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, 2013

Commission File Number: 001-34139

Federal Home Loan Mortgage Corporation

(Exact name of registrant as specified in its charter)

Freddie Mac

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

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

(State or other jurisdiction of

incorporation or organization)

(Address of principal executive offices,

including zip code)

Identification No.) including area code)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Form 10-K. [ ]

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

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

Large accelerated filer [ X ] Accelerated filer [ ]

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

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

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

June 28, 2013 (the last business day of the registrant’s most recently completed second fiscal quarter) was $877.6 million.

As of February 14, 2014, there were 650,039,533 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None

Table of Contents
i Freddie Mac

TABLE OF CONTENTS

Page

Table of Contents

PART I

Item 1. Business 1

Item 1A. Risk Factors 37

Item 1B. Unresolved Staff Comments 54

Item 2. Properties 54

Item 3. Legal Proceedings 54

Item 4. Mine Safety Disclosure 54

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 55

Item 6. Selected Financial Data 57

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 58

Mortgage Market and Economic Conditions, and Outlook 58

Consolidated Results of Operations 61

Consolidated Balance Sheets Analysis 83

Risk Management 102

Liquidity and Capital Resources 149

Fair Value Balance Sheets and Analysis 154

Off-Balance Sheet Arrangements 158

Contractual Obligations 159

Critical Accounting Policies and Estimates 160

Risk Management and Disclosure Commitments 162

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 163

Item 8. Financial Statements and Supplementary Data 168

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 275

Item 9A. Controls and Procedures 275

Item 9B. Other Information 276

PART III

Item 10. Directors, Executive Officers and Corporate Governance 278

Item 11. Executive Compensation 285

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 307

Item 13. Certain Relationships and Related Transactions, and Director Independence 309

Item 14. Principal Accounting Fees and Services 313

PART IV

Item 15. Exhibits and Financial Statement Schedules 315

SIGNATURES 316

GLOSSARY 317

EXHIBIT INDEX E-1
ii Freddie Mac

MD&A TABLE REFERENCE

Table Description Page

1 Total Single-Family Loan Workout Volumes

2 Mortgage-Related Investments Portfolio

3 Affordable Housing Goals for 2013 and 2014

4 Affordable Housing Goals and Results for 2011 and 2012

5 Quarterly Common Stock Information

6 Selected Financial Data

7 Mortgage Market Indicators

8 Summary Consolidated Statements of Comprehensive Income

9 Net Interest Income/Yield, Average Balance, and Rate/Volume Analysis

10 Net Interest Income

11 Derivative Gains (Losses)

12 Other Income (Loss)

13 Non-Interest Expense

14 REO Operations (Income) Expense

15 Composition of Segment Mortgage Portfolios and Credit Risk Portfolios

16 Segment Earnings and Key Metrics — Single-Family Guarantee

17 Segment Earnings Composition — Single-Family Guarantee Segment

18 Segment Earnings and Key Metrics — Investments

19 Segment Earnings and Key Metrics — Multifamily

20 Investments in Available-For-Sale Securities

21 Investments in Trading Securities

22 Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets

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

24 Mortgage-Related Securities Purchase Activity

25

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

Related Credit Statistics

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

27 Net Impairment of Available-For-Sale Mortgage-Related Securities Recognized in Earnings

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

CMBS

29 Mortgage Loan Purchases and Other Guarantee Commitment Issuances

30 Derivative Fair Values and Maturities

31 Reconciliation of the Par Value and UPB to Total Debt, Net

32 Other Short-Term Debt

33 Freddie Mac Mortgage-Related Securities

34 Issuances and Extinguishments of Debt Securities of Consolidated Trusts

35 Changes in Total Equity (Deficit)

36 Single-Family Credit Guarantee Portfolio Data by Year of Origination

37 Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio

38 Characteristics of the Single-Family Credit Guarantee Portfolio

39 Single-Family Loans Scheduled Payment Change to Include Principal by Year at December 31, 2013

40 Serious Delinquency Rates by Year of Payment Change to Include Principal

41 Single-Family Next Scheduled Adjustable-Rate Resets by Year at December 31, 2013

42 Serious Delinquency Rates by Year of First Rate Reset

43 Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio

44 Step-Rate Modified Loans

45 Single-Family Loan Workout, Serious Delinquency, and Foreclosure Volumes

46 Quarterly Percentages of Modified Single-Family Loans — Current and Performing

Table of Contents

3

24

29

30

55

57

58

61

62

63

65

67

68

68

71

72

74

78

81

84

85

86

87

88

89

90

91

93

95

96

98

99

100

101

102

104

106

107

109

110

111

111

113

116

116

118
iii Freddie Mac

47 Single-Family Relief Refinance Loans

48 Single-Family Serious Delinquency Statistics

49 Credit Concentrations in the Single-Family Credit Guarantee Portfolio

50 Single-Family Credit Guarantee Portfolio by Attribute Combinations

51 Single-Family Credit Guarantee Portfolio Foreclosure and Short Sale Rates

52 Multifamily Mortgage Portfolio — by Attribute

53 Non-Performing Assets

54 REO Activity by Region

55 Single-Family REO Property Status

56 Credit Loss Performance

57 Severity Ratios for Single-Family Loans

58 Single-Family Charge-offs and Recoveries by Region

59 Loan Loss Reserves Activity

60 Single-Family Impaired Loans with Specific Reserve Recorded

61 Single-Family Credit Loss Sensitivity

62 Repurchase Request Activity

63 Loans Released from Repurchase Obligations

64 Mortgage Insurance by Counterparty

65 Bond Insurance by Counterparty

66 Derivative Counterparty Credit Exposure

67 Activity in Other Debt

68 Freddie Mac Credit Ratings

69 Consolidated Fair Value Balance Sheets

70 Summary of Change in the Fair Value of Net Assets

71 Contractual Obligations by Year at December 31, 2013

72 PMVS and Duration Gap Results

73 Derivative Impact on PMVS-L (50 bps)

74 2014 Target TDC

75 Board of Directors Committee Membership

76 2013 Target TDC

77 Achievement of Conservatorship Scorecard Performance Measures

78 Achievement of Complementary Corporate Goals

79 2013 Deferred Salary

80 Summary Compensation Table — 2013

81 Grants of Plan-Based Awards — 2013

82 Outstanding Equity Awards at Fiscal Year-End — 2013

83 Pension Benefits — 2013

84 Non-Qualified Deferred Compensation

85 Potential Payments Upon Termination of Employment or Change-in-Control as of December 31, 2013

86 Board Compensation — 2013 Non-Employee Director Compensation Levels

87 2013 Director Compensation

88 Stock Ownership by Directors, Executive Officers, and Greater-Than-5% Holders

89 Equity Compensation Plan Information

90 Auditor Fees

Table of Contents

119

121

123

125

127

128

130

131

132

133

134

134

135

136

137

138

139

141

142

146

151

152

157

157

160

166

167

277

282

289

289

292

294

299

300

301

301

304

305

307

307

308

309

313
iv Freddie Mac

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page

Table of Contents

Report of Independent Registered Public Accounting Firm 169

Consolidated Statements of Comprehensive Income 170

Consolidated Balance Sheets 171

Consolidated Statements of Equity (Deficit) 172

Consolidated Statements of Cash Flows 173

Note 1: Summary of Significant Accounting Policies 174

Note 2: Conservatorship and Related Matters 186

Note 3: Variable Interest Entities 192

Note 4: Mortgage Loans and Loan Loss Reserves 196

Note 5: Individually Impaired and Non-Performing Loans 202

Note 6: Real Estate Owned 208

Note 7: Investments in Securities 209

Note 8: Debt Securities and Subordinated Borrowings 216

Note 9: Derivatives 219

Note 10: Collateral and Offsetting of Assets and Liabilities 222

Note 11: Stockholders’ Equity (Deficit) 225

Note 12: Income Taxes 230

Note 13: Segment Reporting 232

Note 14: Financial Guarantees 238

Note 15: Concentration of Credit and Other Risks 240

Note 16: Fair Value Disclosures 247

Note 17: Legal Contingencies 267

Note 18: Regulatory Capital 271

Note 19: Selected Financial Statement Line Items 272

Quarterly Selected Financial Data 274
1 Freddie Mac

PART I

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

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

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

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

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

FACTORS” sections of this Form 10-K. 

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

ITEM 1. BUSINESS 

Executive Summary

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

related notes for the year ended December 31, 2013. 

Overview

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

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

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

the housing market and the nation’s economy by: (a) providing America’s families with access to mortgage funding at low rates 

while helping distressed borrowers keep their homes and avoid foreclosure, where possible; and (b) providing consistent 

liquidity to the multifamily mortgage market, which includes providing financing for affordable rental housing. At the same 

time, we are working with FHFA, our customers and the industry to build a stronger housing finance system for the nation.

Conservatorship and Government Support for Our Business

We continue to operate in conservatorship that began in September 2008, under the direction of FHFA, as our 

Conservator. The conservatorship and related matters continue to have a wide-ranging impact on us, including our 

management, business, financial condition, and results of operations. There is significant uncertainty as to our future, as 

conservatorship has no specified termination date, and it is unknown what changes may occur to our business model during or 

following conservatorship, including whether we will continue to exist.

We are also subject to certain constraints on our business activities imposed by Treasury due to the terms of, and 

Treasury’s rights under, the Purchase Agreement. We are dependent upon the continued support of Treasury and FHFA in order 

to continue operating our business. We do not have the authority over the long term to build and retain capital from the earnings 

generated by our business operations, or return capital to stockholders other than Treasury. 

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

Agreement, see “Conservatorship and Related Matters” and “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS."

Consolidated Financial Results for 2013 

During 2013, we continued to see improvement in the housing market, which contributed positively to our financial 

results. Comprehensive income was $51.6 billion for 2013 compared to $16.0 billion for 2012. Comprehensive income for 

2013 consisted of $48.7 billion of net income and $2.9 billion of other comprehensive income. Our net income for 2013 

includes: (a) a benefit for federal income taxes of $23.3 billion that primarily resulted from our conclusion to release our 

valuation allowance against our net deferred tax assets; (b) improvements in the fair value of our derivatives from increases in 

long-term interest rates; (c) benefits for credit losses resulting from declines in the volume of newly delinquent loans, lower 

estimates of incurred losses largely resulting from an increase in national home prices and representation and warranty 

settlements of pre-conservatorship loan origination activity; and (d) settlements of $5.5 billion primarily related to lawsuits 

regarding our investments in certain residential non-agency mortgage-related securities. Our total equity was $12.8 billion at 

December 31, 2013. As a result of our positive net worth at December 31, 2013, no draw is being requested from Treasury 

under the Purchase Agreement for the fourth quarter of 2013. Through December 31, 2013, we have paid aggregate cash 

dividends to Treasury that slightly exceed our aggregate draws received under the Purchase Agreement. At December 31, 2013, 

our aggregate funding received from Treasury under the Purchase Agreement was $71.3 billion. For a discussion of the factors 

that led to our conclusion to release the valuation allowance against our net deferred tax assets, see “MD&A — 

CONSOLIDATED BALANCE SHEETS ANALYSIS — Deferred Tax Assets and Liabilities” and “NOTE 12: INCOME 

TAXES.” 

The level of earnings we have experienced in recent periods is not sustainable over the long term. While our recent 

financial results, particularly our benefit (provision) for credit losses, benefited significantly from strong home price 

appreciation we are beginning to see moderation in home price growth. In addition, our recent financial results include large 

benefits related to the release of our deferred tax asset valuation allowance and settlements of residential non-agency mortgagerelated securities litigation and claims for breaches of representations and warranties by our sellers. These trends are not 

expected to continue over the long term. Our settlements with sellers for claims for breaches of representations and warranties 

Table of Contents
2 Freddie Mac

primarily related to pre-conservatorship loan activity are largely complete. Our residential non-agency mortgage-related 

securities litigation is ongoing with many large institutions and we expect additional settlements in 2014. In addition, declines 

in the size of our mortgage-related investments portfolio, as required by FHFA and the Purchase Agreement, will reduce 

earnings over time. Our financial results will also continue to be positively or negatively affected by changes in interest rates, 

yield curves, and mortgage spreads, which can cause significant earnings and net worth variability.

Our Primary Business Objectives

We are focused on the following primary business objectives: (a) reducing taxpayer exposure to losses by reducing and 

managing our overall risk profile, especially to mortgage-related risks; (b) supporting U.S. homeowners and renters by 

providing lenders with a constant source of liquidity for mortgage products even when other sources of financing are scarce; (c) 

building a commercially strong and efficient business enterprise; and (d) positioning the company, in particular our people and 

infrastructure, to succeed in a to-be-determined “future state.” 

Reducing Taxpayer Exposure to Losses by Reducing and Managing Our Overall Risk Profile, Especially to MortgageRelated Risks

We continue to actively manage and reduce the high credit risk related to our 2005-2008 Legacy single-family book by: 

(a) providing homeowners with alternatives that allow them to stay in their homes; (b) maximizing the proceeds from short 

sales and REO sales; (c) actively managing our servicers; (d) pursuing our rights with our sellers; (e) enforcing our rights with 

other counterparties; and (f) reducing our mortgage-related investments portfolio. The 2005-2008 Legacy single-family book 

represented 16% of our single-family credit guarantee portfolio at December 31, 2013, but comprised 81% of our credit losses 

during 2013.

Providing Homeowners with Alternatives that Allow Them to Stay in Their Homes

We establish guidelines for our servicers to follow and provide them default management programs to use, in part, in 

determining which type of loan workout would be expected to provide us with an opportunity to manage our exposure to credit 

losses. Our servicers pursue repayment plans and loan modifications for borrowers facing financial or other hardships because 

the level of recovery on a reperforming loan may often be much higher than would be the case with foreclosure or foreclosure 

alternatives. Since 2009, we have helped approximately 953,000 borrowers experiencing hardship complete a loan workout. 

Under our loan workout programs, our servicers contact borrowers experiencing hardship with a goal of helping them stay in 

their homes or avoid foreclosure. Our servicers seek and also facilitate the completion of foreclosure alternatives when a home 

retention solution is not possible. 

Beginning in 2009, we introduced a variety of borrower-assistance programs, including HAMP, to help keep families in 

their homes. We continued to expand these programs in 2013. In July 2013, as part of the servicing alignment initiative, we 

implemented a new streamlined modification initiative, which provides an additional modification opportunity to many 

delinquent borrowers who are at least 90 (but not more than 720) days delinquent. Across all our modification programs, we 

modified $17.4 billion and $15.1 billion in UPB of loans in 2013 and 2012, respectively. 

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

ratios above 80%), is another key program used by our seller/servicers to help keep families in their homes. In 2013 and 2012, 

we purchased or guaranteed $99.2 billion and $122.8 billion in UPB of relief refinance loans, respectively, which included 

$62.5 billion and $86.9 billion in UPB of HARP loans, respectively. We have purchased HARP loans provided to nearly 

1.3 million borrowers since the initiative began in 2009, including approximately 340,000 borrowers during 2013. See “Table 

47 — Single-Family Relief Refinance Loans” for more information about the volume of our relief refinance purchases.

As of December 31, 2013, the borrower’s monthly payment for all of our completed HAMP modifications was reduced 

on average by an estimated $531, which amounts to an average of $6,372 per year, and a total of $1.5 billion in annual 

reductions (these amounts are calculated by multiplying the number of completed modifications by the average reduction in 

monthly payment, and have not been adjusted to reflect the actual performance of the loans following modification). 

Table of Contents
3 Freddie Mac

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

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

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

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

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

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

not mutually exclusive and a loan in one category may also be included within another category in the same period.

(2) As of December 31, 2013, approximately 21,000 borrowers were in modification trial periods, including approximately 16,000 borrowers in trial 

periods for our non-HAMP modification.

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

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

however, a single loan may be included under separate forbearance agreements in each year.

While we believe our home retention programs have been largely successful, many borrowers still need our assistance. 

See “MD&A — RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit Risk” for 

more information about loss mitigation activities and our efforts to keep families in their homes, including through our loan 

modification initiatives and our relief refinance mortgage initiative.

Maximizing the Proceeds from Short Sales and REO Sales

In cases where repayment plans and loan modifications are not possible or successful, a short sale transaction typically 

provides us with a comparable or higher level of recovery than a foreclosure and subsequent property sale from our REO 

inventory. In large part, the benefit of a short sale is that we avoid costs we would otherwise incur to complete the foreclosure 

and dispose of the property, including maintenance, property taxes, and other expenses associated with holding REO property.

We believe our REO disposition and short sale severity ratios in 2013 were positively affected by changes made in 2012 

to our process for evaluating the market value and determining the list price for our REO properties when we offer them for 

sale, as well as repairing a higher percentage of our REO properties prior to listing them.

Actively Managing our Servicers

We continue to face challenges with respect to the performance of certain of our single-family servicers in managing our 

seriously delinquent loans. Our servicers represent and warrant to us that loans serviced on our behalf will be serviced in 

accordance with our servicing contract. These contractual obligations provide us with remedies for breaches in servicing. These 

contractual remedies include the ability to require the servicer to pay compensatory or other fees, repurchase the loan at its 

current UPB, and/or reimburse us for losses realized. During 2013, we began to increase our review of servicing related 

violations, including by issuing notices of defect to our servicers for certain violations of our servicing standards. As of 

December 31, 2013, we had: (a) $0.6 billion of outstanding repurchase requests; and (b) $0.3 billion of outstanding notices of 

Table of Contents
4 Freddie Mac

defect, with our servicers, based on the UPB of the related loans. We also recognized $0.4 billion of compensatory fees during 

2013 primarily for servicer failures to complete a foreclosure within our timelines.

We continue to have a large population of seriously delinquent loans, many of which have been delinquent for more than 

one year; these loans tend to be more challenging to resolve. As of December 31, 2013, our serious delinquency rate for the 

aggregate of those states that require a judicial foreclosure and all other states was 3.31% and 1.63%, respectively. Foreclosures 

generally take longer to complete in states where judicial foreclosures are required, compared to other states. During 2013, the 

average time to foreclose on properties in judicial states was 943 days compared to 567 days in non-judicial states for loans in 

our single-family credit guarantee portfolio, excluding those underlying our Other Guarantee Transactions. 

As part of our efforts to maximize foreclosure alternatives, increase problem loan workouts, and mitigate our credit 

losses, we have continued to facilitate the transfer of servicing for certain pools of loans with higher credit risk from 

underperforming servicers to other servicers that specialize in workouts of problem loans. During 2013, we facilitated the 

transfer of servicing for $55.6 billion in UPB of loans from our primary servicers to specialty servicers. 

Pursuing Our Rights with Our Sellers

We have contractual arrangements with our sellers under which they agree to sell us mortgage loans, and represent and 

warrant that those loans have been originated under specified underwriting standards. If we subsequently discover that the 

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

contractual remedies to mitigate our actual or potential credit losses. These remedies include the ability to require the seller to 

repurchase the loan at its current UPB and/or reimburse us for losses realized.

We continue to recover credit losses from seller/servicers in the normal course of business related to breaches of 

representations and warranties for loans they sold to us or service for us. In addition, in 2013, we also actively pursued seller 

representation and warranty settlements of pre-conservatorship loan activity, agreeing to settlements with nine of our larger 

sellers and several of our smaller sellers covering approximately 49% of the 2005-2008 Legacy single-family book as of 

December 31, 2013. During 2013, we recovered amounts from seller/servicers with respect to $5.6 billion in UPB of loans 

subject to our repurchase requests, including $2.1 billion related to settlement agreements. Approximately 23% of the $5.6 

billion in UPB associated with repurchase requests were satisfied by the reimbursement of losses (excluding amounts related to 

settlement agreements). As of December 31, 2013, we had $1.6 billion of outstanding repurchase requests with sellers, based on 

UPB of the loans. In November 2013, FHFA announced that we had substantially achieved the 2013 Conservatorship Scorecard 

goal to complete our requests for remedies for breaches of seller representations and warranties related to pre-conservatorship 

loan origination activity. 

Enforcing Our Rights with Other Counterparties

We continue to pursue claims for coverage under mortgage insurance policies in the normal course of business. We also 

continued to actively pursue settlements with mortgage insurance counterparties. We use mortgage insurance, which is a form 

of credit enhancement, to mitigate our credit loss exposure. Primary mortgage insurance is generally required to be purchased 

at loan origination, typically at the borrower’s expense, for certain mortgages with higher LTV ratios, from an insurer that is 

typically selected by the lender. We received payments under primary and other mortgage insurance of $2.0 billion in each of 

2013 and 2012 which helped to mitigate our credit losses. Although the financial condition of certain of our mortgage insurers 

improved moderately in 2013 as a result of strong home price appreciation and their having raised additional capital, there is 

still a significant risk that these counterparties may fail to meet their obligations to pay our claims. We expect to receive 

substantially less than full payment of our claims from three of our seven larger mortgage insurance counterparties, as they are 

currently partially paying claims under orders of their regulators and are no longer rated by S&P or Moody's. Of our four 

largest mortgage insurers, three are rated B, and one is rated BBB+, as of February 14, 2014. We consider the collectability of 

our claims against our mortgage insurers when determining the receivables and estimating our allowance for loan losses on our 

consolidated balance sheets.

Our ability to manage our exposure to mortgage insurers may be limited as: (a) certain of our mortgage insurers are 

operating below our eligibility thresholds; and (b) our ability to revoke a mortgage insurer's status as an eligible insurer may 

require FHFA approval. We are working with FHFA and Fannie Mae to improve mortgage insurance standards. We are 

developing counterparty risk management standards for mortgage insurers that include revised eligibility requirements. In 

December 2013, FHFA announced that we and Fannie Mae, in collaboration with our mortgage insurers, had completed 

development of new master policies, for which the mortgage insurers are expected to seek state regulatory approval. These 

changes to the master policies are intended to provide greater certainty of coverage, facilitate timely claims processing, and 

help address the significant problems we faced in recent years in resolving repurchase requests related to mortgage insurance 

rescission. We expect to finalize changes to financial requirements and other standards for mortgage insurer eligibility in 2014.

At the direction of our Conservator, we are also working to enforce our rights as an investor with respect to the nonagency mortgage-related securities we hold, and are engaged in various efforts, in some cases in conjunction with other 

investors, to mitigate or recover losses on our investments in these securities. During 2013, we and FHFA reached settlements 

with a number of institutions pursuant to which we received an aggregate of $5.5 billion. In addition, in February 2014, we and 

Table of Contents
5 Freddie Mac

FHFA entered into an agreement with Morgan Stanley, and related parties, to settle litigation related to certain residential nonagency mortgage-related securities we hold for $625 million. This settlement will be reflected in our consolidated financial 

results for the first quarter of 2014. Lawsuits against a number of large institutions are currently pending. See “NOTE 15: 

CONCENTRATION OF CREDIT AND OTHER RISKS” for more information about our recent agreements with non-agency 

mortgage-related security issuers.

We are also working to enforce our rights in the Lehman bankruptcy. In February 2014, we reached a settlement with 

Lehman Brothers Holdings Inc. pursuant to which we will receive $767 million to resolve our claims related to Lehman’s 

bankruptcy. Consequently, we adjusted our December 31, 2013 estimate of the expected recoveries of our short-term lending 

receivable by $350 million, which reduced other expenses by the same amount. For more information, see “NOTE 17: LEGAL

CONTINGENCIES."

Reducing Our Mortgage-Related Investments Portfolio

During 2013, we continued to reduce the size of our mortgage-related investments portfolio, as required under the terms 

of the Purchase Agreement and FHFA regulation. Our mortgage-related investments portfolio declined 17%, or $96.5 billion, 

from $557.5 billion as of December 31, 2012 to $461.0 billion as of December 31, 2013 and was below the required limit. Our 

less liquid assets accounted for $70.9 billion of this decline primarily due to: (a) liquidations; and (b) consistent with our 2013 

Conservatorship Scorecard goal, sales of $16.8 billion which exceeded our scorecard goal. 

While our on-going focus remains on reducing our less liquid assets, we continue to purchase certain of these assets as 

part of our business strategies. In 2014, we plan to continue to reduce our mortgage-related investments portfolio, consistent 

with the Purchase Agreement and FHFA regulation, through liquidations and sales, subject to a variety of constraints, including 

market conditions. 

Supporting U.S. Homeowners and Renters by Providing Lenders with a Constant Source of Liquidity for Mortgage 

Products even when Other Sources of Financing are Scarce

We maintain a consistent market presence by providing lenders with a constant source of liquidity for mortgage products 

even when other sources of financing are scarce. This liquidity provides our customers with confidence to continue lending 

even in difficult environments. During 2013 and 2012, we purchased or issued other guarantee commitments for $422.7 billion 

and $426.8 billion in UPB of single-family conforming mortgage loans, representing approximately 2.1 million and 2.0 million 

homes, respectively. We estimate that we, Fannie Mae, and Ginnie Mae collectively guaranteed more than 90% of the singlefamily conforming mortgages originated since 2008. During 2013, our multifamily new business activity (i.e., loan purchases 

and issuances of Other Structured Securities and other guarantee commitments), totaled $25.9 billion, and provided financing 

for nearly 1,600 properties amounting to nearly 388,000 apartment units. The vast majority of these apartments were affordable 

to low and moderate income families.

Building a Commercially Strong and Efficient Business Enterprise 

Single-Family Guarantee Segment Strategies

Our single-family business is our core business line. We continue to take steps to build a stronger, profitable business 

model for our ongoing business. Our goal is to strengthen the business model in order to run the business efficiently and 

effectively in support of homeowners and taxpayers and, if required as part of a future state for the enterprise, to be able to 

promptly return to private sector ownership. 

Our Single-family Guarantee segment is focused on strengthening our business model by:

• Leveraging the fundamentals: We are leveraging our existing product offerings to better meet the needs of an evolving 

mortgage market. This includes working to reduce repurchase requests and penalties, in the form of fees, by providing 

greater certainty for seller/servicers that the loans they sell to us or service for us meet our requirements. We are doing 

this by enhancing the tools we make available to our customers (including Loan Prospector, Loan Quality Advisor, 

and Home Value Estimator), and expanding and leveraging the data standards of the Uniform Mortgage Data Program. 

We intend to continue to simplify, streamline, and strengthen our operations, while keeping pace with regulatory 

requirements, such as those implemented under the Dodd-Frank Act.

• Better serving our customers: Our customers are our sellers, servicers, and investor/dealers. Based on feedback we 

have received directly from our customers through our Customer Advisory Boards, surveys, and ongoing 

conversations, we are enhancing our processes and programs to improve our customers’ experience when doing 

business with us. 

• Managing the credit risk of the single-family credit guarantee portfolio: We are managing our credit risk by setting our 

underwriting standards at a level commensurate with the long-term credit risk appetite of the company. We use a 

process of delegated underwriting for the single-family mortgages we purchase or securitize. In this process, our 

contracts with seller/servicers describe mortgage eligibility and underwriting standards, and the seller/servicers 

represent and warrant to us that the mortgages sold to us meet these standards. Beginning in 2009, we have made 

various changes to our credit policies, including changes to improve our underwriting standards, purchased fewer 

Table of Contents
6 Freddie Mac

loans with higher risk characteristics, and assisted in improving our mortgage insurers’ and lenders’ underwriting 

practices. As a result, the credit quality of the New single-family book is significantly better than that of the 

2005-2008 Legacy single-family book, as measured by original LTV ratios, FICO scores, and the proportion of loans 

underwritten with full documentation, as well as delinquency rates and credit losses. 

• Transferring the credit risk of the single-family credit guarantee portfolio: We consider risk transfer transactions to be 

a prudent way to manage risk in our business. We executed three transactions during 2013 that transfer a mezzanine 

credit loss position on certain groups of loans in the New single-family book. These transactions are intended to shift 

mortgage credit risk from us to private investors and are consistent with our 2013 Scorecard goal. While these 

transactions have been relatively small compared to our overall mortgage credit risk, we believe they have attracted 

broad interest in the market. We will seek to expand and refine our offerings of credit risk transfer transactions in the 

future.

• Optimizing the economics of the single-family credit guarantee portfolio: We strive to achieve the highest economic 

returns on our portfolio while considering and balancing our: (a) customer diversification; and (b) housing mission 

and goals. We also align our mortgage-related securities offerings and disclosures with customer needs and investor 

demand to balance the achievement of the above objectives while considering the relative performance of our 

securities in the market.

Investments Segment Strategies

Our Investments segment is a key business operation, which has certain objectives in 2014, including:

• Maintaining a presence in the agency mortgage-related securities market. Our activities in this market may include 

outright purchases and sales, dollar roll transactions, and structuring existing agency securities into REMICs and 

selling some or all of the tranches. 

• Maintaining a portfolio of liquid securities consistent with our liquidity management guidelines. In managing the 

reduction of our mortgage-related investments, we evaluate the liquidity of these investments based on two categories: 

(a) single-class and multiclass agency securities; and (b) assets that are less liquid than agency securities. We are 

focusing our efforts on reducing the balance of less liquid assets in the mortgage-related investments portfolio. Our 

liquid assets collectively represented approximately 40% of UPB of the portfolio at December 31, 2013, compared to 

38% at December 31, 2012.

• Managing the single-family performing loans obtained through our cash purchase program. We purchase loans from 

lenders for cash and, in conjunction with the single-family business, securitize the majority of these loans into Freddie 

Mac agency securities that may be sold to dealers or investors, or retained in our mortgage investments portfolio as 

agency securities.

• Managing single-family re-performing loans and performing modified loans. This includes securitizing loans, and 

could include selling loans or other disposition strategies in the future. 

• Managing single-family delinquent loans along with the single-family business. This includes removing seriously 

delinquent loans from PC pools and could include selling loans, securitizing loans, or other disposition strategies in 

the future. 

• Reducing the overall balance of our holdings of non-agency mortgage-related securities through liquidations and sales, 

subject to a variety of constraints, including market conditions.

• Managing the treasury function, including funding and liquidity, for the overall company, through the issuance of 

short-term and long-term unsecured debt. We maintain a liquidity and contingency portfolio of cash and non-mortgage 

investments for short-term liquidity management. 

• Managing the interest-rate risk for the overall company through the use of derivatives and unsecured debt.

Multifamily Segment Strategies

Our Multifamily business is also a key business operation, and provides a consistent source of liquidity to the multifamily 

mortgage market while maintaining a strong credit and capital management discipline. We accomplish this primarily by 

focusing on our business model of aggregating and securitizing mortgage loans in order to transfer the expected credit risk 

associated with the loans to third-party investors who hold the subordinated securities. The nature of our Multifamily business 

is in line with the general concept that private investors should absorb the first and predominant losses before any taxpayer 

exposure; we believe this positions the business well for the future. Additionally, we plan to continue to execute our mission to 

provide and support a consistent supply of affordable rental housing.

As a result of our prudent underwriting standards and practices, and the continued positive multifamily market 

fundamentals, the credit quality of the multifamily mortgage portfolio remains strong, and multifamily credit losses during 

2013 were less than 0.01% (or less than one basis point) as a percentage of the combined average balance of our multifamily 

loan and guarantee portfolios. 

Table of Contents
7 Freddie Mac

We continued to expand our K Certificate issuances in the multifamily market with a 32% increase in this activity in 

2013, based on UPB, compared to 2012. We were able to increase our securitization volumes in 2013 despite our 10% 

reduction in new loan purchase volume. During 2013, we reduced the UPB of loans we held in our portfolio for securitization 

as we were able to reduce the time between loan purchase and securitization. Our K Certificate transactions allow us to sell a 

portion of mortgage credit risk to private investors who purchase subordinated tranches at the time of transaction execution. As 

a result of repayments, K Certificate issuances, and sales of loans in our multifamily mortgage portfolio, the non-credit 

enhanced portion of this portfolio declined by 21% during 2013. In addition, our CMBS portfolio (backed by multifamily 

loans) declined by 37% during 2013, principally from our sales of these securities. These actions significantly reduced our 

exposure to credit risk in our Multifamily business.

Positioning the Company, in Particular Our People and Infrastructure, to Succeed in a to-be-determined “future state” 

Development of a New Secondary Mortgage Market

Under the direction of FHFA and in accordance with the 2013 Conservatorship Scorecard, we continue various efforts to 

build the infrastructure for a future housing finance system, including the following:

• Common Securitization Platform: On October 7, 2013, FHFA announced the formation of Common Securitization 

Solutions, LLCSM ("CSS"), which will build and operate the future new common securitization platform. In addition, 

FHFA announced that: (a) office space has been leased for CSS; and (b) an executive recruitment firm has been retained 

to identify candidates for the positions of Chief Executive Officer and Chairman of the Board of Managers 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 and anticipate entering into additional agreements with Fannie Mae 

relating to CSS in the future. 

• Contractual and Disclosure Framework: FHFA directed us to work with Fannie Mae to implement a set of uniform 

contractual terms and standards for transparency that can inform the single-family mortgage securitization market in the 

future. During 2013, a team from Freddie Mac and Fannie Mae performed analysis and developed preliminary 

recommendations for: (a) fully-guaranteed (GSE) mortgage-related securities; (b) non- or partially guaranteed (GSE) 

mortgage-related securities; and (c) new master trust agreements for these types of securities.

• Uniform Mortgage Data Program: We and Fannie Mae are collaborating with the industry to develop and implement 

uniform data standards for single-family mortgages. We have already made significant progress by completing initial 

phases of this program, including: (a) standard appraisal data elements; (b) the Uniform Collateral Data Portal, which 

allows us to aggregate this data from sellers; and (c) the Uniform Loan Delivery Dataset, which defines common data 

elements for each loan we acquire or guarantee. During 2013, we expanded the data elements in the Uniform Loan 

Delivery Dataset and aligned the dataset with recent changes required by the Consumer Financial Protection Bureau, or 

CFPB.

• Representation and Warranty Framework: At the direction of FHFA, we and Fannie Mae launched a new representation 

and warranty framework for conventional loans purchased by the GSEs on or after January 1, 2013. The objective of the 

new framework is to clarify lenders’ repurchase exposures and liability on future sales of mortgage loans to Freddie 

Mac and Fannie Mae. Under it, lenders are relieved of certain repurchase obligations for loans that meet specific 

payment requirements three years after purchase (and one year for HARP and other relief refinance mortgages).

• Lender placed insurance standards: As part of the servicing alignment initiative, we announced changes in our servicing 

standards for situations in which our servicers obtain property hazard insurance on properties securing single-family 

loans we own or guarantee. As a result, effective June 1, 2014, our seller/servicers may not receive compensation or 

other payment from insurance carriers nor may they use their own or affiliated entities to insure or reinsure a property.

In addition, we also worked to help our seller/servicers improve their underwriting processes for loans that they sell to us. 

As part of these efforts and in accordance with the 2013 Conservatorship Scorecard, we made progress in the following areas 

during 2013:

• Began an initiative for enhanced early-risk assessment by seller/servicers, including implementation of Loan Quality 

Advisor, a new automated tool for use in evaluating the credit eligibility of loans and identifying non-compliance 

issues; 

• Announced requirements for our seller/servicers in response to certain final rules from the CFPB, including rules 

concerning the requirements for borrowers' ability to repay and high-cost mortgages, that were implemented beginning 

in January 2014. See “BUSINESS — Legislative and Regulatory Developments — Dodd-Frank Act” for further 

information on the final rules; 

• Implemented standard timelines, appeal requirements, and alternative remedies for resolution of repurchase obligations 

as part of our efforts to enhance post-delivery quality control practices and transparency associated with our new 

representation and warranty framework; and

Table of Contents
8 Freddie Mac

• Expanded our loan review sampling strategy, specifically focusing on newly purchased mortgage loans, to evaluate 

compliance with our standards.

Investing in Human, Technology and Other Resources

We continue to make strategic investments to maintain and improve our ability to operate the company for the foreseeable 

future in conservatorship and potentially afterwards. Our human capital risks have abated considerably in recent periods, as 

evidenced by low voluntary turnover and vacancy rates. In 2011, we experienced increased levels of voluntary turnover while 

the Administration and Congress publicly debated our future business model and compensation structure, and the possibility 

remains that we may experience increased turnover again in the future. However, during 2013 we continued to attract wellqualified candidates, as evidenced by our hiring of five new senior officers.

Our information technology risk also continues to decline. For example, in 2013, we completed a three-year multimillion 

dollar project to move our key legacy applications and infrastructure to current, supported technology. We are investing each 

year to maintain our technology and are focused on standardizing and simplifying the technology portfolio. We continue to 

focus on emerging information security risks and hired a new Chief Information Security Officer in 2013.

Streamlining, Simplifying and Strengthening Operations

We continue to strengthen our operations. Beginning in mid-2012 and continuing through 2013, we took steps to enhance 

management’s focus on control issues by elevating awareness of those issues across the company and stressing timely 

remediation. As a result, the number of outstanding control issues reached its lowest level since conservatorship. We also 

continue to work to improve our operating efficiency. In 2013, we began a multi-year project focused on simplifying our 

control structure and eliminating redundant control activities. We updated our risk and control framework to increase our 

emphasis on risk management and are conducting detailed operational controls design reviews to identify ways to simplify our 

controls structure.

We are reviewing our information technology architecture design with a focus on simplifying our information technology 

environment. We are also building our out-of-region disaster recovery capabilities.

Our Business 

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

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

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

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

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

several factors, including the volume of mortgages meeting the requirements of our charter, our own preference for credit risk 

reflected in our purchase standards and the mortgage purchase and securitization activity of other financial institutions. We 

operate our business solely 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 outside the United States and its territories.

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

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

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

charter is to: 

• provide stability in the secondary market for residential mortgages; 

• respond appropriately to the private capital market; 

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

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

return earned on other activities); and 

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

areas). 

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

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

for residential mortgages originated by mortgage lenders. We use mortgage securitization as an integral part of our activities. 

In certain circumstances, we also provide our guarantee without securitization of the related assets (we refer to these 

transactions as other guarantee commitments). 

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

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

a method established and maintained by FHFA for determining the national average single-family home price. Since 2006, the 

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

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

residences and for mortgages secured by properties in Alaska, Guam, Hawaii, and the U.S. Virgin Islands. For more 

Table of Contents
9 Freddie Mac

information, see “Regulation and Supervision — Legislative and Regulatory Developments — FHFA Request for Public Input 

on Proposed Gradual Decrease of Loan Limits.”

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

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

following credit protections: 

• mortgage insurance on the portion of the UPB of the mortgage that exceeds 80%; 

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

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

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

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

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

purchase single-family mortgages that refinance borrowers whose mortgages we currently own or guarantee without obtaining 

additional credit enhancement in excess of that already in place for any such loan, even if the LTV ratio of the new loan is 

above 80%. 

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

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

is a general marketability standard. 

Overview of the Mortgage Securitization Process

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

into mortgage-related securities that are sold in global capital markets, generating proceeds that support future loan origination 

activity by lenders. The primary Freddie Mac guaranteed mortgage-related security is the single-class PC. We also aggregate 

and resecuritize mortgage-related securities that are issued by us, other GSEs, HFAs, or private (non-agency) entities, and issue 

other single-class and multiclass mortgage-related securities to third-party investors. 

The following diagram illustrates how we support mortgage market liquidity when we create PCs through mortgage 

securitizations. These PCs can be sold to investors or held by us or our lender customers. 

Mortgage Securitizations

In general, for single-family loans, the securitization and Freddie Mac guarantee process works as follows: (a) a lender 

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

from the lender and place it with other mortgages into a security that is sold to investors (this process is referred to as 

“pooling”); (c) the lender may then use the proceeds from the sale of the loan or security to originate another mortgage loan; 

(d) we provide a credit guarantee (for a fee) to those who invest in the security; (e) the borrower’s monthly payment of 

mortgage principal and interest (net of a servicing fee and our management and guarantee fee) is passed through to the 

investors in the security; and (f) if the borrower stops making monthly payments - because a family member loses a job, for 

example - we step in and, pursuant to our guarantee, make the applicable payments to investors in the security. In the event a 

borrower defaults on the mortgage, our servicer works with the borrower to find a solution to help them stay in the home, or 

sell the property and avoid foreclosure, through our many different workout options. If this is not possible, we ultimately 

foreclose and sell the home. 

Table of Contents
10 Freddie Mac

We issue mortgage-related securities in the form of PCs, REMICs and Other Structured Securities, and Other Guarantee 

Transactions. Each of these types of mortgage-related securities is discussed below.

PCs 

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

mortgages we have purchased. 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 rate for the underlying mortgage loans. We also 

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

on ARM PCs. We issue most of our PCs in transactions in which our customers provide us with mortgage loans in exchange for 

PCs. We refer to these transactions as guarantor swaps. 

We guarantee our PCs in exchange for compensation, which consists primarily of a combination of management and 

guarantee fees paid on a monthly basis as a percentage of the UPB of the underlying loans (referred to as base fees), and initial 

upfront payments (referred to as delivery fees). We may also make upfront payments to buy-up the monthly management and 

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

payments are paid in conjunction with the formation of a PC to provide for a uniform coupon rate for the mortgage pool 

underlying the issued PC. The following diagram illustrates a guarantor swap transaction. 

Guarantor Swap 

We also issue PCs in transactions in which we purchase mortgage loans for cash and securitize them for sale to third 

parties. We often sell PCs in a “cash auction", as illustrated in the following diagram. 

Cash Purchase Process and Securitization of PCs 

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

managers, REITs, and commercial banks, purchase our PCs. In recent years, the Federal Reserve has purchased significant 

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

affected mortgage spreads and the demand for and values of our PCs. The Federal Reserve began to taper these purchases in 

January 2014, but no assurance can be given that the Federal Reserve will continue its current practices.

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

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

the prepayment option), and homeowner mortgage prepayments are passed through to the PC holder. Consequently, mortgageTable of Contents
11 Freddie Mac

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

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

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

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

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

comparable Fannie Mae securities through a variety of activities, including the resecuritization of PCs into REMICs and Other 

Structured Securities. Other strategies may include: (a) encouraging sellers to pool mortgages that they deliver to us into PC 

pools with a larger and more diverse population of mortgages; (b) influencing the volume and characteristics of mortgages 

delivered to us by tailoring our loan eligibility guidelines and other means; and (c) engaging in portfolio purchase and retention 

activities. See “Investments Segment — Market Presence and PC Support Activities” and “RISK FACTORS — Competitive 

and Market Risks — A significant decline in the price performance of or demand for our PCs could have an adverse effect on 

the volume and/or profitability of our new single-family guarantee business. The profitability of our multifamily business could 

be adversely affected by a significant decrease in demand for K Certificates.” for additional information about our efforts to 

support the liquidity and relative price performance of our PCs. 

REMICs and Other Structured Securities 

Our REMICs and Other Structured Securities represent beneficial interests in pools of PCs and certain other types of 

mortgage-related assets. We create these securities (which can be single-class or multiclass types) primarily by using PCs or 

previously issued REMICs and Other Structured Securities as the underlying collateral. 

Single-class securities involve the straight pass-through of all of the cash flows of the underlying collateral to holders of 

the beneficial interests. Our primary multiclass securities qualify for tax treatment as REMICs. Multiclass securities divide all 

of the cash flows of the underlying mortgage-related assets into two or more classes designed to meet the investment criteria 

and portfolio needs of different investors by creating classes of securities with varying maturities, payment priorities and 

coupons, each of which represents a beneficial ownership interest in a separate portion of the cash flows of the underlying 

collateral. Usually, the cash flows are divided to modify the relative exposure of different classes to interest-rate risk, or to 

create various coupon structures. The simplest division of cash flows is into principal-only and interest-only classes. 

Similar to our PCs, we guarantee the payment of principal and interest to the holders of tranches of our REMICs and 

Other Structured Securities. We do not charge a management and guarantee fee for these securities if the underlying collateral 

is already guaranteed by us since no additional credit risk is introduced. Because the collateral underlying nearly all of our 

single-family REMICs and Other Structured Securities consists of other mortgage-related securities that we guarantee, there are 

no economic residual interests in the related securitization trust. We do not issue tranches of securities in these transactions that 

have concentrations of credit risk beyond those embedded in the underlying assets. The following diagram provides a general 

example of how we create REMICs and Other Structured Securities. 

REMICs and Other Structured Securities 

We issue many of our REMICs and Other Structured Securities in transactions in which securities dealers or investors sell 

us mortgage-related assets or we exchange our own mortgage-related assets (e.g., PCs and REMICs and Other Structured 

Securities) for the REMICs and Other Structured Securities. The creation of REMICs and Other Structured Securities allows 

for setting differing terms for specific classes of investors, and our issuance of these securities can expand the range of 

investors in our mortgage-related securities to include those seeking specific security attributes. For REMICs and Other 

Structured Securities that we issue to third parties, we typically receive a transaction, or resecuritization, fee. This transaction 

fee is compensation for facilitating the transaction, as well as future administrative responsibilities. 

Table of Contents
12 Freddie Mac

Other Guarantee Transactions 

We also issue mortgage-related securities to third parties in exchange for non-Freddie Mac mortgage-related securities. 

We refer to these as Other Guarantee Transactions. The non-Freddie Mac mortgage-related securities are transferred to trusts 

that were specifically created for the purpose of issuing securities, or certificates, in the Other Guarantee Transactions. 

Other Guarantee Transactions can generally be segregated into two different types. In one type, we purchase only senior 

tranches from a non-Freddie Mac senior-subordinated securitization, place the senior tranches into securitization trusts, and 

issue Other Guarantee Transaction certificates guaranteeing the principal and interest payments on those certificates. In this 

type of transaction, our credit risk is reduced by the structural credit protections from the related subordinated tranches, which 

we do not issue or guarantee. In the second type, we purchase single-class pass-through securities, place them in securitization 

trusts, and issue Other Guarantee Transaction certificates guaranteeing the principal and interest payments on those certificates. 

Our Other Guarantee Transactions backed by single-class pass-through securities do not benefit from structural or other credit 

enhancement protections. 

Although Other Guarantee Transactions generally have underlying mortgage loans with varying risk characteristics, we 

do not issue tranches that have concentrations of credit risk beyond those embedded in the underlying assets, as all cash flows 

of the underlying collateral are passed through to the holders of the securities and there are no economic residual interests in the 

securitization trusts. Additionally, there may be other credit enhancements and structural features retained by the seller that 

provide credit protection to our interests, and reduce the likelihood that we will have to perform under our guarantee of the 

senior tranches. In exchange for providing our guarantee, we receive a management and guarantee fee and/or other delivery 

fees. 

Our primary Other Guarantee Transactions are multifamily K Certificates. In substantially all of these transactions, we 

guarantee only the most senior tranches of the securities, and as a result, the expected credit risk associated with these loans is 

sold in subordinated tranches to third-party investors. We do not issue or guarantee the subordinate tranches, which are 

considered CMBS. However, we may purchase a portion of either the guaranteed certificates or the unguaranteed CMBS, based 

on market conditions.

The following diagram provides an example of our K Certificate transactions. 

K Certificate Transaction 

 

In 2009 and 2010, we entered into transactions under Treasury’s NIBP with HFAs, for the partial guarantee of certain 

single-family and multifamily HFA bonds, which were Other Guarantee Transactions with significant credit enhancement 

provided by Treasury. The securities issued by us pursuant to the NIBP were purchased by Treasury. See “NOTE 2: 

CONSERVATORSHIP AND RELATED MATTERS — Housing Finance Agency Initiative” for further information.

For information about the amount of mortgage-related securities we have issued, see “Table 33 — Freddie Mac 

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

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

Our Business Segments 

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

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

in the All Other category. 

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

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

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

Table of Contents
13 Freddie Mac

Single-Family Guarantee Segment 

In our Single-family Guarantee segment, we purchase and guarantee single-family mortgage loans originated by our 

seller/servicers in the primary mortgage market. In most instances, we use the mortgage securitization process to package the 

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

mortgage-related securities in exchange for management and guarantee fees. 

Single-Family Mortgage Market

The U.S. residential mortgage market consists of a primary mortgage market that links homebuyers and lenders (i.e., our 

sellers) and a secondary mortgage market that links lenders and investors. We participate in the secondary mortgage market 

primarily by purchasing mortgage loans and mortgage-related securities and by issuing guaranteed mortgage-related securities. 

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

secured by one- to four-family properties. 

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

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

mortgage loans, borrowers with these mortgage loans are protected against rising interest rates, but are able to take advantage 

of declining rates through refinancing. When a borrower prepays a mortgage loan that we have securitized, the outstanding 

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

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

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

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

originally expected on the investment. 

Our Customers

Our customers in the Single-family Guarantee segment are predominantly lenders and loan servicers in the primary 

mortgage market that originate mortgages for homeowners and service these loans for us. These companies include mortgage 

banking companies, commercial banks, community banks, credit unions, HFAs, and thrift institutions. Many of these 

companies perform both roles for us as seller/servicers. In addition, we view investors and dealers in our guaranteed mortgagerelated securities and STACR debt notes as customers.

We acquire a significant portion of our mortgages from several lenders that are among the largest mortgage loan 

originators in the U.S. During 2013, two mortgage lenders, Wells Fargo Bank, N.A and JPMorgan Chase Bank, N.A., each 

accounted for 10% or more of our single-family mortgage purchase volume and together accounted for approximately 30% of 

our single-family mortgage purchase volume. Our top ten lenders accounted for approximately 64% and 73% of our singlefamily mortgage purchase volume during 2013 and 2012, respectively. 

We do not have our own mortgage loan servicing operation. Instead, our customers perform the primary servicing 

function on our loans on our behalf. A significant portion of our single-family mortgage loans is serviced by several of our large 

customers. For additional information about our relationships with our customers, see “MD&A — RISK MANAGEMENT — 

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

Our Competition

Historically, the principal competitors of our Single-family Guarantee segment have been Fannie Mae, Ginnie Mae (with 

FHA/VA), and other financial institutions that retain or securitize mortgages, such as commercial and investment banks, 

dealers, and thrift institutions. Since 2008, most of our non-GSE competitors have ceased their securitization business or 

severely curtailed these activities relative to their previous levels. However, in recent periods, many of our non-GSE 

competitors that ceased securitization activity have continued to originate or purchase single-family loans and began to hold 

them on their balance sheets as investments rather than securitize them with the GSEs. We compete on the basis of price, 

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

affected by changes in our credit standards. 

The conservatorship, including direction provided to us by our Conservator, may affect our ability to compete. FHFA has 

required that we and Fannie Mae adopt uniform approaches in a number of areas. For more information, see “RISK FACTORS 

— Conservatorship and Related Matters — Competition from banking and non-banking companies, as well as efforts by FHFA

to reduce the GSEs' dominance in the marketplace, may harm our business."

Guarantee Fees and Contractual Arrangements

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

terms under which we agree to purchase loans from them. Some of these agreements, however, require the lenders to deliver to 

us a minimum percentage of their total sales of conforming loans. These agreements include specified pricing schedules for our 

management and guarantee fees that are negotiated at the outset of the contract. For the majority of the mortgages we purchase, 

however, the management and guarantee fees are not specified contractually. Instead, we bid for some or all of the lender's 

mortgage loan volume on a monthly basis at a management and guarantee fee rate that we specify.

Table of Contents
14 Freddie Mac

Our mortgage loan purchase volumes from individual customers can fluctuate significantly. If a mortgage lender fails to 

meet its contractual commitment, we have a variety of contractual remedies, which may include the right to assess certain fees. 

Our mortgage loan purchase contracts contain no penalty or liquidated damages clauses based on our inability to take delivery 

of presented mortgage loans. However, if we were to fail to meet our contractual commitment, we could be deemed to be in 

breach of our contract and could be liable for damages in a lawsuit. For agreements that include specified management and 

guarantee fees, we can change such fees at our discretion, with notice. However, the lenders generally have the option to 

terminate these agreements when changes to our fees occur, unless the fee changes are broad-based as defined in the 

agreements.

We seek to issue guarantees with fee terms that we believe are commensurate with the risks assumed and that will, over 

the long-term: (a) provide management and guarantee fee income that exceeds our anticipated credit-related and administrative 

expenses on the underlying loans; and (b) provide a return on the capital that would be needed to support the related credit risk. 

To compensate us for higher levels of risk in some mortgage products, we charge upfront delivery fees above the base 

management and guarantee fee, which are calculated based on credit risk factors such as the mortgage product type, loan 

purpose, LTV ratio and other loan or borrower characteristics. Historically, we have varied our guarantee and delivery fee 

pricing for different customers, mortgage products, and mortgage or borrower underwriting characteristics based on our 

assessment of credit risk and loss mitigation related to single-family loans, as well as other factors. 

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

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

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

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

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

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

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

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

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

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

 In December 2013, FHFA announced a number of additional changes to our (and Fannie Mae's) guarantee fee rates that 

were scheduled to become effective in March and April of 2014. In January 2014, FHFA announced that it was delaying the 

implementation of these changes.

Securitization Activities

We primarily issue and guarantee PCs, and REMICs and Other Structured Securities. Except for our participation in the 

NIBP, we have not completed an Other Guarantee Transaction in our Single-family Guarantee segment in several years. See 

"Our Business — Overview of the Mortgage Securitization Process” for additional information about our securitization 

activities.

Single-Family PC Trust Documents

We establish trusts for all of our issued PCs pursuant to our PC master trust agreement. In accordance with the terms of 

our PC trust documents, we have the option, and in some instances the requirement, to remove specified mortgage loans from 

the applicable trust. To remove these loans, we pay the trust an amount equal to the current UPB of the mortgage loan, less any 

outstanding advances of principal that have been distributed to PC holders. Our payments to the trust are distributed to the PC 

holders at the next scheduled payment date. 

We have the option to remove a mortgage loan from a PC trust under certain circumstances to resolve an existing or 

impending delinquency or default. Since 2010, our practice generally has been to remove substantially all single-family 

mortgage loans that are 120 days or more delinquent from our issued PCs. From time to time, we reevaluate our practice of 

removing delinquent loans from PCs and alter it if circumstances warrant. 

We are required to remove a mortgage loan (or, in some cases, substitute a comparable mortgage loan) from a PC trust in 

the following situations: 

• if a court of competent jurisdiction or a federal government agency, duly authorized to oversee or regulate our mortgage 

purchase business, determines that our purchase of the mortgage was unauthorized and a cure is not practicable without 

unreasonable effort or expense, or if such a court or government agency requires us to repurchase the mortgage; 

• if a borrower exercises its option to convert the interest rate from an adjustable-rate to a fixed-rate on a convertible 

ARM; and 

• in the case of balloon-reset loans, shortly before the mortgage reaches its scheduled balloon-reset date. 

Table of Contents
15 Freddie Mac

The To Be Announced Market

Because our fixed-rate single-family PCs are considered to be homogeneous, and are issued in high volume and are 

highly liquid, they generally trade on a “generic” basis by PC coupon rate, also referred to as trading in the TBA market. A

TBA trade in Freddie Mac securities represents a contract for the purchase or sale of PCs to be delivered at a future date; 

however, the specific PCs that will be delivered to fulfill the trade obligation, and thus the specific characteristics of the 

mortgages underlying those PCs, are not known (i.e., “announced”) at the time of the trade, but only shortly before the trade is 

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

capital available for residential mortgage financing, thereby helping us to accomplish our statutory mission. The Securities 

Industry and Financial Markets Association publishes guidelines pertaining to the types of mortgages that are eligible for TBA

trades. Certain of our PC securities are not eligible for TBA trades, such as those backed by relief refinance mortgages with 

LTV ratios greater than 105%. 

Other Guarantee Commitments 

In certain circumstances, we provide our guarantee of mortgage-related assets held by third parties, in exchange for a 

management and guarantee fee, without our securitization of the related assets. For example, we provide long-term standby 

commitments to certain of our single-family customers, which obligate us to purchase seriously delinquent loans that are 

covered by those agreements. 

Underwriting Requirements and Quality Control Standards

We use a process of delegated underwriting for the single-family mortgage loans we purchase or securitize. In this 

process, our contracts with seller/servicers describe mortgage eligibility and underwriting standards, and the seller/servicers 

represent and warrant to us that the mortgage loans sold to us meet these standards. In our contracts with individual seller/

servicers, we may waive or modify selected underwriting standards. Through our delegated underwriting process, mortgage 

loans and the borrowers’ ability to repay the loans are evaluated using a number of critical risk characteristics, including, but 

not limited to, the borrower’s credit score and credit history, the borrower’s monthly income relative to debt payments (or DTI), 

the original LTV ratio, the type of mortgage product, the property type and market value, and the occupancy type of the loan. 

Our single-family loans are generally underwritten with a requirement for a maximum original LTV ratio of 95% (excluding 

jumbo conforming, cash-out refinance, and HARP mortgages). We prescribe maximum LTV ratio limits of 80% for cash-out 

refinance loans and 90% for jumbo conforming mortgages. 

Due to adverse market and economic conditions, and based in part on our reviews of the underwriting quality for loans 

originated in 2005 through 2007, we implemented several credit limits since 2008. These credit limits are defined by specified 

criteria such as the LTV ratio, credit score and DTI ratio. For documentation to substantiate assets and income, we require the 

borrower to provide at least one paystub, one IRS Form W-2, and one current bank statement. FICO scores are the most 

commonly used credit scores today. FICO scores are ranked on a scale of approximately 300 to 850 points. Statistically, 

borrowers with higher credit scores are more likely to repay or have the ability to refinance than those with lower scores. 

The majority of our single-family mortgage purchase volume is evaluated using automated underwriting software, either 

our proprietary software (Loan Prospector), the seller/servicers’ own software, or Fannie Mae’s proprietary software. The 

percentage of our single-family mortgage purchase volume (acquired under purchase volume agreements and excluding HARP

and other relief refinance loans) evaluated by the loan originator using Loan Prospector prior to being purchased by us was 

45% and 55% during 2013 and 2012, respectively. Beginning in 2009, we added a number of additional credit standards for 

loans evaluated by other underwriting software to improve the quality of loans we purchase that are evaluated using such other 

software. In addition, we monitor the performance of loans delivered to us that were underwritten using underwriting software 

other than Loan Prospector to determine whether the performance is in line with our risk tolerance.

As part of our quality control process, we review the underwriting documentation for certain loans we have purchased for 

compliance with our standards. In recent years, we have worked actively with our seller/servicers to improve loan underwriting 

quality. We give our seller/servicers an opportunity to appeal ineligible loan determinations in response to our request for the 

repurchase of the loan. For the last two years, we have required certain of our larger seller/servicers to maintain ineligible loan 

rates below a stated threshold (generally 5%), with financial consequences for non-compliance. In addition, for all of our 

largest seller/servicers, we actively manage the current quality of loan originations by providing monthly communications 

regarding loan defect rates and the causes of those defects as identified in our performing loan quality control sampling 

reviews. If necessary, we work with seller/servicers to develop an appropriate plan of corrective action. 

Through 2012, for loans with identified underwriting deficiencies, we required either immediate repurchase or allowed 

performing loans to remain in our portfolio subject to our continued right to issue a repurchase request to the seller at a later 

date. Depending on our evaluation of counterparty financial strength, certain sellers are eligible for repurchase alternatives, 

including recourse and indemnification. In 2013, we entered into a number of agreements with our sellers to release certain 

pools of loans from certain repurchase obligations associated with underwriting deficiencies in exchange for a one-time cash 

payment. 

Table of Contents
16 Freddie Mac

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. Under this new framework, lenders are relieved of certain seller's 

repurchase obligations for loans that meet specific payment requirements. This includes, subject to certain exclusions, loans 

with 36 months (12 months for relief refinance mortgages) of consecutive, on-time payments after we purchase them.

Under the new framework, Freddie Mac and Fannie Mae, under the supervision of FHFA, have established consistent 

standards for: 

• conducting quality control reviews earlier in the loan process, generally between 30 to 120 days after loan purchase; 

• requiring lenders to submit requested loan files for review within specified timelines; 

• evaluating loan files on a more comprehensive basis to ensure a focus on identifying significant deficiencies; and 

• making available more transparent appeals processes for lenders to appeal repurchase requests. 

Additionally, we use tools and available data to help us identify potentially defective loans prior to purchasing them. The 

changes to the representation and warranty process are key elements of the seller/servicer contract harmonization project that 

supported FHFA’s strategic plan for the Freddie Mac and Fannie Mae conservatorships announced in 2012. 

 In addition to representations and warranties for underwriting, our seller/servicers are required to service loans in 

accordance with our guidelines. Similar to seller violations, we can require servicers to repurchase loans or provide alternative 

remedies in the case of servicing violations. For certain servicing violations, we typically first issue a notice of defect and allow 

the servicer a period of time to correct the problem. If the servicing violation is not corrected, we then may issue a repurchase 

request. For breaches of servicing violations related to loans that have proceeded through foreclosure and REO sale or other 

workouts (e.g. short sales), we will accept reimbursement for realized credit losses in lieu of repurchase. 

For more information, see “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — SingleFamily Mortgage Seller/Servicers.” 

Credit Enhancements 

Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by 

specified credit enhancements or participation interests. Primary mortgage insurance is the most prevalent type of credit 

enhancement protecting our single-family credit guarantee portfolio, and is typically provided on a loan-level basis. Generally, 

in order to file a claim under a primary mortgage insurance policy, the insured loan must be in default and the borrower’s 

interest in the underlying property must have been extinguished, such as through a short sale or foreclosure action. The 

mortgage insurer has a prescribed period of time within which to process a claim and make a determination as to its validity 

and amount. 

For some mortgage loans, we elect to share the default risk by transferring a portion of that risk to various third parties 

through a variety of other credit enhancements. Other types of credit enhancements that we use are lender recourse (under 

which we may require a lender to repurchase a loan upon default), indemnification agreements (under which we may require a 

lender to reimburse us for credit losses realized on mortgages), collateral pledged by lenders, and subordinated security 

structures. Lender recourse and indemnification agreements are typically entered into contemporaneously with the purchase of 

a mortgage loan as an alternative to requiring primary mortgage insurance on the loan or in exchange for a lower guarantee fee 

on the loan. 

We executed three transactions during 2013 that provide us with partial credit protection on certain groups of loans in our 

New single-family book. These transactions are intended to shift mortgage credit risk from us to private investors. The 

transactions include two structured agency credit risk (STACR) debt note transactions in which we issued unsecured debt 

securities that reduced our exposure to credit risk, as illustrated below:

Table of Contents
17 Freddie Mac

Risk Transfer - STACR® (Debt Issuance)

STACR debt notes allow us to transfer a mezzanine loss position on recently acquired single-family mortgage loans to 

third parties that invest in the issued notes. In a STACR debt note transaction, we create a reference pool consisting of recently 

acquired single-family mortgage loans. We then create a hypothetical securitization structure with notional credit risk 

positions, or tranches (e.g., first loss, mezzanine, and senior). We issue STACR debt notes (which relate to the mezzanine loss 

position) to investors. We are obligated to make payments of principal and interest on the STACR debt notes. The principal 

balance of the STACR debt notes is reduced when certain specified credit events (such as a loan becoming 180 days 

delinquent) occur on the loans in the reference pool. In turn, this may reduce the total amount of payments we ultimately make 

on the STACR debt notes. However, principal reductions will first occur on the first loss position (which is retained by us) until 

it is fully reduced before the STACR debt notes begin participating in reductions to the principal balances. The interest rate on 

STACR debt is generally higher than on our other unsecured debt securities due to the potential for reductions to its principal 

balance.

 In 2013, we also executed a second type of risk transfer transaction in which we purchased an insurance policy on a 

portion of the mezzanine loss position that was not issued in the first STACR debt transaction. Under this insurance policy, we 

pay monthly premiums that are determined based on the outstanding balance of the STACR debt reference pool and we receive 

compensation upon the occurrence of specified credit events (such as a loan becoming 180 days delinquent) up to an aggregate 

limit determined in the contract.

Our use of certain types of credit enhancements to reduce our exposure to mortgage credit risk generally increases our 

exposure to institutional credit risk. See “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk” for 

information about our counterparties that provide credit enhancement on loans in our single-family credit guarantee portfolio, 

including information about our mortgage loan insurers. 

Single-Family Loan Workouts and the MHA Program

Loan workout activities are a key component of our loss mitigation strategy for managing and resolving troubled assets 

and lowering credit losses. Our single-family loss mitigation strategy emphasizes early intervention by servicers in delinquent 

mortgages and provides alternatives to foreclosure. Our single-family loss mitigation activities include providing our singlefamily servicers with default management programs designed to help them manage non-performing loans more effectively and 

to assist borrowers in maintaining home ownership where possible, or facilitate foreclosure alternatives when continued 

homeownership is not an option. We require our single-family seller/servicers to first evaluate problem loans for a repayment or 

forbearance plan before considering modification. If a borrower is not eligible for a modification, our seller/servicers pursue 

other workout options before considering foreclosure. 

Our loan workouts include: 

• Forbearance agreements, where reduced payments or no payments are required during a defined period, generally less 

than one year. They provide additional time for the borrower to return to compliance with the original terms of the 

Table of Contents
18 Freddie Mac

mortgage or to implement another loan workout. During 2013, the average time period granted for completed shortterm forbearance agreements was between two and three months. 

• Repayment plans, which are contractual plans to make up past due amounts. These plans assist borrowers in returning 

to compliance with the original terms of their mortgages. During 2013, the average time period granted for completed 

repayment plans was between two and six months. 

• Loan modifications, which may involve changing the terms of the loan, or adding outstanding indebtedness, such as 

delinquent interest, to the UPB of the loan, or a combination of both. During 2013, we granted principal forbearance 

but did not utilize principal forgiveness for our loan modifications. Principal forbearance is a change to a loan’s terms 

to designate a portion of the principal as non-interest-bearing and non-amortizing. A borrower may only receive one 

HAMP modification; however, a loan may generally be modified twice (although only once during a 12 month period) 

under our standard loan modification program or once under our streamlined modification program. However, we 

reserve the right to approve additional non-HAMP loan modifications to the same borrower, based on the borrower’s 

individual facts and circumstances. 

• Short sale and deed in lieu of foreclosure transactions. 

We participate in the MHA Program, which is designed to help in the housing recovery, promote liquidity and housing 

affordability, expand foreclosure prevention efforts, and set market standards. Participation in the MHA Program is an integral 

part of our mission of providing stability to the housing market. Through our participation in this program, we help borrowers 

maintain home ownership. Some of the key initiatives of this program include HAMP and HARP, which are discussed below. 

See “MD&A — RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-family Mortgage Credit Risk — 

Single-Family Loan Workouts and the MHA Program" for additional information about our loan workout activities, as well as 

HARP and our relief refinance mortgage initiative. 

Home Affordable Modification Program 

Under this program, we offer loan modifications to financially struggling homeowners with mortgages on their primary 

residences that reduce the monthly principal and interest payments on their mortgages. HAMP requires that each borrower 

complete a trial period during which the borrower will make monthly payments based on the estimated amount of the 

modification payments. Trial periods are required to be at least three months. After the final trial-period payment is received by 

our servicer, the borrower and the servicer will enter into the modification. HAMP is available for loans originated on or before 

January 1, 2009. The program is scheduled to end with trial period plan effective dates on or before March 1, 2016 and 

modification effective dates on or before September 1, 2016.

The guidelines for HAMP were revised effective June 1, 2010 to address certain underwriting issues experienced in the 

beginning of the program. Since that date, we have experienced a significantly better modification completion rate under the 

program. When a borrower’s trial period is canceled, the loan is considered for our other workout activities. 

HAMP includes the following features: 

• Under HAMP, the goal is to reduce the borrower’s monthly mortgage payments to 31% of gross monthly income, 

which may be achieved through a combination of methods, including interest rate reductions, term extensions, and 

principal forbearance. Although HAMP allows the use of principal reduction to achieve reduced payments for 

borrowers, we have only used forbearance and have not used principal reduction in modifying our loans.

• Borrowers whose loans are modified through HAMP accrue monthly incentive payments (in the form of credits) that 

are applied annually to reduce up to $1,000 of their principal per year, for five years, as long as they are making timely 

payments under the modified loan terms. Servicers are paid incentive fees for each completed HAMP modification. We 

bear the costs of borrower incentive payments and servicer incentive fees for our HAMP loans, without reimbursement 

of such costs from Treasury. 

We are the compliance agent for Treasury for certain foreclosure avoidance activities under HAMP by mortgage holders 

other than Freddie Mac and Fannie Mae. Among other duties, as the program compliance agent, we conduct examinations and 

review servicer compliance with the published requirements for the program. 

Non-HAMP Modifications 

Similar to HAMP, our non-HAMP standard loan modification initiative also requires a three-month trial period. The 

standard modification offers eligible borrowers an extension of the loan’s term to 480 months and a fixed interest rate. Similar 

to HAMP modifications, servicers are paid incentive fees for each completed non-HAMP modification. Unlike with HAMP

modifications, our non-HAMP standard modification does not provide for borrower incentive payments. 

In March 2013, as part of the servicing alignment initiative, we announced a new streamlined modification initiative, 

which provides an additional modification opportunity to certain borrowers who are at least 90 (but not more than 720) days 

delinquent. Borrowers are not required to apply for assistance or provide income or hardship documentation. This modification 

requires a three-month trial period and offers eligible borrowers the same mortgage terms as the non-HAMP standard 

Table of Contents
19 Freddie Mac

modification. This initiative was implemented in July 2013 (with earlier adoption permitted), and is scheduled to end in 

December 2015. 

Relief Refinance Mortgage Initiative and the Home Affordable Refinance Program 

Our relief refinance opportunities, including HARP (which is the portion of our relief refinance initiative for loans with 

LTV ratios above 80%), are a significant part of our effort to keep families in their homes. Our relief refinance initiative began 

in 2009 and is designed to provide eligible homeowners an opportunity to refinance their mortgage without obtaining new 

mortgage insurance in excess of what was already in place. Our relief refinance initiative enables us to assist homeowners by 

making their mortgage payments more affordable by employing one or more of the following changes: (a) a reduction in 

payment; (b) a reduction in interest rate; (c) movement to a more stable mortgage product type (i.e., from an adjustable-rate 

mortgage to a fixed-rate mortgage); or (d) a reduction in amortization term. 

The relief refinance mortgage initiative, including HARP, originally permitted eligible borrowers with Freddie Mac 

mortgages (that were originated on or before May 31, 2009) and LTVs up to 125% to refinance their mortgages. We 

implemented a number of changes to HARP and the relief refinance mortgage initiative in late 2011 and during 2012. These 

changes included: (a) removing the 125% LTV ratio ceiling for fixed-rate mortgages; and (b) relieving the lenders of certain 

representations and warranties on the original mortgage being refinanced. In addition, in April 2013, we extended HARP to 

December 31, 2015, at the direction of FHFA.

Relief refinance mortgages (including HARP loans) generally present higher risk to us than other refinance loans we have 

purchased since 2009. However, relief refinance mortgages (including HARP loans) generally have performed better than 

loans with similar characteristics remaining in our single-family credit guarantee portfolio that were originated prior to 2009. 

For more information, see “MD&A — RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family Loan 

Workouts and the MHA Program — Relief Refinance Mortgage Initiative and Home Affordable Refinance Program.”

Servicing Alignment Initiative 

Under the servicing alignment initiative, we made a number of changes to our single-family loan workout activities to 

align with Fannie Mae, including the non-HAMP standard loan modification and the streamlined modification initiatives, a new 

standard short sale process (implemented in late 2012) and a new deed in lieu of foreclosure process (implemented in early 

2013). During 2013, we and Fannie Mae further aligned certain standards for servicing non-performing loans owned or 

guaranteed by the companies pursuant to the FHFA-directed servicing alignment initiative. We believe that the servicing 

alignment initiative will continue to: (a) change, among other things, the way servicers communicate and work with troubled 

borrowers; (b) bring greater consistency and accountability to the servicing industry; and (c) help more distressed homeowners 

avoid foreclosure. We have provided standards to our servicers under this initiative that require them to initiate earlier and more 

frequent communication with delinquent borrowers, employ consistent requirements for collecting documents from borrowers, 

and follow consistent timelines for responding to borrowers and for processing foreclosures. 

Under these new servicing standards, we pay various incentives to servicers for completing workouts of problem loans. 

We also assess compensatory fees if servicers do not achieve certain benchmarks with respect to servicing delinquent loans. 

Incentive fees paid to servicers and compensatory fees received from servicers are recorded in other expenses and other 

income, respectively, within our consolidated statements of comprehensive income. These incentives may result in our payment 

of increased fees to our seller/servicers, the cost of which may be partially mitigated by the compensatory fees paid to us by our 

servicers that do not perform as required. 

For more information regarding credit risk, see “MD&A — RISK MANAGEMENT — Credit Risk,” “NOTE 4: 

MORTGAGE LOANS AND LOAN LOSS RESERVES,” and “NOTE 5: INDIVIDUALLY IMPAIRED AND NONPERFORMING LOANS.” 

Investments Segment 

The Investments segment reflects results from three primary activities: (a) managing the company’s mortgage-related 

investments portfolio, excluding Multifamily segment investments; (b) managing the treasury function, including funding and 

liquidity, for the overall company; and (c) managing interest-rate risk for the overall company. 

Management of the company’s mortgage-related investments portfolio, excluding investments held by the Multifamily 

segment, primarily consists of:

• Managing agency mortgage-related securities, including PCs and REMICs, issued by Freddie Mac, Fannie Mae, and 

Ginnie Mae. Our activities may include outright purchases and sales, dollar roll transactions, and structuring existing 

agency securities into REMICs and selling some or all of the tranches. 

• Managing single-family performing loans obtained through our cash purchase program. We purchase loans from 

lenders for cash and, in conjunction with the single-family business, securitize the majority of these loans into Freddie 

Mac agency securities that may be sold to dealers or investors or retained in our mortgage investments portfolio as 

agency securities.

Table of Contents
20 Freddie Mac

• Managing single-family re-performing loans and performing modified loans. This includes securitizing loans, and 

could include selling loans or other disposition strategies in the future. 

• Managing single-family delinquent loans along with the single-family business. This includes removing seriously 

delinquent loans from PC pools and could include selling loans, securitizing loans, or other disposition strategies in 

the future. 

• Reducing the overall balance of our holdings of non-agency mortgage-related securities through liquidations and 

sales, subject to a variety of constraints, including market conditions.

Managing the treasury function, including funding and liquidity, for the overall company primarily consists of funding the 

company’s investments in mortgage loans, mortgage-related securities and other assets and its business activities, primarily 

through the issuance of short-term and long-term unsecured debt. We maintain a liquidity and contingency portfolio of cash and 

non-mortgage investments for short-term liquidity management. 

Managing interest-rate risk for the overall company primarily consists of using derivatives, primarily interest-rate swaps 

and options, and unsecured debt to manage the interest rate exposure of the company’s mortgage-related investments portfolio, 

including investments held by the Multifamily segment. In addition to hedging the interest-rate risk of this portfolio, the 

Investments segment manages the buy-ups and float that are generated from the Single-family Guarantee segment after initial 

loan acquisition. 

Our Customers

Within our core business, our unsecured debt securities are initially purchased by dealers and redistributed to their 

customers, including insurance companies, money managers, central banks, depository institutions, and pension funds. Our 

customers under our mortgage loan cash purchase program are a variety of lenders, as discussed in “Single-Family Guarantee 

Segment — Our Customers.” 

Our Competition

Our competitors are firms that invest in mortgage-related assets, purchase mortgage loans, and issue corporate debt. As a 

result, we have a variety of principal competitors, including Fannie Mae, REITs, supranationals (international institutions that 

provide development financing for member countries), commercial and investment banks, dealers, thrift institutions, insurance 

companies, and the FHLBs. 

Market Presence and PC Support Activities

From time to time, we may undertake various activities in an effort to support: (a) our presence in the agency securities 

market; or (b) the liquidity and price performance of our PCs relative to comparable Fannie Mae securities. These activities 

may include the purchase and sale of agency securities, purchases of loans, and dollar roll transactions, as well as the issuance 

of REMICs and Other Structured Securities. Depending upon market conditions, there may be substantial variability in any 

period in the total amount of securities we purchase or sell. In some cases, purchasing or selling agency securities could 

adversely impact our security performance. While we may employ a variety of strategies in an effort to support the liquidity 

and price performance of our PCs and may consider additional strategies, any such strategies may fail or adversely affect our 

business or we may cease such activities if deemed appropriate. For more information about our efforts to support the liquidity 

and relative price performance for PCs, see “Our Business — Overview of the Mortgage Securitization Process.” 

We incur costs in connection with our efforts to support our presence in the agency securities market or the liquidity and 

price performance of our PCs, including engaging in transactions that yield less than our target rate of return. We may increase, 

reduce or discontinue these or other related activities at any time, which could affect our market presence or the liquidity and 

price performance of our PCs. For more information, see “RISK FACTORS — Competitive and Market Risks — A significant 

decline in the price performance of or demand for our PCs could have an adverse effect on the volume and/or profitability of 

our new single-family guarantee business. The profitability of our multifamily business could be adversely affected by a 

significant decrease in demand for K Certificates.”

Multifamily Segment 

Our Multifamily segment provides liquidity to the multifamily market and supports a consistent supply of affordable 

rental housing by purchasing and securitizing mortgage loans secured by properties with five or more units. The Multifamily 

segment reflects results from our investment (both purchases and sales), securitization, and guarantee activities in multifamily 

mortgage loans and securities. Our primary business model is to purchase multifamily mortgage loans for aggregation and then 

securitization through issuance of multifamily K Certificates. With this model, we utilize securitization to substantially reduce 

our credit risk while providing liquidity to the multifamily market. Historically, we were primarily a buy and hold investor in 

multifamily mortgage assets (both loans held for investment and investment securities, primarily CMBS), but while these 

legacy investments continue to be significant, we have not focused on this investment strategy since 2009.

The multifamily property market is affected by local and regional economic factors, such as employment rates, 

construction cycles, preferences for homeownership versus renting, and relative affordability of single-family home prices, all 

of which influence the supply and demand for multifamily properties and pricing for apartment rentals. Our multifamily loan 

Table of Contents
21 Freddie Mac

volume is largely sourced through established institutional channels where we are generally providing post-construction 

financing to larger apartment project operators with established performance records. 

Our underwriting decisions are largely based on the assessment of the property’s ability to provide rents that will generate 

sufficient operating cash flows to support payment of debt service obligations (both principal and interest) as measured by the 

expected DSCR and the loan amount relative to the value of the property as measured by the LTV ratio. Multifamily mortgages 

generally are without recourse to the borrower (i.e., the borrower is not liable for any deficiency remaining after foreclosure 

and sale of the property), except in the event of fraud or certain other specified types of default. Therefore, repayment of the 

mortgage depends on the ability of the underlying property to generate cash flows sufficient to cover the related debt 

obligations. That, in turn, depends on conditions in the local rental market, local and regional economic conditions, the physical 

condition of the property, the quality of property management, and the level of operating expenses. 

Our Customers

We acquire our multifamily mortgage loans from a network of approved seller/servicers. For 2013, our top two 

multifamily sellers, CBRE Capital Markets, Inc. and Berkadia Commercial Mortgage, LLC, each accounted for more than 

10%, and together accounted for approximately 36%, of our multifamily new business volume. Our top 10 multifamily lenders 

represented an aggregate of approximately 77% of our multifamily purchase volume for 2013. 

A significant portion of our multifamily mortgage loans are serviced by several of our large customers. See “MD&A — 

RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Seller/Servicers” for additional information. 

Our Competition

In the Multifamily segment, we compete on the basis of: (a) price; (b) products, including our use of certain securitization 

structures; and (c) service. Our principal competitors are Fannie Mae, FHA, commercial and investment banks, CMBS 

conduits, dealers, thrift institutions, and life insurance companies. 

Underwriting Requirements and Quality Control Standards

Our process and standards for underwriting multifamily mortgages differ from those used for single-family mortgages as 

we use a prior approval underwriting approach on loans we purchase or guarantee. With this approach, we maintain our credit 

discipline by completing our own underwriting and credit review for each newly-originated multifamily loan prior to 

purchasing it. This process includes review of third-party appraisals and cash flow analysis. Our underwriting standards focus 

on loan quality measurement based, in part, on the LTV ratio and DSCR. The DSCR estimates a multifamily borrower’s ability 

to service its mortgage obligation using the secured property’s cash flow, after deducting non-mortgage expenses from income. 

The higher the DSCR, the more likely a multifamily borrower will be able to continue servicing its mortgage obligation. Our 

standards for multifamily loans specify maximum original LTV ratio and minimum DSCR that vary based on the loan 

characteristics, such as loan type (new acquisition or supplemental financing), loan term (intermediate or longer-term), and loan 

features (interest-only or amortizing, fixed- or variable-rate). Our multifamily loans are generally underwritten with 

requirements for a maximum original LTV ratio of 80% and a DSCR of greater than 1.25 (which for interest-only and partial 

interest-only loans is based on an assumed monthly payment that reflects amortization of principal). In certain circumstances, 

our standards for multifamily loans allow for certain types of loans to have an original LTV ratio over 80% and/or a DSCR of 

less than 1.25, typically where this will serve our mission and contribute to achieving our affordable housing goals. In addition 

to DSCR and LTV ratio, we consider other qualitative factors, such as borrower experience and the strength of the local market, 

in the credit decision we make on each loan.

Multifamily seller/servicers make representations and warranties to us about the mortgage and about certain information 

submitted to us in the underwriting process. We have the right to require that a seller/servicer repurchase a multifamily 

mortgage for which there has been a breach of representation or warranty. However, because of our evaluation of underwriting 

information for most multifamily properties prior to purchase, repurchases have been rare. 

We generally require multifamily seller/servicers to service mortgage loans they have sold to us in order to mitigate 

potential losses. This includes property monitoring tasks beyond those typically performed by single-family servicers. We are 

the master servicer for loans in our multifamily mortgage portfolio, except those we securitize (i.e., K Certificates) since we 

transfer the master servicing responsibilities to the trustees on behalf of the bondholders in accordance with the securitization 

and trust documents. For unsecuritized loans over $1 million in our portfolio, servicers must generally submit an annual 

assessment of the mortgaged property to us based on the servicer’s analysis of the property as well as the borrower’s quarterly 

financial statements. In situations where a borrower or property is in distress, the frequency of communications with the 

borrower may be increased. Because the activities of multifamily seller/servicers are an important part of our loss mitigation 

process, we rate their performance regularly and may conduct on-site reviews of their servicing operations in an effort to 

confirm compliance with our standards. 

Loss Mitigation Activities

For loans for which we are the master servicer, if a borrower is in distress, we may offer a workout option to the borrower. 

For example, we may modify the terms of a multifamily mortgage loan (e.g., providing a short-term loan extension of up to 12 

Table of Contents
22 Freddie Mac

months), which gives the borrower an opportunity to bring the loan current and retain ownership of the property. These 

arrangements are made with the expectation that we will recover our initial investment or minimize our losses. We do not enter 

into these arrangements in situations where we believe we would experience a loss in the future that is greater than or equal to 

the loss we would experience if we foreclosed on the property at the time of the agreement.

Securitization Activities

We primarily securitize mortgage loans through Other Guarantee Transactions (i.e., K Certificates) in our multifamily 

business. To a lesser extent, we provide guarantees of the payment of principal and interest on tax-exempt multifamily passthrough certificates backed by multifamily housing revenue bonds. These housing revenue bonds are collateralized by 

mortgage loans on low- and moderate-income multifamily housing developments. We refer to these transactions as Other 

Structured Securities. See “Our Business — Overview of the Mortgage Securitization Process” for additional information about 

our securitization activities. 

From time to time, we may undertake various activities in an effort to support the liquidity of our K Certificates. These 

activities are similar to those described above in “Investments Segment — Market Presence and PC Support Activities.”

Other Guarantee Commitments 

In certain circumstances, we provide our guarantee of mortgage-related assets held by third parties, in exchange for a 

management and guarantee fee, without our securitization of the related assets. For example, we guarantee the payment of 

principal and interest on certain tax-exempt multifamily housing revenue bonds secured by low- and moderate-income 

multifamily mortgage loans. In addition, during 2010 and 2009, we issued guarantees under the TCLFP on securities backed by 

HFA bonds as part of the HFA Initiative (certain of which are still outstanding). See “NOTE 2: CONSERVATORSHIP AND 

RELATED MATTERS — Housing Finance Agency Initiative” for further information. 

Conservatorship and Related Matters 

We have been operating under conservatorship, with FHFA acting as our Conservator, since September 6, 2008. The 

conservatorship and related matters have had a wide-ranging impact on us, including our management, business, financial 

condition and results of operations. 

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

which we issued to Treasury both senior preferred stock and a warrant to purchase common stock. We refer to the Purchase 

Agreement and the warrant as the “Treasury Agreements.” By their terms, the Purchase Agreement, senior preferred stock and 

warrant will continue to exist even if we are released from the conservatorship. For a description of certain risks to our business 

relating to the conservatorship and Treasury Agreements, see “RISK FACTORS — Conservatorship and Related Matters.” 

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

and Fannie Mae. The plan outlined how FHFA, as Conservator, intends to guide us and Fannie Mae over the next few years, 

and identified the strategic goals of (a) building a new infrastructure for the secondary mortgage market; (b) gradually 

contracting Freddie Mac and Fannie Mae’s dominant presence in the marketplace while simplifying and shrinking their 

operations; and (c) maintaining foreclosure prevention activities and credit availability for new and refinanced mortgages. In 

March 2012, FHFA began instituting annual Conservatorship Scorecards that establish objectives, performance targets and 

measures, and provide the implementation roadmap for FHFA’s strategic plan. 

We receive substantial support from Treasury and FHFA, as our Conservator and regulator, and are dependent upon their 

continued support in order to continue operating our business. This support includes our ability to access funds from Treasury 

under the Purchase Agreement, which is critical to: (a) keeping us solvent; (b) allowing us to focus on our primary business 

objectives under conservatorship; and (c) avoiding the appointment of a receiver by FHFA under statutory mandatory 

receivership provisions. In recent years, the Federal Reserve has purchased significant amounts of mortgage-related securities 

issued by us, Fannie Mae, and Ginnie Mae. 

The conservatorship, the Purchase Agreement and the senior preferred stock and warrant issued to Treasury have 

materially limited the rights of our common and preferred stockholders (other than Treasury as holder of the senior preferred 

stock) and had a number of adverse effects on our common and preferred stockholders. See “RISK FACTORS — 

Conservatorship and Related Matters — The conservatorship and investment by Treasury has had, and will continue to have, a 

material adverse effect on our common and preferred stockholders.” 

Supervision of Our Company During Conservatorship 

Upon its appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and privileges of 

Freddie Mac, and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets. Under 

conservatorship, we have additional heightened supervision and direction from our regulator, FHFA, which is also acting as our 

Conservator. 

During the conservatorship, the Conservator has delegated certain authority to the Board of Directors to oversee, and to 

management to conduct 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. The Conservator retains the authority to withdraw or 

Table of Contents
23 Freddie Mac

revise its delegations of authority at any time. The Conservator also retained certain significant authorities for itself, and did not 

delegate them to the Board. For more information on limitations on the Board’s authority during conservatorship, see 

“DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE — Authority of the Board and Board 

Committees.” 

Because the Conservator succeeded to the powers, including voting rights, of our stockholders, who therefore do not 

currently have voting rights of their own, we have not held stockholders’ meetings (or prepared or provided proxy statements 

for the solicitation of proxies) since we entered into conservatorship, nor do we expect to do so while we are under 

conservatorship. 

We describe the powers of our Conservator in further detail below under “Powers of the Conservator.” 

Impact of Conservatorship and Related Actions on Our Business 

We conduct our business subject to the direction of FHFA as our Conservator. While the conservatorship has benefited us 

through, for example, improved access to the debt markets because of the support we receive from Treasury, we are also subject 

to certain constraints on our business activities imposed by Treasury due to the terms of, and Treasury’s rights under, the 

Purchase Agreement. 

The Conservator continues to determine, and direct the efforts of the Board of Directors and management to address, the 

strategic direction for the company. While the Conservator has delegated certain authority to management to conduct business 

operations, many management decisions are subject to review and approval by FHFA and Treasury. In addition, management 

frequently receives directions from FHFA on various matters involving day-to-day operations. 

Our current business objectives reflect direction we received from the Conservator (including the 2013 Conservatorship 

Scorecard). At the direction of the Conservator, we have made changes to certain business practices that are designed to provide 

support for the mortgage market in a manner that serves our public mission and other non-financial objectives but may not 

contribute to our profitability. Certain of these objectives are intended to help homeowners and the mortgage market and may 

help to mitigate future credit losses. However, some of our initiatives are expected to have an adverse impact on our near- and 

long-term financial results. In 2013, the Conservator required us to contract our presence in specific ways in the mortgage 

market and simplify our operations. The Conservator also stated that it is focusing on retaining value in the business operations 

of Freddie Mac and Fannie Mae, overseeing remediation of identified weaknesses in corporate operations and risk 

management, and ensuring that sound corporate governance principles are followed. Given the important role the 

Administration and our Conservator have placed on Freddie Mac in addressing housing and mortgage market conditions and 

our public mission, we may be required to take additional actions that could have a negative impact on our business, operating 

results or financial condition, and thus could contribute to a need for additional draws under the Purchase Agreement. 

For more information on the impact of conservatorship and our current business objectives, see "Executive Summary — 

Our Primary Business Objectives," "RISK FACTORS — Conservatorship and Related Matters — We are under the control of 

FHFA, and our business activities are subject to significant restrictions. We may be required to take actions that materially 

adversely affect our business and financial results," and "NOTE 2: CONSERVATORSHIP AND RELATED MATTERS." 

Limits on Investment Activity and Our Mortgage-Related Investments Portfolio

Our mortgage-related investments portfolio consists of agency securities, single-family non-agency mortgage-related 

securities, CMBS, housing revenue bonds, and single-family and multifamily unsecuritized mortgage loans. Our ability to 

acquire and sell mortgage assets is significantly constrained by limitations under the Purchase Agreement and those 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 portfolio reaches $250 billion. As a result, the UPB of our mortgage-related 

investments portfolio could not exceed $553 billion as of December 31, 2013 and may not exceed $470 billion as of December 

31, 2014. FHFA has indicated that such portfolio reduction targets should be viewed as minimum reductions and has 

encouraged us to reduce the mortgage-related investments portfolio at a faster rate than required, while indicating that the pace 

of reducing the portfolio may be moderated by conditions in the housing and financial markets. 

In addition, the 2013 Conservatorship Scorecard included a goal to reduce the December 31, 2012 mortgage-related 

investments portfolio balance by selling 5%, or $15.7 billion in UPB, of mortgage-related assets (exclusive of agency 

securities, multifamily loans classified as held-for-sale, and single-family loans purchased for cash). We sold $16.8 billion of 

these assets and FHFA has stated that we met this scorecard goal for 2013. The reduction in the mortgage-related investments 

portfolio will result in a decline in income from this portfolio over time.

The table below presents the UPB of our mortgage-related investments portfolio, for purposes of the limit imposed by the 

Purchase Agreement and FHFA regulation.

Table of Contents
24 Freddie Mac

Table 2 — Mortgage-Related Investments Portfolio(1)

December 31, 2013 December 31, 2012

(in millions)

Investments segment — Mortgage investments portfolio $ 331,071 $ 375,924

Single-family Guarantee segment — Single-family unsecuritized mortgage loans(2) 37,726 53,333

Multifamily segment — Mortgage investments portfolio 92,227 128,287

Total mortgage-related investments portfolio $ 461,024 $ 557,544

(1) Based on UPB and excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(2) Represents unsecuritized seriously delinquent single-family loans.

The UPB of our mortgage-related investments portfolio at December 31, 2013 was $461.0 billion, a decline of 17% 

compared to $557.5 billion at December 31, 2012. The reduction in UPB resulted primarily from liquidations (i.e., principal 

repayments) and is consistent with our efforts to reduce the size of our mortgage-related investments portfolio as described 

above. 

We evaluate the liquidity of the assets in our mortgage-related investments portfolio based on two categories: (a) singleclass and multiclass agency securities; and (b) assets that are less liquid than agency securities. Assets that we consider to be 

less liquid than agency securities include unsecuritized performing single-family mortgage loans, multifamily mortgage loans, 

CMBS, housing revenue bonds, unsecuritized seriously delinquent and modified single-family mortgage loans which we 

removed from PC trusts, and our investments in non-agency mortgage-related securities backed by subprime, option ARM, and 

Alt-A and other loans. Our less liquid assets collectively represented approximately 60% of the UPB of the portfolio at 

December 31, 2013, compared to 62% at December 31, 2012. 

Powers of the Conservator 

Under the GSE Act, the conservatorship provisions applicable to Freddie Mac are based generally on federal banking law. 

As discussed below, FHFA has broad powers when acting as our Conservator. For more information on the GSE Act, see 

“Regulation and Supervision.” 

General Powers of the Conservator 

Upon its appointment, the Conservator immediately succeeded to all rights, titles, powers and privileges of Freddie Mac, 

and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac and its assets. The Conservator also 

succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian or third party. 

Under the GSE Act, the Conservator may take any actions it determines are necessary 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. The GSE Act, however, provides that mortgage 

loans and mortgage-related assets that have been transferred to a Freddie Mac securitization trust must be held by the 

Conservator for the beneficial owners of the trust and cannot be used to satisfy our general creditors. 

We remain liable for all of our obligations relating to our outstanding debt and mortgage-related securities. FHFA has 

stated that our obligations will be paid in the normal course of business during the conservatorship. 

Security Interests Protected; Exercise of Rights Under Qualified Financial Contracts 

The Conservator must recognize legally enforceable or perfected security interests, except where such an interest is taken 

in contemplation of our insolvency or with the intent to hinder, delay or defraud us or our creditors. In addition, the GSE Act 

provides that no person will be stayed or prohibited from exercising specified rights in connection with qualified financial 

contracts, including termination or acceleration (other than solely by reason of, or incidental to, the appointment of the 

Conservator), rights of offset, and rights under any security agreement or arrangement or other credit enhancement relating to 

such contract. Such rights in connection with qualified financial contracts that arise solely by reason of, or incidental to, the 

appointment of a receiver may be exercised only after: (a) 5:00 p.m. on the business day following the receiver’s appointment; 

or (b) notice to such person that such contract has been transferred by the receiver to another person. The term qualified 

financial contract means any securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, 

and any similar agreement as determined by FHFA by regulation, resolution or order. 

Modification of Statutes of Limitations 

Under the GSE Act, notwithstanding any provision of any contract, the statute of limitations with regard to any action 

brought by the Conservator is: (a) for claims relating to a contract, the longer of six years or the applicable period under state 

law; and (b) for tort claims, the longer of three years or the applicable period under state law, in each case, from the later of 

September 6, 2008 or the date on which the cause of action accrues.

Table of Contents
25 Freddie Mac

Treatment of Breach of Contract Claims 

Under the GSE Act, any final and unappealable judgment for monetary damages against the Conservator for breach of an 

agreement executed or approved in writing by the Conservator will be paid as an administrative expense of the Conservator. 

Attachment of Assets and Other Injunctive Relief 

Under the GSE Act, the Conservator may seek to attach assets or obtain other injunctive relief without being required to 

show that any injury, loss or damage is irreparable and immediate. 

Treasury Agreements 

Treasury entered into several agreements with us in connection with our entry into conservatorship, as described below. 

Purchase Agreement, Senior Preferred Stock, and Common Stock Warrant 

Purchase Agreement 

On September 7, 2008, we, through FHFA, in its capacity as Conservator, and Treasury entered into the Purchase 

Agreement. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended on 

May 6, 2009, December 24, 2009, and August 17, 2012. Pursuant to the Purchase Agreement, on September 8, 2008 we issued 

to Treasury: (a) one million shares of Variable Liquidation Preference Senior Preferred Stock (with an initial liquidation 

preference of $1 billion), which we refer to as the senior preferred stock; and (b) a warrant to purchase, for a nominal price, 

shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted 

basis at the time the warrant is exercised, which we refer to as the warrant. The terms of the senior preferred stock and warrant 

are summarized in separate sections below. We did not receive any cash proceeds from Treasury as a result of issuing the senior 

preferred stock or the warrant. However, deficits in our net worth have made it necessary for us to make substantial draws on 

Treasury’s funding commitment under the Purchase Agreement. As a result, the aggregate liquidation preference of the senior 

preferred stock has increased from $1.0 billion as of September 8, 2008 to $72.3 billion at December 31, 2013. Under the 

Purchase Agreement, our ability to repay the liquidation preference of the senior preferred stock is limited and we will not be 

able to do so for the foreseeable future, if at all. 

The senior preferred stock and warrant were issued to Treasury as an initial commitment fee in consideration of the initial 

commitment from Treasury to provide up to $100 billion (subsequently increased to $200 billion and further increased as 

necessary to accommodate any cumulative reduction in our net worth during 2010, 2011, and 2012) in funds to us under the 

terms and conditions set forth in the Purchase Agreement. As of December 31, 2013, the amount of available funding 

remaining under the Purchase Agreement was $140.5 billion. This amount will be reduced by any future draws. 

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, 

as long as the net worth sweep dividend provisions described below under "Senior Preferred Stock" remain in form and content 

substantially the same, no periodic commitment fee under the Purchase Agreement will be set, accrue or be payable. Treasury 

had previously waived the fee for all prior quarters. 

The Purchase Agreement provides that, on a quarterly basis, we generally may draw funds up to the amount, if any, by 

which our total liabilities exceed our total assets, as reflected on our GAAP balance sheet for the applicable fiscal quarter 

(referred to as the deficiency amount), provided that the aggregate amount funded under the Purchase Agreement may not 

exceed Treasury’s commitment. The Purchase Agreement provides that the deficiency amount will be calculated differently if 

we become subject to receivership or other liquidation process. The deficiency amount may be increased above the otherwise 

applicable amount upon our mutual written agreement with Treasury. In addition, if the Director of FHFA determines that the 

Director will be mandated by law to appoint a receiver for us unless our capital is increased by receiving funds under the 

commitment in an amount up to the deficiency amount (subject to the maximum amount that may be funded under the 

agreement), then FHFA, in its capacity as our Conservator, may request that Treasury provide funds to us in such amount. The 

Purchase Agreement also provides that, if we have a deficiency amount as of the date of completion of the liquidation of our 

assets, we may request funds from Treasury in an amount up to the deficiency amount (subject to the maximum amount that 

may be funded under the agreement). Any amounts that we draw under the Purchase Agreement will be added to the liquidation 

preference of the senior preferred stock. No additional shares of senior preferred stock are required to be issued under the 

Purchase Agreement. 

The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of the following 

circumstances: (a) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding commitment at 

that time; (b) the payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including 

mortgage guarantee obligations); and (c) the funding by Treasury of the maximum amount of the commitment under the 

Purchase Agreement. In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null 

and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the Conservator 

or otherwise curtails the Conservator’s powers. Treasury may not terminate its funding commitment under the Purchase 

Table of Contents
26 Freddie Mac

Agreement solely by reason of our being in conservatorship, receivership or other insolvency proceeding, or due to our 

financial condition or any adverse change in our financial condition. 

The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written 

agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s 

aggregate funding commitment or add conditions to Treasury’s funding commitment if the waiver or amendment would 

adversely affect in any material respect the holders of our debt securities or Freddie Mac mortgage guarantee obligations. 

In the event of our default on payments with respect to our debt securities or Freddie Mac mortgage guarantee 

obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the Conservator are not 

diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage guarantee 

obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to us the lesser 

of: (a) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee obligations; and 

(b) the lesser of: (i) the deficiency amount; and (ii) the maximum amount of the commitment less the aggregate amount of 

funding previously provided under the commitment. Any payment that Treasury makes under those circumstances will be 

treated for all purposes as a draw under the Purchase Agreement that will increase the liquidation preference of the senior 

preferred stock. 

The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include the 

end of the conservatorship. The Purchase Agreement therefore could continue after the conservatorship ends. 

Senior Preferred Stock 

Shares of the senior preferred stock have a par value of $1, and have a stated value and initial liquidation preference 

equal to $1,000 per share. The liquidation preference of the senior preferred stock is subject to adjustment. Dividends that are 

not paid in cash for any dividend period will accrue and be added to the liquidation preference of the senior preferred stock. In 

addition, any amounts Treasury pays to us pursuant to its funding commitment under the Purchase Agreement (and any 

quarterly commitment fees that are not paid in cash to Treasury nor waived by Treasury) will be added to the liquidation 

preference of the senior preferred stock. As described below, we may make payments to reduce the liquidation preference of the 

senior preferred stock in limited circumstances. 

Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash dividends, when, as 

and if declared by our Board of Directors. Through December 31, 2012, the senior preferred stock accrued quarterly cumulative 

dividends at a rate of 10% per year. However, under the August 2012 amendment to the Purchase Agreement, the fixed 

dividend rate was replaced with a net worth sweep dividend beginning in the first quarter of 2013. Under the net worth sweep 

dividend, our dividend obligation 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. For more information 

regarding our net worth sweep dividend, see “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS.” 

The senior preferred stock is senior to our common stock and all other outstanding series of our preferred stock, as well 

as any capital stock we issue in the future, as to both dividends and rights upon liquidation. The senior preferred stock provides 

that we may not, at any time, declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or 

make a liquidation payment with respect to, any common stock or other securities ranking junior to the senior preferred stock 

unless: (a) full cumulative dividends on the outstanding senior preferred stock (including any unpaid dividends added to the 

liquidation preference) have been declared and paid in cash; and (b) all amounts required to be paid with the net proceeds of 

any issuance of capital stock for cash (as described in the following paragraph) have been paid in cash. Shares of the senior 

preferred stock are not convertible. Shares of the senior preferred stock have no general or special voting rights, other than 

those set forth in the certificate of designation for the senior preferred stock or otherwise required by law. The consent of 

holders of at least two-thirds of all outstanding shares of senior preferred stock is generally required to amend the terms of the 

senior preferred stock or to create any class or series of stock that ranks prior to or on parity with the senior preferred stock. 

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment set 

forth in the Purchase Agreement; however, we are permitted to pay down the liquidation preference of the outstanding shares of 

senior preferred stock to the extent of: (a) accrued and unpaid dividends previously added to the liquidation preference and not 

previously paid down; and (b) quarterly commitment fees previously added to the liquidation preference and not previously 

paid down. In addition, if we issue any shares of capital stock for cash while the senior preferred stock is outstanding, the net 

proceeds of the issuance must be used to pay down the liquidation preference of the senior preferred stock; however, the 

liquidation preference of each share of senior preferred stock may not be paid down below $1,000 per share prior to the 

termination of Treasury’s funding commitment. Following the termination of Treasury’s funding commitment, we may pay 

down the liquidation preference of all outstanding shares of senior preferred stock at any time, in whole or in part. If, after 

termination of Treasury’s funding commitment, we pay down the liquidation preference of each outstanding share of senior 

preferred stock in full, the shares will be deemed to have been redeemed as of the payment date. 

Table of Contents
27 Freddie Mac

Common Stock Warrant 

The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total number of 

shares of our common stock outstanding on a fully diluted basis on the date of exercise. The warrant may be exercised in whole 

or in part at any time on or before September 7, 2028. 

Covenants Under Treasury Agreements 

The Purchase Agreement and warrant contain covenants that significantly restrict our business activities. For example, as 

a result of these covenants, we can no longer obtain additional equity financing (other than pursuant to the Purchase 

Agreement) and we are limited in the amount and type of debt financing we may obtain. 

The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not, without 

the prior written consent of Treasury: 

• declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac 

equity securities (other than with respect to the senior preferred stock or warrant); 

• redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock 

or warrant); 

• sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common 

stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect 

on the date of the Purchase Agreement); 

• terminate the conservatorship (other than in connection with a receivership); 

• sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited life 

regulated entity (in the context of a receivership); (b) of assets and properties in the ordinary course of business, 

consistent with past practice; (c) of assets and properties having fair market value individually or in aggregate less 

than $250 million in one transaction or a series of related transactions; (d) in connection with our liquidation by a 

receiver; (e) of cash or cash equivalents for cash or cash equivalents; or (f) to the extent necessary to comply with the 

covenant described below relating to the reduction of our mortgage-related investments portfolio; 

• issue any subordinated debt; 

• enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or 

• engage in transactions with affiliates unless the transaction is: (a) pursuant to the Purchase Agreement, the senior 

preferred stock or the warrant; (b) upon arm’s length terms; or (c) a transaction undertaken in the ordinary course or 

pursuant to a contractual obligation or customary employment arrangement in existence on the date of the Purchase 

Agreement. 

These covenants generally also apply to our subsidiaries. 

The Purchase Agreement also requires us to reduce the amount of mortgage assets we own, as described in "Limits on 

Investment Activity and our Mortgage-Related Investments Portfolio." Under the Purchase Agreement, we also may not incur 

indebtedness that would result in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets 

we are permitted to own on December 31 of the immediately preceding calendar year. The mortgage asset and indebtedness 

limitations are determined without giving effect to the changes to the accounting guidance for transfers of financial assets and 

consolidation of VIEs, under which we consolidated our single-family PC trusts and certain of our Other Guarantee 

Transactions in our financial statements as of January 1, 2010. 

In addition, the Purchase Agreement provides that we may not enter into any new compensation arrangements or increase 

amounts or benefits payable under existing compensation arrangements of any named executive officer or other executive 

officer (as such terms are defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary 

of the Treasury. 

The Purchase Agreement also provides that, on an annual basis, we are required to deliver a risk management plan to 

Treasury setting out our strategy for reducing our enterprise-wide risk profile and the actions we will take to reduce the 

financial and operational risk associated with each of our reportable business segments. 

The warrant we issued to Treasury includes, among others, the covenant that we may not, without the prior written 

consent of Treasury, 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.

Regulation and Supervision 

In addition to our oversight by FHFA as our Conservator, we are subject to regulation and oversight by FHFA under our 

charter and the GSE Act, which was modified substantially by the Reform Act. We are also subject to certain regulation by 

other government agencies. 

Federal Housing Finance Agency 

Table of Contents
28 Freddie Mac

FHFA is an independent agency of the federal government responsible for oversight of the operations of Freddie Mac, 

Fannie Mae and the FHLBs. In the discussion below, we refer to Freddie Mac and Fannie Mae as the “enterprises.” 

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. In 

general, we remain subject to existing regulations, orders and determinations until new ones are issued or made. 

Receivership

Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than our 

obligations for a period of 60 days. FHFA notified us that the measurement period for any mandatory receivership 

determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for our 

quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA also advised us that, if, 

during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency amount under the 

Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination. 

In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for other reasons, 

including critical undercapitalization. 

On June 20, 2011, FHFA published a final rule that addresses conservatorship and receivership operations of Freddie 

Mac, Fannie Mae and the FHLBs. The final rule establishes a framework to be used by FHFA when acting as conservator or 

receiver, supplementing and clarifying statutory authorities. Among other provisions, the final rule indicates that FHFA will not 

permit payment of securities litigation claims during conservatorship and that claims by current or former shareholders arising 

as a result of their status as shareholders would receive the lowest priority of claim in receivership. In addition, the final rule 

indicates that administrative expenses of the conservatorship will also be deemed to be administrative expenses of a subsequent 

receivership and that capital distributions may not be made during conservatorship, except as specified in the final rule. 

Capital Standards

FHFA suspended capital classification of us during conservatorship in light of the Purchase Agreement. The existing 

statutory and FHFA-directed regulatory capital requirements are not binding during the conservatorship. We continue to 

provide our submission to FHFA on minimum capital. These capital standards are described in "NOTE 18: REGULATORY

CAPITAL." Under the GSE Act, FHFA has the authority to increase our minimum capital levels or to establish additional 

capital and reserve requirements for particular purposes.

In September 2013, FHFA released a final rule that will require FHFA-regulated entities to conduct annual stress tests to 

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: (a) conduct annual stress tests using scenarios specified by FHFA that reflect a minimum of 

three sets of economic and financial conditions (baseline, adverse, and severely adverse); and (b) beginning in 2014, publicly 

disclose the results of the stress test under the “severely adverse” scenario. 

For additional information, see “MD&A — LIQUIDITY AND CAPITAL RESOURCES — Capital Resources, the 

Purchase Agreement, and the Dividend Obligation on the Senior Preferred Stock” and “RISK FACTORS — Legal and 

Regulatory Risks.” 

New Products

The GSE Act requires the enterprises to obtain the approval of FHFA before initially offering any product (including new 

mortgage products), 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 has published an interim final rule on prior approval of new 

products, it has stated that permitting us to engage in new products is inconsistent with the goals of conservatorship and 

instructed us not to submit such requests under the interim final rule. This could have an adverse effect on our business and 

profitability in future periods. 

Affordable Housing Goals

We are subject to annual affordable housing goals. In light of these housing goals, we may make adjustments to our 

mortgage loan sourcing and purchase strategies, which could potentially increase our credit losses. These strategies could 

include entering into some purchase and securitization transactions with lower expected economic returns than our typical 

transactions. We have at times relaxed some of our underwriting criteria to obtain goal-qualifying mortgage loans and made 

additional investments in higher risk mortgage loan products that we believed were more likely to serve the borrowers targeted 

by the goals, but have not done so to a significant extent since we entered into conservatorship. In February 2010, the then 

Acting Director of FHFA stated that FHFA does not intend for us to undertake uneconomic or high risk activities in support of 

the housing goals nor does it intend for the state of conservatorship to be a justification for withdrawing our support from these 

market segments. 

If the Director of FHFA finds that we failed to meet a housing goal and that achievement of the housing goal was 

feasible, the GSE Act states that the Director may require the submission of a housing plan with respect to the housing goal for 

Table of Contents
29 Freddie Mac

approval by the Director. The housing plan must describe the actions we would take to achieve the unmet goal in the future. 

FHFA has the authority to take actions against us, including issuing a cease and desist order or assessing civil money penalties, 

if we: (a) fail to submit a required housing plan or fail to make a good faith effort to comply with a plan approved by FHFA; or 

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

FACTORS — Legal and Regulatory Risks — We may make certain changes to our business in an attempt to meet our housing 

goals and subgoals.” 

FHFA has established four goals and one subgoal for single-family owner-occupied housing, one multifamily special 

affordable housing goal, and one multifamily special affordable housing subgoal. Three of the single-family housing goals and 

the subgoal target purchase money mortgages for: (a) low-income families; (b) very low-income families; and/or (c) families 

that reside in low-income areas. The single-family housing goals also include one that targets refinancing mortgages for lowincome families. The multifamily special affordable housing goal targets multifamily rental housing affordable to low-income 

families. The multifamily special affordable housing subgoal targets multifamily rental housing affordable to very low-income 

families. 

The single-family goals are expressed as a percentage of the total number of eligible mortgages underlying our total 

single-family mortgage purchases. The multifamily goals are expressed in terms of minimum numbers of units financed. 

The single-family goals include: (a) an assessment of performance as compared to the actual share of the market that 

meets the criteria for each goal; and (b) a benchmark level to measure performance. Where our performance on a single-family 

goal falls short of the benchmark for a goal, we still could achieve the goal if our performance meets or exceeds the actual 

share of the market that meets the criteria for the goal for that year. For example, if the actual market share of mortgages to 

low-income families relative to all mortgages originated to finance owner-occupied single-family properties is lower than the 

23% benchmark rate, we would still satisfy this goal if we achieve that actual market percentage. 

Affordable Housing Goals for 2013 and 2014

FHFA’s affordable housing goals for Freddie Mac for 2013 and 2014 are set forth below. FHFA has not yet issued the 

affordable housing goals for 2015.

Table 3 — Affordable Housing Goals for 2013 and 2014

Goals for 2013 Goals for 2014

Single-family purchase money goals (benchmark levels):

Low-income 23% 23%

Very low-income 7% 7%

Low-income areas(1) 21% TBD

Low-income areas subgoal 11% 11%

Single-family refinance low-income goal (benchmark level) 20% 20%

Multifamily low-income goal (in units) 215,000 200,000

Multifamily low-income subgoal (in units) 50,000 40,000

(1) FHFA will annually set the benchmark level for the low-income areas goal based on the benchmark level for the low-income areas subgoal, plus an 

adjustment factor reflecting the additional incremental share of mortgages for low- and moderate-income families in designated disaster areas in the three 

most recent years for which such data are available. For 2013, FHFA set the benchmark level at 21%. 

We expect to report our performance with respect to the 2013 affordable housing goals in March 2014. At this time, based 

on preliminary information, we believe we met the single-family purchase money low-income areas subgoal, the single-family 

refinance low-income goal and both multifamily goals for 2013, but believe we failed to meet the FHFA benchmark level for 

the other single-family goals. In such cases, FHFA regulations allow us to achieve a goal if our qualifying share matches that of 

the market, as measured by the Home Mortgage Disclosure Act. Because the Home Mortgage Disclosure Act data for 2013 will 

not be released until September 2014, FHFA will not be able to make a final determination on our performance until that time. 

If we fail to meet both the FHFA benchmark level and the market level, we may enter into discussions with FHFA concerning 

whether these goals were infeasible under the terms of the GSE Act, due to market and economic conditions and our financial 

condition. We view the purchase of mortgage 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 low- and 

moderate-income families. 

Duty to Serve Underserved Markets 

The GSE Act establishes a duty for Freddie Mac and Fannie Mae to serve three underserved markets (manufactured 

housing, affordable housing preservation and rural areas) by developing loan products and flexible underwriting guidelines to 

facilitate a secondary market for mortgages for very low-, low- and moderate-income families in those markets. Effective for 

2010 and subsequent years, FHFA is required to establish a process for annually: (a) evaluating whether and to what extent 

Freddie Mac and Fannie Mae have complied with the duty to serve underserved markets; and (b) rating the extent of 

compliance. 

Table of Contents
30 Freddie Mac

In June 2010, FHFA published in the Federal Register a proposed rule regarding the duty of Freddie Mac and Fannie Mae 

to serve the underserved markets. FHFA has not yet issued a final rule. We cannot predict the content of any such final rule, or 

the impact that the final rule will have on our business or operations. 

Affordable Housing Goals and Results for 2011 and 2012

In October 2013, FHFA informed us that it had reviewed our performance with respect to the affordable housing goals for 

2012, and determined that we achieved all of our housing goals. 

Our housing goals and results for 2011 and 2012 are set forth in the table below. 

Table 4 — Affordable Housing Goals and Results for 2011 and 2012

Goals for

2011

Market Level 

for 2011 (1)

Results for

2011 (2)

Goals for

2012

Market Level 

for 2012 (1)

Results for

2012

Single -family purchase money goals

(benchmark levels):

Low-income 27% 26.5% 23.3% 23% 26.6% 24.4%

Very low-income 8% 8.0% 6.6% 7% 7.7% 7.1%

Low-income areas(3) 24% 22.0% 19.2% 20% 20.5% 20.6%

Low-income areas subgoal 13% 11.4% 9.2% 11% 13.6% 11.4%

Single -family refinance low-income goal

(benchmark level) 21% 21.5% 23.4% 20% 22.3% 22.4%

Multifamily low-income goal (in units) 161,250 N/A 229,001 225,000 N/A 298,529

Multifamily low-income subgoal (in units) 21,000 N/A 35,471 59,000 N/A 60,084

(1) Determined by FHFA based on its analysis of market data. 

(2) We failed to achieve any of the four single-family purchase money goals for 2011. FHFA did not require us to submit a housing plan for the goals that we 

did not achieve in 2011. 

(3) FHFA annually sets the benchmark level for the low-income areas goal based on the benchmark level for the low-income areas subgoal, plus an 

adjustment factor reflecting the additional incremental share of mortgages for low- and moderate-income families in designated disaster areas in the three 

most recent years for which such data are available. For 2011 and 2012, FHFA set the benchmark level for the low-income areas goal at 24% and 20%, 

respectively. 

Affordable Housing Allocations

The GSE Act requires us to set aside in each fiscal year an amount equal to 4.2 basis points (or 0.042%) of each dollar of 

the UPB of total new business purchases, and allocate or transfer such amount to: (a) HUD to fund a Housing Trust Fund 

established and managed by HUD; and (b) a Capital Magnet Fund established and managed by Treasury. FHFA has the 

authority to suspend our allocation upon finding that the payment would contribute to our financial instability, cause us to be 

classified as undercapitalized or prevent us from successfully completing a capital restoration plan. In November 2008, FHFA

advised us that it has suspended the requirement to set aside or allocate funds for the Housing Trust Fund and the Capital 

Magnet Fund until further notice. For more information, see "LEGAL PROCEEDINGS."

Prudential Management and Operations Standards

FHFA has established prudential standards relating to the management and operations of Freddie Mac, Fannie Mae, and 

the FHLBs. The standards address a number of business, controls, and risk management areas. The standards specify the 

possible consequences for any entity that fails to meet any of the standards or otherwise fails to comply (including submission 

of a corrective plan, limits on asset growth, increases in capital, limits on dividends and stock redemptions or repurchases, a 

minimum level of retained earnings or any other action that the FHFA Director determines will contribute to bringing the entity 

into compliance with the standards). In addition, a failure to meet any standard also may constitute an unsafe or unsound 

practice, which may form the basis for FHFA initiating an administrative enforcement action. 

Portfolio Activities

The GSE Act provides FHFA with 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 the enterprises’ mission and safe and sound operations. In establishing these criteria, 

FHFA must consider the ability of the enterprises to provide a liquid secondary market through securitization activities, the 

portfolio holdings in relation to the mortgage market and the enterprises’ compliance with the prudential management and 

operations standards prescribed by FHFA. 

On December 28, 2010, FHFA issued a final rule adopting the portfolio holdings criteria established in the Purchase 

Agreement, as it may be amended from time to time, for so long as we remain subject to the Purchase Agreement. 

See “Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related Investments 

Portfolio” for additional information on restrictions on our portfolio activities. 

Anti-Predatory Lending

Table of Contents
31 Freddie Mac

Predatory lending practices are in direct opposition to our mission, goals, and practices. We instituted anti-predatory 

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

resulting from unacceptable practices. These policies include processes related to the origination, delivery and validation of 

loans sold to us. In addition to the purchase policies we instituted, we promote consumer education and financial literacy efforts 

to help borrowers avoid abusive lending practices and we provide competitive mortgage products to reputable mortgage 

originators so that borrowers have a greater choice of financing options. 

Subordinated Debt

FHFA directed us to continue to make interest and principal payments on our subordinated debt, even if we fail to 

maintain required capital levels. As a result, the terms of any of our subordinated debt that provide for us to defer payments of 

interest under certain circumstances, including our failure to maintain specified capital levels, are no longer applicable. In 

addition, the requirements in the agreement we entered into with FHFA in September 2005 with respect to issuance, 

maintenance, and reporting and disclosure of Freddie Mac subordinated debt have been suspended during the term of 

conservatorship and thereafter until directed otherwise. See “NOTE 18: REGULATORY CAPITAL — Subordinated Debt 

Commitment” for more information regarding subordinated debt. 

Department of Housing and Urban Development 

HUD has regulatory authority over Freddie Mac with respect to fair lending. Our mortgage purchase activities are subject 

to federal anti-discrimination laws. In addition, the GSE Act prohibits discriminatory practices in our mortgage purchase 

activities, requires us to submit data to HUD to assist in its fair lending investigations of primary market lenders with which we 

do business and requires us to undertake remedial actions against such lenders found to have engaged in discriminatory lending 

practices. In addition, HUD periodically reviews and comments on our underwriting and appraisal guidelines for consistency 

with the Fair Housing Act and the anti-discrimination provisions of the GSE Act. 

Department of the Treasury 

Treasury has significant rights and powers with respect to our company as a result of the Purchase Agreement. In 

addition, under our charter, the Secretary of the Treasury has approval authority over our issuances of notes, debentures and 

substantially identical types of unsecured debt obligations (including the interest rates and maturities of these securities), as 

well as new types of mortgage-related securities issued subsequent to the enactment of the Financial Institutions Reform, 

Recovery and Enforcement Act of 1989. The Secretary of the Treasury has performed this debt securities approval function by 

coordinating GSE debt offerings with Treasury funding activities. In addition, our charter authorizes Treasury to purchase 

Freddie Mac debt obligations not exceeding $2.25 billion in aggregate principal amount at any time. 

Securities and Exchange Commission 

We are subject to the reporting requirements applicable to registrants under the Exchange Act, including the requirement 

to file with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Although 

our common stock is required to be registered under the Exchange Act, we continue to be exempt from certain federal securities 

law requirements, including the following: 

• Securities we issue or guarantee are “exempted securities” under the Securities Act and may be sold without 

registration under the Securities Act; 

• We are excluded from the definitions of “government securities broker” and “government securities dealer” under the 

Exchange Act; 

• The Trust Indenture Act of 1939 does not apply to securities issued by us; and 

• We are exempt from the Investment Company Act of 1940 and the Investment Advisers Act of 1940, as we are an 

“agency, authority or instrumentality” of the U.S. for purposes of such Acts. 

Legislative and Regulatory Developments 

We discuss certain significant legislative and regulatory developments below. For more information regarding these and 

other legislative and regulatory developments that could impact our business, see “RISK FACTORS — Conservatorship and 

Related Matters” and “— Legal and Regulatory Risks.” 

Legislation Related to Freddie Mac and its Future Status

Our future structure and role will be determined by the Administration and Congress, and there are likely to be significant 

changes beyond the near-term. Congress continues to hold hearings and consider legislation on the future state of Freddie Mac, 

Fannie Mae and the housing finance system. Recent developments are discussed below.

In June 2013, the “Let the GSEs Pay Us Back Act of 2013” was introduced in the House of Representatives. The bill 

would amend Freddie Mac and Fannie Mae’s Purchase Agreements with Treasury to:

• terminate the dividends on the senior preferred stock;

Table of Contents
32 Freddie Mac

• treat the funds received by a GSE from Treasury under the Purchase Agreement (including funds received prior to the 

amendment) as a fully amortizing loan from Treasury to the GSE with a maturity of 30 years and an annual interest 

rate of 5%; and

• credit the dividends previously paid by a GSE on the senior preferred stock as payments of principal and interest under 

such loan.

In June 2013, the “Housing Finance Reform and Taxpayer Protection Act of 2013” was introduced in the Senate with bipartisan co-sponsors. The bill would substantially alter the current housing finance system. Among other things, the bill would:

• require the wind down of Freddie Mac and Fannie Mae. The companies’ charters would be repealed within five years 

of enactment (except for charter provisions relating to the rights of holders of the companies’ outstanding debt and 

mortgage-backed security obligations), and the companies would then not have authority to conduct new business. A

full faith and credit U.S. government guarantee would be extended to the then outstanding debt obligations of the 

companies and mortgage-backed securities guaranteed by the companies;

• require that any proceeds from the wind down go first to the holders of Freddie Mac's and Fannie Mae’s senior 

preferred stock, then preferred shareholders and then common shareholders, with the amount of proceeds to be paid to 

these shareholders to be determined by the U.S. government;

• set certain requirements relating to the disposition of the functions, activities, infrastructure and property of Freddie 

Mac and Fannie Mae; and

• decrease conforming loan limits in high cost areas and require the gradual reduction of Freddie Mac's and Fannie 

Mae’s retained mortgage portfolios.

In July 2013, the “Protect American Taxpayers and Homeowners Act of 2013” was approved by the House Financial 

Services Committee. The bill would also substantially alter the current housing finance system. Among other things, the bill 

would:

• require FHFA to place Freddie Mac and Fannie Mae into receivership within five years of enactment (or potentially 

longer, in certain circumstances). The companies’ charters would be repealed at that time (except for charter 

provisions relating to the rights of holders of the companies’ outstanding debt and mortgage-backed security 

obligations), and the companies would then not have authority to conduct new business. A full faith and credit U.S. 

government guarantee would be extended to the then outstanding debt obligations of the companies and mortgagebacked securities guaranteed by the companies; and

• place certain restrictions on Freddie Mac's and Fannie Mae’s activities prior to being placed into receivership, 

including decreasing conforming loan limits in high cost areas, gradually reducing the size of Freddie Mac's and 

Fannie Mae’s retained mortgage portfolios to $250 billion each, and requiring the companies to enter into additional 

risk sharing transactions to cover at least 10% of their new single-family business each year. Under the bill, the 

companies would likely be required to increase their guarantee fees.

In addition, bills were introduced in the Senate in 2013 that focus on preventing the use of Freddie Mac and Fannie Mae 

guarantee fees to offset government spending. For example, the Jumpstart GSE Reform Act would bar any increase in 

guarantee fees charged by Freddie Mac and Fannie Mae to offset government spending, and would prohibit the sale of the 

senior preferred stock by Treasury without Congressional approval and other structural reform. In addition, the Senate passed a 

2014 budget resolution that established certain procedural requirements designed to make it more difficult to use Freddie Mac 

and Fannie Mae guarantee fees to offset other government spending.

We anticipate that other bills related to Freddie Mac, Fannie Mae and the future of the mortgage finance system will be 

introduced. We cannot predict whether any of such bills will be enacted.

For more information, see “RISK FACTORS — Conservatorship and Related Matters — The future status and role of 

Freddie Mac are uncertain.”

FHFA’s Strategic Plan for Freddie Mac and Fannie Mae Conservatorships 

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

and Fannie Mae. The plan set forth objectives and steps FHFA is taking or will take to meet FHFA’s obligations as Conservator. 

In March 2012, FHFA began instituting annual Conservatorship Scorecards for us and Fannie Mae that establish objectives, 

performance targets and measures, and provide the implementation roadmap for the strategic plan.

FHFA’s plan provides lawmakers and the public with an outline of how FHFA as Conservator intends to guide Freddie 

Mac and Fannie Mae over the next few years, and identifies three strategic goals: 

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

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

simplifying and shrinking their operations. 

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

Table of Contents
33 Freddie Mac

For information about the 2013 Conservatorship Scorecard, and our performance with respect to it, see “EXECUTIVE 

COMPENSATION — Compensation Discussion and Analysis.”

Administration Report on Reforming the U.S. Housing Finance Market 

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

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

in which the private sector is the dominant provider of mortgage credit. The report recommends winding down Freddie Mac 

and Fannie Mae, stating that the Administration will work with FHFA to determine the best way to responsibly reduce the role 

of Freddie Mac and Fannie Mae in the market and ultimately wind down both institutions. The report states that these efforts 

must be undertaken at a deliberate pace, which takes into account the impact that these changes will have on borrowers and the 

housing market. 

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

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

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

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

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

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

Dodd-Frank Act 

The Dodd-Frank Act, which was signed into law on July 21, 2010, significantly changed the regulation of the financial 

services industry, including by creating new standards related to regulatory oversight of systemically important financial 

companies, derivatives, capital requirements, asset-backed securitization, mortgage underwriting, and consumer financial 

protection. The Dodd-Frank Act has directly affected and will continue to directly affect the business and operations of Freddie 

Mac by subjecting us to new and additional regulatory oversight and standards, including with respect to our activities and 

products. We may also be affected by provisions of the Dodd-Frank Act and implementing regulations that affect the activities 

of other financial services entities that are our customers and counterparties. 

Implementation of the Dodd-Frank Act is being accomplished through numerous rulemakings, some of which are still in 

process, and some of which only recently became effective. Accordingly, it is difficult to assess fully the impact of the DoddFrank Act on Freddie Mac and the financial services industry at this time. The Dodd-Frank Act also mandates the preparation 

of studies on a wide range of issues, which could lead to additional legislation or regulatory changes.

Recent developments with respect to Dodd-Frank rulemakings that may have a significant impact on Freddie Mac 

include the following: 

• CFPB final rules: The Consumer Financial Protection Bureau, or CFPB, adopted a number of final rules in early 2013 

relating to mortgage origination, finance, and servicing practices. The rules generally went into effect in January 2014. 

The rules include an ability-to-repay rule, which requires mortgage originators to make a reasonable and good faith 

determination that a borrower has a reasonable ability to repay the loan according to its terms. This rule provides 

certain protection from liability for originators making loans that satisfy the definition of a qualified mortgage. In May 

2013, FHFA directed Freddie Mac and Fannie Mae to limit future single-family acquisitions to loans that are qualified 

mortgages under applicable CFPB regulations, including those mortgages meeting the special or temporary qualified 

mortgage definition for us and Fannie Mae, as the case may be. The directive generally restricts us and Fannie Mae 

from acquiring loans that are: (a) not fully amortizing; (b) have a term greater than 30 years; or (c) have points and 

fees in excess of 3% of the total loan amount. 

Other rules address consumer protection and high cost mortgages, mortgage servicing, escrow accounts, loan 

origination compensation, and appraisals. These rules will, individually and in combination, significantly change 

many aspects of the mortgage industry and may affect us both directly and indirectly. Examples of indirect effects 

include possible changes in pricing and other practices by customers and counterparties, which could cause the 

volume of mortgage originations to decline, which would in turn adversely affect our business and financial results. 

Some of these changes could slow the rate of foreclosures and result in significant changes to mortgage servicing and 

foreclosure practices that could adversely affect our business. In addition, mortgage originators and assignees, 

including Freddie Mac, may be subject to increased legal risk for loans that do not meet the requirements of the new 

rules.

• Credit risk retention proposed rule: In August 2013, six agencies, including FHFA, jointly proposed a rule concerning 

credit risk retention. This rule revises a 2011 proposal that would implement the credit risk retention requirements of 

the Dodd-Frank Act. The rule generally would require a securitizer of asset-backed securities to retain no less than five 

percent of the credit risk of the assets underlying such securities. The rule would provide an exemption from this 

requirement for asset-backed securities collateralized exclusively by qualified residential mortgages (or “QRMs”), and 

would define a QRM by reference to the definition of a “qualified mortgage” under the Truth in Lending Act. The 

proposal also requests comment on an alternative definition of QRM that would significantly reduce the number of 

Table of Contents
34 Freddie Mac

loans that would qualify as QRM. As in the 2011 proposal, Freddie Mac’s fully guaranteed securitizations generally 

would satisfy the risk retention requirements for so long as we are in conservatorship or receivership and receiving 

federal financial support. This exemption would not apply to securitization structures that are not fully guaranteed. 

Under the proposal, the effective date of any final risk retention rule with respect to residential mortgage 

securitizations will be one year after such rule is finalized.

We continue to review and assess the impact of rulemakings and other activities under the Dodd-Frank Act. For more 

information, see “RISK FACTORS — Legal and Regulatory Risks — Legislative or regulatory actions could adversely affect 

our business activities and financial results.” 

Financial Crimes Enforcement Network's Anti-money Laundering Final Rule

On February 20, 2014, the Financial Crimes Enforcement Network finalized its regulations that will require Freddie Mac 

to establish a written anti-money laundering program, file suspicious activity reports with the Network, and comply with 

certain statutory and regulatory information sharing procedures. These regulations may require operational changes, as they 

differ in certain respects from the regulations we are currently subject to concerning the reporting of fraudulent financial 

instruments.

FHFA Advisory Bulletin

In April 2012, FHFA issued Advisory Bulletin AB 2012-02, “Framework for Adversely Classifying Loans, Other Real 

Estate Owned, and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”), which is applicable to 

Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Advisory Bulletin establishes guidelines for adverse 

classification and identification of specified single-family and multifamily assets and off-balance sheet credit exposures. The 

Advisory Bulletin indicates that this guidance considers and is generally consistent with the Uniform Retail Credit 

Classification and Account Management Policy issued by the federal banking regulators in June 2000.

Among other requirements, this Advisory Bulletin requires that we classify the portion of an outstanding single-family 

loan balance in excess of the fair value of the underlying property, less costs to sell and adjusted for any credit enhancements, 

as a “loss” no later than when the loan becomes 180 days delinquent, except in certain specified circumstances (such as those 

involving properly secured loans with an LTV ratio equal to or less than 60%). For multifamily loans, the Advisory Bulletin 

requires that any portion of a loan balance that exceeds the amount secured by the fair value of the collateral, less costs to sell, 

for which there is no available and reliable source of repayment other than the sale of the underlying real estate collateral, to be 

classified as a “loss.” The Advisory Bulletin also requires us to charge off the portion of the loan classified as a “loss.” The 

Advisory Bulletin specifies that, if we subsequently receive full or partial payment of a previously charged-off loan, we may 

report a recovery of the amount, either through our loss reserves or as a reduction in our foreclosed property expenses. In May 

2013, FHFA issued an additional Advisory Bulletin clarifying the implementation timeline for AB 2012-02, requiring that: 

(a) the asset classification provisions of AB 2012-02 should be implemented by January 1, 2014; and (b) the charge-off 

provisions of AB 2012-02 should be implemented no later than January 1, 2015. 

We establish an allowance for loan losses against our loans either through our collective loss reserve or our loss reserve 

for individually impaired loans. Thus, at the time single-family loans become 180 days delinquent, we have already established 

an allowance for loan losses against them. The Advisory Bulletin requires us to change our practice for determining when a 

loan is deemed uncollectible to the date the loan is classified as a “loss” as described above. This is a change from our current 

practice for determining when a loan is deemed to be uncollectible, which is based on historical data and results in a loan being 

deemed to be uncollectible at the date of foreclosure or other liquidation event (such as a deed-in-lieu of foreclosure or a short 

sale). 

In the period in which we adopt the Advisory Bulletin, our allowance for loan losses on the impacted loans will be 

eliminated and the corresponding recorded investment in the loan will be reduced by the amounts that are charged off. Under 

our existing accounting practices and upon adoption of the Advisory Bulletin, the ultimate amount of losses we realize on our 

loan portfolio will be the same over time; however, the timing of when we recognize the losses in our financial statements will 

differ.

We are working with FHFA to consider how the Advisory Bulletin may impact our credit risk management practices. A

significant percentage of our modifications are initiated after loans become 180 days delinquent. This is a result of a number of 

factors, including servicer backlogs, lack of borrower responsiveness to loss mitigation efforts, and extended foreclosure 

timelines, which affect the willingness of borrowers to engage regarding loss mitigation options. Given the current rate of 

modification activity after loans become 180 days delinquent, the benefit we expect from borrower re-performance is 

significant in estimating the losses for this population of loans. In July, we introduced a streamlined modification program, 

which may accelerate the timing of our modifications; however, we still expect a meaningful amount of modifications to be 

initiated after our loans become 180 days delinquent. As we obtain incremental information on the performance of this 

program, we will enhance our loss estimates, as necessary, to reflect the change in the expected timing and volume of 

modifications.

Table of Contents
35 Freddie Mac

We are working with FHFA to resolve certain implementation issues related to our adoption of the Advisory Bulletin. 

However, we do not expect that the Advisory Bulletin will have a material impact on our financial position or results of 

operations.

FHFA Request for Public Input on Proposed Gradual Decrease of Loan Limits

On December 16, 2013, FHFA announced that it is requesting public input on the implementation of a plan to gradually 

reduce the maximum size of single-family mortgage loans that we and Fannie Mae may purchase. In areas where the statutory 

maximum loan limit for one-unit properties is currently $417,000, FHFA’s plan would set the loan purchase limit at $400,000, 

which represents a reduction of approximately four percent. The loan purchase limit would be reduced by the same percentage 

in "higher cost" areas, where current limits can be as high as $625,500. The loan purchase limits in such areas would be no 

greater than $600,000. Implementation of a decrease in loan limits would, over time, reduce the income we earn from our 

single-family credit guarantee activities. FHFA has indicated that the contemplated plan is not a final decision.

FHFA Request for Public Input on Reducing Freddie Mac and Fannie Mae Multifamily Businesses

On August 9, 2013, FHFA announced that it is evaluating alternatives for reducing Freddie Mac and Fannie Mae’s 

presence in the multifamily housing finance market in 2014 and is seeking public input on the potential market impact of 

various strategies. FHFA stated that the strategies may include:

• Restrictions on available loan terms;

• Simplification and standardization of loan products;

• Limits on property financing;

• Limits on business activities; and,

• Other options that FHFA should consider to contract the enterprises’ multifamily businesses.

Input from the public was due October 8, 2013 in order for FHFA to consider the responses for potential inclusion in our 

2014 Conservatorship Scorecard and provide for continued gradual contraction of the GSEs' multifamily business.

Employees 

At February 14, 2014, we had 5,053 full-time and 59 part-time employees. Our principal offices are located in McLean, 

Virginia.

Available Information 

SEC Reports 

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

our stockholders, we have not prepared or provided proxy statements for the solicitation of proxies from stockholders since we 

entered into conservatorship, and do not expect to do so while we remain in conservatorship. We make available free of charge 

through our website at www.freddiemac.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports 

on Form 8-K, and all other SEC reports and amendments to those reports as soon as reasonably practicable after we 

electronically file the material with, or furnish it to, the SEC. In addition, materials that we file with the SEC are available for 

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

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

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

regarding companies that file electronically with the SEC. 

We are providing our website addresses and the website address of the SEC here or elsewhere in this Form 10-K solely 

for your information. Information appearing on our website or on the SEC’s website is not incorporated into this Form 10-K. 

Information about Certain Securities Issuances by Freddie Mac 

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

direct financial obligation or become directly or contingently liable for a material obligation under an off-balance sheet 

arrangement. The disclosure must be made in a current report on Form 8-K under Item 2.03 or, if the obligation is incurred in 

connection with certain types of securities offerings, in prospectuses for that offering that are filed with the SEC. 

Freddie Mac’s securities offerings are exempted from SEC registration requirements. As a result, we are not required to 

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

disclosure requirements of Form 8-K relating to the incurrence of material financial obligations, we report our incurrence of 

these types of obligations either in offering circulars (or supplements thereto) that we post on our website or in a current report 

on Form 8-K, in accordance with a “no-action” letter we received from the SEC staff. In cases where the information is 

disclosed in an offering circular posted on our website, the document will be posted on our website within the same time period 

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

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

can access the offering circular and related supplements for debt securities offerings under Freddie Mac’s global debt facility, 

Table of Contents
36 Freddie Mac

including pricing supplements for individual issuances of debt securities. Similar information about our STACR debt securities 

is available at www.freddiemac.com/creditsecurities.

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

at www.freddiemac.com/mbs. From this address, investors can access information and documents about our mortgage-related 

securities, including offering circulars and related offering circular supplements. 

Forward-Looking Statements 

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

analysts, and others as part of our normal operations. Some of these communications, including this Form 10-K, contain 

“forward-looking statements.” Examples of forward-looking statements include, but are not limited to, statements pertaining to 

the conservatorship, our current expectations and objectives for our single-family, multifamily, and investment businesses, our 

loan workout initiatives and other efforts to assist the housing market, liquidity, capital management, economic and market 

conditions and trends, market share, the effect of legislative and regulatory developments and new accounting guidance, credit 

quality of loans we own or guarantee, and results of operations and financial condition on a GAAP, Segment Earnings, and fair 

value basis. Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond our 

control. Forward-looking statements are often accompanied by, and identified with, terms such as “objective,” “expect,” 

“possible,” “trend,” “forecast,” “anticipate,” “believe,” “intend,” “could,” “future,” “may,” “will,” and similar phrases. These 

statements are not historical facts, but rather represent our expectations based on current information, plans, judgments, 

assumptions, estimates, and projections. Actual results may differ significantly from those described in or implied by such 

forward-looking statements due to various factors and uncertainties, including those described in the “RISK FACTORS” 

section of this Form 10-K, and: 

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

to further support the housing recovery or to implement FHFA’s strategic plan for us and Fannie Mae;

• the effect of the restrictions on our business due to the conservatorship and the Purchase Agreement, including our 

dividend obligation on the senior preferred stock; 

• our ability to maintain adequate liquidity to fund our operations, including following any changes in the support 

provided to us by Treasury, or any changes in our credit ratings or those of the U.S. government; 

• changes in our charter or in applicable legislative or regulatory requirements (including any legislation on the future 

status of our company), or in the regulation of the housing finance and financial services industries;

• changes in the fiscal and monetary policies of the Federal Reserve, including the effect of the tapering of its program 

of purchasing mortgage-related securities and any future sales of such securities;

• the extent of our success in our efforts to mitigate our losses on our Legacy single-family books and our investments 

in non-agency mortgage-related securities;

• the adequacy of our operating systems and infrastructure, and our ability to maintain the security of such systems and 

infrastructure; 

• changes in accounting standards, or in our accounting policies or estimates;

• changes in economic and market conditions, including changes in employment rates, interest rates, yield curves, 

mortgage and debt spreads, and home prices;

• changes in the U.S. residential mortgage market, including changes in the supply and type of mortgage products (e.g., 

refinance versus purchase, and fixed-rate versus ARM); 

• our ability to effectively execute our business strategies, implement new initiatives, and improve efficiency;

• our ability to recruit and retain executive officers and other key employees; 

• the adequacy of our risk management framework, internal control over financial reporting, and disclosure controls and 

procedures;

• the failure of our customers, vendors, service providers, and counterparties to fulfill their obligations to us; 

• our ability to manage mortgage credit risks, including the effect of changes in underwriting and servicing practices;

• our ability to manage interest-rate and other market risks, including the availability of derivative financial instruments 

needed for risk management purposes; 

• 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 (e.g., single-family PCs and multifamily K 

Certificates);

• adverse judgments or settlements in connection with judicial or regulatory proceedings; 

• changes in the practices of loan originators, investors and other participants in the secondary mortgage market;

Table of Contents
37 Freddie Mac

• the occurrence of a major natural or other disaster in areas in which our offices or portions of our total mortgage 

portfolio are concentrated; and

• other factors and assumptions described in this Form 10-K, including in the “MD&A” section.

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any 

forward-looking statements we make to reflect events or circumstances occurring after the date of this Form 10-K.

ITEM 1A. RISK FACTORS 

Investing in our securities involves risks, including the risks described below and in “BUSINESS,” “MD&A,” and 

elsewhere in this Form 10-K. These risks and uncertainties could, directly or indirectly, adversely affect our business, financial 

condition, results of operations, cash flows, strategies and/or prospects. 

Conservatorship and Related Matters 

The future status and role of Freddie Mac are uncertain. 

There is significant uncertainty about our future status and role and we could be materially adversely affected by 

legislative and regulatory action that alters the ownership, structure, and mission of the company. The then Acting Director of 

FHFA stated on November 15, 2011 that "the long-term outlook is that neither [Freddie Mac nor Fannie Mae] will continue to 

exist, at least in its current form, in the future." Future legislation will likely materially affect the role of the company, our 

business model, our structure, and future results of operations. Some or all of our functions could be transferred to other 

institutions, and we could cease to exist as a stockholder-owned company or at all. If any of these events were to occur, our 

shares could further diminish in value, or cease to have any value, and there can be no assurance that our stockholders would 

receive any compensation for such loss in value.

Several bills were introduced in Congress in 2013 concerning the future status of Freddie Mac, Fannie Mae, and the 

mortgage finance system, including bills which provide for the wind down of Freddie Mac and Fannie Mae. The 

Administration (as discussed in its February 2011 report to Congress) has recommended reducing the role of Freddie Mac and 

Fannie Mae and ultimately winding down both companies. 

The conservatorship is indefinite in duration and the timing, conditions, and likelihood of our emerging from 

conservatorship are uncertain. Termination of the conservatorship (other than in connection with receivership) also requires 

Treasury’s consent under the Purchase Agreement. There can be no assurance as to when, and under what circumstances, 

Treasury would give such consent. It is possible that the conservatorship will end with us being placed into receivership. Even 

if the conservatorship is terminated, we would remain subject to the Purchase Agreement and the senior preferred stock. In 

addition, because Treasury holds a warrant to acquire almost 80% of our common stock for nominal consideration, the 

company could effectively remain under the control of the U.S. government even if the conservatorship is ended and the voting 

rights of common stockholders restored.

During 2013 and 2014, a number of lawsuits were filed against the U.S. government challenging certain government 

actions related to the conservatorship (including actions taken in connection with the imposition of conservatorship) and the 

Purchase Agreement. This may add to the uncertainty surrounding our company’s future.

For more information, see “BUSINESS — Regulation and Supervision — Legislative and Regulatory Developments.” 

We may request additional draws under the Purchase Agreement in future periods. 

We may request additional draws under the Purchase Agreement in future periods. The need for any such future draws 

will be determined by a variety of factors that could adversely affect our net worth or our ability to generate comprehensive 

income, including the following: 

• changes in home prices; 

• the success of our foreclosure prevention and loss mitigation efforts;

• adverse changes in interest rates, yield curves, implied volatility or mortgage spreads, which could increase realized 

and unrealized fair value losses recorded in earnings or AOCI; 

• reductions in the size of our mortgage-related investments portfolio or required sales of higher yielding assets, and 

other limitations on our investment activities that reduce our earnings capacity;

• reductions in the maximum UPB of single-family loans we are permitted to purchase or other 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 in our access to public debt markets; 

• changes in accounting practices or guidance (e.g., implementation of FHFA's April 2012 Advisory Bulletin); 

Table of Contents
38 Freddie Mac

• effects of the MHA Program and other government initiatives, including any future requirements to reduce the 

principal amount of loans, which could increase the likelihood of prepayment of mortgages and potentially reduce our 

net interest income; 

• changes in housing or economic conditions, legislation, or other factors that affect our assessment of our ability to 

realize our net deferred tax asset, and cause us to establish a valuation allowance against our net deferred tax asset; or 

• changes in business practices resulting from legislative and regulatory developments or direction from our 

Conservator. 

We do not have the authority over the long term to build and retain capital from the earnings generated by our business 

operations, as a result of the net worth sweep dividend. This increases the likelihood of draws in future periods, particularly as 

the permitted Capital Reserve Amount (which is $2.4 billion for 2014) declines over time. Additional draws under the Purchase 

Agreement will increase the liquidation preference of the senior preferred stock, which was $72.3 billion as of December 31, 

2013. In addition, draws we take for deficits in our net worth will reduce the amount of available funding remaining under the 

Purchase Agreement, which was $140.5 billion as of December 31, 2013. Additional draws and corresponding increases in the 

already substantial liquidation preference, along with limited flexibility to redeem the senior preferred stock, may add to the 

uncertainty regarding our long-term financial sustainability. 

We are under the control of FHFA, and our business activities are subject to significant restrictions. We may be required to 

take actions that materially adversely affect our business and financial results.

We may be required to undertake activities that are unprofitable, costly to implement, expose us to additional credit and 

other risks, or that otherwise adversely affect our business over the short- or long-term. We are under the control of FHFA, as 

our Conservator, and are not managed to maximize stockholder returns. FHFA determines the strategic direction of our 

company. FHFA has changed our business objectives significantly since we entered into conservatorship, and could make 

additional changes at any time. We are also subject to significant restrictions under the Purchase Agreement and senior 

preferred stock. Other agencies of the U.S. government, as well as Congress, also could require us to take actions that adversely 

affect our business and financial results.

FHFA has required us to make changes to our business that have adversely affected our financial results, and may require 

us to make additional changes in the future. For example, FHFA is requiring us to contract our presence in the mortgage market 

and simplify our operations. These actions will adversely affect our profitability over the long term. FHFA also may require us 

to provide additional support for the mortgage market in a manner that serves our public mission, but that adversely affects our 

financial results, such as by engaging in more expensive loss mitigation efforts. From time to time, FHFA and Treasury have 

prevented us from engaging in business activities or transactions that we believe would benefit our business and financial 

results, and may do so in the future. FHFA may require us to engage in activities that are operationally difficult to implement. 

FHFA, as our Conservator, could also take a number of actions that could materially adversely affect our company, such as 

reducing the maximum UPB of single-family loans we are permitted to purchase or limiting the amount of securities we could 

sell for liquidity management purposes. Significant strategy changes, either from FHFA or Treasury, could have an adverse 

impact on the earnings of our business. 

We currently face a variety of different, and potentially competing, business objectives and new FHFA-mandated 

activities (e.g., the initiatives we are pursuing under the 2013 Conservatorship Scorecard). It may be difficult for us to devote 

sufficient resources and management attention to these multiple priorities, some of which present significant operational 

challenges to us. See “BUSINESS — Executive Summary — Our Primary Business Objectives” for more information.

The Purchase Agreement and terms of the senior preferred stock include significant restrictions on our ability to manage 

our business, including limitations on the amount of indebtedness we may incur, the size of our mortgage-related investments 

portfolio, and the circumstances in which we may pay dividends, transfer certain assets, raise capital, and pay down the 

liquidation preference on the senior preferred stock. These limitations could have a material adverse effect on our future results 

of operations and financial condition. Over the long-term, as a result of the net worth sweep dividend provisions of the senior 

preferred stock, we do not have the authority to build and retain capital from the earnings generated by our business operations 

and will not be able to build or retain any net worth surplus or return capital to stockholders other than Treasury. In deciding 

whether or not to consent to any request for approval it receives from us under the Purchase Agreement, Treasury has the right 

to withhold its consent for any reason and is not required by the agreement to consider any particular factors, including whether 

or not management believes that the transaction would benefit the company. The warrant held by Treasury, the restrictions on 

our business contained in the Purchase Agreement, and the senior status and net worth dividend provisions of the senior 

preferred stock issued to Treasury under the Purchase Agreement also could adversely affect our ability to attract new private 

sector capital in the future should the company be in a position to seek such capital.

Our regulator may, and in some cases must, place us into receivership, which would result in the liquidation of our assets; if 

this occurs, there may not be sufficient funds to pay the claims of the company, repay the liquidation preference of our 

preferred stock, or make any distribution to the holders of our common stock. 

Table of Contents
39 Freddie Mac

We could be put into receivership at the discretion of the Director of FHFA at any time for a number of reasons, including 

critical undercapitalization. In addition, FHFA could be required to place us in receivership if Treasury is unable to provide us 

with funding requested under the Purchase Agreement to address a deficit in our net worth. Treasury might not be able to 

provide the requested funding if, for example, the U.S. government were shut down or if the U.S. government reached its 

borrowing limit and, as a result, Treasury was unable to obtain funds sufficient to cover the request. For more information, see 

"BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — Receivership."

A receivership would terminate the conservatorship. The appointment of FHFA as our receiver would terminate all rights 

and claims that our stockholders and creditors may have against our assets or under our charter arising as a result of their status 

as stockholders or creditors, other than the potential ability to be paid upon our liquidation. Unlike conservatorship, the purpose 

of which is to conserve our assets and return us to a sound and solvent condition, the purpose of receivership is to liquidate our 

assets and resolve claims against us. Bills pending in Congress provide for Freddie Mac to eventually be placed into 

receivership.

In the event of a liquidation of our assets, there can be no assurance that there would be sufficient proceeds to pay the 

secured and unsecured claims of the company, repay the liquidation preference of any series of our preferred stock or make any 

distribution to the holders of our common stock. To the extent that we are placed into receivership and do not or cannot fulfill 

our guarantee to the holders of our mortgage-related securities, such holders could become unsecured creditors of ours with 

respect to claims made under our guarantee. Only after paying the secured and unsecured claims of the company, the 

administrative expenses of the receiver and the liquidation preference of the senior preferred stock, which ranks senior to our 

common stock and all other series of preferred stock upon liquidation, would any liquidation proceeds be available to repay the 

liquidation preference on any other series of preferred stock. Finally, only after the liquidation preference on all series of 

preferred stock is repaid would any liquidation proceeds be available for distribution to the holders of our common stock.

If we are placed into receivership or no longer operate as a going concern, we would no longer be able to assert that we 

will realize assets and satisfy liabilities in the normal course of business, and, therefore, our basis of accounting would change 

to liquidation-based accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable 

value and liabilities are stated at their estimated settlement amounts, which could adversely affect our net worth. In addition, 

the amounts in AOCI would be reclassified to earnings. 

The conservatorship and investment by Treasury has had, and will continue to have, a material adverse effect on our 

common and preferred stockholders. 

The market price for our common stock and publicly traded classes of preferred stock declined substantially after we 

entered into conservatorship. As a result, the investments of our common and preferred stockholders lost substantial value, 

which they may never recover. Our shares could further diminish in value, and they are not likely to have any value in the 

longer-term. In November 2011, the then Acting Director of FHFA stated that "[Freddie Mac and Fannie Mae’s] equity holders 

retain an economic claim on the companies but that claim is subordinate to taxpayer claims. As a practical matter, taxpayers are 

not likely to be repaid in full, so [Freddie Mac and Fannie Mae] stock lower in priority is not likely to have any value."

The conservatorship and investment by Treasury have had, and will continue to have, other material adverse effects on 

our common and preferred stockholders, including the following: 

• No voting rights during conservatorship. The rights and powers of our stockholders are suspended during the 

conservatorship and our common stockholders do not have the ability to elect directors or to vote on other matters. 

• Our future profits will effectively be distributed to Treasury. Under the Purchase Agreement, we are required to pay 

dividends to the extent that our Net Worth Amount exceeds a permitted Capital Reserve Amount that decreases over 

time. Accordingly, over the long-term, our future profits will effectively be distributed to Treasury. Therefore, the 

holders of our common stock and non-senior preferred stock will not receive benefits that would otherwise flow from 

any such future profits.

• Priority of Senior Preferred Stock. The senior preferred stock ranks senior to the common stock and all other series of 

preferred stock as to both dividends and distributions upon dissolution, liquidation or winding up of the company. 

• Dividends have been eliminated. The Conservator has eliminated dividends on Freddie Mac common and preferred 

stock (other than dividends on the senior preferred stock) during the conservatorship. In addition, under the Purchase 

Agreement, dividends may not be paid to common or preferred stockholders (other than on the senior preferred stock) 

without the consent of Treasury, regardless of whether or not we are in conservatorship. 

• Warrant may substantially dilute investment of current stockholders. If Treasury exercises its warrant to purchase 

shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully 

diluted basis, the ownership interest in the company of our then existing common stockholders will be substantially 

diluted. Existing common stockholders have no assurance that, as a group, they will be able to control the election of 

our directors or the outcome of any other vote after the time, if any, that the conservatorship ends.

Table of Contents
40 Freddie Mac

Competitive and Market Risks 

Our level of earnings in recent periods is not sustainable over the long term. 

