UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934.

For the quarterly period ended September 30, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934.

For the transition period from to

Commission File Number: 001-34139

Federal Home Loan Mortgage Corporation

(Exact name of registrant as specified in its charter)

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

corporation McLean, Virginia

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

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

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

Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was 

required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be 

submitted 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 such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 

smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated 

filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer 

Non-accelerated filer Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition 

period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the 

Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange 

Act). Yes No 

As of October 16, 2018, there were 650,058,775 shares of the registrant’s common stock outstanding.
Table of Contents

Freddie Mac Form 10-Q i

Table of Contents

Page

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

Key Economic Indicators

Consolidated Results of Operations

Consolidated Balance Sheets Analysis

Our Business Segments

Risk Management

Liquidity and Capital Resources

Conservatorship and Related Matters

Regulation and Supervision

Off-Balance Sheet Arrangements

Forward-Looking Statements

FINANCIAL STATEMENTS

OTHER INFORMATION

CONTROLS AND PROCEDURES

EXHIBIT INDEX

SIGNATURES

FORM 10-Q INDEX

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Management's Discussion and Analysis Introduction

Freddie Mac Form 10-Q 1

Management's Discussion and 

Analysis of Financial Condition and 

Results of Operations

This Quarterly Report on Form 10-Q 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-Q. We undertake no obligation to update any forward-looking 

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

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

uncertainties, including those described in the Forward-Looking Statements sections of this Form 

10-Q, our Annual Report on Form 10-K for the year ended December 31, 2017, or 2017 Annual Report, 

and our Quarterly Reports on Form 10-Q for the first and second quarters of 2018, and the Business

and Risk Factors sections of our 2017 Annual Report.

Throughout this Form 10-Q, we use certain acronyms and terms that are defined in the Glossary of our 

2017 Annual Report. 

You should read the following MD&A in conjunction with our 2017 Annual Report and our condensed 

consolidated financial statements and accompanying notes for the three and nine months ended 

September 30, 2018 included in Financial Statements. Throughout this Form 10-Q, we refer to the 

three months ended September 30, 2018, the three months ended June 30, 2018, the three months 

ended March 31, 2018, the three months ended December 31, 2017 and the three months ended 

September 30, 2017 as "3Q 2018," "2Q 2018," "1Q 2018," "4Q 2017" and "3Q 2017," respectively. We 

refer to the nine months ended September 30, 2018 and the nine months ended September 30, 2017 as 

"YTD 2018" and "YTD 2017," respectively.

INTRODUCTION

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

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

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

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

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

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

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

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

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

the nation.
Management's Discussion and Analysis Introduction

Freddie Mac Form 10-Q 2

Business Results

Portfolio Balances

Guarantee Portfolios Investments Portfolios 

Total Guarantee Portfolio

Our total guarantee portfolio grew $117 billion, or 6%, from September 30, 2017 to September 30, 

2018, driven by a 4% increase in our single-family credit guarantee portfolio and a 23% increase in 

our multifamily guarantee portfolio. 

The growth in our single-family credit guarantee portfolio was primarily driven by an increase in 

U.S. single-family mortgage debt outstanding as a result of continued home price appreciation. 

New business acquisitions had a higher average loan size compared to older vintages that 

continued to run off.

The growth in our multifamily guarantee portfolio was primarily driven by strong multifamily 

market fundamentals, coupled with the growth in our share of new business volume due to our 

strategic pricing efforts and an increase in purchase activity associated with certain targeted 

loans in underserved markets.
Management's Discussion and Analysis Introduction

Freddie Mac Form 10-Q 3

Total Investments Portfolio

Our total investments portfolio declined $38 billion, or 11%, from September 30, 2017 to September 

30, 2018, primarily due to repayments and the active disposition of less liquid assets. 

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

Agreement and FHFA.

Consolidated Financial Results

Comprehensive income was $2.6 billion in 3Q 2018, compared to $4.7 billion in 3Q 2017. 

Key Drivers:

Continued reduction in the balance of our mortgage-related investments portfolio, partially offset by 

continued growth in our single-family credit guarantee portfolio, resulted in lower net interest 

income.

Shift to benefit for credit losses in 3Q 2018, from a provision for credit losses in 3Q 2017, driven by 

estimated losses from hurricane activity in 3Q 2017 that increased the provision for credit losses in 

that period.

Recognition of $4.5 billion in proceeds received in 3Q 2017 from a settlement with the Royal Bank of 

Scotland plc (RBS) related to certain of our non-agency mortgage related securities. We did not 

have any significant settlements in 3Q 2018.

Reduction in the statutory corporate income tax rate resulted in lower income tax expense.

Our total equity was $5.6 billion at September 30, 2018. Because our net worth was positive, we are not 

requesting a draw from Treasury under the Purchase Agreement for 3Q 2018. Based on our Net Worth 

Amount at September 30, 2018 of $5.6 billion and the applicable Capital Reserve Amount of $3.0 billion, 

we will have a dividend requirement to Treasury in December 2018 of $2.6 billion. 

Our cumulative senior preferred stock dividend payments totaled $114.0 billion as of September 30, 

2018. Under the Purchase Agreement the payment of dividends does not reduce the outstanding 

liquidation preference of the senior preferred stock, which remains at $75.6 billion. In addition, the 

amount of available funding remaining under the Purchase Agreement is $140.2 billion and will be 

reduced by any future draws.

Conservatorship and Government Support for Our Business

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

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

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

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

conservatorship, including whether we will continue to exist.

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

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

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

FHFA under statutory mandatory receivership provisions. We believe that the support provided by 

Treasury pursuant to the Purchase Agreement currently enables us to have adequate liquidity to conduct 

normal business activities. 
Management's Discussion and Analysis Introduction

Freddie Mac Form 10-Q 4

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

dividends, when, as and if declared by the Conservator, acting as successor to the rights, titles, powers 

and privileges of our Board of Directors. The dividends we have paid to Treasury on the senior preferred 

stock have been declared by, and paid at the direction of, the Conservator. 

Under the August 2012 amendment to the Purchase Agreement, our dividend requirement each quarter 

is the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal 

quarter, less the applicable Capital Reserve Amount, exceeds zero. Pursuant to the December 2017 

Letter Agreement, the Capital Reserve Amount is $3.0 billion. If for any reason we were not to pay our 

dividend requirement on the senior preferred stock in full in any future period, the unpaid amount would 

be added to the liquidation preference and our applicable Capital Reserve Amount would thereafter be 

zero, but this would not affect our ability to draw funds from Treasury under the Purchase Agreement.
Management's Discussion and Analysis Key Economic Indicators | Single-Family Home Prices

Freddie Mac Form 10-Q 5

KEY ECONOMIC INDICATORS

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

significantly affect our business and financial results. 

Single-Family Home Prices

National Home Prices

Commentary 

Home prices continued to appreciate, increasing by 0.2% and 1.0% during 3Q 2018 and 3Q 2017, 

respectively, and by 5.7% and 7.0% during YTD 2018 and YTD 2017, respectively, based on our 

own non-seasonally adjusted price index of single-family homes funded by loans owned or 

guaranteed by us or Fannie Mae. 

We expect home price growth will continue in 2019, although at a slower pace than in 2018, due to a 

gradual increase in housing supply and a moderate increase in mortgage interest rates.

Increases in home prices typically result in lower delinquency rates and lower loss severity, which 

generally reduce estimated credit losses on our total mortgage portfolio. 

Higher single-family home prices may also contribute to an increase in potential multifamily renters.
Management's Discussion and Analysis Key Economic Indicators | Interest Rates

Freddie Mac Form 10-Q 6

Interest Rates

Key Market Interest Rates 

 

 Commentary

The quarterly ending and quarterly average 30-year Primary Mortgage Market Survey ("PMMS") 

interest rates were higher at September 30, 2018 than September 30, 2017. Increases in the PMMS 

rate typically result in decreases in refinance activity and U.S. single-family loan originations.

The 10-year LIBOR and 2-year LIBOR quarterly ending interest rates had larger fluctuations during 

the 2018 periods than during the 2017 periods. Changes in the 10-year and 2-year LIBOR interest 

rates affect the fair value of certain of our assets and liabilities, including derivatives, measured at 

fair value. A larger interest rate fluctuation from period to period generally results in larger fair value 

gains and losses, while a smaller fluctuation from period to period generally results in smaller fair 
Management's Discussion and Analysis Key Economic Indicators | Interest Rates

Freddie Mac Form 10-Q 7

value gains and losses. In addition, the GAAP accounting treatment for our financial assets and 

liabilities (i.e., some are measured at amortized cost, while others are measured at fair value) creates 

variability in our GAAP earnings when interest rates change. We elect hedge accounting for certain 

assets and liabilities in an effort to reduce our GAAP earnings variability and better align our GAAP 

results with the economics of our business.

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

LIBOR rate, were higher at September 30, 2018 than September 30, 2017. An increase in short-term 

interest rates generally increases the interest earned on our short-term investments and interest 

expense on our short-term funding.

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

Segments - Capital Markets - Market Conditions. 
Management's Discussion and Analysis Key Economic Indicators | Unemployment Rate

Freddie Mac Form 10-Q 8

Unemployment Rate

Unemployment Rate and Job Creation(1)

Source: U.S. Bureau of Labor Statistics

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

Commentary 

Average monthly net new jobs (non-farm) were higher in 3Q 2018 than 3Q 2017.

The national unemployment rate was lower in 3Q 2018 than 3Q 2017, and in September 2018, 

declined to the lowest rate since December 1969.

Changes in monthly net new jobs and the national unemployment rate can affect several housing 

market factors, including the demand for both single-family and multifamily housing and the level of 

loan delinquencies. For example, decreases in the national unemployment rate typically result in 

lower levels of delinquencies, which generally result in a decrease in estimated credit losses on our 

total mortgage portfolio.
Management's Discussion and Analysis Consolidated Results of Operations

Freddie Mac Form 10-Q 9

CONSOLIDATED RESULTS OF OPERATIONS

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

condensed consolidated financial statements and accompanying notes. 

The table below compares our summarized consolidated results of operations.

Change Change

(Dollars in millions) 3Q 2018 3Q 2017 $ % YTD 2018 YTD 2017 $ %

Net interest income $3,257 $3,489 ($232) (7)% $9,278 $10,663 ($1,385) (13)%

Benefit (provision) for credit losses 380 (716) 1,096 153 377 (178) 555 312

Net interest income after benefit

(provision) for credit losses 3,637 2,773 864 31 9,655 10,485 (830) (8)

Non-interest income (loss):

Gains (losses) on extinguishment of

debt 146 27 119 441 403 295 108 37

Derivative gains (losses) 728 (678) 1,406 207 2,974 (2,076) 5,050 243

Net impairment of available-for-sale

securities recognized in earnings (2) (1) (1) (100) (3) (17) 14 82

Other gains (losses) on investment

securities recognized in earnings (441) 723 (1,164) (161) (1,021) 840 (1,861) (222)

Other income (loss) 394 5,403 (5,009) (93) 1,526 6,512 (4,986) (77)

Total non-interest income (loss) 825 5,474 (4,649) (85) 3,879 5,554 (1,675) (30)

Non-interest expense:

Administrative expense (569) (524) (45) (9) (1,647) (1,548) (99) (6)

REO operations expense (38) (35) (3) (9) (87) (128) 41 32

Temporary Payroll Tax Cut

Continuation Act of 2011 expense (375) (339) (36) (11) (1,100) (990) (110) (11)

Other expense (218) (159) (59) (37) (619) (361) (258) (71)

Total non-interest expense (1,200) (1,057) (143) (14) (3,453) (3,027) (426) (14)

Income (loss) before income tax

(expense) benefit 3,262 7,190 (3,928) (55) 10,081 13,012 (2,931) (23)

Income tax (expense) benefit (556) (2,519) 1,963 78 (1,946) (4,466) 2,520 56

Net income (loss) 2,706 4,671 (1,965) (42) 8,135 8,546 (411) (5)

Total other comprehensive income

(loss), net of taxes and reclassification

adjustments

(147) (21) (126) (600) (991) 324 (1,315) (406)

Comprehensive income (loss) $2,559 $4,650 ($2,091) (45)% $7,144 $8,870 ($1,726) (19)%
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

Freddie Mac Form 10-Q 10

Net Interest Income

Net Interest Yield Analysis

The tables below present an analysis of interest-earning assets and interest-bearing liabilities. 

3Q 2018 3Q 2017

(Dollars in millions)

Average

Balance

Interest

Income

(Expense)(1)

Average

Rate

Average

Balance

Interest

Income

(Expense)(1)

Average

Rate

Interest-earning assets:

Cash and cash equivalents $7,114 $15 0.84 % $10,064 $14 0.53 %

Securities purchased under agreements to resell 45,412 235 2.07 57,107 166 1.16

Advances to lenders and other secured lending 1,626 11 2.48 804 5 2.51

Mortgage-related securities:

Mortgage-related securities 143,113 1,495 4.18 159,640 1,572 3.94

Extinguishment of PCs held by Freddie Mac (89,976) (885) (3.93) (85,198) (811) (3.81)

Total mortgage-related securities, net 53,137 610 4.60 74,442 761 4.09

Non-mortgage-related securities 24,799 145 2.33 15,127 60 1.62

Loans held by consolidated trusts(1) 1,804,347 15,759 3.49 1,731,577 14,617 3.38

Loans held by Freddie Mac(1) 97,456 1,028 4.22 117,298 1,250 4.26

Total interest-earning assets 2,033,891 17,803 3.50 2,006,419 16,873 3.37

Interest-bearing liabilities:

Debt securities of consolidated trusts including PCs held by

Freddie Mac 1,832,707 (13,712) (2.99) 1,755,578 (12,663) (2.89)

Extinguishment of PCs held by Freddie Mac (89,976) 885 3.93 (85,198) 811 3.81

Total debt securities of consolidated trusts held by third

parties 1,742,731 (12,827) (2.94) 1,670,380 (11,852) (2.84)

Other debt:

Short-term debt 69,435 (361) (2.04) 68,868 (173) (0.99)

Long-term debt 212,256 (1,358) (2.54) 259,075 (1,359) (2.08)

Total other debt 281,691 (1,719) (2.42) 327,943 (1,532) (1.85)

Total interest-bearing liabilities 2,024,422 (14,546) (2.87) 1,998,323 (13,384) (2.68)

Impact of net non-interest-bearing funding 9,469 — 0.01 8,096 — 0.01

Total funding of interest-earning assets $2,033,891 ($14,546) (2.86)% $2,006,419 ($13,384) (2.67)%

Net interest income/yield $3,257 0.64 % $3,489 0.70 %

(1) Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $620 million and $634 million for loans held by 

consolidated trusts and $25 million and $37 million for loans held by Freddie Mac during 3Q 2018 and 3Q 2017, respectively.
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

Freddie Mac Form 10-Q 11

YTD 2018 YTD 2017

(Dollars in millions)

Average

Balance

Interest

Income

(Expense)(1)

Average

Rate

Average

Balance

Interest

Income

(Expense)(1)

Average

Rate

Interest-earning assets:

Cash and cash equivalents $6,917 $39 0.74 % $11,417 $38 0.44 %

Securities purchased under agreements to resell 46,743 637 1.82 55,903 386 0.92

Advances to lenders and other secured lending 1,340 26 2.58 651 12 2.42

Mortgage-related securities:

Mortgage-related securities 145,965 4,571 4.18 168,819 4,886 3.86

Extinguishment of PCs held by Freddie Mac (89,861) (2,577) (3.82) (87,883) (2,456) (3.73)

Total mortgage-related securities, net 56,104 1,994 4.74 80,936 2,430 4.00

Non-mortgage-related securities 18,017 302 2.23 18,049 207 1.54

Loans held by consolidated trusts(1) 1,789,433 45,908 3.42 1,720,906 43,810 3.39

Loans held by Freddie Mac(1) 100,382 3,174 4.22 119,843 3,870 4.31

Total interest-earning assets 2,018,936 52,080 3.44 2,007,705 50,753 3.37

Interest-bearing liabilities:

Debt securities of consolidated trusts including PCs

held by Freddie Mac 1,816,897 (40,573) (2.98) 1,744,260 (38,023) (2.91)

Extinguishment of PCs held by Freddie Mac (89,861) 2,577 3.82 (87,883) 2,456 3.73

Total debt securities of consolidated trusts held

by third parties 1,727,036 (37,996) (2.93) 1,656,377 (35,567) (2.86)

Other debt:

Short-term debt 63,576 (832) (1.73) 72,292 (414) (0.76)

Long-term debt 220,820 (3,974) (2.39) 270,251 (4,109) (2.02)

Total other debt 284,396 (4,806) (2.24) 342,543 (4,523) (1.75)

Total interest-bearing liabilities 2,011,432 (42,802) (2.84) 1,998,920 (40,090) (2.67)

Impact of net non-interest-bearing funding 7,504 — 0.01 8,785 — 0.01

Total funding of interest-earning assets $2,018,936 ($42,802) (2.83)% $2,007,705 ($40,090) (2.66)%

Net interest income/yield $9,278 0.61 % $10,663 0.71 %

(1) Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $1.8 billion and $1.7 billion for loans held by 

consolidated trusts and $70 million and $132 million for loans held by Freddie Mac during YTD 2018 and YTD 2017, respectively.
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

Freddie Mac Form 10-Q 12

Components of Net Interest Income

The table below presents the components of net interest income.

Change Change

(Dollars in millions) 3Q 2018 3Q 2017 $ % YTD 2018 YTD 2017 $ %

Contractual net interest income:

Guarantee fee income $869 $808 $61 8 % $2,561 $2,495 $66 3 %

Guarantee fee income related to

the Temporary Payroll Tax Cut

Continuation Act of 2011 364 333 31 9 1,067 974 93 10

Other contractual net interest

income 1,346 1,604 (258) (16) 4,189 4,900 (711) (15)

Total contractual net interest

income 2,579 2,745 (166) (6) 7,817 8,369 (552) (7)

Net amortization - loans and debt

securities of consolidated trusts 820 822 (2) — 2,269 2,442 (173) (7)

Net amortization - other assets and

debt (108) (38) (70) (184) (187) (23) (164) (713)

Hedge accounting impact (34) (40) 6 15 (621) (125) (496) (397)

Net interest income $3,257 $3,489 ($232) (7)% $9,278 $10,663 ($1,385) (13)%

Key Drivers:

Guarantee fee income 

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017 - increased primarily due to the continued 

growth of the core single-family loan portfolio.

Other contractual net interest income 

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017 - decreased due to the continued reduction 

in the balance of our mortgage-related investments portfolio pursuant to the portfolio limits 

established by the Purchase Agreement and FHFA. See Conservatorship and Related 

Matters - Reducing Our Mortgage-Related Investments Portfolio Over Time for a 

discussion of the key drivers of the decline in our mortgage-related investments portfolio. 

Net amortization of loans and debt securities of consolidated trusts

YTD 2018 vs. YTD 2017 - decreased primarily due to lower amortization of debt securities of 

consolidated trusts driven by a decrease in prepayments as a result of higher interest rates, 

partially offset by an increase in amortization from higher upfront fees on mortgage loans.

Net amortization of other assets and debt

YTD 2018 vs. YTD 2017 - losses increased primarily due to less accretion on unsecuritized 

mortgage loans, as certain of those loans were reclassified from held-for-investment to held-forsale and ceased amortizing, coupled with less accretion of previously recognized other-thantemporary impairments on non-agency mortgage-related securities. The decrease in accretion of 

other-than-temporary impairments on non-agency mortgage-related securities was due to a 

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

securities and a decline in new other-than-temporary impairments recognized.
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

Freddie Mac Form 10-Q 13

Hedge accounting impact

YTD 2018 vs. YTD 2017 - losses increased primarily due to the inclusion of fair value hedge 

accounting results within net interest income during the 2018 periods. This activity was included 

in other income and derivative gains (losses) until the adoption of the amended hedge 

accounting guidance in 4Q 2017.
Management's Discussion and Analysis Consolidated Results of Operations | Derivative Gains (Losses)

Freddie Mac Form 10-Q 14

Derivative Gains (Losses)

Components of Derivative Gains (Losses)

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

to economically hedge their interest-rate risk. We manage our exposure to interest-rate risk on an 

economic basis to a low level as measured by our models. We believe the impact of derivatives on our 

GAAP financial results should be considered in the context of our overall interest-rate risk profile, 

including our PMVS and duration gap results. For more information about our interest-rate risk 

management activities and the sensitivity of reported earnings to those activities, see Risk 

Management - Market Risk.

Derivative gains (losses) includes the fair value changes and the accrual of periodic cash settlements for 

derivatives while not designated in qualifying hedge relationships. In addition, prior to our adoption of 

amended hedge accounting guidance in 4Q 2017, we included the accrual of periodic cash settlements 

on derivatives in qualifying hedge relationships in derivatives gains (losses). 

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

Change Change

(Dollars in millions) 3Q 2018 3Q 2017 $ % YTD 2018 YTD 2017 $ %

Fair value change in interest-rate

swaps $736 $23 $713 3,100% $2,833 $116 $2,717 2,342%

Fair value change in option-based

derivatives (306) (198) (108) (55) (1,020) (519) (501) (97)

Fair value change in other

derivatives 271 (105) 376 358 1,322 (379) 1,701 449

Accrual of periodic cash settlements 27 (398) 425 107 (161) (1,294) 1,133 88

Derivative gains (losses) $728 ($678) $1,406 207% $2,974 ($2,076) $5,050 243%

Key Drivers:

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017 - During the 2018 periods, increases in long-term 

rates resulted in derivative fair value gains compared to derivative fair value losses during the 2017 

periods. The 10-year par swap rate increased 18 and 72 basis points during 3Q 2018 and YTD 2018, 

respectively, compared to a 1 basis point increase and a 4 basis point decline during 3Q 2017 and 

YTD 2017, respectively. The interest rate increases during the 2018 periods resulted in fair value 

gains in our pay-fixed interest rate swaps, forward commitments to issue PCs, and futures, partially 

offset by fair value losses in our receive-fixed swaps and certain of our option-based derivatives.
Management's Discussion and Analysis Consolidated Results of Operations | Other Income (Loss)

Freddie Mac Form 10-Q 15

Other Income (Loss)

Components of Other Income (Loss)

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

Change Change

(Dollars in millions) 3Q 2018 3Q 2017 $ % YTD 2018 YTD 2017 $ %

Other income (loss)

Non-agency mortgage-related

securities settlements and judgments $— $4,525 ($4,525) N/A $334 $4,525 ($4,191) (93)%

Gains (losses) on loans(1) (173) 203 (376) (185) (331) 410 (741) (181)

Gains (losses) on held-for-sale loan 

purchase commitments(1) 267 271 (4) (1) 564 826 (262) (32)

Gains (losses) on debt(1) 12 62 (50) (81) 42 (129) 171 133

All other 288 272 16 6 917 744 173 23

 Fair value hedge accounting

Change in fair value of derivatives in

qualifying hedge relationships — 85 (85) N/A — (215) 215 N/A

Change in fair value of hedged items in

qualifying hedge relationships — (15) 15 N/A — 351 (351) N/A

Total other income (loss) $394 $5,403 ($5,009) (93)% $1,526 $6,512 ($4,986) (77)%

(1) Includes fair value gains (losses) on loans, held-for-sale loan purchase commitments and debt for which we have elected the fair value option.

Key Drivers:

3Q 2018 vs. 3Q 2017 - Other income decreased primarily driven by:

Recognition of $4.5 billion in proceeds received during 3Q 2017 from the RBS settlement related 

to certain of our non-agency mortgage related securities.

Larger interest rate-related fair value losses on multifamily mortgage loans for which we have 

elected the fair value option due to an increase in long-term interest rates, coupled with lower 

gains on sales of single-family seasoned loans. 

Adoption of amended hedge accounting guidance in 4Q 2017, which resulted in fair value 

changes for derivatives and hedged items in qualifying hedge relationships no longer being 

recognized in other income (loss). See Note 9 for more information.

YTD 2018 vs. YTD 2017 - Other income decreased primarily driven by:

Recognition of $4.5 billion in proceeds received during YTD 2017 from the RBS settlement 

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

Larger interest rate-related fair value losses on multifamily mortgage loans and commitments for 

which we have elected the fair value option due to an increase in long-term interest rates, 

partially offset by increased gains on a higher volume of sales of single-family seasoned loans 

during YTD 2018 compared to YTD 2017.

Adoption of amended hedge accounting guidance in 4Q 2017, which resulted in fair value 

changes for derivatives and hedged items in qualifying hedge relationships no longer being 

recognized in other income (loss). See Note 9 for more information.
Management's Discussion and Analysis Consolidated Results of Operations | Other Comprehensive Income (Loss)

Freddie Mac Form 10-Q 16

Other Comprehensive Income (Loss)

Key Drivers of Other Comprehensive Income (Loss)

The following table presents the attribution of total other comprehensive income (loss), net of taxes and 

reclassification adjustments reported in our condensed consolidated statements of comprehensive 

income.

Change Change

(Dollars in millions) 3Q 2018 3Q 2017 $ % YTD 2018 YTD 2017 $ %

Other comprehensive income (loss),

excluding certain items ($211) $504 ($715) (142)% ($706) $1,090 ($1,796) (165)%

Excluded items:

Accretion due to significant increases

in expected cash flows on previously

impaired available-for-sale securities (8) (34) 26 76 (116) (137) 21 15

Realized (gains) losses reclassified

from AOCI 72 (491) 563 115 (169) (629) 460 73

Total excluded items 64 (525) 589 112 (285) (766) 481 63

Total other comprehensive income

(loss) ($147) ($21) ($126) (600)% ($991) $324 ($1,315) (406)%

Key Drivers:

Other comprehensive income (loss), excluding certain items

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017 - shifted to losses in the 2018 periods from 

income in the 2017 periods primarily due to higher fair value losses compared to fair value gains 

on agency and non-agency mortgage-related securities classified as available-for-sale as longterm interest rates increased during the 2018 periods, while rates remained relatively flat during 

3Q 2017 and decreased during YTD 2017, coupled with smaller fair value gains from less market 

spread tightening and lower balances on our non-agency mortgage-related securities. 

Excluded items:

Realized (gains) losses reclassified from AOCI 

3Q 2018 vs. 3Q 2017 - reflected reclassified losses during 3Q 2018 compared to reclassified 

gains during 3Q 2017 due to sales of agency mortgage-related securities in an unrealized loss 

position and a lower sales volume of non-agency mortgage-related securities classified as 

available-for-sale as the non-agency mortgage-related securities balance continued to decline.

YTD 2018 vs. YTD 2017 - reflected smaller amounts of reclassified gains during YTD 2018 due 

to a lower sales volume of non-agency mortgage-related securities classified as available-forsale as the non-agency mortgage-related securities balance continued to decline. 
Management's Discussion and Analysis Consolidated Results of Operations | Other Key Drivers

Freddie Mac Form 10-Q 17

Other Key Drivers 

Explanation of Other Key Drivers

Key Drivers:

Benefit (provision) for credit losses

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017 - shifted to benefit for credit losses in the 

2018 periods from a provision for credit losses in the 2017 periods, driven by estimated losses 

from hurricane activity in 3Q 2017 that increased the provision for credit losses in the 2017 

periods.

Gains (losses) on extinguishment of debt 

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017 - improved primarily due to an increase in the 

amount of gains recognized from the extinguishment of certain fixed-rate debt securities of 

consolidated trusts (i.e., PCs), as market rates increased between the time of issuance and 

repurchase, combined with an increase in the amount of debt securities of consolidated trusts 

repurchased. The amount of extinguishment gains or losses may vary, as the type and amount of 

PCs selected for repurchase are based on our investment and funding strategies, including our 

efforts to support the liquidity and price performance of our PCs.

Other gains (losses) on investment securities recognized in earnings 

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017 - shifted to losses in the 2018 periods from 

gains in the 2017 periods primarily driven by larger fair value losses on our mortgage and nonmortgage-related securities classified as trading as interest rates increased during the 2018 

periods, partially offset by lower fair value gains driven by less spread tightening and lower 

volume on sales of our available-for-sale non-agency mortgage-related securities.

Other expense

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017 - increased primarily due to recoveries in the 

2017 periods of amounts previously recognized in other expense. This activity did not repeat in 

the 2018 periods.

Income tax expense

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017 - decreased due to the lower statutory 

corporate income tax rate in the 2018 periods.
Management's Discussion and Analysis Consolidated Balance Sheets Analysis

Freddie Mac Form 10-Q 18

CONSOLIDATED BALANCE SHEETS 

ANALYSIS

The table below compares our summarized consolidated balance sheets.

Change

(Dollars in millions) 9/30/2018 12/31/2017 $ %

Assets:

Cash and cash equivalents(1) $7,038 $9,811 ($2,773) (28)%

Securities purchased under agreements to resell 48,540 55,903 (7,363) (13)

Subtotal 55,578 65,714 (10,136) (15)

Investments in securities, at fair value 75,930 84,318 (8,388) (10)

Mortgage loans, net 1,902,428 1,871,217 31,211 2

Accrued interest receivable 6,600 6,355 245 4

Derivative assets, net 469 375 94 25

Deferred tax assets, net 7,876 8,107 (231) (3)

Other assets 14,576 13,690 886 6

Total assets $2,063,457 $2,049,776 $13,681 1 %

Liabilities and Equity:

Liabilities:

Accrued interest payable $6,418 $6,221 $197 3 %

Debt, net 2,041,990 2,034,630 7,360 —

Derivative liabilities, net 295 269 26 10

Other liabilities 9,195 8,968 227 3

Total liabilities 2,057,898 2,050,088 7,810 —

Total equity 5,559 (312) 5,871 1,882

Total liabilities and equity $2,063,457 $2,049,776 $13,681 1 %

(1) The current and prior period presentation has been modified to include restricted cash and cash equivalents due to recently adopted accounting 

guidance. 

Key Drivers:

As of September 30, 2018 compared to December 31, 2017:

Cash and cash equivalents and securities purchased under agreements to resell affect one 

another and changes in the balances should be viewed together (e.g., cash and cash equivalents 

can be invested in securities purchased under agreements to resell or other investments). The 

decrease in the combined balance was primarily due to lower near term cash needs for fewer 

upcoming maturities and anticipated calls of other debt.

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

investments portfolio during 2018 as required by the Purchase Agreement and FHFA.

Total equity increased primarily as a result of higher comprehensive income in 3Q 2018 compared 

to 4Q 2017, combined with our ability to retain equity as a result of an increase in the applicable 

Capital Reserve Amount, which is $3.0 billion as of January 1, 2018.
Management's Discussion and Analysis Our Business Segments | Segment Earnings

Freddie Mac Form 10-Q 19

OUR BUSINESS SEGMENTS

We have three reportable segments, which are based on the way we manage our business. 

Single-family Guarantee - reflects results from our purchase, securitization and guarantee of singlefamily loans and the management of single-family mortgage credit risk.

Multifamily - reflects results from our purchase, sale, securitization and guarantee of multifamily 

loans and securities, our investments in those loans and securities and the management of 

multifamily mortgage credit risk and market spread risk.

Capital Markets - reflects results from managing our mortgage-related investments portfolio 

(excluding Multifamily segment investments, single-family seriously delinquent loans and the credit 

risk of single-family performing and reperforming loans), the treasury function, securitization 

activities and our interest-rate risk.

Certain activities that are not part of a reportable segment, such as material corporate-level activities 

that are infrequent in nature and based on decisions outside the control of the management of our 

reportable segments, are included in the All Other category.

Segment Earnings

We present Segment Earnings by reclassifying certain credit guarantee-related activities and 

investment-related activities between various line items on our GAAP condensed consolidated 

statements of comprehensive income and allocating certain revenues and expenses to our three 

reportable segments. For more information on our segment reclassifications, see Note 13.
Management's Discussion and Analysis Our Business Segments | Segment Earnings

Freddie Mac Form 10-Q 20

Segment Comprehensive Income

The graph below shows our comprehensive income by segment.

(In millions)

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

Freddie Mac Form 10-Q 21

Single-Family Guarantee

Market Conditions

The graphs and related discussion below present certain market indicators that can significantly affect 

the business and financial results of our Single-family Guarantee segment. 

U.S. Single-Family Originations 

Source: Inside Mortgage Finance dated August 17, 2018 (latest 

available IMF purchase/refinance information).

Single-Family Serious Delinquency Rates 

Source: National Delinquency Survey from the Mortgage Bankers 

Association. Data as of August 16, 2018 (latest available NDS 

information).

Commentary 

U.S. single-family loan origination volume decreased to $435 billion in 3Q 2018 from $495 billion in 

3Q 2017, driven by lower refinance volume as a result of higher mortgage interest rates in 3Q 2018. 

Mortgage origination data is from Inside Mortgage Finance as of October 26, 2018. 

We expect continued growth in U.S. single-family home purchase volume due to a gradual increase 

in housing supply and home price appreciation, while a moderate increase in mortgage interest rates 

is expected to result in a lower refinance volume. Freddie Mac's single-family loan purchase volumes 

typically follow a similar trend.

 The single-family serious delinquency rate in the U.S. decreased during 2Q 2018 as the impacts from 

the hurricanes in 3Q 2017 subsided and the general economy continued to improve. Freddie Mac's 

serious delinquency rate typically follows a similar trend. 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 22

Business Results

The following tables, graphs and related discussion present the business results of our Single-family 

Guarantee segment.

New Business Activity

UPB of Single-Family Loan Purchases and Guarantees by Loan Purpose 

(In billions)
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 23

Percentage of Single-Family Loan Purchases and Guarantees by Loan Purpose

Commentary 

Our loan purchase and guarantee activity decreased during the 2018 periods compared to the 2017 

periods primarily due to a decline in refinance activity as a result of higher average mortgage interest 

rates, partially offset by higher home purchase volume.

Freddie Mac purchases loans originated by lenders using Fannie Mae's Automated Underwriting 

System (AUS). Fannie Mae announced changes to its AUS in July 2017, which led to an increase in 

eligibility for purchase of new loans with debt-to-income ratios between 45% and 50% (high DTI). 

These loans have minimal impact on our single-family credit guarantee portfolio, but we are 

monitoring the overall credit quality and performance of these loans. Although the volume of our 

purchases of these high DTI loans may increase over time, we expect to purchase fewer loans with 

high DTI ratios that have other high-risk characteristics.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 24

Single-Family Credit Guarantee Portfolio

Single-Family Credit Guarantee Portfolio

Commentary 

The single-family credit guarantee portfolio increased at an annualized rate of approximately 3% 

from December 31, 2017 to September 30, 2018, driven by an increase in U.S. single-family 

mortgage debt outstanding as a result of continued home price appreciation. New business 

acquisitions had a higher average loan size compared to older vintages that continued to run off. 

The core single-family loan portfolio grew to 81% of the single-family credit guarantee portfolio at 

September 30, 2018, compared to 78% at December 31, 2017.

The legacy and relief refinance single-family loan portfolio declined to 19% of the single-family credit 

guarantee portfolio at September 30, 2018, compared to 22% at December 31, 2017, driven 

primarily by liquidations.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 25

Guarantee Fees

We receive fees for guaranteeing the payment of principal and interest to investors in our mortgagerelated securities. These fees consist primarily of a combination of base contractual guarantee fees paid 

on a monthly basis and initial upfront payments. The average portfolio Segment Earnings guarantee fee 

rate recognizes upfront fee income over the contractual life of the related loans (usually 30 years). If the 

related loans prepay, the remaining upfront fee income is recognized immediately. In contrast, the 

average guarantee fee rate charged on new acquisitions recognizes upfront fee income over the 

estimated life of the related loans using our expectations of prepayments and other liquidations. See 

MD&A - Our Business Segments - Single-family Guarantee - Business Overview - 

Guarantee Fees in our 2017 Annual Report for more information on our guarantee fees.

