home Loan Mortgage Corporation Thrift/401(k) Savings Plan

Total mortgage portfolio - Includes loans and mortgage-related securities held on our consolidated 

balance sheets as well as our non-consolidated issued and guaranteed single-class and multiclass 

securities, and other mortgage-related guarantees issued to third parties.

Total other comprehensive income (loss) (or other comprehensive income (loss)) - Consists of 

the after-tax changes in the unrealized gains and losses on available-for-sale securities, the effective 

portion of derivatives accounted for as cash flow hedge relationships, and defined benefit plans.

Treasury - U.S. Department of the Treasury

UPB - Unpaid principal balance - Loan UPB amounts in this report have not been reduced by 

charge-offs recognized prior to the loan being subject to a foreclosure sale, deed in lieu of 

foreclosure, or short sale transaction.

Upfront fee - A fee charged to sellers that primarily includes delivery fees that are calculated based 

on credit risk factors such as the loan product type, loan purpose, LTV ratio and credit score. These 

delivery fees are charged to compensate us for higher levels of risk in some loan products.

USDA - U.S. Department of Agriculture

VA - U.S. Department of Veterans Affairs

Variation margin - Payments we make to or receive from a derivatives clearinghouse or 

counterparty based on the change in fair value of a derivative instrument. Variation margin is typically 

transferred within one business day.

VIE - Variable Interest Entity - A VIE is an entity that has a total equity investment at risk that is not 

sufficient to finance its activities without additional subordinated financial support provided by 

another party, or where the group of equity holders does not have: (i) the ability to make significant 

decisions about the entity’s activities; (ii) the obligation to absorb the entity’s expected losses; or 

(iii) the right to receive the entity’s expected residual returns.

Warrant - Refers to the warrant we issued to Treasury on September 7, 2008 pursuant to the 

Purchase Agreement. The warrant provides Treasury the ability to purchase, for a nominal price, 

shares of our common stock equal to 79.9% of the total number of shares of Freddie Mac common 

stock outstanding on a fully diluted basis on the date of exercise.

Workforce housing - Multifamily housing that is affordable to the majority of low to middle income 

households.

Workout, or loan workout - A workout is either a home retention action, which is either a loan 

modification, repayment plan, or forbearance agreement, or a foreclosure alternative, which is either 

a short sale or a deed in lieu of foreclosure.
Glossary

FREDDIE MAC | 2017 Form 10-K 430

XBRL - eXtensible Business Reporting Language

Yield curve - A graphical display of the relationship between yields and maturity dates for bonds of 

the same credit quality. The slope of the yield curve is an important factor in determining the level of 

net interest yield on a new mortgage asset, both initially and over time. For example, if a mortgage 

asset is purchased when the yield curve is inverted (i.e., short-term interest rates higher than longterm interest rates), our net interest yield on the asset will tend to be lower initially and then increase 

over time. Likewise, if a mortgage asset is purchased when the yield curve is steep (i.e., short-term 

interest rates lower than long-term interest rates), our net interest yield on the asset will tend to be 

higher initially and then decrease over time. 
Exhibit Index

FREDDIE MAC | 2017 Form 10-K 431

Exhibit Index

Exhibit Description*

3.1

Federal Home Loan Mortgage Corporation Act (12 U.S.C. §1451 et seq.), as amended through July 21, 2010 (incorporated by 

reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9, 2010)

3.2 Bylaws of the Federal Home Loan Mortgage Corporation, as amended and restated July 7, 2016 (incorporated by reference 

to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on July 8, 2016)

4.1

Eighth Amended and Restated Certificate of Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, 

Restrictions, Terms and Conditions of Voting Common Stock (no par value per share) dated September 10, 2008 

(incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on September 11, 2008)

4.2

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated April 23, 1996 

(incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.3

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 27, 1997 (incorporated 

by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.4

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 1998 (incorporated by 

reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.5

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated September 23, 1998 

(incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.6

Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, 

Limitations, Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), 

dated September 29, 1998 (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form 10 

filed on July 18, 2008)

4.7

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.3% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 28, 1998 (incorporated 

by reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.8

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 19, 1999 (incorporated by 

reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.9

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.79% Non-Cumulative Preferred Stock (par value $1.00 per share), dated July 21, 1999 (incorporated by 

reference to Exhibit 4.9 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.10

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated November 5, 1999 

(incorporated by reference to Exhibit 4.10 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and 

Current Reports on Form 8-K are 000-53330 and 001-34139.
Exhibit Index

FREDDIE MAC | 2017 Form 10-K 432

Exhibit Description*

4.11

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated January 26, 2001 

(incorporated by reference to Exhibit 4.11 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.12

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 2001 

(incorporated by reference to Exhibit 4.12 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.13

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 2001 (incorporated 

by reference to Exhibit 4.13 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.14

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated May 30, 2001 

(incorporated by reference to Exhibit 4.14 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.15

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 6% Non-Cumulative Preferred Stock (par value $1.00 per share), dated May 30, 2001 (incorporated by 

reference to Exhibit 4.15 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.16

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.7% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 30, 2001 (incorporated 

by reference to Exhibit 4.16 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.17

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated January 29, 2002 (incorporated 

by reference to Exhibit 4.17 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.18

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of Variable Rate, Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 17, 2006 

(incorporated by reference to Exhibit 4.18 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.19

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 6.42% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 17, 2006 

(incorporated by reference to Exhibit 4.19 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.20

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.9% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated October 16, 2006 

(incorporated by reference to Exhibit 4.20 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.21

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.57% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated January 16, 2007 

(incorporated by reference to Exhibit 4.21 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.22

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 5.66% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated April 16, 2007 

(incorporated by reference to Exhibit 4.22 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.23

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 6.02% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 24, 2007 

(incorporated by reference to Exhibit 4.23 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and 

Current Reports on Form 8-K are 000-53330 and 001-34139.
Exhibit Index

FREDDIE MAC | 2017 Form 10-K 433

Exhibit Description*

4.24

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of 6.55% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated September 28, 2007 

(incorporated by reference to Exhibit 4.24 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)

4.25

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms 

and Conditions of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated 

December 4, 2007 (incorporated by reference to Exhibit 4.25 to the Registrant’s Registration Statement on Form 10 filed on 