The level of earnings we have experienced in recent periods is not sustainable over the long term. While our recent 

financial results, particularly our benefit (provision) for credit losses, benefited significantly from strong home price 

appreciation we are beginning to see moderation in home price growth. In addition, our recent financial results include large 

benefits related to the release of our deferred tax asset valuation allowance and settlements of residential non-agency mortgagerelated securities litigation and claims for breaches of representations and warranties by our sellers. These trends are not 

expected to continue over the long term. Our settlements with sellers for claims for breaches of representations and warranties 

primarily related to pre-conservatorship loan activity are largely complete. Our residential non-agency mortgage-related 

securities litigation is ongoing with many large institutions and we expect additional settlements in 2014. In addition, declines 

in the size of our mortgage-related investments portfolio, as required by FHFA and the Purchase Agreement, will reduce 

earnings over time. Our financial results will also continue to be positively or negatively affected by changes in interest rates, 

yield curves, and mortgage spreads, which can cause significant earnings and net worth variability.

We are subject to significant limitations on our investment activity, including a requirement to reduce the size of our 

mortgage-related investments portfolio, and significant constraints on our ability to purchase or sell mortgage assets. As it is 

likely that the overall volume of our business will decline, our debt funding needs will likely also decline. It may become 

probable that our previously forecasted debt issuances will not occur, resulting in the deferred gain or loss associated with these 

forecasted transactions being reclassified from AOCI into earnings immediately. In addition, many of our mortgage investments 

do not trade in a liquid secondary market and the size of our holdings relative to normal market activity is such that, if we were 

to attempt to sell a significant quantity of these assets, the pricing in such markets could be significantly disrupted and the price 

we ultimately realize may be materially lower than the value at which we carry these investments on our consolidated balance 

sheets. We 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 “BUSINESS — Conservatorship and Related Matters — Limits on Investment 

Activity and Our Mortgage-Related Investments Portfolio.”

These limitations will reduce the earnings capacity of our mortgage-related investments portfolio business and require us 

to place greater emphasis on our guarantee activities to generate revenue. However, under conservatorship, our ability to 

generate revenue through guarantee activities may be limited for a number of reasons, including that we may be required to 

adopt business practices that provide support for the mortgage market in a manner that serves our public mission and other nonfinancial objectives, but that may negatively impact our future financial results. In addition, the overall volume of our guarantee 

business will likely decline over time, as one of FHFA’s goals is to contract our presence in the mortgage market. We generally 

must obtain FHFA’s approval to implement across-the-board price increases in our guarantee business, and there can be no 

assurance FHFA will approve any such increase requests in the future. 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.

Our single-family credit guarantee and multifamily mortgage portfolios are subject to mortgage credit risks, including 

mortgage credit risk relating to off-balance sheet arrangements; credit costs related to these risks could adversely affect our 

financial condition and/or results of operations. 

Mortgage credit risk is the risk that a borrower will fail to make timely payments on a mortgage we own or guarantee, 

exposing us to the risk of credit losses and credit-related expenses. We are primarily exposed to mortgage credit risk with 

respect to the single-family and multifamily loans and securities that we own or guarantee and hold on our consolidated balance 

sheets. We are also exposed to mortgage credit risk with respect to securities and guarantee arrangements that are not reflected 

as assets on our consolidated balance sheets. These relate primarily to: (a) Freddie Mac mortgage-related securities backed by 

multifamily loans (e.g., K Certificates we guarantee); (b) certain single-family Other Guarantee Transactions; and (c) other 

guarantee commitments, including long-term standby commitments and liquidity guarantees. 

We expect our credit losses to remain elevated for the near term due to the large number of single-family non-performing 

loans that will likely be resolved. We also continue to have significant amounts of mortgage 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 where borrowers had FICO scores less than 620 at the time of origination, that expose 

us to greater credit risk than do other types of mortgage loans. See “Table 43 — Certain Higher-Risk Categories in the SingleFamily Credit Guarantee Portfolio” for more information. 

Our loan loss reserves do not reflect the total of all future credit losses we will ultimately incur with respect to the singlefamily and multifamily mortgage loans we currently own or guarantee. Rather, pursuant to GAAP, our reserves only reflect 

probable losses we believe we have already incurred as of the balance sheet date. Accordingly, it is likely that the credit losses 

we ultimately incur on the loans we currently own or guarantee will exceed the amounts we have already reserved for such 

loans. If we were to experience another recession or another sharp drop in home prices, it is possible that the credit losses we 

ultimately incur related to such an event could be larger, perhaps substantially larger, than our current loan loss reserves.

Table of Contents
41 Freddie Mac

We use certain credit enhancements to mitigate some of our potential credit losses. However, such credit enhancements 

may provide less protection than we expect, or otherwise fail to prevent us from incurring credit losses on the related loans. For 

more information, see "NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES — Credit Protection and Other 

Forms of Credit Enhancement."

For more information on our mortgage credit risk with respect to single-family and multifamily loans, see “MD&A — 

RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk.”

We are exposed to significant credit risk related to the subprime, Alt-A, and option ARM loans that back the non-agency 

mortgage-related securities we hold in our mortgage-related investments portfolio. 

Our investments in non-agency mortgage-related securities include securities that are backed by subprime, Alt-A, and 

option ARM loans. As of December 31, 2013, we held $59.3 billion in UPB of such securities, which represented 

approximately 13% of our total mortgage-related investments portfolio. We also hold non-agency mortgage-related securities 

backed by manufactured housing loans and home equity lines of credit. The credit performance of the loans underlying these 

non-agency mortgage-related securities has declined since 2007, and although it has stabilized in recent periods, it remains 

weak. If we were to attempt to sell a significant quantity of these securities, the pricing in such markets could be significantly 

disrupted and the price we ultimately realize may be materially lower than the value at which we carry these investments on our 

consolidated balance sheets. The population of non-agency mortgage-related securities that management intends to sell may 

increase, which would cause us to immediately recognize in earnings any unrealized losses on these securities.

Since 2007, the fair value of these investments has declined significantly, and we have recorded substantial other-thantemporary impairments, both of which have adversely affected our net worth. We may experience additional fair value declines 

and losses in the future due to a number of factors, including if delinquency and loss rates on the underlying loans increase. The 

quality of the servicing performed on the underlying loans can significantly affect the performance of these securities, including 

the timing and amount of losses incurred on the underlying loans and thus the timing and amount of losses we recognize on our 

securities. Our ability to influence servicing performance is limited. In addition, there is a general lack of transparency in the 

market for the non-agency mortgage-related securities we hold, and the information disclosed by the trustees of the trusts that 

issued these securities is not sufficient to allow us to adequately analyze decisions made by servicers that may directly impact 

the cash flows on such securities. The servicing of the loans is significantly concentrated among several companies, which may 

increase this risk. Any credit enhancements covering these securities may not prevent us from incurring losses. See “MD&A — 

CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities” for information about these securities and 

related credit enhancements. 

Future declines in U.S. home prices or other adverse changes in the U.S. housing market could negatively impact our 

business and adversely affect our earnings and equity. 

Our financial results and business volumes can be negatively affected by declines in home prices and other adverse 

changes in the housing market. Although the single-family housing market improved in 2013, our credit losses remained high 

compared to levels before 2009, in part because home prices have experienced significant cumulative declines in many 

geographic areas since 2006. While we expect home prices to increase moderately in 2014, there can be no assurance that this 

will occur.

We prepare internal forecasts of future home prices, which we use for certain business activities, including: (a) hedging 

prepayment risk; (b) estimating expected costs of new guarantee business; and (c) portfolio activities. If future home prices are 

lower than our forecasts, this could cause the return we earn on new single-family guarantee business to be less than expected 

or cause us to incorrectly hedge prepayment and other market risks associated with our mortgage-related investments. This 

could also result in higher losses due to other-than-temporary impairments on our investments in non-agency mortgage-related 

securities (which would be recognized in earnings) or fair value declines on our investments in non-agency mortgage-related 

securities (which would be recognized in AOCI). For more information, see “MD&A — RISK MANAGEMENT — Credit 

Risk.” 

Our business volumes (i.e., mortgage loan purchases and guarantee issuances) are closely tied to the rate of growth in 

total outstanding U.S. residential mortgage debt, the size of the U.S. residential mortgage market, and the amount of new 

mortgage originations. Total residential mortgage debt declined approximately 0.7% in the first nine months of 2013 (the most 

recent data available) compared to a decline of approximately 2.5% in 2012.

While the multifamily market has experienced strong rent growth and occupancy trends in the past four years, these 

trends are not likely to continue at their current pace as apartment fundamentals are already very favorable, with vacancy rates 

at their lowest level since 2001. 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 multifamily markets could 

cause delinquencies and credit losses relating to our multifamily activities to increase beyond our current expectations.

We could incur significant losses in the event of a major natural disaster or other catastrophic event. 

We own or guarantee mortgage loans and own REO properties throughout the United States. The occurrence of a major 

natural or environmental disaster or similar catastrophic event in a regional geographic area of the United States could 

Table of Contents
42 Freddie Mac

negatively impact our credit losses and credit-related expenses in the affected area. A catastrophic event that either damages or 

destroys residential real estate underlying mortgage loans we own or guarantee, or negatively affects the ability of homeowners 

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 region or regions, which could have a material adverse effect on our business and 

financial results. Such an event could also damage or destroy REO properties we own. We may not have insurance coverage for 

some of these catastrophic events.

We depend on our institutional counterparties to provide services that are critical to our business, and our results of 

operations or financial condition may be adversely affected if one or more of our counterparties do not meet their 

obligations to us. 

We face the risk that one or more of the institutional counterparties that has entered into a business contract or 

arrangement with us may fail to meet its obligations to us. Our important institutional counterparties include seller/servicers, 

mortgage insurers, and bond insurers, and counterparties to derivatives and short-term lending and other funding transactions.

A significant failure by a major institutional counterparty could harm our business and financial results in a variety of 

ways, as 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 weakened counterparties could concentrate our exposure to other individual 

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. 

Our business could be adversely affected if counterparties to derivatives and short-term lending and other transactions fail 

to meet their obligations to us.

We have significant exposure to institutions in the financial services industry relating to derivatives, funding, short-term 

lending, securities and other transactions. These transactions are critical to our business, including our ability to: (a) manage 

interest rate and other risks related to our investments in mortgage-related assets; and (b) fund our business operations. In 

addition to these institutions, we face the risk of operational failure of any of the clearing members, exchanges, clearinghouses, 

or other financial intermediaries we use to facilitate these transactions. If a clearing member or clearinghouse were to fail, we 

could experience losses related to any collateral we had posted with such clearing member or clearinghouse to cover initial or 

variation margin. Similarly, if our counterparties in short-term lending transactions fail, we have exposure to losses if the 

transaction was unsecured or to the extent the value of the collateral posted to us is insufficient. A failure of any of these 

various parties could adversely affect our ability to engage in derivatives and other transactions, service our customers, and 

manage our exposure to interest rate and other risks. We believe all of our derivative portfolio and cash and other investments 

portfolio counterparties are exposed to fiscally troubled European countries. It is possible that continued adverse developments 

in the Eurozone could significantly affect such counterparties. In turn, this could adversely affect their ability to meet their 

obligations to us.

For more information, see “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Cash and 

Other Investments Counterparties,” “— Derivative Counterparties” and “— Selected European Sovereign and Non-Sovereign 

Exposures.”

Our financial condition or results of operations may be adversely affected if mortgage seller/servicers fail to perform their 

repurchase and other obligations to us.

Our seller/servicers have a significant role in servicing loans in our single-family credit guarantee portfolio, as they 

perform the primary servicing function for us. Therefore, we could be adversely affected if they lack appropriate process 

controls, experience a failure in their controls, or experience an operating disruption in their ability to service mortgage loans. 

Our servicers have an active role in our loss mitigation efforts, and a decline in their performance could impact our credit 

performance (including through missed opportunities for mortgage modifications), which could adversely affect our financial 

condition or results of operations and have a significant effect on our ability to mitigate credit losses. The risk of such a decline 

in performance remains high due to a number of factors, including the continued high volume of seriously delinquent loans and 

the fact that the servicing function has become significantly more complex in recent years. Any efforts we take to attempt to 

improve our servicers’ performance (such as requiring that they pay us compensatory fees for underperformance) could 

adversely affect our relationships with such servicers, many of which also sell loans to us.

In recent periods, servicers that specialize in servicing troubled loans have experienced rapid growth in their servicing 

portfolios, and they now service a large share of our loans. Although the ability of these servicers to service troubled loans may 

benefit us by reducing our credit losses, the rapid expansion of their servicing portfolios could expose us to increased risks in 

the event that it results in operational strains that adversely affect their servicing performance or weakens their financial 

strength. 

If a servicer does not fulfill its servicing obligations (including its repurchase or other responsibilities), we may seek to 

recover the amounts that such servicer owes us, such as by attempting to sell the applicable mortgage servicing rights to a 

Table of Contents
43 Freddie Mac

different servicer and applying the proceeds to such owed amounts. However, we face the risk that we might not receive a 

sufficient price for the mortgage servicing rights or that we may be unable to find buyers who are willing to assume the 

representations and warranties of the former servicer and have sufficient capacity to service the affected mortgages. This option 

may be difficult to accomplish with respect to our larger seller/servicers due to operational and capacity challenges of 

transferring a large servicing portfolio. 

Our seller/servicers also have a significant role in servicing loans in our multifamily mortgage portfolio. We are exposed 

to the risk that multifamily seller/servicers could come under financial pressure, which could potentially cause degradation in 

the quality of the servicing they provide us including their monitoring of each property’s financial performance and physical 

condition.

We require seller/servicers to make certain representations and warranties regarding the loans they sell to us and/or 

service for us. If loans are sold to us in breach of those representations and warranties, we have the contractual right to require 

the seller/servicer to repurchase those loans from us. We also may have other contractual remedies, including the right to be 

indemnified against losses on the loans. We have similar rights and remedies with respect to loans they service on our behalf. If 

a seller/servicer does not satisfy its contractual obligations to us with respect to a loan, we will be subject to the full range of 

credit risks posed by the loan if the loan fails to perform, including the risk that a mortgage insurer may deny or rescind 

coverage on the loan (if the loan is insured) and the risk that we will incur credit losses on the loan through the workout or 

foreclosure process. It may be difficult, expensive, and time-consuming to enforce (through the exercise of contractual 

remedies, including legal proceedings) a seller/servicer's repurchase obligations, in the event a seller/servicer fails to perform 

such obligations. As of December 31, 2013, the UPB of loans subject to repurchase requests based on breaches of 

representations and warranties (related to loans sold to us and/or serviced for us) issued to our single-family seller/servicers 

was approximately $2.2 billion.

During 2013, we entered into a number of agreements with sellers to resolve certain existing and future repurchase 

obligations, and we may enter into additional agreements with sellers or servicers in the future. The amounts we receive under 

any such agreements may be less than the losses we ultimately incur.

If, as we expect, there is a decline in origination volume and a change in the mix of originations (refinance vs. purchase) 

in 2014, the competitive and financial pressures on single-family originators and servicers could increase, and thereby increase 

our counterparty risk with respect to these entities.

For more information, see “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Singlefamily Mortgage Seller/Servicers” and “— Multifamily Mortgage Seller/Servicers.”

Our losses could increase if more of our mortgage or bond insurers become insolvent or fail to perform their obligations to 

us. 

A number of our mortgage insurers (that insure single-family mortgages we purchase or guarantee) and bond insurers 

(that insure certain of the non-agency mortgage-related securities we hold) are insolvent or are not fully performing their 

obligations to us. We are exposed to the risk that additional mortgage or bond insurance counterparties could become insolvent 

or fail to fully perform their obligations to us. The weakened financial condition and liquidity position of many of these 

counterparties increases the risk that additional entities will fail to fully reimburse us for claims under insurance policies.

As a guarantor, we remain responsible for the payment of principal and interest if a mortgage insurer fails to meet its 

obligations to reimburse us for claims. Thus, if any of our mortgage insurers fails to fulfill its obligations, we could experience 

increased credit losses. In addition, if a regulator determined that a mortgage insurer lacked sufficient capital to pay all claims 

when due, the regulator could take action that might affect the timing and amount of claim payments made to us. A regulator 

could also restrict an insurer's ability to write new business.

The majority of our mortgage insurance exposure is concentrated in four insurers, certain of which have been under 

financial stress during the last several years. Our ability to reduce our exposure to individual mortgage insurers is limited, and 

we continue to acquire significant amounts of new loans with mortgage insurance from mortgage insurers that have credit 

ratings that are below investment grade. In addition, we expect to receive substantially less than full payment of our mortgage 

insurance claims from three of our mortgage insurers: Triad Guaranty Insurance Corporation, Republic Mortgage Insurance 

Company, and PMI Mortgage Insurance Co.

In the event a mortgage insurer falls out of compliance with regulatory capital requirements, it may attempt various 

strategies (such as a corporate restructuring or raising additional capital) designed to enable it to continue to write new 

business. There can be no assurance that any such restructuring or recapitalization will enable payment in full of all of our 

claims in the future.

With respect to bond insurers, if a bond insurer was to become insolvent, it is likely that we would not collect our claims 

from it. This would affect our ability to recover certain unrealized losses on our investments in non-agency mortgage-related 

securities, and could contribute to net impairment of available-for-sale securities recognized in earnings. We evaluate the 

expected recovery from primary bond insurance policies as part of our impairment analysis for our investments in securities. If 

Table of Contents
44 Freddie Mac

a bond insurer’s performance with respect to its obligations on our investments in securities is worse than expected, this could 

contribute to additional net impairment of those securities. 

Some of our larger bond insurers are in runoff mode and are not writing new business. We expect to receive substantially 

less than full payment from Ambac Assurance Corporation and Financial Guaranty Insurance Company. We believe that we 

will likely receive substantially less than full payment of our claims from some of our other bond insurers, because we believe 

they also lack sufficient ability to fully meet all of their expected lifetime claims-paying obligations to us as such claims 

emerge.

For more information, see “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Mortgage 

Insurers” and “— Bond Insurers.”

The loss of business volume could result in a decline in our market share and revenues. 

Our business depends on our ability to acquire a steady flow of mortgage loans. We purchase a significant percentage of 

our single-family mortgages from several large mortgage originators. During 2013, approximately 64% of our single-family 

mortgage purchase volume was associated with our ten largest customers. Similarly, we acquire a significant portion of our 

multifamily mortgage loans from several large lenders. 

We enter into mortgage purchase commitments with many of our single-family customers that are typically less than one 

year in duration. The loss of business from any one of our major lenders could adversely affect our market share and our 

revenues. Many of our seller/servicers also have tightened their lending criteria in recent years, which has reduced their loan 

volume, thus reducing the volume of loans available for us to purchase. 

We are engaged in various loss mitigation and recovery efforts concerning: (a) representation and warranty claims on 

single-family loans we own or guarantee; and (b) certain of our investments in non-agency mortgage-related securities. Some 

of these efforts involve litigation against some of our largest single-family customers. These and other loss mitigation and 

recovery efforts could adversely affect our relationship with any such customer and could, for example, result in the loss of 

some or all of our business with the customer.

Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by 

mortgage insurance or other credit enhancements. Our purchases of mortgages with LTV ratios above 80% (other than relief 

refinance mortgages) have generally been low in recent years, as compared to 2005 - 2008 levels, in part because mortgage 

insurers tightened their eligibility requirements with respect to the issuance of insurance on new mortgages with higher LTV

ratios. 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.

Competition from banking and non-banking companies, as well as efforts by FHFA to reduce the GSEs' dominance in the 

marketplace, may harm our business. 

Competition in the secondary mortgage market combined with a decline in the amount of residential mortgage debt 

outstanding may make it more difficult for us to purchase mortgages. Furthermore, competitive pricing pressures may make our 

products less attractive in the market and negatively affect our financial results. Increased competition from Fannie Mae, 

Ginnie Mae, FHA/VA, and new entrants may alter our product mix, lower our volumes, and reduce our revenues on new 

business. 

Historically, we also competed with other financial institutions that retain or securitize mortgages, such as commercial 

and investment banks, dealers, thrift institutions, and insurance companies. Many of these institutions have ceased or 

substantially reduced their securitization activities since 2008. However, in recent periods, a number of our non-GSE 

competitors increased their retention of loans on their balance sheets. In addition, one of FHFA’s goals for conservatorship, as 

set forth in its strategic plan, is to contract our presence in the mortgage market and shrink our operations, and FHFA is taking a 

number of actions designed to encourage these other financial institutions to return to the mortgage market.

FHFA is also Conservator of Fannie Mae, our primary competitor, and 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 may also prevent us from taking actions that could provide us with a competitive 

advantage. 

Actions we may take or may be directed to take to reduce the GSEs' dominance of new single-family guarantee business, 

such as by tightening credit standards or raising guarantee fees, could cause our share of the total mortgage market to decrease 

and the volume of our single-family guarantee business to decline.

We could be prevented from competing efficiently and effectively by competitors who use their patent portfolios to 

prevent us from using necessary business processes and products, or to require us to pay significant royalties to use those 

processes and products. 

As multifamily market fundamentals have improved over recent years, more life insurers, banks, CMBS conduits, and 

other market participants have re-entered or increased their activities in the multifamily market, and as a result we have faced 

Table of Contents
45 Freddie Mac

increased competition. In addition, FHFA's efforts to decrease our presence in this market (e.g., the requirement to reduce our 

new multifamily business volume by at least 10% in 2013) could encourage further competition.

Our investment 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: 

• changes in our government support; 

• reduced demand for our debt securities; 

• competition for debt funding from other debt issuers; and 

• downgrades in our credit ratings or the credit ratings of the U.S. government. 

Our ability to obtain funding in the public unsecured debt markets or by pledging mortgage-related securities as collateral 

to other institutions could cease or change rapidly, and the cost of available funding could increase significantly, due to changes 

in market confidence and other factors. We may incur costs, including potentially higher funding costs, for our liquidity 

management practices and procedures and 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 difficult or impossible 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 

eliminated or significantly impaired, as our alternative sources of liquidity (e.g., cash and other investments) may not be 

sufficient to meet our liquidity needs.

Wider spreads could cause a reduction in long-term debt issuances and an increased reliance on short-term debt 

issuances. Significant issuances of short-term debt could lead to a funding gap between short- and long-term debt and could 

increase rollover risk (i.e., the risk that we may be unable to refinance our debt when it becomes due), and could increase the 

use of derivatives and the volatility of reported net income.

Our mortgage-related investments portfolio has contracted significantly since we entered into conservatorship. A

significant portion of the assets remaining in the portfolio are those we consider to be less liquid, and our ability to use these 

assets as a significant source of liquidity (for example, through sales or use as collateral in secured lending transactions) is 

limited.

We pay cash dividends (known as the net worth sweep dividend) 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, 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 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. Changes or perceived changes in the government’s support of us could have a severe negative 

effect on our access to the unsecured debt markets and our debt funding costs. As of December 31, 2013, the amount of 

available funding remaining under the Purchase Agreement was $140.5 billion. This amount will be reduced by any future 

draws. While we believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to 

maintain our access to the unsecured debt markets and to have adequate liquidity to conduct our normal business activities, our 

access to the unsecured debt markets and the costs of our debt funding could be adversely affected by a number of factors, 

including (a) uncertainty about the future of the GSEs; (b) if debt investors believe that the risk that we could be placed into 

receivership is increasing; and (c) if we were to make significant draws in the future, and thereby significantly reduce the 

amount of available funding remaining under the Purchase Agreement. For more information, see “MD&A — LIQUIDITY

AND CAPITAL RESOURCES — Liquidity — Capital Resources, the Purchase Agreement, and the Dividend Obligation on 

the Senior Preferred Stock.”

Demand for Debt Funding

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 preferences for other investments. If investors were to divest their 

holdings or reduce their purchases of our debt securities, our funding costs could increase and our business activities could be 

curtailed. The market for our debt securities may become less liquid as our mortgage-related investments portfolio winds down. 

This could lead to a decrease in demand for our debt securities and an increase in our funding costs.

Competition for Debt Funding

Table of Contents
46 Freddie Mac

We compete for debt funding with Fannie Mae, the FHLBs, and other institutions. Competition for debt funding from 

these entities can vary with changes in economic, financial market, and regulatory environments. Increased competition for 

debt funding may result in a higher cost to finance our business, which could negatively affect our financial results. An inability 

to issue debt securities at attractive rates in amounts sufficient to fund our business activities and meet our obligations could 

have an adverse effect on our business, liquidity, financial condition, and results of operations. See “MD&A — LIQUIDITY

AND CAPITAL RESOURCES — Liquidity — Other Debt Securities” for a description of our debt issuance programs. Our 

funding costs and liquidity contingency plans may also be affected by changes in the amount of, and demand for, debt issued by 

Treasury. 

Line of Credit

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

Fedwire system. This line of credit requires us to post collateral to the institution providing the line of credit. In certain 

circumstances, this secured counterparty may be able to repledge the collateral underlying our financing without our consent. In 

addition, because the secured intraday line of credit is uncommitted, we may not be able to continue to draw on it if and when 

needed. 

Any downgrade in the credit ratings of the U.S. government would likely be followed by a downgrade in our credit ratings. A

downgrade in the credit ratings of our debt could adversely affect our liquidity and other aspects of our business. 

Nationally recognized statistical rating organizations play an important role in determining, by means of the ratings they 

assign to issuers and their debt, the availability and cost of funding. Our credit ratings are important to our liquidity. We 

currently receive ratings from three nationally recognized statistical rating organizations (S&P, Moody’s, and Fitch) for our 

unsecured borrowings. These ratings are primarily based on the support we receive from Treasury, and therefore are affected by 

changes in the credit ratings of the U.S. government. Any downgrade in the credit ratings of the U.S. government would be 

expected to be followed or accompanied by a downgrade in our credit ratings.

Our senior long-term debt credit rating was downgraded in 2011 by S&P, following S&P’s downgrade of the credit rating 

of the U.S. government, and it is possible we could experience further downgrades. S&P, Moody’s, and Fitch have recently 

indicated that they could take actions on the U.S. government’s ratings if steps toward a credible deficit reduction plan are not 

taken or if the U.S. experiences a weaker than expected economic recovery. For more information, see “MD&A — 

LIQUIDITY AND CAPITAL RESOURCES — Liquidity — 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 or others, changes in government support for 

us, future GAAP losses, and additional draws under the Purchase Agreement. Any such downgrades could lead to major 

disruptions in the mortgage 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 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 profitability of our multifamily business could be adversely 

affected by a significant decrease in demand for K Certificates.

Security performance is one of Freddie Mac’s more significant risks and competitive issues, with both short- and longterm implications. Our PCs are an integral part of our mortgage purchase program. Our competitiveness in purchasing singlefamily mortgages from our seller/servicers, and thus the volume and/or profitability of our new single-family guarantee 

business, can be directly affected by the price performance of our PCs relative to comparable Fannie Mae securities. 

The profitability of our securitization financing and our ability to compete for mortgage purchases are affected by the 

price differential between PCs and comparable Fannie Mae securities. Freddie Mac fixed-rate PCs provide for faster monthly 

remittance of mortgage principal and interest payments to investors than Fannie Mae fixed-rate securities. However, our PCs 

have typically traded at prices below the level that we believe reflects the full value of their faster remittance cycle, resulting in 

a pricing discount relative to comparable Fannie Mae securities. This difference in relative pricing creates an economic 

incentive for customers to conduct a disproportionate share of their single-family business with Fannie Mae and negatively 

affects the financial performance of our business.

We may be unable to maintain a liquid market for our PCs, which could adversely affect the price performance of PCs 

and our single-family market share. A significant reduction in our market share, and thus in the volume of mortgage loans that 

we securitize, could further reduce the liquidity of our PCs. While we may employ a variety of strategies in an effort to support 

the liquidity and price performance of our PCs and may consider additional strategies, any such strategies may fail or adversely 

affect our business or we may cease such activities if deemed appropriate. In addition, we believe the liquidity-related price 

differences between our PCs and comparable Fannie Mae securities are, in part, the result of factors that are largely outside of 

our control. Thus, while we may employ strategies in an effort to support the liquidity-related price differences, we believe the 

strategies currently available to us may not reduce or eliminate these price differences over the long-term. A curtailment of 

mortgage-related investments portfolio purchases, sales, or retention activities may result in a decline in the volume and/or 

Table of Contents
47 Freddie Mac

profitability of our new single-family guarantee business, lower comprehensive income, and an accelerated decline in the size 

of our total mortgage portfolio. 

In certain circumstances, we compensate customers for the difference in price between our PCs and comparable Fannie 

Mae securities, and this could adversely affect the volume and/or profitability of our new single-family guarantee business. We 

also incur costs in connection with our efforts to support the liquidity and price performance of our PCs, including engaging in 

transactions that yield less than our target rate of return. For more information, see “BUSINESS — Our Business Segments — 

Single-Family Guarantee Segment — Securitization Activities” and “— Investments Segment — Market Presence and PC 

Support Activities.” 

The current Multifamily segment business model is highly dependent on the ability of Freddie Mac to finance purchased 

loans through securitization into K Certificates. A significant decrease in demand for K Certificates over a long period of time 

could have an adverse impact on the profitability of the Multifamily segment business. We employ a variety of strategies in an 

effort to support the liquidity of our K Certificates, and may consider additional strategies if deemed appropriate. From time to 

time, we purchase and sell both guaranteed K Certificates and related unguaranteed CMBS through our mortgage-related 

investments portfolio.

Mortgage fraud could result in significant financial losses and harm to our reputation. 

We rely on representations and warranties by seller/servicers about the characteristics of the single-family mortgage loans 

we purchase and securitize, and we do not independently verify most of the information that is provided to us before we 

purchase the loan. This exposes us to the risk that one or more of the parties involved in a transaction (such as the borrower, 

seller, broker, appraiser, title agent, loan officer, lender or servicer) will engage in fraud by misrepresenting facts about the 

property underlying the real estate transaction, borrower, or mortgage loan. While we subsequently review a sample of these 

loans to determine if such loans are in compliance with our contractual standards, there can be no assurance that this will detect 

or deter mortgage fraud, or otherwise reduce our exposure to the risk of fraud. We are also exposed to fraud by third parties in 

the mortgage servicing function, particularly with respect to sales of REO properties, single-family short sales, and other 

dispositions of non-performing assets.

Changes in interest rates could negatively impact our results of operations, net worth, and fair value of net assets. 

Our investment activities and credit guarantee activities expose us to interest rate and other market risks, including 

prepayment risk. Changes in interest rates could adversely affect our net interest yield, the value of our mortgage assets, and the 

prepayment rate on mortgage loans we own or guarantee. We incur costs in connection with our efforts to manage these risks.

Our financial results can be significantly affected by changes in interest rates and changes in yield curves, especially 

results driven by financial instruments that are measured at fair value for accounting purposes either through earnings or in 

AOCI. These instruments include derivatives, trading securities, available-for-sale securities, and loans with the fair value 

option elected. Additionally, increases in interest rates could increase other-than-temporary impairments on our investments in 

non-agency mortgage-related securities. Higher interest rates can result in a reduction in the benefit from expected structural 

credit enhancements on these securities. 

Changes in interest rates may also affect prepayment projections, thus potentially affecting the fair value of our assets, 

including our investments in mortgage-related assets. When interest rates fall, borrowers are more likely to prepay their 

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

mortgage-related securities may adversely affect the value of these securities. 

When interest rates increase, our credit losses from loans with adjustable payment terms (e.g., ARM loans) may increase 

as borrower payments increase at their reset dates, which increases the borrower’s risk of default. Rising interest rates may also 

reduce the opportunity for these borrowers to refinance into a fixed-rate loan. Similarly, many borrowers may have additional 

debt obligations (such as home equity lines of credit and second liens) that also have adjustable payment terms. If a borrower's 

payment on his or her other debt obligations increases (due to rising interest rates or change in amortization), it may increase 

the risk that the borrower may default on a loan we own or guarantee.

Interest rates can fluctuate for a number of reasons, including changes in the fiscal and monetary policies of the federal 

government and its agencies, such as the Federal Reserve. Federal Reserve policies directly and indirectly influence the yield 

on our interest-earning assets and the cost of our interest-bearing liabilities. 

Changes in OAS could materially impact our results of operations, net worth, and fair value of net assets. 

OAS is a model-based estimate of the incremental yield spread between a particular financial instrument and a 

benchmark yield curve. This includes consideration of potential variability in the instrument’s cash flows resulting from any 

options embedded in the security, such as prepayment options. The OAS between the mortgage and agency debt sectors can 

significantly affect the fair value of our net assets. The fair value impact of changes in OAS for a given period represents an 

estimate of the net unrealized increase or decrease in the fair value of net assets arising from net fluctuations in OAS during 

that period.

Table of Contents
48 Freddie Mac

Changes in market conditions, including changes in interest rates, liquidity, prepayment and/or default expectations, and 

the level of uncertainty in the market for a particular asset class may cause fluctuations in OAS. Our financial results can be 

significantly affected by changes in OAS, especially results driven by financial instruments that are measured at fair value for 

accounting purposes either through earnings or in AOCI. These instruments include trading securities, available-for-sale 

securities, and loans with the fair value option elected. A widening of the OAS on a given asset, which is typically associated 

with a decline in the current fair value of that asset, may cause significant fair value losses, and may adversely affect our nearterm financial results and net worth. Conversely, a narrowing or tightening of the OAS is typically associated with an increase 

in the current fair value of that asset, but may reduce the number of attractive investment opportunities in mortgage loans and 

mortgage-related securities, and could increase the cost of our activities to support our market presence and the price 

performance of our PCs. Consequently, a tightening of the OAS may adversely affect our future financial results and net worth. 

See “MD&A — FAIR VALUE BALANCE SHEETS AND ANALYSIS — Consolidated Fair Value Balance Sheets Analysis — 

Discussion of Fair Value Results” for a more detailed description of the impacts of changes in mortgage-to-debt OAS. 

While wider spreads might create favorable investment opportunities, we are limited in our ability to take advantage of 

any such opportunities due to various restrictions on our mortgage-related investments portfolio activities. See “BUSINESS — 

Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related Investments Portfolio.” 

Negative publicity causing damage to our reputation could adversely affect our business, financial results, or net worth. 

Reputation risk, or the risk to our financial results and net worth from negative public opinion, is inherent in our business. 

Negative public opinion could adversely affect our ability to keep and attract customers or otherwise impair our customer 

relationships, adversely affect our ability to obtain financing, impede our ability to hire and retain qualified personnel, hinder 

our business prospects, or adversely impact the trading price of our securities. Perceptions regarding the practices of our 

competitors, our seller/servicers or the financial services and mortgage industries as a whole, particularly as they relate to the 

recent housing and economic downturn, may also adversely impact our reputation. Adverse reputation impacts on third parties 

with whom we have important relationships may impair market confidence or investor confidence in our business operations as 

well. In addition, negative publicity could expose us to adverse legal and regulatory consequences, including greater regulatory 

scrutiny or adverse regulatory or legislative changes, and could affect what changes may occur to our business structure during 

or following conservatorship, including whether we will continue to exist.

Our efforts to reduce foreclosures, modify loan terms and refinance mortgages may adversely affect our financial results. 

The servicing alignment initiative, MHA Program (which includes HAMP and HARP), and other loss mitigation 

activities are a key component of our strategy for managing and resolving troubled assets and lowering credit losses. However, 

our loss mitigation strategies may not be successful and our credit losses may continue to remain high. The costs we incur 

related to loan modifications and other activities have been, and will likely continue to be, significant. For example, with 

respect to HAMP loan modifications, we bear the full cost of the monthly payment reductions related to modifications of loans 

we own or guarantee, and all applicable servicer and borrower incentives, and are not reimbursed for these costs by Treasury.

We could be required or elect to make changes to our implementation of our loss mitigation activities that could make 

these activities more costly to us, both in terms of credit expenses and the cost of implementing and operating the activities. For 

example, we could be required to use principal reduction to achieve reduced payments for borrowers. This could further 

increase our costs, as we could bear some or all of the costs of such reductions. 

A significant number of loans are in the trial period of HAMP or our non-HAMP loan modification programs. A number 

of loans will fail to complete the applicable trial period or qualify for our other loss mitigation programs. For these loans, the 

trial period will have effectively delayed the foreclosure process and could increase our losses, to the extent the prices we 

ultimately receive for the foreclosed properties are less than the prices we could have received had we foreclosed upon the 

properties earlier. These delays in foreclosure could also cause our REO operations expense to increase, perhaps substantially. 

Certain of our modified loans (primarily HAMP loans) have provisions whereby the interest rates on such loans, which 

initially were set at a below-market rate, will increase gradually until they reach the market rate that was in effect at the time of 

the modification. This increase in payments may increase the risk that these borrowers will default.

Mortgage modification initiatives, particularly any future focus on principal reductions, which at present we do not offer 

to borrowers, have the potential to change borrower behavior and mortgage underwriting. Principal reductions may create an 

incentive for borrowers that are current to become delinquent in order to receive a principal reduction. This, coupled with 

continued high volumes of underwater mortgages, could significantly affect borrower attitudes towards homeownership, the 

commitment of borrowers to making their mortgage payments, the way the market values residential mortgage assets, the way 

in which we conduct business and, ultimately, our financial results. 

Depending on the type of loss mitigation activities we pursue, those activities could result in accelerating or slowing 

prepayments on our PCs and REMICs and Other Structured Securities, either of which could affect the pricing of such 

securities. 

Our current loss mitigation activities may lead to faster prepayments, which could have an impact on the earnings from 

mortgage-related assets we hold in our Investments segment mortgage investments portfolio. In addition, loss mitigation 

Table of Contents
49 Freddie Mac

activities may adversely affect our ability to securitize and sell the loans subject to those activities (e.g., modified single-family 

mortgage loans).

At the direction of FHFA, we implemented a series of changes to HARP in late 2011 and 2012. We subsequently made 

similar changes to the relief refinance mortgage initiative for loans with LTV ratios of 80% and less. There can be no assurance 

that the benefits from the revised programs will exceed our costs. For example, we may face greater exposure to credit and 

other losses on HARP and other relief refinance loans (starting in late 2012) because we are relieving lenders of certain 

representations and warranties on the original mortgage being refinanced. In addition, due to the impact of HARP and other 

refinance initiatives of Freddie Mac and Fannie Mae, we could experience declines in the fair values of certain agency security 

investments classified as available-for-sale or trading resulting from changes in expectations of mortgage prepayments and 

lower net interest yields over time on other mortgage-related investments. Furthermore, HARP and similar programs make it 

harder to estimate prepayments, which could adversely affect our ability to hedge our mortgage-related investments.

We are devoting significant internal resources to the implementation of the servicing alignment initiative and the MHA

Program. The costs we incur related to these initiatives have been, and will likely continue to be, significant. The size and scope 

of these efforts may also limit our ability to pursue other business opportunities or corporate initiatives. 

For more information on our loss mitigation activities, see “MD&A — RISK MANAGEMENT — Credit Risk — 

Mortgage Credit Risk — Single-Family Mortgage Credit Risk — Single-Family Loan Workouts and the MHA Program.” 

We may experience further write-downs and losses relating to our assets that could materially adversely affect our financial 

results, liquidity and net worth. 

We experienced significant losses and write-downs relating to certain of our assets in recent years, particularly between 

2008 and 2012, including significant declines in market value, impairments of our investment securities, write-downs of REO 

properties, losses on non-performing loans removed from PC pools, and impairments on other assets. We may experience 

additional write-downs and 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 for economic reasons 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 have a significant deferred tax asset ($22.7 billion as of December 31, 2013), primarily resulting from our decision to 

release the valuation allowance on our deferred tax assets in the third quarter of 2013. In future periods we will continue to 

evaluate our ability to realize the net deferred tax asset. If future events significantly alter our current outlook, we may need to 

reestablish the valuation allowance. If this occurs, we would incur additional income tax expense and might require additional 

draws under the Purchase Agreement, which could be significant. For more information, see "MD&A — CONSOLIDATED 

BALANCE SHEETS ANALYSIS — Deferred Tax Assets and Liabilities."

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, and may not be stable, which could make it difficult 

for investors to execute transactions in our securities and could make the prices of our securities decline or be volatile. 

Operational Risks

Our business may be adversely affected if we are unable to hire and retain qualified employees. 

Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our ability to recruit and 

retain executives and other employees with the necessary skills to conduct our business has at times in the past been, and may 

in the future be, adversely affected by the actions taken by Congress, Treasury, and the Conservator (e.g., significant 

restrictions on compensation), or that may be taken by them or other government agencies in the future, the uncertainty 

regarding the duration of the conservatorship, the potential for future legislative or regulatory actions that could significantly 

affect our existence and our role in the secondary mortgage market, and negative publicity concerning the GSEs. We face 

competition from inside and outside of the financial services industry for qualified employees. Additionally, an improving 

economy may put additional pressures on turnover, as more attractive opportunities become available to our employees. 

Accordingly, we may not be able to retain or replace executives or other employees with the requisite institutional knowledge 

and the technical, operational, risk management, and other key skills needed to conduct our business effectively.

We have incurred, and will continue to incur, expenses and we may otherwise be adversely affected by delays and 

deficiencies in the foreclosure process. 

We have been, and will likely continue to be, adversely affected by delays and deficiencies in the foreclosure process, 

which could increase our expenses. The average length of time for foreclosure of a Freddie Mac loan significantly increased in 

recent years, particularly in states that require a judicial foreclosure process, and may further increase. Delays in the foreclosure 

process could cause our expenses to increase for a number of reasons. For example, properties awaiting foreclosure could 

deteriorate until we acquire ownership of them through foreclosure. This would increase our expenses to repair and maintain 

Table of Contents
50 Freddie Mac

the properties when we do acquire them. Such delays may also adversely affect the values of, and our losses on, the non-agency 

mortgage-related securities we hold. Delays in the foreclosure process may also adversely affect trends in home prices 

regionally or nationally, which could also adversely affect our financial results. 

It also is possible that mortgage insurance claims could be reduced or denied if servicers do not follow proper procedures 

in addressing seriously delinquent borrowers, including if servicers do not complete foreclosures within required timelines.

Delays in the foreclosure process could create fluctuations in our single-family credit statistics. For example, our 

realization of credit losses, which consists of REO operations income (expense) plus charge-offs, net, could be delayed because 

we typically record charge-offs at the time we take ownership of a property through foreclosure. Delays could also temporarily 

increase the number of seriously delinquent loans that remain in our single-family mortgage portfolio, which could result in 

higher reported serious delinquency rates and a larger number of non-performing loans than would otherwise have been the 

case.

Issues related to the MERS System could delay or disrupt foreclosure activities and could have an adverse effect on our 

business. 

The MERS® System is an electronic registry that is widely used by seller/servicers, Freddie Mac, and other participants in 

the mortgage finance industry to maintain records of beneficial ownership of mortgages. The MERS System is owned and 

operated by MERSCORP Holdings, Inc., a privately held company, the shareholders of which include a number of 

organizations in the mortgage industry (including Freddie Mac).

Numerous lawsuits have been filed challenging foreclosures conducted using the MERS System. It is possible that 

adverse judicial decisions, regulatory proceedings or action, or legislative action could delay or disrupt foreclosure of 

mortgages that are registered on the MERS System.

Federal or state legislation or regulatory action could prevent us from using the MERS System for mortgages that we 

own, guarantee, and securitize, or could create additional requirements for the transfer of mortgages that could affect the 

process for and costs of acquiring, transferring, servicing, and foreclosing on mortgages. Such legislation or regulatory action 

could increase our costs or otherwise adversely affect our business. For example, we could be required to transfer mortgages 

out of the MERS System. Approximately 45% of the loans Freddie Mac owns or guarantees were registered in MERS’ name as 

of December 31, 2013. 

Failures by MERSCORP Holdings and its subsidiaries to apply prudent and effective process controls and to comply with 

legal and other requirements in the foreclosure process could pose legal, reputational, and operational risks for us.

Weaknesses in internal control over financial reporting and in disclosure controls could result in errors and inadequate 

disclosures, affect operating results, and cause investors to lose confidence in our reported results. 

Our business could be adversely affected by control deficiencies or failures. Control deficiencies could result in errors in 

our financial statements, lead to inadequate or untimely disclosures, and affect operating results. Control deficiencies could also 

cause investors to lose confidence in our reported financial results, which may have an adverse effect on the trading price of our 

securities. For information about our ineffective disclosure controls and our one material weakness in internal control over 

financial reporting, see “CONTROLS AND PROCEDURES.” 

There are a number of factors that may impede our efforts to establish and maintain effective disclosure controls and 

internal control over financial reporting, including: (a) the nature of the conservatorship and our relationship with FHFA; 

(b) the complexity of, and significant changes in, our business activities and related GAAP requirements; (c) employee and 

management turnover; (d) data quality; and (e) servicing-related issues.

Effectively designed and operated internal control over financial reporting provides only reasonable assurance that 

material errors in our financial statements will be prevented or detected on a timely basis. A failure to maintain effective 

internal control over financial reporting increases the risk of a material error in our reported financial results and delay in our 

financial reporting timeline.

We face risks and uncertainties associated with the models that we use for financial accounting and reporting purposes, to 

make business decisions, and to manage risks. Market conditions have raised these risks and uncertainties. 

We face risk associated with our use of models for financial accounting and reporting purposes, and to manage business 

risks. First, there is inherent uncertainty associated with model results. Second, we could fail to properly implement, operate, or 

use our models. Either of these situations could adversely affect our financial statements, financial and risk-related disclosures, 

and our ability to manage risks. 

We use market-based information to construct our models. However, it can take time for data providers to prepare 

information, and thus the most recent information may not be available for the preparation of our financial statements. When 

market conditions change quickly and in unforeseen ways, there is an increased risk that our models are not representative of 

current market conditions. For example, models may not fully capture the effect of certain economic events or government 

policies, which makes it more difficult to assess model performance and requires a higher degree of management judgment. 

Table of Contents
51 Freddie Mac

Our models may not perform as well in situations for which there are few or no recent historical precedents. We have adjusted 

our models in response to recent events, but there remains considerable uncertainty about model results. 

Models are inherently imperfect predictors of actual results. Our models rely on various assumptions that may be 

incorrect, including that historical experience can be used to predict future results. In recent years, it has been more difficult to 

predict the behaviors of the housing and credit capital markets and market participants.

We face the risk that we could fail to implement, operate, adjust or use our models properly. For example, the 

assumptions underlying a model could be invalid, or we could apply a model to events or products outside the model’s intended 

use. We may fail to code a model correctly or we could use incorrect data. The complexity and interconnectivity of our models 

create additional risk regarding the accuracy of model output.

We have increased our use of third-party models. While the use of such models may reduce risk (e.g., where no internal 

model is available), it may expose us to additional risk as third-parties typically do not provide us with proprietary information 

regarding their models. We also may have little control over the process by which the models are adjusted or changed. As a 

result, we may not fully account for the risks associated with the use of such models. 

Management often needs to exercise judgment to interpret or adjust modeled results to take into account new information 

or changes in conditions. The dramatic changes in the housing and credit capital markets in recent years have required frequent 

adjustments to our models and the application of greater management judgment in the interpretation and adjustment of the 

results produced by our models. This further increases both the uncertainty about model results and the risk of errors in the 

implementation, operation, or use of the models. 

We face the risk that the valuations, risk metrics, amortization results, loan loss reserve estimations, and security 

impairment charges produced by our models may be different from actual results, which could adversely affect our business 

results, cash flows, fair value of net assets, business prospects, and future financial results.

We also face risk that we could make poor business decisions in areas where model results are an important factor, 

including loan purchases, securitizations and sales of loans, purchases and sales of securities, funding strategy, management 

and guarantee fee pricing, interest-rate risk management, market risk management, credit risk management, quality-control 

sampling strategies for loans in our single-family credit guarantee portfolio, and representation and warranty and other 

settlements with our counterparties. Furthermore, any strategies we employ to attempt to manage the risks associated with our 

use of models may not be effective. See “MD&A — CRITICAL ACCOUNTING POLICIES AND ESTIMATES” and 

“QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — Interest-Rate Risk and Other Market 

Risks” for more information on our use of models. 

Changes in our accounting policies, as well as estimates we make, could materially affect how we report our financial 

condition or results of operations.

Our accounting policies are fundamental to understanding our financial condition and results of operations. Certain of our 

accounting policies, as well as estimates we make, are “critical,” as they are both important to the presentation of our financial 

condition and results of operations and they require management to make particularly difficult, complex or subjective 

judgments and estimates, often regarding matters that are inherently uncertain. Actual results could differ from our estimates 

and the use of different judgments and assumptions related to these policies and estimates could have a material impact on our 

consolidated financial statements. For a description of our critical accounting policies, see “MD&A — CRITICAL

ACCOUNTING POLICIES AND ESTIMATES.” 

From time to time, the FASB and the SEC change the financial accounting and reporting guidance that governs the 

preparation of our financial statements. The implementation of new or revised accounting guidance could result in material 

adverse effects to our net worth and result in or contribute to the need for additional draws under the Purchase Agreement. 

FHFA may require us to change our accounting policies, including to align more closely with those of Fannie Mae. FHFA

may also require us and Fannie Mae to have the same independent public accounting firm. Either of these events could 

significantly increase our expenses and require a substantial time commitment of management. For example, in April 2012, 

FHFA issued an Advisory Bulletin that could have a significant effect on our provision for credit losses in the future. The 

accounting methods outlined in FHFA’s advisory bulletin are significantly different from our current methods of accounting for 

single-family loans that are 180 days or more delinquent. For more information, see “BUSINESS — Regulation and 

Supervision — Legislative and Regulatory Developments — FHFA Advisory Bulletin.”

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 complexity of our business 

operations and the amount of change to our core systems required to keep pace with regulatory and other requirements.

Shortcomings or failures in our internal processes, people, or systems could lead to impairment of our liquidity, financial 

and economic loss, errors in our financial statements, disruption of our business, liability to customers, further legislative or 

Table of Contents
52 Freddie Mac

regulatory intervention, or reputational damage. Our application portfolio contains certain legacy 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. 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 change or improve existing 

business activities. 

We also face increased operational risk due to the magnitude and complexity of the new initiatives we are undertaking, 

including our effort to help build a new 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.

Our employees could act improperly for their own gain and cause unexpected losses or reputational damage. While we 

have processes and systems in place designed to prevent and detect fraud, there can be no assurance that such processes and 

systems will be successful.

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, a power outage or other infrastructure disruption in the area near our offices could 

significantly adversely affect our ability to conduct normal business operations. A terrorist event or natural disaster in the area 

near our offices 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.

We may not be able to protect the security of our systems or the confidentiality of our information from cyber attack and 

other unauthorized access, disclosure, and disruption. 

Our operations rely on the secure receipt, processing, storage, and transmission of confidential and other information in 

our computer systems and networks and with our business partners. Like many corporations and government entities, from time 

to time we have been, and likely will continue to be, the target of attempted cyber attacks. Although Freddie Mac devotes 

significant resources to protecting its various systems and processes, there is no assurance that Freddie Mac’s security measures 

will provide fully effective security. Our computer systems, software, and networks may be vulnerable to cyber attack, 

unauthorized access, computer viruses or other malicious code, or other attempts to harm our systems or misuse or steal 

confidential information. If one or more of such events were to occur, this potentially could jeopardize or result in the 

unauthorized disclosure, misuse or corruption of confidential and other information (including information of borrowers, our 

customers or our counterparties), or otherwise cause interruptions or malfunctions in our operations or the operations of our 

customers or counterparties. This could result in significant losses or reputational damage, adversely affect our relationships 

with our customers and counterparties, negatively impact our competitive position, and otherwise harm our business. We could 

also face regulatory action. We might be required to expend significant additional resources to modify our protective measures 

or to investigate and remediate vulnerabilities or other exposures, and we might be subject to litigation and financial losses that 

are not fully insured. In addition, there can be no assurance that our business partners and counterparties are adequately 

protecting the confidential and other information that we share with them. As a result, a cyber attack on their systems and 

networks, or breach of their security measures, may result in harm to our business and business relationships.

We rely on third parties for certain important functions. Any failures by those vendors could disrupt our business 

operations. 

At times, we outsource certain key functions to external parties, including some that are critical to financial reporting, our 

mortgage-related investment activity, and mortgage loan underwriting. We may enter into other key outsourcing relationships in 

the future. If one or more of these key external parties were not able to perform their functions for a period of time, at an 

acceptable service level, or for increased volumes, our business operations could be constrained, disrupted, or otherwise 

negatively affected. Our use of vendors also exposes us to the risk of a loss of intellectual property or of confidential 

information or other harm. We may also be exposed to reputational harm, to the extent vendors do not conduct their activities 

under appropriate ethical standards. Our ability to monitor the activities or performance of vendors may be constrained.

Legal and Regulatory Risks 

Legislative or regulatory actions could adversely affect our business activities and financial results. 

In addition to possible GSE reform discussed in “Conservatorship and Related Matters — The future status and role of 

Freddie Mac are uncertain,” our business may be directly adversely affected by other legislative and regulatory actions at the 

federal, state, and local levels. Legislative or regulatory actions could affect us in a number of ways, including by imposing 

Table of Contents
53 Freddie Mac

significant additional costs on us and diverting management attention or other resources. Judicial actions at the federal, state, or 

local level could have a similar effect. We could be negatively affected by legislation or regulatory action that changes the 

foreclosure process of any individual state. For example, various states and local jurisdictions have implemented mediation 

programs designed to bring servicers and borrowers together to negotiate workout options. These actions could delay the 

foreclosure process and increase our expenses, including by potentially delaying the final resolution of seriously delinquent 

mortgage loans and the disposition of non-performing assets. We could also be affected by any legislative or regulatory changes 

that would expand the responsibilities and liability of servicers and assignees for maintaining vacant properties prior to 

foreclosure. These laws and regulatory changes could significantly expand mortgage costs and liabilities. We could be affected 

by legislative or regulatory changes that permit or require principal reductions. Our business could also be adversely affected 

by any modification, reduction, or repeal of the federal income tax deductibility of mortgage interest payments. A number of 

local governments are considering or may consider using eminent domain to seize mortgage loans and forgive principal on the 

loans. Such seizures, if they are successful, could result in further losses and write-downs relating to our investment securities 

and could increase our credit losses. We are subject to lawsuits challenging our statutory exemption from certain real estate 

transfer taxes. If we were to lose this exemption, our financial results could be adversely affected.

The Dodd-Frank Act, which was signed into law on July 21, 2010, significantly changed the regulation of the mortgage 

and financial services industries and could affect us in substantial and unforeseeable ways. For example, the Dodd-Frank Act 

and related current and future regulatory changes could require us to change our business practices, such as practices related to 

mortgage underwriting and servicing. The Dodd-Frank Act will create new standards and requirements related to asset-backed 

securities, including requiring securitizers and potentially originators to retain a portion of the underlying loans’ credit risk. Any 

such new standards and requirements could modify or remove incentives for financial institutions to sell mortgage loans to us. 

For more information on the Dodd-Frank Act, see “BUSINESS — Regulation and Supervision — Legislative and Regulatory 

Developments.”

Legislation or regulatory actions could indirectly adversely affect us to the extent such legislation or actions affect the 

activities of banks, savings institutions, insurance companies, securities dealers, and other regulated entities that constitute a 

significant part of our customer base or counterparties, or could indirectly affect us to the extent that they modify industry 

practices. Legislative or regulatory provisions that remove incentives for these entities to sell mortgage loans to us, purchase 

our securities or enter into derivatives or other transactions with us could have a material adverse effect on our business results 

and financial condition. The Dodd-Frank Act and related current and future regulatory changes may significantly change the 

business practices of our customers and counterparties, and it is possible that any such changes will adversely affect our 

business and financial results. For example, the Dodd-Frank Act and related regulatory changes could have a negative effect on 

the volume of mortgage originations, and thus adversely affect the number of mortgages available for us to purchase or 

guarantee.

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 (some of which have not been finalized) will take several years 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 affect demand for our securities and/or competition in the market for 

mortgage originations and servicing, with possible adverse consequences for our business results and financial condition.

We may make certain changes to our business in an attempt to meet our housing goals and subgoals. 

We may make adjustments to our mortgage loan sourcing and purchase strategies in an effort to meet our housing goals 

and subgoals, including changes to our underwriting standards and the expanded use of targeted initiatives to reach underserved 

populations. For example, we may purchase loans that offer lower expected returns on our investment and potentially increase 

our exposure to credit losses. Doing so could cause us to forgo other purchase opportunities that we would expect to be more 

profitable. If our current efforts to meet the goals and subgoals prove to be insufficient, we may need to take additional steps 

that could potentially adversely affect our profitability. FHFA has not yet published a final rule with respect to our duty to serve 

underserved markets. However, it is possible that we could also make changes to our business in the future in response to this 

duty. If we do not meet our housing goals or duty to serve requirements, and FHFA finds that the goals or requirements were 

feasible, we may become subject to a housing plan that could require us to take additional steps that could have an adverse 

effect on our results of operations and financial condition. 

We are involved in legal proceedings 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 

government investigations 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, 

investigations, proceedings, or examinations. Any legal proceeding, governmental investigation, or IRS examination issue, 

even if resolved in our favor, could result in negative publicity or cause us to incur significant legal and other expenses. 

Table of Contents
54 Freddie Mac

Furthermore, developments in, outcomes of, impacts of, and costs, expenses, settlements, and judgments related to these legal 

proceedings and governmental investigations and examinations may differ from our expectations and exceed any amounts for 

which we have reserved or require adjustments to such reserves. The defense of, or other involvement in, 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 17: LEGAL CONTINGENCIES” for information about these various pending 

legal proceedings.

ITEM 1B. UNRESOLVED STAFF COMMENTS 

None. 

ITEM 2. PROPERTIES 

Our principal offices consist of five office buildings in McLean, Virginia. We own four of the office buildings, 

comprising approximately 1.3 million square feet. We occupy the fifth building, comprising approximately 200,000 square feet, 

under a lease from a third party. 

ITEM 3. LEGAL PROCEEDINGS 

We are involved as a party to a variety of legal proceedings arising from time to time in the ordinary course of business. 

See “NOTE 17: LEGAL CONTINGENCIES” for more information regarding our involvement as a party to various legal 

proceedings. 

Litigation Against the U.S. Government Concerning Conservatorship and the Purchase Agreement

Between June and September 2013, a number of lawsuits were filed against the U.S. government and, in some cases, the 

Secretary of the Treasury and the then Acting Director of FHFA challenging 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. Another lawsuit challenging the Purchase 

Agreement was filed in February 2014, and 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 17: LEGAL CONTINGENCIES— Litigation Concerning 

the Purchase Agreement” for more information on the lawsuits filed against Freddie Mac.

It is not possible for us to predict the outcome of these lawsuits, 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.

Litigation Concerning Housing Trust Fund

On July 9, 2013, plaintiffs filed a lawsuit in the U.S. District Court for the Southern District of Florida styled Samuels et 

al. vs. FHFA and DeMarco. Freddie Mac is not a party to this lawsuit. In the lawsuit, plaintiffs challenge FHFA’s decision to 

suspend Freddie Mac's and Fannie Mae’s payments to an affordable housing trust fund managed by HUD. In November 2008, 

FHFA advised us that it has suspended the requirement to set aside or allocate funds for this trust fund until further notice. See 

“BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — Affordable Housing Allocations” for more 

information. In October 2013, FHFA moved to dismiss the complaint and shortly thereafter plaintiffs filed an amended 

complaint. Plaintiffs’ amended complaint alleges that FHFA’s actions in ordering Freddie Mac and Fannie Mae to suspend 

payments to the trust fund, and FHFA’s failure to review its decision to suspend payments once Freddie Mac and Fannie Mae’s 

financial circumstances changed, violated the Administrative Procedure Act. The plaintiffs ask that the Court, among other 

items, vacate and set aside FHFA’s decision to indefinitely suspend payments by Fannie Mae and Freddie Mac to the trust fund, 

and order FHFA to instruct Freddie Mac and Fannie Mae to proceed as if FHFA’s suspension of payments to the trust fund had 

never taken place. Plaintiffs also seek reasonable attorneys’ fees and costs. On December 6, 2013, FHFA filed a motion to 

dismiss the amended complaint, which plaintiffs have opposed. 

It is not possible for us to predict the outcome of this lawsuit, or the actions FHFA might take in response to any ruling or 

finding in this lawsuit. If we are required to contribute some or all of the amounts we would have contributed to the trust fund 

in past years had FHFA not suspended these allocations or to begin contributing these amounts in the future, it could have an 

adverse impact on our financial results.

ITEM 4. MINE SAFETY DISCLOSURES 

Not applicable. 

Table of Contents
55 Freddie Mac

PART II 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED 

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 

Market Information 

Our common stock, par value $0.00 per share, trades on the OTCQB Marketplace, operated by the OTC Markets Group 

Inc., under the ticker symbol “FMCC.” As of February 14, 2014, there were 650,039,533 shares of our common stock 

outstanding. 

The table below sets forth the high and low bid information for our common stock on the OTCQB Marketplace for the 

indicated periods and reflects inter-dealer prices, without retail mark-up, mark-down, or commission, and may not necessarily 

represent actual transactions. 

Table 5 — Quarterly Common Stock Information

High Low

2013 Quarter Ended

December 31 $ 3.24 $ 1.26

September 30 1.65 0.98

June 30 5.00 0.67

March 31 1.44 0.27

2012 Quarter Ended

December 31 $ 0.32 $ 0.24

September 30 0.33 0.14

June 30 0.33 0.24

March 31 0.42 0.21

Holders

As of February 14, 2014, we had 1,904 common stockholders of record.

Dividends and Dividend Restrictions

We did not pay any cash dividends on our common stock during 2013 or 2012. Our payment of dividends is subject to 

the following restrictions:

Restrictions Relating to the Conservatorship

As Conservator, FHFA announced on September 7, 2008 that we would not pay any dividends on Freddie Mac’s common 

stock or on any series of Freddie Mac’s preferred stock (other than the senior preferred stock). FHFA has instructed our Board 

of Directors that it should consult with and obtain the approval of FHFA before taking actions involving dividends. In addition, 

FHFA has adopted a regulation prohibiting us from making capital distributions during conservatorship, except as authorized 

by the director of FHFA.

Restrictions Under the Purchase Agreement

The Purchase Agreement prohibits us and any of our subsidiaries from declaring or paying any dividends on Freddie Mac 

equity securities (other than with respect to the senior preferred stock or warrant) without the prior written consent of Treasury.

Restrictions Under the GSE Act

Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends, if we fail to 

meet applicable capital requirements. Under the GSE Act, we are not permitted to make a capital distribution if, after making 

the distribution, we would be undercapitalized, except the Director of FHFA may permit us to repurchase shares if the 

repurchase is made in connection with the issuance of additional shares or obligations in at least an equivalent amount and will 

reduce our financial obligations or otherwise improve our financial condition. If FHFA classifies us as undercapitalized, we are 

not permitted to make a capital distribution that would result in our being reclassified as significantly undercapitalized or 

critically undercapitalized. If FHFA classifies us as significantly undercapitalized, approval of the Director of FHFA is required 

for any capital distribution; the Director may approve a capital distribution only if the Director determines that the distribution 

will enhance the ability of the company to meet required capital levels promptly, will contribute to the long-term financial 

safety-and-soundness of the company, or is otherwise in the public interest. Our capital requirements have been suspended 

during conservatorship.

Restrictions Under our Charter

Without regard to our capital classification, we must obtain prior written approval of FHFA to make any capital 

distribution that would decrease total capital to an amount less than the risk-based capital level or that would decrease core 

Table of Contents
56 Freddie Mac

capital to an amount less than the minimum capital level. As noted above, our capital requirements have been suspended during 

conservatorship.

Restrictions Relating to Subordinated Debt

During any period in which we defer payment of interest on qualifying subordinated debt, we may not declare or pay 

dividends on, or redeem, purchase or acquire, our common stock or preferred stock. Our qualifying subordinated debt provides 

for the deferral of the payment of interest for up to five years if either: (a) our core capital is below 125% of our critical capital 

requirement; or (b) our core capital is below our statutory minimum capital requirement, and the Secretary of the Treasury, 

acting on our request, exercises his or her discretionary authority pursuant to Section 306(c) of our charter to purchase our debt 

obligations. FHFA has directed us to make interest and principal payments on our subordinated debt, even if we fail to maintain 

required capital levels. As a result, the terms of any of our subordinated debt that provide for us to defer payments of interest 

under certain circumstances, including our failure to maintain specified capital levels, are no longer applicable. As noted above, 

our capital requirements have been suspended during conservatorship.

Restrictions Relating to Preferred Stock

Payment of dividends on our common stock is also subject to the prior payment of dividends on our 24 series of preferred 

stock and one series of senior preferred stock, representing an aggregate of 464,170,000 shares and 1,000,000 shares, 

respectively, outstanding as of December 31, 2013. 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 2013 at the direction of the Conservator, as discussed in “MD&A — LIQUIDITY AND 

CAPITAL RESOURCES — Capital Resources, the Purchase Agreement, and the Dividend Obligation on the Senior Preferred 

Stock” and “NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT) — Dividends Declared.” We did not declare or pay dividends 

on any other series of preferred stock outstanding in 2013.

Recent Sales of Unregistered Securities

The securities we issue are “exempted securities” under the Securities Act of 1933, as amended. As a result, we do not 

file registration statements with the SEC with respect to offerings of our securities.

Following our entry into conservatorship, we suspended the operation of, and ceased making grants under, equity 

compensation plans. Previously, we had provided equity compensation under these plans to employees and members of our 

Board of Directors. Under the Purchase Agreement, we cannot issue any new options, rights to purchase, participations, or 

other equity interests without Treasury’s prior approval. However, grants outstanding as of the date of the Purchase Agreement 

remain in effect in accordance with their terms. No stock options were exercised during the three months ended December 31, 

2013. See “NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT)” for more information.

Issuer Purchases of Equity Securities

We did not repurchase any of our common or preferred stock during 2013. 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 43078

Providence, RI 02940-3078

Telephone: 781-575-2879

http://www.computershare.com/investors

Table of Contents
57 Freddie Mac

ITEM 6. SELECTED FINANCIAL DATA

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

financial statements and related notes.

Table 6 — Selected Financial Data(1)

At or For The Year Ended December 31,

2013 2012 2011 2010 2009

(dollars in millions, except share-related amounts)

Statements of Comprehensive Income Data

Net interest income $ 16,468 $ 17,611 $ 18,397 $ 16,856 $ 17,073

Benefit (provision) for credit losses 2,465 (1,890) (10,702) (17,218) (29,530)

Non-interest income (loss) 8,519 (4,083) (10,878) (11,588) (2,732)

Non-interest expense (2,089) (2,193) (2,483) (2,932) (7,195)

Income tax benefit 23,305 1,537 400 856 830

Net income (loss) attributable to Freddie Mac 48,668 10,982 (5,266) (14,025) (21,553)

Total comprehensive income (loss) attributable to Freddie

Mac 51,600 16,039 (1,230) 282 (2,913)

Loss attributable to common stockholders(2) (3,531) (2,074) (11,764) (19,774) (25,658)

Loss per common share – basic and diluted (1.09) (0.64) (3.63) (6.09) (7.89)

Cash dividends per common share — — — — —

Weighted average common shares outstanding (in 

thousands) – basic and diluted(3) 3,238,047 3,240,028 3,244,896 3,249,369 3,253,836

Balance Sheets Data

Mortgage loans held-for-investment, at amortized cost by

consolidated trusts (net of allowances for loan losses) $ 1,529,905 $ 1,495,932 $ 1,564,131 $ 1,646,172 $ —

Total assets 1,966,061 1,989,856 2,147,216 2,261,780 841,784

Debt securities of consolidated trusts held by third parties 1,433,984 1,419,524 1,471,437 1,528,648 —

Other debt 506,767 547,518 660,546 713,940 780,604

All other liabilities 12,475 13,987 15,379 19,593 56,808

Total Freddie Mac stockholders’ equity (deficit) 12,835 8,827 (146) (401) 4,278

Portfolio Balances(4)

Mortgage-related investments portfolio $ 461,024 $ 557,544 $ 653,313 $ 696,874 $ 755,272

Total Freddie Mac mortgage-related securities(5) 1,592,511 1,562,040 1,624,684 1,712,918 1,854,813

Total mortgage portfolio(6) 1,914,661 1,956,276 2,075,394 2,164,859 2,250,539

Non-performing assets(7) 127,991 135,677 129,152 125,405 104,984

Ratios(8)

Return on average assets(9) 2.5% 0.5% (0.2)% (0.6)% (2.5)%

Non-performing assets ratio(10) 7.1 7.5 6.8 6.4 5.2

Equity to assets ratio(11) 0.5 0.2 — (0.2) (1.6)

(1) See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for information regarding our accounting policies and the impact of new 

accounting policies on our consolidated financial statements. Effective January 1, 2010, we adopted amendments to the accounting guidance for 

transfers of financial assets and the consolidation of VIEs. This had a significant impact on our consolidated financial statements. Consequently, certain 

of the line items in our consolidated financial statements for 2009 are not comparable with those of more recent years.

(2) For a discussion of how the change in the manner in which the senior preferred stock dividend is determined affects net income (loss) attributable to 

common stockholders beginning in the fourth quarter of 2012, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Earnings 

Per Common Share.”

(3) Includes the weighted average number of shares that are associated with the warrant for our common stock issued to Treasury as part of the Purchase 

Agreement, because it is unconditionally exercisable by the holder at a cost of $0.00001 per share.

(4) Represents the UPB and excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(5) See ‘‘Table 33 — Freddie Mac Mortgage-Related Securities’’ for the composition of this line item.

(6) See ‘‘Table 15 — Composition of Segment Mortgage Portfolios and Credit Risk Portfolios’’ for the composition of our total mortgage portfolio.

(7) See ‘‘Table 53 — Non-Performing Assets’’ for a description of our non-performing assets.

(8) The dividend payout ratio on common stock is not presented because the amount of cash dividends per common share is zero for all periods presented. 

The return on common equity ratio is not presented because the simple average of the beginning and ending balances of total Freddie Mac 

stockholders’ equity (deficit), net of preferred stock (at redemption value) is less than zero for all periods presented.

(9) Ratio computed as net income (loss) attributable to Freddie Mac divided by the simple average of the beginning and ending balances of total assets.

(10) Ratio computed as non-performing assets divided by the ending UPB of our total mortgage portfolio, excluding non-Freddie Mac mortgage-related 

securities.

(11) Ratio computed as the simple average of the beginning and ending balances of total Freddie Mac stockholders’ equity (deficit) divided by the simple 

average of the beginning and ending balances of total assets.

Table of Contents
58 Freddie Mac

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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

statements and related notes.

MORTGAGE MARKET AND ECONOMIC CONDITIONS, AND OUTLOOK 

Mortgage Market and Economic Conditions 

Overview 

The U.S. real gross domestic product rose by 2.7% during 2013, measured on a fourth quarter to fourth quarter basis, 

compared to 2.0% in 2012, according to the Bureau of Economic Analysis. The national unemployment rate was 6.7% in 

December 2013, compared to 7.9% in December 2012, based on data from the U.S. Bureau of Labor Statistics. In the data 

underlying the unemployment rate, an average of approximately 194,000 monthly net new jobs (non-farm) were added to the 

economy during 2013, which shows evidence of a slow, but steady positive trend for the economy and the labor market. Longterm interest rates, such as those of 30-year fixed-rate mortgages, generally increased during 2013. For example, based on our 

weekly Primary Mortgage Market Survey, the rate on 30-year fixed-rate conforming mortgages with an average LTV ratio of 

80% averaged 4.5% in December 2013 compared to 3.4% in December 2012. This increase led to a significant reduction of 

single-family refinance mortgage activity in 2013.

Table 7 — Mortgage Market Indicators

Year Ended December 31,

2013 2012 2011

Home sale units (in thousands)(1) 5,518 5,028 4,566

National home price change(2) 9.3% 5.9% (3.2)%

Single-family originations (in billions)(3) $ 1,890 $ 2,120 $ 1,495

ARM share(4) 14% 11% 12 %

Refinance share(5) 73% 84% 79 %

U.S. single-family mortgage debt outstanding (in billions)(6) $ 9,864 $ 9,930 $ 10,183

U.S. multifamily mortgage debt outstanding (in billions)(6) $ 908 $ 881 $ 857

(1) Consists of sales of new and existing homes in the U.S. Source: National Association of Realtors news release dated February 21, 2014 (sales of 

existing homes) and U.S. Census Bureau news release dated January 27, 2014 (sales of new homes).

(2) Calculated internally using estimates of changes in single-family home prices by state, which are weighted using the property values underlying our 

single-family credit guarantee portfolio to obtain a national index. The rate for each year presented incorporates property value information on loans 

purchased by both Freddie Mac and Fannie Mae through December 31, 2013 and the percentage change will be subject to revision based on more 

recent purchase information. Other indices of home prices may have different results, as they are determined using different pools of mortgage loans 

and calculated under different conventions than our own.

(3) Source: Inside Mortgage Finance estimates of originations of single-family first-and second liens dated January 31, 2014.

(4) ARM share of the dollar amount of total mortgage applications. Source: Mortgage Bankers Association’s Mortgage Applications Survey. Data reflect 

annual average of weekly figures.

(5) Refinance share of the number of conventional mortgage applications. Source: Mortgage Bankers Association’s Mortgage Applications Survey. Data 

reflect annual average of weekly figures.

(6) Source: Federal Financial Accounts of the United States dated December 9, 2013. The outstanding amounts for 2013 presented above reflect balances 

as of September 30, 2013.

Single-Family Housing Market

The single-family housing market improved significantly in 2013 despite continued weakness in the employment market 

and a significant inventory of seriously delinquent loans and REO properties in the market.

Based on data from the National Association of Realtors, sales of existing homes in 2013 were 5.09 million, increasing 

9% from 4.66 million in 2012. Based on data from the U.S. Census Bureau and HUD, sales of new homes in 2013 were 

428,000, increasing 16% from 368,000 in 2012. Home prices increased during both 2013 and 2012, with our nationwide index 

registering approximately a 9.3% increase from December 2012 through December 2013 and a 5.9% increase from December 

2011 to December 2012. Despite these increases, our national home price index reflects a cumulative decline of 15% since June 

2006. These estimates were based on our own price index of mortgage loans on one-family homes funded by us or Fannie Mae. 

Other indices of home prices may have different results, as they are determined using different pools of mortgage loans and 

calculated under different conventions than our own.

The serious delinquency rate of our single-family loans declined during both 2013 and 2012 and was 2.39% as of 

December 31, 2013. The Mortgage Bankers Association reported in its National Delinquency Survey that serious delinquency 

rates on all single-family loans in the survey declined to 5.4% as of December 31, 2013, down from 6.8% at December 31, 

Table of Contents
59 Freddie Mac

2012. Borrower delinquency rates have been generally worse in areas with higher unemployment rates and where declines in 

property values have been more significant during recent years.

Based on the National Delinquency Survey’s data, we estimate that we owned or guaranteed approximately 23% of the 

single-family mortgages outstanding in the U.S. at December 31, 2013, based on number of loans. At December 31, 2013, we 

held or guaranteed approximately 255,000 seriously delinquent single-family loans, representing approximately 10% of the 

seriously delinquent single-family mortgages in the market as of that date. 

Multifamily Housing Market

The multifamily market has experienced strong rent and occupancy trends over the last several years, although the pace 

slowed in 2013. These strong fundamentals, coupled with low interest rates, drove an increase in investor demand for 

multifamily properties. The most recent preliminary data reported by Reis, Inc. indicated that the national apartment vacancy 

rate declined by 50 basis points during 2013 to 4.1% in the fourth quarter, representing the lowest level since 2001. In addition, 

Reis, Inc. reported that effective rents grew by 3.2% during 2013, compared to 3.9% during 2012. Vacancy rates and effective 

rents are important to loan performance because multifamily loans are generally repaid from the cash flows generated by the 

underlying property and these factors significantly influence those cash flows. According to the latest information available 

from Moody's Analytics, Inc. and Real Capital Analytics, Inc., apartment prices rose approximately 12% nationally in 2013 and 

have returned to the peak values experienced in 2007 for most markets. As a result, the multifamily sector continued to 

experience strong investor interest and continued to outperform most other commercial real estate sectors in 2013. 

Outlook

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

These statements are not historical facts, but rather represent our expectations based on current information, plans, judgments, 

assumptions, estimates, and projections. Actual results may differ significantly from those described in or implied by such 

forward-looking statements due to various factors and uncertainties. For example, a number of factors could cause the actual 

performance of the housing and mortgage markets and the U.S. economy in the near term to be significantly worse than we 

expect, including adverse changes in national or international economic conditions and changes in the federal government’s 

fiscal or monetary policies. See “FORWARD-LOOKING STATEMENTS” for additional information.

Although national home prices have increased for the last two years, home prices at December 31, 2013 remained 

significantly below their peak levels in many geographical areas. Declines in the market’s inventory of vacant housing have 

supported stabilization and increases in home prices in a number of metropolitan areas. However, we believe that home prices 

will not continue at the same growth rate experienced in 2013, but will gradually moderate in 2014 and will return towards 

growth rates that are consistent with long-term historical averages (approximately 2 to 5 percent growth on an annual basis). To 

the extent a large volume of loans completes the foreclosure process in a short period, the resulting increase in the market’s 

inventory of homes for sale could have a negative effect on home prices.

Single-Family

We continue to expect key macroeconomic drivers of the economy, such as income growth, employment, and inflation, 

will affect the performance of the housing and mortgage markets in 2014. Since we expect that economic growth will continue 

and mortgage interest rates will remain low in 2014, compared to historical levels (although higher than in 2013), we believe 

that housing affordability will remain relatively high in 2014 for potential home buyers. We also expect that the volume of 

home sales will likely increase in 2014, but not return to the historically high levels experienced in 2005 to 2007. Important 

factors that we believe will continue to negatively affect single-family housing demand are the relatively high unemployment 

rate and relatively low consumer confidence measures. Consumer confidence measures, while up from recession lows of 2009, 

remain below long-term averages and suggest that households will likely continue to be cautious in home buying. 

We expect the UPB of our single-family credit guarantee portfolio will be relatively unchanged at the end of 2014

compared to 2013, as an expected decline in purchase volume is expected to be offset by a decline in prepayments. However, 

we believe that the recent increase and potential further increases in mortgage interest rates will result in a decline, which could 

be significant, in overall single-family mortgage originations in 2014 compared with 2013, driven by a decline in refinancings. 

During the second half of 2013, refinancings, including HARP, comprised approximately 61% of our single-family purchase 

and issuance volume, compared with 81% in the first half of 2013 and approximately 82% for all of 2012. As a result of the 

expected declines in overall originations, our purchase volumes will likely also decline, potentially significantly, during 2014. 

We expect HARP activity to decline in 2014, since the pool of borrowers eligible to participate in the program has declined and 

mortgage interest rates increased during 2013. 

Our charge-offs remained elevated during 2013 compared to levels before 2009 and we expect they will continue to be 

elevated during 2014. This is in part due to the substantial number of underwater mortgage loans in our single-family credit 

guarantee portfolio. For the near term, we also expect:

• REO disposition and short sale severity ratios to remain high. However, our recovery rates have been positively affected 

by recent improvements in home prices and home sales; and

Table of Contents
60 Freddie Mac

• The amount of non-performing assets and the volume of our loan workouts to remain high.

Our guarantee fee rate charged on new acquisitions increased in 2013 as a result of two across-the-board increases in 

guarantee fees implemented in 2012. In December 2013, FHFA directed us to make additional changes to our management and 

guarantee fee rates in 2014. In January 2014, FHFA announced it was delaying the implementation of these changes. FHFA

may direct us to implement further increases in our guarantee fees in the future. 

Multifamily

We expect that, at the national level, new supply of multifamily housing will not significantly exceed market demand in 

the near term due to constraints, such as rising construction costs and the availability of financing relative to other real estate 

sectors. We expect that demand growth, driven by a strengthening economy and positive demographics, will generally be 

sufficient for the increase in supply. However, there may be certain local markets where new supply may outpace demand, 

which would be evidenced by excess supply and rising vacancy rates. As a result of the positive market fundamentals and 

continuing strong portfolio performance, we expect our credit losses and delinquency rates to remain low in 2014. We believe 

the long-term outlook for the national multifamily market continues to be favorable as strong demand will support healthy cash 

flows and stable property values.

Table of Contents
61 Freddie Mac

CONSOLIDATED RESULTS OF OPERATIONS

The following discussion of our consolidated results of operations should be read in conjunction with our consolidated 

financial statements, including the accompanying notes. Also see “CRITICAL ACCOUNTING POLICIES AND ESTIMATES” 

for information concerning certain significant accounting policies and estimates applied in determining our reported results of 

operations.

Table 8 — Summary Consolidated Statements of Comprehensive Income

Year Ended December 31,

2013 2012 2011

(in millions)

Net interest income $ 16,468 $ 17,611 $ 18,397

Benefit (provision) for credit losses 2,465 (1,890) (10,702)

Net interest income after benefit (provision) for credit losses 18,933 15,721 7,695

Non-interest income (loss):

Gains (losses) on extinguishment of debt securities of consolidated trusts 314 (58) (219)

Gains (losses) on retirement of other debt 132 (77) 44

Derivative gains (losses) 2,632 (2,448) (9,752)

Impairment of available-for-sale securities:

Total other-than-temporary impairment of available-for-sale securities (763) (1,236) (2,101)

Portion of other-than-temporary impairment recognized in AOCI (747) (932) (200)

Net impairment of available-for-sale securities recognized in earnings (1,510) (2,168) (2,301)

Other gains (losses) on investment securities recognized in earnings 301 (1,522) (896)

Other income 6,650 2,190 2,246

Total non-interest income (loss) 8,519 (4,083) (10,878)

Non-interest expense:

Administrative expenses (1,805) (1,561) (1,506)

REO operations income (expense) 140 (59) (585)

Other expenses (424) (573) (392)

Total non-interest expense (2,089) (2,193) (2,483)

Income (loss) before income tax benefit 25,363 9,445 (5,666)

Income tax benefit 23,305 1,537 400

Net income (loss) 48,668 10,982 (5,266)

Other comprehensive income (loss), net of taxes and reclassification

adjustments:

Changes in unrealized gains (losses) related to available-for-sale securities 2,406 4,769 3,465

Changes in unrealized gains (losses) related to cash flow hedge relationships 316 414 509

Changes in defined benefit plans 210 (126) 62

Total other comprehensive income (loss), net of taxes and reclassification

adjustments 2,932 5,057 4,036

Comprehensive income (loss) $ 51,600 $ 16,039 $ (1,230)

Net Interest Income

The table below summarizes our net interest income and net interest yield and provides an attribution of changes in 

annual results to changes in interest rates or changes in volumes of our interest-earning assets and interest-bearing liabilities. 

Average balance sheet information is presented because we believe end-of-period balances are not representative of activity 

throughout the periods presented. For most components of the average balances, a daily weighted average balance was 

calculated for the period. When daily average balance information was not available, a simple monthly average balance was 

calculated. 

Table of Contents
62 Freddie Mac

Table 9 — Net Interest Income/Yield, Average Balance, and Rate/Volume Analysis

Year Ended December 31,

2013 2012 2011

Average

Balance(1)(2)

Interest

Income

(Expense)(1)

Average

Rate

Average

Balance(1)(2)

Interest

Income

(Expense)(1)

Average

Rate

Average

Balance(1)(2)

Interest

Income

(Expense)(1)

Average

Rate

(dollars in millions)

Interest-earning assets:

Cash and cash equivalents $ 31,087 $ 15 0.05% $ 35,476 $ 20 0.06% $ 45,381 $ 34 0.07%

Federal funds sold and securities purchased

under agreements to resell 44,897 36 0.08 38,944 66 0.17 27,557 33 0.12

Mortgage-related securities:

Mortgage-related securities(3) 313,707 12,787 4.08 357,197 15,853 4.44 442,284 20,357 4.60

Extinguishment of PCs held by Freddie

Mac (127,999) (5,045) (3.94) (119,181) (5,328) (4.47) (162,600) (7,665) (4.71)

Total mortgage-related securities, net 185,708 7,742 4.17 238,016 10,525 4.42 279,684 12,692 4.54

Non-mortgage-related securities(3) 21,385 26 0.12 23,763 58 0.25 24,587 99 0.40

Mortgage loans held by consolidated 

trusts(4)(5) 1,511,128 57,189 3.78 1,529,213 65,089 4.26 1,627,956 77,158 4.74

Unsecuritized mortgage loans(4)(6) 203,760 7,694 3.78 237,942 8,960 3.77 244,134 9,124 3.74

Total interest-earning assets $ 1,997,965 $ 72,702 3.63 $ 2,103,354 $ 84,718 4.03 $ 2,249,299 $ 99,140 4.41

Interest-bearing liabilities:

Debt securities of consolidated trusts

including PCs held by Freddie Mac $ 1,532,032 $ (52,395) (3.42) $ 1,552,207 $ (61,437) (3.96) $ 1,643,939 $ (74,784) (4.55)

Extinguishment of PCs held by Freddie

Mac (127,999) 5,045 3.94 (119,181) 5,328 4.47 (162,600) 7,665 4.71

Total debt securities of consolidated

trusts held by third parties 1,404,033 (47,350) (3.37) 1,433,026 (56,109) (3.92) 1,481,339 (67,119) (4.53)

Other debt:

Short-term debt 132,674 (178) (0.13) 129,504 (176) (0.14) 186,304 (331) (0.18)

Long-term debt(7) 393,094 (8,251) (2.10) 463,308 (10,217) (2.21) 503,842 (12,538) (2.49)

Total other debt 525,768 (8,429) (1.60) 592,812 (10,393) (1.75) 690,146 (12,869) (1.86)

Total interest-bearing liabilities 1,929,801 (55,779) (2.89) 2,025,838 (66,502) (3.28) 2,171,485 (79,988) (3.68)

Expense related to derivatives(8) — (455) (0.02) — (605) (0.03) — (755) (0.04)

Impact of net non-interest-bearing funding 68,164 — 0.10 77,516 — 0.12 77,814 — 0.13

Total funding of interest-earning assets $ 1,997,965 $ (56,234) (2.81) $ 2,103,354 $ (67,107) (3.19) $ 2,249,299 $ (80,743) (3.59)

Net interest income/yield $ 16,468 0.82 $ 17,611 0.84 $ 18,397 0.82

2013 vs. 2012 Variance Due to 2012 vs. 2011 Variance Due to

Rate(9) Volume(9) Total

Change Rate(9) Volume(9) TotalChange

(in millions)

Interest-earning assets:

Cash and cash equivalents $ (8) $ 3 $ (5) $ (2) $ (12) $ (14)

Federal funds sold and securities purchased

under agreements to resell (38) 8 (30) 16 17 33

Mortgage-related securities:

Mortgage-related securities(3) (1,229) (1,837) (3,066) (706) (3,798) (4,504)

Extinguishment of PCs held by Freddie

Mac 659 (376) 283 379 1,958 2,337

Total mortgage-related securities, net (570) (2,213) (2,783) (327) (1,840) (2,167)

Non-mortgage-related securities(3) (27) (5) (32) (38) (3) (41)

Mortgage loans held by consolidated 

trusts(4)(5) (7,139) (761) (7,900) (7,566) (4,503) (12,069)

Unsecuritized mortgage loans(4)(6) 24 (1,290) (1,266) 69 (233) (164)

Total interest-earning assets $ (7,758) $ (4,258) $(12,016) $ (7,848) $ (6,574) $(14,422)

Interest-bearing liabilities:

Debt securities of consolidated trusts

including PCs held by Freddie Mac $ 8,253 $ 789 $ 9,042 $ 9,337 $ 4,010 $ 13,347

Extinguishment of PCs held by Freddie

Mac (659) 376 (283) (379) (1,958) (2,337)

Total debt securities of consolidated

trusts held by third parties 7,594 1,165 8,759 8,958 2,052 11,010

Other debt:

Short-term debt 2 (4) (2) 67 88 155

Long-term debt(7) 474 1,492 1,966 1,360 961 2,321

Total other debt 476 1,488 1,964 1,427 1,049 2,476

Total interest-bearing liabilities 8,070 2,653 10,723 10,385 3,101 13,486

Expense related to derivatives(8) 150 — 150 150 — 150

Total funding of interest-earning assets $ 8,220 $ 2,653 $ 10,873 $ 10,535 $ 3,101 $ 13,636

Net interest income $ 462 $ (1,605) $ (1,143) $ 2,687 $ (3,473) $ (786)

(1) Excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(2) We calculate average balances based on amortized cost.

Table of Contents
63 Freddie Mac

(3) Interest income (expense) includes accretion of the portion of impairment charges recognized in earnings where we expect significant increases in cash flows from the 

impaired securities.

(4) Non-performing loans, where interest income is generally recognized when collected, are included in average balances.

(5) Loan fees, primarily consisting of delivery fees, included in interest income for mortgage loans held by consolidated trusts were $1.2 billion, $929 million, and $405 million 

for 2013, 2012, and 2011, respectively.

(6) Loan fees, primarily consisting of delivery fees and multifamily prepayment fees, included in unsecuritized mortgage loan interest income were $294 million, $446 million, 

and $223 million for 2013, 2012, and 2011, respectively.

(7) Includes current portion of long-term debt.

(8) Represents changes in fair value of derivatives in closed cash flow hedge relationships that were previously deferred in AOCI and have been reclassified to earnings as the 

associated hedged forecasted issuance of debt affects earnings.

(9) Rate and volume changes are calculated on the individual financial statement line item level. Combined rate/volume changes were allocated to the individual rate and 

volume change based on their relative size.

The table below summarizes components of our net interest income.

Table 10 — Net Interest Income

Year Ended December 31,

2013 2012 2011

(in millions)

Contractual amounts of net interest income(1) $ 14,114 $ 16,162 $ 18,448

Amortization income (expense), net:(2)

Accretion of impairments on available-for-sale securities(3) 521 214 115

Asset-related amortization income (expense), net:

Mortgage loans held by consolidated trusts (4,935) (4,536) (1,942)

Unsecuritized mortgage loans 266 156 182

Mortgage-related securities (168) (59) (239)

Other assets (282) (281) (122)

Asset-related amortization expense, net (5,119) (4,720) (2,121)

Debt-related amortization income (expense), net:

Debt securities of consolidated trusts 7,726 7,112 3,383

Other debt securities (319) (552) (673)

Debt-related amortization income, net 7,407 6,560 2,710

Total amortization income, net 2,809 2,054 704

Expense related to derivatives(4) (455) (605) (755)

Net interest income $ 16,468 $ 17,611 $ 18,397

(1) Includes the reversal of interest income accrued, net of interest received on a cash basis, related to mortgage loans that are on non-accrual status.

(2) Represents amortization related to premiums, discounts, deferred fees and other adjustments to the carrying value of our financial instruments, and the 

reclassification of previously deferred balances from AOCI for certain derivatives in closed cash flow hedge relationships related to individual debt 

issuances and mortgage purchase transactions.

(3) The portion of the impairment charges recognized in earnings where we expect significant increases in cash flows is recognized as net interest income.

(4) Represents changes in fair value of derivatives in closed cash flow hedge relationships that were previously deferred in AOCI and have been 

reclassified to earnings as the associated hedged forecasted issuance of debt affects earnings.

Net interest income decreased by $1.1 billion to $16.5 billion for 2013 compared to $17.6 billion for 2012. Net interest 

yield decreased by two basis points to 82 basis points for 2013 compared to 84 basis points for 2012. The decrease in net 

interest income was primarily due to the reduction in the balance of higher-yielding mortgage-related assets due to continued 

liquidations. Excluding the impact of the legislated 10 basis point increase in guarantee fees, which was implemented in April 

2012, net interest income decreased by $1.6 billion for 2013 compared to 2012. Net interest income includes $519 million and 

$105 million for 2013 and 2012, respectively, related to this increase in guarantee fees. The decrease in net interest yield was 

primarily due to the negative impact of the reduction in higher-yielding mortgage-related assets, partially offset by the benefit 

of lower funding costs from the replacement of debt at lower rates. 

Net interest income decreased by $0.8 billion to $17.6 billion for 2012 compared to $18.4 billion for 2011. The decrease 

in net interest income was primarily attributable to the reduction in the balance of higher-yielding mortgage-related assets due 

to continued liquidations. Net interest yield increased by two basis points to 84 basis points for 2012 compared to 82 basis 

points for 2011. The increase in net interest yield was primarily due to the benefit of lower funding costs from the replacement 

of debt at lower rates, partially offset by the negative impact of the reduction in higher-yielding mortgage-related assets. 

We recognize interest income on non-performing loans that have been placed on non-accrual status only when cash 

payments are received. We refer to the interest income that we do not recognize as foregone interest income (i.e., interest 

income we would have recorded if the loans had been current in accordance with their original terms). Foregone interest 

income and reversals of previously recognized interest income, net of cash received, related to non-performing loans was $2.0 

billion, $3.1 billion and $4.0 billion during 2013, 2012, and 2011, respectively. These amounts have declined primarily because 

of the reduction in the volume of non-performing loans on non-accrual status. 

Table of Contents
64 Freddie Mac

The objectives set for us under our charter and conservatorship, restrictions in the Purchase Agreement and restrictions 

imposed by FHFA have negatively impacted, and will continue to negatively impact, our net interest income. For example, our 

mortgage-related investments portfolio is subject to a cap that decreases by 15% each year until the portfolio reaches $250 

billion. This decline in asset balances will cause a reduction in our interest income from this portfolio over time. For more 

information on the various restrictions and limitations on our investment activity and our mortgage-related investments 

portfolio, see “BUSINESS — Conservatorship and Related Matters — Limits on Investment Activity and Our MortgageRelated Investments Portfolio.” 

During 2013, we had sufficient access to the debt markets. For more information, see “LIQUIDITY AND CAPITAL

RESOURCES — Liquidity.”

Benefit (Provision) for Credit Losses

We maintain loan loss reserves at levels we believe are appropriate to absorb probable incurred losses on mortgage loans 

held-for-investment and loans underlying our financial guarantees. Our loan loss reserves are increased through the provision 

for credit losses and are reduced by net charge-offs. The provision for credit losses primarily reflects our estimate of incurred 

losses for newly impaired loans as well as changes in our estimates of incurred losses for previously impaired loans.

Our benefit (provision) for credit losses was $2.5 billion in 2013, $(1.9) billion in 2012, and $(10.7) billion in 2011. The 

significant improvements in benefit (provision) for credit losses in 2013 and 2012 reflect: (a) declines in the volume of newly 

delinquent loans (largely due to a decline in the 2005-2008 Legacy single-family book); and (b) lower estimates of incurred 

losses largely resulting from the positive impact of an increase in national home prices. Assuming that all other factors remain 

the same, an increase in home prices can reduce the likelihood that loans will default and may also reduce the amount of credit 

losses on the loans that do default. Our benefit (provision) for credit losses in 2013 also reflects $1.7 billion of benefit related to 

settlement agreements with certain sellers to release specified loans from certain repurchase obligations in exchange for onetime cash payments primarily associated with our Legacy single-family books.

While we have recorded a benefit for credit losses in each of the last five quarters, this trend is not expected to continue. 

As noted above, we executed settlement agreements with many of our significant sellers that positively affected our results in 

2013. Our provision for credit losses and amount of charge-offs in the future will be affected by a number of factors, including: 

(a) the actual level of mortgage defaults, including default rates among borrowers that participated in HARP and HAMP; 

(b) the effect of the MHA Program, the servicing alignment initiative, and other current and future loss mitigation efforts; 

(c) any government actions or programs that affect the ability of borrowers to refinance underwater mortgages or obtain 

modifications; (d) changes in property values; (e) regional economic conditions, including unemployment rates; (f) additional 

delays in the foreclosure process; (g) third-party mortgage insurance coverage and recoveries; and (h) the effect of additional 

settlement agreements with sellers, if any.

During 2013, our charge-offs, net of recoveries for single-family loans, were significantly lower than those recorded in 

2012, primarily due to: (a) higher recoveries related to repurchase requests from certain sellers; and (b) improvements in home 

prices in many of the areas in which we have had significant foreclosure and short sale activity. Our recoveries in 2013 and 

2012 included approximately $2.8 billion and $0.7 billion, respectively, related to repurchase requests from our seller/servicers 

(including $2.1 billion and $0, respectively, related to settlement agreements related to repurchase requests from certain 

sellers). Although our credit losses have declined in each of the last five quarters, we continue to experience a high volume of 

foreclosures and foreclosure alternatives as compared to periods prior to 2008. We expect our credit losses will continue to 

remain elevated in 2014 even if the volume of new seriously delinquent loans continues to decline.

The total number of single-family seriously delinquent loans declined approximately 28% and 15% during 2013 and 

2012, respectively. As of December 31, 2013 and 2012, the UPB of our single-family non-performing loans was $121.8 billion 

and $128.6 billion, respectively. However, these amounts include $78.0 billion and $65.8 billion, respectively, of single-family 

TDRs that were no longer seriously delinquent. Loans that have been classified as TDRs remain categorized as non-performing 

throughout the remaining life of the loan regardless of whether the borrower makes payments which return the loan to a current 

payment status. See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk” for further information on our singlefamily credit guarantee portfolio, including credit performance, serious delinquency rates, charge-offs, our loan loss reserves 

balance, and our non-performing assets.

We recognized a benefit for credit losses associated with our multifamily mortgage portfolio of $218 million, $123 

million and $196 million for 2013, 2012, and 2011, respectively. The benefit for credit losses in 2013 was primarily driven by 

an improvement in the expected performance of the underlying loans.

Non-Interest Income (Loss)

Gains (Losses) on Extinguishment of Debt Securities of Consolidated Trusts

When we purchase PCs that have been issued by consolidated PC trusts, we extinguish a pro rata portion of the 

outstanding debt securities of the related consolidated trusts. We recognize a gain (loss) on extinguishment of the debt securities 

to the extent the amount paid to extinguish the debt security differs from its carrying value.

Table of Contents
65 Freddie Mac

We extinguished debt securities of consolidated trusts with a UPB of $44.4 billion, $13.5 billion, and $75.4 billion, in 

2013, 2012, and 2011 respectively, (representing our purchase of single-family PCs with a corresponding UPB amount). 

Purchases of single-family PCs increased in 2013 primarily due to improved investment opportunities. The decrease in 

purchases of single-family PCs in 2012 compared to 2011 was due to a decrease in the volume of dollar roll transactions to 

support the market and pricing of our single-family PCs.

Gains (losses) on extinguishment of these debt securities of consolidated trusts were $314 million, $(58) million, and 

$(219) million in 2013, 2012, and 2011, respectively. In 2013, we recognized gains as interest rates increased between the time 

of issuance and repurchase of these debt securities. We recognized losses in 2012 and 2011 as interest rates declined between 

the time of issuance and repurchase of these debt securities.

See “Table 24 — Mortgage-Related Securities Purchase Activity” for additional information regarding purchases of 

mortgage-related securities, including those issued by consolidated PC trusts.

Gains (Losses) on Retirement of Other Debt

We repurchase or call our outstanding other debt securities from time to time when we believe it is economically 

beneficial and to manage the mix of liabilities funding our assets. When we repurchase or call outstanding debt securities, or 

holders put outstanding debt securities to us, we recognize a gain or loss to the extent the amount paid to redeem the debt 

security differs from its carrying value. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for more 

information regarding our accounting policies related to debt retirements.

Gains (losses) on retirement of other debt were $132 million, $(77) million, and $44 million in 2013, 2012, and 2011, 

respectively. We recognized gains on the retirement of other debt in 2013 primarily as a result of exercising our call option for 

other debt held at premiums. Losses on the retirement of other debt in 2012 primarily resulted from write-offs of unamortized 

deferred issuance costs related to calls of other debt securities. We recognized gains on the retirement of other debt during 2011 

primarily due to the repurchase of other debt securities at less than par. For more information, see “LIQUIDITY AND 

CAPITAL RESOURCES — Liquidity — Other Debt Securities.”

Derivative Gains (Losses)

The table below presents derivative gains (losses) reported in our consolidated statements of comprehensive income. See 

“NOTE 9: DERIVATIVES — Table 9.2 — Gains and Losses on Derivatives” for information about gains and losses related to 

specific categories of derivatives. Changes in fair value and interest accruals on derivatives not in hedge accounting 

relationships are recorded as derivative gains (losses) in our consolidated statements of comprehensive income. At December 

31, 2013, 2012, and 2011, we did not have any derivatives in hedge accounting relationships; however, there are amounts 

recorded in AOCI related to closed cash flow hedges. Amounts recorded in AOCI associated with these closed cash flow 

hedges are reclassified to earnings when the forecasted transactions affect earnings. If it is probable that the forecasted 

transaction will not occur, then the deferred gain or loss associated with the forecasted transaction is reclassified into earnings 

immediately.

While derivatives are an important aspect of our strategy to manage interest-rate risk, they could increase the volatility of 

reported net income because, while fair value changes in derivatives from fluctuations in interest rates and yield curves affect 

net income, fair value changes in several of the types of assets and liabilities being hedged do not affect net income.

Table 11 — Derivative Gains (Losses)

Derivative Gains (Losses)

Year Ended December 31,

2013 2012 2011

(in millions)

Interest-rate swaps $ 8,598 $ (204) $ (10,367)

Option-based derivatives(1) (2,422) 1,250 7,176

Other derivatives(2) (77) 308 (1,529)

Accrual of periodic settlements (3,467) (3,802) (5,032)

Total $ 2,632 $ (2,448) $ (9,752)

(1) Primarily includes purchased call and put swaptions and purchased interest-rate caps and floors.

(2) Primarily includes futures, foreign-currency swaps, commitments, credit derivatives and swap guarantee derivatives.

Gains (losses) on derivatives are principally driven by changes in: (a) interest rates and implied volatility; and (b) the mix 

and balance of products in our derivative portfolio.

Our mix and balance of derivatives change from period to period as we respond to changing interest rate environments. A

receive-fixed swap results in our receipt of a fixed interest-rate payment from our counterparty in exchange for a variable-rate 

payment. Conversely, a pay-fixed swap requires us to make a fixed interest-rate payment to our counterparty in exchange for a 

Table of Contents
66 Freddie Mac

variable-rate payment. Receive-fixed swaps increase in value and pay-fixed swaps decrease in value when interest rates 

decrease (with the opposite being true when interest rates increase).

Purchased call and put swaptions, where we make premium payments, are options for us to enter into receive- and payfixed swaps, respectively. Conversely, written call and put swaptions, where we receive premium payments, are options for our 

counterparty to enter into receive and pay-fixed swaps, respectively. The fair values of both purchased and written call and put 

swaptions are sensitive to changes in interest rates and are also driven by the market’s expectation of potential changes in future 

interest rates (referred to as “implied volatility”). Purchased swaptions generally become more valuable as implied volatility 

increases and less valuable as implied volatility decreases. Recognized losses on purchased options in any given period are 

limited to the premium paid to purchase the option plus any unrealized gains previously recorded. Potential losses on written 

options are unlimited.

During 2013, we recognized a net gain on derivatives of $2.6 billion as net fair value gains of $8.6 billion on our interestrate swap portfolio, primarily driven by an increase in longer-term interest rates, were partially offset by: (a) a net loss of $3.5 

billion related to the accrual of periodic settlements on interest-rate swaps as we were a net payer on our interest-rate swaps 

based on the coupons of the instruments; and (b) a fair value loss of $2.4 billion on our option-based derivatives.

During 2012, we recognized losses on derivatives of $2.4 billion, primarily due to losses related to the accrual of periodic 

settlements on interest-rate swaps as we were a net payer on our interest-rate swaps based on the coupons of the instruments. 

We recognized fair value losses on our pay-fixed swaps, which were offset by: (a) fair value gains on our receive-fixed swaps; 

and (b) fair value gains on our option-based derivatives resulting from gains on our purchased call swaptions due to a decrease 

in interest rates. In 2012, the effect of the decline in interest rates and a steepening of the yield curve was coupled with a change 

in the mix of our derivative portfolio, whereby we increased our holdings of receive-fixed swaps relative to pay-fixed swaps to 

rebalance our portfolio during a period of steadily declining interest rates, and increased our issuances of debt with longer-term 

maturities.

During 2011, we recognized losses on derivatives of $9.8 billion, primarily due to declines in long-term swap interest 

rates. Specifically, during 2011, we recognized fair value losses on our pay-fixed swap positions of $23.0 billion, partially 

offset by fair value gains on our receive-fixed swaps of $12.6 billion. We also recognized fair value gains of $7.2 billion during 

2011 on our option-based derivatives, resulting from gains on our purchased call swaptions as interest rates decreased. 

Additionally, we recognized losses of $5.0 billion related to the accrual of periodic settlements during 2011 due to our net payfixed swap position and a declining interest rate environment during the year.

Investment Securities-Related Activities

Impairments of Available-For-Sale Securities

We recorded net impairments of available-for-sale securities recognized in earnings, which were related to non-agency 

mortgage-related securities, of $1.5 billion, $2.2 billion and $2.3 billion during 2013, 2012, and 2011, respectively. The 

decreases in net impairments recognized in earnings during these periods were driven by improvements in forecasted home 

prices over the expected life of our available-for-sale securities. During 2013, the improvements in forecasted home prices were 

offset primarily by the impact of two changes: (a) the incorporation in the fourth quarter of 2013 of new information, which 

enhanced the assumptions used to estimate the contractual loan terms for certain modified loans collateralizing non-agency 

mortgage-related securities for which actual data about those terms was unavailable to the market; and (b) an increase in the 

population of available-for-sale securities in an unrealized loss position which we intend to sell. During 2012, the 

improvements in forecasted home prices were offset by the impact of our implementation, in the fourth quarter of 2012, of a 

third-party model, which enhanced our approach to estimating other-than-temporary impairments of our single-family nonagency mortgage-related securities. The decision to transition to a third-party model was made to increase the level of 

disaggregation for certain assumptions used in projecting cash flow estimates of these securities. See “CONSOLIDATED 

BALANCE SHEETS ANALYSIS — Investments in Securities — Mortgage-Related Securities — Other-Than-Temporary 

Impairments on Available-For-Sale Mortgage-Related Securities,” as well as “NOTE 7: INVESTMENTS IN SECURITIES” 

for additional information.

Other Gains (Losses) on Investment Securities Recognized in Earnings

Other gains (losses) on investment securities recognized in earnings consists of gains (losses) on trading securities and 

gains (losses) on sales of available-for-sale securities. Trading securities mainly consist of Treasury securities, agency fixedrate and variable-rate pass-through mortgage-related securities, and agency REMICs, including inverse floating-rate, interestonly and principal-only securities. With the exception of principal-only securities, our agency securities, classified as trading, 

were valued at a net premium (i.e., net fair value was higher than UPB) as of December 31, 2013. 

Other gains (losses) on investment securities recognized in earnings does not include the interest earned on investment 

securities, which is recorded as part of net interest income. For information about our interest-rate risk management strategy 

and framework, see “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.”

Table of Contents
67 Freddie Mac

We recognized $(1.6) billion, $(1.7) billion, and $(1.0) billion related to losses on trading securities during 2013, 2012, 

and 2011, respectively. The losses on trading securities during all periods were primarily due to the movement of securities 

with unrealized gains towards maturity. 

We recognized $1.9 billion, $152 million, and $58 million of gains on sales of available-for-sale securities during 2013, 

2012, and 2011, respectively. The increase in gains during 2013 resulted from increased sales volume related to our 2013 

Conservatorship Scorecard goal to sell 5% of less liquid mortgage-related assets. In November 2013, FHFA announced that we 

achieved this scorecard objective.

Other Income (Loss)

The table below summarizes the significant components of other income.

Table 12 — Other Income (Loss)

Year Ended December 31,

2013 2012 2011

(in millions)

Other income (loss):

Non-agency mortgage-related securities settlements $ 5,501 $ — $ —

Gains (losses) on mortgage loans (336) 1,010 829

Recoveries on loans impaired upon purchase(1) 261 380 473

Guarantee-related income, net(2) 400 343 245

All other 824 457 699

Total other income (loss) $ 6,650 $ 2,190 $ 2,246

(1) Our recoveries principally relate to impaired loans purchased prior to 2010. Consequently, our recoveries on these loans will generally decline over 

time.

(2) Most of our guarantee-related income relates to securitized multifamily mortgage loans where we have not consolidated the securitization trusts on our 

consolidated balance sheets.

Non-Agency Mortgage-Related Securities Settlements

Non-agency mortgage-related securities settlements were $5.5 billion in 2013 compared to $0 in both 2012 and 2011. We 

had settlements with seven counterparties in 2013, while we had no such settlements in 2012 or 2011. For information on these 

settlements, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Non-Agency Mortgage-Related 

Security Issuers.” 

Gains (Losses) on Mortgage Loans

We recognized gains (losses) on mortgage loans of $(0.3) billion, $1.0 billion and $0.8 billion during 2013, 2012 and 

2011, respectively. The substantial majority of these amounts relate to multifamily loans which we designated for securitization 

and elected to carry at fair value. The losses in 2013 were primarily due to an increase in interest rates, compared to declines in 

interest rates in 2012. The gains in 2012 were due to favorable market spread movements, declines in interest rates, and higher 

balances of multifamily loans on our consolidated balance sheets. During 2013, 2012 and 2011, we sold $28.3 billion, $20.8 

billion and $13.7 billion, respectively, in UPB of multifamily loans primarily through K Certificate transactions. 

All Other

All other income (loss) includes income recognized from transactional fees, fees assessed to our servicers for technology 

use and late fees or other penalties, and other miscellaneous income. All other income (loss) was $0.8 billion in 2013, 

compared to $0.5 billion in 2012 and $0.7 billion in 2011. The increase in 2013 was primarily due to higher compensatory fees 

assessed on servicers that failed to meet our timelines to complete a foreclosure of a loan. 

Non-Interest Expense

The table below summarizes the components of non-interest expense.

Table of Contents
68 Freddie Mac

Table 13 — Non-Interest Expense

Year Ended December 31,

2013 2012 2011

(in millions)

Administrative expenses:

Salaries and employee benefits $ 833 $ 810 $ 832

Professional services 543 361 270

Occupancy expense 54 57 62

Other administrative expense 375 333 342

Total administrative expenses 1,805 1,561 1,506

REO operations (income) expense (140) 59 585

Other expenses 424 573 392

Total non-interest expense $ 2,089 $ 2,193 $ 2,483

Administrative Expenses

Our administrative expenses increased in 2013 and 2012 primarily due to an increase in professional services expense 

related to: (a) FHFA-led lawsuits regarding our investments in certain residential non-agency mortgage-related securities; (b) 

quality control reviews for single-family loans we acquired prior to being placed in conservatorship; (c) Conservatorship 

Scorecard initiatives, including development of the common securitization platform; and (d) infrastructure improvement 

projects, including establishment of an off-site, back-up data facility.

REO Operations (Income) Expense

The table below presents the components of our REO operations (income) expense.

Table 14 — REO Operations (Income) Expense

Year Ended December 31,

2013 2012 2011

(dollars in millions)

REO operations (income) expense:

Single-family:

REO property expenses(1) $ 962 $ 1,203 $ 1,205

Disposition (gains) losses, net(2) (746) (682) 179

Change in holding period allowance, dispositions (35) (108) (456)

Change in holding period allowance, inventory(3) 58 (9) 302

Recoveries(4) (363) (342) (634)

Total single-family REO operations (income) expense (124) 62 596

Multifamily REO operations (income) expense (16) (3) (11)

Total REO operations (income) expense $ (140) $ 59 $ 585

(1) Consists of costs incurred to maintain or protect a property after it is acquired in a foreclosure transfer, such as legal fees, insurance, taxes, and cleaning 

and other maintenance charges.

(2) Represents the difference between the disposition proceeds, net of selling expenses, and the fair value of the property on the date of the foreclosure 

transfer.

(3) Represents the (increase) decrease in the estimated fair value of properties that were in inventory during the period.

(4) Includes recoveries from primary mortgage insurance, pool insurance and seller/servicer repurchases.

REO operations (income) expense was $(140) million in 2013, as compared to $59 million in 2012 and $585 million in 

2011. The improvement in 2013 compared to 2012 was primarily due to: (a) a decline in REO property expenses associated 

with a lower number of REO properties; and (b) improving home prices in certain geographical areas with significant REO 

activity. The improvement in 2012 compared to 2011 was primarily due to improving home prices in certain geographical areas 

with significant REO activity, partially offset by lower recoveries on REO properties, primarily due to reduced recoveries from 

mortgage insurers and a decline in reimbursements of losses from seller/servicers associated with repurchase requests.

We believe the volume of our single-family REO acquisitions in recent years was less than it otherwise would have been 

due to the length of the foreclosure process and increased volume of foreclosure alternatives. Lower acquisitions, coupled with 

high disposition levels, led to lower REO property levels in both 2013 and 2012, compared to the respective prior year. We 

expect the length of the foreclosure process will continue to remain above historical levels. Additionally, we expect our REO 

activity to remain at elevated levels, as we have a large inventory of seriously delinquent loans in our single-family credit 

Table of Contents
69 Freddie Mac

guarantee portfolio. For information on our REO activity, see “CONSOLIDATED BALANCE SHEETS ANALYSIS — REO, 

Net” and “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Non-Performing Assets.”

Other Expenses

Other expenses were $424 million, $573 million, and $392 million in 2013, 2012, and 2011 respectively. Other expenses 

in 2013 and 2012 include expenses related to the legislated 10 basis point increase in guarantee fees, which was implemented in 

April 2012. The expense for these fees was $533 million in 2013 and $108 million in 2012. These fees are remitted to Treasury 

on a quarterly basis. In addition, in February 2014, we reached a settlement with Lehman Brothers Holdings Inc. pursuant to 

which we will receive $767 million to resolve our claims related to Lehman’s bankruptcy. Consequently, we adjusted our 

December 31, 2013 estimate of the expected recoveries of our short-term lending receivable by $350 million, which reduced 

other expenses by the same amount. For information on this settlement, see "NOTE 17: LEGAL CONTINGENCIES.” The 

increase in other expenses in 2012 compared to 2011 was also due to expenses to establish legal reserves related to pending 

litigation. Other expenses also include HAMP servicer incentive fees, costs related to terminations and transfers of mortgage 

servicing, and other miscellaneous expenses.

Income Tax Benefit

For 2013, we reported an income tax benefit of $23.3 billion primarily due to the release of the $26.4 billion valuation 

allowance against our net deferred tax assets compared to an income tax benefit of $1.5 billion and $0.4 billion for 2012 and 

2011, respectively. For 2014, we expect that our effective tax rate will approximate the corporate statutory rate, which is 

currently 35%. See “NOTE 12: INCOME TAXES” for a discussion of the factors that led to our conclusion to release the 

valuation allowance against our net deferred tax assets in 2013. 

Comprehensive Income (Loss)

Our comprehensive income (loss) was $51.6 billion, $16.0 billion, and $(1.2) billion for the years ended December 31, 

2013, 2012, and 2011, respectively, consisting of: (a) $48.7 billion, $11.0 billion, and $(5.3) billion of net income (loss), 

respectively; and (b) $2.9 billion, $5.1 billion, and $4.0 billion of other comprehensive income, respectively. The other 

comprehensive income in these periods primarily related to fair value gains on our single-family non-agency mortgage-related 

available-for-sale securities. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Total Equity (Deficit)” for 

additional information regarding total other comprehensive income.

Segment Earnings

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

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

in the All Other category.

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

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

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

in exchange for management and guarantee fees. Segment Earnings for this segment consist primarily of management and 

guarantee fee revenues, including amortization of upfront fees, less credit-related expenses, administrative expenses, allocated 

funding costs, and amounts related to net float benefits or expenses. 

The Investments segment reflects results from three primary activities: (a) managing the company’s mortgage-related 

investments portfolio, excluding Multifamily segment investments; (b) managing the treasury function, including funding and 

liquidity, for the overall company; and (c) managing interest-rate risk for the overall company. In our Investments segment, we 

invest principally in mortgage-related securities and single-family performing mortgage loans. Segment Earnings for this 

segment consist primarily of the returns on these investments, less the related funding, hedging, and administrative expenses. In 

addition, the Investments segment reflects changes in the fair value of the Multifamily segment investment securities, primarily 

CMBS, and held-for-sale loans that are associated with changes in interest rates. 

The Multifamily segment reflects results from our investment (both purchases and sales), securitization, and guarantee 

activities in multifamily mortgage loans and securities. Our primary business model is to purchase multifamily mortgage loans 

for aggregation and then securitization through issuance of multifamily K Certificates. To a lesser extent, we provide 

guarantees of the payment of principal and interest on tax-exempt multifamily pass-through certificates backed by multifamily 

housing revenue bonds. In addition, we guarantee the payment of principal and interest on tax-exempt multifamily housing 

revenue bonds secured by low- and moderate-income multifamily mortgage loans. Segment Earnings for this segment consist 

primarily of the interest earned on assets related to multifamily investment activities and management and guarantee fee 

income, less credit-related expenses, administrative expenses, and allocated funding costs. In addition, the Multifamily segment 

reflects the impact of changes in fair value of our investment securities and held-for-sale loans associated with market factors 

other than changes in interest rates, such as liquidity and credit. 

We evaluate segment performance and allocate resources based on a Segment Earnings approach, subject to the conduct 

of our business under the direction of the Conservator. The financial performance of our Single-family Guarantee segment and 

Table of Contents
70 Freddie Mac

Multifamily segment are measured based on each segment’s contribution to GAAP net income (loss). Our Investments segment 

is measured on its contribution to GAAP comprehensive income (loss), which consists of the sum of its contribution to: 

(a) GAAP net income (loss); and (b) GAAP total other comprehensive income (loss), net of taxes. The sum of Segment 

Earnings for each segment and the All Other category equals GAAP net income (loss). Likewise, the sum of comprehensive 

income (loss) for each segment and the All Other category equals GAAP comprehensive income (loss). 

The All Other category consists of material corporate level activities that are: (a) infrequent in nature; and (b) based on 

decisions outside the control of the management of our reportable segments. By recording these types of activities to the All 

Other category, we believe the financial results of our three reportable segments reflect the decisions and strategies that are 

executed within the reportable segments and provide greater comparability across time periods. The All Other category also 

includes the deferred tax asset valuation allowance associated with previously recognized income tax credits carried forward, 

the release of our valuation allowance against our net deferred tax assets, amounts related to the termination of our pension 

plan, and tax settlements, as applicable. Segment Earnings for the All Other category was $23.9 billion, $788 million, and 

$49 million for 2013, 2012, and 2011, respectively. Segment Earnings for the All Other category for 2013 reflects a benefit for 

federal income taxes that resulted from the release of our valuation allowance against our net deferred tax assets. Segment 

Earnings for the All Other category for 2012 primarily reflects an agreement in principle we reached with the IRS regarding 

litigation related to various uncertain tax positions. Based on the favorable resolution of the matters in dispute, the previously 

unrecognized tax benefits were reduced to zero in the fourth quarter of 2012. For more information regarding the litigation with 

the IRS, see “NOTE 17: LEGAL CONTINGENCIES — IRS Litigation.” 

In presenting Segment Earnings, we make significant reclassifications among certain financial statement line items in 

order to reflect a measure of management and guarantee income on guarantees and a measure of net interest income on 

investments that is in line with how we manage our business. These include reclassifying certain credit guarantee-related 

activities and investment-related activities between various line items on our GAAP consolidated statements of comprehensive 

income. We also allocate certain revenues and expenses, including certain returns on assets and funding costs, and all 

administrative expenses to our three reportable segments. 

As a result of these reclassifications and allocations, Segment Earnings for our reportable segments differs significantly 

from, and should not be used as a substitute for, net income (loss) as determined in accordance with GAAP. Our definition of 

Segment Earnings may differ from similar measures used by other companies. However, we believe that Segment Earnings 

provides us with meaningful metrics to assess the financial performance of each segment and our company as a whole. 

See “BUSINESS — Our Business Segments” for further information regarding our segments, including the descriptions 

and activities of our segments, and “NOTE 13: SEGMENT REPORTING” for further information regarding the 

reclassifications and allocations used to present Segment Earnings.

The table below provides information about our various segment mortgage and credit risk portfolios at December 31, 

2013 and 2012. For a discussion of each segment’s portfolios, see “Segment Earnings — Results.”

Table of Contents
71 Freddie Mac

Table 15 — Composition of Segment Mortgage Portfolios and Credit Risk Portfolios(1)

December 31, 2013 December 31, 2012

(in millions)

Segment mortgage portfolios:

Single-family Guarantee — Managed loan portfolio:(2)

Single-family unsecuritized mortgage loans(3) $ 37,726 $ 53,333

Single-family Freddie Mac mortgage-related securities held by us 165,247 184,381

Single-family Freddie Mac mortgage-related securities held by third parties 1,361,972 1,335,393

Single-family other guarantee commitments(4) 19,872 13,798

Total Single-family Guarantee — Managed loan portfolio 1,584,817 1,586,905

Investments — Mortgage investments portfolio:

Single-family unsecuritized mortgage loans(5) 84,411 91,411

Freddie Mac mortgage-related securities 165,247 184,381

Non-agency mortgage-related securities 64,524 76,457

Non-Freddie Mac agency mortgage-related securities 16,889 23,675

Total Investments — Mortgage investments portfolio 331,071 375,924

Multifamily — Guarantee portfolio:

Multifamily Freddie Mac mortgage related securities held by us 2,787 2,382

Multifamily Freddie Mac mortgage related securities held by third parties 62,505 39,884

Multifamily other guarantee commitments(4) 9,288 9,657

Total Multifamily — Guarantee portfolio 74,580 51,923

Multifamily — Mortgage investments portfolio:

Multifamily investment securities portfolio 33,056 51,718

Multifamily unsecuritized loan portfolio 59,171 76,569

Total Multifamily — Mortgage investments portfolio 92,227 128,287

Total Multifamily portfolio 166,807 180,210

Less: Freddie Mac single-family and certain multifamily securities(6) (168,034) (186,763)

Total mortgage portfolio $ 1,914,661 $ 1,956,276

Credit risk portfolios:(7)

Single-family credit guarantee portfolio:(2)

Single-family mortgage loans, on-balance sheet $ 1,630,859 $ 1,621,774

Non-consolidated Freddie Mac mortgage-related securities 6,961 8,897

Other guarantee commitments(4) 19,872 13,798

Less: HFA initiative-related guarantees(8) (4,051) (6,270)

Less: Freddie Mac mortgage-related securities backed by Ginnie Mae certificates(8) (541) (654)

Total single-family credit guarantee portfolio $ 1,653,100 $ 1,637,545

Multifamily mortgage portfolio:

Multifamily mortgage loans, on-balance sheet(9) $ 59,615 $ 77,017

Non-consolidated Freddie Mac mortgage-related securities 64,848 41,819

Other guarantee commitments(4) 9,288 9,657

Less: HFA initiative-related guarantees(8) (905) (1,112)

Total multifamily mortgage portfolio $ 132,846 $ 127,381

(1) Based on UPB and excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(2) The balances of the mortgage-related securities in the Single-family Guarantee managed loan portfolio are based on the UPB of the security, whereas 

the balances of our single-family credit guarantee portfolio presented in this report are based on the UPB of the mortgage loans underlying the related 

security. The differences in the loan and security balances result from the timing of remittances to security holders, which is typically 45 or 75 days 

after the mortgage payment cycle of fixed-rate and ARM PCs, respectively.

(3) Represents unsecuritized seriously delinquent single-family loans.

(4) Represents the UPB of mortgage-related assets held by third parties for which we provide our guarantee without our securitization of the related assets.

(5) Excludes unsecuritized seriously delinquent single-family loans. The Single-family Guarantee segment earns management and guarantee fees 

associated with unsecuritized single-family loans in the Investments segment’s mortgage investments portfolio.

(6) Freddie Mac single-family mortgage-related securities held by us are included in both our Investments segment’s mortgage investments portfolio and 

our Single-family Guarantee segment’s managed loan portfolio, and Freddie Mac multifamily mortgage-related securities held by us are included in 

both the multifamily investment securities portfolio and the multifamily guarantee portfolio. Therefore, these amounts are deducted in order to 

reconcile to our total mortgage portfolio.

Table of Contents
72 Freddie Mac

(7) Represents the UPB of loans for which we present characteristics, delinquency data, and certain other statistics in this report. See “GLOSSARY” for 

further description.

(8) We exclude HFA initiative-related guarantees and our resecuritizations of Ginnie Mae certificates from our credit risk portfolios and most related 

statistics because these guarantees do not expose us to meaningful amounts of credit risk due to the credit enhancement provided on them by the U.S. 

government.

(9) Includes both unsecuritized multifamily mortgage loans and multifamily mortgage loans in consolidated trusts.

Segment Earnings — Results

Single-Family Guarantee

The table below presents the Segment Earnings of our Single-family Guarantee segment.

Table 16 — Segment Earnings and Key Metrics — Single-Family Guarantee(1)

Year Ended December 31,

2013 2012 2011

(dollars in millions)

Segment Earnings:

Net interest income (expense) $ 320 $ (147) $ (23)

Benefit (provision) for credit losses 1,409 (3,168) (12,294)

Non-interest income:

Management and guarantee income 4,930 4,389 3,647

Other non-interest income 1,162 931 1,216

Total non-interest income 6,092 5,320 4,863

Non-interest expense:

Administrative expenses (1,025) (890) (888)

REO operations income (expense) 124 (62) (596)

Other non-interest expense (712) (393) (321)

Total non-interest expense (1,613) (1,345) (1,805)

Segment adjustments(2) (694) (832) (699)

Segment Earnings (loss) before income tax (expense) benefit 5,514 (172) (9,958)

Income tax (expense) benefit 282 8 (42)

Segment Earnings (loss), net of taxes 5,796 (164) (10,000)

Total other comprehensive income (loss), net of taxes 49 (63) 30

Total comprehensive income (loss) $ 5,845 $ (227) $ (9,970)

Key metrics:

Balances and Volume (in billions, except rate):

Average balance of single-family credit guarantee portfolio and HFA guarantees $ 1,644 $ 1,692 $ 1,801

Issuance — Single-family credit guarantees(3) $ 435 $ 446 $ 305

Fixed-rate products — Percentage of purchases(4) 96% 96% 92%

Liquidation rate — Single-family credit guarantees(5) 28% 33% 24%

Average Management and Guarantee Rate (in bps):(6)

Segment Earnings management and guarantee income(7) 30.0 25.9 20.2

Guarantee fee charged on new acquisitions(8) 51.4 38.3 26.8

Credit:

Serious delinquency rate, at end of period 2.39% 3.25% 3.58%

REO inventory, at end of period (number of properties) 47,307 49,071 60,535

Single-family credit losses, in bps(9) 28.8 68.3 72.0

Market:

Single-family mortgage debt outstanding (total U.S. market, in billions)(10) $ 9,864 $ 9,930 $ 10,183

30-year fixed mortgage rate(11) 4.5% 3.4% 4.0%

(1) For reconciliations of the Segment Earnings line items to the comparable line items in our consolidated financial statements prepared in accordance 

with GAAP, see “NOTE 13: SEGMENT REPORTING — Table 13.2 — Segment Earnings and Reconciliation to GAAP Results.”

(2) For a description of our segment adjustments, see “NOTE 13: SEGMENT REPORTING — Segment Earnings.”

(3) Represents the UPB of loans underlying Freddie Mac mortgage-related securities and other guarantee commitments.

(4) Excludes Other Guarantee Transactions.

(5) Represents principal repayments relating to loans underlying Freddie Mac mortgage-related securities and other guarantee commitments, including 

those related to our removal of seriously delinquent and modified mortgage loans and balloon/reset mortgage loans from PC pools.

(6) Includes the effect of the legislated 10 basis point increase in guarantee fees that became effective April 1, 2012. 2013 also includes an additional 

across-the-board increase in guarantee fees that became effective in the fourth quarter of 2012. Also includes the effect of pricing adjustments that are 

based on the price performance of our PCs relative to comparable Fannie Mae securities.

Table of Contents
73 Freddie Mac

(7) Consists of the contractual management and guarantee fee rate as well as amortization of delivery and other upfront fees (using the original contractual 

maturity date of the related loans) for the entire single-family credit guarantee portfolio. 

(8) Represents the estimated rate of management and guarantee fees for new acquisitions during the period assuming amortization of delivery fees using 

the estimated life of the related loans rather than the original contractual maturity date of the related loans. 

(9) Calculated as the amount of single-family credit losses divided by the sum of the average carrying value of our single-family credit guarantee portfolio 

and the average balance of our single-family HFA initiative-related guarantees.

(10) Source: Federal Reserve Financial Accounts of the United States of America dated December 9, 2013. The outstanding amount for December 31, 2013

reflects the balance as of September 30, 2013.

(11) Based on Freddie Mac’s Primary Mortgage Market Survey rate for the last week in the period, which represents the national average mortgage 

commitment rate to a qualified borrower exclusive of any fees and points required by the lender. This commitment rate applies only to financing on 

conforming mortgages with LTV ratios of 80%.

Segment Earnings (loss) for our Single-family Guarantee segment improved to $5.8 billion in 2013 compared to $(0.2) 

billion in 2012, and $(10.0) billion in 2011. The improvement in 2013 was primarily due to a shift from provision for credit 

losses of $3.2 billion in 2012 to a benefit for credit losses of $1.4 billion in 2013 and increased management and guarantee 

income. The improvement in 2012, compared to 2011, was primarily due to a significant decline in Segment Earnings provision 

for credit losses. 

Segment Earnings (loss) for the Single-family Guarantee segment is largely driven by management and guarantee fee 

income and the benefit (provision) for credit losses. The table below provides summary information about the composition of 

Segment Earnings (loss) for this segment, by guarantee and loan origination years, for 2013 and 2012.

Table of Contents
74 Freddie Mac

Table 17 — Segment Earnings Composition — Single-Family Guarantee Segment

Year Ended December 31, 2013

Segment Earnings

Management and

Guarantee Income(1)

Credit-Related

Benefit (Expense) (2)(3)

Amount

Average

Rate(4) Amount

Average

Rate(4)

Net

Amount(5)

(dollars in millions, rates in bps)

Year of origination:(5)

2013 $ 614 34.4 $ (12) (0.7) $ 602

2012 845 32.5 (21) (0.7) 824

2011 458 34.7 (19) (1.4) 439

2010 422 34.5 (14) (1.1) 408

2009 407 29.3 (17) (1.2) 390

Subtotal - New single-family book 2,746 33.0 (83) (1.0) 2,663

HARP and other relief refinance loans(6) 1,065 33.1 (563) (16.7) 502

2005-2008 Legacy single-family book 774 23.3 1,826 60.5 2,600

Pre-2005 Legacy single-family book 345 21.7 353 20.2 698

Total $ 4,930 30.0 $ 1,533 9.2 $ 6,463

Administrative expenses (1,025)

Net interest income (expense) 320

Other non-interest income (expenses), net 38

Segment Earnings (loss), net of taxes $ 5,796

Year Ended December 31, 2012

Segment Earnings

Management and

Guarantee Income(1)

Credit-Related

Benefit (Expense) (2)

Amount

Average

Rate(4) Amount

Average

Rate(4)

Net

Amount(5)

(dollars in millions, rates in bps)

Year of origination:(5)

2012 $ 380 27.9 $ (13) (0.9) $ 367

2011 610 32.0 (33) (1.7) 577

2010 586 32.0 (61) (3.3) 525

2009 672 29.9 (120) (5.5) 552

Subtotal - New single-family book 2,248 30.6 (227) (3.1) 2,021

HARP and other relief refinance loans(6) 601 24.8 (640) (24.3) (39)

2005-2008 Legacy single-family book 1,057 21.8 (2,440) (54.3) (1,383)

Pre-2005 Legacy single-family book 483 21.1 77 3.1 560

Total $ 4,389 25.9 $ (3,230) (19.0) $ 1,159

Administrative expenses (890)

Net interest income (expense) (147)

Other non-interest income (expenses), net (286)

Segment Earnings (loss), net of taxes $ (164)

(1) Reflects the monthly management and guarantee fees. Beginning in the fourth quarter of 2012, includes the net impact of buy-down transactions. 

Includes amortization of delivery and other upfront fees based on the original contractual maturity date of the related loans of $2.3 billion and 

$1.9 billion for 2013 and 2012, respectively. Includes the effect of the legislated 10 basis point increase in guarantee fees that became effective April 1, 

2012. Results for 2013 also include an additional across-the-board increase in guarantee fees that became effective in the fourth quarter of 2012. Prior 

period information has been revised to conform with the current period presentation. See endnote (6) for further information.

(2) Consists of the aggregate of the Segment Earnings benefit (provision) for credit losses and Segment Earnings REO operations income (expense). 

Historical rates of average credit-related benefit (expense) may not be representative of future results. Prior period information has been revised to 

conform with the current period presentation. See endnote (6) for further information.

(3) Reflects our settlement agreements with certain sellers in 2013 for release of certain repurchase obligations primarily associated with loans in our 

Legacy single-family books in exchange for one-time cash payments.

(4) Calculated as the amount of Segment Earnings management and guarantee income or credit-related benefit (expense), respectively, divided by the sum 

of the average carrying values of the single-family credit guarantee portfolio and the average balance of our single-family HFA initiative-related 

guarantees. Prior period information has been revised to conform with the current period presentation. See endnote (6) for further information.

Table of Contents
75 Freddie Mac

(5) Calculated as Segment Earnings management and guarantee income less credit-related benefit (expense). Prior period information has been revised to 

conform with the current period presentation. See endnote (6) for further information.

(6) Segment Earnings management and guarantee income is presented by year of guarantee origination (except for HARP and other relief refinance loans), 

whereas credit-related benefit (expense) is presented based on year of loan origination. HARP and other relief refinance loans are presented separately 

rather than in the year that the refinancing occurred (from 2009 to 2013). All other refinance loans are presented in the year that the refinancing 

occurred. Prior period information has been revised to conform with the current period presentation.

We continue to maintain a consistent market presence by providing lenders with a constant source of liquidity for 

conforming mortgage products. Issuances of our guarantees were $435 billion and $446 billion in 2013 and 2012, respectively, 

and predominantly consisted of refinance mortgages, including HARP and other relief refinance loans. During 2013, 

refinancings comprised approximately 73% of our single-family purchase and issuance volume, compared with 82% in 2012

and 78% in 2011. 

We refer to single-family loans we acquired beginning in 2009, excluding HARP and other relief refinance mortgages, as 

our New single-family book. We do not include relief refinance mortgages, including HARP loans, in our New single-family 

book, since underwriting procedures for relief refinance mortgages are limited, and, in many cases, do not include all of the 

changes in underwriting standards we have implemented since 2008. As a result, relief refinance mortgages generally reflect 

many of the credit risk attributes of the original loans (many of which were originated between 2005 and 2008).

Our New single-family book continues to represent an increasing share of our overall single-family guarantee portfolio 

and comprised 54% of this portfolio as of December 31, 2013. The New single-family book has low delinquency rates and 

credit losses. The serious delinquency rate for the New single-family book was 0.24% as of December 31, 2013 and its credit 

losses were $135 million in 2013, representing 3% of our credit losses. As of December 31, 2013, loans originated after 2008 

have, on a cumulative basis, provided management and guarantee income that has exceeded the credit-related and 

administrative expenses associated with these loans. We expect this book to continue to be profitable for us over the long term. 

For more information on the composition of our single-family credit guarantee portfolio, see "Table 36 — Single-Family Credit 

Guarantee Portfolio Data by Year of Origination." 

We executed three transactions during 2013 that transfer a mezzanine credit loss position on certain groups of loans in 

our New single-family book. These transactions were consistent with our 2013 Conservatorship Scorecard goal to demonstrate 

the viability of multiple types of risk transfer transactions involving single-family mortgages with at least $30 billion in 

aggregate UPB, subject to certain limitations. These transactions are intended to shift mortgage credit risk from us to private 

investors. These transactions consisted of two STACR debt note transactions as well as an additional risk transfer transaction 

using third-party insurance. In November 2013, FHFA announced that we had achieved this Scorecard objective. We will seek 

to expand and refine our offerings of credit risk transfer transactions in the future. For more information on our STACR debt 

note transactions, see "BUSINESS — Our Business Segments — Single-Family Guarantee Segment — Credit Enhancements."

In 2013, we recognized credit-related benefits associated with our 2005-2008 Legacy single-family book largely due to: 

(a) improvements in home prices, which resulted in lower estimates of incurred losses; and (b) settlement agreements with 

certain sellers to release specified loans from certain repurchase obligations in exchange for one-time cash payments. However, 

on a cumulative basis, our management and guarantee income associated with guarantee issuances in 2005 through 2008 has 

not been adequate to cover the credit-related and administrative expenses associated with such loans, primarily due to the high 

rate of defaults on the loans originated in those years.

HARP and other relief refinance loans represent a significant portion of our single-family credit guarantee portfolio. 

Relief refinance mortgages (including HARP loans) generally present higher risk to us than other refinance loans we have 

purchased since 2009 because:

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

include all of the changes in underwriting standards we have implemented since 2008;

• many of these loans have relatively high LTV ratios (e.g., greater than 90%), which can increase the probability of 

default and increase the amount of our loss if the borrower does default;

• HARP loans may not be covered by mortgage insurance for the full excess of their UPB over 80%; and

• beginning with changes announced in the fourth quarter of 2011, we have relieved the lenders of certain representations 

and warranties on the original mortgage being refinanced, which limits our ability to seek recovery or repurchase from 

the seller for breach. 

However, relief refinance mortgages (including HARP loans) generally have performed better than loans with similar 

characteristics remaining in our single-family credit guarantee portfolio that were originated prior to 2009. For information on 

the potential credit risks related to these loans, see "RISK MANAGEMENT — Credit Risk —Mortgage Credit Risk — SingleFamily Mortgage Credit Risk — Single-Family Loan Workouts and the MHA Program."

Segment Earnings management and guarantee income was $4.9 billion in 2013 compared to $4.4 billion 2012 and $3.6 

billion in 2011. The improvement in 2013 compared to 2012 was primarily due to an increase in amortization of buy-down fees 

(which we began recording in the Single-family Guarantee segment during the fourth quarter of 2012). Segment Earnings 

management and guarantee income also benefited in 2013 from higher guarantee fees. At the direction of FHFA, we 

Table of Contents
76 Freddie Mac

implemented two across-the-board increases in guarantee fees in 2012. The average management and guarantee fee we charged 

for new acquisitions in 2013 was 51.4 basis points (including the legislated 10 basis point increase), compared to 38.3 basis 

points in 2012. The guarantee fee we charge on new acquisitions generally consists of a combination of delivery fees as well as 

a base monthly fee. The average guarantee fee charged on new acquisitions represents our expected guarantee fee rate over the 

estimated life of the related loans using certain assumptions for prepayments and other liquidations. We seek to issue 

guarantees with fee terms that we believe are commensurate with the risks assumed and that will, over the long-term: (a) 

provide management and guarantee fee income that exceeds our anticipated credit-related and administrative expenses on the 

underlying loans; and (b) provide a return on the capital that would be needed to support the related credit risk.

The improvement in Segment Earnings management and guarantee income in 2012 compared to 2011 was primarily due 

to an increase in amortization of both delivery fees and buy-down fees. We amortize these upfront fees based on the original 

contractual maturity date of the loan rather than the loan’s estimated life. As a result, the amount of Segment Earnings 

management and guarantee income we recognize related to upfront fees is lower in the initial years of a loan and increases 

during periods of high refinance or prepayment activity as unamortized upfront fees for loans are recognized in income when 

the loans are refinanced or prepaid.

Our Segment Earnings management and guarantee fee income is influenced by our PC price performance because we 

adjust our fees based on the relative price performance of our PCs compared to comparable Fannie Mae securities. A decline in 

security performance could negatively impact our segment financial results. See “RISK FACTORS — Competitive and Market 

Risks — A significant decline in the price performance of or demand for our PCs could have an adverse effect on the volume 

and/or profitability of our new single-family guarantee business. The profitability of our multifamily business could be 

adversely affected by a significant decrease in demand for K Certificates” for additional information.

In December 2013, FHFA announced a number of additional increases to our guarantee fee rates. In January 2014, FHFA

announced that it was delaying the implementation of these changes. 

The UPB of the Single-family Guarantee managed loan portfolio was $1.6 trillion at both December 31, 2013 and 2012. 

We expect the UPB of our single-family credit guarantee portfolio will be relatively unchanged at the end of 2014 compared to 

2013. However, we believe that the recent increase in mortgage interest rates and potential further increases will result in a 

decline, which could be significant, in overall single-family mortgage originations. As a result, we expect our purchase volumes 

will likely decline, potentially significantly, during 2014. The expected decline in purchase volume is expected to be offset by a 

decline in prepayments resulting from higher mortgage interest rates. 

The liquidation rate on our single-family credit guarantees was approximately 28%, 33%, and 24% for 2013, 2012, and 

2011, respectively. Although the annualized liquidation rate remained high in 2013, it declined compared to 2012 primarily due 

to an increase in interest rates and lower refinancing activity.

Benefit (provision) for credit losses for the Single-family Guarantee segment was $1.4 billion in 2013, $(3.2) billion in 

2012, and $(12.3) billion in 2011. The significant improvements in benefit (provision) for credit losses in 2013 and 2012 

reflect: (a) declines in the volume of newly delinquent loans (largely due to a decline in our 2005-2008 Legacy single-family 

book); and (b) lower estimates of incurred losses largely resulting from the positive impact of an increase in national home 

prices. Assuming that all other factors remain the same, an increase in home prices can reduce the likelihood that loans will 

default and may also reduce the amount of credit losses on the loans that do default. Our benefit (provision) for credit losses in 

2013 also reflects $1.7 billion of benefit related to settlement agreements with certain sellers for the release of repurchase 

obligations in exchange for one-time cash payments, primarily associated with our Legacy single-family books. See 

“NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS - Seller/Servicers” for more information about these 

agreements.

The serious delinquency rate on our single-family credit guarantee portfolio was 2.39%, 3.25%, and 3.58% as of 

December 31, 2013, 2012, and 2011, respectively. Charge-offs, net of recoveries, associated with single-family loans were 

$4.9 billion, $11.6 billion, and $12.4 billion in 2013, 2012, and 2011, respectively. Our recoveries in 2013 and 2012 included 

approximately $2.8 billion and $0.7 billion, respectively, related to repurchase requests from our seller/servicers (including 

amounts related to settlement agreements with certain sellers to release specified loans from certain repurchase obligations in 

exchange for one-time cash payments). Single-family credit losses as a percentage of the average balance of the single-family 

credit guarantee portfolio and HFA initiative-related guarantees were 28.8 basis points, 68.3 basis points, and 72.0 basis points 

for 2013, 2012 and 2011, respectively. See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk” for further 

information on our single-family credit guarantee portfolio, including credit performance, serious delinquency rates, chargeoffs, and our non-performing assets.

Other non-interest income for the Single-family Guarantee segment was $1.2 billion in 2013, compared to $0.9 billion in 

2012 and $1.2 billion in 2011. The increase in 2013 was primarily due to higher compensatory fees assessed on servicers that 

failed to meet our timelines to complete a foreclosure of a loan. These compensatory fees increased to approximately $0.4 

billion in 2013, compared to approximately $0.2 billion and $0.1 billion in 2012 and 2011, respectively. The decrease in other 

non-interest income in 2012 compared to 2011 was primarily due to: (a) income recognized in 2011 related to proceeds 

Table of Contents
77 Freddie Mac

received from certain repurchase settlements while no such income was recognized in 2012; and (b) lower recoveries related to 

loans impaired upon purchase in 2012. 

REO operations income (expense) for the Single-family Guarantee segment was $124 million in 2013, compared to $(62) 

million in 2012, and $(596) million in 2011. The improvement in 2013 compared to 2012 was primarily due to: (a) a decline in 

REO property expenses associated with a lower number of REO properties; and (b) improving home prices in certain 

geographical areas with significant REO activity. The improvement in 2012 compared to 2011 was primarily due to improving 

home prices in certain geographical areas with significant REO activity, partially offset by lower recoveries on REO properties, 

primarily due to reduced recoveries from mortgage insurers and a decline in reimbursements of losses from seller/servicers 

associated with repurchase requests.

Our REO inventory (measured in number of properties) declined 4% and 19% in 2013 and 2012, respectively, primarily 

due to lower foreclosure activity as a result of our loss mitigation efforts and a declining amount of delinquent loans. Although 

there was an improvement in REO disposition severity during 2013 and 2012, the REO disposition severity ratios on sales of 

our REO inventory remain high as compared to periods before 2008. See “RISK MANAGEMENT — Credit Risk — Mortgage 

Credit Risk — Non-Performing Assets” for additional information about our REO activity.

Other non-interest expense for the Single-family Guarantee segment was $0.7 billion in 2013, compared to $0.4 billion in 

2012 and $0.3 billion in 2011. The increase in 2013 and 2012, compared to the respective prior year, was primarily due to 

expenses related to the legislated 10 basis point increase to guarantee fees, which we implemented in April 2012. As of 

December 31, 2013, the cumulative total of amounts paid and due to Treasury related to this increase was $641 million, 

including $533 million for 2013. 

Table of Contents
78 Freddie Mac

Investments

The table below presents the Segment Earnings of our Investments segment.

Table 18 — Segment Earnings and Key Metrics — Investments(1)

Year Ended December 31,

2013 2012 2011

(dollars in millions)

Segment Earnings:

Net interest income $ 3,525 $ 5,726 $ 7,168

Non-interest income (loss):

Net impairment of available-for-sale securities recognized in earnings (974) (1,831) (1,833)

Derivative gains (losses) 6,806 1,970 (3,597)

Gains (losses) on trading securities (1,588) (1,755) (993)

Gains (losses) on mortgage loans (817) 303 529

Other non-interest income 9,612 2,741 1,437

Total non-interest income (loss) 13,039 1,428 (4,457)

Non-interest expense:

Administrative expenses (523) (430) (398)

Other non-interest expense 349 (1) (2)

Total non-interest expense (174) (431) (400)

Segment adjustments(2) 1,037 799 661

Segment Earnings before income tax benefit 17,427 7,522 2,972

Income tax (expense) benefit (825) 690 394

Segment Earnings, net of taxes 16,602 8,212 3,366

Total other comprehensive income, net of taxes 3,685 3,185 3,107

Comprehensive income $ 20,287 $ 11,397 $ 6,473

Key metrics:

Portfolio balances:

Average balances of interest-earning assets:(3)(4)

Mortgage-related securities(5) $ 278,200 $ 308,698 $ 386,115

Non-mortgage-related investments(6) 97,070 98,176 97,519

Single-family unsecuritized loans(7) 88,827 97,951 94,894

Total average balances of interest-earning assets $ 464,097 $ 504,825 $ 578,528

Return:

Net interest yield — Segment Earnings basis 0.76% 1.13% 1.24%

(1) For reconciliations of the Segment Earnings line items to the comparable line items in our consolidated financial statements prepared in accordance 

with GAAP, see “NOTE 13: SEGMENT REPORTING — Table 13.2 — Segment Earnings and Reconciliation to GAAP Results.”

(2) For a description of our segment adjustments, see “NOTE 13: SEGMENT REPORTING — Segment Earnings.” 

(3) Excludes mortgage loans and mortgage-related securities traded, but not yet settled.

(4) We calculate average balances based on amortized cost.

(5) Includes our investments in single-family PCs and certain Other Guarantee Transactions, which are consolidated under GAAP on our consolidated 

balance sheets.

(6) Includes the average balances of interest-earning cash and cash equivalents, non-mortgage-related securities, and federal funds sold and securities 

purchased under agreements to resell.

(7) Excludes unsecuritized seriously delinquent single-family mortgage loans.

2013 vs. 2012

Segment Earnings for our Investments segment increased by $8.4 billion to $16.6 billion in 2013 compared to 

$8.2 billion in 2012, primarily due to increases in other non-interest income and derivative gains. Comprehensive income for 

our Investments segment increased by $8.9 billion to $20.3 billion in 2013 compared to $11.4 billion in 2012, primarily due to 

higher Segment Earnings.

During 2013, the UPB of the Investments segment mortgage investments portfolio decreased by 12%. We held 

$182.1 billion and $208.1 billion of agency securities, $64.5 billion and $76.5 billion of non-agency mortgage-related 

securities, and $84.4 billion and $91.4 billion of single-family unsecuritized mortgage loans at December 31, 2013 and 2012, 

respectively. The decline in UPB of agency securities is due mainly to liquidations. The decline in UPB of these non-agency 

mortgage-related securities is due mainly to the receipt of principal repayments from both the recoveries from liquidated loans 

and voluntary repayments of the underlying collateral, representing a partial return of our investments in these securities, and 

sales during 2013. The decline in the UPB of single-family unsecuritized mortgage loans is primarily related to prepayments of 

mortgage loans held and the securitization of mortgage loans that we had purchased for cash, and includes the securitization of 

Table of Contents
79 Freddie Mac

reperforming loans and modified loans, partially offset by the addition of newly performing loans from the Single-family 

Guarantee segment. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities” and “— 

Mortgage Loans” for additional information regarding our mortgage-related securities and mortgage loans.

Segment Earnings net interest income decreased by $2.2 billion and Segment Earnings net interest yield decreased by 

37 basis points during 2013 compared to 2012. The primary drivers of the decreases were the reduction in the balance of 

higher-yielding mortgage-related assets due to continued liquidations coupled with purchases at lower yields. These factors 

were partially offset by lower funding costs primarily due to the replacement of debt at lower rates.

Segment Earnings non-interest income was $13.0 billion in 2013 compared to $1.4 billion in 2012. The improvement was 

primarily due to increases in other non-interest income and derivative gains and a decrease in net impairments of available-forsale securities recognized in earnings, partially offset by losses on mortgage loans.

We recorded derivative gains for this segment of $6.8 billion during 2013 compared to $2.0 billion during 2012. The 

increase in derivative gains was primarily due to an increase in longer-term interest rates during 2013, compared to a decrease 

in longer-term interest rates during 2012, coupled with a change in the mix of our derivatives. See “Non-Interest Income (Loss) 

— Derivative Gains (Losses)” for additional information on our derivatives.

Net impairment of available-for-sale securities recognized in earnings in our Investments segment was $1.0 billion during 

2013 compared to $1.8 billion during 2012. The decrease in net impairments was primarily due to improvements in forecasted 

home prices over the expected life of the available-for-sale securities during 2013. During 2013, the improvements in 

forecasted home prices were offset primarily by the impact of two changes: (a) the incorporation in the fourth quarter of 2013 

of new information, which enhanced the assumptions used to estimate the contractual loan terms for certain modified loans 

collateralizing non-agency mortgage-related securities for which actual data about those terms was unavailable to the market; 

and (b) an increase in the population of available-for-sale securities in an unrealized loss position which we intend to sell. In the 

fourth quarter of 2012, we implemented the use of a third-party model, which enhanced our approach to estimating other-thantemporary impairments of our single-family non-agency mortgage-related securities. The decision to transition to a third-party 

model was made to increase the level of disaggregation for certain assumptions used in projecting cash flow estimates of these 

securities. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities — Mortgage-Related 

Securities — Other-Than-Temporary Impairments on Available-For-Sale Mortgage-Related Securities,” as well as “NOTE 7: 

INVESTMENTS IN SECURITIES” for additional information on our impairments.

We recorded gains (losses) on trading securities of $(1.6) billion during 2013 compared to $(1.8) billion during 2012. The 

losses on trading securities during both periods were primarily due to the movement of securities with unrealized gains towards 

maturity. 

We recorded gains (losses) on mortgage loans, primarily related to movements in interest rates on our multifamily heldfor-sale loans, of $(817) million during 2013 compared to $303 million during 2012. The losses on mortgage loans during 2013 

were primarily due to an increase in interest rates while the gains on mortgage loans during 2012 were due to a decline in 

interest rates.

We recorded other non-interest income for this segment of $9.6 billion during 2013 compared to $2.7 billion during 2012. 

The increase in other non-interest income primarily resulted from: (a) settlements associated with our investments in certain 

non-agency mortgage-related securities; (b) increased gains on sales of available-for-sale securities resulting from increased 

sales volume related to our 2013 Conservatorship Scorecard goal to sell 5% of less liquid mortgage-related assets, as well as 

sales of agency REMIC securities; and (c) increased gains on the retirement of other debt largely due to higher premiums held 

on the debt that was called in 2013. The gains on sales of available-for-sale securities includes the estimated amount of gains on 

sales of Multifamily segment CMBS attributed to changes in interest rates. For information on the settlement agreements, see 

“NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Non-Agency Mortgage-Related Security Issuers.”

We recorded a benefit in other non-interest expense for this segment of $349 million during 2013 compared to an expense 

of $1 million in 2012. The benefit in 2013 resulted from an adjustment of $350 million to expected recoveries of our short-term 

lending receivable related to a settlement with Lehman Brothers Holdings Inc. in February 2014. For information on this 

settlement, see "NOTE 17: LEGAL CONTINGENCIES.”

Our Investments segment’s other comprehensive income was $3.7 billion during 2013 compared to $3.2 billion during 

2012. The increase in other comprehensive income was primarily due to higher fair values on our single-family non-agency 

mortgage-related securities, as these securities were affected by spread tightening in 2013, partially offset by losses on our 

agency mortgage-related securities resulting from the increase in long-term interest rates. Changes in fair value of the 

Multifamily segment investment securities, excluding impacts from the changes in interest rates, which are included in the 

Investments segment, are reflected in the Multifamily segment.

