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, 2014 

Commission File Number: 001-34139

Federal Home Loan Mortgage Corporation

(Exact name of registrant as specified in its charter)

Freddie Mac

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

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

(State or other jurisdiction of

incorporation or organization)

(Address of principal executive offices,

including zip code)

Identification No.) including area code)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Form 10-K. [X]

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

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

Large accelerated filer [ 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 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was $2.5 billion.

As of February 5, 2015, there were 650,043,899 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None

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i Freddie Mac

TABLE OF CONTENTS

Page

Table of Contents

PART I

Item 1. Business 1

Item 1A. Risk Factors 30

Item 1B. Unresolved Staff Comments 47

Item 2. Properties 47

Item 3. Legal Proceedings 47

Item 4. Mine Safety Disclosure 48

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 48

Item 6. Selected Financial Data 51

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 52

Mortgage Market and Economic Conditions, and Outlook 52

Consolidated Results of Operations 54

Consolidated Balance Sheets Analysis 76

Risk Management 92

Liquidity and Capital Resources 125

Fair Value Hierarchy and Valuations 131

Off-Balance Sheet Arrangements 132

Contractual Obligations 133

Critical Accounting Policies and Estimates 134

Risk Management and Disclosure Commitments 136

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 136

Item 8. Financial Statements and Supplementary Data 141

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 240

Item 9A. Controls and Procedures 240

Item 9B. Other Information 241

PART III

Item 10. Directors, Executive Officers and Corporate Governance 243

Item 11. Executive Compensation 251

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 270

Item 13. Certain Relationships and Related Transactions, and Director Independence 272

Item 14. Principal Accounting Fees and Services 275

PART IV

Item 15. Exhibits and Financial Statement Schedules 276

SIGNATURES 278

GLOSSARY 280

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 2014

4 Affordable Housing Goals and Results for 2013 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 Loan Loss Reserves Activity

12 Single-Family Impaired Loans with Specific Reserve Recorded

13 TDRs and Non-Accrual Mortgage Loans

14 Credit Loss Performance

15 Severity Ratios for Single-Family Loans

16 Single-Family Charge-offs and Recoveries by Region

17 Derivative Gains (Losses)

18 Other Income (Loss)

19 Non-Interest Expense

20 REO Operations (Income) Expense

21 Composition of Segment Mortgage Portfolios and Credit Risk Portfolios

22 Segment Earnings and Key Metrics — Single-Family Guarantee

23 Segment Earnings and Key Metrics — Investments

24 Segment Earnings and Key Metrics — Multifamily

25 Investments in Available-For-Sale Securities

26 Investments in Trading Securities

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

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

29 Mortgage-Related Securities Purchase Activity

30

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

Statistics

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

32

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

CMBS

33 Mortgage Loan Purchases and Other Guarantee Commitment Issuances

34 REO Activity by Region

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

36 Other Short-Term Debt

37 Freddie Mac Mortgage-Related Securities

38 Issuances and Extinguishments of Debt Securities of Consolidated Trusts

39 Changes in Total Equity

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

41 Risk Transfer Transactions

42 Characteristics of the Single-Family Credit Guarantee Portfolio

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

44 Single-Family Serious Delinquency Statistics

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

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iii Freddie Mac

46 Single-Family Loans with Scheduled Payment Changes by Year at December 31, 2014

47 Credit Concentrations in the Single-Family Credit Guarantee Portfolio

48 Single-Family Credit Guarantee Portfolio by Attribute Combinations

49 Single-Family Relief Refinance Loans

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

51 Quarterly Percentages of Modified Single-Family Loans — Current or Paid Off

52 Foreclosure Timelines for Single-Family Loans

53 Single-Family REO Property Status

54 Multifamily Mortgage Portfolio — by Attribute

55 Mortgage Insurance by Counterparty

56 Bond Insurance by Counterparty

57 Derivative Counterparty Credit Exposure

58 Activity in Other Debt

59 Freddie Mac Credit Ratings

60 Contractual Obligations by Year at December 31, 2014

61 PMVS and Duration Gap Results

62 Derivative Impact on PMVS-L (50 bps)

63 2015 Target TDC

64 Board of Directors Committee Membership

65 2014 Target TDC

66 Achievement of Conservatorship Scorecard Performance Measures

67 Achievement of Corporate Scorecard Goals

68 2014 Deferred Salary

69 Summary Compensation Table — 2014

70 Grants of Plan-Based Awards — 2014

71 Outstanding Equity Awards at Fiscal Year-End — 2014

72 Pension Benefits — 2014

73 Nonqualified Deferred Compensation

74 Potential Payments Upon Termination of Employment or Change-in-Control as of December 31, 2014

75 Board Compensation — 2014 Non-Employee Director Compensation Levels

76 2014 Director Compensation

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

78 Equity Compensation Plan Information

79 Auditor Fees

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iv Freddie Mac

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page

Table of Contents

Report of Independent Registered Public Accounting Firm 142

Consolidated Statements of Comprehensive Income 143

Consolidated Balance Sheets 144

Consolidated Statements of Equity 145

Consolidated Statements of Cash Flows 146

Note 1: Summary of Significant Accounting Policies 147

Note 2: Conservatorship and Related Matters 159

Note 3: Variable Interest Entities 163

Note 4: Mortgage Loans and Loan Loss Reserves 167

Note 5: Impaired Loans 171

Note 6: Real Estate Owned 177

Note 7: Investments in Securities 178

Note 8: Debt Securities and Subordinated Borrowings 184

Note 9: Derivatives 186

Note 10: Collateral and Offsetting of Assets and Liabilities 189

Note 11: Stockholders’ Equity 192

Note 12: Income Taxes 197

Note 13: Segment Reporting 199

Note 14: Financial Guarantees 205

Note 15: Concentration of Credit and Other Risks 207

Note 16: Fair Value Disclosures 215

Note 17: Legal Contingencies 233

Note 18: Regulatory Capital 236

Note 19: Selected Financial Statement Line Items 237

Quarterly Selected Financial Data 239
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. 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, 2014. 

Overview

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

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

lenders. In most instances, we package these mortgage loans into mortgage-related securities, which are guaranteed by us and 

sold in the global capital markets. We also invest in mortgage loans and mortgage-related securities. We do not originate 

mortgage loans or lend money directly to consumers.

We support the U.S. housing market and the overall economy by: (a) providing America’s families with access to 

mortgage funding at lower rates; (b) helping distressed borrowers keep their homes and avoid foreclosure; and (c) providing 

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

are also 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

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

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

operations. Our future is uncertain, and the conservatorship has no specified termination date. We do not know what changes 

may occur to our business model during or following conservatorship, including whether we will continue to exist.

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

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

business. We cannot 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, see “Conservatorship 

and Related Matters.” 

Consolidated Financial Results

Comprehensive income was $9.4 billion for 2014 compared to $51.6 billion for 2013. Comprehensive income for 2014 

consisted of $7.7 billion of net income and $1.7 billion of other comprehensive income. The main drivers of our results for 

2014 include: (a) net interest income; (b) declines in the fair value of our derivatives; and (c) income from settlements of 

lawsuits regarding our investments in certain non-agency mortgage-related securities. Our net income for 2013 was 

substantially higher than in 2014 primarily because in 2013 we recorded a benefit for federal income taxes of $23.3 billion 

from the release of the valuation allowance against our deferred tax assets. Our 2013 results also benefited from larger home 

price appreciation. 

Our total equity was $2.7 billion at December 31, 2014. Because our net worth was positive at December 31, 2014, we 

are not requesting a draw from Treasury under the Purchase Agreement for the fourth quarter of 2014. Through December 31, 

2014, we have received aggregate funding of $71.3 billion from Treasury under the Purchase Agreement, and have paid $91.0 

billion in aggregate cash dividends to Treasury. 

Sustainability and Variability of Earnings

The level of our earnings in 2013 and 2014 is not sustainable over the long term. Our 2013 financial results included a 

very large benefit related to the release of the valuation allowance against our deferred tax assets. Our 2013 and 2014 financial 

results included large amounts of income from settlements of representation and warranty claims arising out of our loan 

purchases and settlements of non-agency mortgage-related securities litigation. We do not expect any future settlements of 

representation and warranty claims related to our pre-conservatorship loan purchases to have a significant effect on our 

financial results. Our 2013 financial results, particularly the level of loan loss provisioning, benefited from a high level of home 

price appreciation. In addition, declines in the size of our mortgage-related investments portfolio, as required by FHFA and the 

Purchase Agreement, will reduce our earnings over the long term. 

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2 Freddie Mac

Our financial results are subject to significant earnings and net worth variability from period to period. This variability 

can be driven by changes in interest rates, the yield curve, implied volatility, home prices, and mortgage spreads, as well as 

other factors. For example, while derivatives are an important aspect of our strategy to manage interest-rate risk, they increase 

the volatility of reported comprehensive income because fair value changes on derivatives are included in comprehensive 

income, while fair value changes associated with several of the types of assets and liabilities being economically hedged are 

not. As a result, there can be timing mismatches affecting current period earnings, which may not be reflective of the 

underlying economics of our business.

Our Primary Business Objectives

Our primary business objectives are:

• to support U.S. homeowners and renters by maintaining mortgage availability even when other sources of financing 

are scarce and by providing struggling homeowners with alternatives that allow them to stay in their homes or avoid 

foreclosure;

• to reduce taxpayer exposure to losses by increasing the role of private capital in the mortgage market and reducing our 

overall risk profile;

• to build a commercially strong and efficient business enterprise to succeed in a to-be-determined “future state;” and 

• to support and improve the secondary mortgage market.

Our business objectives reflect direction that we have received from the Conservator, including the 2014 and 2015 

Conservatorship Scorecards. For information on the Scorecards and the related 2014 Strategic Plan, see “Regulation and 

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

Conservatorships.” 

Supporting U.S. Homeowners and Renters 

Maintaining Mortgage Availability

We maintain a consistent presence in the secondary mortgage market, and we are available to purchase mortgages even 

when other sources of financing are scarce. By providing this consistent source of liquidity for mortgages, we help provide our 

customers with confidence to continue lending even in difficult environments. In 2014, we purchased, or issued other guarantee 

commitments for, $255.3 billion in UPB of single-family conforming mortgage loans (representing approximately 1.2 million 

homes), compared to $422.7 billion in 2013 (representing approximately 2.1 million homes). Origination volumes in the U.S. 

residential mortgage market declined significantly during 2014, as compared to 2013, driven by a significant decline in the 

volume of refinance mortgages. We estimate that we, Fannie Mae, and Ginnie Mae collectively guaranteed more than 90% of 

the single-family conforming mortgages originated in 2014. 

During 2014, our total multifamily new business activity was $28.3 billion in UPB, which provided financing for nearly 

1,800 multifamily properties (representing approximately 413,000 apartment units). Approximately 90% of the units were 

affordable to families earning at or below the median income in their area. In 2013, our total multifamily new business activity 

was $25.9 billion in UPB, which provided financing for nearly 1,600 multifamily properties (representing approximately 

388,000 apartment units).

Providing Struggling Homeowners with Alternatives that Allow Them to Stay in Their Homes or Avoid Foreclosure

We use a variety of borrower-assistance programs (such as HARP and HAMP) designed to provide struggling borrowers 

with alternatives to help them stay in their homes. We establish guidelines for our servicers to follow and provide them with 

default management programs to use in determining which type of borrower-assistance program (i.e., one of our loan workout 

activities or our relief refinance initiative) would be expected to enable us to manage our exposure to credit losses. 

Our relief refinance initiative is a key program used to keep families in their homes. Our relief refinance initiative 

includes HARP, which is the portion of the initiative for loans with LTV ratios above 80%. In 2014, we purchased or 

guaranteed $27.3 billion in UPB of relief refinance loans, including $14.1 billion of HARP loans. In 2013, we purchased or 

guaranteed $99.2 billion in UPB of relief refinance loans, including $62.5 billion of HARP loans. We have purchased HARP

loans provided to more than 1.3 million borrowers since the initiative began in 2009, including approximately 82,000 

borrowers during 2014. See “Table 49 — Single-Family Relief Refinance Loans” for more information about the volume of 

relief refinance loans we have purchased.

When a refinancing of a loan is not practicable, we require our servicer first to evaluate the loan for a repayment plan, 

forbearance agreement, or loan modification, because the level of recovery on a loan that reperforms is often much higher than 

for a loan that proceeds to a foreclosure or foreclosure alternative. Our servicers contact borrowers experiencing hardship with 

a goal of helping them to stay in their homes or otherwise to avoid foreclosure. Across all of our modification programs, we 

modified $12.8 billion in UPB of loans during 2014, compared to $17.4 billion in 2013. Since 2009, we have helped 

approximately 1,073,000 borrowers experiencing hardship to complete a loan workout under these programs. When a home 

retention solution is not practicable, we require our servicers to pursue foreclosure alternatives, such as short sales, before 

initiating foreclosure.

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3 Freddie Mac

The table below presents our completed workout activities for loans within our single-family credit guarantee portfolio 

for the last five years.

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

(1) Excludes modification, repayment, and forbearance activities that have not been made effective, such as loans in modification trial periods. As of 

December 31, 2014, approximately 24,000 borrowers were in modification trial periods. These categories are not mutually exclusive and a loan in one 

category may also be included in another category in the same period. 

As shown in the table above, the volume of our workout programs declined in recent years (totaling approximately 

120,000 in 2014, compared to 169,000 in 2012 and 275,000 in 2010). We attribute this decline to overall improvements in the 

economy and mortgage market, including rising home prices, declining unemployment rates, and declining serious delinquency 

rates. While we believe our borrower-assistance programs have been largely successful, many borrowers still need assistance. 

See “MD&A — RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and 

Profile — Managing Problem Loans" for more information about loss mitigation activities and our efforts to keep families in 

their homes. We continue our efforts relating to: (a) encouraging eligible borrowers to refinance their mortgages under HARP; 

(b) assessing and developing additional plans for loss mitigation strategies; and (c) developing and implementing a 

neighborhood stabilization initiative. In 2014:

• We participated with FHFA and Fannie Mae in open forum meetings in certain cities to inform community leaders 

about HARP eligibility criteria and benefits. 

• We worked with FHFA and Fannie Mae to develop neighborhood stabilization plans in certain cities. These plans 

involve short sales and REO sales, including expanded auctions of properties. In these areas we also expanded: (a) our 

efforts with locally-based private entities to facilitate REO dispositions; and (b) our first look opportunities, which 

provide an initial period for REO properties to be purchased by owner occupants and non-profits dedicated to 

neighborhood stabilization before we consider offers from investors. 

• We continued to work with FHFA and Fannie Mae to assess or pilot new strategies for loss mitigation, including 

implementing a new temporary modification initiative targeted to assist troubled borrowers in certain cities. 

Reducing Taxpayer Exposure to Losses 

We are working diligently with FHFA to reduce the taxpayers' exposure to losses. We are reducing our credit risk by: 

• managing the performance of our servicers through our contracts with them;

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4 Freddie Mac

• transferring to private investors part of the credit risk of our New single-family book and our Multifamily mortgage 

portfolio;

• improving our returns on short sales and REO sales;

• protecting our contractual rights with sellers;

• pursuing our rights against mortgage insurers;

• recovering losses on non-agency mortgage-related securities; and

• reducing our mortgage-related investments portfolio over time.

As discussed above, many of our borrower-assistance programs, such as loan modifications, also help reduce our risk of 

credit losses. 

Managing the Performance of Our Servicers

We continue to face challenges in managing our mortgage credit risk. In 2014, the serious delinquency rate of our singlefamily credit guarantee portfolio continued the trend of improvement of the past several years, declining to 1.88% as of 

December 31, 2014 (which is the lowest level since January 2009) from 2.39% as of December 31, 2013. Despite this 

improvement, we still have a large number of seriously delinquent loans. We continue to face challenges in resolving these 

loans, including general constraints on servicer capacity and court backlogs in states that require a judicial foreclosure process. 

These situations generally extend the time it takes for seriously delinquent loans to be modified, foreclosed upon, or otherwise 

resolved. The longer a loan remains delinquent, the more costs we incur. As of December 31, 2014, approximately half of our 

seriously delinquent single-family loans had been delinquent for more than one year. 

The financial institutions that service our single-family loans (we refer to these institutions as "servicers") are required to 

service loans on our behalf in accordance with our standards. If a servicer fails to do so, we have certain contractual remedies, 

including the ability to require the servicer to pay us compensatory or other fees, repurchase a loan at its current UPB, and/or 

reimburse us for the losses we realize on the loan. We also issue notices of defect to our servicers for certain violations of our 

servicing standards. As of December 31, 2014, we had: (a) $0.4 billion of outstanding repurchase requests for servicing related 

violations; and (b) an additional $0.2 billion of outstanding notices of defect, based on the UPB of the related loans. We also 

recognized $335 million of compensatory fees in 2014, mostly for failures to complete a foreclosure within our timelines.

 During 2014, approximately $9.7 billion in UPB of our single-family loans were transferred from our primary servicers 

to specialty servicers that specialize in workouts of problem loans. (This figure excludes transfers between affiliated companies 

and assignments of servicing for newly originated loans.) A majority of the transfers were facilitated by us as part of our efforts 

to assist troubled borrowers, increase problem loan workouts, and mitigate our credit losses. 

Transferring Credit Risk

We believe that using credit risk transfer transactions is a prudent way for us to manage our mortgage credit risk. We are 

continuing to reduce our exposure to credit risk in our New single-family book through the use of STACR debt note and ACIS 

(re)insurance transactions. In 2014, we completed seven STACR debt note transactions and three ACIS (re)insurance 

transactions. These transactions transferred a portion of credit losses that could occur under adverse home price scenarios 

(through a mezzanine credit loss position) on certain groups of loans in the New single-family book from us to third-party 

investors. In 2014, we also completed 17 K Certificate transactions in which we transferred the first loss position associated 

with the underlying multifamily loans to third-party investors. In February 2015, we completed our first STACR debt note 

transaction that transfers a portion of the first loss position in addition to mezzanine loss positions associated with the reference 

pool. We expect to complete additional such STACR transactions in 2015.

Improving Our Returns on Short Sales and REO Sales

We use several strategies to mitigate our credit losses and improve our returns on short sale transactions and sales of REO 

properties. When a seriously delinquent single-family loan cannot be resolved through a home retention solution (e.g., a loan 

modification), we typically seek to pursue a short sale transaction. A short sale is preferable to a foreclosure primarily because 

we: (a) avoid the costs we would otherwise incur to complete the foreclosure; and (b) reduce the time needed to dispose of the 

property, reducing our exposure to maintenance, property taxes, and other expenses. However, some of our seriously delinquent 

loans ultimately proceed to foreclosure. In a foreclosure, we typically acquire the underlying property (which we refer to as real 

estate owned, or REO), and later sell it, using the proceeds of the sale to reduce our losses.

We implemented a number of changes in the past several years to increase the use of short sales and increase the proceeds 

from REO sales. These changes include: (a) an initiative to repair a significant portion of our REO properties prior to listing 

them for sale; and (b) changes to our process for evaluating the market value of the properties underlying our impaired loans 

and for determining listing prices for our REO properties.

Protecting Our Contractual Rights with Sellers

We purchase mortgage loans from financial institutions that originate the loans (we refer to these institutions as "sellers"). 

When we purchase loans, the sellers represent and warrant that the loans have been originated in accordance with our 

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5 Freddie Mac

underwriting standards. If we subsequently discover that these standards were not followed, we can exercise certain contractual 

remedies to mitigate our actual or potential credit losses. These remedies may include requiring the seller to repurchase the loan 

at its current UPB and/or to reimburse us for the losses we realized on the loan. As of December 31, 2014 and 2013, we had 

$0.3 billion and $1.6 billion, respectively, of outstanding repurchase requests with sellers, based on the UPB of the loans. 

We seek remedies from both sellers and servicers in the normal course of business related to breaches of representations 

and warranties for loans they sold to us or service for us. At times, this may include entering into settlement agreements to 

resolve repurchase requests. In 2014, we recovered amounts with respect to $2.0 billion in UPB of loans subject to our 

repurchase requests for selling and servicing violations, including $0.4 billion in UPB related to settlement agreements. 

Pursuing Our Rights Against Mortgage Insurers 

We continue to pursue claims for coverage under mortgage insurance policies, a form of credit enhancement we use to 

mitigate our credit loss exposure. Primary mortgage insurance is generally required for mortgages with LTV ratios greater than 

80%.

We received payments under primary and other mortgage insurance policies of $1.1 billion and $2.0 billion during 2014 

and 2013, respectively. Although the financial condition of certain of our mortgage insurers has improved in recent years, some 

have failed to fully meet their obligations and there remains a significant risk that others may fail to do so. We expect to receive 

substantially less than full payment of our claims from two of our mortgage insurance counterparties, as they are only permitted 

to make partial payments under orders from their respective regulators. 

Our ability to manage our exposure to mortgage insurers is limited. While our mortgage insurers are operating below our 

eligibility thresholds, we generally cannot revoke a mortgage insurer's status as an eligible insurer without FHFA approval. In 

addition, we do not select the insurer that will provide the insurance on a specific loan. Instead, the selection is made by the 

lender at the time the loan is originated.

Recovering Losses on Non-Agency Mortgage-Related Securities

We incurred substantial losses on our investments in non-agency mortgage-related securities in prior years. We are 

working, in some cases in conjunction with other investors, to mitigate or recover our losses. In 2014, we and FHFA reached 

settlements with a number of institutions which resulted in our recognition of $6.1 billion of income. Lawsuits against other 

institutions are currently pending. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for more 

information about our recent agreements with institutions that issued certain non-agency mortgage-related securities.

Reducing Our Mortgage-Related Investments Portfolio Over Time

We are required to reduce the size of our mortgage-related investments portfolio over time pursuant to the Purchase 

Agreement and FHFA regulation. We are particularly focused on reducing the balance of less liquid assets in this portfolio. In 

2014, the size of our mortgage-related investments portfolio declined by 11% or $52.6 billion, to $408.4 billion. Our less liquid 

assets accounted for $47.0 billion of this decline. Our less liquid assets are reduced through: (a) liquidations (including 

scheduled repayments along with prepayments); (b) sales (including sales related to settlements of non-agency mortgagerelated securities litigation); and (c) securitizations. 

In July 2014, pursuant to the 2014 Conservatorship Scorecard, we submitted a plan to FHFA to meet (even under adverse 

market conditions) the portfolio reduction requirements of the Purchase Agreement. In October 2014, FHFA requested that we 

revise the plan to provide that we would manage the UPB of the mortgage-related investments portfolio so that it does not 

exceed 90% of the annual cap established by the Purchase Agreement. Under the revised plan approved by FHFA, we may seek 

permission from FHFA to increase the plan's limit on the UPB of the mortgage-related investments portfolio to 95% of the 

Purchase Agreement annual cap. FHFA has indicated that any portfolio sales should be commercially reasonable transactions 

that consider impacts to the market, borrowers and neighborhood stability.

For additional information, see “Limits on Investment Activity and Our Mortgage-Related Investments Portfolio.”

Building a Commercially Strong and Efficient Business Enterprise to Succeed in a To-Be-Determined “Future State”

We continue to take steps to build a stronger, profitable business model. Our goal is to strengthen the business model so 

we can run our business efficiently and effectively in support of homeowners and taxpayers and, if required as part of a future 

state for the enterprise, be ready to return to private sector ownership. 

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

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

our customers, we are enhancing our processes and programs to improve their experience when doing business with 

us. This includes providing seller/servicers with greater certainty that the loans they sell to us or service for us meet 

our requirements, thereby reducing the number of repurchase requests we make to them and the amount of 

compensatory fees they pay to us. We are providing greater certainty by enhancing the tools we make available to our 

customers (including Loan Prospector, Loan Quality Advisor, and Home Value Explorer), and expanding and 

leveraging the data standards of the Uniform Mortgage Data Program. 

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6 Freddie Mac

• Providing market leadership and innovation: We continue to develop innovative programs and services that benefit our 

customers and leverage our existing capabilities and product offerings to better meet the needs of an evolving 

mortgage market. We are doing this primarily by: (a) expanding access to credit for credit-worthy borrowers, such as 

the recently announced initiative for loans with LTV ratios up to 97%; (b) continuing to execute our credit risk transfer 

transactions and seeking to expand and refine our offerings of these transactions; and (c) continuing to work with 

FHFA and Fannie Mae on enhancing the secondary mortgage market, including the development of a new common 

securitization platform and a single (common) security. We completed ten credit risk transfer transactions in 2014 and 

three in 2013. Our 2014 transactions consisted of: (a) seven STACR debt note transactions that transferred $4.9 billion 

in mezzanine credit risk to third parties associated with $147.5 billion in principal of loans in our New single-family 

book; and (b) three ACIS transactions that transferred $0.7 billion in mezzanine credit risk to third parties. The 2015 

Conservatorship Scorecard sets a goal for us to complete credit risk transfer transactions for at least $120 billion in 

UPB using at least two transaction types.

• 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 made 

various changes to our credit policies in the last several years, including changes to improve our underwriting 

standards, have purchased fewer loans with higher risk characteristics, and have assisted in improving our mortgage 

insurers’ and lenders’ underwriting practices. The credit quality of the New single-family book reflects the impact of 

these changes, as measured by original LTV ratios, credit scores, delinquency rates, credit losses, and the proportion of 

loans underwritten with full documentation. However, in 2014 and 2013, as refinancing volumes have declined, the 

composition of our loan purchase activity has been shifting to a higher proportion of home purchase loans, which 

generally have higher original LTV ratios than loans sold to us during 2010 through 2012. 

• Reducing our credit losses: We continue to develop and implement plans intended to reduce our credit losses and 

identify and address emerging mortgage credit risks. As part of our loss mitigation strategy, we sold certain seriously 

delinquent loans during 2014. We also facilitated the transfer of servicing for certain groups of loans that were 

delinquent or deemed to be at risk of default to servicers that we believe have the capabilities and resources necessary 

to improve loss mitigation for those loans. We expect to execute similar loan sales and servicing transfers in 2015. Our 

portfolio includes several types of mortgage products that contain terms which may result in scheduled increases in 

monthly payments after specified initial periods (e.g., HAMP loans). A significant number of these will experience 

payment changes in 2015. To help address this risk, we implemented a new principal reduction incentive for our 

HAMP loans in January 2015.

• Optimizing the economics of our single-family business: We seek to achieve strong economic returns on our singlefamily credit guarantee portfolio while considering and balancing our: (a) housing mission and goals; (b) seller 

diversification; and (c) security price performance (i.e., the trading value of our PCs relative to comparable Fannie 

Mae securities in the market). However, economic returns on our guarantee activities are limited by, and subject to, 

FHFA's oversight.

We are investing in the company, in particular our infrastructure and operations, by:

• Improving our infrastructure: 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 are improving our 

information technology to provide the necessary capabilities to meet our needs, the needs of the Conservator, and the 

mortgage industry. We are investing to continuously address risk, especially in the information security area and the 

recently deployed out-of-region disaster recovery capability. We are actively striving to operate our information 

technology at world class levels by investing in capabilities that will support the future mortgage market while also 

acting as good stewards of our technology assets by maintaining, standardizing and simplifying our existing 

technology portfolio. 

• Strengthening our operations: We continue to strengthen and streamline our operations. We are conducting a multiyear project focused on eliminating redundant control activities. We are also conducting detailed operational control 

design reviews to identify ways to simplify our controls structure. We are improving our risk management capabilities 

by further enhancing our three-lines-of-defense risk management framework. As part of this effort, we have moved or 

are moving several key functions within the organization to better align business decision-making with the first line of 

defense. We believe these enhancements will improve our risk management effectiveness. Our enhanced framework is 

designed to balance ownership of the risk by our business units with corporate oversight and independent assessment. 

See “MD&A — RISK MANAGEMENT” for more information.

To Support and Improve the Secondary Mortgage Market

Under the direction of FHFA, we continue various efforts to build the infrastructure for a future housing finance system, 

including the following:

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• Common Securitization Platform: We continue to work with FHFA, Fannie Mae, and Common Securitization 

Solutions, LLC (or CSS) on the development of a new common securitization platform. CSS is equally owned by us 

and Fannie Mae, and was formed to build and operate the platform. We and FHFA expect this will be a multi-year 

effort. In November 2014, we and Fannie Mae announced that a chief executive officer had been named for CSS. 

Additionally, we and Fannie Mae each appointed two executives to the CSS Board of Managers and signed 

governance and operating agreements for CSS. 

• Single-Security Initiative: FHFA is seeking ways to improve the liquidity of mortgage-backed securities issued by us 

and Fannie Mae and reduce the disparities in trading value between our PCs and Fannie Mae's single-class mortgagebacked securities. Part of this effort is the proposed single (common) security, which would be issued and guaranteed 

by either Freddie Mac or Fannie Mae. The proposed single security would use the features of the current Fannie Mae 

mortgage-backed security and the disclosure framework of the current Freddie Mac PC. One of the goals for the 

proposed single security is for Freddie Mac PCs and Fannie Mae mortgage-backed securities to be fungible with the 

single security to facilitate trading in a single TBA market for these securities. In August 2014, FHFA requested public 

input on the single security project as further discussed in "Regulation and Supervision — Legislative and Regulatory 

Developments — FHFA Request for Input on Proposed Single Security Structure." We continue to work on a detailed 

implementation plan, and we expect that the implementation will be a multi-year effort.

• Uniform Mortgage Data Program: We and Fannie Mae continue to collaborate with the industry to develop and 

implement uniform data standards for single-family mortgages. This includes active support for the following 

mortgage data standardization initiatives: (a) the Uniform Closing Disclosure Dataset; and (b) the Uniform Loan 

Application Dataset. We have also made improvements to the Uniform Collateral Data Portal, which provides 

standardized appraisal data for loans we purchase and provides our sellers with real-time feedback that is intended to 

help them evaluate the quality of property appraisals.

• Improve mortgage industry standards: We continue to: (a) develop approaches to reduce borrower costs for lender 

placed insurance; (b) align mortgage insurer eligibility requirements; and (c) enhance our representation and warranty 

framework that governs our contractual obligations with our seller/servicers. We announced changes in servicing 

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

we own or guarantee. As a result, beginning in June 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. 

During 2014, we continued to develop counterparty risk management standards for mortgage insurers, including: (a) 

revised eligibility requirements that include financial requirements under a risk-based framework; and (b) revised 

master policies that provide greater certainty of coverage and facilitate timely claims processing. The revised 

standards are designed to promote the ability of mortgage insurers to fulfill their intended role of providing private 

capital to the mortgage market even under a stressful economic scenario. The revised master policies were 

implemented in October 2014. FHFA published draft insurer eligibility requirements for public input during a 

comment period that concluded in September 2014. We expect to publish new eligibility requirements in early 2015. 

• Improve the underwriting processes with our single-family sellers: We continued our initiative for enhanced early-risk 

assessment by sellers through the use of Loan Prospector and Loan Quality Advisor, our automated tools for use in 

evaluating the credit and product eligibility of loans and identifying non-compliance issues. We implemented 

requirements for our sellers and servicers in response to certain final rules from the CFPB. We also used our loan 

sampling strategy, appeal requirements, alternative remedies for resolving repurchase obligations, and our recently 

implemented standard timelines for reviews and appeals as part of our efforts to enhance post-delivery quality control 

practices and our representation and warranty framework. 

Our Business

Our Charter 

Our charter forms the framework for our business activities. 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. Our charter limits our purchase of single-family loans to the conforming loan market. Conforming loans are loans 

originated with UPBs at or below limits determined annually based on changes in FHFA’s housing price index. 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 

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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 to mortgages secured by properties in Alaska, Guam, Hawaii, and the U.S. Virgin Islands. 

Our charter permits us to purchase first-lien single-family mortgages with LTV ratios at the time of our purchase of less 

than or equal to 80%. Our charter also permits us to purchase first-lien single-family mortgages that do not meet this criterion if 

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. 

This charter requirement 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 mortgages we currently own 

or guarantee without obtaining additional credit enhancement in excess of that already in place for any such loan, even when 

the LTV ratio of the new loan is above 80%. 

Overview of the Mortgage Securitization and Guarantee Process

Mortgage securitization is an integral part of our business activities. Mortgage securitization is a process where we 

purchase mortgage loans that lenders originate, and then pool these loans into mortgage-related securities that can be sold in 

global capital markets. Our primary single-family mortgage securitization and guarantee process involves the issuance of 

single-class PCs and our primary multifamily mortgage securitization and guarantee process involves the issuance of K 

Certificates. We also 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. PCs can be sold to investors or held by us or our lender customers. 

Mortgage Securitizations

For single-family loans, our securitization and guarantee process generally 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 (this process is referred to as “pooling”); (c) we provide a credit 

guarantee (for a fee) to those who invest in the security; (d) 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; and (e) if the borrower stops 

making monthly payments, we make the applicable payments to the investors pursuant to our guarantee. 

The terms of single-family mortgage loans that we purchase allow borrowers to prepay them, thereby allowing borrowers 

to refinance their loans. Because of the nature of long-term, fixed-rate mortgage loans, borrowers with these 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. 

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.

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PCs 

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

mortgages. For the fixed-rate PCs we currently issue, 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, but not the timely payment of principal, on ARM PCs. 

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 ("buy-up"), 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 PC. 

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. 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 retention in our 

mortgage-related investments portfolio or to sell them to third parties. We may sell these PCs in a “cash auction," as illustrated 

in the following diagram. 

Cash Purchase Process and Securitization of PCs 

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

relative to comparable Fannie Mae securities. These actions may include: (a) resecuritizing PCs into REMICs and Other 

Structured Securities; (b) encouraging sellers to pool mortgages that they deliver to us into PC pools with a larger and more 

diverse population of mortgages; (c) influencing the volume and characteristics of mortgages delivered to us by tailoring our 

loan eligibility guidelines and by other means; and (d) engaging in portfolio purchase and sale 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. 

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10 Freddie Mac

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 either single-class or multiclass) 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. Multiclass securities divide all of the cash flows of the underlying collateral into two or more classes 

with varying maturities, payment priorities and coupons. Our primary multiclass securities qualify for tax treatment as 

REMICs. We believe our issuance of these securities expands the range of investors in our mortgage-related securities to 

include those seeking specific security attributes. 

Similar to our PCs, we guarantee the payment of principal and interest to the 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. The collateral underlying nearly all of our singlefamily REMICs and Other Structured Securities consists of other mortgage-related securities that we guarantee. All of the cash 

flows from the collateral underlying our single-family REMICs and Other Structured Securities are generally passed through to 

investors in these securities. 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. 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. 

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

Other Guarantee Transactions are generally of 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. In exchange for providing our guarantee on Other Guarantee Transactions, we receive a management 

and guarantee fee and/or other delivery fees. 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. All of the cash flows from the underlying collateral are passed through to the investors in the securities, so 

there are no economic residual interests in the related securitization trusts.

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. The expected credit risk associated with these loans is sold in 

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

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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, which are classified as Other 

Guarantee Transactions. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Housing Finance Agency 

Initiative” for further information.

Our Business Segments 

We have 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.” 

We operate our business solely in the United States and its territories, and therefore we generate no revenue from and 

have no long-lived assets in geographic locations outside the United States and its territories.

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 only in the secondary mortgage 

market. We do this 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 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, 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. 

Our Customers

Our customers in the Single-family Guarantee segment are predominantly: (a) lenders that originate mortgages for 

homeowners and sell them to us; and (b) financial institutions that service these loans for us. These companies include 

mortgage banking companies, commercial banks, community banks, credit unions, other non-depository financial institutions, 

HFAs, and thrift institutions. Many of these companies are both sellers and servicers for us. In addition, we view investors and 

dealers in our guaranteed mortgage-related securities and investors and counterparties in risk transfer transactions 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. Our top ten single-family sellers provided approximately 50% of our single-family purchase volume 

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during 2014. Wells Fargo Bank, N.A. accounted for 13% of our single-family mortgage purchase volume and was the only 

single-family seller that comprised 10% or more of our purchase volume during 2014. 

A significant portion of our single-family mortgage loans is serviced by several large servicers. Our top two single-family 

loan servicers, Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A., serviced approximately 22% and 12%, respectively, 

of our single-family mortgage loans as of December 31, 2014 and were the only servicers that serviced more than 10% of our 

loans at that date. For additional information about servicer concentration risk and our relationships with our seller/servicer 

customers, see “MD&A — RISK MANAGEMENT — Credit Risk Overview — Institutional Credit Risk Profile — SingleFamily Mortgage Seller/Servicers.”

Our Competition

The principal competitors of our Single-family Guarantee segment are 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. 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. For more information, see “RISK FACTORS — 

Conservatorship and Related Matters — Competition from banking and non-banking companies 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. For the majority of the mortgages we purchase, 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. Our mortgage loan purchase volumes from individual 

customers can fluctuate significantly. 

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. 

However, we must obtain FHFA’s approval to implement across-the-board increases in our guarantee fees. We do not have the 

ability to fully price for our credit risk at the loan level as our base fee does not differentiate by LTV ratio and credit score. To 

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

are calculated based on credit risk factors such as the mortgage product type, loan purpose, LTV ratio and credit score. While 

we vary our guarantee and delivery fee pricing for different customers, mortgage products, and mortgage or borrower 

underwriting characteristics based on our assessment of credit risk, the seller may elect to buy, or originate, and then retain 

loans with better credit characteristics. The sellers' decisions for loan retention, or sale to us, could result in our portfolio 

purchases having a more adverse credit profile. 

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

FHFA, 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 

on a quarterly basis to fund the payroll tax cut. We refer to this fee increase as the legislated 10 basis point increase in guarantee 

fees. In the fourth quarter of 2012, at the direction of FHFA, we and Fannie Mae implemented a further increase in guarantee 

fees on single-family mortgages of an average of 10 basis points. 

Securitization Activities

Our securitization activities primarily involve PCs, and REMICs and Other Structured Securities. We have not completed 

an Other Guarantee Transaction in our Single-family Guarantee segment in several years. In order to expand our alternatives 

for the transfer of mortgage credit risk to third party investors, we may resume issuing Other Guarantee Transactions in our 

Single-family Guarantee segment in 2015. See "Our Business — Overview of the Mortgage Securitization and Guarantee 

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. We use PC trusts to hold the 

underlying mortgage loans separate and apart from our corporate assets. 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. 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. 

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The To Be Announced Market

Single-family fixed-rate PCs generally trade on a “generic” basis, also referred to as trading in the TBA market. A TBA

trade is a contract for the purchase or sale of PCs to be delivered at a future date; however, the specific PCs that will be 

delivered are not known (i.e., “announced”) until 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 a guarantee on mortgage-related assets held by third parties, in exchange for a 

management and guarantee fee, without securitizing those 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 

commitments. From time to time, we have consented to the termination of our long-term standby commitments and 

simultaneously entered into guarantor swap transactions with the same counterparty, issuing PCs backed by many of the same 

mortgage loans.

Underwriting Requirements, Quality Control Standards, and the Representation and Warranty Framework

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

process, our contracts with sellers describe mortgage eligibility and underwriting standards, and the sellers represent and 

warrant to us that the mortgage loans sold to us meet these standards. In our contracts with individual sellers, 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: (a) the credit 

profile of the borrower (e.g., credit score, credit history, and monthly income relative to debt payments); (b) the documentation 

level; (c) the number of borrowers; (d) the features of the mortgage itself; (e) the purpose of the mortgage; (f) occupancy type; 

(g) the property type and market value; and (h) LTV ratio. Our single-family loans are generally underwritten with a 

requirement for a maximum original LTV ratio of 95%. We prescribe maximum LTV ratio limits of 80% for cash-out refinance 

loans and 90% for jumbo conforming mortgages, but no maximum for fixed-rate HARP mortgages. In December 2014, we 

announced guidelines for mortgages with LTV ratios up to 97% to serve a targeted segment of creditworthy borrowers. We 

expect to begin our purchase and guarantee of mortgages under this initiative in March 2015.

The majority of our single-family mortgage purchase volume is evaluated using our proprietary automated underwriting 

software (Loan Prospector), the sellers’ own software, or Fannie Mae’s proprietary software. We use underwriting software and 

available data to help us identify loans with potential underwriting defects. 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 47% and 45% during 2014 and 2013, 

respectively. We monitor the performance of loans delivered to us that were underwritten using underwriting software other 

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

We review 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. Beginning 

with loans delivered in 2013, in conjunction with our revised representation and warranty framework discussed below, we 

began to make changes to reduce the time it takes to complete our quality control review after the loan is delivered to us. We 

have implemented tools, such as our proprietary Quality Control Information Manager, to provide greater transparency into our 

customer quality control reviews. We have also implemented a process of targeted quality control sampling of loans with 

certain characteristics. We expect that further enhancements to these systems and processes will continue in 2015.

If we discover that 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 may 

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 any other recoveries, and/or indemnify us.

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 revised framework, sellers are relieved of certain repurchase 

obligations for loans that meet specific payment requirements. This includes, subject to certain exclusions, loans with 36 

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

of FHFA, we announced certain additional changes to our representation and warranty framework during 2014. These changes 

include providing repurchase relief on loans that: (a) have established an acceptable payment history (i.e., no more than two 30-

day delinquencies and no 60-day delinquencies in a 36 month period); or (b) satisfactorily completed a review in our quality 

control process. We also made changes that provided additional clarity around life-of-loan exclusions from repurchase relief. 

These changes are generally designed to provide sellers with a higher degree of certainty and clarity regarding their repurchase 

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exposure and liability on future sales of loans to us. It is possible that FHFA will require us to make further changes to the 

framework.

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

function on our behalf. Our servicers are required to service loans in accordance with our standards. Under these 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. 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 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 Overview — Single-Family Mortgage 

Credit Risk Framework and Profile,” “ — Institutional Credit Risk Profile — Single-Family Mortgage Seller/Servicers” and 

“RISK FACTORS —Competitive and Market Risks — We face significant risks related to our delegated underwriting process 

for single-family mortgages, including risks related to data accuracy and fraud. Recent changes to the process could increase 

our risks.”

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, 

an insured loan must be in default and the borrower’s interest in the underlying property must have been extinguished, such as 

through a short sale or foreclosure, before a claim can be filed under a primary mortgage insurance policy. The mortgage 

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

For some mortgage loans, we transfer a portion of the credit risk to various third parties in STACR and ACIS transactions, 

or other credit enhancements, including:

• lender recourse, where we may require a lender to repurchase a loan upon default; 

• indemnification agreements, where we may require a lender to reimburse us for realized credit losses; and

• 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 or in exchange for a lower guarantee fee. 

STACR and ACIS transactions are new types of credit risk transfer transactions we introduced in 2013. We have used 

these risk transfer transactions to transfer a portion of credit losses that could occur under adverse home price scenarios 

(through a mezzanine credit loss position) on certain groups of loans in our New single-family book from us to third-party 

investors. In the STACR debt note transactions, we issue unsecured debt securities that reduce our exposure to credit risk, as 

illustrated below:

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Risk Transfer - STACR® (Debt Issuance)

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 positions). The notional amounts of all positions are reduced based on scheduled principal payments that 

occur in the reference pool. Unscheduled principal payments that occur in the reference pool are allocated to the senior position 

only, unless certain specified events have occurred, in which case unscheduled principal payments are also allocated to the 

mezzanine and/or first loss positions. 

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 (based 

on a fixed severity schedule) when certain specified credit events (such as a loan becoming 180 days delinquent) occur on the 

loans in the reference pool. Principal reductions for the specified credit events will initially 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 their 

principal balances relating to those events. 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 2014 and 2013, we only issued STACR debt notes 

related to mezzanine loss positions with credit event reductions based on fixed severity schedules. In 2015, we began issuing 

STACR debt notes that will transfer some of the credit risk related to the first loss positions in addition to the mezzanine loss 

position, and expect to complete transactions that provide reductions for credit events based on actual losses rather than fixed 

amounts. 

In an ACIS transaction, we purchase one or more insurance policies (typically underwritten by a panel of insurers and 

reinsurers) that obligate the counterparties to reimburse us for specified credit events (on a fixed severity schedule) that occur 

on our non-issued mezzanine loss position of a STACR debt transaction. Under each insurance policy, we pay monthly 

premiums that are determined based on the outstanding balance of the STACR debt reference pool. We receive compensation 

from the insurance policy up to an aggregate limit when specified credit events (such as a loan becoming 180 days delinquent) 

occur. In 2015, we expect to enter into such contracts for reimbursement of our actual credit losses rather than fixed or 

scheduled amounts.

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 Overview — Institutional Credit 

Risk Profile” for information about our counterparties that provide credit enhancement on loans in our single-family credit 

guarantee portfolio, including 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 loan workouts include: 

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

year. These agreements provide additional time for the borrower to return to compliance with the original terms of the 

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mortgage or to implement another loan workout. During 2014, 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 2014, the average time period granted for completed 

repayment plans was approximately four months. 

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

delinquent interest, to the UPB of the loan, or a combination of both. We have used principal forbearance but have not 

used 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. 

• Foreclosure alternatives, which are 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. 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. We also maintain our non-HAMP standard loan modification and streamlined modification initiatives 

discussed below. See “MD&A — RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk 

Framework and Profile — Managing Problem Loans" for additional information about our loan workout activities, as well as 

HARP and our relief refinance initiative. 

HAMP and Non-HAMP Modifications

Our primary loan modification programs are HAMP and our non-HAMP standard loan modification. Under these 

programs, we offer loan modifications to struggling homeowners that reduce the monthly principal and interest payments on 

their mortgages. Under HAMP, the goal is to reduce the borrower’s monthly mortgage payments to 31% of gross monthly 

income. Both programs require that the borrower complete a trial period of at least three months prior to receiving the 

modification. During the trial period, the borrower makes monthly payments based on the estimated amount of the modification 

payments. If a borrower fails to complete the trial period, the loan is considered for our other workout activities. HAMP is 

available for loans originated on or before January 1, 2009. The program is currently 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.

 In July 2013, we implemented a streamlined modification initiative, which provides an additional modification 

opportunity to certain borrowers. This modification requires a three-month trial period and offers eligible borrowers the same 

mortgage terms as the non-HAMP standard modification, including an extension of the loan’s term to 480 months and a fixed 

interest rate. 

Under HAMP, borrowers receive monthly incentive payments (in the form of credits) to reduce the principal balance of 

their loans by up to $1,000 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 and non-HAMP modification. Unlike HAMP

modifications, our non-HAMP standard and streamlined modifications do not provide for borrower incentive payments. We 

bear the costs of these borrower incentive payments and servicer incentive fees, and are not reimbursed by Treasury.

In January 2015, at the instruction of FHFA, we implemented a new $5,000 principal reduction incentive payable to 

eligible borrowers who remain in good standing on their HAMP modified loans through the sixth anniversary of their 

modification. In addition, we will require our servicers to offer such borrowers the opportunity to modify their loan by 

reamortizing the unpaid principal balance over the remaining term of the loan, which could lower the borrowers’ monthly 

principal and interest payments and would further reduce the risk of borrower default. Treasury will pay the $5,000 incentive 

for certain of our eligible HAMP modified loans, and we will pay the $5,000 incentive on our other eligible HAMP modified 

loans. We expect to begin paying these incentives in late 2015. Our payment of these incentives is not expected to have a 

significant effect on our earnings. 

A borrower may only receive one HAMP modification. 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. 

We are the compliance agent for Treasury for certain foreclosure avoidance activities under HAMP. Among other duties, 

as the program compliance agent, we conduct examinations and review servicer compliance with the published requirements 

for the program.

Relief Refinance Mortgage Initiative and the Home Affordable Refinance Program 

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

ratios above 80%) is a significant part of our effort to keep families in their homes. This initiative is designed to provide 

eligible homeowners with loans already guaranteed by us an opportunity to refinance their mortgages on more favorable terms, 

without obtaining new mortgage insurance in excess of what was already in place. Our relief refinance initiative allows us to 

assist homeowners by employing one or more of the following: (a) a reduction in payment; (b) a reduction in interest rate; 

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(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 initiative (including HARP) was implemented in 2009 and originally permitted eligible borrowers 

with Freddie Mac mortgages having LTV ratios up to 125% to refinance their mortgages. We subsequently implemented a 

number of changes to the initiative including: (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. Our relief refinance 

initiative (including HARP) is scheduled to end in December 2015.

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

purchased since 2009 since: (a) underwriting procedures on these loans are more limited than other refinance loans; (b) many 

of the loans have high LTV ratios; and (c) the new loan will generally have limited representations and warranties compared to 

the original loan. 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.

Investments Segment 

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

investments portfolio, excluding Multifamily segment investments and single-family seriously delinquent loans; (b) managing 

the treasury function for the entire company, including funding and liquidity; and (c) managing interest-rate risk for the entire 

company. 

Our Investments segment is focused on:

• 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 activities (e.g., resecuritizing existing agency 

securities into REMICs and selling some or all of the REMIC tranches). 

• Maintaining a portfolio of liquid mortgage assets consistent with our liquidity management guidelines: We evaluate 

the liquidity of our investments based on two categories: (a) single-class and multiclass agency securities (excluding 

certain structured agency securities collateralized by non-agency mortgage-related securities); and (b) assets that are 

less liquid than the agency securities noted above (e.g., mortgage loans and non-agency mortgage-related securities). 

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

Our less liquid assets collectively represented $239.3 billion and $286.3 billion, or approximately 59% and 62% of the 

UPB of the portfolio, at December 31, 2014 and 2013, respectively.

• Managing the single-family performing loans obtained through our cash purchase program: In conjunction with the 

single-family business, we purchase loans from lenders for cash and securitize the majority of them into Freddie Mac 

agency securities. These agency securities may be sold to dealers or investors, or retained in our Investments segment 

mortgage investments portfolio.

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

delinquent loans from PC pools and selling loans, and could include other disposition strategies in the future. 

• Managing single-family reperforming loans and performing modified loans: This includes securitizing loans, 

structuring the resulting securities and selling some or all of the tranches, and could include selling loans or other 

disposition strategies in the future. 

• Reducing the balance of our non-agency mortgage-related securities through liquidations and sales, subject to a variety 

of constraints, including market conditions.

• Managing the treasury function for the entire company, including funding and liquidity, through the issuance of shortterm and long-term unsecured debt: We maintain a liquidity and contingency operating portfolio of cash and nonmortgage investments for short-term liquidity management. 

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

Our Customers

Our unsecured debt securities and structured mortgage-related securities are initially purchased by dealers and 

redistributed to their customers. The customers for our unsecured debt securities generally include 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 loans and mortgage-related assets, 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. 

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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, dollar roll transactions, and 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 

affect the price performance of our PCs relative to comparable Fannie Mae securities. 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, 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 and Guarantee 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 by engaging in transactions that yield less than our target rate of return. 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, which generally allows us to transfer the expected credit risk of 

the loans to third-party investors.

Our Multifamily segment is focused on:

• Continuing to provide stability to the multifamily mortgage market, particularly the market for affordable housing, 

while meeting FHFA's Scorecard requirements relating to our new business volumes. 

• Maintaining a strong credit and capital management discipline.

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 

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. 

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 sellers. A significant portion of our multifamily 

mortgage loans are serviced by several of our large customers. Our top two multifamily sellers, CBRE Capital Markets, Inc. 

and Berkadia Commercial Mortgage LLC, accounted for 20% and 15%, respectively, of our multifamily new business volume 

for 2014. Our top ten multifamily sellers represented an aggregate of approximately 84% of our multifamily new business 

volume for 2014.

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. 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 or guaranteeing 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 (both principal and interest) 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 

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obligation. Our standards for multifamily loans specify a maximum original LTV ratio and a minimum DSCR that vary based 

on the loan characteristics, such as loan type (new acquisition or supplemental financing), loan term (intermediate or longerterm), 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 sellers 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 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 sellers to service mortgage loans they have sold to us 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. In our securitizations (e.g., K Certificates), we typically transfer the master 

servicing responsibilities for securitized loans 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

As discussed above, we primarily use subordination, such as in K Certificate transactions, to mitigate credit losses on the 

loans we purchase or guarantee. For unsecuritized loans (for which we are the master servicer), we may offer a workout option 

to a borrower in distress. For example, we may modify the terms of a multifamily mortgage loan (e.g., providing a short-term 

loan extension of up to 12 months), which gives the borrower an opportunity to bring the loan current and retain ownership of 

the property. These arrangements are made with the expectation that we will recover our initial investment or minimize our 

losses. We do not enter into these arrangements in situations where we believe we would experience a loss in the future that is 

greater than or equal to the loss we would experience if we foreclosed on the property at the time of the agreement. For many 

of our unsecuritized loans, we use other types of credit enhancements that also help mitigate potential losses in the event of 

default.

Securitization Activities

We primarily securitize multifamily mortgage loans through Other Guarantee Transactions (i.e., 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. 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. 

In 2014, in order to expand our securitization activities for a broader number of investors, we entered into other types of 

securitization transactions, including issuing PCs backed by multifamily mortgage loans. See “Our Business — Overview of the

Mortgage Securitization and Guarantee 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 on mortgage-related assets held by third parties, in exchange for a 

management and guarantee fee, without securitizing those 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, we have 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 

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

conservatorship and related matters continue to have wide-ranging effects on us, including our management, business activities, 

financial condition and results of operations. 

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

Purchase Agreement, we issued to Treasury both senior preferred stock and a warrant to purchase common stock. We refer to 

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the Purchase Agreement and the warrant as the “Treasury Agreements.” The Treasury Agreements and the senior preferred 

stock will continue to exist even if the conservatorship ends. The conservatorship, the Treasury Agreements and the senior 

preferred stock materially limit the rights of our common and preferred stockholders (other than Treasury as holder of the 

senior preferred stock) and have otherwise materially and adversely affected our common and preferred stockholders. For more 

information, see “RISK FACTORS — Conservatorship and Related Matters.” 

In May 2014, FHFA issued its 2014 Strategic Plan, which updated FHFA's vision for implementing its obligations as 

Conservator of Freddie Mac and Fannie Mae and established three reformulated strategic goals. FHFA has also issued its 

Conservatorship Scorecards for 2014 and 2015. The Conservatorship Scorecards establish objectives and performance targets 

and measures for Freddie Mac and Fannie Mae related to the strategic goals set forth in the Strategic Plan. For more 

information, see “Regulation and Supervision — Legislative and Regulatory Developments — FHFA's Strategic Plan for 

Freddie Mac and Fannie Mae Conservatorships.”

We receive substantial support from Treasury and FHFA, 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. 

Supervision of Our Company During Conservatorship 

FHFA has broad powers when acting as our Conservator, as discussed below under “Powers of the Conservator.” In 

addition, under conservatorship, we are subject to heightened supervision and direction from FHFA, in its capacity as our 

regulator. 

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 revise its delegations of 

authority at any time. The Conservator also retains certain significant authorities for itself, and has not delegated them to the 

Board. 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.” 

Impact of Conservatorship and Related Actions on Our Business 

We conduct our business subject to the direction of FHFA as our Conservator. The conservatorship has benefited us 

through, for example, enabling us to maintain access to the debt markets because of the support we receive from Treasury. 

However, the Purchase Agreement and the terms of the senior preferred stock we issued to Treasury constrain our business 

activities. 

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 Conservatorship 

Scorecards). At the direction of the Conservator, we have made changes to certain business practices that are designed to 

provide support for the mortgage market in a manner that serves our public mission and other non-financial objectives but may 

not contribute to our profitability. Certain of these objectives are intended to help homeowners and the mortgage market and 

may help to mitigate future credit losses. Some of these initiatives impact our near- and long-term financial results. Given our 

public mission and the important role the Administration and our Conservator have placed on Freddie Mac in addressing 

housing and mortgage market conditions, we may be required to take actions that could have a negative impact on our business, 

operating results or financial condition, and thus contribute to a need for additional draws under the Purchase Agreement. 

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, other multifamily securities, 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 cap reaches $250 billion. As a result, the UPB of our mortgage-related 

investments portfolio could not exceed $470 billion as of December 31, 2014 and may not exceed $399 billion as of December 

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21 Freddie Mac

31, 2015. Our 2014 Retained Portfolio Plan provides for us to manage the UPB of the mortgage-related investments portfolio 

so that it does not exceed 90% of the annual cap established by the Purchase Agreement, subject to certain exceptions. For 

more information on the plan, see “Executive Summary — Our Primary Business Objectives — Reducing Taxpayer Exposure 

to Losses — Reducing Our Mortgage-Related Investments Portfolio Over Time.” 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. See "Table 21 — Composition of Segment Mortgage Portfolios and Credit Risk 

Portfolios" for more information on the composition of the table below.

Table 2 — Mortgage-Related Investments Portfolio

December 31, 2014 December 31, 2013

More Liquid Less Liquid Total More Liquid Less Liquid Total

(in millions)

Investments segment — Mortgage investments portfolio:

Single-family unsecuritized mortgage loans $ — $ 82,778 $ 82,778 $ — $ 84,411 $ 84,411

Freddie Mac mortgage-related securities 150,852 7,363 158,215 156,438 8,809 165,247

Non-agency mortgage-related securities — 44,230 44,230 — 64,524 64,524

Non-Freddie Mac agency mortgage-related securities 16,341 — 16,341 16,889 — 16,889

Total Investments segment — Mortgage investments

portfolio 167,193 134,371 301,564 173,327 157,744 331,071

Single-family Guarantee segment — Single-family

unsecuritized seriously delinquent mortgage loans — 28,738 28,738 — 37,726 37,726

Multifamily segment — Mortgage investments portfolio 1,911 76,201 78,112 1,411 90,816 92,227

Total mortgage-related investments portfolio $ 169,104 $ 239,310 $ 408,414 $ 174,738 $ 286,286 $ 461,024

Percentage of total mortgage-related investments portfolio 41% 59% 100% 38% 62% 100%

Mortgage-related investments portfolio cap $ 469,625 $ 552,500

 

We evaluate the liquidity of the assets in our mortgage-related investments portfolio based on two categories: (a) singleclass and multiclass agency securities (excluding certain structured agency securities collateralized by non-agency mortgagerelated securities); and (b) assets that are less liquid than the agency securities noted above. Assets that we consider to be less 

liquid than agency securities include unsecuritized single-family and multifamily mortgage loans, certain structured agency 

securities collateralized with non-agency mortgage-related securities, and our investments in non-agency mortgage-related 

securities. 

The UPB of our mortgage-related investments portfolio was $408.4 billion at December 31, 2014, a decline of $52.6 

billion (or 11%) compared to $461.0 billion at December 31, 2013. Our less liquid assets accounted for $47.0 billion of this 

decline, primarily due to liquidations and our efforts to reduce these assets. We sold $16.5 billion of less liquid assets in 2014 

(including sales related to settlements of non-agency mortgage-related securities litigation). In addition, we securitized $7.0 

billion of single-family reperforming and modified loans in 2014. These amounts do not include sales of mortgage loans we 

purchased for cash and subsequently securitized. The sales of less liquid assets noted above included a pilot transaction in 

which we sold approximately $0.6 billion in UPB of seriously delinquent unsecuritized single-family loans. In January 2015, 

we received FHFA approval to execute additional such sales. We plan to continue reducing the balance of our less liquid assets, 

although we also continue to add certain of these assets to our mortgage-related investments portfolio as part of our business 

strategies (e.g., removal of seriously delinquent loans from PC pools and acquisitions of mortgage loans purchased for cash). 

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. For more information on 

the GSE Act, see "Regulation and Supervision."

Treasury Agreements and Senior Preferred Stock 

Treasury entered into several agreements with us in connection with our entry into conservatorship, as described below. 

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22 Freddie Mac

Purchase Agreement 

On September 7, 2008, we, through FHFA, in its capacity as Conservator, entered into the Purchase Agreement with 

Treasury. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended on 

May 6, 2009, December 24, 2009, and August 17, 2012. Pursuant to the Purchase Agreement, 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. The senior preferred stock and warrant were 

issued to Treasury as an initial commitment fee in consideration of Treasury's commitment to provide funding to us under the 

Purchase Agreement. 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 to $72.3 billion at 

December 31, 2014. 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. As of December 31, 2014, the amount of available 

funding remaining under the Purchase Agreement was $140.5 billion. This amount will be reduced by any future draws. 

The Purchase Agreement provides for us to pay a quarterly commitment fee to Treasury. However, pursuant to the August 

2012 amendment to the Purchase Agreement, 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 has an indefinite term and can terminate only in limited circumstances, which do not include the 

end of the conservatorship. Treasury's consent is required for a termination of the conservatorship other than in connection with 

receivership. For more information on the Purchase Agreement, see “NOTE 2: CONSERVATORSHIP AND RELATED 

MATTERS — Purchase Agreement and Warrant — Termination Provisions,” “— Waivers and Amendments” and “— Thirdparty Enforcement Rights.”

Senior Preferred Stock 

Shares of the senior preferred stock have a liquidation preference that is subject to adjustment. Dividends that are not 

paid in cash for any dividend period will accrue and be added to the liquidation preference. In addition, any amounts we draw 

under the Purchase Agreement are added to the liquidation preference. 

Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash dividends, when, as 

and if declared by our Board of Directors. Under the August 2012 amendment to the Purchase Agreement, our 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. We are not permitted to redeem the 

senior preferred stock prior to the termination of Treasury’s funding commitment under the Purchase Agreement. For more 

information on the senior preferred stock, including the limited circumstances under which we may make payments to reduce 

the liquidation preference, see “NOTE 11: STOCKHOLDERS’ EQUITY — Issuance of Senior Preferred Stock.”

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. 

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23 Freddie Mac

Covenants Under the Treasury Agreements 

The Purchase Agreement and warrant contain covenants that significantly restrict our business activities. For example, 

the Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not, without the 

prior written consent of Treasury: 

• pay dividends on or repurchase our equity securities (other than the senior preferred stock or warrant); 

• issue any additional equity securities (except in limited instances); 

• sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value in limited 

circumstances including: (a) if the transaction is in the ordinary course of business, consistent with past practice, or (b) 

in one transaction or a series of related transactions if the assets have a fair market value individually or in the 

aggregate of less than $250 million; and

• issue any subordinated debt. 

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. 

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. 

For more information on the covenants in the Purchase Agreement and the warrant, see “NOTE 2: CONSERVATORSHIP

AND RELATED MATTERS — Purchase Agreement and Warrant — Purchase Agreement Covenants” and “— Warrant 

Covenants.”

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. We are also subject to certain regulation by other government agencies. 

Federal Housing Finance Agency 

FHFA is an independent agency of the federal government responsible for oversight of the operations of Freddie Mac, 

Fannie Mae and the FHLBs.

Under the GSE Act, FHFA has safety and soundness authority that is comparable to, and in some respects, broader than 

that of the federal banking agencies. FHFA is responsible for implementing the various provisions of the GSE Act that were 

added by the Reform Act. 

Receivership

Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than our 

obligations for a period of 60 days. FHFA notified us that the measurement period for any mandatory receivership 

determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for our 

quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA also advised us that, if, 

during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency amount under the 

Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination. In addition, we could be put 

into receivership at the discretion of the Director of FHFA at any time for other reasons set forth in the GSE Act. 

Certain aspects of conservatorship and receivership operations of Freddie Mac, Fannie Mae and the FHLBs are addressed 

in an FHFA rule. Among other provisions, the rule indicates that FHFA generally will not permit payment of securities 

litigation claims during conservatorship and that claims by current or former shareholders arising as a result of their status as 

shareholders would receive the lowest priority of claim in receivership. In addition, the rule indicates that administrative 

expenses of the conservatorship will also be deemed to be administrative expenses of a subsequent receivership and that capital 

distributions may not be made during conservatorship, except as specified in the rule. 

Capital Standards

FHFA suspended capital classification of us during conservatorship in light of the Purchase Agreement. The existing 

statutory and FHFA-directed regulatory capital requirements are not binding during the conservatorship. 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.

Pursuant to an FHFA rule, FHFA-regulated entities are required 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 

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24 Freddie Mac

and financial conditions (baseline, adverse, and severely adverse); and (b) publicly disclose the results of the stress test under 

the “severely adverse” scenario. In April 2014, we disclosed the results of the first annual stress test.

For additional information, see “MD&A — LIQUIDITY AND CAPITAL RESOURCES — Capital Resources, the 

Purchase Agreement, and the Dividend Obligation on the Senior Preferred Stock.”

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. 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. In light of these 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 purchase and securitization transactions with lower expected economic returns than our typical 

transactions. In February 2010, FHFA stated that it does not intend for us to undertake uneconomic or high risk activities in 

support of the housing goals nor does it intend for the state of conservatorship to be a justification for withdrawing our support 

from these market segments.

If the Director of FHFA finds that we failed to meet a housing goal and that achievement of the housing goal was 

feasible, the Director may require the submission of a housing plan with respect to the housing goal. 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 mortgage purchase data, 

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 affordable 

housing goal, and one multifamily 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 lowincome areas. The single-family housing goals also include one that targets refinancing mortgages for low-income families. 

The multifamily affordable housing goal targets multifamily rental housing affordable to low-income families. The multifamily 

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 are measured by comparing our performance with: (a) the actual share of the market that meets 

the criteria for each goal; and (b) a benchmark level established by FHFA. If our performance on a single-family goal falls short 

of the benchmark, we still could achieve the goal if our performance meets or exceeds the actual share of the market that meets 

the criteria for the goal for that year. 

Affordable Housing Goals for 2014

FHFA’s affordable housing goals for Freddie Mac for 2014 are set forth below.

Table 3 — Affordable Housing Goals for 2014

Goals for 2014

Single -family purchase money goals (benchmark levels):

Low-income 23%

Very low-income 7%

Low-income areas(1) 18%

Low-income areas subgoal 11%

Single -family refinance low-income goal (benchmark level) 20%

Multifamily low-income goal (in units) 200,000

Multifamily low-income subgoal (in units) 40,000

(1) 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 2014, FHFA set the benchmark level at 18%. 

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25 Freddie Mac

We expect to report our performance with respect to the 2014 affordable housing goals in March 2015. At this time, based 

on preliminary information, we believe we met three of our single-family goals and both multifamily goals for 2014, 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 2014 will not be released until September 2015, 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.

Affordable Housing Goals for 2015 to 2017

In August 2014, FHFA issued a proposed rule that would establish housing goals for Freddie Mac and Fannie Mae for 

2015 through 2017. FHFA requested comment on all aspects of the proposed rule. Under FHFA’s proposal: (a) the benchmark 

levels for our single-family goals could increase; (b) the number of units for both of our multifamily goals would increase; and 

(c) FHFA would establish a new subgoal related to small multifamily properties affordable to low-income families. We cannot 

predict the content of any final rule concerning affordable housing goals, or the impact any such final rule would have on our 

business or operations. 

Affordable Housing Goals and Results for 2013 and 2012

FHFA has determined that we achieved two of our five single-family affordable housing goals and both multifamily goals 

in 2013, and did not achieve the other three single-family goals. We achieved all of our housing goals for 2012. Our 

performance on the goals, as determined by FHFA, is set forth below.

Table 4 — Affordable Housing Goals and Results for 2013 and 2012

Goals for

2013

Market Level

for 2013

Results for

2013

Goals for

2012

Market Level

for 2012

Results for

2012

Single-family purchase money goals

(benchmark levels):

 Low-income 23% 24.0% 21.8% 23% 26.6% 24.4%

 Very low-income 7% 6.3% 5.5% 7% 7.7% 7.1%

 Low-income areas(1) 21% 22.1% 20.0% 20% 20.5% 20.6%

 Low-income areas subgoal 11% 14.2% 12.3% 11% 13.6% 11.4%

Single-family refinance low-income goal

(benchmark level) 20% 24.3% 24.1% 20% 22.3% 22.4%

Multifamily low-income goal (in units) 215,000 N/A 254,628 225,000 N/A 298,529

Multifamily low-income subgoal (in units) 50,000 N/A 56,752 59,000 N/A 60,084

(1) 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 2013 and 2012, FHFA set the benchmark level at 21% and 20%, respectively. 

FHFA did not require us to submit a housing plan for the goals we did not achieve in 2013. 

Affordable Housing Allocations

The GSE Act requires us to set aside in each fiscal year an amount equal to 4.2 basis points of each dollar of 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 suspended the 

requirement to set aside or allocate funds for the Housing Trust Fund and the Capital Magnet Fund. In December 2014, FHFA

terminated the suspension and directed us to begin making contributions to the funds, in accordance with the following terms 

and conditions:

• The amount we will set aside each fiscal year, commencing with fiscal year 2015, will be based on our total new 

business purchases during such fiscal year; and

• Within 60 days after the end of each fiscal year commencing with fiscal year 2015, we will allocate or otherwise 

transfer the amount set aside. However, if we have made a draw under the Purchase Agreement during that fiscal year 

or if such allocation or transfer will cause us to have to make a draw, then we will not make an allocation or transfer 

and the amount set aside for that fiscal year will be reversed. 

We are prohibited from passing through the costs of the allocations (e.g., through increased charges or fees) to the 

originators of the mortgages that we purchase.

Prudential Management and Operations Standards

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26 Freddie Mac

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). A failure to meet any standard also may constitute an unsafe or unsound practice, which 

may form the basis for FHFA to initiate an administrative enforcement action. On a periodic basis, we conduct self-assessments 

of our compliance with these standards. Issues identified in previous self-assessments have either been remediated or are in 

process of remediation.

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. FHFA has adopted the portfolio 

holdings criteria established in the Purchase Agreement, as it may be amended from time to time, for so long as we remain 

subject to the Purchase Agreement. 

See “Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related Investments 

Portfolio” for additional information on restrictions on our portfolio activities. 

Anti-Predatory Lending

Predatory lending practices are in direct opposition to our mission, 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 quality control 

sampling 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. See 

“NOTE 18: REGULATORY CAPITAL — Subordinated Debt Commitment” for more information regarding subordinated 

debt. 

Risk Retention

In October 2014, six agencies, including FHFA, issued a rule that generally requires a securitizer of asset-backed 

securities to retain no less than five percent of the credit risk of the assets underlying such securities. A provision in the rule 

indicates that our fully guaranteed securitizations generally will satisfy the risk retention requirements for so long as we are in 

conservatorship or receivership and receiving federal financial support. However, this provision will not apply to our 

securitization structures that are not fully guaranteed, and we will have to meet the rule’s requirements with respect to such 

structures using other compliance options. The requirements of the final risk retention rule will apply to: (a) new residential 

mortgage securitizations issued beginning in December 2015; and (b) new multifamily securitizations issued beginning in 

December 2016.

Proposed Financial Eligibility Requirements for Seller/Servicers

In January 2015, FHFA proposed new minimum financial eligibility requirements for seller/servicers of Freddie Mac and 

Fannie Mae. FHFA stated that the proposed minimum financial requirements will ensure the safe and sound operation of us and 

Fannie Mae and further FHFA’s goal of fostering liquid, efficient, competitive and resilient national housing finance markets. 

FHFA will engage with servicing industry participants, regulators and other stakeholders to obtain their feedback on, and 

improve their understanding of, the proposed requirements. FHFA stated that it anticipates finalizing the requirements in the 

second quarter of 2015, and anticipates that the requirements will be effective six months after they are finalized. 

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. 

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27 Freddie Mac

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. 

Consumer Financial Protection Bureau

The CFPB regulates consumer financial products and services. The 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. The ability-to-repay rule applies to most 

loans acquired by Freddie Mac, and for such loans covered by the rule, FHFA has directed us and Fannie Mae to limit our 

single-family acquisitions to loans that generally would constitute qualified mortgages under applicable CFPB regulations. 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. 

Securities and Exchange Commission 

We are subject to the reporting requirements applicable to registrants under the Exchange Act, including the requirement 

to file with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Although 

our common stock is required to be registered under the Exchange Act, we continue to be exempt from certain federal securities 

law requirements, including the following: 

• Securities we issue or guarantee are “exempted securities” and may be sold without registration under the Securities 

Act; 

• 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 affect 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 held hearings and considered legislation on the future state of Freddie Mac, Fannie Mae and the housing finance 

system during 2014. A number of bills were introduced in Congress in 2014 relating to the future status of Freddie Mac, Fannie 

Mae, and the secondary mortgage market. None of the bills was considered by the full Senate or the full House of 

Representatives, although one of them (the “Housing Finance Reform and Taxpayer Protection Act of 2014,” also known as the 

Johnson-Crapo bill) was approved by the Senate Banking Committee in May 2014. Several of the bills considered by Congress 

(including the Johnson-Crapo bill) would have placed us into receivership and materially affected our business prior to our 

eventual liquidation.

Since these bills were not enacted prior to the adjournment of the 113th Congress, they would need to be reintroduced in 

the 114th Congress that began in January 2015 in order to be considered further. We do not know whether that will occur. 

However, it is likely that similar or new bills related to Freddie Mac, Fannie Mae and the future of the mortgage finance system 

will be introduced and considered in the 114th Congress. We cannot predict whether any of such bills will be enacted.

On January 27, 2015, the “Pay Back the Taxpayers Act of 2015” was introduced in the House Financial Services 

Committee. This bill would prohibit contributions by us and Fannie Mae to the Housing Trust Fund and the Capital Market 

Fund while we are in conservatorship or receivership. For more information, see “Federal Housing Finance Agency — 

Affordable Housing Allocations.”

For more information, see “RISK FACTORS — Conservatorship and Related Matters — The future status and role of 

Freddie Mac are uncertain.” 

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28 Freddie Mac

FHFA’s Strategic Plan for Freddie Mac and Fannie Mae Conservatorships 

In May 2014, FHFA issued its 2014 Strategic Plan and the 2014 Conservatorship Scorecard. The 2014 Strategic Plan 

updated FHFA's vision for implementing its obligations as Conservator of Freddie Mac and Fannie Mae (the “Enterprises”). 

The 2014 Conservatorship Scorecard established objectives and performance targets and measures for 2014 for the Enterprises 

related to the strategic goals set forth in the 2014 Strategic Plan. On January 14, 2015, FHFA issued the 2015 Conservatorship 

Scorecard, which establishes objectives and performance targets and measures for 2015 for the Enterprises related to the 

strategic goals set forth in the 2014 Strategic Plan.

The 2014 Strategic Plan established three reformulated strategic goals for the conservatorships of Freddie Mac and Fannie 

Mae:

• Maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced 

mortgages to foster liquid, efficient, competitive and resilient national housing finance markets. 

• Reduce taxpayer risk through increasing the role of private capital in the mortgage market. 

• Build a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other 

participants in the secondary market in the future. 

As part of the first goal, the 2014 Strategic Plan describes various steps related to increasing access to mortgage credit for 

credit-worthy borrowers. The 2014 Strategic Plan provides for the Enterprises to continue to play an ongoing role in supporting 

multifamily housing needs, particularly for low-income households. The plan states that FHFA will continue to impose a 

production cap on Freddie Mac’s and Fannie Mae’s multifamily businesses. 

The second goal focuses on ways to transfer risk to private market participants and away from the Enterprises in a 

responsible way that does not reduce liquidity or adversely impact the availability of mortgage credit. The second goal provides 

for us to increase the use of single-family credit risk transfer transactions, continue using credit risk transfer transactions in the 

multifamily business and continue shrinking our mortgage-related investments portfolio consistent with the requirements in the 

Purchase Agreement, with a focus on selling less liquid assets. 

The third goal includes the continued development of the Common Securitization Platform. FHFA refined the scope of 

this project to focus on making the new shared system operational for Freddie Mac’s and Fannie Mae’s existing single-family 

securitization activities. The third goal also provides for the Enterprises to work towards the development of a single (common) 

security.

We continue to align our resources and internal business plans to meet the goals and objectives provided to us by FHFA.

For information about the 2014 Conservatorship Scorecard, and our performance with respect to it, see “EXECUTIVE 

COMPENSATION — Compensation Discussion and Analysis.” For information about the 2015 Conservatorship Scorecard, 

see our current report on Form 8-K filed on January 15, 2015.

FHFA Request for Input on Proposed Single Security Structure

In August 2014, FHFA published a request for input on the proposed structure for a single security that would be issued 

and guaranteed by Freddie Mac or Fannie Mae. FHFA requested comment on all aspects of the proposed structure. Under 

FHFA’s proposal, the single security would leverage the enterprises’ existing security structures, and would encompass many of 

the pooling features of the current Fannie Mae mortgage backed security and most of the disclosure framework of the current 

Freddie Mac PC. FHFA stated that its goal for the proposed single security structure is for legacy Freddie Mac PCs and legacy 

Fannie Mae mortgage backed securities to be fungible with the single security for purposes of fulfilling TBA contracts. FHFA

also stated that the development of the single security will be a multi-year effort, and that FHFA, Freddie Mac and Fannie Mae 

will continue to seek input and work with stakeholders throughout the process to achieve the goal of improving overall 

secondary mortgage market liquidity while mitigating any risk of market disruption.

FHFA Request for Input on Guarantee Fees

In June 2014, FHFA published a request for input on the guarantee fees that we and Fannie Mae charge lenders. FHFA’s 

request for input included questions related to guarantee fee policy and implementation regarding the optimum level of 

guarantee fees required to protect taxpayers and implications for mortgage credit availability. We cannot predict what changes, 

if any, FHFA will require us to make to our guarantee fees as a result of this request.

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 FHLBs. 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 regulatory 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.

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29 Freddie Mac

Among other requirements, the 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 (where our 

servicers are actively working with the borrowers on alternatives to allow them to stay in their homes and our data supports that 

the loans are not yet uncollectible). The Advisory Bulletin also requires us to charge off the portion of the loan classified as a 

“loss.” Prior to our adoption of the charge-off provisions of the Advisory Bulletin, we deemed a loan uncollectible at the time 

of foreclosure or other liquidation event (such as a deed-in-lieu of foreclosure or a short sale). 

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. Effective January 1, 2014, we 

implemented the asset classification provisions of AB 2012-02, and we provide FHFA with this information on a quarterly 

basis. Effective January 1, 2015, we implemented the charge-off provisions.

Our adoption of the Advisory Bulletin did not have a material effect on our financial position or results of operations. As 

a result of our implementation of the Advisory Bulletin as of January 2015, our allowance for loan losses on the affected loans 

was eliminated and the corresponding recorded investment was reduced by the amount charged off. 

Employees 

At February 5, 2015, we had 4,957 full-time and 50 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 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 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 within the same time period that a prospectus for a non-exempt securities 

offering would be required to be filed with the SEC. 

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

can access the offering circular and related supplements for debt securities offerings under Freddie Mac’s global debt facility, 

including pricing supplements for individual issuances of debt securities. Similar information about our STACR debt securities 

is available at www.freddiemac.com/creditriskofferings.

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 

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30 Freddie Mac

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, our liquidity and capital management, economic and 

market conditions and trends, our market share, the effect of legislative and regulatory developments and new accounting 

guidance, the credit quality of loans we own or guarantee, and our results of operations and financial condition on a GAAP, 

Segment Earnings and fair value basis. Forward-looking statements involve known and unknown risks and uncertainties, some 

of which are beyond our control. Forward-looking statements are often accompanied by, and identified with, terms such as 

“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 Conservatorship Scorecards and other objectives 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; 

• changes in our charter or in applicable legislative or regulatory requirements (including any legislation affecting the 

future status of our company);

• changes in the fiscal and monetary policies of the Federal Reserve, including any changes to its policy of maintaining 

sizable holdings of mortgage-related securities and any future sales of such securities;

• the success of our efforts to mitigate our losses on our Legacy single-family books and our investments in non-agency 

mortgage-related securities;

• the success of our strategy to transfer mortgage credit risk through STACR debt note, ACIS and other credit risk 

transfer transactions;

• our ability to maintain the security of our operating systems and infrastructure (e.g., against cyber attacks); 

• 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;

• the adequacy of our risk management framework;

• 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);

• changes in the practices of loan originators, investors and other participants in the secondary mortgage market; 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. 

Our future is uncertain. It is likely that future legislative or regulatory action will materially affect our role, business 

model, structure, and results of operations. Some or all of our functions could be transferred to other institutions, and we could 

cease to exist as a stockholder-owned company or at all. If any of these events were to occur, our shares could further diminish 

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31 Freddie Mac

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 and 2014 concerning the future status of Freddie Mac, Fannie Mae, 

and the mortgage finance system, including bills which provided for the wind down of Freddie Mac and Fannie Mae. The 

Administration has recommended reducing the role of Freddie Mac and Fannie Mae and ultimately winding down both 

companies. 

The conservatorship is indefinite in duration. The timing and likelihood of our emerging from conservatorship are 

uncertain, as are the circumstances under which that might occur. Termination of the conservatorship (other than in connection 

with receivership) also requires Treasury’s consent under the Purchase Agreement. There can be no assurance about whether, 

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 are 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 future.

For more information, see “BUSINESS — Regulation and Supervision — Legislative and Regulatory Developments,” 

“ITEM 3. LEGAL PROCEEDINGS,” and “NOTE 17: LEGAL CONTINGENCIES.”

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: 

• declines 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 affect derivatives 

and mortgage-related securities held by us and increase realized and unrealized losses recorded in earnings or AOCI;

• the required reductions in the size of our mortgage-related investments portfolio or reductions of higher yielding 

assets, and other limitations on our investment activities that reduce our earnings capacity;

• restrictions on our single-family guarantee activities that could reduce our income from these activities;

• restrictions on the volume of multifamily business we may conduct or other limits on multifamily business activities 

that could reduce our income from these activities; 

• adverse changes in our liquidity or funding costs, or limitations in our access to public debt markets; 

• changes in accounting practices or guidance; 

• effects of the MHA Program and other government initiatives, including any future requirements to forgive 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; 

• changes in business practices resulting from legislative and regulatory developments or direction from our 

Conservator; or

• reductions in corporate tax rates resulting in an inability to realize our net deferred tax asset at its current book value. 

We cannot 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 $1.8 billion for 2015) declines over time. Any future draws we take will reduce the amount of available funding remaining 

under the Purchase Agreement, which was $140.5 billion as of December 31, 2014. Additional draws and corresponding 

increases in the already substantial liquidation preference of our senior preferred stock ($72.3 billion as of December 31, 2014), 

along with the limited flexibility we have to redeem it, 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, difficult to implement, expose us to additional credit and 

other risks, or otherwise adversely affect our business and financial results over the short- or long-term. We are under the 

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32 Freddie Mac

control of FHFA, as our Conservator, and are not managed to maximize stockholder returns. FHFA determines our strategic 

direction. FHFA has required us to make changes to our business that have adversely affected our financial results, and could 

require us to make additional changes at any time. Other agencies of the U.S. government and Congress also could require us to 

take actions that adversely affect our business and financial results.

FHFA 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 investing in the common securitization platform or engaging in more 

expensive foreclosure prevention 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, such as building the common securitization 

platform, implementing the single (common) security, and other initiatives under the Conservatorship Scorecards. FHFA could 

also take a number of actions that could materially adversely affect us, such as limiting the amount of securities we could sell 

or further limiting the size of our mortgage-related investments portfolio.

We currently face a variety of different, and potentially competing, business objectives and FHFA-mandated activities 

(e.g., the initiatives we are pursuing under the Conservatorship Scorecards). 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 of the senior preferred stock. These limitations could have a material adverse effect on our future results 

of operations and financial condition. As a result of the net worth sweep dividend provisions of the senior preferred stock, we 

cannot retain capital from the earnings generated by our business operations or return capital to stockholders other than 

Treasury. The Purchase Agreement prohibits us from taking a variety of actions without Treasury's consent. Treasury has the 

right to withhold its consent for any reason and is not required 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 under the Purchase Agreement, and the senior status and net worth dividend provisions of the senior preferred stock 

also could adversely affect our ability to attract new private sector capital in the future should the company be in a position to 

do so.

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. 

We could be put into receivership at the discretion of the Director of FHFA at any time for a number of reasons set forth 

in the GSE Act. 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 reached its borrowing limit. 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 considered by Congress in 2013 and 2014 provided for Freddie Mac to eventually be 

placed into receivership.

If our assets were liquidated, there is 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. If 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 would any liquidation proceeds be available to repay the liquidation 

preference of any other series of preferred stock. Finally, only after the liquidation preference of 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, 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 financial results. In addition, 

the amounts in AOCI would be reclassified to earnings.