July 18, 2008)

4.26

Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, 

Limitations, Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (par value $1.00 per 

share), dated September 27, 2012 (incorporated by reference to Exhibit 4.26 to Freddie Mac’s Annual Report on Form 10-K 

filed on February 28, 2013)

4.27

Second Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, 

Limitations, Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (par value $1.00 per 

share), dated January 1, 2018

4.28

Federal Home Loan Mortgage Corporation Global Debt Facility Agreement, dated February 16, 2017 (incorporated by 

reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 2, 2017)

10.1

Federal Home Loan Mortgage Corporation Directors’ Deferred Compensation Plan (as amended and restated April 3, 1998) 

(incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)†

10.2

First Amendment to the Federal Home Loan Mortgage Corporation Directors’ Deferred Compensation Plan (as amended and 

restated April 3, 1998) (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K filed on 

March 11, 2009)†

10.3

Federal Home Loan Mortgage Corporation Executive Deferred Compensation Plan (as amended and restated effective 

January 1, 2008) (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form 10 as filed 

on July 18, 2008)†

10.4

First Amendment to the Federal Home Loan Mortgage Corporation Executive Deferred Compensation Plan (as amended and 

restated effective January 1, 2008) (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 

10-Q filed on November 14, 2008)†

10.5

Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated effective 

January 1, 2008) (incorporated by reference to Exhibit 10.33 to the Registrant’s Registration Statement on Form 10 filed on 

July 18, 2008)†

10.6

First Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (As Amended and 

Restated January 1, 2008) (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K filed 

on February 24, 2010)†

10.7

Second Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as Amended 

and Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed 

on June 28, 2011)†

10.8

Third Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as Amended 

and Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q 

filed on November 6, 2012)†

* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and 

Current Reports on Form 8-K are 000-53330 and 001-34139.

† This exhibit is a management contract or compensatory plan or arrangement.
Exhibit Index

FREDDIE MAC | 2017 Form 10-K 434

Exhibit Description*

10.9

Fourth Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (As Amended 

and Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q 

filed on August 7, 2013)†

10.10

Fifth Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as Amended and 

Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on 

October 25, 2013) †

10.11

Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan II (effective January 1, 2014)

(incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K filed on February 19, 2015) †

10.12

First Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan II (effective 

January 1, 2014) (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 

4, 2015) †

10.13

Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit 10.34 to the 

Registrant’s Registration Statement on Form 10 filed on July 18, 2008)†

10.14 First Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to 

Exhibit 10.35 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)†

10.15 Second Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to 

Exhibit 10.36 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)†

10.16

Third Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to 

Exhibit 10.21 to the Registrant's Annual Report on Form 10-K filed on February 18, 2016)†

10.17

Fourth Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to 

Exhibit 10.17 to Registrant's Annual Report on Form 10-K filed on February 16, 2017)†

10.18

Executive Management Compensation Program Recapture and Forfeiture Agreement (incorporated by reference to Exhibit 

10.18 to Registrant's Annual Report on Form 10-K filed on February 16, 2017)†

10.19 2015 Executive Management Compensation Program (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly 

Report on Form 10-Q filed on August 4, 2015)†

10.20 Memorandum Agreement, dated May 7, 2012, between Freddie Mac and Donald H. Layton (incorporated by reference to 

Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 10, 2012)†

10.21 Restrictive Covenant and Confidentiality Agreement, dated May 7, 2012, between Freddie Mac and Donald H. Layton 

(incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 10, 2012)†

10.22 Memorandum Agreement, dated September 24, 2013, between Freddie Mac and James Mackey (incorporated by reference 

to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 30, 2013)†

10.23 Restrictive Covenant and Confidentiality Agreement, dated September 25, 2013, between Freddie Mac and James Mackey 

(incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 30, 2013)†

10.24 Memorandum Agreement, dated July 3, 2012, between Freddie Mac and William H. McDavid (incorporated by reference to 

Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 9, 2012)†

* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and 

Current Reports on Form 8-K are 000-53330 and 001-34139.

† This exhibit is a management contract or compensatory plan or arrangement.
Exhibit Index

FREDDIE MAC | 2017 Form 10-K 435

Exhibit Description*

10.25 Restrictive Covenant and Confidentiality Agreement, dated July 6, 2012, between Freddie Mac and William H. McDavid 

(incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 9, 2012)†

10.26

Memorandum Agreement, dated April 7, 2013, between Freddie Mac and David B. Lowman (incorporated by reference to 

Exhibit 10.48 to the Registrant's Annual Report on Form 10-K filed on February 27, 2014)†

10.27 Restrictive Covenant and Confidentiality Agreement, dated April 9, 2013, between Freddie Mac and David B. Lowman 

(incorporated by reference to Exhibit 10.49 to the Registrant's Annual Report on Form 10-K filed on February 27, 2014)†

10.28 Memorandum Agreement, dated June 24, 2013, between Freddie Mac and Michael Hutchins (incorporated by reference to 

Exhibit 10.32 to Freddie Mac’s Annual Report on Form 10-K filed on February 18, 2016)†

10.29 Restrictive Covenant and Confidentiality Agreement, dated June 25, 2013, between Freddie Mac and Michael Hutchins 

(incorporated by reference to Exhibit 10.33 to Freddie Mac’s Annual Report on Form 10-K filed on February 18, 2016)†

10.30 Description of non-employee director compensation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current 

Report on Form 8-K filed on December 23, 2008)†

10.31 PC Master Trust Agreement dated February 2, 2017 (incorporated by reference to Exhibit 10.31 to Registrant's Annual Report 

on Form 10-K filed on February 16, 2017)

10.32

Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and executive officers (for 

agreements with officers entered into prior to August 2011) (incorporated by reference to Exhibit 10.2 to the Registrant’s 

Current Report on Form 8-K filed on December 23, 2008)†

10.33

Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and executive officers (for 

agreements with officers entered into beginning in August 2011) (incorporated by reference to Exhibit 10.54 to the 

Registrant’s Annual Report on Form 10-K filed on March 9, 2012)†

10.34 Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and Outside Directors 

(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 27, 2017)†

10.35

Amended and Restated Senior Preferred Stock Purchase Agreement dated as of September 26, 2008, between the United 

States Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through the Federal Housing 

Finance Agency as its duly appointed Conservator (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly 