2012 vs. 2011 

Segment Earnings for our Investments segment increased by $4.8 billion to $8.2 billion in 2012 compared to $3.4 billion 

in 2011, primarily due to derivative gains during 2012 versus derivative losses during 2011. Comprehensive income for our 

Investments segment increased by $4.9 billion to $11.4 billion in 2012, compared to $6.5 billion in 2011, primarily due to 

Table of Contents
80 Freddie Mac

higher Segment Earnings. Other comprehensive income was relatively unchanged in 2012 compared to 2011, as higher gains 

on our non-agency mortgage-related securities were largely offset by the impact of a smaller decline in interest rates and less 

spread tightening on our agency securities. 

During 2012, the UPB of the Investments segment mortgage investments portfolio decreased by 16%. We held $208.1 

billion and $253.6 billion of agency securities, $76.5 billion and $86.5 billion of non-agency mortgage-related securities, and 

$91.4 billion and $109.2 billion of single-family unsecuritized mortgage loans at December 31, 2012 and 2011, respectively. 

The decline in UPB of agency securities is due mainly to liquidations. The decline in UPB of these non-agency mortgagerelated securities is due mainly to the receipt of principal repayments from both the recoveries from liquidated loans and, to a 

lesser extent, voluntary repayments of the underlying collateral, representing a partial return of our investments in these 

securities. The decline in the UPB of single-family unsecuritized mortgage loans is primarily related to our securitization of 

mortgage loans that we had purchased for cash. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in 

Securities” and “— Mortgage Loans” for additional information regarding our mortgage-related securities and mortgage loans. 

Segment Earnings net interest income decreased $1.4 billion, and Segment Earnings net interest yield decreased 11 basis 

points during 2012 compared to 2011. The primary driver of the decreases was the reduction in the balance of higher-yielding 

mortgage-related assets due to continued liquidations, partially offset by lower funding costs primarily due to the replacement 

of debt at lower rates. 

Segment Earnings non-interest income (loss) was $1.4 billion in 2012 compared to $(4.5) billion in 2011. This 

improvement was primarily due to derivative gains during 2012 versus derivative losses during 2011 and an increase in other 

non-interest income, partially offset by an increase in losses on trading securities. 

We recorded derivative gains (losses) for this segment of $2.0 billion during 2012 compared to $(3.6) billion during 2011. 

This improvement was primarily due to the impact of a smaller decline in interest rates coupled with a yield curve steepening in 

2012 compared to 2011. In addition, a change in the mix of our derivatives portfolio, whereby we increased our holdings of 

receive-fixed swaps relative to pay-fixed swaps as we rebalanced our portfolio during a period of steadily declining interest 

rates in 2012, contributed to the gain. 

Impairments recorded in our Investments segment were $1.8 billion during both 2012 and 2011. In the fourth quarter of 

2012 we implemented the use of a third-party model, which enhanced our approach to estimating other-than-temporary 

impairments of our single-family non-agency mortgage-related securities as discussed above. Absent the adverse impact from 

the implementation of the third-party model, our 2012 impairments were otherwise positively impacted by improvements in 

forecasted home prices over the expected life of the available-for-sale securities and lower interest rates, resulting in a benefit 

from expected structural credit enhancements on the securities.

We recorded gains (losses) on trading securities of $(1.8) billion during 2012 compared to $(1.0) billion during 2011. The 

losses on trading securities during both periods were primarily due to the movement of securities with unrealized gains towards 

maturity. These losses were partially offset by the increase in the fair value of our trading securities as a result of the decline in 

interest rates during 2012 and 2011. The increased losses in 2012 compared to 2011 resulted from lower interest rate-related 

gains in 2012 as interest rates declined less in 2012 compared to 2011. 

We recorded gains (losses) on mortgage loans of $303 million during 2012, compared to $529 million during 2011. The 

gains on mortgage loans during both periods were primarily due to declines in interest rates.

Other non-interest income (loss) for this segment was $2.7 billion during 2012 compared to $1.4 billion during 2011. The 

improvement in other non-interest income was primarily due to an increase in amortization income related to premiums on debt 

securities of consolidated trusts held by third parties. This amortization income increased due to additional prepayments on the 

debt securities of consolidated trusts held by third parties due in part to the low interest rate environment and an increase in 

basis adjustments. Basis adjustments related to these debt securities of consolidated trusts held by third parties are generated 

through the securitization and sale of retained mortgage loans or sales of Freddie Mac mortgage-related securities from our 

mortgage-related investments portfolio. 

Our Investments segment’s total other comprehensive income was relatively unchanged at $3.2 billion during 2012 

compared to $3.1 billion during 2011, as higher gains on our non-agency mortgage-related securities were largely offset by the 

impact of a smaller decline in interest rates and less spread tightening on our agency securities. 

For a discussion of items that have affected our Investments segment net interest income over time, and can be expected 

to continue to do so, see “BUSINESS — Conservatorship and Related Matters — Limits on Investment Activity and Our 

Mortgage-Related Investments Portfolio.” 

Table of Contents
81 Freddie Mac

Multifamily

The table below presents the Segment Earnings of our Multifamily segment.

Table 19 — Segment Earnings and Key Metrics — Multifamily(1)

Year Ended December 31,

2013 2012 2011

(dollars in millions)

Segment Earnings:

Net interest income $ 1,186 $ 1,291 $ 1,200

Benefit for credit losses 218 123 196

Non-interest income:

Management and guarantee income 206 151 127

Net impairment of available-for-sale securities recognized in earnings (15) (123) (353)

Gains on mortgage loans 481 707 300

Other non-interest income 648 363 128

Total non-interest income 1,320 1,098 202

Non-interest expense:

Administrative expenses (257) (241) (220)

REO operations income (expense) 16 3 11

Other non-interest expense (24) (129) (69)

Total non-interest expense (265) (367) (278)

Segment Earnings before income tax benefit (expense) 2,459 2,145 1,320

Income tax benefit (expense) (81) 1 (1)

Segment Earnings, net of taxes 2,378 2,146 1,319

Total other comprehensive income (loss), net of taxes (923) 1,935 899

Total comprehensive income $ 1,455 $ 4,081 $ 2,218

Key metrics:

Balances and Volume:

Average balance of Multifamily unsecuritized loan portfolio $ 69,583 $ 80,826 $ 83,593

Average balance of Multifamily guarantee portfolio $ 63,689 $ 43,247 $ 29,861

Average balance of Multifamily investment securities portfolio $ 44,226 $ 54,992 $ 61,296

Multifamily new business activity(2) $ 25,872 $ 28,774 $ 20,325

Multifamily units financed from new business activity(2) 387,940 435,653 311,046

Multifamily K Certificate transactions — guaranteed portion $ 23,696 $ 17,922 $ 11,722

Multifamily K Certificate transactions — unguaranteed portion(3) $ 4,340 $ 3,281 $ 1,936

Yield and Rate:

Net interest yield — Segment Earnings basis 1.03% 0.95% 0.83%

Average Management and guarantee fee rate, in bps:(4)

K Certificate guarantees 19.7 19.0 21.2

All other guarantees 74.8 68.4 62.7

Total 31.8 35.6 42.4

Credit:

Delinquency rate:

Credit-enhanced loans, at period end 0.11% 0.36% 0.52%

Non-credit-enhanced loans, at period end 0.07% 0.10% 0.11%

Total delinquency rate, at period end(5) 0.09% 0.19% 0.22%

Allowance for loan losses and reserve for guarantee losses, at period end $ 151 $ 382 $ 545

Credit losses, in bps(6) 0.9 2.8 6.3

REO inventory, at net carrying value $ 10 $ 64 $ 133

REO inventory, at period end (number of properties) 1 6 20

(1) For reconciliations of Segment Earnings line items to the comparable line items in our consolidated financial statements prepared in accordance with 

GAAP, see “NOTE 13: SEGMENT REPORTING — Table 13.2 — Segment Earnings and Reconciliation to GAAP Results.”

(2) Represents loan purchases and issuances of other guarantee commitments and Other Structured Securities. Excludes Other Guarantee Transactions.

(3) Represents subordinated securities (i.e., CMBS), which are not issued or guaranteed by us.

(4) Represents Multifamily Segment Earnings — management and guarantee income, excluding prepayment and certain other fees for each category, 

divided by the sum of the average UPB of the related category of guarantee. The average UPB of the all other guarantees category includes the average 

UPB associated with HFA initiative-related guarantees, excluding certain bonds under the NIBP.

Table of Contents
82 Freddie Mac

(5) See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Multifamily Mortgage Credit Risk” for information on our reported 

multifamily delinquency rate.

(6) Calculated as the amount of multifamily credit losses (gains) divided by the sum of the average carrying value of our multifamily loans (on-balance 

sheet) and the average balance of the multifamily guarantee portfolio, including multifamily HFA initiative-related guarantees.

Segment Earnings for our Multifamily segment was $2.4 billion in 2013, compared to $2.1 billion in 2012 and $1.3 

billion in 2011. The increase in 2013 was primarily due to increased non-interest income and increased benefit for credit losses, 

while the increase in 2012 was mainly due to increased non-interest income.

Comprehensive income for our Multifamily segment was $1.5 billion and $4.1 billion for 2013 and 2012, respectively, 

and consisted of: (a) Segment Earnings of $2.4 billion and $2.1 billion, respectively; and (b) $(0.9) billion and $1.9 billion of 

total other comprehensive income (loss), respectively. Total other comprehensive loss for our Multifamily segment in 2013 was 

primarily related to the realization of fair value gains in current period Segment Earnings that were previously deferred in 

AOCI associated with certain available-for-sale securities that were sold during 2013. Total other comprehensive income for 

our Multifamily segment in 2012 was mainly due to an increase in the fair value of available-for-sale CMBS, which was driven 

by favorable non-interest rate-related market spread movements.

In 2013, we continued to provide liquidity to the multifamily market and support affordable rental housing by acquiring 

and securitizing mortgages secured by nearly 1,600 properties amounting to nearly 388,000 rental units. Between 2009 and 

2013, we sold $71.5 billion in UPB of multifamily loans through 56 K Certificate transactions, which represented 

approximately $61.0 billion in Other Guarantee Transactions that we issued and guaranteed, and $10.5 billion in unguaranteed 

private-label bonds (i.e., CMBS). The vast majority of the apartments we financed in 2013 were affordable to low and moderate 

income families. 

We met the 2013 Conservatorship Scorecard goal of reducing our new multifamily business volume by at least 10% as 

compared to 2012 levels. As a result, our multifamily new business activity declined to $25.9 billion in 2013 compared to $28.8 

billion for 2012. In addition to managing our new business volume, we experienced increased competition from other market 

participants and, as a result, we believe that our portion of new business in the multifamily market declined during 2013.

We sold $28.3 billion in UPB of multifamily loans in 2013 primarily through K Certificate transactions compared to 

$20.8 billion in 2012. The UPB of the total multifamily portfolio declined to $166.8 billion as of December 31, 2013 from 

$180.2 billion as of December 31, 2012, primarily due to the sale of available-for-sale CMBS related to our 2013 

Conservatorship Scorecard goal to sell 5% of less liquid mortgage-related assets, and liquidations of our multifamily loan 

portfolio and investment securities. This decline was partially offset by an increase in our multifamily guarantee portfolio 

resulting from our issuance of K Certificates.

While we had a record level of Multifamily Segment Earnings in 2013, this is not sustainable over the long-term. Our 

recent financial results have benefited significantly from the strength of the multifamily market in the last several years, gains 

on sales of mortgage loans from our securitization activity as well as gains on sales of CMBS investments. Consistent with the 

2013 Conservatorship Scorecard, we had significant sales of our CMBS during 2013. These sales, combined with principal 

repayments on CMBS and unsecuritized mortgage loans, reduced the size of the Multifamily investments portfolio and resulted 

in a decline in our Segment Earnings net interest income in 2013. These and any other significant strategy changes, either from 

management, FHFA, or Treasury, could have an adverse impact on the future earnings of our Multifamily segment.

Segment Earnings net interest income was $1.2 billion in 2013 compared to $1.3 billion in 2012 and $1.2 billion in 2011. 

The decrease in 2013 was primarily due to lower average balances of the multifamily loan and investment securities portfolios. 

The increase in 2012 was primarily due to the cumulative effect of new business volumes since 2008, which have higher yields 

relative to allocated funding costs compared to pre-2008 volumes.

Segment Earnings non-interest income was $1.3 billion, $1.1 billion, and $0.2 billion in 2013, 2012 and 2011, 

respectively. The increase in 2013 compared to 2012 was primarily due to higher other non-interest income which resulted 

from increased gains on sale of $12.4 billion in UPB of available-for-sale CMBS discussed above. This increase was partially 

offset by a decrease in gains on mortgage loans due to less favorable non-interest rate-related market movements during 2013 

compared to 2012. The increase in 2012 compared to 2011 was mainly due to: (a) higher gains on mortgage loans resulting 

from favorable non-interest rate-related market movements during 2012; and (b) lower impairments on available-for-sale 

securities compared to 2011, which reflects improvement in the performance of the underlying collateral.

Segment Earnings management and guarantee income increased to $206 million in 2013, compared to $151 million in 

2012, and $127 million in 2011. The increase in both 2013 and 2012 was primarily due to the higher average balance of the 

multifamily guarantee portfolio, which was primarily due to increased issuances of K Certificates. However, the average total 

management and guarantee fee rate on our multifamily guarantee portfolio declined to 31.8 basis points in 2013 from 35.6 basis 

points in 2012 and 42.4 basis points in 2011. These declines primarily reflect the increased issuances of guaranteed K 

Certificates during recent periods, which have lower fees than our other multifamily guarantee activities as a result of our 

limited credit risk exposure due to the use of subordination.

Table of Contents
83 Freddie Mac

Segment Earnings benefit for credit losses was $218 million, $123 million and $196 million in 2013, 2012 and 2011

respectively. The continued recognition of benefit for credit losses was primarily due to an improvement in the expected 

performance of the underlying loans.

As a result of our prudent underwriting standards and practices, and the continued positive multifamily market 

fundamentals, the credit quality of the multifamily mortgage portfolio remains strong. Multifamily credit losses as a percentage 

of the combined average balance of our multifamily loan and guarantee portfolios were 0.9 basis points, 2.8 basis points, and 

6.3 basis points in 2013, 2012 and 2011, respectively. See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — 

Multifamily Mortgage Credit Risk” for further information about the credit performance of our multifamily mortgage portfolio.

CONSOLIDATED BALANCE SHEETS ANALYSIS

The following discussion of our consolidated balance sheets should be read in conjunction with our consolidated 

financial statements, including the accompanying notes. Also, see “CRITICAL ACCOUNTING POLICIES AND 

ESTIMATES” for information concerning certain significant accounting policies and estimates applied in determining our 

reported financial position.

Cash and Cash Equivalents, Federal Funds Sold and Securities Purchased Under Agreements to Resell

Cash and cash equivalents, federal funds sold and securities purchased under agreements to resell, and other liquid assets 

discussed in “Investments in Securities — Non-Mortgage-Related Securities,” are important to our cash flow and asset and 

liability management, and our ability to provide liquidity and stability to the mortgage market. We use these assets to help 

manage recurring cash flows and meet our other cash management needs. We consider federal funds sold to be overnight 

unsecured trades executed with insured depository institutions that are members of the Federal Reserve System. Federal funds 

sold trades are not insured. Securities purchased under agreements to resell principally consist of short-term contractual 

agreements such as reverse repurchase agreements involving Treasury and agency securities.

The short-term assets on our consolidated balance sheets also include those related to our consolidated VIEs, which 

consisted primarily of restricted cash and cash equivalents and securities purchased under agreements to resell at December 31, 

2013. These short-term assets related to our consolidated VIEs decreased by $18.2 billion from December 31, 2012 to 

December 31, 2013, primarily due to a decrease in the level of refinancing activity.

Excluding amounts related to our consolidated VIEs, we held $11.3 billion and $8.5 billion of cash and cash equivalents 

(including non-interest bearing deposits of $7.2 billion and $7.3 billion at the Federal Reserve Bank of New York), no federal 

funds sold, and $59.2 billion and $18.3 billion of securities purchased under agreements to resell at December 31, 2013 and 

2012, respectively. The increase in these liquid assets at December 31, 2013 compared to December 31, 2012 was due in part to 

the concern that the U.S. would exhaust its borrowing authority under the statutory debt limit.

Excluding amounts related to our consolidated VIEs, we held on average $22.6 billion and $24.5 billion of cash and cash 

equivalents and $55.7 billion and $27.6 billion of federal funds sold and securities purchased under agreements to resell during 

the three and twelve months ended December 31, 2013, respectively. The larger average balance during the fourth quarter of 

2013 of federal funds sold and securities purchased under agreements to resell was primarily due to our obligation to pay to 

Treasury the significant senior preferred stock dividend at the end of 2013.

For information regarding our liquidity management practices and policies, see “LIQUIDITY AND CAPITAL

RESOURCES.”

Investments in Securities

The two tables below provide detail regarding our investments in securities as of December 31, 2013, 2012, and 2011. 

The tables do not include our holdings of single-family PCs and certain Other Guarantee Transactions. For information on our 

holdings of such securities, see “Table 15 — Composition of Segment Mortgage Portfolios and Credit Risk Portfolios.”

Table of Contents
84 Freddie Mac

Table 20 — Investments in Available-For-Sale Securities

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses Fair Value

(in millions)

December 31, 2013

Available-for-sale mortgage-related securities:

Freddie Mac $ 39,001 $ 1,847 $ (189) $ 40,659

Fannie Mae 10,140 660 (3) 10,797

Ginnie Mae 149 18 — 167

CMBS 29,151 1,524 (337) 30,338

Subprime 29,897 382 (2,780) 27,499

Option ARM 6,617 338 (381) 6,574

Alt-A and other 8,322 526 (142) 8,706

Obligations of states and political subdivisions 3,533 23 (61) 3,495

Manufactured housing 629 61 (6) 684

Total investments in available-for-sale mortgage-related securities $ 127,439 $ 5,379 $ (3,899) $ 128,919

December 31, 2012

Available-for-sale mortgage-related securities:

Freddie Mac $ 53,965 $ 4,602 $ (52) $ 58,515

Fannie Mae 14,183 1,099 (2) 15,280

Ginnie Mae 183 26 — 209

CMBS 47,606 3,882 (181) 51,307

Subprime 35,503 83 (9,129) 26,457

Option ARM 7,454 48 (1,785) 5,717

Alt-A and other 11,861 244 (1,201) 10,904

Obligations of states and political subdivisions 5,647 154 (3) 5,798

Manufactured housing 716 24 (31) 709

Total investments in available-for-sale mortgage-related securities $ 177,118 $ 10,162 $ (12,384) $ 174,896

December 31, 2011

Available-for-sale mortgage-related securities:

Freddie Mac $ 74,711 $ 6,429 $ (48) $ 81,092

Fannie Mae 19,023 1,303 (4) 20,322

Ginnie Mae 219 30 — 249

CMBS 53,637 2,574 (548) 55,663

Subprime 41,347 60 (13,408) 27,999

Option ARM 9,019 15 (3,169) 5,865

Alt-A and other 13,659 32 (2,812) 10,879

Obligations of states and political subdivisions 7,782 108 (66) 7,824

Manufactured housing 820 6 (60) 766

Total investments in available-for-sale mortgage-related securities $ 220,217 $ 10,557 $ (20,115) $ 210,659

Table of Contents
85 Freddie Mac

Table 21 — Investments in Trading Securities

December 31,

2013 2012 2011

(in millions)

Trading mortgage-related securities:

Freddie Mac $ 9,349 $ 10,354 $ 16,047

Fannie Mae 7,180 10,338 15,165

Ginnie Mae 98 131 156

Other 141 156 164

Total trading mortgage-related securities 16,768 20,979 31,532

Trading non-mortgage-related securities:

Asset-backed securities — 292 302

Treasury bills 2,254 1,160 100

Treasury notes 4,382 19,061 24,712

FDIC-guaranteed corporate medium-term notes — — 2,184

Total trading non-mortgage-related securities 6,636 20,513 27,298

Total fair value of investments in trading securities $ 23,404 $ 41,492 $ 58,830

Non-Mortgage-Related Securities

Our investments in non-mortgage-related securities provide an additional source of liquidity. We held investments in nonmortgage-related securities with a fair value of $6.6 billion and $20.5 billion as of December 31, 2013 and 2012, respectively. 

While our investments in non-mortgage-related securities declined at December 31, 2013 compared to December 31, 2012, our 

other liquid assets increased. For more information on liquid assets, see "Cash and Cash Equivalents, Federal Funds Sold and 

Securities Purchased Under Agreements to Resell."

Mortgage-Related Securities

Our investments in mortgage-related securities consist of securities issued by Fannie Mae, Ginnie Mae, and other 

financial institutions. We also invest in our own mortgage-related securities. However, the single-family PCs and certain Other 

Guarantee Transactions we purchase as investments are not accounted for as investments in securities on our consolidated 

balance sheets because we recognize the underlying mortgage loans on our consolidated balance sheets through consolidation 

of the related trusts. 

The table below provides the UPB of our investments in mortgage-related securities classified as available-for-sale or 

trading on our consolidated balance sheets. The table below does not include our holdings of our own single-family PCs and 

certain Other Guarantee Transactions. For further information on our holdings of such securities, see “Table 15 — Composition 

of Segment Mortgage Portfolios and Credit Risk Portfolios.”

Table of Contents
86 Freddie Mac

Table 22 — Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets

December 31, 2013 December 31, 2012

Fixed

Rate

Variable

Rate(1) Total

Fixed

Rate

Variable

Rate(1) Total

(in millions)

Freddie Mac mortgage-related securities:(2)

Single-family $ 38,472 $ 4,401 $ 42,873 $ 50,979 $ 7,256 $ 58,235

Multifamily 1,318 1,469 2,787 750 1,632 2,382

Total Freddie Mac mortgage-related securities 39,790 5,870 45,660 51,729 8,888 60,617

Non-Freddie Mac mortgage-related securities:

Agency securities:(3)

Fannie Mae:

Single-family 7,240 9,421 16,661 10,864 12,518 23,382

Multifamily 3 — 3 35 49 84

Ginnie Mae:

Single-family 150 78 228 202 91 293

Multifamily 15 — 15 15 — 15

Total Non-Freddie Mac agency securities 7,408 9,499 16,907 11,116 12,658 23,774

Non-agency mortgage-related securities:

Single-family:(4)

Subprime 116 39,583 39,699 311 44,086 44,397

Option ARM — 10,426 10,426 — 12,012 12,012

Alt-A and other 1,417 9,594 11,011 1,774 13,036 14,810

CMBS 13,069 16,254 29,323 17,657 30,300 47,957

Obligations of states and political subdivisions(5) 3,524 14 3,538 5,637 19 5,656

Manufactured housing 577 201 778 741 121 862

Total non-agency mortgage-related securities(6) 18,703 76,072 94,775 26,120 99,574 125,694

Total UPB of mortgage-related securities $ 65,901 $ 91,441 157,342 $ 88,965 $ 121,120 210,085

Premiums, discounts, deferred fees, impairments of UPB and other basis

adjustments (14,036) (13,922)

Net unrealized gains (losses) on mortgage-related securities, pre-tax 2,381 (288)

Total carrying value of mortgage-related securities $ 145,687 $ 195,875

(1) Variable-rate mortgage-related securities include those with a contractual coupon rate that, prior to contractual maturity, is either scheduled to change or 

is subject to change based on changes in the composition of the underlying collateral.

(2) When we purchase REMICs and Other Structured Securities and certain Other Guarantee Transactions that we have issued, we account for these 

securities as investments in debt securities as we are investing in the debt securities of a non-consolidated entity. We do not consolidate our 

resecuritization trusts unless we are deemed to be the primary beneficiary of such trusts. We are subject to the credit risk associated with the mortgage 

loans underlying our Freddie Mac mortgage-related securities. Mortgage loans underlying our issued single-family PCs and certain Other Guarantee 

Transactions are recognized on our consolidated balance sheets as held-for-investment mortgage loans, at amortized cost. See “NOTE 1: SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities” for further information.

(3) Agency securities are generally not separately rated by nationally recognized statistical rating organizations, but have historically been viewed as 

having a level of credit quality at least equivalent to non-agency mortgage-related securities AAA-rated or equivalent.

(4) For information about how these securities are rated, see ‘‘Table 28 — Ratings of Non-Agency Mortgage-Related Securities Backed by Subprime, 

Option ARM, Alt-A and Other Loans, and CMBS.’’

(5) Consists of housing revenue bonds. Approximately 28% and 36% of these securities held at December 31, 2013 and 2012, respectively, were AAArated as of those dates, based on the UPB and the lowest rating available.

(6) Credit ratings for most non-agency mortgage-related securities are designated by no fewer than two nationally recognized statistical rating 

organizations. Approximately 16% and 21% of total non-agency mortgage-related securities held at December 31, 2013 and 2012, respectively, were 

AAA-rated as of those dates, based on the UPB and the lowest rating available.

The table below provides the UPB and fair value of our investments in mortgage-related securities classified as availablefor-sale or trading on our consolidated balance sheets.

Table of Contents
87 Freddie Mac

Table 23 — Additional Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets

December 31, 2013 December 31, 2012

UPB Fair Value UPB Fair Value

(in millions)

Agency pass-through securities(1) $ 12,951 $ 13,867 $ 17,614 $ 19,125

Other agency securities:

Interest-only securities(2) — 1,966 — 2,023

Principal-only securities(3) 2,724 2,252 2,291 2,169

Inverse floating-rate securities(4) 1,594 2,280 2,804 4,106

Other Structured Securities(5) 45,298 47,885 61,682 67,404

Total agency securities 62,567 68,250 84,391 94,827

Non-agency securities(6) 94,775 77,437 125,694 101,048

Total mortgage-related securities $ 157,342 $ 145,687 $ 210,085 $ 195,875

(1) Represents an undivided beneficial interest in trusts that hold pools of mortgages.

(2) Represents securities where the holder receives only the interest cash flows. Includes $0.6 billion and $0.5 billion in fair value at December 31, 2013 

and 2012, respectively, consisting of our K Certificates that we issued and guarantee in Other Guarantee Transactions.

(3) Represents securities where the holder receives only the principal cash flows.

(4) Represents securities where the holder receives interest cash flows that change inversely with the reference rate (i.e., higher cash flows when reference 

rates are low and lower cash flows when reference rates are high). Additionally, these securities receive a portion of principal cash flows associated 

with the underlying collateral.

(5) Includes REMICs and Other Structured Securities. See “GLOSSARY” for more information on these securities.

(6) Includes fair values of $2 million and $3 million of interest-only securities at December 31, 2013 and 2012, respectively.

The total UPB of our investments in mortgage-related securities on our consolidated balance sheets decreased from 

$210.1 billion at December 31, 2012 to $157.3 billion at December 31, 2013, while the fair value of these investments 

decreased from $195.9 billion at December 31, 2012 to $145.7 billion at December 31, 2013. The reduction in UPB of agency 

mortgage-related securities primarily resulted from liquidations. The reduction in non-agency mortgage-related securities is due 

to the receipt of principal repayments from both the recoveries from liquidated loans and voluntary repayments of the 

underlying collateral, representing a partial return of our investments in these securities, and sales, consistent with our efforts to 

reduce the size of our mortgage-related investments portfolio, as described in “BUSINESS — Conservatorship and Related 

Matters — Limits on Investment Activity and Our Mortgage-Related Investments Portfolio.”

The table below summarizes our mortgage-related securities purchase activity for 2013, 2012, and 2011. 

Table of Contents
88 Freddie Mac

Table 24 — Mortgage-Related Securities Purchase Activity(1)

Year Ended December 31,

2013 2012 2011

(in millions)

Non-Freddie Mac mortgage-related securities purchased for resecuritization:(2)

Ginnie Mae Certificates $ 26 $ 21 $ 77

Non-Freddie Mac mortgage-related securities purchased as investments in securities:

Agency securities:

Fannie Mae:

Fixed-rate 4,251 — 5,835

Variable-rate 50 170 2,297

Total agency securities 4,301 170 8,132

Non-agency mortgage-related securities:

CMBS:(3)

Fixed-rate 30 10 14

Variable-rate 65 69 179

Total non-agency mortgage-related securities 95 79 193

Total non-Freddie Mac mortgage-related securities purchased as investments in securities 4,396 249 8,325

Total non-Freddie Mac mortgage-related securities purchased $ 4,422 $ 270 $ 8,402

Freddie Mac mortgage-related securities purchased:

Single-family:

Fixed-rate $ 94,608 $ 49,607 $ 94,543

Variable-rate 885 3,542 5,057

Multifamily:

Fixed-rate — 119 355

Variable-rate — — 117

Total Freddie Mac mortgage-related securities purchased $ 95,493 $ 53,268 $ 100,072

Mortgage-related securities purchased for Other Guarantee Transactions(4) $ 23,696 $ 17,908 $ 11,527

(1) Based on UPB. Excludes mortgage-related securities traded but not yet settled.

(2) Excludes tax-exempt multifamily housing revenue bonds for securitization in guarantee swap transactions.

(3) Consists of our purchases of subordinated tranches issued in K Certificate transactions.

(4) Primarily consists of purchases of mortgage-related securities backed by Freddie Mac underwritten loans for the subsequent issuances of multifamily 

K Certificates.

The purchases of Freddie Mac mortgage-related securities that we made during 2013, as reflected in the table above,

primarily consisted of purchases of single-family PCs related to our investment activities. Our purchases of single-family PCs 

and certain Other Guarantee Transactions issued by trusts that we consolidated are recorded as an extinguishment of debt 

securities of consolidated trusts held by third parties on our consolidated balance sheets. For more information, see 

“BUSINESS — Our Business Segments — Investments Segment — Market Presence and PC Support Activities” and “RISK 

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

have an adverse effect on the volume and/or profitability of our new single-family guarantee business. The profitability of our 

multifamily business could be adversely affected by a significant decrease in demand for K Certificates.”

Unrealized Losses on Available-For-Sale Mortgage-Related Securities

At December 31, 2013, our gross unrealized losses, pre-tax, on available-for-sale mortgage-related securities were 

$3.9 billion, compared to $12.4 billion at December 31, 2012. The decrease was largely the result of fair value gains related to 

our investments in single-family non-agency mortgage-related securities, primarily due to the impact of spread tightening and 

the movement of these securities with unrealized losses towards maturity. We believe the unrealized losses related to these 

securities at December 31, 2013 were mainly attributable to poor underlying collateral performance, limited liquidity and risk 

premiums in the market for residential non-agency mortgage-related securities. All available-for-sale securities in an unrealized 

loss position are evaluated to determine if the impairment is other-than-temporary. See “Total Equity (Deficit)” and “NOTE 7: 

INVESTMENTS IN SECURITIES” for additional information regarding unrealized losses on our available-for-sale securities.

Higher-Risk Components of Our Investments in Mortgage-Related Securities

As discussed below, we have exposure to subprime, option ARM, interest-only, and Alt-A and other loans as part of our 

investments in mortgage-related securities as follows:

• Single-family non-agency mortgage-related securities: We hold non-agency mortgage-related securities backed by 

subprime, option ARM, and Alt-A and other loans.

Table of Contents
89 Freddie Mac

• Single-family Freddie Mac mortgage-related securities: We hold certain Other Guarantee Transactions as part of our 

investments in securities. There are subprime and option ARM loans underlying some of these Other Guarantee 

Transactions. For more information on single-family loans with certain higher-risk characteristics underlying our issued 

securities, see “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk.”

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

We categorize our investments in non-agency mortgage-related securities as subprime, option ARM, or Alt-A if the 

securities were identified as such based on information provided to us when we entered into these transactions. We have not 

identified option ARM, CMBS, obligations of states and political subdivisions, and manufactured housing securities as either 

subprime or Alt-A securities. Since the first quarter of 2008, we have not purchased any non-agency mortgage-related securities 

backed by subprime, option ARM, or Alt-A loans. The table below presents information about our holdings of available-forsale non-agency mortgage-related securities backed by subprime, option ARM and Alt-A loans.

Table 25 — Non-Agency Mortgage-Related Securities Backed by Subprime First Lien, Option ARM, and Alt-A Loans 

and Certain Related Credit Statistics(1)

As of

12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012

(dollars in millions)

UPB:

Subprime first lien(2) $ 39,417 $ 40,491 $ 41,608 $ 42,998 $ 44,066

Option ARM 10,426 10,755 11,190 11,617 12,012

Alt-A(3) 9,147 9,866 11,118 12,243 12,634

Gross unrealized losses, pre-tax:(4)

Subprime first lien(2) $ 2,779 $ 4,666 $ 5,281 $ 6,085 $ 9,128

Option ARM 381 619 635 1,226 1,785

Alt-A(3) 135 304 579 781 1,093

Present value of expected future credit losses:(5)

Subprime first lien (2) $ 6,299 $ 3,575 $ 4,047 $ 6,195 $ 7,159

Option ARM 1,802 1,683 2,094 2,896 3,542

Alt-A (3) 1,165 1,149 1,338 1,450 1,739

Collateral delinquency rate:(6)

Subprime first lien(2) 35% 36% 37% 38% 39%

Option ARM 32 33 34 36 38

Alt-A(3) 22 22 22 22 23

Average credit enhancement:(7)

Subprime first lien(2) 9% 10% 12% 14% 15%

Option ARM — — 1 2 3

Alt-A(3) — 1 3 4 4

Cumulative collateral loss:(8)

Subprime first lien(2) 30% 29% 29% 27% 26%

Option ARM 24 24 23 22 21

Alt-A(3) 13 13 12 11 10

(1) See “Ratings of Non-Agency Mortgage-Related Securities” for additional information about these securities. The book and fair values of our mortgagerelated securities and the information in this table were not affected by the settlement amounts we received in 2013 related to our investments in certain 

non-agency mortgage-related securities. For more information, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — NonAgency Mortgage-Related Security Issuers.”

(2) Excludes non-agency mortgage-related securities backed exclusively by subprime second liens. Certain securities identified as subprime first lien may 

be backed in part by subprime second-lien loans, as the pools of loans underlying these securities were permitted to include a small percentage of 

subprime second-lien loans.

(3) Excludes non-agency mortgage-related securities backed by other loans, which primarily consist of securities backed by home equity lines of credit.

(4) Represents the aggregate of the amount by which amortized cost, after other-than-temporary impairments, exceeds fair value measured at the individual 

lot level.

(5) Represents our estimate of the present value of future contractual cash flows that we do not expect to collect, discounted at the effective interest rate 

determined based on the security’s contractual cash flows and the initial acquisition costs. This discount rate is only utilized to analyze the cumulative 

credit deterioration for securities since acquisition and may be lower than the discount rate used to measure ongoing other-than-temporary impairment 

to be recognized in earnings for securities that have experienced a significant improvement in expected cash flows since the last recognition of otherthan-temporary impairment recognized in earnings.

(6) Determined based on the number of loans that are two monthly payments or more past due that underlie the securities using information obtained from 

a third-party data provider.

(7) Reflects the ratio of the current principal amount of the securities issued by a trust that will absorb losses in the trust before any losses are allocated to 

securities that we own. Percentage generally calculated based on: (a) the total UPB of securities subordinate to the securities we own, divided by (b) the 

Table of Contents
90 Freddie Mac

total UPB of all of the securities issued by the trust (excluding notional balances). Only includes credit enhancement provided by subordinated 

securities; excludes credit enhancement provided by bond insurance.

(8) Based on the actual losses incurred on the collateral underlying these securities. Actual losses incurred on the securities that we hold are significantly 

less than the losses on the underlying collateral as presented in this table, as non-agency mortgage-related securities backed by subprime, option ARM, 

and Alt-A loans were generally structured to include credit enhancements, particularly through subordination and other structural enhancements.

For purposes of our cumulative credit deterioration analysis, our estimate of the present value of expected future credit 

losses on our available-for-sale non-agency mortgage-related securities decreased to $9.7 billion at December 31, 2013 from 

$13.2 billion at December 31, 2012. All of these amounts have been reflected in our net impairment of available-for-sale 

securities recognized in earnings in this period or prior periods. The decrease in the present value of expected future credit 

losses was primarily driven by: (a) improvements in forecasted home prices over the expected life of our available-for-sale 

securities; and (b) realized cash shortfalls. The decrease in the present value of expected future credit losses was offset by the 

incorporation in the fourth quarter of 2013 of new information, which enhanced the assumptions used to estimate the 

contractual loan terms for certain modified loans collateralizing non-agency mortgage-related securities for which actual data 

about those terms was unavailable to the market. This enhancement resulted in a lower net present value of projected cash 

flows on our non-agency mortgage-related securities and increased our net other-than-temporary impairments recognized in 

earnings by $0.7 billion.

The investments in non-agency mortgage-related securities we hold backed by subprime, option ARM, and Alt-A loans 

were generally structured to include credit enhancements, particularly through subordination and other structural 

enhancements. Bond insurance is an additional credit enhancement covering some of the non-agency mortgage-related 

securities. These credit enhancements are the primary reason we expect our actual losses, through principal or interest 

shortfalls, to be less than the underlying collateral losses in the aggregate. During 2013, we continued to experience the erosion 

of structural credit enhancements on many securities backed by subprime, option ARM, and Alt-A loans due to poor 

performance of the underlying collateral. As of December 31, 2013, on an average basis, the structural credit enhancements on 

our securities backed by option ARM and certain Alt-A loans have been more than fully depleted. We have also determined that 

there is substantial uncertainty surrounding certain bond insurers’ ability to pay our future claims on expected credit losses 

related to our non-agency mortgage-related security investments. For more information, see "Table 7.3 — Significant Modeled 

Attributes for Certain Available-For-Sale Non-Agency Mortgage-Related Securities." For more information on bond insurance 

coverage, see “RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Bond Insurers.”

Since the beginning of 2007, we have incurred actual principal cash shortfalls of $3.7 billion on impaired available-forsale non-agency mortgage-related securities, including $152 million and $955 million related to the three and twelve months 

ended December 31, 2013, respectively. Many of the trusts that issued non-agency mortgage-related securities we hold were 

structured so that realized collateral losses in excess of structural credit enhancements are not passed on to investors until the 

investment matures.

The table below provides principal repayment and cash shortfall information for our investments in non-agency 

mortgage-related securities backed by subprime, option ARM, Alt-A and other loans.

Table 26 — Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other Loans(1)

Three Months Ended

12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012

(in millions)

Principal repayments and cash shortfalls:(2)

Subprime:

Principal repayments $ 1,021 $ 1,048 $ 1,087 $ 1,065 $ 1,106

Principal cash shortfalls 8 35 15 14 7

Option ARM:

Principal repayments $ 192 $ 226 $ 239 $ 217 $ 239

Principal cash shortfalls 100 161 188 178 226

Alt-A and other:

Principal repayments $ 324 $ 418 $ 418 $ 385 $ 423

Principal cash shortfalls 43 51 74 84 81

(1) See “Ratings of Non-Agency Mortgage-Related Securities” for additional information about these securities. The book and fair values of our mortgagerelated securities and the information in this table were not affected by the settlement amounts we received in 2013 related to our investments in certain 

non-agency mortgage-related securities. For more information, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — NonAgency Mortgage-Related Security Issuers.”

(2) In addition to the contractual interest payments, we receive principal repayments from both the recoveries from liquidated loans and voluntary 

repayments of the underlying collateral of these securities representing a partial return of our investment in these securities.

Table of Contents
91 Freddie Mac

We and FHFA, as Conservator, are involved in various efforts to mitigate or recover our losses as an investor with respect 

to certain of the non-agency mortgage-related securities we hold. See “RISK MANAGEMENT — Credit Risk — Institutional 

Credit Risk — Agency and Non-Agency Mortgage-Related Security Issuers” for more information.

Other-Than-Temporary Impairments on Available-For-Sale Mortgage-Related Securities

The table below provides information about the mortgage-related securities for which we recognized other-thantemporary impairments in earnings, consisting entirely of non-agency mortgage-related securities.

Table 27 — Net Impairment of Available-For-Sale Mortgage-Related Securities Recognized in Earnings

Net Impairment of Available-For-Sale Securities Recognized in Earnings

Three Months Ended

12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012 

(in millions)

Subprime:(1)

2006 & 2007 $ 1,141 $ 4 $ 12 $ 27 $ 591

Other years 26 41 1 6 24

Total subprime 1,167 45 13 33 615

Option ARM:

2006 & 2007 26 1 4 — 306

Other years 15 11 1 — 122

Total option ARM 41 12 5 — 428

Alt-A:

2006 & 2007 4 1 1 — 37

Other years 54 64 24 — 100

Total Alt-A 58 65 25 — 137

Other loans 30 1 — — —

Total subprime, option ARM, Alt-A and other loans 1,296 123 43 33 1,180

CMBS 1 3 — 10 58

Manufactured housing — — 1 — 1

Total available-for-sale mortgage-related securities $ 1,297 $ 126 $ 44 $ 43 $ 1,239

(1) Includes all first and second liens.

We recorded net impairment of available-for-sale securities recognized in earnings of $1.3 billion and $1.5 billion during 

the three and twelve months ended December 31, 2013, respectively, compared to $1.2 billion and $2.2 billion during the three 

and twelve months ended December 31, 2012, respectively. 

We review our investments in available-for-sale securities that are in an unrealized loss position to determine which 

securities, if any, we intend to sell, given market conditions and other information as of the balance sheet date. For any 

available-for-sale security for which we concluded we had the intent to sell as of December 31, 2013, we recorded the 

unrealized loss as a net impairment of available-for-sale securities recognized in earnings. The intent to sell population is 

determined using management judgment based on a variety of factors, including economics and other considerations and, in the 

case of single-family non-agency mortgage-related securities, whether such securities are subject to FHFA-led lawsuits or other 

loss mitigation measures. During the three and twelve months ended December 31, 2013, we recorded net impairment of 

available-for-sale securities recognized in earnings of $434 million and $568 million, respectively, due to our intent to sell 

certain securities. We recorded the remaining impairments because our estimate of the present value of expected future credit 

losses on certain individual available-for-sale securities increased during the period. The securities that we have the intent to 

sell are based on our current operational plans, models and strategies. If there is a change in our operational plans, models or 

strategies, it could change the population of securities we intend to sell and thereby have a potentially significant impact on 

earnings. For more information, including information regarding model changes or enhancements related to impairments 

implemented in the fourth quarters of 2013 and 2012, see "CONSOLIDATED RESULTS OF OPERATIONS — Non-Interest 

Income (Loss) — Investment Securities-Related Activities" and “NOTE 7: INVESTMENTS IN SECURITIES — Other-ThanTemporary Impairments on Available-for-Sale Securities.”

While it is reasonably possible that collateral losses on our available-for-sale securities where we have not recorded an 

impairment charge in earnings could exceed our credit enhancement levels, we do not believe that those conditions were likely 

at December 31, 2013. Based on our conclusion that we do not intend to sell our remaining available-for-sale securities that are 

in an unrealized loss position (other than those securities noted above) and it is not more likely than not that we will be required 

to sell these securities before a sufficient time to recover all unrealized losses and our consideration of other available 

information, we have concluded that the reduction in fair value of these securities was temporary at December 31, 2013 and 

have recorded these unrealized losses in AOCI.

Table of Contents
92 Freddie Mac

The credit performance of loans underlying our holdings of non-agency mortgage-related securities has declined since 

2007 and, although it has stabilized in recent periods, it remains weak. This decline has been particularly severe for subprime, 

option ARM, and Alt-A and other loans. Our investments in non-agency mortgage-related securities have been negatively 

affected by high unemployment, a large inventory of seriously delinquent mortgage loans and unsold homes, tight credit 

conditions, and weak consumer confidence. In addition, the loans which serve as collateral for the securities we hold have 

significantly greater concentrations in the states that have undergone the greatest economic stress during the housing crisis that 

began in 2006, such as California and Florida. Loans in these states are more likely to become seriously delinquent and the 

credit losses associated with such loans are likely to be higher than in other states.

Our assessments concerning other-than-temporary impairment require significant judgment and the use of models, and 

are subject to potentially significant change as conditions evolve. In addition, changes in the performance of the individual 

securities and in mortgage market conditions may also affect our impairment assessments. Depending on the structure of the 

individual mortgage-related security and our estimate of collateral losses relative to the amount of credit support expected to be 

available for the tranches we own, a change in collateral loss estimates can have a disproportionate impact on the loss estimate 

for the security. Additionally, servicer performance, loan modification programs and backlogs, and various forms of 

government intervention in the housing market can significantly affect the performance of these securities, including the timing 

of loss recognition of the underlying loans and thus the timing of losses we recognize on our securities. Impacts related to 

changes in interest rates may also affect our losses due to the structural credit enhancements on our investments in non-agency 

mortgage-related securities. The lengthening of the foreclosure timelines that has occurred in recent years can also affect our 

losses. For example, while defaulted loans remain in the trusts prior to completion of the foreclosure process, the subordinate 

classes of securities issued by the securitization trusts may continue to receive interest payments, rather than absorbing default 

losses. This may reduce the amount of funds available for the tranches we own. Given the uncertainty of the housing and 

economic environment, it is difficult to estimate the future performance of mortgage loans and mortgage-related securities with 

high assurance, and actual results could differ materially from our expectations. Furthermore, various market participants could 

arrive at materially different conclusions regarding estimates of future principal cash shortfalls. 

For more information on risks associated with the use of models, see “RISK FACTORS — Operational Risks — We face 

risks and uncertainties associated with the models that we use for financial accounting and reporting purposes, to make 

business decisions, and to manage risks. Market conditions have raised these risks and uncertainties.” 

Ratings of Non-Agency Mortgage-Related Securities

The table below shows the ratings of non-agency mortgage-related securities backed by subprime, option ARM, Alt-A

and other loans, and CMBS held at December 31, 2013 based on their ratings as of December 31, 2013, as well as those held at 

December 31, 2012 based on their ratings as of December 31, 2012. Ratings presented represent the lower of S&P, Fitch and 

Moody's credit ratings, with Fitch and Moody's stated in terms of the S&P equivalent.

Table of Contents
93 Freddie Mac

Table 28 — Ratings of Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other

Loans, and CMBS

Credit Ratings as of December 31, 2013 UPB

Percentage

of UPB

Amortized

Cost

Gross

Unrealized

Losses

Bond

Insurance

Coverage(1)

(dollars in millions)

Subprime loans:

AAA-rated $ 88 —% $ 85 $ (1) $ 2

Other investment grade 1,829 5 1,758 (31) 355

Below investment grade(2) 37,782 95 28,054 (2,748) 1,315

Total $ 39,699 100% $ 29,897 $ (2,780) $ 1,672

Option ARM loans:

AAA-rated $ — —% $ — $ — $ —

Other investment grade 24 — 23 (1) 17

Below investment grade(2) 10,402 100 6,594 (380) 8

Total $ 10,426 100% $ 6,617 $ (381) $ 25

Alt-A and other loans:

AAA-rated $ 26 —% $ 25 $ — $ 5

Other investment grade 564 5 527 (7) 210

Below investment grade(2) 10,421 95 7,772 (135) 1,613

Total $ 11,011 100% $ 8,324 $ (142) $ 1,828

CMBS:

AAA-rated $ 14,286 49% $ 14,299 $ — $ 41

Other investment grade 12,786 43 12,740 (131) 1,653

Below investment grade(2) 2,251 8 2,239 (206) 1,557

Total $ 29,323 100% $ 29,278 $ (337) $ 3,251

Total subprime, option ARM, Alt-A and other loans, and CMBS:

AAA-rated $ 14,400 16% $ 14,409 $ (1) $ 48

Other investment grade 15,203 17 15,048 (170) 2,235

Below investment grade(2) 60,856 67 44,659 (3,469) 4,493

Total $ 90,459 100% $ 74,116 $ (3,640) $ 6,776

Total investments in mortgage-related securities $ 157,342

Percentage of subprime, option ARM, Alt-A and other loans, and

CMBS of total investments in mortgage-related securities 57%

Credit Ratings as of December 31, 2012

Subprime loans:

AAA-rated $ 263 1% $ 263 $ (20) $ 13

Other investment grade 2,033 4 1,988 (112) 371

Below investment grade(2) 42,101 95 33,252 (8,997) 1,474

Total $ 44,397 100% $ 35,503 $ (9,129) $ 1,858

Option ARM loans:

AAA-rated $ — —% $ — $ — $ —

Other investment grade 40 — 40 (4) 32

Below investment grade(2) 11,972 100 7,414 (1,781) 12

Total $ 12,012 100% $ 7,454 $ (1,785) $ 44

Alt-A and other loans:

AAA-rated $ 48 —% $ 48 $ (2) $ 6

Other investment grade 1,272 9 1,283 (120) 261

Below investment grade(2) 13,490 91 10,532 (1,079) 1,862

Total $ 14,810 100% $ 11,863 $ (1,201) $ 2,129

CMBS:

AAA-rated $ 24,646 51% $ 24,676 $ (4) $ 41

Other investment grade 20,615 43 20,568 (87) 1,698

Below investment grade(2) 2,696 6 2,490 (90) 1,568

Total $ 47,957 100% $ 47,734 $ (181) $ 3,307

Total subprime, option ARM, Alt-A and other loans, and CMBS:

AAA-rated $ 24,957 21% $ 24,987 $ (26) $ 60

Other investment grade 23,960 20 23,879 (323) 2,362

Below investment grade(2) 70,259 59 53,688 (11,947) 4,916

Total $ 119,176 100% $ 102,554 $ (12,296) $ 7,338

Total investments in mortgage-related securities $ 210,085

Percentage of subprime, option ARM, Alt-A and other loans, and

CMBS of total investments in mortgage-related securities 57%

Table of Contents
94 Freddie Mac

(1) Represents the amount of UPB covered by bond insurance. This amount does not represent the maximum amount of losses we could recover, as the 

bond insurance also covers interest.

(2) Includes securities with S&P equivalent credit ratings below BBB– and certain securities that are no longer rated.

Mortgage Loans

The UPB of mortgage loans on our consolidated balance sheets was $1.7 trillion at both December 31, 2013 and 2012. 

Most of the loans on our consolidated balance sheets are securitized (e.g., held in PC trusts). The unsecuritized loans on our 

consolidated balance sheets generally consist of loans held for investment purposes, loans that are awaiting securitization, or 

delinquent or modified loans that we removed from PC trusts.

Based on the amount of the recorded investment of single-family loans on our consolidated balance sheets, approximately 

$41.5 billion, or 2.5%, of these loans were seriously delinquent or in foreclosure as of December 31, 2013, compared to 

$59.8 billion, or 3.6%, as of December 31, 2012. The majority of these loans are unsecuritized, and were removed by us from 

our PC trusts. As guarantor, we have the right to remove mortgages that back our PCs from the underlying loan pools under 

certain circumstances. See “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for more 

information on our removal of single-family loans from PC trusts.

The UPB of unsecuritized single-family mortgage loans declined by $22.6 billion to $122.1 billion at December 31, 2013

from $144.7 billion at December 31, 2012, primarily due to: (a) loan prepayments, foreclosure transfers, and foreclosure 

alternative activities; and (b) securitization of loans through our PC cash auction process, net of related purchases. This decline 

was partially offset by our removal of seriously delinquent single-family loans from PC trusts. As of December 31, 2013 and 

2012, the balance of unsecuritized single-family mortgage loans included $78.0 billion and $65.8 billion, respectively, in UPB 

of mortgage loans classified as TDRs that were no longer seriously delinquent. 

The UPB of unsecuritized multifamily mortgage loans was $59.2 billion at December 31, 2013 and $76.6 billion at 

December 31, 2012. This decline was primarily due to principal repayments as well as our securitization of loans through K 

Certificates, which exceeded new purchases of loans for securitization.

We maintain an allowance for loan losses on mortgage loans that we classify as held-for-investment on our consolidated 

balance sheets. We also maintain a reserve for guarantee losses that is associated with Freddie Mac mortgage-related securities 

backed by multifamily loans, certain single-family Other Guarantee Transactions, and other guarantee commitments for which 

we have incremental credit risk. Collectively, we refer to our allowance for loan losses and our reserve for guarantee losses as 

our loan loss reserves. Our loan loss reserves were $24.7 billion and $30.9 billion at December 31, 2013 and 2012, respectively, 

including $24.6 billion and $30.5 billion, respectively, related to single-family loans. At December 31, 2013 and 2012, our loan 

loss reserves, as a percentage of our total mortgage portfolio, excluding non-Freddie Mac securities, were 1.4% and 1.7%, 

respectively, and as a percentage of the UPB associated with our non-performing loans were 20.0% and 23.5%, respectively. 

See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk” and “NOTE 4: MORTGAGE LOANS AND LOAN 

LOSS RESERVES” for information on seriously delinquent single-family loans as well as further detail about the mortgage 

loans and associated allowance for loan losses recorded on our consolidated balance sheets.

The table below summarizes the amount of mortgages we purchased and the amount of guarantees we issued in the 

applicable periods. The activity presented in the table consists of: (a) mortgage loans in consolidated single-family PCs issued 

in the period (regardless of whether such securities are held by us or third parties); (b) single-family and multifamily mortgage 

loans purchased, but not securitized, in the period; and (c) mortgage loans underlying our mortgage-related financial guarantees 

issued in the period, which are not consolidated on our balance sheets.

Table of Contents
95 Freddie Mac

Table 29 — Mortgage Loan Purchases and Other Guarantee Commitment Issuances(1)

Year Ended December 31,

2013 2012 2011

Amount

% of

Total Amount

% of

Total Amount

% of

Total

(dollars in millions)

Mortgage loan purchases and guarantee issuances:

Single-family:

30-year or more amortizing fixed-rate $ 287,773 63% $ 275,632 60% $ 194,746 57%

20-year amortizing fixed-rate 21,658 5 29,614 7 21,378 6

15-year amortizing fixed-rate 97,025 22 103,141 23 78,543 23

Adjustable-rate(2) 16,007 4 18,075 4 25,685 8

FHA/VA and other governmental 279 <1 387 <1 441 <1

Total single-family(3) 422,742 94 426,849 94 320,793 94

Multifamily(4) 25,872 6 28,774 6 20,325 6

Total mortgage loan purchases and other 

guarantee commitment issuances(5) $ 448,614 100% $ 455,623 100% $ 341,118 100%

Percentage of mortgage purchases and other guarantee 

commitment issuances with credit enhancements(6) 16% 12% 8%

(1) Based on principal amount of the loans. Excludes mortgage loans traded but not yet settled. Excludes the removal of seriously delinquent loans and 

balloon/reset mortgages from PC trusts.

(2) Includes amortizing ARMs with 1-, 3-, 5-, 7-, and 10-year initial fixed-rate periods. We have not purchased option ARM loans in our single-family 

credit guarantee portfolio since 2007.

(3) Includes $29.0 billion, $32.6 billion, and $27.7 billion of conforming jumbo loan purchases and $1.0 billion, $0.9 billion, and $0.5 billion of 

conforming jumbo loans underlying other guarantee commitment issuances for the years ended December 31, 2013, 2012, and 2011, respectively.

(4) Includes other guarantee commitments associated with mortgage loans as well as tax-exempt multifamily assets. See endnote (5) for further 

information.

(5) Includes issuances of other guarantee commitments on single-family loans of $9.9 billion, $6.8 billion, and $4.4 billion and issuances of other 

guarantee commitments on multifamily loans of $0.7 billion, $2.4 billion, and $1.0 billion during the years ended December 31, 2013, 2012, and 2011, 

respectively.

(6) Excludes credit enhancement coverage occurring subsequent to our purchase or guarantee, such as through STACR debt notes or other risk transfer 

transactions. See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES — Credit Protection and Other Forms of Credit Enhancement” for 

further details on credit enhancement of mortgage loans in our multifamily mortgage and single-family credit guarantee portfolios.

See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Table 15.2 — Certain Higher-Risk 

Categories in the Single-Family Credit Guarantee Portfolio” for information about certain mortgage loans in our single-family 

credit guarantee portfolio that we believe have higher-risk characteristics.

Derivative Assets and Liabilities, Net

The composition of our derivative portfolio changes from period to period as a result of purchases and terminations of 

derivatives, assignments of derivatives prior to their contractual maturity, and expiration of derivatives at their contractual 

maturity. See “NOTE 9: DERIVATIVES” for additional information regarding our derivatives and “NOTE 10: COLLATERAL

AND OFFSETTING OF ASSETS AND LIABILITIES — Collateral Pledged” for more information about collateral held and 

posted.

The table below shows the fair value for each derivative type, the weighted average fixed rate of our pay-fixed and 

receive-fixed swaps, and the maturity profile of our derivative positions reconciled to the amounts presented on our 

consolidated balance sheets as of December 31, 2013. A positive fair value in the table below for each derivative type is the 

estimated amount, prior to netting where allowable, that we would be entitled to receive at that date if the derivatives of that 

type were terminated. A negative fair value for a derivative type is the estimated amount, prior to netting where allowable, that 

we would owe at that date if the derivatives of that type were terminated.

Table of Contents
96 Freddie Mac

Table 30 — Derivative Fair Values and Maturities

December 31, 2013

Notional or

Contractual

Amount(2)

Fair Value(1)

Total Fair

Value

Less than

1 Year

1 to 3

Years

Greater than 3

and up to 5 Years

In Excess

of 5 Years

(dollars in millions)

Interest-rate swaps:

Receive-fixed:

Swaps $ 262,566 $ 2,206 $ 171 $ 660 $ 1,265 $ 110

Weighted average fixed rate(3) 1.04% 0.97% 1.66% 2.91%

Forward-starting swaps(4) 19,161 (169) — — 49 (218)

Weighted average fixed rate(3) —% —% 1.88% 3.58%

Total receive-fixed 281,727 2,037 171 660 1,314 (108)

Basis (floating to floating) 300 4 — 4 — —

Pay-fixed:

Swaps 235,097 (5,009) (61) (1,878) (2,667) (403)

Weighted average fixed rate(3) 1.90% 2.28% 3.14% 3.17%

Forward-starting swaps(4) 7,500 (330) — — — (330)

Weighted average fixed rate(3) —% —% —% 3.75%

Total pay-fixed 242,597 (5,339) (61) (1,878) (2,667) (733)

Total interest-rate swaps 524,624 (3,298) 110 (1,214) (1,353) (841)

Option-based:

Call swaptions

Purchased 59,290 2,373 1,553 88 449 283

Written 5,945 (201) (153) (48) — —

Put swaptions

Purchased 33,410 698 165 115 79 339

Other option-based derivatives(5) 23,365 1,038 — — — 1,038

Total option-based 122,010 3,908 1,565 155 528 1,660

Futures 50,270 — — — — —

Foreign-currency swaps 528 39 39 — — —

Commitments 18,731 (8) (8) — — —

Swap guarantee derivatives 3,477 (31) — (1) (3) (27)

Subtotal 719,640 610 $ 1,706 $ (1,060) $ (828) $ 792

Credit derivatives 5,386 (6)

Subtotal 725,026 604

Derivative interest receivable (payable), net (592)

Derivative cash collateral (held) posted, net 871

Total $ 725,026 $ 883

(1) Fair value is categorized by maturity based on the period from December 31, 2013 until the contractual maturity of the derivative.

(2) Notional or contractual amounts are used to calculate the periodic settlement amounts to be received or paid and generally do not represent actual 

amounts to be exchanged. Notional or contractual amounts are not recorded as assets or liabilities on our consolidated balance sheets.

(3) Represents the notional weighted average rate for the fixed leg of the swaps.

(4) Represents interest-rate swap agreements that are scheduled to begin on future dates ranging from less than one year to twelve years as of 

December 31, 2013.

(5) Primarily includes purchased interest-rate caps and floors.

At December 31, 2013, the net fair value of our total derivative portfolio was $883 million, as compared to $479 million 

at December 31, 2012. The derivative portfolio notional amount decreased to $725 billion at December 31, 2013 compared to 

$746 billion at December 31, 2012. During 2013, we changed the mix and balance of products in our derivative portfolio in 

response to an increase in longer-term interest rates. See “NOTE 9: DERIVATIVES” for the notional or contractual amounts 

and related fair values of our total derivative portfolio by product type at December 31, 2013 and 2012, as well as “NOTE 10: 

COLLATERAL AND OFFSETTING OF ASSETS AND LIABILITIES — Collateral Pledged” for information about derivative 

collateral held and posted.

See “CONSOLIDATED RESULTS OF OPERATIONS — Non-Interest Income (Loss) — Derivative Gains (Losses)” for 

a description of gains (losses) on our derivative positions.

Table of Contents
97 Freddie Mac

REO, Net

We acquire properties, which are recorded as REO assets on our consolidated balance sheets, typically as a result of 

borrower defaults (and subsequent foreclosures) on mortgage loans that we own or guarantee. The balance of our REO, net, 

was $4.6 billion at December 31, 2013 and $4.4 billion at December 31, 2012, despite a 4% decline in our REO inventory, due 

to the positive impact of improvements in home prices in most geographical areas during 2013. During 2013, we increased our 

pricing of single-family properties at single-family foreclosure sale, resulting in fewer third-party buyers of these properties at 

the time of foreclosure and a higher level of our single-family REO acquisitions than there otherwise would have been. In 

addition, the volume of our single-family REO acquisitions in recent periods has been significantly affected by: (a) 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; and (b) a high volume of foreclosure alternatives, which result in fewer loans proceeding to foreclosure, and 

thus fewer properties transitioning to REO. We expect that the length of the foreclosure process will continue to remain above 

historical levels and may increase further. Additionally, we expect our REO activity to remain at elevated levels, as we have a 

large inventory of seriously delinquent loans in our single-family credit guarantee portfolio. See “RISK MANAGEMENT — 

Credit Risk — Mortgage Credit Risk — Non-Performing Assets” for additional information about our REO activity.

Deferred Tax Assets and Liabilities

We had a net deferred tax asset of $22.7 billion as of December 31, 2013 compared to a net deferred tax asset of 

$778 million as of December 31, 2012. During 2013, the change in our net deferred tax asset of $21.9 billion was primarily 

due to the release of the valuation allowance. See "NOTE 12: INCOME TAXES" for additional information.

As discussed below, after weighing all of the evidence at September 30, 2013, we determined that the positive evidence 

relating to the realizability of our deferred tax assets, particularly the evidence that was objectively verifiable, outweighed the 

negative evidence. Accordingly, we concluded that it is more likely than not that our deferred tax assets will be realized and we 

released the valuation allowance against our net deferred tax assets.

On a quarterly basis, we determine whether a valuation allowance is necessary on our net deferred tax asset. 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 deferred tax assets will be realized. In conducting our assessment at September 30, 2013, we 

evaluated all available objective evidence including, but not limited to: (a) our three-year cumulative income position; (b) the 

trend of our financial and tax results; (c) the amount of taxable income reported in our 2012 federal tax return; (d) our tax net 

operating loss and tax credit carryforwards and the length of carryforward periods available to utilize these assets under current 

tax law; and (e) our access to capital under the agreements associated with conservatorship. Furthermore, we evaluated all 

available subjective evidence including, but not limited to: (a) difficulty in predicting unsettled circumstances related to the 

conservatorship; (b) the amount of our forecasted 2013 taxable income; and (c) forecasts of future book and tax income. Our 

consideration of the evidence requires significant judgment regarding estimates and assumptions that are inherently uncertain, 

particularly about our future business structure and financial results.

We are not permitted to consider the impacts proposed legislation may have on our business operations or the mortgage 

industry in our analysis because the timing and certainty of those actions are unknown and beyond our control.

The positive evidence at September 30, 2013, that outweighed the negative evidence included the following:

• Our three-year cumulative income position;

• The strong positive trend in our financial performance over six consecutive quarters;

• The 2012 taxable income reported in our federal tax return which was filed in 2013;

• Our forecasted 2013 and future period taxable income;

• Our net operating loss carryforwards do not begin to expire until 2030; and

• The continuing positive trend in the housing market.

When comparing evidence available for 2013 versus 2012, we noted a number of positive developments. During 2013, 

we filed our 2012 federal tax return, which reflected taxable income. This was our first year reporting taxable income since 

2007. Furthermore, we continued an improved trend in earnings. Our current base forecast of taxable income also improved 

resulting in a decline in the number of years of projected income required in order to fully realize our net deferred tax asset. 

These positive developments in addition to the positive evidence discussed above resulted in our conclusion to release the 

valuation allowance against our net deferred tax assets at September 30, 2013. Given the continued positive trend in our 

financial performance through the fourth quarter, we determined that a valuation allowance against our net deferred tax asset 

was not necessary at December 31, 2013.

In future quarters we will continue to evaluate our ability to realize the net deferred tax asset. If evidence in future 

periods changes such that it is more likely than not that part or all of the net deferred tax asset will not be realized, we will 

reestablish a valuation allowance at that time. Examples of factors that could affect our assessment are: (a) a significant 

downturn in the housing markets or economy that negatively impacts our future financial results; (b) changes to our business 

Table of Contents
98 Freddie Mac

operations resulting from enacted legislation; and (c) a change in corporate legal structure that would limit our ability to realize 

the assets under existing tax laws. If we determine that it is appropriate to establish a valuation allowance in the future, it would 

result in an additional income tax expense and might require additional draws under the Purchase Agreement.

Other Assets

Other assets consist of accounts and other receivables, the guarantee asset related to non-consolidated trusts and other 

guarantee commitments, and other miscellaneous assets. Other assets decreased to $8.5 billion as of December 31, 2013 from 

$13.8 billion as of December 31, 2012 primarily due to a decrease in servicer receivables resulting from a decrease in mortgage 

loans paid off by borrowers at the end of the period that had not yet been remitted to us. For more information on other assets, 

see “NOTE 19: SELECTED FINANCIAL STATEMENT LINE ITEMS.”

Total Debt, Net

Total debt, net on our consolidated balance sheets consists of: (a) debt securities of consolidated trusts held by third 

parties; and (b) other debt.

• PCs and Other Guarantee Transactions issued by our consolidated trusts and held by third parties are recognized as debt 

securities of consolidated trusts held by third parties on our consolidated balance sheets. Debt securities of consolidated 

trusts held by third parties represent our liability to third parties that hold beneficial interests in our consolidated trusts. 

The debt securities of our consolidated trusts may be prepaid at any time, as the loans that collateralize the debt may be 

prepaid without penalty at any time.

• Other debt consists of unsecured short-term and long-term debt securities we issue to third parties to fund our business 

activities. It is classified as either short-term or long-term based on the contractual maturity of the debt instrument. See 

“LIQUIDITY AND CAPITAL RESOURCES” for information about our other debt.

The table below reconciles the par value of other debt and the UPB of debt securities of consolidated trusts held by third 

parties to the amounts shown in our consolidated balance sheets.

Table 31 — Reconciliation of the Par Value and UPB to Total Debt, Net

December 31,

2013 2012

(in millions)

Total debt:

Other debt:

Par value $ 511,345 $ 552,472

Unamortized balance of discounts and premiums(1) (4,667) (5,031)

Hedging-related and other basis adjustments(2) 89 77

Subtotal 506,767 547,518

Debt securities of consolidated trusts held by third parties:

UPB 1,399,456 1,387,259

Unamortized balance of discounts and premiums 34,528 32,265

Subtotal 1,433,984 1,419,524

Total debt, net $ 1,940,751 $ 1,967,042

(1) Primarily represents unamortized discounts on zero-coupon debt.

(2) Primarily represents deferrals related to debt instruments that were in hedge accounting relationships, and changes in the fair value attributable to 

instrument-specific interest-rate and credit risk related to STACR debt notes (beginning in 2013) and foreign-currency denominated debt.

The table below summarizes our other short-term debt.

Table of Contents
99 Freddie Mac

Table 32 — Other Short-Term Debt

2013

December 31,

Average Outstanding

During the Year Maximum

Balance, Net

Outstanding at

Balance, Net Any Month End (1)

Weighted

Average

Effective Rate(2) Balance, Net(3)

Weighted

Average

Effective Rate(4)

(dollars in millions)

Reference Bills® securities and discount notes $ 137,712 0.13% $ 130,919 0.13% $ 140,082

Medium-term notes 4,000 0.16 2,291 0.16 4,000

Federal funds purchased and securities sold under

agreements to repurchase — — 15 0.16 —

Other short-term debt $ 141,712 0.13

2012

December 31,

Average Outstanding

During the Year Maximum

Balance, Net

Outstanding at

Balance, Net Any Month End (1)

Weighted

Average

Effective Rate(2) Balance, Net(3)

Weighted

Average

Effective Rate(4)

(dollars in millions)

Reference Bills® securities and discount notes $ 117,889 0.15% $ 126,919 0.14% $ 155,285

Medium-term notes — — 21 0.44 250

Federal funds purchased and securities sold under

agreements to repurchase — — 12 0.28 —

Other short-term debt $ 117,889 0.15

2011

December 31,

Average Outstanding

During the Year Maximum

Balance, Net

Outstanding at

Balance, Net Any Month End (1)

Weighted

Average

Effective Rate(2) Balance, Net(3)

Weighted

Average

Effective Rate(4)

(dollars in millions)

Reference Bills® securities and discount notes $ 161,149 0.11% $ 181,209 0.17% $ 196,126

Medium-term notes 250 0.24 826 0.23 2,564

Federal funds purchased and securities sold under

agreements to repurchase — — 13 0.16 —

Other short-term debt $ 161,399 0.11

(1) Represents par value, net of associated discounts and premiums, of which $0 billion, $0 billion, and $0.2 billion of short-term debt represents the fair 

value of debt securities with the fair value option elected at December 31, 2013, 2012, and 2011, respectively.

(2) Represents the approximate weighted average effective rate for each instrument outstanding at the end of the period, which includes the amortization of 

discounts or premiums and issuance costs.

(3) Represents par value, net of associated discounts, premiums, and issuance costs. Issuance costs are reported in the other assets caption on our 

consolidated balance sheets.

(4) Represents the approximate weighted average effective rate during the period, which includes the amortization of discounts or premiums and issuance 

costs.

The table below presents the UPB for Freddie Mac-issued mortgage-related securities by the underlying mortgage 

product type.

Table of Contents
100 Freddie Mac

Table 33 — Freddie Mac Mortgage-Related Securities(1)

December 31, 2013 December 31, 2012

Issued by

Consolidated

Trusts

Issued by

Non-Consolidated

Trusts Total

Issued by

Consolidated

Trusts

Issued by

Non-Consolidated

Trusts Total

(in millions)

PCs and Other Structured Securities:

 Single-family:

30-year or more amortizing fixed-rate $ 1,040,602 $ — $ 1,040,602 $ 1,039,439 $ — $ 1,039,439

20-year amortizing fixed-rate 81,214 — 81,214 78,122 — 78,122

15-year amortizing fixed-rate 291,347 — 291,347 270,032 — 270,032

Adjustable-rate(2) 66,250 — 66,250 68,470 — 68,470

Interest-only(3) 29,083 — 29,083 41,275 — 41,275

FHA/VA and other governmental 3,366 — 3,366 3,084 — 3,084

Total single-family 1,511,862 — 1,511,862 1,500,422 — 1,500,422

 Multifamily — 4,778 4,778 — 4,224 4,224

Total single-family and multifamily 1,511,862 4,778 1,516,640 1,500,422 4,224 1,504,646

Other Guarantee Transactions:

Non-HFA bonds:

Single-family(4) 8,396 3,079 11,475 10,455 3,415 13,870

Multifamily 444 59,326 59,770 448 36,732 37,180

Total Non-HFA bonds 8,840 62,405 71,245 10,903 40,147 51,050

HFA Initiative Bonds:(5)

Single-family — 3,341 3,341 — 4,827 4,827

Multifamily — 744 744 — 863 863

Total HFA Initiative Bonds — 4,085 4,085 — 5,690 5,690

Total Other Guarantee Transactions 8,840 66,490 75,330 10,903 45,837 56,740

REMICs and Other Structured Securities 

backed by Ginnie Mae certificates(6) — 541 541 — 654 654

Total Freddie Mac Mortgage-Related

Securities $ 1,520,702 $ 71,809 $ 1,592,511 $ 1,511,325 $ 50,715 $ 1,562,040

Less: Repurchased Freddie Mac 

Mortgage-Related Securities(7) (121,246) (124,066)

Total UPB of debt securities of

consolidated trusts held by third parties $ 1,399,456 $ 1,387,259

(1) Amounts are based on UPB of the securities and exclude mortgage-related securities traded, but not yet settled.

(2) Includes $0.9 billion and $1.0 billion in UPB of option ARM mortgage loans as of December 31, 2013 and 2012, respectively. See endnote (4) for 

additional information on option ARM loans that back our Other Guarantee Transactions.

(3) Represents loans where the borrower pays interest only for a period of time before the borrower begins making principal payments. Includes both 

fixed- and variable-rate interest-only loans.

(4) Backed by non-agency mortgage-related securities that include prime, FHA/VA, and subprime mortgage loans and also include $5.5 billion and 

$6.3 billion in UPB of securities backed by option ARM mortgage loans at December 31, 2013 and 2012, respectively.

(5) Consists of bonds we acquired and resecuritized under the NIBP.

(6) Backed by FHA/VA loans.

(7) Represents the UPB of repurchased Freddie Mac mortgage-related securities that are consolidated on our balance sheets and includes certain remittance 

amounts associated with our security trust administration that are payable to third-party mortgage-related security holders. Our holdings of nonconsolidated Freddie Mac mortgage-related securities are presented in “Table 22 — Characteristics of Mortgage-Related Securities on Our 

Consolidated Balance Sheets.”

Excluding Other Guarantee Transactions, the percentage of amortizing fixed-rate single-family loans underlying our 

consolidated trust debt securities, based on UPB, was approximately 94% and 93% at December 31, 2013 and 2012, 

respectively. The UPB of multifamily Other Guarantee Transactions, excluding HFA initiative-related bonds, increased to $59.8 

billion as of December 31, 2013 from $37.2 billion as of December 31, 2012, due to multifamily loan securitization activity 

related to K Certificate transactions.

The table below shows issuances and extinguishments of the debt securities of our consolidated trusts during 2013 and 

2012, as well as the UPB of consolidated trusts held by third parties.

Table of Contents
101 Freddie Mac

Table 34 — Issuances and Extinguishments of Debt Securities of Consolidated Trusts(1)

Year Ended December 31,

2013 2012

(in millions)

Beginning balance of debt securities of consolidated trusts held by third parties $ 1,387,259 $ 1,452,476

Issuances to third parties of debt securities of consolidated trusts:

Issuances based on underlying mortgage product type:

30-year or more amortizing fixed-rate 290,568 284,381

20-year amortizing fixed-rate 21,985 31,142

15-year amortizing fixed-rate 96,498 105,603

Adjustable-rate 16,036 18,189

FHA/VA 532 —

Multifamily — 448

Debt securities of consolidated trusts retained by us at issuance(2) (38,390) (36,317)

Net issuances of debt securities of consolidated trusts 387,229 403,446

Reissuances of debt securities of consolidated trusts previously held by us(3) 55,704 29,384

Total issuances to third parties of debt securities of consolidated trusts 442,933 432,830

Extinguishments, net(4) (430,736) (498,047)

Ending balance of debt securities of consolidated trusts held by third parties $ 1,399,456 $ 1,387,259

(1) Based on UPB.

(2) Represents the UPB of mortgage loans that we had purchased for cash, subsequently securitized, and retained in our mortgage-related investments 

portfolio.

(3) Represents our sales of PCs and certain Other Guarantee Transactions previously held by us.

(4) Represents: (a) UPB of our purchases from third parties of PCs and Other Guarantee Transactions issued by our consolidated trusts; (b) principal 

repayments related to PCs and Other Guarantee Transactions issued by our consolidated trusts; and (c) certain remittance amounts associated with our 

trust security administration that are payable to third-party mortgage-related security holders as of December 31, 2013 and 2012.

Extinguishments, net decreased in 2013 primarily due to a decrease in refinance activity resulting from an increase in 

interest rates. Reissuances of debt securities of consolidated trusts previously held by us increased due to increased sales from 

the mortgage-related investments portfolio.

Other Liabilities

Other liabilities consist of servicer liabilities, the guarantee obligation, the reserve for guarantee losses on nonconsolidated trusts and other mortgage-related financial guarantees, accounts payable and accrued expenses, and other 

miscellaneous liabilities. Other liabilities of $5.5 billion as of December 31, 2013 declined slightly from $6.1 billion as of 

December 31, 2012 primarily due to a decline in servicer liabilities as a result of a decrease in the population of seriously 

delinquent loans. See “NOTE 19: SELECTED FINANCIAL STATEMENT LINE ITEMS” for additional information.

Total Equity (Deficit)

The table below presents the changes in total equity (deficit) and certain capital-related disclosures.

Table of Contents
102 Freddie Mac

Table 35 — Changes in Total Equity (Deficit)

Three Months Ended

Twelve Months

Ended

12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012 12/31/2013

(in millions)

Beginning balance $ 33,436 $ 7,357 $ 9,971 $ 8,827 $ 4,907 $ 8,827

Net income 8,613 30,486 4,988 4,581 4,457 48,668

Other comprehensive income (loss), net of taxes:

Changes in unrealized gains (losses) related to available-for-sale

securities 970 (127) (717) 2,280 1,261 2,406

Changes in unrealized gains (losses) related to cash flow hedge 

relationships(1) 66 76 84 90 94 316

Changes in defined benefit plans 186 2 2 20 (84) 210

Comprehensive income 9,835 30,437 4,357 6,971 5,728 51,600

Capital draw funded by Treasury — — — — — —

Senior preferred stock dividends declared (30,436) (4,357) (6,971) (5,827) (1,808) (47,591)

Other — (1) — — — (1)

Total equity (deficit)/Net worth $ 12,835 $ 33,436 $ 7,357 $ 9,971 $ 8,827 $ 12,835

Aggregate draws under the Purchase Agreement (as of period end)(2) $ 71,336 $ 71,336 $ 71,336 $ 71,336 $ 71,336 $ 71,336

Aggregate senior preferred stock dividends paid to Treasury in cash

(as of period end) $ 71,345 $ 40,909 $ 36,552 $ 29,581 $ 23,754 $ 71,345

(1) Represents the reclassification of losses into earnings related to our closed cash flow hedges as the originally forecasted transactions affected earnings.

(2) 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. Under the Purchase Agreement, the payment of dividends cannot be used to reduce prior draws 

from Treasury.

We requested $0 million and $19 million in draws from Treasury under the Purchase Agreement to eliminate quarterly 

deficits in net worth for 2013 and 2012, respectively. At December 31, 2013, our assets exceeded our liabilities under GAAP; 

therefore no draw is being requested from Treasury under the Purchase Agreement for the fourth quarter of 2013. We paid cash 

dividends to Treasury of $47.6 billion and $7.2 billion during 2013 and 2012, respectively. Based on our Net Worth Amount at 

December 31, 2013 and the 2014 Capital Reserve Amount of $2.4 billion, our dividend obligation to Treasury in March 2014 

will be $10.4 billion.

Our available-for-sale securities net unrealized gains (losses) was $1.0 billion and $(1.4) billion at December 31, 2013 

and 2012, respectively. This $2.4 billion improvement in AOCI was primarily due to fair value gains on our non-agency 

mortgage-related securities due to the the impact of spread tightening and the movement of these securities with unrealized 

losses towards maturity.

RISK MANAGEMENT

Our investment and credit guarantee activities expose us to three broad categories of risk: (a) credit risk; (b) interest-rate 

and other market risks; and (c) operational risk. See “RISK FACTORS” for additional information regarding these and other 

risks. See “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” for information about our 

interest rate and other market risks.

Risk management is a critical aspect of our business. We manage risk through a framework whereby our executive 

management is responsible for independent risk evaluation. Within this framework, executive management monitors 

performance against our risk management strategies and established risk limits and reporting thresholds, identifies and assesses 

potential issues and provides oversight regarding changes in business processes and activities. For information about our 

Board’s role in oversight of risk management, see “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND 

DIRECTOR INDEPENDENCE — Board Leadership Structure and Role in Risk Oversight.” 

We utilize an internal economic capital framework and models to help inform our risk management process. Our 

economic capital framework provides a risk-based measurement of capital to reflect relevant market, credit, counterparty, and 

operational risks. We assign economic capital internally to asset classes based on their respective risks. We use economic 

capital as an input to inform economic decisions, establish risk limits, measure profitability, and estimate fair values. 

We believe that there was significant progress in resolving some of the legal and regulatory issues in the market during 

2013. However, the legal, political and regulatory influences on the financial services industry have continued to create 

significant challenges and, as a result, we believe that our risk profile remained elevated in 2013. Drivers of this continued 

elevated risk are: (a) continued uncertainty in the mortgage industry, including the future structure of the U.S. housing market; 

and (b) continued pressure on mortgage seller/servicers, including changing practices in underwriting and foreclosure processes 

as well as on-going litigation by federal agencies related to prior practices.

Table of Contents
103 Freddie Mac

Management took actions in 2013 to mitigate risks associated with our operations and control environment. For a 

discussion of the operational risks we face and our mitigation actions, see “Operational Risks.” 

We expect legal, political and regulatory influences to continue to be significant factors in 2014, which could further 

increase uncertainty in the mortgage industry, increase our operational and people risks, or increase the uncertainty associated 

with the use of our models. 

Credit Risk

We are subject primarily to two types of credit risk: mortgage credit risk and institutional credit risk. Mortgage credit risk 

is the risk that a borrower will fail to make timely payments on a mortgage we own or guarantee. Institutional credit risk is the 

risk that a counterparty that has entered into a business contract or arrangement with us will fail to meet its obligations to us.

Mortgage Credit Risk

We are exposed to mortgage credit risk principally in our single-family credit guarantee and multifamily mortgage 

portfolios because we either hold the mortgage assets or have guaranteed mortgages in connection with the issuance of a 

Freddie Mac mortgage-related security, or other guarantee commitment. All mortgages that we purchase or guarantee have an 

inherent risk of default. We are also exposed to mortgage credit risk related to our investments in non-Freddie Mac mortgagerelated securities. For information about our holdings of these securities, see “CONSOLIDATED BALANCE SHEETS 

ANALYSIS — Investments in Securities — Mortgage-Related Securities.”

Single-Family Mortgage Credit Risk

Single-family mortgage credit risk is primarily influenced by the credit profile of the borrower of the mortgage (e.g., 

credit score, credit history, and monthly income relative to debt payments), documentation level, the number of borrowers, the 

features of the mortgage itself, the purpose of the mortgage, occupancy type, property type and value, the LTV ratio, and local 

and regional economic conditions, including home prices and unemployment rates.

We use a process of delegated underwriting for the single-family mortgages we purchase or securitize. In this process, our 

contracts with seller/servicers describe mortgage eligibility and underwriting standards, and the seller/servicers represent and 

warrant to us that the mortgages sold to us meet these standards. Through our delegated underwriting process, mortgage loans 

and the borrowers’ ability to repay the loans are evaluated using a number of critical risk characteristics. For more information 

on the underwriting process, see “BUSINESS — Our Business Segments — Single-Family Guarantee Segment — 

Underwriting Requirements and Quality Control Standards.”

We were significantly adversely affected by deteriorating conditions in the single-family housing and mortgage markets 

during 2006 to 2008. The mortgage market began to undergo significant changes starting in 2008. Financial institutions 

tightened their underwriting standards and, since 2009, the mortgage origination market has consisted predominately of fixedrate amortizing loans.

Conditions in the mortgage market improved in most geographical areas during the last two years. However, many 

single-family mortgage loans, especially those originated from 2005 through 2008, were adversely affected by the 

compounding pressures on household wealth caused by significant declines in home values during the housing crisis that began 

in 2006 and the ongoing weak employment environment in many areas. The UPB of our single-family non-performing loans 

declined during 2013, but remained at elevated levels compared to our historical experience.

The table below presents certain credit information about loans in our single-family credit guarantee portfolio by year of 

origination as of December 31, 2013 and for the year then ended.

Table of Contents
104 Freddie Mac

Table 36 — Single-Family Credit Guarantee Portfolio Data by Year of Origination(1)

December 31, 2013

Year Ended

December 31, 2013

Percent of

Portfolio

Average

Credit

Score

(2)

Original

LTV Ratio

Current

LTV Ratio(3)

Current

LTV Ratio

>100%(3)(4)

Serious

Delinquency

Rate(5)

Percent of

Credit Losses

Year of Origination

2013 16% 755 71% 69% —% 0.01% <1%

2012 16 761 69 61 — 0.04 <1

2011 8 757 69 58 — 0.18 <1

2010 7 754 69 60 — 0.39 1

2009 7 751 69 62 1 0.88 2

Subtotal - New singlefamily book 54 757 69 63 — 0.24 3

HARP and other relief 

refinance loans(6) 21 735 89 81 21 0.64 7

2005-2008 Legacy singlefamily book 16 704 75 87 29 8.77 81

Pre-2005 Legacy singlefamily book 9 711 72 50 3 3.24 9

Total 100% 739 75 69 10 2.39 100%

(1) Based on the year of origination (except for HARP and other relief refinance loans) for loans remaining in the portfolio at December 31, 2013, which 

totaled $1.7 trillion, rather than all loans originally guaranteed by us and originated in the respective year. 

(2) Based on FICO score of the borrower as of the date of loan origination and may not be indicative of the borrowers’ current creditworthiness. Excludes 

less than 1% of loans in the portfolio because the FICO scores at origination were not available.

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

geographical area since origination.

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

(5) See “Credit Performance — Delinquencies” for further information about our reported serious delinquency rates.

(6) HARP and other relief refinance loans are presented separately rather than in the year that the refinancing occurred (from 2009 to 2013). All other 

refinance loans are presented in the year that the refinancing occurred.

Improvement in home prices in many areas of the U.S. during 2013 generally led to improved current LTV ratios of the 

loans in our portfolio as of December 31, 2013. Loans with current LTV ratios greater than 100% comprised 10% and 15%, of 

our single-family credit guarantee portfolio, based on UPB at December 31, 2013 and 2012, respectively, and comprised 

approximately 68% and 82% of our credit losses recognized in 2013 and 2012, respectively. For the loans in our single-family 

credit guarantee portfolio with estimated current LTV ratios greater than 80%, the borrowers had a weighted average credit 

score at origination of 722 at both December 31, 2013 and 2012.

As of December 31, 2013, 8.0% of the total number of single-family loans we purchased or guaranteed that were 

originated in 2005 to 2008 had been foreclosed or completed a short sale transaction resulting in a loss (before consideration of 

recoveries). In addition, approximately 8.8% of loans originated in those years that remained in our single-family credit 

guarantee portfolio as of December 31, 2013 were seriously delinquent. Many of the loans from those years have been 

modified, as shown in “Table 49 — Credit Concentrations in the Single-Family Credit Guarantee Portfolio.” The gradual 

reduction of our 2005-2008 Legacy single-family book has positively impacted the payment performance of our single-family 

credit guarantee portfolio. However, the rate at which this replacement is occurring continues to be negatively affected by a low 

volume of new purchase mortgage originations and a lengthy foreclosure process in many states.

Characteristics of the Single-Family Credit Guarantee Portfolio

The average UPB of loans in our single-family credit guarantee portfolio was approximately $155,000 and $151,000 at 

December 31, 2013 and 2012, respectively. We purchased or issued other guarantee commitments for approximately 2,070,000 

and 2,036,000 single-family loans totaling $422.7 billion and $426.8 billion of UPB during 2013 and 2012, respectively. Our 

single-family credit guarantee portfolio consists of first-lien mortgage loans predominately secured by the borrower’s primary 

residence. Approximately 96% of the single-family mortgages we purchased or guaranteed in 2013 were fixed-rate amortizing 

mortgages, based on UPB, and the remainder were ARM mortgage loans. Approximately 73% of the single-family mortgages 

we purchased or guaranteed in 2013 were refinance mortgages, including approximately 23% that were relief refinance 

mortgages, based on UPB.

The credit quality of the single-family loans in our New single-family book is significantly better than that of our 

2005-2008 Legacy single-family book, as measured by original LTV ratios, FICO scores, the proportion of loans underwritten 

with full documentation, as well as delinquency rates and credit losses. Our New single-family book comprised an increasing 

proportion of the portfolio during 2013, and the proportion of loans originated prior to 2009 continued to decline.

Table of Contents
105 Freddie Mac

The percentage of home purchase loans in our loan acquisition volume was at a low level and refinance loan activity 

remained high during 2013. During 2013 and 2012, we purchased or guaranteed more than 1.5 million and approximately 1.7 

million, respectively, of single-family loans that were refinance mortgages, totaling $308.7 billion and $351.1 billion in UPB, 

respectively. Our purchases of refinance mortgages declined for the three most recent quarters, which we believe was a result of 

rising mortgage interest rates. As of December 31, 2013 and 2012, there were approximately 10.7 million and 10.9 million 

loans, respectively, in our single-family credit guarantee portfolio, including 2.0 million and 1.6 million relief refinance 

mortgages, respectively.

The tables below provide additional characteristics of single-family mortgage loans purchased during 2013, 2012 and 

2011, and of our single-family credit guarantee portfolio at December 31, 2013, 2012 and 2011.

Table of Contents
106 Freddie Mac

Table 37 — Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio(1)

Percent of Purchases During the Year Ended December 31,

2013 2012 2011

Relief Refi All Other Total Relief Refi All Other Total Relief Refi All other Total

Original LTV Ratio Range

60% and below 3% 19% 22% 4% 21% 25% 6% 23% 29%

Above 60% to 70% 2 12 14 2 12 14 3 13 16

Above 70% to 80% 3 33 36 3 29 32 5 32 37

Above 80% to 100% 7 13 20 8 9 17 8 6 14

Above 100% to 125% 5 <1 5 7 <1 7 4 <1 4

Above 125% 3 <1 3 5 <1 5 — — —

Total 23% 77% 100% 29% 71% 100% 26% 74% 100%

Weighted average original LTV ratio 91% 71% 75% 97% 68% 76% 77% 67% 70%

Credit Score

(2)

740 and above 11% 55% 66% 17% 55% 72% 16% 55% 71%

700 to 739 5 15 20 6 11 17 5 13 18

660 to 699 4 6 10 4 4 8 3 5 8

620 to 659 2 1 3 1 1 2 1 1 2

Less than 620 1 <1 1 1 <1 1 1 <1 1

Not available <1 <1 <1 <1 <1 <1 <1 <1 <1

Total 23% 77% 100% 29% 71% 100% 26% 74% 100%

Weighted average credit score:

Total mortgages 727 756 749 740 762 756 744 759 755

Percent of Purchases During the

Year Ended December 31,

2013 2012 2011

Loan Purpose

Purchase 27% 18% 22%

Cash-out refinance 16 15 18

Other refinance(3) 57 67 60

Total 100% 100% 100%

Property Type

Detached/townhome(4) 93% 94% 94%

Condo/Co-op 7 6 6

Total 100% 100% 100%

Occupancy Type

Primary residence 88% 91% 92%

Second/vacation home 4 4 4

Investment 8 5 4

Total 100% 100% 100%

(1) Percentages are based on the UPB of the single-family credit guarantee portfolio.

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

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

represent the credit score of the borrower at the time of loan origination and may not be indicative of the borrowers’ current creditworthiness.

(3) Other refinance loans include: (a) refinance mortgages with “no cash out” to the borrower; and (b) refinance mortgages for which the delivery data 

provided was not sufficient for us to determine whether the mortgage was a cash-out or a no cash-out refinance transaction.

(4) Includes manufactured housing and homes within planned unit development communities. The UPB of manufactured housing mortgage loans 

purchased during the years ended December 31, 2013, 2012, and 2011 was $776 million, $676 million, and $376 million, respectively.

Table of Contents
107 Freddie Mac

Table 38 — Characteristics of the Single-Family Credit Guarantee Portfolio(1)

Portfolio Balance at December 31,(2)

2013 2012 2011

Original LTV Ratio Range

60% and below 22% 22% 23%

Above 60% to 70% 15 15 16

Above 70% to 80% 38 40 42

Above 80% to 100% 19 18 17

Above 100% 6 5 2

Total 100% 100% 100%

Weighted average original LTV ratio 75% 74% 72%

Estimated Current LTV Ratio Range(3)

60% and below 33% 28% 25%

Above 60% to 70% 18 14 12

Above 70% to 80% 20 21 18

Above 80% to 90% 12 13 15

Above 90% to 100% 7 9 10

Above 100% to 120% 6 8 10

Above 120% 4 7 10

Total 100% 100% 100%

Weighted average estimated current LTV ratio:

Relief refinance mortgages(4) 81% 83% 79%

All other mortgages 66 74 80

Total mortgages 69 75 80

Credit Score

(5)

740 and above 58 56 55

700 to 739 20 21 21

660 to 699 13 14 14

620 to 659 6 6 7

Less than 620 3 3 3

Not available <1 <1 <1

Total 100% 100% 100%

Weighted average credit score:

Relief refinance mortgages(4) 735 741 744

All other mortgages 740 736 734

Total mortgages 739 737 735

Loan Purpose

Purchase 26% 27% 30%

Cash-out refinance 22 24 27

Other refinance(6) 52 49 43

Total 100% 100% 100%

Property Type

Detached/townhome(7) 93% 92% 92%

Condo/Co-op 7 8 8

Total 100% 100% 100%

Occupancy Type

Primary residence 90% 90% 91%

Second/vacation home 4 5 5

Investment 6 5 4

Total 100% 100% 100%

(1) Ending balances are based on the UPB of the single-family credit guarantee portfolio. Other Guarantee Transactions with ending balances of $1 billion 

at both December 31, 2013 and 2012, and $2 billion at December 31, 2011 are excluded since these securities are backed by non-Freddie Mac issued 

securities for which the loan characteristics data was not available.

(2) Includes loans acquired under our relief refinance initiative, which began in 2009.

(3) The current LTV ratios are management estimates, which are updated on a monthly basis. Current market values are estimated by adjusting the value of 

the property at origination based on changes in the market value of homes in the same geographical area since that time.

(4) Relief refinance mortgages of all LTV ratios comprised approximately 21%, 18%, and 11% of our single-family credit guarantee portfolio by UPB as 

of December 31, 2013, 2012, and 2011, respectively.

Table of Contents
108 Freddie Mac

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

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

represent the credit score of the borrower at the time of loan origination and may not be indicative of the borrowers’ current creditworthiness.

(6) Other refinance loans include: (a) refinance mortgages with “no cash out” to the borrower; and (b) refinance mortgages for which the delivery data 

provided was not sufficient for us to determine whether the mortgage was a cash-out or a no cash-out refinance transaction.

(7) Includes manufactured housing and homes within planned unit development communities.

LTV Ratio 

An increase in the estimated current LTV ratio of a loan indicates that the borrower’s equity in the home has declined, 

and can negatively affect the borrower’s ability to refinance (outside of HARP) or sell the property for an amount at or above 

the balance of the outstanding mortgage loan. Based on our historical experience, there is an increase in borrower default risk 

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

100%. HARP loans with LTV ratios over 100% represented 8% and 12% of our single-family mortgage purchases in 2013 and 

2012, respectively. The percentage of mortgages in our single-family credit guarantee portfolio with estimated current LTV

ratios greater than 100% was 10% and 15% at December 31, 2013 and 2012, respectively, and the serious delinquency rate for 

these loans was 9.9% and 12.7%, respectively. The portion of our single-family credit guarantee portfolio with estimated 

current LTV ratios greater than 100% declined during 2013 primarily due to improving home prices during the period.

Credit Score 

Credit scores are a useful measure for assessing the credit quality of a borrower. Credit scores are numbers reported by 

credit repositories, based on statistical models, that summarize an individual’s credit record. FICO scores are the most 

commonly used credit scores today. Statistically, borrowers with higher credit scores are more likely to repay or have the ability 

to refinance than those with lower scores. Credit scores presented within this Form 10-K are at the time of origination and may 

not be indicative of the borrowers’ creditworthiness at December 31, 2013. 

Loan Purpose 

Loan purpose indicates how the borrower intends to use the funds from a mortgage loan. In a purchase transaction, the 

funds are used to acquire a property. In a cash-out refinance transaction, in addition to paying off existing mortgage liens, the 

borrower obtains additional funds that may be used for other purposes, including paying off subordinate mortgage liens and 

providing unrestricted cash proceeds to the borrower. In other refinance transactions, the funds are used to pay off existing 

mortgage liens and may be used in limited amounts for certain specified purposes; such refinances are generally referred to as 

“no cash-out” or “rate and term” refinances. The percentage of home purchase loans in our loan acquisition volume remained at 

a low level during 2013, as low interest rates contributed to high refinance activity. Cash-out refinancings generally have had a 

higher risk of default than mortgages originated in no cash-out, or rate and term, refinance transactions. 

Property Type 

Townhomes and detached single-family houses are the predominant type of single-family property. Condominiums are a 

property type that historically experiences greater volatility in home prices than detached single-family residences. 

Condominium loans in our single-family credit guarantee portfolio have a higher percentage of first-time homebuyers and 

homebuyers whose purpose is for investment or for a second home. In practice, investors and second home borrowers often 

seek to finance the condominium purchase with loans having a higher original LTV ratio than other borrowers. Approximately 

36% of the condominium loans within our single-family credit guarantee portfolio are in California, Florida, and Illinois, which 

are among the states that have been most adversely affected by the recent housing and economic downturn. Condominium 

loans comprised 12% and 15% of our credit losses during 2013 and 2012, respectively, while these loans comprised 8% of our 

single-family credit guarantee portfolio at both December 31, 2013 and 2012. 

Occupancy Type 

Borrowers may purchase a home as a primary residence, second home or investment property that is typically a rental 

property. Mortgage loans on properties occupied by the borrower as a primary residence tend to have a lower credit risk than 

mortgages on investment properties or secondary residences. 

Geographic Concentration 

Local economic conditions can affect borrowers’ ability to repay loans and the value of the collateral underlying the 

loans. Because our business involves purchasing mortgages from every geographic region in the U.S., we maintain a 

geographically diverse single-family credit guarantee portfolio. In recent years, our credit losses have been greatest in those 

states that experienced significant cumulative declines in property values since 2006, such as California, Florida, Nevada and 

Arizona. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for more information concerning the 

distribution of our single-family credit guarantee portfolio by geographic region. 

Mortgages with Second Liens 

The presence of a second lien can increase the risk that a borrower will default. A second lien reduces the borrower’s 

equity in the home, and has a negative effect on the borrower’s ability to refinance or sell the property for an amount at or 

above the combined balances of the first mortgage and second lien. As of both December 31, 2013 and 2012, based on data 

Table of Contents
109 Freddie Mac

collected by us at loan delivery, approximately 14% of the loans in our single-family credit guarantee portfolio had second-lien 

financing by third parties at origination of the first mortgage. As of both December 31, 2013 and 2012, we estimate that these 

loans comprised 17% of our seriously delinquent loans based on UPB. Borrowers are free to obtain second-lien financing after 

origination and we are not entitled to receive notification when a borrower does so. Therefore, it is likely that additional 

borrowers have post-origination second-lien mortgages. 

Attribute Combinations

Certain combinations of loan characteristics often can indicate a higher degree of credit risk. For example, single-family 

mortgages with both high LTV ratios and borrowers who have lower credit scores typically experience higher rates of serious 

delinquency and default. We estimate that there were $12.8 billion and $12.0 billion at December 31, 2013 and 2012, 

respectively, of loans in our single-family credit guarantee portfolio with both original LTV ratios greater than 90% and FICO 

scores less than 620 at the time of loan origination. We continue to purchase certain of these loans if they are covered by credit 

enhancements for the UPB in excess of 80% or if they are HARP loans. Certain mortgage product types, including interest-only 

or option ARM loans, have features that may also add to credit risk. See “Table 50 — Single-Family Credit Guarantee Portfolio 

by Attribute Combinations” for information about certain attribute combinations of our single-family mortgage loans.

Single-Family Mortgage Product Types

Product mix affects the credit risk profile of our total mortgage portfolio. The primary mortgage products in our singlefamily credit guarantee portfolio are first lien, fixed-rate mortgage loans secured by the borrower’s primary residence. See 

“Other Categories of Single-Family Mortgage Loans” below for additional information on higher-risk mortgages in our singlefamily credit guarantee portfolio.

For purposes of presentation within this Form 10-K and elsewhere in our reporting, we have categorized a number 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, the rate is 

determined at the time of modification rather than at a subsequent date.

The following paragraphs provide information on the interest-only, option ARM, adjustable rate, and conforming jumbo 

loans in our single-family credit guarantee portfolio. Interest-only and option ARM loans are higher-risk mortgage products 

based on the features of these types of loans, and have experienced significantly higher serious delinquency rates than fixedrate amortizing mortgage products.

Interest-Only Loans

Interest-only loans have an initial period during which the borrower pays only interest, and at a specified date the 

monthly payment increases to begin reflecting repayment of principal. Interest-only loans represented approximately 2% and 

3% of the UPB of our single-family credit guarantee portfolio at December 31, 2013 and 2012, respectively. We discontinued 

purchasing such loans on September 1, 2010. The balance of these loans has declined significantly in recent years as many of 

these borrowers have repaid their loans, completed foreclosure transfers or foreclosure alternatives, refinanced or received loan 

modifications into an amortizing loan product (and thus these loans are no longer classified as interest-only loans).

The table below presents information for mortgage loans in our single-family credit guarantee portfolio, excluding Other 

Guarantee Transactions, at December 31, 2013 that contain interest-only payment terms. The reported balances in the table 

below are aggregated by interest-only loan product type and categorized by the year in which the loan begins to require 

payments of principal. At December 31, 2013, approximately 10% of these interest-only loans are scheduled to begin requiring 

payments of principal in 2014 or 2015. The timing of the actual change in payment terms may differ from those presented due 

to a number of factors, including refinancing. 

Table 39 — Single-Family Loans Scheduled Payment Change to Include Principal by Year at December 31, 2013(1)

2013 and Prior 2014 2015 2016 2017 2018 Thereafter Total

(in millions)

ARM/interest-only $ 10,889 $ 581 $ 2,740 $ 4,153 $ 6,769 $ 2,720 $ 565 $ 28,417

Fixed/interest-only — 9 178 857 4,128 861 269 6,302

Total $ 10,889 $ 590 $ 2,918 $ 5,010 $ 10,897 $ 3,581 $ 834 $ 34,719

(1) Based on the UPBs of mortgage products that contain interest-only provisions and that begin amortization of principal in each of the years shown. 

These reported balances are based on the UPB of the underlying mortgage loans and do not reflect the publicly-available security balances we use to 

report the composition of our PCs and REMICs and Other Structured Securities. Excludes: (a) mortgage loans underlying Other Guarantee 

Transactions since the payment change information is not available to us for these loans; and (b) any mortgage loans which completed a modification 

before the end of the respective period and for which the terms of the loan were changed to an amortizing loan product.

The table below presents the trend of serious delinquency information for interest-only mortgage loans in our singlefamily credit guarantee portfolio, excluding Other Guarantee Transactions, categorized by the year in which the loan begins to 

require payments of principal. Loans where the year of payment change is 2013 or prior have already changed to require 

Table of Contents
110 Freddie Mac

payments of principal as of December 31, 2013; loans where the year of payment change is 2014 or later still require only 

payments of interest as of December 31, 2013 and will not require payments of principal until a future period.

Table 40 — Serious Delinquency Rates by Year of Payment Change to Include Principal(1)

As of December 31, 2013

Year of payment change: 2013 2012 2011

2011 and prior 7.61% 10.58% 13.22%

2012 12.50 19.35 20.98

2013 13.73 18.11 17.08

2014 and after 14.22 17.67 18.52

(1) Based on loans remaining in the single-family guarantee portfolio as of December 31, 2013, 2012, and 2011, rather than all loans guaranteed by us and 

originated in the respective year. Excludes mortgage loans which completed a modification before the end of the respective period and for which the 

terms of the loan were changed to an amortizing loan product.

As shown in the table above, the trend in serious delinquency rates of interest-only loans that experienced a change to 

become amortizing (when the loans begin to require payments of principal) during the last three years has not been 

significantly affected by the change in the payment terms. We believe that the serious delinquency rates of interest-only loans 

during the last three years have been more affected by macro-economic conditions, such as unemployment rates and cumulative 

home price declines in many geographic areas since 2006, than by the increase in the borrower’s monthly payment. In addition, 

a number of these loans were categorized as Alt-A, due to reduced documentation standards at the time of loan origination. The 

overall serious delinquency rate for all interest-only loans in our single-family credit guarantee portfolio was 12.5% as of 

December 31, 2013. Approximately 69% of all interest-only loans in our single-family credit guarantee portfolio had not yet 

begun amortization of principal and 37% of all interest-only loans in our single-family credit guarantee portfolio had current 

LTV ratios greater than 100% as of December 31, 2013. Since a substantial portion of these loans were originated in 2005 

through 2008 and are located in geographical areas that have been most impacted by declines in home prices since 2006, we 

believe that the serious delinquency rate for interest-only loans will remain high in 2014.

Option ARM Loans

Most option ARM loans have initial periods during which the borrower has various options as to the amount of each 

monthly payment, until a specified date, when the terms are recast. We have not purchased option ARM loans in our singlefamily credit guarantee portfolio since 2007. At both December 31, 2013 and 2012, option ARM loans represented less than 1% 

of the UPB of our single-family credit guarantee portfolio. Included in this exposure was $5.5 billion and $6.3 billion of option 

ARM securities underlying certain of our Other Guarantee Transactions at December 31, 2013 and 2012, respectively. While 

we have not categorized these option ARM securities as either subprime or Alt-A securities for presentation within this Form 

10-K and elsewhere in our reporting, they could exhibit similar credit performance to collateral identified as subprime or Alt-A. 

For reporting purposes, loans within the option ARM category continue to be presented in that category following a 

modification of the loan, even though the modified loan no longer provides for optional payment provisions. As of 

December 31, 2013 and 2012, approximately 11.0% and 8.1%, respectively, of the option ARM loans within our single-family 

credit guarantee portfolio had been modified. For information on our exposure to option ARM loans through our holdings of 

non-agency mortgage-related securities, see “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in 

Securities.”

Adjustable-Rate Mortgage Loans 

Adjustable-rate mortgage loans may have initial periods during which the interest rate and monthly payment remains 

fixed, until a specified date, when the interest rate begins to adjust, or they may adjust at regular intervals after origination 

(typically annually). At each reset date, the loan's interest rate is adjusted based on a market index rate, subject to specific 

terms, including a limit on the amount of change in the rate from the preceding period's interest rate. In a rising interest rate 

environment, ARM borrowers typically default at a higher rate than fixed-rate borrowers. 

The table below presents information for mortgage loans in our single-family credit guarantee portfolio, excluding Other 

Guarantee Transactions and certain REMICs, at December 31, 2013 that contain adjustable payment terms. The reported 

balances in the table below are aggregated by product type and categorized by year of the next scheduled contractual reset date. 

At December 31, 2013, approximately 54% of these loans have interest rates that are scheduled to reset in 2014 or 2015. The 

timing of the actual reset dates may differ from those presented due to a number of factors, including prepayments or the 

borrower's exercising the terms of the mortgage (certain of which could delay or accelerate the timing of the reset date). 

Table of Contents
111 Freddie Mac

Table 41 — Single-Family Next Scheduled Adjustable-Rate Resets by Year at December 31, 2013(1)

2014 2015 2016 2017 2018 Thereafter Total

(in millions)

ARMs/amortizing $ 21,467 $ 3,559 $ 6,711 $ 6,704 $ 7,301 $ 20,651 $ 66,393

ARMs/interest-only(2) 25,056 1,132 856 1,072 265 36 28,417

Balloon/resets(3) 48 4 — — — 1 53

Total $ 46,571 $ 4,695 $ 7,567 $ 7,776 $ 7,566 $ 20,688 $ 94,863

(1) Based on the UPBs of mortgage products that contain adjustable-rate interest provisions and are scheduled to reset during the periods specified above. 

These reported balances are based on the UPB of the underlying mortgage loans and do not reflect the publicly-available security balances we use to 

report the composition of our PCs and REMICs and Other Structured Securities. Excludes: (a) mortgage loans underlying Other Guarantee 

Transactions and certain REMICs since rate reset information is not available to us for these loans; and (b) any amortizing ARM loans which 

completed a modification before the end of the respective period and for which the terms of the loan were changed to a fixed-rate loan product.

(2) Reflects the UPB of interest-only loans that reset in each of the years shown. We report loans in the interest-only category if their original terms include 

interest-only provisions for a pre-determined period of time before the monthly payment changes to include amortization of principal. Includes $10.9 

billion of loans that were interest-only at origination that have converted to include amortization of principal as of December 31, 2013.

(3) Effective January 1, 2013, we no longer purchase balloon/reset mortgages. 

The table below presents serious delinquency information for adjustable-rate mortgage loans in our single-family credit 

guarantee portfolio, excluding Other Guarantee Transactions, categorized by the year in which the loan first had an interest rate 

reset. Loans where the year of first interest rate reset is 2013 or prior have already had one or more interest rate resets as of 

December 31, 2013; loans where the year of first interest rate reset is 2014 or later have not yet had an interest rate reset as of 

December 31, 2013 and will not have an interest rate reset until a future period.

Table 42 — Serious Delinquency Rates by Year of First Rate Reset(1)

December 31,

Year of payment change: 2013 2012 2011

2011 and prior 4.42% 5.99% 7.48%

2012 13.40 19.44 22.69

2013 10.32 13.69 12.78

2014 and after 2.03 3.64 5.21

(1) Based on loans remaining in the single-family credit guarantee portfolio as of December 31, 2013, 2012, and 2011, rather than all loans guaranteed by 

us and originated in the respective year. Excludes mortgage loans which completed a modification before the end of the respective period and for which 

the terms of the loan were changed to a fixed-rate loan product.

As shown in the table above, the trend in serious delinquency rates of adjustable-rate loans that experienced an interest 

rate reset during the last three years has not been significantly affected by the change in interest rate of the loan. Except for 

interest-only loans that began to amortize at the reset date, there were not significant increases to the borrowers’ payments 

when these loans reached their first reset dates because market interest rates have generally declined in recent years. In recent 

years, ARM loans have experienced high serious delinquency rates well before reaching the dates at which the loans have 

reached their first rate reset. We believe that serious delinquency rates of ARM loans during the last three years have been more 

affected by macro-economic conditions, such as unemployment rates and cumulative home price declines in many geographic 

areas since 2006, than by changes in the interest rates of the loans. See "RISK FACTORS — Competitive and Market Risks — 

Changes in interest rates could negatively impact our results of operations, net worth and fair value of net assets" for 

additional information. Since a substantial portion of ARM loans were originated in 2005 through 2008 and are located in 

geographical areas that have been most affected by declines in home prices since 2006, we believe that the serious delinquency 

rate for ARM loans will continue to remain high in 2014.

Conforming Jumbo Loans

For loans originated after September 30, 2011, conforming jumbo loans on a one-family residence have UPB at 

origination that is greater than $417,000 and up to $625,500 in certain “high-cost” areas. We purchased or guaranteed 

$30.0 billion and $33.5 billion of conforming jumbo loans during the years ended December 31, 2013 and 2012, respectively. 

The UPB of conforming jumbo loans in our single-family credit guarantee portfolio as of December 31, 2013 and 2012 was 

$69.0 billion and $57.0 billion, and comprised 4% and 3% of the portfolio, respectively. The average size of these loans was 

approximately $518,000 and $530,000 at December 31, 2013 and 2012, respectively. See “BUSINESS — Our Business” for 

further information on the conforming loan limits.

Other Categories of Single-Family Mortgage Loans

While we have classified certain loans as subprime or Alt-A for purposes of the discussion below and elsewhere in this 

Form 10-K, there is no universally accepted definition of subprime or Alt-A, and our classification of such loans may differ 

Table of Contents
112 Freddie Mac

from those used by other companies. For example, some financial institutions may use FICO scores to delineate certain 

residential mortgages as subprime. In addition, we do not rely primarily on these loan classifications to evaluate the credit risk 

exposure relating to such loans in our single-family credit guarantee portfolio. For a definition of the subprime and Alt-A

single-family loans and securities in this Form 10-K, see “GLOSSARY.”

Subprime Loans

Participants in the mortgage market may characterize single-family loans based upon their overall credit quality at the 

time of origination, generally considering them to be prime or subprime. While we have not historically characterized the loans 

in our single-family credit guarantee portfolio as either prime or subprime, we monitor the amount of loans we have guaranteed 

with characteristics that indicate a higher degree of credit risk (see “Higher-Risk Loans in the Single-Family Credit Guarantee 

Portfolio” and “Table 50 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for further information). In 

addition, we estimate that approximately $1.8 billion and $2.0 billion of security collateral underlying our Other Guarantee 

Transactions at December 31, 2013 and 2012, respectively, were identified as subprime based on information provided to us 

when we entered into these transactions.

We also categorize our investments in non-agency mortgage-related securities as subprime if they were identified as such 

based on information provided to us when we entered into these transactions. At December 31, 2013 and 2012, we held 

$39.7 billion and $44.4 billion, respectively, in UPB of non-agency mortgage-related securities backed by subprime loans. 

Approximately 5% of these securities were investment grade at both December 31, 2013 and 2012. The credit performance of 

loans underlying these securities deteriorated significantly since 2008. For more information on our exposure to subprime 

mortgage loans through our investments in non-agency mortgage-related securities see “CONSOLIDATED BALANCE 

SHEETS ANALYSIS — Investments in Securities.”

Alt-A Loans

Although there is no universally accepted definition of Alt-A, many mortgage market participants classify single-family 

loans with credit characteristics that range between their prime and subprime categories as Alt-A because these loans have a 

combination of characteristics of each category, may be underwritten with lower or alternative income or asset documentation 

requirements compared to a full documentation mortgage loan, or both. The UPB of Alt-A loans in our single-family credit 

guarantee portfolio declined to $56.9 billion as of December 31, 2013 from $73.7 billion as of December 31, 2012 primarily 

due to refinancing into other mortgage products, foreclosure transfers, and other liquidation events. For reporting purposes, 

loans within the Alt-A category continue to be reported in that category following a modification of the loan, even though the 

borrower may have provided full documentation of assets and income before completing the modification. As of December 31, 

2013 and 2012, approximately 16.3% and 11.8%, respectively, of the Alt-A loans within our single-family credit guarantee 

portfolio had completed a modification. As of December 31, 2013, for Alt-A loans in our single-family credit guarantee 

portfolio, the average FICO score at origination was 711. Although Alt-A mortgage loans comprised approximately 3% and 5% 

of our single-family credit guarantee portfolio as of December 31, 2013 and 2012, respectively, these loans represented 

approximately 26% and 23% of our credit losses during 2013 and 2012, respectively.

Although we discontinued new purchases of mortgage loans with lower documentation standards for assets or income 

beginning March 1, 2009, we continued to purchase certain amounts of these mortgages in cases where the loan was either: 

(a) purchased pursuant to a previously issued other guarantee commitment; (b) part of our relief refinance mortgage initiative; 

or (c) in another refinance mortgage initiative and the pre-existing mortgage (including Alt-A loans) was originated under less 

than full documentation standards. In the event we purchase a refinance mortgage and the original loan had been previously 

identified as Alt-A, such refinance loan may no longer be categorized or reported as an Alt-A mortgage in this Form 10-K and 

our other financial reports because the new refinance loan replacing the original loan would not be identified by the seller/

servicer as an Alt-A loan. As a result, our reported Alt-A balances may be lower than would otherwise be the case had such 

refinancing not occurred. From the time the relief refinance initiative began in 2009 to December 31, 2013, we have purchased 

approximately $28.9 billion of relief refinance mortgages that were previously categorized as Alt-A loans in our portfolio, 

including $6.7 billion in 2013.

We also hold investments in non-agency mortgage-related securities backed by single-family Alt-A loans. At 

December 31, 2013 and 2012, we held investments of $11.0 billion and $14.8 billion in UPB, respectively, of non-agency 

mortgage-related securities backed by Alt-A and other mortgage loans. Approximately 5% and 9% of these securities were 

categorized as investment grade at December 31, 2013 and 2012, respectively. The credit performance of loans underlying 

these securities deteriorated significantly since 2008. We categorize our investments in non-agency mortgage-related securities 

as Alt-A if the securities were identified as such based on information provided to us when we entered into these transactions. 

For more information on our exposure to Alt-A mortgage loans through our investments in non-agency mortgage-related 

securities see “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities.”

Higher-Risk Loans in the Single-Family Credit Guarantee Portfolio

The table below presents information about certain categories of single-family mortgage loans within our single-family 

credit guarantee portfolio that we believe have certain higher-risk characteristics. These loans include categories based on 

Table of Contents
113 Freddie Mac

product type and borrower characteristics present at origination. The table includes a presentation of each higher risk category 

in isolation. A single loan may fall within more than one category (for example, an interest-only loan may also have an original 

LTV ratio greater than 90%). Loans with a combination of these characteristics will have an even higher risk of default than 

those with a single characteristic.

Table 43 — Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio(1)

As of December 31, 2013

UPB

Estimated

Current LTV(2)

Percentage

Modified(3)

Serious

Delinquency

Rate(4)

(dollars in billions)

Loans with one or more specified characteristics $ 364.5 94% 8.1% 5.3%

Categories (individual characteristics):

Alt-A 56.9 87 16.3 10.1

Interest-only(5) 34.7 93 0.2 12.5

Option ARM(6) 6.4 86 11.0 12.3

Original LTV ratio greater than 90%, non-HARP mortgages 103.4 91 10.1 5.7

Original LTV ratio greater than 90%, HARP mortgages 154.3 103 0.5 1.0

Lower FICO scores at origination (less than 620)(7) 47.8 83 17.4 10.0

As of December 31, 2012

UPB

Estimated

Current LTV(2)

Percentage

Modified(3)

Serious

Delinquency

Rate(4)

(dollars in billions)

Loans with one or more specified characteristics $ 355.3 101% 7.6% 7.5%

Categories (individual characteristics):

Alt-A 73.7 100 11.8 11.4

Interest-only(5) 50.2 110 0.3 16.3

Option ARM(6) 7.3 105 8.1 16.3

Original LTV ratio greater than 90%, non-HARP mortgages 98.5 100 9.4 7.8

Original LTV ratio greater than 90%, HARP mortgages 120.4 108 0.2 1.0

Lower FICO scores at origination (less than 620)(7) 50.9 89 15.3 12.2

(1) Categories are not additive and a single loan may be included in multiple categories if more than one characteristic is associated with the loan.

(2) See endnote (3) to “Table 38 — Characteristics of the Single-Family Credit Guarantee Portfolio” for information on our calculation of current LTV

ratios.

(3) Represents the percentage of loans based on loan count in our single-family credit guarantee portfolio at period end that have been modified, including 

those with no changes in the interest rate or maturity date, but where past due amounts are added to the outstanding principal balance of the loan. 

Excludes loans underlying certain Other Guarantee Transactions for which data was not available.

(4) See “Credit Performance — Delinquencies” for further information about our reported serious delinquency rates.

(5) When an interest-only loan is modified to require repayment of principal, the loan is removed from the interest-only category. The percentages of 

interest-only loans which have been modified at period end reflect loans that have not yet been assigned to their new product category (postmodification), primarily due to delays in processing.

(6) For reporting purposes, loans within the option ARM category continue to be reported in that category following modification, even though the 

modified loan no longer provides for optional payment provisions.

(7) See endnote (2) to “Table 37 — Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio” for information on our presentation of 

FICO scores.

A significant portion of the loans in the higher-risk categories presented in the table above are included in our 2005-2008 

Legacy single-family book. We have fully discontinued purchases of Alt-A (effective March 1, 2009), interest-only (effective 

September 1, 2010), and option ARM (since 2007) loans. The UPB of loans with one or more of these higher-risk 

characteristics in our single-family credit guarantee portfolio increased during 2013 primarily due to increased purchases of 

loans with original LTV ratios greater than 90% resulting from significant HARP activity. The balance of our non-HARP

mortgages with original LTV ratios greater than 90% increased $4.9 billion from December 31, 2012 to December 31, 2013, 

since we continue to purchase certain of these loans if they are covered by credit enhancements for the UPB in excess of 80%. 

We also continue to purchase single-family loans with FICO scores below 620 in limited amounts if they meet our underwriting 

standards.

Credit Enhancements

The use of credit enhancements is intended to mitigate some of our potential credit losses. Our charter requires that 

single-family mortgages with LTV ratios above 80% at the time of purchase be covered by specified credit enhancements or 

participation interests (subject to certain exceptions, such as discussed below with respect to HARP). As guarantor, we remain 

Table of Contents
114 Freddie Mac

responsible for the payment of principal and interest if mortgage insurance or other credit enhancements do not provide full 

reimbursement for covered losses. Our credit losses could increase if an entity that provides credit enhancement fails to fulfill 

its obligation (e.g., a mortgage insurer fails to pay a claim), as this would reduce the amount of our credit loss recoveries.

At December 31, 2013 and 2012, our credit-enhanced mortgages represented 17% and 13%, respectively, of our singlefamily credit guarantee portfolio, excluding those backing Ginnie Mae Certificates and HFA bonds guaranteed by us under the 

HFA initiative, based on UPB. Our financial guarantees backed by Ginnie Mae Certificates and HFA bonds under the HFA

initiative are excluded because we consider the incremental credit risk to which we are exposed to be insignificant. In recent 

years, the percentage of our single-family loan purchases with credit enhancement coverage has been affected by high volumes 

of refinance activity. Refinance loans (other than HARP loans) typically have lower LTV ratios than home purchase loans, and 

are more likely to have an LTV ratio below 80% and not require credit protection as specified in our charter. Under HARP, we 

allow eligible borrowers who have mortgages with current LTV ratios over 80% to refinance their mortgages without obtaining 

new mortgage insurance in excess of the insurance coverage that was already in place.

We recognized recoveries from credit enhancements (excluding recoveries that represent reimbursements for our 

expenses, such as REO operations expenses) of $1.5 billion and $1.6 billion that reduced our charge-offs of single-family loans 

during 2013 and 2012, respectively. Substantially all of these amounts represent recoveries associated with our primary and 

pool mortgage insurance policies. During the third quarter of 2013, we entered into an agreement with one of our mortgage 

insurers to resolve outstanding and future primary mortgage insurance claims related to certain loans. We recognized recoveries 

of $0.2 billion in the third quarter of 2013 related to this agreement. In addition, we recognized recoveries from credit 

enhancements of $0.2 billion and $0.1 billion during 2013 and 2012, respectively, as part of REO operations income 

(expenses). These recoveries were also primarily associated with our primary and pool mortgage insurance policies.

We executed three transactions during 2013 that transfer a mezzanine credit loss position on certain groups of loans in our 

New single-family book. We believe approximately $45 billion of UPB related to these transactions qualified toward our 2013 

Conservatorship Scorecard goal to demonstrate the viability of multiple types of risk transfer transactions involving singlefamily mortgages with at least $30 billion in aggregate UPB, subject to certain limitations. These transactions are intended to 

shift a significant portion of the mortgage credit risk from us to private investors. In July 2013, we executed a STACR debt note 

transaction for $500 million in UPB which provides us with credit protection coverage for $22.5 billion of UPB of loans in our 

single-family credit guarantee portfolio. A second STACR debt note transaction for $630 million in UPB, which provides us 

with credit protection coverage for an additional $35.3 billion of UPB, settled in November 2013. In the first and second 

STACR debt note transactions, we are exposed to the first $68 million and $106 million, respectively, of calculated losses 

associated with the reference pool of mortgage loans and a portion of credit events thereafter. The UPB of the STACR debt 

notes held by third parties represents the maximum amount of credit protection that is available to us from such third parties 

through the transaction.

In November 2013, we further reduced our exposure to credit losses from the reference pool of mortgage loans associated 

with the first STACR debt note transaction by obtaining third-party insurance to cover up to $77.4 million of our mezzanine 

exposure to credit losses. In November 2013, FHFA announced that we had achieved the 2013 Scorecard goal for risk transfer 

transactions.

Certain of our single-family Other Guarantee Transactions utilize subordinated security structures as a form of credit 

enhancement. At December 31, 2013 and 2012, the UPB of single-family Other Guarantee Transactions with subordination 

coverage at origination was $2.6 billion and $3.0 billion, and the subordination coverage on these securities was $399 million 

and $503 million, respectively. At December 31, 2013 and 2012, the serious delinquency rate on single-family Other Guarantee 

Transactions with subordination coverage was 19.0% and 20.5%, respectively.

See “Institutional Credit Risk” for information about our counterparties that provide credit enhancement on loans in our 

single-family credit guarantee portfolio, including information about our mortgage loan insurers. See “NOTE 4: MORTGAGE 

LOANS AND LOAN LOSS RESERVES” for additional information about credit protection and other forms of credit 

enhancements covering loans in our single-family credit guarantee portfolio. See “CONSOLIDATED BALANCE SHEETS 

ANALYSIS — Investments in Securities — Mortgage-Related Securities” for credit enhancement and other information about 

our investments in non-Freddie Mac mortgage-related securities.

Single-Family Loan Workouts and the MHA Program

Loan workout activities are a key component of our loss mitigation strategy for managing and resolving troubled assets 

and lowering credit losses. Our loan workouts consist of: (a) forbearance agreements; (b) repayment plans; (c) loan 

modifications; and (d) foreclosure alternatives (i.e., short sales or deed in lieu of foreclosure transactions). Our single-family 

loss mitigation strategy emphasizes early intervention by servicers in delinquent mortgages and provides alternatives to 

foreclosure. 

Our seller/servicers have an active role in our loss mitigation efforts. A decline in their performance could affect the 

overall quality of our credit performance (including by missing opportunities for mortgage modifications), which could have 

significant effects on our ability to mitigate credit losses. The risk of such a decline in performance remains high. In 2012, we 

Table of Contents
115 Freddie Mac

began to permit the transfer of servicing for certain groups of loans that were delinquent or were deemed at risk of default to 

servicers that we believe have capabilities and resources necessary to improve the loss mitigation associated with the loans. 

Depending on our experience with the results of these transfers and specific servicer experience and capacity, we may permit 

additional transfers in the future. For more information, see “RISK FACTORS — Competitive and Market Risks — Our 

financial condition or results of operations may be adversely affected if mortgage seller/servicers fail to perform their

repurchase and other obligations to us.”

During 2013, we helped approximately 168,000 borrowers either stay in their homes or sell their properties and avoid 

foreclosures through our various workout programs, and we completed approximately 82,000 foreclosures. We bear the full 

costs associated with our loan workouts and foreclosure alternatives on mortgages that we own or guarantee, and do not receive 

any reimbursement from Treasury. These costs include borrower and servicer incentive fees as well as the cost of any monthly 

payment reductions.

Home Affordable Modification Program and Non-HAMP Modifications

Our primary loan modification initiatives are HAMP and our non-HAMP standard loan modification initiatives. HAMP

commits U.S. government, Freddie Mac and Fannie Mae funds to help eligible homeowners avoid foreclosures and keep their 

homes through mortgage modifications. Under this program, we offer loan modifications to financially struggling homeowners 

with mortgages on their primary residences that reduce the monthly principal and interest payments on their mortgages. HAMP

requires that each borrower complete at least a three month trial period during which the borrower will make monthly payments 

based on the estimated amount of the modification payments. HAMP is scheduled to end in December 2015. In March 2013, as 

part of the servicing alignment initiative, we announced a streamlined modification initiative, which provides an additional 

modification opportunity to certain borrowers. The modification that borrowers receive under this initiative will have the same 

mortgage terms as our non-HAMP standard modification.

During 2013, approximately 83,000 borrowers having loans with aggregate UPB of $17.4 billion completed 

modifications under all of our programs, and, as of December 31, 2013, approximately 21,000 borrowers were in the 

modification trial period. For information about the percentage of completed loan modifications that remained current, see 

“Table 46 — Quarterly Percentages of Modified Single-Family Loans — Current and Performing.” 

During 2013 and 2012, approximately 60,000 and 29,000 borrowers, respectively, completed a non-HAMP loan 

modification. As of December 31, 2013, the percentage of our non-HAMP modifications that were completed in 2010, 2011, 

2012, and 2013, that subsequently became seriously delinquent, proceeded to foreclosure transfer, completed a short sale, or 

were remodified was approximately 39%, 36%, 16%, and 7%, respectively. Based on information provided by the MHA

Program administrator, our servicers had completed more than 239,000 loan modifications under HAMP from the introduction 

of the initiative in 2009 through December 31, 2013, compared to approximately 217,000 cumulative HAMP completions as of 

December 31, 2012. According to the administrator, the number of our loans in the HAMP trial period declined to 4,970 as of 

December 31, 2013 from 9,440 as of December 31, 2012. As of December 31, 2013, the percentage of our HAMP

modifications that were completed in 2010, 2011, 2012, and 2013 that subsequently became seriously delinquent, proceeded to 

foreclosure transfer, completed a short sale, or were remodified was approximately 26%, 19%, 12%, and 5%, respectively.

The portion of our modification volume that was HAMP-related declined and the portion of modification volume that 

was non-HAMP-related increased in 2013 compared to 2012. We attribute this shift in the composition of our modification 

volume to both the availability of our non-HAMP modifications and the fact that a large number of the borrowers that were 

eligible for HAMP have already completed a modification or attempted but failed to complete the modification. We expect that 

our new streamlined modification initiative may cause our non-HAMP modification volume to be elevated in the first half of 

2014.

The costs we incur related to HAMP have been, and will likely continue to be significant. We incurred $109 million and 

$177 million of servicer incentive expenses on HAMP loans during 2013 and 2012, respectively. We also incur certain 

incentives for borrowers who continue to perform under their HAMP modification, which are included within our benefit 

(provision) for credit losses on our consolidated statements of comprehensive income. The servicer incentive costs we incur 

related to our non-HAMP modifications have also been significant. We recently announced changes to certain servicer 

incentive fees for HAMP modifications completed on or after April 1, 2014.

Many of our HAMP loans have provisions for reduced interest rates that 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. Certain of our non-HAMP loan modifications have similar features and, 

collectively, we refer to these types of loans as “step-rate modified loans.” The risk of default may increase for borrowers with 

step-rate modified loans due to the increase in monthly payments resulting from these scheduled increases in the contractual 

interest rate of the loan. A significant number of HAMP loan modifications were completed in 2010 and these loans will begin 

to experience their scheduled interest rate increases in 2015. As of December 31, 2013, the average current contractual interest 

rate for all step-rate modified loans was 2.3% and the average final interest rate that these loans are scheduled to reach in the 

future was 4.5%.

Table of Contents
116 Freddie Mac

The table below presents information about step-rate modified loans.

Table 44 — Step-Rate Modified Loans(1)

As of December 31, 2013 Year of Payment Change(3)

UPB

Serious

Delinquency(2) 2014 2015 2016

2017 and

After

(in billions, except rates)

Year of completed modification:

2009 $ 4.2 11% $ 4.2 $ 4.0 $ 3.5 $ 0.7

2010 18.1 12 — 18.0 16.7 14.7

2011 10.5 11 — — 10.6 9.6

2012 and after 11.0 6 — — — 11.0

Total $ 43.8 10 $ 4.2 $ 22.0 $ 30.8 $ 36.0

(1) Consists of step-rate modified loans (HAMP and non-HAMP) remaining in the single-family credit guarantee portfolio as of December 31, 2013, 

excluding those underlying Other Guarantee Transactions. Includes the portion, if any, of UPB that is non-interest bearing under the terms of the 

modification. Excludes loans in a modification trial period and those that were subsequently remodified under a non-HAMP initiative and no longer 

have step-rate terms.

(2) Based on loan count.

(3) Represents the UPB of all step-rate modified loans that are scheduled to experience an increase in their contractual interest rate in a given year. 

Individual loans will appear in each year for which they are scheduled to experience a rate increase.

Loan Workout Volumes and Modification Performance

The table below presents single-family loan workout volumes, serious delinquency rates, and foreclosure volumes for 

2013, 2012 and 2011.

Table 45 — Single-Family Loan Workout, Serious Delinquency, and Foreclosure Volumes(1)

Years Ended December 31,

2013 2012 2011

Number

of Loans

Loan

Balances

Number

of Loans

Loan

Balances

Number

of Loans

Loan

Balances

(dollars in millions)

Home retention actions:

Loan modifications

with no change in terms(2) 213 $ 25 533 $ 95 4,371 $ 778

with term extension 6,645 700 3,894 313 16,354 3,011

with change in interest rate and, in certain cases, term

extension 46,739 7,314 38,871 6,246 68,584 15,231

with change in interest rate, term extension and principal

forbearance 29,591 9,368 26,283 8,483 19,865 5,319

Total loan modifications(3) 83,188 17,407 69,581 15,137 109,174 24,339

Repayment plans(4) 28,610 4,016 33,350 4,746 33,421 4,787

Forbearance agreements(5) 12,019 2,331 13,026 2,557 19,516 3,821

Total home retention actions 123,817 23,754 115,957 22,440 162,111 32,947

Foreclosure alternatives:

Short sale 41,362 9,016 51,972 11,626 45,623 10,524

Deed in lieu of foreclosure transactions 2,720 437 1,036 179 540 94

Total foreclosure alternatives 44,082 9,453 53,008 11,805 46,163 10,618

Total single-family loan workouts 167,899 $ 33,207 168,965 $ 34,245 208,274 $ 43,565

Seriously delinquent loan additions 237,580 305,449 374,970

Single-family foreclosures(6) 81,605 105,060 121,751

Seriously delinquent loans, at period end 255,325 352,860 414,134

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

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

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

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

mutually exclusive and a loan in one category may also be included within another category in the same period (see endnote 5).

Table of Contents
117 Freddie Mac

(2) Under this modification type, past due amounts are added to the principal balance and amortized based on the original contractual loan terms.

(3) Includes completed loan modifications under HAMP; however, the number of such completions differs from that reported by the MHA Program 

administrator in part due to differences in the timing of recognizing the completions by us and the administrator.

(4) Represents the number of borrowers as reported by our seller/servicers that have completed the full term of a repayment plan for past due amounts. 

Excludes borrowers that are actively repaying past due amounts under a repayment plan, which totaled 16,768, 15,467, and 21,382 borrowers as of 

December 31, 2013, 2012, and 2011, respectively.

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

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

may be included under separate forbearance agreements in separate periods.

(6) Represents the number of our single-family loans that completed foreclosure transfers, including third-party sales at foreclosure auction in which 

ownership of the property is transferred directly to a third party rather than to us.

The number of seriously delinquent loans declined during 2013, and our loan modification volume increased in 2013 

compared to 2012. The volume of foreclosures declined by 22% in 2013 compared to 2012, primarily due to lower volumes of 

single-family loans becoming seriously delinquent and continued high volumes of loan workouts in 2013. We expect our loan 

modification volume will decline in 2014, as compared to 2013.

The UPB of loans in our single-family credit guarantee portfolio for which we have completed a loan modification 

increased to $82 billion as of December 31, 2013 from $75 billion as of December 31, 2012. The number of modified loans in 

our single-family credit guarantee portfolio continued to increase and such loans comprised approximately 3.8% and 3.4% of 

our single-family credit guarantee portfolio as of December 31, 2013 and December 31, 2012, respectively. For the year ended 

December 31, 2013, approximately 56% of our loan modifications related to loans which were 180 days or more delinquent 

prior to the modification effective date. The estimated weighted average current LTV ratio for all modified loans in our singlefamily credit guarantee portfolio was 100% at December 31, 2013. The serious delinquency rate on these loans was 13.3% as 

of December 31, 2013.

The volume of short sale transactions remained at elevated levels in 2013 compared to our historical experience. 

However, our short sale activity declined in the last three quarters of 2013, which we believe is due to rising interest rates and 

strengthening home prices in most geographical areas, which make short sales a less attractive option for borrowers. 

Table of Contents
118 Freddie Mac

The table below presents the percentage of modified single-family loans that were current and performing in each of the 

last eight quarterly periods.

Table 46 — Quarterly Percentages of Modified Single-Family Loans — Current and Performing(1)

Quarter of Loan Modification Completion(2)

HAMP loan modifications: 3Q 2013 2Q 2013 1Q 2013 4Q 2012 3Q 2012 2Q 2012 1Q 2012 4Q 2011

Time since modification:

3 to 5 months 87% 88% 89% 88% 87% 89% 89% 89%

6 to 8 months 84 85 85 85 85 84 85

9 to 11 months 82 83 82 84 81 81

12 to 14 months 80 80 81 81 79

15 to 17 months 78 80 79 79

18 to 20 months 79 77 77

21 to 23 months 76 76

24 to 26 months 75

Quarter of Loan Modification Completion(2)

Non-HAMP loan modifications: 3Q 2013 2Q 2013 1Q 2013 4Q 2012 3Q 2012 3Q 2012 1Q 2012 4Q 2011

Time since modification:

3 to 5 months 82% 83% 84% 83% 82% 84% 72% 78%

6 to 8 months 77 78 79 79 79 64 69

9 to 11 months 74 75 75 77 60 62

12 to 14 months 72 72 74 62 58

15 to 17 months 69 71 59 59

18 to 20 months 69 56 57

21 to 23 months 55 56

24 to 26 months 55

Quarter of Loan Modification Completion(2)

Total (HAMP and Non-HAMP): 3Q 2013 2Q 2013 1Q 2013 4Q 2012 3Q 2012 3Q 2012 1Q 2012 4Q 2011

Time since modification:

3 to 5 months 84% 85% 86% 85% 84% 87% 85% 86%

6 to 8 months 79 81 81 82 83 80 80

9 to 11 months 78 78 78 81 77 75

12 to 14 months 75 76 78 76 73

15 to 17 months 73 77 74 73

18 to 20 months 75 73 71

21 to 23 months 71 70

24 to 26 months 68

(1) Represents the percentage of loans that are current and performing (no payment is 30 days or more past due) or have been paid in full. Excludes loans 

in modification trial periods.

(2) Loan modifications are recognized as completed in the quarterly period in which the servicer has reported the modification as effective and the 

agreement has been accepted by us. For loans that have been remodified (e.g., where a borrower has received a new modification after defaulting on the 

prior modification) the rates reflect the status of each modification separately. For example, in the case of a remodified loan where the borrower is 

performing, the previous modification would be presented as being in default in the applicable period.

Relief Refinance Mortgage Initiative and Home Affordable Refinance Program

Our relief refinance mortgage initiative, including HARP (which is the portion of our relief refinance initiative for loans 

with LTV ratios above 80%), gives eligible homeowners with existing loans that are owned or guaranteed by us an opportunity 

to refinance into loans with more affordable monthly payments and/or fixed-rate terms. While HARP is targeted at borrowers 

with current LTV ratios above 80%, our relief refinance initiative also allows borrowers with LTV ratios of 80% and below to 

participate. We implemented a number of changes to HARP and the relief refinance initiative in late 2011 and during 2012. 

These changes allow more borrowers to participate in the program and benefit from refinancing their home mortgages, 

including borrowers whose mortgages have LTV ratios above 125%. In addition, in April 2013, we extended HARP by two 

years to December 31, 2015, at the direction of FHFA. 

Relief refinance mortgages (including HARP loans) generally present higher risk to us than other refinance loans we have 

purchased since 2009 because:

Table of Contents
119 Freddie Mac

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

include all of the changes in underwriting standards we have implemented since 2008;

• many of these loans have relatively high LTV ratios (e.g., greater than 90%), which can increase the probability of 

default and increase the amount of our loss if the borrower does default;

• HARP loans may not be covered by mortgage insurance for the full excess of their UPB over 80%; and

• beginning with changes announced in the fourth quarter of 2011, we have relieved the lenders of certain representations 

and warranties on the original mortgage being refinanced, which limits our ability to seek recovery or repurchase from 

the seller for breach. All relief refinance mortgages with application dates on or after November 19, 2012 have reduced 

representations and warranties from the seller. We continue to bear the credit risk for refinanced loans under this 

program, to the extent that such risk is not covered by existing mortgage insurance or other existing credit 

enhancements.

However, relief refinance mortgages (including HARP loans) generally have performed better than loans with similar 

characteristics remaining in our single-family credit guarantee portfolio that were originated prior to 2009 because, under the 

relief refinance initiative:

• borrowers must meet eligibility requirements, such as having no more than one late payment within the previous 12 

months and no late payments within the six months prior to refinancing; and

• the new mortgage results in one or more of the following borrower benefits compared to the original loan: (a) a reduced 

monthly payment; (b) a lower interest rate; (c) a shorter loan term; or (d) replacement of an adjustable interest rate with 

a fixed interest rate.

Although our refinancing activity moderated in the second half of 2013, relief refinance activity remained high in 2013

driven by relatively low interest rates compared to historical levels and the changes to the HARP program noted above. The 

following table provides information about the volume of our relief refinance purchases as well as information about the 

serious delinquency rates of these loans.

Table 47 — Single-Family Relief Refinance Loans(1)

Year Ended December 31, 2013 Year Ended December 31, 2012

UPB

Number of

Loans

Average Loan

Balance(2) UPB

Number of

Loans

Average loan

Balance(2)

(dollars in millions, except for average loan balances)

Purchases of relief refinance mortgages:

HARP:

Above 125% LTV ratio $ 11,574 62,652 $ 185,000 $ 20,364 98,559 $ 207,000

Above 100% to 125% LTV ratio 21,005 110,302 190,000 29,648 144,529 205,000

Above 80% to 100% LTV ratio 29,958 167,420 179,000 36,886 191,208 193,000

Other (80% and below LTV ratio) 36,658 270,138 136,000 35,870 252,569 142,000

Total relief refinance mortgages $ 99,195 610,512 162,000 $ 122,768 686,865 179,000

As of December 31, 2013 As of December 31, 2012

UPB

Number of

Loans

Serious

Delinquency

Rate UPB

Number of

Loans

Serious

Delinquency

Rate

(dollars in millions)

Balance of relief refinance mortgages:

HARP:

Above 125% LTV ratio $ 30,579 158,531 0.90% $ 20,163 98,371 0.29%

Above 100% to 125% LTV ratio 68,416 344,832 1.01 52,761 251,497 1.20

Above 80% to 100% LTV ratio 114,688 610,128 0.85 100,122 499,125 1.00

Other (80% and below LTV ratio) 127,991 936,038 0.32 114,164 774,212 0.32

Total relief refinance mortgages $ 341,674 2,049,529 0.64 $ 287,210 1,623,205 0.66

(1) Consists of all single-family relief refinance mortgage loans that we either purchased or guaranteed during the period, including those associated with 

other guarantee commitments and Other Guarantee Transactions.

(2) Rounded to the nearest thousand.

For more information on relief refinance loans, including HARP, in our single-family credit guarantee portfolio, see 

"Table 36 — Single-Family Credit Guarantee Portfolio Data by Year of Origination," and "Table 37 — Characteristics of 

Purchases for the Single-Family Credit Guarantee Portfolio."

Table of Contents
120 Freddie Mac

Credit Performance

Delinquencies

We report single-family serious delinquency rate information based on the number of loans that are three monthly 

payments or more past due or in the process of foreclosure, as reported by our servicers. Mortgage loans that have been 

modified are not counted as seriously delinquent as long as the borrower is less than three monthly payments past due under the 

modified terms. Single-family loans for which the borrower is subject to a forbearance agreement or a repayment plan will 

continue to reflect the past due status of the borrower.

Our single-family delinquency rates include all single-family loans that we own, that back Freddie Mac securities, and 

that are covered by our other guarantee commitments, except Freddie Mac financial guarantees that are backed by either Ginnie 

Mae Certificates or HFA bonds due to the credit enhancements provided on them by the U.S. government.

Some of our workout and other loss mitigation activities create fluctuations in our delinquency statistics. For example, 

single-family loans that we report as seriously delinquent before they enter a modification trial period continue to be reported 

as seriously delinquent for purposes of our delinquency reporting until the modifications become effective and the loans are 

removed from delinquent status by our servicers. Consequently, the volume and timing of loan modifications affect our 

reported serious delinquency rate. In addition, there may be temporary timing differences, or lags, in the reporting of payment 

status and modification completion due to differing practices of our servicers that can affect our delinquency reporting.

Our serious delinquency rates have been affected by delays, including those due to increases in foreclosure process 

timeframes, general constraints on servicer capacity (which affects the rate at which servicers modify or foreclose upon loans), 

and court backlogs (in states that require a judicial foreclosure process). These situations generally extend the time it takes for 

the loans to be modified, foreclosed upon, or otherwise resolved, and thus transition out of serious delinquency. As of 

December 31, 2013 and 2012, the percentage of seriously delinquent loans that have been delinquent for more than six months 

was 71% and 72%, respectively, and most of these loans have been delinquent for longer than one year. Loans that have been 

delinquent for more than a year are more challenging to resolve as many of these borrowers: (a) may not be in contact with the 

servicer; (b) may not be eligible for modifications; or (c) are in geographic areas where the foreclosure process has lengthened 

or is subject to judicial review. The longer a loan remains delinquent, the greater the associated costs we incur, in part due to 

expenses associated with loss mitigation and foreclosure.

Table of Contents
121 Freddie Mac

The table below presents serious delinquency rates and information about seriously delinquent loans in our single-family 

credit guarantee portfolio.

Table 48 — Single-Family Serious Delinquency Statistics

As of December 31, 2013 As of December 31, 2012 As of December 31, 2011

Percentage

of Portfolio

Serious

Delinquency

Rate

Percentage

of Portfolio

Serious

Delinquency

Rate

Percentage of

Portfolio

Serious

Delinquency

Rate

Credit Protection:

Non-credit-enhanced 83% 2.04% 87% 2.66% 86% 2.84%

Credit-enhanced(1) 17 4.83 13 7.34 14 8.03

Total(2) 100% 2.39 100% 3.25 100% 3.58

# of Seriously

Delinquent

Loans Percent

Serious

Delinquency

Rate

# of Seriously

Delinquent

Loans Percent

Serious

Delinquency

Rate

# of Seriously

Delinquent

Loans Percent

Serious

Delinquency

Rate

State:(3)(4)

Florida 42,948 17% 6.44% 69,034 20% 9.87% 82,006 20% 10.89%

New York 21,459 8 4.41 22,592 6 4.59 20,950 5 4.02

New Jersey 19,306 8 6.20 21,742 6 6.87 19,538 5 5.80

California 15,620 6 1.30 27,620 8 2.34 42,530 10 3.43

Illinois 15,521 6 2.79 22,923 7 4.08 28,039 7 4.72

All others 137,907 55 1.85 185,683 53 2.45 217,218 53 2.68

Total 252,761 100% 349,594 100% 410,281 100%

# of Seriously

Delinquent

Loans Percent

# of Seriously

Delinquent

Loans Percent

# of Seriously

Delinquent

Loans Percent

Aging, by locality:(4)

Judicial review states:(5)

Less than or equal to 1 year 59,129 23% 79,422 23% 99,388 24%

More than 1 year and less than

or equal to 2 years 30,604 12 50,506 14 67,894 17%

More than 2 years 65,154 26 77,766 22 63,429 16%

Non-judicial states:(5)

Less than or equal to 1 year 60,175 24 87,641 25 115,495 28%

More than 1 year and less than

or equal to 2 years 17,968 7 30,435 9 42,950 10%

More than 2 years 19,731 8 23,824 7 21,125 5%

Combined:(5)

Less than or equal to 1 year 119,304 47 167,063 48 214,883 52%

More than 1 year and less than

or equal to 2 years 48,572 19 80,941 23 110,844 27%

More than 2 years 84,885 34 101,590 29 84,554 21%

Total 252,761 100% 349,594 100% 410,281 100%

Payment Status:

 One month past due 1.73% 1.85% 2.02%

 Two months past due 0.57% 0.66% 0.70%

(1) See “Institutional Credit Risk” for information about our counterparties that provide credit enhancement on loans in our single-family credit guarantee 

portfolio.

(2) As of December 31, 2013, 2012, and 2011, approximately 61%, 68% and 68%, respectively, of the single-family loans reported as seriously delinquent 

were in the process of foreclosure.

(3) Represent the states with the highest number of seriously delinquent loans as of December 31, 2013.

(4) Excludes loans underlying certain single-family Other Guarantee Transactions since the geographic information is not available to us for these loans.

(5) For this presentation, the states and territories classified as having a judicial foreclosure process consist of: CT, DE, FL, HI, IA, IL, IN, KS, KY, LA, 

ME, ND, NE, NJ, NM, NY, OH, OK, OR, PA, PR, SC, SD, VI, VT, and WI. All other states are classified as having a non-judicial foreclosure process.

The serious delinquency rate of our single-family credit guarantee portfolio declined to 2.39% as of December 31, 2013

(which is the lowest level since March 2009) from 3.25% as of December 31, 2012, continuing the trend of improvement that 

Table of Contents
122 Freddie Mac

began in 2010. As of December 31, 2013, our serious delinquency rate for the aggregate of those states that require a judicial 

foreclosure and all other states was 3.31% and 1.63%, respectively, compared to 4.32% and 2.35%, respectively, as of 

December 31, 2012.

During the years ended December 31, 2013 and 2012, the nationwide average for completion of a foreclosure (as 

measured from the date of the last scheduled payment made by the borrower) on our single-family delinquent loans, excluding 

those underlying our Other Guarantee Transactions, was 773 days and 611 days, respectively, which included: (a) an average of 

943 days and 773 days, respectively, for foreclosures completed in states that require a judicial foreclosure process; and (b) an 

average of 567 days and 475 days, respectively, for foreclosures completed in states that do not require a judicial foreclosure 

process. During 2013, a significant number of loans that had been subject to delays discussed above (and that had been 

delinquent for more than a year) completed the foreclosure process, which caused the nationwide average for foreclosure 

completions to increase compared to 2012.

Serious delinquency rates for interest-only and option ARM products (which together represented approximately 2% of 

our total single-family credit guarantee portfolio at December 31, 2013) were 12.5% and 12.3% as of December 31, 2013, 

respectively, as compared to 16.3% for both at December 31, 2012. Serious delinquency rates of single-family fixed rate, 

amortizing loans with a term of 20 years or more, a more traditional mortgage product, were approximately 2.8% and 3.7% at 

December 31, 2013 and 2012, respectively.

The tables below present serious delinquency rates categorized by borrower and loan characteristics, including 

geographic region and origination year, and indicate that certain concentrations of loans have been more adversely affected by 

declines in home prices and weak economic conditions during the housing crisis that began in 2006. We purchased significant 

amounts of loans originated in 2005 through 2008 with higher-risk characteristics and, as of December 31, 2013, we continued 

to experience high serious delinquency rates on those loans.

Table of Contents
123 Freddie Mac

Table 49 — Credit Concentrations in the Single-Family Credit Guarantee Portfolio

As of December 31, 2013

Alt-A

UPB

Non Alt-A

UPB

Total

UPB

Estimated

Current LTV

Ratio(1)

Percentage

Modified(2)

Serious

Delinquency

Rate

(dollars in billions)

Geographical distribution:

Arizona, California, Florida, and Nevada(3) $ 23 $ 399 $ 422 68% 5.9% 3.0%

Illinois, Michigan, and Ohio(4) 4 172 176 76 3.9 2.1

New York and New Jersey(5) 7 138 145 67 4.3 5.1

All other states 23 887 910 69 3.0 1.9

Year of origination(6):

2013 — 270 270 69 — —

2012 — 265 265 61 — —

2011 — 120 120 58 — 0.2

2010 — 113 113 60 0.1 0.4

2009 — 120 120 62 0.5 0.9

 HARP and other relief refinance loans(6) — 342 342 81 0.3 0.6

 2005-2008 Legacy single-family book 48 220 268 87 16.5 8.8

 Pre-2005 Legacy single-family book 9 146 155 50 4.6 3.2

As of December 31, 2012

Alt-A

UPB

Non Alt-A

UPB

Total

UPB

Estimated

Current LTV

Ratio(1)

Percentage

Modified(2)

Serious

Delinquency

Rate

(dollars in billions)

Geographical distribution:

Arizona, California, Florida, and Nevada(3) $ 30 $ 386 $ 416 82% 5.4% 5.0%

Illinois, Michigan, and Ohio(4) 5 171 176 82 3.5 3.0

New York and New Jersey(5) 9 134 143 69 3.5 5.5

All other states 30 873 903 72 2.7 2.4

Year of origination(6):

2012 — 254 254 67 — —

2011 — 158 158 64 — 0.1

2010 — 156 156 65 — 0.3

2009 — 177 177 67 0.2 0.7

 HARP and other relief refinance loans(6) — 287 287 83 0.1 0.7

 2005-2008 Legacy single-family book 62 326 388 98 11.0 9.6

 Pre-2005 Legacy single-family book 12 206 218 56 3.3 3.2

2013 2012

Alt-A Non Alt-A Total Alt-A Non Alt-A Total

(in millions)

Credit Losses

Geographical distribution:

Arizona, California, Florida, and Nevada(3) $ 802 $ 1,438 $ 2,240 $ 1,816 $ 4,526 $ 6,342

Illinois, Michigan, and Ohio(4) 158 773 931 276 1,500 1,776

New York and New Jersey(5) 56 106 162 60 118 178

All other states 231 1,224 1,455 550 2,779 3,329

Year of origination(6):

 2013 — — — N/A N/A N/A

 2012 — 2 2 — — —

 2011 — 9 9 — 3 3

 2010 — 29 29 — 23 23

 2009 — 95 95 — 134 134

Subtotal - New single-family book — 135 135 — 160 160

HARP and other relief refinance loans(6) — 348 348 — 263 263

2005-2008 Legacy single-family book 1,190 2,688 3,878 2,601 7,544 10,145

Pre-2005 Legacy single-family book 57 370 427 101 956 1,057

(1) See endnote (3) to “Table 38 — Characteristics of the Single-Family Credit Guarantee Portfolio” for information on our calculation of estimated 

current LTV ratios.

(2) Represents the percentage of loans, based on loan count, in our single-family credit guarantee portfolio at period end that have been modified, 

including those with no changes in interest rate or maturity date, but where past due amounts are added to the outstanding principal balance of the loan.