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33 Freddie Mac

The conservatorship and investment by Treasury have 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 may not have any value in the long-term.

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 and the terms of the senior 

preferred stock, we are required to pay quarterly dividends to Treasury equal to the amount, if any, by which our Net 

Worth Amount exceeds a permitted Capital Reserve Amount that decreases to zero over time. Accordingly, 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 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 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 and the voting rights of the common 

stockholders are restored.

Competitive and Market Risks 

Our level of earnings in recent periods is not sustainable over the long term. 

The level of our earnings in 2013 and 2014 is not sustainable over the long term. Our 2013 financial results included a 

very large benefit related to the release of the valuation allowance against our deferred tax assets. Our 2013 and 2014 financial 

results included large amounts of income from settlements of representation and warranty claims arising out of our loan 

purchases and settlements of non-agency mortgage-related securities litigation. We do not expect any future settlements of 

representation and warranty claims related to our pre-conservatorship loan purchases to have a significant effect on our 

financial results. Our 2013 financial results, particularly the level of loan loss provisioning, also benefited from a high level of 

home price appreciation. 

In addition, declines in the size of our mortgage-related investments portfolio, as required by FHFA and the Purchase 

Agreement, will reduce our earnings over the long term. 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. These limitations will reduce the earnings capacity of our mortgage-related 

investments portfolio. In addition, many of our mortgage investments do not trade in a liquid secondary market. In some cases, 

the size of our holdings relative to normal market activity is large enough that, if we were to attempt to sell a significant 

quantity of these assets, market pricing 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.”

Due to the reduced earnings capacity of our mortgage-related investments portfolio, we will have to place greater 

emphasis on our guarantee activities to generate revenue. However, our ability to generate revenue through guarantee activities 

may be limited for a number of reasons. We may be required to adopt business practices that help serve our public mission and 

other non-financial objectives, but that may negatively affect our future financial results. We must obtain FHFA’s approval to 

implement across-the-board increases in our guarantee fees, 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.

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34 Freddie Mac

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 results. 

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. 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 longterm standby commitments and liquidity guarantees. 

We expect our single-family credit losses to remain elevated in the near term in part due to the substantial number of 

delinquent and underwater (i.e., where the borrower's debt on the property is greater than its market value) mortgage loans in 

our single-family credit guarantee portfolio 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 to borrowers with credit scores less than 

620 at the time of origination, that expose us to greater credit risk than other types of mortgage loans. See “Table 45 — Certain 

Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio” for more information.

Our loan loss reserves may not reflect the total of all future credit losses we will ultimately incur with respect to the 

single-family and multifamily mortgage loans we currently own or guarantee. 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.

We use certain credit enhancements (e.g., mortgage insurance and risk transfer transactions) to mitigate some of our 

potential credit losses. However, such credit enhancements may provide less protection than we expect. Our ability to use 

certain types of risk transfer transactions (and the cost to us of doing so) could change rapidly, depending on market conditions. 

Some of our risk transfer transactions (e.g., STACRs and ACIS) are new, and it is uncertain if there will be adequate demand 

for these products over the long term. 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 and our use of 

credit enhancements, see “MD&A — RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit 

Risk Framework and Profile" and " — Multifamily Mortgage Credit Risk Profile.”

We face significant risks related to our delegated underwriting process for single-family mortgages, including risks related 

to data accuracy and mortgage fraud. Recent changes to the process could increase our risks. 

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

contracts with sellers describe mortgage eligibility and underwriting standards, and the sellers represent and warrant to us that 

the mortgages they sell to us meet these standards. We do not independently verify most of the information that is provided to 

us before we purchase a loan. This exposes us to the risk that one or more of the parties involved in a transaction (such as the 

borrower, seller, broker, appraiser, title agent, loan officer, lender or servicer) will misrepresent the facts about the underlying 

property, borrower, or loan, or otherwise engage in fraud. While we review a sample of these loans to determine if they are in 

compliance with our contractual standards, there can be no assurance that this will detect any misrepresented facts or deter 

mortgage fraud, or otherwise reduce our exposure to these risks. We are also exposed to fraud by third parties in the mortgage 

servicing function, particularly with respect to sales of REO properties, short sales, and other dispositions of non-performing 

assets.

In 2013 and 2014, we significantly revised our representation and warranty framework by relieving sellers of certain 

repurchase obligations in specific cases. We may face greater exposure to credit and other losses under this revised framework 

because our ability to seek recovery or repurchase from the seller is more limited. As a result of these changes to the 

framework, it is critical that we identify breaches of representations and warranties early in the life of the loan. This represents 

a significant change in practice and presents a number of operational and systems challenges. We have not fully implemented 

systems and processes designed to do this. Once fully implemented, there is a risk that such systems and processes will not 

enable us to identify all breaches within the accelerated timelines. For more information, see “BUSINESS — Our Business — 

Our Business Segments — Single-Family Guarantee Segment — Underwriting Requirements, Quality Control Standards, and 

the Representation and Warranty Framework.”

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35 Freddie Mac

We are exposed to significant credit risk related to the subprime, Alt-A, and option ARM loans that back the non-agency 

mortgage-related securities we hold 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. 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. Our net income could be adversely affected if the 

population of non-agency mortgage-related securities that we intend to sell were to change or increase, as we would be required 

to immediately recognize in earnings any unrealized losses on such securities. This population could change or increase for a 

number of reasons, including as a result of changes in economic condition or our plans for the securities.

Since 2007, our net worth has at times been adversely affected by declines in the fair value of these investments. We may 

experience additional fair value declines and losses in the future due to a number of factors, including increased delinquency 

and loss rates on the underlying loans. 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 often not sufficient to allow us to adequately 

analyze decisions made by servicers that may directly affect the cash flows on such securities. The servicing of the loans is 

significantly concentrated among several specialty servicers, which may increase this risk. These specialty servicers are nondepository financial institutions, and may not have the same financial strength, internal controls or operational capacity as 

depository servicers. Any credit enhancements covering these securities may not prevent us from incurring losses. 

For more information, see “MD&A — CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in 

Securities,” "RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and 

Profile," and "— Institutional Credit Risk Profile — Agency and Non-Agency Mortgage-Related Security Issuers."

Declines in U.S. home prices or other adverse changes in the U.S. housing market could negatively impact our business and 

financial results. 

Our financial results and business volumes can be negatively affected by declines in home prices and other adverse 

changes in the housing market. Although the single-family housing market improved in 2014, 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 currently believe that home price growth rates will continue to moderate gradually 

during the near term and will return towards growth rates that are consistent with long-term historical averages (approximately 

2 to 5 percent per year), 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) conducting 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. In addition, home price changes that differ from our forecasts could affect prepayments and cause us to 

incorrectly hedge prepayment risk. 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 — CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities.” 

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 0.3% in the first nine months of 2014 (the most 

recent data available) compared to a decline of approximately 1% in 2013.

While the multifamily market has experienced strong rent growth and occupancy trends in the past five years, these 

trends are not likely to continue at their current pace as apartment fundamentals are already very favorable, with vacancy rates 

near 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. A major natural or 

environmental disaster or similar catastrophic event in a regional geographic area of the United States could damage or destroy 

residential real estate underlying mortgage loans we own or guarantee, or negatively affect the ability of homeowners to 

continue to make payments on mortgage loans we own or guarantee. In turn, this could increase our serious delinquency rates 

and average loan loss severity in the affected region, which could have a material adverse effect on our business and financial 

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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 financial results 

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, insurers and reinsurers in ACIS transactions, 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 weak counterparties could concentrate our exposure to other counterparties, and 

increase our costs and reduce our revenue. Challenging market conditions have, at times, adversely affected the liquidity and 

financial condition of our counterparties, and some of our major counterparties have failed. Similar events may occur in future 

periods. Many of our counterparties are subject to increasingly complex regulatory requirements and oversight, which place 

additional stress on their resources.

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; (b) fund our business operations; and (c) 

service our customers. In addition, 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 is unsecured or the value of the collateral posted to us is insufficient. We believe most 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 Overview — Institutional Credit Risk 

Profile — Cash and Other Investments Counterparties” and “— Derivative Counterparties.”

Our financial results may be adversely affected if mortgage seller/servicers fail to perform their repurchase and other 

obligations to us.

Our servicers perform the primary servicing function on our behalf with respect to single-family loans. Our servicers play 

an active role in our loss mitigation efforts, as we rely on them to perform loan workout activities as well as foreclosures on 

loans that they service for us. A decline in their performance could affect the overall quality of our credit performance 

(including by missing opportunities for repayment plans and mortgage modifications), which could significantly affect our 

ability to mitigate credit losses. 

Our credit losses could increase to the extent that our servicers do not fully perform their servicing obligations in a timely 

manner. 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 since the 

onset of the housing and economic downturn. We could be adversely affected if our servicers lack appropriate controls, 

experience a failure in their controls, or experience an operating disruption in their ability to service mortgage loans (including 

as a result of legal or regulatory actions or ratings downgrades). 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.

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 

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 who have sufficient capacity to service the affected mortgages. This 

option may be difficult to accomplish with respect to our larger seller/servicers due to the operational and capacity challenges 

presented by transfers of large servicing portfolios. 

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 may 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 

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to be indemnified against losses on the loans. We have similar rights and remedies with respect to loans that seller/servicers 

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 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.

During 2013 and 2014, 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 on the underlying loans.

If, as we expect, origination volume remains low and there is a change in the mix of originations (refinance vs. purchase) 

in 2015, the competitive and financial pressures on single-family sellers and servicers could increase, thereby increasing our 

counterparty risk with respect to these entities.

Over the last several years, our exposure to non-depository and smaller financial institutions has increased. We are 

acquiring a greater portion of our single-family business volume directly from these types of institutions. In addition, specialty 

servicers (i.e., companies that specialize in servicing troubled loans) service a large share of our single-family loans, and many 

of these specialty servicers are non-depository financial institutions. These non-depository and smaller financial institutions 

may not have the same financial strength, internal controls or operational capacity as our large single-family mortgage seller 

and servicer counterparties (which are depository institutions). As a result, we face increased risk that these counterparties 

could fail to perform their obligations to us. In particular, non-depository servicers have experienced rapid growth in their 

servicing portfolios in the last several years. This could expose us to increased risks in the event that the rapid growth results in 

operational strains that adversely affect their servicing performance or weakens their financial strength. Certain non-depository 

specialty servicers, particularly subsidiaries and/or affiliates of Ocwen Financial Corp., have recently been the subject of 

significant adverse regulatory scrutiny, and Ocwen’s credit rating has been downgraded.

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.

For more information, see “MD&A — RISK MANAGEMENT — Credit Risk Overview —Institutional Credit Risk 

Profile — Single-family 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. 

We are unlikely to receive full payment of our claims from several of our mortgage insurers (that insure some of the 

single-family mortgages we purchase or guarantee) and bond insurers (that insure certain of the non-agency mortgage-related 

securities we hold), as they are insolvent or are not paying us in full for claims under mortgage and bond insurance policies. 

Instead, a significant portion of their claims are generally recorded by us as deferred payment obligations. It is possible that 

these companies may never pay us in full for our claims. For more information, see “NOTE 15: CONCENTRATION OF 

CREDIT AND OTHER RISKS — Mortgage Insurers” and “— Bond Insurers.”

We also remain exposed to the risk that some of our other 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 other counterparties increases the risk that they will fail to fully reimburse us for claims under the 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.

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.

A mortgage insurer may make business decisions that could increase the risk that the insurer would be unable to fully 

perform its obligations to us. For example, an insurer could improperly forecast the risks associated with a given group of 

loans, which could lead the insurer to charge lower prices for insuring those loans than are necessary to cover the risk. Over 

the long term, this could result in the insurer not having sufficient financial resources to pay all claims when due.

If a bond insurer were to become insolvent, it is likely that we would not fully collect our claims from the insurer and that 

payment of such claims could be delayed significantly. This would affect our ability to recover certain unrealized losses on our 

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investments in non-agency mortgage-related securities. We evaluate the expected recovery from primary bond insurance 

policies as part of our impairment analysis for our investments in securities. If a bond insurer’s performance with respect to its 

obligations on our investments in securities is worse than expected, this could contribute to additional net impairment of those 

securities. 

For more information, see “MD&A — RISK MANAGEMENT — Credit Risk Overview — Institutional Credit Risk 

Profile — 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. 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.

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. 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 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. 

We also compete with other financial institutions that retain or securitize mortgages, such as commercial and investment 

banks, dealers, thrift institutions, and insurance companies. In recent years, FHFA took a number of actions designed to 

encourage these other financial institutions to increase their activities in the mortgage market (e.g., increasing our guarantee 

fees in 2012), and could take additional actions in the future. 

Because of these actions and given that our base fees charged for our guarantee do not vary for differing LTV ratios or 

credit scores, there is a risk that financial institutions may buy, or originate, and then retain loans on their balance sheet, or 

otherwise seek to structure financial transactions that result in our loan purchases having a higher proportion of lower credit 

scores and higher LTV ratios. While we compensate ourselves for higher levels of risk through charging of upfront delivery 

fees, the seller may elect to retain loans with better credit characteristics, which could result in us having lower overall 

purchase volumes, revenues, and returns (as a result of a more adverse credit risk profile).

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. 

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 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 increased their activities in the multifamily market, and as a result we have faced increased 

competition. In addition, FHFA may take actions that could encourage further competition.

Our activities may be adversely affected by limited availability of financing and increased funding costs. 

The amount, type and cost of our unsecured funding, including financing from other financial institutions and the capital 

markets, directly affects our interest expense and results of operations. A number of factors could make such financing more 

difficult to obtain, more expensive or unavailable on any terms, or could cause spreads to widen, both domestically and 

internationally, including: 

• changes in U.S. government support for us; 

• reduced demand for our debt securities;

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• competition for debt funding from other debt issuers; and

• other market factors. 

Our ability to obtain funding in the public unsecured debt markets or by pledging mortgage-related and other 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 interest rates, market confidence, operational risks and other factors. We may incur costs, including 

potentially higher funding costs, for our liquidity management practices and procedures. There can be no assurance that such 

practices and procedures would provide us with sufficient liquidity to meet our ongoing cash obligations under all 

circumstances. In particular, we believe that our liquidity contingency plans may be 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. 

We make extensive use of the Federal Reserve's payment system in our business activities. The Federal Reserve requires 

that we fully fund accounts at the Federal Reserve Bank of New York to the extent necessary to cover cash payments on our 

debt and mortgage-related securities each day, before the Federal Reserve Bank of New York, acting as our fiscal agent, will 

initiate such payments. Although we seek to maintain sufficient intraday liquidity to fund our activities through the Federal 

Reserve's payment system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash may 

cause our account to be overdrawn, potentially resulting in penalties and reputational harm.

Prolonged wide spreads on long-term debt could cause us to reduce our long-term debt issuances and increase our 

reliance on short-term and callable debt issuances. This increased reliance could increase rollover risk (i.e., the risk that we may 

be unable to refinance our debt when it becomes due) and result in a greater use of derivatives. This greater use of derivatives 

could increase the volatility of our comprehensive 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 net worth sweep dividends to Treasury on the senior preferred stock on a quarterly basis. The amount of the net 

worth sweep dividend could vary substantially from quarter to quarter for a number of reasons, including as a result of noncash 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 U.S. Government Support

Treasury supports us through the Purchase Agreement and Treasury’s ability to purchase up to $2.25 billion of our 

obligations under its permanent statutory authority. Unlike certain of our competitors, we do not have access to the Federal 

Reserve's discount window. Changes or perceived changes in the U.S. government’s support of us could have a severe negative 

effect on our access to the unsecured debt markets and our debt funding costs. 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) 

debt investors' concerns that the risk of receivership is increasing; and (c) future draws that significantly reduce the amount of 

available funding remaining under the Purchase Agreement. For more information, see “MD&A — LIQUIDITY AND 

CAPITAL RESOURCES — Capital Resources, 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 investor 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 the size of our mortgage-related investments 

portfolio declines, as we will be issuing fewer debt securities. This could lead to a decrease in demand for our debt securities 

and an increase in our funding costs.

Competition for Debt Funding

We compete for debt funding with Fannie Mae, the FHLBs, and other institutions. Competition for debt funding from 

these entities can vary with changes in economic, financial market, and regulatory environments. Increased competition for 

debt funding may result in a higher cost to finance our business, which could negatively affect our financial results. See 

“MD&A — LIQUIDITY AND CAPITAL RESOURCES — Liquidity — Other Debt Securities” for a description of our debt 

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40 Freddie Mac

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. 

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 the availability and cost of 

funding by means of the ratings they assign to issuers and their debt. 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 debt. 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 by or accompanied by a downgrade in our credit ratings. In addition to a downgrade in the credit 

ratings of or outlook on the U.S. government, a number of other events could adversely affect our debt credit ratings, including 

actions by governmental entities, changes in government support for us, future GAAP losses, and additional draws under the 

Purchase Agreement. Any such downgrades could lead to major disruptions in the mortgage and financial markets and to our 

business due to lower liquidity, higher borrowing costs, lower asset values, and higher credit losses, and could cause us to 

experience net losses and net worth deficits.

For more information, see “MD&A — LIQUIDITY AND CAPITAL RESOURCES — Liquidity — Credit Ratings.”

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.

The price performance of our PCs relative to comparable Fannie Mae securities is one of Freddie Mac’s more significant 

risks and competitive issues, with both short- and long-term implications. Our PCs are an integral part of our mortgage 

purchase program. Our competitiveness in purchasing single-family 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 scheduled 

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 monthly remittance 

cycle, resulting in a pricing discount relative to comparable Fannie Mae securities. This difference in relative pricing creates an 

economic incentive for sellers to conduct a disproportionate share of their single-family business with Fannie Mae and 

negatively affects the financial performance of our business.

There may not be a liquid market for our PCs, which could adversely affect the price performance of PCs and our singlefamily market share. A significant reduction in our market share, and thus in the volume of mortgage loans that we securitize, 

or a reduction in the trading volume of our PCs, could further reduce the liquidity of our PCs. While we may employ 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. (For example, the level of the Federal Reserve’s purchases of agency mortgagerelated securities could affect the demand for and values of our PCs.) Thus, while we may employ strategies in an effort to 

address 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 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 by reducing our guarantee fees, and this could adversely affect the volume and/or profitability of our new singlefamily guarantee business. We also incur costs in connection with our efforts to support the liquidity and price performance of 

our PCs, including by engaging in transactions that yield less than our target rate of return. For more information, see 

“BUSINESS — Our Business — Our Business Segments — Single-Family Guarantee Segment — Securitization Activities” 

and “— Investments Segment — Market Presence and PC Support Activities.” 

In accordance with FHFA’s 2014 Strategic Plan and the 2014 and 2015 Conservatorship Scorecards, we are working 

towards the development of a single (common) security, which is designed to reduce the price performance disparities between 

Freddie Mac mortgage-related securities and Fannie Mae mortgage-related securities. This initiative is complex and involves 

significant cost and operational risk, and may require us to align our business processes more closely with those of Fannie Mae. 

There can be no assurance that this initiative will succeed in reducing the trading value disparities.

Our current Multifamily business model is highly dependent on our ability to finance purchased loans through 

securitization into K Certificates. A significant decrease in demand for K Certificates could have an adverse impact on the 

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profitability of the Multifamily business to the extent that our holding period for the loans increases and we are exposed to 

credit and market risks for a longer period of time. 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.

Changes in interest rates could negatively affect the fair value of financial assets and liabilities, our results of operations 

and net worth. 

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 

derivatives, 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, loans held-for-sale, and loans and 

debt with the fair value option elected. In particular, while fair value changes in derivatives from fluctuations in interest rates, 

yield curves, and implied volatility affect comprehensive income, fair value changes in several of the types of assets and 

liabilities being economically hedged do not affect comprehensive income. Therefore, there can be timing mismatches affecting 

current period earnings, which may not be reflective of the economics of our business. When interest rates decrease, pay-fixed 

swaps decrease in value and receive-fixed swaps increase in value (with the opposite being true when interest rates increase).

Changes in interest rates may affect mortgage and debt spreads and 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.

Increases in interest rates could increase other-than-temporary impairments on our investments in non-agency mortgagerelated securities. Higher interest rates can result in a reduction in the benefit from expected structural credit enhancements on 

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. Many borrowers may have additional debt 

obligations (such as home equity lines of credit and second liens) that also have adjustable payment terms. Increases in a 

borrower's payment on these other debt obligations (due to rising interest rates or a change in amortization) 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. Federal Reserve policies directly and indirectly influence the yield on our interest-earning assets 

and the cost of our interest-bearing liabilities. Interest rates can also fluctuate as a result of geopolitical events or changes in 

general economic conditions, including events or conditions that alter investor demand for Treasury or other fixed-income 

securities.

Changes in OAS could materially affect our results of operations and net worth. 

Changes in market conditions, including changes in interest rates, liquidity, prepayment and/or default expectations, and 

the level of uncertainty in the market for a particular asset class may cause fluctuations in OAS. Our financial results and net 

worth 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, availablefor-sale securities, loans held-for-sale, 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 near-term 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.

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.

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 affect the trading price of our securities. Perceptions regarding the practices of our 

competitors, counterparties, and vendors, or the financial services and mortgage industries as a whole, may also adversely 

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affect our reputation. Damage to the reputation of third parties with whom we have important relationships may also impair 

market confidence in our business operations. In addition, negative publicity could expose us to greater regulatory scrutiny or 

adverse regulatory or legislative changes, and could affect changes that 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 key components 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 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 our nonHAMP 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 incentive fees.

We could be required or elect to make changes to 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 conducting the activities. For example, we could 

be required to use principal forgiveness 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. 

Many loans are in the trial period of HAMP or our non-HAMP loan modification programs. A number of these 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.

Many of our HAMP loans have provisions for the interest rates, which initially were set at a below-market rate, to 

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 forgiveness, 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 who are current to become delinquent in order to receive a principal reduction. This incentive, 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 or the earnings from mortgage-related assets we hold in our Investments segment mortgage investments portfolio. In 

addition, loss mitigation activities may adversely affect our ability to securitize and sell the loans subject to those activities 

(e.g., modified single-family mortgage loans).

Due to the impact of HARP and other refinance initiatives of Freddie Mac and Fannie Mae on prepayment expectations, 

we could experience declines in the fair values of certain agency security investments classified as available-for-sale or trading 

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 “BUSINESS — Our Business — Our Business Segments — 

Single-Family Guarantee Segment — Single-Family Loan Workouts and the MHA Program” and “MD&A — RISK 

MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and Profile — Managing 

Problem Loans.” 

We have incurred, and will continue to incur, expenses and we may otherwise be adversely affected by delays and 

deficiencies in the single-family foreclosure process. 

We have been, and will likely continue to be, adversely affected by delays and deficiencies in the foreclosure process. 

The average length of time for foreclosure of a Freddie Mac loan significantly increased since the onset of the housing and 

economic downturn, 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. This would increase our expenses to repair and maintain the properties. 

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 

adversely affect our financial results. 

It 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.

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Delays in the foreclosure process could create fluctuations in our single-family credit statistics. For example, delays 

could 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.

We may experience further losses relating to our assets that could materially adversely affect our financial results, liquidity 

and net worth. 

We experienced significant losses relating to certain of our assets in recent years, including from significant declines in 

market value, impairments of our investment securities, declines in the value of REO properties and impairments on other 

assets. We may experience additional losses relating to our assets, including those that are currently AAA-rated, and the fair 

values of our assets may decline in the future. This could adversely affect our financial results, liquidity, and net worth. We may 

decide to pursue certain mortgage-related investments portfolio strategies 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 had a net deferred tax asset of $19.5 billion as of December 31, 2014. 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. In addition, a reduction in corporate tax rates would result in a reduction in the net 

realizable value of our net deferred tax asset. 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."

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 cause declines or volatility in the prices of our equity securities. 

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 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. Because our financial statements involve estimates for amounts that are large, even a small change in our 

assumptions or methodology for making estimates can have a significant effect on the results for a reporting period. 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. In 

addition, FHFA may 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.

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 other government agencies, 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 the financial 

services industry for qualified employees. 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 and other key skills needed to conduct our 

business effectively.

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 

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organizations in the mortgage industry (including Freddie Mac). A significant portion of the loans we own or guarantee are 

registered in the MERS System. 

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: (a) prevent us from using the MERS 

System, (b) delay or disrupt foreclosure of mortgages that are registered on the MERS System, or (c) create additional 

requirements for the transfer of mortgages. Any of these developments could increase our costs or otherwise adversely affect 

our business. For example, we could be required to transfer mortgages out of the MERS System. 

We could also be adversely affected if MERSCORP Holdings and its subsidiaries fail to apply prudent and effective 

controls and to comply with legal and other requirements in the foreclosure process.

Weaknesses in internal control over financial reporting and in disclosure controls and procedures could result in errors and 

inadequate disclosures, and affect operating 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. For information about 

management's conclusion that our disclosure controls and procedures are ineffective and the related 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 

procedures and internal control over financial reporting, including: (a) the nature of the conservatorship and our relationship 

with FHFA; (b) the complexity of, and significant changes in, our business activities and related GAAP requirements; 

(c) employee and management turnover; (d) internal corporate reorganizations; (e) data quality; and (f) servicing-related issues.

Effectively designed and operating 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 a 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 for managing 

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 ability to manage risks. 

Models are inherently imperfect predictors of actual results. 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 use with the model. 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. 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. Our models rely on various assumptions that may be invalid, including that historical experience can be 

used to predict future results.

We face the risk that we could fail to implement, operate, adjust or use our models properly. 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 use third-party models for certain purposes. 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 or no 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, net worth, business prospects, and future financial results.

We also face the 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 

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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. 

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 

regulatory intervention, or reputational damage. We have 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 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 efforts to help build a new housing finance system (such as the development of the common securitization 

platform). Some of these initiatives require significant changes to our operational systems. In some cases, the changes must be 

implemented within a short period of time. Our legacy systems may also create increased operational risk for these new 

initiatives. Internal corporate reorganizations (e.g., relating to our implementation of an enhanced three-lines-of-defense risk 

management framework) may also increase our operational risk, particularly during the period of implementation.

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.

The threat landscape in cyber security is changing rapidly and growing in sophistication. We may not be able to protect our 

systems with complete assurance or fully protect 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 we devote significant 

resources to protecting our various systems and processes, there is no assurance that our security measures will provide fully 

effective security. Our computer systems, software, and networks may be vulnerable to cyber attack, unauthorized access, 

supply chain disruptions, computer viruses or other malicious code, or other attempts to harm them 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 affect 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 business partners, counterparties and governmental 

organizations are adequately protecting the confidential and other information that we share with them. As a result, a cyber 

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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 and service providers 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 at all for a period of time, 

perform them at an acceptable service level, or handle increased volumes, our business operations could be constrained, 

disrupted, or otherwise negatively affected. Our use of vendors also exposes us to the risk of losing intellectual property or 

confidential information and to other harm. Our ability to monitor the activities or performance of vendors may be constrained, 

which makes it difficult for us to assess and manage the risks associated with these relationships.

Legal and Regulatory Risks 

Legislative or regulatory actions could adversely affect our business activities and financial results. 

We face significant risks related to legislative or regulatory actions, in addition to those discussed above in 

“Conservatorship and Related Matters — The future status and role of Freddie Mac are uncertain.” We operate in a highly 

regulated industry and are subject to heightened supervision from FHFA, as our Conservator. Our compliance systems and 

programs may not be adequate to ensure that we are in compliance with all legal and other requirements. We could incur fines 

or other negative consequences for inadvertent or unintentional violations.

Our business may be directly adversely affected by future legislative and regulatory actions at the federal, state, and local 

levels. Legislative or regulatory actions, including actions by FHFA as Conservator, could affect us in a number of ways, 

including by imposing significant additional compliance and other costs on us, limiting our business activities and diverting 

management attention or other resources. Judicial actions at the federal, state, or local level could have a similar effect. For 

example, we could be negatively affected by legislative, regulatory or judicial action that: (a) changes the foreclosure process 

of any individual state; (b) limits or otherwise adversely affects the rights of a holder of a first lien on a mortgage (such as 

through granting priority rights in foreclosure proceedings for homeowner associations); (c) expands the responsibilities of (and 

costs to) servicers for maintaining vacant properties prior to foreclosure; or (d) permits or requires principal reductions, such as 

allowing local governments to use eminent domain to seize mortgage loans and forgive principal on the loans. Our business 

could also be adversely affected by any modification, reduction, or repeal of the federal income tax deductibility of mortgage 

interest payments.

The Dodd-Frank Act significantly changed the regulation of the mortgage and financial services industries and could 

continue to affect us in substantial ways. For example, the Dodd-Frank Act and related regulatory changes could cause or 

require us to make further changes to our business practices, such as practices related to mortgage underwriting and servicing. 

The Dodd-Frank Act establishes new standards and requirements related to asset-backed securities, including recently finalized 

rules requiring sponsors of securitization transactions to retain a portion of the underlying loans’ credit risk. These standards 

and requirements could adversely affect us, including by establishing additional requirements for securitization structures that 

are not fully guaranteed.

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, derivative counterparties, securities dealers, and other regulated 

entities that constitute a significant portion of our customers or counterparties, or to the extent that they modify industry 

practices. Legislative or regulatory provisions that remove incentives for these entities to purchase our securities or enter into 

derivatives or other transactions with us could have a material adverse effect on our business results and financial condition. 

The Dodd-Frank Act and related current and future regulatory changes may continue to 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, changes in business practices resulting from the Dodd-Frank Act and related regulatory changes 

could have a negative effect on the volume of mortgage originations or could modify or remove incentives for financial 

institutions to sell mortgage loans to us, either of which could 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 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 decrease demand for our securities and/or affect 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 relaxing some of our underwriting standards and the expanded use of targeted initiatives to reach 

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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 

potentially adversely affect our profitability. 

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 regulatory proceedings and IRS examinations. In addition, certain of our former officers are 

involved in legal proceedings for which they may be entitled to reimbursement by us for costs and expenses of the proceedings. 

We may be required to establish reserves and to make substantial payments in the event of adverse judgments or settlements of 

any such claims, proceedings, investigations or examinations. Any legal proceeding, governmental investigation, or IRS 

examination issue, even if resolved in our favor, could result in negative publicity or cause us to incur significant legal and 

other expenses. Furthermore, the costs (including settlement costs) related to these legal proceedings and governmental 

investigations and examinations may differ from our expectations and exceed any amounts for which we have reserved or 

require adjustments to such reserves. These various matters could divert management’s attention and other resources from the 

needs of the business. In addition, a number of lawsuits have been filed against the U.S. government relating to conservatorship 

and the Purchase Agreement that could adversely affect us. See “LEGAL PROCEEDINGS” and “NOTE 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 four office buildings we own in McLean, Virginia, comprising approximately 1.3 million 

square feet. 

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, and in February 2014, 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. These lawsuits challenge certain 

government actions related to the conservatorship (including actions taken in connection with the imposition of 

conservatorship) and the Purchase Agreement. Several of the lawsuits seek to invalidate the net worth sweep dividend 

provisions of the senior preferred stock, which were implemented pursuant to the August 2012 amendment to the Purchase 

Agreement. These cases were filed in the U.S. Court of Federal Claims, the U.S. District Court for the District of Columbia, 

and the U.S. District Court for the Southern District of Iowa. It is possible that additional similar lawsuits will be filed in the 

future. 

On September 30, 2014, the U.S. District Court for the District of Columbia entered an order dismissing all but one of the 

cases in that Court. The plaintiffs subsequently filed notices of appeal of the Court’s decision. In addition, on October 31, 2014, 

the plaintiffs in the one remaining case filed a notice of voluntary dismissal.

On February 3, 2015, the U.S. District Court for the Southern District of Iowa entered an order dismissing the case in that 

Court.

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 information on the lawsuits filed against Freddie Mac. Pershing Square 

Capital Management, L.P. (“Pershing”) is a plaintiff in one of the lawsuits filed against Freddie Mac. Pershing has filed reports 

with the SEC, most recently in March 2014, indicating that it beneficially owned more than 5% of our common stock. We do 

not know Pershing's current beneficial ownership of our common stock. For more information, see “SECURITY OWNERSHIP

OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS — Security 

Ownership.”

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48 Freddie Mac

It is not possible for us to predict the outcome of these lawsuits (including the outcome of any appeal), or the actions the 

U.S. government (including Treasury and FHFA) might take in response to any ruling or finding in any of these lawsuits or any 

future lawsuits. However, it is possible that we could be adversely affected by these events, including, for example, by changes 

to the Purchase Agreement, or any resulting actual or perceived changes in the level of U.S. government support for our 

business.

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 challenged FHFA’s November 

2008 decision to suspend Freddie Mac’s and Fannie Mae’s payments to an affordable housing trust fund managed by HUD. (In 

December 2014, FHFA terminated this suspension and directed Freddie Mac and Fannie Mae to begin making contributions to 

the fund, commencing with fiscal year 2015.) 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 alleged 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 asked 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 sought reasonable attorneys’ fees and 

costs. On December 6, 2013, FHFA filed a motion to dismiss the plaintiffs’ amended complaint, which plaintiffs opposed. On 

September 29, 2014, the Court issued an order granting FHFA’s motion to dismiss the amended complaint. To our knowledge, 

none of the plaintiffs filed a timely notice of appeal of the District Court’s decision. 

ITEM 4. MINE SAFETY DISCLOSURES 

Not applicable. 

PART II 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED 

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 

Market Information 

Our common stock, par value $0.00 per share, trades on the OTCQB Marketplace, operated by the OTC Markets Group 

Inc., under the ticker symbol “FMCC.” As of February 5, 2015, there were 650,043,899 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

2014 Quarter Ended

December 31 $ 2.50 $ 1.44

September 30 4.58 2.56

June 30 4.78 3.63

March 31 6.00 2.63

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

Holders

As of February 5, 2015, we had 1,818 common stockholders of record.

Dividends and Dividend Restrictions

We did not pay any cash dividends on our common stock during 2014 or 2013. Our payment of dividends is subject to the 

following restrictions:

Restrictions Relating to the Conservatorship

The Conservator has prohibited us from paying any dividends on our common stock or on any series of our preferred 

stock (other than the senior preferred stock). FHFA has instructed our Board of Directors that it should consult with and obtain 

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49 Freddie Mac

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 

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.

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, 2014. 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 2014 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 — Dividends Declared.” We did not declare or pay dividends on any 

other series of preferred stock outstanding in 2014.

Recent Sales of Unregistered Securities

The securities we issue are “exempted securities” under the Securities Act of 1933. As a result, we do not file registration 

statements with the SEC with respect to offerings of our securities.

Following our entry into conservatorship, we suspended the operation of, and ceased making grants under, equity 

compensation plans. Previously, we had provided equity compensation under these plans to employees and members of our 

Board of Directors. Under the Purchase Agreement, we cannot issue any new options, rights to purchase, participations, or 

other equity interests without Treasury’s prior approval. However, grants outstanding as of the date of the Purchase Agreement 

remain in effect in accordance with their terms. No stock options were exercised during the three months ended December 31, 

2014. See “NOTE 11: STOCKHOLDERS’ EQUITY” for more information.

Issuer Purchases of Equity Securities

We did not repurchase any of our common or preferred stock during 2014. 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.

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50 Freddie Mac

Transfer Agent and Registrar

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

Telephone: 781-575-2879

https://www-us.computershare.com/investor

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51 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

At or For The Year Ended December 31,

2014 2013 2012 2011 2010

(dollars in millions, except share-related amounts)

Statements of Comprehensive Income Data

Net interest income $ 14,263 $ 16,468 $ 17,611 $ 18,397 $ 16,856

(Provision) benefit for credit losses (58) 2,465 (1,890) (10,702) (17,218)

Non-interest income (loss) (113) 8,519 (4,083) (10,878) (11,588)

Non-interest expense (3,090) (2,089) (2,193) (2,483) (2,932)

Income tax (expense) benefit (3,312) 23,305 1,537 400 856

Net income (loss) 7,690 48,668 10,982 (5,266) (14,025)

Comprehensive income (loss) 9,426 51,600 16,039 (1,230) 282

Net loss attributable to common stockholders(1) (2,336) (3,531) (2,074) (11,764) (19,774)

Net loss per common share – basic and diluted (0.72) (1.09) (0.64) (3.63) (6.09)

Cash dividends per common share — — — — —

Weighted average common shares outstanding (in millions) –

basic and diluted 3,236 3,238 3,240 3,245 3,249

Balance Sheets Data

Mortgage loans held-for-investment, at amortized cost by

consolidated trusts (net of allowances for loan losses) $ 1,558,094 $ 1,529,905 $ 1,495,932 $ 1,564,131 $ 1,646,172

Total assets 1,945,539 1,966,061 1,989,856 2,147,216 2,261,780

Debt securities of consolidated trusts held by third parties 1,479,473 1,433,984 1,419,524 1,471,437 1,528,648

Other debt 450,069 506,767 547,518 660,546 713,940

All other liabilities 13,346 12,475 13,987 15,379 19,593

Total stockholders’ equity (deficit) 2,651 12,835 8,827 (146) (401)

Portfolio Balances - UPB

Mortgage-related investments portfolio $ 408,414 $ 461,024 $ 557,544 $ 653,313 $ 696,874

Total Freddie Mac mortgage-related securities(2) 1,637,086 1,592,511 1,562,040 1,624,684 1,712,918

Total mortgage portfolio 1,910,106 1,914,661 1,956,276 2,075,394 2,164,859

TDRs on accrual status 82,908 78,708 66,590 45,254 27,517

Non-accrual loans 33,130 43,457 63,005 76,575 88,988

Ratios(3)

Return on average assets(4) 0.4% 2.5% 0.5% (0.2)% (0.6)%

Allowance for loans losses as percentage of mortgage loans, 

held-for-investment(5) 1.3 1.4 1.8 2.2 2.1

Equity to assets ratio(6) 0.4 0.5 0.2 — (0.2)

(1) For a discussion of the change in the manner in which the senior preferred stock dividend is determined and how it 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) See ‘‘Table 37 — Freddie Mac Mortgage-Related Securities’’ for the composition of this line item.

(3) 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 stockholders’ equity, net 

of preferred stock (at redemption value) is less than zero for all periods presented.

(4) Ratio computed as net income (loss) divided by the simple average of the beginning and ending balances of total assets.

(5) Ratio computed as the allowance for loan losses divided by the total recorded investment of held-for-investment mortgage loans.

(6) Ratio computed as the simple average of the beginning and ending balances of total stockholders’ equity (deficit) divided by the simple average of the 

beginning and ending balances of total assets.

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52 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" and our consolidated financial statements and related 

notes for the year ended December 31, 2014.

MORTGAGE MARKET AND ECONOMIC CONDITIONS, AND OUTLOOK 

Mortgage Market and Economic Conditions

Overview 

The U.S. real gross domestic product rose by 2.5% during 2014, measured on a fourth quarter to fourth quarter basis, 

compared to an increase of 3.1% in 2013, according to the Bureau of Economic Analysis. The national unemployment rate was 

5.6% in December 2014, compared to 6.7% and 7.9% in December 2013 and December 2012, respectively, based on data from 

the U.S. Bureau of Labor Statistics. An average of approximately 246,000 and 194,000 monthly net new jobs (non-farm) were 

added to the economy during 2014 and 2013, respectively, which shows evidence of continued improvements in the economy 

and the labor market. The average interest rate on new 30-year fixed-rate conforming mortgages averaged 4.2% in 2014, 

compared to 4.0% in 2013, based on our weekly Primary Mortgage Market Survey. Average long-term mortgage interest rates 

were slightly higher in 2014 and led to a significant decline in the volume of single-family mortgage refinance activity in the 

market in 2014 compared to 2013.

Table 7 — Mortgage Market Indicators

Year Ended December 31,

2014 2013 2012

Home sale units (in thousands)(1) 5,365 5,519 5,028

National home price change(2) 5.2% 9.3% 6.0%

Single-family originations (in billions)(3) $ 1,240 $ 1,890 $ 2,120

ARM share(4) 18% 14% 11%

Refinance share(5) 60% 73% 84%

U.S. single-family mortgage debt outstanding (in billions)(6) $ 9,855 $ 9,887 $ 9,983

U.S. multifamily mortgage debt outstanding (in billions)(6) $ 969 $ 932 $ 895

(1) Consists of sales of new and existing homes in the U.S. Source: National Association of Realtors news release dated January 23, 2015 (sales of existing 

homes) and U.S. Census Bureau news release dated January 27, 2015 (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, 2014. 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 30, 2015.

(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 11, 2014. The outstanding amounts for 2014 presented above reflect balances 

as of September 30, 2014.

Single-Family Housing Market

Home prices increased on a national basis in 2014 and 2013 (based on our index), though some localities continued to be 

affected by weakness in their housing market and experienced declines in home values during these periods. Home price 

appreciation, on a national basis, moderated in 2014, with our nationwide index registering approximately a 5.2% increase from 

December 2013 to December 2014, compared to a 9.3% increase from December 2012 to December 2013. These estimates 

were based on our own non-seasonally-adjusted price index of one-family homes funded by mortgage loans owned or 

guaranteed by us or Fannie Mae. Other indices of home prices may have different results, as they are determined using home 

prices relating to different pools of mortgage loans and calculated under different conventions than our own.

Based on data from the National Association of Realtors, sales of existing homes in 2014 were 4.93 million, decreasing 

3% from 5.09 million in 2013. Based on data from the U.S. Census Bureau and HUD, sales of new homes in 2014 were 

approximately 435,000, increasing 1.4% from approximately 429,000 in 2013. 

The serious delinquency rate of our single-family loans declined during both 2014 and 2013 and was 1.88% as of 

December 31, 2014. The Mortgage Bankers Association reported in its National Delinquency Survey that serious delinquency 

rates on all single-family loans in the survey declined to 4.65% as of September 30, 2014 (the latest information available), 

from 5.41% at December 31, 2013.

Based on the latest available National Delinquency Survey data, we estimate that we owned or guaranteed approximately 

23% of the single-family mortgages outstanding in the U.S. at September 30, 2014, based on number of loans, and we estimate 

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53 Freddie Mac

that we held or guaranteed approximately 10% of the seriously delinquent single-family mortgages in the market as of that 

date. 

Multifamily Housing Market

The multifamily market continued to experience solid fundamentals during 2014. Recent data reported by Reis, Inc. 

indicated that the national apartment vacancy rate was 4.2% in 2014 and 4.1% in 2013 and remains low compared to the 

cyclical peak of 8% reached at the end of 2009. In addition, Reis, Inc. reported that effective rents (i.e., the average rent paid by 

the tenant over the term of the lease adjusted for concessions by the landlord and costs borne by the tenant) grew by 3.6% 

during 2014. 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. 

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 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.

National home prices have increased in recent years; however, home prices at December 31, 2014 remained 

approximately 11% below their June 2006 peak levels (based on our market index). Declines in the market’s inventory of 

vacant housing have supported stabilization and increases in home prices in a number of metropolitan areas. We believe that 

home price growth rates will continue to moderate gradually during the near term and will return towards growth rates that are 

consistent with long-term historical averages (approximately 2 to 5 percent per year).

Single-Family

We continue to expect that key macroeconomic drivers of the economy, such as income growth, employment, and 

inflation, will affect the performance of the housing and mortgage markets during the near term. We expect that economic 

growth will continue and mortgage interest rates will remain relatively low compared to historical levels, although interest rates 

are expected to begin trending slowly upward. As a result, we believe that housing affordability for potential home buyers will 

remain relatively high in most metropolitan housing markets in the near term. We expect that the volume of home sales in 2015 

will likely be slightly higher than in 2014. We believe that the relatively high unemployment rate in certain areas and relatively 

modest family income growth are important factors that will continue to have a negative effect on single-family housing 

demand.

We believe that total mortgage origination volume in the market in 2014 was at its lowest level since 2000. As a result, 

our loan purchase activity in 2014 declined to $255.3 billion in UPB compared to $422.7 billion in UPB during 2013. We 

expect total mortgage origination volume in the market in 2015 will be at a level similar to 2014. Consequently, we expect our 

purchase volume in 2015 will be at a level similar to 2014. During 2014, refinancings, including HARP, comprised 

approximately 48% of our single-family purchase and issuance volume compared with 73% in 2013. We expect HARP activity 

to continue to remain low during 2015 since the pool of borrowers eligible to participate in the program has declined.

Our guarantee fee rate charged on new acquisitions reflects two across-the-board increases in guarantee fees implemented 

in 2012. In June 2014, FHFA released a request for input on the guarantee fees that we and Fannie Mae charge lenders. We 

cannot predict what changes, if any, FHFA will require us to make to our guarantee fees as a result of the input received from 

this request.

Our charge-offs declined significantly during 2014 compared to 2013. We expect our charge-offs and credit losses to 

continue to be lower than the levels we experienced prior to 2014, but to remain elevated in the near term in part due to the 

substantial number of delinquent and underwater mortgage loans in our single-family credit guarantee portfolio that will likely 

be resolved. For the near term, we also expect:

• REO disposition and short sale severity ratios to remain high; and

• The number of seriously delinquent loans and the volume of our loan workouts to continue to decline.

Multifamily

We expect that the new supply of multifamily housing, at the national level, will be absorbed by market demand in the 

near term, driven by continued improvements in the economy and favorable demographics. However, new supply may outpace 

demand in certain local markets, which would be evidenced by excess supply and rising vacancy rates. As multifamily market 

fundamentals improved in recent years, other market participants, particularly banking institutions, increased their activities in 

the multifamily market. We expect that our new multifamily business activity will increase in 2015 compared to 2014, but will 

be below the cap of $30.0 billion in UPB as specified by the 2015 Conservatorship Scorecard.

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54 Freddie Mac

As a result of the solid market fundamentals and continuing strong portfolio performance, we expect our credit losses and 

delinquency rates to remain low in the near term. We expect the performance of the multifamily market to continue to be solid 

in the near term and believe the long-term outlook for the multifamily market continues to be favorable.

CONSOLIDATED RESULTS OF OPERATIONS

You should read this discussion of our consolidated results of operations 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, Variance

2014 2013 2012 2014 vs. 2013 2013 vs. 2012

(in millions)

Net interest income $ 14,263 $ 16,468 $ 17,611 $ (2,205) $ (1,143)

(Provision) benefit for credit losses (58) 2,465 (1,890) (2,523) 4,355

Net interest income after (provision) benefit for credit

losses 14,205 18,933 15,721 (4,728) 3,212

Non-interest income (loss):

Gains (losses) on extinguishment of debt securities

of consolidated trusts (451) 314 (58) (765) 372

Gains (losses) on retirement of other debt 29 132 (77) (103) 209

Derivative gains (losses) (8,291) 2,632 (2,448) (10,923) 5,080

Net impairment of available-for-sale securities

recognized in earnings (938) (1,510) (2,168) 572 658

Other gains (losses) on investment securities

recognized in earnings 1,494 301 (1,522) 1,193 1,823

Other income (loss) 8,044 6,650 2,190 1,394 4,460

Total non-interest income (loss) (113) 8,519 (4,083) (8,632) 12,602

Non-interest expense:

Administrative expense (1,881) (1,805) (1,561) (76) (244)

REO operations (expense) income (196) 140 (59) (336) 199

Temporary Payroll Tax Cut Continuation Act of

2011 expense (775) (533) (108) (242) (425)

Other (expense) income (238) 109 (465) (347) 574

Total non-interest expense (3,090) (2,089) (2,193) (1,001) 104

Income before income tax (expense) benefit 11,002 25,363 9,445 (14,361) 15,918

Income tax (expense) benefit (3,312) 23,305 1,537 (26,617) 21,768

Net income 7,690 48,668 10,982 (40,978) 37,686

Other comprehensive income (loss), net of taxes and

reclassification adjustments 1,736 2,932 5,057 (1,196) (2,125)

Comprehensive income $ 9,426 $ 51,600 $ 16,039 $ (42,174) $ 35,561

Net Interest Income

Net interest income represents the difference between interest income (which includes income from guarantee fees) and 

interest expense and is a primary source of our revenue. The table below summarizes our net interest income and net interest 

yield and shows the extent to which changes in annual results are attributable to changes in interest rates or changes in volumes 

of our interest-earning assets and interest-bearing liabilities, based on their amortized cost. We present average balance sheet 

information 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. When daily average balance 

information was not available, a simple monthly average balance was calculated. 

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55 Freddie Mac

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

Years Ended December 31,

2014 2013 2012

Average

Balance

Interest

Income

(Expense)

Average

Rate

Average

Balance

Interest

Income

(Expense)

Average

Rate

Average

Balance

Interest

Income

(Expense)

Average

Rate

(dollars in millions)

Interest-earning assets:

Cash and cash equivalents $ 13,889 $ 4 0.03% $ 31,087 $ 15 0.05% $ 35,476 $ 20 0.06%

Federal funds sold and securities

purchased under agreements to resell 42,905 28 0.06 44,897 36 0.08 38,944 66 0.17

Mortgage-related securities:

Mortgage-related securities 256,548 10,027 3.91 313,707 12,787 4.08 357,197 15,853 4.44

Extinguishment of PCs held by Freddie

Mac (111,545) (4,190) (3.76) (127,999) (5,045) (3.94) (119,181) (5,328) (4.47)

Total mortgage-related securities, net 145,003 5,837 4.03 185,708 7,742 4.17 238,016 10,525 4.42

Non-mortgage-related securities 9,983 6 0.06 21,385 26 0.12 23,763 58 0.25

Mortgage loans held by consolidated 

trusts(1)(2) 1,540,570 57,036 3.70 1,511,128 57,189 3.78 1,529,213 65,089 4.26

Unsecuritized mortgage loans(1)(3) 170,017 6,569 3.86 203,760 7,694 3.78 237,942 8,960 3.77

Total interest-earning assets $ 1,922,367 $ 69,480 3.61 $ 1,997,965 $ 72,702 3.63 $ 2,103,354 $ 84,718 4.03

Interest-bearing liabilities:

Debt securities of consolidated trusts

including PCs held by Freddie Mac $ 1,557,895 $ (52,193) (3.35) $ 1,532,032 $ (52,395) (3.42) $ 1,552,207 $ (61,437) (3.96)

Extinguishment of PCs held by Freddie

Mac (111,545) 4,190 3.76 (127,999) 5,045 3.94 (119,181) 5,328 4.47

Total debt securities of consolidated

trusts held by third parties 1,446,350 (48,003) (3.32) 1,404,033 (47,350) (3.37) 1,433,026 (56,109) (3.92)

Other debt:

Short-term debt 118,211 (145) (0.12) 132,674 (178) (0.13) 129,504 (176) (0.14)

Long-term debt 331,887 (6,768) (2.04) 393,094 (8,251) (2.10) 463,308 (10,217) (2.21)

Total other debt 450,098 (6,913) (1.54) 525,768 (8,429) (1.60) 592,812 (10,393) (1.75)

Total interest-bearing liabilities 1,896,448 (54,916) (2.89) 1,929,801 (55,779) (2.89) 2,025,838 (66,502) (3.28)

Expense related to derivatives(4) — (301) (0.02) — (455) (0.02) — (605) (0.03)

Impact of net non-interest-bearing funding 25,919 — 0.04 68,164 — 0.10 77,516 — 0.12

Total funding of interest-earning assets $ 1,922,367 $ (55,217) (2.87) $ 1,997,965 $ (56,234) (2.81) $ 2,103,354 $ (67,107) (3.19)

Net interest income/yield $ 14,263 0.74 $ 16,468 0.82 $ 17,611 0.84

2014 vs. 2013 Variance Due to 2013 vs. 2012 Variance Due to

Rate(5) Volume(5) Total

Change Rate(5) Volume(5) TotalChange

(in millions)

Interest-earning assets:

Cash and cash equivalents $ (5) $ (6) $ (11) $ (8) $ 3 $ (5)

Federal funds sold and securities

purchased under agreements to resell (7) (1) (8) (38) 8 (30)

Mortgage-related securities:

Mortgage-related securities (508) (2,252) (2,760) (1,229) (1,837) (3,066)

Extinguishment of PCs held by Freddie

Mac 229 626 855 659 (376) 283

Total mortgage-related securities, net (279) (1,626) (1,905) (570) (2,213) (2,783)

Non-mortgage-related securities (10) (10) (20) (27) (5) (32)

Mortgage loans held by consolidated 

trusts(2)(3) (1,256) 1,103 (153) (7,139) (761) (7,900)

Unsecuritized mortgage loans(1)(3) 175 (1,300) (1,125) 24 (1,290) (1,266)

Total interest-earning assets $ (1,382) $ (1,840) $ (3,222) $ (7,758) $ (4,258) $(12,016)

Interest-bearing liabilities:

Debt securities of consolidated trusts

including PCs held by Freddie Mac $ 1,079 $ (877) $ 202 $ 8,253 $ 789 $ 9,042

Extinguishment of PCs held by Freddie

Mac (229) (626) (855) (659) 376 (283)

Total debt securities of consolidated

trusts held by third parties 850 (1,503) (653) 7,594 1,165 8,759

Other debt:

Short-term debt 15 18 33 2 (4) (2)

Long-term debt 229 1,254 1,483 474 1,492 1,966

Total other debt 244 1,272 1,516 476 1,488 1,964

Total interest-bearing liabilities 1,094 (231) 863 8,070 2,653 10,723

Expense related to derivatives(4) 154 — 154 150 — 150

Total funding of interest-earning assets $ 1,248 $ (231) $ 1,017 $ 8,220 $ 2,653 $ 10,873

Net interest income $ (134) $ (2,071) $ (2,205) $ 462 $ (1,605) $ (1,143)

(1) Mortgage loans on non-accrual status, where interest income is generally recognized when collected, are included in average balances.

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56 Freddie Mac

(2) Loan fees, primarily consisting of delivery fees, included in interest income for mortgage loans held by consolidated trusts were $1.4 billion, $1.2 billion, and $929 million 

for 2014, 2013, and 2012, respectively.

(3) Loan fees, primarily consisting of delivery fees and multifamily prepayment fees, included in unsecuritized mortgage loans interest income were $373 million, $294 million, 

and $446 million for 2014, 2013, and 2012, respectively.

(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 

interest expense associated with the hedged forecasted issuance of debt affects earnings.

(5) 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,

2014 2013 2012

(in millions)

Contractual amounts of net interest income(1) $ 12,229 $ 14,114 $ 16,162

Amortization income (expense), net:(2)

Accretion of impairments on available-for-sale securities 798 521 214

Asset-related amortization income (expense), net:

Mortgage loans held by consolidated trusts (4,110) (4,935) (4,536)

Unsecuritized mortgage loans 235 266 156

Mortgage-related securities (326) (168) (59)

Other assets (73) (282) (281)

Asset-related amortization expense, net (4,274) (5,119) (4,720)

Debt-related amortization income (expense), net:

Debt securities of consolidated trusts 6,022 7,726 7,112

Other debt securities (211) (319) (552)

Debt-related amortization income, net 5,811 7,407 6,560

Total amortization income, net 2,335 2,809 2,054

Expense related to derivatives(3) (301) (455) (605)

Net interest income $ 14,263 $ 16,468 $ 17,611

(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) 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 $2.2 billion to $14.3 billion for 2014 compared to $16.5 billion for 2013. Net interest 

yield decreased by eight basis points to 74 basis points for 2014 compared to 82 basis points for 2013. The decrease in net 

interest income and net interest yield was primarily due to the reduction in the balance of higher-yielding mortgage-related 

assets in our mortgage-related investments portfolio due to continued liquidations, partially offset by lower funding costs. In 

addition, the costs of funding the senior preferred stock dividend payments to Treasury that resulted from non-cash increases in 

net worth (e.g., release of the valuation allowance against the net deferred tax assets) had a negative impact on net interest 

yield. 

The percentage of our net interest income derived from guarantee fees has increased in recent periods. We estimate that 

approximately one-third of our net interest income for 2014 was derived from guarantee fees. As the size of our mortgagerelated investments portfolio continues to decline, we expect that guarantee fees will account for an increasing portion of our 

net interest income.

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. The decrease in net interest yield was primarily due to 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.

Beginning in April 2012, net interest income includes the legislated 10 basis point increase in guarantee fees, which is 

remitted to Treasury as part of the Temporary Payroll Tax Cut Continuation Act of 2011. Net interest income includes $759 

million, $519 million and $105 million for 2014, 2013 and 2012, respectively, related to this increase in guarantee fees.

Our net interest income will continue to be negatively affected by the objectives set for us under our charter and the 

conservatorship, the terms of the Purchase Agreement and restrictions imposed by FHFA. For example, our mortgage-related 

investments portfolio is subject to a cap that decreases by 15% each year until the cap reaches $250 billion. The decline in the 

balance of this portfolio will cause a reduction in our interest income from this portfolio over time. For more information on the 

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57 Freddie Mac

various restrictions and limitations on our investment activity and our mortgage-related investments portfolio, see “BUSINESS 

— Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related Investments Portfolio.” 

(Provision) Benefit 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 reduced by a benefit for credit losses and 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. Assuming that all other factors remain the same, home price growth may reduce the likelihood that 

loans will default and may also reduce the amount of credit losses on the loans that do default. 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. 

Our (provision) benefit for credit losses was $(0.1) billion in 2014, $2.5 billion in 2013, and $(1.9) billion in 2012. These 

amounts are predominantly related to single-family mortgage loans. The provision for credit losses in 2014 reflects an increase 

in our loan loss reserve for newly impaired single-family loans that was substantially offset by benefits recognized for the 

positive payment performance of TDR loans. The (provision) benefit for credit losses in 2013 and 2012 reflect: (a) declines in 

the volume of newly delinquent single-family loans; (b) lower estimates of incurred loss due to the positive effect of an 

increase in national home prices; and (c) benefits associated with the positive payment performance of TDR loans. The benefit 

for credit losses in 2013 also reflects $1.7 billion related to settlement agreements with certain sellers to release specified loans 

from certain repurchase obligations in exchange for one-time cash payments primarily associated with our Legacy singlefamily books. We do not expect any future settlements of representation and warranty claims related to our pre-conservatorship 

loan purchases to have a significant effect on our financial results. 

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; and (g) third-party mortgage insurance coverage and recoveries. 

The table below summarizes our loan loss reserves activity during the last five years.

Table 11 — Loan Loss Reserves Activity(1)

Year Ended December 31,

2014 2013 2012 2011 2010

(dollars in millions)

Total loan loss reserves:

Beginning balance $ 24,729 $ 30,890 $ 39,461 $ 39,926 $ 33,857

Adjustments to beginning balance(2) — — — — (186)

Provision (benefit) for credit losses 58 (2,465) 1,890 10,702 17,218

Charge-offs, gross (4,895) (9,002) (13,556) (14,810) (16,322)

Recoveries 1,259 4,314 2,264 2,765 3,363

Transfers, net(3) 736 992 831 878 1,996

Ending balance $ 21,887 $ 24,729 $ 30,890 $ 39,461 $ 39,926

Components of loan loss reserves:

Single-family $ 21,793 $ 24,578 $ 30,508 $ 38,916 $ 39,098

Multifamily $ 94 $ 151 $ 382 $ 545 $ 828

Total loan loss reserve, as a percentage of the total mortgage

portfolio, excluding non-Freddie Mac securities 1.20% 1.37% 1.71% 2.08% 2.03%

(1) Consists of reserves for loans held-for-investment and loans 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) Consist primarily of net amounts attributable to recapitalization of past due interest on modified mortgage loans. Transfers in 2010 also include 

approximately $0.8 billion related to settlement agreements with certain sellers to compensate us for previously incurred and recognized losses.

Our single-family loan loss reserves declined from $24.6 billion at December 31, 2013 to $21.8 billion at December 31, 

2014, reflecting continued high levels of loan charge-offs and continued improvement in loan performance (e.g., fewer singlefamily loans becoming seriously delinquent). For information about collectively evaluated and individually evaluated loans on 

our consolidated balance sheets, see “Table 4.4 — Net Investment in Mortgage Loans.”

Our loan loss reserves reflect a significant amount of impairment associated with loans classified as TDRs. A TDR is a 

loan where we have granted a concession to a borrower who is experiencing financial difficulties. A concession generally 

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58 Freddie Mac

occurs when the modification of a loan results in a reduction in the loan's interest rate. Due to the large number of 

modifications completed in recent years, the portion of our loan loss reserves attributable to TDRs remains high. The reserves 

associated with TDRs largely reflect interest rate concessions for the borrower. As of December 31, 2014, approximately 51% 

of the loan loss reserves for single-family loans relates to interest rate concessions associated with TDRs. Most of our modified 

loans (including TDRs) were current and performing at December 31, 2014. Loans that have been classified as TDRs remain 

categorized as such throughout the remaining life of the loan regardless of whether the borrower makes payments which return 

the loan to a current payment status. We maintain a loan loss reserve on TDRs until the loans are repaid or complete short sales 

or foreclosures. We expect the number of TDRs to remain at elevated levels for the foreseeable future. For information on our 

accounting for TDRs, see "NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Troubled Debt 

Restructurings."

Although the housing market continued to improve in many geographic areas in 2014, we expect that our loan loss 

reserves may remain elevated for an extended period because: (a) a significant portion of our reserves is associated with 

individually impaired loans (e.g., modified loans) that are less than three months past due; and (b) the resolution of problem 

loans takes considerable time, often several years in the case of foreclosure. 

Loans that have been individually evaluated for impairment generally have a higher associated loan loss reserve than 

loans that have been collectively evaluated for impairment. As of December 31, 2014 and 2013, the recorded investment of 

single-family impaired loans with specific reserves recorded was 95.1 billion and 93.7 billion, respectively, and the loan loss 

reserves associated with these loans were $17.8 billion and $18.6 billion, respectively. 

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 12 — Single-Family Impaired Loans with Specific Reserve Recorded

2014 2013

Number of Loans Amount Number of Loans Amount

(dollars in millions)

TDRs, at January 1, 514,497 $ 92,505 449,145 $ 83,484

New additions 84,334 12,581 129,428 20,234

Repayments and reclassifications to held-for-sale (33,104) (6,218) (29,877) (5,074)

Foreclosure transfers and foreclosure alternatives (26,137) (4,467) (34,199) (6,139)

TDRs, at December 31, 539,590 94,401 514,497 92,505

Loans impaired upon purchase 9,949 741 13,790 1,195

Total impaired loans with specific reserve 549,539 95,142 528,287 93,700

Total allowance for loan losses of individually impaired singlefamily loans (17,837) (18,554)

Net investment, at December 31, $ 77,305 $ 75,146

We place loans, including TDRs, on non-accrual status when we believe the collectability of interest and principal on a 

loan is not reasonably assured, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, interest income is recognized only upon receipt of cash payments and any interest income accrued but 

uncollected is reversed. See “RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk 

Framework and Profile” for further information on our single-family credit guarantee portfolio, including credit performance, 

and seriously delinquent loans. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” and “NOTE 5: 

IMPAIRED LOANS” for further information about our TDRs and non-accrual and other impaired loans.

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59 Freddie Mac

The table below provides information about the UPB of TDRs and non-accrual mortgage loans on our consolidated 

balance sheets.

Table 13 — TDRs and Non-Accrual Mortgage Loans

December 31,

2014 2013 2012 2011 2010

(in millions)

TDRs on accrual status:

Single-family $ 82,373 $ 78,033 $ 65,784 $ 44,440 $ 26,612

Multifamily 535 675 806 814 905

Subtotal —TDRs on accrual status 82,908 78,708 66,590 45,254 27,517

Non-accrual loans:

Single-family(1) 32,745 42,829 61,517 74,686 87,238

Multifamily(2) 385 628 1,488 1,889 1,750

Subtotal — non-accrual loans 33,130 43,457 63,005 76,575 88,988

Total TDRs and non-accrual mortgage loans $ 116,038 $ 122,165 $ 129,595 $ 121,829 $ 116,505

Loan loss reserves associated with:

 TDRs on accrual status $ 13,749 $ 14,254 $ 12,478 $ 11,640 $ 7,195

 Non-accrual loans 6,966 8,870 14,759 20,971 23,493

Total loan loss reserves associated with TDRs and nonaccrual loans $ 20,715 $ 23,124 $ 27,237 $ 32,611 $ 30,688

Year Ended December 31,

2014 2013 2012 2011 2010

(in millions)

Foregone interest income on TDR and non-accrual 

mortgage loans(3):

Single-family $ 3,235 $ 3,552 $ 4,126 $ 4,369 $ 4,159

Multifamily 4 8 11 15 12

Total foregone interest income on TDR and non-accrual

mortgage loans $ 3,239 $ 3,560 $ 4,137 $ 4,384 $ 4,171

(1) Includes $18.0 billion, $19.6 billion, $22.0 billion, $11.6 billion, and $3.1 billion in UPB of seriously delinquent loans classified as TDRs at 

December 31, 2014, 2013, 2012, 2011, and 2010, respectively. 

(2) Includes $0.4 billion, $0.6 billion, $1.4 billion, $1.8 billion, and $1.6 billion in UPB of loans that were current as of December 31, 2014, 2013, 2012, 

2011, and 2010, respectively.

(3) Represents the amount of interest income that we would have recognized for loans outstanding at the end of each period, had the loans performed 

according to their original contractual terms. 

Credit Loss Performance

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 also a significant lag in time from the start of loan workout activities by our servicers to the final resolution of those loans by 

the completion of foreclosures (and subsequent REO sales) or foreclosure alternatives (e.g., short sales). 

Our single-family charge-offs, gross, for 2014 and 2013 were associated with approximately $11.0 billion and $21.2 

billion in UPB of loans, respectively. Our single-family charge-offs, gross, were significantly lower in 2014 compared to 2013

primarily due to lower volumes of foreclosures and foreclosure alternatives. Single-family charge-offs, net, in 2014 and 2013

include recoveries of $0.3 billion and $2.1 billion, respectively, related to settlement agreements with certain sellers to release 

specified loans from certain repurchase obligations in exchange for one-time cash payments. We expect our charge-offs and 

credit losses in 2015 to be lower than in 2014, but to remain elevated due to the substantial number of delinquent and 

underwater single-family mortgage loans in our single-family credit guarantee portfolio that will likely be resolved. See 

"BUSINESS — Regulation and Supervision — Legislative and Regulatory Developments — FHFA Advisory Bulletin" for 

information about our adoption of an FHFA advisory bulletin and its effect on future charge-offs and 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 loans underlying our non-consolidated mortgage-related financial guarantees.

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60 Freddie Mac

Table 14 — Credit Loss Performance

Year Ended December 31,

2014 2013 2012

(dollars in millions)

REO

REO balances, net:

Single-family $ 2,558 $ 4,541 $ 4,314

Multifamily — 10 64

Total $ 2,558 $ 4,551 $ 4,378

REO operations (income) expense:

Single-family $ 205 $ (124) $ 62

Multifamily (9) (16) (3)

Total $ 196 $ (140) $ 59

Charge-offs

Single-family:

Charge-offs, gross(1) (including $4.9 billion, $9.0 billion, and $13.5 billion 

relating to loan loss reserves, respectively) $ 4,972 $ 9,225 $ 13,825

Recoveries(2) (1,258) (4,313) (2,262)

Single-family, net $ 3,714 $ 4,912 $ 11,563

Multifamily:

Charge-offs, gross(1) (including $3 million, $7 million, and $36 million relating 

to loan loss reserves, respectively) $ 3 $ 29 $ 39

Recoveries(2) (1) (1) (2)

Multifamily, net $ 2 $ 28 $ 37

Total Charge-offs:

Charge-offs, gross(1) (including $4.9 billion, $9.0 billion, and $13.6 billion 

relating to loan loss reserves, respectively) $ 4,975 $ 9,254 $ 13,864

Recoveries(2) (1,259) (4,314) (2,264)

Total Charge-offs, net $ 3,716 $ 4,940 $ 11,600

Credit Losses:

Single-family $ 3,919 $ 4,788 $ 11,625

Multifamily (7) 12 34

Total $ 3,912 $ 4,800 $ 11,659

Total (in bps) 21.6 26.7 63.8

Ratio of total loan loss reserves (excluding reserves for TDR concessions) to net 

charge-offs for single-family loans(3) 2.5 1.9 2.1

Ratio of total loan loss reserves to net charge-offs for single-family loans(3) 5.2 3.5 2.7

(1) Charge-offs include $80 million, $252 million, and $308 million for the years ended December 31, 2014, 2013 and 2012, respectively, related to: (a) 

losses on loans purchased that were recorded within other expenses on our consolidated statements of comprehensive income, which relate to certain 

loans purchased under financial guarantees; and (b) cumulative fair value losses recognized through the date of foreclosure for Multifamily loans we 

elected to carry at fair value at the time of our purchase. 

(2) Includes $0.5 billion, $2.8 billion, and $0.7 billion in 2014, 2013, and 2012, respectively, related to repurchase requests made to our seller/servicers 

(including $0.3 billion, $2.1 billion, and $0 in 2014, 2013, and 2012, 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 amounts associated with loans acquired with deteriorated credit quality (at the time of acquisition) and recoveries related to settlements.

Our 2005-2008 Legacy single-family book comprised approximately 13% of our single-family credit guarantee portfolio, 

based on UPB at December 31, 2014; however, these loans accounted for approximately 81% of our credit losses during 2014. 

Our single-family credit losses during 2014 were highest in Florida and Illinois. Collectively, these two states comprised 

approximately 38% of our total credit losses in 2014. 

At December 31, 2014, 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 68% of our credit losses recognized 

in 2014. Foreclosures generally take longer to complete in states where a judicial foreclosure is required, compared to other 

states. 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 information on the severity of losses we experienced on loans in our single-family credit 

guarantee portfolio.

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61 Freddie Mac

Table 15 — Severity Ratios for Single-Family Loans

Year Ended December 31,

2014 2013 2012

REO disposition severity ratio:(1)

Florida 37.4% 41.9% 48.9%

Illinois 40.2 46.2 51.3

New Jersey 41.8 45.6 48.6

Maryland 36.9 38.7 47.6

California 25.2 30.4 44.0

Total U.S. 34.7 36.5 41.8

Short sale severity ratio 31.6 36.0 39.9

(1) States presented represent the five states where our credit losses were greatest during 2014. 

As shown in the table above, our severity ratios associated with REO dispositions and short sales improved in 2014 and 

2013, compared to the respective prior year, but remained high in several states. We believe this improvement was the result of: 

(a) improvements in home prices; (b) changes to our process for evaluating the market value of the property underlying our 

impaired loans; and (c) repairing a significant portion of our REO properties prior to listing them for sale.

The table below provides detail by region for charge-offs and recoveries.

Table 16 — Single-Family Charge-offs and Recoveries by Region(1)

Year Ended December 31,

2014 2013 2012

 

Charge-offs,

gross Recoveries

Charge-offs,

net

Charge-offs,

gross Recoveries

Charge-offs,

net

Charge-offs,

gross Recoveries

Charge-offs,

net

(in millions)

Northeast $ 1,138 $ (238) $ 900 $ 1,357 $ (656) $ 701 $ 1,180 $ (249) $ 931

Southeast 1,703 (393) 1,310 3,015 (1,331) 1,684 3,530 (694) 2,836

North Central 1,018 (259) 759 1,870 (810) 1,060 2,726 (526) 2,200

Southwest 238 (85) 153 394 (245) 149 647 (160) 487

West 875 (283) 592 2,589 (1,271) 1,318 5,742 (633) 5,109

Total $ 4,972 $ (1,258) $ 3,714 $ 9,225 $ (4,313) $ 4,912 $ 13,825 $ (2,262) $ 11,563

(1) 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).

As shown in the table above, our charge-offs declined in all regions of the U.S during 2014 compared to 2013. Chargeoffs remained elevated in most regions during 2014 as we continued to experience a high volume of foreclosure activity, 

particularly in Florida, Illinois and Ohio. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for 

additional information about our credit losses.

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 (i.e., the PC) differs from its carrying value.

During 2014, 2013, and 2012, we extinguished debt securities of consolidated trusts with a UPB of $49.2 billion, $44.4 

billion, and $13.5 billion, respectively (representing our purchase of single-family PCs with a corresponding UPB amount). 

Gains (losses) on extinguishment of these debt securities of consolidated trusts were $(451) million, $314 million, and $(58) 

million during 2014, 2013, and 2012, respectively.

We recognized losses in 2014 and 2012 because interest rates decreased between the time of issuance and repurchase of 

these debt securities. Losses increased in 2014 because we repurchased, at premiums, seasoned debt securities of consolidated 

trusts with carrying values at par. We recognized gains in 2013 because interest rates increased between the time of issuance 

and repurchase of these debt securities.

See “Table 29 — Mortgage-Related Securities Purchase Activity” for additional information regarding purchases of 

mortgage-related securities, including those issued by consolidated PC trusts.

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62 Freddie Mac

Gains (Losses) on Retirement of Other Debt

We refer to the debt securities we issue to fund our business operations as 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 debt 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 $29 million, $132 million, and $(77) million during 2014, 2013, and 

2012, respectively.

We recognized gains on the retirement of other debt in 2014 and 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 debt issuance costs related to calls of other debt securities. 

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. 

Derivatives that are not in hedge accounting relationships are accounted for differently than derivatives that are in hedge 

accounting relationships. For derivatives that are not in hedge accounting relationships, all fair value changes, as well as the 

accrual of periodic settlements, are recorded in current period income as derivative gains (losses). We did not have any 

derivatives in hedge accounting relationships at December 31, 2014 and 2013. However, AOCI includes amounts related to 

closed cash flow hedges. These amounts 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 increase the volatility of 

reported comprehensive income because fair value changes on derivatives are included in comprehensive income, while fair 

value changes associated with several of the types of assets and liabilities being economically hedged are not. As a result, there 

can be timing mismatches affecting current period earnings, which may not be reflective of the underlying economics of our 

business. The mix of our derivative portfolio, in conjunction with the mix of our assets and liabilities, affects the volatility of 

comprehensive income.

Table 17 — Derivative Gains (Losses)

Year Ended December 31,

2014 2013 2012

(in millions)

Interest-rate swaps $ (7,294) $ 8,598 $ (204)

Option-based derivatives 1,437 (2,422) 1,250

Other derivatives(1) 191 (77) 308

Accrual of periodic settlements (2,625) (3,467) (3,802)

Total $ (8,291) $ 2,632 $ (2,448)

(1) Primarily includes futures, foreign-currency swaps, commitments, credit derivatives and swap guarantee derivatives. Our last foreign-currency swaps 

matured in January 2014.

Gains (losses) on our derivative portfolio includes both derivative fair value changes and the accrual of periodic 

settlements. Gains (losses) on our derivative portfolio can change based on changes in: (a) interest rates, yield curves and 

implied volatility; and (b) the mix and balance of products in our derivative portfolio. The mix and balance of our derivatives 

change from period to period as we respond to changing interest rate environments and changes in our asset and liability 

balances and characteristics. A receive-fixed swap results in our receipt of a fixed interest-rate payment from our counterparty 

in exchange for a variable-rate payment. Conversely, a pay-fixed swap requires us to make a fixed interest-rate payment to our 

counterparty in exchange for a variable-rate payment. Receive-fixed swaps increase in value and pay-fixed swaps decrease in 

value when interest rates decrease (with the opposite being true when interest rates increase). The accrual of periodic 

settlements represents the net amount we accrue for interest-rate swap payments we will make or receive during a period. We 

record derivative losses when we are a net payer and record derivatives gains when we are a net receiver of swap payments.

Our option-based derivatives primarily include purchased call and put swaptions, and also include caps and floors, and 

options on exchange-traded futures. Purchased call and put swaptions, where we make premium payments when we purchase 

them, are options for us to enter into receive- and pay-fixed swaps, respectively. Conversely, written call and put swaptions, 

where we receive premium payments when our counterparty purchases them, are options for our counterparty to enter into 

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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 2014, we recognized net losses on derivatives of $8.3 billion primarily as a result of net fair value losses of $7.3 

billion on our interest-rate swap portfolio as a result of a flattening of the yield curve as shorter-term interest rates increased 

and longer-term interest rates declined. Net losses on derivatives also resulted from 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. These losses 

were partially offset by fair value gains on our option-based derivatives resulting from gains on our purchased call swaptions 

due to the decline in longer-term interest rates.

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, as 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.

Investment Securities-Related Activities

Impairments of Available-For-Sale Securities

We recorded net impairments of available-for-sale securities recognized in earnings of $938 million, $1.5 billion, and $2.2 

billion during 2014, 2013, and 2012, respectively, related to non-agency mortgage-related securities. The impairments during 

2014 were primarily driven by an increase in the population of available-for-sale securities in an unrealized loss position that 

we intend to sell. This generally reflects our efforts to reduce the balance of less liquid assets in the mortgage-related 

investments portfolio. During 2013, we recognized a benefit from improvements in forecasted home prices over the expected 

life of our available-for-sale securities, offset primarily by: (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 intended to sell. 

During 2012, we recognized a benefit from improvements in forecasted home prices, which was offset by the impact of our 

implementation, in the fourth quarter of 2012, of a third-party model, which enhanced our approach to estimating other-thantemporary impairments of our single-family non-agency mortgage-related securities. The decision to transition to a 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,” and “NOTE 7: INVESTMENTS 

IN SECURITIES” for additional information.

Other Gains (Losses) on Investment Securities Recognized in Earnings

Other gains (losses) on investment securities recognized in earnings consists of gains (losses) on trading securities and 

gains (losses) on sales of available-for-sale securities. Trading securities mainly consist of Treasury securities and agency 

mortgage-related securities, including inverse floating-rate, interest-only and principal-only securities. With the exception of 

principal-only securities, our agency securities, classified as trading, were valued at a net premium (i.e., net fair value was 

higher than UPB) as of December 31, 2014. 

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.”

We recognized $(218) million, $(1.6) billion, and $(1.7) billion related to losses on trading securities during 2014, 2013, 

and 2012, respectively. The losses on trading securities during all periods were primarily due to the movement of securities 

with unrealized gains towards maturity. The losses on trading securities during 2014 were partially offset by the effect of the 

decline in longer-term interest rates.

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64 Freddie Mac

We recognized $1.7 billion, $1.9 billion, and $152 million of gains on sales of available-for-sale securities during 2014, 

2013, and 2012, respectively. The gains during 2014 primarily resulted from sales related to our structuring activity. The gains 

during 2013 primarily resulted from sales related to our 2013 Conservatorship Scorecard goal to sell 5% of less liquid 

mortgage-related assets. 

Other Income (Loss)

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

Table 18 — Other Income (Loss)

Year Ended December 31,

2014 2013 2012

(in millions)

Other income (loss):

Non-agency mortgage-related securities settlements $ 6,084 $ 5,501 $ —

Gains (losses) on mortgage loans 731 (336) 1,010

Recoveries on loans acquired with deteriorated credit quality(1) 203 261 380

Guarantee-related income, net(2) 266 400 343

All other 760 824 457

Total other income (loss) $ 8,044 $ 6,650 $ 2,190

(1) Primarily relates to loans acquired with deteriorated credit quality prior to 2010. Consequently, our recoveries on these loans will generally decline over 

time.

(2) Primarily relates to securitized 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 $6.1 billion, $5.5 billion, and $0 in 2014, 2013, and 2012, 

respectively. We received proceeds from ten settlements in 2014 and seven settlements in 2013. We had no settlements in 2012. 

For information on the settlements in 2014, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — NonAgency Mortgage-Related Security Issuers.” 

Gains (Losses) on Mortgage Loans

We recognized gains (losses) on mortgage loans of $0.7 billion, $(0.3) billion, and $1.0 billion in 2014, 2013, and 2012, 

respectively. Gains (losses) on mortgage loans primarily represents fair value gains and losses on multifamily loans between the 

time we acquire them and the time we securitize them through K Certificate transactions. During that time, we carry the loans 

at fair value. The gains in 2014 and 2012 were mainly due to a decrease in interest rates and tightening spreads, while the losses 

in 2013 were primarily due to an increase in interest rates. 

During 2014, 2013, and 2012 we sold $21.3 billion, $28.3 billion, and $20.8 billion, respectively, in UPB of multifamily 

loans primarily through K Certificate transactions. We also sold seriously delinquent single-family loans (with an aggregate 

UPB of $0.6 billion) in a pilot transaction completed in the third quarter of 2014. This sale did not have a material effect on our 

financial results. In January 2015, we received FHFA approval to execute additional such sales. In connection with this 

approval, we reclassified $1.4 billion in recorded investment of mortgage loans from held-for-investment to held-for-sale 

during the first quarter of 2015, which did not have a material effect on our financial results.

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, changes in fair value of STACR debt notes, and other miscellaneous income. All other 

income remained relatively unchanged from 2013 to 2014 as: (a) a decline in the compensatory fees we charged servicers that 

failed to meet our loan foreclosure timelines and higher costs associated with the common securitization platform in 2014; were 

offset by (b) gains on STACR debt notes carried at fair value in 2014, compared to losses in 2013. In November 2014, we 

announced an extension of foreclosure timelines in our guidelines for 47 states or other jurisdictions and temporarily suspended 

compensatory fee assessments in four jurisdictions. These changes will result in lower compensatory fees in the future. The 

increase in 2013 from 2012 was primarily due to higher compensatory fees assessed on servicers that failed to meet our loan 

foreclosure timelines. 

Non-Interest Expense

The table below summarizes the components of non-interest expense.

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65 Freddie Mac

Table 19 — Non-Interest Expense

Year Ended December 31,

2014 2013 2012

(in millions)

Administrative expense:

Salaries and employee benefits $ 914 $ 833 $ 810

Professional services 527 543 361

Occupancy expense 58 54 57

Other administrative expense 382 375 333

Total administrative expense 1,881 1,805 1,561

REO operations expense (income) 196 (140) 59

Temporary Payroll Tax Cut Continuation Act of 2011 expense 775 533 108

Other expense (income) 238 (109) 465

Total non-interest expense $ 3,090 $ 2,089 $ 2,193

Administrative Expense

Administrative expense increased in 2014 due to increases in salaries and employee benefits expense, mainly due to 

expenses associated with our terminated retirement plans, partially offset by declines in professional services expense related 

to: (a) FHFA-led lawsuits regarding our investments in certain non-agency mortgage-related securities; and (b) quality control 

reviews for single-family loans we acquired prior to being placed in conservatorship. Administrative expense increased in 2013 

primarily due to an increase in professional services expense related to: (a) FHFA-led lawsuits; (b) quality control reviews; (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 20 — REO Operations (Income) Expense

Year Ended December 31,

2014 2013 2012

(in millions)

REO operations (income) expense:

Single-family:

REO property expenses $ 829 $ 962 $ 1,203

Disposition gains, net (454) (746) (682)

Change in valuation allowance 75 23 (117)

Recoveries (245) (363) (342)

Total single-family REO operations (income) expense 205 (124) 62

Multifamily REO operations (income) expense (9) (16) (3)

Total REO operations (income) expense $ 196 $ (140) $ 59

REO operations (income) expense was $196 million in 2014, as compared to $(140) million in 2013, and $59 million in 

2012. The change from REO operations income in 2013 to REO operations expense in 2014 was primarily due to lower gains 

on the disposition of REO properties associated with a lower volume of REO sales. 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 geographic areas with significant REO activity. For more information on our REO 

activity, see “Segment Earnings — Segment Earnings — Results — Single-Family Guarantee,” “CONSOLIDATED 

BALANCE SHEETS ANALYSIS — REO, Net,” and “RISK MANAGEMENT — Credit Risk Overview — Single-Family 

Mortgage Credit Risk Framework and Profile — Managing REO Activity.”

Temporary Payroll Tax Cut Continuation Act of 2011 Expense

Pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011, we increased the guarantee fee on single-family 

mortgages sold to us by 10 basis points in April 2012. We pay these fees to Treasury on a quarterly basis. We refer to this fee 

increase as the legislated 10 basis point increase in guarantee fees.

Expenses related to the legislated 10 basis point increase in guarantee fees were $775 million, $533 million, and $108 

million during 2014, 2013, and 2012, respectively. As of December 31, 2014, loans with an aggregate UPB of $866.7 billion 

were subject to these fees, and the cumulative total of the amounts paid and due to Treasury for these fees was $1.4 billion. We 

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66 Freddie Mac

expect these fees to continue to increase in the future as we add new business and increase the UPB of loans subject to these 

fees.