Average Portfolio Segment Earnings Guarantee Fee Rate(1)(2) 

(In bps)

 Referenced footnotes are included after the next chart.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 26

Average Guarantee Fee Rate(1) Charged on New Acquisitions

(In bps)

 

(1) Excludes the legislated 10 basis point increase in guarantee fees.

(2) Reflects an average rate for our total single-family credit guarantee portfolio and is not limited to purchases in the applicable period.

Commentary 

The average portfolio Segment Earnings guarantee fee rate declined during 3Q 2018 compared to 

3Q 2017 due to a decrease in recognition of upfront fees driven by a lower prepayment rate. The 

guarantee fee rate remained relatively unchanged during YTD 2018 compared to YTD 2017.

The average guarantee fee rate charged on new acquisitions decreased during the 2018 periods 

compared to the 2017 periods due to a decline in loans that were assessed with additional riskbased fees, as the mix of loans we acquired changed.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 27

Credit Risk Transfer (CRT) Activities 

We transfer credit risk on a portion of our single-family credit guarantee portfolio to the private market, 

which reduces the risk of future losses to us and taxpayers when borrowers go into default. Our primary 

CRT activities are our STACR debt note and ACIS transactions, in which we pay interest to investors or 

premiums to insurers in exchange for their taking on a portion of the credit risk on the mortgage loans in 

the related reference pool. These payments effectively reduce our guarantee fee income from the PCs 

backed by the mortgage loans in the related reference pools. See MD&A - Our Business Segments 

- Single-Family Guarantee - Business Overview - Credit Risk Transfer Transactions in our 

2017 Annual Report for more information on our CRT transactions.

The following charts present the issuance amounts for the CRT transactions that occurred during 3Q 

2018 and the cumulative issuance amounts for all CRT transactions as of September 30, 2018 by loss 

position and the party holding each loss position, excluding senior subordinate securitization structures 

and seller indemnification agreements. 

 New CRT Transactions during 3Q 2018(1) 

(In billions)

Senior

Freddie Mac

$30.8

Reference 

Pool

$32.0

Mezzanine

Freddie 

Mac(5) 

 

($0.2)

ACIS(3)(5)

 

$0.5

Other CRT

$0.6

First 

 Loss(4)

Freddie 

Mac(5)

($0.1)

ACIS(5)

$0.2

Other CRT

$0.2 

Cumulative CRT Transactions as of September 30, 

2018(1)(2)

(In billions)

Senior

Freddie Mac

$1,027.1

Reference 

Pool

$1,074.2

Mezzanine

Freddie 

Mac 

$2.4

ACIS(3)

$9.3

STACR 

Debt 

Notes

$23.6

Other 

CRT

$1.8

First

 Loss(4)

Freddie 

Mac

$5.6

ACIS

$1.3

STACR 

Debt 

Notes

$2.2

Other

CRT

$0.9

(1) The amounts represent the UPB upon issuance of CRT transactions.

(2) For the current outstanding coverage provided by our CRT transactions, see Credit Enhancements.

(3) Starting in 2Q 2018, ACIS transactions include Deep MI CRT transactions which were previously disclosed separately. The 3Q 2018 and Cumulative 

presentations have been modified to reflect this change.

(4) First loss includes all B tranches in our STACR debt notes and their equivalent in ACIS and Other CRT transactions.

(5) During 3Q 2018, amounts were transferred from the Freddie Mac category to the ACIS category as we completed new ACIS transactions related to 

reference pools in transactions executed in prior periods.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 28

Commentary 

During YTD 2018, we transferred a portion of credit risk associated with $237.9 billion in UPB of 

loans in our single-family credit guarantee portfolio through STACR debt note, ACIS, senior 

subordinate securitization structure, seller indemnification and other CRT transactions. 

As of September 30, 2018, we had cumulatively transferred a portion of credit risk on nearly $1.1 

trillion of our single-family mortgages, based upon the UPB at issuance of the CRT transactions.

FHFA's Conservatorship Capital Framework (CCF) capital needed for credit risk was reduced by 

approximately 60% through CRT transactions on originations in the twelve months ended 

September 30, 2017.

The reduction in the amount of CCF capital needed for credit risk on new originations is 

calculated as modeled conservatorship credit capital released from the underlying single-family 

CRT transaction reference pool divided by total modeled conservatorship credit capital on new 

originations at the time of purchase. For more information on the CCF and the calculation of 

modeled conservatorship capital, see Risk Management - Conservatorship Capital 

Framework and Risk Management - Conservatorship Capital Framework - Return 

on Modeled Conservatorship Capital.

In September 2018, we introduced an enhanced CRT structure designed to reduce CCF capital 

needed for credit risk by approximately 80% on related new originations. This enhanced structure 

sells more of the first loss position and extends the maturity from 12.5 to 30 years.

During YTD 2018, we paid $562 million in interest expense, net of reinvestment income, on our 

outstanding STACR transactions and $227 million in ACIS premiums, compared to $455 million in 

interest expense, net of reinvestment income, on our outstanding STACR transactions and $170 

million in ACIS premiums during YTD 2017. 

As of September 30, 2018, we had experienced minimal write-downs on our STACR debt notes and 

have filed minimal claims for reimbursement of losses under our ACIS transactions. 

We are continually evaluating our credit risk transfer strategy and make changes depending on market 

conditions and our business strategy. The aggregate cost of our credit risk transfer activity, as well as 

the amount of risk transferred, will continue to increase as we continue to do new transactions.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 29

Credit Enhancements

The table below provides information on the total current and protected UPB and maximum coverage 

associated with credit enhanced loans in our single-family credit guarantee portfolio as of 

September 30, 2018 and December 31, 2017, respectively. The table includes all types of single-family 

credit enhancements. See Note 6 for additional information about our single-family credit 

enhancements.

September 30, 2018 December 31, 2017

(In millions)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Primary mortgage insurance $366,731 $93,931 $334,189 $85,429

STACR debt note 621,350 18,078 604,356 17,788

ACIS transactions(3) 753,298 8,375 625,082 6,933

Senior subordinate securitization structures 32,418 3,260 12,283 1,913

Other(3)(4) 120,315 9,208 8,623 6,282

Less: UPB with more than one type of credit enhancement (921,750) — (775,751) —

Single-family credit guarantee portfolio with credit enhancement 972,362 132,852 808,782 118,345

Single-family credit guarantee portfolio without credit enhancement 902,604 — 1,020,098 —

Total $1,874,966 $132,852 $1,828,880 $118,345

(1) Except for the majority of our STACR and ACIS transactions, our credit enhancements generally provide protection for the first, or initial, credit 

losses associated with the related loans. For STACR and ACIS transactions, total current and protected UPB represents the UPB of the assets 

included in the reference pool. For senior subordinate securitization structures, total current and protected UPB represents the UPB of the 

guaranteed securities. 

(2) Except for senior subordinate securitization structures, this represents the remaining amount of loss recovery that is available subject to the terms 

of counterparty agreements. Specifically, for STACR transactions, this represents the outstanding balance held by third parties, and for ACIS 

transactions, this represents the remaining aggregate limit of insurance purchased from third parties. For senior subordinate securitization 

structures, this represents the UPB of the securities that are subordinate to our guarantee and held by third parties, which could provide 

protection by absorbing first losses.

(3) Starting in 2Q 2018, ACIS transactions include Deep MI CRT transactions which were previously disclosed under "Other" transactions. The current 

and prior period presentation has been modified to reflect this change. 

(4) Includes seller indemnification, lender recourse and indemnification agreements, pool insurance, HFA indemnification and other credit 

enhancements. 

Commentary 

We had coverage remaining of $132.9 billion and $118.3 billion on our single-family credit guarantee 

portfolio as of September 30, 2018 and December 31, 2017, respectively. Credit risk transfer 

transactions provided 24.5% and 22.4% of the coverage remaining at those dates, respectively.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 30

Mortgage Loan Credit Risk 

Certain combinations of loan attributes can indicate a higher degree of credit risk, such as loans with 

both higher LTV ratios and lower credit scores. The following table presents the combination of credit 

score and current LTV (CLTV) ratio attributes of loans in our single-family credit guarantee portfolio. 

September 30, 2018

CLTV > 80 to 100 CLTV > 100 All Loans

(Credit score)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Modified

Core single-family loan portfolio:

< 620 0.3% 2.10% —% NM —% NM 0.3% 2.21% 3.8%

620 to 659 2.0 1.12 0.3 1.15% — NM 2.3 1.13 1.9

68.2 0.17 9.9 0.23 — NM 78.1 0.18 0.3

Not available 0.1 1.52 — NM — NM 0.1 2.90 3.6

Total 70.6% 0.21% 10.2% 0.28% —% NM 80.8% 0.22% 0.4%

Legacy and relief refinance singlefamily loan portfolio:

< 620 1.2% 4.21% 0.2% 8.48% 0.1% 14.04% 1.5% 5.04% 23.6%

620 to 659 1.8 3.18 0.3 6.83 0.2 11.52 2.3 3.81 20.5

13.4 1.16 1.5 3.56 0.4 6.00 15.3 1.40 7.4

Not available 0.1 4.72 — NM — NM 0.1 5.05 19.4

Total 16.5% 1.66% 2.0% 4.69% 0.7% 8.15% 19.2% 2.01% 10.3%

(1) NM - Not meaningful due to the percentage of the portfolio rounding to zero.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 31

Alt-A and Subprime Loans 

While we have referred to certain loans as subprime or Alt-A for purposes of the discussion below and 

elsewhere in this Form 10-Q, there is no universally accepted definition of subprime or Alt-A, and the 

classification of such loans may differ from company to company. We do not rely on these loan 

classifications to evaluate the credit risk exposure relating to such loans in our single-family credit 

guarantee portfolio. 

Participants in the mortgage market have characterized single-family loans based upon their overall 

credit quality at the time of origination, including as prime or subprime. While we have not historically 

characterized the loans in our single-family credit guarantee portfolio as either prime or subprime, we 

monitor the amount of loans we have guaranteed with characteristics that indicate a higher degree of 

credit risk. In addition, we estimate that approximately $0.9 billion and $1.1 billion of security collateral 

underlying our other securitization products at September 30, 2018 and December 31, 2017, 

respectively, were identified as subprime based on information provided to us when we entered into 

these transactions.

Mortgage market participants have classified single-family loans as Alt-A if these loans have credit 

characteristics that range between the prime and subprime categories, if they are underwritten with 

lower or alternative income or asset documentation requirements compared to a full documentation 

loan, or both. Although we have discontinued new purchases of loans with lower documentation 

standards, we continue to purchase certain amounts of such loans in cases where the loan was either 

purchased pursuant to a previously issued guarantee, as part of our relief refinance initiative, or as part 

of another refinance loan initiative and the pre-existing loan was originated under less than full 

documentation standards. In the event we purchase a refinance loan and the original loan had been 

previously identified as Alt-A, such refinance loan may no longer be categorized or reported as an Alt-A 

loan in this Form 10-Q 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 September 30, 2018, we have purchased 

approximately $36.3 billion of relief refinance loans that were previously categorized as Alt-A loans in our 

portfolio, including $0.1 billion in 3Q 2018. 

The table below contains information on Alt-A loans in our single-family credit guarantee portfolio. 

September 30, 2018 December 31, 2017

(Dollars in billions) UPB CLTV

%

Modified SDQ Rate UPB CLTV

%

Modified SDQ Rate

Alt-A $24.5 64% 24.0% 4.40% $27.1 67% 24.1% 5.62%

The UPB of Alt-A loans in our single-family credit guarantee portfolio declined during YTD 2018 primarily 

due to borrowers refinancing into other mortgage products, foreclosure sales and other liquidation 

events. Significant portions of the Alt-A loans in our portfolio are concentrated in Arizona, California, 

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

Freddie Mac Form 10-Q 32

Single-Family Loan Performance

 Serious Delinquency Rates Delinquency Rates for Loans One Month and Two 

Months Past Due 

Commentary 

Total serious delinquency rate on our single-family credit guarantee portfolio was lower as of 

September 30, 2018 compared to September 30, 2017 due to our continued loss mitigation efforts, 

sales of certain seriously delinquent loans, home price appreciation, a low unemployment rate, and 

the reduced impacts from the hurricanes in 3Q 2017. This improvement was also driven by the 

continued shift in the single-family credit guarantee portfolio mix, as the legacy and relief refinance 

single-family loan portfolio runs off and we add higher credit quality loans to our core single-family 

loan portfolio. Delinquency rates for both loans one month past due and loans two months past due 

were similarly affected.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 33

Credit Performance 

The table below contains certain credit performance metrics for our single-family credit guarantee 

portfolio. 

(Dollars in millions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Charge-offs, gross $1,277 $1,140 $2,248 $4,033

Recoveries (119) (145) (341) (327)

Charge-offs, net 1,158 995 1,907 3,706

REO operations expense 38 35 87 128

Total credit losses $1,196 $1,030 $1,994 $3,834

Total credit losses (in bps) 25.4 22.7 14.2 28.4

The table below summarizes the carrying value for individually impaired single-family loans on our 

condensed consolidated balance sheets for which we have recorded an allowance determined on an 

individual basis.

September 30, 2018 September 30, 2017

(Dollars in millions) Loan Count Amount Loan Count Amount

TDRs, at January 1 364,704 $54,415 485,709 $78,869

New additions 45,348 7,066 29,867 4,130

Repayments and reclassifications to held-for-sale (92,662) (14,875) (113,933) (21,828)

Foreclosure sales and foreclosure alternatives (5,907) (796) (8,169) (1,122)

TDRs, at September 30 311,483 45,810 393,474 60,049

Loans impaired upon purchase 2,814 188 5,782 380

Total impaired loans with an allowance recorded 314,297 45,998 399,256 60,429

Allowance for loan losses (5,137) (7,706)

Net investment, at September 30 $40,861 $52,723

The tables below present information about the UPB of single-family TDRs and non-accrual loans on our 

condensed consolidated balance sheets. 

(In millions) September 30, 2018 December 31, 2017

TDRs on accrual status $45,073 $51,644

Non-accrual loans 11,855 17,748

Total TDRs and non-accrual loans $56,928 $69,392

Allowance for loan losses associated with:

 TDRs on accrual status $4,291 $5,257

 Non-accrual loans 1,101 1,883

Total $5,392 $7,140

(In millions) YTD 2018 YTD 2017

Foregone interest income on TDRs and non-accrual loans(1) $965 $1,325

(1) Represents the amount of interest income that we did not recognize but would have recognized during the period for loans outstanding at the end 

of each period had the loans performed according to their original contractual terms.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 34

Commentary 

As of September 30, 2018, 48% of the allowance for loan losses for single-family mortgage loans 

related to interest rate concessions provided to borrowers as part of loan modifications. 

Most of our modified single-family loans, including TDRs, were current and performing at 

September 30, 2018.

We expect our allowance for loan losses associated with existing single-family TDRs to decline over 

time as we continue to sell reperforming loans. In addition, the allowance for loan losses will decline 

as borrowers continue to make monthly payments under the modified terms and interest rate 

concessions are amortized into earnings. 

See Note 4 for information on our single-family allowance for loan losses.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 35

Loss Mitigation Activities

Loan Workout Activity(1) 

(UPB in billions, number of loan workouts in thousands)

(1) Foreclosure alternatives consist of short sales and deeds in lieu of foreclosure. Home retention actions consist of forbearance agreements, 

repayment plans and loan modifications.

Commentary 

Our loan workout activity increased in the 2018 periods, driven by the impact from the hurricanes in 

3Q 2017.

We continue our loss mitigation efforts through our relief refinance, modification and other initiatives.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 36

REO Activity

The table below presents a summary of our single-family REO activity.

3Q 2018 3Q 2017 YTD 2018 YTD 2017

(Dollars in millions)

Number of

Properties Amount

Number of

Properties Amount

Number of

Properties Amount

Number of

Properties Amount

Beginning balance — REO 7,135 $777 9,915 $1,046 8,299 $900 11,418 $1,215

Additions 2,506 247 2,853 282 7,870 759 9,697 949

Dispositions (2,622) (256) (3,622) (348) (9,150) (891) (11,969) (1,184)

Ending balance — REO 7,019 768 9,146 980 7,019 768 9,146 980

Beginning balance, valuation allowance (6) (10) (14) (17)

Change in valuation allowance (2) (4) 6 3

Ending balance, valuation allowance (8) (14) (8) (14)

Ending balance — REO, net $760 $966 $760 $966

Commentary 

Our REO ending inventory declined in the 2018 periods primarily due to a decrease in REO 

acquisitions driven by fewer loans in foreclosure and a large proportion of property sales to third 

parties at foreclosure.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac Form 10-Q 37

Financial Results

The table below presents the components of Segment Earnings and comprehensive income for our 

Single-family Guarantee segment. 

Change Change

(Dollars in millions) 3Q 2018 3Q 2017 $ % YTD 2018 YTD 2017 $ %

Guarantee fee income $1,576 $1,581 ($5) — % $4,660 $4,505 $155 3%

Benefit (provision) for credit losses 196 (826) 1,022 124 327 (775) 1,102 142

Other non-interest income (loss) 348 403 (55) (14) 561 1,081 (520) (48)

Administrative expense (371) (353) (18) (5) (1,070) (1,018) (52) (5)

REO operations expense (42) (38) (4) (11) (101) (138) 37 27

Other non-interest expense (413) (348) (65) (19) (1,192) (1,001) (191) (19)

Segment Earnings before income tax expense 1,294 419 875 209 3,185 2,654 531 20

Income tax expense (229) (164) (65) (40) (615) (911) 296 32

Segment Earnings, net of taxes 1,065 255 810 318 2,570 1,743 827 47

Total other comprehensive income (loss), net of tax (2) — (2) N/A (8) (2) (6) (300)

Total comprehensive income $1,063 $255 $808 317 % $2,562 $1,741 $821 47%

Key Business Drivers: 

3Q 2018 vs. 3Q 2017

Lower upfront fee amortization income driven by lower prepayments, offset by higher contract 

guarantee fee income due to continued growth in our single-family credit guarantee portfolio, 

resulted in guarantee fee income remaining relatively unchanged.

Shift to benefit for credit losses in 3Q 2018, from a provision for credit losses in 3Q 2017, driven 

by estimated losses from hurricane activity in 3Q 2017 that increased the provision for credit 

losses in that period.

Small fair value losses on STACR debt notes in 3Q 2018 compared to fair value gains in 3Q 2017 

as a result of market spreads between STACR yields and LIBOR remaining relatively unchanged 

in 3Q 2018, while spreads widened in 3Q 2017.

YTD 2018 vs. YTD 2017 

Continued growth in our single-family credit guarantee portfolio and higher upfront fee 

amortization income resulted in increased guarantee fee income.

Shift to benefit for credit losses during YTD 2018, from a provision for credit losses during YTD 

2017, primarily driven by estimated losses from hurricane activity in 3Q 2017 that increased the 

provision for credit losses in that period.

Losses during YTD 2018 compared to gains during YTD 2017 on single-family seasoned loan 

reclassifications between held-for-investment and held-for-sale.

Small fair value gains on STACR debt notes during YTD 2018 compared to fair value losses 

during YTD 2017 as a result of market spreads between STACR yields and LIBOR remaining 

relatively unchanged during YTD 2018, while spreads tightened during YTD 2017.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 38

Multifamily 

Market Conditions

The graphs and related discussion below present certain multifamily market indicators that can 

significantly affect the business and financial results of our Multifamily segment. 

Change in Effective Rents

Source: REIS, Inc.

Apartment Vacancy Rates

Source: REIS, Inc.

Commentary

Growth in effective rent (i.e., the average rent paid by the tenant over the term of the lease, adjusted 

for concessions by the landlord and costs borne by the tenant) for 3Q 2018 remained strong relative 

to the long-term average, primarily due to an increase in potential renters driven by healthy 

employment levels, higher wages, higher single-family home prices, rising mortgage interest rates 

and a growing demand for rental housing due to lifestyle changes and demographic trends.

While vacancy rates rose slightly during 3Q 2018 compared to 2Q 2018, these rates remain well 

below the long-term average. Net absorptions continued to lag new apartment completions in 3Q 

2018. Although we expect continued strong demand, it may take longer to absorb new units 

compared to prior quarters.

Our financial results for 3Q 2018 were not significantly affected by these relatively stable market 

conditions.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 39

K Certificate Benchmark Spreads

Source: Independent dealers

Commentary

The valuation of our securitization pipeline and the profitability of our primary risk transfer 

securitization product, the K Certificate, are affected by both changes in K Certificate benchmark 

spreads and deal-specific attributes, such as tranche size, risk distribution and collateral 

characteristics (loan term, coupon type, prepayment restrictions and underlying property type). 

These market spread movements and deal-specific attributes contribute to our earnings volatility, 

which we manage by controlling the size of our securitization pipeline and by entering into certain 

spread-related derivatives. Spread tightening generally results in fair value gains, while spread 

widening generally results in fair value losses.

K Certificate benchmark spreads are market-quoted spreads over the U.S. swap curve. The 10-year 

fixed-rate spread represents the spread for the largest guaranteed class of a typical fixed-rate K 

Certificate, while the 7-year floating-rate spread represents the spread for the largest guaranteed 

class of a typical floating-rate K Certificate.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 40

Business Results

The graphs, tables and related discussion below present the business results of our Multifamily 

segment.

New Business Activity 

Multifamily New Business Activity

(UPB in billions)

 

Commentary

The 2018 Conservatorship Scorecard annual production cap was $35.0 billion, unchanged from the 

first half of the year. The production cap is subject to reassessment throughout the year by FHFA to 

determine whether an increase in the cap is appropriate based on a stronger than expected overall 

market. Reclassifications between new business activity subject to the production cap and new 

business activity not subject to the production cap may occur during 2018.

Outstanding purchase commitments were $24.3 billion and $21.6 billion as of September 30, 2018

and September 30, 2017, respectively. Both periods include purchase commitments for which we 

have elected the fair value option.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 41

The combination of our new business activity and outstanding purchase commitments was higher 

for the 2018 periods than the 2017 periods due to continued strong demand for multifamily loan 

products and our strategic pricing efforts.

Approximately 41% and 40% of our multifamily new business activity during 3Q 2018 and YTD 

2018, respectively, counted towards the 2018 Conservatorship Scorecard production cap, while the 

remaining 59% and 60% was considered uncapped.

Our uncapped new business activity increased during YTD 2018 compared to YTD 2017 as we 

continued our efforts to support borrowers in certain property types and communities that meet the 

criteria for affordability and Green Advantage loans.

Approximately 91% of our 3Q 2018 new business activity compared to 87% of our 3Q 2017 new 

business activity was intended for our securitization pipeline. Combined with market demand for our 

securities, our 3Q 2018 new business activity will be a driver for securitizations in the next two 

quarters.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 42

Multifamily Portfolio and Market Support

Total Multifamily Portfolio Multifamily Mortgage Investments Portfolio 
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 43

Multifamily Market Support

The following table summarizes our support of the multifamily market.

(UPB in millions) September 30, 2018 December 31, 2017

Unsecuritized mortgage loans held-for-sale $18,566 $20,537

Unsecuritized mortgage loans held-for-investment 13,105 17,702

Other(1) 458 473

Mortgage-related securities(2) 7,164 7,451

Guarantee portfolio 225,961 203,074

Total multifamily portfolio 265,254 249,237

Add: Unguaranteed securities(3) 34,287 30,890

Less: Acquired mortgage-related securities(4) (6,930) (7,109)

Total multifamily market support $292,611 $273,018

(1) Reflects the carrying value of LIHTC investments and the UPB of non-mortgage loans, including financing provided to investment funds.

(2) Includes mortgage-related securities acquired by us from our securitizations. We have not invested in unguaranteed securities that are in a first 

loss position.

(3) Reflects the UPB of unguaranteed securities issued as part of our securitizations and amounts related to loans sold to investment funds that were 

not financed by Freddie Mac. 

(4) Reflects the UPB of mortgage-related securities that were both issued and acquired by us. This UPB must be removed to avoid double-counting 

the exposure, as it is already reflected within the guarantee portfolio and/or unguaranteed securities.

Commentary

Our total multifamily portfolio increased during YTD 2018, primarily due to our strong new loan 

purchase and securitization activity, which is attributable to healthy multifamily market fundamentals 

and a strong demand for certain of our securitization products. Also, we expect continued portfolio 

growth as purchase and securitization activities should outpace run-off.

At September 30, 2018, the UPB of our unsecuritized held-for-sale mortgage loans, which are 

measured at fair value or lower-of-cost-or-fair-value, decreased from December 31, 2017. The 

decrease was primarily driven by ongoing securitizations, partially offset by new held-for-sale loan 

purchases.

At September 30, 2018, approximately 73% of our held-for-sale loans and held-for-sale loan 

commitments, both of which are measured at fair value, were fixed-rate, while the remaining 27%

were floating-rate.

We expect our guarantee portfolio to continue to grow as a result of ongoing securitizations, which 

we expect to be driven by continued strong new business activity.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 44

Net Interest Yield and Weighted Average Portfolio Balance

Net Interest Yield Earned

(Weighted average balance in billions)

 

Commentary 

Net interest yield decreased in 3Q 2018 compared to 3Q 2017 due to higher average funding costs 

on our held-for-sale mortgage loans driven by higher average interest rates.

Net interest yield increased during YTD 2018 compared to YTD 2017 due to higher prepayment 

income received from our interest-only securities, coupled with an increase in our interest-only 

security holdings which generally have higher yields relative to our non-interest-only securities and 

loans, partially offset by higher average funding costs on our held-for-sale mortgage loans driven by 

higher interest rates.

The weighted average portfolio balance of interest-earning assets decreased during the 2018 

periods due to the run-off of our legacy held-for-investment loans.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 45

Credit Risk Transfer Activity

Credit Risk Transfer Activity and New Business Activity

(UPB in billions)

 
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 46

Credit Risk Transfer Activity(1) 

(UPB in billions)

 

(1) The amounts disclosed in the bar graph above represent the UPB of credit risk transferred to third parties.

Commentary 

The structures for credit risk transfer transactions, primarily the K Certificate and SB Certificate 

structures, vary by deal. Structural deal features such as term, type of underlying loan product, and 

subordination levels generally influence the deal's size and risk profile, which ultimately affect the 

guarantee fee rate set by Freddie Mac, as Guarantor, at the time of securitization. 

We executed credit risk transfer transactions on $15.4 billion UPB during 3Q 2018 and on $294.3 

billion UPB since 2009. Through these transactions, we transferred a large majority of the expected 

and stress credit risk of the underlying assets, primarily by issuing unguaranteed subordinated 

securities, as part of our K Certificate and SB Certificate transactions. Also, we began selling certain 

of our loans to investment funds in 3Q 2017, resulting in the transfer of the associated credit risk of 

those loans to third parties.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 47

The UPB of our credit risk transfer transactions was relatively flat during 3Q 2018 compared to 3Q 

2017. 

As of September 30, 2018, we had cumulatively transferred the large majority of credit risk on the 

multifamily guarantee portfolio. 

CCF capital needed for credit risk was reduced by approximately 90% through CRT transactions 

on originations in the twelve months ended September 30, 2017; we plan similar risk reduction 

transactions for this quarter's originations. 

The reduction in the amount of CCF capital needed for credit risk on new originations is 

calculated as modeled conservatorship credit capital released from CRT transactions (primarily 

through K Certificates and SB Certificates) divided by total modeled conservatorship credit 

capital on new originations at the time of purchase. For more information on the CCF and the 

calculation of modeled conservatorship capital, see Risk Management - Conservatorship 

Capital Framework and Risk Management - Conservatorship Capital Framework - 

Return on Modeled Conservatorship Capital.

In addition to transferring a large majority of the expected and stress credit risk, nearly all of our 

credit risk transfer transactions also shifted certain non-credit risks associated with the underlying 

assets, such as interest-rate risk and liquidity risk, away from Freddie Mac to third-party investors.

Based on the strength of our new business activity and our outstanding purchase commitments for 

YTD 2018, we expect our credit risk transfer activity for the full year 2018 to exceed our full year 

2017 activity.

While our K Certificate and SB Certificate issuances continue to be our primary mechanism to 

transfer multifamily mortgage credit risk and certain non-credit risk, we employ other methods as 

well and expect to continue to develop new risk transfer initiatives.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 48

Financial Guarantee Activity

Unearned Guarantee Fees on New Guarantee Contracts

(Dollars in millions)

 

Remaining Unearned Guarantee Fees 
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 49

Commentary 

We earn guarantee fees in exchange for providing our guarantee of some or all of the securities we 

issue as part of our securitization products. Each time we enter into a financial guarantee contract, 

we initially recognize unearned guarantee fees on our balance sheet, which represent the present 

value of future guarantee fees we expect to receive in cash. We recognize these fees in Segment 

Earnings over the expected remaining guarantee term. While we expect to collect these future fees 

based on historical performance, the actual amount collected will depend on the performance of the 

underlying collateral subject to our financial guarantee.

New unearned guarantee fees decreased during 3Q 2018 compared to 3Q 2017 primarily due to a 

decrease in the guaranteed UPB of our securitizations, coupled with lower average guarantee fee 

rates due to underlying loan products that, by their nature and design, have less risk and for which 

we therefore set a lower guarantee fee rate.

New unearned guarantee fees increased during YTD 2018 compared to YTD 2017 primarily due to 

an increase in the guaranteed UPB of our securitizations during YTD 2018, offset by lower average 

guarantee fee rates due to underlying loan products that, by their nature and design, have less risk 

and for which we therefore set a lower guarantee fee rate.

The remaining balance of unearned guarantee fees increased during YTD 2018, as the increase 

attributable to the growth of our securitization volume outpaced the decrease due to seasoning and 

run-off.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 50

Financial Results

The table below presents the components of Segment Earnings and comprehensive income for our 

Multifamily segment. 

Change Change

(Dollars in millions) 3Q 2018 3Q 2017 $ % YTD 2018 YTD 2017 $ %

Net interest income $277 $342 ($65) (19)% $841 $905 ($64) (7)%

Guarantee fee income 210 170 40 24 609 483 126 26

Benefit (provision) for credit losses 2 (22) 24 109 20 (10) 30 300

Gains (losses) on loans and other

non-interest income (82) 183 (265) (145) (437) 831 (1,268) (153)

Derivative gains (losses) 375 22 353 1,605 1,254 (31) 1,285 4,145

Administrative expense (109) (98) (11) (11) (315) (288) (27) (9)

Other non-interest expense (14) (11) (3) (27) (32) (44) 12 27

Segment Earnings before income

tax expense 659 586 73 12 1,940 1,846 94 5

Income tax expense (113) (212) 99 47 (374) (634) 260 41

Segment Earnings, net of taxes 546 374 172 46 1,566 1,212 354 29

Total other comprehensive income

(loss), net of tax (44) (4) (40) (1,000) (136) 65 (201) (309)

Total comprehensive income (loss) $502 $370 $132 36 % $1,430 $1,277 $153 12 %

Key Business Drivers: 

3Q 2018 vs. 3Q 2017

Lower net interest yields coupled with a decline in our weighted average portfolio balance of 

interest-earning assets, resulted in lower net interest income.

Continued growth in our multifamily guarantee portfolio, resulted in increased guarantee fee 

income.

Interest rate-related changes in fair value on assets and liabilities recorded at fair value in the 

Multifamily segment are generally offset by derivative gains (losses). Any differences between 

these interest rate-related changes in fair value and derivative gains (losses) affect Segment 

Earnings. In 3Q 2018, we recognized larger net gains due to an increase in the difference 

between these interest rate-related fair value changes and derivative gains (losses) that resulted 

from the relatively large increase in interest rates and changes in the composition of the assets, 

liabilities and derivatives recorded at fair value during 3Q 2018. 

YTD 2018 vs. YTD 2017

A decline in our weighted average portfolio balance of interest-earning assets, partially offset by 

higher prepayment income received from interest-only securities and income on an increased 

balance of our interest-only securities, resulted in lower net interest income.

Continued growth in our multifamily guarantee portfolio resulted in increased guarantee fee 

income.

Interest rate-related changes in fair value on assets and liabilities recorded at fair value in the 

Multifamily segment are generally offset by derivative gains (losses). Any differences between 

these interest rate-related changes in fair value and derivative gains (losses) affect Segment 

Earnings. In YTD 2018, we recognized larger net gains due to an increase in the difference 
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac Form 10-Q 51

between these interest rate-related fair value changes and derivative gains (losses) that resulted 

from the relatively large increase in interest rates and changes in the composition of the assets, 

liabilities and derivatives recorded at fair value during YTD 2018. 
Management's Discussion and Analysis Our Business Segments | Capital Markets

Freddie Mac Form 10-Q 52

Capital Markets

Market Conditions

The following graphs and related discussion present the par swap rate curves as of the end of each 

comparative period. Changes in par swap rates can significantly affect the fair value of our debt, 

derivatives and mortgage and non-mortgage-related securities. In addition, the GAAP accounting 

treatment for our financial assets and liabilities, including derivatives (i.e., some are measured at 

amortized cost, while others are measured at fair value) creates variability in our GAAP earnings when 

interest rates change. We elect hedge accounting for certain assets and liabilities in an effort to reduce 

our GAAP earnings variability and better align our GAAP results with the economics of our business.

Par Swap Rate Curves 

Source: BlackRock

Commentary 

The par swap curve flattened during the 2018 periods as short-term interest rates increased more 

than long-term interest rates. Long-term interest rates increased during the 2018 periods, while rates 

remained relatively flat during 3Q 2017 and decreased during YTD 2017. The increases in the 2018 

periods resulted in larger fair value gains for our pay-fixed interest rate swaps, forward commitments 

to issue PCs, and futures, partially offset by larger fair value losses for our receive-fixed interest rate 

swaps, certain of our option-based derivatives and the vast majority of our investments in securities. 
Management's Discussion and Analysis Our Business Segments | Capital Markets

Freddie Mac Form 10-Q 53

The net amount of these changes in fair value was mostly offset by the change in fair value of the 

hedged items attributable to interest-rate risk in our hedge accounting programs.

As the Capital Markets segment is responsible for managing interest-rate risk for the company, its 

Segment Earnings may include gains and losses on certain economic hedges on financial assets 

and liabilities primarily reported in the Single-family Guarantee segment. 
Management's Discussion and Analysis Our Business Segments | Capital Markets

Freddie Mac Form 10-Q 54

Business Results

The graphs and related discussion below present the business results of our Capital Markets segment.

Investing Activity

The following graphs present the Capital Markets segment's total investments portfolio and the 

composition of its mortgage investments portfolio by liquidity category. 

Investments Portfolio Mortgage Investments Portfolio

Commentary 

We continue to reduce the size of our mortgage investments portfolio in order to comply with the 

mortgage-related investments portfolio year-end limits. The balance of our mortgage investments 

portfolio declined 8.1% from December 31, 2017 to September 30, 2018.

The balance of our other investments and cash portfolio decreased by 7.7%, primarily due to 

reduced near term cash needs as of September 30, 2018 compared to December 31, 2017.

The percentage of less liquid assets relative to our total mortgage investments portfolio declined 

from 28.4% at December 31, 2017 to 27.7% at September 30, 2018. We continued to actively 

reduce our holdings of less liquid assets during YTD 2018 by selling $6.2 billion of reperforming 

loans and $2.2 billion of non-agency mortgage-related securities. Our sales of reperforming loans 

involved securitization of the loans using senior subordinate structures. 