Report on Form 10-Q filed on November 14, 2008)

10.36

Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of May 6, 2009, between the 

United States Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through the Federal Housing 

Finance Agency as its duly appointed Conservator (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly 

Report on Form 10-Q filed on May 12, 2009)

10.37

Second Amendment dated as of December 24, 2009, to the Amended and Restated Senior Preferred Stock Purchase 

Agreement dated as of September 26, 2008, between the United States Department of the Treasury and Federal Home Loan 

Mortgage Corporation, acting through the Federal Housing Finance Agency as its duly appointed Conservator (incorporated 

by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 29, 2009)

10.38

Third Amendment dated as of August 17, 2012, to the Amended and Restated Senior Preferred Stock Purchase Agreement 

dated as of September 26, 2008, between the United States Department of the Treasury and Federal Home Loan Mortgage 

Corporation, acting through the Federal Housing Finance Agency as its duly appointed Conservator (incorporated by 

reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 17, 2012)

* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and 

Current Reports on Form 8-K are 000-53330 and 001-34139.

† This exhibit is a management contract or compensatory plan or arrangement.
Exhibit Index

FREDDIE MAC | 2017 Form 10-K 436

Exhibit Description*

10.39

Letter Agreement dated December 21, 2017 between the United States Department of the Treasury and Federal Home Loan 

Mortgage Corporation, acting through the Federal Housing Finance Agency as its Conservator (incorporated by reference to 

Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on December 21, 2017)

10.40 Warrant to Purchase Common Stock, dated September 7, 2008 (incorporated by reference to Exhibit 10.2 to the Registrant’s 

Current Report on Form 8-K filed on September 11, 2008)

12.10 Statement re: computation of ratio of earnings to fixed charges and computation of ratio of earnings to combined fixed 

charges and preferred stock dividends

24.1 Powers of Attorney

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)

31.2 Certification of Executive Vice President —Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2 Certification of Executive Vice President —Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema

101.CAL XBRL Taxonomy Extension Calculation

101.LAB XBRL Taxonomy Extension Labels

101.PRE XBRL Taxonomy Extension Presentation

101.DEF XBRL Taxonomy Extension Definition

* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and 

Current Reports on Form 8-K are 000-53330 and 001-34139.
Signatures

FREDDIE MAC | 2017 Form 10-K 437

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the 

registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly 

authorized.

Federal Home Loan Mortgage Corporation

By: /s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer

Date: February 15, 2018
Signatures

FREDDIE MAC | 2017 Form 10-K 438

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below 

by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Capacity Date

/s/ Christopher S. Lynch* Non-Executive Chairman of the Board February 15, 2018

Christopher S. Lynch 

/s/ Donald H. Layton Chief Executive Officer and Director February 15, 2018

Donald H. Layton (Principal Executive Officer) 

/s/ James G. Mackey Executive Vice President — Chief Financial Officer February 15, 2018

James G. Mackey (Principal Financial Officer) 

/s/ Robert D. Mailloux Senior Vice President — Corporate Controller and February 15, 2018

Robert D. Mailloux Principal Accounting Officer (Principal Accounting Officer) 

/s/ Carolyn H. Byrd* Director February 15, 2018

Carolyn H. Byrd 

/s/ Lance F. Drummond* Director February 15, 2018

Lance F. Drummond

/s/ Thomas M. Goldstein* Director February 15, 2018

Thomas M. Goldstein 

/s/ Grace A. Huebscher* Director February 15, 2018

Grace A. Huebscher

/s/ Steven W. Kohlhagen* Director February 15, 2018

Steven W. Kohlhagen

/s/ Sara Mathew* Director February 15, 2018

Sara Mathew

/s/ Saiyid T. Naqvi* Director February 15, 2018

Saiyid T. Naqvi

/s/ Eugene B. Shanks, Jr.* Director February 15, 2018

Eugene B. Shanks, Jr. 

/s/ Anthony A. Williams* Director February 15, 2018

Anthony A. Williams 

*By: /s/ Alicia S. Myara 

Alicia S. Myara 

Attorney-in-Fact 
Index

FREDDIE MAC | 2017 Form 10-K 439

Form 10-K Index 

Item Number Page(s)

PART I

Item 1 Business 1-2, 8-11, 38-51,

63-71, 87-93, 177-189

Item 1A Risk Factors 197-224

Item 1B Unresolved Staff Comments Not Applicable

Item 2 Properties 10

Item 3 Legal Proceedings 225

Item 4 Mine Safety Disclosures Not Applicable

PART II

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

Purchases of Equity Securities 226-228

Item 6 Selected Financial Data 14

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

Operations

1-7, 12-13, 15-37, 39,

52-62, 72-86, 94-155,

164-177, 190-196

Item 7A Quantitative and Qualitative Disclosures About Market Risk 156-162

Item 8 Financial Statements and Supplementary Data 229-357

Item 9 Changes in and Disagreements With Accountants on Accounting and Financial

Disclosure Not Applicable

Item 9A Controls and Procedures 230-231, 358-361

Item 9B Other Information 362

PART III

Item 10 Directors, Executive Officers and Corporate Governance 103-104, 362-383, 411

Item 11 Executive Compensation 377, 379-380, 384-409

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters 410-412

Item 13 Certain Relationships and Related Transactions, and Director Independence 371-374, 413-415

Item 14 Principal Accounting Fees and Services 416-417

PART IV

Item 15 Exhibits and Financial Statement Schedules 418, 431-436

Item 16 Form 10-K Summary Not Applicable

Signatures 437-438
Exhibit 4.27

 EXECUTION VERSION

FREDDIE MAC 

SECOND AMENDED AND RESTATED CERTIFICATE OF CREATION, 

DESIGNATION, POWERS, PREFERENCES, RIGHTS, 

PRIVILEGES, QUALIFICATIONS, LIMITATIONS, 

RESTRICTIONS, TERMS AND CONDITIONS OF 

VARIABLE LIQUIDATION PREFERENCE SENIOR PREFERRED STOCK 

(PAR VALUE $1.00 PER SHARE) 

The Federal Housing Finance Agency, as Conservator of the Federal Home Loan Mortgage 

Corporation, a government-sponsored enterprise of the United States of America (the “Company”), 

does hereby certify that, pursuant to authority vested in the Board of Directors of the Company by 

Section 306(f) of the Federal Home Loan Mortgage Corporation Act, and pursuant to the authority 

vested in the Conservator of the Company by Section 1367(b) of the Federal Housing Enterprises 

Financial Safety and Soundness Act of 1992 (12 U.S.C. §4617), as amended, the Conservator adopted 

Resolution FHLMC 2008-24 on September 7, 2008, which resolution is now, and at all times since such 

date has been, in full force and effect, and that the Conservator approved the final terms of the issuance 

and sale of the preferred stock of the Company designated above. 