Other Expense (Income)

Other expense (income) was $238 million, $(109) million, and $465 million in 2014, 2013, and 2012, respectively. The 

income in 2013, compared to expense in 2014 and 2012, was primarily due to a settlement with Lehman Brothers Holdings Inc. 

to resolve our claims related to Lehman’s bankruptcy, which reduced other expenses for 2013. Other expense for 2012 included 

expenses to establish legal reserves related to pending litigation. Other expense (income) also includes HAMP servicer 

incentive fees, costs related to terminations and transfers of mortgage servicing, and other miscellaneous expenses. FHFA has 

directed us to allocate funds to two housing funds managed by HUD and Treasury, beginning in 2015, as discussed in 

"BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — Affordable Housing Allocations." 

Amounts related to this allocation will be recorded in non-interest expense beginning in 2015, but we do not expect them to be 

material.

Income Tax (Expense) Benefit

We reported an income tax (expense) benefit of $(3.3) billion, $23.3 billion, and $1.5 billion for 2014, 2013, and 2012, 

respectively. The income tax benefit in 2013 primarily resulted from the release of the valuation allowance in the third quarter 

of 2013. See “NOTE 12: INCOME TAXES” for additional information. 

Comprehensive Income

Our comprehensive income was $9.4 billion, $51.6 billion, and $16.0 billion for 2014, 2013, and 2012, respectively, 

consisting of: (a) $7.7 billion, $48.7 billion, and $11.0 billion of net income, respectively; and (b) $1.7 billion, $2.9 billion, and 

$5.1 billion of other comprehensive income, respectively. Other comprehensive income during 2014 primarily related to fair 

value gains on our available-for-sale securities resulting from the impact of spread tightening on our non-agency mortgagerelated securities and the movement of these securities with unrealized losses towards maturity, coupled with the impact of a 

decline in longer-term interest rates. Other comprehensive income during 2013 was primarily due to fair value gains resulting 

from the impact of spread tightening on our non-agency mortgage-related securities and the movement of these securities with 

unrealized losses towards maturity.

Other comprehensive income in all periods also reflects the reversals of: (a) unrealized losses due to the recognition of 

other-than-temporary impairments in earnings; and (b) unrealized gains and losses related to available-for-sale securities sold 

during the respective period. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Total Equity” for additional 

information regarding total other comprehensive income.

Segment Earnings

We have 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 and we manage our seriously delinquent loans. 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 and single-family seriously delinquent loans; (b) managing 

the treasury function for the entire company, including funding and liquidity; and (c) managing interest-rate risk for the entire 

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. 

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. Historically, we were primarily a buy-andhold investor in multifamily assets (both loans held for investment and investment securities). While these legacy assets 

continue to be significant, we have not focused on this investment strategy since 2009. Segment Earnings for this segment 

consist primarily of returns on assets related to multifamily investment activities and management and guarantee fee income, 

less credit-related expenses, administrative expenses, and allocated funding costs. 

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We evaluate segment performance and allocate resources based on a Segment Earnings approach. The financial 

performance of our Single-family Guarantee segment is measured based on its contribution to GAAP net income (loss). Our 

Investments segment and Multifamily segment are measured based on each segment's 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. Segment Earnings for the All 

Other category was $(13) million, $23.9 billion, and $788 million for 2014, 2013, and 2012, 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 to 

reflect measures of management and guarantee income on guarantees and net interest income on investments that are in line 

with how we manage our business. 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. 

In the first quarter of 2014, we revised our inter-segment allocations between the Multifamily and the Investments 

segments for the Multifamily segment's investment securities and held-for-sale loans. As a result of this change, the 

Multifamily segment reflects the entire change in fair value of these assets in its financial results, and the Investments segment 

transfers the change in fair value of the derivatives associated with the Multifamily segment's investments securities and heldfor-sale loans to the Multifamily segment. The purpose of this change is to better reflect the operations of the Multifamily 

segment on a stand-alone basis. Prior period results have been revised to conform with the current period presentation.

See “BUSINESS — Our 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, reconciliations and allocations used to present Segment Earnings.

The table below provides UPB information about our various segment mortgage and credit risk portfolios at 

December 31, 2014 and 2013. For a discussion of each segment’s portfolios, see “Segment Earnings — Results.”

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Table 21 — Composition of Segment Mortgage Portfolios and Credit Risk Portfolios

December 31,

2014 2013

(in millions)

Segment mortgage portfolios:

Single-family Guarantee — Managed loan portfolio:(1)

Single-family unsecuritized seriously delinquent mortgage loans $ 28,738 $ 37,726

Single-family Freddie Mac mortgage-related securities held by us 158,215 165,247

Single-family Freddie Mac mortgage-related securities held by third parties 1,397,050 1,361,972

Single-family other guarantee commitments 16,806 19,872

Total Single-family Guarantee — Managed loan portfolio 1,600,809 1,584,817

Investments — Mortgage investments portfolio:

Single-family unsecuritized performing mortgage loans 82,778 84,411

Freddie Mac mortgage-related securities 158,215 165,247

Non-agency mortgage-related securities 44,230 64,524

Non-Freddie Mac agency mortgage-related securities 16,341 16,889

Total Investments — Mortgage investments portfolio 301,564 331,071

Multifamily — Guarantee portfolio:

Multifamily Freddie Mac mortgage-related securities held by us 3,326 2,787

Multifamily Freddie Mac mortgage-related securities held by third parties 78,495 62,505

Multifamily other guarantee commitments 9,341 9,288

Total Multifamily — Guarantee portfolio 91,162 74,580

Multifamily — Mortgage investments portfolio:

Multifamily investment securities portfolio 25,156 33,056

Multifamily unsecuritized loan portfolio 52,956 59,171

Total Multifamily — Mortgage investments portfolio 78,112 92,227

Total Multifamily portfolio 169,274 166,807

Less: Freddie Mac single-family and multifamily securities held by us (161,541) (168,034)

Total mortgage portfolio $ 1,910,106 $ 1,914,661

Credit risk portfolios:

Single-family credit guarantee portfolio:(1)

Single-family mortgage loans, on-balance sheet $ 1,645,872 $ 1,630,859

Non-consolidated Freddie Mac mortgage-related securities 6,233 6,961

Other guarantee commitments 16,806 19,872

Less: HFA initiative-related guarantees (3,357) (4,051)

Less: Freddie Mac mortgage-related securities backed by Ginnie Mae certificates (433) (541)

Total single-family credit guarantee portfolio $ 1,665,121 $ 1,653,100

Multifamily mortgage portfolio:

Multifamily mortgage loans, on-balance sheet $ 53,480 $ 59,615

Non-consolidated Freddie Mac mortgage-related securities 81,296 64,848

Other guarantee commitments 9,341 9,288

Less: HFA initiative-related guarantees (772) (905)

Total multifamily mortgage portfolio $ 143,345 $ 132,846

(1) 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. 

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Segment Earnings — Results

Single-Family Guarantee

The table below presents the Segment Earnings of our Single-family Guarantee segment.

Table 22 — Segment Earnings and Key Metrics — Single-Family Guarantee

Year Ended December 31,

2014 2013 2012

(dollars in millions)

Segment Earnings:

Net interest income (expense)(1) $ (111) $ 320 $ (147)

(Provision) benefit for credit losses (982) 1,409 (3,168)

Non-interest income:

Management and guarantee income 5,172 4,930 4,389

Other non-interest income 712 1,162 931

Total non-interest income 5,884 6,092 5,320

Non-interest expense:

Administrative expense (1,170) (1,025) (890)

REO operations (expense) income (205) 124 (62)

Temporary Payroll Tax Cut Continuation Act of 2011 expense (775) (533) (108)

Other non-interest expense (191) (179) (285)

Total non-interest expense (2,341) (1,613) (1,345)

Segment adjustments (303) (694) (832)

Segment Earnings before income tax (expense) benefit 2,147 5,514 (172)

Income tax (expense) benefit (600) 282 8

Segment Earnings (loss), net of taxes 1,547 5,796 (164)

Total other comprehensive income (loss), net of taxes (10) 49 (63)

Total comprehensive income (loss) $ 1,537 $ 5,845 $ (227)

Key metrics:

Balances and Volume (in billions, except rate):

Average balance of single-family credit guarantee portfolio and HFA guarantees $ 1,655 $ 1,644 $ 1,692

Issuance — Single-family credit guarantees(2) $ 260 $ 435 $ 446

Fixed-rate products — Percentage of purchases 94% 96% 96%

Liquidation rate — Single-family credit guarantees(3) 15% 28% 33%

Average Management and Guarantee Rate (in bps)

Segment Earnings management and guarantee income(4) 31.2 30.0 25.9

Guarantee fee charged on new acquisitions(5) 57.4 51.4 38.3

Credit:

Serious delinquency rate, at end of period 1.88% 2.39% 3.25%

REO inventory, at end of period (number of properties) 25,768 47,307 49,071

Single-family credit losses, in bps 23.4 28.8 68.3

Market:

Single-family mortgage debt outstanding (total U.S. market, in billions)(6) $ 9,855 $ 9,887 $ 9,983

(1) Includes interest expense associated with our STACR debt notes that we began issuing in July 2013.

(2) Includes conversions of previously issued other guarantee commitments into Freddie Mac mortgage-related securities. 

(3) Calculated based on 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. Also 

includes terminations of other guarantee commitments.

(4) Calculated based on 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.

(5) Represents the estimated average 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. 

(6) Source: Federal Reserve Financial Accounts of the United States of America dated December 11, 2014. The outstanding amounts reflect the balances as 

of September 30, 2014.

Segment Earnings (loss) for the Single-family Guarantee segment is largely driven by management and guarantee fee 

income and the (provision) benefit for credit losses. Segment Earnings (loss) for our Single-family Guarantee segment was $1.5 

billion in 2014 compared to $5.8 billion in 2013, and $(0.2) billion in 2012. The decline in 2014 compared to 2013 was 

primarily due to: (a) changes in our provision for credit losses in 2014; and (b) an income tax expense in 2014, compared to an 

income tax benefit in 2013. The improvement in 2013 compared to 2012 was primarily due to changes in our provision for 

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credit losses in 2013 due to improvements in home prices and counterparty settlements for representation and warranty 

violations. 

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

mortgage products. Issuances of our guarantees were $260 billion and $435 billion in 2014 and 2013, respectively. 

Origination volumes in the U.S. residential mortgage market declined significantly during 2014 compared to 2013, driven 

by a significant decline in the volume of refinance mortgages. We attribute this decline to higher average mortgage interest 

rates in 2014 compared to 2013. Many borrowers have already refinanced their loans in recent years at relatively low interest 

rates, and thus may be less likely to do so in the future. 

The UPB of the single-family credit guarantee portfolio was $1.7 trillion at both December 31, 2014 and 2013. Our 

purchase activity in 2014 declined to $255.3 billion in UPB compared to $422.7 billion in UPB during 2013 and $426.8 billion 

during 2012. The liquidation rate on our single-family credit guarantees also declined to approximately 15% in 2014 compared 

to 28% in 2013 and 33% in 2012. At December 31, 2014 and 2013, there were approximately 10.6 million and 10.7 million 

loans, respectively, in our single-family credit guarantee portfolio, including 2.1 million and 2.0 million relief refinance 

mortgages, respectively. The average UPB of loans in our single-family credit guarantee portfolio was approximately $156,000 

and $155,000 at December 31, 2014 and 2013, respectively. 

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 HARP and other relief refinance mortgages in our New single-family book, 

since underwriting procedures for these mortgages are limited, and as a result, we believe that, in many cases, these 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 credit guarantee 

portfolio and comprised 60% of this portfolio as of December 31, 2014. The serious delinquency rate for the New single-family 

book was 0.24% as of December 31, 2014 and its credit losses were $97 million in 2014. As of December 31, 2014, loans 

originated after 2008 have, on a cumulative basis, provided management and guarantee income that has exceeded the creditrelated and administrative expenses associated with these loans. We expect these loans to continue to provide management and 

guarantee income that exceeds credit-related and administrative expenses over the long term, in aggregate. For more 

information on the composition of our single-family credit guarantee portfolio, see "Table 43 — Single-Family Credit 

Guarantee Portfolio Data by Year of Origination."

Segment Earnings management and guarantee income was $5.2 billion in 2014, compared to $4.9 billion in 2013 and 

$4.4 billion in 2012. The increase in 2014 from 2013 was primarily due to a higher average guarantee fee rate and a higher 

average balance of the single-family credit guarantee portfolio. The increase in 2013 from 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 a higher average 

guarantee fee rate compared to 2012.

At the direction of FHFA, we implemented two across-the-board increases in guarantee fees in 2012. The average 

management and guarantee fee we charged for new acquisitions in 2014 was 57.4 basis points, compared to 51.4 basis points in 

2013. The guarantee fee we charge on new acquisitions generally consists of a combination of up front delivery fees and a base 

monthly fee. The higher average guarantee fees charged on new acquisitions in 2014 were primarily due to higher levels of 

home purchase loans combined with a change in the characteristics of the mortgages we purchased in 2014, including loans 

with higher LTV ratios and borrowers with lower average credit scores than in 2013. The average Segment Earnings 

management and guarantee income was 31.2 basis points in 2014 and 30.0 basis points in 2013. The difference between the 

average guarantee fee charged on new acquisitions and the average Segment Earnings management and guarantee income, in 

basis points, reflects different methodologies for recognizing up-front delivery fee income. The average guarantee fee rate 

charged on new acquisitions recognizes up-front delivery fee income over the estimated life of the related loans using our 

expectations of prepayments and other liquidations, whereas the Segment Earnings rate recognizes these amounts over the 

contractual life of the related loans (usually 30 years). In addition, the average Segment Earnings management and guarantee 

income reflects an average of our total mortgage portfolio and is not limited to 2014 purchases. Loans acquired prior to 2012 

have lower contractual management and guarantee fee rates than loans we acquired in 2014 and 2013. 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, in aggregate, exceeds our anticipated credit-related and administrative 

expenses on the single-family credit guarantee portfolio; and (b) provide a return on the capital that would be needed to support 

the related credit risk.

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 

this price performance could adversely affect 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 

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71 Freddie Mac

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.

We met the 2014 Conservatorship Scorecard goal for us to complete credit risk transfer transactions for at least $90 

billion in UPB using at least one transaction type in addition to STACR debt note transactions. In 2014, we executed ten 

transactions that transfer a portion of the mezzanine credit loss position on certain groups of loans in our New single-family 

book from us to third-party investors. The transactions consisted of: (a) seven STACR debt note transactions; and (b) three 

ACIS transactions. These transactions transferred a portion of the credit losses that could occur under adverse home price 

scenarios associated with $147.5 billion in principal of loans in our New single-family book. The 2015 Conservatorship 

Scorecard sets a goal for us to complete credit risk transfer transactions for at least $120 billion in UPB using at least two 

transaction types. We will continue to seek to expand and refine our offerings of credit risk transfer transactions in the future. 

For more information, see "BUSINESS — Our Business — Our Business Segments — Single-Family Guarantee Segment — 

Credit Enhancements" and "RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk 

Framework and Profile — Transferring a Portion of our Mortgage Credit Risk."

Segment Earnings (provision) benefit for credit losses for the Single-family Guarantee segment was $(1.0) billion, $1.4 

billion, and $(3.2) billion in 2014, 2013, and 2012, respectively. The provision for credit losses in 2014 reflects an increase in 

our loan loss reserve for newly impaired single-family loans. The (provision) benefit for credit losses in 2013 and 2012 reflect: 

(a) declines in the volume of newly delinquent single-family loans; and (b) lower estimates of incurred losses due to the 

positive effect of an increase in national home prices. The benefit for credit losses in 2013 also reflects $1.7 billion 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. Assuming that all other factors remain the same, 

an increase in home prices may reduce the likelihood that loans will default and may also reduce the amount of credit losses on 

the loans that do default. 

Segment Earnings other non-interest income was $0.7 billion in 2014, compared to $1.2 billion in 2013 and $0.9 billion 

in 2012. Other non-interest income includes resecuritization fees, compensatory fees assessed on servicers that failed to meet 

foreclosure timelines and gains or losses related to certain assets that are carried at fair value. The decrease in 2014 was 

primarily due to losses in 2014 on certain assets carried at fair value due to a decline in interest rates during the year, compared 

to gains on certain of these assets in 2013 due to an increase in interest rates during that year. In 2014, we also charged fewer 

compensatory fees to servicers that failed to meet our loan foreclosure timelines. The increase in 2013 from 2012 was primarily 

due to higher compensatory fees assessed on servicers that failed to meet our loan foreclosure timelines.

The serious delinquency rate on our single-family credit guarantee portfolio was 1.88%, 2.39%, and 3.25% at 

December 31, 2014, 2013, and 2012, respectively. In 2014, our serious delinquency rate continued the decline that began in 

2010, primarily due to lower volumes of single-family loans becoming seriously delinquent and continued loss mitigation and 

foreclosure activities for loans in the Legacy single-family books. Our loss mitigation efforts in 2014 included the sale of 

certain seriously delinquent unsecuritized single-family loans (with an aggregate UPB of $0.6 billion) in a pilot transaction 

completed in the third quarter of 2014. In January 2015, we received FHFA approval to execute additional such sales, which 

would further reduce our serious delinquency rate. For more information on this transaction, see "NOTE 4: MORTGAGE 

LOANS AND LOAN LOSS RESERVES."

Charge-offs, net of recoveries, associated with single-family loans were $3.7 billion, $4.9 billion, and $11.6 billion in 

2014, 2013, and 2012, respectively. Our recoveries in 2014, 2013, and 2012 included approximately $0.5 billion, $2.8 billion, 

and $0.7 billion, respectively, related to repurchase requests made to our seller/servicers (including amounts related to 

settlement agreements with certain sellers to release specified loans from certain repurchase obligations in exchange for onetime cash payments). See “RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk 

Framework and Profile” and "(Provision) Benefit for Credit Losses" for further information on our single-family credit 

guarantee portfolio, including credit performance, serious delinquency rates, charge-offs, REO assets and non-accrual loans.

Administrative expense for the Single-family Guarantee segment increased 14% and 15% in 2014 and 2013, respectively, 

compared to the level in the prior year. These increases result, in part, from our efforts to meet Conservatorship Scorecard 

initiatives, including development of the common securitization platform, as well as other infrastructure improvement projects. 

We expect this trend to continue in 2015.

REO operations (expense) income for the Single-family Guarantee segment was $(205) million in 2014, compared to 

$124 million in 2013 and $(62) million in 2012. The change from REO operations income in 2013 to REO operations expense 

in 2014 was primarily due to lower gains on the disposition of REO properties associated with a lower volume of REO sales. 

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 geographic areas with significant REO activity. 

Our single-family REO inventory (measured in number of properties) declined 46% and 4% in 2014 and 2013, 

respectively. Our REO acquisition activity has declined in recent periods as a result of: (a) our loss mitigation efforts; (b) a 

larger proportion of property sales to third parties at foreclosure; and (c) a declining number of new seriously delinquent loans. 

See “RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and Profile — 

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Managing REO Activities” and "CONSOLIDATED BALANCE SHEET ANALYSIS — REO, Net" for additional information 

about our REO activity.

Expenses related to the legislated 10 basis point increase in guarantee fees were $775 million, $533 million, and $108 

million in 2014, 2013, and 2012, respectively. We recognized a similar amount of associated management and guarantee 

income in each period. As of December 31, 2014, loans with an aggregate UPB of $866.7 billion were subject to these fees, and 

the cumulative total of the amounts paid and due to Treasury was $1.4 billion. 

Segment Earnings income tax (expense) benefit for the Single-family Guarantee segment was $(600) million, $282 

million, and $8 million in 2014, 2013, and 2012, respectively. The income tax benefit in 2013 resulted from the release of the 

valuation allowance on our deferred tax asset.

Investments

The table below presents the Segment Earnings of our Investments segment. In the first quarter of 2014, we revised our 

inter-segment allocations between the Multifamily and the Investments segments for the Multifamily segment's investment 

securities and held-for-sale loans. Prior period results have been revised to conform with the current period presentation. For 

additional information about this change, see “NOTE 13: SEGMENT REPORTING — Segment Earnings" and "Table 13.2 — 

Segment Earnings and Reconciliation to GAAP Results.”

Table 23 — Segment Earnings and Key Metrics — Investments

Year Ended December 31,

2014 2013 2012

(dollars in millions)

Segment Earnings:

Net interest income $ 2,966 $ 3,525 $ 5,726

Non-interest income (loss):

Net impairment of available-for-sale securities recognized in earnings (140) (974) (1,831)

Derivative gains (losses) (5,158) 5,543 1,034

Gains (losses) on trading securities (276) (1,466) (1,794)

Non-agency mortgage-related securities settlements 6,084 5,501 —

Other non-interest income 2,797 3,401 2,719

Total non-interest income (loss) 3,307 12,005 128

Non-interest expense:

Administrative expense (437) (523) (430)

Other non-interest expense (income) (6) 349 (1)

Total non-interest expense (443) (174) (431)

Segment adjustments 635 1,037 799

Segment Earnings before income tax (expense) benefit 6,465 16,393 6,222

Income tax (expense) benefit (1,945) (463) 1,145

Segment Earnings, net of taxes 4,520 15,930 7,367

Total other comprehensive income, net of taxes 1,951 4,357 4,030

Comprehensive income $ 6,471 $ 20,287 $ 11,397

Key metrics:

Portfolio balances:

Average balances of interest-earning assets (based on amortized cost):

Mortgage-related securities(1) $ 235,847 $ 278,200 $ 308,698

Non-mortgage-related investments(2) 63,408 97,070 98,176

Single-family unsecuritized performing loans 83,023 88,827 97,951

Total average balances of interest-earning assets $ 382,278 $ 464,097 $ 504,825

Return:

Net interest yield — Segment Earnings basis 0.78% 0.76% 1.13%

(1) Includes our investments in single-family PCs and certain Other Guarantee Transactions, which are consolidated under GAAP on our consolidated 

balance sheets.

(2) 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.

2014 vs. 2013

Comprehensive income for our Investments segment decreased by $13.8 billion to $6.5 billion in 2014 compared to 

$20.3 billion in 2013. The drivers of comprehensive income primarily consist of: (a) net interest income generated on our 

investments; (b) settlement income associated with our investments in non-agency mortgage-related securities; (c) derivativeand investments-related fair value gains and losses; and (d) income taxes. 

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Segment Earnings for our Investments segment decreased by $11.4 billion to $4.5 billion in 2014 compared to $15.9 

billion in 2013. The decrease in Segment Earnings in 2014 compared to 2013 was primarily due to: (a) derivative-related fair 

value losses recorded during 2014 compared to gains in 2013; and (b) an entire year of tax expense in 2014 compared to a 

partial year of tax expense following the release of the valuation allowance against our deferred tax assets in the second half of 

2013. 

During 2014, the UPB of the Investments segment mortgage investments portfolio decreased by 9%. We held $174.6 

billion and $182.1 billion of agency securities, $44.2 billion and $64.5 billion of non-agency mortgage-related securities, and 

$82.8 billion and $84.4 billion of single-family unsecuritized mortgage loans at December 31, 2014 and 2013, respectively. The 

decline in UPB of agency securities was due mainly to liquidations. The decline in UPB of non-agency mortgage-related 

securities was due mainly to liquidations and sales consistent with our efforts to reduce the amount of less liquid assets. The 

decline in the UPB of single-family unsecuritized mortgage loans was primarily related to borrower remittances and 

prepayments of mortgage loans, and the securitization of mortgage loans that we had purchased for cash (including the 

securitization of reperforming loans and modified loans). 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 was $3.0 billion in 2014 compared to $3.5 billion in 2013. The decline in net 

interest income resulted from continued reduction in the balance of mortgage-related assets.

Segment Earnings non-interest income (loss) was $3.3 billion in 2014 compared to $12.0 billion in 2013. The decline 

during 2014 was primarily due to derivative-related fair value losses recorded during 2014 compared to derivative-related fair 

value gains recorded during 2013. 

Segment Earnings non-interest income includes income from settlements associated with our investments in certain nonagency mortgage-related securities of $6.1 billion in 2014 compared to $5.5 billion during 2013. For information on the 

settlements in 2014, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Non-Agency MortgageRelated Security Issuers.” 

We incurred derivative gains (losses) for this segment of $(5.2) billion during 2014 compared to $5.5 billion during 2013. 

The change to losses was primarily a result of the impact of a flattening of the yield curve as shorter-term interest rates 

increased and longer-term interest rates declined during 2014, compared to an increase in longer-term interest rates during 

2013. See “Non-Interest Income (Loss) — Derivative Gains (Losses)” for additional information on our derivatives.

Our Investments segment’s other comprehensive income was $2.0 billion during 2014 compared to $4.4 billion during 

2013. The decrease in other comprehensive income during 2014 compared to 2013 was primarily due to lower fair value gains 

on our non-agency mortgage-related securities as spreads tightened less during 2014 compared to 2013, partially offset by 

lower fair value losses on agency securities as interest rates decreased in 2014. Other comprehensive income in all periods also 

reflects the reversals of: (a) unrealized losses due to the recognition of other-than-temporary impairments in earnings; and (b) 

unrealized gains and losses related to available-for-sale securities sold during the respective period.

2013 vs. 2012

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. 

Segment Earnings for our Investments segment increased by $8.6 billion to $15.9 billion in 2013 compared to 

$7.4 billion in 2012, primarily due to derivative-related gains in 2013. 

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 was due mainly to liquidations. The decline in UPB of non-agency 

mortgage-related securities was due mainly to liquidations and sales. The decline in the UPB of single-family unsecuritized 

mortgage loans was 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 reperforming loans and modified loans, partially offset by the 

addition of newly performing loans from the Single-family Guarantee segment. 

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 $12.0 billion in 2013 compared to $128 million in 2012. The improvement 

was primarily due to increases in other non-interest income and derivative gains and a decrease in net impairments of availablefor-sale securities recognized in earnings, partially offset by losses on mortgage loans.

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We incurred derivative gains for this segment of $5.5 billion during 2013 compared to $1.0 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.

Income from settlements associated with our investments in certain non-agency mortgage-related securities was $5.5 

billion in 2013 compared to $0 million during 2012. 

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, benefits from 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.

Our Investments segment’s other comprehensive income was $4.4 billion during 2013 compared to $4.0 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 longer-term interest rates. 

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.”

Multifamily

The table below presents the Segment Earnings of our Multifamily segment. In the first quarter of 2014, we revised our 

inter-segment allocations between the Multifamily and the Investments segments for the Multifamily segment's investment 

securities and held-for-sale loans. Prior period results have been revised to conform with the current period presentation. For 

additional information about this change, see “NOTE 13: SEGMENT REPORTING — Segment Earnings" and "Table 13.2 — 

Segment Earnings and Reconciliation to GAAP Results.”

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Table 24 — Segment Earnings and Key Metrics — Multifamily

Year Ended December 31,

2014 2013 2012

(dollars in millions)

Segment Earnings:

Net interest income $ 948 $ 1,186 $ 1,291

Benefit for credit losses 55 218 123

Non-interest income:

Management and guarantee income 254 206 151

Gains (losses) on mortgage loans 870 (336) 1,010

Derivative gains 335 1,281 943

Other non-interest income 234 1,203 294

Total non-interest income 1,693 2,354 2,398

Non-interest expense:

Administrative expense (274) (257) (241)

REO operations income 9 16 3

Other non-interest expense (23) (24) (129)

Total non-interest expense (288) (265) (367)

Segment Earnings before income tax expense 2,408 3,493 3,445

Income tax expense (772) (443) (454)

Segment Earnings, net of taxes 1,636 3,050 2,991

Total other comprehensive income (loss), net of taxes (177) (1,595) 1,090

Total comprehensive income $ 1,459 $ 1,455 $ 4,081

Key metrics:

New Business Activity:

Multifamily new business activity $ 28,336 $ 25,872 $ 28,774

Multifamily units financed from new business activity 413,367 387,940 435,653

Securitization Activity:(1)

Multifamily securitization transactions — guaranteed portion $ 19,219 $ 24,554 $ 17,922

Multifamily securitization transactions — unguaranteed portion(2) $ 3,152 $ 4,588 $ 3,281

Average subordination, at issuance 14.1% 15.7% 15.5%

K Certificate guarantees:

Average guarantee fee rate, in bps 21.0 19.7 19.0

Average K Certificate guaranteed UPB $ 67,025 $ 49,197 $ 28,154

Credit:

Multifamily mortgage portfolio delinquency rate (at period end):

K Certificates 0.01% 0.07% 0.07%

All other 0.07% 0.11% 0.25%

Total 0.04% 0.09% 0.19%

REO inventory, at period end (number of properties) — 1 6

(1) Consists primarily of K Certificate transactions.

(2) Represents subordinated securities (i.e., CMBS), which are not issued or guaranteed by us.

Comprehensive income for our Multifamily segment was $1.5 billion for both 2014 and 2013, and $4.1 billion in 2012. 

Comprehensive income for the segment consists of Segment Earnings and other comprehensive income or loss. Total other 

comprehensive loss of $0.2 billion recognized in 2014 for our Multifamily segment was primarily due to fair value losses on 

available-for-sale securities. Total other comprehensive loss of $1.6 billion recognized in 2013 for our Multifamily segment 

was primarily related to the realization of fair value gains (recognized in Segment Earnings other non-interest income) that 

were previously deferred in AOCI associated with certain available-for-sale securities that were sold during 2013. 

Segment Earnings for our Multifamily segment was $1.6 billion in 2014, compared to $3.1 billion in 2013 and $3.0 

billion in 2012. The decline in 2014 compared to 2013 was primarily due to decreased net interest income, a lower benefit for 

credit losses and lower non-interest income. Segment Earnings for our Multifamily segment remained relatively unchanged in 

2013 compared to 2012. 

In 2014, we continued to provide liquidity to the multifamily market and support affordable rental housing by acquiring 

and securitizing multifamily mortgages. Our total new business activity increased from $25.9 billion in 2013 to $28.3 billion in 

2014. In order to expand liquidity and affordable housing in the multifamily mortgage market, we began purchasing mortgage 

loans of manufactured housing communities as well as smaller balance loans in 2014. Over 90% of the loans purchased in 2014 

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were designated for securitization, and we continue to pursue strategies to transfer credit risk for loans that are not designated 

for securitization. We sold $21.3 billion in UPB of multifamily loans in 2014 primarily through K Certificate transactions, 

compared to $28.3 billion in 2013. 

We met our 2014 Conservatorship Scorecard goal of maintaining the dollar volume of new multifamily business activity 

at or below the 2013 cap of $25.9 billion in UPB. For purposes of determining our performance under the goal, we exclude 

business activity associated with certain targeted loan types (i.e., affordable housing loans, loans for smaller multifamily 

properties, and loans for manufactured housing rental communities). The 2015 Conservatorship Scorecard set a goal for us to 

maintain new multifamily business activity (excluding the targeted loan types) at or below $30.0 billion in UPB.

The UPB of the total multifamily portfolio increased to $169.3 billion as of December 31, 2014 from $166.8 billion as of 

December 31, 2013, primarily due to an increase in our guarantee portfolio, partially offset by liquidations of our legacy 

portfolio. The percentage of our total multifamily mortgage portfolio protected by subordination increased from 48% at 

December 31, 2013 to 56% at December 31, 2014. The average subordination level at issuance of our multifamily 

securitizations for 2014 and 2013 was 14.1% and 15.7%, respectively. This subordination is primarily provided by the 

unguaranteed securities sold to third parties in K Certificate transactions, which absorb first losses. 

Segment Earnings net interest income was $0.9 billion in 2014 compared to $1.2 billion in 2013 and $1.3 billion in 2012. 

The declines in both 2014 and 2013 were primarily due to lower average balances of the multifamily unsecuritized loan and 

investment securities portfolios. 

Segment Earnings non-interest income was $1.7 billion in 2014 compared to $2.4 billion in both 2013 and 2012. Lower 

gains on derivatives used to economically hedge our CMBS in 2014 were substantially offset by favorable changes in market 

value of the assets they hedged. Segment Earnings other non-interest income was higher in 2013 than both 2014 and 2012, 

primarily due to significant sales of investment securities (primarily CMBS) in 2013. We sold $2.6 billion in UPB of 

investment securities in 2014 compared to $13.6 billion in UPB during 2013. Segment Earnings non-interest income remained 

relatively unchanged in 2013 compared to 2012, as higher gains on sales of available-for-sale securities were offset by lower 

gains on mortgage loans. 

Derivative gains (losses) for the Multifamily segment are offset by fair value changes of the corresponding assets that the 

derivatives economically hedge. The fair value changes of these hedged assets are included in gains (losses) on mortgage loans, 

other non-interest income and total other comprehensive income. As a result, there is no net impact on total comprehensive 

income for the Multifamily segment from interest rate-related derivatives. 

Segment Earnings management and guarantee income increased to $254 million in 2014, compared to $206 million in 

2013, and $151 million in 2012. The increase in both 2014 and 2013, compared to the preceding year, was primarily due to the 

higher average balance of the multifamily guarantee portfolio, which was primarily due to ongoing issuances of K Certificates. 

Our guarantees of K Certificates have lower fees than our other multifamily guarantee activities as a result of our limited credit 

risk exposure due to the use of subordination. 

Segment Earnings benefit for credit losses was $55 million, $218 million, and $123 million in 2014, 2013, and 2012, 

respectively. The recognition of a benefit for credit losses in these periods was primarily due to continued improvement in the 

expected performance of the underlying loans.

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

fundamentals, we believe that the credit quality of the multifamily mortgage portfolio remains strong. Multifamily credit losses 

(gains) as a percentage of the combined average balance of our multifamily loan and guarantee portfolios were (0.5) basis 

points, 0.9 basis points, and 2.8 basis points in 2014, 2013, and 2012, respectively, and our delinquency rate of 0.04% as of 

December 31, 2014 continues to be among the industry's lowest. See “RISK MANAGEMENT — Credit Risk Overview — 

Multifamily Mortgage Credit Risk Profile” for further information about the credit performance, including delinquency rates, of 

our multifamily mortgage portfolio.

CONSOLIDATED BALANCE SHEETS ANALYSIS

You should read this discussion of our consolidated balance sheets 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. Securities purchased under agreements to resell 

principally consist of short-term contractual agreements such as reverse repurchase agreements involving Treasury and agency 

securities.

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77 Freddie Mac

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, 

2014. These assets related to our consolidated VIEs increased by $6.7 billion from December 31, 2013 to December 31, 2014. 

Our consolidated VIEs include the trusts that issue our single-family PCs. The short-term assets held by these trusts primarily 

relate to payments of principal and interest received on the loans underlying the PCs that are held pending distribution to the 

investors in those PCs.

Excluding amounts related to our consolidated VIEs, we held $10.9 billion and $11.3 billion of cash and cash equivalents 

(including non-interest bearing deposits of $6.5 billion and $7.2 billion at the Federal Reserve Bank of New York), no federal 

funds sold, and $38.4 billion and $59.2 billion of securities purchased under agreements to resell at December 31, 2014 and 

2013, respectively. The decrease in these liquid assets at December 31, 2014 compared to December 31, 2013 was due in part 

to the increase in the U.S. statutory debt limit in 2014, abating concerns that the U.S. would exhaust its borrowing authority.

Excluding amounts related to our consolidated VIEs, we held on average $11.0 billion and $11.6 billion of cash and cash 

equivalents and $30.1 billion and $29.5 billion of federal funds sold and securities purchased under agreements to resell during 

the three and twelve months ended December 31, 2014, respectively. In recent periods, our use of federal funds sold 

transactions has been minimal.

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. 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 21 

— Composition of Segment Mortgage Portfolios and Credit Risk Portfolios.”

Table 25 — Investments in Available-For-Sale Securities

December 31,

2014 2013 2012

Amortized

Cost Fair Value

Amortized

Cost Fair Value

Amortized

Cost Fair Value

(in millions)

Available-for-sale mortgage-related securities:

Freddie Mac $ 37,710 $ 39,099 $ 39,001 $ 40,659 $ 53,965 $ 58,515

Fannie Mae 10,860 11,313 10,140 10,797 14,183 15,280

Ginnie Mae 183 199 149 167 183 209

CMBS 20,988 21,822 29,151 30,338 47,606 51,307

Subprime 20,210 20,589 29,897 27,499 35,503 26,457

Option ARM 5,460 5,649 6,617 6,574 7,454 5,717

Alt-A and other 4,500 5,043 8,322 8,706 11,861 10,904

Obligations of states and political subdivisions 2,166 2,198 3,533 3,495 5,647 5,798

Manufactured housing 556 638 629 684 716 709

Total investments in available-for-sale mortgage-related

securities $ 102,633 $ 106,550 $ 127,439 $ 128,919 $ 177,118 $ 174,896

Table 26 — Investments in Trading Securities

December 31,

2014 2013 2012

(in millions)

Trading mortgage-related securities:

Freddie Mac $ 17,469 $ 9,349 $ 10,354

Fannie Mae 6,099 7,180 10,338

Ginnie Mae 16 98 131

Other 171 141 156

Total trading mortgage-related securities 23,755 16,768 20,979

Trading non-mortgage-related securities:

Asset-backed securities — — 292

U.S. Treasury securities 6,682 6,636 20,221

Total trading non-mortgage-related securities 6,682 6,636 20,513

Total fair value of investments in trading securities $ 30,437 $ 23,404 $ 41,492

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78 Freddie Mac

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 $6.7 billion and $6.6 billion as of December 31, 2014 and 2013, respectively. 

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, other financial 

institutions, and our own mortgage-related securities. When we purchase certain REMICs and Other Structured Securities and 

certain Other Guarantee Transactions, 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. 

The table below provides information regarding our investments in mortgage-related securities classified as available-forsale or trading on our consolidated balance sheets, based on UPB. The table does not include our holdings of our own singlefamily PCs and certain Other Guarantee Transactions. For information on our holdings of such securities, see “Table 21 — 

Composition of Segment Mortgage Portfolios and Credit Risk Portfolios.”

Table 27 — Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets

December 31, 2014 December 31, 2013

Fixed

Rate

Variable

Rate(1) Total

Fixed

Rate

Variable

Rate(1) Total

(in millions)

Freddie Mac mortgage-related securities:

Single-family $ 41,340 $ 6,552 $ 47,892 $ 38,472 $ 4,401 $ 42,873

Multifamily 1,897 1,429 3,326 1,318 1,469 2,787

Total Freddie Mac mortgage-related securities 43,237 7,981 51,218 39,790 5,870 45,660

Non-Freddie Mac mortgage-related securities:

Agency securities:(2)

Fannie Mae:

Single-family 6,852 9,303 16,155 7,240 9,421 16,661

Multifamily — — — 3 — 3

Ginnie Mae:

Single-family 119 67 186 150 78 228

Multifamily 12 — 12 15 — 15

Total Non-Freddie Mac agency securities 6,983 9,370 16,353 7,408 9,499 16,907

Non-agency mortgage-related securities:

Single-family:(3)

Subprime 11 27,675 27,686 116 39,583 39,699

Option ARM — 8,287 8,287 — 10,426 10,426

Alt-A and other 955 5,035 5,990 1,417 9,594 11,011

CMBS(3) 9,326 11,886 21,212 13,069 16,254 29,323

Obligations of states and political subdivisions(4) 2,157 12 2,169 3,524 14 3,538

Manufactured housing 521 183 704 577 201 778

Total non-agency mortgage-related securities 12,970 53,078 66,048 18,703 76,072 94,775

Total UPB of mortgage-related securities $ 63,190 $ 70,429 133,619 $ 65,901 $ 91,441 157,342

Premiums, discounts, deferred fees, impairments of UPB and other basis

adjustments (8,187) (14,036)

Net unrealized gains (losses) on mortgage-related securities, pre-tax 4,873 2,381

Total carrying value of mortgage-related securities $ 130,305 $ 145,687

(1) Variable-rate mortgage-related securities include those with a contractual coupon rate that, prior to contractual maturity, is either scheduled to change or 

subject to change based on changes in the composition of the underlying collateral.

(2) 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.

(3) For information about how these securities are rated, see ‘‘Table 32 — Ratings of Non-Agency Mortgage-Related Securities Backed by Subprime, 

Option ARM, Alt-A and Other Loans, and CMBS.’’

(4) Consists of housing revenue bonds. Approximately 31% and 28% of these securities held at December 31, 2014 and 2013, respectively, were AAArated as of those dates, based on the UPB and the lowest rating available.

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79 Freddie Mac

The table below provides the UPB and fair value of our investments in agency and non-agency mortgage-related 

securities on our consolidated balance sheets.

Table 28 — Additional Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets

December 31, 2014 December 31, 2013

UPB Fair Value UPB Fair Value

(in millions)

Agency pass-through securities $ 11,289 $ 12,196 $ 12,951 $ 13,867

Other agency securities:

Interest-only securities — 2,093 — 1,966

Principal-only securities 2,427 2,086 2,724 2,252

Inverse floating-rate securities(1) 1,156 1,619 1,594 2,280

REMICs and Other Structured Securities 52,699 56,201 45,298 47,885

Total agency securities 67,571 74,195 62,567 68,250

Non-agency securities 66,048 56,110 94,775 77,437

Total mortgage-related securities $ 133,619 $ 130,305 $ 157,342 $ 145,687

(1) 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.

The total UPB of our investments in mortgage-related securities on our consolidated balance sheets decreased from 

$157.3 billion at December 31, 2013 to $133.6 billion at December 31, 2014, while the fair value of these investments 

decreased from $145.7 billion at December 31, 2013 to $130.3 billion at December 31, 2014. The reduction in non-agency 

mortgage-related securities was due to liquidations and sales, consistent with our efforts to reduce the amount of less liquid 

assets in 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 the UPB of our mortgage-related securities purchase activity. 

Table 29 — Mortgage-Related Securities Purchase Activity

Year Ended December 31,

2014 2013 2012

(in millions)

Non-Freddie Mac mortgage-related securities purchased for resecuritization:

Ginnie Mae Certificates $ — $ 26 $ 21

Non-Freddie Mac mortgage-related securities purchased as investments in securities:

Agency securities:

Fannie Mae:

Fixed-rate 2,695 4,251 —

Variable-rate 5,005 50 170

Total Fannie Mae 7,700 4,301 170

Ginnie Mae:

Variable-rate 73 — —

Total non-Freddie Mac agency securities 7,773 4,301 170

Non-agency mortgage-related securities:

CMBS:(1)

Variable-rate 35 — —

Total non-agency mortgage-related securities 35 — —

Total non-Freddie Mac mortgage-related securities purchased as investments in securities 7,808 4,301 170

Total non-Freddie Mac mortgage-related securities purchased $ 7,808 $ 4,327 $ 191

Freddie Mac mortgage-related securities purchased:(2)

Single-family:

Fixed-rate $ 43,922 $ 44,760 $ 13,272

Variable-rate 7,568 296 3,045

Multifamily:

Fixed-rate 392 — 119

Total Freddie Mac mortgage-related securities purchased $ 51,882 $ 45,056 $ 16,436

(1) Consists of our purchases of subordinated tranches issued in K Certificate transactions.

(2) Primarily consists of purchases of Freddie Mac mortgage-related securities from third parties.

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80 Freddie Mac

Our purchases of Freddie Mac mortgage-related securities during 2014, 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 consolidated trusts are recorded on our consolidated balance sheets as an 

extinguishment of debt securities of consolidated trusts held by third parties. For more information, see “BUSINESS — Our 

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, 2014, our gross unrealized losses, pre-tax, on available-for-sale mortgage-related securities were $0.9 

billion compared to $3.9 billion at December 31, 2013. 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, 2014 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” 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

We have exposure to subprime, option ARM, interest only, and Alt-A and other loans as part of our investments in 

mortgage-related securities as follows:

• Single-family non-agency mortgage-related securities: We hold non-agency mortgage-related securities backed by 

subprime, option ARM, and Alt-A and other loans.

• Single-family Freddie Mac mortgage-related securities: We hold certain Other Guarantee Transactions as part of our 

investments in securities. There are subprime and option ARM loans underlying some of these Other Guarantee 

Transactions. For more information on single-family loans with certain higher-risk characteristics underlying our 

issued securities, see “RISK MANAGEMENT — Mortgage Credit Risk Overview — Single-Family Mortgage Credit 

Risk Framework and Profile — Monitoring Loan Performance.”

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. 

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81 Freddie Mac

Table 30 — Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, and Alt-A Loans and Certain 

Related Credit Statistics

As of

12/31/2014 9/30/2014 6/30/2014 3/31/2014 12/31/2013

(dollars in millions)

UPB:(1)

Subprime $ 27,682 $ 30,706 $ 34,083 $ 37,958 $ 39,694

Option ARM 8,287 8,493 9,716 10,197 10,426

Alt-A 4,549 4,995 6,339 7,904 9,147

Gross unrealized losses, pre-tax:

Subprime $ 610 $ 880 $ 1,577 $ 2,037 $ 2,780

Option ARM 183 223 346 381 381

Alt-A 32 30 59 83 135

Present value of expected future credit losses:(2)(3)

Subprime $ 4,262 $ 4,568 $ 4,954 $ 6,024 $ 6,400

Option ARM 987 1,161 1,470 1,651 1,802

Alt-A 457 546 785 1,084 1,165

Collateral delinquency rate:(4)

Subprime 32% 32% 33% 34% 35%

Option ARM 27 27 29 31 32

Alt-A 20 20 21 22 22

Average credit enhancement:(5)

Subprime 9% 9% 6% 7% 9%

Option ARM — — (2) (1) —

Alt-A 2 2 (1) (1) —

Cumulative collateral loss:(6)

Subprime 32% 32% 32% 31% 30%

Option ARM 25 25 25 24 24

Alt-A 15 15 15 15 13

(1) Not affected by settlement amounts we received related to our investments in certain non-agency mortgage-related securities. For more information, see 

“NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Non-Agency Mortgage-Related Security Issuers.”

(2) 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.

(3) We regularly evaluate the underlying estimates and models we use when determining the present value of expected future credit losses and update our 

assumptions to reflect our historical experience and current view of economic factors. As a result, data in different periods may not be comparable.

(4) 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.

(5) Reflects the ratio of the current principal amount of the securities issued by a trust that will absorb losses in the trust before any losses are allocated to 

securities that we own. Percentage generally calculated based on: (a) the total UPB of securities subordinate to the securities we own, divided by (b) the 

total UPB of all of the securities issued by the trust (excluding notional balances). Only includes credit enhancement provided by subordinated 

securities; excludes credit enhancement provided by bond insurance. 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. Average credit enhancements increased at September 30, 2014 primarily due to sales of non-agency 

mortgage-related securities included as part of a settlement agreement in the third quarter of 2014.

(6) 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.

Our estimate of the present value of expected future credit losses on our available-for-sale non-agency mortgage-related 

securities decreased to $5.8 billion at December 31, 2014 from $6.4 billion at September 30, 2014. 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 on our available-for-sale securities was primarily driven by: (a) 

sales of non-agency mortgage-related securities; and (b) a decline in interest rates. 

The investments we hold in 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. 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. In most cases, we continued to experience the 

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82 Freddie Mac

erosion of structural credit enhancements on securities backed by subprime, option ARM, and Alt-A loans due to poor 

performance of the underlying collateral. There is also 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 "NOTE 7: INVESTMENTS IN SECURITIES — 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 — Institutional Credit Risk Profile — Bond Insurers.”

Since the beginning of 2007, we have incurred actual principal cash shortfalls of $4.2 billion on impaired available-forsale non-agency mortgage-related securities, including $76 million and $436 million related to the three and twelve months 

ended December 31, 2014, respectively. The timing of our recognition of principal cash shortfalls is based on the structure of 

our investments, as 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 repayments, including voluntary repayments, and cash shortfalls for our investments 

in non-agency mortgage-related securities backed by subprime, option ARM, Alt-A and other loans. Principal cash shortfalls 

are presented net of amounts received related to insurance recoveries.

Table 31 — Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other Loans

Three Months Ended

12/31/2014 9/30/2014 6/30/2014 3/31/2014 12/31/2013

(in millions)

Principal repayments and cash shortfalls:(1)

Subprime:

Principal repayments $ 770 $ 845 $ 877 $ 889 $ 1,021

Principal cash shortfalls 2 5 3 (4) 8

Option ARM:

Principal repayments $ 154 $ 158 $ 157 $ 142 $ 192

Principal cash shortfalls 52 74 93 88 100

Alt-A and other:

Principal repayments $ 199 $ 225 $ 285 $ 247 $ 324

Principal cash shortfalls 21 25 31 41 43

(1) Not affected by settlement amounts we received related to our investments in certain non-agency mortgage-related securities.

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. For more information regarding settlements related to some 

of these securities, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Non-Agency Mortgage-Related 

Security Issuers.” 

Other-Than-Temporary Impairments on Available-For-Sale Mortgage-Related Securities

We recorded net impairment of available-for-sale securities recognized in earnings of $938 million, $1.5 billion, and $2.2 

billion during 2014, 2013, and 2012, respectively. For information about the mortgage-related securities for which we 

recognized other-than-temporary impairments in earnings, see "Table 7.4 — Net Impairment of Available-For-Sale Securities 

Recognized in Earnings." At December 31, 2014, our gross unrealized losses, pretax, on available-for-sale mortgage-related 

securities were $0.9 billion.

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, 2014, we recorded the 

unrealized loss as a net impairment of available-for-sale securities recognized in earnings. We determine the population of 

securities we intend to sell using management judgment based on a variety of factors, including economics and our current 

operational plans, models and strategies 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. The population of securities that we intend to sell 

may change from period to period. During 2014, 2013, and 2012, net impairment of available-for-sale securities recognized in 

earnings included $817 million, $568 million, and $0 million, respectively, due to an increase in the population of available-forsale securities in an unrealized loss position that we intend to sell. This generally reflects our efforts to reduce the balance of 

less liquid assets in the mortgage-related investments portfolio. We recorded the remaining impairments because of increases in 

our estimate of the present value of expected future credit losses on certain individual available-for-sale securities. Changes in 

our operational plans, models or strategies could change the population of securities we intend to sell and thereby have a 

potentially significant impact on earnings. For more information, see "CONSOLIDATED RESULTS OF OPERATIONS — 

Non-Interest Income (Loss) — Investment Securities-Related Activities," as well as “NOTE 7: INVESTMENTS IN 

SECURITIES — Other-Than-Temporary Impairments on Available-for-Sale Securities.”

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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, 2014. As a result, we have concluded that the reduction in fair value of these securities was temporary at 

December 31, 2014 and have recorded these unrealized losses in AOCI.

The credit performance of loans underlying our holdings of non-agency mortgage-related securities has declined since 

2007 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 at times been 

adversely 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. 

Our assessments concerning other-than-temporary impairment involve the use of models, require significant judgment 

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. 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 

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 and volatility of the 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, 2014 based on their ratings as of December 31, 2014, as well as those held at 

December 31, 2013 based on their ratings as of December 31, 2013. 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.

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84 Freddie Mac

Table 32 — 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, 2014 UPB

Percentage

of UPB

Amortized

Cost

Gross

Unrealized

Losses

Bond

Insurance

Coverage(1)

(dollars in millions)

Subprime, option ARM, Alt-A and other loans:

AAA-rated $ 21 —% $ 20 $ — $ 7

Other investment grade 1,456 3 1,378 (10) 390

Below investment grade(2) 40,486 97 28,773 (818) 2,349

Total $ 41,963 100% $ 30,171 $ (828) $ 2,746

CMBS:

AAA-rated $ 8,998 42% $ 9,003 $ — $ 40

Other investment grade 10,512 50 10,459 (11) 1,639

Below investment grade(2) 1,702 8 1,686 (45) 1,546

Total $ 21,212 100% $ 21,148 $ (56) $ 3,225

Total subprime, option ARM, Alt-A and other loans, and CMBS:

AAA-rated $ 9,019 14% $ 9,023 $ — $ 47

Other investment grade 11,968 19 11,837 (21) 2,029

Below investment grade(2) 42,188 67 30,459 (863) 3,895

Total $ 63,175 100% $ 51,319 $ (884) $ 5,971

Total investments in mortgage-related securities $ 133,619

Percentage of subprime, option ARM, Alt-A and other loans, and

CMBS of total investments in mortgage-related securities 47%

Credit Ratings as of December 31, 2013

Subprime, option ARM, Alt-A and other loans:

AAA-rated $ 114 —% $ 110 $ (1) $ 7

Other investment grade 2,417 4 2,308 (39) 582

Below investment grade(2) 58,605 96 42,420 (3,263) 2,936

Total $ 61,136 100% $ 44,838 $ (3,303) $ 3,525

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%

(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, 2014 and 2013. 

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 classified as held-for-investment on our 

consolidated balance sheets, approximately $31.8 billion, or 1.9%, of these loans were seriously delinquent or in foreclosure as 

of December 31, 2014, compared to $41.5 billion, or 2.5%, as of December 31, 2013. 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: IMPAIRED LOANS” for more information on 

our removal of single-family loans from PC trusts.

The UPB of unsecuritized single-family mortgage loans declined by $10.6 billion to $111.5 billion at December 31, 2014

from $122.1 billion at December 31, 2013, primarily due to: (a) loan prepayments, foreclosure transfers, and foreclosure 

alternative activities; (b) securitization of reperforming and modified loans; (c) securitization of loans through our PC cash 

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85 Freddie Mac

auction process, net of related purchases; and to a lesser extent (d) sales of seriously delinquent loans. This decline was 

partially offset by our removal of seriously delinquent single-family loans from PC trusts. As of December 31, 2014 and 2013, 

the balance of unsecuritized single-family mortgage loans included $82.4 billion and $78.0 billion, respectively, in UPB of 

mortgage loans classified as TDRs that were no longer seriously delinquent. 

The UPB of unsecuritized multifamily mortgage loans was $53.0 billion at December 31, 2014 and $59.2 billion at 

December 31, 2013. This decline was primarily due to principal repayments and our securitization of loans through K 

Certificates.

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 $21.9 billion and $24.7 billion at December 31, 2014 and 2013, respectively, 

including $21.8 billion and $24.6 billion, respectively, related to single-family loans. At December 31, 2014 and 2013, our 

allowance for loan losses, as a percentage of mortgage loans, held-for-investment, on our consolidated balance sheets was 1.3%

and 1.4%, respectively. See "CONSOLIDATED RESULTS OF OPERATIONS — (Provision) Benefit for Credit Losses," 

“RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and Profile,” 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 principal 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 PCs issued in the 

period (regardless of whether the PCs 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 33 — Mortgage Loan Purchases and Other Guarantee Commitment Issuances(1)

Year Ended December 31,

2014 2013 2012

Amount % of Total(2) Amount % of Total(2) Amount % of Total(2)

(dollars in millions)

Mortgage loan purchases and other guarantee commitment

issuances:

Single-family:

30-year or more amortizing fixed-rate $ 192,458 68% $ 287,773 63% $ 275,632 60%

20-year amortizing fixed-rate 8,677 3 21,658 5 29,614 7

15-year amortizing fixed-rate 38,200 13 97,025 22 103,141 23

Adjustable-rate 15,711 6 16,007 4 18,075 4

FHA/VA and other governmental 207 — 279 — 387 —

Total single-family(3) 255,253 90 422,742 94 426,849 94

Multifamily:

10-year(4) 11,069 4 14,977 3 16,223 3

7-year(4) 11,773 4 7,393 2 8,045 2

Other(5) 5,494 2 3,502 1 4,506 1

Total multifamily(6) 28,336 10 25,872 6 28,774 6

Total mortgage loan purchases and other guarantee

commitment issuances $ 283,589 100% $ 448,614 100% $ 455,623 100%

Percentage of mortgage loan purchases and other guarantee 

commitment issuances with credit enhancements(7) 23% 16% 12%

(1) Excludes the removal of seriously delinquent loans and balloon/reset mortgages from PC trusts. Includes purchases of mortgage loans for securitization 

that were previously associated with other guarantee commitments.

(2) Within these columns, "—" represents less than 0.5%.

(3) Includes $21.1 billion, $29.0 billion, and $32.6 billion of conforming jumbo loan purchases and $0.3 billion, $1.0 billion, and $0.9 billion of 

conforming jumbo loans underlying other guarantee commitment issuances for the years ended December 31, 2014, 2013, and 2012, respectively. The 

UPB of conforming jumbo loans in our single-family credit guarantee portfolio as of December 31, 2014 and 2013 was $79.1 billion and $69.0 billion, 

respectively. Includes issuances of other guarantee commitments on single-family loans of $2.6 billion, $9.9 billion, and $6.8 billion during the years 

ended December 31, 2014, 2013, and 2012, respectively.

(4) Includes interest-only and amortizing loans that may either be fixed or adjustable-rate.

(5) Includes other guarantee commitments on multifamily loans and multifamily mortgage loans with original maturities other than 10 years and 7 years.

(6) Includes loans and bonds underlying tax-exempt securitization transactions.

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86 Freddie Mac

(7) Excludes credit enhancement coverage occurring subsequent to our purchase or guarantee, such as through STACR debt notes or other risk transfer 

transactions (e.g., K Certificate transactions).

Our single-family purchase activity declined in 2014 compared to 2013 primarily due to reduced refinancing volume. In 

2014, refinancings comprised approximately 48% of our single-family purchase and issuance volume, compared with 73% in 

2013. We attribute this decline to higher average mortgage interest rates in 2014 compared to 2013. Many borrowers have 

already refinanced their loans in recent years at relatively low interest rates, and thus may be less likely to do so in the future.

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.

At December 31, 2014, the net fair value of our total derivative portfolio was $(1.1) billion compared to $883 million at 

December 31, 2013. See “NOTE 9: DERIVATIVES” for information regarding our derivatives, and the notional or contractual 

amounts and related fair values of our total derivative portfolio by product type at December 31, 2014 and 2013, 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.

REO, Net

We typically acquire properties as a result of borrower defaults (and subsequent foreclosures) on mortgage loans that we 

own or guarantee. These properties are recorded as REO assets on our consolidated balance sheets. The balance of our REO, 

net, declined to $2.6 billion at December 31, 2014 from $4.6 billion at December 31, 2013. The volume of our single-family 

REO acquisitions 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; (b) the volume of our foreclosure 

alternatives, which result in fewer loans proceeding to foreclosures, and thus fewer properties transitioning to REO; and (c) a 

large proportion of property sales to third parties at foreclosure. 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 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 that 

are in the process of foreclosure. 

The table below provides detail by region for REO activity. Our REO activity consists almost entirely of single-family 

residential properties.

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87 Freddie Mac

Table 34 — REO Activity by Region(1)

December 31,

2014 2013 2012

(number of properties)

REO Inventory

Single-family:

Inventory, beginning of period 47,307 49,071 60,535

Acquisitions, by region:

Northeast 7,657 10,023 7,352

Southeast 15,183 23,827 23,906

North Central 10,662 20,834 27,586

Southwest 3,721 6,996 10,197

West 5,042 9,001 13,771

Total single-family acquisitions 42,265 70,681 82,812

Dispositions, by region:

Northeast (9,435) (7,071) (7,544)

Southeast (21,969) (20,956) (25,803)

North Central (18,785) (25,946) (28,137)

Southwest (5,905) (8,395) (12,134)

West (7,710) (10,077) (20,658)

Total single-family dispositions (63,804) (72,445) (94,276)

Inventory, end of year 25,768 47,307 49,071

Multifamily:

Inventory, beginning of period 1 6 20

Acquisitions 1 4 6

Dispositions (2) (9) (20)

Inventory, end of year — 1 6

Total inventory, end of year 25,768 47,308 49,077

(1) See endnote (1) to “Table 16 — Single-Family Charge-offs and Recoveries by Region” for a description of these regions.

See “RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and Profile

— Managing REO Activity” for additional information about our REO management activities.

Deferred Tax Assets

We had a net deferred tax asset of $19.5 billion and $22.7 billion as of December 31, 2014 and 2013, respectively. We 

determined that a valuation allowance against our net deferred tax asset was not necessary at both December 31, 2014 and 

2013. See "NOTE 12: INCOME TAXES" and "CRITICAL ACCOUTING POLICIES AND ESTIMATES — Realizability of 

Deferred Tax Assets, Net" for additional information.

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. 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 affects our future financial results; (b) changes to our business 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. A

determination that it is appropriate to establish a valuation allowance in the future would result in an additional income tax 

expense and could 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 $7.7 billion as of December 31, 2014 from 

$8.5 billion as of December 31, 2013 due to a decrease in mortgage insurance and other credit enhancement receivables 

primarily resulting from decreased REO volume and a decrease in mortgage loans acquired with credit enhancements. 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.

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• 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 35 — Reconciliation of the Par Value and UPB to Total Debt, Net

December 31,

2014 2013

(in millions)

Total debt:

Other debt:

Par value $ 454,029 $ 511,345

Unamortized balance of discounts and premiums (3,918) (4,667)

Hedging-related and other basis adjustments (42) 89

Subtotal 450,069 506,767

Debt securities of consolidated trusts held by third parties:

UPB 1,440,325 1,399,456

Unamortized balance of discounts and premiums 39,148 34,528

Subtotal 1,479,473 1,433,984

Total debt, net $ 1,929,542 $ 1,940,751

The table below summarizes our other short-term debt.

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89 Freddie Mac

Table 36 — Other Short-Term Debt

2014

December 31,

Average Outstanding

During the Year Maximum

Carrying Value

Outstanding at

Carrying Value Any Month End

Weighted

Average

Effective Rate Carrying Value(1)

Weighted

Average

Effective Rate

(dollars in millions)

Reference Bills® securities and discount notes $ 134,619 0.12% $ 116,388 0.12% $ 134,619

Medium-term notes — — 750 0.16 4,000

Federal funds purchased and securities sold under

agreements to repurchase — — 15 0.11 —

Other short-term debt $ 134,619 0.12

2013

December 31,

Average Outstanding

During the Year Maximum

Carrying Value

Outstanding at

Carrying Value Any Month End

Weighted

Average

Effective Rate Carrying Value(1)

Weighted

Average

Effective Rate

(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

Carrying Value

Outstanding at

Carrying Value Any Month End

Weighted

Average

Effective Rate Carrying Value(1)

Weighted

Average

Effective Rate

(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

(1) Includes issuance costs which are reported within other assets on our consolidated balance sheets.

The table below presents the UPB for Freddie Mac-issued mortgage-related securities by the underlying mortgage 

product type.

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90 Freddie Mac

Table 37 — Freddie Mac Mortgage-Related Securities

December 31, 2014 December 31, 2013

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 $ 1,088,340 $ — $ 1,088,340 $ 1,040,602 $ — $ 1,040,602

20-year amortizing fixed-rate 78,603 — 78,603 81,214 — 81,214

15-year amortizing fixed-rate 278,282 — 278,282 291,347 — 291,347

Adjustable-rate(1) 69,683 — 69,683 66,250 — 66,250

Interest-only 23,941 — 23,941 29,083 — 29,083

FHA/VA and other governmental 3,154 — 3,154 3,366 — 3,366

Total single-family 1,542,003 — 1,542,003 1,511,862 — 1,511,862

 Multifamily 84 4,846 4,930 — 4,778 4,778

Total single-family and multifamily 1,542,087 4,846 1,546,933 1,511,862 4,778 1,516,640

Other Guarantee Transactions:

Non-HFA bonds:

Single-family(2) 7,030 2,760 9,790 8,396 3,079 11,475

Multifamily 440 75,730 76,170 444 59,326 59,770

Total Non-HFA bonds 7,470 78,490 85,960 8,840 62,405 71,245

HFA Initiative Bonds:

Single-family — 3,040 3,040 — 3,341 3,341

Multifamily — 720 720 — 744 744

Total HFA Initiative Bonds — 3,760 3,760 — 4,085 4,085

Total Other Guarantee Transactions 7,470 82,250 89,720 8,840 66,490 75,330

REMICs and Other Structured Securities

backed by Ginnie Mae certificates — 433 433 — 541 541

Total Freddie Mac Mortgage-Related

Securities $ 1,549,557 $ 87,529 $ 1,637,086 $ 1,520,702 $ 71,809 $ 1,592,511

Less: Repurchased Freddie Mac 

Mortgage-Related Securities(3) (109,232) (121,246)

Total UPB of debt securities of

consolidated trusts held by third parties $ 1,440,325 $ 1,399,456

(1) Includes $0.8 billion and $0.9 billion in UPB of option ARM mortgage loans as of December 31, 2014 and 2013, respectively.

(2) Backed by non-agency mortgage-related securities that include prime, FHA/VA, and subprime mortgage loans and also include $4.9 billion and 

$5.5 billion in UPB of securities backed by option ARM mortgage loans at December 31, 2014 and 2013, respectively.

(3) Our holdings of non-consolidated Freddie Mac mortgage-related securities are presented in “Table 27 — 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% at both December 31, 2014 and 2013. The UPB of 

multifamily Other Guarantee Transactions, excluding HFA initiative-related bonds, increased to $76.2 billion as of 

December 31, 2014 from $59.8 billion as of December 31, 2013, due to K Certificate issuances.

The table below shows issuances and extinguishments of the debt securities of our consolidated trusts during 2014 and 

2013, as well as the debt securities of consolidated trusts held by third parties, based on UPB.

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91 Freddie Mac

Table 38 — Issuances and Extinguishments of Debt Securities of Consolidated Trusts

Year Ended December 31,

2014 2013

(in millions)

Beginning balance of debt securities of consolidated trusts held by third parties $ 1,399,456 $ 1,387,259

Issuances of debt securities of consolidated trusts 257,293 425,619

Debt securities of consolidated trusts retained by us at issuance(1) (47,792) (38,390)

Net issuances of debt securities of consolidated trusts 209,501 387,229

Reissuances of debt securities of consolidated trusts previously held by us(2) 92,053 55,704

Total issuances to third parties of debt securities of consolidated trusts 301,554 442,933

Extinguishments, net(3) (260,685) (430,736)

Ending balance of debt securities of consolidated trusts held by third parties $ 1,440,325 $ 1,399,456

(1) Represents mortgage loans that we had purchased for cash, subsequently securitized, and retained in our mortgage-related investments portfolio.

(2) Represents sales of PCs and certain Other Guarantee Transactions previously held by us.

(3) Includes: (a) purchases of PCs and certain Other Guarantee Transactions from third parties; and (b) principal repayments related to PCs and certain 

Other Guarantee Transactions issued by our consolidated trusts.

Total issuances to third parties of debt securities of consolidated trusts and extinguishments, net decreased during 2014 

compared to 2013 primarily due to a decrease in refinance activity resulting from higher average mortgage interest rates in 

2014 compared to 2013.

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 decreased to $5.1 billion as of December 31, 2014 from $5.5 billion as of 

December 31, 2013 primarily due to a decrease in our liability to servicers for advanced interest due to a decline in the 

seriously delinquent loan population. See “NOTE 19: SELECTED FINANCIAL STATEMENT LINE ITEMS” for additional 

information.

Total Equity

The table below presents the changes in total equity and certain capital-related disclosures.

Table 39 — Changes in Total Equity

Three Months Ended

Year

Ended

12/31/2014 9/30/2014 6/30/2014 3/31/2014 12/31/2013 12/31/2014

(in millions)

Beginning balance $ 5,186 $ 4,290 $ 6,899 $ 12,835 $ 33,436 $ 12,835

Net income 227 2,081 1,362 4,020 8,613 7,690

Other comprehensive income (loss), net of taxes:

Changes in unrealized gains (losses) related to available-for-sale

securities 22 656 479 427 970 1,584

Changes in unrealized gains (losses) related to cash flow hedge

relationships 46 50 49 52 66 197

Changes in defined benefit plans (44) (1) — — 186 (45)

Comprehensive income 251 2,786 1,890 4,499 9,835 9,426

Capital draw funded by Treasury — — — — — —

Senior preferred stock dividends declared (2,786) (1,890) (4,499) (10,435) (30,436) (19,610)

Total equity/Net worth $ 2,651 $ 5,186 $ 4,290 $ 6,899 $ 12,835 $ 2,651

Aggregate draws under the Purchase Agreement (as of period end)(1) $ 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) $ 90,955 $ 88,169 $ 86,279 $ 81,780 $ 71,345 $ 90,955

(1) Does not include the initial $1.0 billion liquidation preference of senior preferred stock that we issued to Treasury in September 2008 as an initial 

commitment fee and for which no cash was received. Under the Purchase Agreement, the payment of dividends does not reduce the outstanding 

liquidation preference.

At December 31, 2014, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from 

Treasury under the Purchase Agreement for the fourth quarter of 2014. We paid cash dividends to Treasury of $19.6 billion 

during 2014. Based on our Net Worth Amount at December 31, 2014 and the 2015 Capital Reserve Amount of $1.8 billion, our 

dividend obligation to Treasury in March 2015 will be $851 million.

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92 Freddie Mac

Our available-for-sale securities net unrealized gains (losses) recorded in AOCI was $2.5 billion and $1.0 billion at 

December 31, 2014 and 2013, respectively. This improvement in AOCI was primarily due to fair value gains resulting from the 

impact of spread tightening on our non-agency mortgage-related securities and the movement of these securities with 

unrealized losses towards maturity.

RISK MANAGEMENT

Risk Management 

Overview

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. 

Risk management is a critical aspect of our business. Our ability to identify, measure, mitigate, and report risk is critical 

to our ability to maintain risk at an appropriate level.

 See “RISK FACTORS” for additional information regarding certain risks material to our business. See 

“QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” for information about our interest rate 

and other market risks.

Risk Management Framework

We manage risk using a three-lines-of-defense risk management framework. The first line of defense, defined generally 

as our business units, is responsible for identifying, assessing, measuring, mitigating and reporting the risks in their business. In 

the first line of defense role, each business unit is responsible for managing its risks in conformance with the risk guidelines, 

risk policies and risk limits approved by the Board, the Risk Committee of our Board and executive management. The second 

line of defense, our Enterprise Risk Management and Compliance divisions, is accountable for: (a) reporting risk to senior 

management and, as needed, the Board; (b) managing risks at the corporate level and setting the overall risk appetite and 

framework for monitoring risk; and (c) providing oversight of the first line. The second line of defense provides company-wide 

leadership and oversight to help ensure effective and consistent understanding and management of risks by our business units. 

The third line of defense, our Internal Audit division, provides independent assurance related to the design and effectiveness of 

the company’s risk management, internal control and governance processes through its audit, assurance, and advisory work. 

The Internal Audit division reports independently to the Audit Committee of the Board. For more 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.”

The company has in place a governance structure including enterprise wide oversight provided by the Board, CERO and 

CCO, as well as our Enterprise Risk Management Committee, chaired by the CERO, which is responsible for overseeing the 

establishment of enterprise risk policies; monitoring risk through risk reporting and analysis; and the development and 

execution of the framework for managing market, operational, counterparty and credit risk.

We utilize an internal economic capital framework and models in our risk management process. Our economic capital 

framework provides a risk-based measurement of capital which reflects relevant market, credit, counterparty, and operational 

risks. We assign economic capital internally to asset classes based on their respective risks. We consider economic capital an 

input when we make economic decisions, establish risk limits and measure profitability.

Risk Profile

The following risk profile sections describe our current risk environment and include a discussion of quantitative and/or 

qualitative assessments of specific risks. During 2014, we made enhancements to our risk management framework. These 

enhancements are designed to strengthen risk ownership in our business units and add clarity to risk management roles and 

responsibilities. We believe these enhancements will improve our risk management effectiveness. As part of this effort, we are 

re-organizing certain activities across the company. During our transition, we may experience elevated operational risks. We are 

actively managing this risk.

Credit Risk Overview

We are subject primarily to two types of credit risk: (a) mortgage credit risk; and (b) 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 Overview

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 mortgageTable of Contents
93 Freddie Mac

related securities. For information about our holdings of these securities, see “CONSOLIDATED BALANCE SHEETS 

ANALYSIS — Investments in Securities - Mortgage-Related Securities.”

Conditions in the single-family mortgage market improved in most geographic areas during the last two years. The 

balance of non-performing single-family loans in our single-family credit guarantee portfolio declined in both 2014 and 2013, 

but remains at elevated levels compared to our historical experience.

Single-Family Mortgage Credit Risk Framework and Profile

Our risk exposure to single-family loans is represented by all loans we either purchase or guarantee, which we refer to as 

our single-family credit guarantee portfolio. Our principal strategies for managing single-family mortgage credit risk are: (a) 

maintaining policies and procedures, including underwriting and servicing standards, that govern new business activity and our 

portfolio; (b) monitoring the characteristics of the loans that we purchase or guarantee; (c) transferring a portion of our 

mortgage credit risk through credit enhancements, including insurance and other risk transfer transactions; (d) monitoring loan 

performance and making adjustments to our standards and policies, if necessary; (e) managing problem loans, including early 

intervention through loan workouts and foreclosures; and (f) managing REO activities.

Maintaining Policies and Procedures for our New Business Activity

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

contracts with sellers describe mortgage eligibility and underwriting standards, and the sellers 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, including but not limited to, the credit 

profile of the borrower, the features of the mortgage, and the LTV ratio. 

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

purchased for compliance with our standards. We give our sellers an opportunity to appeal ineligible loan determinations in 

response to our request for the repurchase of the loan. The loan review and appeal process is lengthy. Although we are still 

reviewing 2014 originations, we have completed a substantial number of reviews and compiled results of our review of 2013 

originations. Based on reviews completed through December 31, 2014, the average aggregate ineligible loan rate across all 

sellers for loans funded during 2013, 2012, and 2011 (excluding HARP and other relief refinance loans) was approximately 

1.4%, 3.0%, and 5.7%, respectively. These rates may change in the future as our sellers may appeal our findings. The most 

common underwriting defect found in our review of loans funded during 2013 (excluding HARP and other relief refinance 

loans) related to the delivery of inaccurate income data. 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.

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

on our loans on our behalf. This includes performing the loan workout and foreclosure activities described below in "Managing 

Problem Loans." We have contractual arrangements with our servicers under which they represent and warrant that they will 

service our loans in accordance with our standards. We monitor our servicers' compliance with our servicing standards and 

periodically review their servicing operations process.

If we discover that representations and warranties were breached in either underwriting or servicing a loan (i.e., that 

contractual standards were not followed), we can exercise certain contractual remedies to mitigate our actual or potential credit 

losses on the loans. These contractual remedies may include the ability to require the seller or the servicer to repurchase the 

loan at its current UPB. 

For more information, see “BUSINESS — Our Business Segments — Single-Family Guarantee Segment — 

Underwriting Requirements, Quality Control Standards and the Representation and Warranty Framework” and “Institutional 

Credit Risk Profile — Single-family Mortgage Seller/Servicers.”

Monitoring the Characteristics of the Loans that We Purchase or Guarantee

We actively monitor the characteristics of loans we purchase, and our Enterprise Risk Management division establishes 

limits on the quantity of loans we purchase that have certain higher risk characteristics. These limits are designed to help us 

balance the amount of risk we can accept in our portfolio with the facilitation of affordable housing in a responsible manner. 

The following are some of the loan and borrower characteristics we monitor.

• Original LTV Ratio: We use the original LTV ratio to measure the ability of the underlying property to protect our 

interests in the loan. The higher the LTV ratio, the greater the risk we could incur a loss if the borrower defaults on the 

loan, as the proceeds we could obtain on the sale of the underlying property might not be enough to cover our 

exposure on the loan. We require credit enhancement on loans with an original LTV ratio greater than 80%. Due to our 

participation in HARP, we have purchased a significant number of loans that have LTV ratios over 100% in the last 

several years. HARP loans with LTV ratios over 100% represented 3% and 8% of our single-family mortgage 

purchases in 2014 and 2013, respectively.

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94 Freddie Mac

• Credit Score: We use credit scores as one measure for assessing the credit quality of a borrower. We primarily use 

FICO scores, which are currently the most commonly used credit scores. 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 in 

this Form 10-K are at the time of origination and may not be indicative of the borrowers’ creditworthiness at 

December 31, 2014. 

• Loan Purpose: We use loan purpose to measure credit risk. Loan purpose indicates how the borrower intends to use the 

funds from a mortgage loan. For example, in a purchase transaction, the funds are used to acquire a property. Cash-out 

refinancings generally have had a higher risk of default than mortgages originated in other refinance or purchase 

transactions. In 2014, the portion of home purchase loans in our loan acquisition volume increased (and refinancing 

loans declined) compared to 2013.

• Property and Occupancy Type: We use the property type and occupancy type to measure credit risk. Detached singlefamily houses and townhomes are the predominant type of single-family property. Condominiums are a property type 

that historically has experienced 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 a second home. Our single-family credit guarantee portfolio 

consists predominantly of first-lien mortgage loans secured by the borrower’s primary residence. 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 second homes. 

• Geographic Concentration: We also monitor geographic concentrations. 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 

"Table 47 — Credit Concentrations in the Single-Family Credit Guarantee Portfolio," and “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: We monitor mortgages with identified second liens at origination. The presence of a 

second lien can increase the risk that a borrower will default. Based on data collected by us at loan delivery, 

approximately 14% of the loans in our single-family credit guarantee portfolio, as of both December 31, 2014 and 

2013, had second-lien financing by third parties at origination of the first mortgage. As of December 31, 2014 and 

2013, we estimate that these loans comprised 18% and 17% of our seriously delinquent loans based on UPB, 

respectively. 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 secondlien mortgages.

• Attribute Combinations: We monitor certain combinations of loan characteristics that 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 

$12.5 billion and $12.8 billion of UPB at December 31, 2014 and 2013, respectively, of loans in our single-family 

credit guarantee portfolio with both original LTV ratios greater than 90% and credit scores less than 620 at the time of 

loan origination, and that $0.4 billion and $0.3 billion, respectively, of the UPB of such loans was in our New singlefamily book. 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. See “Table 48 — Single-Family Credit Guarantee Portfolio by Attribute 

Combinations” for information about certain attribute combinations of our single-family mortgage loans.

Risk Profile

We believe the credit quality of the single-family loans in our New single-family book reflects sound underwriting 

standards as evidenced by their average original LTV ratios, credit scores, and credit performance through 2014. However, in 

2014 and 2013, as refinancing volumes declined, the composition of our loan purchase activity has shifted to a higher 

proportion of home purchase loans, which generally have higher original LTV ratios than loans sold to us during 2010 through 

2012. During 2014, refinancings comprised approximately 48% of our single-family purchase and issuance volume, compared 

with 73% in 2013 and 83% in 2012. Approximately 11% and 23% of our single-family purchase and issuance volume in 2014 

and 2013, respectively, were relief refinance mortgages.

We purchased loans or issued other guarantee commitments for approximately 1,214,000 and 2,070,000 single-family 

loans totaling $255.3 billion and $422.7 billion of UPB during 2014 and 2013, respectively. During 2014 and 2013, we 

purchased or guaranteed more than 607,000 and 1.5 million refinance mortgages, totaling $121.0 billion and $308.7 billion in 

UPB, respectively. We attribute the decline in our purchases of refinance mortgages to higher average mortgage interest rates in 

2014 compared to 2013. Approximately 94% of the single-family mortgages we purchased or guaranteed in 2014 were fixedrate amortizing mortgages, based on UPB, and the remainder were ARMs. 

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95 Freddie Mac

The table below provides characteristics of single-family mortgage loans purchased or covered by other guarantee 

commitments during 2014, 2013, and 2012, based on UPB.

Table 40 — Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio(1)

Percent of Purchases During the Year Ended December 31,

2014 2013 2012

Relief Refi All Other Total Relief Refi All Other Total Relief Refi All Other Total

Original LTV Ratio Range

60% and below 2% 14% 16% 3% 19% 22% 4% 21% 25%

Above 60% to 70% 1 11 12 2 12 14 2 12 14

Above 70% to 80% 2 40 42 3 33 36 3 29 32

Above 80% to 100% 3 24 27 7 13 20 8 9 17

Above 100% to 125% 2 — 2 5 — 5 7 — 7

Above 125% 1 — 1 3 — 3 5 — 5

Total 11% 89% 100% 23% 77% 100% 29% 71% 100%

Weighted average original LTV ratio 82% 76% 76% 91% 71% 75% 97% 68% 76%

Credit Score

740 and above 5% 56% 61% 11% 55% 66% 17% 55% 72%

700 to 739 2 20 22 5 15 20 6 11 17

660 to 699 2 10 12 4 6 10 4 4 8

620 to 659 1 3 4 2 1 3 1 1 2

Less than 620 1 — 1 1 — 1 1 — 1

Total 11% 89% 100% 23% 77% 100% 29% 71% 100%

Weighted average credit score:

Total mortgages 713 748 744 727 756 749 740 762 756

Percent of Purchases During the Year Ended

December 31,

2014 2013 2012

Loan Purpose

Purchase 52% 27% 18%

Cash-out refinance 17 16 15

Other refinance(2) 31 57 67

Total 100% 100% 100%

Property Type

Detached/townhome(3) 92% 93% 94%

Condo/Co-op 8 7 6

Total 100% 100% 100%

Occupancy Type

Primary residence 88% 88% 91%

Second/vacation home 4 4 4

Investment 8 8 5

Total 100% 100% 100%

(1) Within this table, "—" represents less than 0.5%.

(2) 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.

(3) Includes manufactured housing and homes within planned unit development communities. 

Transferring a Portion of our Mortgage Credit Risk

As guarantor, we remain responsible for the payment of principal and interest on our PCs regardless of whether the 

borrower performs on the underlying mortgage loan. We also are subject to mortgage credit risk for unsecuritized loans. We use 

credit enhancements to transfer a portion of our mortgage credit risk and mitigate some of our potential credit losses. By 

transferring a portion of the credit risk associated with mortgage loans in our single-family credit guarantee portfolio, we 

reduce our exposure to loss and, consequently, the amount of capital that would be required to operate our business. Credit 

enhancements include: (a) primary mortgage insurance; (b) STACR and ACIS risk transfer transactions; (c) pool insurance; and 

(d) recourse to lenders. 

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

specified credit enhancements. Our sellers require the borrower to purchase primary mortgage insurance at the origination of 

the mortgage if the LTV ratio is above 80% in order to meet our requirements (subject to certain exceptions, such as HARP). 

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96 Freddie Mac

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, if any, that was already in place.

We use our risk transfer and other credit enhancement transactions to distribute some of our exposure across multiple 

counterparties. We use STACR and ACIS risk transfer transactions to transfer a portion of credit losses that could occur under 

adverse home price scenarios (through a mezzanine credit loss position) on certain groups of loans in our New single-family 

book from us to third-party investors. In these transactions, we first create a reference pool consisting of single-family 

mortgage loans. We then create a hypothetical securitization structure with notional credit risk positions (e.g., first, mezzanine, 

and senior loss positions). The credit risk related to the mezzanine loss position is typically divided as follows:

• We transfer a portion of the credit risk on the position to investors through the issuance of STACR debt notes; 

• We may insure an additional portion of the position through an ACIS transaction; and

• We retain the remaining credit risk related to the position. 

 Our STACR and ACIS transactions generally have terms of ten years since, for a performing loan, our loss exposure 

generally declines over time. Although we only completed STACR debt note and ACIS transactions related to mezzanine loss 

positions in 2014 and 2013, we began issuing STACR debt note transactions in 2015 that transfer some of the first loss 

positions. For further information about STACR and ACIS transactions, see “BUSINESS — Our Business — Our Business 

Segments — Single-Family Guarantee Segment — Credit Enhancements.” 

Prior to 2008, we also purchased pool insurance, which provides insurance on a group of mortgage loans up to a stated 

aggregate limit. The majority of these policies will expire within the next five years. 

Although the financial condition of certain of our mortgage insurers has improved in recent years, some have failed to 

fully meet their obligations and there remains a significant risk that others may fail to do so. See “Institutional Credit Risk 

Profile” 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. 

Risk Profile

The portion of our single-family mortgage purchases in 2014 and 2013 that had credit enhancements was 25% and 17%, 

respectively. This increase is primarily due to a higher composition of home purchase loans and a lower volume of 

refinancings, particularly relief refinance loans, in 2014 compared to 2013. Home purchase loans typically have higher LTV

ratios than refinance loans, and therefore are more likely to require mortgage insurance.