Table of Contents
124 Freddie Mac

(3) Represents the four states that had the largest cumulative declines in home prices during the housing crisis that began in 2006, as measured using 

Freddie Mac’s home price index.

(4) Represents selected states in the North Central region that have experienced adverse economic conditions since 2006.

(5) Represents two states with a judicial foreclosure process in which there are a significant number of seriously delinquent loans within our single-family 

credit guarantee portfolio.

(6) HARP and other relief refinance loans are presented separately rather than in the year that the refinancing occurred (from 2009 to 2013). All other 

refinance loans are presented in the year that the refinancing occurred. Prior period information has been revised to conform with the current period 

presentation. 

Table of Contents
125 Freddie Mac

Table 50 — Single-Family Credit Guarantee Portfolio by Attribute Combinations

As of December 31, 2013

Current LTV Ratio (1)

Current LTV Ratio

of > 80 to 100(1) Current LTV > 100(1) Current LTV Ratio All Loans(1)

Percentage

of

Portfolio(2)

Serious

Delinquency

Rate

Percentage

of

Portfolio(2)

Serious

Delinquency

Rate

Percentage

of

Portfolio(2)

Serious

Delinquency

Rate

Percentage

of

Portfolio(2)

Percentage

Modified(3)

Serious

Delinquency

Rate

By Product Type

FICO scores < 620:

20 and 30- year or more

amortizing fixed-rate 1.1% 7.9% 0.8% 11.9% 0.7% 17.9% 2.6% 21.3% 11.0%

15- year amortizing fixed-rate 0.2 3.8 <0.1 3.8 <0.1 3.0 0.2 1.1 3.7

ARMs/adjustable rate(4) 0.1 9.9 <0.1 16.0 <0.1 28.7 0.1 13.3 12.9

Interest-only(5) <0.1 12.3 <0.1 20.9 <0.1 31.3 <0.1 0.6 22.8

Other(6) <0.1 3.9 <0.1 9.8 <0.1 17.5 <0.1 5.5 5.7

Total FICO scores < 620 1.4 7.0 0.8 11.9 0.7 18.3 2.9 17.4 10.0

FICO scores of 620 to 659:

20 and 30- year or more

amortizing fixed-rate 2.4 5.3 1.1 9.1 1.2 15.2 4.7 16.3 8.0

15- year amortizing fixed-rate 0.5 2.2 0.1 2.5 <0.1 2.1 0.6 0.5 2.2

ARMs/adjustable rate(4) 0.1 4.9 0.1 11.0 <0.1 25.3 0.2 3.5 8.5

Interest-only(5) 0.1 9.8 0.1 15.9 0.1 28.3 0.3 0.4 19.5

Other(6) <0.1 3.6 <0.1 5.5 <0.1 6.3 <0.1 2.4 4.9

Total FICO scores of 620 to 659 3.1 4.5 1.4 9.0 1.3 15.8 5.8 12.6 7.2

20 and 30- year or more

amortizing fixed-rate 46.7 1.1 14.6 2.7 6.3 7.3 67.6 3.8 1.9

15- year amortizing fixed-rate 15.8 0.4 1.1 0.4 0.4 0.7 17.3 0.1 0.4

ARMs/adjustable rate(4) 3.4 1.0 0.5 5.1 0.2 16.3 4.1 0.8 2.3

Interest-only(5) 0.6 4.3 0.6 10.1 0.6 18.9 1.8 0.2 11.3

Other(6) <0.1 2.0 0.1 1.8 <0.1 3.0 0.1 0.9 2.1

66.5 0.8 16.9 2.8 7.5 8.0 90.9 2.6 1.7

Total FICO scores not available 0.3 5.6 0.1 12.0 <0.1 22.6 0.4 7.9 8.5

All FICO scores:

20 and 30- year or more

amortizing fixed-rate 50.4 1.6 16.6 3.7 8.1 9.3 75.1 5.4 2.8

15- year amortizing fixed-rate 16.5 0.5 1.2 0.6 0.3 0.9 18.0 0.1 0.5

ARMs/adjustable rate(4) 3.6 1.6 0.6 6.2 0.2 18.4 4.4 1.4 3.1

Interest-only(5) 0.7 5.0 0.7 11.0 0.8 20.4 2.2 0.2 12.5

Other(6) 0.1 9.2 0.1 6.2 0.1 12.1 0.3 9.2 8.6

Total single-family credit 

guarantee portfolio(7) 71.3% 1.3% 19.2% 3.8% 9.5% 9.9% 100.0% 3.8% 2.4%

By Region(8)

FICO scores < 620:

North Central 0.1% 5.4% 0.3% 8.6% 0.1% 13.4% 0.5% 16.5% 8.0%

Northeast 0.4 10.3 0.2 18.1 0.2 25.6 0.8 19.6 14.4

Southeast 0.3 7.5 0.1 11.7 0.2 20.8 0.6 18.2 11.2

Southwest 0.3 5.3 0.1 10.3 <0.1 15.8 0.4 11.8 6.7

West 0.3 4.8 0.1 9.2 0.2 13.1 0.6 19.9 7.4

Total FICO scores < 620 1.4 7.0 0.8 11.9 0.7 18.3 2.9 17.4 10.0

FICO scores of 620 to 659:

North Central 0.5 3.6 0.3 6.7 0.3 11.1 1.1 11.9 5.8

Northeast 0.8 6.6 0.3 14.0 0.4 23.0 1.5 13.4 10.3

Southeast 0.6 5.0 0.3 9.2 0.3 18.2 1.2 13.2 8.5

Southwest 0.5 3.2 0.2 6.8 <0.1 11.7 0.7 7.8 4.2

West 0.7 3.4 0.3 7.5 0.3 12.4 1.3 16.1 5.8

Total FICO scores of 620 to 659 3.1 4.5 1.4 9.0 1.3 15.8 5.8 12.6 7.2

North Central 10.7 0.6 3.8 1.9 1.5 5.3 16.0 2.1 1.2

Northeast 17.6 1.2 4.6 4.3 1.4 12.0 23.6 2.4 2.2

Southeast 9.4 1.2 3.2 2.9 2.0 10.0 14.6 3.0 2.4

Southwest 8.6 0.6 1.8 1.4 0.2 3.9 10.6 1.2 0.8

West 20.2 0.6 3.5 2.9 2.4 6.4 26.1 3.7 1.3

66.5 0.8 16.9 2.8 7.5 8.0 90.9 2.6 1.7

Total FICO scores not available 0.3 5.6 0.1 12.0 <0.1 22.6 0.4 7.9 8.5

All FICO scores:

North Central 11.5 0.9 4.2 2.6 1.9 6.9 17.6 3.3 1.8

Northeast 19.0 1.8 5.1 5.8 1.9 15.1 26.0 3.8 3.2

Southeast 10.3 1.8 3.7 4.0 2.5 12.1 16.5 4.6 3.4

Southwest 9.4 1.0 2.1 2.5 0.3 6.6 11.8 2.2 1.4

West 21.1 0.8 4.1 3.5 2.9 7.4 28.1 4.7 1.7

Total single-family credit 

guarantee portfolio(7) 71.3% 1.3% 19.2% 3.8% 9.5% 9.9% 100.0% 3.8% 2.4%

Table of Contents
126 Freddie Mac

As of December 31, 2012

Current LTV 80(1)

Current LTV Ratio

of > 80 to 100(1) Current LTV > 100(1) Current LTV Ratio All Loans(1)

Percentage

of

Portfolio(2)

Serious

Delinquency

Rate

Percentage

of

Portfolio(2)

Serious

Delinquency

Rate

Percentage

of

Portfolio(2)

Serious

Delinquency

Rate

Percentage

of

Portfolio(2)

Percentage

Modified(3)

Serious

Delinquency

Rate

By Product Type

FICO scores < 620:

20 and 30- year or more

amortizing fixed-rate 1.0% 8.3% 0.8% 13.4% 0.9% 22.9% 2.7% 18.8% 13.4%

15- year amortizing fixed-rate 0.2 4.2 <0.1 8.0 <0.1 9.5 0.2 1.2 4.5

ARMs/adjustable rate(4) 0.1 10.0 <0.1 16.5 <0.1 26.7 0.1 11.4 14.1

Interest-only(5) <0.1 15.0 <0.1 20.8 0.1 33.6 0.1 0.6 27.6

Other(6) <0.1 4.0 <0.1 8.4 <0.1 14.9 <0.1 4.9 5.7

Total FICO scores < 620 1.3 7.2 0.8 13.4 1.0 23.2 3.1 15.3 12.2

FICO scores of 620 to 659:

20 and 30- year or more

amortizing fixed-rate 2.2 5.5 1.3 9.7 1.7 18.8 5.2 13.8 9.8

15- year amortizing fixed-rate 0.6 2.5 <0.1 5.1 <0.1 8.4 0.6 0.6 2.7

ARMs/adjustable rate(4) 0.1 5.1 0.1 11.7 0.1 23.7 0.3 2.6 10.9

Interest-only(5) <0.1 10.7 0.1 17.2 0.2 30.0 0.3 0.5 24.4

Other(6) <0.1 2.8 <0.1 4.6 <0.1 7.0 <0.1 1.9 4.7

Total FICO scores of 620 to 659 2.9 4.7 1.5 9.7 2.0 19.5 6.4 10.7 9.0

20 and 30- year or more

amortizing fixed-rate 40.1 1.1 17.0 2.9 9.8 9.4 66.9 3.3 2.6

15- year amortizing fixed-rate 14.7 0.4 1.0 0.9 0.3 2.3 16.0 0.1 0.5

ARMs/adjustable rate(4) 3.0 1.0 0.7 4.6 0.5 15.4 4.2 0.6 3.4

Interest-only(5) 0.4 4.2 0.7 9.7 1.6 20.6 2.7 0.2 15.0

Other(6) <0.1 1.9 0.1 1.5 0.1 2.5 0.2 0.7 1.9

58.2 0.9 19.5 3.0 12.3 10.6 90.0 2.3 2.3

Total FICO scores not available 0.3 5.4 0.1 11.6 0.1 23.0 0.5 6.5 8.9

All FICO scores:

20 and 30- year or more

amortizing fixed-rate 43.4 1.7 19.1 4.0 12.6 11.8 75.1 4.9 3.7

15- year amortizing fixed-rate 15.4 0.6 1.1 1.2 0.3 2.8 16.8 0.1 0.6

ARMs/adjustable rate(4) 3.3 1.6 0.8 5.8 0.6 17.1 4.7 1.2 4.3

Interest-only(5) 0.5 4.9 0.8 10.7 1.8 22.0 3.1 0.2 16.3

Other(6) 0.1 9.6 0.1 6.8 0.1 10.2 0.3 7.9 8.9

Total single-family credit 

guarantee portfolio(7) 62.7% 1.4% 21.9% 4.1% 15.4% 12.7% 100.0% 3.4% 3.3%

By Region(8)

FICO scores < 620:

North Central 0.2% 5.9% 0.2% 10.4% 0.2% 18.1% 0.6% 14.8% 10.5%

Northeast 0.5 10.4 0.2 19.7 0.2 30.6 0.9 16.6 16.1

Southeast 0.2 7.9 0.2 13.5 0.3 27.7 0.7 16.0 14.5

Southwest 0.2 5.2 0.1 11.2 <0.1 19.5 0.3 10.6 7.4

West 0.2 4.9 0.1 10.2 0.3 17.3 0.6 18.0 10.1

Total FICO scores < 620 1.3 7.2 0.8 13.4 1.0 23.2 3.1 15.3 12.2

FICO scores of 620 to 659:

North Central 0.5 3.9 0.3 7.7 0.4 14.5 1.2 10.2 7.5

Northeast 0.9 6.6 0.4 14.4 0.4 25.8 1.7 11.1 11.5

Southeast 0.5 5.4 0.3 10.2 0.5 23.9 1.3 11.0 11.3

Southwest 0.5 3.3 0.2 7.6 0.1 14.5 0.8 6.8 4.8

West 0.5 3.4 0.3 8.0 0.6 16.1 1.4 14.2 8.3

Total FICO scores of 620 to 659 2.9 4.7 1.5 9.7 2.0 19.5 6.4 10.7 9.0

North Central 9.4 0.7 4.4 2.2 2.3 7.0 16.1 1.9 1.7

Northeast 15.9 1.2 5.2 4.6 1.9 14.2 23.0 2.0 2.6

Southeast 8.3 1.3 3.5 3.3 3.0 14.2 14.8 2.5 3.7

Southwest 8.0 0.7 2.1 2.0 0.3 5.9 10.4 1.1 1.0

West 16.6 0.6 4.3 2.8 4.8 9.1 25.7 3.4 2.3

58.2 0.9 19.5 3.0 12.3 10.6 90.0 2.3 2.3

Total FICO scores not available 0.3 5.4 0.1 11.6 0.1 23.0 0.5 6.5 8.9

All FICO scores:

North Central 10.1 1.0 4.8 3.0 3.0 9.0 17.9 3.0 2.5

Northeast 17.1 1.9 5.9 6.1 2.5 17.6 25.5 3.3 3.8

Southeast 9.1 1.9 4.0 4.5 3.8 16.7 16.9 4.0 5.0

Southwest 8.9 1.1 2.5 3.2 0.4 9.3 11.8 2.1 1.7

West 17.5 0.8 4.7 3.3 5.7 10.2 27.9 4.4 2.8

Total single-family credit 

guarantee portfolio(7) 62.7% 1.4% 21.9% 4.1% 15.4% 12.7% 100.0% 3.4% 3.3%

(1) The current LTV ratios are our estimates. See endnote (3) to “Table 38 — Characteristics of the Single-Family Credit Guarantee Portfolio” for further 

information.

(2) Based on UPB of the single-family credit guarantee portfolio.

(3) See endnote (2) to “Table 49 — Credit Concentrations in the Single-Family Credit Guarantee Portfolio” for further information.

(4) Includes balloon/reset and option ARM mortgage loans.

(5) Includes both fixed rate and adjustable rate loans. The percentages of interest-only loans which have been modified at period end reflect that a number 

of these loans have not yet been assigned to their new product category (post-modification), primarily due to delays in processing.

Table of Contents
127 Freddie Mac

(6) Consist of FHA/VA and other government guaranteed mortgages.

(7) The total of all FICO scores categories may not sum due to the inclusion of loans where FICO scores are not available in the respective totals for all 

loans. See endnote (5) to “Table 38 — Characteristics of the Single-Family Credit Guarantee Portfolio” for further information about our presentation 

of FICO scores.

(8) Presentation with the following regional designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, 

NH, NJ, NY, PA, RI, VT, VA, WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); 

and Southwest (AR, CO, KS, LA, MO, NE, NM, OK, TX, WY).

The table below presents foreclosure and short sale rate information for loans in our single-family credit guarantee 

portfolio based on year of origination.

Table 51 — Single-Family Credit Guarantee Portfolio Foreclosure and Short Sale Rates

As of December 31,

2013 2012 2011

Percentage

of Portfolio

Foreclosure

and Short

Sale Rate(1)

Foreclosure

and Short

Sale Rate(1)

Foreclosure

and Short

Sale Rate(1)

Year of Origination(2):

2013 16% —% N/A N/A

2012 16 — — % N/A

2011 8 0.03 0.01 — %

2010 7 0.11 0.05 0.01

2009 7 0.34 0.23 0.11

Subtotal — New single-family book 54 0.12 0.09 0.05

HARP and other relief refinance loans(2) 21 0.56 0.36 0.20

2005-2008 Legacy single-family book 16 8.03 6.87 5.35

Pre-2005 Legacy single-family book(3) 9 1.34 1.20 1.04

Total 100%

(1) Calculated for each year of origination as the number of loans that have proceeded to foreclosure transfer or short sale and resulted in a credit loss, 

excluding any subsequent recoveries, during the period from origination to December 31, 2013, 2012, and 2011, respectively, divided by the number of 

loans originated in that year that were acquired in our single-family credit guarantee portfolio.

(2) HARP and other relief refinance loans are presented separately rather than in the year that the refinancing occurred (from 2009 to 2013). All other 

refinance loans are presented in the year that the refinancing occurred. Prior period information has been revised to conform with the current period 

presentation. 

(3) The foreclosure and short sale rate presented for the Pre-2005 Legacy single-family book represents the rate associated with loans originated in 2000 

through 2004.

Loans originated from 2005 through 2008 have experienced higher foreclosure and short sale rates than loans originated 

in other years. We attribute this performance to a number of factors, including: (a) the expansion of credit terms under which 

loans were underwritten during these years; (b) an increase in the origination and our purchase of interest-only and Alt-A

mortgage products in these years; and (c) an environment of persistently high unemployment, decreasing home sales, and 

broadly declining home prices in the periods following the loans’ origination.

Multifamily Mortgage Credit Risk

To manage our multifamily mortgage portfolio credit risk, we focus on several key areas: (a) using prudent standards and 

processes with a pre-approval underwriting approach on the loans we purchase or guarantee; (b) selling the expected credit risk 

to private investors who hold the subordinated tranches in our multifamily K Certificate transactions; (c) portfolio 

diversification, particularly by product and geographical area; and (d) portfolio management activities, including loss 

mitigation and use of credit enhancements. We monitor the loan performance, the underlying properties and a variety of 

mortgage loan characteristics that may affect the default experience on our multifamily mortgage portfolio, such as DSCR, 

LTV ratio, geographic location, payment type, and loan maturity. See “NOTE 5: INDIVIDUALLY IMPAIRED AND NONPERFORMING LOANS” for information about loss mitigation activities that we have classified as TDRs and subsequent 

performance information of these loans. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for more 

information about the loans in our multifamily mortgage portfolio, including geographic concentrations of these loans.

The table below provides certain attributes of our multifamily mortgage portfolio at December 31, 2013 and 2012.

Table of Contents
128 Freddie Mac

Table 52 — Multifamily Mortgage Portfolio — by Attribute

UPB at Delinquency Rate(1) at

December 31,

2013

December 31,

2012

December 31,

2013

December 31,

2012

(dollars in billions)

Original LTV ratio

Below 75% $ 93.1 $ 87.6 0.06% 0.04%

75% to 80% 34.1 34.0 0.15 0.22

Above 80% 5.6 5.8 0.19 2.31

Total $ 132.8 $ 127.4 0.09% 0.19%

Weighted average LTV ratio at origination 70% 70%

Maturity Dates

2013 N/A $ 3.3 N/A 0.86%

2014 $ 2.1 5.8 0.12% —

2015 6.9 9.8 0.05 0.53

2016 11.2 13.0 — 0.05

2017 10.0 10.9 0.43 0.02

2018 17.0 17.3 — —

Beyond 2018 85.6 67.3 0.08 0.24

Total $ 132.8 $ 127.4 0.09% 0.19%

Year of Acquisition or Guarantee(2)

2006 and prior $ 19.1 $ 25.2 —% 0.17%

2007 15.1 17.8 0.54 0.86

2008 13.2 16.6 0.18 0.30

2009 11.2 12.2 — —

2010 10.9 12.0 0.13 —

2011 15.9 17.0 — —

2012 23.7 26.6 — —

2013 23.7 N/A — N/A

Total $ 132.8 $ 127.4 0.09% 0.19%

Current Loan Size

Above $25 million $ 50.6 $ 48.5 0.05% 0.06%

Above $5 million to $25 million 73.2 70.0 0.11 0.26

$5 million and below 9.0 8.9 0.14 0.37

Total $ 132.8 $ 127.4 0.09% 0.19%

Legal Structure

Unsecuritized loans $ 59.2 $ 76.6 0.08% 0.08%

K Certificates 59.8 37.2 0.07 0.07

Other Freddie Mac mortgage-related securities 4.8 4.2 0.59 3.20

Other guarantee commitments 9.0 9.4 — 0.13

Total $ 132.8 $ 127.4 0.09% 0.19%

Credit Enhancement

Credit-enhanced $ 70.2 $ 47.8 0.11% 0.36%

Non-credit-enhanced 62.6 79.6 0.07 0.10

Total $ 132.8 $ 127.4 0.09% 0.19%

Payment Type

Interest-only $ 20.1 $ 22.8 0.14% 0.05%

Partial interest-only(3) 32.6 29.8 — 0.05

Amortizing 80.1 74.8 0.12 0.30

Total $ 132.8 $ 127.4 0.09% 0.19%

(1) Our delinquency rates for multifamily loans are positively affected to the extent we have been successful in working with troubled borrowers to modify 

their loans prior to becoming delinquent or by providing temporary relief through short-term loan extensions or forbearance agreements. See 

“Multifamily Delinquencies” below for more information about our multifamily delinquency rates.

(2) Based on either: (a) the year of acquisition, for loans recorded on our consolidated balance sheets; or (b) the year that we issued our guarantee, for the 

remaining loans in our multifamily mortgage portfolio.

(3) Represent loans that have an interest-only period and where the borrower’s payments were interest-only at the respective reporting date. Loans which 

have reached the end of their interest-only period by the respective reporting date have converted to, and are classified as, amortizing loans.

Table of Contents
129 Freddie Mac

Multifamily Product Types

Most multifamily loans require a significant lump sum (i.e., balloon) payment of unpaid principal at maturity. Therefore, 

the borrower’s potential inability to refinance or pay off the loan at maturity is a primary concern for us. Borrowers may be less 

able to refinance their obligations during periods of rising interest rates, which could lead to default if the borrower is unable to 

find affordable refinancing before the loan matures. Of the $132.8 billion in UPB of our multifamily mortgage portfolio as of 

December 31, 2013, approximately 7% will mature during 2014 and 2015, and the remaining 93% will mature in 2016 and 

beyond.

Our multifamily mortgage portfolio consists of product types that are categorized based on loan terms. Multifamily loans 

may: (a) be amortizing or interest-only (for the full term or a portion thereof); and (b) have a fixed or variable rate of interest. 

Our multifamily loans generally have shorter terms than single-family mortgages and typically have balloon maturities ranging 

from five to ten years. At December 31, 2013 and 2012, approximately 60% and 59%, respectively, of our multifamily 

mortgage portfolio consisted of amortizing loans, which reduce our credit exposure over time since the UPB of the loan 

declines with each mortgage payment. In addition, as of December 31, 2013 and 2012, approximately 25% and 23%, 

respectively, of our multifamily mortgage portfolio consisted of partial interest-only loans, which after a defined period of time 

will begin to include amortization of principal.

Multifamily Credit Enhancements

Our primary business model in the Multifamily segment is to purchase multifamily mortgage loans for aggregation and 

then securitization through issuance of multifamily K Certificates. With this model, we have securitized $71.5 billion in UPB of 

multifamily loans between 2009 and 2013 and have attracted private capital to the multifamily market from investors who 

purchase subordinated securities that we do not issue or guarantee. These securities are backed by loans that are sourced by our 

seller/servicers and directly underwritten by us. Our K Certificate transactions are structured such that private investors (who 

hold unguaranteed subordinated securities) are the first to absorb losses on the underlying loans and the amount of 

subordination to the guaranteed certificates is set at a level that we believe is sufficient to cover the expected credit losses on 

the loans. As a result, we believe private investors will absorb the expected credit risk in these transactions and thereby reduce 

the loss exposure to us and U.S. taxpayers. As of December 31, 2013, we have not realized any credit losses on our K 

Certificates. At December 31, 2013 and 2012, the UPB of K Certificates with subordination coverage was $59.3 billion and 

$36.7 billion, respectively, and the average subordination coverage on these securities was 18% and 17%, respectively. See 

“NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES” for additional information about credit protections and 

other forms of credit enhancements covering loans in our multifamily mortgage portfolio.

Multifamily Delinquencies

We report multifamily delinquency rates based on UPB of mortgage 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. Mortgage loans that have 

been modified are not counted as delinquent as long as the borrower is less than two monthly payments past due under the 

modified terms. 

There were 16 and 33 delinquent loans in our multifamily mortgage portfolio at December 31, 2013 and 2012, 

respectively. Improvements in market fundamentals and multifamily property values led to improved delinquency rates for 

most major participants in the market during 2013. Our multifamily mortgage portfolio delinquency rate of 0.09% and 0.19% at 

December 31, 2013 and 2012, respectively, reflects continued strong portfolio performance and improving market 

fundamentals. Our delinquency rate for credit-enhanced loans was 0.11% and 0.36% at December 31, 2013 and 2012, 

respectively, and for non-credit-enhanced loans was 0.07% and 0.10% at December 31, 2013 and 2012, respectively. As of 

December 31, 2013, approximately 62% of our multifamily loans that were two or more monthly payments past due, measured 

on a UPB basis, had credit enhancements that we currently believe will mitigate our expected losses on those loans and 

guarantees.

Non-Performing Assets

Non-performing assets consist of non-performing loans and REO assets, net. We place non-performing loans on nonaccrual status when we believe the collectability of interest and principal on a loan is not reasonably assured, unless the loan is 

well secured and in the process of collection. When a loan is placed on non-accrual status, any interest income accrued but 

uncollected is reversed. Thereafter, interest income is recognized only upon receipt of cash payments.

We classify TDRs as non-performing loans. TDRs represent those loans where we have granted a concession to a 

borrower that is experiencing financial difficulties. Loans that have been classified as TDRs remain categorized as nonperforming throughout the remaining life of the loan regardless of whether the borrower makes payments which return the loan 

to a current payment status. TDRs include HAMP and non-HAMP loan modifications, as well as loans in modification trial 

periods and loans subject to certain other loss mitigation actions. See “NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES” and “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for further 

information about our TDRs.

Table of Contents
130 Freddie Mac

The table below provides detail on non-performing loans and REO assets on our consolidated balance sheets and nonperforming loans underlying our financial guarantees.

Table 53 — Non-Performing Assets(1)

December 31,

2013 2012 2011 2010 2009

(dollars in millions)

Non-performing mortgage loans — on balance sheet:

Single-family TDRs:

Less than three monthly payments past due $ 78,033 $ 65,784 $ 44,440 $ 26,612 $ 711

Seriously delinquent 19,573 22,008 11,639 3,144 477

Multifamily TDRs(2) 712 815 893 911 229

Total TDRs 98,318 88,607 56,972 30,667 1,417

Other seriously delinquent single-family loans(3) 23,280 39,711 63,205 84,272 12,106

Other multifamily loans(4) 590 1,411 1,819 1,750 1,196

Total non-performing mortgage loans — on balance sheet 122,188 129,729 121,996 116,689 14,719

Non-performing mortgage loans — off-balance sheet:

Single-family loans 871 1,096 1,230 1,450 85,395

Multifamily loans 381 474 246 198 178

Total non-performing mortgage loans — off-balance sheet 1,252 1,570 1,476 1,648 85,573

Real estate owned, net 4,551 4,378 5,680 7,068 4,692

Total non-performing assets $ 127,991 $ 135,677 $ 129,152 $ 125,405 $ 104,984

Loan loss reserves as a percentage of our non-performing mortgage loans 20.0% 23.5% 32.0% 33.7% 33.8%

Total non-performing assets as a percentage of the total mortgage portfolio,

excluding non-Freddie Mac securities 7.1% 7.5% 6.8% 6.4% 5.2%

(1) Mortgage loan amounts are based on UPB and REO, net is based on carrying values.

(2) As of December 31, 2013, 2012, 2011, 2010, and 2009, approximately $0.7 billion, $0.8 billion, $0.9 billion, $0.9 billion, and $0.3 billion of these 

amounts were current, respectively.

(3) Represents loans recognized by us on our consolidated balance sheets, including loans removed from PC trusts due to the borrower’s serious 

delinquency.

(4) Of these amounts, $0.6 billion, $1.4 billion, $1.8 billion, $1.6 billion, and $1.1 billion of UPB were current at December 31, 2013, 2012, 2011, 2010, 

and 2009, respectively.

 Our non-performing assets declined to $128.0 billion as of December 31, 2013, from $135.7 billion as of December 31, 

2012. We expect our non-performing assets, including loans deemed to be TDRs, to remain at elevated levels in 2014. Our loan 

loss reserves as a percentage of our non-performing mortgage loans also declined at December 31, 2013 compared to 

December 31, 2012 primarily due to a decline in our loan loss reserves. See “Credit Loss Performance — Loan Loss Reserves” 

for more information about the decline in our loan loss reserves.

The table below provides detail by region for REO activity. Our REO activity consists almost entirely of single-family 

residential properties. See “Table 50 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for information 

about regional serious delinquency rates of loans in our single-family credit guarantee portfolio.

Table of Contents
131 Freddie Mac

Table 54 — REO Activity by Region(1)

December 31,

2013 2012 2011

(number of properties)

REO Inventory

Single-family:

Inventory, beginning of year 49,071 60,535 72,079

Acquisitions, by region:

Northeast 10,023 7,352 6,969

Southeast 23,827 23,906 23,182

North Central 20,834 27,586 26,255

Southwest 6,996 10,197 12,858

West 9,001 13,771 29,367

Total single-family acquisitions 70,681 82,812 98,631

Dispositions, by region:

Northeast (7,071) (7,544) (8,883)

Southeast (20,956) (25,803) (28,298)

North Central (25,946) (28,137) (25,970)

Southwest (8,395) (12,134) (13,098)

West (10,077) (20,658) (33,926)

Total single-family dispositions (72,445) (94,276) (110,175)

Inventory, end of year 47,307 49,071 60,535

Multifamily:

Inventory, beginning of year 6 20 14

Acquisitions 4 6 25

Dispositions (9) (20) (19)

Inventory, end of year 1 6 20

Total inventory, end of year 47,308 49,077 60,555

(1) See endnote (8) to “Table 50 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for a description of these regions.

Our REO inventory (measured in number of properties) declined 4% from December 31, 2012 to December 31, 2013 

primarily due to lower foreclosure activity in 2013 as a result of our loss mitigation efforts (e.g., a significant number of 

borrowers completing short sales rather than foreclosures) and a declining amount of delinquent loans. We expect our REO 

acquisitions and dispositions to remain at elevated levels in the near term, as we have a large REO inventory and a significant 

number of seriously delinquent loans in our single-family credit guarantee portfolio.

The volume of our single-family REO acquisitions in recent periods has been significantly affected by the lengthening of 

the foreclosure process, which extends the time it takes for loans to be foreclosed upon and the underlying property to transition 

to REO. We expect that the length of the foreclosure process will continue to remain above historical levels, particularly in 

states that require a judicial foreclosure process. Foreclosures generally take longer to complete in states where judicial 

foreclosures (those conducted under the supervision of a court) are required than in states where non-judicial foreclosures are 

permitted. In addition, our expanded loss mitigation efforts are providing borrowers with viable alternatives to foreclosure. As a 

result of the continued high level of loss mitigation efforts, fewer of our loans are proceeding through foreclosure to REO 

acquisition.

Our single-family REO acquisitions in 2013 were most significant in the states of Florida, Illinois, Michigan, and Ohio, 

which collectively represented 40% of total single-family REO acquisitions during that period, based on the number of 

properties, and comprised 42% of our total single-family REO property inventory at December 31, 2013. We experienced an 

increase in REO acquisitions during 2013 compared to 2012 in the Northeast region and REO acquisitions remained high in the 

Southeast region. The high REO acquisition volume in these regions was primarily due to higher foreclosure volume in 

Maryland, Pennsylvania, and Florida. The North Central region had the largest number of REO properties and comprised 33% 

and 42% of our REO property inventory, based on the number of properties, as of December 31, 2013 and 2012, respectively. 

This region generally has experienced more challenging economic conditions, includes a number of states with longer 

foreclosure timelines due to the local laws and foreclosure process, and has housing markets with generally lower demand and 

lower home values than in other regions. See "NOTE 6: REAL ESTATE OWNED" for more information on our REO 

properties.

Table of Contents
132 Freddie Mac

Our REO acquisition activity is disproportionately high for certain types of loans in our single-family credit guarantee 

portfolio, including loans with certain higher-risk characteristics. For example, the percentage of interest-only and Alt-A loans 

in our single-family credit guarantee portfolio, based on UPB, was approximately 2% and 3%, respectively, at December 31, 

2013. The percentage of our REO acquisitions in 2013 that had been financed by either of these loan types represented 

approximately 24% of our total REO acquisitions, based on loan amount prior to acquisition. In addition, loans from our 

2005-2008 Legacy single-family book comprised approximately 78% of our REO acquisition activity during 2013.

We continue to experience significant variability in the average time for foreclosure by state. For example, during 2013, 

the average time for completion of foreclosures associated with loans in our single-family credit guarantee portfolio, excluding 

Other Guarantee Transactions, ranged from 391 days in Michigan to 1,231 days in Florida (as measured from the date of the 

last scheduled payment made by the borrower).

We are unable to market a significant portion of our REO property inventory at any given time, which can increase the 

average holding period of our inventory. For example, some jurisdictions require a period of time after foreclosure during 

which the borrower may reclaim the property. During this period, we generally are not able to sell the property. As of both 

December 31, 2013 and 2012, the percentage of our single-family REO property inventory that had been held for sale longer 

than one year was 5.8%. Though it varied significantly in different states, the average holding period of our single-family REO 

properties, excluding any post-foreclosure period during which borrowers may reclaim a foreclosed property, was 209 days and 

200 days, for our REO dispositions during 2013 and 2012, respectively.

The table below provides information about our REO properties at December 31, 2013 and 2012.

Table 55 — Single-Family REO Property Status

As of December 31,

2013 2012

(Percent of properties)

Unable to market:

Redemption period(1) 11% 15%

Occupied (waiting for eviction or vacancy) 18 18

Other(2) 4 3

Subtotal — unable to market 33 36

Pre-listing(3) 23 23

Pending settlement for sale(4) 14 14

Available for sale 30 27

Total 100% 100%

(1) Consists of properties located in jurisdictions that require a period of time after foreclosure during which the borrower may reclaim the property.

(2) Includes properties where marketing is on hold, including where we are involved in litigation or other legal and regulatory issues concerning the 

property.

(3) Consists of properties that are not being actively marketed because we are evaluating the property condition and preparing the property for sale.

(4) Consists of properties where we have an executed sales contract and settlement has not yet occurred.

As shown in the table above, a significant portion of the properties in our REO inventory are unable to be marketed 

because they remain occupied or are located in states with a redemption period, particularly in the states of Illinois, Michigan, 

and Minnesota. The percentage of our REO inventory that is in the pre-listing category also remained high at December 31, 

2013, primarily because many of these properties are under repair or are otherwise being prepared for sale.

Credit Loss Performance

Many loans that are seriously delinquent, or in foreclosure, result in credit losses. The table below provides detail on our 

credit loss performance associated with mortgage loans and REO assets on our consolidated balance sheets and underlying our 

non-consolidated mortgage-related financial guarantees.

Table of Contents
133 Freddie Mac

Table 56 — Credit Loss Performance

December 31,

2013 2012 2011

(dollars in millions)

REO

REO balances, net:

Single-family $ 4,541 $ 4,314 $ 5,548

Multifamily 10 64 132

Total $ 4,551 $ 4,378 $ 5,680

REO operations (income) expense:

Single-family $ (124) $ 62 $ 596

Multifamily (16) (3) (11)

Total $ (140) $ 59 $ 585

Charge-offs

Single-family:

Charge-offs, gross(1) (including $9.0 billion, $13.5 billion, and $14.7 billion relating to 

loan loss reserves, respectively) $ 9,225 $ 13,825 $ 15,149

Recoveries(2) (4,313) (2,262) (2,764)

Single-family, net $ 4,912 $ 11,563 $ 12,385

Multifamily:

Charge-offs, gross(1) (including $7 million, $36 million, and $75 million relating to loan 

loss reserves, respectively) $ 29 $ 39 $ 83

Recoveries(2) (1) (2) (1)

Multifamily, net $ 28 $ 37 $ 82

Total Charge-offs:

Charge-offs, gross(1) (including $9.0 billion, $13.6 billion, and $14.8 billion relating to 

loan loss reserves, respectively) $ 9,254 $ 13,864 $ 15,232

Recoveries(2) (4,314) (2,264) (2,765)

Total Charge-offs, net $ 4,940 $ 11,600 $ 12,467

Credit Losses(3)

Single-family $ 4,788 $ 11,625 $ 12,981

Multifamily 12 34 71

Total $ 4,800 $ 11,659 $ 13,052

Total (in bps)(4) 26.7 63.8 68.1

(1) Represent the carrying amount of a loan that has been discharged in order to remove the loan from our consolidated balance sheet at the time of 

resolution, regardless of when the impact of the credit loss was recorded on our consolidated statements of comprehensive income. Charge-offs 

primarily result from foreclosure transfers and short sales and are generally calculated as the recorded investment of a loan at the date it is discharged 

less the estimated value in final disposition or actual net sales in a short sale. Multifamily charge-offs also include cumulative fair value losses 

recognized through the date of foreclosure for loans which we elected to carry at fair value at the time of our purchase.

(2) Recoveries of charge-offs primarily result from foreclosure alternatives and REO acquisitions on loans where: (a) a share of default risk has been 

assumed by mortgage insurers, servicers, or other third parties through credit enhancements; or (b) we received a reimbursement of our losses from a 

seller/servicer associated with a repurchase request on a loan that experienced a foreclosure transfer or a foreclosure alternative. Includes $2.8 billion, 

$0.7 billion, and $1.0 billion in 2013, 2012, and 2011, respectively, related to repurchase requests from our seller/servicers (including $2.1 billion in 

2013 and $0, in both 2012 and 2011, respectively, related to settlement agreements with certain sellers to release specified loans from certain 

repurchase obligations in exchange for one-time cash payments). 

(3) Excludes foregone interest on non-performing loans, which reduces our net interest income but is not reflected in our total credit losses. In addition, 

excludes certain other market-based credit losses, including those: (a) incurred on our investments in mortgage loans and mortgage-related securities; 

and (b) recognized in our consolidated statements of comprehensive income.

(4) Calculated as credit losses divided by the average carrying value of our total mortgage portfolio, excluding non-Freddie Mac mortgage-related 

securities and that portion of REMICs and Other Structured Securities that are backed by Ginnie Mae Certificates.

Our credit losses are generally measured at the conclusion of the loan and related collateral resolution process. Our 

expenses associated with home retention actions (e.g., loan modifications) are generally not reflected in our credit losses. There 

is a significant lag in time from the start of loan workout activities by our servicers on problem loans (e.g., seriously delinquent 

loans) to the final resolution of those loans by the completion of foreclosures (and subsequent REO sales) and foreclosure 

alternatives (e.g., short sales). Single-family charge-offs, gross, for 2013 and 2012, were $9.2 billion and $13.8 billion, 

respectively, and were associated with approximately $21.2 billion and $28.1 billion in UPB of loans for 2013 and 2012. Our 

single-family charge-offs, gross, declined in 2013, compared to 2012, primarily due to improvements in home prices in recent 

periods in many of the areas in which we have had significant foreclosure and short sale activity. The decline in single-family 

charge-offs, net, in 2013 also includes recoveries of: (a) $2.1 billion related to settlement agreements with certain sellers to 

release specified loans from certain repurchase obligations in exchange for one-time cash payments; and (b) $0.2 billion related 

Table of Contents
134 Freddie Mac

to an agreement to resolve outstanding and future primary mortgage insurance claims on certain loans with one of our mortgage 

insurers.

To a lesser extent, charge-offs also declined due to slowing volumes of foreclosures in our single-family guarantee 

portfolio since fewer loans transitioned to foreclosure in 2013, compared to 2012. We expect our charge-offs and credit losses 

to continue to remain elevated in 2014 due to the large number of single-family non-performing loans that will likely be 

resolved.

Our single-family credit losses during 2013 were high in California (since it represents a significant portion of our singlefamily credit guarantee portfolio) and credit losses continued to be disproportionately high in Florida, Nevada, and Arizona. 

Collectively, these four states comprised approximately 47% of our total credit losses in 2013. We estimate that these states had 

the largest cumulative declines in home prices during the housing crisis that began in 2006, as measured by our home price 

index. Our 2005-2008 Legacy single-family book comprised approximately 16% of our single-family credit guarantee 

portfolio, based on UPB at December 31, 2013; however, these loans accounted for approximately 81% of our credit losses 

during 2013. In addition, although Alt-A loans comprised approximately 3% of our single-family credit guarantee portfolio at 

December 31, 2013, these loans accounted for approximately 26% of our credit losses during 2013. At December 31, 2013, 

loans in states with a judicial foreclosure process comprised 40% of our single-family credit guarantee portfolio, based on 

UPB, while loans in these states contributed to approximately 61% of our credit losses recognized in 2013. We expect the 

portion of our credit losses related to loans in states with judicial foreclosure processes will remain high in the near term as the 

substantial backlog of loans awaiting court proceedings in those states transitions to REO or other loss events. 

The table below provides loss severity information for loans in our single-family credit guarantee portfolio.

Table 57 — Severity Ratios for Single-Family Loans

For the Three Months Ended

12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012

REO disposition severity ratio:(1)

Florida 40.4% 40.5% 42.9% 44.5% 46.2%

Illinois 43.4 43.7 47.2 49.9 50.1

California 24.4 28.7 30.2 35.2 38.1

Nevada 36.1 36.4 37.9 44.1 49.0

Maryland 37.4 38.0 39.0 42.3 47.8

Total U.S 35.8 34.9 35.8 39.1 39.5

Short sale severity ratio(2) 32.5 34.5 36.5 38.0 38.6

(1) States presented represent the five states where our credit losses were greatest during 2013. Calculated as the amount of our losses recorded on 

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

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

UPB of the loans exceeds the amount of sales proceeds from disposition of the properties, net of selling expenses.

(2) Calculated as the amount of our losses recorded on short sales during the respective quarterly period divided by the aggregate UPB of the related loans. 

The amount of losses recognized on short sales is equal to the amount by which the UPB of the loans exceeds the amount of sales proceeds, net of 

selling expenses. 

The table below provides detail by region for charge-offs and recoveries.

Table 58 — Single-Family Charge-offs and Recoveries by Region(1)

Year Ended December 31,

2013 2012 2011

 

Charge-offs,

gross Recoveries(2)

Charge-offs,

net

Charge-offs,

gross Recoveries(2)

Charge-offs,

net

Charge-offs,

gross Recoveries(2)

Charge-offs,

net

(in millions)

Northeast $ 1,357 $ (656) $ 701 $ 1,180 $ (249) $ 931 $ 1,033 $ (226) $ 807

Southeast 3,015 (1,331) 1,684 3,530 (694) 2,836 3,210 (693) 2,517

North Central 1,870 (810) 1,060 2,726 (526) 2,200 2,502 (615) 1,887

Southwest 394 (245) 149 647 (160) 487 777 (243) 534

West 2,589 (1,271) 1,318 5,742 (633) 5,109 7,627 (987) 6,640

Total $ 9,225 $ (4,313) $ 4,912 $ 13,825 $ (2,262) $ 11,563 $ 15,149 $ (2,764) $ 12,385

(1) See endnote (8) to “Table 50 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for a description of these regions.

(2) See endnote (2) to "Table 56 — Credit Loss Performance" for information about our recoveries of charge-offs.

Table of Contents
135 Freddie Mac

As shown in the table above, our charge-offs, net, declined during 2013 compared to 2012 in all regions of the U.S., and 

benefited from settlement agreements in 2013 with several of our sellers to release specified loans from certain repurchase 

obligations in exchange for one-time cash payments. We continued to experience high foreclosure volume in the North Central 

region during 2013, particularly in Illinois, Michigan, and Ohio. In addition, the volume of foreclosures and related charge-offs 

increased in 2013 compared to 2012 in the Southeast region, which was due to significant foreclosure activity in the state of 

Florida. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for additional information about our credit 

losses.

Loan Loss Reserves

We maintain mortgage-related loan loss reserves at levels we believe appropriate to absorb probable incurred losses on 

mortgage loans held-for-investment on our consolidated balance sheets and those underlying Freddie Mac mortgage-related 

securities and other guarantee commitments. Determining the loan loss reserves is complex and requires significant 

management judgment about matters that involve a high degree of subjectivity. See “NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES” for information on our accounting policies for allowance for loan losses and reserve for guarantee 

losses and impaired loans.

The table below summarizes our loan loss reserves activity for held-for-investment mortgage loans recognized on our 

consolidated balance sheets and underlying Freddie Mac mortgage-related securities and other guarantee commitments, in total.

Table 59 — Loan Loss Reserves Activity(1)

Year Ended December 31,

2013 2012 2011 2010 2009

(dollars in millions)

Total loan loss reserves:

Beginning balance $ 30,890 $ 39,461 $ 39,926 $ 33,857 $ 15,618

Adjustments to beginning balance(2) — — — (186) —

Provision (benefit) for credit losses (2,465) 1,890 10,702 17,218 29,530

Charge-offs, gross(3) (9,002) (13,556) (14,810) (16,322) (9,402)

Recoveries(4) 4,314 2,264 2,765 3,363 2,088

Transfers, net(5) 992 831 878 1,996 (3,977)

Ending balance $ 24,729 $ 30,890 $ 39,461 $ 39,926 $ 33,857

Components of loan loss reserves:

Single-family $ 24,578 $ 30,508 $ 38,916 $ 39,098 $ 33,026

Multifamily $ 151 $ 382 $ 545 $ 828 $ 831

Total loan loss reserve, as a percentage of the total mortgage

portfolio, excluding non-Freddie Mac securities 1.37% 1.71% 2.08% 2.03% 1.69%

(1) Consists of reserves for loans held-for-investment and those underlying Freddie Mac mortgage-related securities and other guarantee commitments.

(2) Adjustments relate to the adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of VIEs. 

(3) Charge-offs related to loan loss reserves represent the amount of a loan that has been discharged to remove the loan from our consolidated balance 

sheet principally due to either a foreclosure transfer or a short sale. Charge-offs exclude $252 million, $308 million, $422 million, $528 million, and 

$280 million, for the years ended December 31, 2013, 2012, 2011, 2010, and 2009, respectively, related to: (a) amounts recorded as losses on loans 

purchased within other expenses on our consolidated statements of comprehensive income, which relate to certain loans purchased under financial 

guarantees; or (b) cumulative fair value losses recognized through the date of foreclosure for Multifamily loans which we elected to carry at fair value 

at the time of our purchase. 

(4) See endnote (2) to "Table 56 — Credit Loss Performance" for information about our recoveries of charge-offs.

(5) Consist primarily of: (a) amounts related to settlement agreements with certain sellers where the transfer relates to recoveries received under these 

agreements to compensate us for previously incurred and recognized losses; (b) reclassified single-family reserves related to our removal of loans 

previously held by consolidated trusts; and (c) net amounts attributable to recapitalization of past due interest on modified mortgage loans.

Our single-family loan loss reserves declined from $30.5 billion at December 31, 2012 to $24.6 billion at December 31, 

2013, reflecting continued high levels of loan charge-offs compared to levels before 2009. This decline was also due to 

improvements in borrower payment performance and lower severity ratios for REO dispositions and short sale transactions 

largely resulting from the improvements in home prices in most areas during the period. 

 In recent periods, including 2013, the portion of our loan loss reserves attributable to individually impaired loans 

increased while the portion of our loan loss reserves determined on a collective basis declined. Our loan loss reserves 

attributable to individually impaired loans represent 75% of our loan loss reserves at December 31, 2013. This reflects a 

significant increase in TDRs over the past three years and the reserves associated with these loans largely reflect the 

concessions we have provided to the borrowers at the point of loan modification. The majority of these modified loans were 

current and performing at December 31, 2013. Although the housing market continued to significantly improve in many 

geographic areas, we expect that our loan loss reserves may remain elevated for an extended period because: (a) a significant 

Table of Contents
136 Freddie Mac

portion of our reserves are associated with loans classified as individually impaired (e.g., modified loans) that are less than 

three months past due, and we are required to maintain a loss reserve on such loans until they are fully repaid or complete a 

short sale or foreclosure; and (b) the resolution of problem loans takes considerable time, often several years in the case of 

foreclosure.

As of December 31, 2013 and 2012, the recorded investment of individually impaired single-family mortgage loans was 

$98.1 billion and $89.3 billion, respectively, and the loan loss reserves associated with these loans were $18.6 billion and $17.9 

billion, respectively. Our loan loss reserve associated with individually impaired single-family loans as a percentage of the total 

recorded investment of these loans was 19% and 20% of the balance as of December 31, 2013 and 2012, respectively. Our loan 

loss reserve associated with collectively evaluated single-family loans as a percentage of the total recorded investment of these 

loans was 0.4% and 0.8% of the balance as of December 31, 2013 and 2012, respectively. See “Table 4.4 — Net Investment in 

Mortgage Loans” for information about collectively evaluated and individually evaluated loans on our consolidated balance 

sheets. See “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for additional information about 

our impaired loans. See “CONSOLIDATED RESULTS OF OPERATIONS — Benefit (Provision) for Credit Losses,” for a 

discussion of our benefit (provision) for credit losses.

The table below summarizes our net investment for individually impaired single-family mortgage loans on our 

consolidated balance sheets for which we have recorded a specific reserve.

Table 60 — Single-Family Impaired Loans with Specific Reserve Recorded

2013 2012

# of Loans Amount # of Loans Amount

(dollars in millions)

TDRs (recorded investment):

TDRs, at January 1, 449,145 $ 83,484 252,749 $ 53,494

New additions 129,428 20,234 226,214 35,816

Repayments (29,877) (5,074) (10,442) (2,070)

Loss events(1) (34,199) (6,139) (19,376) (3,756)

TDRs, at December 31, 514,497 92,505 449,145 83,484

Other (recorded investment)(2) 13,790 1,195 18,416 1,672

Total impaired loans with specific reserve 528,287 93,700 467,561 85,156

Total allowance for loan losses of individually impaired single-family loans (18,554) (17,935)

Net investment, at December 31, $ 75,146 $ 67,221

(1) Foreclosure transfers or foreclosure alternatives, such as a deed in lieu of foreclosure or short sale transaction.

(2) Loans impaired upon purchase as of December 31.

Credit Risk Sensitivity

Under a 2005 agreement with FHFA, then OFHEO, we are required to disclose the estimated increase in the NPV of 

future expected credit losses for our single-family credit guarantee portfolio over a ten year period as the result of an immediate 

5% decline in home prices nationwide, followed by a stabilization period and return to the base case. This sensitivity analysis is 

hypothetical and may not be indicative of our actual results. We do not use this analysis for determination of our reported 

results under GAAP. The estimate of our portfolio’s credit sensitivity to a 5% home price decline (with this scenario’s 

assumptions) has decreased during 2013, which we believe is primarily due to the combination of improvement in home prices 

in most of the U.S. as well as the decline in our 2005-2008 Legacy single-family book.

The table below presents the estimated credit loss sensitivity of our single-family credit guarantee portfolio, based on 

assumptions required by FHFA, both before and after consideration of credit enhancements, measured at the end of the last five 

quarterly periods.

Table of Contents
137 Freddie Mac

Table 61 — Single-Family Credit Loss Sensitivity

Before Receipt of

Credit Enhancements(1)

After Receipt of Credit

Enhancements(2)

NPV(3) NPV Ratio(4) NPV(3) NPV Ratio(4)

(dollars in millions, ratios in bps)

At:

December 31, 2013 $ 3,931 23.8 $ 3,628 21.9

September 30, 2013 $ 4,059 24.6 $ 3,734 22.6

June 30, 2013 $ 4,000 24.3 $ 3,663 22.2

March 31, 2013 $ 4,961 30.3 $ 4,575 27.9

December 31, 2012 $ 6,356 38.8 $ 5,908 36.1

(1) Assumes that none of the credit enhancements currently covering our mortgage loans have any mitigating effect on our credit losses.

(2) Assumes we collect amounts due from credit enhancement providers after giving effect to certain assumptions about counterparty default rates.

(3) Based on the single-family credit guarantee portfolio, excluding REMICs and Other Structured Securities backed by Ginnie Mae Certificates.

(4) Calculated as the ratio of NPV of increase in credit losses to the single-family credit guarantee portfolio, defined in note (3) above.

Institutional Credit Risk

The concentration of our exposure to our counterparties increased beginning in 2008 due to industry consolidation and 

counterparty failures. Many of our remaining counterparties were adversely affected in recent years by challenging market and 

economic conditions as well as the stress on their resources to meet increased regulatory requirements and oversight.

We continue to face challenges in reducing our risk concentrations with counterparties. Efforts we make to reduce 

exposure to financially weakened counterparties could further increase our exposure to other individual counterparties or 

increase concentration risk overall. The failure of any of our significant counterparties to meet their obligations to us could 

have a material adverse effect on our results of operations, financial condition, and our ability to conduct future business. For 

more information, see “RISK FACTORS — Competitive and Market Risks —We depend on our institutional counterparties to 

provide services that are critical to our business, and our results of operations or financial condition may be adversely affected 

if one or more of our counterparties do not meet their obligations to us.”

Single-family Mortgage Seller/Servicers

We acquire a significant portion of our single-family mortgage purchase volume from several large lenders, or seller/

servicers. Our top 10 single-family seller/servicers provided approximately 64% of our single-family purchase volume during 

2013. Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A. accounted for 17% and 13%, respectively, of our single-family 

mortgage purchase volume and were the only single-family seller/servicers that comprised 10% or more of our purchase 

volume during 2013.

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

represent and warrant that those loans meet specified eligibility and underwriting standards. In addition, our servicers represent 

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

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

contractual remedies to mitigate our actual or potential credit losses. These contractual remedies include the ability to require 

the seller/servicer to repurchase the loan at its current UPB, reimburse us for losses realized with respect to the loan after 

consideration of other recoveries, if any, and/or indemnify us. For certain servicing violations, we typically first issue a notice 

of defect and allow the servicer a period of time to correct the problem. If the servicing violation is not corrected, we then may 

issue a repurchase request. For breaches related to loans that have proceeded through foreclosure and REO sale or other 

workouts (e.g. short sales), we will accept reimbursement for realized credit losses. For breaches related to other loans, we 

issue a repurchase request for the loan’s UPB, plus interest and fees. We require a seller/servicer to repurchase a mortgage (or 

provide an alternative remedy) 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 pending a decision on the appeal. 

We revised our representation and warranty framework for conventional loans purchased on or after January 1, 2013. We 

may face greater exposure to credit and other losses under this new framework since it relieves lenders of certain repurchase 

obligations in specific cases (such as for loans that perform for 36 consecutive months, with certain exclusions). The new 

framework does not affect seller/servicers’ obligations under their contracts with us with respect to loans sold to us prior to 

January 1, 2013. The new framework also does not affect their obligation to service these loans in accordance with our 

servicing standards. For additional information, see “BUSINESS — Our Business Segments —Single-Family Guarantee

Segment” and "Mortgage Credit Risk — Single-Family Mortgage Credit Risk — Single-Family Loan Workouts and the MHA

Program — Relief Refinance Mortgage Initiative and Home Affordable Refinance Program."

Table of Contents
138 Freddie Mac

The table below provides a summary of our repurchase request (both seller and servicing related) activity for 2013, 2012, 

and 2011.

Table 62 — Repurchase Request Activity(1)

Year Ended December 31,

2013 2012 2011

(in millions)

Beginning balance $ 3,028 $ 2,716 $ 3,807

Issuances 10,797 9,246 9,172

Collections(2) (5,638) (3,487) (4,490)

Cancellations and other(3) (5,996) (5,447) (5,773)

Ending balance $ 2,191 $ 3,028 $ 2,716

(1) Amounts are based on the UPB of the loans associated with the repurchase requests. The balance as of December 31, 2013 includes: (a) $1.6 billion in 

UPB related to repurchase claims for violations of seller representations and warranties; and (b) $0.6 billion in UPB related to repurchase claims for 

violations of servicing guidelines. The balance as of December 31, 2013 excludes $0.3 billion in UPB related to notices of defect for servicing 

violations.

(2) Requests collected are based on the UPB of the loans associated with the repurchase requests, which in many cases is more than the amount of 

payments received for reimbursement of losses for requests associated with foreclosed mortgage loans, negotiated agreements, and other alternative 

remedies. Includes $2.1 billion during 2013 related to settlement agreements with certain sellers to release specified loans from certain repurchase 

obligations in exchange for one-time cash payments. For the years ended December 31, 2013, 2012, and 2011 approximately 23%, 35%, and 31% 

respectively, of the requests collected in each period were satisfied by reimbursement of losses associated with the request (excluding amounts related 

to settlement agreements).

(3) Consists primarily of those requests that were resolved by the servicer providing missing documentation or rescinded through a successful appeal of the 

request. Also includes other items that affect the UPB of the loan while the repurchase request is outstanding, such as payments made on the loan.

Our exposure to single-family mortgage seller/servicers has been high in recent years with respect to their repurchase 

obligations arising from breaches of representations and warranties made to us for loans they underwrote and sold to us, or that 

they service for us. FHFA set a goal for us (in the 2013 Conservatorship Scorecard) to complete our requests for remedies for 

breaches of seller representations and warranties related to pre-conservatorship loan activity. Although we resolved a significant 

amount of requests in 2013, including through negotiated agreements, the balance of repurchase requests outstanding remained 

high as of December 31, 2013 due to the increased claims issued to meet the Scorecard goal. During 2013, we recovered 

amounts from seller/servicers with respect to $5.6 billion in UPB of loans subject to our repurchase requests, including $2.1 

billion related to settlement agreements with certain sellers (including nine of our largest sellers) to release specified loans from 

certain repurchase obligations in exchange for one-time cash payments. As a result, the UPB of loans subject to open 

repurchase requests with our largest seller/servicers has declined significantly. See “NOTE 15: CONCENTRATION OF 

CREDIT AND OTHER RISKS — Seller/Servicers” for more information about these agreements. We did not enter into any 

such agreements during 2012 or 2011. In November 2013, FHFA announced that we had substantially achieved this 2013 

Scorecard goal. Consequently, we believe that our repurchase request volumes with our sellers will likely decrease in 2014. 

The UPB of loans subject to open repurchase requests (both seller and servicer related) decreased to $2.2 billion at 

December 31, 2013 from $3.0 billion at December 31, 2012 as the combined volume of requests collected and canceled 

exceeded the volume of requests issued. As measured by UPB, approximately 27% and 41% of the repurchase requests 

outstanding at December 31, 2013 and 2012, respectively, were outstanding for four months or more since issuance of the 

initial requests (these figures include repurchase requests for which appeals were pending). In 2013, we began to increase our 

review of servicing related violations, including by instituting a process of issuing notices of defect for certain servicing 

violations. Notices of defect issued in 2013 primarily related to the conveyance of properties to us without clear and marketable 

title.

As of December 31, 2013, two of our largest seller/servicers (Bank of America, N.A. and JPMorgan Chase Bank, N.A.) 

had aggregate outstanding repurchase requests, based on UPB, of $0.9 billion, and approximately 49% were outstanding for 

four months or more since issuance of the initial request. The amount we expect to collect on the outstanding requests is 

significantly less than the UPB of the related loans primarily because many will likely be satisfied by reimbursement of our 

realized credit losses by seller/servicers, instead of repurchase of loans at their UPB. Some of these requests also may be 

rescinded in the course of the contractual appeal process. Based on our historical loss experience and the fact that many of 

these loans are covered by credit enhancements (e.g., mortgage insurance), we expect the actual credit losses experienced by us 

should we fail to collect on these repurchase requests will also be less than the UPB of the loans.

Repurchase requests related to mortgage insurance rescission and claim denial tend to be outstanding longer than other 

repurchase requests for a number of reasons, including: (a) lenders may not agree with the basis used by the mortgage insurers 

to rescind coverage; (b) the mortgage insurers’ appeals process for rescissions can be lengthy (as long as one year or more); (c) 

lenders expect us to suspend repurchase enforcement until after the appeal decision by the mortgage insurer is made (although 

this is not our practice); and (d) in certain cases, we have agreed to consider a repurchase alternative that would allow certain of 

Table of Contents
139 Freddie Mac

our seller/servicers to provide us a commitment for the amount of lost mortgage insurance coverage in lieu of a full repurchase. 

Of the total amount of repurchase requests outstanding at December 31, 2013 and 2012, approximately $0.2 billion and $1.2 

billion, respectively, were issued due to mortgage insurance rescission or mortgage insurance claim denial.

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

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

through foreclosure or short sale. The loan review and appeal process is lengthy, but we have completed a substantial number 

of reviews and compiled results of our review of 2012 originations. Based on reviews completed through December 31, 2013, 

the average aggregate deficiency rate across all seller/servicers for loans funded during 2012, 2011, and 2010 (excluding HARP

and other relief refinance loans) was approximately 3%, 5%, and 13%, respectively. These rates may change in the future as our 

seller/servicers may appeal our findings. The most common underwriting deficiencies found in our review of loans funded 

during 2012 (excluding HARP and other relief refinance loans) were related to the delivery of inaccurate data, which 

invalidated the Loan Prospector automated underwriting decision. In recent periods, we also made revisions to our loan review 

process that are designed to standardize the process and facilitate more timely review of loans we purchase.

Our estimate of recoveries from seller and servicer repurchase obligations is considered in our allowance for loan losses; 

however, our actual recoveries may be different than our estimates. We believe we have appropriately provided for these 

exposures, based upon our estimates of incurred losses, in our loan loss reserves; however, our actual losses may exceed our 

estimates.

The table below summarizes the percentage of our single-family credit guarantee portfolio by year of loan origination 

that is subject to agreements releasing loans from certain repurchase obligations, including defaulted counterparties. Since 

January 1, 2009, we have entered into 12 negotiated agreements and have released repurchase obligations with 70 other seller/

servicers as of December 31, 2013.

Table 63 — Loans Released from Repurchase Obligations(1)

As of December 31, 2013

Year of origination: UPB

Percentage of

Single-family

Credit Guarantee

Portfolio

(in billions)

Negotiated agreements:

2009 and thereafter $ 37.1 2.3%

2008 33.6 2.0

2007 61.4 3.7

2006 49.8 3.0

2005 58.8 3.6

2004 and prior 114.7 6.9

Subtotal 355.4 21.5

Other released loans:(2)

2010 and thereafter 0.5 <0.1

2009 5.9 0.4

2008 5.2 0.3

2007 9.9 0.6

2006 5.8 0.4

2005 and prior 6.9 0.4

Total $ 389.6 23.6%

(1) Includes all loans released from certain repurchase obligations, except those loans subject to reduced repurchase obligations associated with our relief 

refinance mortgage initiative and our new representation and warranty framework that became effective January 1, 2013.

(2) Consist primarily of loans associated with seller/servicers that were no longer in business at December 31, 2013, and result from a discharge of the 

seller/servicer's obligation or determination of the settlement amount in bankruptcy or receivership proceedings.

We do not have our own mortgage loan servicing operation. Instead, our customers perform the primary servicing 

function on our loans on our behalf. A significant portion of our single-family mortgage loans are serviced by several large 

seller/servicers. If our servicers lack appropriate process controls, experience a failure in their controls, or experience an 

operating disruption in their ability to service mortgage loans, our business and financial results could be adversely affected. 

Our top two single-family loan servicers, Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A., serviced approximately 

24% and 13%, respectively, of our single-family mortgage loans as of December 31, 2013, and together serviced approximately 

37% of our single-family mortgage loans. We continue to face challenges with respect to the performance of certain of our 

seller/servicers in managing our seriously delinquent loans. As part of our efforts to address this issue and mitigate our credit 

Table of Contents
140 Freddie Mac

losses, we facilitated the transfer of servicing for $55.6 billion in UPB of loans from our primary servicers to specialty servicers 

during 2013. Some of these specialty servicers have grown rapidly in the last two years and now service a large share of our 

loans. We also seek remedies such as compensatory fees for failure to perform certain requirements with respect to the 

servicing of delinquent loans.

We rely on our seller/servicers to perform loan workout activities as well as foreclosures on loans that they service for us. 

Our credit losses could increase to the extent that our seller/servicers do not fully perform these obligations in a timely manner. 

We also continue to be adversely affected by the length of the foreclosure timeline, particularly in states that require a judicial 

foreclosure process, which has provided challenges to our seller/servicers because they have had to change their processes for 

compliance with the requirements of each jurisdiction. For more information on our exposure to our seller/servicers, see “RISK 

FACTORS — Competitive and Market Risks — Our financial condition or results of operations may be adversely affected if 

mortgage seller/servicers fail to perform their repurchase and other obligations to us."

As part of the servicing alignment initiative, we announced changes in our servicing standards for situations in which our 

servicers obtain property hazard insurance on properties securing single-family loans we own or guarantee. As a result, 

effective June 1, 2014, our seller/servicers may not receive compensation or other payment from insurance carriers nor may 

they use their own or affiliated entities to insure or reinsure a property.

Multifamily Mortgage Seller/Servicers

We acquire a significant portion of our multifamily new business volume from several large sellers. We are exposed to 

certain institutional credit risks arising from the potential non-performance by our multifamily sellers and mortgage servicers. 

Our top two multifamily sellers, CBRE Capital Markets, Inc. and Berkadia Commercial Mortgage LLC, accounted for 22% and 

14%, respectively, of our multifamily new business volume for 2013. Our top 10 multifamily sellers represented an aggregate 

of approximately 77% of our multifamily new business volume for 2013.

A significant portion of our multifamily mortgage portfolio is serviced by several large multifamily servicers. As of 

December 31, 2013, our top three multifamily servicers, Berkadia Commercial Mortgage LLC, Wells Fargo Bank, N.A., and 

CBRE Capital Markets, Inc., each serviced more than 10% of our multifamily mortgage portfolio, excluding K Certificates, 

and together serviced approximately 37% of this portfolio. 

In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under financial 

pressure, which could potentially cause degradation in the quality of the servicing they provide us, including their monitoring 

of each property’s financial performance and physical condition. This could also, in certain cases, reduce the likelihood that we 

could recover losses through lender repurchases, recourse agreements or other credit enhancements, where applicable. This risk 

primarily relates to multifamily loans that we hold on our consolidated balance sheets where we retain all of the related credit 

risk. We monitor the status of all our multifamily seller/servicers in accordance with our counterparty credit risk management 

framework.

Mortgage Insurers

We have institutional credit risk relating to the potential insolvency of, or non-performance by, mortgage insurers that 

insure single-family mortgages we purchase or guarantee. As a guarantor, we remain responsible for the payment of principal 

and interest if a mortgage insurer fails to meet its obligations to reimburse us for claims. If any of our mortgage insurers fails to 

fulfill its obligations, we could experience increased credit losses.

We attempt to manage this risk by establishing eligibility standards for mortgage insurers and by monitoring our exposure 

to individual mortgage insurers. Our monitoring includes performing periodic analysis of the financial capacity of individual 

mortgage insurers under various adverse economic conditions. Our ability to manage this risk may be limited as: (a) certain of 

our mortgage insurers are operating below our eligibility thresholds; and (b) our ability to revoke a mortgage insurer's status as 

an eligible insurer may require FHFA approval. The 2013 Conservatorship Scorecard includes a goal for us to develop 

counterparty risk management standards for mortgage insurers that include aligned master policies and eligibility requirements. 

In connection with this goal, we expect to publish changes to financial requirements and other standards for mortgage insurer 

eligibility in 2014. In December 2013, FHFA announced that we and Fannie Mae, in collaboration with our mortgage insurers, 

had completed development of new master policies, for which the mortgage insurers are expected to seek state regulatory 

approval. These new master policies provide for: (a) assurance of coverage including setting standards for certain 

circumstances when coverage should be maintained or revoked; (b) specific timeframes for the processing and payment of 

claims; (c) loss mitigation provisions that support strategies developed during the housing crisis to help troubled homeowners; 

and (d) standards for enhanced information sharing between insurers, servicers and Freddie Mac. These changes help address 

the significant problems we faced in recent years in resolving repurchase requests related to mortgage insurance rescission.

As part of the estimate of our loan loss reserves, we evaluate the recovery and collectability related to mortgage insurance 

policies on mortgage loans we own or guarantee. We also evaluate the collectability of outstanding receivables from these 

counterparties related to unpaid claims. 

The majority of our mortgage insurance exposure is concentrated with four mortgage insurers, certain of which have been 

under financial stress during the last several years. Some of our eligible mortgage insurers have, in the past, exceeded risk to 

Table of Contents
141 Freddie Mac

capital ratios required by their state insurance regulators. Although the financial condition of these mortgage insurers improved 

moderately in 2013 as a result of strong home price appreciation and their having raised additional capital, there is still a 

significant risk that these counterparties may fail to meet their obligations to pay our claims. Except for those insurers under 

regulatory or court ordered supervision, which no longer issue new coverage, we continue to acquire new loans with mortgage 

insurance from the mortgage insurers shown in the table below, many of which have credit ratings below investment grade. Our 

ability to reduce our exposure to individual mortgage insurers is limited. In recent years, new entrants have emerged that will 

diversify a concentrated industry. For more information, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER 

RISKS — Mortgage Insurers" and “RISK FACTORS — Competitive and Market Risks — Our losses could increase if more of 

our mortgage or bond insurers become insolvent or fail to perform their obligations to us."

The table below summarizes our exposure to mortgage insurers as of December 31, 2013. In the event that a mortgage 

insurer fails to perform, the coverage outstanding represents our maximum exposure to credit losses resulting from such failure. 

Our most significant exposure to these insurers is through primary mortgage insurance. As of December 31, 2013, we had 

primary mortgage insurance coverage on loans that represented approximately 12% of the UPB of our single-family credit 

guarantee portfolio.

Table 64 — Mortgage Insurance by Counterparty(1)

As of December 31, 2013

UPB of Covered Loans Coverage Outstanding

Counterparty Name Credit Rating

Credit Rating

Outlook

Primary

Insurance(2)

Pool

Insurance(2)

Primary

Insurance(3)

Pool

Insurance(3)

(in billions)

Mortgage Guaranty Insurance Corporation (MGIC) B Positive $ 44.9 $ 1.6 $ 11.3 $ <0.1

Radian Guaranty Inc. (Radian) B Stable 44.0 3.5 11.0 1.0

United Guaranty Residential Insurance Company BBB+ Stable 41.3 0.1 10.3 <0.1

Genworth Mortgage Insurance Corporation B Stable 28.3 0.2 7.1 <0.1

PMI Mortgage Insurance Co. (PMI)(4) Not Rated N/A 14.5 0.3 3.6 0.1

Republic Mortgage Insurance Company (RMIC)(5) Not Rated N/A 11.7 0.6 2.9 0.1

Essent Guaranty, Inc. BBB Stable 10.6 — 2.6 —

Triad Guaranty Insurance Corporation (Triad)(6) Not Rated N/A 5.3 0.2 1.3 <0.1

CMG Mortgage Insurance Company BBB- Positive 2.8 <0.1 0.7 —

Total $ 203.4 $ 6.5 $ 50.8 $ 1.2

(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 February 14, 2014. Represents the lower of S&P and Moody’s 

credit ratings and outlooks stated in terms of the S&P equivalent.

(2) These amounts are based on gross coverage without regard to netting of coverage that may exist to the extent an affected mortgage is covered under 

both types of insurance. See “Table 4.5 — Recourse and Other Forms of Credit Protection” in “NOTE 4: MORTGAGE LOANS AND LOAN LOSS 

RESERVES” for further information.

(3) Represents the remaining aggregate contractual limit for reimbursement of losses under the respective policy type. These amounts are based on gross 

coverage without regard to netting of coverage that may exist to the extent an affected mortgage is covered under both types of insurance.

(4) In April 2013, PMI began paying valid claims 55% in cash and 45% in deferred payment obligations and made a one-time cash payment to us for 

claims that were previously settled for 50% in cash.

(5) Under a plan announced in November 2012, RMIC is paying all valid claims settled on or after January 19, 2012, 60% in cash and 40% in deferred 

payment obligations.

(6) In June 2009, Triad began paying valid claims 60% in cash and 40% in deferred payment obligations under order of its state regulator. In October 2013, 

Triad’s plan of rehabilitation was approved. In December 2013, under this plan, Triad began paying valid claims 75% in cash and a one-time cash 

payment was made to us for claims previously settled for 60% in cash. 

We received proceeds of $2.0 billion in each of 2013 and 2012 from our primary and pool mortgage insurance policies 

for recovery of losses on our single-family loans, including $255 million in the third quarter of 2013 associated with a 

settlement agreement with Radian. We had outstanding receivables from mortgage insurers (including deferred payment 

obligations associated with unpaid claim amounts), net of associated reserves, of $0.5 billion and $0.8 billion at December 31, 

2013 and 2012, respectively. 

In December 2012, we entered into a settlement agreement with MGIC concerning our current and future claims under 

certain of its pool insurance policies. The Radian and MGIC settlement agreements are described in "NOTE 15: 

CONCENTRATION OF CREDIT AND OTHER RISKS - Mortgage Insurers."

We have not purchased pool insurance on single-family loans since March 2008 and have reached the maximum limit of 

recovery on certain pool insurance policies. Our pool insurance policies generally have original coverage periods that range 

from 10 to 12 years. In many cases, we entered into these agreements to cover higher-risk mortgage product types delivered to 

us through loan purchase transactions for cash rather than guarantor swaps. As of December 31, 2013, pool insurance policies 

Table of Contents
142 Freddie Mac

that will expire: (a) during 2014 covered approximately $1.5 billion in UPB of loans, and the remaining contractual limit for 

reimbursement of losses on such loans was approximately $0.2 billion; (b) between 2015 and 2019 covered approximately $3.6 

billion in UPB of loans, and the remaining contractual limit for reimbursement of losses on such loans was approximately $0.2 

billion; and (c) after 2019 covered approximately $1.4 billion in UPB of loans, and the remaining contractual limit for 

reimbursement of losses on such loans was approximately $0.8 billion. Any losses in excess of the contractual limit will be 

borne by us. These figures include coverage under our pool insurance policies based on the stated coverage amounts under such 

policies and we may exhaust such coverage before these policies expire. As noted below, we do not expect to receive full 

payment of our claims from several of these insurers.

PMI, RMIC, and Triad are all under regulatory or court ordered supervision, and a substantial portion of their claims are 

recorded by us as deferred payment obligations. These insurers continue to pay a portion of their respective claims in cash. 

However, the state regulators of these companies have generally not allowed them to pay their respective deferred payment 

obligations. If, as we currently expect, these insurers do not pay the full amount of their deferred payment obligations, we 

would lose a portion of the coverage from these insurers shown in the table above. As of December 31, 2013, we had 

cumulative unpaid deferred payment obligations of $0.6 billion from these insurers. We reserved for substantially all of these 

unpaid amounts as collectability is uncertain.

Bond Insurers

Bond insurance, which may be either primary or secondary policies, is a credit enhancement covering certain of the nonagency mortgage-related securities we hold. Primary policies are acquired by the securitization trust issuing the securities we 

purchase, while secondary policies are acquired by us. Bond insurance exposes us to the risk that the bond insurer will be 

unable to satisfy claims.

The table below presents our coverage amounts of bond insurance, including secondary coverage, for the non-agency 

mortgage-related securities we hold. In the event a bond insurer fails to perform, the coverage outstanding represents our 

maximum principal exposure to credit losses related to such a failure.

Table 65 — Bond Insurance by Counterparty(1)

As of December 31, 2013

Counterparty Name Credit Rating

Credit Rating

Outlook

Gross 

Unrealized 

Losses(2)

Coverage

Outstanding(3)

Percent of

Total Coverage

Outstanding(3)

(dollars in millions)

Ambac Assurance Corporation (Ambac)(4) Not Rated N/A $ 239 $ 3,645 47%

Financial Guaranty Insurance Company (FGIC)(4) Not Rated N/A 33 1,393 18

National Public Finance Guarantee Corp. BBB+ Positive 62 1,059 14

MBIA Insurance Corp. B- Positive 5 901 11

Assured Guaranty Municipal Corp. A Stable 10 693 9

Syncora Guarantee Inc. (Syncora)(4) Not Rated N/A — 48 1

CIFG Assurance Corporation Not Rated N/A 6 30 <1

Total $ 355 $ 7,769 100%

(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 ratings available as of February 14, 2014. Represents the lower of S&P and Moody’s 

credit ratings stated in terms of the S&P equivalent.

(2) Represents the amount of gross unrealized losses on the non-agency mortgage-related securities with insurance.

(3) Represents maximum principal exposure to credit losses.

(4) Ambac, FGIC, and Syncora are currently operating under regulatory or court ordered supervision.

We monitor the financial strength of our bond insurers in accordance with our risk management policies. Some of our 

larger bond insurers are in runoff mode where no new business is being written. We expect to receive substantially less than full 

payment of our claims from Ambac and FGIC as these companies are either insolvent or in rehabilitation. We believe that we 

will also likely receive substantially less than full payment of our claims from some of our other bond insurers because we 

believe they also lack sufficient ability to fully meet all of their expected lifetime claims-paying obligations to us as such claims 

emerge. 

In June 2013, FGIC’s plan of rehabilitation was approved, under which permitted claims will be paid 17% in cash and the 

remainder in deferred payment obligations. FGIC has begun payment of initial permitted claims and settlement of deferred 

payment obligations in accordance with the plan. In the third quarter of 2012, Ambac, which had not paid claims since March 

2010, began making cash payments equal to 25% of the permitted amount of each policy claim. In 2013, Ambac also began 

making supplemental payments, equal to all or a portion of the permitted policy claim, with respect to certain specified 

Table of Contents
143 Freddie Mac

securities. For more information concerning Ambac and FGIC, see “NOTE 15: CONCENTRATION OF CREDIT AND 

OTHER RISKS — Bond Insurers.”

In the event one or more of our other bond insurers were to become subject to a regulatory order or insolvency 

proceeding, our ability to recover certain unrealized losses on our non-agency mortgage-related securities would be negatively 

affected. We considered our expectations regarding our bond insurers’ ability to meet their obligations in making our 

impairment determinations on our non-agency mortgage-related securities at December 31, 2013 and 2012. See “NOTE 7: 

INVESTMENTS IN SECURITIES — Other-Than-Temporary Impairments on Available-For-Sale Securities” for additional 

information regarding impairment losses on securities covered by bond insurers.

Cash and Other Investments Counterparties

We are exposed to institutional credit risk arising from the potential insolvency or non-performance of counterparties of 

non-mortgage-related investment agreements and cash equivalent transactions, including those entered into on behalf of our 

securitization trusts. 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 investment counterparties are primarily major financial institutions, Treasury, and the Federal Reserve 

Bank of New York. As of December 31, 2013 and 2012, including amounts related to our consolidated VIEs, there were $85.9 

billion and $60.7 billion, respectively, of: (a) cash and securities purchased under agreements to resell invested with 

institutional counterparties; (b) Treasury securities classified as cash equivalents; or (c) cash deposited with the Federal Reserve 

Bank of New York. Although we monitor the financial strength of our counterparties to these transactions and have collateral 

maintenance requirements for our securities purchased under agreements to resell, we have exposure to loss should any of our 

counterparties fail. See "RISK FACTORS — Our business could be adversely affected if counterparties to derivatives and 

short-term lending and other transactions fail to meet their obligations to us" for further information. See “NOTE 15: 

CONCENTRATION OF CREDIT AND OTHER RISKS” for further information on counterparty credit ratings and 

concentrations within our cash and other investments.

For information about institutional credit risk associated with our investments in non-mortgage-related securities, see 

“NOTE 7: INVESTMENTS IN SECURITIES — Table 7.8 — Trading Securities.”

Agency and Non-Agency Mortgage-Related Security Issuers

Our investments in securities expose us to institutional credit risk to the extent that servicers, issuers, guarantors, or third 

parties providing credit enhancements become insolvent or do not perform their obligations. Our investments in non-Freddie 

Mac mortgage-related securities include both agency and non-agency securities. Agency securities have historically presented 

minimal institutional credit risk due to the guarantee provided by those institutions, and the U.S. government’s support of those 

institutions. However, we recognized impairment charges in 2013 and 2012 related to certain of our investments in non-agency 

mortgage-related securities. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities” for 

further information about these securities, including a discussion of the higher-risk components of these investments.

At the direction of our Conservator, we are working to enforce our rights as an investor with respect to the non-agency 

mortgage-related securities we hold, and are engaged in various efforts, in some cases in conjunction with other investors, to 

mitigate or recover losses on our investments in these securities. During 2013, we and FHFA reached settlements with a 

number of parties pursuant to which we received an aggregate of approximately $5.5 billion. In February 2014, we and FHFA

entered into an agreement with Morgan Stanley, and related parties, to settle litigation related to certain residential non-agency 

mortgage-related securities we hold. Under the agreement, we will be paid $625 million, which will be reflected in our 

consolidated financial results for the first quarter of 2014. Lawsuits against a number of parties are currently pending. The 

effectiveness of our efforts is uncertain and any potential recoveries may take significant time to realize. For more information 

on these efforts, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Non-Agency Mortgage-Related 

Security Issuers.”

Document Custodians

We use third-party document custodians to provide loan document certification and custody services for the loans that we 

purchase and securitize. In many cases, our seller/servicer customers or their affiliates also serve as document custodians for us. 

Our ownership rights to the mortgage loans that we own or that back our PCs and REMICs and Other Structured Securities 

could be challenged if a seller/servicer intentionally or negligently pledges or sells the loans that we purchased or fails to obtain 

a release of prior liens on the loans that we purchased, which could result in financial losses to us. When a seller/servicer or one 

of its affiliates acts as a document custodian for us, the risk that our ownership interest in the loans may be adversely affected is 

increased, particularly in the event the seller/servicer were to become insolvent. We seek to mitigate these risks through legal 

and contractual arrangements with these custodians that identify our ownership interest, as well as by establishing qualifying 

standards for document custodians and requiring transfer of the documents to our possession or to an independent third-party 

document custodian if we have concerns about the solvency or competency of the document custodian.

Table of Contents
144 Freddie Mac

Derivative Counterparties

We use cleared derivatives, exchange-traded derivatives, and OTC derivatives, and are exposed to institutional credit risk 

with respect to these derivatives.

• Cleared derivatives: The Dodd-Frank Act requires central clearing of many types of derivatives. Pursuant to the DoddFrank Act, the U.S. Commodity Futures Trading Commission ("CFTC") has determined that the types of interest-rate 

swaps that we use most frequently are subject to the central clearing requirement, for transactions executed or 

modified on or after June 10, 2013. We refer to these interest-rate swaps as cleared derivatives. We are required to post 

initial and variation margin with our clearing member in connection with such transactions. As a result, our exposure 

to the clearinghouse we use to clear such interest-rate derivatives, and to the clearing members that administer our 

transactions once accepted for clearing, has increased and will become more concentrated over time. However, the use 

of cleared derivatives mitigates our institutional credit risk exposure to individual counterparties because a central 

counterparty is substituted for individual counterparties, and our exposure to individual counterparties associated with 

interest-rate swaps will decrease over time due to the central clearing requirement. In addition, the CFTC has recently 

certified that certain interest-rate swaps must be traded on exchanges or comparable trading facilities beginning in 

February 2014.

• Exchange-traded derivatives: We are an active user of exchange-traded derivatives, such as Treasury and Eurodollar 

futures, and are required to post initial and variation margin with our clearing member in connection with such 

transactions. The posting of this margin exposes us to institutional credit risk in the event that our clearing member or 

the exchange’s clearinghouse fail to meet their obligations. However, the use of exchange-traded derivatives mitigates 

our institutional credit risk exposure to individual counterparties because a central counterparty is substituted for 

individual counterparties, and changes in the value of open exchange-traded contracts are settled daily via payments 

made through the financial clearinghouse established by each exchange. 

• OTC derivatives: OTC derivatives refer to those derivatives that are neither cleared derivatives nor exchange-traded 

derivatives. OTC derivatives expose us to institutional credit risk to individual counterparties, because these 

transactions are executed and settled directly between us and each counterparty, exposing us to potential losses if a 

counterparty fails to meet its contractual obligations. When our net position with a counterparty in OTC derivatives 

subject to a master netting agreement has a market value above zero (i.e., it would be an asset reported as derivative 

assets, net on our consolidated balance sheets), the counterparty is obligated to deliver collateral in the form of cash, 

securities, or a combination of both, in an amount equal to that market value (less a small unsecured “threshold” 

amount in most cases) as necessary to satisfy its net obligation to us under the master netting agreement.

We seek to manage our exposure to institutional credit risk related to our derivative counterparties using several tools, 

including:

• review and analysis of external ratings;

• standards for approving new derivative counterparties, clearinghouses, and clearing members;

• ongoing monitoring and internal analysis of our positions with, and credit rating of, each counterparty, clearinghouse, 

and clearing member;

• managing diversification mix among counterparties;

• master netting agreements and collateral agreements; and

• stress-testing to evaluate potential exposure under possible adverse market scenarios.

On an ongoing basis, we review the credit fundamentals of all of our derivative counterparties, clearinghouses, and 

clearing members to confirm that they continue to meet our internal standards. We assign internal ratings, credit capital, and 

exposure limits to each counterparty based on quantitative and qualitative analysis, which we update and monitor on a regular 

basis. We conduct additional reviews when market conditions dictate or certain events affecting an individual counterparty 

occur.

The relative concentration of our derivative exposure among our primary OTC derivative counterparties remains high as 

compared to levels experienced prior to 2009. This concentration could further increase. See “NOTE 10: COLLATERAL AND 

OFFSETTING OF ASSETS AND LIABILITIES” for additional information.

The table below summarizes our exposure to our derivative counterparties, which represents the net positive fair value of 

derivative contracts, related accrued interest and collateral held by us from our counterparties, after netting by counterparty or 

clearing member where allowable (i.e., net amounts due to us under derivative contracts which are recorded as derivative 

assets). For OTC interest-rate swaps, option-based derivatives, and foreign-currency swaps that are in an asset position, we 

hold collateral against those positions in accordance with agreed upon thresholds. The collateral posting thresholds we assign 

these counterparties depend on the credit rating of the counterparty and are based on our credit risk policies. In addition, we 

have OTC interest-rate swap, option-based derivative, and foreign-currency swap liabilities where we post collateral to 

counterparties in accordance with agreed upon thresholds. Pursuant to certain collateral agreements we have with these 

Table of Contents
145 Freddie Mac

counterparties, the collateral posting threshold we are assigned is based 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 collateral, depending on the amount of the counterparty’s exposure to Freddie Mac with respect to the 

derivative transactions. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Derivative Assets and Liabilities, Net” 

and “Table 30 — Derivative Fair Values and Maturities” for a reconciliation of fair value to the amounts presented on our 

consolidated balance sheets as of December 31, 2013, which includes both cash collateral held and posted by us, net.

Table of Contents
146 Freddie Mac

Table 66 — Derivative Counterparty Credit Exposure

As of December 31, 2013

Rating(1)

Number of

Counterparties(2)

Notional or

Contractual

Amount(3)

Total

Exposure at

Fair Value(4)

Exposure,

Net of

Collateral(5)

Weighted Average

Contractual

Maturity

(in years)

Collateral 

Posting

Threshold

(dollars in millions)

AA- 4 $ 52,687 $ 191 $ 49 4.3 $10 million or less

A+ 3 31,910 1,052 13 6.0 $1 million or less

A 9 345,824 931 110 5.1 $1 million or less

A- 1 35,935 300 16 6.7 $1 million or less

BBB+ 1 33 2 — 0.6 $ —

BBB 1 38,442 — — 5.4 $ —

Subtotal 19 504,831 2,476 188 5.2

Cleared and exchange-traded

derivatives 188,236 790 382

Commitments 18,731 61 61

Swap guarantee derivatives 3,477 — —

Other derivatives(6) 9,751 — —

Total derivatives $ 725,026 $ 3,327 $ 631

As of December 31, 2012

Rating(1)

Number of

Counterparties(2)

Notional or

Contractual

Amount(3)

Total

Exposure at

Fair Value(4)

Exposure,

Net of

Collateral(5)

Weighted Average

Contractual

Maturity

(in years)

Collateral 

Posting

Threshold

(dollars in millions)

AA- 4 $ 41,169 $ — $ — 5.6 $10 million or less

A+ 4 86,717 1,220 15 6.0 $1 million or less

A 5 343,353 734 32 5.8 $1 million or less

A- 4 148,271 6 22 5.7 $1 million or less

BBB+ 1 42,643 — — 6.0 $ —

Subtotal 18 662,153 1,960 69 5.8

Cleared and exchange-traded

derivatives 42,673 66 66

Commitments 25,530 20 20

Swap guarantee derivatives 3,628 — —

Other derivatives(6) 11,847 1 1

Total derivatives $ 745,831 $ 2,047 $ 156

(1) Ratings of our OTC interest-rate swap, options-based derivative (excluding certain written options), and foreign-currency swap derivative 

counterparties. We use the lower of S&P and Moody’s ratings to manage collateral requirements. In this table, the Moody’s rating of the legal entity is 

stated in terms of the S&P equivalent.

(2) Based on legal entities.

(3) Notional or contractual amounts are used to calculate the periodic settlement amounts to be received or paid and generally do not represent actual 

amounts to be exchanged.

(4) For each counterparty, this amount includes derivatives with a positive fair value (recorded as derivative assets, net), including the related accrued 

interest receivable/payable, when applicable. For counterparties included in the subtotal and the cleared and exchange-traded derivatives category, 

positions are shown netted at the counterparty or clearing member level, as applicable, including accrued interest receivable/payable and trade/settle 

fees.

(5) Calculated as Total Exposure at Fair Value less both cash and non-cash collateral held as determined at the counterparty level. At December 31, 2013

and 2012, $432 million and $501 million, respectively, of non-cash collateral had been posted to us. Includes amounts related to our posting of cash 

collateral in excess of our derivative liability as determined at the counterparty level. For more information about collateral we have posted in 

connection with cleared and exchange-traded derivatives, see “NOTE 10: COLLATERAL AND OFFSETTING OF ASSETS AND LIABILITIES — 

Collateral Pledged.” 

(6) Consists primarily of certain written options and certain credit derivatives. Written options do not present counterparty credit exposure because we 

receive a one-time up-front premium in exchange for giving the holder the right to execute a contract under specified terms, which generally puts us in 

a liability position.

Over time, our exposure to individual derivative counterparties varies depending on changes in fair values, which are 

affected by changes in period-end interest rates, the implied volatility of interest rates, foreign-currency exchange rates, and the 

amount of derivatives held. See “NOTE 10: COLLATERAL AND OFFSETTING OF ASSETS AND LIABILITIES — 

Table of Contents
147 Freddie Mac

Derivative Portfolio — Master Netting and Collateral Agreements” for more information about our maximum loss for 

accounting purposes and concentrations of counterparty risk related to derivative counterparties.

Approximately 94% of our counterparty credit exposure for OTC interest-rate swap, option-based, and foreign-currency 

swap derivatives was collateralized at December 31, 2013 (excluding amounts related to our posting of cash collateral in excess 

of our derivative liability as determined at the counterparty level). The remaining exposure was primarily due to exposure 

amounts below the applicable counterparty collateral posting threshold, as well as market movements during the time period 

between when a derivative was measured at fair value and the date we received the related collateral. In some instances, these 

market movements result in us having provided collateral that has fair value in excess of our obligation, which represents our 

overcollateralization exposure. Collateral is typically transferred within one business day based on the values of the related 

derivatives.

In the event an OTC derivative counterparty defaults, our economic loss may be higher than the uncollateralized 

exposure of our derivatives if we are not able to replace the defaulted derivatives in a timely and cost-effective fashion (e.g., 

due to a significant interest rate movement during the period or other factors). We could also incur economic loss if non-cash 

collateral posted to us by the defaulting counterparty and held by the custodian cannot be liquidated at prices that are sufficient 

to recover the amount of such exposure. We regularly review the market values of the securities pledged to us to manage our 

exposure to loss. When non-cash collateral is posted to us, we require collateral in excess of our exposure to satisfy the net 

obligation to us in accordance with the counterparty agreement.

As noted above, beginning with contracts executed or modified on or after June 10, 2013, the types of interest-rate swaps 

that we use most frequently became subject to the central clearing requirement. Our exposure to cleared and exchange-traded 

derivatives was $382 million and $66 million as of December 31, 2013 and 2012, respectively. 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. We are required to post margin in connection with our cleared and exchange-traded derivatives. 

At December 31, 2013, the majority of our exposure for our cleared and exchange-traded derivatives resulted from our posting 

of initial margin. 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 collateral, depending on the amount of the counterparty’s 

exposure to Freddie Mac with respect to the derivative transactions. For information about margin we have posted in 

connection with cleared and exchange-traded derivatives, see “NOTE 10: COLLATERAL AND OFFSETTING OF ASSETS 

AND LIABILITIES — Collateral Pledged.”

The total exposure on our forward purchase and sale commitments for mortgages and mortgage-related securities, treated 

as derivatives for accounting purposes, was $61 million and $20 million at December 31, 2013 and 2012, respectively. Many of 

our transactions involving forward purchase and sale commitments of mortgage-related securities, including our dollar roll 

transactions, 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 

institutional credit risk of the organization.

Selected European Sovereign and Non-Sovereign Exposures

The sovereign debt of Spain, Italy, Ireland, Portugal, Greece, and Cyprus (which we refer to herein as the “troubled 

European countries”) and the credit status of financial institutions with significant exposure to the troubled European countries 

has been adversely affected due to ongoing weaknesses in the economic and fiscal situations of those countries. 

As of December 31, 2013, we did not hold any debt issued by the governments of the troubled European countries and 

did not hold any financial instruments entered into with sovereign governments in those countries. As of that date, we also did 

not hold any debt issued by corporations or financial institutions domiciled in the troubled European countries and did not hold 

any other financial instruments entered into with corporations or financial institutions domiciled in those countries. However, 

the parent entities of three of our seller/servicers are headquartered in a troubled European country. We do not currently believe 

that our exposure to these seller/servicers is significant. For purposes of this discussion, we consider an entity to be domiciled 

in a country if its parent entity is headquartered in that country.

Our derivative portfolio and cash and other investments portfolio counterparties include a number of major European and 

non-European financial institutions. Many of these institutions operate in Europe, and we believe that all of these financial 

institutions have direct or indirect exposure to the troubled European countries. For many of these institutions, their direct and 

indirect exposures to the troubled European countries change on a daily basis. We monitor our major counterparties’ exposures 

to the troubled European countries, and adjust our exposures and risk limits to individual counterparties accordingly. Our 

exposures to derivative portfolio and cash and other investments portfolio counterparties are described in “Derivative 

Counterparties,” “Cash and Other Investments Counterparties” and “NOTE 10: COLLATERAL AND OFFSETTING OF 

ASSETS AND LIABILITIES.”

It is possible that continued adverse developments in Europe could significantly affect our counterparties that have direct 

or indirect exposure to the troubled European countries. In turn, this could adversely affect their ability to meet their obligations 

Table of Contents
148 Freddie Mac

to us. For more information, see “RISK FACTORS — Competitive and Market Risks – Our business could be adversely 

affected if counterparties to derivatives and short-term lending and other transactions fail to meet their obligations to us.”

Operational Risks

We continue to make strategic investments to maintain and improve our ability to operate the company for the foreseeable 

future in conservatorship and potentially afterwards. We also continue to strengthen our operations. Beginning in mid-2012 and 

continuing through 2013, we took steps to enhance management’s focus on control issues by elevating awareness of those 

issues across the company and stressing timely remediation. In addition, our human capital risks have abated considerably in 

recent periods, as evidenced by low voluntary turnover and vacancy rates. However, we continue to face significant levels of 

operational risk. Operational risks are inherent in all of our business activities and can become apparent in various ways, 

including accounting or operational errors, business interruptions, fraud, and failures of the technology used to support our 

business activities. We face a variety of operational risks, including those described below and in “RISK FACTORS – 

Operational Risks.”

We have faced challenges with respect to managing servicers and credit loss mitigation due to a number of factors, 

including high volumes of seriously delinquent loans and inadequate systems. We may face increased operational risk due to 

the servicing alignment initiative and other new FHFA-mandated activities, such as the initiatives we are pursuing under the 

Conservatorship Scorecard. While the servicing alignment initiative is a top priority for the company, it may pose significant 

short-term operational challenges in data management and place additional strain on existing systems, processes, and key 

resources. See “BUSINESS — Our Business Segments — Single-Family Guarantee Segment — Servicing Alignment 

Initiative” for more information. There also have been a number of legislative and regulatory developments in recent periods 

affecting single-family mortgage servicing and foreclosure practices. As a result, we may be required to make additional 

significant changes to our practices, which could further increase our operational risk.

Our business decision-making, risk management, and financial reporting are highly dependent on our use of models, 

including those developed internally and by third-parties. We face risk associated with our use of models, as there is inherent 

uncertainty associated with model results and we could fail to properly implement, operate, or use our models or model inputs. 

We also face risk that we could make poor business decisions in areas where model results are an important factor. We have 

taken certain actions to mitigate the risk to the extent possible, including efforts in the area of model oversight and governance, 

adding modeling and review resources where appropriate, and providing transparency to management over model issues and 

changes. See “RISK FACTORS — Operational Risks — We face risks and uncertainties associated with the models that we use 

for financial accounting and reporting purposes, to make business decisions, and to manage risks. Market conditions have 

raised these risks and uncertainties.”

Our information technology risk continues to decline. For example, in 2013, we completed a three-year multi-million 

dollar project to move our key legacy applications and infrastructure to current, supported technology. We are investing each 

year to maintain our technology and are focused on standardizing and simplifying the technology portfolio. We also continue 

to focus on emerging information security risks. However, our primary business processing and financial accounting systems 

lack sufficient flexibility to handle all the complexities of, and changes in, our business transactions and related accounting 

policies and methods. This requires us to rely more extensively on spreadsheets and other end-user computing systems. These 

systems could have a higher risk of operational failure and error than our primary systems which are subject to our information 

technology general controls. We believe we are mitigating this risk through active monitoring of, and improvements to, controls 

over the development and use of end-user computing systems.

We continue to work to improve our operating efficiency. In 2013, we began a multi-year project focused on simplifying 

our control structure and eliminating redundant control activities. 

In order to manage the risk of inaccurate or unreliable valuations of our financial instruments, we engage in an ongoing 

internal review of our valuations. We perform analysis of valuations on a monthly basis to confirm the reasonableness of the 

valuations. For more information on the controls in our valuation process, see “FAIR VALUE BALANCE SHEETS AND 

ANALYSIS — Consideration of Credit Risk in Our Valuation — Valuation Processes and Controls over Fair Value 

Measurement.”

We are building our out-of-region disaster recovery capabilities. However, Freddie Mac management has determined that 

current business recovery capabilities may not be effective in the event of a catastrophic regional business event (e.g., a disaster 

that affects our Northern Virginia facilities) and could result in a significant business disruption and inability to process 

transactions through normal business processes. While we are implementing a remediation plan designed to address the current 

capability gaps, any measures we take to mitigate this risk may not be sufficient to respond to the full range of catastrophic 

events that may occur. The remediation plan is designed to improve Freddie Mac’s ability to recover an acceptable level of 

critical business functionality within predetermined time frames to address regional business disruptions, such as a terrorist 

event, natural disaster, loss of infrastructure services, denial of access, and/or a pandemic. For more information, see “RISK 

FACTORS — Operational Risks — A failure in our operational systems or infrastructure, or those of third parties, could 

impair our liquidity, disrupt our business, damage our reputation, and cause losses.”

Table of Contents
149 Freddie Mac

Management, including the company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of 

the effectiveness of our internal control over financial reporting and our disclosure controls and procedures as of December 31, 

2013. As of December 31, 2013, we had one material weakness related to conservatorship, which remained unremediated, 

causing us to conclude that our internal control over financial reporting was not effective and that our disclosure controls and 

procedures were not effective at a reasonable level of assurance. In view of the mitigating actions we have undertaken related 

to the material weakness, we believe that our consolidated financial statements for the year ended December 31, 2013 have 

been prepared in conformity with GAAP. For additional information, see “CONTROLS AND PROCEDURES.”

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our business activities require that we maintain adequate liquidity to fund our operations, which include the following:

• principal payments due to the maturity, redemption or repurchase of our other debt securities;

• interest payments on our other debt securities;

• dividend obligations 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 loans from PC trusts;

• any shortfall related to the payments of principal and interest on our mortgage-related securities (i.e., debt securities 

issued by consolidated trusts), and any other payments related to our guarantees of mortgage assets; 

• any disposition costs related to our REO; 

• depending on market conditions and the mix of derivatives we employ in connection with our ongoing risk 

management activities, our derivative portfolio can be either a net source or a net use of cash. For example, depending 

on the prevailing interest-rate environment, interest-rate swap agreements could cause us either to make interest 

payments to counterparties or to receive interest payments from counterparties. Purchased options require us to pay a 

premium while written options allow us to receive a premium; 

• collateral that we are required to pledge to third parties in connection with secured financing and daily trade activities. 

In accordance with contracts with certain derivative counterparties, we post collateral for derivatives in a net loss 

position, after netting by counterparty, above agreed-upon posting thresholds. See “NOTE 10: COLLATERAL AND 

OFFSETTING OF ASSETS AND LIABILITIES” for information about assets we pledge as collateral; and

• administrative expenses.

We fund our cash needs primarily by issuing short-term and long-term debt. Other sources of cash include:

• interest and principal payments on and sales of securities or mortgage loans that we hold in our mortgage-related 

investments portfolio or cash and other investments portfolio;

• repurchase transactions with counterparties;

• management and 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. 

We believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to maintain 

our access to the debt markets and to have adequate liquidity to conduct our normal business activities. 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, 

concern that the U.S. would exhaust its borrowing authority under the statutory debt limit, and any future downgrades in our 

credit ratings or the credit ratings of the U.S. government. For more information, see “Other Debt Securities — Credit Ratings” 

and “RISK FACTORS — Competitive and Market Risks — Any downgrade in the credit ratings of the U.S. government would 

likely be followed by a downgrade in our credit ratings. A downgrade in the credit ratings of our debt could adversely affect 

our liquidity and other aspects of our business.” 

We make extensive use of the Fedwire system in our business activities. The Federal Reserve requires that we fully fund 

our account in the Fedwire system to the extent necessary to cover cash payments on our debt and mortgage-related securities 

each day, before the Federal Reserve Bank of New York, acting as our fiscal agent, will initiate such payments. We routinely 

use an open line of credit with a third party, which provides intraday liquidity to fund our activities through the Fedwire system. 

Table of Contents
150 Freddie Mac

This line of credit is an uncommitted intraday loan facility. As a result, while we expect to continue to use the facility, we may 

not be able to draw on it, if and when needed. This line of credit requires that we post collateral that, in certain circumstances, 

the secured party has the right to repledge to other third-parties, including the Federal Reserve Bank of New York. As of 

December 31, 2013, we pledged approximately $10.5 billion of securities to this secured party. See “NOTE 10: COLLATERAL

AND OFFSETTING OF ASSETS AND LIABILITIES” for further information. 

For more information on our short- and long-term liquidity needs, see “CONTRACTUAL OBLIGATIONS.”

Our securities and other obligations are not guaranteed by the U.S. government and do not constitute a debt or obligation 

of the U.S. government or any agency or instrumentality thereof, other than Freddie Mac. We continue to manage our debt 

issuances to remain in compliance with the aggregate indebtedness limits set forth in the Purchase Agreement.

Liquidity Management

Maintaining sufficient liquidity is of primary importance to and a cost of our business. Under our liquidity management 

practices and policies, we: 

• 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; and 

• 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. However, since we do not have access to the 

Federal Reserve’s discount window, it is uncertain that we would have access to liquidity when it is needed.

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 asset purchases and runoff, when financial markets are not in crisis. For further 

information on our management of interest-rate risk associated with asset and liability management, see “QUANTITATIVE 

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.”

On July 15, 2013, FHFA provided updated liquidity guidance which requires that our cash and other investments portfolio 

consist of a certain portion of short-maturity U.S. Treasury securities and deposits at the Federal Reserve Bank of New York. 

Additionally, the guidance provides that our cash and other investments portfolio may also include overnight and term 

repurchase agreements, unsecured Federal Funds, and bank certificates of deposit. During 2013, the majority of the funds used 

to cover our short-term cash liquidity needs was deposited with the Federal Reserve Bank of New York, invested in short-term 

assets with a rating of A-1/P-1 or AAA, or was issued by a counterparty with that rating. In the event of a downgrade of a 

position or counterparty, as applicable, below minimum rating requirements, we make an assessment whether to exit the 

existing position or continue to do business with the counterparty.

On February 18, 2014, FHFA issued guidelines for liquidity risk management at Freddie Mac and Fannie Mae. The 

guidelines describe the principles the companies should follow to identify, measure, monitor, and control liquidity risk.

Notwithstanding these practices and policies, our ability to maintain sufficient liquidity, including by pledging mortgagerelated 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. For 

more information, see “RISK FACTORS — Competitive and Market Risks — Our investment activities may be adversely 

affected by limited availability of financing and increased funding costs.” 

Other Debt Securities

We fund our business activities primarily through the issuance of short- and long-term debt. Competition for funding can 

vary with economic, financial market, and regulatory environments. Historically, we have mainly competed for funds in the 

debt issuance markets with Fannie Mae and the FHLBs.

To fund our business activities, we depend on the continuing willingness of investors to purchase our debt securities. The 

required reduction in our mortgage-related investments portfolio has reduced our funding needs. We expect that this trend will 

continue over time as the mortgage-related investments portfolio shrinks. Changes or perceived changes in the government’s 

support of us could have a severe negative effect on our access to the debt markets and on our debt funding costs. In addition, 

any change in applicable legislative or regulatory exemptions, including those described in “BUSINESS — Regulation and 

Supervision,” could adversely affect our access to some debt investors, thereby potentially increasing our debt funding costs.

During the three months and year ended December 31, 2013, we had sufficient access to the debt markets due largely to 

support from the U.S. government. Our effective short-term debt was 43% of outstanding other debt at December 31, 2013 as 

compared to 42% at December 31, 2012. Effective short-term debt is the aggregate of short-term debt and the current portion of 

long-term debt (the portion due within one year). The categories of short-term debt (due within one year) and long-term debt 

(due after one year) are based on the original contractual maturity of the debt instruments classified as other debt. We rely 

significantly on our ability to issue debt on an on-going basis to refinance our short-term debt.

Our debt cap under the Purchase Agreement was $780.0 billion in 2013 and declined to $663.0 billion on January 1, 

2014. As of December 31, 2013, we estimate that our aggregate indebtedness was $511.3 billion, or $268.7 billion below the 

applicable debt cap. Our aggregate indebtedness is calculated as the par value of other debt. We disclose the amount of our 

Table of Contents
151 Freddie Mac

indebtedness on this basis monthly under the caption “Other Debt Activities — Total Debt Outstanding” in our Monthly 

Volume Summary reports, which are available on our web site at www.freddiemac.com and in current reports on Form 8-K we 

file with the SEC.

Other Debt Activities

The table below summarizes the par value of other debt securities we issued or paid off, based on settlement dates, during 

2013 and 2012. We repurchase, call, or exchange our outstanding medium- and long-term debt securities from time to time for 

a variety of reasons, including: (a) to help support the liquidity and predictability of the market for our other debt securities; (b) 

to manage our mix of liabilities funding our assets; or (c) for economic reasons.

Table 67 — Activity in Other Debt

For the Year Ended December 31,

2013 2012

(dollars in millions)

Beginning balance $ 552,472 $ 674,314

Issued during the period:

Short-term:

Amount $ 297,349 $ 290,501

Weighted-average effective interest rate 0.12% 0.13%

Long-term:

Amount $ 112,220 $ 164,746

Weighted-average effective interest rate 0.98% 1.23%

Total issued:

Amount $ 409,569 $ 455,247

Weighted-average effective interest rate 0.35% 0.53%

Paid off during the period:(1)

Short-term:

Amount $ (273,513) $ (334,014)

Weighted-average effective interest rate 0.13% 0.11%

Long-term:(2)

Amount $ (177,183) $ (243,075)

Weighted-average effective interest rate 1.57% 1.89%

Total paid off:

Amount $ (450,696) $ (577,089)

Weighted-average effective interest rate 0.70% 0.86%

Ending balance $ 511,345 $ 552,472

(1) Consists of all payments on debt, including regularly scheduled principal payments, payments at maturity, payments resulting from calls, and payments 

for repurchases. Calls and repurchases of zero-coupon debt are reported at original face value, which does not equal the amount of actual cash payment.

(2) For the years ended December 31, 2013 and 2012, respectively, includes foreign exchange translation of $31 million and $7 million for foreigncurrency denominated debt.

Other Short-Term Debt

We fund our operating cash needs, in part, by issuing Reference Bills® securities and other discount notes, which are 

short-term instruments with maturities of one year or less that are sold on a discounted basis, paying only principal at maturity. 

Our Reference Bills securities program consists of large issues of short-term debt that we auction to dealers on a regular 

schedule. We issue discount notes with maturities ranging from one day to one year in response to investor demand and our 

cash needs. For purposes of presentation in this report, short-term debt also includes certain medium-term notes that have 

original maturities of one year or less.

See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Total Debt, Net” for more information about our other 

short-term debt.

Other Long-Term Debt

We issue debt with maturities greater than one year primarily through our medium-term notes program and our Reference 

Notes® securities program.

Medium-term Notes

Table of Contents
152 Freddie Mac

We issue a variety of fixed- and variable-rate medium-term notes, including callable and non-callable fixed-rate 

securities, zero-coupon securities and variable-rate securities, with various maturities ranging up to 30 years. For purposes of 

presentation in this report, medium-term notes with original maturities of one year or less are classified as short-term debt. 

Medium-term notes typically contain call provisions, effective as early as three months or as long as ten years after the 

securities are issued.

Reference Notes Securities

Reference Notes securities are regularly issued, U.S. dollar denominated, non-callable fixed-rate securities, which we 

generally issue with original maturities ranging from two through ten years. While we issued €Reference Notes® securities 

denominated in Euros in the past, our last non-U.S. dollar denominated debt matured in January 2014.

STACR

In 2013, we completed our first two STACR debt note transactions. For more information, see "RISK MANAGEMENT

— Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit Risk — Credit Enhancements" and "NOTE 8: 

DEBT AND SUBORDINATED BORROWNGS — Table 8.2 — Other Long-Term Debt."

Subordinated Debt

During 2013 and 2012, we did not call or issue any Freddie SUBS® securities. At both December 31, 2013 and 2012, the 

balance of our subordinated debt outstanding was $0.4 billion. Our subordinated debt in the form of Freddie SUBS securities is 

a component of our risk management and disclosure commitments with FHFA. See “BUSINESS — Regulation and 

Supervision — Federal Housing Finance Agency — Subordinated Debt” for a discussion of changes affecting our subordinated 

debt as a result of our placement into conservatorship and the Purchase Agreement, and the Conservator’s suspension of certain 

requirements relating to our subordinated debt. Under the Purchase Agreement, we may not issue subordinated debt without 

Treasury’s consent.

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 14, 2014.

Table 68 — Freddie Mac Credit Ratings

Nationally Recognized Statistical

Rating Organization

S&P Moody’s Fitch

Senior long-term debt(1) AA+ Aaa AAA

Short-term debt(2) A-1+ P-1 F1+

Subordinated debt(3) AA- Aa2 AAPreferred stock(4) D Ca C/RR6(5)

Outlook Stable Stable

Rating Watch 

Negative (includes AAA-rated 

long-term Issuer Default Rating)

(1) Consists of medium-term notes and U.S. dollar Reference Notes securities.

(2) Consists of Reference Bills securities and discount notes.

(3) Consists of Freddie SUBS securities.

(4) Does not include senior preferred stock issued to Treasury.

(5) Preferred stock is not on Rating Watch Negative.

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. S&P and Moody's affirmed our senior long-term debt and 

subordinated debt ratings and revised the outlooks on the ratings to stable from negative in June 2013 and July 2013, 

respectively. These actions followed S&P's and Moody's affirmation of the U.S. government's long-term debt ratings and 

revision of the rating outlooks to stable from negative. In October 2013, Fitch placed our AAA-rated long-term Issuer Default 

Rating (IDR), as well as our senior long-term debt, short-term debt and subordinated debt ratings, on Rating Watch Negative 

(RWN). This action followed Fitch’s placement of the U.S. government's debt ratings on RWN.

During 2013, there were two changes to our credit ratings. In December 2013, S&P raised our subordinated debt rating to 

‘AA-’ from ‘A’ due to the timely repayment of principal and interest on this debt since entering conservatorship and continued 

government support for our debt securities. In addition, in November 2013, S&P lowered our preferred stock rating to ‘D’ from 

‘C’ based on the fact that these securities have missed dividend payments and are expected to continue to miss dividend 

payments going forward.

For information about factors that could lead to future ratings actions, and the potential impact of a downgrade in our 

credit ratings, see “RISK FACTORS — Competitive and Market Risks — Any downgrade in the credit ratings of the U.S. 

Table of Contents
153 Freddie Mac

government would likely be followed by a downgrade in our credit ratings. A downgrade in the credit ratings of our debt could 

adversely affect our liquidity and other aspects of our business.”

A security rating is not a recommendation to buy, sell or hold securities. It may be subject to revision or withdrawal at 

any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Cash and Cash Equivalents, Federal Funds Sold, Securities Purchased Under Agreements to Resell, and Non-MortgageRelated Securities

Excluding amounts related to our consolidated VIEs, we held $77.1 billion and $47.3 billion in the aggregate of cash and 

cash equivalents, securities purchased under agreements to resell, and non-mortgage-related securities at December 31, 2013 

and 2012, respectively. These investments are important to our cash flow and asset and liability management and our ability to 

provide liquidity and stability to the mortgage market. At December 31, 2013, our non-mortgage-related securities consisted of 

Treasury notes and Treasury bills that we could sell to provide us with an additional source of liquidity to fund our business 

operations. We also maintained non-interest-bearing deposits at the Federal Reserve Bank of New York, which are included in 

cash and cash equivalents on our consolidated balance sheets. For additional information on these assets, see 

“CONSOLIDATED BALANCE SHEETS ANALYSIS — Cash and Cash Equivalents, Federal Funds Sold and Securities 

Purchased Under Agreements to Resell” and “— Investments in Securities — Non-Mortgage-Related Securities.”

Mortgage Loans and Mortgage-Related Securities

We invest principally in mortgage loans and mortgage-related securities, certain categories of which are largely 

unencumbered and highly liquid. Our primary source of liquidity among these mortgage assets is our holdings of single-class 

and multiclass agency securities. While our holdings of unsecuritized performing single-family mortgage loans, CMBS, nonagency mortgage-related securities backed by subprime, option ARM, and Alt-A and other loans, and unsecuritized seriously 

delinquent and modified single-family mortgage loans are also potential sources of liquidity, we consider them to be less liquid 

than agency securities. 

We are subject to limits on the amount of mortgage assets we can sell in any calendar month without review and approval 

by FHFA and, if FHFA so determines, Treasury. See “BUSINESS — Conservatorship and Related Matters — Limits on 

Investment Activity and Our Mortgage-Related Investments Portfolio” for more information on the relative liquidity of our 

mortgage assets.

Cash Flows

Our cash and cash equivalents increased by $2.8 billion to $11.3 billion during 2013, as compared to a decrease of $19.9 

billion to $8.5 billion during 2012 and a decrease of $8.6 billion to $28.4 billion during 2011. Cash flows provided by operating 

activities during 2013, 2012, and 2011 were $18.5 billion, $8.5 billion, and $10.3 billion, respectively, primarily driven by cash 

proceeds from net interest income. Cash flows provided by operating activities during 2013 also included settlements we 

received related to lawsuits regarding our investments in certain residential non-agency mortgage-related securities. Cash flows 

provided by investing activities during 2013, 2012, and 2011 were $391.3 billion, $494.4 billion, and $373.7 billion, 

respectively, primarily resulting from net proceeds received as a result of repayments of single-family held-for-investment 

mortgage loans. Cash flows used for financing activities during 2013, 2012, and 2011 were $407.0 billion, $522.8 billion, and 

$392.6 billion, respectively, largely attributable to funds used to repay debt securities of consolidated trusts held by third parties 

and payments of cash dividends on senior preferred stock. 

Capital Resources, the Purchase Agreement, and the Dividend Obligation on the Senior Preferred Stock

Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy and our 

management of capital. On October 9, 2008, FHFA announced that it was suspending capital classification of us during 

conservatorship in light of the Purchase Agreement. FHFA continues to monitor our capital levels, but the existing statutory and 

FHFA-directed regulatory capital requirements are not binding during conservatorship. We continue to provide submissions to 

FHFA on minimum capital. See “NOTE 18: REGULATORY CAPITAL” for our minimum capital requirement, core capital, 

and GAAP net worth results as of December 31, 2013 and 2012. In addition, notwithstanding our failure to maintain required 

capital levels, FHFA directed us to continue to make interest and principal payments on our subordinated debt. For more 

information, see “BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — Subordinated Debt.” 

Since our entry into conservatorship, Treasury and FHFA have taken a number of actions that affect our cash requirements 

and ability to fund those requirements. The conservatorship, and the resulting support we have received from Treasury, has 

enabled us to access debt funding on terms sufficient for our needs. Under the Purchase Agreement, Treasury made a 

commitment to provide us with funding, under certain conditions, to eliminate deficits in our net worth. The Purchase 

Agreement provides that, if FHFA determines as of quarter end that our liabilities have exceeded our assets under GAAP, 

Treasury will contribute funds to us in an amount equal to the difference between such liabilities and assets; a higher amount 

may be drawn if Treasury and Freddie Mac mutually agree that the draw should be increased beyond the level by which 

liabilities exceed assets under GAAP. In each case, the amount of the draw cannot exceed the maximum aggregate amount that 

may be funded under the Purchase Agreement. The amount of available funding remaining under the Purchase Agreement is 

currently $140.5 billion. This amount will be reduced by any future draws.

Table of Contents
154 Freddie Mac

At December 31, 2013, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from 

Treasury under the Purchase Agreement. In future periods, we may experience variability in our net income and/or 

comprehensive income due to changes in factors such as interest rates, yield curves, mortgage spreads, and home prices. Such 

changes could adversely affect our net worth and result in additional draws under the Purchase Agreement. The Capital Reserve 

Amount decreases from $3.0 billion for 2013 to $2.4 billion for each quarterly payment in 2014, which increases the risk that 

we may require a draw. For more information, see “RISK FACTORS — Conservatorship and Related Matters — We may 

request additional draws under the Purchase Agreement in future periods.” 

Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are and have 

been less than our obligations for a period of 60 days. Obtaining funding from Treasury pursuant to its commitment under the 

Purchase Agreement enables us to avoid being placed into receivership by FHFA. See “BUSINESS — Regulation and 

Supervision — Federal Housing Finance Agency — Receivership” for additional information on mandatory receivership.

In addition, the GSE Act requires us to set aside or allocate monies each year to certain funds managed by HUD and 

Treasury. However, FHFA has suspended this requirement. For more information, see “BUSINESS — Regulation and 

Supervision — Federal Housing Finance Agency — Affordable Housing Allocations.” We are also required under the Purchase 

Agreement to pay a quarterly commitment fee to Treasury. However, an amendment to the Purchase Agreement suspended this 

fee for each quarter commencing January 1, 2013 for as long as the net worth sweep dividend provisions are applicable. 

Based on our Net Worth Amount at December 31, 2013, our dividend obligation to Treasury in March 2014 will be 

$10.4 billion. We paid dividends of $47.6 billion in cash on the senior preferred stock during 2013. Through December 31, 

2013, we have paid aggregate cash dividends to Treasury of $71.3 billion, an amount that slightly exceeds our aggregate draws 

received under the Purchase Agreement.

At December 31, 2013, 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.

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. In addition, under the Purchase Agreement, the payment of 

dividends cannot be used to reduce prior draws from Treasury. Accordingly, while we have paid aggregate cash dividends to 

Treasury of $71.3 billion, the liquidation preference on the senior preferred stock remains $72.3 billion.

For more information on these matters, see “BUSINESS — Conservatorship and Related Matters” and “— Regulation 

and Supervision.”

FAIR VALUE BALANCE SHEETS AND ANALYSIS

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of 

certain assets and liabilities on a recurring or non-recurring basis. Fair value represents the price that would be received to sell 

an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The three levels of the fair value hierarchy under the accounting guidance for fair value measurements and disclosures 

are described below:

• Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or 

liabilities;

• Level 2: Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets 

and liabilities in markets that are not active; inputs other than quoted market prices that are observable for the asset or 

liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full 

term of the assets or liabilities; and

• Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity and that are 

significant to the fair values.

We categorize assets and liabilities recorded or disclosed at fair value within the fair value hierarchy based on the 

valuation processes used to derive their fair values and our judgment regarding the observability of the related inputs. Those 

judgments are based on our knowledge and observations of the markets relevant to the individual assets and liabilities and may 

vary based on market conditions. We review ranges of third-party prices and transaction volumes, and hold discussions with 

dealers and pricing service vendors to understand and assess the extent of market benchmarks available and the judgments or 

modeling required in their processes. Based on these factors, we determine whether the inputs are observable and whether the 

principal markets are active or inactive. For additional information regarding our classification of assets and liabilities within 

the fair value hierarchy and the valuation techniques used to measure fair value, see “NOTE 16: FAIR VALUE 

DISCLOSURES.”

Level 3 Recurring Fair Value Measurements

At December 31, 2013 and 2012, we measured and recorded: (a) 31% and 28% of total assets carried at fair value on a 

recurring basis; and (b) 11% and 7% of total liabilities carried at fair value on a recurring basis using unobservable inputs 

Table of Contents
155 Freddie Mac

(Level 3). These percentages were calculated before the impact of counterparty and cash collateral netting. 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. See “NOTE 16: FAIR VALUE 

DISCLOSURES — Changes in Fair Value Levels” for a discussion of changes in our Level 3 assets and liabilities and “—

Table 16.2 — Fair Value Measurements of Assets and Liabilities Using Significant Unobservable Inputs” for the Level 3 

reconciliation.

Consideration of Credit Risk in Our Valuation

We consider credit risk in the valuation of our assets and liabilities through consideration of credit risk of the 

counterparty in asset valuations and through consideration of our own institutional credit risk in liability valuations on our 

GAAP consolidated balance sheets.

We consider credit risk in our valuation of investments in mortgage-related securities based on fair value measurements 

that are largely the result of price quotes received from multiple dealers or pricing services. Some of the key valuation drivers 

of such fair value measurements include the collateral type, collateral performance, credit quality of the issuer, tranche type, 

weighted average life, vintage, coupon, and interest rates. We also make adjustments for items such as credit enhancements or 

other types of subordination and liquidity, where applicable. In cases where internally developed models are used, we use 

market-based inputs or calibrate such inputs to market data. For a discussion of types and characteristics of mortgage loans 

underlying our mortgage-related securities, see “Table 22 — Characteristics of Mortgage-Related Securities on Our 

Consolidated Balance Sheets” and “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family 

Mortgage Credit Risk.”

We also consider credit risk when we evaluate the valuation of our derivative positions, including the impact of 

institutional credit risk in the event that the counterparty does not honor its payment obligation. However, our fair value of 

derivatives is not adjusted for credit risk because we obtain collateral from, or post collateral to, counterparties, typically within 

one business day of the daily market value calculation. See “RISK MANAGEMENT — Credit Risk — Institutional Credit 

Risk — Derivative Counterparties” for a discussion of our counterparty credit risk.

See “NOTE 16: FAIR VALUE DISCLOSURES — Valuation Techniques for Assets and Liabilities Measured in Our 

Consolidated Balance Sheets at Fair Value” for additional information regarding the valuation of our assets and liabilities.

Valuation Processes and Controls over Fair Value Measurement

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.

See “NOTE 16: FAIR VALUE DISCLOSURES — Valuation Processes and Controls Over Fair Value Measurement” for 

additional information.

Consolidated Fair Value Balance Sheets Analysis

The consolidated fair value balance sheets in the table below are a supplemental disclosure not intended to be in 

conformity with GAAP, and present our estimates of the fair value of our assets and liabilities at December 31, 2013 and 2012. 

The valuations of financial instruments included on our consolidated fair value balance sheets are in accordance with the 

accounting guidance for fair value measurements and disclosures. In conjunction with the preparation of our consolidated fair 

value balance sheets, we use a number of financial models. See “QUANTITATIVE AND QUALITATIVE DISCLOSURES 

ABOUT MARKET RISK — Interest-Rate Risk and Other Market Risks,” and “RISK FACTORS” and “RISK 

MANAGEMENT — Operational Risks” for information concerning the risks associated with these models.

Key Components of Changes in the Fair Value of Net Assets

Our attribution of changes in the fair value of net assets relies on models, assumptions, and other measurement 

techniques that evolve over time. The following are the key components of the attribution analysis:

Core Spread Income

Core spread income on our investments in mortgage loans and mortgage-related securities is a fair value estimate of the 

net current period accrual of income from the spread between our mortgage-related investments and our other debt, calculated 

on an option-adjusted basis. OAS is an estimate of the yield spread between a given financial instrument and a benchmark 

(LIBOR, agency or Treasury) yield curve, after consideration of potential variability in the instrument’s cash flows resulting 

from any options embedded in the instrument, such as prepayment options.

Changes in Mortgage-To-Debt OAS

The fair value of our net assets can be significantly affected from period to period by changes in the net OAS between the 

mortgage and agency debt sectors. The fair value impact of changes in OAS for a given period represents an estimate of the net 

unrealized increase or decrease in fair value of net assets arising from net fluctuations in OAS during that period.

Table of Contents
156 Freddie Mac

Changes in Interest-Rate Risk

Changes in interest-rate risk represents the estimated net increase or decrease in the fair value of net assets resulting from 

net modeled exposures related to changes in the interest-rate risks we actively manage. The interest-rate risks to which we are 

exposed as a result of our investment activities that we actively manage include duration and convexity risks, yield curve risk, 

and volatility risk.

We seek to manage these risk exposures within prescribed limits as part of our overall investment strategy. Taking these 

risk positions and managing them within established limits is an integral part of our investment activity. See “QUANTITATIVE 

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — Interest-Rate Risk and Other Market Risks” for more 

information.

Change in the Fair Value of Credit Guarantee Activities

Change in the fair value of credit guarantee activities represents the estimated impact on the fair value of the credit 

guarantee business resulting from changes in the amount of such business we conduct plus the effect of changes in interest 

rates, projections of the future credit outlook and other market factors (e.g., impact of the passage of time on cash flow 

discounting). Our estimated fair value of credit guarantee activities will change as credit conditions change.

Limitations

Our consolidated fair value balance sheets do not capture all elements of value that are implicit in our operations as a 

going concern because they only capture the values of the current investment and guarantee portfolios as of the dates presented. 

For example, our consolidated fair value balance sheets do not capture the value of new investment and guarantee business that 

would likely replace current business (for example, as prepayments and other liquidations occur), nor do they include any 

estimation of intangible or goodwill values. Thus, the fair value of net assets presented on our consolidated fair value balance 

sheets does not represent an estimate of our net realizable, liquidation, or market value as a whole. Furthermore, amounts we 

ultimately realize from the disposition of assets or settlement of liabilities may vary significantly from the fair values presented.

Judgments, assumptions and methodologies used by management may have a significant effect on our measurements of 

fair value, and the use of different judgments, assumptions and methodologies, as well as changes in market conditions, could 

have a material effect on the fair value of net assets presented on our consolidated fair value balance sheets. For example, the 

fair value of certain financial instruments is based on our current principal market (i.e., the market with the greatest volume and 

level of activity for the financial instruments) as of the dates presented. As market conditions change or new markets evolve, 

our principal market may change, which could significantly affect the fair value of those instruments.

We report certain assets and liabilities that are not financial instruments, such as property and equipment, REO, and our 

net deferred tax assets, as well as certain financial instruments that are not subject to the disclosure requirements in the 

accounting guidance for financial instruments, such as pension liabilities, at their carrying amounts on our consolidated fair 

value balance sheets. We do not believe these items have a significant impact on our overall fair value results. Other nonfinancial assets and liabilities on our consolidated balance sheets represent deferrals of costs and revenues that are amortized, 

such as deferred debt issuance costs and deferred fees. Cash receipts and payments related to these items are generally 

recognized in the fair value of net assets when received or paid, with no basis reflected on our consolidated fair value balance 

sheets.

Our senior preferred stock held by Treasury in connection with the Purchase Agreement is recorded at the stated 

liquidation preference for purposes of the consolidated fair value balance sheets, which is the same as the carrying value in our 

consolidated balance sheets, and may not reflect fair value. As the senior preferred stock is restricted as to its redemption, we 

consider the liquidation preference to be the most appropriate measure for purposes of the consolidated fair value balance 

sheets.

Table of Contents
157 Freddie Mac

Table 69 — Consolidated Fair Value Balance Sheets

December 31,

2013 2012

Carrying

Amount(1)

Fair

Value

Carrying

Amount(1)

Fair

Value

(in billions)

Assets

Cash and cash equivalents $ 11.3 $ 11.3 $ 8.5 $ 8.5

Restricted cash and cash equivalents 12.2 12.2 14.6 14.6

Federal funds sold and securities purchased under agreements to resell 62.4 62.4 37.6 37.6

Investments in securities:

Available-for-sale, at fair value 128.9 128.9 174.9 174.9

Trading, at fair value 23.4 23.4 41.5 41.5

Total investments in securities 152.3 152.3 216.4 216.4

Mortgage loans:

Mortgage loans held by consolidated trusts 1,529.9 1,507.7 1,495.9 1,540.1

Unsecuritized mortgage loans 154.9 138.2 190.4 167.6

Total mortgage loans 1,684.8 1,645.9 1,686.3 1,707.7

Derivative assets, net 1.1 1.1 0.7 0.7

Other assets 42.0 42.0 25.8 25.8

Total assets $ 1,966.1 $ 1,927.2 $ 1,989.9 $ 2,011.3

Liabilities

Debt, net:

Debt securities of consolidated trusts held by third parties $ 1,434.0 $ 1,436.9 $ 1,419.5 $ 1,487.1

Other debt 506.8 512.8 547.5 565.6

Total debt, net 1,940.8 1,949.7 1,967.0 2,052.7

Derivative liabilities, net 0.2 0.2 0.2 0.2

Other liabilities 12.2 18.5 13.8 16.7

Total liabilities 1,953.2 1,968.4 1,981.0 2,069.6

Net assets

Senior preferred stock 72.3 72.3 72.3 72.3

Preferred stock 14.1 4.4 14.1 0.9

Common stock (73.5) (117.9) (77.5) (131.5)

Total net assets 12.9 (41.2) 8.9 (58.3)

Total liabilities and net assets $ 1,966.1 $ 1,927.2 $ 1,989.9 $ 2,011.3

(1) Equals the amount reported on our GAAP consolidated balance sheets.

Discussion of Fair Value Results

The table below summarizes the change in the fair value of net assets for 2013.

Table 70 — Summary of Change in the Fair Value of Net Assets

2013

(in billions)

Beginning balance $ (58.3)

Changes in fair value of net assets, before capital transactions 64.7

Subtotal - balance before 2013 capital transactions 6.4

Capital transactions:

Dividends and share issuances, net(1) (47.6)

Ending balance $ (41.2)

(1) We did not receive funds from Treasury during 2013 under the Purchase Agreement.

Table of Contents
158 Freddie Mac

During 2013, the fair value of net assets, before capital transactions, increased by $64.7 billion. The increase in the fair 

value of net assets, before capital transactions, during 2013 was primarily due to: (a) the release of our valuation allowance 

against our net deferred tax assets; (b) an increase in the fair value of our single-family mortgage loans as the result of 

continued improvement in the credit environment and home prices, partially offset by the effect of a change in estimate related 

to enhancements implemented to align our economic capital methodology with external capital benchmarks; (c) a benefit from 

settlements related to lawsuits regarding our investments in certain non-agency single-family mortgage-related securities; (d) a 

benefit from representation and warranty settlements related to pre-conservatorship loan origination activity; and (e) high 

estimated core spread income on our mortgage-related securities and a tightening of OAS levels on our non-agency singlefamily mortgage-related securities. See “Table 69 — Consolidated Fair Value Balance Sheets” for additional details.

When the OAS on a given asset widens, the fair value of that asset will typically decline, all other market factors being 

equal. However, we believe such OAS widening has the effect of increasing the likelihood that, in future periods, we will 

recognize income at a higher spread on this existing asset. The reverse is true when the OAS on a given asset tightens — 

current period fair values for that asset typically increase due to the tightening in OAS, while future income recognized on the 

asset is more likely to be earned at a reduced spread. However, as market conditions change, our estimate of expected fair value 

gains and losses from OAS may also change, and the actual core spread income recognized in future periods could be 

significantly different from current estimates.

OFF-BALANCE SHEET ARRANGEMENTS

We enter into certain business arrangements that are not recorded on our consolidated balance sheets or may be recorded 

in amounts that differ from the full contract or notional amount of the transaction and that may expose us to potential losses in 

excess of the amounts recorded on our consolidated balance sheets.

Securitization Activities and Other Guarantee Commitments

We have certain off-balance sheet arrangements related to our securitization activities involving guaranteed mortgages 

and mortgage-related securities, though most of our securitization activities are on-balance sheet. Our off-balance sheet 

arrangements related to these securitization activities primarily consist of: (a) Freddie Mac mortgage-related securities backed 

by multifamily loans (e.g., K Certificates); and (b) certain single-family Other Guarantee Transactions. We also have offbalance sheet arrangements related to other guarantee commitments, including long-term standby commitments and liquidity 

guarantees.

We guarantee the payment of principal and interest on non-consolidated Freddie Mac guaranteed mortgage-related 

securities we issue and on mortgage loans covered by our other guarantee commitments. Our maximum potential off-balance 

sheet exposure to credit losses relating to these securitization activities and the other guarantee commitments is primarily 

represented by the UPB of the underlying loans and securities, which was $101.0 billion and $74.2 billion at December 31, 

2013 and December 31, 2012, 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 $10.0 billion and $10.2 billion at December 31, 2013 and December 31, 2012, 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. In addition, as part of the HFA initiative, we, together with Fannie Mae, provide liquidity guarantees 

for certain variable-rate single-family and multifamily housing revenue bonds, under which Freddie Mac generally is obligated 

to purchase 50% of any tendered bonds that cannot be remarketed within five business days. At December 31, 2013 and 

December 31, 2012, 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 insurance with third parties. In addition, we provide for incurred losses each period on 

these guarantees within our provision for credit losses. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — 

Housing Finance Agency Initiative” and “NOTE 14: FINANCIAL GUARANTEES” for more information on our off-balance 

sheet securitization activities and other guarantee commitments.

Other Agreements

We own interests in numerous entities that are considered to be VIEs for which we are not the primary beneficiary and 

which we do not consolidate in accordance with the accounting guidance for the consolidation of VIEs. These VIEs relate 

primarily to our investment activity in mortgage-related assets and non-mortgage assets, and include LIHTC partnerships, 

certain Other Guarantee Transactions, and certain asset-backed investment trusts. Our consolidated balance sheets reflect only 

our investment in the VIEs, rather than the full amount of the VIEs’ assets and liabilities. See “NOTE 3: VARIABLE 

INTEREST ENTITIES” for additional information related to our variable interests in these VIEs.

As part of our credit guarantee business, we routinely enter into forward purchase and sale commitments for mortgage 

loans and mortgage-related securities. Some of these commitments are accounted for as derivatives. Their fair values are 

reported as either derivative assets, net or derivative liabilities, net on our consolidated balance sheets. For more information, 

Table of Contents
159 Freddie Mac

see “RISK MANAGEMENT — Credit Risk — Institutional Credit Risk — Derivative Counterparties.” We also enter into 

purchase commitments primarily related to future guarantor swap transactions for single-family loans, and, to a lesser extent, 

commitments to purchase or guarantee multifamily mortgage loans. These non-derivative commitments totaled $289.7 billion 

and $291.5 billion, in notional value at December 31, 2013 and 2012, respectively.

In connection with the execution of the Purchase Agreement, we, through FHFA, in its capacity as Conservator, issued a 

warrant to Treasury to purchase 79.9% of our common stock outstanding on a fully diluted basis on the date of exercise. See 

“NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT)” for further information.

CONTRACTUAL OBLIGATIONS

The table below provides aggregated information about the listed categories of our contractual obligations as of 

December 31, 2013. These contractual obligations affect our short- and long-term liquidity and capital resource needs. The 

table includes information about undiscounted future cash payments due under these contractual obligations, aggregated by 

type of contractual obligation, including the contractual maturity profile of our debt securities (other than debt securities of 

consolidated trusts held by third parties). The timing of actual future payments may differ from those presented due to a number 

of factors, including discretionary debt repurchases. Our contractual obligations include other purchase obligations that are 

enforceable and legally binding, and exclude contracts that we may cancel at will without penalty. For purposes of this table, 

purchase obligations are included through the termination date specified in the respective agreement, even if the contract is 

renewable.

In the table below, the amounts of future interest payments on debt securities outstanding at December 31, 2013 are based 

on the contractual terms of our debt securities at that date. These amounts were determined using certain assumptions 

including, that: (a) variable-rate debt continues to accrue interest at the contractual rates in effect at December 31, 2013 until 

maturity; and (b) callable debt continues to accrue interest until its contractual maturity. The amounts of future interest 

payments on debt securities presented do not reflect certain factors that will change the amounts of interest payments on our 

debt securities after December 31, 2013, such as: (a) changes in interest rates; (b) the call or retirement of any debt securities; 

and (c) the issuance of new debt securities. Accordingly, the amounts presented in the table do not represent a forecast of our 

future cash interest payments or interest expense.

The table below excludes certain obligations that could significantly affect our short- and long-term liquidity and capital 

resource needs. These items, which are listed below, have generally been excluded because the amount and timing of the 

related future cash payments are uncertain:

• future payments related to debt securities of consolidated trusts held by third parties, because the amount and timing of 

such payments are generally contingent upon the occurrence of future events and are therefore uncertain. These 

payments generally include payments of principal and interest we make to the holders of our guaranteed mortgagerelated securities in the event a loan underlying a security becomes delinquent. We also remove mortgages from pools 

underlying our PCs in certain circumstances, including when loans are 120 days or more delinquent, and retire the 

associated PC debt;

• any future cash payments associated with the liquidation preference of the senior preferred stock, as well as the 

quarterly commitment fee (which has been suspended) and the dividends on the senior preferred stock because the 

timing and amount of any such future cash payments are uncertain. As of December 31, 2013, the aggregate liquidation 

preference of the senior preferred stock was $72.3 billion. See “BUSINESS — Conservatorship and Related Matters — 

Treasury Agreements” for additional information;

• future cash settlements on derivative agreements not yet accrued, because the amount and timing of such payments are 

dependent upon changes in the underlying financial instruments in response to items such as changes in interest rates 

and are therefore uncertain;

• future dividends on the preferred stock we have issued (other than the senior preferred stock), because dividends on 

these securities are non-cumulative and because we are currently prohibited from paying dividends on these securities;

• the guarantee arrangements pertaining to multifamily housing revenue bonds, where we provided commitments to 

advance funds, commonly referred to as “liquidity guarantees,” because the amount and timing of such payments are 

generally contingent upon the occurrence of future events and are therefore uncertain; and

• future cash contributions to our Pension Plan, as the plan is currently over-funded and benefit accruals ceased at the end 

of 2013. See "EXECUTIVE COMPENSATION — Pension Plan" and "EXECUTIVE COMPENSATION — 

Supplemental Executive Retirement Plan — Pension SERP Benefit" for additional information on our Pension Plan.

Table of Contents
160 Freddie Mac

Table 71 — Contractual Obligations by Year at December 31, 2013

Total 2014 2015 2016 2017 2018 Thereafter

(in millions)

Long-term debt(1) $ 369,578 $ 78,115 $ 70,303 $ 63,564 $ 51,908 $ 33,418 $ 72,270

Short-term debt(1) 141,767 141,767 — — — — —

Interest payable(2) 39,829 12,329 5,656 4,558 3,235 2,195 11,856

Other liabilities reflected on our

consolidated balance sheet:

Other contractual liabilities(3)(4) 1,581 923 8 8 9 7 626

Purchase obligations:

Purchase commitments(5) 13,002 13,002 — — — — —

Other purchase obligations(6) 198 134 33 15 6 2 8

Operating lease obligations 29 13 6 6 2 1 1

Total specified contractual obligations $ 565,984 $ 246,283 $ 76,006 $ 68,151 $ 55,160 $ 35,623 $ 84,761

(1) Represents par value. Callable debt is included in this table at its contractual maturity. For additional information about our debt, see “NOTE 8: DEBT

SECURITIES AND SUBORDINATED BORROWINGS.”

(2) Includes estimated future interest payments on our short-term and long-term debt securities as well as the accrual of periodic cash settlements of 

derivatives, netted by counterparty. Also includes accrued interest payable recorded on our consolidated balance sheet, which consists primarily of the 

accrual of interest for our PCs and certain Other Guarantee Transactions, and the accrual of interest on short-term and long-term debt.

(3) Includes obligations related to our non-qualified defined benefit plan, qualified and non-qualified defined contribution plans, retiree medical plan, and 

other benefit plans.

(4) Other contractual liabilities include future cash payments due under our contractual obligations to make delayed equity contributions to LIHTC 

partnerships and payables to the consolidated trusts established for the administration of cash remittances received related to the underlying assets of 

Freddie Mac mortgage-related securities.

(5) Purchase commitments represent our obligations to purchase mortgage loans and mortgage-related securities from third parties. The majority of 

purchase commitments included in this caption are accounted for as derivatives in accordance with the accounting guidance for derivatives and 

hedging.

(6) Primarily includes unconditional purchase obligations that are legally binding and that are subject to a cancellation penalty. Does not include contracts 

that we may cancel at will without penalty.

CRITICALACCOUNTING 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: (a) the allowance for loan losses and the reserve for guarantee 

losses; (b) fair value measurements; (c) impairment recognition on investments in securities; and (d) our ability to realize net 

deferred tax assets. For additional information about our critical accounting policies and estimates and other significant 

accounting policies, as well as recently issued accounting guidance, see “NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES.” 

Allowance for Loan Losses and Reserve for Guarantee Losses

The allowance for loan losses and the reserve for guarantee losses represent estimates of probable incurred credit losses. 

The allowance for loan losses pertains to all single-family and multifamily loans classified as held-for-investment on our 

consolidated balance sheets, whereas the reserve for guarantee losses relates to single-family and multifamily loans underlying 

our non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments. We use the same 

methodology to determine our allowance for loan losses and reserve for guarantee losses, as the relevant factors affecting credit 

risk are the same. Collectively, we refer to our allowance for loan losses and our reserve for guarantee losses as our loan loss 

reserves. 

Determining the appropriateness of the loan loss reserves is a complex process that is subject to numerous estimates and 

assumptions requiring significant management judgment about matters that involve a high degree of subjectivity. 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 and loss severity on single-family loans. We regularly evaluate the underlying estimates and 

models we use when determining loan loss reserves and update our assumptions to reflect our historical experience and current 

view of economic factors. See “RISK FACTORS — Operational Risks — We face risks and uncertainties associated with the 

Table of Contents
161 Freddie Mac

models that we use for financial accounting and reporting purposes, to make business decisions, and to manage risks. Market 

conditions have raised these risks and uncertainties.”

We believe the level of our loan loss reserves is appropriate based on internal reviews of the factors and methodologies 

used. No single statistic or measurement determines the appropriateness of the loan loss reserves. Changes in one or more of 

the estimates or assumptions used to calculate the loan loss reserves could have a material impact on the loan loss reserves and 

provision for credit losses.

Single-Family Loan Loss Reserves

Most single-family loans are aggregated into pools based on similar risk characteristics and measured collectively using a 

statistically based model that evaluates a variety of factors affecting collectability, including but not limited to: (a) estimated 

current LTV ratios; (b) loan product type; (c) delinquency/default status and history; and (d) geographic location. Inputs used 

by the model are regularly updated for changes in the underlying data, assumptions, and market conditions. We consider the 

output of this model, together with other information such as our expectations with respect to the following: (a) future levels of 

loan modifications; (b) future repurchases by seller/servicers of loans; (c) the adequacy of third-party credit enhancements; (d) 

the effects of changes in government policies and programs; (e) the effects of macroeconomic variables such as rates of 

unemployment; and (f) the effects of home price changes on borrower behavior. 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 insurance counterparties, 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.

Multifamily Loan Loss Reserves

To determine loan loss reserves for the multifamily loan portfolio, including determining which loans are individually 

impaired, we consider all available evidence including, but not limited to, operating cash flows from the underlying property as 

represented by its current DSCR, the fair value of collateral underlying the loans, evaluation of the repayment prospects, the 

expected adequacy of third-party credit enhancements, year of origination, certain macroeconomic data, and available 

economic data related to multifamily real estate, including apartment vacancy and rental rates.

Multifamily loans evaluated collectively for impairment are aggregated into book year vintages and measured by 

benchmarking published historical commercial mortgage data to those vintages based upon some of the factors listed above.

Individually impaired multifamily loans are generally measured for impairment based on the fair value of the underlying 

collateral, as reduced by estimated disposition costs, as multifamily loans are generally collateral-dependent and most 

multifamily loans are non-recourse to the borrower. As a result, the cash flows of the underlying property (including any 

associated credit enhancements) serve as the source of funds for repayment of the loan.

Fair Value Measurements

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of 

certain assets and liabilities on a recurring or non-recurring basis. Assets and liabilities within our consolidated financial 

statements measured at fair value include: (a) mortgage-related and non-mortgage related securities; (b) mortgage loans heldfor-sale; (c) derivative instruments; (d) certain debt securities of consolidated trusts held by third parties and certain other debt; 

and (e) REO. The accounting guidance for fair value measurements and disclosures defines fair value, establishes a framework 

for measuring fair value, and sets forth disclosure requirements regarding fair value measurements. This accounting guidance 

also establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value 

based on the assumptions a market participant would use at the measurement date. Fair value measurements under this 

hierarchy are distinguished among quoted market prices, observable inputs, and unobservable inputs. The measurement of fair 

value requires management to make judgments and assumptions. The process for determining fair value using unobservable 

inputs is generally more subjective and involves a higher degree of management judgment and assumptions than the 

measurement of fair value using observable inputs. These judgments and assumptions may have a significant effect on our 

measurements of fair value, and the use of different judgments and assumptions, as well as changes in market conditions, could 

have a material effect on our consolidated statements of comprehensive income and consolidated balance sheets. See 

“NOTE 16: FAIR VALUE DISCLOSURES” and “FAIR VALUE BALANCE SHEETS AND ANALYSIS” for additional 

information regarding fair value hierarchy and measurements.

Impairment Recognition on Investments in Securities

We evaluate available-for-sale securities in an unrealized loss position as of the end of each quarter for other-thantemporary impairment. An unrealized loss exists when the fair value of an individual security is less than its amortized cost 

basis. As discussed further below, certain other-than-temporary impairment losses are recognized in earnings. 

Table of Contents
162 Freddie Mac

If we intend to sell the security or believe it is more likely than not that we will be required to sell the security prior to 

recovery of its amortized cost basis, the security’s entire decline in fair value is deemed to be other-than-temporary and is 

recorded within our consolidated statements of comprehensive income as net impairment of available-for-sale securities 

recognized in earnings. If we do not intend to sell the security and we believe it is not more likely than not that we will be 

required to sell prior to recovery of the security’s unrealized loss, we recognize only the credit component of other-thantemporary 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 the 

amortized cost basis of the security.

The evaluation of whether unrealized losses on available-for-sale securities are other-than-temporary requires significant 

management judgments and assumptions and consideration of numerous factors. We perform an evaluation on a security-bysecurity 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. See “NOTE 7: 

INVESTMENTS IN SECURITIES — Impairment Recognition on Investments in Securities” and “CONSOLIDATED 

BALANCE SHEETS ANALYSIS — Investments in Securities” for more information on impairment recognition on securities.

We believe our judgments and assumptions used in our evaluation of other-than-temporary impairment are reasonable. 

However, different judgments or assumptions could have resulted in materially different recognition of other-than-temporary 

impairment. It is possible that the losses we ultimately realize could be significantly higher or lower than the losses we have 

recognized to date in our consolidated statements of comprehensive income.

Realizability of Deferred Tax Assets, Net

Deferred tax assets reflect timing differences between the recognition of income/expenses for financial reporting purposes 

and the recognition of income/expenses for tax reporting purposes. Deferred tax assets are created when: (a) expenses are 

recognized for financial reporting purposes prior to the corresponding recognition of expenses for tax reporting purposes; and/

or (b) income is recognized for tax reporting purposes prior to the corresponding recognition of income for financial reporting 

purposes. The realization of these net deferred tax assets is dependent upon the generation of sufficient taxable income of the 

appropriate character (i.e., ordinary income or capital gains) in the available carryback and carryforward years under the tax 

law, which would include reversals of existing taxable temporary differences and liabilities associated with unrecognized tax 

benefits. Valuation allowances are recorded to reduce net deferred tax assets 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 on our net deferred tax asset. 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 deferred tax assets will be realized. In conducting our assessment, we evaluate all available 

objective evidence including, but not limited to: (a) our three-year cumulative income position; (b) the trend of our financial 

and tax results; (c) the amount of taxable income reported in our federal income tax return; (d) our tax net operating loss and 

tax credit carryforwards and the length of carryforward periods available to utilize these assets under current tax law; and (e) 

our access to capital under the agreements associated with conservatorship. Furthermore, we evaluate all available subjective 

evidence including, but not limited to: (a) difficulty in predicting unsettled circumstances related to the conservatorship; (b) our 

estimated taxable income; and (c) forecasts of future book and tax income. Our consideration of the evidence requires 

significant judgment regarding estimates and assumptions that are inherently uncertain, particularly about our future business 

structure and financial results. 

We are not permitted to consider the impacts proposed legislation may have on our business operations or the mortgage 

industry in our analysis because the timing and certainty of those actions are unknown and beyond our control. 

During 2013, we concluded that it was more likely than not that our deferred tax assets would be realized and we released 

the valuation allowance against our net deferred tax assets. In future quarters we will continue to evaluate our ability to realize 

our net deferred tax assets. If evidence in future periods changes such that it is more likely than not that part or all of the net 

deferred tax assets will not be realized, we will reestablish a valuation allowance at that time. For more information see 

“NOTE 12: INCOME TAXES.” 

RISK MANAGEMENT AND DISCLOSURE COMMITMENTS

In October 2000, we announced our adoption of a series of commitments designed to enhance market discipline, liquidity 

and capital. In September 2005, we entered into a written agreement with FHFA, then OFHEO, that updated these 

commitments and set forth a process for implementing them. A copy of the letters between us and OFHEO dated September 1, 

2005 constituting the written agreement has been filed as an exhibit to our Registration Statement on Form 10, filed with the 

SEC on July 18, 2008, and is available on the Investor Relations page of our web site at www.freddiemac.com/investors/

sec_filings/index.html.

In November 2008, FHFA suspended our periodic issuance of subordinated debt disclosure commitment during the term 

of conservatorship and thereafter until directed otherwise. In March 2009, FHFA suspended the remaining disclosure 

commitments under the September 1, 2005 agreement until further notice, except that: (a) FHFA will continue to monitor our 

Table of Contents
163 Freddie Mac

adherence to the substance of the liquidity management and contingency planning commitment through normal supervision 

activities; and (b) we will continue to provide interest-rate risk and credit risk disclosures in our periodic public reports. 

Our monthly average PMVS results, duration gap, and related disclosures are provided in our Monthly Volume Summary 

reports, which are available on our web site, www.freddiemac.com and in current reports on Form 8-K we file with the SEC. 

For disclosures concerning our PMVS and duration gap, see “QUANTITATIVE AND QUALITATIVE DISCLOSURES 

ABOUT MARKET RISK — Interest-Rate and Other Market Risks — PMVS and Duration Gap.” For disclosures concerning 

credit risk sensitivity, see “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Credit Risk Sensitivity.”

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest-Rate Risk and Other Market Risks

Our mortgage-related investments portfolio (i.e., mortgage loans and mortgage-related securities), non-mortgage 

investments, and unsecured debt expose us to interest-rate risk and other market risks, including basis and spread risk, and 

prepayment risk arising from credit risk primarily: (a) from the uncertainty as to when borrowers will pay the outstanding 

principal balance of mortgage loans and mortgage-related securities; and (b) unexpected prepayments or differences in 

expected cash flows due to default of the underlying borrower or modification of loan terms by the servicer. For a majority of 

our mortgage-related investments, the mortgage borrower has the option to make unscheduled payments of additional principal 

or to completely pay off a mortgage loan at any time before its scheduled maturity date (without having to pay a prepayment 

penalty) or make principal payments in accordance with their contractual obligation. For more information on credit risk, see 

"MD&A — RISK MANAGEMENT — Credit Risk."

Our credit guarantee activities also expose us to interest-rate risk because changes in interest rates can cause fluctuations 

in the fair value of our existing credit guarantees. We generally do not hedge these changes in fair value except for interest-rate 

exposure related to buy-ups and float. Float, which arises from timing differences between when the borrower makes principal 

payments on the loan and the reduction of the PC balance, can lead to significant interest expense if the interest rate paid to a 

PC investor is higher than the reinvestment rate earned by the securitization trusts on payments received from mortgage 

borrowers and paid to us as trust management income.

Changes in prepayments, defaults, basis and spreads, or unexpected prepayments could result in significant economic 

losses and have an adverse impact on earnings and net worth. In addition, these risks could result in realized losses upon the 

sale of assets. While we manage interest-rate risk, we have limited ability to manage basis and spread risk. We use derivatives 

as an important part of our strategy to manage interest-rate and prepayment risk. When determining to use derivatives to 

mitigate our exposures, we consider a number of factors, including cost, exposure to counterparty risks, and our overall risk 

management strategy. See “MD&A — RISK MANAGEMENT — Credit Risk — Institutional Credit Risk” and “RISK 

FACTORS” for a discussion of our market risk exposures, including those related to derivatives, institutional counterparties, 

and other market risks.