As amended and restated, effective January 1, 2018, in accordance with the Letter Agreement 

dated December 21, 2017 and the Third Amendment dated as of August 17, 2012, to the Amended and 

Restated Senior Preferred Stock Purchase Agreement dated as of September 26, 2008, the Senior 

Preferred Stock shall have the following designation, powers, preferences, rights, privileges, 

qualifications, limitations, restrictions, terms and conditions: 

1. Designation, Par Value, Number of Shares and Seniority 

The class of preferred stock of the Company created hereby (the “Senior Preferred Stock”) shall be 

designated “Variable Liquidation Preference Senior Preferred Stock,” shall have a par value of $1.00 per 

share and shall consist of 1,000,000 shares. The Senior Preferred Stock shall rank prior to the common 

stock of the Company as provided in this Certificate and shall rank, as to both dividends and 

distributions upon liquidation, prior to (a) the Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred 

Stock issued on December 4, 2007, (b) the 6.55% Non-Cumulative Preferred Stock issued on 

September 28, 2007, (c) the 6.02% Non-Cumulative Preferred Stock issued on July 24, 2007, (d) the 

5.66% Non-Cumulative Preferred Stock issued on April 16, 2007, (e) the 5.57% Non-Cumulative 

Preferred Stock issued on January 16, 2007, (f) the 5.9% Non-Cumulative Preferred Stock issued on 

October 16, 2006, (g) the 6.42% Non-Cumulative Preferred Stock issued on July 17, 2006, (h) the 

Variable Rate, Non-Cumulative Preferred Stock issued on July 17, 2006, (i) the 5.81% Non-Cumulative 

Preferred Stock issued on January 29, 2002, (j) the 5.7% Non-Cumulative Preferred Stock issued on 

October 30, 2001, (k) the 6% Non-Cumulative Preferred Stock issued on May 30, 2001, (l) the Variable 

Rate, Non-Cumulative Preferred Stock issued on May 30, 2001 and June 1, 2001, (m) the 5.81% NonCumulative Preferred Stock issued on March 23, 2001, (n) the Variable Rate, Non-Cumulative Preferred 

Stock issued on March 23, 2001, (o) the Variable Rate, Non-Cumulative Preferred Stock issued on 

January 26, 2001, (p) the Variable Rate, Non-Cumulative Preferred Stock issued on November 5, 1999, 

(q) the 5.79% Non-Cumulative Preferred Stock issued on July 21, 1999, (r) the 5.1% Non-Cumulative 

Preferred Stock issued on March 19, 1999, (s) the 5.3% Non-Cumulative Preferred Stock issued on 

October 28, 1998, (t) the 5.1% Non-Cumulative Preferred Stock issued on September 23, 1998, (u) the 

Variable Rate, Non-Cumulative Preferred Stock issued on September 23, 1998 and September 29, 1998, 
(v) the 5% Non-Cumulative Preferred Stock issued on March 23, 1998, (w) the 5.81% Non-Cumulative 

Preferred Stock issued on October 27, 1997, (x) the Variable Rate, Non-Cumulative Preferred Stock 

issued on April 26, 1996, (y) any other capital stock of the Company outstanding on the date of the 

initial issuance of the Senior Preferred Stock, and (z) any capital stock of the Company that may be 

issued after the date of initial issuance of the Senior Preferred Stock. 

2. Dividends 

(a) For each Dividend Period from the date of the initial issuance of the Senior Preferred Stock 

through and including December 31, 2012, holders of outstanding shares of Senior Preferred Stock shall 

be entitled to receive, ratably, when, as and if declared by the Board of Directors, in its sole discretion, 

out of funds legally available therefor, cumulative cash dividends at the annual rate per share equal to 

the then-current Dividend Rate on the then-current Liquidation Preference. For each Dividend Period 

from January 1, 2013, holders of outstanding shares of Senior Preferred Stock shall be entitled to 

receive, ratably, when, as and if declared by the Board of Directors, in its sole discretion, out of funds 

legally available therefor, cumulative cash dividends in an amount equal to the then-current Dividend 

Amount. Dividends on the Senior Preferred Stock shall accrue from but not including the date of the 

initial issuance of the Senior Preferred Stock and will be payable in arrears when, as and if declared by 

the Board of Directors quarterly on March 31, June 30, September 30 and December 31 of each year 

(each, a “Dividend Payment Date”), commencing on December 31, 2008. If a Dividend Payment Date is 

not a “Business Day,” the related dividend will be paid not later than the next Business Day with the 

same force and effect as though paid on the Dividend Payment Date, without any increase to account 

for the period from such Dividend Payment Date through the date of actual payment. “Business Day” 

means a day other than (i) a Saturday or Sunday, (ii) a day on which New York City banks are closed, or 

(iii) a day on which the offices of the Company are closed. 

If declared, the initial dividend will be for the period from but not including the date of the initial 

issuance of the Senior Preferred Stock through and including December 31, 2008. Except for the initial 

Dividend Payment Date, the “Dividend Period” relating to a Dividend Payment Date will be the period 

from but not including the preceding Dividend Payment Date through and including the related Dividend 

Payment Date. For each Dividend Period from the date of the initial issuance of the Senior Preferred 

Stock through and including December 31, 2012, the amount of dividends payable on the initial 

Dividend Payment Date or for any Dividend Period through and including December 31, 2012, that is not 

a full calendar quarter shall be computed on the basis of 30-day months, a 360-day year and the actual 

number of days elapsed in any period of less than one month. For the avoidance of doubt, for each 

Dividend Period from the date of the initial issuance of the Senior Preferred Stock through and including 

December 31, 2012, in the event that the Liquidation Preference changes in the middle of a Dividend 

Period, the amount of dividends payable on the Dividend Payment Date at the end of such Dividend 

Period shall take into account such change in Liquidation Preference and shall be computed at the 

Dividend Rate on each Liquidation Preference based on the portion of the Dividend Period that each 

Liquidation Preference was in effect. 