The overall liquidity of our mortgage investments portfolio continued to improve as our less liquid 

assets decreased at a faster pace than the overall decline of our mortgage investments portfolio.
Management's Discussion and Analysis Our Business Segments | Capital Markets

Freddie Mac Form 10-Q 55

Net Interest Yield and Average Balances

Net Interest Yield & Average Investments Portfolio Balances

(UPB in billions)

Commentary

Net interest yield increased 33 and 22 basis points during 3Q 2018 compared to 3Q 2017 and YTD 

2018 compared to YTD 2017, respectively, primarily due to:

Higher yields on our newly acquired mortgage-related assets and other investments as a result 

of increases in interest rates;

Changes in our investment mix due to reductions in both our less liquid assets and the 

percentage of our other investments and cash portfolio relative to our total investments portfolio; 

and

Larger benefit from funding provided by non-interest bearing liabilities due to increases in both 

short-term interest rates and the percentage of non-interest bearing liabilities relative to our total 

liabilities. 

Capital Markets segment net interest yield in the graph above is not affected by our hedge 

accounting programs. See Note 13 in our 2017 Annual Report for more information.
Management's Discussion and Analysis Our Business Segments | Capital Markets

Freddie Mac Form 10-Q 56

Financial Results

The table below presents the components of Segment Earnings and comprehensive income for our 

Capital Markets segment.

Change Change

(Dollars in millions) 3Q 2018 3Q 2017 $ % YTD 2018 YTD 2017 $ %

Net interest income $923 $804 $119 15 % $2,602 $2,608 ($6) — %

Net impairment of available-for-sale

securities recognized in earnings 7 50 (43) (86) 144 194 (50) (26)

Derivative gains (losses) 427 (324) 751 232 2,038 (757) 2,795 369

Gains (losses) on trading securities (286) (26) (260) (1,000) (989) (207) (782) (378)

Other non-interest income 327 5,754 (5,427) (94) 1,423 6,916 (5,493) (79)

Administrative expense (89) (73) (16) (22) (262) (242) (20) (8)

Segment Earnings before income

tax expense 1,309 6,185 (4,876) (79) 4,956 8,512 (3,556) (42)

Income tax expense (214) (2,143) 1,929 90 (957) (2,921) 1,964 67

Segment Earnings, net of taxes 1,095 4,042 (2,947) (73) 3,999 5,591 (1,592) (28)

Total other comprehensive income

(loss), net of tax (101) (17) (84) (494) (847) 261 (1,108) (425)

Total comprehensive income

(loss) $994 $4,025 ($3,031) (75)% $3,152 $5,852 ($2,700) (46)%

The portion of total comprehensive income (loss) driven by interest rate-related and market spreadrelated fair value changes, after-tax, is presented in the table below. These amounts affect various line 

items in the table above, including net interest income, derivative gains (losses), gains (losses) on trading 

securities, other non-interest income, income tax expense and total other comprehensive income (loss), 

net of tax.

Change Change

(Dollars in billions) 3Q 2018 3Q 2017 $ % YTD 2018 YTD 2017 $ %

Interest rate-related ($0.1) ($0.1) $— —% ($0.1) ($0.2) $0.1 50%

Market spread-related 0.1 0.5 (0.4) (80) 0.3 0.8 (0.5) (63)

Key Business Drivers:

3Q 2018 vs. 3Q 2017 and YTD 2018 vs. YTD 2017

Increased net interest income during the 2018 periods primarily due to:

Higher yields on our newly acquired mortgage-related assets and other investments as a 

result of increases in interest rates;

Changes in our investment mix due to reductions in both our less liquid assets and the 

percentage of our other investments and cash portfolio relative to our total investments 

portfolio; and

Larger benefit from funding provided by non-interest bearing liabilities due to increases in 

both short-term interest rates and the percentage of non-interest bearing liabilities relative 

to our total liabilities. 

Relatively flat interest rate-related fair value losses during the 2018 periods. Long-term interest 

rates increased during the 2018 periods, while rates remained relatively flat during 3Q 2017 and 

decreased during YTD 2017, resulting in higher fair value losses for the vast majority of our 
Management's Discussion and Analysis Our Business Segments | Capital Markets

Freddie Mac Form 10-Q 57

investments in securities (some of which are recorded in other comprehensive income), our 

receive-fixed interest rate swaps, and certain of our option-based derivatives offset by higher fair 

value gains for our pay-fixed interest rate swaps, forward commitments to issue PCs, and 

futures. The net amount of these changes in fair value was mostly offset by the change in fair 

value of the hedged items attributable to interest-rate risk in our hedge accounting programs. 

The remaining amount of interest rate-related fair value changes was primarily attributable to the 

reversal of previously recognized derivative gains and losses and the implied net cost on 

instruments such as swaptions, futures, and forward purchase and sale commitments from our 

hedging and interest-rate risk management activities. See Market Risk for additional 

information on the effect of market-related items on our comprehensive income. 

Decreased spread related gains during the 2018 periods due to lower non-agency mortgagerelated securities balances and less spread tightening. 

Recognition of $4.5 billion in proceeds received during the 2017 periods from the RBS 

settlement related to certain of our non-agency mortgage related securities.

Decreased amortization of debt securities of consolidated trusts during the 2018 periods driven 

by a decrease in prepayments as a result of higher interest rates.
Management's Discussion and Analysis Risk Management | Conservatorship Capital Framework

Freddie Mac Form 10-Q 58

RISK MANAGEMENT

Risk is an inherent part of our business activities. We are exposed to four major types of risk: credit risk, 

operational risk, market risk and liquidity risk.

For more discussion of these and other risks facing our business and our risk management framework, 

see MD&A - Risk Management and Risk Factors in our 2017 Annual Report and Liquidity and 

Capital Resources in this report and in our 2017 Annual Report. See below for updates since our 

2017 Annual Report.

Conservatorship Capital Framework

In May 2017, FHFA, as Conservator, issued guidance to us to evaluate and manage our financial risk 

and to make economic business decisions, while in conservatorship, utilizing a newly-developed riskbased Conservatorship Capital Framework (CCF), an economic capital system with detailed formulae 

provided by FHFA. The CCF also provides the foundation for the risk-based component of the proposed 

Enterprise Capital Rule published by FHFA in the Federal Register in July 2018.

The CCF is used to establish the modeled capital needed to evaluate business decisions and ensure the 

company makes such decisions prudently when pricing transactions and managing its businesses. This 

return-versus-risk framework focuses on the profits earned versus an estimated cost of equity capital 

needed to support the risk assumed to generate those profits. Management relies upon this framework 

in its decision-making.

The existing regulatory capital requirements have been suspended by FHFA during conservatorship. 

Consequently, we refer to the capital needed by the CCF for analysis of transactions and businesses as 

“modeled conservatorship capital" or simply "CCF capital." 

Under the Purchase Agreement, we are not able to permanently retain total equity, as calculated under 

GAAP, in excess of the $3.0 billion Capital Reserve Amount. As a result, we do not have capital sufficient 

to support our aggregate risk-taking activities. Instead, we rely upon the Purchase Agreement to 

maintain market confidence.

Return on Modeled Conservatorship Capital

The table below provides the return on CCF capital, calculated as (1) annualized comprehensive income 

for the period divided by (2) average CCF capital during the period. Each quarter, we consider whether 

certain “significant items” occurred that should be excluded from comprehensive income and our 

calculation of return on CCF capital. If we have identified significant items in any of the periods 

presented, we also include comprehensive income excluding significant items as well as an adjusted 

return on CCF capital based on comprehensive income excluding significant items, both non-GAAP 

measures. We believe that these non-GAAP financial measures are more useful to investors as they 

better reflect our on-going financial results.
Management's Discussion and Analysis Risk Management | Conservatorship Capital Framework

Freddie Mac Form 10-Q 59

All modeled conservatorship capital figures presented below are based on the CCF as of September 30, 

2018. The CCF has been and may be further revised by FHFA from time to time, and may be revised 

specifically in connection with FHFA's consideration and adoption of a final Enterprise Capital Rule, 

which could result in changes, possibly material, in our modeled conservatorship capital. For example, 

the Enterprise Capital Rule proposed by FHFA in 2Q 2018 includes capital for deferred tax assets, which 

is not included in the CCF currently, but which is scheduled to be included beginning in 2019.

The return on CCF capital shown in the table below is not based on our total equity and does not reflect 

actual returns on total equity. We do not believe that returns on total equity are meaningful because of 

the limitations on the amount of total equity that we are able to permanently retain under the Purchase 

Agreement.

(Dollars in billions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

GAAP comprehensive income $2.6 $4.7 $7.1 $8.9

Significant items:

Non-agency mortgage-related securities settlement 

and judgment (1) (2) — (4.5) (0.3) (4.5)

Tax effect related to settlement and judgment (1) (2) — 1.6 0.1 1.6

 Total significant items (3) — (2.9) (0.2) (2.9)

Comprehensive income, excluding significant items (3) $2.6 $1.8 $6.9 $6.0

CCF capital (average during the period) $51.9 $59.0 $53.6 $61.7

Return on CCF capital, based on GAAP comprehensive

income 19.7% 31.5% 17.8% 19.2%

Adjusted return on CCF capital, based on 

comprehensive income excluding significant items (3) 19.7% 11.6% 17.1% 12.8%

(1) 3Q 2017 and YTD 2017 GAAP comprehensive income included settlement proceeds of $4,525 million (pre-tax) from the RBS related to litigation 

involving certain of our non-agency mortgage-related securities. The tax effect related to this settlement was ($1,584) million. 

(2) YTD 2018 GAAP comprehensive income included a benefit of $334 million (pre-tax) from a final judgment against Nomura Holding America, Inc. in 

litigation involving certain of our non-agency mortgage-related securities. The tax effect related to this judgment was ($70) million. 

(3) No significant items were identified for 3Q 2018. Numbers for 3Q 2018 included for comparison purposes only. 

Our adjusted returns on CCF capital increased over the last several quarters due to our decreasing level 

of CCF capital needed, resulting from home price improvements, the efficient disposition of legacy 

assets and the increasing credit risk transfer activity in both our Single-family Guarantee and Multifamily 

segments.

Our three business segments have different capital requirements, returns and profitability. The return on 

CCF capital for our Single-family Guarantee segment, which has FHFA-prescribed guidance on 

guarantee fee levels, is generally lower than the company's overall return, while the returns in our 

Multifamily and Capital Markets segments are generally higher. 

We find the returns calculated above, as well as the returns calculated on specific transactions and 

individual business lines, to be a reasonable measure of return-versus-risk to support our decisionmaking while we remain in conservatorship. These returns may not be indicative of the returns that 

would be generated if we were to exit conservatorship, especially as the terms and timing of any such 

exit are not currently known and will depend upon future actions by the U.S. government. Our belief, 

should we leave conservatorship, is that returns at that time would most likely be below the levels 
Management's Discussion and Analysis Risk Management | Conservatorship Capital Framework

Freddie Mac Form 10-Q 60

calculated above, assuming the same portfolio of risk assets, as we expect that we would hold capital 

post-conservatorship above the minimum required regulatory capital. It is also likely that we would be 

required to pay fees for federal government support, thereby reducing our total comprehensive income.
Management's Discussion and Analysis Risk Management | Market Risk

Freddie Mac Form 10-Q 61

Market Risk

Our business segments have embedded exposure to market risk, including interest-rate and spread 

risks. Interest-rate risk is consolidated and primarily managed by the Capital Markets segment, while 

spread risk is owned and managed by each individual business segment. Market risk can adversely 

affect future cash flows, or economic value, as well as earnings and net worth. 

Economic Market Risk

The majority of our interest-rate risk comes from our investments in mortgage-related assets (securities 

and loans) and the debt we issue to fund them. Our primary goal in managing interest-rate risk is to 

reduce the amount of change in the value of our future cash flows due to future changes in interest 

rates. We use models to analyze possible future interest-rate scenarios, along with the cash flows of our 

assets and liabilities over those scenarios. 

Our primary interest-rate risk measures are duration gap and PMVS. 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. PMVS is our estimate of the change in the 

market value of our financial assets and liabilities from an instantaneous shock to interest rates, 

assuming spreads are held constant and no rebalancing actions are undertaken. PMVS is measured in 

two ways, one measuring the estimated sensitivity of our portfolio market value to a 50 basis point 

parallel movement in interest rates (PMVS-L) and the other to a non-parallel movement resulting from a 

25 basis point change in slope of the LIBOR yield curve (PMVS-YC). While we believe that duration gap 

and PMVS are useful risk management tools, they should be understood as estimates rather than as 

precise measurements.

The following tables provide our 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. The 

tables below also provide PMVS-L estimates assuming an immediate 100 basis point shift in the LIBOR 

yield curve. The interest-rate sensitivity of a mortgage portfolio varies across a wide range of interest 

rates. 

September 30, 2018 December 31, 2017

PMVS-YC PMVS-L PMVS-YC PMVS-L

(In millions) 25 bps 50 bps 100 bps 25 bps 50 bps 100 bps

Assuming shifts of the LIBOR yield curve, 

(gains) losses on:(1)

Assets ($535) ($5,659) ($11,162) $463 $5,587 $11,446

Liabilities (156) 2,062 3,950 185 (2,377) (4,968)

Derivatives 702 3,591 7,188 (646) (3,200) (6,477)

Total $11 ($6) ($24) $2 $10 $1

PMVS $11 $— $— $2 $10 $1

(1) The categorization of the PMVS impact between assets, liabilities and derivatives on this table is based upon the economic characteristics of those 

assets and liabilities, not their accounting classification. For example, purchase and sale commitments of mortgage-related securities and debt 

securities of consolidated trusts held by the mortgage-related investments portfolio are both categorized as assets on this table.
Management's Discussion and Analysis Risk Management | Market Risk

Freddie Mac Form 10-Q 62

3Q 2018 3Q 2017

(Duration gap in months, dollars in millions)

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Average — $12 $18 — $9 $35

Minimum (0.2) — — (0.4) — —

Maximum 0.3 21 49 0.4 26 78

Standard deviation 0.1 5 15 0.2 7 17

YTD 2018 YTD 2017

(Duration gap in months, dollars in millions)

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Average — $11 $17 0.1 $7 $16

Minimum (0.4) — — (0.4) — —

Maximum 0.3 31 77 0.8 26 78

Standard deviation 0.1 6 17 0.2 6 20

Derivatives enable us to reduce our economic interest-rate risk exposure as we continue to align our 

derivative portfolio with the changing duration of our economically hedged assets and liabilities. The 

table below shows that the PMVS-L risk levels, assuming a 50 basis point shift in the LIBOR yield curve 

for the periods presented, would have been higher if we had not used derivatives. 

PMVS-L (50 bps)

(In millions)

Before

Derivatives

After

Derivatives

Effect of

Derivatives

September 30, 2018 $3,576 $— ($3,576)

December 31, 2017 3,210 10 (3,200)

GAAP Earnings Variability

The GAAP accounting treatment for our financial assets and liabilities (i.e., some are measured at 

amortized cost, while others are measured at fair value) creates variability in our GAAP earnings when 

interest rates and spreads change. This variability of GAAP earnings, which may not reflect the 

economics of our business, increases the risk of our having a negative net worth and thus being 

required to draw from Treasury.

Interest-rate Volatility

While we manage our interest-rate risk exposure on an economic basis to a low level as measured by 

our models, our GAAP financial results are still subject to significant earnings variability from period to 

period. Based upon the composition of our financial assets and liabilities, including derivatives, at 

September 30, 2018, we generally recognize fair value losses in GAAP earnings when interest rates 

decline.

In an effort to reduce our GAAP earnings variability and better align our GAAP results with the 

economics of our business, we elect hedge accounting for certain single-family mortgage loans and 

certain debt instruments. See Note 9 for additional information on hedge accounting.

The table below presents the effect of derivatives used in our interest-rate risk management activities on 

our comprehensive income (loss), net of tax, after considering any offsetting interest rate effects related 

to financial instruments measured at fair value and the effects of fair value hedge accounting. 
Management's Discussion and Analysis Risk Management | Market Risk

Freddie Mac Form 10-Q 63

(In billions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Interest-rate effect on derivative fair values $1.4 $— $5.5 ($0.6)

Estimate of offsetting interest-rate effect related to financial instruments measured at 

fair value(1) (1.0) — (3.6) —

Gains (losses) on mortgage loans and debt in fair value hedge relationships (0.6) — (2.5) 0.4

Amortization of deferred hedge accounting gains and losses 0.1 — 0.2 —

Income tax (expense) benefit — — 0.1 0.1

Estimated net interest rate effect on comprehensive income (loss) ($0.1) $— ($0.3) ($0.1)

(1) Includes the interest-rate effect on our trading securities, available-for-sale securities, mortgage loans held-for-sale and other assets and debt for 

which we elected the fair value option, which is reflected in other non-interest income (loss) and total other comprehensive income (loss) on our 

condensed consolidated statements of comprehensive income.

The effect from the change in interest rates on derivative fair values is mostly offset by the effect from 

the change in interest rates related to financial instruments measured at fair value and gains and losses 

on mortgage loans and debt in fair value hedging relationships. The remaining net interest-rate effect on 

comprehensive income is largely attributable to the reversal of previously recognized derivative gains 

and losses and the implied net cost on instruments such as swaptions, futures, and forward purchase 

and sale commitments from our hedging and interest-rate risk management activities. These remaining 

effects are recognized in GAAP earnings over time as a component of derivative gains and losses as the 

instruments approach maturity and are partially offset by the amortization of previously deferred hedge 

accounting gains and losses. 

We evaluate the potential benefits of fair value hedge accounting by evaluating a range of interest rate 

scenarios and identifying which of those scenarios produces the most adverse GAAP earnings outcome. 

The interest rate scenarios evaluated include parallel shifts in the yield curve of plus and minus 100 

basis points, non-parallel yield curve shifts in which long-term interest rates increase or decrease by 100 

basis points and non-parallel yield curve shifts in which short-term and medium-term interest rates 

increase or decrease by 100 basis points.

At September 30, 2018 and September 30, 2017, the GAAP adverse scenario before and after fair 

value hedge accounting was a non-parallel shift in which long-term rates decrease by 100 basis 

points.

The results of this evaluation are shown in the table below. 

GAAP Adverse Scenario (Before-Tax)

(Dollars in billions)

Before Hedge

Accounting

After Hedge

Accounting % Change

September 30, 2018 ($3.3) ($0.5) 85%

September 30, 2017 (2.8) (1.2) 58

Spread Volatility

We have limited ability to manage our spread risk exposure in a cost beneficial manner and therefore the 

volatility of market spreads may contribute to significant GAAP earnings variability. For financial assets 

measured at fair value, we generally recognize fair value losses when market spreads widen. 

Conversely, for financial liabilities measured at fair value, we generally recognize fair value gains when 

market spreads widen.
Management's Discussion and Analysis Risk Management | Market Risk

Freddie Mac Form 10-Q 64

The table below shows the estimated effect of spreads on our comprehensive income (loss), after tax, 

by segment.

(In billions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Capital Markets $0.1 $0.5 $0.3 $0.8

Multifamily — — 0.1 —

Single-family Guarantee(1) — — — (0.2)

Spread effect on comprehensive income (loss) $0.1 $0.5 $0.4 $0.6

(1) Represents spread exposure on certain STACR debt securities for which we have elected the fair value option.
Management's Discussion and Analysis Liquidity and Capital Resources | Sources of Liquidity and Capital

Freddie Mac Form 10-Q 65

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity and Capital

Our business activities require that we maintain adequate liquidity to fund our operations. We also must 

maintain adequate capital resources to avoid being placed into receivership by FHFA. For further 

discussion of our liquidity framework and profile, see MD&A - Liquidity and Capital Resources in 

our 2017 Annual Report.

Primary Sources of Liquidity, Funding and Capital

The following table lists the sources of our liquidity, funding and capital, the balances as of 3Q 2018 and 

a brief description of their importance to Freddie Mac.

Source Balance(1)

 (In billions)

Description

Liquidity

• Other Investments and Cash

Portfolio - Liquidity and

Contingency Operating

Portfolio

$61.6 • The liquidity and contingency operating portfolio, included within our other

investments and cash portfolio, is primarily used for short-term liquidity

management.

• Liquid Portion of the

Mortgage-Related

Investments Portfolio

$124.5 • The liquid portion of our mortgage-related investments portfolio can be

pledged or sold for liquidity purposes. The amount of cash we may be

able to successfully raise may be substantially less than the balance.

Funding

• Other Debt $280.4 • Other debt is used to fund our business activities, including Single-family

guarantee activities not funded by debt securities of consolidated trusts.

• Debt Securities of

Consolidated Trusts

$1,765.0 • Debt securities of consolidated trusts are used primarily to fund our

Single-family guarantee activities. This type of debt is principally repaid

by the cash flows of the associated mortgage loans. As a result, our

repayment obligation is limited to amounts paid pursuant to our

guarantee of principal and interest and to purchase modified or seriously

delinquent loans from the trusts.

Capital

• Net Worth $5.6 • GAAP net worth represents capital available prior to our dividend

requirement to Treasury under the Purchase Agreement.

• Available Funding under

Purchase Agreement

$140.2 • FHFA may request that available funding under the Purchase Agreement

be drawn on our behalf from Treasury.

(1) Represents carrying value for the liquidity and contingency operating portfolio, included within our other investments and cash portfolio, and net 

worth. Represents UPB for the liquid portion of the mortgage-related investments portfolio and debt balances.
Management's Discussion and Analysis Liquidity and Capital Resources | Sources of Liquidity and Capital

Freddie Mac Form 10-Q 66

Other Investments and Cash Portfolio

The investments in our other investments and cash portfolio are important to our cash flow, collateral 

management, asset and liability management, and our ability to provide liquidity and stability to the 

mortgage market. The table below summarizes the balances in our other investments and cash 

portfolio, which includes the liquidity and contingency operating portfolio.

September 30, 2018 December 31, 2017

(In billions)

Liquidity and

Contingency

Operating

Portfolio

Custodial

Account Other

Total Other

Investments

and Cash

Portfolio

Liquidity and

Contingency

Operating

Portfolio

Custodial

Account Other

Total Other

Investments

and Cash

Portfolio

Cash and cash equivalents(1) $6.3 $0.7 $— $7.0 $9.3 $0.5 $— $9.8

Securities purchased under agreements

to resell 32.7 13.0 2.8 48.5 38.9 16.8 0.2 55.9

Non-mortgage-related securities 22.6 — 2.9 25.5 22.2 — 0.6 22.8

Advances to lenders and other secured

lending — — 1.8 1.8 — — 1.3 1.3

Total $61.6 $13.7 $7.5 $82.8 $70.4 $17.3 $2.1 $89.8

(1) The current and prior period presentation has been modified to include restricted cash and cash equivalents due to recently adopted accounting 

guidance and re-designation of cash collateral posted to us as part of the liquidity and contingency operating portfolio.

Our non-mortgage-related investments in the liquidity and contingency operating portfolio consist of 

U.S. Treasury securities and other investments that we could sell to provide us with an additional source 

of liquidity to fund our business operations. We also maintain non-interest-bearing deposits at the 

Federal Reserve Bank of New York. In 3Q 2018, we began to maintain interest bearing deposits at 

commercial banks.

The liquidity and contingency operating portfolio also includes collateral posted to us in the form of cash 

primarily by derivatives counterparties of $2.5 billion and $2.4 billion as of September 30, 2018 and 

December 31, 2017, respectively. We have invested this collateral in securities purchased under 

agreements to resell and non-mortgage-related securities as part of our liquidity and contingency 

operating portfolio, although the collateral may be subject to return to our counterparties based on the 

terms of our master netting and collateral agreements. 

Mortgage-Related Investments Portfolio 

We invest principally in mortgage loans and mortgage-related securities, certain categories of which are 

largely unencumbered and liquid. Our primary source of liquidity among these mortgage assets is our 

holdings of single-class and multiclass agency securities, excluding certain structured agency securities 

collateralized by non-agency mortgage-related securities. Our ability to pledge certain of these assets as 

collateral or sell them enhances our liquidity profile, although the amount of cash we may be able to 

successfully raise in the event of a liquidity crisis or significant market disruption may be substantially 

less than the amount of mortgage-related assets we hold. See Conservatorship and Related 

Matters for additional details on the liquidity of our mortgage-related investments portfolio.
Management's Discussion and Analysis Liquidity and Capital Resources | Sources of Liquidity and Capital

Freddie Mac Form 10-Q 67

Other Debt Activities

We issue other debt to fund our operations. Competition for funding can vary with economic, financial 

market and regulatory environments. We issue other debt based on a variety of factors including market 

conditions and our liquidity requirements. We currently favor a mix of derivatives and shorter- and 

medium-term debt to fund our business and manage interest-rate risk. This funding mix is a less 

expensive method than relying more extensively on long-term debt.

The tables below summarize the par value and the average rate of other debt securities we issued or 

paid off, including regularly scheduled principal payments, payments resulting from calls and payments 

for repurchases. We call, exchange or repurchase our outstanding debt securities from time to time for a 

variety of reasons, including managing our funding composition and supporting the liquidity of our debt 

securities.

3Q 2018

(Dollars in millions) Short-term Average Rate(1) Long-term Average Rate(1)

Discount notes and Reference Bills:

Beginning balance $34,771 1.83% $— —%

Issuances 102,862 1.89 — —

Repurchases — — — —

Maturities (96,907) 1.79 — —

Ending Balance 40,726 2.06 — —

Securities sold under agreements to repurchase:

Beginning balance 11,719 1.87 — —

Additions 42,120 1.96 — —

Repayments (44,113) 1.92 — —

Ending Balance 9,726 2.03 — —

Callable debt:

Beginning balance — — 112,735 1.81

Issuances 2,000 2.28 8,400 3.25

Repurchases — — — —

Calls — — (348) 2.77

Maturities — — (11,855) 1.02

Ending Balance 2,000 2.28 108,932 2.00

Non-callable debt:(2)

Beginning balance 10,462 1.21 108,464 2.96

Issuances 10,140 2.03 23 2.77

Repurchases — — — —

Maturities (4,402) 1.16 (5,709) 1.22

Ending Balance 16,200 1.74 102,778 3.09

Total other debt $68,652 1.98% $211,710 2.53%

Referenced footnote is included after the next table.
Management's Discussion and Analysis Liquidity and Capital Resources | Sources of Liquidity and Capital

Freddie Mac Form 10-Q 68

YTD 2018

(Dollars in millions) Short-term Average Rate(1) Long-term Average Rate(1)

Discount notes and Reference Bills:

Beginning balance $45,717 1.19% $— —%

Issuances 273,159 1.65 — —

Repurchases — — — —

Maturities (278,150) 1.03 — —

Ending Balance 40,726 2.06 — —

Securities sold under agreements to repurchase:

Beginning balance 9,681 1.06 — —

Additions 122,680 1.67 — —

Repayments (122,635) 1.59 — —

Ending Balance 9,726 2.03 — —

Callable debt:

Beginning balance — — 113,822 1.58

Issuances 2,000 2.28 22,150 3.12

Repurchases — — (722) 2.07

Calls — — (3,030) 2.05

Maturities — — (23,288) 1.05

Ending Balance 2,000 2.28 108,932 2.00

Non-callable debt:(2)

Beginning balance 17,792 1.03 129,094 2.52

Issuances 11,965 1.94 13,398 2.42

Repurchases — — (1,300) 1.99

Maturities (13,557) 1.01 (38,414) 1.46

Ending Balance 16,200 1.74 102,778 3.09

Total other debt $68,652 1.98% $211,710 2.53%

(1) Average rate is weighted based on par value.

(2) Includes STACR and SCR debt notes and certain multifamily other debt. STACR and SCR debt notes are subject to prepayment risk as their 

payments are based upon the performance of a reference pool of mortgage assets that may be prepaid by the related mortgage borrower at any 

time generally without penalty.

During the 2018 periods, our outstanding other debt balance continued to decline as we reduced our 

indebtedness along with the decline in our mortgage-related investments portfolio. As a result, our total 

issuances, excluding securities sold under agreements to repurchase, decreased.
Management's Discussion and Analysis Liquidity and Capital Resources | Sources of Liquidity and Capital

Freddie Mac Form 10-Q 69

The following graphs present our other debt by contractual maturity date and earliest redemption date. 

The earliest redemption date refers to the earliest call date for callable debt and the contractual maturity 

date for all other debt. 

Contractual Maturity Date as of September 30, 2018(1) Earliest Redemption Date as of September 30, 2018(1)

(1) STACR and SCR debt notes are subject to prepayment risk as their payments are based upon the performance of a reference pool of mortgage 

assets that may be prepaid by the related mortgage borrower at any time generally without penalty and are therefore included as a separate 

category in the graphs.
Management's Discussion and Analysis Liquidity and Capital Resources | Sources of Liquidity and Capital

Freddie Mac Form 10-Q 70

Debt Securities of Consolidated Trusts

The largest component of debt on our condensed consolidated balance sheets is debt securities of 

consolidated trusts, which relates to securitization transactions that we consolidated for accounting 

purposes. We issue this type of debt by securitizing mortgage loans primarily to fund the majority of our 

single-family guarantee activities. When we consolidate securitization trusts, we recognize the following 

on our condensed consolidated balance sheets:

The assets held by the securitization trusts, the majority of which are mortgage loans. We 

recognized $1,814.8 billion and $1,774.3 billion of mortgage loans, which represented 87.9% and 

86.6% of our total assets, as of 3Q 2018 and 4Q 2017, respectively.

The debt securities issued by the securitization trusts, the majority of which are PCs. PCs are passthrough securities, where the cash flows of the mortgage loans held by the securitization trust are 

passed through to the holders of the PCs. We recognized $1,765.0 billion and $1,721.0 billion of 

debt securities of consolidated trusts, which represented 86.4% and 84.6% of our total debt, as of 

3Q 2018 and 4Q 2017, respectively.

Debt securities of consolidated trusts are principally repaid from the cash flows of the mortgage loans 

held by the securitization trusts that issued the debt securities. In circumstances when the cash flows of 

the mortgage loans are not sufficient to repay the debt, we make up the shortfall because we have 

guaranteed the payment of principal and interest on the debt. In certain circumstances, we have the 

right and/or obligation to purchase the loan from the trust prior to its contractual maturity.

The table below shows the issuance and extinguishment activity for the debt securities of our 

consolidated trusts.

(In millions) 3Q 2018 YTD 2018

Beginning balance $1,700,480 $1,672,605

Issuances:

New issuances to third parties 48,971 134,907

Additional issuances of securities 52,666 141,941

Total issuances 101,637 276,848

Extinguishments:

Purchases of debt securities from third parties (11,752) (31,365)

Debt securities received in settlement of advances to lenders (6,878) (18,378)

Repayments of debt securities (63,640) (179,863)

Total extinguishments (82,270) (229,606)

Ending balance 1,719,847 1,719,847

Unamortized premiums and discounts 45,198 45,198

Debt securities of consolidated trusts held by third parties $1,765,045 $1,765,045
Management's Discussion and Analysis Liquidity and Capital Resources | Capital

Freddie Mac Form 10-Q 71

Capital

Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy 

and our management of capital. Under the Purchase Agreement, Treasury made a commitment to 

provide us with equity funding, under certain conditions, to eliminate deficits in our net worth. As of 

September 30, 2018, our net worth was $5.6 billion and the amount of available funding remaining under 

the Purchase Agreement was $140.2 billion. See Note 2 for details of the support we receive from 

Treasury.

The table below presents activity related to our net worth during 3Q 2018 and YTD 2018. 

(In millions) 3Q 2018 YTD 2018

Beginning balance $4,585 ($312)

Comprehensive income (loss) 2,559 7,144

Capital draw from Treasury — 312

Senior preferred stock dividends declared (1,585) (1,585)

Total equity / net worth $5,559 $5,559

Aggregate draws under Purchase Agreement $71,648 $71,648

Aggregate cash dividends paid to Treasury 113,978 113,978
Management's Discussion and Analysis Liquidity and Capital Resources | Cash Flows

Freddie Mac Form 10-Q 72

Cash Flows 

We evaluate our cash flow performance by comparing the net cash flows from operating and investing 

activities to the net cash flows required to finance those activities. The following graphs present the 

results of these activities for YTD 2017 and YTD 2018. 

 Operating Cash Flows Investing Cash Flows Financing Cash Flows

Commentary 

Cash provided by operating activities decreased $1.9 billion primarily due to:

An increase in net sales of held-for-sale loans, driven by an increase in the volume of our 

multifamily securitizations.

Cash provided by investing activities decreased $34.1 billion primarily due to:

A decrease in net proceeds received from sales and maturities of investment securities due to 

our continued reduction of the mortgage-related investments portfolio as required by the 

Purchase Agreement and FHFA; and

An increase in single-family loan purchases for cash coupled with reduced repayments of singlefamily loans driven by higher mortgage interest rates.

Cash used in financing activities decreased $39.5 billion primarily due to:

An increase in proceeds from issuance of debt securities of consolidated trusts held by third 

parties due to an increase in the volume of single-family PC issuances for cash;

A decrease in payments of cash dividends on senior preferred stock; and

Reduced repayments of debt securities of consolidated trusts held by third parties due to lower 

single-family liquidation rates.
Management's Discussion and Analysis Conservatorship and Related Matters

Freddie Mac Form 10-Q 73

CONSERVATORSHIP AND RELATED 

MATTERS

Reducing Our Mortgage-Related Investments 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. The cap for this portfolio will decrease 

to $250 billion at December 31, 2018.

September 30, 2018 December 31, 2017

(Dollars in millions) Liquid

Securitization

Pipeline Less Liquid Total Liquid

Securitization

Pipeline Less Liquid Total

Capital Markets segment -

Mortgage investments portfolio:

Single-family unsecuritized

loans

Performing loans $— $11,720 $— $11,720 $— $9,999 $— $9,999

Reperforming loans — — 43,861 43,861 — — 46,666 46,666

Total single-family

unsecuritized loans — 11,720 43,861 55,581 — 9,999 46,666 56,665

Freddie Mac mortgage-related

securities 113,179 — 3,272 116,451 123,905 — 3,817 127,722

Non-agency mortgage-related

securities 701 — 2,600 3,301 749 — 5,152 5,901

Other Non-Freddie Mac agency

mortgage-related securities 4,384 — — 4,384 5,211 — — 5,211

Total Capital Markets segment

- Mortgage investments

portfolio 118,264 11,720 49,733 179,717 129,865 9,999 55,635 195,499

Single-family Guarantee segment

- Single-family unsecuritized

seriously delinquent loans — — 9,254 9,254 — — 12,267 12,267

Multifamily segment:

Unsecuritized loans — 17,820 13,849 31,669 — 19,653 18,585 38,238

Mortgage-related securities 6,281 — 883 7,164 6,181 — 1,270 7,451

Total Multifamily segment 6,281 17,820 14,732 38,833 6,181 19,653 19,855 45,689

Total mortgage-related

investments portfolio $124,545 $29,540 $73,719 $227,804 $136,046 $29,652 $87,757 $253,455

Percentage of total mortgagerelated investments portfolio 55% 13% 32% 100% 54% 12% 34% 100%

Mortgage-related investments

portfolio cap at December 31,

2018 and December 31, 2017 $250,000 $288,408

90% of mortgage-related 

investments portfolio cap at 

December 31, 2018 and 

December 31, 2017(1) $225,000 $259,567

(1) Represents the amount to which we manage under our Retained Portfolio Plan, subject to certain exceptions.

The decline in our mortgage-related investments portfolio during YTD 2018 was primarily due to 

repayments.
Management's Discussion and Analysis Conservatorship and Related Matters

Freddie Mac Form 10-Q 74

While we continued to purchase new single-family seriously delinquent loans and multifamily 

unsecuritized loans, which are classified as held-for-investment, our active disposition of less liquid 

assets included the following:

Sales of $8.7 billion in UPB of less liquid single-family assets, including $6.2 billion in UPB of singlefamily reperforming loans, $2.2 billion in UPB of single-family non-agency mortgage-related 

securities, and $0.3 billion in UPB of seriously delinquent unsecuritized single-family loans;

Securitizations of $0.6 billion in UPB of less liquid multifamily loans; and

Transfers of $0.7 billion in UPB of less liquid multifamily loans to the securitization pipeline.
Management's Discussion and Analysis Regulation and Supervision

Freddie Mac Form 10-Q 75

REGULATION AND SUPERVISION

In addition to our oversight by FHFA as our Conservator, we are subject to regulation and oversight by 

FHFA under our Charter and the GSE Act and to certain regulation by other government agencies. 