Interest-Rate Risk Management Strategy and Framework

We employ a risk management framework, using the fair value of financial instruments, that seeks 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: We may acquire or structure mortgage-related securities with certain expected 

prepayment and other characteristics;

• callable and non-callable unsecured debt; and 

• interest rate derivatives, including swaptions and swaps. 

To maintain our interest-rate risk exposure across a range of interest-rate scenarios within our risk limits, we analyze the 

interest-rate sensitivity of financial assets and liabilities at the instrument level on a daily basis and across a variety of interest 

rate scenarios. For risk management purposes, the interest-rate characteristics of each instrument are determined daily based on 

market prices and models. The fair values of our assets, liabilities and derivatives are primarily based on either third-party 

prices, or observable market-based inputs. For more information, see “NOTE 16: FAIR VALUE DISCLOSURES — Valuation 

Processes and Controls over Fair Value Measurement.”

Annually, the Business and Risk Committee of our Board of Directors establishes certain Board limits for interest-rate 

risk measures, and if we exceed these limits we are required to notify the Business and Risk Committee and address the limit 

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. Also, on an annual basis, our 

Enterprise Risk Management division establishes management limits and makes recommendations with respect to the limits to 

be established at the Board level. These limits are reviewed by our Enterprise Risk Management Committee, which is 

responsible for reviewing performance as compared to the established limits. The management limits are set at values below 

those set at the Board level, which is intended to allow us to follow a series of predetermined actions in the event of a breach of 

the management limits and helps ensure proper oversight to reduce the possibility of exceeding the Board limits. 

Table of Contents
164 Freddie Mac

The principal types of interest-rate risk and other market risks to which we are exposed are described below.

Duration Risk and Convexity Risk

Duration is a measure of a financial instrument’s price sensitivity to a 100 basis point change in interest rates along the 

yield curve (expressed in percentage terms). Convexity is a measure of how much a financial instrument’s duration changes as 

interest rates change. Similar to the duration calculation, we compute each instrument’s convexity by applying the shock, both 

upward and downward, to the LIBOR curve and evaluating the impact on the duration. Currently, short-term interest rates are at 

historically low levels and, at some points, the LIBOR curve is less than 25 basis points. As a result, the basis point shock to the 

LIBOR curve described above is bounded by zero. Our convexity risk primarily results from prepayment risk.

Yield Curve Risk

Yield curve risk is the risk that non-parallel shifts in the yield curve (such as a flattening or steepening) will adversely 

affect the fair value of net assets and ultimately adversely affect our net worth. Because changes in the shape, or slope, of the 

yield curve often arise due to changes in the market’s expectation of future interest rates at different points along the yield 

curve, we evaluate our exposure to yield curve risk by examining potential reshaping scenarios at various points along the yield 

curve. Our yield curve risk under a specified yield curve scenario is reflected in our PMVS-YC disclosure.

Volatility Risk

Volatility risk is the risk that changes in the market’s expectation of the magnitude of future variations in interest rates 

will adversely affect the fair value of net assets and ultimately adversely affect our net worth. Volatility risk arises from the 

prepayment risk that is inherent in mortgages or mortgage-related securities. In general, as expected future interest rate 

volatility increases, the homeowner’s prepayment option increases in value, thus negatively impacting the value of the 

mortgage security backed by the underlying mortgages. We manage volatility risk by maintaining a portfolio of callable debt, 

without a related swap, and option-based interest rate derivatives. We actively manage and monitor our volatility risk exposure 

over a range of changing interest rate scenarios.

Basis Risk

Basis risk is the risk that interest rates in different market sectors will not move in tandem and will adversely affect the 

fair value of net assets and ultimately adversely affect our net worth. This risk arises principally because the mortgage-related 

investments generally do not move in tandem with our financial liabilities and derivatives. We are continually exposed to 

significant basis risk, also referred to as mortgage-to-debt OAS risk or spread risk, arising from funding mortgage-related 

investments with debt securities. See “MD&A — FAIR VALUE BALANCE SHEETS AND ANALYSIS — Consolidated Fair 

Value Balance Sheets Analysis — Key Components of Changes in Fair Value of Net Assets — Changes in Mortgage-To-Debt 

OAS” for additional information. We also incur basis risk when we use LIBOR- or Treasury-based instruments in our risk 

management activities.

Model Risk

Models, including mortgage prepayment models, interest rate models, home price models, mortgage default models, and 

model adjustments based on new information or changes in conditions, are an integral part of our investment framework. As 

market conditions change rapidly, the assumptions that we use in our models for our sensitivity analyses (including PMVS and 

duration gap measures) may not keep pace with these market changes. As such, these analyses are not intended to provide 

precise forecasts of the effect a change in market interest rates would have on the estimated fair values of our assets. We 

manage our model risk by reviewing the performance of our models. To improve the accuracy of our models, changes to the 

underlying assumptions or modeling techniques are made on a periodic basis. Model development and model testing are 

reviewed and approved independently by our Enterprise Risk Management division. Model performance is also reported 

regularly through a series of internal management committees. See “MD&A — RISK MANAGEMENT — Operational Risks” 

and “RISK FACTORS — Operational Risks — We face risks and uncertainties associated with the models that we use for 

financial accounting and reporting purposes, to make business decisions, and to manage risks. Market conditions have raised 

these risks and uncertainties” for a discussion of the risks associated with our use of models. Given the importance of models 

to our investment management practices, model changes undergo a rigorous review process. As a result, it is common for 

model changes to take several months to complete, which could affect our estimation of risk metrics. 

Foreign-Currency Risk

Foreign-currency risk is the risk that fluctuations in currency exchange rates (e.g., Euros to the U.S. dollar) will adversely 

affect the fair value of debt denominated in currencies other than the U.S. dollar, our functional currency. We mitigated 

virtually all of our foreign-currency risk by entering into swap transactions that effectively converted foreign-currency 

denominated obligations into U.S. dollar-denominated obligations. We no longer have any significant risks associated with 

fluctuations in currency exchange rates, because our last non-U.S. dollar denominated debt matured in January 2014.

Portfolio Market Value Sensitivity and Measurement of Interest-Rate Risk

PMVS and Duration Gap

Our primary interest-rate risk measures are PMVS and duration gap.

Table of Contents
165 Freddie Mac

PMVS is an estimate of the change in the market value of our net assets and liabilities from an instantaneous 50 basis 

point shock to interest rates, assuming no rebalancing actions are undertaken and assuming the mortgage-to-LIBOR basis does 

not change. PMVS is measured in two ways, one measuring the estimated sensitivity of our portfolio market value to parallel 

movements in interest rates (PMVS-Level or PMVS-L) and the other to nonparallel movements (PMVS-YC).

• We calculate our exposure to changes in interest rates using effective duration. Effective duration measures the 

percentage change in the price of financial instruments from a 1% change in interest rates. Financial instruments with 

positive duration increase in value as interest rates decline. Conversely, financial instruments with negative duration 

increase in value as interest rates rise.

• Together, duration and convexity provide a measure of an instrument’s overall price sensitivity to changes in interest 

rates. We utilize the aggregate duration and convexity risk of all interest-rate sensitive instruments on a daily basis to 

estimate the two PMVS metrics. The duration and convexity measures are used to estimate PMVS under the following 

formula:

PMVS = –[Duration] multiplied by [rate shock] plus [0.5 multiplied by Convexity] multiplied by [rate shock]2

In the equation, [rate shock] represents the interest-rate change expressed in fair value terms. Assuming an adverse 50 

basis point change, the result of this formula is the fair value of sensitivity to the change in rate, which is expressed as: 

PMVS = (0.5 absolute value of duration) + (0.125 convexity), assuming convexity is negative.

• To estimate PMVS-L, an instantaneous parallel 50 basis point shock is applied to the yield curve, as represented by the 

US swap curve, holding all spreads to the swap curve constant. This shock is applied to the duration and convexity of 

all interest-rate sensitive financial instruments. The resulting change in market value for the aggregate portfolio is 

computed for both the up rate and down rate shock and the change in market value in the more adverse scenario of the 

up and down rate shocks is the PMVS. In cases where both the up rate and down rate shock results in a positive impact, 

the PMVS is zero. Because this process uses a parallel, or level, shock to interest rates, we refer to this measure as 

PMVS-L.

• To estimate sensitivity related to the shape of the yield curve, a yield curve steepening and flattening of 25 basis points 

is applied to the duration of all interest-rate sensitive instruments. The resulting change in market value for the 

aggregate portfolio is computed for both the steepening and flattening yield curve scenarios. The more adverse yield 

curve scenario is then used to determine the PMVS-yield curve. Because this process uses a non-parallel shock to 

interest rates, we refer to this measure as PMVS-YC.

• The 50 basis point shift and 25 basis point change in slope of the LIBOR yield curve used for our PMVS measures 

reflect reasonably possible near-term changes that we believe provide a meaningful measure of our interest-rate risk 

sensitivity. Our PMVS measures assume instantaneous shocks. Therefore, these PMVS measures do not consider the 

effects on fair value of any rebalancing actions that we would typically expect to take to reduce our risk exposure.

Duration gap measures the difference in price sensitivity to interest rate changes between our assets and liabilities, and is 

expressed in months relative to the market value of assets. For example, assets with a six month duration and liabilities with a 

five month duration would result in a positive duration gap of one month. A duration gap of zero implies that the duration of 

our assets equals the duration of our liabilities. As a result, the change in the value of assets from an instantaneous move in 

interest rates, either up or down, would be expected to be accompanied by an equal and offsetting change in the value of 

liabilities, thus leaving the fair value of net assets unchanged. A positive duration gap indicates that the duration of our assets 

exceeds the duration of our liabilities which, from a net perspective, implies that the fair value of net assets will increase in 

value when interest rates fall and decrease in value when interest rates rise. A negative duration gap indicates that the duration 

of our liabilities exceeds the duration of our assets which, from a net perspective, implies that the fair value of net assets will 

increase in value when interest rates rise and decrease in value when interest rates fall.

We estimate the sensitivity to changes in interest rates of the fair value of all financial assets, liabilities, and derivatives 

on a pre-tax basis. We also take into account the cash flows related to certain credit guarantee-related items, including buy-ups 

and expected gains or losses due to net interest from float. In making these calculations, we do not consider the sensitivity to 

interest-rate changes of the following assets and liabilities:

• Credit guarantee activities. We do not consider the sensitivity of the fair value of credit guarantee activities to changes 

in interest rates except for the guarantee-related items mentioned above (i.e., buy-ups and float), because we do not 

actively manage the change in the fair value of our guarantee business that is attributable to changes in interest rates. 

We do not believe that periodic changes in fair value due to movements in interest rates are the best indication of the 

long-term value of our guarantee business because these changes do not take into account the potential for new future 

guarantee business activity.

• Other assets with minimal interest-rate sensitivity. We do not include other assets, primarily non-financial instruments 

such as fixed assets and REO, because we estimate their impact on PMVS and duration gap to be minimal.

Limitations of Market Risk Measures

Table of Contents
166 Freddie Mac

Our PMVS and duration gap estimates are determined using models that involve our judgment of interest-rate and 

prepayment assumptions. Accordingly, while we believe that PMVS and duration gap are useful risk management tools, they 

should be understood as estimates rather than as precise measurements. There could be times when we hedge differently than 

our model estimates during the period (i.e., when we are making changes or market updates to these models). While PMVS and 

duration gap estimate our exposure to changes in interest rates, they do not capture the potential impact of certain other market 

risks, such as changes in volatility, basis, and foreign-currency risk. The impact of these other market risks can be significant.

There are inherent limitations in any methodology used to estimate exposure to changes in market interest rates. Our 

sensitivity analyses for PMVS and duration gap contemplate only certain movements in interest rates and are performed at a 

particular point in time based on the estimated fair value of our existing portfolio. These sensitivity analyses do not consider 

other factors that may have a significant effect on our financial instruments, most notably business activities and strategic 

actions that management may take in the future to manage interest-rate risk. As such, these analyses are not intended to provide 

precise forecasts of the effect a change in market interest rates would have on the estimated fair value of our net assets.

In addition, it has been more difficult in recent years to measure and manage the interest-rate risk related to mortgage 

assets as risk for prepayment model error remains high due to the low interest rate environment and uncertainty regarding 

default rates, unemployment, government policy changes and programs, loan modifications, and the volatility and impact of 

home price movements on mortgage durations. Misestimation of prepayments, resulting in over or under hedging of interestrate risk, could result in significant economic losses and have an adverse impact on earnings. In addition, this misestimation 

could result in realized losses upon the sale of assets. 

Duration Gap and PMVS Results

The table below provides duration gap, estimated point-in-time and minimum and maximum PMVS-L and PMVS-YC 

results, and an average of the daily values and standard deviation for the years ended December 31, 2013 and 2012. The 

table below also provides PMVS-L estimates assuming an immediate 100 basis point shift in the LIBOR yield curve. We do not 

hedge the entire prepayment risk exposure embedded in our mortgage assets. The interest-rate sensitivity of a mortgage 

portfolio varies across a wide range of interest rates. Therefore, the difference between PMVS at 50 basis points and 100 basis 

points is non-linear.

Our PMVS-L (50 basis points) exposure at December 31, 2013 was $176 million, which decreased compared to 

December 31, 2012 primarily due to a decrease in our negative convexity exposure. On an average basis for the year ended 

December 31, 2013, our PMVS-L (50 basis points) was $235 million, primarily resulting from our negative convexity exposure 

on our mortgage assets.

Table 72 — PMVS and Duration Gap Results

PMVS-YC PMVS-L

25 bps 50 bps 100 bps

(in millions)

Assuming shifts of the LIBOR yield curve:

December 31, 2013 $ — $ 176 $ 368

December 31, 2012 $ 49 $ 296 $ 900

Year Ended December 31,

2013 2012

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

(in months) (dollars in millions) (in months) (dollars in millions)

Average 0.2 $ 21 $ 235 (0.1) $ 38 $ 198

Minimum (1.2) $ — $ — (2.4) $ 1 $ —

Maximum 2.0 $ 78 $ 673 1.5 $ 129 $ 661

Standard deviation 0.5 $ 16 $ 121 0.5 $ 34 $ 108

Derivatives have historically enabled us to reduce our interest-rate risk exposure, which could have been higher without 

the use of derivatives. The table below shows that the PMVS-L risk levels for the periods presented would have been higher if 

we had not used derivatives. The derivative impact on our PMVS-L (50 basis points) was $(2.0) billion at December 31, 2013, 

an increase of $1.1 billion from December 31, 2012. The increase was primarily driven by an increase in the estimated duration 

of our mortgage assets caused by the increase in interest rates during 2013.

Table of Contents
167 Freddie Mac

Table 73 — Derivative Impact on PMVS-L (50 bps)

Before

Derivatives

After

Derivatives

Effect of

Derivatives

(in millions)

At:

December 31, 2013 $ 2,166 $ 176 $ (1,990)

December 31, 2012 $ 1,189 $ 296 $ (893)

Duration Gap Results

We actively measure and manage our duration gap exposure on a daily basis. In addition to duration gap management, we 

also measure and manage the price sensitivity of our portfolio to a number of different specific interest rate changes along the 

yield curve. The price sensitivity of an instrument to specific changes in interest rates is known as the instrument’s key rate 

duration risk. By managing our duration exposure both in aggregate through duration gap and to specific changes in interest 

rates through key rate duration, we expect to limit our fair value exposure to interest rate changes for a wide range of interest 

rate yield curve scenarios. However, hedging our overall duration gap exposure could result in increased volatility in our 

financial results, as our derivatives and the majority of our financial assets are measured at fair value, while our financial 

liabilities are generally not measured at fair value. Our average duration gap, rounded to the nearest month, for the months of 

December 2013 and 2012 was zero months in both periods. Our average duration gap, rounded to the nearest month, during the 

years ended December 31, 2013 and 2012 was zero months in both periods.

The disclosure in our Monthly Volume Summary reports, which are available on our web site at www.freddiemac.com 

and in current reports on Form 8-K we file with the SEC, reflects the average of the daily PMVS-L, PMVS-YC and duration 

gap estimates for a given reporting period (a month, quarter or year).

Table of Contents
168 Freddie Mac

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Table of Contents
169 Freddie Mac

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Freddie Mac

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive 

income, of equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Freddie Mac, a 

stockholder-owned government-sponsored enterprise, and its subsidiaries (the "Company") at December 31, 2013 and 2012, 

and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 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, 2013, based on 

criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of 

the Treadway Commission (COSO) because a material weakness in internal control over financial reporting related to 

disclosure controls and procedures that do not provide adequate mechanisms for information known to the Federal Housing 

Finance Agency (“FHFA”) that may have financial statement disclosure ramifications to be communicated to management 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 2013 consolidated financial 

statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not 

affect our opinion on those consolidated financial statements. The Company's management is responsible for these financial 

statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of 

internal control over financial reporting included in management's report referred to above. Our responsibility is to express 

opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated 

audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United 

States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial 

statements are free of material misstatement and whether effective internal control over financial reporting was maintained in 

all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the 

amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by 

management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting 

included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness 

exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our 

audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our 

audits provide a reasonable basis for our opinions.

As discussed in "Note 2: Conservatorship and Related Matters", in September 2008, the Company was placed into 

conservatorship by the FHFA. The U.S. Department of Treasury (“Treasury”) has committed financial support to the Company 

and management continues to conduct business operations pursuant to the delegated authorities from FHFA during 

conservatorship. The Company is dependent upon the continued support of Treasury and FHFA. 

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 27, 2014

Table of Contents
170 Freddie Mac

FREDDIE MAC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,

2013 2012 2011

(in millions, except share-related amounts)

Interest income

Mortgage loans:

Held by consolidated trusts $ 57,189 $ 65,089 $ 77,158

Unsecuritized 7,694 8,960 9,124

Total mortgage loans 64,883 74,049 86,282

Investments in securities 7,768 10,583 12,791

Other 51 86 67

Total interest income 72,702 84,718 99,140

Interest expense

Debt securities of consolidated trusts (47,350) (56,109) (67,119)

Other debt:

Short-term debt (178) (176) (331)

Long-term debt (8,251) (10,217) (12,538)

Total interest expense (55,779) (66,502) (79,988)

Expense related to derivatives (455) (605) (755)

Net interest income 16,468 17,611 18,397

Benefit (provision) for credit losses 2,465 (1,890) (10,702)

Net interest income after benefit (provision) for credit losses 18,933 15,721 7,695

Non-interest income (loss)

Gains (losses) on extinguishment of debt securities of consolidated trusts 314 (58) (219)

Gains (losses) on retirement of other debt 132 (77) 44

Derivative gains (losses) 2,632 (2,448) (9,752)

Impairment of available-for-sale securities:

Total other-than-temporary impairment of available-for-sale securities (763) (1,236) (2,101)

Portion of other-than-temporary impairment recognized in AOCI (747) (932) (200)

Net impairment of available-for-sale securities recognized in earnings (1,510) (2,168) (2,301)

Other gains (losses) on investment securities recognized in earnings 301 (1,522) (896)

Other income 6,650 2,190 2,246

Non-interest income (loss) 8,519 (4,083) (10,878)

Non-interest expense

Salaries and employee benefits (833) (810) (832)

Professional services (543) (361) (270)

Occupancy expense (54) (57) (62)

Other administrative expenses (375) (333) (342)

Total administrative expenses (1,805) (1,561) (1,506)

Real estate owned operations income (expense) 140 (59) (585)

Other expenses (424) (573) (392)

Non-interest expense (2,089) (2,193) (2,483)

Income (loss) before income tax benefit 25,363 9,445 (5,666)

Income tax benefit 23,305 1,537 400

Net income (loss) 48,668 10,982 (5,266)

Other comprehensive income (loss), net of taxes and reclassification adjustments:

Changes in unrealized gains (losses) related to available-for-sale securities 2,406 4,769 3,465

Changes in unrealized gains (losses) related to cash flow hedge relationships 316 414 509

Changes in defined benefit plans 210 (126) 62

Total other comprehensive income (loss), net of taxes and reclassification adjustments 2,932 5,057 4,036

Comprehensive income (loss) $ 51,600 $ 16,039 $ (1,230)

Net income (loss) $ 48,668 $ 10,982 $ (5,266)

Undistributed net worth sweep and senior preferred stock dividends (52,199) (13,056) (6,498)

Loss attributable to common stockholders $ (3,531) $ (2,074) $ (11,764)

Loss per common share — basic and diluted $ (1.09) $ (0.64) $ (3.63)

Weighted average common shares outstanding (in thousands) — basic and diluted 3,238,047 3,240,028 3,244,896

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents
171 Freddie Mac

FREDDIE MAC

CONSOLIDATED BALANCE SHEETS

December 31, 2013 December 31, 2012

(in millions,

except share-related amounts)

Assets

Cash and cash equivalents (includes $1 and $1, respectively, related to our consolidated VIEs) $ 11,281 $ 8,513

Restricted cash and cash equivalents (includes $12,193 and $14,289, respectively, related to our

consolidated VIEs) 12,265 14,592

Federal funds sold and securities purchased under agreements to resell (includes $3,150 and

$19,250, respectively, related to our consolidated VIEs) 62,383 37,563

Investments in securities:

Available-for-sale, at fair value (includes $70 and $132, respectively, pledged as collateral that

may be repledged) 128,919 174,896

Trading, at fair value (includes $365 and $0, respectively, pledged as collateral that may be

repledged) 23,404 41,492

Total investments in securities 152,323 216,388

Mortgage loans:

Held-for-investment, at amortized cost:

By consolidated trusts (net of allowances for loan losses of $3,006 and $4,919, respectively) 1,529,905 1,495,932

Unsecuritized (net of allowances for loan losses of $21,612 and $25,788, respectively) 146,158 176,177

Total held-for-investment mortgage loans, net 1,676,063 1,672,109

Held-for-sale, at fair value 8,727 14,238

Total mortgage loans, net 1,684,790 1,686,347

Accrued interest receivable (includes $5,111 and $5,426, respectively, related to our consolidated

VIEs) 6,150 6,875

Derivative assets, net 1,063 657

Real estate owned, net (includes $49 and $45, respectively, related to our consolidated VIEs) 4,551 4,378

Deferred tax assets, net 22,716 778

Other assets (Note 19) (includes $2,172 and $7,986, respectively, related to our consolidated VIEs) 8,539 13,765

Total assets $ 1,966,061 $ 1,989,856

Liabilities and equity (deficit)

Liabilities

Accrued interest payable (includes $4,702 and $5,142, respectively, related to our consolidated

VIEs) $ 6,803 $ 7,710

Debt, net:

Debt securities of consolidated trusts held by third parties (includes $59 and $70 at fair value,

respectively) 1,433,984 1,419,524

Other debt (includes $2,683 and $2,187 at fair value, respectively) 506,767 547,518

Total debt, net 1,940,751 1,967,042

Derivative liabilities, net 180 178

Other liabilities (Note 19) (includes $6 and $1, respectively, related to our consolidated VIEs) 5,492 6,099

Total liabilities 1,953,226 1,981,029

Commitments and contingencies (Notes 9, 14, and 17)

Equity (deficit)

Senior preferred stock, at redemption value 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

650,039,533 shares and 650,033,623 shares outstanding, respectively — —

Additional paid-in capital — 1

Retained earnings (accumulated deficit) (69,719) (70,796)

AOCI, net of taxes, related to:

Available-for-sale securities (includes $1,100 and $6,606, respectively, related to net unrealized

losses on securities for which other-than-temporary impairment has been recognized in

earnings) 962 (1,444)

Cash flow hedge relationships (1,000) (1,316)

Defined benefit plans 32 (178)

Total AOCI, net of taxes (6) (2,938)

Treasury stock, at cost, 75,824,353 shares and 75,830,263 shares, respectively (3,885) (3,885)

Total equity (deficit) (See NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT) for information on

our dividend obligation to Treasury) 12,835 8,827

Total liabilities and equity (deficit) $ 1,966,061 $ 1,989,856

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents
172 Freddie Mac

FREDDIE MAC

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

Shares Outstanding Senior

Preferred

Stock, at

Redemption

Value

Preferred

Stock, at

Redemption

Value

Common

Stock, at

Par Value

Additional

Paid-In

Capital

Retained

Earnings

(Accumulated

Deficit)

AOCI,

Net of

Tax

Treasury

Stock, at

Cost

Total

Equity

(Deficit)

Senior

Preferred

Stock

Preferred

Stock

Common

Stock

(in millions)

Balance as of December 31, 2010 1 464 649 $ 64,200 $ 14,109 $ — $ 7 $ (62,733) $ (12,031) $ (3,953) $ (401)

Comprehensive income (loss):

Net loss — — — — — — — (5,266) — — (5,266)

Other comprehensive income, net of

taxes — — — — — — — — 4,036 — 4,036

Comprehensive income (loss) — — — — — — — (5,266) 4,036 — (1,230)

Increase in liquidation preference — — — 7,971 — — — — — — 7,971

Stock-based compensation — — — — — — 11 — — — 11

Income tax benefit from stock-based

compensation — — — — — — 1 — — — 1

Common stock issuances — — 1 — — — (44) — — 44 —

Transfer from retained earnings

(accumulated deficit) to additional paidin capital — — — — — — 28 (28) — — —

Senior preferred stock dividends declared — — — — — — — (6,495) — — (6,495)

Dividend equivalent payments on expired

stock options — — — — — — — (3) — — (3)

Ending balance at December 31, 2011 1 464 650 $ 72,171 $ 14,109 $ — $ 3 $ (74,525) $ (7,995) $ (3,909) $ (146)

Balance as of December 31, 2011 1 464 650 $ 72,171 $ 14,109 $ — $ 3 $ (74,525) $ (7,995) $ (3,909) $ (146)

Comprehensive income:

Net income — — — — — — — 10,982 — — 10,982

Other comprehensive income, net of

taxes — — — — — — — — 5,057 — 5,057

Comprehensive income — — — — — — — 10,982 5,057 — 16,039

Increase in liquidation preference — — — 165 — — — — — — 165

Stock-based compensation — — — — — — 2 — — — 2

Income tax benefit from stock-based

compensation — — — — — — 1 — — — 1

Common stock issuances — — — — — — (24) — — 24 —

Transfer from retained earnings

(accumulated deficit) to additional paidin-capital — — — — — — 19 (19) — — —

Senior preferred stock dividends declared — — — — — — — (7,233) — — (7,233)

Dividend equivalent payments on expired

stock options — — — — — — — (1) — — (1)

Ending balance at December 31, 2012 1 464 650 $ 72,336 $ 14,109 $ — $ 1 $ (70,796) $ (2,938) $ (3,885) $ 8,827

Balance as of December 31, 2012 1 464 650 $ 72,336 $ 14,109 $ — $ 1 $ (70,796) $ (2,938) $ (3,885) $ 8,827

Comprehensive income:

Net income — — — — — — — 48,668 — — 48,668

Other comprehensive income, net of

taxes — — — — — — — — 2,932 — 2,932

Comprehensive income — — — — — — — 48,668 2,932 — 51,600

Common stock issuances — — — — — — (1) — — — (1)

Senior preferred stock dividends declared — — — — — — — (47,591) — — (47,591)

Ending balance at December 31, 2013 1 464 650 $ 72,336 $ 14,109 $ — $ — $ (69,719) $ (6) $ (3,885) $ 12,835

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents
173 Freddie Mac

FREDDIE MAC

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2013 2012 2011

(in millions)

Cash flows from operating activities

Net income (loss) $ 48,668 $ 10,982 $ (5,266)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Derivative (gains) losses (6,097) (1,350) 4,721

Asset related amortization — premiums, discounts, and basis adjustments 4,627 4,624 2,063

Debt related amortization — premiums and discounts on certain debt securities and basis

adjustments (6,779) (5,782) (1,629)

Net discounts paid on retirements of other debt (1,562) (680) (713)

Net premiums received from issuance of debt securities of consolidated trusts 3,534 3,897 4,091

(Gains) losses on extinguishment of debt securities of consolidated trusts and other debt (446) 135 175

(Benefit) provision for credit losses (2,465) 1,890 10,702

Losses on investment activity 1,545 2,680 2,368

Deferred income tax (benefit) expense (23,422) 3 (117)

Purchases of held-for-sale mortgage loans (23,103) (25,340) (16,550)

Sales of mortgage loans acquired as held-for-sale 28,131 21,769 14,027

Repayments of mortgage loans acquired as held-for-sale 167 59 54

Payments to servicers for pre-foreclosure expense and servicer incentive fees (1,302) (1,269) (1,169)

Change in:

Accrued interest receivable 725 1,187 651

Accrued interest payable (849) (1,094) (1,080)

Income taxes receivable or payable 117 (1,523) (281)

Other, net (2,957) (1,722) (1,727)

Net cash provided by operating activities 18,532 8,466 10,320

Cash flows from investing activities

Purchases of trading securities (53,753) (33,880) (47,977)

Proceeds from sales of trading securities 57,380 17,641 33,734

Proceeds from maturities of trading securities 12,542 31,106 14,545

Purchases of available-for-sale securities (9,681) (3,252) (12,171)

Proceeds from sales of available-for-sale securities 24,675 1,729 2,643

Proceeds from maturities of available-for-sale securities 33,630 38,517 34,316

Purchases of held-for-investment mortgage loans (79,028) (79,492) (44,129)

Repayments of mortgage loans acquired as held-for-investment 410,643 522,242 369,981

Decrease (increase) in restricted cash 2,327 13,471 (19,952)

Net proceeds from dispositions of real estate owned and other recoveries 11,274 11,265 12,665

Net (increase) decrease in federal funds sold and securities purchased under agreements to resell (24,820) (25,519) 34,480

Derivative premiums and terminations and swap collateral, net 6,062 569 (4,447)

Net cash provided by investing activities 391,251 494,397 373,688

Cash flows from financing activities

Proceeds from issuance of debt securities of consolidated trusts held by third parties 110,244 91,544 96,042

Repayments of debt securities of consolidated trusts held by third parties (430,055) (494,115) (436,320)

Proceeds from issuance of other debt 701,236 718,252 1,024,323

Repayments of other debt (740,842) (831,393) (1,078,050)

Increase in liquidation preference of senior preferred stock — 165 7,971

Payment of cash dividends on senior preferred stock (47,591) (7,233) (6,495)

Excess tax benefits associated with stock-based awards — 1 1

Payments of low-income housing tax credit partnerships notes payable (7) (13) (50)

Net cash used in financing activities (407,015) (522,792) (392,578)

Net increase (decrease) in cash and cash equivalents 2,768 (19,929) (8,570)

Cash and cash equivalents at beginning of year 8,513 28,442 37,012

Cash and cash equivalents at end of year $ 11,281 $ 8,513 $ 28,442

Supplemental cash flow information

Cash paid (received) for:

Debt interest $ 65,614 $ 75,328 $ 84,370

Net derivative interest carry 3,701 4,044 4,791

Income taxes — (18) (1)

Non-cash investing and financing activities:

Underlying mortgage loans related to guarantor swap transactions 340,900 358,074 280,621

Debt securities of consolidated trusts held by third parties established for guarantor swap transactions 340,990 358,074 280,621

Elimination of investments in securities and debt securities of consolidated trusts held by third parties

related to net consolidation of variable interest entities for which we are the primary beneficiary (1,876) (4,590) —

Transfers from held-for-investment mortgage loans to held-for-sale mortgage loans 224 6 — 

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents
174 Freddie Mac

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Freddie Mac was chartered by Congress in 1970 to stabilize the nation’s residential mortgage market and expand 

opportunities for home ownership and affordable rental housing. Our statutory mission is to provide liquidity, stability and 

affordability to the U.S. housing market. We are a GSE regulated by FHFA, the SEC, HUD, and Treasury, and are currently 

operating under the conservatorship of FHFA. For more information on the roles of FHFA and Treasury, see “NOTE 2: 

CONSERVATORSHIP AND RELATED MATTERS.” 

We are involved in the U.S. housing market by participating in the secondary mortgage market. We do not participate 

directly in the primary mortgage market. Our participation in the secondary mortgage market includes providing our credit 

guarantee for mortgages originated by mortgage lenders in the primary mortgage market and investing in mortgage loans and 

mortgage-related securities.

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

Single-family Guarantee, Investments, and Multifamily. Our Single-family Guarantee segment reflects results from our singlefamily credit guarantee activities. In our Single-family Guarantee segment, we purchase and guarantee single-family mortgage 

loans originated by our seller/servicers in the primary mortgage market. In most instances, we use the mortgage securitization 

process to package the loans into guaranteed mortgage-related securities. We guarantee the payment of principal and interest on 

the mortgage-related securities in exchange for management and guarantee fees. Our Investments segment reflects results from 

three primary activities: (a) managing the company’s mortgage-related investments portfolio, excluding Multifamily segment 

investments; (b) managing the treasury function, including funding and liquidity, for the overall company; and (c) managing 

interest-rate risk for the overall company. In our Investments segment, we invest principally in mortgage-related securities and 

single-family performing mortgage loans. Our Multifamily segment reflects results from our investment (both purchases and 

sales), securitization, and guarantee activities in multifamily mortgage loans and securities. In our Multifamily segment, our 

primary business model is to purchase multifamily mortgage loans for aggregation and then securitization through issuance of 

multifamily K Certificates. See “NOTE 13: SEGMENT REPORTING” for additional information.

We are focused on the following primary business objectives: (a) reducing taxpayer exposure to losses by reducing and 

managing our overall risk profile, especially to mortgage-related risks; (b) supporting U.S. homeowners and renters by 

providing lenders with a constant source of liquidity for mortgage products even when other sources of financing are scarce; (c) 

building a commercially strong and efficient business enterprise; and (d) positioning the company, in particular our people and 

infrastructure, to succeed in a to-be-determined "future state." For information regarding these objectives, see “NOTE 2: 

CONSERVATORSHIP AND RELATED MATTERS — Business Objectives.”

Throughout our consolidated financial statements and related notes, we use certain acronyms and terms which are defined 

in the “GLOSSARY.”

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with GAAP and include our 

accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany balances 

and transactions have been eliminated. 

Our current accounting policies are described below. We are operating under the basis that we will realize assets and 

satisfy liabilities in the normal course of business as a going concern and in accordance with the delegation of authority from 

FHFA to our Board of Directors and management. Certain amounts in prior periods’ consolidated financial statements have 

been reclassified to conform to the current presentation. 

We evaluate the materiality of identified errors in the financial statements using both an income statement, or “rollover,” 

and a balance sheet, or “iron curtain,” approach, based on relevant quantitative and qualitative factors. Net income (loss) 

includes certain adjustments to correct immaterial errors related to previously reported periods.

We recorded the cumulative effect of the correction of certain miscellaneous errors related to previously reported periods 

in the year ended December 31, 2013. We concluded that these errors are not material individually or in the aggregate to our 

previously issued consolidated financial statements for any of the periods affected, or to our earnings for the full year ended 

December 31, 2013, or to the trend of earnings.

Use of Estimates

The preparation of financial statements requires us to make estimates and assumptions that affect: (a) the reported 

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and 

(b) the reported amounts of revenues and expenses and gains and losses during the reporting period. Management has made 

significant estimates in preparing the financial statements, including, but not limited to, establishing the allowance for loan 

losses and reserve for guarantee losses, valuing financial instruments and other assets and liabilities, assessing impairments on 

investments, and assessing our ability to realize net deferred tax assets. Actual results could be different from these estimates.

Table of Contents
175 Freddie Mac

Change in Estimate

Other-Than-Temporary Impairment of Non-Agency Mortgage-Related Securities

During the fourth quarter of 2013, we incorporated new information which enhanced the assumptions used to estimate 

the contractual loan terms for certain modified loans collateralizing non-agency mortgage-related securities for which actual 

data about those terms was unavailable to the market. This enhancement resulted in a lower net present value of projected cash 

flows on our non-agency mortgage-related securities and increased our net other-than-temporary impairments recognized in 

earnings by $0.7 billion.

Single-Family Loan Loss Reserve Severity

During the second quarter of 2013, we updated our method of estimating loss severity rates for single-family loan loss 

reserves to change from the most recent six months of sales experience on our distressed property dispositions to the most 

recent three months of sales experience on our distressed property dispositions. This change did not have a material impact on 

our consolidated financial statements.

Consolidation and Equity Method of Accounting

The consolidated financial statements include our accounts and those of our subsidiaries. We consolidate entities in which 

we have a controlling financial interest. All intercompany transactions have been eliminated in consolidation.

For each entity with which we are involved, we determine whether the entity should be consolidated in our financial 

statements. The method for determining whether a controlling financial interest exists varies depending on whether the entity is 

a VIE or non-VIE. A VIE is an entity: (a) that has a total equity investment at risk that is not sufficient to finance its activities 

without additional subordinated financial support provided by another party; (b) where the group of equity holders does not 

have: (i) the power, through voting rights or similar rights, to direct the activities of an entity that most significantly impact the 

entity’s economic performance; (ii) the obligation to absorb the entity’s expected losses; or (iii) the right to receive the entity’s 

expected residual returns; or (c) where the voting rights of some investors are disproportionate to their obligation to absorb 

expected losses or their right to expected residual returns (or both) and substantially all of the entity’s activities are conducted 

on behalf of an investor that has disproportionately few voting rights.

We consolidate VIEs in which we hold a controlling financial interest and are therefore deemed to be the primary 

beneficiary. An enterprise has a controlling financial interest in, and thus is deemed to be the primary beneficiary of, a VIE if it 

has both: (a) the power to direct the activities of the VIE that most significantly impact its economic performance; and 

(b) exposure to losses or benefits of the VIE that could potentially be significant to the VIE. We perform ongoing assessments 

to determine if we are the primary beneficiary of the VIEs with which we are involved and, as such, conclusions may change 

over time as the nature and extent of our involvement changes.

We use securitization trusts in our securities issuance process that are VIEs. We are the primary beneficiary of trusts that 

issue our single-family PCs and certain Other Guarantee Transactions. See “NOTE 3: VARIABLE INTEREST ENTITIES” for 

more information. When we transfer assets into a VIE that we consolidate at the time of the transfer (or shortly thereafter), we 

recognize the assets and liabilities of the VIE at the amounts that they would have been recognized if they had not been 

transferred, and no gain or loss is recognized on these transfers. For all other VIEs that we consolidate, we recognize the assets 

and liabilities of the VIE at fair value, and we recognize a gain or loss for the difference between: (a) the fair value of the 

consideration paid and the fair value of any noncontrolling interests held by third parties; and (b) the net amount, as measured 

on a fair value basis, of the assets and liabilities consolidated.

For entities that are not VIEs, the usual condition of a controlling financial interest is ownership of a majority voting 

interest in an entity. We use the equity method of accounting for entities over which we have the ability to exercise significant 

influence, but not control.

Fair Value Measurements

Consistent with the accounting guidance for fair value measurements and disclosures, we use a three-level fair value 

hierarchy that prioritizes the inputs to the valuation techniques used to measure the fair value of assets and liabilities, giving 

highest priority to quoted prices in active markets and lowest priority to unobservable inputs. Fair value represents the price 

that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the 

measurement date. Fair value measurements under this hierarchy are distinguished among three levels: quoted market prices, 

observable inputs, and unobservable inputs. We use quoted market prices and valuation techniques that seek to maximize the 

use of observable inputs, where available, and minimize the use of unobservable inputs. Our inputs are based on the 

assumptions a market participant would use in valuing the asset or liability. Assets and liabilities are classified in their entirety 

within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. When assets and 

liabilities are transferred between levels, we recognize the transfer as of the beginning of the period. See “NOTE 16: FAIR 

VALUE DISCLOSURES” for additional information regarding the fair value measurements and the hierarchy.

Securitization Activities through Issuances of Freddie Mac Mortgage-Related Securities

Overview

Table of Contents
176 Freddie Mac

When we securitize mortgages that we purchase, we issue mortgage-related securities such as PCs that can be sold to 

investors or held by us. We issue mortgage-related securities in the form of PCs, REMICs and Other Structured Securities, and 

Other Guarantee Transactions. Guarantor swaps are transactions where financial institutions exchange mortgage loans for PCs 

backed by these mortgage loans. Multilender swaps are similar to guarantor swaps, except that formed PC pools include loans 

that are contributed by more than one party. We issue PCs through various swap-based exchanges significantly more often than 

through cash-based transfers. We issue REMICs and Other Structured Securities in transactions in which securities dealers or 

investors sell us mortgage-related assets in exchange for REMICs and Other Structured Securities. We also issue Other 

Guarantee Transactions to third parties in exchange for non-Freddie Mac mortgage-related securities.

PCs

Our PCs are pass-through debt securities that represent undivided beneficial interests in a pool of mortgages held by a 

securitization trust. For our fixed-rate PCs, we guarantee the timely payment of interest and principal. For our ARM PCs, we 

guarantee the timely payment of the weighted average coupon interest rate for the underlying mortgage loans. We do not 

guarantee the timely payment of principal for ARM PCs; however, we do guarantee the full and final payment of principal.

In return for providing our guarantee of the payment of principal and interest, we earn a management and guarantee fee 

that is paid to us over the life of an issued PC, representing a portion of the interest collected on the underlying loans.

PC Trusts

We are the primary beneficiary of VIE securitization trusts that issue our single-family PCs and therefore consolidate the 

assets and liabilities of these trusts at either their: (a) carrying value, if the underlying assets are contributed by us to the trust; 

or (b) fair value, for those securitization trusts established for our guarantor swap program. Mortgage loans underlying our 

issued single-family PCs are recognized on our consolidated balance sheets as mortgage loans held-for-investment by 

consolidated trusts, at amortized cost. The corresponding single-family PCs held by third parties are recognized on our 

consolidated balance sheets as debt securities of consolidated trusts held by third parties. Refer to “Mortgage Loans” and “Debt 

Securities Issued” below for further information on the subsequent accounting treatment of these assets and liabilities, 

respectively.

REMICs and Other Structured Securities

Our single-family REMICs and Other Structured Securities use resecuritization trusts that meet the definition of a VIE 

and represent beneficial interests in groups of PCs and other types of mortgage-related assets. We create these securities 

primarily by using PCs or previously issued REMICs and Other Structured Securities as collateral. Similar to our PCs, we 

guarantee the payment of principal and interest to the holders of the tranches of our REMICs and Other Structured Securities. 

However, for REMICs and Other Structured Securities where we have already guaranteed the underlying assets, there is no 

incremental exposure to credit loss assumed by us. 

With respect to the resecuritization trusts used for our single-family REMICs and Other Structured Securities whose 

underlying assets are PCs or previously issued REMICs and Other Structured Securities, we do not have rights to receive 

benefits or obligations to absorb losses that could potentially be significant to the trusts because we have already provided a 

guarantee on the underlying assets. Additionally, our involvement with these trusts does not provide us with any power that 

would enable us to direct the significant economic activities of these entities. Although we may be exposed to prepayment risk 

through our ownership of the securities issued by these trusts, we do not have the ability through our involvement with the trust 

to impact the economic risks to which we are exposed. As a result, we are not the primary beneficiary of, and therefore do not 

consolidate, the resecuritization trusts used for REMICs and Other Structured Securities whose underlying assets are PCs or 

previously issued REMICs and Other Structured Securities, unless we hold substantially all of the outstanding beneficial 

interests that have been issued by the trust.

We receive a transaction fee from third parties for issuing our single-family REMICs and Other Structured Securities 

whose underlying assets are PCs or previously issued REMICs and Other Structured Securities. We defer the portion of the 

transaction fee that is equal to the estimated value of our future administrative responsibilities for these issued REMICs and 

Other Structured Securities. These responsibilities include ongoing trustee services, administration of pass-through amounts, 

paying agent services, tax reporting, and other required services. We estimate the value of these future responsibilities based on 

quotes from third-party vendors who perform each type of service and, where quotes are not available, based on our estimates 

of what those vendors would charge. The remaining portion of the transaction fee relates to compensation earned in connection 

with structuring-related services we rendered to third parties and is allocated between REMICs and Other Structured Securities 

we retain, if any, and the REMICs and Other Structured Securities acquired by third parties, based on the relative fair value of 

the securities. The portion of the fee allocated to any REMICs and Other Structured Securities we retain is deferred as a 

carrying value adjustment and is amortized into interest income using the effective interest method over the contractual lives of 

these securities. The fee allocated to REMICs and Other Structured Securities acquired by third parties is recognized 

immediately in earnings as other income.

Our multifamily Other Structured Securities use securitization trusts that meet the definition of a VIE. Our multifamily 

Other Structured Securities typically involve our acquisition of tax-exempt multifamily housing revenue bonds, placement of 

Table of Contents
177 Freddie Mac

those bonds in a securitization trust, and issuance of tax-exempt senior certificates as well as subordinate certificates that 

provide structural credit protection. The housing revenue bonds are collateralized by low- and moderate-income multifamily 

housing developments. We guarantee the principal and interest on the senior certificates and, because the underlying collateral 

is not already guaranteed by us, we receive a management and guarantee fee.

With respect to the securitization trusts used for our multifamily Other Structured Securities whose underlying assets are 

multifamily housing revenue bonds, our involvement with these trusts either does not provide us with any power that would 

enable us to direct the significant economic activities of these entities or rights to receive benefits or obligations to absorb 

losses that could potentially be significant to the trusts. As a result, we are not the primary beneficiary of, and therefore do not 

consolidate, the securitization trusts used for Other Structured Securities whose underlying assets are multifamily housing 

revenue bonds. 

Other Guarantee Transactions

Other Guarantee Transactions are mortgage-related securities that we issue to third parties in exchange for non-Freddie 

Mac mortgage-related securities. Other Guarantee Transactions typically involve us purchasing either the senior tranches from 

a non-Freddie Mac senior-subordinated securitization or single-class pass-through securities, placing the acquired assets into a 

securitization trust, providing a guarantee of the principal and interest of the acquired assets and issuing securities backed by 

these assets. To the extent that we are deemed to be the primary beneficiary of such a securitization trust, we recognize the 

mortgage loans underlying the Other Guarantee Transaction as mortgage loans held-for-investment, at amortized cost. 

Correspondingly, we recognize the issued securities held by third parties as debt securities of consolidated trusts. However, to 

the extent we are not deemed to be the primary beneficiary of such a securitization trust, we initially recognize a guarantee 

asset and a guarantee obligation at fair value to the extent a management and guarantee fee is charged. We do not receive 

transaction fees, apart from our management and guarantee fee, for these transactions. 

Our primary Other Guarantee Transactions are multifamily K Certificates. In substantially all of these transactions, we 

guarantee only the most senior tranches of the securities and our initial involvement with the trusts that issue the K Certificates 

does not provide us with any power that would enable us to direct the significant economic activities of these entities. As a 

result, we are not the primary beneficiary of, and therefore do not consolidate, these trusts when K Certificates are initially 

issued. To the extent that our involvement with the trusts changes, we evaluate whether we have become the primary 

beneficiary. 

Purchases and Sales of Freddie Mac Mortgage-Related Securities

PCs

When we purchase PCs that have been issued by consolidated PC trusts, we extinguish the outstanding debt securities of 

the related consolidated trust. We recognize a gain (loss) on extinguishment of the debt securities to the extent the amount paid 

to redeem the debt differs from its carrying value, adjusted for any related purchase commitments accounted for as derivatives.

When we sell PCs that have been issued by consolidated PC trusts, we recognize a liability to the third-party beneficial 

interest holders of the related consolidated trust as debt securities of consolidated trusts held by third parties. That is, our sale of 

PCs issued by consolidated PC trusts is accounted for as the issuance of debt.

Single-Class REMICs and Other Structured Securities

The collateral for our single-class REMICs and Other Structured Securities includes PCs and previously issued singleclass REMICs and Other Structured Securities. We do not consolidate these resecuritization trusts as we are not deemed to be 

the primary beneficiary of the trusts. Our single-class REMICs and Other Structured Securities pass through all of the cash 

flows of the underlying PCs directly to the holders of the securities and are deemed to be substantially the same as the 

underlying PCs. As a result, when we purchase single-class REMICs and Other Structured Securities, we extinguish a pro rata 

portion of the outstanding debt securities of the related PC trust on our consolidated balance sheets.

When we sell single-class REMICs and Other Structured Securities, we recognize a liability to the third-party beneficial 

interest holders of the related consolidated PC trust as debt securities of consolidated trusts held by third parties. That is, our 

sale of single-class REMICs and Other Structured Securities is accounted for as the issuance of debt.

Multiclass REMICs and Other Structured Securities

The collateral for our single-family multiclass REMICs and Other Structured Securities includes PCs and previously 

issued REMICs and Other Structured Securities. We do not consolidate most of these resecuritization trusts as we are not 

deemed to be the primary beneficiary of the trusts unless we hold substantially all of the outstanding beneficial interests that 

have been issued by the trust. In our single-family multiclass REMICs and Other Structured Securities, the cash flows of the 

underlying PCs are divided (e.g., stripped and/or time tranched). Due primarily to this division of cash flows, these securities 

are not deemed to be substantially the same as the underlying PCs. As a result, when we purchase single-family multiclass 

REMICs and Other Structured Securities, we record these securities as investments in debt securities rather than as the 

extinguishment of debt since we are investing in the debt securities of a non-consolidated entity. See “Investments in 

Table of Contents
178 Freddie Mac

Securities” for further information regarding our accounting for investments in multiclass REMICs and Other Structured 

Securities.

We recognize, as assets, both the investment in single-family multiclass REMICs and Other Structured Securities and the 

mortgage loans backing the PCs held by the trusts which underlie the single-family multiclass REMICs and Other Structured 

Securities. Additionally, we recognize, as liabilities, the unsecured debt issued to third parties to fund the purchase of the 

single-family multiclass REMICs and Other Structured Securities as well as the debt issued to third parties of the PC trusts we 

consolidate which underlie the single-family multiclass REMICs and Other Structured Securities. This results in recognition of 

interest income from both assets and interest expense from both liabilities. 

The collateral for our multifamily multiclass Other Structured Securities typically includes multifamily housing revenue 

bonds which are collateralized by low- and moderate-income multifamily housing developments. We do not consolidate the 

securitization trusts that issue these securities as we are not deemed to be the primary beneficiary of the trusts. When we 

purchase multifamily multiclass Other Structured Securities, we record them as investments in debt securities. See 

“Investments in Securities” for further information regarding our accounting for investments in multiclass REMICs and Other 

Structured Securities.

When we sell multiclass REMICs and Other Structured Securities in which we are not the primary beneficiary of the 

resecuritization trust, we account for the transfer in accordance with the accounting guidance for transfers of financial assets. 

To the extent the transfer of multiclass REMICs and Other Structured Securities qualifies as a sale, we de-recognize all assets 

sold and recognize all assets obtained and liabilities incurred. Any gain (loss) on the sale of multiclass REMICs and Other 

Structured Securities is reflected in our consolidated statements of comprehensive income as a component of other gains 

(losses) on investment securities recognized in earnings. To the extent the transfer of multiclass REMICs and Other Structured 

Securities does not qualify as a sale, we account for the transfer as a financing transaction and recognize a liability for the 

proceeds received from third parties in the transfer.

Other Guarantee Commitments

In certain circumstances, we also provide our guarantee of mortgage-related assets held by third parties, in exchange for a 

guarantee fee, without our securitization of the related assets. For example, we provide long-term standby commitments to 

certain of our single-family customers, which obligate us to purchase seriously delinquent loans that are covered by those 

agreements. We also provide guarantee commitments on multifamily housing revenue bonds that were issued by HFAs as well 

as guarantees under the TCLFP on securities backed by HFA bonds.

Cash and Cash Equivalents

Highly liquid investment securities that have an original maturity of three months or less are accounted for as cash 

equivalents. In addition, cash collateral that we have the right to use for general corporate purposes and that we obtain from 

counterparties to derivative contracts is recorded as cash and cash equivalents.

Restricted Cash and Cash Equivalents

Cash collateral accepted from counterparties that we do not have the right to use for general corporate purposes is 

recorded as restricted cash in our consolidated balance sheets. Restricted cash includes cash remittances received on the 

underlying assets of our consolidated trusts, which are deposited into a separate custodial account. These cash remittances 

include both scheduled and unscheduled principal and interest payments. The cash remittances are segregated in the separate 

custodial account until they are remitted to the PC, REMIC and Other Structured Securities holders on their respective security 

payment dates, and are not commingled with our general operating funds. As securities administrator, we invest the cash held in 

the custodial account, pending distribution to our PC, REMIC, and Other Structured Securities holders, in short-term 

investments and are entitled to the interest income earned on these short-term investments, which is recorded as interest 

income, other on our consolidated statements of comprehensive income.

Mortgage Loans

Upon acquisition, we classify a loan as either held-for-sale or held-for-investment. Mortgage loans that we have the 

ability and intent to hold for the foreseeable future are classified as held-for-investment. Loans we acquire and which we intend 

to securitize using an entity we will consolidate will be classified as held-for-investment both prior to and subsequent to their 

securitization, in accordance with our intent and ability to hold such loans for the foreseeable future.

Held-for-investment mortgage loans are reported in our consolidated balance sheets at their outstanding UPB, net of 

deferred fees and other cost basis adjustments (including unamortized premiums and discounts, delivery fees and other pricing 

adjustments). These deferred items are amortized into interest income over the contractual lives of the loans using the effective 

interest method. We recognize interest income on an accrual basis except when we believe the collection of principal and 

interest in full is not reasonably assured. If the collection of principal and interest in full is not reasonably assured, we cease the 

accrual of interest income and any interest income accrued but uncollected is reversed.

Mortgage loans not classified as held-for-investment are classified as held-for-sale. Held-for-sale loans are reported at 

lower-of-cost-or-fair-value on our consolidated balance sheets. Any excess of a held-for-sale loan’s cost over its fair value is 

Table of Contents
179 Freddie Mac

recognized as a valuation allowance in other income on our consolidated statements of comprehensive income, with changes in 

this valuation allowance also being recorded in other income. Premiums, discounts, and other cost basis adjustments recognized 

upon acquisition on single-family loans classified as held-for-sale are deferred and not amortized. We elected the fair value 

option for multifamily mortgage loans held for sale that we intend to securitize and sell to investors. See “NOTE 16: FAIR 

VALUE DISCLOSURES — Fair Value Option — Multifamily Held-For-Sale Mortgage Loans” and “NOTE 16: FAIR VALUE 

DISCLOSURES — Fair Value Option — Changes in Fair Value under the Fair Value Option Election.” Thus, these 

multifamily mortgage loans are measured at fair value on a recurring basis, with subsequent gains or losses related to changes 

in fair value reported in other income in our consolidated statements of comprehensive income. We do not have any held-forsale loans reported at the lower-of-cost-or-fair-value on our consolidated balance sheets as of December 31, 2013 or 2012.

Cash flows related to mortgage loans held by our consolidated trusts are classified as either investing activities (e.g., 

principal repayments) or operating activities (e.g., interest payments received from borrowers included within net income 

(loss)). In addition, cash flows related to purchases of mortgage loans held-for-sale are classified in operating activities. When 

mortgage loans held-for-sale are sold or securitized, proceeds from the sale or securitization and any related gain or loss are 

classified in operating activities.

Non-Performing Loans

Non-performing loans consist of: (a) single-family and multifamily loans that have undergone a TDR; (b) single-family 

seriously delinquent loans; (c) multifamily loans that are three or more payments past due or in the process of foreclosure; and 

(d) multifamily loans that are deemed impaired based upon management judgment. We place mortgage loans on non-accrual 

status when we believe collectability of principal and interest in full is not reasonably assured, which generally occurs when a 

loan is three monthly payments past due, unless the loan is well secured and in the process of collection based upon an 

individual loan assessment. A loan is considered past due if a full payment of principal and interest is not received within one 

month of its due date. When a loan is placed on non-accrual status, any interest income accrued but uncollected is reversed. 

Thereafter, interest income is recognized only upon receipt of cash payments.

A non-accrual mortgage loan may be returned to accrual status when the collectability of principal and interest in full is 

reasonably assured. For single-family loans, we determine that collectability is reasonably assured when we have received 

payment of principal and interest such that the loan becomes less than three monthly payments past due. For multifamily loans, 

the collectability of principal and interest is considered reasonably assured based on a quantitative and qualitative analysis of 

the factors specific to the loan being assessed. Upon a loan’s return to accrual status, all previously reversed interest income is 

recognized and amortization of any basis adjustments into interest income is resumed.

Allowance for Loan Losses and Reserve for Guarantee Losses

The allowance for loan losses and the reserve for guarantee losses represent estimates of probable incurred credit losses. 

The allowance for loan losses pertains to all single-family and multifamily loans classified as held-for-investment on our 

consolidated balance sheets whereas the reserve for guarantee losses relates to single-family and multifamily loans underlying 

our non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments. Total held-for-investment 

mortgage loans, net are shown net of the allowance for loan losses on our consolidated balance sheets. The reserve for 

guarantee losses is included within other liabilities on our consolidated balance sheets. Collectively, we refer to our allowance 

for loan losses and our reserve for guarantee losses as our loan loss reserves. We recognize probable incurred losses by 

recording a charge to the provision for credit losses in our consolidated statements of comprehensive income. Determining the 

appropriateness of the loan loss reserves is a complex process that is subject to numerous estimates and assumptions requiring 

significant judgment about matters that involve a high degree of subjectivity.

We estimate credit losses related to homogeneous pools of loans in accordance with the accounting guidance for 

contingencies. Accordingly, we maintain an allowance for loan losses on mortgage loans held-for-investment when it is 

probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Loans that we evaluate for 

individual impairment are measured in accordance with the accounting guidance for receivables.

For both the single-family and multifamily portfolios, we charge off (in full or in part) our recorded investment in a loan 

in the period it is determined that the loan (or a portion thereof) is uncollectible, which generally occurs at final disposition of 

the loan through foreclosure or other loss event. However, if losses are evident prior to final disposition, earlier recognition of a 

charge-off is required by our policies. We also consider charge-offs for certain very small balance loans and upon the 

occurrence of certain events such as natural disasters. A charge-off is also recorded if we realize a specific credit loss upon the 

modification of a loan in a TDR. We do not have any established threshold in terms of days past due beyond which we partially 

or fully charge-off loans.

Single-Family Loans

We determine single-family loan loss reserves both on a collective and individual basis. For further discussion on 

individually impaired single-family loans, refer to “Impaired Loans” below.

We estimate loan loss reserves on homogeneous pools of single-family loans using a statistically based model that 

evaluates a variety of factors affecting collectability. The homogeneous pools of single-family mortgage loans are determined 

Table of Contents
180 Freddie Mac

based on common underlying characteristics, including estimated current LTV ratios, trends in home prices, loan product type, 

and geographic region. In determining the loan loss reserves for single-family loans at the balance sheet date, we evaluate key 

inputs and factors including, but not limited to:

• estimated current LTV ratios and historical trends in home prices;

• loan product type;

• delinquency/default status and history;

• actual and estimated rates of collateral loss severity for similar loans;

• geographic location;

• loan age;

• sourcing channel;

• occupancy type;

• UPB at origination;

• expected ability to partially mitigate losses through loan modification or other alternatives to foreclosure;

• expected proceeds from mortgage insurance contracts that are contractually attached to a loan or other credit 

enhancements that were entered into contemporaneously with and in contemplation of a guarantee or loan purchase 

transaction;

• expected repurchases of mortgage loans by seller/servicers;

• counterparty credit of mortgage insurers and seller/servicers;

• pre-foreclosure real estate taxes and insurance;

• estimated selling costs should the underlying property ultimately be sold; and

• trends in the timing of foreclosures.

For additional information on estimated current LTV ratios and single-family loan loss reserves, see “NOTE 4: 

MORTGAGE LOANS AND LOAN LOSS RESERVES — Credit Quality of Mortgage Loans.”

Freddie Mac relies upon third-parties to provide primary servicing for the performing and non-performing loan portfolio. 

At loan delivery, the seller provides us with the loan data, which includes loan characteristics and underwriting information. 

Each month, the servicers provide us with monthly loan level servicing data, including delinquency and loss information.

Certain loan servicing data is reported to us on a real-time basis, such as loan pay-offs and foreclosure events. However, 

certain monthly servicing data, including delinquency status, is delivered on a one-month delay. For example, December loan 

delinquency data delivered to Freddie Mac at the end of December or beginning of January reflects the loan delinquency status 

related to the December 1 payment cycle. We incorporate the delinquency status data into our allowance for loan loss 

calculation generally without adjustment for the one-month delay.

Our single-family loan loss reserve default models are estimated based on the most recent 12 months of actual loan 

performance data, including loan status and delinquency data reported by our servicers. The loan performance data provides a 

loan level history of delinquency, foreclosures, foreclosure alternatives, modifications, and seller/servicer repurchases. Our 

single-family loan loss reserve severity is estimated from the most recent: (a) three months of sales experience realized on our 

distressed property dispositions; and (b) six months of mortgage insurance recoveries and pre-foreclosure expenses on our 

distressed properties including REO, short sales, and third-party sales. Our single-family loan loss severity estimate also 

captures current business area practices and expectations about recoveries due to seller/servicer repurchases. We use historical 

trends in home prices in our single-family loan loss reserve process, primarily through the use of estimated current total LTV

ratios in our default models and through the use of recent home price sales experience in our severity estimate. However, we do 

not use a forecast of trends in home prices in our single-family loan loss reserve process.

Our loan loss reserves reflect our best current estimates of incurred losses. Our loan loss reserve estimate includes 

projections related to loss mitigation activities, including loan modifications for troubled borrowers, and projections of 

recoveries through repurchases by seller/servicers of defaulted loans due to failure to follow contractual underwriting 

requirements at the time of the loan origination. These projections are based on our recent historical experience and current 

business practices and require significant management judgment. We monitor our projections of recoveries through seller/

servicer repurchases to ensure that these projections are reasonable and consistent with our assessment of the credit capacity of 

our seller/servicer counterparties. For loans where foreclosure is probable, impairment is measured on an aggregate basis based 

upon an estimate of the underlying collateral value. At an individual loan level, our estimate also considers the effect of 

historical home price changes on borrower behavior and the impact of our loss mitigation actions, including our loan 

modification efforts.

Our reserve estimate also reflects our best projection of defaults we believe are likely to occur as a result of loss events 

that have occurred through December 31, 2013 and 2012, respectively. However, fluctuations in the national housing market, 

Table of Contents
181 Freddie Mac

the uncertainty in other macroeconomic factors, and variations in success rates of modification efforts under HAMP and other 

loan workout programs, make estimating defaults inherently imprecise.

We validate and update our models and factors to capture changes in actual loss experience, as well as the effects of 

changes in underwriting practices and in our loss mitigation strategies. We also consider macroeconomic and other factors that 

impact the quality of the loans underlying our portfolio including regional housing trends, applicable home price indices, 

unemployment and employment dislocation trends, the effects of changes in government policies and programs, consumer 

credit statistics, and the extent of third-party insurance. We consider our assessment of these factors in determining our loan 

loss reserves.

We apply proceeds from primary mortgage insurance that is contractually attached to a loan and other credit 

enhancements, including repurchase recoveries, entered into contemporaneously with and in contemplation of a guarantee or 

loan purchase transaction, as a recovery of our recorded investment in a charged-off loan, up to the amount of loss recognized 

as a charge-off. Proceeds from credit enhancements received in excess of our recorded investment in charged-off loans are 

recorded as a decrease to REO operations expense in our consolidated statements of comprehensive income when received. We 

record receivables for proceeds from primary mortgage insurance and other credit enhancements, including repurchase 

recoveries, when the proceeds are estimable and collectability is reasonably assured. We generally accrue receivables for 

primary mortgage insurance, pool insurance, and most other types of credit enhancements as we have a history of collection of 

these types of recoveries and the amounts are estimable based on the contractual terms of the agreements. However, due to the 

uncertainty of the timing and amount of collections of repurchase recoveries, we generally do not accrue receivables for 

repurchase recoveries and instead record repurchase recoveries received on a cash basis.

Multifamily Loans

For multifamily loans identified as impaired, we individually determine the loan loss reserves. Refer to “Impaired Loans” 

below for further discussion on individually impaired multifamily loans. Multifamily loans evaluated collectively for 

impairment are aggregated into book year vintages and measured by benchmarking published historical commercial mortgage 

data to those vintages based upon available economic data related to multifamily real estate, including apartment vacancy and 

rental rates. 

Impaired Loans

We consider a loan to be impaired when it is probable, based on current information, that we will not receive all amounts 

due (including both principal and interest) in accordance with the contractual terms of the original loan agreement. Delays in 

the timing of our expected receipt of these amounts that are more than insignificant are considered in making this assessment.

Single-Family Loans

Individually impaired single-family loans primarily include loans that have undergone a TDR. These loans are measured 

individually for impairment as discussed in the "Troubled Debt Restructurings" section of this note that follows. All other 

single-family loans are aggregated and measured collectively for impairment based on similar risk characteristics. Collective 

impairment is measured as described above in the “Allowance for Loan Losses and Reserve for Guarantee Losses — SingleFamily Loans” section of this note. If we determine that foreclosure on the underlying collateral is probable, we measure 

impairment based upon the fair value of the collateral, as reduced by estimated disposition costs and adjusted for estimated 

proceeds from insurance and similar sources. Interest income recognition on impaired single-family loans is discussed 

separately in the "Mortgage Loans — Non-Performing Loans" section of this note above. 

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, but are not limited to, the underlying property’s operating performance as represented by its current DSCR, available 

credit enhancements, estimated 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 “Mortgage Loans — NonPerforming Loans.”

Troubled Debt Restructurings

Both single-family and multifamily loans which experience a modification to their contractual terms which results in a 

concession being granted to a borrower experiencing financial difficulties are considered TDRs. A concession is deemed 

granted when, as a result of the restructuring, we do not expect to collect all amounts due, including interest accrued, at the 

Table of Contents
182 Freddie Mac

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 a delay in payment that is insignificant to be a concession. We generally 

consider a delay in monthly amortizing payments of three months or less to be insignificant. We generally consider all other 

delays to be more than insignificant. A concession typically includes one or more of the following being granted to the 

borrower: (a) a trial period where the expected permanent modification will change our expectation of collecting all amounts 

due at the original contract rate; (b) a delay in payment that is more than insignificant; (c) a reduction in the contractual interest 

rate; (d) interest forbearance for a period of time that is not insignificant or forgiveness of accrued but uncollected interest 

amounts; (e) principal forbearance that is more than insignificant or a reduction in the principal amount of the loan; and 

(f) discharge of the borrower’s obligation in Chapter 7 bankruptcy.

On July 1, 2011, we adopted an amendment to the accounting guidance related to the classification of loans as TDRs. 

This amendment clarified when a restructuring such as a loan modification is considered a TDR. For additional information, 

see “Recently Adopted Accounting Guidance — A Creditor’s Determination of Whether a Restructuring is a Troubled Debt 

Restructuring,” below.

Impairment of a loan having undergone a TDR is 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 “Mortgage Loans — Non-Performing Loans” above, 

with all other changes in the present value of expected future cash flows being recognized as a component of the provision for 

credit losses in our consolidated statements of comprehensive income.

Investments in Securities

Investments in securities consist primarily of mortgage-related securities. We classify securities as “available-for-sale” or 

“trading.” We currently do not classify any securities as “held-to-maturity,” although we may elect to do so in the future. 

Securities classified as available-for-sale and trading are reported at fair value with changes in fair value included in AOCI and 

other gains (losses) on investment securities recognized in earnings, respectively. See “NOTE 16: FAIR VALUE 

DISCLOSURES” for more information on how we determine the fair value of securities.

We elected the fair value option for certain available-for-sale mortgage-related securities, including investments in 

securities that: (a) can contractually be prepaid or otherwise settled in such a way that we may not recover substantially all of 

our initial recorded investment; or (b) are not of high credit quality at the acquisition date and are identified as within the scope 

of the accounting guidance for investments in beneficial interests in securitized financial assets. 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. For additional information on our election of the 

fair value option, see “NOTE 16: FAIR VALUE DISCLOSURES.”

We record purchases and sales of securities that are exempt from the accounting guidance for derivatives and hedge 

accounting on a trade date basis. Securities underlying forward purchases and sales contracts that are not exempt from the 

requirements of derivatives and hedge accounting are recorded on the expected settlement date with a corresponding 

commitment recorded on the trade date.

For most of our investments in securities, interest income is recognized using the effective interest method. Deferred 

items, including premiums, discounts, and other basis adjustments, are amortized into interest income over the contractual lives 

of the securities.

For certain investments in securities, interest income is recognized using the prospective effective interest method. We 

specifically apply this accounting to beneficial interests in securitized financial assets that: (a) can contractually be prepaid or 

otherwise settled in such a way that we may not recover substantially all of our recorded investment; (b) are not of high credit 

quality at the acquisition date; or (c) have been determined to be other-than-temporarily impaired. We recognize as interest 

income (over the life of these securities) the excess of all estimated cash flows attributable to these interests over their book 

value using the effective interest method. We update our estimates of expected cash flows periodically and recognize changes 

in the calculated effective interest rate on a prospective basis.

We evaluate available-for-sale securities in an unrealized loss position as of the end of each quarter for other-thantemporary impairment. An unrealized loss exists when the fair value of an individual security is less than its amortized cost 

basis. As discussed further below, certain other-than-temporary impairment losses are recognized in earnings.

If we intend to sell the security or believe it is more likely than not that we will be required to sell the security prior to 

recovery of its amortized cost basis, the security’s entire decline in fair value is deemed to be other-than-temporary and is 

recorded within our consolidated statements of comprehensive income as net impairment of available-for-sale securities 

recognized in earnings. If we do not intend to sell the security and we believe it is not more likely than not that we will be 

Table of Contents
183 Freddie Mac

required to sell prior to recovery of the security’s unrealized loss, we recognize only the credit component of other-thantemporary 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 the 

amortized cost basis of the security. The present value of expected future cash flows represents our estimate of future 

contractual cash flows that we expect to collect, discounted at the original effective interest rate or the effective interest rate 

determined based on significantly improved cash flows subsequent to initial impairment. 

The evaluation of whether unrealized losses on available-for-sale securities are other-than-temporary requires significant 

management judgments and assumptions and consideration of numerous factors. We perform an evaluation on a security-bysecurity basis considering all available information. The relative importance of this information varies based on the facts and 

circumstances surrounding each security, as well as the economic environment at the time of assessment. For information 

regarding important factors, judgments and assumptions, see “NOTE 7: INVESTMENTS IN SECURITIES — Impairment 

Recognition on Investments in Securities.”

Gains and losses on the sale of securities are included in other gains (losses) on investment securities recognized in 

earnings, including those gains (losses) reclassified into earnings from AOCI. We use the specific identification method for 

determining the cost basis of a security in computing the gain or loss.

For securities classified as trading or available-for-sale and those securities where we elected the fair value option, we 

classify the cash flows as investing activities because we hold these securities for investment purposes. In cases where the 

transfer of available-for-sale securities represents a secured borrowing, we classify the related cash flows as financing 

activities.

Repurchase and Resale Agreements and Dollar Roll Transactions

We enter into repurchase and resale agreements primarily as an investor or to finance certain of our security positions. 

Such transactions are accounted for as secured financings because the transferor does not relinquish control over the transferred 

assets.

We also engage in dollar roll transactions whereby we enter into an agreement to sell and subsequently repurchase (or 

purchase and subsequently resell) agency securities. When these transactions involve securities issued by consolidated entities, 

they are treated as issuances and extinguishments of debt. When these transactions involve securities issued by entities we do 

not consolidate, they are treated as purchases and sales as the security initially transferred is not required to be the same or 

substantially the same as the security subsequently returned.

Debt Securities Issued

Debt securities that we issue are classified on our consolidated balance sheets as either debt securities of consolidated 

trusts held by third parties or other debt. The debt securities of our consolidated trusts are prepayable without penalty at any 

time. Other debt represents short-term and long-term debt securities that we issue to third parties to fund our general business 

activities.

Both debt of our consolidated trusts and other debt, except for certain debt for which we elected the fair value option, are 

reported at amortized cost. Deferred items, including premiums, discounts, and hedging-related basis adjustments are reported 

as a component of total debt, net. Issuance costs are reported as a component of other assets. These items are amortized and 

reported through interest expense using the effective interest method over the contractual life of the related indebtedness. 

Amortization of premiums, discounts, and issuance costs begins at the time of debt issuance. Amortization of hedging-related 

basis adjustments begins upon the discontinuation of the related hedge relationship.

We elected the fair value option on certain debt securities of consolidated trusts held by third parties and certain other 

debt. The change in fair value for debt recorded at fair value is reported as 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. For additional information on our election of the fair value option, see “NOTE 16: FAIR VALUE 

DISCLOSURES.”

When we repurchase or call outstanding debt securities, we recognize a gain or loss related to the difference between the 

amount paid to redeem the debt security and the carrying value in earnings as a component of gains (losses) on retirement of 

other debt. Contemporaneous transfers of cash between us and a creditor in connection with the issuance of a new debt security 

and satisfaction of an existing debt security are accounted for as either an extinguishment or a modification of an existing debt 

security. If the debt securities have substantially different terms, the transaction is accounted for as an extinguishment of the 

existing debt security. The issuance of a new debt security is recorded at fair value, fees paid to the creditor are expensed and 

fees paid to third parties are deferred and amortized into interest expense over the life of the new debt security using the 

effective interest method. If the terms of the existing debt security and the new debt security are not substantially different, the 

transaction is accounted for as a modification of the existing debt. Fees paid to the creditor are deferred and amortized over the 

life of the modified unsecured debt security using the effective interest method and fees paid to third parties are expensed as 

incurred.

Table of Contents
184 Freddie Mac

Cash flows related to debt securities issued by our consolidated trusts are classified as either financing activities (e.g., 

repayment of principal to PC holders) or operating activities (e.g., interest payments to PC holders included within net income 

(loss)). Other than interest paid, cash flows related to other debt are classified as financing activities. Interest paid on other debt 

is classified as operating activities. 

Derivatives

Derivatives are reported at their fair value on our consolidated balance sheets. Derivatives in a net asset position, 

including net derivative interest receivable or payable, are reported as derivative assets, net. Similarly, derivatives in a net 

liability position, including net derivative interest receivable or payable, are reported as derivative liabilities, net. We offset fair 

value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value 

amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement. Changes 

in fair value and interest accruals on derivatives are recorded as derivative gains (losses) in our consolidated statements of 

comprehensive income.

We evaluate whether financial instruments that we purchase or issue contain embedded derivatives. We elected to 

measure newly acquired or issued financial instruments that contain embedded derivatives at fair value, with changes in fair 

value recorded in our consolidated statements of comprehensive income.

At December 31, 2013 and 2012, we did not have any derivatives in hedge accounting relationships; however, there are 

amounts recorded in AOCI related to discontinued cash flow hedges which are recognized in earnings when the originally 

forecasted transactions affect earnings. If it becomes probable the originally forecasted transaction will not occur, the associated 

deferred gain or loss in AOCI would be reclassified to earnings immediately.

In the consolidated statements of cash flows, cash flows related to the acquisition and termination of derivatives, other 

than forward commitments, are generally classified in investing activities. Cash flows related to forward commitments are 

classified within the section of the consolidated statements of cash flows in accordance with the cash flows of the financial 

instruments to which they relate.

REO

REO is initially recorded at fair value less costs to sell and is subsequently carried at the lower of cost or fair value less 

costs to sell. When we acquire REO, losses arise when the carrying value of the loan (including accrued interest) exceeds the 

fair value of the foreclosed property, net of estimated costs to sell and expected recoveries through credit enhancements. Losses 

are charged off against the allowance for loan losses at the time of REO acquisition. REO gains arise and are recognized 

immediately in earnings when the fair value of the foreclosed property less costs to sell plus expected recoveries through credit 

enhancements exceeds the recorded investment in the loan (including all amounts due from the borrower).

Amounts we expect to receive from third-party insurance (primary mortgage insurance and pool insurance) and most 

other credit enhancements are recorded as receivables when REO is acquired. The receivable is adjusted when the actual claim 

is filed and is reported as a component of other assets on our consolidated balance sheets. We do not record receivables for 

repurchase recoveries. We record these on a cash basis due to uncertainty of the timing and amount of collections.

Material development and improvement costs relating to REO are capitalized. Operating expenses specifically 

identifiable with an REO property are included in REO operations income (expense) in our consolidated statements of 

comprehensive income; all other expenses are recognized within other administrative expenses in our consolidated statements 

of comprehensive income. Declines in the fair value of REO are provided for and charged to REO operations income 

(expense). Any gains and losses from REO dispositions are included in REO operations income (expense).

Income Taxes

We use the asset and liability method of accounting for income taxes 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. To the extent tax laws change, deferred tax assets and liabilities 

are adjusted, when necessary, in the period that the tax change is enacted. Valuation allowances are recorded to reduce net 

deferred tax assets when it is more likely than not that all or part of our tax benefits will not be realized. The realization of these 

net deferred tax assets is dependent upon the generation of sufficient taxable income from current operations and from 

unrecognized tax benefits. 

Income tax benefit (expense) includes: (a) deferred tax benefit (expense), which represents the net change in the deferred 

tax asset or liability balance during the year plus any change in a valuation allowance; and (b) current tax benefit (expense), 

which represents the amount of tax currently payable to or receivable from a tax authority including any related interest and 

penalties plus amounts accrued for unrecognized tax benefits (also including any related interest and penalties). Income tax 

benefit (expense) excludes the tax effects related to adjustments recorded to equity, such as unrealized gains and losses related 

to available-for-sale securities.

Table of Contents
185 Freddie Mac

Regarding tax positions taken or expected to be taken (and any associated interest and penalties), we recognize a tax 

position so long as it is more likely than not that it will be sustained upon examination, including resolution of any related 

appeals or litigation processes, based on the technical merits of the position. We measure the tax position at the largest amount 

of benefit that is greater than 50% likely of being realized upon ultimate settlement. See “NOTE 12: INCOME TAXES” for 

additional information.

Earnings Per Common Share

The August 2012 amendment to the Purchase Agreement changed the manner in which the dividend on the senior 

preferred stock is determined. For each quarter from January 1, 2013 through and including December 31, 2017, the dividend 

payment will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less 

the applicable Capital Reserve Amount, exceeds zero. For each quarter beginning January 1, 2018, the dividend payment will 

be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter exceeds zero. The 

dividend is presented in 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.

We have participating securities related to options and restricted stock units with dividend equivalent rights that receive 

dividends as declared on an equal basis with common shares but are not obligated to participate in undistributed net losses. 

These participating securities consist of: (a) vested options to purchase common stock; and (b) vested and unvested restricted 

stock units that earn dividend equivalents at the same rate when and as declared on common stock. Consequently, in 

accordance with accounting guidance, we use the “two-class” method of computing earnings per common share. The “twoclass” method is an earnings allocation formula that determines earnings per share for common stock and participating 

securities based on dividends declared and participation rights in undistributed earnings.

Basic earnings per common share is computed as net income attributable to common stockholders divided by the 

weighted average common shares outstanding for the period. The weighted average common shares outstanding for the period 

includes the weighted average number of shares that are associated with the warrant for our common stock issued to Treasury 

pursuant to the Purchase Agreement. This warrant is included since it is unconditionally exercisable by the holder at a minimal 

cost. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS” for further information.

Diluted earnings per common share is computed as net income attributable to common stockholders divided by the 

weighted average common shares outstanding during the period adjusted for the dilutive effect of common equivalent shares 

outstanding. For periods with net income attributable to common stockholders, the calculation includes the effect of the 

following common equivalent shares outstanding: (a) the weighted average shares related to stock options if the average market 

price during the period exceeds the exercise price; and (b) the weighted average of unvested restricted stock units. During 

periods in which a net loss attributable to common stockholders has been incurred, potential common equivalent shares 

outstanding are not included in the calculation because it would have an antidilutive effect. See “NOTE 11: 

STOCKHOLDERS’ EQUITY (DEFICIT) — Stock-Based Compensation” for additional information on our earnings-per-share 

calculation.

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: (a) the unrealized 

gains and losses on available-for-sale securities; (b) the effective portion of derivatives accounted for as cash flow hedge 

relationships; and (c) defined benefit plans.

Recently Adopted Accounting Guidance

Fair Value Measurement

On January 1, 2012, we adopted an amendment to the accounting guidance pertaining to fair value measurement and 

disclosure. This amendment provided: (a) clarification about the application of existing fair value measurement and disclosure 

requirements; and (b) changes to the guidance for measuring fair value and disclosing information about fair value 

measurements. The adoption of this amendment did not have a material impact on our consolidated financial statements.

Reconsideration of Effective Control for Repurchase Agreements

On January 1, 2012, we adopted an amendment to the accounting guidance for transfers and servicing with regard to 

repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets 

before their maturity. This amendment removed the criterion related to collateral maintenance from the transferor’s assessment 

of effective control. It focuses the assessment of effective control on the transferor’s rights and obligations with respect to the 

transferred financial assets and not whether the transferor has the practical ability to perform in accordance with those rights or 

obligations. The adoption of this amendment did not have a material impact on our consolidated financial statements.

A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring

Table of Contents
186 Freddie Mac

On July 1, 2011, we adopted an amendment to the accounting guidance related to the classification of loans as TDRs, 

which clarifies when a restructuring such as a loan modification is considered a TDR. This amendment clarifies the guidance 

regarding a creditor’s evaluation of whether a debtor is experiencing financial difficulty and whether a creditor has granted a 

concession to a debtor for purposes of determining if a restructuring constitutes a TDR.

Both single-family and multifamily loans that experience restructurings resulting in a concession being granted to a 

borrower experiencing financial difficulties are considered TDRs. The amendment provides guidance to determine whether a 

borrower is experiencing financial difficulties, which is largely consistent with the guidance for debtors. This change does not 

have a significant impact on our determination of whether a borrower is experiencing financial difficulties. Pursuant to this 

amendment, a concession is deemed to have been granted when, as a result of the restructuring, we do not expect to collect all 

amounts due, including interest accrued, at the original contractual interest rate. The amendment also specifies that a 

concession shall not be determined by comparing the borrower’s pre-restructuring effective interest rate to the postrestructuring effective interest rate. These changes resulted in a significant impact on our determination of whether a 

concession has been granted.

The amendment was effective for interim and annual periods beginning on or after June 15, 2011 and applied as of July 1, 

2011 to restructurings occurring on or after January 1, 2011. We recognized additional provision for credit losses of $0.2 billion

during the third quarter of 2011 due to the population of restructurings occurring in the first half of 2011 that became TDRs.

Please refer to “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for further disclosures 

regarding our loan restructurings accounted for and disclosed as TDRs and for discussion regarding how modifications and 

other loss mitigation activities are factored into our allowance for loan losses.

Recently Issued Accounting Guidance, Not Yet Adopted Within These Consolidated Financial Statements

Accounting for Investments in Qualified Affordable Housing Projects

In January 2014, the FASB issued an amendment to the accounting guidance related to accounting for investments in 

qualified affordable housing projects. This amendment permits entities to elect to account for their investments in qualified 

affordable housing projects using the proportional amortization method if certain conditions are met. The amendment is 

effective for interim and annual periods beginning after December 15, 2014 and is to be applied retrospectively, with early 

adoption permitted. We do not expect that the adoption of this amendment will have a material impact on our consolidated 

financial statements. 

Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure

In January 2014, the FASB issued an amendment to the accounting guidance related to reclassifying residential real estate 

collateralized consumer mortgage loans upon foreclosure. This amendment clarifies that a creditor is considered to have 

received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the 

creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower 

conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in 

lieu of foreclosure or through a similar legal agreement. This amendment is effective for interim and annual periods beginning 

after December 15, 2014 with early adoption permitted. This amendment can be adopted either prospectively or retrospectively. 

We do not expect that the adoption of this amendment will have a material impact on our consolidated financial statements.

NOTE 2: CONSERVATORSHIPAND RELATED MATTERS

Entry Into Conservatorship

On September 6, 2008, the Director of FHFA placed us into conservatorship. On September 7, 2008, Treasury and FHFA

announced several actions regarding Freddie Mac and Fannie Mae. These actions included the execution of the Purchase 

Agreement, pursuant to which we issued to Treasury both senior preferred stock and a warrant to purchase common stock.

Business Objectives

We continue to operate under the direction of FHFA, as our Conservator. The conservatorship and related matters have 

had a wide-ranging impact on us, including our management, business, financial condition and results of operations. Upon its 

appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and privileges of Freddie Mac, and of 

any stockholder, officer or director thereof, with respect to the company and its assets. The Conservator also succeeded to the 

title to all books, records, and assets of Freddie Mac held by any other legal custodian or third party. During the 

conservatorship, the Conservator has delegated certain authority to the Board of Directors to oversee, and management to 

conduct 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 also subject to certain constraints on our business activities imposed by Treasury due to the terms of, and 

Treasury’s rights under, the Purchase Agreement. However, we believe that the support provided by Treasury pursuant to the 

Purchase Agreement currently enables us to maintain our access to the debt markets and to have adequate liquidity to conduct 

our normal business activities, although the costs of our debt funding could vary. Our ability to access funds from Treasury 

under the Purchase Agreement is critical to keeping us solvent.

Table of Contents
187 Freddie Mac

The Conservator continues to determine, and direct the efforts of the Board of Directors and management to address, the 

strategic direction for the company. While the Conservator has delegated certain authority to management to conduct business 

operations, many management decisions are subject to review and approval by FHFA and Treasury. In addition, management 

frequently receives directions from FHFA on various matters involving day-to-day operations.

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

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. However, some of our initiatives are expected to have an adverse impact on our near- and long-term financial 

results. Given the important role the Administration and our Conservator have placed on Freddie Mac in addressing housing 

and mortgage market conditions and our public mission, we may be required to take additional actions that could have a 

negative impact on our business, operating results or financial condition.

The Conservator is requiring us to contract our presence in the mortgage market and simplify our operations. The 

Conservator also stated that it is focusing on retaining value in the business operations of Freddie Mac and Fannie Mae, 

overseeing remediation of identified weaknesses in corporate operations and risk management, and ensuring that sound 

corporate governance principles are followed.

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

and Fannie Mae. The plan set forth objectives and steps FHFA is taking or will take to meet FHFA’s obligations as Conservator. 

FHFA stated that the steps envisioned in the plan are consistent with each of the housing finance reform frameworks set forth in 

the report delivered by the Administration to Congress in February 2011, as well as with the leading congressional proposals 

previously introduced. FHFA indicated that the plan leaves open all options for Congress and the Administration regarding the 

resolution of the conservatorships and the degree of government involvement in supporting the secondary mortgage market in 

the future.

FHFA’s plan provides lawmakers and the public with an outline of how FHFA, as Conservator, intends to guide Freddie 

Mac and Fannie Mae over the next few years, and identifies three strategic goals:

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

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

and shrinking their operations. 

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

The Conservatorship Scorecards, instituted by FHFA, established objectives, performance targets and measures, and 

provided the implementation roadmap for FHFA’s strategic plan. We continue to align our resources and internal business plans 

to meet the goals and objectives provided to us by FHFA.

There is significant uncertainty as to the ultimate impact that our efforts to aid the housing and mortgage markets, 

including our efforts in connection with the MHA Program, will have on our future capital or liquidity needs. We are allocating 

significant internal resources to the implementation of the various initiatives under the MHA Program and to the servicing 

alignment initiative, which has increased, and will continue to increase, our expenses. We cannot currently estimate whether, or 

the extent to which, costs incurred in the near term from HAMP, HARP, or other MHA Program efforts may be offset, if at all, 

by the prevention or reduction of potential future costs of serious delinquencies and foreclosures due to these initiatives.

There is significant uncertainty as to our future, as the conservatorship has no specified termination date, and it is 

unknown what changes may occur to our business model during or following conservatorship, including whether we will 

continue to exist. The then Acting Director of FHFA stated on September 19, 2011 that “it ought to be clear to everyone at this 

point, given [Freddie Mac and Fannie Mae’s] losses since being placed into conservatorship and the terms of the Treasury’s 

financial support agreements, that [Freddie Mac and Fannie Mae] will not be able to earn their way back to a condition that 

allows them to emerge from conservatorship.” The then Acting Director of FHFA stated on November 15, 2011 that “the longterm outlook is that neither [Freddie Mac nor Fannie Mae] will continue to exist, at least in its current form, in the future.” We 

are not aware of any current plans of our Conservator to significantly change our business model or capital structure in the 

near-term. Our future structure and role will be determined by the Administration and Congress, and there are likely to be 

significant changes beyond the near-term. We have no ability to predict the outcome of these deliberations.

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

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

in which the private sector is the dominant provider of mortgage credit. The report recommends winding down Freddie Mac 

and Fannie Mae, and states that the Administration will work with FHFA to determine the best way to responsibly reduce the 

role of Freddie Mac and Fannie Mae in the market and ultimately wind down both institutions. The report states that these 

efforts must be undertaken at a deliberate pace, which takes into account the impact that these changes will have on borrowers 

and the housing market.

Table of Contents
188 Freddie Mac

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

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

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

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

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

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

The report identifies a number of policy levers that could be used to wind down Freddie Mac and Fannie Mae, shrink the 

government’s footprint in housing finance, and help bring private investors back to the mortgage market, including increasing 

guarantee fees, phasing in a 10% down payment requirement, reducing conforming loan limits, and winding down Freddie Mac 

and Fannie Mae’s investment portfolios, consistent with the senior preferred stock purchase agreements. These 

recommendations, if implemented, would have a material impact on our business volumes, market share, results of operations, 

and financial condition.

On December 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011. 

Among its provisions, this law directed FHFA to require Freddie Mac and Fannie Mae to increase guarantee fees by no less 

than 10 basis points above the average guarantee fees charged in 2011 on single-family mortgage-backed securities. Effective 

April 1, 2012, at the direction of FHFA, the guarantee fee on single-family residential mortgages sold to Freddie Mac and 

Fannie Mae was increased by 10 basis points. Under the law, the proceeds we receive from this increase are being remitted to 

Treasury to fund the payroll tax cut, rather than retained by us.

On August 31, 2012, FHFA announced that it had directed Freddie Mac and Fannie Mae to further increase guarantee 

fees on single-family mortgages by an average of 10 basis points, which was implemented in 2012. In December 2013, FHFA

announced a number of additional changes to our (and Fannie Mae's) guarantee fee rates that were scheduled to become 

effective in March and April of 2014. In January 2014, FHFA announced that it was delaying the implementation of these 

changes.

Purchase Agreement

Overview

On September 7, 2008, we, through FHFA, in its capacity as Conservator, and Treasury entered into the Purchase 

Agreement. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended on 

May 6, 2009, December 24, 2009, and August 17, 2012. Under the Purchase Agreement, the $200 billion maximum amount of 

the commitment from Treasury was increased to accommodate the cumulative reduction in our net worth during 2010, 2011 

and 2012. The amount of available funding remaining under the Purchase Agreement was $140.5 billion as of December 31, 

2013. This amount will be 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 GAAP balance 

sheet). In addition, the Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to us if the 

Conservator determines, at any time, that it will be mandated by law to appoint a receiver for us unless we receive these funds 

from Treasury. In exchange for Treasury’s funding commitment, we issued to Treasury, as an aggregate initial commitment fee: 

(a) one million shares of Variable Liquidation Preference Senior Preferred Stock (with an initial liquidation preference of $1 

billion), which we refer to as the senior preferred stock; and (b) a warrant to purchase, for a nominal price, shares of our 

common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the 

time the warrant is exercised, which we refer to as the warrant. We received no other consideration from Treasury for issuing 

the senior preferred stock or the warrant.

Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as and if 

declared by our Board of Directors. Through December 31, 2012, the senior preferred stock accrued quarterly cumulative 

dividends at a rate of 10% per year. However, under the August 2012 amendment to the Purchase Agreement, the fixed 

dividend rate was replaced with a net worth sweep dividend beginning in the first quarter of 2013. 

For each quarter from January 1, 2013 through and including December 31, 2017, the dividend payment will be the 

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

Capital Reserve Amount, exceeds zero. The term Net Worth Amount is defined as: (a) the total assets of Freddie Mac 

(excluding Treasury’s commitment and any unfunded amounts thereof), less; (b) our total liabilities (excluding any obligation 

in respect of capital stock), in each case as reflected on our consolidated balance sheets prepared in accordance with GAAP. If 

the calculation of the dividend payment for a quarter does not exceed zero, then no dividend will accrue or be payable for that 

quarter. The applicable Capital Reserve Amount was $3 billion for 2013, will be $2.4 billion for 2014, and will be reduced by 

$600 million each year thereafter until it reaches zero on January 1, 2018. For each quarter beginning January 1, 2018, the 

dividend payment will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal 

quarter exceeds zero. The amounts payable for dividends on the senior preferred stock could be substantial and will have an 

adverse impact on our financial position and net worth. To the extent we draw on Treasury’s funding commitment, the 

Table of Contents
189 Freddie Mac

liquidation preference of the senior preferred stock is increased by the amount of funds we receive. The senior preferred stock 

is senior in liquidation preference to our common stock and all other series of preferred stock.

As a result of the net worth sweep dividend provisions of the senior preferred stock, we do not have the authority over the 

long term to build and retain capital from the earnings generated by our business operations, or return capital to stockholders 

other than Treasury. 

In addition to the issuance of the senior preferred stock and warrant, we are required under the Purchase Agreement to 

pay a quarterly commitment fee to Treasury. Under the Purchase Agreement, the fee is to be determined in an amount mutually 

agreed to by us and Treasury with reference to the market value of Treasury’s funding commitment as then in effect. However, 

pursuant to the August 2012 amendment to the Purchase Agreement, for each quarter commencing January 1, 2013, and for as 

long as the net worth sweep dividend provisions remain in form and content substantially the same, no periodic commitment 

fee under the Purchase Agreement will be set, accrue or be payable. Treasury had previously waived the fee for all prior 

quarters.

Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred stock is limited and 

we will not be able to do so for the foreseeable future, if at all. The aggregate liquidation preference of the senior preferred 

stock will increase further if we receive additional draws under the Purchase Agreement or if any dividends or quarterly 

commitment fees payable under the Purchase Agreement are not paid in cash (this quarterly commitment fee has been 

suspended). We may need to make additional draws in future periods due to a variety of factors that could adversely affect our 

net worth.

The Purchase Agreement includes significant restrictions on our ability to manage our business, including limiting the 

amount of indebtedness we can incur and capping the size of our mortgage-related investments portfolio. While the senior 

preferred stock is outstanding, we are prohibited from paying dividends (other than on the senior preferred stock) or issuing 

equity securities without Treasury’s consent.

The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include the 

end of the conservatorship. The Purchase Agreement therefore could continue after the conservatorship ends. Treasury has the 

right to exercise the warrant, in whole or in part, at any time on or before September 7, 2028.

Purchase Agreement Covenants

The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not, without 

the prior written consent of Treasury:

• declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac 

equity securities (other than with respect to the senior preferred stock or warrant);

• redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock or 

warrant);

• sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common stock 

issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect on the 

date of the Purchase Agreement);

• terminate the conservatorship (other than in connection with a receivership);

• sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited life 

regulated entity (in the context of a receivership); (b) of assets and properties in the ordinary course of business, 

consistent with past practice; (c) of assets and properties having fair market value individually or in aggregate less than 

$250 million in one transaction or a series of related transactions; (d) in connection with our liquidation by a receiver; 

(e) of cash or cash equivalents for cash or cash equivalents; or (f) to the extent necessary to comply with the covenant 

described below relating to the reduction of our mortgage-related investments portfolio;

• issue any subordinated debt;

• enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or

• engage in transactions with affiliates unless the transaction is: (a) pursuant to the Purchase Agreement, the senior 

preferred stock or the warrant; (b) upon arm’s length terms; or (c) a transaction undertaken in the ordinary course or 

pursuant to a contractual obligation or customary employment arrangement in existence on the date of the Purchase 

Agreement.

The covenants generally also apply to our subsidiaries.

The Purchase Agreement also requires us to reduce the amount of mortgage assets we own. The Purchase Agreement, as 

revised in the August 2012 amendment, provides that we could not own mortgage assets with UPB in excess of $650 billion on 

December 31, 2012 and on December 31 of each year thereafter, may not own mortgage assets with UPB in excess of 85% of 

the aggregate amount of mortgage assets we are permitted to own as of December 31 of the immediately preceding calendar 

year, provided that we are not required to own less than $250 billion in mortgage assets. Under the Purchase Agreement, we 

Table of Contents
190 Freddie Mac

also may not incur indebtedness that would result in the par value of our aggregate indebtedness exceeding 120% of the amount 

of mortgage assets we are permitted to own on December 31 of the immediately preceding calendar year. The mortgage asset 

and indebtedness limitations are determined without giving effect to the changes to the accounting guidance for transfers of 

financial assets and consolidation of VIEs, under which we consolidated our single-family PC trusts and certain of our Other 

Guarantee Transactions in our financial statements as of January 1, 2010.

In addition, the Purchase Agreement provides that we may not enter into any new compensation arrangements or increase 

amounts or benefits payable under existing compensation arrangements of any named executive officer or other executive 

officer (as such terms are defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary 

of the Treasury.

The Purchase Agreement also provides that, on an annual basis, we are required to deliver a risk management plan to 

Treasury setting out our strategy for reducing our enterprise-wide risk profile and the actions we will take to reduce the 

financial and operational risk associated with each of our reportable business segments.

Warrant Covenants

The warrant we issued to Treasury includes, among others, the following covenants: (a) our SEC filings under the 

Exchange Act will comply in all material respects as to form with the Exchange Act and the rules and regulations thereunder; 

(b) 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; (c) we may not take any 

action that will result in an increase in the par value of our common stock; (d) 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 (e) we must provide Treasury 

with prior notice of specified actions relating to our common stock, such as setting a record date for a dividend payment, 

granting subscription or purchase rights, authorizing a recapitalization, reclassification, merger or similar transaction, 

commencing a liquidation of the company or any other action that would trigger an adjustment in the exercise price or number 

or amount of shares subject to the warrant.

Termination Provisions

The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of the following 

circumstances: (a) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding commitment at 

that time; (b) the payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including 

mortgage guarantee obligations); and (c) the funding by Treasury of the maximum amount of the commitment under the 

Purchase Agreement. In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null 

and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the Conservator 

or otherwise curtails the Conservator’s powers. Treasury may not terminate its funding commitment under the Purchase 

Agreement solely by reason of our being in conservatorship, receivership or other insolvency proceeding, or due to our 

financial condition or any adverse change in our financial condition.

Waivers and Amendments

The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written 

agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s 

aggregate funding commitment or add conditions to Treasury’s funding commitment if the waiver or amendment would 

adversely affect in any material respect the holders of our debt securities or Freddie Mac mortgage guarantee obligations.

Third-party Enforcement Rights

In the event of our default on payments with respect to our debt securities or Freddie Mac mortgage guarantee 

obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the Conservator are not 

diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage guarantee 

obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to us the lesser 

of: (a) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee obligations; and 

(b) the lesser of: (i) the deficiency amount; and (ii) the maximum amount of the commitment less the aggregate amount of 

funding previously provided under the commitment. Any payment that Treasury makes under those circumstances will be 

treated for all purposes as a draw under the Purchase Agreement that will increase the liquidation preference of the senior 

preferred stock.

Impact of Conservatorship and Related Developments on the Mortgage-Related Investments Portfolio

The UPB of our mortgage-related investments portfolio, for purposes of the limit imposed by the Purchase Agreement, as 

amended on August 17, 2012, and FHFA regulation, may not exceed $553 billion at December 31, 2013 and was $461 billion at 

December 31, 2013. The annual 15% reduction in the size of our mortgage-related investments portfolio until it reaches $250 

billion is calculated based on the maximum allowable size of the mortgage-related investments portfolio, rather than the actual 

UPB of the mortgage-related investments portfolio, as of December 31 of the preceding year. Our ability to acquire and sell 

Table of Contents
191 Freddie Mac

mortgage assets is significantly constrained by limitations of the Purchase Agreement and those imposed by FHFA. The 2013 

Conservatorship Scorecard included a goal to reduce the December 31, 2012 mortgage-related investments portfolio balance 

(exclusive of agency securities, multifamily held-for-sale loans, and single-family loans purchased for cash) by selling 5% of 

less liquid mortgage-related assets. In November 2013, FHFA announced that we had achieved this scorecard objective.

Government Support for our Business

We receive substantial support from Treasury and FHFA, as our Conservator and regulator, and are dependent upon their 

continued support in order to continue operating our business. This support includes our ability to access funds from Treasury 

under the Purchase Agreement, which is critical to: (a) keeping us solvent; (b) allowing us to focus on our primary business 

objectives under conservatorship; and (c) avoiding the appointment of a receiver by FHFA under statutory mandatory 

receivership provisions. At September 30, 2013, 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, 2013. Since conservatorship began through December 31, 2013, we have paid 

cash dividends of $71.3 billion to Treasury at the direction of the Conservator.

At December 31, 2013, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from 

Treasury under the Purchase Agreement for the fourth quarter of 2013.

See “NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS” and “NOTE 11: STOCKHOLDERS’

EQUITY (DEFICIT)” for more information on the terms of the conservatorship and the Purchase Agreement.

Housing Finance Agency Initiative

In 2009, we entered into a Memorandum of Understanding with Treasury, FHFA, and Fannie Mae, which sets forth the 

terms under which Treasury and, as directed by FHFA, we and Fannie Mae, would provide assistance to state and local HFAs 

so that the HFAs can continue to meet their mission of providing affordable financing for both single-family and multifamily 

housing. FHFA directed us and Fannie Mae to participate in the HFA initiative on a basis that is consistent with the goals of 

being commercially reasonable and safe and sound. Treasury’s participation in these assistance initiatives does not affect the 

amount of funding that Treasury can provide to Freddie Mac under the Purchase Agreement.

The primary initiatives are as follows:

• TCLFP — In December 2009, on a 50-50 pro rata basis, Freddie Mac and Fannie Mae agreed to provide $8.2 billion of 

credit and liquidity support, including outstanding interest at the date of the guarantee, for variable rate demand 

obligations, or VRDOs, previously issued by HFAs. This support was provided through the issuance of guarantees, 

which provide credit enhancement to the holders of such VRDOs and also create an obligation to provide funds to 

purchase any VRDOs that are put by their holders and are not remarketed. Treasury provided a credit and liquidity 

backstop on the TCLFP. These guarantees replaced existing liquidity facilities from other providers. The guarantees 

were scheduled to expire on December 31, 2012. However, Treasury gave TCLFP participants the option to extend their 

individual TCLFP facilities to December 31, 2015. Certain participants elected to extend their TCLFP facilities to 

December 2015.

• NIBP — In December 2009, on a 50-50 pro rata basis, Freddie Mac and Fannie Mae agreed to issue in total $15.3 

billion of partially guaranteed pass-through securities backed by new single-family and certain new multifamily 

housing bonds issued by HFAs. Treasury purchased all of the pass-through securities issued by Freddie Mac and Fannie 

Mae. This initiative provided financing for HFAs to issue new housing bonds.

Treasury will bear the initial losses of principal up to 35% of total principal for these two initiatives combined, and 

thereafter Freddie Mac and Fannie Mae each will be responsible only for losses of principal on the securities that it issues to the 

extent that such losses are in excess of 35% of all losses under both initiatives. Treasury will bear all losses of unpaid interest. 

Under both initiatives, we and Fannie Mae were paid fees at the time bonds were securitized and are also paid ongoing fees for 

as long as the bonds remain outstanding.

Related Parties as a Result of Conservatorship

As a result of our issuance to Treasury of the warrant to purchase shares of our common stock equal to 79.9% of the total 

number of shares of our common stock outstanding, on a fully diluted basis, we are deemed a related party to the U.S. 

government. Except for the transactions with Treasury discussed above in “Business Objectives,” “Government Support for our 

Business” and “Housing Finance Agency Initiative” as well as in “NOTE 8: DEBT SECURITIES AND SUBORDINATED 

BORROWINGS,” and “NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT),” no transactions outside of normal business 

activities have occurred between us and the U.S. government (or any of its related parties) during the years ended 

December 31, 2013, 2012 and 2011. 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. On October 7, 2013, FHFA announced the formation of Common Securitization 

Solutions, LLCSM (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 and anticipate entering into additional agreements with 

Fannie Mae relating to CSS in the future. 

Table of Contents
192 Freddie Mac

NOTE 3: VARIABLE INTEREST ENTITIES

We have interests in various entities that are considered to be VIEs, including securitization trusts we use in our securities 

issuance process. We are required to evaluate VIEs at inception and on an ongoing basis. When we determine that we are the 

primary beneficiary of a VIE, we consolidate the assets and liabilities of the trust on our balance sheets. See “NOTE 1: 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Consolidation and Equity Method of Accounting” for further 

information regarding the consolidation of certain VIEs.

VIEs for which We are the Primary Beneficiary

See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Securitization Activities through 

Issuances of Freddie Mac Mortgage-Related Securities” for information on the nature of single-family PC trusts, REMICs and 

Other Structured Securities, and Other Guarantee Transactions.

Single-family PC Trusts

Our single-family PC trusts issue pass-through securities that represent undivided beneficial interests in pools of 

mortgages held by these trusts. PCs are designed so that we bear the credit risk inherent in the loans underlying the PCs through 

our guarantee of principal and interest payments on the PCs. The PC holders bear the interest rate or prepayment risk on the 

mortgage loans and the risk that we will not perform on our obligation as guarantor. For purposes of our consolidation 

assessments, our evaluation of power and economic exposure with regard to PC trusts focuses on credit risk because the credit 

performance of the underlying mortgage loans was identified as the activity that most significantly impacts the economic 

performance of these entities. We have the power to impact the activities related to this risk in our role as guarantor and master 

servicer.

Specifically, in our role as master servicer, we establish requirements for how mortgage loans are serviced and what steps 

are to be taken to mitigate credit losses (e.g., modification, foreclosure). Additionally, in our capacity as guarantor, we have the 

ability to remove defaulted mortgage loans out of the PC trust to help mitigate credit losses. See “NOTE 5: INDIVIDUALLY

IMPAIRED AND NON-PERFORMING LOANS” for further information regarding our removal of mortgage loans out of PC 

trusts. These powers allow us to direct the activities of the VIE (i.e., the PC trust) that most significantly impact its economic 

performance. In addition, we determined that our guarantee to each PC trust to provide principal and interest payments 

obligates us to absorb losses that could potentially be significant to the PC trusts. Accordingly, we concluded that we are the 

primary beneficiary of our single-family PC trusts.

At both December 31, 2013 and 2012, we were the primary beneficiary of, and therefore consolidated, single-family PC 

trusts with assets totaling $1.5 trillion, as measured using the UPB of issued PCs. The assets of each PC trust can be used only 

to settle obligations of that trust. In connection with our PC trusts, we have credit protection in the form of primary mortgage 

insurance, pool insurance, recourse to lenders, and other forms of credit enhancement. We also have credit protection for 

certain of our PC trusts that issue PCs backed by loans or certificates of federal agencies (such as FHA, VA, and USDA). See 

“NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES — Credit Protection and Other Forms of Credit 

Enhancement” for additional information regarding third-party credit enhancements related to our PC trusts.

REMICs and Other Structured Securities

REMICs and Other Structured Securities are mortgage-related securities that we issue to third parties. We do not 

consolidate the trusts that issue these securities unless we hold substantially all of the beneficial interests in the trust and are 

therefore considered to be the primary beneficiary. We had investments of approximately $3.5 billion and $4.2 billion in UPB, 

as of December 31, 2013 and 2012, respectively, where we held substantially all the outstanding beneficial interests in the trusts 

and consolidated them on our balance sheets. 

Other Guarantee Transactions

In Other Guarantee Transactions, we issue mortgage-related securities to third parties in exchange for non-Freddie Mac 

mortgage-related securities. The degree to which our involvement with securitization trusts that issue Other Guarantee 

Transactions provides us with power to direct the activities that most significantly impact the economic performance of these 

VIEs (e.g., the ability to direct the servicing of the underlying assets of these entities) and obligation to absorb losses that could 

potentially be significant to the VIEs varies by transaction. For all Other Guarantee Transactions, our variable interest in these 

VIEs represents some form of credit guarantee, whether covering all the issued beneficial interests or only the most senior ones. 

The nature of our credit guarantee typically determines whether we have power to direct the activities that most significantly 

impact the economic performance of the VIE.

We consolidate Other Guarantee Transactions when our credit guarantee is in a first loss position to absorb credit losses 

on the underlying assets of these entities as of the reporting date and we also have the ability to direct the servicing of the 

underlying assets, which is the power to direct the activities that most significantly impact the economic performance of these 

VIEs. For those Other Guarantee Transactions in which our credit guarantee is not in a first loss position to absorb credit losses 

on the underlying assets of these entities as of the reporting date (i.e., our credit guarantee is in a secondary loss position), or 

we do not have the ability to direct the servicing of the underlying assets, we are not the primary beneficiary, and we do not 

Table of Contents
193 Freddie Mac

consolidate the VIE. Our consolidation determination took into consideration the specific facts and circumstances of our 

involvement with each of these entities. As a result, we have concluded that we are the primary beneficiary of Other Guarantee 

Transactions with underlying assets totaling $8.9 billion and $11.0 billion at December 31, 2013 and 2012, respectively.

VIEs for which We are not the Primary Beneficiary

The table below 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, as well as our maximum exposure to loss as a result of 

our involvement with these VIEs. Our involvement with VIEs for which we are not the primary beneficiary generally takes one 

of two forms: (a) purchasing an investment in these entities; or (b) providing a guarantee to these entities. Our maximum 

exposure to loss for those VIEs in which we have purchased an investment is calculated as the maximum potential charge that 

we would recognize in earnings if that investment were to become worthless. This amount does not include other-thantemporary impairments or other write-downs that we previously recognized through earnings. Our maximum exposure to loss 

for those VIEs for which we have provided a guarantee represents the contractual amounts that could be lost under the 

guarantees if counterparties or borrowers defaulted, without consideration of possible recoveries under credit enhancement 

arrangements. We do not believe the maximum exposure to loss disclosed in the table below is representative of the actual loss 

we are likely to incur, based on our historical loss experience and after consideration of proceeds from related collateral 

liquidation, including possible recoveries under credit enhancement arrangements. 

Table of Contents
194 Freddie Mac

Table 3.1 — Variable Interests in VIEs for which We are not the Primary Beneficiary

December 31, 2013

Mortgage-Related

Security Trusts

Asset-Backed

Investment 

Trusts(1)

Freddie Mac

Securities(2)

Non-Freddie Mac

Securities(1)

Unsecuritized

Multifamily

Loans (3) Other(1)

(in millions)

Assets and Liabilities Recorded on our Consolidated Balance

Sheets

Assets:

Restricted cash and cash equivalents $ — $ 6 $ — $ 8 $ 58

Investments in securities:

Available-for-sale, at fair value — 40,659 84,765 — —

Trading, at fair value — 9,349 7,414 — —

Mortgage loans:

Held-for-investment, unsecuritized — — — 50,306 —

Held-for-sale — — — 8,727 —

Accrued interest receivable — 232 226 261 7

Other assets — 833 14 407 477

Liabilities:

Derivative liabilities, net — (3) — — (35)

Other liabilities — (875) (2) (12) (558)

Maximum Exposure to Loss $ — $ 72,072 $ 92,559 $ 59,710 $ 10,415

Total Assets of Non-Consolidated VIEs(4) $ — $ 84,731 $ 506,699 $ 105,120 $ 23,707

December 31, 2012

Mortgage-Related

Security Trusts

Asset-Backed

Investment 

Trusts(1)

Freddie Mac

Securities(2)

Non-Freddie Mac

Securities(1)

Unsecuritized

Multifamily

Loans(3) Other(1)

(in millions)

Assets and Liabilities Recorded on our Consolidated Balance

Sheets

Assets:

Restricted cash and cash equivalents $ — $ 24 $ — $ 22 $ 119

Investments in securities:

Available-for-sale, at fair value — 58,515 110,583 — —

Trading, at fair value 292 10,354 10,617 — —

Mortgage loans:

Held-for-investment, unsecuritized — — — 62,245 —

Held-for-sale — — — 14,238 —

Accrued interest receivable — 324 350 326 7

Derivative assets, net — — — — 1

Other assets — 558 2 381 482

Liabilities:

Derivative liabilities, net — (1) — — (40)

Other liabilities — (667) (2) (29) (635)

Maximum Exposure to Loss $ 292 $ 51,045 $ 128,475 $ 77,213 $ 10,871

Total Assets of Non-Consolidated VIEs(4) $ 10,901 $ 59,302 $ 768,704 $ 130,512 $ 25,004

(1) For our involvement with non-consolidated asset-backed investment trusts, non-Freddie Mac security trusts, and certain other VIEs where we do not 

provide a guarantee, our maximum exposure to loss is computed as the carrying amount if the security is classified as trading or the amortized cost if 

the security is classified as available-for-sale for our investments and related assets recorded on our consolidated balance sheets, including any 

unrealized amounts recorded in AOCI for securities classified as available-for-sale. See “NOTE 7: INVESTMENTS IN SECURITIES” for additional 

information regarding our asset-backed investments and non-Freddie Mac securities.

Table of Contents
195 Freddie Mac

(2) Freddie Mac securities include our variable interests in single-family multiclass REMICs and Other Structured Securities, multifamily PCs, multifamily 

Other Structured Securities, and Other Guarantee Transactions that we do not consolidate. Our maximum exposure to loss includes guaranteed UPB of 

assets held by the non-consolidated VIEs related to multifamily PCs, multifamily Other Structured Securities, and Other Guarantee Transactions for 

which we record a guarantee asset (component of Other Assets) and guarantee obligation (component of Other Liabilities) on our consolidated balance 

sheets. Our maximum exposure to loss excludes most of our investments in single-family multiclass REMICs and Other Structured Securities as we 

already consolidate most of the collateral of these trusts on our consolidated balance sheets. Our investments in single-family REMICs and Other 

Structured Securities that are not consolidated do not give rise to any additional exposure to credit loss as we already consolidate the underlying 

collateral.

(3) For unsecuritized multifamily loans, our maximum exposure to loss includes accrued interest receivable associated with these loans. See “NOTE 4: 

MORTGAGE LOANS AND LOAN LOSS RESERVES” for additional information about our unsecuritized multifamily loans.

(4) Except for unsecuritized multifamily loans, this represents the remaining UPB of assets held by non-consolidated VIEs using the most current 

information available, where our continuing involvement is significant. For unsecuritized multifamily loans, this represents the fair value of the 

property serving as collateral for the loan. We do not include the assets of our non-consolidated trusts related to single-family REMICs and Other 

Structured Securities backed by our PCs in this amount as we already consolidate the underlying collateral of these trusts on our consolidated balance 

sheets.

Mortgage-Related Security Trusts

Freddie Mac Securities

Freddie Mac securities related to our variable interests in non-consolidated VIEs primarily consist of our REMICs and 

Other Structured Securities and Other Guarantee Transactions. At both December 31, 2013 and 2012, our involvement with 

most of our REMICS and Other Structured Securities as well as certain Other Guarantee Transactions does not provide us with 

the power to direct the activities that most significantly impact the economic performance of these VIEs. As a result, we hold a 

variable interest in, but are not the primary beneficiary of those securitization trusts. For non-consolidated REMICs and Other 

Structured Securities and Other Guarantee Transactions, our investments are primarily included in either available-for-sale 

securities or trading securities on our consolidated balance sheets. See “NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES — Securitization Activities through Issuances of Freddie Mac Mortgage-Related Securities” for 

additional information on accounting for purchases of securities issued by resecuritization trusts. Our investments in these 

trusts are funded through the issuance of unsecured debt, which is recorded as other debt on our consolidated balance sheets.

Non-Freddie Mac Securities

We invest in a variety of mortgage-related securities issued by third-parties, including non-Freddie Mac agency 

securities, CMBS, other private-label securities backed by various mortgage-related assets, and obligations of states and 

political subdivisions. These investments typically represent interests in trusts that consist of a pool of mortgage-related assets 

and act as vehicles to allow originators to securitize those assets. Securities are structured from the underlying pool of assets to 

provide for varying degrees of risk, including potential loss from the credit risk and interest-rate risk of the underlying pool of 

mortgages. The originators of the financial assets or the underwriters of the securities offering create the trusts and typically 

own the residual interest in the trust assets. See “NOTE 7: INVESTMENTS IN SECURITIES” for additional information 

regarding our non-Freddie Mac securities.

Our investments in these non-Freddie Mac securities at December 31, 2013 were made between 1994 and 2013. We are 

not generally the primary beneficiary of non-Freddie Mac securities trusts because our investments are passive in nature and do 

not provide us with the power to direct the activities of the trusts that most significantly impact their economic performance. 

We were not the primary beneficiary of any significant non-Freddie Mac securities trusts as of December 31, 2013 or 2012. At 

both December 31, 2013 and 2012, our exposure was limited to the amount of our investment. Our investments in these trusts 

are funded through the issuance of unsecured debt, which is recorded as other debt on our consolidated balance sheets.

Unsecuritized Multifamily Loans

We purchase loans made to various multifamily real estate entities. We primarily purchase such loans for securitization. 

The loans we acquire usually are, at origination, equal to 80% or less of the value of the related underlying property. The 

remaining 20% of value is typically funded through equity contributions by the partners or members of the borrower entity. In a 

few cases, the 20% not funded through the loan we acquire also includes subordinate loans or mezzanine financing from thirdparty lenders.

We held more than 5,000 and 6,000 unsecuritized multifamily loans at December 31, 2013 and 2012, respectively. The 

UPB of our investments in these loans was $59.2 billion and $76.6 billion as of December 31, 2013 and 2012, respectively, and 

was included in unsecuritized held-for-investment mortgage loans, at amortized cost, and held-for-sale mortgage loans at fair 

value on our consolidated balance sheets. We are not generally the primary beneficiary of the multifamily real estate borrowing 

entities because the loans we acquire are passive in nature and do not provide us with the power to direct the activities of these 

entities that most significantly impact their economic performance. However, when a multifamily loan becomes delinquent, we 

may become the primary beneficiary of the borrowing entity depending upon the structure of this entity and the rights granted 

to us under the governing legal documents. At both December 31, 2013 and 2012, the amount of unsecuritized multifamily 

loans for which we could be considered the primary beneficiary of the underlying borrowing entity was not material. See 

“NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES” for more information.

Other

Table of Contents
196 Freddie Mac

Our involvement with other VIEs primarily includes certain of our other mortgage-related guarantees and other guarantee 

commitments that we account for as derivatives.

At December 31, 2013 and 2012, we were the primary beneficiary of one and two, respectively, real estate entities that 

invest in multifamily property, related to credit-enhanced multifamily housing revenue bonds that were not deemed to be 

material. We were not the primary beneficiary of the remainder of other VIEs because our involvement in these VIEs is passive 

in nature and does not provide us with the power to direct the activities of the VIEs that most significantly impact their 

economic performance. See “Table 3.1 — Variable Interests in VIEs for which We are not the Primary Beneficiary” for the 

carrying amounts and classification of the assets and liabilities recorded on our consolidated balance sheets related to our other 

variable interests in non-consolidated VIEs, as well as our maximum exposure to loss as a result of our involvement with these 

VIEs.

NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES

We own both single-family mortgage loans, which are secured by one to four unit residential properties, and multifamily 

mortgage loans, which are secured by properties with five or more residential rental units. Our single-family loans are 

predominately first lien, fixed-rate mortgages secured by the borrower’s primary residence. For a discussion of our significant 

accounting policies regarding our mortgage loans and loan loss reserves, see “NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES.”

The table below summarizes the types of loans on our consolidated balance sheets as of December 31, 2013 and 2012.

Table 4.1 — Mortgage Loans

December 31, 2013 December 31, 2012

Unsecuritized

Held by

Consolidated

Trusts Total Unsecuritized

Held by

Consolidated

Trusts Total

(in millions)

Single-family:(1)

Fixed-rate

Amortizing $ 113,597 $ 1,402,841 $ 1,516,438 $ 131,061 $ 1,356,030 $ 1,487,091

Interest-only 1,476 4,826 6,302 2,445 8,874 11,319

Total fixed-rate 115,073 1,407,667 1,522,740 133,506 1,364,904 1,498,410

Adjustable-rate

Amortizing 1,935 65,429 67,364 2,630 67,067 69,697

Interest-only 4,576 23,841 28,417 7,323 31,590 38,913

Total adjustable-rate 6,511 89,270 95,781 9,953 98,657 108,610

Other Guarantee Transactions — 8,431 8,431 — 10,407 10,407

FHA/VA and other governmental 553 3,354 3,907 1,285 3,062 4,347

Total single-family 122,137 1,508,722 1,630,859 144,744 1,477,030 1,621,774

Multifamily:(1)

Fixed-rate 50,701 444 51,145 66,384 448 66,832

Adjustable-rate 8,467 — 8,467 10,182 — 10,182

Other governmental 3 — 3 3 — 3

Total multifamily 59,171 444 59,615 76,569 448 77,017

Total UPB of mortgage loans 181,308 1,509,166 1,690,474 221,313 1,477,478 1,698,791

Deferred fees, unamortized premiums, discounts

and other cost basis adjustments (4,817) 23,745 18,928 (5,376) 23,373 17,997

Fair value adjustments on loans held-for sale(2) 6 — 6 266 — 266

Allowance for loan losses on mortgage loans heldfor-investment (21,612) (3,006) (24,618) (25,788) (4,919) (30,707)

Total mortgage loans, net $ 154,885 $ 1,529,905 $ 1,684,790 $ 190,415 $ 1,495,932 $ 1,686,347

Mortgage loans, net:

Held-for-investment $ 146,158 $ 1,529,905 $ 1,676,063 $ 176,177 $ 1,495,932 $ 1,672,109

Held-for-sale 8,727 — 8,727 14,238 — 14,238

Total mortgage loans, net $ 154,885 $ 1,529,905 $ 1,684,790 $ 190,415 $ 1,495,932 $ 1,686,347

(1) Based on UPB and excluding mortgage loans traded, but not yet settled.

(2) Consists of fair value adjustments associated with multifamily mortgage loans for which we have made a fair value election.

Table of Contents
197 Freddie Mac

During 2013 and 2012, we purchased $412.9 billion and $420.0 billion, respectively, in UPB of single-family mortgage 

loans, and $1.3 billion and $1.1 billion, respectively, in UPB of multifamily loans that were classified as held-for-investment. 

Our sales of multifamily mortgage loans occur primarily through the issuance of multifamily K Certificates, which we 

categorize as Other Guarantee Transactions. During 2013 and 2012, we sold $28.3 billion and $20.8 billion, respectively, of 

held-for-sale multifamily mortgage loans. See “NOTE 14: FINANCIAL GUARANTEES” for more information on our 

issuances of Other Guarantee Transactions. We did not have significant reclassifications of mortgage loans into held-for-sale 

from held-for-investment during 2013.

Credit Quality of Mortgage Loans

We evaluate the credit quality of single-family loans using different criteria than the criteria we use to evaluate 

multifamily loans. The current LTV ratio is one key factor we consider when estimating our loan loss reserves for single-family 

loans. As estimated current LTV ratios increase, the borrower’s equity in the home decreases, which negatively affects 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 mortgage loan. A second-lien mortgage also reduces the borrower’s equity in the home, and has a similar negative 

effect on the borrower’s ability to refinance or sell the property for an amount at or above the combined balances of the first 

and second mortgages. As of both December 31, 2013 and 2012, based on data collected by us at loan delivery, approximately 

14% of loans in our single-family credit guarantee portfolio had second-lien financing by third parties at origination of the first 

mortgage. However, borrowers are free to obtain second-lien financing after origination, and we are not entitled to receive 

notification when a borrower does so. Therefore, it is likely that additional borrowers have post-origination second-lien 

mortgages. For further information about concentrations of risk associated with our single-family and multifamily mortgage 

loans, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS.”

The table below presents information on the estimated current LTV ratios of single-family loans on our consolidated 

balance sheets, all of which are held-for-investment. Our current LTV ratio estimates are based on available data through the 

end of each respective period presented.

Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio

As of December 31, 2013 As of December 31, 2012

Estimated Current LTV Ratio(1) Estimated Current LTV Ratio(1)

> 80 to 100 > 100(2) Total > 80 to 100 > 100(2) Total

(in millions)

Single-family loans:

20 and 30-year or more, amortizing 

fixed-rate(3) $ 819,509 $ 269,110 $ 124,491 $ 1,213,110 $ 699,386 $ 309,099 $ 188,048 $ 1,196,533

15-year amortizing fixed-rate(3) 270,211 19,658 5,748 295,617 249,666 18,473 5,433 273,572

Adjustable-rate(4) 56,208 6,714 1,578 64,500 50,764 10,341 4,845 65,950

Alt-A, interest-only, and option 

ARM(5) 29,927 21,564 25,089 76,580 27,642 24,030 52,057 103,729

Total single-family loans $1,175,855 $ 317,046 $ 156,906 1,649,807 $1,027,458 $ 361,943 $ 250,383 1,639,784

Multifamily loans 50,874 63,032

Total recorded investment of held-forinvestment loans $ 1,700,681 $ 1,702,816

(1) The current LTV ratios are management estimates, which are updated on a monthly basis. Current market values are estimated by adjusting the value of 

the property at origination based on changes in the market value of homes in the same geographical area since that time. The value of a property at 

origination is based on: (a) for purchase mortgages, either the lesser of the appraised value of the property at the time of mortgage origination or the 

mortgage borrower’s purchase price; or (b) for refinance mortgages, a third-party appraisal. Changes in market value are derived from our internal 

index which measures price changes for repeat sales and refinancing activity on the same properties using Freddie Mac and Fannie Mae single-family 

mortgage acquisitions, including foreclosure sales. Estimates of the current LTV ratio include the credit-enhanced portion of the loan and exclude any 

secondary financing by third parties. The existence of a second lien reduces the borrower’s equity in the property and, therefore, can increase the risk of 

default.

(2) The serious delinquency rate for the total of single-family held-for-investment mortgage loans with estimated current LTV ratios in excess of 100% was 

9.9% and 12.7% as of December 31, 2013 and 2012, respectively.

(3) The majority of our loan modifications result in new terms that include fixed interest rates after modification. As of December 31, 2013 and 2012, we 

have categorized UPB of approximately $43.8 billion and $43.4 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.

(4) Includes balloon/reset mortgage loans and excludes option ARMs.

(5) We have discontinued our purchases of Alt-A, interest-only, and option ARM loans. For reporting purposes: (a) 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 (b) 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.

Table of Contents
198 Freddie Mac

For information about the payment status of single-family and multifamily mortgage loans, including the amount of such 

loans we deem impaired, see “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS.” For a discussion 

of certain indicators of credit quality for the multifamily loans on our consolidated balance sheets, see “NOTE 15: 

CONCENTRATION OF CREDIT AND OTHER RISKS — Multifamily Mortgage Portfolio.”

Allowance for Loan Losses and Reserve for Guarantee Losses, or Loan Loss Reserves

Our loan loss reserves consist of our: (a) allowance for loan losses on mortgage loans that we classify as held-forinvestment on our consolidated balance sheets; and (b) reserve for guarantee losses associated with Freddie Mac mortgagerelated securities backed by multifamily loans, certain single-family Other Guarantee Transactions, and other guarantee 

commitments, for which we have incremental credit risk.

A significant portion of the unsecuritized single-family loans on our consolidated balance sheets are seriously delinquent 

and/or TDR loans that we previously removed from our PC pools. These seriously delinquent and TDR loans typically have a 

higher associated allowance for loan loss than loans that remain in consolidated trusts. Single-family loans that remain in 

consolidated trusts are generally aggregated and measured collectively for impairment based on similar risk characteristics of 

the loans.

The table below presents our loan loss reserves activity for the single-family and multifamily loans that we own or 

guarantee.

Table of Contents
199 Freddie Mac

Table 4.3 — Detail of Loan Loss Reserves

Year Ended December 31,

2013 2012

Allowance for Loan Losses Reserve 

for

Guarantee

Losses(1)

Allowance for Loan Losses Reserve 

for

Guarantee

Losses(1) Unsecuritized

Held By

Consolidated

Trusts Total Unsecuritized

Held By

Consolidated

Trusts Total

(in millions)

Single-family:

Beginning balance $ 25,449 $ 4,918 $ 141 $ 30,508 $ 30,406 $ 8,351 $ 159 $ 38,916

Provision (benefit) for credit

losses (3,995) 1,790 (42) (2,247) (3,186) 5,199 — 2,013

Charge-offs(2) (8,181) (804) (10) (8,995) (12,559) (950) (11) (13,520)

Recoveries(3) 3,810 503 — 4,313 2,136 126 — 2,262

Transfers, net(4) 4,404 (3,401) (4) 999 8,652 (7,808) (7) 837

Ending balance $ 21,487 $ 3,006 $ 85 $ 24,578 $ 25,449 $ 4,918 $ 141 $ 30,508

Multifamily:

Beginning balance $ 339 $ 1 $ 42 $ 382 $ 506 $ — $ 39 $ 545

Provision (benefit) for credit

losses (208) (1) (9) (218) (132) — 9 (123)

Charge-offs(2) (7) — — (7) (34) — (2) (36)

Recoveries(3) 1 — — 1 — — 2 2

Transfers, net(4) — — (7) (7) (1) 1 (6) (6)

Ending balance $ 125 $ — $ 26 $ 151 $ 339 $ 1 $ 42 $ 382

Total:

Beginning balance $ 25,788 $ 4,919 $ 183 $ 30,890 $ 30,912 $ 8,351 $ 198 $ 39,461

Provision (benefit) for credit

losses

(4,203) 1,789 (51) (2,465) (3,318) 5,199 9 1,890

Charge-offs(2) (8,188) (804) (10) (9,002) (12,593) (950) (13) (13,556)

Recoveries(3) 3,811 503 — 4,314 2,136 126 2 2,264

Transfers, net(4) 4,404 (3,401) (11) 992 8,651 (7,807) (13) 831

Ending balance $ 21,612 $ 3,006 $ 111 $ 24,729 $ 25,788 $ 4,919 $ 183 $ 30,890

Total loan loss reserve as a percentage of the total mortgage

portfolio, excluding non-Freddie Mac securities 1.37% 1.71%

(1) Loans associated with our reserve for guarantee losses are those loans that underlie our non-consolidated securitization trusts and other guarantee 

commitments and are evaluated for impairment on a collective basis. Our reserve for guarantee losses is included in other liabilities on our consolidated 

balance sheets.

(2) Charge-offs represent the amount of a loan that has been discharged to remove the loan from our consolidated balance sheet principally due to either 

foreclosure transfers or short sales. Charge-offs exclude $252 million and $308 million for the years ended December 31, 2013 and 2012, respectively, 

related to: (a) amounts recorded as losses on loans purchased within other expenses on our consolidated statements of comprehensive income, which 

relate to certain loans purchased under financial guarantees; or (b) cumulative fair value losses recognized through the date of foreclosure for 

Multifamily loans which we elected to carry at fair value at the time of our purchase. We record charge-offs and recoveries on loans held by 

consolidated trusts when a loss event (such as a foreclosure transfer or foreclosure alternative) occurs on a loan while it remains in a consolidated trust. 

(3) Recoveries of charge-offs primarily result from foreclosure alternatives and REO acquisitions on loans where: (a) a share of default risk has been 

assumed by mortgage insurers, servicers, or other third parties through credit enhancements; or (b) we received a reimbursement of our losses from a 

seller/servicer associated with a repurchase request on a loan that experienced a foreclosure transfer or a foreclosure alternative.

(4) For the years ended December 31, 2013 and 2012, consists of: (a) approximately $3.4 billion and $7.8 billion, respectively, of reclassified singlefamily reserves related to our removal of loans previously held by consolidated trusts; and (b) approximately $1.0 billion and $0.8 billion, respectively, 

attributable to capitalization of past due interest on modified mortgage loans. 

The table below presents our allowance for loan losses and our recorded investment in mortgage loans, held-forinvestment, by impairment evaluation methodology.

Table of Contents
200 Freddie Mac

Table 4.4 — Net Investment in Mortgage Loans

December 31, 2013 December 31, 2012

Single-family Multifamily Total Single-family Multifamily Total

(in millions)

Recorded investment:

Collectively evaluated $ 1,551,667 $ 49,598 $ 1,601,265 $ 1,550,493 $ 60,836 $ 1,611,329

Individually evaluated 98,140 1,276 99,416 89,291 2,196 91,487

Total recorded investment 1,649,807 50,874 1,700,681 1,639,784 63,032 1,702,816

Ending balance of the allowance for loan losses:

Collectively evaluated (5,939) (45) (5,984) (12,432) (135) (12,567)

Individually evaluated (18,554) (80) (18,634) (17,935) (205) (18,140)

Total ending balance of the allowance (24,493) (125) (24,618) (30,367) (340) (30,707)

Net investment in mortgage loans $ 1,625,314 $ 50,749 $ 1,676,063 $ 1,609,417 $ 62,692 $ 1,672,109

A significant number of unsecuritized single-family mortgage loans on our consolidated balance sheets are individually 

evaluated for impairment while substantially all single-family mortgage loans held by our consolidated trusts are collectively 

evaluated for impairment. The ending balance of the allowance for loan losses associated with our held-for-investment 

unsecuritized mortgage loans represented approximately 12.9% and 12.8% of the recorded investment in such loans at 

December 31, 2013 and 2012, respectively. The ending balance of the allowance for loan losses associated with mortgage loans 

held by our consolidated trusts represented approximately 0.2% and 0.3% of the recorded investment in such loans as of 

December 31, 2013 and 2012, respectively.

Credit Protection and Other Forms of Credit Enhancement

In connection with many of our mortgage loans held-for-investment and other mortgage-related guarantees, we have 

credit protection in the form of primary mortgage insurance, pool insurance, recourse to lenders, and other forms of credit 

enhancements.

The table below presents the UPB of loans on our consolidated balance sheets or underlying our financial guarantees with 

credit protection and the maximum amounts of potential loss recovery by type of credit protection.

Table of Contents
201 Freddie Mac

Table 4.5 — Recourse and Other Forms of Credit Protection(1)

UPB at Maximum Coverage(2) at

December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012

(in millions)

Single-family:

Primary mortgage insurance $ 203,470 $ 188,419 $ 50,823 $ 46,685

Risk transfer transactions(3) 56,903 — 1,183 —

Lender recourse and indemnifications 7,119 7,875 6,726 7,718

Pool insurance(4) 4,683 7,307 1,186 1,355

HFA indemnification(5) 4,051 6,270 3,323 3,323

Subordination(6) 2,644 2,960 399 503

Other credit enhancements 38 62 38 62

Total $ 278,908 $ 212,893 $ 63,678 $ 59,646

Multifamily:

K Certificates(7) $ 59,326 $ 36,732 $ 10,601 $ 6,256

Subordination(6) 4,435 3,817 756 442

HFA indemnification(5) 905 1,112 699 699

Other credit enhancements 6,666 7,235 1,834 2,263

Total $ 71,332 $ 48,896 $ 13,890 $ 9,660

(1) Includes the credit protection associated with unsecuritized mortgage loans, loans held by our consolidated trusts as well as our non-consolidated 

mortgage guarantees and excludes FHA/VA and other governmental loans. Except for subordination coverage, these amounts exclude credit protection 

associated with $11.5 billion and $13.8 billion in UPB of single-family loans underlying Other Guarantee Transactions as of December 31, 2013 and 

2012, respectively, for which the information was not available. Also excludes repurchase rights (subject to certain conditions and limitations) we have 

under representations and warranties provided by our agreements with seller/servicers to underwrite loans and service them in accordance with our 

standards. 

(2) Except for subordination and K Certificates, this represents the remaining amount of loss recovery that is available subject to terms of counterparty 

agreements. For subordination and K Certificates coverage, this represents the UPB of the securities that are subordinate to our guarantee, which could 

provide protection by absorbing first losses.

(3) Represents: (a) STACR debt note transactions in which we issue and sell debt securities, the principal balance of which is subject to the credit and 

prepayment risk of a reference pool of single-family mortgage loans owned or guaranteed by Freddie Mac; and (b) a transaction in which we purchased 

an insurance policy on a portion of the mezzanine loss position that was not issued in one of the STACR debt note transactions. UPB amounts 

presented represent the UPB of the loans in the reference pool. Maximum coverage amounts presented represent the outstanding balance of the debt 

securities held by third parties as well as the remaining aggregate limit of insurance purchased from a third party. 

(4) Maximum coverage amounts presented have been limited to the UPB at period end. Excludes approximately $1.8 billion and $3.3 billion in UPB at 

December 31, 2013 and 2012, respectively, where the related loans are also covered by primary mortgage insurance.

(5) Represents the amount of potential reimbursement of losses on securities we have guaranteed that are backed by state and local HFA bonds related to 

the HFA initiative, under which Treasury bears initial losses on these securities up to 35% of the original UPB issued under the HFA initiative on a 

combined program-wide basis. Treasury will also bear losses of unpaid interest.

(6) Represents Freddie Mac issued mortgage-related securities with subordination protection, excluding multifamily K Certificates and those securities 

backed by state and local HFA bonds related to the HFA initiative. Excludes mortgage-related securities where subordination coverage was exhausted. 

Maximum coverage amounts are limited to the UPB.

(7) Represents multifamily K Certificates with subordination protection.

Primary mortgage insurance is the most prevalent type of credit enhancement protecting our single-family credit 

guarantee portfolio, and is provided on a loan-level basis. Pool insurance contracts provide insurance on a group of mortgage 

loans up to a stated aggregate loss limit. We have not purchased pool insurance on single-family loans since March 2008. 

During 2013 and 2012, we also reached the maximum limit of recovery on certain pool insurance contracts. For information 

about counterparty risk associated with mortgage insurers, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER 

RISKS — Mortgage Insurers.”

We executed two structured agency credit risk (STACR) debt note transactions during 2013 in which we issued unsecured 

debt securities that reduce our exposure to credit risk. In a STACR debt note transaction, we create a reference pool consisting 

of a large group of recently acquired single-family mortgage loans. We then create a hypothetical securitization structure with 

notional credit risk positions, or tranches (e.g., first loss, mezzanine, and senior). We issue STACR debt notes that relate to the 

mezzanine tranches, though the notes are not backed or collateralized by mortgage loans in the reference pool. The principal 

balance of the STACR debt notes is reduced when certain specified credit events (such as a loan becoming 180 days 

delinquent) occur on the loans in the reference pool. In turn, this may reduce the total amount of payments we ultimately make 

on the STACR debt notes.

We also have credit enhancements protecting our multifamily mortgage portfolio. Subordination, primarily through our 

K Certificates, is the most prevalent type, whereby we mitigate our credit risk exposure by structuring our securities to sell the 

expected credit risk to private investors who purchase the subordinate tranches. 

Table of Contents
202 Freddie Mac

We also have credit protection for certain of the mortgage loans on our consolidated balance sheets that are covered by 

insurance or partial guarantees issued by federal agencies (such as FHA, VA, and USDA). The total UPB of these loans was 

$3.9 billion and $4.3 billion as of December 31, 2013 and 2012, respectively.

NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS

Individually Impaired Loans

Individually impaired single-family loans include performing and non-performing TDRs, as well as loans acquired under 

our financial guarantees with deteriorated credit quality. Individually impaired multifamily loans include performing and nonperforming TDRs, loans three monthly payments or more past due, and loans that are impaired based on management 

judgment. For a discussion of our significant accounting policies regarding impaired and non-performing loans, which are 

applied consistently for multifamily loans and single-family loan classes, see “NOTE 1: SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES.”

Total loan loss reserves consist of a specific valuation allowance related to individually impaired mortgage loans, and a 

general reserve for other probable incurred losses. Our recorded investment in individually impaired mortgage loans and the 

related specific valuation allowance are summarized in the table below by product class (for single-family loans).

Table 5.1 — Individually Impaired Loans

Balance at

December 31, 2013

For The Year Ended

December 31, 2013

UPB

Recorded

Investment

Associated

Allowance

Net

Investment

Average

Recorded

Investment

Interest

Income

Recognized

Interest

Income

Recognized

On Cash

Basis(1)

(in millions)

Single-family —

With no specific allowance recorded(2):

20 and 30-year or more, amortizing fixed-rate(3) $ 5,927 $ 3,355 $ — $ 3,355 $ 3,370 $ 394 $ 34

15-year amortizing fixed-rate(3) 62 34 — 34 31 6 1

Adjustable rate(4) 19 13 — 13 13 1 —

Alt-A, interest-only, and option ARM(5) 1,758 1,038 — 1,038 978 72 6

Total with no specific allowance recorded

7,766 4,440 — 4,440 4,392 473 41

With specific allowance recorded:(6)

20 and 30-year or more, amortizing fixed-rate(3) 75,633 74,554 (14,431) 60,123 69,922 2,127 282

15-year amortizing fixed-rate(3) 1,324 1,324 (43) 1,281 1,109 50 11

Adjustable rate(4) 967 962 (84) 878 855 22 6

Alt-A, interest-only, and option ARM(5) 17,210 16,860 (3,996) 12,864 16,526 369 69

Total with specific allowance recorded

95,134 93,700 (18,554) 75,146 88,412 2,568 368

Combined single-family:

20 and 30-year or more, amortizing fixed-rate(3) 81,560 77,909 (14,431) 63,478 73,292 2,521 316

15-year amortizing fixed-rate(3) 1,386 1,358 (43) 1,315 1,140 56 12

Adjustable rate(4) 986 975 (84) 891 868 23 6

Alt-A, interest-only, and option ARM(5) 18,968 17,898 (3,996) 13,902 17,504 441 75

Total single-family(7) $ 102,900 $ 98,140 $ (18,554) $ 79,586 $ 92,804 $ 3,041 $ 409

Multifamily —

With no specific allowance recorded(8) $ 694 $ 681 $ — $ 681 $ 1,108 $ 48 $ 20

With specific allowance recorded 608 595 (80) 515 891 41 31

Total multifamily $ 1,302 $ 1,276 $ (80) $ 1,196 $ 1,999 $ 89 $ 51

Total single-family and multifamily $ 104,202 $ 99,416 $ (18,634) $ 80,782 $ 94,803 $ 3,130 $ 460

Table of Contents
203 Freddie Mac

Balance at

December 31, 2012

For The Year Ended

December 31, 2012

UPB

Recorded

Investment

Associated

Allowance

Net

Investment

Average

Recorded

Investment

Interest

Income

Recognized

Interest

Income

Recognized

On Cash

Basis(1)

(in millions)

Single-family —

With no specific allowance recorded(2):

20 and 30-year or more, amortizing fixed-rate(3) $ 6,582 $ 3,236 $ — $ 3,236 $ 3,136 $ 339 $ 46

15-year amortizing fixed-rate(3) 64 30 — 30 25 6 1

Adjustable rate(4) 19 12 — 12 7 — —

Alt-A, interest-only, and option ARM(5) 1,799 857 — 857 847 63 11

Total with no specific allowance recorded 8,464 4,135 — 4,135 4,015 408 58

With specific allowance recorded:(6)

20 and 30-year or more, amortizing fixed-rate(3) 67,473 66,501 (13,522) 52,979 55,431 1,632 279

15-year amortizing fixed-rate(3) 1,134 1,125 (55) 1,070 714 31 8

Adjustable rate(4) 883 874 (107) 767 558 14 5

Alt-A, interest-only, and option ARM(5) 16,946 16,656 (4,251) 12,405 14,278 326 82

Total with specific allowance recorded 86,436 85,156 (17,935) 67,221 70,981 2,003 374

Combined single-family:

20 and 30-year or more, amortizing fixed-rate(3) 74,055 69,737 (13,522) 56,215 58,567 1,971 325

15-year amortizing fixed-rate(3) 1,198 1,155 (55) 1,100 739 37 9

Adjustable rate (4) 902 886 (107) 779 565 14 5

Alt-A, interest-only, and option ARM(5) 18,745 17,513 (4,251) 13,262 15,125 389 93

Total single-family(7) $ 94,900 $ 89,291 $ (17,935) $ 71,356 $ 74,996 $ 2,411 $ 432

Multifamily —

With no specific allowance recorded(8) $ 978 $ 966 $ — $ 966 $ 1,420 $ 61 $ 37

With specific allowance recorded 1,248 1,230 (205) 1,025 1,470 68 51

Total multifamily $ 2,226 $ 2,196 $ (205) $ 1,991 $ 2,890 $ 129 $ 88

Total single-family and multifamily $ 97,126 $ 91,487 $ (18,140) $ 73,347 $ 77,886 $ 2,540 $ 520

(1) Consists of income recognized during the period related to loans categorized as non-accrual.

(2) Individually impaired loans with no specific related valuation allowance primarily represent mortgage loans removed from PC pools and accounted for 

in accordance with the accounting guidance for loans and debt securities acquired with deteriorated credit quality that have not experienced further 

deterioration.

(3) See endnote (3) of “Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio.”

(4) Includes balloon/reset mortgage loans and excludes option ARMs.

(5) See endnote (5) of “Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio.” 

(6) Consists primarily of mortgage loans classified as TDRs.

(7) As of December 31, 2013 and 2012 includes $95.1 billion and $86.4 billion, respectively, of UPB associated with loans for which we have recorded a 

specific allowance, and $7.8 billion and $8.5 billion, respectively, of UPB associated with loans that have no specific allowance recorded. See endnote 

(2) for additional information.

(8) Individually impaired multifamily loans with no specific related valuation allowance primarily represent those loans for which the collateral value is 

sufficiently in excess of the loan balance to result in recovery of the entire recorded investment if the property were foreclosed upon or otherwise 

subject to disposition.

Interest income foregone on individually impaired loans was $2.7 billion, $2.3 billion and $1.6 billion for the years ended 

December 31, 2013, 2012 and 2011 respectively.

Mortgage Loan Performance

We do not accrue interest on loans three months or more past due.

The table below presents the recorded investment of our single-family and multifamily mortgage loans, held-forinvestment, by payment status.

Table of Contents
204 Freddie Mac

Table 5.2 — Payment Status of Mortgage Loans(1)

December 31, 2013

Current

One

Month

Past Due

Two

Months

Past Due

Three Months or

More Past Due,

or in Foreclosure Total Non-accrual

(in millions)

Single-family —

20 and 30-year or more, amortizing fixed-rate(2) $ 1,157,057 $ 19,743 $ 6,675 $ 29,635 $ 1,213,110 $ 29,620

15-year amortizing fixed-rate(2) 293,286 1,196 271 864 295,617 863

Adjustable-rate(3) 62,987 495 147 871 64,500 871

Alt-A, interest-only, and option ARM(4) 62,356 2,898 1,157 10,169 76,580 10,162

Total single-family 1,575,686 24,332 8,250 41,539 1,649,807 41,516

Total multifamily 50,827 — 21 26 50,874 627

Total single-family and multifamily $ 1,626,513 $ 24,332 $ 8,271 $ 41,565 $ 1,700,681 $ 42,143

December 31, 2012

Current

One

Month

Past Due

Two

Months

Past Due

Three Months or

More Past Due,

or in Foreclosure Total Non-accrual

(in millions)

Single-family —

20 and 30-year or more, amortizing fixed-rate(2) $ 1,125,996 $ 21,509 $ 8,051 $ 40,977 $ 1,196,533 $ 40,833

15-year amortizing fixed-rate(2) 270,730 1,320 338 1,184 273,572 1,177

Adjustable-rate(3) 63,736 614 212 1,388 65,950 1,383

Alt-A, interest-only, and option ARM(4) 82,438 3,439 1,582 16,270 103,729 16,237

Total single-family 1,542,900 26,882 10,183 59,819 1,639,784 59,630

Total multifamily 63,000 — 2 30 63,032 1,457

Total single-family and multifamily $ 1,605,900 $ 26,882 $ 10,185 $ 59,849 $ 1,702,816 $ 61,087

(1) Based on recorded investment in the loan. Mortgage loans that have been modified are not counted as past due as long as the borrower is current under 

the modified terms. The payment status of a loan may be affected by temporary timing differences, or lags, in the reporting of this information to us by 

our servicers.

(2) See endnote (3) of “Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio.”

(3) Includes balloon/reset mortgage loans and excludes option ARMs.

(4) See endnote (5) of “Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio.”

We have the option under our PC agreements to remove mortgage loans that underlie our PCs under certain 

circumstances to resolve an existing or impending delinquency or default. Our practice generally has been to remove loans 

from PC trusts when the loans have been delinquent for 120 days or more. As of December 31, 2013, there were $1.1 billion in 

UPB of loans underlying our PCs that were 120 days or more delinquent, and that met our criteria for removing the loan from 

the PC trust. Generally, we remove these delinquent loans from the PC trust, and thereby extinguish the related PC debt at the 

next scheduled PC payment date, unless the loans proceed to foreclosure transfer, complete a foreclosure alternative or are paid 

in full by the borrower before such date.

When we remove mortgage loans from PC trusts, we reclassify the loans from mortgage loans held-for-investment by 

consolidated trusts to unsecuritized mortgage loans held-for-investment and record an extinguishment of the corresponding 

portion of the debt securities of the consolidated trusts. We removed $18.2 billion and $29.6 billion in UPB of loans from PC 

trusts (or purchased delinquent loans associated with other guarantee commitments) during the years ended December 31, 2013

and 2012.

The table below summarizes the delinquency rates of mortgage loans within our single-family credit guarantee and 

multifamily mortgage portfolios.

Table of Contents
205 Freddie Mac

Table 5.3 — Delinquency Rates

December 31, 2013 December 31, 2012

Single-family:(1)

Non-credit-enhanced portfolio (excluding Other Guarantee Transactions):

Serious delinquency rate 1.99% 2.62%

Total number of seriously delinquent loans 183,822 244,533

Credit-enhanced portfolio (excluding Other Guarantee Transactions):

Serious delinquency rate 4.34% 6.83%

Total number of seriously delinquent loans 56,794 90,747

Other Guarantee Transactions:(2)

Serious delinquency rate 10.91% 10.60%

Total number of seriously delinquent loans 14,709 17,580

Total single-family:

Serious delinquency rate 2.39% 3.25%

Total number of seriously delinquent loans 255,325 352,860

Multifamily:(3)

Non-credit-enhanced portfolio:

Delinquency rate 0.07% 0.10%

UPB of delinquent loans (in millions) $ 46 $ 76

Credit-enhanced portfolio:

Delinquency rate 0.11% 0.36%

UPB of delinquent loans (in millions) $ 75 $ 172

Total Multifamily:

Delinquency rate 0.09% 0.19%

UPB of delinquent loans (in millions) $ 121 $ 248

(1) Single-family mortgage loans that have been modified are not counted as seriously delinquent if the borrower is less than three monthly payments past 

due under the modified terms. Serious delinquencies on single-family mortgage loans underlying certain REMICs and Other Structured Securities, 

Other Guarantee Transactions, and other guarantee commitments may be reported on a different schedule due to variances in industry practice.

(2) Single-family Other Guarantee Transactions generally have underlying mortgage loans with higher risk characteristics, but some single-family Other 

Guarantee Transactions may provide inherent credit protections from losses due to underlying subordination, excess interest, overcollateralization and 

other features.

(3) Multifamily delinquency performance is based on UPB of mortgage loans that are two monthly payments or more past due or those in the process of 

foreclosure and includes multifamily Other Guarantee Transactions (e.g., K Certificates). Excludes mortgage loans that have been modified as long as 

the borrower is less than two monthly payments past due under the modified contractual terms.

We continue to implement a number of initiatives to refinance and modify loans, including the MHA Program and the 

servicing alignment initiative. Our implementation of the MHA Program, for our loans, includes the following: (a) an initiative 

to allow mortgages currently owned or guaranteed by us to be refinanced without obtaining additional credit enhancement 

beyond that already in place for the loan (i.e., our relief refinance mortgage, which is our implementation of HARP); (b) an 

initiative to modify mortgages for both homeowners who are in default and those who are at risk of imminent default (i.e., 

HAMP); and (c) an initiative designed to permit borrowers who meet basic HAMP eligibility requirements to sell their homes 

in short sales or to complete a deed in lieu of foreclosure transaction. As part of accomplishing certain of these initiatives, we 

pay various incentives to servicers and borrowers. We bear the full costs associated with these loan workout and foreclosure 

alternatives on mortgages that we own or guarantee, including the cost of any monthly payment reductions, and do not receive 

any reimbursement from Treasury.

Troubled Debt Restructurings

Single-Family TDRs

We require our single-family servicers to contact borrowers who are in default and to evaluate loan workout options in 

accordance with our requirements. We establish guidelines for our servicers to follow and provide them default management 

programs designed to help them manage non-performing loans more effectively and to assist borrowers in maintaining home 

ownership where possible, or facilitate foreclosure alternatives when continued homeownership is not an option. We require 

our single-family servicers to first evaluate problem loans for a repayment or forbearance plan before considering modification. 

If a borrower is not eligible for a modification, our seller/servicers pursue other workout options before considering 

foreclosure. We receive information related to loan workouts, such as completed modifications and loans in a modification trial 

period, and other alternatives to foreclosure from our servicers at the loan level on at least a monthly basis. For loans in a 

modification trial period, we do not receive the terms of the expected completed modification until the modification is 

completed. For these loans, we only receive notification that they are in a modification trial period. See “NOTE 1: SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for Loan Losses and Reserve for Guarantee Losses” for more 

detail.

Table of Contents
206 Freddie Mac

Repayment plans are agreements with the borrower that give the borrower a defined period of time to reinstate the 

mortgage by paying regular payments plus an additional agreed upon amount in repayment of the past due amount. These 

agreements are considered TDRs if they result in a delay in payment that is considered to be more than insignificant.

Forbearance agreements are agreements between the servicer and the borrower where reduced payments or no payments 

are required during a defined period. These agreements are considered TDRs if they result in a delay in payment that is 

considered to be more than insignificant.