(b) To the extent not paid pursuant to Section 2(a) above, dividends on the Senior Preferred Stock 

shall accrue and shall be added to the Liquidation Preference pursuant to Section 8, whether or not 

there are funds legally available for the payment of such dividends and whether or not dividends are 

declared. 

(c) For each Dividend Period from the date of the initial issuance of the Senior Preferred Stock 

through and including December 31, 2012, “Dividend Rate” means 10.0 percent; provided, however, 

that if at any time the Company shall have for any reason failed to pay dividends in cash in a timely 

manner as required by this Certificate, then immediately following such failure and for all Dividend 
Periods thereafter until the Dividend Period following the date on which the Company shall have paid in 

cash full cumulative dividends (including any unpaid dividends added to the Liquidation Preference 

pursuant to Section 8), the “Dividend Rate” shall mean 12.0 percent. 

For each Dividend Period from January 1, 2013, and thereafter, the “Dividend Amount” for a 

Dividend Period means the amount, if any, by which the Net Worth Amount at the end of the 

immediately preceding fiscal quarter, less the Applicable Capital Reserve Amount for such Dividend 

Period, exceeds zero. In each case, “Net Worth Amount” means (i) the total assets of the Company 

(such assets excluding the Commitment and any unfunded amounts thereof) as reflected on the balance 

sheet of the Company as of the applicable date set forth in this Certificate, prepared in accordance with 

GAAP, less (ii) the total liabilities of the Company (such liabilities excluding any obligation in respect of 

any capital stock of the Company, including this Certificate), as reflected on the balance sheet of the 

Company as of the applicable date set forth in this Certificate, prepared in accordance with GAAP. 

“Applicable Capital Reserve Amount” means, as of any date of determination, (A) for each Dividend 

Period from January 1, 2013, through and including December 31, 2013, $3,000,000,000; (B) for each 

Dividend Period occurring within each 12-month period thereafter, through and including December 31, 

2017, $3,000,000,000 reduced by $600,000,000 for each such 12-month period, so that for each 

Dividend Period from January 1, 2017, through and including December 31, 2017, the Applicable Capital 

Reserve Amount shall be $600,000,000; and (C) for each Dividend Period from January 1, 2018, and 

thereafter, $3,000,000,000. Notwithstanding the foregoing, for each Dividend Period from January 1, 

2018, and thereafter, following any Dividend Payment Date with respect to which the Board of Directors 

does not declare and pay a dividend or declares and pays a dividend in an amount less than the 

Dividend Amount, the Applicable Capital Reserve Amount shall thereafter be zero. For the avoidance of 

doubt, if the calculation of the Dividend Amount for a Dividend Period does not exceed zero, then no 

Dividend Amount shall accrue or be payable for such Dividend Period. 

(d) Each such dividend shall be paid to the holders of record of outstanding shares of the Senior 

Preferred Stock as they appear in the books and records of the Company on such record date as shall 

be fixed in advance by the Board of Directors, not to be earlier than 45 days nor later than 10 days 

preceding the applicable Dividend Payment Date. The Company may not, at any time, declare or pay 

dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation 

payment with respect to, any common stock or other securities ranking junior to the Senior Preferred 

Stock unless (i) full cumulative dividends on the outstanding Senior Preferred Stock in respect of the 

then-current Dividend Period and all past Dividend Periods (including any unpaid dividends added to the 

Liquidation Preference pursuant to Section 8) have been declared and paid in cash (including through 

any pay down of Liquidation Preference pursuant to Section 3) and (ii) all amounts required to be paid 

pursuant to Section 4 (without giving effect to any prohibition on such payment under any applicable 

law) have been paid in cash. 

(e) Notwithstanding any other provision of this Certificate, the Board of Directors, in its discretion, 

may choose to pay dividends on the Senior Preferred Stock without the payment of any dividends on 

the common stock, preferred stock or any other class or series of stock from time to time outstanding 

ranking junior to the Senior Preferred Stock with respect to the payment of dividends. 

(f) If and whenever dividends, having been declared, shall not have been paid in full, as aforesaid, 

on shares of the Senior Preferred Stock, all such dividends that have been declared on shares of the 

Senior Preferred Stock shall be paid to the holders pro rata based on the aggregate Liquidation 

Preference of the shares of Senior Preferred Stock held by each holder, and any amounts due but not 

paid in cash shall be added to the Liquidation Preference pursuant to Section 8. 
3. Optional Pay Down of Liquidation Preference 

(a) Following termination of the Commitment (as defined in the Preferred Stock Purchase 

Agreement referred to in Section 8 below), and subject to any limitations which may be imposed by law 

and the provisions below, the Company may pay down the Liquidation Preference of all outstanding 

shares of the Senior Preferred Stock pro rata, at any time, in whole or in part, out of funds legally 

available therefor, with such payment first being used to reduce any accrued and unpaid dividends 

previously added to the Liquidation Preference pursuant to Section 8 below and, to the extent all such 

accrued and unpaid dividends have been paid, next being used to reduce any Periodic Commitment 

Fees (as defined in the Preferred Stock Purchase Agreement referred to in Section 8 below) previously 

added to the Liquidation Preference pursuant to Section 8 below. Prior to termination of the 

Commitment, and subject to any limitations which may be imposed by law and the provisions below, 

the Company may pay down the Liquidation Preference of all outstanding shares of the Senior Preferred 

Stock pro rata, at any time, out of funds legally available therefor, but only to the extent of (i) accrued 

and unpaid dividends previously added to the Liquidation Preference pursuant to Section 8 below and 

not repaid by any prior pay down of Liquidation Preference and (ii) Periodic Commitment Fees 

previously added to the Liquidation Preference pursuant to Section 8 below and not repaid by any prior 

pay down of Liquidation Preference. Any pay down of Liquidation Preference permitted by this Section 3 

shall be paid by making a payment in cash to the holders of record of outstanding shares of the Senior 

Preferred Stock as they appear in the books and records of the Company on such record date as shall 

be fixed in advance by the Board of Directors, not to be earlier than 45 days nor later than 10 days 

preceding the date fixed for the payment. 