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. As of December 31, 2014 and 2013, approximately $227.5 

billion and $203.5 billion, respectively, in UPB of loans in our single-family credit guarantee portfolio were covered by 

primary mortgage insurance, and we had coverage on these loans totaling $57.9 billion and $50.8 billion, respectively.

We recognized recoveries from credit enhancements (excluding recoveries that represent reimbursements for our 

expenses, such as REO operations expenses) of $0.7 billion and $1.5 billion that reduced our charge-offs of single-family loans 

during 2014 and 2013, respectively. Substantially all of these amounts represent recoveries associated with our primary 

mortgage insurance policies. We also recognized recoveries from credit enhancements of $194 million and $196 million during 

2014 and 2013, respectively, as part of REO operations income (expense). These recoveries were also primarily associated with 

our primary mortgage insurance policies.

We executed ten credit risk transfer transactions during 2014. Since 2013, we have completed STACR transactions 

covering $205.4 billion in principal of the mortgage loans in our New single-family book.

The table below provides information about: (a) the UPB of STACR transactions and the notional amount of ACIS 

transactions completed during 2014 and 2013; and (b) balances of STACR and ACIS related amounts as of December 31, 2014 

and 2013.

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97 Freddie Mac

Table 41 — Risk Transfer Transactions

Year Ended December 31,

2014 2013

Retained by

Freddie Mac

Transferred to

Third Parties Total

Retained by

Freddie Mac

Transferred to

Third Parties Total

(in millions)

Issuance information:

First loss positions $ 683 $ — $ 683 $ 174 $ — $ 174

Mezzanine loss positions:

STACR debt notes — 4,916 4,916 — 1,130 1,130

Non-issued (and ACIS)(1) 1,623 439 2,062 356 78 434

Subtotal mezzanine loss positions $ 1,623 $ 5,355 6,978 $ 356 $ 1,208 1,564

Senior (remaining) loss positions $ 139,823 $ — 139,823 $ 56,174 $ — 56,174

Total reference pools $ 147,484 $ 57,912

Additional ACIS transactions(2) $ 270 $ —

As of December 31, 2014 As of December 31, 2013

Retained by

Freddie Mac

Transferred to

Third Parties Total

Retained by

Freddie Mac

Transferred to

Third Parties Total

(in millions)

Remaining balance information:

First loss positions $ 853 $ — $ 853 $ 174 $ — $ 174

Mezzanine loss positions:

STACR debt notes — 5,896 5,896 — 1,107 1,107

Non-issued (and ACIS)(1) 1,680 761 2,441 350 76 426

Subtotal mezzanine loss positions $ 1,680 $ 6,657 8,337 $ 350 $ 1,183 1,533

Senior (remaining) loss positions $ 183,336 $ — 183,336 $ 55,196 $ — 55,196

Total reference pools $ 192,526 $ 56,903

(1) Amounts retained by Freddie Mac represent the balance of our mezzanine loss positions in STACR transactions reduced by coverage under ACIS 

transactions. Amounts transferred to third parties represent coverage under ACIS transactions, and are the maximum amount of coverage provided by 

insurance counterparties to absorb a portion of our mezzanine losses. Not all of our non-issued, mezzanine positions had coverage under ACIS 

transactions at December 31, 2014.

(2) Represents an ACIS transaction during 2014 that relates to the mezzanine loss position of a STACR transaction completed in 2013.

For loans in our New single-family book that are covered by credit enhancement in the form of STACR debt notes and 

ACIS transactions, we may receive recoveries when the loans experience a credit event, which includes a loan becoming 180 

days delinquent. We would receive such recoveries by writing down the principal in STACR debt notes transactions and 

through the payment of insurance claims in ACIS transactions. However, we retained all of the first loss position for loans 

covered by STACR transactions completed in 2014 and 2013. As shown in the table above, as of December 31, 2014, we are 

exposed to the first $853 million of losses on the $192.5 billion total reference pools of covered loans. As of December 31, 

2014 there has not been a significant amount of loans in our STACR debt note reference pools that had experienced a credit 

event. As a result, we have not recognized any credit-related write downs on any of our STACR debt notes nor have we made 

any claims for loss recoveries under our ACIS transactions.

As of December 31, 2014 and 2013, approximately $3.2 billion and $6.5 billion, respectively, in UPB of loans in our 

single-family credit guarantee portfolio were covered by pool insurance, and we had coverage on these loans totaling $0.9 

billion and $1.2 billion, respectively. We may exhaust the insurance coverage on the contracts before the policies expire.

Certain of our single-family Other Guarantee Transactions use subordinated security structures as a form of credit 

enhancement. At December 31, 2014 and 2013, the UPB of single-family Other Guarantee Transactions with subordination 

coverage at origination was $2.4 billion and $2.6 billion, respectively, and the subordination coverage on these securities was 

$339 million and $399 million, respectively. At December 31, 2014 and 2013, the serious delinquency rate on single-family 

Other Guarantee Transactions with subordination coverage was 17.1% and 19.0%, respectively.

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.

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98 Freddie Mac

Monitoring Loan Performance

A number of factors influence loan performance and single-family mortgage credit risk, including loan and borrower 

characteristics (such as those described in “Monitoring the Characteristics of the Loans that We Purchase or Guarantee”) and 

local and regional economic conditions (such as home prices and unemployment rates).

We monitor the performance of our single-family credit guarantee portfolio using a variety of metrics, including 

delinquency statistics and estimated current LTV ratios. Our single-family business unit reviews performance, in conjunction 

with housing market and economic conditions, to determine if our pricing and loan eligibility standards reflect the risk 

associated with the loans we purchase and guarantee. We also review the payment performance of our loans in order to help 

identify potential problem loans early and inform our loss mitigation strategies. We periodically make changes to our seller/

servicer guidelines if warranted.

We review additional performance metrics within certain groupings of loan and product types that may expose us to 

concentrations of risk. As a result of our review, we fully discontinued purchases of Alt-A (effective March 1, 2009), interestonly (effective September 1, 2010), and option ARM (since 2007) loans. 

Risk Profile

A higher estimated current LTV ratio can indicate that the borrower’s equity in the home has declined. Based on our 

historical experience, there is an increase in borrower default risk and in severity of losses as LTV ratios increase. The 

percentage of mortgages in our single-family credit guarantee portfolio with estimated current LTV ratios greater than 100% 

was 6% and 10% at December 31, 2014 and 2013, respectively, and the serious delinquency rate for these loans was 9.06% and 

9.94%, respectively. Loans with current LTV ratios greater than 100% comprised approximately 61% and 68% of our credit 

losses recognized in 2014 and 2013, respectively. The portion of our single-family credit guarantee portfolio with current LTV

ratios greater than 100% declined in 2014 primarily due to foreclosures, short sales, and improving home prices in many 

geographic areas.

Improvement in home prices in many areas of the U.S. during 2014 generally led to improved estimated current LTV

ratios of the loans in our portfolio as of December 31, 2014. 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 721 and 722 

at December 31, 2014 and 2013, respectively. We continue to purchase non-HARP mortgage loans with original LTV ratios 

greater than 80% if they are covered by credit enhancements for the UPB in excess of 80%. 

The table below provides characteristics of single-family mortgage loans in our single-family credit guarantee portfolio at 

December 31, 2014, 2013, and 2012, based on UPB.

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99 Freddie Mac

Table 42 — Characteristics of the Single-Family Credit Guarantee Portfolio(1)

Portfolio Balance at December 31,(2)

2014 2013 2012

Original LTV Ratio Range

60% and below 21% 22% 22%

Above 60% to 70% 14 15 15

Above 70% to 80% 38 38 40

Above 80% to 100% 21 19 18

Above 100% 6 6 5

Total 100% 100% 100%

Weighted average original LTV ratio 75% 75% 74%

Estimated Current LTV Ratio Range(3)

60% and below 39% 33% 28%

Above 60% to 70% 18 18 14

Above 70% to 80% 19 20 21

Above 80% to 90% 12 12 13

Above 90% to 100% 6 7 9

Above 100% to 120% 4 6 8

Above 120% 2 4 7

Total 100% 100% 100%

Weighted average estimated current LTV ratio:

Relief refinance mortgages 75% 81% 83%

All other mortgages 64 66 74

Total mortgages 66 69 75

Credit Score

(4)

740 and above 58% 58% 56%

700 to 739 20 20 21

660 to 699 13 13 14

620 to 659 6 6 6

Less than 620 3 3 3

Total 100% 100% 100%

Weighted average credit score:

Relief refinance mortgages 733 735 741

All other mortgages 742 740 736

Total mortgages 740 739 737

Loan Purpose

Purchase 30% 26% 27%

Cash-out refinance 21 22 24

Other refinance(5) 49 52 49

Total 100% 100% 100%

Property Type

Detached/townhome(6) 93% 93% 92%

Condo/Co-op 7 7 8

Total 100% 100% 100%

Occupancy Type

Primary residence 90% 90% 90%

Second/vacation home 4 4 5

Investment 6 6 5

Total 100% 100% 100%

(1) Other Guarantee Transactions with ending balances of $1 billion at December 31, 2014, 2013 and 2012, respectively, are excluded since these 

securities are backed by non-Freddie Mac issued securities for which the loan characteristics data was not available.

(2) Includes loans acquired under our relief refinance initiative, which comprised approximately 20%, 21%, and 18% of our single-family credit guarantee 

portfolio based on UPB as of December 31, 2014, 2013, and 2012, respectively.

(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 geographic area since that time.

(4) Credit score data was not available for less than 0.5% of loans in the single-family credit guarantee portfolio at December 31, 2014, 2013, and 2012.

(5) 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.

(6) Includes manufactured housing and homes within planned unit development communities.

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100 Freddie Mac

The table below presents certain credit information about loans in our single-family credit guarantee portfolio by year of 

origination as of December 31, 2014 and for the year then ended.

Table 43 — Single-Family Credit Guarantee Portfolio Data by Year of Origination(1)

December 31, 2014

Year Ended

December 31, 2014

Percent of

Portfolio

Average

Credit

Score

(2)

Original

LTV Ratio

Current

LTV

Ratio(3)

Current

LTV Ratio

>100%(3)(4)

Serious

Delinquency

Rate

Foreclosure

and Short

Sale Rate(5)

Percent

of Credit

Losses(4)

Year of Origination

2014 12% 748 76% 75% —% 0.02% —% —%

2013 16 754 71 63 — 0.06 — —

2012 14 761 69 56 — 0.09 0.01 —

2011 6 757 69 54 — 0.26 0.06 —

2010 6 754 69 56 — 0.46 0.15 1

2009 6 751 68 59 1 0.92 0.42 2

Subtotal - New singlefamily book 60 755 71 62 — 0.24 0.14 3

HARP and other relief 

refinance loans(6) 20 733 89 75 15 0.75 0.75 8

2005-2008 Legacy singlefamily book 13 702 75 83 24 7.59 8.62 81

Pre-2005 Legacy singlefamily book 7 709 73 47 2 3.10 1.42 8

Total 100% 740 75 66 6 1.88 100%

(1) Except for the foreclosure and short sale rate, the data presented is based on the loans remaining in the portfolio at December 31, 2014, which totaled 

$1.7 trillion. 

(2) Excludes less than 0.5% of loans in the portfolio because the credit scores at origination were not available.

(3) See endnote (3) to "Table 42 — Characteristics of the Single-Family Credit Guarantee Portfolio" for information about current LTV ratios.

(4) Within these columns, "—" represents less than 0.5%.

(5) 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, 2014, divided by the number of loans originated in that year 

that were acquired in our single-family credit guarantee portfolio. 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.

(6) HARP and other relief refinance loans are presented separately rather than in the year that the refinancing occurred (from 2009 to 2014). All other 

refinance loans are presented in the year that the refinancing occurred.

Serious Delinquency Rates

We monitor the single-family serious delinquency rates of our portfolio, which are 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. 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 lags in the reporting of payment status and modification 

completion due to differing practices of our servicers that can affect our delinquency reporting.

 In 2014, the serious delinquency rate of our single-family credit guarantee portfolio continued the trend of improvement 

of the past several years, declining to 1.88% as of December 31, 2014 (which is the lowest level since January 2009) from 

2.39% as of December 31, 2013. The improvement in our serious delinquency rate in 2014 is primarily due to lower volumes of 

single-family loans becoming seriously delinquent, continued loss mitigation and foreclosure activities for loans in the Legacy 

single-family books, and the sale of certain seriously delinquent loans. See "Managing Problem Loans" for additional 

information about delinquency rates and concentrations of risk for loans in our single-family credit guarantee portfolio.

Although the serious delinquency rate for all our single-family loans was 1.88% at December 31, 2014, the rate for our 

New single-family book was 0.24% at that date, which we believe reflects both improvements in underwriting and relatively 

stable and improving economic conditions in recent years. Approximately one-half of our seriously delinquent single-family 

loans were greater than one year past due at December 31, 2014. The gradual reduction of our 2005-2008 Legacy single-family 

book has contributed to the improvement in the payment performance of our single-family credit guarantee portfolio. 

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101 Freddie Mac

The table below presents serious delinquency rates and information about other problem loans in our single-family credit 

guarantee portfolio.

Table 44 — Single-Family Serious Delinquency Statistics

As of December 31, 2014 As of December 31, 2013 As of December 31, 2012

Percentage

Serious

Delinquency

Rate(1) Percentage

Serious

Delinquency

Rate(1) Percentage

Serious

Delinquency

Rate(1)

Credit Protection:

Non-credit-enhanced 77% 1.74% 83% 2.09% 87% 2.66%

Credit-enhanced:(2)

Primary mortgage

insurance 14% 3.10% 12% 4.40% 12% 7.08%

Other(3) 12% 1.21% 5% 3.66% 1% 8.56%

Total(4) 1.88% 2.39% 3.25%

# 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:(5)(6)

Florida 25,656 13% 3.92% 42,948 17% 6.44% 69,034 20% 9.87%

New York 19,462 10 4.06 21,459 8 4.41 22,592 6 4.59

New Jersey 16,960 8 5.49 19,306 8 6.20 21,742 6 6.87

Illinois 11,902 6 2.17 15,521 6 2.79 22,923 7 4.08

California 11,386 6 0.92 15,620 6 1.30 27,620 8 2.34

All others 112,700 57 1.52 137,907 55 1.85 185,683 53 2.45

Total 198,066 100% 252,761 100% 349,594 100%

# of Seriously

Delinquent

Loans Percent

# of Seriously

Delinquent

Loans Percent

# of Seriously

Delinquent

Loans Percent

Aging, by locality:(6)

Judicial states:(7)

Less than or equal

to 1 year 50,138 25% 59,129 23% 79,422 23%

More than 1 year

and less than or

equal to 2 years

21,919 11 30,604 12 50,506 14

More than 2 years 48,984 25 65,154 26 77,766 22

Non-judicial states:(7)

Less than or equal

to 1 year 49,657 25 60,175 24 87,641 25

More than 1 year

and less than or

equal to 2 years

12,989 7 17,968 7 30,435 9

More than 2 years 14,379 7 19,731 8 23,824 7

Combined:(7)

Less than or equal

to 1 year 99,795 50 119,304 47 167,063 48

More than 1 year

and less than or

equal to 2 years

34,908 18 48,572 19 80,941 23

More than 2 years 63,363 32 84,885 34 101,590 29

Total 198,066 100% 252,761 100% 349,594 100%

Payment Status:

 One month past due 1.52% 1.73% 1.85%

 Two months past due 0.49% 0.57% 0.66%

(1) In the third quarter of 2014, we revised our presentation of single-family non-credit enhanced and credit-enhanced serious delinquency rates. As part of 

this revision, we began categorizing loans covered by our STACR and ACIS risk transfer transactions as credit-enhanced, whereas they had previously 

been categorized as non-credit-enhanced. This revision did not affect our total single-family serious delinquency rate. Prior periods have been revised 

to conform with the current presentation.

(2) The credit enhanced categories are not mutually exclusive as a single loan may be covered by both primary mortgage insurance and other credit 

protection. See “Institutional Credit Risk Profile” for information about our counterparties that provide credit enhancement on loans in our singlefamily credit guarantee portfolio.

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102 Freddie Mac

(3) Consists of single-family mortgage loans covered by financial arrangements (other than primary mortgage insurance) that are designed to reduce our 

credit risk exposure, including loans in reference pools covered by STACR transactions as well as other forms of credit protection.

(4) As of December 31, 2014, 2013, and 2012, approximately 53%, 61%, and 68%, respectively, of the single-family loans reported as seriously delinquent 

were in the process of foreclosure.

(5) States presented have the highest number of seriously delinquent loans as of December 31, 2014.

(6) Excludes loans underlying certain single-family Other Guarantee Transactions since the geographic information is not available to us for these loans. 

The serious delinquency rate for all single-family Other Guarantee Transactions was 10.11%, 10.91%, and 10.60% as of December 31, 2014, 2013, and 

2012, respectively. Single-family Other Guarantee Transactions generally have underlying mortgage loans with higher risk characteristics.

(7) The states and territories classified as having a judicial foreclosure process consist of: CT, DC, 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.

Higher-Risk Loans

We also monitor certain higher-risk loans in our portfolio. The table below presents information about certain categories 

of single-family mortgage loans in our single-family credit guarantee portfolio that we believe have certain higher-risk 

characteristics. These loans include categories based on product type and borrower characteristics present at origination. The 

table includes a presentation of each higher risk category in isolation. A single loan may fall within more than one category (for 

example, an interest-only loan may also have an original LTV ratio greater than 90%). Loans with a combination of these 

characteristics will have an even higher risk of default than those with a single characteristic.

Table 45 — Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio(1)

As of December 31, 2014

UPB

Estimated

Current LTV(2)

Percentage

Modified

Serious

Delinquency

Rate

(dollars in billions)

Loans with one or more specified characteristics $ 364.3 88% 8.5% 4.16%

Categories (individual characteristics):

Alt-A 48.3 82 19.9 8.53

Interest-only(3) 27.8 87 0.2 9.36

Option ARM(4) 5.7 79 12.5 9.87

Original LTV ratio greater than 90%, non-HARP mortgages 123.2 87 9.4 3.97

Original LTV ratio greater than 90%, HARP mortgages 149.0 96 0.8 1.18

Lower credit scores at origination (less than 620) 44.9 79 19.2 8.57

As of December 31, 2013

UPB

Estimated

Current LTV(2)

Percentage

Modified

Serious

Delinquency

Rate

(dollars in billions)

Loans with one or more specified characteristics $ 364.5 94% 8.1% 5.31%

Categories (individual characteristics):

Alt-A 56.9 87 16.3 10.06

Interest-only(3) 34.7 93 0.2 12.51

Option ARM(4) 6.4 86 11.0 12.30

Original LTV ratio greater than 90%, non-HARP mortgages 103.4 91 10.1 5.66

Original LTV ratio greater than 90%, HARP mortgages 154.3 103 0.5 0.97

Lower credit scores at origination (less than 620) 47.8 83 17.4 9.99

(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. 

Excludes loans underlying certain Other Guarantee Transactions for which data was not available.

(2) See endnote (3) to “Table 42 — Characteristics of the Single-Family Credit Guarantee Portfolio” for information about current LTV ratios.

(3) 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.

(4) For reporting purposes, loans in 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.

A significant portion of the loans in the higher-risk categories presented in the table above (other than HARP loans) are 

included in our 2005-2008 Legacy single-family book. The UPB of loans with one or more of these higher-risk characteristics 

in our single-family credit guarantee portfolio was $364.3 billion and $364.5 billion at December 31, 2014 and 2013, 

respectively. Additional information about certain of these categories is provided below.

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103 Freddie Mac

Loans with Payment Changes

There are several types of mortgage products that contain terms which result in scheduled changes in the borrower's 

monthly payments after specified initial periods. In most cases, the change will result in an increase in the borrower's monthly 

payment, which may increase the risk that the borrower will default on the loan.

The table below presents information for mortgage loans in our single-family credit guarantee portfolio, excluding Other 

Guarantee Transactions, at December 31, 2014 that contain terms that will result in payment changes for the borrower. The 

UPB amounts in the table below are aggregated by product type and categorized by the year in which the loan will experience a 

payment change. The timing of the actual payment change may differ from that presented in the table due to a number of 

factors, including if the borrower refinances the loan. Loans where the year of first payment change is 2014 or prior have 

already had one or more payment changes as of December 31, 2014; loans where the year of first payment change is 2015 or 

later have not yet had a payment change as of December 31, 2014 and will not experience a payment change until a future 

period.

Table 46 — Single-Family Loans with Scheduled Payment Changes by Year at December 31, 2014(1)

2014 and Prior 2015 2016 2017 2018 2019 Thereafter Total

(in millions)

ARM/interest-only(2) $ 9,343 $ 2,371 $ 3,512 $ 5,634 $ 2,261 $ 132 $ 311 $ 23,564

Fixed/interest-only(2) 7 125 588 2,731 587 7 192 4,237

ARM/amortizing(3) 17,897 2,559 5,078 5,470 6,097 10,333 21,714 69,148

Step-rate modified(4) 3,724 19,708 27,851 29,037 18,876 6,360 3,480 42,255

$ 139,204

(1) Excludes mortgage loans underlying Other Guarantee Transactions (such as option ARM loans), since the payment change information is not available 

to us for these loans.

(2) Categorized by the year in which the loan begins requiring payment of principal. 

(3) Categorized by the year of next scheduled contractual reset date.

(4) Represents 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. As such, individual years will not sum to the total. Includes the portion, if any, of 

UPB that is non-interest bearing under the terms of the modification. 

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% of the 

UPB of our single-family credit guarantee portfolio at both December 31, 2014 and 2013. 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).

We believe that the serious delinquency rates of interest-only loans during the last two 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. However, we continue to monitor the performance of these 

loans as many are scheduled to begin amortizing in 2015 and 2016, which will subject the borrowers to higher monthly 

payments. As of December 31, 2014, approximately 66% of all interest-only loans in our single-family credit guarantee 

portfolio had not yet begun amortization of principal and 28% had current LTV ratios greater than 100%. Since a substantial 

portion of these loans were originated in 2005 through 2008 and are located in geographic areas that were most affected by 

declines in home prices that began in 2006, we believe that the serious delinquency rate for interest-only loans will remain high 

in 2015.

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). In a rising interest rate environment, ARM borrowers typically default at a higher rate than fixed-rate 

borrowers. 

Excluding loans underlying Other Guarantee Transactions, there was $92.7 billion in UPB of ARM loans in our singlefamily credit guarantee portfolio as of December 31, 2014. Approximately 29% of these loans experienced an interest rate 

change in 2014 and prior and approximately 5% will experience an interest rate change in 2015. We believe that the serious 

delinquency rates of adjustable-rate loans that experienced an interest rate reset during the last two years have not been 

significantly affected by the change in the interest rate of the loan. Except for interest-only loans that began to amortize at the 

reset date, there were not significant increases in 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 

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104 Freddie Mac

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 two 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. Since a substantial portion of ARM loans were originated in 2005 through 2008 and are located in 

geographic 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 2015.

Step-Rate Modified Loans

 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. We refer to these types of HAMP 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 interest rate of the loans. In January 2015, we implemented an additional principal reduction 

incentive for borrowers who continue to perform on their HAMP loans. This incentive is designed to reduce the risk that these 

borrowers will default on their loans. For more information, see “BUSINESS — Our Business — Our Business Segments — 

Single-Family Guarantee Segment — Single-Family Loan Workouts and the MHA Program — HAMP and Non-HAMP

Modifications.”

We had $42.3 billion in UPB of step-rate modified loans in our single-family credit guarantee portfolio at December 31, 

2014. Approximately 9% of these loans experienced interest rate resets in 2014, and approximately 47% will experience rate 

resets in 2015. As of December 31, 2014, the average current interest rate for all step-rate modified loans was 2.30%, and the 

average final interest rate that these loans are scheduled to reach in the future was 4.48%. As of December 31, 2014, the serious 

delinquency rate for step-rate modified loans completed in 2010, 2011, 2012, and 2013 or after was 9.67%, 9.52%, 8.89%, and 

7.51%, respectively.

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, 2014 and 2013, option ARM loans represented less than 1% 

of the UPB of our single-family credit guarantee portfolio. This exposure included $4.9 billion and $5.5 billion in UPB of 

option ARM securities underlying certain of our Other Guarantee Transactions at December 31, 2014 and 2013, respectively. 

While we have not categorized these option ARM securities as either subprime or Alt-A securities for presentation in 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, 2014 and 2013, approximately 12.5% and 11.0%, 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.”

Other Categories of Single-Family Mortgage Loans

While we have classified certain loans as subprime or Alt-A for purposes of the discussion below and elsewhere in this 

Form 10-K, there is no universally accepted definition of subprime or Alt-A, and our classification of such loans may differ 

from those used by other companies. For example, some financial institutions may use credit 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 “Risk Profile — Higher-Risk Loans in the Single-Family 

Credit Guarantee Portfolio” and “Table 48 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for further 

information). In addition, we estimate that approximately $1.7 billion and $1.8 billion in UPB of security collateral underlying 

our Other Guarantee Transactions at December 31, 2014 and 2013, 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, 2014 and 2013, we held $27.7 

billion and $39.7 billion, respectively, in UPB of non-agency mortgage-related securities backed by subprime loans. 

Approximately 4% and 5% of these securities were investment grade at December 31, 2014 and 2013, respectively. The credit 

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105 Freddie Mac

performance of loans underlying these securities deteriorated significantly since 2008. For information on our exposure to 

subprime loans through our holdings of 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. 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 initiative; or (c) part of 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, 2014, we have purchased approximately $31.2 billion of relief refinance mortgages 

that were previously categorized as Alt-A loans in our portfolio, including $2.4 billion in 2014. 

The UPB of Alt-A loans in our single-family credit guarantee portfolio declined to $48.3 billion as of December 31, 2014

from $56.9 billion as of December 31, 2013 primarily due to borrowers 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, 2014 and 2013, approximately 19.9% and 16.3%, respectively, 

of the Alt-A loans within our single-family credit guarantee portfolio had completed a modification. As of December 31, 2014, 

for Alt-A loans in our single-family credit guarantee portfolio, the average credit score at origination was 709. Although Alt-A

mortgage loans comprised approximately 3% of our single-family credit guarantee portfolio as of December 31, 2014, these 

loans represented approximately 16% of our credit losses during 2014.

The table below presents credit loss and portfolio concentration information and indicates that certain concentrations of 

loans, including Alt-A loans, have been more adversely affected by declines in home prices and weak economic conditions 

during the housing crisis that began in 2006. 

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106 Freddie Mac

Table 47 — Credit Concentrations in the Single-Family Credit Guarantee Portfolio

As of December 31,

2014 2013

Alt-A

UPB

Non Alt-A

UPB

Total

UPB

Alt-A

UPB

Non Alt-A

UPB

Total

UPB

(in billions)

Geographic distribution:

Arizona, California, Florida, and Nevada(1) $ 21 $ 413 $ 434 $ 23 $ 399 $ 422

Illinois, Michigan, and Ohio(2) 3 169 172 4 172 176

New York and New Jersey(3) 7 138 145 7 138 145

All other states 19 895 914 23 887 910

Book year category(4):

New single-family book — 994 994 — 888 888

 HARP and other relief refinance loans(4) — 331 331 — 342 342

 2005-2008 Legacy single-family book 42 176 218 48 220 268

 Pre-2005 Legacy single-family book 8 114 122 9 146 155

Year Ended December 31,

2014 2013

Alt-A Non Alt-A Total Alt-A Non Alt-A Total

(in millions)

Credit Losses

Geographic distribution:

Arizona, California, Florida, and Nevada(1) $ 275 $ 1,145 $ 1,420 $ 802 $ 1,438 $ 2,240

Illinois, Michigan, and Ohio(2) 80 582 662 158 773 931

New York and New Jersey(3) 102 313 415 56 106 162

All other states 170 1,252 1,422 231 1,224 1,455

Book year category(4):

New single-family book — 97 97 — 135 135

HARP and other relief refinance loans(4) — 299 299 — 348 348

2005-2008 Legacy single-family book 597 2,596 3,193 1,190 2,688 3,878

Pre-2005 Legacy single-family book 30 300 330 57 370 427

(1) 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.

(2) Represents selected states in the North Central region that have experienced adverse economic conditions since 2006.

(3) 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.

(4) The New single-family book reflects loans originated since 2008. HARP and other relief refinance loans are presented separately rather than in the year 

that the refinancing occurred (from 2009 to 2014). All other refinance loans are presented in the year that the refinancing occurred. 

We also hold investments in non-agency mortgage-related securities backed by single-family Alt-A loans. At 

December 31, 2014 and 2013, we held investments of $6.0 billion and $11.0 billion in UPB, respectively, of non-agency 

mortgage-related securities backed by Alt-A and other mortgage loans. Approximately 4% and 5% of these securities were 

categorized as investment grade at December 31, 2014 and 2013, 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.”

Managing Problem Loans

Our single-family loss mitigation strategy emphasizes early intervention by servicers in delinquent mortgages and 

provides alternatives to foreclosure. Our servicers have an active role in our efforts to manage problem loans, as we rely on 

them to perform loan workout activities as well as foreclosures on loans that they service for us. Our single-family loss 

mitigation activities include providing our servicers with default management programs designed to help them manage nonperforming loans more effectively and to assist borrowers in maintaining home ownership, or facilitate foreclosure alternatives. 

We require our servicers first to 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 borrower-assistance options before considering 

foreclosure. Our servicers may also contact borrowers that are eligible for the relief refinance initiative, particularly where we 

believe the borrowers have been adversely affected by declines in home prices, to provide assistance in initiating the refinance 

process. 

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107 Freddie Mac

Our relief refinance initiative (which includes HARP, 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. Although our relief refinance initiative 

(including HARP) is a one of our more significant borrower assistance programs, the program is scheduled to end in December 

2015.

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 primarily because 

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. As of December 31, 2014, the borrower’s monthly payment for all of our completed HARP loans was reduced on 

average by an estimated $205 at the time of refinance.

When a struggling borrower cannot qualify for a relief refinance mortgage, our servicers may consider a workout option, 

including a loan modification. Our primary loan modification initiatives are HAMP and our non-HAMP standard loan 

modification initiatives. Under these programs, we offer loan modifications to eligible borrowers that reduce the monthly 

payments on their mortgages. These initiatives require that the 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. In 2013, we 

implemented a streamlined modification initiative, which provides an additional modification opportunity to certain borrowers. 

The modification that borrowers receive under this initiative has the same mortgage terms as our non-HAMP standard 

modification. This modification initiative is scheduled to end in December 2015. 

If a borrower is unable to use other borrower assistance programs, our servicers may pursue a short sale or foreclosure. 

Our servicing guidelines require that our servicers refrain from starting the foreclosure process on a primary residence until a 

loan is at least 121 days delinquent, regardless of where the property is located. However, we evaluate the timeliness of 

foreclosure completion by our servicers based on the state where the property is located. In November 2014, we announced an 

extension of foreclosure timelines in our guidelines for 47 states or other jurisdictions. Our servicing guide provides for 

instances of allowable foreclosure delays in excess of the expected timelines for specific situations involving delinquent loans, 

such as when the borrower files for bankruptcy or appeals a denial of a loan modification.

In 2012, we began to facilitate 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 (subject to FHFA approval). 

For more information about our workout programs and the role of our servicers in managing problem loans, see 

“BUSINESS — Our Business —Our Business Segments — Single-Family Guarantee Segment — Single-Family Loan 

Workouts and the MHA Program” and “Institutional Credit Risk Profile — Single-family Mortgage Seller/Servicers.”

Risk Profile

During 2014, we helped approximately 120,000 borrowers either stay in their homes or sell their properties and avoid 

foreclosures through our various loan workout programs, and we completed approximately 52,000 foreclosures. We bear the 

full costs associated with our loan workouts on mortgages that we own or guarantee, and do not receive any reimbursement 

from Treasury (except as discussed below). These costs include borrower and servicer incentive fees as well as the cost of any 

monthly payment reductions.

In January 2015, at the instruction of FHFA, we implemented a new $5,000 principal reduction incentive payable to 

eligible borrowers who remain in good standing on their HAMP modified loans through the sixth anniversary of their 

modification. Treasury will pay the $5,000 incentive for certain of our eligible HAMP modified loans, and we will pay the 

$5,000 incentive on our other eligible HAMP modified loans. For additional information, see “BUSINESS — Our Business — 

Our Business Segments — Single-Family Guarantee Segment — Single-Family Loan Workouts and the MHA Program — 

HAMP and Non-HAMP Modifications.”

Our ability to manage problem loans has been adversely 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, 2014 and 2013, the percentage of seriously delinquent loans that have been delinquent for 

more than six months was 69% and 71%, respectively, and most of these loans have been delinquent for longer than one year. 

The following tables include information about our relief refinance loans that we either purchased or guaranteed as well 

as information about: (a) the composition of these loans in our portfolio; and (b) the serious delinquency rates of these loans.

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108 Freddie Mac

Table 48 — Single-Family Credit Guarantee Portfolio by Attribute Combinations

As of December 31, 2014

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

Serious

Delinquency

Rate

New single-family book

By Credit score:

Credit scores < 620 0.2% 2.77% —% 5.05% —% 16.43% 0.2% 2.5% 3.34%

Credit scores of 620 to 659 1.0 1.21 0.2 2.11 — 7.48 1.2 1.1 1.38

50.3 0.16 7.9 0.39 0.1 2.14 58.3 0.1 0.19

Credit scores not available 0.1 1.64 — 3.93 — 10.06 0.1 2.1 3.77

Total New single-family book 51.6 0.19 8.1 0.47 0.1 3.75 59.8 0.2 0.24

By Region:

(3)

North Central 8.2 0.16 1.7 0.41 — 2.25 9.9 0.1 0.20

Northeast 13.6 0.28 2.3 0.73 — 4.41 15.9 0.2 0.34

Southeast 6.9 0.24 1.6 0.45 — 5.45 8.5 0.2 0.29

Southwest 6.8 0.18 1.2 0.30 — 3.48 8.0 0.1 0.20

West 16.1 0.13 1.3 0.33 0.1 1.76 17.5 0.1 0.15

Total New single-family book 51.6 0.19 8.1 0.47 0.1 3.75 59.8 0.2 0.24

HARP and other relief refinance loans

By Credit score:

Credit scores < 620 0.4 1.85 0.3 3.10 0.2 4.15 0.9 2.3 2.63

Credit scores of 620 to 659 0.7 1.12 0.4 2.02 0.3 2.86 1.4 1.3 1.71

10.5 0.28 4.5 0.90 2.6 1.53 17.6 0.4 0.58

Total HARP and other relief refinance loans 11.6 0.38 5.2 1.11 3.1 1.83 19.9 0.5 0.75

By Region:

(3)

North Central 2.1 0.37 1.2 1.03 0.7 1.91 4.0 0.5 0.77

Northeast 2.6 0.55 1.4 1.60 0.7 2.88 4.7 0.8 1.11

Southeast 1.8 0.38 1.0 0.91 0.7 1.33 3.5 0.4 0.68

Southwest 1.4 0.26 0.2 1.06 0.1 1.44 1.7 0.3 0.43

West 3.7 0.34 1.4 0.94 0.9 1.52 6.0 0.6 0.61

Total HARP and other relief refinance loans 11.6 0.38 5.2 1.11 3.1 1.83 19.9 0.5 0.75

Legacy single-family book

By Credit score:

Credit scores < 620 0.8 7.93 0.4 15.58 0.4 23.56 1.6 27.1 11.29

Credit scores of 620 to 659 1.6 5.71 0.7 12.36 0.6 20.05 2.9 21.7 8.66

10.2 2.26 3.2 8.11 2.2 14.31 15.6 9.6 3.90

Credit scores not available 0.2 5.75 — 18.51 — 25.47 0.2 11.4 6.96

Total Legacy single-family book 12.8 3.13 4.3 9.62 3.2 16.56 20.3 12.5 5.13

By Region:

(3)

North Central 2.0 2.42 0.8 7.18 0.5 13.23 3.3 11.3 4.08

Northeast 3.3 4.63 1.2 15.87 0.8 26.95 5.3 12.7 7.77

Southeast 2.5 3.39 0.9 8.59 0.9 16.14 4.3 12.6 5.63

Southwest 1.9 2.48 0.2 8.76 0.1 15.68 2.2 7.0 3.12

West 3.1 2.26 1.2 7.23 0.9 11.08 5.2 17.6 3.91

Total Legacy single-family book 12.8 3.13 4.3 9.62 3.2 16.56 20.3 12.5 5.13

Total single-family credit guarantee

portfolio 76.0% 1.13% 17.6% 3.21% 6.4% 9.06% 100.0% 4.1% 1.88%

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109 Freddie Mac

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

Serious

Delinquency

Rate

New single-family book

By Credit score:

Credit scores < 620 0.1% 2.74% 0.1% 6.69% —% 15.66% 0.2% 1.9% 3.75%

Credit scores of 620 to 659 0.8 1.40 0.2 2.79 — 6.33 1.0 0.8 1.65

45.2 0.15 7.3 0.45 0.1 2.10 52.6 0.1 0.19

Credit scores not available — 1.43 — 3.58 — 11.74 — 1.2 4.28

Total New single-family book 46.1 0.18 7.6 0.54 0.1 3.58 53.8 0.1 0.24

By Region:

(3)

North Central 7.4 0.14 1.7 0.49 0.1 2.46 9.2 0.1 0.22

Northeast 12.6 0.26 2.2 0.71 — 4.05 14.8 0.1 0.33

Southeast 6.0 0.22 1.5 0.51 — 5.28 7.5 0.1 0.31

Southwest 5.8 0.16 1.3 0.40 — 2.71 7.1 0.1 0.21

West 14.3 0.13 0.9 0.59 — 3.57 15.2 0.1 0.16

Total New single-family book 46.1 0.18 7.6 0.54 0.1 3.58 53.8 0.1 0.24

HARP and other relief refinance loans

By Credit score:

Credit scores < 620 0.3 1.83 0.3 2.75 0.2 3.23 0.8 1.3 2.45

Credit scores of 620 to 659 0.5 0.94 0.4 1.63 0.4 2.14 1.3 0.7 1.46

9.5 0.24 5.3 0.71 3.8 1.03 18.6 0.2 0.50

Total HARP and other relief refinance loans 10.3 0.33 6.0 0.87 4.4 1.25 20.7 0.3 0.64

By Region:

(3)

North Central 1.7 0.28 1.4 0.74 1.0 1.41 4.1 0.3 0.66

Northeast 2.4 0.44 1.5 1.30 0.9 1.95 4.8 0.4 0.91

Southeast 1.5 0.32 1.1 0.69 1.0 0.88 3.6 0.2 0.56

Southwest 1.2 0.19 0.4 0.58 0.2 0.99 1.8 0.1 0.33

West 3.5 0.35 1.6 0.88 1.3 1.05 6.4 0.3 0.60

Total HARP and other relief refinance loans 10.3 0.33 6.0 0.87 4.4 1.25 20.7 0.3 0.64

Legacy single-family book

By Credit score:

Credit scores < 620 0.9 8.36 0.5 16.38 0.5 25.42 1.9 23.1 12.67

Credit scores of 620 to 659 1.8 5.90 0.9 12.71 0.9 21.45 3.6 17.9 9.71

12.0 2.25 4.2 8.19 3.6 15.55 19.8 7.6 4.44

Credit scores not available 0.2 5.82 — 18.34 — 27.12 0.2 9.7 7.45

Total Legacy single-family book 14.9 3.13 5.6 9.73 5.0 17.72 25.5 10.0 5.75

By Region:

(3)

North Central 2.3 2.34 1.1 6.95 0.8 13.00 4.2 9.0 4.48

Northeast 4.0 4.46 1.5 15.90 1.0 26.52 6.5 9.9 7.90

Southeast 2.8 3.66 1.2 9.27 1.4 20.18 5.4 10.0 7.15

Southwest 2.3 2.33 0.4 7.59 0.2 13.78 2.9 5.6 3.15

West 3.5 2.31 1.4 8.21 1.6 13.18 6.5 14.5 4.78

Total Legacy single-family book 14.9 3.13 5.6 9.73 5.0 17.72 25.5 10.0 5.75

Total single-family credit guarantee

portfolio 71.3% 1.28% 19.2% 3.75% 9.5% 9.95% 100.0% 3.8% 2.39%

(1) The current LTV ratios are our estimates. See endnote (3) to “Table 42 — Characteristics of the Single-Family Credit Guarantee Portfolio” for further 

information. 

(2) Based on UPB. Within these columns, "—" represents less than 0.05%.

(3) See endnote (1) to "Table 16 — Single-Family Charge-offs and Recoveries by Region " for a description of these regions.

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110 Freddie Mac

Table 49 — Single-Family Relief Refinance Loans(1)

Year Ended December 31, 2014 Year Ended December 31, 2013

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 $ 1,439 8,794 $ 164,000 $ 11,574 62,652 $ 185,000

Above 100% to 125% LTV ratio 4,295 24,113 178,000 21,005 110,302 190,000

Above 80% to 100% LTV ratio 8,356 49,340 169,000 29,958 167,420 179,000

Other (80% and below LTV ratio) 13,204 96,409 137,000 36,658 270,138 136,000

Total relief refinance mortgages $ 27,294 178,656 153,000 $ 99,195 610,512 162,000

As of December 31, 2014 As of December 31, 2013

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 $ 30,233 162,299 1.36% $ 30,579 158,531 0.90%

Above 100% to 125% LTV ratio 66,091 346,220 1.19 68,416 344,832 1.01

Above 80% to 100% LTV ratio 109,618 609,239 0.93 114,688 610,128 0.85

Other (80% and below LTV ratio) 125,158 957,435 0.36 127,991 936,038 0.32

Total relief refinance mortgages $ 331,100 2,075,193 0.75 $ 341,674 2,049,529 0.64

(1) Includes purchases of mortgage loans for securitization that were previously associated with other guarantee commitments. 

(2) Rounded to the nearest thousand.

For more information on relief refinance loans, including HARP, in our single-family credit guarantee portfolio, see 

"Table 43 — Single-Family Credit Guarantee Portfolio Data by Year of Origination," and "Table 40 — Characteristics of 

Purchases for the Single-Family Credit Guarantee Portfolio."

The UPB of loans in our single-family credit guarantee portfolio for which we have completed a loan modification 

increased to $85.1 billion as of December 31, 2014 from $81.7 billion as of December 31, 2013, and such loans comprised 

approximately 4.1% and 3.8% of the portfolio at those dates. For the year ended December 31, 2014, approximately 44% of our 

loan modifications were 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 single-family credit guarantee portfolio was 93% at 

December 31, 2014. The serious delinquency rate on these loans was 12.28% as of December 31, 2014.

During 2014, approximately 67,000 borrowers (including 15,000 borrowers in the fourth quarter of 2014) having loans 

with aggregate UPB of $12.8 billion completed modifications under all of our programs, and as of December 31, 2014, 

approximately 24,000 borrowers were in the modification trial period. Both our loan modification volume and the number of 

seriously delinquent loans remaining in the portfolio declined during 2014 compared to 2013, primarily due to lower volumes 

of single-family loans becoming seriously delinquent in 2014.

In recent years, our non-HAMP modifications have represented the majority of our modification volume. The portion of 

our modification volume that is HAMP-related continued to decline in 2014 primarily due to the decline in the number of 

borrowers eligible for HAMP. 

During 2014, approximately 55,000 borrowers completed a non-HAMP loan modification. As of December 31, 2014, the 

percentage of our non-HAMP modifications that were completed in 2012 and 2013 that were seriously delinquent, proceeded to 

foreclosure transfer, completed a short sale, or were remodified was approximately 23% and 16%, respectively. 

We incurred $112 million and $153 million of servicer incentive expenses on modified loans (both HAMP and nonHAMP) during 2014 and 2013, respectively. We also pay certain incentives to borrowers who continue to perform under their 

HAMP modifications, which are included within our provision for credit losses on our consolidated statements of 

comprehensive income. 

The table below presents volumes of completed loan workouts, seriously delinquent loans, and foreclosures in our singlefamily credit guarantee portfolio for 2014, 2013, and 2012.

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111 Freddie Mac

Table 50 — Single-Family Loan Workout, Serious Delinquency, and Foreclosure Volumes(1)

Years Ended December 31,

2014 2013 2012

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) 320 $ 41 213 $ 25 533 $ 95

with term extension 15,781 2,311 6,645 700 3,894 313

with change in interest rate and, in certain cases, term

extension 34,191 6,579 46,739 7,314 38,871 6,246

with change in interest rate, term extension and principal

forbearance 16,860 3,864 29,591 9,368 26,283 8,483

Total loan modifications(3) 67,152 12,795 83,188 17,407 69,581 15,137

Repayment plans(4) 25,219 3,551 28,610 4,016 33,350 4,746

Forbearance agreements 8,553 1,587 12,019 2,331 13,026 2,557

Total home retention actions 100,924 17,933 123,817 23,754 115,957 22,440

Foreclosure alternatives:

Short sale 15,382 3,281 41,362 9,016 51,972 11,626

Deed in lieu of foreclosure transactions 3,634 575 2,720 437 1,036 179

Total foreclosure alternatives 19,016 3,856 44,082 9,453 53,008 11,805

Total single-family loan workouts(5) 119,940 $ 21,789 167,899 $ 33,207 168,965 $ 34,245

Single-family foreclosures(6) 52,168 81,605 105,060

Seriously delinquent loan additions 193,000 237,580 305,449

Seriously delinquent loans, at period end(7) 200,069 255,325 352,860

(1) Excludes those modification, repayment and forbearance activities for which the borrower has started the required process, but the actions have not 

become effective, such as loans in modification trial periods. These categories are not mutually exclusive, and a loan in one category may also be 

included in another category in the same period.

(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.

(5) Workouts relate to borrowers with financial hardship, regardless of the payment status (i.e., less than seriously delinquent).

(6) Includes third-party sales at foreclosure auction in which ownership of the property is transferred directly to a third party rather than to us.

(7) The number of seriously delinquent loans is also reduced when borrowers resume scheduled payments and the loans return to performing status.

The volume of foreclosures has moderated in recent periods and reflects a 36% decline in 2014 compared to 2013. The 

volume of short sale transactions declined significantly in 2014 compared to 2013. Our short sale activity has declined for the 

last seven consecutive quarters. Similarly, the volume of short sales in the overall market also declined in the last two years.

Based on information provided by the MHA Program administrator, our servicers had completed approximately 251,000 

loan modifications under HAMP from the introduction of the initiative in 2009 through December 31, 2014. According to the 

administrator, nearly 2,500 of our loans were in the HAMP trial period as of December 31, 2014. As of December 31, 2014, the 

percentage of our HAMP modifications that were completed in 2012 and 2013 that were seriously delinquent, proceeded to 

foreclosure transfer, completed a short sale, or were remodified was approximately 16% and 11%, respectively.

As of December 31, 2014, the borrower’s monthly payment for all of our completed HAMP modifications was reduced 

on average by an estimated $500 at the time of modification, which amounts to an average of $6,000 per year, and a total of 

$1.6 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). 

The table below presents: (a) the percentage of modified single-family loans completed between the first quarter of 2012

and the fourth quarter of 2013 that were current or paid off one year after modification; and (b) the percentage of modified 

single-family loans completed between the first quarter of 2012 and the fourth quarter of 2012 that were current or paid off two 

years after modification.

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112 Freddie Mac

Table 51 — Quarterly Percentages of Modified Single-Family Loans — Current or Paid Off(1)

Quarter of Loan Modification Completion(2)

4Q 2013 3Q 2013 2Q 2013 1Q 2013 4Q 2012 3Q 2012 2Q 2012 1Q 2012

One Year Post-Modification

 HAMP modifications 81% 80% 80% 82% 80% 80% 81% 81%

Non-HAMP modifications 70 73 74 76 72 72 74 62

Total 72 75 76 78 75 76 78 76

Two Years Post-Modification

HAMP modifications N/A N/A N/A N/A 77% 76% 78% 77%

Non-HAMP modifications N/A N/A N/A N/A 68 67 69 57

Total N/A N/A N/A N/A 71 71 75 73

(1) Represents the percentage of loans that were current and performing or had been paid in full. For loans modified in a quarterly period, the 

reperformance rates for one year and two years post-modification represent the percentage of loans that were current or paid off after 12 to 14 months 

and 24 to 26 months, respectively.

(2) 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.

Loans that remain 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; (c) are in geographic areas where the foreclosure 

process has lengthened or is subject to judicial review; or (d) may determine that it is not economically beneficial for them to 

enter into a modification due to the amount of costs incurred on their behalf while the loan was delinquent. The longer a loan 

remains delinquent, the greater the associated costs we incur, in part due to expenses associated with loss mitigation and 

foreclosure. Foreclosures generally take longer to complete in states where a judicial foreclosure is required, compared to other 

states.

The table below presents the average completion times in certain states for foreclosures completed during 2014, 2013, 

and 2012.

Table 52 — Foreclosure Timelines for Single-Family Loans(1) 

Year Ended December 31,

2014 2013 2012

(average days)

Judicial states:

Florida 1,312 1,231 1,026

New Jersey 1,373 1,224 873

New York 1,299 1,123 720

All other judicial states 779 770 686

Judicial states, in aggregate 1,018 943 773

Non-judicial states, in aggregate 663 567 475

Total 870 773 611

(1) All averages exclude those loans underlying our Other Guarantee Transactions.

During 2014, a significant number of loans that had been subject to delays (and that had been delinquent for more than a 

year) completed the foreclosure process, which caused the nationwide average time for foreclosure completions to increase 

compared to 2013. The UPB of loans that have been delinquent for over one year declined from $25.0 billion at December 31, 

2013 to $18.2 billion as of December 31, 2014. The number of loans in the process of foreclosure declined approximately 32% 

in 2014 to the lowest level in several years, with most states experiencing a decline. The number of loans in the process of 

foreclosure in Florida declined 48% during 2014, and as of December 31, 2014 comprised approximately 17% of such loans. 

As of December 31, 2014, loans in New York, New Jersey, Massachusetts and the District of Columbia collectively comprised 

approximately 28% of the total number of our single-family loans in the process of foreclosure.

Our servicing guide states that for loans beginning the foreclosure process since November 2014, the expected timeline to 

complete foreclosure, excluding allowable delays, ranges from 300 days in three states and the District of Columbia to 840 

days in Hawaii. 

Managing REO Activities

Our problem loan workouts 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. 

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113 Freddie Mac

We evaluate the condition of and market for newly acquired REO properties to determine pre-listing needs, such as: (a) 

whether repairs are needed; (b) whether we need to consider occupancy (by tenant or owner), borrower redemption, or other 

issues; and (c) the sale or disposition strategy. Often we will need to complete the eviction process or await tenant vacancy 

before determining if repairs are needed. When we list a REO property for sale, we typically provide a first look opportunity, 

which is an initial period where we consider offers on the property by owner occupants and non-profits dedicated to 

neighborhood stabilization before we consider offers from investors. We may also consider alternative disposition processes, 

such as REO auctions, bulk sales channels, and partnering with locally-based private entities to facilitate dispositions. 

 During the third quarter of 2014, we began to increase the number of auction sales of our occupied REO properties that 

are unable to be marketed in a more traditional sales channel. We believe our REO disposition severity ratios in 2014 benefited 

from improved market conditions as well as changes we have made to our process for evaluating the market value of impaired 

loan collateral and determining the list price for our REO properties when we offer them for sale. In addition, we believe that 

our REO disposition ratios have benefited from our efforts to repair a significant portion of these properties prior to listing them 

for sale.

Risk Profile

Our REO inventory (measured in number of properties) declined 46% from December 31, 2013 to December 31, 2014

primarily due to: (a) REO dispositions exceeding our acquisitions; (b) a declining number of seriously delinquent loans; and (c) 

a larger proportion of property sales to third parties at foreclosure. We continued to experience a relatively high volume of REO 

dispositions during 2014, which we believe was driven by significant demand for single-family homes from both investors and 

owner-occupant buyers. We expect our REO 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 that are in the process of foreclosure. We expect our REO 

acquisitions to continue to decline, due primarily to the continued improvement in the serious delinquency rate of loans in our 

single-family credit guarantee portfolio.

Our single-family REO acquisition activity in the Southeast and North Central regions was high during 2014, in part 

because a significant number of loans that had experienced significant delays within these regions completed the foreclosure 

process. Our single-family REO acquisitions in 2014 were highest in Florida, Illinois, Ohio, and Michigan which collectively 

represented 40% of total single-family REO acquisitions during that period, based on the number of properties, and comprised 

39% of our total single-family REO property inventory at December 31, 2014.

 Our REO acquisition activity is disproportionately high for certain types of loans, including loans with certain higherrisk 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, 2014. The percentage of our REO acquisitions in 

2014 that had been financed by either of these loan types represented approximately 22% 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 76% of our REO acquisition activity during 2014.

The North Central region comprised 30% and 33% of our single-family REO property inventory, based on the number of 

properties, as of December 31, 2014 and 2013, respectively, and the Southeast region comprised 29% and 30%, respectively, at 

those dates. The North Central region generally has experienced more challenging economic conditions, includes a number of 

states with longer foreclosure timelines due to local laws and foreclosure processes, and has housing markets with generally 

lower demand and lower home values than other regions. In the Southeast region, Florida comprised 17% of our total singlefamily REO inventory at December 31, 2014 and has been one of the states with high REO severity rates in the last several 

years. See "NOTE 6: REAL ESTATE OWNED" and "CONSOLIDATED BALANCE SHEET ANALYSIS — REO, Net" for 

more information on our REO properties.

The table below provides information about the status of our REO properties at December 31, 2014 and 2013.

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114 Freddie Mac

Table 53 — Single-Family REO Property Status

As of December 31,

2014 2013

(percent of properties)

Available for sale 28% 30%

Pending settlement of sale(1) 15 14

Pre-listing(2) 11 10

Unable to market:

Redemption period 12 11

Occupied (waiting for eviction or vacancy) 15 18

Under repair and other(3) 19 17

Subtotal — unable to market 46 46

Total 100% 100%

(1) Consists of properties where we have an executed sales contract and settlement has not yet occurred.

(2) Consists of properties that are not being actively marketed because we are evaluating the property condition or determining our sale strategy.

(3) Includes properties where we are preparing the property for sale and properties where marketing is on hold, including where we are involved in 

litigation or other legal and regulatory issues concerning the property.

As shown in the table above, a significant portion of the properties in our REO inventory is unable to be marketed 

because the properties are in the process of being repaired, remain occupied, or are located in states with a redemption period 

(particularly in the states of Illinois, Michigan, and Minnesota). A redemption period is a post-foreclosure period during which 

borrowers may reclaim a foreclosed property. This can increase the average holding period of our inventory. Though it varied 

significantly in different states, the average holding period of our single-family REO properties, excluding any redemption 

period, was 226 days and 209 days for our REO dispositions during 2014 and 2013, respectively. Our expanded use of auction 

sales in 2014 helped to reduce the portion of our inventory that is unable to be marketed.

Multifamily Mortgage Credit Risk Framework

To manage the credit risk in our multifamily mortgage portfolio, we focus on several key areas: (a) using prudent 

standards and processes with a prior approval underwriting approach on the substantial majority of loans we purchase or 

guarantee; (b) selling the expected credit risk to private investors that hold the subordinated tranches in our multifamily K 

Certificate and similar transactions; (c) portfolio diversification, particularly by product and geographic area; and (d) portfolio 

management activities, including loss mitigation. 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. For more information on our underwriting standards for 

multifamily loans we acquire or guarantee, see "BUSINESS — Our Business — Our Business Segments — Multifamily 

Segment — Underwriting Requirements and Quality Control Standards." See “NOTE 5: IMPAIRED LOANS” for information 

about loss mitigation activities that we have classified as TDRs and the subsequent performance of these loans. 

Multifamily Mortgage Credit Risk Profile

The table below provides certain attributes of our multifamily mortgage portfolio at December 31, 2014 and 2013.

Table 54 — Multifamily Mortgage Portfolio — by Attribute

UPB at Delinquency Rate(1) at

December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013

(dollars in billions)

Mortgage Portfolio:

Legal Structure:

Unsecuritized loans $ 53.0 $ 59.2 0.02% 0.08%

K-Certificates 76.2 59.8 0.01 0.07

Other Freddie Mac mortgage-related securities 4.8 4.8 0.66 0.59

Other guarantee commitments 9.3 9.0 — —

Total $ 143.3 $ 132.8 0.04% 0.09%

Unsecuritized loans, excluding held-for-sale 

loans:(2)

Original LTV ratio:

Below 75% $ 30.3 $ 36.7 0.04% 0.09%

75% to 80% 9.8 13.0 — 0.10

Above 80% 0.7 0.7 — —

Total $ 40.8 $ 50.4 0.03% 0.09%

Weighted average LTV ratio at origination 68% 68%

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115 Freddie Mac

Maturity Dates:

2014 N/A $ 1.8 N/A —%

2015 $ 3.0 6.5 —% —

2016 5.8 8.5 — —

2017 5.8 7.1 — 0.23

2018 8.4 9.1 — —

2019 7.4 7.4 0.15 0.17

Beyond 2019 10.4 10.0 — 0.17

Total $ 40.8 $ 50.4 0.03% 0.09%

Year of Acquisition:

2010 and prior $ 35.5 $ 46.7 0.03% 0.10%

2011 1.1 1.5 — —

2012 0.7 0.8 — —

2013 1.5 1.4 — —

2014 2.0 N/A — N/A

Total $ 40.8 $ 50.4 0.03% 0.09%

Current Loan Size:

Above $25 million $ 16.3 $ 19.1 —% —%

Above $15 million to $25 million 7.5 10.4 — 0.32

Above $5 million to $15 million 12.4 15.6 0.09 0.06

$5 million and below 4.6 5.3 — 0.07

Total $ 40.8 $ 50.4 0.03% 0.09%

Freddie Mac Mortgage-Related Securities:(3)

Year of Issuance:

(4)

2009 and prior $ 5.6 $ 5.7 0.61% 0.93%

2010 5.4 5.5 0.14 0.20

2011 11.2 11.4 — 0.05

2012 16.5 17.3 — —

2013 23.9 24.7 — —

2014 18.5 N/A — N/A

Total $ 81.1 $ 64.6 0.05% 0.12%

Subordination Level at Issuance:

No subordination $ 0.8 $ 0.8 0.06% 0.09%

Below 10% 4.4 3.0 — —

10% to 15% 32.0 25.0 0.14 0.29

Above 15% 43.9 35.8 — —

Total $ 81.1 $ 64.6 0.05% 0.12%

Year of Underlying Loan Maturity

2014 N/A $ — N/A —%

2015 $ 0.1 0.1 —% 2.16

2016 1.3 1.6 — —

2017 2.5 2.6 — 1.01

2018 7.6 7.5 — —

2019 10.0 9.3 — —

Beyond 2019 59.6 43.5 0.07 0.10

Total $ 81.1 $ 64.6 0.05% 0.12%

(1) Within these columns, "—" represents less than 0.005%.

(2) Multifamily held-for-sale loans are primarily those awaiting securitization, and were $12.1 billion and $8.7 billion as of December 31, 2014 and 2013, 

respectively.

(3) Consists of loans and bonds underlying Freddie Mac mortgage-related securities, which are primarily our K Certificates. Excludes other guarantee 

commitments.

(4) Based on the year that we issued our guarantee.

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 key loan attribute we monitor. Borrowers may 

be less able to refinance their obligations during periods of rising interest rates or adverse market conditions, which could lead 

to default if the borrower is unable to find affordable refinancing before the loan matures. Of the $40.8 billion in UPB of our 

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116 Freddie Mac

unsecuritized held-for-investment multifamily loans as of December 31, 2014, approximately 22% will mature during 2015 and 

2016, and the remaining 78% will mature in 2017 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.

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 $92.8 billion in UPB of 

multifamily loans between 2009 and 2014 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 that 

hold unguaranteed subordinated securities are the first to absorb losses on the underlying loans. 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. At December 31, 2014 and 2013, the UPB of K Certificates with subordination coverage 

was $75.5 billion and $59.3 billion, respectively, and the average subordination coverage on these securities was 18% at both 

dates. 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. 

Our delinquency rates continue to be among the lowest in the industry. There were 8 and 16 delinquent loans in our 

multifamily mortgage portfolio at December 31, 2014 and 2013, respectively. Our multifamily mortgage portfolio delinquency 

rate of 0.04% and 0.09% at December 31, 2014 and 2013, respectively, reflects continued strong portfolio performance and 

positive market fundamentals. Our delinquency rate for credit-enhanced loans was 0.05% and 0.11% at December 31, 2014 and 

2013, respectively, and for non-credit-enhanced loans was 0.02% and 0.07% at December 31, 2014 and 2013, respectively. The 

delinquency rate on loans underlying our K Certificates transactions was 0.01% and 0.07% at December 31, 2014 and 2013, 

respectively. Since we began issuing K Certificates, we have experienced no credit losses associated with our guarantees on 

these securities. As of December 31, 2014, approximately 80% of the loans in our multifamily mortgage portfolio 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.

See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for more information about the loans in our 

multifamily mortgage portfolio, including geographic and other concentrations of risk associated with these loans.

Institutional Credit Risk Overview

We have exposure to many types of institutional counterparties, including; (a) seller/servicers; (b) mortgage insurers; (c) 

bond insurers; (d) cash and other investments counterparties; (e) agency and non-agency mortgage-related security issuers; (f) 

document custodians; and (g) derivative counterparties. 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. 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. 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.”

Institutional Credit Risk Management Framework

Our principal strategies for managing institutional credit risk are: (a) maintaining policies and procedures, including 

eligibility standards that govern our business with our counterparties; (b) evaluating counterparty financial strength and 

performance; (c) monitoring our exposure to our counterparties; and (d) actively engaging underperforming counterparties and 

limiting our losses from nonperformance of obligations, when possible. 

In 2014, we developed internal evaluation models that we use to monitor the financial strength of our counterparties. 

These models determine probabilities of default that we use to assess and classify each of our counterparties. We assign risk or 

exposure limits to each counterparty based on this classification. We apply this risk management approach to the major types of 

our counterparties discussed below.

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117 Freddie Mac

Institutional Credit Risk Profile

Single-family Mortgage Seller/Servicers

We are exposed to institutional credit risk related to the potential insolvency of, or non-performance by, our sellers and 

servicers. If our servicers lack appropriate controls, experience a failure in their controls, or experience an operating disruption, 

including as a result of legal or regulatory actions or ratings downgrades, our business and financial results could be adversely 

affected. 

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

warrant that those loans meet specified eligibility and underwriting standards. Our servicers represent and warrant to us that 

those loans will be serviced in accordance with our servicing contract. In January 2015, FHFA proposed new minimum 

financial eligibility requirements for Freddie Mac and Fannie Mae seller/servicers. For more information on these 

requirements, see "BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — Proposed Financial 

Eligibility Requirements for Seller/Servicers."

Risk Management Framework

We maintain eligibility standards for our seller/servicers. These standards include having: (a) a demonstrated operating 

history in residential mortgage origination and servicing (or use of an eligible servicing agent acceptable to us); (b) adequate 

insurance coverage; (c) a quality control program that meets our standards; and (d) sufficient net worth, liquidity and funding 

sources to support the operations of its business as well as its commitments to us. Seller/servicers approved to do business with 

us are subject to our ongoing monitoring and review, which requires regular financial reporting to us. 

Based on our monitoring procedures, we may disqualify or suspend a seller or servicer with or without cause at any time. 

Once a seller is deemed ineligible, we no longer accept mortgages originated by that counterparty and we seek to terminate 

outstanding commitments. Similarly, when a servicer is deemed ineligible, we no longer allow additional loans to be serviced 

by that servicer and we seek to transfer pre-existing servicing contracts to eligible institutions. 

We maintain a quality control process under which we review loans for compliance with our standards. If we discover 

that 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 may include the ability to 

require the seller or the servicer to repurchase the loan at its current UPB, reimburse us for losses realized with respect to the 

loan after consideration of any other recoveries, and/or indemnify us. 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 

may issue a repurchase request. In recent years, we have required certain of our larger sellers to maintain ineligible loan rates 

below a stated threshold, with financial consequences for non-compliance. In addition, for our largest sellers, 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. 

 For additional information about our single-family seller/servicers, see “BUSINESS — Our Business — Our Business 

Segments — Single-Family Guarantee Segment,” "Single-Family Mortgage Credit Risk Framework and Profile — Managing 

Problem Loans," "RISK FACTORS — Competitive and Market Risks — We face significant risks related to our delegated 

underwriting process for single-family mortgages, including risks related to data accuracy and fraud. Recent changes to the 

process could increase our risks," and "NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Seller/

Servicers."

Risk Profile

We acquire a significant portion of our single-family mortgage purchase volume from several large lenders. Although our 

business with our mortgage sellers is concentrated, a number of our largest single-family mortgage seller counterparties have 

reduced or eliminated their purchases of mortgage loans from mortgage brokers and correspondent lenders. As a result, we are 

acquiring a greater portion of our business volume directly from non-depository and smaller depository financial institutions 

that may not have the same financial strength or operational capacity as our largest mortgage seller counterparties. We could be 

required to absorb losses on defaulted loans that a failed mortgage seller is obligated to repurchase from us if we determine 

there was an underwriting or eligibility breach. For more information about the risk of our reliance on larger mortgage sellers, 

see "RISK FACTORS — Competitive and Market Risks — The loss of business volume could result in a decline in our market 

share and revenues."

Our exposure to single-family mortgage seller/servicers for repurchase obligations declined in 2014. The UPB of loans 

subject to open repurchase requests (both seller and servicer related) declined to $0.7 billion at December 31, 2014 from $2.2 

billion at December 31, 2013 as we completed and resolved many of the requests related to pre-conservatorship loan purchases. 

During 2014, we recovered amounts from seller/servicers with respect to $2.0 billion in UPB of loans subject to our repurchase 

requests, including $0.4 billion in UPB related to settlement agreements to release specified loans from certain repurchase 

obligations in exchange for one-time cash payments. The seller or servicer resolved the request by reimbursing us for losses 

with respect to approximately 19% of the $2.0 billion in UPB (excluding amounts related to settlement agreements).

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118 Freddie Mac

The amount we expect to collect on the outstanding repurchase 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. 

We continue to face challenges with respect to the performance of certain of our servicers in managing our seriously 

delinquent loans. 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. We seek remedies from servicers such as 

compensatory fees for failure to perform certain requirements with respect to the servicing of delinquent loans. 

During 2014, excluding transfers between affiliated companies and assignments of servicing for newly originated loans, 

approximately $9.7 billion in UPB of loans in our single-family credit guarantee portfolio were transferred from our primary 

servicers to specialty servicers, which are non-depository financial institutions that specialize in workouts of problem loans. 

Transfers involving approximately $5.8 billion in UPB of such loans were facilitated by us as part of our efforts to assist 

troubled borrowers, increase problem loan workouts, and mitigate our credit losses. Some of these non-depository specialty 

servicers have grown rapidly in recent years and now service a large share of our loans. These non-depository specialty 

servicers may not have the same financial strength, internal controls, or operational capacity as our depository servicers. 

Certain specialty servicers have recently been the subject of significant adverse scrutiny from regulators. As of both December 

31, 2014 and 2013, approximately 10% of our total single-family credit guarantee portfolio was serviced by our three largest 

non-depository specialty servicers. Several of these specialty servicers also service a large share of the loans underlying our 

investments in non-agency mortgage-related securities, as discussed in "Agency and Non-Agency Mortgage-Related Security 

Issuers." 

Our non-depository specialty servicers include subsidiaries and/or affiliates of Ocwen Financial Corp. (Ocwen). Ocwen 

and its subsidiaries and/or affiliates have recently been the subject of significant adverse regulatory scrutiny, including in New 

York and California, and Ocwen’s credit rating and servicer rating have been downgraded. In December 2014, the New York 

State Department of Financial Services (NYDFS) entered into a consent order with Ocwen that provided for, among other 

items, changes in Ocwen’s board of directors. Ocwen is not permitted to acquire additional mortgage servicing rights until it 

receives prior approval from the NYDFS, and meets certain conditions set forth in the consent agreement. In January 2015, the 

California Department of Business Oversight (CDBO) announced that it had entered into a settlement with Ocwen Loan 

Servicing, LLC related to the company’s failure to provide certain loan information to the regulator. Among other items, the 

settlement prohibits Ocwen Loan Servicing, LLC from acquiring any additional mortgage servicing rights for loans secured by 

properties in California until the CDBO determines the firm can fully respond in a timely manner to future requests for 

information. As of December 31, 2014, approximately 3% of our total single-family credit guarantee portfolio was serviced by 

subsidiaries and/or affiliates of Ocwen. We are taking steps designed to reduce our exposure to Ocwen and its subsidiaries and/

or affiliates with respect to the servicing of our single-family loans. 

For more information about our seller/servicers, including concentration information about these counterparties and 

settlement agreements associated with pre-conservatorship loan purchase activity, see “RISK FACTORS — Competitive and 

Market Risks — Our financial results may be adversely affected if mortgage seller/servicers fail to perform their repurchase 

and other obligations to us," and "NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Seller/Servicers."

Multifamily Mortgage Seller/Servicers

In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under financial 

pressure, which could potentially cause degradation in the quality of the servicing they provide us, including their monitoring 

of each property’s financial performance and physical condition. This could also, in certain cases, reduce the likelihood that we 

could recover losses through lender repurchases, recourse agreements or other credit enhancements, where applicable. This risk 

primarily relates to multifamily loans that we hold on our consolidated balance sheets where we retain all of the related credit 

risk. 

Similar to the single-family business, we maintain eligibility standards for institutions that sell or deliver us multifamily 

mortgage loans for purchase or securitization. We monitor the status of our multifamily seller/servicers in accordance with our 

counterparty credit risk management framework.

We acquire a significant portion of our multifamily new business volume from several large sellers. A significant portion 

of our multifamily mortgage portfolio, excluding loans underlying K Certificates, is serviced by several large multifamily 

servicers. For more information about our multifamily seller/servicers, including concentration information about these 

counterparties, see "NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Seller/Servicers."

Mortgage Insurers

We are exposed to 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. 

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Risk Management Framework

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. 

At the direction of FHFA, we are developing counterparty risk management standards for mortgage insurers, in 

conjunction with Fannie Mae. These standards consist of: (a) revised eligibility requirements that include financial 

requirements under a risk-based framework; and (b) revised master policies that provide greater certainty of coverage and 

facilitate timely claims processing. The revised standards are designed to promote the ability of mortgage insurers to fulfill 

their intended role of providing private capital to the mortgage market even under a stressful economic scenario. The revised 

master policies were implemented in October 2014. FHFA published the draft eligibility requirements for public input during a 

comment period that concluded in September 2014. We expect to publish the new eligibility requirements in early 2015, to 

become effective 180 days after the publication date. Approved insurers that do not fully comply with the new financial 

requirements will be given a transition period of up to two years from the publication date.

Risk Profile

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 

capital ratios required by their state insurance regulators. Although the financial condition of these mortgage insurers has 

improved in recent years, there is still a significant risk that some of these counterparties may fail to fully meet their 

obligations. Except for those insurers in rehabilitation or under regulatory supervision, which no longer issue new coverage, we 

continue to acquire new loans with mortgage insurance from the mortgage insurers shown in the table below, many of which 

have credit ratings below investment grade. Our ability to manage our exposure to mortgage insurers is limited, as our 

mortgage insurers are operating below our eligibility thresholds, and we generally cannot revoke a mortgage insurer's status as 

an eligible insurer without FHFA approval. In addition, we do not select the insurer that will provide the insurance on a specific 

loan. Instead, the selection is made by the lender at the time the loan is originated. However, in recent years, new entrants have 

emerged that will likely diversify a concentrated industry over time. 

The table below summarizes our exposure to mortgage insurers as of December 31, 2014. 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, 2014, we had 

primary mortgage insurance coverage on loans that represented approximately 14% of the UPB of our single-family credit 

guarantee portfolio. This table does not include our exposure to counterparties in ACIS transactions, since these contracts are 

considered derivative instruments. For more information on ACIS transactions, see "Single-Family Mortgage Credit Risk 

Framework and Profile — Transferring a Portion of our Mortgage Credit Risk."

Table 55 — Mortgage Insurance by Counterparty(1)

As of December 31, 2014

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 millions)

Radian Guaranty Inc. (Radian) BB- Positive $ 50,524 $ 2,358 $ 12,861 $ 764

United Guaranty Residential Insurance Company BBB+ Stable 49,013 115 12,603 31

Mortgage Guaranty Insurance Corporation (MGIC) BB- Stable 48,718 226 12,495 3

Genworth Mortgage Insurance Corporation BB- Positive 31,940 200 8,112 39

Essent Guaranty, Inc. BBB Stable 17,106 — 4,363 —

PMI Mortgage Insurance Co. (PMI)(4) Not Rated N/A 11,843 126 2,929 68

Republic Mortgage Insurance Company (RMIC)(5) Not Rated N/A 9,382 117 2,338 36

Triad Guaranty Insurance Corporation (Triad)(6) Not Rated N/A 4,359 55 1,098 6

Arch Mortgage Insurance Company (Arch)(7) BBB+ Positive 3,299 1 821 —

Others N/A N/A 1,311 — 318 —

Total $ 227,495 $ 3,198 $ 57,938 $ 947

(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 5, 2015. 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 “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES — Table 4.5 — Recourse and Other Forms of Credit 

Protection” 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.

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120 Freddie Mac

(4) In March 2014, PMI began paying valid claims 67% in cash and 33% in deferred payment obligations and made a one-time cash payment to us for 

claims that were previously settled for 55% in cash.

(5) In June 2014, RMIC announced it would resume paying valid claims at 100% for claims settled on or after July 1, 2014 and pay, in full, all deferred 

payment obligations outstanding as of June 30, 2014.

(6) In December 2013, Triad began paying valid claims 75% in cash and 25% in deferred payment obligations and made a one-time cash payment to us for 

claims that were previously settled for 60% in cash.

(7) In January 2014, Arch announced it had completed the acquisition of CMG Mortgage Insurance Company (CMG) and the purchase of the mortgage 

insurance operating platform of PMI. Arch assumed the obligations of CMG in that transaction.

PMI and Triad are both in rehabilitation, and a substantial portion of their claims are recorded by us as deferred payment 

obligations. These insurers no longer issue new insurance but continue to pay a portion of their respective claims in cash. If, as 

we currently expect, these insurers do not pay the full amount of their deferred payment obligations in cash, we would lose a 

portion of the coverage from these insurers shown in the table above. As of December 31, 2014, we had cumulative unpaid 

deferred payment obligations of $0.4 billion from these insurers. We reserved for all of these unpaid amounts as collectability is 

uncertain.

RMIC is under regulatory supervision and is no longer issuing new insurance. For more information on our mortgage 

insurers, see "NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Mortgage Insurers."

Bond Insurers

We are exposed to institutional credit risk related to the potential insolvency of bond insurers. Bond insurance is a credit 

enhancement covering certain of the non-agency mortgage-related securities we hold. Some policies were acquired by the 

securitization trust that issued the securities we purchased, while others were acquired by us. Bond insurance exposes us to the 

risk that the bond insurer will be unable to satisfy claims. We acquired these coverages when purchasing these securities and 

thus, we have not obtained any new bond insurance coverage in many years.

Risk Management Framework

We monitor the financial strength of bond insurers. Some of our bond insurers are in runoff mode and not writing new 

business. In the event one or more of our remaining 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 consider our expectations regarding our bond insurers’ ability to meet their obligations in making our impairment 

determinations on our non-agency mortgage-related securities. See “NOTE 7: INVESTMENTS IN SECURITIES — OtherThan-Temporary Impairments on Available-For-Sale Securities” for additional information regarding impairment losses on 

securities covered by bond insurers.

Risk Profile

The table below presents our coverage amounts of bond insurance 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 56 — Bond Insurance by Counterparty(1)

As of December 31, 2014

Counterparty Name Credit Rating

Credit Rating

Outlook

Gross

Unrealized

Losses

Coverage

Outstanding

Percent of

Total Coverage

Outstanding(2)

(dollars in millions)

Ambac Assurance Corporation (Ambac)(3) Not Rated N/A $ 50 $ 3,371 50%

National Public Finance Guarantee Corp. A- Negative 4 1,054 15

Financial Guaranty Insurance Company (FGIC)(3) Not Rated N/A 5 1,051 15

MBIA Insurance Corp. B Stable 2 798 12

Assured Guaranty Municipal Corp. A Stable 1 455 7

Syncora Guarantee Inc. (Syncora)(3) Not Rated N/A — 40 1

CIFG Assurance North America, Inc. Not Rated N/A 4 30 —

Total $ 66 $ 6,799 100%

(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 5, 2015. Represents the lower of S&P and Moody’s 

credit ratings stated in terms of the S&P equivalent. 

(2) Within this column, "—" represents less than 0.5%.

(3) Ambac, FGIC, and Syncora are currently operating under regulatory or court-ordered supervision.

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 

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lifetime claims-paying obligations to us as such claims emerge. For more information on our bond insurers, see "NOTE 15: 

CONCENTRATION OF CREDIT AND OTHER RISKS — 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 counterparty be evaluated using our internal counterparty rating model prior to the time a 

financial instrument is purchased. We base the permitted term and dollar limits for each of these transactions on the 

counterparty's financial strength in order to further mitigate our risk. 

Our cash and other investments (including cash equivalents) counterparties are primarily major financial institutions, 

Treasury, and the Federal Reserve Bank of New York. As of December 31, 2014 and 2013, including amounts related to our 

consolidated VIEs, there were $71.4 billion and $85.9 billion, respectively, of: (a) cash and securities purchased under 

agreements to resell invested with institutional counterparties; (b) Treasury securities classified as cash equivalents; and 

(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 — 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" 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.

Our investments in non-mortgage-related securities at December 31, 2014 and 2013 were in U.S. Treasury 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. 

Risk Management Framework

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, and the U.S. 

government’s support of, those institutions. Our investments in non-agency mortgage-related securities were principally made 

prior to 2009. Since 2009, our efforts to manage risk on these legacy investments have included sales of certain assets as well 

as litigation and other loss recovery efforts.

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. The effectiveness of our efforts is uncertain and any potential 

recoveries may take significant time to realize. 

Our loss mitigation activities include litigation against the issuers of certain of these securities. During 2014, we and 

FHFA reached settlements with certain parties pursuant to which we received an aggregate of approximately $6.1 billion. 

Lawsuits against a number of other parties are currently pending. For more information on our loss mitigation efforts related to 

the non-agency mortgage-related securities we hold, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS 

— Non-Agency Mortgage-Related Security Issuers.”

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 often not sufficient to allow us to adequately 

analyze decisions made by servicers that may directly impact the cash flows on such securities. As a result, as part of our loss 

mitigation efforts and in the exercise of our rights as an investor, we seek to obtain information from servicers and trustees 

related to the performance and servicing of the loans underlying the securities. Certain of this information may not be publicly 

available. While our ability to influence servicing performance is limited, it is possible that our loss mitigation activities may, in 

some cases, influence the performance of these securities. 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. We may cease our loss mitigation activities at 

any time, including in connection with sales of these securities as we continue to reduce the size of our mortgage-related 

investments portfolio. However, a number of other parties (including other investors, regulators, or the mortgage servicers 

themselves) may also take actions that could also affect the performance of these securities. 

We have continued to recognize impairment charges in recent years 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.

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122 Freddie Mac

Risk Profile

A significant portion of single-family mortgages underlying our investments in non-agency mortgage-related securities is 

serviced by specialty servicers. As of December 31, 2014, approximately 43% of our investments in single-family non-agency 

mortgage-related securities, based on UPB, were serviced by subsidiaries and/or affiliates of Ocwen, and Ocwen was the only 

non-depository specialty servicer who serviced 10% or more of the UPB underlying our investments in non-agency mortgagerelated securities at that date. The expansion of these specialty servicers' portfolios could adversely affect these securities in the 

event that the transfers of loan servicing to these parties introduce operational and capacity challenges. If these servicers do not 

perform their obligations, it can result in credit losses, impairments and declines in the fair value of our non-agency mortgagerelated securities. Several of these specialty servicers also service a large share of our loans, as discussed in "Single-family 

Mortgage Seller/Servicers."

In addition, as of December 31, 2014, approximately 14% of our investments in single-family non-agency mortgagerelated securities, based on UPB, were serviced by JPMorgan Chase Bank, N.A.

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. The qualifying standards for our document custodians include that they: (a) maintain certain insurance coverages; 

(b) be a regulated financial institution or subsidiary thereof; (c) document and maintain internal controls over document 

storage; and (d) have an investment grade credit rating or maintain net worth of at least $500 million. Our qualifying standards 

and oversight procedures may not eliminate all of the risk associated with using third-party document custodians.

Derivative Counterparties

Overview

We use cleared derivatives, exchange-traded derivatives, and OTC derivatives, and are exposed to institutional credit risk 

with respect to our derivative counterparties.

Risk Management Framework

We seek to manage our exposure to institutional credit risk related to our derivative counterparties using several tools, 

including:

• master netting agreements and collateral agreements;

• review and analysis of external credit ratings;

• internal standards for approving new derivative counterparties, clearinghouses, and clearing members;

• ongoing monitoring of our positions with each counterparty, clearinghouse, and clearing member;

• managing diversification mix among counterparties; 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. These activities may not eliminate all of the risks associated with derivative counterparties.

We use cleared derivatives, exchange-traded derivatives and OTC derivatives.

• Cleared derivatives: 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 a central clearing requirement. 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 clearinghouses we use to clear such interest-rate 

derivatives, and to the clearing members that administer our transactions once accepted for clearing, has increased and 

may become more concentrated over time. However, the use of cleared derivatives (interest-rate swaps), as a whole, 

mitigates our institutional credit risk exposure to individual counterparties because a central counterparty is substituted 

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123 Freddie Mac

for individual counterparties. Our exposure to individual counterparties associated with interest-rate swaps should 

decrease over time due to the central clearing requirement.

• Exchange-traded derivatives: We are an active user of exchange-traded derivatives, such as Treasury and Eurodollar 

futures, and options on 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 exchangetraded 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. The collateral 

posting thresholds assigned to these counterparties depend on the credit rating of the counterparty and are based on our 

credit risk policies.

Risk Profile

The table below reconciles the net asset fair value of derivative contracts on our consolidated balance sheets to our net 

exposure after considering non-cash collateral held, which is not netted on our consolidated balance sheets. 

Table 57 — Derivative Counterparty Credit Exposure

As of December 31, 2014

Ratings of OTC interest-rate swaps and swaptions

counterparties

Number of

Counterparties(1)

Net Derivative 

Asset on the 

Consolidated 

Balance Sheets(2)

Non-Cash 

Collateral Held 

by Us(3)

Net Derivative

Asset Less

Non-Cash

Collateral

Held by Us

Cleared and

ExchangeTraded Initial

Margin and

OTC Non-Cash

Collateral Posted

by Us in Excess

of Exposure

(dollars in millions)

AA- or above 4 $ 175 $ (159) $ 16 $ —

A+, A or A- 11 452 (294) 158 386

BBB+ or below 2 — — — 4

Total OTC 17 627 (453) 174 390

Cleared and exchange-traded derivatives(4) 128 — 128 2,269

Other derivatives(5) 67 — 67 —

Total $ 822 $ (453) $ 369 $ 2,659

(1) Based on legal entities. 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) Includes cash collateral posted by us in excess of exposure.

(3) Does not include the fair value amount of non-cash collateral held by us that exceeds the associated net asset presented on the consolidated balance 

sheets.

(4) The ultimate parent entities of the clearinghouses we use were rated AA- and BBB as of December 31, 2014. 

(5) Consists primarily of commitments and ACIS insurance contracts.

Over time, our exposure to individual derivative counterparties varies depending on changes in fair values, which are 

affected by changes in interest rates, yield curves, the implied volatility of interest rates, and the amount of derivatives held. 