For HAMP loan modifications, our servicers typically obtain information on income, assets, and other borrower 

obligations to consider eligibility for modification and determine modified loan terms. Under HAMP, the goal of a singlefamily loan modification is to reduce the borrower’s monthly mortgage payments to a specified percentage of the borrower’s 

gross monthly income, which may be achieved through a combination of methods, including: (a) interest rate reduction; 

(b) term extension; and (c) principal forbearance. Principal forbearance is when a portion of the principal is made non-interestbearing and non-amortizing, but this does not represent principal forgiveness. Although HAMP contemplates that some 

servicers will also make use of principal forgiveness to achieve reduced payments for borrowers, we have only used 

forbearance of principal and have not used principal forgiveness in modifying our loans.

We implemented a non-HAMP standard loan modification initiative in late 2011, which replaced our previous nonHAMP modification initiative beginning January 1, 2012. Our HAMP and non-HAMP modification initiatives are available for 

borrowers experiencing what is generally expected to be a longer-term financial hardship. In July 2013, we implemented a 

streamlined (non-HAMP) modification initiative, which provides an additional modification opportunity to certain borrowers, 

and it is scheduled to end in December 2015. The modification that borrowers receive under this initiative will have the same 

mortgage terms as our non-HAMP standard modification. Borrowers are not required to apply for assistance or provide income 

or hardship documentation for this type of modification. 

Both HAMP and our non-HAMP standard modification require a three month trial period during which the borrower will 

make monthly payments based on the estimated amount of the modification payments. After the final trial-period payment is 

received by our servicer, the borrower and servicer enter into the modification. We consider restructurings under these 

initiatives as TDRs at the inception of the trial period if the expected modification will result in a change in our expectation to 

collect all amounts due at the original contract rate. Since we do not receive the terms of the modification until completion of 

the trial period, we estimate the impairment for loans in a modification trial period that are considered TDRs using the average 

impairment recorded for completed modifications and the estimated likelihood of completion of the trial period. If the borrower 

fails to successfully complete the trial period, the impairment for the loan is then based on the original terms of the loan. If the 

borrower successfully completes the trial period, the impairment for the loan is then based on the modified terms of the loan. 

These subsequent adjustments to impairment are based on the success or failure of the borrower to complete the trial period and 

are recorded through the provision for credit losses.

During 2013 approximately 56% of completed single-family loan modifications that were classified as TDRs involved 

interest rate reductions and term extensions and approximately 36% involved principal forbearance in addition to interest rate 

reductions and term extensions. During 2013, the average term extension was 161 months and the average interest rate 

reduction was 2.2% on completed single-family loan modifications classified as TDRs.

Multifamily TDRs

The assessment as to whether a multifamily loan restructuring is considered a TDR contemplates the unique facts and 

circumstances of each loan. This assessment considers qualitative factors such as whether the borrower’s modified interest rate 

is consistent with that of a borrower having a similar credit profile at the time of modification. In certain cases, for maturing 

loans we may provide short-term loan extensions of up to one year with no changes to the effective borrowing rate. In other 

cases, we may make more significant modifications of terms for borrowers experiencing financial difficulty, such as reducing 

the interest rate or extending the maturity for longer than one year. In cases where we do modify the contractual terms of the 

loan, the changes in terms may be similar to those of single-family loans, such as an extension of the term, reduction of 

contractual rate, principal forbearance, or some combination of these features.

TDR Activity and Performance

The table below presents the volume of single-family and multifamily loans that were newly classified as TDRs during 

the year ended December 31, 2013 and 2012, based on the original category of the loan before the loan was classified as a 

TDR. Loans classified as a TDR in one period may be subject to further action (such as a modification or remodification) in a 

subsequent period. In such cases, the subsequent action would not be reflected in the table below since the loan would already 

have been classified as a TDR.

Table of Contents
207 Freddie Mac

Table 5.4 — TDR Activity, by Segment

Year Ended December 31, 2013 Year Ended December 31, 2012

# of Loans

Post-TDR

Recorded

Investment # of Loans

Post-TDR

Recorded

Investment

(dollars in millions)

Single-family(1)

20 and 30-year or more, amortizing fixed-rate(2) 101,538 $ 16,014 177,930 $ 27,076

15-year amortizing fixed-rate 11,671 825 17,549 1,176

Adjustable-rate(3) 3,604 574 6,496 977

Alt-A, interest-only, and option ARM(4) 17,770 3,941 35,012 7,834

Total Single-family 134,583 21,354 236,987 37,063

Multifamily 8 98 20 202

Total 134,591 $ 21,452 237,007 $ 37,265

(1) The pre-TDR recorded investment for single-family loans initially classified as TDR during the years ended December 31, 2013 and 2012, was $21.2 

billion and $37.0 billion, respectively. During the third quarter of 2012, we changed the treatment of single-family loans discharged in Chapter 7 

bankruptcy to classify these loans as TDRs, regardless of the borrowers’ payment status and when the loans were not already classified as TDRs for 

other reasons. As a result, the 2012 period reflects the initial classification of such loans as TDRs.

(2) See endnote (3) of “Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio.”

(3) Includes balloon/reset mortgage loans.

(4) See endnote (5) of “Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio.”

The measurement of impairment for single-family TDRs is based on the excess of our recorded investment in the loan 

over the present value of the loan’s expected future cash flows. For multifamily loans, we use an estimate of the fair value of 

the loan’s collateral rather than the present value of expected future cash flows to determine the amount of impairment. 

Generally, restructurings of single-family loans that are TDRs have a higher allowance for loan losses than restructurings that 

are not considered TDRs because TDRs involve a concession being granted to the borrower. Our process for determining the 

appropriate allowance for loan losses for both single-family and multifamily loans considers the impact that our loss mitigation 

activities, such as loan restructurings, have on probabilities of default. For single-family loans evaluated individually and 

collectively for impairment that have been modified, the probability of default is affected by the incidence of redefault that we 

have experienced on similar loans that have completed a modification. For multifamily loans, the incidence of redefault on 

loans that have been modified does not directly affect the allowance for loan losses as our multifamily loans are generally 

evaluated individually for impairment based on the fair value of the underlying collateral. The process for determining the 

appropriate allowance for loan losses for multifamily loans evaluated collectively for impairment considers the incidence of 

redefault on loans that have completed a modification.

The table below presents the volume of payment defaults (i.e., loans that became two months delinquent or completed a 

loss event) of our TDR modifications based on the original category of the loan before modification and excludes loans subject 

to other loss mitigation activity that were classified as TDRs during the period. Substantially all of our completed single-family 

loan modifications classified as a TDR during 2013 resulted in a modified loan with a fixed interest rate.

Table 5.5 — Payment Defaults of Completed TDR Modifications, by Segment(1) 

Year Ended December 31, 2013 Year Ended December 31, 2012

# of Loans

Post-TDR

Recorded

Investment(2) # of Loans

Post-TDR

Recorded

Investment(2)

(dollars in millions)

Single-family

20 and 30-year or more, amortizing fixed-rate(3) 14,964 $ 2,766 15,718 $ 2,905

15-year amortizing fixed-rate 471 52 716 73

Adjustable-rate 237 50 331 71

Alt-A, interest-only, and option ARM(4) 2,256 587 3,042 805

Total single-family 17,928 $ 3,455 19,807 $ 3,854

Multifamily — $ — 6 $ 82

Table of Contents
208 Freddie Mac

(1) Represents TDR loans that experienced a payment default during the period and had completed a modification during the year preceding the payment 

default. A payment default occurs when a borrower either: (a) became two or more months delinquent; or (b) completed a loss event, such as a short 

sale or foreclosure transfer. We only include payment defaults for a single loan once during each quarterly period within a year; however, a single loan 

will be reflected more than once if the borrower experienced another payment default in a subsequent quarterly period.

(2) Represents the recorded investment at the end of the period in which the loan was modified and does not represent the recorded investment as of 

December 31.

(3) See endnote (3) of “Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio.”

(4) See endnote (5) of “Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio.”

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, 2013 and 2012, 

8,473 and 5,220 of such loans, respectively, with a post-TDR recorded investment of $1.4 billion and $0.9 billion, respectively, 

experienced a payment default.

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, 2013 and 2012, 

17,225 and 9,390, respectively, of such loans (with a post-TDR recorded investment of $2.8 billion and $1.5 billion, 

respectively) experienced a payment default.

NOTE 6: REAL ESTATE OWNED

We obtain REO properties: (a) when we are the highest bidder at foreclosure sales of properties that collateralize nonperforming single-family and multifamily mortgage loans owned by us; or (b) when a delinquent borrower chooses to transfer 

the mortgaged property to us in lieu of going through the foreclosure process (i.e., deed in lieu of foreclosure). Upon acquiring 

single-family properties, we establish a marketing plan to sell the property as soon as practicable by determining an estimated 

market value and listing it for sale with a real estate broker. Upon acquiring multifamily properties, we may operate them using 

third-party property management firms for a period to stabilize value and then sell the properties through commercial real 

estate brokers. However, certain jurisdictions require a period of time after foreclosure during which the borrower may reclaim 

the property. During the period when the borrower may reclaim the property, or we are completing the eviction process, we are 

not able to market the property and this extends our holding period for these properties. See “NOTE 1: SUMMARY OF 

SIGNIFICANT ACCOUNTING POLICIES” for a discussion of our significant accounting policies for REO.

The table below provides a summary of the change in the carrying value of our combined single-family and multifamily 

REO balances. For the periods presented in the table below, the weighted average holding period for our disposed properties 

was less than one year.

Table 6.1 — REO

Year Ended December 31,

2013 2012 2011

(in millions)

Beginning balance — REO $ 4,407 $ 5,827 $ 7,368

Additions 6,498 7,029 8,970

Dispositions (6,303) (8,449) (10,511)

Ending balance — REO 4,602 4,407 5,827

Beginning balance, valuation allowance (29) (147) (300)

Change in valuation allowance (22) 118 153

Ending balance, valuation allowance (51) (29) (147)

Ending balance — REO, net $ 4,551 $ 4,378 $ 5,680

The REO balance, net at December 31, 2013 and 2012 associated with single-family properties was $4.5 billion and $4.3 

billion, respectively, and the balance associated with multifamily properties was $10 million and $64 million, respectively. The 

Southeast region represented approximately 34% and 29% of our single-family REO additions during 2013 and 2012, 

respectively, based on the number of properties, and the North Central region represented approximately 29% and 33% of our 

single-family REO additions during these periods. Our single-family REO inventory consisted of 47,307 properties and 49,071

properties at December 31, 2013 and 2012, respectively. In recent years, the foreclosure process has been significantly slowed 

in many geographical 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. See “NOTE 15: CONCENTRATION OF 

CREDIT AND OTHER RISKS” for additional information about regional concentrations in our portfolio.

Our REO operations expenses include: (a) REO property expenses; (b) net gains or losses incurred on disposition of REO 

properties; (c) adjustments to the holding period allowance associated with REO properties to record them at the lower of their 

carrying amount or fair value less the estimated costs to sell; and (d) recoveries from insurance and other credit enhancements. 

Table of Contents
209 Freddie Mac

An allowance for estimated declines in the REO fair value during the period properties are held reduces the carrying value of 

REO property. Excluding holding period valuation adjustments and recoveries, we recognized gains (losses) of $761 million, 

$693 million, and $(165) million on REO dispositions during 2013, 2012, and 2011 respectively. We increased (decreased) our 

valuation allowance for properties in our REO inventory by $58 million, $(7) million, and $304 million in 2013, 2012, and 

2011, respectively.

REO property acquisitions that result from extinguishment of our mortgage loans held on our consolidated balance sheets 

are treated as non-cash transfers. The amount of non-cash acquisitions of REO properties during the years ended December 31, 

2013, 2012, and 2011 was $6.1 billion, $6.8 billion, and $8.7 billion, respectively.

NOTE 7: INVESTMENTS IN SECURITIES

The table below summarizes amortized cost, estimated fair values, and corresponding gross unrealized gains and gross 

unrealized losses for available-for-sale securities by major security type. At December 31, 2013 and 2012, all available-for-sale 

securities are mortgage-related securities.

Table 7.1 — Available-For-Sale Securities

December 31, 2013

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Fair

Value

(in millions)

Available-for-sale securities:

Freddie Mac $ 39,001 $ 1,847 $ (189) $ 40,659

Fannie Mae 10,140 660 (3) 10,797

Ginnie Mae 149 18 — 167

CMBS 29,151 1,524 (337) 30,338

Subprime 29,897 382 (2,780) 27,499

Option ARM 6,617 338 (381) 6,574

Alt-A and other 8,322 526 (142) 8,706

Obligations of states and political subdivisions 3,533 23 (61) 3,495

Manufactured housing 629 61 (6) 684

Total available-for-sale securities $ 127,439 $ 5,379 $ (3,899) $ 128,919

December 31, 2012

Available-for-sale securities:

Freddie Mac $ 53,965 $ 4,602 $ (52) $ 58,515

Fannie Mae 14,183 1,099 (2) 15,280

Ginnie Mae 183 26 — 209

CMBS 47,606 3,882 (181) 51,307

Subprime 35,503 83 (9,129) 26,457

Option ARM 7,454 48 (1,785) 5,717

Alt-A and other 11,861 244 (1,201) 10,904

Obligations of states and political subdivisions 5,647 154 (3) 5,798

Manufactured housing 716 24 (31) 709

Total available-for-sale securities $ 177,118 $ 10,162 $ (12,384) $ 174,896

Available-For-Sale Securities in a Gross Unrealized Loss Position

The table below shows the fair value of available-for-sale securities in a gross unrealized loss position, and whether they 

have been in that position less than 12 months, or 12 months or greater, including the non-credit-related portion of other-thantemporary impairments, which have been recognized in AOCI.

Table of Contents
210 Freddie Mac

Table 7.2 — Available-For-Sale Securities in a Gross Unrealized Loss Position

Less than 12 Months 12 Months or Greater Total

Gross Unrealized Losses Gross Unrealized Losses Gross Unrealized Losses

December 31,

2013

Fair

Value

Other-ThanTemporary

Impairment(1)

Temporary

Impairment(2) Total

Fair

Value

Other-ThanTemporary

Impairment(1)

Temporary

Impairment(2) Total

Fair

Value

Other-ThanTemporary

Impairment(1)

Temporary

Impairment(2) Total

(in millions)

Available-forsale securities:

Freddie Mac $ 7,957 $ — $ (144) $ (144) $ 649 $ — $ (45) $ (45) $ 8,606 $ — $ (189) $ (189)

Fannie Mae 248 — (2) (2) 19 — (1) (1) 267 — (3) (3)

CMBS 1,147 (7) (78) (85) 1,992 (16) (236) (252) 3,139 (23) (314) (337)

Subprime 472 (19) — (19) 19,103 (2,448) (313) (2,761) 19,575 (2,467) (313) (2,780)

Option ARM 77 (2) — (2) 2,608 (374) (5) (379) 2,685 (376) (5) (381)

Alt-A and

other 262 (5) — (5) 1,854 (113) (24) (137) 2,116 (118) (24) (142)

Obligations of

states and

political

subdivisions 1,885 (7) (49) (56) 24 — (5) (5) 1,909 (7) (54) (61)

Manufactured

housing — — — — 65 (4) (2) (6) 65 (4) (2) (6)

Total availablefor-sale

securities in a

gross unrealized

loss position $12,048 $ (40) $ (273) $ (313) $ 26,314 $ (2,955) $ (631) $ (3,586) $ 38,362 $ (2,995) $ (904) $ (3,899)

Less than 12 Months 12 Months or Greater Total

Gross Unrealized Losses Gross Unrealized Losses Gross Unrealized Losses

December 31,

2012

Fair

Value

Other-ThanTemporary

Impairment(1)

Temporary

Impairment(2) Total

Fair

Value

Other-ThanTemporary

Impairment(1)

Temporary

Impairment(2) Total

Fair

Value

Other-ThanTemporary

Impairment(1)

Temporary

Impairment(2) Total

(in millions)

Available-forsale securities:

Freddie Mac $ 1,811 $ — $ (25) $ (25) $ 1,872 $ — $ (27) $ (27) $ 3,683 $ — $ (52) $ (52)

Fannie Mae 170 — — — 55 — (2) (2) 225 — (2) (2)

CMBS 340 — (3) (3) 3,425 (22) (156) (178) 3,765 (22) (159) (181)

Subprime 298 (23) — (23) 25,676 (7,830) (1,276) (9,106) 25,974 (7,853) (1,276) (9,129)

Option ARM 82 (3) — (3) 5,182 (1,759) (23) (1,782) 5,264 (1,762) (23) (1,785)

Alt-A and

other 50 (4) — (4) 7,938 (961) (236) (1,197) 7,988 (965) (236) (1,201)

Obligations of

states and

political

subdivisions 37 — (1) (1) 45 — (2) (2) 82 — (3) (3)

Manufactured

housing 46 — — — 222 (26) (5) (31) 268 (26) (5) (31)

Total availablefor-sale

securities in a

gross unrealized

loss position $ 2,834 $ (30) $ (29) $ (59) $ 44,415 $ (10,598) $ (1,727) $ (12,325) $ 47,249 $ (10,628) $ (1,756) $ (12,384)

(1) Represents the gross unrealized losses for securities for which we have previously recognized other-than-temporary impairments in earnings.

(2) Represents the gross unrealized losses for securities for which we have not previously recognized other-than-temporary impairments in earnings.

At December 31, 2013, total gross unrealized losses on available-for-sale securities were $3.9 billion. The gross 

unrealized losses relate to 994 individual lots representing 956 separate securities, including securities with non-credit-related 

other-than-temporary impairments recognized in AOCI. We purchase multiple lots of individual securities at different times and 

at different costs. We determine gross unrealized gains and gross unrealized losses by specifically evaluating investment 

positions at the lot level; therefore, some of the lots we hold for a single security may be in an unrealized gain position while 

other lots for that security may be in an unrealized loss position, depending upon the amortized cost of the specific lot.

Impairment Recognition on Investments in Securities

We recognize impairment losses on available-for-sale securities within our consolidated statements of comprehensive 

income as net impairment of available-for-sale securities recognized in earnings when we conclude that a decrease in the fair 

value of a security is other-than-temporary. For information regarding our evaluation of our available-for-sale securities for 

impairment, see "NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities."

Table of Contents
211 Freddie Mac

The evaluation of whether unrealized losses on available-for-sale securities are other-than-temporary requires significant 

management judgments and assumptions and consideration of numerous factors. We perform an evaluation on a security-bysecurity basis considering all available information. The relative importance of this information varies based on the facts and 

circumstances surrounding each security, as well as the economic environment at the time of assessment. Important factors 

include, but are not limited to: 

• whether we intend to sell the security or it is more likely than not that we will be required to sell the security before 

sufficient time elapses to recover all unrealized losses; 

• the use of a third-party model for single-family non-agency mortgage-related securities that considers the credit 

performance of the underlying collateral, including current LTV ratio, delinquency status, servicer performance, loan 

modification terms and status, and borrower credit information. The model also incorporates assumptions about the 

economic environment, including future home prices, unemployment, and interest rates to project underlying collateral 

prepayment speeds, default rates, loss severities, and delinquency rates. Our estimation approach for CMBS includes 

the use of a separate third-party model that utilizes underlying collateral performance, current and expected credit 

enhancements, and incorporates assumptions about the underlying collateral cash flows; and 

• the incorporation of security-level subordination information and the priority of cash flow payments by the models to 

project and estimate cash flows expected to be collected for each security. 

See “Table 7.2 — Available-For-Sale Securities in a Gross Unrealized Loss Position” for the length of time our availablefor-sale securities have been in an unrealized loss position. Also see “Table 7.3 — Significant Modeled Attributes for Certain 

Available-For-Sale Non-Agency Mortgage-Related Securities” for the modeled default rates and severities that were used to 

determine whether our senior interests in certain non-agency mortgage-related securities would experience a cash shortfall. 

As noted in “Table 7.4 — Net Impairment of Available-For-Sale Securities Recognized in Earnings,” our net impairment 

on available-for-sale securities during 2013 includes certain securities that we have the intent to sell prior to the recovery of the 

unrealized loss. In cases where we have the intent to sell or it is more likely than not that we will be required to sell the security 

before recovery of its amortized cost, the security’s entire decline in fair value would be deemed to be other-than-temporary 

and is recorded within our consolidated statements of comprehensive income as net impairment of available-for-sale securities 

recognized in earnings. For the remaining available-for-sale securities in an unrealized loss position at December 31, 2013, we 

have asserted that we have no intent to sell and that we believe it is not more likely than not that we will be required to sell the 

security before recovery of its amortized cost basis.

Freddie Mac and Fannie Mae Securities 

We record the purchase of mortgage-related securities issued by Fannie Mae as investments in securities in accordance 

with the accounting guidance for investments in debt and equity securities. In contrast, our purchase of mortgage-related 

securities that we issued (e.g., PCs, REMICs and Other Structured Securities, and Other Guarantee Transactions) is recorded as 

either investments in securities or extinguishment of debt securities of consolidated trusts depending on the nature of the 

mortgage-related security that we purchase. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — 

Securitization Activities through Issuances of Freddie Mac Mortgage-Related Securities” for additional information. 

We hold these investments in securities that are in an unrealized loss position at least to recovery and typically to 

maturity. As the principal and interest on these securities are guaranteed and we do not intend to sell these securities and it is 

not more likely than not that we will be required to sell such securities before a recovery of the securities' amortized cost basis, 

we consider these unrealized losses to be temporary. 

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

We believe the unrealized losses on the non-agency mortgage-related securities we hold are a result of poor underlying 

collateral performance, limited liquidity, and risk premiums. Our review of the securities backed by subprime, option ARM, 

and Alt-A and other loans includes the third-party loan level default modeling and analyses of the individual securities based on 

underlying collateral performance, including the collectability of amounts from bond insurers. In evaluating collectability from 

bond insurers, we consider factors that affect both the bond insurers’ financial performance and ability to pay their obligations. 

We consider loan level information including estimated current LTV ratios, FICO scores, and other loan level characteristics. 

For additional information regarding bond insurers, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS 

— Bond Insurers.”

The table below presents the modeled attributes, including default rates, prepayment rates, and severities, without regard 

to subordination, that are used to determine whether our interests in certain available-for-sale non-agency mortgage-related 

securities will experience a cash shortfall. 

Table of Contents
212 Freddie Mac

Table 7.3 — Significant Modeled Attributes for Certain Available-For-Sale Non-Agency Mortgage-Related Securities

December 31, 2013

Alt-A(1)

Subprime First

Lien(2) Option ARM Fixed Rate Variable Rate Hybrid Rate

(dollars in millions)

Issuance Date

2004 and prior:

UPB $ 896 $ 49 $ 498 $ 336 $ 342

Weighted average collateral defaults(3) 37% 23 % 13 % 31 % 19 %

Weighted average collateral severities(4) 58% 46 % 47 % 43 % 37 %

Weighted average voluntary prepayment rates(5) 7% 8 % 11 % 7 % 8 %

Average credit enhancements(6) 38% 4 % 15 % 15 % 12 %

2005:

UPB $ 3,687 $ 2,221 $ 714 $ 591 $ 3,068

Weighted average collateral defaults(3) 46% 34 % 20 % 40 % 24 %

Weighted average collateral severities(4) 60% 51 % 46 % 48 % 41 %

Weighted average voluntary prepayment rates(5) 4% 7 % 9 % 7 % 9 %

Average credit enhancements(6) 46% 3 % — % 21 % 2 %

2006:

UPB $ 16,547 $ 4,870 $ 397 $ 846 $ 907

Weighted average collateral defaults(3) 54% 44 % 28 % 47 % 26 %

Weighted average collateral severities(4) 61% 53 % 47 % 53 % 40 %

Weighted average voluntary prepayment rates(5) 2% 6 % 8 % 6 % 10 %

Average credit enhancements(6) 5% (5)% — % (9)% (3)%

2007:

UPB $ 18,287 $ 3,286 $ 138 $ 1,085 $ 225

Weighted average collateral defaults(3) 53% 44 % 47 % 46 % 43 %

Weighted average collateral severities(4) 61% 52 % 52 % 52 % 48 %

Weighted average voluntary prepayment rates(5) 2% 6 % 6 % 6 % 7 %

Average credit enhancements(6) 4% 4 % (1)% (20)% — %

Total:

UPB $ 39,417 $ 10,426 $ 1,747 $ 2,858 $ 4,542

Weighted average collateral defaults(3) 52% 42 % 22 % 43 % 25 %

Weighted average collateral severities(4) 61% 52 % 47 % 51 % 41 %

Weighted average voluntary prepayment rates(5) 2% 6 % 9 % 6 % 9 %

Average credit enhancements(6) 9% — % 4 % (4)% 1 %

(1) Excludes non-agency mortgage-related securities backed by other loans, which primarily consist of securities backed by home equity lines of credit.

(2) Excludes non-agency mortgage-related securities backed exclusively by subprime second liens. Certain securities identified as subprime first lien may 

be backed in part by subprime second-lien loans, as the underlying loans of these securities were permitted to include a small percentage of subprime 

second-lien loans.

(3) The expected cumulative default rate is expressed as a percentage of the current collateral UPB.

(4) The expected average loss given default is calculated as the ratio of cumulative loss over cumulative default for each security.

(5) The security’s voluntary prepayment rate represents the average of the monthly voluntary prepayment rate weighted by the security’s outstanding UPB.

(6) Positive values reflect the amount of subordination and other financial support (excluding credit enhancement provided by bond insurance) that will 

incur losses in the securitization structure before any losses are allocated to securities that we own. Percentage generally calculated based on: (a) the 

total UPB of securities subordinate to the securities we own; divided by (b) the total UPB of all of the securities issued by the trust (excluding notional 

balances). Negative values are shown when unallocated collateral losses will be allocated to the securities that we own in excess of current remaining 

credit enhancement, if any. The unallocated collateral losses have been considered in our assessment of other-than-temporary impairment.

In evaluating the non-agency mortgage-related securities backed by subprime, option ARM, and Alt-A and other loans for 

other-than-temporary impairment, we noted that the percentage of securities that were AAA-rated and the percentage that were 

investment grade declined significantly since acquisition. While these ratings have declined, the ratings themselves are not 

determinative that a loss is more or less likely. While we may consider credit ratings in our analysis, we believe that our 

detailed security-by-security analyses provide a more comprehensive view of the ultimate collectability of contractual amounts 

due to us. 

Our analysis is subject to change as new information regarding delinquencies, severities, loss timing, prepayments, and 

other factors becomes available. While it is possible that, under certain conditions, collateral losses on our remaining availableTable of Contents
213 Freddie Mac

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, 2013. 

Commercial Mortgage-Backed Securities 

CMBS are exposed to stresses in the commercial real estate market. We use an external model to identify securities that 

may have an increased risk of failing to make their contractual payments. We then perform an analysis of the underlying 

collateral on a security-by-security basis to determine whether we will receive all of the contractual payments due to us. While 

it is possible that, under certain conditions, collateral losses on our CMBS for which we have not recorded an impairment 

charge could exceed our credit enhancement levels and a principal or interest loss could occur, we do not believe that those 

conditions were likely as of December 31, 2013. 

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. 

Bond Insurance 

We rely on bond insurance to provide credit protection on some of our non-agency mortgage-related securities. 

Circumstances in which: (a) it is expected that a principal and interest shortfall will occur; and (b) there is substantial 

uncertainty surrounding a bond insurer’s ability to pay all future claims can give rise to recognition of other-than-temporary 

impairment recognized in earnings. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Bond 

Insurers” for additional information. 

Other-Than-Temporary Impairments on Available-for-Sale Securities 

The table below summarizes our net impairment of available-for-sale securities recognized in earnings by security type.

Table 7.4 — Net Impairment of Available-For-Sale Securities Recognized in Earnings

Net Impairment of Available-For-Sale Securities

Recognized in Earnings For the Year Ended December 31,

2013 2012 2011

(in millions)

Available-for-sale securities:(1)

CMBS $ (14) $ (138) $ (353)

Subprime (1,258) (1,274) (1,315)

Option ARM (58) (556) (424)

Alt-A and other (179) (196) (198)

Manufactured housing (1) (4) (11)

Total net impairment of available-for-sale securities recognized in earnings $ (1,510) $ (2,168) $ (2,301)

(1) Includes $568 million, $0 million, and $181 million of other-than-temporary impairments recognized in earnings for the years ended December 31, 

2013, 2012, and 2011, respectively, as we had the intent to sell the related securities before recovery of their amortized cost basis.

The table below presents the changes in the unrealized credit-related other-than-temporary impairment component of the 

amortized cost related to available-for-sale securities: (a) that we have written down for other-than-temporary impairment; and 

(b) for which the credit component of the loss has been recognized in earnings. The credit-related other-than-temporary 

impairment component of the amortized cost represents the difference between the present value of expected future cash flows 

at the time of impairment, including the estimated proceeds from bond insurance, and the amortized cost basis of the security 

prior to considering credit losses. The beginning balances represent the other-than-temporary impairment credit loss 

components related to available-for-sale securities for which other-than-temporary impairment occurred prior to January 1, 

2013 and January 1, 2012, respectively, but will not be realized until the securities are sold, written off, or mature. Net 

impairment of available-for-sale securities recognized in earnings is presented as additions in two components based upon 

whether the current period is: (a) the first time the debt security was credit-impaired; or (b) not the first time the debt security 

was credit-impaired. The credit loss component is reduced if we sell, intend to sell or believe we will be required to sell 

previously credit-impaired available-for-sale securities. Additionally, the credit loss component is reduced by the amortization 

resulting from significant increases in cash flows expected to be collected that are recognized over the remaining life of the 

security.

Table of Contents
214 Freddie Mac

Table 7.5 — Other-Than-Temporary Impairments Related to Credit Losses on Available-For-Sale Securities

Year Ended

December 31,

2013 2012

(in millions)

Credit-related other-than-temporary impairments on available-for-sale securities recognized in earnings:

Beginning balance — remaining credit losses on available-for-sale securities where other-than-temporary impairments were

recognized in earnings $ 16,745 $ 15,988

Additions:

Amounts related to credit losses for which an other-than-temporary impairment was not previously recognized 46 141

Amounts related to credit losses for which an other-than-temporary impairment was previously recognized 896 2,027

Reductions:

Amounts related to securities which were sold, written off, or matured (1,193) (1,289)

Amounts for which we intend to sell the security or it is more likely than not that we will be required to sell the security before

recovery of its amortized cost basis (1,536) (15)

Amounts related to amortization resulting from significant increases in cash flows expected to be collected and/or due to the

passage of time that are recognized over the remaining life of the security (495) (107)

Ending balance — remaining credit losses on available-for-sale securities where other-than-temporary impairments were recognized 

in earnings(1) $ 14,463 $ 16,745

(1) Excludes other-than-temporary impairments on securities that we intend to sell or it is more likely than not that we will be required to sell before 

recovery of the unrealized losses.

Realized Gains and Losses on Sales of Available-For-Sale Securities

The table below illustrates the gross realized gains and gross realized losses from the sale of available-for-sale securities.

Table 7.6 — Gross Realized Gains and Gross Realized Losses on Sales of Available-For-Sale Securities

Year Ended December 31,

2013 2012 2011

(in millions)

Gross realized gains

Mortgage-related securities:

Freddie Mac $ 547 $ 34 $ 77

Fannie Mae 17 14 14

CMBS 1,301 82 37

Option ARM 1 3 —

Alt-A and other 70 — —

Obligations of states and political subdivisions 13 19 11

Subprime 1 — —

Total mortgage-related securities gross realized gains 1,950 152 139

Gross realized gains 1,950 152 139

Gross realized losses

Mortgage related securities:(1)

Freddie Mac (25) — —

CMBS — — (81)

Option ARM (4) — —

Alt-A and other (19) — —

Subprime (3) — —

Total mortgage-related securities gross realized losses (51) — (81)

Gross realized losses (51) — (81)

Net realized gains (losses) $ 1,899 $ 152 $ 58

(1) The individual sales do not change our conclusion, at period end, that we do not intend to sell our remaining mortgage-related available-for-sale 

securities that are in an unrealized loss position and it is not more likely than not that we will be required to sell these securities before a sufficient time 

to recover all unrealized losses.

Maturities of Available-For-Sale Securities

The table below summarizes the remaining contractual maturities of available-for-sale securities.

Table of Contents
215 Freddie Mac

Table 7.7 — Maturities of Available-For-Sale Securities(1)

As of December 31, 2013

After One Year Through After Five Years

Total Total One Year or Less Five Years Through Ten Years After Ten Years

Amortized Fair Amortized Fair Amortized Fair Amortized Fair Amortized Fair

Cost Value Cost Value Cost Value Cost Value Cost Value

(dollars in millions)

Available-for-sale securities:

Freddie Mac $ 39,001 $ 40,659 $ 4 $ 4 $ 570 $ 599 $ 613 $ 654 $ 37,814 $ 39,402

Fannie Mae 10,140 10,797 3 3 275 291 163 177 9,699 10,326

Ginnie Mae 149 167 — — 7 8 12 14 130 145

CMBS 29,151 30,338 — — 677 735 — — 28,474 29,603

Subprime 29,897 27,499 — — — — — — 29,897 27,499

Option ARM 6,617 6,574 — — — — — — 6,617 6,574

Alt-A and other 8,322 8,706 1 2 71 70 12 12 8,238 8,622

Obligations of states and

political subdivisions 3,533 3,495 5 5 39 42 106 107 3,383 3,341

Manufactured housing 629 684 — — — — — — 629 684

Total available-for-sale

securities $127,439 $128,919 $ 13 $ 14 $ 1,639 $ 1,745 $ 906 $ 964 $124,881 $ 126,196

Weighted Average Yield(2) 2.99% 5.62% 5.19% 5.16% 2.95%

(1) Maturity information provided is based on contractual maturities, which may not represent the expected life as obligations underlying these securities 

may be prepaid at any time without penalty.

(2) The weighted average yield is calculated based on a yield for each individual lot held at December 31, 2013 excluding any fully taxable-equivalent 

adjustments related to tax exempt sources of interest income. The numerator for the individual lot yield consists of the sum of: (a) the year-end interest 

coupon rate multiplied by the year-end UPB; and (b) the annualized amortization income or expense calculated for December 2013 (excluding the 

accretion of non-credit-related other-than-temporary impairments and any adjustments recorded for changes in the effective rate). The denominator for 

the individual lot yield consists of the year-end amortized cost of the lot excluding effects of other-than-temporary impairments on the UPB of impaired 

lots.

Trading Securities

The table below summarizes the estimated fair values by major security type for trading securities. Our trading securities 

mainly consist of Treasury securities, agency fixed-rate and variable-rate pass-through mortgage-related securities, and agency 

REMICs, including inverse floating rate, interest-only and principal-only securities.

Table 7.8 — Trading Securities

December 31, 2013 December 31, 2012

(in millions)

Mortgage-related securities:

Freddie Mac $ 9,349 $ 10,354

Fannie Mae 7,180 10,338

Ginnie Mae 98 131

Other 141 156

Total mortgage-related securities 16,768 20,979

Non-mortgage-related securities:

Asset-backed securities — 292

Treasury bills 2,254 1,160

Treasury notes 4,382 19,061

Total non-mortgage-related securities 6,636 20,513

Total fair value of trading securities $ 23,404 $ 41,492

With the exception of principal-only securities, our agency securities, classified as trading, were valued at a net premium 

(i.e., net fair value was higher than UPB) as of December 31, 2013.

For the years ended December 31, 2013, 2012, and 2011, we recorded net unrealized losses on trading securities held at 

those dates of $(1.6) billion, $(1.7) billion and $(1.0) billion, respectively. 

Table of Contents
216 Freddie Mac

NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS

Debt securities that we issue are classified on our consolidated balance sheets as either debt securities of consolidated 

trusts held by third parties or other debt. We issue other debt to fund our operations.

Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur indebtedness that would 

result in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are allowed to own 

on December 31 of the immediately preceding calendar year. Because of this debt limit, we may be restricted in the amount of 

debt we are allowed to issue to fund our operations. Under the Purchase Agreement, the amount of our “indebtedness” is 

determined without giving effect to the January 1, 2010 change in the accounting guidance related to transfers of financial 

assets and consolidation of VIEs. Therefore, “indebtedness” does not include debt securities of consolidated trusts held by third 

parties. We also cannot become liable for any subordinated indebtedness without the prior consent of Treasury. See “NOTE 2: 

CONSERVATORSHIP AND RELATED MATTERS” for information regarding restrictions on the amount of mortgage-related 

securities that we may own.

Our debt cap under the Purchase Agreement was $780.0 billion in 2013 and declined to $663.0 billion on January 1, 

2014. As of December 31, 2013, we estimate that our aggregate indebtedness was $511.3 billion, or $268.7 billion below the 

applicable debt cap. Our aggregate indebtedness is calculated as the par value of other debt.

In the tables below, the categories of short-term debt (due within one year) and long-term debt (due after one year) are 

based on the original contractual maturity of the debt instruments classified as other debt.

During 2013, 2012, and 2011, we recognized fair value gains (losses) of $(11) million, $16 million, and $91 million, 

respectively, on our foreign-currency denominated debt, of which $(31) million, $(7) million, and $40 million, respectively, 

were gains (losses) related to foreign-currency translation. 

Other Short-Term Debt

As indicated in "Table 8.1 — Other Short-Term Debt", a majority of other short-term debt consisted of Reference Bills® 

securities and discount notes, paying only principal at maturity. Reference Bills® securities, discount notes, and medium-term 

notes are unsecured general corporate obligations. Certain medium-term notes that have original maturities of one year or less 

are classified as other short-term debt for purposes of this presentation.

The table below summarizes the balances and effective interest rates for other short-term debt.

Table 8.1 — Other Short-Term Debt

December 31, 2013 December 31, 2012

Par Value Balance, Net(1)

Weighted Average

Effective Rate(2) Par Value Balance, Net(1)

Weighted Average

Effective Rate(2)

(dollars in millions)

Other short-term debt:

Reference Bills® securities and discount 

notes $ 137,767 $ 137,712 0.13% $ 117,930 $ 117,889 0.15%

Medium-term notes 4,000 4,000 0.16 — — —

Total other short-term debt $ 141,767 $ 141,712 0.13 $ 117,930 $ 117,889 0.15

(1) Represents par value, net of associated discounts or premiums.

(2) Represents the weighted average effective rate that remains constant over the life of the instrument, which includes the amortization of discounts or 

premiums, and issuance costs.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are effectively collateralized borrowing transactions where we sell 

securities with an agreement to repurchase such securities. These agreements require the underlying securities to be delivered to 

the dealers who are the counterparties to the transactions. Federal funds purchased are unsecuritized borrowings from 

commercial banks that are members of the Federal Reserve System. We had no balances in federal funds purchased and 

securities sold under agreements to repurchase at either December 31, 2013 or 2012.

Other Long-Term Debt

The table below summarizes our other long-term debt.

Table of Contents
217 Freddie Mac

Table 8.2 — Other Long-Term Debt

December 31, 2013 December 31, 2012

Contractual 

Maturity(1) Par Value Balance, Net(2)

Weighted Average

Effective Rate(3) Par Value Balance, Net(2)

Weighted Average

Effective Rate(3)

(dollars in millions)

Other long-term debt:

Other senior debt:(4)

Fixed-rate:

Medium-term notes — callable(5) 2014 - 2037 $ 101,190 $ 101,236 1.51% $ 94,655 $ 94,842 1.62%

Medium-term notes — noncallable 2014 - 2028 37,878 38,107 0.99 42,623 42,877 1.08

U.S. dollar Reference Notes

securities — non-callable 2014 - 2032 190,371 190,406 2.71 225,857 225,885 2.82

€Reference Notes securities —

non-callable 2014 528 529 4.38 1,167 1,187 4.58

Variable-rate:

Medium-term notes — callable 2014 - 2028 6,001 6,001 1.66 6,953 6,953 2.57

Medium-term notes — noncallable 2014 - 2026 18,533 18,533 0.22 46,194 46,197 0.27

STACR 2023 1,107 1,155 4.29 — — —

Zero-coupon:

Medium-term notes — callable 2037 - 2040 1,200 311 5.82 1,300 324 5.71

Medium-term notes — noncallable 2014 - 2039 12,217 8,334 3.08 15,240 10,923 4.03

Hedging-related basis adjustments N/A 41 N/A 57

Total other senior debt 369,025 364,653 433,989 429,245

Other subordinated debt:

Fixed-rate 2016 - 2018 221 218 6.60 221 218 6.59

Zero-coupon 2019 332 184 10.51 332 166 10.51

Total other subordinated debt 553 402 553 384

Total other long-term debt $ 369,578 $ 365,055 2.08% $ 434,542 $ 429,629 2.15%

(1) Represents contractual maturities at December 31, 2013.

(2) Represents par value of long-term debt securities and subordinated borrowings, net of associated discounts or premiums and hedge-related basis 

adjustments, with $2.6 billion and $2.2 billion, respectively, of other long-term debt that represents the fair value of debt securities with the fair value 

option elected at December 31, 2013 and 2012.

(3) Represents the weighted average effective rate that remains constant over the life of the instrument, which includes the amortization of discounts or 

premiums, issuance costs, and hedging-related basis adjustments.

(4) For debt denominated in a currency other than the U.S. dollar, the outstanding balance is based on the exchange rate at December 31, 2013 and 2012, 

respectively.

(5) Includes callable FreddieNotes® securities of $0.8 billion and $1.2 billion at December 31, 2013 and 2012, respectively.

A portion of our other long-term debt is callable. Callable debt gives us the option to redeem the debt security at par on 

one or more specified call dates or at any time on or after a specified call date.

Debt Securities of Consolidated Trusts Held by Third Parties

Debt securities of consolidated trusts held by third parties represents our liability to third parties that hold beneficial 

interests in our consolidated securitization trusts (i.e., single-family PC trusts and certain single-family and multifamily Other 

Guarantee Transactions).

The table below summarizes the debt securities of consolidated trusts held by third parties based on underlying mortgage 

product type.

Table of Contents
218 Freddie Mac

Table 8.3 — Debt Securities of Consolidated Trusts Held by Third Parties

December 31, 2013 December 31, 2012

Contractual

Maturity(1) UPB

Balance,

Net(2)

Weighted

Average

Coupon(1)

Contractual

Maturity(1) UPB

Balance,

Net(2)

Weighted

Average

Coupon(1)

(dollars in millions) (dollars in millions)

Single-family:(3)

30-year or more, fixed-rate 2014 - 2052 $ 969,270 $ 993,683 4.14% 2013 - 2048 $ 960,176 $ 982,718 4.53%

20-year fixed-rate 2014 - 2034 75,910 78,252 3.81 2013 - 2033 73,902 76,079 4.09

15-year fixed-rate 2014 - 2029 270,513 277,018 3.23 2013 - 2028 257,083 263,244 3.59

Adjustable-rate 2014 - 2047 60,683 61,830 2.64 2013 - 2047 62,424 63,649 2.88

Interest-only(4) 2026 - 2041 21,352 21,390 3.70 2026 - 2041 31,588 31,642 4.37

FHA/VA 2014 - 2041 1,284 1,303 5.67 2013 - 2041 1,638 1,663 5.67

Total single-family 1,399,012 1,433,476 1,386,811 1,418,995

Multifamily(5) 2018 - 2019 444 508 4.96 2018 - 2019 448 529 4.96

Total debt securities of consolidated trusts held by 

third parties(6) $ 1,399,456 $ 1,433,984 $ 1,387,259 $ 1,419,524

(1) Based on the contractual maturity and interest rate of debt securities of our consolidated trusts held by third parties.

(2) Represents par value, net of associated discounts, premiums, and other basis adjustments.

(3) Debt securities of consolidated trusts held by third parties are prepayable as the loans that collateralize the debt may prepay without penalty at any time.

(4) Includes interest-only securities and interest-only mortgage loans that allow the borrowers to pay only interest for a fixed period of time before the 

loans begin to amortize.

(5) Balance, Net includes interest-only securities recorded at fair value.

(6) The effective rate for debt securities of consolidated trusts held by third parties was 3.39% and 3.49% as of December 31, 2013 and 2012, respectively.

The table below summarizes the contractual maturities of other long-term debt securities and debt securities of 

consolidated trusts held by third parties at December 31, 2013.

Table 8.4 — Contractual Maturity of Other Long-Term Debt and Debt Securities of Consolidated Trusts Held by Third 

Parties

Annual Maturities Par Value(1)(2)

(in millions)

Other long-term debt:

2014 $ 78,115

2015 70,303

2016 63,564

2017 51,908

2018 33,418

Thereafter 72,270

Debt securities of consolidated trusts held by third parties(3) 1,399,456

Total 1,769,034

Net discounts, premiums, hedge-related and other basis adjustments(4) 30,005

Total debt securities of consolidated trusts held by third parties and other long-term debt $ 1,799,039

(1) Represents par value of long-term debt securities and subordinated borrowings and UPB of debt securities of our consolidated trusts held by third 

parties.

(2) For other debt denominated in a currency other than the U.S. dollar, the par value is based on the exchange rate at December 31, 2013.

(3) Contractual maturities of debt securities of consolidated trusts held by third parties may not represent expected maturity as they are prepayable at any 

time without penalty.

(4) Other basis adjustments primarily represent changes in fair value attributable to instrument-specific credit risk and interest-rate risk related to other 

foreign-currency denominated debt.

Line of Credit

At both December 31, 2013 and 2012, we had one secured, uncommitted intraday line of credit with a third party totaling 

$10 billion. We use this line of credit regularly to provide us with additional liquidity to fund our intraday payment activities 

through the Fedwire system in connection with the Federal Reserve’s payments system risk policy, which restricts or eliminates 

daylight overdrafts by the GSEs. No amounts were drawn on this line of credit at December 31, 2013 and 2012. We expect to 

continue to use the current facility to satisfy our intraday financing needs; however, as the line is uncommitted, we may not be 

able to draw on it if and when needed.

Table of Contents
219 Freddie Mac

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.

NOTE 9: DERIVATIVES

Use of Derivatives

We use derivatives primarily to manage the interest rate and prepayment risk associated with our investments in 

mortgage-related assets, net of related 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 and models. We use derivatives to hedge interestrate sensitivity mismatches between our assets and liabilities. For example, if rates increase and the duration of our assets 

extends more than the duration of our liabilities, we would rebalance our interest-rate exposure by entering into pay-fixed 

interest-rate swaps or selling Treasury-derivatives. If rates decrease and the duration of our assets shortens more than the 

duration of our liabilities, we would rebalance our interest-rate exposure by entering into receive-fixed interest-rate swaps or 

purchasing Treasury-derivatives. When we use derivatives to mitigate our exposures, we consider a number of factors, 

including cost, exposure to counterparty risk, and our overall risk management strategy.

We classify derivatives into three categories: (a) exchange-traded derivatives; (b) cleared derivatives; and (c) OTC 

derivatives. Cleared derivatives refer to those 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- and Euribor-based interest-rate swaps;

• LIBOR- and Treasury-based options (including swaptions); and

• LIBOR- and Treasury-based exchange-traded futures.

In addition to swaps, futures, and purchased options, our derivative positions include written options and swaptions, 

commitments, swap guarantees, and credit derivatives.

Written Options and Swaptions

Written call and put swaptions are sold to counterparties allowing them the option to enter into receive- and pay-fixed 

interest rate swaps, respectively. Written call and put options on mortgage-related securities give the counterparty the right to 

execute a contract under specified terms, which generally occurs when we are in a liability position. We may, from time to time, 

write other derivative contracts such as interest-rate futures.

Commitments

We routinely enter into commitments that include our: (a) commitments to purchase and sell investments in securities; 

(b) commitments to purchase mortgage loans; and (c) commitments to purchase and extinguish or issue debt securities of our 

consolidated trusts. Most of these commitments are considered derivatives and therefore are subject to the accounting guidance 

for derivatives and hedging.

Swap Guarantee Derivatives

In connection with some of the guarantee arrangements pertaining to multifamily housing revenue bonds and multifamily 

pass-through certificates, we may also guarantee the sponsor’s or the borrower’s obligations as a counterparty on any related 

interest-rate swaps used to mitigate interest-rate risk, which are accounted for as swap guarantee derivatives.

Credit Derivatives

We entered into credit-risk sharing agreements for certain credit enhanced multifamily housing revenue bonds held by 

third parties in exchange for a monthly fee. In addition, we have purchased mortgage loans containing debt cancellation 

contracts, which provide for mortgage debt or payment cancellation for borrowers who experience unanticipated losses of 

income dependent on a covered event. The rights and obligations under these agreements have been assigned to the servicers. 

However, in the event the servicer does not perform as required by contract we would be obligated under our guarantee to make 

the required contractual payments.

For a discussion of our significant accounting policies related to derivatives, see “NOTE 1: SUMMARY OF 

SIGNIFICANT ACCOUNTING POLICIES — Derivatives.”

Derivative Assets and Liabilities at Fair Value

The table below presents the location and fair value of derivatives reported on our consolidated balance sheets.

Table of Contents
220 Freddie Mac

Table 9.1 — Derivative Assets and Liabilities at Fair Value

December 31, 2013 December 31, 2012

Notional or

Contractual

Amount

Derivatives at Fair Value Notional or

Contractual

Amount

Derivatives at Fair Value

Assets Liabilities Assets Liabilities

(in millions)

Total derivative portfolio

Derivatives not designated as hedging

instruments under the accounting guidance for

derivatives and hedging

Interest-rate swaps:

Receive-fixed $ 281,727 $ 4,475 $ (2,438) $ 275,099 $ 13,782 $ (97)

Pay-fixed 242,597 5,540 (10,879) 270,092 177 (30,147)

Basis (floating to floating) 300 4 — 2,300 6 —

Total interest-rate swaps 524,624 10,019 (13,317) 547,491 13,965 (30,244)

Option-based:

Call swaptions

Purchased 59,290 2,373 — 37,650 7,360 —

Written 5,945 — (201) 6,195 — (749)

Put Swaptions

Purchased 33,410 698 — 43,200 288 —

Other option-based derivatives(1) 23,365 1,041 (3) 31,540 2,449 (1)

Total option-based 122,010 4,112 (204) 118,585 10,097 (750)

Futures 50,270 — — 41,123 37 (2)

Foreign-currency swaps 528 39 — 1,167 73 (6)

Commitments 18,731 61 (69) 25,530 20 (47)

Credit derivatives 5,386 — (6) 8,307 1 (5)

Swap guarantee derivatives 3,477 — (31) 3,628 — (35)

Total derivatives not designated as hedging

instruments 725,026 14,231 (13,627) 745,831 24,193 (31,089)

Derivative interest receivable (payable) 1,243 (1,835) 1,409 (2,239)

Netting adjustments(2) (14,411) 15,282 (24,945) 33,150

Total derivative portfolio, net $ 725,026 $ 1,063 $ (180) $ 745,831 $ 657 $ (178)

(1) Primarily includes purchased interest-rate caps and floors.

(2) Represents counterparty netting and cash collateral netting. Net cash collateral posted was $871 million and $8.2 billion at December 31, 2013 and 

2012, respectively. 

The carrying value of our derivatives on our consolidated balance sheets is equal to their fair value, including net 

derivative interest receivable or payable and net trade/settle receivable or payable, and is net of cash collateral held or posted, 

where allowable. Derivatives in a net asset position are reported as derivative assets, net. Similarly, derivatives in a net liability 

position are reported as derivative liabilities, net.

Non-cash collateral held is not recognized on our consolidated balance sheets as we do not obtain effective control over 

the collateral, and non-cash collateral posted is not de-recognized from our consolidated balance sheets as we do not relinquish 

effective control over the collateral. Therefore, non-cash collateral held or posted is not presented as an offset against derivative 

assets or derivative liabilities on our consolidated balance sheets. 

See “NOTE 10: COLLATERAL AND OFFSETTING OF ASSETS AND LIABILITIES” 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 reported in our consolidated statements of comprehensive 

income.

Table of Contents
221 Freddie Mac

Table 9.2 — Gains and Losses on Derivatives

Derivatives not designated as hedging

instruments under the accounting

guidance for derivatives and hedging

Derivative Gains (Losses)(1)

Year Ended December 31,

2013 2012 2011

(in millions)

Interest-rate swaps:

Receive-fixed

Foreign-currency denominated $ (21) $ (33) $ (49)

U.S. dollar denominated (10,400) 2,686 12,686

Total receive-fixed swaps (10,421) 2,653 12,637

Pay-fixed 19,021 (2,865) (22,999)

Basis (floating to floating) (2) 8 (5)

Total interest-rate swaps 8,598 (204) (10,367)

Option based:

Call swaptions

Purchased (2,547) 1,365 10,234

Written 546 (38) (2,337)

Put swaptions

Purchased (8) (273) (1,614)

Written — 6 14

Other option-based derivatives(2) (413) 190 879

Total option-based (2,422) 1,250 7,176

Futures 21 12 (150)

Foreign-currency swaps 30 (8) (41)

Commitments (131) 298 (1,340)

Credit derivatives (3) — —

Swap guarantee derivatives 9 7 3

Other(3) (3) (1) (1)

Subtotal 6,099 1,354 (4,720)

Accrual of periodic settlements:(4)

Receive-fixed interest-rate swaps 3,764 3,511 4,173

Pay-fixed interest-rate swaps (7,233) (7,318) (9,241)

Foreign-currency swaps — 4 22

Other 2 1 14

Total accrual of periodic settlements (3,467) (3,802) (5,032)

Total $ 2,632 $ (2,448) $ (9,752)

(1) Gains (losses) are reported as derivative gains (losses) on our consolidated statements of comprehensive income.

(2) Primarily includes purchased interest-rate caps and floors.

(3) Includes fees and commissions paid on cleared and exchange-traded derivatives and, in 2011, a $3 million benefit related to the bankruptcy of Lehman 

Brothers Holdings Inc.

(4) For derivatives not in qualifying hedge accounting relationships, the accrual of periodic cash settlements is recorded in derivative gains (losses) on our 

consolidated statements of comprehensive income.

Hedge Designation of Derivatives

At December 31, 2013 and 2012, we did not have any derivatives in hedge accounting relationships; however, there are 

deferred net losses recorded in AOCI related to closed cash flow hedges. Net deferred gains and losses on closed cash flow 

hedges (i.e., where the derivative is either terminated or redesignated) are included in AOCI until the related forecasted 

transaction affects earnings or is determined to be probable of not occurring. Amounts reported in AOCI linked to interest 

payments on long-term debt are recorded in other debt interest expense and amounts not linked to interest payments on longterm debt are recorded in expense related to derivatives. In the years ended December 31, 2013 and 2012, we reclassified from 

AOCI into earnings (effective portion) a loss of $460 million and $612 million, respectively, related to closed cash flow hedges. 

See “NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT) — Accumulated Other Comprehensive Income — Future 

Reclassifications from AOCI to Net Income Related to Closed Cash Flow Hedges” for information about future 

reclassifications of deferred net losses related to closed cash flow hedges to net income.

Table of Contents
222 Freddie Mac

NOTE 10: COLLATERALAND OFFSETTING OF ASSETS AND LIABILITIES

Derivative Portfolio

Derivative Counterparties

Our use of cleared derivatives, exchange-traded derivatives, and OTC derivatives exposes us to institutional credit risk. 

The requirement that we post initial and variation margin in connection with cleared and exchange-traded derivatives, such as 

cleared interest-rate swaps and futures contracts, exposes us to institutional credit risk in the event that our clearing members or 

the financial clearinghouses fail to meet their obligations. The use of cleared and exchange-traded derivatives decreases our 

institutional credit risk exposure to individual counterparties because a central counterparty is substituted for individual 

counterparties. OTC derivatives expose us to institutional credit risk to individual counterparties because transactions are 

executed and settled between us and each counterparty, exposing us to potential losses if a counterparty fails to meet its 

obligations.

Our use of interest rate swaps, option-based derivatives, and foreign-currency swaps 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.

Master Netting and Collateral Agreements

We use master netting and collateral agreements to reduce our credit risk exposure to our derivative counterparties for 

interest-rate swap, option-based, and foreign-currency swap derivatives. Master netting agreements provide for the netting of 

amounts receivable and payable from an individual counterparty, which reduces our exposure to a single counterparty in the 

event of default. On a daily basis, the market value of each counterparty’s derivatives outstanding is calculated to determine the 

amount of our net credit exposure, which is equal to derivatives in a net gain position by counterparty after giving consideration 

to collateral posted. 

Our collateral agreements require most counterparties to post collateral to us for the amount of our net exposure to them 

above the counterparty’s collateral posting threshold. Collateral posting thresholds are tied to a counterparty’s credit rating. 

Bilateral collateral agreements are in place for all of our active OTC derivative counterparties. For OTC derivatives, we are 

subject to collateral posting thresholds based on S&P or Moody’s credit rating of our long-term senior unsecured debt 

securities. 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 collateral, depending on the amount of the counterparty’s exposure to 

Freddie Mac with respect to the derivative transactions. Collateral is typically transferred within one business day based on the 

values of the related derivatives. This time lag in posting collateral can affect our net uncollateralized exposure to derivative 

counterparties.

Collateral posted by a derivative counterparty is typically in the form of cash, although U.S. Treasury securities and 

Freddie Mac mortgage-related securities may also be posted. In the event a counterparty defaults on its obligations under the 

derivatives agreement and the default is not remedied in the manner prescribed in the agreement, we have the right under the 

agreement to direct the custodian bank to transfer the collateral to us or to sell the collateral and transfer the proceeds to us. At 

December 31, 2013 and 2012, all amounts of cash collateral related to derivatives were offset against derivative assets, net or 

derivative liabilities, net, as applicable. 

Our net uncollateralized exposure to derivative counterparties for OTC interest-rate swap, option-based, and foreigncurrency swap derivatives was $188 million and $69 million at December 31, 2013 and 2012, respectively. In the event that all 

of our counterparties for these derivatives were to have defaulted simultaneously on December 31, 2013, our maximum loss for 

accounting purposes after applying netting agreements and collateral on an individual counterparty basis would have been 

approximately $188 million. Four counterparties each accounted for greater than 10% and collectively accounted for 56% of 

our net uncollateralized exposure to derivative counterparties, excluding cleared and exchange-traded derivatives, 

commitments, swap guarantee derivatives, certain written options, and certain credit derivatives at December 31, 2013. These 

counterparties were Royal Bank of Canada, Credit Suisse International, Deutsche Bank, A.G. and Goldman Sachs Capital 

Markets, L.P., all of which were rated “A” or above using the lower of S&P’s or Moody’s rating stated in terms of the S&P

equivalent as of December 31, 2013.

Beginning with contracts executed or modified on or after June 10, 2013, the types of interest-rate swaps that we use 

most frequently became subject to the central clearing requirement. Our exposure to cleared and exchange-traded derivatives 

was $382 million and $66 million as of December 31, 2013 and 2012, respectively. 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. We are required to post margin in connection with our cleared and exchange-traded derivatives. At 

December 31, 2013, the majority of our exposure for our cleared and exchange-traded derivatives resulted from our posting of 

initial margin. For information about margin we have posted in connection with cleared and exchange-traded derivatives, see 

“— Collateral Pledged.”

Table of Contents
223 Freddie Mac

The total exposure on our forward purchase and sale commitments, which are treated as derivatives, was $61 million and 

$20 million at December 31, 2013 and 2012, respectively. Many of our transactions involving forward purchase and sale 

commitments of mortgage-related securities, including our dollar roll transactions, 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 institutional credit risk of the organization.

The table below displays information related to derivatives and securities purchased under agreements to resell on our 

consolidated balance sheets.

Table 10.1 — Offsetting of Financial Assets and Liabilities

December 31, 2013

Gross

Amount

Recognized(1)

Amount Offset

in the Consolidated

Balance Sheets

Net Amount

Presented in

the Consolidated

Balance Sheets(2)

Gross Amount

Not Offset in

the Consolidated

Balance Sheets

Net

Amount

(in millions)

Assets:

Derivatives:

Over-the-counter interest-rate and foreigncurrency swaps, and option-based derivatives $ 13,886 $ (13,266) $ 620 $ (432) $ 188

Cleared and exchange-traded derivatives 1,527 (1,145) 382 — 382

Other(3) 61 — 61 — 61

Total derivatives 15,474 (14,411) 1,063 (432) 631

Securities purchased under agreements to resell 62,383 — 62,383 (62,383) —

Total $ 77,857 $ (14,411) $ 63,446 $ (62,815) $ 631

Liabilities:

Derivatives:

Over-the-counter interest-rate and foreigncurrency swaps, and option-based derivatives $ (14,616) $ 14,545 $ (71) $ — $ (71)

Cleared and exchange-traded derivatives (737) 737 — — —

Other(3) (109) — (109) — (109)

Total $ (15,462) $ 15,282 $ (180) $ — $ (180)

December 31, 2012

Gross

Amount

Recognized(1)

Amount Offset in

the Consolidated

Balance Sheets

Net Amount

Presented in the

Consolidated

Balance Sheets(2)

Gross Amount

Not Offset in the

Consolidated

Balance Sheets

Net

Amount

(in millions)

Assets:

Derivatives:

Over-the-counter interest-rate and foreigncurrency swaps, and option-based derivatives $ 25,515 $ (24,945) $ 570 $ (501) $ 69

Cleared and exchange-traded derivatives 66 — 66 — 66

Other(3) 21 — 21 — 21

Total derivatives 25,602 (24,945) 657 (501) 156

Securities purchased under agreements to resell 37,563 — 37,563 (37,563) —

Total $ 63,165 $ (24,945) $ 38,220 $ (38,064) $ 156

Liabilities:

Derivatives:

Over-the-counter interest-rate and foreigncurrency swaps, and option-based derivatives $ (33,233) $ 33,150 $ (83) $ — $ (83)

Cleared and exchange-traded derivatives (8) — (8) — (8)

Other(3) (87) — (87) — (87)

Total $ (33,328) $ 33,150 $ (178) $ — $ (178)

(1) For derivatives, includes interest receivable or payable and trade/settle receivable or payable.

(2) For derivatives, includes cash collateral posted or held in excess of exposure.

(3) Includes commitments, swap guarantee derivatives, certain written options and credit derivatives.

Collateral Pledged

Collateral Pledged to Freddie Mac

Table of Contents
224 Freddie Mac

Our counterparties are required to pledge collateral for transactions involving securities purchased under agreements to 

resell. Also, most derivative instruments are subject to collateral posting thresholds as prescribed by the collateral agreements 

with our counterparties. Under the derivative collateral agreements, U.S. Treasury securities, Freddie Mac mortgage-related 

securities, and cash may be pledged. 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 and derivative counterparty collateral posting thresholds in 

an effort to manage our exposure to losses. We had cash and cash equivalents pledged to us related to OTC derivative 

instruments of $1.9 billion and $1.5 billion at December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, we 

had $432 million and $501 million, respectively, of collateral in the form of securities pledged to and held by us related to OTC 

derivative instruments. Although it is our practice not to repledge assets held as collateral, a portion of the collateral may be 

repledged based on master netting agreements related to our derivative instruments. In addition, we had $646 million of cash 

pledged to us related to cleared derivatives at December 31, 2013. Also, at December 31, 2013 and 2012, we had $5.0 billion

and $1.5 billion, respectively, of securities pledged to us for transactions involving securities purchased under agreements to 

resell that we had the right to repledge. From time to time we may obtain pledges of collateral from certain seller/servicers as 

additional security for certain of their obligations to us, including their obligations to repurchase mortgages sold to us in breach 

of representations and warranties. This collateral may, at our discretion, take the form of cash, cash equivalents, or agency 

securities.

In addition, we hold cash and cash equivalents as collateral in connection with certain of our multifamily guarantees and 

mortgage loans as credit enhancements. The cash and cash equivalents held as collateral related to these transactions at 

December 31, 2013 and 2012 was $66 million and $158 million, respectively.

We consider federal funds sold to be overnight unsecured trades executed with insured depository institutions that are 

members of the Federal Reserve System. Federal funds sold trades are uninsured. We did not hold any federal funds sold at 

December 31, 2013 and 2012.

Collateral Pledged by Freddie Mac

We are required to pledge collateral for margin requirements with third-party custodians in connection with secured 

financings and derivative transactions with some counterparties. The amount of collateral pledged related to our derivative 

instruments is determined after giving consideration to our credit rating. As of December 31, 2013, we had one secured, 

uncommitted intraday line of credit with a third party in connection with the Federal Reserve’s payments system risk policy, 

which restricts or eliminates daylight overdrafts by the GSEs, in connection with our use of the Fedwire system. In certain 

circumstances, the line of credit agreement gives the secured party the right to repledge the securities underlying our financing 

to other third parties, including the Federal Reserve Bank of New York. We pledge collateral to meet our collateral 

requirements under the line of credit agreement upon demand by the counterparty.

The table below summarizes all securities pledged as collateral by us, including assets that the secured party may 

repledge and those that may not be repledged.

Table 10.2 — Collateral in the Form of Securities Pledged

December 31, 2013 December 31, 2012

(in millions)

Securities pledged with the ability for the secured party to repledge:

Debt securities of consolidated trusts held by third parties(1) $ 10,654 $ 10,390

Available-for-sale securities 70 132

Trading securities 365 —

Securities pledged without the ability for the secured party to repledge:

Debt securities of consolidated trusts held by third parties(1) — 148

Total securities pledged $ 11,089 $ 10,670

(1) Represents PCs held by us in our Investments segment mortgage investments portfolio and pledged as collateral which are recorded as a reduction to 

debt securities of consolidated trusts held by third parties on our consolidated balance sheets.

Securities Pledged with the Ability of the Secured Party to Repledge

At December 31, 2013, we pledged securities with the ability of the secured party to repledge of $11.1 billion, of which 

$10.5 billion was collateral posted in connection with our secured uncommitted intraday line of credit with a third party as 

discussed above. Of the remainder at December 31, 2013, we pledged $0.6 billion in connection with derivatives and securities 

transactions.

At December 31, 2012, we pledged securities with the ability of the secured party to repledge of $10.5 billion, of which 

$10.5 billion was collateral posted in connection with our secured uncommitted intraday line of credit with a third party as 

discussed above. Of the remainder at December 31, 2012, we pledged $65 million in connection with derivative transactions.

Table of Contents
225 Freddie Mac

Securities Pledged without the Ability of the Secured Party to Repledge

At December 31, 2013 and 2012, we pledged securities, without the ability of the secured party to repledge, of $0 million

and $148 million, respectively, at a clearinghouse in connection with our securities transactions.

Cash Pledged

At December 31, 2013, we pledged $3.4 billion of collateral in the form of cash and cash equivalents, of which $3.2 

billion related to our OTC derivative agreements as we had $3.2 billion of such derivatives in a net loss position. At 

December 31, 2012, we pledged $9.8 billion of collateral in the form of cash and cash equivalents, of which $9.7 billion related 

to our OTC derivative agreements as we had $9.7 billion of such derivatives in a net loss position. The remaining $275 million

and $110 million was posted at clearing members or clearinghouses in connection with derivatives and securities transactions at 

December 31, 2013 and 2012, respectively. The aggregate fair value of all derivative instruments with credit-risk-related 

contingent features that were in a liability position on December 31, 2013, was $3.2 billion for which we posted collateral of 

$3.2 billion in the normal course of business. If the credit-risk-related contingent features underlying these agreements were 

triggered on December 31, 2013, we would have been required to post an additional $42 million of collateral to our 

counterparties.

NOTE 11: STOCKHOLDERS’ EQUITY (DEFICIT)

Accumulated Other Comprehensive Income

The table below presents changes in AOCI after the effects of our 35% federal statutory tax rate related to available-forsale securities, closed cash flow hedges, and our defined benefit plans.

Table 11.1 — Changes in AOCI by Component, Net of Tax

Year Ended December 31, 2013

AOCI Related

to AvailableFor-Sale

Securities(1)

AOCI Related

to Cash Flow

Hedge

Relationships(2)

AOCI Related

to Defined

Benefit Plans Total

(in millions)

Beginning balance $ (1,444) $ (1,316) $ (178) $ (2,938)

Other comprehensive income before reclassifications(3) 2,659 — 169 2,828

Amounts reclassified from accumulated other comprehensive income (253) 316 41 104

Changes in AOCI by component 2,406 316 210 2,932

Ending balance $ 962 $ (1,000) $ 32 $ (6)

Year Ended December 31, 2012

AOCI Related

to AvailableFor-Sale

Securities(1)

AOCI Related

to Cash Flow

Hedge

Relationships(2)

AOCI Related

to Defined

Benefit Plans Total

(in millions)

Beginning balance $ (6,213) $ (1,730) $ (52) $ (7,995)

Other comprehensive income before reclassifications(3) 3,458 — (131) 3,327

Amounts reclassified from accumulated other comprehensive income(4) 1,311 414 5 1,730

Changes in AOCI by component 4,769 414 (126) 5,057

Ending balance $ (1,444) $ (1,316) $ (178) $ (2,938)

(1) The amounts reclassified from AOCI represent the gain or loss recognized in earnings due to a sale of an available-for-sale security or the recognition 

of a net impairment recognized in earnings. See “NOTE 7: INVESTMENTS IN SECURITIES” for more information.

(2) The amounts reclassified from AOCI represent the AOCI amount that was recognized in earnings as the originally hedged forecasted transactions 

affected earnings, unless it was deemed probable that the forecasted transaction would not occur. If it is probable that the forecasted transaction will not 

occur, then the deferred gain or loss associated with the hedge related to the forecasted transaction would be reclassified into earnings immediately. See 

“NOTE 9: DERIVATIVES” for more information about our derivatives.

(3) For the years ended December 31, 2013 and 2012, net of tax expense of $1.4 billion and $1.9 billion, respectively, for AOCI related to available-forsale securities.

(4) For the year ended December 31, 2012, net of tax benefit of $706 million for AOCI related to available-for-sale securities and net of tax benefit of $198 

million for AOCI related to cash flow hedge relationships.

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.

Table of Contents
226 Freddie Mac

Table 11.2 — Reclassifications from AOCI to Net Income

Details about Accumulated Other

Comprehensive Income Components

Three Months Ended

December 31, 2013

Year Ended

December 31, 2013

Affected Line Item in the Consolidated

Statements of Comprehensive Income

(in millions)

AOCI related to available-for-sale 

securities

$ 717 $ 1,899

Other gains (losses) on investment securities recognized in

earnings

(1,297) (1,510)

Net impairment of available-for-sale securities recognized

in earnings

(580) 389 Total before tax

203 (136) Tax (expense) or benefit

(377) 253 Net of tax

AOCI related to cash flow hedge

relationships

(1) (5) Interest expense — Other debt

(94) (455) Expense related to derivatives

(95) (460) Total before tax

29 144 Tax (expense) or benefit

(66) (316) Net of tax

AOCI related to defined benefit plans

8 2 Salaries and employee benefits

(43) (43) Tax (expense) or benefit

(35) (41) Net of tax

Total reclassifications in the period $ (478) $ (104) Net of tax

Future Reclassifications from AOCI to Net Income Related to Closed Cash Flow Hedges

As shown in “Table 11.1 — Changes in AOCI by Component, Net of Tax,” the total AOCI related to derivatives 

designated as cash flow hedges was a loss of $1.0 billion and $1.3 billion at December 31, 2013 and 2012, 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. Over the next 12 months, we 

estimate that approximately $214 million, net of taxes, of the $1.0 billion of cash flow hedge losses in AOCI at December 31, 

2013 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 20 years. 

However, 74% and 89% of AOCI relating to closed cash flow hedges at December 31, 2013 will be reclassified to earnings 

over the next five and ten years, respectively.

Issuance of Senior Preferred Stock

Pursuant to the Purchase Agreement described in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS,” we 

issued one million shares of senior preferred stock to Treasury on September 8, 2008. The senior preferred stock was issued to 

Treasury in partial consideration of Treasury’s commitment to provide funds to us under the Purchase Agreement.

Shares of the senior preferred stock have a par value of $1, and have a stated value and initial liquidation preference 

equal to $1,000 per share. The liquidation preference of the senior preferred stock is subject to adjustment. Dividends that are 

not paid in cash for any dividend period will accrue and be added to the liquidation preference of the senior preferred stock. In 

addition, any amounts Treasury pays to us pursuant to its funding commitment under the Purchase Agreement and any quarterly 

commitment fees that are not paid in cash to Treasury nor waived by Treasury will be added to the liquidation preference of the 

senior preferred stock. As described below, we may make payments to reduce the liquidation preference of the senior preferred 

stock in limited circumstances. As discussed in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Purchase 

Agreement,” the quarterly commitment fee has been suspended.

Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as and if 

declared by our Board of Directors. Through December 31, 2012, the senior preferred stock accrued quarterly cumulative 

dividends at a rate of 10% per year. However, under the August 2012 amendment to the Purchase Agreement, the fixed 

dividend rate was replaced with a net worth sweep dividend beginning in the first quarter of 2013. Total dividends paid in cash 

during 2013, 2012, and 2011 at the direction of the Conservator were $47.6 billion, $7.2 billion, and $6.5 billion, respectively. 

See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS” for a discussion of our net worth sweep dividend.

Table of Contents
227 Freddie Mac

The senior preferred stock is senior to our common stock and all other outstanding series of our preferred stock, as well 

as any capital stock we issue in the future, as to both dividends and rights upon liquidation. The senior preferred stock provides 

that we may not, at any time, declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or 

make a liquidation payment with respect to, any common stock or other securities ranking junior to the senior preferred stock 

unless: (a) full cumulative dividends on the outstanding senior preferred stock (including any unpaid dividends added to the 

liquidation preference) have been declared and paid in cash; and (b) all amounts required to be paid with the net proceeds of 

any issuance of capital stock for cash (as described in the following paragraph) have been paid in cash. Shares of the senior 

preferred stock are not convertible. Shares of the senior preferred stock have no general or special voting rights, other than 

those set forth in the certificate of designation for the senior preferred stock or otherwise required by law. The consent of 

holders of at least two-thirds of all outstanding shares of senior preferred stock is generally required to amend the terms of the 

senior preferred stock or to create any class or series of stock that ranks prior to or on parity with the senior preferred stock.

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment set 

forth in the Purchase Agreement; however, we are permitted to pay down the liquidation preference of the outstanding shares of 

senior preferred stock to the extent of: (a) accrued and unpaid dividends previously added to the liquidation preference and not 

previously paid down; and (b) quarterly commitment fees previously added to the liquidation preference and not previously 

paid down. In addition, if we issue any shares of capital stock for cash while the senior preferred stock is outstanding, the net 

proceeds of the issuance must be used to pay down the liquidation preference of the senior preferred stock; however, the 

liquidation preference of each share of senior preferred stock may not be paid down below $1,000 per share prior to the 

termination of Treasury’s funding commitment. Following the termination of Treasury’s funding commitment, we may pay 

down the liquidation preference of all outstanding shares of senior preferred stock at any time, in whole or in part. If, after 

termination of Treasury’s funding commitment, we pay down the liquidation preference of each outstanding share of senior 

preferred stock in full, the shares will be deemed to have been redeemed as of the payment date. 

The table below provides a summary of our senior preferred stock outstanding at December 31, 2013.

Table 11.3 — Senior Preferred Stock

Draw Date

Shares

Authorized

Shares

Outstanding

Total

Par Value

Initial

Liquidation

Preference

Price per Share

Total

Liquidation

Preference(1)

Senior preferred stock: (in millions, except initial liquidation preference price per share)

10% September 8, 2008

(2)

1.00 1.00 $ 1.00 $ 1,000 $ 1,000

10%

(3)

November 24, 2008 — — — N/A 13,800

10%

(3)

March 31, 2009 — — — N/A 30,800

10%

(3)

June 30, 2009 — — — N/A 6,100

10%

(3)

June 30, 2010 — — — N/A 10,600

10%

(3)

September 30, 2010 — — — N/A 1,800

10%

(3)

December 30, 2010 — — — N/A 100

10%

(3)

March 31, 2011 — — — N/A 500

10%

(3)

September 30, 2011 — — — N/A 1,479

10%

(3)

December 30, 2011 — — — N/A 5,992

10%

(3)

March 30, 2012 — — — N/A 146

10%

(3)

June 29, 2012 — — — N/A 19

Total, senior preferred stock 1.00 1.00 $ 1.00 $ 72,336

(1) Amounts stated at redemption value.

(2) We did not receive any cash proceeds from Treasury as a result of issuing these shares.

(3) Represents an increase in the liquidation preference of our senior preferred stock due to the receipt of funds from Treasury.

No cash was received from Treasury under the Purchase Agreement in 2013, because we had positive net worth at 

December 31, 2012, March 31, 2013, June 30, 2013, and September 30, 2013 and, consequently, FHFA did not request a draw 

on our behalf. At December 31, 2013, our assets exceeded our liabilities under GAAP; therefore no draw is being requested 

from Treasury under the Purchase Agreement. Our quarterly senior preferred stock dividend 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 billion for 2013 and declines to zero in 2018. Based on our Net Worth Amount at December 31, 

2013, our dividend obligation to Treasury in March 2014 will be $10.4 billion. See “NOTE 2: CONSERVATORSHIP AND 

RELATED MATTERS — Government Support for our Business” for additional information. The aggregate liquidation 

preference on the senior preferred stock owned by Treasury was $72.3 billion and $72.3 billion as of December 31, 2013 and 

2012, respectively. See “NOTE 18: REGULATORY CAPITAL” for additional information.

Table of Contents
228 Freddie Mac

Common Stock Warrant

Pursuant to the Purchase Agreement described in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS,” on 

September 7, 2008, we, through FHFA, in its capacity as Conservator, issued a warrant to purchase common stock to Treasury. 

The warrant was issued to Treasury in partial consideration of Treasury’s commitment to provide funds to us under the terms 

set forth in the Purchase Agreement.

The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total number of 

shares of our common stock outstanding on a fully diluted basis on the date of exercise. The warrant may be exercised in whole 

or in part at any time on or before September 7, 2028, by delivery to us of: (a) a notice of exercise; (b) payment of the exercise 

price of $0.00001 per share; and (c) the warrant. If the market price of one share of our common stock is greater than the 

exercise price, then, instead of paying the exercise price, Treasury may elect to receive shares equal to the value of the warrant 

(or portion thereof being canceled) pursuant to the formula specified in the warrant. Upon exercise of the warrant, Treasury 

may assign the right to receive the shares of common stock issuable upon exercise to any other person.

We account for the warrant in permanent equity. At issuance on September 7, 2008, we recognized the warrant at fair 

value, and we do not recognize subsequent changes in fair value while the warrant remains classified in equity. We recorded an 

aggregate fair value of $2.3 billion for the warrant as a component of additional paid-in-capital. We derived the fair value of the 

warrant using a modified Black-Scholes model. If the warrant is exercised, the stated value of the common stock issued will be 

reclassified to common stock in our consolidated balance sheets. The warrant was determined to be in-substance 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 warrant is included in the computation of basic and diluted earnings (loss) 

per share. The weighted average shares of common stock outstanding for the years ended December 31, 2013, 2012, and 2011, 

respectively, included shares of common stock that would be issuable upon full exercise of the warrant issued to Treasury.

Preferred Stock

The table below provides a summary of our preferred stock outstanding at December 31, 2013. We have the option to 

redeem our preferred stock on specified dates, at their redemption price plus dividends accrued through the redemption date. 

However, without the consent of Treasury, we are restricted from making payments to purchase or redeem preferred stock as 

well as paying any preferred dividends, other than dividends on the senior preferred stock. In addition, all 24 classes of 

preferred stock are perpetual and non-cumulative, and carry no significant voting rights or rights to purchase additional Freddie 

Mac stock or securities. Costs incurred in connection with the issuance of preferred stock are charged to additional paid-in 

capital.

Table of Contents
229 Freddie Mac

Table 11.4 — Preferred Stock

Issue Date

Shares

Authorized

Shares

Outstanding

Total

Par Value

Redemption

Price per

Share

Total

Outstanding

Balance(1)

Redeemable

On or After(2)

OTCQB

Symbol(3)

Preferred stock: (in millions, except redemption price per share)

1996 Variable-rate(4) April 26, 1996 5.00 5.00 $ 5.00 $ 50.00 $ 250 June 30, 2001 FMCCI

5.81% October 27, 1997 3.00 3.00 3.00 50.00 150 October 27, 1998 (5)

5% March 23, 1998 8.00 8.00 8.00 50.00 400 March 31, 2003 FMCKK

1998 Variable-rate(6) September 23 and 29, 

1998 4.40 4.40 4.40 50.00 220 September 30, 2003 FMCCG

5.10% September 23, 1998 8.00 8.00 8.00 50.00 400 September 30, 2003 FMCCH

5.30% October 28, 1998 4.00 4.00 4.00 50.00 200 October 30, 2000 (5)

5.10% March 19, 1999 3.00 3.00 3.00 50.00 150 March 31, 2004 (5)

5.79% July 21, 1999 5.00 5.00 5.00 50.00 250 June 30, 2009 FMCCK

1999 Variable-rate(7) November 5, 1999 5.75 5.75 5.75 50.00 287 December 31, 2004 FMCCL

2001 Variable-rate(8) January 26, 2001 6.50 6.50 6.50 50.00 325 March 31, 2003 FMCCM

2001 Variable-rate(9) March 23, 2001 4.60 4.60 4.60 50.00 230 March 31, 2003 FMCCN

5.81% March 23, 2001 3.45 3.45 3.45 50.00 173 March 31, 2011 FMCCO

6% May 30, 2001 3.45 3.45 3.45 50.00 173 June 30, 2006 FMCCP

2001 Variable-rate(10) May 30, 2001 4.02 4.02 4.02 50.00 201 June 30, 2003 FMCCJ

5.70% October 30, 2001 6.00 6.00 6.00 50.00 300 December 31, 2006 FMCKP

5.81% January 29, 2002 6.00 6.00 6.00 50.00 300 March 31, 2007 (5)

2006 Variable-rate(11) July 17, 2006 15.00 15.00 15.00 50.00 750 June 30, 2011 FMCCS

6.42% July 17, 2006 5.00 5.00 5.00 50.00 250 June 30, 2011 FMCCT

5.90% October 16, 2006 20.00 20.00 20.00 25.00 500 September 30, 2011 FMCKO

5.57% January 16, 2007 44.00 44.00 44.00 25.00 1,100 December 31, 2011 FMCKM

5.66% April 16, 2007 20.00 20.00 20.00 25.00 500 March 31, 2012 FMCKN

6.02% July 24, 2007 20.00 20.00 20.00 25.00 500 June 30, 2012 FMCKL

6.55% September 28, 2007 20.00 20.00 20.00 25.00 500 September 30, 2017 FMCKI

2007 Fixed-to-floating 

rate(12) December 4, 2007 240.00 240.00 240.00 25.00 6,000 December 31, 2012 FMCKJ

Total, preferred stock 464.17 464.17 $ 464.17 $ 14,109

(1) Amounts stated at redemption value.

(2) In accordance with the Purchase Agreement, until the senior preferred stock is repaid or redeemed in full, we may not, without the prior written consent 

of Treasury, redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock or warrant).

(3) Preferred stock trades exclusively through the OTCQB Marketplace unless otherwise noted.

(4) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 9.00%. 

(5) Issued through private placement.

(6) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 7.50%. 

(7) Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury rate, and is capped at 11.00%.

Optional redemption on December 31, 2004 and on December 31 every five years thereafter. 

(8) Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.10%, and is capped at 

11.00%. Optional redemption on March 31, 2003 and on March 31 every two years thereafter. 

(9) Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%, and is capped at 11.00%. Optional redemption on March 31, 2003 

and on March 31 every year thereafter.

(10) Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.20%, and is capped at 

11.00%. Optional redemption on June 30, 2003 and on June 30 every two years thereafter. 

(11) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%. 

(12) Dividend rate is set at an annual fixed rate of 8.375% from December 4, 2007 through December 31, 2012. For the period beginning on or after 

January 1, 2013, dividend rate resets quarterly and is equal to the higher of: (a) the sum of three-month LIBOR plus 4.16% per annum; or (b) 7.875% 

per annum. Optional redemption on December 31, 2012, and on December 31 every five years thereafter. 

Stock-Based Compensation

Following the implementation of the conservatorship in September 2008, we suspended the operation of our ESPP, and 

are no longer making grants under our 2004 Employee Plan or our Directors’ Plan. We collectively refer to the 2004 Employee 

Plan and the 1995 Employee Plan as the Employee Plans. Under the Purchase Agreement, we cannot issue any new options, 

rights to purchase, participations or other equity interests without Treasury’s prior approval. However, grants outstanding as of 

the date of the Purchase Agreement remain in effect in accordance with their terms.

We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 2013 and 2012, 

except for issuances of treasury stock as reported on our consolidated statements of equity (deficit) relating to stock-based 

Table of Contents
230 Freddie Mac

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 2013, restrictions lapsed on 

7,976 restricted stock units. At December 31, 2013, 20,341 restricted stock units remained outstanding. There are no remaining 

restrictions on outstanding restricted stock units. In addition, there were 41,160 shares of restricted stock outstanding at both 

December 31, 2013 and 2012. During 2013, no stock options were exercised and 492,861 stock options were forfeited or 

expired. At December 31, 2013, 816,435 stock options were outstanding.

For purposes of the earnings-per-share calculation, antidilutive potential common shares excluded from the computation 

of dilutive potential common shares were 998,707, 1,606,097, and 3,383,185 at December 31, 2013, 2012, and 2011, 

respectively.

Dividends Declared

No common dividends were declared in 2013. During the three months ended March 31, 2013, June 30, 2013, September 

30, 2013, and December 31, 2013, we paid dividends of $5.8 billion, $7.0 billion, $4.4 billion, and $30.4 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 2013.

Delisting of Common Stock and Preferred Stock from NYSE

On July 8, 2010, we delisted our common and 20 previously listed classes of preferred stock from the NYSE pursuant to 

a directive by our Conservator.

Our common stock and the classes of preferred stock that were previously listed on the NYSE are traded exclusively in 

the OTCQB Marketplace. Shares of our common stock now trade under the ticker symbol FMCC. We expect that our common 

stock and the previously listed classes of preferred stock will continue to trade in the OTCQB Marketplace so long as market 

makers demonstrate an interest in trading the common and preferred stock.

NOTE 12: INCOME TAXES

Income Tax Benefit

The table below presents the components of our federal income tax benefit for 2013, 2012, and 2011. We are exempt 

from state and local income taxes.

Table 12.1 — Federal Income Tax Benefit

Year Ended December 31,

2013 2012 2011

(in millions)

Current income tax (expense) benefit $ (117) $ 1,540 $ 283

Deferred income tax benefit (expense) 23,422 (3) 117

Total income tax benefit $ 23,305 $ 1,537 $ 400

Our income tax benefit for 2013 primarily relates to the release of the valuation allowance against our net deferred tax 

assets. 

The table below presents a reconciliation between our federal statutory income tax rate and our effective tax rate for 

2013, 2012, and 2011.

Table 12.2 — Reconciliation of Statutory to Effective Tax Rate

Year Ended December 31,

2013 2012 2011

Amount Percent Amount Percent Amount Percent

(dollars in millions)

Statutory corporate tax rate $ (8,877) 35.0 % $ (3,306) 35.0 % $ 1,983 35.0%

Tax-exempt interest 101 (0.4) 133 (1.4) 179 3.2

Tax credits 495 (2.0) 536 (5.7) 566 10.0

Valuation allowance:

 Current year activity 5,156 (20.3) 2,637 (27.9) (2,728) (48.2)

Release of valuation allowance 26,369 (104.0) — — — —

Unrecognized tax benefits — — 1,205 (12.8) (21) (0.4)

Other 138 (0.5) 45 (0.5) 403 7.2

Total valuation allowance 31,663 (124.8) 3,887 (41.2) (2,346) (41.4)

Other (77) 0.3 287 (3.0) 18 0.3

Effective tax rate $ 23,305 (91.9)% $ 1,537 (16.3)% $ 400 7.1%

Table of Contents
231 Freddie Mac

In 2013, our effective tax rate differs from the statutory rate of 35% primarily due to the release of the valuation 

allowance against our net deferred tax assets. In 2012 and 2011, our effective tax rate differs from the statutory tax rate of 35%

primarily due to the valuation allowance on a portion of our net deferred tax assets and the recognition of uncertain tax 

positions.

Deferred Tax Assets and Liabilities

During 2013, we released our valuation allowance previously recorded on our net deferred tax asset. Deferred tax assets 

are created when: (a) expenses are recognized for financial reporting purposes prior to the corresponding recognition of 

expenses for tax reporting purposes; and/or (b) income is recognized for tax reporting purposes prior to the corresponding 

recognition of income for financial reporting purposes. The table below presents the balance of significant deferred tax assets, 

liabilities, and the valuation allowance at December 31, 2013 and 2012.

Table 12.3 — Deferred Tax Assets and Liabilities

2013 2012

(in millions)

Deferred tax assets:

Deferred fees $ 5,035 $ 4,330

Basis differences related to derivative instruments 6,946 10,294

Credit related items and allowance for loan losses 3,648 6,785

Unrealized (gains) losses related to available-for-sale securities — 778

LIHTC and AMT credit carryforward 3,997 3,408

Net operating loss carryforward 3,978 11,479

Other items, net 40 146

Total deferred tax assets 23,644 37,220

Deferred tax liabilities:

Basis differences related to assets held for investment(1) (375) (4,609)

Unrealized (gains) losses related to available-for-sale securities (518) —

Basis differences related to debt (35) (149)

Total deferred tax liabilities (928) (4,758)

Valuation allowance — (31,684)

Deferred tax assets (liabilities), net $ 22,716 $ 778

(1) The deferred tax liability balance for basis differences related to assets held for investment includes a basis adjustment on seriously delinquent loans. 

This deferred tax liability offsets a portion of the deferred tax asset for credit related items and the allowance for loan losses.

As of December 31, 2013, we had a net operating loss carryforward of $11.4 billion and a LIHTC carryforward of 

$3.6 billion that will expire over multiple years beginning in 2030 and 2027, respectively. Our AMT credit carryforward of 

$445 million will not expire.

Valuation Allowance Against Net Deferred Tax Assets

As discussed below, after weighing all of the evidence at September 30, 2013, we determined that the positive evidence 

relating to the realizability of our deferred tax assets, particularly the evidence that was objectively verifiable, outweighed the 

negative evidence. Accordingly, we concluded that it is more likely than not that our deferred tax assets will be realized and we 

released the valuation allowance against our net deferred tax assets.

On a quarterly basis, we determine whether a valuation allowance is necessary on our net deferred tax asset. 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 deferred tax assets will be realized. In conducting our assessment at September 30, 2013, we 

evaluated all available objective evidence including, but not limited to: (a) our three-year cumulative income position; (b) the 

trend of our financial and tax results; (c) the amount of taxable income reported in our 2012 federal income tax return; (d) our 

tax net operating loss and tax credit carryforwards and the length of carryforward periods available to utilize these assets under 

current tax law; and (e) our access to capital under the agreements associated with conservatorship. Furthermore, we evaluated 

all available subjective evidence, including but not limited to: (a) difficulty in predicting unsettled circumstances related to the 

conservatorship; (b) our estimated 2013 taxable income; and (c) forecasts of future book and tax income. Our consideration of 

the evidence requires significant judgment regarding estimates and assumptions that are inherently uncertain, particularly about 

our future business structure and financial results.

We are not permitted to consider the impacts proposed legislation may have on our business operations or the mortgage 

industry in our analysis because the timing and certainty of those actions are unknown and beyond our control.

The positive evidence at September 30, 2013, that outweighed the negative evidence included the following:

Table of Contents
232 Freddie Mac

• Our three-year cumulative income position;

• The strong positive trend in our financial performance over six consecutive quarters;

• The 2012 taxable income reported in our federal tax return which was filed in 2013;

• Our forecasted 2013 and future period taxable income;

• Our net operating loss carryforwards do not begin to expire until 2030; and

• The continuing positive trend in the housing market.

When comparing evidence available at 2013 versus 2012, we noted a number of positive developments. During 2013, we 

filed our 2012 federal tax return, which reflected taxable income. This was our first year reporting taxable income since 2007. 

Furthermore, we continued an improved trend in earnings. Our current base forecast of taxable income also improved resulting 

in a decline in the number of years of projected income required in order to fully realize our net deferred tax asset. These 

positive developments in addition to the positive evidence discussed above resulted in our conclusion to release the valuation 

allowance against our net deferred tax assets at September 30, 2013. Given the continued positive trend in our financial 

performance through the fourth quarter, we determined that a valuation allowance against our net deferred tax asset was not 

necessary at December 31, 2013.

In future quarters we will continue to evaluate our ability to realize the net deferred tax asset. If evidence in future 

periods changes such that it is more likely than not that part or all of the net deferred tax asset will not be realized, we will 

reestablish a valuation allowance at that time.

Unrecognized Tax Benefits and IRS Examinations

Table 12.4 — Unrecognized Tax Benefits

2013 2012 2011

(in millions)

Balance at January 1 $ — $ 1,355 $ 1,220

Changes based on tax positions in prior years — (41) 130

Changes based on tax positions in current years — (28) 6

Decreases in unrecognized tax benefits due to settlements with taxing authorities — (1,286) (1)

Balance at December 31 $ — $ — $ 1,355

We have evaluated all income tax positions and determined that there are no uncertain tax positions that require reserves 

as of December 31, 2013.

The IRS is currently examining our income tax returns for tax years 2008 through 2011. We are currently working with 

the IRS to finalize the stipulation of settled issues and closing agreement for years 1998 through 2010 related to our tax 

accounting method for certain hedging transactions, and expect that a final decision can be entered within the next 12 months. 

For additional information, see “NOTE 17: LEGAL CONTINGENCIES.”

We have accrued gross interest receivable of $529 million and $523 million as of December 31, 2013 and 2012, 

respectively, related to payments on account with the IRS. We anticipate refunds of accrued interest receivable upon final 

settlement of the Statutory Notices for the 1998 to 2005 tax years. 

For a discussion of our significant accounting policies related to income taxes, please see “NOTE 1: SUMMARY OF 

SIGNIFICANT ACCOUNTING POLICIES — Income Taxes.”

NOTE 13: SEGMENT REPORTING

We evaluate segment performance and allocate resources based on a Segment Earnings approach, subject to the conduct 

of our business under the direction of the Conservator. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS” for 

additional information about the conservatorship.

We present Segment Earnings by: (a) reclassifying certain credit guarantee-related activities and investment-related 

activities between various line items on our GAAP consolidated statements of comprehensive income; and (b) allocating 

certain revenues and expenses, including certain returns on assets and funding costs, and all administrative expenses to our 

three reportable segments. These reclassifications and allocations are described in “Segment Earnings.” 

We do not consider our assets by segment when evaluating segment performance or allocating resources. We operate our 

business solely in the U.S. and its territories. Therefore, we do not generate any revenue from and do not have any long-lived 

assets other than financial instruments in geographic locations outside of the U.S. and its territories.

Segments

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

Single-family Guarantee, Investments, and Multifamily. The chart below provides a summary of our three reportable segments 

and the All Other category as of December 31, 2013. Certain immaterial changes were made to our Segment Earnings 

definitions in 2013. As reflected in the chart, certain activities that are not part of a reportable segment are included in the All 

Table of Contents
233 Freddie Mac

Other category. The All Other category consists of material corporate level activities that are: (a) infrequent in nature; and 

(b) based on decisions outside the control of the management of our reportable segments. By recording these types of activities 

to the All Other category, we believe the financial results of our three reportable segments reflect the decisions and strategies 

that are executed within the reportable segments and provide greater comparability across time periods.

Segment Description Activities/Items

Single-family

Guarantee

The Single-family Guarantee segment reflects results from our

single-family credit guarantee activities. In our Single-family

Guarantee segment, we purchase and guarantee single-family

mortgage loans originated by our seller/servicers in the primary

mortgage market. In most instances, we use the mortgage

securitization process to package the mortgage loans into

guaranteed mortgage-related securities. We guarantee the payment

of principal and interest on the mortgage-related securities in

exchange for management and guarantee fees. Segment Earnings

for this segment consist primarily of management and guarantee

fee revenues, including amortization of upfront fees, less creditrelated expenses, administrative expenses, allocated funding costs,

and amounts related to net float benefits or expenses.

• Management and guarantee fees on PCs, including those retained

by us, and single-family mortgage loans in the mortgage

investments portfolio, inclusive of up-front credit delivery fees

• Recognition and remittance to Treasury of guarantee fees resulting

from the 10 basis point legislated increase

• Adjustments for security performance

• Credit losses on all single-family assets

• Guarantee buy-downs

• Expected net float income or expense on the single-family credit

guarantee portfolio

• Deferred tax asset valuation allowance

• Allocated debt costs, administrative expenses and taxes 

• Representation and warranty settlements

Investments The Investments segment reflects results from three primary

activities: (a) managing the company’s mortgage-related

investments portfolio, excluding Multifamily segment

investments; (b) managing the treasury function, including

funding and liquidity, for the overall company; and (c) managing

interest-rate risk for the overall company. In our Investments

segment, we invest principally in mortgage-related securities and

single-family performing mortgage loans. Segment Earnings for

this segment consist primarily of the returns on these investments,

less the related funding, hedging, and administrative expenses. In

addition, the Investments segment reflects changes in the fair

value of the Multifamily segment securities, primarily CMBS, and

held-for-sale loans that are associated with changes in interest

rates.

• Investments in mortgage-related securities and single-family

performing mortgage loans

• Investments in short-term asset-backed securities

• All other traded instruments / securities, excluding CMBS and

multifamily housing revenue bonds

• Debt issuances

• Interest rate risk management returns

• Guarantee buy-ups, net of execution gains / losses

• Cash and liquidity management

• Deferred tax asset valuation allowance

• Allocated administrative expenses and taxes

• Non-agency mortgage-related securities settlements

Multifamily The Multifamily segment reflects results from our investment

(both purchases and sales), securitization, and guarantee activities

in multifamily mortgage loans and securities. Our primary

business model is to purchase multifamily mortgage loans for

aggregation and then securitization through issuance of

multifamily K Certificates. To a lesser extent, we provide

guarantees of the payment of principal and interest on tax-exempt

multifamily pass-through certificates backed by multifamily

housing revenue bonds. In addition, we guarantee the payment of

principal and interest on tax-exempt multifamily housing revenue

bonds secured by low- and moderate-income multifamily

mortgage loans. Segment Earnings for this segment consist

primarily of the interest earned on assets related to multifamily

investment activities and management and guarantee fee income,

less credit-related expenses, administrative expenses, and

allocated funding costs. In addition, the Multifamily segment

reflects the impact of changes in fair value of our investment

securities and held-for-sale loans associated with market factors

other than changes in interest rates, such as liquidity and credit.

• Multifamily mortgage loans held-for-sale and associated

securitization activities

• Investments in CMBS, multifamily housing revenue bonds, and

multifamily mortgage loans held-for-investment

• Allocated debt costs, administrative expenses and taxes

• Other guarantee commitments on multifamily housing revenue

bonds

• Other Structured Securities of multifamily housing revenue bonds

• Deferred tax asset valuation allowance

All Other The All Other category consists of material corporate-level

activities that are: (a) infrequent in nature; and (b) based on

decisions outside the control of the management of our reportable

segments.

• Tax settlements, as applicable

• Legal settlements, as applicable

• The deferred tax asset valuation allowance and release of tax asset

valuation allowance associated with previously recognized income

tax credits carried forward

• Termination of our pension plan

Segment Earnings

The financial performance of our Single-family Guarantee segment and Multifamily segment are measured based on each 

segment’s contribution to GAAP net income (loss). Our Investments segment is measured on its contribution to GAAP

comprehensive income (loss), which consists of the sum of its contribution to: (a) GAAP net income (loss); and (b) GAAP total 

other comprehensive income (loss), net of taxes.

The sum of Segment Earnings for each segment and the All Other category equals GAAP net income (loss). Likewise, 

the sum of comprehensive income (loss) for each segment and the All Other category equals GAAP comprehensive income 

(loss). However, the accounting principles we apply to present certain financial statement line items in Segment Earnings for 

our reportable segments, in particular Segment Earnings management and guarantee income and net interest income, differ 

significantly from those applied in preparing the comparable line items in our consolidated financial statements prepared in 

accordance with GAAP. Accordingly, the results of such line items differ significantly from, and should not be used as a 

Table of Contents
234 Freddie Mac

substitute for, the comparable line items as determined in accordance with GAAP. For reconciliations of the Segment Earnings 

line items to the comparable line items in our consolidated financial statements prepared in accordance with GAAP, see “Table 

13.2 — Segment Earnings and Reconciliation to GAAP Results.”

Many of the reclassifications, adjustments and allocations described below relate to the amendments to the accounting 

guidance for transfers of financial assets and consolidation of VIEs, which we adopted effective January 1, 2010. These 

amendments require us to consolidate our single-family PC trusts and certain Other Guarantee Transactions, which makes it 

difficult to view the results of the three operating segments from a GAAP perspective. For example, as a result of the 

amendments, the net guarantee fee earned on mortgage loans held by our consolidated trusts is included in net interest income 

on our GAAP consolidated statements of comprehensive income. Through the reclassifications described below, we move the 

net guarantee fees earned on mortgage loans into Segment Earnings management and guarantee income.

Credit Guarantee Activity-Related Reclassifications

In preparing certain line items within Segment Earnings, we make various reclassifications to earnings determined under 

GAAP related to our credit-guarantee activities, including those described below. All credit guarantee-related income and costs 

are included in Segment Earnings management and guarantee income.

• Net guarantee fee is reclassified in Segment Earnings from net interest income to management and guarantee income.

• Implied management and guarantee fee related to unsecuritized mortgage loans held in the mortgage investments 

portfolio is reclassified in Segment Earnings from net interest income to management and guarantee income.

• The portion of the amount reversed for accrued but uncollected interest upon placing loans on a non-accrual status that 

relates to guarantee fees is reclassified in Segment Earnings from net interest income to management and guarantee 

income. The remaining portion of the allowance for lost interest is reclassified in Segment Earnings from net interest 

income to provision for credit losses.

Investment Activity-Related Reclassifications

In preparing certain line items within Segment Earnings, we make various reclassifications to earnings determined under 

GAAP related to our investment activities, including those described below. Through these reclassifications, we move certain 

items into or out of net interest income so that, on a Segment Earnings basis, net interest income reflects how we measure the 

effective yield earned on securities held in our mortgage investments portfolio and our cash and other investments portfolio.

We use derivatives extensively in our investment activity. The reclassifications described below allow us to reflect, in 

Segment Earnings net interest income, the costs associated with this use of derivatives.

• The accrual of periodic cash settlements of all derivatives is reclassified in Segment Earnings from derivative gains 

(losses) into net interest income to fully reflect the periodic cost associated with the protection provided by these 

contracts.

• Up-front cash paid or received upon the purchase or writing of swaptions and other option contracts is reclassified in 

Segment Earnings prospectively on a straight-line basis from derivative gains (losses) into net interest income over the 

contractual life of the instrument to fully reflect the periodic cost associated with the protection provided by these 

contracts.

Amortization related to certain items is not relevant to how we measure the effective yield earned on the securities held in 

our investments portfolios. Therefore, as described below, we reclassify these items in Segment Earnings from net interest 

income to non-interest income.

• Amortization related to derivative commitment basis adjustments associated with mortgage-related and non-mortgagerelated securities.

• Amortization related to accretion of other-than-temporary impairments on available-for-sale securities held.

• Amortization related to premiums and discounts associated with PCs and Other Guarantee Transactions issued by our 

consolidated trusts that we previously held and subsequently transferred to third parties. The amortization is related to 

deferred gains (losses) on transfers of these securities.

Segment Adjustments

In presenting Segment Earnings management and guarantee income and net interest income, we make adjustments to 

better reflect how management measures and assesses the performance of each segment and the company as a whole. These 

adjustments relate to amounts that are not reflected in net income (loss) as determined in accordance with GAAP. These 

adjustments are reversed through the segment adjustments line item within Segment Earnings, so that Segment Earnings (loss) 

for each segment equals GAAP net income (loss) for each segment. Segment adjustments consist of the following:

• We adjust our Segment Earnings management and guarantee income for the Single-family Guarantee segment to 

include the amortization of buy-down fees and credit delivery fees recorded in periods prior to the January 1, 2010 

adoption of accounting guidance for the transfers of financial assets and the consolidation of VIEs. As of December 31, 

2013, the unamortized balance of buy-down fees was $0.4 billion and the unamortized balance of credit delivery fees 

Table of Contents
235 Freddie Mac

was $0.9 billion. We consider such fees to be part of the effective rate of the guarantee fee on guaranteed mortgage 

loans. These adjustments are necessary to better reflect the realization of revenue associated with guarantee contracts 

over the life of the underlying loans.

• We adjust our Segment Earnings net interest income for the Investments segment to include the amortization of cash 

premiums and discounts, as well as buy-up fees, on the consolidated Freddie Mac mortgage-related securities we 

purchase as investments. As of December 31, 2013, the unamortized balance of such premiums and discounts, net was 

$3.2 billion and the unamortized balance of buy-up fees was $0.5 billion. These adjustments are necessary to reflect the 

effective yield realized on investments in consolidated Freddie Mac mortgage-related securities purchased at a premium 

or discount or with buy-up fees.

Segment Allocations

The results of each reportable segment include directly attributable revenues and expenses. Administrative expenses that 

are not directly attributable to a segment are allocated to our segments using various methodologies, depending on the nature of 

the expense (i.e., semi-direct versus indirect). Net interest income for each segment includes allocated debt funding costs 

related to certain assets of each segment. These allocations, however, do not include the effects of dividends paid on our senior 

preferred stock. The tax credits generated by the LIHTC partnerships and any valuation allowance on these tax credits are 

allocated to the Multifamily segment. The deferred tax asset valuation allowance and release of the tax asset valuation 

allowance associated with previously recognized income tax credits carried forward, termination of our pension plan, and legal 

and tax settlements, as applicable, are allocated to the All Other category. All remaining taxes are calculated based on a 35%

federal statutory rate as applied to pre-tax Segment Earnings.

The table below presents Segment Earnings by segment.

Table 13.1 — Summary of Segment Earnings and Comprehensive Income (Loss)

Year Ended December 31,

2013 2012 2011

(in millions)

Segment Earnings (loss), net of taxes:

Single-family Guarantee $ 5,796 $ (164) $ (10,000)

Investments 16,602 8,212 3,366

Multifamily 2,378 2,146 1,319

All Other(1) 23,892 788 49

Total Segment Earnings (loss), net of taxes 48,668 10,982 (5,266)

Net income (loss) $ 48,668 $ 10,982 $ (5,266)

Comprehensive income (loss) of segments:

Single-family Guarantee $ 5,845 $ (227) $ (9,970)

Investments 20,287 11,397 6,473

Multifamily 1,455 4,081 2,218

All Other(1) 24,013 788 49

Comprehensive income (loss) of segments 51,600 16,039 (1,230)

Comprehensive income (loss) $ 51,600 $ 16,039 $ (1,230)

(1) For the year ended December 31, 2013, includes a benefit for federal income taxes that resulted from the release of our valuation allowance against our 

net deferred tax assets.

The table below presents detailed reconciliations between our GAAP financial statements and Segment Earnings by 

financial statement line item for our reportable segments and All Other.

Table of Contents
236 Freddie Mac

Table 13.2 — Segment Earnings and Reconciliation to GAAP Results

Year Ended December 31, 2013

Total 

Segment

Earnings 

(Loss),

Net of Tax

Reconciliation to Consolidated Statements of

Comprehensive Income

Total per

Consolidated

Statements of

Comprehensive

Income

Singlefamily

Guarantee Investments Multifamily

All

Other Reclassifications(1)

Segment

Adjustments(2)

Total

Reconciling

Items

(in millions)

Net interest income $ 320 $ 3,525 $ 1,186 $ — $ 5,031 $ 10,400 $ 1,037 $ 11,437 $ 16,468

Benefit (provision) for

credit losses 1,409 — 218 — 1,627 838 — 838 2,465

Non-interest income

(loss):

Management and 

guarantee income(3) 4,930 — 206 — 5,136 (4,171) (694) (4,865) 271

Net impairment of

available-for-sale

securities recognized in

earnings — (974) (15) — (989) (521) — (521) (1,510)

Derivative gains

(losses) (3) 6,806 18 — 6,821 (4,189) — (4,189) 2,632

Gains (losses) on

trading securities — (1,588) (10) — (1,598) — — — (1,598)

Gains (losses) on

mortgage loans — (817) 481 — (336) — — — (336)

Other non-interest

income 1,165 9,612 640 — 11,417 (2,357) — (2,357) 9,060

Non-interest expense:

Administrative

expenses (1,025) (523) (257) — (1,805) — — — (1,805)

REO operations income

(expense) 124 — 16 — 140 — — — 140

Other non-interest

expense (712) 349 (24) (37) (424) — — — (424)

Segment adjustments(2) (694) 1,037 — — 343 — (343) (343) —

Income tax (expense)

benefit 282 (825) (81) 23,929 23,305 — — — 23,305

Net income 5,796 16,602 2,378 23,892 48,668 — — — 48,668

Total other comprehensive

income (loss), net of taxes 49 3,685 (923) 121 2,932 — — — 2,932

Comprehensive income $ 5,845 $ 20,287 $ 1,455 $24,013 $ 51,600 $ — $ — $ — $ 51,600

Table of Contents
237 Freddie Mac

Year Ended December 31, 2012

Total 

Segment

Earnings 

(Loss),

Net of Tax

Reconciliation to Consolidated Statements of

Comprehensive Income

Total per

Consolidated

Statements of

Comprehensive

Income

Singlefamily

Guarantee Investments Multifamily

All

Other Reclassifications(1)

Segment

Adjustments(2)

Total

Reconciling

Items

(in millions)

Net interest income $ (147) $ 5,726 $ 1,291 $ — $ 6,870 $ 9,942 $ 799 $ 10,741 $ 17,611

Benefit (provision) for

credit losses (3,168) — 123 — (3,045) 1,155 — 1,155 (1,890)

Non-interest income (loss):

Management and 

guarantee income(3) 4,389 — 151 — 4,540 (3,507) (832) (4,339) 201

Net impairment of

available-for-sale

securities recognized in

earnings — (1,831) (123) — (1,954) (214) — (214) (2,168)

Derivative gains (losses) — 1,970 7 — 1,977 (4,425) — (4,425) (2,448)

Gains (losses) on trading

securities — (1,755) 81 — (1,674) — — — (1,674)

Gains (losses) on

mortgage loans — 303 707 — 1,010 — — — 1,010

Other non-interest income 931 2,741 275 — 3,947 (2,951) — (2,951) 996

Non-interest expense:

Administrative expenses (890) (430) (241) — (1,561) — — — (1,561)

REO operations income

(expense) (62) — 3 — (59) — — — (59)

Other non-interest

expense (393) (1) (129) (50) (573) — — — (573)

Segment adjustments(2) (832) 799 — — (33) — 33 33 —

Income tax benefit 8 690 1 838 1,537 — — — 1,537

Net income (loss) (164) 8,212 2,146 788 10,982 — — — 10,982

Total other comprehensive

income (loss), net of taxes (63) 3,185 1,935 — 5,057 — — — 5,057

Comprehensive income

(loss) $ (227) $ 11,397 $ 4,081 $ 788 $ 16,039 $ — $ — $ — $ 16,039

Year Ended December 31, 2011

Total 

Segment

Earnings 

(Loss),

Net of Tax

Reconciliation to Consolidated Statements of

Comprehensive Income

Total per

Consolidated

Statements of

Comprehensive

Income

Singlefamily

Guarantee Investments Multifamily

All

Other Reclassifications(1)

Segment

Adjustments(2)

Total

Reconciling

Items

(in millions)

Net interest income $ (23) $ 7,168 $ 1,200 $ — $ 8,345 $ 9,391 $ 661 $ 10,052 $ 18,397

Benefit (provision) for

credit losses (12,294) — 196 — (12,098) 1,396 — 1,396 (10,702)

Non-interest income (loss):

Management and 

guarantee income(3) 3,647 — 127 — 3,774 (2,905) (699) (3,604) 170

Net impairment of

available-for-sale

securities recognized in

earnings — (1,833) (353) — (2,186) (115) — (115) (2,301)

Derivative gains (losses) — (3,597) 3 — (3,594) (6,158) — (6,158) (9,752)

Gains (losses) on trading

securities — (993) 39 — (954) — — — (954)

Gains (losses) on

mortgage loans — 529 300 — 829 — — — 829

Other non-interest income 1,216 1,437 86 — 2,739 (1,609) — (1,609) 1,130

Non-interest expense:

Administrative expenses (888) (398) (220) — (1,506) — — — (1,506)

REO operations income

(expense) (596) — 11 — (585) — — — (585)

Other non-interest

expense (321) (2) (69) — (392) — — — (392)

Segment adjustments(2) (699) 661 — — (38) — 38 38 —

Income tax (expense)

benefit (42) 394 (1) 49 400 — — — 400

Net income (loss) (10,000) 3,366 1,319 49 (5,266) — — — (5,266)

Total other comprehensive

income, net of taxes 30 3,107 899 — 4,036 — — — 4,036

Comprehensive income

(loss) $ (9,970) $ 6,473 $ 2,218 $ 49 $ (1,230) $ — $ — $ — $ (1,230)

Table of Contents
238 Freddie Mac

(1) See “Segment Earnings — Investment Activity-Related Reclassifications” and “— Credit Guarantee Activity-Related Reclassifications” for information regarding these 

reclassifications.

(2) See “Segment Earnings — Segment Adjustments” for information regarding these adjustments.

(3) Management and guarantee income total per consolidated statements of comprehensive income is included in other income on our GAAP consolidated statements of 

comprehensive income.

The table below presents comprehensive income (loss) by segment.

Table 13.3 — Comprehensive Income (Loss) of Segments

Year Ended December 31, 2013

Other Comprehensive Income (Loss), Net of Taxes

Net Income

(Loss)

Changes in

Unrealized Gains

(Losses) Related to

Available-For-Sale

Securities

Changes in

Unrealized Gains

(Losses) Related to

Cash Flow Hedge

Relationships

Changes in 

Defined

Benefit Plans

Total Other

Comprehensive

Income (Loss),

Net of Taxes

Comprehensive 

Income

(Loss)

(in millions)

Total comprehensive income (loss) of segments:

Single-family Guarantee $ 5,796 $ — $ — $ 49 $ 49 $ 5,845

Investments 16,602 3,338 316 31 3,685 20,287

Multifamily 2,378 (932) — 9 (923) 1,455

All Other 23,892 — — 121 121 24,013

Total per consolidated statements of

comprehensive income $ 48,668 $ 2,406 $ 316 $ 210 $ 2,932 $ 51,600

Year Ended December 31, 2012

Other Comprehensive Income (Loss), Net of Taxes

Net Income

(Loss)

Changes in

Unrealized Gains

(Losses) Related to

Available-For-Sale

Securities

Changes in

Unrealized Gains

(Losses) Related to

Cash Flow Hedge

Relationships

Changes in 

Defined

Benefit Plans

Total Other

Comprehensive

Income (Loss),

Net of Taxes

Comprehensive 

Income

(Loss)

(in millions)

Total comprehensive income (loss) of segments:

Single-family Guarantee $ (164) $ — $ — $ (63) $ (63) $ (227)

Investments 8,212 2,821 414 (50) 3,185 11,397

Multifamily 2,146 1,948 — (13) 1,935 4,081

All Other 788 — — — — 788

Total per consolidated statements of

comprehensive income $ 10,982 $ 4,769 $ 414 $ (126) $ 5,057 $ 16,039

Year Ended December 31, 2011

Other Comprehensive Income (Loss), Net of Taxes

Net Income

(Loss)

Changes in

Unrealized Gains

(Losses) Related to

Available-For-Sale

Securities

Changes in

Unrealized Gains

(Losses) Related to

Cash Flow Hedge

Relationships

Changes in 

Defined

Benefit Plans

Total Other

Comprehensive

Income (Loss),

Net of Taxes

Comprehensive 

Income

(Loss)

(in millions)

Total comprehensive income (loss) of segments:

Single-family Guarantee $ (10,000) $ — $ — $ 30 $ 30 $ (9,970)

Investments 3,366 2,573 508 26 3,107 6,473

Multifamily 1,319 892 1 6 899 2,218

All Other 49 — — — — 49

Total per consolidated statements of

comprehensive income $ (5,266) $ 3,465 $ 509 $ 62 $ 4,036 $ (1,230)

NOTE 14: FINANCIAL GUARANTEES

We provide financial guarantees to securitization trusts that issue mortgage-related securities backed by single-family 

mortgage loans, which we consolidate. During the years ended December 31, 2013 and 2012, we issued approximately $425.6 

billion and $439.3 billion, respectively, in UPB of Freddie Mac mortgage-related securities backed by single-family mortgage 

loans (excluding those backed by HFA bonds). For guarantees to consolidated securitization trusts, our exposure to these 

guarantees is generally the UPB of the loans recorded on our consolidated balance sheets.

We also provide guarantees to non-consolidated securitization trusts that issue mortgage-related securities as well as in 

other guarantee commitments. If we are exposed to incremental credit risk by providing these guarantees, we charge a 

management and guarantee fee and recognize a guarantee asset, guarantee obligation, and a reserve for guarantee losses, as 

necessary. 

The table below presents our maximum potential exposure, our recognized liability, and the maximum remaining term of 

our financial guarantees that are not consolidated on our balance sheets.

Table of Contents
239 Freddie Mac

Table 14.1 — Financial Guarantees

December 31, 2013 December 31, 2012

Maximum

Exposure

(1)

Recognized

Liability(2)

Maximum

Remaining

Term

Maximum

Exposure

(1)

Recognized

Liability(2)

Maximum

Remaining

Term

(dollars in millions, terms in years)

Non-consolidated Freddie Mac securities(3) $ 71,809 $ 731 40 $ 50,715 $ 430 41

Other guarantee commitments 29,160 791 36 23,455 575 37

Derivative instruments(4) 9,856 239 32 10,306 789 33

Servicing-related premium guarantees 281 — 5 210 — 5

(1) Maximum exposure represents the contractual amounts that could be lost under the non-consolidated guarantees if counterparties or borrowers 

defaulted, without consideration of possible recoveries under credit enhancement arrangements, such as recourse provisions, third-party insurance 

contracts, or from collateral held or pledged. The maximum exposure disclosed above is not representative of the actual loss we are likely to incur, 

based on our historical loss experience and after consideration of proceeds from related collateral liquidation. The maximum exposure for our liquidity 

guarantees is not mutually exclusive of our default guarantees on the same securities; therefore, these amounts are included within the maximum 

exposure of non-consolidated Freddie Mac securities and other guarantee commitments.

(2) For non-consolidated Freddie Mac securities and other guarantee commitments, this amount represents the guarantee obligation on our consolidated 

balance sheets. This amount excludes our reserve for guarantee losses, which totaled $111 million and $183 million as of December 31, 2013 and 2012, 

respectively, and is included within other liabilities on our consolidated balance sheets.

(3) In addition to our guarantee of principal and interest, we also provide liquidity guarantees for certain multifamily housing revenue bonds included in 

this category. However, no advances under these liquidity guarantees were outstanding at December 31, 2013 or 2012.

(4) See “NOTE 9: DERIVATIVES” for information about these derivative guarantees.

Non-Consolidated Freddie Mac Securities

We issue three types of mortgage-related securities: (a) PCs; (b) REMICs and Other Structured Securities; and (c) Other 

Guarantee Transactions. We guarantee the payment of principal and interest to the trusts which issue these securities, which are 

backed by pools of mortgage-related assets, irrespective of the cash flows received from the borrowers.

Our single-family securities issued in resecuritizations of our PCs and other previously issued REMICs and Other 

Structured Securities are not consolidated unless we hold substantially all of the beneficial interests of the trust and are 

therefore considered the primary beneficiary of the trust. Our resecuritizations of PCs and other previously issued REMICs and 

Structured Securities do not give rise to any additional exposure to credit loss as we already consolidate the underlying 

collateral. The securities issued in these resecuritizations consist of single-class and multiclass securities backed by PCs, 

REMICs, interest-only strips, and principal-only strips. Since these resecuritizations do not increase our credit-risk, no 

guarantee asset or guarantee obligation is recognized for these transactions and they are excluded from the table above.

During 2013 we issued approximately $23.7 billion, compared to $17.5 billion in 2012, in UPB of Other Guarantee 

Transactions, all of which were backed by multifamily mortgage loans, for which a guarantee asset and guarantee obligation 

were recognized.

For many of the loans underlying our non-consolidated guarantees, there are credit protections from third parties, 

including subordination, covering a portion of our exposure. See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS 

RESERVES” for information about credit protections on loans we guarantee.

Other Guarantee Commitments

We provide long-term standby commitments to certain of our customers, which obligate us to purchase seriously 

delinquent loans that are covered by those agreements. During 2013 and 2012, we issued and guaranteed $9.9 billion and $6.8 

billion, respectively, in UPB of long-term standby commitments. These long-term standby commitments totaled $19.2 billion

and $12.4 billion of UPB at December 31, 2013 and 2012, respectively. We also had other guarantee commitments on 

multifamily housing revenue bonds that were issued by HFAs of $9.1 billion and $9.4 billion in UPB at December 31, 2013 and 

2012, respectively. In addition, as of December 31, 2013 and 2012, we had issued guarantees under the TCLFP on securities 

backed by HFA bonds with UPB of $0.9 billion and $1.7 billion, respectively.

Derivative Instruments

Derivative instruments include written options, written swaptions, interest-rate swap guarantees, and short-term default 

guarantee commitments accounted for as credit derivatives. See “NOTE 9: DERIVATIVES” for further discussion of these 

derivative guarantees.

We guarantee the performance of interest-rate swap contracts in two circumstances. First, in connection with certain other 

guarantee commitments, we guarantee that a multifamily borrower will perform under an interest-rate swap contract linked to 

the borrower’s ARM. And second, in connection with our issuance of certain REMICs and Other Structured Securities, which 

are backed by tax-exempt bonds, we guarantee that the sponsor of the transaction will perform under the interest-rate swap 

contract linked to the senior variable-rate certificates that we issued.

Table of Contents
240 Freddie Mac

We also have issued certain REMICs and Other Structured Securities with stated final maturities that are shorter than the 

stated maturity of the underlying mortgage loans. If the underlying mortgage loans to these securities have not been purchased 

by a third party or fully matured as of the stated final maturity date of such securities, we will sponsor an auction of the 

underlying assets. To the extent that purchase or auction proceeds are insufficient to cover unpaid principal amounts due to 

investors in such REMICs and Other Structured Securities, we are obligated to fund such principal. Our maximum exposure on 

these derivative guarantees represents the outstanding UPB of the REMICs and Other Structured Securities subject to stated 

final maturities.

Other Indemnifications

In connection with certain business transactions, we may provide indemnification to counterparties for claims arising out 

of breaches of certain obligations (e.g., those arising from representations and warranties) in contracts entered into in the 

normal course of business. Our assessment is that the risk of any material loss from such a claim for indemnification is remote 

and there are no significant probable and estimable losses associated with these contracts. In addition, we provided 

indemnification for litigation defense costs to certain former officers who are subject to ongoing litigation. See “NOTE 17: 

LEGAL CONTINGENCIES” for further information on ongoing litigation. The recognized liabilities on our consolidated 

balance sheets related to indemnifications were not significant at December 31, 2013 and 2012.

As part of the guarantee arrangements pertaining to multifamily housing revenue bonds, we provided commitments to 

advance funds, commonly referred to as “liquidity guarantees.” These guarantees require us to advance funds to enable others 

to repurchase any tendered tax-exempt and related taxable bonds that are unable to be remarketed. Any such advances are 

treated as loans and are secured by a pledge to us of the repurchased securities until the securities are remarketed. We hold cash 

and cash equivalents on our consolidated balance sheets for the amount of these commitments. No advances under these 

liquidity guarantees were outstanding at December 31, 2013 and 2012.

NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS

Single-Family Credit Guarantee Portfolio

Our business activity is to participate in and support the residential mortgage market in the United States, which we 

pursue by both issuing guaranteed mortgage securities and investing in mortgage loans and mortgage-related securities.

The table below summarizes the concentration by year of origination and geographical area of the approximately $1.7 

trillion and $1.6 trillion UPB of our single-family credit guarantee portfolio at December 31, 2013 and 2012, respectively. See 

“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES”, "NOTE 4: MORTGAGE LOANS AND LOAN 

LOSS RESERVES”, and “NOTE 7: INVESTMENTS IN SECURITIES” for more information about credit risk associated with 

loans and mortgage-related securities that we hold.

Table of Contents
241 Freddie Mac

Table 15.1 — Concentration of Credit Risk — Single-Family Credit Guarantee Portfolio

December 31, 2013 December 31, 2012

Percent of Credit Losses(1)

Year Ended

Percentage of

Portfolio(2)

Serious

Delinquency

Rate

Percentage of

Portfolio(2)

Serious

Delinquency

Rate

December 31,

2013

December 31,

2012

Year of Origination

2013 16% —% N/A N/A <1% N/A

2012 16 — 14% —% <1 <1%

2011 8 0.2 10 0.1 <1 <1

2010 7 0.4 10 0.3 1 1

2009 7 0.9 11 0.7 2 1

Subtotal - New single-family book 54 0.2 45 0.3 3 2

HARP and other relief refinance loans(3) 21 0.6 18 0.7 7 2

2005 to 2008 Legacy single-family book 16 8.8 24 9.6 81 87

Pre-2005 Legacy single-family book 9 3.2 13 3.2 9 9

Total 100% 2.4% 100% 3.3% 100% 100%

Region(4)

West 28% 1.7% 28% 2.8% 24% 44%

Northeast 26 3.2 25 3.8 15 8

North Central 18 1.8 18 2.5 23 20

Southeast 16 3.4 17 5.0 35 24

Southwest 12 1.4 12 1.7 3 4

Total 100% 2.4% 100% 3.3% 100% 100%

State

Arizona, California, Florida, and Nevada(5) 26% 3.0% 25% 5.0% 47% 54%

Illinois, Michigan, and Ohio(6) 11 2.1 11 3.0 19 15

New York and New Jersey(7) 9 5.1 9 5.5 3 2

All other 54 1.9 55 2.4 31 29

Total 100% 2.4% 100% 3.3% 100% 100%

(1) Credit losses consist of the aggregate amount of charge-offs, net of recoveries, and REO operations expense in each of the respective periods and 

exclude foregone interest on non-performing loans and other market-based losses recognized on our consolidated statements of comprehensive income.

(2) Based on the UPB of our single-family credit guarantee portfolio, which includes unsecuritized single-family mortgage loans held by us on our 

consolidated balance sheets and those underlying Freddie Mac mortgage-related securities, or covered by our other guarantee commitments.

(3) HARP and other relief refinance loans are presented separately rather than in the year that the refinancing occurred (from 2009 to 2013). All other 

refinance loans are presented in the year that the refinancing occurred. Prior period information has been revised to conform with the current period 

presentation. 

(4) 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).

(5) Represents the four states that had the largest cumulative declines in home prices during the housing crisis that began in 2006, as measured using 

Freddie Mac’s home price index.

(6) Represents selected states in the North Central region that have experienced adverse economic conditions since 2006.

(7) Represents two states with a judicial foreclosure process in which there are a significant number of seriously delinquent loans within our single-family 

credit guarantee portfolio.

Credit Performance of Certain Higher Risk Single-Family Loan Categories

Participants in the mortgage market often characterize single-family loans based upon their overall credit quality at the 

time of origination, generally considering them to be prime or subprime. Many mortgage market participants classify singlefamily loans with credit characteristics that range between their prime and subprime categories as Alt-A because these loans 

have a combination of characteristics of each category, may be underwritten with lower or alternative income or asset 

documentation requirements compared to a full documentation mortgage loan, or both. However, there is no universally 

accepted definition of subprime or Alt-A. Although we discontinued new purchases of mortgage loans with lower 

documentation standards for assets or income beginning March 1, 2009, we continued to purchase certain amounts of these 

mortgages in cases where the loan was either: (a) purchased pursuant to a previously issued other guarantee commitment; 

(b) part of our relief refinance mortgage initiative; or (c) in another refinance mortgage initiative and the pre-existing mortgage 

(including Alt-A loans) was originated under less than full documentation standards. In the event we purchase a refinance 

mortgage and the original loan had been previously identified as Alt-A, such refinance loan may no longer be categorized or 

reported as Alt-A in the table below because the new refinance loan replacing the original loan would not be identified by the 

Table of Contents
242 Freddie Mac

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 mortgage loans we purchase or guarantee as prime or subprime, we 

recognize that there are a number of mortgage loan types with certain characteristics that indicate a higher degree of credit risk. 

For example, a borrower’s credit score is a useful measure for assessing the credit quality of the borrower. Statistically, 

borrowers with higher credit scores are more likely to repay or have the ability to refinance than those with lower scores.

Presented below is a summary of the serious delinquency rates of certain higher-risk categories (based on characteristics 

of the loan at origination) of single-family loans in our single-family credit guarantee portfolio. The table includes a 

presentation of each higher-risk category in isolation. A single loan may fall within more than one category (for example, an 

interest-only loan may also have an original LTV ratio greater than 90%). Loans with a combination of these attributes will 

have an even higher risk of delinquency than those with an individual attribute.

Table 15.2 — Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio(1)

Percentage of Portfolio(1) Serious Delinquency Rate

December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012

Interest-only 2% 3% 12.5% 16.3%

Option ARM(2) <1 <1 12.3 16.3

Alt-A(3) 3 5 10.1 11.4

Original LTV ratio greater than 90%(4) 16 13 3.2 4.8

Lower FICO scores at origination (less than 620) 3 3 10.0 12.2

(1) Based on UPB.

(2) For reporting purposes, loans within the option ARM category continue to be reported in that category following modification, even though the 

modified loan no longer provides for optional payment provisions.

(3) Alt-A loans may not include those loans that were previously classified as Alt-A and that have been refinanced as either a relief refinance mortgage or 

in another refinance mortgage initiative.

(4) Includes HARP loans, which we are required to purchase as part of our participation in the MHA Program.

The percentage of borrowers in our single-family credit guarantee portfolio, based on UPB, with estimated current LTV

ratios greater than 100% was 10% and 15% at December 31, 2013 and 2012, respectively. An increase in the estimated current 

LTV ratio of a loan indicates that the borrower’s equity in the home has declined, and can 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 mortgage 

loan. The serious delinquency rate for single-family loans with estimated current LTV ratios greater than 100% was 9.9% and 

12.7% as of December 31, 2013 and 2012, respectively. Loans in our 2005-2008 Legacy single-family book have been more 

affected by declines in home prices during the housing crisis that began in 2006 than loans originated in other years. Our 

2005-2008 Legacy single-family book comprised approximately 16% of our single-family credit guarantee portfolio, based on 

UPB at December 31, 2013, and these loans accounted for approximately 81% and 87% of our credit losses during 2013 and 

2012, respectively.

We categorize our investments in non-agency mortgage-related securities as subprime, option ARM, or Alt-A if the 

securities were identified as such based on information provided to us when we entered into these transactions. We have not 

identified option ARM, CMBS, obligations of states and political subdivisions, and manufactured housing securities as either 

subprime or Alt-A securities. See “NOTE 7: INVESTMENTS IN SECURITIES” for further information on these categories 

and other concentrations in our investments in securities.

Multifamily Mortgage Portfolio

The table below summarizes the concentration of multifamily mortgages in our multifamily mortgage portfolio by certain 

attributes. Information presented for multifamily mortgage loans includes certain categories based on loan or borrower 

characteristics present at origination. The table includes a presentation of each category in isolation. A single loan may fall 

within more than one category (for example, a loan with an original LTV ratio greater than 80% may also have an original 

DSCR below 1.10).

Table of Contents
243 Freddie Mac

Table 15.3 — Concentration of Credit Risk — Multifamily Mortgage Portfolio

December 31, 2013 December 31, 2012

UPB

Delinquency

Rate(1) UPB

Delinquency

Rate(1)

(dollars in billions)

State(2)

California $ 22.4 0.03% $ 21.1 0.12%

Texas 16.7 0.02 15.9 0.13

New York 11.4 0.12 10.7 0.09

Florida 9.3 0.28 8.4 0.12

Virginia 7.0 0.37 6.6 —

Maryland 6.7 — 6.9 —

All other states 59.3 0.08 57.8 0.32

Total $ 132.8 0.09% $ 127.4 0.19%

Region(3)

Northeast $ 37.5 0.10% $ 36.1 0.04%

West 33.8 0.07 31.8 0.09

Southwest 26.2 0.05 25.4 0.22

Southeast 24.1 0.16 23.4 0.54

North Central 11.2 0.07 10.7 0.19

Total $ 132.8 0.09% $ 127.4 0.19%

Other Categories(4)

Original LTV ratio greater than 80% $ 5.6 0.19% $ 5.8 2.31%

Original DSCR below 1.10 2.2 — 2.3 2.97

(1) Based on the UPB of multifamily mortgages two monthly payments or more delinquent or in foreclosure.

(2) Represents the six states with the highest UPB at December 31, 2013.

(3) See endnote (4) to “Table 15.1 — Concentration of Credit Risk — Single-Family Credit Guarantee Portfolio” for a description of these regions.

(4) These categories are not mutually exclusive and a loan in one category may also be included within another category.

One indicator of risk for mortgage loans in our multifamily mortgage portfolio is the amount of a borrower’s equity in the 

underlying property. A borrower’s equity in a property decreases as the LTV ratio increases. Higher LTV ratios negatively 

affect a borrower’s ability to refinance or sell a property for an amount at or above the balance of the outstanding mortgage. 

The DSCR is another indicator of future credit performance. The DSCR estimates a multifamily borrower’s ability to service 

its mortgage obligation using the secured property’s cash flow, after deducting non-mortgage expenses from income. The 

higher the DSCR, the more likely it is that a multifamily borrower will be able to continue servicing its mortgage obligation.

We estimate that the percentage of loans in our multifamily mortgage portfolio with a current LTV ratio of greater than 

100% was approximately 2% and 3% at December 31, 2013 and 2012, respectively, and our estimate of the current average 

DSCR for these loans was 0.95 and 1.0, respectively. We estimate that the percentage of loans in our multifamily mortgage 

portfolio with a current DSCR less than 1.0 was 3% at both December 31, 2013 and 2012 and the average current LTV ratio of 

these loans was 95% and 111%, respectively. Our estimates of current DSCRs are based on the latest available income 

information for these properties and our assessments of market conditions. Our estimates of the current LTV ratios are based on 

values we receive from a third-party service provider as well as our internal estimates of property value, for which we may use 

changes in tax assessments, market vacancy rates, rent growth and comparable property sales in local areas as well as thirdparty appraisals for a portion of the portfolio. We periodically perform our own valuations or obtain third-party appraisals in 

cases where a significant deterioration in a borrower’s financial condition has occurred, the borrower has applied for 

refinancing, or in certain other circumstances where we deem it appropriate to reassess the property value. Although we use the 

most recently available financial results of our multifamily borrowers to estimate a property’s value, there may be a significant 

lag in reporting, which could be six months or more, as they complete their financial results in the normal course of business. 

Our internal estimates of property valuation are derived using techniques that include income capitalization, discounted cash 

flows, comparable sales, or replacement costs. 

Seller/Servicers

We acquire a significant portion of our single-family mortgage purchase volume from several large seller/servicers and 

we are exposed to the risk that we could lose purchase volume to the extent certain arrangements with these lenders are 

terminated. Our top 10 single-family seller/servicers provided approximately 64% of our single-family purchase volume during 

2013. Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A. accounted for 17% and 13%, respectively, of our single-family 

Table of Contents
244 Freddie Mac

mortgage purchase volume and were the only single-family seller/servicers that comprised 10% or more of our purchase 

volume during 2013. 

We are exposed to institutional credit risk arising from the potential insolvency or non-performance by our seller/

servicers of their obligations to repurchase mortgages or (at our option) indemnify us in the event of: (a) breaches of the 

representations and warranties they made when they sold the mortgages to us; or (b) failure to comply with our servicing 

requirements. Our contracts require that a seller/servicer repurchase a mortgage after we issue a repurchase request, unless the 

seller/servicer avails itself of an appeals process provided for in our contracts, in which case the deadline for repurchase is 

extended until we decide on the appeal. As of December 31, 2013 and 2012, the UPB of loans subject to our repurchase 

requests (seller and servicer related) issued to our single-family seller/servicers was approximately $2.2 billion and $3.0 billion, 

of which approximately 27% and 41%, respectively, were outstanding for four months or more since issuance as measured by 

the related UPB of the loans (these figures include repurchase requests for which appeals were pending). As of December 31, 

2013, two of our largest seller/servicers (Bank of America, N.A. and JPMorgan Chase Bank, N.A.) had aggregate repurchase 

requests outstanding, based on UPB, of $0.9 billion, and approximately 49% were outstanding for four months or more since 

issuance. During 2013 and 2012, we recovered amounts that covered losses with respect to $5.6 billion and $3.5 billion, 

respectively, in UPB of loans subject to our repurchase requests.

During 2013, we entered into settlement agreements with a number of counterparties to release specified loans from 

certain seller repurchase obligations in exchange for one-time cash payments, which totaled approximately $2.4 billion in 

aggregate. These agreements related to loans with $280.4 billion in aggregate principal amount (as of the dates of the respective 

agreements) and we recognized a benefit for credit losses of $1.7 billion included within our consolidated statement of 

operations during 2013. The counterparties to these agreements included GMAC Mortgage LLC, Wells Fargo Bank, N.A., 

CitiMortgage, Inc., Citibank, N.A., SunTrust Mortgage, Inc., JPMorgan Chase Bank, N.A., Bank of America, N.A., FifthThird 

Bank, N.A., PNC Bank, N.A., U.S. Bancorp, and Flagstar Bank, FSB. 

As of December 31, 2013, single-family loans with aggregate UPB of approximately $389.6 billion (representing 24% of 

our single-family credit guarantee portfolio) had been released from repurchase obligations primarily because either: (a) the 

mortgages are subject to negotiated agreements; or (b) the seller/servicers were no longer in business and their obligations have 

been discharged or a settlement amount was determined in bankruptcy or receivership proceedings. 

At the direction of FHFA, Freddie Mac and Fannie Mae have launched a new representation and warranty framework for 

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

lenders’ repurchase exposures and liability on future sales of mortgage loans to Freddie Mac and Fannie Mae. The new 

framework does not affect seller/servicers’ obligations under their contracts with us with respect to loans sold to us prior to 

January 1, 2013. The new framework also does not affect their obligation to service these loans in accordance with our 

servicing standards. Under this new framework, lenders will be relieved of certain repurchase obligations for loans that meet 

specific payment requirements. This includes, subject to certain exclusions, loans with 36 months (12 months for relief 

refinance mortgages) of consecutive, on-time payments after we purchase them.

As of December 31, 2013, approximately 24% in UPB of loans in our single-family credit guarantee portfolio were 

purchased during 2013 and subject to this representation and warranty framework.

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 1: 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for Loan Losses and Reserve for Guarantee 

Losses” for further information. We believe we have appropriately provided for these exposures, based upon our estimates of 

incurred losses, in our loan loss reserves; however, our actual losses may exceed our estimates.

We are also exposed to the risk that seller/servicers might fail to service mortgages in accordance with our contractual 

requirements, resulting in increased credit losses. For example, our seller/servicers have an active role in our loss mitigation 

efforts, including under the servicing alignment initiative and the MHA Program, and therefore, we have exposure to them to 

the extent a decline in their performance results in a failure to realize the anticipated benefits of our loss mitigation plans. Since 

we do not have our own servicing operation, if our servicers lack appropriate process controls, experience a failure in their 

controls, or experience an operating disruption in their ability to service mortgage loans, our business and financial results 

could be adversely affected.

A significant portion of our single-family mortgage loans are serviced by several large seller/servicers. Our top two

single-family loan servicers, Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A., serviced approximately 24% and 13%, 

respectively, of our single-family mortgage loans, as of December 31, 2013 and together serviced approximately 37% of our 

single-family mortgage loans. 

As of December 31, 2013 our top three multifamily servicers, Berkadia Commercial Mortgage LLC, Wells Fargo Bank, 

N.A., and CBRE Capital Markets, Inc., each serviced more than 10% of our multifamily mortgage portfolio, excluding K 

Certificates, and together serviced approximately 37% of this portfolio.

Table of Contents
245 Freddie Mac

In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under financial 

pressure, which could potentially cause degradation in the quality of the servicing they provide us, including their monitoring 

of each property’s financial performance and physical condition. This could also, in certain cases, reduce the likelihood that we 

could recover losses through lender repurchases, recourse agreements, or other credit enhancements, where applicable. This 

risk primarily relates to multifamily loans that we hold on our consolidated balance sheets where we retain all of the related 

credit risk. We monitor the status of all our multifamily seller/servicers in accordance with our counterparty credit risk 

management framework.

Mortgage Insurers

We have institutional credit risk relating to the potential insolvency of, or non-performance by, mortgage insurers that 

insure single-family mortgages we purchase or guarantee. We evaluate the recovery and collectability from insurance policies 

for mortgage loans that we hold for investment as well as loans underlying our non-consolidated Freddie Mac mortgage-related 

securities or covered by other guarantee commitments as part of the estimate of our loan loss reserves. See “NOTE 1: 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for Loan Losses and Reserve for Guarantee 

Losses” for additional information. As of December 31, 2013, mortgage insurers provided coverage with maximum loss limits 

of $52.0 billion, for $209.9 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 mortgage is covered 

under both primary and pool insurance. Our top four mortgage insurer counterparties, Mortgage Guaranty Insurance 

Corporation (MGIC), Radian Guaranty Inc. (Radian), United Guaranty Residential Insurance Company, and Genworth 

Mortgage Insurance Corporation each accounted for more than 10% and collectively represented approximately 78% of our 

overall mortgage insurance coverage at December 31, 2013. Three of our mortgage insurance counterparties are no longer rated 

by either S&P or Moody’s because they are under court-ordered or state supervision. Of our four largest counterparties, three

are rated B, and one is rated BBB+, as of December 31, 2013, based on the lower of the S&P or Moody’s rating scales and 

stated in terms of the S&P equivalent. 

We and MGIC were involved in litigation concerning our current and future claims under certain of MGIC’s pool 

insurance policies. In the litigation, we contended that the policies had approximately $0.5 billion more in coverage than MGIC 

contended was provided for under the policies. In December 2012, we entered into a settlement agreement with MGIC 

concerning this dispute. Under the terms of the settlement, MGIC paid us $100 million in December 2012, and is paying us an 

additional $167.5 million in monthly installments over four years beginning on January 2, 2013. 

We received proceeds of $2.0 billion during both 2013 and 2012 from our primary and pool mortgage insurance policies 

for recovery of losses on our single-family loans. We had outstanding receivables from mortgage insurers of $0.7 billion and 

$1.3 billion (excluding deferred payment obligations associated with unpaid claim amounts) as of December 31, 2013 and 

2012, respectively. The balance of our outstanding accounts receivable from mortgage insurers, net of associated reserves, was 

approximately $0.5 billion and $0.8 billion at December 31, 2013 and 2012, respectively.

In August 2013, we entered into an agreement with Radian involving approximately 26,000 single-family loans held by 

us and insured by Radian that were in default as of December 31, 2011. The agreement generally resolves outstanding and 

future primary mortgage insurance claims by us against Radian with respect to these loans. In connection with this agreement, 

Radian paid us $255 million and also deposited $205 million in an escrow account in which we hold a secured interest. Subject 

to terms and conditions of the agreement, the funds in the escrow account will be returned to Radian to the extent of Radian's 

final rescission, cancellation, curtailment or denial of filed claims. Freddie Mac will receive any funds in the account that are 

not returned to Radian. The agreement does not affect our right to pursue repurchase remedies against seller/servicers related to 

Radian's insurance rescissions and claim denials on these loans. 

In August 2011, we suspended Republic Mortgage Insurance Corporation (or RMIC) and its affiliates, and PMI Mortgage 

Insurance Co. (or PMI) and its affiliates as approved mortgage insurers for Freddie Mac loans, making loans insured by them 

ineligible for sale to Freddie Mac (except relief refinance loans with pre-existing insurance). Both RMIC and PMI ceased 

writing new business during the third quarter of 2011. RMIC instituted a partial claim payment plan in January 2012, under 

which claim payments were made 50% in cash and 50% in deferred payment obligations for an initial period not to exceed one 

year. In November 2012, RMIC announced that its state regulator approved its corrective plan, which provided for the run-off 

of its existing business. Under the corrective plan, RMIC is paying claims, settled on or after January 19, 2012, 60% in cash 

and a deferred payment obligation for the remaining 40% which will be retained in claim reserves until a future pay-out date. 

PMI instituted a partial claim payment plan in October 2011, under which claim payments were made 50% in cash, with the 

remaining amount deferred as a policyholder claim. In April 2013, PMI began paying valid claims 55% in cash and 45% in 

deferred payment obligations and made a one-time cash payment to us for claims that were previously settled at 50% in cash. 

In June 2009, Triad began paying valid claims 60% in cash and 40% in deferred payment obligations under order of its 

state regulator. In October 2013, Triad’s plan of rehabilitation was approved. In December 2013, under this plan, Triad began 

paying valid claims 75% in cash and a one-time cash payment was made to us for claims previously settled for 60% in cash. 

It is not clear how the regulators of PMI, RMIC, or Triad will administer the balance of their respective deferred payment 

plans, nor when or if those obligations will be paid.

Table of Contents
246 Freddie Mac

Bond Insurers

Bond insurance, which may be either primary or secondary policies, is a credit enhancement covering some of the nonagency mortgage-related securities we hold. Primary policies are acquired by the securitization trust issuing the securities we 

purchase, while secondary policies are acquired by us. At December 31, 2013, the maximum principal exposure to credit losses 

related to such policies was $7.8 billion. At December 31, 2013, our top four bond insurers, Ambac Assurance Corporation (or 

Ambac), Financial Guaranty Insurance Company (or FGIC), 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 90% of our total coverage. 

In June 2012, a rehabilitation order was signed granting the Superintendent of Financial Services of the State of New 

York the authority to take possession and/or control of FGIC’s property and assets and to conduct FGIC’s business. In 

September 2012, the Superintendent of Financial Services filed a proposed plan of rehabilitation for FGIC. Certain trustees 

objected to the proposed plan, and a revised plan was filed in December 2012. In June 2013, FGIC’s plan of rehabilitation was 

approved under which permitted claims will be paid 17% in cash and the remainder in deferred payment obligations. FGIC has 

begun payment of initial permitted claims and settlement of deferred obligations in accordance with the plan.

In the third quarter of 2012, Ambac, which had not paid claims since March 2010, began making partial cash payments of 

the permitted amount of each policy claim. In 2013, Ambac also began making supplemental payments, equal to all or a portion 

of the permitted policy claim, with respect to certain specified securities. In March 2010, Ambac established a segregated 

account for certain Ambac-insured securities, including some of those held by Freddie Mac. Upon the request of the Wisconsin 

Office of the Commissioner of Insurance, the Wisconsin circuit court put the segregated account into rehabilitation (i.e., a state 

insolvency proceeding). The Office of the Commissioner of Insurance subsequently filed a plan of rehabilitation with the court. 

The plan was approved by the court in January 2011, but has not yet been implemented due to various disputes among 

interested parties. In November 2010, Ambac Financial Group Inc., the parent company of Ambac, filed for bankruptcy. 

We expect to receive substantially less than full payment of our claims from Ambac and FGIC as these companies are 

either insolvent or in rehabilitation. We believe that we will also likely receive substantially less than full payment of our claims 

from some of our other bond insurers, because we believe they also lack sufficient ability to fully meet all of their expected 

lifetime claims-paying obligations to us as such claims emerge. We evaluate the expected recovery from primary bond 

insurance policies as part of our impairment analysis for our investments in securities. See “NOTE 7: INVESTMENTS IN 

SECURITIES” for further information on our evaluation of impairment on securities covered by bond insurance.

Cash and Other Investments Counterparties

We are exposed to institutional credit risk arising from the potential insolvency or non-performance of counterparties of 

non-mortgage-related investment agreements and cash equivalent transactions, including those entered into on behalf of our 

securitization trusts. 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 investment counterparties are primarily major institutions, Treasury, and the Federal Reserve Bank of 

New York. As of December 31, 2013 and 2012, including amounts related to our consolidated VIEs, there were $85.9 billion

and $60.7 billion, respectively, of: (a) cash and securities purchased under agreements to resell invested with institutional 

counterparties; (b) Treasury securities classified as cash equivalents; or (c) cash deposited with the Federal Reserve Bank of 

New York. As of December 31, 2013 these included:

• $50.3 billion of securities purchased under agreements to resell with 11 counterparties that had short-term S&P ratings 

of A-1 or above;

• $6.1 billion of securities purchased under agreements to resell with one counterparty that had a short-term S&P rating 

of A-2;

• $6.0 billion of securities purchased under agreements to resell with one counterparty that does not have a short-term 

S&P or other third-party credit rating, but was evaluated under the company's counterparty credit risk system and was 

determined to be eligible for this transaction (by providing more than 100% in approved collateral);

• $3.9 billion of cash equivalents invested in Treasury securities; and

• $19.4 billion of cash deposited with the Federal Reserve Bank of New York (as a non-interest-bearing deposit).

In February 2014, we reached a settlement with Lehman Brothers Holdings Inc. pursuant to which we will receive $767 

million to resolve our claims related to Lehman’s bankruptcy. Consequently, we adjusted our December 31, 2013 estimate of 

the expected recoveries of our receivable by $350 million, which reduced other expenses by the same amount. For more 

information, see “NOTE 17: LEGAL CONTINGENCIES."

Table of Contents
247 Freddie Mac

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 activities discussed below. The effectiveness of these various loss mitigation efforts is uncertain, in part 

because our rights as an investor are limited, and any potential recoveries may take significant time to realize.

In 2011, FHFA, as Conservator for Freddie Mac and Fannie Mae, filed lawsuits against 18 corporate families of financial 

institutions and related defendants seeking to recover losses and damages sustained by Freddie Mac and Fannie Mae as a result 

of their investments in certain residential non-agency mortgage-related securities issued or sold by, or backed by mortgages 

originated by, these financial institutions or control persons thereof. These institutions include some of our largest seller/

servicers and counterparties, including counterparties to debt funding and derivatives transactions. We and FHFA reached 

settlements with the following parties in 2013:

• General Electric Company and affiliates (January 2013)

• Citigroup Inc. and affiliates (May 2013)

• UBS Americas, Inc. (July 2013) 

• JPMorgan Chase & Co. and certain affiliated entities and other persons (October 2013)

• Ally Financial Inc. (October 2013)

• Deutsche Bank AG (December 2013) 

Lawsuits against a number of other parties are currently pending. 

In addition, during September 2013, we reached a settlement with Wells Fargo Bank, N.A. and affiliates concerning 

claims related to certain residential non-agency mortgage-related securities.

During 2013, we recognized $5.5 billion within non-interest income on our consolidated statements of comprehensive 

income associated with these settlements. In February 2014, we and FHFA entered into an agreement with Morgan Stanley, and 

related parties, to settle litigation related to certain residential non-agency mortgage-related securities we hold. Under the 

agreement, we will be paid $625 million, which will be reflected in our consolidated financial results for the first quarter of 

2014.

In June 2011, Bank of America Corporation, BAC Home Loans Servicing, LP, Countrywide Financial Corporation and 

Countrywide Home Loans, Inc. entered into a settlement agreement with The Bank of New York Mellon, as trustee, to resolve 

certain claims with respect to a number of Countrywide first-lien and second-lien residential mortgage-related securitization 

trusts. We have investments in certain of these Countrywide securitization trusts and would expect to benefit from this 

settlement, if final court approval is obtained. Bank of America indicated that the settlement would be subject to final court 

approval and certain other conditions. In January 2014, a New York state court approved a significant portion of the settlement. 

There can be no assurance that final court approval of the entire settlement will be obtained or that all conditions will be 

satisfied. Given the complexity of the settlement and the possibility that the January 2014 court decision will be appealed, it is 

not possible to predict the timing or ultimate outcome of the court approval process, which could take substantial additional 

time.

Derivative Portfolio

Our use of cleared derivatives, exchange-traded derivatives, and OTC derivatives exposes us to institutional credit risk. 

The requirement that we post initial and variation margin in connection with exchange-traded derivatives and cleared 

derivatives exposes us to institutional credit risk in the event that our clearing members or the clearinghouse fail to meet their 

obligations. However, the use of exchange-traded derivatives and cleared derivatives mitigates our institutional credit risk 

exposure to individual counterparties because a central counterparty is substituted for individual counterparties, and changes in 

the value of open exchange-traded contracts and cleared derivatives are settled or collateralized daily via payments made 

through the clearinghouse. OTC derivatives, however, expose us to institutional credit risk to individual counterparties because 

transactions are executed and settled between us and each counterparty, exposing us to potential losses if a counterparty fails to 

meet its contractual obligations.

For more information about our derivative counterparties as well as related master netting and collateral agreements, see 

“NOTE 10: COLLATERAL AND OFFSETTING OF ASSETS AND LIABILITIES.”

NOTE 16: FAIR VALUE DISCLOSURES

The accounting guidance for fair value measurements and disclosures defines fair value, establishes a framework for 

measuring fair value, and sets forth disclosure requirements regarding fair value measurements. This guidance applies 

whenever other accounting guidance requires or permits assets or liabilities to be measured at fair value. Fair value 

measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market for 

the asset or liability, or, in the absence of a principal market, in the most advantageous market for the asset or liability.