Furthermore, regulatory activities by other government agencies can affect us indirectly, even if we are 

not directly subject to such agencies’ regulation or oversight. For example, regulations that modify 

requirements applicable to the purchase or servicing of mortgages can affect us.

Federal Housing Finance Agency

Affordable Housing Fund Allocations

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

dollar of total new business purchases and pay this amount to certain housing funds. During 3Q 2018 

and YTD 2018, we completed $99 billion and $278 billion, respectively, of new business purchases 

subject to this requirement and accrued $42 million and $117 million, respectively, of related expense. 

We expect to pay the YTD 2018 expense amount (and any additional amounts accrued based on our 

new business purchases during the remainder of 2018) in February 2019. We are prohibited from 

passing through these costs to the originators of the loans that we purchase. 

Legislative and Regulatory Developments

Affordable Housing Goals Results for 2017

In October 2018, FHFA informed us that it had reviewed our performance with respect to the affordable 

housing goals for 2017, and preliminarily determined that we achieved three of our five single-family 

affordable housing goals and all three of our multifamily goals. Our performance on the goals, as 

preliminarily determined, is set forth in the table below. We may achieve a single-family housing goal by 

meeting or exceeding either:

the FHFA benchmark for that goal (Goals); or

the actual share of the market that meets the criteria for that goal (Market Levels).

Goals for 2017

Market Levels

for 2017

Preliminary

Results for 2017

Single-family purchase money goals (benchmark levels)

Low-income goal 24% 24.3% 23.2%

Very low-income goal 6% 5.9% 5.7%

Low-income areas goal 18% 21.5% 20.9%

Low-income areas subgoal 14% 17.1% 16.4%

Single-family refinance (benchmark level)

Low-income goal 21% 25.4% 24.8%

Multifamily (benchmark levels in units)

Low-income goal 300,000 N/A 408,096

Very low-income subgoal 60,000 N/A 92,274

Small property low-income subgoal 10,000 N/A 39,473
Management's Discussion and Analysis Regulation and Supervision

Freddie Mac Form 10-Q 76

Final Rule on Corporate Governance

On October 19, 2018, FHFA published in the Federal Register a final rule on the responsibilities of 

boards of directors, corporate practices, and corporate governance. The final rule amends the existing 

regulation pertaining to Federal Home Loan Bank strategic business plans so that it applies as well to 

Freddie Mac and Fannie Mae, with certain changes. The final rule requires the boards of directors for 

Freddie Mac and Fannie Mae to have in effect at all times a strategic business plan, review the plan at 

least annually, re-adopt the plan at least once every three years, and establish reporting requirements 

for and monitor implementation of the plan. The final rule also adds a new provision requiring the 

strategic business plan to identify current and emerging risks.

Proposed Rule on Uniform Mortgage-Backed Securities

On September 17, 2018, FHFA published in the Federal Register a proposed rule on the new Uniform 

Mortgage-Backed Security (UMBS). The proposed rule is intended to improve the liquidity of Freddie 

Mac and Fannie Mae (the Enterprises) “To-Be-Announced” (TBA)-eligible mortgage-backed securities 

(MBS) by requiring the Enterprises to maintain policies that promote aligned investor cash flows both on 

current TBA-eligible MBS, and, upon implementation, on the UMBS, a common, fungible MBS that will 

be eligible for trading in the TBA market for fixed-rate mortgage loans backed by 1-4 unit (single-family) 

properties. Implementation of requirements established by a final rule could affect our business 

practices in the future.

Final Rule on Indemnification

On October 4, 2018, FHFA published in the Federal Register a final rule on indemnification payments. 

The final rule establishes standards for identifying whether certain indemnification payments by Freddie 

Mac, Fannie Mae, or any of the Federal Home Loan Banks are prohibited or permissible. The final rule 

does not apply to any regulated entity operating in conservatorship.

Updated Capital Requirements for Mortgage Insurers

On September 27, 2018, Freddie Mac and Fannie Mae published revised Private Mortgage Insurer 

Eligibility Requirements (PMIERs) for private mortgage insurance companies that insure mortgage loans 

either owned or guaranteed by the Enterprises. The revised eligibility requirements, which reflect 

changes to the financial and operational requirements for mortgage insurance counterparties, become 

effective on March 31, 2019.
Management's Discussion and Analysis Off-Balance Sheet Arrangements

Freddie Mac Form 10-Q 77

OFF-BALANCE SHEET ARRANGEMENTS

We enter into certain off-balance sheet arrangements related to our securitization activities involving 

guaranteed loans and mortgage-related securities, though most of our securitization activities are onbalance sheet. For a description of our off-balance sheet arrangements, see MD&A - Off-Balance 

Sheet Arrangements in our 2017 Annual Report. See Note 3 and Note 5 for more information on 

our off-balance sheet securitization and guarantee activities.

Our maximum potential off-balance sheet exposure to credit losses relating to these securitization 

activities and guarantees is primarily represented by the UPB of the underlying loans and securities, 

which was $241.6 billion and $215.7 billion at September 30, 2018 and December 31, 2017, 

respectively.
Management's Discussion and Analysis Forward-Looking Statements

Freddie Mac Form 10-Q 78

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-Q, contain "forward-looking statements." Examples of forward-looking 

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

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

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

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

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

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

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

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

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

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

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

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

Factors section of our 2017 Annual Report, and:

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

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

and other objectives for us;

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

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

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

legislation affecting the future status of our company);

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

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

mortgage-related securities;

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

2017;

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

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

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

spreads and home prices;

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

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

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

portfolio;

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

Certificate, SB Certificate and other credit risk transfer transactions;

Our ability to maintain adequate liquidity to fund our operations;

Our ability to maintain the security and resiliency of our operational systems and infrastructure (e.g., 
Management's Discussion and Analysis Forward-Looking Statements

Freddie Mac Form 10-Q 79

against cyberattacks);

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

efficiency;

The adequacy of our risk management framework, including the adequacy of the CCF and our 

internal capital methodologies for measuring risk;

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

servicing practices;

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

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

interest-rate risk management purposes;

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

provide initial and ongoing disclosures;

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

financial statements, make business decisions and manage risks;

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

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

secondary mortgage market; 

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

portions of our total mortgage portfolio are located; and 

Other factors and assumptions described in this Form 10-Q and our 2017 Annual Report, including 

in the MD&A section.

Forward-looking statements are made only as of the date of this Form 10-Q, 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-Q.
Financial Statements

Freddie Mac Form 10-Q 80

Financial Statements
Financial Statements Condensed Consolidated Statements of Comprehensive Income

Freddie Mac Form 10-Q 81

FREDDIE MAC 

Condensed Consolidated Statements of 

Comprehensive Income (Loss) (Unaudited) 

(In millions, except share-related amounts) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Interest income

Mortgage loans $16,787 $15,867 $49,082 $47,680

Investments in securities 755 821 2,295 2,637

Other 261 185 703 436

Total interest income 17,803 16,873 52,080 50,753

Interest expense (14,546) (13,384) (42,802) (40,090)

Net interest income 3,257 3,489 9,278 10,663

Benefit (provision) for credit losses 380 (716) 377 (178)

Net interest income after benefit (provision) for credit losses 3,637 2,773 9,655 10,485

Non-interest income (loss)

Gains (losses) on extinguishment of debt 146 27 403 295

Derivative gains (losses) 728 (678) 2,974 (2,076)

Net impairment of available-for-sale securities recognized in earnings (2) (1) (3) (17)

Other gains (losses) on investment securities recognized in earnings (441) 723 (1,021) 840

Other income (loss) 394 5,403 1,526 6,512

Non-interest income (loss) 825 5,474 3,879 5,554

Non-interest expense

Salaries and employee benefits (301) (272) (890) (813)

Professional services (120) (110) (335) (340)

Other administrative expense (148) (142) (422) (395)

Total administrative expense (569) (524) (1,647) (1,548)

Real estate owned operations expense (38) (35) (87) (128)

Temporary Payroll Tax Cut Continuation Act of 2011 expense (375) (339) (1,100) (990)

Other expense (218) (159) (619) (361)

Non-interest expense (1,200) (1,057) (3,453) (3,027)

Income (loss) before income tax (expense) benefit 3,262 7,190 10,081 13,012

Income tax (expense) benefit (556) (2,519) (1,946) (4,466)

Net income (loss) 2,706 4,671 8,135 8,546

Other comprehensive income (loss), net of taxes and reclassification

adjustments:

Changes in unrealized gains (losses) related to available-for-sale securities (169) (47) (1,065) 246

Changes in unrealized gains (losses) related to cash flow hedge relationships 25 26 87 81

Changes in defined benefit plans (3) — (13) (3)

Total other comprehensive income (loss), net of taxes and

reclassification adjustments (147) (21) (991) 324

Comprehensive income (loss) $2,559 $4,650 $7,144 $8,870

Net income (loss) $2,706 $4,671 $8,135 $8,546

Undistributed net worth sweep and senior preferred stock dividends (2,559) (4,650) (4,144) (8,870)

Net income (loss) attributable to common stockholders $147 $21 $3,991 ($324)

Net income (loss) per common share — basic and diluted $0.05 $0.01 $1.23 ($0.10)

Weighted average common shares outstanding (in millions) — basic and

diluted 3,234 3,234 3,234 3,234

The accompanying notes are an integral part of these condensed consolidated financial statements.
Financial Statements Condensed Consolidated Balance Sheets

Freddie Mac Form 10-Q 82

FREDDIE MAC

Condensed Consolidated Balance Sheets (Unaudited)

September 30, December 31,

(In millions, except share-related amounts) 2018 2017

Assets

Cash and cash equivalents (Notes 1, 3 and 14) (includes $694 and $2,963 of restricted cash and cash

equivalents) $7,038 $9,811

Securities purchased under agreements to resell (Notes 3, 10) 48,540 55,903

Investments in securities, at fair value (Note 7) 75,930 84,318

Mortgage loans held-for-sale (Notes 3, 4) (includes $18,222 and $20,054 at fair value) 36,924 34,763

Mortgage loans held-for-investment (Notes 3, 4) (net of allowance for loan losses of $6,946 and $8,966) 1,865,504 1,836,454

Accrued interest receivable (Note 3) 6,600 6,355

Derivative assets, net (Notes 9, 10) 469 375

Deferred tax assets, net (Note 12) 7,876 8,107

Other assets (Notes 3, 18) (includes $3,707 and $3,353 at fair value) 14,576 13,690

Total assets $2,063,457 $2,049,776

Liabilities and equity

Liabilities

Accrued interest payable (Note 3) $6,418 $6,221

Debt, net (Notes 3, 8) (includes $5,329 and $5,799 at fair value) 2,041,990 2,034,630

Derivative liabilities, net (Notes 9, 10) 295 269

Other liabilities (Notes 3, 18) 9,195 8,968

Total liabilities 2,057,898 2,050,088

Commitments and contingencies (Notes 5, 9 and 16)

Equity (Note 11)

Senior preferred stock (redemption value of $75,648 and $75,336) 72,648 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

650,058,775 shares and 650,054,731 shares outstanding — —

Additional paid-in capital — —

Retained earnings (accumulated deficit) (76,800) (83,261)

AOCI, net of taxes, related to:

Available-for-sale securities (includes $298 and $593, related to net unrealized gains on securities for

which other-than-temporary impairment has been recognized in earnings) (260) 662

Cash flow hedge relationships (342) (356)

Defined benefit plans 89 83

Total AOCI, net of taxes (513) 389

Treasury stock, at cost, 75,805,111 shares and 75,809,155 shares (3,885) (3,885)

Total equity (See Note 11 for information on our dividend requirement to Treasury) 5,559 (312)

Total liabilities and equity $2,063,457 $2,049,776

The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on our condensed 

consolidated balance sheets.

September 30, December 31,

(In millions) 2018 2017

Consolidated Balance Sheet Line Item

Assets: (Note 3)

Mortgage loans held-for-investment $1,814,776 $1,774,286

All other assets 21,438 25,753

Total assets of consolidated VIEs $1,836,214 $1,800,039

Liabilities: (Note 3)

Debt, net $1,765,045 $1,720,996

All other liabilities 5,214 5,030

Total liabilities of consolidated VIEs $1,770,259 $1,726,026

The accompanying notes are an integral part of these condensed consolidated financial statements.
Financial Statements Condensed Consolidated Statements of Cash Flows

Freddie Mac Form 10-Q 83

FREDDIE MAC

Condensed Consolidated Statements of Cash Flows 

(Unaudited)

(In millions) YTD 2018 YTD 2017

Net cash provided by operating activities $2,895 $4,757

Cash flows from investing activities

Purchases of trading securities (101,700) (119,548)

Proceeds from sales of trading securities 94,934 115,727

Proceeds from maturities and repayments of trading securities 5,276 6,775

Purchases of available-for-sale securities (14,308) (6,361)

Proceeds from sales of available-for-sale securities 16,976 14,695

Proceeds from maturities and repayments of available-for-sale securities 4,740 9,541

Purchases of held-for-investment mortgage loans (113,083) (92,311)

Proceeds from sales of mortgage loans held-for-investment 7,121 4,641

Repayments of mortgage loans held-for-investment 190,264 206,705

Advances to lenders and other secured lending arrangements (19,407) (25,383)

Net proceeds from dispositions of real estate owned and other recoveries 1,054 1,457

Net (increase) decrease in securities purchased under agreements to resell 7,363 4,346

Derivative premiums and terminations, swap collateral, and exchange settlement payments, net 5,418 (1,646)

Changes in other assets (321) (248)

Net cash provided by investing activities 84,327 118,390

Cash flows from financing activities

Proceeds from issuance of debt securities of consolidated trusts held by third parties 158,825 135,697

Repayments and redemptions of debt securities of consolidated trusts held by third parties (211,729) (221,844)

Proceeds from issuance of other debt 444,809 461,222

Repayments of other debt (480,625) (495,877)

Increase in liquidation preference of senior preferred stock 312 —

Payment of cash dividends on senior preferred stock (1,585) (8,695)

Changes in other liabilities (2) (3)

Net cash used in financing activities (89,995) (129,500)

Net (decrease) increase in cash and cash equivalents (includes restricted cash and cash equivalents) (2,773) (6,353)

Cash and cash equivalents (includes restricted cash and cash equivalents) at beginning of year 9,811 22,220

Cash and cash equivalents (includes restricted cash and cash equivalents) at end of period $7,038 $15,867

Supplemental cash flow information

Cash paid for:

Debt interest $48,915 $47,847

Income taxes 2,125 887

Non-cash investing and financing activities (Note 4 and 7)

The accompanying notes are an integral part of these condensed consolidated financial statements.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 1

Freddie Mac Form 10-Q 84

Notes to Condensed Consolidated 

Financial Statements

NOTE 1

Summary of Significant Accounting Policies

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

and affordability to the U.S. housing market. We are regulated by FHFA, the SEC, HUD and Treasury, 

and are currently operating under the conservatorship of FHFA. For more information on the roles of 

FHFA and Treasury, see Note 2 in this Form 10-Q and in our Annual Report on Form 10-K for the year 

ended December 31, 2017, or 2017 Annual Report. Throughout our unaudited condensed consolidated 

financial statements and related notes, we use certain acronyms and terms which are defined in the 

Glossary of our 2017 Annual Report. Throughout this Form 10-Q, we refer to the three months ended 

September 30, 2018, the three months ended June 30, 2018, the three months ended March 31, 2018, 

the three months ended December 31, 2017, and the three months ended September 30, 2017 as "3Q 

2018," "2Q 2018," "1Q 2018," "4Q 2017" and "3Q 2017," respectively. We refer to the nine months 

ended September 30, 2018 and the nine months ended September 30, 2017 as "YTD 2018" and "YTD 

2017," respectively.

The accompanying unaudited condensed consolidated financial statements should be read in 

conjunction with the audited consolidated financial statements and related notes in our 2017 Annual 

Report.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in 

accordance with GAAP and include our accounts as well as the accounts of other entities in which we 

have a controlling financial interest. All intercompany balances and transactions have been eliminated.

We are operating under the basis that we will realize assets and satisfy liabilities in the normal course of 

business as a going concern and as authorized by FHFA through our Board of Directors and 

management. Certain amounts in prior periods’ condensed consolidated financial statements have been 

reclassified to conform to the current presentation. In the opinion of management, our unaudited 

condensed consolidated financial statements contain all adjustments, which include only normal 

recurring adjustments, necessary for a fair statement of our results.

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.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 1

Freddie Mac Form 10-Q 85

Use of Estimates

The preparation of financial statements requires us to make estimates and assumptions that affect the 

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date 

of the financial statements and the reported amounts of revenues, expenses, gains and losses during 

the reporting period. Management has made significant estimates in preparing the financial statements 

for establishing the allowance for credit losses and valuing financial instruments and other assets and 

liabilities. Actual results could be different from these estimates.

Recently Issued Accounting Guidance

Recently Adopted Accounting Guidance

Standard Description Date of

Adoption

Effect on Condensed Consolidated

Financial Statements

ASU 2014-09, Revenue 

from Contracts with 

Customers (Topic 606) and 

ASU 2015-14, Topic 606: 

Deferral of the Effective 

Date

The amendment requires entities to recognize

revenue to depict the transfer of promised goods

or services to customers in amounts that reflect

the consideration to which the entity expects to be

entitled in exchange for those goods or services.

ASU 2015-14 defers the effective date of ASU

2014-09 for all entities by one year.

January 1,

2018

The adoption of the amendments did 

not have a material effect on our 

condensed consolidated financial 

statements or on our disclosures. 

ASU 2016-01, Recognition 

and Measurement of 

Financial Assets and 

Financial Liabilities 

(Subtopic 825-10)

The amendment addresses certain aspects of

recognition, measurement, presentation and

disclosure of financial instruments.

January 1,

2018

The adoption of the amendments did 

not have a material effect on our 

condensed consolidated financial 

statements or on our disclosures. 

ASU 2016-08, Topic 606: 

Principal versus Agent 

Considerations (Reporting 

Revenue Gross versus Net)

The amendments in this Update do not change the

core principle of the guidance in Topic 606. The

amendments clarify the implementation guidance

on principal versus agent considerations.

January 1,

2018

The adoption of the amendments did 

not have a material effect on our 

condensed consolidated financial 

statements or on our disclosures. 

ASU 2016-10, Topic 606: 

Identifying Performance 

Obligations and Licensing

The amendments in this Update do not change the

core principle of the guidance in Topic 606, but

they clarify two issues: i) identifying performance

obligations; and ii) licensing. These clarifications

are intended to reduce diversity in practice and to

reduce the cost and complexity of Topic 606 at

transition and on an ongoing basis.

January 1,

2018

The adoption of the amendments did 

not have a material effect on our 

condensed consolidated financial 

statements or on our disclosures. 

ASU 2016-12, Topic 606: 

Narrow-Scope 

Improvements and 

Practical Expedients

The amendments in this Update do not change the

core principle of the guidance in Topic 606, but

affect aspects of the guidance and technical

corrections.

January 1,

2018

The adoption of the amendments did 

not have a material effect on our 

condensed consolidated financial 

statements or on our disclosures. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 1

Freddie Mac Form 10-Q 86

Recently Adopted Accounting Guidance

Standard Description Date of

Adoption

Effect on Condensed Consolidated

Financial Statements

ASU 2016-15, Statement of 

Cash Flows (Topic 230): 

Classification of Certain 

Cash Receipts and Cash 

Payments (a consensus of 

the Emerging Issues Task 

Force)

The main objective of this Update is to address the

diversity in practice that currently exists in regards

to how certain cash receipts and cash payments

are presented and classified in the statement of

cash flows under Topic 230, Statement of Cash

Flows, and other Topics. This Update addresses

eight specific cash flow issues with the objective

of reducing the existing diversity in practice.

January 1,

2018

Upon adoption, the portion of the cash

payment attributable to the accreted

interest related to zero-coupon debt is

presented in the operating activities

section, a classification change from

the financing activities section where

this item was previously presented. As

a result, we reclassified approximately

$1.1 billion of cash payments from

financing activities to operating

activities on our condensed

consolidated statements of cash flows

for YTD 2017.

ASU 2016-18, Statement of 

Cash Flows (Topic 230): 

Restricted Cash (a 

consensus of the FASB 

Emerging Issues Task 

Force)

The amendments in this Update address the

diversity in the classification and presentation of

changes in restricted cash on the statement of

cash flows under Topic 230, Statement of Cash

Flows. Specifically, this amendment dictates that

the statement of cash flows should explain the

change in the period of the total of cash, cash

equivalents and restricted cash balances.

January 1,

2018

The adoption of the amendments did 

not have a material effect on our 

condensed consolidated financial 

statements; however, we modified the 

presentation of restricted cash and 

cash equivalent balances on our 

condensed consolidated balance 

sheets. The presentation of our 

condensed consolidated statements of 

cash flows has also been revised to 

reflect the change of total cash and 

cash equivalents and restricted cash 

and cash equivalents balances.

ASU 2016-20, Technical 

Corrections and 

Improvements to Topic 606

The amendments in this Update are of a similar

nature to the items typically addressed in the

Technical Corrections and Improvements project.

However, the Board decided to issue a separate

Update for technical corrections and

improvements to Topic 606 and other Topics

amended by Update 2014-09 to increase

stakeholders’ awareness of the proposals and to

expedite improvements to Update 2014-09.

January 1,

2018

The adoption of the amendments did 

not have a material effect on our 

condensed consolidated financial 

statements or on our disclosures. 

ASU 2018-02, Income 

Statement—Reporting 

Comprehensive Income 

(Topic 220): 

Reclassification of Certain 

Tax Effects from 

Accumulated Other 

Comprehensive Income

The amendments in this Update allow a

reclassification from accumulated other

comprehensive income to retained earnings for

stranded tax effects resulting from the Tax Cuts

and Jobs Act.

January 1,

2018

Upon adoption, we reclassified 

approximately $89 million from 

accumulated other comprehensive 

income to retained earnings on our 

condensed consolidated financial 

statements. 

ASU 2018-03, Technical 

Corrections and 

Improvements to Financial 

Instruments—Overall 

(Subtopic 825-10) 

Recognition and 

Measurement of Financial 

Assets and Financial 

Liabilities 

The amendments clarify certain aspects of the

guidance issued in Update 2016-01 and address

six specific issues.

January 1,

2018

The adoption of the amendments did 

not have a material effect on our 

condensed consolidated financial 

statements or on our disclosures. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 1

Freddie Mac Form 10-Q 87

Recently Issued Accounting Guidance, Not Yet Adopted Within Our Condensed Consolidated Financial Statements

Standard Description Date of Planned

Adoption

Effect on Consolidated Financial

Statements

ASU 2016-02, Leases (Topic 

842)

The amendment addresses the accounting for

lease arrangements.

January 1, 2019 We do not expect that the adoption of

this amendment will have a material

effect on our consolidated financial

statements.

ASU 2016-13, Financial 

Instruments—Credit Losses 

(Topic 326): Measurement of 

Credit Losses on Financial 

Instruments

The amendments in this Update replace the

incurred loss impairment methodology in

current GAAP with a methodology that reflects

lifetime expected credit losses and requires

consideration of a broader range of reasonable

and supportable information to inform credit

loss estimates.

January 1, 2020 We are developing our models to 

estimate lifetime expected credit 

losses on our financial instruments 

measured at amortized cost using 

discounted cash flow methodology. 

The amendment will be applied 

through a cumulative effect 

adjustment to retained earnings as of 

the beginning of the year of adoption.

While we are not able to reasonably 

estimate the effect that the adoption 

of this amendment will have on our 

consolidated financial statements, it 

may increase (perhaps substantially) 

our allowance for credit losses in the 

period of adoption.

ASU 2018-13, Fair Value 

Measurement (Topic 820): 

Disclosure Framework - 

Changes to the Disclosure 

Requirements for Fair Value 

Measurement

The amendments in this Update modify the 

disclosure requirements on fair value 

measurements in Topic 820, Fair Value 

Measurements, based on the concepts in the 

Concepts Statement, including the 

consideration of costs and benefits. Certain 

disclosure requirements were either removed, 

modified or added. 

January 1, 2020 We are evaluating the effect that the

adoption of this amendment will have

on the notes to our consolidated

financial statements.

ASU 2018-15, Intangibles - 

Goodwill and Other - InternalUse Software (Subtopic 

350-40): Customer's 

Accounting for 

Implementation Costs 

Incurred in a Cloud 

Computing Arrangement That 

Is a Service Contract

The amendments in this Update align the

requirements for capitalizing implementation

costs incurred in a hosting arrangement that is

a service contract with the requirements for

capitalizing implementation costs incurred to

develop or obtain internal-use software (and

hosting arrangements that include an internaluse software license).

January 1, 2020 We are evaluating the effect that the

adoption of this amendment will have

on our consolidated financial

statements.

ASU 2018-16, Derivatives 

and Hedging (Topic 815): 

Inclusion of the Secured 

Overnight Financing Rate 

(SOFR) Overnight Index Swap 

(OIS) Rate as a Benchmark 

Interest Rate for Hedge 

Accounting Purposes

The amendments in this Update permit the OIS 

rate based on SOFR, as an eligible U.S. 

benchmark interest rate for purposes of 

applying hedge accounting under Topic 815.

January 1, 2019 We are evaluating the effect that the

adoption of this amendment will have

on our consolidated financial

statements.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 2

Freddie Mac Form 10-Q 88

NOTE 2

Conservatorship and Related Matters

Business Objectives

We operate under the conservatorship that commenced on September 6, 2008, conducting our 

business under the direction of FHFA, as our Conservator. The conservatorship and related matters 

significantly affect our management, business activities, financial condition and results of operations. 

Upon its appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and 

privileges of Freddie Mac, and of any stockholder, officer or director thereof, with respect to the 

company and its assets. The Conservator also succeeded to the title to all books, records and assets of 

Freddie Mac held by any other legal custodian or third party. The Conservator provided for the Board of 

Directors to perform certain functions and to oversee management, and the board delegated to 

management authority to conduct business operations so that the company can continue to operate in 

the ordinary course. The directors serve on behalf of, and perform such functions as provided by, the 

Conservator.

We are also subject to certain constraints on our business activities under the Purchase Agreement. 

However, the support provided by Treasury pursuant to the Purchase Agreement currently enables us to 

maintain our access to the debt markets and to have adequate liquidity to conduct our normal business 

activities, although the costs of our debt funding could vary. Our ability to access funds from Treasury 

under the Purchase Agreement is critical to keeping us solvent. 

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 cannot exceed $250 billion at December 31, 2018 and was 

$227.8 billion at September 30, 2018. Our 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 cap established by the 

Purchase Agreement (subject to certain exceptions). Our ability to acquire and sell mortgage assets is 

significantly constrained by limitations of the Purchase Agreement and those imposed by FHFA. 

Government Support for Our Business

We receive substantial support from Treasury and are dependent upon its continued support in order to 

continue operating our business. Our ability to access funds from Treasury under the Purchase 

Agreement is critical to: 

Keeping us solvent;

Allowing us to focus on our primary business objectives under conservatorship; and

Avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions. 

At June 30, 2018, our assets exceeded our liabilities under GAAP; therefore, FHFA, as Conservator, did 

not request a draw on our behalf and, as a result, we did not receive any funding from Treasury under 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 2

Freddie Mac Form 10-Q 89

the Purchase Agreement during 3Q 2018. The amount of available funding remaining under the 

Purchase Agreement is $140.2 billion and will be reduced by any future draws. 

See Note 8 and Note 11 for more information on the conservatorship and the Purchase Agreement.

Related Parties as a Result of Conservatorship

We are deemed related parties with Fannie Mae as both we and Fannie Mae have the same relationships 

with FHFA and Treasury. CSS was formed in 2013 as a limited liability company equally-owned by 

Freddie Mac and Fannie Mae. Therefore, CSS is also deemed a related party. During YTD 2018, we 

contributed $109 million of capital to CSS, and we have contributed $438 million since the fourth quarter 

of 2014. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 3

Freddie Mac Form 10-Q 90

NOTE 3

Securitization Activities and Consolidation

Our primary business activities in our Single-family Guarantee and Multifamily segments involve the 

securitization of loans or other mortgage-related assets using trusts that are VIEs. These trusts issue 

beneficial interests in the loans or other mortgage-related assets that they own. We guarantee the 

principal and interest payments on some or all of the issued beneficial interests in substantially all of our 

securitization transactions. We consolidate VIEs when we have a controlling financial interest in the VIE 

and are therefore considered the primary beneficiary of the VIE. See Note 5 for additional information 

on our guarantee activities.

Consolidated VIEs 

The table below presents the carrying value and classification of the assets and liabilities of 

consolidated VIEs on our condensed consolidated balance sheets.

(In millions) September 30, 2018 December 31, 2017

Consolidated Balance Sheet Line Item

Assets:

Cash and cash equivalents (includes $637 and $518 of restricted cash and cash equivalents) $638 $518

Securities purchased under agreements to resell 13,000 16,750

Mortgage loans held-for-investment 1,814,776 1,774,286

Accrued interest receivable 5,777 5,747

Other assets 2,023 2,738

Total assets of consolidated VIEs $1,836,214 $1,800,039

Liabilities:

Accrued interest payable $5,214 $5,028

Debt, net 1,765,045 1,720,996

Other liabilities — 2

Total liabilities of consolidated VIEs $1,770,259 $1,726,026
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 3

Freddie Mac Form 10-Q 91

Non-Consolidated VIEs

Our involvement with VIEs for which we are not the primary beneficiary takes one or both of two forms - 

purchasing an investment in these entities or providing a guarantee to these entities. The following table 

presents the carrying amounts and classification of the assets and liabilities recorded on our condensed 

consolidated balance sheets related to our variable interests in non-consolidated VIEs with which we 

were involved in the design and creation and have a significant continuing involvement, as well as our 

maximum exposure to loss. We do not believe the maximum exposure to loss disclosed in the table 

below is representative of the actual loss we are likely to incur, based on our historical loss experience 

and after consideration of proceeds from related collateral liquidation, including possible recoveries 

under credit enhancement arrangements. See Note 6 for additional information on credit enhancement 

arrangements.

(In millions) September 30, 2018 December 31, 2017

Assets and Liabilities Recorded on our Condensed Consolidated Balance 

Sheets(1)

Assets:

Investments in securities, at fair value $43,736 $51,494

Accrued interest receivable 221 233

Derivative assets, net 21 7

Other assets 2,862 2,591

 Liabilities:

Derivative liabilities, net 114 —

Other liabilities 2,785 2,489

Maximum Exposure to Loss(2)(3) 227,567 200,196

Total Assets of Non-Consolidated VIEs(3) 266,824 232,762

(1) Includes our variable interests in REMICs and Stripped Giant PCs, K Certificates, SB Certificates, senior subordinate securitization structures and 

other securitization products that we do not consolidate. 

(2) Our maximum exposure to loss includes the guaranteed UPB of assets held by the non-consolidated VIEs, the UPB of unguaranteed securities that 

we acquired from these securitization transactions and the UPB of guarantor advances made to the holders of the guaranteed securities. 

(3) Our maximum exposure to loss and total assets of non-consolidated VIEs exclude our investments in and obligations to REMICs and Stripped Giant 

PCs, because we already consolidate the underlying collateral of these trusts on our condensed consolidated balance sheets. In addition, our 

maximum exposure to loss excludes certain securitization activity and other mortgage-related guarantees measured at fair value where our 

exposure may be unlimited. We generally reduce our exposure to these guarantees with unlimited exposure through separate contracts with third 

parties.

We also obtain interests in various other VIEs created by third parties through the normal course of 

business. To the extent that we were not involved in the design and creation of these VIEs, they are 

excluded from the table above. Our interests in these VIEs are generally passive in nature and are not 

expected to result in us obtaining a controlling financial interest in these VIEs in the future.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 92

NOTE 4

Mortgage Loans and Allowance for Credit Losses

The table below provides details of the loans on our condensed consolidated balance sheets.

September 30, 2018 December 31, 2017

(In millions)

Held by

Freddie Mac

Held by

Consolidated

Trusts Total

Held by

Freddie Mac

Held by

Consolidated

Trusts Total

Held-for-sale:

Single-family $22,112 $— $22,112 $17,039 $— $17,039

Multifamily 18,566 — 18,566 20,537 — 20,537

Total UPB 40,678 — 40,678 37,576 — 37,576

Cost basis and fair value adjustments, net (3,754) — (3,754) (2,813) — (2,813)

Total held-for-sale loans, net 36,924 — 36,924 34,763 — 34,763

Held-for-investment:

Single-family 42,722 1,787,797 1,830,519 51,893 1,742,736 1,794,629

Multifamily 13,105 3,708 16,813 17,702 3,747 21,449

Total UPB 55,827 1,791,505 1,847,332 69,595 1,746,483 1,816,078

Cost basis adjustments (1,489) 26,607 25,118 (2,148) 31,490 29,342

Allowance for loan losses (3,610) (3,336) (6,946) (5,279) (3,687) (8,966)

Total held-for-investment loans, net 50,728 1,814,776 1,865,504 62,168 1,774,286 1,836,454

Total loans, net $87,652 $1,814,776 $1,902,428 $96,931 $1,774,286 $1,871,217
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 93

The table below provides details of the UPB of loans we purchased, reclassified from held-forinvestment to held-for-sale and sold. 

(In billions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Single-family:

Purchases

 Held-for-investment loans $81.6 $86.8 $231.5 $245.7

Reclassified from held-for-investment to held-for-sale(1) 13.3 7.2 17.6 20.0

Sale of held-for-sale loans(2) 2.3 2.7 6.5 4.3

Multifamily:

Purchases

 Held-for-investment loans 0.9 1.1 2.6 3.0

 Held-for-sale loans 16.3 16.6 42.5 40.6

Reclassified from held-for-investment to held-for-sale(1) 0.2 0.2 0.7 0.9

Sale of held-for-sale loans(3) 14.4 16.0 44.8 38.7

(1) We reclassify loans from held-for-investment to held-for-sale when we no longer have the intent or ability to hold for the foreseeable future.

(2) We sell seasoned single-family loans as part of our strategy to mitigate losses and reduce our holdings of less liquid assets.

(3) Our sales of multifamily loans occur primarily through the issuance of multifamily K Certificates and SB Certificates. See Note 3 for more 

information on our K Certificates and SB Certificates.

Credit Quality 

Single-Family

The current LTV ratio is one key factor we consider when estimating our allowance for credit losses for 

single-family loans. As current LTV ratios increase, the borrower’s equity in the home decreases, which 

may negatively affect the borrower’s ability to refinance or to sell the property for an amount at or above 

the balance of the outstanding loan. 

A second-lien loan also reduces the borrower’s equity in the home and has a similar negative effect on 

the borrower’s ability to refinance or sell the property for an amount at or above the combined balances 

of the first and second loans. As of September 30, 2018 and December 31, 2017, based on data 

collected by us at loan delivery, approximately 8% and 9%, respectively, of loans in our single-family 

credit guarantee portfolio had second-lien financing by third parties at origination of the first loan. 

However, borrowers are free to obtain second-lien financing after origination, and we are not entitled to 

receive notification when a borrower does so. For further information about concentrations of risk 

associated with our single-family and multifamily loans, see Note 14.