Approximately 94% of our exposure at fair value for OTC interest-rate swap and option-based derivatives was 

collateralized at December 31, 2014 (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 market movements during the 

time period between when a derivative was measured at fair value and when we received the related collateral, as well as 

exposure amounts below the applicable counterparty collateral posting threshold. 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.

The concentration of our derivative exposure among our primary OTC derivative counterparties remains high. This 

concentration could further increase. Three counterparties each accounted for greater than 10% and collectively accounted for 

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124 Freddie Mac

81% 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, 2014. All 

three of these counterparties, JP Morgan Chase Bank, Barclays Bank PLC, and UBS AG, were rated “A” or above using the 

lower of S&P’s or Moody’s rating stated in terms of the S&P equivalent as of February 5, 2015.

Our net derivative asset on our consolidated balance sheets related to cleared and exchange-traded derivatives was $128 

million as of December 31, 2014, which includes the cash collateral that we have posted for initial and variation margin. In 

addition, we have posted non-cash collateral of $2.3 billion for initial margin as of December 31, 2014. 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. The net amount of our exposure to cleared and exchange-traded derivatives relates to 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 margin 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 and our other derivatives, see “NOTE 10: COLLATERAL AND 

OFFSETTING OF ASSETS AND LIABILITIES — Collateral Pledged.”

In the event an OTC derivative or cleared 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. See “NOTE 10: COLLATERAL AND OFFSETTING 

OF ASSETS AND LIABILITIES — 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.

In addition, we have OTC interest-rate swap and option-based derivative liabilities where we post collateral to 

counterparties in accordance with agreed upon thresholds. Pursuant to certain collateral agreements we have with these 

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. For information about margin we have posted in connection with OTC derivatives, see “NOTE 10: 

COLLATERAL AND OFFSETTING OF ASSETS AND LIABILITIES — Collateral Pledged.”

Operational Risk

Overview

We define operational risk as the risk of loss resulting from inadequate or failed internal processes, people, systems or 

external events. Operational risk is inherent in all of our activities. Events that may evidence operational risk include: (a) 

accounting or operational errors; (b) business interruptions; (c) fraudulent acts; (d) inappropriate acts by employees; (e) 

information security incidents; or (f) vendors who do not perform in accordance with their contracts. These events could result 

in financial loss, legal and regulatory fines, and reputational harm.

Operational Risk Management Framework

Our operational risk management framework includes risk identification, assessment, measurement, mitigation and 

reporting. When operational risk events are identified, our policies require that the events be documented and analyzed to 

determine whether changes are required in our systems and/or processes to further mitigate the risk of future events. For more 

information, see “Risk Management — Risk Management Framework.”

We have made and are making considerable enhancements to our risk management framework. During 2013, we adopted 

an integrated enterprise risk management framework that enables us to place more focus on high risk business processes and 

activities. During 2014, we leveraged this enterprise risk management framework to implement a redesigned and enhanced 

three-lines-of-defense methodology. We plan to use this redesigned and enhanced three-lines-of-defense methodology to both 

strengthen risk ownership in our business units and add clarity to risk management roles and responsibilities. As part of this 

effort, we have moved or are moving several key functions within the organization to better align business decision-making 

with the first line of defense. We believe these enhancements will improve our risk management effectiveness. During our 

implementation period, we may experience elevated operational risks. We are actively managing this risk.

To ensure the continued operating effectiveness of the risk management program, the company has in place a governance 

structure including enterprise wide oversight provided by the Board, CERO and CCO, as well as the following management 

committees: (a) the Enterprise Risk Management Committee, chaired by the CERO; (b) the Operational Risk Subcommittee, 

chaired by the CERO, which provides an advisory, information sharing and governance forum to oversee operational risks; and 

(c) the Remediation Committee, chaired by the CCO, which provides governance and oversight of management activities to 

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125 Freddie Mac

remediate significant issues identified by FHFA, Internal Audit, management and our external auditors, including control issues 

related to internal control over financial reporting.

For more 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.”

In order to evaluate and monitor operational risk, each business unit completes a quarterly assessment using the Risk and 

Control Self-Assessment (RCSA) framework. The framework is designed to identify and assess the business unit's exposure to 

operational risk and determines if additional action is required to manage the risk to a prudent level.

In addition to the RCSA process, we employ several tools to identify and measure operational risks, including: (a) loss 

event data; (b) key risk indicators; (c) root cause analysis; and (d) testing. While our operational risk framework includes tools 

to support effective management of operational risk, the responsibility for managing both the day-to-day risk and longer-term 

or emerging risks lies with the business units.

Operational Risk Profile

We continue to strengthen operational controls. During 2014, we improved our operational risk framework to focus on 

high risk activities and reduced our outstanding control issues to relatively low levels. Additionally, we improved our out-ofregion disaster recovery capabilities. In 2014, our out-of-region data center became operational, which improved our ability to 

recover our business systems in the event of a catastrophic regional business event (e.g., a disaster that affects our Northern 

Virginia production data centers).

However, we continue to face significant levels of operational risks, including those discussed in “RISK FACTORS — 

Operational Risks.” 

We face increased operational risk due to the magnitude and complexity of FHFA and other new initiatives we are 

undertaking, including initiatives we are pursuing under the Conservatorship Scorecard. Some of these initiatives will result in 

changes to our systems that could also introduce increased operational risk. In addition, under the direction of FHFA, we 

continue to make various multi-year investments to build the infrastructure for a future housing finance system, including the 

development of the common securitization platform and a single security. If any of these initiatives are not successful, we may 

not recover our investments. 

The threat landscape in cyber security is changing rapidly and growing in sophistication. We may not be able to protect 

our systems with complete assurance or fully protect the confidentiality of our information from a cyber-attack or other 

unauthorized access, disclosure, or disruption.

We continue to invest in the information security area to strengthen our capabilities and help us defend against advanced 

threats. In 2014, we launched a multi-year data protection initiative designed to mitigate this risk.

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, 2014. As of December 31, 2014, we had one 

material weakness related to conservatorship, which remained unremediated, causing us to conclude that our disclosure 

controls and procedures were not effective at a reasonable level of assurance. For additional information, see “CONTROLS 

AND PROCEDURES.” 

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; 

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126 Freddie Mac

• 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 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.”

We make extensive use of the Federal Reserve's payment system in our business activities. The Federal Reserve requires 

that we fully fund our accounts at the Federal Reserve Bank of New York to the extent necessary to cover cash payments on our 

debt and mortgage-related securities each day, before the Federal Reserve Bank of New York, acting as our fiscal agent, will 

initiate such payments. Although we seek to maintain sufficient intraday liquidity to fund our activities through the Federal 

Reserve's payment system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash may 

cause our account to be overdrawn, potentially resulting in penalties and reputational harm. 

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: 

• manage intraday cash needs and provide for the contingency of an unexpected cash demand (e.g., we do not have 

access to the Federal Reserve’s discount window);

• maintain cash and non-mortgage investments to enable us to meet ongoing cash obligations for a limited period of 

time, assuming no access to unsecured debt markets; 

• maintain unencumbered securities with a value greater than or equal to the largest projected daily cash shortfall for an 

extended period of time, assuming no access to unsecured debt markets; and

• manage the maturity of our unsecured debt based on our asset profile.

To facilitate cash management, we forecast cash outflows and inflows using assumptions and models. These forecasts 

help us to manage our liabilities with respect to asset purchases and runoff. Differences between actual and forecast cash 

outflows and inflows could result in higher costs, as we could issue a higher amount of debt than needed, unexpectedly need to 

issue debt, or overdraw our accounts at the Federal Reserve Bank of New York. We maintain daily cash reserves to manage this 

risk.

During 2014, the majority of the funds in our liquidity and contingency operating portfolio was deposited with the 

Federal Reserve Bank of New York, invested in U.S. Treasury securities, or invested in securities purchased under agreements 

to resell. In the event of a downgrade of a position or counterparty, as applicable, below minimum rating requirements, we 

make an assessment whether to exit the existing position or continue to do business with the counterparty.

Our ability to maintain sufficient liquidity, including by pledging mortgage-related and other securities as collateral to 

other institutions, could cease or change rapidly and the cost of the available funding could increase significantly due to 

changes in market interest rates, market confidence, operational risks, and other factors. For more information, see “RISK 

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127 Freddie Mac

FACTORS — Competitive and Market Risks — Our 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 

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. Prolonged wide spreads 

on long-term debt could cause us to reduce our long-term debt issuances and increase our reliance on short-term and callable 

debt issuances. This increased reliance could increase rollover risk (i.e., the risk that we may be unable to refinance our debt 

when it becomes due) resulting in a greater use of derivatives. This greater use of derivatives could increase the volatility of our 

comprehensive income.

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, 2014, 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 both December 31, 2014 

and 2013. 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 effective short-term debt.

Our debt cap under the Purchase Agreement was $663.0 billion in 2014 and declined to $563.6 billion on January 1, 

2015. As of December 31, 2014, our aggregate indebtedness was $454.0 billion. Our aggregate indebtedness is calculated as the 

par value of other debt. We disclose the amount of our indebtedness on this basis monthly under the caption “Other Debt 

Activities — Total Debt Outstanding” in our Monthly Volume Summary reports, which are available on our web site at 

www.freddiemac.com and in current reports on Form 8-K we file with the SEC.

Other Debt Activities

The table below summarizes the par value of other debt securities we issued or paid off, including regularly scheduled 

principal payments, payments resulting from calls, and payments for repurchases, during 2014 and 2013. We repurchase, call, 

or exchange our outstanding debt securities from time to time for a variety of reasons, including: (a) for economic reasons; (b) 

to manage the composition of liabilities funding our assets; or (c) to help support the liquidity of our other debt securities.

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128 Freddie Mac

Table 58 — Activity in Other Debt

For the Year Ended December 31,

2014 2013

(dollars in millions)

Beginning balance $ 511,345 $ 552,472

Issued during the period:

Short-term:

Amount $ 217,716 $ 297,349

Weighted-average effective interest rate 0.11% 0.12%

Long-term:

Amount $ 92,641 $ 112,220

Weighted-average effective interest rate 1.16% 0.98%

Total issued:

Amount $ 310,357 $ 409,569

Weighted-average effective interest rate 0.42% 0.35%

Paid off during the period:(1)

Short-term:

Amount $ (224,814) $ (273,513)

Weighted-average effective interest rate 0.12% 0.13%

Long-term:

Amount $ (142,859) $ (177,183)

Weighted-average effective interest rate 1.61% 1.57%

Total paid off:

Amount $ (367,673) $ (450,696)

Weighted-average effective interest rate 0.70% 0.70%

Ending balance $ 454,029 $ 511,345

(1) Calls and repurchases of zero-coupon debt are reported at original face value, which does not equal the amount of actual cash payment.

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 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. Since 2013, we have been issuing STACR debt notes.

Medium-term Notes

We issue a variety of fixed- and variable-rate medium-term notes, including callable and non-callable fixed-rate 

securities, zero-coupon securities and variable-rate securities, with various maturities ranging up to 30 years. However, in 2014 

we did not issue medium-term notes with maturities longer than 15 years. For purposes of presentation in this report, mediumterm 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 after the securities are issued.

Reference Notes Securities

Reference Notes securities are, U.S. dollar denominated, non-callable fixed-rate securities, which we generally issue with 

original maturities ranging from two through ten years.

STACR

In 2014, as part of our credit risk management strategy, we completed seven STACR debt note transactions in which we 

issued $4.9 billion of STACR debt notes, in aggregate. For more information, see "RISK MANAGEMENT — Credit Risk 

Overview — Mortgage Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and Profile — Transferring 

a Portion of Mortgage Credit Risk" and "NOTE 8: DEBT AND SUBORDINATED BORROWNGS — Table 8.2 — Other 

Long-Term Debt."

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129 Freddie Mac

Subordinated Debt

During 2014 and 2013, we did not call or issue any Freddie SUBS® securities. At both December 31, 2014 and 2013, 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 5, 2015.

Table 59 — 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

Outlook Stable Stable Stable

(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.

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. In March 2014, Fitch affirmed our debt ratings, removed 

the ratings from Ratings Watch Negative (RWN) and assigned a Rating Outlook of Stable. This action followed Fitch’s 

affirmation of the U.S. government’s debt ratings with a Stable Outlook, resolving the RWN placed on the ratings in October 

2013.

For information about factors that could lead to future ratings actions, and the potential impact of a downgrade in our 

credit ratings, see “RISK FACTORS — Competitive and Market Risks — Any downgrade in the credit ratings of the U.S. 

government would likely be followed by a downgrade in our credit ratings. A downgrade in the credit ratings of our debt could 

adversely affect our liquidity and other aspects of our business.”

A security rating is not a recommendation to buy, sell or hold securities. It may be subject to revision or withdrawal at 

any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Cash and Cash Equivalents, Federal Funds Sold, Securities Purchased Under Agreements to Resell, and Non-MortgageRelated Securities

Excluding amounts related to our consolidated VIEs, we held $56.0 billion and $77.1 billion in the aggregate of cash and 

cash equivalents, securities purchased under agreements to resell, and non-mortgage-related securities at December 31, 2014

and 2013, 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, 2014, our non-mortgage-related securities consisted of 

U.S. Treasury securities 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 (excluding certain structured agency securities collateralized by non-agency mortgage-related 

securities). We hold other mortgage assets that are also potential sources of liquidity; however, we consider them to be less 

liquid than agency securities. These assets consist of certain structured agency securities collateralized by non-agency 

mortgage-related securities, unsecuritized performing single-family mortgage loans, CMBS, non-agency mortgage-related 

securities backed by subprime, option ARM, and Alt-A and other loans, and unsecuritized seriously delinquent and modified 

single-family mortgage loans.

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We are subject to limits on the amount of mortgage assets we can sell in any calendar month without review and approval 

by FHFA and, if FHFA so determines, Treasury. See “BUSINESS — Conservatorship and Related Matters — Limits on 

Investment Activity and Our Mortgage-Related Investments Portfolio” for more information on the relative liquidity of our 

mortgage assets.

Cash Flows

Our cash and cash equivalents decreased by $0.4 billion to $10.9 billion during 2014, as compared to an increase of $2.8 

billion to $11.3 billion during 2013 and a decrease of $19.9 billion to $8.5 billion during 2012. Cash flows provided by 

operating activities during 2014, 2013 and 2012 were $8.9 billion, $16.6 billion and $5.2 billion, respectively, primarily driven 

by cash proceeds from net interest income. Cash flows provided by investing activities during 2014, 2013 and 2012 were 

$205.3 billion, $391.3 billion, and $494.4 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 2014, 2013 

and 2012 were $214.5 billion, $405.0 billion, and $519.6 billion, respectively, largely attributable to funds used to repay debt 

securities of consolidated trusts held by third parties and other debt.

Beginning in the first quarter of 2014, we reclassified net discounts paid on retirements of other debt and net premiums 

received from issuance of debt securities of consolidated trusts and other debt from cash flows from operating activities to cash 

flows from financing activities on our consolidated statements of cash flows. This reclassification resulted in a decrease of $2.0 

billion and $3.2 billion to net cash provided by operating activities for 2013 and 2012, respectively, and an increase of $2.0 

billion and $3.2 billion to net cash used in financing activities for 2013 and 2012, respectively.

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. FHFA has suspended capital classification of us during conservatorship. FHFA continues to monitor our 

capital levels, but the existing statutory and FHFA-directed regulatory capital requirements are not binding during 

conservatorship. See “NOTE 18: REGULATORY CAPITAL” for our minimum capital requirement, core capital, and GAAP

net worth results as of December 31, 2014 and 2013. 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.

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. For more information, see “BUSINESS — Regulation and Supervision — Federal Housing Finance Agency — 

Affordable Housing Allocations.” 

At December 31, 2014, 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, implied volatility, home prices, and 

mortgage spreads. Such changes could adversely affect our net worth and result in additional draws under the Purchase 

Agreement. For more information, see “RISK FACTORS — Conservatorship and Related Matters — We may request 

additional draws under the Purchase Agreement in future periods.”

Based on our Net Worth Amount at December 31, 2014 and the 2015 Capital Reserve Amount of $1.8 billion (which will 

be reduced by $600 million each year thereafter until it reaches zero on January 1, 2018), our dividend obligation to Treasury in 

March 2015 will be $851 million. We paid dividends of $19.6 billion in cash on the senior preferred stock during 2014, based 

on our Net Worth Amounts at September 30, 2014, June 30, 2014, March 31, 2014, and December 31, 2013. Through 

December 31, 2014, we have paid aggregate cash dividends to Treasury of $91.0 billion, an amount that is $19.6 billion more 

than our aggregate draws received under the Purchase Agreement. As a result of the net worth sweep dividend we pay to 

Treasury, we cannot retain capital from the earnings generated by our business operations.

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At December 31, 2014, 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 does not reduce the outstanding liquidation preference. Accordingly, while we have paid aggregate cash dividends to 

Treasury of $91.0 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 HIERARCHY AND VALUATIONS

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, the valuation techniques and processes used to measure fair value, and controls over fair value 

measurement, see “NOTE 16: FAIR VALUE DISCLOSURES.”

Level 3 Recurring Fair Value Measurements

The process for determining fair value using unobservable inputs (Level 3) is generally more subjective and involves a 

higher degree of management judgment and assumptions than the measurement of fair value using observable inputs. At 

December 31, 2014 and 2013, we measured and recorded 28% and 31%, respectively, of total assets carried at fair value on our 

consolidated balance sheets on a recurring basis using unobservable inputs. At December 31, 2014 and 2013, we measured and 

recorded less than 1% and 11%, respectively, of total liabilities carried at fair value on our consolidated balance sheets on a 

recurring basis using unobservable inputs. These percentages were calculated before the impact of counterparty and cash 

collateral netting. 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 — Assets and Liabilities on Our Consolidated Balance Sheets Measured 

at Fair Value on a Recurring Basis 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 subordination or other 

types of credit enhancements 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 27 — Characteristics of Mortgage-Related Securities on Our 

Consolidated Balance Sheets” and “RISK MANAGEMENT — Credit Risk Overview — Mortgage Credit Risk Overview — 

Single-Family Mortgage Credit Risk Framework and Profile.”

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 

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132 Freddie Mac

one business day of the daily market value calculation. See “RISK MANAGEMENT — Credit Risk Overview — Institutional 

Credit Risk Profile — Derivative Counterparties” for a discussion of our counterparty credit risk.

See “NOTE 16: FAIR VALUE DISCLOSURES — Valuation Techniques for Assets and Liabilities Measured on 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: (a) our fair value measurements are appropriate and reliable; (b) fair value 

measurements are based on observable inputs where possible; and (c) 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.

OFF-BALANCE SHEET ARRANGEMENTS

We enter into certain business arrangements that are not recorded on our consolidated balance sheets or that may be 

recorded in amounts that differ from the full contract or notional amount of the transaction and that may expose us to potential 

losses in excess of the amounts recorded on our consolidated balance sheets. See “NOTE 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.

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 guarantees is primarily represented by the UPB of the underlying loans and 

securities, which was $113.7 billion and $101.0 billion at December 31, 2014 and 2013, 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 $9.6 billion and $10.0 billion at December 31, 2014 and 2013, 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 both December 31, 2014 and 

2013, there were no liquidity guarantee advances outstanding.

Our exposure to losses on the transactions described above would be partially mitigated by the recovery we would 

receive through exercising our rights to the collateral backing the underlying loans and the available credit enhancements, 

which may include recourse and primary mortgage insurance with third parties. In addition, we provide for incurred losses each 

period on these guarantees within our provision for credit losses. 

Other Agreements

We own interests in numerous entities that are considered to be VIEs for which we are not the primary beneficiary and 

which we do not consolidate in accordance with the accounting guidance for the consolidation of VIEs. These VIEs relate 

primarily to our investment activity in mortgage-related assets and non-mortgage assets, and include LIHTC partnerships and 

certain Other Guarantee Transactions. Our consolidated balance sheets reflect only our investment in the VIEs, rather than the 

full amount of the VIEs’ assets and liabilities. See “NOTE 3: VARIABLE INTEREST ENTITIES” for additional information 

related to our variable interests in these VIEs.

As part of our credit guarantee business, we routinely enter into forward purchase and sale commitments for mortgage 

loans and mortgage-related securities. Some of these commitments are accounted for as derivatives. Their fair values are 

reported as either derivative assets, net or derivative liabilities, net on our consolidated balance sheets. For more information, 

see “RISK MANAGEMENT — Institutional Credit Risk Profile — 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 $271.2 billion 

and $289.7 billion in notional value at December 31, 2014 and 2013, respectively.

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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” for further information.

CONTRACTUAL OBLIGATIONS

Our contractual obligations affect our short- and long-term liquidity and capital resource needs. The table below provides 

aggregated information about the listed categories of our contractual obligations as of December 31, 2014. 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. 

The amounts of future interest payments on debt securities outstanding at December 31, 2014 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, 2014 until maturity; and 

(b) callable debt continues to accrue interest until its contractual maturity. The amounts of future interest payments on debt 

securities do not reflect certain factors that will change the amounts of interest payments on our debt securities after 

December 31, 2014, 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.

Our contractual obligations include other purchase obligations that are enforceable and legally binding, and exclude 

contracts that we may cancel at will without penalty. We include our purchase obligations through the termination date 

specified in the respective agreement, even if the contract is renewable.

The table excludes certain obligations that could significantly affect our short- and long-term liquidity and capital 

resource needs. These items, which are listed below, have generally been excluded because the amount and timing of the 

related future cash payments are uncertain:

• future payments 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, 2014, the aggregate 

liquidation preference of the senior preferred stock was $72.3 billion. See “BUSINESS — Conservatorship and 

Related Matters — Treasury Agreements and Senior Preferred Stock” 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.

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134 Freddie Mac

Table 60 — Contractual Obligations by Year at December 31, 2014

Total 2015 2016 2017 2018 2019 Thereafter

(in millions)

Long-term debt(1) $ 319,359 $ 58,841 $ 72,503 $ 77,482 $ 30,850 $ 30,671 $ 49,012

Short-term debt(1) 134,670 134,670 — — — — —

Interest payable(2) 34,124 11,498 4,927 3,535 2,261 1,849 10,054

Other liabilities reflected on our

consolidated balance sheet:

Other contractual liabilities(3)(4) 1,756 935 10 8 7 6 790

Purchase obligations:

Purchase commitments(5) 19,764 19,764 — — — — —

Other purchase obligations(6) 407 119 59 52 50 47 80

Operating lease obligations 29 9 7 4 3 3 3

Total specified contractual obligations $ 510,109 $ 225,836 $ 77,506 $ 81,081 $ 33,171 $ 32,576 $ 59,939

(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.

(3) Includes obligations related to our 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, most of which 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.

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 single-family allowance for loan 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.” 

Single-Family Allowance for Loan Losses

The single-family allowance for loan losses represents an estimate of probable incurred credit losses. The single-family 

allowance for loan losses pertains to all single-family loans classified as held-for-investment on our consolidated balance 

sheets. 

Determining the appropriateness of the single-family allowance for 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. We regularly evaluate the underlying 

estimates and models we use when determining the single-family allowance for loan losses and update our assumptions to 

reflect our historical experience and current view of economic factors. See “RISK FACTORS — Operational Risks — We face 

risks and uncertainties associated with the models that we use 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 single-family allowance for loan losses is appropriate based on internal reviews of the factors 

and methodologies used. No single statistic or measurement determines the appropriateness of the loan loss reserves. Changes 

in one or more of the estimates or assumptions used to calculate the single-family allowance for loan losses could have a 

material impact on the loan loss reserves and provision for credit losses.

Most single-family loans are aggregated into pools based on similar risk characteristics and measured collectively using a 

statistically based model that evaluates a variety of factors affecting collectability, including but not limited to: (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 

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135 Freddie Mac

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 loan repurchases by seller/servicers; (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.

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 “FAIR 

VALUE HIERARCHY AND VALUATIONS” and “NOTE 16: FAIR VALUE DISCLOSURES” 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. 

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.

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. Deferred tax assets are measured using enacted tax rates and are adjusted as required for the effect of changes in tax 

laws or rates. When a change in tax laws or rates occurs, the effect of the change is included in income in the period that 

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includes the enactment date. 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 credit carryforward and 

the length of the carryforward period available to utilize this asset 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 valuation allowance assessment because the timing and certainty of those actions are unknown and beyond our 

control. On February 2, 2015, the Administration submitted the full year 2016 U.S. budget to Congress. Included within the 

budget is a proposal to reduce the top U.S. corporate tax rate. If enacted, a reduction in the corporate tax rate would result in a 

charge representing the reduction in the realizable value of our net deferred tax asset.

RISK MANAGEMENT AND DISCLOSURE COMMITMENTS

In October 2000, we adopted a series of commitments designed to enhance our market discipline, liquidity and capital. In 

September 2005, we updated these commitments and set forth a process for implementing them. A copy of the written 

agreement between us and OFHEO dated September 1, 2005 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.

FHFA suspended the disclosure commitments under the September 1, 2005 agreement until further notice, except that: 

(a) FHFA will continue to monitor our adherence to the substance of the liquidity management and contingency planning 

commitment through normal supervision activities; and (b) we are required to continue providing interest-rate and credit risk 

disclosures in our periodic public reports. In January 2015, FHFA suspended the commitment that we provide 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 Risk and Other Market Risks — PMVS and Duration Gap.” 

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 spread risk, and prepayment 

risk arising from credit risk primarily from: (a) 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 the contractual obligation. For more information on credit risk, see "MD&A — RISK 

MANAGEMENT — Credit Risk Overview."

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

borrower's principal payments on the loan and the reduction of the PC balance, can lead to significant interest expense if the 

interest rate paid to a PC investor is higher than the reinvestment rate earned by the securitization trusts on payments received 

from borrowers and paid to us as trust management income. Changes in prepayments, defaults, spreads, or unexpected 

prepayments can adversely affect our 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 spread risk. We use derivatives as an 

important part of our strategy to manage interest-rate risk. When deciding to use derivatives to mitigate our exposures, we 

consider a number of factors, including cost, exposure to counterparty risks, and our overall risk management strategy. See 

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137 Freddie Mac

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

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. We are exposed to convexity risk in 

both our mortgage-related investments portfolio and our callable debt portfolio.

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 affect the fair value of our financial assets and liabilities and ultimately affect our net worth. We are exposed to volatility 

risk in both our mortgage-related investments portfolio and our callable debt portfolio. We actively manage our volatility risk 

exposure over a range of interest rate scenarios by using option-based interest-rate derivatives.

Spread Risk

Spread 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 spread risk, also referred to as mortgage-to-debt OAS risk, arising from funding mortgage-related investments with 

debt securities. We also incur spread 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. These analyses are not intended to provide precise 

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138 Freddie Mac

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 and making changes to the underlying assumptions or modeling 

techniques when warranted. 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. 

For more information about the risks associated with our use of models, see “MD&A — RISK MANAGEMENT — 

Operational Risk Profile” 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.” 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. 

Portfolio Market Value Sensitivity and Measurement of Interest-Rate Risk

PMVS and Duration Gap

Our primary interest-rate risk measures are PMVS and duration gap.

PMVS is an estimate of the change in the market value of our financial 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 financial assets and 

liabilities, and is expressed in months relative to the market value of assets. For example, assets with a six month duration and 

liabilities with a five month duration would result in a positive duration gap of one month. 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.

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139 Freddie Mac

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

Our PMVS and duration gap estimates are determined using models that involve our judgment of interest-rate and 

prepayment assumptions. 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 effect of certain other market risks, such 

as changes in volatility and spread risk. The effect 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. 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, 2014 and 2013. 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, 2014 was $102 million, which decreased compared to 

December 31, 2013 primarily due to a decrease in our duration exposure. On an average basis for the year ended December 31, 

2014, our PMVS-L (50 basis points) was $69 million, primarily resulting from our duration exposure.

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140 Freddie Mac

Table 61 — 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, 2014 $ — $ 102 $ 396

December 31, 2013 $ — $ 176 $ 368

Year Ended December 31,

2014 2013

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 (0.1) $ 14 $ 69 0.2 $ 21 $ 235

Minimum (2.4) $ — $ — (1.2) $ — $ —

Maximum 0.7 $ 65 $ 509 2.0 $ 78 $ 673

Standard deviation 0.4 $ 14 $ 79 0.5 $ 16 $ 121

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 $(3.1) billion at December 31, 2014, 

an increase of $1.1 billion from December 31, 2013.

Table 62 — Derivative Impact on PMVS-L (50 bps)

Before

Derivatives

After

Derivatives

Effect of

Derivatives

(in millions)

At:

December 31, 2014 $ 3,226 $ 102 $ (3,124)

December 31, 2013 $ 2,166 $ 176 $ (1,990)

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 several types 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 2014 and 2013 was zero months in both periods. Our average duration gap, rounded to the nearest month, during the 

years ended December 31, 2014 and 2013 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).

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141 Freddie Mac

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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142 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 at December 31, 2014 and 2013, and the results of 

their operations and their cash flows for each of the three years in the period ended December 31, 2014 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, 2014, based on criteria established 

in Internal Control - Integrated Framework (2013) 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 2014 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 19, 2015

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143 Freddie Mac

FREDDIE MAC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,

2014 2013 2012

(in millions, except share-related amounts)

Interest income

Mortgage loans:

Held by consolidated trusts $ 57,036 $ 57,189 $ 65,089

Unsecuritized 6,569 7,694 8,960

Total mortgage loans 63,605 64,883 74,049

Investments in securities 5,843 7,768 10,583

Other 32 51 86

Total interest income 69,480 72,702 84,718

Interest expense

Debt securities of consolidated trusts (48,003) (47,350) (56,109)

Other debt:

Short-term debt (145) (178) (176)

Long-term debt (6,768) (8,251) (10,217)

Total interest expense (54,916) (55,779) (66,502)

Expense related to derivatives (301) (455) (605)

Net interest income 14,263 16,468 17,611

(Provision) benefit for credit losses (58) 2,465 (1,890)

Net interest income after (provision) benefit for credit losses 14,205 18,933 15,721

Non-interest income (loss)

Gains (losses) on extinguishment of debt securities of consolidated trusts (451) 314 (58)

Gains (losses) on retirement of other debt 29 132 (77)

Derivative gains (losses) (8,291) 2,632 (2,448)

Impairment of available-for-sale securities:

Total other-than-temporary impairment of available-for-sale securities (860) (763) (1,236)

Portion of other-than-temporary impairment recognized in AOCI (78) (747) (932)

Net impairment of available-for-sale securities recognized in earnings (938) (1,510) (2,168)

Other gains (losses) on investment securities recognized in earnings 1,494 301 (1,522)

Other income (loss) 8,044 6,650 2,190

Non-interest income (loss) (113) 8,519 (4,083)

Non-interest expense

Salaries and employee benefits (914) (833) (810)

Professional services (527) (543) (361)

Occupancy expense (58) (54) (57)

Other administrative expense (382) (375) (333)

Total administrative expense (1,881) (1,805) (1,561)

Real estate owned operations (expense) income (196) 140 (59)

Temporary Payroll Tax Cut Continuation Act of 2011 expense (775) (533) (108)

Other (expense) income (238) 109 (465)

Non-interest expense (3,090) (2,089) (2,193)

Income before income tax (expense) benefit 11,002 25,363 9,445

Income tax (expense) benefit (3,312) 23,305 1,537

Net income 7,690 48,668 10,982

Other comprehensive income (loss), net of taxes and reclassification adjustments:

Changes in unrealized gains (losses) related to available-for-sale securities 1,584 2,406 4,769

Changes in unrealized gains (losses) related to cash flow hedge relationships 197 316 414

Changes in defined benefit plans (45) 210 (126)

Total other comprehensive income (loss), net of taxes and reclassification adjustments 1,736 2,932 5,057

Comprehensive income $ 9,426 $ 51,600 $ 16,039

Net income $ 7,690 $ 48,668 $ 10,982

Undistributed net worth sweep and senior preferred stock dividends (10,026) (52,199) (13,056)

Net income (loss) attributable to common stockholders $ (2,336) $ (3,531) $ (2,074)

Net income (loss) per common share — basic and diluted $ (0.72) $ (1.09) $ (0.64)

Weighted average common shares outstanding (in millions) — basic and diluted 3,236 3,238 3,240

The accompanying notes are an integral part of these consolidated financial statements.

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144 Freddie Mac

FREDDIE MAC

CONSOLIDATED BALANCE SHEETS

December 31, 2014 December 31, 2013

(in millions,

except share-related amounts)

Assets

Cash and cash equivalents (includes $2 and $1, respectively, related to our consolidated VIEs) $ 10,928 $ 11,281

Restricted cash and cash equivalents (includes $8,532 and $12,193, respectively, related to our

consolidated VIEs) 8,535 12,265

Federal funds sold and securities purchased under agreements to resell (includes $13,500 and

$3,150, respectively, related to our consolidated VIEs) 51,903 62,383

Investments in securities:

Available-for-sale, at fair value (includes $9 and $70, respectively, pledged as collateral that may

be repledged) 106,550 128,919

Trading, at fair value (includes $1,884 and $365, respectively, pledged as collateral that may be

repledged) 30,437 23,404

Total investments in securities 136,987 152,323

Mortgage loans:

Held-for-investment, at amortized cost:

By consolidated trusts (net of allowances for loan losses of $2,884 and $3,006, respectively) 1,558,094 1,529,905

Unsecuritized (net of allowances for loan losses of $18,877 and $21,612, respectively) 130,118 146,158

Total held-for-investment mortgage loans, net 1,688,212 1,676,063

Held-for-sale, at lower-of-cost-or-fair-value (includes $12,130 and $8,727 at fair value,

respectively) 12,368 8,727

Total mortgage loans, net 1,700,580 1,684,790

Accrued interest receivable (includes $5,124 and $5,111, respectively, related to our consolidated

VIEs) 6,034 6,150

Derivative assets, net 822 1,063

Real estate owned, net (includes $44 and $49, respectively, related to our consolidated VIEs) 2,558 4,551

Deferred tax assets, net 19,498 22,716

Other assets (Note 19) (includes $2,596 and $2,172, respectively, related to our consolidated VIEs) 7,694 8,539

Total assets $ 1,945,539 $ 1,966,061

Liabilities and equity

Liabilities

Accrued interest payable (includes $4,702 and $4,702, respectively, related to our consolidated

VIEs) $ 6,325 $ 6,803

Debt, net:

Debt securities of consolidated trusts held by third parties (includes $42 and $59 at fair value,

respectively) 1,479,473 1,433,984

Other debt (includes $5,820 and $2,683 at fair value, respectively) 450,069 506,767

Total debt, net 1,929,542 1,940,751

Derivative liabilities, net 1,963 180

Other liabilities (Note 19) (includes $1 and $6, respectively, related to our consolidated VIEs) 5,058 5,492

Total liabilities 1,942,888 1,953,226

Commitments and contingencies (Notes 9, 14, and 17)

Equity

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

650,043,899 shares and 650,039,533 shares outstanding, respectively — —

Additional paid-in capital — —

Retained earnings (accumulated deficit) (81,639) (69,719)

AOCI, net of taxes, related to:

Available-for-sale securities (includes $839 and ($1,100), respectively, related to net unrealized

gains (losses) on securities for which other-than-temporary impairment has been recognized in

earnings) 2,546 962

Cash flow hedge relationships (803) (1,000)

Defined benefit plans (13) 32

Total AOCI, net of taxes 1,730 (6)

Treasury stock, at cost, 75,819,987 shares and 75,824,353 shares, respectively (3,885) (3,885)

Total equity (See NOTE 11: STOCKHOLDERS’ EQUITY for information on our dividend

obligation to Treasury) 2,651 12,835

Total liabilities and equity $ 1,945,539 $ 1,966,061

The accompanying notes are an integral part of these consolidated financial statements.

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145 Freddie Mac

FREDDIE MAC

CONSOLIDATED STATEMENTS OF EQUITY

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 

Senior

Preferred

Stock

Preferred

Stock

Common

Stock

(in millions)

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 as of 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

Balance as of December 31, 2013 1 464 650 $ 72,336 $ 14,109 $ — $ — $ (69,719) $ (6) $ (3,885) $ 12,835

Comprehensive income:

Net income — — — — — — — 7,690 — — 7,690

Other comprehensive income, net of

taxes — — — — — — — — 1,736 — 1,736

Comprehensive income — — — — — — — 7,690 1,736 — 9,426

Senior preferred stock dividends declared — — — — — — — (19,610) — — (19,610)

Ending balance at December 31, 2014 1 464 650 $ 72,336 $ 14,109 $ — $ — $ (81,639) $ 1,730 $ (3,885) $ 2,651

The accompanying notes are an integral part of these consolidated financial statements.

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146 Freddie Mac

FREDDIE MAC

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2014 2013 2012

(in millions)

Cash flows from operating activities

Net income $ 7,690 $ 48,668 $ 10,982

Adjustments to reconcile net income to net cash provided by operating activities:

Derivative losses (gains) 5,652 (6,097) (1,350)

Asset related amortization — premiums, discounts, and basis adjustments 3,518 4,627 4,624

Debt related amortization — premiums and discounts on certain debt securities and basis adjustments (5,368) (6,779) (5,782)

Losses (gains) on extinguishment of debt securities of consolidated trusts and other debt 422 (446) 135

Provision (benefit) for credit losses 58 (2,465) 1,890

(Gains) losses on investment activity (1,287) 1,545 2,680

Deferred income tax expense (benefit) 2,284 (23,422) 3

Purchases of held-for-sale mortgage loans (24,593) (23,103) (25,340)

Sales of mortgage loans acquired as held-for-sale 21,995 28,123 21,764

Repayments of mortgage loans acquired as held-for-sale 67 167 59

Payments to servicers for pre-foreclosure expense and servicer incentive fees (932) (1,302) (1,269)

Change in:

Accrued interest receivable 116 725 1,187

Accrued interest payable (440) (849) (1,094)

Income taxes receivable 268 117 (1,523)

Other, net (565) (2,957) (1,722)

Net cash provided by operating activities 8,885 16,552 5,244

Cash flows from investing activities

Purchases of trading securities (42,477) (53,753) (33,880)

Proceeds from sales of trading securities 18,513 57,380 17,641

Proceeds from maturities of trading securities 17,118 12,542 31,106

Purchases of available-for-sale securities (25,290) (9,681) (3,252)

Proceeds from sales of available-for-sale securities 32,062 24,675 1,729

Proceeds from maturities of available-for-sale securities 20,734 33,630 38,517

Purchases of held-for-investment mortgage loans (75,298) (79,028) (79,492)

Proceeds from sales of mortgage loans acquired as held-for-investment 454 196 5

Repayments of mortgage loans acquired as held-for-investment 241,552 410,455 522,242

Decrease in restricted cash 3,730 2,327 13,471

Net proceeds from dispositions of real estate owned and other recoveries 7,712 11,274 11,265

Net decrease (increase) in federal funds sold and securities purchased under agreements to resell 10,480 (24,820) (25,519)

Derivative premiums and terminations and swap collateral, net (3,888) 6,062 569

Other investing activities, net (134) — —

Net cash provided by investing activities 205,268 391,259 494,402

Cash flows from financing activities

Proceeds from issuance of debt securities of consolidated trusts held by third parties 124,887 113,841 95,601

Repayments of debt securities of consolidated trusts held by third parties (262,920) (430,118) (494,275)

Proceeds from issuance of other debt 451,854 701,342 718,731

Repayments of other debt (508,710) (742,510) (832,552)

Increase in liquidation preference of senior preferred stock — — 165

Payment of cash dividends on senior preferred stock (19,610) (47,591) (7,233)

Other financing activities, net (7) (7) (12)

Net cash used in financing activities (214,506) (405,043) (519,575)

Net (decrease) increase in cash and cash equivalents (353) 2,768 (19,929)

Cash and cash equivalents at beginning of year 11,281 8,513 28,442

Cash and cash equivalents at end of year $ 10,928 $ 11,281 $ 8,513

Supplemental cash flow information

Cash paid (received) for:

Debt interest $ 62,257 $ 65,614 75,328

Net cash settlement on interest rate swaps 2,537 3,701 4,044

Income taxes 760 — (18)

Non-cash investing and financing activities (Notes 3, 4, 6 and 7) 

The accompanying notes are an integral part of these consolidated financial statements.

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147 Freddie Mac

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

affordability to the U.S. housing market. We are regulated by FHFA, the SEC, HUD, the CFPB 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 perform our mission by participating in the secondary 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. We do not participate directly in the primary mortgage market. 

We have three reportable segments, which are based on the type of business activities each performs — Single-family 

Guarantee, Investments, and Multifamily. Our Single-family Guarantee segment reflects results from our single-family credit 

guarantee activities. In our Single-family Guarantee segment, we purchase and guarantee single-family mortgage loans 

originated by our seller/servicers in the primary mortgage market and we manage our seriously delinquent loans. 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 and single-family seriously delinquent loans; (b) managing 

the treasury function for the entire company, including funding and liquidity; and (c) managing interest-rate risk for the entire 

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.

Our primary business objectives are: (a) to support U.S. homeowners and renters by maintaining mortgage availability 

even when other sources of financing are scarce and by providing struggling homeowners with alternatives that allow them to 

stay in their homes or avoid foreclosure; (b) to reduce taxpayer exposure to losses by increasing the role of private capital in the 

mortgage market and reducing our overall risk profile; (c) to build a commercially strong and efficient business enterprise to 

succeed in a to-be-determined “future state;" and (d) to support and improve the secondary mortgage market. For information 

regarding our 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 includes 

certain adjustments to correct immaterial errors related to previously reported periods.

Beginning in the first quarter of 2014, we reclassified net discounts paid on retirements of other debt and net premiums 

received from issuance of debt securities of consolidated trusts and other debt from cash flows from operating activities to cash 

flows from financing activities on our consolidated statements of cash flows. This reclassification resulted in a decrease of $2.0 

billion and $3.2 billion to net cash provided by operating activities, and an increase of $2.0 billion and $3.2 billion to net cash 

used in financing activities for 2013 and 2012, respectively.

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 for 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.

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148 Freddie Mac

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, which are VIEs, in our securities issuance process. 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 sum of the fair value 

of the consideration paid, the fair value of any noncontrolling interests held by third parties and the reported amount of any 

previously held interests; and (b) the net amount, 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

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 the 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.

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149 Freddie Mac

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 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 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 affect 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 

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.

Our involvement with the securitization trusts used for our multifamily Other Structured Securities whose underlying 

assets are multifamily housing revenue bonds does not provide us with 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 

entities. 

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 

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150 Freddie Mac

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 issuances of 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 

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. 

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151 Freddie Mac

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 a guarantee of mortgage-related assets held by third parties, in exchange for a 

guarantee fee, without securitizing those 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 commitments. 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. We invest the cash held in 

the custodial account 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 

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.

Cash flows related to mortgage loans originally classified as held-for-investment are classified as either investing 

activities (e.g., principal repayments) or operating activities (e.g., interest payments received from borrowers included within 

net income (loss)). Cash flows related to mortgage loans originally classified as held-for-sale are classified in operating 

activities.

Non-Accrual Loans

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 

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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 more information, refer to 

“Impaired Loans” below.

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. 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 chargeoff loans.

Single-Family Loans

We determine single-family loan loss reserves both on a collective and individual basis. For further discussion on 

individually impaired single-family loans, refer to “Impaired Loans” below.

We estimate loan loss reserves on homogeneous pools of single-family loans using a statistically based model that 

evaluates a variety of factors affecting collectability. The homogeneous pools of single-family mortgage loans are determined 

based on common underlying characteristics, including estimated current LTV ratios, 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.

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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.”

We rely upon third-parties to provide primary servicing for the performing and non-performing loan portfolios. 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 us 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 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 and modifications. Our single-family loan loss reserve severity is based on 

the repeat housing sales index and actual REO dispositions, short sale and third-party values that incorporates the most recent: 

(a) six months of sales experience realized on our distressed property dispositions; and (b) twelve months of pre-foreclosure 

expenses on our distressed properties including REO, short sales, and third-party sales. Our single-family loan loss severity 

estimate also captures current business area practices and expectations about recoveries from mortgage insurance or 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. See endnote (1) to “Table 4.2 — Recorded Investment of Held-for-Investment Mortgage Loans, by LTV Ratio” 

for more information about the repeat housing sales index. 

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 based upon an estimate of 

the fair value of the underlying collateral less estimated disposition costs. Our estimate also considers the effect of historical 

home price changes on borrower behavior.

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, 2014 and 2013, respectively. However, fluctuations in the U.S. housing market, the 

uncertainty in other macroeconomic factors, and variations in success rates of modification efforts under HAMP and other loan 

workout programs, make estimating loss events 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 from other credit 

enhancements, including repurchase recoveries, entered into contemporaneously with and in contemplation of a guarantee or 

loan purchase transaction, as a recovery of our recorded investment in a charged-off loan, up to the amount of loss recognized 

as a charge-off. Proceeds received in excess of our recorded investment in charged-off loans are recorded as a decrease to REO 

operations expense in our consolidated statements of comprehensive income. 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 at the time of final disposition of the loan 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 

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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 below in "Troubled Debt Restructurings." 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.

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 — NonAccrual Loans.”

Troubled Debt Restructurings

Single-family and multifamily loans which experience a modification to their contractual terms which results in a 

concession being granted to a borrower experiencing financial difficulties are considered TDRs. A concession is deemed 

granted when, as a result of the restructuring, we do not expect to collect all amounts due, including interest accrued, at the 

original contractual interest rate. As appropriate, we also consider other qualitative factors in determining whether a concession 

is deemed granted, including whether the borrower’s modified interest rate is consistent with that of a 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.

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-Accrual 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.” As of December 31, 2014 and 2013, we did not classify any securities as “held-to-maturity,” although we may elect 

to do so in the future. Securities classified as available-for-sale and trading are reported at fair value with changes in fair value 

included in AOCI 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 

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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 

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, 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 

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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 as 

incurred and fees paid to third parties are deferred and amortized into interest expense over the life of the new debt security 

using the effective interest method. If the terms of the existing debt security and the new debt security are not substantially 

different, the transaction is accounted for as a modification of the existing debt. Fees paid to the creditor are deferred and 

amortized into interest expense over the life of the modified unsecured debt security using the effective interest method and 

fees paid to third parties are expensed as incurred.

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. 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.

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, 2014 and 2013, 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 recorded investment in 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 

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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.

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. See "NOTE 11: STOCKHOLDERS' EQUITY — Senior Preferred 

Stock" for additional information regarding the Capital Reserve Amount. 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. These shares are included since the warrant 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 

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following common stock equivalent shares outstanding: (a) 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 — 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.

Recent Accounting Guidance

The following table provides a brief description of recent accounting pronouncements that could affect our financial 

statements.

Standard Description Date of Adoption Effect on the financial statements

Recently Adopted Accounting Guidance

ASU 2014-01, Accounting for 

Investments in Qualified Affordable 

Housing Projects (Topic 323)

The 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.

January 1, 2014 The adoption of this amendment did not

have a material impact on our

consolidated financial statements.

ASU 2011-04, Amendments to Achieve 

Common Fair Value Measurement and 

Disclosure Requirements in U.S. GAAP

and IFRSs (Topic 820)

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.

January 1, 2012 The adoption of this amendment did not

have a material impact on our

consolidated financial statements.

ASU 2011-03, Reconsideration of 

Effective Control for Repurchase 

Agreements (Topic 860)

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.

January 1, 2012 The adoption of this amendment did not

have a material impact on our

consolidated financial statements.

Recently Issued Accounting Guidance, Not Yet Adopted Within our Consolidated Financial Statements

ASU 2014-04, Reclassification of 

Residential Real Estate Collateralized 

Consumer Mortgage Loans upon 

Foreclosure (Topic 310)

The 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.

January 1, 2015 We do not expect that the adoption of this

amendment will have a material impact

on our consolidated financial statements.

ASU 2014-11, Repurchase-to-Maturity 

Transactions, Repurchase Financings, 

and Disclosures (Topic 860)

The amendment requires repurchase-to-maturity

transactions to be accounted for as secured

borrowings and requires separate accounting for a

transfer of a financial asset executed

contemporaneously with a repurchase agreement

with the same counterparty.

January 1, 2015 We do not expect that the adoption of this

amendment will have a material impact

on our consolidated financial statements.

ASU 2014-09, Revenue from Contracts 

with Customers (Topic 606)

The amendment requires entities to recognize

revenue to depict the transfer of promised goods

or services to customers in amounts that reflect

the consideration to which the entity expects to be

entitled in exchange for those goods or services.

January 1, 2017 We are evaluating the impact that the

adoption of this amendment will have on

our consolidated financial statements

ASU 2014-14, Classification of Certain 

Government-Guaranteed Mortgage 

Loans upon Foreclosure (Topic 310)

The amendment requires that a mortgage loan be

de-recognized and a separate receivable be

recognized upon foreclosure if certain conditions

are met. If those conditions are met and such a

receivable is recognized, the receivable should be

measured based on the amount of principal and

interest related to the loan expected to be

recovered from the guarantor.

January 1, 2015 We do not expect that the adoption of this

amendment will have a material impact

on our consolidated financial statements.

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159 Freddie Mac

NOTE 2: CONSERVATORSHIPAND RELATED MATTERS

Business Objectives

We operate under the conservatorship that commenced on September 6, 2008, conducting our business under the 

direction of FHFA, as our Conservator. The conservatorship and related matters continue to have wide-ranging effects on us, 

including on our management, business activities, financial condition and results of operations. Upon its appointment, FHFA, 

as Conservator, immediately succeeded to all rights, titles, powers and privileges of Freddie Mac, and of any stockholder, 

officer or director thereof, with respect to the company and its assets. The Conservator also succeeded to the title to all books, 

records, and assets of Freddie Mac held by any other legal custodian or third party. The Conservator 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 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.

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

Scorecards). At the direction of the Conservator, we have made changes to certain business practices that are designed to 

provide support for the mortgage market in a manner that serves our public mission and other non-financial objectives but may 

not contribute to our profitability. Certain of these objectives are intended to help homeowners and the mortgage market and 

may help to mitigate future credit losses. Some of these initiatives impact our near- and long-term financial results. Given our 

public mission and the important role the Administration and our Conservator have placed on Freddie Mac in addressing 

housing and mortgage market conditions, we may be required to take actions that could have a negative impact on our business, 

operating results or financial condition, and thus contribute to a need for additional draws under the Purchase Agreement.

In May 2014, FHFA issued its 2014 Strategic Plan, which updated FHFA's vision for implementing its obligations as 

Conservator of Freddie Mac and Fannie Mae and established three reformulated strategic goals. FHFA has also issued its 

Conservatorship Scorecards for 2014 and 2015. The Conservatorship Scorecards establish objectives and performance targets 

and measures for Freddie Mac and Fannie Mae (the “Enterprises”) related to the strategic goals set forth in the Strategic Plan.

The 2014 Strategic Plan established three reformulated strategic goals for the conservatorships of Freddie Mac and Fannie 

Mae:

• Maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced 

mortgages to foster liquid, efficient, competitive and resilient national housing finance markets. 

• Reduce taxpayer risk through increasing the role of private capital in the mortgage market. 

• Build a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other 

participants in the secondary market in the future. 

As part of the first goal, the 2014 Strategic Plan describes various steps related to increasing access to mortgage credit for 

credit-worthy borrowers. The 2014 Strategic Plan provides for the Enterprises to continue to play an ongoing role in supporting 

multifamily housing needs, particularly for low-income households. The plan states that FHFA will continue to impose a 

production cap on Freddie Mac’s and Fannie Mae’s multifamily businesses. 

The second goal focuses on ways to transfer risk to private market participants and away from the Enterprises in a 

responsible way that does not reduce liquidity or adversely impact the availability of mortgage credit. The second goal provides 

for us to increase the use of single-family credit risk transfer transactions, continue using credit risk transfer transactions in the 

multifamily business and continue shrinking our mortgage-related investments portfolio consistent with the requirements in the 

Purchase Agreement, with a focus on selling less liquid assets. 

The third goal includes the continued development of the Common Securitization Platform. FHFA refined the scope of 

this project to focus on making the new shared system operational for Freddie Mac’s and Fannie Mae’s existing single-family 

securitization activities. The third goal also provides for the Enterprises to work towards the development of a single (common) 

security. 

We continue to align our resources and internal business plans to meet the goals and objectives provided to us by FHFA.

As a result of the net worth sweep dividend provisions of the senior preferred stock, we cannot retain capital from the 

earnings generated by our business operations or return capital to stockholders other than Treasury, the holder of our senior 

preferred stock. Our future is uncertain, and the conservatorship has no specified termination date. We do not know what 

changes may occur to our business model during or following conservatorship, including whether we will continue to exist. We 

are not aware of any current plans of our Conservator to significantly change our business model or capital structure in the near 

term. Our future structure and role will be determined by the Administration and Congress, and there are likely to be significant 

changes beyond the near term. We have no ability to predict the outcome of these deliberations.

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160 Freddie Mac

Purchase Agreement and Warrant

Overview

On September 7, 2008, we, through FHFA, in its capacity as Conservator, entered into the Purchase Agreement with 

Treasury. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended on 

May 6, 2009, December 24, 2009, and August 17, 2012. The amount of available funding remaining under the Purchase 

Agreement was $140.5 billion as of December 31, 2014. 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 $2.4 billion for 2014, will be $1.8 billion for 2015, 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 

liquidation preference of the senior preferred stock is increased by the amount of funds we receive. The senior preferred stock 

is senior in liquidation preference to our common stock and all other series of preferred stock.

In addition to the issuance of the senior preferred stock and warrant, we are required under the Purchase Agreement to 

pay a quarterly commitment fee to Treasury. Under the Purchase Agreement, the fee is to be determined in an amount mutually 

agreed to by us and Treasury with reference to the market value of Treasury’s funding commitment as then in effect. However, 

pursuant to the August 2012 amendment to the Purchase Agreement, for each quarter commencing January 1, 2013, and for as 

long as the net worth sweep dividend provisions remain in form and content substantially the same, no periodic commitment 

fee under the Purchase Agreement will be set, accrue or be payable. Treasury had 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. However, 

Treasury's consent is required for a termination of conservatorship other than in connection with receivership. Treasury has the 

right to exercise the warrant, in whole or in part, at any time on or before September 7, 2028.

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161 Freddie Mac

Purchase Agreement Covenants

The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not, without 

the prior written consent of Treasury:

• declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac 

equity securities (other than with respect to the senior preferred stock or warrant);

• redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock 

or warrant);

• sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common 

stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect 

on the date of the Purchase Agreement);

• terminate the conservatorship (other than in connection with a receivership);

• sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited life 

regulated entity (in the context of a receivership); (b) of assets and properties in the ordinary course of business, 

consistent with past practice; (c) of assets and properties having fair market value individually or in aggregate less 

than $250 million in one transaction or a series of related transactions; (d) in connection with our liquidation by a 

receiver; (e) of cash or cash equivalents for cash or cash equivalents; or (f) to the extent necessary to comply with the 

covenant described below relating to the reduction of our mortgage-related investments portfolio;

• issue any subordinated debt;

• enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or

• engage in transactions with affiliates unless the transaction is: (a) pursuant to the Purchase Agreement, the senior 

preferred stock or the warrant; (b) upon arm’s length terms; or (c) a transaction undertaken in the ordinary course or 

pursuant to a contractual obligation or customary employment arrangement in existence on the date of the Purchase 

Agreement.

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 

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.

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162 Freddie Mac

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

For purposes of the limit imposed by the Purchase Agreement and FHFA regulation, the UPB of our mortgage-related 

investments portfolio could not exceed $470 billion at December 31, 2014 and was $408 billion at that date. Our 2014 Retained 

Portfolio Plan provides for us to manage the UPB of the mortgage-related investments portfolio so that it does not exceed 90%

of the annual cap established by the Purchase Agreement (subject to certain exceptions). The annual 15% reduction in our 

mortgage-related investments portfolio cap 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 mortgage assets is significantly constrained by limitations of 

the Purchase Agreement and those imposed by FHFA. 

Government Support for our Business

We receive substantial support from Treasury and 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, 2014, 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, 2014. Since conservatorship began through December 31, 2014, we have paid 

cash dividends of $91.0 billion to Treasury at the direction of the Conservator.

See “NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS” and “NOTE 11: STOCKHOLDERS’

EQUITY” for more information on 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 

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163 Freddie Mac

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,” 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, 2014, 2013 

and 2012. In addition, we are deemed related parties with Fannie Mae as both we and Fannie Mae have the same relationships 

with FHFA and Treasury. All transactions between us and Fannie Mae have occurred in the normal course of business in 

conservatorship. In October 2013, FHFA announced the formation of 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. For the year ended December 31, 2014, we contributed $43 million of capital to CSS. In 

November 2014, we and Fannie Mae announced that a chief executive officer has been named for CSS. Additionally, we and 

Fannie Mae each appointed two executives to the CSS Board of Managers and signed governance and operating agreements for 

CSS. 

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 more 

information about 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 we 

identified the credit performance of the underlying mortgage loans 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: IMPAIRED 

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 

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164 Freddie Mac

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, 2014 and 2013, 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 many of our PC trusts, we have credit protection in the form of primary 

mortgage insurance, pool insurance, recourse to lenders, credit risk transfer transactions, 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 $1.4 billion and $3.5 billion in UPB, 

as of December 31, 2014 and 2013, 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 the 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 the 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.

We consolidate Other Guarantee Transactions when: (a) we have the obligation to absorb credit losses through our 

financial guarantee; and (b) we also have the ability to direct the loss mitigation activities of the underlying assets, which is the 

power to direct the activities that most significantly impact the economic performance of these VIEs. We do not consolidate the 

Other Guarantee Transactions that do not meet these conditions. As a result, we have concluded that we are the primary 

beneficiary of Other Guarantee Transactions with underlying assets totaling $7.4 billion and $8.9 billion at December 31, 2014

and 2013, 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. 

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165 Freddie Mac

Table 3.1 — Variable Interests in VIEs for which We are not the Primary Beneficiary

December 31, 2014

Mortgage-Related

Security Trusts

Unsecuritized

Multifamily

Loans (3)

Freddie Mac

Securities(1)

Non-Freddie Mac

Securities(2) Other(2)

(in millions)

Assets and Liabilities Recorded on our Consolidated Balance

Sheets

Assets:

Restricted cash and cash equivalents $ — $ — $ — $ 3

Investments in securities:

Available-for-sale, at fair value 39,099 65,253 — —

Trading, at fair value 17,469 6,282 — —

Mortgage loans:

Held-for-investment, unsecuritized — — 40,753 —

Held-for-sale — — 12,368 —

Accrued interest receivable 236 165 221 7

Other assets 914 2 369 495

Liabilities:

Derivative liabilities, net — — — (30)

Other liabilities (1,005) — (10) (560)

Maximum Exposure to Loss $ 87,529 $ 69,206 $ 53,711 $ 10,419

Total Assets of Non-Consolidated VIEs(4) $ 103,253 $ 390,515 $ 95,874 $ 22,855

December 31, 2013

Mortgage-Related

Security Trusts

Unsecuritized

Multifamily

Loans(3)

Freddie Mac

Securities(1)

Non-Freddie Mac

Securities(2) Other(2)

(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

(1) 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. Our 

maximum exposure to loss on Freddie Mac securities excludes investments in single-family multiclass REMICs and Other Structured Securities, 

because we already consolidate the collateral of these trusts on our consolidated balance sheets.

(2) Our maximum exposure to loss for non-Freddie Mac security trusts and certain other VIEs 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 recorded on our consolidated balance 

sheets.

(3) Our maximum exposure to loss includes accrued interest receivable associated with these loans. 

(4) Except for unsecuritized multifamily loans, this represents the UPB of assets held by non-consolidated VIEs using the most current information 

available. For unsecuritized multifamily loans, this represents the fair value of the property serving as collateral for the loan.

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166 Freddie Mac

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, 2014 and 2013, 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. 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 assets. 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 nonFreddie Mac securities.

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, 

2014 or 2013. At both December 31, 2014 and 2013, 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 4,400 and 5,000 unsecuritized multifamily loans at December 31, 2014 and 2013, respectively. The 

UPB of our investments in these loans was $53.0 billion and $59.2 billion as of December 31, 2014 and 2013, 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, 2014 and 2013, the amount of unsecuritized multifamily 

loans for which we could be considered the primary beneficiary of the underlying borrowing entity was not material. See 

“NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES” for more information.

Other

Our involvement with other VIEs primarily includes certain of our other mortgage-related guarantees and other guarantee 

commitments that we account for as derivatives.

At December 31, 2014 and 2013, we were the primary beneficiary of zero and one, respectively, real estate entities that 

invest in multifamily property, related to credit-enhanced multifamily housing revenue bonds that were not deemed to be 

material. We were not the primary beneficiary of the remainder of other VIEs because our involvement in these VIEs is passive 

in nature and does not provide us with the power to direct the activities of the VIEs that most significantly impact their 

economic performance. See “Table 3.1 — 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.

Non-Cash Investing and Financing Activities

We consolidate certain of our multiclass REMIC and Other Structured Securities trusts when we hold substantially all of 

the beneficial interests issued by the trust. Upon consolidation of a multiclass REMIC and Other Structured Securities trust, we 

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167 Freddie Mac

derecognize our investments in the beneficial interests issued by the trust and recognize the assets and liabilities of the trust at 

fair value. During the years ended December 31, 2014, 2013, and 2012, this activity resulted in a decrease in investment 

securities and a decrease in debt securities of consolidated trusts of $0.4 billion, $2.2 billion, and $4.6 billion, respectively.

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 

predominantly 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, 2014 and 2013.

Table 4.1 — Mortgage Loans

December 31, 2014 December 31, 2013

Unsecuritized

Held By

Consolidated

Trusts Total Unsecuritized

Held By

Consolidated

Trusts Total

(in millions)

Single-family:

Fixed-rate

Amortizing $ 105,560 $ 1,431,872 $ 1,537,432 $ 113,597 $ 1,402,841 $ 1,516,438

Interest-only 939 3,298 4,237 1,476 4,826 6,302

Total fixed-rate 106,499 1,435,170 1,541,669 115,073 1,407,667 1,522,740

Adjustable-rate

Amortizing 1,353 68,632 69,985 1,935 65,429 67,364

Interest-only 3,191 20,373 23,564 4,576 23,841 28,417

Total adjustable-rate 4,544 89,005 93,549 6,511 89,270 95,781

Other Guarantee Transactions — 7,042 7,042 — 8,431 8,431

FHA/VA and other governmental 473 3,139 3,612 553 3,354 3,907

Total single-family 111,516 1,534,356 1,645,872 122,137 1,508,722 1,630,859

Multifamily:

Fixed-rate 43,632 524 44,156 50,701 444 51,145

Adjustable-rate 9,321 — 9,321 8,467 — 8,467

Other governmental 3 — 3 3 — 3

Total multifamily 52,956 524 53,480 59,171 444 59,615

Total UPB of mortgage loans 164,472 1,534,880 1,699,352 181,308 1,509,166 1,690,474

Deferred fees, unamortized premiums, discounts

and other cost basis adjustments (3,366) 26,098 22,732 (4,817) 23,745 18,928

Fair value adjustments on loans held-for sale 257 — 257 6 — 6

Allowance for loan losses on mortgage loans heldfor-investment (18,877) (2,884) (21,761) (21,612) (3,006) (24,618)

Total mortgage loans, net $ 142,486 $ 1,558,094 $ 1,700,580 $ 154,885 $ 1,529,905 $ 1,684,790

Mortgage loans, net:

Held-for-investment $ 130,118 $ 1,558,094 $ 1,688,212 $ 146,158 $ 1,529,905 $ 1,676,063

Held-for-sale 12,368 — 12,368 8,727 — 8,727

Total mortgage loans, net $ 142,486 $ 1,558,094 $ 1,700,580 $ 154,885 $ 1,529,905 $ 1,684,790

During 2014 and 2013, we purchased $252.7 billion and $412.9 billion, respectively, in UPB of single-family mortgage 

loans, and $2.4 billion and $1.3 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 2014 and 2013, we sold $21.3 billion and $28.3 billion, respectively, of 

held-for-sale multifamily mortgage loans. See “NOTE 14: FINANCIAL GUARANTEES” for more information on our 

issuances of Other Guarantee Transactions. 

In April 2014, we received FHFA's approval for a pilot transaction to sell certain seriously delinquent unsecuritized 

single-family loans held on our consolidated balance sheet. In connection with this transaction, during the second quarter of 

2014, we reclassified $0.9 billion in recorded investment of mortgage loans from held-for-investment to held-for-sale. We 

subsequently reclassified certain of these loans back to held-for-investment during the second and third quarters of 2014. We 

completed the sale in the third quarter of 2014. In January 2015, we received FHFA approval to execute additional such sales. 

In connection with this approval, we reclassified $1.4 billion in recorded investment of mortgage loans from held-forinvestment to held-for-sale during the first quarter of 2015, which did not have a material effect on our financial results. For 

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168 Freddie Mac

additional information regarding the fair value of our loans classified as held-for-sale, see "NOTE 16: FAIR VALUE 

DISCLOSURES."

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, 2014 and 2013, 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.”

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.

The table below presents information on the estimated current LTV ratios of single-family held-for-investment loans on 

our consolidated balance sheets. 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, 2014 As of December 31, 2013

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) $ 911,071 $ 258,126 $ 85,398 $ 1,254,595 $ 819,509 $ 269,110 $ 124,491 $ 1,213,110

15-year amortizing fixed-rate(3) 265,098 14,101 3,338 282,537 270,211 19,658 5,748 295,617

Adjustable-rate 60,463 6,701 709 67,873 56,208 6,714 1,578 64,500

Alt-A, interest-only, and option

ARM 28,935 18,232 16,448 63,615 29,927 21,564 25,089 76,580

Total single-family loans $1,265,567 $ 297,160 $ 105,893 1,668,620 $1,175,855 $ 317,046 $ 156,906 1,649,807

Multifamily loans 41,353 50,874

Total recorded investment of held-forinvestment loans $ 1,709,973 $ 1,700,681

(1) The current LTV ratios are management estimates, which are updated on a monthly basis. Market values are estimated by adjusting the value of the 

property at origination based on changes in the market value of homes in the same geographic area since that time. Changes in market value are derived 

from our internal index which measures price changes for repeat sales and refinancing activity on the same properties using Freddie Mac and Fannie 

Mae single-family 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.

(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 

9.01% and 9.89% as of December 31, 2014 and 2013, respectively.

(3) The majority of our loan modifications result in new terms that include fixed interest rates after modification. As of December 31, 2014 and 2013, we 

have categorized UPB of approximately $42.3 billion and $43.8 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.

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: IMPAIRED 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.”

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169 Freddie Mac

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. 

The table below presents our loan loss reserves activity for the single-family and multifamily loans that we own or 

guarantee.

Table 4.3 — Detail of Loan Loss Reserves

Year Ended December 31,

2014 2013

Allowance for Loan Losses Reserve 

for

Guarantee

Losses

Allowance for Loan Losses Reserve 

for

Guarantee

Unsecuritized Losses

Held By

Consolidated

Trusts Total Unsecuritized

Held By

Consolidated

Trusts Total

(in millions)

Single-family:

Beginning balance $ 21,487 $ 3,006 $ 85 $ 24,578 $ 25,449 $ 4,918 $ 141 $ 30,508

Provision (benefit) for credit

losses (864) 947 30 113 (3,995) 1,790 (42) (2,247)

Charge-offs (4,510) (376) (6) (4,892) (8,181) (804) (10) (8,995)

Recoveries 998 260 — 1,258 3,810 503 — 4,313

Transfers, net(1) 1,689 (953) — 736 4,404 (3,401) (4) 999

Ending balance $ 18,800 $ 2,884 $ 109 $ 21,793 $ 21,487 $ 3,006 $ 85 $ 24,578

Multifamily:

Beginning balance $ 125 $ — $ 26 $ 151 $ 339 $ 1 $ 42 $ 382

Provision (benefit) for credit

losses (46) — (9) (55) (208) (1) (9) (218)

Charge-offs (3) — — (3) (7) — — (7)

Recoveries 1 — — 1 1 — — 1

Transfers, net(1) — — — — — — (7) (7)

Ending balance $ 77 $ — $ 17 $ 94 $ 125 $ — $ 26 $ 151

Total:

Beginning balance $ 21,612 $ 3,006 $ 111 $ 24,729 $ 25,788 $ 4,919 $ 183 $ 30,890

Provision (benefit) for credit

losses (910) 947 21 58 (4,203) 1,789 (51) (2,465)

Charge-offs (4,513) (376) (6) (4,895) (8,188) (804) (10) (9,002)

Recoveries 999 260 — 1,259 3,811 503 — 4,314

Transfers, net(1) 1,689 (953) — 736 4,404 (3,401) (11) 992

Ending balance $ 18,877 $ 2,884 $ 126 $ 21,887 $ 21,612 $ 3,006 $ 111 $ 24,729

Ratio of total loan loss reserves (excluding TDR concessions) to net charge-offs 

for single-family loans(2) 2.5 1.9

Ratio of total loan loss reserves to net charge-offs for single-family loans(2) 5.2 3.5

(1) For the years ended December 31, 2014 and 2013, consists of: (a) approximately $1.0 billion and $3.4 billion, respectively, of reclassified single-family 

reserves related to our removal of loans previously held by consolidated trusts, net of reclassifications for single-family loans subsequently 

resecuritized after such removal; and (b) approximately $0.7 billion and $1.0 billion, respectively, attributable to capitalization of past due interest on 

modified mortgage loans. 

(2) Excludes amounts associated with loans acquired with deteriorated credit quality (at the time of our acquisition) and recoveries related to settlements.

The table below presents our allowance for loan losses and our recorded investment in mortgage loans, held-forinvestment, by impairment evaluation methodology.

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170 Freddie Mac

Table 4.4 — Net Investment in Mortgage Loans

December 31, 2014 December 31, 2013

Single-family Multifamily Total Single-family Multifamily Total

(in millions)

Recorded investment:

Collectively evaluated $ 1,568,237 $ 40,451 $ 1,608,688 $ 1,551,667 $ 49,598 $ 1,601,265

Individually evaluated 100,383 902 101,285 98,140 1,276 99,416

Total recorded investment 1,668,620 41,353 1,709,973 1,649,807 50,874 1,700,681

Ending balance of the allowance for loan losses:

Collectively evaluated (3,847) (25) (3,872) (5,939) (45) (5,984)

Individually evaluated (17,837) (52) (17,889) (18,554) (80) (18,634)

Total ending balance of the allowance (21,684) (77) (21,761) (24,493) (125) (24,618)

Net investment in mortgage loans $ 1,646,936 $ 41,276 $ 1,688,212 $ 1,625,314 $ 50,749 $ 1,676,063

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 12.7% and 12.9% of the recorded investment in such loans at 

December 31, 2014 and 2013, respectively, and a substantial portion of the allowance associated with these loans represented 

interest rate concessions provided to borrowers as part of loan modifications. The ending balance of the allowance for loan 

losses associated with mortgage loans held by our consolidated trusts represented approximately 0.2% of the recorded 

investment in such loans as of both December 31, 2014 and 2013.

Credit Protection and Other Forms of Credit Enhancement

In connection with many of our mortgage loans and other mortgage-related guarantees, we have credit protection in the 

form of primary mortgage insurance, pool insurance, recourse to lenders, credit risk transfer transactions, 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 4.5 — Recourse and Other Forms of Credit Protection(1)

UPB at Maximum Coverage(2) at

December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013

(in millions)

Single-family:

Primary mortgage insurance $ 227,495 $ 203,470 $ 57,938 $ 50,823

Other credit protection:

Credit risk transfer transactions(3) 144,272 56,903 6,657 1,183

Lender recourse and indemnifications 6,527 7,119 6,092 6,726

Pool insurance(4) 2,284 4,683 947 1,186

HFA indemnification 3,357 4,051 3,324 3,323

Subordination(5) 2,377 2,644 339 399

Other credit enhancements 20 38 18 38

Total $ 386,332 $ 278,908 $ 75,315 $ 63,678

Multifamily:

K Certificates $ 75,541 $ 59,326 $ 13,576 $ 10,601

Subordination(5) 4,724 4,435 796 756

HFA indemnification 772 905 699 699

Other credit enhancements 5,706 6,666 1,685 1,834

Total $ 86,743 $ 71,332 $ 16,756 $ 13,890

(1) Except for our credit risk transfer transactions, our credit enhancements generally provide protection for the first, or initial credit losses associated with 

the related loans. Excludes: (a) FHA/VA and other governmental loans; (b) purchased credit protection associated with $9.8 billion and $11.5 billion in 

UPB of single-family loans underlying Other Guarantee Transactions as of December 31, 2014 and 2013, respectively; and (c) 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.

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171 Freddie Mac

(3) Excludes $48.3 billion in UPB at December 31, 2014 where the related loans are also covered by primary mortgage insurance. Maximum coverage 

amounts presented represent the outstanding balance of STACR debt securities held by third parties as well as the remaining aggregate limit of 

insurance purchased from third parties in ACIS transactions. 

(4) Excludes approximately $0.9 billion and $1.8 billion in UPB at December 31, 2014 and 2013, respectively, where the related loans are also covered by 

primary mortgage insurance.

(5) 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. 

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. For 

information about counterparty risk associated with mortgage insurers, see “NOTE 15: CONCENTRATION OF CREDIT AND 

OTHER RISKS — Mortgage Insurers.”

Our credit risk transfer transactions include structured agency credit risk (STACR) debt note transactions and agency 

credit insurance structures (ACIS), and provide credit enhancement by transferring a portion of credit losses on single-family 

loans that could occur under adverse home price scenarios. 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 (based on a fixed severity schedule) 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 retained the first loss position for loans covered by 

STACR transactions completed in 2014 and 2013. We executed seven and two STACR debt note transactions in 2014 and 

2013, respectively.

In an ACIS transaction, we purchase one or more insurance policies (typically underwritten by a panel of insurers and 

reinsurers) that obligate the counterparties to reimburse us for specified credit events (based on a fixed severity schedule up to 

an aggregate limit) that are incurred on our mezzanine loss positions associated with STACR debt note transactions in exchange 

for our payment of periodic premiums. We executed three and one ACIS transactions during 2014 and 2013, respectively. 

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. 

We also have credit protection for certain 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 

$3.6 billion and $3.9 billion as of December 31, 2014 and 2013, respectively.

Non-Cash Investing and Financing Activities

During the years ended December 31, 2014, 2013, and 2012, we acquired $187.1 billion, $340.9 billion, and $358.1 

billion, respectively, of mortgage loans held-for-investment in exchange for the issuance of debt securities of consolidated 

trusts.

NOTE 5: IMPAIRED LOANS

Individually Impaired Loans

Individually impaired single-family loans include TDRs, as well as loans acquired under our financial guarantees with 

deteriorated credit quality. Individually impaired multifamily loans include TDRs, loans three monthly payments or more past 

due, and loans that are impaired based on management judgment. For a discussion of our significant accounting policies 

regarding impaired and non-accrual mortgage loans, 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).

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172 Freddie Mac

Table 5.1 — Individually Impaired Loans

Balance at December 31, 2014 For the Year Ended December 31, 2014

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 $ 6,041 $ 4,007 N/A $ 4,007 $ 3,727 $ 376 $ 33

15-year amortizing fixed-rate 63 44 N/A 44 39 10 1

Adjustable-rate 27 22 N/A 22 17 1 —

Alt-A, interest-only, and option ARM 1,717 1,168 N/A 1,168 1,133 81 6

Total with no specific allowance recorded 7,848 5,241 N/A 5,241 4,916 468 40

With specific allowance recorded:(3)

20 and 30-year or more, amortizing fixed-rate 77,798 76,708 $ (14,051) 62,657 75,773 2,357 279

15-year amortizing fixed-rate 1,226 1,233 (40) 1,193 1,242 54 10

Adjustable-rate 868 866 (65) 801 881 23 6

Alt-A, interest-only, and option ARM 16,734 16,335 (3,681) 12,654 16,476 380 58

Total with specific allowance recorded 96,626 95,142 (17,837) 77,305 94,372 2,814 353

Combined single-family:

20 and 30-year or more, amortizing fixed-rate 83,839 80,715 (14,051) 66,664 79,500 2,733 312

15-year amortizing fixed-rate 1,289 1,277 (40) 1,237 1,281 64 11

Adjustable-rate 895 888 (65) 823 898 24 6

Alt-A, interest-only, and option ARM 18,451 17,503 (3,681) 13,822 17,609 461 64

Total single-family $ 104,474 $ 100,383 $ (17,837) $ 82,546 $ 99,288 $ 3,282 $ 393

Multifamily —

With no specific allowance recorded(4) $ 440 $ 431 N/A $ 431 $ 659 $ 29 $ 9

With specific allowance recorded 480 471 $ (52) 419 535 26 16

Total multifamily $ 920 $ 902 $ (52) $ 850 $ 1,194 $ 55 $ 25

Total single-family and multifamily $ 105,394 $ 101,285 $ (17,889) $ 83,396 $ 100,482 $ 3,337 $ 418

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 $ 5,927 $ 3,355 N/A $ 3,355 $ 3,370 $ 394 $ 34

15-year amortizing fixed-rate 62 34 N/A 34 31 6 1

Adjustable rate 19 13 N/A 13 13 1 —

Alt-A, interest-only, and option ARM 1,758 1,038 N/A 1,038 978 72 6

Total with no specific allowance recorded 7,766 4,440 N/A 4,440 4,392 473 41

With specific allowance recorded:(3)

20 and 30-year or more, amortizing fixed-rate 75,633 74,554 $ (14,431) 60,123 69,922 2,127 282

15-year amortizing fixed-rate 1,324 1,324 (43) 1,281 1,109 50 11

Adjustable rate 967 962 (84) 878 855 22 6

Alt-A, interest-only, and option ARM 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 81,560 77,909 (14,431) 63,478 73,292 2,521 316

15-year amortizing fixed-rate 1,386 1,358 (43) 1,315 1,140 56 12

Adjustable rate 986 975 (84) 891 868 23 6

Alt-A, interest-only, and option ARM 18,968 17,898 (3,996) 13,902 17,504 441 75

Total single-family $ 102,900 $ 98,140 $ (18,554) $ 79,586 $ 92,804 $ 3,041 $ 409

Multifamily —

With no specific allowance recorded(4) $ 694 $ 681 N/A $ 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

(1) Consists of income recognized during the period related to loans on non-accrual status.

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173 Freddie Mac

(2) Individually impaired single-family 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) Consists primarily of mortgage loans classified as TDRs.

(4) 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.

Mortgage Loan Performance

The table below presents the recorded investment of our single-family and multifamily mortgage loans, held-forinvestment, by payment status.

Table 5.2 — Payment Status of Mortgage Loans

December 31, 2014

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 $ 1,207,826 $ 17,516 $ 5,817 $ 23,436 $ 1,254,595 $ 23,433

15-year amortizing fixed-rate 280,629 1,010 216 682 282,537 682

Adjustable-rate 66,737 406 118 612 67,873 612

Alt-A, interest-only, and option ARM 53,251 2,368 948 7,048 63,615 7,045

Total single-family 1,608,443 21,300 7,099 31,778 1,668,620 31,772

Total multifamily 41,335 7 11 — 41,353 385

Total single-family and multifamily $ 1,649,778 $ 21,307 $ 7,110 $ 31,778 $ 1,709,973 $ 32,157

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 $ 1,157,057 $ 19,743 $ 6,675 $ 29,635 $ 1,213,110 $ 29,620

15-year amortizing fixed-rate 293,286 1,196 271 864 295,617 863

Adjustable-rate 62,987 495 147 871 64,500 871

Alt-A, interest-only, and option ARM 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

We have the option under our PC master trust agreement 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, 2014, there were $0.8 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 $11.2 billion and $18.2 billion in UPB of loans from PC 

trusts (or purchased delinquent loans associated with other guarantee commitments) during the years ended December 31, 2014

and 2013, respectively. 

The table below summarizes the delinquency rates of mortgage loans within our single-family credit guarantee and 

multifamily mortgage portfolios.

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174 Freddie Mac

Table 5.3 — Delinquency Rates

December 31, 2014 December 31, 2013

Single-family:(1)

Non-credit-enhanced portfolio

Serious delinquency rate 1.74% 2.09%

Total number of seriously delinquent loans 150,300 190,119

Credit-enhanced portfolio:(2)

Primary mortgage insurance:

 Serious delinquency rate 3.10% 4.40%

 Total number of seriously delinquent loans 38,595 51,600

Other credit protection:(3)

 Serious delinquency rate 1.21% 3.66%

 Total number of seriously delinquent loans 12,175 15,828

Total single-family:

Serious delinquency rate 1.88% 2.39%

Total number of seriously delinquent loans 200,069 255,325

Multifamily:(4)

Non-credit-enhanced portfolio:

Delinquency rate 0.02% 0.07%

UPB of delinquent loans (in millions) $ 11 $ 46

Credit-enhanced portfolio:

Delinquency rate 0.05% 0.11%

UPB of delinquent loans (in millions) $ 44 $ 75

Total Multifamily:

Delinquency rate 0.04% 0.09%

UPB of delinquent loans (in millions) $ 55 $ 121

(1) 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. In the third quarter of 2014, we revised our 

presentation of single-family non-credit enhanced and credit-enhanced serious delinquency rates. This revision did not impact our total single-family 

serious delinquency rate. Prior periods have been revised to conform with the current presentation.

(2) The credit enhanced categories are not mutually exclusive as a single loan may be covered by both primary mortgage insurance and other credit 

protection.

(3) Consists of single-family mortgage loans covered by financial arrangements (other than primary mortgage insurance) that are designed to reduce our 

credit risk exposure. See "Table 4.5 — Recourse and Other Forms of Credit Protection" for more information.

(4) 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). 

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. Except as described below, 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. In addition, in January 2015, at the instruction of FHFA, we 

implemented a new $5,000 principal reduction incentive payable to eligible borrowers who remain in good standing on their 

HAMP modified loans through the sixth anniversary of their modification. Treasury will pay the $5,000 incentive for certain of 

our eligible HAMP modified loans, and we will pay the $5,000 incentive on our other eligible HAMP modified loans. 

HAMP and HARP are scheduled to end in December 2015. In June 2014, Treasury announced that HAMP would be 

extended for at least another year. However, it is still not known if FHFA will direct us to extend our version of HAMP as well. 

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, or facilitate foreclosure alternatives when continued homeownership is not practicable. We require our singlefamily servicers first to evaluate problem loans for a repayment or forbearance plan before considering modification. If a 

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175 Freddie Mac

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. 

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, which replaced our previous non-HAMP

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 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 2014, approximately 51% of completed single-family loan modifications that were classified as TDRs involved 

interest rate reductions and, in certain cases, term extensions and approximately 25% involved principal forbearance in addition 

to interest rate reductions and, in certain cases, term extensions. During 2014, the average term extension was 184 months and 

the average interest rate reduction was 1.3% 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 years ended December 31, 2014 and 2013, 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.

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176 Freddie Mac

Table 5.4 — TDR Activity, by Segment

Year Ended December 31,

2014 2013

Number of Loans

Post-TDR

Recorded

Investment Number of Loans

Post-TDR

Recorded

Investment

(dollars in millions)

Single-family:(1)

20 and 30-year or more, amortizing fixed-rate 68,186 $ 10,172 101,538 $ 16,014

15-year amortizing fixed-rate 7,189 528 11,671 825

Adjustable-rate 1,849 285 3,604 574

Alt-A, interest-only, and option ARM 9,112 1,865 17,770 3,941

Total Single-family 86,336 12,850 134,583 21,354

Multifamily 2 15 8 98

Total 86,338 $ 12,865 134,591 $ 21,452

(1) The pre-TDR recorded investment for single-family loans initially classified as TDR during the years ended December 31, 2014 and 2013 was $12.8 

billion and $21.2 billion, respectively.