(b) In the event the Company shall pay down of the Liquidation Preference of the Senior Preferred 

Stock as aforesaid, notice of such pay down shall be given by the Company by first class mail, postage 

prepaid, mailed neither less than 10 nor more than 45 days preceding the date fixed for the payment, to 

each holder of record of the shares of the Senior Preferred Stock, at such holder’s address as the same 

appears in the books and records of the Company. Each such notice shall state the amount by which 

the Liquidation Preference of each share shall be reduced and the pay down date. 

(c) If after termination of the Commitment the Company pays down the Liquidation Preference of 

each outstanding share of Senior Preferred Stock in full, such shares shall be deemed to have been 

redeemed as of the date of such payment, and the dividend that would otherwise be payable for the 

Dividend Period ending on the pay down date will be paid on such date. Following such deemed 

redemption, the shares of the Senior Preferred Stock shall no longer be deemed to be outstanding, and 

all rights of the holders thereof as holders of the Senior Preferred Stock shall cease, with respect to 

shares so redeemed, other than the right to receive the pay down amount (which shall include the final 

dividend for such shares). Any shares of the Senior Preferred Stock which shall have been so redeemed, 

after such redemption, shall no longer have the status of authorized, issued or outstanding shares. 

4. Mandatory Pay Down of Liquidation Preference Upon Issuance of Capital Stock 

(a) If the Company shall issue any shares of capital stock (including without limitation common 

stock or any series of preferred stock) in exchange for cash at any time while the Senior Preferred Stock 

is outstanding, then the Company shall, within 10 Business Days, use the proceeds of such issuance 

net of the direct costs relating to the issuance of such securities (including, without limitation, legal, 

accounting and investment banking fees) to pay down the Liquidation Preference of all outstanding 

shares of Senior Preferred Stock pro rata, out of funds legally available therefor, by making a payment in 

cash to the holders of record of outstanding shares of the Senior Preferred Stock as they appear in the 

books and records of the Company on such record date as shall be fixed in advance by the Board of 
Directors, not to be earlier than 45 days nor later than 10 days preceding the date fixed for the payment, 

with such payment first being used to reduce any accrued and unpaid dividends previously added to 

the Liquidation Preference pursuant to Section 8 below and, to the extent all such accrued and unpaid 

dividends have been paid, next being used to reduce any Periodic Commitment Fees (as defined in the 

Preferred Stock Purchase Agreement referred to in Section 8 below) previously added to the Liquidation 

Preference pursuant to Section 8 below; provided that, prior to the termination of the Commitment (as 

defined in the Preferred Stock Purchase Agreement referred to in Section 8 below), the Liquidation 

Preference of each share of Senior Preferred Stock shall not be paid down below $1,000 per share. 

(b) If the Company shall not have sufficient assets legally available for the pay down of the 

Liquidation Preference of the shares of Senior Preferred Stock required under Section 4(a), the Company 

shall pay down the Liquidation Preference per share to the extent permitted by law, and shall pay down 

any Liquidation Preference not so paid down because of the unavailability of legally available assets or 

other prohibition as soon as practicable to the extent it is thereafter able to make such pay down legally. 

The inability of the Company to make such payment for any reason shall not relieve the Company from 

its obligation to effect any required pay down of the Liquidation Preference when, as and if permitted by 

law. 

(c) If after the termination of the Commitment the Company pays down the Liquidation Preference 

of each outstanding share of Senior Preferred Stock in full, such shares shall be deemed to have been 

redeemed as of the date of such payment, and the dividend that would otherwise be payable for the 

Dividend Period ending on the pay down date will be paid on such date. Following such deemed 

redemption, the shares of the Senior Preferred Stock shall no longer be deemed to be outstanding, and 

all rights of the holders thereof as holders of the Senior Preferred Stock shall cease, with respect to 

shares so redeemed, other than the right to receive the pay down amount (which shall include the final 

dividend for such redeemed shares). Any shares of the Senior Preferred Stock which shall have been so 

redeemed, after such redemption, shall no longer have the status of authorized, issued or outstanding 

shares. 

5. No Voting Rights 

Except as set forth in this Certificate or otherwise required by law, the shares of the Senior 

Preferred Stock shall not have any voting powers, either general or special. 

6. No Conversion or Exchange Rights 

The holders of shares of the Senior Preferred Stock shall not have any right to convert such shares 

into or exchange such shares for any other class or series of stock or obligations of the Company. 

7. No Preemptive Rights 

No holder of the Senior Preferred Stock shall as such holder have any preemptive right to purchase 

or subscribe for any other shares, rights, options or other securities of any class of the Company which 

at any time may be sold or offered for sale by the Company. 

8. Liquidation Rights and Preference 

(a) Except as otherwise set forth herein, upon the voluntary or involuntary dissolution, liquidation or 

winding up of the Company, the holders of the outstanding shares of the Senior Preferred Stock shall be 

entitled to receive out of the assets of the Company available for distribution to stockholders, before any 

payment or distribution shall be made on the common stock or any other class or series of stock of the 

Company ranking junior to the Senior Preferred Stock upon liquidation, the amount per share equal to 

the Liquidation Preference plus an amount, determined in accordance with Section 2(a) above, equal 
to the dividend otherwise payable for the then-current Dividend Period accrued through and including 

the date of payment in respect of such dissolution, liquidation or winding up; provided, however, that if 

the assets of the Company available for distribution to stockholders shall be insufficient for the payment 

of the amount which the holders of the outstanding shares of the Senior Preferred Stock shall be 

entitled to receive upon such dissolution, liquidation or winding up of the Company as aforesaid, then, 

all of the assets of the Company available for distribution to stockholders shall be distributed to the 

holders of outstanding shares of the Senior Preferred Stock pro rata based on the aggregate Liquidation 

Preference of the shares of Senior Preferred Stock held by each holder. 