The table below presents the recorded investment of single-family held-for-investment loans by current 

LTV ratios. Our current LTV ratios are estimates based on available data through the end of each 

respective period presented. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 94

September 30, 2018 December 31, 2017

Current LTV Ratio Total Current LTV Ratio Total

(In millions) > 80 to 100 > 100(1) > 80 to 100 > 100(1)

20 and 30-year or more, amortizing

fixed-rate $1,303,619 $215,739 $8,477 $1,527,835 $1,240,224 $214,177 $13,303 $1,467,704

15-year amortizing fixed-rate 256,318 5,191 209 261,718 270,266 7,351 381 277,998

Adjustable-rate 43,504 2,159 10 45,673 48,596 2,963 28 51,587

Alt-A, interest-only, and option ARM 17,350 2,351 729 20,430 21,013 4,256 1,429 26,698

Total single-family loans $1,620,791 $225,440 $9,425 $1,855,656 $1,580,099 $228,747 $15,141 $1,823,987

(1) The serious delinquency rate for the total of single-family held-for-investment mortgage loans with current LTV ratios in excess of 100% was 

7.15% and 8.43% as of September 30, 2018 and December 31, 2017, respectively.

For reporting purposes:

Loans within the Alt-A category continue to be presented in that category following modification, 

even though the borrower may have provided full documentation of assets and income to complete 

the modification; and

Loans within the option ARM category continue to be presented in that category following 

modification, even though the modified loan no longer provides for optional payment or adjustable 

interest-rate provisions.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 95

Multifamily

The table below presents the recorded investment in our multifamily held-for-investment loans, by credit 

quality indicator based on available data through the end of each period presented. These indicators 

involve significant management judgment. 

(In millions) September 30, 2018 December 31, 2017

Credit risk profile by internally assigned grade:(1)

Pass $16,343 $20,963

Special mention 283 301

Substandard 168 169

Doubtful — —

Total $16,794 $21,433

(1) A loan categorized as: "Pass" is current and adequately protected by the current financial strength and debt service capacity of the borrower; 

"Special mention" has administrative issues that may affect future repayment prospects but does not have current credit weaknesses; 

"Substandard" has a weakness that jeopardizes the timely full repayment; and "Doubtful" has a weakness that makes collection or liquidation in 

full highly questionable and improbable based on existing conditions.

Mortgage Loan Performance

The tables below present the recorded investment of our single-family and multifamily loans, held-forinvestment, by payment status.

September 30, 2018

(In millions) Current

One

Month

Past Due

Two

Months

Past Due

Three Months or

More Past Due,

or in Foreclosure(1) Total Non-accrual

Single-family:

20 and 30-year or more, amortizing fixed-rate $1,501,012 $16,205 $3,586 $7,032 $1,527,835 $7,030

15-year amortizing fixed-rate 260,127 1,162 158 271 261,718 271

Adjustable-rate 45,153 346 59 115 45,673 115

Alt-A, interest-only, and option ARM 18,224 933 335 938 20,430 937

Total single-family 1,824,516 18,646 4,138 8,356 1,855,656 8,353

Total multifamily 16,794 — — — 16,794 27

Total single-family and multifamily $1,841,310 $18,646 $4,138 $8,356 $1,872,450 $8,380

December 31, 2017

(In millions) Current

One

Month

Past Due

Two

Months

Past Due

Three Months or

More Past Due,

or in Foreclosure(1) Total Non-accrual

Single-family:

20 and 30-year or more, amortizing fixed-rate $1,431,342 $18,297 $5,660 $12,405 $1,467,704 $12,401

15-year amortizing fixed-rate 275,864 1,288 290 556 277,998 556

Adjustable-rate 50,915 383 84 205 51,587 205

Alt-A, interest-only, and option ARM 23,235 1,297 509 1,657 26,698 1,656

Total single-family 1,781,356 21,265 6,543 14,823 1,823,987 14,818

Total multifamily 21,414 — — 19 21,433 64

Total single-family and multifamily $1,802,770 $21,265 $6,543 $14,842 $1,845,420 $14,882

(1) Includes $2.9 billion and $4.1 billion of loans that were in the process of foreclosure as of September 30, 2018 and December 31, 2017, 

respectively.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 96

The table below summarizes the delinquency rates of loans within our single-family credit guarantee and 

multifamily mortgage portfolios.

(Dollars in millions) September 30, 2018 December 31, 2017

Single-family:

Non-credit-enhanced portfolio

Serious delinquency rate 0.88% 1.16%

Total number of seriously delinquent loans 55,527 81,668

Credit-enhanced portfolio:(1)

Primary mortgage insurance:

 Serious delinquency rate 0.89% 1.43%

 Total number of seriously delinquent loans 15,462 23,275

Other credit protection:(2)

 Serious delinquency rate 0.30% 0.53%

 Total number of seriously delinquent loans 11,639 16,259

Total single-family:

Serious delinquency rate 0.73% 1.08%

Total number of seriously delinquent loans 79,486 116,662

Multifamily:(3)

Non-credit-enhanced portfolio:

Delinquency rate —% 0.06%

UPB of delinquent loans $— $24

Credit-enhanced portfolio:

Delinquency rate 0.01% 0.01%

UPB of delinquent loans $18 $16

Total multifamily:

Delinquency rate 0.01% 0.02%

UPB of delinquent loans $18 $40

(1) The credit-enhanced categories are not mutually exclusive, as a single loan may be covered by both primary mortgage insurance and other credit 

protection.

(2) Consists of single-family loans covered by financial arrangements (other than primary mortgage insurance) that are designed to reduce our credit 

risk exposure. See Note 6 for additional information on our credit enhancements.

(3) Multifamily delinquency performance is based on UPB of loans that are two monthly payments or more past due or those in the process of 

foreclosure. 

Allowance for Credit Losses

The allowance for credit losses represents estimates of probable incurred credit losses which we 

recognize by recording a charge to the provision for credit losses in our condensed consolidated 

statements of comprehensive income. The allowance for credit losses includes:

Our allowance for loan losses, which pertains to all single-family and multifamily loans classified as 

held-for-investment on our condensed consolidated balance sheets; and

Our reserve for guarantee losses, which pertains to single-family and multifamily loans underlying 

our K Certificates, SB Certificates, senior subordinate securitization structures, other securitization 

products and other mortgage-related guarantees.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 97

The tables below summarize changes in our allowance for credit losses.

3Q 2018 3Q 2017

Allowance for Loan Losses Reserve 

for

Guarantee

Losses

Total

Allowance for Loan Losses Reserve 

for

Guarantee

Losses

Total

 (In millions)

Held by

Freddie

Mac

Held By

Consolidated

Trusts

Held by

Freddie

Mac

Held By

Consolidated

Trusts

Single-family:

Beginning balance $4,887 $3,497 $49 $8,433 $7,541 $2,755 $55 $10,351

Provision (benefit) for credit losses (522) 143 1 (378) (330) 1,023 1 694

Charge-offs (1,262) (13) (2) (1,277) (1,126) (12) (2) (1,140)

Recoveries 117 2 — 119 143 2 — 145

Transfers, net(1) 306 (306) — — 136 (136) — —

Other(2) 76 11 — 87 56 — — 56

Single-family ending balance 3,602 3,334 48 6,984 6,420 3,632 54 10,106

Multifamily ending balance 8 2 8 18 32 1 8 41

Total ending balance $3,610 $3,336 $56 $7,002 $6,452 $3,633 $62 $10,147

YTD 2018 YTD 2017

Allowance for Loan Losses Reserve 

for

Guarantee

Losses

Total

Allowance for Loan Losses Reserve 

for

Guarantee

Losses

Total

 (In millions)

Held by

Freddie

Mac

Held By

Consolidated

Trusts

Held by

Freddie

Mac

Held By

Consolidated

Trusts

Single-family:

Beginning balance $5,251 $3,680 $48 $8,979 $10,442 $2,969 $54 $13,465

Provision (benefit) for credit losses (629) 266 6 (357) (1,058) 1,223 3 168

Charge-offs (2,198) (44) (6) (2,248) (3,942) (88) (3) (4,033)

Recoveries 336 5 — 341 322 5 — 327

Transfers, net(1) 597 (597) — — 480 (480) — —

Other(2) 245 24 — 269 176 3 — 179

Single-family ending balance 3,602 3,334 48 6,984 6,420 3,632 54 10,106

Multifamily ending balance 8 2 8 18 32 1 8 41

Total ending balance $3,610 $3,336 $56 $7,002 $6,452 $3,633 $62 $10,147

(1) Relates to removal of delinquent single-family loans from consolidated trusts and resecuritization after such removal. 

(2) Primarily includes capitalization of past due interest on modified loans.

A significant number of unsecuritized single-family loans on our condensed consolidated balance sheets 

are individually evaluated for impairment while substantially all single-family loans held by our 

consolidated trusts are collectively evaluated for impairment. The allowance for loan losses associated 

with our held-for-investment unsecuritized loans represented approximately 6.6% and 7.8% of the 

recorded investment in such loans at September 30, 2018 and December 31, 2017, 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 allowance for loan losses associated with loans 

held by our consolidated trusts represented approximately 0.2% of the recorded investment in such 

loans as of both September 30, 2018 and December 31, 2017.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 98

The table below presents our allowance for loan losses and our recorded investment in loans, held-forinvestment, by impairment evaluation methodology.

September 30, 2018 December 31, 2017

(In millions) Single-family Multifamily Total Single-family Multifamily Total

Recorded investment:

Collectively evaluated $1,805,640 $16,698 $1,822,338 $1,764,750 $21,301 $1,786,051

Individually evaluated 50,016 96 50,112 59,237 132 59,369

Total recorded investment 1,855,656 16,794 1,872,450 1,823,987 21,433 1,845,420

Ending balance of the allowance for loan losses:

Collectively evaluated (1,799) (10) (1,809) (2,301) (28) (2,329)

Individually evaluated (5,137) — (5,137) (6,630) (7) (6,637)

Total ending balance of the allowance (6,936) (10) (6,946) (8,931) (35) (8,966)

Net investment in loans $1,848,720 $16,784 $1,865,504 $1,815,056 $21,398 $1,836,454
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 99

Allowance for Loan Losses Determined on an Individual Basis

Impaired Loans

The tables below present the UPB, recorded investment, related allowance for loan losses, average 

recorded investment and interest income recognized for individually impaired loans.

September 30, 2018 December 31, 2017

(In millions) UPB

Recorded

Investment

Associated

Allowance UPB

Recorded

Investment

Associated

Allowance

Single-family:

With no allowance recorded:(1)

20 and 30-year or more, amortizing fixed-rate $3,458 $2,740 N/A $3,768 $2,908 N/A

15-year amortizing fixed-rate 20 18 N/A 24 21 N/A

Adjustable-rate 225 224 N/A 259 256 N/A

Alt-A, interest-only, and option ARM 1,229 1,036 N/A 1,558 1,297 N/A

Total with no allowance recorded 4,932 4,018 N/A 5,609 4,482 N/A

With an allowance recorded:(2)

20 and 30-year or more, amortizing fixed-rate 40,608 39,903 ($4,301) 47,897 46,783 ($5,505)

15-year amortizing fixed-rate 735 745 (21) 752 757 (24)

Adjustable-rate 183 180 (11) 232 228 (14)

Alt-A, interest-only, and option ARM 5,494 5,170 (804) 7,407 6,987 (1,087)

Total with an allowance recorded 47,020 45,998 (5,137) 56,288 54,755 (6,630)

Combined single-family:

20 and 30-year or more, amortizing fixed-rate 44,066 42,643 (4,301) 51,665 49,691 (5,505)

15-year amortizing fixed-rate 755 763 (21) 776 778 (24)

Adjustable-rate 408 404 (11) 491 484 (14)

Alt-A, interest-only, and option ARM 6,723 6,206 (804) 8,965 8,284 (1,087)

Total single-family 51,952 50,016 (5,137) 61,897 59,237 (6,630)

Multifamily:

With no allowance recorded(1) 101 93 N/A 106 97 N/A

With an allowance recorded 3 3 — 35 35 (7)

Total multifamily 104 96 — 141 132 (7)

Total single-family and multifamily $52,056 $50,112 ($5,137) $62,038 $59,369 ($6,637)

Referenced footnotes are included after the last table in the Impaired Loans section.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 100

3Q 2018 3Q 2017

(In millions)

Average

Recorded

Investment

Interest

Income

Recognized

Interest Income

Recognized On

Cash Basis(3)

Average

Recorded

Investment

Interest

Income

Recognized

Interest Income

Recognized On

Cash Basis(3)

Single-family:

With no allowance recorded:(1)

20 and 30-year or more, amortizing

fixed-rate $3,142 $83 $3 $3,367 $97 $3

15-year amortizing fixed-rate 20 — — 24 — —

Adjustable rate 238 3 — 287 2 —

Alt-A, interest-only, and option ARM 1,159 21 1 1,390 29 1

Total with no allowance recorded 4,559 107 4 5,068 128 4

With an allowance recorded:(2)

20 and 30-year or more, amortizing

fixed-rate 42,393 520 52 53,250 618 58

15-year amortizing fixed-rate 740 7 2 758 8 2

Adjustable rate 183 2 — 236 2 1

Alt-A, interest-only, and option ARM 5,622 72 7 8,014 89 7

Total with an allowance recorded 48,938 601 61 62,258 717 68

Combined single-family:

20 and 30-year or more, amortizing

fixed-rate 45,535 603 55 56,617 715 61

15-year amortizing fixed-rate 760 7 2 782 8 2

Adjustable rate 421 5 — 523 4 1

Alt-A, interest-only, and option ARM 6,781 93 8 9,404 118 8

Total single-family 53,497 708 65 67,326 845 72

Multifamily:

With no allowance recorded(1) 112 2 1 115 2 1

With an allowance recorded 3 — — 15 — —

Total multifamily 115 2 1 130 2 1

Total single-family and multifamily $53,612 $710 $66 $67,456 $847 $73

Referenced footnotes are included after the last table in the Impaired Loans section.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 101

YTD 2018 YTD 2017

(In millions)

Average

Recorded

Investment

Interest

Income

Recognized

Interest Income

Recognized On

Cash Basis(3)

Average

Recorded

Investment

Interest

Income

Recognized

Interest Income

Recognized On

Cash Basis(3)

Single-family —

With no allowance recorded:(1)

20 and 30-year or more, amortizing

fixed-rate $3,399 $268 $13 $3,733 $307 $12

15-year amortizing fixed-rate 21 3 — 26 1 —

Adjustable rate 255 9 — 301 8 —

Alt-A, interest-only, and option ARM 1,319 68 3 1,518 85 3

Total with no allowance recorded 4,994 348 16 5,578 401 15

With an allowance recorded:(2)

20 and 30-year or more, amortizing

fixed-rate 46,140 1,621 217 62,277 1,931 188

15-year amortizing fixed-rate 830 21 8 18,292 25 5

Adjustable rate 210 4 2 430 7 2

Alt-A, interest-only, and option ARM 6,357 205 24 7,033 296 26

Total with an allowance recorded 53,537 1,851 251 88,032 2,259 221

Combined single-family:

20 and 30-year or more, amortizing

fixed-rate 49,539 1,889 230 66,010 2,238 200

15-year amortizing fixed-rate 851 24 8 18,318 26 5

Adjustable rate 465 13 2 731 15 2

Alt-A, interest-only, and option ARM 7,676 273 27 8,551 381 29

Total single-family 58,531 2,199 267 93,610 2,660 236

Multifamily:

With no allowance recorded(1) 132 5 2 287 7 2

With an allowance recorded 3 — — 25 1 1

Total multifamily 135 5 2 312 8 3

Total single-family and multifamily $58,666 $2,204 $269 $93,922 $2,668 $239

(1) Individually impaired loans with no allowance primarily represent those loans for which the collateral value is sufficiently in excess of the loan 

balance to result in recovery of the entire recorded investment if the property were foreclosed upon or otherwise subject to disposition.

(2) Consists primarily of loans classified as TDRs.

(3) Consists of income recognized during the period related to loans on non-accrual status.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 102

Troubled Debt Restructurings (TDRs)

The table below presents the volume of single-family and multifamily loans that were newly classified as 

TDRs, based on the original product 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.

3Q 2018 3Q 2017 YTD 2018 YTD 2017

(Dollars in millions)

Number of 

Loans

Post-TDR

Recorded

Investment

Number of 

Loans

Post-TDR

Recorded

Investment

Number of 

Loans

Post-TDR

Recorded

Investment

Number of 

Loans

Post-TDR

Recorded

Investment

Single-family:(1)

20 and 30-year or more,

amortizing fixed-rate 7,157 $1,091 7,502 $1,069 37,847 $6,159 24,485 $3,503

15-year amortizing fixedrate 909 83 993 75 5,194 514 3,275 251

Adjustable-rate 197 27 202 30 773 122 667 97

Alt-A, interest-only, and

option ARM 414 65 645 119 2,294 379 1,926 344

Total single-family 8,677 1,266 9,342 1,293 46,108 7,174 30,353 4,195

Multifamily — $— 1 $— 1 $15 1 $—

(1) The pre-TDR recorded investment for single-family loans initially classified as TDR during 3Q 2018 and YTD 2018 was $1.3 billion and $7.2 billion, 

respectively, compared to $1.3 billion and $4.2 billion during 3Q 2017 and YTD 2017, respectively.

Of the single-family loans that were newly classified as TDRs during 3Q 2018, 3Q 2017, YTD 2018 and 

YTD 2017 respectively:

9%, 37%, 12% and 41% involved interest rate reductions and, in certain cases, term extensions; 

21%, 11%, 24% and 12% involved principal forbearance in addition to interest rate reductions and, 

in certain cases, term extensions; 

The average term extension was 110, 179, 126 and 175 months; and

The average interest rate reduction was 0.2%, 0.4%, 0.3% and 0.7%.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Freddie Mac Form 10-Q 103

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.

3Q 2018 3Q 2017 YTD 2018 YTD 2017

(Dollars in millions)

Number of 

Loans

Post-TDR

Recorded

Investment

Number of 

Loans

Post-TDR

Recorded

Investment

Number of 

Loans

Post-TDR

Recorded

Investment

Number of 

Loans

Post-TDR

Recorded

Investment

Single-family:

20 and 30-year or more,

amortizing fixed-rate 3,584 $512 3,526 $555 9,671 $1,435 10,183 $1,642

15-year amortizing fixed-rate 116 10 191 14 435 36 505 40

Adjustable-rate 53 9 47 8 139 21 156 24

Alt-A, interest-only, and option

ARM 302 55 336 62 827 154 924 188

Total single-family 4,055 586 4,100 639 11,072 1,646 11,768 1,894

Multifamily — $— — $— — $— — $—

In addition, loans may be initially classified as TDRs as a result of other loss mitigation activities (i.e., 

repayment plans, forbearance agreements, or loans in modification trial periods). During YTD 2018 and 

YTD 2017, 6,487 and 5,523, respectively, of such loans (with a post-TDR recorded investment of $0.8 

billion and $0.7 billion, respectively) experienced a payment default within a year after the loss mitigation 

activity occurred.

Loans may also be initially classified as TDRs because the borrowers’ debts were discharged in Chapter 

7 bankruptcy (and the loan was not already classified as a TDR for other reasons). During YTD 2018 and 

YTD 2017, 386 and 665, respectively, of such loans (with a post-TDR recorded investment of $45 million

and $76 million, respectively) experienced a payment default within a year after the borrowers' Chapter 7 

bankruptcy.

Non-Cash Investing and Financing Activities

During YTD 2018 and YTD 2017, we acquired $122.6 billion and $161.5 billion, respectively, of loans 

held-for-investment in exchange for the issuance of debt securities of consolidated trusts in guarantor 

swap transactions. We received approximately $18.9 billion and $25.3 billion of loans from sellers during 

YTD 2018 and YTD 2017, respectively, to satisfy advances to lenders that were recorded in other assets 

on our condensed consolidated balance sheets. These loans were primarily included in the guarantor 

swap transactions.

In addition, we acquire REO properties through foreclosure sales or by deed in lieu of foreclosure. These 

acquisitions represent non-cash transfers. During YTD 2018 and YTD 2017, we had transfers of $0.7 

billion and $0.9 billion, respectively, from loans to REO.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 5

Freddie Mac Form 10-Q 104

NOTE 5 

Guarantee Activities

We generate revenue through our guarantee activities by agreeing to absorb the credit risk associated 

with certain financial instruments that are owned or held by third parties. In exchange for providing this 

guarantee, we receive an ongoing guarantee fee that is commensurate with the risks assumed and that 

will, over the long-term, provide us with cash flows that are expected to exceed the credit-related and 

administrative expenses of the underlying financial instruments. The profitability of our guarantee 

activities may vary and will be dependent on our guarantee fee and the actual credit performance of the 

underlying financial instruments that we have guaranteed.

The table below shows our maximum exposure, recognized liability and maximum remaining term of our 

recognized guarantees to non-consolidated VIEs and other third parties. This table does not include our 

unrecognized guarantees, such as guarantees to consolidated VIEs or to resecuritization trusts that do 

not expose us to incremental credit risk. The maximum exposure disclosed in the table is not 

representative of the actual loss we are likely to incur, based on our historical loss experience and after 

consideration of proceeds from related collateral liquidation, including possible recoveries under credit 

enhancement arrangements. See Note 6 for additional information on our credit enhancement 

arrangements.

September 30, 2018 December 31, 2017

(Dollars in millions, terms in years)

Maximum

Exposure(1)

Recognized

Liability(2)

Maximum

Remaining

Term

Maximum

Exposure(1)

Recognized

Liability(2)

Maximum

Remaining

Term

Single-family:

Securitization activity guarantees $15,355 $185 40 $10,817 $120 40

Other mortgage-related guarantees 6,078 171 30 6,264 190 31

Total single-family $21,433 $356 $17,081 $310

Multifamily:

Securitization activity guarantees $210,163 $2,541 40 $188,768 $2,305 40

Other mortgage-related guarantees 10,008 451 36 9,888 466 36

Total multifamily $220,171 $2,992 $198,656 $2,771

Other guarantees measured at fair value $15,611 $209 30 $9,661 $141 28

(1) The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of 

possible recoveries under credit enhancement arrangements, such as recourse provisions, third-party insurance contracts, or from collateral held 

or pledged. For other guarantees measured at fair value, this amount represents the notional value if it relates to our market value guarantees or 

guarantees of third party derivative instruments; or the UPB if it relates to a guarantee of a mortgage-related asset. For certain of our other 

guarantees measured at fair value, our exposure may be unlimited. We generally reduce our exposure to these guarantees with unlimited exposure 

through separate contracts with third parties.

(2) For securitization activity guarantees and other mortgage-related guarantees, this amount represents the guarantee obligation on our condensed 

consolidated balance sheets. This amount excludes our reserve for guarantee losses, which totaled $56 million and $57 million as of 

September 30, 2018 and December 31, 2017, respectively, and is included within other liabilities on our condensed consolidated balance sheets. 

For other guarantees measured at fair value, this amount represents the fair value of the contract.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 6

Freddie Mac Form 10-Q 105

NOTE 6

Credit Enhancements

In connection with many of our mortgage loans, securitization activity guarantees, other mortgagerelated guarantees and other credit risk transfer transactions, we obtain various forms of credit 

enhancements that reduce our exposure to credit losses. These credit enhancements may be attached 

to the underlying mortgage loans, freestanding or embedded in debt instruments. 

Attached Credit Enhancements 

The table below presents the total current and protected UPB and maximum coverage provided by our 

attached credit enhancements. For information about counterparty credit risk associated with mortgage 

insurers, see Note 14.

September 30, 2018 December 31, 2017

(In millions)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Single-family:

Primary mortgage insurance $366,731 $93,931 $334,189 $85,429

(1) Underlying loans may be covered by more than one form of credit enhancement, including freestanding credit enhancements and debt with 

embedded credit enhancements.

(2) Represents the remaining amount of loss recovery that is available subject to the terms of counterparty agreements.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 6

Freddie Mac Form 10-Q 106

Freestanding Credit Enhancements 

The table below presents the total current and protected UPB and maximum amounts of potential loss 

recovery related to our single-family and multifamily freestanding credit enhancements. 

September 30, 2018 December 31, 2017

(In millions)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Single-family:

Subordination (non-consolidated VIEs) $13,778 $2,474 $8,953 $1,734

ACIS(3)(4) 753,298 8,375 625,082 6,933

Other(4)(5) 120,315 9,208 8,623 6,282

Total single-family 20,057 14,949

Multifamily:

Subordination (non-consolidated VIEs) 209,801 34,014 187,299 30,689

Other(6) 2,193 789 1,833 726

Total multifamily 34,803 31,415

Total single-family and multifamily freestanding credit enhancements $54,860 $46,364

(1) Underlying loans may be covered by more than one form of credit enhancement, including attached credit enhancements and debt with embedded 

credit enhancements. For subordination, total current and protected UPB includes the UPB of the guaranteed securities and the UPB of guarantor 

advances made to the holders of the guaranteed securities.

(2) For subordination, maximum coverage represents the UPB of the securities that are subordinate to our guarantee and held by third parties. For all 

other freestanding credit enhancements, maximum coverage represents the remaining amount of loss recovery that is available subject to the 

terms of counterparty agreements.

(3) As of September 30, 2018 and December 31, 2017, our counterparties posted collateral held by third parties on our ACIS transactions of $1.5 

billion and $1.1 billion, respectively.

(4) Starting in 2Q 2018, ACIS transactions include Deep MI CRT transactions which were previously disclosed under "Other" transactions. The current 

and prior period presentation has been modified to reflect this change.

(5) Includes seller indemnification, lender recourse and indemnification agreements, pool insurance, HFA indemnification and other credit 

enhancements. 

(6) Consists of multifamily HFA indemnification and loss reimbursement agreements with third parties obtained in certain of our Q Certificate 

transactions. 

In addition to the credit enhancements disclosed above, the Multifamily segment has other credit 

enhancements. Recoveries from these other credit enhancements have been minimal as the historical 

losses on our multifamily mortgage loans and amounts paid under our guarantee contracts have not 

been significant. Therefore, these other credit enhancements have been excluded from the table. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 6

Freddie Mac Form 10-Q 107

Debt with Embedded Credit Enhancements 

The table below presents the total current and protected UPB and maximum amounts of potential loss 

recovery related to debt with embedded credit enhancements.

September 30, 2018 December 31, 2017

(In millions)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Total Current 

and Protected 

UPB(1)

Maximum 

Coverage(2)

Single-family:

STACR debt notes $621,350 $18,078 $604,356 $17,788

Subordination (consolidated VIEs) 18,640 786 3,330 179

Total single-family 18,864 17,967

Multifamily:

SCR debt notes 2,678 134 2,732 137

Subordination (consolidated VIEs) 2,700 280 1,800 180

Total multifamily 414 317

Total single-family and multifamily debt with embedded credit

enhancements $19,278 $18,284

(1) Underlying loans may be covered by more than one form of credit enhancement, including attached credit enhancements and freestanding credit 

enhancements. For STACR debt notes and SCR debt notes, total current and protected UPB represents the UPB of the assets included in the 

reference pool. For subordination, total current and protected UPB represents the UPB of the guaranteed securities.

(2) For STACR debt notes and SCR debt notes, maximum coverage amount represents the outstanding balance of the STACR debt notes and SCR debt 

notes held by third parties. For subordination, maximum coverage amount represents the UPB of the securities that are subordinate to our 

guarantee and held by third parties. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 7

Freddie Mac Form 10-Q 108

NOTE 7

Investments in Securities

The table below summarizes the fair values of our investments in debt securities by classification.

(In millions) September 30, 2018 December 31, 2017

Trading securities $41,201 $40,721

Available-for-sale securities 34,729 43,597

Total $75,930 $84,318

As of September 30, 2018 and December 31, 2017, we did not classify any securities as held-tomaturity, although we may elect to do so in the future. 

Trading Securities 

The table below presents the estimated fair values of our trading securities by major security type. Our 

non-mortgage-related securities primarily consist of investments in U.S. Treasury securities. 

(In millions) September 30, 2018 December 31, 2017

Mortgage-related securities:

Freddie Mac $11,899 $12,235

Other agency 2,731 3,574

Non-agency RMBS 691 750

Non-agency CMBS 401 1,343

Total mortgage-related securities 15,722 17,902

Non-mortgage-related securities 25,479 22,819

Total fair value of trading securities $41,201 $40,721

For trading securities held at September 30, 2018, we recorded net unrealized gains (losses) of ($305) 

million and ($951) million during 3Q 2018 and YTD 2018, respectively. For trading securities held at 

September 30, 2017, we recorded net unrealized gains (losses) of ($49) million and ($196) million during 

3Q 2017 and YTD 2017, respectively. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 7

Freddie Mac Form 10-Q 109

Available-for-Sale Securities 

At September 30, 2018 and December 31, 2017, all available-for-sale securities were mortgage-related 

securities. 

The tables below present the amortized cost, gross unrealized gains and losses and fair value by major 

security type for our securities classified as available-for-sale. 

September 30, 2018

Amortized

Cost

Gross

Unrealized

Gains

Gross Unrealized Losses

Fair

(In millions) Value

Other-ThanTemporary 

Impairment(1)

Temporary 

Impairment(2)

Available-for-sale securities:

Freddie Mac $29,826 $182 $— ($840) $29,168

Other agency 1,876 35 — (6) 1,905

Non-agency RMBS 1,428 387 — (1) 1,814

Non-agency CMBS 1,686 — (8) (79) 1,599

Obligations of states and political subdivisions 242 2 — (1) 243

Total available-for-sale securities $35,058 $606 ($8) ($927) $34,729

December 31, 2017

Amortized

Cost

Gross

Unrealized

Gains

Gross Unrealized Losses

Fair

(In millions) Value

Other-ThanTemporary 

Impairment(1)

Temporary 

Impairment(2)

Available-for-sale securities:

Freddie Mac $35,433 $499 $— ($462) $35,470

Other agency 2,008 56 — (11) 2,053

Non-agency RMBS 3,012 927 (5) (1) 3,933

Non-agency CMBS 1,773 22 (9) (2) 1,784

Obligations of states and political subdivisions 352 5 — — 357

Total available-for-sale securities $42,578 $1,509 ($14) ($476) $43,597

(1) Represents the gross unrealized losses for securities for which we have previously recognized other-than-temporary impairment in earnings.

(2) Represents the gross unrealized losses for securities for which we have not previously recognized other-than-temporary impairment in earnings.

The fair value of our available-for-sale securities held at September 30, 2018 scheduled to contractually 

mature after ten years was $31.2 billion, with an additional $3.0 billion scheduled to contractually mature 

after five years through ten years.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 7

Freddie Mac Form 10-Q 110

Available-For-Sale Securities in a Gross Unrealized Loss Position

The tables below present available-for-sale securities in a gross unrealized loss position and whether 

such securities have been in an unrealized loss position for less than 12 months, or 12 months or 

greater. 

September 30, 2018

Less than 12 Months 12 Months or Greater

(In millions)

Fair

Value

Gross Unrealized

Losses

Fair

Value

Gross Unrealized

Losses

Available-for-sale securities:

Freddie Mac $11,689 ($199) $10,081 ($641)

Other agency 239 (1) 705 (5)

Non-agency RMBS 1 — 6 (1)

Non-agency CMBS 1,581 (79) 16 (8)

Obligations of states and political subdivisions 33 (1) — —

Total available-for-sale securities in a gross unrealized loss

position $13,543 ($280) $10,808 ($655)

December 31, 2017

Less than 12 Months 12 Months or Greater

(In millions)

Fair

Value

Gross Unrealized

Losses

Fair

Value

Gross Unrealized

Losses

Available-for-sale securities:

Freddie Mac $10,337 ($107) $9,251 ($355)

Other agency 40 — 1,079 (11)

Non-agency RMBS 5 — 105 (6)

Non-agency CMBS 1,026 (2) 52 (9)

Obligations of states and political subdivisions 12 — 21 —

Total available-for-sale securities in a gross unrealized loss

position $11,420 ($109) $10,508 ($381)

At September 30, 2018, the gross unrealized losses relate to 421 separate securities. 

Realized Gains and Losses on Sales of Available-For-Sale Securities

The table below summarizes the gross realized gains and gross realized losses from the sale of 

available-for-sale securities. 

(In millions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Gross realized gains $69 $806 $544 $1,153

Gross realized losses (131) (10) (232) (44)

Net realized gains (losses) ($62) $796 $312 $1,109

Non-Cash Investing and Financing Activities

During 3Q 2018, we purchased $3.6 billion and sold $3.7 billion of non-mortgage-related securities that 

were traded, but not settled. We settled our purchase and sale obligations during 4Q 2018.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 8

Freddie Mac Form 10-Q 111

NOTE 8 

Debt Securities and Subordinated Borrowings

The table below summarizes the interest expense per our condensed consolidated statements of 

comprehensive income and the balances of total debt, net per our condensed consolidated balance 

sheets.

Balance, Net Interest Expense

(In millions) September 30, 2018 December 31, 2017 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Debt securities of consolidated trusts held by

third parties $1,765,045 $1,720,996 $12,827 $11,852 $37,996 $35,567

Other debt:

Short-term debt 68,498 73,069 361 173 832 414

Long-term debt 208,447 240,565 1,358 1,359 3,974 4,109

Total other debt 276,945 313,634 1,719 1,532 4,806 4,523

Total debt, net $2,041,990 $2,034,630 $14,546 $13,384 $42,802 $40,090

Our debt cap under the Purchase Agreement is $346.1 billion in 2018 and will decline to $300 billion on 

January 1, 2019. As of September 30, 2018, our aggregate indebtedness for purposes of the debt cap 

was $281.1 billion. Our aggregate indebtedness calculation primarily includes the par value of other 

short- and long-term debt.

Debt Securities of Consolidated Trusts Held by Third Parties

The table below summarizes the debt securities of consolidated trusts held by third parties based on 

underlying loan product type.

September 30, 2018 December 31, 2017

(Dollars in millions)

Contractual

Maturity UPB

Carrying 

Amount(1)

Weighted

Average

Coupon(2)

Contractual

Maturity UPB

Carrying 

Amount(1)

Weighted

Average

Coupon(2)

Single-family:

30-year or more, fixed-rate 2018 - 2056 $1,352,288 $1,390,045 3.70% 2018 - 2055 $1,278,911 $1,318,350 3.68%

20-year fixed-rate 2018 - 2038 70,543 72,447 3.42 2018 - 2038 73,866 76,022 3.43

15-year fixed-rate 2018 - 2033 246,022 250,582 2.87 2018 - 2033 260,633 266,241 2.86

Adjustable-rate 2018 - 2048 40,696 41,548 3.04 2018 - 2048 47,169 48,220 2.85

Interest-only 2026 - 2041 5,507 5,564 4.21 2026 - 2041 7,303 7,379 3.74

FHA/VA 2018 - 2046 746 763 4.80 2018 - 2046 847 866 4.85

Total single-family 1,715,802 1,760,949 1,668,729 1,717,078

Multifamily 2019-2047 4,045 4,096 3.88 2019-2047 3,876 3,918 3.99

Total debt securities of

consolidated trusts held by third

parties $1,719,847 $1,765,045 $1,672,605 $1,720,996

(1) Includes $735 million and $639 million at September 30, 2018 and December 31, 2017, respectively, of debt of consolidated trusts that 

represents the fair value of debt securities with the fair value option elected.

(2) The effective interest rate for debt securities of consolidated trusts held by third parties was 2.93% and 2.84% as of September 30, 2018 and 

December 31, 2017, respectively.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 8

Freddie Mac Form 10-Q 112

Other Debt

The table below summarizes the balances and effective interest rates for other debt. 