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. 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 table below presents the volume of our TDR modifications that experienced payment defaults (i.e., loans that became 

two months delinquent or completed a loss event) during the applicable periods and had completed a modification during the 

year preceding the payment default. The table presents loans based on their original product category before modification and 

excludes loans subject to other loss mitigation activity. Substantially all of our completed single-family loan modifications 

classified as a TDR during 2014 resulted in a modified loan with a fixed interest rate. However, many of these fixed-rate loans 

include provisions for the reduced interest rates to remain fixed for the first five years of the modification and then increase at a 

rate of up to one percent per year until the interest rate has been adjusted to the market rate that was in effect at the time of the 

modification. 

Table 5.5 — Payment Defaults of Completed TDR Modifications, by Segment(1) 

Year Ended December 31,

2014 2013

Number of Loans

Post-TDR

Recorded

Investment(2) Number of Loans

Post-TDR

Recorded

Investment(2)

(dollars in millions)

Single-family:

20 and 30-year or more, amortizing fixed-rate 19,101 $ 3,384 14,964 $ 2,766

15-year amortizing fixed-rate 645 62 471 52

Adjustable-rate 332 61 237 50

Alt-A, interest-only, and option ARM 2,357 564 2,256 587

Total single-family 22,435 $ 4,071 17,928 $ 3,455

Multifamily — $ — — $ —

(1) Represents TDR loans that experienced a payment default during the period and had completed a modification during the year preceding the payment 

default. 

(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.

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, 2014 and 2013, 

9,538 and 8,473, respectively, of such loans (with a post-TDR recorded investment of $1.4 billion for both periods) experienced 

a payment default within a year after the loss mitigation activity occurred.

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177 Freddie Mac

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, 2014 and 2013, 

4,206 and 17,225, respectively, of such loans (with a post-TDR recorded investment of $0.6 billion and $2.8 billion, 

respectively) experienced a payment default within a year after the borrowers' bankruptcy.

NOTE 6: REAL ESTATE OWNED

We obtain REO properties: (a) when we are the highest bidder at foreclosure sales of properties that collateralize singlefamily 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 evaluate their marketability, including determining an estimated market value, and then select an appropriate 

disposition path (e.g., listing for sale with a real estate broker, or auction). 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,

2014 2013 2012

(in millions)

Beginning balance — REO $ 4,602 $ 4,407 $ 5,827

Additions 4,110 6,498 7,029

Dispositions (6,028) (6,303) (8,449)

Ending balance — REO 2,684 4,602 4,407

Beginning balance, valuation allowance (51) (29) (147)

Change in valuation allowance (75) (22) 118

Ending balance, valuation allowance (126) (51) (29)

Ending balance — REO, net $ 2,558 $ 4,551 $ 4,378

The REO balance, net at December 31, 2014 and 2013 associated with single-family properties was $2.6 billion and $4.5 

billion, respectively, and the balance associated with multifamily properties was $0 and $10 million, respectively. The 

Southeast region represented approximately 36% and 34% of our single-family REO additions during 2014 and 2013, 

respectively, based on the number of properties, and the North Central region represented approximately 25% and 29% of our 

single-family REO additions during these periods. Our single-family REO inventory consisted of 25,768 properties and 47,307

properties at December 31, 2014 and 2013, respectively. In recent years, the foreclosure process has been significantly slowed 

in many geographic areas, particularly in states that require a judicial foreclosure process, which extends the time it takes for 

loans to be foreclosed upon and the underlying property to transition to REO. See “NOTE 15: CONCENTRATION OF 

CREDIT AND OTHER RISKS” for additional information about regional concentrations in our investments in mortgage loans.

Our REO operations expenses include: (a) REO property expenses; (b) net gains or losses incurred on disposition of REO 

properties; (c) adjustments to the holding period allowance associated with REO properties to record them at the lower of their 

carrying amount or fair value less the estimated costs to sell; and (d) recoveries from insurance and other credit enhancements. 

An allowance for estimated declines in the REO fair value during the period properties are held reduces the carrying value of 

REO property. Excluding holding period valuation adjustments and recoveries, we recognized gains of $461 million, $761 

million, and $693 million on REO dispositions during 2014, 2013, and 2012, respectively. We increased (decreased) our 

valuation allowance for properties in our REO inventory by $176 million, $58 million, and $(7) million in 2014, 2013, and 

2012, respectively.

Non-cash Investing and Financing Activities

REO property acquisitions as a result of the derecognition of mortgage loans held on our consolidated balance sheets 

upon foreclosure of the underlying collateral or deed in lieu of foreclosure represent non-cash transfers. During the years ended 

December 31, 2014, 2013, and 2012, we had transfers of $3.8 billion, $6.1 billion, and $6.8 billion, respectively, from 

mortgage loans to REO.

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178 Freddie Mac

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, 2014 and 2013, all available-for-sale 

securities are mortgage-related securities.

Table 7.1 — Available-For-Sale Securities

Gross Unrealized Losses

December 31, 2014

Amortized

Cost

Gross

Unrealized

Gains

Other-ThanTemporary 

Impairment(1)

Temporary 

Impairment(2)

Fair

Value

(in millions)

Available-for-sale securities:

Freddie Mac $ 37,710 $ 1,435 $ — $ (46) $ 39,099

Fannie Mae 10,860 463 — (10) 11,313

Ginnie Mae 183 16 — — 199

CMBS 20,988 890 (2) (54) 21,822

Subprime 20,210 989 (518) (92) 20,589

Option ARM 5,460 372 (179) (4) 5,649

Alt-A and other 4,500 578 (29) (6) 5,043

Obligations of states and political subdivisions 2,166 34 — (2) 2,198

Manufactured housing 556 84 (2) — 638

Total available-for-sale securities $ 102,633 $ 4,861 $ (730) $ (214) $ 106,550

December 31, 2013

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 (23) (314) 30,338

Subprime 29,897 382 (2,467) (313) 27,499

Option ARM 6,617 338 (376) (5) 6,574

Alt-A and other 8,322 526 (118) (24) 8,706

Obligations of states and political subdivisions 3,533 23 (7) (54) 3,495

Manufactured housing 629 61 (4) (2) 684

Total available-for-sale securities $ 127,439 $ 5,379 $ (2,995) $ (904) $ 128,919

(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.

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.

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179 Freddie Mac

Table 7.2 — Available-For-Sale Securities in a Gross Unrealized Loss Position

Less than 12 Months 12 Months or Greater

December 31, 2014

Fair

Value

Gross Unrealized

Losses

Fair

Value

Gross Unrealized

Losses

(in millions)

Available-for-sale securities:

Freddie Mac $ 2,531 $ (14) $ 936 $ (32)

Fannie Mae 2,693 (9) 5 (1)

Ginnie Mae 66 — — —

CMBS 184 (5) 1,149 (51)

Subprime 286 (3) 6,533 (607)

Option ARM 77 — 1,490 (183)

Alt-A and other 185 (5) 499 (30)

Obligations of states and political subdivisions 48 — 28 (2)

Manufactured housing 42 — 15 (2)

Total available-for-sale securities in a gross unrealized loss position $ 6,112 $ (36) $ 10,655 $ (908)

December 31, 2013

Available-for-sale securities:

Freddie Mac $ 7,957 $ (144) $ 649 $ (45)

Fannie Mae 248 (2) 19 (1)

CMBS 1,147 (85) 1,992 (252)

Subprime 472 (19) 19,103 (2,761)

Option ARM 77 (2) 2,608 (379)

Alt-A and other 262 (5) 1,854 (137)

Obligations of states and political subdivisions 1,885 (56) 24 (5)

Manufactured housing — — 65 (6)

Total available-for-sale securities in a gross unrealized loss position $ 12,048 $ (313) $ 26,314 $ (3,586)

At December 31, 2014, total gross unrealized losses on available-for-sale securities were $0.9 billion. The gross 

unrealized losses relate to 385 individual lots representing 364 separate securities. We purchase multiple lots of individual 

securities at different times and at different costs. We determine gross unrealized gains and gross unrealized losses by 

specifically evaluating investment positions at the lot level; therefore, some of the lots we hold for an individual security may 

be in 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."

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. 

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180 Freddie Mac

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 2014 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, 2014, 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 mainly attributable to 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, credit 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. 

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181 Freddie Mac

Table 7.3 — Significant Modeled Attributes for Certain Available-For-Sale Non-Agency Mortgage-Related Securities

December 31, 2014

Alt-A

Subprime Option ARM Fixed Rate Variable Rate Hybrid Rate

(dollars in millions)

Issuance Date

2004 and prior:

UPB $ 534 $ 38 $ 335 $ 258 $ 189

Weighted average collateral defaults(1) 33% 19 % 13 % 30 % 15 %

Weighted average collateral severities(2) 61% 46 % 45 % 42 % 38 %

Weighted average voluntary prepayment rates(3) 7% 11 % 13 % 8 % 10 %

Average credit enhancements(4) 31% — % 14 % 11 % 13 %

2005:

UPB $ 2,667 $ 1,743 $ 479 $ 374 $ 1,107

Weighted average collateral defaults(1) 43% 26 % 18 % 37 % 21 %

Weighted average collateral severities(2) 63% 47 % 45 % 52 % 41 %

Weighted average voluntary prepayment rates(3) 4% 10 % 12 % 8 % 11 %

Average credit enhancements(4) 48% 1 % (1)% 17 % 2 %

2006:

UPB $ 11,204 $ 4,063 $ 226 $ 418 $ 422

Weighted average collateral defaults(1) 49% 35 % 25 % 38 % 30 %

Weighted average collateral severities(2) 63% 47 % 44 % 48 % 41 %

Weighted average voluntary prepayment rates(3) 3% 8 % 10 % 8 % 10 %

Average credit enhancements(4) 7% (3)% (2)% 1 % (4)%

2007:

UPB $ 13,277 $ 2,443 $ 118 $ 458 $ 165

Weighted average collateral defaults(1) 49% 34 % 40 % 38 % 29 %

Weighted average collateral severities(2) 63% 48 % 51 % 49 % 43 %

Weighted average voluntary prepayment rates(3) 3% 8 % 7 % 8 % 10 %

Average credit enhancements(4) 1% 3 % (1)% (19)% — %

Total:

UPB $ 27,682 $ 8,287 $ 1,158 $ 1,508 $ 1,883

Weighted average collateral defaults(1) 48% 33 % 20 % 36 % 23 %

Weighted average collateral severities(2) 63% 47 % 46 % 48 % 41 %

Weighted average voluntary prepayment rates(3) 3% 8 % 12 % 8 % 11 %

Average credit enhancements(4) 9% — % 3 % 1 % 2 %

(1) The expected cumulative default rate is expressed as a percentage of the current collateral UPB.

(2) The expected average loss given default is calculated as the ratio of cumulative loss over cumulative default for each security.

(3) The security’s voluntary prepayment rate represents the average of the monthly voluntary prepayment rate weighted by the security’s outstanding UPB.

(4) 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 availablefor-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, 2014. 

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 

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182 Freddie Mac

collateral on a security-by-security basis to determine whether we expect to 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, 2014. 

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,

2014 2013 2012

(in millions)

Available-for-sale securities:(1)

CMBS $ — $ (14) $ (138)

Subprime (794) (1,258) (1,274)

Option ARM (101) (58) (556)

Alt-A and other (42) (179) (196)

Manufactured housing (1) (1) (4)

Total net impairment of available-for-sale securities recognized in earnings $ (938) $ (1,510) $ (2,168)

(1) Includes $817 million, $568 million, and $0 million of other-than-temporary impairments recognized in earnings for the years ended December 31, 

2014, 2013, and 2012, 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: (a) the present value of expected future cash 

flows at the time of impairment, including the estimated proceeds from bond insurance; and (b) 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, 

2014 and January 1, 2013, 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.

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183 Freddie Mac

Table 7.5 — Other-Than-Temporary Impairments Related to Credit Losses on Available-For-Sale Securities

Year Ended

December 31,

2014 2013

(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 $ 14,463 $ 16,745

Additions:

Amounts related to credit losses for which an other-than-temporary impairment was not previously recognized — 46

Amounts related to credit losses for which an other-than-temporary impairment was previously recognized 121 896

Reductions:

Amounts related to securities which were sold, written off, or matured (1,188) (1,193)

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 (6,113) (1,536)

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 (485) (495)

Ending balance — remaining credit losses on available-for-sale securities where other-than-temporary impairments were recognized 

in earnings(1) $ 6,798 $ 14,463

(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,

2014 2013 2012

(in millions)

Gross realized gains $ 1,897 $ 1,950 $ 152

Gross realized losses (185) (51) —

Net realized gains (losses) $ 1,712 $ 1,899 $ 152

Maturities of Available-For-Sale Securities

The table below summarizes the remaining contractual maturities of available-for-sale securities.

Table 7.7 — Contractual Maturities of Available-For-Sale Securities

As of December 31, 2014

After One Year Through

Five Years

After Five Years

Through Ten Years

Total

Amortized

Cost

Total Fair

Value

One Year or Less After Ten Years

Amortized

Cost Fair Value

Amortized

Cost Fair Value

Amortized

Cost Fair Value

Amortized

Cost Fair Value

(dollars in millions)

Available-for-sale

securities:

Freddie Mac $ 37,710 $ 39,099 $ — $ — $ 300 $ 309 $ 526 $ 559 $ 36,884 $ 38,231

Fannie Mae 10,860 11,313 1 1 61 64 108 120 10,690 11,128

Ginnie Mae 183 199 — — 4 4 22 26 157 169

CMBS 20,988 21,822 — — 316 330 8 8 20,664 21,484

Subprime 20,210 20,589 — — — — — — 20,210 20,589

Option ARM 5,460 5,649 — — — — — — 5,460 5,649

Alt-A and other 4,500 5,043 1 1 31 31 2 2 4,466 5,009

Obligations of states and

political subdivisions 2,166 2,198 — — 40 43 48 49 2,078 2,106

Manufactured housing 556 638 — — — — 9 11 547 627

Total available-for-sale

securities $102,633 $ 106,550 $ 2 $ 2 $ 752 $ 781 $ 723 $ 775 $101,156 $ 104,992

Weighted Average Yield(1) 2.65% 7.63% 5.04% 5.10% 2.61%

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184 Freddie Mac

(1) The weighted average yield is calculated based on a yield for each individual lot held at December 31, 2014 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 amortization income or expense calculated for December 2014 (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, 2014 December 31, 2013

(in millions)

Mortgage-related securities:

Freddie Mac $ 17,469 $ 9,349

Fannie Mae 6,099 7,180

Ginnie Mae 16 98

Other 171 141

Total mortgage-related securities 23,755 16,768

U.S. Treasury securities 6,682 6,636

Total fair value of trading securities $ 30,437 $ 23,404

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, 2014.

For the years ended December 31, 2014, 2013, and 2012, we recorded net unrealized gains (losses) on trading securities 

held at those dates of $(88) million, $(1.6) billion, and $(1.7) billion, respectively. 

Non-Cash Investing and Financing Activities

From time to time, beginning in 2014, we contribute PCs, single-class REMICs and Other Structured Securities held in 

our mortgage-related investments portfolio as collateral for a multiclass REMIC and Other Structured Securities trust in 

exchange for beneficial interests in the multiclass REMIC and Other Structured Securities trust. We do not consolidate the 

multiclass REMIC and Other Structured Securities trust unless we hold substantially all of the beneficial interests issued by the 

trust. As a result, if we do not hold substantially all of the beneficial interests issued by the multiclass REMIC and Other 

Structured Securities trust, we account for this type of transaction as the acquisition of investment securities and issuance of 

debt securities of consolidated trusts. During 2014, we received investment securities as consideration for the issuance of debt 

securities of consolidated trusts of $1.8 billion as a result of these transactions.

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 $663.0 billion in 2014 and declined to $563.6 billion on January 1, 

2015. As of December 31, 2014, our aggregate indebtedness was $454.0 billion. Our aggregate indebtedness is calculated as the 

par value of other short- and long-term 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.

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 

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185 Freddie Mac

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, 2014 December 31, 2013

Par Value

Carrying

Amount

Weighted

Average

Effective Rate Par Value

Carrying

Amount

Weighted

Average

Effective Rate

(dollars in millions)

Other short-term debt:

Reference Bills® securities and 

discount notes $ 134,670 $ 134,619 0.12% $ 137,767 $ 137,712 0.13%

Medium-term notes — — — 4,000 4,000 0.16

Total other short-term debt $ 134,670 $ 134,619 0.12 $ 141,767 $ 141,712 0.13

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

We had no balances in federal funds purchased and securities sold under agreements to repurchase at either December 31, 

2014 or 2013.

Other Long-Term Debt

The table below summarizes our other long-term debt.

Table 8.2 — Other Long-Term Debt

December 31, 2014 December 31, 2013

Contractual

Maturity Par Value

Carrying 

Amount(1)

Weighted Average

Effective Rate Par Value

Carrying 

Amount(1)

Weighted Average

Effective Rate

(dollars in millions)

Other long-term debt:

Other senior debt:

Fixed-rate:

Medium-term notes — callable 2015 - 2037 $ 98,860 $ 98,856 1.35% $ 101,190 $ 101,236 1.51%

Medium-term notes — noncallable 2015 - 2028 20,059 20,383 0.86 37,878 38,107 0.99

U.S. dollar Reference Notes

securities — non-callable 2015 - 2032 151,701 151,751 2.80 190,371 190,406 2.71

€Reference Notes securities —

non-callable — — 528 529 4.38

Variable-rate:

Medium-term notes — callable 2015 - 2029 7,210 7,210 2.00 6,001 6,001 1.66

Medium-term notes — noncallable 2015 - 2026 23,971 23,971 0.19 18,533 18,533 0.22

STACR 2023 - 2024 5,896 5,820 3.16 1,107 1,155 4.29

Zero-coupon:

Medium-term notes — callable 2037 1,000 264 6.17 1,200 311 5.82

Medium-term notes — noncallable 2015 - 2039 10,109 6,739 2.53 12,217 8,334 3.08

Hedging-related basis adjustments N/A 34 N/A 41

Total other senior debt 318,806 315,028 369,025 364,653

Other subordinated debt:

Fixed-rate 2016 - 2018 221 219 6.60 221 218 6.60

Zero-coupon 2019 332 203 10.51 332 184 10.51

Total other subordinated debt 553 422 553 402

Total other long-term debt $ 319,359 $ 315,450 2.02% $ 369,578 $ 365,055 2.08%

(1) Includes $5.8 billion and $2.6 billion, respectively, of other long-term debt that represents the fair value of debt securities with the fair value option 

elected at December 31, 2014 and 2013.

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 

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186 Freddie Mac

Guarantee Transactions). 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.

The table below summarizes the debt securities of consolidated trusts held by third parties based on underlying mortgage 

product type.

Table 8.3 — Debt Securities of Consolidated Trusts Held by Third Parties

December 31, 2014 December 31, 2013

Contractual

Maturity UPB

Carrying

Amount

Weighted

Average

Coupon(1)

Contractual

Maturity UPB

Carrying

Amount

Weighted

Average

Coupon(1)

(dollars in millions) (dollars in millions)

Single-family:

30-year or more, fixed-rate 2015 - 2053 $ 1,018,357 $ 1,047,302 4.04% 2014 - 2052 $ 969,270 $ 993,683 4.14%

20-year fixed-rate 2015 - 2035 71,545 73,764 3.74 2014 - 2034 75,910 78,252 3.81

15-year fixed-rate 2015 - 2030 266,117 272,538 3.13 2014 - 2029 270,513 277,018 3.23

Adjustable-rate 2015 - 2047 65,082 66,518 2.62 2014 - 2047 60,683 61,830 2.64

Interest-only 2026 - 2041 17,474 17,524 3.29 2026 - 2041 21,352 21,390 3.70

FHA/VA 2015 - 2044 1,226 1,250 5.42 2014 - 2041 1,284 1,303 5.67

Total single-family 1,439,801 1,478,896 1,399,012 1,433,476

Multifamily(2) 2017 - 2019 524 577 4.93 2018 - 2019 444 508 4.96

Total debt securities of consolidated trusts held by

third parties $ 1,440,325 $ 1,479,473 $ 1,399,456 $ 1,433,984

(1) The effective rate for debt securities of consolidated trusts held by third parties was 3.19% and 3.39% as of December 31, 2014 and 2013, respectively.

(2) Carrying amount includes interest-only securities recorded at fair value.

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, 2014.

Table 8.4 — Contractual Maturity of Other Long-Term Debt and Debt Securities of Consolidated Trusts Held by Third 

Parties

Annual Maturities Par Value

(in millions)

Other long-term debt:

2015 $ 58,841

2016 72,503

2017 77,482

2018 30,850

2019 30,671

Thereafter 49,012

Debt securities of consolidated trusts held by third parties(1) 1,440,325

Total 1,759,684

Net discounts, premiums, hedge-related and other basis adjustments(2) 35,239

Total debt securities of consolidated trusts held by third parties and other long-term debt $ 1,794,923

(1) 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.

(2) Other basis adjustments primarily represent changes in fair value attributable to instrument-specific credit risk.

Subordinated Debt Interest and Principal Payments

The terms of certain of our subordinated debt securities provide for us to defer payments of interest in the event we fail to 

maintain specified capital levels. However, in a September 23, 2008 statement concerning the conservatorship, the Director of 

FHFA stated that we would continue to make interest and principal payments on our subordinated debt, even if we fail to 

maintain required capital levels.

NOTE 9: DERIVATIVES

Use of Derivatives

We use derivatives primarily to manage the interest rate risk associated with our investments in financial assets and 

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, models and economics. We use derivatives to hedge interest-rate 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 

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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 Treasuryderivatives. 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. Exchange-traded derivatives include standardized interest-rate futures contracts and options on futures contracts. 

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-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 notional value and fair value of derivatives reported on our consolidated balance sheets.

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188 Freddie Mac

Table 9.1 — Derivative Assets and Liabilities at Fair Value

December 31, 2014 December 31, 2013

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 $ 205,219 $ 5,243 $ (487) $ 281,727 $ 4,475 $ (2,438)

Pay-fixed 213,325 408 (12,829) 242,597 5,540 (10,879)

Basis (floating to floating) 300 2 — 300 4 —

Total interest-rate swaps 418,844 5,653 (13,316) 524,624 10,019 (13,317)

Option-based:

Call swaptions

Purchased 56,390 3,315 — 59,290 2,373 —

Written 10,660 — (90) 5,945 — (201)

Put Swaptions

Purchased 22,125 179 — 33,410 698 —

Written 3,560 — (9) — — —

Other option-based derivatives(1) 19,733 730 (28) 23,365 1,041 (3)

Total option-based 112,468 4,224 (127) 122,010 4,112 (204)

Futures 40,263 — — 50,270 — —

Foreign-currency swaps — — — 528 39 —

Commitments 27,054 40 (79) 18,731 61 (69)

Credit derivatives 5,207 27 (11) 5,386 — (6)

Swap guarantee derivatives 3,204 — (27) 3,477 — (31)

Total derivatives not designated as hedging

instruments 607,040 9,944 (13,560) 725,026 14,231 (13,627)

Derivative interest receivable (payable) 817 (1,500) 1,243 (1,835)

Netting adjustments(2) (9,939) 13,097 (14,411) 15,282

Total derivative portfolio, net $ 607,040 $ 822 $ (1,963) $ 725,026 $ 1,063 $ (180)

(1) Primarily includes purchased interest-rate caps and floors and options on Treasury futures.

(2) Represents counterparty netting and cash collateral netting. Net cash collateral posted was $3.2 billion and $871 million at December 31, 2014 and 

2013, 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. 

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, including the accrual of periodic cash settlements, reported 

in our consolidated statements of comprehensive income as derivate gains (losses).

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189 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)

Year Ended December 31,

2014 2013 2012

(in millions)

Interest-rate swaps:

Receive-fixed

Foreign-currency denominated $ (1) $ (21) $ (33)

U.S. dollar denominated 4,074 (10,400) 2,686

Total receive-fixed swaps 4,073 (10,421) 2,653

Pay-fixed (11,366) 19,021 (2,865)

Basis (floating to floating) (1) (2) 8

Total interest-rate swaps (7,294) 8,598 (204)

Option based:

Call swaptions

Purchased 2,355 (2,547) 1,365

Written (168) 546 (38)

Put swaptions

Purchased (1,006) (8) (273)

Written 8 — 6

Other option-based derivatives(1) 248 (413) 190

Total option-based 1,437 (2,422) 1,250

Futures (54) 21 12

Foreign-currency swaps (7) 30 (8)

Commitments 239 (131) 298

Credit derivatives 8 (3) —

Swap guarantee derivatives 8 9 7

Other (3) (3) (1)

Subtotal (5,666) 6,099 1,354

Accrual of periodic settlements:

Receive-fixed interest-rate swaps 3,033 3,764 3,511

Pay-fixed interest-rate swaps (5,660) (7,233) (7,318)

Foreign-currency swaps — — 4

Other 2 2 1

Total accrual of periodic settlements (2,625) (3,467) (3,802)

Total $ (8,291) $ 2,632 $ (2,448)

(1) Primarily includes purchased interest-rate caps and floors and options on Treasury futures.

Hedge Designation of Derivatives

At December 31, 2014 and 2013, 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 reclassified from AOCI linked to interest 

payments on other debt are recorded in other debt interest expense and amounts not linked to interest payments on other debt 

are recorded in expense related to derivatives. In the years ended December 31, 2014 and 2013, we reclassified from AOCI into 

earnings, losses of $303 million and $460 million, respectively, related to closed cash flow hedges. See “NOTE 11: 

STOCKHOLDERS’ EQUITY — 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.

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 

credit risk exposure to individual counterparties because a central counterparty is substituted for individual counterparties. OTC 

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190 Freddie Mac

derivatives expose us to the credit risk of individual counterparties because transactions are executed and settled between us 

and each counterparty, exposing us to potential losses if a counterparty fails to meet its obligations.

Our use of interest rate swaps and option-based derivatives is subject to internal credit and legal reviews. On an ongoing 

basis, we review the credit fundamentals of all of our derivative counterparties, clearinghouses, and clearing members to 

confirm that they continue to meet our internal risk management standards.

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 and option-based 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 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, 2014 and 2013, all amounts of cash collateral related to derivatives with master netting and collateral agreements 

were offset against derivative assets, net or derivative liabilities, net, as applicable. 

Our net uncollateralized exposure to derivative counterparties for OTC interest-rate swap, option-based, and foreigncurrency swap derivatives was $174 million and $188 million at December 31, 2014 and 2013, respectively. In the event that 

all of our counterparties for these derivatives were to have defaulted simultaneously on December 31, 2014, our maximum loss 

for accounting purposes after applying netting agreements and collateral on an individual counterparty basis would have been 

approximately $174 million. Three counterparties each accounted for greater than 10% and collectively accounted for 81% 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, 2014. All 

three of these counterparties, JP Morgan Chase Bank, Barclays Bank PLC, and UBS AG, 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, 2014.

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 $128 million and $382 million as of December 31, 2014 and 2013, respectively, which includes consideration of the cash 

collateral that has been posted for initial and variation margin. 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 post 

initial and variation margin in connection with our cleared and exchange-traded derivatives. For information about margin we 

have posted in connection with cleared and exchange-traded derivatives, see “— Collateral Pledged.”

The total exposure on our forward purchase and sale commitments, which are treated as derivatives, was $40 million and 

$61 million at December 31, 2014 and 2013, 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.

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191 Freddie Mac

Table 10.1 — Offsetting of Financial Assets and Liabilities

December 31, 2014

Gross

Amount

Recognized

Amount Offset

in the Consolidated

Balance Sheets

Net Amount

Presented in

the Consolidated

Balance Sheets(1)

Gross Amount

Not Offset in

the Consolidated

Balance Sheets(2)

Net

Amount

(in millions)

Assets:

Derivatives:

Over-the-counter interest-rate swaps and optionbased derivatives $ 10,315 $ (9,688) $ 627 $ (453) $ 174

Cleared and exchange-traded derivatives 379 (251) 128 — 128

Other 67 — 67 — 67

Total derivatives 10,761 (9,939) 822 (453) 369

Securities purchased under agreements to resell 51,903 — 51,903 (51,903) —

Total $ 62,664 $ (9,939) $ 52,725 $ (52,356) $ 369

Liabilities:

Derivatives:

Over-the-counter interest-rate swaps and optionbased derivatives $ (10,666) $ 8,845 $ (1,821) $ 1,743 $ (78)

Cleared and exchange-traded derivatives (4,277) 4,252 (25) — (25)

Other (117) — (117) — (117)

Total $ (15,060) $ 13,097 $ (1,963) $ 1,743 $ (220)

December 31, 2013

Gross

Amount

Recognized

Amount Offset in

the Consolidated

Balance Sheets

Net Amount

Presented in the

Consolidated

Balance Sheets(1)

Gross Amount

Not Offset in the

Consolidated

Balance Sheets(2)

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 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 (109) — (109) — (109)

Total $ (15,462) $ 15,282 $ (180) $ — $ (180)

(1) For derivatives, includes cash collateral posted or held in excess of exposure.

(2) Does not include the fair value amount of non-cash collateral posted or held that exceeds the associated net asset or liability presented on the 

consolidated balance sheets. For cleared and exchange-traded derivatives, does not include non-cash collateral posted by us with an aggregate fair value 

of $2.3 billion and $0.6 billion as of December 31, 2014 and 2013, respectively.

Collateral Pledged

Collateral Pledged to 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. 

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192 Freddie Mac

We had cash and cash equivalents pledged to us related to OTC derivative instruments of $2.1 billion and $1.9 billion at 

December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, we had $453 million and $432 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 $0 million and $646 million of cash pledged to us related 

to cleared derivatives at December 31, 2014 and 2013, respectively.

Also, at December 31, 2014 and 2013, we had $0 billion and $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.

We did not hold any federal funds sold at December 31, 2014 and 2013.

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. 

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability 

position on December 31, 2014, was $3.0 billion for which we posted cash and non-cash collateral of $3.0 billion in the normal 

course of business. Since we were fully collateralized as of December 31, 2014, we would not have been required to post 

additional collateral on that day if the credit-risk-related contingent features underlying these agreements were triggered.

The table below summarizes all securities pledged as collateral by us, including assets that the secured party may 

repledge.

Table 10.2 — Collateral in the Form of Securities Pledged

December 31, 2014 December 31, 2013

(in millions)

Securities pledged with the ability for the secured party to repledge:

Debt securities of consolidated trusts held by third parties(1) $ 2,539 $ 10,654

Available-for-sale securities 9 70

Trading securities 1,884 365

Total securities pledged $ 4,432 $ 11,089

(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, 2014, we pledged securities with the ability of the secured party to repledge of $4.4 billion in 

connection with derivatives and securities transactions.

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. This 

line of credit expired in July 2014. Of the remainder at December 31, 2013, we pledged $0.6 billion in connection with 

derivative transactions.

Cash Pledged

At December 31, 2014, we pledged $5.4 billion of collateral in the form of cash and cash equivalents, of which $1.2 

billion related to our OTC derivative agreements as we had $3.0 billion of such derivatives in a net loss position. The remaining 

$4.2 billion was posted at clearing members or clearinghouses in connection with derivatives and securities transactions at 

December 31, 2014.

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. The remaining 

$275 million was posted at clearing members or clearinghouses in connection with derivatives and securities transactions at 

December 31, 2013. 

NOTE 11: STOCKHOLDERS’ EQUITY

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.

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193 Freddie Mac

Table 11.1 — Changes in AOCI by Component, Net of Tax

Year Ended December 31, 2014

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

(in millions)

Beginning balance $ 962 $ (1,000) $ 32 $ (6)

Other comprehensive income before reclassifications(1) 2,087 — (43) 2,044

Amounts reclassified from accumulated other comprehensive income (503) 197 (2) (308)

Changes in AOCI by component 1,584 197 (45) 1,736

Ending balance $ 2,546 $ (803) $ (13) $ 1,730

Year Ended December 31, 2013

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

(in millions)

Beginning balance $ (1,444) $ (1,316) $ (178) $ (2,938)

Other comprehensive income before reclassifications(1) 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)

(1) For the years ended December 31, 2014 and 2013, net of tax expense of $1.1 billion and $1.4 billion, respectively, for AOCI related to available-forsale securities.

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 11.2 — Reclassifications from AOCI to Net Income

Details about Accumulated Other

Comprehensive Income Components

Three Months Ended

December 31, Year Ended December 31,

Affected Line Item in the Consolidated

Statements of Comprehensive Income

2014 2013 2014 2013

(in millions)

AOCI related to available-for-sale 

securities

$ 500 $ 717 $ 1,712 $ 1,899

Other gains (losses) on investment

securities recognized in earnings

(251) (1,297) (938) (1,510)

Net impairment of available-for-sale

securities recognized in earnings

249 (580) 774 389 Total before tax

(87) 203 (271) (136) Tax (expense) or benefit

162 (377) 503 253 Net of tax

AOCI related to cash flow hedge

relationships

— — (2) (5) Interest expense — Other debt

(71) (95) (301) (455) Expense related to derivatives

(71) (95) (303) (460) Total before tax

25 29 106 144 Tax (expense) or benefit

(46) (66) (197) (316) Net of tax

AOCI related to defined benefit plans

1 8 4 2 Salaries and employee benefits

(1) (43) (2) (43) Tax (expense) or benefit

— (35) 2 (41) Net of tax

Total reclassifications in the period $ 116 $ (478) $ 308 $ (104) Net of tax

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194 Freddie Mac

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 $0.8 billion and $1.0 billion at December 31, 2014 and 2013, respectively, 

composed of deferred net losses on closed cash flow hedges. Closed cash flow hedges involve derivatives that have been 

terminated or are no longer designated as cash flow hedges. Fluctuations in prevailing market interest rates have no effect on 

the deferred portion of AOCI relating to losses on closed cash flow hedges.

The previously deferred amount related to closed cash flow hedges remains in our AOCI balance and will be recognized 

into earnings over the expected time period for which the forecasted transactions affect earnings, unless it is deemed probable 

that the forecasted transactions will not occur. Over the next 12 months, we estimate that approximately $166 million, net of 

taxes, of the $0.8 billion of cash flow hedge losses in AOCI at December 31, 2014 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 19 years. 

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 2014, 2013, and 2012 at the direction of the Conservator were $19.6 billion, $47.6 billion, and $7.2 billion, respectively. 

See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS” for a discussion of our net worth sweep dividend.

The senior preferred stock is senior to our common stock and all other outstanding series of our preferred stock, as well 

as any capital stock we issue in the future, as to both dividends and rights upon liquidation. The senior preferred stock provides 

that we may not, at any time, declare or pay dividends on, make distributions with respect to, 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, 2014.

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195 Freddie Mac

Table 11.3 — Senior Preferred Stock

Draw Date

Shares

Authorized

Shares

Outstanding

Total

Par Value

Initial

Liquidation

Preference

Price per Share

Total

Liquidation

Preference

(in millions, except initial liquidation preference price per share)

September 8, 2008 1.00 1.00 $ 1.00 $ 1,000 $ 1,000

November 24, 2008 — — — N/A 13,800

March 31, 2009 — — — N/A 30,800

June 30, 2009 — — — N/A 6,100

June 30, 2010 — — — N/A 10,600

September 30, 2010 — — — N/A 1,800

December 30, 2010 — — — N/A 100

March 31, 2011 — — — N/A 500

September 30, 2011 — — — N/A 1,479

December 30, 2011 — — — N/A 5,992

March 30, 2012 — — — N/A 146

June 29, 2012 — — — N/A 19

Total, senior preferred stock 1.00 1.00 $ 1.00 $ 72,336

No cash was received from Treasury under the Purchase Agreement in 2014, because we had positive net worth at 

December 31, 2013, March 31, 2014, June 30, 2014, and September 30, 2014 and, consequently, FHFA did not request a draw 

on our behalf. At December 31, 2014, 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, 

2014 and the Capital Reserve Amount of $1.8 billion in 2015, our dividend obligation to Treasury in March 2015 will be $851 

million. 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, 2014 and 2013, respectively. See “NOTE 18: REGULATORY CAPITAL” for additional 

information.

Common Stock Warrant

Pursuant to the Purchase Agreement described in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS,” on 

September 7, 2008, we 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 shares associated with the warrant are included in the computation of basic 

and diluted earnings (loss) per share. The weighted average shares of common stock outstanding for the years ended 

December 31, 2014, 2013, and 2012, 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 their redemption values at December 31, 2014. 

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 

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196 Freddie Mac

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 11.4 — Preferred Stock

Issue Date

Shares

Authorized

Shares

Outstanding

Total

Par Value

Redemption

Price per

Share

Total

Outstanding

Balance

Redeemable

On or After

OTCQB

Symbol

Preferred stock: (in millions, except redemption price per share)

1996 Variable-rate(1) April 26, 1996 5.00 5.00 $ 5.00 $ 50.00 $ 250 June 30, 2001 FMCCI

5.81% October 27, 1997 3.00 3.00 3.00 50.00 150 October 27, 1998 (2)

5% March 23, 1998 8.00 8.00 8.00 50.00 400 March 31, 2003 FMCKK

1998 Variable-rate(3) September 23 and 29, 1998 4.40 4.40 4.40 50.00 220 September 30, 2003 FMCCG

5.10% September 23, 1998 8.00 8.00 8.00 50.00 400 September 30, 2003 FMCCH

5.30% October 28, 1998 4.00 4.00 4.00 50.00 200 October 30, 2000 (2)

5.10% March 19, 1999 3.00 3.00 3.00 50.00 150 March 31, 2004 (2)

5.79% July 21, 1999 5.00 5.00 5.00 50.00 250 June 30, 2009 FMCCK

1999 Variable-rate(4) November 5, 1999 5.75 5.75 5.75 50.00 287 December 31, 2004 FMCCL

2001 Variable-rate(5) January 26, 2001 6.50 6.50 6.50 50.00 325 March 31, 2003 FMCCM

2001 Variable-rate(6) March 23, 2001 4.60 4.60 4.60 50.00 230 March 31, 2003 FMCCN

5.81% March 23, 2001 3.45 3.45 3.45 50.00 173 March 31, 2011 FMCCO

6% May 30, 2001 3.45 3.45 3.45 50.00 173 June 30, 2006 FMCCP

2001 Variable-rate(7) May 30, 2001 4.02 4.02 4.02 50.00 201 June 30, 2003 FMCCJ

5.70% October 30, 2001 6.00 6.00 6.00 50.00 300 December 31, 2006 FMCKP

5.81% January 29, 2002 6.00 6.00 6.00 50.00 300 March 31, 2007 (2)

2006 Variable-rate(8) July 17, 2006 15.00 15.00 15.00 50.00 750 June 30, 2011 FMCCS

6.42% July 17, 2006 5.00 5.00 5.00 50.00 250 June 30, 2011 FMCCT

5.90% October 16, 2006 20.00 20.00 20.00 25.00 500 September 30, 2011 FMCKO

5.57% January 16, 2007 44.00 44.00 44.00 25.00 1,100 December 31, 2011 FMCKM

5.66% April 16, 2007 20.00 20.00 20.00 25.00 500 March 31, 2012 FMCKN

6.02% July 24, 2007 20.00 20.00 20.00 25.00 500 June 30, 2012 FMCKL

6.55% September 28, 2007 20.00 20.00 20.00 25.00 500 September 30, 2017 FMCKI

2007 Fixed-tofloating rate(9) December 4, 2007 240.00 240.00 240.00 25.00 6,000 December 31, 2012 FMCKJ

Total, preferred stock 464.17 464.17 $ 464.17 $ 14,109

(1) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 9.00%.

(2) Issued through private placement.

(3) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 7.50%.

(4) Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury rate, and is capped at 11.00%.

Optional redemption on December 31, 2004 and on December 31 every five years thereafter. 

(5) Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.10%, and is capped at 

11.00%. Optional redemption on March 31, 2003 and on March 31 every two years thereafter. 

(6) Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%, and is capped at 11.00%. Optional redemption on March 31, 2003 

and on March 31 every year thereafter.

(7) Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.20%, and is capped at 

11.00%. Optional redemption on June 30, 2003 and on June 30 every two years thereafter. 

(8) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%. 

(9) Dividend rate is set at an annual fixed rate of 8.375% from December 4, 2007 through December 31, 2012. For the period beginning on or after 

January 1, 2013, dividend rate resets quarterly and is equal to the higher of: (a) the sum of three-month LIBOR plus 4.16% per annum; or (b) 7.875% 

per annum. Optional redemption on December 31, 2012, and on December 31 every five years thereafter. 

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 2014 and 2013, 

except for issuances of treasury stock as reported on our consolidated statements of equity relating to stock-based compensation 

granted prior to conservatorship. Common stock delivered under these stock-based compensation plans consists of treasury 

stock or shares acquired in market transactions on behalf of the participants. During 2014, restrictions lapsed on 6,610

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197 Freddie Mac

restricted stock units. At December 31, 2014, 13,731 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, 2014 and 2013. No stock options were exercised and 457,430 stock options were forfeited or expired during 

2014. At December 31, 2014, 359,005 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 494,227, 998,707, and 1,606,097 at December 31, 2014, 2013, and 2012, 

respectively.

Dividends Declared

No common dividends were declared in 2014. During the three months ended March 31, 2014, June 30, 2014, September 

30, 2014, and December 31, 2014 we paid dividends of $10.4 billion, $4.5 billion, $1.9 billion, and $2.8 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 2014.

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 (Expense) Benefit

The table below presents the components of our federal income tax (expense) benefit for 2014, 2013, and 2012. We are 

exempt from state and local income taxes.

Table 12.1 — Federal Income Tax (Expense) Benefit

Year Ended December 31,

2014 2013 2012

(in millions)

Current income tax (expense) benefit $ (1,028) $ (117) $ 1,540

Deferred income tax (expense) benefit (2,284) 23,422 (3)

Total income tax (expense) benefit $ (3,312) $ 23,305 $ 1,537

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 2014, 

2013 and 2012.

Table 12.2 — Reconciliation of Statutory to Effective Tax Rate

Year Ended December 31,

2014 2013 2012

Amount Percent Amount Percent Amount Percent

(dollars in millions)

Statutory corporate tax rate $ (3,851) 35.0% $ (8,877) 35.0 % $ (3,306) 35.0 %

Tax-exempt interest 73 (0.7) 101 (0.4) 133 (1.4)

Tax credits 438 (4.0) 495 (2.0) 536 (5.7)

Valuation allowance:

 Current year activity — — 5,156 (20.3) 2,637 (27.9)

Release of valuation allowance — — 26,369 (104.0) — —

Unrecognized tax benefits — — — — 1,205 (12.8)

Other — — 138 (0.5) 45 (0.5)

Total valuation allowance — — 31,663 (124.8) 3,887 (41.2)

Other 28 (0.2) (77) 0.3 287 (3.0)

Effective tax rate $ (3,312) 30.1% $ 23,305 (91.9)% $ 1,537 (16.3)%

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198 Freddie Mac

In 2014, our effective tax rate differed from the statutory rate of 35% primarily due to our recognition of low income 

housing tax credits. In 2013, our effective tax rate differed from the statutory rate primarily due to the release of the valuation 

allowance against our net deferred tax assets. In 2012, our effective tax rate differed from the statutory tax rate 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

The table below presents the balance of significant deferred tax assets and liabilities at December 31, 2014 and 2013.

Table 12.3 — Deferred Tax Assets and Liabilities

2014 2013

(in millions)

Deferred tax assets:

Deferred fees $ 6,245 $ 5,035

Basis differences related to derivative instruments 7,059 6,946

Credit related items and allowance for loan losses 2,311 3,648

Basis differences related to assets held for investment(1) 1,902 —

LIHTC and AMT credit carryforward 3,465 3,997

Net operating loss carryforward — 3,978

Other items, net 10 40

Total deferred tax assets 20,992 23,644

Deferred tax liabilities:

Basis differences related to assets held for investment(1) — (375)

Unrealized gains related to available-for-sale securities (1,371) (518)

Basis differences related to debt (123) (35)

Total deferred tax liabilities (1,494) (928)

Deferred tax assets, net $ 19,498 $ 22,716

(1) Includes a basis adjustment on seriously delinquent loans, which offsets a portion of the deferred tax asset for credit related items and the allowance for 

loan losses.

During 2013, we released our valuation allowance previously recorded on our net deferred tax asset. 

As of December 31, 2014, we had a LIHTC carryforward of $3.0 billion that will expire over multiple years beginning in 

2028. Our AMT credit carryforward of $433 million will not expire.

Valuation Allowance

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 December 31, 2014, 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 2013 federal income tax return; (d) our 

tax credit carryforward and the length of the carryforward period available to utilize this asset 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 2014 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 December 31, 2014, that outweighed the negative evidence included the following:

• Our three-year cumulative income position;

• The 2013 taxable income reported in our federal tax return which was filed in 2014;

• Our forecasted 2014 and future period taxable income;

• Our LIHTC carryforwards do not begin to expire until 2028; and

• The continuing positive trend in the housing market.

At December 31, 2014, we determined that the positive evidence related 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 

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199 Freddie Mac

more likely than not that our deferred tax assets will be realized and determined that a valuation allowance against our net 

deferred tax asset was not necessary at December 31, 2014.

On February 2, 2015, the Administration submitted the full year 2016 U.S. budget to Congress. Included within the 

budget is a proposal to reduce the top U.S. corporate tax rate. If enacted, a reduction in the corporate tax rate would result in a 

charge representing the reduction in the realizable value of our net deferred tax asset.

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

We have evaluated all income tax positions and determined that there are no uncertain tax positions that require reserves 

as of December 31, 2014.

The IRS has examined 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 $535 million and $529 million as of December 31, 2014 and 2013, 

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."

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. The reclassifications and the allocations are described below. 

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

We have 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, 2014. Certain immaterial changes were made to our Segment Earnings definitions in 2014. 

As reflected in the chart, certain activities that are not part of a reportable segment are included in the All Other category. The 

All Other category consists of material corporate level activities that are: (a) infrequent in nature; and (b) based on decisions 

outside the control of the management of our reportable segments. By recording these types of activities to the All Other 

category, we believe the financial results of our three reportable segments reflect the decisions and strategies that are executed 

within the reportable segments and provide greater comparability across time periods.

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200 Freddie Mac

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 and manage our seriously delinquent loans. 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.

• 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 and

buy-down fees

• Recognition and remittance to Treasury of guarantee fees resulting

from the 10 basis point legislated increase

• Adjustments for the price performance of our PCs relative to

comparable Fannie Mae securities

• Costs and recoveries of risk transfer transactions

• Credit losses on all single-family assets

• Guarantee buy-downs

• Expected net float income or expense on the single-family credit

guarantee portfolio

• Tax expense/benefit and changes in the deferred tax asset

valuation allowance (if any)

• 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

and single-family seriously delinquent loans; (b) managing the

treasury function for the entire company, including funding and

liquidity; and (c) managing interest-rate risk for the entire

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.

• Investments in mortgage-related securities and single-family

performing mortgage loans

• 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

• Tax expense/benefit and changes in the deferred tax asset

valuation allowance (if any)

• 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 returns on assets related to multifamily investment

activities and management and guarantee fee income, less creditrelated expenses, administrative expenses, and allocated funding

costs.

• 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

• Tax expense/benefit and changes in the deferred tax asset

valuation allowance (if any)

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

• Tax expense/benefit and changes in the deferred tax asset

valuation allowance (if any), including the release of the deferred

tax asset valuation allowance

• Termination of our pension plan

Segment Earnings

The financial performance of our Single-family Guarantee segment is measured based on its contribution to GAAP net 

income (loss). Our Investments segment and Multifamily segment are measured based on each segment's 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. Taxes for the reportable segments are generally calculated by applying our 

corporate annual effective tax rate to each segment's pre-tax income.

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 

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.”

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201 Freddie Mac

In 2014, we revised our inter-segment allocations between the Multifamily and the Investments segments for the 

Multifamily segment's investment securities and held-for-sale loans. As a result of this change, the Multifamily segment 

reflects the entire change in fair value of these assets in its financial results, and the Investments segment transfers the change 

in fair value of the derivatives associated with the Multifamily segment's investments securities and held-for-sale loans to the 

Multifamily segment. The purpose of this change is to better reflect the operations of the Multifamily segment on a stand-alone 

basis. Prior period results have been revised to conform with the current period presentation.

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:

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202 Freddie Mac

• 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, 2014, the unamortized balance of buy-down fees was $0.3 billion and the unamortized balance of credit 

delivery fees was $0.7 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, 2014, the unamortized balance of such premiums and discounts, net was 

$3.5 billion and the unamortized balance of buy-up fees was $0.4 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 and 

hedging costs related to certain assets of each segment. The Investments segment manages the funding and interest rate risk for 

all business segments. In connection with this activity, the Investments segment transfers a cost to the other segments. The 

actual costs may vary relative to these intra-company transfers. In addition, the financial statement volatility associated with the 

use of derivatives to hedge certain assets outside the Investments segment is not fully allocated to other segments. These 

allocations do not include the effects of dividends paid on our senior preferred stock. The release of the deferred tax asset 

valuation allowance, termination of our pension plan, and legal and tax settlements, as applicable, are allocated to the All Other 

category. 

The table below presents Segment Earnings by segment.

Table 13.1 — Summary of Segment Earnings and Comprehensive Income (Loss)

Year Ended December 31,

2014 2013 2012

(in millions)

Segment Earnings (loss), net of taxes:

Single-family Guarantee $ 1,547 $ 5,796 $ (164)

Investments 4,520 15,930 7,367

Multifamily 1,636 3,050 2,991

All Other (13) 23,892 788

Total Segment Earnings, net of taxes 7,690 48,668 10,982

Net income $ 7,690 $ 48,668 $ 10,982

Comprehensive income (loss) of segments:

Single-family Guarantee $ 1,537 $ 5,845 $ (227)

Investments 6,471 20,287 11,397

Multifamily 1,459 1,455 4,081

All Other (41) 24,013 788

Comprehensive income of segments 9,426 51,600 16,039

Comprehensive income $ 9,426 $ 51,600 $ 16,039

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.

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203 Freddie Mac

Table 13.2 — Segment Earnings and Reconciliation to GAAP Results

Year Ended December 31, 2014

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

Segment

Adjustments

Total

Reconciling

Items

(in millions)

Net interest income $ (111) $ 2,966 $ 948 $ — $ 3,803 $ 9,825 $ 635 $ 10,460 $ 14,263

(Provision) benefit for credit

losses (982) — 55 — (927) 869 — 869 (58)

Non-interest income (loss):

Management and guarantee 

income(1) 5,172 — 254 — 5,426 (4,794) (303) (5,097) 329

Net impairment of availablefor-sale securities recognized

in earnings — (140) — — (140) (798) — (798) (938)

Derivative gains (losses) 7 (5,158) 335 — (4,816) (3,475) — (3,475) (8,291)

Gains (losses) on trading

securities — (276) 58 — (218) — — — (218)

Gains (losses) on mortgage

loans (139) — 870 — 731 — — — 731

Other non-interest income 844 8,881 176 — 9,901 (1,627) — (1,627) 8,274

Non-interest expense:

Administrative expense (1,170) (437) (274) — (1,881) — — — (1,881)

REO operations income

(expense) (205) — 9 — (196) — — — (196)

Temporary Payroll Tax Cut

Continuation Act of 2011

expense (775) — — — (775) — — — (775)

Other non-interest expense (191) (6) (23) (18) (238) — — — (238)

Segment adjustments (303) 635 — — 332 — (332) (332) —

Income tax (expense) benefit (600) (1,945) (772) 5 (3,312) — — — (3,312)

Net income (loss) 1,547 4,520 1,636 (13) 7,690 — — — 7,690

Changes in unrealized gains

(losses) related to available-forsale securities — 1,759 (175) — 1,584 — — — 1,584

Changes in unrealized gains

(losses) related to cash flow

hedge relationships — 197 — — 197 — — — 197

Changes in defined benefit

plans (10) (5) (2) (28) (45) — — — (45)

Total other comprehensive

income (loss), net of taxes (10) 1,951 (177) (28) 1,736 — — — 1,736

Comprehensive income (loss) $ 1,537 $ 6,471 $ 1,459 $ (41) $ 9,426 $ — $ — $ — $ 9,426

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204 Freddie Mac

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

Segment

Adjustments

Total

Reconciling

Items

(in millions)

Net interest income $ 320 $ 3,525 $ 1,186 $ — $ 5,031 $ 10,400 $ 1,037 $ 11,437 $ 16,468

Benefit for credit losses 1,409 — 218 — 1,627 838 — 838 2,465

Non-interest income (loss):

Management and guarantee 

income(1) 4,930 — 206 — 5,136 (4,171) (694) (4,865) 271

Net impairment of availablefor-sale securities recognized

in earnings — (974) (15) — (989) (521) — (521) (1,510)

Derivative gains (losses) (3) 5,543 1,281 — 6,821 (4,189) — (4,189) 2,632

Gains (losses) on trading

securities — (1,466) (132) — (1,598) — — — (1,598)

Gains (losses) on mortgage

loans — — (336) — (336) — — — (336)

Other non-interest income 1,165 8,902 1,350 — 11,417 (2,357) — (2,357) 9,060

Non-interest expense:

Administrative expense (1,025) (523) (257) — (1,805) — — — (1,805)

REO operations income

(expense) 124 — 16 — 140 — — — 140

Temporary Payroll Tax Cut

Continuation Act of 2011

expense (533) — — — (533) — — — (533)

Other non-interest expense

(income) (179) 349 (24) (37) 109 — — — 109

Segment adjustments (694) 1,037 — — 343 — (343) (343) —

Income tax (expense) benefit 282 (463) (443) 23,929 23,305 — — — 23,305

Net income (loss) 5,796 15,930 3,050 23,892 48,668 — — — 48,668

Changes in unrealized gains

(losses) related to available-forsale securities — 4,010 (1,604) — 2,406 — — — 2,406

Changes in unrealized gains

(losses) related to cash flow

hedge relationships — 316 — — 316 — — — 316

Changes in defined benefit

plans 49 31 9 121 210 — — — 210

Total other comprehensive

income (loss), net of taxes 49 4,357 (1,595) 121 2,932 — — — 2,932

Comprehensive income $ 5,845 $ 20,287 $ 1,455 $24,013 $ 51,600 $ — $ — $ — $ 51,600

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205 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

Segment

Adjustments

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(1) 4,389 — 151 — 4,540 (3,507) (832) (4,339) 201

Net impairment of availablefor-sale securities recognized

in earnings — (1,831) (123) — (1,954) (214) — (214) (2,168)

Derivative gains (losses) — 1,034 943 — 1,977 (4,425) — (4,425) (2,448)

Gains (losses) on trading

securities — (1,794) 120 — (1,674) — — — (1,674)

Gains (losses) on mortgage

loans — — 1,010 — 1,010 — — — 1,010

Other non-interest income 931 2,719 297 — 3,947 (2,951) — (2,951) 996

Non-interest expense:

Administrative expense (890) (430) (241) — (1,561) — — — (1,561)

REO operations income

(expense) (62) — 3 — (59) — — — (59)

Temporary Payroll Tax Cut

Continuation Act of 2011

expense (108) — — — (108) — — — (108)

Other non-interest expense (285) (1) (129) (50) (465) — — — (465)

Segment adjustments (832) 799 — — (33) — 33 33 —

Income tax (expense) benefit 8 1,145 (454) 838 1,537 — — — 1,537

Net income (loss) (164) 7,367 2,991 788 10,982 — — — 10,982

Changes in unrealized gains

(losses) related to available-forsale securities — 3,666 1,103 — 4,769 — — — 4,769

Changes in unrealized gains

(losses) related to cash flow

hedge relationships — 414 — — 414 — — — 414

Changes in defined benefit

plans (63) (50) (13) — (126) — — — (126)

Total other comprehensive

income (loss), net of taxes (63) 4,030 1,090 — 5,057 — — — 5,057

Comprehensive income (loss) $ (227) $ 11,397 $ 4,081 $ 788 $ 16,039 $ — $ — $ — $ 16,039

(1) Management and guarantee income is included in other income on our GAAP consolidated statements of comprehensive income.

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, 2014 and 2013, we issued approximately $257.2 

billion and $425.6 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.

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206 Freddie Mac

Table 14.1 — Financial Guarantees

December 31, 2014 December 31, 2013

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 $ 87,529 $ 861 39 $ 71,809 $ 731 40

Other guarantee commitments 26,147 772 39 29,160 791 36

Derivative instruments 21,336 154 31 9,856 239 32

(1) The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of 

possible recoveries under credit enhancement arrangements, such as recourse provisions, third-party insurance contracts, or from collateral held or 

pledged. 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 $126 million and $111 million as of December 31, 2014 and 2013, 

respectively, and is included within other liabilities on our consolidated balance sheets.

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 2014 and 2013, we issued approximately $18.5 billion and $23.7 billion, respectively, 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 2014 and 2013, we issued and guaranteed $2.6 billion and $9.9 

billion, respectively, in UPB of long-term standby commitments. These long-term standby commitments totaled $16.5 billion

and $19.2 billion in UPB at December 31, 2014 and December 31, 2013, respectively. Periodically, certain of our customers 

seek to terminate long-term standby commitments and simultaneously enter into guarantor swap transactions to obtain our PCs 

backed by many of the same mortgage loans.

We also had other guarantee commitments on multifamily housing revenue bonds that were issued by HFAs of $9.3 

billion and $9.1 billion in UPB at December 31, 2014 and December 31, 2013, respectively. In addition, as of December 31, 

2014 and December 31, 2013, we had issued guarantees under the TCLFP on securities backed by HFA bonds with UPB of 

$0.4 billion and $0.9 billion, respectively. 

Derivative Instruments

Derivative instruments include written options, written swaptions, interest-rate swap guarantees, and short-term default 

guarantee commitments accounted for as credit derivatives. See “NOTE 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.

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207 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, 2014 and 2013.

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. No advances 

under these liquidity guarantees were outstanding at December 31, 2014 and 2013.

NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS

Single-Family Credit Guarantee Portfolio

The table below summarizes the concentration by year of origination and geographic area of the approximately $1.7 

trillion UPB of our single-family credit guarantee portfolio at both December 31, 2014 and 2013. 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 mortgagerelated securities that we hold or guarantee.

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208 Freddie Mac

Table 15.1 — Concentration of Credit Risk — Single-Family Credit Guarantee Portfolio

December 31, 2014 December 31, 2013

Percent of Credit Losses(1) 

Twelve Months Ended

Percentage of

Portfolio(1)

Serious

Delinquency

Rate

Percentage of

Portfolio(1)

Serious

Delinquency

Rate

December 31,

2014

December 31,

2013

Year of Origination

2014 12% 0.02% N/A N/A —% N/A

2013 16 0.06 16% 0.01% — —%

2012 14 0.09 16 0.04 — —

2011 6 0.26 8 0.18 — —

2010 6 0.46 7 0.39 1 1

2009 6 0.92 7 0.88 2 2

Subtotal - New single-family book 60 0.24 54 0.24 3 3

HARP and other relief refinance loans(2) 20 0.75 21 0.64 8 7

2005 to 2008 Legacy single-family book 13 7.59 16 8.77 81 81

Pre-2005 Legacy single-family book 7 3.10 9 3.24 8 9

Total 100% 1.88% 100% 2.39% 100% 100%

Region(3)

West 29% 1.23% 28% 1.73% 13% 24%

Northeast 26 2.81 26 3.23 26 15

North Central 17 1.48 18 1.81 22 23

Southeast 16 2.40 16 3.42 35 35

Southwest 12 1.16 12 1.36 4 3

Total 100% 1.88% 100% 2.39% 100% 100%

State

Arizona, California, Florida, and Nevada(4) 26% 1.91% 26% 3.01% 36% 47%

Illinois, Michigan, and Ohio(5) 10 1.70 11 2.11 17 19

New York and New Jersey(6) 9 4.62 9 5.11 11 3

All other 55 1.53 54 1.85 36 31

Total 100% 1.88% 100% 2.39% 100% 100%

(1) Within these columns, "—" represents less than 0.5%.

(2) HARP and other relief refinance loans are presented separately rather than in the year that the refinancing occurred (from 2009 to 2014). All other 

refinance loans are presented in the year that the refinancing occurred. 

(3) Region designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI, VT, VA, 

WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); Southwest (AR, CO, KS, LA, 

MO, NE, NM, OK, TX, WY).

(4) 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.

(5) Represents selected states in the North Central region that have experienced adverse economic conditions since 2006.

(6) 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 initiative; or (c) in another refinance mortgage initiative and the pre-existing mortgage (including 

Alt-A loans) was originated under less than full documentation standards. In the event we purchase a refinance mortgage and 

the original loan had been previously identified as Alt-A, such refinance loan may no longer be categorized or reported as Alt-A

in the table below because the new refinance loan replacing the original loan would not be identified by the seller/servicer as an 

Alt-A loan. As a result, our reported Alt-A balances may be lower than would otherwise be the case had such refinancing not 

occurred.

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. 

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209 Freddie Mac

For example, a borrower’s credit score is a useful measure for assessing the credit quality of the borrower. Statistically, 

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

Presented below is a summary of the serious delinquency rates of certain higher-risk categories (based on characteristics 

of the loan at origination) of single-family loans in our single-family credit guarantee portfolio based on UPB. The table 

includes a presentation of each higher-risk category in isolation. A single loan may fall within more than one category (for 

example, an interest-only loan may also have an original LTV ratio greater than 90%). Loans with a combination of these 

attributes will have an even higher risk of delinquency than those with an individual attribute.

Table 15.2 — Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio(1)

Percentage of Portfolio(2) Serious Delinquency Rate

December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013

Interest-only 2% 2% 9.36% 12.51%

Option ARM(3) — — 9.87 12.30

Alt-A 3 3 8.53 10.06

Original LTV ratio greater than 90%(4) 16 16 2.58 3.22

Lower credit scores at origination (less than 620) 3 3 8.57 9.99

(1) Excludes loans underlying certain Other Guarantee Transactions for which data was not available. 

(2) Within these columns, "—" represents less than 0.5%.

(3) 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.

(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 6% and 10% at December 31, 2014 and 2013, 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 9.06% and 

9.94% as of December 31, 2014 and 2013, respectively. Loans in our 2005-2008 Legacy single-family book have been more 

affected by declines in home prices that have occurred since 2006 than loans originated in other years. Our 2005-2008 Legacy 

single-family book comprised approximately 13% of our single-family credit guarantee portfolio, based on UPB at 

December 31, 2014, and these loans accounted for approximately 81% of our credit losses during 2014.

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 based on UPB. 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).

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210 Freddie Mac

Table 15.3 — Concentration of Credit Risk — Multifamily Mortgage Portfolio

December 31, 2014 December 31, 2013

UPB

Delinquency

Rate(1) UPB

Delinquency

Rate(1)

(dollars in billions)

State(2)

California $ 23.2 —% $ 22.4 0.03%

Texas 18.3 0.06 16.7 0.02

New York 12.1 — 11.4 0.12

Florida 10.0 — 9.3 0.28

Virginia 7.3 — 7.0 0.37

Maryland 7.2 — 6.7 —

All other states 65.2 0.07 59.3 0.08

Total $ 143.3 0.04% $ 132.8 0.09%

Region(3)

Northeast $ 39.0 —% $ 37.5 0.10%

West 36.3 — 33.8 0.07

Southwest 29.1 0.07 26.2 0.05

Southeast 26.7 0.09 24.1 0.16

North Central 12.2 0.06 11.2 0.07

Total $ 143.3 0.04% $ 132.8 0.09%

Other Categories(4)

Original LTV ratio greater than 80% $ 6.1 0.04% $ 5.6 0.19%

Original DSCR below 1.10 2.1 — 2.2 —

(1) Based on mortgages two monthly payments or more delinquent or in foreclosure.

(2) States presented have the highest aggregate UPB at December 31, 2014.

(3) See endnote (3) to “Table 15.1 — Concentration of Credit Risk — Single-Family Credit Guarantee Portfolio” for a description of these regions.

(4) These categories are not mutually exclusive and a loan in one category may also be included within another category.

The amount of a borrower’s equity in the underlying property is one indicator of risk for mortgage loans in our 

multifamily mortgage portfolio. 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 greater than 

100% was approximately 1% and 2% at December 31, 2014 and 2013, respectively, and our estimate of the current average 

DSCR for these loans was 1.05 and 0.95, respectively. We estimate that the percentage of loans in our multifamily mortgage 

portfolio with a current DSCR less than 1.0 was 2% and 3% at December 31, 2014 and 2013, respectively, and the average 

current LTV ratio of these loans was 91% and 95%, respectively. Our estimates of current DSCRs are based on the latest 

reported net operating income for these properties. Our estimates of the current LTV ratios are based on either values we 

receive from a third-party service provider or our internal estimates of property value, for which we may use changes in tax 

assessments, market vacancy rates, rent growth and comparable property sales in local areas as well as third-party appraisals 

for a portion of the portfolio. We periodically perform our own valuations or obtain third-party appraisals in cases where a 

significant deterioration in a borrower’s financial condition has occurred, the borrower has applied for refinancing, or in certain 

other circumstances where we deem it appropriate to reassess the property value. Although we use the latest reported 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 sellers and we are 

exposed to the risk that we could lose purchase volume to the extent certain arrangements with these sellers are terminated. Our 

top 10 single-family sellers provided approximately 50% of our single-family purchase volume during 2014. Wells Fargo 

Bank, N.A. accounted for 13% of our single-family mortgage purchase volume and was the only single-family seller that 

comprised 10% or more of our purchase volume during 2014. 

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211 Freddie Mac

We are exposed to institutional credit risk arising from the potential insolvency or non-performance by our sellers and 

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, 2014 and 2013, the UPB of loans subject to our repurchase 

requests (seller and servicer related) issued to our single-family sellers and servicers was approximately $0.7 billion and $2.2 

billion, respectively (these figures include repurchase requests for which appeals were pending). During 2014 and 2013 we 

recovered amounts that covered losses with respect to $2.0 billion and $5.6 billion, respectively, in UPB of loans subject to our 

repurchase requests.

During 2014, we entered into settlement agreements with certain counterparties to release specified loans from certain 

seller repurchase obligations in exchange for one-time cash payments, which totaled approximately $0.4 billion in aggregate. 

These agreements related to loans with $27.6 billion in aggregate principal amount (as of the dates of the respective 

agreements) and we recognized a benefit for credit losses of $0.3 billion included within our consolidated statement of 

comprehensive income during 2014 related to these agreements. 

As of December 31, 2014, single-family loans with aggregate UPB of approximately $315.1 billion (representing 19% 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 revised their representation and warranty framework for 

conventional loans purchased by the GSEs on or after January 1, 2013. The objective of the revised framework is to clarify 

lenders’ repurchase exposures and liability on future sales of mortgage loans to Freddie Mac and Fannie Mae. This framework 

does not affect seller/servicers’ obligations under their contracts with us with respect to loans sold to us prior to January 1, 

2013. This framework also does not affect their obligation to service these loans in accordance with our servicing standards. 

Under this framework, sellers are relieved of certain repurchase obligations for loans that meet specific payment requirements. 

This includes, subject to certain exclusions, loans with 36 months (12 months for relief refinance mortgages) of consecutive, 

on-time payments after we purchase them. In May 2014, we announced changes to our representation and warranty framework 

for loans acquired on and after July 1, 2014. These changes relieve sellers of additional representations and warranties for these 

loans and provide relief for loans we have fully reviewed in our quality control process and determined to be acceptable. As of 

December 31, 2014, approximately 36% in UPB of loans in our single-family credit guarantee portfolio were purchased since 

January 1, 2013 and are subject to our revised representation and warranty framework.

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 are also exposed to the risk that servicers might fail to service mortgages in accordance with our contractual 

requirements, resulting in increased credit losses. For example, our 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 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 servicers. Our top two singlefamily loan servicers, Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A., serviced approximately 22% and 12%, 

respectively, of our single-family mortgage loans, and were the only servicers that serviced more than 10% of our loans, as of 

December 31, 2014. In recent years, there has been a shift in our servicing from depository institutions to non-depository 

specialty servicers that specialize in workouts of problem loans. Some of these non-depository specialty servicers have grown 

rapidly in recent years and now service a large share of our loans. As of both December 31, 2014 and 2013, approximately 10%

of our total single-family credit guarantee portfolio was serviced by our three largest non-depository specialty servicers 

(including subsidiaries and/or affiliates of Ocwen Financial Corp., or Ocwen) , on a combined basis. Several of these nondepository specialty servicers also service a large share of the loans underlying our investments in non-agency mortgage-related 

securities. As of December 31, 2014, approximately 43% of our investments in single-family non-agency mortgage-related 

securities, based on UPB, were serviced by Ocwen, and it was the only non-depository specialty servicer who serviced 10% or 

more of the UPB underlying our investments in non-agency mortgage-related securities at that date. 

Ocwen and its subsidiaries and/or affiliates have recently been the subject of significant adverse regulatory scrutiny, 

including in New York and California, and Ocwen’s credit rating and servicer rating have been downgraded. In December 

2014, the New York State Department of Financial Services (NYDFS) entered into a consent order with Ocwen that provided 

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212 Freddie Mac

for, among other items, changes in Ocwen’s board of directors. Ocwen is not permitted to acquire additional mortgage servicing 

rights until it receives prior approval from the NYDFS, and meets certain conditions set forth in the consent agreement. In 

January 2015, the California Department of Business Oversight (CDBO) announced that it had entered into a settlement with 

Ocwen Loan Servicing, LLC related to the company’s failure to provide certain loan information to the regulator. Among other 

items, the settlement prohibits Ocwen Loan Servicing, LLC from acquiring any additional mortgage servicing rights for loans 

secured by properties in California until the CDBO determines the firm can fully respond in a timely manner to future requests 

for information. 

As of December 31, 2014, approximately 14% of our investments in single-family non-agency mortgage-related 

securities, based on UPB, were serviced by JPMorgan Chase Bank, N.A.

We acquire our multifamily mortgage loans from a network of approved sellers. Our top two multifamily sellers, CBRE 

Capital Markets, Inc. and Berkadia Commercial Mortgage LLC, accounted for 20% and 15%, respectively, of our multifamily 

new business volume for 2014. Our top ten multifamily sellers represented an aggregate of approximately 84% of our 

multifamily new business volume for 2014.

A significant portion of our multifamily mortgage loans are serviced by several of our large customers. As of 

December 31, 2014 our top three multifamily servicers, Wells Fargo Bank, N.A., Berkadia Commercial Mortgage LLC, and 

CBRE Capital Markets, Inc., each serviced more than 10% of our multifamily mortgage portfolio, excluding K Certificates, 

and together serviced approximately 39% 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. 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, 2014, mortgage insurers provided coverage with maximum loss limits 

of $58.9 billion, for $230.7 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, Radian Guaranty Inc., United Guaranty 

Residential Insurance Company, Mortgage Guaranty Insurance Corporation, and Genworth Mortgage Insurance Corporation 

each accounted for more than 10% and collectively represented approximately 80% of our overall mortgage insurance coverage 

at December 31, 2014. Of our four largest counterparties, three are rated BB-, and one is rated BBB+, as of December 31, 

2014, based on the lower of the S&P or Moody’s rating scales and stated in terms of the S&P equivalent. PMI Mortgage 

Insurance Co. (PMI), Republic Mortgage Insurance Co. (RMIC), and Triad Guaranty Insurance Corp. (Triad) are no longer 

rated by either S&P or Moody’s because they are in rehabilitation or under regulatory supervision. 

We received proceeds of $1.1 billion and $2.0 billion during 2014 and 2013, respectively, from our primary and pool 

mortgage insurance policies for recovery of losses on our single-family loans. We had outstanding receivables from mortgage 

insurers of $0.4 billion and $0.7 billion (excluding deferred payment obligations associated with unpaid claim amounts) as of 

December 31, 2014 and 2013, respectively. The balance of these receivables, net of associated reserves, was approximately 

$0.3 billion and $0.5 billion at December 31, 2014 and 2013, respectively.

PMI and Triad are both in rehabilitation, and a substantial portion of their claims are recorded by us as deferred payment 

obligations. These insurers no longer issue new insurance but continue to pay a portion of their respective claims in cash. In 

March 2014, PMI began paying valid claims 67% in cash and 33% in deferred payment obligations and made a one-time cash 

payment to us for claims that were previously settled for 55% in cash. In December 2013, Triad began paying valid claims 75%

in cash and 25% in deferred payment obligations and made a one-time cash payment to us for claims that were previously 

settled for 60% in cash. If, as we currently expect, these insurers do not pay the full amount of their deferred payment 

obligations in cash, we would lose a portion of the coverage from these insurers. As of December 31, 2014, we had cumulative 

unpaid deferred payment obligations of $0.4 billion from these insurers. We reserved for all of these unpaid amounts as 

collectability is uncertain.

RMIC is under regulatory supervision and is no longer issuing new insurance. In June 2014, RMIC announced that it 

would: (a) resume paying valid claims at 100% of the claim amount without further deferrals, effective with claims settled on 

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213 Freddie Mac

or after July 1, 2014, and (b) pay, in full, all deferred payment obligations outstanding as of June 30, 2014. In July 2014, we 

received RMIC's payment of all deferred payment obligations owed to us. Previously, RMIC had been paying all valid claims 

60% in cash and 40% in deferred payment obligations. 

It is not clear how the regulators of these companies will administer their respective deferred payment plans in the future, 

nor when or if those obligations will be paid. 

Bond Insurers

Bond insurance is a credit enhancement covering certain of the non-agency mortgage-related securities we hold. Some 

policies were acquired by the securitization trust that issued the securities we purchase, while others were acquired by us. At 

December 31, 2014, the maximum principal exposure to credit losses related to such policies was $6.8 billion. At December 31, 

2014, our top four bond insurers, Ambac Assurance Corporation (Ambac), National Public Finance Guarantee Corp., Financial 

Guaranty Insurance Company (FGIC), and MBIA Insurance Corp., each accounted for more than 10% of our overall bond 

insurance coverage and collectively represented approximately 92% 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 June 

2013, FGIC’s plan of rehabilitation was approved under which permitted claims are paid 17% in cash and the remainder in 

deferred payment obligations. 

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. In the third quarter of 2012, Ambac began making partial cash 

payments of 25% of the permitted amount of each policy claim. In 2013, Ambac began making supplemental payments, equal 

to all or a portion of the permitted policy claim, with respect to certain specified securities. In June 2014, an amended plan was 

approved by the court. The amended plan provided for Ambac to increase the amount of cash payments to 45% of the permitted 

amount of each policy claim, and Ambac made a one-time cash payment to us for claims that were previously settled for 25% 

in cash.

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 investments in 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, 2014 and 2013, including amounts related to our consolidated VIEs, there were $71.4 billion

and $85.9 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, 2014 these included:

• $42.2 billion of securities purchased under agreements to resell with 15 counterparties that had short-term S&P ratings 

of A-1 or above;

• $1.2 billion of securities purchased under agreements to resell with three counterparties that had short-term S&P

ratings of A-2;

• $8.6 billion of securities purchased under agreements to resell with four counterparties that do not have short-term 

S&P or other third-party credit ratings, but were evaluated under the company's counterparty credit risk system and 

were determined to be eligible for these transactions (by providing more than 100% in approved collateral);

• $4.4 billion of cash equivalents invested in Treasury securities; and

• $15.0 billion of cash deposited with the Federal Reserve Bank of New York (as a non-interest-bearing deposit).

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214 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. Lawsuits against 

a number of parties are currently pending. These parties include some of our significant seller/servicers and counterparties, 

including counterparties to debt funding and derivatives transactions.

In 2011, FHFA, as Conservator for Freddie Mac and Fannie Mae, filed lawsuits against 18 corporate families of financial 

institutions and related defendants alleging securities laws violations and, in some cases, fraud. These lawsuits sought to 

recover losses and damages sustained by Freddie Mac and Fannie Mae as a result of their investments in certain non-agency 

mortgage-related securities issued or sold by, or backed by mortgages originated by, these financial institutions or control 

persons thereof. As of December 31, 2014, most of these lawsuits have been resolved through settlements. We and FHFA

reached settlements with the following parties in these FHFA-filed lawsuits in 2014:

• Morgan Stanley (February 2014)

• Societe Generale (February 2014)

• Credit Suisse Holdings (USA), Inc. (March 2014)

• Bank of America Corporation (March 2014)

• Barclays Bank PLC (April 2014)

• First Horizon National Corporation (April 2014)

• RBS Securities, Inc. (June 2014; resolved claims against RBS in FHFA's lawsuit against Ally Financial Inc.)

• Goldman Sachs and Co. (August 2014)

• HSBC North America Holdings, Inc. (September 2014)

At the direction of our Conservator, we are also working to enforce contractual rights of certain trusts with respect to the 

non-agency mortgage-related securities we hold, and have directed certain trustees to initiate litigation on behalf of certificate 

holders against several financial institutions for breach of contract claims. We reached a settlement with WMC Mortgage LLC 

in March 2014. 

During 2014, we recognized $6.1 billion within non-interest income on our consolidated statements of comprehensive 

income from the settlements discussed above. 

We have also been participating with other investors in non-agency mortgage-related securities in certain investor 

consortiums that seek to enforce certain claims relating to such securities. As discussed below, three settlements have been 

announced. Each of these settlements resolves certain claims with respect to a number of mortgage securitization trusts, 

including trusts in which we have investments. If an individual settlement is approved, we would expect to receive a benefit 

from the settlement for those covered securitizations that we hold at the time settlement proceeds are distributed to the trusts. 

Each settlement is subject to various conditions, and it is not possible to predict the timing or ultimate outcome of the approval 

process for any individual settlement, which could take substantial time. The settlements are as follows:

• In April 2014, Citigroup Inc. announced a settlement to resolve certain claims with respect to a number of mortgage 

securitization trusts. In December 2014, the trustees of the securitizations filed suit in New York state court seeking 

approval of the settlement.

• In November 2013, J.P. Morgan Chase & Co. announced a settlement to resolve certain claims with respect to a 

number of mortgage securitization trusts. In October 2014, the trustees of the securitizations filed suit in New York 

state court seeking approval of the settlement.

• 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 mortgage securitization trusts. In January 2014, a New 

York state court approved a significant portion of the settlement. An appeal of this decision is pending. There can be 

no assurance that final court approval of the entire settlement will be obtained.

See "Seller/Servicers" for information about specialty servicers that service mortgage loans underlying our non-agency 

mortgage-related securities.

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215 Freddie Mac

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 clearinghouses 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 a discussion of 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.

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 on Our Consolidated Balance Sheets Measured at Fair Value on a Recurring Basis

The table below presents our assets and liabilities measured on our consolidated balance sheets at fair value on a 

recurring basis subsequent to initial recognition, including instruments where we have elected the fair value option, as of 

December 31, 2014 and 2013.

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216 Freddie Mac

Table 16.1 — Assets and Liabilities on Our Consolidated Balance Sheets Measured at Fair Value on a Recurring Basis

December 31, 2014

Level 1 Level 2 Level 3

Netting

Adjustment(1) Total

(in millions)

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac $ — $ 34,868 $ 4,231 $ — $ 39,099

Fannie Mae — 11,228 85 — 11,313

Ginnie Mae — 195 4 — 199

CMBS — 18,348 3,474 — 21,822

Subprime — — 20,589 — 20,589

Option ARM — — 5,649 — 5,649

Alt-A and other — 16 5,027 — 5,043

Obligations of states and political

subdivisions — — 2,198 — 2,198

Manufactured housing — — 638 — 638

Total available-for-sale securities, at

fair value — 64,655 41,895 — 106,550

Trading, at fair value:

Mortgage-related securities:

Freddie Mac — 16,542 927 — 17,469

Fannie Mae — 5,867 232 — 6,099

Ginnie Mae — 15 1 — 16

Other — 167 4 — 171

Total mortgage-related securities — 22,591 1,164 — 23,755

U.S. Treasury securities 6,682 — — — 6,682

Total trading securities, at fair value 6,682 22,591 1,164 — 30,437

Total investments in securities 6,682 87,246 43,059 — 136,987

Mortgage loans:

Held-for-sale, at fair value — 12,130 — — 12,130

Derivative assets, net:

Interest-rate swaps — 5,653 — — 5,653

Option-based derivatives 5 4,219 — — 4,224

Other — 40 27 — 67

Subtotal, before netting adjustments 5 9,912 27 — 9,944

Netting adjustments(1) — — — (9,122) (9,122)

Total derivative assets, net 5 9,912 27 (9,122) 822

Other assets:

Guarantee asset, at fair value — — 1,626 — 1,626

All other, at fair value — — 5 — 5

Total other assets — — 1,631 — 1,631

Total assets carried at fair value on a

recurring basis $ 6,687 $ 109,288 $ 44,717 $ (9,122) $ 151,570

Liabilities:

Debt securities of consolidated trusts held by

third parties, at fair value $ — $ 42 $ — $ — $ 42

Other debt, at fair value — 5,820 — — 5,820

Derivative liabilities, net:

Interest-rate swaps — 13,316 — — 13,316

Option-based derivatives 28 99 — — 127

Other — 80 37 — 117

Subtotal, before netting adjustments 28 13,495 37 — 13,560

Netting adjustments(1) — — — (11,597) (11,597)

Total derivative liabilities, net 28 13,495 37 (11,597) 1,963

Total liabilities carried at fair value on

a recurring basis $ 28 $ 19,357 $ 37 $ (11,597) $ 7,825

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217 Freddie Mac

Fair Value at December 31, 2013

Level 1 Level 2 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

U.S. Treasury 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

(1) Represents counterparty netting, cash collateral netting and net derivative interest receivable or payable. The net cash collateral posted was $3.2 billion

and $871 million, respectively, at December 31, 2014 and 2013. The net interest receivable (payable) of derivative assets and derivative liabilities was 

$(0.7) billion and $(0.6) billion at December 31, 2014 and 2013, 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. 

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218 Freddie Mac

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, 2014, our transfers between Level 1 and Level 2 assets and liabilities were less than $1 

million. For the year ended December 31, 2013, our transfers between Level 1 and Level 2 were $27 million for assets and $5 

million for liabilities.

The table below presents a reconciliation of all assets and liabilities measured on our consolidated balance sheets at fair 

value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2014 and 2013, 

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, 2014 and 2013. When assets and liabilities are 

transferred between levels, we recognize the transfer as of the beginning of the period.