Table of Contents
248 Freddie Mac

We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of 

certain assets and liabilities on a recurring or non-recurring basis.

Fair Value Measurements

The accounting guidance for fair value measurements and disclosures establishes a three-level fair value hierarchy that 

prioritizes the inputs into the valuation techniques used to measure fair value. The fair value hierarchy gives the highest 

priority, Level 1, to measurements based on quoted prices in active markets for identical assets or liabilities. The next highest 

priority, Level 2, is given to measurements based on observable inputs other than quoted prices in active markets for identical 

assets or liabilities. The lowest priority, Level 3, is given to measurements based on unobservable inputs. Assets and liabilities 

are classified in their entirety within the fair value hierarchy based on the lowest level input that is significant to the fair value 

measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents our assets and liabilities measured in our consolidated balance sheets at fair value on a recurring 

basis subsequent to initial recognition, including instruments where we have elected the fair value option, as of December 31, 

2013 and 2012.

Table 16.1 — Assets and Liabilities Measured at Fair Value on a Recurring Basis

Table of Contents
249 Freddie Mac

Fair Value at December 31, 2013

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant

Unobservable 

Inputs

(Level 3)

Netting

Adjustment(1) Total

(in millions)

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac $ — $ 38,720 $ 1,939 $ — $ 40,659

Fannie Mae — 10,666 131 — 10,797

Ginnie Mae — 155 12 — 167

CMBS — 27,229 3,109 — 30,338

Subprime — — 27,499 — 27,499

Option ARM — — 6,574 — 6,574

Alt-A and other — — 8,706 — 8,706

Obligations of states and political

subdivisions — — 3,495 — 3,495

Manufactured housing — — 684 — 684

Total available-for-sale securities, at

fair value — 76,770 52,149 — 128,919

Trading, at fair value:

Mortgage-related securities:

Freddie Mac — 9,006 343 — 9,349

Fannie Mae — 6,959 221 — 7,180

Ginnie Mae — 24 74 — 98

Other — 133 8 — 141

Total mortgage-related securities — 16,122 646 — 16,768

Non-mortgage-related securities:

Treasury bills 2,254 — — — 2,254

Treasury notes 4,382 — — — 4,382

Total non-mortgage-related securities 6,636 — — — 6,636

Total trading securities, at fair

value 6,636 16,122 646 — 23,404

Total investments in securities 6,636 92,892 52,795 — 152,323

Mortgage loans:

Held-for-sale, at fair value — 8,727 — — 8,727

Derivative assets, net:

Interest-rate swaps — 10,009 10 — 10,019

Option-based derivatives — 4,112 — — 4,112

Other — 99 1 — 100

Subtotal, before netting adjustments — 14,220 11 — 14,231

Netting adjustments(1) — — — (13,168) (13,168)

Total derivative assets, net — 14,220 11 (13,168) 1,063

Other assets:

Guarantee asset, at fair value — — 1,611 — 1,611

All other, at fair value — — 9 — 9

Total other assets — — 1,620 — 1,620

Total assets carried at fair value on a

recurring basis $ 6,636 $ 115,839 $ 54,426 $ (13,168) $ 163,733

Liabilities:

Debt securities of consolidated trusts held by

third parties, at fair value $ — $ 59 $ — $ — $ 59

Other debt, at fair value — 1,155 1,528 — 2,683

Derivative liabilities, net:

Interest-rate swaps — 13,022 295 — 13,317

Option-based derivatives — 201 3 — 204

Other — 68 38 — 106

Subtotal, before netting adjustments — 13,291 336 — 13,627

Netting adjustments(1) — — — (13,447) (13,447)

Total derivative liabilities, net — 13,291 336 (13,447) 180

Total liabilities carried at fair value on

a recurring basis $ — $ 14,505 $ 1,864 $ (13,447) $ 2,922

Table of Contents
250 Freddie Mac

Fair Value at December 31, 2012

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant

Unobservable 

Inputs

(Level 3)

Netting

Adjustment(1) Total

(in millions)

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac $ — $ 56,713 $ 1,802 $ — $ 58,515

Fannie Mae — 15,117 163 — 15,280

Ginnie Mae — 193 16 — 209

CMBS — 47,878 3,429 — 51,307

Subprime — — 26,457 — 26,457

Option ARM — — 5,717 — 5,717

Alt-A and other — — 10,904 — 10,904

Obligations of states and political

subdivisions — — 5,798 — 5,798

Manufactured housing — — 709 — 709

Total available-for-sale securities, at

fair value — 119,901 54,995 — 174,896

Trading, at fair value:

Mortgage-related securities:

Freddie Mac — 9,189 1,165 — 10,354

Fannie Mae — 10,026 312 — 10,338

Ginnie Mae — 39 92 — 131

Other — 135 21 — 156

Total mortgage-related securities — 19,389 1,590 — 20,979

Non-mortgage-related securities:

Asset-backed securities — 292 — — 292

Treasury bills 1,160 — — — 1,160

Treasury notes 19,061 — — — 19,061

Total non-mortgage-related securities 20,221 292 — — 20,513

Total trading securities, at fair

value 20,221 19,681 1,590 — 41,492

Total investments in securities 20,221 139,582 56,585 — 216,388

Mortgage loans:

Held-for-sale, at fair value — — 14,238 — 14,238

Derivative assets, net:

Interest-rate swaps 27 13,920 18 — 13,965

Option-based derivatives — 10,097 — — 10,097

Other 37 92 2 — 131

Subtotal, before netting adjustments 64 24,109 20 — 24,193

Netting adjustments(1) — — — (23,536) (23,536)

Total derivative assets, net 64 24,109 20 (23,536) 657

Other assets:

Guarantee asset, at fair value — — 1,029 — 1,029

All other, at fair value — — 114 — 114

Total other assets — — 1,143 — 1,143

Total assets carried at fair value on a

recurring basis $ 20,285 $ 163,691 $ 71,986 $ (23,536) $ 232,426

Liabilities:

Debt securities of consolidated trusts held by

third parties, at fair value $ — $ 70 $ — $ — $ 70

Other debt, at fair value — — 2,187 — 2,187

Derivative liabilities, net:

Interest-rate swaps 5 30,213 26 — 30,244

Option-based derivatives — 749 1 — 750

Other 3 52 40 — 95

Subtotal, before netting adjustments 8 31,014 67 — 31,089

Netting adjustments(1) — — — (30,911) (30,911)

Total derivative liabilities, net 8 31,014 67 (30,911) 178

Total liabilities carried at fair value on

a recurring basis $ 8 $ 31,084 $ 2,254 $ (30,911) $ 2,435

Table of Contents
251 Freddie Mac

(1) Represents counterparty netting, cash collateral netting and net derivative interest receivable or payable. The net cash collateral posted was $871 

million and $8.2 billion, respectively, at December 31, 2013 and 2012. The net interest receivable (payable) of derivative assets and derivative 

liabilities was $(0.6) billion and $(0.8) billion at December 31, 2013 and 2012, respectively, which was mainly related to interest rate swaps.

Changes in Fair Value Levels

We monitor the availability of observable market data to: (a) assess the appropriate classification of financial instruments 

within the fair value hierarchy; and (b) transfer assets and liabilities between Level 1, Level 2, and Level 3 accordingly. 

Observable market data includes, but is not limited to, quoted prices and market transactions. Changes in economic conditions 

or the volume and level of activity in a market generally will drive changes in availability of observable market data. Changes 

in availability of observable market data, which also may result in changing the valuation technique used, are generally the 

cause of transfers between Level 1, 2, or 3.

For the year ended December 31, 2013, our transfers between Level 1 and Level 2 assets and liabilities were $27 million 

and $5 million, respectively. For the year ended December 31, 2012, our transfers between Level 1 and Level 2 assets and 

liabilities were less than $1 million.

The table below presents a reconciliation of all assets and liabilities measured in our consolidated balance sheets at fair 

value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012, 

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 for the years ended December 31, 2013 and 2012. When assets and liabilities are 

transferred between levels, we recognize the transfer as of the beginning of the period.

Table of Contents
252 Freddie Mac

Table 16.2 — Fair Value Measurements of Assets and Liabilities Using Significant Unobservable Inputs

Year Ended December 31, 2013

Realized and unrealized gains (losses)

Balance,

January 1,

2013

Included in

earnings(1)(2)(3)(4)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(5)

Transfers

out of

Level 3(5)

Balance,

December 31,

2013

Unrealized

gains 

(losses)

still held(6)

(in millions)

Assets

Investments in

securities:

Available-for-sale,

at fair value:

Mortgagerelated

securities:

Freddie Mac $ 1,802 $ 2 $ 109 $ 111 $ 239 $ — $ (86) $ (152) $ 25 $ — $ 1,939 $ —

Fannie Mae 163 — (3) (3) — — — (29) — — 131 —

Ginnie Mae 16 — — — — — — (4) — — 12 —

CMBS 3,429 6 (266) (260) — — (36) (24) — — 3,109 —

Subprime 26,457 (1,260) 6,648 5,388 — — (403) (3,943) — — 27,499 (1,258)

Option ARM 5,717 (61) 1,694 1,633 — — (75) (701) — — 6,574 (58)

Alt-A and other 10,904 (128) 1,341 1,213 — — (2,001) (1,410) — — 8,706 (179)

Obligations of

states and

political

subdivisions 5,798 13 (188) (175) (10) — (533) (1,585) — — 3,495 —

Manufactured

housing 709 (1) 62 61 — — — (86) — — 684 (1)

Total

availablefor-sale

mortgagerelated

securities 54,995 (1,429) 9,397 7,968 229 — (3,134) (7,934) 25 — 52,149 (1,496)

Trading, at fair

value:

Mortgagerelated

securities:

Freddie Mac 1,165 (50) — (50) 1,271 269 (1,476) (64) 1 (773) 343 (53)

Fannie Mae 312 (42) — (42) 2 — (2) (25) 43 (67) 221 (42)

Ginnie Mae 92 (1) — (1) 3 — — (15) — (5) 74 (1)

Other 21 — — — — — — (3) — (10) 8 —

Total

trading

mortgagerelated

securities 1,590 (93) — (93) 1,276 269 (1,478) (107) 44 (855) 646 (96)

Mortgage loans:

Held-for-sale, at

fair value 14,238 — — — — — — — — (14,238) — —

Other assets:

Guarantee asset(7) 1,029 4 — 4 — 688 — (110) — — 1,611 4

All other, at fair

value 114 30 — 30 — — (135) — — — 9 7

Total other

assets 1,143 34 — 34 — 688 (135) (110) — — 1,620 11

Realized and unrealized (gains) losses

Balance,

January 1,

2013

Included in

earnings(1)(2)(3)(4)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(5)

Transfers

out of

Level 3(5)

Balance,

December 31,

2013

Unrealized

(gains)

losses

still held(6)

(in millions)

Liabilities

Other debt, at fair

value $ 2,187 $ 11 $ — $ 11 $ — $1,130 $ — $ (670) $ — $ (1,130) $ 1,528 $ 4

Net derivatives(8) 47 301 — 301 — 12 — (35) — — 325 274

Table of Contents
253 Freddie Mac

Year Ended December 31, 2012

Realized and unrealized gains (losses)

Balance,

January 1,

2012

Included in

earnings(1)(2)(3)(4)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3

Transfers

out of

Level 3

Balance,

December 31,

2012

Unrealized

gains 

(losses)

still held(6)

(in millions)

Assets

Investments in

securities:

Available-for-sale,

at fair value:

Mortgagerelated

securities:

Freddie Mac $ 2,048 $ — $ 18 $ 18 $ — $ — $ — $ (144) $ — $ (120) $ 1,802 $ —

Fannie Mae 172 — 1 1 — — — (31) 21 — 163 —

Ginnie Mae 12 — — — — — — (4) 8 — 16 —

CMBS 3,756 76 (38) 38 — — (331) (34) — — 3,429 —

Subprime 27,999 (1,274) 4,301 3,027 — — — (4,569) — — 26,457 (1,274)

Option ARM 5,865 (552) 1,417 865 — — (15) (998) — — 5,717 (556)

Alt-A and

other 10,868 (196) 1,822 1,626 — — — (1,601) 11 — 10,904 (196)

Obligations

of states and

political

subdivisions 7,824 19 108 127 — — (482) (1,671) — — 5,798 —

Manufactured

housing 766 (4) 47 43 — — — (100) — — 709 (4)

Total

availablefor-sale

mortgagerelated

securities 59,310 (1,931) 7,676 5,745 — — (828) (9,152) 40 (120) 54,995 (2,030)

Trading, at fair

value:

Mortgagerelated

securities:

Freddie Mac 1,866 (389) — (389) 25 95 (76) (206) 92 (242) 1,165 (390)

Fannie Mae 538 (131) — (131) (5) — 5 (35) — (60) 312 (131)

Ginnie Mae 22 1 — 1 — — — (16) 98 (13) 92 1

Other 90 — — — — 18 (10) (3) — (74) 21 (1)

Total

trading

mortgagerelated

securities 2,516 (519) — (519) 20 113 (81) (260) 190 (389) 1,590 (521)

Mortgage loans:

Held-for-sale, at

fair value 9,710 1,011 — 1,011 25,340 — (21,764) (59) — — 14,238 263

Other assets:

Guarantee asset(7) 752 (23) — (23) — 382 — (82) — — 1,029 (23)

All other, at fair

value 151 (37) — (37) — — — — — — 114 (37)

Total other

assets 903 (60) — (60) — 382 — (82) — — 1,143 (60)

Realized and unrealized (gains) losses

Balance,

January 1,

2012

Included in

earnings(1)(2)(3)(4)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3

Transfers

out of

Level 3

Balance,

December 31,

2012

Unrealized

(gains) 

losses

still held(6)

(in millions)

Liabilities

Other debt, at fair

value $ — $ (16) $ — $ (16) $ — $ — $ — $ (812) $ 3,015 $ — $ 2,187 $ (6)

Net derivatives(8) (17) 30 — 30 — 3 — (2) — 33 47 15

(1) Changes in fair value for available-for-sale investment securities are recorded in AOCI, while gains and losses from sales are recorded in other gains 

(losses) on investment securities recognized in earnings on our consolidated statements of comprehensive income. For mortgage-related securities 

classified as trading, the realized and unrealized gains (losses) are recorded in other gains (losses) on investment securities recognized in earnings on 

our consolidated statements of comprehensive income.

(2) Changes in fair value of derivatives not designated as accounting hedges are recorded in derivative gains (losses) on our consolidated statements of 

comprehensive income.

(3) Changes in fair value of the guarantee asset are recorded in other income on our consolidated statements of comprehensive income.

Table of Contents
254 Freddie Mac

(4) For held-for-sale mortgage loans with the fair value option elected, gains (losses) on fair value changes and from sales of mortgage loans are recorded 

in other income on our consolidated statements of comprehensive income.

(5) Transfers out of Level 3 during the year ended December 31, 2013 are due to: (a) our enhancement to our pricing methodology for multifamily 

mortgage loans, held-for-sale, to more directly reflect the increasingly observable nature of our exit market of loan securitization; and (b) an increased 

volume and level of activity in the market and availability of price quotes from dealers and third-party pricing services for: (i) trading mortgage-related 

securities; and (ii) STACR debt notes included in other debt at fair value.

(6) Represents the amount of total gains or losses for the period, included in earnings, attributable to the change in unrealized gains and losses related to 

assets and liabilities classified as Level 3 that were still held at December 31, 2013 and 2012, respectively. Included in these amounts are credit-related 

other-than-temporary impairments recorded on available-for-sale securities.

(7) We estimate that all amounts recorded for unrealized gains and losses on our guarantee asset relate to those guarantee asset amounts still recorded on 

our balance sheet. The amounts reflected as included in earnings represent the periodic fair value changes of our guarantee asset.

(8) Net derivatives include derivative assets and derivative liabilities prior to counterparty netting, cash collateral netting, net trade/settle receivable or 

payable and net derivative interest receivable or payable.

Assets 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 application of lower-of-cost-or-fair-value accounting or write-downs of 

individual assets. These assets include impaired held-for-investment multifamily mortgage loans and REO, net.

The table below presents assets measured in our consolidated balance sheets at fair value on a non-recurring basis at 

December 31, 2013 and 2012, respectively.

Table 16.3 — Assets Measured at Fair Value on a Non-Recurring Basis

Fair Value at December 31,

2013 2012

Quoted Prices

in Active 

Markets

for Identical

Assets (Level 1)

Significant 

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3) Total

Quoted Prices

in Active 

Markets

for Identical

Assets (Level 1)

Significant 

Other

Observable

Inputs 

(Level 2)

Significant

Unobservable

Inputs

(Level 3) Total

(in millions)

Assets measured at

fair value on a nonrecurring basis:

Mortgage loans:(1)

Held-for-investment $ — $ — $ 515 $ 515 $ — $ — $ 1,025 $ 1,025

REO, net(2) — — 1,837 1,837 — — 776 776

Total assets measured

at fair value on a nonrecurring basis $ — $ — $ 2,352 $ 2,352 $ — $ — $ 1,801 $ 1,801

Total Gains (Losses)(3)

Year Ended December 31,

2013 2012 2011

(in millions)

Assets measured at fair value on a non-recurring basis:

Mortgage loans:(1)

Held-for-investment $ 22 $ (49) $ (16)

REO, net(2) (50) (22) (118)

Total gains (losses) $ (28) $ (71) $ (134)

(1) Represents carrying value and related write-downs of loans for which adjustments are based on the fair value amounts. These loans consist of impaired 

multifamily mortgage loans that are classified as held-for-investment and have a related valuation allowance.

(2) Represents the fair value and related losses of foreclosed properties that were measured at fair value subsequent to their initial classification as REO, 

net. The carrying amount of REO, net was written down to fair value of $1.8 billion, less estimated costs to sell of $118 million (or approximately $1.7 

billion) at December 31, 2013. The carrying amount of REO, net was written down to fair value of $0.8 billion , less estimated costs to sell of $50 

million (or approximately $0.7 billion) at December 31, 2012.

(3) Represents the total net gains (losses) recorded on items measured at fair value on a non-recurring basis for the years ended December 31, 2013, 2012, 

and 2011, respectively.

Valuation Processes and Controls Over Fair Value Measurement

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 

Table of Contents
255 Freddie Mac

reasonable. Our control processes provide a framework for segregation of duties and oversight of our fair value methodologies, 

techniques, validation procedures, and results.

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 Enterprise Risk Management (ERM) division.

The validation procedures performed by ERM are intended to ensure that the prices we receive from third parties are 

consistent with our observations of market activity, and that fair value measurements developed using internal data reflect the 

assumptions that a market participant would use in pricing our assets and liabilities. These validation procedures include 

performing a monthly independent verification of fair value measurements through independent modeling, analytics, and 

comparisons to other market source data, if available. Where applicable, prices are back-tested by comparing actual settlement 

prices to our fair value measurements. Analytical procedures include automated checks consisting of prior-period variance 

analysis, comparisons of actual prices to internally calculated expected prices based on observable market changes, analysis of 

changes in pricing ranges, relative value comparisons, and comparisons using modeled yields. Thresholds are set for each 

product category by ERM to identify exceptions that require further analysis. If a price is outside of our established thresholds, 

we perform additional validation procedures, including supplemental analytics and/or follow up discussions with the third-party 

provider. If we are unable to validate the reasonableness of a given price, we ultimately do not use that price for fair value 

measurements in our consolidated financial statements. These reviews are risk-based, cover all product categories, and are 

executed before we finalize the prices used in preparing our fair value measurements for our financial statements.

In addition to performing the validation procedures noted above, ERM provides independent risk governance over all 

valuation processes by establishing and maintaining a corporate-wide valuation control policy. ERM also independently 

reviews key judgments, methodologies, and valuation techniques to ensure compliance with established policies.

Our Valuation & Finance Model Committee (“Valuation Committee”), which includes representation from our business 

areas, ERM, and Finance divisions, provides senior management’s governance over valuation processes, methodologies, 

controls and fair value measurements. Identified exceptions are reviewed and resolved through the verification process and the 

fair value measurements used in the financial statements are approved at the Valuation Committee.

Where models are employed to assist in the measurement and verification of fair values, changes made to those models 

during the period are reviewed and approved according to the corporate model change governance process, with all 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

As discussed in the sections that follow, many of our valuation techniques use, either directly or indirectly, data provided 

by third-party pricing services or dealers. The techniques used by these pricing services and dealers to develop the prices 

generally are either: (a) a comparison to transactions involving instruments with similar collateral and risk profiles, adjusted as 

necessary based on specific characteristics of the asset or liability being valued; or (b) industry-standard modeling, such as a 

discounted cash flow model. The prices provided by the pricing services and dealers reflect their observations and assumptions 

related to market activity, including risk premiums and liquidity adjustments. The models and related assumptions used by the 

pricing services and dealers are owned and managed by them and, in many cases, the significant inputs used in the valuation 

techniques are not reasonably available to us. However, we have an understanding of the processes and assumptions used to 

develop the prices based on our ongoing due diligence, which includes discussions with our vendors at least annually and often 

more frequently. We believe that the procedures executed by the pricing services and dealers, combined with our internal 

verification and analytical procedures, provide assurance that the prices used in our financial statements comply with the 

accounting guidance for fair value measurements and disclosures and reflect the assumptions that a market participant would 

use in pricing our assets and liabilities. The price quotes we receive are non-binding both to us and to our counterparties.

In many cases, we receive prices from third-party pricing services or dealers and use those prices without adjustment, and 

the significant inputs used to develop the prices are not reasonably available to us. For a large majority of the assets and 

liabilities we value using pricing services and dealers, we obtain prices from multiple external sources and use the median of 

the prices to measure fair value. This technique is referred to below as “median of external sources.” The significant inputs 

used in the fair value measurement of assets and liabilities that are valued using the median of external sources pricing 

technique are the third-party prices. Significant increases (decreases) in any of the third-party prices in isolation may result in a 

significantly higher (lower) fair value measurement. In limited circumstances, we may be able to receive pricing information 

from only a single external source. This technique is referred to below as “single external source.”

In limited circumstances, we receive prices or pricing-related data that we adjust or use as an input to our models or other 

valuation techniques to measure fair value, as described in “Valuation Techniques for Assets and Liabilities Measured in Our 

Consolidated Balance Sheets at Fair Value — Derivative Assets, Net and Derivative Liabilities, Net.” In other limited 

Table of Contents
256 Freddie Mac

circumstances, we receive prices from a third-party provider and use those prices without adjustment, but the inputs used by the 

third-party provider to develop the prices are reasonably available to us, as described in “Valuation Techniques for Assets and 

Liabilities Measured in Our Consolidated Balance Sheets at Fair Value — Mortgage Loans, Held-for-Sale” and “ — Other 

Assets and Other Liabilities.”

Valuation Techniques for Assets and Liabilities Measured in Our Consolidated Balance Sheets at Fair Value 

We categorize assets and liabilities that we measure and report in our consolidated balance sheets at fair value within the 

fair value hierarchy based on the valuation techniques used to derive the fair value and our judgment regarding the 

observability of the related inputs. The following is a description of the valuation techniques we use for fair value measurement 

and disclosure; the significant inputs used in those techniques (if applicable); our basis for classifying the measurements as 

Level 1, Level 2, or Level 3 of the fair value hierarchy; and, for those measurements classified as Level 3 of the hierarchy, a 

narrative description of the sensitivity of the fair value measurement to changes in significant unobservable inputs and a 

description of any interrelationships between those unobservable inputs. Although the sensitivities of the unobservable inputs 

are generally discussed below in isolation, interrelationships exist among the inputs such that a change in one unobservable 

input typically results in a change to one or more of the other inputs. For example, the most common interrelationship that 

impacts the majority of our fair value measurements is between future interest rates, prepayment speeds, and probabilities of 

default. Generally, a change in the assumption used for future interest rates results in a directionally opposite change in the 

assumption used for prepayment speeds and a directionally similar change in the assumption used for probabilities of default.

Each technique discussed below may not be used in a given reporting period, depending on the composition of our assets 

and liabilities measured at fair value and relevant market activity during that period.

Investments in Securities

Mortgage-Related Securities

Agency Securities

Agency securities, both trading and available-for-sale, consist of mortgage-related securities issued and guaranteed by 

Freddie Mac, Fannie Mae, and Ginnie Mae. The valuation techniques for agency securities vary depending on the type of 

security.

Fixed-rate single-class securities are valued using observable prices for similar securities in the TBA market. The 

observable TBA prices vary based on agency, term, coupon, and settlement date. In addition, we may adjust the TBA price 

accordingly based on matrices we receive from external dealers for securities with specific collateral characteristics if we 

observe those collateral characteristics to be trading at a premium or discount to the TBA price. Significant inputs used in this 

technique are the TBA prices and the security characteristics mentioned above. These securities have observable market pricing 

and are classified as Level 2.

Adjustable-rate single-class securities and the majority of multiclass securities are valued using the median of external 

sources. For certain multiclass securities, we are able to receive prices from only a single external source. Adjustable-rate 

single-class securities and the multiclass securities valued using these techniques generally have observable market prices and 

are classified as Level 2. However, certain multiclass securities valued using these techniques are classified as Level 3 when 

there is a low volume or level of activity in the market for those securities.

Certain multiclass securities for which we are not able to obtain external prices due to limited relevant market activity are 

valued using a discounted cash flow technique. Under this technique, securities are valued by starting with a third-party market 

price for a similar security within our portfolio. We then use our proprietary prepayment and interest rate models to calculate an 

OAS for the similar security, which is used to determine the net present value of the projected cash flows for the security to be 

valued. The significant unobservable input used in the fair value measurement of these securities is the OAS. Significant 

increases (decreases) in the OAS in isolation would result in a significantly lower (higher) fair value measurement. These 

securities are classified as Level 3 as significant inputs used in the fair value measurement are unobservable.

Certain complex multiclass securities for which current cash flow information is not readily available are valued using a 

risk-metric pricing technique. Under this technique, securities are valued by starting with a prior period price and adjusting that 

price for market changes in certain key risk metrics such as key rate durations. If necessary, our judgment is applied to adjust 

the price based on specific security characteristics. The significant unobservable inputs used in the fair value measurement of 

these securities are the key risk metrics. Significant increases (decreases) in key rate durations in isolation would result in a 

significantly lower (higher) fair value measurement. These securities are classified as Level 3 as significant inputs used in the 

fair value measurement are unobservable.

Commercial Mortgage-Backed Securities

The majority of our CMBS are valued using the median of external sources. For a small number of CMBS, we are able to 

receive prices from only a single external source. CMBS valued using these techniques generally have observable market 

pricing and are classified as Level 2. However, certain CMBS valued using these techniques are classified as Level 3 when 

there is a low volume or level of activity in the market for those securities.

Table of Contents
257 Freddie Mac

Subprime, Option ARM, and Alt-A and Other (Mortgage-Related); Obligations of States and Political Subdivisions; and 

Manufactured Housing

Subprime, option ARM, and Alt-A and other securities consist of non-agency mortgage-related securities backed by 

subprime, option ARM, and/or Alt-A and other collateral. Obligations of states and political subdivisions consist primarily of 

housing revenue bonds. Manufactured housing securities consist of non-agency mortgage-related securities backed by loans on 

manufactured housing properties. These types of securities are all valued based on the median of external sources and are 

classified as Level 3 due to the low volume and level of activity in the markets for these securities.

Non-Mortgage-Related Securities

Asset-Backed Securities

Asset-backed securities consist primarily of private-label non-mortgage-related securities. These securities are valued 

using the median of external sources. These securities have observable market pricing and are classified as Level 2.

Treasury Bills and Treasury Notes

Treasury bills and Treasury notes are valued using quoted prices in active markets for identical assets and are classified as 

Level 1.

Mortgage Loans, Held-for-Sale

Mortgage loans, held-for-sale consist of multifamily mortgage loans with the fair value option elected and are measured 

at fair value on a recurring basis. Mortgage loans, held-for-sale are primarily valued using market prices from a third-party 

pricing service that uses a discounted cash flow technique calibrated to the exit price for these loans as reflected in the K 

Certificate securitization market. Under this technique, the pricing service forecasts cash flows for the various mortgage loans 

and discounts them at a market rate, including a spread that is based on our recent securitization activity, which we have 

defined as our principal exit market. These loans are classified as Level 2 given the observable nature of our securitization 

pricing.

Mortgage Loans, Held-for-Investment

Mortgage loans, held-for-investment are measured at fair value on a non-recurring basis and represent multifamily 

mortgage loans that have been written down to the fair value of the underlying collateral due to impairment. The underlying 

collateral is primarily valued using either an income capitalization technique or third-party appraisals.

Under the income capitalization technique, the collateral is valued by discounting the present value of future cash flows 

by applying an overall capitalization rate to the forecasted net operating income. The significant unobservable input used in the 

fair value measurement of these loans is the capitalization rate, which is determined through analysis of the DSCR. Significant 

increases (decreases) in the capitalization rate in isolation would result in a significantly lower (higher) fair value measurement.

Under the third-party appraisal technique, we use the prices provided by third-party appraisers without adjustment. The 

third-party appraisers consider the physical condition of the property and use comparable sales and other market data in 

determining the appraised value.

Impaired multifamily mortgage loans held-for-investment are classified as Level 3 as significant inputs used in the fair 

value measurement are unobservable.

Derivative Assets, Net and Derivative Liabilities, Net

Derivative assets and derivative liabilities consist of interest-rate swaps, option-based derivatives, and other derivatives, 

such as exchange-traded futures, foreign-currency swaps, and certain forward purchase and sale commitments.

Interest-Rate Swaps

Interest-rate swaps consist of receive-fixed, pay-fixed, and basis swaps. The majority of our interest-rate swaps are 

valued using a discounted cash flow technique. Under this technique, interest-rate swaps are valued by using the appropriate 

yield curves to discount the expected cash flows of both the fixed and variable rate components of the swap contracts. The 

significant inputs used in the fair value measurement of these derivatives are market-based interest rates. These derivatives are 

classified as Level 2 as the significant inputs used in the fair value measurement are observable in active markets.

Option-Based Derivatives

Option-based derivatives consist of interest rate caps, interest rate floors, call swaptions, and put swaptions. We value the 

majority of our option-based derivatives using option-pricing models. Dealer-supplied interest rate volatility matrices are a key 

input into these models. Within each matrix, prices are provided for a range of option terms, swap terms, and strikes. Our 

models then interpolate to determine the volatility for each instrument and use that volatility as an input to the option-pricing 

model. These derivatives are classified as Level 2 as the significant inputs used are observable in active markets.

Other Derivatives

Other derivatives consist of exchange-traded futures, foreign-currency swaps, and certain forward purchase and sale 

commitments.

Table of Contents
258 Freddie Mac

Exchange-traded futures are valued using quoted prices in active markets for identical assets or liabilities and are 

classified as Level 1.

Foreign-currency swaps are valued using a discounted cash flow technique. Under this technique, foreign-currency swaps 

are valued using yield curves derived from observable market data to calculate and discount the expected cash flows for the 

swap contracts. The significant inputs used in the fair value measurement of these derivatives are market-based interest rates 

and foreign currency exchange rates. These derivatives are classified as Level 2 as the significant inputs used in the fair value 

measurement are observable in active markets.

Certain purchase and sale commitments are also considered to be derivatives and are valued using the same techniques 

we use to value the underlying instruments we are committing to purchase or sell. These instruments generally have observable 

market pricing and are classified as Level 2. Valuation techniques for commitments to purchase or sell investment securities 

and to extinguish or issue debt securities of consolidated trusts are further discussed in “Investments in Securities.” Valuation 

techniques for commitments to purchase single-family mortgage loans are further discussed in “Valuation Techniques for 

Assets and Liabilities Not Measured in Our Consolidated Balance Sheets at Fair Value, but for Which the Fair Value is 

Disclosed — Mortgage Loans.”

Other Assets and Other Liabilities

Other assets consist of our guarantee asset related to guarantees issued to unconsolidated securitization trusts and 

mortgage servicing rights. Other liabilities, from time to time, consist of mortgage servicing rights.

Guarantee Asset

Our guarantee asset is primarily related to our multifamily guarantees. The multifamily guarantee asset is valued using a 

discounted cash flow technique. Under this technique, the present value of future cash flows related to our management and 

guarantee fee is discounted based on the current OAS-to-benchmark interest rates for new guarantees, which are driven by 

changes in our estimates of credit risk and changes in the credit profile of the multifamily guarantee portfolio. The significant 

unobservable input used in the fair value measurement of the guarantee asset is the OAS-to-benchmark rates. Significant 

increases (decreases) in the OAS in isolation would result in a significantly lower (higher) fair value measurement.

Our guarantee asset also consists of single family guarantees primarily related to long-term standby commitments, the 

vast majority of which is valued using the median of external sources. Under this technique, we obtain multiple price quotes 

from dealers, who provide estimates based on pricing for comparable benchmark securities with specific adjustments to reflect 

the unique characteristics of this asset class.

The guarantee asset is classified as Level 3 as significant inputs used in the fair value measurement are unobservable.

All Other Assets and Liabilities

All other assets and, from time to time, other liabilities consist primarily of mortgage servicing rights. Mortgage servicing 

rights are valued using a discounted cash flow technique by a third-party vendor that specializes in valuing and brokering sales 

of mortgage servicing rights. Under this technique, the cash flows from the mortgage servicing rights are discounted based on 

estimated prepayment rates, estimated costs to service both performing and non-performing loans, and estimated servicing 

income per loan (including ancillary income). The significant unobservable inputs used in the fair value measurement of 

mortgage servicing rights are the estimates of prepayment rates, costs to service per loan, and servicing income per loan. 

Significant increases (decreases) in cost to service per loan, and prepayment rate in isolation would result in a significantly 

lower (higher) fair value measurement. Significant increases (decreases) in servicing income per loan in isolation would result 

in a significantly higher (lower) fair value measurement. Mortgage servicing rights are classified as Level 3 as significant 

inputs used in the fair value measurement are unobservable.

REO, Net

REO, net consists primarily of single-family REO. REO, net is initially measured at its fair value less costs to sell, and is 

subsequently measured at the lower of cost or fair value less costs to sell. REO, net is valued using an internal model. Under 

this technique, our internal model uses actual REO disposition prices for the prior three months, calibrated to the most recent 

month's disposition prices, to determine the average sales proceeds per property at the state level, expressed as a fixed 

percentage based on the ratio of the disposition price to the UPB of the associated loan. This fixed percentage is then applied to 

the UPB immediately prior to the acquisition to determine the fair value of the individual property. Certain adjustments, such as 

state-level adjustments, are made to the estimated fair value, as applicable. The significant unobservable input used in the fair 

value measurement of REO, net is the historical average sales proceeds per property by state. Significant increases (decreases) 

in the historical average sales proceeds per property by state in isolation would result in a significantly higher (lower) fair value 

measurement. REO, net is classified as Level 3 as significant inputs used in the fair value measurement are unobservable.

Debt Securities of Consolidated Trusts Held by Third Parties, at Fair Value

We elected the fair value option for certain debt securities of consolidated trusts held by third parties. These consist of 

certain multifamily K Certificates where we are in a first loss position and certain REMIC interest-only mortgage-related debt 

securities. These are valued using either the median of external sources or a single external source (which may be the 

Table of Contents
259 Freddie Mac

counterparty to the transaction) and are classified as Level 2 due to market pricing that is observable. See “Fair Value Option — 

Debt Securities of Consolidated Trusts Held by Third Parties” for additional information.

Other Debt, at Fair Value

We elected the fair value option on: (a) STACRdebt notes; (b) extendible variable-rate notes containing quarterly options 

for investors to extend the maturity of the notes; and (c) foreign-currency denominated debt instruments. Our STACR debt 

notes are valued using the median of external sources and are classified as Level 2 based on observable market prices. 

Extendible variable-rate notes and foreign-currency denominated debt are valued using either the median of external sources or 

a single external source (which may be the counterparty to the transaction) and are classified as Level 3 due to the low volume 

and level of activity in the market for these types of debt instruments. See “Fair Value Option — Other Debt” for additional 

information.

Quantitative Information about Level 3 Fair Value Measurements for Assets and Liabilities Measured in Our

Consolidated Balance Sheets at Fair Value 

The table below provides valuation techniques, the range, and the weighted average of significant unobservable inputs for 

assets and liabilities measured in our consolidated balance sheets at fair value on a recurring basis using unobservable inputs 

(Level 3) as of December 31, 2013 and 2012.

Table of Contents
260 Freddie Mac

Table 16.4 — Quantitative Information about Recurring Level 3 Fair Value Measurements

December 31, 2013

Total

Fair

Value

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs(1)

Type Range

Weighted

Average

(dollars in millions)

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Agency securities:

Freddie Mac $ 1,547 Risk metric Effective duration(2) 2.25 - 5.17 years 2.44 years

133 Single external source External pricing source $99.3 - $99.3 $ 99.3

259 Other

Total Freddie Mac $ 40,659 1,939

Fannie Mae 91 Single external source External pricing source $110.5 - $110.5 $ 110.5

26 Median of external sources External pricing sources $104.1 - $105.3 $ 104.7

14 Other

Total Fannie Mae 10,797 131

Ginnie Mae 6 Median of external sources

6 Discounted cash flows

Total Ginnie Mae 167 12

CMBS 2,942 Single external source External pricing source $90.9 - $90.9 $ 90.9

167 Other

Total CMBS 30,338 3,109

Subprime, option ARM, and Alt-A:

Subprime 25,367 Median of external sources External pricing sources $64.5 - $73.8 $ 68.7

2,132 Other

Total subprime 27,499 27,499

Option ARM 4,995 Median of external sources External pricing sources $60.8- $67.0 $ 64.4

705 Discounted cash flows OAS 461 - 944 bps 729 bps

874 Other

Total option ARM 6,574 6,574

Alt-A and other 4,028 Single external source External pricing source $83.4 - $83.4 $ 83.4

3,503 Median of external sources External pricing sources $72.5 - $79.1 $ 75.7

1,175 Other

Total Alt-A and other 8,706 8,706

Obligations of states and political subdivisions 3,067 Median of external sources External pricing sources $98.7 - $99.7 $ 99.2

428 Other

Total obligations of states and political subdivisions 3,495 3,495

Manufactured housing 577 Median of external sources External pricing sources $86.7 - $92.8 $ 89.7

107 Other

Total manufactured housing 684 684

Total available-for-sale mortgage-related

securities 128,919 52,149

Trading, at fair value

Mortgage-related securities

Agency securities:

Freddie Mac 297 Discounted cash flows OAS (5) - 9,441 bps 364 bps

46 Other

Total Freddie Mac 9,349 343

Fannie Mae 191 Discounted cash flows OAS (2,257) - 2,295 bps 199 bps

30 Other

Total Fannie Mae 7,180 221

Ginnie Mae 74 Median of external sources

Total Ginnie Mae 98 74

Other 7 Single external source

1 Other

Total other 141 8

Total trading mortgage-related securities 16,768 646

Total investments in securities $ 145,687 $ 52,795

Other assets:

Guarantee asset, at fair value 1,163 Discounted cash flows OAS 16 - 202 bps 53 bps

448 Median of external sources External pricing sources $11.6 - $25.4 $ 19.2

Total guarantee asset, at fair value 1,611 1,611

All other, at fair value 9 Other

Total all other, at fair value 9 9

Total other assets 1,620 1,620

Liabilities

Other debt, at fair value 1,000 Single external source External pricing source $100.0 - $100.0 $ 100.0

528 Median of external sources External pricing sources $100.0 - $100.1 100.0

Total other debt recorded at fair value 2,683 1,528

Net derivatives 283 Single external source External pricing source $0.8 - $0.8 $ 0.8

37 Discounted cash flows

5 Other

Total net derivatives (883) 325

Table of Contents
261 Freddie Mac

December 31, 2012

Total

Fair

Value

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs(1)

Type Range

Weighted

Average

(dollars in millions)

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Agency securities:

Freddie Mac $ 1,477 Risk metric Effective duration(2) 0.89 -1.98 years 0.89 years

325 Other

Total Freddie Mac $ 58,515 1,802

Fannie Mae 78 Median of external sources External pricing sources $103.9 - $106.0 $ 105.2

65 Single external source External pricing source $116.0 - $116.0 $ 116.0

20 Other

Total Fannie Mae 15,280 163

Ginnie Mae 8 Discounted cash flows

8 Median of external sources

Total Ginnie Mae 209 16

CMBS 2,462 Single external source External pricing source $99.4 - $99.4 $ 99.4

432 Risk metric Effective duration(2) 9.3 -14.8 years 12.0 years

535 Other

Total CMBS 51,307 3,429

Subprime, option ARM, and Alt-A:

Subprime 24,890 Median of external sources External pricing sources $54.4 - $64.4 $ 59.2

1,567 Other

Total subprime 26,457 26,457

Option ARM 5,631 Median of external sources External pricing sources $43.8 - $52.6 $ 47.9

86 Other

Total option ARM 5,717 5,717

Alt-A and other 8,562 Median of external sources External pricing sources $69.6 - $77.9 $ 73.8

1,901 Single external source External pricing source $71.8 - $71.8 $ 71.8

441 Other

Total Alt-A and other 10,904 10,904

Obligations of states and political subdivisions 5,533 Median of external sources External pricing sources $102.3 - $103.2 $ 102.7

265 Other

Total obligations of states and political subdivisions 5,798 5,798

Manufactured housing 693 Median of external sources External pricing sources $80.0 - $85.5 $ 82.8

16 Other

Total manufactured housing 709 709

Total available-for-sale mortgage-related 174,896 54,995

Trading, at fair value

Mortgage-related securities

Agency securities:

Freddie Mac 1,112 Discounted cash flows OAS (33,702) - 3,251 bps 502 bps

53 Other

Total Freddie Mac 10,354 1,165

Fannie Mae 312 Discounted cash flows OAS (1,263) - 3,251 bps 810 bps

Total Fannie Mae 10,338 312

Ginnie Mae 87 Median of external sources

5 Other

Total Ginnie Mae 131 92

Other 12 Discounted cash flows

9 Median of external sources

Total other 156 21

Total trading mortgage-related securities 20,979 1,590

Total investments in securities $ 195,875 $ 56,585

Mortgage loans:

Held-for-sale, at fair value $ 14,238 $ 14,238 Discounted cash flows DSCR 1.25 - 6.88 1.97

Current LTV 19% - 80% 69%

Other assets:

Guarantee asset, at fair value 870 Discounted cash flows OAS 0 - 368 bps 55 bps

159 Other

Total guarantee asset, at fair value 1,029 1,029

All other, at fair value 112 Discounted cash flows Prepayment rate 7.73% -39.87% 21.23%

Servicing income per loan 0.19% - 0.52% 0.25%

Cost to service per loan $78 - $354 $ 141

2 Other

Total all other, at fair value 114 114

Total other assets 1,143 1,143

Liabilities

Other debt, at fair value 1,188 Median of external sources External pricing sources $101.7 - $102.0 $ 101.7

999 Single external source External pricing source $99.9 - $99.9 $ 99.9

Total other debt recorded at fair value 2,187 2,187

Net derivatives (479) 47 Other

(1) Certain unobservable input types, range, and weighted average data are not disclosed in this table if they are associated with a class: (a) that has a Level 3 fair 

value measurement that is not considered material; or (b) where we have disclosed the predominant valuation technique with related unobservable inputs for 

the most significant portion of that class.

(2) Effective duration is used as a proxy to represent the aggregate impact of key rate durations.

Table of Contents
262 Freddie Mac

The table below provides valuation techniques, the range, and the weighted average of significant unobservable inputs for 

assets and liabilities measured in our consolidated balance sheets at fair value on a non-recurring basis using unobservable 

inputs (Level 3) as of December 31, 2013 and 2012.

Table 16.5 — Quantitative Information about Non-Recurring Level 3 Fair Value Measurements

December 31, 2013

Total

Fair

Value

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs(1)

Type Range

Weighted

Average

(dollars in millions)

Non-recurring fair value

measurements

Mortgage loans

Held-for-investment $ 298 Income capitalization Capitalization rates(2) 6% - 9% 7%

217 Third-party appraisal Property value $4 million -

 $44 million

$27 million

Total held-for-investment $ 515 515

REO, net 1,837 Internal model(3) Historical average sales

proceeds per property

by state(4)

$17,500 -

$318,391

$ 105,508

Total REO, net 1,837 1,837

December 31, 2012

Total

Fair

Value

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs(1)

Type Range

Weighted

Average

(dollars in millions)

Non-recurring fair value

measurements

Mortgage loans

Held-for-investment $ 711 Income capitalization Capitalization rates(2) 5% - 9% 7%

314 Third-party appraisal Property value $2 million -

 $43 million

$21 million

Total held-for-investment $ 1,025 1,025

REO, net 771 Internal model(3) Historical average sales

proceeds per property

by state(4)

$32,186 -

 $356,397

$102,697

5 Other

Total REO, net 776 776

(1) Certain unobservable input types, range, and weighted average data are not disclosed in this table if they are associated with a class: (a) that has a 

Level 3 fair value measurement that is not considered material; or (b) where we have disclosed the predominant valuation technique with related 

unobservable inputs for the most significant portion of that class.

(2) The capitalization rate “Range” and “Weighted Average” represent those loans that are valued using the Income Capitalization approach, which is the 

predominant valuation technique used for this population. Certain loans in this population are valued using other techniques, and the capitalization rate 

for those is not represented in the “Range” or “Weighted Average” above.

(3) Represents an internal model that uses actual REO disposition prices for the prior three months, calibrated to the most recent month's disposition prices, 

to determine the average sales proceeds per property at the state level, expressed as a fixed percentage based on the ratio of the disposition price to the 

UPB of the associated loan. This valuation technique is used to measure both the initial value of REO and the subsequent write-down to current fair 

value.

(4) Represents the average of three months of REO sales proceeds by state. The national average REO disposition severity ratio for our REO properties 

was 35.8% and 39.5% for the years ended December 31, 2013 and 2012, respectively.

Fair Value of Financial Instruments

The table below presents the carrying value and estimated fair value of our financial instruments as of December 31, 

2013 and 2012.

Table of Contents
263 Freddie Mac

Table 16.6 — Fair Value of Financial Instruments

December 31, 2013

Fair Value

Carrying Amount(1) Level 1 Level 2 Level 3 Netting Adjustments Total

(in millions)

Financial Assets

Cash and cash equivalents $ 11,281 $ 7,360 $ 3,921 $ — $ — $ 11,281

Restricted cash and cash equivalents 12,265 12,264 1 — — 12,265

Federal funds sold and securities purchased

under agreements to resell 62,383 — 62,383 — — 62,383

Investments in securities:

Available-for-sale, at fair value 128,919 — 76,770 52,149 — 128,919

Trading, at fair value 23,404 6,636 16,122 646 — 23,404

Total investments in securities 152,323 6,636 92,892 52,795 — 152,323

Mortgage loans:

Mortgage loans held by consolidated trusts 1,529,905 — 1,258,049 249,693 — 1,507,742

Unsecuritized mortgage loans 154,885 — 16,145 122,065 — 138,210

Total mortgage loans(2) 1,684,790 — 1,274,194 371,758 — 1,645,952

Derivative assets, net 1,063 — 14,220 11 (13,168) 1,063

Guarantee asset 1,611 — — 1,879 — 1,879

Total financial assets $ 1,925,716 $ 26,260 $ 1,447,611 $ 426,443 $ (13,168) $ 1,887,146

Financial Liabilities

Debt, net:

Debt securities of consolidated trusts held

by third parties $ 1,433,984 $ — $ 1,435,894 $ 1,004 $ — $ 1,436,898

Other debt 506,767 — 499,756 13,089 — 512,845

Total debt, net 1,940,751 — 1,935,650 14,093 — 1,949,743

Derivative liabilities, net 180 — 13,291 336 (13,447) 180

Guarantee obligation 1,522 — — 3,067 — 3,067

Total financial liabilities $ 1,942,453 $ — $ 1,948,941 $ 17,496 $ (13,447) $ 1,952,990

December 31, 2012

Fair Value

Carrying Amount(1) Level 1 Level 2 Level 3 Netting Adjustments Total

(in millions)

Financial Assets

Cash and cash equivalents $ 8,513 $ 8,513 $ — $ — $ — $ 8,513

Restricted cash and cash equivalents 14,592 14,576 16 — — 14,592

Federal funds sold and securities purchased

under agreements to resell 37,563 — 37,563 — — 37,563

Investments in securities:

Available-for-sale, at fair value 174,896 — 119,901 54,995 — 174,896

Trading, at fair value 41,492 20,221 19,681 1,590 — 41,492

Total investments in securities 216,388 20,221 139,582 56,585 — 216,388

Mortgage loans:

Mortgage loans held by consolidated trusts 1,495,932 — 1,130,438 409,722 — 1,540,160

Unsecuritized mortgage loans 190,415 — 16,428 151,175 — 167,603

Total mortgage loans 1,686,347 — 1,146,866 560,897 — 1,707,763

Derivative assets, net 657 64 24,109 20 (23,536) 657

Guarantee asset 1,029 — — 1,325 — 1,325

Total financial assets $ 1,965,089 $ 43,374 $ 1,348,136 $ 618,827 $ (23,536) $ 1,986,801

Financial Liabilities

Debt, net:

Debt securities of consolidated trusts held

by third parties $ 1,419,524 $ — $ 1,484,228 $ 2,867 $ — $ 1,487,095

Other debt 547,518 — 546,955 18,646 — 565,601

Total debt, net 1,967,042 — 2,031,183 21,513 — 2,052,696

Derivative liabilities, net 178 8 31,014 67 (30,911) 178

Guarantee obligation 1,004 — — 2,487 — 2,487

Total financial liabilities $ 1,968,224 $ 8 $ 2,062,197 $ 24,067 $ (30,911) $ 2,055,361

(1) Equals the amount reported on our GAAP consolidated balance sheets.

(2) The fair value of single-family mortgage loans as of December 31, 2013 includes the effect of a change in estimate related to enhancements 

implemented to align our economic capital methodology with external capital benchmarks.

Valuation Techniques for Assets and Liabilities Not Measured in Our Consolidated Balance Sheets at Fair Value, but for

Which the Fair Value is Disclosed

Table of Contents
264 Freddie Mac

The following is a description of the valuation techniques we use for items not measured in our consolidated balance 

sheets at fair value , but for which the fair value is disclosed, the significant inputs used in those techniques (if applicable), and 

our basis for classifying the measurements as Level 1, Level 2, or Level 3 of the valuation hierarchy. Each technique discussed 

below may not be used in a given reporting period, depending on the composition of our assets and liabilities measured at fair 

value and relevant market activity during that period.

Cash and Cash Equivalents (including Restricted Cash and Cash Equivalents)

Cash and cash equivalents (including restricted cash and cash equivalents) largely consist of highly liquid investment 

securities with an original maturity of three months or less used for cash management purposes, as well as cash held at financial 

institutions and cash collateral posted by our derivative counterparties. Given that these assets are short-term in nature with 

limited market value volatility, the carrying amount on our GAAP consolidated balance sheets is deemed to be a reasonable 

approximation of fair value. Cash and restricted cash are classified as Level 1. Cash equivalents (including restricted cash 

equivalents) are primarily classified as Level 2 because we use observable inputs other than quoted prices in active markets for 

identical assets to determine the fair value measurement. However, cash equivalents (including restricted cash equivalents) for 

which we can obtain quoted prices in active markets for identical assets are classified as Level 1.

Federal Funds Sold and Securities Purchased Under Agreements to Resell

Federal funds sold and securities purchased under agreements to resell principally consist of short-term contractual 

agreements such as reverse repurchase agreements involving Treasury and agency securities and federal funds sold. Given that 

these assets are short-term in nature, the carrying amount on our GAAP consolidated balance sheets is deemed to be a 

reasonable approximation of fair value. Federal funds sold and securities purchased under agreements to resell are classified as 

Level 2 because these assets have observable market pricing, but quoted prices for identical assets are not available.

Mortgage Loans

Single-family and certain multifamily mortgage loans are classified as held-for-investment and recorded at amortized 

cost. Other multifamily mortgage loans that are held for investment are recorded at the fair value of the underlying collateral 

upon impairment. Multifamily held-for-sale mortgage loans are recorded at fair value due to the election of the fair value 

option.

Single-Family Loans

Determination of Principal Market

In determining the fair value of single-family mortgage loans, valuation outcomes can vary widely based on management 

judgments and decisions used in determining: (a) the principal market; (b) modeling assumptions, including default, severity, 

home prices, and risk premiums; and (c) inputs used to determine variables including risk premiums, credit costs, security 

pricing, and implied management and guarantee fees. Our principal markets include the GSE securitization market and the 

whole loan market. To determine the principal market, we considered the market with the greatest volume and level of activity 

and our ability to access that market. In the absence of a market with active trading, we determined the market that would 

maximize the amount we would receive upon sale. We determined that the principal market is the whole loan market for loans 

that: (a) are four or more months delinquent; (b) are in foreclosure; (c) have completed a HAMP loan modification; (d) have 

completed a non-HAMP loan modification but have not been current for at least 12 consecutive months; or (e) have been 

modified through a process that included forbearance on a portion of the outstanding balance. The total UPB of loans where the 

whole loan market is the principal market was approximately $101.2 billion and $110.0 billion as of December 31, 2013 and 

2012, respectively. We determined that the principal market for all other loans, regardless of whether the loan is currently 

securitized or whether the loan is eligible for purchase under current underwriting standards, is the GSE securitization market. 

The total UPB of loans where the GSE securitization market is the principal market was approximately $1.5 trillion as of both 

December 31, 2013 and 2012.

Whole Loan Market as Principal Market

Loans where we determine that the principal market is the whole loan market are valued using the median of external 

sources. Under the median of external sources technique, prices for single-family loans are obtained from multiple dealers. 

These dealers reference market activity for deeply delinquent and modified loans, where available, and use internal models and 

their judgment to determine default rates, severity rates, home prices, and risk premiums. Single-family mortgage loans valued 

using this technique are classified as Level 3 due to the low volume and level of activity in this market.

GSE Securitization Market as Principal Market

Loans where we determine that the principal market is the GSE securitization market are valued using the build-up 

technique. Under the build-up technique, the fair value of single-family mortgage loans is based on the estimate of the price we 

would receive if we were to securitize the loans. These loans are valued by starting with benchmark security pricing for 

actively traded mortgage-related securities with similar characteristics; adding in the value of our management and guarantee 

fee, which is the compensation we receive for performing our management and guarantee activities; and subtracting the value 

of the credit obligation related to performing our guarantee.

Table of Contents
265 Freddie Mac

The security price is based on benchmark security pricing for similar actively traded mortgage-related securities, adjusted 

as necessary based on security characteristics. This security pricing process is consistent with our approach for valuing similar 

securities retained in our investment portfolio or issued as debt to third parties. See “Valuation Techniques for Assets and 

Liabilities Measured in Our Consolidated Balance Sheets at Fair Value — Investments in Securities.”

The management and guarantee fee is valued by estimating the present value of the additional cash flows related to our 

management and guarantee fee. The management and guarantee fees for the majority of our loans are valued using third-party 

dealer prices on hypothetical interest-only securities based on collateral characteristics from our single-family credit guarantee 

portfolio. For loans where third-party market data is not readily available, we use a discounted cash flow approach, leveraging 

the dealer prices received for the majority of our loans and including only those cash flows related to our management and 

guarantee fee.

The credit obligation related to performing our guarantee is valued by estimating the fair value of the related credit and 

other costs (such as general and administrative expenses) and benefits (such as credit enhancements) inherent in our guarantee 

obligation. For loans that qualify for purchase under current underwriting standards, we use the delivery and guarantee fees that 

we charge under our current market pricing as a market observation. For loans that do not qualify for purchase based on current 

underwriting standards, we use our internal credit models, which incorporate factors such as loan characteristics, loan 

performance status information, expected losses, and risk premiums.

Single-family mortgage loans that qualify for purchase under current underwriting standards are classified as Level 2 as 

the significant inputs used for the valuation of these loans, such as security pricing, our externally published credit pricing 

matrices, and third-party prices used in valuing the management and guarantee fee, are observable, while the unobservable 

inputs, such as general and administrative expenses and credit enhancements, are not significant to the fair value measurement. 

Single-family mortgage loans that do not qualify for purchase under current underwriting standards are classified as Level 3 as 

the credit cost is based on our internal credit models which use unobservable inputs that are significant to the fair value 

measurement.

HARP Loans

For loans that have been refinanced under HARP, we value our guarantee obligation using the delivery and guarantee fees 

currently charged by us under that initiative. HARP loans valued using this technique are classified as Level 2, as the fees 

charged by us are observable. If, subsequent to delivery, the refinanced loan no longer qualifies for purchase based on current 

underwriting standards (such as becoming past due or being modified), the fair value of the guarantee obligation is then 

measured using: (a) our internal credit models; or (b) the median of external sources, if the loan’s principal market has changed 

to the whole loan market. HARP loans valued using either of these techniques are classified as Level 3 as significant inputs are 

unobservable. The majority of our HARP loans are classified as Level 2.

The total compensation that we receive for the delivery of a HARP loan reflects the pricing that we are willing to offer 

because HARP is a part of a broader government program intended to provide assistance to homeowners and prevent 

foreclosures. When HARP ends (currently scheduled for December 31, 2015), the beneficial pricing afforded to HARP loans 

will no longer be reflected in our delivery and guarantee fee pricing structure. If these benefits were not reflected in the pricing 

for these loans, the fair value of our mortgage loans would have decreased by $18.5 billion and $11.2 billion as of 

December 31, 2013 and 2012, respectively. The total fair value of the loans in our portfolio that reflects the pricing afforded to 

HARP loans as of December 31, 2013 and 2012 as presented in our consolidated fair value balance sheets is $145.0 billion and 

$153.1 billion, respectively.

Multifamily Loans

For a discussion of the techniques used to determine the fair value of held-for-sale and impaired held-for-investment 

multifamily mortgage loans, see “Valuation Techniques for Assets and Liabilities Measured in Our Consolidated Balance 

Sheets at Fair Value — Mortgage Loans, Held-for-Sale” and “— Mortgage Loans, Held-for-Investment,” respectively. Nonimpaired multifamily mortgage loans are primarily valued using market prices from a third-party pricing service that uses a 

discounted cash-flow technique. Under this technique, the pricing service forecasts cash flows for the various mortgage loans 

and discounts them at a market rate, including a spread that is based on pricing data obtained from purchases and sales of 

similar mortgage loans, adjusted based on the mortgage's current LTV ratio and DSCR. The significant unobservable inputs 

used in the fair value measurement of these loans are the current LTV ratio and DSCR. These loans are classified as Level 3 as 

significant inputs used in the fair value measurement are unobservable.

Total Debt, Net

Total debt, net represents debt securities of consolidated trusts held by third parties and other debt that we issued to 

finance our assets. On our consolidated GAAP balance sheets, total debt, net, excluding debt securities for which the fair value 

option has been elected, is reported at amortized cost, which is net of deferred items, including premiums, discounts, and 

hedging-related basis adjustments.

For debt securities of consolidated trusts, the valuation techniques we use are similar to the techniques we use to value 

our investments in agency securities for GAAP purposes. See “Valuation Techniques for Assets and Liabilities Measured in Our 

Table of Contents
266 Freddie Mac

Consolidated Balance Sheets at Fair Value — Investments in Securities — Mortgage-Related Securities — Agency Securities” 

for additional information regarding the valuation techniques we use.

Other debt includes short-term zero-coupon discount notes, callable debt, and non-callable debt. Short-term zero-coupon 

discount notes are valued using a yield analysis technique. Under this technique, the debt instruments are valued using 

published yield matrices which are based on the days to maturity of the debt and converted into a price. Significant inputs used 

in this technique are the published yield matrices. Short-term zero-coupon discount notes are classified as Level 2 as the 

significant inputs used are observable in active markets. Other debt securities, including both callable and non-callable debt, are 

valued using a single external source or median of external sources. These debt securities generally have observable market 

pricing and are classified as Level 2. However, certain other debt securities are classified as Level 3 when there is a low volume 

or level of activity in the market for those types of debt securities.

Total debt, net for which we have elected the fair value option includes certain debt securities of consolidated trusts held 

by third parties and certain other debt. We report these items at fair value on our GAAP consolidated balance sheets. See 

“Valuation Techniques for Assets and Liabilities Measured in Our Consolidated Balance Sheets at Fair Value — Debt Securities 

of Consolidated Trusts Held by Third Parties, at Fair Value” and “— Other Debt, at Fair Value” for additional information.

Guarantee Obligation

Our guarantee obligation is classified as Level 3 as significant inputs used in the fair value measurement are 

unobservable. The technique for estimating the fair value of our guarantee obligation is described in the “Mortgage Loans — 

Single-Family Loans” section above.

Fair Value Option

We elected the fair value option for certain types of investments in securities, multifamily held-for-sale mortgage loans, 

and certain debt.

Investments in Securities

We elected the fair value option for certain mortgage-related securities to better reflect the natural offset these securities 

provide to fair value changes recorded historically on our guarantee asset at the time of our election. In addition, upon adoption 

of the accounting guidance for the fair value option, we elected this option for securities within the scope of the accounting 

guidance for investments in beneficial interests in securitized financial assets to better reflect any valuation changes that would 

occur subsequent to impairment write-downs previously recorded on these instruments. Related interest income continues to be 

reported as interest income in our consolidated statements of comprehensive income. See “NOTE 1: SUMMARY OF 

SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities” for additional information about the measurement 

and recognition of interest income on investments in securities. 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 (loss) on 

trading securities within “Table 13.2 — Segment Earnings and Reconciliation to GAAP Results."

Multifamily Held-For-Sale Mortgage Loans

We elected the fair value option for multifamily mortgage loans that were purchased for securitization. These multifamily 

mortgage loans are classified as held-for-sale mortgage loans in our consolidated balance sheets to reflect our intent to sell in 

the future. Related interest income continues to be reported as interest income in our consolidated statements of comprehensive 

income. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Mortgage Loans” for additional 

information about the measurement and recognition of interest income on our mortgage loans.

Debt Securities of Consolidated Trusts Held by Third Parties

We elected the fair value option for certain debt securities of consolidated trusts held by third parties. These consist of 

certain multifamily K Certificates where we are in a first loss position and certain REMIC interest-only mortgage-related debt 

securities. We elected the fair value option on these debt instruments as they contain embedded derivatives that require 

bifurcation. Fair value changes for debt securities of consolidated trusts held by third parties are recorded in other income in 

our consolidated statements of comprehensive income. Related interest expense continues to be reported as interest expense in 

our consolidated statements of comprehensive income. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING 

POLICIES — Debt Securities Issued” for additional information about the measurement and recognition of interest expense on 

debt securities issued.

Other Debt

We elected the fair value option on: (a) STACR debt notes; (b) extendible variable-rate notes containing quarterly options 

for investors to extend the maturity of the notes; and (c) foreign-currency denominated debt. We elected the fair value option 

for STACR debt notes and extendible variable-rate notes as they contain potential embedded derivatives requiring bifurcation. 

In the case of foreign-currency denominated debt, we entered into derivative transactions that effectively converted these 

instruments to U.S. dollar denominated floating rate instruments. We elected the fair value option on these debt instruments to 

better reflect the economic offset that naturally results from the debt due to changes in interest rates. Fair value changes for debt 

for which we have elected the fair value option are recorded in other income in our consolidated statements of comprehensive 

Table of Contents
267 Freddie Mac

income. Related interest expense continues to be reported as interest expense in our consolidated statements of comprehensive 

income. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Debt Securities Issued” for additional 

information about the measurement and recognition of interest expense on debt securities issued.

The table below presents the fair value and UPB related to certain items for which we have elected the fair value option 

at December 31, 2013 and 2012.

Table 16.7 — Difference between Fair Value and Unpaid Principal Balance for Certain Financial Instruments with Fair

Value Option Elected

December 31,

2013 2012

Multifamily

Held-For-Sale

Mortgage Loans

Other Debt -

Long Term

Multifamily

Held-For-Sale

Mortgage Loans

Other Debt -

Long Term

(in millions)

Fair value $ 8,727 $ 2,683 $ 14,238 $ 2,187

Unpaid principal balance 8,721 2,635 13,972 2,167

Difference $ 6 $ 48 $ 266 $ 20

Changes in Fair Value under the Fair Value Option Election

We recorded gains (losses) of $(0.3) billion, $1.0 billion and $0.8 billion for the years ended December 31, 2013, 2012, 

and 2011, respectively, from the change in fair value on multifamily held-for-sale mortgage loans recorded at fair value in other 

income in our consolidated statements of comprehensive income.

Gains (losses) on debt securities with the fair value option elected were $(37) million, $16 million, and $91 million for 

the years ended December 31, 2013, 2012, and 2011, 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, 

2013, 2012, or 2011 for any assets or liabilities for which we elected the fair value option.

NOTE 17: LEGAL CONTINGENCIES

We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in the ordinary 

course of business including, among other things, contractual disputes, personal injury claims, employment-related litigation 

and other legal proceedings incidental to our business. We are frequently involved, directly or indirectly, in litigation involving 

mortgage foreclosures. From time to time, we are also involved in proceedings arising from our termination of a seller/

servicer’s eligibility to sell mortgages to, and/or service mortgages for, us. In these cases, the former seller/servicer sometimes 

seeks damages against us for wrongful termination under a variety of legal theories. In addition, we are sometimes sued in 

connection with the origination or servicing of mortgages. These suits typically involve claims alleging wrongful actions of 

seller/servicers. Our contracts with our seller/servicers generally provide for indemnification against liability arising from their 

wrongful actions with respect to mortgages sold to or serviced for Freddie Mac.

Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. In 

accordance with the accounting guidance for contingencies, we reserve for litigation claims and assessments asserted or 

threatened against us when a loss is probable (as defined in such guidance) and the amount of the loss can be reasonably 

estimated.

During 2013, we paid approximately $10 million for the advancement of legal fees and expenses of former officers 

pursuant to our indemnification obligations to them. These fees and expenses related to certain of the matters described below, 

and are being partially offset by insurance payments. This figure does not include certain administrative support costs and 

certain costs related to document production and storage.

Putative Securities Class Action Lawsuits

Ohio Public Employees Retirement System (“OPERS”) vs. Freddie Mac, Syron, et al. This putative securities class action 

lawsuit was filed against Freddie Mac and certain former officers on January 18, 2008 in the U.S. District Court for the 

Northern District of Ohio purportedly on behalf of a class of purchasers of Freddie Mac stock from August 1, 2006 through 

November 20, 2007. FHFA later intervened as Conservator. The plaintiff alleges that the defendants violated federal securities 

laws by making false and misleading statements concerning our business, risk management, and the procedures we put into 

place to protect the company from problems in the mortgage industry. The plaintiff seeks unspecified damages and interest, and 

reasonable costs and expenses, including attorney and expert fees. The plaintiff amended its complaint on several occasions. 

Defendants filed motions to dismiss the second and third amended complaints, which the Court denied. On April 13, 2013, the 

judge who had presided over the case since 2008 recused himself, and the case was reassigned to a new judge. On August 23, 

2013, the new judge granted defendants' motion to vacate the previous judge's orders denying defendants' motions to dismiss. 

Defendants filed new motions to dismiss the complaint on October 8, 2013. 

Table of Contents
268 Freddie Mac

At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect on our business, 

financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible loss or 

range of possible loss in the event of an adverse judgment in the foregoing matter due to the following factors, among others: 

the inherent uncertainty of pre-trial litigation; the fact that the Court has not yet ruled upon defendants' new motion to dismiss 

the complaint; and the fact that the Court has not yet ruled upon motions for class certification or summary judgment. In 

particular, absent the certification of a class, the identification of a class period, and the identification of the alleged statement 

or statements that survive dispositive motions, we cannot reasonably estimate any possible loss or range of possible loss.

Kuriakose vs. Freddie Mac, Syron, Piszel and Cook. Another putative class action lawsuit was filed against Freddie Mac 

and certain former officers on August 15, 2008 in the U.S. District Court for the Southern District of New York for alleged 

violations of federal securities laws. The case is purportedly brought on behalf of a class of purchasers of Freddie Mac stock 

from November 21, 2007 through September 7, 2008. FHFA later intervened as Conservator. The plaintiffs claimed that 

defendants made false and misleading statements about Freddie Mac’s business that artificially inflated the price of Freddie 

Mac’s common stock, and sought unspecified damages, costs, and attorneys’ fees. The plaintiffs twice amended their 

complaint, and sought leave to amend a third time. On September 24, 2012, the Court granted with prejudice defendants’

motions to dismiss plaintiffs’ second amended complaint in its entirety, denied plaintiffs’ motion to file a third amended 

complaint, and directed that the case be closed. Judgment was entered in favor of the defendants on September 27, 2012. On 

October 26, 2012, plaintiffs filed a notice of appeal in the U.S. Court of Appeals for the Second Circuit. By order dated 

November 5, 2013, the U.S. Court of Appeals for the Second Circuit affirmed the District Court's decisions granting 

defendants' motions to dismiss and denying plaintiffs' motion to file a third amended complaint. On November 19, 2013, 

plaintiffs filed a petition for panel rehearing, which was denied. 

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 the appellate process, including the outcome of any petition for certiorari; the inherent uncertainty of 

pre-trial litigation in the event the case is ultimately remanded to the District Court in whole or in part; and the fact that the 

parties have not briefed and the District Court has not yet ruled upon motions for class certification or summary judgment. In 

particular, absent resolution of the appellate process, the certification of a class, the identification of a class period, and the 

identification of the alleged statement or statements that survive dispositive motions, we cannot reasonably estimate any 

possible loss or range of possible loss.

Related Third Party Litigation and Indemnification Requests

On December 16, 2011, the SEC announced that it had charged three former executives of Freddie Mac with securities 

laws violations. These executives are former Chairman of the Board and Chief Executive Officer Richard F. Syron, former 

Executive Vice President and Chief Business Officer Patricia L. Cook, and former Executive Vice President for the singlefamily guarantee business Donald J. Bisenius.

On September 23, 2008, a plaintiff filed a putative class action securities lawsuit in the U.S. District Court for the 

Southern District of New York styled Mark vs. Goldman, Sachs & Co., J.P. Morgan Chase & Co., and Citigroup Global 

Markets Inc. On January 29, 2009, another plaintiff filed a putative class action lawsuit in the same Court styled Kreysar vs. 

Syron, et al. The cases, which were subsequently consolidated by the Court, concern the company’s November 29, 2007 public 

offering of $6 billion of 8.375% Fixed to Floating Rate Non-Cumulative Perpetual Preferred Stock.

In the consolidated complaint, plaintiffs alleged that three former Freddie Mac officers (including Syron and former 

Executive Vice President and Chief Financial Officer Anthony S. Piszel), certain underwriters and Freddie Mac’s auditor 

violated federal securities laws by making material false and misleading statements in connection with the company’s 

November 2007 public offering. The complaint further alleged that certain defendants and others made additional false 

statements following the offering. After a series of motions and amendments to the complaint, only Syron and Piszel remain as 

defendants.

The plaintiffs moved for class certification, which motion was ultimately denied by the Court. On May 31, 2012, the U.S. 

Court of Appeals for the Second Circuit denied plaintiffs’ motion for leave to appeal on an interlocutory basis the denial of 

class certification. In August 2012, plaintiffs sought leave to file another motion for class certification, which request the Court 

denied on September 25, 2012.

Freddie Mac is not named as a defendant in the consolidated lawsuit, but the underwriters previously gave notice to 

Freddie Mac of their intention to seek full indemnity and contribution under the underwriting agreement in this case, including 

reimbursement of fees and disbursements of their legal counsel. At present, it is not possible for us to predict the probable 

outcome of the lawsuit or any potential effect on our business, financial condition, liquidity, or results of operations. In 

addition, we are unable to reasonably estimate the possible loss or range of possible loss in the event of an adverse judgment in 

the foregoing matter due to the inherent uncertainty of litigation and the fact that plaintiffs may appeal the denial of class 

certification. Absent the certification of a specified class, the identification of a class period, and the identification of the 

Table of Contents
269 Freddie Mac

alleged statement or statements that survive dispositive motions, we cannot reasonably estimate any possible loss or range of 

possible loss.

Two other lawsuits have been filed against certain underwriters of the company’s November 2007 public offering. 

Plaintiffs in the cases generally allege that the underwriters made materially misleading statements and omissions in connection 

with the offering. Freddie Mac is not named as a defendant in either lawsuit. On July 6, 2011, a lawsuit styled Liberty Mutual 

Insurance Company, Peerless Insurance Company, Employers Insurance Company of Wausau, Safeco Corporation and Liberty 

Life Assurance Company of Boston vs. Goldman, Sachs & Co. was filed in the U.S. District Court for Massachusetts. In a 

second lawsuit, Western and Southern Life Insurance Company and others asserted claims against GS Mortgage Securities 

Corp., Goldman Sachs Mortgage Company and Goldman Sachs & Co. in the Court of Common Pleas, Hamilton County, Ohio.

Lehman Bankruptcy

On September 15, 2008, Lehman Brothers Holdings Inc. ("Lehman") filed a chapter 11 bankruptcy petition in the U.S. 

Bankruptcy Court for the Southern District of New York. Thereafter, many of Lehman’s U.S. subsidiaries and affiliates also 

filed bankruptcy petitions (collectively, the “Lehman Entities”). Freddie Mac had numerous relationships with the Lehman 

Entities which gave rise to several claims. On September 22, 2009, Freddie Mac filed proofs of claim in the Lehman 

bankruptcies aggregating approximately $2.1 billion. On December 6, 2011, the Court confirmed Lehman’s chapter 11 plan of 

liquidation (the "Liquidation Plan"), which provides for the liquidation of the bankruptcy estate’s assets over the next three 

years. Our claims consist primarily of (a) a $1.2 billion claim (for which we asserted priority status) relating to losses incurred 

on short-term lending transactions with certain Lehman Entities; and (b) an $869 million unsecured claim relating to Lehman’s 

repurchase obligations for breaches of representations and warranties on single-family loans sold to us. The Liquidation Plan 

addressed these claims as follows:

• Short-term lending claim: The Liquidation Plan treated this claim as a senior unsecured claim, pursuant to which we 

would have ultimately received an estimated distribution of approximately 21% (or approximately $250 million). 

However, the Liquidation Plan left open for subsequent determination whether our claim would be accorded priority 

status, and the Lehman estate set aside $1.2 billion to pay our claim in full if, after litigation or settlement, it was 

allowed as a priority claim. On September 13, 2013, Lehman filed a motion to have the Court classify and allow the 

claim as a senior unsecured claim. Freddie Mac opposed the motion and, as a result, the issue of the proper 

classification of the claim was in litigation between the parties.

• Repurchase claim: The Liquidation Plan did not adjudge or allow this claim, but instead permitted claims allowance 

proceedings to continue. To the extent the claim was allowed, it would have been treated as a general unsecured claim, 

for which Freddie Mac would ultimately have received a distribution of approximately 19.9% of the allowed amount.

On February 12, 2014, Freddie Mac and Lehman entered into a settlement agreement, under which Lehman would pay us 

a lump sum of $767 million to resolve our claims. On February 19, 2014, the settlement was approved by the Court. 

Taylor, Bean & Whitaker and Ocala Funding, LLC Bankruptcies

On August 24, 2009, TBW, which had been one of our single-family seller/servicers, filed for bankruptcy in the U.S. 

Bankruptcy Court for the Middle District of Florida. We entered into a settlement regarding the TBW bankruptcy in 2011. 

However, we continue to be involved in certain matters relating to the TBW bankruptcy, as described below.

On July 10, 2012, Ocala Funding, LLC, or Ocala, which is a wholly owned subsidiary of TBW, filed for bankruptcy in 

the U.S. Bankruptcy Court for the Middle District of Florida. In connection with the bankruptcy filing, Ocala also filed a 

motion seeking an examination of and subsequent document discovery from Freddie Mac and FHFA, asserting that it has 

“viable, legitimate and valuable causes of action against Freddie Mac” to recover approximately $805 million of funds that 

were allegedly transferred from Ocala to Freddie Mac custodial accounts maintained by TBW, prior to the TBW bankruptcy. In 

its filings, Ocala also indicated that it wishes to use the examination to obtain information relating to whether it may have other 

claims against Freddie Mac relating to TBW’s fraudulent conduct prior to the TBW bankruptcy. In June 2013, the Court 

confirmed Ocala’s plan of liquidation. The plan established a liquidation trust, and authorizes it to investigate and initiate 

actions to recover on claims and causes of action, such as those asserted against Freddie Mac. Discovery is proceeding.

On or about May 14, 2010, certain underwriters at Lloyds, London and London Market Insurance Companies brought an 

adversary proceeding in the U.S. Bankruptcy Court for the Middle District of Florida against TBW, Freddie Mac and other 

parties seeking a declaration rescinding $90 million of mortgage bankers bonds providing fidelity and errors and omissions 

insurance coverage. Several excess insurers on the bonds thereafter filed similar claims in that action. Freddie Mac has filed a 

proof of loss under the bonds. The underwriters moved for partial summary judgment against Freddie Mac in April 2013. 

Discovery is proceeding. We are unable at this time to estimate our potential recovery, if any, in this case.

IRS Litigation

In 2010 and 2011, we received Statutory Notices from the IRS assessing a total of $3.0 billion of additional income taxes 

and penalties for the 1998 to 2007 tax years. We filed a petition with the U.S. Tax Court on October 22, 2010 in response to the 

Statutory Notices for the 1998 to 2005 tax years and, in 2012, paid the tax assessed in the Statutory Notices for the years 2006 

and 2007 of $36 million. In the fourth quarter of 2012 we reached an agreement in principle with the IRS for all years, 

Table of Contents
270 Freddie Mac

including 2006 and 2007, to favorably resolve the matters in dispute and reduced the previously unrecognized tax benefits to 

zero. We are currently working with the IRS to finalize the stipulation of settled issues and closing agreement, and expect that a 

final decision can be entered within the next 12 months.

Lawsuits Involving Real Estate Transfer Taxes

Beginning in 2011 in Michigan, counties in numerous states filed lawsuits challenging Freddie Mac and Fannie Mae’s 

statutory exemption from real estate transfer taxes imposed on the transfer of real property for which Freddie Mac or Fannie 

Mae was the grantor or grantee. Currently, approximately 30 lawsuits are pending in 16 states and the District of Columbia, 

including 19 appeals. We have received favorable rulings from district courts in 35 of the cases (seven of which have been 

affirmed on appeal), and the only unfavorable ruling was overturned on appeal in May 2013. Plaintiffs in these cases are 

generally seeking a declaration that Freddie Mac and Fannie Mae are not exempt from transfer taxes, damages for unpaid 

transfer taxes, as well as other items, which may include penalties, interest, liquidated penalties, pre-judgment interest, costs 

and attorneys’ fees. In these actions, FHFA, Freddie Mac and Fannie Mae assert that the enterprises are not liable for the 

transfer taxes based on federal statutory tax exemptions applicable to each.

At present, it is not possible for us to predict the probable outcome of the remaining lawsuits or any potential effect on 

our business, financial condition, liquidity, or results of operation. In addition, we are unable to reasonably estimate the 

possible loss or range of possible loss with respect to the remaining lawsuits due to the following factors, among others: 

(a) none of the plaintiffs have demanded a stated amount of damages they believe are due; and (b) discovery regarding the 

amount of damages has not yet been conducted.

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 suppressed 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 on July 22, 2013.

Litigation Concerning the Purchase Agreement

In July and September 2013, four lawsuits were filed against us in the U.S. District Court for the District of Columbia 

concerning the August 2012 amendment to the Purchase Agreement. It is possible that similar lawsuits will be filed in the 

future. The lawsuits are as follows:

• A putative class action lawsuit filed on July 29, 2013 styled Cacciapelle and Bareiss vs. Federal National Mortgage 

Association, Federal Home Loan Mortgage Corporation and FHFA;

• A putative class action lawsuit filed on July 30, 2013 styled American European Insurance Company vs. Federal 

National Mortgage Association, Federal Home Loan Mortgage Corporation and FHFA;

• A putative class action and shareholder derivative lawsuit filed on September 18, 2013 styled Marneu Holdings, Co. 

vs. FHFA, Treasury, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation; and

• A lawsuit filed on September 20, 2013 styled Arrowood Indemnity Company vs. Federal National Mortgage 

Association, Federal Home Loan Mortgage Corporation, FHFA and Treasury. 

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. Plaintiffs in the Arrowood lawsuit 

allege that they are holders of 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.) 

In the lawsuits, plaintiffs allege that the amendment to the Purchase Agreement in August 2012 (which implemented the 

net worth sweep dividend provisions of the senior preferred stock) 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 seek unspecified damages, equitable and injunctive relief, and costs and expenses, including 

attorney and expert fees. Plaintiffs in the Arrowood lawsuit also request that, if injunctive relief is 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 state is $42,297,500. 

Plaintiffs in the Marneu and Arrowood lawsuits also make certain claims against, and seek certain remedies from, 

Treasury and FHFA.

The Court consolidated three of the cases (Cacciapelle, American European Insurance Company and Marneu) together in 

a new case styled In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations. A

Table of Contents
271 Freddie Mac

consolidated amended complaint was filed on December 3, 2013. The consolidated amended complaint makes essentially the 

same allegations against Freddie Mac as the original complaints described above. FHFA, joined by Freddie Mac and Fannie 

Mae, moved to dismiss the consolidated complaint and the other related cases (including Arrowood) on January 17, 2014. 

Treasury filed a motion to dismiss the same day.

At present, it is not possible for us to predict the probable outcome of these lawsuits or any potential effect on our 

business, financial condition, liquidity, or results of 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 pre-trial litigation. In addition, with respect to the consolidated lawsuits, the plaintiffs have not 

demanded a stated amount of damages they believe are due and the Court has not certified a class.

We received a letter dated October 16, 2013 addressed to the Chief Executive Officer, the Board of Directors and the then 

Acting Director of FHFA, purportedly on behalf of holders of common stock and junior preferred stock of Freddie Mac. We 

received a similar letter dated January 6, 2014, and two more dated January 7, 2014, each on behalf of a plaintiff in the 

consolidated lawsuits. The letters demand that Freddie Mac commence legal action against the U.S. government to recover all 

losses sustained by Freddie Mac as a result of the August 2012 amendment to the Purchase Agreement. The letters also demand 

that Freddie Mac take action to terminate the August 2012 amendment to the Purchase Agreement. On January 15, 2014, FHFA

(as Conservator) informed the purported shareholders named in the October 16, 2013 letter that the Conservator does not intend 

to authorize Freddie Mac or its directors or officers on behalf of Freddie Mac to take the actions that such shareholders demand.

NOTE 18: REGULATORY CAPITAL

On October 9, 2008, FHFA announced that it was suspending capital classification of us during conservatorship in light 

of the Purchase Agreement. FHFA continues to closely monitor our capital levels, but the existing statutory and FHFA-directed 

regulatory capital requirements are not binding during conservatorship. We continue to provide quarterly submissions to FHFA

on minimum capital, but no longer provide submissions on risk-based capital.

Our regulatory minimum capital is a leverage-based measure that is generally calculated based on GAAP and reflects a 

2.50% capital requirement for on-balance sheet assets and a 0.45% capital requirement for off-balance sheet obligations. Based 

upon our adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of VIEs, we 

determined that, under the new consolidation guidance, we are the primary beneficiary of trusts that issue our single-family 

PCs and certain Other Guarantee Transactions and, therefore, effective January 1, 2010, we consolidated on our balance sheet 

the assets and liabilities of these trusts. Pursuant to regulatory guidance from FHFA, our minimum capital requirement was not 

affected by adoption of these amendments. Specifically, upon adoption of these amendments, FHFA directed us, for purposes of 

minimum capital, to continue reporting single-family PCs and certain Other Guarantee Transactions held by third parties using 

a 0.45% capital requirement. FHFA reserves the authority under the GSE Act to raise the minimum capital requirement for any 

of our assets or activities.

Regulatory Capital Standards

The GSE Act established minimum, critical, and risk-based capital standards for us, however per guidance received from 

FHFA we no longer are required to submit risk-based capital reports to FHFA.

Prior to our entry into conservatorship, those standards determined the amounts of core capital that we were to maintain 

to meet regulatory capital requirements. Core capital consisted of the par value of outstanding common stock (common stock 

issued less common stock held in treasury), the par value of outstanding non-cumulative, perpetual preferred stock, additional 

paid-in capital and retained earnings (accumulated deficit), as determined in accordance with GAAP.

Minimum Capital

The minimum capital standard required us to hold an amount of core capital that was generally equal to the sum of 2.50% 

of aggregate on-balance sheet assets and approximately 0.45% of the sum of our PCs held by third parties and other aggregate 

off-balance sheet obligations.

Critical Capital

The critical capital standard required us to hold an amount of core capital that was generally equal to the sum of 1.25% of 

aggregate on-balance sheet assets and approximately 0.25% of the sum of our PCs held by third parties and other aggregate offbalance sheet obligations.

Performance Against Regulatory Capital Standards

The table below summarizes our minimum capital requirements and deficits and net worth.

Table of Contents
272 Freddie Mac

Table 18.1 — Net Worth and Minimum Capital

December 31, 2013 December 31, 2012

(in millions)

GAAP net worth(1) $ 12,835 $ 8,827

Core capital (deficit)(2)(3) $ (59,495) $ (60,571)

Less: Minimum capital requirement(2) 21,404 22,063

Minimum capital surplus (deficit)(2) $ (80,899) $ (82,634)

(1) Net worth (deficit) represents the difference between our assets and liabilities under GAAP.

(2) Core capital and minimum capital figures for December 31, 2013 are estimates. FHFA is the authoritative source for our regulatory capital.

(3) Core capital excludes certain components of GAAP total equity (deficit) (i.e., AOCI and the liquidation preference of the senior preferred stock) as 

these items do not meet the statutory definition of core capital.

Following our entry into conservatorship and consistent with the objectives of conservatorship, we have focused our risk 

and capital management on, among other things, maintaining a positive balance of GAAP equity in order to reduce the 

likelihood that we will need to make additional draws on the Purchase Agreement with Treasury. The Purchase Agreement 

provides that, if FHFA determines as of quarter end that our liabilities have exceeded our assets under GAAP, Treasury will 

contribute funds to us in an amount at least equal to the difference between such liabilities and assets.

Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are and have 

been less than our obligations for a period of 60 days. FHFA has notified us that the measurement period for any mandatory 

receivership determination with respect to our assets and obligations would commence no earlier than the SEC public filing 

deadline for our quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA has 

advised us that, if, during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency 

amount under the Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination. If 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, 2013, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from 

Treasury under the Purchase Agreement. As of December 31, 2013, our aggregate funding received from Treasury under the 

Purchase Agreement was $71.3 billion. This aggregate funding amount does not include the initial $1 billion liquidation 

preference of senior preferred stock that we issued to Treasury in September 2008 as an initial commitment fee and for which 

no cash was received. We paid quarterly dividends of $5.8 billion, $7.0 billion, $4.4 billion, and $30.4 billion on the senior 

preferred stock in cash in March 2013, June 2013, September 2013, and December 2013, respectively, at the direction of the 

Conservator. 

Subordinated Debt Commitment

In October 2000, we announced our adoption of a series of commitments designed to enhance market discipline, liquidity 

and capital. In September 2005, we entered into a written agreement with FHFA that updated those commitments and set forth a 

process for implementing them. FHFA, as Conservator of Freddie Mac, has suspended the requirements in the September 2005 

agreement with respect to issuance, maintenance and reporting and disclosure of Freddie Mac subordinated debt during the 

term of conservatorship and thereafter until directed otherwise.

NOTE 19: SELECTED FINANCIAL STATEMENT LINE ITEMS

Settlement agreements primarily related to lawsuits regarding our investments in certain non-agency mortgage-related 

securities is a significant component of other income during 2013. For more information, see “NOTE 15: CONCENTRATION 

OF CREDIT AND OTHER RISKS — Non-Agency Mortgage-Related Security Issuers.”

The table below presents the significant components of other assets and other liabilities on our consolidated balance 

sheets.

Table of Contents
273 Freddie Mac

Table 19.1 — Significant Components of Other Assets and Other Liabilities on Our Consolidated Balance Sheets

December 31, 2013 December 31, 2012

(in millions)

Other assets:

Accounts and other receivables(1) $ 4,367 $ 10,091

Guarantee asset 1,611 1,029

All other 2,561 2,645

Total other assets $ 8,539 $ 13,765

Other liabilities:

Servicer liabilities $ 2,277 $ 3,304

Guarantee obligation 1,522 1,004

Accounts payable and accrued expenses 886 984

All other 807 807

Total other liabilities $ 5,492 $ 6,099

(1) Primarily consists of servicer receivables.

END OF CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES

Table of Contents
274 Freddie Mac

QUARTERLY SELECTED FINANCIAL DATA

(UNAUDITED)

2013

1Q 2Q 3Q 4Q Full-Year

(in millions, except share-related amounts)

Net interest income $ 4,265 $ 4,144 $ 4,276 $ 3,783 $ 16,468

Benefit (provision) for credit losses 503 623 1,138 201 2,465

Non-interest income (loss):

Derivative gains (losses) 375 1,362 (74) 969 2,632

Net impairments of available-for-sale securities recognized

in earnings (43) (44) (126) (1,297) (1,510)

Other non-interest income (loss) 70 (640) 1,889 6,078 7,397

Non-interest income (loss) 402 678 1,689 5,750 8,519

Non-interest expense:

Administrative expenses (432) (444) (455) (474) (1,805)

REO operations income (expense) (6) 110 79 (43) 140

Other non-interest expense (186) (164) (201) 127 (424)

Non-interest expense (624) (498) (577) (390) (2,089)

Income tax (expense) benefit 35 41 23,960 (731) 23,305

Net income $ 4,581 $ 4,988 $ 30,486 $ 8,613 $ 48,668

Total other comprehensive income (loss), net of taxes $ 2,390 $ (631) $ (49) $ 1,222 $ 2,932

Comprehensive income $ 6,971 $ 4,357 $ 30,437 $ 9,835 $ 51,600

Income (loss) attributable to common stockholders(1) $ (2,390) $ 631 $ 50 $ (1,822) $ (3,531)

Income (loss) per common share – basic and diluted(2) $ (0.74) $ 0.19 $ 0.02 $ (0.56) $ (1.09)

2012

1Q 2Q 3Q 4Q Full-Year

(in millions, except share-related amounts)

Net interest income $ 4,500 $ 4,386 $ 4,269 $ 4,456 $ 17,611

Benefit (provision) for credit losses (1,825) (155) (610) 700 (1,890)

Non-interest income (loss):

Derivative gains (losses) (1,056) (882) (488) (22) (2,448)

Net impairments of available-for-sale securities recognized

in earnings (564) (98) (267) (1,239) (2,168)

Other non-interest income 104 229 195 5 533

Non-interest income (loss) (1,516) (751) (560) (1,256) (4,083)

Non-interest expense:

Administrative expenses (337) (401) (401) (422) (1,561)

REO operations income (expense) (171) 30 49 33 (59)

Other non-interest expense (88) (165) (121) (199) (573)

Non-interest expense (596) (536) (473) (588) (2,193)

Income tax benefit 14 76 302 1,145 1,537

Net income $ 577 $ 3,020 $ 2,928 $ 4,457 $ 10,982

Total other comprehensive income (loss), net of taxes $ 1,212 $ (128) $ 2,702 $ 1,271 $ 5,057

Comprehensive income $ 1,789 $ 2,892 $ 5,630 $ 5,728 $ 16,039

Income (loss) attributable to common stockholders(1) $ (1,227) $ 1,212 $ 1,119 $ (3,178) $ (2,074)

Income (loss) per common share – basic and diluted(2) $ (0.38) $ 0.37 $ 0.35 $ (0.98) $ (0.64)

(1) For a discussion of how the change in the manner in which the senior preferred stock dividend is determined affects net income (loss) attributable to 

common stockholders beginning in the fourth quarter of 2012, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Earnings 

Per Common Share.”

(2) Earnings (loss) per common share is computed independently for each of the quarters presented. Due to the use of weighted average common shares 

outstanding when calculating earnings (loss) per share, the sum of the four quarters may not equal the full-year amount. Earnings (loss) per common 

share amounts may not recalculate using the amounts shown in this table due to rounding.

Table of Contents
275 Freddie Mac

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 

ACCOUNTING AND FINANCIAL DISCLOSURE 

None. 

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the 

information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, 

summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is 

accumulated and communicated to management of the company, including the company’s Chief Executive Officer and Chief 

Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing our disclosure controls 

and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only 

reasonable assurance of achieving the desired control objectives, and we must apply judgment in implementing possible 

controls and procedures.

Management, including the company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of 

the effectiveness of our disclosure controls and procedures as of December 31, 2013. 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, 2013, 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 below, 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.

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, 2013. 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 (1992 Framework). A material weakness is a deficiency, or a combination 

of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material 

misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis by a 

company’s internal controls. Based on our assessment, we identified a material weakness related to our inability to update our 

disclosure controls and procedures in a manner that adequately ensures the accumulation and communication to management of 

information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including 

disclosures affecting our consolidated financial statements.

We have been under conservatorship of FHFA since September 6, 2008. FHFA is an independent agency that currently 

functions as both our Conservator and our regulator with respect to our safety, soundness and mission. Because we are in 

conservatorship, some of the information that we may need to meet our disclosure obligations may be solely within the 

knowledge of FHFA. As our Conservator, FHFA has the power to take actions without our knowledge that could be material to 

investors and could significantly affect our financial performance. Although we and FHFA have attempted to design and 

implement disclosure policies and procedures that would account for the conservatorship and accomplish the same objectives 

as disclosure controls and procedures for a typical reporting company, there are inherent structural limitations on our ability to 

design, implement, test or operate effective disclosure controls and procedures under the current circumstances. As our 

Conservator and regulator, FHFA is limited in its ability to design and implement a complete set of disclosure controls and 

procedures relating to us, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a regulated entity, 

we are limited in our ability to design, implement, operate and test the controls and procedures for which FHFA is responsible. 

For example, FHFA may formulate certain intentions with respect to the conduct of our business that, if known to management, 

would require consideration for disclosure or reflection in our financial statements, but that FHFA, for regulatory reasons, may 

Table of Contents
276 Freddie Mac

be constrained from communicating to management. As a result, we have concluded that this control deficiency constitutes a 

material weakness in our internal control over financial reporting.

Because of this material weakness, we have concluded that our internal control over financial reporting was not effective 

as of December 31, 2013 based on the COSO criteria (1992 Framework). PricewaterhouseCoopers LLP, an independent 

registered public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 

2013 and also determined that our internal control over financial reporting was not effective. PricewaterhouseCoopers LLP’s 

report appears in “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Report of Independent Registered Public 

Accounting Firm.”

Mitigating Actions Related to the Material Weakness in Internal Control Over Financial Reporting

As described under "Management's Report on Internal Control Over Financial Reporting,” we have one material 

weakness in internal control over financial reporting as of December 31, 2013 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 Office of Conservatorship Operations, which is intended to facilitate operation of the 

company with the oversight of the Conservator.

• We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also provide 

drafts of external press releases, statements and speeches to FHFA personnel for their review and comment prior to 

release.

• FHFA personnel, including senior officials, review our SEC filings prior to filing, including this Form 10-K, and engage 

in discussions regarding issues associated with the information contained in those filings. Prior to filing this Form 10-K, 

FHFA provided us with a written acknowledgement that it had reviewed the Form 10-K, was not aware of any material 

misstatements or omissions in the Form 10-K, and had no objection to our filing the Form 10-K.

• The 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 hold frequent meetings 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, 2013 have been prepared in conformity with GAAP.

Changes in Internal Control Over Financial Reporting During the Quarter Ended December 31, 2013

We evaluated the changes in our internal control over financial reporting that occurred during the quarter ended 

December 31, 2013 and concluded that the following matter has materially affected, or is reasonably likely to materially affect, 

our internal control over financial reporting:

• On November 11, 2013, James G. Mackey, Executive Vice President — Chief Financial Officer, joined Freddie Mac, 

replacing Ross J. Kari.

ITEM 9B. OTHER INFORMATION 

Election of Directors 

Upon the appointment of FHFA as our Conservator on September 6, 2008, the Conservator immediately succeeded to all 

rights, titles, powers and privileges of Freddie Mac, and of any stockholder, officer or director thereof, with respect to the 

company and its assets, including, without limitation, the right of holders of our common stock to vote with respect to the 

election of directors and any other matter for which stockholder approval is required or deemed advisable. 

On February 24, 2014, the Conservator executed a written consent re-electing each of the then-current directors as 

members of our Board of Directors, effective as of that date. The individuals elected as directors by the Conservator are listed 

below. 

Carolyn H. Byrd 

Richard C. Hartnack

Steven W. Kohlhagen 

Donald H. Layton 

Christopher S. Lynch 

Table of Contents
277 Freddie Mac

Sara Mathew

Saiyid T. Naqvi

Nicolas P. Retsinas 

Eugene B. Shanks, Jr. 

Anthony A. Williams 

The terms of the directors elected under the February 24, 2014 consent will continue until the date of the next annual 

meeting of stockholders or the Conservator next elects directors by written consent, whichever occurs first. 

2014 Target Total Direct Compensation 

The Compensation Committee’s 2014 Target TDC recommendation for each Named Executive Officer who is a current 

employee was approved by FHFA and remains unchanged from the 2013 Target TDC, with the exception of Mr. Weiss. For Mr. 

Weiss, approved increases were $5,000 for Base Salary and $20,000 for Target TDC. These increases were determined after 

taking into account his performance, the scope and breadth of his responsibilities compared to those of other executives at the 

company, and that no competitive market data match was available due to the unique nature of his responsibilities.

The following table sets forth the components of compensation on an annual basis for each of our Named Executive 

Officers who is a current employee.

Table 74 — 2014 Target TDC

Named Executive Officer Base Salary

Fixed

Deferred Salary

At-Risk

Deferred Salary Target TDC

Donald H. Layton $ 600,000 $ — $ — $ 600,000

James G. Mackey 500,000 1,600,000 900,000 3,000,000

David B. Lowman 500,000 1,600,000 900,000 3,000,000

William H. McDavid 500,000 1,320,000 780,000 2,600,000

Jerry Weiss 500,000 900,000 600,000 2,000,000

2014 Complementary Corporate Goals 

On January 28, 2014 Freddie Mac adopted corporate performance objectives for 2014 (the “2014 Complementary 

Corporate Goals”). Under the terms of the 2014 Executive Management Compensation Program, one-half of a participating 

officer’s At-Risk Deferred Salary (or 15% of Target TDC) is subject to reduction based on an assessment of the company’s 

performance against the 2014 Complementary Corporate Goals and the officer’s individual performance. 

The 2014 Complementary Corporate Goals are as follows:

• People: Maximize the contributions of our people.

• Customers: Strive to achieve industry-leading customer experience levels.

• Mission: Help people own, rent, and stay in their homes.

• Financial Performance: Improve our efficiency and core financial performance.

• Risk Management: Make risk management a competitive advantage.

• Technology and Infrastructure: Utilize technology and infrastructure to prepare for a future competitive market.

• Execution: Do everything better, faster and more cost effectively through superior execution.

Within the seven categories listed above, there are a number of more specific criteria. For example:

• People: Build the right culture; retain high performer talent; and improve leadership diversity.

• Customers: Strengthen market presence and relevance; continue focus on five distinct customer sets, both direct and 

indirect; provide more efficient customer service; and expand customer communication.

• Mission: Achieve single-family affordable housing goals; increase percent of multifamily purchases with rents less than 

or equal to small area fair market rents; and increase loan modifications and repayment plans efficiency ratio. 

• Financial Performance: Improve single-family profitability; maintain profitable multifamily business; actively manage 

retained portfolio assets; and strengthen expense management discipline.

• Risk Management: Reinforce risk ownership; make informed risk-reward decisions; and maintain control environment.

• Technology and Infrastructure: Deploy an out-of-region disaster recovery capability; enhance availability of critical, 

customer-facing applications; and improve facilities utilization.

• Execution: Emphasis on timeliness and quality and focus on efficiency.

Table of Contents
278 Freddie Mac

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Background

On September 6, 2008, the Director of FHFA appointed FHFA as our Conservator. Upon its appointment as Conservator, 

FHFA immediately succeeded to, among other things, the right of holders of our common stock to vote with respect to the 

election of directors. During conservatorship, stockholders do not have the ability to recommend director nominees or vote for 

the election of our directors. Accordingly, we will not solicit proxies, distribute a proxy statement to stockholders, or hold an 

annual meeting of stockholders in 2014. Instead, the Conservator has elected directors by a written consent in lieu of an annual 

meeting, as it has done in previous years.

Directors

On November 24, 2008, the Conservator reconstituted our Board of Directors and delegated certain powers to the Board 

while reserving certain powers of approval to itself. See “Authority of the Board and Board Committees.” The Conservator 

determined that the Board is to have a non-executive Chairman, and is to consist of a minimum of nine and not more than 

13 directors, with the Chief Executive Officer being the only corporate officer serving as a member of the Board.

On February 24, 2014 the Conservator executed a written consent, effective as of that date, re-electing each of the thencurrent directors as a member of our Board of Directors. The terms of those directors will end: (a) on the date of the next annual 

meeting of our stockholders; or (b) when the Conservator next elects directors by written consent, whichever occurs first. 

Currently, we have ten directors. The Board is conducting a search for individuals qualified to fill the remaining seats on the 

Board that are currently vacant.

Our Board seeks candidates for director who have achieved a high level of stature, success, and respect in their principal 

occupations. Each of our current directors was selected as a candidate because of his or her character, judgment, experience, 

and expertise. The qualifications of candidates also were evaluated in light of the requirement in our charter, as amended by the 

Reform Act, that our Board must at all times have at least one individual from the homebuilding, mortgage lending and real 

estate industries, and at least one person from an organization representing consumer or community interests or one person who 

has demonstrated a career commitment to the provision of housing for low-income households. Consistent with the 

examination guidance for corporate governance issued by FHFA, the factors considered also include the knowledge directors 

would have, as a group, in the areas of business, finance, accounting, risk management, public policy, mortgage lending, real 

estate, low-income housing, homebuilding, regulation of financial institutions, and any other areas that may be relevant to our 

safe and sound operation. Additionally, in accordance with the guidance issued by FHFA, we considered whether a candidate’s 

other commitments, including the number of other board memberships held by the candidate, would permit the candidate to 

devote sufficient time to the candidate’s duties and responsibilities as a director. See “CERTAIN RELATIONSHIPS AND 

RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE — Board Diversity” for additional information 

concerning the Board’s consideration of diversity in identifying director nominees and candidates.

The following is a brief discussion of: the age and length of Board service of each director; each director’s experience, 

qualifications, attributes, and/or skills that led to his or her selection as a director; and other biographical information about 

each director, as of February 24, 2014:

• Carolyn H. Byrd joined the Board in December 2008. She is 65 years old. She is an experienced finance executive 

who has held a variety of leadership positions. She also has significant public company audit committee experience. 

Ms. Byrd’s internal audit and public company audit committee experience enables her to support the Board’s oversight 

of our internal control over financial reporting and compliance matters.

Ms. Byrd has served as Chairman and Chief Executive Officer of GlobalTech Financial, LLC, a financial services 

company she founded, since 2000. From 1997 to 2000, Ms. Byrd was President of Coca-Cola Financial Corporation. 

From 1977 to 1997, Ms. Byrd held a variety of domestic and international positions with The Coca-Cola Company, 

including Chief of Internal Audits and Director of the Corporate Auditing Department. She is currently a director of 

AFC Enterprises, Inc., where she is a member of the Audit Committee and the Corporate Governance and Nominating 

Committee, and of Regions Financial Corporation, where she is chair of the Audit Committee and a member of the 

Risk Committee. Ms. Byrd is a former member of the board of directors and audit committee member of Circuit City 

Stores, Inc. and RARE Hospitality International, Inc., and she also served on the board of directors of St. Paul 

Travelers Companies, Inc.

• Richard C. Hartnack joined the Board in May 2013. He is 68 years old. Mr. Hartnack is a seasoned industry 

executive with proven leadership experience and a deep understanding of our industry. He has detailed knowledge of 

underwriting, servicing and technology.

Mr. Hartnack was vice chairman and head of consumer and small business banking at U.S. Bancorp until his 

retirement in February 2013. Prior to joining U.S. Bancorp in 2005, Mr. Hartnack served as vice chairman, director 

and head of the community banking group at Union Bank of California from 1991. Previously, he was executive vice 

Table of Contents
279 Freddie Mac

president at First Chicago Corporation where he was responsible for community banking. Earlier, he was in charge of 

corporate banking at First Interstate Bank of Oregon, where he began his banking career in 1971. He is a past director 

of the Federal Reserve Bank of San Francisco, MasterCard International (U.S. Region), UnionBanCal Corporation and 

U.S. Bank (a subsidiary of U.S. Bancorp). He also previously served as chairman of the California Bankers 

Association and the Bank Administration Institute.

• Steven W. Kohlhagen joined the Board in February 2013. He is 66 years old. He is nationally recognized as a leading 

financial expert with extensive knowledge of mortgage finance and the capital markets. He brings to the Board a 

unique combination of senior executive leadership skills and a deep understanding of economics, modeling and 

complex financial instruments.

Over the course of his career, Mr. Kohlhagen held senior executive positions at leading financial institutions. From 

1992 to 2003 he worked at First Union National Bank (predecessor to Wachovia National Bank and Wells Fargo), last 

serving as managing director of the Fixed Income Division. Mr. Kohlhagen served in senior roles at AIG Financial 

Products from 1990 to 1992, Stamford Capital Group from 1987 to 1990, Bankers Trust Corporation from 1985 to 

1987, and Lehman Brothers, Inc. from 1983 to 1985. Mr. Kohlhagen’s public sector experience encompasses 

consulting work for the Organization for Economic Cooperation and Development from 1980 to 1981, the United 

States Department of the Treasury from 1976 to 1977, and the Federal Reserve Board in 1976. He was also senior staff 

economist for the Council of Economic Advisors, White House Staff from 1978 to 1979.

Mr. Kohlhagen has been a director: since 2006, of AMETEK Inc., a global manufacturer of electronic instruments and 

electromechanical devices, where he is a member of the Audit Committee; since 2012, of Abtech Holdings Inc., a 

developer and manufacturer of environmental technologies, where he is a member of the Audit Committee; since 

2013, of GulfMark Offshore Inc., a marine transportation services company, where he is a member of the Audit 

Committee and Compensation Committee; and, since 2007, of Reval Inc., a financial risk management and treasury 

management systems provider, where he is a member of the Governance and Nominating Committee. Mr. Kohlhagen 

served as a director of the IQ Mutual Funds, a family of Merrill Lynch registered, closed-end investment companies, 

from 2005 to 2010. Since 2001, Mr. Kohlhagen has been an Advisory Board member of the Stanford Institute for 

Economic Policy Research. He has also served on the Board of Advisors of Roper St. Francis Cancer Center, 

Charleston, S.C., since 2011. In addition, he served as a professor of international economics and finance at the 

University of California, Berkeley from 1973 to 1983.

• Donald H. Layton joined the Board in May 2012, upon commencement of his employment as Chief Executive Officer. 

He is 63 years old. He is an experienced finance executive and leader of finance and investment organizations. 

Mr. Layton’s experience as a leader of financial organizations enables him to provide valuable business and operating 

perspectives to the Board.

Prior to joining Freddie Mac, Mr. Layton worked for nearly 30 years at JPMorgan Chase and its predecessors, starting 

as a trainee and rising to vice chairman and a member of the company’s three-person Office of the Chairman, retiring 

in 2004. In his career at JPMorgan Chase, Mr. Layton’s responsibilities spanned capital markets and investment 

banking, consumer banking and operating services. From 2002 to 2004, he was responsible for the company’s Chase 

Financial Services unit, which included the fourth largest mortgage firm in the U.S. He was co-chief executive officer 

of J.P. Morgan, the investment bank of JPMorgan Chase, overseeing the entire range of the investment bank’s global 

activities, from 2000 to 2002. Prior to the merger of Chase Manhattan and J.P. Morgan in 2000, Mr. Layton was 

responsible for Chase’s worldwide capital markets and trading activities, including foreign exchange, risk management 

products, emerging markets, and fixed income, as well as its operating services businesses. He additionally supervised 

the bank’s investment portfolio for many years. More recently, Mr. Layton served as chairman and chief executive 

officer of online brokerage E*TRADE Financial Corporation. He joined E*TRADE Financial Corporation as 

chairman in November 2007 and became chief executive officer in March 2008, retiring in December 2009. 

Mr. Layton also served as a senior advisor to the Securities Industry and Financial Markets Association from 2006 to 

2008 and is chairman of the board of the Partnership for the Homeless, a nonprofit dedicated to reducing homelessness 

in New York City. Mr. Layton was a member of the board of directors of Assured Guaranty Ltd. from May 2006 to 

May 2012 and a member of the board of directors of American International Group, Inc. from April 2010 to May 

2012.

• Christopher S. Lynch joined the Board in December 2008. He is 56 years old. He is an experienced senior accounting 

executive who served as the lead audit signing partner and account executive for several large financial institutions 

with mortgage lending businesses. He also has significant public company audit committee experience and risk 

management experience. Mr. Lynch’s extensive experience in finance, accounting and risk management enables him to 

provide valuable guidance to the Board on complex accounting and risk management issues.

Mr. Lynch has served as Non-Executive Chairman of Freddie Mac since December 2011. Mr. Lynch is an independent 

consultant providing a variety of services to financial intermediaries, including corporate restructuring, risk 

management, strategy, governance, financial and regulatory reporting and troubled-asset management. Mr. Lynch 

Table of Contents
280 Freddie Mac

retired from KPMG LLP in May 2007, where he held a variety of leadership positions, including National Partner in 

Charge — Financial Services, the U.S. firm’s largest industry division. Mr. Lynch chaired KPMG’s Americas 

Financial Services Leadership team, was a member of the Global Financial Services Leadership and the 

U.S. Industries Leadership teams and led the Banking & Finance practice. Mr. Lynch also served as a partner in 

KPMG’s Department of Professional Practice and as a Practice Fellow at the Financial Accounting Standards Board. 

Mr. Lynch also is a director of American International Group, Inc., where he is the Chair of the Audit Committee and a 

member of the Finance and Risk Management Committee. In addition, Mr. Lynch serves on the National Audit 

Committee Chair Advisory Council of the National Association of Corporate Directors. Mr. Lynch is a frequent 

speaker on matters pertaining to corporate governance, risk management, corporate restructuring, executive 

development, housing finance, and regulatory reporting.

• Sara Mathew joined the Board in December 2013. She is 58 years old. She 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 the 

management and operation of the Company and of its financial reporting.

From 2001 until December 2013, Ms. Mathew worked at The Dun & Bradstreet Corporation ("D&B"), serving as 

Chairman, President and Chief Executive Officer from 2010-2013. In 2007, she was appointed President and Chief 

Operating Officer, in January 2010, Chief Executive Officer and in December 2010, Chairman. Before joining D&B, 

Ms. Mathew spent 18 years at The Procter & Gamble Company in a variety of finance and management positions: her 

last position was Vice President, Finance, Australia, Asia and India from 2000 - 2001. Since 2005, Ms. Mathew has 

been a director of Campbell Soup Company, Inc., a manufacturer and marketer of branded convenience food products, 

where she is chair of the Audit Committee and a member of the Governance Committee. Since 2013, Ms. Mathew also 

has served as a director of Avon, a leading global beauty company, where she is a member of the Finance Committee. 

Ms. Mathew served as a director of D&B from 2008-2013. Since 2012, Ms. Mathew has been on the International 

Advisory Council for Zurich Financial Services Group, a multi-line insurance provider. 

• Saiyid T. Naqvi joined the Board in August 2013. He is 64 years old. He 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.

Mr. Naqvi led PNC Mortgage Corporation of America as president and chief executive officer between 1995 and 

2001, when PNC Financial Services Group sold its mortgage business. In 2009, Mr. Naqvi returned to supervise the 

bank's integration of National City Mortgage Company and to head the newly constituted PNC Mortgage as president 

and chief executive officer. PNC Mortgage operates as a division of PNC Bank, National Association, which is a 

subsidiary of PNC Financial Services Group. Until his retirement in April 2013, Mr. Naqvi was responsible for 

management of PNC Mortgage’s $121 billion portfolio and national network of 91 retail mortgage offices. Between 

2001 and 2009, he held a number of leadership positions, including president of Harley-Davidson Financial Services, 

Inc., chief executive officer of DeepGreen Financial, Inc., and president and chief executive officer of Setara 

Corporation. Mr. Naqvi formerly served on the boards of Genworth Financial, Inc. and Hanover Capital Mortgage 

Holdings, Inc.

• Nicolas P. Retsinas joined the Board in June 2007. He is 67 years old. He is an experienced leader in the governmental 

and educational sectors, with in-depth knowledge of the mortgage lending, real estate and homebuilding industries. He 

also has represented consumer and community interests and has demonstrated a career commitment to the provision of 

housing for low-income households. Mr. Retsinas’ public, private and academic experience, including his service on 

the boards of several not-for-profit organizations, enables him to bring to the Board broad knowledge and 

understanding of housing and consumer and community issues.

Mr. Retsinas is a senior lecturer in Real Estate at the Harvard Business School and is Director Emeritus of Harvard 

University’s Joint Center for Housing Studies, where he served as Director from 1998 to 2010. He is also a lecturer in 

Housing Studies at the Graduate School of Design. Prior to his Harvard appointment, Mr. Retsinas served as Assistant 

Secretary for Housing — Federal Housing Commissioner at the United States Department of Housing and Urban 

Development from 1993 to 1998 and as Director of the Office of Thrift Supervision from 1996 to 1997. He served on 

the Board of the Federal Deposit Insurance Corporation from 1996 to 1997, the Federal Housing Finance Board from 

1993 to 1998 and the Neighborhood Reinvestment Corporation from 1993 to 1998. Mr. Retsinas also formerly served 

on the Board of Trustees for the National Housing Endowment and Enterprise Community Partners. Currently, 

Mr. Retsinas serves on the Board of Directors of the Center for Responsible Lending, as a member of the Bipartisan 

Policy Center’s Housing Commission, and as chair of the Providence Housing Authority.

• Eugene B. Shanks, Jr. joined the Board in December 2008. He is 66 years old. He is an experienced finance executive 

with leadership and risk management expertise. Mr. Shanks’ leadership and risk management experience enables him 

to provide the Board with valuable guidance on risk management issues and our strategic direction.

Table of Contents
281 Freddie Mac

Mr. Shanks is a Trustee of Vanderbilt University, a member of the Advisory Board of the Stanford Institute for 

Economic Policy Research, a director of ACE Limited, where he serves as a member of the Risk and Finance 

Committee, a Senior Advisor to Bain and Company, and a founding director at The Posse Foundation. From 

November 2007 until August 2008, Mr. Shanks was a senior consultant to Trinsum Group, Incorporated, a strategic 

consulting and asset management company. From 1997 until its sale in 2002, Mr. Shanks was President and Chief 

Executive Officer of NetRisk, Inc., a risk management software and advisory services company he founded. From 

1973 to 1978 and from 1980 to 1995, Mr. Shanks held a variety of positions with Bankers Trust New York 

Corporation, including head of Global Markets from 1986 to 1992 and President and Director from 1992 to 1995. 

From 1978 to 1980, he was Treasurer of Commerce Union Bank in Nashville, Tennessee.

• Anthony A. Williams joined the Board in December 2008. He is 62 years old. He is an experienced leader in national, 

state and local governments, with extensive knowledge concerning real estate and housing for low-income individuals. 

He also has significant experience in financial matters and is an experienced academic focusing on public management 

issues. Mr. Williams’ leadership and operating experience in the public sector allows him to provide a unique 

perspective on state and local housing issues.

Mr. Williams is the CEO and Executive Director of the Federal City Council of Washington, DC, an organization 

instrumental in local projects such as the Metro, Ronald Reagan Building and International Trade Center, and 

revitalization of Union Station. He was the Bloomberg Lecturer in Public Management at Harvard’s Kennedy School 

of Government from 2009 through 2012. He also served as the Executive Director of Global Government Practice 

from January 2010 until January 2012 and as a Senior Fellow from January 2012 until June 2012 at the Corporate 

Executive Board Company. Since September 2011, Mr. Williams has been affiliated with McKenna, Long & Aldridge, 

LLP, a law firm, and from May 2009 until September 2011 he was affiliated with the law firm of Arent Fox LLP. 

Mr. Williams served as Chief Executive Officer of Primum Public Realty Trust, from January 2007 until December 

2008.

Mr. Williams was elected to two terms as the fourth mayor of Washington, D.C. from 1999 to January 2007, having 

served as Chief Financial Officer from 1995 to 1998. He also served as President of the National League of Cities and 

as Vice-Chair of the Metropolitan Washington Council of Governments. From 1993 to 1995, Mr. Williams was the 

first Chief Financial Officer for the U.S. Department of Agriculture. From 1991 to 1993, Mr. Williams was the Deputy 

State Comptroller of Connecticut. From 1989 to 1991, Mr. Williams was the Executive Director of the Community 

Development Agency of St. Louis, Missouri. From 1988 to 1989, he worked as Assistant Director of the Boston 

Redevelopment Agency where he led the Department of Neighborhood Housing and Development, one of the 

authority’s primary divisions. Mr. Williams also previously served as a director of Meruelo Maddux Properties, Inc. 

Mr. Williams is also on the board of the Calvert Sage Fund and of each fund comprising the Calvert Multiple Funds.

Authority of the Board and Board Committees

The directors serve on behalf of, and exercise authority as directed by, the Conservator. The Conservator has delegated to 

the Board and its committees authority to function in accordance with the duties and authorities set forth in applicable statutes, 

regulations, guidance, orders and directives and our Bylaws and Board committee charters, but reserved certain items requiring 

Conservator approval. On November 15, 2012, the Conservator revised and expanded the categories of items requiring 

Conservator approval, instructing the Board that it should oversee that management consults with and obtains approval of the 

Conservator before taking action in the following areas:

• matters requiring the approval of or consultation with Treasury under the covenants of the Purchase Agreement (see 

“BUSINESS — Conservatorship and Related Matters — Treasury Agreements – Covenants Under Treasury 

Agreement”);

• redemptions or repurchases of subordinated debt, except as necessary to comply with the limit in the Purchase 

Agreement;

• increases in Board risk limits, material changes in accounting policy, and reasonably foreseeable material increases in 

operational risk;

• matters that relate to the Conservator’s powers, the status of Freddie Mac in conservatorship, or the legal effect of the 

conservatorship on contracts, such as, but not limited to, the initiation of material actions in connection with litigation 

addressing the actions or authority of the Conservator, repudiation of contracts, qualified financial contracts in dispute 

due to conservatorship status, and counterparties attempting to nullify or amend contracts due to conservatorship status;

• retention and termination of external auditors and law firms serving as consultants to the Board;

• agreements relating to litigation, claims, regulatory proceedings, or tax-related matters where the value of the claim is in 

excess of $50 million, including related matters that aggregate to more than $50 million (but excluding loan workouts);

• alterations or changes to the terms of any master agreement between us and any of our top five single-family sellers or 

servicers that are not otherwise mandated by FHFA and that will alter, in a material way, the business relationship 

between the parties;

Table of Contents
282 Freddie Mac

• termination of a contract (other than by expiration pursuant to its terms) between us and any of our top five singlefamily sellers or servicers;

• actions that, in the reasonable business judgment of management at the time that the action is to be taken, are likely to 

cause significant reputational risk to us or result in substantial negative publicity;

• creation of any subsidiary or affiliate, or entering into a substantial transaction with a subsidiary or affiliate, except for 

the creation of, or a transaction with, a subsidiary or affiliate undertaken in the ordinary course of business (e.g., 

creation of a securitization trust or REMIC);

• setting or increasing the compensation or benefits payable to directors;

• entering into new compensation arrangements or increasing amounts or benefits payable under existing compensation 

arrangements for senior vice presidents and above and other officers as FHFA may deem necessary to successfully 

execute its role as Conservator;

• any establishment or modification by us of performance management processes for such officers, including the 

establishment or modification of a Conservator scorecard;

• any assessment by us of our performance against a Conservator scorecard; and

• establishing the annual operating budget.

FHFA has indicated that it expects the Board to review and approve all matters that will require Conservator approval 

before such matters are submitted to FHFA. In addition, FHFA requires us to provide timely notice to it of any planned changes 

in business processes or operations, including changes to single-family or multifamily credit policies and loss mitigation 

strategies that management has determined in its reasonable business judgment to be significant, other than changes made at the 

direction or request of FHFA. FHFA will then determine whether any such actions or plans require Conservator and/or Board 

review or approval. Finally, in September 2013, FHFA informed us that mortgage servicing right (MSR) sales and transfers and 

servicing transfers would require Conservator approval until further notice. FHFA modified this in October 2013 to require 

reporting to FHFA of all such sales and transfers and FHFA approval for sales or transfers involving 25,000 or more loans. 

Prior Board approval is not required.

The Board has five standing committees: Audit; Business and Risk; Compensation; Executive; and Nominating and 

Governance. All standing committees other than the Executive Committee meet regularly. The membership of each committee 

as of February 24, 2014 is shown in the table below.

Table 75 — Board of Directors Committee Membership

Director Audit 

Business

and Risk Compensation Executive 

Nominating and

Governance

C. Byrd C 

R. Hartnack 

S. Kohlhagen C

D. Layton 

C. Lynch C 

S. Mathew

S. Naqvi

N. Retsinas 

E. Shanks C

A. Williams C 

= Member of the Committee 

C =Chairman of the Committee 

Charters describing the duties of the committees have been adopted by the Board and approved by the Conservator. All of 

the charters of standing committees are available on our website at www.freddiemac.com/governance/bd committees.html.

Our Board has an independent Non-Executive Chairman, whose responsibilities include presiding over meetings of the 

Board, regularly scheduled executive sessions of the non-employee directors, and executive sessions including only the 

independent directors that occur at least once annually if any of the non-employee directors are not independent. Mr. Lynch has 

served as Non-Executive Chairman since December 2011.

Communications with Directors

Interested parties wishing to communicate any concerns or questions about Freddie Mac to the Non-Executive Chairman 

of the Board or to our non-employee directors as a group may do so by U.S. mail, addressed to the Corporate Secretary, Freddie 

Table of Contents
283 Freddie Mac

Mac, Mail Stop 200, 8200 Jones Branch Drive, McLean, VA 22102-3110. Communications may be addressed to a specific 

director or directors or to groups of directors, such as the independent or non-employee directors.

Executive Officers

As of February 25, 2014, our executive officers are as follows:

Name Age

Year of

Affiliation Position

Donald H. Layton 63 2012 Chief Executive Officer

James G. Mackey 46 2013 Executive Vice President — Chief Financial Officer

David M. Brickman 48 1999 Executive Vice President — Multifamily

David B. Lowman 56 2013 Executive Vice President —Single-Family Business

William H. McDavid 67 2012 Executive Vice President — General Counsel & Corporate Secretary

Jerry Weiss 56 2003 Executive Vice President — Chief Administrative Officer

Paige H. Wisdom 52 2008 Executive Vice President — Chief Enterprise Risk Officer

Michael T. Hutchins 58 2013 Senior Vice President — Investments and Capital Markets

Timothy F. Kenny 52 2007 Senior Vice President — General Auditor

Robert Lux 50 2010 Senior Vice President — Chief Information Officer

Robert D. Mailloux 46 2002 Senior Vice President — Corporate Controller & Principal Accounting Officer

Dwight P. Robinson 60 1998 Senior Vice President — Human Resources, Diversity and Outreach

Carol A. Wambeke 54 1997 Senior Vice President — Chief Compliance Officer

The following is a brief biographical description of each executive officer who is not also a member of the Board.

James G. Mackey was appointed Executive Vice President - Chief Financial Officer in November 2013. Mr. Mackey 

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, Mr. Mackey 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 was appointed Executive Vice President — Multifamily in February 2014 and prior to that served as 

our Senior Vice President — Multifamily from 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 Senior Vice President — Multifamily Commercial 

Mortgage-Backed Security Capital Markets. From March 2004 until June 2011, he served as Vice President in charge of 

various units responsible for Multifamily Capital Markets. In his previous roles at Freddie Mac, Mr. Brickman led the 

multifamily pricing, costing and research teams, was responsible for the development and implementation of new quantitative 

pricing models and financial risk analysis frameworks for all multifamily programs, and designed several of Freddie Mac’s 

multifamily financing products, including the Capital Markets Execution and the K-Deal Securitization Program. Prior to 

joining Freddie Mac in 1999, Mr. Brickman co-led the Mortgage Finance and Credit Analysis group in the consulting practice 

at PricewaterhouseCoopers LLP.

David B. Lowman was appointed Executive Vice President - Single-Family Business in May 2013. 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 was appointed Executive Vice President — General Counsel and Corporate Secretary in July 2012. 

Previously, Mr. McDavid was Co-General Counsel of JPMorgan Chase from 2004 until his retirement in 2006, and was 

General Counsel of JPMorgan Chase from 2000 to 2004. Prior to that, he was General Counsel of various predecessors to 

JPMorgan Chase, including The Chase Manhattan Corporation from 1996 to 2000 and of Chemical Banking Corporation from 

Table of Contents
284 Freddie Mac

1988 to 1996. From 1981 to 1988, he was an Associate General Counsel at Bankers Trust Company, and from 1972 to 1981 he 

was an attorney with the law firm of Debevoise & Plimpton.

Jerry Weiss was appointed Executive Vice President — Chief Administrative Officer in August 2010. In this role, 

Mr. Weiss manages the services and operations of Freddie Mac’s Strategy; External Relations, including Government and 

Industry Relations; Public Relations and Corporate Marketing; Internal Communications; Models, Mission and Research; 

Conservatorship and Corporate Initiatives; Enterprise Project Management; and Making Home Affordable — Compliance 

organizations. For a period subsequent to his appointment as Executive Vice President — Chief Administrative Officer, he also 

served as our Chief Compliance Officer from August 2010 until June 2011. Prior to August 2010, Mr. Weiss served as our 

Senior Vice President and Chief Compliance Officer and in various other senior management capacities since joining us in 

October 2003. Prior to joining us, Mr. Weiss worked from 1990 at Merrill Lynch Investment Managers, most recently as First 

Vice President and Global Head of Compliance. From 1982 to 1990, Mr. Weiss was with a national law practice in 

Washington, D.C., where he specialized in securities regulation and corporate finance matters.

Paige H. Wisdom has served as our Chief Enterprise Risk Officer since April 2010. She currently serves as our Executive 

Vice President — Chief Enterprise Risk Officer, a position to which she was appointed in October 2010. Prior to this 

appointment, she served as our Senior Vice President — Chief Enterprise Risk Officer from April 2010 until October 2010. In 

these roles, Ms. Wisdom has been responsible for providing overall leadership and direction for enterprise risk management 

and leading an integrated framework for managing credit risk, market risk, operational risk and all other aspects of risk across 

the organization. Prior to this, she served as the Senior Vice President — Business Unit Chief Financial Officer from January 

2008 until April 2010. From August 2004 until December 2007, Ms. Wisdom served as a Business Unit Chief Financial Officer 

at Bank of America for key businesses including: Global Business and Financial Services; Business Lending; and Global 

Technology, Service and Fulfillment. Prior to joining Bank of America, Ms. Wisdom served at Bank One Corporation/

JPMorgan from June 2000 until July 2004, as the Chief Financial Officer, Corporate Bank and Co-Head Credit Portfolio 

Management. Prior to that, she served in capital markets positions at UBS/Warburg Dillon Read, Citibank Salomon Smith 

Barney, and Swiss Bank Corporation.

Michael T. Hutchins was appointed Senior Vice President - Investments and Capital Markets in July 2013. Previously, 

Mr. Hutchins was Co-Founder and Chief Executive Officer of PrinceRidge, a financial services firm. Prior to founding 

PrinceRidge, he was with UBS from 1996-2007, 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 - 1996, where he held a 

number of management positions, including Co-Head of Fixed Income Capital Markets.

Timothy F. Kenny was appointed Senior Vice President — General Auditor in July 2008. Prior to this appointment, 

Mr. Kenny served as Vice President and Interim General Auditor starting in May 2008. Before that, he served as our Vice 

President — Assistant General Auditor from September 2007 to May 2008. From 2001 to 2007, Mr. Kenny was a Managing 

Director with BearingPoint, Inc. (formerly KPMG Consulting, Inc.) where he directed a large team of financial professionals 

on a variety of financial risk management consulting projects with Ginnie Mae, the Federal Housing Administration, private 

sector mortgage bankers and other federal credit agencies. He joined KPMG LLP, the predecessor organization to KPMG 

Consulting, in 1986, was promoted to a KPMG Audit Partner in 1997, and served in that position until the separation of KPMG 

Consulting from KPMG LLP in February 2001. From 2004 until 2008, Mr. Kenny was a member of the board of directors of 

Farmer Mac, a government sponsored enterprise that has established a secondary market for agricultural loans.

Robert Lux was appointed Senior Vice President – Chief Information Officer in October 2010. Prior to joining Freddie 

Mac, from 2008 to 2010, Mr. Lux served as a Principal at Towers Watson, a leading global professional services company, 

where he was responsible for leading teams on three continents in the delivery of commercial risk modeling applications for the 

insurance industry. From 2003 to 2008, Mr. Lux held a series of positions with increasing responsibilities, including service as 

the Chief Architect for GMAC Financial Services and Chief Technology Officer for GMAC Residential Capital. Prior to that, 

he held information technology leadership positions at Electronic Data Systems and Reuters Group PLC.

Robert D. Mailloux was appointed Senior Vice President — Corporate Controller & Principal Accounting Officer in 

April 2010. Prior to holding his current position, Mr. Mailloux served as our Vice President — Acting Corporate Controller 

beginning in October 2008. Prior to that appointment, he served as Vice President — Multifamily & Corporate Segment 

Controller, from May 2008 until October 2008, and as Vice President — Corporate Financial Accounting from September 2004 

until May 2008. Before that, Mr. Mailloux held the position of Director — Corporate Reporting and Analysis from March 2002 

until September 2004. Before joining us, Mr. Mailloux served for 12 years at a leading accounting firm, where he managed a 

variety of large audit and consulting engagements in the financial services and real estate industries.

Dwight P. Robinson was appointed Senior Vice President — Human Resources, Diversity and Outreach in September 

2012. Prior to holding his current position, Mr. Robinson served as Senior Vice President – Housing Outreach and Chief 

Diversity Officer beginning in October 2011. Prior to that appointment, he served as Senior Vice President – Corporate 

Relations & Housing Outreach beginning in February 2005. Prior to that appointment, Mr. Robinson served as Senior Vice 

President — Corporate Relations beginning in September 1999. Mr. Robinson joined us in March 1998 as Vice President — 

Industry Relations. Prior to joining Freddie Mac, from 1994 to 1998 Mr. Robinson served as the Deputy Secretary of HUD, 

Table of Contents
285 Freddie Mac

functioning as Chief Operating Officer. Before assuming the position at HUD, from 1993 to 1994 Mr. Robinson served as the 

president of Ginnie Mae, where he was responsible for all major policy decisions affecting Ginnie Mae issuers and purchasers 

worldwide.

Carol A. Wambeke was appointed Senior Vice President — Chief Compliance Officer in June 2011. In this position, she 

manages Freddie Mac’s compliance with legal and regulatory requirements and related controls that govern the company’s 

business activities. Prior to this, Ms. Wambeke served as Vice President of Compliance & Regulatory Affairs from June 2008 

until June 2011. In this role, she was responsible for coordinating regulatory-related activities across the company and advising 

management on regulatory concerns and initiatives. Prior to transferring to the Compliance Division, she was Vice President — 

Regulatory Reporting & Analysis from February 2005 to June 2008 and Vice President — Regulatory Capital Operations from 

March 2004 to February 2005. She joined Freddie Mac in 1997 as a senior economist and served in various positions prior to 

2004 with responsibility for financial and housing economics and regulatory capital management.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the directors and executive officers of a reporting company and persons who 

own more than 10% of a registered class of such company’s equity securities to file reports of ownership and changes in 

ownership with the SEC. Based solely on a review of such reports, we believe that during 2013 all of our directors and 

executive officers complied with such reporting obligations, except that the Form 3 for Devajyoti Ghose, a former Section 16 

officer, which had initially been filed on time on May 25, 2011, was amended on March 1, 2013 to include 1,750 shares of 

common stock inadvertently omitted from the original Form 3 due to an oversight of the reporting officer.

Codes of Conduct

We have separate codes of conduct applicable to all employees and to Board members that outline the principles, policies, 

and laws governing their activities. Upon joining us or our Board, all employees and directors, respectively, are required to sign 

acknowledgements that they have read the applicable code and agree to abide by it. In addition, all employees and directors 

must respond to an annual questionnaire concerning code compliance. The employee code also serves as the code of ethics for 

senior executives and financial officers required by the Sarbanes-Oxley Act and SEC regulations. Copies of our employee and 

director codes of conduct are available, and any amendments or waivers that would be required to be disclosed are posted, on 

our website at www.freddiemac.com.

Audit Committee Financial Expert

We have a standing Audit Committee that satisfies the “audit committee” definition under Section 3(a)(58)(A) of the 

Exchange Act and the requirements of Rule 10A-3 under the Exchange Act. Although our stock was delisted from the NYSE in 

July 2010, certain of the corporate governance requirements of the NYSE Listed Company Manual, including those relating to 

audit committees, continue to apply to us because they are incorporated by reference in the FHFA corporate governance 

regulations. Our Audit Committee satisfies the “audit committee” requirements set forth in Sections 303A.06 and 303A.07 of 

the NYSE Listed Company Manual. The current members of the Audit Committee are Carolyn H. Byrd, Richard C. Hartnack, 

Christopher S. Lynch, Sara Mathew and Anthony A. Williams, all of whom the Board determined in January 2014 are 

independent within the meaning of Rule 10A-3 under the Exchange Act and Section 303A.02 of the NYSE Listed Company 

Manual.

Ms. Byrd has been a member of the Audit Committee since December 2008 and is currently its chairman. The Board 

initially determined in March 2012 and again determined in January 2014 that Ms. Byrd meets the definition of an “audit 

committee financial expert” under SEC regulations.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This section contains information regarding our compensation programs and policies, which reflect direction we have 

received from FHFA as Conservator and which have been approved by FHFA. These programs and policies were applicable to 

the following individuals, who were determined, pursuant to SEC rules, to be our Named Executive Officers, or NEOs, for the 

year ended December 31, 2013.

• Donald H. Layton, Chief Executive Officer

• James G. Mackey, Executive Vice President — Chief Financial Officer

• Ross J. Kari, Former Executive Vice President — Chief Financial Officer

• David B. Lowman, Executive Vice President — Single-Family Business

• William H. McDavid, Executive Vice President — General Counsel and Corporate Secretary

• Jerry Weiss, Executive Vice President — Chief Administrative Officer

For further information on our primary business objectives and the progress we made during 2013 in accomplishing those 

objectives, see “BUSINESS — Executive Summary.”

Table of Contents
286 Freddie Mac

Executive Management Compensation Program

Since Freddie Mac was placed in conservatorship in 2008, our executive compensation program has undergone numerous 

changes, resulting in a significant decrease in the amount of compensation paid to our senior executive team. Specific changes 

include:

• Reduction of target compensation by 10% in 2009 and by 10% again in 2012 for most of the senior executives working 

for us at the beginning of those years;

• Termination of the pension plan and Pension SERP at the end of 2013 at FHFA's direction;

• Institution by FHFA of a freeze in salary and total compensation for all of 2011 and 2012, such that changes to base 

salaries and Target TDC were only provided for promotions and other significant increases in responsibility;

• Reduction of annual CEO compensation to $600,000; and

• Elimination of bonuses and the potential for the at-risk elements of compensation for our senior executives to exceed 

target levels, regardless of the level of company and/or individual performance.

As a result of these and other actions taken since we were placed in conservatorship, the aggregate level of compensation 

for our executives is now well below the 50th percentile of the competitive market.

The company's current status, uncertain future, and the level of compensation paid to our executives all contribute to 

concerns about our ability to attract and retain competent and experienced executives and employees. However, our public 

mission and certain features of our executive compensation program have enabled us to do so despite the challenges resulting 

from our current circumstances. Our public mission to expand opportunities for homeownership and affordable rental housing 

attracts employees at all levels who seek to help rebuild the nation's housing finance system and be involved in the ongoing 

recovery of the housing market. Also, the higher proportion of fixed compensation in our executive compensation program — 

only 30% of pay is at-risk, significantly below the levels at companies with which we compete for talent — provides a degree 

of certainty that offsets, at least to some degree, the uncertain future of the company and the below market compensation levels.

Overview of Program Structure

The 2013 Executive Management Compensation Program, or the Executive Compensation Program, was adopted 

effective January 1, 2013. It replaced the program that was in place during 2012. There were three primary changes introduced 

in 2013, as follows:

1. The forfeiture provision for Fixed Deferred Salary was extended, such that the 25-month vesting schedule will reset 

annually and earned but unpaid amounts will be reduced by 2% for each full or partial month by which a termination 

precedes January 31 of the second year following the performance year;

2. A retirement provision was added that provides that officers who are at least 65 years old, regardless of their length of 

service, will be considered retirement-eligible and not subject to the 2% reduction described above; and

3. At-Risk Deferred Salary was linked to corporate goals which are complementary to Conservatorship Scorecard 

objectives (the Complementary Corporate Goals), such that the portion of At-Risk Deferred Salary that in prior years 

was linked only to individual performance is now linked to both individual performance and the company’s 

performance against the Complementary Corporate Goals.

For a description of our executive compensation program for 2014, see our Current Report on Form 8-K filed on 

December 10, 2013. 

Compensation in 2013 for each NEO other than Mr. Layton was governed by the Executive Compensation Program. A

further discussion of Mr. Layton’s compensation is set forth below in “— Chief Executive Officer Compensation.” The 

Executive Compensation Program attempts to balance our need to retain critical executive talent and attract new executive 

talent with the promotion of the conservatorship objectives, the Complementary Corporate Goals and the interests of taxpayers. 

All compensation under the Executive Compensation Program is delivered exclusively in cash because we cannot provide 

equity-based compensation to our employees under the terms of the Purchase Agreement, unless such grants are approved by 

Treasury. 

Although the Compensation Committee plays a significant role in considering and recommending executive 

compensation, FHFA continues to be actively involved in determining such compensation. During conservatorship, the 

Compensation Committee’s authority and flexibility have been exercised while recognizing the following circumstances:

• When FHFA was appointed as our Conservator in September 2008, it assumed all of the rights, titles, powers, and 

privileges of the company and its stockholders, directors and management, including the authority to set executive 

compensation. Under the terms of the Purchase Agreement, FHFA is required to consult with Treasury on any increases 

in compensation or new compensation arrangements for our executive officers.

• Our directors serve on behalf of FHFA and exercise their authority as directed by FHFA. More information about the 

role of our directors is provided above in “DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE 

GOVERNANCE — Authority of the Board and Board Committees.”

Table of Contents
287 Freddie Mac

• FHFA has directed that its approval be obtained before taking action involving: (i) entering into new compensation 

arrangements or increasing amounts or benefits payable under existing compensation arrangements for officers at the 

senior vice president level and above and for other officers as FHFA may deem necessary to successfully carry out its 

role as Conservator; (ii) any establishment or modification by us of performance management processes for such 

officers; and (iii) any assessment by us of our performance against conservatorship scorecards.

• 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.

Executive Compensation Best Practices

We employ the following executive compensation best practices:

• No agreements that guarantee a specific amount of compensation for a specified term of employment;

• No tax “gross-ups”;

• Limited executive perquisites;

• Clawback provisions that result in a significant portion of compensation earned being subject to recapture and/or 

forfeiture; and

• No golden parachute payments or other change in control provisions in any of our compensation or benefit programs.

Chief Executive Officer Compensation

Mr. Layton’s compensation consists solely of an annual Base Salary of $600,000, a level established by FHFA. He does 

not participate in the Executive Compensation Program and therefore has no compensation subject to either corporate or 

individual performance, nor is his compensation subject to recapture as discussed further in "— Recapture and Forfeiture 

Agreement." Mr. Layton is, however, eligible to participate in all other employee benefit plans offered to Freddie Mac’s other 

senior executives pursuant to the terms of those plans.

Elements of Target Total Direct Compensation (Target TDC)

Compensation under the Executive Compensation Program for the NEOs other than Mr. Layton consists solely of salary 

with two components — Base Salary and Deferred Salary — which are described in the table below.

Element of

Compensation Description

Primary

Compensation Objective Key Features

Base Salary Earned and paid each bi-weekly

pay period

To provide a fixed level of

compensation to each NEO

for the responsibility level of

his/her position

Cannot exceed $500,000 per year,

except as approved by FHFA

Deferred Salary Fixed Deferred Salary is earned 

each bi-weekly pay period. The 

amount earned each quarter is 

paid on the last business day of 

the corresponding quarter of the 

following year, referred to as the 

Approved Payment Schedule

To encourage executive

retention

Equal to Target TDC less Base Salary

and At-Risk Deferred Salary

At-Risk Deferred Salary is 

earned and paid in the same 

manner as Fixed Deferred 

Salary, but is subject to reduction 

based on corporate and 

individual performance

To encourage achievement of

corporate and individual

performance goals

Equal to 30% of Target TDC. Half of 

At-Risk Deferred Salary is subject to 

reduction based on Conservatorship 

Scorecard performance, and half is 

subject to reduction based on a 

combination of corporate performance 

against Complementary Corporate 

Goals and individual performance.

The objectives against which 2013 

corporate performance was measured 

are described in “At-Risk Deferred 

Salary Based on Conservatorship 

Scorecard Performance” and “At-Risk 

Deferred Salary Based on 

Complementary Corporate Goals and 

Individual Performance.”

See Other Executive Compensation Considerations — Effect of Termination of Employment for more information on the 

effect of a termination of employment, including a discussion of the timing and payment of any unpaid portion of Deferred 

Salary upon all types of termination events.

Performance Measures for the Performance-Based Elements of Compensation

Table of Contents
288 Freddie Mac

The performance measures for At-Risk Deferred Salary, together with a description of the assessment of actual 

performance against such measures, are presented below in “Determination of Actual 2013 Compensation — At-Risk Deferred 

Salary Based on Conservatorship Scorecard Performance” and “— At-Risk Deferred Salary Based on Complementary 

Corporate Goals and Individual Performance.” These performance measures were chosen because they reflected our 2013 

priorities during conservatorship.

Determination of 2013 Target TDC for NEOs

Role of Compensation Consultants

As part of the annual process to determine the Target TDC for each of the NEOs other than Mr. Layton, whose 

compensation is fixed as described in “— Chief Executive Officer Compensation,” the Compensation Committee receives 

guidance from Meridian Compensation Partners, LLC (Meridian), its independent compensation consultant. In addition to the 

annual process to determine Target TDC, Meridian provides guidance to the Compensation Committee during the course of the 

year on other executive compensation matters.

Meridian has not provided the Compensation Committee with any non-executive compensation services, nor has the firm 

provided any consulting services to our management. Additionally, during 2013, the Committee reviewed Meridian's 

independence based on the factors outlined in Rule 10C-1(b)(4) under the Exchange Act and determined that Meridian 

continues to be independent.

2013 Comparator Group Companies

The Compensation Committee annually evaluates each senior executive’s Target TDC in relation to the compensation of 

executives in comparable positions at companies that are either in a similar line of business or are otherwise comparable for 

purposes of recruiting and retaining individuals with the requisite skills and capabilities. We refer to this group of companies as 

the Comparator Group.

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.

Prior to the Compensation Committee’s review to determine the Comparator Group companies to be used to establish 

2013 Target TDC, FHFA recommended that Freddie Mac and Fannie Mae align their Comparator Groups so that consistent 

compensation data is used by both companies for the same or similar senior officer positions. Representatives of the two 

companies and their independent compensation consultants identified a group of companies to be used by both us and Fannie 

Mae as the 2013 Comparator Group. The 2013 Comparator Group included five new companies — Ally Financial, AIG, 

BB&T, Fifth Third Bancorp, and Regions Financial — and excluded the three credit card issuers — American Express, 

MasterCard, and Visa — that were included in the 2012 Comparator Group. Additionally, we are included in our own 

Comparator Group to ensure that both we and Fannie Mae use identical data for compensation benchmarking.

The Comparator Group consisted of the following companies for 2013:

Allstate Fannie Mae PNC

Ally Financial Fifth Third Bancorp Prudential

AIG Freddie Mac 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*

Citigroup*

* 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, in consultation with FHFA and Fannie Mae, that these same companies 

will comprise the 2014 Comparator Group.

Establishing Target TDC

For 2013, consistent with both 2012 and 2011, annual Target TDC adjustments were limited by FHFA to generally occur 

only when an executive was promoted or experienced a significant change in responsibilities. In addition, FHFA’s view is that 

the compensation for our senior officers, in the aggregate, should be positioned closer to the 25th percentile of the competitive 

market, rather than our practice prior to entering conservatorship, which generally was to target compensation, in the aggregate, 

at the 50th percentile of the competitive market.

Table of Contents
289 Freddie Mac

The Compensation Committee developed its 2013 Target TDC recommendations for the NEOs by reviewing data from 

the Comparator Group and, as appropriate, alternative survey sources. For Messrs. Kari, Lowman, Mackey and McDavid, the 

Compensation Committee reviewed competitive market data solely from the Comparator Group. For Mr. Weiss, our EVPChief Administrative Officer, no reasonable match was available in either the Comparator Group or one of the alternative 

survey sources due to the unique nature of his responsibilities. As a result, the compensation level for his role was evaluated by 

comparing the scope and breadth of his responsibilities with those of other executive-level positions at the company.

The Compensation Committee’s 2013 Target TDC recommendation for each of the NEOs other than Mr. Layton was 

reviewed and approved by FHFA. The following table sets forth the components of 2013 Target TDC for each of our NEOs 

and the percentage change, if any, compared to 2012 Target TDC.

Table 76 — 2013 Target TDC

2013 Target TDC (Annualized)

Named Executive Officer

Base

Salary

Fixed

Deferred

Salary

At-Risk

Deferred

Salary Target TDC

Percent

Change v.

Prior Year

Donald H. Layton $ 600,000 $ — $ — $ 600,000 0%

James G. Mackey 500,000 1,600,000 900,000 3,000,000 N/A

Ross J. Kari 675,000 1,530,000 945,000 3,150,000 0%

David B. Lowman 500,000 1,600,000 900,000 3,000,000 N/A

William H. McDavid 500,000 1,320,000 780,000 2,600,000 0%

Jerry Weiss 495,000 891,000 594,000 1,980,000 0%

Determination of Actual 2013 Compensation

As discussed more fully below, the Compensation Committee and FHFA considered our achievements in pursuing our 

primary business objectives, as well as other factors, in determining the funding levels for the following elements of 

compensation in 2013.

At-Risk Deferred Salary Based on Conservatorship Scorecard Performance

Half of each NEO's 2013 At-Risk Deferred Salary, or 15% of Target TDC, was subject to reduction based on the 

company's performance, as assessed by FHFA, against the objectives in the 2013 Conservatorship Scorecard. Following the 

end of the year, FHFA independently assessed the company’s 2013 performance against the Conservatorship Scorecard, taking 

into consideration the following:

• The quality, thoroughness, creativity, effectiveness, and timeliness of our work products;

• Collaboration and cooperation with FHFA, Fannie Mae and the industry; and

• The extent to which the outcomes of our activities support a competitive secondary mortgage market with lower 

barriers to entry and exit of participants.

In particular, FHFA noted the following specific factors in assessing our performance against the Conservatorship Scorecard:

• The company's accomplishment of the vast majority of Conservatorship Scorecard objectives, scoring 100% on most of 

its objectives;

• The thought leadership and creativity provided by Freddie Mac personnel involved in the risk sharing transactions; and

• The on-time delivery of the integration plan for the Common Securitization Platform. 

Based on the company’s performance against the Conservatorship Scorecard, including these considerations, FHFA

determined that the funding level for this portion of At-Risk Deferred Salary should be 97%. The table below presents the 

objectives and FHFA's assessment of our achievement against those objectives.

Table 77 — Achievement of Conservatorship Scorecard Performance Measures

Performance Goals FHFA's Summary of Performance

1 Build a new infrastructure for the secondary mortgage market (30%)

Common Securitization Platform (CSP) All goals were achieved with the following exceptions, which 

will be carried over to the 2014 Scorecard: In conjunction with FHFA, continue the foundational development of the CSP:

• Establish initial ownership and governance structure for the CSP. Assign

dedicated resources and establish independent location site for the CSP Team.

•

•

Completion of functional requirements

Development of a servicer integration plan

• Develop the design, scope and functional requirements for the CSP's modules and

develop the initial business operational process model.

Table of Contents
290 Freddie Mac

• Develop multi-year plans, inclusive of CSP build, test and deployment phases, and

the Enterprises' related system and operational changes.

• Develop and begin testing the CSP.

• Support FHFA progress reports to the public on the design, scope and functional

requirements. Update documents based on feedback received.

Contractual Disclosure Framework (CDF) All goals were achieved in accordance with roadmaps, 

milestones and guidance from FHFA

Continue the development of the CDF to meet the requirements for investors in

mortgage securities and credit risk:

• Identify and develop standards in data (i.e., leveraging the work underway in the

Uniform Mortgage Data Program), disclosure and Seller/Servicer contracts.

• Develop and execute work plans for alignment activities between the Enterprises

with regard to the common standards and creation of legal/contractual documents

to facilitate varied credit risk transfer transactions.

• Engage with the public in a variety of forums to seek feedback and incorporate

revisions.

• Support FHFA progress reports to the public.

Uniform Mortgage Data Program (UMDP)

• Complete identification and development of data standards for Uniform Mortgage

Servicing Data (UMSD), leveraging the Mortgage Industry Standards

Maintenance Organization process. Establish timeline to implement data

collection and use of UMSD data in enhanced disclosures and risk management

strategy,

All goals (including, for the fourth quarter, an alternative goal 

established by FHFA as discussed below) were achieved.

• Develop plan to standardize origination data (e.g., HUD-1 and Uniform

Residential Loan Application) as well as timeline for implementation.

An alternative milestone to provide a plan for publication of a

timeline for the announcement and collection of standardized

closing disclosure data was achieved. This alternative milestone

was established by FHFA due to a delay in the issuance of the

final rule and closing disclosure form by the Consumer Financial

Protection Bureau.

2

Contract the Enterprises dominant presence in the marketplace while simplifying and shrinking certain operations

(by line of business) (50%)

Single Family - Each Enterprise will demonstrate the viability of multiple types of 

risk transfer transactions involving single family mortgages with at least $30 billion of 

unpaid principal balances in 2013. (Risk transfer transactions of less than $10 billion 

receive no credit toward this goal, while results between $10 billion and $30 billion 

will receive partial credit.)

All goals related to risk transfer transactions were achieved,

demonstrating the viability of multiple types of risk transfer

transactions involving single-family mortgages.

Multi-Family - Reduce the UPB amount of new multifamily business relative to 2012 

by at least 10% by tightening underwriting, adjusting pricing and limiting product 

offerings, while not increasing the proportion of the Enterprises' retained risk. 

(Reductions between 0% and 10% will receive partial credit.)

The goal was achieved

Retained Portfolio - Reduce the December 31, 2012 retained portfolio balance 

(exclusive of agency securities) by selling 5% of assets. (Sales between 0% and 5% 

will receive partial credit.)

The goal was achieved

Scoring Note: In assessing results for these measures under Performance Goal 2, FHFA considered changes in market and regulatory

conditions, and whether the transactions:

• Were economically sensible;

• Were operationally well-controlled;

• Involved a meaningful transference of credit risk; and

• Were transparent to the marketplace.

FHFA also assessed whether the utility of the transaction furthered the long-term strategic goal of risk transfer, in judging whether to award credit for

individual transactions in meeting the totals set forth for each measure.

3 Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages (20%)

• Adapt quickly to statutory, regulatory, and market changes through appropriate

modifications and/or enhancements to loss mitigation and refinance options.

The goals were substantially achieved. However, in several

instances, the company's analysis was delayed or less complete

than desired. Additionally, program reporting for streamlined

modifications was less robust than desired. Certain initiatives

are ongoing and will be carried over to the 2014 Scorecard.

• Enhance post-delivery quality control practices and transparency associated with

new representation and warranty framework.

All goals were achieved

• Complete representation and warranty demands for pre-conservatorship loan

activity.

The goal was substantially achieved

• Develop counterparty risk management standards for mortgage insurers that

include uniform master policies and eligibility requirements.

The goals related to both mortgage insurance master policy

eligibility and mortgage insurer eligibility were achieved

• Incorporate policies related to lender placed insurance (LPI) within the Servicing

Alignment initiative.

All goals were achieved. Additionally, the company is on 

schedule with an ongoing obligation to work with FHFA to 

identify additional LPI cost savings.

At-Risk Deferred Salary Based on Complementary Corporate Goals and Individual Performance

Table of Contents
291 Freddie Mac

The other half of each NEO's At-Risk Deferred Salary, also equal to 15% of Target TDC, was subject to reduction based 

on a combination of the company's performance against the Complementary Corporate Goals and their individual performance. 

The six Complementary Corporate Goals were established to 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 NEOs were either Conservatorship Scorecard objectives or Complementary Corporate Goals or 

directly supported their achievement. 

No weightings were assigned to the Complementary Corporate Goals. As a result, it was necessary for the Compensation 

Committee to apply judgment in determining the overall level of performance. In making its determination, the Committee 

primarily considered the fact that the vast majority of the Complementary Corporate Goals were achieved.