September 30, 2018 December 31, 2017

(Dollars in millions) Par Value

Carrying 

Amount(1)

Weighted

Average

Effective Rate(2) Par Value

Carrying 

Amount(1)

Weighted

Average

Effective Rate(2)

Other short-term debt:

Discount notes and Reference Bills® $40,726 $40,572 2.06% $45,717 $45,596 1.19%

Medium-term notes 18,200 18,200 1.80 17,792 17,792 1.03

Securities sold under agreements to

repurchase 9,726 9,726 2.03 9,681 9,681 1.06

Total other short-term debt 68,652 68,498 1.98 73,190 73,069 1.14

Other long-term debt:

Original maturities on or before December 31,

2018 10,267 10,267 1.24 70,557 70,587 1.16

2019 58,092 58,053 1.54 57,689 57,637 1.54

2020 41,506 41,482 1.76 38,117 38,087 1.68

2021 28,976 28,982 1.99 22,809 22,829 1.80

2022 20,231 20,203 2.44 18,538 18,506 2.38

Thereafter 34,426 31,881 4.16 17,281 14,660 5.29

STACR and SCR debt(3) 18,212 18,585 5.75 17,925 18,338 5.06

Hedging-related basis adjustments N/A (1,006) N/A (79)

Total other long-term debt(4) 211,710 208,447 2.49 242,916 240,565 2.04

Total other debt $280,362 $276,945 $316,106 $313,634

(1) Represents par value, net of associated discounts or premiums and issuance cost. Includes $4.6 billion and $5.2 billion at September 30, 2018

and December 31, 2017, respectively, of other long-term debt that represents the fair value of debt securities with the fair value option elected.

(2) Based on carrying amount.

(3) Contractual maturities of these debt securities are not presented because they are subject to prepayment risk, as their payments are based upon 

the performance of a pool of mortgage assets that may be prepaid by the related mortgage borrower at any time generally without penalty. 

(4) Carrying amount for other long-term debt includes callable debt of $110.9 billion and $113.8 billion at September 30, 2018 and December 31, 

2017, respectively.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

Freddie Mac Form 10-Q 113

NOTE 9

Derivatives

Use of Derivatives

We use derivatives primarily to hedge interest-rate sensitivity mismatches between our financial assets 

and liabilities. We analyze the interest-rate sensitivity of financial assets and liabilities on a daily basis 

across a variety of interest-rate scenarios based on market prices, models and economics. When we 

use derivatives to mitigate our exposures, we consider a number of factors, including cost, exposure to 

counterparty risk and our overall risk management strategy.

We classify derivatives into three categories: 

Exchange-traded derivatives; 

Cleared derivatives; and 

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 purchased options (including swaptions); and

LIBOR- and Treasury-based exchange-traded futures.

We also purchase swaptions on credit indices in order to obtain protection against adverse movements 

in multifamily spreads which may affect the profitability of our K Certificate or SB Certificate 

transactions.

In addition to swaps, futures and purchased options, our derivative positions include written options and 

swaptions, commitments and credit derivatives.

Hedge Accounting

Fair Value Hedges

We apply fair value hedge accounting to certain single-family mortgage loans and certain issuances of 

debt where we hedge the changes in fair value of these items attributable to the designated benchmark 

interest rate (i.e., LIBOR), using LIBOR-based interest-rate swaps. 

Beginning on October 1, 2017, due to the adoption of amended hedge accounting guidance, if a hedge 

relationship qualifies for fair value hedge accounting, all changes in fair value of the derivative hedging 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

Freddie Mac Form 10-Q 114

instrument, including interest accruals, are recognized in the same condensed consolidated statements 

of comprehensive income line item used to present the earnings effect of the hedged item. Therefore, 

changes in the fair value of the hedged item, mortgage loans and debt, attributable to the risk being 

hedged are recognized in interest income - mortgage loans and interest expense, respectively, along 

with the changes in the fair value of the respective derivative hedging instruments. Prior to October 1, 

2017, if the hedge relationship qualified for hedge accounting, changes in the fair value of the derivative 

hedging instrument and changes in the fair value of the hedged item attributable to the risk being 

hedged were recognized in other income (loss) and interest accruals on the derivative hedging 

instrument were included in derivative gains (losses). 

Cash Flow Hedges

There are amounts recorded in AOCI related to discontinued cash flow hedges which are recognized in 

earnings when the originally forecasted transactions affect earnings. Amounts reclassified from AOCI are 

recorded in interest expense. During YTD 2018 and YTD 2017, we reclassified from AOCI into earnings, 

pre-tax losses of $106 million and $125 million, respectively, related to closed cash flow hedges. See 

Note 11 for information about future reclassifications of deferred net losses related to closed cash flow 

hedges to net income.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

Freddie Mac Form 10-Q 115

Derivative Assets and Liabilities at Fair Value

The table below presents the notional value and fair value of derivatives reported on our condensed 

consolidated balance sheets. 

September 30, 2018 December 31, 2017

Notional or

Contractual

Amount

Derivatives at Fair Value Notional or

Contractual

Amount

Derivatives at Fair Value

(In millions) Assets Liabilities Assets Liabilities

Not designated as hedges

Interest-rate swaps:

Receive-fixed $158,117 $1,041 ($396) $213,717 $2,121 ($1,224)

Pay-fixed 175,055 1,105 (1,470) 185,400 751 (5,008)

Basis (floating to floating) 6,613 1 — 5,244 — (2)

Total interest-rate swaps 339,785 2,147 (1,866) 404,361 2,872 (6,234)

Option-based:

Call swaptions

Purchased 51,650 1,373 — 58,975 2,709 —

Written 4,650 — (67) 4,650 — (101)

Put swaptions

Purchased(1) 61,630 1,736 — 47,810 1,058 —

Written 3,000 — (29) 3,000 — (20)

Other option-based derivatives(2) 10,523 552 — 10,683 757 —

Total option-based 131,453 3,661 (96) 125,118 4,524 (121)

Futures 176,344 — — 267,385 — —

Commitments 63,636 144 (80) 54,207 44 (64)

Credit derivatives 2,112 — (48) 3,569 7 (46)

Other 11,490 21 (128) 2,906 1 (19)

Total derivatives not designated as hedges 724,820 5,973 (2,218) 857,546 7,448 (6,484)

Designated as fair value hedges

Interest-rate swaps:

Receive-fixed 90,428 — (1,457) 83,352 2 (714)

Pay-fixed 67,505 595 (732) 69,402 1,388 (291)

Total derivatives designated as fair value hedges 157,933 595 (2,189) 152,754 1,390 (1,005)

Derivative interest receivable (payable) 969 (1,103) 1,407 (1,596)

Netting adjustments(3) (7,068) 5,215 (9,870) 8,816

Total derivative portfolio, net $882,753 $469 ($295) $1,010,300 $375 ($269)

(1) Includes swaptions on credit indices with a notional or contractual amount of $20.3 billion and $13.4 billion at September 30, 2018 and 

December 31, 2017, respectively, and a fair value of $7.5 million and $5.0 million at September 30, 2018 and December 31, 2017, respectively. 

(2) Primarily consists of purchased interest-rate caps and floors and options on Treasury futures.

(3) Represents counterparty netting and cash collateral netting.

See Note 10 for information related to our derivative counterparties and collateral held and posted.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

Freddie Mac Form 10-Q 116

Gains and Losses on Derivatives

The table below presents the gains and losses on derivatives, including the accrual of periodic cash 

settlements, while not designated in qualifying hedge relationships and reported on our condensed 

consolidated statements of comprehensive income as derivative gains (losses). In addition, for the 2017 

periods, the table includes the accrual of periodic cash settlements on derivatives in qualifying hedge 

relationships. 

(In millions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Not designated as hedges

Interest-rate swaps:

Receive-fixed ($1,004) ($329) ($5,080) $195

Pay-fixed 1,721 352 7,922 (78)

Basis (floating to floating) 19 — (9) (1)

Total interest-rate swaps 736 23 2,833 116

Option-based:

Call swaptions

Purchased (402) (67) (1,392) (106)

Written 35 5 76 6

Put swaptions

Purchased 136 (145) 524 (481)

Written (2) 7 (23) 49

Other option-based derivatives(1) (73) 2 (205) 13

Total option-based (306) (198) (1,020) (519)

Other:

Futures 277 18 728 (212)

Commitments 69 (121) 672 (128)

Credit derivatives (4) (2) (14) (33)

Other (71) — (64) (6)

Total other 271 (105) 1,322 (379)

Accrual of periodic cash settlements:

Receive-fixed interest-rate swaps 39 343 335 1,198

Pay-fixed interest-rate swaps (50) (741) (536) (2,492)

Other 38 — 40 —

Total accrual of periodic cash settlements 27 (398) (161) (1,294)

Total $728 ($678) $2,974 ($2,076)

(1) Primarily consists of purchased interest-rate caps and floors and options on Treasury futures.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

Freddie Mac Form 10-Q 117

Fair Value Hedges 

The tables below present the effects of fair value hedge accounting by condensed consolidated 

statements of comprehensive income line, including the gains and losses on derivatives and hedged 

items designated in qualifying hedge relationships and other components due to the application of 

hedge accounting. 

3Q 2018

(In millions)

Interest Income -

Mortgage Loans Interest Expense

Other Income

(Loss)

Total amounts of income and expense line items presented in our condensed

consolidated statements of comprehensive income in which the effects of fair value

hedges are recorded: $16,787 ($14,546) $394

Interest contracts on mortgage loans held-for-investment:

Gain or (loss) on fair value hedging relationships:(1)

Hedged items (755) — —

Derivatives designated as hedging instruments 776 — —

Interest accruals on hedging instruments (96) — —

Discontinued hedge related basis adjustment amortization 38 — —

Interest contracts on debt:

Gain or (loss) on fair value hedging relationships:

Hedged items — 121 —

Derivatives designated as hedging instruments — (50) —

Interest accruals on hedging instruments — (96) —

Discontinued hedge related basis adjustment amortization — (1) —

3Q 2017

(In millions)

Interest Income -

Mortgage Loans Interest Expense

Other Income

(Loss)

Total amounts of income and expense line items presented in our condensed

consolidated statements of comprehensive income in which the effects of fair value

hedges are recorded: $15,867 ($13,384) $5,403

Interest contracts on mortgage loans held-for-investment:

Gain or (loss) on fair value hedging relationships:(1)

Hedged items — — (15)

Derivatives designated as hedging instruments(2) — — 85

Discontinued hedge related basis adjustment amortization (8) — —

Referenced footnotes are included after the next tables. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

Freddie Mac Form 10-Q 118

YTD 2018

(In millions)

Interest Income -

Mortgage Loans Interest Expense

Other Income

(Loss)

Total amounts of income and expense line items presented in our condensed

consolidated statements of comprehensive income in which the effects of fair value

hedges are recorded: $49,082 ($42,802) $1,526

Interest contracts on mortgage loans held-for-investment:

Gain or (loss) on fair value hedging relationships:(1)

Hedged items (3,441) — —

Derivatives designated as hedging instruments 3,087 — —

Interest accruals on hedging instruments (373) — —

Discontinued hedge related basis adjustment amortization 86 — —

Interest contracts on debt:

Gain or (loss) on fair value hedging relationships:

Hedged items — 931 —

Derivatives designated as hedging instruments — (728) —

Interest accruals on hedging instruments — (219) —

Discontinued hedge related basis adjustment amortization — (2) —

YTD 2017

(In millions)

Interest Income -

Mortgage Loans Interest Expense

Other Income

(Loss)

Total amounts of income and expense line items presented in our condensed

consolidated statements of comprehensive income in which the effects of fair value

hedges are recorded: $47,680 ($40,090) $6,512

Interest contracts on mortgage loans held-for-investment:

Gain or (loss) on fair value hedging relationships:(1)

Hedged items — — 351

Derivatives designated as hedging instruments(2) — — (215)

Discontinued hedge related basis adjustment amortization (13) — —

(1) In 3Q 2017 and YTD 2017, gains or losses on derivatives and hedged items were recorded in other income (loss). Beginning in 4Q 2017, gains and 

losses and interest accruals are recorded in interest income - mortgage loans in our condensed consolidated statements of comprehensive 

income due to adoption of amended hedge accounting guidance.

(2) The gain or (loss) on fair value hedging relationships in 3Q 2017 and YTD 2017 excludes ($101) million and ($277) million, respectively, of interest 

accruals which were recorded in derivatives gains (losses) in our condensed consolidated statements of comprehensive income.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

Freddie Mac Form 10-Q 119

Cumulative Basis Adjustments Due to Fair Value Hedging

The tables below present the hedged item cumulative basis adjustments due to qualifying fair value 

hedging and the related hedged item carrying amounts by their respective balance sheet line item.

September 30, 2018

Carrying Amount

Assets / (Liabilities)

Cumulative Amount of Fair Value Hedging Basis

Adjustment Included in the Carrying Amount

(In millions) Total

Discontinued - Hedge

Related

Mortgage loans held-for-investment $154,675 ($3,011) ($3,011)

Debt (99,739) 1,006 (10)

December 31, 2017

Carrying Amount

Assets / (Liabilities)

Cumulative Amount of Fair Value Hedging Basis

Adjustment Included in the Carrying Amount

(In millions) Total

Discontinued - Hedge

Related

Mortgage loans held-for-investment $128,140 $198 $198

Debt (92,277) 79 (14)
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 10

Freddie Mac Form 10-Q 120

NOTE 10

Collateralized Agreements and Offsetting 

Arrangements

Derivative Portfolio

Derivative Counterparties

Our use of cleared derivatives, exchange-traded derivatives and OTC derivatives exposes us to 

counterparty credit risk. 

Our use of interest-rate swaps and option-based derivatives is subject to internal credit and legal 

reviews. On an ongoing basis, we review the credit fundamentals of all of our derivative counterparties, 

clearinghouses and clearing members to confirm that they continue to meet our internal risk 

management standards.

Over-the-Counter Derivatives

We use master netting and collateral agreements to reduce our credit risk exposure to our OTC 

derivative counterparties. 

In the event that all of our counterparties for OTC derivatives were to have defaulted simultaneously on 

September 30, 2018, our maximum loss for accounting purposes after applying netting agreements and 

collateral on an individual counterparty basis would have been approximately $79 million.

Regulations adopted by certain financial institution regulators (including FHFA) that became effective 

March 1, 2017 require posting of variation margin without the application of any thresholds for OTC 

derivative transactions executed after that date. As a result, our and the counterparties' credit ratings are 

no longer used in determining the amount of collateral to be posted in connection with these 

transactions.

Cleared and Exchange-Traded Derivatives

The majority of our interest-rate swaps are subject to the central clearing requirement of the Dodd-Frank 

Act. A reduction in our credit ratings could cause the clearinghouses or clearing members we use for our 

cleared and exchange-traded derivatives to demand additional collateral. 

Other Derivatives

We also execute forward purchase and sale commitments of loans and mortgage-related securities, 

including dollar roll transactions, that are treated as derivatives for accounting purposes. The total net 

exposure on our forward purchase and sale commitments, which are treated as derivatives, was $144 

million and $44 million at September 30, 2018 and December 31, 2017, respectively. 

Many of our transactions involving forward purchase and sale commitments of mortgage-related 

securities utilize the Mortgage Backed Securities Division of the Fixed Income Clearing Corporation 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 10

Freddie Mac Form 10-Q 121

("MBSD/FICC") as a clearinghouse. As a clearing member of the clearinghouse, we post margin to the 

MBSD/FICC and are exposed to the counterparty credit risk of the organization (including its clearing 

members). 

Securities Purchased Under Agreements to Resell

As an investor, we enter into arrangements to purchase securities under agreements to subsequently 

resell the identical or substantially the same securities to our counterparty. Our counterparties to these 

transactions are required to pledge the purchased securities as collateral for their obligation to 

repurchase those securities at a later date. While such transactions involve the legal transfer of 

securities, they are accounted for as secured financings because the transferor does not relinquish 

effective control over the securities transferred. Although it is not our practice to repledge collateral that 

has been pledged to us, these agreements may allow us to repledge all or a portion of the collateral.

We consider the types of securities being pledged to us as collateral when determining how much we 

lend in transactions involving securities purchased under agreements to resell. Additionally, we regularly 

review the market values of these securities compared to amounts loaned in an effort to manage our 

exposure to losses. 

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are effectively collateralized borrowings where we sell 

securities with an agreement to repurchase such securities at a future date. We are required to pledge 

the sold securities to the counterparties to these transactions as collateral for our obligation to 

repurchase these securities at a later date. Similar to the securities purchased under agreements to 

resell transactions, these transactions involve the legal transfer of securities. However, they are 

accounted for as secured financings because they require the identical or substantially the same 

securities to be subsequently repurchased. These agreements may allow our counterparties to repledge 

all or a portion of the collateral.

Offsetting of Financial Assets and Liabilities

At September 30, 2018 and December 31, 2017, all amounts of cash collateral related to derivatives with 

master netting and collateral agreements were offset against derivative assets, net or derivative 

liabilities, net, as applicable.

The tables below display offsetting and collateral information related to derivatives, securities purchased 

under agreements to resell and securities sold under agreements to repurchase which are subject to 

enforceable master netting agreements or similar arrangements. Securities sold under agreements to 

repurchase are included in debt, net on our condensed consolidated balance sheets. During 1Q 2018, 

certain rule amendments made by the LCH Group became effective. As a result, the legal 

characterization of variation margin payments for certain of our cleared swaps changed from posting of 

margin collateral to settlements. The table below reflects this change as of September 30, 2018.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 10

Freddie Mac Form 10-Q 122

September 30, 2018

Gross

Amount

Recognized

Amount 

Offset in the

Consolidated

Balance Sheets Net Amount

Presented in the 

Consolidated

Balance Sheets

Gross Amount

Not Offset in the 

Consolidated

Balance 

Sheets(2)

Net

(In millions) Amount

Counterparty

Netting

Cash 

Collateral 

Netting(1)

Assets:

Derivatives:

OTC derivatives $7,365 ($4,976) ($2,195) $194 ($115) $79

Cleared and exchange-traded derivatives 7 — 103 110 — 110

Other 165 — — 165 — 165

Total derivatives 7,537 (4,976) (2,092) 469 (115) 354

Securities purchased under agreements to resell(3)(4) 48,540 — — 48,540 (48,540) —

Total $56,077 ($4,976) ($2,092) $49,009 ($48,655) $354

Liabilities:

Derivatives:

OTC derivatives ($5,211) $4,976 $211 ($24) $— ($24)

Cleared and exchange-traded derivatives (43) — 28 (15) — (15)

Other (256) — — (256) — (256)

Total derivatives (5,510) 4,976 239 (295) — (295)

Securities sold under agreements to repurchase(4) (9,726) — — (9,726) 9,726 —

Total ($15,236) $4,976 $239 ($10,021) $9,726 ($295)

December 31, 2017

Gross

Amount

Recognized

Amount 

Offset in the

Consolidated

Balance Sheets Net Amount

Presented in the 

Consolidated

Balance Sheets

Gross Amount

Not Offset in the 

Consolidated

Balance 

Sheets(2)

Net

(In millions) Amount

Counterparty

Netting

Cash 

Collateral 

Netting(1)

Assets:

Derivatives:

OTC derivatives $7,648 ($5,499) ($1,903) $246 ($205) $41

Cleared and exchange-traded derivatives 2,545 (2,266) (202) 77 — 77

Other 52 — — 52 — 52

Total derivatives 10,245 (7,765) (2,105) 375 (205) 170

Securities purchased under agreements to resell(3)(4) 55,903 — — 55,903 (55,903) —

Total $66,148 ($7,765) ($2,105) $56,278 ($56,108) $170

Liabilities:

Derivatives:

OTC derivatives ($6,285) $5,499 $688 ($98) $— ($98)

Cleared and exchange-traded derivatives (2,671) 2,266 363 (42) — (42)

Other (129) — — (129) — (129)

Total derivatives (9,085) 7,765 1,051 (269) — (269)

Securities sold under agreements to repurchase(4) (9,681) — — (9,681) 9,681 —

Total ($18,766) $7,765 $1,051 ($9,950) $9,681 ($269)
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 10

Freddie Mac Form 10-Q 123

(1) Excess cash collateral held is presented as a derivative liability, while excess cash collateral posted is presented as a derivative asset.

(2) Does not include the fair value amount of non-cash collateral posted or held that exceeds the associated net asset or liability, netted by 

counterparty, presented on the condensed consolidated balance sheets. For cleared and exchange-traded derivatives, does not include non-cash 

collateral posted by us as initial margin with an aggregate fair value of $2.8 billion and $3.1 billion as of September 30, 2018 and December 31, 

2017, respectively.

(3) We primarily execute securities purchased under agreements to resell transactions with central clearing organizations where we have the right to 

repledge the collateral that has been pledged to us, either with the central clearing organization or with other counterparties. At September 30, 

2018, and December 31, 2017, we had $32.7 billion and $34.8 billion, respectively, of securities pledged to us in these transactions. In addition, at 

September 30, 2018 and December 31, 2017, we had $2.8 billion and $3.4 billion, respectively, of securities pledged to us for transactions 

involving securities purchased under agreements to resell not executed with central clearing organizations that we had the right to repledge. 

(4) Does not include the impacts of netting by central clearing organizations.

Collateral Pledged

Collateral Pledged to Freddie Mac

We have cash pledged to us as collateral primarily related to OTC derivative transactions. At 

September 30, 2018, we had $2.5 billion pledged to us as collateral that was invested as part of our 

liquidity and contingency operating portfolio.

Collateral Pledged by Freddie Mac

The tables below summarize the fair value of the securities pledged as collateral by us for derivatives 

and collateralized borrowing transactions, including securities that the secured party may repledge.

September 30, 2018

(In millions) Derivatives

Securities sold

under

agreements to

repurchase Other(2) Total

Debt securities of consolidated trusts(1) $361 $— $128 $489

Trading securities 2,392 9,719 408 12,519

Total securities pledged $2,753 $9,719 $536 $13,008

December 31, 2017

(In millions) Derivatives

Securities sold

under

agreements to

repurchase Other(2) Total

Debt securities of consolidated trusts(1) $375 $— $111 $486

Trading securities 2,766 9,705 362 12,833

Total securities pledged $3,141 $9,705 $473 $13,319

(1) Represents PCs held by us in our Capital Markets segment mortgage investments portfolio which are recorded as a reduction to debt securities of 

consolidated trusts held by third parties on our condensed consolidated balance sheets.

(2) Includes collateral related to transactions with certain clearinghouses.

The table below summarizes the underlying collateral pledged and the remaining contractual maturity of 

our gross obligations under securities sold under agreements to repurchase.

September 30, 2018

(In millions)

Overnight and

continuous 30 days or less

After 30 days

through 90 days

Greater than 90

days Total

U.S. Treasury securities $4,627 $4,314 $778 $— $9,719
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 11

Freddie Mac Form 10-Q 124

NOTE 11

Stockholders’ Equity and Earnings Per Share

Accumulated Other Comprehensive Income

The tables below present changes in AOCI after the effects of our federal statutory tax rates of 21% and 

35% for YTD 2018 and YTD 2017, respectively, related to available-for-sale securities, closed cash flow 

hedges and our defined benefit plans. 

YTD 2018

(In millions)

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

Beginning balance $662 ($356) $83 $389

Other comprehensive income before 

reclassifications(1) (821) — (1) (822)

Amounts reclassified from accumulated other

comprehensive income (244) 87 (12) (169)

Changes in AOCI by component (1,065) 87 (13) (991)

Cumulative effect of change in accounting 

principle(2) 143 (73) 19 89

Ending balance ($260) ($342) $89 ($513)

YTD 2017

(In millions)

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

Beginning balance $915 ($480) $21 $456

Other comprehensive income before 

reclassifications(1) 955 — (2) 953

Amounts reclassified from accumulated other

comprehensive income (709) 81 (1) (629)

Changes in AOCI by component 246 81 (3) 324

Ending balance $1,161 ($399) $18 $780

(1) For YTD 2018 and YTD 2017, net of tax expense (benefit) of $0.2 billion and $0.5 billion, respectively, for AOCI related to available-for-sale 

securities.

(2) Includes the effect of adopting the accounting guidance on reclassification of stranded tax effects of the Tax Cuts and Jobs Act.

In 1Q 2018, we adopted the accounting guidance related to the reclassification of stranded tax effects 

resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained 

earnings. The reclassification includes stranded tax effects related to unrealized gains and losses on 

available-for-sale securities, deferred net losses on closed cash flow hedges and our defined benefit 

plans.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 11

Freddie Mac Form 10-Q 125

Reclassifications from AOCI to Net Income

The table below presents reclassifications from AOCI to net income, including the affected line item in 

our condensed consolidated statements of comprehensive income. 

(In millions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

AOCI related to available-for-sale securities

Affected line items in the consolidated statements of comprehensive

income:

Other gains (losses) on investment securities recognized in

earnings ($62) $796 $312 $1,109

Net impairment of available-for-sale securities recognized in

earnings (2) (1) (3) (17)

Total before tax (64) 795 309 1,092

Income tax (expense) or benefit 13 (279) (65) (383)

Net of tax (51) 516 244 709

AOCI related to cash flow hedge relationships

Affected line items in the consolidated statements of comprehensive

income:

Interest expense (31) (40) (106) (125)

Income tax (expense) or benefit 6 14 19 44

Net of tax (25) (26) (87) (81)

AOCI related to defined benefit plans

Affected line items in the consolidated statements of comprehensive

income:

Salaries and employee benefits 5 1 15 1

Income tax (expense) or benefit (1) — (3) —

Net of tax 4 1 12 1

Total reclassifications in the period ($72) $491 $169 $629

Future Reclassifications from AOCI to Net Income Related to 

Closed Cash Flow Hedges

The total AOCI related to derivatives designated as cash flow hedges was a loss of $0.3 billion and $0.4 

billion at September 30, 2018 and September 30, 2017, 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 $78 million, net of taxes, of the $0.3 billion of cash flow 

hedge losses in AOCI at September 30, 2018 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 15 years.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 11

Freddie Mac Form 10-Q 126

Senior Preferred Stock

As of September 30, 2018, our assets exceeded our liabilities under GAAP; therefore, no draw is being 

requested from Treasury under the Purchase Agreement. Based on our Net Worth Amount of $5.6 billion

as of September 30, 2018 and the Capital Reserve Amount of $3.0 billion, our dividend requirement to 

Treasury in December 2018 will be $2.6 billion. See Note 2 for additional information. 

Upon the Conservator, acting as successor to the rights, titles, powers and privileges of the Board of 

Directors, declaring a senior preferred stock dividend equal to our dividend requirement and directing us 

to pay it before December 31, 2018, we would pay a dividend of $2.6 billion by December 31, 2018. If 

for any reason we were not to pay our dividend requirement on the senior preferred stock in full, the 

unpaid amount would be added to the liquidation preference and our applicable Capital Reserve 

Amount would thereafter be zero, but this would not affect our ability to draw funds from Treasury under 

the Purchase Agreement. Our cumulative senior preferred stock dividend payments totaled $114.0 

billion as of September 30, 2018. The aggregate liquidation preference of the senior preferred stock 

owned by Treasury was $75.6 billion and $75.3 billion as of September 30, 2018 and December 31, 

2017, respectively.

Stock Issuances and Repurchases

We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 3Q 

2018.

Earnings Per Share

We have participating securities related to 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 vested restricted stock 

units that earn dividend equivalents at the same rate when and as declared on common stock. 

Consequently, in accordance with accounting guidance, we use the "two-class" method of computing 

earnings per common share. The "two-class" method is an earnings allocation formula that determines 

earnings per share for common stock and participating securities based on dividends declared and 

participation rights in undistributed earnings.

Basic earnings per common share is computed as net income attributable to common stockholders 

divided by the weighted average common shares outstanding for the period. The weighted average 

common shares outstanding for the period includes the weighted average number of shares that are 

associated with the warrant for our common stock issued to Treasury pursuant to the Purchase 

Agreement. These shares are included since the warrant is unconditionally exercisable by the holder at a 

minimal cost. 

Diluted earnings per common share is computed as net income attributable to common stockholders 

divided by the weighted average common shares outstanding during the period adjusted for the dilutive

effect of common equivalent shares outstanding. For periods with net income attributable to common 

stockholders, the calculation includes the effect of the weighted-average of restricted stock units. 

During periods in which a net loss attributable to common stockholders has been incurred, potential 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 11

Freddie Mac Form 10-Q 127

common equivalent shares outstanding are not included in the calculation because it would have an 

antidilutive effect. 

There were no stock options outstanding at both September 30, 2018 and September 30, 2017.

Dividends Declared

No common dividends were declared during YTD 2018. During 1Q 2018 and 2Q 2018, we did not pay 

dividends on the senior preferred stock. At the direction of our Conservator, we paid dividends of $1.6 

billion in cash on the senior preferred stock during 3Q 2018. In addition, we did not declare or pay 

dividends on any other series of Freddie Mac preferred stock outstanding during YTD 2018.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 12

Freddie Mac Form 10-Q 128

NOTE 12

Income Taxes

Income Tax Expense

For 3Q 2018 and 3Q 2017, we reported income tax expense of $0.6 billion and $2.5 billion, respectively, 

resulting in effective tax rates of 17.0% and 35.0%, respectively. For YTD 2018 and YTD 2017, we 

reported income tax expense of $1.9 billion and $4.5 billion, respectively, resulting in effective tax rates 

of 19.3% and 34.3%, respectively. Our effective tax rate for YTD 2018 differed from the statutory tax 

rate of 21% primarily due to the adjustment of the revaluation of our net deferred tax asset to the 

enacted rate with the filing of our 2017 tax return, which reduced the write-down of the deferred tax 

asset taken in 4Q 2017. Our effective tax rate for YTD 2017 differed from the statutory tax rate of 35%

primarily due to our recognition of low income housing tax credits.

Deferred Tax Assets, Net

We had net deferred tax assets of $7.9 billion and $8.1 billion as of September 30, 2018 and 

December 31, 2017, respectively. At September 30, 2018, our net deferred tax assets consisted 

primarily of basis differences related to derivative instruments and deferred fees.

Based on all positive and negative evidence available at September 30, 2018, we determined that it is 

more likely than not that our net deferred tax assets, except for a portion of the deferred tax asset 

related to our capital loss carryforward, will be realized. As of September 30, 2018, we have a $46 

million valuation allowance recorded against our capital loss carryforward deferred tax asset.

Unrecognized Tax Benefits 

We evaluated all income tax positions and determined that there were no uncertain tax positions that 

required reserves as of September 30, 2018.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 13

Freddie Mac Form 10-Q 129

NOTE 13

Segment Reporting

We have three reportable segments, which are based on the type of business activities each performs - 

Single-family Guarantee, Multifamily and Capital Markets. Material corporate-level activities that are 

infrequent in nature and based on decisions outside the control of the management of our reportable 

segments are included in the All Other category. For more information, see our 2017 Annual Report.

Segment Earnings

We present Segment Earnings by reclassifying certain credit guarantee-related activities and 

investment-related activities between various line items on our GAAP condensed consolidated 

statements of comprehensive income and allocating certain revenues and expenses, including funding 

costs and administrative expenses, to our three reportable segments. 

We do not consider our assets by segment when evaluating segment performance or allocating 

resources. We operate our business in the United States and its territories, and accordingly, we generate 

no revenue from and have no long-lived assets, other than financial instruments, in geographic locations 

other than the United States and its territories.

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

subject to the conduct of our business under the direction of the Conservator. See Note 2 for 

information about the conservatorship. 

The table below presents Segment Earnings by segment.

(In millions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Segment Earnings (loss), net of taxes:

Single-family Guarantee $1,065 $255 $2,570 $1,743

Multifamily 546 374 1,566 1,212

Capital Markets 1,095 4,042 3,999 5,591

All Other — — — —

Total Segment Earnings, net of taxes 2,706 4,671 8,135 8,546

Net income $2,706 $4,671 $8,135 $8,546

Comprehensive income (loss) of segments:

Single-family Guarantee $1,063 $255 $2,562 $1,741

Multifamily 502 370 1,430 1,277

Capital Markets 994 4,025 3,152 5,852

All Other — — — —

Comprehensive income of segments 2,559 4,650 7,144 8,870

Comprehensive income $2,559 $4,650 $7,144 $8,870
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 13

Freddie Mac Form 10-Q 130

The tables below present detailed reconciliations between our GAAP financial statements and Segment 

Earnings for our reportable segments and All Other.

3Q 2018

Singlefamily

Guarantee Multifamily

Capital

Markets

All

Other

Total 

Segment

Earnings 

(Loss) Reclassifications

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Net interest income $— $277 $923 $— $1,200 $2,057 $3,257

Guarantee fee income(1) 1,576 210 — — 1,786 (1,577) 209

Benefit (provision) for credit losses 196 2 — — 198 182 380

Net impairment of available-for-sale

securities recognized in earnings — — 7 — 7 (9) (2)

Derivative gains (losses) (25) 375 427 — 777 (49) 728

Gains (losses) on trading securities — (93) (286) — (379) — (379)

Gains (losses) on loans — (284) — — (284) 111 (173)

Other non-interest income (loss) 373 295 327 — 995 (553) 442

Administrative expense (371) (109) (89) — (569) — (569)

REO operations expense (42) — — — (42) 4 (38)

Other non-interest expense (413) (14) — — (427) (166) (593)

Income tax expense (229) (113) (214) — (556) — (556)

Net income 1,065 546 1,095 — 2,706 — 2,706

Changes in unrealized gains (losses)

related to available-for-sale securities — (44) (125) — (169) — (169)

Changes in unrealized gains (losses)

related to cash flow hedge relationships — — 25 — 25 — 25

Changes in defined benefit plans (2) — (1) — (3) — (3)

Total other comprehensive income

(loss), net of taxes (2) (44) (101) — (147) — (147)

Comprehensive income $1,063 $502 $994 $— $2,559 $— $2,559

Referenced footnote is included after the YTD 2017 table.

YTD 2018

Singlefamily

Guarantee Multifamily

Capital

Markets

All

Other

Total 

Segment

Earnings 

(Loss) Reclassifications

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Net interest income $— $841 $2,602 $— $3,443 $5,835 $9,278

Guarantee fee income(1) 4,660 609 — — 5,269 (4,666) 603

Benefit (provision) for credit losses 327 20 — — 347 30 377

Net impairment of available-for-sale

securities recognized in earnings — — 144 — 144 (147) (3)

Derivative gains (losses) (37) 1,254 2,038 — 3,255 (281) 2,974

Gains (losses) on trading securities — (344) (989) — (1,333) — (1,333)

Gains (losses) on loans — (797) — — (797) 466 (331)

Other non-interest income (loss) 598 704 1,429 — 2,731 (762) 1,969

Administrative expense (1,070) (315) (262) — (1,647) — (1,647)

REO operations expense (101) 1 — — (100) 13 (87)

Other non-interest expense (1,192) (33) (6) — (1,231) (488) (1,719)

Income tax expense (615) (374) (957) — (1,946) — (1,946)

Net income 2,570 1,566 3,999 — 8,135 — 8,135

Changes in unrealized gains (losses)

related to available-for-sale securities — (134) (931) — (1,065) — (1,065)

Changes in unrealized gains (losses)

related to cash flow hedge relationships — — 87 — 87 — 87

Changes in defined benefit plans (8) (2) (3) — (13) — (13)

Total other comprehensive income

(loss), net of taxes (8) (136) (847) — (991) — (991)

Comprehensive income $2,562 $1,430 $3,152 $— $7,144 $— $7,144

Referenced footnote is included after the YTD 2017 table.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 13

Freddie Mac Form 10-Q 131

3Q 2017

Singlefamily

Guarantee Multifamily

Capital

Markets

All

Other

Total 

Segment

Earnings 

(Loss) Reclassifications

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Net interest income $— $342 $804 $— $1,146 $2,343 $3,489

Guarantee fee income(1) 1,581 170 — — 1,751 (1,582) 169

Benefit (provision) for credit losses (826) (22) — — (848) 132 (716)

Net impairment of available-for-sale

securities recognized in earnings — — 50 — 50 (51) (1)

Derivative gains (losses) (2) 22 (324) — (304) (374) (678)

Gains (losses) on trading securities — (47) (26) — (73) — (73)

Gains (losses) on loans — (84) — — (84) 287 203

Other non-interest income (loss) 405 314 5,757 — 6,476 (622) 5,854

Administrative expense (353) (98) (73) — (524) — (524)

REO operations expense (38) — — — (38) 3 (35)

Other non-interest expense (348) (11) (3) — (362) (136) (498)

Income tax expense (164) (212) (2,143) — (2,519) — (2,519)

Net income 255 374 4,042 — 4,671 — 4,671

Changes in unrealized gains (losses)

related to available-for-sale securities — (4) (43) — (47) — (47)

Changes in unrealized gains (losses)

related to cash flow hedge relationships — — 26 — 26 — 26

Changes in defined benefit plans — — — — — — —

Total other comprehensive income

(loss), net of taxes — (4) (17) — (21) — (21)

Comprehensive income $255 $370 $4,025 $— $4,650 $— $4,650

Referenced footnote is included after the next table.