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219 Freddie Mac

Table 16.2 — Assets and Liabilities on Our Consolidated Balance Sheets Measured at Fair Value on a Recurring Basis 

Using Significant Unobservable Inputs

Year Ended December 31, 2014

Realized and unrealized gains (losses)

Balance,

January 1,

2014

Included in

earnings(1)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(2)

Transfers

out of

Level 3(2)

Balance,

December 31,

2014

Unrealized

gains 

(losses)

still held

in millions

Assets

Investments in

securities:

Available-for-sale,

at fair value:

Mortgagerelated

securities:

Freddie Mac $ 1,939 $ 2 $ 71 $ 73 $ 5,742 $ — $(3,346) $ (138) $ 3 $ (42) $ 4,231 $ —

Fannie Mae 131 — (2) (2) 48 — (59) (29) 45 (49) 85 —

Ginnie Mae 12 — — — — — (6) (3) 1 — 4 —

CMBS 3,109 — 397 397 — — (1) (31) — — 3,474 —

Subprime 27,499 (524) 2,778 2,254 — — (7,469) (1,695) — — 20,589 (794)

Option ARM 6,574 (71) 232 161 — — (791) (295) — — 5,649 (102)

Alt-A and

other 8,706 111 158 269 — — (3,659) (272) — (17) 5,027 (42)

Obligations

of states and

political

subdivisions 3,495 1 71 72 1 — (13) (1,357) — — 2,198 —

Manufactured

housing 684 — 28 28 — — — (74) — — 638 —

Total

availablefor-sale

mortgagerelated

securities 52,149 (481) 3,733 3,252 5,791 — (15,344) (3,894) 49 (108) 41,895 (938)

Trading, at fair

value:

Mortgagerelated

securities:

Freddie Mac 343 8 — 8 2,282 95 (1,690) (43) — (68) 927 11

Fannie Mae 221 (45) — (45) 79 — — (14) 21 (30) 232 (45)

Ginnie Mae 74 — — — 1 — (70) (4) — — 1 (2)

Other 8 (1) — (1) — — — (3) — — 4 (1)

Total

trading

mortgagerelated

securities 646 (38) — (38) 2,362 95 (1,760) (64) 21 (98) 1,164 (37)

Other assets:

Guarantee asset(3) 1,611 (184) — (184) — 427 — (228) — — 1,626 (263)

All other, at fair

value 9 (4) — (4) — — — — — — 5 (4)

Total other

assets 1,620 (188) — (188) — 427 — (228) — — 1,631 (267)

Realized and unrealized (gains) losses

Balance,

January 1,

2014

Included in

earnings(1)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(2)

Transfers

out of

Level 3(2)

Balance,

December 31,

2014

Unrealized

(gains)

losses

still held

(in millions)

Liabilities

Other debt, at fair

value $ 1,528 $ (7) $ — $ (7) $ — $ — $ — $ (1,521) $ — $ — $ — $ —

Net derivatives(4) 325 (94) — (94) — — — 60 — (281) 10 (30)

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220 Freddie Mac

Year Ended December 31, 2013

Realized and unrealized gains (losses)

Balance,

January 1,

2013

Included in

earnings(1)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3

Transfers

out of

Level 3

Balance,

December 31,

2013

Unrealized

gains 

(losses)

still held

(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(5) 14,238 — — — — — — — — (14,238) — —

Other assets:

Guarantee asset(3) 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)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3

Transfers

out of

Level 3

Balance,

December 31,

2013

Unrealized

(gains)

losses

still held

(in millions)

Liabilities

Other debt, at fair

value $ 2,187 $ 11 $ — $ 11 $ — $1,130 $ — $ (670) $ — $ (1,130) $ 1,528 $ 4

Net derivatives(4) 47 301 — 301 — 12 — (35) — — $ 325 274

(1) Changes in fair value for available-for-sale 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) Transfers out of Level 3 during the year ended December 31, 2014 consist primarily of certain mortgage-related securities and certain derivatives due 

to an increased volume and level of activity in the market and availability of price quotes from dealers and third-party pricing services. Transfers into 

Level 3 during the year ended December 31, 2014 consist primarily of certain mortgage-related securities due to a lack of market activity and relevant 

price quotes from dealers and third-party pricing services.

(3) Changes in fair value of the guarantee asset are recorded in other income on our consolidated statements of comprehensive income.

(4) Amounts are prior to counterparty netting, cash collateral netting, net trade/settle receivable or payable and net derivative interest receivable or payable.

(5) 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.

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221 Freddie Mac

Assets on Our Consolidated Balance Sheets Measured at Fair Value on a Non-Recurring Basis

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis after our initial 

recognition. These adjustments usually result from the application of lower-of-cost-or-fair-value accounting or measurement of 

impairment based on the fair value of the underlying collateral. These assets include impaired held-for-investment singlefamily and multifamily mortgage loans and REO, net.

The table below presents assets measured on our consolidated balance sheets at fair value on a non-recurring basis at 

December 31, 2014 and 2013, respectively. 

Table 16.3 — Assets on Our Consolidated Balance Sheets Measured at Fair Value on a Non-Recurring Basis

December 31,

2014 2013

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

(in millions)

Assets measured at fair value

on a non-recurring basis:

Mortgage loans(1) $ — $ 80 $ 8,962 $ 9,042 $ — $ — $ 515 $ 515

REO, net(2) — — 1,665 1,665 — — 1,837 1,837

Total assets measured at fair value

on a non-recurring basis $ — $ 80 $ 10,627 $ 10,707 $ — $ — $ 2,352 $ 2,352

(1) Includes impaired single-family and multifamily mortgage loans that are classified as held-for-investment and have a related valuation allowance based 

on the fair value of the underlying collateral and held-for-sale multifamily mortgage loans where the fair value is below cost.

(2) Represents the fair value 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 $1.7 billion, less estimated costs to sell of $109 million (or approximately $1.6 billion) at 

December 31, 2014. 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.

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.

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 framework and 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 

reviewed at the Valuation Committee.

Where models are employed to assist in the measurement and verification of fair values, changes made to those models 

during the period are reviewed and approved according to the corporate model change governance process, with all material 

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222 Freddie Mac

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. 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 on Our 

Consolidated Balance Sheets at Fair Value — Derivative Assets, Net and Derivative Liabilities, Net.” In other limited 

circumstances, we receive prices from a third-party provider and use those prices without adjustment, but the inputs used by the 

third-party provider to develop the prices are reasonably available to us, as described in “Valuation Techniques for Assets and 

Liabilities Measured on 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 on Our Consolidated Balance Sheets at Fair Value 

We categorize assets and liabilities that we measure and report on 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 

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223 Freddie Mac

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.

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.

U.S. Treasury Securities

U.S. Treasury securities 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 that are measured 

at fair value on a recurring basis.

Our multifamily 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 consist of single-family and multifamily mortgage loans where the measurement of 

impairment is based on the fair value of the underlying collateral. These loans are measured at fair value on a non-recurring 

basis and are classified as Level 3 as significant inputs used in the fair value measurement are unobservable.

Single-family

The collateral is valued using our internal model that uses REO disposition, short sale and third-party sale values, 

combined with loan level characteristics using the repeat housing sales index to estimate the current fair value of the loan. The 

inputs used in the fair value measurement are the historical average sales proceeds and the repeat housing sales index. 

Significant increases (decreases) in the historical average sales proceeds per loan in isolation would result in significantly 

higher (lower) fair value measurements.

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224 Freddie Mac

Multifamily

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.

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 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 an option-pricing model. Dealer-supplied interest rate volatility matrices are a 

key input into the model. Within each matrix, prices are provided for a range of option terms, swap terms, and strikes. Our 

model then interpolates between swaption terms to determine the volatility for each instrument. This volatility is the input to 

the option-pricing model to establish the price. These derivatives are classified as Level 2 as the significant inputs used are 

observable in active markets.

Option-based derivatives also include options on exchange-traded futures. See "— Other Derivatives" for more 

information.

Other Derivatives

Other derivatives consist of exchange-traded futures and certain forward purchase and sale commitments.

Exchange-traded futures are valued using quoted prices in active markets for identical assets or liabilities and are 

classified as Level 1.

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 on 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.

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225 Freddie Mac

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-accrual 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 and is 

classified as Level 3 as significant inputs used in the fair value measurement are unobservable.

Beginning in the third quarter of 2014, our internal model uses REO disposition prices combined with loan level 

characteristics using the repeat housing sales index to estimate the current fair value of the REO. This valuation technique is 

used to measure both the initial value of REO and the valuation of REO at the lower of cost or fair value, as necessary. The 

significant unobservable inputs used in the fair value measurement of REO, net are the historical sales proceeds per property 

and the repeat housing sales index. Significant increases (decreases) in the historical sales proceeds per property in isolation 

would result in significantly higher (lower) fair value measurement.

As of December 31, 2013, our internal model used 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 was 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, were made to the estimated fair value, as applicable. The significant unobservable 

input used in the fair value measurement of REO, net was 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. 

Debt Securities of Consolidated Trusts Held by Third Parties, at Fair Value

We elected the fair value option for interest-only debt securities of consolidated trusts held by third parties. These consist 

of a multifamily K Certificate where we are the primary beneficiary and certain REMICs. These are valued using either the 

median of external sources or a single external source (which may be the counterparty to the transaction) and are classified as 

Level 2 due to market pricing that is observable. See “Fair Value Option — Debt Securities of Consolidated Trusts Held by 

Third Parties” for additional information.

Other Debt, at Fair Value

We elected the fair value option on our STACRdebt notes. Our STACR debt notes are valued using the median of 

external sources and are classified as Level 2 based on observable market prices. See “Fair Value Option — Other Debt” for 

additional information.

Quantitative Information about Level 3 Fair Value Measurements for Assets and Liabilities Measured on 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 on our consolidated balance sheets at fair value on a recurring basis using unobservable inputs 

(Level 3) as of December 31, 2014 and 2013.

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226 Freddie Mac

Table 16.4 — Quantitative Information about Recurring Level 3 Fair Value Measurements

December 31, 2014

Total

Fair

Value

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

Type Range

Weighted

Average

(dollars in millions)

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Freddie Mac $ 2,980 Discounted cash flows OAS (146) - 144 bps 83 bps

375 Risk metric Effective duration(1) 0.18 - 7.54 years 3.82 years

143 Median of external sources External pricing sources $103.2 - $104.4 $ 103.8

733 Other

Total Freddie Mac $ 39,099 4,231

Fannie Mae 47 Median of external sources

29 Discounted cash flows

9 Other

Total Fannie Mae 11,313 85

Ginnie Mae 4 Discounted cash flows

Total Ginnie Mae 199 4

CMBS 2,726 Risk Metrics Effective duration(1) 5.84 - 10.65 years 9.59 years

748 Discounted cash flows OAS 181 -766 bps 421 bps

Total CMBS 21,822 3,474

Subprime, option ARM, and Alt-A:

Subprime 18,789 Median of external sources External pricing sources $71.0 - $76.1 $ 73.5

1,800 Other

Total subprime 20,589 20,589

Option ARM 5,205 Median of external sources External pricing sources $65.3 - $70.9 $ 67.9

444 Other

Total option ARM 5,649 5,649

Alt-A and other 4,116 Median of external sources External pricing sources $83.0 - $86.2 $ 84.5

911 Other

Total Alt-A and other 5,043 5,027

Obligations of states and political subdivisions 1,992 Median of external sources External pricing sources $101.3 - $101.9 $ 101.6

206 Other

Total obligations of states and political subdivisions 2,198 2,198

Manufactured housing 515 Median of external sources External pricing sources $89.3 - $92.4 $ 91.0

123 Single external source External pricing source $89.8 - $89.8 $ 89.8

Total manufactured housing 638 638

Total available-for-sale mortgage-related securities 106,550 41,895

Trading, at fair value

Mortgage-related securities

Freddie Mac 478 Discounted cash flows OAS (219) - 9,748 bps 169 bps

320 Risk Metrics Effective duration(1) 1.78 - 2.30 years 2.27 years

129 Other

Total Freddie Mac 17,469 927

Fannie Mae 207 Discounted cash flows OAS (173) - 2,027 bps 204 bps

25 Other

Total Fannie Mae 6,099 232

Ginnie Mae 16 1

Other 3 Median of external sources

1 Discounted cash flows

Total other 171 4

Total trading mortgage-related securities 23,755 1,164

Total investments in securities $ 130,305 $ 43,059

Other assets:

Guarantee asset, at fair value $ 1,285 Discounted cash flows OAS 17 - 202 bps 53 bps

341 Median of external sources External pricing sources $10.0 - $21.2 $ 16.6

Total guarantee asset, at fair value $ 1,626 1,626

All other, at fair value 5 Other

Total all other, at fair value 5 5

Total other assets 1,631 1,631

Liabilities

Net derivatives 10 Other

Total net derivatives 1,141 10

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227 Freddie Mac

December 31, 2013

Total

Fair

Value

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

Type Range

Weighted

Average

(dollars in millions)

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Freddie Mac $ 1,547 Risk metric Effective duration(1) 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

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

(1) Effective duration is used as a proxy to represent the aggregate impact of key rate durations.

The table below provides valuation techniques, the range, and the weighted average of significant unobservable inputs for 

assets and liabilities measured on our consolidated balance sheets at fair value on a non-recurring basis using unobservable 

inputs (Level 3) as of December 31, 2014 and 2013.

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228 Freddie Mac

Table 16.5 — Quantitative Information about Non-Recurring Level 3 Fair Value Measurements

December 31, 2014

Total

Fair

Value

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

Type Range

Weighted

Average

(dollars in millions)

Non-recurring fair value measurements

Mortgage loans $ 8,962 $ 8,962

Internal model

Historical sales

proceeds

$3,000 -

$896,519 $162,556

Internal model Housing sales index 38 - 294 bps 82 bps

Third-party appraisal Property value

$11 million -

$44 million $31 million

Income capitalization(1) Capitalization rates 6%- 9% 7%

REO, net(2) $ 1,665 $ 1,665

Internal model

Historical sales

proceeds

$3,008 -

$896,519 $154,165

Internal model Housing sales index 38 - 294 bps 82 bps

December 31, 2013

Total

Fair

Value

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

Type Range

Weighted

Average

(dollars in millions)

Non-recurring fair value measurements

Mortgage loans $ 515 $ 515

Income capitalization(1) Capitalization rates 6% - 9% 7%

Third-party appraisal Property value

$4 million -

$44 million $27 million

REO, net(2) $ 1,837 $ 1,837 Internal model

Historical average sales

proceeds per property

by state

$17,500-

$318,391 $105,508

(1) The predominant valuation technique used for multifamily mortgage loans. 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.

(2) The national average REO disposition severity ratio for our REO properties was 34.7% and 36.5% for the years ended December 31, 2014 and 2013, 

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, 

2014 and 2013.

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229 Freddie Mac

Table 16.6 — Fair Value of Financial Instruments

December 31, 2014

Fair Value

GAAP Carrying 

Amount Level 1 Level 2 Level 3 Netting Adjustments Total

(in millions)

Financial Assets

Cash and cash equivalents $ 10,928 $ 10,928 $ — $ — $ — $ 10,928

Restricted cash and cash equivalents 8,535 8,535 — — — 8,535

Federal funds sold and securities purchased

under agreements to resell 51,903 — 51,903 — — 51,903

Investments in securities:

Available-for-sale, at fair value 106,550 — 64,655 41,895 — 106,550

Trading, at fair value 30,437 6,682 22,591 1,164 — 30,437

Total investments in securities 136,987 6,682 87,246 43,059 — 136,987

Mortgage loans:

Mortgage loans held by consolidated trusts 1,558,094 — 1,387,412 197,896 — 1,585,308

Unsecuritized mortgage loans 142,486 — 22,305 119,157 — 141,462

Total mortgage loans 1,700,580 — 1,409,717 317,053 — 1,726,770

Derivative assets, net 822 5 9,912 27 (9,122) 822

Guarantee asset 1,626 — — 1,837 — 1,837

Total financial assets $ 1,911,381 $ 26,150 $ 1,558,778 $ 361,976 $ (9,122) $ 1,937,782

Financial Liabilities

Debt, net:

Debt securities of consolidated trusts held

by third parties $ 1,479,473 $ — $ 1,521,508 $ 1,364 $ — $ 1,522,872

Other debt 450,069 — 444,748 13,371 — 458,119

Total debt, net 1,929,542 — 1,966,256 14,735 — 1,980,991

Derivative liabilities, net 1,963 28 13,495 37 (11,597) 1,963

Guarantee obligation 1,623 — — 3,127 — 3,127

Total financial liabilities $ 1,933,128 $ 28 $ 1,979,751 $ 17,899 $ (11,597) $ 1,986,081

December 31, 2013

Fair Value

GAAP Carrying

Amount Level 1 Level 2 Level 3 Netting Adjustments Total

(in millions)

Financial Assets

Cash and cash equivalents(1) $ 11,281 $ 11,281 $ — $ — $ — $ 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 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 $ 30,181 $ 1,443,690 $ 426,443 $ (13,168) $ 1,887,146

Financial Liabilities

Debt, net:

Debt securities of consolidated trusts held 

by third parties(2) $ 1,433,984 $ — $ 1,434,208 $ 2,690 $ — $ 1,436,898

Other debt 506,767 — 499,756 13,089 — 512,845

Total debt, net 1,940,751 — 1,933,964 15,779 — 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 $ — $ 1,947,255 $ 19,182 $ (13,447) $ 1,952,990

(1) Includes a reclassification of $3.9 billion to the classification of previously disclosed amounts related to cash and cash equivalents between level 1 and 

level 2. This reclassification reflects a change in methodology and is not material to the financial statements. 

(2) Includes a reclassification of $1.7 billion to the classification of previously disclosed amounts related to debt securities of consolidated trusts held by 

third parties between level 2 and level 3. This reclassification reflects a correction of an error and is not material to the financial statements.

Valuation Techniques for Assets and Liabilities Not Measured on Our Consolidated Balance Sheets at Fair Value, but 

for Which the Fair Value is Disclosed

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230 Freddie Mac

The following is a description of the valuation techniques we use for items not measured on 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. 

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 U.S. 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 multifamily mortgage loans classified as held-for-investment are recorded at amortized cost. Certain 

held-for-investment single-family and multifamily mortgage loans 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 loan modification but have not been 

current for at least 6 consecutive months; (d) have completed a loan modification and have a current LTV ratio greater than 

125%; 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 $72.0 billion and $101.2 billion as of 

December 31, 2014 and 2013, 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 

$1.6 trillion and $1.5 trillion as of December 31, 2014 and 2013, respectively.

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, adjusting for the value of our management and 

guarantee fee, which is the compensation we receive for performing our management and guarantee activities, and our credit 

obligation related to performing our guarantee.

The security price is based on benchmark security pricing for similar actively traded mortgage-related securities, adjusted 

as necessary based on security characteristics. This security pricing process is consistent with our approach for valuing similar 

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231 Freddie Mac

securities retained in our investment portfolio or issued as debt to third parties. See “Valuation Techniques for Assets and 

Liabilities Measured on Our Consolidated Balance Sheets at Fair Value — Investments in Securities.”

The management and guarantee fee is valued by estimating the present value of the 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 $19.1 billion and $18.5 billion as of 

December 31, 2014 and 2013, respectively. The total fair value of the loans in our portfolio that reflects the pricing afforded to 

HARP loans as of December 31, 2014 and 2013 is $119.8 billion and $145.0 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 on 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 on 

Our 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 

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232 Freddie Mac

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 on 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 (losses) 

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 on 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 a 

multifamily K Certificate 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 our STACR debt notes 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 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, 2014 and 2013.

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233 Freddie Mac

Table 16.7 — Difference between Fair Value and Unpaid Principal Balance for Certain Financial Instruments with Fair

Value Option Elected

December 31,

2014 2013

Multifamily

Held-For-Sale

Mortgage Loans

Other Debt -

Long Term

Multifamily

Held-For-Sale

Mortgage Loans

Other Debt -

Long Term

(in millions)

Fair value $ 12,130 $ 5,820 $ 8,727 $ 2,683

Unpaid principal balance 11,872 5,896 8,721 2,635

Difference $ 258 $ (76) $ 6 $ 48

Changes in Fair Value under the Fair Value Option Election

We recorded gains (losses) of $0.9 billion, $(0.3) billion, and $1.0 billion for the years ended December 31, 2014, 2013, 

and 2012, 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 $144 million, $(37) million, and $16 million for 

the years ended December 31, 2014, 2013, and 2012, 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, 

2014, 2013, or 2012 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 of Freddie Mac against liability 

arising from seller/servicers' 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 2014, we paid approximately $15 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 Lawsuit: 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, and the plaintiff amended its 

complaint on several occasions. The plaintiff alleged, among other things, that the defendants violated federal securities laws 

by making false and misleading statements concerning our business, risk management, and the procedures we put into place to 

protect the company from problems in the mortgage industry. The plaintiff sought unspecified damages and interest, and 

reasonable costs and expenses, including attorney and expert fees. 

Defendants filed motions to dismiss the second and third amended complaints, which the Court initially 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. On October 31, 2014, the Court 

granted defendants’ motions and dismissed the case in its entirety against all defendants, with prejudice. On November 25, 

2014, plaintiff filed a notice of appeal in the U.S. Court of Appeals for the Sixth Circuit.

At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect on our business, 

financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible loss or 

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234 Freddie Mac

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; 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 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

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 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. The case was subsequently transferred to the U.S. District Court for the 

Southern District of New York. The defendants in the case were underwriters of the company’s November 2007 public offering 

of preferred stock. The plaintiffs generally alleged that the underwriters made materially misleading statements and omissions 

in connection with the offering. The case was voluntarily dismissed, with prejudice, on December 8, 2014. Freddie Mac was 

not named as a defendant in the lawsuit.

Litigation Related to the Taylor, Bean & Whitaker (TBW) Bankruptcy

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 with TBW and the TBW creditors' committee 

regarding the TBW bankruptcy in 2011. However, we continue to be involved in litigation with other parties relating to the 

TBW bankruptcy, as described below.

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. The 

Court denied this motion on March 27, 2014, and the underwriters subsequently appealed the denial of the motion to the U.S. 

District Court. Numerous additional motions for summary judgment have been filed by the parties, including by Freddie Mac. 

These motions are pending. Discovery is proceeding. At present, it is not possible for us to predict the probable outcome of this 

lawsuit.

On December 29, 2014, Freddie Mac filed an action in the U.S. District Court for the Southern District of New York 

against certain underwriters at Lloyds, London and several other insurance carriers seeking coverage for $111 million in losses 

under Freddie Mac’s primary and excess financial institution bonds. The losses resulted from fraud perpetrated by senior 

officers and employees of TBW. At present, it is not possible for us to predict the probable outcome of this lawsuit.

On September 15, 2014, Freddie Mac filed a lawsuit in the Circuit Court of the 11th Judicial Circuit in Miami-Dade 

County, Florida against Deloitte & Touche LLP (Deloitte) for negligent misrepresentation / false information negligently 

supplied for the guidance of others. The complaint alleges, among other items, that Deloitte, as TBW’s independent auditor, 

made and supplied false information during the course of its professional audits of TBW, as a result of which Freddie Mac 

incurred damages in excess of $1.3 billion. Freddie Mac seeks damages and interest, as well as costs. On October 8, 2014, 

Deloitte removed the case from state court to the U.S. District Court for the Southern District of Florida. Discovery is 

proceeding. At present, it is not possible for us to predict the probable outcome of this lawsuit.

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, 

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 for the 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.

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 

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things, that the defendants fraudulently and collusively depressed LIBOR, a benchmark interest rate indexed to trillions of 

dollars of financial products, and asserts claims for antitrust violations, breach of contract, tortious interference with contract 

and fraud. Freddie Mac filed an amended complaint on July 22, 2013, and a second amended complaint on October 6, 2014. 

The defendants have moved to dismiss the second amended complaint; Freddie Mac has opposed this motion.

Litigation Concerning the Purchase Agreement

Since July 2013, a number of lawsuits have been filed against us concerning the August 2012 amendment to the Purchase 

Agreement, which created the net worth sweep dividend provisions of the senior preferred stock. The plaintiffs in the lawsuits 

allege that they are holders of common stock and/or junior preferred stock issued by Freddie Mac and Fannie Mae. (For 

purposes of this discussion, junior preferred stock refers to the various series of preferred stock of Freddie Mac and Fannie Mae 

other than the senior preferred stock issued to Treasury.) It is possible that similar lawsuits will be filed in the future. The 

lawsuits against us are described below.

Litigation in the U.S. District Court for the District of Columbia

In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations. This case is the 

result of the consolidation of three putative class action lawsuits: Cacciapelle and Bareiss vs. Federal National Mortgage 

Association, Federal Home Loan Mortgage Corporation and FHFA, filed on July 29, 2013; American European Insurance 

Company vs. Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and FHFA, filed on July 30, 

2013; and Marneu Holdings, Co. vs. FHFA, Treasury, Federal National Mortgage Association and Federal Home Loan 

Mortgage Corporation, filed on September 18, 2013. (The Marneu case was also filed as a shareholder derivative lawsuit.) A

consolidated amended complaint was filed on December 3, 2013. In the consolidated amended complaint, plaintiffs allege, 

among other items, that the August 2012 amendment to the Purchase Agreement breached Freddie Mac's and Fannie Mae's 

respective contracts with the holders of junior preferred stock and common stock and the covenant of good faith and fair 

dealing inherent in such contracts. Plaintiffs sought unspecified damages, equitable and injunctive relief, and costs and 

expenses, including attorney and expert fees. 

The Cacciapelle and American European Insurance Company lawsuits were filed purportedly on behalf of a class of 

purchasers of junior preferred stock issued by Freddie Mac or Fannie Mae who held stock prior to, and as of, August 17, 2012. 

The Marneu lawsuit was filed purportedly on behalf of a class of purchasers of junior preferred stock and purchasers of 

common stock issued by Freddie Mac or Fannie Mae over a not-yet-defined period of time. 

Arrowood Indemnity Company vs. Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, 

FHFA and Treasury. This case was filed on September 20, 2013. The allegations and demands made by plaintiffs in this case 

were generally similar to those made by the plaintiffs in the In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase 

Agreement Class Action Litigations case described above. Plaintiffs in the Arrowood lawsuit also requested that, if injunctive 

relief were not granted, the Arrowood plaintiffs be awarded damages against the defendants in an amount to be determined 

including, but not limited to, the aggregate par value of their junior preferred stock, the total of which they stated to be 

$42,297,500. 

American European Insurance Company, Cacciapalle and Miller vs. Treasury and FHFA. This case was filed as a 

shareholder derivative lawsuit, purportedly on behalf of Freddie Mac as a “nominal” defendant, on July 30, 2014. The 

complaint alleged that, through the August 2012 amendment to the Purchase Agreement, Treasury and FHFA breached their 

respective fiduciary duties to Freddie Mac, causing Freddie Mac to suffer damages. The plaintiffs asked that Freddie Mac be 

awarded compensatory damages and disgorgement, as well as attorneys’ fees, costs and other expenses. 

FHFA, joined by Freddie Mac and Fannie Mae, moved to dismiss the In re Fannie Mae/Freddie Mac Senior Preferred 

Stock Purchase Agreement Class Action Litigations case and the other related cases on January 17, 2014. Treasury filed a 

motion to dismiss the same day. On September 30, 2014, the District Court granted the motions and dismissed the plaintiffs’

claims. On October 15, 2014, plaintiffs in the In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class 

Action Litigations case filed a notice of appeal of the District Court’s decision. The scope of this appeal includes the American 

European Insurance Company shareholder derivative lawsuit. On October 9, 2014, Arrowood filed a notice of appeal of the 

District Court’s decision.

Litigation in the U.S. Court of Federal Claims

Reid and Fisher vs. the United States of America and Federal Home Loan Mortgage Corporation. This case was filed as 

a derivative lawsuit, purportedly on behalf of Freddie Mac as a “nominal” defendant, on February 26, 2014. The complaint 

alleges, among other items, that the net worth sweep dividend provisions of the senior preferred stock constitute an unlawful 

taking of private property for public use without just compensation. The plaintiffs ask that Freddie Mac be awarded just 

compensation for the U.S. government’s alleged taking of its property, attorneys’ fees, costs and other expenses.

Rafter, Rattien and Pershing Square Capital Management vs. the United States of America, Federal National Mortgage 

Association and Federal Home Loan Mortgage Corporation. This case was filed as a shareholder derivative lawsuit, 

purportedly on behalf of Freddie Mac as a “nominal” defendant, on August 14, 2014. The complaint alleges that: (a) the net 

worth sweep dividend provisions of the senior preferred stock constitute an unlawful taking of private property for public use 

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without just compensation; and (b) the U.S government breached an implied-in-fact contract with Freddie Mac. The plaintiffs 

ask that they be awarded just compensation for the U.S. government’s alleged taking of their property, attorneys’ fees, costs and 

expenses, and that Freddie Mac be awarded damages or other appropriate relief for the alleged breach of contract.

At present, it is not possible for us to predict the probable outcome of the lawsuits discussed above in the U.S. District 

Court for the District of Columbia and the U.S. Court of Federal Claims (including the outcome of any appeal) or any potential 

effect on our business, financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate 

the possible loss or range of possible loss in the event of an adverse judgment in the foregoing matters due to a number of 

factors, including the inherent uncertainty of pre-trial litigation. In addition, with respect to the In re Fannie Mae/Freddie Mac 

Senior Preferred Stock Purchase Agreement Class Action Litigations case, the plaintiffs have not demanded a stated amount of 

damages they believe are due, and the Court has not certified a class.

Since October 2013, we have received a number of letters from purported holders of common stock and/or junior 

preferred stock. The purported shareholders made various demands in these letters, including that Freddie Mac take action to 

terminate the August 2012 amendment to the Purchase Agreement and commence legal action against the U.S. government to 

recover all losses sustained by Freddie Mac as a result of such amendment. FHFA (as Conservator) has generally informed the 

purported shareholders that the Conservator does not intend to authorize Freddie Mac or its directors or officers to take the 

various actions that such shareholders demand. All of the purported shareholders subsequently filed shareholder derivative 

lawsuits against Freddie Mac. These cases are among those described above. It is possible we could receive additional demand 

letters from purported shareholders, which could ultimately lead to additional lawsuits against us.

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 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. 

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.

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237 Freddie Mac

Table 18.1 — Net Worth and Minimum Capital

December 31, 2014 December 31, 2013

(in millions)

GAAP net worth $ 2,651 $ 12,835

Core capital (deficit)(1)(2) $ (71,415) $ (59,495)

Less: Minimum capital requirement(1) 20,090 21,404

Minimum capital surplus (deficit)(1) $ (91,505) $ (80,899)

(1) Core capital and minimum capital figures for December 31, 2014 are estimates. FHFA is the authoritative source for our regulatory capital.

(2) Core capital excludes certain components of GAAP total equity (i.e., AOCI and the liquidation preference of the senior preferred stock) as these items 

do not meet the statutory definition of core capital.

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, 2014, our assets exceeded our liabilities under GAAP; therefore no draw is being requested from 

Treasury under the Purchase Agreement. As of December 31, 2014, 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 $10.4 billion, $4.5 billion, $1.9 billion, and $2.8 billion on the senior 

preferred stock in cash in March 2014, June 2014, September 2014, and December 31, 2014, 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

The table below presents the significant components of other income (loss) on our consolidated statements of 

comprehensive income.

Table 19.1 — Significant Components of Other Income (Loss) on Our Consolidated Statements of Comprehensive 

Income

Year Ended December 31,

2014 2013 2012

(in millions)

Other income (loss):

Non-agency mortgage-related securities settlements(1) $ 6,084 $ 5,501 $ —

Gains (losses) on mortgage loans 731 (336) 1,010

Other 1,229 1,485 1,180

Total other income (loss) $ 8,044 $ 6,650 $ 2,190

(1) Settlement agreements primarily related to lawsuits regarding our investments in certain non-agency mortgage-related securities is a significant 

component of other income in 2014 and 2013. For more information, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — NonAgency Mortgage-Related Security Issuers.”

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238 Freddie Mac

The table below presents the significant components of other assets and other liabilities on our consolidated balance 

sheets.

Table 19.2 — Significant Components of Other Assets and Other Liabilities on Our Consolidated Balance Sheets

December 31, 2014 December 31, 2013

(in millions)

Other assets:

Accounts and other receivables(1) $ 3,899 $ 4,367

Current income tax receivable 1,048 1,316

Guarantee asset 1,626 1,611

All other 1,121 1,245

Total other assets $ 7,694 $ 8,539

Other liabilities:

Servicer liabilities $ 1,847 $ 2,277

Guarantee obligation 1,623 1,522

Accounts payable and accrued expenses 803 886

All other 785 807

Total other liabilities $ 5,058 $ 5,492

(1) Primarily consists of servicer receivables and other non-interest receivables.

END OF CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES

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239 Freddie Mac

QUARTERLY SELECTED FINANCIAL DATA

(UNAUDITED)

2014

1Q 2Q 3Q 4Q Full-Year

(in millions, except share-related amounts)

Net interest income $ 3,510 $ 3,503 $ 3,663 $ 3,587 $ 14,263

Benefit (provision) for credit losses (85) 618 (574) (17) (58)

Non-interest income (loss):

Derivative gains (losses) (2,351) (1,926) (617) (3,397) (8,291)

Net impairments of available-for-sale securities recognized in

earnings (364) (157) (166) (251) (938)

Other non-interest income (loss) 5,826 677 1,547 1,066 9,116

Non-interest income (loss) 3,111 (1,406) 764 (2,582) (113)

Non-interest expense:

Administrative expense (468) (453) (472) (488) (1,881)

REO operations income (expense) (59) 50 (103) (84) (196)

Temporary Payroll Tax Cut Continuation Act of 2011 expense (178) (187) (198) (212) (775)

Other non-interest expense (66) (90) (43) (39) (238)

Non-interest expense (771) (680) (816) (823) (3,090)

Income tax (expense) benefit (1,745) (673) (956) 62 (3,312)

Net income $ 4,020 $ 1,362 $ 2,081 $ 227 $ 7,690

Total other comprehensive income (loss), net of taxes $ 479 $ 528 $ 705 $ 24 $ 1,736

Comprehensive income $ 4,499 $ 1,890 $ 2,786 $ 251 $ 9,426

Income (loss) attributable to common stockholders $ (479) $ (528) $ (705) $ (624) $ (2,336)

Income (loss) per common share – basic and diluted(1) $ (0.15) $ (0.16) $ (0.22) $ (0.19) $ (0.72)

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 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

Temporary Payroll Tax Cut Continuation Act of 2011 expense (93) (123) (150) (167) (533)

Other non-interest expense (93) (41) (51) 294 109

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 $ (2,390) $ 631 $ 50 $ (1,822) $ (3,531)

Income (loss) per common share – basic and diluted(1) $ (0.74) $ 0.19 $ 0.02 $ (0.56) $ (1.09)

(1) Earnings (loss) per common share is computed independently for each of the quarters presented. Due to the use of weighted average common shares 

outstanding when calculating earnings (loss) per share, the sum of the four quarters may not equal the full-year amount. Earnings (loss) per common 

share amounts may not recalculate using the amounts shown in this table due to rounding.

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240 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, 2014. 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, 2014, 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, 2014. In making our 

assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or 

COSO, in Internal Control — Integrated Framework (2013 Framework). A material weakness is a deficiency, or a combination 

of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material 

misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis by a 

company’s internal controls. Based on our assessment, we identified a material weakness related to our inability to update our 

disclosure controls and procedures in a manner that adequately ensures the accumulation and communication to management of 

information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including 

disclosures affecting our consolidated financial statements.

We have been under conservatorship of FHFA since September 6, 2008. FHFA is an independent agency that currently 

functions as both our Conservator and our regulator with respect to our safety, soundness and mission. Because we are in 

conservatorship, some of the information that we may need to meet our disclosure obligations may be solely within the 

knowledge of FHFA. As our Conservator, FHFA has the power to take actions without our knowledge that could be material to 

investors and could significantly affect our financial performance. Although we and FHFA have attempted to design and 

implement disclosure policies and procedures 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 

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241 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, 2014 based on the COSO criteria (2013 Framework). PricewaterhouseCoopers LLP, an independent 

registered public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 

2014 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 above under "Management's Report on Internal Control Over Financial Reporting,” we have one material 

weakness in internal control over financial reporting as of December 31, 2014 that we have not remediated.

Given the structural nature of this material weakness, we believe it is likely that we will not remediate it while we are 

under conservatorship. However, both we and FHFA have continued to engage in activities and employ procedures and 

practices intended to permit accumulation and communication to management of information needed to meet our disclosure 

obligations under the federal securities laws. These include the following:

• FHFA has established the Division of Conservatorship, which is intended to facilitate operation of the company with 

the oversight of the Conservator.

• We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also provide 

drafts of external press releases, statements and speeches to FHFA personnel for their review and comment prior to 

release.

• FHFA personnel, including senior officials, review our SEC filings prior to filing, including this Form 10-K, and 

engage in discussions with us regarding issues associated with the information contained in those filings. Prior to 

filing this Form 10-K, FHFA provided us with a written acknowledgment that it had reviewed the Form 10-K, was not 

aware of any material misstatements or omissions in the Form 10-K, and had no objection to our filing the Form 10-K.

• The Director of FHFA is in frequent communication with our Chief Executive Officer, typically meeting (in person or 

by phone) on at least a bi-weekly basis.

• FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of 

information and to provide oversight on a variety of matters, including accounting, credit and capital markets 

management, external communications, and legal matters.

• Senior officials within FHFA’s accounting group meet frequently with our senior financial executives regarding our 

accounting policies, practices, and procedures.

In view of our mitigating actions related to this material weakness, we believe that our consolidated financial statements 

for the year ended December 31, 2014 have been prepared in conformity with GAAP.

Changes in Internal Control Over Financial Reporting During the Quarter Ended December 31, 2014

We evaluated the changes in our internal control over financial reporting that occurred during the quarter ended 

December 31, 2014 and concluded that the following matter has materially affected, or is reasonably likely to materially affect, 

our internal control over financial reporting.

We have made and are making considerable enhancements to our risk management framework. During 2014, we 

implemented a redesigned and enhanced three-lines-of-defense methodology. As part of this effort, we have moved or are 

moving several key functions within the organization. During our implementation period, we may experience elevated 

operational risks. We are actively managing this risk. For more information, see "MD&A — RISK MANAGEMENT — 

Operational Risk — Operational Risk Management Framework."

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 13, 2015, 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. 

Raphael W. Bostic

Carolyn H. Byrd 

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242 Freddie Mac

Thomas M. Goldstein

Richard C. Hartnack

Steven W. Kohlhagen 

Donald H. Layton 

Christopher S. Lynch 

Sara Mathew

Saiyid T. Naqvi

Nicolas P. Retsinas 

Eugene B. Shanks, Jr. 

Anthony A. Williams 

The terms of the directors elected under the February 13, 2015 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.

On January 7, 2015, we filed a Form 8-K to announce the election of Raphael W. Bostic to the Board of Directors. As of 

the date of that filing, the Board committees on which Mr. Bostic would serve had not been determined. On February 18, 2015, 

the Board appointed Mr. Bostic to the Compensation and Risk committees, with the appointments effective as of March 1, 

2015. For more information, see “DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE — Authority 

of the Board and Board Committees.”

2015 Target TDC

The Compensation Committee’s 2015 Target TDC recommendation for each Named Executive Officer was approved by 

FHFA on February 13, 2015 and remains unchanged from the 2014 Target TDC, with the exception of Mr. Weiss. For Mr. 

Weiss, a $250,000 increase to Target TDC was approved after taking into account his performance, the key role he plays in our 

relationships with FHFA and CSS, and increases to his responsibilities during 2014.

The following table sets forth the components of 2015 Target TDC on an annual basis for each of our Named Executive 

Officers.

Table 63 — 2015 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 1,075,000 675,000 2,250,000

Executive Management Compensation Program

On February 13, 2015, FHFA approved the following change to Freddie Mac's Executive Management Compensation 

Program for 2015:

• Retirement Eligibility — Retirement will be defined as voluntarily terminating employment after attaining or 

exceeding 62 years of age, regardless of length of service, or attaining or exceeding 55 years of age with 10 or more 

years of service. Previously, Covered Officers became retirement eligible only upon attaining age 65, without regard to 

their length of service.

Specific program documents reflecting this change has not been finalized.

SERP II

On February 18, 2015, FHFA approved Freddie Mac’s SERP II. SERP II is effective as of January 1, 2014. Participants in 

SERP II may include certain of our Named Executive Officers.

SERP II is an unfunded, non-qualified defined contribution plan designed to provide participants with the full amount of 

benefits they would have been entitled to under the Transitional Plan, discussed below, and under the Thrift/401(k) Plan (to the 

extent not provided by the company’s existing SERP), if those plans were not subject to certain dollar limits under the Internal 

Revenue Code (the “Code”). The Code limits the amounts of pay that can be taken into account under those plans and limits the 

total accruals that can be made. 

On October 24, 2013, Freddie Mac received a directive from FHFA to terminate the Pension Plan and the pension 

component of the SERP. In connection with the termination of the Pension Plan, Freddie Mac previously has adopted: (a) the 

Transitional Plan, a tax-qualified plan that provides for certain age-based and fixed contributions over a transition period to 

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243 Freddie Mac

ease the impact on employees affected by the termination of the Pension Plan; and (b) an amended and restated Thrift/401(k) 

Plan, which includes a new “Roth contribution” feature for after-tax contributions.

Participants in SERP II will receive an accrual for each year they participate in the Transitional Plan equal to the amount 

of the employer contribution that would have been made to the Transitional Plan for the year, without application of the Code 

limits, less the amount of the contribution actually made to the Transitional Plan. SERP II also provides participants with the 

flexibility to make Roth contributions to the Thrift/401(k) Plan and still receive employer contributions that would have been 

made to the Thrift/401(k) Plan for the year without regard to the Code limits, less the amount of the contributions actually made 

to the Thrift/401(k) Plan.

Under SERP II, the maximum pay covered may not exceed two times base salary for senior vice presidents and above. 

Participants are credited with earnings or losses in their SERP II accounts based upon each participant’s individual direction of 

the investment of such notional amounts among the virtual investment funds available under the Transitional Plan. There will 

be immediate vesting of any accruals.

A copy of SERP II is filed as Exhibit 10.18 to this Form 10-K and is incorporated herein by reference.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Background

As Conservator, FHFA has succeeded to 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 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 2015. Instead, 

the Conservator has elected directors by a written consent in lieu of an annual meeting.

Directors

The Conservator has delegated certain powers to the Board of Directors while reserving certain powers of approval to 

itself. See “Authority of the Board and Board Committees.” The Conservator has determined that the Board is to have a nonexecutive 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 13, 2015, the Conservator executed a written consent, effective as of that date, re-electing each of the twelve 

then-current directors as a member of our Board. 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. 

Our Board seeks candidates for director who have achieved a high level of stature, success, and respect in their principal 

occupations. Each of our current directors was selected as a candidate because of his or her character, judgment, experience, 

and expertise. Consistent with the examination guidance for corporate governance issued by FHFA, the factors considered 

include the knowledge directors would have, as a group, in the areas of business, finance, accounting, risk management, public 

policy, mortgage lending, real estate, low-income housing, homebuilding, regulation of financial institutions, and any other 

areas that may be relevant to our safe and sound operation. In accordance with the FHFA guidance, we also considered whether 

a candidate’s other commitments, including the number of other board memberships held by the candidate, would permit the 

candidate to devote sufficient time to the candidate’s duties and responsibilities as a director. See “CERTAIN 

RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE — Board Diversity” for 

additional information concerning the Board’s consideration of diversity in identifying director candidates.

The following summarizes each director’s Board service, experience, qualifications, attributes, and/or skills that led to his 

or her selection as a director, and provides other biographical information, as of February 19, 2015:

• Raphael W. Bostic joined the Board in January 2015. He is 48 years old. He is a leading real estate economist with 

extensive public policy, academic and research expertise. 

Mr. Bostic has served as the Bedrosian Chair in Governance and Public Enterprise at the Sol Price School of Public 

Policy at the University of Southern California since 2012. Prior to that, he served as the Assistant Secretary for 

Policy Development and Research at the U.S. Department of Housing and Urban Development (HUD) from 2009 to 

2012. In that Senate-confirmed position, Mr. Bostic was a principal advisor to the Secretary of HUD on policy and 

research. From 2001 to 2009, he served in various positions at the University of Southern California, including as a 

professor at the School of Policy, Planning, and Development.

• Carolyn H. Byrd joined the Board in December 2008. She is 66 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. 

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244 Freddie Mac

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 

Popeyes Louisiana Kitchen, Inc. (formerly AFC Enterprises, Inc.), where she is a member of the Audit Committee and 

chair of 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.

• Thomas M. Goldstein joined the Board in October 2014. He is 55 years old. He is an executive with extensive 

financial services, insurance, mortgage banking and risk management experience. 

From April 2011 to June 2014, Mr. Goldstein served as Senior Vice President, Chief Financial Officer, Protection 

Division of Allstate Insurance Company. From 2009 to 2011, he served as a consultant to the financial services 

industry and pursued community bank acquisitions with The GRG Group LLC. Prior to that, from 2007 to 2009, he 

served as Managing Director and Chief Financial Officer for Madison Dearborn Partners, a private equity firm in 

Chicago, Illinois. From 1998 to 2007, Mr. Goldstein served in a number of executive and finance positions for LaSalle 

Bank Corporation, including as Chairman, Chief Executive Officer, and President of ABN AMRO Mortgage Group 

from 2005 to 2007 and as Chief Financial Officer of LaSalle Bank Corporation from 2002 to 2004. He also worked for 

Morgan Stanley Dean Witter in a variety of positions from 1988 to 1998, including as Senior Vice President, Head of 

Risk Management and Financial Planning and Analysis, of Novus Financial, from 1997 to 1998 and as Vice President, 

Head of Finance, Risk Management, Model Development and Investor Relations, of SPS Transaction Services, from 

1995 to 1997.

• Richard C. Hartnack joined the Board in May 2013. He is 69 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 

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. Since July 2014, Mr. 

Hartnack has been a member of the board of directors of Synchrony Financial, where he serves as a member of the 

Audit Committee, the Management Development and Compensation Committee and the Nominating and Corporate 

Governance Committee. He also 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 67 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 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 also is a former member of the board of 

directors of Abtech Holdings, Inc. and of the IQ Mutual Funds, a family of Merrill Lynch registered, closed-end 

investment companies. 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.

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245 Freddie Mac

• Donald H. Layton joined the Board in May 2012, upon commencement of his employment as Chief Executive Officer. 

He is 64 years old. He is an experienced financial institution executive and leader of finance and investment 

organizations. Mr. Layton’s experience 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 also 

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 57 years old. He is an experienced senior accounting 

executive who served as the lead audit signing partner and account executive for several large financial institutions 

with mortgage lending businesses. He also has significant public company audit committee experience and risk 

management experience. Mr. Lynch’s extensive experience in finance, accounting and risk management enables him 

to provide valuable guidance to the Board on complex accounting and risk management issues.

Mr. Lynch has served as Non-Executive Chairman of Freddie Mac since December 2011. Mr. Lynch is an independent 

consultant providing a variety of services to financial intermediaries, including corporate restructuring, risk 

management, strategy, governance, financial and regulatory reporting and troubled-asset management. Mr. Lynch 

retired from KPMG LLP in May 2007, where he held a variety of leadership positions, including National Partner in 

Charge — Financial Services, the U.S. firm’s largest industry division. Mr. Lynch chaired KPMG’s Americas 

Financial Services Leadership team, was a member of the Global Financial Services Leadership and the 

U.S. Industries Leadership teams and led the Banking & Finance practice. Mr. Lynch also served as a partner in 

KPMG’s Department of Professional Practice and as a Practice Fellow at the Financial Accounting Standards Board. 

Mr. Lynch also is a director of American International Group, Inc., where he is the Chair of the Audit Committee and a 

member of the Finance and Risk Management Committee. In addition, Mr. Lynch serves on the National Audit 

Committee Chair Advisory Council of the National Association of Corporate Directors. Mr. Lynch is a frequent 

speaker on matters pertaining to corporate governance, risk management, corporate restructuring, executive 

development, housing finance, and regulatory reporting.

• Sara Mathew joined the Board in December 2013. She is 59 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 July 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 65 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.

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246 Freddie Mac

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 68 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, and as chair of the Providence 

Housing Authority and the Community Development Trust.

• Eugene B. Shanks, Jr. joined the Board in December 2008. He is 67 years old. He is an experienced finance executive 

with leadership and risk management expertise. Mr. Shanks’ leadership and risk management experience enables him 

to provide the Board with valuable guidance on risk management issues and our strategic direction.

Mr. Shanks is a Trustee of Vanderbilt University, a member of the Advisory Board of the Stanford Institute for 

Economic Policy Research, a director of ACE Limited, where he serves as a member of the Risk and Finance 

Committee, a Senior Advisor to Bain and Company, and a founding director at The Posse Foundation. From 

November 2007 until August 2008, Mr. Shanks was a senior consultant to Trinsum Group, Incorporated, a strategic 

consulting and asset management company. From 1997 until its sale in 2002, Mr. Shanks was President and Chief 

Executive Officer of NetRisk, Inc., a risk management software and advisory services company he founded. From 

1973 to 1978 and from 1980 to 1995, Mr. Shanks held a variety of positions with Bankers Trust New York 

Corporation, including head of Global Markets from 1986 to 1992 and President and Director from 1992 to 1995. 

From 1978 to 1980, he was Treasurer of Commerce Union Bank in Nashville, Tennessee.

• Anthony A. Williams joined the Board in December 2008. He is 63 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 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 

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247 Freddie Mac

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, while reserving certain powers of 

approval to itself. The Conservator has instructed the Board that it should oversee that management consults with and obtains 

approval of the Conservator before taking action in the following areas:

• matters requiring the approval of or consultation with Treasury under the covenants of the Purchase Agreement (see 

“BUSINESS — Conservatorship and Related Matters — Treasury Agreements – Covenants Under Treasury 

Agreement”);

• redemptions or repurchases of subordinated debt, except as necessary to comply with the limit in the Purchase 

Agreement;

• increases in Board risk limits, material changes in accounting policy, and reasonably foreseeable material increases in 

operational risk;

• matters that relate to the Conservator’s powers, the status of Freddie Mac in conservatorship, or the legal effect of the 

conservatorship on contracts, such as, but not limited to, the initiation of material actions in connection with litigation 

addressing the actions or authority of the Conservator, repudiation of contracts, qualified financial contracts in dispute 

due to conservatorship status, and counterparties attempting to nullify or amend contracts due to conservatorship 

status;

• retention and termination of external auditors and law firms serving as consultants to the Board;

• agreements relating to litigation, claims, regulatory proceedings, or tax-related matters where the value of the claim is 

in excess of $50 million, including related matters that aggregate to more than $50 million (but excluding loan 

workouts);

• alterations or changes to the terms of any master agreement between us and any of our top five single-family sellers or 

servicers that are not otherwise mandated by FHFA and that will alter, in a material way, the business relationship 

between the parties;

• termination of a contract (other than by expiration pursuant to its terms) between us and any of our top five singlefamily sellers or servicers;

• 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; and

• establishing the annual operating budget.

FHFA has indicated that it expects the Board to review and approve all matters that will require Conservator approval 

before such matters are submitted to FHFA. In addition, FHFA requires us to provide timely notice to it of any planned changes 

in business processes or operations, including changes to single-family or multifamily credit policies and loss mitigation 

strategies that management has determined in its reasonable business judgment to be significant, other than changes made at the 

direction or request of FHFA. FHFA will then determine whether any such actions or plans require Conservator and/or Board 

review or approval. 

The Board has five standing committees: Audit; Compensation; Executive; Nominating and Governance; and Risk. All 

standing committees other than the Executive Committee meet regularly. The membership of each committee as of February 

19, 2015 is as follows:

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248 Freddie Mac

Table 64 — Board of Directors Committee Membership

Director Audit Compensation Executive

Nominating and

Governance Risk

R. Bostic(1)

C. Byrd C 

T. Goldstein

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 

(1) Mr. Bostic has been appointed to serve as a member of the Compensation and Risk committees, effective March 1, 2015.

 Charters for the standing committees have been adopted by the Board and approved by the Conservator. These charters 

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 and executive sessions of the non-employee or independent directors. 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 Board or its directors may 

do so by U.S. mail, addressed to the Corporate Secretary, Freddie Mac, Mail Stop 200, 8200 Jones Branch Drive, McLean, VA

22102-3110. Communications may be directed to the Non-Executive Chairman, any other director or directors or to groups of 

directors, such as the independent or non-employee directors.

Executive Officers

As of February 19, 2015, our executive officers are as follows:

Name Age

Year of

Affiliation Position

Donald H. Layton 64 2012 Chief Executive Officer

James G. Mackey 47 2013 Executive Vice President — Chief Financial Officer

David M. Brickman 49 1999 Executive Vice President — Multifamily

Michael T. Hutchins 59 2013 Executive Vice President — Investments and Capital Markets

David B. Lowman 57 2013 Executive Vice President —Single-Family Business

Robert Lux 51 2010 Executive Vice President — Chief Information Officer

William H. McDavid 68 2012 Executive Vice President — General Counsel & Corporate Secretary

Jerry Weiss 56 2003 Executive Vice President — Chief Administrative Officer

Timothy F. Kenny 53 2007 Senior Vice President — General Auditor

Robert D. Mailloux 47 2002 Senior Vice President — Corporate Controller & Principal Accounting Officer

Dwight P. Robinson 61 1998

Senior Vice President — Human Resources, Diversity & Inclusion and Chief

Diversity Officer

Carol A. Wambeke 55 1997 Senior Vice President — Chief Compliance Officer

Mark A. DeLong 61 2009

Interim Co-Chief Enterprise Risk Officer and Senior Vice President — Enterprise

Operational Risk Management

Jorge A. Reis 50 2010

Interim Co-Chief Enterprise Risk Officer and Senior Vice President — Enterprise

Chief Risk Officer — Investments and Capital Markets

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 

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249 Freddie Mac

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 since July 2011. In these roles, he has been responsible for overall management of our 

Multifamily business line. From June 2011 until July 2011, he served as 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.

Michael T. Hutchins was appointed Executive Vice President — Investments and Capital Markets in January 2015 and 

prior to that served as Senior Vice President — Investments and Capital Markets from July 2013. Previously, Mr. Hutchins was 

Co-Founder and Chief Executive Officer of PrinceRidge, a financial services firm. Prior to 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.

David B. Lowman was appointed Executive Vice President — Single-Family Business in May 2013. In addition, since 

November 2014 he has served as a member of the Board of Managers of Common Securitization Solutions, LLC. 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.

Robert Lux was appointed Executive Vice President – Chief Information Officer in January 2015 and prior to that served 

as Senior Vice President – Chief Information Officer from 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.

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 Chemical Banking Corporation from 1988 to 1996. 

From 1981 to 1988, he was an Associate General Counsel at Bankers Trust Company, and from 1972 to 1981 he was an 

attorney with the law firm of Debevoise & Plimpton.

Jerry Weiss was appointed Executive Vice President — Chief Administrative Officer in August 2010. In this role, 

Mr. Weiss manages the services and operations of Freddie Mac’s External Relations, including Government and Industry 

Relations; Public Relations and Corporate Marketing; Internal Communications; Conservatorship and Corporate Strategic 

Initiatives; Enterprise Project Management; Making Home Affordable — Compliance; Office of the Chief Economist; 

Corporate Services; and Strategic Sourcing and Procurement organizations. In addition, since November 2014 he has served as 

a member of the Board of Managers of Common Securitization Solutions, LLC. 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.

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 

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250 Freddie Mac

mortgage bankers and other federal credit agencies. He joined KPMG LLP 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 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 & Inclusion and Chief 

Diversity Officer in January 2015 and prior to that served as Senior Vice President — Human Resources, Diversity and 

Outreach from September 2012. Prior to that, Mr. Robinson served as Senior Vice President – Housing Outreach and Chief 

Diversity Officer beginning in October 2011; as Senior Vice President – Corporate Relations & Housing Outreach beginning in 

February 2005; and as Senior Vice President — Corporate Relations beginning in September 1999. Mr. Robinson joined us in 

March 1998 as Vice President — Industry Relations. Prior to joining Freddie Mac, from 1994 to 1998 Mr. Robinson served as 

the Deputy Secretary of HUD, functioning as Chief Operating Officer. Before assuming the position at HUD, from 1993 to 

1994 Mr. Robinson served as the president of Ginnie Mae, where he was responsible for all major policy decisions affecting 

Ginnie Mae issuers and purchasers worldwide.

Carol A. Wambeke was appointed Senior Vice President — Chief Compliance Officer in June 2011. In this position, she 

oversees 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 of 

Regulatory Reporting & Analysis from February 2005 to June 2008 and Vice President of 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.

Mark A. DeLong was appointed Interim Co-Chief Enterprise Risk Officer and Senior Vice President of Enterprise 

Operational Risk Management effective January 2015. He has served as Senior Vice President of Enterprise Operational Risk 

Management since joining Freddie Mac in July 2009. Before joining Freddie Mac, Mr. DeLong spent 28 years at Huntington 

Banks, where he held a variety of positions, including Executive Vice President and Director of Deposit and Loan Operations, 

Executive Vice President and Chief Operational Risk Officer, Executive Vice President and General Auditor, and Senior Vice 

President and Internal Audit Director. He started his career as an external auditor for a public accounting firm in Ohio focusing 

on bank and thrift clients.

Jorge A. Reis was appointed Interim Co-Chief Enterprise Risk Officer and Senior Vice President — Enterprise Chief Risk 

Officer — Investments and Capital Markets effective January 2015. Prior to that he served as Senior Vice President — 

Enterprise Market Risk since September 2010. Before that he served as Vice President RiskMetrics & Analytics from January 

2010 to September 2010. In 2008 and 2009, Mr. Reis was managing director of Risk Management and Finance in the Pensions 

and Insurance Division at Itau Unibanco Holding, in Sao Paulo, Brazil. Before that, he served in a variety of other positions 

with Freddie Mac, including Vice President of Valuation and Capital Strategy in Investments and Capital Markets, director of 

Market/Credit Risk & Strategy and director of Research Analysis. 

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 2014 all of our directors and 

executive officers complied with such reporting obligations.

Codes of Conduct

We have separate codes of conduct for our employees and Board members. The employee code also serves as the code of 

ethics for senior executives and financial officers required by the Sarbanes-Oxley Act and SEC regulations. All employees, 

including senior executives and financial officers, are required to sign an annual acknowledgment that they have read the 

employee code and agree to abide by it, and will report suspected deviations from the employee code. When joining our Board, 

our directors acknowledge that they have reviewed and understand the director code and agree to be bound by its provisions, 

and each executes a related confirmation annually.

Copies of our employee and director codes of conduct are available, and any amendments or waivers that would be 

required to be disclosed are posted, on our website at www.freddiemac.com.

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251 Freddie Mac

Audit Committee Financial Expert

Our Audit Committee satisfies the definition of “audit committee” in Section 3(a)(58)(A) of the Exchange Act and the 

requirements of Rule 10A-3 under the Exchange Act. Although our stock has been delisted from the NYSE, certain of the 

corporate governance requirements of the NYSE Listed Company Manual, including those relating to audit committees, 

continue to apply to us because they are incorporated by reference in the FHFA corporate governance regulations. Our Audit 

Committee satisfies the “audit committee” requirements in Sections 303A.06 and 303A.07 of the NYSE Listed Company 

Manual. The current members of the Audit Committee are Carolyn H. Byrd, Thomas M. Goldstein, Richard C. Hartnack, 

Christopher S. Lynch, Sara Mathew and Anthony A. Williams, all of whom the Board has determined 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 chair. The Board has 

determined 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 have been approved by 

FHFA, and the compensation of the following individuals we determined to be our Named Executive Officers, or NEOs, for the 

year ended December 31, 2014.

• Donald H. Layton, Chief Executive Officer

• James G. Mackey, 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 information on our primary business objectives and the progress we made during 2014 in accomplishing those 

objectives, see “BUSINESS — Executive Summary.”

Executive Management Compensation Program

Overview of Program Structure

The 2014 Executive Management Compensation Program, or 2014 EMCP, replaced the executive compensation program 

in place during 2013, the 2013 EMCP. The only difference between the two programs is that, under the 2014 EMCP, Covered 

Officers are paid interest on earned but unpaid Deferred Salary. Termination of the 2013 EMCP was necessitated under 

Internal Revenue Service (IRS) rules as a result of the termination of the pension component of the Federal Home Loan 

Mortgage Corporation Supplemental Executive Retirement Plan. Additional information about the 2014 EMCP is provided 

below and in our Current Report on Form 8-K filed on December 10, 2013. 

The 2014 EMCP attempts to balance our need to retain and attract executive talent with the promotion of the 

conservatorship objectives that are included in the Conservatorship Scorecard established by FHFA and goals established by 

management related to the commercial aspects of our business and referred to as the Corporate Scorecard. All compensation 

under the 2014 EMCP is delivered exclusively in cash because we cannot provide equity-based compensation to our employees 

under the terms of the Purchase Agreement, unless approved by Treasury. Compensation in 2014 for each NEO other than 

Mr. Layton was governed by the 2014 EMCP. Mr. Layton's compensation is discussed below in “— Chief Executive Officer 

Compensation.” 

Although the Compensation Committee plays a significant role in considering and recommending executive 

compensation, FHFA is actively involved in determining such compensation. During conservatorship, the Compensation 

Committee’s authority and flexibility have been subject to the following limitations:

• The powers of FHFA as our Conservator include the authority to set executive compensation. Under the terms of the 

Purchase Agreement, FHFA is required to consult with Treasury on any increases in compensation or new 

compensation arrangements for our executive officers.

• Our directors serve on behalf of 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.”

• FHFA has directed us to obtain its approval before we: (i) enter into new compensation arrangements or increase 

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; or 

(ii) establish or modify performance management processes for such officers.

• FHFA retains the authority not only to approve both the terms and amount of any compensation prior to payment to 

any of our executive officers, but also to modify any existing compensation arrangements.

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252 Freddie Mac

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;

• No golden parachute payments or other change in control provisions in any of our compensation or benefit programs;

• Evaluation of company performance against multiple measures, including non-financial measures;

• Annual compensation risk assessment and best practices review;

• Engagement of an independent compensation consultant by the Board's Compensation Committee; and

• No hedging or pledging of company securities.

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 2014 EMCP and therefore has no compensation subject to either corporate or individual performance, nor 

is his compensation subject to recapture under the EMCP as discussed in "— Recapture and Forfeiture Agreement." Mr. Layton 

is, however, eligible to participate in all 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 2014 EMCP for the NEOs other than Mr. Layton consists of salary with two components, Base 

Salary and Deferred Salary. 

Element of

Compensation Description

Primary

Compensation Objective Key Features

Base Salary Earned and paid bi-weekly To provide a fixed level of

compensation to each NEO

commensurate with 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 

bi-weekly. The amount earned 

each quarter is paid on the last 

pay date 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 Corporate Scorecard goals and 

individual performance.

The objectives against which 2014 

corporate performance was measured 

are described in “Determination of 

Actual 2014 Compensation — At-Risk 

Deferred Salary Based on 

Conservatorship Scorecard 

Performance” and “— At-Risk 

Deferred Salary Based on Corporate 

Scorecard Goals and Individual 

Performance.”

The 2014 EMCP also provides for payment of interest on earned but unpaid Deferred Salary. The amount on which 

interest accrues will take into account any reduction applicable to At-Risk Deferred Salary and any reduction applicable to 

Fixed Deferred Salary resulting from certain terminations of employment. Interest accrues at one-half of the one-year Treasury 

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253 Freddie Mac

Bill rate in effect on the last business day immediately preceding the year in which the Deferred Salary is earned, and is paid at 

the same time as the Deferred Salary to which it relates.

See “Other Executive Compensation Considerations — Effect of Termination of Employment” for information on the 

effect of a termination of employment, including the timing and payment of any unpaid portion of Deferred Salary and related 

interest.

Performance Measures for the Performance-Based Elements of Compensation

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 2014 Compensation — At-Risk Deferred 

Salary Based on Conservatorship Scorecard Performance” and “— At-Risk Deferred Salary Based on Corporate Scorecard 

Goals and Individual Performance.” These performance measures were chosen because they reflected our 2014 priorities 

during conservatorship.

Determination of 2014 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. During 2014, the Compensation 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.

2014 Comparator Group Companies

The Compensation Committee annually evaluates each NEO’s Target TDC in relation to the compensation of executives 

in comparable positions at companies that are either in a similar line of business or are otherwise comparable for purposes of 

recruiting and retaining individuals with the 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.

At FHFA's recommendation, Freddie Mac and Fannie Mae have aligned their Comparator Groups so that consistent 

compensation data is used by both companies for the same or similar senior officer positions.

The Comparator Group used to determine compensation for 2014 consisted of the following companies:

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, 

with one exception, will comprise the Comparator Group used to determine compensation for 2015. To avoid benchmarking 

our NEOs' compensation against our own data, Freddie Mac has been removed from the 2015 Comparator Group.

Establishing Target TDC

The Compensation Committee developed its 2014 Target TDC recommendations for the NEOs other than Mr. Layton by 

reviewing data from the Comparator Group and, as appropriate, alternative survey sources. For Messrs. Lowman, Mackey and 

McDavid, the Compensation Committee reviewed competitive market data solely from the Comparator Group. For Mr. Weiss, 

our EVP-Chief 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 

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254 Freddie Mac

evaluated by comparing the scope and breadth of his responsibilities with those of other executive-level positions at the 

company.

The Compensation Committee’s 2014 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 2014 Target TDC for each of our NEOs 

and the percentage change, if any, compared to 2013 Target TDC.

Table 65 — 2014 Target TDC

2014 Target TDC

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 0%

David B. Lowman 500,000 1,600,000 900,000 3,000,000 0%

William H. McDavid 500,000 1,320,000 780,000 2,600,000 0%

Jerry Weiss 500,000 900,000 600,000 2,000,000 1%

Determination of Actual 2014 Compensation

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 2014.

At-Risk Deferred Salary Based on Conservatorship Scorecard Performance

Half of each NEO's 2014 At-Risk Deferred Salary, or 15% of Target TDC, was subject to reduction based on FHFA's 

assessment of the company's performance against the objectives in the 2014 Conservatorship Scorecard. FHFA independently 

assessed the company’s performance against the 2014 Conservatorship Scorecard and determined that a 100% funding level 

was justified for this portion of At-Risk Deferred Salary. FHFA noted the following considerations in assessing our 

performance against the Conservatorship Scorecard:

• 2014 was a year of review and reevaluation of priorities, as well as a year of transition for both FHFA and Freddie 

Mac, in part because of new leadership at FHFA, and as a result, the 2014 Conservatorship Scorecard was not 

finalized until May; and,

• Freddie Mac met all the goals specified in the Maintain, Reduce and Build components of the Scorecard, and exceeded 

the goals in the areas of risk transfers and retained portfolio sales.

In making its assessment, FHFA also took into consideration the following:

• The extent to which the initiatives were undertaken in a safe and sound manner;

• The quality, thoroughness, creativity, effectiveness, and timeliness of our work products;

• Cooperation and collaboration with FHFA, Fannie Mae, CSS, and the industry;

• The extent to which the outcomes of our activities supported a competitive and resilient secondary mortgage market to 

support homeowners and renters; and

• The quality of the input provided by us to FHFA for periodic progress reports to the public.

The table below presents the Conservatorship Scorecard objectives and FHFA's assessment of our achievement against 

those objectives.

Table 66 — Achievement of Conservatorship Scorecard Performance Measures

Performance Goals FHFA's Summary of Performance

1

Maintain in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced mortgages

to foster liquid, efficient, competitive and resilient national housing finance markets (40%)

Work to increase access to mortgage credit to creditworthy borrowers, consistent

with the full extent of applicable credit requirements and risk management

practices through:

All goals were achieved

• Continuing to improve the Representations and Warranties Framework for

originations;

• Providing additional clarity regarding servicing Representations and Warranties

and remedies for poor performance, including compensatory fees;

• Providing transparency regarding servicer eligibility standards;

• Assessing and developing plans to encourage greater participation by small

lenders, rural lenders, and state and local Housing Finance Agencies.

Continue to undertake key loss mitigation and foreclosure prevention activities,

including:

All goals were achieved

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255 Freddie Mac

• Analyzing and pursuing opportunities to encourage take-up by currently

HARP-eligible borrowers;

• Assessing and developing additional plans for loss mitigation strategies, including

those for the post-HAMP marketplace;

• Developing and implementing a plan for targeted non-performing loan sales and

Real Estate Owned property sales that facilitate neighborhood stabilization,

especially in hardest hit markets.

Continue to develop approaches to reduce borrower, and therefore Enterprise,

costs for Lender Placed Insurance (LPI).

The goal was achieved

Maintain the dollar volume of new multifamily business at or below the 2013

caps, excluding:

The goal was achieved

• Affordable housing loans, loans to small multifamily properties and loans to

manufactured housing rental communities.

2 Reduce taxpayer risk through increasing the role of private capital in the mortgage market (30%)

Single Family All goals were achieved or exceeded

• Transact credit risk transfers on single family mortgages with at least $90 billion

of unpaid principal balances adjusted for the amount of credit risk transferred;

• Utilize at least one transaction type in addition to the STACR or CAS structures

(e.g. - insurance, upfront credit risk transfers, and senior/subordinated

securitizations):

• FHFA will provide some extra Scorecard credit for the substantial completion

of R&D efforts in this space;

• FHFA will provide more extra Scorecard credit for completing any additional

types of transactions beyond the first two.

Multi-Family The goal was achieved

• Assess the economics and feasibility of adopting additional types of risk transfer

structures and of increasing the amount of risk transferred in current risk transfer

structures (risk is broadly defined to include, but is not limited to, credit,

counterparty or aggregation risk).

Retained Portfolio All goals were achieved or exceeded

• Submit to FHFA within 60 days retained portfolio plans that meet, even under

adverse conditions, the annual Purchase Agreement requirements and the $250

billion Purchase Agreement cap by December 31, 2018:

• The plans should focus on reducing less liquid assets;

• Any sales should be economically sensible transactions that consider impacts

to the market and neighborhood stability.

Finalize mortgage insurance Master Policies and enhanced eligibility

requirements.

The goal was achieved

3

Build a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other participants in

the secondary market in the future (30%)

Continue working with FHFA, Fannie Mae and Common Securitization

Solutions, LLC to build and test the Common Securitization Platform (CSP) and

continue the implementation of required changes to the Enterprises' related

systems and operations for integration into the CSP. The Enterprises' work on

CSP should incorporate the following design principles:

All goals were achieved

• Focus on the functions necessary for current Enterprise single family securitization

activities;

• Include the development of the operational and system capabilities necessary to

issue a single (common) security for the Enterprises; and

• Allow the option for the integration of additional market participants in a future

system.

Identify key components, features and standards needed for a single (common)

security in the CSP. Assess key issues and begin to address these issues:

The goal was achieved

• Continue to explore other shorter-term changes that may improve market liquidity

in the Agency MBS market.

Provide active support for mortgage data standardization initiatives:

• Servicing Data and Technology Initiative (SDTI). While the goal was achieved, a greater level of engagement

would have been beneficial

• Engage with FHFA and the industry to identify current and anticipated

mortgage servicing data and technology gaps in order to explore technology

improvements and expand data standardization.

• The Uniform Closing Disclosure Dataset (UCD) initiative: The goals were achieved

• Develop a standardized dataset to support the CFPB's Integrated Mortgage

Disclosure Regulation and Closing Disclosure;

• Create a strategy for the collection and use of the UCD dataset; and

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256 Freddie Mac

• Publish an industry announcement of the UCD dataset, as well as a timeline

for the collection of the data.

• Uniform Loan Application Dataset (ULAD): The goals were achieved

• Reassess loan application data needs;

• Update the physical format of the URLA; and

• Demonstrate progress towards creating a draft ULAD specification.

At-Risk Deferred Salary Based on Corporate Scorecard Goals and Individual Performance

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 Corporate Scorecard goals and the NEO's individual performance. 

The seven Corporate Scorecard goals drive how we manage and improve the commercial aspects of our business and are 

intended to complement the FHFA Strategic Plan and Conservatorship Scorecard. Certain of the individual performance 

objectives for the NEOs were either Conservatorship Scorecard objectives or Corporate Scorecard goals or directly supported 

their achievement. 

No weightings were assigned to the Corporate Scorecard goals. As a result, it was necessary for the Compensation 

Committee to use its judgment in determining the overall level of performance. In making its determination, the Committee 

primarily considered the fact that the vast majority of the Corporate Scorecard goals were achieved. The Compensation 

Committee determined that, based on the company's performance against the Corporate Scorecard, a 100% funding level was 

justified for this portion of At-Risk Deferred Salary.

The Board has adopted Corporate Scorecard goals for 2015 that are substantially similar to the 2014 goals.

The table below presents the Corporate Scorecard goals and the Compensation Committee's assessment of our 

achievement against those goals.

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257 Freddie Mac

Table 67 — Achievement of Corporate Scorecard Goals 

Corporate Scorecard Goal Assessment of Performance

People All elements of this goal were achieved or exceeded. We

worked to build the right culture, as indicated by significantly

exceeding the desired level of improvement in employee

survey indicators. Our high-performer turnover was low and

we took steps to improve leadership diversity by improving

diverse talent pipelines and external candidate pools.

Maximize the contributions of our people

Our Customers All elements of this goal were either achieved or exceeded,

including maintaining or improving the customer satisfaction

levels for the single-family and multifamily business lines.

We also exceeded our desired single-family GSE market

share, enhanced customer service and expanded customer

communications with select large multifamily lenders.

Strive to achieve industry-leading customer experience

levels

The Mission We believe that we did not achieve the benchmark level for

two of the 2014 single-family affordable housing goals - Very

Low Income Purchases and Low Income Purchases - despite

employing a number of tactics intended to increase qualifying

purchases. We believe, however, that we did achieve the

remaining 2014 single-family affordable housing goals, and

the 2014 multifamily affordable housing goal. We also

exceeded a goal that measures loan modifications and

repayment plans completed as a percentage of seriously

delinquent loans.

Help people own, rent and stay in their homes

Financial Performance Certain elements of this goal, including earnings on New

single-family book mortgages, liquid assets as a percent of the

retained portfolio and reduced core operating expenses, fell

just short of the desired level of achievement. While we have

reduced operating expenses, the amount of reduction was less

than planned due to higher than anticipated technology

investments. We significantly exceeded the other elements of

the goal related to the volume of retained portfolio agency

structuring and non-agency sales, the amount of eligible

single-family mortgages subject to risk transfer, maintaining

multifamily profitability and actively managing the retained

portfolio.

Improve our efficiency and core financial performance

Risk Management We achieved or exceeded all elements of this goal, which

related primarily to making informed risk-reward decisions.

Also, as part of managing the control environment, we

continued to reduce the total number of open/active issues.

Make risk management a competitive advantage

Technology & Infrastructure We achieved all elements of this goal by:

Utilize technology and infrastructure to prepare for a fully

competitive market

• Deploying a new out-of-region disaster recovery facility;

• Implementing five critical, customer-facing information

technology applications during the year;

• Strengthening our information security; and

• Improving our facilities utilization by moving out of a

leased building and staffing certain critical positions

outside of our home region.

Execution We achieved all elements of this goal by delivering the vast

majority of our key initiatives on schedule and on budget,

significantly decreasing the number of operational events and

reducing both redundant controls and the frequency with

which certain controls are executed to enhance efficiency

without increasing our risk profile.

Do everything better, faster, and more cost effectively

through superior execution

The Compensation Committee then assessed the individual performance of each NEO other than Mr. Layton, whose 

performance is not discussed below because his compensation does not include Deferred Salary. In making its assessment, the 

Committee received input from Mr. Layton, and 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 is discussed below. 

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258 Freddie Mac

James G. Mackey, Executive Vice President – Chief Financial Officer. The Compensation Committee determined that 

Mr. Mackey should receive the full amount of his At-Risk Deferred Salary that was subject to reduction based on the Corporate 

Scorecard and individual performance. In recommending and determining this amount, the CEO and the Compensation 

Committee considered the significant progress Mr. Mackey has made in establishing his leadership of the Finance Division 

since joining the company in November 2013, as well as its subsequent transformation. Key aspects of this transformation 

include reorganizing functions to increase service and reduce costs, establishing a dedicated divisional CFO function to support 

the Information Technology Division, and strengthening the Finance Division’s management team with a key external hire. In 

addition, Mr. Mackey’s team is playing a leadership role in a multi-year project focused on simplifying our control structure 

and eliminating redundant activities.

David B. Lowman, Executive Vice President – Single-Family. The Compensation Committee determined that Mr. 

Lowman should receive the full amount of his At-Risk Deferred Salary that was subject to reduction based on the Corporate 

Scorecard and individual performance. In recommending and determining this amount, the CEO and the Compensation 

Committee considered the impact Mr. Lowman had on the accomplishment of the goals in the 2014 Conservatorship and 

Corporate Scorecards. Mr. Lowman has provided strong leadership to significantly increase the competitiveness of the SingleFamily Division, including through extensive personal client contact, helping achieve considerably higher GSE single-family 

market share in 2014, and he is developing plans for future improvements. The division’s other key accomplishments included 

significantly exceeding the Conservatorship Scorecard goal related to credit risk transfer transactions through seven STACR 

and three ACIS transactions, achieving a major improvement in measured levels of customer service, and successfully 

delivering upon a large number of other Conservatorship Scorecard goals. More broadly, during 2014, he added key members 

to the Single-Family Division management team overseeing a very large number of initiatives and projects and was appointed 

to CSS’s Board of Managers.

William H. McDavid, Executive Vice President – General Counsel and Corporate Secretary. The Compensation 

Committee determined that Mr. McDavid should receive the full amount of his At-Risk Deferred Salary that was subject to 

reduction based on the Corporate Scorecard and individual performance. In recommending and determining this amount, the 

CEO and the Compensation Committee considered Mr. McDavid’s achievements and leadership of the Legal Division in 2014. 

During 2014, the Legal Division provided guidance on a variety of unique and complex legal issues involving matters ranging 

from private-label securities litigation to the single (common) security structure. During his tenure, he has taken steps to instill 

a greater customer service focus in the Division as well as to reduce costs. He also leads by example, having personally led the 

provision of legal advice on a variety of specific major issues. 

Jerry Weiss, Executive Vice President – Chief Administrative Officer. The Compensation Committee determined that Mr. 

Weiss should receive the full amount of his At-Risk Deferred Salary that was subject to reduction based on the Corporate 

Scorecard and individual performance. In recommending and determining this amount, the CEO and the Compensation 

Committee considered the positive impact that Mr. Weiss’s leadership of the Administration Division had on the 

accomplishment of the goals in the 2014 Conservatorship and Corporate Scorecards, plus the expansion of his duties during the 

year. Specifically, he is leading the company’s multi-year efforts on the development of the CSP and the single (common) 

security, both of which achieved key milestones in 2014. He was appointed to CSS’s Board of Managers and personally led the 

recruitment of the organization’s new CEO. His portfolio of activities grew during the year to include the corporate services 

and procurement functions, further broadening the scope of his responsibilities. He also continued to serve as the company’s 

primary senior executive liaison to FHFA, during a year that included a leadership transition following the confirmation of 

Director Watt, and also to the U.S. Treasury. Additionally, he supervises the Making Home Affordable-Compliance function, 

which operates under a contract from the U.S. Treasury and which continues to function effectively, well beyond its originallyanticipated end date.

The following chart reports the actual amounts of 2014 Deferred Salary for each NEO other than Mr. Layton. The actual 

amount earned is scheduled to be paid in quarterly installments on the last pay date of each calendar quarter of 2015.

Table 68 — 2014 Deferred Salary

 2014 Actual Deferred Salary

At-Risk

Total Actual 

Deferred

Salary % of Target

Named

Executive

Officer Fixed

Conservatorship

Scorecard % of Target

Corporate

Scorecard/

Individual % of Target

Mr. Mackey $ 1,600,000 $ 450,000 100% $ 450,000 100% $ 2,500,000 100%

Mr. Lowman 1,600,000 450,000 100% 450,000 100% 2,500,000 100%

Mr. McDavid 1,320,000 390,000 100% 390,000 100% 2,100,000 100%

Mr. Weiss 900,000 300,000 100% 300,000 100% 1,500,000 100%

Written Agreements Relating to Our NEOs' Employment

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259 Freddie Mac

We entered into letter agreements with each of our NEOs in connection with their hiring. Although the letter agreements 

set forth specific initial levels of Base Salary and, where applicable, Target TDC, the compensation of each NEO is subject to 

change by FHFA and, other than in the case of Mr. Layton, to the terms of the 2014 EMCP. 

We also entered into restrictive covenant and confidentiality agreements with each of our NEOs in connection with their 

hiring. The non-competition and non-solicitation provisions included in the restrictive covenant and confidentiality agreements 

are described in “Potential Payments Upon Termination of Employment or Change-in-Control.”

2014 EMCP 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.” 

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 an annual Target 

TDC opportunity of $3,000,000, consisting of Base Salary of $500,000 and Deferred Salary of $2,500,000; and the opportunity 

to participate in all employee benefit plans offered to Freddie Mac’s 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 his employment. This award 

was 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 sixmonth anniversary of his hire date; and (iii) third installment: $225,000 on the one-year anniversary of his hire date. Each 

installment is 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. 

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 an annual Target TDC opportunity of $3,000,000, consisting of Base Salary of $500,000 and 

Deferred Salary of $2,500,000; and the opportunity to participate in all employee benefit plans offered to Freddie Mac’s senior 

executive officers pursuant to the terms of these plans. Copies of Mr. Lowman's letter agreement and restrictive covenant and 

confidentiality agreement are filed as Exhibits 10.48 and 10.49, respectively, to our Annual Report on Form 10-K filed on 

February 27, 2014.

Mr. McDavid

We entered into: (a) 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 an annual Target TDC opportunity of $2,600,000, which consists of Base Salary 

of $500,000 and Deferred Salary of $2,100,000; and the opportunity to participate in all employee benefit plans offered to 

Freddie Mac’s 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. 

Mr. Weiss

We do not have any continuing obligations under the letter agreement that we entered into with Mr. Weiss at the time of 

his employment. Mr. Weiss' restrictive covenant and confidentiality agreement was filed as 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”). In order to participate in the 2014 EMCP, each of our NEOs other than Mr. Layton has entered into a Recapture 

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260 Freddie Mac

Agreement. 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 (including related interest) 

earned, paid or to be paid pursuant to the terms of the 2014 EMCP if, after providing the required notice, our Board of 

Directors, in the good faith exercise of its sole discretion, determines that a Forfeiture Event has occurred. The Forfeiture 

Events and the Deferred Salary subject to recapture and/or 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.

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.

The following additional event is applicable only to the CEO and CFO, to the extent they have compensation subject to 

reimbursement in accordance with Section 304 of the Sarbanes-Oxley Act.

• Accounting Restatement Resulting from Misconduct - If, as a result of misconduct, we are required to prepare an 

accounting restatement due to material non-compliance with financial reporting requirements, the CEO and CFO are 

required to reimburse us for amounts determined in accordance with Section 304.

Indemnification Agreements

We have also entered into indemnification agreements with certain of our current and former directors and executive 

officers, each an indemnitee, including each of our NEOs. For indemnification agreements entered into with executive officers 

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261 Freddie Mac

in or after August 2011, the form of agreement has been revised to provide that indemnification rights under the agreement 

would terminate if and when the executive officer remained with Freddie Mac after ceasing to report directly to the CEO with 

respect to any claims arising from matters occurring after the officer was no longer a direct CEO report. Similar 

indemnification rights would continue to be available to such executive officers under the Bylaws going forward. The 

indemnification agreements provide that we will indemnify the indemnitee to the fullest extent permitted by our Bylaws and 

Virginia law. This obligation includes, subject to certain terms and conditions, indemnification against all liabilities and 

expenses (including attorneys’ fees) actually and reasonably incurred by the indemnitee in connection with any threatened or 

pending action, suit or proceeding, except such liabilities and expenses as are incurred because of the indemnitee’s willful 

misconduct or knowing violation of criminal law. The indemnification agreements provide that if requested by the indemnitee, 

we will advance expenses, subject to repayment by the indemnitee of any funds advanced if it is ultimately determined that the 

indemnitee is not entitled to indemnification. The rights to indemnification under the indemnification agreements are not 

exclusive of any other right the indemnitee may have under any statute, agreement or otherwise. Our obligations under the 

indemnification agreements will continue after the indemnitee is no longer a director or officer of the company with respect to 

any possible claims based on the fact that the indemnitee was a director or officer, and the indemnification agreements will 

remain in effect in the event the conservatorship is terminated. The indemnification agreements also provide that 

indemnification for actions instituted by FHFA will be governed by the standards set forth in FHFA's Notice of Proposed 

Rulemaking, published in the Federal Register on November 14, 2008, 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

Under the 2014 EMCP, 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 and related interest is based upon the reason for 

termination, as discussed in “Potential Payments Upon Termination of Employment or Change-in-Control — Potential 

Payments Under the 2014 EMCP.”

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 2014 was reimbursement for assistance with 

personal financial planning, tax planning, and/or estate planning, up to an annual maximum benefit.

Supplemental Executive Retirement Plan and Supplemental Executive Retirement Plan II

Our NEOs are eligible to participate in our SERP. The SERP is designed to provide participants with the full amount of 

benefits to which they would have been entitled under our Thrift/401(k) Plan if that plan was not subject to certain dollar limits 

under the Internal Revenue Code. This portion of the SERP is referred to as the “401(k) SERP Benefit.” For participants 

covered under the 2014 EMCP (or similar predecessor program), benefits under the 401(k) SERP Benefit are limited to two 

times a participant’s Base Salary in any calendar year. 