(b) “Liquidation Preference” shall initially mean $1,000 per share and shall be: 

(i) increased each time a Deficiency Amount (as defined in the Preferred Stock Purchase 

Agreement) is paid to the Company by an amount per share equal to the aggregate amount so paid 

to the Company divided by the number of shares of Senior Preferred Stock outstanding at the time 

of such payment; 

(ii) increased each time the Company does not pay the full Periodic Commitment Fee (as 

defined in the Preferred Stock Purchase Agreement) in cash by an amount per share equal to the 

amount of the Periodic Commitment Fee that is not paid in cash divided by the number of shares of 

Senior Preferred Stock outstanding at the time such payment is due; 

(iii) increased on the Dividend Payment Date if the Company fails to pay in full the dividend 

payable for the Dividend Period ending on such date by an amount per share equal to the 

aggregate amount of unpaid dividends divided by the number of shares of Senior Preferred Stock 

outstanding on such date; and 

(iv) decreased each time the Company pays down the Liquidation Preference pursuant to 

Section 3 or Section 4 of this Certificate by an amount per share equal to the aggregate amount of 

the pay down divided by the number of shares of Senior Preferred Stock outstanding at the time of 

such pay down. 

(c) “Preferred Stock Purchase Agreement” means the Preferred Stock Purchase Agreement, dated 

September 7, 2008, between the Company and the United States Department of the Treasury. 

(d) Neither the sale of all or substantially all of the property or business of the Company, nor the 

merger, consolidation or combination of the Company into or with any other corporation or entity, shall 

be deemed to be a dissolution, liquidation or winding up for the purpose of this Section 8. 

9. Additional Classes or Series of Stock 

The Board of Directors shall have the right at any time in the future to authorize, create and issue, 

by resolution or resolutions, one or more additional classes or series of stock of the Company, and to 

determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and 

other terms of the shares thereof; provided that, any such class or series of stock may not rank prior to 

or on parity with the Senior Preferred Stock without the prior written consent of the holders of at least 

two-thirds of all the shares of Senior Preferred Stock at the time outstanding. 

10. Miscellaneous 

(a) The Company and any agent of the Company may deem and treat the holder of a share or 

shares of Senior Preferred Stock, as shown in the Company’s books and records, as the absolute owner 

of such share or shares of Senior Preferred Stock for the purpose of receiving payment of dividends in 

respect of such share or shares of Senior Preferred Stock and for all other purposes whatsoever, and 

neither the Company nor any agent of the Company shall be affected by any notice to the contrary. All 
payments made to or upon the order of any such person shall be valid and, to the extent of the sum or 

sums so paid, effectual to satisfy and discharge liabilities for moneys payable by the Company on or 

with respect to any such share or shares of Senior Preferred Stock. 

(b) The shares of the Senior Preferred Stock, when duly issued, shall be fully paid and nonassessable. 

(c) The Senior Preferred Stock may be issued, and shall be transferable on the books of the 

Company, only in whole shares. 

(d) For purposes of this Certificate, the term “the Company” means the Federal Home Loan 

Mortgage Corporation and any successor thereto by operation of law or by reason of a merger, 

consolidation, combination or similar transaction. 

(e) This Certificate and the respective rights and obligations of the Company and the holders of the 

Senior Preferred Stock with respect to such Senior Preferred Stock shall be construed in accordance 

with and governed by the laws of the United States, provided that the law of the Commonwealth of 

Virginia shall serve as the federal rule of decision in all instances except where such law is inconsistent 

with the Company’s enabling legislation, its public purposes or any provision of this Certificate. 

(f) Any notice, demand or other communication which by any provision of this Certificate is 

required or permitted to be given or served to or upon the Company shall be given or served in writing 

addressed (unless and until another address shall be published by the Company) to Freddie Mac, 8200 

Jones Branch Drive, McLean, Virginia 22102, Attn: Executive Vice President and General Counsel. Such 

notice, demand or other communication to or upon the Company shall be deemed to have been 

sufficiently given or made only upon actual receipt of a writing by the Company. Any notice, demand or 

other communication which by any provision of this Certificate is required or permitted to be given or 

served by the Company hereunder may be given or served by being deposited first class, postage 

prepaid, in the United States mail addressed (i) to the holder as such holder’s name and address may 

appear at such time in the books and records of the Company or (ii) if to a person or entity other than a 

holder of record of the Senior Preferred Stock, to such person or entity at such address as reasonably 

appears to the Company to be appropriate at such time. Such notice, demand or other communication 

shall be deemed to have been sufficiently given or made, for all purposes, upon mailing. 

(g) The Company, by or under the authority of the Board of Directors, may amend, alter, 

supplement or repeal any provision of this Certificate pursuant to the following terms and conditions: 

(i) Without the consent of the holders of the Senior Preferred Stock, the Company may 

amend, alter, supplement or repeal any provision of this Certificate to cure any ambiguity, to 

correct or supplement any provision herein which may be defective or inconsistent with any other 

provision herein, or to make any other provisions with respect to matters or questions arising under 

this Certificate, provided that such action shall not adversely affect the interests of the holders of 

the Senior Preferred Stock. 

(ii) The consent of the holders of at least two-thirds of all of the shares of the Senior Preferred 

Stock at the time outstanding, given in person or by proxy, either in writing or by a vote at a 

meeting called for the purpose at which the holders of shares of the Senior Preferred Stock shall 

vote together as a class, shall be necessary for authorizing, effecting or validating the amendment, 

alteration, supplementation or repeal (whether by merger, consolidation or otherwise) of the 

provisions of this Certificate other than as set forth in subparagraph (i) of this paragraph (g). The 

creation and issuance of any other class or series of stock, or the issuance of 
additional shares of any existing class or series of stock, of the Company ranking junior to the 

Senior Preferred Stock shall not be deemed to constitute such an amendment, alteration, 

supplementation or repeal. 

(iii) Holders of the Senior Preferred Stock shall be entitled to one vote per share on matters on 

which their consent is required pursuant to subparagraph (ii) of this paragraph (g). In connection 

with any meeting of such holders, the Board of Directors shall fix a record date, neither earlier than 

60 days nor later than 10 days prior to the date of such meeting, and holders of record of shares of 

the Senior Preferred Stock on such record date shall be entitled to notice of and to vote at any 

such meeting and any adjournment. The Board of Directors, or such person or persons as it may 

designate, may establish reasonable rules and procedures as to the solicitation of the consent of 

holders of the Senior Preferred Stock at any such meeting or otherwise, which rules and 

procedures shall conform to the requirements of any national securities exchange on which the 

Senior Preferred Stock may be listed at such time. 