YTD 2017

Singlefamily

Guarantee Multifamily

Capital

Markets

All

Other

Total 

Segment

Earnings 

(Loss) Reclassifications

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Net interest income $— $905 $2,608 $— $3,513 $7,150 $10,663

Guarantee fee income(1) 4,505 483 — — 4,988 (4,512) 476

Benefit (provision) for credit losses (775) (10) — — (785) 607 (178)

Net impairment of available-for-sale

securities recognized in earnings — (4) 194 — 190 (207) (17)

Derivative gains (losses) (34) (31) (757) — (822) (1,254) (2,076)

Gains (losses) on trading securities — (62) (207) — (269) — (269)

Gains (losses) on loans — (75) — — (75) 485 410

Other non-interest income (loss) 1,115 972 6,924 — 9,011 (1,981) 7,030

Administrative expense (1,018) (288) (242) — (1,548) — (1,548)

REO operations expense (138) — — — (138) 10 (128)

Other non-interest expense (1,001) (44) (8) — (1,053) (298) (1,351)

Income tax (expense) benefit (911) (634) (2,921) — (4,466) — (4,466)

Net income (loss) 1,743 1,212 5,591 — 8,546 — 8,546

Changes in unrealized gains (losses)

related to available-for-sale securities — 65 181 — 246 — 246

Changes in unrealized gains (losses)

related to cash flow hedge relationships — — 81 — 81 — 81

Changes in defined benefit plans (2) — (1) — (3) — (3)

Total other comprehensive income

(loss), net of taxes (2) 65 261 — 324 — 324

Comprehensive income $1,741 $1,277 $5,852 $— $8,870 $— $8,870

(1) Guarantee fee income is included in other income (loss) on our GAAP condensed consolidated statements of comprehensive income.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

Freddie Mac Form 10-Q 132

NOTE 14

Concentration of Credit and Other Risks

Single-Family Credit Guarantee Portfolio

The table below summarizes the concentration by loan portfolio and geographic area of the 

approximately $1.9 trillion and $1.8 trillion UPB of our single-family credit guarantee portfolio at 

September 30, 2018 and December 31, 2017, respectively. See Note 4 and Note 7 for more 

information about credit risk associated with loans and mortgage-related securities that we hold or 

guarantee.

September 30, 2018 December 31, 2017 Percent of Credit Losses

Percentage 

of

Portfolio

Serious

Delinquency

Rate

Percentage 

of

Portfolio

Serious

Delinquency

Rate YTD 2018 YTD 2017

Core single-family loan portfolio 81% 0.22% 78% 0.35% 12% 3%

Legacy and relief refinance single-family loan portfolio 19 2.01 22 2.59 88 97

Total 100% 0.73 100% 1.08 100% 100%

Region(1)

West 30% 0.39 30% 0.47 17% 27%

Northeast 24 1.01 25 1.24 40 34

North Central 16 0.65 16 0.81 18 16

Southeast 16 0.98 16 1.95 18 19

Southwest 14 0.60 13 0.98 7 4

Total 100% 0.73 100% 1.08 100% 100%

State(2)

New York 5% 1.47 5% 1.74 12% 8%

New Jersey 3 1.34 3 1.78 10 9

Illinois 5 0.90 5 1.13 9 9

Florida 6 1.24 6 3.33 10 12

California 18 0.34 18 0.41 10 18

All other 63 0.66 63 0.91 49 44

Total 100% 0.73% 100% 1.08% 100% 100%

(1) Region designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI, VT, VA, WV); North 

Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); Southwest (AR, CO, KS, LA, MO, NE, NM, OK, TX, WY).

(2) States presented based on those with the highest percentage of credit losses during YTD 2018.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

Freddie Mac Form 10-Q 133

Credit Performance of Certain Higher Risk Single-Family Loan 

Categories

Participants in the mortgage market have characterized single-family loans based upon their overall 

credit quality at the time of origination, including as prime or subprime. Mortgage market participants 

have classified single-family loans as Alt-A if these loans have credit characteristics that range between 

their prime and subprime categories, if they are underwritten with lower or alternative income or asset 

documentation requirements compared to a full documentation loan, or both. Although we discontinued 

new purchases of loans with lower documentation standards beginning March 1, 2009, we continued to 

purchase certain amounts of these loans in cases where the loan was either: 

Purchased pursuant to a previously issued other mortgage-related guarantee;

Part of our relief refinance initiative; or 

In another refinance loan initiative and the pre-existing loan (including Alt-A loans) was originated 

under less than full documentation standards. 

In the event we purchase a refinance loan and the original loan had been previously identified as Alt-A, 

such refinance loan may no longer be categorized or reported as Alt-A in the table below because the 

new refinance loan replacing the original loan would not be identified by the seller/servicer as an Alt-A 

loan. As a result, our reported Alt-A balances may be lower than would otherwise be the case had such 

refinancing not occurred.

Although we do not categorize single-family loans we purchase or guarantee as prime or subprime, we 

recognize that there are a number of loan types with certain characteristics that indicate a higher degree 

of credit risk.

For example, a borrower’s credit score is a useful measure for assessing the credit quality of the 

borrower. Statistically, borrowers with higher credit scores are more likely to repay or have the ability to 

refinance than those with lower scores.

Presented below is a summary of the serious delinquency rates of certain higher-risk categories (based 

on characteristics of the loan at origination) of loans in our single-family credit guarantee portfolio. The 

table includes a presentation of each higher-risk category in isolation. A single loan may fall within more 

than one category (for example, an interest-only loan may also have an original LTV ratio greater than 

90%). Loans with a combination of these attributes will have an even higher risk of delinquency than 

those with an individual attribute.

Percentage of Portfolio(1) Serious Delinquency Rate(1)

(Percentage of portfolio based on UPB) September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017

Interest-only 1% 1% 3.72% 4.97%

Alt-A 1 1 4.40 5.62

Original LTV ratio greater than 90%(2) 17 17 1.08 1.70

Lower credit scores at origination (less than 620) 2 2 4.68 6.34

(1) Excludes loans underlying certain other securitization products for which data was not available. 

(2) Includes HARP loans, which we purchase as part of our participation in the MHA Program.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

Freddie Mac Form 10-Q 134

Sellers and Servicers

Sellers

We acquire a significant portion of our single-family and multifamily loan purchase volume from several 

large sellers. The tables below summarize the concentration of single-family and multifamily sellers who 

provided 10% or more of our purchase volume.

Single-family Sellers YTD 2018 YTD 2017

Wells Fargo Bank, N.A. 12% 16%

Other top 10 sellers 37 37

Top 10 single-family sellers 49% 53%

Multifamily Sellers YTD 2018 YTD 2017

CBRE Capital Markets, Inc. 19% 17%

Berkadia Commercial Mortgage LLC 12 9

Holliday Fenoglio Fowler, L.P. 9 10

Other top 10 sellers 38 42

Top 10 multifamily sellers 78% 78%

In recent years, there has been a shift in our single-family purchase volume from depository institutions 

to non-depository and smaller depository financial institutions. Some of these non-depository sellers 

have grown rapidly in recent years, and we purchase a significant share of our loans from them. Our top 

five non-depository sellers provided approximately 22% and 20% of our single-family purchase volume 

during YTD 2018 and YTD 2017, respectively.

Servicers

Significant portions of our single-family and multifamily loans are serviced by several large servicers. The 

tables below summarize the concentration of single-family and multifamily servicers who serviced 10% 

or more of our single-family credit guarantee portfolio and our multifamily mortgage portfolio, excluding 

loans underlying multifamily securitizations where we are not in first loss position, primarily K Certificates 

and SB Certificates.

Single-family Servicers September 30, 2018(1) December 31, 2017(1)

Wells Fargo Bank, N.A. 18% 18%

Other top 10 servicers 39 40

Top 10 single-family servicers 57% 58%

(1) Percentage of servicing volume is based on the total single-family credit guarantee portfolio, excluding loans where we do not exercise control 

over the associated servicing.

Multifamily Servicers September 30, 2018 December 31, 2017

Wells Fargo Bank, N.A. 16% 16%

CBRE Capital Markets, Inc. 14 12

Berkadia Commercial Mortgage LLC 9 11

Other top 10 servicers 36 36

Top 10 multifamily servicers 75% 75%
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

Freddie Mac Form 10-Q 135

In recent years, there has been a shift in our single-family servicing from depository institutions to nondepository servicers. Some of these non-depository servicers have grown rapidly in recent years and 

now service a large share of our loans. As of September 30, 2018 and December 31, 2017, 

approximately 17% and 15%, respectively, of our single-family credit guarantee portfolio, excluding 

loans where we do not exercise control over the associated servicing, was serviced by our top five nondepository servicers. We routinely monitor the performance of our largest non-depository servicers.

Mortgage Insurers

We have counterparty credit risk relating to the potential insolvency of, or non-performance by, 

mortgage insurers that insure single-family loans we purchase or guarantee. We evaluate the recovery 

and collectability from mortgage insurers as part of the estimate of our allowance for credit losses. See 

Note 4 for additional information. As of September 30, 2018, mortgage insurers provided coverage with 

maximum loss limits of $94.0 billion, for $366.8 billion of UPB, in connection with our single-family credit 

guarantee portfolio. These amounts are based on gross coverage without regard to netting of coverage 

that may exist to the extent an affected loan is covered under both primary and pool insurance.

The table below summarizes the concentration of mortgage insurer counterparties who provided 10% or 

more of our overall mortgage insurance coverage. On October 23, 2016, Genworth Financial, Inc. 

announced that it had entered into an agreement to be acquired by China Oceanwide Holdings Group 

Co., Ltd. Regulatory and other approvals of the acquisition are still pending. Genworth Mortgage 

Insurance Corporation is a subsidiary of Genworth Financial, Inc.

Mortgage Insurance Coverage(2)

Mortgage Insurer Credit Rating(1) September 30, 2018 December 31, 2017

Arch Mortgage Insurance Company A- 24% 24%

Radian Guaranty Inc. BBB 21 21

Mortgage Guaranty Insurance Corporation BBB 19 19

Genworth Mortgage Insurance Corporation BB+ 15 15

Essent Guaranty, Inc. BBB+ 13 12

Total 92% 91%

(1) Ratings are for the corporate entity to which we have the greatest exposure. Latest rating available as of September 30, 2018. Represents the 

lower of S&P and Moody’s credit ratings stated in terms of the S&P equivalent.

(2) Coverage amounts may include coverage provided by affiliates and subsidiaries of the counterparty. 

We received proceeds of $0.2 billion and $0.3 billion during YTD 2018 and YTD 2017, 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 $0.1 billion (excluding deferred payment 

obligations associated with unpaid claim amounts) as of both September 30, 2018 and December 31, 

2017. The balance of these receivables, net of an associated allowance for credit losses, was 

approximately $0.1 billion at both September 30, 2018 and December 31, 2017.

PMI Mortgage Insurance Co. and Triad Guaranty Insurance Corp. are both under the control of their 

state regulators and are in run-off. A substantial portion of their claims is recorded by us as deferred 

payment obligations. As of both September 30, 2018 and December 31, 2017, we had cumulative 

unpaid deferred payment obligations of $0.5 billion from these insurers. We recognized an allowance for 

credit losses for all of these unpaid amounts as collectability is uncertain. It is not clear how the 

regulators of these companies will administer their respective deferred payment plans in the future, nor 

when or if those obligations will be paid.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

Freddie Mac Form 10-Q 136

Cash and Other Investments Counterparties

We are exposed to the non-performance of counterparties relating to cash and other investments 

(including non-mortgage-related securities and cash equivalents) transactions, including those entered 

into on behalf of our securitization trusts. Our policies require that the counterparty be evaluated using 

our internal counterparty rating model prior to our entering into such transactions. We monitor the 

financial strength of our counterparties to these transactions and may use collateral maintenance 

requirements to manage our exposure to individual counterparties. The permitted term and dollar limits 

for each of these transactions are also based on the counterparty's financial strength.

Our cash and other investments (including non-mortgage-related securities and cash equivalents) 

counterparties are primarily major financial institutions, including commercial banks, other GSEs, 

Treasury, the Federal Reserve Bank of New York, the Government Securities Division of Fixed Income 

Clearing Corporation (GSD/FICC), highly-rated supranational institutions and government money market 

funds. As of September 30, 2018 and December 31, 2017, $2.8 billion and $0.2 billion of our securities 

purchased under agreements to resell were used to provide financing to investors in Freddie Mac 

securities to increase liquidity and expand the investor base for those securities. These transactions 

differ from the securities purchased under agreements to resell that we use for liquidity purposes as the 

counterparties we face may not be major financial institutions and we are exposed to the counterparty 

risk of these institutions. As of September 30, 2018 and December 31, 2017, including amounts related 

to our consolidated VIEs, the balance in our other investments and cash portfolio was $82.8 billion and 

$89.8 billion, respectively. The balances consist primarily of cash and securities purchased under 

agreements to resell invested with counterparties, U.S. Treasury securities, cash deposited with the 

Federal Reserve Bank of New York, cash advanced to lenders and other secured lending. As of 

September 30, 2018, all of our securities purchased under agreements to resell were fully collateralized. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 137

NOTE 15

Fair Value Disclosures

The accounting guidance for fair value measurements and disclosures defines fair value, establishes a 

framework for measuring fair value, and sets forth disclosure requirements regarding fair value 

measurements. This guidance applies whenever other accounting guidance requires or permits assets 

or liabilities to be measured at fair value. Fair value represents the price that would be received to sell an 

asset or paid to transfer a liability in an orderly transaction between market participants at the 

measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the 

liability takes place either in the principal market for the asset or liability, or, in the absence of a principal 

market, in the most advantageous market for the asset or liability.

We use fair value measurements for the initial recording of certain assets and liabilities and periodic 

remeasurement of certain assets and liabilities on a recurring or non-recurring basis.

Fair Value Measurements

The accounting guidance for fair value measurements and disclosures establishes a three-level fair value 

hierarchy that prioritizes the inputs into the valuation techniques used to measure fair value. The levels 

of the fair value hierarchy are defined as follows in priority order:

 Level 1 - inputs to the valuation techniques are based on quoted prices in active markets for identical 

assets or liabilities.

 Level 2 - inputs to the valuation techniques are based on observable inputs other than quoted prices 

in active markets for identical assets or liabilities.

Level 3 - one or more inputs to the valuation technique are unobservable and significant to the fair value 

measurement.

We use quoted market prices and valuation techniques that seek to maximize the use of observable 

inputs, where available, and minimize the use of unobservable inputs. Our inputs are based on the 

assumptions a market participant would use in valuing the asset or liability. Assets and liabilities are 

classified in their entirety within the fair value hierarchy based on the lowest level input that is significant 

to the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present our assets and liabilities measured on our condensed consolidated balance 

sheets at fair value on a recurring basis subsequent to initial recognition, including instruments where 

we have elected the fair value option.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 138

September 30, 2018

(In millions) Level 1 Level 2 Level 3

Netting 

Adjustment(1) Total

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac $— $24,655 $4,513 $— $29,168

Other agency — 1,865 40 — 1,905

Non-agency RMBS — — 1,814 — 1,814

Non-agency CMBS — 21 1,578 — 1,599

Obligations of states and political subdivisions — — 243 — 243

Total available-for-sale securities, at fair value — 26,541 8,188 — 34,729

Trading, at fair value:

Mortgage-related securities:

Freddie Mac — 9,790 2,109 — 11,899

Other agency — 2,714 17 — 2,731

All other — 20 1,072 — 1,092

Total mortgage-related securities — 12,524 3,198 — 15,722

Non-mortgage-related securities 22,691 2,788 — — 25,479

Total trading securities, at fair value 22,691 15,312 3,198 — 41,201

Total investments in securities 22,691 41,853 11,386 — 75,930

Mortgage loans:

Held-for-sale, at fair value — 18,222 — — 18,222

Derivative assets, net:

Interest-rate swaps — 2,742 — — 2,742

Option-based derivatives — 3,661 — — 3,661

Other — 144 21 — 165

Subtotal, before netting adjustments — 6,547 21 — 6,568

Netting adjustments(1) — — — (6,099) (6,099)

Total derivative assets, net — 6,547 21 (6,099) 469

Other assets:

Guarantee asset, at fair value — — 3,443 — 3,443

Non-derivative held-for-sale purchase commitments, at fair value — 174 — — 174

All other, at fair value — — 90 — 90

Total other assets — 174 3,533 — 3,707

Total assets carried at fair value on a recurring basis $22,691 $66,796 $14,940 ($6,099) $98,328

Liabilities:

Debt securities of consolidated trusts held by third parties, at fair

value $— $7 $728 $— $735

Other debt, at fair value — 4,460 134 — 4,594

Derivative liabilities, net:

Interest-rate swaps — 4,055 — — 4,055

Option-based derivatives — 96 — — 96

Other — 148 108 — 256

Subtotal, before netting adjustments — 4,299 108 — 4,407

Netting adjustments(1) — — — (4,112) (4,112)

Total derivative liabilities, net — 4,299 108 (4,112) 295

Other liabilities:

Non-derivative held-for-sale purchase commitments, at fair value — 34 — — 34

Total liabilities carried at fair value on a recurring basis $— $8,800 $970 ($4,112) $5,658

Referenced footnote is included after the next table.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 139

December 31, 2017

(In millions) Level 1 Level 2 Level 3

Netting 

Adjustment(1) Total

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac $— $30,415 $5,055 $— $35,470

Other agency — 2,007 46 — 2,053

Non-agency RMBS — — 3,933 — 3,933

Non-agency CMBS — 87 1,697 — 1,784

Obligations of states and political subdivisions — — 357 — 357

Total available-for-sale securities, at fair value — 32,509 11,088 — 43,597

Trading, at fair value:

Mortgage-related securities:

Freddie Mac — 11,393 842 — 12,235

Other agency — 3,565 9 — 3,574

All other — 27 2,066 — 2,093

Total mortgage-related securities — 14,985 2,917 — 17,902

Non-mortgage-related securities 20,159 2,660 — — 22,819

Total trading securities, at fair value 20,159 17,645 2,917 — 40,721

Total investments in securities 20,159 50,154 14,005 — 84,318

Mortgage loans:

Held-for-sale, at fair value — 20,054 — — 20,054

Derivative assets, net:

Interest-rate swaps — 4,262 — — 4,262

Option-based derivatives — 4,524 — — 4,524

Other — 44 8 — 52

Subtotal, before netting adjustments — 8,830 8 — 8,838

Netting adjustments(1) — — — (8,463) (8,463)

Total derivative assets, net — 8,830 8 (8,463) 375

Other assets:

Guarantee asset, at fair value — — 3,171 — 3,171

Non-derivative held-for-sale purchase commitments, at fair value — 137 — — 137

All other, at fair value — — 45 — 45

Total other assets — 137 3,216 — 3,353

Total assets carried at fair value on a recurring basis $20,159 $79,175 $17,229 ($8,463) $108,100

Liabilities:

Debt securities of consolidated trusts held by third parties, at fair

value $— $9 $630 $— $639

Other debt, at fair value — 5,023 137 — 5,160

Derivative liabilities, net:

Interest-rate swaps — 7,239 — — 7,239

Option-based derivatives — 121 — — 121

Other — 64 65 — 129

Subtotal, before netting adjustments — 7,424 65 — 7,489

Netting adjustments(1) — — — (7,220) (7,220)

Total derivative liabilities, net — 7,424 65 (7,220) 269

Other liabilities:

Non-derivative held-for-sale purchase commitments, at fair value — 4 — — 4

Total liabilities carried at fair value on a recurring basis $— $12,460 $832 ($7,220) $6,072

(1) Represents counterparty netting, cash collateral netting and net derivative interest receivable or payable.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 140

Level 3 Fair Value Measurements

The tables below present a reconciliation of all assets and liabilities measured on our condensed 

consolidated balance sheets at fair value on a recurring basis using significant unobservable inputs 

(Level 3), including transfers into and out of Level 3. The tables also present gains and losses due to 

changes in fair value, including both realized and unrealized gains and losses, recognized in our 

condensed consolidated statements of comprehensive income for Level 3 assets and liabilities. When 

assets and liabilities are transferred between levels, we recognize the transfer as of the beginning of the 

period.

3Q 2018

Balance,

July 1,

2018

Realized and unrealized gains (losses)

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

September

30,

2018

Unrealized

gains 

(losses)

still held(3) (In millions)

Included in

earnings

Included in

other

comprehensive

income Total

Assets

Investments in securities:

Available-for-sale, at fair

value:

Mortgage-related

securities:

Freddie Mac $4,380 ($1) ($29) ($30) $684 $— ($237) ($193) $— ($91) $4,513 ($2)

Other agency 270 — — — — — — (2) — (228) 40 —

Non-agency RMBS 2,226 383 (65) 318 — — (660) (70) — — 1,814 10

Non-agency CMBS 1,624 (2) (39) (41) — — — (5) — — 1,578 (2)

Obligations of states

and political

subdivisions 309 — (1) (1) — — — (65) — — 243 —

Total available-for-sale

mortgage-related securities 8,809 380 (134) 246 684 — (897) (335) — (319) 8,188 6

Trading, at fair value:

Mortgage-related

securities:

Freddie Mac 2,428 (128) — (128) 623 — (693) (13) — (108) 2,109 (128)

Other agency 17 (1) — (1) — — — 1 — — 17 (1)

All other 1,284 (12) — (12) — — (182) (18) — — 1,072 (8)

Total trading mortgagerelated securities 3,729 (141) — (141) 623 — (875) (30) — (108) 3,198 (137)

Other assets:

Guarantee asset 3,363 (28) — (28) — 255 — (147) — — 3,443 (28)

All other, at fair value 103 1 — 1 (3) (11) — — — — 90 (4)

Total other assets $3,466 ($27) $— ($27) ($3) $244 $— ($147) $— $— $3,533 ($32)

Balance,

July 1,

2018

Realized and unrealized (gains) losses

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

September

30,

2018

Unrealized

(gains) 

losses

still held(3)

Included in

earnings

Included in

other

comprehensive

income Total

Liabilities

Debt securities of

consolidated trusts held by

third parties, at fair value $629 ($1) $— ($1) $— $100 $— $— $— $— $728 ($1)

Other debt, at fair value 135 — — — — — — (1) — — 134 —

Net derivatives(2) 42 8 — 8 — 41 — (4) — — 87 3

Other liabilities:

All other, at fair value — — — — — — — — — — — —

Referenced footnotes are included after the prior period tables.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 141

YTD 2018

Balance,

January 1,

2018

Realized and unrealized gains (losses)

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

September

30,

2018

Unrealized

gains 

(losses)

still held(3) (In millions)

Included in

earnings

Included in

other

comprehensive

income Total

Assets

Investments in securities:

Available-for-sale, at fair

value:

Mortgage-related

securities:

Freddie Mac $5,055 ($7) ($169) ($176) $684 $— ($293) ($757) $— $— $4,513 ($7)

Other agency 46 — (1) (1) — — — (5) — — 40 —

Non-agency RMBS 3,933 876 (534) 342 — — (2,160) (301) — — 1,814 31

Non-agency CMBS 1,697 (6) (98) (104) — — — (15) — — 1,578 (6)

Obligations of states

and political

subdivisions 357 — (4) (4) — — — (110) — — 243 —

Total available-for-sale

mortgage-related securities 11,088 863 (806) 57 684 — (2,453) (1,188) — — 8,188 18

Trading, at fair value:

Mortgage-related

securities:

Freddie Mac 842 (304) — (304) 1,027 — — (3) 579 (32) 2,109 (299)

Other agency 9 (2) — (2) 30 — (21) 1 — — 17 (2)

All other 2,066 (79) — (79) — — (863) (52) — — 1,072 (63)

Total trading mortgagerelated securities 2,917 (385) — (385) 1,057 — (884) (54) 579 (32) 3,198 (364)

Other assets:

Guarantee asset 3,171 (48) — (48) — 745 — (425) — — 3,443 (48)

All other, at fair value 45 31 — 31 38 (24) — — — — 90 11

Total other assets $3,216 ($17) $— ($17) $38 $721 $— ($425) $— $— $3,533 ($37)

Balance,

January 1,

2018

Realized and unrealized (gains) losses

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

September

30,

2018

Unrealized

(gains) 

losses

still held(3)

Included in

earnings

Included in

other

comprehensive

income Total

Liabilities

Debt securities of

consolidated trusts held by

third parties, at fair value $630 ($2) $— ($2) $— $100 $— $— $— $— $728 ($2)

Other debt, at fair value 137 — — — — — — (3) — — 134 —

Net derivatives(2) 57 28 — 28 — 15 — (13) — — 87 15

Other liabilities:

All other, at fair value — — — — — — — — — — — —

Referenced footnotes are included after the prior period tables.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 142

3Q 2017

Balance,

July 1,

2017

Realized and unrealized gains (losses)

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

September

30,

2017

Unrealized

gains 

(losses)

still held(3) (In millions)

Included in

earnings

Included in

other

comprehensive

income Total

Assets

Investments in securities:

Available-for-sale, at fair

value:

Mortgage-related

securities:

Freddie Mac $5,686 ($4) $82 $78 $141 $— $— ($325) $— $— $5,580 ($4)

Other agency 51 — — — — — — (3) — — 48 —

Non-agency RMBS 8,639 854 (128) 726 — — (3,953) (277) — — 5,135 38

Non-agency CMBS 3,470 1 5 6 — — — (7) — — 3,469 1

Obligations of states

and political

subdivisions 481 — (1) (1) — — — (78) — — 402 —

Total available-for-sale

mortgage-related securities 18,327 851 (42) 809 141 — (3,953) (690) — — 14,634 35

Trading, at fair value:

Mortgage-related

securities:

Freddie Mac 888 (45) — (45) 587 — — (4) — (396) 1,030 (43)

Other agency 10 (1) — (1) 259 — — — — — 268 (1)

All other 108 (2) — (2) 176 — — (11) — — 271 (2)

Total trading mortgagerelated securities 1,006 (48) — (48) 1,022 — — (15) — (396) 1,569 (46)

Other assets:

Guarantee asset 2,480 (1) — (1) — 265 — (123) — — 2,621 (1)

All other, at fair value — — — — — — — — — — — —

Total other assets $2,480 ($1) $— ($1) $— $265 $— ($123) $— $— $2,621 ($1)

Balance,

July 1,

2017

Realized and unrealized gains (losses)

Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

September

30,

2017

Unrealized

gains 

(losses)

still held(3)

Included in

earnings

Included in

other

comprehensive

income Total

Liabilities

Debt securities of

consolidated trusts held by

third parties, at fair value $531 $— $— $— $— $— $— $— $— $— $531 $—

Other debt, at fair value 89 — — — — — — — — — 89 —

Net derivatives(2) 68 2 — 2 — (1) — (2) — — 67 (2)

Other Liabilities:

All other, at fair value 17 (12) — (12) 5 — 13 — — — 23 (12)

Referenced footnotes are included after the following table.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 143

YTD 2017

Balance,

January 1,

2017

Realized and unrealized gains (losses)

Purchases Issues Sales

Settlements

,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

September

30,

2017

Unrealized

gains 

(losses)

still held(3) (In millions)

Included in

earnings

Included in

other

comprehensive

income Total

Assets

Investments in securities:

Available-for-sale, at fair

value:

Mortgage-related

securities:

Freddie Mac $9,847 ($6) $117 $111 $635 $— ($907) ($1,027) $17 ($3,096) $5,580 ($15)

Other agency 66 — (1) (1) — — — (9) — (8) 48 —

Non-agency RMBS 11,797 1,285 (68) 1,217 — — (6,649) (1,230) — — 5,135 111

Non-agency CMBS 3,366 4 128 132 — — — (29) — — 3,469 4

Obligations of states

and political

subdivisions 665 1 (2) (1) — — — (262) — — 402 —

Total available-for-sale

mortgage-related securities 25,741 1,284 174 1,458 635 — (7,556) (2,557) 17 (3,104) 14,634 100

Trading, at fair value:

Mortgage-related

securities:

Freddie Mac 1,095 (121) — (121) 889 — (592) (9) 14 (246) 1,030 (92)

Other agency 12 (3) — (3) 259 — — — — — 268 (3)

All other 113 — — — 176 — — (18) — — 271 —

Total trading mortgagerelated securities 1,220 (124) — (124) 1,324 — (592) (27) 14 (246) 1,569 (95)

Other assets:

Guarantee asset 2,299 (2) — (2) — 677 — (353) — — 2,621 (2)

All other, at fair value — — — — — — — — — — — —

Total other assets $2,299 ($2) $— ($2) $— $677 $— ($353) $— $— $2,621 ($2)

Balance,

January 1,

2017

Realized and unrealized gains (losses)

Purchases Issues Sales

Settlements

,

net

Transfers

into

Level 3(1)

Transfers

out of

Level 3(1)

Balance,

September

30,

2017

Unrealized

gains 

(losses)

still held(3)

Included in

earnings

Included in

other

comprehensive

income Total

Liabilities

Debt securities of

consolidated trusts held by

third parties, at fair value $— $1 $— $1 $— $530 $— $— $— $— $531 $1

Other debt, at fair value 95 — — — — — — (6) — — 89 —

Net derivatives(2) 50 36 — 36 — — — (19) — — 67 19

Other Liabilities:

All other, at fair value (2) (5) — (5) 17 — 13 — — — 23 (5)

(1) Transfers out of Level 3 during 3Q 2018 and YTD 2018 and 3Q 2017 and YTD 2017 consisted primarily of certain mortgage-related securities due 

to an increased volume and level of activity in the market and availability of price quotes from dealers and third-party pricing services. Certain 

Freddie Mac securities are classified as Level 3 at issuance and generally are classified as Level 2 when they begin trading. Transfers into Level 3 

during 3Q 2018 and YTD 2018 consisted primarily of certain mortgage-related securities due to a decrease in market activity and the availability 

of relevant price quotes from dealers and third-party pricing services.

(2) Amounts are the net of derivative assets and liabilities prior to counterparty netting, cash collateral netting, net trade/settle receivable or payable 

and net derivative interest receivable or payable.

(3) Represents the amount of total gains or losses for the period, included in earnings, attributable to the change in unrealized gains and losses 

related to assets and liabilities classified as Level 3 that were still held at September 30, 2018 and September 30, 2017, respectively. Included in 

these amounts are other-than temporary impairments recorded on available-for-sale securities.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 144

The tables below provide valuation techniques, the range and the weighted average of significant 

unobservable inputs for Level 3 assets and liabilities measured on our condensed consolidated balance 

sheets at fair value on a recurring basis.

September 30, 2018

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(In millions, except for certain unobservable inputs as 

shown) Type Range

Weighted

Average

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Freddie Mac $4,354 Discounted cash flows OAS (2) - 325 bps 67 bps

159 Other

Total Freddie Mac 4,513

Other agency 40 Other

Non-agency RMBS 1,762

Median of external

sources

External pricing

sources $67.5 - $73.7 $70.2

52 Other

Total non-agency RMBS 1,814

Non-agency CMBS 1,578 Single external source

External pricing

sources $101.1 - $102.7 $102.0

Obligations of states and political subdivisions 240 Single external source

External pricing

sources $94.2 - $108.4 $100.5

3 Other

Total obligations of states and political

subdivisions 243

Total available-for-sale mortgage-related

securities 8,188

Trading, at fair value

Mortgage-related securities

Freddie Mac 922 Discounted cash flows OAS (21,945) - 6,641 bps (89) bps

871 Single external source

External pricing

sources $0.0 - $97.2 $32.8

316 Other

Total Freddie Mac 2,109

Other agency 17 Other

All other 1,071 Single external source

External pricing

sources $6.1 - $105.9 $83.4

1 Other

Total all other 1,072

Total trading mortgage-related securities 3,198

Total investments in securities $11,386

Other assets:

Guarantee asset, at fair value $3,206 Discounted cash flows OAS 15 - 198 bps 41 bps

237 Other

Total Guarantee asset, at fair value 3,443

All other at fair value 90 Other

Total other assets 3,533

Liabilities

Debt securities of consolidated trusts held by third

parties, at fair value 728 Single external source

 External Pricing

Sources $96.5 - $100.5 $100.0

Other debt, at fair value 134 Single External Source

External Pricing

Sources $99.9 - $100.0 $100.0

Net derivatives 87 Other
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 145

December 31, 2017

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(In millions, except for certain unobservable inputs as 

shown) Type Range

Weighted

Average

Recurring fair value measurements

Assets

Investments in securities:

Available-for-sale, at fair value

Mortgage-related securities

Freddie Mac $4,873 Discounted cash flows OAS 27 - 501 bps 68 bps

182 Other

Total Freddie Mac 5,055

Other agency 46 Other

Non-agency RMBS 3,665

Median of external

sources

External pricing

sources $75.6 - $80.8 $77.7

268 Other

Total non-agency RMBS 3,933

Non-agency CMBS 1,696 Single external source

External pricing

sources $108.4 - $108.9 $108.7

1 Other

Total non-agency CMBS 1,697

Obligations of states and political subdivisions 334

Median of external

sources

External pricing

sources $101.2 - $101.6 $101.4

23 Other

Total obligations of states and political

subdivisions 357

Total available-for-sale mortgage-related

securities 11,088

Trading, at fair value

Mortgage-related securities

Freddie Mac 582 Discounted cash flows OAS (8,905) - 27,202 bps (88) bps

243 Risk metrics Effective duration 0.00 - 55.93 years 11.76 years

17 Other

Total Freddie Mac 842

Other agency 9 Other

All other 2,065 Single external source

External pricing

sources $6.4 - $113.2 $98.0

1 Other

Total all other 2,066

Total trading mortgage-related securities 2,917

Total investments in securities $14,005

Other assets:

Guarantee asset, at fair value $3,171 Discounted cash flows OAS 17 - 198 bps 45 bps

All other at fair value 45 Other

Total other assets 3,216

Liabilities

Debt securities of consolidated trusts held by third

parties, at fair value 630 Single external source

External Pricing

Sources $99.2 - $100.2 $100.1

Other debt, at fair value 137 Other

Net derivatives 57 Other
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 146

Assets Measured at Fair Value on a Non-recurring Basis

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis 

after our initial recognition. These adjustments usually result from the application of lower-of-cost-orfair-value accounting or measurement of impairment based on the fair value of the underlying collateral.

The table below presents assets measured on our condensed consolidated balance sheets at fair value 

on a non-recurring basis. 

September 30, 2018 December 31, 2017

(In millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Assets measured at fair value on a

non-recurring basis:

Mortgage loans(1) $— $42 $9,843 $9,885 $— $494 $6,199 $6,693

(1) Includes loans that are classified as held-for-investment and have been measured for impairment based on the fair value of the underlying 

collateral and held-for-sale loans where the fair value is below cost.

The tables below provide valuation techniques, the range and the weighted average of significant 

unobservable inputs for Level 3 assets and liabilities measured on our condensed consolidated balance 

sheets at fair value on a non-recurring basis. Certain of the fair values in the tables below were not 

obtained as of the period end, but were obtained during the period.