Prior to January 1, 2014, NEOs whose employment with the company commenced on or before December 31, 2011 were 

also eligible under the SERP to accrue additional benefits, referred to as the “Pension SERP Benefit,” which was designed to 

provide participants with the full amount of benefits to which they would have been entitled under our Pension Plan if that plan 

was not subject to certain dollar limits under the Internal Revenue Code. Benefits were also limited as noted in the previous 

paragraph. In October 2013, FHFA directed us to terminate the Pension Plan as well as the Pension SERP Benefit and the 

pre-2005 Thrift/401(k) SERP component (together, the “Terminating SERP”). No Pension Plan accruals or Pension SERP

Benefit accruals occurred after December 31, 2013. The accruals associated with the Terminating SERP were fully distributed 

by October 31, 2014.

On February 18, 2015, FHFA approved, effective January 1, 2014, a new nonqualified retirement plan, referred to as 

SERP II. The SERP II is intended to provide participants with the full amount of benefits to which they would have been 

entitled under our tax-qualified defined contribution Transitional Plan established in January 2014 (described above in “Item 

9B. Other Information” and below in the footnotes to the "Summary Compensation Table") if that plan was not subject to 

certain dollar limits under the Internal Revenue Code. Benefits are also limited for participants covered under the 2014 EMCP

(or similar predecessor program) as noted earlier in this section.

For additional information regarding these benefits, see “Compensation Tables” below and the discussion of 

“Nonqualified Deferred Compensation” following the "Pension Benefits" table.

Stock Ownership, Hedging and Pledging Policies

FHFA approved the suspension of our previous stock ownership guidelines because we ceased paying our executives 

stock-based compensation. The Purchase Agreement prohibits us from issuing any shares of our equity securities without the 

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262 Freddie Mac

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 

compensation plans. All directors and employees are also 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 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 2014 

were officers or employees of Freddie Mac or had any relationship with us that would be required to be disclosed by us under 

Item 407(e)(4) of Regulation S-K.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management 

and, based on such review and discussion, has recommended to the Board that the Compensation Discussion and Analysis be 

included in this Annual Report on Form 10-K.

This report is respectfully submitted by the members of the Compensation Committee of the Board.

Anthony A. Williams, Chairman

Thomas M. Goldstein

Steven W. Kohlhagen

Christopher S. Lynch

Sara Mathew

Saiyid T. Naqvi

Compensation and Risk

Our management conducted an assessment of our compensation policies and practices that were in place during 2014 and 

that were applicable to employees at all levels, including those participating in the 2014 EMCP. The purpose of the assessment 

was to determine whether any elements of the overall compensation program encourage inappropriate or excessive risk taking 

by employees in the achievement of stated corporate objectives or pursuit of individual compensation targets. The assessment 

was conducted by members of our enterprise risk management and human resources teams.

The review included an evaluation of:

• the mix of fixed and variable compensation;

• eligibility for participation in compensation programs;

• identification and evaluation of changes to Freddie Mac’s compensation plans;

• the process for establishing performance objectives and for evaluating performance against those objectives; 

• the participation of our enterprise risk management team in strategic business planning and discussion to help ensure 

that management develops business objectives that are aligned with the company’s risk appetite; and

• the involvement of the Compensation Committee and FHFA in the compensation process.

The assessment was discussed with the Compensation Committee in December 2014. Management’s conclusion, with 

which the Compensation Committee concurred, is that Freddie Mac has taken appropriate and reasonable efforts to help ensure 

that our compensation policies and practices in place during 2014 do not encourage employees to take unnecessary and 

excessive risks to meet our corporate objectives, and our current compensation policies and practices are not reasonably likely 

to have a material adverse effect on us.

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263 Freddie Mac

Compensation Tables

The following tables set forth compensation information for our NEOs: our CEO, CFO and the three other most highly 

compensated executive officers who were serving as executive officers as of December 31, 2014.

Table 69 — Summary Compensation Table — 2014

 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 2014 $ 600,000 $ — $ — $ — $ — $ — $ 60,586 $ 660,586

Chief Executive Officer 2013 600,000 — — — — — 23,827 623,827

2012 368,750 — — — — — — 368,750

James G. Mackey 2014 500,000 1,600,000 450,000 900,585 — — 21,099 3,471,684

EVP — Chief Financial

Officer 2013 70,881 230,303 510,000 127,602 — — — 938,786

David B. Lowman 2014 500,000 1,600,000 — 900,585 — — 65,045 3,065,630

EVP — Single-Family

Business 2013 329,502 1,048,485 150,000 580,926 — — — 2,108,913

William H. McDavid 2014 500,000 1,320,000 — 780,507 — — 110,168 2,710,675

EVP — General Counsel

and Corporate Secretary 2013 500,000 1,320,000 — 768,300 — — 29,713 2,618,013

Jerry Weiss 2014 500,000 900,000 — 600,390 — — 174,203 2,174,593

EVP — Chief

Administrative Officer 2013 495,000 891,000 — 570,240 — 26,394 84,015 2,066,649

2012 495,000 891,000 — 579,150 348,333 218,711 94,584 2,626,778

(1) The amounts shown reflect Base Salary under the executive compensation program in effect for the applicable year as described in “Compensation 

Discussion and Analysis — Executive Management Compensation Program.” 

(2) The amounts shown reflect the Fixed Deferred Salary earned under the terms of the executive compensation program in effect for the applicable year. 

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. Interest on Fixed Deferred Salary earned during 2014 is included in All Other 

Compensation.

(3) The amounts shown reflect cash sign-on payments made to Messrs. Mackey and Lowman in connection with their hiring in 2013. See “Compensation 

Discussion and Analysis — Written Agreements Relating to Our NEOs' Employment” for additional information.

(4) The 2014 amounts reflect At-Risk Deferred Salary earned during 2014 and interest on that At-Risk Deferred Salary. The interest rate for At-Risk 

Deferred Salary earned during 2014 was 0.065%, equal to 50% of the one-year Treasury Bill rate as of December 31, 2013. At-Risk Deferred Salary 

earned during each calendar quarter will be paid on the last pay date of the corresponding quarter in 2015. See “Compensation Discussion and 

Analysis — Executive Management Compensation Program — Performance Measures for the Performance-Based Elements of Compensation.” The 

2013 amounts reflect At-Risk Deferred Salary earned during each calendar quarter in 2013 and paid on the last pay date of the corresponding quarter in 

2014. 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.

(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, 2014, 2013, and 2012, respectively. The amounts reported do not include values associated with retiree medical benefits, which are 

generally available on the same terms to all employees.

Mr. Weiss is the only NEO eligible to participate in the Pension Plan or Pension SERP. No benefits accrued under the Pension Plan and Pension SERP

for the year ended December 31, 2014. As a result of the distribution of Terminating SERP benefits in 2014, the aggregate change in the actuarial 

present value of Mr. Weiss’s accumulated pension benefit in these plans from December 31, 2013 to December 31, 2014 was a reduction. As required 

by SEC rules, however, the amount reported for Mr. Weiss for this period is zero.

(6) Amounts reflect (i) contributions we made to our tax-qualified Thrift/401(k) Savings Plan and earned for plan year 2014; (ii) accruals we made 

pursuant to the Thrift/401(k) SERP Benefit and earned for plan year 2014; (iii) contributions that will be made to our Transitional Plan in 2015 for plan 

year 2014; (iv) SERP II accruals earned for plan year 2014; (v) interest on Fixed Deferred Salary earned during 2014; and (vi) perquisites. The amounts 

for 2014 are as follows:

Thrift/401(k)

Savings Plan

Contributions

Thrift/401(k)

SERP Benefit

Accruals

Transitional

Plan

Contributions

SERP II

Accruals

Interest on

Fixed Deferred

Salary Perquisites

Mr. Layton $ 28,475 $ 32,111 $ — $ — $ — $ —

Mr. Mackey 6,500 13,559 — — 1,040 —

Mr. Lowman 11,730 52,275 — — 1,040 —

Mr. McDavid 28,475 80,835 — — 858 —

Mr. Weiss 21,975 62,251 18,900 70,492 585 —

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264 Freddie Mac

Employer contributions to the Thrift/401(k) Savings Plan are generally available on the same terms to all of our employees. After the first year of 

employment, we match up to 6% of eligible compensation at 100% of the employee’s contributions. Employee contributions and our matching 

contributions are invested in accordance with the employee’s investment elections and are immediately vested. In addition, employees receive an 

additional employer contribution to our Thrift/401(k) Savings Plan equal to 2.5% of compensation earned in the prior year. For 2.5% contributions 

made prior to 2015, the employee is 100% vested after completing three years of service. For 2.5% contributions made after 2014, the employee is 

100% vested immediately. 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 “Nonqualified Deferred Compensation” below.

Employer contributions to the Transitional Plan, a tax-qualified defined contribution plan established effective January 1, 2014, are made on account of 

all eligible employees who were (i) participants in the Pension Plan as of its termination date, December 31, 2013; and (ii) employed on the last day of 

the plan year (or terminated during the year due to a reduction in force, position elimination, company divestiture, death, disability, or retirement at or 

after age 62 or age 55 and completion of 10 years of service). For each eligible employee, the company contributes a percentage of each participant’s 

compensation ranging from 0.5% to 6.5%, depending on the age of the participant as of the last day of the plan year (i.e. 0.5% for a participant who is 

not yet age 30, 1.5% for a participant age 30 to 39, 4.0% for a participant age 40 to 49, and 6.5% for a participant who is age 50 or older). This 

contribution, referred to as the age-based Transitional Employer Contribution, will be made for plan years 2014 - 2018. Transitional Plan participants 

will have the 2.5% contribution discussed above allocated to this plan in lieu of the Thrift/401(k) Savings Plan. All contributions made to the 

Transitional Plan are 100% vested. Mr. Weiss is the only NEO eligible to participate in the Transitional Plan.

Employer contributions to SERP II, which was approved by FHFA on February 18, 2015 and effective as of January 1, 2014, are made on account of 

all eligible participants impacted by the Internal Revenue Code limits. All SERP II accruals are 100% vested. Mr. Weiss is the only NEO eligible to 

participate in SERP II for 2014. For information on SERP II, see Item 9B. “Other Information” above and “Nonqualified Deferred Compensation — 

Supplemental Executive Retirement Plan II” below.

The interest rate for Fixed Deferred Salary earned during 2014 was 0.065%, equal to 50% of the one-year Treasury Bill rate as of December 31, 2013.

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 — 2014

The following table contains information concerning grants of plan-based awards to each of the NEOs during 2014. We 

are prohibited from issuing equity securities without Treasury’s consent under the Purchase Agreement. No stock awards were 

granted during 2014. For a description of the performance and other measures used to determine payouts, see “Compensation 

Discussion and Analysis — Executive Management Compensation Program — Elements of Target Total Direct Compensation 

(Target TDC),” “— Performance Measures for the Performance-Based Elements of Compensation,” “— Determination of 

2014 Target TDC for NEOs,” and “— Determination of Actual 2014 Compensation.”

Table 70 — Grants of Plan-Based Awards — 2014

 

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(1)

Name At-Risk Deferred Salary Award Threshold Target/Maximum

Mr. Layton(2) Conservatorship Scorecard $ — $ —

Corporate Scorecard/Individual — —

Total — —

Mr. Mackey Conservatorship Scorecard — 450,000

Corporate Scorecard/Individual — 450,000

Total — 900,000

Mr. Lowman Conservatorship Scorecard — 450,000

Corporate Scorecard/Individual — 450,000

Total — 900,000

Mr. McDavid Conservatorship Scorecard — 390,000

Corporate Scorecard/Individual — 390,000

Total — 780,000

Mr. Weiss Conservatorship Scorecard — 300,000

Corporate Scorecard/Individual — 300,000

Total — 600,000

(1) The amounts reported reflect At-Risk Deferred Salary granted in 2014 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 Corporate Scorecard goals. The 

amount of At-Risk Deferred Salary actually earned can range from 0% of target (reported in the Threshold column) to a maximum of 100% of target 

(reported in the Target/Maximum column). Actual At-Risk Deferred Salary amounts earned are reported in the “Non-Equity Incentive Plan 

Compensation” column of “Summary Compensation Table — 2014.”

(2) Mr. Layton is not eligible to receive Deferred Salary.

Outstanding Equity Awards at Fiscal Year-End — 2014

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265 Freddie Mac

The following table shows outstanding equity awards held by the NEOs as of December 31, 2014. As of December 31, 

2014, there were no outstanding RSUs.

Table 71 — Outstanding Equity Awards at Fiscal Year-End — 2014

 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. Lowman — — — — —

Mr. McDavid — — — — —

Mr. Weiss 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 reported stock options are fully vested.

Option Exercises and Stock Vested — 2014

During 2014, no options were exercised and no RSUs vested.

Pension Benefits — 2014

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, 2014. A summary of each plan follows the table. In October 2013, FHFA directed us to terminate the 

Pension Plan as well as the Terminating SERP. No Pension Plan accruals or Pension SERP Benefit accruals occurred after 

December 31, 2013. The accruals associated with the Terminating SERP were fully distributed by October 31, 2014. 

Table 72 — Pension Benefits — 2014

Name Plan Name

Number of Years

Credited Service(1)

Present value of

Accumulated Benefit(2)

Payments During

Last Fiscal Year(3)

Mr. Layton Pension Plan — $ — $ —

Pension SERP Benefit — — —

Mr. Mackey Pension Plan — — —

Pension SERP Benefit — — —

Mr. Lowman Pension Plan — — —

Pension SERP Benefit — — —

Mr. McDavid Pension Plan — — —

Pension SERP Benefit — — —

Mr. Weiss Pension Plan 10.2 312,325 —

Pension SERP Benefit 10.2 — 572,983

(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, 2014, of each NEO’s benefits under the Pension Plan. Pension 

Plan 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.

(3) Amounts reported reflect the Pension SERP Benefit, which were fully distributed by October 31, 2014 pursuant to the termination of the Pension SERP. 

See “Other Executive Compensation Considerations - Supplemental Executive Retirement Plan and Supplemental Executive Retirement Plan II,” 

above.

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. In October, 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 a result of the Pension Plan termination, unvested 

active participants as of December 31, 2013 became fully vested.

 In August 2014, a favorable determination letter of the Pension Plan’s tax-qualified status was issued by the IRS with 

respect to the termination of the Pension Plan, which is expected to be completed in 2015.

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266 Freddie Mac

Of the NEOs, only Mr. Weiss was eligible to participate in the Pension Plan. Pension Plan benefits are based on an 

employee’s years of service and compensation paid through December 31, 2013, up to limits imposed by the Internal Revenue 

Code. 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.

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.

In connection with the Pension Plan’s termination, participants have been given a limited opportunity to elect an 

immediately payable lump sum or annuity benefit. For participants who elect the immediate lump sum or annuity, payment is 

expected to occur in 2015. For other participants, in connection with the termination of the plan, annuity contract(s) will be 

purchased that provide for payments as provided in the Pension Plan.

Supplemental Executive Retirement Plan — Pension SERP Benefit

To be eligible for the Pension SERP Benefit for any year, an NEO must have been eligible to participate in the Pension 

Plan. The Pension SERP Benefit component of the SERP was an unfunded (benefits were paid from general assets), nonqualified 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.

The Pension SERP Benefit was calculated as the participant’s accrued annual benefit payable at age 65 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 was terminated effective December 31, 2013. See “Other Executive 

Compensation Considerations - Supplemental Executive Retirement Plan and Supplemental Executive Retirement Plan II” 

above. All unpaid Pension SERP Benefits were fully distributed to each participant in a lump sum payment by October 31, 

2014. As of December 31, 2014, none of the NEOs has a benefit payable under the Pension SERP.

Nonqualified Deferred Compensation

Supplemental Executive Retirement Plan — Thrift/401(k) SERP Benefit

The Thrift/401(k) SERP Benefit component of the SERP is an unfunded, nonqualified defined contribution plan designed 

to provide participants with the full amount of benefits to which they would have been entitled under the Thrift/401(k) Savings 

Plan if that plan was not subject to certain dollar limits under the Internal Revenue Code. For example, in 2014 under the 

Internal Revenue Code, only the first $260,000 of an employee’s compensation was considered when determining our 

percentage-based matching contribution and the 2.5% 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 2.5% 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 2.5% 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, 2014, there were 23 

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 the 2.5% 

contribution under the Thrift/401(k) Savings Plan for part of the year. In addition, to be eligible for the portion of the Thrift/401

(k) SERP Benefit attributable to employer matching contributions, the NEO must contribute the maximum amount permitted 

under the terms of the Thrift/401(k) Savings Plan on a pre-tax basis. The portion of the Thrift/401(k) SERP Benefit that is 

attributable to employer matching contributions and 2.5% contributions made after 2014 is vested when accrued, while the 

accrual relating to 2.5% contributions made in 2014 is subject to three-year cliff vesting, and the 2.5% contributions made prior 

to 2014 become fully vested after five years.

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 

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267 Freddie Mac

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 and 

Supplemental Executive Retirement Plan II" above, the Thrift/401(k) SERP Benefits that vested prior to January 1, 2005 were 

part of the Terminating SERP. The final settlement of this benefit was made by October 31, 2014 in the form of lump sum 

payments to each participant with a vested right to such benefit.

Supplemental Executive Retirement Plan II

As discussed above in “Item 9B. Other Information” and "Other Executive Compensation Considerations — 

Supplemental Executive Retirement Plan and Supplemental Executive Retirement Plan II," FHFA approved SERP II on 

February 18, 2015 and effective January 1, 2014. Mr. Weiss is the only NEO eligible to participate in SERP II for 2014. 

The following table shows the contributions, earnings, withdrawals and distributions, and accumulated balances under the 

Thrift/401(k) SERP Benefit and the SERP II for each NEO. 

Table 73 — Nonqualified Deferred Compensation

Name

Executive

Contribution in

Last FY ($)(1)

Freddie Mac

Accruals in

Last FY ($)(2)

Aggregate

Earnings in

Last FY ($)(3)

Aggregate

Withdrawals/

Distrib. ($)(4)

Aggregate

Balance at

Last FYE ($)(5)

Mr. Layton

Thrift/401(k) SERP Benefit $ — $ 32,111 $ 3,695 $ — $ 56,337

Mr. Mackey

Thrift/401(k) SERP Benefit — 13,559 — — 13,559

Mr. Lowman

Thrift/401(k) SERP Benefit — 52,275 (8,010) — 44,265

Mr. McDavid

Thrift/401(k) SERP Benefit — 80,835 39 — 110,292

Mr. Weiss

Thrift/401(k) SERP Benefit — 62,251 47,886 (3,270) 779,304

SERP II — 70,492 — — 70,492

(1) The SERP and SERP II do not allow for employee contributions.

(2) Amounts reported reflect accruals under the Thrift/401(k) SERP Benefit and SERP II during 2014, including accruals for the plan year 2014 Fixed 

Contribution and 2014 age-based Transitional Employer Contribution that have not yet been posted to NEO accounts. 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 distributions made by October 31, 2014 associated with the Terminating SERP.

(5) Amounts reported reflect the accumulated balances under the Thrift/401(k) SERP Benefit for each NEO and include the plan year 2014 2.5% 

contribution which will be allocated to NEO accounts in 2015. All NEOs are fully vested in their Thrift/401(k) SERP Benefit account balances. For a 

more detailed discussion of the matching contribution accruals and 2.5% contribution accruals, see “Supplemental Executive Retirement PlanThrift/401(k) SERP Benefit” above. Mr. Weiss is fully vested in his SERP II account balance. For a more detailed discussion on SERP II contribution 

accruals, see “Item 9B. Other Information” and “Other Executive Compensation Considerations —Supplemental Executive Retirement Plan and 

Supplemental Executive Retirement Plan II” above. 

The following 2013 Thrift/401(k) SERP Benefit accrual amounts were reported in the column "All Other Compensation" in the 2013 Summary 

Compensation Table as compensation for each NEO for whom accruals were made and reported during 2013: Mr. Layton: $20,527, Mr. McDavid: 

$29,413 and Mr. Weiss: $62,315. See our Form 10-K filed February 27, 2014. 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 the only NEO for whom such accrual 

was made and reported during 2012: Mr. Weiss: $70,750. See our Form 10-K filed February 28, 2013.

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, 2014. 

Mr. Layton is excluded from this table because he is not entitled to receive any payments in connection with a termination of 

employment. The actual payment of any level of termination benefits is subject to FHFA review and approval. For more 

information, see “Compensation Discussion and Analysis — Written Agreements Relating to Our NEOs' Employment.”

The table below does not address changes in control, as we are not obligated to provide any additional compensation to 

our NEOs in connection with a change in control. The table also does not address 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 

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268 Freddie Mac

the occurrence of a for cause termination. See “Compensation Discussion and Analysis — Written Agreements Relating to Our 

NEOs' Employment — Recapture and Forfeiture Agreement.”

Each of our NEOs is subject to a restrictive covenant and confidentiality agreement with us. Each agreement provides 

that the NEO will not seek employment with designated competitors that involves performing similar duties for a specified 

period immediately following termination of employment, regardless of whether the executive’s employment is terminated by 

the executive, by us, or by mutual agreement. The specified period is twenty-four months for Mr. Layton and twelve months for 

the other NEOs. During the twelve-month period immediately following termination, each NEO agrees not to solicit or recruit 

any of our managerial employees. The agreements also provide for the confidentiality of information that constitutes trade 

secrets or proprietary or other confidential information.

The table below does not include vested balances in the Thrift/401(k) SERP Benefit, SERP II or vested benefits in the 

Pension SERP Benefit. All NEOs are fully vested in their account balances. Amounts shown in the table also do not include 

certain items available to all employees generally upon a termination event.

There were no outstanding RSUs held by NEOs as of December 31, 2014, 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, 2014.

Potential Payments Under the 2014 EMCP

The 2014 EMCP addresses the treatment of Base Salary and Deferred Salary upon various termination events.

Base Salary ceases upon an NEO’s termination of employment, regardless of the termination reason. An NEO generally 

does not need to be employed by us on the payment date to receive payments of Deferred Salary (including related interest) that 

are unpaid at the time of termination of employment. The 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 (including related interest) 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 (including related interest) is paid in full as soon as 

administratively possible, but not later than 90 calendar days after the date of death. Any earned but unpaid At-Risk 

Deferred Salary is not subject to reduction based on corporate and individual performance if the reduction has not 

been determined as of the date of death.

• Long-Term Disability — All earned but unpaid Fixed and At-Risk Deferred Salary (including related interest) is paid 

in full in accordance with the Approved Payment Schedule. Any earned but unpaid At-Risk Deferred Salary is not 

subject to reduction based on corporate and individual performance if the reduction has not been determined as of the 

termination date.

• Any Other Reason (including, but not limited to, voluntary termination, retirement, and involuntary termination for 

any reason other than a Forfeiture Event) — All earned but unpaid Deferred Salary (including related interest) is paid 

in accordance with the Approved Payment Schedule, and earned but unpaid At-Risk Deferred Salary remains subject 

to the performance assessment and reduction process. Except in the case of retirement, the amount of earned but 

unpaid Fixed Deferred Salary will be reduced by 2% for each full or partial month by which the NEO’s termination 

precedes January 31 of the second calendar year following the calendar year in which the Fixed Deferred Salary is 

earned. No such reduction is applicable if an NEO retires, which is deemed to have occurred upon a voluntary 

termination of employment after attaining or exceeding 65 years of age, without regard to length of service.

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269 Freddie Mac

Table 74 — Potential Payments Upon Termination of Employment or Change-in-Control as of December 31, 2014

Death Disability Retirement(5)

All Other Not

For Cause

Terminations(6)

James G. Mackey

Deferred Salary:

Fixed(1) $ 1,600,000 $ 1,600,000 $ — $ 1,184,000

At Risk-Conservatorship Scorecard(2) 450,000 450,000 — 450,000

At Risk-Corporate Scorecard/Individual(3) 450,000 450,000 — 450,000

Interest on Deferred Salary(4) 1,010 1,625 — 1,355

Total $ 2,501,010 $ 2,501,625 $ — $ 2,085,355

David B. Lowman

Deferred Salary:

Fixed(1) $ 1,600,000 $ 1,600,000 $ — $ 1,184,000

At Risk-Conservatorship Scorecard(2) 450,000 450,000 — 450,000

At Risk-Corporate Scorecard/Individual(3) 450,000 450,000 — 450,000

Interest on Deferred Salary(4) 1,010 1,625 — 1,355

Total $ 2,501,010 $ 2,501,625 $ — $ 2,085,355

William H. McDavid

Deferred Salary:

Fixed(1) $ 1,320,000 $ 1,320,000 $ 1,320,000 $ —

At Risk-Conservatorship Scorecard(2) 390,000 390,000 390,000 —

At Risk-Corporate Scorecard/Individual(3) 390,000 390,000 390,000 —

Interest on Deferred Salary(4) 848 1,365 1,365 —

Total $ 2,100,848 $ 2,101,365 $ 2,101,365 $ —

Jerry Weiss

Deferred Salary:

Fixed(1) $ 900,000 $ 900,000 $ — $ 666,000

At Risk-Conservatorship Scorecard(2) 300,000 300,000 — 300,000

At Risk-Corporate Scorecard/Individual(3) 300,000 300,000 — 300,000

Interest on Deferred Salary(4) 606 975 — 823

Total $ 1,500,606 $ 1,500,975 $ — $ 1,266,823

(1) In accordance with early termination provisions in the 2014 EMCP, 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, 2014 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 2014 Conservatorship Scorecard.

(3) The amounts reported for Deferred Salary: At Risk-Corporate Scorecard/Individual in the Retirement and All Other Not For Cause Terminations 

columns reflect the assessment of 2014 performance approved by the Compensation Committee and FHFA.

(4) Interest on Deferred Salary is accrued and paid in accordance with the terms of the 2014 EMCP. The amount of interest in the Death column assumes 

that payment occurs on the 90th day following the date of death, which is assumed to be December 31, 2014. 

(5) Mr. McDavid is the only NEO who meets the requirement for retirement eligibility under the 2014 EMCP. 

(6) 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.

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, 2014 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

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270 Freddie Mac

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

Board members receive compensation in the form of cash retainers only, paid on a quarterly basis. Under the terms of the 

Purchase Agreement, we may not make stock grants to directors without Treasury's consent. 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 paying director compensation entirely in cash are similar 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 differ 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 75 — Board Compensation — 2014 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 Risk Committee Chair 15,000

Annual Retainer for Committee Chairs (other than Audit or Risk) 10,000

Annual Retainer for Audit Committee Members 10,000

The following table summarizes the 2014 compensation provided to all persons who served as non-employee directors 

during 2014.

Table 76 — 2014 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

C. Byrd 185,000 — 19,067 204,067

T. Goldstein(1) 28,668 — — 28,668

R. Hartnack 170,000 — 20,000 190,000

S. Kohlhagen 175,000 — 20,000 195,000

S. Mathew 170,000 — — 170,000

S. Naqvi 160,000 — 20,000 180,000

N. Retsinas 160,000 — — 160,000

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 2014. Mr. Goldstein joined the Board in October 2014. 

(2) We do not have any pension or retirement plans for our non-employee directors.

(3) In 2014, 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. Amounts reflect matching contributions made to charities designated by the non-employee directors. 

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

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271 Freddie Mac

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 17, 2015 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 17, 2015, 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 77 — 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. 17, 2015

Total Common Stock

Beneficially Owned

Raphael W. Bostic Director — — —

Carolyn H. Byrd Director — — —

Thomas M. Goldstein 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 — — —

David B. Lowman EVP — Single Family Business — — —

William H. McDavid EVP — General Counsel & Corp. Sec. — — —

Jerry Weiss EVP — Chief Administrative Officer — 11,620 11,620

All directors and executive officers as a group (25 persons) 79,710(2) 20,800 100,510

5% Holder(3)

Common Stock Beneficially 

Owned Percent of Class

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, D.C. 20220 Variable(4) 79.9%

(1) Includes shares of stock beneficially owned as of February 17, 2015.

(2) Includes distribution of 6,866 shares and 169 dividend equivalents on RSUs previously deferred and which have no remaining restrictions.

(3) Pershing Square Capital Management, L.P., PS Management GP, LLC, and William A. Ackerman (“Pershing”) have filed certain reports on Schedule 

13D, the latest of which was filed on March 31, 2014. In that report, Pershing reported a beneficial ownership percentage calculation of 9.78%, based 

solely on the 650,039,533 shares of our common stock outstanding as reported in our Form 10-K for the fiscal year ended December 31, 2013, and 

excluding the shares issuable to Treasury pursuant to the warrant. The Schedule 13D indicated that Pershing also had additional economic exposure to 

approximately 8,434,958 notional shares of common stock, bringing the total aggregate economic exposure on the date of that filing to 72,010,523 

shares of common stock (approximately 11.08% of the outstanding common stock). In that filing, Pershing indicated that because it believes our 

common stock is not a voting security, it had determined not to file future reports on Schedule 13D. We do not know Pershing's current beneficial 

ownership of our common stock.

(4) In September 2008, we issued to Treasury a warrant to purchase, for one one-thousandth of a cent ($0.00001) per share, shares of our common stock 

equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the time the warrant is exercised. The warrant 

may be exercised in whole or in part at any time until September 7, 2028. As of the date of this filing, Treasury has not exercised the warrant. The 

information above assumes Treasury beneficially owns no other shares of our common stock.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information about our common stock that may be issued upon the exercise of options, 

warrants, and rights under our existing equity compensation plans at December 31, 2014. 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.

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272 Freddie Mac

Table 78 — 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 413,896(1)

 $54.29(2) 35,510,707(3)

Equity compensation plans not

approved by stockholders None N/A None

(1) Includes 54,891 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 28,004,051 shares, 5,845,739 shares, and 1,660,917 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. Under the policy, "related 

person" means any person who is, or was at any time since the beginning of our last completed fiscal year, a director, a director 

nominee, an executive officer, or an immediate family member of any of the foregoing persons.

Under authority delegated by the Board, our General Counsel and the Nominating and Governance Committee (or its 

Chair under certain circumstances), each, an Authorized Approver, are responsible for applying the Related Person Transactions 

Policy. Transactions covered by the Related Person Transactions Policy consist of any transaction, arrangement or relationship 

or series of similar transactions, arrangements or relationships, in which: (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 June 2014, the Board adopted Corporate Governance Guidelines (our "Guidelines"), which were updated in December 

2014 to reflect the name change of the Business and Risk Committee to the Risk Committee. Our Guidelines 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 who also served on our Board for all or part of 2014, and (ii) Mr. Bostic, who joined our Board in 

January 2015. The non-employee members of the Board determined that all current members of our Board (other than 

Mr. Layton, our CEO) are independent. Mr. Layton is not considered an independent director because he is our CEO.

The non-employee members of the Board 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 

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273 Freddie Mac

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 2014 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 2014 and 

currently, Mr. Bostic has served as a board member of two charitable organizations that received monetary 

contributions from us or the Freddie Mac Foundation. The total annual amount contributed to each of the charitable 

organizations was below the applicable threshold in our Guidelines that would require a specific determination that 

Mr. Bostic is independent in spite of the contributions. During 2014 and currently, Mr. Retsinas served as Director 

Emeritus of a charitable organization that received monetary contributions from us or the Freddie Mac Foundation. 

The total annual amount contributed to the charitable organization was below the applicable threshold in our 

Guidelines that would require a specific determination that Mr. Retsinas is independent in spite of the contributions; 

however, since Mr. Retsinas is neither a board member nor a trustee of the charitable organization, the contributions 

would not require an independence determination in any event. The non-employee members of the Board considered 

the contributions and the nature of the organizations and concluded that the relationships with the charitable 

organizations did not constitute a material relationship between Mr. Bostic or Mr. Retsinas and us that would impair 

either of their 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 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 

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274 Freddie Mac

stock does not constitute a material relationship between him and Freddie Mac that would impair his independence as 

a Freddie Mac director.

Board Diversity

The Board identifies Director nominees or candidates 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 identification 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 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 has adopted a final rule regarding minority and women inclusion. 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.

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. 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 Risk Committee and the Audit 

Committee, with primary risk oversight responsibility allocated to the Risk Committee. The 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. 

The Enterprise Risk Management division (“ERM”) is responsible for the independent assessment and oversight 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 has historically been led by the Executive Vice President - Chief Enterprise Risk Officer 

and is currently led by our two Interim Co-Chief Enterprise Risk Officers (referred to as our "Chief Risk Officer(s)"), each of 

whom in such capacity reports directly to the Chief Executive Officer. The Chief Risk Officer(s) also reports to the 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, and 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 Chief Enterprise Risk Officer(s) chair 

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 a number of 

subcommittees. Information flows from the subcommittees to the ERMC as appropriate, and information and reports to be 

provided to the Board and its committees are usually reviewed and discussed in the ERMC or similar management forum prior 

to the relevant Board or Board committee meeting. In addition, the Board specifically evaluates the company's performance 

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275 Freddie Mac

against the Risk Management prong of the Corporate Scorecard goals. See "CD&A — At-Risk Deferred Salary Based on 

Corporate Scorecard 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 2014, 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."

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. FHFA also instructed us to implement the recently 

announced $5,000 principal reduction incentive under HAMP in which Treasury will pay the incentive for borrowers with 

certain of our HAMP modified loans. The remaining transactions described in the sections referenced above did not require 

review and approval under any of our policies and procedures relating to transactions with related persons.

Transactions with Institutions Related to Directors

In the ordinary course of business, we were a party during 2014, and expect to continue to be a party during 2015, 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, 

2014, JPMorgan Chase was one of Freddie Mac’s largest servicers, and serviced approximately 1.19 million loans for Freddie 

Mac. JPMorgan Chase had an aggregate unpaid principal balance of loans of approximately $194.2 billion as of December 31, 

2014 and approximately $193.3 billion as of January 31, 2015. JPMorgan Chase sold approximately $13.9 billion in singlefamily loans to Freddie Mac in 2014.

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, 2015, JPMorgan Chase and its subsidiaries had an aggregate notional 

balance of $22.3 billion of derivatives and $1 billion of reverse purchase agreements with Freddie Mac. From January 1, 2014 

through January 31, 2015, JPMorgan Chase served as underwriter for $26.9 billion of Freddie Mac’s debt securities and $32.4 

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 more than 90% is 

payable in fifteen annual installments beginning in January 2016 and earns a return based upon a defined list of mutual funds 

that Mr. Layton designates. The remaining portion, less than 10%, 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 amounts 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 affect 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

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276 Freddie Mac

The following is a description of fees billed to us by PricewaterhouseCoopers LLP, our independent public accountants, 

during 2014 and 2013.

Table 79 — Auditor Fees(1)

2014 2013

(in thousands)

Audit Fees(2) $ 27,997 $ 29,015

Audit-Related Fees(3) 2,461 856

Tax Fees(4) 27 9

All Other Fees(5) 357 331

Total $ 30,842 $ 30,211

(1) These fees represent amounts billed within the designated year and include reimbursable expenses for 2014 and 2013.

(2) Audit fees include fees in connection with quarterly reviews of our interim financial information and the audit of our annual consolidated financial 

statements.

(3) The 2014 and 2013 audit-related fees include fees for the performance of certain agreed-upon procedures regarding aspects of compliance with the 

Purchase Agreement covenants and compliance evaluation of the minimum servicing standards as set forth in the Uniform Single Attestation Program 

for Mortgage Bankers. The 2014 audit-related fees also included transaction validation and attestation related to certain of Freddie Mac’s risk transfer 

and structured transactions. 

(4) The tax fees billed in 2014 and 2013 related to non-audit tax consulting services to provide advice on tax planning or reporting matters, as well as nonaudit tax 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 2014 and 2013 included: (i) our subscription to a web-based suite of human resources benchmark data; (ii) assessment of retention 

strategies; (iii) our subscription to accounting research software; and (iv) non-audit services in connection with certain of our project deployments as 

part of implementing regulatory initiatives.

Approval of Independent Auditor Services and Fees

Under its charter, the Audit Committee is responsible for: (a) appointing our independent public accounting firm (subject 

to FHFA approval as required); (b) approving all audit and non-audit services permitted under applicable law to be performed 

by the independent public accounting firm (subject to FHFA approval as required); and (c) approving the scope of the annual 

audit.

The Sarbanes-Oxley Act and related rules adopted by the SEC require that all services provided to companies subject to 

the reporting requirements of the Exchange Act by their independent auditors be pre-approved by their audit committee or by 

authorized members of the committee, with certain exceptions. The Audit Committee’s charter requires that the Audit 

Committee pre-approve any audit services, and any non-audit services permitted under applicable law, to be performed by our 

independent auditors (or to designate one or more members of the Audit Committee to pre-approve such services and report 

such pre-approval to the Audit Committee).

Audit services that are within the scope of an auditor’s engagement approved by the Audit Committee prior to the 

performance of those services are deemed pre-approved and do not require separate pre-approval. Audit services not within the 

scope of an Audit Committee-approved engagement, as well as permissible non-audit services, must be separately 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 2014 and 

2013.

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

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277 Freddie Mac

An Exhibit Index has been filed as part of this Form 10-K beginning on page E-1 and is incorporated herein by 

reference.

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278 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 19, 2015

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279 Freddie Mac

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 19, 2015

Christopher S. Lynch 

 

/s/ Donald H. Layton Chief Executive Officer and Director February 19, 2015

Donald H. Layton (Principal Executive Officer) 

 

/s/ James G. Mackey Executive Vice President — Chief Financial Officer February 19, 2015

James G. Mackey (Principal Financial Officer) 

 

/s/ Robert D. Mailloux Senior Vice President — Corporate Controller and February 19, 2015

Robert D. Mailloux Principal Accounting Officer (Principal Accounting Officer) 

/s/ Raphael W. Bostic* Director February 19, 2015

Raphael W. Bostic 

 

/s/ Carolyn H. Byrd* Director February 19, 2015

Carolyn H. Byrd 

/s/ Thomas M. Goldstein* Director February 19, 2015

Thomas M. Goldstein 

 

/s/ Richard C. Hartnack* Director February 19, 2015

Richard C. Hartnack

/s/ Steven W. Kohlhagen* Director February 19, 2015

Steven W. Kohlhagen

/s/ Sara Mathew* Director February 19, 2015

Sara Mathew

/s/ Saiyid T. Naqvi* Director February 19, 2015

Saiyid T. Naqvi

/s/ Nicolas P. Retsinas* Director February 19, 2015

Nicolas P. Retsinas 

 

/s/ Eugene B. Shanks, Jr.* Director February 19, 2015

Eugene B. Shanks, Jr. 

 

/s/ Anthony A. Williams* Director February 19, 2015

Anthony A. Williams 

 

*By: /s/ Alicia S. Myara 

Alicia S. Myara 

Attorney-in-Fact 

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280 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 from 2005 through 2008.

ACIS — Agency Credit Insurance Structure — A risk transfer program through which we obtain insurance policies (typically 

underwritten by a panel of insurers and reinsurers) that obligate the counterparties to reimburse us for specified credit events up 

to an aggregate limit that are incurred on our mezzanine loss position associated with STACR debt note transactions in 

exchange for our payment of periodic premiums.

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 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.

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.

CCO — Chief Compliance Officer

CD&A — Compensation Discussion and Analysis

CEB — The Corporate Executive Board Company

CEO — Chief Executive Officer

CERO — Chief Enterprise Risk Officer

CFO — Chief Financial Officer

CFPB — Consumer Financial Protection Bureau

Charge-Offs, gross — 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.

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281 Freddie Mac

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).

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.

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 score — Credit score data is based on FICO scores, a credit scoring system developed by Fair, Isaac and Co. FICO 

scores are currently the most commonly used credit scores. FICO scores are ranked on a scale of approximately 300 to 850 

points with a higher value indicating a lower likelihood of credit default. Although we obtain updated credit information on 

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

our reports represent the credit score of the borrower at the time of loan origination or our purchase and may not be indicative 

of the current credit worthiness of the borrower.

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, credit risk transfer transactions, 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. Mortgage loans that have been modified are not counted as delinquent as long as the 

borrower is not delinquent under the modified terms. 

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.

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282 Freddie Mac

Dollar roll transactions — Transactions whereby we enter into an agreement to sell and subsequently repurchase (or purchase 

and subsequently resell) agency securities.

DSCR — Debt Service Coverage Ratio — An indicator of future credit performance for multifamily loans. The DSCR 

estimates a multifamily borrower’s ability to service its mortgage obligation using the secured property’s cash flow, after 

deducting non-mortgage expenses from income. The higher the DSCR, the more likely a multifamily borrower will be able to 

continue servicing its mortgage obligation.

Duration — Duration is a measure of a financial instrument’s price sensitivity to changes in interest rates.

Duration gap — One of our primary interest-rate risk measures. Duration gap is a measure of the difference between the 

estimated durations of our interest rate sensitive assets and liabilities. We present the duration gap of our financial instruments 

in units expressed as months. A duration gap of zero implies that the change in value of our interest rate sensitive assets from an 

instantaneous change in interest rates would be expected to be accompanied by an equal and offsetting change in the value of 

our debt and derivatives, thus leaving the net fair value of equity unchanged.

ESPP — Employee Stock Purchase Plan

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

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 or 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

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283 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 the insurance coverage, if any, that 

was 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.

Legacy single-family books — Comprised of our 2005-2008 Legacy single-family book and our Pre-2005 Legacy singlefamily book.

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 not paid in cash are added to the liquidation 

preference of the senior preferred stock. We may make payments to reduce the liquidation preference of the senior preferred 

stock only in limited circumstances.

Liquidity and contingency operating portfolio — Highly liquid non-mortgage assets generally consisting of cash and cash 

equivalents, federal funds sold and securities purchased under agreements to resell, and non-mortgage-related securities.

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

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284 Freddie Mac

MHA Program — Making Home Affordable Program — Formerly known as the Housing Affordability and Stability Plan, the 

MHA Program was announced by the Administration in February 2009. The MHA Program is designed to help in the housing 

recovery, promote liquidity and housing affordability, expand foreclosure prevention efforts and set market standards. The 

MHA Program includes HARP and HAMP.

Mortgage assets — Refers to both mortgage loans and the mortgage-related securities we hold in our mortgage-related 

investments portfolio.

Mortgage-related investments portfolio — Our investment portfolio, which consists 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 and manufactured 

housing loans.

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.

Multifamily new business activity — Represents loan purchases and issuances of other guarantee commitments and Other 

Structured Securities by the Multifamily segment. Excludes Other Guarantee Transactions.

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 $2.4 billion for 2014, is $1.8 billion for 2015, 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 

from 2009 to 2014, excluding HARP and other relief refinance mortgages. We do not include relief refinance mortgages, 

including HARP loans, in this book 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-accrual loan — A loan for which we are not accruing interest income. 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. 

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. When the OAS on a given asset widens, the fair value of that asset will typically 

decline, all other market factors being equal. The opposite is true when the OAS on a given asset tightens.

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285 Freddie Mac

OFHEO — Office of Federal Housing Enterprise Oversight, the predecessor to FHFA.

Option ARM loan — Mortgage loans that permit a variety of repayment options, including minimum, interest-only, fully 

amortizing 30-year and fully amortizing 15-year payments. The minimum payment alternative for option ARM loans allows the 

borrower to make monthly payments that may be less than the interest accrued for the period. The unpaid interest, known as 

negative amortization, is added to the principal balance of the loan, which increases the outstanding loan balance. For our 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 

any 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.

Performing Loan — A mortgage loan where the borrower is less than three monthly payments past due, but not in the process 

of foreclosure. Conversely, a non-performing loan is one where the borrower is three months or more past due or is in the 

process of foreclosure. A reperforming loan is a mortgage loan that was previously classified as non-performing, but the 

borrower subsequently made payments such that the loan returns to less than three months past due.

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, relating to Treasury's purchase of senior preferred stock, which was 

subsequently amended and restated on September 26, 2008 and further amended on May 6, 2009, December 24, 2009, 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. Recorded 

investment excludes accrued interest income.

Recoveries of charge-offs — 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 third parties through certain 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 alternatives. 

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

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286 Freddie Mac

Relief refinance mortgage — A single-family mortgage loan delivered to us for purchase or guarantee that meets the criteria 

of the Freddie Mac Relief Refinance Mortgagesm initiative. Part of this initiative is our implementation of HARP for our loans, 

and relief refinance options are also available for certain non-HARP loans. Although HARP is targeted at borrowers with 

current LTV ratios above 80%, our initiative also allows borrowers with LTV ratios of 80% and below to participate.

REMIC — Real Estate Mortgage Investment Conduit — A type of multiclass mortgage-related security that divides the cash 

flows (principal and interest) of the underlying mortgage-related assets into two or more classes that meet the investment 

criteria and portfolio needs of different investors.

REMICs and Other Structured Securities (or in the case of Multifamily securities, Other Structured Securities) — 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 issuing guaranteed mortgage-related securities, principally PCs, and by purchasing mortgage loans and 

mortgage-related securities for investment.

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

SERP II — The Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan II

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 because these guarantees do not expose us to meaningful amounts of 

credit risk due to the credit enhancement provided on them by the U.S. government.

Single-family 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 performance 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 

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287 Freddie Mac

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.

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 restructuring of a debt constitutes a TDR if the creditor for economic or legal reasons 

related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider.

Thrift/401(k) Plan — The Federal Home Loan Mortgage Corporation Thrift/401(k) Savings Plan

Total 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.

Transitional Plan — The Federal Home Loan Mortgage Corporation Transitional Retirement Savings Plan

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 for the year ended

December 31, 2012, as filed on February 28, 2013)

 

4.27

 

Federal Home Loan Mortgage Corporation Global Debt Facility Agreement, dated February 27, 2014 (incorporated by reference to

Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, as filed on May 8, 2014)

 

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 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)†

 

10.8

 

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)†

 

10.9

 

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 year ended December

31, 2008, as filed on March 11, 2009)†

 

10.10

 

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)†

 

10.11

 

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)†

 

10.12

 

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)†

 

10.13

 

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 year ended

December 31, 2009, as filed on February 24, 2010)†

 

10.14

 

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)†

 

10.15

 

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 for the quarterly period

ended September 30, 2012, as filed on November 6, 2012)†

10.16 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 for the quarterly

period ended June 30, 2013, as filed on August 7, 2013)†

10.17 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)

†

 

10.18 Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan II (effective January 1, 2014)†

10.19

 

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)†

 

10.20

 

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)†

10.21

 

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)†

10.22 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) †

10.23 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) †

Table of Contents
E-4 Freddie Mac

Exhibit No. Description*

10.24 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) †

 

10.25

 

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)†

 

10.26

 

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)†

 

10.27

 

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) †

 

10.28

 

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) †

10.29

 

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)†

 

10.30 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)†

10.31 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)†

10.32 Memorandum Agreement, dated April 7, 2013, between Freddie Mac and David B. Lowman (incorporated by reference to Exhibit 10.48

to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013, as filed on February 27, 2014)†

10.33 Restrictive Covenant and Confidentiality Agreement, dated April 9, 2013, between Freddie Mac and David B. Lowman (incorporated by

reference to Exhibit 10.49 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013, as filed on February

27, 2014)†

10.34

 

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)†

 

10.35

 

PC Master Trust Agreement dated April 3, 2014 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form

10-Q for the quarterly period ended March 31, 2014, as filed on May 8, 2014)

10.36

 

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)†

10.37

 

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)†

 

10.38

 

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)

 

10.39

 

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)

 

10.40

 

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)

10.41

 

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

quarterly period ended March 31, 2009, as filed on May 12, 2009)

Table of Contents
E-5 Freddie Mac

Exhibit No. Description*

10.42

 

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)

 

10.43

 

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)

 

10.44

 

Warrant to Purchase Common Stock, dated September 7, 2008 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current

Report on Form 8-K as filed on September 11, 2008)

10.45

 

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)

 

10.46

 

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 10.18

FEDERAL HOME LOAN MORTGAGE CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II

Effective January 1, 2014
TABLE OF CONTENTS

Page

Article I Establishment of the Plan............................................................................ 1

Article II Definitions................................................................................................... 1

Article III Eligibility and Participation........................................................................ 4

Article IV Supplemental Benefit Credit....................................................................... 6

Article V Payment of Benefits.................................................................................... 9

Article VI Administration.......................................................................................... 10

Article VII Amendment and Termination.................................................................... 12

Article VIII Miscellaneous........................................................................................... 13
1

FEDERAL HOME LOAN MORTGAGE CORPORATION 

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II

ARTICLE I

Establishment of the Plan 

1.1 Purpose. The Corporation hereby adopts the Plan effective as of the Effective 

Date. The Plan is a non-qualified plan intended to make up to Executives employer provided 

contributions and/or benefits under the Transitional Plan and under the Thrift/401(k) Plan to the 

extent not provided for under the SERP, that Executives lose due to:

(a) The cap on annual Compensation which can be considered for inclusion 

under the Transitional Plan and the Thrift/401(k) Plan, as applicable, set by Code section 

401(a)(17); and 

(b) The application of Code section 415. 

The Corporation intends that the Plan shall at all times be maintained on an unfunded basis for 

federal income tax purposes under the Code, and administered as a “top hat” plan exempt from 

the substantive requirements of ERISA. The Plan is intended to provide deferred compensation 

to a select group of management or highly compensated employees within the meaning of 

ERISA Sections 201(2), 301(a)(3), 401(a)(1), and 4021(b)(6). 

No assets will be set aside to fund the Corporation’s liability under the Plan.

1.2 Effective Date. The Plan is effective as of the Effective Date.

ARTICLE II

Definitions 

For purposes of this Plan, the following terms shall have the meanings indicated, unless 

the context clearly indicates otherwise.

2.1 Account. A bookkeeping record established and maintained under this Plan for 

each Participant solely to calculate the amount payable to each Participant under the Plan. The 

Account shall reflect any Supplemental Benefit Credits, all Deemed Earnings as described in 

Section 4.4, and all distributions.

2.2 Administrator. The Compensation Committee of the Board, or any successor to 

that committee, or such other committee or individual(s) designated by the Board as the 

Administrator for purposes of the Plan.

2.3 Affiliate. The Corporation and any corporation which is a member of a controlled 

group of corporations (as defined in Code section 414(b)) which includes the Corporation, or any 

trade or business (whether or not incorporated) which is under common control (as defined in 

Code section 414(c)) with the Corporation, or any service organization (whether or not 

incorporated) which is a member of an affiliated service group (as defined in Code section 

414(m)) which includes the Corporation and any other entity required to be aggregated with the 
2

Corporation pursuant to regulations under Code section 414(o), for such period that such 

relationship exists.

2.4 Beneficiary. The individual or individuals designated by the Participant to 

receive benefits under this Plan in the event of the Participant’s death, in accordance with 

Section 5.2.

2.5 Board. The Board of Directors of the Federal Home Loan Mortgage Corporation 

or such committee thereof delegated to act on its behalf.

2.6 Code. The Internal Revenue Code of 1986, and amendments thereto.

2.7 Compensation. An Executive’s “Compensation” as defined in the Transitional 

Plan or Thrift/401(k) Plan, as applicable.

2.8 Corporation. The Federal Home Loan Mortgage Corporation, a corporation 

organized under the laws of the United States, and any entity succeeding to its business which 

assumes the obligations of this Plan.

2.9 Deemed Earnings. The net gain or loss, determined on a percentage basis, on the 

aggregate of the Participant’s Account to be credited with Deemed Earnings, such gain or loss 

based upon the Participant’s direction of the deemed investment of such accruals in the 

Investment Funds, in accordance with the terms of Section 4.4, and calculated on a daily basis.

2.10 Default Investment. The average annual yield of the Money Market Fund of the 

Transitional Plan. 

2.11 Effective Date. January 1, 2014.

2.12 Employee. The term “Employee” shall have the meaning set forth in the 

Transitional Plan or the Thrift/401(k) Plan, as applicable. 

2.13 Employer. The Corporation. Additionally, an Employer shall include a 

Participating Subsidiary with respect to transferred Employees to whom Section 3.3 (Transfers 

between Corporation and Participating Subsidiary) applies.

2.14 Employer Contributions. The Transitional Employer Contributions and Fixed 

Employer Contributions under the Transitional Plan and the Matching Contributions under the 

Thrift/401(k) Plan. 

2.15 ERISA. The Employee Retirement Income Security Act of 1974, as amended.

2.16 Excess Plan. The Federal Home Loan Mortgage Corporation 2014 Excess 

Benefit Plan, as may be amended from time to time. 

2.17 Executive. All Employees who are officers at the level of vice president or above, 

as determined on the last day of the applicable Plan Year; provided, however, that 

notwithstanding any other provision in this Plan, an Executive whose status changes to that of a 
3

non-Executive while still employed by the Corporation will be treated as an Executive hereunder 

until the end of the calendar year in which such change of status occurs. After such calendar 

year has ended, such person shall not be eligible to actively participate in this Plan until he or she 

becomes an Executive and satisfies the other requirements set forth in the Plan. In the event an 

Executive’s status changes to that of a non-Executive, the Participant’s Account will be 

maintained under the Plan (and will continue to be credited with Deemed Earnings in accordance 

with Section 4.4) until such time as distribution occurs in accordance with Article V hereof.

2.18 Investment Funds. The investment funds available for the deemed investment and 

reinvestment of a Participant’s Supplemental Benefit Credit under the Plan in accordance with 

Section 4.4, which shall correspond with the “Investment Funds” under the Transitional Plan, 

unless determined otherwise by the Administrator.

2.19 Key Employee. A Participant who is a “key employee” of the Company as 

defined in Code section 416(i) (without regard to Code section 416(i)(5)) at any time during the 

12-month period ending on December 31. If a Participant is a Key Employee as of December 

31, the Participant will be treated as a Key Employee for the entire 12-month period beginning 

on the April 1 following that December 31. For purposes of determining Key Employees, the 

definition of compensation in Treasury Regulation §1.415(c)-2(d)(3) will apply.

2.20 Participant. An Executive who has met the eligibility requirements under Section 

3.1, who has completed such enrollment process as may be required under Section 3.1, and for 

whom a Supplemental Benefit Credit has been made under Article IV. An Executive who receives 

a Supplemental Benefit Credit under this Plan for a Plan Year shall be ineligible to receive an 

Excess Benefit Credit under the Excess Plan for such Plan Year and shall be ineligible to receive a 

Thrift/401(k) SERP Benefit under the SERP if the Executive made any Roth Contributions under 

the Thrift/401(k) Savings Plan during such Plan Year. The Participant’s continued participation in 

the Plan shall be governed by Article III. 

2.21 Participating Subsidiary. An Affiliate which (i) is a wholly-owned subsidiary of 

the Corporation, (ii) has been authorized to be a Participating Subsidiary by the Corporation’s 

Vice President – Compensation and Benefits (as such title may be amended from time to time), 

and (iii) has adopted the Plan for the benefit of its eligible employees. The Corporation’s Vice 

President – Compensation and Benefits shall have the authority to terminate an Affiliate’s 

participation as a Participating Subsidiary and Employer as of any date following the 

Participating Subsidiary’s adoption of the Plan.

2.22 Plan. This Federal Home Loan Mortgage Corporation Supplemental Executive 

Retirement Plan II, as set forth herein, and as the same may hereafter be amended from time to 

time.

2.23 Plan Year. The 12 month period from January 1 to December 31.

2.24 Qualifying Termination. A Participant’s termination of employment with an 

Employer on account of any of the following:

(a) Reduction in force;
4

(b) Elimination of position;

(c) A company divestiture or closure; and

(d) Retirement (as defined in the Transitional Plan or Thrift/401(k) Plan, as 

applicable).

2.25 Roth Contribution. The term “Roth Contribution” shall have the meaning set 

forth in the Thrift/401(k) Plan.

2.26 Section 415 Limitation. The limitation on annual additions that are permitted to be 

made to an individual’s account(s) under the Transitional Plan or the Thrift/401(k) Plan, as 

applicable, pursuant to Code section 415.

2.27 SERP. The Federal Home Loan Mortgage Corporation Supplemental Executive 

Retirement Plan, as amended and restated January 1, 2008.

2.28 Spouse. The person legally married to the Participant on the date of the 

Participant’s death under the laws of the jurisdiction in which the marriage was entered.

2.29 Supplemental Benefit Credit. The amount credited to a Participant’s Account for 

a Plan Year to compensate the Participant for the portion of the Employer Contributions lost due 

to (a) the Compensation cap as set forth in Code section 401(a)(17), and (b) the Section 415 

Limitation, in accordance with the terms set forth in Article IV.

2.30 Termination of Employment. A separation from the service of the Corporation 

which constitutes a “separation from service” within the meaning of Treasury Regulation 

§1.409A-1(h) and any successor or other applicable regulation under Code section 409A. 

2.31 Thrift/401(k) Plan. The Federal Home Loan Mortgage Corporation Thrift/401(k) 

Savings Plan, as may be amended from time to time.

2.32 Total and Permanent Disability. A Participant shall be considered as totally and 

permanently disabled for purposes of the Plan if the Participant has been determined by the 

Social Security Administration to be totally disabled.

2.33 Transitional Plan. The Federal Home Loan Mortgage Corporation Transitional 

Retirement Savings Plan, as may be amended from time to time.

ARTICLE III

Eligibility and Participation 

3.1 Eligibility for Participation. Subject to Section 3.2, in order to be eligible for this 

Plan, an Executive must be eligible to participate in the Transitional Plan or the Thrift/401(k) 

Plan, provided, however, that the Administrator reserves the discretion to limit an Executive’s 

ability to participate in this Plan. In order to become a Participant the Executive shall complete 

such enrollment process as may be required by the Administrator. An Executive shall remain a 

Participant in the Plan until such time as all benefits payable under the Plan have been paid in 
5

accordance with the provisions hereof; provided, however, the foregoing provisions shall not limit 

the Administrator’s discretion to determine whether an Executive remains eligible to continue to 

actively participate in the Plan. 

3.2 Eligibility for Supplemental Benefit Credit. 

(a) In order to be eligible to receive a Supplemental Benefit Credit for a Plan 

Year (a) the Executive must actively participate in the Transitional Plan or the 

Thrift/401(k) Plan for the Plan Year and (b) the Executive’s annual additions to the 

Transitional Plan or to the Thrift/401(k) Plan for the Plan Year must be limited as a result of 

(i) the cap on annual Compensation which can be considered for inclusion under the 

Transitional Plan or Thrift/401(k) Plan, as applicable, set by Code section 401(a)(17) 

and/or (ii) the Section 415 Limitation. Notwithstanding anything to the contrary, an 

Executive who receives a Supplemental Benefit Credit under this Plan for a Plan Year shall 

be ineligible to receive an Excess Benefit Credit under the Excess Plan for such Plan Year 

and shall be ineligible to receive a Thrift/401(k) SERP Benefit under the SERP for such 

Plan Year if the Executive made any Roth Contributions under the Thrift/401(k) Savings 

Plan during such Plan Year. 

(b) Notwithstanding subsection (a) above, in order to be eligible to receive a 

Supplemental Benefit Credit related to Employer Contributions under the Thrift/401(k) 

Plan for a Plan Year, the Executive must contribute the maximum amount permitted 

under the terms of the Thrift/401(k) Plan on a pre-tax or post-tax basis throughout the 

entire Plan Year (or for the portion of the Plan Year for which the Executive is eligible to 

participate in the Thrift/401(k) Plan), provided that for the 2014 Plan Year, the maximum 

contribution must be made on a pre-tax basis. If an Executive contributes less than such 

maximum amount for a Plan Year, the Executive will not be eligible to receive a 

Supplemental Benefit Credit relating to the Matching Contribution under the 

Thrift/401(k) Plan for such Plan Year. Further, if all or a portion of the Executive’s 

contributions to the Thrift/401(k) Plan are made pursuant to a Roth Contribution, the 

Executive will participate in this Plan and not the SERP for such Plan Year, provided 

that, for administrative and recordkeeping procedures purposes, the Corporation may 

designate an Executive as a participant in the SERP during a Plan Year in which the 

Executive makes Roth Contributions and then move the Executive to this Plan during or 

after such Plan Year. Notwithstanding anything to the contrary, in no event shall the 

Supplemental Benefit Credit related to the Thrift/401(k) Plan and the Thrift/401(k) SERP

Benefit credited under the SERP result in a duplication of benefits under the SERP and 

this Plan for a Plan Year. 

(c) Notwithstanding the foregoing provisions, nothing in this Plan shall 

prohibit the Administrator from determining, in its discretion, that an Executive is not 

eligible to receive a Supplemental Benefit Credit for one or more Plan Years. To the 

extent that an Executive becomes ineligible to participate in this Plan for a Plan Year, the 

Executive may be eligible to participate in the Excess Plan to the extent that the 

Executive satisfies the eligibility requirements under the Excess Plan. 
6

3.3 Transfers Between Corporation and Participating Subsidiary. Notwithstanding 

any provision above to the contrary, if a Participant transfers employment directly between the 

Corporation and a Participating Subsidiary, without an intervening break in employment (as 

determined by the Administrator in accordance with uniform and nondiscriminatory rules), the 

Participant shall continue to participate under the Plan following such transfer. Notwithstanding 

anything to the contrary in this Plan, any transfer of a Participant’s employment between the 

Corporation and any Affiliate shall be treated in a manner consistent with Code section 409A.

3.4 Participant Consent. By participating in this Plan, a Participant shall for all 

purposes be deemed conclusively to have consented to the provisions of the Plan and to all 

subsequent amendments thereto.

ARTICLE IV

Supplemental Benefit Credit

4.1 Basis of Benefit.

(a) The Supplemental Benefit Credit for a Plan Year will be determined based 

on: (i) the Executive’s Plan Year Compensation; (ii) the Compensation cap described in 

Code section 401(a)(17) for the Plan Year; and (iii) the limitation set forth in Code 

section 415(c) for the Plan Year. 

(b) No Supplemental Benefit Credit will be accrued for a Participant for a 

Plan Year with respect to pay in excess of 200% of a Participant’s “base salary” (as 

defined in the 2014 Executive Management Compensation Program, or successor 

thereto), for any year in which the Participant is covered by such program. Additionally, 

no Supplemental Benefit Credit related to the Transitional Employer Contributions and 

Fixed Employer Contributions under the Transitional Plan will be accrued for a 

Participant for a Plan Year unless the Participant is employed by the Employer on the last 

day of the Plan Year in question, except as provided in Section 4.3. 

4.2 Supplemental Benefit Credit Calculation. 

(a) For each Plan Year in which a Participant participates in the Transitional 

Plan and meets the other requirements set forth in this Plan, the Participant’s Account 

shall be credited with a Supplemental Benefit Credit in an amount equal to the excess, if 

any, of (i) over (ii), where:

(i) is the amount of the Employer Contributions that would have been 

made to the Transitional Plan for the Plan Year in question without regard to the 

Section 415 Limitation and the cap described in Code section 401(a)(17) on 

Compensation under the Transitional Plan, and

(ii) is the amount of the Employer Contribution that was actually made 

to the Participant’s account under the Transitional Plan for the Plan Year in 

question with the application of the limitations, caps, and exclusions referred to in 

subparagraph (i) above.
7

(b) For each Plan Year in which a Participant participates in the Thrift/401(k) 

Plan, makes a Roth Contribution under the Thrift/401(k) Plan, and meets the other 

requirements set forth in this Plan, the Participant’s Account shall be credited with a 

Supplemental Benefit Credit in an amount equal to the excess, if any, of (i) over (ii), 

where:

(i) is the amount of the Employer Contributions that would have been 

made to the Thrift/401(k) Plan for the Plan Year in question without regard to the 

Section 415 Limitation and the cap described in Code section 401(a)(17) on 

Compensation under the Thrift/401(k) Plan, and

(ii) is the amount of the Employer Contribution that was actually made 

to the Participant’s account under the Thrift/401(k) Plan for the Plan Year in 

question with the application of the limitations, caps, and exclusions referred to in 

subparagraph (i) above.

4.3 Accrual of Supplemental Benefit Credit. 

(a) The Supplemental Benefit Credit for each Participant as calculated 

pursuant to Sections 4.1 and 4.2 shall be credited to the Participant’s Account (as to 

timing) in a manner consistent with that in which an Employer Contribution would have 

been made by the Corporation on the Participant’s behalf to the Transitional Plan or 

Thrift/401(k) Plan, as applicable, provided that the Participant will forfeit the 

Supplemental Benefit Credit related to the Transitional Employer Contributions and 

Fixed Employer Contributions under the Transitional Plan, and any related Deemed 

Earnings, if the Participant is not employed by the Employer on the last day of the 

applicable Plan Year, except as provided in subsections (b) and (c) below. For the 

avoidance of doubt, a Participant will not forfeit accrued Supplemental Benefit Credits 

related to the Matching Contributions under the Thrift/401(k) Plan, or related Deemed 

Earnings, upon the Participant’s Separation from Service. Deemed Earnings for a 

Supplemental Benefit Credit shall not begin accruing until such time as the corresponding 

Employer Contributions under the Transitional Plan or Thrift/401(k) Plan, as applicable, 

are credited to Participant accounts under the Transitional Plan or Thrift/401(k) Plan, as 

applicable, subject to Section 5.3 in the case of Total and Permanent Disability and 

Section 5.2 in the case of death.

(b) Notwithstanding subsection (a) above, if a Participant has a Qualifying 

Termination, the Participant will be eligible to receive a Supplemental Benefit Credit 

related to the Transitional Employer Contributions and Fixed Employer Contributions 

under the Transitional Plan pursuant to Sections 4.1 and 4.2 for the Plan Year in which 

the Qualifying Termination occurs, at the same time and on the same schedule as 

regularly situated Participants.

(c) Notwithstanding subsection (a) above, if a Participant experiences a Total 

and Permanent Disability or dies, the Participant (or the Participant’s Beneficiary in the 

case of death) will be eligible to receive a Supplemental Benefit Credit related to the 

Transitional Employer Contributions and Fixed Employer Contributions under the 
8

Transitional Plan pursuant to Sections 4.1 and 4.2 for the Plan Year in which the 

Participant’s death or Total and Permanent Disability occurs, which amount will be 

credited to the Participant’s Account at the time of the corresponding accrual to the 

Participant’s account for purposes of the Transitional Plan or Thrift/401(k) Plan, as 

applicable. Notwithstanding anything to the contrary, if an Executive does not receive a 

Supplemental Benefit Credit related to the Transitional Employer Contribution and Fixed 

Employer Contribution under the Transitional Plan because of the Executive’s 

Termination of Employment during the Plan Year due to a disability, as determined by 

the Corporation, and it is subsequently determined that the Executive experienced a Total 

and Permanent Disability during the Plan Year of the Executive’s Termination of 

Employment, the Executive will receive the forfeited Supplemental Benefit Credit for the 

Plan Year of the Executive’s Termination of Employment, which shall be payable in 

accordance with Section 5.3, with no Deemed Earnings accruing with respect to such 

amounts. 

(d) Notwithstanding anything to the contrary, the Participant’s Account will 

be retroactively adjusted, to the extent necessary, to reflect any forfeiture of the 

Supplemental Benefit Credit for such Plan Year, as set forth in subsection (a), or any 

failure by the Participant to contribute the maximum amount permitted under the terms of 

the Thrift/401(k) Plan on a pre-tax or post-tax basis throughout the entire Plan Year, as 

required under Section 3.2(b), and any such adjustment will include a corresponding 

change in Deemed Earnings on the adjusted amount. 

4.4 Crediting and Debiting of Earnings and Losses. 

(a) Each Participant’s Account shall be credited or debited, as applicable, with 

the gains and losses (including, without limitation, interest, dividends, market 

appreciation, or depreciation) that would have accrued if the Participant’s Account had 

been invested in the Investment Funds designated by the Participant in accordance with 

the investment direction procedures prescribed by the Administrator. The Corporation 

and its Affiliates, the Board, and the Administrator do not represent or guarantee 

successful deemed investment of any amounts under the Plan and shall not be required to 

restore any loss which may result from such deemed investments or lack of investment. 

In addition, no one shall be under any obligation to actually invest amounts 

corresponding to any investment directions provided by a Participant or Beneficiary. 

Each Participant and Beneficiary assumes the risk in connection with any decrease in 

value of his or her Account deemed invested hereunder. The mechanism by which 

Participants shall invest their accruals to be credited with earnings and losses, as well as 

any rules or procedures for such investment (including treatment of earnings should no 

“investment” election be made by a Participant for a particular Plan Year), shall be 

determined by the Administrator (or its delegate) in its sole discretion.

(b) If a Participant does not direct the deemed investment of his or her Account 

under the Plan, the Participant shall be deemed to have elected to invest his or her Account 

in the Default Investment. 
9

(c) A Participant may change any deemed investment directions in accordance 

with the investment direction procedures prescribed by the Administrator.

(d) The Administrator may change the deemed Investment Funds at any time. 

In addition, any change in the Investment Funds available under the Transitional Plan shall 

automatically result in a corresponding change in the Investment Funds available under this 

Plan. Upon any change in the Investment Funds, each Participant shall have the opportunity 

to select among such new Investment Funds as are designated by the Administrator. In case 

of failure to elect such new Investment Funds, the Participant shall be deemed to have made 

an election to invest his or her Account in the investment options then being offered that are 

most comparable to the Participant’s old investment options. The decision of comparable 

investment options shall be made in the sole discretion of the Administrator.

(e) Notwithstanding anything to the contrary, Deemed Earnings shall cease 

accruing for a period of time prior to payment of the Participant’s Account balance under 

Article V for administrative purposes related to distributing Plan benefits, as determined by 

the Company in its discretion.

4.5 Vesting of Accounts. Each Participant shall be at all times 100% vested in the 

amounts credited to such Participant’s Account and Deemed Earnings thereon.

ARTICLE V

Payment of Benefits

5.1 Termination of Employment. Upon a Participant’s Termination of Employment 

for any reason other than Death or Total and Permanent Disability, a Participant’s Account shall 

be paid in the form of a lump sum within 90 days after the end of the calendar year in which such 

Termination of Employment (for reasons other than death or Total and Permanent Disability) 

occurs (subject to delay in accordance with Section 8.10, if applicable). As of the date of the 

Participant’s Termination of Employment (for reasons other than death or Total and Permanent 

Disability) and thereafter, any accrued balance shall be credited or debited with Deemed 

Earnings under Section 4.4 using the Default Investment until paid, or such earlier time as 

described in Section 4.4(e). 

5.2 Death. 

(a) In the event of a Participant’s death (either prior to or after the 

Participant’s Termination of Employment), the balance of the Participant’s Account shall 

be paid to the Participant’s Beneficiary in the form of a lump sum payment within 90 

days after the end of the calendar year in which the Participant’s death occurs, without 

additional Deemed Earnings accruing after date of the Participant’s death. 

(b) All Beneficiary designations shall be on such forms as are specified by 

and filed with the Administrator. Any Beneficiary designation made by the Participant in 

accordance with this provision may be changed at any time prior to the Participant’s 

death by filing with the Administrator a notice of such change on the form provided by 

the Administrator. In the event of a Participant’s death, if all Beneficiaries designated by 

the Participant are not then living, or if no valid Beneficiary designation is in effect, the 
10

following shall be deemed to have been designated by the Participant, in the following 

order of priority: (i) the Participant’s Spouse, if surviving, or, if not, (ii) equally to any 

surviving children of the Participant, or, if none, (iii) to the Participant’s estate or duly 

authorized personal representative.

5.3 Total and Permanent Disability. Except as provided in Section 5.4, if a 

Participant experiences a Total and Permanent Disability (either prior to or after the Participant’s 

Termination of Employment), which qualifies as a “disability” under Code section 409A, the 

balance of the Participant’s Account shall be paid to the Participant in the form of a lump sum 

payment within 90 days following the Participant’s Total and Permanent Disability, without 

additional Deemed Earnings accruing after date of the Participant’s Total and Permanent 

Disability. 

5.4 Payment of Benefits – Special Rules for 2014. Notwithstanding anything to the 

contrary, if a Participant experiences a Total and Permanent Disability in 2014, and the 

Participant is entitled to a distribution under the Plan upon such Total and Permanent Disability, 

the Participant’s Account balance will be paid in 2015 (and not 2014 as may otherwise be the 

case). 

5.5 No Right to Elect Deferrals; No Borrowing; No Hardship Withdrawals. Neither a 

Participant nor a Beneficiary may elect to defer (or accelerate) payment of any benefit provided 

hereunder beyond (or before) the time of payment specified in this Article. A Participant may 

not borrow from any amounts accrued on the Participant’s behalf under this Plan. No hardship 

withdrawals shall be permitted under the Plan.

5.6 Permissible Accelerations and Delays. The Corporation reserves the right, 

exercisable in its sole discretion, to accelerate payments under this Plan to the extent permitted 

by, and in accordance with, Treasury Regulation §1.409A-3(j)(4). In addition, the Corporation 

reserves the right, exercisable in its sole discretion, to delay payments under this Plan to the 

extent permitted by, and in accordance with, Treasury Regulation §1.409A-2(b)(7).

ARTICLE VI

Administration 

6.1 Administrator. The Plan shall be administered by the Administrator. The 

Administrator shall be vested with full authority to make, administer, and interpret such rules and 

regulations, as it deems necessary to administer the Plan. Any determination, decision, or action 

of the Administrator in connection with the construction, interpretation, administration, or 

application of the Plan shall be final, conclusive, and binding upon all Participants and any and 

all persons claiming under or through any Participant. The Administrator shall have the 

authority to:

(a) Employ agents to perform services on behalf of the Administrator and to 

authorize the payment of reasonable compensation for the performance of such services; 

and
11

(b) Delegate to designated employees or departments of the Corporation the 

authority to perform such of the Administrator’s administrative duties hereunder as may 

be delegated to such employees or departments.

Pursuant to this authority and subject to the right of the Administrator to revoke such delegations 

in writing at any time, the recordkeeping responsibilities (including the determination to change 

the measure of Deemed Earnings under Section 4.4) are hereby delegated to the executive in 

charge of the Human Resources Division of the Corporation and/or such employees of that 

Division as that executive shall designate.

6.2 Cost. The Corporation shall pay the costs of administering the Plan.

6.3 Claims Procedure. The Claims Administrator shall determine Participants’ and 

Beneficiaries’ eligibility and rights to benefits under the Plan. In the event that a Participant or 

Beneficiary does not receive any Plan benefit that is claimed, such Participant or Beneficiary 

shall be entitled to consideration and review as provided in this Section 6.3. Such consideration 

and review shall be conducted in a manner designed to comply with ERISA section 503. The 

Claims Administrator shall be the Administrator, or a committee or an employee of the 

Corporation, designated as Claims Administrator by the Administrator. The Claims 

Administrator shall establish claims procedures for processing all claims for benefits under the 

Plan, including the review of denials or partial denials of claims.

(a) Claim in Case of Dispute. In the event of a dispute over benefits, a 

Participant or Beneficiary may file a written claim with the Claims Administrator 

provided that such claim is filed within 60 days after the “Notice Date.” For this purpose, 

“Notice Date” means:

(i) in the case where benefits are paid as a lump sum, the date of 

payment of such lump sum;

(ii) in any case where the Plan (prior to the filing of a claim for 

benefits) determines that an individual is not entitled to benefits and the Plan 

provides written notice to such individual of its determination, the date of the 

individual’s receipt of such notice; or

(iii) in any case where the Plan provides an individual with a written 

statement of his or her Account as of a specific date, the date of the individual’s 

receipt of such notice.

(b) Denial of Appeal. In the event of a denial or partial denial of a claim upon 

review, the claimant may commence civil action under ERISA section 502(a). A claim 

or action:

(i) to recover benefits allegedly due under the provisions of the Plan 

or by reason of any law, or

(ii) to enforce rights under the Plan, or
12

(iii) to clarify rights to future benefits under the Plan, or

(iv) that relates to the Plan and seeks a remedy, ruling, or judgment of 

any kind against the Plan, the Administrator, the Corporation, an Employer, or 

any employee or director thereof, 

may not be filed in any court until the claimant has exhausted the Plan’s claim and appeal 

process for any and all reasons the claimant believes his or her claim should be approved. 

In addition, any claim or action must be filed within 180 calendar days after written 

notice of the denial or partial denial on review is received by the claimant. If such 

claimant fails to bring civil action within the aforementioned 180 calendar days, the 

claimant shall be foreclosed from commencing any such action. Any action filed after 

the 180 day period shall be time-barred.

ARTICLE VII

Amendment and Termination

7.1 Amendment. The Corporation, acting through its Board or the Board’s designee, 

may at any time amend, modify, or suspend the Plan, in whole or in part, by an instrument in 

writing, executed by the Board or its designee; provided, however that no amendment, 

modification, or suspension shall reduce the accrued benefit of any Participant. Notwithstanding 

the foregoing, the Corporation may, in its sole discretion and without the Participant’s consent, 

modify or amend the terms of the Plan, or take any other action it deems necessary or advisable, 

to cause the Plan to comply with Code section 409A (or an exception thereto).

7.2 Termination. The Corporation, acting through its Board or the Board’s designee, 

may at any time terminate this Plan, in whole or in part, by an instrument in writing executed by 

the Board or its designee; provided, however that:

(a) No such termination shall reduce the accrued benefit of any Participant; 

and

(b) Termination of the Plan shall not accelerate the time of payment of 

benefits hereunder, nor cease the accrual of Deemed Earnings, unless the Corporation, by 

action of its Board or designee, shall elect to accelerate the payment of all benefits at the 

time it terminates the Plan, and such acceleration is permitted under Code section 409A

or other applicable law.
13

ARTICLE VIII

Miscellaneous

8.1 No Right of Employment. Nothing in the Plan shall be deemed to grant an 

Employee any rights other than those specifically outlined in the Plan. Nothing in the Plan shall 

be deemed to create any right of, or contract for, employment between an Employee and the 

Corporation.

8.2 Taxes. All amounts payable hereunder shall be reduced by any and all federal, 

state, and local income taxes, and employment taxes imposed upon the Participant or his or her 

Beneficiary that are required to be paid or withheld by the Corporation or Employer. Any 

amounts required to be withheld will be withheld out of amounts payable under the Plan or other 

current wages paid by the Participant’s Employer, as determined by the Company. The 

determination of the Corporation or Employer regarding applicable income and employment tax 

withholding requirements shall be final and binding on each Participant and Beneficiary.

8.3 Anticipation of Benefits. Neither the Participant nor any Beneficiary or 

Beneficiaries entitled to payments or any other benefits after the death of the Participant shall 

have the power to transfer, assign, anticipate, modify, or otherwise encumber in advance any of 

the payments that may become due hereunder; nor shall any such payments be subject to 

attachment, garnishment, or execution, or be transferable by operation of law in event of 

bankruptcy, insolvency, or otherwise.

8.4 Non-Assignability Clause. It is agreed that neither the Participant, nor his/her 

Beneficiary, nor any other designee, shall have any right to commute, sell, assign, encumber, or 

transfer or otherwise convey the right to receive any payments hereunder which payments and 

right thereto are expressly declared to be non-assignable and non-transferable; and, in the event 

of any attempted assignment or transfer, the Corporation shall have no further liability 

hereunder.

8.5 Prohibition Against Funding. Any provision for payments hereunder shall be by 

means of bookkeeping entries on the books of the Corporation and shall not create in the 

Participant or Beneficiary any right to, or claim against any specific assets of the Corporation, 

nor shall it result in the creation of any trust or escrow account for the Participant or Beneficiary. 

Any Participant or Beneficiary entitled to payment of benefits hereunder shall be a general 

creditor of the Corporation.

8.6 Gender and Number. As used herein the masculine pronoun shall include the 

feminine and neuter genders, the singular shall include the plural, and the plural the singular, 

unless the context clearly indicates a different meaning.

8.7 Controlling Law. This Plan and the respective rights and obligations of the 

Corporation and the Participants, shall be construed under the laws of the Commonwealth of 

Virginia (other than the choice of law provisions thereof), except to the extent otherwise 

provided by Federal law.
14

8.8 Severability. The invalidity or unenforceability of any provision of this Plan shall 

not affect the other provisions, and the Plan shall be construed in all respects as if any invalid or 

unenforceable provisions were omitted.

8.9 Recapture. Notwithstanding any provision of this Plan to the contrary, to the 

extent that a Participant’s benefit hereunder takes into account pay that is subject to a recapture, 

clawback, or similar agreement, and such pay is recaptured or clawed back under such 

agreement, then benefits provided under this Plan that were based upon the recaptured pay shall 

be either (a) repaid by the Participant (or the Participant’s Beneficiary) to the extent previously 

distributed, or (b) cancelled by the Administrator, to the extent not yet distributed. 

8.10 Code Section 409A.

(a) The Plan is intended to comply with the requirements of Code section 

409A, and shall in all respects be administered in accordance with Code section 409A. 

Notwithstanding anything in the Plan to the contrary, distributions may only be made 

under the Plan upon an event and in a manner permitted by Code section 409A, and all 

payments to be made upon a termination of employment under this Plan may only be 

made upon a “separation from service” as defined under Code section 409A. In no event 

shall a Participant, directly or indirectly, designate the calendar year of payment, except 

as permitted by Code section 409A.

(b) Notwithstanding anything in the Plan to the contrary, if a Participant’s 

distribution is to commence, or be paid upon, separation from service, payment of the 

distribution shall be delayed for a period of six months after the Participant’s separation 

from service, or death if earlier, if the Participant is a Key Employee as defined under 

Code section 409A (as determined by the Administrator) and if required pursuant to Code 

section 409A. If payment is delayed, the Participant’s distribution shall commence, or be 

paid, within 60 days of the date that is the six-month anniversary of the Participant’s 

separation from service.

(c) Although the Corporation intends to administer the Plan to prevent 

taxation under Code section 409A, the Corporation does not represent or warrant that the 

Plan will comply with Code section 409A or any other provision of federal, state, local, 

or non-United States law. The Corporation, its Affiliates, and their respective directors, 

officers, employees, and advisers will not be liable to any person for any tax, interest, or 

penalties that might be owed with respect to an Account.
15

IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed by its 

duly authorized officers, this 18 day of February 2015.

FEDERAL HOME LOAN

MORTGAGE CORPORATION

By: /s/ Daniel Scheinkman

DANIEL SCHEINKMAN

Vice President — Compensation and Benefits

ATTEST:

/s/ Carol Rakatansky

CAROL RAKATANSKY

Assistant Secretary
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,

 2014 2013 2012 2011 2010

(dollars in millions)

Net income (loss) before income tax (expense) benefit and cumulative effect of changes in

accounting principles $ 11,002 $ 25,363 $ 9,445 $ (5,666) $ (14,882)

Add:

Low-income housing tax credit partnerships — — — — —

Total interest expense 54,916 55,779 66,502 79,988 92,131

Interest factor in rental expenses 5 4 4 4 5

Earnings (loss), as adjusted $ 65,923 $ 81,146 $ 75,951 $ 74,326 $ 77,254

Fixed charges:

Total interest expense $ 54,916 $ 55,779 $ 66,502 $ 79,988 $ 92,131

Interest factor in rental expenses 5 4 4 4 5

Total fixed charges $ 54,921 $ 55,783 $ 66,506 $ 79,992 $ 92,136

Senior preferred stock and preferred stock dividends(1) 19,610 47,591 7,229 6,498 5,749

Total fixed charges including preferred stock dividends $ 74,531 $ 103,374 $ 73,735 $ 86,490 $ 97,885

Ratio of earnings to fixed charges(2) 1.20 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 and $14.9 billion for the years ended December 31, 2011 and 2010, 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 $8.6 billion, $22.2 billion, $12.2 billion, 

and $20.6 billion for the years ended December 31, 2014, 2013, 2011, and 2010, respectively.
Exhibit 24.1

Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

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 14, 

2015.

/s/ Raphael W. Bostic___

Raphael W. Bostic
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

3, 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, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

3, 2014.

/s/ Thomas M. Goldstein 

Thomas M. Goldstein
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

3, 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, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

3, 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, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

3, 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, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

3, 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, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

4, 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, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

3, 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, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

3, 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, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2014 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

3, 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, 2014 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 19, 2015

/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, 2014 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 19, 2015

/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, 2014 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 19, 2015

/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, 2014 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 19, 2015

/s/ James G. Mackey

James G. Mackey

Executive Vice President — Chief Financial Officer