The Compensation Committee therefore determined that no reduction should be applied to this portion of At-Risk 

Deferred Salary.

Table of Contents
292 Freddie Mac

Table 78 — Achievement of Complementary Corporate Goals

Complementary Corporate Goal and Specific Criteria Assessment of Performance

People - Make Freddie Mac a fulfilling place to work While we met or exceeded all but one of the external

benchmarks related to the employee survey used to

measure success for this goal, we did not achieve the

desired level of increased positive responses for several

of the survey questions.

• Achieve culture change goals at all levels

• Invest in people to strengthen commitment

• Enhance diversity efforts targeting higher-level

positions

Customers - Substantially enhance the customer 

experience

With one exception, we achieved or exceeded all aspects

of this goal, which included completing a process for

identifying and addressing causes of dissatisfaction

among our key customers. We also established

measurable service level standards designed to have a

significant positive impact on external customer service.

These actions were borne out by increased customer

satisfaction index scores among both single-family and

multifamily customers.

• Strengthen market presence and relevance

• Increasingly focus on five distinct customer sets, both

direct and indirect

• Address customer dissatisfiers

• Focus on service

Enhanced Mission - Help people own, rent, and stay in 

their homes

All elements of this goal were either met or exceeded,

including those related to HARP purchases, loan

modifications, short sales, REO dispositions in repaired

condition and cases resolved with a non-foreclosure

solution.

• Continue to provide liquidity

• Enhance our reputation by considering the impact of

our actions

Financial Performance - Enhance business capabilities 

and performance to position the company for financial 

success in a competitive future

With one exception, all elements of this goal were either

met or exceeded. While we succeeded in strengthening

our expense management discipline, our general and

administrative expenses were higher than anticipated due

primarily to FHFA-driven activity, specifically private

label securities litigation and development of the

Common Securitization Platform.

• Improve single-family profitability and market

presence

• Maintain profitable and quality multifamily business

• Enhance retained portfolio value and market presence

• Strengthen our expense management discipline

• Sharpen our decision-making capabilities

Risk Management - Take responsibility for risk 

management to make it a competitive advantage

All but one element of this goal was either met or

exceeded. While closure of significant deficiencies has

far outpaced identification of new issues, we did not

achieve timely remediation of all open issues.

• Reinforce risk ownership by instilling “everyone is a

risk manager”

• Address risks and resolve findings in a timely manner

by being proactive

• Make informed risk-reward decisions

Execution - Improve the urgency and quality of execution While we established and executed internal service-level

agreements, we did not do so by the date set by

management. All other aspects of this goal were either

met or exceeded, including:

• Focus on quality

• Increase decisiveness

• Developing customer satisfaction scorecards;

• Delivering projects managed by the Enterprise

Project Management Office on schedule and on

budget; and

• Conducting more than the planned number of

process improvement reviews to identify

opportunities to reduce bureaucracy or improve the

speed of decision-making.

The Committee then assessed the individual performance of each NEO, receiving input from Mr. Layton. The Committee 

used its judgment to determine the reduction, if any, for each NEO. In each case, the Compensation Committee's determination 

was consistent with Mr. Layton's recommendation. FHFA reviewed and approved these determinations.

Each NEO's individual performance and the reduction, if any, to this portion of his At-Risk Deferred Salary, is discussed 

below. The relatively narrow spread of the individual differentiation between the largest and smallest reductions for the portion 

of At-Risk Deferred Salary based on performance against the Complementary Corporate Goals and individual performance 

(expressed as a percentage of each NEO’s target) reflects the Compensation Committee's attempt to balance the contributions 

of each NEO toward the high level of performance against the Complementary Corporate Goals, with the need to differentiate 

between levels of individual performance.

Table of Contents
293 Freddie Mac

Mr. Layton's performance is not discussed below because his compensation does not include Deferred Salary.

James G. Mackey, Executive Vice President – Chief Financial Officer. The Compensation Committee determined that the 

payment to Mr. Mackey for the portion of his At-Risk Deferred Salary that was subject to reduction based on Complementary 

Corporate Goals and individual performance would be $64,772. This amount is equal to his target for the portion of the year he 

was employed. Upon joining the company on November 11, 2013, Mr. Mackey focused on the year-end financial process, 

identifying strategic changes that will enable the company to operate more effectively and efficiently, and successfully 

transitioning into his new role. In addition, we generally do not perform a full assessment of performance – or reduce elements 

of compensation based on individual performance – for employees who join the company on or after September 1 due to the 

difficulty associated with evaluating new employee performance over fewer than four full months of service. Accordingly, the 

CEO and the Compensation Committee determined there should be no reduction to this element of Mr. Mackey’s At-Risk 

Deferred Salary.

Ross J. Kari, Former Executive Vice President – Chief Financial Officer. The Compensation Committee determined that 

the payment to Mr. Kari for the portion of his At-Risk Deferred Salary that was subject to reduction based on Complementary 

Corporate Goals and individual performance would be $448,875, compared with his target of $472,500. In recommending and 

determining this amount, the CEO and the Compensation Committee considered that, during Mr. Kari’s tenure as our CFO – 

which ended in November 2013 – the Finance Division generally met or exceeded the majority of its goals. These included 

issuing timely and accurate financial statements, coordinating the cross-divisional effort that ultimately resulted in the release 

of the valuation allowance associated with our deferred tax assets, supporting business units in the production of management 

reports for business performance reviews, implementing numerous process improvements throughout the Finance Division to 

enhance efficiency, and improving processes for remediating control issues. 

David B. Lowman, Executive Vice President – Single-Family Business. The Compensation Committee determined that 

the payment to Mr. Lowman for the portion of his At-Risk Deferred Salary that was subject to reduction based on 

Complementary Corporate Goals and individual performance would be $294,886. This amount is equal to his target for the 

portion of the year he was employed. In recommending and determining this amount, the CEO and the Compensation 

Committee considered the impact Mr. Lowman had, since being hired in May 2013, in the accomplishment of the 2013 

Conservatorship Scorecard objectives and Complementary Corporate Goals for which the Single Family Division was 

primarily responsible. He personally led several representation and warranty settlement negotiations and successfully 

organized resources to quickly and effectively reduce the volume of impaired loans in the Legacy single-family guarantee 

book. More broadly, he provided strong leadership that was instrumental in enabling the Single Family Business to accomplish 

a variety of significant objectives. Specifically, Mr. Lowman’s strong customer focus and problem-solving abilities were 

instrumental in the business executing on its plan to significantly improve customer service levels and increase market share 

across multiple customer segments. Those qualities were also evident in the business's successful execution of three risk 

transfer transactions which we believe provide substantial credit risk protection for $57.8 billion of loans in our New singlefamily book.

William H. McDavid, Executive Vice President – General Counsel and Corporate Secretary. The Compensation 

Committee determined that the payment to Mr. McDavid for the portion of his At-Risk Deferred Salary that was subject to 

reduction based on Complementary Corporate Goals and individual performance would be $390,000. This amount is equal to 

his target. In recommending and determining this amount, the CEO and the Compensation Committee considered Mr. 

McDavid’s achievements and leadership of the Legal Division in 2013. In addition to serving as the primary liaison to our 

Board of Directors and providing high-quality legal advice to the rest of the organization, Mr. McDavid personally supervised a 

variety of demanding and complex legal issues during 2013. Most notably, the Legal Division played a critical role in 

negotiating $7.8 billion in various legal settlements. Mr. McDavid also implemented several operational and organizational 

changes in the Legal Division that increased its effectiveness and efficiency. Additionally, the division led an effort that 

resulted in the streamlining and modernization of internal company policies.

Jerry Weiss, Executive Vice President – Chief Administrative Officer. The Compensation Committee determined that the 

payment to Mr. Weiss for the portion of his At-Risk Deferred Salary that was subject to reduction based on Complementary 

Corporate Goals and individual performance would be $282,150, compared with his target of $297,000. In recommending and 

determining this amount, the CEO and the Compensation Committee considered the positive impact that Mr. Weiss’s leadership 

of the Chief Administrative Officer organization had on the accomplishment of the 2013 Conservatorship Scorecard objectives 

and Complementary Corporate Goals. In addition to the role Mr. Weiss has played as the company’s primary senior executive 

liaison to FHFA and Treasury, he also led the company’s efforts that resulted in significant progress on two major 

Conservatorship Scorecard objectives – the Common Securitization Platform and the Contractual Disclosure Framework. Mr. 

Weiss also provided leadership in coordinating the company’s strategy and policy activities related to the future state of the 

GSEs. For the Complementary Corporate Goals, Mr. Weiss guided his portfolio of activities to execute in a more strategic and 

efficient manner, which enhanced their enterprise-wide support for a number of business initiatives, as well as reduced costs.

Table of Contents
294 Freddie Mac

The following chart compares the target and actual amounts of 2013 Deferred Salary for each NEO other than 

Mr. Layton. The actual amount earned is scheduled to be paid in equal quarterly installments on the last business day of each 

calendar quarter of 2014.

Table 79 — 2013 Deferred Salary

 Target 2013 Deferred Salary Actual 2013 Deferred Salary

At-Risk At-Risk

Named

Executive

Officer Fixed

Conservatorship

Scorecard

Complementary

Goals/

Individual

Total Target

Deferred

Salary Fixed

Conservatorship

Scorecard

Complementary

Goals/

Individual

Total Actual

Deferred

Salary

Mr. Mackey1$ 230,303 $ 64,773 $ 64,772 $ 359,848 $ 230,303 $ 62,830 $ 64,772 $ 357,905

Mr. Kari 1,530,000 472,500 472,500 2,475,000 1,530,000 458,325 448,875 2,437,200

Mr. Lowman11,048,485 294,887 294,886 1,638,258 1,048,485 286,040 294,886 1,629,411

Mr. McDavid 1,320,000 390,000 390,000 2,100,000 1,320,000 378,300 390,000 2,088,300

Mr. Weiss 891,000 297,000 297,000 1,485,000 891,000 288,090 282,150 1,461,240

(1) Amounts for Messrs. Lowman and Mackey are pro-rated based on their dates of hire in May and November, 2013, respectively.

Written Agreements Relating to Our NEOs' Employment

We entered into letter agreements with each of our NEOs in connection with their hiring, as described further below. 

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, other than in the case of Mr. Layton, is subject to the terms of 

the Executive Compensation Program. 

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 “Potential Payments Upon Termination of Employment or Change-in-Control.”

Executive Compensation Program participants 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 or Change-in-Control” below. 

Mr. Layton

We entered into: (a) a letter agreement; and (b) a restrictive covenant and confidentiality agreement with Mr. Layton in 

connection with his employment as our Chief Executive Officer. 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 

senior 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) a letter agreement; and (b) 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 provide him with the following 

during his employment with Freddie Mac, subject to the terms of the Executive Compensation Program: an annual Base Salary 

of $500,000; Target TDC opportunity of $3,000,000, which consists of the 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 senior executive officers 

pursuant to the terms of these plans. 

Mr. Mackey's letter agreement also provided for a cash sign-on award of $960,000 in recognition of the forfeited 

compensation at his prior employer and commuting expenses during the first several months of employment. This award will 

be paid in installments during Mr. Mackey’s first year of employment with us, as follows: (i) first installment: $510,000 on the 

same date on which Mr. Mackey received his first payment of Base Salary; (ii) second installment: $225,000 on the six-month 

anniversary of his hire date; and (iii) third installment: $225,000 on the one-year anniversary of his hire date. If Mr. Mackey is 

not an employee of Freddie Mac on an installment payment date, the installment will be forfeited. Additionally, each 

installment will be subject to repayment in the event that, prior to the first anniversary of an installment payment date, Mr. 

Mackey terminates his employment with Freddie Mac for any reason or Freddie Mac terminates his employment due to the 

occurrence of any of the Forfeiture Events described in his Recapture and Forfeiture Agreement. 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. 

Table of Contents
295 Freddie Mac

Mr. Lowman

We entered into: (a) a letter agreement; and (b) a restrictive covenant and confidentiality agreement with Mr. Lowman 

in connection with his employment as our Executive Vice President - Single-Family Business. The terms of Mr. Lowman’s 

letter agreement provide him with the following during his employment with Freddie Mac, subject to the terms of the 

Executive Compensation Program: an annual Base Salary of $500,000; Target TDC opportunity of $3,000,000, which consists 

of the 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 senior executive officers pursuant to the terms of these plans. 

Mr. Lowman's letter agreement also provided for a cash sign-on award of $150,000 for commuting expenses during the 

first year of employment. Under the terms of the letter agreement, Mr. Lowman is required to repay a pro-rata portion of the 

sign-on award he received upon his hire in May 2013 in the event that, prior to the first anniversary of his hire date, he 

terminates his employment for any reason or Freddie Mac terminates his employment due to the occurrence of any of the 

Forfeiture Events described in his Recapture and Forfeiture Agreement. Copies of Mr. Lowman's letter agreement and 

restrictive covenant and confidentiality agreement are filed as Exhibits 10.48 and 10.49, respectively, to this Annual Report on 

Form 10-K.

Mr. McDavid

We entered into: (a) a letter agreement; and (b) a restrictive covenant and confidentiality agreement with Mr. McDavid 

in connection with his employment as our Executive Vice President - General Counsel and Corporate Secretary. The terms of 

Mr. McDavid’s letter agreement provide him with the following during his employment with Freddie Mac, subject to the terms 

of the Executive Compensation Program: an annual Base Salary of $500,000; Target TDC opportunity of $2,600,000, which 

consists of the 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 senior 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. 

Messrs. Kari and Weiss

We do not have any continuing obligations under the letter agreements that were entered into with Messrs. Kari or Weiss 

at the time of their employment. The restrictive covenant and confidentiality agreements entered into by Messrs. Kari and 

Weiss were filed, respectively, as Exhibit 10.9 to our Quarterly Report on Form 10-Q filed on November 6, 2009 and Exhibit 

10.49 to our Annual Report on Form 10-K filed on March 9, 2012.

Recapture and Forfeiture Agreement

Freddie Mac has adopted, with the approval of FHFA, the Recapture and Forfeiture Agreement (the “Recapture 

Agreement”). An NEO's agreement to the Recapture Agreement is a condition of participation in the Executive Compensation 

Program. We entered into a Recapture Agreement with each of our NEOs other than Mr. Layton. We did not enter into a 

Recapture Agreement with Mr. Layton because he only receives Base Salary, which is not subject to recapture. 

The Recapture Agreement provides for the recapture and/or forfeiture of Deferred Salary earned, paid or to be paid 

pursuant to the terms of the Executive Compensation Program 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 forfeiture are described below.

• 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 of Directors 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 of Directors determines that such conduct is materially harmful to Freddie Mac.

Termination of employment because, or within two years of termination, the Board of Directors determines 

that, the NEO engaged in willful misconduct in the performance of his or her duties that was materially 

harmful to Freddie Mac.

Table of Contents
296 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 of Directors 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.

Under the Recapture Agreement, the Board of Directors 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 10.3 to our Current Report on Form 8-K filed on 

June 12, 2013. The Recapture Agreement applicable to compensation earned in 2012 was filed as Exhibit 10.3 to our quarterly 

report on Form 10-Q filed on November 6, 2012 and the Recapture Policy applicable to compensation earned in 2011 was filed 

as Exhibit 10.4 to our Current Report on Form 8-K filed on December 24, 2009.

The following additional event is applicable only to the CEO and CFO, to the extent they have compensation subject to 

recapture.

• Accounting Restatement Resulting from the Executive’s Misconduct - If misconduct by the CEO and/or CFO 

necessitates the preparation of an accounting restatement due to material non-compliance with financial reporting 

requirements, the compensation subject to recapture will be determined in accordance with Section 304 of the 

Sarbanes-Oxley Act.

Indemnification Agreements

We have also entered into indemnification agreements with certain of our current and former directors and executive 

officers, each an indemnitee, including each of our NEOs. With respect to indemnification agreements entered into with 

executive officers in or after August 2011, the form of agreement has been revised to provide that indemnification rights under 

the agreement would terminate if and when the executive officer remained with Freddie Mac after ceasing to report directly to 

the CEO with respect to any claims arising from matters occurring after the officer was no longer a direct CEO report. Similar 

indemnification rights would continue to be available to such executive officers under the Bylaws going forward. The 

indemnification agreements provide that we will indemnify the indemnitee to the fullest extent permitted by our Bylaws and 

Virginia law. This obligation includes, subject to certain terms and conditions, indemnification against all liabilities and 

expenses (including attorneys’ fees) actually and reasonably incurred by the indemnitee in connection with any threatened or 

pending action, suit or proceeding, except such liabilities and expenses as are incurred because of the indemnitee’s willful 

misconduct or knowing violation of criminal law. The indemnification agreements provide that if requested by the indemnitee, 

we will advance expenses, subject to repayment by the indemnitee of any funds advanced if it is ultimately determined that the 

indemnitee is not entitled to indemnification. The rights to indemnification under the indemnification agreements are not 

exclusive of any other right the indemnitee may have under any statute, agreement or otherwise. Our obligations under the 

indemnification agreements will continue after the indemnitee is no longer a director or officer of the company with respect to 

any possible claims based on the fact that the indemnitee was a director or officer, and the indemnification agreements will 

remain in effect in the event the conservatorship is terminated. The indemnification agreements also provide that 

indemnification for actions instituted by FHFA will be governed by the standards set forth in FHFA's Notice of Proposed 

Rulemaking, transmitted to the Federal Register on November 6, 2008, implementing 12 U.S.C. 4518. That proposed 

rulemaking has not yet been finalized. In the preamble to FHFA's final rule on Golden Parachute Payments, published in the 

Federal Register on January 28, 2014, FHFA indicated that a final rule on indemnification payment provisions remains under 

review.

Other Executive Compensation Considerations

Effect of Termination of Employment

Table of Contents
297 Freddie Mac

Under the Executive Compensation Program, Base Salary ceases upon an NEO’s termination of employment, regardless 

of the reason for such termination. The timing and payment of any unpaid portion of Deferred Salary is based upon the reason 

for termination, which is discussed in “Potential Payments Upon Termination of Employment or Change-in-Control — 

Potential Payments Under the Executive Compensation Program.”

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 2013 was reimbursement for assistance with 

personal financial planning, tax planning, and/or estate planning, up to an annual maximum benefit that varies by position.

Supplemental Executive Retirement Plan

In 2013, our NEOs were eligible to participate in our Supplemental Executive Retirement Plan, or SERP. The SERP is 

designed to provide participants with the full amount of benefits to which they would have been entitled under our Pension 

Plan and Thrift/401(k) Savings Plan if those plans: (a) were not subject to certain dollar limits under the Internal Revenue 

Code; and (b) did not exclude from “compensation” Deferred Base Salary prior to 2012 and amounts deferred under our 

Executive Deferred Compensation Plan (discussed below).

Effective January 1, 2012, eligibility for the “Pension SERP Benefit” (as defined in the SERP) is limited, and Executives 

(as defined in the SERP) whose employment with the company commenced after December 31, 2011 (or who are rehired after 

that date) are not eligible for the Pension SERP Benefit. 

On August 27, 2012, the SERP was amended, with approval of FHFA. Under this amendment, which became effective as 

of January 1, 2012, benefits under the SERP are limited to two times a participant’s Base Salary in any calendar year in which 

the participant’s compensation is covered by the Executive Compensation Program.

On October 24, 2013, the Company received a directive from FHFA to terminate the Pension Plan as well as the Pension 

SERP Benefit and the pre-2005 Thrift/401(k) components (together, the “Terminating SERP”) of the SERP. No Pension SERP

Benefit accruals or Pension Plan accruals will occur after December 31, 2013. The accruals associated with the Terminating 

SERP will be distributed within twelve to twenty-four months of October 24, 2013.

For additional information regarding this benefit see “Compensation Tables” below.

Stock Ownership, Hedging and Pledging Policies

In November 2008, FHFA approved the suspension of our stock ownership guidelines, because we had ceased paying our 

executives stock-based compensation. Also, the Purchase Agreement prohibits us from issuing any shares of our equity 

securities without the prior written consent of Treasury. The suspension of stock ownership requirements is expected to 

continue through the conservatorship and until such time that we resume granting stock-based compensation.

All employees, including our NEOs, are prohibited from purchasing and selling derivative securities related to our equity 

securities, including warrants, puts and calls, or from dealing in any derivative securities other than pursuant to our stock-based 

benefit plans. All directors and employees (including our NEOs) are prohibited from transacting in options (other than options 

granted by us) or other hedging instruments as specified in our Insider Trading Policy. In addition, all directors and employees 

(including our NEOs) are prohibited from holding our securities in a margin account or pledging our securities as collateral for 

a loan.

Section 162(m) Limits on the Tax Deductibility of Our Compensation Expenses

Section 162(m) of the Internal Revenue Code imposes a $1 million limit on the amount that a company may annually 

deduct for compensation to its CEO and certain other NEOs, unless, among other things, the compensation is “performancebased,” as defined in section 162(m). Given the conservatorship and the desire to maintain flexibility to promote our corporate 

goals, At-Risk Deferred Salary is not structured to qualify as performance-based compensation under section 162(m).

Compensation Committee Interlocks and Insider Participation

None of the members of the Board of Directors who served on the Compensation Committee during fiscal year 2013 

were our officers or employees or had any relationship with us that would be required to be disclosed by us under Item 407(e)

(4) of Regulation S-K.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management 

and, based on such review and discussion, has recommended to the Board that the Compensation Discussion and Analysis be 

included in this Annual Report on Form 10-K.

This report is respectfully submitted by the members of the Compensation Committee of the Board.

Table of Contents
298 Freddie Mac

Anthony A. Williams, Chairman

Steven W. Kohlhagen

Christopher S. Lynch

Sara Mathew

Saiyid T. Naqvi

Compensation and Risk

With respect to 2013, our management conducted an assessment of our compensation plans and programs that were in 

place during the year and that were applicable to employees at all levels, including the Executive Compensation Program. The 

purpose of the assessment was to determine whether the design and operation of our compensation plans create incentives for 

employees to take inappropriate risks that are reasonably likely to have a material adverse effect on us. The assessment was 

conducted by members of our enterprise risk management and human resources teams.

The review included an evaluation of:

• the mix of fixed and at-risk compensation;

• eligibility for participation in compensation programs;

• the process by which Target TDC levels are established;

• the process for establishing performance objectives and for evaluating performance against those objectives; and

• the involvement of the Compensation Committee and FHFA in the compensation process.

The assessment was discussed with the Compensation Committee in December 2013. Management’s conclusion, with 

which the Compensation Committee concurred, is that our compensation policies and practices in place during 2013 do not 

create risks that are reasonably likely to have a material adverse effect on us.

Table of Contents
299 Freddie Mac

Compensation Tables

The following tables set forth compensation information for our NEOs: our CEO, CFO, former CFO and the three 

other most highly compensated executive officers who were serving as executive officers as of December 31, 2013.

Table 80 — Summary Compensation Table — 2013

 Salary

Non-Equity Incentive

Plan Compensation (4) Change in

Pension Value

and Nonqualified

Deferred

Compensation

Earnings(5)

All Other

Compensation (6)

Name and Principal

Position Year

Earned 

During

Year(1) Deferred(2) Bonus(3)

At-Risk

Deferred 

Salary

Target

Opportunity Total

Donald H. Layton 2013 $ 600,000 $ — $ — $ — $ — $ — $ 23,827 $ 623,827

Chief Executive Officer 2012 368,750 — — — — — — 368,750

James G. Mackey 2013 70,881 230,303 510,000 127,602 — — — 938,786

EVP — Chief Financial

Officer

Ross J. Kari 2013 675,000 1,530,000 — 907,200 — 82,457 114,362 3,309,019

Former EVP — Chief

Financial Officer 2012 675,000 1,530,000 — 921,375 554,167 156,794 133,464 3,970,800

2011 675,000 829,167 — 721,375 988,771 118,428 55,292 3,388,033

David B. Lowman 2013 329,502 1,048,485 150,000 580,926 — — — 2,108,913

EVP — Single-Family

Business

William H. McDavid 2013 500,000 1,320,000 — 768,300 — — 29,713 2,618,013

EVP — General Counsel

and Corporate Secretary

Jerry Weiss 2013 495,000 891,000 — 570,240 — 26,394 84,015 2,066,649

EVP — Chief

Administrative Officer 2012 495,000 891,000 — 579,150 348,333 218,711 94,584 2,626,778

2011 450,000 508,334 — 442,249 618,732 164,482 73,735 2,257,532

(1) The amounts shown reflect Base Salary under the Executive Compensation Program as described in “Compensation Discussion and Analysis — 

Executive Management Compensation Program.” 

(2) The amounts shown for 2013 and 2012 reflect the Fixed Deferred Salary earned under the terms of the Executive Compensation Program. The 

Fixed Deferred Salary earned during each calendar quarter is paid in cash on the last business day of the corresponding quarter in the following 

year. The remaining portion of Deferred Salary is reported in “Non-Equity Incentive Plan Compensation” and is referred to as "At-Risk" because it 

is subject to reduction based upon corporate and individual performance. The amounts shown for 2011 reflect the Fixed Deferred Base Salary 

earned under the prior executive compensation program in place for that year. The timing of payments for Fixed Deferred Base Salary earned 

during 2011 is the same as described above under the Executive Compensation Program. As with the amounts reported for 2013 and 2012, a 

portion of 2011 Deferred Base Salary is reflected in "Non-Equity Incentive Plan Compensation" because it is performance-based.

(3) The amounts shown reflect cash sign-on payments made to Messrs. Mackey and Lowman upon their hiring in 2013. See “Compensation Discussion 

and Analysis — Written Agreements Relating to Our NEOs' Employment" for additional information.

(4) The 2013 amounts reflect At-Risk Deferred Salary earned during 2013. At-Risk Deferred Salary earned during each calendar quarter will be paid 

on the last business day of the corresponding quarter in 2014. See “Compensation Discussion and Analysis — Executive Management 

Compensation Program — Performance Measures for the Performance-Based Elements of Compensation.”

The 2012 amounts reflect (i) At-Risk Deferred Salary earned during each calendar quarter in 2012 and paid on the last business day of the 

corresponding quarter in 2013, and (ii) the portion of the 2011 Target Opportunity that was earned in 2012 and paid in February 2013.

The 2011 amounts reflect (i) the At-Risk Deferred Base Salary earned during each calendar quarter in 2011 and paid on the last business day of the 

corresponding quarter in 2012, and (ii) the portions of the 2011 and 2010 Target Opportunities that were earned in 2011 and paid in February 2012.

(5) The amounts reported in this column reflect the actuarial increase in the present value of each NEO's accrued benefits under the Pension Plan and 

the Pension SERP Benefit determined using the time periods and assumptions applied in our consolidated financial statements for the years ended 

December 31, 2013, 2012, and 2011, respectively.

Messrs. Kari and Weiss are the only NEOs who were eligible to participate in the Pension Plan or Pension SERP because participation was limited 

to those individuals who were hired (or rehired) prior to January 1, 2012.

The amounts reported do not include values associated with retiree medical benefits, which are generally available on the same terms to all 

employees.

(6) Amounts reflect (i) contributions we made to our tax-qualified Thrift/401(k) Savings Plan; (ii) accruals we made pursuant to the Thrift/401(k) 

SERP Benefit; and (iii) Perquisites. The amounts for 2013 are as follows:

Table of Contents
300 Freddie Mac

Thrift/401(k)

Savings Plan

Contributions

Thrift/401(k)

SERP Benefit

Accruals Perquisites

Mr. Layton $ 3,300 $ 20,527 $ —

Mr. Mackey — — —

Mr. Kari 21,550 92,812 —

Mr. Lowman — — —

Mr. McDavid 300 29,413 —

Mr. Weiss 21,700 62,315 —

Employer contributions to the Thrift/401(k) Savings Plan are available on the same terms to all of our employees. After the first year of 

employment, we match up to 6% of eligible compensation at 100% of the employee’s contributions. Employee contributions and our matching 

contributions are invested in accordance with the employee’s investment elections and are immediately vested. In addition, on a discretionary 

basis, we may make an additional contribution to our Thrift/401(k) Savings Plan (referred to as the "Discretionary Contribution" for 2013 and as 

the "Basic Contribution" for years prior to 2013). In 2013, eligible employees received a Discretionary Contribution equal to 2.5% of 

compensation earned in the prior year. This contribution is vested 100% after an employee has completed three years of service. Amounts for the 

Thrift/401(k) Savings Plan contributions and Thrift/401(k) SERP Benefit accruals are presented without regard to vesting status. For additional 

information regarding the Thrift/401(k) SERP Benefit, see “Non-qualified Deferred Compensation” below. 

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 or personal 

benefits for an NEO that, in the aggregate, amount to less than $10,000.

Grants of Plan-Based Awards — 2013

The following table contains information concerning grants of plan-based awards to each of the NEOs during 2013. 

We are prohibited from issuing equity securities without Treasury’s consent under the terms of the Purchase Agreement. 

Accordingly, no stock awards were granted during 2013. For a description of the performance and other measures used to 

determine payouts, see “Compensation Discussion & Analysis — Executive Management Compensation Program — 

Elements of Target Total Direct Compensation (Target TDC),” “— Performance Measures for the Performance-Based 

Elements of Compensation,” “— Determination of 2013 Target TDC for NEOs,” and “— Determination of Actual 2013 

Compensation.”

Table 81 — Grants of Plan-Based Awards — 2013

 

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(1)

Name At-Risk Deferred Salary Award Threshold Target/Maximum

Mr. Layton(2) Conservatorship Scorecard $ — $ —

Complementary Goals/Individual — —

Total — —

Mr. Mackey Conservatorship Scorecard — 64,773

Complementary Goals/Individual — 64,772

Total — 129,545

Mr. Kari Conservatorship Scorecard — 472,500

Complementary Goals/Individual — 472,500

Total — 945,000

Mr. Lowman Conservatorship Scorecard — 294,887

Complementary Goals/Individual — 294,886

Total — 589,773

Mr. McDavid Conservatorship Scorecard — 390,000

Complementary Goals/Individual — 390,000

Total — 780,000

Mr. Weiss Conservatorship Scorecard — 297,000

Complementary Goals/Individual — 297,000

Total — 594,000

(1) The amounts reported reflect At-Risk Deferred Salary granted in 2013 which is subject to reduction based on (i) corporate performance against the 

Conservatorship Scorecard; and (ii) an officer's individual performance and the company's performance against the Complementary Corporate Goals. 

The amount of At-Risk Deferred Salary actually earned can range from 0% of target (reported in the Threshold column) up to a maximum of 100% of 

target (reported in the Target/Maximum column). Actual At-Risk Deferred Salary amounts earned are reported in the “Non-Equity Incentive Plan 

Compensation” column of “Table 80 — Summary Compensation Table — 2013.”

(2) Mr. Layton is not eligible to receive Deferred Salary.

Table of Contents
301 Freddie Mac

Outstanding Equity Awards at Fiscal Year-End — 2013

The following table shows outstanding equity awards held by the NEOs as of December 31, 2013. As of December 31, 

2013, there were no outstanding RSUs.

Table 82 — Outstanding Equity Awards at Fiscal Year-End — 2013

 Option Awards(1)

Grant Date

Number of Securities

Underlying Unexercised Options

Option Exercise 

Price(2)

Option

Expiration

Name Exercisable Unexercisable Date

Mr. Layton — — — $ — —

Mr. Mackey — — — — —

Mr. Kari — — — — —

Mr. Lowman — — — — —

Mr. McDavid — — — — —

Mr. Weiss 8/9/2004 4,970 — 64.36 8/8/2014

5/6/2005 5,640 — 62.69 5/5/2015

6/5/2006 5,980 — 60.45 6/4/2016

(1) Consistent with the terms of our 2004 Employee Plan, the option exercise price was set at a price equal to the fair market value of our common stock on 

the grant date.

(2) Amounts reported in this table represent the unexercised portion of stock option awards. The vesting schedules are as follows:

• Stock options granted on August 9, 2004 vested at a rate of 25% beginning on the first anniversary of the grant date, and 25% on April 1, 2006,

April 1, 2007, and April 1, 2008.

• Stock options granted on May 6, 2005 and June 5, 2006 vested at a rate of 25% annually beginning on the first anniversary of the grant dates.

Option Exercises and Stock Vested — 2013

During 2013, no options were exercised and no RSUs vested.

Pension Benefits — 2013

The following table shows the actuarial present value of the accumulated retirement benefits payable to each of the NEOs 

under our Pension Plan and the Pension SERP Benefit (the component of the SERP that relates to the Pension Plan), computed 

as of December 31, 2013. A summary of the material terms of each plan follows the table, including information on early 

retirement. On October 24, 2013, the Company received a directive from FHFA to terminate the Pension Plan as well as the 

Terminating SERP. No Pension SERP Benefit accruals or Pension Plan accruals will occur after December 31, 2013. The 

accruals associated with the Terminating SERP will be distributed within twelve to twenty-four months of October 24, 2013.

Table 83 — Pension Benefits — 2013 

Name Plan Name

Number of Years

Credited Service(1)

Present value of

Accumulated Benefit(2)

Payments During

Last Fiscal Year

Mr. Layton Pension Plan — $ — $ —

Pension SERP Benefit — — —

Mr. Mackey Pension Plan — — —

Pension SERP Benefit — — —

Mr. Kari Pension Plan 4.2 92,944 —

Pension SERP Benefit 4.2 334,477 —

Mr. Lowman Pension Plan — — —

Pension SERP Benefit — — —

Mr. McDavid Pension Plan — — —

Pension SERP Benefit — — —

Mr. Weiss Pension Plan 10.2 279,052 —

Pension SERP Benefit 10.2 536,777 —

Table of Contents
302 Freddie Mac

(1) Amounts reported represent the credited years of service for each NEO as of December 31, 2013, under the Pension Plan and the Pension SERP

Benefit, respectively.

(2) Amounts reported reflect the present value, expressed as a lump sum as of December 31, 2013, of each NEO’s benefits under the Pension Plan and the 

Pension SERP Benefit, respectively. Amounts reported are calculated assuming a lump sum payment date as of December 31, 2014. Pension Plan and 

Pension SERP Benefits reflected are fully vested. Messrs. Layton, Mackey, Lowman and McDavid were not eligible to participate in the Pension Plan 

or Pension SERP Benefit since they were hired after December 31, 2011, when the plans closed to new hires. 

Pension Plan

The Pension Plan is a tax-qualified, defined benefit pension plan, covering substantially all employees hired before 2012 

who have attained age 21 and completed one year of service with us. The Pension Plan was closed to new entrants effective 

January 1, 2012. On October 24, 2013, we received a directive from FHFA to cease accruals under the Pension Plan effective 

December 31, 2013 and to commence terminating the Pension Plan. As shown above, Messrs. Weiss and Kari were eligible to 

participate in the Pension Plan. Pension Plan benefits are based on an employee’s years of service through December 31, 2013, 

and compensation through December 29, 2013, up to limits imposed by law. Specifically, the normal retirement benefit under 

the Pension Plan for service after December 31, 1988 is a monthly payment commencing at age 65 calculated as follows:

• 1% of the participant’s highest average monthly compensation for the 36-consecutive month period during which the 

participant’s compensation was the highest;

• multiplied by the participant’s full and partial years of credited service through December 31, 2013 under the Pension 

Plan.

For purposes of the Pension Plan, compensation includes cash payments to each employee for Base Salary, Deferred 

Salary under the Executive Compensation Program, supplemental pay under our current pay structure for vice presidents and 

below, as well as overtime pay, shift differentials, non-deferred bonuses paid under a corporate-wide annual bonus program (if 

any) or pursuant to a functional incentive plan (excluding the value of any stock options or cash equivalents), commissions and 

salary reductions under the Thrift/401(k) Savings Plan and the Flexible Benefits Plan (i.e. our cafeteria plan under Internal 

Revenue Code Section 125), and qualified transportation benefits under Internal Revenue Code Section 132(f)(4). 

Compensation does not include, among other things, supplemental compensation plans providing temporary pay, Deferred Base 

Salary amounts under the prior pay structure and amounts deferred under the EDCP (discussed below), amounts paid after 

termination of employment other than amounts included in a final paycheck, or amounts paid after the last pay date of 2013 

(December 27, 2013).

The normal form of benefit under the Pension Plan is an annuity providing monthly payments for the life of the 

participant (and a survivor annuity for the participant’s spouse if applicable). Optional forms of benefit payment are available. 

A benefit with an actuarial present value equal to or less than $5,000 may only be paid as a lump sum. Participants that 

terminate after December 31, 2011, may elect a lump sum payout.

Participants under the Pension Plan who terminate employment before age 55 with at least five years of service are 

considered “terminated vested” participants. Terminated vested participants may commence their benefit under the Pension 

Plan as early as age 55. The benefit is equal to the vested portion of the participant’s accrued benefit, reduced by 1/180th for 

each of the first 60 months, and by 1/360th for each of the next 60 months, by which the commencement of such benefits 

precedes age 65. As a result of the Pension Plan termination directed by FHFA, unvested active participants as of December 31, 

2013 became vested. 

An early retirement benefit is available to a participant who terminates employment on or after age 55 with at least five 

years of service. For service before January 1, 2011, this early retirement benefit is reduced by 3% for each year (prorated 

monthly for partial years) by which the commencement of such benefits precedes the earlier of: (a) the participant’s attainment 

of age 65; or (b) the participant’s attainment of age 62 or later with at least 15 years of service. For service after December 31, 

2010, the reduction is 5% for each year (prorated monthly for partial years) by which the commencement of benefits precedes 

the participant’s attainment of age 65. For participants with service prior to January 1, 2011 and after December 31, 2010, the 

reductions are separately calculated, and the early retirement benefit is the sum of the two calculations. Death benefits are 

available provided the participant was vested.

Supplemental Executive Retirement Plan — Pension SERP Benefit

To be eligible for the Pension SERP Benefit for any year, the NEO must have been eligible to participate in the Pension 

Plan. Of the NEOs, only Messrs. Kari and Weiss were eligible to participate in the Pension Plan. Eligibility for the Pension 

SERP Benefit and the Pension Plan has been eliminated for employees (including executive officers) hired or rehired after 

December 31, 2011. See “Other Executive Compensation Considerations — Supplemental Executive Retirement Plan” above.

The Pension SERP Benefit component of the SERP is an unfunded (benefits are paid from general assets), non-qualified 

plan designed to provide participants with the full amount of benefits to which they would have been entitled under the Pension 

Plan if that plan: (a) was not subject to certain dollar limits under the Internal Revenue Code; and (b) did not exclude from 

“compensation” Deferred Base Salary amounts prior to 2012 and amounts deferred under our EDCP (discussed below). For 

example, the Pension Plan was only permitted under the Internal Revenue Code to consider the first $255,000 of an employee’s 

compensation during 2013 for the purpose of determining the participant’s compensation-based normal retirement benefit. The 

Table of Contents
303 Freddie Mac

SERP was previously amended to provide that the maximum covered compensation for purposes of the SERP, relative to an 

NEO, may not exceed two times the NEO’s Base Salary.

The Pension SERP Benefit is calculated as the participant’s accrued annual benefit payable at age 65 (or current age, if 

greater) under the Pension Plan without application of the limits described in the preceding paragraph, less the participant’s 

actual accrued benefit under the Pension Plan. The Pension SERP Benefit is vested for each participant to the same extent that 

the participant is vested in the corresponding benefit under the Pension Plan.

Non-qualified Deferred Compensation

Executive Deferred Compensation Plan

The EDCP is a non-qualified plan and is unfunded (benefits are paid from our general assets). The EDCP has, in the past, 

allowed the NEOs to defer receipt of a portion of their annual base pay and cash bonus (and to defer settlement of RSUs 

granted between 2002 and 2007). Deferrals of pay under the EDCP were suspended beginning with calendar year 2011 and 

continue to be suspended. None of the NEOs have a balance under the EDCP.

Supplemental Executive Retirement Plan — Thrift/401(k) SERP Benefit

The Thrift/401(k) SERP Benefit component of the SERP is an unfunded (benefits are paid from general assets), nonqualified defined contribution plan designed to provide participants with the full amount of benefits that they would have been 

entitled to under the Thrift/401(k) Savings Plan if that plan: (a) was not subject to certain dollar limits under the Internal 

Revenue Code; and (b) did not exclude from “compensation” Deferred Base Salary amounts prior to 2012 and amounts 

deferred under our EDCP. For example, in 2013 under the Internal Revenue Code, only the first $255,000 of an employee’s 

compensation was considered when determining our percentage-based matching contribution and the Discretionary 

Contribution for any participant in the Thrift/401(k) Savings Plan. The SERP was amended to provide that the maximum 

covered compensation for purposes of the SERP, relative to an NEO, may not exceed two times the NEO’s Base Salary. We 

believe the Thrift/401(k) SERP Benefit is an appropriate benefit because offering such a benefit helps us remain competitive 

with companies in the Comparator Group.

The Thrift/401(k) SERP Benefit equals the amount of the employer matching contributions and Discretionary 

Contributions (or, prior to January 1, 2013, Basic Contributions) for each NEO that would have been made to the Thrift/401(k) 

Savings Plan during the year, based upon the participant’s eligible compensation, without application of the above limits, less 

the amount of the matching contributions and Discretionary Contributions (or, prior to January 1, 2013, Basic Contributions) 

actually made to the Thrift/401(k) Savings Plan during the year. Participants are credited with earnings or losses in their 

Thrift/401(k) SERP Benefit accounts based upon each participant’s individual direction of the investment of such notional 

amounts among the virtual investment funds available under the SERP. Such investment options are based upon and mirror the 

performance of the investment options available under the Thrift/401(k) Savings Plan. As of December 31, 2013, there were 21 

investment options in which participants’ notional amounts could be deemed invested.

To be eligible for the Thrift/401(k) SERP Benefit, the NEO must be eligible for matching contributions and Discretionary 

Contributions (or, prior to January 1, 2013, Basic Contributions) under the Thrift/401(k) Savings Plan for part of the year. In 

addition, to be eligible for the portion of the Thrift/401(k) SERP Benefit attributable to employer matching contributions, the 

NEO must contribute the maximum amount permitted under the terms of the Thrift/401(k) Savings Plan on a pre-tax basis. 

The portion of the Thrift/401(k) SERP Benefit that is attributable to employer matching contributions is vested when accrued, 

while the accrual relating to the Basic Contribution paid prior to 2008 is subject to five-year cliff vesting, the accrual relating to 

the Basic Contribution attributable to calendar years 2008-2011 is subject to five-year graded vesting of 20% per year, and, 

through 2013, the accrual relating to the Discretionary Contribution is subject to three-year cliff vesting.

The Thrift/401(k) SERP Benefits that vest on or after January 1, 2005 are generally distributed in a lump sum payable 

90 days after the end of the calendar year in which separation from service occurs. A six-month delay in commencement of 

distributions on account of separation from service applies to key employees, in accordance with Internal Revenue Code 

Section 409A. If the NEO dies, the vested Thrift/401(k) SERP Benefit is paid in the form of a lump sum within 90 days of 

death.

As discussed in "Other Executive Compensation Considerations — Supplemental Executive Retirement Plan" above, the 

Thrift/401(k) SERP Benefits that vested prior to January 1, 2005 are part of the Terminating SERP. The final settlement of this 

benefit will be in the form of lump sum payments to each participant with a vested right to such benefit not less than twelve 

months but no more than twenty-four months after October 24, 2013. 

The following table shows the contributions, earnings, withdrawals and distributions, and accumulated balances under the 

Thrift/401(k) SERP Benefit for each NEO. As of December 31, 2013, none of the NEOs was a participant in the EDCP.

Table of Contents
304 Freddie Mac

Table 84 — Non-Qualified Deferred Compensation

Name

Executive

Contribution in

Last FY ($)(1)

Freddie Mac

Accruals in

Last FY ($)(2)

Aggregate

Earnings in

Last FY ($)(3)

Aggregate

Withdrawals/

Distributions ($)

Aggregate

Balance at

Last FYE ($)(4)

Mr. Layton

Thrift/401(k) SERP Benefit $ — $ 20,527 $ 4 $ — $ 20,531

Mr. Mackey

Thrift/401(k) SERP Benefit — — — — —

Mr. Kari

Thrift/401(k) SERP Benefit — 92,812 (4,590) — 235,094

Mr. Lowman

Thrift/401(k) SERP Benefit — — — — —

Mr. McDavid

Thrift/401(k) SERP Benefit — 29,413 5 — 29,418

Mr. Weiss

Thrift/401(k) SERP Benefit — 62,315 133,495 — 672,437

(1) The SERP does not allow for employee contributions.

(2) Amounts reported reflect accruals under the Thrift/401(k) SERP Benefit during 2013. These amounts are also reported in the “All Other 

Compensation” column in the Summary Compensation Table.

(3) Amounts reported represent the total interest and other earnings credited to each NEO under the Thrift/401(k) SERP Benefit.

(4) Amounts reported reflect the accumulated balances under the Thrift/401(k) SERP Benefit for each NEO. Messrs. Mackey and Lowman have not 

satisfied the one year service requirement for matching and Discretionary Contributions. Messrs. Layton, McDavid and Weiss are fully vested in their 

account balances. Mr. Kari is only partially vested in his account balance and the difference between his aggregate balance above and his vested 

balance is equal to the unvested Basic Contribution plus earnings. The vested and unvested components under the Thrift/401(k) SERP Benefit for Mr. 

Kari are $226,128 and $8,966, respectively. For a more detailed discussion of the matching contribution accruals and Discretionary Contribution 

accruals, see “Supplemental Executive Retirement Plan—Thrift/401(k) SERP Benefit” above. 

The following 2012 Thrift/401(k) SERP Benefit accrual amounts were reported in the column "All Other Compensation" in the 2012 Summary 

Compensation Table as compensation for each NEO for whom accruals were made and reported during 2012: Mr. Layton: $0, Mr. Kari: $110,200, Mr. 

Weiss: $70,750. See our Form 10-K filed February 28, 2013. The following 2011 Thrift/401(k) SERP Benefit accrual amounts were reported in the 

column "All Other Compensation" in the 2011 Summary Compensation Table as compensation for each NEO for whom such accruals were made and 

reported during 2011: Mr. Kari: $33,750, Mr. Weiss: $40,500. See our Form 10-K filed March 9, 2012.

Potential Payments Upon Termination of Employment or Change-in-Control

We have entered into certain agreements and maintain certain plans that call for us to pay compensation to our NEOs in 

the event of a termination of employment. 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, 2013. 

Mr. Layton is excluded from this table because he is not entitled to receive any payments in connection with a termination of 

employment, and Mr. Kari's actual termination benefits are described in the text following the table. The actual payment of any 

level of termination benefits is subject to FHFA review and approval. For more information, see “Employment and Separation 

Agreements” below.

The table below does not address changes in control, as we are not obligated to provide any additional compensation to 

our NEOs in connection with a change in control, nor does it address potential payments upon a termination for cause, which is 

a termination resulting from the occurrence of an event or conduct described in the Recapture 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 Other Executive Compensation Considerations — Recapture and Forfeiture 

Agreement.

Additionally, 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 Messrs. Layton and 

Kari and twelve months for the remaining four NEOs. During the twelve-month period immediately following termination, 

each executive also agrees not to solicit or recruit any of our managerial employees. The agreement also provides for 

confidentiality of information that constitutes trade secrets or proprietary or other confidential information.

The table below does not include vested balances in the Thrift/401(k) SERP Benefit or vested benefits in the Pension 

SERP Benefit. Amounts shown in the table also do not include certain items available to all employees generally upon a 

termination event.

Table of Contents
305 Freddie Mac

There were no outstanding RSUs held by NEOs as of December 31, 2013, and Mr. Weiss is the only NEO holding stock 

options. No value is included in the table for stock options, because the exercise prices for all such options outstanding are 

substantially higher than the closing price of our common stock on December 31, 2013.

Potential Payments Under the Executive Compensation Program

The Executive Compensation Program 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 that are unpaid at the time of 

termination of employment. The discussion that follows describes the effect of various termination events upon unpaid 

Deferred Salary.

• Forfeiture Event — All earned but unpaid Fixed and At-Risk Deferred Salary is subject to forfeiture upon the 

occurrence of a Forfeiture Event, as described above under “— Recapture and Forfeiture Agreement.”

• Death — All earned but unpaid Fixed and At-Risk Deferred Salary is paid in full as soon as administratively possible, 

but not later than 90 calendar days after the date of death and any earned but unpaid At-Risk Deferred Salary is not 

subject to reduction based on corporate and individual performance.

• Long-Term Disability — All earned but unpaid Fixed and At-Risk Deferred Salary is paid in full in accordance with the 

Approved Payment Schedule and any earned but unpaid At-Risk Deferred Salary is not subject to reduction based on 

corporate and individual performance.

• Any Other Reason (including, but not limited to, voluntary termination, retirement, and involuntary termination for any 

reason other than a Forfeiture Event) — All earned but unpaid Deferred Salary 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 65 years of age, without regard to length of service.

Table 85 — Potential Payments Upon Termination of Employment or Change-in-Control as of December 31, 2013

Death Disability Retirement(4)

All Other Not

For Cause

Terminations(5)

James G. Mackey

Deferred Salary:

Fixed(1) $ 230,303 $ 230,303 $ — $ 170,424

At Risk-Conservatorship Scorecard(2) 64,773 64,773 — 62,830

At Risk-Complementary Goals/Individual(3) 64,772 64,772 — 64,772

Total $ 359,848 $ 359,848 $ — $ 298,026

David B. Lowman

Deferred Salary:

Fixed(1) $ 1,048,485 $ 1,048,485 $ — $ 775,879

At Risk-Conservatorship Scorecard(2) 294,887 294,887 — 286,040

At Risk-Complementary Goals/Individual(3) 294,886 294,886 — 294,886

Total $ 1,638,258 $ 1,638,258 $ — $ 1,356,805

William H. McDavid

Deferred Salary:

Fixed(1) $ 1,320,000 $ 1,320,000 $ 1,320,000 $ —

At Risk-Conservatorship Scorecard(2) 390,000 390,000 378,300 —

At Risk-Complementary Goals/Individual(3) 390,000 390,000 390,000 —

Total $ 2,100,000 $ 2,100,000 $ 2,088,300 $ —

Jerry Weiss

Deferred Salary:

Fixed(1) $ 891,000 $ 891,000 $ — $ 659,340

At Risk-Conservatorship Scorecard(2) 297,000 297,000 — 288,090

At Risk-Complementary Goals/Individual(3) 297,000 297,000 — 282,150

Total $ 1,485,000 $ 1,485,000 $ — $ 1,229,580

Table of Contents
306 Freddie Mac

(1) In accordance with early termination provisions in the Executive Compensation Program, the amounts disclosed for Deferred Salary: Fixed in the All 

Other Not For Cause Terminations column have been reduced by 26% to reflect a December 31, 2013 termination scenario.

(2) 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 2013 Conservatorship Scorecard.

(3) The amounts reported for Deferred Salary: At Risk-Complementary Goals/Individual in the Retirement and All Other Not For Cause Terminations 

columns reflect the assessment of 2013 performance approved by the Compensation Committee and FHFA.

(4) Mr. McDavid is the only NEO who meets the requirement for retirement eligibility under the 2013 Executive Compensation Program. 

(5) All Other Not For Cause Terminations refer to voluntary terminations other than for retirement and involuntary terminations other than for cause. No 

amounts are displayed for Mr. McDavid because he is retirement eligible.

Former Named Executive Officer – Mr. Kari

On December 18, 2012, Mr. Kari notified the company of his intent to retire in the second half of 2013 following his 55th 

birthday. While Mr. Kari's tenure as Chief Financial Officer ended in November 2013, he continued to serve in an advisory 

capacity through January 8, 2014 to facilitate a smooth transition of his duties. Under the terms of the Executive Compensation 

Program, Mr. Kari is entitled to receive the 2013 Deferred Salary amounts reported in Table 80 — Summary Compensation 

Table — 2013, with the exception of Fixed Deferred Salary, which is subject to an early termination reduction that will reduce 

the amount paid from $1,530,000 to $1,132,200. Deferred Salary amounts to which Mr. Kari is entitled will be paid in 2014 

according to the Approved Payment Schedule. He is not eligible to receive any additional termination benefits.

Additionally, Mr. Kari forfeited $8,966 of unvested Thrift/401(k) SERP benefits as a result of his termination.

Alternative Settlement Provisions for Equity Awards in the Event of Certain Terminations

Stock Options

The stock options granted to Mr. Weiss that were exercisable as of December 31, 2013 include alternative settlement 

provisions in the event of certain terminations, as follows:

• Death. Stock options remain exercisable until the earlier of the original expiration date or three years after the date of 

termination in the event of death.

• Disability. Stock options remain exercisable for the full balance of their term in the event of disability.

• Retirement. Stock options remain exercisable for the full balance of their term in the event of retirement.

• All Other Terminations. If the individual’s employment is terminated for any reason other than those described above, 

the stock options remain exercisable until the earlier of the original expiration date or 90 days following termination.

Employment and Separation Agreements

The various agreements entered into in connection with the employment of our NEOs are summarized above. See 

“Compensation Discussion and Analysis — Written Agreements Relating to Our NEOs' Employment.”

Director Compensation

After we entered conservatorship, FHFA approved compensation for Board members in the form of cash retainers only, 

paid on a quarterly basis. Under the terms of the Purchase Agreement, without Treasury’s consent, we are prohibited from 

making stock grants to directors while this agreement remains in effect. We do not maintain any pension or retirement plans for 

directors. Non-employee directors are reimbursed for reasonable out-of-pocket costs for attending 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.

The reasons for this shift toward compensation delivered entirely in cash were similar, in the case of director 

compensation, to some of those described above regarding the structural change in executive compensation (see 

“Compensation Discussion and Analysis — Executive Management Compensation Program — Overview of Program 

Structure”). However, the considerations underlying director and executive compensation differed in one key respect. There is 

no provision in the director compensation program for pay that varies depending on business results. Although such incentive 

compensation is deemed appropriate to give management strong incentives to devise and execute business plans and achieve 

positive financial results, it is viewed in the case of directors as inconsistent with their oversight role.

Board compensation levels during conservatorship are shown in the table below.

Table of Contents
307 Freddie Mac

Table 86 — Board Compensation — 2013 Non-Employee Director Compensation Levels

Board Service

Cash Compensation

Annual Retainer $ 160,000

Annual Retainer for Non-Executive Chairman 290,000

Committee Service (Cash)

Annual Retainer for Audit Committee Chair $ 25,000

Annual Retainer for Business and Risk Committee Chair 15,000

Annual Retainer for Committee Chairs (other than Audit or Business and Risk) 10,000

Annual Retainer for Audit Committee Members 10,000

The following table summarizes the 2013 compensation provided to all persons who served as non-employee directors 

during 2013.

Table 87 — 2013 Director Compensation

Name

Fees Earned or

Paid in Cash

Change in Pension Value and

Nonqualified Deferred

Compensation Earnings(2)

All Other

Compensation(3) Total

C. Lynch $ 300,000 $ — $ — $ 300,000

L. Bammann(1) 102,242 — — 102,242

C. Byrd 185,000 — 20,000 205,000

R. Hartnack(1) 104,615 — 20,000 124,615

S. Kohlhagen(1) 147,973 — 20,000 167,973

S. Mathew(1) 8,587 — — 8,587

S. Naqvi(1) 64,348 — 20,000 84,348

N. Retsinas 160,000 — 5,750 165,750

E. Shanks, Jr. 170,000 — 20,000 190,000

A. Williams 180,000 — — 180,000

(1) The amount represents partial annual compensation for the period served during 2013. Mr. Kohlhagen joined the Board in February 2013, Mr. 

Hartnack joined the Board in May 2013, Mr. Naqvi joined the Board in August 2013, and Ms. Mathew joined the Board in December 2013. Ms. 

Bammann resigned from the Board in July 2013. 

(2) We do not have any pension or retirement plans for our non-employee directors.

(3) In 2013, the Freddie Mac Foundation provided a dollar-for-dollar match to eligible organizations and institutions, up to an aggregate amount of $20,000 

per director per calendar year. Matching contributions made to charities designated by the non-employee directors were as follows: Ms. Byrd, $20,000; 

Mr. Hartnack, $20,000; Mr. Kohlhagen, $20,000; Mr. Naqvi, $20,000; Mr. Retsinas, $5,750; and Mr. Shanks, Jr., $20,000. 

Indemnification. We have also made arrangements to indemnify our directors against certain liabilities which are similar 

to the terms on which our executive officers are indemnified. For a description of such terms, see “— Written Agreements 

Relating to Our NEOs' Employment— Indemnification Agreements.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED 

STOCKHOLDER MATTERS

Security Ownership

Our only class of voting stock is our common stock. (Upon its appointment as Conservator, FHFA immediately 

succeeded to the voting rights of holders of our common stock.) The following table shows the beneficial ownership of our 

common stock as of February 25, 2014 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 25, 2014, 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.

Table of Contents
308 Freddie Mac

Table 88 — Stock Ownership by Directors, Executive Officers, and Greater-Than-5% Holders 

Name Position

Common Stock

Beneficially Owned

Excluding

Stock Options(1)

Stock Options

Exercisable

Within 60 Days of

Feb. 25, 2014

Total Common Stock

Beneficially Owned

Carolyn H. Byrd Director — — —

Richard C. Hartnack Director — — —

Steven W. Kohlhagen Director — — —

Christopher S. Lynch Director — — —

Sara Mathew Director — — —

Saiyid T. Naqvi Director — — —

Nicolas P. Retsinas Director 10,824(2) — 10,824

Eugene B. Shanks, Jr. Director — — —

Anthony A. Williams Director — — —

Donald H. Layton Chief Executive Officer — — —

James G. Mackey EVP — Chief Financial Officer — — —

Ross J. Kari Former EVP — Chief Financial Officer — — —

David B. Lowman

EVP — Single Family Business — — —

William H. McDavid EVP — General Counsel & Corp. Sec.

Jerry Weiss EVP — Chief Administrative Officer — 16,590 16,590

All directors and executive officers as a group (23 persons) 102,261(2) 37,240 139,501

5% Holder

Common Stock Beneficially 

Owned Percent of Class

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, D.C. 20220 Variable(3) 79.9%

Pershing Square Capital Management, L.P. 

888 Seventh Avenue, 42nd Floor 

New York, New York 10019 Common 9.77%(4)

(1) Includes shares of stock beneficially owned as of February 25, 2014.

(2) Includes distribution of 6,866 RSUs and 169 dividend equivalents on RSUs, previously deferred with no remaining restrictions.

(3) In September 2008, we issued to Treasury a warrant to purchase, for one one-thousandth of a cent ($0.00001) per share, shares of our common stock 

equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the time the warrant is exercised. The warrant 

may be exercised in whole or in part at any time until September 7, 2028. As of the date of this filing, Treasury has not exercised the warrant. The 

information above assumes Treasury beneficially owns no other shares of our common stock.

(4) The source of this data is the Schedule 13D filed with the SEC by Pershing on November 15, 2013. Pershing's beneficial ownership percentage 

calculation is based solely on the 650,039,533 shares of our common stock outstanding as reported in our Form 10-Q for the Quarter ended September 

30, 2013, and excludes the shares issuable to Treasury pursuant to the warrant. According to the Schedule 13D, Pershing Square Capital Management, 

L.P., as investment adviser for a number of funds for which it purchased the shares reported in the table above, and PS Management GP, LLC, its 

general partner, may be deemed to share voting and dispositive power for the shares. Pershing Square GP, LLC, as general partner of two of the funds, 

may be deemed to share voting and dispositive power for 21,592,526 of the shares held for the account of Pershing Square, L.P. and 451,065 shares of 

common stock held for the account of Pershing Square II, L.P. As the Chief Executive Officer of Pershing Square Capital Management, L.P. and 

managing member of each of PS Management GP, LLC and Pershing Square GP, LLC, William A. Ackman may be deemed to share voting and 

dispositive power for all of the shares reported in the table above. 

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, 2013. Our stockholders have approved the 

ESPP, the 2004 Employee Plan and the 1995 Employee Plan (together, the Employee Plans), and the Directors’ Plan. We 

suspended the operation of these plans following our entry into conservatorship and are no longer granting awards under such 

plans.

Table of Contents
309 Freddie Mac

Table 89 — 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 877,936(1)

 $57.01(2) 35,051,033(3)

Equity compensation plans not

approved by stockholders None N/A None

(1) Includes 61,501 restricted stock units and shares of restricted stock issued under the Directors’ Plan and the Employee Plans.

(2) For the purpose of calculating this amount, the restricted stock units and shares of restricted stock are assigned a value of zero.

(3) Includes 27,570,685 shares, 5,845,739 shares, and 1,634,609 shares available for issuance under the 2004 Employee Plan, the ESPP and the Directors’

Plan, respectively. No shares are available for issuance under the 1995 Employee Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,

AND DIRECTOR INDEPENDENCE

Policy Governing Related Person Transactions

The Board has adopted a written policy governing the approval of related person transactions. This policy sets forth 

procedures for the review and approval or ratification of transactions involving related persons, which consist of any person 

who is, or was at any time since the beginning of our last completed fiscal year, a director, a director nominee, an executive 

officer, or an immediate family member of any of the foregoing persons.

Under authority delegated by the Board, our General Counsel and the Nominating and Governance Committee (or its 

Chair under certain circumstances), each, an Authorized Approver, are responsible for applying the Related Person Transactions 

Policy. Transactions covered by the Related Person Transactions Policy consist of any transaction, arrangement or relationship 

or series of similar transactions, arrangements or relationships, in which: (a) the aggregate amount involved exceeded or is 

expected to exceed $120,000; (b) we were or are expected to be a participant; and (c) any related person had or will have a 

direct or indirect material interest. The Related Person Transactions Policy includes a list of categories of transactions identified 

by the Board as having no significant potential for an actual conflict of interest or the appearance of a conflict or improper 

benefit to a related person, and thus not considered potential related person transactions subject to review.

Our Legal Division assesses whether any proposed transaction involving a related person is covered by the Related 

Person Transactions Policy. If so, the transaction is reviewed by the appropriate Authorized Approver. In consultation with the 

Chair of the Nominating and Governance Committee, the General Counsel may refer any proposed transaction to the 

Nominating and Governance Committee for review and approval.

If possible, approval of a related person transaction is obtained prior to the effectiveness or consummation of the 

transaction. If advance approval of a related person transaction by the appropriate Authorized Approver is not feasible or 

otherwise not obtained, then the transaction is considered promptly by the appropriate Authorized Approver to determine 

whether ratification is warranted.

In determining whether to approve or ratify a related person transaction covered by the Related Person Transactions 

Policy, the appropriate Authorized Approver reviews and considers all relevant information which may include: (a) the nature 

of the related person’s interest in the transaction; (b) the approximate total dollar value of, and extent of the related person’s 

interest in, the transaction; (c) whether the transaction was or would be undertaken in the ordinary course of our business; 

(d) whether the transaction is proposed to be, or was, entered into on terms no less favorable to us than terms that could have 

been reached with an unrelated third party; and (e) the purpose, and potential benefits to us, of the transaction.

Corporate Governance Guidelines

In September 2013, the Board adopted our amended Corporate Governance Guidelines, or our Guidelines, which are 

available on our website at www.freddiemac.com/governance/pdf/gov_guidelines.pdf.

Director Independence

The non-employee members of the Board evaluated the independence, as defined in both Sections 4 and 5 of our 

Guidelines and in Section 303A.02 of the NYSE Listed Company Manual, of (i) each of the non-employee members of our 

Board currently serving, each of whom also served on our Board in 2013, and (ii) Ms. Linda B. Bammann, who served on our 

Board until July 2013. In connection with these evaluations, the non-employee members of the Board determined that (i) all 

Table of Contents
310 Freddie Mac

current members of our Board (other than Mr. Layton, our CEO) are independent and (ii) Ms. Bammann was independent 

during her service in 2013. Mr. Layton is not considered an independent director because he is our CEO. 

The non-employee members of the Board also concluded that all current members of the Audit Committee, the 

Compensation Committee, and the Nominating and Governance Committee are independent within the meaning of both 

Sections 4 and 5 of our Guidelines and Section 303A.02 of the NYSE Listed Company Manual. The non-employee members of 

the Board also determined that all current members of the Audit Committee are independent within the meaning of Rule 10A-3 

promulgated under the Exchange Act, and Section 303A.06 of the NYSE Listed Company Manual.

In determining the independence of each Board member, the non-employee members of the Board reviewed the 

following categories or types of relationships, in addition to those specifically addressed by the standards contained in 

Section 5 of our Guidelines, to determine whether those relationships, either individually or when aggregated with other 

relationships, would constitute a material relationship between the Director and us that would impair a Director’s judgment as a 

member of the Board or create the perception or appearance of such an impairment:

• Board Memberships With For-Profit Business Partners. During 2013 and currently, Ms. Byrd and Messrs. Lynch, 

Retsinas, and Shanks serve as directors of other companies that engage or have engaged in business with us resulting in 

payments between us and such companies during the past three fiscal years. After considering the nature and extent of 

the specific relationship between each of those companies and us, and the fact that these Board members are directors of 

these other companies rather than employees, the non-employee members of the Board concluded that those business 

relationships do not constitute material relationships between any of the Directors and us that would impair their 

independence as our Directors.

• Board Memberships With Charitable Organizations To Which We Have Made Contributions. During 2013, Mr. Retsinas 

served as a board member of a charitable organization that received monetary contributions from us or the Freddie Mac 

Foundation. The total annual amount contributed was below the applicable threshold in our Guidelines that would 

require a specific determination that Mr. Retsinas is independent in spite of the contributions. The non-employee 

members of the Board considered the contributions and the nature of the organization and concluded that the 

relationship with the charitable organization did not constitute a material relationship between Mr. Retsinas and us that 

would impair his independence as our Director.

• Financial Relationships with For-Profit Business Partners. Mr. Hartnack owns stock of US Bancorp. In the aggregate, 

this stock represents a material portion of his net worth. US Bancorp 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 arise as a result of this stock ownership, Mr. Hartnack has 

agreed to recuse himself from discussing and acting upon any matters that are to be considered by the full Board or any 

of the committees of which he is a member, and that relate directly to US Bancorp. The Audit Committee Chairman, in 

consultation with the Non-Executive Chairman, will address any questions that may arise regarding whether recusal 

from a particular discussion or action is appropriate.

In evaluating Mr. Hartnack’s independence in light of his ownership of US Bancorp stock, the non-employee members 

of the Board considered the nature and extent of Freddie Mac’s business relationship with US Bancorp and any 

potential impact that his stock ownership might have on his independent judgment as a Freddie Mac director, taking 

into account the recusal arrangement. The non-employee members of the Board concluded that Mr. Hartnack’s recusal 

arrangement concerning US Bancorp would address any actual or potential conflicts of interest that might arise with 

respect to his ownership of US Bancorp stock. Accordingly, the non-employee members concluded that Mr. Hartnack’s 

ownership of US Bancorp stock does not constitute a material relationship between him and Freddie Mac that would 

impair his independence as a Freddie Mac director. 

Mr. Naqvi owns stock of PNC Financial Services Group, Inc. (PNC). In the aggregate, this stock represents 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 arise as a result of this stock ownership, Mr. Naqvi has agreed to recuse himself from discussing 

and acting upon any matters that are to be considered by the full Board or any of the committees of which he is a 

member (including the Business and Risk Committee), and that relate directly to PNC. The Audit Committee 

Chairman, in consultation with the Non-Executive Chairman, will address any questions that may arise regarding 

whether recusal from a particular discussion or action is appropriate.

In evaluating Mr. Naqvi’s independence in light of his ownership of PNC stock, the non-employee members of the 

Board considered the nature and extent of Freddie Mac’s business relationship with PNC and any potential impact that 

his stock ownership might have on his independent judgment as a Freddie Mac director, taking into account the recusal 

arrangement. The non-employee members of the Board concluded that Mr. Naqvi’s recusal arrangement concerning 

PNC would address any actual or potential conflicts of interest that might arise with respect to his ownership of PNC 

stock. Accordingly, the non-employee members concluded that Mr. Naqvi’s ownership of PNC stock does not constitute 

a material relationship between him and Freddie Mac that would impair his independence as a Freddie Mac director.

Table of Contents
311 Freddie Mac

Ms. Bammann, who served as a director until July 2013, owned stock of JPMorgan Chase. In the aggregate, this stock 

represented a material portion of her net worth. JPMorgan Chase conducts significant business with Freddie Mac, 

including, among other things, as a single-family and multifamily seller/servicer, as an underwriter of our debt and 

mortgage securities and as a capital markets counterparty. In order to eliminate any potential conflict of interest that 

might arise as a result of this stock ownership, Ms. Bammann agreed to recuse herself from discussing and acting upon 

any matters that were to be considered by the full Board or any of the committees of which she was a member 

(including the Business and Risk Committee, which she chaired), and that related directly to JPMorgan Chase. The 

Audit Committee Chairman, in consultation with the Non-Executive Chairman, had the authority to address any 

questions regarding whether recusal from a particular discussion or action was appropriate.

In evaluating Ms. Bammann’s independence in light of her ownership of JPMorgan Chase stock, in 2013 the nonemployee members of the Board considered the nature and extent of Freddie Mac’s business relationship with 

JPMorgan Chase and any potential impact that her stock ownership might have had on her independent judgment as a 

Freddie Mac director, taking into account the recusal arrangement. The non-employee members of the Board concluded 

that Ms. Bammann’s recusal arrangement concerning JPMorgan Chase would address any actual or potential conflicts 

of interest that might arise with respect to her ownership of JPMorgan stock. Accordingly, the non-employee members 

concluded that Ms. Bammann’s ownership of JPMorgan Chase stock did not constitute a material relationship between 

her and Freddie Mac that impaired her independence as a Freddie Mac director.

Board Diversity

The Board identifies Director nominees or candidates for the Conservator to consider for election by written consent and 

when there is a vacancy on the Board, at which time the Board may exercise the authority delegated to it by the Conservator to 

fill such vacancies, subject to review by the Conservator.

Our charter provides that our Board must at all times have at least one person from the homebuilding, mortgage lending, 

and real estate industries, and at least one person from an organization representing community or consumer interests or one 

person who has demonstrated a career commitment to the provision of housing for low-income households. In addition, the 

examination guidance for corporate governance issued by FHFA provides that in identifying individuals for nomination for 

election to the Board, the Board should consider the knowledge of such individuals, as a group, in the areas of business, 

finance, accounting, risk management, public policy, mortgage lending, real estate, low-income housing, homebuilding, 

regulation of financial institutions, and any other areas that may be relevant to our safe and sound operation.

In addition, the Board has adopted a formal policy (articulated in our Guidelines) with regard to the consideration of 

diversity in identifying director nominees and candidates. As articulated in the policy, the Board seeks to have a diversity of 

talent, perspectives, experience and cultures among its members, including minorities, women and individuals with disabilities, 

and considers such diversity in the candidate solicitation and nomination processes. The policy also states that the Board seeks 

to have a diversity of talent on the Board and that candidates are selected, in part, for their experience and expertise. The policy 

also explains that when identifying director nominees, the Nominating and Governance Committee considers, among other 

factors, our needs, the talents and skills then available on the Board, and, with respect to incumbent directors, their continued 

involvement in business and professional activities relevant to us, the skills and experience that should be represented on the 

Board, the availability of other individuals with desirable skills to join the Board, and the desire to maintain a diverse Board.

FHFA also has adopted a final rule regarding minority and women inclusion that became effective in January 2011. The 

final rule implements section 1116 of the Reform Act and generally requires us to promote diversity and the inclusion of 

women, minorities, and individuals with disabilities in all activities, including considering diversity in the process of 

nominating directors, as required by these regulations.

Board Leadership Structure and Role in Risk Oversight

The positions of Chief Executive Officer and Non-Executive Chairman of the Board are held by different individuals. 

This leadership structure was established by the Conservator when it appointed separate individuals to hold those two positions 

in September 2008. The examination guidance for corporate governance issued by FHFA provides that once separated, the 

functions of the Chief Executive Officer and the Non-Executive Chairman of the Board should remain separated until such time 

as the Director of FHFA determines otherwise.

The responsibility for risk oversight is shared by two committees of the Board, the Business and Risk Committee and the 

Audit Committee, with primary risk oversight responsibility allocated to the Business and Risk Committee. The Business and 

Risk Committee is responsible for assisting the Board in the oversight, on an enterprise-wide basis, of our risk management 

framework, including management of credit risk (including counterparty risk), market risk (including interest rate and liquidity 

risk), model risk, operational risk, strategic risk, and reputation risk. The risk oversight responsibilities of the Audit Committee 

include reviewing generally: (a) management’s guidelines and policies governing the processes for assessing and managing our 

risks; and (b) our major financial risk exposures and the steps management has taken to monitor and control such exposures. 

Copies of the Charters of the Audit Committee and the Business and Risk Committee are available on our website at http://

www.freddiemac.com/governance/bd committees.html.

Table of Contents
312 Freddie Mac

The Enterprise Risk Management Division (“ERM”) is responsible for the independent assessment and management of 

risks across the company, including credit, market, model and operational risk. ERM’s mandate is primarily governed through a 

Board – approved enterprise risk management policy that establishes the Board’s risk appetite, risk limits and Board reporting 

thresholds (the “ERM Policy”). ERM is led by the Executive Vice President — Chief Enterprise Risk Officer, who reports 

directly to the Chief Executive Officer. The Executive Vice President — Chief Enterprise Risk Officer also reports to the 

Business and Risk Committee of the Board of Directors on a quarterly basis and to the full Board of Directors, as appropriate. 

ERM’s Board reports include standard quarterly risk reports and ad hoc agenda items on specific topics. The ERM Policy and 

the ERM framework outlined therein apply to all areas of the company, and are complemented by underlying policies at the 

division and department levels that support the management, monitoring and reporting of risk across the company. The overall 

ERM framework includes a risk inventory, risk appetite, risk limits, as well as monitoring and reporting requirements. The 

Chief Executive Officer has also established a corporate enterprise risk management committee (the “ERMC”) to monitor, 

coordinate and oversee the management of the company’s risks consistent with the ERM Policy. The Executive Vice 

President — Chief Enterprise Risk Officer chairs the ERMC, which comprises most members of senior management. ERM 

aggregates risk exposures managed throughout the company from the relevant risk owners for review and discussion at the 

ERMC. The ERMC is supported by the following subcommittees: Operational Risk, Single Family Risk, Multifamily Risk, 

I&CM Risk, Economic Capital Working Group and Loan Loss Reserves and Loss Forecast. Information flows from the 

subcommittees to the ERMC as appropriate, and information and reports to be provided to the Board’s Business and Risk 

Committee, the Board or any other Board committee are usually reviewed and discussed in the ERMC prior to the relevant 

Board or Board committee meeting. Other committees providing escalation of risk exposures, as necessary, include the 

Valuation and Finance Model Committee and the Remediation Committee. In addition, the Board specifically evaluates the 

company's performance against the Risk Management prong of the Complementary Corporate Goals. See "CD&A— At-Risk 

Deferred Salary Based on Complementary Corporate Goals and Individual Performance."

For a discussion of the Compensation Committee’s conclusion that our compensation policies and practices do not create 

risks that are reasonably likely to have a material adverse effect on us, see “Executive Compensation — Compensation and 

Risk.”

Transactions with 5% Shareholders

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 were a 

number of transactions between us and Treasury since the beginning of 2013, as discussed in “BUSINESS — Conservatorship 

and Related Matters,” “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS,” as well as in "NOTE 8: DEBT

SECURITIES AND SUBORDINATED BORROWINGS," and "NOTE 11: STOCKHOLDERS' EQUITY (DEFICIT)."

FHFA, as conservator, approved the Purchase Agreement and our administrative role in the MHA Program and the 

Memorandum of Understanding with Treasury, FHFA, and Fannie Mae (see “NOTE 2: CONSERVATORSHIP AND 

RELATED MATTERS — Housing Finance Agency Initiative”). The remaining transactions described in the sections 

referenced above did not require review and approval under any of our policies and procedures relating to transactions with 

related persons.

Transactions with Institutions Related to Directors

In the ordinary course of business, we were a party during 2013, and expect to continue to be a party during 2014, 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 of Directors. Mr. Layton previously served as a 

senior executive officer of JPMorgan Chase, ending his service in 2004.

Freddie Mac has an extensive business relationship with JPMorgan Chase (through its subsidiaries). As of December 31, 

2013, JPMorgan Chase was Freddie Mac’s second largest servicer, and serviced approximately 1.26 million loans for Freddie 

Mac. JPMorgan Chase had an aggregate unpaid principal balance of loans of approximately $208.2 billion as of December 31, 

2013 and approximately $207.8 billion as of January 31, 2014. JPMorgan Chase sold approximately $53.9 billion in singlefamily loans to Freddie Mac in 2013.

JPMorgan Chase also is a significant capital markets, derivatives and multifamily counterparty and is an underwriter of 

our debt and mortgage securities. As of January 31, 2014, JPMorgan Chase and its subsidiaries had an aggregate notional 

balance of $44.4 billion of derivatives (which included $20 billion of exchange-traded instruments) with Freddie Mac. From 

January 1, 2013 through January 31, 2014, JPMorgan Chase served as underwriter for $35.9 billion of Freddie Mac’s debt 

securities and $20.4 billion of Freddie Mac’s mortgage-related securities.

Mr. Layton receives a pension from JPMorgan Chase in connection with his retirement in 2004. In addition, Mr. Layton 

has a deferred compensation balance under JPMorgan Chase’s Deferred Compensation Plan, of which approximately 80% is 

Table of Contents
313 Freddie Mac

payable in fifteen annual installments beginning in January 2016 and earns a return based upon a defined list of mutual funds 

that Mr. Layton designates. The remaining 20% is in the form of a “private equity balance” that is payable as proceeds are 

realized from the underlying private equity transactions into which the funds were invested. Mr. Layton’s deferred 

compensation balance is less than ten percent of his total net worth on an after-tax basis. Mr. Layton also has brokerage and 

deposit accounts with JPMorgan Chase.

The amount of Mr. Layton’s pension and deferred compensation do not depend in any way on JPMorgan Chase’s results 

as long as JPMorgan Chase is able to meet its obligations. In addition, in order to eliminate any potential conflicts of interest, 

Mr. Layton agreed to recuse himself from acting upon matters directly relating to JPMorgan Chase that may be considered by 

the Board of Directors, or presented to him in his capacity as CEO and a member of the Board, if such matter has the potential 

to impact JPMorgan Chase’s ability to satisfy its obligations to him. Mr. Layton does not have a material interest in our 

relationship with JPMorgan Chase and the relationships described above were not required to be reviewed, approved or ratified 

under our Related Person Transactions Policy.

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 “BUSINESS — Conservatorship and Related Matters" 

and “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Related Parties as a Result of Conservatorship.”

ITEM 14. PRINCIPALACCOUNTING FEES AND SERVICES

Description of Fees

The following is a description of fees billed to us by PricewaterhouseCoopers LLP, our independent public accountants, 

during 2013 and 2012.

Table 90 — Auditor Fees(1)

2013 2012

Audit Fees(2) $ 30,085,013 $ 30,651,367

Audit-Related Fees(3) 105,025 76,119

Tax Fees(4) 9,314 109,250

All Other Fees(5) 12,000 —

Total $ 30,211,352 $ 30,836,736

(1) These fees represent amounts billed within the designated year and include reimbursable expenses of $199,956 and $365,016 for 2013 and 2012, 

respectively.

(2) Audit fees include fees and reimbursable expenses billed by PricewaterhouseCoopers LLP in connection with the AU 722 quarterly reviews of our 

interim financial information and the audit of our annual consolidated financial statements. The audit fees billed during 2013 include fees and 

reimbursable expenses related to the 2013 ($19,610,667) and 2012 ($10,474,346) audits. In addition to the amounts shown above, approximately 

$8.3 million of fees and reimbursable expenses will be billed in 2014 for the 2013 audit. The audit fees billed during 2012 include fees and 

reimbursable expenses related to the 2012 ($19,911,326) and 2011 ($10,740,041) audits. Audit fees of $138,500 and $84,500 in 2013 and 2012, 

respectively, related to the Freddie Mac Foundation are excluded because these fees are incurred and paid separately by the Freddie Mac Foundation.

(3) The 2013 and 2012 audit-related fees include fees billed by PricewaterhouseCoopers LLP for the performance of certain agreed-upon procedures 

regarding aspects of compliance with the Purchase Agreement covenants ($87,700 and $67,119, respectively), as well as the renewal of our Comperio 

subscription ($9,000 for each year). The 2013 audit-related fees also include fees billed by PricewaterhouseCoopers LLP for the performance of a 

compliance evaluation of the minimum servicing standards as set forth in the Uniform Single Attestation Program for Mortgage Bankers and the 

provision of an attestation report ($8,325). 

(4) The tax fees billed in 2013 and 2012 related to non-audit tax advisory services to provide assistance with the Internal Revenue Service tax audit matters 

and ongoing examinations, including information requests and associated responses.

(5) All other fees for 2013 resulted from our subscription to a web-based suite of human resources benchmark data provided by PricewaterhouseCoopers 

LLP ($12,000).

Approval of Independent Auditor Services and Fees

As provided in its charter, the Audit Committee appoints, subject to FHFA approval, our independent public accounting 

firm and reviews the scope of the annual audit and pre-approves, subject (as required) to FHFA approval, all audit and nonaudit services permitted under applicable law to be performed by the independent public accounting firm.

The Sarbanes-Oxley Act and related rules adopted by the SEC require that all services provided to companies subject to 

the reporting requirements of the Exchange Act by their independent auditors be pre-approved by their audit committee or by 

authorized members of the committee, with certain exceptions. The Audit Committee’s charter requires that the Audit 

Committee pre-approve any audit services, and any non-audit services permitted under applicable law, to be performed by our 

independent auditors (or to designate one or more members of the Audit Committee to pre-approve such services and report 

such pre-approval to the Audit Committee).

Audit services that are within the scope of an auditor’s engagement approved by the Audit Committee prior to the 

performance of those services are deemed pre-approved and do not require separate pre-approval. Audit services not within the 

Table of Contents
314 Freddie Mac

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, the Audit Committee typically sets a dollar limit for such service. 

Management endeavors to obtain pre-approval of the Audit Committee, or of the Chairman of the Audit Committee (when the 

Chairman of the Audit Committee has been delegated such authority), before it incurs fees exceeding the dollar limit. If the 

Chairman of the Audit Committee approves the increase, the Chairman will report such approval at the Audit Committee’s next 

scheduled meeting.

The pre-approval procedure is administered by our senior financial management, which reports throughout the year to the 

Audit Committee. The Audit Committee pre-approved all audit, audit-related, tax, and other services performed in 2013 and 

2012.

Table of Contents
315 Freddie Mac

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report:

(1) Consolidated Financial Statements

The consolidated financial statements required to be filed in this Form 10-K are included in Part II, Item 8.

(2) Financial Statement Schedules

None.

(3) Exhibits

An Exhibit Index has been filed as part of this Form 10-K beginning on page E-1 and is incorporated herein by 

reference.

Table of Contents
316 Freddie Mac

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused 

this report to be signed on its behalf by the undersigned thereunto duly authorized.

Federal Home Loan Mortgage Corporation

By: /s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer

Date: February 27, 2014

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 27, 2014

Christopher S. Lynch 

 

/s/ Donald H. Layton Chief Executive Officer and Director February 27, 2014

Donald H. Layton (Principal Executive Officer) 

 

/s/ James G. Mackey Executive Vice President — Chief Financial Officer February 27, 2014

James G. Mackey (Principal Financial Officer) 

 

/s/ Robert D. Mailloux Senior Vice President — Corporate Controller and February 27, 2014

Robert D. Mailloux Principal Accounting Officer (Principal Accounting Officer) 

 

/s/ Carolyn H. Byrd* Director February 27, 2014

Carolyn H. Byrd 

 

/s/ Richard C. Hartnack* Director February 27, 2014

Richard C. Hartnack

/s/ Steven W. Kohlhagen* Director February 27, 2014

Steven W. Kohlhagen

/s/ Sara Mathew* Director February 27, 2014

Sara Mathew

/s/ Saiyid T. Naqvi* Director February 27, 2014

Saiyid T. Naqvi

/s/ Nicolas P. Retsinas* Director February 27, 2014

Nicolas P. Retsinas 

 

/s/ Eugene B. Shanks, Jr.* Director February 27, 2014

Eugene B. Shanks, Jr. 

 

/s/ Anthony A. Williams* Director February 27, 2014

Anthony A. Williams 

 

*By: /s/ William H. McDavid 

William H. McDavid 

Attorney-in-Fact 

Table of Contents
317 Freddie Mac

GLOSSARY

This Glossary includes acronyms and defined terms that are used throughout this report.

1995 Employee Plan — 1995 Stock Compensation Plan, as amended

2004 Employee Plan — 2004 Stock Compensation Plan, as amended and restated June 6, 2008

2005-2008 Legacy single-family book — Consists of mortgage loans in our single-family credit guarantee portfolio that were 

originated in 2005 through 2008.

Administration — Executive branch of the U.S. government.

Agency securities — Generally refers to mortgage-related securities issued by the GSEs or government agencies.

Alt-A loan — Although there is no universally accepted definition of Alt-A, many mortgage market participants classify 

single-family loans with credit characteristics that range between their prime and subprime categories as Alt-A because these 

loans have a combination of characteristics of each category, may be underwritten with lower or alternative income or asset 

documentation requirements compared to a full documentation mortgage loan, or both. In determining our Alt-A exposure on 

loans underlying our single-family credit guarantee portfolio, we classified mortgage loans as Alt-A if the lender that delivers 

them to us classified the loans as Alt-A, or if the loans had reduced documentation requirements as well as a combination of 

certain credit characteristics and expected performance characteristics at acquisition which, when compared to full 

documentation loans in our portfolio, indicate that the loan should be classified as Alt-A. In the event we purchase a refinance 

mortgage in either our relief refinance mortgage initiative or in another mortgage refinance initiative and the original loan had 

been previously identified as Alt-A, such refinance loan may no longer be categorized or reported as an Alt-A mortgage in this 

report and our other financial reports because the new refinance loan replacing the original loan would not be identified by the 

servicer as an Alt-A loan. As a result, our reported Alt-A balances may be lower than would otherwise be the case had such 

refinancing not occurred. For non-agency mortgage-related securities that are backed by Alt-A loans, we categorize our 

investments in non-agency mortgage-related securities as Alt-A if the securities were identified as such based on information 

provided to us when we entered into these transactions.

AMT — Alternative Minimum Tax

AOCI — Accumulated other comprehensive income (loss), net of taxes

ARM — Adjustable-rate mortgage — A mortgage loan with an interest rate that adjusts periodically over the life of the 

mortgage loan based on changes in a benchmark index.

Board — Board of Directors

Bond insurers — Companies that provide credit insurance principally covering securitized assets in both the primary issuance 

and secondary markets.

BPs — Basis points — One one-hundredth of 1%. This term is commonly used to quote the yields of debt instruments or 

movements in interest rates.

Cash and other investments portfolio — Our cash and other investments portfolio is comprised of our cash and cash 

equivalents, federal funds sold and securities purchased under agreements to resell, and investments in non-mortgage-related 

securities.

CD&A — Compensation Discussion and Analysis

CEB — The Corporate Executive Board Company

CEO — Chief Executive Officer

CFO — Chief Financial Officer

Charter — The Federal Home Loan Mortgage Corporation Act, as amended, 12 U.S.C. § 1451 et seq.

CMBS — Commercial mortgage-backed security — A security backed by mortgages on commercial property (often including 

multifamily rental properties) rather than one-to-four family residential real estate. Although the mortgage pools underlying 

CMBS can include mortgages financing multifamily properties and commercial properties, such as office buildings and hotels, 

the classes of CMBS that we hold receive distributions of scheduled cash flows only from multifamily properties. Military 

housing revenue bonds are included as CMBS within investments-related disclosures. We have not identified CMBS as either 

subprime or Alt-A securities.

Comprehensive income (loss) — Consists of net income (loss) plus total other comprehensive income (loss).

Table of Contents
318 Freddie Mac

Conforming loan/Conforming jumbo loan/Conforming loan limit — A conventional single-family mortgage loan with an 

original principal balance that is equal to or less than the applicable statutory conforming loan limit, which is a dollar amount 

cap on the size of the original principal balance of single-family mortgage loans we are permitted by law to purchase or 

securitize. The conforming loan limit is determined annually based on changes in FHFA’s housing price index. Any decreases 

in the housing price index are accumulated and used to offset any future increases in the housing price index so that statutory 

conforming loan limits do not decrease from year-to-year. Since 2006, the base conforming loan limit for a one-family 

residence has been set at $417,000, and higher limits have been established in certain “high-cost” areas (currently, up to 

$625,500 for a one-family residence). Higher limits also apply to two- to four-family residences, and for mortgages secured by 

properties in Alaska, Guam, Hawaii and the U.S. Virgin Islands.

Actual high-cost 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 UPB exceeding the base 

conforming loan limit (i.e., $417,000) as conforming jumbo loans.

Beginning in 2008, pursuant to a series of laws, our loan limits in certain high-cost areas were increased temporarily 

above the limits that otherwise would have been applicable (up to $729,750 for a one-family residence). The latest of these 

increases expired on September 30, 2011.

Conservator — The Federal Housing Finance Agency, acting in its capacity as conservator of Freddie Mac.

Convexity — A measure of how much a financial instrument’s duration changes as interest rates change.

Core spread income — Refers to a fair value estimate of the net current period accrual of income from the spread between 

mortgage-related investments and debt, calculated on an option-adjusted basis.

Covered Officer — Those executives in the following positions, each of whom are compensated pursuant to the Executive 

Management Compensation Program: (a) Chief Executive Officer; (b) Chief Operating Officer; (c) Chief Financial Officer; 

(d) all Executive Vice Presidents; and (e) all Senior Vice Presidents. Each of the Named Executive Officers is a Covered 

Officer.

Credit enhancement — Any number of different financial arrangements that are designed to reduce credit risk by partially or 

fully compensating an investor in the event of certain financial losses. Examples of credit enhancements include mortgage 

insurance, overcollateralization, indemnification agreements, and government guarantees.

Credit losses — Consists of charge-offs, net and REO operations expense.

Credit-related (benefit) expense (or credit-related expense) — Consists of our provision (benefit) for credit losses and REO 

operations expense.

Deed in lieu of foreclosure — An alternative to foreclosure in which the borrower voluntarily conveys title to the property to 

the lender and the lender accepts such title (sometimes together with an additional payment by the borrower) in full satisfaction 

of the mortgage indebtedness.

Delinquency — A failure to make timely payments of principal or interest on a mortgage loan. For single-family mortgage 

loans, we generally report delinquency rate information based on the number of loans that are seriously delinquent. For 

multifamily loans, we report delinquency rate information based on the UPB of loans that are two monthly payments or more 

past due or in the process of foreclosure.

Derivative — A financial instrument whose value depends upon the characteristics and value of an underlying financial asset 

or index, such as a security or commodity price, interest or currency rates, or other financial indices.

Directors’ Plan — 1995 Directors’ Stock Compensation Plan, as amended and restated

Dodd-Frank Act — Dodd-Frank Wall Street Reform and Consumer Protection Act.

Dollar roll transactions — Transactions whereby we enter into an agreement to sell and subsequently repurchase (or purchase 

and subsequently resell) agency securities.

DSCR — Debt Service Coverage Ratio — An indicator of future credit performance for multifamily loans. The DSCR 

estimates a multifamily borrower’s ability to service its mortgage obligation using the secured property’s cash flow, after 

deducting non-mortgage expenses from income. The higher the DSCR, the more likely a multifamily borrower will be able to 

continue servicing its mortgage obligation.

Duration — Duration is a measure of a financial instrument’s price sensitivity to changes in interest rates.

Duration gap — One of our primary interest-rate risk measures. Duration gap is a measure of the difference between the 

estimated durations of our interest rate sensitive assets and liabilities. We present the duration gap of our financial instruments 

in units expressed as months. A duration gap of zero implies that the change in value of our interest rate sensitive assets from an 

Table of Contents
319 Freddie Mac

instantaneous change in interest rates would be expected to be accompanied by an equal and offsetting change in the value of 

our debt and derivatives, thus leaving the net fair value of equity unchanged.

EDCP — Executive Deferred Compensation Plan

Effective rent — The average rent actually paid by the tenant over the term of a lease.

ESPP — Employee Stock Purchase Plan

Euribor — Euro Interbank Offered Rate

EVP — Executive Vice President

Exchange Act — Securities and Exchange Act of 1934, as amended

Executive Compensation Program — Executive Management Compensation Program, as amended and restated

Fannie Mae — Federal National Mortgage Association

FASB — Financial Accounting Standards Board

FDIC — Federal Deposit Insurance Corporation

Federal Reserve — Board of Governors of the Federal Reserve System

FHA — Federal Housing Administration

FHFA — Federal Housing Finance Agency — An independent agency of the U.S. government with responsibility for 

regulating Freddie Mac, Fannie Mae, and the FHLBs.

FHLB — Federal Home Loan Bank

FICO score — A credit scoring system developed by Fair, Isaac and Co. FICO scores are the most commonly used credit 

scores today. FICO scores are ranked on a scale of approximately 300 to 850 points with a higher value indicating a lower 

likelihood of credit default.

Fixed-rate mortgage — Refers to a mortgage originated at a specific rate of interest that remains constant over the life of the 

loan. For purposes of presentation in this report and elsewhere in our reporting, we have categorized a number 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 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 transfer — Refers to our completion of a transaction provided for by the foreclosure laws of the applicable state, 

in which a delinquent borrower’s ownership interest in a mortgaged property is terminated and title to the property is 

transferred to us or to a third party. State foreclosure laws commonly refer to such transactions as foreclosure sales, sheriff’s 

sales, or trustee’s sales, among other terms. When we, as mortgage holder, acquire a property in this manner, we pay for it by 

extinguishing some or all of the mortgage debt.

Freddie Mac mortgage-related securities — Securities we issue and guarantee, including PCs, REMICs and Other Structured 

Securities, and Other Guarantee Transactions.

GAAP — Generally accepted accounting principles in the United States of America.

Ginnie Mae — Government National Mortgage Association, 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.

GSE Act — The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Reform Act.

GSEs — Government sponsored enterprises — Refers to certain legal entities created by the U.S. government, including 

Freddie Mac, Fannie Mae, and the FHLBs.

Guarantee fee — The fee that we receive for guaranteeing the payment of principal and interest to mortgage security investors, 

which consists primarily of a combination of management and guarantee fees paid on a monthly basis, as a percentage of the 

UPB of the underlying loans, and initial upfront payments, such as delivery fees.

Guidelines — Corporate Governance Guidelines, as revised

Table of Contents
320 Freddie Mac

HAMP — Home Affordable Modification Program — Refers to the effort under the MHA Program whereby the 

U.S. government, Freddie Mac and Fannie Mae commit funds to help eligible homeowners avoid foreclosure and keep their 

homes through mortgage modifications.

HARP — Home Affordable Refinance Program — Refers to the effort under the MHA Program that seeks to help eligible 

borrowers with existing loans that are guaranteed by us or Fannie Mae to refinance into loans with more affordable monthly 

payments and/or fixed-rate terms without obtaining new mortgage insurance in excess of what is already in place. Originally, 

only borrowers who had mortgages sold to Freddie Mac or Fannie Mae with note dates on or before May 31, 2009 with current 

LTV ratios above 80% (and up to 125%) were eligible to refinance their mortgages under the program. In October 2011, HARP

was expanded to allow eligible borrowers who have mortgages with current LTV ratios above 125% to refinance under the 

program. The relief refinance initiative, under which we also allow borrowers with LTV ratios of 80% and below to participate, 

is our implementation of HARP for our loans.

HFA — State or local Housing Finance Agency

HFA initiative — An initiative among Treasury, FHFA, Freddie Mac, and Fannie Mae that commenced in 2009. Under the 

HFA initiative, we and Fannie Mae provide assistance to state and local HFAs so that the HFAs can continue to meet their 

mission of providing affordable financing for both single-family and multifamily housing. The HFA initiative includes the 

NIBP and the TCLFP.

HUD — U.S. Department of Housing and Urban Development —HUD has authority over Freddie Mac with respect to fair 

lending.

Implied volatility — A measurement of how the value of a financial instrument changes due to changes in the market’s 

expectation of potential changes in future interest rates. A decrease in implied volatility generally increases the estimated fair 

value of our mortgage assets and decreases the estimated fair value of our callable debt and options-based derivatives, while an 

increase in implied volatility generally has the opposite effect.

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 mortgage loan that allows the borrower to pay only interest (either fixed-rate or adjustable-rate) for a 

fixed period of time before principal amortization payments are required to begin. After the end of the interest-only period, the 

borrower can choose to refinance the loan, pay the principal balance in total, or begin paying the monthly scheduled principal 

due on the loan.

IRS — Internal Revenue Service

K Certificates — Multifamily regularly-issued, structured pass-through securities backed primarily by recently originated 

multifamily mortgage loans purchased by Freddie Mac. We categorize K Certificates that we guarantee as Other Guarantee 

Transactions. See “Other Guarantee Transactions” for more information.

LIBOR — London Interbank Offered Rate

LIHTC partnerships — Low-income housing tax credit partnerships — Prior to 2008, we invested as a limited partner in 

LIHTC partnerships, which are formed for the purpose of providing funding for affordable multifamily rental properties. These 

LIHTC partnerships invest directly in limited partnerships that own and operate multifamily rental properties that generate 

federal income tax credits and deductible operating losses.

Liquidation preference — Generally refers to an amount that holders of preferred securities are entitled to receive out of 

available assets, upon liquidation of a company. The initial liquidation preference of our senior preferred stock was $1.0 billion. 

The aggregate liquidation preference of our senior preferred stock includes the initial liquidation preference plus amounts 

funded by Treasury under the Purchase Agreement. In addition, dividends and periodic commitment fees not paid in cash are 

added to the liquidation preference of the senior preferred stock. We may make payments to reduce the liquidation preference 

of the senior preferred stock only in limited circumstances.

LTV ratio — Loan-to-value ratio — The ratio of the unpaid principal amount of a mortgage loan to the value of the property 

that serves as collateral for the loan, expressed as a percentage. Loans with high LTV ratios generally tend to have a higher risk 

of default and, if a default occurs, a greater risk that the amount of the gross loss will be high compared to loans with lower 

LTV ratios. We report LTV ratios based solely on the amount of the loan purchased or guaranteed by us, generally excluding 

any second-lien mortgages (unless we own or guarantee the second lien).

MD&A — Management’s Discussion and Analysis of Financial Condition and Results of Operations

MHA Program — Making Home Affordable Program — Formerly known as the Housing Affordability and Stability Plan, the 

MHA Program was announced by the Administration in February 2009. The MHA Program is designed to help in the housing 

Table of Contents
321 Freddie Mac

recovery, promote liquidity and housing affordability, expand foreclosure prevention efforts and set market standards. The 

MHA Program includes HARP and HAMP.

Mortgage assets — Refers to both mortgage loans and the mortgage-related securities we hold in our mortgage-related 

investments portfolio.

Mortgage-related investments portfolio — Our investment portfolio, which consists of mortgage-related securities and 

single-family and multifamily mortgage loans. The size of our mortgage-related investments portfolio under the Purchase 

Agreement is determined without giving effect to the January 1, 2010 change in accounting guidance related to transfers of 

financial assets and consolidation of VIEs. Accordingly, for purposes of the portfolio limit, when PCs and certain Other 

Guarantee Transactions are purchased into the mortgage-related investments portfolio, this is considered the acquisition of 

assets rather than the reduction of debt.

Mortgage-to-debt OAS — The net OAS between the mortgage and agency debt sectors. This is an important factor in 

determining the expected level of net interest yield on a new mortgage asset. Higher mortgage-to-debt OAS means that a newly 

purchased mortgage asset is expected to provide a greater return relative to the cost of the debt issued to fund the purchase of 

the asset and, therefore, a higher net interest yield. Mortgage-to-debt OAS tends to be higher when there is weak demand for 

mortgage assets and lower when there is strong demand for mortgage assets.

Multifamily mortgage — A mortgage loan secured by a property with five or more residential rental units.

Multifamily mortgage portfolio — Consists of multifamily mortgage loans held by us on our consolidated balance sheets as 

well as our guarantee of non-consolidated Freddie Mac mortgage-related securities, and other guarantee commitments, but 

excluding those underlying our guarantees of HFA bonds under the HFA initiative.

Net worth (deficit) — The amount by which our total assets exceed (or are less than) our total liabilities as reflected on our 

consolidated balance sheets prepared in conformity with GAAP.

Net worth sweep dividend, Net Worth Amount, and Capital Reserve Amount — For each quarter from January 1, 2013 

through and including December 31, 2017, the dividend payment on the senior preferred stock will be the amount, if any, by 

which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less the applicable Capital Reserve 

Amount, exceeds zero. The term Net Worth Amount is defined as: (a) the total assets of Freddie Mac (excluding Treasury’s 

commitment and any unfunded amounts thereof), less; (b) our total liabilities (excluding any obligation in respect of capital 

stock), in each case as reflected on our consolidated balance sheets prepared in accordance with GAAP. If the calculation of the 

dividend payment for a quarter does not exceed zero, then no dividend shall accrue or be payable for that quarter. The 

applicable Capital Reserve Amount was $3 billion for 2013, will be $2.4 billion for 2014, and will be reduced by $600 million 

each year thereafter until it reaches zero on January 1, 2018. For each quarter beginning January 1, 2018, the dividend payment 

will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter exceeds zero.

New single-family book — Consists of mortgage loans in our single-family credit guarantee portfolio that were originated in 

2009 to 2013, excluding HARP and other relief refinance mortgages. We do not include relief refinance mortgages, including 

HARP loans, as underwriting procedures for relief refinance mortgages are limited, and, in many cases, do not include all of the 

changes in underwriting standards we have implemented since 2008. 

NIBP — New Issue Bond Program is a component of the HFA initiative in which we and Fannie Mae issued partiallyguaranteed pass-through securities to Treasury that are backed by bonds issued by various state and local HFAs. The program 

provides financing for HFAs to issue new housing bonds. Treasury is obligated to absorb any losses under the program up to a 

certain level before we are exposed to any losses.

Non-performing loan — Single-family and multifamily loans that have undergone a TDR, single-family seriously delinquent 

loans, multifamily loans that are three or more payments past due or in the process of foreclosure, and multifamily loans that 

are deemed impaired based on management judgment.

NPV — Net present value

NYSE — New York Stock Exchange

OAS — Option-adjusted spread — An estimate of the incremental yield spread between a particular financial instrument (e.g., 

a security, loan or derivative contract) and a benchmark yield curve (e.g., LIBOR or agency or U.S. Treasury securities). This 

includes consideration of potential variability in the instrument’s cash flows resulting from any options embedded in the 

instrument, such as prepayment options.

OFHEO — Office of Federal Housing Enterprise Oversight, the predecessor to FHFA.

Option ARM loan — Mortgage loans that permit a variety of repayment options, including minimum, interest-only, fully 

amortizing 30-year and fully amortizing 15-year payments. The minimum payment alternative for option ARM loans allows the 

Table of Contents
322 Freddie Mac

borrower to make monthly payments that may be less than the interest accrued for the period. The unpaid interest, known as 

negative amortization, is added to the principal balance of the loan, which increases the outstanding loan balance. For our nonagency 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 mortgage loans, calculated as the UPB of the mortgage we guarantee including 

the credit-enhanced portion, divided by the lesser of the appraised value of the property at the time of mortgage origination or 

the mortgage borrower’s purchase price. Second liens not owned or guaranteed by us are excluded from the LTV ratio 

calculation. The existence of a second-lien mortgage 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.

Other guarantee commitments — Mortgage-related assets held by third parties for which we provide our guarantee without 

our securitization of the related assets.

Other Guarantee Transactions — Transactions in which third parties transfer non-Freddie Mac mortgage-related securities to 

trusts specifically created for the purpose of issuing mortgage-related securities, or certificates. See "K Certificates" for more 

information. We exclude our securitizations of Ginnie Mae securities and tax-exempt multifamily housing revenue bonds from 

this classification.

PCs — Participation Certificates — Securities that we issue as part of a securitization transaction. Typically we purchase 

mortgage loans from parties who sell mortgage loans, place a pool of loans into a PC trust and issue PCs from that trust. The 

PCs are generally transferred to the seller of the mortgage loans in consideration of the loans or are sold to third-party investors 

if we purchased the mortgage loans for cash.

Pension Plan — Employees’ Pension Plan

Pension SERP Benefit — The component of the SERP that relates to the Pension Plan.

PMVS — Portfolio Market Value Sensitivity — One of our primary interest-rate risk measures. PMVS measures are estimates 

of the amount of average potential pre-tax loss in the market value of our net assets due to parallel (PMVS-L) and non-parallel 

(PMVS-YC) changes in LIBOR.

Pre-2005 Legacy single-family book — Consists of mortgage loans in our single-family credit guarantee portfolio that were 

originated in 2004 and prior.

Primary mortgage market — The market where lenders originate mortgage loans and lend funds to borrowers. We do not 

lend money directly to homeowners and do not participate in this market.

Purchase Agreement / Senior Preferred Stock Purchase Agreement — An agreement the Conservator, acting on our behalf, 

entered into with Treasury on September 7, 2008, which was subsequently amended and restated on September 26, 2008 and 

further amended on May 6, 2009, December 24, 2009, and August 17, 2012.

Recorded Investment — The dollar amount of a loan recorded on our consolidated balance sheets, excluding any valuation 

allowance, such as the allowance for loan losses, but which does reflect direct write-downs of the investment. For mortgage 

loans, direct write-downs consist of valuation allowances associated with recording our initial investment in loans acquired 

with evidence of credit deterioration at the time of purchase. Recorded investment excludes accrued interest income.

Reform Act — The Federal Housing Finance Regulatory Reform Act of 2008, which, among other things, amended the GSE 

Act by establishing a single regulator, FHFA, for Freddie Mac, Fannie Mae, and the FHLBs.

REIT — Real estate investment trust

Relief refinance mortgage — A single-family mortgage loan delivered to us for purchase or guarantee that meets the criteria 

of the Freddie Mac Relief Refinance Mortgagesm initiative. Part of this initiative is our implementation of HARP for our loans, 

and relief refinance options are also available for certain non-HARP loans. Although HARP is targeted at borrowers with 

current LTV ratios above 80%, our initiative also allows borrowers with LTV ratios of 80% and below to participate.

REMIC — Real Estate Mortgage Investment Conduit — A type of multiclass mortgage-related security that divides the cash 

flows (principal and interest) of the underlying mortgage-related assets into two or more classes that meet the investment 

criteria and portfolio needs of different investors.

Table of Contents
323 Freddie Mac

REMICs and Other Structured Securities (or in the case of Multifamily securities, Other Structured Securities) — Singleand multiclass securities issued by Freddie Mac that represent beneficial interests in pools of PCs and certain other types of 

mortgage-related assets. REMICs and Other Structured Securities that are single-class securities pass through the cash flows 

(principal and interest) on the underlying mortgage-related assets. REMICs and Other Structured Securities that are multiclass 

securities divide the cash flows of the underlying mortgage-related assets into two or more classes designed to meet the 

investment criteria and portfolio needs of different investors. Our principal multiclass securities qualify for tax treatment as 

REMICs. We include our securitizations of Ginnie Mae securities and tax-exempt multifamily housing revenue bonds in this 

classification.

REO — Real estate owned — Real estate which we have acquired through foreclosure or through a deed in lieu of foreclosure.

RSU — Restricted stock unit

S&P — Standard & Poor’s

SEC — Securities and Exchange Commission

Secondary mortgage market — A market consisting of institutions engaged in buying and selling mortgages in the form of 

whole loans (i.e., mortgages that have not been securitized) and mortgage-related securities. We participate in the secondary 

mortgage market by purchasing mortgage loans and mortgage-related securities for investment and by issuing guaranteed 

mortgage-related securities, principally PCs.

Senior preferred stock — The shares of Variable Liquidation Preference Senior Preferred Stock issued to Treasury under the 

Purchase Agreement.

Seriously delinquent — Single-family mortgage loans that are three monthly payments or more past due or in the process of 

foreclosure as reported to us by our servicers.

SERP — Supplemental Executive Retirement Plan

Short sale — Typically an alternative to foreclosure consisting of a sale of a mortgaged property in which the homeowner sells 

the home at market value and the lender accepts proceeds (sometimes together with an additional payment or promissory note 

from the borrower) that are less than the outstanding mortgage indebtedness in full satisfaction of the loan.

Single-family credit guarantee portfolio — Consists of unsecuritized single-family loans, single-family loans held by 

consolidated trusts, and single-family loans underlying non-consolidated Other Guarantee Transactions and loans covered by 

other guarantee commitments. Excludes our REMICs and Other Structured Securities that are backed by Ginnie Mae 

Certificates and our guarantees under the HFA initiative.

Single-family mortgage — A mortgage loan secured by a property containing four or fewer residential dwelling units.

Spread — The difference between the yields of two debt securities, or the difference between the yield of a debt security and a 

benchmark yield, such as LIBOR.

STACR — Structured Agency Credit Risk transaction, in which we issue and sell debt securities, the principal balance of 

which is subject to the credit and prepayment risk of a reference pool of single-family mortgage loans owned or guaranteed by 

Freddie Mac.

Strips — Mortgage pass-through securities created by separating the principal and interest payments on a pool of mortgage 

loans. A principal-only strip entitles the security holder to principal cash flows, but no interest cash flows, from the underlying 

mortgages. An interest-only strip entitles the security holder to interest cash flows, but no principal cash flows, from the 

underlying mortgages.

Subprime — Participants in the mortgage market may characterize single-family loans based upon their overall credit quality 

at the time of origination, generally considering them to be prime or subprime. Subprime generally refers to the credit risk 

classification of a loan. There is no universally accepted definition of subprime. The subprime segment of the mortgage market 

primarily serves borrowers with poorer credit payment histories and such loans typically have a mix of credit characteristics 

that indicate a higher likelihood of default and higher loss severities than prime loans. Such characteristics might include, 

among other factors, a combination of high LTV ratios, low credit scores or originations using lower underwriting standards, 

such as limited or no documentation of a borrower’s income. While we have not historically characterized the loans in our 

single-family credit guarantee portfolio as either prime or subprime, we monitor the amount of loans we have guaranteed with 

characteristics that indicate a higher degree of credit risk. Notwithstanding our historical characterizations of the single family 

credit guarantee portfolio, certain security collateral underlying our Other Guarantee Transactions has been identified as 

subprime based on information provided to Freddie Mac when the transactions were entered into. We also categorize our 

investments in non-agency mortgage-related securities as subprime if they were identified as such based on information 

provided to us when we entered into these transactions.

Table of Contents
324 Freddie Mac

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.

Target TDC — Target total direct compensation

TBA — To be announced

TCLFP — Temporary Credit and Liquidity Facility Program is a component of the HFA initiative in which we and Fannie Mae 

issued credit and liquidity guarantees to holders of variable-rate demand obligations issued by various state and local HFAs. 

Treasury is obligated to absorb any losses under the program up to a certain level before we are exposed to any losses. The 

program was scheduled to expire on December 31, 2012. However, Treasury gave participants the option to extend their 

individual TCLFP facilities to December 31, 2015. Certain participants elected to extend their TCLFP facilities to 

December 2015.

TDR — Troubled debt restructuring — A type of loan modification in which the changes to the contractual terms result in 

concessions to borrowers that are experiencing financial difficulties. Beginning in the third quarter of 2012, TDRs also include 

single-family loans discharged in Chapter 7 bankruptcy, regardless of the borrowers’ payment status.

Thrift/401(k) SERP Benefit — The component of the SERP that relates to the Thrift/401(k) Savings Plan.

Total other comprehensive income (loss) (or other comprehensive income (loss)) — Consists of the after-tax changes in: 

(a) the unrealized gains and losses on available-for-sale securities; (b) the effective portion of derivatives accounted for as cash 

flow hedge relationships; and (c) defined benefit plans.

Total mortgage portfolio — Includes mortgage loans and mortgage-related securities held on our consolidated balance sheets 

as well as the balances of our non-consolidated issued and guaranteed single-class and multiclass securities, and other 

mortgage-related financial guarantees issued to third parties.

Treasury — U.S. Department of the Treasury

UPB — Unpaid principal balance

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 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: (a) that has a total equity investment at risk that is not sufficient to 

finance its activities without additional subordinated financial support provided by another party; or (b) where the group of 

equity holders does not have: (i) the ability to make significant decisions about the entity’s activities; (ii) the obligation to 

absorb the entity’s expected losses; or (iii) the right to receive the entity’s expected residual returns.

Warrant — Refers to the warrant we issued to Treasury on September 7, 2008 pursuant to the Purchase Agreement. The 

warrant provides Treasury the ability to purchase, for a nominal price, shares of our common stock equal to 79.9% of the total 

number of shares of Freddie Mac common stock outstanding on a fully diluted basis on the date of exercise.

Workout, or loan workout — A workout is either: (a) a home retention action, which is either a loan modification, repayment 

plan, or forbearance agreement; or (b) a foreclosure alternative, which is either a short sale or a deed in lieu of foreclosure.

XBRL — eXtensible Business Reporting Language

Yield curve — A graphical display of the relationship between yields and maturity dates for bonds of the same credit quality. 

The slope of the yield curve is an important factor in determining the level of net interest yield on a new mortgage asset, both 

initially and over time. For example, if a mortgage asset is purchased when the yield curve is inverted (i.e., short-term interest 

rates higher than long-term 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.

Table of Contents
E-1 Freddie Mac

EXHIBIT INDEX

Exhibit No. Description*

3.1

 

Federal Home Loan Mortgage Corporation Act (12 U.S.C. §1451 et seq.), as amended through July 21, 2010 (incorporated by reference to

Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010, as filed on August 9, 2010)

 

3.2

 

Bylaws of the Federal Home Loan Mortgage Corporation, as amended and restated December 20, 2012 (incorporated by reference to

Exhibit 3.1 to the Registrant’s Current Report on Form 8-K as filed on December 20, 2012)

 

4.1

 

Eighth Amended and Restated Certificate of Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Voting Common Stock (no par value per share) dated September 10, 2008 (incorporated by

reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K as filed on September 11, 2008)

 

4.2

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated April 23, 1996 (incorporated by

reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.3

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 27, 1997 (incorporated by reference to

Exhibit 4.3 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.4

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 1998 (incorporated by reference to

Exhibit 4.4 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.5

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated September 23, 1998 (incorporated by reference to

Exhibit 4.5 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.6

 

Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated September 29,

1998 (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.7

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.3% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 28, 1998 (incorporated by reference to

Exhibit 4.7 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.8

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 19, 1999 (incorporated by reference to

Exhibit 4.8 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.9

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.79% Non-Cumulative Preferred Stock (par value $1.00 per share), dated July 21, 1999 (incorporated by reference to

Exhibit 4.9 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.10

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated November 5, 1999 (incorporated by

reference to Exhibit 4.10 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.11

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated January 26, 2001 (incorporated by

reference to Exhibit 4.11 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.12

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 2001 (incorporated by

reference to Exhibit 4.12 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.13

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 2001 (incorporated by reference to

Exhibit 4.13 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.14

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated May 30, 2001 (incorporated by reference

to Exhibit 4.14 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

Table of Contents
E-2 Freddie Mac

Exhibit No. Description*

4.15

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 6% Non-Cumulative Preferred Stock (par value $1.00 per share), dated May 30, 2001 (incorporated by reference to Exhibit

4.15 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.16

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.7% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 30, 2001 (incorporated by reference to

Exhibit 4.16 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.17

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated January 29, 2002 (incorporated by reference to

Exhibit 4.17 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.18

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Variable Rate, Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 17, 2006 (incorporated by

reference to Exhibit 4.18 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.19

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 6.42% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 17, 2006 (incorporated by

reference to Exhibit 4.19 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.20

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.9% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated October 16, 2006 (incorporated by

reference to Exhibit 4.20 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.21

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.57% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated January 16, 2007 (incorporated by

reference to Exhibit 4.21 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.22

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 5.66% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated April 16, 2007 (incorporated by

reference to Exhibit 4.22 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.23

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 6.02% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 24, 2007 (incorporated by

reference to Exhibit 4.23 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.24

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of 6.55% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated September 28, 2007 (incorporated by

reference to Exhibit 4.24 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.25

 

Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and

Conditions of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated December 4, 2007

(incorporated by reference to Exhibit 4.25 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.26

 

Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (par value $1.00 per share), dated

September 27, 2012 (incorporated by reference to Exhibit 4.26 to the Registrant’s Annual Report on Form 10-K as filed on February 28,

2013)

 

4.27

 

Federal Home Loan Mortgage Corporation Global Debt Facility Agreement, dated March 1, 2013 (incorporated by reference to Exhibit

4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, as filed on May 8, 2013)

 

10.1

 

Federal Home Loan Mortgage Corporation 2004 Stock Compensation Plan (as amended and restated as of June 6, 2008) (incorporated by

reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.2

 

First Amendment to the Federal Home Loan Mortgage Corporation 2004 Stock Compensation Plan (incorporated by reference to Exhibit

10.2 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.3

 

Second Amendment to the Federal Home Loan Mortgage Corporation 2004 Stock Compensation Plan (incorporated by reference to

Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, as filed on August 7, 2009)†

 

10.4

 

Form of Nonqualified Stock Option Agreement for executive officers under the Federal Home Loan Mortgage Corporation 2004 Stock

Compensation Plan for awards on and after March 4, 2005 but prior to January 1, 2006 (incorporated by reference to Exhibit 10.3 to the

Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

Table of Contents
E-3 Freddie Mac

Exhibit No. Description*

10.5

 

Form of Nonqualified Stock Option Agreement for executive officers under the Federal Home Loan Mortgage Corporation 2004 Stock

Compensation Plan for awards on and after January 1, 2006 (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration

Statement on Form 10 as filed on July 18, 2008)†

 

10.6

 

Federal Home Loan Mortgage Corporation Global Amendment to Affected Stock Options under Nonqualified Stock Option Agreements

and Separate Dividend Equivalent Rights, effective December 31, 2005 (incorporated by reference to Exhibit 10.9 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.7

 

Federal Home Loan Mortgage Corporation 1995 Stock Compensation Plan (incorporated by reference to Exhibit 10.10 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.8

 

First Amendment to the Federal Home Loan Mortgage Corporation 1995 Stock Compensation Plan (incorporated by reference to Exhibit

10.11 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.9

 

Second Amendment to the Federal Home Loan Mortgage Corporation 1995 Stock Compensation Plan (incorporated by reference to

Exhibit 10.12 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.10

 

Third Amendment to the Federal Home Loan Mortgage Corporation 1995 Stock Compensation Plan (incorporated by reference to Exhibit

10.13 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.11

 

Form of Nonqualified Stock Option Agreement for executive officers under the Federal Home Loan Mortgage Corporation 1995 Stock

Compensation Plan (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form 10 as filed on July 18,

2008)†

 

10.12

 

Federal Home Loan Mortgage Corporation Employee Stock Purchase Plan (as amended and restated as of January 1, 2005) (incorporated

by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.13

 

Federal Home Loan Mortgage Corporation 1995 Directors’ Stock Compensation Plan (as amended and restated June 8, 2007)

(incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.14

 

Federal Home Loan Mortgage Corporation Directors’ Deferred Compensation Plan (as amended and restated April 3, 1998) (incorporated

by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.15

 

First Amendment to the Federal Home Loan Mortgage Corporation Directors’ Deferred Compensation Plan (as amended and restated

April 3, 1998) (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended

December 31, 2008, as filed on March 11, 2009)†

 

10.16

 

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)†

 

10.17

 

First Amendment to the Federal Home Loan Mortgage Corporation Executive Deferred Compensation Plan (as amended and restated

effective January 1, 2008) (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly

period ended September 30, 2008, as filed on November 14, 2008)†

 

10.18

 

Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated effective January 1, 2008)

(incorporated by reference to Exhibit 10.33 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.19

 

First Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (As Amended and Restated

January 1, 2008) (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended

December 31, 2009, as filed on February 24, 2010)†

 

10.20

 

Second Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as Amended and

Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed on June 28,

2011)†

 

10.21

 

Third Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as Amended and Restated

January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q as filed on November 6,

2012)†

10.22 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 as filed on 

August 7, 2013) †

Table of Contents
E-4 Freddie Mac

Exhibit No. Description*

10.23 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, as filed on October 25, 2013) 

†

 

10.24

 

Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit 10.34 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.25

 

First Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to

Exhibit 10.35 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.26

 

Second Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit

10.36 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.27

 

Executive Management Compensation Program (as amended and restated as of June 2, 2011) (incorporated by reference to Exhibit 10.4

to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, as filed on August 8, 2011)†

 

10.28

 

Federal Home Loan Mortgage Corporation Mandatory Executive Deferred Base Salary Plan, Effective as of January 1, 2009

(incorporated by reference to Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009,

as filed on February 24, 2010)†

 

10.29

 

First Amendment To The Federal Home Loan Mortgage Corporation Mandatory Executive Deferred Base Salary Plan (As Effective

January 1, 2009) (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period

ended June 30, 2011, as filed on August 8, 2011)†

10.30

 

Second Amendment To The Federal Home Loan Mortgage Corporation Mandatory Executive Deferred Base Salary Plan (As Effective

January 1, 2009) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period

ended June 30, 2012, as filed on August 7, 2012)†

 

10.31

 

Executive Management Compensation Recapture Policy (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on

Form 8-K, as filed on December 24, 2009)†

 

10.32

 

2012 Executive Management Compensation Program Recapture and Forfeiture Agreement (incorporated by reference to Exhibit 10.3 to

the Registrant’s Quarterly Report on Form 10-Q as filed on November 6, 2012)†

 

10.33 2013 Executive Management Compensation Program for Virginia-Based Covered Officers (incorporated by reference to Exhibit 10.1 to 

the Registrant’s Current Report on Form 8-K as filed on June 12, 2013) †

10.34 2013 Executive Management Compensation Program for Non-Virginia-Based Covered Officers (incorporated by reference to Exhibit 

10.2 to the Registrant’s Current Report on Form 8-K as filed on June 12, 2013) †

10.35 2013 Executive Management Compensation Program Recapture and Forfeiture Agreement (incorporated by reference to Exhibit 10.3 to 

the Registrant’s Current Report on Form 8-K as filed on June 12, 2013) †

10.36 2014 Executive Management Compensation Program for Virginia-Based Covered Officers (incorporated by reference to Exhibit 10.1 to 

the Registrant’s Current Report on Form 8-K as filed on December 10, 2013) †

10.37 2014 Executive Management Compensation Program for Non-Virginia-Based Covered Officers (incorporated by reference to Exhibit 

10.2 to the Registrant’s Current Report on Form 8-K as filed on December 10, 2013) †

 

10.38

 

Memorandum Agreement, dated May 7, 2012, between Freddie Mac and Donald H. Layton (incorporated by reference to Exhibit 10.1 to

the Registrant’s Current Report on Form 8-K as filed on May 10, 2012)†

 

10.39

 

Restrictive Covenant and Confidentiality Agreement, dated May 7, 2012, between Freddie Mac and Donald H. Layton (incorporated by

reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K as filed on May 10, 2012)†

 

10.40

 

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, as filed on September 30, 2013) †

 

10.41

 

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, as filed on September 30, 2013) †

 

10.42

 

Memorandum Agreement, dated September 24, 2009, between Freddie Mac and Ross J. Kari (incorporated by reference to Exhibit 10.1 to

the Registrant’s Current Report on Form 8-K, as filed on September 24, 2009)†

Table of Contents
E-5 Freddie Mac

Exhibit No. Description*

10.43

 

Recapture Agreement, dated September 24, 2009, between Freddie Mac and Ross J. Kari (incorporated by reference to Exhibit 10.2 to the

Registrant’s Current Report on Form 8-K, as filed on September 24, 2009)†

 

10.44

 

Restrictive Covenant and Confidentiality Agreement, dated September 24, 2009, between Freddie Mac and Ross J. Kari (incorporated by

reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, as filed

on November 6, 2009)†

 

10.45

 

Restrictive Covenant and Confidentiality Agreement, dated October 15, 2004, between Freddie Mac and Jerry Weiss (incorporated by

reference to Exhibit 10.49 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed on March 9,

2012)†

 

10.46 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, as filed on July 9, 2012)†

10.47 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, as filed on July 9, 2012)†

10.48 Memorandum Agreement, dated April 7, 2013, between Freddie Mac and David B. Lowman†

10.49 Restrictive Covenant and Confidentiality Agreement, dated April 9, 2013, between Freddie Mac and David B. Lowman†

10.50

 

Description of non-employee director compensation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on

Form 8-K as filed on December 23, 2008)†

 

10.51

 

PC Master Trust Agreement dated October 24, 2013 (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on

Form 10-Q as filed on November 7, 2013)

10.52

 

Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and executive officers (for agreements with

officers entered into prior to August 2011) and outside Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Current

Report on Form 8-K as filed on December 23, 2008)†

10.53

 

Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and executive officers (for agreements with

officers entered into beginning in August 2011) (incorporated by reference to Exhibit 10.54 to the Registrant’s Annual Report on Form

10-K for the year ended December 31, 2011, as filed on March 9, 2012)†

 

10.54

 

Consent of Defendant Federal Home Loan Mortgage Corporation with the Securities and Exchange Commission, dated September 18,

2007 (incorporated by reference to Exhibit 10.65 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

10.55

 

Letters, dated September 1, 2005, setting forth an agreement between Freddie Mac and FHFA (incorporated by reference to Exhibit 10.67

to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

10.56

 

Amended and Restated Senior Preferred Stock Purchase Agreement dated as of September 26, 2008, between the United States

Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through the Federal Housing Finance Agency as its

duly appointed Conservator (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the

quarterly period ended September 30, 2008, as filed on November 14, 2008)

 

10.57

 

Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of May 6, 2009, between the United States

Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through the Federal Housing Finance Agency as its

duly appointed Conservator (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the period

ended March 31, 2009, as filed on May 12, 2009)

 

10.58

 

Second Amendment dated as of December 24, 2009, to the Amended and Restated Senior Preferred Stock Purchase Agreement dated as

of September 26, 2008, between the United States Department of the Treasury and Federal Home Loan Mortgage Corporation, acting

through the Federal Housing Finance Agency as its duly appointed Conservator (incorporated by reference to Exhibit 10.1 to the

Registrant’s Current Report on Form 8-K, as filed on December 29, 2009)

 

10.59

 

Third Amendment dated as of August 17, 2012, to the Amended and Restated Senior Preferred Stock Purchase Agreement dated as of

September 26, 2008, between the United States Department of the Treasury and Federal Home Loan Mortgage Corporation, acting

through the Federal Housing Finance Agency as its duly appointed Conservator (incorporated by reference to Exhibit 10.1 to the

Registrant’s Current Report on Form 8-K, as filed on August 17, 2012)

 

10.60

 

Warrant to Purchase Common Stock, dated September 7, 2008 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current

Report on Form 8-K as filed on September 11, 2008)

 

Table of Contents
E-6 Freddie Mac

Exhibit No. Description*

10.61

 

Memorandum of Understanding Among the Department of Treasury, the Federal Housing Finance Agency, the Federal National Mortgage

Association, and the Federal Home Loan Mortgage Corporation, dated October 19, 2009 (incorporated by reference to Exhibit 10.1 to the

Registrant’s Current Report on Form 8-K, as filed on October 23, 2009)

 

10.62

 

Omnibus Consent to HFA Initiative Program Modifications, dated November 23, 2011, among the U.S. Department of the Treasury, the

Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Federal Housing Finance Agency

(incorporated by reference to Exhibit 10.62 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011, as

filed on March 9, 2012)

 

12.1

 

Statement re: computation of ratio of earnings to fixed charges and computation of ratio of earnings to combined fixed charges and

preferred stock dividends

24.1 Powers of Attorney

 

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)

 

31.2 Certification of Executive Vice President —Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)

 

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

 

32.2 Certification of Executive Vice President —Chief Financial Officer pursuant to 18 U.S.C. Section 1350

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.

† This exhibit is a management contract or compensatory plan or arrangement.

Table of Contents
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,

 2013 2012 2011 2010 2009

(dollars in millions)

Net income (loss) before income tax benefit (expense) and cumulative effect of changes in

accounting principles $ 25,363 $ 9,445 $ (5,666) $ (14,882) $ (22,384)

Add:

Low-income housing tax credit partnerships — — — — 4,155

Total interest expense 55,779 66,502 79,988 92,131 22,150

Interest factor in rental expenses 4 4 4 5 7

Earnings (loss), as adjusted $ 81,146 $ 75,951 $ 74,326 $ 77,254 $ 3,928

Fixed charges:

Total interest expense $ 55,779 $ 66,502 $ 79,988 $ 92,131 $ 22,150

Interest factor in rental expenses 4 4 4 5 7

Total fixed charges $ 55,783 $ 66,506 $ 79,992 $ 92,136 $ 22,157

Senior preferred stock and preferred stock dividends(1) 52,199 7,229 6,498 5,749 4,105

Total fixed charges including preferred stock dividends $ 107,982 $ 73,735 $ 86,490 $ 97,885 $ 26,262

Ratio of earnings to fixed charges(2) 1.45 1.14 — — —

Ratio of earnings to combined fixed charges and preferred stock dividends(3) — 1.03 — — —

(1) Senior preferred stock and preferred stock dividends represent pre-tax earnings required to cover any senior preferred stock and preferred stock 

dividend requirements computed using our effective tax rate, whenever there is an income tax provision, for the relevant periods.

(2) Ratio of earnings to fixed charges is computed by dividing earnings (loss), as adjusted by total fixed charges. For the ratio to equal 1.00, earnings 

(loss), as adjusted must increase by $5.7 billion, $14.9 billion, and $18.2 billion for the years ended December 31, 2011, 2010, and 2009, respectively.

(3) Ratio of earnings to combined fixed charges and preferred stock dividends is computed by dividing earnings (loss), as adjusted by total fixed charges 

including preferred stock dividends. For the ratio to equal 1.00, earnings (loss), as adjusted must increase by $26.8 billion, $12.2 billion, $20.6 billion, 

and $22.3 billion for the years ended December 31, 2013, 2011, 2010, and 2009, 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 and William H. McDavid, 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, 2013 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 January 17, 

2014.

/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 and William H. McDavid, 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, 2013 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 January 16, 

2014.

/s/ Richard C. Hartnack___

Richard C. Hartnack
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 and William H. McDavid, 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, 2013 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 January 17, 

2014.

/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 and William H. McDavid, 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, 2013 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 January 24, 

2014.

/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 and William H. McDavid, 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, 2013 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 February 5, 

2014.

/s/ Sara Mathew_______

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 and William H. McDavid, 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, 2013 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 January 17, 

2014.

/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 and William H. McDavid, 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, 2013 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 January 18, 

2014.

/s/ Nicolas P. Retsinas_____

Nicolas P. Retsinas
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 and William H. McDavid, 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, 2013 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 January 17, 

2014.

/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 and William H. McDavid, 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, 2013 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 January 16, 

2014.

/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, 2013 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 27, 2014

/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, 2013 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 27, 2014

/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, 2013 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 27, 2014

/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, 2013 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 27, 2014

/s/ James G. Mackey

James G. Mackey

Executive Vice President — Chief Financial Officer
Exhibit 10.48

Date To

April 7, 2013 David B. Lowman

From

Donald H. Layton

Subject

Your Compensation as Executive Vice President – Single-Family Business

On behalf of the Compensation Committee (the “Committee”) of Freddie Mac’s Board of 

Directors (the “Board”), this memorandum sets forth Freddie Mac’s agreement to employ you as 

its Executive Vice President – Single-Family Business, effective May 20, 2013, pursuant to the 

terms and conditions set forth herein. The terms and conditions set forth herein have been 

approved by the Committee and the Federal Housing Finance Agency (“FHFA”) and supersede 

any previous communications you may have had with Freddie Mac, FHFA, or the United States 

Department of Treasury (“Treasury”).

As Freddie Mac’s Executive Vice President – Single-Family Business, you shall report to me, 

Freddie Mac’s Chief Executive Officer, or my successor, and have the same status, privileges, 

and responsibilities normally inherent in such capacity in corporations of similar size and 

character. You shall also perform such additional duties as the Board may from time to time 

reasonably assign to you.

During your employment, you agree to devote substantially all of your time, attention, and 

energies to Freddie Mac’s business, and to not be engaged in any other business activity, 

whether or not such business activity is pursued for gain, profit, or other pecuniary advantage, 

other than for service on outside boards in accordance with our Outside Employment and Other 

Outside Activities Policy. This restriction shall not prevent you from devoting a reasonable 

amount of time to charitable or public interest activities or from making passive investments of 

your assets in such form or manner as you desire, consistent with Freddie Mac’s Personal 

Securities Investment policy, and except as provided herein. 

Please review and confirm that such terms and conditions conform to your understanding by 

returning to Scott Coolidge, Freddie Mac’s Senior Vice President – Human Resources, a signed 

copy of this letter.
Compensation Terms – David B. Lowman – April 7, 2013

Page 2 of 5

I. Compensation

Your compensation is governed by the 2013 Executive Management Compensation Program 

(“2013 EMCP”). To participate in the 2013 EMCP, you must agree to the terms of the 2013 

EMCP Program Document and a Recapture and Forfeiture Agreement, both of which will be 

provided for your review after these documents are finalized. The 2013 EMCP Program 

Document will outline the terms and conditions of our compensation program for senior 

executives, while the Recapture and Forfeiture Agreement will describe the circumstances 

under which certain compensation is subject to forfeiture and repayment. In the event that you 

do not agree to the terms of either or both documents, you will be paid only Base Salary

Your target total direct compensation (“Target TDC”) will be $3,000,000, which will be pro-rated 

in the first calendar year of employment based on your agreed upon hire date. Your Target 

TDC will consist of two components – Base Salary and Deferred Salary – which are 

summarized below.

Base Salary – Base Salary is paid in cash. The annualized amount of your Base Salary is 

$500,000. 

Deferred Salary – Deferred Salary is earned on a semi-monthly basis. The amount earned in 

each quarter is paid in cash on the last business day of the corresponding quarter of the 

following calendar year. The annualized amount of your Deferred Salary is $2,500,000 and is 

comprised of the following two components:

• At-Risk Deferred Salary – This portion of your Deferred Salary is equal to thirty percent 

(30%) of your Target TDC, or $900,000, up to half of which may be reduced based on the 

company’s performance against objectives established by FHFA and up to half of which 

may be reduced based on performance against objectives established by Freddie Mac 

and your individual performance.

• Fixed Deferred Salary – This portion of your Deferred Salary is equal to your Target TDC 

less your Base Salary and At-Risk Deferred Salary, and is equal to $1,600,000.
Compensation Terms – David B. Lowman – April 7, 2013

Page 3 of 5

Cash Award – In consideration of your accepting this offer and beginning employment with 

Freddie Mac, you will receive a cash award in the amount of $150,000. You will receive this 

cash award on the same date on which you receive your first payment of Base Salary. The 

cash award is not considered “compensation” for purposes of our tax qualified Thrift/401(k) 

Savings Plan and our non-qualified Supplemental Executive Retirement Plan.

The cash award is subject to repayment if your employment terminates prior to the one-year 

anniversary of your date of hire for either of the following reasons:

• You voluntarily resign employment; or,

• We terminate your employment due to the occurrence of any of the Forfeiture Events 

described in the Recapture and Forfeiture Agreement that you will be required to sign 

in order to participate in the 2013 EMCP.

The amount to be repaid will be $12,500 (1/12th of the amount of the cash award) for each full 

month by which your termination precedes the one-year anniversary of your date of hire. 

II. Benefits

You will be eligible to participate in all employee benefit plans offered to Freddie Mac’s senior 

executive officers (as may be modified or terminated from time to time by Freddie Mac in its 

sole discretion) pursuant to the terms set forth in the applicable plan. In summary, our current 

benefit plans consist of the following:

• Healthcare Coverage– We offer a competitive healthcare program that provides medical, 

dental and vision coverage for you and your eligible dependents with several options to 

choose from. 

• Income Protection – We provide short- and long-term disability income protection, life 

insurance, accidental death and personal loss insurance, and business travel accident 

insurance.

• Vacation - As an officer, you will accrue 20 days of vacation annually. This equates to 6.46 

hours each semi-monthly pay period. You begin accruing vacation starting with your first 

full pay period. Beginning in your second calendar year of employment you have the 

option to purchase up to five (5) additional days of vacation.

• Thrift/401(k) Savings Plan – You will be able to contribute to our Thrift/401(k) Savings Plan 

on a pre-tax and/or after-tax basis. Freddie Mac will begin matching a portion of your 

contributions after one year of service at up to six percent of pay. This plan also includes 

an annual company discretionary contribution that is based on company performance. 

This contribution, which is in addition to the matching contribution, is determined using a 

defined formula and is subject to a three-year vesting schedule.

• Supplemental Executive Retirement Plan (SERP) – The SERP is an unfunded 

nonqualified plan for officers intended to make up for employer-provided contributions 

under the Thrift/401(k) Savings Plan that are capped due to Internal Revenue Code 

limitations. 
Compensation Terms – David B. Lowman – April 7, 2013

Page 4 of 5

Under separate cover, we are sending details of our employee benefit plans. As a new 

employee, you may select the benefit plans that best meet your needs by logging on to 

Fidelity’s NetBenefits website at http://netbenefits.fidelity.com. Shortly after your start date, you 

will receive an email from the Freddie Mac Benefits Center instructing you to log on to 

NetBenefits to make your elections. 

Note that you will not receive any information at your home address. Your enrollment window is 

open for 30 days following your hire date. During orientation, our benefit plans and information 

about enrollment will be explained in greater detail. Please visit our new employee website, 

http://www.freddiemac.com/careers/newemployee/, for information about working at Freddie 

Mac.

III. Personal Securities investments

You agree that following the vesting of your rights in certain shares of JPMorgan Chase & Co. 

common stock on January 20, 2014, you will act in good faith, considering relevant market 

conditions, to reduce your ownership interest in JPMorgan Chase & Co. to less than 5% of your 

household's Simplified Net Worth (as that term is defined in Freddie Mac's Personal Securities 

Investments Policy, a copy of which is attached).

IV. Restrictive Covenant and Confidentiality Agreement

The terms of your compensation provided in this letter are also contingent upon your agreement 

to be bound by the terms of the enclosed Restrictive Covenant and Confidentiality Agreement, 

which you must sign and return together with a signed copy of this letter.

V. FHFA’s Review and Approval Authority

The terms and conditions of your compensation have been reviewed and approved by FHFA in 

consultation with Treasury as required under the terms of the company’s Preferred Stock 

Agreement. Notwithstanding such approval and any provision of this letter, you acknowledge 

and understand that any compensation paid or to be paid during or after your employment 

remains subject to any withholding, escrow or prohibition consistent with FHFA’s authority 

pursuant to the Federal Home Loan Corporation Act, as amended, or the Federal Housing 

Enterprises Financial Safety and Soundness Act of 1992, as amended.

VI. Reservations of Rights:

This letter is not intended, nor shall it be interpreted, to constitute a contract of employment for 

a specified duration. Your employment is at-will and both you and Freddie Mac retain the 

discretion to terminate the employment relationship at any time for any lawful reason with or 

without notice.

This offer of employment is contingent upon Freddie Mac’s satisfaction in its sole discretion with 

your references and the results of your background checks and drug test.
Compensation Terms – David B. Lowman – April 7, 2013

Page 5 of 5

During the course of your review of this memorandum, Freddie Mac expects that you have had 

the opportunity to consult and receive assistance from appropriate advisors, including legal, tax, 

and financial advisors.

This memorandum shall be construed, and the rights and obligations herein determined, 

exclusively in accordance with the substantive law of the Commonwealth of Virginia, excluding 

provisions of Virginia law concerning choice-of-law that would result in the law of any state 

other than Virginia being applied.

/s/ Donald H. Layton__________________ 4/10/13_________

Donald H. Layton Date

Chief Executive Officer

I agree to the terms of this Agreement. 

/s/ David B. Lowman__________________ 4-9-2013_______

David B. Lowman Date
1 Exhibit 10.49

RESTRICTIVE COVENANT AND CONFIDENTIALITY AGREEMENT

In exchange for the mutual promises and consideration set forth below, this Restrictive Covenant and 

Confidentiality Agreement (“Agreement”) is entered into by and between the Federal Home Loan 

Mortgage Corporation (“Freddie Mac” or “Company”) and David B. Lowman (“Executive” or “you”), 

effective on the date the Executive assigns a personal signature to page 5 of this Agreement.

I. Definitions

The following terms shall have the meanings indicated when used in this Agreement.

A. Competitor: The following entities, and their respective parents, successors, subsidiaries, and 

affiliates are competitors: (i) Fannie Mae (ii) all Federal Home Loan Banks (including the Office of 

Finance); and (iii) such other entities to which Executive and the Company may agree in writing from 

time-to-time.

B. Confidential Information: Information or materials in written, oral, magnetic, digital, computer, 

photographic, optical, electronic, or other form, whether now existing or developed or created during the 

period of Executive’s employment with Freddie Mac, that constitutes trade secrets and/or proprietary or 

confidential information. This information includes, but is not limited to: (i) all information marked 

Proprietary or Confidential; (ii) information concerning the components, capabilities, and attributes of 

Freddie Mac’s business plans, methods, and strategies; (iii) information relating to tactics, plans, or 

strategies concerning shareholders, investors, pricing, investment, marketing, sales, trading, funding, 

hedging, modeling, sales and risk management; (iv) financial or tax information and analyses, including 

but not limited to, information concerning Freddie Mac’s capital structure and tax or financial planning; 

(v) confidential information about Freddie Mac’s customers, borrowers, employees, or others; (vi) pricing 

and quoting information, policies, procedures, and practices; (vii) confidential customer lists; (viii) 

proprietary algorithms; (ix) confidential contract terms; (x) confidential information concerning Freddie 

Mac’s policies, procedures, and practices or the way in which Freddie Mac does business; (xi) proprietary 

or confidential data bases, including their structure and content; (xii) proprietary Freddie Mac business 

software, including its design, specifications and documentation; (xiii) information about Freddie Mac 

products, programs, and services which has not yet been made public; (xiv) confidential information 

about Freddie Mac’s dealings with third parties, including dealers, customers, vendors, and regulators; 

and/or (xv) confidential information belonging to third parties to which Executive received access in 

connection with Executive’s employment with Freddie Mac. Confidential Information does not include 

general skills, experience, or knowledge acquired in connection with Executive’s employment with 

Freddie Mac that otherwise are generally known to the public or within the industry or trade in which 

Freddie Mac operates.

II. Non-Competition

Executive recognizes that as a result of Executive’s employment with Freddie Mac, Executive has access 

to and knowledge of critically sensitive Confidential Information, the improper disclosure or use of which 

would result in grave competitive harm to Freddie Mac. Therefore, Executive agrees that neither during 

Executive’s employment with Freddie Mac, nor for the twelve (12) months immediately following 

termination of Executive’s employment for any reason, will Executive consider offers of employment 

from, seek or accept employment with, or otherwise directly or indirectly provide professional services to 

any Competitor, if the Executive will be rendering duties, responsibilities or services for the Competitor 

that are of the type and nature rendered or performed by you during the past two years of your 
2

employment with Freddie Mac. Executive acknowledges and agrees that this covenant has unique, 

substantial and immeasurable value to Freddie Mac, that Executive has sufficient skills to provide a 

livelihood for Executive while this covenant remains in force, and that this covenant will not interfere 

with Executive’s ability to work consistent with Executive’s experience, training and education. This 

non-competition covenant applies regardless of whether Executive’s employment is terminated by 

Executive, by Freddie Mac, or by a joint decision. 

If Executive is a licensed lawyer, this non-competition covenant shall be interpreted in a manner 

consistent with any rule applicable to a licensed legal professional in the jurisdiction(s) of the Executive’s 

licensure or registration that concerns the Executive’s employment as counsel with, or provision of legal 

services to, a Competitor.

III. Non-Solicitation and Non-Recruitment

During Executive’s employment with Freddie Mac and for a period of twelve (12) months after 

Executive’s termination date, Executive will not solicit or recruit, attempt to solicit or recruit or assist 

another in soliciting or recruiting any Freddie Mac managerial employee (including manager-level, 

Executive-level, or officer-level employee) with whom Executive worked, or any employee whom 

Executive directly or indirectly supervised at Freddie Mac, to leave the employee’s employment with 

Freddie Mac for purposes of employment or for the rendering of professional services. This prohibition 

against solicitation does not apply if Freddie Mac has notified the employee being solicited or recruited 

that his/her employment with the Company will be terminated pursuant to a corporate reorganization or 

reduction-in-force.

If Employee is a licensed lawyer, this non-solicitation covenant shall be interpreted in a manner consistent 

with any rule applicable to a licensed legal professional in the jurisdiction(s) of Employee’s licensure or 

registration.

IV. Treatment of Confidential Information

A. Non-Disclosure. Executive recognizes that Freddie Mac is engaged in an extremely competitive 

business and that, in the course of performing Executive’s job duties, Executive will have access to and 

gain knowledge about Confidential Information. Executive further recognizes the importance of carefully 

protecting this Confidential Information in order for Freddie Mac to compete successfully. Therefore, 

Executive agrees that Executive will neither divulge Confidential Information to any persons, including to 

other Freddie Mac employees who do not have a Freddie Mac business-related need to know, nor make 

use of the Confidential Information for the Executive’s own benefit or for the benefit of anyone else other 

than Freddie Mac. Executive further agrees to take all reasonable precautions to prevent the disclosure of 

Confidential Information to unauthorized persons or entities, and to comply with all Company policies, 

procedures, and instructions regarding the treatment of such information.

B. Return of Materials. Executive agrees that upon termination of Executive’s employment with 

Freddie Mac for any reason whatsoever, Executive will deliver to Executive’s immediate supervisor all 

tangible materials embodying Confidential Information, including, but not limited to, any documentation, 

records, listings, notes, files, data, sketches, memoranda, models, accounts, reference materials, samples, 

machine-readable media, computer disks, tapes, and equipment which in any way relate to Confidential 

Information, whether developed by Executive or not. Executive further agrees not to retain any copies of 

any materials embodying Confidential Information.

C. Post-Termination Obligations. Executive agrees that after the termination of Executive’s 

employment for any reason, Executive will not use in any way whatsoever, nor disclose any Confidential 

Information learned or obtained in connection with Executive’s employment with Freddie Mac without 

first obtaining the written permission of the Senior Vice President of Human Resources of Freddie Mac. 
3

Executive further agrees that, in order to assure the continued confidentiality of the Confidential 

Information, Freddie Mac may correspond with Executive’s future employers to advise them generally of 

Executive’s exposure to and knowledge of Confidential Information, and Executive’s obligations and 

responsibilities regarding the Confidential Information. Executive understands and agrees that any such 

contact may include a request for assurance and confirmation from such employer(s) that Executive will 

not disclose Confidential Information to such employer(s), nor will such employer(s) permit any use 

whatsoever of the Confidential Information. To enable Freddie Mac to monitor compliance with the 

obligations imposed by this Agreement, Executive further agrees to inform in writing Freddie Mac’s 

Senior Vice President of Human Resources of the identity of Executive’s subsequent employer(s) and 

Executive’s prospective job title and responsibilities prior to beginning employment. Executive agrees 

that this notice requirement shall remain in effect for twelve (12) months following the termination of 

Executive’s Freddie Mac employment.

D. Ability to Enforce Agreement and Assist Government Investigations. Nothing in this Agreement 

prohibits or otherwise restricts you from: (1) making any disclosure of information required by law; (2) 

assisting any regulatory or law enforcement agency or legislative body to the extent you maintain a legal 

right to do so notwithstanding this Agreement; (3) filing, testifying, participating in or otherwise assisting 

in a proceeding relating to the alleged violation of any federal, state, or local law, regulation, or rule, to 

the extent you maintain a legal right to do so notwithstanding this Agreement; or (4) filing, testifying, 

participating in or otherwise assisting the Securities and Exchange Commission or any other proper 

authority in a proceeding relating to allegations of fraud.

V. Consideration Given to Executive

In exchange for agreeing to be bound by the terms, conditions, and restrictions stated in this Agreement, 

Freddie Mac will provide the Executive with employment as Executive Vice President – Single Family 

Business, which itself is adequate consideration for Executive’s agreement to be bound by the provisions 

of this Agreement.

VI. Reservation of Rights

Executive agrees that nothing in this Agreement constitutes a contract or commitment by Freddie Mac to 

continue Executive’s employment in any job position for any period of time, nor does anything in this 

Agreement limit in any way Freddie Mac’s right to terminate Executive’s employment at any time for any 

reason.

VII. Compliance with the Code of Conduct and Corporate Policies & Procedures, Including 

Personal Securities Investments Policy

As a Freddie Mac employee, Executive will be subject to Freddie Mac’s Code of Conduct (“Code”) and 

to Corporate Policy 3-206, Personal Securities Investments Policy (“Policy”) that, among other things, 

limit the investment activities of Freddie Mac employees. Executive agrees to fully comply with the Code 

and the Policy, copies of which are enclosed for Executive’s review. 

Executive agrees to consult with Freddie Mac’s Chief Compliance Officer as soon as practical prior to 

beginning employment about any investments that Executive or a “covered household member,” as that 

term is defined in the Policy, may have that may be prohibited by the Policy. Executive also agrees to 

disclose prior to beginning employment any other matter or situation that may create a conflict of interest 

as such term is defined in the Code. 
4

In addition, prior to beginning employment, Executive agrees to disclose to Freddie Mac's Human 

Resources Division the terms of any employment, confidentiality or stock grant agreements to which 

Executive may currently be subject that may affect Executive’s future employment or recruiting activities 

so that Freddie Mac may ensure that Executive’s employment by Freddie Mac and conduct as a Freddie 

Mac employee are not inconsistent with any of their terms. 

VIII. Absence of Any Conflict of Interest

Executive represents that Executive does not have any confidential information, trade secrets or other 

proprietary information that Executive obtained as the result of Executive’s employment with another 

employer that Executive will be using in Executive’s position at Freddie Mac. Executive also represents 

that Executive is not subject to any employment, confidentiality or stock grant agreements, or any other 

restrictions or limitations imposed by a prior employer, which would affect Executive’s ability to perform 

the duties and responsibilities for Freddie Mac in the job position offered, and further represents that 

Executive has provided Freddie Mac with copies of any non-competition, non-solicitation or similar 

agreements or limitations that have not expired, so that Freddie Mac can make an independent judgment 

that Executive’s employment with Freddie Mac is not inconsistent with any of its terms.

IX. Enforcement

A. Executive acknowledges that Executive may be subject to discipline, up to and including 

termination of employment, for Executive’s breach or threat of breach of any provision of this Agreement.

B. Executive agrees that irreparable injury will result to Freddie Mac’s business interests in the event 

of breach or threatened breach of this Agreement, the full extent of Freddie Mac’s damages will be 

impossible to ascertain, and monetary damages will not be an adequate remedy for Freddie Mac. 

Therefore, Executive agrees that in the event of a breach or threat of breach of any provision(s) of this 

Agreement, Freddie Mac, in addition to any other relief available, shall be entitled to temporary, 

preliminary, and permanent equitable relief to restrain any such breach or threat of breach by Executive 

and all persons acting for and/or in concert with Executive, without the necessity of posting bond or 

security, which Executive expressly waives.

C. Executive agrees that each of Executive’s obligations specified in this Agreement is a separate 

and independent covenant, and that all of Executive’s obligations set forth herein shall survive any 

termination, for any reason, of Executive’s Freddie Mac employment. To the extent that any provision of 

this Agreement is determined by a court of competent jurisdiction to be unenforceable because it is 

overbroad, that provision shall be limited and enforced to the extent permitted by applicable law. Should 

any provision of this Agreement be declared or determined by any court of competent jurisdiction to be 

unenforceable or invalid under applicable law, the validity of the remaining obligations will not be 

affected thereby and only the unenforceable or invalid obligation will be deemed not to be a part of this 

Agreement. 

D. This Agreement is governed by, and will be construed in accordance with, the laws of the 

Commonwealth of Virginia, without regard to its or any other jurisdiction’s conflict-of-law provisions. 

Executive agrees that any action related to or arising out of this Agreement shall be brought exclusively in 

the United States District Court for the Eastern District of Virginia, and Executive hereby irrevocably 

consents to personal jurisdiction and venue in such court and to service of process by United States Mail 

or express courier service in any such action.
5

E. If any dispute(s) arise(s) between Freddie Mac and Executive with respect to any matter which is 

the subject of this Agreement, the prevailing party in such dispute(s) shall be entitled to recover from the 

other party all of its costs and expenses, including its reasonable attorneys’ fees.

Executive has been advised to discuss all aspects of this Agreement with Executive’s private 

attorney. Executive acknowledges that Executive has carefully read and understands the terms 

and provisions of this Agreement and that they are reasonable. Executive signs this Agreement 

voluntarily and accepts all obligations contained in this Agreement in exchange for the 

consideration to be given to Executive as outlined above, which Executive acknowledges is adequate 

and satisfactory, and which Executive further acknowledges Freddie Mac is not otherwise obligated 

to provide to Executive. Neither Freddie Mac nor its agents, representatives, directors, officers or

employees have made any representations to Executive concerning the terms or effects of this 

Agreement, other than those contained in this Agreement.

By: /s/ David B. Lowman_________________ Date: 4/9/2013 

David B. Lowman