(h) RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE SENIOR PREFERRED 

STOCK BY OR ON BEHALF OF A HOLDER SHALL CONSTITUTE THE UNCONDITIONAL 

ACCEPTANCE BY THE HOLDER (AND ALL OTHERS HAVING BENEFICIAL OWNERSHIP OF SUCH 

SHARE OR SHARES) OF ALL OF THE TERMS AND PROVISIONS OF THIS CERTIFICATE. NO 

SIGNATURE OR OTHER FURTHER MANIFESTATION OF ASSENT TO THE TERMS AND 

PROVISIONS OF THIS CERTIFICATE SHALL BE NECESSARY FOR ITS OPERATION OR EFFECT AS 

BETWEEN THE COMPANY AND THE HOLDER (AND ALL SUCH OTHERS). 

IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Company this 1st day of 

January, 2018. 

[Seal] 

 

FEDERAL HOME LOAN MORTGAGE CORPORATION,

by

The Federal Housing Finance Agency, its

Conservator

By: /s/ Melvin L. Watt

Melvin L. Watt

Director

Signature Page to January 2018 Second Amended and Restated Certificate of Designation of Senior 

Preferred Stock 
Exhibit 12.1

RATIO OF EARNINGS TO FIXED CHARGES AND

RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

Year Ended December 31,

 2017 2016 2015 2014 2013

(Dollars in millions)

Net income before income tax expense and cumulative effect of changes in accounting

principles $ 16,834 $ 11,639 $ 9,274 $ 11,002 $ 25,363

Add:

Total interest expense(1) 53,643 50,786 52,144 55,217 56,234

Interest factor in rental expenses 3 3 2 5 4

Earnings, as adjusted $ 70,480 $ 62,428 $ 61,420 $ 66,224 $ 81,601

Fixed charges:

Total interest expense $ 53,643 50,786 52,144 55,217 56,234

Interest factor in rental expenses 3 3 2 5 4

Total fixed charges $ 53,646 $ 50,789 $ 52,146 $ 55,222 $ 56,238

Senior preferred stock and preferred stock dividends(2) 33,167 7,437 5,510 19,610 47,591

Total fixed charges including preferred stock dividends $ 86,813 $ 58,226 $ 57,656 $ 74,832 $ 103,829

Ratio of earnings to fixed charges(3) 1.31 1.23 1.18 1.20 1.45

Ratio of earnings to combined fixed charges and preferred stock dividends(4) — 1.07 1.07 — —

(1) Prior periods data have been revised to conform to the current presentation

(2) Senior preferred stock and preferred stock dividends represent pre-tax earnings required to cover any senior preferred stock and preferred stock dividend 

requirements computed using our effective tax rate.

(3) Ratio of earnings to fixed charges is computed by dividing earnings, as adjusted by total fixed charges. 

(4) Ratio of earnings to combined fixed charges and preferred stock dividends is computed by dividing earnings, as adjusted by total fixed charges including preferred 

stock dividends. For the ratio to equal 1.00, earnings, as adjusted must increase by $16.3 billion, $8.6 billion and $22.2 billion for the years ended December 31, 

2017, 2014, and 2013, respectively.
Exhibit 24.1

Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 6, 2017.

 /s/ Carolyn H. Byrd 

Carolyn H. Byrd
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 6, 2017.

 /s/ Launcelot F. Drummond 

Launcelot F. Drummond
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 6, 2017.

 /s/ Thomas M. Goldstein 

Thomas M. Goldstein
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 7, 2017.

 /s/ Grace A. Huebscher 

Grace A. Huebscher
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 6, 2017.

 /s/ Steven W. Kohlhagen 

Steven W. Kohlhagen
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 6, 2017.

 /s/ Christopher S. Lynch 

Christopher S. Lynch
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 6, 2017.

 /s/ S. Sara Mathew 

S. Sara Mathew
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 6, 2017.

 /s/ Saiyid T. Naqvi 

Saiyid T. Naqvi
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 6, 2017.

 /s/ Eugene B. Shanks, Jr. 

Eugene B. Shanks, Jr.
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac 

(formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, 

hereby constitute and appoint Donald H. Layton, James G. Mackey, William H. McDavid, Alicia S. Myara 

and Kevin I. MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power of 

substitution and resubstitution to sign in my name, place and stead, in any and all capacities, to do any 

and all things and execute any and all instruments that such attorney may deem necessary or advisable 

under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the 

U.S. Securities and Exchange Commission in connection with the Annual Report on Form 10-K for the 

year ended December 31, 2017 and any and all amendments thereto, as fully for all intents and 

purposes as I might or could do in person, and hereby ratify and confirm all said attorneys-in-fact, each 

acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue 

hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 6, 2017.

 /s/ Anthony A. Williams 

Anthony A. Williams
Exhibit 31.1

CERTIFICATION

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, Donald H. Layton, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2017 of the Federal Home Loan Mortgage

Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact

necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading

with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all

material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented

in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures

(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange

Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under

our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made

known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed

under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of

financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions

about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on

such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the

registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially

affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial

reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the

equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting

which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial

information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the

registrant’s internal control over financial reporting.

Date: February 15, 2018

/s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer
Exhibit 31.2

CERTIFICATION

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, James G. Mackey, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2017 of the Federal Home Loan Mortgage Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make

the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered

by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the

financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in

Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and

15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our

supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by

others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our

supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for

external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the

effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most

recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely

to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to

the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are

reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal

control over financial reporting.

Date: February 15, 2018

/s/ James G. Mackey

James G. Mackey

Executive Vice President — Chief Financial Officer
Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2017 of the 

Federal Home Loan Mortgage Corporation (the “Company”), as filed with the Securities and Exchange 

Commission on the date hereof (the “Report”), I, Donald H. Layton, Chief Executive Officer of the 

Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the 

Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of

the Company.

Date: February 15, 2018

/s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer
Exhibit 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2017 of the 

Federal Home Loan Mortgage Corporation (the “Company”), as filed with the Securities and Exchange 

Commission on the date hereof (the “Report”), I, James G. Mackey, Executive Vice President – Chief 

Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 

Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of

the Company.

Date: February 15, 2018

/s/ James G. Mackey

James G. Mackey

Executive Vice President — Chief Financial Officer