September 30, 2018

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(In millions, except for certain 

unobservable inputs as shown) Type Range

Weighted

Average

Non-recurring fair value

measurements

Mortgage loans $9,843

Internal model Historical sales proceeds $3,000 - $858,000 $179,740

Internal model Housing sales index 43 - 365 bps 106 bps

Median of external sources External pricing sources $35.8 - $94.6 $82.5

December 31, 2017

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(In millions, except for certain 

unobservable inputs as shown) Type Range

Weighted

Average

Non-recurring fair value

measurements

Mortgage loans $6,199

Internal model Historical sales proceeds $3,000 - $899,000 $176,558

Internal model Housing sales index 43 - 394 bps 102 bps

Median of external sources External pricing sources $36.5 - $94.9 $80.9
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 147

Fair Value of Financial Instruments

The tables below present the carrying value and estimated fair value of our financial instruments. For 

certain types of financial instruments, such as cash and cash equivalents, securities purchased under 

agreements to resell, advances to lenders and other secured lending, certain debt and other liabilities, 

the carrying value on our GAAP balance sheets approximates fair value, as these assets and liabilities 

are short-term in nature and have limited market value volatility.

September 30, 2018

GAAP 

Measurement 

Category(1)

GAAP

Carrying 

Amount

Fair Value

(In millions) Level 1 Level 2 Level 3

Netting 

Adjustments(2) Total

Financial Assets

Cash and cash equivalents(3) Amortized cost $7,038 $7,038 $— $— $— $7,038

Securities purchased under agreements

to resell Amortized cost 48,540 — 48,540 — — 48,540

Investments in securities:

Available-for-sale, at fair value FV - OCI 34,729 — 26,541 8,188 — 34,729

Trading, at fair value FV - NI 41,201 22,691 15,312 3,198 — 41,201

Total investments in securities 75,930 22,691 41,853 11,386 — 75,930

Mortgage loans:

Loans held by consolidated trusts 1,814,776 — 1,637,198 128,798 — 1,765,996

Loans held by Freddie Mac 87,652 — 31,627 58,260 — 89,887

Total mortgage loans Various(4) 1,902,428 — 1,668,825 187,058 — 1,855,883

Derivative assets, net FV - NI 469 — 6,547 21 (6,099) 469

Guarantee asset FV - NI 3,443 — — 3,454 — 3,454

Non-derivative purchase commitments,

at fair value FV - NI 174 — 174 17 — 191

Advances to lenders and other secured

lending Amortized cost 1,808 — 425 1,137 — 1,562

Total financial assets $2,039,830 $29,729 $1,766,364 $203,073 ($6,099) $1,993,067

Financial Liabilities

Debt, net:

Debt securities of consolidated trusts

held by third parties $1,765,045 $— $1,708,191 $2,219 $— $1,710,410

Other debt 276,945 — 275,968 3,655 — 279,623

Total debt, net Various(5) 2,041,990 — 1,984,159 5,874 — 1,990,033

Derivative liabilities, net FV - NI 295 — 4,299 108 (4,112) 295

Guarantee obligation Amortized cost 3,347 — — 3,271 — 3,271

Non-derivative purchase commitments,

at fair value FV - NI 34 — 34 40 — 74

Other liabilities Amortized cost 34 — — 34 — 34

Total financial liabilities $2,045,700 $— $1,988,492 $9,327 ($4,112) $1,993,707

(1) FV - NI denotes fair value through net income. FV - OCI denotes fair value through other comprehensive income.

(2) Represents counterparty netting, cash collateral netting and net derivative interest receivable or payable.

(3) The current and prior period presentation has been modified to include restricted cash and cash equivalents due to recently adopted accounting 

guidance. 

(4) As of September 30, 2018, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value and FV - NII were $1.9 trillion, 

$18.7 billion and $18.2 billion, respectively. 

(5) As of September 30, 2018, the GAAP carrying amounts measured at amortized cost and FV - NII were $2.0 trillion and $5.3 billion, respectively. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 148

December 31, 2017

GAAP 

Measurement 

Category(1)

GAAP

Carrying 

Amount

Fair Value

(In millions) Level 1 Level 2 Level 3

Netting 

Adjustments(2) Total

Financial Assets

Cash and cash equivalents(3) Amortized cost $9,811 $9,811 $— $— $— $9,811

Securities purchased under agreements

to resell Amortized cost 55,903 — 55,903 — — 55,903

Investments in securities:

Available-for-sale, at fair value FV - OCI 43,597 — 32,509 11,088 — 43,597

Trading, at fair value FV - NI 40,721 20,159 17,645 2,917 — 40,721

Total investments in securities 84,318 20,159 50,154 14,005 — 84,318

Mortgage loans:

Loans held by consolidated trusts 1,774,286 — 1,635,137 145,911 — 1,781,048

Loans held by Freddie Mac 96,931 — 32,169 67,932 — 100,101

Total mortgage loans Various(4) 1,871,217 — 1,667,306 213,843 — 1,881,149

Derivative assets, net FV - NI 375 — 8,830 8 (8,463) 375

Guarantee asset FV - NI 3,171 — — 3,359 — 3,359

Non-derivative purchase commitments,

at fair value FV - NI 137 — 137 55 — 192

Advances to lenders and other secured

lending Amortized cost 1,269 — 473 796 — 1,269

Total financial assets $2,026,201 $29,970 $1,782,803 $232,066 ($8,463) $2,036,376

Financial Liabilities

Debt, net:

Debt securities of consolidated trusts

held by third parties $1,720,996 $— $1,721,091 $2,679 $— $1,723,770

Other debt 313,634 — 313,688 3,892 — 317,580

Total debt, net Various(5) 2,034,630 — 2,034,779 6,571 — 2,041,350

Derivative liabilities, net FV - NI 269 — 7,424 65 (7,220) 269

Guarantee obligation Amortized cost 3,081 — — 3,742 — 3,742

Non-derivative purchase commitments,

at fair value FV - NI 4 — 4 15 — 19

Total financial liabilities $2,037,984 $— $2,042,207 $10,393 ($7,220) $2,045,380

(1) FV - NI denotes fair value through net income. FV - OCI denotes fair value through other comprehensive income.

(2) Represents counterparty netting, cash collateral netting and net derivative interest receivable or payable.

(3) The current and prior period presentation has been modified to include restricted cash and cash equivalents due to recently adopted accounting 

guidance. 

(4) As of December 31, 2017, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value and FV - NII were $1.8 trillion, 

$14.7 billion and $20.1 billion, respectively. 

(5) As of December 31, 2017, the GAAP carrying amounts measured at amortized cost and FV - NII were $2.0 trillion and $5.8 billion, respectively. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Freddie Mac Form 10-Q 149

HARP Loans

The fair value of mortgage loans includes loans refinanced under HARP of $19.3 billion and $30.2 billion

as of September 30, 2018 and December 31, 2017, respectively. The fair value of HARP loans reflects 

the total compensation that we receive for the delivery of a HARP loan, based on 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 on December 31, 2018, the beneficial 

pricing afforded to HARP loans may no longer be reflected in the pricing structure of our guarantee fees. 

If these benefits were not reflected in the pricing for these loans, the fair value of our loans would have 

decreased by $1.4 billion and $2.1 billion as of September 30, 2018 and December 31, 2017, 

respectively. 

Fair Value Option

We elected the fair value option for certain multifamily held-for-sale loans, multifamily held-for-sale loan 

purchase commitments and certain long-term debt. 

The table below presents the fair value and UPB related to certain loans and long-term debt for which 

we have elected the fair value option.

September 30, 2018 December 31, 2017

(In millions)

Multifamily

Held-For-Sale

 Loans

Other Debt -

Long Term

Debt Securities Of 

Consolidated 

Trusts Held By 

Third Parties(1)

Multifamily

Held-For-Sale

 Loans

Other Debt -

Long Term

Debt Securities Of 

Consolidated 

Trusts Held By 

Third Parties(1)

Fair value $18,222 $4,594 $728 $20,054 $5,160 $630

Unpaid principal

balance 18,152 4,136 730 19,762 4,666 630

Difference $70 $458 ($2) $292 $494 $—

(1) Does not include interest-only securities with fair value of $7 million and $9 million as of September 30, 2018 and December 31, 2017, 

respectively.

Changes in Fair Value Under the Fair Value Option Election

The table below presents the changes in fair value included in other income (loss) in our condensed 

consolidated statements of comprehensive income, related to items for which we have elected the fair 

value option. 

3Q 2018 3Q 2017 YTD 2018 YTD 2017

(In millions) Gains (Losses) Gains (Losses)

Multifamily held-for-sale loans ($285) ($91) ($797) ($83)

Multifamily held-for-sale loan purchase commitments 267 271 564 826

Other debt - long term 10 58 38 (144)

Debt securities of consolidated trusts held by third parties 2 5 4 16

Changes in fair value attributable to instrument-specific credit risk were not material for 3Q 2018 and 

YTD 2018 and for 3Q 2017 and YTD 2017 for any assets or liabilities for which we elected the fair value 

option.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

Freddie Mac Form 10-Q 150

NOTE 16

Legal Contingencies

We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in 

the ordinary course of business including, among other things, contractual disputes, personal injury 

claims, employment-related litigation and other legal proceedings incidental to our business. We are 

frequently involved, directly or indirectly, in litigation involving mortgage foreclosures. From time to time, 

we are also involved in proceedings arising from our termination of a seller's or servicer’s eligibility to sell 

loans to, and/or service loans for, us. In these cases, the former seller or servicer sometimes seeks 

damages against us for wrongful termination under a variety of legal theories. In addition, we are 

sometimes sued in connection with the origination or servicing of loans. These suits typically involve 

claims alleging wrongful actions of sellers and servicers. Our contracts with our sellers and servicers 

generally provide for indemnification of Freddie Mac against liability arising from sellers' and servicers' 

wrongful actions with respect to loans sold to or serviced for Freddie Mac.

Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate 

prediction. In accordance with the accounting guidance for contingencies, we reserve for litigation 

claims and assessments asserted or threatened against us when a loss is probable (as defined in such 

guidance) and the amount of the loss can be reasonably estimated.

Putative Securities Class Action Lawsuit: Ohio Public Employees 

Retirement System vs. Freddie Mac, Syron, Et Al.

This putative securities class action lawsuit was filed against Freddie Mac and certain former officers on 

January 18, 2008 in the U.S. District Court for the Northern District of Ohio purportedly on behalf of a 

class of purchasers of Freddie Mac stock from August 1, 2006 through November 20, 2007. FHFA later 

intervened as Conservator, and the plaintiff amended its complaint on several occasions. The plaintiff 

alleged, among other things, that the defendants violated federal securities laws by making false and 

misleading statements concerning our business, risk management, and the procedures we put into 

place to protect the company from problems in the mortgage industry. The plaintiff seeks unspecified 

damages and interest, and reasonable costs and expenses, including attorney and expert fees.

In October 2013, defendants filed motions to dismiss the complaint. In October 2014, the District Court 

granted defendants’ motions and dismissed the case in its entirety against all defendants, with 

prejudice. In November 2014, plaintiff filed a notice of appeal in the U.S. Court of Appeals for the Sixth 

Circuit. On July 20, 2016, the Court of Appeals reversed the District Court's dismissal and remanded the 

case to the District Court for further proceedings. On August 14, 2018, the District Court denied the 

plaintiff's motion for class certification. Plaintiff has requested interlocutory appeal of that decision.

At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect 

on our business, financial condition, liquidity, or results of operations. In addition, we are unable to 

reasonably estimate the possible loss or range of possible loss in the event of an adverse judgment in 

the foregoing matter due to the following factors, among others: the inherent uncertainty of pre-trial 

litigation; there has yet to be a final resolution of plaintiff's motion for class certification; and the District 

Court has not yet ruled upon motions for summary judgment. In particular, absent a final resolution of 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

Freddie Mac Form 10-Q 151

whether a class will be certified, the identification of a class if one is certified, and the identification of 

the alleged statement or statements that survive dispositive motions, we cannot reasonably estimate 

any possible loss or range of possible loss.

LIBOR Lawsuit

On March 14, 2013, Freddie Mac filed a lawsuit in the U.S. District Court for the Eastern District of 

Virginia against the British Bankers Association and the 16 U.S. Dollar LIBOR panel banks and a number 

of their affiliates. The case was subsequently transferred to the U.S. District Court for the Southern 

District of New York. The complaint alleges, among other things, that the defendants fraudulently and 

collusively depressed LIBOR, a benchmark interest rate indexed to trillions of dollars of financial 

products, and asserts claims for antitrust violations, breach of contract, tortious interference with 

contract and fraud. Freddie Mac filed an amended complaint in July 2013, and a second amended 

complaint in October 2014. In August 2015, the District Court dismissed the portion of our claim related 

to antitrust violations and fraud and we filed a motion for reconsideration. On March 31, 2016, the 

District Court granted a portion of our motion, finding personal jurisdiction over certain defendants, and 

denied the portion of our motion with respect to statutes of limitation for our fraud claims. Subsequently, 

in a related case, the U.S. Court of Appeals for the Second Circuit reversed the District Court’s dismissal 

of certain plaintiffs’ antitrust claims and remanded the case to the District Court for consideration of 

whether, among other things, the plaintiffs are "efficient enforcers" of the antitrust laws. 

On December 20, 2016, after briefing and argument on the defendants' renewed motions to dismiss on 

personal jurisdiction and efficient enforcer grounds, the District Court denied defendants' motions in 

part and granted them in part. The District Court held that Freddie Mac is an efficient enforcer of the 

antitrust laws, but dismissed on personal jurisdiction grounds Freddie Mac's antitrust claims against all 

defendants except HSBC USA, N.A. Then, in an order issued February 2, 2017, the District Court 

effectively dismissed Freddie Mac's remaining antitrust claim against HSBC USA, N.A. At present, 

Freddie Mac's breach of contract actions against Bank of America, N.A., Barclays Bank, Citibank, N.A., 

Credit Suisse, Deutsche Bank, Royal Bank of Scotland and UBS AG are its only claims remaining in the 

District Court.

On February 23, 2018, the Second Circuit reversed the District Court’s dismissal of certain plaintiffs’ 

state law fraud and unjust enrichment claims on statutes of limitations grounds. While Freddie Mac was 

not a party to the appeal, this decision could have the effect of reinstating Freddie Mac’s fraud claims 

against the above-named defendants. The Second Circuit also reversed certain aspects of the District 

Court’s personal jurisdiction rulings and remanded with instructions to allow the named appellant to 

amend its complaint. On June 15, 2018, Freddie Mac filed a motion for leave to file an amended 

complaint, along with a proposed amended complaint.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

Freddie Mac Form 10-Q 152

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 in December 2013. In the 

consolidated amended complaint, plaintiffs allege, among other items, that the August 2012 amendment 

to the Purchase Agreement breached Freddie Mac's and Fannie Mae's respective contracts with the 

holders of junior preferred stock and common stock and the covenant of good faith and fair dealing 

inherent in such contracts. Plaintiffs sought unspecified damages, equitable and injunctive relief, and 

costs and expenses, including attorney and expert fees. 

The Cacciapelle and American European Insurance Company lawsuits were filed purportedly on behalf 

of a class of purchasers of junior preferred stock issued by Freddie Mac or Fannie Mae who held stock 

prior to, and as of, August 17, 2012. The Marneu lawsuit was filed purportedly on behalf of a class of 

purchasers of junior preferred stock and purchasers of common stock issued by Freddie Mac or Fannie 

Mae over a not-yet-defined period of time. 

Arrowood Indemnity Company vs. Federal National Mortgage Association, Federal Home 

Loan Mortgage Corporation, FHFA and Treasury.This case was filed on September 20, 2013. The 

allegations and demands made by plaintiffs in this case were generally similar to those made by the 

plaintiffs in the In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action 

Litigations case described above. Plaintiffs in the Arrowood lawsuit also requested that, if injunctive 

relief were not granted, the Arrowood plaintiffs be awarded damages against the defendants in an 

amount to be determined including, but not limited to, the aggregate par value of their junior preferred 

stock, the total of which they stated to be approximately $42 million. 

American European Insurance Company, Cacciapelle 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. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

Freddie Mac Form 10-Q 153

FHFA, joined by Freddie Mac and Fannie Mae, moved to dismiss the In re Fannie Mae/Freddie Mac 

Senior Preferred Stock Purchase Agreement Class Action Litigations case and the other related cases in 

January 2014. Treasury filed a motion to dismiss the same day. In September 2014, the District Court 

granted the motions and dismissed the plaintiffs’ claims. All plaintiffs appealed that decision, and on 

February 21, 2017, the U.S. Court of Appeals for the District of Columbia Circuit affirmed in part and 

remanded in part the decision granting the motions to dismiss. The Court of Appeals affirmed dismissal 

of all claims except certain claims seeking monetary damages for breach of contract and breach of 

implied duty of good faith and fair dealing. In March 2017, certain institutional and class plaintiffs filed 

petitions for panel rehearing with respect to certain claims. On July 17, 2017, the Court of Appeals 

granted the petitions for rehearing and issued a modified decision, which permitted the institutional 

plaintiffs to pursue the breach of contract and breach of implied duty of good faith and fair dealing 

claims that had been remanded. The Court of Appeals also removed language related to the standard to 

be applied to the implied duty claims, leaving that issue for the District Court to determine on remand. 

On October 16, 2017, certain institutional and class plaintiffs filed petitions for a writ of certiorari in the 

U.S. Supreme Court challenging whether HERA's prohibition on injunctive relief against FHFA bars 

judicial review of the net worth sweep dividend provisions of the August 2012 amendment to the 

Purchase Agreement, as well as whether HERA bars shareholders from pursuing derivative litigation 

where they allege the conservator faces a conflict of interest. The Supreme Court denied the petitions 

on February 20, 2018. On November 1, 2017, certain institutional and class plaintiffs and plaintiffs in 

another case in which Freddie Mac was not originally a defendant, Fairholme Funds, Inc. v. FHFA, 

Treasury, and Federal National Mortgage Association, filed proposed amended complaints in the District 

Court. Each of the proposed amended complaints names Freddie Mac as a defendant for breach of 

contract and breach of the covenant of good faith and fair dealing claims as well as for new claims 

alleging breach of fiduciary duty and breach of Virginia corporate law. On January 10, 2018, FHFA, 

Freddie Mac, and Fannie Mae moved to dismiss the amended complaints. On August 16, 2018, plaintiffs 

in the In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action

Litigations case filed a motion for class certification in the District Court. On September 28, 2018, the 

District Court dismissed all of the claims except those alleging breach of the implied covenant of good 

faith and fair dealing. On October 15, 2018, defendants filed a motion seeking reconsideration of the 

denial of the motion to dismiss as to the implied covenant claims.

Angel vs. The Federal Home Loan Mortgage Corporation et al. This case was filed pro se on May 

21, 2018 against Freddie Mac, Fannie Mae, certain current and former directors of Freddie Mac and 

Fannie Mae, and FHFA as a nominal defendant. The complaint alleges, among other things, breach of 

contract, breach of the implied covenant of good faith and fair dealing, and that defendants aided and 

abetted the government’s “avoidance” of plaintiff’s dividend rights. On July 12, 2018, the defendants 

filed a motion to dismiss the complaint.

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 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

Freddie Mac Form 10-Q 154

expenses. On March 8, 2018, the plaintiffs filed an amended complaint under seal. Defendants filed a 

motion to dismiss on August 1, 2018 and an amended motion to dismiss on October 1, 2018.

Rafter, Rattien and Pershing Square Capital Management vs. the United States of America et 

al. This case was filed as a shareholder derivative lawsuit, purportedly on behalf of Freddie Mac as a 

"nominal" defendant, on August 14, 2014. The complaint alleges that the net worth sweep dividend 

provisions of the senior preferred stock constitute an unlawful taking of private property for public use 

without just compensation, and the U.S. government breached an implied-in-fact contract with Freddie 

Mac. In September 2015, plaintiffs filed an amended complaint, which contains one claim involving 

Freddie Mac. The amended complaint alleges that Freddie Mac’s charter is a contract with its common 

stockholders, and that, through the August 2012 amendment to the Purchase Agreement, the U.S. 

government breached the implied covenant of good faith and fair dealing inherent in such contract. 

Plaintiffs ask that they be awarded damages or other appropriate relief for the alleged breach of contract 

as well as attorneys’ fees, costs and expenses. Plaintiffs filed a further amended complaint under seal 

on March 8, 2018, and a redacted public version on April 20, 2018. The amended complaint no longer 

lists Freddie Mac as a nominal defendant.

Fairholme Funds, Inc., et al. vs. the United States of America, Federal National Mortgage 

Association, and Federal Home Loan Mortgage Corporation. This case was originally filed on July 

9, 2013 against the United States of America. On March 8, 2018, plaintiffs filed an amended complaint 

under seal. A redacted public version was filed on May 11, 2018 and adds Freddie Mac and Fannie Mae 

as nominal defendants. The amended complaint alleges, among other items, that the net worth sweep 

dividend provisions of the senior preferred stock constitute an unlawful taking or exaction of private 

property for public use without just compensation, and that by enacting the net worth sweep, the 

government breached the fiduciary duty it owed to Freddie Mac and Fannie Mae, and implied-in-fact 

contracts between the United States on the one hand and Freddie Mac and Fannie Mae on the other. 

The plaintiffs ask that plaintiffs, Freddie Mac, and Fannie Mae be awarded (1) just compensation for the 

government’s alleged taking or exaction of their property, (2) damages for the government’s breach of 

fiduciary duties, and (3) damages for the government’s breach of the alleged implied-in-fact contracts. In 

addition, plaintiffs seek pre- and post-judgment interest, attorneys’ fees, costs, and other expenses. 

Defendants filed a motion to dismiss on August 1, 2018 and an amended motion to dismiss on October 

1, 2018.

Perry Capital LLC vs. the United States of America, Federal National Mortgage Association, 

and Federal Home Loan Mortgage Corporation. This case was filed as a derivative lawsuit, 

purportedly on behalf of Freddie Mac and Fannie Mae as "nominal" defendants, on August 15, 2018. 

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 or an illegal exaction in violation of the Fifth Amendment, and that by enacting the net 

worth sweep, the government breached the fiduciary duty it owed to Freddie Mac and Fannie Mae, and 

implied-in-fact contracts between the United States on the one hand and Freddie Mac and Fannie Mae 

on the other. The plaintiffs ask that plaintiffs, Freddie Mac, and Fannie Mae be awarded just 

compensation for the government’s alleged taking of their property or damages for the illegal exaction; 

damages for the government’s breach of fiduciary duties; and damages for the government’s breach of 

the alleged implied-in-fact contracts. The proceedings have been stayed pending a ruling on 

defendants' motion to dismiss in the Fairholme Funds, Inc. litigation.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

Freddie Mac Form 10-Q 155

Litigation in the U.S. District Court for the District of Delaware

Jacobs and Hindes vs. FHFA and Treasury. This case was filed on August 17, 2015 as a putative 

class action lawsuit purportedly on behalf of a class of holders of preferred stock or common stock 

issued by Freddie Mac or Fannie Mae. The case was also filed as a shareholder derivative lawsuit, 

purportedly on behalf of Freddie Mac and Fannie Mae as "nominal" defendants. The complaint alleges, 

among other items, that the August 2012 amendment to the Purchase Agreement violated applicable 

state law and constituted a breach of contract, as well as a breach of covenants of good faith and fair 

dealing. Plaintiffs seek equitable and injunctive relief (including restitution of the monies paid by Freddie 

Mac and Fannie Mae to Treasury under the net worth sweep dividend), compensatory damages, 

attorneys’ fees, costs and expenses. On November 27, 2017, the Court dismissed the case with 

prejudice after defendants filed a motion to dismiss. On December 21, 2017, plaintiffs filed a notice of 

appeal to the U.S. Court of Appeals for the Third Circuit. On September 7, 2018, the Court of Appeals 

heard oral argument.

At present, it is not possible for us to predict the probable outcome of the lawsuits discussed above in 

the U.S. District Courts and the U.S. Court of Federal Claims (including the outcome of any appeal) or 

any potential effect on our business, financial condition, liquidity, or results of operations. In addition, we 

are unable to reasonably estimate the possible loss or range of possible loss in the event of an adverse 

judgment in the foregoing matters due to a number of factors, including the inherent uncertainty of pretrial litigation. In addition, with respect to the In re Fannie Mae/Freddie Mac Senior Preferred Stock 

Purchase Agreement Class Action Litigations case, the plaintiffs have not demanded a stated amount of 

damages they believe are due, and the Court has not certified a class.
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 17

Freddie Mac Form 10-Q 156

NOTE 17

Regulatory Capital

In October 2008, FHFA announced that it was suspending capital classification of us during 

conservatorship in light of the Purchase Agreement. FHFA continues to monitor our capital levels, but 

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

We continue to provide quarterly submissions to FHFA on minimum capital. The table below summarizes 

our minimum capital requirements and deficits and net worth. 

(In millions) September 30, 2018 December 31, 2017

GAAP net worth (deficit) $5,559 ($312)

Core capital (deficit)(1)(2) (66,576) (73,037)

Less: Minimum capital requirement(1) 18,061 18,431

Minimum capital surplus (deficit)(1) ($84,637) ($91,468)

(1) Core capital and minimum capital figures are estimates and represent amounts submitted to FHFA. FHFA is the authoritative source for our 

regulatory capital.

(2) Core capital excludes certain components of GAAP total equity (i.e., AOCI and the liquidation preference of the senior preferred stock) as these 

items do not meet the statutory definition of core capital.

During 2017, we and Fannie Mae worked with FHFA to develop an overall risk measurement framework 

for evaluating our risk management and business decisions during conservatorship, known as the CCF. 

We use both the CCF and our internal capital model, which are aligned, to measure risk for making 

economically effective decisions. We are required to submit quarterly reports to FHFA related to the CCF 

requirements. 
Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 18

Freddie Mac Form 10-Q 157

NOTE 18

Selected Financial Statement Line Items

The table below presents the significant components of other income (loss) on our condensed 

consolidated statements of comprehensive income.

(In millions) 3Q 2018 3Q 2017 YTD 2018 YTD 2017

Other income (loss):

Non-agency mortgage-related securities settlements and judgments $— $4,525 $334 $4,525

Guarantee fee income 209 169 603 476

Gains (losses) on held-for-sale loan purchase commitments 267 271 564 826

All other (82) 438 25 685

Total other income (loss) $394 $5,403 $1,526 $6,512

The table below presents the significant components of other assets and other liabilities on our 

condensed consolidated balance sheets.

(In millions) September 30, 2018 December 31, 2017

Other assets:

Real estate owned, net $760 $892

Accounts and other receivables(1)(2) 6,939 6,924

Guarantee asset 3,443 3,171

Fixed assets 924 798

Advances to lenders and other secured lending(2) 1,808 1,269

All other 702 636

Total other assets $14,576 $13,690

Other liabilities:

Servicer liabilities $343 $628

Guarantee obligation 3,347 3,081

Accounts payable and accrued expenses 944 754

Payables related to securities 3,575 2,813

Income taxes payable — 656

All other 986 1,036

Total other liabilities $9,195 $8,968

(1) Primarily consists of servicer receivables and other non-interest receivables.

(2) Current and prior period presentation has been modified to reflect certain secured lending activity within advances to lenders and other secured 

lending. Previously this activity was included in accounts and other receivables.

END OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
Other Information

Freddie Mac Form 10-Q 158

Other Information

LEGAL PROCEEDINGS

We are involved as a party to a variety of legal proceedings. For more information, see Note 16 in this 

report, our 2017 Annual Report and our Form 10-Qs for the first and second quarters of 2018.

In addition, a number of lawsuits have been filed against the U.S. government related to the 

conservatorship and the Purchase Agreement. For information on these lawsuits, see the Legal 

Proceedings section in our 2017 Annual Report and our Form 10-Qs for the first and second quarters 

of 2018. One of these cases was filed in the U.S. District Court for the Northern District of Iowa. On 

March 27, 2017, the District Court dismissed this case. On August 23, 2018, the U.S. Court of Appeals 

for the Eighth Circuit affirmed the District Court’s decision. On August 16, 2018, plaintiffs for two such 

cases filed in the U.S. Court of Federal Claims filed motions for class certifications. In addition, three 

additional cases were filed in the U.S. Court of Federal Claims: one on August 1, 2018, one on August 7, 

2018, and one on August 17, 2018. 

Some of these cases also have challenged the constitutionality of the structure of FHFA. Seven such 

cases in the U.S. Court of Federal Claims were amended to include illegal exaction claims on this basis, 

including one on August 13, 2018, one on August 15, 2018, and five on August 16, 2018. One additional 

case was filed in the Eastern District of Pennsylvania on August 16, 2018. 

Freddie Mac is not a party to any of these lawsuits.

RISK FACTORS

This Form 10-Q should be read together with the Risk Factors section in our 2017 Annual Report, 

which describes various risks and uncertainties to which we are or may become subject. These risks 

and uncertainties could, directly or indirectly, adversely affect our business, financial condition, results 

of operations, cash flows, strategies and/or prospects.

UNREGISTERED SALES OF EQUITY 

SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

The securities we issue are "exempted securities" under the Securities Act of 1933, as amended. As a 

result, we do not file registration statements with the SEC with respect to offerings of our securities.

Following our entry into conservatorship, we suspended the operation of, and ceased making grants 

under, equity compensation plans. Previously, we had provided equity compensation under those plans 

to employees and members of the 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.
Other Information

Freddie Mac Form 10-Q 159

Dividend Restrictions

Our payment of dividends on Freddie Mac common stock or any series of Freddie Mac preferred stock 

(other than senior preferred stock) is subject to certain restrictions as described in Market for 

Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of 

Equity Securities - Dividends and Dividend Restrictions in our 2017 Annual Report.

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 those offerings 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 offering circular 

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

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

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

SEC.

The web site 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 notes and SCR debt notes is available at 

crt.freddiemac.com and mf.freddiemac.com/investors/, respectively.

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

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

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

including offering circulars and offering circular supplements.

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

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

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

www.freddiemac.com/singlefamily, mf.freddiemac.com and www.freddiemac.com/capitalmarkets.

EXHIBITS

The exhibits are listed in the Exhibit Index of this Form 10-Q.
Controls and Procedures

Freddie Mac Form 10-Q 160

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 September 30, 2018. 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 September 30, 2018, 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. We consider this situation to be a 

material weakness in our internal control over financial reporting. 

CHANGES IN INTERNAL CONTROL OVER 

FINANCIAL REPORTING DURING 3Q 2018

We evaluated the changes in our internal control over financial reporting that occurred during 3Q 2018 

and concluded that there were no changes that materially affected, or are reasonably likely to materially 

affect, our internal control over financial reporting.
Controls and Procedures

Freddie Mac Form 10-Q 161

MITIGATING ACTIONS RELATED TO THE 

MATERIAL WEAKNESS IN INTERNAL 

CONTROL OVER FINANCIAL REPORTING

As described above under Evaluation of Disclosure Controls and Procedures, we have one 

material weakness in internal control over financial reporting as of September 30, 2018 that we have not 

remediated.

Based on discussions with FHFA and given the structural nature of this material weakness, we believe it 

is likely that we will not remediate it while we are under conservatorship. However, both we and FHFA 

have continued to engage in activities and employ procedures and practices intended to permit 

accumulation and communication to management of information needed to meet our disclosure 

obligations under the federal securities laws. These include the following:

FHFA has established the Division of Conservatorship, which is intended to facilitate operation of the 

company with the oversight of the Conservator.

We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. 

We also provide drafts of external press releases, statements and certain speeches to FHFA 

personnel for their review and comment prior to release.

FHFA personnel, including senior officials, review our SEC filings prior to filing, including this 

Form 10-Q, and engage in discussions with us regarding issues associated with the information 

contained in those filings. Prior to filing this Form 10-Q, FHFA provided us with a written 

acknowledgment that it had reviewed the Form 10-Q, was not aware of any material misstatements 

or omissions in the Form 10-Q, and had no objection to our filing the Form 10-Q.

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 condensed 

consolidated financial statements for 3Q 2018 have been prepared in conformity with GAAP.
Exhibit Index

Freddie Mac Form 10-Q 162

Exhibit Index

Exhibit Description*

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

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)

31.2 Certification of Executive Vice President —Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2 Certification of Executive Vice President —Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema

101.CAL XBRL Taxonomy Extension Calculation

101.LAB XBRL Taxonomy Extension Labels

101.PRE XBRL Taxonomy Extension Presentation

101.DEF XBRL Taxonomy Extension Definition

* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and

Current Reports on Form 8-K are 000-53330 and 001-34139.
Signatures

Freddie Mac Form 10-Q 163

Signatures

Pursuant to the requirements 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: October 31, 2018

By: /s/ James G. Mackey

James G. Mackey

Executive Vice President — Chief Financial

Officer

(Principal Financial Officer)

Date: October 31, 2018
Form 10-Q Index

Freddie Mac Form 10-Q 164

Form 10-Q Index

Item Number Page(s)

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of

Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 6. Exhibits

Exhibit Index

Signatures

80 - 157

1 - 79

61 - 64

160 - 161

158

158

158 - 159

159

162

163
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,

(Dollars in millions) YTD 2018 YTD 2017 2017 2016 2015 2014 2013

Net income before income tax (expense) benefit

and cumulative effect of changes in accounting

principles $ 10,081 $ 13,012 $ 16,834 $ 11,639 $ 9,274 $ 11,002 $ 25,363

Add:

Total interest expense(1) 42,802 40,090 53,643 50,786 52,144 55,217 56,234

Interest factor in rental expenses 2 2 3 3 2 5 4

Earnings, as adjusted $ 52,885 $ 53,104 $ 70,480 $ 62,428 $ 61,420 $ 66,224 $ 81,601

Fixed charges:

Total interest expense(1) $ 42,802 40,090 $ 53,643 50,786 52,144 55,217 56,234

Interest factor in rental expenses 2 2 3 3 2 5 4

Total fixed charges $ 42,804 $ 40,092 $ 53,646 $ 50,789 $ 52,146 $ 55,222 $ 56,238

Senior preferred stock and preferred stock 

dividends(2) 1,964 13,174 33,167 7,437 5,510 19,610 47,591

Total fixed charges including preferred stock

dividends $ 44,768 $ 53,266 $ 86,813 $ 58,226 $ 57,656 $ 74,832 $ 103,829

Ratio of earnings to fixed charges(3) 1.24 1.32 1.31 1.23 1.18 1.20 1.45

Ratio of earnings to combined fixed charges and 

preferred stock dividends(4) 1.18 — — 1.07 1.07 — —

(1) YTD 2017 data has been revised to conform to the current presentation.

(2) Senior preferred stock and preferred stock dividends represent pre-tax earnings required to cover any senior preferred stock and preferred stock dividend 

requirements computed using our effective tax rate.

(3) Ratio of earnings to fixed charges is computed by dividing earnings, as adjusted by total fixed charges. 

(4) Ratio of earnings to combined fixed charges and preferred stock dividends is computed by dividing earnings, as adjusted by total fixed charges including preferred 

stock dividends. For the ratio to equal 1.00, earnings, as adjusted must increase by $0.2 billion, $16.3 billion, $8.6 billion and $22.2 billion for YTD 2017 and for the 

years ended December 31, 2017, 2014, and 2013, respectively.
Exhibit 31.1

CERTIFICATION

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, Donald H. Layton, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 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: October 31, 2018

/s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer
Exhibit 31.2

CERTIFICATION

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, James G. Mackey, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 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: October 31, 2018

/s/ James G. Mackey

James G. Mackey

Executive Vice President — Chief Financial Officer
Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 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: October 31, 2018

/s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer
Exhibit 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 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: October 31, 2018

/s/ James G. Mackey

James G. Mackey

Executive Vice President — Chief Financial Officer